SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section
14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
LIBERTY ALL-STAR EQUITY FUND
------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
LIBERTY ALL-STAR EQUITY FUND
FEDERAL RESERVE PLAZA
600 ATLANTIC AVENUE
BOSTON, MASSACHUSETTS 02210-2214
(617) 722-6036
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 18, 2001
To the Shareholders of Liberty All-Star Equity Fund:
NOTICE IS HEREBY GIVEN that the 2001 Annual Meeting of Shareholders of Liberty
All-Star Equity Fund (the "Fund") will be held in Room AV-1, 3rd Floor, Federal
Reserve Plaza, 600 Atlantic Avenue, Boston, Massachusetts, on April 18, 2001, at
9:30 a.m., Boston time. The purpose of the Meeting is to consider and act upon
the following matters:
1. To elect three Trustees of the Fund.
2. To approve the Fund's Portfolio Management Agreement with Mastrapasqua &
Associates, Inc.
3. To ratify the selection by the Board of Trustees of PricewaterhouseCoopers
LLP as the Fund's independent accountants for the year ending December 31,
2001.
4. To transact such other business as may properly come before the Meeting or
any adjournments thereof.
The Board of Trustees has fixed the close of business on February 1, 2001, as
the record date for the determination of the shareholders of the Fund entitled
to notice of, and to vote at, the Meeting and any adjournments thereof.
YOUR BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR ALL THE PROPOSALS.
By order of the Board of Trustees
William J. Ballou, Secretary
YOUR VOTE IS IMPORTANT--PLEASE RETURN YOUR PROXY PROMPTLY.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. WE URGE YOU, WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING IN PERSON, TO INDICATE YOUR VOTING INSTRUCTIONS ON
THE ENCLOSED PROXY, DATE AND SIGN IT, AND RETURN IT IN THE ENVELOPE PROVIDED,
WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. WE ASK YOUR COOPERATION
IN MAILING YOUR PROXY PROMPTLY.
March 1, 2001
LIBERTY ALL-STAR EQUITY FUND
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APRIL 18, 2001
This Proxy Statement is furnished in connection with the solicitation of proxies
on behalf of the Board of Trustees of Liberty All-Star Equity Fund (the "Fund")
to be used at the Annual Meeting of Shareholders of the Fund to be held on April
18, 2001, at 9:30 a.m. Boston time in Room AV-1, 3rd Floor, Federal Reserve
Plaza, 600 Atlantic Avenue, Boston, Massachusetts, and at any adjournments
thereof (such meeting and any adjournments being referred to as the "Meeting").
The solicitation of proxies for use at the Meeting is being made primarily by
the mailing on or about March 1, 2001, of this Proxy Statement and the
accompanying proxy. Supplementary solicitations may be made by mail, telephone,
telegraph or personal interview by officers and Trustees of the Fund and
officers and employees of its manager, Liberty Asset Management Company
("Liberty Asset Management") and its affiliates. In addition, the Fund has
retained Corporate Investor Communications, Inc. as agent to coordinate the
distribution of proxy material to, and to solicit the return of proxies from,
individuals, banks, brokers, nominees and other custodians at a fee of $5,000
plus out-of-pocket expenses. Authorization to execute proxies may be obtained
from shareholders through instructions transmitted by telephone or facsimile.
The expenses in connection with preparing this Proxy Statement and of the
solicitation of proxies for the Meeting will be paid by the Fund. The Fund will
reimburse brokerage firms and others for their expenses in forwarding
solicitation material to the beneficial owners of shares. This Proxy Statement
is accompanied by the Fund's 2000 Annual Report to Shareholders.
The Meeting is being held to vote on the matters described below.
PROPOSAL 1. ELECTION OF TRUSTEES
The Fund's Board of Trustees is divided into three classes, each of which serves
for three years. The term of office of one of the classes expires at the final
adjournment of the Annual Meeting of Shareholders (or special meeting in lieu
thereof) each year. Shares represented by duly executed proxies will be voted as
instructed on the proxy. If no instructions are given when the enclosed proxy is
returned, the enclosed proxy will be voted for the election of Joseph R. Palombo
as Trustee to hold office until final adjournment of the Annual Meeting of
Shareholders for the year 2002 and Richard W. Lowry and John J. Neuhauser as
Trustees to hold office until the final adjournment of the Annual Meeting of
Shareholders for the year 2004 (or special meeting in lieu thereof). Messrs.
Lowry, Neuhauser and Palombo have served as Trustees since August, 1986, April,
1998, and October, 2000, respectively. Messrs. Lowry, Neuhauser and Palombo have
consented to serve as Trustees following the Meeting if elected, and are
expected to be able to do so. If any of Messrs. Lowry, Neuhauser or Palombo are
unable or unwilling to do so at the time of the Meeting, proxies will be voted
for such substitute as the Trustees may recommend (unless authority to vote for
the election of Trustees has been withheld).
2
Information about the nominees for election as a Trustee follows:
Name/Age and Address Principal Occupation During Past Five Years Fund Shares Owned(1)
-------------------- ------------------------------------------- --------------------
Richard W. Lowry (Age 64)(2) Private Investor since August 1987 (formerly Chairman 79,152(3)
10701 Charleston Drive and Chief Executive Officer, U.S. Plywood Corporation
Vero Beach, FL 32963 (building products manufacturer)).
John J. Neuhauser (Age 57)(2) Academic Vice President and Dean of Faculties since 122
84 College Road August, 1999, Boston College (formerly Dean, Boston
Chestnut Hill, MA College School of Management from September, 1977 to
02467-3838 September, 1999).
Joseph R. Palombo (Age 48)(4) Chief Operations Officer of Mutual Funds, Liberty 0
Liberty Funds Group Financial Companies, Inc. (LFC) since August, 2000;
One Financial Center Executive Vice President and Chief Administrative
Boston, MA 02111 Officer of Liberty Funds Group (LFG) since April,
1999; Director of Stein Roe & Farnham
Incorporated (SR&F) since September 1,
2000; Trustee, Director or Manager and
Chairman of the Board of the Liberty
Funds, the Liberty All-Star Funds and
the Stein Roe Funds since October,
2000; (formerly Vice President of the
Liberty Funds, the Liberty All-Star
Funds and the Stein Roe Funds from
April, 1999 to August, 2000 and Chief
Operating Officer, Putnam Mutual Funds
from 1994 to 1998).
The following Trustees continue to serve in such capacity until their terms of
office expire and their successors are elected and qualified:
Name/Age and Address Principal Occupation During Past Five Years Fund Shares Owned(1)
-------------------- ------------------------------------------- --------------------
Robert J. Birnbaum (Age 73)(2) Retired (since January, 1994); Special Counsel, 4,704
313 Bedford Road Dechert, Price & Rhoads (September, 1988 to December,
Ridgewood, NJ 07450 1993); President and Chief Operating Officer, New
York Stock Exchange, Inc. (May, 1985 to June, 1988);
Director, Dresdner RCM Europe Fund (investment
company) and Options Exchange Board.
3
Name/Age and Address Principal Occupation During Past Five Years Fund Shares Owned(1)
-------------------- ------------------------------------------- --------------------
James E. Grinnell (Age 71)(2) Private investor since November, 1988; President and 30,828
2850 South Ocean Blvd., #514 Chief Executive Officer, Distribution Management
Palm Beach, FL 33480 Systems, Inc. (1983 to May, 1986); Senior Vice
President-Operations, The Rockport
Company, (importer and distributor
of shoes) (from May, 1986 to
November, 1988).
William E. Mayer (Age 60) (5) Managing Partner, Park Avenue Equity Partners 515
500 Park Avenue, 5th Floor (venture capital) since 1998 (formerly Founding
New York, NY, 10022 Partner, Development Capital LLC from 1996 to 1998;
Dean and Professor, College of
Business and Management, University
of Maryland from October, 1992 to
November, 1996); Director, Johns
Manville (building products
manufacturer); Lee Enterprises
(print and on-line media); WR
Hambrecht + Co. (financial service
provider); and Systech Retail
Systems (retail industry technology
provider).
(1) Shows all shares owned beneficially, directly or indirectly, on the record
date for the Meeting. Such ownership includes voting and investment control. The
Fund's Trustees and officers as a group then so owned less than 1% of the shares
of the Fund outstanding.
(2) Member of the Audit Committee.
(3) Held by the trustee of a trust of which Mr. Lowry is the sole beneficiary.
(4) "Interested person" of the Fund, as defined in the Investment Company Act of
1940, by reason of his positions with LFC, the indirect parent of Liberty Asset
Management, and its affiliates.
(5) "Interested person" of the Fund, as defined in the Investment Company Act of
1940, because of his affiliation with WR Hambrecht + Co., a registered
broker-dealer.
The term of office of Mr. Grinnell will expire on final adjournment of the
Annual Meeting (or special meeting in lieu thereof) in the year 2002, and the
term of office of Messrs. Birnbaum and Mayer will expire on final adjournment of
the Annual Meeting (or special meeting in lieu thereof) in 2003, Messrs.
Birnbaum, Grinnell and Mayer have served as Trustees since November, 1994,
August, 1986 and April, 1998, respectively. At December 31, 2000, Messrs. Lowry,
Mayer, Neuhauser and Palombo also served as trustees of Liberty Trusts I through
VII, the umbrella trusts for an aggregate of 49 open-end funds managed by
Colonial Management Associates, Inc. ("Colonial"), or other affiliates of
Liberty Asset Management, nine closed-end funds managed by Colonial, and Liberty
Variable Investment Trust, the umbrella trust for 17 open-end funds managed by
Colonial or its affiliates that serve as investment vehicles for variable
annuities and variable life insurance products, (collectively, the "Liberty
Funds"). Effective December 27, 2000, Messrs. Lowry, Mayer, Neuhauser and
Palombo
4
commenced serving as trustees of the Liberty Floating Rate Fund, the Stein Roe
Floating Rate Limited Liability Company, the Liberty-Stein Roe Institutional
Floating Rate Income Fund and the following open-end mutual funds: 4 series of
Liberty-Stein Roe Funds Income Trust, 4 series of Liberty-Stein Roe Funds
Municipal Trust, 12 series of Liberty-Stein Roe Funds Investment Trust, 4 series
of Liberty-Stein Roe Advisor Trust, 1 series of Stein Roe Trust, 12 portfolios
of SR&F Base Trust, and 5 series of SteinRoe Variable Investment Trust
(collectively, the "Stein Roe Funds.")
As of the shareholder meeting on December 27, 2000, the Liberty Funds and the
Stein Roe Funds were combined and reorganized into one fund complex (the "Fund
Complex"). Effective on December 27, 2000, the Trustees serve as Trustees for
all the Funds in both the Liberty Funds and the Stein Roe Funds. The Liberty
All-Star Funds, the Liberty Funds and the Stein Roe Funds are collectively
referred to as the "Liberty Funds Complex."
In addition, Messrs. Lowry, Mayer, Neuhauser and Palombo served as trustees of
Liberty Funds Trust IX, the umbrella trust for Liberty All-Star Growth and
Income Fund, an open-end multi-managed fund managed by Liberty Asset Management,
and served as a director of Liberty All-Star Growth Fund, Inc., another
closed-end multi-manager fund managed by Liberty Asset Management (these funds
and the Fund collectively referred to as the "Liberty All-Star Funds"). On
January 25, 2001, the shareholders of Liberty All-Star Growth and Income Fund
voted to approve the acquisition of Liberty All-Star Growth and Income Fund by
Liberty Growth & Income Fund, a series of Liberty Funds Trust VI. The
acquisition was effected on February 9, 2001.
During 2000, the full Board of Trustees of the Fund held four meetings, and the
Audit Committee met three times. With the exception of Mr. Palombo, who was
elected as a Trustee on October 25, 2000, all Trustees were present at all
meetings.
The Audit Committee makes recommendations to the full Board as to the firm of
independent accountants to be selected, reviews the methods, scope and results
of audits and fees charged by such independent accountants, and reviews the
Fund's internal accounting procedures and controls. The Fund has no nominating
or compensation committee.
The Fund has an Audit Committee comprised of only "Independent Trustees" (as
defined in the regulations of the New York Stock Exchange ("NYSE") of the Fund,
who are also not "interested persons" (as defined in the Investment Company Act
of 1940) of the Fund. The Audit Committee reviews the process for preparing and
reviewing financial statements and other audit-related matters as they arise
throughout the year. The Audit Committee makes recommendations to the full Board
as to the firm of independent accountants to be selected. In making its
recommendations, the Audit Committee reviews the nature and scope of the
services to be provided.
In discharging its oversight responsibility as to the audit process, the Audit
Committee discussed with management the process for preparation and review of
the audited financial statements for the last fiscal year. The Audit Committee
also reviewed the non-audit services to be provided by the independent
accountants of the Fund. The independent accountants, PricewaterhouseCoopers LLP
("PWC"), discussed with the Board the matters required to be discussed by
Statement on Auditing Standards No. 61. In addition, the Audit Committee
obtained from the independent accountants a formal written statement consistent
with Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees," describing all relationships between the independent
accountants and the Fund that might bear on the independent accountants'
independence. The Audit Committee also discussed with the independent
accountants any relationships that may impact their objectivity and independence
and satisfied itself as to the independent accountants' independence. The Board
also reviewed the fees
5
charged by such independent accountants for the various services provided and
reviewed the Fund's internal accounting procedures and controls.
The Board of Trustees has adopted a written charter which sets forth the Audit
Committee's structure, duties and powers, and methods of operation which is
attached hereto as Appendix A. Each member of the Audit Committee must be
financially literate and at least one member must have prior accounting
experience or related financial management expertise. The Board of Trustees has
determined, in accordance with applicable regulations of the NYSE, that each
member of the Audit Committee is financially literate and has prior accounting
experience or related financial management expertise. The Audit Committee
members for 2000 were Messrs. Birnbaum, Grinnell, Lowry and Neuhauser. All
members of the Audit Committee meet the independence standards of the NYSE
listing standards.
FEES PAID TO INDEPENDENT ACCOUNTANTS
1. AUDIT FEES
For the audit of the Fund's annual financial statements for the fiscal year
ended December 31, 2000, included in the Fund's annual report to shareholders
for that fiscal year, the Fund paid or accrued $29,000 to PWC.
2. FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
For the fiscal year ended December 31, 2000, the Fund, Liberty Asset Management
and entities controlling, controlled by or under common control with Liberty
Asset Management which provide services to the Fund did not pay or accrue any
fees for financial information systems design and implementation services by
PWC.
3. ALL OTHER FEES
For the fiscal year ended December 31, 2000, the Fund, Liberty Asset Management
and entities controlling, controlled by or under common control with Liberty
Asset Management which provide services to the Fund paid or accrued aggregate
fees of approximately $604,000 for all other services provided by PWC. The Audit
Committee has determined that the provision of the services described above is
compatible with maintaining the independence of PWC.
6
COMPENSATION
Beginning January 1, 1999, the aggregate of the fees paid to the Trustees by the
Liberty All-Star Funds that have the same Board of Trustees or Directors and
hold their meetings concurrently with those of the Fund, consists of Trustees
fees of $125,000 per annum, assuming a minimum of four meetings are held and all
meetings are attended. One-third of the retainer and the fees for concurrently
held meetings was allocated among the Fund and the two other funds on a per fund
basis, and the remaining two-thirds was allocated among the three funds based on
their net assets. Effective February 9, 2001, the retainer and meeting fees will
be allocated between the Fund and Liberty All-Star Growth Fund, Inc.
The following table shows, for the calendar year ended December 31, 2000, the
compensation received from the Fund by each current Trustee, and the aggregate
compensation paid to each current Trustee for service on the Boards of Trustees
of the Fund and the Liberty All-Star Funds. The Fund and the Liberty All-Star
Funds have no bonus, profit sharing or retirement plans.
7
Aggregate Compensation Total Compensation from the
Name From the Fund Liberty All-star Funds (Including the Fund)
---- ---------------------- -------------------------------------------
Robert J. Birnbaum $16,944 $25,000
John V. Carberry(6) N/A N/A
James E. Grinnell $16,944 $25,000
Richard W. Lowry $16,944 $25,000
William E. Mayer $16,944 $25,000
John J. Neuhauser $16,944 $25,000
Joseph R. Palombo(7) N/A N/A
(6) Retired as Trustee of the Fund on August 4, 2000, and did not receive
compensation because he was an affiliated Trustee and an employee of LFC.
(7) Did not receive compensation because he was an affiliated Trustee and an
employee of LFC.
TRUSTEES AND TRUSTEES' FEES
The following table shows, for the calendar year ended December 31, 2000, the
compensation received from the Liberty Funds by the Trustees. The Liberty Funds
have no bonus, profit sharing or retirement plans.
Name Total Compensation From Liberty Funds
---- -------------------------------------
James E. Grinnell(8) $102,000
Richard W. Lowry 99,000
William E. Mayer 100,000
John J. Neuhauser 101,210
Joseph R. Palombo(9) N/A
(8) Resigned as Trustee of the Liberty Funds on December 27, 2000.
(9) Did not receive compensation because he is an affiliated Trustee and an
employee of LFC.
8
OFFICERS
The following are the executive officers (except for Mr. Palombo described
earlier) of the Fund.
Name/Age and Address Position With Fund Principal Occupation During Past Five Years
-------------------- ------------------ -------------------------------------------
William R. Parmentier, Jr. (Age 48) President, Chief President and Chief Executive Officer (since
Liberty Asset Management Company Executive Officer and June, 1998) and Chief Investment Officer (since
Federal Reserve Plaza Chief Investment Officer May, 1995), Senior Vice President (May, 1995 to
600 Atlantic Avenue June, 1998), Liberty Asset Management; Chief
Boston, MA 02210 Investment Officer, Gromman Corporation (1979 to
1994).
Kevin M. Carome (Age 44) Executive Vice President Executive Vice President of Liberty Funds and of
Liberty Funds Group the Liberty All-Star Funds since October, 2000;
One Financial Center Executive Vice President of the Stein Roe Funds
Boston, MA 02111 since May, 1999 (formerly Vice President from
April, 1998 to May, 1999, Assistant Secretary
from April, 1998 to February, 2000 and Secretary
from February, 2000 to May, 2000); Chief Legal
Officer of LFC since August, 2000; Senior Vice
President, Legal since January, 1999 of LFG;
Executive Vice President and Assistant Secretary
of SR&F since January, 2001 (formerly General
Counsel and Secretary of SR&F from January, 1998
to December, 1999; Vice President and Associate
General
9
Counsel of LFC from August, 1993 to
December, 1998).
Name/Age and Address Position With Fund Principal Occupation During Past Five Years
-------------------- ------------------ -------------------------------------------
Christopher S. Carabell (Age 37) Vice President Senior Vice President - Product Development and
Liberty Asset Management Company Marketing (since January, 1999), Vice President -
Federal Reserve Plaza Investments, Liberty Asset Management (March,
600 Atlantic Avenue 1996 to January, 1999); Associate Director, U.S.
Boston, MA 02210 Equity Research, BARRA Rogers Casey, investment
consultants (January, 1995 to February, 1996).
Mark T. Haley (Age 36) Vice President Vice President-Investments (since January,
Liberty Asset Management Company 1999), Director of Investment Analysis
Federal Reserve Plaza (December, 1996 to December, 1998), Investment
600 Atlantic Avenue Analyst (January, 1994 to November, 1996),
Boston, MA 02210 Liberty Asset Management.
Michael G. Clarke (Age 31) Controller Controller of the Liberty Funds and of the
Liberty Funds Group Liberty All-Star Funds since December, 2000;
One Financial Center Assistant Treasurer of the Stein Roe Funds since
Boston, MA 02111 February, 2001; Assistant Vice President of
Colonial since August, 1999; Assistant Vice
President of LFG since April, 2000 (formerly
Audit Manager from May, 1997 to August, 1999,
Audit Senior Accountant from September, 1995 to
May, 1997.
J. Kevin Connaughton (Age 36) Treasurer Treasurer of the Liberty Funds and of the Liberty
Liberty Funds Group All-Star Funds since December, 2000 (formerly
One Financial Center Controller of the Liberty Funds and of the
Boston, MA 02111 Liberty All-Star Funds from February, 1998 to
October, 2000); Treasurer of the Stein Roe Funds
since February 2001 (formerly Controller from
May, 2000 to February, 2001) Vice President of
Colonial since February, 1998 (formerly Senior
Tax Manager, Coopers & Lybrand, LLP from April,
1996 to January, 1998; Vice President, 440
Financial Group/First Data Investor Services
Group from March, 1994 to April, 1996).
10
Name/Age and Address Position With Fund Principal Occupation During Past Five Years
-------------------- ------------------ -------------------------------------------
William J. Ballou (Age 35) Secretary Secretary of the Liberty Funds and of the Liberty
Liberty Funds Group All-Star Funds since October, 2000 (formerly
One Financial Center Assistant Secretary from October, 1997 to
Boston, MA 02111 October, 2000); Secretary of the Stein Roe Funds
since February, 2001 (formerly Assistant
Secretary from May, 2000 to February, 2001);
Vice President, Assistant Secretary and Counsel
of Colonial since October, 1997; Vice President
and Counsel since April, 2000, and Assistant
Secretary since December, 1998 of LFG (formerly
Associate Counsel, Massachusetts Financial
Services Company from May, 1995 to September,
1997).
Mr. Parmentier has served as President, Chief Executive Officer and Chief
Investment Officer since April 29, 1999; Messrs. Haley and Carabell were elected
as Vice Presidents on April 29, 1999 and April 17, 1997, respectively. Mr.
Carome was elected as Executive Vice President on October 25, 2000. Mr. Palombo
was elected Chairman of the Board and Trustee on October 25, 2000. Mr.
Connaughton was elected Treasurer on December 13, 2000; Mr. Clarke was elected
Controller on December 13, 2000; and Mr. Ballou was elected Secretary on October
25, 2000. Messrs. Ballou, Carome, and Connaughton, hold the same offices with
the Liberty Funds Complex, and Messrs. Carabell, Haley and Parmentier hold the
same offices with Liberty All-Star Growth Fund, Inc. Each officer of the Fund
serves at the pleasure of the Board of Trustees.
REQUIRED VOTE
A plurality of votes cast at the Meeting, if a quorum is represented, is
required for the election of each Trustee. Since the number of Trustees has been
fixed at six and since there are three currently serving Trustees who are not
subject to election at the Meeting, this means that the three persons receiving
the highest number of votes will be elected.
PROPOSAL 2. TO APPROVE PORTFOLIO MANAGEMENT AGREEMENT WITH MASTRAPASQUA &
ASSOCIATES, INC. ("MASTRAPASQUA")
BACKGROUND - THE MULTI-MANAGER METHODOLOGY
The Fund allocates its portfolio assets on an approximately equal basis among a
number of independent investment management firms ("Portfolio Managers")
recommended by Liberty Asset Management, currently five in number, each of which
employs a different investment style, and from time to time rebalances the
portfolio among the Portfolio Managers so as to maintain an approximately equal
allocation of the portfolio among them throughout all market cycles. The Fund's
multi-manager methodology is based on the premise that most investment
management firms consistently employ a distinct investment style which causes
them to emphasize stocks with particular characteristics, and that, because of
changing investor preferences, any given investment style will move into and out
of market
11
favor and will result in better performance under certain market conditions but
poorer performance under other conditions. The Fund's multi-manager methodology
seeks to achieve more consistent and less volatile performance over the
long-term than if a single Portfolio Manager were employed.
The Portfolio Managers recommended by Liberty Asset Management represent a
blending of different styles which, in its opinion, is appropriate for the
Fund's investment objective and which is sufficiently broad so that at least one
of such styles can reasonably be expected to be in relative market favor in all
reasonably foreseeable market conditions. Liberty Asset Management continuously
analyzes and evaluates the investment performance and portfolios of the Fund's
Portfolio Managers and from time to time recommends changes in the Portfolio
Managers. Such recommendations could be based on factors such as a change in a
Portfolio Manager's investment style or a Portfolio Manager's divergence from
the investment style for which it was selected, changes deemed by Liberty Asset
Management to be potentially adverse in a Portfolio Manager's personnel or
ownership or other structural or organizational changes affecting the Portfolio
Manager, or a deterioration in a Portfolio Manager's investment performance when
compared to that of other investment management firms employing similar
investment styles. Portfolio Manager changes may also be made to change the mix
of investment styles employed by the Fund's Portfolio Managers. Portfolio
Manager changes, as well as rebalancings of the Fund's portfolio among the
Portfolio Managers, may result in portfolio turnover in excess of what would
otherwise be the case. Increased portfolio turnover results in increased
brokerage commission and transaction costs, and may result in the recognition of
additional capital gains.
NEW PORTFOLIO MANAGER
Liberty Asset Management continuously monitors and evaluates the Fund's
portfolio managers on a quantitative and qualitative basis. The evaluation
process focuses on the firm's philosophy, investment process, people and
performance. It was concluded that after evaluation based on the aforementioned
criteria that Liberty Asset Management deemed it necessary to terminate J.P.
Morgan Investment Management Inc. ("J.P. Morgan"), a Portfolio Manager of the
Fund since July 1, 1996, whose portfolio management agreement with the Fund had
been ratified by shareholders on April 16, 1997. Liberty Asset Management in
October, 2000, determined to replace J.P. Morgan with Mastrapasqua & Associates,
Inc. ("Mastrapasqua"). Liberty Asset Management first analyzed information
regarding the personnel, investment process and performance of a large number of
investment management firms. Liberty Asset Management then analyzed the
candidates in terms of their historic returns, volatility and portfolio
characteristics when combined with those of the Fund's four other Portfolio
Managers. In making its recommendation, the Board has relied upon and given
equal consideration to each of the factors presented to them by Liberty Asset
Management. Based on the foregoing and on Liberty Asset Management's qualitative
analysis, Liberty Asset Management recommended, and the Board of Trustees on
October 25, 2000, approved, the termination of the Fund's portfolio management
agreement with J.P. Morgan and its replacement with Mastrapasqua, effective
November 1, 2000.
Mastrapasqua, located at 814 Church Street, Suite 600, Nashville, TN 37203, is
an independently-owned firm founded in 1993. Mastrapasqua provides a variety of
investment management and investment advisory services. Ownership of
Mastrapasqua lies 100% with its employees. The directors and principal executive
officers (each of whose address is care of Mastrapasqua at the address listed
above) of Mastrapasqua are Frank Mastrapasqua, Chairman and Chief Executive
Officer, Thomas A. Trantum, President, and Mauro Mastrapasqua, First Vice
President. As of December 31, 2000, Mastrapasqua had $2.5 billion in assets
under management. Messrs. Mastrapasqua and Trantum manage that portion of the
Fund's portfolio assigned to Mastrapasqua. Both Messrs. Mastrapasqua and Trantum
have over 30 years of investment experience.
12
Reference is made to MANAGEMENT - PORTFOLIO TRANSACTIONS AND BROKERAGE below for
the direction by the Fund's Portfolio Managers, including Mastrapasqua, of Fund
portfolio transactions to broker-dealers that make certain research services
available to Liberty Asset Management.
Under the terms of an exemptive order issued to the Fund and Liberty Asset
Management by the Securities and Exchange Commission, the Fund may enter into a
portfolio management agreement with a new or additional Portfolio Manager
recommended by Liberty Asset Management in advance of shareholder approval,
provided that the new agreement is at a fee no higher than that provided in, and
is on other terms and conditions substantially similar to, the Fund's agreements
with its other Portfolio Managers, and that its continuance is subject to
approval by shareholders at the Fund's regularly scheduled annual meeting next
following the date of the portfolio management agreement with the new or
additional Portfolio Manager. Accordingly, the Fund's portfolio management
agreement with Mastrapasqua is being submitted for shareholder approval at the
Meeting.
TERMS OF PORTFOLIO MANAGEMENT AGREEMENT WITH MASTRAPASQUA
The portfolio management agreement with Mastrapasqua is at the same fee rates
and is on other terms and conditions substantially similar to those of the
portfolio management agreements with the Fund's four other Portfolio Managers
and to those of the portfolio management agreement with J.P. Morgan. A copy of
the portfolio management agreement with Mastrapasqua is attached to this proxy
statement as Appendix B.
Under the Fund's portfolio management agreements (including that with
Mastrapasqua), each Portfolio Manager has discretionary investment authority
(including the selection of brokers and dealers for the execution of the Fund's
portfolio transactions) with respect to the portion of the Fund's assets
allocated to it by Liberty Asset Management from time to time, subject to the
Fund's investment objective and policies, to the supervision and control of the
Trustees, and to instructions from Liberty Asset Management. The Portfolio
Managers are required to use their best professional judgment in making timely
investment decisions for the Fund. The Portfolio Managers, however, will not be
liable for actions taken or omitted in good faith and believed to be within the
authority conferred by their portfolio management agreements and without willful
misfeasance, bad faith or gross negligence.
From the fund management fees it receives from the Fund (0.80% per annum of the
Fund's average weekly net asset value up to $400 million, 0.72% per annum of
such average weekly net asset value exceeding $400 million up to $800 million,
0.648% of such average weekly net asset value exceeding $800 million up to $1.2
billion, and 0.584% of such average weekly net asset value in excess of $1.2
billion), Liberty Asset Management pays each of the Fund's Portfolio Managers
0.40% per annum of the average weekly net asset value of the portion of the
Fund's assets managed by that Portfolio Manager, with such rate reduced to 0.36%
per annum of the Portfolio Managers' allocable portions of the Fund's average
weekly net asset value in excess of $400 million up to $800 million, 0.324% of
their allocable portions of such average weekly net asset value exceeding $800
million up to $1.2 billion, and 0.292% of their allocable portions of such
average weekly net asset value exceeding $1.2 billion. For the fiscal year ended
December 31, 2000, Mastrapasqua received $148,544 for its portfolio management
services to the Fund. As of December 31, 2000, the Fund's net assets were $1.4
billion.
If approved by shareholders at the Meeting, the Portfolio Management Agreement
with Mastrapasqua will remain in effect until October 31, 2002, and will
continue thereafter until terminated by the Fund or the Portfolio Manager,
provided such continuance is approved at least annually by the Board of
Trustees,
13
including a majority of the independent Trustees, or by the vote of a "majority
of the outstanding voting securities" (as defined under REQUIRED VOTE below) of
the Fund.
OTHER FUNDS MANAGED BY MASTRAPASQUA
In addition to the management services provided by Mastrapasqua to the Fund,
Mastrapasqua also provides management services to other investment companies.
Information with respect to the assets of and management fees payable to
Mastrapasqua by those funds having investment objectives similar to those of the
Fund is set forth below:
Total Net Assets at Annual Management Fee
December 31, 2000 as a % of
Fund (in millions) Average Daily Net Assets
---- ------------------- ------------------------
Touchstone Funds $190 0.515%
Evaluation Associates, Inc. $ 9 0.385%
Mastrapasqua Growth Value Fund $ 18 1.000%
REQUIRED VOTE
Approval of the portfolio management agreement with Mastrapasqua requires the
affirmative vote of a "majority of the outstanding voting securities" of the
Fund, which, under the Investment Company Act of 1940, means the affirmative
vote of the lesser of (a) 67% or more of the shares of the Fund present at the
Meeting or represented by proxy if the holders of more than 50% of the
outstanding shares are present or represented by proxy, or (b) more than 50% of
the outstanding shares. See INFORMATION ABOUT THE MEETING below.
In the event that the shareholders of the Fund fail to approve the portfolio
management agreement with Mastrapasqua, the portfolio management agreement will
terminate and Liberty Asset Management will cause the portfolio assets under
management by Mastrapasqua to be reallocated to one or more of the other
Portfolio Managers or invested in money market instruments or other cash
equivalent holdings pending the reappointment of Mastrapasqua or the appointment
of a new Portfolio Manager.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
APPROVAL OF THE PORTFOLIO MANAGEMENT AGREEMENT WITH MASTRAPASQUA.
PROPOSAL 3. RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
By vote of the Board of Trustees, including the vote of the non-interested
Trustees, the firm of PricewaterhouseCoopers LLP ("PWC") has been selected as
independent accountants for the Fund for the year ending December 31, 2001. Such
selection is being submitted to the shareholders for ratification. The
employment of PWC is conditioned on the right of the Fund by majority vote of
its shareholders to terminate such employment. Such firm has acted as
independent accountants for the Fund since September 30, 1999. Prior to
September 30, 1999, KPMG LLP acted as independent auditors for the Fund since
its commencement of operations in 1986.
The services provided by the Fund's independent accountants include examination
of its annual financial statements, assistance and consultation in connection
with SEC filings, and review of the Fund's annual federal income tax returns.
Representatives of PWC are
14
expected to be present at the Meeting, will be given the opportunity to make a
statement if they should so desire and will be available to respond to
appropriate questions.
REQUIRED VOTE
A majority of the votes cast at the Meeting, if a quorum is represented, is
required for the ratification of selection of the independent accountants.
OTHER BUSINESS
The Board of Trustees knows of no other business to be brought before the
Meeting. However, if any other matters properly come before the Meeting, it is
the intention of the Board that proxies that do not contain specific
instructions to the contrary will be voted on such matters in accordance with
the judgment of the persons designated therein as proxies.
MANAGEMENT
Liberty Asset Management, 600 Atlantic Avenue, Boston, Massachusetts 02210, is
the Fund's manager. Liberty Asset Management is an indirect wholly-owned
subsidiary of LFC, the address of which is also 600 Atlantic Avenue, Boston,
Massachusetts 02210. Approximately 72% of the common stock of LFC is owned
through subsidiaries by Liberty Mutual Insurance Company, Boston, Massachusetts,
and the balance is held by the public and listed on the NYSE. Liberty Asset
Management's Board of Directors is comprised of William R. Parmentier,
President, Chief Executive Officer and Chief Investment Officer, Liberty Asset
Management and President of the Fund, Joseph R. Palombo, Chairman of the Board
and Trustee of the Fund, and J. Andrew Hilbert an officer of LFC. Pursuant to
its Fund Management Agreement with the Fund, Liberty Asset Management implements
and operates the Fund's multi-manager methodology described under PROPOSAL 2
above and has overall supervisory responsibility for the general management and
investment of the Fund's securities portfolio, subject to the Fund's investment
objective and policies and any directions of the Trustees. Liberty Asset
Management recommends to the Board of Trustees multiple independent investment
management firms (currently five in number) for appointment as Portfolio
Managers of the Fund, each of which employs a different investment style, and
from time to time rebalances the Fund's portfolio among the Portfolio Managers
so as to maintain an approximately equal allocation of the portfolio among the
investment styles practiced by them throughout all market cycles. Liberty Asset
Management continuously analyzes and evaluates the investment performance and
portfolios of the Fund's Portfolio Managers and from time to time recommends
changes in the Portfolio Managers. On November 1, 2000, LFC, an intermediate
parent of Liberty Asset Management, announced that it had retained CS First
Boston to help explore strategic alternatives, including the possible sale of
Liberty Financial.
Liberty Asset Management also is responsible under the Fund Management Agreement
for the provision of administrative services to the Fund, including the
provision of office space, shareholder and
15
broker-dealer communications, compensation of all officers and employees of the
Fund who are officers or employees of Liberty Asset Management or its
affiliates, and supervision of transfer agency, dividend disbursing, custodial
and other services provided by others. Certain of Liberty Asset Management's
administrative responsibilities to the Fund have been delegated to its
affiliate, Colonial, One Financial Center, Boston, Massachusetts 02111. For its
administrative services the Fund pays Liberty Asset Management an annual fee at
the rate of 0.20% of the Fund's average weekly net asset value up to $400
million, 0.18% of such average weekly net asset value exceeding $400 million up
to $800 million, 0.162% of such average weekly net asset value exceeding $800
million up to $1.2 billion, and 0.146% of such average weekly net asset value in
excess of $1.2 billion. This administrative service fee is in addition to the
Fund management fees paid by the Fund to Liberty Asset Management described
above.
Under the Fund's portfolio management agreements, each Portfolio Manager has
discretionary investment authority with respect to the portion of the Fund's
assets allocated to it by Liberty Asset Management from time to time, subject to
the Fund's investment objective and policies, to the supervision and control of
the Trustees, and to instructions from Liberty Asset Management. The Portfolio
Managers are required to use their best professional judgment in making timely
investment decisions for the Fund. The Portfolio Managers, however, will not be
liable for actions taken or omitted in good faith and believed to be within the
authority conferred by their portfolio management agreements and without willful
misfeasance, bad faith or gross negligence.
The names and addresses of the Fund's current Portfolio Managers, including
Mastrapasqua, are as follows:
Boston Partners Asset Management, L.P.
28 State Street
Boston, MA 02109
Mastrapasqua & Associates, Inc.
814 Church Street, Suite 600
Nashville, TN 37203
Oppenheimer Capital
1345 Avenue of the Americas
New York, NY 10105-4800
TCW Investment Management Company
865 South Figueroa Street
Los Angeles, CA 90017
Westwood Management Corporation
300 Crescent Court
Dallas, TX 75201
PORTFOLIO TRANSACTIONS AND BROKERAGE
Each of the Fund's Portfolio Managers has discretion to select brokers and
dealers to execute portfolio transactions initiated by the Portfolio Manager for
the portion of the Fund's portfolio assets allocated to it, and to select the
markets in which such transactions are to be executed. The portfolio management
agreements with the Fund provide, in substance, that in executing portfolio
transactions and selecting
16
brokers or dealers, the primary responsibility of the Portfolio Manager is to
seek to obtain best net price and execution for the Fund.
The Portfolio Managers are authorized to cause the Fund to pay a commission to a
broker or dealer who provides research products and services to the Portfolio
Manager for executing a portfolio transaction which is in excess of the amount
of commission another broker or dealer would have charged for effecting that
transaction. The Portfolio Managers must determine in good faith, however, that
such commission was reasonable in relation to the value of the research products
and services provided to them, viewed in terms of that particular transaction or
in terms of all the client accounts (including the Fund) over which the
Portfolio Manager exercises investment discretion. It is possible that certain
of the services received by a Portfolio Manager attributable to a particular
transaction will primarily benefit one or more other accounts for which
investment discretion is exercised by the Portfolio Manager.
In addition, under their portfolio management agreements with the Fund and
Liberty Asset Management, the Portfolio Managers, in selecting brokers or
dealers to execute portfolio transactions for the Fund, are authorized to
consider (and Liberty Asset Management may request them to consider) brokers or
dealers that provide to Liberty Asset Management, directly or through third
parties, research products or services such as research reports; subscriptions
to financial publications and research compilations; portfolio analyses;
economic reports; compilations of securities prices, earnings, dividends and
other data; computer hardware and software, quotation equipment and services
used for research; and services of economic or other consultants. The
commissions paid on such transactions may exceed the amount of commission
another broker would have charged for effecting that transaction. Research
products and services made available to Liberty Asset Management include
performance and other qualitative and quantitative data relating to investment
managers in general and the Portfolio Managers in particular; data relating to
the historic performance of categories of securities associated with particular
investment styles; mutual fund portfolio and performance data; data relating to
portfolio manager changes by pension plan fiduciaries; and related computer
hardware and software, all of which are used by Liberty Asset Management in
connection with its selection and monitoring of Portfolio Managers, the assembly
of an appropriate mix of investment styles, and the determination of overall
portfolio strategies. These research products and services may also be used by
Liberty Asset Management in connection with its management of its Liberty
All-Star Funds. In instances where Liberty Asset Management receives from or
through brokers and dealers products or services which are used both for
research purposes and for administrative or other non-research purposes, Liberty
Asset Management makes a good faith effort to determine the relative proportions
of such products or services which may be considered as investment research,
based primarily on anticipated usage, and pays for the costs attributable to the
non-research usage in cash.
Liberty Asset Management from time to time reaches understandings with each of
the Fund's Portfolio Managers as to the amount of the Fund's portfolio
transactions initiated by such Portfolio Manager that are to be directed to
brokers and dealers which provide or make available research products and
services to Liberty Asset Management and the commissions to be charged to the
Fund in connection therewith. These amounts may differ among the Portfolio
Managers based on the nature of the market for the types of securities managed
by them and other factors.
Although the Fund does not permit a Portfolio Manager to act or have a
broker-dealer affiliate act as broker for Fund portfolio transactions initiated
by it, the Portfolio Managers are permitted to place Fund portfolio transactions
initiated by them with another Portfolio Manager or its broker-dealer affiliate
for execution on an agency basis, provided the commission does not exceed the
usual and customary broker's commission being paid to other brokers for
comparable transactions and is otherwise in
17
accordance with the Fund's procedures adopted pursuant to Rule 17e-1 under the
Investment Company Act. During 2000, there were no Fund portfolio transactions
placed with a Portfolio Manager or its affiliate.
On February 15, 2000, the SEC issued the Fund exemptive relief from Sections
10(f), 17(a) and 17(e) and Rule 17e-1 under the Investment Company Act of 1940
to permit (1) broker-dealers which are, or are affiliated with, Portfolio
Managers of the Fund to engage in principal transactions with, and provide
brokerage services to portion(s) of the Fund advised by another Portfolio
Manager and (2) the Fund to purchase securities either directly from a principal
underwriter which is an affiliate of a Portfolio Manager or from an underwriting
syndicate of which a principal underwriter is affiliated with a Portfolio
Manager of the Fund.
INFORMATION ABOUT THE MEETING
All proxies solicited by the Board of Trustees which are properly executed and
returned in time to be voted at the Meeting will be voted at the Meeting in
accordance with the instructions thereon. If no specification is made on a
proxy, it will be voted FOR the election as Trustee of the nominees named under
PROPOSAL 1, FOR approval of the Fund's Portfolio Management Agreement with
Mastrapasqua referred to under PROPOSAL 2, and FOR ratification of the Board's
selection of the Fund's independent accountants for 2001 referred to under
PROPOSAL 3. Any proxy may be revoked at any time prior to its use by written
notification received by the Fund's Secretary, by the execution of a later-dated
proxy, or by attending the Meeting and voting in person.
The election of the Trustees is by plurality of votes cast at the Meeting.
Approval of the Portfolio Management Agreement with Mastrapasqua requires the
affirmative vote of a "majority of the outstanding voting securities" of the
Fund, as defined under PROPOSAL 2 above. Ratification of the selection of the
Fund 's independent accountants requires the affirmative vote of a majority of
the votes cast at the Meeting, a quorum being present. Only shareholders of
record on February 1, 2001 may vote.
Abstentions and broker non-votes will be counted as present for purposes of
determining whether a quorum is present. If a proposal must be approved by a
percentage of votes cast on the proposal, abstentions and broker non-votes will
not be counted as "votes cast" on the proposal and will have no effect on the
result of the vote. If the proposal must be approved by a percentage of shares
present at the meeting or of the Fund's outstanding shares, abstentions and
broker non-votes will have the effect of votes against the proposal. "Broker
non-votes" occur where: (i) shares are held by brokers or nominees, typically in
"street name;" (ii) instructions have not been received from the beneficial
owners or persons entitled to vote; and (iii) the broker or nominee does not
have discretionary voting power on a particular matter.
All shareholders of record on February 1, 2001, are entitled to one vote for
each share held. As of that date 101,112,652.473 shares of beneficial interest
of the Fund were issued and outstanding. Based on filings made by such holders
pursuant to Sections 13(d) and 16(a) of the Securities Exchange Act of 1934 (the
"Exchange Act"), the following entities owned beneficially more than five
percent of the outstanding shares of the Fund:
Percent of
Name and Address No. of Shares Owned Outstanding Shares
---------------- ------------------- ------------------
18
Liberty Mutual Insurance Company and 101,883,648 shares 7.18%
Liberty Mutual
Fire Insurance Company
175 Berkeley Street
Boston, MA 02117
Liberty Mutual Insurance Company ("Liberty Mutual") and Liberty Mutual Fire
Insurance Company ("Liberty Fire") have sole voting and investment power with
respect to 6,493,870 and 770,126 shares, respectively. Liberty Mutual and
Liberty Fire are mutual insurance companies having identical Boards of Directors
and certain common executive officers. Liberty Mutual indirectly owns a majority
of the outstanding common stock of LFC, which indirectly owns all of the stock
of Liberty Asset Management (see MANAGEMENT above). To the knowledge of the
Fund, on the record date for the Meeting no other shareholder owned
beneficially, as defined by Rule 13d-3 under the Exchange Act, more than 5% of
the outstanding shares of the Fund.
In the event a quorum is present at the Meeting but sufficient votes to approve
any of the above proposals have not been received, the persons named as proxies
may propose one or more adjournments of the Meeting to permit further
solicitation of proxies. A shareholder vote may be taken on one or more of the
proposals referred to above prior to such adjournment if sufficient votes have
been received and it is otherwise appropriate. Any such adjournment will require
the affirmative vote of a majority of those shares present at the Meeting in
person or by proxy. If a quorum is present, the persons named as proxies will
vote those proxies which they are entitled to vote FOR any such proposal in
favor of such adjournment and will vote those proxies required to be voted for
rejection of such proposal against any such adjournment.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Fund's Trustees and officers and
persons who own more than ten percent of the Fund's outstanding shares and
certain officers and directors of Liberty Asset Management (collectively,
"Section 16 reporting persons"), to file with the SEC initial reports of
ownership and reports of changes in ownership of Fund shares. Section 16
reporting persons are required by SEC regulations to furnish the Fund with
copies of all Section 16(a) forms they file. To the Fund's knowledge, based
solely on a review of the copies of such reports furnished to the Fund and on
representations made, all Section 16 reporting persons complied with all Section
16(a) filing requirements applicable to them.
SUBMISSION OF CERTAIN SHAREHOLDER PROPOSALS
Under the proxy rules of the SEC, shareholder proposals meeting tests contained
in those rules may, under certain conditions, be included in the Fund 's proxy
material for a particular annual shareholders meeting. Under the foregoing proxy
rules, proposals submitted for inclusion in the proxy material for the 2002
Annual Meeting must be received by the Fund on or before October 26, 2001. The
fact that the Fund receives a shareholder proposal in a timely manner does not
ensure its inclusion in its proxy material, since there are other requirements
in the proxy rules relating to such inclusion.
19
APPENDIX A
AUDIT COMMITTEE CHARTER
I. COMPOSITION OF THE AUDIT COMMITTEE. The Audit Committee shall be comprised
of at least three directors, each of whom shall have no relationship to
Liberty All-Star Equity Fund and Liberty All-Star Growth Fund, Inc. (the
"Funds") that may interfere with the exercise of their independence from
management and the Fund and shall otherwise satisfy the applicable
membership requirements under the rules of the New York Stock Exchange,
Inc.
II. PURPOSES OF THE AUDIT COMMITTEE. The purposes of the Audit Committee are to
assist the Board of Trustees/Directors:
1. in its oversight of the Fund's accounting and financial reporting
policies and practices, its internal audit controls and procedures,
and, as appropriate, the internal controls of certain service
providers;
2. in its oversight of the quality and objectivity of the Fund's
financial statements and the independent audit thereof;
3. in selecting (or nominating the outside auditors to be proposed for
shareholder approval in any proxy statement), evaluating and, where
deemed appropriate, replacing the outside auditors; and
4. in evaluating the independence of the outside auditors.
The function of the Audit Committee is oversight. Management for the Fund
is responsible for the preparation, presentation and integrity of the
Fund's financial statements. Management and its internal accounting
department are responsible for maintaining appropriate accounting and
financial reporting principles and policies and internal controls and
procedures designed to assure compliance with accounting standards and
applicable laws and regulations. The outside auditors are responsible for
planning and carrying out a proper audit and reviews. The outside auditor
for the Fund is ultimately accountable to the Board of Trustees/Directors
and Audit Committee of the Fund. The Board of Trustees/Directors and the
Audit Committee have the ultimate authority and responsibility to select,
evaluate and, where appropriate, replace the outside accountant (or to
nominate the outside accountant to be proposed for shareholder approval in
any proxy statement).
III. MEETINGS OF THE AUDIT COMMITTEE. The Audit Committee shall meet at least
once annually, or more frequently if circumstances dictate. The Audit
Committee shall set its agenda and the places and times of its meetings.
The Audit Committee may meet alone and outside the presence of management
personnel with any certified public accountant and auditor firm rendering
reports to the Audit Committee or the Board of Trustees/Directors and with
outside legal counsel.
IV. DUTIES AND POWERS OF THE AUDIT COMMITTEE. To carry out its purposes, the
Audit Committee shall have the following duties and powers:
1. The Audit Committee shall review and discuss the audited financial
statements and other financial information with management and the
independent auditors for the Fund.
2. The Audit Committee shall review and discuss with the independent
auditors:
a. the scope of audits and audit reports;
b. the personnel, staffing, qualifications and experience of the
auditor;
20
c. the compensation of the auditor; and
d. the independence of the auditor, regarding which the Audit
Committee shall secure from the auditor the information required
by Independence Standards Board Standard No. 1. The Audit
Committee shall actively engage in a dialogue with the outside
auditor with respect to any disclosed relationships or services
that may impact the objectivity and independence of the outside
auditor. The Audit Committee also shall be responsible for
recommending that the Board of Trustees/Directors take
appropriate action in response to the outside auditor's report to
satisfy itself of the outside auditor's independence.
3. The Audit Committee also shall review and discuss with the independent
auditors the matters required to be discussed pursuant to SAS 61,
including the following:
a. the quality, not just the acceptability under generally accepted
accounting principles, of the accounting principles applied by
the Fund in its financial reporting;
b. the level of responsibility assumed by the auditors in the
preparation of the audit;
c. the initial selection of and changes in significant accounting
policies or their application, and the effect of significant
accounting policies in controversial or emerging areas for which
there is a lack of authoritative consensus or guidance;
d. the process used by management for the Fund in formulating
particularly sensitive accounting estimates and the basis for the
auditor's conclusions regarding the reasonableness of those
estimates;
e. the auditor's responsibility for other information in documents
containing audited financial statements, any procedures
performed, and the results;
f. any disagreements with management, whether or not satisfactorily
resolved, about matters that individually or in the aggregate
could be significant to the entity's financial statements or the
auditor's report;
g. any consultations with other accountants and significant matters
that were the subject of such consultations;
h. any major issues discussed with management in connection with the
initial or recurring retention of the auditor, including the
application of accounting principles and auditing standards; and
i. any serious difficulties relating to the performance of the audit
that the auditor encountered with management.
4. The Audit Committee shall provide a recommendation to the Board of
Trustees/Directors regarding whether the audited financial statements
of the Fund should be included in the annual report to shareholders of
the Fund.
5. The Audit Committee shall prepare the report, including any
recommendation of the Audit Committee, required by the rules of the
Securities and Exchange Commission to be included in the Fund's annual
proxy statement.
6. The Audit Committee shall review this charter at least annually and
recommend any changes to the full Board of Trustees/Directors; and
21
7. The Audit Committee shall report its activities to the full Board of
Trustees/Directors on a regular basis and make such recommendations
with respect to the above and other matters as the Audit Committee may
deem necessary or appropriate.
V. RESOURCES AND AUTHORITY OF THE AUDIT COMMITTEE. The Audit Committee shall
have the resources and authority appropriate to discharge its
responsibilities, including the authority to engage outside auditors for
special audits, reviews and other procedures and to retain special counsel
and other experts or consultants at the expense of the Fund.
22
APPENDIX B
PORTFOLIO MANAGEMENT AGREEMENT
November 1, 2000
Mastrapasqua & Associates, Inc.
814 Church Street
Suite 600
Nashville, TN 37203
Re: Portfolio Management Agreement
------------------------------
Ladies and Gentlemen:
Liberty All-Star Equity (the "Fund") is a diversified closed-end investment
company registered under the Investment Company Act of 1940 (the "Act"), and is
subject to the rules and regulations promulgated thereunder.
Liberty Asset Management Company (the "Fund Manager") evaluates and
recommends portfolio managers for the assets of the Fund, and is responsible for
the day-to-day administration of the Fund.
1. EMPLOYMENT AS A PORTFOLIO MANAGER. The Fund being duly authorized hereby
employs Mastrapasqua & Associates, Inc. (the "Portfolio Manager") as a
discretionary portfolio manager, on the terms and conditions set forth herein,
of that portion of the Fund's assets which the Fund Manager determines to assign
to the Portfolio Manager (those assets being referred to as the "Portfolio
Manager Account"). The Fund Manager may, from time to time, allocate and
reallocate the Fund's assets among the Portfolio Manager and the other portfolio
managers of the Fund's assets.
2. ACCEPTANCE OF EMPLOYMENT; STANDARD OF PERFORMANCE. The Portfolio Manager
accepts its employment as a discretionary portfolio manager and agrees to use
its best professional judgment to make timely investment decisions for the
Portfolio Manager Account in accordance with the provisions of this Agreement.
3. PORTFOLIO MANAGEMENT SERVICES OF PORTFOLIO MANAGER. In providing
portfolio management services to the Portfolio Manager Account, the Portfolio
Manager shall be subject to the investment objectives, policies and restrictions
of the Fund as set forth in its current Registration Statement under the Act, as
the same may be modified from time to time (the "Registration Statement"), and
the investment restrictions set forth in the Act and the Rules thereunder (as
and to the extent set forth in the Registration Statement or in other
documentation furnished to the Portfolio Manager by the Fund or the Fund
Manager), to the supervision and control of the Board of Trustees of the Fund,
and to instructions from the Fund Manager. The Portfolio Manager shall not,
without the prior approval of the Fund or the Fund Manager, effect any
transactions which would cause the Portfolio Manager Account, treated as a
separate fund, to be out of compliance with any of such restrictions or
policies.
4. TRANSACTION PROCEDURES. All portfolio transactions for the Portfolio
Manager Account will be consummated by payment to or delivery by the custodian
of the Fund (the "Custodian"), or such depositories or agents as may be
designated by the Custodian in writing, as custodian for the Fund, of all cash
and/or securities due to or from the Portfolio Manager Account, and the
Portfolio Manager shall not have possession or custody thereof or any
responsibility or liability with respect to such custody. The Portfolio Manager
shall advise and confirm in writing to the Custodian all investment orders for
the
23
Portfolio Manager Account placed by it with brokers and dealers at the time and
in the manner set forth in Schedule A hereto (as amended from time to time by
the Fund Manager). The Fund shall issue to the Custodian such instructions as
may be appropriate in connection with the settlement of any transaction
initiated by the Portfolio manager. The Fund shall be responsible for all
custodial arrangements and the payment of all custodial charges and fees, and,
upon giving proper instructions to the Custodian, the Portfolio Manager shall
have no responsibility or liability with respect to custodial arrangements or
the acts, omissions or other conduct of the Custodian.
5. ALLOCATION OF BROKERAGE. The Portfolio Manager shall have authority and
discretion to select brokers and dealers to execute portfolio transactions
initiated by the Portfolio Manager for the Portfolio Manager Account, and to
select the markets on or in which the transaction will be executed.
A. In doing so, the Portfolio Manager's primary responsibility shall
be to seek to obtain best net price and execution for the Fund. However,
this responsibility shall not obligate the Portfolio Manager to solicit
competitive bids for each transaction or to seek the lowest available
commission cost to the Fund, so long as the Portfolio Manager reasonably
believes that the broker or dealer selected by it can be expected to obtain
a "best execution" market price on the particular transaction and
determines in good faith that the commission cost is reasonable in relation
to the value of the brokerage and research services (as defined in Section
28(e)(3) of the Securities Exchange Act of 1934) provided by such broker or
dealer to the Portfolio Manager viewed in terms of either that particular
transaction or of the Portfolio Manager's overall responsibilities with
respect to its clients, including the Fund, as to which the Portfolio
Manager exercises investment discretion, notwithstanding that the Fund may
not be the direct or exclusive beneficiary of any such services or that
another broker may be willing to charge the Fund a lower commission on the
particular transaction.
B. Subject to the requirements of paragraph A above, the Fund Manager
shall have the right to request that transactions giving rise to brokerage
commissions, in an amount to be agreed upon by the Fund Manager and the
Portfolio Manager, shall be executed by brokers and dealers that provide
brokerage or research services to the Fund Manager, or as to which an
on-going relationship will be of value to the Fund in the management of its
assets, which services and relationship may, but need not, be of direct
benefit to the Portfolio Manager Account.
C. The Portfolio Manager shall not execute any portfolio transactions
for the Portfolio Manager Account with itself or any broker or dealer which
is an "affiliated person" (as defined in the Act) of the Fund, the
Portfolio Manager or any other Portfolio Manager of the Fund without the
prior written approval of the Fund except in accordance with SEC Exemptive
Order No. 24288 dated February 15, 2000, a copy of which has been furnished
to the Portfolio Manager, and Rule 17e-1 procedures as approved by the
Fund's Trustees from time to time. The Fund Manager will provide the
Portfolio Manager with a list of brokers and dealers which are "affiliated
persons" of the Fund or its Portfolio Managers.
6. PROXIES. The Fund will vote or direct the voting of all proxies
solicited by or with respect to the issuers of securities in which assets of the
Portfolio Manager Account may be invested in accordance with authorization
provided by the Fund Manager from time to time.
7. FEES FOR SERVICES. The compensation of the Portfolio Manager for its
services under this Agreement shall be calculated and paid by the Fund Manager
in accordance with the attached Schedule C. Pursuant to the Fund Management
Agreement between the Fund and the Fund Manager, the Fund Manager is solely
responsible for the payment of fees to the Portfolio Manager from the fund
management fees paid
24
to it by the Fund, and the Portfolio Manager agrees to seek payment of its fees
solely from the Fund Manager.
8. OTHER INVESTMENT ACTIVITIES OF PORTFOLIO MANAGER. The Fund acknowledges
that the Portfolio Manager or one or more of its affiliates has investment
responsibilities, renders investment advice to and performs other investment
advisory services for other individuals or entities ("Client Accounts"), and
that the Portfolio Manager, its affiliates or any of its or their directors,
members, officers, agents or employees may buy, sell or trade in any securities
for its or their respective accounts ("Affiliated Accounts"). Subject to the
provisions of paragraph 2 hereof, the Fund agrees that the Portfolio Manager or
its affiliates may give advice or exercise investment responsibility and take
such other action with respect to other Client Accounts and Affiliated Accounts
which may differ from the advice given or the timing or nature of action taken
with respect to the Portfolio Manager Account, provided that the Portfolio
Manager acts in good faith, and provided further, that it is the Portfolio
Manager's policy to allocate, within its reasonable discretion, investment
opportunities to the Portfolio Manager Account over a period of time on a fair
and equitable basis relative to the Client Accounts and the Affiliated Accounts,
taking into account the cash position and the investment objectives and policies
of the Fund and any specific investment restrictions applicable thereto. The
Fund acknowledges that one or more Client Accounts and Affiliated Accounts may
at any time hold, acquire, increase, decrease, dispose of or otherwise deal with
positions in investments in which the Portfolio Manager Account may have an
interest from time to time, whether in transactions which involve the Portfolio
Manager Account or otherwise. The Portfolio Manager shall have no obligation to
acquire for the Portfolio Manager Account a position in any investment which any
Client Account or Affiliated Account may acquire, and the Fund shall have no
first refusal, coinvestment or other rights in respect of any such investment,
either for the Portfolio Manager Account or otherwise.
9. LIMITATION OF LIABILITY. The Portfolio Manager shall not be liable for
any action taken, omitted or suffered to be taken by it in its reasonable
judgment, in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Agreement, or in
accordance with (or in the absence of) specific directions or instructions from
the Fund, provided, however, that such acts or omissions shall not have resulted
from the Portfolio Manager's willful misfeasance, bad faith or gross negligence,
a violation of the standard of care established by and applicable to the
Portfolio Manager in its actions under this Agreement or breach of its duty or
of its obligations hereunder (provided, however, that the foregoing shall not be
construed to protect the Portfolio Manager from liability in violation of
Section 17 of the Act).
10. CONFIDENTIALITY. Subject to the duty of the Portfolio Manager and the
Fund to comply with applicable law, including any demand of any regulatory or
taxing authority having jurisdiction, the parties hereto shall treat as
confidential all information pertaining to the Portfolio Manager Account and the
actions of the Portfolio Manager and the Fund in respect thereof.
11. ASSIGNMENT. This Agreement shall terminate automatically in the event
of its assignment, as that term is defined in Section 2(a)(4) of the Act. The
Portfolio Manager shall notify the Fund in writing sufficiently in advance of
any proposed change of control, as defined in Section 2(a)(9) of the Act, as
will enable the Fund to consider whether an assignment as defined in Section
2(a)(4) of the Act will occur, and whether to take the steps necessary to enter
into a new contract with the Portfolio Manager.
12. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE FUND. The Fund
represents, warrants and agrees that:
A. The Portfolio Manager has been duly appointed to provide investment
services to the Portfolio Manager Account as contemplated hereby.
25
B. The Fund has delivered to the Portfolio Manager such instructions
governing the investment of the Portfolio Manager Account as are necessary
for the Portfolio Manager to carry out its obligations under this
Agreement.
C. Upon certification by the Portfolio Manager that it has adopted a
written code of ethics and procedures reasonably necessary to prevent
access persons, as defined by said code of ethics, from violating the
anti-fraud provisions of Rule 17j-1 under the Act, the Fund will not
unreasonably withhold its approval of the code of ethics adopted by the
Portfolio Manager provided that the Portfolio Manager certifies to the Fund
that in all other material respects the Portfolio Manager's code of ethics
complies with Rule 17j-1.
13. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE PORTFOLIO MANAGER.
The Portfolio Manager represents, warrants and agrees that:
A. It is registered as an "Investment Adviser" under the Investment
Advisers Act of 1940 ("Advisers Act").
B. It will maintain, keep current and preserve on behalf of the Fund,
in the manner required or permitted by the Act and the Rules thereunder,
the records identified in Schedule B (as Schedule B may be amended from
time to time by the Fund Manager). The Portfolio Manager agrees that such
records are the property of the Fund, and will be surrendered to the Fund
promptly upon request.
C. It will adopt and maintain a written code of ethics complying with
the requirements of Rule 17j-1 and submit same and any amendments thereto
promptly to the Fund, but not less often than annually. The Portfolio
Manager agrees that it will notify the Fund within 15 days of adopting
material changes to its code of ethics. While this Agreement is in effect,
an officer or general partner of the Portfolio Manager shall certify
annually to the Fund that the Portfolio Manager has complied with the
requirements of Rule 17j-1 during the previous year and has procedures
reasonably necessary to prevent access persons from violating the Portfolio
Manager's code of ethics. On an annual basis, the Portfolio Manager shall
provide a written report to the Fund describing any issues arising under
its code of ethics or procedures since the last report was so submitted,
including information about material violations of the code or procedures
and any action taken in response to such violations. Upon the written
request of the Fund, the Portfolio Manager shall permit the Fund to examine
the reports required to be maintained by the Portfolio Manager under Rule
17j-1(c)(1).
D. Upon request, the Portfolio Manager will promptly supply the Fund
with any information concerning the Portfolio Manager and its stockholders,
employees and affiliates which the Fund may reasonably require in
connection with the preparation of its Registration Statement or amendments
thereto, proxy material, reports and other documents required to be filed
under the Act, the Securities Act of 1933, or other applicable securities
laws.
14. AMENDMENT. This Agreement may be amended at any time, but (except for
Schedules A and B which may be amended by the Fund Manager acting alone) only by
written agreement among the Portfolio Manager, the Fund Manager and the Fund,
which amendment, other than amendments to Schedules A and B, is subject to the
approval of the Board of Trustees and the Shareholders of the Fund as and to the
extent required by the Act.
26
15. EFFECTIVE DATE; TERM. This Agreement shall continue in effect until
November 1, 2002 and shall continue in effect thereafter provided such
continuance is specifically approved at least annually by (i) the Fund's Board
of Trustees or (ii) a vote of a "majority" (as defined in the Act) of the Fund's
outstanding voting securities, provided that in either event such continuance is
also approved by a majority of the Board of Trustees who are not "interested
persons" (as defined in the Act) of any party to this Agreement, by vote cast in
person at a meeting called for the purpose of voting on such approval. The
aforesaid requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner consistent with the
Act and the Rules and Regulations thereunder.
16. TERMINATION. This Agreement may be terminated by any party, without
penalty, immediately upon written notice to the other parties in the event of a
breach of any provision thereof by a party so notified, or otherwise upon not
less than thirty (30) days' written notice to the Portfolio Manager in the case
of termination by the Fund or the Fund Manager, or ninety (90) days' written
notice to the Fund and the Fund Manager in the case of termination by the
Portfolio Manager, but any such termination shall not affect the status,
obligations or liabilities of any party hereto to the other parties.
17. APPLICABLE LAW. To the extent that state law is not preempted by the
provisions of any law of the United States heretofore or hereafter enacted, as
the same may be amended from time to time, this Agreement shall be administered,
construed and enforced according to the laws of the Commonwealth of
Massachusetts.
18. SEVERABILITY. If any term or condition of this Agreement shall be
invalid or unenforceable to any extent or in any application, then the remainder
of this Agreement, and such term or condition except to such extent or in such
application, shall not be affected thereby, and each and every term and
condition of this Agreement shall be valid and enforced to the fullest extent
and in the broadest application permitted by law.
IN WITNESS WHEREOF, the parties have hereunto set their hands as of the
date first written above.
LIBERTY ALL-STAR EQUITY FUND
By:
----------------------------------------------
Name: William J. Ballou
Title: Secretary
LIBERTY ASSET MANAGEMENT COMPANY
By:
----------------------------------------------
Name: William R. Parmentier
Title: President and Chief Executive Officer
ACCEPTED:
MASTRAPASQUA & ASSOCIATES, INC.
By:
--------------------------------------------
Name: Thomas A. Trantum
Title: President
SCHEDULES: A. Operational Procedures For Portfolio Transactions
B. Record Keeping Requirements
C. Fee Schedule
27
SCHEDULE C
PORTFOLIO MANAGER FEE
For services provided to the Fund Account, the Fund Manager will pay to the
Portfolio Manager, on or before the 10th day of each calendar month, a monthly
fee for the previous calendar month in the amount of 1/12th of: 0.40% of the
amount obtained by multiplying the Portfolio Manager's Percentage (as
hereinafter defined) times the Average Total Fund Net Assets (as hereinafter
defined) up to $400 million; 0.36% of the amount obtained by multiplying the
Portfolio Manager's Percentage times the Average Total Fund Net Assets exceeding
$400 million up to and including $800 million; 0.324% of the amount obtained by
multiplying the Portfolio Manager's Percentage times the Average Total Fund Net
Assets exceeding $800 million up to and including $1.2 billion; 0.292% of the
amount obtained by multiplying the Portfolio Manager's Percentage times the
Average Total Fund Net Assets exceeding $1.2 billion.
"Portfolio Manager's Percentage" means the percentage obtained by dividing
(i) the average of the net asset values of the Fund Account as of the close of
the last business day of the New York Stock Exchange in each calendar week
during the preceding calendar month, by (ii) the Average Total Fund Net Assets.
"Average Total Fund Net Assets" means the average of the net asset values
of the Fund as a whole as of the close of the last business day of the New York
Stock Exchange in each calendar week during the preceding calendar month.
The fee shall be pro-rated for any month during which this Agreement is in
effect for only a portion of the month.
28
LIBERTY ALL-STAR EQUITY FUND
PROXY SOLICITED BY THE BOARD OF TRUSTEES OF LIBERTY ALL-STAR EQUITY FUND
PROXY FOR 2001 ANNUAL MEETING OF SHAREHOLDERS
The undersigned, revoking previous proxies, hereby appoints William J. Ballou,
Suzan M. Barron, Russell L. Kane, William R. Parmentier and Vincent P.
Pietropaolo, or any one or more of them, attorneys, with power of substitution,
to vote all shares of Liberty All-Star Equity Fund (the "Fund") which the
undersigned is entitled to vote at the 2001 Annual Meeting of the Fund to be
held in Room AV-1, 3rd Floor, Federal Reserve Plaza, 600 Atlantic Avenue,
Boston, Massachusetts on April 18, 2001 at 9:30 a.m. and at any adjournments
thereof. All powers may be exercised by a majority of said proxy holders or
substitutes voting or acting or, if only one votes or acts, then by that one.
This undersigned directs said proxy holders to vote as specified upon the
proposals shown below, each of which is described in the proxy statement for the
Meeting, receipt of which is acknowledged.
SAID PROXIES WILL VOTE THIS PROXY AS DIRECTED, OR IF NO DIRECTION IS INDICATED,
FOR ALL PROPOSALS.
-----------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. PLEASE DO NOT FOLD, STAPLE OR MUTILATE CARD.
-----------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED?
-----------------------------------------------------------------------------
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
----------------------------------------------------
LIBERTY ALL-STAR EQUITY FUND
----------------------------------------------------
Mark box at right if an address change
has been noted on the reverse side of this card. [ ]
CONTROL NUMBER:
RECORD DATE SHARES:
Please sign exactly as your name(s) appear(s) above. Corporate proxies should be
signed by an authorized officer.
-----------------------
Date
-------------------------------------
Shareholder sign here
-------------------------------------
Co-owner sign here
1. To elect three Trustees of the Fund
(01) Richard W. Lowry
(02) John J. Neuhauser
(03) Joseph R. Palombo
For All Nominees Withhold For All Except
[ ] [ ] [ ]
NOTE: If you do not wish your shares voted "FOR" one of the nominees, mark the
"FOR ALL EXCEPT" box and strike a line through the name of the nominee. Your
shares will be voted "For" the other nominees.
2. To approve the Fund's Portfolio Management Agreement with Mastrapasqua &
Associates, Inc.
For Against Abstain
[ ] [ ] [ ]
3. To ratify the selection by the Board of Trustees of
PricewaterhouseCoopers LLP as the Fund's independent auditors for the
year ending December 31, 2001.
For Against Abstain
[ ] [ ] [ ]
4. In their discretion, upon such other business as may properly come
before the Meeting.