AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 22, 2005
1933 Act File No. 333-
1940 Act File No. 811-21733
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-2
[ X ] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. ___
[ ] Post-Effective Amendment No. ___
and
[ X ] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[ ] Amendment No. __
Liberty All-Star Mid-Cap Fund
(Exact Name of Registrant as Specified in Charter)
One Financial Center
Boston Massachusetts 02111
(Address of Principal Executive Offices)
(800) 542-3863
(Registrant's Telephone Number, including Area Code)
William R. Parmentier, Jr.
One Financial Center
Boston Massachusetts 02111
(Name and Address of Agent for Service)
Copies of Communications to:
Clifford Alexander, Esq.
Kathy Kresch Ingber, Esq.
Kirkpatrick & Lockhart Nicholson Graham LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, DC 20036-1800
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration Statement
---------------------------
If any of the securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [ ]
It is proposed that this filing will become effective (check appropriate
box)
[ X ] when declared effective pursuant to section 8(c).
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
--------------------------------------------------------------------------------
Title of Amount Being Proposed Proposed Amount of
Securities Registered (1) Maximum Maximum Registration
Being Offering Price Aggregate Fee
Registered Per Unit Offering
Price(1)
--------------------------------------------------------------------------------
Shares of 50,000 $20.00 $1,000,000.00 $117.70
Beneficial
Interest
--------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment that specifically states this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
dates as the Securities and Exchange Commission, acting pursuant to said Section
8(a), may determine.
SUBJECT TO COMPLETION, DATED , 2005
PROSPECTUS
----------
__________SHARES
LOGO
LIBERTY ALL-STAR(R) MID-CAP FUND
SHARES OF BENEFICIAL INTEREST
--------------
INVESTMENT OBJECTIVE AND STRATEGY. Liberty All-Star Mid-Cap Fund
("All-Star" or the "Fund") is a newly organized, multi-managed, diversified,
closed-end management investment company. The investment objective of All-Star
is to seek total investment return primarily through long-term capital
appreciation and secondarily through current income. Under normal market
conditions, All-Star will seek its investment objective by investing primarily
in a diversified portfolio of mid-cap equity securities. All-Star cannot assure
you that it will achieve its investment objective.
All-Star will allocate its portfolio assets among a number of independent
investment management organizations, each having a different investment style
(each a "Portfolio Manager"). The Portfolio Managers will be recommended and
monitored by All-Star's fund manager, Liberty Asset Management Company ("LAMCO"
or "Fund Manager"), an indirect subsidiary of Bank of America Corporation,
utilizing processes that LAMCO has employed on behalf of registered closed-end
fund clients since 1986. Under normal market conditions, LAMCO expects to
allocate initially between 40% and 60% of All-Star's net assets to Portfolio
Managers that utilize a "growth" approach to investing, and between 40% and 60%
of All-Star's net assets to Portfolio Managers that utilize a "value" approach
to investing.
NO PRIOR TRADING HISTORY. BECAUSE ALL-STAR IS NEWLY ORGANIZED, ITS SHARES
HAVE NO HISTORY OF PUBLIC TRADING AND THERE HAS BEEN NO PUBLIC MARKET FOR THE
SHARES. SHARES OF CLOSED-END FUNDS FREQUENTLY TRADE AT PRICES BELOW THEIR NET
ASSET VALUE ("DISCOUNT"). THE RISK OF LOSS DUE TO THIS DISCOUNT MAY BE GREATER
FOR INVESTORS EXPECTING TO SELL THEIR SHARES IN A RELATIVELY SHORT PERIOD OF
TIME AFTER COMPLETION OF THE PUBLIC offering. All-Star intends to apply to list
its shares on the Exchange ("Exchange"). The shares will be
traded under the symbol " ."
--------------------------------------------
INVESTING IN ALL-STAR'S SHARES INVOLVES RISKS THAT ARE DESCRIBED UNDER
"RISK FACTORS" BEGINNING ON PAGE OF THIS PROSPECTUS.
--------------------------------------------------------------------------------
TOTAL ASSUMING
FULL EXERCISE OF
PER SHARE TOTAL (1) OVERALLOTMENT OPTION
--------------------------------------------------------------------------------
Public Offering Price ....... $ $ $
--------------------------------------------------------------------------------
Sales Load .................. $ $ $
--------------------------------------------------------------------------------
Proceeds to All-Star (1)(2).. $ $ $
--------------------------------------------------------------------------------
(1) All-Star will pay its organizational and offering expenses. Total
organizational expenses are estimated to be $ . Total expenses of the
offering are estimated to be $ , or $ assuming full exercise of the
over-allotment option, which represents $ , or $ per share, respectively.
(2) The underwriters have been granted an option, exercisable for 45 days from
the date of this Prospectus, to purchase up to an additional shares at the
public offering price, less the sales load, to cover over-allotments. If
such option is exercised, the total price to the public, and total
proceeds to All-Star, will be correspondingly increased. If the
over-allotment option is exercised in full, the total public offering
price, sales load, estimated offering expenses and proceeds to All-Star
will be $ , $ , $ and $ , respectively.
NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The underwriters expect to deliver the shares to purchasers
on or about , 2005.
_, 2005.
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the U.S.
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
2
PORTFOLIO MANAGERS. It is anticipated that All-Star's investment portfolio
initially will be allocated among the following Portfolio Managers:
o Fiduciary Management, Inc.
o M.A. Weatherbie & Co., Inc.
o Mazama Capital Management, Inc.
o Schneider Capital Management Corporation
o
From time to time, Portfolio Managers may be removed or added.
All-Star's address is One Financial Center, Boston, Massachusetts 02111,
and its telephone number is 1-800- - .
You should read this Prospectus, which contains important information
about the Fund that you should know before investing, and retain it for future
reference. A Statement of Additional Information dated , 2005, containing
additional information about All-Star, has been filed with the U.S. Securities
and Exchange Commission ("SEC") and is incorporated by reference in its entirety
into this Prospectus. The table of contents of the Statement of Additional
Information appears on page of this Prospectus. Investors may request a free
copy of All-Star's Statement of Additional Information, annual or semi-annual
reports (when available), additional information about All-Star, or make
shareholder inquiries by calling 1-800- - , writing to the address provided
above, or accessing www. .com. The SEC maintains an Internet website at
(http://www.sec.gov) that contains the Statement of Additional Information and
other information regarding All-Star.
The shares do not represent a deposit obligation of, and are not
guaranteed or endorsed by, any bank or other insured depository institution and
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other governmental agency.
3
TABLE OF CONTENTS
Page
----
Prospectus Summary............................................................ 1
Summary of Fund Expenses......................................................16
The Fund......................................................................17
Use of Proceeds...............................................................17
The Multi-Manager Concept.....................................................17
Investment Objective and Principal Investment Strategies......................22
Risk Factors..................................................................25
Management of All-Star........................................................31
Net Asset Value...............................................................37
Distributions.................................................................38
Automatic Dividend Reinvestment and Cash Purchase Plan........................39
Closed-End Fund Structure ....................................................40
Description of Shares.........................................................41
Anti-Takeover Provisions of the Declaration of Trust: Super-Majority
Vote Requirement for Conversion to Open-End Status..........................42
Repurchase of Shares; Tender Offers; Conversion to Open-End Fund..............43
Tax Matters...................................................................43
Underwriting..................................................................46
Custodian and Transfer and Dividend Disbursing Agent..........................49
Validity of the Shares........................................................49
Table of Contents of the Statement of Additional Information..................50
-------------
You should rely only on the information contained in or incorporated by
reference into this Prospectus. All-Star has not, and the underwriters have not,
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. All-Star is not, and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. The
information appearing in this Prospectus is given as of the date of this
Prospectus. All-Star's business, financial condition, results of operations and
prospects may have changed since the date of this Prospectus.
i
--------------------------------------------------------------------------------
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SOME INFORMATION THAT IS DESCRIBED MORE FULLY
ELSEWHERE IN THIS PROSPECTUS. IT MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER BEFORE INVESTING IN THE SHARES. YOU SHOULD CAREFULLY REVIEW THE
MORE DETAILED INFORMATION CONTAINED IN THIS PROSPECTUS AND IN THE STATEMENT OF
ADDITIONAL INFORMATION.
THE FUND......................... Liberty All-Star Mid-Cap Fund ("All-Star"
or the "Fund") is a newly organized,
multi-managed, diversified, closed-end
management investment company. All-Star
will allocate its portfolio assets among a
number of independent investment
management organizations, each having a
different investment style (each, a
"Portfolio Manager"). The Portfolio
Managers will be recommended and monitored
by All-Star's Fund Manager, Liberty Asset
Management Company ("LAMCO" or "Fund
Manager"), utilizing processes that LAMCO
has employed on behalf of registered
closed-end fund clients since 1986. See
"The Fund."
INVESTMENT OBJECTIVE
AND PRINCIPAL INVESTMENT
STRATEGIES ...................... All-Star's investment objective is to seek
total investment return, primarily through
long-term capital appreciation and
secondarily through current income. Under
normal market conditions, All-Star will
seek its investment objective by investing
primarily in a diversified portfolio of
mid-cap equity securities. Mid-cap equity
securities are securities of companies
whose market capitalizations are less than
or equal to the highest market
capitalization of companies included in
the Russell Midcap(R) Index or the
Standard & Poor's MidCap 400 Index ("S&P
MidCap 400") (whichever capitalization is
greater) and greater than or equal to the
lowest market capitalization of companies
included in these indices (whichever
capitalization is lower). These indices
may be revised from time to time. All
market capitalizations are determined at
the time of purchase. See "Investment
Objective and Principal Investment
Strategies" and "Risk Factors."
All-Star will invest primarily in equity
securities, which include but are not
limited to common stocks, preferred
stocks, securities convertible into common
stocks such as convertible bonds, and
securities having common stock
characteristics such as rights and
warrants to purchase equity securities.
1
All-Star may lend its portfolio
securities, write covered call and put
options and engage in options and futures
strategies (see "Investment Objective and
Principal Investment Strategies" below).
Under normal market conditions, at least
80% of the net asset value of All-Star's
total assets will be invested in mid-cap
equity securities.
Although All-Star will, under normal
market conditions, remain fully invested
in equity securities, up to 20% of the
value of All-Star's net assets may
generally be invested in short-term money
market instruments. All-Star may
temporarily reduce its investments in
equity securities and invest without limit
in short-term money market instruments for
defensive purposes when LAMCO or the
Portfolio Managers deem that market
conditions are such that a more
conservative approach to investment is
desirable. Taking a temporary defensive
position may prevent All-Star from
achieving its investment objective.
THE MULTI-MANAGER
CONCEPT.......................... All-Star will allocate its portfolio
assets among a number of Portfolio
Managers, each having a different
investment style. The Portfolio Managers
will be recommended and monitored by
LAMCO, utilizing processes that LAMCO has
employed on behalf of registered
closed-end fund clients since 1986. From
time to time, All-Star will rebalance the
portfolio among the Portfolio Managers to
adjust to the desired allocations.
In LAMCO's opinion, the multi-manager
concept provides advantages over the use
of a single manager because of the
following primary factors:
(i) most equity investment management
firms consistently employ a distinct
investment style which causes them to
emphasize stocks with particular
characteristics;
(ii) because of changing investor
preferences and changing market
conditions, any given investment style
will move into and out of market favor and
will result in better investment
performance under certain market
conditions but less successful performance
under other conditions;
(iii) by allocating All-Star's portfolio
among Portfolio Managers employing
different styles, the impact of any one
such style on investment performance will
be diluted, and the investment performance
of the total portfolio will be more
2
consistent and less volatile over the long
term than if a single style were employed
throughout the entire period; and
(iv) consistent performance at a given
annual rate of return over time produces a
higher rate of return for the long term
than more volatile performance having the
same average annual rate of return.
LAMCO, based on the foregoing principles
and on its analysis and evaluation of
information regarding the personnel and
investment styles and performance of a
universe of numerous professional
investment management firms, has selected
for appointment by All-Star a group of
Portfolio Managers representing a blending
of different investment styles which, in
its opinion, are appropriate to All-Star's
investment objective. Under normal market
conditions, LAMCO expects to allocate
initally between 40% and 60% of the Fund's
net assets to Portfolio Managers that
utilize a "growth" approach to investing,
and between 40% and 60% of the Fund's net
assets to Portfolio Managers that utilize
a "value" approach to investing. These
allocations are subject to change from
time to time in the discretion of LAMCO.
LAMCO will continuously monitor the
performance and investment styles of
All-Star's Portfolio Managers and from
time to time may recommend changes of
Portfolio Managers based on factors such
as changes in a Portfolio Manager's
investment style or a departure by a
Portfolio Manager from the investment
style for which it had been selected, a
deterioration in a Portfolio Manager's
performance relative to that of other
investment management firms practicing a
similar style, or adverse changes in its
ownership or personnel. Portfolio Manager
changes may also be made to change the mix
of investment styles employed by
All-Star's Portfolio Managers.
THE OFFERING..................... All-Star is offering shares of beneficial
interest (the "shares") at an offering
price of $ per share. The minimum
investment requirement is shares. The
shares are being offered by a group of
underwriters represented by
. The underwriters have been
granted an option to purchase additional
shares to cover over-allotments. See
"Underwriting."
3
FUND MANAGER..................... All-Star has entered into a management
agreement with LAMCO ("Fund Management
Agreement") pursuant to which LAMCO is
responsible for determining All-Star's
overall investment strategy and for
selecting, evaluating, monitoring and
rebalancing services amongst the Portfolio
Managers ("investment management
services") as described under "The
Multi-Manager Concept."
Pursuant to the Fund Management Agreement,
LAMCO is also responsible for the
provision of administrative services to
All-Star, including the provision of
office space, shareholder and
broker-dealer communications, compensation
of officers of All-Star who are also
officers or employees of LAMCO or its
affiliates, and the supervision of
transfer agency, dividend disbursing,
custodial and other services provided to
All-Star. Certain of LAMCO's
administrative responsibilities have been
delegated to its affiliate, Columbia
Management Advisors, Inc. ("CMA").
The Fund Management Agreement provides
that All-Star will pay the Fund Manager a
monthly fund management fee at an annual
rate of % of All-Star's average weekly net
assets and a monthly administration fee at
an annual rate of % of its average weekly
net assets. Under the portfolio management
agreement between All-Star, LAMCO and each
Portfolio Manager (each, a "Portfolio
Management Agreement"), LAMCO pays the
Portfolio Managers an aggregate monthly
portfolio management fee at an annual rate
of % of its average weekly net assets.
LAMCO, organized in 1985, is an indirect
subsidiary of Bank of America Corporation.
As of , 2005, LAMCO managed over $ billion
in assets. See "Management of All-Star."
PORTFOLIO MANAGERS............... All-Star will allocate its portfolio
assets among a number of independent
investment management organizations, each
having a different investment style, as
selected by LAMCO from time to time. It is
anticipated that All-Star's investment
portfolio initially will be allocated
among the following Portfolio Managers:
o Fiduciary Management, Inc.
o M.A. Weatherbie & Co., Inc.
4
o Mazama Capital Management, Inc.
o Schneider Capital Management
Corporation
o
See "Management of All-Star."
CUSTODIAN AND
TRANSFER AND DIVIDEND DISBURSING will serve as All-Star's
AGENT............................ custodian. will serve as
All-Star's transfer and dividend
disbursing agent and registrar. See
"Custodian and Transfer and Dividend
Disbursing Agent."
AUTOMATIC DIVIDEND
REINVESTMENT AND CASH
PURCHASE PLAN.................... All dividend and capital gain
distributions to shareholders will be
automatically reinvested in additional
shares of All-Star, unless a shareholder,
or a broker or nominee on a shareholder's
behalf, elects to receive cash. See
"Automatic Dividend Reinvestment and Cash
Purchase Plan."
LISTING.......................... All-Star intends to apply to list its
shares on the Exchange ("Exchange").
SYMBOL........................... All-Star's Exchange symbol will be " ."
CLOSED-END FUND DISCOUNTS........ Shares of closed-end funds frequently
trade at a market price that is less than
the value of the net assets attributable
to those shares. The possibility that
shares of All-Star will trade at a
discount from net asset value is a risk
separate and distinct from the risk that
All-Star's net asset value will decrease.
The risk of purchasing shares of a
closed-end fund that might trade at a
discount is more pronounced for investors
who wish to sell their shares in a
relatively short period of time because,
for those investors, realization of a gain
or loss on their investments is likely to
be more dependent upon the existence of a
premium or discount than upon portfolio
performance. See "Closed-End Fund
Structure" and "Repurchase of Shares;
Tender Offers; Conversion to Open-End
Fund."
SPECIAL RISK CONSIDERATIONS...... The following summarizes some of the risks
that you should consider before purchasing
All-Star shares. A more detailed
description of these and other risks of
investing in All-Star are described under
"Risk Factors" in this Prospectus and
5
under "Investment Objective and Policies"
in the Statement of Additional
Information.
NO OPERATING HISTORY. All-Star is a newly
organized, multi-managed, diversified,
closed-end management investment company
with no history of operations.
INVESTMENT AND MARKET RISK. An investment
in All-Star's shares is subject to
investment risk, including the possible
loss of the entire amount that you invest.
Your investment in the shares represents
an indirect investment in the securities
owned by All-Star, most of which are
anticipated to be traded on a national
securities exchange or in the
over-the-counter markets. The value of
these securities, like other market
investments, may move up or down,
sometimes rapidly and unpredictably. Your
shares at any point in time may be worth
less than your original investment, even
after taking into account the reinvestment
of dividends and distributions.
MARKET DISCOUNT RISK. Shares of closed-end
management investment companies such as
All-Star frequently trade at a discount
from their net asset value. This risk may
be greater for investors expecting to sell
their shares of All-Star soon after the
completion of the public offering. The
shares of All-Star were designed primarily
for long-term investors, and investors in
All-Star shares should not view All-Star
as a vehicle for trading purposes. See
"Closed-End Fund Discounts" above.
COMMON STOCK RISK. All-Star is not limited
in the percentage of its assets that may
be invested in common stocks and other
equity securities, and therefore a risk of
investing in the Fund is equity risk.
Equity risk is the risk that the market
value of securities held by All-Star will
fall due to general market or economic
conditions, perceptions regarding the
industries in which the issuers of
securities held by All-Star participate,
and the particular circumstances and
performance of particular companies whose
securities All-Star holds. For example: an
adverse event, such as an unfavorable
earnings report, may depress the value of
equity securities of an issuer held by
All-Star; the price of common stock of an
issuer may be particularly sensitive to
general movements in the stock market; or
a drop in the stock market may depress the
price of most or all of the common stocks
and other equity securities held by
All-Star. In addition, common stock of an
issuer in All-Star's portfolio may decline
6
in price if the issuer fails to make
anticipated dividend payments because,
among other reasons, the issuer of the
security experiences a decline in its
financial condition. Common equity
securities in which All-Star will invest
are structurally subordinated to preferred
stocks, bonds and other debt instruments
in a company's capital structure, in terms
of priority to corporate income, and
therefore will be subject to greater
dividend risk than preferred stocks or
debt instruments of such issuers. In
addition, while broad market measures of
commons stocks have historically generated
higher average returns than fixed income
securities, common stocks have also
experienced significantly more volatility
in those returns.
PREFERRED SECURITIES RISK. Preferred
equity securities involve credit risk,
which is the risk that a preferred equity
security will decline in price, or fail to
pay dividends when expected, because the
issuer experiences a decline in its
financial status. In addition to credit
risk, investment in preferred equity
securities involves certain other risks.
Certain preferred equity securities
contain provisions that allow an issuer
under certain conditions to skip
distributions (in the case of
"non-cumulative" preferred equity
securities) or defer distributions (in the
case of "cumulative" preferred equity
securities). Preferred equity securities
often contain provisions that allow for
redemption in the event of certain tax or
legal changes or at the issuers' call. In
the event of redemption, All-Star may not
be able to reinvest the proceeds at
comparable rates of return. Preferred
equity securities typically do not provide
any voting rights, except in cases when
dividends are in arrears beyond a certain
time period, which varies by issue.
Preferred equity securities are
subordinated to bonds and other debt
instruments in a company's capital
structure in terms of priority to
corporate income and liquidation payments,
and therefore will be subject to greater
credit risk than those debt instruments.
Preferred equity securities may be
significantly less liquid than many other
securities, such as U.S. government
securities, corporate debt or common
stock.
CONVERTIBLE SECURITY RISK. Convertible
securities generally offer lower interest
or dividend yields than non-convertible
fixed-income securities of similar credit
quality because of the potential for
capital appreciation. The market values of
convertible securities tend to decline as
interest rates increase and, conversely,
to increase as interest rates decline.
However, a convertible security's market
value also tends to reflect the market
7
price of the common stock of the issuing
company, particularly when the stock price
is greater than the convertible security's
conversion price. The conversion price is
defined as the predetermined price or
exchange ratio at which the convertible
security can be converted or exchanged for
the underlying common stock. As the market
price of the underlying common stock
declines below the conversion price, the
price of the convertible security tends to
be increasingly influenced more by the
yield of the convertible security than by
the market price of the underlying common
stock. Thus, it may not decline in price
to the same extent as the underlying
common stock, and convertible securities
generally have less potential for gain or
loss than common stocks. However,
mandatory convertible securities generally
do not limit the potential for loss to the
same extent as securities convertible at
the option of the holder. In the event of
a liquidation of the issuing company,
holders of convertible securities would be
paid before that company's common
stockholders. Consequently, an issuer's
convertible securities generally entail
less risk than its common stock. However,
convertible securities fall below debt
obligations of the same issuer in order of
preference or priority in the event of a
liquidation and are typically unrated or
rated lower than such debt obligations. In
addition, contingent payment convertible
securities allow the issuer to claim
deductions based on its nonconvertible
cost of debt, which generally will result
in deductions in excess of the actual cash
payments made on the securities (and
accordingly, holders will recognize income
in amounts in excess of the cash payments
received).
MID-CAP COMPANY RISK. All-Star will invest
primarily in equity securities of mid-cap
companies. Stocks of mid-sized companies
may trade less frequently, may trade in
smaller volumes and may fluctuate more
sharply in price than stocks of larger
companies. Mid-cap companies also carry
additional risks because their earnings
and revenues tend to be less predictable.
INTEREST RATE RISK. Interest rate risk is
the risk that fixed-income securities, and
to a lesser extent dividend-paying common
stocks, will decline in value because of
changes in market interest rates. When
market interest rates rise, the market
value of such securities generally will
fall. Because All-Star may invest in
certain preferred stocks and fixed-income
securities that pay a fixed rate of
return, the net asset value and market
8
price of All-Star's shares could decline
if the market interest rate applicable to
such investments were to rise.
CREDIT RISK. Credit risk is the risk that
a security in the Fund's portfolio will
decline in price or fail to make dividend
or interest payments when due because the
issuer of the security experiences a
decline in its financial status. Preferred
and convertible securities are typically
subordinated to bonds and other debt
instruments in a company's capital
structure, in terms of priority to
corporate income, and therefore will be
subject to greater credit risk than those
debt instruments.
OPTIONS AND FUTURES STRATEGIES RISK.
Options and futures are financial
contracts whose value depends on or is
derived from the value of an underlying
asset, reference rate or index (or
relationship between two indexes).
All-Star may use options and futures as a
substitute for taking a position in an
underlying security or other asset and/or
as part of a strategy designed to reduce
exposure to other risks. All-Star's use of
options and futures involves risks
different from, and possibly greater than,
the risks associated with investing in
securities and other traditional
investments. Options and futures are
subject to a number of risks described
elsewhere in this Prospectus, such as
illiquid securities risk, interest rate
risk and credit risk. They also involve
the risk of mispricing or improper
valuation and the risk that changes in the
value of the options and futures may not
correlate perfectly with the underlying
asset, rate or index. If All-Star invests
in options and futures, it could lose more
than the principal amount invested. The
use of options and futures also may affect
the amount, character and timing of
recognition of the gains and losses
All-Star realizes in connection therewith.
In addition, suitable options and futures
transactions may not be available in all
circumstances and there can be no
assurance that All-Star will engage in
these transactions to reduce exposure to
other risks when that would be beneficial.
MANAGEMENT RISK. All-Star is subject to
management risk because it is an actively
managed investment portfolio. LAMCO and
the Portfolio Managers will apply
investment techniques and risk analyses in
selecting Portfolio Managers and making
investment decisions for All-Star, but
there can be no guarantee that these will
produce the desired results.
9
GROWTH STOCK RISK. Initially LAMCO will
allocate between 40% and 60% of All-Star's
net assets to Portfolio Managers that
utilize a "growth" approach to investing.
Over time, depending on market conditions,
this allocation may increase or decrease.
Growth stocks are stocks of companies
believed to have above-average potential
for growth in revenue and earnings. In
certain market conditions, prices of
growth stocks may be more sensitive to
changes in current or expected earnings
than the prices of other stocks. Growth
stocks may not perform as well as value
stocks or the stock market in general.
VALUE STOCK RISK. Initially, LAMCO WILL
allocate between 40% and 60% of All Star's
net assets to Portfolio Managers that
utilize a "value" approach to investing.
Over time, depending on market conditions,
this allocation may increase or decrease.
Value stocks are stocks of companies that
may have experienced adverse business or
industry developments or may be subject to
special risks that have caused the stocks
to be out of favor and, in a Portfolio
Manager's opinion, undervalued. If the
Portfolio Manager's assessment of a
company's prospects is wrong, the price of
the company's stock may fall, or may not
approach the value the Portfolio Manager
has placed on it.
FOREIGN SECURITIES RISK. All-Star may
invest up to 25% of its net assets in
securities of foreign (non-U.S.) issuers.
Investments in foreign securities involve
risks in addition to those of investments
in U.S. issuers. These risks include
political and economic risks, currency
fluctuations, higher transaction costs,
less liquidity and greater volatility,
delayed settlement, and less stringent
investor protection and disclosure of
standards if some foreign markets. These
risks can make investments in foreign
issuers more volatile and potentially less
liquid than investments in U.S. issuers.
TAX RISK. All-Star may invest in preferred
securities, convertible securities, or
other securities the federal income tax
treatment of the income from which may not
be clear or may be subject to
recharacterization by the Internal Revenue
Service ("IRS"). It could be more
difficult for All-Star to comply with the
tax requirements applicable to regulated
investment companies if the tax treatment
of the income from its investments were
successfully challenged by the IRS.
The tax treatment of amounts All-Star
designates as qualified dividend income
may be affected by IRS interpretations of
the Internal Revenue Code of 1986, as
10
amended (the "Code"), and future changes
in the Code and the regulations
thereunder. Moreover, unless legislative
action is taken, the favorable tax
treatment of qualified dividend income, as
well as the 15% maximum Federal income tax
rate on individuals' net capital gain,
will expire for taxable years commencing
after December 31, 2008. See "Tax
Matters." If All-Star has significant
holdings in securities that generate
qualified dividend income, its share price
may be volatile while Congress considers
an extension of that favorable tax
treatment, depending on the anticipated
outcome of the legislation. There can be
no assurance as to what portion, if any,
of All-Star's distributions will
constitute qualified dividend income.
COUNTERPARTY RISK. All-Star may be subject
to credit risk with respect to the
counterparties to certain options, futures
and repurchase agreements entered into by
All-Star. If a counterparty becomes
bankrupt or otherwise fails to perform its
obligations under a contract due to
financial difficulties, All-Star may
experience significant delays in obtaining
any recovery under the contract in a
bankruptcy or other reorganization
proceeding. All-Star may obtain only a
limited recovery or may obtain no recovery
in such circumstances.
RIGHTS AND WARRANTS RISK. Rights and
warrants are subject to the same market
risks as common stocks, but are more
volatile in price. Rights and warrants do
not carry the right to dividends or voting
rights with respect to their underlying
securities, and they do not represent any
rights in the assets of the issuer. An
investment in rights or warrants may be
considered speculative. In addition, the
value of a right or warrant does not
necessarily change with the value of the
underlying security and a right or warrant
ceases to have value if it is not
exercised prior to its expiration date.
The purchase of warrants or rights
involves the risk that All-Star could lose
the purchase value of a right or warrant
if the right to subscribe for additional
shares is not exercised prior to the
rights' or warrants' expiration. Also, the
purchase of rights and warrants involves
the risk that the effective price paid for
the right or warrant added to the
subscription price of the related security
may exceed the value of the subscribed
security's market price such as when there
is no movement in the price of the
underlying security.
ILLIQUID SECURITIES RISK. All-Star may
invest up to 15% of its net assets in
securities that, at the time of
investment, are illiquid. Illiquid
securities are not readily marketable and
11
may include some restricted securities.
Illiquid securities involve the risk that
the securities will not be able to be sold
at the time desired by All-Star or at
prices approximating the value at which
All-Star is carrying the securities on its
books. The market price of illiquid
securities generally is more volatile than
that of more liquid securities, which may
adversely affect the price that All-Star
pays for or recovers upon the sale of
illiquid securities. Illiquid securities
are also more difficult to value and
LAMCO's/the Portfolio Managers' judgment
may play a greater role in the valuation
process.
MARKET DISRUPTION RISK. Certain events
have a disruptive effect on the securities
markets, such as terrorist attacks
(including the terrorist attacks in the
U.S. on September 11, 2001), war and other
geopolitical events. All-Star cannot
predict the effects of similar events in
the future on the U.S. economy. Securities
of mid-cap companies tend to be more
volatile than securities of larger
companies so that these events and any
actions resulting from them may have a
greater impact on the prices and
volatility of securities of mid-cap
companies than on securities of larger
companies.
INFLATION RISK. Inflation risk is the risk
that the value of assets or income from
investment will be worth less in the
future as inflation decreases the value of
money. As inflation increases, the real
value of the shares and distributions can
decline.
DEFLATION RISK. Deflation risk is the risk
that prices throughout the economy decline
over time, which may have an adverse
effect on the market valuation of
companies, their assets and revenues. In
addition, deflation may have an adverse
effect on the creditworthiness of issuers
and may make issuer default more likely,
which may result in a decline in the value
of All-Star's portfolio.
DISTRIBUTIONS.................... When All-Star's Board of Trustees (the
"Board") determines that market conditions
are favorable and that other factors,
including its levels of net income and net
realized and unrealized capital gains are
appropriate, and All-Star obtains
exemptive relief from the SEC, it intends
to adopt a managed distribution policy.
Under that policy, All-Star would pay
distributions on its shares totaling
approximately % of its net asset value per
year, payable in four quarterly
distributions of approximately % of its
net asset value at the close of regular
trading on the Exchange on the Friday
prior to each quarterly declaration date.
These fixed distributions, which will not
necessarily be related to All-Star's net
12
investment income or net realized capital
gains or losses, will be taxable in any
taxable year, up to the amount of
All-Star's current and accumulated
earnings and profits, as ordinary dividend
income, qualified dividend income (taxable
at a maximum 15% federal income tax rate
for individuals), or long-term capital
gain to the extent they reflect such
income or gain earned by All-Star for that
year. If, for any calendar year, the total
distributions made under All-Star's
distribution policy exceed its net
investment income and net realized capital
gains, the excess will be treated as a
non-taxable return of capital to each
shareholder (up to the amount of the
shareholder's basis in his or her shares)
and thereafter as gain from the sale of
shares. The amount treated as a
non-taxable return of capital will reduce
the shareholder's adjusted basis in his or
her shares, thereby increasing his or her
potential gain or reducing his or her
potential loss on the subsequent sale of
those shares.
All-Star may, in the discretion of the
Board, retain for reinvestment, and not
distribute, net long-term capital gain in
excess of net short-term capital loss
("net capital gain") for any year to the
extent that its net investment income and
net realized gains exceed the amount
distributed for that year under its
distribution policy. Retained net capital
gains will be taxed to both All-Star and
the shareholders as long-term capital
gains; however, each shareholder will be
able to claim a proportionate share of the
federal income tax paid by All-Star as a
credit against his or her own federal
income tax liability and will be entitled
to increase the adjusted tax basis in his
or her shares by the difference between
the amount taxed and the credit. See
"Distributions."
All-Star will pay its distributions to
shareholders in the form of either cash or
newly issued shares (plus cash in lieu of
fractional shares that would otherwise be
issuable). In order to receive
distributions in additional newly issued
shares, a shareholder holding shares
through the Fund's transfer agent must
participate in All-Star's Automatic
Dividend Reinvestment and Cash Purchase
Plan; each All-Star shareholder holding
shares through the Fund's transfer agent
will automatically be a participant
therein. See "Automatic Dividend
Reinvestment and Cash Purchase Plan."
Investors that hold shares through a
brokerage firm, bank or other intermediary
as the stockholder of record, may receive
distributions in cash or newly issued
shares depending on the intermediary.
Investors should contact their
intermediary for more information.
13
All-Star and LAMCO have applied to the
Securities and Exchange Commission ("SEC")
for an exemptive order to permit All-Star
to distribute capital gains as often as
quarterly, in accordance with a managed
distribution policy. Although the SEC has
granted this type of exemptive relief in
the past, there can be no assurance that
the SEC will grant the requested exemptive
order to All-Star and LAMCO. Until
All-Star adopts the managed distribution
policy, All-Star will make distributions
at least in amounts sufficient to maintain
its qualification for treatment as a
regulated investment company. All-Star
does not believe that this will affect the
Portfolio Manager's ability to manage
All-Star's assets pursuant to the
strategies discussed herein. See
"Investment Objective and Principal
Investment Strategies."
ANTI-TAKEOVER PROVISIONS......... All-Star's Declaration of Trust and
By-Laws have provisions (commonly referred
to as "anti-takeover provisions") which
are intended to have the effect of
limiting the ability of other entities or
persons to acquire control of All-Star, to
cause it to engage in certain
transactions, or to modify its structure.
For instance, the affirmative vote of 75%
of the shares of the Fund is required to
authorize All-Star's conversion from a
closed-end to an open-end investment
company, unless such conversion is
recommended by All-Star's Board, in which
event such conversion would only require
the majority vote of All-Star's
shareholders, as defined in the Investment
Company Act of 1940, as amended (the "1940
Act"). A similar shareholder vote is
required to authorize a merger, sale of a
substantial part of the assets or similar
transactions with persons beneficially
owning 5% or more of All-Star's shares,
unless approved by All-Star's Board under
certain conditions. These provisions
cannot be amended without a similar
super-majority vote. In addition,
All-Star's Board is divided into three
classes, each of which has a term of three
years and only one of which is elected at
each annual meeting of shareholders. See
"Description of Shares" and "Anti-Takeover
Provisions of the Declaration of Trust;
Super-Majority Vote Requirement for
Conversion to Open-End Status."
DISPOSITION OF SHARES............ You will be free to dispose of your shares
on the Exchange or other markets on which
the shares may trade, but, because
All-Star is a closed-end fund, you do not
have the right to redeem your shares.
--------------------------------------------------------------------------------
You should carefully consider your ability to assume the foregoing risks before
making an investment in the Fund. An investment in shares of the Fund is not
appropriate for all investors.
--------------------------------------------------------------------------------
14
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of offering price).........................___
Expenses Borne by the Fund (as a percentage of offering price)(1)......___
Automatic Dividend Reinvestment and Cash Purchase Plan Fees (2)........___
ANNUAL EXPENSES (as a percentage of net assets attributable to shares of
beneficial interest)
Management and Administrative Fees....................................___%
Other Expenses (3)....................................................___%
Total Annual Expenses.................................................___%
EXAMPLE: You would pay the following expenses on an investment (at net asset
value) of $1,000, assuming (i) total net annual expenses of % of net assets
attributable to shares of All-Star and (ii) a 5% annual return and reinvestment
of all dividends and distributions at net asset value.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
THE FIGURES IN THE EXAMPLE ARE INTENDED TO ILLUSTRATE THE EFFECT OF
ALL-STAR'S EXPENSES, BUT SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
RETURNS AND EXPENSES, WHICH MAY BE HIGHER OR LOWER THAN THOSE SHOWN. THE EXAMPLE
ABOVE ASSUMES THAT THE ESTIMATED "OTHER EXPENSES" ARE ACCURATE AND THAT ALL
DISTRIBUTIONS ON THE SHARES ARE REINVESTED AT NET ASSET VALUE.
(1) All-Star will pay its organizational and offering expenses. Total
organizational expenses are estimated to be $ . Total expenses of the
offering are estimated to be $ , or $ assuming full exercise of the
over-allotment option, which represents $ , or $ per share, respectively.
(2) A shareholder that directs the plan agent to sell shares held in an
Automatic Dividend Reinvestment and Cash Purchase Plan account will incur
brokerage charges.
(3) "Other Expenses" shown under the "Annual Expenses" table are estimated
amounts for All-Star's first year of operations, unless otherwise
indicated, and assume that All-Star issues shares. If All-Star issues
fewer shares, all other things being equal, these expenses would increase
as a percentage of net assets.
15
The tables and example above are intended to assist investors in
understanding the various costs and expenses that an investor will bear directly
and indirectly in the purchasing and owning of All-Star's shares. The
"Shareholder Transaction Expenses" table shows the expenses that an investor
will incur when buying shares of All-Star, whether in this offering, in the open
market or through All-Star's Automatic Dividend Reinvestment and Cash Purchase
Plan. The "Annual Expenses" table shows the costs and expenses, as a percentage
of net assets, associated with an investment in the shares. The expenses shown
in the table under "Other Expenses" and "Total Annual Expenses" are based on
estimated amounts for the Fund's first full year of operations and assume that
the Fund issues shares. If the Fund issues fewer shares, all other things being
equal, these expenses, as a percentage of the Fund's net assets attributable to
its shares, would increase.
THE FUND
Liberty All-Star Mid-Cap Fund ("All-Star" or the "Fund") is a newly
organized, multi-managed, diversified, closed-end management investment company.
All-Star will allocate its portfolio assets among a number of independent
investment management organizations each having a different investment style.
All-Star is designed primarily for long-term investment and not as a trading
vehicle. All-Star was organized as a Massachusetts business trust on , 2005 and,
as a newly organized entity, has no operating history or history of public
trading. All-Star's address is One Financial Center, Boston, Massachusetts 02111
and its telephone number is 1-800- - .
USE OF PROCEEDS
The net proceeds of this offering will be approximately $ ($ if the
underwriters exercise the over-allotment option in full) after payment of the
estimated offering expenses. All-Star will pay its organizational and offering
expenses. Total organizational expenses are estimated to be $ . Total expenses
of the offering are estimated to be $ , or $ assuming full exercise of the
over-allotment option, which represents $ , or $ per share, respectively. The
proceeds of the offering will be invested by All-Star's Portfolio Managers in
portfolio securities in accordance with All-Star's investment objective and
strategies. It is currently anticipated that the Portfolio Managers will be able
to invest the net proceeds of the offering in accordance with All-Star's
investment objective and strategies within three months from completion of the
offering. Pending such investment, it is anticipated that the proceeds will be
invested in short-term, high-quality money market instruments, including U.S.
Government Securities that may include shares of money market funds managed by
LAMCO, CMA or their respective affiliates.
THE MULTI-MANAGER CONCEPT
All-Star will allocate its portfolio assets among a number of Portfolio
Managers, each having a different investment style. The Portfolio Managers will
be recommended and monitored by LAMCO, utilizing processes that LAMCO has
employed on behalf of registered closed-end fund clients since 1986. From time
to time, All-Star will rebalance the portfolio among the Portfolio Managers to
adjust to the desired allocations.
16
In LAMCO's opinion, the multi-manager concept provides advantages over the
use of a single manager because of the following primary factors:
(i) most equity investment management firms consistently employ a
distinct investment style which causes them to emphasize stocks with particular
characteristics;
(ii) because of changing investor preferences and market fluctuations,
any given investment style will move into and out of market favor and will
result in better investment performance under certain market conditions but
less successful performance under other conditions;
(iii) by allocating All-Star's portfolio among Portfolio Managers
employing different styles, the impact of any one such style on investment
performance will be diluted, and the investment performance of the total
portfolio will be more consistent and less volatile over the long term than if a
single style was employed throughout the entire period; and
(iv) consistent performance at a given annual rate of return over time
produces a higher rate of return for the long term than more volatile
performance having the same average annual rate of return.
LAMCO, based on the foregoing principles and on its analysis and
evaluation of information regarding the personnel and investment styles and
performance of a universe of numerous professional investment management firms,
has initially selected for appointment by All-Star a group of Portfolio Managers
representing a blending of different investment styles which, in its opinion,
are appropriate to achieve All-Star's investment objective.
LAMCO continuously monitors the performance and investment styles of
All-Star's Portfolio Managers and from time to time recommends to the Board of
All-Star changes of Portfolio Managers based on factors such as changes in a
Portfolio Manager's investment style or a departure by a Portfolio Manager from
the investment style for which it had been selected, a deterioration in a
Portfolio Manager's performance relative to that of other investment management
firms practicing a similar style, or adverse changes in its ownership or
personnel. Portfolio Manager changes may also be made to change the mix of
investment styles employed by All-Star's Portfolio Managers.
All-Star Portfolio Manager changes, as well as the periodic rebalancings
of its portfolio among the Portfolio Managers and the need to raise cash for
All-Star's quarterly distributions, may result in some portfolio turnover in
excess of what would otherwise be the case. Increased portfolio turnover could
cause All-Star to experience increased brokerage commission costs and may result
in greater realization of income and capital gains, which are taxable to
shareholders when distributed to them.
All-Star and LAMCO have applied to the SEC for an exemptive order that
would permit All-Star and LAMCO, with the approval of the Board, to enter into a
portfolio management agreement with a new or additional Portfolio Manager in
advance of shareholder approval, provided that the new agreement is at a fee no
higher than that provided in, and is on other terms and conditions substantially
similar to, All-Star's agreements with its other Portfolio Managers, and that
its continuance is subject to approval by shareholders at All-Star's next
regularly scheduled annual shareholder meeting following the date of the new or
17
additional portfolio management agreement. Information about Portfolio Manager
changes or additions made in advance of shareholder approval will be announced
in a press release following Board action and will be included in the next
report to shareholders. Although the SEC has granted this type of exemptive
relief in the past, there can be no assurance that the SEC will grant the
requested exemptive order to All-Star and LAMCO. Prior to receiving relief, and
if the relief is not granted, LAMCO would propose any Portfolio Manager change
to the Board. Approval of a majority of the Board, including a majority of the
Independent Trustees, would be required to approve a new Portfolio Manager. If
Board approval is obtained, LAMCO would then be required to submit the proposed
change to shareholders for approval. Only Board approval would be necessary once
exemptive relief is obtained.
All-Star anticipates that it initially will have up to Portfolio Managers,
each responsible for its portion of All-Star's assets as discussed below. From
time to time, the number of Portfolio Managers and/or allocations to Portfolio
Managers may change as circumstances change. For example, LAMCO, subject to the
oversight of the Board, may determine to modify allocations among existing
Portfolio Managers, remove Portfolio Managers or add Portfolio Managers. Under
normal market conditions, LAMCO expects to recommend to the Board an initial
allocation of between 40% and 60% of the Fund's net assets to Portfolio Managers
that utilize a "growth" approach to investing, and between 40% and 60% of the
Fund's net assets to Portfolio Managers that utilize a "value" approach to
investing. Initially, the Portfolio Managers will be:
GROWTH MANAGERS
M.A. WEATHERBIE & CO., INC. ("M.A. Weatherbie")
M.A. Weatherbie will invest its portion of All-Star's portfolio primarily
in companies with enduring competitive advantages and high, sustainable earnings
growth.
MAZAMA CAPITAL MANAGEMENT, INC. ("MAZAMA")
Mazama will invest its portion of All-Star's portfolio primarily in
companies that are gaining market share and are positioned to accelerate their
revenue and earnings growth rates.
VALUE MANAGERS
FIDUCIARY MANAGEMENT, INC. ("FIDUCIARY MANAGEMENT")
Fiduciary Management will invest its portion of All-Star's portfolio
primarily in companies with durable business franchises that are selling at a
discount to their intrinsic value.
SCHNEIDER CAPITAL MANAGEMENT CORPORATION ("Schneider")
Schneider will invest its portion of All-Star's portfolio primarily in
companies that are overlooked and undervalued where the firm expects a rebound
in earnings.
18
will invest its portion of All-Star's portfolio
primarily in companies that .
INVESTMENT PHILOSOPHY AND PROCESS OF EACH PORTFOLIO MANAGER
M.A. WEATHERBIE & CO., INC.
M.A. Weatherbie is a growth stock investor. Its investment philosophy is
to own smaller growth companies that can demonstrate both superior earnings
growth and high investment quality over time and which are reasonably priced
relative to their intrinsic value. M.A. Weatherbie refers to these companies as
"foundation" growth stocks, as they are expected to consistently meet or exceed
expectations.
M.A. Weatherbie believes that All-Star should be positioned to take
advantage of pricing distortions that arise when growth companies temporarily
disappoint investors. M. A. Weatherbie will invest up to a third of its portion
of the Fund in "opportunity" growth stocks, i.e., companies that it knows very
well where earnings have been temporarily depressed and it believes that change
is under way which will re-accelerate earnings growth. M.A. Weatherbie believes
that by focusing on "opportunity" growth stocks in addition to "foundation"
growth stocks, All-Star will be positioned to capture earnings growth in two
ways, adding incremental value.
MAZAMA CAPITAL MANAGEMENT, INC.
Mazama is a growth manager. At the heart of Mazama's investment philosophy
is the belief that exceptional investment returns can be achieved by investing
in a diversified portfolio of quality companies that have made recent
investments in people, products, facilities and/or services and are now
positioned to outperform expectations. Buying these quality, timely companies at
a good valuation relative to their expected return on equity and
earning-per-share growth rates enhances the opportunity for attractive gains and
minimizes risk of downside price movements.
Mazama will manage its allocated portion of All-Star's portfolio using a
bottom-up approach to security selection. The firm utilizes a proprietary model
as the framework for security selection and portfolio construction decisions.
Mazama's security selection process begins by screening the universe of
companies found in the Russell 3000 Index looking for companies with attractive
growth characteristics and focusing on those with market capitalizations ranging
from $3 billion to $20 billion. Mazama employs a Proprietary Price Performance
model to identify a group of 300 to 400 companies that, in its judgment, may
represent attractive investment opportunities. Eighty or more of those companies
will be selected as investments appropriate for the portion of All-Star managed
by Mazama. The model takes into account both quantitative and qualitative
factors in order to identify companies that meet certain criteria. These factors
include: (i) the quality of management and key personnel, (ii) the company's
ability to meet or exceed earnings estimates, (iii) estimated return on equity
divided by a company's forward price-to-earnings ratio, and (iv) estimated
earnings growth divided by a company's forward price-to-earnings ratio.
Companies passing the initial screening are further analyzed by Mazama using
rigorous fundamental analysis.
19
Mazama's philosophy takes advantage of the market inefficiencies that
exist within the universe of mid-cap equity securities. These inefficiencies
include the fact that very few people have comprehensive, accurate information
on these companies. Mazama has the ability to capitalize on that lack of broadly
known information, because of the rigorous, fundamental research to uncover that
information.
FIDUCIARY MANAGEMENT, INC.
Fiduciary Management is a value manager. Fiduciary Management has been
managing money using the same investment philosophy and process for over 25
years. As a result, Fiduciary Management knows how portfolio companies have been
valued over many market cycles. Fiduciary Management seeks to purchase the
securities of durable companies at value prices in order to achieve superior
investment results over a three- to four-year time horizon.
To identify potential investments, Fiduciary Management runs a "screen"
for companies that are undervalued relative to their historical valuation or
their peer group. Fiduciary Management always analyzes the upside and downside
risk of any investment. Fiduciary Management believes that the price of a
security should be low enough that a client can profit - or simply avoid a loss.
Fiduciary Management focuses its fundamental research on three areas: (1)
the evaluation of a company's business model; (2) a financial analysis of the
company; and (3) an assessment of the company's management. Fiduciary
Management's financial analysis includes a thorough review of a company's Return
on Invested Capital ("ROIC"). The ROIC model helps Fiduciary Management cut
through the earnings "noise" to get a true picture of a company's performance
over time. Fiduciary Management also considers the company's business, whether
the stock is trading at a reasonable valuation and the ownership and control of
the company and its management team.
Companies that meet Fiduciary Management's investment criteria are
presented to the investment policy committee for consideration. The investment
policy committee is comprised of five senior investment professionals: Every
member of the committee has an equal vote. To be approved for investment, a
company must receive a unanimous vote of the investment committee. If one
committee member votes against the company, the company is placed on Fiduciary
Management's monitor list and a researcher is instructed to revisit any
outstanding questions.
A new company recommended for All-Star's portfolio will have an initial
position size ranging between 1% and 4%. The exact weighting will be dependent
on both its valuation (i.e., the level of the discount to the company's stock
price to its intrinsic value) and the liquidity of the stock.
20
SCHNEIDER CAPITAL MANAGEMENT CORPORATION
Schneider believes that disciplined deep value investing, built on a
solid-research driven foundation, delivers success over time. Schneider
concentrates its efforts on identifying new investment ideas and identifying and
anticipating dynamic positive market changes.
Schneider employs a five-point investment process based on new idea
generation, independent analysis, a ranking system, portfolio construction, and
a rigorous sell discipline. Utilizing a wide range of information sources,
Schneider focuses on identifying promising new investment opportunities.
Database screening is used on a limited basis, and high-priority companies are
sent to Schneider's analysts for in-depth investigation. Schneider's analysis of
investment opportunities includes the construction of comprehensive financial
models, the identification of drivers for positive change, contacting management
as necessary and developing objective earnings and valuation estimates. The
output of Schneider's analysis is a target price and expected return for each
company under consideration. Schneider determines a target price for current
holdings and ranks expected returns from high to low. New purchases must rank
above the median in appreciation potential to merit inclusion in the portfolio.
Schneider constructs a value portfolio with the intent that the best
companies will have a meaningful performance impact. However, Schneider also
employs a rigorous sell discipline to capitalize on success and minimize damage
from mistakes. Sales are most often triggered when a stock approaches it
pre-determined price target.
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
All-Star's investment objective is to seek total investment primarily
return through long-term capital appreciation and secondarily through current
income. Under normal market conditions, All-Star will seek its investment
objective by investing primarily in a diversified portfolio of mid-cap equity
securities. Mid-cap equity securities are securities of companies whose market
capitalizations are less than or equal to the highest market capitalization of
companies included in the Russell Midcap(R) Index or the S&P MidCap 400
(whichever capitalization is greater) and greater than or equal to the lowest
market capitalization of companies included in these indices (whichever
capitalization is lower). As of , 2005, the Russell Midcap(R) Index included
companies with capitalizations between approximately $ million and $ billion,
and the S&P MidCap 400 included companies with capitalizations between
approximately $ million and $ billion. All market capitalizations are determined
at the time of purchase. The capitalization ranges of indices such as the
Russell Midcap(R) Index and the S&P MidCap 400 change from time to time.
All-Star will invest primarily in equity securities, which include but are
not limited to common stocks, preferred stocks, securities convertible into
common stocks such as convertible bonds and securities having common stock
characteristics such as rights and warrants to purchase equity securities.
All-Star may lend its portfolio securities, write covered call and put options
and engage in options and futures strategies (see "Investment Practices" below).
Under normal market conditions, at least 80% of the value of All-Star's total
assets will be invested in mid-cap equity securities.
21
Although All-Star will, under normal market conditions, remain fully
invested in equity securities, up to 20% of the value of All-Star's net assets
may generally be invested in short-term money market instruments, including
certificates of deposit (negotiable certificates issued against bank deposits),
other interest-bearing bank deposits such as savings and money market accounts,
and bankers' acceptances (short-term bank-guaranteed credit instruments used to
finance transactions in goods) of domestic branches of U.S. banks having assets
of not less than $1 billion, obligations issued or guaranteed by the U.S.
Government and its agencies and instrumentalities ("U.S. Government Securities")
commercial paper (unsecured short-term promissory notes issued by corporations)
rated not lower than A-1 by Standard & Poor's, a division of The McGraw Hill
Companies, Inc. ("Standard & Poor's") or Prime-1 by Moody's, short-term
corporate debt securities rated not lower than AA by Standard & Poor's or Aa by
Moody's Investors Service, Inc. ("Moody's"), and repurchase agreements with
respect to the foregoing. All-Star may temporarily reduce its investments in
equity securities and invest without limit in short-term money market
instruments for defensive purposes when LAMCO or the Portfolio Managers deem
that market conditions are such that a more conservative approach to investment
is desirable. Taking a temporary defensive position may prevent All-Star from
achieving its objective.
All-Star's investment objective of seeking total investment return and its
policy of investing under normal market conditions at least 80% of the value of
its total assets in mid-cap equity securities are not fundamental and may be
changed without a vote of All-Star's outstanding shares. The Fund may not change
this restriction unless the Fund provides shareholders with the notice required
by Rule 35d-1 under the 1940 Act, as it may be amended or interpreted by the SEC
from time to time.
INVESTMENT PRACTICES
The following describes the principal investment strategies in which one
or more of All-Star's Portfolio Managers may engage, each of which may involve
certain special risks.
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, All-Star, in order to
generate additional income, may lend its portfolio securities (principally to
broker-dealers) where such loans are callable at any time and are continuously
secured by collateral (cash or U.S. Government Securities) not less than the
market value, determined daily, of the securities loaned. All-Star will receive
amounts equal to the interest on the securities loaned. It will also be paid for
having made the loan. Any cash collateral pursuant to these loans will be
invested in short-term money market instruments. All-Star could be subjected to
delays in recovering the loaned securities in the event of default or bankruptcy
of the borrower. All-Star will limit such lending to not more than 30% of the
value of All-Star's total assets.
REPURCHASE AGREEMENTS
All-Star may enter into repurchase agreements with banks or broker-dealer
firms whereby such institutions sell U.S. Government Securities or other
securities in which it may invest to All-Star and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. The resale price is
22
greater than the purchase price, reflecting an agreed upon interest rate which
is effective during the time between the purchase and resale and is not related
to the stated interest rate on the purchased securities. All-Star requires the
seller of the securities to maintain on deposit with All-Star's custodian bank
securities in an amount at all times equal to or in excess of the value of the
repurchase agreement. In the event that the seller of the security defaults on
its repurchase obligation or becomes bankrupt, All-Star could receive less than
the repurchase price on the sale of the securities to another party or could be
subjected to delays in selling the securities. Not more than 10% of All-Star's
net assets will be invested in repurchase agreements maturing in more than seven
days.
SECURITIES OF OTHER INVESTMENT COMPANIES
All-Star may invest in the securities of other investment companies,
including open-end mutual funds, closed-end funds, unit investment trusts,
private investment companies and offshore investment companies. An investment in
an investment company involves risks similar to those of investing directly in
the investment company's portfolio securities, including the risk that the value
of the portfolio securities may fluctuate in accordance with changes in the
financial condition of their issuers, the value of stocks and other securities
generally, and other market factors.
In addition, investing in other investment companies involves certain
other risks, costs, and expenses for All-Star. If All-Star invests in another
investment company, All-Star will be charged its proportionate share of the
advisory fees and other operating expenses of such investment company, which are
in addition to the advisory fees and other operational expenses charged to
All-Star. In addition, All-Star could incur a sales charge in connection with
purchasing an investment company security or a redemption fee upon the
redemption of such security. An investment in the shares of a closed-end
investment company may also involve the payment of a substantial premium over,
while sales of such shares may be made at a substantial discount from, the net
asset value of the issuers' portfolio securities.
EXCHANGE-TRADED FUNDS
All-Star may invest in exchange traded funds ("ETFs"). ETFs are ownership
interests in unit investment trusts, depositary receipts, and other pooled
investment vehicles that are traded on an exchange and that hold a portfolio of
securities or stocks (the "Underlying Securities"). The Underlying Securities
are typically selected to correspond to the stocks or other securities that
comprise a particular broad based, sector or international index, or that are
otherwise representative of a particular industry sector. An investment in an
ETF involves risks similar to investing directly in each of the Underlying
Securities, including the risk that the value of the Underlying Securities may
fluctuate in accordance with changes in the financial condition of their
issuers, the value of stocks and other securities generally, and other market
factors.
The performance of an ETF will be reduced by transaction and other
expenses, including fees paid by the ETF to service providers. Investors in ETFs
are eligible to receive their portion of dividends, if any, accumulated on the
securities held in the portfolio, less fees and expenses of the ETF. To the
extent an ETF is an investment company, the limitations applicable to All-Star's
ability to purchase securities issued by other investment companies will apply.
23
OPTIONS AND FUTURES STRATEGIES
All-Star may seek to increase the current return of All-Star's portfolio
by writing covered call or put options with respect to the types of securities
in which All-Star is permitted to invest. Call options written by All-Star give
the purchaser the right for a stated period to buy the securities on which the
option was written from All-Star at a stated price; put options written by the
Fund give the purchaser the right for a stated period to sell the securities on
which the option was written to All-Star at a stated price. By writing a call
option, All-Star limits its opportunity to profit from any increase in the
market value of the underlying security above the exercise price of the option;
by writing a put option, All-Star assume the risk that it may be required to
purchase the underlying security at a price in excess of its current market
value.
All-Star may purchase put options to protect its portfolio holdings in the
underlying security against a decline in market value. It may purchase call
options to hedge against an increase in the prices of portfolio securities that
it plans to purchase. By purchasing put or call options, All-Star, for the
premium paid, acquires the right (but not the obligation) to sell (in the case
of a put option) or purchase (in the case of a call option) the underlying
security at the option exercise price regardless of the then-current market
price.
All-Star may also seek to hedge against declines in the value of
securities owned by it or increases in the price of securities it plans to
purchase, or to gain or maintain market exposure, through the purchase of stock
index futures and related options. For example, All-Star may purchase stock
index futures and related options to enable a newly appointed Portfolio Manager
to gain immediate exposure to underlying securities markets pending the
investment of the portion of All-Star portfolio assigned to it. A stock index
future is an agreement in which one party agrees to deliver to the other an
amount of cash equal to a specific dollar amount times the difference between
the value of the specific stock index at the close of the last trading day of
the contract and the price at which the agreement is made.
Expenses and losses incurred as a result of the hedging strategies
described above will reduce All-Star's current return.
Transactions in options and futures contracts may not achieve the intended
goals of protecting portfolio holdings against market declines or gaining or
maintaining market exposure, as applicable, to the extent that there is an
imperfect correlation between the price movements of the options and futures
contracts and those of the securities to be hedged. In addition, if a Portfolio
Manager's prediction on stock market movements is inaccurate, All-Star may be
worse off than if it had not engaged in such options or futures transactions.
There is also no assurance that these strategies will be available at any time
or that a Portfolio Manager will determine to use them.
See the Statement of Additional Information for additional information
concerning options and futures transactions and the risk thereof.
RISK FACTORS
All-Star is a diversified, multi-managed closed-end management investment
company designed primarily as a long-term investment and not as a trading
vehicle. All-Star is not intended to be a complete investment program and there
24
can be no assurance that All-Star will achieve its investment objective. Your
shares at any point in time may be worth les than your original investment, even
after taking into account the reinvestment of dividends and distributions.
NO OPERATING HISTORY
All-Star is a newly organized, multi-managed, diversified, closed-end
management investment company with no history of operations.
INVESTMENT AND MARKET RISK
An investment in All-Star's shares is subject to investment risk,
including the possible loss of the entire amount that you invest. Your
investment in All-Star shares represents an indirect investment in the
securities owned by All-Star, most of which are anticipated to be traded on a
national securities exchange or in the over-the-counter markets. The value of
these securities, like other market investments, may move up or down, sometimes
rapidly and unpredictably. Your shares at any point in time may be worth less
than your original investment, even after taking into account the reinvestment
of dividends and distributions.
MARKET DISCOUNT RISK
In addition, shares of closed-end management investment companies such as
All-Star frequently trade at a discount from their net asset value. This risk
may be greater for investors expecting to sell their shares of All-Star soon
after the completion of the public offering. The shares of All-Star were
designed primarily for long-term investors, and investors in All-Star shares
should not view All-Star as a vehicle for trading purposes.
COMMON STOCK RISK
All-Star is not limited in the percentage of its assets that may be
invested in common stocks and other equity securities, and therefore a risk of
investing in the Fund is equity risk. Equity risk is the risk that the market
value of securities held by All-Star will fall due to general market or economic
conditions, perceptions regarding the industries in which the issuers of
securities held by All-Star participate, and the particular circumstances and
performance of particular companies whose securities All-Star holds. For
example: an adverse event, such as an unfavorable earnings report, may depress
the value of equity securities of an issuer held by All-Star; the price of
common stock of an issuer may be particularly sensitive to general movements in
the stock market; or a drop in the stock market may depress the price of most or
all of the common stocks and other equity securities held by All-Star. In
addition, common stock of an issuer in All-Star's portfolio may decline in price
if the issuer fails to make anticipated dividend payments because, among other
reasons, the issuer of the security experiences a decline in its financial
condition. Common equity securities in which All-Star will invest are
structurally subordinated to preferred stocks, bonds and other debt instruments
in a company's capital structure, in terms of priority to corporate income, and
therefore will be subject to greater dividend risk than preferred stocks or debt
instruments of such issuers. In addition, while broad market measures of commons
stocks have historically generated higher average returns than fixed income
25
securities, common stocks have also experienced significantly more volatility in
those returns.
PREFERRED SECURITIES RISK
Preferred equity securities involve credit risk, which is the risk that a
preferred equity security will decline in price, or fail to pay dividends when
expected, because the issuer experiences a decline in its financial status. In
addition to credit risk, investment in preferred equity securities involves
certain other risks. Certain preferred equity securities contain provisions that
allow an issuer under certain conditions to skip distributions (in the case of
"non-cumulative" preferred equity securities) or defer distributions (in the
case of "cumulative" preferred equity securities). Preferred equity securities
often contain provisions that allow for redemption in the event of certain tax
or legal changes or at the issuers' call. In the event of redemption, All-Star
may not be able to reinvest the proceeds at comparable rates of return.
Preferred equity securities typically do not provide any voting rights, except
in cases when dividends are in arrears beyond a certain time period, which
varies by issue. Preferred equity securities are subordinated to bonds and other
debt instruments in a company's capital structure in terms of priority to
corporate income and liquidation payments, and therefore will be subject to
greater credit risk than those debt instruments. Preferred equity securities may
be significantly less liquid than many other securities, such as U.S. government
securities, corporate debt or common stock.
CONVERTIBLE SECURITY RISK
Convertible securities generally offer lower interest or dividend yields
than non-convertible fixed-income securities of similar credit quality because
of the potential for capital appreciation. The market values of convertible
securities tend to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, a convertible security's market
value also tends to reflect the market price of the common stock of the issuing
company, particularly when the stock price is greater than the convertible
security's conversion price. The conversion price is defined as the
predetermined price or exchange ratio at which the convertible security can be
converted or exchanged for the underlying common stock. As the market price of
the underlying common stock declines below the conversion price, the price of
the convertible security tends to be increasingly influenced more by the yield
of the convertible security than by the market price of the underlying common
stock. Thus, it may not decline in price to the same extent as the underlying
common stock, and convertible securities generally have less potential for gain
or loss than common stocks. However, mandatory convertible securities (as
discussed below) generally do not limit the potential for loss to the same
extent as securities convertible at the option of the holder. In the event of a
liquidation of the issuing company, holders of convertible securities would be
paid before that company's common stockholders. Consequently, an issuer's
convertible securities generally entail less risk than its common stock.
However, convertible securities fall below debt obligations of the same issuer
in order of preference or priority in the event of a liquidation and are
typically unrated or rated lower than such debt obligations. In addition,
contingent payment convertible securities allow the issuer to claim deductions
based on its nonconvertible cost of debt, which generally will result in
deductions in excess of the actual cash payments made on the securities (and
accordingly, holders will recognize income in amounts in excess of the cash
payments received).
26
MID-CAP COMPANY RISK
All-Star will invest primarily in equity securities whose market
capitalization at the time of purchase is equal to or less than the stock with
the highest market capitalization on the index. Stocks of mid-sized companies
may trade less frequently, may trade in smaller volumes and may fluctuate more
sharply in price than stocks of larger companies. Mid-Cap companies also carry
additional risks because their earnings and revenues tend to be less
predictable.
INTEREST RATE RISK
Interest rate risk is the risk that fixed-income securities, and to a
lesser extent dividend-paying common stocks, will decline in value because of
changes in market interest rates. When market interest rates rise, the market
value of such securities generally will fall. Because All-Star may invest in
certain fixed-income securities that pay a fixed rate of return, the net asset
value and market price of All-Star's shares could decline if the market interest
rate applicable to such investments were to rise.
CREDIT RISK
Credit risk is the risk that a security in the Fund's portfolio will
decline in price or fail to make dividend or interest payments when due because
the issuer of the security experiences a decline in its financial status.
Preferred and convertible securities are typically subordinated to bonds and
other debt instruments in a company's capital structure, in terms of priority to
corporate income, and therefore will be subject to greater credit risk than
those debt instruments.
OPTIONS AND FUTURES STRATEGIES RISK
Options and futures are financial contracts whose value depends on or is
derived from the value of an underlying asset, reference rate or index (or
relationship between two indexes). All-Star may use options and futures as a
substitute for taking a position in an underlying security or other asset and/or
as part of a strategy designed to reduce exposure to other risks. All-Star's use
of options and futures involves risks different from, and possibly greater than,
the risks associated with investing in securities and other traditional
investments. Options and futures are subject to a number of risks described
elsewhere in this Prospectus, such as illiquid securities risk, interest rate
risk and credit risk. They also involve the risk of mispricing or improper
valuation and the risk that changes in the value of the options and futures may
not correlate perfectly with the underlying asset, rate or index. If All-Star
invests in options and futures, it could lose more than the principal amount
invested. The use of options and futures also may affect the amount, character
and timing of recognition of the gains and losses All-Star realizes in
connection therewith. In addition, suitable options and futures transactions may
not be available in all circumstances and there can be no assurance that
All-Star will engage in these transactions to reduce exposure to other risks
when that would be beneficial.
MANAGEMENT RISK
All-Star is subject to management risk because it is an actively managed
investment portfolio. LAMCO and the Portfolio Managers will apply investment
techniques and risk analyses in selecting Portfolio Managers and making
27
investment decisions for All-Star, but there can be no guarantee that these will
produce the desired results.
GROWTH STOCK RISK
Initially LAMCO will allocate between 40% and 60% of All-Star's net assets
to Portfolio Managers that utilize a "growth" approach to investing. Over time,
depending on market conditions, this allocation may increase or decrease. Growth
stocks are stocks of companies believed to have above-average potential for
growth in revenue and earnings. Prices of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. In
certain market conditions, growth stocks may not perform as well as value stocks
or the stock market in general.
VALUE STOCK RISK
Initially LAMCO will allocate between 40% and 60% of All-Star's net assets
to Portfolio Managers that utilize a "value" approach to investing. Over time,
depending on market conditions, this allocation may increase or decrease. Value
stocks are stocks of companies that may have experienced adverse business or
industry developments or may be subject to special risks that have caused the
stocks to be out of favor and, in a Portfolio Manager's opinion, undervalued. If
the Portfolio Manager's assessment of a company's prospects is wrong, the price
of the company's stock may fall, or may not approach the value the Portfolio
Manager has placed on it.
FOREIGN SECURITIES RISK
All-Star may invest up to 25% of its net assets in securities of foreign
(non-U.S.) issuers including American Depository Receipts and Global Depository
Receipts. Investments in foreign securities involve risks in addition to those
of investments in U.S. issuers. These risks include political and economic
risks, currency fluctuations, higher transaction costs, less liquidity and
greater volatility, delayed settlement, and less stringent investor protection
and disclosure of standards if some foreign markets. These risks can make
investments in foreign issuers more volatile and potentially less liquid than
investments in U.S. issuers.
TAX RISK
All-Star may invest in preferred securities, convertible securities, or
other securities the federal income tax treatment of the income from which may
not be clear or may be subject to recharacterization by the IRS. It could be
more difficult for All-Star to comply with the tax requirements applicable to
regulated investment companies if the tax treatment of the income from its
investments were successfully challenged by the IRS.
The tax treatment of amounts All-Star designates as qualified dividend
income may be affected by IRS interpretations of the Code, and future changes in
the Code and the regulations thereunder. Moreover, unless legislative action is
taken, the favorable tax treatment of qualified dividend income, as well as the
15% maximum Federal income tax rate on individuals' net capital gain, will
expire for taxable years commencing after December 31, 2008. If All-Star has
significant holdings in securities that generate qualified dividend income, its
share price may be volatile while Congress considers an extension of that
28
favorable tax treatment, depending on the anticipated outcome of the
legislation. There can be no assurance as to what portion, if any, of All-Star's
distributions will constitute qualified dividend income.
COUNTERPARTY RISK
All-Star may be subject to credit risk with respect to the counterparties
to certain options, futures and repurchase agreements entered into by All-Star.
If a counterparty becomes bankrupt or otherwise fails to perform its obligations
under a contract due to financial difficulties, All-Star may experience
significant delays in obtaining any recovery under the contract in a bankruptcy
or other reorganization proceeding. All-Star may obtain only a limited recovery
or may obtain no recovery in such circumstances.
RIGHTS AND WARRANTS RISK
Rights and warrants are subject to the same market risks as common stocks,
but are more volatile in price. Rights and warrants do not carry the right to
dividends or voting rights with respect to their underlying securities, and they
do not represent any rights in the assets of the issuer. An investment in rights
or warrants may be considered speculative. In addition, the value of a right or
warrant does not necessarily change with the value of the underlying security
and a right or warrant ceases to have value if it is not exercised prior to its
expiration date. The purchase of warrants or rights involves the risk that
All-Star could lose the purchase value of a right or warrant if the right to
subscribe for additional shares is not exercised prior to the rights' or
warrants' expiration. Also, the purchase of rights and warrants involves the
risk that the effective price paid for the right or warrant added to the
subscription price of the related security may exceed the value of the
subscribed security's market price such as when there is no movement in the
price of the underlying security.
ILLIQUID SECURITIES RISK
All-Star may invest up to 15% of its net assets in securities that, at the
time of investment, are illiquid. Illiquid securities are securities that are
not readily marketable and may include some restricted securities, which are
securities that may not be resold to the public without an effective
registration statement under the Securities Act of 1933 ("Securities Act") or,
if they are unregistered, may be sold only in a privately negotiated transaction
or pursuant to an exemption from registration. Illiquid securities involve the
risk that the securities will not be able to be sold at the time desired by
All-Star or at prices approximating the value at which the Fund is carrying the
securities on its books. The market price of illiquid securities generally is
more volatile than that of more liquid securities, which may adversely affect
the price that All-Star pays for or recovers upon the sale of illiquid
securities. Illiquid securities are also more difficult to value and LAMCO's/the
Portfolio Managers' judgment may play a greater role in the valuation process.
MARKET DISRUPTION RISK
Certain events have a disruptive effect on the securities markets, such as
terrorist attacks (including the terrorist attacks in the U.S. on September 11,
2001), war and other geopolitical events. All-Star cannot predict the effects of
similar events in the future on the U.S. economy. Securities of mid-cap
29
companies tend to be more volatile than securities of larger companies so that
these events and any actions resulting from them may have a greater impact on
the prices and volatility of securities of mid-cap companies than on securities
of larger companies.
INFLATION RISK
Inflation risk is the risk that the value of assets or income from
investment will be worth less in the future as inflation decreases the value of
money. As inflation increases, the real value of All-Star's shares and
distributions can decline.
DEFLATION RISK
Deflation risk is the risk that prices throughout the economy decline over
time, which may have an adverse effect on the market valuation of companies,
their assets and revenues. In addition, deflation may have an adverse effect on
the creditworthiness of issuers and may make issuer default more likely, which
may result in a decline in the value of All-Star's portfolio.
ANTI-TAKEOVER PROVISIONS
All-Star's Declaration of Trust and By-Laws have provisions (commonly
referred to as "anti-takeover provisions") which are intended to have the effect
of limiting the ability of other entities or persons to acquire control of
All-Star, to cause it to engage in certain transactions, or to modify its
structure. For instance, the affirmative vote of 75% of the shares of All-Star
is required to authorize All-Star's conversion from a closed-end to an open-end
investment company, unless such conversion is recommended by All-Star's Board,
in which event such conversion would only require the majority vote of
All-Star's shareholders, as defined in the 1940 Act. A similar shareholder vote
is required to authorize a merger, sale of a substantial part of the assets or
similar transactions with persons beneficially owning 5% or more of All-Star's
shares, unless approved by All-Star's Board under certain conditions. These
provisions cannot be amended without a similar super-majority vote. In addition,
All-Star's Board is divided into three classes, each of which has a term of
three years and only one of which is elected at each annual meeting of
shareholders. See "Description of Shares" and "Anti-Takeover Provisions of the
Declaration of Trust; Super-Majority Vote Requirement for Conversion to Open-End
Status."
MANAGEMENT OF ALL-STAR
TRUSTEES AND OFFICERS
The Board is responsible for the general oversight of All-Star's
operations, including the general supervision of LAMCO and the Portfolio
Managers. The names and business addresses of the Trustees and officers of
All-Star and their principal occupations and other affiliations during the past
five years are set forth under "Trustees and Officers" in the Statement of
Additional Information ("SAI").
30
LAMCO
LAMCO will serve as All-Star's Fund Manager. Subject to the general
supervision of the Board, LAMCO will be responsible for determining All-Star's
overall investment strategy, including the allocation of All-Star's assets to
the Portfolio Managers. LAMCO is an indirect, wholly owned subsidiary of Bank of
America Corporation. The principal executive offices of LAMCO are located at One
Financial Center, Boston, Massachusetts 02111. LAMCO acts as the investment
manager to investment companies with aggregate assets of approximately as of ,
2005.
THE PORTFOLIO MANAGERS
FIDUCIARY MANAGEMENT, INC.
Fiduciary Management, located at 100 East Wisconsin Ave., Suite 2200,
Milwaukee, Wisconsin 53202, was founded in 1980. Its two founding partners, Ted
D. Kellner and Donald S. Wilson, worked together for several years (1973-1980)
at a previous firm before founding Fiduciary Management in 1980. Fiduciary
Management has grown to 11 investment processionals and manages approximately $3
billion of assets for both institutional and high net worth individuals.
Fiduciary Management offers both equity and fixed-income management investment
strategies, which are rooted in fundamental research and follow a disciplined
value-oriented philosophy and process. Fiduciary Management is 100%
employee-owned. Ted Kellner owns a majority of the company.
An investment policy committee will manage the portion of the Fund
allocated to Fiduciary Management. All investment decisions will flow through
the committee, which is comprised of Ted D. Kellner, Donald S. Wilson, Patrick
J. English, Bladen J. Burns and John S. Brandser. Every member of the committee
has an equal vote. To be approved for investment, a company must receive a
unanimous vote of the investment committee. If one committee member votes
against the company, the company is placed on Fiduciary Management's monitor
list and a researcher is instructed to revisit any outstanding questions.
Ted D. Kellner, CFA, is Chairman, CEO and one of the co-founders of
Fiduciary Management. Mr. Kellner is primarily responsible for equity research
for a variety of industries and is involved in the client servicing of several
of the firm's institutional relationships. Mr. Kellner began his career as an
analyst for Brittingham, Inc. (1968-1972) and then served as a portfolio manager
at the Nicholas Company, Inc. (1973-1980). Mr. Kellner received a BBA degree
from the University of Wisconsin and is a member and Past President of the
Milwaukee Analysts Society. He has earned the right to use the CFA Institute
Chartered Financial Analyst designation.
Donald S. Wilson, CFA, is Vice Chairman, Chief Compliance Officer and one
of the co-founders of Fiduciary Management. In addition to his duties as the
Chief Compliance Officer, Mr. Wilson is involved in the fixed-income portfolios,
and in the client servicing of several of the firm's institutional
relationships. Mr. Wilson began his career as lending officer for the Northern
Trust Company (1967-1972) and then served as a portfolio manager at the Nicholas
Company, Inc. (1972-1980). Mr. Wilson received both a BA and MBA degree from
31
Northwestern University and he is a member of the Milwaukee Analysts Society. He
has earned the right to use the CFA Institute Chartered Financial Analyst
designation.
Patrick J. English, CFA, is President and Head of Equity Research of
Fiduciary Management. Mr. English joined Fiduciary Management in 1986 and serves
as the head of equity research. He is involved in coordinating the firm's
research process and he covers companies across a variety of industries. Mr.
English began his career as a research analyst with Dodge & Cox (1985-1986). Mr.
English received a BA degree from Stanford University and he is a member of the
Milwaukee Analysts Society. He has earned the right to use the CFA Institute
Chartered Financial Analyst designation.
Bladen J. Burns, CFA, is Senior Vice President of Fiduciary Management.
Mr. Burns joined Fiduciary Management in 2002 and is primarily responsible for
coordinating the marketing and client service efforts at Fiduciary Management.
He also works on special research projects. Mr. Burns began his career as an
Account Manager with Brown Brothers, Harriman (1992-1994) and then worked as a
Senior Analyst with the Wellesley Group Inc. (1994-1996). Most recently, he was
a Senior Vice President at Strong Capital Management, Inc. (1996-2002). Mr.
Burns received a BSBA degree from Boston University and he is a member of the
Milwaukee Analysts Society. He has earned the right to use the CFA Institute
Chartered Financial Analyst designation.
John S. Brandser, Senior Vice President and Chief Operating Officer,
joined Fiduciary Management in 1995. Mr. Brandser is primarily responsible for
managing the operations of the firm. In addition, he manages the fixed-income
portfolios for Fiduciary Management's clients. Prior to joining Fiduciary
Management, Mr. Brandser was a lending officer with Marshall & Illsley
Corporation (1985-1995). Mr. Brandser received a BA degree from the University
of Minnesota-Duluth.
M.A. WEATHERBIE & CO., INC.
M.A. Weatherbie is located at 265 Franklin Street, Boston, Massachusetts
02110. M.A. Weatherbie had approximately $2.2 billion under management as of
December 31, 2004.
Matthew A. Weatherbie, CFA is the person responsible for investing the
portion of the Fund allocated to M.A. Weatherbie. Mr. Weatherbie is the Chief
Investment Officer, President and Portfolio Manager of M.A. Weatherbie, which he
founded in December 1995. Mr. Weatherbie's prior experience as a portfolio
manager was at Putnam Investments from 1983-1995 where he managed the Putnam
Voyager Fund. Between 1973 and 1983, he was a securities analyst and then a
portfolio manager of MFS (Massachusetts Financial Services) Emerging Growth
Trust. He has earned the right to use the CFA Institute Chartered Financial
Analyst designation.
MAZAMA CAPITAL MANAGEMENT, INC.
Mazama is located at One Southwest Columbia Street, Suite 1500, Portland,
Oregon 97258. Mazama is the successor firm of Mazama Capital Management, LLC,
which was organized in 1997 in connection with the acquisition by such firm of
substantially all of the assets of Black & Company Asset Management, LLC, an
investment advisory firm founded in 1993. Mazama serves as an investment adviser
to certain pension and profit sharing plans, trusts, charitable organizations
32
and other institutional and private investors. Mazama specializes in small and
mid-cap growth equity portfolios. Mazama is an employee-owned firm. As of
, Mazama managed $ .
The portion of All-Star's assets allocated to Mazama will be managed by an
Investment Team comprised of portfolio managers and research analysts. The
Investment Team is comprised of the following individuals:
Ronald A. Sauer, CEO/Chief Investment Officer/Senior Portfolio Manager.
Mr. Sauer is the founder of Mazama Capital Management, Inc. Prior to founding
Mazama in October 1997, Mr. Sauer was the President and Director of Research
from 1994 to 1997 of Black & Company, Inc., which he joined in 1983. Mr. Sauer
earned his BA Finance from the University of Oregon in 1980.
Stephen C. Brink, CFA, SVP/Portfolio Manager/Director of Research. Mr.
Brink is a co-founder of Mazama Capital Management. Prior to joining Mazama in
1997, he was the Chief Investment Officer from 1991 to 1997 of US Trust's
Pacific Northwest office, where he had been employed since 1984. Mr. Brink
earned his BS Business Administration from Oregon State University in 1977. He
has earned the right to use the CFA Institute Chartered Financial Analyst
designation.
Gretchen Novak, CFA, Associate Portfolio Manager, joined Mazama in 1999.
Mrs. Novak works out of the firm's New York research office and is responsible
for researching small & mid-cap growth consumer discretionary and consumer
staple companies. She also serves as an associate portfolio manager, supporting
Ron Sauer and Steve Brink. Formerly an Equity Analyst with Cramer Rosenthal
McGlynn, LLC, she specialized in small and mid-cap stocks with a focus on
consumer discretionary companies and secondary emphasis on consumer staples and
utility/energy service companies. Mrs. Novak earned her B.A. Business
Administration degree with concentration in finance from the University of
Washington in 1994, graduating cum laude and elected to Phi Beta Kappa and Beta
Gamma Sigma honor society. She earned her Chartered Financial Analyst
designation in 2001. She has earned the right to use the CFA Institute Chartered
Financial Analyst designation.
Timothy P. Butler, Sector Portfolio Manager, joined Mazama in 1992. Mr.
Butler is an equity analyst concentrating on small & mid-cap growth financial
services and financial technology companies. Tim works closely with portfolio
manager Steve Brink in covering this sector. Mr. Butler worked most recently at
Pacific Crest Securities, where he was Senior Research Analyst specializing in
financial technology stocks. Mr. Butler completed his MBA at the University of
Texas in 1990, graduating cum laude, and earned a BA Business Administration
from Wichita State University in 1988, where he graduated summa cum laude and
was elected to the Beta Gamma Sigma honor society. He has earned the right to
use the CFA Institute Chartered Financial Analyst designation.
Michael D. Clulow, CFA, Sector Portfolio Manager. Mr. Clulow joined Mazama
in 2002. Mr. Clulow works out of the firm's New York research office,
specializing in research and analysis of small & mid-cap growth health care
companies, including biotech and emerging pharmaceutical companies. He has been
an investment analyst since 1995, most recently as Senior Analyst, Health care
IT & Pharmaceutical Outsourcing Sectors with UBS Warburg in New York, NY. Mr.
Clulow earned a BS in Finance at Miami University and an MBA with honors in
Finance and Economics at New York University's Leonard N. Stern School of
Business in 1996. He has earned the right to use the CFA Institute Chartered
Financial Analyst designation.
33
SCHNEIDER CAPITAL MANAGEMENT CORPORATION
Schneider is located at 450 East Swedesford Road, Wayne, PA 19087.
Schneider, a registered investment adviser, was founded in 1996 by Arnold C.
Schneider III, CFA and is 100% employee-owned. Mr. Schneider may be deemed to be
a control person of Schneider by virtue of his aggregate ownership of more than
25% of the outstanding voting stock of Schneider. As of March 31, 2004,
Schneider managed approximately $2.3 billion in assets.
Mr. Schneider serves as President and Chief Investment Officer and manages
the portion of All-Star allocated to Schneider. Prior to founding Schneider, Mr.
Schneider was a Senior Vice President and Partner of the Wellington Management
Company. He has earned the right to use the CFA Institute Chartered Financial
Analyst designation.
The SAI contains additional information about the compensation and other
accounts managed by the individuals employed by each Portfolio Manager who are
responsible primarily for the day-to-day management of All-Star's investment
portfolio.
THE FUND MANAGEMENT AGREEMENT AND THE PORTFOLIO MANAGEMENT AGREEMENTS
All-Star has a Fund Management Agreement with LAMCO pursuant to which
LAMCO provides the Portfolio Manager selection, evaluation, monitoring and
rebalancing services ("investment management services") described under "The
Multi-Manager Concept." No single individual at LAMCO is responsible for LAMCO's
decisions with respect to the retention or replacement of the Portfolio
Managers.
LAMCO is also responsible for the provision of administrative services to
All-Star, including the provision of office space, shareholder and broker-dealer
communications, compensation of officers of All-Star who are also officers or
employees of LAMCO or its affiliates, and the supervision of transfer agency,
dividend disbursing, custodial and other services provided to All-Star. Certain
of LAMCO's administrative responsibilities have been delegated to CMA.
Under All-Star's Portfolio Management Agreements with each of the
Portfolio Managers and LAMCO, each Portfolio Manager has discretionary authority
(including for the selection of brokers and dealers for the execution of
All-Star's portfolio transactions) with respect to the portion of All-Star's
assets allocated to it by LAMCO from time to time, subject to All-Star's
investment objective and policies, to the supervision and control of the Board,
and to instructions from LAMCO. As described under the section entitled "The
Multi-Manager Concept," LAMCO from time to time rebalances All-Star's investment
portfolio to adjust to the desired allocations. Although the Portfolio Managers'
activities are subject to general oversight by LAMCO and the Board and officers
of All-Star, neither LAMCO nor such Board and officers make day-to-day
investment decisions.
Although All-Star does not permit a Portfolio Manager to act or have a
broker-dealer affiliate act as broker for Fund portfolio transactions initiated
by it, All-Star's Portfolio Managers are permitted to place portfolio
transactions initiated by them with another Portfolio Manager or its
broker-dealer affiliate for execution on an agency basis, provided the
commission does not exceed the usual and customary broker's commission being
paid to other brokers for comparable transactions and is otherwise in accordance
with All-Star's procedures adopted under the 1940 Act.
34
Under All-Star's Fund Management Agreement with LAMCO and its Portfolio
Management Agreements with the Portfolio Managers, All-Star pays LAMCO a fund
management fee and an administrative fee, and LAMCO in turn pays the fees of the
Portfolio Managers from the fund management fees paid to it. The Fund Management
Agreement provides that All-Star will pay the Fund Manager a monthly fund
management fee at an annual rate of % of All-Star's average weekly net assets
and a monthly administration fee at an annual rate of % of its average weekly
net assets. Under the Portfolio Management Agreements between All-Star, LAMCO
and each Portfolio Manager LAMCO pays the Portfolio Managers an aggregate
monthly portfolio management fee at an annual rate of % of its average weekly
net assets. The portfolio management fee rate paid to a particular Portfolio
Manager may differ from the aggregate fee.
Under All-Star's Pricing and Bookkeeping Agreement, CMA receives from the
Fund an annual flat fee of $ paid monthly, and in any month that
the Fund's average weekly net assets exceed $ million, an additional
monthly fee is paid as calculated pursuant to the terms of the Pricing and
Bookkeeping Agreement. The Fund also pays additional fees for its out-of-pocket
expenses, including fees payable to third parties for pricing services.
EXPENSES OF THE FUND
LAMCO will (i) provide to All-Star the Portfolio Manager selection,
evaluation, monitoring and rebalancing services described herein, (ii) assume
responsibility for the administrative services described above, (iii) pay the
compensation of and furnish office space for the officers of All-Star who are
affiliated with LAMCO, and (iv) pay the management fees of the Portfolio
Managers out of the fund management fee it receives from All-Star. All-Star will
pay all its expenses, other than those expressly assumed by LAMCO. The expenses
payable by All-Star include, without limitation: management and administrative
fees payable to LAMCO; pricing and bookkeeping fees payable to CMA; fees and
expenses of independent auditors; fees for transfer agent and registrar,
dividend disbursing, custodian and portfolio recordkeeping services; expenses in
connection with the Automatic Dividend Reinvestment and Cash Purchase Plan;
expenses in connection with obtaining quotations for calculating the value of
All-Star's net assets; taxes (if any) and fees and expenses for preparing
All-Star's tax returns; brokerage fees and commissions; interest; costs of
trustee and shareholder meetings (including expenses of printing and mailing
proxy material therefor); expenses of printing and mailing reports to
shareholders; fees for filing reports with regulatory bodies and the maintenance
of All-Star's existence; membership dues for investment company industry trade
associations; legal fees; stock exchange listing fees and expenses; fees to
federal and state authorities for the registration of shares; fees and expenses
of Trustees who are not trustees, officers, employees or stockholders of LAMCO
or its affiliates; insurance and fidelity bond premiums; and any extraordinary
expenses of a non-recurring nature.
All-Star will pay its organizational and offering expenses. Total
organizational expenses are estimated to be $ . Total expenses of the
offering are estimated to be $ , or $ assuming full exercise
35
of the over-allotment option, which represents $ , or $ per share,
respectively. The organization expenses will be amortized by over a period of
years.
NET ASSET VALUE
All-Star will determine the net asset value of its shares as of the close
of regular session trading on the Exchange (Exchange normally
4:00 pm, Eastern time) on each day on which there is a regular trading session
on the Exchange. Net asset value is computed by dividing the value of all
of All-Star's assets (including accrued interest and dividends), less all
liabilities (including accrued expenses and distributions declared but unpaid),
by the total number of shares outstanding. Expenses, including the fees payable
to LAMCO, are accrued daily. Currently, the net asset values of shares of
publicly traded closed-end investment companies are published in Barron's, the
Monday edition of The Wall Street Journal and other publications.
Portfolio securities are valued pursuant to valuation and pricing
procedures adopted by the Board. Generally, current market values on securities
for which market quotations are readily available are obtained from independent
pricing services or brokers. A security listed or traded on a national
securities exchange is generally valued at the last quoted sale price on the
security's principal exchange. If there is no trading on a security's principal
exchange on the valuation date, the last sale on the other exchanges is
generally used. If a security is traded principally on the Nasdaq Stock Market
Inc., the Nasdaq Official Closing Price is used to value the security. Fair
valuation may be used when market quotations are not readily available. When
determining whether market quotations are readily available, consideration is
given to various indicators of reliability and validity of a security's market
quotations, including trading frequency, market density and the occurrence of
significant events (i.e., events that affect the value of a portfolio security
and occur since closing prices were established but before the Fund's net asset
value has been determined). The Audit Committee of the Board receives periodic
reports pursuant to the Fund's valuation and pricing procedures.
DISTRIBUTIONS
When the Board determines that market conditions are favorable and that
other factors, including All-Star's levels of net income and net realized and
unrealized capital gains are appropriate, and All-Star obtains exemptive relief
from the SEC, it intends to adopt a managed distribution policy. Under that
policy, All-Star would pay distributions on its shares totaling approximately %
of its net asset value per year, payable in four quarterly distributions of
approximately % of its net asset value at the close of regular trading on the
Exchange on the Friday prior to each quarterly declaration date. These fixed
distributions, which will not necessarily be related to All-Star's net
investment income or net realized capital gains or losses, will be taxable in
any taxable year, up to the amount of All-Star's current and accumulated
earnings and profits, as ordinary dividend income, qualified dividend income
(taxable at a maximum 15% federal income tax rate for individuals), or long-term
capital gain to the extent they reflect such income or gain earned for that year
by All-Star. If, for any calendar year, the total distributions made under
All-Star's distribution policy exceed its net investment income and net realized
capital gains, the excess will be treated as a non-taxable return of capital to
each shareholder (up to the amount of the shareholder's basis in his or her
36
shares) and thereafter as gain from the sale of shares. The amount treated as a
non-taxable return of capital will reduce the shareholder's adjusted basis in
his or her shares, thereby increasing his or her potential gain or reducing his
or her potential loss on the subsequent sale of those shares. After adoption,
the Board reserves the right to modify or terminate the policy if it determines
that such modification or termination is in the best interest of shareholders
after taking into account all applicable factors.
To the extent All-Star's % distribution policy results in distributions in
excess of its net investment income and net realized capital gains, such
distributions will decrease its total assets and increase its expense ratio to a
greater extent than would have been the case without the % distribution policy.
In addition, in order to make distributions under the % distribution policy,
All-Star may have to sell portfolio securities at times when the particular
investment styles of its Portfolio Managers would dictate not doing so.
All-Star may, in the discretion of the Board, retain for reinvestment, and
not distribute, net capital gain for any year to the extent that its net
investment income and net realized gains exceed the amount required to be
distributed for such year under the % distribution policy. Retained net capital
gain will be taxed to both All-Star and the shareholders as long-term capital
gains; however, each shareholder will be able to claim a proportionate share of
the federal income tax paid by All-Star as a credit against his or her own
federal income tax liability and will be entitled to increase the adjusted tax
basis in his or her shares by the difference between the amount taxed and the
credit.
All-Star will pay its distributions to shareholders in the form of either
cash or newly issued shares (plus cash in lieu of fractional shares that would
otherwise be issuable). In order to receive distributions in additional newly
issued shares, a shareholder holding shares through the Fund's transfer agent
must participate in All-Star's Automatic Dividend Reinvestment and Cash Purchase
Plan; each All-Star shareholder that holds shares through the Fund's transfer
agent will automatically be a participant therein. See "Automatic Dividend
Reinvestment and Cash Purchase Plan" and "Tax Matters." Investors that hold
shares through a brokerage firm, bank or other intermediary as the stockholder
of record, may receive distributions in cash or newly issued shares depending on
the intermediary. Investors should contact their intermediary for more
information.
The number of shares to be issued to a shareholder in payment of a
distribution declared payable in shares will be determined by dividing the total
dollar amount of the distribution by the lower of the market value or the net
asset value per share on the valuation date for the distribution (but not at a
discount of more than 5% from the market value). Market value per share for this
purpose will be the last sales price on the Exchange on the valuation date or,
if there are no sales on that day, the mean between the closing bid and closing
asked quotations for that date. See "Tax Matters."
All-Star and LAMCO have applied to the SEC for an exemptive order to
permit All-Star to distribute capital gains as often as quarterly, in accordance
with a managed distribution policy. Although the SEC has granted this type of
exemptive relief in the past, there can be no assurance that the SEC will grant
the requested exemptive order to All-Star and LAMCO. Until All-Star adopts the
37
income and capital gains in accordance with applicable law. All-Star does not
believe that this will affect the ability of LAMCO or the Portfolio Managers to
manage All-Star's assets.
You should consult a tax adviser about state, local and foreign taxes on
your distributions from All-Star. Dividends from All-Star's net investment
income will generally be taxable as ordinary income to the extent of All-Star's
current and accumulated earnings and profits, and any distributions by All-Star
of net realized short-term capital gains will be taxable as ordinary income. The
capital gain dividends distributed by All-Star to individual shareholders may
qualify for the maximum 15% U.S. federal income tax rate on long-term capital
gains.
AUTOMATIC DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Each All-Star shareholder will automatically be a participant in
All-Star's Automatic Dividend Reinvestment and Cash Purchase Plan (referred to
in this section as the "Plan"), unless the shareholder specifically elects
otherwise by writing to the agent for participants in the Plan, or by calling
1-800- . Shareholders who want to receive their distributions
in cash should elect not to participate in the Plan.
Shareholders whose shares are held in the name of a brokerage firm, bank
or other nominee will be able to participate in the Plan only if their brokerage
firm, bank or nominee is able to do so on their behalf. Shareholders
participating in the Plan through a brokerage firm may not be able to transfer
their shares to another brokerage firm and continue to participate in the Plan.
Under the Plan, all dividends and other distributions on shares of the
Fund are automatically reinvested by the Plan Agent in additional shares of the
Fund. Distributions declared payable in shares or cash at the option of
shareholders are paid to participants in the Plan entirely in newly issued full
and fractional shares valued at the lower of market value or net asset value per
share on the valuation date for the distribution (but not a discount of more
than 5 percent from market price). Distributions declared payable only in cash
will be reinvested for the accounts of participants in the Plan in additional
shares purchased by the Plan Agent on the open market at prevailing market
prices. If, prior to the Plan Agent's completion of such open market purchases,
the market price of a share equals or exceeds its net asset value, the remainder
of the distribution will be paid in newly issued shares valued at net asset
value (but not at a discount of more than 5 percent from market price).
Dividends and distributions are subject to taxation, whether received in cash or
in shares.
Participants in the Plan have the option of making additional cash
payments on a monthly basis for investment in shares of the Fund purchased on
the open market. These voluntary cash payments will be invested on or about the
day of each calendar month, and voluntary payments should be sent so as to be
received by the Plan Agent no later than days before the next investment
date. Barring suspension of trading, voluntary cash payments will be invested
within days of receipt. A participant may withdraw a voluntary cash payment
by written notice received by the Plan Agent at least 48 hours before such
payment is to be invested.
38
The Plan Agent maintains all shareholder accounts in the Plan and
furnishes written confirmations of all transactions in the account, including
information needed by shareholders for tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in the name of the
participant, and each shareholder's proxy will include those shares purchased or
received pursuant to the Plan.
In the case of shareholders such as banks, brokers or nominees that hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
record shareholder as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who participate
in the Plan.
There is no charge to participants for reinvesting distributions pursuant
to the Plan. The Plan Agent's fees are paid by the Fund. There are no brokerage
charges with respect to shares issued directly by the Fund as a result of
dividends or distributions declared payable in shares or in cash. However, each
participant bears a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases in connection with the
reinvestment of distributions declared payable only in cash.
With respect to purchases from voluntary cash payments, the Plan Agent
will charge $ for each such purchase for a participant, plus a pro rata share
of the brokerage commissions. Brokerage charges for purchasing small amounts of
shares for individual accounts through the Plan are expected to be less than the
usual brokerage charges for such transactions, as the Plan Agent will be
purchasing shares for all participants in blocks and prorating the lower
commission thus attainable.
Shareholders may terminate their participation in the Plan by written
notice to the Plan Agent. Such termination will be effective immediately if
received not less than days prior to the record date for a dividend or
distribution; otherwise it will be effective on the first business day after the
payment date of such dividend or distribution. On termination, participants may
either have a confirmation for the Fund shares in their Plan accounts delivered
to them or have the Plan Agent sell such shares in the open market and deliver
the proceeds, less a $ fee plus brokerage commissions, to the participant.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan.
Investors may obtain additional information about the Plan by calling at
1-800- - .
CLOSED-END FUND STRUCTURE
All-Star is a newly organized, multi-managed, diversified, closed-end
management investment company (commonly referred to as a closed-end fund) with
no history of public trading. Closed-end funds differ from open-end management
investment companies (which are generally referred to as mutual funds) in that
closed-end funds generally list their shares for trading on a stock exchange and
do not redeem their shares at the request of the stockholder. This means that if
you wish to sell your shares of a closed-end fund you must trade them on the
39
market like any other stock at the prevailing market price at that time. In a
mutual fund, if the stockholder wishes to sell shares of the fund, the mutual
fund will redeem or buy back the shares at "net asset value." Also, mutual funds
generally offer new shares on a continuous basis to new investors, and
closed-end funds generally do not. The continuous inflows and outflows of assets
in a mutual fund can make it more difficult to manage the fund's investments. By
comparison, closed-end funds are generally able to stay more fully invested in
securities that are consistent with their investment objective and also have
greater flexibility to make certain types of investments and to use certain
investment strategies, such as leverage and investments in illiquid securities.
Shares of closed-end funds frequently trade at a discount to their net
asset value. If the shares were to trade at a substantial discount to net asset
value for an extended period of time, the Board may consider the repurchase of
its shares on the open market or in private transactions, the making of a tender
offer for such shares, or the conversion of All-Star to an open-end management
investment company. All-Star cannot assure you that its Board will decide to
take or propose any of these actions, or that share repurchases or tender offers
will actually reduce market discount. The conversion of All-Star to an open-end
mutual fund would require stockholder approval. If All-Star converted to an
open-end management investment company, its shares would no longer be listed on
the Exchange.
DESCRIPTION OF SHARES
All-Star's capitalization consists of an unlimited number of shares of
beneficial interest without par value. Each share represents an equal
proportionate beneficial interest in All-Star and, when issued and outstanding,
the shares will be fully paid and non-assessable. Shareholders would be entitled
to share pro rata in the net assets of All-Star available for distribution to
shareholders upon liquidation of All-Star.
Shareholders are entitled to one vote for each share held. All-Star's
shares do not have cumulative voting rights, which means that the holders of
more than 50% of the shares of All-Star voting for the election of Trustees can
elect all of the Trustees standing for election, and, in such event, the holders
of the remaining shares will not be able to elect any of such Trustees.
All-Star is a "Massachusetts business trust." Under Massachusetts law,
shareholders of such a trust may, under certain circumstances, be held
personally liable as partners for its obligations. However, All-Star's
Declaration of Trust contains an express disclaimer of shareholder liability for
the acts or obligations of All-Star and provides for indemnification and
reimbursement of expenses out of All-Star's property for any shareholder held
personally liable for the obligations of All-Star. Thus, the risk of a
shareholder incurring financial loss on account of an All-Star liability is
limited to circumstances in which both inadequate insurance existed and All-Star
itself was unable to meet its obligations from the liquidation of its portfolio
investments.
As of the date of this Prospectus, holds all the
outstanding shares of All-Star.
40
ANTI-TAKEOVER PROVISIONS OF THE DECLARATION OF TRUST;
SUPER-MAJORITY VOTE REQUIREMENT FOR
CONVERSION TO OPEN-END STATUS
All-Star's Declaration of Trust contains provisions (commonly referred to
as "anti-takeover" provisions) which are intended to have the effect of limiting
the ability of other entities or persons to acquire control of All-Star, to
cause it to engage in certain transactions or to modify its structure. The Board
is divided into three classes, each having a term of three years. On the date of
the annual meeting of shareholders (or special meeting in lieu thereof) in each
year the term of one class expires. This provision could delay for up to three
years the replacement of a majority of the Board. See "Trustees and Officers."
The affirmative vote or consent of the holders of 75% of the shares will be
required to authorize All-Star's conversion from a closed-end to an open-end
investment company unless such conversion is recommended by All-Star's Board, in
which event such a conversion would only require the majority vote of All-Star's
shareholders (as defined under "Investment Objective and Strategies" above).
In addition, the affirmative vote of the holders of 75% of All-Star's
shares will be required generally to authorize any of the following
transactions:
(i) All-Star's merger or consolidation with or into any other
corporation;
(ii) the issuance of any securities of All-Star to any person or
entity for cash;
(iii) the sale, lease or exchange of all or any substantial part of
All-Star's assets to any entity or person (except assets having an
aggregate fair market value of less than $1,000,000); or
(iv) the sale, lease or exchange to All-Star in exchange for
securities of All-Star of any assets of any entity or person (except
assets having an aggregate fair market value of less than $1,000,000)
if such corporation, person or entity is directly, or indirectly through
affiliates, the beneficial owner of 5% or more of the outstanding shares of
All-Star. (A 66-2/3% vote would otherwise be required for a merger or
consolidation or a sale, lease or exchange of all or substantially all of
All-Star's assets unless recommended by the Board, in which case only a majority
vote would be required). However, such 75% vote or consent will not be required
with respect to the foregoing transactions where the Board under certain
conditions approves the transaction. However, depending upon the transaction, a
different shareholder vote may nevertheless be required under Massachusetts law.
The foregoing super-majority vote requirements may not be amended except
with a similar super-majority vote of shareholders.
The Board also believes that the super-majority vote requirement for
conversion to an open-end investment company is in the best interest of All-Star
and its shareholders because it will allow All-Star to continue to benefit from
the advantages of its closed-end structure until such time that, based on
relevant factors including the then-current relationship of the market price of
41
All-Star's shares to their net asset value, the Board determines to recommend to
shareholders All-Star's conversion to an open-end investment company.
REPURCHASE OF SHARES; TENDER OFFERS;
CONVERSION TO OPEN-END
All-Star is a closed-end management investment company and as such its
shareholders will not have the right to cause All-Star to redeem their shares.
Instead, the shares will trade in the open market at a price that will be a
function of several factors, including dividend levels (which are in turn
affected by expenses), net asset value, call protection, dividend stability,
portfolio credit quality, relative demand for and supply of such shares in the
market, general market and economic conditions and other factors. Shares of a
closed-end management investment company may frequently trade at prices lower
than net asset value. The Board will regularly monitor the relationship between
the market price and net asset value of the shares. If the shares were to trade
at a substantial discount to net asset value for an extended period of time, the
Board may consider the repurchase of its shares on the open market or in private
transactions, the making of a tender offer for such shares, or the conversion of
All-Star to an open-end management investment company. All-Star cannot assure
you that its Board will decide to take or propose any of these actions, or that
share repurchases or tender offers will actually reduce market discount.
If All-Star converted to an open-end management investment company, it
would no longer be listed on the Exchange. In contrast to a closed-end
management investment company, shareholders of an open-end management investment
company may require the company to redeem their shares at any time (except in
certain circumstances as authorized by or under the 1940 Act) at their net asset
value, less any redemption charge that is in effect at the time of redemption.
Before deciding whether to take any action to convert All-Star to an
open-end management investment company, the Board would consider all relevant
factors, including the extent and duration of the discount, the liquidity of
All-Star's portfolio, the impact of any action that might be taken on All-Star
or its shareholders, and market considerations. Based on these considerations,
even if All-Star's shares should trade at a discount, the Board may determine
that, in the interest of All-Star and its shareholders, no action should be
taken.
TAX MATTERS
The following is a brief summary of certain federal tax considerations
affecting the purchase, ownership and disposition of shares of All-Star and does
not purport to be complete or to deal with all aspects of federal taxation that
may be relevant to shareholders in light of their particular circumstances. The
discussion is based on the Code, Treasury regulations, court decisions,
published positions of the IRS, and other applicable authorities, all as in
effect on the date hereof and all of which are subject to change or differing
interpretations (possibly with retroactive effect), and is limited to U.S.
persons who hold All-Star shares as capital assets for federal income tax
purposes (generally, assets held for investment). This summary does not address
all of the federal income tax consequences that may be relevant to a particular
shareholder or to shareholders who may be subject to special treatment under the
federal income tax law. No ruling has been or will be obtained from the IRS
42
regarding any matter relating to the shares. No assurance can be given that the
IRS would not assert a position contrary to any of the tax consequences
described below. We have provided more detailed information regarding the
federal tax consequences of investing in All-Star in the Statement of Additional
Information. Prospective investors should consult their own tax advisers as to
the federal income tax consequences of the purchase, ownership and disposition
of the Shares, as well as the effects of state, local and non-U.S. tax laws.
All-Star has elected to be, and intends to qualify each taxable year for
treatment as, a regulated investment company ("RIC") under the Code. If All-Star
so qualifies, it will be relieved of federal income tax on its net investment
income and net realized capital gains that it distributes to its shareholders.
(See "Distributions" and "Automatic Dividend Reinvestment and Cash Purchase
Plan" regarding All-Star's authority to retain and pay taxes on, and not
distribute, net capital gain).
All-Star will be subject to a nondeductible 4% federal excise tax to the
extent it fails to distribute (or be deemed to have distributed) by the end of
any calendar year an amount at least equal to the sum of (i) 98% of its ordinary
income for such year plus (ii) 98% of its capital gain net income (which is the
excess of its realized capital gains over its realized capital losses) for the
one-year period ending on October 31 of such year, after reduction by any
available capital loss carryforwards, plus (iii) 100% of any undistributed
ordinary income and capital gain net income from the prior year on which
All-Star paid no federal income tax. All-Star also expects to make sufficient
annual distributions to avoid being subject to that excise tax.
Under current law, if All-Star qualifies as a RIC for federal tax purposes
for a taxable year, it should not be liable for any income, corporate excise or
franchise tax in the Commonwealth of Massachusetts for that year.
If All-Star failed to qualify for treatment as a RIC for any taxable year,
it would be taxed as an ordinary corporation on the full amount of its taxable
income for that year without being able to deduct the distributions it makes to
its shareholders. In addition, the shareholders would treat all those
distributions, including distributions of net capital gain, as dividends to the
extent of All-Star's earnings and profits, taxable as ordinary income (except
that, for individual shareholders, the part thereof that is "qualified dividend
income" (as described below) would be taxable at the rate for net capital gain
-- a maximum of 15%); those dividends would be eligible for the
dividends-received deduction available to corporations under certain
circumstances. Furthermore, All-Star could be required to recognize unrealized
gains, pay substantial taxes and interest and make substantial distributions
before requalifying for treatment as a RIC.
Distributions by All-Star from its net investment income and net realized
capital gains are subject to taxation whether received by shareholders in cash
or in additional shares of All-Star. Shareholders receiving a dividend or other
distribution in the form of newly issued shares will be treated for federal
income tax purposes as receiving a distribution in an amount equal to the fair
market value, determined as of the distribution date, of those shares. Those
shareholders will have a cost basis in each such newly issued share equal to its
fair market value on the distribution date. Distributions are generally taken
into account for tax purposes when paid, except that distributions paid in
43
January but declared in the last quarter of the preceding calendar year are
taken into account as if paid on December 31 of such year.
Dividends All-Star pays to shareholders from its investment company
taxable income (generally consisting of net investment income, the excess of net
short-term capital gain over net long-term capital loss, and net gains and
losses from certain foreign currency transactions, if any, all determined
without regard to any deduction for dividends paid) are taxable as ordinary
income, except that dividends attributable to its "qualified dividend income"
(I.E., dividends it receives on stock of most domestic and certain foreign
corporations with respect to which it satisfies certain holding period,
debt-financing, and other restrictions) generally are subject to federal income
tax for individual shareholders who satisfy those restrictions with respect to
their All-Star shares at the rate for net capital gain -- a maximum of 15%. A
portion of All-Star's dividends -- not exceeding the aggregate dividends it
receives from domestic corporations only -- also may be eligible for the
dividends-received deduction allowed to corporations, subject to similar holding
period, debt-financing, and other restrictions. However, dividends a corporate
shareholder deducts pursuant to the dividends-received deduction are subject
indirectly to the federal alternative minimum tax. There can be no assurance as
to what portion, if any, of All-Star's distributions will constitute qualified
dividend income or be eligible for the dividends-received deduction.
Distributions to a shareholder from net capital gain are taxable as
long-term capital gains, at a maximum federal income tax rate of 15% for an
individual, regardless of how long the shareholder has held the shares, and are
not eligible for the dividends-received deduction. The foregoing special rules
relating to "qualified dividend income," as well as the 15% maximum federal
income tax rate on individuals' net capital gain, generally apply only through
the last taxable year beginning before January 1, 2009.
The benefits to individual shareholders of the reduced tax rates
applicable to qualified dividend income and net capital gain may be impacted by
the application of the alternative minimum tax.
If a shareholder holds shares of All-Star for six months or less, any loss
on the sale of the shares will be treated as a long-term, instead of a
short-term, capital loss to the extent of any capital gain distributions the
shareholder received with respect to the shares. In addition, if a shareholder
purchases All-Star shares (whether pursuant to the Dividend Reinstatement Plan
or otherwise) within 30 days before or after selling other All-Star shares at a
loss, all or part of that loss will not be deductible and instead will increase
the basis in the newly purchased shares. Investors also should be aware that the
price of All-Star shares at any time may reflect the amount of a forthcoming
dividend or capital gain distribution, so if they purchase All-Star shares
shortly before the record date for that distribution, they will pay full price
for the shares and receive some part of the price back as a taxable distribution
even though it represents in part a return of invested capital.
All-Star must withhold and remit to the U.S. Treasury 28% of reportable
dividend and capital gain distributions otherwise payable to individuals and
certain other non-corporate All-Star shareholders for whom a taxpayer
identification number and certain required certificates are not on file with
All-Star or who, to All-Star's knowledge, have furnished an incorrect number
44
("back-up withholding"). In addition, All-Star is required to withhold at that
rate from distributions otherwise payable to any such shareholder who does not
certify to All-Star that the shareholder is not subject to back-up withholding
due to notification by the IRS that the shareholder has underreported interest
or dividend income. Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules from distributions to a shareholder
may be credited against such shareholder's federal income tax liability, if any,
or refunded, provided that the required information is furnished to the IRS.
Dividends from All-Star's investment company taxable income that are paid
to shareholders who are non-resident aliens or foreign entities (I.E., non-U.S.
persons) generally are subject to 30% federal withholding tax (but not, in such
event, subject to back-up withholding) unless a reduced rate of withholding or a
withholding exemption is provided under an applicable treaty. Pursuant to the
American Jobs Creation Act of 2004, however, All-Star's distributions that are
(i) made to a beneficial owner of its shares that certifies that it is a
non-U.S. person, with certain exceptions, (ii) attributable to its "qualified
net interest income" and/or short-term capital gain, and (iii) with respect to a
taxable year beginning before January 1, 2008, are exempt from that withholding
tax. Non-U.S. shareholders are urged to consult their own tax advisers
concerning the applicability of that withholding tax.
Information concerning the federal income tax status of All-Star dividends
and other distributions is mailed to shareholders annually.
Distributions and the transactions referred to above may be subject to
state and local income taxes, and the treatment thereof may differ from the
federal income tax treatment discussed herein. Shareholders are advised to
consult with their tax advisers concerning the application of state and local
taxes.
UNDERWRITING
All-Star is offering the shares of beneficial interest described in this
prospectus through a number of underwriters. is the
representative of the underwriters. has entered into a firm
commitment underwriting agreement with the representative. Subject to the terms
and conditions of the underwriting agreement, All-Star has agreed to sell to the
underwriters, and each underwriter has agreed to purchase, the number of shares
of common stock listed next to its name in the following table.
UNDERWRITER NUMBER OF SHARES
----------- ----------------
.......................................................
.......................................................
.......................................................
________________
Total............................................
================
45
The underwriting agreement is subject to a number of terms and conditions
and provides that the underwriters must buy all of the shares if they buy any of
them. The underwriters will sell the shares to the public when and if the
underwriters buy the shares from All-Star.
The underwriters initially will offer the shares to the public at the
price specified on the cover page of this Prospectus. The underwriters may allow
a concession of not more than $ per share to selected dealers. The
underwriters may also allow, and those dealers may re-allow, a concession of not
more than $ per share to some other dealers. If all the shares are
not sold at the public offering price, the underwriters may change the public
offering price and the other selling terms. The shares are offered subject to a
number of conditions, including:
o receipt and acceptance of the shares by the underwriters; and
o the underwriters' right to reject orders in whole or in part.
OVER-ALLOTMENT OPTION. All-Star has granted the underwriters an
over-allotment option to buy up to additional shares at the same
price per share as they are paying for the shares shown in the table above.
These additional shares would cover sales of shares by the underwriters which
exceed the total number of shares shown in the table above. The underwriters may
exercise this option at any time within 45 days after the date of this
Prospectus. To the extent that the underwriters exercise this option, each
underwriter will purchase additional shares from us in approximately the same
proportion as it purchased the shares shown in the table above. If purchased,
the additional shares will be sold by the underwriters on the same terms as
those on which the other shares are sold. All-Star will pay the expenses
associated with the exercise of this option.
DISCOUNT AND COMMISSIONS. The following table shows the per share and
total underwriting discounts and commissions to be paid to the underwriters by
All-Star. These amounts are shown assuming no exercise and full exercise of the
underwriters' option to purchase additional shares.
All-Star estimates that the expenses of the offering to be paid by it, not
including underwriting discounts and commissions, will be approximately $ .
PAID BY ALL-STAR
-----------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
Per Share $ $
Total $ $
LISTING. All-Star intends to apply to list its shares on the Exchange,
under the symbol " ." In order to meet one of the requirements for listing our
common stock on the Exchange, the underwriters have undertaken to sell 100 or
more shares of our common stock to a minimum of 2,000 beneficial holders.
46
STABILIZATION. In connection with this offering, the underwriters may
engage in activities that stabilize, maintain or otherwise affect the price of
All-Star's shares including:
o stabilizing transactions;
o short sales;
o syndicate covering transactions;
o imposition of penalty bids; and
o purchases to cover positions created by short sales.
Stabilizing transactions consist of bids or purchases made for the purpose
of preventing or retarding a decline in the market price of our common stock
while this offering is in progress. Stabilizing transactions may include making
short sales of our common stock, which involves the sale by the underwriters of
a greater number of shares of common stock than they are required to purchase in
this offering, and purchasing shares of common stock from All-Star or on the
open market to cover positions created by short sales. Short sales may be
"covered" shorts, which are short positions in an amount not greater than the
underwriters' over-allotment option referred to above, or may be "naked" shorts,
which are short positions in excess of that amount. Syndicate covering
transactions involve purchases of our shares in the open market after the
distribution has been completed in order to cover syndicate short positions.
The underwriters may close out any covered short position either by
exercising their over-allotment option, in whole or in part, or by purchasing
shares in the open market. In making this determination, the underwriters will
consider, among other things, the price of shares available for purchase in the
open market compared to the price at which the underwriters may purchases shares
through the over-allotment option.
A naked short position is more likely to be created if the underwriters
are concerned that there may be downward pressure on the price of the common
stock in the open market that could adversely affect investors who purchased in
this offering. To the extent that the underwriters create a naked short
position, they will purchase shares in the open market to cover the position.
The representative also may impose a penalty bid on underwriters and
dealers participating in the offering. This means that the representative may
reclaim from any syndicate members or other dealers participating in the
offering the selling concession on shares sold by it and purchased by the
representative in stabilizing or short covering transactions.
These activities may have the effect of raising or maintaining the market
price of All-Star's shares or preventing or retarding a decline in the market
price of the shares. As a result of these activities, the price of the shares
may be higher than the price that otherwise might exist in the open market. If
the underwriters commence the activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Exchange, in the
over-the-counter market or otherwise.
47
LOCK-UP AGREEMENTS. All-Star has entered into a lock-up agreement with the
underwriters. Under this agreement, subject to exceptions, All-Star may not
issue any new shares or publicly announce the intention to do any of the
foregoing, without the prior written consent of for a period of 180
days from the date of this Prospectus. This consent may be given at any time
without public notice. In addition, during this 180 day period, All-Star has
also agreed not to file any registration statement for any shares without the
prior written consent of .
INDEMNIFICATION. All-Star, LAMCO and each Portfolio Manager will indemnify
the underwriters against some liabilities, including liabilities under the
Securities Act of 1933. If we are unable to provide this indemnification, we
will contribute to payments the underwriters may be required to make in respect
of those liabilities.
ONLINE OFFERING. A Prospectus in electronic format may be made available
on the web sites maintained by one or more of the underwriters participating in
this offering. Other than the Prospectus in electronic format, the information
on any such web site, or accessible through any such web site, is not part of
the Prospectus. The representatives may agree to allocate a number of shares to
underwriters for sale to their online brokerage account holders. Internet
distributions will be allocated by the underwriters that will make internet
distributions on the same basis as other allocations. In addition, shares may be
sold by the underwriters to securities dealers who resell shares to online
brokerage account holders.
CONFLICTS/AFFILIATES. The underwriters and their affiliates have provided,
and may in the future provide, various investment banking, commercial banking
and other financial services to LAMCO, the Portfolio Managers or All-Star for
which services they have received, and may in the future receive, customary
fees. In addition, LAMCO is an indirect, wholly-owned subsidiary of Bank of
America Corporation.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
, will serve as All-Star's
custodian. , will serve as All-Star's transfer and dividend
disbursing agent and registrar.
VALIDITY OF THE SHARES
Certain legal matters in connection with the shares offered in this
Prospectus have been passed upon by Kirkpatrick & Lockhart Nicholson Graham LLP,
Washington, DC, for All-Star and by for the underwriters.
48
TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION
PAGE
Investment Objective and Policies...............................
Investment Restrictions.........................................
Investment Advisory and Other Services..........................
Proxy Voting....................................................
Trustees and Officers...........................................
Portfolio Security Transactions.................................
Taxes...........................................................
Principal Shareholders..........................................
Financial Statements............................................
Appendix A - Proxy Voting Guidelines ...........................
49
================================================================================
_____________ Shares
[Issuer Logo]
Liberty All-Star Mid-Cap Fund
Shares of Beneficial Interest
----------------------
Prospectus
, 2005
----------------------
UNTIL , 2005, ALL DEALERS THAT BUY, SELL OR TRADE ALL-STAR'S SHARES MAY BE
REQUIRED TO DELIVER A PROSPECTUS, REGARDLESS OF WHETHER THEY ARE PARTICIPATING
IN THE OFFERING. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
- 2 -
Subject to Completion
Preliminary Statement of Additional Information dated , 2005
LIBERTY ALL-STAR MID-CAP FUND
STATEMENT OF ADDITIONAL INFORMATION
, 2005
Liberty All-Star Mid-Cap Fund ("All-Star" or the "Fund") is a newly-organized,
multi-managed, diversified closed-end management investment company. This
Statement of Additional Information ("SAI") is not a prospectus, and should be
read in conjunction with the Prospectus of All-Star dated , 2005. A copy of the
Prospectus may be obtained, without charge, by contacting Liberty Asset
Management Company in writing at One Financial Center, Boston, Massachusetts
02111 or by telephone at 1-(800)- - .
TABLE OF CONTENTS PAGE
----------------- ----
Investment Objective and Policies......................................
Investment Restrictions................................................
Investment Advisory and Other Services.................................
Proxy Voting...........................................................
Trustees and Officers..................................................
Portfolio Security Transactions........................................
Taxes..................................................................
Principal Shareholders.................................................
Financial Statements...................................................
Appendix A - Proxy Voting Guidelines ..................................
NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
STATEMENT OF ADDITIONAL INFORMATION IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The information in this Statement of Additional Information is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
Statement of Additional Information is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
INVESTMENT OBJECTIVE AND POLICIES
A description of the investment objective of All-Star and the principal
types of securities in which it may invest is contained in the Prospectus under
"Investment Objective and Principal Investment Strategies." What follows is
additional information regarding securities in which All-Star may invest and
investment practices in which it may engage, and additional risks relating
thereto.
Bank Obligations
----------------
Bank obligations in which the Fund may invest include certificates of
deposit, bankers' acceptances, and fixed time deposits. Certificates of deposit
are negotiable certificates issued against funds deposited in a commercial bank
for a definite period of time and earning a specified return. Bankers'
acceptances are negotiable drafts or bills of exchange, normally drawn by an
importer or exporter to pay for specific merchandise, which are "accepted" by a
bank, meaning, in effect, that the bank unconditionally agrees to pay the face
value of the instrument on maturity. Fixed time deposits are bank obligations
payable at a stated maturity date and bearing interest at a fixed rate. Fixed
time deposits may be withdrawn on demand by the investor, but may be subject to
early withdrawal penalties, which vary depending upon market conditions and on
the right to transfer a beneficial interest in a fixed time deposit to a third
party, although there is no market for such deposits.
Bank obligations include foreign bank obligations including Eurodollar and
Yankee obligations. Eurodollar bank obligations are dollar certificates of
deposits and time deposits issued outside the U.S. capital markets by foreign
branches of U.S. banks and by foreign banks. Yankee obligations are
dollar-denominated obligations issued in the U.S. capital markets by foreign
banks. Foreign bank obligations are subject to the same risks that pertain to
domestic issues, notably credit risk and interest rate risk. Additionally,
foreign bank obligations are subject to many of the same risks as investments in
foreign securities (see "Foreign Equity Securities" below). Obligations of
foreign banks involve somewhat different investment risks than those affecting
obligations of United States banks, including the possibilities that their
liquidity could be impaired because of future political and economic
developments of the foreign bank's country, that their obligations may be less
marketable than comparable obligations of United States banks, that a foreign
jurisdiction might impose withholding taxes on interest income payable on those
obligations, that foreign deposits may be seized or nationalized, that foreign
governmental restrictions such as exchange controls may be adopted, which might
adversely affect the payment of principal and interest on those obligations and
that the selection of those obligations may be more difficult because there may
be less publicly available information concerning foreign banks or the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign banks may differ from those applicable to
U.S. banks. Foreign banks are not generally subject to examination by any U.S.
Government agency or instrumentality.
Commercial Paper
----------------
A1 and Prime 1 are the highest commercial paper ratings issued by S&P and
Moody's, respectively. Commercial paper rated A1 by S&P has the following
characteristics: (1) liquidity ratios are adequate to meet cash requirements;
-2-
(2) long-term senior debt is rated A or better; (3) the issuer has access to at
least two additional channels of borrowing; (4) basic earnings and cash flow
have an upward trend with an allowance made for unusual circumstances; (5)
typically, the issuer's industry is well established and the issuer has a strong
position within the industry; and (6) the reliability and quality of management
are unquestioned.
Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of 10 years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations that may be present or may arise as a result of public interest
questions and preparation to meet such obligations.
Government Securities
---------------------
Government securities may be either direct obligations of the U.S. Treasury
or may be the obligations of an agency or instrumentality of the United States.
TREASURY OBLIGATIONS. The U.S. Treasury issues a variety of marketable
securities that are direct obligations of the U.S. Government. These securities
fall into three categories - bills, notes, and bonds - distinguished primarily
by their maturity at time of issuance. Treasury bills have maturities of one
year or less at the time of issuance, while Treasury notes currently have
maturities of 1 to 10 years. Treasury bonds can be issued with any maturity of
more than 10 years.
OBLIGATIONS OF AGENCIES AND INSTRUMENTALITIES. Agencies and
instrumentalities of the U.S. Government are created to fill specific
governmental roles. Their activities are primarily financed through securities
whose issuance has been authorized by Congress. Agencies and instrumentalities
include the Export Import Bank, Federal Housing Administration, Government
National Mortgage Association, Tennessee Valley Authority, Banks for
Cooperatives, Farmers Home Administration, Federal Home Loan Banks, Federal
Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage
Association, Federal Home Loan Mortgage Corp., U.S. Postal System, and Federal
Finance Bank. Although obligations of "agencies" and "instrumentalities" are not
direct obligations of the U.S. Treasury, payment of the interest or principal on
these obligations is generally backed directly or indirectly by the U.S.
Government. This support can range from backing by the full faith and credit of
the United States or U.S. Treasury guarantees to the backing solely of the
issuing instrumentality itself.
Foreign Equity Securities
-------------------------
Foreign equity securities include common stock and preferred stock,
including securities convertible into equity securities, issued by foreign
companies, American Depositary Receipts ("ADRs") and Global Depositary Receipts
("GDRs"). In determining whether a company is foreign, the Advisor will consider
various factors including where the company is headquartered, where the
-3-
company's principal operations are located, where the company's revenues are
derived, where the principal trading market is located and the country in which
the company was legally organized. The weight given to each of these factors
will vary depending upon the circumstances.
Foreign equity securities, which are generally denominated in foreign
currencies, involve risks not typically associated with investing in domestic
securities. Foreign securities may be subject to foreign taxes that would reduce
their effective yield. Certain foreign governments levy withholding taxes
against dividend and interest income. Although in some countries a portion of
these taxes is recoverable, the unrecovered portion of any foreign withholding
taxes would reduce the income the Fund receives from its foreign investments.
Foreign investments involve other risks, including possible political or
economic instability of the country of the issuer, the difficulty of predicting
international trade patterns, and the possibility of currency exchange controls.
Foreign securities may also be subject to greater fluctuations in price than
domestic securities. There may be less publicly available information about a
foreign company than about a domestic company. Foreign companies generally are
not subject to uniform accounting, auditing, and financial reporting standards
comparable to those of domestic companies.
There is generally less government regulation of stock exchanges, brokers,
and listed companies abroad than in the United States. In addition, with respect
to certain foreign countries, there is a possibility of the adoption of a policy
to withhold dividends at the source, or of expropriation, nationalization,
confiscatory taxation, or diplomatic developments that could affect investments
in those countries. Finally, in the event of default on a foreign debt
obligation, it may be more difficult for the Fund to obtain or enforce a
judgment against the issuers of the obligation. The Fund will normally execute
its portfolio securities transactions on the principal stock exchange on which
the security is traded.
The considerations noted above regarding the risk of investing in foreign
securities are generally more significant for investments in emerging or
developing countries, such as countries in Eastern Europe, Latin America, South
America or Southeast Asia. These countries may have relatively unstable
governments and securities markets in which only a small number of securities
trade. Markets of developing or emerging countries may generally be more
volatile than markets of developed countries. Investment in these markets may
involve significantly greater risks, as well as the potential for greater gains.
ADRs in registered form are dollar-denominated securities designed for use
in the U.S. securities markets. ADRs are sponsored and issued by domestic banks
and represent and may be converted into underlying foreign securities deposited
with the domestic bank or a correspondent bank. ADRs do not eliminate the risks
inherent in investing in the securities of foreign issuers. By investing in ADRs
rather than directly in the foreign security, however, the Fund may avoid
currency risks during the settlement period for either purchases or sales. There
is a large, liquid market in the United States for most ADRs. GDRs are receipts
representing an arrangement with a major foreign bank similar to that for ADRs.
GDRs are not necessarily denominated in the currency of the underlying security.
-4-
While ADRs and GDRs will generally be considered foreign securities for purposes
of calculation of any investment limitation placed on the Fund's exposure to
foreign securities, these securities, along with the securities of foreign
companies traded on NASDAQ will not be subject to any of the restrictions placed
on the Fund's ability to invest in emerging market securities.
Additional costs may be incurred in connection with the Fund's foreign
investments. Foreign brokerage commissions are generally higher than those in
the United States. Expenses may also be incurred on currency conversions when
the Fund moves investments from one country to another. Increased custodian
costs as well as administrative difficulties may be experienced in connection
with maintaining assets in foreign jurisdictions.
Foreign Fixed Income Securities
-------------------------------
Foreign fixed income securities include debt securities of foreign corporate
issuers, certain foreign bank obligations (see "Bank Obligations"), obligations
of foreign governments or their subdivisions, agencies and instrumentalities,
and obligations of supranational entities such as the World Bank, the European
Investment Bank, and the Asian Development Bank. Any of these securities may be
denominated in foreign currency or U.S. dollars, or may be traded in U.S.
dollars in the United States although the underlying security is usually
denominated in a foreign currency.
The risk of investing in foreign fixed income securities is the same as the
risks of investing in foreign equity securities. Additionally, investment in
sovereign debt (debt issued by governments and their agencies and
instrumentality) can involve a high degree of risk. The governmental entity that
controls the repayment of sovereign debt may not be available or willing to
repay the principal and/or interest when due in accordance with the terms of the
debt. A governmental entity's willingness or ability to repay principal and
interest due in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the governmental entity's
policy toward the International Monetary Fund, and the political constraints to
which a governmental entity may be subject. Governmental entities may also
depend on expected disbursements from foreign governments, multilateral agencies
and others to reduce principal and interest arrearages on their debt. The
commitment on the part of these governments, agencies and others to make such
disbursements may be conditioned on a governmental entity's implementation of
economic reforms and/or economic performance and the timely service of such
debtor's obligations. Failure to implement such reforms, achieve such levels of
economic performance or repay principal or interest when due may result in the
cancellation of such third parties' commitments to lend funds to the
governmental entity, which may further impair such debtor's ability or
willingness to service its debts in a timely manner. Consequently, governmental
entities may default on their sovereign debt. Holders of sovereign debt
(including the Fund) may be requested to participate in the rescheduling of such
debt and to the extent further loans to governmental entities. There is no
bankruptcy proceeding by which sovereign debt on which governmental entities
have defaulted may be collected in whole or in part.
-5-
Currency Contracts
------------------
The value of the Fund invested in foreign securities will fluctuate as a
result of changes in the exchange rates between the U.S. dollar and the
currencies in which the foreign securities or bank deposits held by the Fund are
denominated. To reduce or limit exposure to changes in currency exchange rates
(referred to as "hedging") the Fund may enter into forward currency exchange
contracts that, in effect, lock in a rate of exchange during the period of the
forward contracts. Forward contracts are usually entered into with currency
traders, are not traded on securities exchanges, and usually have a term of less
than one year, but can be renewed. A default on a contract would deprive the
Fund of unrealized profits or force the Fund to cover its commitments for
purchase or sale of currency, if any, at the market price. The Fund will enter
into forward contracts only for hedging purposes and not for speculation. If
required by the Investment Company Act of 1940, as amended (the "1940 Act") or
the SEC, the Fund may "cover" its commitment under forward contracts by
segregating cash or liquid securities with the Fund's custodian in an amount not
less than the current value of the Fund's total assets committed to the
consummation of the contracts. Under normal market conditions, no more than 25
percent of the International Stock Fund's assets may be committed to the
consummation of currency exchange contracts.
The Fund may also purchase or sell foreign currencies on a "spot" (cash)
basis or on a forward basis to lock in the U.S. dollar value of a transaction at
the exchange rate or rates then prevailing. The Fund will use this hedging
technique in an attempt to insulate itself against possible losses resulting
from a change in the relationship between the U.S. dollar and the relevant
foreign currency during the period between the date a security is purchased or
sold and the date on which payment is made or received.
Hedging against adverse changes in exchange rates will not eliminate
fluctuation in the prices of the Fund's portfolio securities or prevent loss if
the prices of those securities decline. In addition, the use of forward
contracts may limit potential gains from an appreciation in the U.S. dollar
value of a foreign currency. Forecasting short-term currency market movements is
very difficult, and there is no assurance that short-term hedging strategies
used by the Fund will be successful.
Repurchase Agreements
---------------------
The Fund may invest in repurchase agreements, which are agreements by which
the Fund purchases a security and simultaneously commits to resell that security
to the seller (a commercial bank or securities dealer) at a stated price within
a number of days (usually not more than seven) from the date of purchase. The
resale price reflects the purchase price plus a rate of interest that is
unrelated to the coupon rate or maturity of the purchased security. Repurchase
agreements may be considered loans by the Fund collateralized by the underlying
security. The obligation of the seller to pay the stated price is in effect
secured by the underlying security. The seller will be required to maintain the
value of the collateral underlying any repurchase agreement at a level at least
equal to the price of the repurchase agreement. In the case of default by the
seller, the Fund could incur a loss. In the event of a bankruptcy proceeding
commenced against the seller, the Fund may incur costs and delays in realizing
upon the collateral. The Fund will enter into repurchase agreements only with
-6-
those banks or securities dealers who are deemed creditworthy pursuant to
criteria adopted by the Advisor. There is no limit on the portion of the Fund's
assets that may be invested in repurchase agreements with maturities of seven
days or less.
Borrowing
---------
The Fund may borrow from a bank for temporary administrative purposes. This
borrowing may be unsecured. Provisions of the 1940 Act require the Fund to
maintain continuous asset coverage (that is, total assets including borrowings,
less liabilities exclusive of borrowings) of 300 percent of the amount borrowed,
with an exception for borrowings not in excess of 5 percent of the Fund's total
assets made for temporary administrative purposes. Any borrowings for temporary
administrative purposes in excess of 5 percent of the Fund's total assets are
subject to continuous asset coverage. If the 300 percent asset coverage declines
as a result of market fluctuations or other reasons, the Fund may be required to
sell some of its portfolio holdings within three days to reduce the debt and
restore the 300 percent asset coverage. Notwithstanding the above, the Fund may
not borrow in excess of 5 percent of their assets at any time. The Fund also may
enter into certain transactions, including reverse repurchase agreements,
mortgage dollar rolls, and sale-buybacks, that can be viewed as constituting a
form of borrowing or financing transaction by the Fund. To the extent the Fund
covers its commitment under such transactions (or economically similar
transaction) by the segregation of assets determined in accordance with
procedures adopted by the Board of Trustees ("Board"), equal in value to the
amount of the Fund's commitment to repurchase, such an agreement will not be
considered a "senior security" by the Fund and therefore will not be subject to
the 300 percent asset coverage requirement otherwise applicable to borrowings by
the Fund. Borrowing will tend to exaggerate the effect on net asset value of any
increase or decrease in the market value of the Fund's portfolio. Money borrowed
will be subject to interest costs which may or may not be recovered by
appreciation of the securities purchased. The Fund also may be required to
maintain minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.
Illiquid Securities
-------------------
Illiquid securities are securities that may not be sold or disposed of in
the ordinary course of business within seven days at approximately the price
used to determine the Fund's net asset value. Under current interpretations of
the Staff of the SEC, the following instruments in which the Fund may invest
will be considered illiquid: (1) repurchase agreements maturing in more than
seven days; (2) restricted securities (securities whose public resale is subject
to legal restrictions, except as described in the following paragraph); (3)
options, with respect to specific securities, not traded on a national
securities exchange that are not readily marketable; and (4) any other
securities in which the Fund may invest that are not readily marketable.
Notwithstanding the restrictions applicable to investments in illiquid
securities described in the relevant chart below, the Fund may purchase without
limit certain restricted securities that can be resold to qualifying
institutions pursuant to a regulatory exemption under Rule 144A ("Rule 144A
-7-
securities"). If a dealer or institutional trading market exists for Rule 144A
securities, such securities are deemed to be liquid and thus exempt from the
Fund's liquidity restrictions.
Under the supervision of the Board of the Fund, the Advisor determines the
liquidity of the Fund's portfolio securities, including Rule 144A securities,
and, through reports from the Advisor, the Board monitors trading activity in
these securities. In reaching liquidity decisions, the Advisor will consider,
among other things, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers, and the procedures for the transfer).
If institutional trading in Rule 144A securities declines, the Fund's liquidity
could be adversely affected to the extent it is invested in such securities.
Preferred Stock
---------------
The Fund may invest in preferred stock. Unlike interest payments on debt
securities, dividends on preferred stock are generally payable at the discretion
of the issuer's board of directors. Preferred shareholders may have certain
rights if dividends are not paid but generally have no legal recourse against
the issuer. Shareholders may suffer a loss of value if dividends are not paid.
The market prices of preferred stocks are generally more sensitive to changes in
the issuer's creditworthiness than are the prices of debt securities.
Convertible Securities and Warrants
-----------------------------------
Convertible debentures are interest-bearing debt securities, typically
unsecured, that represent an obligation of the corporation providing the owner
with claims to the corporation's earnings and assets before common and preferred
stock owners, generally on par with unsecured creditors. If unsecured, claims of
convertible debenture owners would be inferior to claims of secured debt
holders. Convertible preferred stocks are securities that represent an ownership
interest in a corporation providing the owner with claims to the corporation's
earnings and assets before common stock owners, but after bond owners.
Investments by the Fund in convertible debentures or convertible preferred stock
would be a substitute for an investment in the convertible security if available
in quantities necessary to satisfy the Fund's investment needs (for example, in
the case of a new issuance of convertible securities) or where, because of
financial market conditions, the conversion price of the convertible security is
comparable to the price of the underlying common stock, in which case a
preferred position with respect to the corporation's earnings and assets may be
preferable to holding common stock.
Warrants are options to buy a stated number of underlying securities at a
specified price any time during the life of the warrants. The securities
underlying these warrants will be the same types of securities that the Fund
will invest in to achieve its investment objective of capital appreciation. The
purchaser of a warrant expects the market price of the underlying security will
exceed the purchase price of the warrant plus the exercise price of the warrant,
thus resulting in a profit. If the market price never exceeds the purchase price
plus the exercise price of the warrant before the expiration date of the
warrant, the purchaser will suffer a loss equal to the purchase price of the
warrant.
-8-
To the extent the High Yield Fund or the Fixed Income Securities Fund
acquires common stock through exercise of conversion rights or warrants or
acceptance of exchange or similar offers, the common stock will not be retained
in the portfolio. Orderly disposition of these equity securities will be made
consistent with management's judgment as to the best obtainable price.
Investments in Small and Unseasoned Companies
---------------------------------------------
Unseasoned and small companies may have limited or unprofitable operating
histories, limited financial resources, and inexperienced management. In
addition, they often face competition from larger or more established firms that
have greater resources. Securities of small and unseasoned companies are
frequently traded in the over-the-counter market or on regional exchanges where
low trading volumes may result in erratic or abrupt price movements. To dispose
of these securities, the Fund may need to sell them over an extended period or
below the original purchase price. Investments by the Fund in these small or
unseasoned companies may be regarded as speculative.
Zero-Coupon and Pay-in-Kind Securities
--------------------------------------
A zero-coupon security has no cash coupon payments. Instead, the issuer
sells the security at a substantial discount from its maturity value. The
interest equivalent received by the investor from holding this security to
maturity is the difference between the maturity value and the purchase price.
Pay-in-kind securities are securities that pay interest in either cash or
additional securities, at the issuer's option, for a specified period. The price
of pay-in-kind securities is expected to reflect the market value of the
underlying accrued interest, since the last payment. Zero-coupon and pay-in-kind
securities are more volatile than cash pay securities. The Fund accrues income
on these securities prior to the receipt of cash payments. The Fund intends to
distribute substantially all of its income to its shareholders to qualify for
pass-through treatment under the tax laws and may, therefore, need to use its
cash reserves to satisfy distribution requirements.
Options and Futures Strategies
------------------------------
The effective use of options and future strategies is dependent, among other
things, on All-Star's ability to terminate options and futures positions at
times when it or its Portfolio Managers deem it desirable to do so. Although
All-Star will not enter into an option or futures position unless it believes
that a liquid secondary market exists for such option or future, there is no
assurance that All-Star will be able to effect closing transactions at any
particular time or at an acceptable price. All-Star generally expects that its
options and futures transactions will be conducted on recognized securities
exchanges. In certain instances, however, All-Star may purchase and sell options
in the over-the-counter market. All-Star's ability to terminate option positions
established in the over-the-counter market may be more limited than in the case
of exchange-traded options and may also involve the risk that securities dealers
participating in such transactions would fail to meet their obligations to
All-Star. All-Star may not purchase or sell future contracts and related options
if immediately thereafter the sum of the amount of initial margin deposits on
All-Star's existing futures and premiums paid for such related options would
-9-
exceed 5% of the market value of All-Star's net assets. Such limitation,
however, will not limit All-Star's loss on such contracts and options, which is
potentially unlimited.
Writing Covered Put and Call Options on Securities
--------------------------------------------------
All-Star may write covered call options and covered put options on
optionable securities of the types in which it is permitted to invest from
time-to-time as its respective Portfolio Managers determine is appropriate in
seeking to attain its objectives. Call options written by All-Star give the
holder the right to buy the underlying securities from All-Star at a stated
exercise price; put options give the holder the right to sell the underlying
security to All-Star at a stated price.
All-Star may write only covered options, which means that, so long as
All-Star is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, All-Star will
maintain in a separate account cash or short-term U.S. Government Securities
with a value equal to or greater than the exercise price of the underlying
securities. All-Star may also write combinations or covered puts and calls on
the same underlying security.
All-Star will receive a premium from writing a put or call option, which
increases All-Star's return in the event the option expires unexcercised or is
closed out at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price of the underlying security to the
exercise price of the option, the term of the option and the volatility of the
market price of the underlying security. By writing a call option, All-Star
limits its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, All-Star assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
value, resulting in a potential capital loss if the purchase price exceeds the
market value plus the amount of the premium received, unless the security
subsequently appreciates in value.
All-Star may terminate an option that it has written prior to its expiration
by entering into a closing purchase transaction in which it purchases an option
having the same terms as the option written. All-Star will realize a profit or
loss from such transaction if the cost of such transaction is less or more than
the premium received from the writing of the option. In the case of a put
option, any loss so incurred may be partially or entirely offset by the premium
received from a simultaneous or subsequent sale of a different put option.
Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in whole or in part
by unrealized appreciation of the underlying security owned by All-Star.
Purchasing Put and Call Options on Securities
---------------------------------------------
All-Star may purchase put options to protect its portfolio holdings in an
underlying security against a decline in market value. Such hedge protection is
provided during the use of the put options since All-Star, as holder of the put
option, is able to sell the underlying security at the put exercise price
-10-
regardless of any decline in the underlying security's market price. In order
for a put option to be profitable, the market price of the underlying security
must decline sufficiently below the exercise price to cover the premium and
transaction costs. By using put options in this manner, All-Star will reduce any
profit it might otherwise have realized in its underlying security by the
premium paid for the put option and by transaction costs.
All-Star may also purchase call options to hedge against an increase in
prices of securities that it wants ultimately to buy. Such hedge protection is
provided during the life of the call option since All-Star, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, All-Star will reduce
any profit it might have realized had it bought the underlying security at the
time it purchased the call option by the premium paid for the call option and by
transaction costs.
Purchase and Sale of Options and Futures on Stock Indices
---------------------------------------------------------
All-Star may purchase and sell options on stock indices and stock index
futures as a hedge against movements in the equity markets.
Options on stock indices are similar to options on specific securities
except that, rather than the right to take or make delivery of the specific
security at a specified price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of that stock index is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the exercise
price of the option expressed in dollars times a specified multiple. The writer
of the option is obligated, in return for the premium received, to make delivery
of this amount. Unlike options on specific securities, all settlements of
options on stock indices are in cash and gain or loss depends on general
movements in the stocks included in the index rather than price movements in
particular stocks.
A stock index futures contract is an agreement in which one party agrees to
deliver to the other an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
No physical delivery of securities is made.
If a Portfolio Manager of All-Star expects general stock market prices to
rise, it might purchase a call option on a stock index or a futures contract on
that index as a hedge against an increase in prices of particular equity
securities it wants ultimately to buy. If in fact the stock index does rise, the
price of the particular equity securities intended to be purchased may also
increase, but that increase would be offset in part by the increase in the value
of All-Star's index option or futures contract resulting from the increase in
the index. If, on the other hand, the Portfolio Manager expects general stock
market prices to decline, it might purchase a put option or sell a futures
contract on the index. If that index does in fact decline, the value of some or
all of the equity securities in All-Star's portfolio may also be expected to
decline, but that decrease would be offset in part by the increase in the value
-11-
of All-Star's position in such put option or future. All-Star may purchase call
options on a stock index or a futures contracts on that index to enable a newly
appointed Portfolio Manager to gain immediate exposure to the underlying
securities market pending the investment in individual securities of the portion
of All-Star's portfolio assigned to it.
In connection with transactions in stock index options, futures and related
options, All-Star will be required to deposit as "initial margin" an amount of
cash and short-term U.S. Government Securities equal to from 5% to 8% of the
contract amount. Thereafter, subsequent payments (referred to as "variation
margin") are made to and from the broker to reflect changes in the value of the
futures contract.
Options on Stock Index Futures Contracts
----------------------------------------
All-Star may purchase and write call and put options on stock index futures
contracts. All-Star may use such options on futures contracts in connection with
its hedging strategies in lieu of purchasing and writing options directly on the
underlying securities or stock indices or purchasing and selling the underlying
futures. For example, All-Star may purchase put options or write call options on
stock index futures, rather than selling futures contracts, in anticipation of a
decline in general stock market prices, or purchase call options or write put
options on stock index futures, rather than purchasing such futures, to hedge
against possible increases in the price of equity securities which All-Star
intends to purchase.
Risk Factors in Options and Futures Transactions
------------------------------------------------
The effective use of options and futures strategies is dependent, among
other things, on All-Star's ability to terminate options and futures positions
at times when its respective Portfolio Managers deem it desirable to do so.
Although All-Star will not enter into an option or futures position unless its
Portfolio Managers believe that a liquid secondary market exists for such option
or future, there is no assurance that All-Star will be able to effect closing
transactions at any particular time or at an acceptable price. All-Star
generally expects that its option and futures transactions will be conducted on
recognized securities exchanges. In certain instances, however, All-Star may
purchase and sell options in the over-the-counter market. All-Star's ability to
terminate option positions established in the over-the-counter market may be
more limited than in the case of exchange-traded options and may also involve
the risk that securities dealers participating in such transactions would fail
to meet their obligations to All-Star.
The use of options and futures involves the risk of imperfect correlation
between movements in options and future prices and movements in the price of
securities which are the subject of the hedge. Such correlation, particularly
with respect to options on stock indices and stock index futures, is imperfect,
and such risk increases as the composition of All-Star's portfolio diverges from
the composition of the relevant index. The successful use of these strategies
also depends on the ability of the Portfolio Manager to correctly forecast
interest rate or general stock market price movements.
-12-
Regulatory Matters
------------------
All-Star will conduct its purchases and sales of futures contracts and
writing of related options transactions in accordance with the rules,
regulations and any exemptions promulgated by the Commodity Futures Trading
Commission ("CFTC") and the Securities and Exchange Commission ("SEC") with
respect to such transactions.
INVESTMENT RESTRICTIONS
Unless otherwise indicated, any investment policy or limitation that
involves a maximum percentage of securities or assets will not be considered
exceeded unless the percentage limitation is exceeded immediately after, and
because of a transaction by the Fund.
Fundamental Investment Restrictions.
-----------------------------------
The following investment restrictions have been adopted for All-Star as
fundamental policies and may be changed only by a majority vote (as defined
under "Investment Objective, Policies and Risks" in the Prospectus) of
All-Star's outstanding shares.
All-Star may not:
1) COMMODITIES. Purchase or sell physical commodities; except that the
Fund may purchase and sell foreign currency, futures contracts,
options, forward contracts, swaps, caps, floors, collars and other
financial instruments.
2) INDUSTRY CONCENTRATION. Concentrate investments in any industry.
However, the Fund may (a) invest up to 25 percent of the value of the
total assets in any one industry and (b) invest for temporary defensive
purposes up to 100 percent of the value of the total assets in
securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities.
3) REAL ESTATE. Purchase or sell real estate or any interest therein,
except that All-Star may invest in securities issued or guaranteed by
corporate or governmental entities secured by real estate or interests
therein, such as mortgage pass-throughs and collateralized mortgage
obligations, or issued by companies that invest in real estate or
interests therein.
4) LENDING. Lend any security or make any other loan, except to the
fullest extent permitted under the 1940 Act or under any exemptive
order granted under the 1940 Act, and provided that the Fund may (a)
purchase debt obligations consistent with its investment objectives and
policies and (b) enter into repurchase agreements.
5) UNDERWRITING. Underwrite securities of other issuers, except that the
Fund may acquire portfolio securities under circumstances where, if the
securities are later publicly offered or sold by the Fund, it might be
deemed to be an underwriter for purposes of the Securities Act of 1933.
-13-
6) BORROWING. Borrow money except to the extent permitted by the 1940 Act
or otherwise permitted by regulatory authority having jurisdiction from
time to time or under any exemptive order granted under the 1940 Act.
7) SENIOR SECURITIES. Issue senior securities, except as permitted under
the 1940 Act.
8) INVESTMENTS IN ANY ONE ISSUER. Purchase securities of any one issuer if
the purchase, at the time thereof, would cause more than 5% of the
value of the total assets of the Fund at market value to be invested in
the securities of that issuer or cause the Fund to hold more than 10%
of an issuer's outstanding voting securities (other than obligations of
the U.S. Government and its agencies and instrumentalities or
securities of another regulated investment company), with respect to
75% of the assets of the Fund.
Non-Fundamental Investment Restrictions.
---------------------------------------
The following is a list of non-fundamental investment restrictions
applicable to the Fund. These restrictions can be changed by the Board without
shareholder approval.
1) The Fund may not purchase or otherwise acquire any security if, as a
result, more than 15% of its net assets would be invested in securities
that are illiquid.
2) Under normal circumstances, the Fund will invest at least 80% of its
net assets plus the amount of any borrowings for investment purposes,
in mid-cap equity securities (as described below).
3) The Fund will not invest more than 25% of its net assets in securities
issued by foreign (non-U.S.) issuers.
Other Information Regarding Investment Restrictions.
---------------------------------------------------
Currently, under the 1940 Act, the Fund generally is not permitted to borrow
money in excess of 33 1/3% of the Fund's total assets (including the amount
borrowed) minus liabilities (other than the amount borrowed), except that the
Fund may borrow up to an additional 5% of its total assets for temporary
purposes.
Currently, under the 1940 Act, the Fund generally is not permitted to lend
any security or make any other loan if, as a result, more than 33 1/3% of the
Fund's total assets would be lent to other parties.
Equity securities include, without limitation, common stocks, securities
convertible into common stocks, including convertible bonds and preferred
stocks, and securities having common stock characteristics, such as rights and
-14-
warrants to purchase equity securities. The Fund will not change its restriction
regarding investment in equity securities unless the Fund provides shareholders
with prior written notice.
Mid-cap securities are deemed to be securities of companies whose market
capitalizations are less than or equal to the highest market capitalization of
companies included in the Russell Midcap(R) Index or the S&P 400 MidCap Index
(whichever capitalization is greater) and greater than or equal to the lowest
market capitalization of companies included in these indices (whichever
capitalization is lower). If a security is a mid-cap security at the time an
investment is made, a later change in one or more of the indices resulting in
that security not being within the market capitalization range of an index will
not be considered a violation of the restriction regarding investments in
mid-cap equity securities. The Fund may not change its restriction regarding
investment in mid-cap securities unless the Fund provides shareholders with the
notice required by Rule 35d-1 under the 1940 Act, as it may be amended or
interpreted by the SEC from time to time.
INVESTMENT ADVISORY AND OTHER SERVICES
As stated under "Management of All-Star" in the Prospectus, Liberty Asset
Management Company ("LAMCO") performs the investment management services and is
responsible for the administrative services described therein. LAMCO, One
Financial Center, Boston, MA 02111, is the Funds' manager. LAMCO is a wholly
owned subsidiary of Columbia Management Group, Inc., ("CMG"), which is an
indirect wholly owned subsidiary of Bank of America Corporation, a U.S.
financial holding company. CMG is located at One Financial Center, Boston, MA
02111. As indicated under "Trustees and Officers" below, all of All-Star's
officers are officers of LAMCO, Columbia Management Advisors, Inc. ("CMA") or
other affiliates of CMA.
Reference is made to "Management of All-Star - The Portfolio Managers" in
the Prospectus for the names of the controlling persons of All-Star's Portfolio
Managers and the names of the individual(s) at each Portfolio Manager primarily
responsible for the management of the portion of All-Star's portfolio assigned
to it. None of such Portfolio Managers has any affiliation with LAMCO or (except
as Portfolio Manager) with All-Star. Portfolio Managers may advise other funds
advised by LAMCO from time to time.
As described under "Management of All-Star" in the Prospectus, All-Star pays
LAMCO a fund management fee for its investment management services (from which
LAMCO pays the Portfolio Managers' fee), and an administrative fee for its
administrative services.
All-Star's Fund Management Agreement and Portfolio Management Agreements
will continue in effect until , 2007 and will continue in effect thereafter
so long as such continuance is specifically approved annually by (a) the Board
or (b) the majority vote of All-Star's outstanding shares (as defined under
"Investment Objective and Principal Investment Strategies" in the Prospectus),
provided that, in either event, the continuance is also approved by a majority
of the Trustees who are not "interested persons" (as defined in the 1940 Act) of
All-Star (the "Disinterested Trustees"), LAMCO or the Portfolio Managers by a
vote cast in person at a meeting called for the purpose of voting on such
approval. The Fund Management Agreement may be terminated on 60 days written
-15-
notice by either party, and the Portfolio Management Agreements may be
terminated on 30 days' notice by any party, and any such agreements will
terminate automatically if assigned.
The Fund will adopt and LAMCO has adopted a Code of Ethics pursuant to the
requirements of the 1940 Act. These Codes of Ethics permit personnel subject to
the Codes to invest in securities, including securities that may be purchased or
held by the Fund. Copies of LAMCO's Code of Ethics can be reviewed and copied at
the SEC's Public Reference Room in Washington, D.C. Information on the operation
of the Public Reference Room may be obtained by calling the SEC at
1-202-942-8090. The Code of Ethics is also available on the EDGAR database on
the SEC's Internet site at www.sec.gov, or may be obtained, after paying a
duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the
SEC's Public Reference Section, Washington, D.C. 20549-0102.
Custodian; Pricing and Bookkeeping Agent
----------------------------------------
(the "Custodian") is the custodian of the portfolio
securities and cash of All-Star. As such, the Custodian holds All-Star's
portfolio securities and cash in separate accounts on All-Star's behalf and
receives and delivers portfolio securities and cash in connection with portfolio
transactions initiated by All-Star's Portfolio Managers, collects income due on
the portfolio securities and disburses funds in connection with the payment of
distributions and expenses.
CMA, an affiliate of LAMCO, is responsible for providing pricing and
bookkeeping services for All-Star under a pricing and bookeeping agreement.
Under a separate agreement, CMA has delegated those functions to .
Independent Registered Public Accounting Firm
---------------------------------------------
PricewaterhouseCoopers LLP, 125 High Street, Boston, Massachusetts 02110,
are the independent registered public accounting firm of All-Star. The
independent registered public accounting firm audits and reports on the annual
financial statements and provides tax return preparation services and assistance
and consultation in connection with the review of various SEC filings.
PROXY VOTING
All-Star will delegate to LAMCO (and not the Portfolio Managers) the
responsibility to vote proxies relating to portfolio securities held by
All-Star. In deciding to delegate this responsibility to LAMCO, the Board of
All-Star reviewed and approved the policies and procedures adopted by LAMCO.
These include the procedures that LAMCO follows when a vote presents a conflict
between the interests of LAMCO or its affiliates and the interests of LAMCO's
clients, including All-Star.
LAMCO's policy is to vote all proxies for securities owned by All-Star in a
manner considered by LAMCO to be in the best interest of All-Star and its
shareholders without regard to any benefit to LAMCO or its affiliates. The best
-16-
interest of All-Star is defined for this purpose as the interest of enhancing
the economic value of All-Star, as LAMCO determines in its sole and absolute
discretion. From time to time conflicts of interest may arise in the
implementation of these procedures. For example, affiliates of LAMCO may have
commercial or investment banking business lines that have interests with respect
to issuers of voting securities that could appear to or even actually conflict
with LAMCO's duty, in the proxy voting process, to act in the best economic
interest of its clients. In addition, LAMCO or an affiliate might manage (or
seek to manage) the assets of a benefit plan for an issuer of voting securities.
Potential material conflicts of interest are addressed by, among other things,
having predetermined voting guidelines. For those proposals that require special
consideration, or in instances where special circumstances may require varying
from the predetermined guidelines, the proxy committee ("Proxy Committee")
determines the vote in the best interest of All-Star, without consideration of
any benefit to LAMCO, its affiliates, its other clients or other persons. The
Proxy Committee includes representatives of CMA's equity investments, equity
research, compliance, legal and fund administration functions and a
representative of LAMCO (for the express purpose of monitoring the votes in
respect of securities in the Fund and other LAMCO clients). In addition to the
responsibilities described above, the Proxy Committee has the responsibility to
review, on a semi-annual basis, LAMCO's proxy voting policies to ensure
consistency with internal policies and regulatory agency policies and to develop
additional voting guidelines to assist in the review of proxy proposals.
The Proxy Committee may vary from a predetermined guideline if it
determinates that voting on the proposal according to the predetermined
guideline would be expected to impact adversely the current or potential market
value of the issuer's securities or to affect adversely the best interest of
All-Star. References to the best interest of a client refer to the interest of
the client in terms of the potential economic return on the client's investment.
In determining the vote on any proposal, the Proxy Committee does not consider
any benefit other than benefits to the owner of the securities to be voted. A
member of the Proxy Committee is prohibited from voting on any proposal for
which he or she has a conflict of interest by reason of a direct relationship
with the issuer or other party affected by a given proposal. Persons making
recommendations to the Proxy Committee or its members are required to disclose
to the Committee any relationship with a party making a proposal or other matter
known to the person that would create a potential conflict of interest.
Institutional Shareholder Services ("ISS"), a third party vendor, has been
retained to implement its proxy voting process. ISS provides proxy analysis,
record keeping services and vote disclosure services.
LAMCO's proxy voting guidelines and procedures are included in this
Statement of Additional Information as Appendix A. Information regarding how
All-Star voted proxies relating to portfolio securities during the 12-month
period ending June 30, 2005 will be available without charge, upon request, by
calling 1-800- - and on the SEC website at http://www.sec.gov.
SOLE TRUSTEE AND OFFICERS
The names, addresses and ages of the sole Trustee and principal officers of
the Fund, 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 the Trustee in the fund complex and
other directorships they hold are shown below.
SOLE TRUSTEE
NUMBER OF
TERM OF PORTFOLIOS IN
OFFICE AND FUND COMPLEX
NAME/AGE AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER
ADDRESS(1) SERVICE DURING PAST FIVE YEARS TRUSTEE (2) DIRECTORSHIPS HELD
---------- ------- ---------------------- ----------- ------------------
SOLE DISINTERESTED
TRUSTEE
John J. Neuhauser Trustee since Academic Vice President 107 Saucony, Inc.
(Age 61) 2005; Term and Dean of Faculties (athletic
expires since August, 1999, Boston footwear)
College (formerly Dean,
Boston College School of
Management from September,
1977 to September, 1999)
-18-
------------
(1) The address of the sole Trustee is One Financial Center, Boston, MA
02111-2621.
(2) At December 31, 2004, Mr. Neuhauser also served as trustee or director of
the various investment companies in the Columbia family of funds which
consisted of 96 open-end and 8 closed-end management investment company
portfolios. The "Fund Complex" overseen by the sole Trustee includes
All-Star and the Columbia Funds.
PRINCIPAL OFFICERS
Each person listed below serves as an officer of the Fund.
POSITION WITH FUND AND YEAR
FIRST ELECTED OR APPOINTED PRINCIPAL OCCUPATION(S)
NAME/AGE AND ADDRESS(1) TO OFFICE DURING PAST FIVE YEARS
----------------------- --------- ----------------------
William R. Parmentier, Jr. President and Chief Executive President and Chief Executive Officer of the
(Age 52) Officer since 2005 Liberty All-Star Funds since April, 1999; Chief
Investment Officer - External Managers of
LAMCO since July, 1998 and Director since
April, 2004.
Mark T. Haley, CFA Vice President since 2005 Vice President - Investments of the Liberty All-
(Age 40) Star Funds since April, 1999, Vice President -
Investments of LAMCO since January, 1999.
Fred H. Wofford Vice President since 2005 Vice President - Operations of the Liberty All-
(Age 49) Star Funds since June, 2003; Director of fUNDS
Operations of LAMCO since March, 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).
Mary Joan Hoene Senior Vice President and Senior Vice President and Chief Compliance
(Age 55) Chief Compliance Officer Officer of the Columbia Funds, the Galaxy
since 2005 Funds, Nations Funds and of the Liberty
All-Star Funds since August, 2004 and the BACAP
Registered Hedge Funds and Columbia Management
Multi-Strategy Hedge Fund since October, 2004;
(formerly, Partner, Carter, Ledyard & Milburn
LLP from January, 2001 to August, 2004;
Counsel, Carter, Ledyard & Milburn LLP from
November, 1999 to December, 2000; Vice
President and Counsel, Equitable Life Assurance
Society of the United States from April, 1998
to November, 1999).
J. Kevin Connaughton Treasurer since 2005 Treasurer of the Columbia Funds and Liberty
(Age 40) All-Star Funds since December, 2000; Vice
President of Columbia Management Advisors since
April, 2003; (formerly, President of the Columbia
Funds from February, 2004 to October, 2004; Chief
-19-
POSITION WITH FUND AND YEAR
FIRST ELECTED OR APPOINTED PRINCIPAL OCCUPATION(S)
NAME/AGE AND ADDRESS(1) TO OFFICE DURING PAST FIVE YEARS
----------------------- --------- ----------------------
Accounting Officer and Controller of the Liberty
Funds and of the Liberty All-Star Funds from
February, 1998 to October, 2000); Treasurer of
the Galaxy Funds since September, 2002;
(formerly, Treasurer from December, 2002 to
December, 2004 and President from February, 2004
to December, 2004 of Columbia Management
Multi-Strategy Hedge Fund, LLC; Vice President of
Colonial Management Associates, Inc. from February,
1998 to October, 2000).
Michael G. Clarke Chief Accounting Officer Chief Accounting Officer of the Columbia Funds
(Age 35) since 2005 and of the Liberty All-Star Funds since October,
2004; (formerly, Controller of the Columbia Funds
and of the Liberty All-Star Funds from May, 2004
to October, 2004; Assistant Treasurer from June,
2002 to May, 2004; Vice President, Product
Strategy & Development of the Liberty Funds Group
from February, 2001 to June, 2002; Assistant
Treasurer of the Liberty Funds and of the Liberty
All-Star Funds from August, 1999 to February,
2001; Audit Manager Deloitte & Touche LLP from
May, 1997 to August, 1999).
Jeffery R. Coleman Controller since 2005 Controller of the Columbia Funds and Liberty
(Age 35) All-Star Funds since October, 2004; (formerly,
Vice President of CDC IXIS Asset Management
Services, Inc. and Deputy Treasurer of the CDC
Nvest Funds and Loomis Sayles Funds from
February, 2003 to September, 2004; Assistant Vice
President of CDC IXIS Asset Management Services,
Inc.. and Assistant Treasurer of the CDC Nvest
Funds from August, 2000 to February, 2003; Tax
Manager of PFPC Inc. from November, 1996 to
August, 2000).
David A. Rozenson Secretary Secretary of the Liberty All-Star Funds since
(Age 50) since 2005 December, 2003; Associate General Council of
Bank of America Corporation since April, 2004;
Senior Counsel, Fleet Boston Financial
Corporation from January, 1996 to April 2004;
Associate General Counsel, Columbia Management
Group from November, 2002 to 2004.
---------------------------
(1) The address of each officer is One Financial Center, Boston, MA 02111-2621.
Messers. Connaughton, Clarke and Coleman and Ms. Hoene hold the same offices
with the Columbia Funds Complex. Each officer of the Fund serves at the pleasure
of the Board.
-20-
The term of office of the Trustee will expire on the final adjournment of
the Annual Meeting (or special meeting in lieu thereof) in the year specified in
the table above.
The Funds' officers are elected each year by the Board at the first meeting
of the Board held after the annual meeting of shareholders. Each Fund officer
holds office until the meeting of the Board following the next annual meeting of
shareholders, until his or her successor is duly elected by the Board and
qualified, or his or her removal, resignation or death.
Role of the Board of Trustees
-----------------------------
The Board of All-Star is responsible for the overall management and
supervision of All-Star's affairs and for protecting the interests of the
shareholders. The Board will meet periodically throughout the year to oversee
All-Star's activities, review contractual arrangements with service providers
for All-Star and review All-Star's performance.
Standing Committees
-------------------
As of the date of this SAI, the Fund was new and had not yet established any
standing committees.
Share Ownership
---------------
Since All-Star has not yet commenced operations, the sole Trustee does not
own All-Star shares as of the date of this SAI. The following table shows the
dollar range of equity securities beneficially owned by the Trustee as of
December 31, 2004 (i) in the Fund, and (ii) in all funds overseen by the Trustee
in the family of investment companies.
Aggregate Dollar Range of
Equity Securities Owned
in All Funds Overseen
Name of Sole by Trustee in Family of
Disinterested Trustee Investment Companies(2)
--------------------- -----------------------
John J. Neuhauser(1)............... Over $100,000
------------
(1)Trustee also serves as a trustee/director of Columbia Fund Complex.
(2)Securities valued as of December 31, 2004.
As of December 31, 2004, neither the sole Disinterested Trustee nor any of
his immediate family members owned beneficially or of record any class of
securities of Bank of America Corporation, LAMCO, another investment advisor,
sub-advisor or Portfolio Manager of the Fund or any person controlling,
controlled by or under common control with any such entity (except as noted in
the next paragraph).
-21-
During the calendar years ended December 31, 2004 and December 31, 2003,
neither the sole Disinterested Trustee nor any of his immediate family members
had any direct or indirect interest in BAS, LAMCO, a Portfolio Manager or any
person controlling, controlled by or under common control with BAS, LAMCO or a
Portfolio Manager.
During the calendar years ended December 31, 2004 and December 31, 2003,
neither the sole Disinterested Trustee nor any of his immediate family members
had any direct or indirect material interest in any transaction or series of
similar transactions with (i) a fund managed by LAMCO, a Portfolio Manager or a
person controlling, controlled by or under common control with LAMCO or a
Portfolio Manager; (ii) LAMCO or a portfolio manager; (iii) any person
controlling, controlled by or under common control with LAMCO or a portfolio
manager; or (iv) an officer of any of the above.
During the calendar years ended December 31, 2004 and December 31, 2003,
neither the sole Disinterested Trustee nor any of his immediate family members
had any direct or indirect relationship with (i) a fund managed by LAMCO,a
Portfolio Manager or a person controlling, controlled by or under common control
with LAMCO or a Portfolio Manager; (ii) LAMCO or a Portfolio Manager; (iii) a
person controlling, controlled by or under common control with LAMCO or a
Portfolio Manager; or (iv) an officer of any of the above.
During the calendar years ended December 31, 2004 and December 31, 2003, no
officer of LAMCO, a Portfolio Manager or any person controlling, controlled by
or under common control with LAMCO or a Portfolio Manager served on the board of
directors of a company where the sole Disinterested Trustee or any of his
immediate family members served as an officer.
Board Consideration in Approving the Investment Advisory Contracts
------------------------------------------------------------------
To be filed by amendment.
General
-------
All-Star's Board will be divided into three classes, each of which has a
term of three years expiring with the annual meeting of shareholders in the
third year of the term. All-Star holds annual meetings of shareholders to vote
on, among other things, the election or re-election of the Trustees whose terms
are expiring with that meeting. The terms of ____________expire in 2006,
_________ expire in 2007 and _____________________ expire in 2008. All-Star's
sole Trustee is also a Trustee/Director of Liberty All-Star Growth Fund, Inc.
and Liberty All-Star Equity Fund, other closed-end multi-managed funds managed
by LAMCO.
Trustee Compensation
--------------------
The following table shows, for the year ended December 31, 2004, the
compensation received from All-Star by the sole Trustee, and the aggregate
compensation paid to the Trustee for service on the Board of the All-Star Equity
Fund and the All-Star Growth Fund. All-Star has no bonus, profit sharing or
retirement plans.
-22-
Compensation Table
------------------
Estimated
Aggregate Pension or Retirement
Compensation Benefits Accrued as Estimated Annual
From the Part of Fund Benefits Upon Total Compensation
Name of Trustee Fund(1) Expenses Retirement from the Fund Complex
--------------- ------- -------- ---------- ---------------------
John J. Neuhauser $0 $0 To be filed by amendment.
(1) Since the Fund has not completed its first fiscal year, compensation is estimated based upon payments to be made by
the Fund during the current fiscal year ending December 31, 2005.
Portfolio Managers
FIDUCIARY MANAGEMENT, INC. ("FIDUCIARY MANAGEMENT")
OTHER ACCOUNTS. The portion of the Fund allocated to Fiduciary Management
will be managed by the firm's investment policy committee, consisting of Ted D.
Kellner, Donald S. Wilson, Patrick J. English, Bladen J. Burns and John S.
Brandser. The table below provides information regarding the other accounts
managed by the investment policy committee. As of December 31, 2004:
Number of Accounts
Number of Managed for which Assets Managed for
Accounts Total Assets Advisory Fee is which Advisory Fee is
Type of Account Managed Managed Performance-Based Performance-Based
Investment Policy
Committee
Registered Investment 2 $450,000,000 None None
Companies
Other pooled investment 0 N/A None None
vehicle
Other accounts 321 $ 1,428,900,000 None None
COMPENSATION. All investment professionals are compensated with a base
salary and an incentive bonus. Each investment professional is reviewed
biannually. His or her incentive bonus is determined based upon his or her
contribution to the team and the firm's performance. The amount of the bonus is
subjective and is determined by the firm's senior partners. The firm makes an
annual contribution for each investment professional to the firm's retirement
and profit sharing plan. In addition, investment professionals are given the
opportunity to become equity owners in the firm.
M.A. WEATHERBIE & Co., Inc. ("M.A. Weatherbie")
OTHER ACCOUNTS. The portion of the Fund allocated to M.A. Weatherbie will be
managed by Matthew A. Weatherbie. The table below provides information regarding
the other accounts managed by Matthew A. Weatherbie.
As of December 31, 2004:
-23-
Number of Accounts
Number of Managed for which Assets Managed for
Accounts Total Assets Advisory Fee is which Advisory Fee is
Type of Account Managed Managed Performance-Based Performance-Based
Registered Investment 2 $240,000,000 None None
Companies
Other pooled investment 1 $89,000,000 1 $89,000,000
vehicle
Other accounts 90 $1,964,000,000 None None
COMPENSATION STRUCTURE. As the sole owner of M.A. Weatherbie, Matthew A.
Weatherbie's compensation is directly related to the overall profitability of
M.A. Weatherbie.
MAZAMA CAPITAL MANAGEMENT, INC. ("MAZAMA")
OTHER ACCOUNTS. The portion of the Fund allocated to Mazama will be managed
by an Investment Team comprised of portfolio managers and research analysts,
including Ronald A. Sauer, Stephen C. Brink, Gretchen M. Novak, Timothy P.
Butler and Michael D. Clulow. The table below provides information regarding the
other accounts managed by the Investment Team.
As of December 31, 2004:
Number of Accounts
Number of Managed for which Assets Managed for
Accounts Total Assets Advisory Fee is which Advisory Fee is
Type of Account Managed Managed Performance-Based Performance-Based
Registered Investment
Companies 10 $1,220,000,000 0 0
Other pooled investment
vehicle 6 $ 190,000,000 0 0
Other accounts 64 $4,230,000,000 1 $104,000,000
COMPENSATION STRUCTURE. Mazama's compensation structure is designed to
attract and retain highly skilled investment professionals. The compensation is
structured to maximize performance and keep the interests of each member of our
portfolio management team aligned with those of our clients.
Each Portfolio Manager and Research Analyst ("Investment Team") receives a
base salary representing 20-30% of cash compensation and a performance based
incentive representing 70-80% of cash compensation. The performance based
incentive compensation is based on the portfolio management fees received by
Mazama for all accounts under management. The Investment Team manages the
portfolios in aggregate terms, focusing on the overall strategy, which is then
implemented at the portfolio level. In other words, the Investment Team does not
distinguish between different accounts within each investment style/strategy
with respect to compensation. Instead, they are compensated based on overall
fees received by the firm. This incentive compensation structure keeps each
member of the team focused on the relative performance of the aggregate
portfolio versus its benchmark. Cash compensation increases as assets under
management increase, whether by appreciation or by attracting new clients, both
-24-
of which are accomplished by achieving higher than average excess returns.
Excess returns are measured as the difference between our portfolio returns and
those of the Russell 3000 Growth Index.
Equity incentives have been a significant part of Mazama's compensation plan
since the firm's inception. In total, including founding equity, our Investment
Team represents over 70% of the equity of the firm on a fully diluted basis.
Every member of the Investment Team is either a direct equity owner or an option
holder or both.
SCHNEIDER CAPITAL MANAGEMENT CORPORATION ("SCHNEIDER")
OTHER ACCOUNTS. The portion of the Fund allocated to Schneider will be
managed by Arnold C. Schneider III. The table below provides information about
the other accounts managed by Mr. Schneider.
As of December 31, 2004:
Number of Accounts
Number of Managed for which Assets Managed for
Accounts Total Assets Advisory Fee is which Advisory Fee is
Type of Account Managed Managed Performance-Based Performance-Based
Registered Investment
Companies 8 $ 778,000,000 None None
Other pooled investment
vehicle 7 $ 637,000,000 None None
Other accounts 40 $2,415,000,000 None None
COMPENSATION STRUCTURE. Mr. Schneider receives a fixed base salary and a
bonus that is based upon the overall profitability of the firm.
Description of Certain Material Conflicts of Interest
-----------------------------------------------------
Material conflicts of interest may arise when an individual with day-to-day
management responsibilities for the Fund also manages other funds or accounts.
(Information regarding other funds, pooled investment vehicles and accounts
managed by the Fund' portfolio managers is set forth in tables above.) These
potential material conflicts of interest include the following conflicts:
ALLOCATION OF LIMITED INVESTMENT OPPORTUNITIES. From time to time an
investment opportunity that is suitable for multiple funds and/or accounts may
be limited. In such circumstances the opportunity will have to be allocated
among the funds and/or accounts managed by a portfolio manager, decreasing the
Fund's ability to participate in the investment opportunity.
TIME AND FOCUS. A portfolio manager who manages several funds and/or
accounts may not devote equal time and attention to all of these funds and/or
accounts. This may adversely affect the portfolio manager's performance with
respect to the funds and/or accounts to which he or she devotes less time.
-25-
BROKER-DEALER SELECTION. Some broker-dealers provide portfolio managers with
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934), which may result in higher brokerage fees.
(See "Portfolio Security Transactions" below.) These services may benefit
certain funds or account more than others. Although the payment of commissions
is subject to the requirement that a portfolio manager determines in good faith
that the commissions are reasonable in relation to he value of the brokerage and
research services provided to the fund, a portfolio manager's decision as to the
selection of brokers and dealers could yield disproportionate costs and benefits
among the funds and/or accounts that he or she manages.
COMPENSATION DIFFERENCES. To the extent a fund or account compensates a
portfolio manager (either directly or indirectly by paying the portfolio
manager's firm) more than other funds or accounts, the portfolio manager might
have an economic incentive for certain funds or accounts to succeed more than
others. This may be the case where an advisory fee is greater, where a fund or
account pays a performance-based fee or where the portfolio manager or his or
her firm has an interest in the fund or account.
ADDITIONAL BUSINESS. LAMCO, the Portfolio Managers or their affiliates may
provide more service for some funds or accounts than for others. For example, an
affiliate may provide distribution, recordkeeping or administration services for
one fund but not for others. This may result in a portfolio manager benefiting,
either directly or indirectly, from some funds over others.
Each of the Portfolio Managers has trade allocation and other policies and
procedures that it believes are reasonably designed to address these and other
conflicts of interest.
PORTFOLIO SECURITY TRANSACTIONS
Each of All-Star's Portfolio Managers has discretion to select brokers and
dealers to execute portfolio transactions initiated by the Portfolio Manager for
the portion of All-Star's portfolio assets allocated to it, and to select the
markets in which such transactions are to be executed. The Portfolio Management
Agreements with All-Star provide, in substance, that, except as provided in the
following paragraph, in executing portfolio transactions and selecting brokers
or dealers, the primary responsibility of the Portfolio Manager is to seek to
obtain best net price and execution for All-Star. It is expected that securities
will ordinarily be purchased in the primary markets, and that, in assessing the
best net price and execution available to All-Star, the Portfolio Manager will
consider all factors it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of the commission, if
any, for the specific transaction and on a continuing basis. Recognizing these
factors, All-Star may pay a brokerage commission in excess of that which another
broker or dealer may have charged for effecting the same transaction.
The Portfolio Management Agreements also provide that LAMCO has the right to
request that transactions giving rise to brokerage commissions, in amounts to be
agreed upon from time to time between LAMCO and the Portfolio Manager, be
-26-
executed by brokers and dealers (to be agreed upon from time to time between
LAMCO and the Portfolio Manager) which provide, directly or through third
parties, research products and services to LAMCO or to All-Star. The commissions
paid on such transactions may exceed the amount of commissions another broker
would have charged for effecting that transaction. Research products and
services made available to LAMCO through brokers and dealers executing
transactions for All-Star involving brokerage commissions include performance,
portfolio characteristics, investment style and other qualitative and
quantitative data relating to investment managers in general and the Portfolio
Managers in particular; data relating to the historic performance of categories
of securities associated with particular investment styles; mutual fund
portfolio, performance and fee and expense data; data relating to portfolio
manager changes by pension plan fiduciaries; quotation equipment; and related
computer hardware and software, all of which are used by LAMCO in connection
with its selection and monitoring of portfolio managers (including the Portfolio
Managers) for All-Star and other multi-managed clients of LAMCO, the assembly of
a mix of investment styles appropriate to the investment objective of All-Star
or such other clients, and the determination of overall portfolio strategies.
LAMCO from time to time reaches understandings with each of the Portfolio
Managers as to the amount of the All-Star portfolio transactions initiated by
such Portfolio Manager that are to be directed to brokers and dealers which
provide or make available research products and services to LAMCO and the
commissions to be charged to All-Star in connection therewith. These amounts may
differ among the Portfolio Managers based on the nature of the markets for the
types of securities managed by them and other factors.
These research products and services are used by LAMCO in connection with
its management of All-Star, Liberty All-Star Equity Fund, Liberty All-Star
Growth Fund, Inc., and other multi-managed clients of LAMCO, regardless of the
source of the brokerage commissions. In instances where LAMCO receives from
broker-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,
and pays for the costs attributable to the non-research usage in cash.
The Portfolio Managers are authorized to cause All-Star to pay a commission
to a broker or dealer who provides research products and services to the
Portfolio Manager for executing a portfolio transaction which is in excess of
the amount of commission another broker or dealer would have charged for
effecting that transaction. The Portfolio Managers must determine in good faith,
however, that such commission was reasonable in relation to the value of the
research products and services provided to them, viewed in terms of that
particular transaction or in terms of all the client accounts (including
All-Star) over which the Portfolio Manager exercises investment discretion. It
is possible that certain of the services received by a Portfolio Manager
attributable to a particular transaction will primarily benefit one or more
other accounts for which investment discretion is exercised by the Portfolio
Manager.
Although All-Star does not permit a Portfolio Manager to act or have an
affiliate act as broker for Fund portfolio transactions initiated by it, the
Portfolio Managers are permitted to place Fund portfolio transactions initiated
-27-
by them with another Portfolio Manager or its broker-dealer affiliate for
execution on an agency basis, provided the commission does not exceed the usual
and customary broker's commission being paid to other brokers for comparable
transactions and is otherwise in compliance with Rule 17e-1 under the Investment
Company Act of 1940, as amended.
TAXES
The following discussion of federal income tax matters is based on the
advice of Kirkpatrick & Lockhart Nicholson Graham LLP, counsel to All-Star. The
following is a summary of the material federal income tax consequences with
respect to the purchase, ownership and disposition of shares of beneficial
interest (the "Shares"). The discussion is based upon the Internal Revenue Code,
Treasury regulations, court decisions, published positions of the Internal
Revenue Service (the "IRS") and other applicable authorities, all as in effect
on the date hereof and all of which are subject to change or differing
interpretations (possibly with retroactive effect). The discussion is limited to
U.S. persons who hold shares of the Fund as capital assets for federal income
tax purposes (generally, assets held for investment). This summary does not
address all of the federal income tax consequences that may be relevant to a
particular shareholder or to shareholders who may be subject to special
treatment under federal income tax laws. No ruling has been or will be obtained
from the IRS regarding any matter relating to the issuance of the Shares. No
assurance can be given that the IRS would not assert a position contrary to any
of the tax aspects described below. Prospective investors must consult their own
tax advisers as to the federal income tax consequences of the purchase,
ownership and disposition of the Shares, as well as the effects of state, local
and non-U.S. tax laws.
All-Star intends to elect to be treated and to qualify each year as a RIC
under the Internal Revenue Code (the "Code"). Accordingly, All-Star intends to
satisfy certain requirements relating to sources of its income and
diversification of its assets and to distribute substantially all of its net
income and net short-term and long-term capital gains (after reduction by any
available capital loss carryforwards) in accordance with the timing requirements
imposed by the Code, so as to maintain its RIC status and to avoid paying any
federal income or excise tax. To the extent it qualifies for treatment as a RIC
and satisfies the above-mentioned distribution requirements, All-Star will not
be subject to federal income tax on income paid to its shareholders in the form
of dividends or capital gain distributions.
In order to avoid incurring a federal excise tax obligation, the Code
requires that All-Star distribute (or be deemed to have distributed) by December
31 of each calendar year an amount at least equal to the sum of (i) 98% of its
ordinary income for such year and (ii) 98% of its capital gain net income (which
is the excess of its realized net long-term capital gain over its realized net
short-term capital loss), generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss
carryforwards, plus 100% of any ordinary income and capital gain net income from
the prior year (as previously computed) that were not paid out during such year
and on which All-Star paid no federal income tax. Under current law, provided
that All-Star qualifies as a RIC for federal income tax purposes, All-Star
should not be liable for any income, corporate excise or franchise tax in the
Commonwealth of Massachusetts.
-28-
If All-Star does not qualify as a RIC for any taxable year, All-Star's
taxable income will be subject to corporate income taxes, and all distributions
from earnings and profits, including distributions of net capital gain (if any),
will be taxable to the shareholder as ordinary income. In addition, in order to
requalify for taxation as a RIC, All-Star may be required to recognize
unrealized gains, pay substantial taxes and interest, and make certain
distributions.
All-Star's investments in options, futures contracts, hedging transactions,
forward contracts (to the extent permitted) and certain other transactions will
be subject to special tax rules (including mark-to-market, constructive sale,
straddle, wash sale, short sale and other rules), the effect of which may be to
accelerate income to All-Star, defer Fund losses, cause adjustments in the
holding periods of securities held by All-Star, convert capital gain into
ordinary income and convert short-term capital losses into long-term capital
losses. These rules could therefore affect the amount, timing and character of
distributions to shareholders. All-Star may be required to limit its activities
in options and futures contracts in order to enable it to maintain its RIC
status.
Any loss realized upon the sale or exchange of Fund shares with a holding
period of 6 months or less will be disallowed to the extent of any dividends
received with respect to such shares, and if the loss exceeds the disallowed
amount, will be treated as a long-term capital loss to the extent of any capital
gain distributions received with respect to such shares. In addition, all or a
portion of a loss realized on a disposition of Fund shares may be disallowed
under "wash sale" rules to the extent the shareholder acquires other shares of
All-Star within the period beginning 30 days before the disposition of the loss
shares and ending 30 days after such date. Any disallowed loss will result in an
adjustment to the shareholder's tax basis in some or all of the other shares
acquired.
Dividends and distributions on All-Star's shares are generally subject to
federal income tax as described herein to the extent they do not exceed
All-Star's current year and accumulated earnings and profits, even though such
dividends and distributions may economically represent a return of a particular
shareholder's investment. Such distributions are likely to occur in respect of
shares purchased at a time when All-Star's net asset value reflects gains that
are either unrealized, or realized but not distributed. Such realized gains may
be required to be distributed even when All-Star's net asset value also reflects
unrealized losses. Certain distributions declared in October, November or
December and paid in the following January will be taxed to shareholders as if
received on December 31 of the year in which they were declared, to the extent
they do not exceed current year and accumulated earnings and profits.
Distributions in excess of the funds current year and accumulated earnings and
profits will be treated as a return of capital to the investor and therefore not
taxable as a dividend. In addition, certain other distributions made after the
close of a taxable year of All-Star may be "spilled back" and treated as paid by
All-Star (except for purposes of the nondeductible 4% federal excise tax) during
such taxable year. In such case, Shareholders will be treated as having received
such dividends in the taxable year in which the distributions were actually
made.
In general, distributions of investment income properly designated by
All-Star as derived from qualified dividend income may be treated as qualified
dividend income by a shareholder taxed as an individual provided the shareholder
meets the holding period and other requirements described above with respect to
his or her shares. Only qualified dividend income received by All-Star after
-29-
December 31, 2002 is eligible for pass-through treatment. If the aggregate
qualified dividends received by a fund during any taxable year are 95% or more
of its gross income, then 100% of All-Star's dividends (other than properly
designated capital gain dividends) will be eligible to be treated as qualified
dividend income. For this purpose, the only gain included in the term "gross
income" is the excess of net short-term capital gain over net long-term capital
loss.
Amounts paid by All-Star to individuals and certain other shareholders who
have not provided All-Star with their correct taxpayer identification number
("TIN") and certain certifications required by the Internal Revenue Service (the
"IRS") as well as shareholders with respect to whom All-Star has received
certain information from the IRS or a broker may be subject to "backup"
withholding of federal income tax arising from All-Star's taxable dividends and
other distributions (as well as the gross proceeds of sales of shares), at a
rate of 28% for amounts paid during 2005. An individual's TIN is generally his
or her social security number. Backup withholding is not an additional tax. Any
amounts withheld under the backup withholding rules from payments made to a
Shareholder may be refunded or credited against such shareholder's U.S. federal
income tax liability, if any, provided that the required information is
furnished to the IRS.
PRINCIPAL SHAREHOLDERS
As of , 2005, all officers and Trustees of All-Star as a group owned less
than 1% of the Fund's outstanding shares.
As of , 2005, the following persons owned of record the number of
shares noted below, representing the indicated percentage of the Fund's
outstanding equity securities as of such date. To the knowledge of the Fund, no
other person owned of record or beneficially 5% or more of the Fund's
outstanding equity securities on such date.
Percentage of the Fund's
------------------------
Shareholder Number of Shares outstanding shares
----------- --------------- ------------------
100%
FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP, are the independent registered public accounting
firm for the Fund. PricewaterhouseCoopers LLP provides audit and tax return
review services and assistance and consultation in connection with the review of
various Securities and Exchange Commission filings.
-30-
APPENDIX A
PROXY VOTING GUIDELINES
To be filed by amendment.
T
PART C -- OTHER INFORMATION
ITEM 25. FINANCIAL STATEMENTS AND EXHIBITS
1. Financial Statements:
Report of Independent Auditors.
Statement of Assets and Liabilities.
2. Exhibits:
a. Declaration of Trust (filed herewith)
b. By-Laws (filed herewith)
c. Voting Trust Agreement - Not applicable
d. Articles V, VI, VIII AND IX of the Declaration of Trust and
Articles III, IX, XI, XII and XIII of the By-Laws.
e. Dividend Reinvestment Plan (to be filed)
f. Rights of Holders of Long-Term Debt - Not applicable
g. (1) Form of Fund Management Agreement (to be filed)
(2) Form of Portfolio Management Agreement between (to be filed)
(3) Form of Portfolio Management Agreement between (to be filed)
(4) Form of Portfolio Management Agreement between (to be filed)
(5) Form of Portfolio Management Agreement between (to be filed)
h. (1) Form of Underwriting Agreement (to be filed)
(2) Master Agreement among Underwriters (to be filed)
(3) Dealer Agreement (to be filed)
i. Bonus, Profit Sharing, Pension Contracts (None)
j. Form of Custodian Agreement (to be filed)
k. (1) Form of Transfer Agency and Service Agreement (to be filed)
(2) Form of Administration Agreement (to be filed)
l. Opinion and Consent of Counsel (to be filed)
m. N/A
n. Consent of Independent Auditors (to be filed)
o. Omitted Financial Statements (None)
p. Letter of Investment Intent (to be filed)
q. Model Retirement Plan - Not applicable
r. Code of Ethics
(1) Fund (to be filed)
(2) Adviser (to be filed)
(3) Sub-Advisers (to be filed)
(4) Underwriter (to be filed)
ITEM 26. MARKETING ARRANGEMENTS
(To be provided by Amendment).
ITEM 27. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses to be incurred in connection
with the offering described in this Registration Statement:
Securities and Exchange Commission Fees............... $[ ]
New York Stock Exchange Listing Fees.................. [ ]
NASD, Inc. Fees .................................... [ ]
Federal Taxes .................................... [ ]
State Taxes and Fees.................................. [ ]
Printing and Engraving Expenses....................... [ ]
Legal Fees .................................... [ ]
Trustee Fees .................................... [ ]
Accounting Expenses................................... [ ]
Miscellaneous Expenses................................ [ ]
Total .................................... $
============
[ ]
============
ITEM 28. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
(To be provided by amendment)
ITEM 29. NUMBER OF HOLDERS OF SECURITIES
NUMBER OF RECORD STOCKHOLDERS AS OF
TITLE OF CLASS MARCH 22, 2005
-------------- --------------
Shares of beneficial interest, par
value $0.0001 per share One
ITEM 30. INDEMNIFICATION
Provisions of Article V of the Declaration of Trust as filed as Exhibit
(a) hereto states:
SECTION 5.1 NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES, ETC. No
Shareholder shall be subject to any personal liability whatsoever to any Person
C-2
in connection with Trust Property or the acts, obligations or affairs of the
Trust. All Persons dealing or contracting with the Trustees as such or with the
Trust or having any claim against the Trust shall have recourse only to the
Trust for the payment of their claims or for the payment or satisfaction of
claims, obligations or liabilities arising our of such dealings or contracts. No
Trustee, officer, employee or agent of the Trust whether past, present or
future, shall be subject to any personal liability whatsoever to any Person,
other than the Trust or its Shareholders, in connection with Trust Property or
the affairs of the Trust, save only that arising from bad faith, willful
misfeasance, gross negligence or reckless disregard for his duty to such Person;
and all such Persons shall look solely to the Trust Property for satisfaction of
claims of any nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee, or agent as such, of the Trust, is made
a party to any suit or proceeding to enforce any such liability, he shall not,
on account thereof, be held to any personal liability. The Trust shall indemnify
and hold each Shareholder harmless from and against all claims and liabilities
to which such Shareholder may become subject by reason of his being or having
been a Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonable incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.1 shall not
exclude any other right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though not
specifically provided herein.
SECTION 5.2 NON-LIABILITY OF TRUSTEE, ETC. No Trustee, officer, employee
or agent of the Trust shall be liable to the Trust, its Shareholders, or to any
Shareholder, Trustee, officer, employee, or agent thereof for any action or
failure to act (including without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of trust) except for his own
bad faith, willful misfeasance, gross negligence or reckless disregard of his
duties involved in the conduct of his office.
SECTION 5.3 MANDATORY INDEMNIFICATION. (a) Subject to the exceptions
and limitations contained in paragraph (b) below:
(i) every person who is or has been a Trustee or officer of the
Trust shall be indemnified by the Trust to the fullest extent permitted by law
against all liability and against all expenses reasonable incurred or paid by
him in connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a Trustee
or officer and against amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal,
administrative or other, including appeals), actual or threatened; and the words
"liability" and "expenses" shall include, without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust or the Shareholders by reason
of a final adjudication by the court or other body before which the proceeding
C-3
was brought that he engaged in willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his office:
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable belief
that his action was in the best interest of the Trust
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i) or (b)(ii)
resulting in a payment by a Trustee or officer, unless there has been either a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office by the court or other body approving the
settlement or other disposition or a reasonable determination, based upon a
review of readily available facts (as opposed to a full trial-type inquiry) that
he did not engage in such conduct:
(A) by vote of a majority of the Disinterested Trustees acting on
the matter (provided that a majority of the Disinterested Trustees then in
office act on the matter); or
(B) by written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee or officer may now or hereafter be entitled,
shall continue as to a Person who has ceased to be such Trustee or officer and
shall inure to the benefit of the heirs, executors, administrators, and assigns
of such Person. Noting contained herein shall affect any rights to
indemnification to which personnel of the Trust other than Trustees and officers
may be entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit, or proceeding of the character described in paragraph (a) of this
Section 5.3 shall be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the recipient to repay such
amount if it is ultimately determined that he is not entitled to indemnification
under this Section 5.3, provided that either
(i) such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against losses arising out of
any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office act on
the matter) or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 5.3, a "Disinterested Trustee" is one (i) who is
not an "Interested Person" of the Trust (including anyone who has been exempted
from being an "Interested Person" by any rule, regulation or order of the
C-4
Commission, and (ii) against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or had been pending.
SECTION 5.4 NO BOND REQUIRED OF TRUSTEES. No Trustee shall be obligated to
give any bond or other security for the performance of any of his duties
hereunder.
SECTION 5.5 NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS, etc. No
purchaser, lender, transfer agent or other Person dealing with the Trustees or
any officer, employee or agent of the Trust shall be bound to make any inquiry
concerning the validity of any transaction purporting to be made by the Trustees
or by said officer, employee or agent or be liable for the application of money
or property paid, loaned, or delivered to or on the order of the Trustees or of
said officer, employee or agent. Every obligation, contract, instrument,
certificate, Share, other security of the Trust or undertaking, and every other
act or thing whatsoever executed in connection with the Trust shall be
conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under the Declaration or in their capacity as
officers, employees or agents of the Trust. Every written obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking made
or issued by the Trustees shall recite that the same is executed or made by them
not individually, but as Trustees under the Declaration, and that the
obligations of the Trust under any such instrument are not binding upon any of
the Trustees or Shareholders, individually, but bind only the trust estate, and
may contain any further recital which they or he may deem appropriate, but the
omission of such recital shall not operate to bind the Trustees or Shareholders
individually. The Trustees shall at all times maintain insurance for the
protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.
SECTION 5.6 RELIANCE ON EXPERTS, ETC. Each Trustee and officer or employee
of the Trust shall, in the performance of his duties, be fully and completely
justified and protected with regard to any act or any failure to act resulting
from reliance in good faith upon the books of account or other records of the
Trust, upon any opinion of counsel, or upon reports made to the trust by any of
its officers or employees selected dealers, accountants, appraisers or other
experts or consultants selected with reasonable care by the Trustees, officers
or employees of the Trust, regardless of whether such counsel or expert may also
be a Trustee.
C-5
ITEM 31. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Liberty Asset Management Company, the Registrant's Fund Manager, was
organized on August 16, 1985 and is primarily engaged in the corporate
administration of and the provision of its multi-management services for the
Registrant, Liberty All-Star Equity Fund, and Liberty All-Star Growth Fund,
other multi-managed closed-end investment companies. It also provides its
multi-management services to Liberty All-Star Equity Fund, Variable Series, a
multi-managed open-end investment company which serves as an investment vehicle
for variable annuity contracts issued by affiliated insurance companies.
Information regarding the business of Liberty Asset Management Company and
its officers and directors is set forth in the Prospectus and in the Statement
of Additional Information and is incorporated herein by reference.
ITEM 32. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended ("1940 Act"),
and the rules promulgated thereunder with respect to the Registrant are
maintained at its principal executive offices at One Financial Center, Boston,
MA 02111. Certain records, including records relating to Registrant's
shareholders and the physical possession of its securities, may be maintained
pursuant to Rule 31a-3 at the main office of Registrant's transfer agent or
custodian.
ITEM 33. MANAGEMENT SERVICES
None.
ITEM 34. UNDERTAKINGS
1. The Registrant hereby undertakes to suspend the offering of its
shares until it amends its Prospectus if:
(1) subsequent to the effective date of this Registration Statement,
the net asset value per share declines more than 10% from its net asset
value per share as of the effective date of the Registration Statement; or
(2) the net asset value increases to an amount greater than its net
proceeds as stated in the Prospectus.
2. N/A
3. N/A
4. N/A
C-6
5. The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the 1933 Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant under Rule 497(h) under the 1933 Act
shall be deemed to be part of this Registration Statement as of the time
it was declared effective; and
(2) For the purposes of determining any liability under the 1933
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
6. The Registrant hereby undertakes to send by first class mail or
other means designed to ensure equally prompt delivery, within two
business days of receipt of a written or oral request, its Statement of
Additional Information.
C-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Boston, and the State of Massachusetts, on the 22nd day of March, 2005.
LIBERTY ALL-STAR MID-CAP FUND
By: /s/ William R. Parmentier, Jr.
----------------------------------
Name: William R. Parmentier., Jr.
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President and Chief
/s/ William R. Parmentier, Jr. Executive Officer 3-22-05
------------------------------- -------
William R. Parmentier, Jr.
/s/ J. Kevin Connaughton Treasurer 3-22-05
------------------------------- -------
J. Kevin Connaughton
/s/ John J. Neuhauser Sole Trustee 3-22-05
------------------------------- -------
John J. Neuhauser
LIBERTY ALL-STAR MID-CAP FUND
EXHIBIT INDEX
EXHIBIT DOCUMENT DESCRIPTION
------- --------------------
1. Declaration of Trust
2. By-Laws