<PAGE>
SECOND
QUARTER
REPORT
1999
[LOGO] LIBERTY ALL-STAR
----------------
EQUITY FUND
<PAGE>
PRESIDENT'S LETTER
- --------------------------------------------------------------------------------
FELLOW SHAREHOLDERS: August 1999
The net asset value (NAV) of a common share of the Fund rose during the
second quarter from $13.96 to $14.72, after deducting the quarter's distribution
of 37 cents. Benefiting from a shift in market leadership that began in April,
the Fund's NAV increased 8.3 percent. Despite the good quarter, the Fund
moderately trailed its primary benchmark, the Lipper Growth and Income Mutual
Fund Average, which gained 9.0 percent, but topped the S&P 500 Index return of
7.1 percent. The market price for a share of the Fund traded in a range of
$12.625 to $14.25 before closing the quarter at $13.75. The ending price
represented a discount to NAV of 6.6 percent compared with a discount to NAV of
8.2 percent at the end of the first quarter.
While the Fund's NAV has moderately lagged its primary benchmark for the
quarter and the past 12 months, it has outperformed for all-important
longer-term periods, as the following table demonstrates:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SHORT-TERM SUMMARY THROUGH JUNE 30, 1999 SECOND QUARTER YEAR-TO-DATE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIBERTY ALL-STAR EQUITY FUND
Shares Valued at Net Asset Value 8.3% 9.0%
Shares Valued at Net Asset Value with Dividends Reinvested 8.4% 9.2%
Shares Valued at Market Price with Dividends Reinvested 10.3% 12.1%
Fund's Closing Market Price Range $12.75 to $13.75 $12.375 to $13.75
Discount Range 11.8% to 4.4% 11.8% to 4.4%
Lipper Growth and Income Mutual Fund Average 9.0% 10.9%
S&P 500 Index 7.1% 12.4%
<CAPTION>
ANNUALIZED RATES OF RETURN
-----------------------------------------------------
LONG-TERM PERFORMANCE THROUGH JUNE 30, 1999 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LIBERTY ALL-STAR EQUITY FUND
Shares Valued at Net Asset Value 13.8% 22.1% 22.2% 17.0%
Shares Valued at Net Asset Value with Dividends Reinvested 13.8 22.3 22.4 17.4
Shares Valued at Market Price with Dividends Reinvested 12.0 22.4 19.5 18.6
Lipper Growth and Income Mutual Fund Average 14.5 21.8 21.9 15.4
S&P 500 Index 22.8 29.1 27.9 18.8
</TABLE>
Figures shown for the Fund and the Lipper Growth and Income Mutual Fund Average
are total returns, which include dividends, after deducting fund expenses. The
Fund's reinvested returns assume all primary subscription rights in all the
Fund's rights offerings were exercised. Figures shown for the unmanaged S&P 500
Index are total returns, including income.
- -------------------------------------------------------------------------------
The second quarter was characterized by a rotation in market leadership
from growth to value stocks, such as those found in the basic materials, capital
goods and energy sectors. The catalyst for this shift in leadership was a
growing perception that domestic economic growth would likely remain firm,
coupled with the expectation that economic conditions worldwide were beginning
to show signs of recovery. In addition, many of the cyclical sectors of the
market had considerably lower valuations compared to growth stocks, whose prices
relative to earnings expectations had risen significantly.
1
<PAGE>
PRESIDENT'S LETTER
- --------------------------------------------------------------------------------
The graph below illustrates the shift from growth to value styles by
comparing the total returns of the large cap Russell 1000 Growth and Value
Indicies for the first and second quarters of 1999. Notice the significant
rotation in leadership. The Fund's multi-managed approach combines both growth
and value styles and, therefore, provides more consistent returns as these
styles rotate into and out of favor.
[GRAPH]
<TABLE>
<CAPTION>
RUSSELL RUSSELL
100 GROWTH 1000 VALUE
<S> <C> <C>
1st QTR 99 6.4 1.4
2nd QTR 99 3.9 11.3
</TABLE>
The broadening of the market is a welcome and healthy trend, if it can be
sustained. In the manager interview beginning on page 8, Henry Cavanna of J. P.
Morgan Investment Management notes that any broadening of the market favors the
firm's investment style. We believe most active managers would agree with that,
and we are hopeful this recent trend will continue.
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>
<TABLE>
<CAPTION>
SHAREHOLDERS' INVESTMENT GROWTH AS OF JUNE 30, 1999
- --------------------------------------------------------------------------------
Net Asset Value of Additional Investments
Net Asset Value of Shares Aquired Through Made Through Rights
One Share Dividend Reinvestment Offering
<S> <C> <C> <C>
30-Oct-86 $9.30 $9.30 $9.30
30-Nov-86 $9.42 $9.42 $9.42
31-Dec-86 $9.11 $9.11 $9.11
31-Jan-87 $10.17 $10.17 $10.17
28-Feb-87 $10.87 $10.87 $10.87
31-Mar-87 $11.03 $11.09 $11.09
30-Apr-87 $10.72 $10.77 $10.77
31-May-87 $10.81 $10.86 $10.86
30-Jun-87 $11.23 $11.32 $11.32
31-Jul-87 $11.73 $11.82 $11.82
31-Aug-87 $11.60 $12.39 $12.39
30-Sep-87 $10.87 $11.94 $11.94
31-Oct-87 $8.31 $9.12 $9.12
30-Nov-87 $7.58 $8.32 $8.32
31-Dec-87 $7.90 $9.01 $9.01
31-Jan-88 $8.29 $9.45 $9.45
29-Feb-88 $8.64 $9.85 $9.85
31-Mar-88 $8.29 $9.51 $9.51
30-Apr-88 $8.30 $9.52 $9.52
31-May-88 $8.26 $9.47 $9.47
30-Jun-88 $8.43 $9.95 $9.95
31-Jul-88 $8.33 $9.83 $9.83
31-Aug-88 $8.12 $9.58 $9.58
30-Sep-88 $8.28 $10.05 $10.05
31-Oct-88 $8.43 $10.23 $10.23
30-Nov-88 $8.30 $10.08 $10.08
31-Dec-88 $8.29 $10.33 $10.33
31-Jan-89 $8.83 $11.01 $11.01
28-Feb-89 $8.67 $10.81 $10.81
31-Mar-89 $8.60 $11.04 $11.04
30-Apr-89 $9.01 $11.56 $11.56
31-May-89 $9.40 $12.07 $12.07
30-Jun-89 $9.07 $11.99 $11.99
31-Jul-89 $9.81 $12.98 $12.98
31-Aug-89 $10.03 $13.26 $13.26
30-Sep-89 $9.82 $13.38 $13.38
31-Oct-89 $9.61 $13.09 $13.09
30-Nov-89 $9.72 $13.25 $13.25
31-Dec-89 $9.58 $13.44 $13.44
31-Jan-90 $9.02 $12.66 $12.66
28-Feb-90 $9.11 $12.78 $12.78
31-Mar-90 $9.14 $13.18 $13.18
30-Apr-90 $9.00 $12.98 $12.98
31-May-90 $9.92 $14.30 $14.30
30-Jun-90 $9.72 $14.42 $14.42
31-Jul-90 $9.69 $14.38 $14.38
31-Aug-90 $8.91 $13.22 $13.22
30-Sep-90 $8.23 $12.58 $12.58
31-Oct-90 $8.21 $12.55 $12.55
30-Nov-90 $8.77 $13.41 $13.41
31-Dec-90 $8.92 $14.00 $14.00
31-Jan-91 $9.37 $14.71 $14.71
28-Feb-91 $10.04 $15.76 $15.76
31-Mar-91 $10.18 $16.41 $16.41
30-Apr-91 $10.11 $16.30 $16.30
31-May-91 $10.62 $17.12 $17.12
30-Jun-91 $9.87 $16.32 $16.32
31-Jul-91 $10.35 $17.12 $17.12
31-Aug-91 $10.39 $17.64 $17.64
30-Sep-91 $10.33 $17.54 $17.54
31-Oct-91 $10.52 $17.86 $17.86
30-Nov-91 $9.92 $17.27 $17.27
31-Dec-91 $11.20 $19.50 $19.50
31-Jan-92 $11.00 $19.15 $19.15
29-Feb-92 $10.77 $19.24 $19.24
31-Mar-92 $10.56 $18.86 $18.86
30-Apr-92 $10.66 $19.04 $20.95
31-May-92 $10.76 $19.22 $21.14
30-Jun-92 $10.24 $18.76 $20.64
31-Jul-92 $10.69 $19.58 $21.55
31-Aug-92 $10.21 $19.17 $21.10
30-Sep-92 $10.45 $19.63 $21.60
31-Oct-92 $10.55 $19.81 $21.81
30-Nov-92 $10.68 $20.56 $22.63
31-Dec-92 $10.78 $20.75 $22.84
31-Jan-93 $10.86 $20.91 $23.01
28-Feb-93 $10.70 $20.60 $22.67
31-Mar-93 $10.75 $21.22 $23.36
30-Apr-93 $10.42 $20.57 $22.64
31-May-93 $10.52 $21.28 $23.43
30-Jun-93 $10.56 $21.36 $23.52
31-Jul-93 $10.54 $21.32 $23.47
31-Aug-93 $10.73 $22.25 $24.51
30-Sep-93 $10.79 $22.38 $24.64
31-Oct-93 $10.84 $22.48 $26.25
30-Nov-93 $10.34 $21.99 $25.68
31-Dec-93 $10.40 $22.47 $26.24
31-Jan-94 $10.77 $23.27 $27.17
28-Feb-94 $10.34 $22.90 $26.74
31-Mar-94 $9.85 $21.82 $25.47
30-Apr-94 $9.93 $21.99 $25.68
31-May-94 $9.80 $22.25 $25.97
30-Jun-94 $9.48 $21.52 $25.12
31-Jul-94 $9.78 $22.20 $25.92
31-Aug-94 $9.99 $23.27 $27.16
30-Sep-94 $9.69 $22.57 $27.85
31-Oct-94 $9.86 $22.96 $28.34
30-Nov-94 $9.17 $21.36 $26.35
31-Dec-94 $9.26 $22.18 $27.36
31-Jan-95 $9.40 $22.51 $27.78
28-Feb-95 $9.49 $23.29 $28.74
31-Mar-95 $9.83 $24.12 $29.77
30-Apr-95 $9.98 $24.49 $30.22
31-May-95 $10.13 $25.47 $31.42
30-Jun-95 $10.53 $26.47 $32.66
31-Jul-95 $10.95 $27.53 $33.97
31-Aug-95 $10.74 $27.71 $34.19
30-Sep-95 $11.05 $28.51 $35.17
31-Oct-95 $10.93 $28.20 $34.79
30-Nov-95 $11.04 $29.21 $36.05
31-Dec-95 $11.03 $29.19 $36.01
31-Jan-96 $11.39 $30.14 $37.19
28-Feb-96 $11.57 $30.61 $37.78
31-Mar-96 $11.42 $30.98 $38.23
30-Apr-96 $11.65 $31.61 $39.00
31-May-96 $11.62 $32.40 $39.98
30-Jun-96 $11.53 $32.15 $39.67
31-Jul-96 $10.88 $30.33 $37.44
31-Aug-96 $10.98 $31.39 $38.74
30-Sep-96 $11.71 $33.48 $41.31
31-Oct-96 $11.88 $33.96 $41.91
30-Nov-96 $12.35 $36.28 $44.78
31-Dec-96 $11.95 $35.52 $43.83
31-Jan-97 $12.65 $37.60 $46.40
28-Feb-97 $12.55 $37.30 $46.03
31-Mar-97 $11.73 $35.79 $44.16
30-Apr-97 $12.19 $37.19 $45.90
31-May-97 $12.77 $39.93 $49.28
30-Jun-97 $13.31 $41.62 $51.36
31-Jul-97 $14.29 $44.68 $55.15
31-Aug-97 $13.34 $42.77 $52.79
30-Sep-97 $14.01 $44.92 $55.44
31-Oct-97 $13.51 $43.31 $53.46
30-Nov-97 $13.52 $44.45 $54.88
31-Dec-97 $13.32 $44.98 $55.53
31-Jan-98 $13.30 $44.91 $55.45
28-Feb-98 $14.40 $48.63 $60.03
31-Mar-98 $14.80 $51.19 $63.21
30-Apr-98 $14.93 $51.64 $63.77
31-May-98 $14.05 $48.60 $62.44
30-Jun-98 $14.42 $51.29 $65.88
31-Jul-98 $14.12 $50.22 $64.51
31-Aug-98 $11.46 $40.76 $52.36
30-Sep-98 $12.26 $44.88 $57.65
31-Oct-98 $13.10 $47.96 $61.60
30-Nov-98 $13.39 $49.02 $62.96
31-Dec-98 $14.22 $53.47 $68.67
31-Jan-99 $14.27 $53.66 $68.91
28-Feb-99 $13.79 $51.85 $66.59
31-Mar-99 $13.96 $53.86 $69.17
30-Apr-99 $14.77 $56.98 $73.19
31-May-99 $14.17 $54.67 $70.21
30-Jun-99 $14.72 $58.38 $74.98
</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 6/30/99.
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 shares 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 $74.98 (5.094 share times the current $14.72 net asset value
per share) and a market price value of $70.04 (5.094 shares times the current
$13.75 market price per share). Excluding the rights offerings shares, an
original share has grown to 3.966 shares. Thus, the original share has grown to
a net asset value of $58.38 (3.966 shares times the current $14.72 net asset
value per share) and a market price value of $54.53 (3.966 shares times the
current $13.75 market price per share).
3
<PAGE>
<TABLE>
<CAPTION>
A TABLE OF PER-SHARE VALUES, DISTRIBUTIONS AND REINVESTMENT
- ---------------------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987 1.000 $1.18 0.140 -- 1.140 $7.90 $9.01 $6.00 $6.84
- ---------------------------------------------------------------------------------------------------------------------------------
1988 1.140 0.64 0.107 -- 1.247 8.29 10.34 7.25 9.04
- ---------------------------------------------------------------------------------------------------------------------------------
1989 1.247 0.95 0.156 -- 1.403 9.58 13.44 8.25 11.57
- ---------------------------------------------------------------------------------------------------------------------------------
1990 1.403 0.90 0.167 -- 1.570 8.92 14.00 7.75 12.17
- ---------------------------------------------------------------------------------------------------------------------------------
1991 1.570 1.02 0.171 -- 1.741 11.20 19.50 10.75 18.72
- ---------------------------------------------------------------------------------------------------------------------------------
1992 1.741 1.07 0.199 0.179(2) 2.119 10.78 22.84 11.125 23.57
- ---------------------------------------------------------------------------------------------------------------------------------
1993 2.119 1.25(3) 0.266 0.138(2) 2.523 10.40 26.24 11.125 28.07
- ---------------------------------------------------------------------------------------------------------------------------------
1994 2.523 1.00 0.277 0.155(2) 2.955 9.26 27.36 8.50 25.12
- ---------------------------------------------------------------------------------------------------------------------------------
1995 2.955 1.04 0.310 -- 3.265 11.03 36.01 10.875 35.51
- ---------------------------------------------------------------------------------------------------------------------------------
1996 3.265 1.313 0.403 -- 3.668 11.95 43.83 11.25 41.27
- ---------------------------------------------------------------------------------------------------------------------------------
1997 3.668 1.693 0.501 -- 4.169 13.32 55.53 13.313 55.50
- ---------------------------------------------------------------------------------------------------------------------------------
1998 4.169 1.40 0.487 0.173(2) 4.829 14.22 68.67 12.938 62.48
- ---------------------------------------------------------------------------------------------------------------------------------
1999
1st Quarter 4.829 0.34 0.126 -- 4.955 13.96 69.17 12.813 63.49
2nd Quarter 4.955 0.37 0.139 -- 5.094 14.72 74.98 13.75 70.04
- ---------------------------------------------------------------------------------------------------------------------------------
</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 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 JUNE 30, 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 34 86 31 42 49 201 500
- --------------------------------------------------------------------------------------------------------------------
Percent of Holdings in Top 10 45% 27% 55% 30% 38% 15% 22%
- --------------------------------------------------------------------------------------------------------------------
Weighted Average Market
Capitalization (billions) $33 $72 $51 $43 $44 $49 $105
- --------------------------------------------------------------------------------------------------------------------
Average Five-Year Earnings
Per Share Growth 13% 13% 15% 22% 28% 18% 14%
- --------------------------------------------------------------------------------------------------------------------
Dividend Yield 1.6% 1.3% 1.2% 1.4% 0.2% 1.2% 1.2%
- --------------------------------------------------------------------------------------------------------------------
Average Price/Earnings Ratio 15x 25x 21x 22x 40x 24x 29x
- --------------------------------------------------------------------------------------------------------------------
Average Price/Book Value Ratio 3.6x 4.9x 4.1x 4.4x 7.8x 5.0x 5.1x
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
TOP 50 HOLDINGS
- -------------------------------------------------------------------------------------------------------------------
RANK RANK MARKET
AS OF AS OF VALUE PERCENT OF
6/30/99 3/31/99 SECURITY NAME ($000) NET ASSETS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 1 Citigroup, Inc. $35,910 2.6%
2 2 Freddie Mac 24,865 1.8
3 8 Waste Management, Inc. 22,374 1.6
4 3 Monsanto Co. 21,699 1.6
5 48 Computer Associates International, Inc. 20,081 1.4
6 7 CIGNA Corp. 19,571 1.4
7 37 AT&T Corp. 18,307 1.3
8 11 Sprint Corp. (Fon Group) 17,956 1.3
9 13 International Business Machines Corp. 17,494 1.3
10 14 Cisco Systems, Inc. 16,880 1.2
11 5 Bank of America Corp.* 16,688 1.2
12 15 CVS Corp. 16,562 1.2
13 10 Nokia Corp. ADR 16,481 1.2
14 63 Alcoa, Inc. 16,459 1.2
15 9 AFLAC, Inc. 15,799 1.1
16 6 Microsoft Corp. 14,791 1.1
17 16 Intel Corp. 14,697 1.1
18 67 Sterling Software, Inc. 14,216 1.0
19 18 Avon Products, Inc. 13,875 1.0
20 34 Fleet Financial Group, Inc. 13,818 1.0
21 102 AlliedSignal, Inc. 13,728 1.0
22 27 Boeing Co. 13,725 1.0
23 12 Morgan Stanley Dean Witter & Co. 13,715 1.0
24 21 Lockheed Martin Corp. 13,444 1.0
25 4 MCI WorldCom, Inc. 13,205 0.9
26 17 XL Capital Ltd. 13,193 0.9
27 55 Ford Motor Co. 13,037 0.9
28 28 Conoco, Inc. 12,995 0.9
29 53 Time Warner, Inc. 12,635 0.9
30 23 Conseco, Inc. 12,613 0.9
31 25 Federated Department Stores, Inc. 12,456 0.9
32 32 GTE Corp. 12,408 0.9
33 22 Peco Energy Co. 12,035 0.9
34 119 Chancellor Media Corp. 11,797 0.8
35 47 Starbucks Corp. 11,746 0.8
36 33 Hewlett-Packard Co. 11,517 0.8
37 50 Linear Technology Corp. 11,130 0.8
38 NEW Consolidated Edison, Inc. 11,036 0.8
39 31 AMR Corp. 10,920 0.8
40 54 SBC Communications, Inc. 10,498 0.8
41 68 Oracle Corp. 10,471 0.7
42 41 Cintas Corp. 10,454 0.7
43 24 Staples, Inc. 10,443 0.7
44 70 Tyco International Ltd. 10,430 0.7
45 39 Kohl's Corp. 9,922 0.7
46 113 Loews Corp. 9,922 0.7
47 44 ACE Ltd. 9,543 0.7
48 19 Temple-Inland, Inc. 9,419 0.7
49 35 Nabisco Holdings Corp. 9,407 0.7
50 182 The Pepsi Bottling Group, Inc. 9,400 0.7
</TABLE>
* Formerly BankAmerica Corp.
6
<PAGE>
MAJOR STOCK CHANGES IN THE SECOND 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
second quarter of 1999.
<TABLE>
<CAPTION>
SHARES
-----------------------------------------------------------
HELD AS
SECURITY NAME ADDITIONS REDUCTIONS OF 6/30/99
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alcoa, Inc. 81,400 266,000
AlliedSignal, Inc. 110,500 217,900
AT&T Corp.* 144,300 328,000
Chancellor Media Corp. 120,100 214,000
Computer Associates International, Inc. 120,100 365,100
Consolidated Edison, Inc. 243,900 243,900
El Paso Energy Corp. 117,000 117,000
Ford Motor Co. 87,600 231,000
General Mills, Inc. 94,100 94,100
Halliburton Co. 206,400 206,400
Loews Corp. 63,500 125,400
McDonald's Corp. 120,000 120,000
Parker Hannifin Corp. 109,800 109,800
The Pepsi Bottling Group, Inc. 327,300 407,600
Sterling Software, Inc. 216,700 532,700
Time Warner, Inc. 56,200 171,900
Abbott Laboratories (110,400) 0
American Home Products Corp. (61,500) 127,100
Atlantic Richfield Co. (102,200) 0
Avery Dennison Corp. (120,500) 0
Bank of America Corp. (64,400) 227,634
Citigroup, Inc.* (123,100) 756,000
General Electric Co. (80,000) 0
General Motors Corp. (116,900) 0
Lucent Technologies, Inc.* (66,400) 131,800
Maxim Integrated Products, Inc. (89,950) 0
MCI WorldCom, Inc. (112,753) 153,100
Microsoft Corp. (65,500) 164,000
Nortel Networks Corp. (165,100) 0
Nucor Corp. (181,600) 0
Progressive Corp. (50,000) 0
Temple-Inland, Inc. (60,000) 138,000
Union Pacific Corp. (86,900) 91,100
</TABLE>
* Adjusted for stock split.
7
<PAGE>
MANAGER INTERVIEW
- --------------------------------------------------------------------------------
[PHOTO]
HENRY D. CAVANNA
J.P. MORGAN INVESTMENT
MANAGEMENT INC.
Manager Interview
Research Gives J.P. Morgan a Distinct Difference Even as it Practices the Old
Investment Adage: "Buy Low, Sell High"
J.P. MORGAN INVESTMENT MANAGEMENT INC. IS ONE OF LIBERTY ALL-STAR EQUITY FUND'S
FIVE PORTFOLIO MANAGERS. A VALUE STYLE EQUITY MANAGER, J. P. MORGAN CONCENTRATES
ON INDIVIDUAL STOCK SELECTION RATHER THAT SECTOR ROTATION, STYLE/THEME INVESTING
OR MARKET TIMING. A STAFF OF SENIOR RESEARCH ANALYSTS RANK STOCKS BY QUINTILES
WITHIN 16 ECONOMIC SECTORS. THE PROCESS PRODUCES A PORTFOLIO WITH ABOVE-MARKET
EARNINGS AND DIVIDEND GROWTH, BUT PRICE-TO-BOOK AND PRICE-TO-EARNINGS RATIOS
THAT ARE BELOW OR IN LINE WITH THE MARKET. WE RECENTLY HAD THE OPPORTUNITY TO
TALK ONCE AGAIN WITH MANAGING DIRECTOR HENRY D. CAVANNA, A SENIOR EQUITY
PORTFOLIO MANAGER IN J. P. MORGAN INVESTMENT'S EQUITY AND BALANCED ACCOUNTS
GROUP. THE FUND MANAGER, LIBERTY ASSET MANAGEMENT COMPANY (LAMCO) SERVES AS THE
MODERATOR FOR THE INTERVIEW.
THE VIEWS EXPRESSED IN THIS INTERVIEW REPRESENT THE MANAGER'S VIEWS AT THE TIME
OF THE DISCUSSION AND ARE SUBJECT TO CHANGE.
LAMCO: Perhaps we could start with a question about your investment approach as
it relates to the current stock market. We have seen somewhat of a rotation
during the second quarter: from growth to value, from mega-caps to small and
mid-caps, from high price/earnings multiple technology issues to basic
industries. In previous interviews, you have made the point that J. P. Morgan
wants to be exposed to all major economic sectors. In light of that, how have
the various rotations helped or hurt you?
CAVANNA: Any broadening of the market favors our investment style, especially as
we're coming from a period when the market was unusually narrow in the sense of
being concentrated in larger cap, growth-oriented companies. The concentration
was almost extreme -- you'd have to go back to the early 1970s to find a period
when one of the broadest benchmarks for our market, the S&P 500 Index, was so
narrow. A broadening from mega-cap stocks to large and mid-cap stocks helped us
because we are very much underweighted in those mega-cap, "Nifty 50" types of
stocks. As they became more and more expensive, following our valuation
discipline we tended to own less of them over time.
LAMCO: What's driving the shift in investor focus, in your opinion?
CAVANNA: I think it's driven by a couple of things, which are kind of
interesting. We came through a period of time when the U.S. economy did very
well, but the rest of the world seemed to be stuck in a no-growth phase,
especially with the enormous risks we had in the second half of last year.
You'll recall a worldwide credit crisis negatively impacted the Far East and
Latin America and, to a lesser degree, Europe. Its effects were relatively mild
in the United States. The mega-cap growth companies, especially those selling
their goods and services primarily in the U.S., had the power and flexibility to
continue growing through this difficult period. As a result, they moved up in
price to command a premium of historic proportions. Then, we had the Federal
Reserve lowering interest rates and the sense of crisis around the world started
to abate. This year, that has provided the basis for growth that will be evenly
distributed around the world. That means better profit performance, relatively
speaking, outside of the "Nifty 50," especially for companies that are more
industrially-oriented or cyclically sensitive to global demand.
LAMCO: You mention industrial and cyclical stocks -- is that the kind of
rotation that has helped you?
CAVANNA: It has, up to a point. We're not a pure value investor with a
portfolio concentrated in industrials and cyclicals. There are two
differences with J. P. Morgan Investment Management. We follow a valuation
discipline, number one, and then, number two, we overlay our own approach to
risk control that has the effect of keeping us relatively balanced by market
sector. We will always be invested in all major market sectors, but we will
over- and underweight these sectors plus or minus 3 percent based on where we
think the best values are. Employing that constraint, we have been
gravitating away from
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MANAGER INTERVIEW
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the groups that have been the strongest, particularly large cap technology. From
June 1998 to June 1999, technology was up 67 percent, making it the best
performing sector. Second best was telecommunications, up 58 percent. We've been
taking some money out of those groups and putting it into cyclically-sensitive
groups, such as paper, chemical, metals and energy companies.
"ANY BROADENING OF THE MARKET FAVORS OUR INVESTMENT STYLE, ESPECIALLY AS WE'RE
COMING FROM A PERIOD WHEN THE MARKET WAS UNUSUALLY NARROW..."
LAMCO:Here, at mid-year 1999, where do you think the stock market is?
CAVANNA: Overall, I think we reached an inflection point in April when the
market broadened out based on two expectations: one, that global growth was
recovering and, two, that interest rates were moving up. Expectations of
increased global growth sparked a tremendous rally in companies that have been
hurt by having excess production capacity and companies hurt by depressed prices
for commodities. Higher interest rates, especially at the long end of the yield
curve, have a particularly negative impact on the high price/earnings growth
companies. Going forward, what we would hope for is more balanced growth. J. P.
Morgan Investment Management is well positioned for balanced growth both by
region of the world and sector of the U.S. economy. This will make it more of a
stock picker's market, which is what we prefer.
LAMCO: J. P. Morgan Investment Management is going to have some variance in
sector weightings, but your basic discipline is to find the cheapest stocks in
all sectors. That is, you'll buy stocks that rank in your first quintile of
relative valuation and sell them when they fall into the fourth or fifth
quintile.
CAVANNA: Yes, and it's tough to communicate that because we're kind of a "core
value" manager. What keeps us core, or "market-like" is the sector balance in
our portfolio. We seek to add value in the portfolio by buying the most
undervalued stocks within a sector. We rank stocks by quintile, seeking to buy
first quintile stocks. As they move up in price into the third, fourth or fifth
quintile, we will sell them and then reinvest in the first quintile to start the
cycle all over again. We also follow a second order of decision making in that
we try to put more money into those sectors that, on a bottom-up, stock
selection basis, offer the best opportunities and ideas.
LAMCO: You look at traditional valuation measures, such as price/earnings and
price/book value ratios, but the real key is the firm's proprietary research and
a focus on forecasting earnings out over a period of about 3 to 5 years, isn't
it?
CAVANNA: Correct, we're trying to come up with a value for a company relative to
other companies in the same business or sector. The major consideration is the
intermediate-term earnings outlook, what we call "normalized earnings," or
average profitability over the next business cycle. In addition, an important
factor is our own sense of current expectations and market factors.
Insofar as research is concerned, we're trying to continually invest in an
internal research capability that is proprietary in nature, and produces what we
think of as an "information advantage." We want to use our research not only to
forecast current period earnings, but to come up with normalized earnings
projections for companies going forward. That's really the basis on which we
make our investment decisions. Because we believe that internal research is our
principal source of value added, we continually invest in this part of our
business, which currently has 25 analysts.
LAMCO: Define "information advantage" for us, please.
CAVANNA: We try to identify undervalued companies before others do, but we're
not going to have a portfolio invested totally in companies that nobody else
owns. What we're trying to do is focus on companies that have established track
records, but where the market, for one reason or another, is misvaluing the
future stream of earnings and cash flows. Sometimes, it can be because a company
missed its earnings forecast for a quarter, or sometimes there has been a change
in the business. Situations such as these create investment opportunities. If
you think you understand the situation, and if you have people who are experts
in their industry -- like our research analysts -- you can use that as a
long-term investment opportunity.
"WE FOLLOW A VALUATION DISCIPLINE, NUMBER ONE, AND THEN, NUMBER TWO, WE OVERLAY
OUR OWN APPROACH TO RISK CONTROL THAT HAS THE EFFECT OF KEEPING US RELATIVELY
BALANCED BY MARKET SECTOR."
LAMCO: How have you used that information advantage to invest for Liberty
All-Star Equity Fund?
CAVANNA: One of the stocks we added recently is First Union, which is one of the
major super-regional banks that has
9
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MANAGER INTERVIEW
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grown through acquisition over the past few years. First Union has been very
much a leader in the trend of banking industry consolidation, but it has
generated internal growth as well.
LAMCO:The company's stock suffered earlier in the quarter did it not?
"INSOFAR AS RESEARCH IS CONCERNED, WE'RE TRYING TO CONTINUALLY INVEST IN AN
INTERNAL RESEARCH CAPABILITY THAT IS PROPIETARY IN NATURE, AND PRODUCES WHAT WE
THINK OF AS AN INFORMATION ADVANTAGE."
CAVANNA: Yes, First Union was penalized for its earnings shortfall. But, in our
view, that's when this stock became very undervalued. It was at a point where it
was trading at 12 times this year's earnings with a yield of over 4 percent. To
us, it represented a buying opportunity because we think that over the next year
or so First Union will start growing its earnings again. We believe 9 to 10
percent earnings growth is a reasonable long-term rate for this company.
Actually, at the time of our last interview for the Fund, First Union was in the
portfolio. We sold it on a price basis and bought it back when we thought it
once again became a good value.
LAMCO: Tell us about another recent buy.
CAVANNA: We added to our position in Philip Morris. Over the years we've owned
it, we've reduced it and then recently we added to it once again. The real issue
with Philip Morris is the legal liability. As the company has lost a number of
individual cases in recent months, investors were assuming that all juries would
be biased against the tobacco companies, including Philip Morris. Moreover,
investors are concerned that while the tobacco companies have settled with the
states' attorneys general, they are not relieved from all their legal
liabilities. Philip Morris' stock got hit, and became even cheaper and we took
that occasion to add to our position. The yield is extraordinary, about 5
percent, and the stock sells for 12 times current year earnings. We are aware
that there are issues with this company, but we also recognize the solid cash
flow and favorable product position can be used to generate growth. Further,
Philip Morris is not just a U.S. tobacco company, it's an international tobacco
and major food and beer company, and when you put that all together, it's a very
cheap stock.
LAMCO: Tell us about a couple of stocks you've sold recently.
CAVANNA: On a price basis, we eliminated our position in Georgia-Pacific. This
is a forest and paper products company that was benefiting from the strength in
the U.S. housing market. On a long-term valuation basis, it got too expensive,
so we sold it strictly on a price basis - there were no management issues,
concerns about the next quarter or anything like that. We just felt that
conditions in the U.S. housing market are so good as to be unsustainable.
We have reduced, but not eliminated, our position in Circuit City. Circuit
City is interesting because it's a major consumer electronics retailer, and the
consumer electronics business has not been very good in recent years because of
a lack of exciting new products. We bought Circuit City because the market was
pricing the stock as if there would never be another product cycle. Low and
behold, a year later, business is very good, helped by a strong domestic economy
and a wave of new digital products. The stock has been one of our best
performers, so this sale, too, was strictly on a price basis. Because the
momentum is still very much there, we have kept a position in the company.
LAMCO: Tell us about a couple of long-term favorites.
CAVANNA: Tyco International is one that more and more people are getting wind
of. Tyco is a diversified company that has grown internally and through
acquisitions. It just completed the acquisition of AMP, the leading connector
company. Tyco also purchased U.S. Surgical and AT&T's undersea cable business.
The result is a collection of businesses that are very diversified and in the
hands of very strong management, led by a CEO in whom we have a lot of
confidence. So we've got good, long term strategic direction for this company,
combined with a portfolio of businesses that should generate above average
profit growth and cash flow, helped by cost reduction at the newly acquired
companies.
A position that we've added to over the past year is Rohm & Haas, a
mid-sized specialty chemical company. It's in the process of completing an
acquisition of Morton International, the specialty chemical and salt company. We
think Rohm & Haas is a very good growth story that will benefit from a
resumption of global economic expansion. It's also in some attractive segments,
such as electronic chemicals and perfor-
"WHAT WE'RE TRYING TO DO IS FOCUS ON COMPANIES THAT HAVE ESTABLISHED TRACK
RECORDS, BUT WHERE THE MARKET, FOR ONE REASON OR ANOTHER, IS MISVALUING THE
FUTURE STREAM OF EARNINGS AND CASH FLOWS."
10
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MANAGER INTERVIEW
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mance polymers, and it is very well managed. The company generates a lot of cash
that can be used to make additional acquisitions, and there's a cost reduction
story here as well.
" ... FOR GROWTH TO INCREASE ON A GLOBAL BASIS IS VERY EXCITING AND OFFERS GREAT
OPPORTUNITY FOR U.S. INVESTORS BECAUSE THE U.S. HAS INCREASINGLY BECOME A PART
OF THE GLOBAL ECONOMY."
LAMCO: To wrap up, a short-term question and a long-term question. Short term
first: A few months ago, the word on investors' lips was deflation. Now,
everyone is worried once again about inflation. What has changed?
CAVANNA: I think it's two things. One is that the U.S. economy has been stronger
for longer than any of us would have expected. Second, over the last year we
have actually seen growth accelerate. Last year, we were in a credit crisis and
the prospects for global growth were questionable. Now, we have signs of
economic growth abroad and, at home, an economy at full employment, booming
retail sales, record housing starts and a soaring stock market. Net result:
global demand grows above trend, that soaks up excess capacity, commodity prices
rise and productivity begins to fall. I'm not saying that will happen, that's
just the concern in the back of investors' minds.
LAMCO: Final thought, a long-term one: We have less than six months left in this
entire century and we've been through probably the greatest decade ever for the
individual investor. What lesson should investors take with them into the new
millennium?
CAVANNA: I would mention two things. One is that for growth to increase on a
global basis is very exciting and offers great opportunity for U.S. investors
because the U.S. has increasingly become a part of the global economy. U.S.
companies are heavily invested overseas -- almost 40 percent of S&P 500 normal
earnings come from outside the U.S. But lately, those foreign earnings have not
been so strong. A resumption of growth means there is increased potential for
U.S. companies to generate better earnings from their overseas investments.
Secondly, the U.S. has reestablished a competitive advantage in a number of
global industries, technology, in particular. We are also the leader in business
management. This combination offers tremendous potential going forward. So if
the rate of change -- whether it's technology or the Internet or telecom -- has
been rapid, I think it will be even faster in the future, and that will create
as many opportunities over the next decade as it has over the one that is
winding down now.
LAMCO: Thank you.
11
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<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
COMMON STOCKS (98.2%) SHARES MARKET VALUE
<S> <C> <C>
AEROSPACE & DEFENSE (1.9%)
Boeing Co. 310,600 $ 13,724,638
Lockheed Martin Corp. 360,900 13,443,525
--------------
27,168,163
--------------
AUTOS, TIRES & ACCESSORIES (2.1%)
DaimlerChrysler AG 93,250 8,287,594
Ford Motor Co. 231,000 13,037,062
Lear Corp. (a) 166,300 8,273,425
--------------
29,598,081
--------------
BANKS (4.8%)
ABN AMRO Holding NV ADR 173,764 3,833,668
Astoria Financial Corp. 51,400 2,258,387
Bank of America Corp. 227,634 16,688,418
First Union Corp. 142,200 6,683,400
Fleet Financial Group, Inc. 311,400 13,818,375
PNC Bank Corp. 140,500 8,096,312
U.S. Bancorp 70,100 2,383,400
Washington Mutual, Inc. 174,500 6,172,938
Wells Fargo & Co. 200,000 8,550,000
--------------
68,484,898
--------------
BROADCASTING & CABLE (1.1%)
Chancellor Media Corp. (a) 214,000 11,796,750
The News Corp., Ltd. ADR 89,400 3,156,937
--------------
14,953,687
--------------
BUSINESS & CONSUMER SERVICES (1.7%)
America Online, Inc. (a) 23,300 2,574,650
Cendant Corp. (a) 268,200 5,498,100
Cintas Corp. 155,600 10,454,375
IMS Health, Inc. 153,500 4,796,875
Service Corp. International 77,600 1,493,800
--------------
24,817,800
--------------
CHEMICALS (2.0%)
Monsanto Co. 550,200 21,698,513
Rohm & Haas Co. 148,300 6,358,363
--------------
28,056,876
--------------
COMMUNICATIONS EQUIPMENT (3.0%)
Cisco Systems, Inc. (a) 261,700 16,879,650
CommScope, Inc. (a) 27,733 852,790
Lucent Technologies, Inc. 131,800 8,888,263
Nokia Corp. ADR 180,000 16,481,250
--------------
43,101,953
--------------
COMPUTER & BUSINESS EQUIPMENT (3.7%)
Apple Computer, Inc. (a) 21,700 1,004,981
Compaq Computer Corp. 193,600 4,585,900
EMC Corp. (a) 96,250 $ 5,293,750
Hewlett-Packard Co. 114,600 11,517,300
International Business
Machines Corp. 135,350 17,493,988
Solectron Corp. (a) 82,150 5,478,378
Sun Microsystems, Inc. (a) 107,800 7,424,725
3Com Corp. (a) 14,200 378,963
--------------
53,177,985
--------------
COMPUTER SERVICES & SOFTWARE (7.7%)
Acxiom Corp. (a) 199,550 4,976,278
Automatic Data Processing, Inc. 182,650 8,036,600
Best Software, Inc. (a) 125,850 2,029,331
BMC Software, Inc. (a) 88,250 4,765,500
Computer Associates
International, Inc. 365,100 20,080,500
Computer Sciences Corp. 60,550 4,189,303
Fiserv, Inc. (a) 254,300 7,962,769
Intuit, Inc. (a) 43,450 3,915,931
Keane, Inc. (a) 125,800 2,846,225
Legato Systems, Inc. (a) 67,800 3,915,450
Microsoft Corp. (a) 164,000 14,790,750
Oracle Corp. (a) 282,050 10,471,106
Sterling Commerce, Inc. (a) 100,100 3,653,650
Sterling Software, Inc. (a) 532,700 14,216,431
SunGard Data Systems, Inc. (a) 93,300 3,218,850
--------------
109,068,674
--------------
CONSUMER PRODUCTS (2.2%)
Avon Products, Inc. 250,000 13,875,000
Gillette Co. 30,500 1,250,500
Kimberly-Clark Corp. 46,500 2,650,500
Philip Morris Companies, Inc. 158,300 6,361,681
Procter & Gamble Co. 52,500 4,685,625
Ralston Purina Co. 81,800 2,489,788
--------------
31,313,094
--------------
DIVERSIFIED (3.5%)
AlliedSignal, Inc. 217,900 13,727,700
Cooper Industries, Inc. 20,900 1,086,800
Loews Corp. 125,400 9,922,275
Minnesota Mining &
Manufacturing Co. 70,000 6,085,625
Parker-Hannifin Corp. 109,800 5,023,350
The Seagram Co., Ltd. 67,300 3,390,237
Tyco International Ltd. 110,084 10,430,459
--------------
49,666,446
--------------
DRUGS & HEALTH CARE (6.0%)
Alza Corp. (a) 123,700 6,293,237
American Home Products Corp. 127,100 7,308,250
12 See Notes to Schedule of Investments.
<PAGE>
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 1999 (UNAUDITED)
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COMMON STOCKS (cont.) SHARES MARKET VALUE
DRUGS & HEALTH CARE (CONT.)
Becton, Dickinson & Co. 9,600 $ 288,000
Bristol-Myers Squibb Co. 85,900 6,050,581
Cardinal Health, Inc. 72,955 4,678,239
Elan Corp. ADR (a) 94,500 2,622,375
Eli Lilly & Co. 28,600 2,048,475
Forest Laboratories, Inc. (a) 85,200 3,940,500
Genzyme Corp. (a) 55,900 2,711,150
Genzyme Surgical Products (a) 10,006 44,089
HEALTHSOUTH Corp. (a) 121,200 1,810,425
Humana, Inc. 109,600 1,417,950
Medtronic, Inc. 67,150 5,229,306
Merck & Co., Inc. 34,750 2,571,500
Patterson Dental Co. (a) 117,000 4,065,750
PE Corp-Celera
Genomics Group (a) 12,000 194,250
PE Corp-PE Biosystems Group 24,000 2,754,000
Pediatrix Medical Group, Inc. (a) 146,800 3,119,500
Pfizer, Inc. 32,400 3,555,900
Pharmacia & Upjohn, Inc. 149,000 8,465,062
SmithKline Beecham PLC ADR 124,600 8,231,387
Steris Corp. (a) 224,950 4,358,406
Warner-Lambert Co. 61,500 4,266,562
--------------
86,024,894
--------------
ELECTRIC & GAS UTILITIES (4.3%)
Central & South West Corp. 53,800 1,257,575
Columbia Energy Group 99,000 6,206,062
Consolidated Edison, Inc. 243,900 11,036,475
Florida Progress Corp. 207,300 8,564,081
Northern States Power Co. 83,900 2,029,331
Peco Energy Co. 287,400 12,034,875
P G & E Corp. 239,400 7,780,500
PP&L Resources, Inc. 143,300 4,406,475
Reliant Energy, Inc. 264,300 7,301,287
--------------
60,616,661
--------------
ELECTRONICS & ELECTRICAL EQUIPMENT (2.7%)
Emerson Electric Co. 50,000 3,143,750
Intel Corp. 247,000 14,696,500
International Game Technology 126,800 2,345,800
Linear Technology Corp. 165,500 11,129,875
Molex, Inc. 85,025 3,145,925
Motorola, Inc. 20,100 1,904,475
Texas Instruments, Inc. 13,400 1,943,000
--------------
38,309,325
--------------
FINANCIAL SERVICES (7.2%)
The Charles Schwab Corp. 43,000 4,724,625
The CIT Group, Inc. 99,600 2,875,950
Citigroup, Inc. 756,000 35,910,000
Countrywide Credit
Industries, Inc. 150,000 6,412,500
Freddie Mac 428,700 $ 24,864,600
The Goldman Sachs
Group, Inc. (a) 54,300 3,923,175
KeyCorp 45,900 1,474,538
Morgan Stanley Dean
Witter & Co. 133,800 13,714,500
Newcourt Credit Group, Inc. 47,400 613,238
Paychex, Inc. 229,575 7,317,703
--------------
101,830,829
--------------
FOOD, BEVERAGE & RESTAURANTS (5.4%)
Anheuser-Busch Companies, Inc. 118,100 8,377,719
Bestfoods 28,200 1,395,900
Diageo PLC ADR 160,000 6,880,000
Dole Food Co., Inc. 150,000 4,406,250
General Mills, Inc. 94,100 7,563,288
International Home
Foods, Inc. (a) 251,500 4,637,031
McDonald's Corp. 120,000 4,957,500
Nabisco Holdings Corp. 217,500 9,406,875
The Pepsi Bottling Group, Inc. 407,600 9,400,275
PepsiCo, Inc. 96,500 3,733,344
Starbucks Corp. (a) 312,700 11,745,794
U.S. Foodservice (a) 89,500 3,814,937
--------------
76,318,913
--------------
HOTELS & ENTERTAINMENT/LEISURE (1.9%)
Marriot International, Inc.,
Class A 98,300 3,673,962
Mirage Resorts, Inc. (a) 137,100 2,296,425
Starwood Hotels & Resorts
Worldwide, Inc. 264,700 8,089,894
Time Warner, Inc. 171,900 12,634,650
--------------
26,694,931
--------------
INDUSTRIAL EQUIPMENT (2.0%)
Caterpillar, Inc. 130,000 7,800,000
Deere & Co. 107,400 4,255,725
Dover Corp. 110,000 3,850,000
Fastenal Co. 45,800 2,401,638
Ingersoll-Rand Co. 126,400 8,168,600
MSC Industrial
Direct Co., Inc. (a) 167,400 1,715,850
--------------
28,191,813
--------------
INSURANCE (6.9%)
ACE Ltd. 337,800 9,542,850
Aetna, Inc. 77,200 6,904,575
AFLAC, Inc. 330,000 15,798,750
Allmerica Financial Corp. 83,000 5,047,438
Allstate Corp. 142,200 5,101,425
Ambac Financial Group, Inc. 34,400 1,965,100
CIGNA Corp. 219,900 19,571,100
See Notes to Schedule of Investments. 13
<PAGE>
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
COMMON STOCKS (cont.) SHARES MARKET VALUE
INSURANCE (CONT.)
Conseco, Inc. 414,400 $ 12,613,300
Marsh & McLennan
Companies, Inc. 61,900 4,673,450
UNUM Corp. 72,000 3,942,000
XL Capital Ltd. 233,500 13,192,750
--------------
98,352,738
--------------
METALS & MINING (1.4%)
Alcoa, Inc. 266,000 16,458,750
Allegheny Teledyne, Inc. 146,300 3,310,098
--------------
19,768,788
--------------
OIL & GAS (5.8%)
Apache Corp. 219,000 8,541,000
Burlington Resources, Inc. 96,900 4,190,925
Conoco, Inc. 466,200 12,995,325
Cooper Cameron Corp. (a) 66,500 2,464,656
Elf Aquitaine ADR 125,500 9,232,093
El Paso Energy Corp. 117,000 4,116,937
Enron Corp. 47,200 3,858,600
Halliburton Co. 206,400 9,339,600
Mobil Corp. 36,000 3,564,000
PennzEnergy Co. 307,100 5,124,731
Phillips Petroleum Co. 46,400 2,334,500
Royal Dutch Petroleum Co. 78,062 4,703,235
Texaco, Inc. 133,100 8,318,750
Tosco Corp. 152,000 3,942,500
--------------
82,726,852
--------------
PAPER (0.7%)
Temple-Inland, Inc. 138,000 9,418,500
--------------
POLLUTION CONTROL (1.8%)
Azurix Corp. (a) 127,000 2,540,000
Waste Management, Inc. 416,255 22,373,706
--------------
24,913,706
--------------
PUBLISHING (0.8%)
The New York Times Co. 76,900 2,830,881
R. R. Donnelley & Sons Co. 220,000 8,153,750
--------------
10,984,631
--------------
REAL ESTATE INVESTMENT TRUSTS (0.5%)
Kimco Realty Corp. 105,400 4,123,775
Vornado Realty Trust 100,100 3,534,781
--------------
7,658,556
--------------
RETAIL TRADE (9.9%)
AnnTaylor Stores Corp. (a) 102,600 $ 4,617,001
CDW Computer Centers, Inc. (a) 94,800 4,171,201
Circuit City Stores, Inc. 41,200 3,831,601
CVS Corp. 323,950 16,561,945
Family Dollar Stores, Inc. 233,900 5,613,601
Federated Department
Stores, Inc. (a) 235,300 12,456,194
Harcourt General, Inc. 110,400 5,692,500
Home Depot, Inc. 141,300 9,105,019
Kohl's Corp. (a) 128,550 9,922,453
The Kroger Co. (a) 190,980 5,335,503
The Limited, Inc. 181,700 8,244,638
Linens 'n Things, Inc. (a) 132,000 5,775,000
May Department Stores Co. 225,000 9,196,875
Safeway, Inc. (a) 162,900 8,063,550
Staples, Inc. (a) 337,550 10,442,953
Tiffany & Co. 86,800 8,376,200
Toys R Us, Inc. (a) 78,700 1,628,106
Walgreen Co. 274,650 8,067,844
Wal-Mart Stores, Inc. 61,200 2,952,900
--------------
140,055,084
--------------
TELECOMMUNICATIONS (5.6%)
AT&T Corp. 328,000 18,306,500
Bell Atlantic Corp. 58,200 3,804,825
GTE Corp. 163,800 12,407,850
Level 3 Communications, Inc. (a) 10,100 606,631
MCI WorldCom, Inc. (a) 153,100 13,204,875
SBC Communications, Inc. 181,000 10,498,000
Sprint Corp. (FON Group) 340,000 17,956,250
Uniphase Corp. (a) 21,000 3,486,000
--------------
80,270,931
--------------
TRANSPORTATION (1.6%)
AMR Corp. (a) 160,000 10,920,000
Burlington Northern
Santa Fe Corp. 50,000 1,550,000
CNF Transportation, Inc. 106,000 4,067,750
CSX Corp. 29,800 1,350,312
Union Pacific Corp. 91,100 5,312,269
--------------
23,200,331
--------------
TOTAL COMMON STOCKS
(Cost $1,000,124,100) 1,394,745,140
--------------
PREFERRED STOCK (0.2%)
BROADCASTING & CABLE (0.2%)
The News Corp., Ltd. ADR
(Cost $3,230,000) 100,000 3,156,250
--------------
</TABLE>
14 See Notes to Schedule of Investments.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 1999 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (1.9%) INTEREST MATURITY PAR MARKET
COMMERCIAL PAPER (0.8%) RATE DATE VALUE VALUE
-------- -------- ---------- -----------
<S> <C> <C> <C> <C>
CIT Group Holdings 4.68% 07/06/99 $3,000,000 $ 2,998,050
CIT Group Holdings 5.19 07/13/99 2,000,000 1,996,540
Household Finance 4.60 07/08/99 3,000,000 2,997,317
Household Finance 4.65 07/01/99 2,700,000 2,700,000
--------------
TOTAL COMMERCIAL PAPER (COST $10,691,907) 10,691,907
--------------
REPURCHASE AGREEMENT (1.1%)
SBC Warburg Ltd., Repurchase Agreement dated 6/30/99, 4.80%
to be repurchased at $15,829,110 on 7/1/99, collateralized by
U.S. Treasury bonds and notes with various maturities to
2027, with a current market value of $16,386,238. 15,827,000 15,827,000
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $26,518,907) 26,518,907
--------------
TOTAL INVESTMENTS (100.3%) (COST $1,029,873,007) (b) 1,424,420,297
OTHER ASSETS AND LIABILITIES, NET (-0.3%) (4,517,874)
--------------
NET ASSETS (100.0%) $1,419,902,423
--------------
--------------
NET ASSET VALUE PER SHARE (96,440,022 SHARES OUTSTANDING) $14.72
--------------
--------------
<CAPTION>
<S><C>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) Cost of investments for federal income tax purposes is $1,036,138,398.
Gross unrealized appreciation and depreciation of investments at
June 30, 1999 is as follows:
Gross unrealized appreciation $429,047,388
Gross unrealized depreciation (40,765,489)
------------
Net unrealized appreciation $388,281,899
------------
------------
Acronym Name
------- ---------------------------
ADR American Depositary Receipt
</TABLE>
See Notes to Financial Statements. 15
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AS OF JUNE 30, 1999 (UNAUDITED)
- ---------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at market value (identified cost $1,029,873,007) $1,424,420,297
Receivable for investments sold 18,070,769
Dividends and interest receivable 1,448,033
Other assets 52,917
--------------
TOTAL ASSETS 1,443,992,016
--------------
LIABILITIES:
Payable for investments purchased 5,281,966
Distributions payable to shareholders 16,052,748
Management fees payable 880,677
Administrative & bookkeeping fees payable 224,578
Accrued expenses 1,649,624
--------------
TOTAL LIABILITIES 24,089,593
--------------
NET ASSETS $1,419,902,423
--------------
--------------
NET ASSETS REPRESENTED BY:
Paid-in capital (unlimited number of shares of
beneficial interest without par value authorized,
96,440,022 shares outstanding) $925,345,757
Undistributed net investment income 2,405,297
Accumulated net realized gains on investments
less distributions 97,604,079
Net unrealized appreciation on investments 394,547,290
--------------
TOTAL NET ASSETS APPLICABLE
TO OUTSTANDING SHARES
OF BENEFICIAL INTEREST
($14.72 PER SHARE) $1,419,902,423
--------------
--------------
</TABLE>
16 See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 8,351,985
Interest 726,563
------------
TOTAL INVESTMENT INCOME (NET OF
FOREIGN TAXES WITHHELD AT SOURCE
WHICH AMOUNTED TO $136,885) 9,078,548
EXPENSES:
Management fees $ 4,863,047
Administrative fee 1,195,234
Bookkeeping fee 138,603
Custodian and transfer agent fees 106,714
Printing expense 115,573
Legal and audit fees 31,037
Trustees' fees and expense 39,255
Miscellaneous expense 183,790
-----------
TOTAL EXPENSES 6,673,253
------------
NET INVESTMENT INCOME 2,405,295
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains on investment transactions:
Proceeds from sales 599,946,767
Cost of investments sold 466,828,207
-----------
Net realized gains on investment transactions 133,118,560
Net unrealized depreciation on investments:
Beginning of year 412,894,932
End of period 394,547,290
-----------
Change in unrealized depreciation-- net (18,347,642)
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $117,176,213
------------
------------
</TABLE>
See Notes to Financial Statements. 17
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 2,405,295 $ 4,884,011
Net realized gains on investment transactions 133,118,560 108,774,108
Change in unrealized appreciation (depreciation)-- net (18,347,642) 105,186,947
-------------- --------------
Net increase in net assets resulting from operations 117,176,213 218,845,066
-------------- --------------
DISTRIBUTIONS DECLARED FROM:
Net investment income -- (4,883,968)
Net realized gains on investments (67,447,804) (122,031,385)
-------------- --------------
Total distributions (67,447,804) (126,915,353)
-------------- --------------
CAPITAL TRANSACTIONS:
Increase in net assets from capital share transactions 19,083,704 108,821,914
-------------- --------------
Total increase in net assets 68,812,113 200,751,627
NET ASSETS:
Beginning of year 1,351,090,310 1,150,338,683
-------------- --------------
End of period $1,419,902,423 $1,351,090,310
-------------- --------------
-------------- --------------
</TABLE>
18 See Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 -----------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of year $ 14.22 $ 13.32 $ 11.95 $ 11.03 $ 9.26 $ 10.40
------- ------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income 0.02 0.05 0.05 0.08 0.10 0.11
Net realized and unrealized
gains (losses) on investments 1.19 2.35 3.01(a) 2.15(a) 2.71 (0.20)
Provision for federal income tax -- -- (0.36) (0.13) -- --
------- ------- ------- ------- ------- -------
Total from Investment Operations 1.21 2.40 2.70 2.10 2.81 (0.09)
------- ------- ------- ------- ------- -------
Less Distributions from:
Net investment income -- (0.05) (0.05) (0.08) (0.10) (0.12)
Realized capital gains (0.71) (1.35) (1.28) (1.10) (0.94) (0.52)
Paid-in capital -- -- -- -- -- (0.36)
------- ------- ------- ------- ------- -------
Total Distributions (0.71) (1.40) (1.33) (1.18) (1.04) (1.00)
------- ------- ------- ------- ------- -------
Change due to rights offering (b) -- (0.10) -- -- -- (0.05)
------- ------- ------- ------- ------- -------
Net asset value at end of period $ 14.72 $ 14.22 $ 13.32 $ 11.95 $ 11.03 $ 9.26
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Market price at end of period $13.750 $12.938 $13.313 $11.250 $10.875 $ 8.500
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
TOTAL INVESTMENT RETURN FOR SHAREHOLDERS: (c)
Based on net asset value 9.2%(d) 19.8% 26.6% 21.7% 31.8% (0.8)%
Based on market price 12.1%(d) 9.1% 34.4% 16.2% 41.4% (14.9)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of period (millions) $ 1,420 $ 1,351 $ 1,150 $ 988 $ 872 $ 710
Ratio of expenses to average net assets 0.99%(e) 1.00% 1.01% 1.03% 1.06% 1.07%
Ratio of net investment income to
average net assets 0.35%(e) 0.39% 0.38% 0.73% 0.92% 1.16%
Portfolio turnover rate 42%(d) 76% 99% 70% 54% 44%
</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 at the actual reinvestment
price and all primary rights exercised.
(d) Not annualized.
(e) Annualized.
See Notes to Financial Statements. 19
<PAGE>
NOTES TO FINANCIAL STATEMENTS AS OF JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
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 Trustees. Short-term instruments
maturing in more than 60 days for which market quotations are readily available
are valued at 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-The Fund qualifies as a "regulated investment
company." As a result, a federal income tax provision is not required for
amounts distributed to shareholders.
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 assets. The Manager pays each Portfolio Manager a portfolio
management fee at an annual rate of 0.40% of the average weekly net assets 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 assets. 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. The annual fund
management and administrative fees are 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 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.
NOTE 3. CAPITAL TRANSACTIONS-During the six months ended June 30, 1999 and the
year ended December 31, 1998, distributions in the amount of $19,083,704 and
$53,655,255, 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 1,442,122 and 4,317,097 shares, respectively.
In a rights offering commencing March 25, 1998, shareholders exercised
rights to purchase 4,318,134 shares at $12.83 per share for proceeds, net of
expenses, of $55,166,659.
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 six months ended June 30,
1999 were $561,370,659 and $599,946,767, 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. 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.
20
<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 and pay income tax thereon 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 3.966 shares as of June 30, 1999, with a
total net asset value of $58.38. 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.
21
<PAGE>
1999 ANNUAL MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
1999 ANNUAL MEETING OF SHAREHOLDERS
Liberty All-Star Equity Fund's 1999 Annual Meeting of Shareholders was held on
April 21, 1999. At the meeting, Mr. James E. Grinnell was reelected as Trustee
of the class whose term expires with the Annual Meeting in 2002, and Mr. John V.
Carberry was elected for the first time as Trustee of the class whose term
expires with the Annual Meeting in 2002. Messrs. Robert J. Birnbaum, Richard W.
Lowry, William E. Mayer, and John J. Neuhauser continue in office as Trustees.
In addition, shareholders approved the Fund's new Portfolio Management Agreement
with Boston Partners Asset Management, L.P. and ratified the Board of Trustees'
selection of KPMG Peat Marwick LLP as the Fund's independent auditors for the
year ending December 31, 1999. The number of votes cast for and against and the
number of abstentions on these matters were as
follows:
<TABLE>
1. APPROVAL OF NEW PORTFOLIO MANAGEMENT AGREEMENT WITH BOSTON PARTNERS ASSET
MANAGEMENT, L.P.
<S> <C>
FOR: 75,419,017
AGAINST: 586,759
ABSTAIN: 1,019,696
</TABLE>
<TABLE>
2. RATIFICATION OF SELECTION OF KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS
FOR 1999.
<S> <C>
FOR: 75,822,128
AGAINST: 404,462
ABSTAIN: 798,884
</TABLE>
22
<PAGE>
[LOGO] LIBERTY [LETTERHEAD]
ALL-STAR
-----------
EQUITY FUND
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., Vice President & Chief Investment 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.
- --------------------------------------------------------------------------------
Liberty Asset Management Company, the Fund's manager, is one of the Liberty
Financial Companies (NYSE: L).
[LOGO] LIBERTY FINANCIAL
