[Back Cover]
Fund Manager
Liberty Asset Management Company
Federal Reserve Plaza
600 Atlantic Avenue
Boston, Massachusetts 02210-2214
1-617-722-6036
Independent Auditors
KPMG Peat Marwick LLP
One Boston Place, Boston, Massachusetts 02108
Investor Assistance
Custodian, Transfer and Dividend
Disbursing Agent and Registrar
State Street Bank and Trust Company
P.O. Box 8200, Boston, Massachusetts 02266-8200
1-800-LIB-FUND (1-800-542-3863)
Legal Counsel
Bingham, Dana & Gould
150 Federal Street, Boston, Massachusetts 02110
Trustees
Robert J. Birnbaum*
James E. Grinnell*
Richard W. Lowry*
Richard I. Roberts
Officers
Richard I. Roberts, Chairman, Board of Trustees
Richard R. Christensen, President
William R. Parmentier, Jr., Vice President
Peter L. Lydecker, Treasurer and Controller
John A. Benning, Secretary
New York Stock Exchange Trading Symbol: USA
*Member of the audit committee.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Fund may from time to time purchase
its shares of beneficial interest in the open market when the shares are
trading at a discount of 10 percent or more from their net asset value.
[Liberty logo]
Printed with Soybean Inks
["Recycled" symbol] Printed on Recycled Paper D/69M/11-95
<PAGE>
[Front cover]
LIBERTY
ALL*STAR
EQUITY FUND
3rd
Quarter Report
1995
<PAGE>
Liberty ALL*STAR Equity Fund
Third Quarter Report
Chairman's Letter
- -------------------------------------------------------------------------------
Fund Performance for the third quarter and the three quarters ended September
30, 1995 earned by ALL-STAR's Portfolio Managers. Figures shown for ALL-STAR
and the Lipper Growth & Income Mutual Fund Average are total returns, which
include income, less fees and other operating expenses. Figures shown for the
unmanaged S&P 500 and Dow Jones indices include income.
Third First Three
Quarter Quarters, 1995
----------------- ---------------
ALL-STAR:
Net Asset Value 7.7% 28.6%
Market Price 6.5% 31.5%
Lipper Growth & Income
Mutual Fund Average 7.1% 24.9%
S&P 500 Stock Index 7.9% 29.7%
Dow Jones Industrial
Average 5.7% 27.2%
ALL-STAR Closing Price
Range 10-5/8 - 9-3/4 10-5/8 - 8-1/2
ALL-STAR Discount/Premium
Range -3.6% to -0.7% to
-10.3% -10.3%
- -------------------------------------------------------------------------------
To Our Fellow Shareholders: November 1995
The net asset value (NAV) of a common share of ALL-STAR rose from $10.53 on
June 30, 1995 to $11.05 on September 30, 1995, after deducting the cash
distribution of 27 cents paid to shareholders during the quarter. The market
price of a share of ALL-STAR traded in a range from $9.75 to $10.625 before
closing the quarter at $10.375. The ending price represented a discount to
NAV of 6.1 percent, compared with a discount to NAV of 5.0 percent on June
30, 1995. Key investment results and comparisons are noted in the box.
The third quarter showed a continuation of the bullish stock market results
of the first and second quarters. As the box on the left shows, ALL-STAR was
up 7.7%, which compares favorably with 7.1% for the Lipper Growth and Income
Average (ALL-STAR's primary benchmark comparison) and 7.9% for the S&P 500
Index. And for the nine months, the numbers were up 28.6%, 24.9% and 29.7%,
respectively. Clearly, investment performance thus far in 1995 has been
amazing, both in magnitude and quarter-to-quarter consistency.
However, these nine months results are not the best for comparable periods
in ALL-STAR's history. Nor in the past has the Fund's results for the first
nine months of a year proven a useful indicator of either the magnitude or
direction for the full year, as the following sample shows:
Nine
Months Full Year
Year Return Return
- ----- ---------- ----------
1987 31.1% (1.0%)
1989 29.5 30.0
1991 25.3 39.3
1995 28.6 ?
It has been well-publicized that powerful demand-pull has been propelling
stock prices higher, with demand coming from equity mutual funds, employee
benefit plans, other institutional investors and investors generally. In some
places, it is said that this has been a period of investor mania. But no
matter how it is characterized, numerous fundamental conditions have been
favorable for the up move. Corporate profits have generally been excellent,
with interest rates and inflation low and consumer sentiment positive.
It is axiomatic that the higher stock prices go, the more difficult it is
for them to make continuing meaningful progress. And, presently, virtually
all market indices are on very high ground. Reasonable care and caution seems
in order.
I also direct your attention to Richard Christensen's President's Letter
and John Lindenthal's comments in the Manager Profile. I think you will find
them interesting.
Sincerely,
/s/ Richard I. Roberts
Richard I. Roberts, Chairman
Board of Trustees
Liberty ALL-STAR Equity Fund
<PAGE>
Liberty ALL*STAR Equity Fund
Third Quarter Report
President's Letter
To Our Fellow Shareholders:
November 1995
As discussed in the Chairman's letter, the stock market's advance continued
unabated during the third quarter. Returns during that time were strongest
for smaller capitalization issues, as the S&P Mid-Cap Index outperformed the
S&P 500 Index by almost 2%. There was also a wide disparity in sector returns
with financial and health care stocks posting returns almost double that of
the overall market. Technology stocks, which provided market leadership for
the first half of the year, underperformed by a small amount for the third
quarter.
In previous letters we have discussed various aspects of LAMCO's
multi-management process. An important part of this process is the continuing
evaluation of the Portfolio Managers compared with their respective peer
groups. From time to time, we replace a manager when we believe such
replacement will enhance the Fund's ability to achieve the dual objectives of
better than average return and less than average volatility compared with
other growth and income funds, growth and income being the commonly used
industry category that corresponds to All-Star's investment objective.
We seek three fundamental attributes in a manager:
(bullet) Compatibility with the basic nature of the Fund, which is designed to
be a core domestic growth and income equity fund. In addition, we seek
a distinctive style that is consistently followed and is different from
and complementary to those of the other Portfolio Managers to reduce
the overall volatility of the Fund.
(bullet) Good long-term investment performance relative to its peer group.
(bullet) Consistency of investment philosophy, decision making process and
organization through time.
Manager searches have both quantitative and qualitative aspects. We start
with a universe of over two thousand institutional managers whose style could
logically fit into the Fund's team of managers (these managers typically
manage corporate pension plans, university endowment funds and the like).
Then we use a series of quantitative, computer-based screens, including
long-term investment performance, to narrow down the list. The final step is
a series of intensive interviews to understand in depth the investment
philosophy, decision making process and organization of each of the
finalists. Then we choose the manager we consider to be the best for the Fund
and so recommend to the Board of Trustees for approval.
On a final note, LAMCO is pleased to announce that the transactions were
consummated on November 6, 1995 whereby The Charles Allmon Trust, Inc., a
closed-end fund traded on the New York Stock Exchange, is now managed
entirely by LAMCO and renamed Liberty All-Star Growth Fund, Inc. (New York
Stock Exchange ticker symbol: ASG). Please also note our new address and
telephone number on the back cover of this report.
Sincerely,
Richard R. Christensen
Richard R. Christensen, President
Liberty All-Star Equity Fund and
Liberty Asset Management Company
<PAGE>
Commentary
Managers' Differing Investment Styles
Are Reflected in Portfolio Characteristics
The Portfolio Characteristics table on this page is a regular feature of
ALL-STAR shareholder reports. It serves as a useful tool for understanding
the value of a multi-managed portfolio. The characteristics are different
for each of ALL-STAR's five investment managers. These differences are a
reflection of the fact that each pursues an individual Investment Style. The
shaded column highlights the characteristics of ALL-STAR as a whole, while
the final column shows portfolio characteristics for the entire S&P 500 Stock
Index.
The Styles practiced by ALL-STAR's five investment managers are:
Cooke & Bieler, Inc./Value--
Companies with sound fundamentals: seasoned, well-managed and financially
strong.
Oppenheimer Capital/Value--
Contrarian holdings being overlooked and undervalued by investors.
Palley-Needelman Asset Management, Inc./Value--
Large capitalization companies with attractive valuations, sound fundamentals
and good prospects.
Columbus Circle Investors/Growth--
Companies whose growing earnings are not fully reflected in their share
prices.
Provident Investment Counsel, Inc./Growth--
Companies with fast growing earnings and bright prospects.
Portfolio Characteristics
<TABLE>
<CAPTION>
as of VALUE STYLES GROWTH STYLES
September 30, 1995 ---------------------------- -----------------
Cooke
& Palley- Columbus Total S&P
Bieler Oppenheimer Needelman Circle Provident ALL-STAR 500 Index
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio Number of
1. Holdings 33 29 37 50 60 175 500
Percent in
2. Top Ten 44% 45% 31% 31% 36% 15% 18%
--------------------------------------------------------------------------------------------------------------------
Size and Average Sales
Debt or Revenues
3. (billions) $12.4 $12.4 $13.8 $11.7 $8.9 $11.8 $22.7
Average
Debt/Capital
4. Ratio 23% 48% 35% 28% 33% 33% 33%
--------------------------------------------------------------------------------------------------------------------
Profit- Average
ability Return on
5. Total Capital 19% 13% 10% 15% 18% 15% 14%
Average
Return on
6. Equity 23% 21% 16% 20% 23% 21% 21%
--------------------------------------------------------------------------------------------------------------------
Growth Average
5-Year Sales
Per Share
7. Growth 7% 13% 5% 16% 20% 13% 10%
Average
5-Year
Earnings
Per Share
8. Growth 12% 25% 20% 29% 31% 24% 20%
--------------------------------------------------------------------------------------------------------------------
Yield Dividend
9. Yield 2.8% 1.6% 2.6% 1.1% 0.6% 1.7% 2.4%
Average
5-Year
Dividend
10. Payout Ratio 52% 32% 52% 27% 13% 35% 47%
--------------------------------------------------------------------------------------------------------------------
Valuation Average
Price/Earnings
11. Ratio 16.5x 14.5x 14.1x 19.3x 26.4x 17.4x 16.4x
Average
Price/Book
12. Value Ratio 3.0x 2.6x 2.1x 3.1x 5.2x 2.9x 2.8x
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LIBERTY ALL*STAR EQUITY FUND
Major Stock Changes in the
Third Quarter
The following are the major ($2.5 million or more) stock changes--both
additions and reductions--that were made in ALL-STAR's portfolio during the
third quarter of 1995.
Shares
------------------------------------
Held
Name Additions Reductions 9-30-95
- ----------------------------------------------------------------------
American Express Co. 80,000 80,000
Brunswick Corp. 150,000 150,000
Capital Cities/ABC, Inc. 23,100 80,400
Champion International Corp. 46,600 146,600
Chemical Banking Corp. 56,800 56,800
Dayton Hudson Corp. 50,000 50,000
Deere & Co. 30,100 30,100
Georgia-Pacific Corp. 37,400 37,400
Kimberly Clark Corp. 64,400 64,400
LSI Logic Corp. 82,600 82,600
MCI Communications Corp. 134,400 134,400
Pitney Bowes Inc. 66,000 180,000
Upjohn Co. 139,400 139,400
Ahmanson (H.F.) & Co. (139,100) 0
AMP, Inc. (72,400) 0
American Telephone & Telegraph (40,700) 39,300
Applied Materials, Inc. (26,600) 55,600
Baker Hughes Inc. (155,000) 0
General Motors Corp. (95,000) 0
Hanson PLC ADR (220,000) 0
Intel Corp. (113,800) 180,000
International Business
Machines Corp. (41,000) 60,000
McDonalds Corp. (78,000) 0
Pacific Telesis Group (92,000) 103,000
Pfizer, Inc.* (71,600) 0
Procter & Gamble Co. (102,600) 0
Ryder Systems, Inc. (163,200) 0
Shawmut National Corp. (100,000) 0
SmithKline Beecham PLC ADR (97,200) 57,100
Texas Instruments, Inc.* (19,700) 50,000
Warnaco Group, Inc. Class A (300,000) 0
*Adjusted for stock split
Shareholders'
Investment Growth
A report on per-share
values, distributions and
reinvestment since
ALL-STAR's inception
Since its inception, ALL-STAR has maintained an optional Automatic Dividend
Reinvestment and Cash Purchase Plan, whereby distributions are automatically
used to acquire additional shares of ALL-STAR. In addition, three rights
offerings have allowed investors to acquire additional shares. The rights
offering in April 1992 allowed investors to acquire one share at $10.05 for
every ten shares held, the one in October 1993 allowed investors to acquire
one share at $10.41 for every 15 shares held; and the one in September 1994
allowed investors to acquire one share at $9.14 for every 15 shares held.
As the graph on the facing page shows, an original share, including the
rights offering and dividend reinvestment shares, has grown to a net asset
value of $35.15 (3.18 shares times the current $11.05 net asset value per
share) and a market price value of $33.01 (3.18 times $10.375). Excluding the
rights offering shares, an original share has grown to 2.58 shares. Thus, the
original share has grown to a net asset value of $28.50 (2.58 shares times
the current $11.05 net asset value per share) and a market price value of
$26.76 (2.58 times $10.375).
Long Term Investment
Performance Update
-----------------------------------------------------------------------------
Annualized through September 30, 1995
1 Year 3 Years 5 Years
---------------------------------
ALL-STAR 26.3% 13.7% 18.0%
ALL-STAR
(Distributions Reinvested) 26.4% 13.7% 18.1%
Lipper Growth &
Income Mutual Fund Average 22.9% 13.3% 15.5%
Standard & Poor's
500 Stock Index 29.6% 14.9% 17.2%
Dow Jones Industrial Average 27.9% 16.7% 17.7%
-----------------------------------------------------------------------------
<PAGE>
- ------------------------------[mountain chart] ------------------------------
[plot points]
-----------------------------------------------------------------------------
Shares Shares Shares
Owned at Per Purchased Acquired
Beginning Share Through Through
of Distri- Reinvestment Rights
Year Period butions Program Offering
------------------------------------------------------------
1987 1.00 $1.18 .14 --
------------------------------------------------------------
1988 1.14 $0.64 .11 --
------------------------------------------------------------
1989 1.25 $0.95 .16 --
------------------------------------------------------------
1990 1.40 $0.90 .17 --
------------------------------------------------------------
1991 1.57 $1.02 .17 --
------------------------------------------------------------
1992 1.74 $1.07 .20 0.18 (2)
------------------------------------------------------------
1993 2.12 $1.25(5) .25 0.14 (3)
------------------------------------------------------------
1994 2.52 $1.00 .28 .016(4)
------------------------------------------------------------
1995
1st Quarter 2.95 $0.24 .07 --
2nd Quarter 3.03 $0.25 .08 --
3rd Quarter 3.10 $0.27 .08 --
NAV(1) Price
Shares Per Total Per
Owned Share NAV Share Total
at End at End of at End Price
of of Shares of Shares
Year Period Period Owned Period Owned
---------------------------------------------------------------------
1987 1.14 $ 7.90 $ 9.01 6 $ 6.85
---------------------------------------------------------------------
1988 1.25 $ 8.29 $10.33 7-1/4 $ 9.04
---------------------------------------------------------------------
1989 1.40 $ 9.58 $13.43 8-1/4 $11.57
---------------------------------------------------------------------
1990 1.57 $ 8.92 $13.99 7-3/4 $12.16
---------------------------------------------------------------------
1991 1.74 $11.20 $19.49 10-3/4 $18.71
---------------------------------------------------------------------
1992 2.12 $10.78 $22.81 11-1/8 $23.54
---------------------------------------------------------------------
1993 2.52 $10.40 $26.20 11-1/8 $28.03
---------------------------------------------------------------------
1994 2.95 $ 9.26 $27.34 8-1/2 $25.09
---------------------------------------------------------------------
1995
1st Quarter 3.03 $ 9.83 $29.74 9-5/8 $29.12
2nd Quarter 3.10 $10.53 $32.65 10 $31.01
3rd Quarter 3.18 $11.05 $35.15 10-3/8 $33.01
1) Net Asset Value
2) Rights offering completed in April 1992. One share offered at $10.05 for
every ten shares owned.
3) Rights offering completed in October 1993. One share offered at $10.41 for
every 15 shares owned.
4) Rights offering completed in September 1994. One share offered at $9.14
for every 15 shares owned.
5) Includes the $0.18 per share tax credit passed through to shareholders,
which was assumed to be reinvested at the year-end price of 11-1/8.
<PAGE>
LIBERTY ALL*STAR EQUITY FUND
Top 50
Holdings
As of
September 30, 1995
Rank % of
as of Value Net
Rank 6/30/95 Security Name ($000) Assets
------------------------------------------------------------------------------
1 3 Citicorp $14,907 1.7%
2 4 Microsoft Corp. 12,580 1.5
3 14 Nokia Corp. ADR 12,220 1.4
4 7 Monsanto Company 12,211 1.4
5 12 Ericsson (L.M.) Telephone Co.
Class B ADR 11,657 1.4
6 9 Motorola Inc. 11,456 1.3
7 2 Royal Dutch Petroleum Co. 11,428 1.3
8 6 May Department Stores Co. 11,375 1.3
9 8 Avon Products, Inc. 10,884 1.3
10 1 Intel Corp. 10,823 1.3
11 16 Raytheon Co. 10,455 1.2
12 20 Medtronic Inc. 10,041 1.2
13 13 McDonnell Douglas Corp. 9,930 1.2
14 5 Capital Cities/ABC Inc. 9,457 1.1
15 10 Oracle Systems Corp. 9,108 1.1
16 15 Federal Home Loan Mortgage Corp. 8,848 1.0
17 19 Merck & Co. 8,288 1.0
18 77 Cisco Systems, Inc. 8,004 0.9
19 53 Amgen, Inc. 7,920 0.9
20 50 Champion International Corp. 7,898 0.9
21 26 American Greetings Corp. 7,820 0.9
22 71 Pitney Bowes Inc. 7,560 0.9
23 33 American International Group, Inc. 7,459 0.9
24 17 Marsh & McLennan Companies, Inc. 7,382 0.9
25 31 EXEL Limited 7,266 0.8
26 25 Triton Energy Corp. 7,256 0.8
27 23 Exxon Corp. 7,225 0.8
28 27 Readers Digest Association Inc. Class A 7,163 0.8
29 21 Union Camp Corp. 7,163 0.8
30 29 Dover Corp. 6,962 0.8
31 34 First Data Corp. 6,956 0.8
32 36 Arrow Electronics Inc. 6,797 0.8
33 30 Unilever N.V. 6,500 0.8
34 35 General Electric Co. 6,375 0.7
35 42 The Dun & Bradstreet Corp. 6,366 0.7
36 48 Bank of New York, Inc. 6,282 0.7
37 NEW Upjohn Co. 6,221 0.7
38 41 Sprint Corp. 6,125 0.7
39 32 Computer Associates International, Inc. 6,078 0.7
40 54 Genuine Parts Co. 5,898 0.7
41 58 Travelers Group, Inc. 5,844 0.7
42 46 Progressive Corp. 5,818 0.7
43 37 AFLAC Inc. 5,810 0.7
44 47 State Street Boston Corp. 5,800 0.7
45 92 Office Depot Inc. 5,781 0.7
46 44 Morgan Stanley Group, Inc. 5,768 0.7
47 51 Warner Lambert Co. 5,715 0.7
48 64 Transamerica Corporation 5,700 0.7
49 22 Applied Materials, Inc. 5,685 0.7
50 11 International Business Machines Corp. 5,663 0.7
<PAGE>
ALL*STAR
[Photo] John G. Lindenthal
John G. Lindenthal
Oppenheimer Capital
Manager Profile
Why Oppenheimer Capital Finds Value in Excess Cash Flow And Industrial Position
Oppenheimer Capital is one of ALL-STAR's five portfolio management companies.
Oppenheimer is a Value Style Manager investing in the stocks of quality
companies with sound business prospects that are considered undervalued
because they are either currently disliked or are being overlooked by
investors. Research focuses on cash flow analysis. Purchase candidates
exhibit a high return on equity, large undedicated cash flow and reasonable
prices in relation to book value. Recently, we had the opportunity to talk
with Managing Director John G. Lindenthal, ALL-STAR's Portfolio Manager at
Oppenheimer.
LAMCO: Other than manager roundtables, the last time we had the opportunity to
talk with you was the Semi-Annual Report in 1993. So, for newer shareholders as
well as for those who have been invested in ALL-STAR for some time it may be a
good idea to revisit Oppenheimer's philosophy and investment approach.
Lindenthal: Our philosophy and our investment style have always been Value.
Value to us is what is created by a well-positioned corporation and by the
process of excess cash flow generation, which we define as funds available
after spending to maintain the industrial position of the company. What a
management team does with the excess cash flow is vital. It can allocate to
new investment opportunities if high return opportunities are present, it can
buy back stock, it can pay down debt, it can make strategic acquisitions or
it can raise the dividend.
Our conviction level that the free cash flow will be available in the future
is based on our analysis of the overall business, although we think that
Value investing is a very dynamic process and is not, in our minds, as
statistically-driven as more traditional Value managers may approach it. In
other words, we believe that the secret to Value investing is to really look
behind the numbers and to get a sense of what is driving those numbers. It
comes down to this: economic value is created by corporations, and how
corporations reinvest those funds in the business is crucial to having a
successful investment.
LAMCO: You use the term "industrial position." Define it for us.
Lindenthal: The industrial position of a company is crucial to us. We want
businesses that are growing and prospering, and we think the single most
important attribute of investing is return on capital. So, we like companies
that generate high returns on capital and we get conviction that those high
returns will be there going forward by doing our analysis of the company's
industrial position. By this, we mean such factors as its market share, its
cost of production, its distribution, its new product opportunities and its
opportunities to cut cost. All of that goes into what we would call the
company's "industrial position."
LAMCO: Turning to the stock market, the technology sector has been very
strong now for quite some time, and although your portfolio is not heavily
invested in technology you have done quite well. But you are overweighted in
financial stocks. Could you discuss how your financial sector weightings have
contributed to performance?
Continued on page 8
<PAGE>
Continued from page 7
...............................................................................
'The industrial position of a company is crucial to us. We want businesses
that are growing and prospering, and we think the single most important
attribute of investing is return on capital.'
...............................................................................
Lindenthal: Yes, I should preface my remarks by saying that we've had an
overweighted position of about one-third of the total portfolio going back to
the early '90s when we first became an ALL-STAR manager. So, even though this
year it has been very rewarding to have a high position in financial stocks,
it is not something that is new to us or to ALL-STAR. This year, financial
stocks have performed well because interest rates have been coming down and
the companies that we own have been doing extremely well.
I should also point out that while the financial stocks we own have benefited
from the lower interest rate environment, there have been previous quarters
when financial stocks have not performed well due to rising interest rates.
However, we don't buy stocks based on an interest rate forecast. We own them
because 1) we like their returns on capital, 2) we think they are very well
managed, and 3) we think management works for the best interests of
shareholders.
We have felt over the last couple of years that valuation levels--that is,
what one gets in relation to what one pays--have been extremely attractive
on both a relative and an absolute basis. We still like financial companies
going forward, although we're selective. It has been a stock-by-stock
or company-by-company approach where we have found a number of stocks that
fit our criteria.
I should also mention that we have had some exposure to technology--about 10
percent of the portfolio--and the four stocks we own have done well.
LAMCO: Mentioning those technology holdings, could you identify them for us?
Lindenthal: We've had positions in Intel, Motorola, Nokia, which is a Finnish
communications company, and Arrow Electronics, which is a distributor of
semiconductors and industrial electronic components.
LAMCO: Are the financial stocks that you mentioned in the Manager Roundtable
in the 1995 Semi-Annual Report still in the portfolio? They are CitiCorp,
Exel, Morgan Stanley and Federal Home Loan Mortgage.
Lindenthal: Yes, they're all still in the portfolio. We did some selective
trimming in our position to consolidate gains, but we still own them all.
LAMCO: That leads us to ask about your selling discipline. Can you describe
it for us?
Lindenthal: At the time we purchase a stock we set both a risk and reward
target. If the stock reaches our target price and nothing has changed, we will
sell the stock. However, if we get new information that enhances our original
position on the stock, then we will raise our target to reflect this new input.
If we get information that our analysis of the company was incorrect, or if the
fundamentals of the company are different than we expected, we will sell the
stock.
LAMCO: In other words, a dynamic process.
Lindenthal: Definitely. We don't see any reason to stick to a target because
it was the price that we initially set if, for instance, the cash flow,
market position or balance sheet improves dramatically. In those cases, we
think we should adjust our target price upward. But it's always a reasoned
process, not just rationalizing a higher stock price.
<PAGE>
ALL*STAR
LAMCO: Is there any such thing as a typical holding period?
Lindenthal: There's no such thing with us, although we generally own things for
a considerable period of time. As I mentioned, we've owned a number of financial
stocks for four or five years. We believe in relationship investing and we
believe in having a dialogue with the company. We have owned some stocks such
as, May Department Stores and General Electric, for more than 10 years.
LAMCO: If you bought a stock and right away it went down 10 or 15 percent,
what would you do?
Lindenthal: There's nothing like a lower price to initiate further reviews of
your position. Yes, we will reexamine our position, and most of the time if
we find that the stock has gone down for market-related reasons we will use
it as an opportunity to add to our position.
LAMCO: Getting back to your fundamental selling discipline, can you give us
an example of a stock that you sold as a result of your sell discipline?
Lindenthal: We recently sold our position in Warnaco, which is a very
profitable women's apparel company based in New York. The reason we sold it
was primarily because the stock had appreciated more than 50 percent this
year and in reexamining the business we found that nothing had really changed
from our initial analysis. So, it reached our target price and we decided to
realize our profit and reinvest in something else. We would add, though, that
Warnaco also decided to take advantage of a higher stock price and sell 9
million new shares to the public, the proceeds of which were to go to
possible acquisition down the road. So, the combination of near-term earnings
dilution with the stock offering and the stock hitting our target price
caused us to sell the stock.
LAMCO: Tell us about some additions to the portfolio, please.
Lindenthal: We have two relatively new additions to the portfolio, the first
being somewhat controversial with us because we have not owned an airline stock
in more than 10 years. However, we took a position in American Airlines and the
reason is that the industry is changing fairly dramatically and American is at
the forefront of this change. We believe that the financial characteristics of
the company are going to change quite substantially--it will go from a net user
of funds to a significant net generator of funds. We think the free or excess
cash flow this year and going forward for the next couple of years will be in
the vicinity of $12 a share. Management tells us that it's going to use the free
cash flow to pay down debt, and we believe that as they do this the asset value
of the company is going to improve. Together with better prospects for the
overall industry, profitability levels are going to rise substantially, we
believe. We also think that American has a significant hidden jewel in its Sabre
reservation system, which we believe generates about $200 million in free cash
flow. In addition, it has more than a 40 percent market share in and outside of
the United States. If it were a business on its own, we believe it would sell at
a
...............................................................................
'If the stock reaches our target price and nothing has changed, we will sell the
stock. However, if we get new information that enhances our original position on
the stock, then we will raise our target to reflect this new input.'
...............................................................................
Continued on page 10
<PAGE>
Continued from page 9
very significant price in the marketplace.
LAMCO: Is American facing major investments to upgrade its fleet any time
soon?
Lindenthal: We think that American has the most up-to-date fleet in the
airline industry--in fact, this year and next year we think American will be
a net seller of airplanes. The concern with American, if there is one, is
that they're still negotiating some labor contracts and, historically, this
has been a difficult process.
LAMCO: Tell us about the other addition to the portfolio.
Lindenthal: We recently added Champion International, which is a large, well
diversified paper company. When we analyzed Champion and looked at its cash
flow statement over the last four or five years we noticed that they spent
upwards of $5 billion in order to upgrade their existing plants. So, we think
Champion's current paper producing plants are state-of-the-art and very, very
valuable. With that spending largely completed and because of favorable
cyclical conditions--in the business cycle, the paper cycle and the pricing
environment--we believe that Champion will earn in the vicinity of $7 a share
this year and about $9 a share next year. An important part of that is excess
cash flow. Further, management this year has paid down substantial amounts of
debt, plus they've repurchased 6 million shares this year. We think both the
debt paydown and the stock repurchase program will extend into next year.
[star]
-----------------------------------------------------------------------------
Dividend Reinvestment Plan
Through ALL-STAR's Automatic Dividend Reinvestment and Cash Purchase Plan,
ALL-STAR shareholders have the opportunity to have their dividends and
distributions automatically reinvested in additional shares of the Fund.
Participating shareholders are kept apprised of the status of their account
through quarterly statements.
For complete information and enrollment forms, please call Investor
Assistance toll-free at 1-800-LIB-FUND (1-800-542-3863) weekdays between 9
AM and 5 PM Eastern time.
-----------------------------------------------------------------------------
<PAGE>
LIBERTY ALL*STAR EQUITY FUND
Schedule of Investments as of September 30, 1995
(Unaudited)
Common Stocks (95.3%)
Shares Market Value
Aerospace (1.7%)
The Boeing Co. 74,000 $ 5,050,500
McDonnell Douglas Corp. 120,000 9,930,000
----------
14,980,500
----------
Agricultural Machinery (0.3%)
Deere & Co. 30,100 2,449,388
----------
Auto Parts (0.9%)
Eaton Corp. 28,800 1,526,400
Genuine Parts Co. 147,000 5,898,375
----------
7,424,775
----------
Banks (4.4%)
Bank of New York, Inc. 135,000 6,282,150
Chemical Banking Corp. 56,800 3,457,000
Citicorp 210,700 14,907,025
CoreStates Financial Corp. 130,000 4,761,250
State Street Boston Corp. 145,000 5,800,000
Wachovia Corp. 70,000 3,018,750
----------
38,226,175
----------
Broadcasting & Cable (2.4%)
British Sky Broadcasting Group PLC ADS (a) 60,000 2,167,500
Cabletron Systems Incorporated (a) 40,000 2,635,000
Capital Cities/ABC, Inc. 80,400 9,457,050
Tele Communications, Inc. Liberty Media
Group A 63,950 1,710,662
Viacom, Inc. (a) 86,000 4,278,500
----------
20,248,712
----------
Business Services (2.2%)
The Dun & Bradstreet Corp. 110,000 6,366,250
First Data Corp. 112,200 6,956,400
First Financial Management Corp. 56,200 5,486,525
----------
18,809,175
----------
Chemicals (2.5%)
The Lubrizol Corp. 123,000 4,012,875
Monsanto Co. 121,200 12,210,900
Sherwin-Williams Co. 154,000 5,390,000
----------
21,613,775
----------
Computers & Business Equipment (11.8%)
Applied Materials, Inc. (a) 55,600 $ 5,685,100
Automatic Data Processing, Inc. 50,000 3,406,250
Broderbund Software, Inc. (a) 36,300 2,763,338
Ceridian Corp. (a) 10,000 443,750
Cisco Systems, Inc. (a) 116,000 8,004,000
Computer Associates International, Inc. 143,850 6,077,663
Computer Sciences Corp. (a) 40,000 2,575,000
General Motors Corp. Class E 72,700 3,307,850
Hewlett-Packard Co. 65,000 5,419,375
Informix Corp. (a) 30,000 975,000
Intel Corp. 180,000 10,822,500
International Business Machines Corp. 60,000 5,662,500
LSI Logic Corp. (a) 82,600 4,770,150
Microsoft Corp. (a) 139,000 12,579,500
Oracle Systems Corp. (a) 237,350 9,108,306
Pitney Bowes Inc. 180,000 7,560,000
3Com Corp. (a) 60,000 2,730,000
Texas Instruments, Inc. 50,000 3,993,750
Xerox Corp. 39,000 5,240,625
----------
101,124,657
----------
Construction (0.9%)
Foster-Wheeler Corp. 125,000 4,421,875
MASCO Corp. 140,000 3,850,000
----------
8,271,875
----------
Consumer Products (1.3%)
Unilever N.V. 50,000 6,500,000
VF Corp. 85,500 4,360,500
----------
10,860,500
----------
Cosmetics & Toiletries (1.7%)
Avon Products, Inc. 151,700 10,884,475
The Gillette Co. 80,000 3,810,000
----------
14,694,475
----------
Diversified (3.0%)
American Standard Companies, Inc. 58,000 1,711,000
Coltec Industries Inc. (a) 300,000 3,600,000
Corning, Inc. 182,000 5,209,750
General Electric Co. 100,000 6,375,000
Minnesota Mining & Manufacturing Co. 79,800 4,508,700
Whitman Corp. 200,000 4,125,000
----------
25,529,450
----------
<PAGE>
Schedule of Investments (continued)
Common Stocks--continued
Drugs & Health Care (9.1%)
Amgen, Inc. (a) 158,800 $ 7,920,150
Becton, Dickson & Co. 49,900 3,137,462
Bristol-Meyers Squibb Co. 70,000 5,101,250
Cardinal Health, Inc. 30,000 1,661,250
Ciba-Geigy A G ADR 98,900 3,758,200
Columbia/HCA Healthcare Corp. 92,500 4,497,813
HEALTHSOUTH Corp. (a) 40,000 1,020,000
Johnson & Johnson 70,900 5,255,463
Medtronic, Inc. 186,800 10,040,500
Merck & Co., Inc. 148,000 8,288,000
Oxford Health Plans, Inc. (a) 24,000 1,746,000
Schering Plough Corp. 104,000 5,356,000
SmithKline Beecham PLC ADR 57,100 2,890,683
St. Jude Medical, Inc. 56,900 3,598,925
United Healthcare Corp. 45,000 2,199,375
Upjohn Co. 139,400 6,220,725
Warner Lambert Co. 60,000 5,715,000
----------
78,406,796
----------
Electrical Utilities (0.5%)
Pinnacle West Capital Corp. 170,000 4,462,500
----------
Electronics & Electrical Equipment (8.1%)
Analog Devices, Inc. (a) 36,000 1,246,500
Arrow Electronics, Inc. (a) 125,000 6,796,875
Atmel Corp. (a) 71,200 2,403,000
Cooper Industries, Inc. 115,000 4,053,750
General Instrument Corp. (a) 41,000 1,230,000
General Motors Corp. Class H 83,000 3,403,000
Glenayre Technologies,
Inc. (a) 10,000 720,000
KLA Instruments Corp. (a) 20,400 1,637,100
Loral Corp. 67,000 3,819,000
Molex, Inc. 39,063 1,308,594
Motorola, Inc. 150,000 11,456,250
Nokia Corp. ADR 175,200 12,220,200
Philips Electronics N.V. 110,000 5,362,500
Raytheon Co. 123,000 10,455,000
Tyco International Ltd. 30,000 1,890,000
Xilinx Inc. (a) 30,000 1,443,750
----------
69,445,519
----------
Financial Services (4.7%)
American Express Co. 80,000 $ 3,550,000
Federal Home Loan Mortgage Corp. 128,000 8,848,000
Federal National Mortgage Association 45,000 4,657,500
First USA Inc. 60,000 3,255,000
MBNA Corp. 120,000 4,995,000
Mercury Finance Co. 139,500 3,400,313
Morgan Stanley Group, Inc. 60,000 5,767,500
Travelers Group, Inc. 110,000 5,843,750
----------
40,317,063
----------
Food & Beverage (1.4%)
Dole Food, Inc. 120,000 4,155,000
McCormick & Co., Inc. 100,000 2,387,500
PepsiCo, Inc. 102,400 5,222,400
----------
11,764,900
----------
Hotels & Leisure (1.3%)
Brunswick Corp. 150,000 3,037,500
Circus Circus Enterprises,
Inc. (a) 35,000 980,000
Disney (Walt) Co. 51,900 2,977,763
Hasbro Inc. 75,000 2,334,375
Hospitality Franchise Systems, Inc. 40,000 2,095,000
----------
11,424,638
----------
Industrial Equipment (0.8%)
Dover Corp. 182,000 6,961,500
----------
Insurance (8.1%)
AFLAC Inc. 140,000 5,810,000
American General Corp. 110,000 4,111,250
American International Group, Inc. 87,750 7,458,750
Aon Corporation 101,450 4,146,769
The Chubb Corp. 40,000 3,840,000
Cigna Corp. 31,600 3,290,350
EXEL Limited 125,000 7,265,625
Marsh & McLennan Companies, Inc. 84,000 7,381,500
MBIA, Inc. 63,000 4,441,500
MGIC Investment Corp. 94,000 5,381,500
PMI Group 20,000 947,500
Progressive Corp. 130,000 5,817,500
Providian Corp. 104,000 4,316,000
Transamerica Corporation 80,000 5,700,000
----------
69,908,244
----------
<PAGE>
Common Stocks--continued
Metals & Mining (0.8%)
Freeport-McMoRan Copper & Gold Inc. Class A 500,000 $ 2,812,500
Freeport-McMoRan Inc. 175,000 4,484,375
----------
7,296,875
----------
Oil & Gas (6.6%)
Amoco Crop. 58,300 3,738,487
British Petroleum PLC ADR 22,312 2,005,291
Burlington Resources, Inc. 95,000 3,681,250
Elf Aquitaine Inc. ADR 48,925 1,645,069
Enron Corp. 76,000 2,546,000
Exxon Corp. 100,000 7,225,000
Repsol S.A. ADR 145,000 4,603,750
Royal Dutch Petroleum Co. 93,100 11,428,025
Tenneco Inc. 105,700 4,888,625
Triton Energy Corp. (a) 150,000 7,256,250
Union Texas Petroleum Holdings, Inc. 200,000 3,650,000
USX Marathon Group 204,800 4,044,800
----------
56,712,547
----------
Paper (4.3%)
Alco Standard Corporation 25,000 2,118,750
Avery Dennison Corp. 96,000 4,032,000
Champion International Corp. 146,600 7,898,075
Georgia-Pacific Corp. 37,400 3,272,500
International Paper Co. 107,200 4,502,400
James River Corp of VA 115,000 3,680,000
Kimberly Clark Corp. 64,400 4,322,850
Union Camp Corp. 124,300 7,162,788
----------
36,989,363
----------
Photographic Equipment & Supplies (0.6%)
Eastman Kodak Company 80,000 4,740,000
----------
Pollution Control (0.5%)
Browning-Ferris Industries Inc. 147,900 4,492,463
----------
Publishing (2.6%)
American Greetings Corp. 256,400 7,820,200
Gannett Co. Inc. 84,300 4,604,888
McGraw Hill, Inc. 33,000 2,697,750
Readers Digest Association Inc. Class A 152,000 7,163,000
----------
22,285,838
----------
Retail Trade (5.7%)
American Stores Co. 160,000 $ 4,540,000
AutoZone, Inc. (a) 110,000 2,805,000
Barnes & Noble, Inc. (a) 35,000 1,338,750
Dayton Hudson Corp. 50,000 3,793,750
Federated Department
Stores (a) 89,700 2,545,237
Gymboree Corp. (a) 51,800 1,560,475
Home Depot, Inc. 45,000 1,794,375
Kohls Corp. (a) 26,000 1,348,750
May Department Stores Co. 260,000 11,375,000
Office Depot, Inc. (a) 191,900 5,780,988
Penney (J.C.) Co., Inc. 100,000 4,962,500
Safeway, Inc. (a) 81,000 3,381,750
Wal-Mart Stores, Inc. 160,000 3,980,000
----------
49,206,575
----------
Rubber & Plastics (0.5%)
The Goodyear Tire and Rubber Co. 114,800 4,520,250
----------
Services (0.7%)
Loewen Group, Inc. 65,000 2,681,250
Manpower, Inc. 24,000 696,000
Service Corp. International 75,000 2,934,375
----------
6,311,625
----------
Telecommunications (4.1%)
Airtouch Communications (a) 104,700 3,206,437
American Telephone & Telegraph Co. 39,300 2,583,975
Andrew Corp. (a) 40,000 2,445,700
Ericsson (L.M.) Telephone Co. Class B ADR 475,800 11,657,100
MCI Communications Corp. 134,400 3,502,800
Pacific Telesis Group 103,000 3,167,250
Sprint Corp. 175,000 6,125,000
U.S. Robotics Corp. 30,000 2,557,500
----------
35,245,762
----------
Transportation (1.8%)
AMR Corp. (a) 60,000 4,327,500
Burlington Northern Santa Fe 71,500 5,183,750
Fritz Co. Inc. (a) 7,000 515,814
Union Pacific Corp. 80,000 5,300,000
----------
15,327,064
----------
Total Common Stocks
(Cost $596,891,696) 820,052,979
----------
<PAGE>
Schedule of Investments (continued)
Short-term Investments (5.5%)
Interest Maturity Par Market
Rate Date Value Value
Commercial Paper (2.7%)
Associates Corp. of North
America 5.74% 10/17/95 $3,000,000 $ 2,992,347
Bell Atlantic Financial
Services 5.70 10/20/95 1,500,000 1,495,488
Beneficial Corp. 5.73 10/05/95 1,600,000 1,598,982
Canadian Wheat Board 5.70 10/06/95 1,000,000 999,208
Chevron Oil Finance Co. 5.72 10/03/95 1,600,000 1,599,492
Dean Witter Discover & Co. 5.75 10/02/95 1,000,000 999,840
Dupont E I De Nemours & Co. 5.95 10/10/95 1,500,000 1,497,769
General Electric Capital
Services, Inc. 5.70 10/12/95 3,000,000 2,994,775
National Rural Utilities
Coop. Finance 5.82 10/13/95 1,500,000 1,497,090
New South Wales Treasury 5.95 10/12/95 500,000 499,091
Pearson Inc. 5.73 10/11/95 2,500,000 2,496,020
Prudential FDG Corp. 5.70 10/10/95 3,000,000 2,995,725
USL Capital Corp. 5.74 10/19/95 1,500,000 1,495,695
---------
Total Commercial Paper 23,161,522
---------
U.S. Government Security
(0.7%)
U.S. Treasury Bill 5.35 10/12/95 6,500,000 6,489,374
---------
Repurchase Agreement (2.1%)
State Street Bank & Trust Co. dated 09/29/95, 5.250%, to be
repurchased at $18,015,878 on 10/02/95, collateralized by
$16,200,000 U.S. Treasury Notes at 7.625%, due 11/15/96,
with a current market value of $18,370,800 18,008,000
---------
Total Short-term Investments (Cost $47,658,896) 47,658,896
---------
Total Investments (100.8%) (Cost $644,550,592) (b) 867,711,875
Other Assets and Liabilities, Net (-0.8%) (7,109,860)
---------
Net Assets (100.0%) $860,602,015
=========
Net Asset Value Per Share (77,879,085 shares outstanding) $11.05
=========
(a) Non-income producing security.
(b) Gross unrealized appreciation and depreciation of
investments at September 30, 1995 is as follows:
Gross unrealized appreciation $231,410,630
Gross unrealized depreciation (8,249,347)
---------
Net unrealized appreciation $223,161,283
=========
Per Share Changes in Net Assets
Year Ended December 31,
----------------------------------------------
Nine Months
Ended
September
30, 1995
(Unaudited) 1994 1993 1992 1991 1990
----------- ------- ------- ------- ---- -----
Net asset
value at
beginning of
period $ 9.26 $10.40 $10.78 $11.20 $ 8.92 $ 9.58
--------- ------ ------ ------ ---- ----
Net
investment
income 0.07 0.11 0.12 0.16 0.17 0.18
Distributions
declared (0.76) (1.00) (1.07) (1.07) (1.02) (0.90)
Change due to
rights
offering (0.05)(a) (0.03)(a) (0.05)(a)
Net realized
and
unrealized
gain (loss)
on
investments 2.48 (0.20) 0.78 0.54 3.13 0.06
Provision for
Federal
income tax (0.18)
--------- ------ ------ ------ ---- ----
Net asset
value at end
of period $11.05 $ 9.26 $10.40 $10.78 $11.20 $ 8.92
========= ====== ====== ====== ===== ====
(a) Effect of ALL-STAR's rights offering for shares at a price below net
asset value.
