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
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
[ ] Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
LIBERTY ALL-STAR EQUITY FUND
LIBERTY ALL-STAR GROWTH FUND, INC.
________________________________________________
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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 (Equity Fund)
LIBERTY ALL-STAR GROWTH FUND, INC. (Growth Fund)
(collectively, the Funds)
One Financial Center
Boston, Massachusetts 02111-2621
(617) 772-3626
----------------
NOTICE OF ANNUAL MEETINGS OF SHAREHOLDERS
APRIL 30, 2004
----------------
To the Shareholders of the Funds:
NOTICE IS HEREBY GIVEN that the 2004 Annual Meetings of Shareholders of the
Funds will be held in Conference Room A, 2nd Floor, at One Financial Center,
Boston, Massachusetts, on April 30, 2004, at 9:00 a.m. Boston time (Equity Fund)
and 10:00 a.m. Boston time (Growth Fund). The purpose of the Meetings is to
consider and act upon the following matters:
1. To elect Trustees and Directors of the Funds listed below:
a.Two Trustees (Equity Fund)
b.One Director (Growth Fund)
2. To approve the Portfolio Management Agreements for the Equity Fund with
the portfolio managers listed below:
a. Pzena Investment Management, LLC
b. Matrix Asset Advisors, Inc.
3. To transact such other business as may properly come before the Meetings
or any adjournments thereof.
The Boards of Trustees/Directors have fixed the close of business on March 10,
2004, as the record date for the determination of the shareholders of the Funds
entitled to notice of, and to vote at, the Meetings and any adjournments
thereof.
YOUR BOARD OF TRUSTEES/DIRECTORS RECOMMENDS THAT YOU VOTE FOR ALL THE PROPOSALS.
By order of the Board of Trustees of the Equity Fund
and the Board of Directors of the Growth Fund
David A. Rozenson
Secretary of the Funds
YOUR VOTE IS IMPORTANT--PLEASE RETURN YOUR PROXY PROMPTLY.
You are cordially invited to attend the Meetings. We urge you, whether or
not you expect to attend the Meetings 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.
April 2, 2004
LIBERTY ALL-STAR EQUITY FUND (Equity Fund)
LIBERTY ALL-STAR GROWTH FUND, INC. (Growth Fund)
(collectively, the Funds)
----------------
PROXY STATEMENT
Annual Meetings of Shareholders
April 30, 2004
----------------
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Boards of Trustees/Directors of the Funds to be used at
the Annual Meetings of Shareholders of the Funds to be held in Conference Room
A, 2nd Floor, at One Financial Center, Boston, Massachusetts, on April 30, 2004,
at 9:00 a.m. Boston time (Equity Fund) and 10:00 a.m. Boston time (Growth Fund)
and at any adjournments thereof (such meetings 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 April 2, 2004, of the Notice of Annual Meetings, this
Proxy Statement and the accompanying proxy. Supplementary solicitations may be
made by mail, telephone or personal interview by officers and Trustees/Directors
of the Funds and officers and employees of the Funds' investment advisor,
Liberty Asset Management Company (LAMCO) and/or its affiliates. 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 Funds. The Funds will reimburse brokerage firms and others for their
expenses in forwarding solicitation material to the beneficial owners of shares.
The Meeting is being held to vote on the matters described below.
PROPOSAL 1. ELECTION OF TRUSTEES OR DIRECTORS
Each Fund's Board of Trustees/Directors 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 the following persons to hold office until final adjournment of the
Annual Meeting of Shareholders for the year 2007 (or special meeting in lieu
thereof):
Equity Fund
Richard W. Lowry Served as Trustee since August, 1986
John J. Neuhauser Served as Trustee since April, 1998
Growth Fund
Richard W. Lowry Served as Director since May, 1994
If elected, Messrs. Lowry and Neuhauser have each consented to serve as
Trustee or Director following the Meeting and each is expected to be able to do
so. If either of Messrs. Lowry or Neuhauser is unable or unwilling to do so at
the time of the Meeting, proxies will be voted for such substitute as the
Trustees/Directors may recommend (unless authority to vote for the election of
Trustees/Directors has been withheld).
3
Trustees/Directors and Officers
The names, addresses and ages of the Trustees/Directors and principal
officers of the Funds, the year each was first elected or appointed to office,
their term of office, their principal business occupations during at least the
last five years, the number of portfolios overseen by each Trustee/Director and
other directorships they hold are shown below.
Trustees/Directors
Equity Fund Growth Fund
Length of Length of Number of
Service and Service and Portfolios in Fund
Name/Age and Term of Term of Principal Occupation(s) Complex Overseen by Other
Address(1) Office Office During Past Five Years Trustee/Director(2) Directorships Held
Disinterested
Trustees/Directors
John A. Benning Oct., 2002 Oct., 2002 Retired since December, 2 TT Active International
(Age 69) 2006 2005 1999; Senior Vice (investment company); TT
President, General Europe Fund (investment
Counsel company)
and Secretary, Liberty
Financial Companies, Inc.
(July, 1985 to December,
1999); Vice President,
Secretary and Director,
Liberty Asset Management
Company (August, 1985 to
December, 1999)
James E. Grinnell August, May, 1994 Private investor since 2 None
(Age 74) 1986 2006 November, 1988; President
2005 and Chief Executive
Officer, Distribution
Management Systems, Inc.
(1983 to May, 1986);
Senior Vice
President-Operations, The
Rockport Company
(importer and distributor
of shoes) (May, 1986 to
November, 1988)
Richard W. Lowry August, May, 1994 Private investor since 121 None
(Age 67) 1986 2004 August, 1987 (formerly
2004 Chairman and Chief
Executive Officer, U.S.
Plywood Corporation
(building products
manufacturer))
John J. Neuhauser April, 1998 April, 1998 Academic Vice President 122 Saucony, Inc. (athletic
(Age 60) 2004 2006 and Dean of Faculties footwear) and SkillSoft
since August, 1999, Corp. (e-Learning)
Boston College (formerly Dean,
Boston College School of
Management from September,
1977 to September, 1999)
Interested
Trustee/Director
William E. Mayer April, 1998 Dec., 1998 Managing Partner, Park 121 Lee Enterprises (print
(Age 63)(3) 2006 2005 Avenue Equity Partners media); WR Hambrecht + Co.
(private equity) since (financial service
February, 1999 (formerly provider)
Founding Partner, and First Health
Development Capital LLC (healthcare); Systech
from November, 1996 to Retail Systems (retail
February, 1999; Dean and industry technology
Professor, College of provider); Readers Digest
Business and Management, (publisher)
University of Maryland
from October, 1992 to
November, 1996)
------------
(1) All the Trustees/Directors are members of the Audit Committee except for
Mr. Mayer. The address of each Trustee/Director is One Financial Center,
Boston, MA 02111-2621.
(2) At December 31, 2003, Messrs. Lowry, Mayer and Neuhauser also served as
trustees of the Columbia Management Group, Inc. family of funds
(Columbia Funds), which consisted of 107 open-end and 15 closed-end
management
4
investment company portfolios (the Columbia Fund Complex)
managed by Columbia Management Advisors, Inc. "Fund Complex" includes
the Columbia Fund Complex and the Funds.
(3) "Interested person" of the Funds, as defined in the Investment Company
Act of 1940, because of his affiliation with WR Hambrecht + Co., a
registered broker-dealer.
Principal Officers
Each person listed below serves as an officer of each Fund.
Principal Occupation(s)
Name/Age and Address(1) Position with Funds During Past Five Years
William R. Parmentier, Jr. President and Chief Executive President since June, 1998 and Chief Investment Officer since
(Age 51) Officer since April 29, 1999 May, 1995, Senior Vice President (May, 1995 to June, 1998),
LAMCO
Mark T. Haley, CFA Vice President since Vice President-Investments since January, 1999, Director
(Age 39) April 29, 1999 of Investment Analysis (December, 1996 to December,
1998), Investment Analyst (January, 1994 to November,
1996), LAMCO
Fred H. Wofford Vice President since Director of Funds Operations since March, 2003, LAMCO
(Age 48) June 17, 2003 (formerly Director of Investment Compliance, Deutsche Asset
Management from February, 1999 to March, 2003; Manager
of Fund Administration, BankBoston 1784 Funds from November
1995 to February, 1999)
J. Kevin Connaughton Treasurer since President since March, 2004 of the Columbia
(Age 39) December 13, 2000 Funds and Treasurer since December, 2000 of the
Columbia Funds and of the Funds; Chief Financial Officer
of the Columbia Funds since January, 2003(formerly
Controller of the Columbia Funds and of the Funds from
February, 1998 to October, 2000); Treasurer of the
Galaxy Funds since September, 2002; Treasurer of the
Columbia Management Multi-Strategy Hedge Fund, LLC
since December, 2002; Vice President of Columbia Management
Advisors, Inc.since April, 2003 (formerly Vice President
of Colonial from February, 1998 to October, 2000; Senior
Tax Manager,Coopers & Lybrand, LLP from April, 1996 to
January, 1998)
Vicki L. Benjamin Chief Accounting Officer since Controller of the Columbia Funds and of the Funds since
(Age 42) June 20, 2001 and June, 2002; Chief Accounting Officer of the Columbia Funds
Controller since June 18, 2002 and of the Funds since June, 2001; Controller and
Chief Accounting Officer of the Galaxy Funds since
September, 2002 (formerly Vice President, Corporate Audit,
State Street Bank and Trust Company from May, 1998 to April,
2001; Audit Manager from July, 1994 to June, 1997; Senior
Audit Manager from July, 1997 to May, 1998, Coopers &
Lybrand, LLP)
David A. Rozenson Secretary since Secretary of the Columbia Funds and of the Funds since
(Age 49) December 9, 2003 December, 2003; Senior Counsel, Fleet Boston Financial
Corporation since January, 1996; Associate General Counsel,
Columbia Management Group since November, 2002
------------
(1) The address of each officer is One Financial Center, Boston, MA 02111-2621.
5
Mr. Rozenson and Ms. Benjamin hold the same offices with the Columbia Fund
Complex. Mr. Connaughton is President and Treasurer with the Columbia Fund
Complex. Each officer of the Funds serves at the pleasure of the Boards of
Trustees/Directors.
The term of office of each of the Trustees/Directors will expire, as noted
in the above table, on the final adjournment of the Annual Meeting (or special
meeting in lieu thereof) in the specified year.
During 2003, the full Board of Trustees/Directors of the Funds and the Audit
Committee each held four meetings. All Trustees/Directors were present at all
meetings. The Funds do not have a formal policy on Trustee/Director attendance
at the annual meeting of shareholders, but encourage such attendance. None of
the Trustees/Directors attended the Funds' 2003 annual meetings.
Shareholders may communicate with the Trustees/Directors as a group or
individually. Any such communications should be sent to a Fund's Board or an
individual Trustee/Director in writing, c/o the Secretary of the Funds, One
Financial Center, Boston, MA 02111-2621. The Secretary may determine not to
forward any letter to the Board or a Trustee/Director that does not relate to
the business of a Fund.
Audit Committee
Each Fund has an Audit Committee comprised of only "Independent
Trustees/Directors" (as defined in the New York Stock Exchange (NYSE) Listing
Standards) of the Funds, who are also not "interested persons" (as defined in
the Investment Company Act of 1940 ("1940 Act")) of the Fund. Each member of the
Audit Committees must be financially literate and at least one member must have
prior accounting experience or related financial management expertise. Each
Board of Trustees/Directors has determined, in accordance with NYSE Listing
Standards, that each member of the Audit Committees is financially literate and
has prior accounting experience or related financial management expertise.
On February 10, 2004, each Audit Committee adopted revisions to its written
charter which sets forth the Audit Committee's structure, duties and powers, and
methods of operation. A copy of the revised Audit Committee Charter is attached
to this Proxy Statement as Appendix A. The principal functions of each Audit
Committee are to assist Board oversight of: (1) the integrity of the Fund's
financial statements, (2) the Fund's compliance with legal and regulatory
requirements, (3) the independent accountants' qualifications and independence,
(4) the performance of the Adviser's internal audit function, and (5) the
independent accountants. Each Audit Committee is directly responsible for the
appointment, compensation, retention and oversight of the work of the
independent accountants (including the resolution of disagreements between
management and the independent accountants regarding financial reporting) for
the purpose of preparing or issuing an audit report or performing other review
or attest services for the Fund.
Audit Committee Report
At a meeting of the Audit Committees on February 10, 2004, the Audit
Committees: (i) reviewed and discussed with management the Funds' audited
financial statements for the most recently completed fiscal year; (ii) discussed
with PricewaterhouseCoopers LLP (PwC), the Funds' independent accountants, the
matters required to be discussed by Statement on Auditing Standards No. 61; and
(iii) obtained from PwC 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 Funds that might bear on the independent accountants' independence and
discussed with PwC any relationships that may impact its objectivity and
independence and satisfied itself as to the independent accountants'
independence. Based on its review and discussion, the Audit Committees
recommended to the Boards of Trustees/Directors that the audited financial
statements for each Fund be included in that Fund's Annual Report to
shareholders. The Funds' Audit Committee members for 2003 were Messrs. Benning,
Grinnell, Lowry and Neuhauser.
Nomination Information
Neither Fund has a nominating or compensation committee. The Fund Boards do
not believe that a nominating committee is necessary because there has been
minimal turnover in the Trustees/Directors serving on
6
the Board of each Fund. Only once in the past three years has a new
Trustee/Director been elected to replace a retiring Trustee/Director.
When necessary or appropriate, the Independent Trustees/Directors of each
Fund serve as an ad hoc committee for the consideration of Trustee/Director
nominations. No ad hoc nominating committee of either Fund has adopted a
charter. Independent Trustees/Directors are nominated only by an ad hoc
nominating committee. No ad hoc nominating committee of either Fund met during
the fiscal year ended December 31, 2003. Each Fund's Independent
Trustees/Directors are "independent" under NYSE Listing Standards, and are not
"interested persons" of the Fund under the 1940 Act.
The Independent Trustees/Directors consider prospective Trustee/Director
candidates from any reasonable source, including current Independent
Trustees/Directors, Fund management, Fund shareholders and other persons or
entities. Although the Funds do not have a formal policy, shareholders of a Fund
who wish to nominate a candidate to a Fund's Board may send information
regarding prospective candidates to the Funds' Secretary at One Financial
Center, Boston, MA 02111-2621. The information should include evidence of the
shareholders' Fund ownership, a full listing of the proposed candidate's
education, experience, current employment, date of birth, names and addresses of
at least three professional references, information as to whether the candidate
is not an "interested person" under the 1940 Act and "independent" under NYSE
Listing Standards in relation to the Fund, and such other information as may be
helpful to the Independent Trustees/Directors in evaluating the candidate. All
satisfactorily completed information packages regarding a candidate will be
forwarded to an Independent Trustee/Director for consideration. Recommendations
for candidates will be evaluated in light of whether the number of
Trustees/Directors of a Fund is expected to be increased and anticipated
vacancies. All nominations from Fund shareholders will be acknowledged. There
may be times when the Independent Trustees/Directors are not recruiting new
Board members. In that case, nominations will be maintained on file pending the
active recruitment of Trustee/Directors. No nominee recommendation has been
received from a shareholder within the past 120 days.
The Independent Trustees/Directors have no formal list of qualifications for
Trustee/Director nominees. However, the Independent Trustees/Directors consider,
among other things, whether prospective nominees have distinguished records in
their primary careers, unimpeachable integrity, and substantive knowledge in
areas important to the Board's operations, such as background or education in
finance, auditing, securities law, the workings of the securities markets, or
investment advice. For candidates to serve as Independent Trustees/Directors,
independence from the Funds' investment adviser, its affiliates and other
principal service providers is critical, as is an independent and questioning
mind-set. In each case, the Independent Trustees/Directors will evaluate whether
a candidate is an "interested person" under the 1940 Act and "independent" under
NYSE Listing Standards. The Independent Trustees/Directors also consider whether
a prospective candidate's workload would allow him or her to attend the vast
majority of Board meetings, be available for service on Board committees, and
devote the additional time and effort necessary to stay apprised of Board
matters and the rapidly changing regulatory environment in which the Funds
operate. Different substantive areas may assume greater or lesser significance
at particular times, in light of a Board's present composition and its
perceptions about future issues and needs.
The Independent Trustees/Directors initially evaluate prospective candidates
on the basis of their resumes, considered in light of the criteria discussed
above. Those prospective candidates that appear likely to be able to fill a
significant need of the Boards would be contacted by an Independent
Trustee/Director by telephone to discuss the position; if there appeared to be
sufficient interest, an in-person meeting with one or more Independent
Trustees/Directors would be arranged. If the Independent Trustees/Directors,
based on the results of these contacts, believed it had identified a viable
candidate, it would air the matter with the full group of Independent
Trustees/Directors for input. Any request by Fund management to meet with the
prospective candidate would be given appropriate consideration. The Funds have
not paid a fee to third parties to assist in finding nominees.
7
Compensation
Beginning January 1, 1999, the aggregate of the fees paid to the
Trustees/Directors by the Funds that have the same Board of Trustees/Directors
and hold their meetings concurrently, consists of Trustees/Directors fees of
$125,000 per annum, assuming that 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 equally between the Funds, and the remaining
two-thirds was allocated between the Funds based on their net assets.
The following table shows, for the calendar year ended December 31, 2003,
the compensation paid by each Fund to each Trustee/Director, and the total
compensation paid by both Funds to each Trustee/Director for service on the
Boards of Trustees/Directors of the Funds. The Funds have no bonus,
profit-sharing or retirement plans.
Compensation Compensation Total Compensation
Name from the Equity Fund from the Growth Fund from the Funds(1)
------------------------- ----------------------------------------------------------------
John A. Benning.......... $18,077.55 $5,822.45 $23,900.00
Robert J. Birnbaum(1).... $ 4,161.05 $1,338.95 $ 5,500.00
James E. Grinnell........ $18,077.55 $5,822.45 $23,900.00
Richard W. Lowry......... $18,077.55 $5,822.45 $23,900.00
William E. Mayer......... $18,077.55 $5,822.45 $23,900.00
John J. Neuhauser........ $18,077.55 $5,822.55 $23,900.00
------------
(1) Mr. Birnbaum retired from the Boards of Trustees/Directors effective
February, 2003.
Trustees/Directors Fees
The following table shows, for the calendar year ended December 31, 2003,
the compensation received from the Columbia Fund Complex by the
Trustees/Directors who also serve as Trustees of the Columbia Fund Complex. The
Columbia Fund Complex has no bonus, profit-sharing or retirement plans.
Total Compensation From Number of Other Fund Boards
Name Columbia Fund Complex in Columbia Fund Complex
----------------------- ------------------------ ------------------------
Richard W. Lowry............. $104,250 1
William E. Mayer............. $109,250 1
John J. Neuhauser............ $119,668 2
8
Share Ownership
The following table shows the dollar range of equity securities beneficially
owned by each Trustee/Director as of January 31, 2004 (i) in each of the Funds,
and (ii) in all Columbia Funds overseen by the Trustee/Director in the Columbia
Fund Complex.
Aggregate Dollar
Range of Equity
Securities Owned
Dollar Range of Dollar Range of in All Funds
Equity Securities Equity Securities Overseen by Trustee
Owned in the Owned in the in Columbia Fund
Name of Trustee/Director Equity Fund Growth Fund Complex
---------------------------------- ------------------- ------------------- --------------
Disinterested Trustees/Directors
John A. Benning.................... $50,001-$100,000 $1-$10,000 $0
James E. Grinnell.................. Over $100,000 $50,001-$100,000 $0
Richard W. Lowry(1)................ Over $100,000 $10,001-$50,000 Over $100,000
John J. Neuhauser(1)............... $1-$10,000 $1-$10,000 Over $100,000
Interested Trustees/Directors
William E. Mayer(1)................ $1-$10,000 $1-$10,000 $50,001-$100,000
------------
(1) Trustee/Director also serves as a Trustee of Columbia Fund Complex.
As of December 31, 2003, no disinterested Trustee/Director or any of their
immediate family members owned beneficially or of record any class of securities
of FleetBoston Financial Corporation, LAMCO, another investment advisor,
sub-advisor or portfolio manager of any of the Columbia Funds or any person
controlling, controlled by or under common control with any such entity.
During the calendar years ended December 31, 2001, December 31, 2002 and
December 31, 2003, Mr. Lowry had a material interest in a trust (approximately
$3,634,931 million as of December 31, 2003) which owns units of a limited
partnership whose investments are managed by M.A. Weatherbie & Co., Inc. a
portfolio manager of the Growth Fund, and whose general partner is Weatherbie
Limited Partnership. Mr. Benning also had a material interest in this trust
(approximately $610,866) as of December 31, 2003. During the calendar years
ended December 31, 2001, 2002, and 2003, other than Messrs. Benning's and
Lowry's interest in this trust, no Independent Trustee/Director (or their
immediate family members) had any direct or indirect interest in LAMCO, a
portfolio manager or any person controlling, controlled by or under common
control with LAMCO or a portfolio manager.
Required Vote
A plurality of votes cast at the Meeting, if a quorum is represented, is
required for the election of each Trustee/Director. Currently, the number of
Trustees of the Equity Fund is five and since there are three currently serving
Trustees who are not subject to election at the Meeting, this means that the two
persons who receive the highest number of votes at the Meeting will be elected.
Currently, the number of Directors of the Growth Fund is five and since there
are four currently serving Directors who are not subject to election at this
Meeting, this means that one person who receives the highest number of votes at
the Meeting will be elected.
PROPOSAL 2. TO APPROVE PORTFOLIO MANAGEMENT AGREEMENTS FOR THE EQUITY FUND
Background--The Multi-Manager Methodology
The Equity Fund allocates its portfolio assets on an approximately equal
basis among a number of independent investment management firms (Portfolio
Managers) recommended by LAMCO, currently five in number for the Equity Fund,
each of which employs a different investment style and/or strategy, and from
time to
9
time LAMCO 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 Equity 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 favor and will result in
better performance under certain market conditions but poorer performance under
other conditions. The Equity Fund's multi-manager methodology seeks to achieve
more consistent and less volatile performance over the long term than if a
single Portfolio Manager was employed.
The Portfolio Managers recommended by LAMCO represent a blending of
different styles which, in LAMCO's opinion, is appropriate for the Equity 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. LAMCO continuously analyzes and
evaluates the investment performance and portfolios of the Equity 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 LAMCO 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 Equity Fund's Portfolio Managers. Portfolio Manager
changes, as well as rebalancings of the Equity Fund's assets 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.
Under the terms of an exemptive order issued to the Equity Fund and LAMCO by
the Securities and Exchange Commission (SEC), the Equity Fund may enter into a
portfolio management agreement with a new or additional Portfolio Manager
recommended by LAMCO 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 Equity Fund's agreements with its other
Portfolio Managers, and that its continuance is subject to approval by
shareholders at the Equity Fund's regularly scheduled annual meeting next
following the date of the portfolio management agreement with the new or
additional Portfolio Manager. The terms of the exemptive order also allow the
Equity Fund to enter into a new portfolio management agreement in the event of a
sale of assets of a Portfolio Manager. Accordingly, the Equity Fund's portfolio
management agreements with Pzena Investment Management, LLC ("Pzena") and Matrix
Asset Advisors, Inc. ("Matrix") are being submitted for shareholder approval at
the Meeting.
a. New Portfolio Management Agreement - PZENA INVESTMENT MANAGEMENT, LLC
LAMCO continuously monitors and evaluates the Equity Fund's portfolio
managers on a quantitative and qualitative basis. The evaluation process focuses
on, but is not limited to, the firm's philosophy, investment process, people and
performance. After evaluation based on the aforementioned criteria, LAMCO deemed
it in the best interest of the Fund to terminate Oppenheimer Capital LLC
("Oppenheimer"), a portfolio manager of the Equity Fund since February 15, 1990.
The portfolio management agreement dated November 1, 2001 among Oppenheimer,
LAMCO and the Equity Fund had been approved most recently by shareholders on
September 26, 2001 in connection with the sale of the asset management business
of Liberty Financial Companies, Inc., including LAMCO, to Fleet National Bank.
For the fiscal year ended December 31, 2003, the Equity Fund paid Oppenheimer
advisory fees equal to $539,368.
LAMCO, in October, 2003, recommended to the Board that Oppenheimer be
replaced with Pzena Investment Management, LLC ("Pzena"). LAMCO first analyzed
information regarding the personnel, investment process and performance of a
large number of investment management firms. LAMCO then analyzed the candidates
in terms of their historic returns, volatility and portfolio characteristics
when combined with those of the Equity Fund's four other Portfolio Managers.
LAMCO recommended Pzena to the Board because LAMCO believed that Pzena's large
cap value philosophy, independent/fundamental research driven process that
10
emphasizes cheap stocks based on normalized earnings and low portfolio turnover
management style would be compatible with the philosophies of the Equity Fund's
other Portfolio Managers. LAMCO also believed that Pzena's investment management
process and performance record would benefit the Equity Fund. Pzena focuses on
the bottom quintile of a universe consisting of the 500 largest U.S. publicly
traded companies ranked by normalized price to earnings. Its fundamental
research determines whether a company's business is good, management's plan to
generate earnings recovery appears sound and there is downside protection. Based
upon these factors and Pzena's generally favorable performance record of the
firm's investment products relative to the S&P 500 Index and the Russell 1000
Value Index, LAMCO recommended that the Board approve a portfolio management
agreement between the Equity Fund and Pzena.
In making its recommendation to shareholders, the Board has relied upon and
given equal consideration to each of the factors presented to them by LAMCO.
Based on the foregoing and on LAMCO's quantitative and qualitative analysis,
LAMCO recommended, and the Board of Trustees on October 7, 2003 approved, the
termination of the Equity Fund's portfolio management agreement with Oppenheimer
and its replacement with Pzena, effective October 15, 2003. For the fiscal year
ended December 31, 2003, the Equity Fund paid Pzena advisory fees equal to
$170,837.
Pzena, located at 120 West 45th Street, 34th Floor, New York, NY 10036, is
an independently owned firm founded in 1995 by Richard S. Pzena. Mr. Pzena
serves as Managing Principal and Chief Investment Officer of Pzena and, together
with John Goetz (Managing Principal, Research) and Rama Krishna (Managing
Principal, Large Cap Value), manages that portion of the Equity Fund's assets.
Prior to founding Pzena in 1995, Mr. Pzena was Director of U.S. Equity
Investment and Chief Research Officer for Sanford C. Bernstein & Company. Pzena
is 75% owned by Pzena employees and 25% owned by private investors, none of whom
hold any voting securities of the firm. As of December 31, 2003, Pzena managed
approximately $5.8 billion in assets.
The following are the principal executive officers and managers of Pzena:
Name and Address Position with Pzena Principal Occupation
---------------- ------------------- --------------------
Richard S. Pzena Managing Principal , Chief Managing Principal Chief
120 West 45th Street Investment Officer Investment Officer of Pzena
34th Floor
New York, NY 10036
John P. Goetz Managing Principal, Research Head of Research at Pzena
120 West 45th Street
34th Floor
New York, NY 10036
William L. Lipsey Managing Principal, Marketing & Head of Marketing and Client
120 West 45th Street Client Services Services at Pzena
34th Floor
New York, NY 10036
Amelia C. Jones Managing Principal, Operations Head of Operations and
120 West 45th Street and Administration Administration at Pzena
34th Floor
New York, NY 10036
A. Rama Krishna Managing Principal Large Cap Value Portfolio Manager
120 West 45th Street at Pzena
34th Floor
New York, NY 10036
Katherine Kozub Grier Principal, General Counsel & General Counsel & Chief
120 West 45th Street Director of Compliance Compliance Officer at Pzena
34th Floor
New York, NY 10036
11
The following is the 10% or more beneficial owner of voting shares
of Pzena:
Name and Address Position with Pzena Ownership Percentage
Richard S. Pzena Managing Principal , Chief 39.3%
120 West 45th Street Investment Officer
34th Floor
New York, NY 10036
Reference is made to MANAGEMENT - Portfolio Transactions and Brokerage below
for the direction by the Equity Fund's Portfolio Managers, including Pzena, of
the Equity Fund portfolio transactions to broker-dealers that make certain
research services available to LAMCO.
Terms of Portfolio Management Agreement with Pzena
The portfolio management agreement with Pzena is at the same fee rates and
is on other terms and conditions substantially similar to those of the portfolio
management agreements with the Equity Fund's four other Portfolio Managers. A
copy of the portfolio management agreement with Pzena, which was approved by the
Fund's Board of Trustees, is attached to this Proxy Statement as Appendix B.
Under the Equity Fund's portfolio management agreements (including the
agreement with Pzena), each Portfolio Manager has discretionary investment
authority (including the selection of brokers and dealers for the execution of
the Equity Fund's portfolio transactions) with respect to the portion of the
Equity Fund's assets allocated to it by LAMCO, subject to the Equity Fund's
investment objective and policies, to the supervision and control of the
Trustees, and to instructions from LAMCO. The Portfolio Managers are required to
use their best professional judgment in making timely investment decisions for
the Equity 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 management fees LAMCO receives from the Equity Fund (0.80% per
annum of the Equity 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 and including $800 million, 0.648% of such average weekly net asset value
exceeding $800 million up to and including $1.2 billion, and 0.584% of such
average weekly net asset value in excess of $1.2 billion), LAMCO pays each of
the Equity Fund's Portfolio Managers 0.40% per annum of the average weekly net
asset value of the portion of the Equity 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 Equity Fund's average weekly net asset value in excess
of $400 million up to and including $800 million, 0.324% of their allocable
portions of such average weekly net asset value exceeding $800 million up to and
including $1.2 billion, and 0.292% of their allocable portions of such average
weekly net asset value exceeding $1.2 billion. As of December 31, 2003, the
Equity Fund's net assets were $1.15 billion.
If approved by shareholders at the Meeting, the portfolio management
agreement with Pzena will remain in effect until July 31, 2005 and will continue
thereafter until terminated by LAMCO, the Equity Fund or the Portfolio Manager,
provided that such continuance is approved at least annually by the Board of
Trustees, 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 Equity Fund.
Other Funds Managed by Pzena
Pzena is sole subadviser to the John Hancock Classic Value Fund ("JHCVF"),
an open-end investment company which is managed in the same large cap classic
value style as the portion of the Funds managed by Pzena. At December 31, 2003,
the JHCVF had approximately $290 million in assets under management. At March 1,
2004, the JHCVF had approximately $448 million in assets under management. The
Adviser to the JHCVF pays PIM's subadvisory fee (not the Fund itself). The
following is the disclosure from the JHCVF Statement of Information dated March
1, 2003 regarding the subsadvisory fees payable to Pzena. There are no waivers,
reductions or agreements to waive or reduce these subadvisory fees.
12
As provided in the Sub-Advisory Agreement, the Adviser (not the Fund) pays
the Sub-Adviser quarterly, in arrears, after the end of each quarter, a fee
equal on an annual basis to the following percentages of the Fund's average
daily net assets: (i) 0.4250% with respect to the first $500,000,000 of the
average daily net asset value of the Fund; (ii) 0.3825% with respect to the
average daily net asset value of the Fund in excess of $500,000,000 up to
$1,000,000,000; (iii) 0.3400% with respect to the average daily net asset value
of the Fund in excess of $1,000,000,000 up to $1,500,000,000; (iv) 0.2975% of
the average daily net asset value of the Fund in excess of $1,500,000,000 up to
$2,000,000,000; and (v) 0.2550% of the average daily net asset value of the Fund
in excess of $2,000,000,000. During the first year of the Sub-Advisory
Agreement, the Adviser has agreed to pay a minimum fee of $150,000. Required
Vote
Approval of the portfolio management agreement with Pzena requires the
affirmative vote of a "majority of the outstanding voting securities" of the
Equity Fund, which, under the 1940 Act, means the affirmative vote of the lesser
of (a) 67% or more of the shares of the Equity 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 Equity Fund fail to approve the
portfolio management agreement with Pzena, the portfolio management agreement
will terminate and LAMCO will cause the portfolio assets under management by
Pzena 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 appointment of Pzena 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 Pzena.
b. New Portfolio Management Agreement - MATRIX ASSET ADVISORS, INC.
LAMCO continuously monitors and evaluates the Equity Fund's portfolio
managers on a quantitative and qualitative basis. The evaluation process focuses
on, but is not limited to, the firm's philosophy, investment process, people and
performance. After evaluation based on the aforementioned criteria, LAMCO deemed
it in the best interest of shareholders to terminate Boston Partners Asset
Management, L.P. ("Boston Partners"), a portfolio manager of the Equity Fund
since May 11, 1998. The Fund's portfolio management agreement dated September
18, 2002 with the Equity Fund had been ratified most recently by shareholders on
April 16, 2003 in connection with the purchase of partnership interests in
Boston Partners by Robeco USA, which constituted a change in control of Boston
Partners. For the fiscal year ended December 31, 2003, the Equity Fund paid
Boston Partners advisory fees equal to $685,328.
LAMCO, in February, 2004, determined to replace Boston Partners with Matrix
Asset Advisors, Inc. ("Matrix"). LAMCO first analyzed information regarding the
personnel, investment process and performance of a large number of investment
management firms. LAMCO then analyzed the candidates in terms of their historic
returns, volatility and portfolio characteristics when combined with those of
the Equity 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 LAMCO. LAMCO recommended Matrix to the Board because LAMCO
believed that Matrix's large cap value philosophy, independent fundamental
research driven process that emphasizes stocks selling below their enterprise
value and low portfolio turnover management style would be compatible with the
philosophies of the Equity Fund's other Portfolio Managers. LAMCO also believed
that Matrix's investment management process and performance record would benefit
the Equity Fund. Matrix uses a multi-factor model to identify companies with
strong balance sheets that trade at a discount to their enterprise value. Based
upon these factors and Matrix's generally favorable performance record relative
to the Russell 1000 Value Index and Russell 1000 Index, LAMCO recommended that
the Board approve a portfolio management agreement between the Equity Fund and
Matrix.
In making its recommendation to shareholders, the Board has relied upon and
given equal consideration to each of the factors presented to them by LAMCO.
Based on the foregoing and on LAMCO's qualitative analysis,
13
LAMCO recommended, and the Board of Trustees on February 10, 2004 approved, the
termination of the Equity Fund's portfolio management agreement with Boston
Partners and its replacement with Matrix, effective February 17, 2004.
Matrix, located at 747 Third Avenue, New York, NY 10017, is an independently
owned firm founded in 1986 by David A. Katz and John M. Gates. Mr. Katz serves
as President and Chief Investment Officer of Matrix and manages that portion of
the Equity Fund's portfolio assets. Prior to co-founding Matrix in 1986, Mr.
Katz was with Management Asset Corporation. Matrix is 100% employee-owned. As of
December 31, 2003, Matrix managed approximately $1.1 billion in assets.
The following are the principal executive officers and directors of Matrix:
Name and Address Position with Matrix Principal Occupation
---------------- -------------------- --------------------
David A. Katz President and Chief President and Chief
747 Third Avenue Investment Officer Investment Officer of Matrix and
New York, NY 10017 Chairman of Investment Committee
Douglas S. Altabef Senior Managing Director Senior Managing Director and
747 Third Avenue Investment Committee Member
New York, NY 10017
Lon F. Birnholz Managing Director Managing Director and Investment
747 Third Avenue Committee Member
New York, NY 10017
Steven Roukis Senior Vice President Senior Vice President, Research,
747 Third Avenue and Investment Committee Member
New York, NY 10017
John M. Gates President Emeritus President Emeritus
747 Third Avenue
New York, NY 10017
The following are the 10% or more beneficial owners of voting shares of
Matrix:
Name and Address Position with Matrix Ownership Percentage
---------------- -------------------- --------------------
David A. Katz President and Chief 62.6%
747 Third Avenue Investment Officer
New York, NY 10017
Douglas S. Altabef Senior Managing Director 25.3%
747 Third Avenue
New York, NY 10017
Reference is made to MANAGEMENT - Portfolio Transactions and Brokerage below
for the direction by the Equity Fund's Portfolio Managers, including Matrix, of
the Equity Fund portfolio transactions to broker-dealers that make certain
research services available to LAMCO.
Terms of Portfolio Management Agreement with Matrix
The portfolio management agreement with Matrix is at the same fee rates and
is on other terms and conditions substantially similar to those of the portfolio
management agreements with the Equity Fund's four other Portfolio Managers. A
copy of the new portfolio management agreement with Matrix, which was approved
by the Fund's Board of Trustees, is attached to this Proxy Statement as Appendix
C.
Under the Equity Fund's portfolio management agreements (including the
agreement with Matrix), each Portfolio Manager has discretionary investment
authority (including the selection of brokers and dealers for the execution of
the Equity Fund's portfolio transactions) with respect to the portion of the
Equity Fund's assets allocated to it by LAMCO, subject to the Equity Fund's
investment objective and policies, to the supervision and control of the
Trustees, and to instructions from LAMCO. The Portfolio Managers are required to
use their best
14
professional judgment in making timely investment decisions for
the Equity 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 management fees LAMCO receives from the Equity Fund a monthly fee
of (0.80% per annum of the Equity 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 and including $800 million, 0.648% of such average weekly net
asset value exceeding $800 million up to and including $1.2 billion, and 0.584%
of such average weekly net asset value in excess of $1.2 billion), LAMCO pays
each of the Equity Fund's Portfolio Managers a monthly fee of 0.40% per annum of
the average weekly net asset value of the portion of the Equity 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 Equity Fund's average weekly
net asset value in excess of $400 million up to and including $800 million,
0.324% of their allocable portions of such average weekly net asset value
exceeding $800 million up to and including $1.2 billion, and 0.292% of their
allocable portions of such average weekly net asset value exceeding $1.2
billion. As of December 31, 2003, the Equity Fund's net assets were $1.15
billion.
If approved by shareholders at the Meeting, the portfolio management
agreement with Matrix will remain in effect until July 31, 2005 and will
continue thereafter until terminated by LAMCO, the Equity Fund or the Portfolio
Manager, provided that such continuance is approved at least annually by the
Board of Trustees, 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 Equity Fund.
Other Funds Managed by Matrix
In addition to the management services provided by Matrix to the Equity
Fund, Matrix also provides management services to other investment companies.
Information with respect to the assets of and management fees payable to Matrix
by those funds having investment objectives similar to those of the Fund is set
forth below:
Total Net Assets at Annual Management Fee Waivers, Reductions or
December 31, 2003 as a % of Agreements to Waive or
Equity Fund (in millions) Average Daily Net Assets Reduce Management Fee
Matrix Advisors Value $226 1.00% (Annual management fee Total fund expenses are
Fund, Inc. was 0.65% for the fiscal contractually capped at
year ended 6/30/03 net of 1.10% of the Fund's average
fee waiver) daily net assets
(reimbursed by Matrix).
For the fiscal year ended
6/30/03, total fund
expenses were 0.99% (with
Matrix voluntarily
reimbursing expenses in
excess of 0.99%)
Required Vote
Approval of the portfolio management agreement with Matrix requires the
affirmative vote of a "majority of the outstanding voting securities" of the
Equity Fund, which, under the 1940 Act, means the affirmative vote of the lesser
of (a) 67% or more of the shares of the Equity 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 Equity Fund fail to approve the
portfolio management agreement with Matrix, the portfolio management agreement
will terminate and LAMCO will cause the portfolio assets under management by
Matrix to be reallocated to one or more of the other Portfolio Managers or
invested in
15
money market instruments or other cash equivalent holdings pending
the appointment of Matrix 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 Matrix.
OTHER BUSINESS
The Boards of Trustees/Directors know 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 Boards 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
LAMCO, One Financial Center, Boston, MA 02111, is the Funds' manager. LAMCO
is a wholly owned subsidiary of Columbia Management Group, Inc., (Columbia),
which is a wholly owned subsidiary of Fleet National Bank, a national banking
association, which in turn is a wholly owned subsidiary of FleetBoston, a U.S.
financial holding company. On October 27, 2003, FleetBoston Financial
Corporation ("FleetBoston") announced that Bank of America agreed to acquire
FleetBoston. Bank of America is one of the world's largest financial
institutions, serving individual consumers, small businesses and large
corporations and institutions with a full range of banking, investing, asset
management and other financial and risk management products and services. The
acquisition, which has been approved by both regulators and shareholders, is
expected to be consummated in April, 2004. Columbia is located at One Financial
Center, Boston, MA 02111 and each of Fleet National Bank and FleetBoston is
located at 100 Federal Street, Boston, MA 02210. Pursuant to its Fund Management
Agreements with the Funds, LAMCO implements and operates the Funds'
multi-manager methodology as described under PROPOSAL 2 above and has overall
supervisory responsibility for the general management and investment of the
Funds' assets, subject to the Funds' investment objectives and policies and any
directions of the Trustees/Directors. LAMCO recommends to the Boards of
Trustees/Directors the independent investment management firms (currently five
for the Equity Fund and currently three for the Growth Fund) for appointment as
Portfolio Managers of the Funds, each of which employs a different investment
style, and from time to time rebalances the Funds' assets among the Portfolio
Managers so as to maintain an approximately equal allocation of the portfolio
among the investment styles and/or strategies practiced by them throughout all
market cycles. LAMCO continuously analyzes and evaluates the investment
performance and portfolios of the Fund Portfolio Managers and from time to time
recommends changes in the Portfolio Managers.
LAMCO is responsible under its Fund Management Agreements for the provision
of administrative services to the Funds, including the provision of office
space, shareholder and broker-dealer communications, compensation of all
officers and employees of the Funds who are officers or employees of LAMCO or
its affiliates, and supervision of transfer agency, dividend disbursing,
custodial and other services provided by others. Certain of LAMCO's
administrative responsibilities to the Funds have been delegated to their
affiliate, Columbia Management Advisors, Inc., One Financial Center, Boston, MA
02111. For the administrative services provided to the Equity Fund, the Fund
pays LAMCO an annual fee at the rate of 0.20% of the Equity 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 and including $800 million, 0.162% of
such average weekly net asset value exceeding $800 million up to and including
$1.2 billion, and 0.146% of such average weekly net asset value in excess of
$1.2 billion. For the administrative services provided to the Growth Fund, the
Fund pays LAMCO an annual fee at the rate of 0.20% of the Growth Fund's average
weekly net asset value up to $300 million and 0.18% of such average weekly net
asset value exceeding $300 million. The fees for administrative services are in
addition to the Funds' management fees paid to LAMCO.
Under the Funds' portfolio management agreements, each Portfolio Manager has
discretionary investment authority with respect to the portion of the Funds'
assets allocated to it by LAMCO from time to time, subject to the Funds'
investment objectives and policies, to the supervision and control of the
Trustees/Directors, and to
16
instructions from LAMCO. The Portfolio Managers are required to use their best
professional judgment in making timely investment decisions for the Funds. 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 Funds' current Portfolio Managers, including
Pzena and Matrix, are as follows:
Equity Fund
Mastrapasqua Asset Management, Inc.
814 Church Street, Suite 600
Nashville, TN 37203
Matrix Asset Advisors, Inc.
747 Third Avenue
New York, NY 10017
Pzena Investment Management, Inc.
120 West 45th Street, 34th Floor
New York, NY 10036
Schneider Capital Management Corporation
460 East Swedesford Road
Wayne, PA 19087
TCW Investment Management Company
865 South Figueroa Street
Los Angeles, CA 90017
Growth Fund
M.A. Weatherbie & Co., Inc. 265 Franklin Street
Boston, MA 02110
TCW Investment Management Company
865 South Figueroa Street
Los Angeles, CA 90017
William Blair & Company, L.L.C.
222 West Adams Street
Chicago, IL 60606
Portfolio Transactions and Brokerage
Each of the Funds' Portfolio Managers has discretion to select brokers and
dealers to execute portfolio transactions initiated by that Portfolio Manager
for the portion of a 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 Funds provide, in substance, that in executing portfolio
transactions and selecting brokers or dealers, the primary responsibility of the
Portfolio Manager is to seek to obtain best net price and execution for the
Funds.
The Portfolio Managers are authorized to cause the Funds 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 the same 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
17
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 Funds and
LAMCO, the Portfolio Managers, in selecting brokers or dealers to execute
portfolio transactions for the Funds, are authorized to consider (and LAMCO may
request them to consider) brokers or dealers that provide to LAMCO, 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 LAMCO 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 LAMCO 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 LAMCO in connection with its management of the
Funds. In instances where LAMCO 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, LAMCO makes a good faith effort
to determine the relative proportions of such products or services which may be
considered as investment research, based primarily on anticipated usage. LAMCO
pays for the costs attributable to the non-research usage in cash.
LAMCO from time to time reaches understandings with each of the Funds'
Portfolio Managers as to the amounts of the Funds' portfolio transactions
initiated by such Portfolio Manager that are to be directed to brokers and
dealers which provide or make available research products and services to LAMCO
and the commissions to be charged to the Funds 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 Funds do not permit a Portfolio Manager to act or to 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 that the commission does not exceed
the usual and customary broker's commission being paid to other brokers for
comparable transactions and is otherwise in accordance with the Funds'
procedures adopted pursuant to Rule 17e-1 under the 1940 Act. During 2003, the
Funds had no Fund portfolio transactions placed with a Portfolio Manager or its
affiliate. For the fiscal year ended December 31, 2003, the Funds paid fees to
an affiliated broker in the amount of $7,740 in commissions to Fleet Securities,
Inc. These commissions were equal to 0.34% of the Funds' aggregate commissions
paid to all brokers. Each of Fleet Securities, Inc. and LAMCO is a subsidiary of
FleetBoston Financial Corporation.
On February 15, 2000, the SEC issued the Funds exemptive relief from
Sections 10(f), 17(a) and 17(e) and Rule 17e-1 under the 1940 Act to permit (1)
broker-dealers which are, or are affiliated with, Portfolio Managers of the
Funds to engage in principal transactions with, and provide brokerage services
to, portion(s) of the Funds advised by another Portfolio Manager, and (2) the
Funds 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
Funds.
INDEPENDENT ACCOUNTANTS
Financial statements for the Funds' fiscal year ended December 31, 2003
were audited by PricewaterhouseCoopers LLP (PwC). PwC serves as independent
accountants for each Fund and provides audit services, audit-related services,
tax services and other services to the Funds, to LAMCO and to affiliates of
LAMCO. The Boards of Trustees/Directors of each Fund have selected PwC as the
independent accountants for
18
the Funds for the fiscal year ending December 31, 2004. Representatives of PwC
are not expected to be present at the Meeting but have been given the
opportunity to make a statement if they so desire and will be available should
any matter arise requiring their presence.
Pre-Approval of Audit and Non-Audit Services
Effective May 6, 2003, each Fund's Audit Committee is required to
pre-approve the engagement of the Fund's independent accountants to provide
audit and non-audit services to the Fund and non-audit services to LAMCO or any
entity controlling, controlled by or under common control with LAMCO that
provides ongoing services to the Fund ("LAMCO Affiliate"), if the engagement
relates directly to the operations or financial reporting of the Fund, including
the fees and other compensation to be paid to the independent accountants,
unless the engagement is entered into pursuant to pre-approval policies and
procedures established by the Audit Committee.
The Funds' Audit Committees have adopted an Audit and Non-Audit Services
Pre-Approval Policy ("Policy") for the pre-approval of audit and non-audit
services provided to each Fund and non-audit services provided to the Fund,
LAMCO, and LAMCO Affiliates, if the engagement relates directly to the
operations or financial reporting of the Fund. The Policy sets forth the
procedures and conditions pursuant to which services to be performed by the
Funds' independent accountants are to be pre-approved. Unless a type of service
receives general pre-approval under the Policy, it requires specific
pre-approval by the Audit Committee if it is to be provided by the independent
accountants.
The Policy provides for the general pre-approval by the Audit Committee of:
(i) audit services to the Funds; (ii) audit-related services to the Funds; (iii)
tax services to the Funds; (iv) other services to the Funds; (v) Fund-related
services to LAMCO Affiliates; and (vi) non-Fund-related services to LAMCO
Affiliates. The Policy requires the Fund Treasurer and/or Director of Trustee
Administration to submit to the Audit Committee, at least annually, a schedule
of the types of services that are subject to general pre-approval. The
schedule(s) must provide a description of each type of service that is subject
to general pre-approval and, where possible, will provide projected fee caps for
each instance of providing each service. The general pre-approval and related
fees will cover the period from July 1 through June 30 of the following year. At
each June meeting, the Audit Committee will review and approve the types of
services and review the projected fees for the next fiscal year, and may add to,
or subtract from, the list of pre-approved services from time to time, based on
subsequent determinations. The fee amounts listed on the schedules will be
updated to the extent necessary at each of the other regularly scheduled
meetings of the Audit Committee.
Fees Paid to Independent Accountants
The following table sets forth the aggregate fees billed by PwC for each
Fund's last two fiscal years for professional services rendered for (i) audit
services, including the audit of each Fund's financial statements; (ii)
audit-related services associated with the review of the Funds' financial
statements, including assurance, procedures relating to the Funds' semi-annual
reports and technical consultation on audit and accounting matters; (iii) tax
services, including tax compliance testing and consultation, tax advice and
reviews of Fund tax returns; and (iv) other services, including procedures
related to outsourcing and systems conversions and training and
19
industry updates. All of the audit fees, audit-related fees, tax fees and other
fees billed by PwC for the fiscal year ended December 31, 2003 were pre-approved
by the Audit Committees.
Fiscal Audit-Related All Other
Year Audit Fees Fees Tax Fees Fees
------ ---------- ---------------- -------- ----------
Equity Fund 2002 $36,100 $2,000 $2,600 $0
2003 $33,000 $4,000 $2,600 $0
Growth Fund 2002 $23,100 $2,000 $2,500 $0
2003 $27,500 $4,000 $2,600 $0
LAMCO & LAMCO Affiliates (for Equity 2002 $0 $0 $0 $0
Fund-related services)
2003 $0 $0 $0 $0
LAMCO & LAMCO Affiliates (for Growth 2002 $0 $0 $0 $0
Fund-related services)
2003 $0 $0 $0 $0
INFORMATION ABOUT THE MEETING
Each proxy solicited by the Boards of Trustees/Directors which is properly
executed and returned in time to be voted at the Meeting will be voted at the
Meeting in accordance with the instructions on the proxy. If no specification is
made on a proxy, it will be voted FOR the election as Trustee of the Equity Fund
of the nominees named under PROPOSAL 1, FOR the election as Director of the
Growth Fund of the nominee named under PROPOSAL 1 and FOR approval of the Equity
Fund's Portfolio Management Agreements with Pzena and Matrix referred to under
PROPOSAL 2. Any proxy may be revoked at any time prior to its use by written
notification received by the Funds' Secretary, by the execution of a later-dated
proxy, or by attending the Meeting and voting in person.
For each Fund, a majority of the shares entitled to vote of the Fund,
outstanding on the record date and entitled to vote, present and in person or
represented by proxy, constitutes a quorum for the transaction of business by
the shareholders of that Fund at the Meeting.
The election of the Trustees/Directors is by plurality of votes cast at the
Meeting. Approval of each of the Portfolio Management Agreements with Pzena and
Matrix requires the affirmative vote of a "majority of the outstanding voting
securities" of the Equity Fund, as defined under PROPOSALS 2a and 2b--Required
Vote. Only shareholders of record of a Fund on March 10, 2004 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 Funds' 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 the shares; and (iii) the broker or nominee
does not have discretionary voting power on a particular matter.
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
(including abstentions and broker non-votes) in person or by proxy. If a quorum
is present, the persons named as proxies will vote those proxies that 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.
20
All shareholders of record of a Fund on March 10, 2004 are entitled to one
vote for each share held. To the knowledge of the Funds, on the record date, no
shareholder owned beneficially, as defined by Rule 13d-3 under the Exchange Act,
more than 5% of the outstanding shares of the Funds. In addition, the Trustees,
Directors and officers of each Fund, in the aggregate, owned less than 1% of
each Fund's outstanding shares as of the record date. As of the record date,
there were 25,007,328.000 outstanding shares of beneficial interest of Liberty
All-Star Equity Fund and 126,212,463.000 outstanding shares of common stock of
Liberty All-Star Growth Fund, Inc.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Funds' Trustees /Directors
and officers and persons who own more than ten percent of the Funds' outstanding
shares and certain officers and directors of LAMCO (collectively, "Section 16
reporting persons") to file with the SEC initial reports of beneficial ownership
and reports of changes in beneficial ownership of Fund shares. Section 16
reporting persons are required by SEC regulations to furnish the Funds with
copies of all Section 16(a) forms they file. To the Funds' knowledge, based
solely on a review of the copies of such reports furnished to the Funds and on
representations made, all Section 16 reporting persons complied with all Section
16(a) filing requirements applicable to them.
OTHER INFORMATION
The Funds' Annual Reports and any subsequent Quarterly Reports of the Funds
were previously sent to shareholders. You can obtain a copy of these Reports
without charge by writing to LAMCO at One Financial Center, Boston, MA
02111-2621, or by calling 1-800-241-1850.
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
Funds' proxy material for a particular annual shareholders meeting. Under the
foregoing proxy rules, proposals (whether or not submitted for inclusion in the
proxy material for the 2005 Annual Meeting) must be received by the Funds on or
before November 1, 2004. The fact that the Funds receive 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. You
may submit shareholder proposals to the Secretary of the Funds, One Financial
Center, Boston, MA 02111-2621.
21
APPENDIX A
LIBERTY ALL-STAR EQUITY FUND
LIBERTY ALL-STAR GROWTH FUND, INC.
Audit Committee Charter
adopted on February 10, 2004
I. PURPOSE
This Charter has been adopted by the Audit Committee of the Board of
Directors/ Trustees (the "Board") of each investment company named above (each,
a "Fund"). The primary function of the Audit Committee is to assist the Board in
fulfilling certain of its responsibilities. This Charter sets forth the duties
and responsibilities of the Audit Committee.
The Audit Committee serves as an independent and objective party to
monitor the Fund's accounting policies, financial reporting and internal control
system, and the work of the Fund's independent auditors. The Audit Committee
also serves to provide an open avenue of communication among the independent
auditors, the internal accounting staff of the Fund's investment adviser (the
"Adviser") and the Board.
o Management has the primary responsibility to establish and
maintain systems for accounting, reporting and internal controls,
which functions may be delegated to an accounting service agent,
provided management provides adequate oversight.
o The independent auditors have the primary responsibility to plan
and implement proper audits, with proper consideration given to
internal controls, of the Fund's accounting and reporting
practices.
The Audit Committee shall assist Board oversight of (1) the integrity
of the Fund's financial statements, (2) the Fund's compliance with legal and
regulatory requirements, (3) the independent auditors' qualifications and
independence, and (4) the performance of the Adviser's internal audit function
and independent auditors. The Audit Committee may have additional functions and
responsibility as deemed appropriate by the Board and the Audit Committee.
Although the Audit Committee has the responsibilities and powers set
forth in this Charter, it is not the duty of the Audit Committee to plan or
conduct audits nor to determine that the Fund's financial statements are
complete or accurate or have been prepared in accordance with generally accepted
accounting principles. That is the responsibility of management and the
independent auditors. Nor is it the duty of the Audit Committee to assure
compliance with laws, regulations or any code of ethics approved or adopted by
the Board.
II. COMPOSITION
The Audit Committee shall be comprised of three or more independent
board members. For purposes of this Charter, a board member shall be deemed to
be independent if he or she (1) is not an "interested person" of the Fund, as
that term is defined in the Investment Company Act of 1940, (2) has not
accepted, directly or indirectly, any consulting, advisory or other compensatory
fee from the Fund except for services as a Board member, (3) is free from any
relationship that, in the opinion of the Board, would interfere with the
exercise of his or her independent judgment as a member of the Audit Committee,
and (4) meets the independence requirements set forth in New York Stock Exchange
Rule 303.01(B)(3) or the applicable rule of any other exchange on which shares
of the Fund are listed.
Each member of the Audit Committee shall be financially literate, or
shall become so within a reasonable period of time after his or her appointment
to the Audit Committee. At least one member shall have accounting or related
financial management expertise.
The members of the Audit Committee shall be appointed by the Board and
shall serve at the pleasure of the Board. Unless a Chair is appointed by the
Board, the members of the Audit Committee may designate a Chair by majority
vote.
A-1
III. MEETINGS
The Audit Committee shall meet as frequently and at such times as
circumstances dictate. Special meetings (including telephonic meetings) may be
called by the Chair or a majority of the members of the Audit Committee upon
reasonable notice to the other members of the Audit Committee.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties, the Audit Committee shall:
A. Charter. Review this Charter annually and recommend any proposed
changes to the Board.
B. Internal Controls.
1. Review annually with management and the independent
auditors their separate evaluations of the adequacy
and effectiveness of the Fund's system of internal
controls.
2. Review with management and the independent auditors:
a. any significant audit findings related to
the Fund's systems for accounting, reporting
and internal controls; and
b. any recommendations for the improvement of
internal control procedures or particular
areas where new or more detailed controls or
procedures are desirable.
C. Independent Auditors.
1. Selection and Oversight. Be directly responsible for
the appointment, compensation, retention and
oversight of the work of the independent auditors
(including resolution of disagreements between
management and the independent auditors regarding
financial reporting) for the purpose of preparing or
issuing an audit report or performing other audit,
review or attest services for the Fund. Any such
engagement shall be pursuant to a written engagement
letter approved by the Audit Committee. The
independent auditors shall report directly to the
Audit Committee.
2. Pre-approval of Non-audit Services to the Fund. Except
as provided below, pre-approve any engagement of the
Fund's independent auditors to provide any services to
the Fund (other than the "prohibited non-audit
services" specified below), including the fees and
other compensation to be paid for such services, unless
the engagement to render such services is entered into
pursuant to pre-approval policies and procedures
established by the Audit Committee that are detailed as
to the particular service (provided the Audit Committee
is informed of each such service).1 The Audit Committee
may designate from time to time one or more of its
members acting singly or together, as the Audit
Committee may designate, to pre-approve such services
on behalf of the Audit Committee. Unless and until the
Audit Committee designates otherwise, the Chair of the
Audit Committee may grant such pre-approval. Any such
delegated pre-approval shall be reported to the Audit
Committee by the member or members exercising such
delegated authority at the next meeting of the Audit
Committee.
________________
1 Pre approval of non-audit services to a Fund is not required, if:
a. the services were not recognized by management at the time of the engage-
ment as non-audit services;
b. the aggregate fees for all such non-audit services provided to the Fund are
less than 5% of the total fees paid by the Fund to its independent
auditors during the fiscal year in which the non-audit services are pro-
vided; and
c. such services are promptly brought to the attention of the Audit Committee
by management, and the Audit Committee or its delegate approves them prior
to the completion of the audit.
A-2
The independent auditors shall not perform any of the
following non-audit services for the Fund
("prohibited non-audit services"):
a. Bookkeeping or other services related to the
accounting records or financial statements
of the Fund;
b. Financial information systems design and
implementation;
c. Appraisal or valuation services, fairness
opinions or contribution-in-kind reports;
d. Actuarial services;
e. Internal audit outsourcing services;
f. Management functions or human resources;
g. Broker or dealer, investment adviser or
investment banking services;
h. Legal services or expert services unrelated
to the audit; and
i. Any other services that the Public Company
Accounting Oversight Board determines are
impermissible.
3. Pre-approval of Certain Non-audit Services to the
Adviser and its Affiliates. Except as provided below,
pre-approve any engagement of the Fund's independent
auditors to provide any services to the Adviser (not
including any subadviser whose role is primarily
portfolio management and is subcontracted or overseen
by the Adviser) or any entity controlling, controlled
by or under common control with the Adviser that
provides ongoing services to the Fund if the engagement
relates directly to the operations or financial
reporting of the Fund, including the fees and other
compensation to be paid to the independent auditors.2
The Audit Committee may designate from time to time one
or more of its members acting singly or together, as
the Audit Committee may designate, to pre-approve such
services on behalf of the Audit Committee. Unless and
until the Audit Committee designates otherwise, the
Chair of the Audit Committee may grant such
pre-approval. Any such delegated pre-approval shall be
reported to the Audit Committee by the member or
members exercising such delegated authority at the next
meeting of the Audit Committee.
4. Auditor Independence. On an annual basis, request,
receive in writing and review the independent auditors'
specific representations as to their independence,
including identification of all significant
relationships the auditors have with the Fund,
management, any affiliates and any material service
provider to the Fund and recommend that the Board take
appropriate action, if any, in response to the
independent auditors' report to satisfy itself as to
the independent auditors' independence.
5. Audit Scope. Meet with the independent auditors and
management to review the arrangements for and scope of
proposed audits for the current year and the audit
procedures to be utilized.
6. Audit Results. At the conclusion of an audit, meet with
the independent auditors and management to review the
audit results, including any comments or
recommendations of the independent auditors
----------------------------
1 Pre approval of such non-audit services to the Adviser or an affiliate of the
Adviser is not required, if:
a. the services were not recognized by management at the time of the engage-
ment as non-audit services;
b. the aggregate fees for all such non-audit services provided to the Adviser
and all entities controlling, controlled by or under common control with
the Adviser are less than 5% of the total fees for non-audit services
requiring pre-approval under Section IVC2 or 3 of this Charter paid by the
Fund, the Adviser and all such other entities to its independent auditors
during the fiscal year in which the non-audit services are provided; and
c. such services are promptly brought to the attention OF the Audit
Committee by management and the Audit Committee or its delegate approves
them prior to the completion of the audit.
A-3
or management regarding their assessment of signifi-
cant risks or exposures and the steps taken by
management to minimize such risks to the Fund,
any audit problems or difficulties and
management's response, and any deviations from the
proposed scope of the audit previously presented to
the Audit Committee.
7. Management Letter. Review any management letter
prepared by the independent auditors and management's
response to any such letter.
8. Financial Statements. Review with management and the
independent auditors the Fund's audited annual
financial statements and quarterly unaudited financial
statements, including any discussion or analysis of the
Fund's financial condition and results of operations,
and, recommend to the Board, if appropriate, that the
audited financial statements be included in the Fund's
annual report to shareholders required by Section 30(e)
of the Investment Company Act of 1940 and Rule 30d-1
thereunder.
9. Auditor Report. On an annual basis, obtain and review a
report by the independent auditors describing the
independent auditors' internal quality-control
procedures and any material issues raised by the
independent auditors' most recent internal
quality-control review or peer review, or by any
inquiry or investigation by governmental or
professional authorities, within the preceding five
years, respecting one or more independent audits
carried out by the independent auditors, and any steps
taken to deal with any such issues.
D. Financial Reporting Processes.
Meet separately and periodically with management and the
independent auditors, and, if the Audit Committee so
desires, with internal auditors (or other personnel
responsible for the internal audit function), and
review the matters that the auditors believe should be
communicated to the Committee in accordance with
auditing professional standards.
E. Authority.
1. Information. Have direct access to management and
personnel responsible for the Fund's accounting and
financial reporting or for the Fund's internal
controls, as well as to the independent auditors and
the Fund's other service providers.
2. Investigation. Have the authority to investigate any
other matter brought to its attention within the
scope of its duties and, in its discretion, to engage
independent legal counsel and other advisers, as it
determines necessary to carry out its duties. The
Audit Committee may request any officer or employee
of the Adviser, the Fund's independent auditors, or
outside counsel to attend any meeting of the Audit
Committee or to meet with any member of, or
consultants to, the Audit Committee.
3. Funding. Be provided with appropriate funding by the
Fund, as determined by the Audit Committee, for the
payment of (a) compensation to any independent
auditors engaged for the purpose of preparing or
issuing an audit report or performing other audit,
review or attest services for the Fund, (b)
compensation to any adviser employed by the Audit
Committee, and (c) ordinary administrative expenses
of the Audit Committee that are necessary or
appropriate in carrying out its duties.
4. Code of Ethics. Have the authority to review any
violations under the Columbia Management Group Family
of Funds Code of Ethics for Principal Executive and
Senior Financial Officers brought to its attention by
the Chief Legal Officer and review any waivers sought
by a covered officer under that code.
F. Other Responsibilities.
1. Report to the Board. Report regularly its significant
activities to the Board and make such recommendations
with respect to any matter herein as the Audit
Committee may deem necessary or appropriate.
A-4
2. Press Releases. Discuss press releases issued by the
Fund to the extent they are related to financial
information of the Fund.
3. Audit Committee Report. Prepare an audit committee
report as required by the Securities and Exchange
Commission to be included in the annual proxy
statement.
4. Whistleblower Procedures. Establish procedures for
the receipt, retention and treatment of complaints
received by the Fund or the Adviser regarding
accounting, internal accounting controls or audit
matters, and for the confidential anonymous,
submission by any employee of the Fund, the Adviser
or its affiliates of concerns regarding questionable
accounting or auditing matters.
5. Risk Policies. Discuss policies with respect to risk
assessment and risk management.
6. Hiring Policies. If the Fund proposes to employ any
current or former employee of the independent
auditors, set clear policies for hiring any such
person.
7. Necessary Activities. Perform any other activities
consistent with this Charter, the Fund's governing
documents and governing law as the Audit Committee or
the Board deems necessary or appropriate.
8. Minutes. Maintain minutes of its meetings.
A-5
APPENDIX B
PORTFOLIO MANAGEMENT AGREEMENT
October 15, 2003
Pzena Investment Management, LLC
120 West 45th Street, 34th Floor
New York, NY 10036
Re: Portfolio Management Agreement
Ladies and Gentlemen:
Liberty All-Star Equity Fund (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 corporate management and Fund administration of the Fund.
1. Employment as a Portfolio Manager. The Fund being duly authorized hereby
employs Pzena Investment Management, LLC ("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 Portfolio Manager's responsibility for providing
portfolio management services to the Fund shall be limited to 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. The Portfolio Manager shall not consult with any other portfolio
manager of the Fund concerning transactions for the Fund in securities or other
assets.
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 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
B-1
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. Notwithstanding any other provision of this
Agreement, the Portfolio Manager shall not be responsible under paragraph A
above with respect to transactions executed through any such broker or dealer.
C. The Portfolio Manager shall not execute any portfolio transactions
for the Portfolio Manager Account with a 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. 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 Portfolio Manager will vote all proxies solicited by or with
respect to the issuers of securities in which assets of the Portfolio Manager
Account may be invested from time to time in accordance with such policies as
shall be determined by the Fund Manager.
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, 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,
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
B-2
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, co-investment 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(i) 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.
B. The Fund will deliver to the Portfolio Manager a true and complete copy
of its then current registration statement as effective from time to time and
such other documents governing the investment of the Fund Account and such other
information as is necessary for the Portfolio Manager to carry out its
obligations under this Agreement.
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 a written code of ethics complying with the requirements of
Rule 17j-1 under the 1940 Act. Within 45 days of the end of each year while this
Agreement is in effect, an officer or general partner of the Portfolio Manager
shall certify to the Fund that the Portfolio Manager has complied with the
requirements of Rule 17j-1 during the previous year and that there has been no
violation of its code of ethics or, if such a violation has occurred, that
appropriate action was taken in response to such violation.
B-3
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.
E. Reference is hereby made to the Declaration of Trust dated August 20,
1986 establishing the Fund, a copy of which has been filed with the Secretary of
the Commonwealth of Massachusetts and elsewhere as required by law, and to any
and all amendments thereto so filed or hereafter filed. The name Liberty
All-Star Equity Fund refers to the Trustees under said Declaration of Trust, as
Trustees and not personally, and no Trustee, shareholder, officer, agent or
employee of the Fund shall be held to any personal liability hereunder or in
connection with the affairs of the Fund, but only the trust estate under said
Declaration of Trust is liable under this Agreement. Without limiting the
generality of the foregoing, neither the Portfolio Manager nor any of its
officers, directors, partners, shareholders or employees shall, under any
circumstances, have recourse or cause or willingly permit recourse to be had
directly or indirectly to any personal, statutory, or other liability of any
shareholder, Trustee, officer, agent or employee of the Fund or of any successor
of the Fund, whether such liability now exists or is hereafter incurred for
claims against the trust estate, but shall look for payment solely to said trust
estate, or the assets of such successor of the Fund.
14. Amendment. This Agreement may be amended at any time, but 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.
15. Effective Date; Term. This Agreement shall continue until July 31, 2005
and from year to year 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 and provided further that, in
accordance with the conditions of the application of the Fund and Fund Manager
for an exemption from 15(a) of the Act (Rel. Nos. IC 19436 and 19491), the
continuance of this Agreement shall be subject to approval by such "majority" of
the Fund's outstanding voting securities at the regularly scheduled annual
meeting of shareholders of the Fund next following the date of this Agreement.
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.
B-4
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.
LIBERTY ALL-STAR EQUITY FUND
By: ________________________________________
Name:
Title:
LIBERTY ASSET MANAGEMENT COMPANY
By: ________________________________________
Name:
Title:
ACCEPTED:
PZENA INVESTMENT MANAGEMENT, LLC
By: ________________________________________
Name:
Title:
SCHEDULES: A. Operational Procedures For Portfolio Transactions (omitted)
B. Record Keeping Requirements
C. Fee Schedule
B-5
Liberty All-Star Equity Fund
Portfolio Management Agreement
SCHEDULE B
RECORDS TO BE MAINTAINED BY THE PORTFOLIO MANAGER
1. (Rule 31a-1(b)(5) and (6)) A record of each brokerage order, and all other
portfolio purchases and sales, given by the Portfolio Manager on behalf of
the Fund for, or in connection with, the purchase or sale of securities,
whether executed or unexecuted. Such records shall include:
A. The name of the broker;
B. The terms and conditions of the order and of any modifications or
cancellation thereof;
C. The time of entry or cancellation;
D. The price at which executed;
E. The time of receipt of a report of execution; and
F. The name of the person who placed the order on behalf of the Fund.
2. (Rule 31a-1(b)(9)) A record for each fiscal quarter, completed within ten
(10) days after the end of the quarter, showing specifically the basis or
bases upon which the allocation of orders for the purchase and sale of
portfolio securities to named brokers or dealers was effected, and the
division of brokerage commissions or other compensation on such purchase and
sale orders. Such record:
A. Shall include the consideration given to:
(i)The sale of shares of the Fund by brokers or dealers.
(ii) The supplying of services or benefits by brokers or dealers to:
(a) The Fund;
(b) The Fund Manager (Liberty Asset Management Company);
(c) The Portfolio Manager; and
(d) Any person other than the foregoing.
(iii) Any other consideration other than the technical qualifications of
the brokers and dealers as such.
B. Shall show the nature of the services or benefits made available.
C. Shall describe in detail the application of any general or specific
formula or other determinant used in arriving at such allocation of
purchase and sale orders and such division of brokerage commissions or
other compensation.
D. The name of the person responsible for making the determination of such
allocation and such division of brokerage commissions or other
compensation.
3. (Rule 31a-1(b)(10)) A record in the form of an appropriate memorandum
identifying the person or persons, committees or groups authorizing the
purchase or sale of portfolio securities. Where an authorization is made by a
committee or group, a record shall be kept of the names of its members who
participate in the authorization. There shall be retained as part of this
record: any memorandum, recommendation or instruction supporting or
authorizing the purchase or sale of portfolio securities and such other
information as is appropriate to support the authorization.1
4. (Rule 31a-1(f)) Such accounts, books and other documents as are required to
be maintained by registered investment advisers by rule adopted under Section
204 of the Investment Advisers Act of 1940, to the extent such records are
necessary or appropriate to record the Portfolio Manager's transactions with
the Fund.
----------
1 Such information might include: the current Form 10-K, annual and
quarterly reports, press releases, reports by analysts and from brokerage firms
(including their recommendation: i.e., buy, sell, hold) or any internal reports
or portfolio manager reviews.
B-6
Liberty All-Star Equity Fund
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.
B-7
APPENDIX C
PORTFOLIO MANAGEMENT AGREEMENT
February 17, 2004
Matrix Asset Advisors, Inc.
747 Third Avenue, 31st Floor
New York, NY 10017
Re: Portfolio Management Agreement
Ladies and Gentlemen:
Liberty All-Star Equity Fund (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 corporate management and Fund administration of the Fund.
1. Employment as a Portfolio Manager. The Fund being duly authorized hereby
employs Matrix Asset Advisors, Inc. ("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 Portfolio Manager's responsibility for providing portfolio
management services to the Fund shall be limited to 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. The Portfolio Manager shall not consult with any other portfolio
manager of the Fund concerning transactions for the Fund in securities or other
assets.
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 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.
C-1
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. Notwithstanding any other provision of this
Agreement, the Portfolio Manager shall not be responsible under paragraph A
above with respect to transactions executed through any such broker or dealer.
C. The Portfolio Manager shall not execute any portfolio transactions
for the Portfolio Manager Account with a 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. 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 Manager will vote all proxies solicited by or with
respect to the issuers of securities in which assets of the Portfolio Manager
Account may be invested from time to time in accordance with such policies as
shall be determined by the Fund Manager.
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, 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,
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
C-2
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, co-investment 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(i) 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.
B. The Fund will deliver to the Portfolio Manager a true and complete copy
of its then current registration statement as effective from time to time and
such other documents governing the investment of the Fund Account and such other
information as is necessary for the Portfolio Manager to carry out its
obligations under this Agreement.
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 a written code of ethics complying with the requirements of
Rule 17j-1 under the 1940 Act. Within 45 days of the end of each year while this
Agreement is in effect, an officer or general partner of the Portfolio Manager
shall certify to the Fund that the Portfolio Manager has complied with the
requirements of Rule 17j-1 during the previous year and that there has been no
violation of its code of ethics or, if such a violation has occurred, that
appropriate action was taken in response to such violation.
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,
C-3
proxy material, reports and other documents required to be filed under the
Act, the Securities Act of 1933, or other applicable securities laws.
E. Reference is hereby made to the Declaration of Trust dated August 20,
1986 establishing the Fund, a copy of which has been filed with the Secretary of
the Commonwealth of Massachusetts and elsewhere as required by law, and to any
and all amendments thereto so filed or hereafter filed. The name Liberty
All-Star Equity Fund refers to the Trustees under said Declaration of Trust, as
Trustees and not personally, and no Trustee, shareholder, officer, agent or
employee of the Fund shall be held to any personal liability hereunder or in
connection with the affairs of the Fund, but only the trust estate under said
Declaration of Trust is liable under this Agreement. Without limiting the
generality of the foregoing, neither the Portfolio Manager nor any of its
officers, directors, partners, shareholders or employees shall, under any
circumstances, have recourse or cause or willingly permit recourse to be had
directly or indirectly to any personal, statutory, or other liability of any
shareholder, Trustee, officer, agent or employee of the Fund or of any successor
of the Fund, whether such liability now exists or is hereafter incurred for
claims against the trust estate, but shall look for payment solely to said trust
estate, or the assets of such successor of the Fund.
14. Amendment. This Agreement may be amended at any time, but 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.
15. Effective Date; Term. This Agreement shall continue until July 31, 2005
and from year to year 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 and provided further that, in
accordance with the conditions of the application of the Fund and Fund Manager
for an exemption from 15(a) of the Act (Rel. Nos. IC 19436 and 19491), the
continuance of this Agreement shall be subject to approval by such "majority" of
the Fund's outstanding voting securities at the regularly scheduled annual
meeting of shareholders of the Fund next following the date of this Agreement.
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.
C-4
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.
LIBERTY ALL-STAR EQUITY FUND
By: ________________________________________
Name:
Title:
LIBERTY ASSET MANAGEMENT COMPANY
By: ________________________________________
Name:
Title:
ACCEPTED:
MATRIX ASSET ADVISORS, INC.
By: ________________________________________
Name:
Title:
SCHEDULES: A. Operational Procedures For Portfolio Transactions (omitted)
B. Record Keeping Requirements
C. Fee Schedule
C-5
Liberty All-Star Equity Fund
Portfolio Management Agreement
SCHEDULE B
RECORDS TO BE MAINTAINED BY THE PORTFOLIO MANAGER
1. (Rule 31a-1(b)(5) and (6)) A record of each brokerage order, and all other
portfolio purchases and sales, given by the Portfolio Manager on behalf of
the Fund for, or in connection with, the purchase or sale of securities,
whether executed or unexecuted. Such records shall include:
A. The name of the broker;
B. The terms and conditions of the order and of any modifications or
cancellation thereof;
C. The time of entry or cancellation;
D. The price at which executed;
E. The time of receipt of a report of execution; and
F. The name of the person who placed the order on behalf of the Fund.
2. (Rule 31a-1(b)(9)) A record for each fiscal quarter, completed within ten
(10) days after the end of the quarter, showing specifically the basis or
bases upon which the allocation of orders for the purchase and sale of
portfolio securities to named brokers or dealers was effected, and the
division of brokerage commissions or other compensation on such purchase and
sale orders. Such record:
A. Shall include the consideration given to:
(i)The sale of shares of the Fund by brokers or dealers.
(ii) The supplying of services or benefits by brokers or dealers to:
(a) The Fund;
(b) The Fund Manager (Liberty Asset Management Company);
(c) The Portfolio Manager; and
(d) Any person other than the foregoing.
(iii) Any other consideration other than the technical qualifications of
the brokers and dealers as such.
B. Shall show the nature of the services or benefits made available.
C. Shall describe in detail the application of any general or specific
formula or other determinant used in arriving at such allocation of
purchase and sale orders and such division of brokerage commissions or
other compensation.
D. The name of the person responsible for making the determination of such
allocation and such division of brokerage commissions or other
compensation.
3. (Rule 31a-1(b)(10)) A record in the form of an appropriate memorandum
identifying the person or persons, committees or groups authorizing the
purchase or sale of portfolio securities. Where an authorization is made by a
committee or group, a record shall be kept of the names of its members who
participate in the authorization. There shall be retained as part of this
record: any memorandum,
C-6
recommendation or instruction supporting or
authorizing the purchase or sale of portfolio securities and such other
information as is appropriate to support the authorization.
4. (Rule 31a-1(f)) Such accounts, books and other documents as are required to
be maintained by registered investment advisers by rule adopted under Section
204 of the Investment Advisers Act of 1940, to the extent such records are
necessary or appropriate to record the Portfolio Manager's transactions with
the Fund.
----------
1 Such information might include: the current Form 10-K, annual and quarterly
reports, press releases, reports by analysts and from brokerage firms (including
their recommendation: i.e., buy, sell, hold) or any internal reports or
portfolio manager reviews.
C-7
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.
C-8
LIBERTY ALL-STAR EQUITY FUND
PROXY SOLICITED BY THE BOARD OF TRUSTEES OF LIBERTY ALL-STAR EQUITY FUND
PROXY FOR 2004 ANNUAL MEETING OF SHAREHOLDERS
The undersigned, revoking previous proxies, hereby appoints Heidi A. Hoefler,
Vincent P. Pietropaolo, David A. Rozenson and Mark A. Wentzien, 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 2004 Annual Meeting of the Fund to be held in Conference Room A, 2nd
Floor, One Financial Center, Boston, Massachusetts on April 30, 2004 at 9:00
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. The 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.
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PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. PLEASE DO NOT FOLD, STAPLE OR MUTILATE CARD.
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HAS YOUR ADDRESS CHANGED?
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[LOGO}
LIBERTY ALL-STAR EQUITY FUND
c/o EQUISERVE TRUST COMPANY N.A.
P.O. Box 8694
Edison, NJ 08818-8694
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[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
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LIBERTY ALL-STAR EQUITY FUND
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1a. To elect two Trustees of the Fund (Item 1.a. of Notice).
Nominees: (01) Richard W. Lowry, (02) John J. Neuhauser
For all Nominees Withhold from all Nominees
[ ] [ ]
[ ]---------------------------------------
For all nominees except as noted above
2a. To approve a new Portfolio Management Agreement with Pzena Investment
Management, LLC (Item 2a. of Notice).
For Against Abstain
[ ] [ ] [ ]
2b. To approve a new Portfolio Management Agreement with Matrix Asset
Advisors, Inc. (Item 2b. of Notice).
For Against Abstain
[ ] [ ] [ ]
3. In their discretion, upon such other business as may properly come before the
Meeting and any adjournments, thereof.
Mark box at right if an address change has been noted on [ ]
the reverse side of this card.
Please sign exactly as your name(s) appear(s) above. Corporate proxies should be
signed by an authorized officer.
Signature:------------ Date:---------- Signature:--------------- Date:---------
LIBERTY ALL-STAR GROWTH FUND, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF LIBERTY ALL-STAR GROWTH FUND, INC.
PROXY FOR 2004 ANNUAL MEETING OF SHAREHOLDERS
The undersigned, revoking previous proxies, hereby appoints Heidi A.
Hoefler, Vincent P. Pietropaolo, David A. Rozenson and Mark A. Wentzien, or any
one or more of them, attorneys, with power of substitution, to vote all shares
of Liberty All-Star Growth Fund, Inc. (the "Fund") which the undersigned is
entitled to vote at the 2004 Annual Meeting of the Fund to be held in Conference
Room A, 2nd Floor, One Financial Center, Boston, Massachusetts on April 30, 2004
at 10:00 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. The 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?
--------------------------------------------------------------------------------
----------------------------------------------------
[LOGO]
LIBERTY ALL-STAR GROWTH FUND, INC.
c/o EQUISERVE TRUST COMPANY N.A.
P.O. BOX 8694
EDISON, NJ 08818-8694
----------------------------------------------------
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
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LIBERTY ALL-STAR GROWTH FUND, INC.
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1b. To elect one Director of the Fund (Item 1.b. of Notice).
Nominee: (01) Richard W.Lowry
For the Nominee Withheld from the Nominee
[ ] [ ]
2. In their discretion, upon such other business as may properly come before the
Meeting and any adjournments, thereof.
Mark box at right if an address change has been noted on [ ]
the reverse side of this card.
Please sign exactly as your name(s) appear(s) above. Corporate proxies should be
signed by an authorized officer.
Signature:------------ Date:---------- Signature:--------------- Date:---------