PORTFOLIO MANAGEMENT AGREEMENT
November 1, 2001
Mastrapasqua & Associates, Inc.
000 Xxxxxx Xxxxxx - Xxxxx 000
Xxxxxxxxx, XX 00000
Re: Portfolio Management Agreement
Ladies and Gentlemen:
Liberty All-Star Equity Fund (the "Fund") is a diversified closed-end
investment company registered under the Investment Company Act of 1940 (the
"Act"), and is subject to the rules and regulations promulgated thereunder.
Liberty Asset Management Company (the "Fund Manager") evaluates and
recommends portfolio managers for the assets of the Fund, and is responsible for
the day-to-day administration of the Fund.
1. Employment as a Portfolio Manager. The Fund being duly authorized hereby
employs Xxxxxxxxxxxx & Associates, Inc. (the "Portfolio Manager") as a
discretionary portfolio manager, on the terms and conditions set forth herein,
of that portion of the Fund's assets which the Fund Manager determines to assign
to the Portfolio Manager (those assets being referred to as the "Portfolio
Manager Account"). The Fund Manager may, from time to time, allocate and
reallocate the Fund's assets among the Portfolio Manager and the other portfolio
managers of the Fund's assets.
2. Acceptance of Employment; Standard of Performance. The Portfolio Manager
accepts its employment as a discretionary portfolio manager and agrees to use
its best professional judgment to make timely investment decisions for the
Portfolio Manager Account in accordance with the provisions of this Agreement.
3. Portfolio Management Services of Portfolio Manager. In providing
portfolio management services to the Portfolio Manager Account, the Portfolio
Manager shall be subject to the investment objectives, policies and restrictions
of the Fund as set forth in its current Registration Statement under the Act, as
the same may be modified from time to time (the "Registration Statement"), and
the investment restrictions set forth in the Act and the Rules thereunder (as
and to the extent set forth in the Registration Statement or in other
documentation furnished to the Portfolio Manager by the Fund or the Fund
Manager), to the supervision and control of the Board of Trustees of the Fund,
and to instructions from the Fund Manager. The Portfolio Manager shall not,
without the prior approval of the Fund or the Fund Manager, effect any
transactions which would cause the Portfolio Manager Account, treated as a
separate fund, to be out of compliance with any of such restrictions or
policies.
4. Transaction Procedures. All portfolio transactions for the Portfolio
Manager Account will be consummated by payment to or delivery by the custodian
of the Fund (the "Custodian"), or such depositories or agents as may be
designated by the Custodian in writing, as custodian for the Fund, of all cash
and/or securities due to or from the Portfolio Manager Account, and the
Portfolio Manager shall not have possession or custody thereof or any
responsibility or liability with respect to such custody. The Portfolio Manager
shall advise and confirm in writing to the Custodian all investment orders for
the Portfolio Manager Account placed by it with brokers and dealers at the time
and in the manner set forth in Schedule A hereto (as amended from time to time
by the Fund Manager). The Fund shall issue to the Custodian such instructions as
may be appropriate in connection with the settlement of any transaction
initiated by the Portfolio Manager. The Fund shall be responsible for all
custodial arrangements and the payment of all custodial charges and fees, and,
upon giving proper instructions to the Custodian, the Portfolio Manager shall
have no responsibility or liability with respect to custodial arrangements or
the acts, omissions or other conduct of the Custodian.
5. Allocation of Brokerage. The Portfolio Manager shall have authority and
discretion to select brokers and dealers to execute portfolio transactions
initiated by the Portfolio Manager for the Portfolio Manager Account, and to
select the markets on or in which the transaction will be executed.
A. In doing so, the Portfolio Manager's primary responsibility shall be
to seek to obtain best net price and execution for the Fund. However, this
responsibility shall not obligate the Portfolio Manager to solicit
competitive bids for each transaction or to seek the lowest available
commission cost to the Fund, so long as the Portfolio Manager reasonably
believes that the broker or dealer selected by it can be expected to obtain
a "best execution" market price on the particular transaction and determines
in good faith that the commission cost is reasonable in relation to the
value of the brokerage and research services (as defined in Section 28(e)(3)
of the Securities Exchange Act of 1934) provided by such broker or dealer to
the Portfolio Manager viewed in terms of either that particular transaction
or of the Portfolio Manager's overall responsibilities with respect to its
clients, including the Fund, as to which the Portfolio Manager exercises
investment discretion, notwithstanding that the Fund may not be the direct
or exclusive beneficiary of any such services or that another broker may be
willing to charge the Fund a lower commission on the particular transaction.
B. Subject to the requirements of paragraph A above, the Fund Manager
shall have the right to request that transactions giving rise to brokerage
commissions, in an amount to be agreed upon by the Fund Manager and the
Portfolio Manager, shall be executed by brokers and dealers that provide
brokerage or research services to the Fund Manager, or as to which an
on-going relationship will be of value to the Fund in the management of its
assets, which services and relationship may, but need not, be of direct
benefit to the Portfolio Manager Account.
C. The Portfolio Manager shall not execute any portfolio transactions
for the Portfolio Manager Account with itself or any broker or dealer which
is an "affiliated person" (as defined in the Act) of the Fund, the Portfolio
Manager or any other Portfolio Manager of the Fund without the prior written
approval of the Fund except in accordance with SEC Exemptive Order No. 24288
dated February 15, 2000, a copy of which has been furnished to the Portfolio
Manager, and Rule 17e-1 procedures as approved by the Fund's Trustees from
time to time. The Fund Manager will provide the Portfolio Manager with a
list of brokers and dealers which are "affiliated persons" of the Fund or
its Portfolio Managers.
6. Proxies. The Fund will vote or direct the voting of all proxies solicited
by or with respect to the issuers of securities in which assets of the Fund
Account may be invested in accordance with authorization provided by the Fund
Manager from time to time.
7. Fees for Services. The compensation of the Portfolio Manager for its
services under this Agreement shall be calculated and paid by the Fund Manager
in accordance with the attached Schedule C. Pursuant to the Fund Management
Agreement between the Fund and the Fund Manager, the Fund Manager is solely
responsible for the payment of fees to the Portfolio Manager, and the Portfolio
Manager agrees to seek payment of its fees solely from the Fund Manager.
8. Other Investment Activities of Portfolio Manager. The Fund acknowledges
that the Portfolio Manager or one or more of its affiliates has investment
responsibilities, renders investment advice to and performs other investment
advisory services for other individuals or entities ("Client Accounts"), and
that the Portfolio Manager, its affiliates or any of its or their directors,
members, officers, agents or employees may buy, sell or trade in any securities
for its or their respective accounts ("Affiliated Accounts"). Subject to the
provisions of paragraph 2 hereof, the Fund agrees that the Portfolio Manager or
its affiliates may give advice or exercise investment responsibility and take
such other action with respect to other Client Accounts and Affiliated Accounts
which may differ from the advice given or the timing or nature of action taken
with respect to the Portfolio Manager Account, provided that the Portfolio
Manager acts in good faith, and provided further, that it is the Portfolio
Manager's policy to allocate, within its reasonable discretion, investment
opportunities to the Portfolio Manager Account over a period of time on a fair
and equitable basis relative to the Client Accounts and the Affiliated Accounts,
taking into account the cash position and the investment objectives and policies
of the Fund and any specific investment restrictions applicable thereto. The
Fund acknowledges that one or more Client Accounts and Affiliated Accounts may
at any time hold, acquire, increase, decrease, dispose of or otherwise deal with
positions in investments in which the Portfolio Manager Account may have an
interest from time to time, whether in transactions which involve the Portfolio
Manager Account or otherwise. The Portfolio Manager shall have no obligation to
acquire for the Portfolio Manager Account a position in any investment which any
Client Account or Affiliated Account may acquire, and the Fund shall have no
first refusal, co-investment or other rights in respect of any such investment,
either for the Portfolio Manager Account or otherwise.
9. Limitation of Liability. The Portfolio Manager shall not be liable for
any action taken, omitted or suffered to be taken by it in its reasonable
judgment, in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Agreement, or in
accordance with (or in the absence of) specific directions or instructions from
the Fund, provided, however, that such acts or omissions shall not have resulted
from the Portfolio Manager's willful misfeasance, bad faith or gross negligence,
a violation of the standard of care established by and applicable to the
Portfolio Manager in its actions under this Agreement or breach of its duty or
of its obligations hereunder (provided, however, that the foregoing shall not be
construed to protect the Portfolio Manager from liability in violation of
Section 17 of the Act).
10. Confidentiality. Subject to the duty of the Portfolio Manager and the
Fund to comply with applicable law, including any demand of any regulatory or
taxing authority having jurisdiction, the parties hereto shall treat as
confidential all information pertaining to the Portfolio Manager Account and the
actions of the Portfolio Manager and the Fund in respect thereof.
11. Assignment. This Agreement shall terminate automatically in the event of
its assignment, as that term is defined in Section 2(a)(4) of the Act. The
Portfolio Manager shall notify the Fund in writing sufficiently in advance of
any proposed change of control, as defined in Section 2(a)(9) of the Act, as
will enable the Fund to consider whether an assignment as defined in Section
2(a)(4) of the Act will occur, and whether to take the steps necessary to enter
into a new contract with the Portfolio Manager.
12. Representations, Warranties and Agreements of the Fund. The Fund represents,
warrants and agrees that:
A. The Portfolio Manager has been duly appointed to provide investment
services to the Portfolio Manager Account as contemplated hereby.
B. The Fund has delivered to the Portfolio Manager such instructions
governing the investment of the Portfolio Manager Account as is necessary
for the Portfolio Manager to carry out its obligations under this Agreement.
C. Upon certification by the Portfolio Manager that it has adopted a
written code of ethics and procedures reasonably necessary to prevent access
persons, as defined by said code of ethics, from violating the anti-fraud
provisions of Rule 17j-1 under the Act, the Fund will not unreasonably
withhold its approval of the code of ethics adopted by the Portfolio Manager
provided that the Portfolio Manager certifies to the Fund that in all other
material respects the Portfolio Manager's code of ethics complies with Rule
17j-1.
13. Representations, Warranties and Agreements of the Portfolio Manager. The
Portfolio Manager represents, warrants and agrees that:
A. It is registered as an "Investment Adviser" under the Investment
Advisers Act of 1940 ("Advisers Act").
B. It will maintain, keep current and preserve on behalf of the Fund, in
the manner required or permitted by the Act and the Rules thereunder, the
records identified in Schedule B (as Schedule B may be amended from time to
time by the Fund Manager). The Portfolio Manager agrees that such records
are the property of the Fund, and will be surrendered to the Fund promptly
upon request.
C. It will adopt and maintain a written code of ethics complying with
the requirements of Rule 17j-1 and submit same and any amendments thereto
promptly to the Fund, but not less often than annually. The Portfolio
Manager agrees that it will notify the Fund within 15 days of adopting
material changes to its code of ethics. While this Agreement is in effect,
an officer or general partner of the Portfolio Manager shall certify
annually to the Fund that the Portfolio Manager has complied with the
requirements of Rule 17j-1 during the previous year and has procedures
reasonably necessary to prevent access persons from violating the Portfolio
Manager's code of ethics. On an annual basis, the Portfolio Manager shall
provide a written report to the Fund describing any issues arising under its
code of ethics or procedures since the last report was so submitted,
including information about material violations of the code or procedures
and any action taken in response to such violations. Upon the written
request of the Fund, the Portfolio Manager shall permit the Fund to examine
the reports required to be maintained by the Portfolio Manager under Rule
17j-1(c)(l).
D. Upon request, the Portfolio Manager will promptly supply the Fund
with any information concerning the Portfolio Manager and its stockholders,
employees and affiliates which the Fund may reasonably require in connection
with the preparation of its Registration Statement or amendments thereto,
proxy material, reports and other documents required to be filed under the
Act, the Securities Act of 1933, or other applicable securities laws.
14. Amendment. This Agreement may be amended at any time, but (except for
Schedules A and B which may be amended by the Fund Manager acting alone) only by
written agreement among the Portfolio Manager, the Fund Manager and the Fund,
which amendment, other than amendments to Schedules A and B, is subject to the
approval of the Board of Trustees and the Shareholders of the Fund as and to the
extent required by the Act.
15. Effective Date; Term. This Agreement shall continue until July 31, 2003
and from year to year thereafter provided such continuance is specifically
approved at least annually by (i) the Fund's Board of Trustees or (ii) a vote of
a "majority" (as defined in the Act) of the Fund's outstanding voting
securities, provided that in either event such continuance is also approved by a
majority of the Board of Trustees who are not "interested persons" (as defined
in the Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. The aforesaid requirement
that continuance of this Agreement be "specifically approved at least annually"
shall be construed in a manner consistent with the Act and the Rules and
Regulations thereunder.
16. Termination. This Agreement may be terminated by any party, without
penalty, immediately upon written notice to the other parties in the event of a
breach of any provision thereof by a party so notified, or otherwise upon not
less than thirty (30) days' written notice to the Portfolio Manager in the case
of termination by the Fund or the Fund Manager, or ninety (90) days' written
notice to the Fund and the Fund Manager in the case of termination by the
Portfolio Manager, but any such termination shall not affect the status,
obligations or liabilities of any party hereto to the other parties.
17. Applicable Law. To the extent that state law is not preempted by the
provisions of any law of the United States heretofore or hereafter enacted, as
the same may be amended from time to time, this Agreement shall be administered,
construed and enforced according to the laws of the Commonwealth of
Massachusetts.
18. Severability. If any term or condition of this Agreement shall be
invalid or unenforceable to any extent or in any application, then the remainder
of this Agreement, and such term or condition except to such extent or in such
application, shall not be affected thereby, and each and every term and
condition of this Agreement shall be valid and enforced to the fullest extent
and in the broadest application permitted by law.
IN WITNESS WHEREOF, the parties have hereunto set their hands as of the date
first written above.
LIBERTY ALL-STAR EQUITY FUND
By: ________________________________________
Title:
LIBERTY ASSET MANAGEMENT COMPANY
By: ________________________________________
Title:
ACCEPTED:
XXXXXXXXXXXX & ASSOCIATES, INC.
By: ________________________________________
Title:
XXXXXXXXXXXX & ASSOCIATES, INC.
By: ________________________________________
Title:
SCHEDULES: A. Operational Procedures For Portfolio Transactions [omitted]
B. Record Keeping Requirements
C. Fee Schedule
LIBERTY ALL-STAR EQUITY FUND
Portfolio Management Agreement
SCHEDULE B
RECORDS TO BE MAINTAINED BY THE PORTFOLIO MANAGER
1. (Rule 31a-1(b)(5) and (6)) A record of each brokerage order, and all other
portfolio purchases and sales, given by the Portfolio Manager on behalf of
the Fund for, or in connection with, the purchase or sale of securities,
whether executed or unexecuted. Such records shall include:
A. The name of the broker;
B. The terms and conditions of the order and of any modifications or
cancellation thereof;
C. The time of entry or cancellation;
D. The price at which executed;
E. The time of receipt of a report of execution; and
F. The name of the person who placed the order on behalf of the Fund.
2. (Rule 31a-1(b)(9)) A record for each fiscal quarter, completed within ten
(10) days after the end of the quarter, showing specifically the basis or
bases upon which the allocation of orders for the purchase and sale of
portfolio securities to named brokers or dealers was effected, and the
division of brokerage commissions or other compensation on such purchase and
sale orders. Such record:
A. Shall include the consideration given to:
(i)The sale of shares of the Fund by brokers or dealers.
(ii)The supplying of services or benefits by brokers or dealers to:
(a) The Fund;
(b) The Manager (Liberty Asset Management Company);
(c) The Portfolio Manager; and
(d) Any person other than the foregoing.
(iii)Any other consideration other than the technical qualifications of
the brokers and dealers as such.
B. Shall show the nature of the services or benefits made available.
C. Shall describe in detail the application of any general or specific
formula or other determinant used in arriving at such allocation of
purchase and sale orders and such division of brokerage commissions or
other compensation.
D. The name of the person responsible for making the determination of
such allocation and such division of brokerage
commissions or other compensation.
3. (Rule 31a-1(b)(10)) A record in the form of an appropriate memorandum
identifying the person or persons, committees or groups authorizing the
purchase or sale of portfolio securities. Where an authorization is made by a
committee or group, a record shall be kept of the names of its members who
participate in the authorization. There shall be retained as part of this
record: any memorandum, recommendation or instruction supporting or
authorizing the purchase or sale of portfolio securities and such other
information as is appropriate to support the authorization.1
4. (Rule 31a-1(f)) Such accounts, books and other documents as are required to
be maintained by registered investment advisers by rule adopted under Section
204 of the Investment Advisers Act of 1940, to the extent such records are
necessary or appropriate to record the Portfolio Manager's transactions with
the Fund.
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1 Such information might include: the current Form 10-K, annual and quarterly
reports, press releases, reports by analysts and from brokerage firms
(including their recommendation: i.e., buy, sell, hold) or any internal
reports or portfolio manager reviews.
SCHEDULE C
PORTFOLIO MANAGER FEE
For services provided to the Fund Account, the Fund Manager will pay to the
Portfolio Manager, on or before the 10th day of each calendar month, a monthly
fee for the previous calendar month in the amount of 1/12(th) of: 0.40% of the
amount obtained by multiplying the Portfolio Manager's Percentage (as
hereinafter defined) times the Average Total Fund Net Assets (as hereinafter
defined) up to $400 million; 0.36% of the amount obtained by multiplying the
Portfolio Manager's Percentage times the Average Total Fund Net Assets exceeding
$400 million up to and including $800 million; 0.324% of the amount obtained by
multiplying the Portfolio Manager's Percentage times the Average Total Fund Net
Assets exceeding $800 million up to and including $1.2 billion; 0.292% of the
amount obtained by multiplying the Portfolio Manager's Percentage times the
Average Total Fund Net Assets exceeding $1.2 billion.
"Portfolio Manager's Percentage" means the percentage obtained by dividing
(i) the average of the net asset values of the Fund Account as of the close of
the last business day of the New York Stock Exchange in each calendar week
during the preceding calendar month, by (ii) the Average Total Fund Net Assets.
"Average Total Fund Net Assets" means the average of the net asset values of
the Fund as a whole as of the close of the last business day of the New York
Stock Exchange in each calendar week during the preceding calendar month.
The fee shall be pro-rated for any month during which this Agreement is in
effect for only a portion of the month.
