LIBERTY ALL STAR EQUITY FUND
N-30D, 1996-09-06
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[LIBERTY LOGO]
LIBERTY
ALL*STAR
EQUITY FUND
- ------------------------------

2
SEMI-ANNUAL REPORT
1996

LIBERTY ALL*STAR EQUITY FUND

New York Stock Exchange Trading Symbol: USA

Fund Manager
Liberty Asset Management Company
Federal Reserve Plaza
600 Atlantic Avenue
Boston, Massachusetts 02210-2214
1-617-722-6036
Internet: http://www.lamco.com

Independent Auditors
KPMG Peat Marwick llp
99 High Street
Boston, Massachusetts 02110

Custodian
Boston Safe Deposit & Trust Company
One Cabot Road
Medford, Massachusetts 02155

Investor Assistance,
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*
Harold W. Cogger
James E. Grinnell*
Richard W. Lowry*

Officers
Harold W. Cogger, Chairman of the Board of Trustees
Richard R. Christensen, President & Chief Executive Officer
William R. Parmentier, Jr., Vice President & Chief Investment Officer
Peter L. Lydecker, Treasurer and Controller
John L. Davenport, Secretary

*Member of the audit committee.
- -------------------------------
[LIBERTY LOGO]
Printed with Soybean Inks

[Recycle Logo] Printed on Recycled Paper  D/69m/7-96

<PAGE>

               LIBERTY ALL*STAR EQUITY FUND
               ---------------------------------------------------------------

Semi-Annual Report
Chairman's Letter

To Our Fellow Shareholders:                                           July 1996

The net asset value (NAV) of a common share of the Fund rose from $11.42 on
March 31, 1996 to $11.53 on June 30, 1996, after deducting the cash distribution
of 30 cents paid to shareholders during the quarter. The market price of a share
of the Fund traded in a range from $10.625 to $11.625 before closing the quarter
at $10.75. The ending price represented a discount to NAV of 6.8 percent
compared with a discount to NAV of 0.4 percent on March 31, 1996. Key investment
results and comparisons are noted in the box.

The stock market continued its advance for the sixth quarter in a row. As the
box at the left shows, ALL-STAR's net asset value was up 3.8 percent, which
compares favorably with 3.4 percent for the Lipper Growth & Income Mutual Fund
Average (ALL-STAR's primary benchmark comparison). For the first half of 1996
ALL-STAR's net asset value was up 10.2 percent compared with 9.2 percent for
the Lipper Average.

Although the market rose strongly in the first half of 1996, the second quarter
ended on a relatively weak note. The S&P 500 was flat during the month of June
and the technology laden Nasdaq Index was down significantly, reversing its
trend earlier in the first half. This downward move in the growth sector
continued in the first half of July and extended into the broad market with the
S&P 500 and The Dow Jones Industrial Average declining 6.0 percent and 5.3
percent, respectively. In fact, the market's nearly six year advance of
approximately 130 percent from its 1990 low has been the longest such advance in
the market's history without an intervening correction of at least 10 percent.
Therefore, the recent declines, while unpleasant, are not surprising and should
be taken in stride by long-term investors.

The equity markets have been volatile during the year as investors changed their
expectations on companies' earnings prospects, the direction of the economy and
the probability of future gains in the market. In many cases, companies that
reported disappointing earnings experienced one day declines of 20 percent to 30
percent in their stock. Changing expectations on the direction of the economy
resulted in wide swings in performance between the growth and value style of
investment management. Investor uncertainty on the direction of the market also
resulted in large intraday market moves. For example, on July 16 the Dow Jones
Industrial Average fell 167 points and rallied to a 53 point gain before closing
up nine points. ALL-STAR's multi-management approach should provide
diversification and reduced volatility in this type of market environment.

Fund Performance for the second quarter and latest six months ended
June 30, 1996. Figures shown for the Fund 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 are total returns including income.

                                         Second         Latest
                                         Quarter       Six Months
                                         --------    -------------
Liberty ALL-STAR Equity Fund:
 Shares Valued at Net Asset Value          3.8%          10.2%
 Shares Valued at Market Price
  Reinvested                              -2.9%           4.2%
Lipper Growth & Income Mutual
 Fund Average                              3.4%           9.2%
S&P 500 Stock Index                        4.5%          10.1%
Dow Jones Industrial Average               1.8%          11.7%
Nasdaq Composite Index                     7.6%          12.6%
Fund's Closing Price Range              $11.50 to      $11.50 to
                                         $10.625        $10.625
Fund's (Discount)/Premium Range           -8.0% to       -8.0% to
                                           1.6%           1.6%

                                      1
<PAGE>
                     ----------------------------------------------------------
                     LIBERTY ALL*STAR EQUITY FUND

During the second quarter, Liberty Asset Management Company (LAMCO), the Fund
Manager, recommended, and the Board of Trustees approved, the hiring of a new
Portfolio Manager, J.P. Morgan Investment Management Inc., to replace Cooke &
Bieler, Inc., effective July 1, 1996. J.P. Morgan is a value style manager,
investing in stocks of large or medium size companies which it believes are
undervalued relative to their projected growth rates. More information about
this new manager may be found inside on page five.

Richard Christensen's President's Letter, which follows, provides additional
perspective and contains important information about long-term capital gains for
1996.

                     Sincerely,

                     [Signature]

                     Harold W. Cogger
                     Chairman of the Board of Trustees
                     Liberty ALL-STAR Equity Fund

                                      2
<PAGE>

LIBERTY ALL*STAR EQUITY FUND

Semi-Annual Report
President's Letter

To Our Fellow Shareholders:                                          July 1996

Investors' shifting perceptions of the direction of the U.S. economy caused a
fairly dramatic rotation among the economic sectors of the market. During the
first quarter, value managers benefited as investors sought companies that would
perform well in a moderate growth environment. During the second quarter,
investors shifted their focus to companies whose earnings could grow even during
a slowing economic environment. As a result, the technology and consumer
non-durable sectors of the market performed strongly up until the last month of
the quarter. Additionally, the returns of cyclical stocks (e.g., auto
manufacturing, machinery and transportation), which are dependent on stronger
economic growth, lagged the overall market.

Within the growth stock segment in the second quarter, companies with the
highest relative price to earnings (P/E) multiples were the strongest
performers. A company's P/E multiple (stock price divided by earnings per share)
measures how much investors are willing to pay for a dollar of earnings. The
higher the P/E ratio, the more investors are willing to pay for a stock that
exhibits greater earnings growth potential. However, these high P/E stocks carry
greater risk if earnings come in below expectations and investors revalue future
growth prospects. This took place in June and early July as investors sold high
priced growth stocks and caused a substantial retreat in the technology related
sector of the market.

LAMCO diversifies the Fund among various growth and value investment management
styles in an attempt to achieve above average returns with lower than average
volatility compared with other growth and income funds. The rotation between
value and growth during the first half of 1996 was mitigated in ALL-STAR by this
multi-management approach.

ALL-STAR's net realized capital gains for 1996 are likely to exceed the amount
required under the Fund's 10 percent pay-out policy. This is the result of
realization of gains after the strong investment performance during the last
year and one-half. Liberty Asset Management Company plans to recommend to the
Trustees, for consideration at their October meeting, that the Fund retain the
excess gains, as it did in 1993. In order to retain the excess gains, the Fund
would pay Federal income tax on the retained gains. The shareholders would be
required to record their pro-rata portion of the gains retained by the Fund as a
long-term capital gain, and their pro-rata portion of the tax paid by the Fund
would be claimed by the shareholders as a credit on their 1996 Federal income
tax return. Additional information will be contained in the third quarter
report.

Columbus Circle is the subject of the manager interview beginning on page eight.
Irwin Smith discusses the firm's investment philosophy and decision making
process for both buying and selling as well as recent changes in the portfolio.

             Sincerely,

             [Signature]

             Richard R. Christensen
             President and Chief Executive Officer
             Liberty ALL-STAR Equity Fund and
             Liberty Asset Management Company

                                      3
<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 Portfolio Managers. These differences are a reflection of the
fact that each pursues an individual Investment Style. The shaded column
highlights the characteristics of the ALL-STAR Fund as a whole, while the final
column shows portfolio characteristics for the entire S&P 500 Stock Index.

The Investment Styles practiced by ALL-STAR's five Portfolio Managers are:

Palley-Needelman Asset Management, Inc.
Companies with attractive valuations, sound fundamentals and good prospects.

Cooke & Bieler, Inc.*
Companies with sound fundamentals: seasoned, well-managed and financially
strong.

Oppenheimer Capital
Contrarian holdings being overlooked and undervalued by investors.

Columbus Circle Investors
Companies whose growing earnings are not fully reflected in their share prices.

Provident Investment Counsel, Inc.
Companies with fast growing earnings and bright prospects.

Portfolio Characteristics
as of
June 30, 1996

<TABLE>
<CAPTION>
                                                                              Investment Style Spectrum
                                                                        Value ....................... Growth
                                                                         Palley-      Cooke &
                                                                        Needelman     Bieler*     Oppenheimer
                                                                      ------------     -------   ------------

- ---------------------------------------------------------------------------------------------------------------
<S>                <C>    <C>                                            <C>           <C>         <C>
Portfolio           1.    Number of Holdings                                 37            37           28
                    2.    Percent in Top Ten                                 34%           43%          47%
Size and Debt     3.    Average Sales or Revenues (BILLIONS)             $ 14.5        $ 13.2       $ 13.4
                  4.    Average Debt/Capital Ratio                           35%           28%          44%
Profitability     5.    Average Return on Total Capital                       9%           18%          14%
                  6.    Average Return on Equity                             14%           22%          22%
Growth            7.    Average Five-Year Sales Per Share Growth              5%            8%          14%
                  8.    Average Five-Year Earnings Per Share Growth          22%           15%          28%
Yield             9.    Dividend Yield                                      2.6%          2.5%         1.6%
                 10.    Average Five-Year Dividend Payout Ratio              49%           49%          30%
Valuation        11.    Average Price/Earnings Ratio                       18.4x         16.9x        14.6x
                 12.    Average Price/Book Value Ratio                      2.5x          3.1x         2.8x
 ================= ================= ========================================== ================    ==========
</TABLE>

<TABLE>
<CAPTION>
             Investment Style Spectrum
              Value .......... Growth
                Columbus                Total        S&P
                 Circle   Provident   ALL-STAR    500 Index
                 ------    --------    -------   ----------

 ------------------------------------------------------------
<S>             <C>        <C>         <C>         <C>
Portfolio           51         53         175         500
                    33%        38%         14%         18%
Size and Debt   $ 12.5     $  6.7      $ 12.1      $ 23.5
                    28%        29%         32%         34%
Profitability       12%        16%         14%         14%
                    17%        21%         19%         20%
Growth              18%        21%         13%         10%
                    29%        29%         25%         21%
Yield              0.9%       0.6%        1.6%        2.2%
                    23%        16%         33%         44%
Valuation         23.1x      29.5x       19.3x       18.7x
                   3.2x       5.8x        3.2x        3.1x
 ============      ====     ========     =====      ========
</TABLE>

*NOTE: J.P. Morgan Investment Management Inc. replaced Cooke & Bieler, Inc.
       effective July 1, 1996. See page 5 for more information about J.P.
       Morgan Investment Management.

                                      4
<PAGE>

LIBERTY ALL*STAR EQUITY FUND

ALL*STAR Hires
New Portfolio Manager

J.P. Morgan Investment Management Inc. replaced Cooke & Bieler, Inc. as one
of ALL-STAR's Portfolio Managers effective July 1, 1996.

J.P. Morgan is a value style equity portfolio manager with more than $27 billion
in equity assets under management. J.P. Morgan concentrates on individual stock
selection, rather than sector rotation, style/theme investing or market timing.
Twenty senior research analysts rank stocks by means of a proprietary valuation
model that focuses on forecasts of earnings and dividend growth rates. Purchase
candidates are placed into one of seventeen economic sectors and ranked by
quintiles within their sectors. The selection process produces a portfolio with
above market dividend yield and earnings growth, but with price to book and
price to earnings ratios less than the market.

ALL-STAR's portfolio management agreement with J.P. Morgan, which will be
submitted to shareholders for ratification at the 1997 Annual Meeting, is at the
same management fee rate and on substantially the same other terms and
conditions as ALL-STAR's agreements with its other Portfolio Managers.

Majority of Shareholders Select Shares 
in Second Quarter Distribution

More than 61 percent of ALL-STAR's individual shareholders elected to take newly
issued shares in the recently completed second quarter distribution. The
distribution consisted entirely of net realized capital gains. By selecting
newly issued shares, ALL-STAR shareholders are able to reinvest their capital
gains in the Fund so that these gains can build additional value through
compounding. Reinvested dividends are a major source for shareholder investment
growth as the chart on the following page clearly demonstrates.

MAJOR STOCK CHANGES IN THE
SECOND QUARTER 1996

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 second quarter
of 1996.
                                                    Shares
                                      ---------------------------------
                                                                  Held
Security Name                         Additions   Reductions    6/30/96
- -----------------------------------     --------    ---------   --------
American Home Products Corp.*          51,500                  77,000
Bausch & Lomb, Inc.                   109,000                 109,000
ConAgra, Inc.                         135,900                 135,900
Delta Air Lines, Inc.                  49,900                  49,900
Eastman Chemical                       56,000                  56,000
Georgia-Pacific Corp.                  36,900                  36,900
Intel Corp.                            63,200                 138,200
Mirage Resorts, Inc.                   80,200                  80,200
Motorola, Inc.                         67,100                 180,100
R. R. Donnelley & Sons Co.             76,000                 176,000
SBC Communications, Inc.               84,500                  84,500
Schlumberger Ltd.                      39,600                  64,100
Whirlpool Corp.                        98,200                  98,200
WorldCom, Inc.                         61,900                 113,500
American International Group, Inc.                 (46,750)    45,000
Amgen, Inc.                                        (71,800)    65,000
AT&T Corp.                                         (82,900)         0
Avery Dennison Corp.                               (76,000)    20,000
Bank of New York Co., Inc.                         (57,100)         0
Cabletron Systems, Inc.                            (40,000)         0
CIGNA Corp.                                        (28,100)         0
Dayton Hudson Corp.                                (42,500)    25,500
Informix Corp.                                    (157,100)         0
Kimberly-Clark Corp.                               (58,800)   114,756
Merck & Co., Inc.                                  (82,500)    75,000
Nabisco Holdings Corp.                            (105,000)         0
Office Depot, Inc.                                (114,000)         0
Pinnacle West Capital Corp.                       (170,000)         0
Pitney Bowes, Inc.                                (107,000)    73,000
Royal Dutch Petroleum Co. ADR                      (23,800)    69,300
St. Jude Medical, Inc.                             (63,700)    16,300
Stratacom, Inc.                                    (56,700)         0
Tenneco, Inc.                                      (91,200)         0
Union Texas Petroleum Holdings, Inc.              (200,000)         0
Walt Disney Co.                                    (92,419)         0

*Adjusted for stock split

                                      5
<PAGE>

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
invested in additional shares of ALL-STAR. In addition, three rights offerings
have allowed investors to acquire additional shares at a discount from the
market price. 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 table on the right shows, an original share, including the rights
offering and dividend reinvestment shares, has grown to a net asset value of
$39.71 (3.444 shares times the current $11.53 net asset value per share) and a
market price value of $37.02 (3.444 shares times the current $10.75 market price
per share). Excluding the rights offering shares, an original share has grown to
2.791 shares. Thus, the original share has grown to a net asset value of $32.18
(2.791 shares times the current $11.53 net asset value per share) and a market
price value of $30.00 (2.791 shares times the current $10.75 market price per
share).

[SHAREHOLDERS INVESTMENT GROWTH CHART June 30, 1996]  Refer to Charts below.

                                           Shares       Shares
                 Shares       Per          Purchased    Acquired     Shares
                 Owned at     Share        Through      Through      Owned
                 Beginning    Distri-      Reinvestment Rights       at End
   Year          of Period    butions      Program      Offering     of Period
  ------------   ---------    ---------    ---------    ---------   -----------
  1987            1.000        $1.18        .140           --         1.140
  ------------    -------    ---------      -------      -------      ---------
  1988            1.140        $0.64        .107           --         1.247
  ------------    -------    ---------      -------      -------      ---------
  1989            1.247        $0.95        .156           --         1.403
  ------------    -------    ---------      -------      -------      ---------
  1990            1.403        $0.90        .168           --         1.571
  ------------    -------    ---------      -------      -------      ---------
  1991            1.571        $1.02        .171           --         1.742
  ------------    -------    ---------      -------      -------      ---------
  1992            1.742        $1.07        .199         0.179(2)     2.120
  ------------    -------    ---------      -------      -------      ---------
  1993            2.120        $1.25(5)     .266         0.138(3)     2.524
  ------------    -------    ---------      -------      -------      ---------
  1994            2.524        $1.00        .277         .0155(4)     2.956
  ------------    -------    ---------      -------      -------      ---------
  1995            2.956        $1.04        .311           --         3.267
  ------------    -------    ---------      -------      -------      ---------
  1996
  1st Quarter     3.267        $0.29        .083           --         3.350
  2nd Quarter     3.350        $0.30        .093           --         3.444
  ------------    -------    ---------      -------      -------      ---------

                 NAV(1)                    Price
                 Per          Total        Per          Total
                 Share        NAV          Share        Price of
                 at End       of Shares    at End       Shares
  Year           of Period    Owned        of Period    Owned
  ------------   ---------    ---------    ---------   -----------
  1987           $ 7.90       $ 9.01          6         $ 6.84
  ------------    -------    ---------      -------      ---------
  1988           $ 8.29       $10.34          7 1/4     $ 9.04
  ------------    -------    ---------      -------      ---------
  1989           $ 9.58       $13.44          8 1/4     $11.57
  ------------    -------    ---------      -------      ---------
  1990           $ 8.92       $14.01          7 3/4     $12.18
  ------------    -------    ---------      -------      ---------
  1991           $11.20       $19.51         10 3/4     $18.73
  ------------    -------    ---------      -------      ---------
  1992           $10.78       $22.85         11 1/8     $23.59
  ------------    -------    ---------      -------      ---------
  1993           $10.40       $26.25         11 1/8     $28.08
  ------------    -------    ---------      -------      ---------
  1994           $ 9.26       $27.37          8 1/2     $25.13
  ------------    -------    ---------      -------      ---------
  1995           $11.03       $36.04         10 7/8     $35.53
  ------------    -------    ---------      -------      ---------
  1996
  1st Quarter    $11.42       $38.26         11 3/8     $38.11
  2nd Quarter    $11.53       $39.71         10 3/4     $37.02
  ------------    -------    ---------      -------      ---------

1) Net Asset Value
2) Rights offering completed in April 1992. One share offered at $10.05 for
   every 10 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.

                                      6
<PAGE>

                          LIBERTY ALL*STAR EQUITY FUND

Top 50
Holdings
As of
June 30, 1996

          Rank
          as of                                              Value    Percent of
 Rank   3/31/96    Security Name                            ($000)    Net Assets
- -----     ------   -------------------------------------    ------   -----------
  1         1      Microsoft Corp.                         $16,938       1.8%
  2         4      Avon Products, Inc.                      13,240       1.4
  3         6      Raytheon Co.                             12,648       1.4
  4         2      Monsanto Co.                             12,350       1.3
  5         7      May Department Stores Co.                12,031       1.3
  6         8      Federal Home Loan Mortgage Corp.         11,970       1.3
  7         9      First Data Corp.                         11,731       1.3
  8        58      Motorola, Inc.                           11,324       1.2
  9        14      Cisco Systems, Inc.                      11,302       1.2
  10       20      EXEL Limited                             10,716       1.2
  11       12      McDonnell Douglas Corp.                  10,670       1.2
  12        3      Royal Dutch Petroleum Co. ADR            10,655       1.2
  13       11      Computer Associates International, Inc.  10,499       1.1
  14       28      International Business Machines Corp.    10,197       1.1
  15       99      Intel Corp.                              10,149       1.1
  16       13      Citicorp                                  9,915       1.1
  17       40      U.S. Robotics Corp.                       9,337       1.0
  18       18      Boeing Co.                                8,922       1.0
  19        5      Kimberly-Clark Corp.                      8,865       1.0
  20               Telefonakteibolaget LM Ericsson,
           10        Class B, ADR                            8,299       0.9
  21       26      Marsh & McLennan Companies, Inc.          8,106       0.9
  22       16      American Greetings Corp.                  7,857       0.8
  23       29      Schering-Plough Corp.                     7,844       0.8
  24       27      General Electric Co.                      7,785       0.8
  25       55      Columbia/HCA Healthcare Corp.             7,467       0.8
  26       31      State Street Boston Corp.                 7,395       0.8
  27       35      Federal National Mortgage Assoc.          7,370       0.8
  28       33      Dover Corp.                               7,334       0.8
  29       30      Travelers Group, Inc.                     7,300       0.8
  30       22      Triton Energy Corp.                       7,294       0.8
  31       56      Hewlett-Packard Co.                       7,203       0.8
  32       37      Sprint Corp.                              7,140       0.8
  33       41      Pfizer, Inc.                              7,138       0.8
  34       54      Pharmacia & Upjohn, Inc.                  7,020       0.8
  35       47      Corning, Inc.                             6,984       0.8
  36       48      Transamerica Corp.                        6,885       0.7
  37       74      Service Corp. International               6,820       0.7
  38       42      Genuine Parts Co.                         6,725       0.7
  39       66      Johnson & Johnson                         6,663       0.7
  40       53      Warner-Lambert Co.                        6,600       0.7
  41       39      Unilever NV ADR                           6,531       0.7
  42       32      American Stores Co.                       6,530       0.7
  43       77      Xerox Corp.                               6,527       0.7
  44       43      Eastman Kodak Co.                         6,469       0.7
  45       44      Readers Digest Assoc., Inc., Class A      6,418       0.7
  46       69      MCI Communications Corp.                  6,391       0.7
  47       60      Fleet Financial Group, Inc.               6,381       0.7
  48       23      Exxon Corp.                               6,342       0.7
  49       57      Bristol-Myers Squibb Co.                  6,300       0.7
  50       97      HFS, Inc.                                 6,300       0.7

                                      7
<PAGE>

                          LIBERTY ALL*STAR EQUITY FUND

[PICTURE]

Irwin Smith
Columbus Circle Investors

Manager Interview

An Adherent of "Positive Momentum/Positive Surprise" Seeks Companies With
Underlying Strength in a Time of Uncertainty

Columbus Circle Investors is one of ALL-STAR's five portfolio managers. A growth
style manager, Columbus Circle Investors invests in companies whose earnings
growth has accelerated and is anticipated to continue accelerating beyond
consensus expectations. Stock selection focuses on identifying the critical
micro and macro factors underlying the earnings expectations for each company.
We recently had the opportunity to interview Irwin Smith, Chairman of Columbus
Circle Investors. The Fund Manager, Liberty Asset Management Company (LAMCO),
serves as the moderator for the interview.

LAMCO: Since it has been more than two years since we interviewed you for a
quarterly report, perhaps we can start by reviewing Columbus Circle's
investment philosophy.

Smith: The core of our investment philosophy has been the same since we began
managing investments more than 20 years ago. We focus on identifying positive
change relative to expectations. We look for positive changes that are occurring
in any of the key areas of a company's business. The expectations that we
consider are those of company management, industry, competitors or Wall Street
analysts. Our goal is to invest in those companies that are exceeding
expectations and avoid those that are falling below expectations. We strongly
believe that companies that exceed expectations will have rising stock prices
while companies that fall short of expectations will have either falling or flat
stock prices. This belief is confirmed by historical evidence.

LAMCO: Please discuss the first half of 1996 in relation to your investment
style.

Smith: The first half of 1996 was influenced by changing perceptions of the
economy. At the beginning of the year the outlook was for moderate economic
growth in 1996. With this as a backdrop, our discipline--which we call "Positive
Momentum and Positive Surprise"--positioned us in companies that would succeed
in a slow growth environment. As long as the data confirmed that the economy was
muddling along, the stocks of these companies did well.

In early March, reports of stronger-than-expected growth altered the investment
environment in favor of cyclical companies. We believe that the change in
perception was premature and that the underlying economy is still growing at a
moderate rate. We attribute the signs of economic strength that emerged
intermittently throughout the second quarter to extraneous factors such as
"cabin fever" spending following a harsh winter, larger and earlier tax

 ...............................................................................

                  "Our goal is to invest in those companies
                  that are exceeding expectations and avoid
                 those that are falling below expectations."
                                                                 --Irwin Smith

 ...............................................................................

The views expressed in this interview represent the manager's views at the time
of the discussion and are subject to change.

                                      8
<PAGE>

                          LIBERTY ALL*STAR EQUITY FUND

refunds, and increased disposable income following mortgage refinancings. We
chose to maintain our strategy of investing in strong secular trends, stable
growth and interest rate sensitive holdings as opposed to a more economically
sensitive posture.

By not following "the pack" into cyclical stocks, we forfeited some of the
capital appreciation that is created whenever new dollars flood into a sector of
the market. Instead, we maintained our strategic posture and waited for evidence
to either confirm or contradict expectations of a stronger economy. At the end
of the second quarter, we began to see evidence that reinforced our view that we
are still in a moderate growth environment.

The market favored aggressive, in many cases, smaller cap, growth companies,
such as consumer product and service providers, technology companies, gaming
stocks and other groups deemed to be beneficiaries of a stronger economy.

LAMCO: Which sectors did you concentrate in?

Smith: For several years we have maintained a meaningful position in what is
broadly defined as the technology sector. The dynamic nature of technology
provides a steady supply of companies that are experiencing positive change and
producing positive surprises. Within the technology sector, our holdings are
spread across a variety of technology themes. Leading current themes are
wireless/ satellite communications companies, such as Lucent Technologies or
QUALCOMM, and networking/ Internet companies such as Cisco and U.S. Robotics.

A second area of concentration for us in the second quarter was companies that
are increasing their productivity through restructuring. These companies are
positioned to generate positive changes internally without regard to the
economic environment. Our current holdings include companies that are
eliminating less profitable divisions (Amerada Hess), acquiring companies that
fill a void in their business plan (Aetna), increasing market share through
acquisitions (Columbia/HCA Healthcare) and merging with others where true
synergy can be achieved (Chase Manhattan, Fleet Financial Group).

LAMCO: Discuss a couple of recent additions to your portfolio.

Smith: Associates First Capital was added to the portfolio in the second
quarter. Associates is a finance company that provides home equity, credit card,
manufactured home and commercial truck loans. The company is growing through
acquisitions of complementary financing businesses, such as Fleetwood Finance,
which specializes in financing recreational vehicles, and expansion into
international markets. International growth is generally more profitable, as
lending spreads can be very large. In addition, the company recently separated
from its parent (Ford Motor Company) creating a new incentive structure for
management.

Another recent purchase was Hilton Hotels. Positive surprises are coming from
faster-than-expected acquisitions of hotel and gaming properties, which, in
turn, are enabling cost savings. A key variable in the story is the role that
Stephen Bollenbach, former CFO of Disney, is playing in the acquisition
strategy. While at Disney and before as CEO of Host Marriott, Mr. Bollenbach
developed an excellent track record of successfully integrating acquired
companies into the

 ..............................................................................

              "At the end of the second quarter, we
              began to see evidence that reinforced
              our view that we are still in a moderate
              growth environment."

 ..............................................................................

                                                          Continued on page 10

                                      9
<PAGE>

                          LIBERTY ALL*STAR EQUITY FUND

Continued from page 9

company's core business. He is expected to be similarly successful in guiding
Hilton's strategy.

LAMCO: Would you also highlight two stocks that have been in your portfolio
for a long period and the reasons for maintaining the positions?

Smith: Cisco Systems is a stock that we have held for several years. When first
purchased, Cisco's business was concentrated in specific segments of the
networking equipment market. Since then, Cisco has grown to dominate the
networking business with a full range of product offerings. Most recently, Cisco
has expanded into the internetworking arena where they are taking share in a
market growing faster than expected. We continue to hold Cisco as the company
continues to find new ways to positively surprise investors.

A second name that has been in the portfolio for some time is Computer
Associates (CA). CA has successfully transitioned from a mainframe systems
software company to a client server computing company. CA's fastest growing
product is Unicenter, a client/server application that enables MIS departments
to manage networks more efficiently. CA's almost solitary presence in this
market has provided a steady stream of positive surprises in both contracts
announced and revenues realized. Recently, the stock price has suffered because
of problems in IBM's mainframe business. This has happened before and CA has
managed to grow despite the problems. We are confident that they will once again
be able to maintain their business strength.

LAMCO: Please discuss your sell discipline giving some specific examples.

Smith: We strive to let winners run and eliminate losers quickly. We will
continue to hold a company for as long as it produces results that are better
than expected. In some cases this means that we hold stocks for several years;
in others, where the stock falls short of expectations soon after purchase, we
may hold it for only a couple of months.

During the second quarter, two stocks that we sold were Amgen and Oracle. Amgen
is a biotechnology company whose stock we originally bought based on positively
surprising sales of its core products, Epogen and Neupogen. We continued to hold
the stock when the sales growth of these products stabilized because Amgen had a
growing pipeline of new products that was a source of positive surprise. In
recent months, the demand for Epogen and Neupogen has slowed further and news
releases indicate there may be considerable delays in bringing new products to
market.

Oracle had been a big winner for several years. While the stock was having its
great run, expectations rose quickly and dramatically. For a while, Oracle was
able to beat the raised expectations. However, the markets for Oracle's products
are becoming extremely competitive due to new entrants like Microsoft and the
re-emergence of Sybase. With institutional ownership and Wall Street
expectations very high, and as competition increases, it will be increasingly
difficult for Oracle to generate significant positive surprise.

LAMCO: Please discuss your outlook for the second half of 1996.

Smith: As a rule, Columbus Circle Investors does not make forecasts. We do,
however, survey Wall Street economists to determine the

 ..............................................................................

             "We strive to let winners run and elimi-
             nate losers quickly. We will continue to
             hold a company for as long as it produces
             results that are better than expected."

 ..............................................................................

                                      10
<PAGE>

                          LIBERTY ALL*STAR EQUITY FUND

consensus forecast for several key measures of economic strength. We then
evaluate these consensus forecasts as actual data is reported. Our recently
completed survey shows that forecasts for economic growth have risen since the
beginning of the year, but the overall forecast for 1996 is still for moderate
economic growth. The very recent deceleration in some sectors of the economy
(e.g., auto and retail sales) has put some of the higher forecasts and earnings
expectations at risk.

During the first half of the year, heavy mutual fund cash flows and strong
corporate profits drove the market higher. Rising interest rates, which should
have put downward pressure on the market, seemingly had no effect. If a slower
economy materializes, corporate profits could suffer. The combination of higher
rates and lower earnings could create significant problems for the market.

The dominant themes for the remainder of the year will likely be those that are
characterized by stable earnings growth and those that are driven by strong
secular trends based on demographic changes or new technologies, rather than
economic strength. The companies with these characteristics should be able to
deliver positive surprises regardless of the economic environment.*

 ..............................................................................

             ". . . the overall forecast for 1996 is
             still for moderate economic growth.
             The very recent deceleration in some
             sectors of the economy has put some
             of the higher forecasts and earnings
             expectations at risk."

 ..............................................................................

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 have been rewarded as a result of the consistent
reinvestment of distributions. Each share of ALL-STAR owned by shareholders who
have participated in the Dividend Reinvestment Program since the Fund began
operations in 1986 would have grown to 2.791 shares as of June 30, 1996. These
shares have a total net asset value of $32.18. 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.

                                      11
<PAGE>

                          LIBERTY ALL*STAR EQUITY FUND

See Notes to Schedule of Investments.

Schedule of
Investments
As of
June 30, 1996
(Unaudited)

Common Stocks (96.3%)                               Shares    Market Value
- -----------------------------------------------     ------   -------------
Aerospace (2.3%)
Boeing Co.                                         102,400     $ 8,921,600
Lockheed Martin Corp.                               20,500       1,722,000
McDonnell Douglas Corp.                            220,000      10,670,000
                                                              -------------
                                                                21,313,600
                                                              -------------
Auto Parts (1.1%)
Eaton Corp.                                         64,000       3,752,000
Genuine Parts Co.                                  147,000       6,725,250
                                                              -------------
                                                                10,477,250
                                                              -------------
Banks (4.7%)
Chase Manhattan Corp.                               66,100       4,668,312
Citicorp                                           120,000       9,915,000
Corestates Financial Corp.                         130,000       5,005,000
Fleet Financial Group, Inc.                        146,700       6,381,450
MBNA Corp.                                         180,000       5,130,000
State Street Boston Corp.                          145,000       7,395,000
Wachovia Corp.                                      70,000       3,062,500
Wells Fargo & Co.                                    9,000       2,149,875
                                                              -------------
                                                                43,707,137
                                                              -------------
Broadcasting & Cable (0.8%)
British Sky Broadcasting Group ADR                  80,000       3,250,000
Tele-Communications Liberty Media, Inc., 
  Class A (a)                                       75,350       1,996,775
Viacom, Inc., Class B (a)                           48,000       1,866,000
                                                              -------------
                                                                 7,112,775
                                                              -------------
Business Services (2.0%)
AccuStaff, Inc. (a)                                 55,000       1,498,750
Dun & Bradstreet Corp.                              47,400       2,962,500
Electronic Data Systems Corp.                       50,000       2,687,500
First Data Corp.                                   147,327      11,730,912
                                                                -------------
                                                                18,879,662
                                                                -------------
See Notes to Schedule of Investments.


                                      12
<PAGE>

                          LIBERTY ALL*STAR EQUITY FUND

Common Stocks (continued)                           Shares    Market Value
- -----------------------------------------------     ------   -------------
Chemicals (2.6%)
Eastman Chemical                                    56,000     $ 3,409,000
Lubrizol Corp.                                      90,000       2,733,750
Monsanto Co.                                       380,000      12,350,000
Sherwin-Williams Co.                               123,000       5,719,500
                                                              -------------
                                                                24,212,250
                                                              -------------
Computer & Business Equipment (10.4%)
Automatic Data Processing, Inc.                    100,000       3,862,500
Ceridian Corp. (a)                                  40,000       2,020,000
Cisco Systems, Inc. (a)                            199,600      11,302,350
Computer Associates International, Inc.            147,350      10,498,687
Computer Sciences Corp. (a)                         40,000       2,990,000
Danka Business Systems ADR                          40,000       1,170,000
Hewlett-Packard Co.                                 72,300       7,202,888
Intel Corp.                                        138,200      10,149,062
International Business Machines Corp.              103,000      10,197,000
Microsoft Corp. (a)                                141,000      16,937,625
Oracle Corp. (a)                                   158,000       6,231,125
Pitney Bowes, Inc.                                  73,000       3,485,750
3Com Corp. (a)                                      75,000       3,431,250
Xerox Corp.                                        122,000       6,527,000
                                                              -------------
                                                                96,005,237
                                                              -------------
Construction (1.0%)
Foster-Wheeler Corp.                               125,800       5,645,275
Masco Corp.                                        115,000       3,478,750
                                                              -------------
                                                                 9,124,025
                                                              -------------
Consumer Products (2.1%)
Gucci Group NV ADR                                  35,000       2,257,500
Nike, Inc., Class B                                 29,400       3,020,850
Tommy Hilfiger Corp. (a)                            42,000       2,252,250
Unilever NV ADR                                     45,000       6,530,625
Whirlpool Corp.                                     98,200       4,873,175
                                                                -------------
                                                                18,934,400
                                                                -------------
See Notes to Schedule of Investments.


                                      13
<PAGE>

                          LIBERTY ALL*STAR EQUITY FUND

Common Stocks (continued)                           Shares    Market Value
- -----------------------------------------------     ------   -------------
Cosmetics & Toiletries (2.2%)
Avon Products, Inc.                                293,400     $13,239,675
Gillette Co.                                        80,000       4,990,000
International Flavors & Fragrances, Inc.            50,000       2,381,250
                                                              -------------
                                                                20,610,925
                                                              -------------
Diversified (4.3%)
Cooper Industries, Inc.                             84,000       3,486,000
Corning, Inc.                                      182,000       6,984,250
General Electric Co.                                90,000       7,785,000
Hanson PLC ADR                                     370,000       5,272,500
Minnesota Mining & Manufacturing Co.                73,800       5,092,200
Parker-Hannifin Corp.                              146,300       6,199,463
Whitman Corp.                                      200,000       4,825,000
                                                              -------------
                                                                39,644,413
                                                              -------------
Drugs & Health Care (10.6%)
American Home Products Corp.                        77,000       4,629,625
Amgen, Inc. (a)                                     65,000       3,510,000
Bausch & Lomb, Inc.                                109,000       4,632,500
Boston Scientific Corp. (a)                         45,000       2,025,000
Bristol-Myers Squibb Co.                            70,000       6,300,000
Cardinal Health, Inc.                               80,900       5,834,913
Ciba-Geigy AG ADR                                   89,500       5,392,375
Columbia/HCA Healthcare Corp.                      139,900       7,467,162
Elan Corp. ADR (a)                                  30,000       1,713,750
HEALTHSOUTH Corp. (a)                              100,000       3,600,000
Johnson & Johnson                                  134,600       6,662,700
Medtronic, Inc.                                     88,000       4,928,000
Merck & Co., Inc.                                   75,000       4,846,875
Oxford Health Plans, Inc. (a)                      119,700       4,922,663
Pfizer, Inc.                                       100,000       7,137,500
Pharmacia & Upjohn, Inc.                           158,200       7,020,125
Schering-Plough Corp.                              125,000       7,843,750
St. Jude Medical, Inc. (a)                          16,300         546,050
United Healthcare Corp.                             55,000       2,777,500
Warner-Lambert Co.                                 120,000       6,600,000
                                                                -------------
                                                                98,390,488
                                                                -------------

See Notes to Schedule of Investments.

                                      14
<PAGE>

                          LIBERTY ALL*STAR EQUITY FUND

Common Stocks (continued)                           Shares    Market Value
- ------------------------------------------------    ------   -------------
Electronics & Electrical Equipment (3.8%)
Adaptec, Inc. (a)                                   53,900     $ 2,553,513
Analog Devices, Inc. (a)                            70,000       1,785,000
Arrow Electronics, Inc. (a)                        135,000       5,821,875
Atmel Corp. (a)                                     64,000       1,928,000
General Motors Corp., Class H                       48,800       2,934,100
Grainger (W.W.), Inc.                               27,000       2,092,500
Honeywell, Inc.                                     51,600       2,812,200
Raytheon Co.                                       245,000      12,648,125
Tyco International Ltd.                             65,000       2,648,750
                                                              -------------
                                                                35,224,063
                                                              -------------
Financial Services (5.9%)
Associates First Capital Corp. (a)                  70,600       2,656,325
Countrywide Credit Industries, Inc.                150,000       3,712,500
CUC International, Inc. (a)                         60,000       2,130,000
Federal Home Loan Mortgage Corp.                   140,000      11,970,000
Federal National Mortgage Assoc.                   220,000       7,370,000
First USA, Inc.                                     60,000       3,300,000
Green Tree Financial Corp.                         129,600       4,050,000
H & R Block, Inc.                                  100,000       3,262,500
Merrill Lynch & Co., Inc.                           29,500       1,921,188
Morgan Stanley Group, Inc.                         110,000       5,403,750
Paychex, Inc.                                       30,000       1,443,750
Travelers Group, Inc.                              160,000       7,300,000
                                                              -------------
                                                                54,520,013
                                                              -------------
Food & Beverage (2.4%)
Campbell Soup Co.                                   23,200       1,635,600
ConAgra, Inc.                                      135,900       6,166,462
Dole Foods, Inc.                                   130,000       5,590,000
McCormick & Co., Inc.                              135,000       2,986,875
PepsiCo, Inc.                                      171,800       6,077,425
                                                              -------------
                                                                22,456,362
                                                              -------------
Hotels & Leisure (2.4%)
Brunswick Corp.                                    260,000       4,254,250
Circus Circus Enterprises, Inc. (a)                 10,700         438,700

See Notes to Schedule of Investments.

                                      15
<PAGE>

                          LIBERTY ALL*STAR EQUITY FUND

Common Stocks (continued)                           Shares    Market Value
- -----------------------------------------------     ------   -------------
Hotels & Leisure (continued)
Hasbro, Inc.                                       119,000     $ 5,200,000
HFS, Inc. (a)                                       90,000       6,300,000
Hilton Hotels Corp.                                 17,700       1,991,250
Mirage Resorts, Inc. (a)                            80,200       4,330,800
                                                              -------------
                                                                22,515,000
                                                              -------------
Industrial Equipment (1.1%)
Crown Cork & Seal Co., Inc.                         62,000       2,790,000
Dover Corp.                                        159,000       7,333,875
                                                              -------------
                                                                10,123,875
                                                              -------------
Insurance (7.4%)
Aetna Life & Casualty Co.                           44,100       3,153,150
AFLAC, Inc.                                        210,000       6,273,750
Allstate Corp.                                      84,600       3,859,875
American International Group, Inc.                  45,000       4,438,125
Aon Corp.                                          104,450       5,300,837
EXEL Limited                                       152,000      10,716,000
Marsh & McLennan Companies, Inc.                    84,000       8,106,000
MBIA, Inc.                                          63,000       4,906,125
MGIC Investment Corp.                               55,000       3,086,875
Progressive Corp.                                  130,000       6,012,500
Providian Corp.                                    137,500       5,895,313
Transamerica Corp.                                  85,000       6,885,000
                                                              -------------
                                                                68,633,550
                                                              -------------
Metals & Mining (0.6%)
Freeport-McMoRan Copper & Gold, Inc., Class A      175,000       5,578,125
                                                              -------------
Oil & Gas (6.2%)
Amerada Hess Corp.                                  45,500       2,439,937
Burlington Resources, Inc.                         123,000       5,289,000
Enron Corp.                                         45,000       1,839,375
Exxon Corp.                                         73,000       6,341,875
Kerr-McGee Corp.                                    41,200       2,508,050
Mobil Corp.                                         45,100       5,056,838
Repsol SA ADR                                      124,500       4,326,375

See Notes to Schedule of Investments.

                                      16
<PAGE>

                          LIBERTY ALL*STAR EQUITY FUND

Common Stocks (continued)                           Shares    Market Value
- -----------------------------------------------     ------   -------------
Oil & Gas (continued)
Royal Dutch Petroleum Co. ADR                       69,300     $10,654,875
Schlumberger Ltd.                                   64,100       5,400,425
Tosco Corp.                                         22,500       1,130,625
Triton Energy Corp. (a)                            150,000       7,293,750
USX-Marathon Group                                 234,800       4,725,350
                                                              -------------
                                                                57,006,475
                                                              -------------
Paper (3.3%)
Alco Standard Corp.                                 50,000       2,262,500
Avery Dennison Corp.                                20,000       1,097,500
Champion International Corp.                       120,000       5,010,000
Georgia-Pacific Corp.                               36,900       2,619,900
International Paper Co.                            119,200       4,395,500
Kimberly-Clark Corp.                               114,756       8,864,901
Union Camp Corp.                                   120,800       5,889,000
                                                              -------------
                                                                30,139,301
                                                              -------------
Photographic Equipment & Supplies (0.7%)
Eastman Kodak Co.                                   83,200       6,468,800
                                                              -------------
Pollution Control (0.9%)
Browning Ferris Industries, Inc.                   183,100       5,309,900
Republic Industries, Inc. (a)                      100,000       2,912,500
                                                              -------------
                                                                 8,222,400
                                                              -------------
Publishing (3.2%)
American Greetings Corp.                           287,000       7,856,625
Gannett Co., Inc.                                   78,600       5,560,950
McGraw-Hill Cos., Inc.                              82,000       3,751,500
R. R. Donnelley & Sons Co.                         176,000       6,138,000
Readers Digest Assoc., Inc., Class A               151,000       6,417,500
                                                              -------------
                                                                29,724,575
                                                              -------------
Retail Trade (3.9%)
American Stores Co.                                158,300       6,529,875
AutoZone, Inc. (a)                                 122,400       4,253,400
Dayton Hudson Corp.                                 25,500       2,629,687
Federated Department Stores, Inc. (a)               95,700       3,265,762

See Notes to Schedule of Investments.

                                      17
<PAGE>

                          LIBERTY ALL*STAR EQUITY FUND

Common Stocks (continued)                           Shares    Market Value
- -----------------------------------------------     ------   -------------
Retail Trade (continued)
Home Depot, Inc.                                    47,300    $  2,554,200
May Department Stores Co.                          275,000      12,031,250
Safeway, Inc. (a)                                   96,100       3,171,300
Staples, Inc. (a)                                  100,000       1,950,000
                                                              -------------
                                                                36,385,474
                                                              -------------
Services (0.7%)
Service Corp. International                        118,600       6,819,500
                                                              -------------
Telecommunications (7.1%)
Asia Satellite Telecommunications Holdings Ltd.
ADR (a)                                             50,000       1,487,500
Lucent Technologies, Inc.                           87,000       3,295,125
MCI Communications Corp.                           249,400       6,390,875
Motorola, Inc.                                     180,100      11,323,788
Nokia Corp. ADR                                    110,000       4,070,000
QUALCOMM, Inc. (a)                                  45,700       2,427,813
SBC Communications, Inc.                            84,500       4,161,625
Sprint Corp.                                       170,000       7,140,000
Tele Danmark ADR                                    50,000       1,268,750
Telefonakteibolaget LM Ericsson, Class B, ADR      386,000       8,299,000
U.S. Robotics Corp. (a)                            109,200       9,336,600
WorldCom, Inc. (a)                                 113,500       6,285,063
                                                              -------------
                                                                65,486,139
                                                              -------------
Transportation (2.6%)
AMR Corp. (a)                                       60,000       5,460,000
Burlington Northern, Inc.                           66,500       5,378,187
Delta Air Lines, Inc.                               49,900       4,141,700
Southwest Airlines Co.                             112,800       3,285,300
Union Pacific Corp.                                 89,800       6,274,775
                                                               -------------
                                                                24,539,962
                                                               -------------
Total Common Stocks (Cost $640,997,967)                        892,255,776
                                                               -------------

See Notes to Schedule of Investments.

                                      18
<PAGE>

                          LIBERTY ALL*STAR EQUITY FUND

                                Interest   Maturity       Par
Short-term Investments (3.9%)      Rate       Date       Value      Market Value
- ------------------------------     ------    -------    ---------   -----------
Commercial Paper (1.7%)
American Express Credit Corp.    5.45%   07/01/96   $1,100,000     $1,100,000
American Express Credit
Corp.                            5.29    07/02/96    2,300,000      2,299,662
Cooperative Associate
Tractor                          5.33    07/03/96    2,000,000      1,999,408
Dean Witter Discover & Co.       5.35    07/02/96    1,500,000      1,499,777
Lucent Technologies, Inc.        5.32    07/11/96    3,000,000      2,995,567
Norwest Financial                5.35    07/08/96    3,500,000      3,496,359
Siemens Corp.                    5.33    07/12/96    2,500,000      2,495,928
                                                                  -----------
                                                                   15,886,701
                                                                  -----------
U.S. Government Security (0.9%)
U.S. Treasury Bill (Discount Rate 4.82%) 07/11/96    8,500,000      8,488,761
                                                                    -----------
Repurchase Agreement (1.3%)
Chase Securities Corp. dated 06/28/96, 5.40%, to be repurchased
at $11,761,290 on 07/01/96, collateralized by U.S. Treasury
notes with various maturities to 1998, with a current market
value of $12,018,471                                               11,756,000
                                                                -------------
Total Short-term Investments (Cost $36,131,462)                    36,131,462
                                                                -------------
Total Investments (100.2%) (Cost $677,129,429) (b)                928,387,238
                                                                -------------
Other Assets and Liabilities, Net (-0.2%)                         (1,968,300)
                                                                -------------
Net Assets (100.0%)                                              $926,418,938
                                                                =============
Net Asset Value Per Share (80,320,259 shares outstanding)              $11.53
                                                                =============

Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The cost of investments for Federal income tax purposes is $677,404,668.
    Gross unrealized appreciation and depreciation of investments at June 30,
    1996 is as follows:
     Gross unrealized appreciation                               $260,639,354
     Gross unrealized depreciation                                 (9,656,784)
                                                                  -----------
      Net unrealized appreciation                                $250,982,570
                                                                  ===========

Acronym            Name
- ------  ---------------------------
 ADR    American Depository Receipt

See Notes to Financial Statements.

                                      19
<PAGE>

                          LIBERTY ALL*STAR EQUITY FUND

Statement
of Assets and
Liabilities
June 30, 1996
(Unaudited)

Assets:
 Investments at market value
  (Identified cost $677,129,429)                                $928,387,238
 Receivable for investments sold                                  11,634,889
 Dividends and interest receivable                                 1,111,149
 Other assets                                                        163,351
                                                                -------------
  Total assets                                                   941,296,627
                                                                -------------
Liabilities:
 Payable for investments purchased                                 3,416,416
 Distributions payable                                            10,660,448
 Management fee payable                                              536,385
 Administrative fee payable                                          144,018
 Other liabilities                                                   120,422
                                                                -------------
  Total liabilities                                               14,877,689
                                                                -------------
Net assets                                                      $926,418,938
                                                                =============
Net assets represented by:
 Paid-in capital (unlimited number of shares of
  beneficial interest without par value authorized,
  80,320,259 shares outstanding)                                $635,086,697
 Accumulated net realized gains on investments
  less distributions                                              40,076,216
 Net unrealized appreciation of investments                      251,256,025
                                                                -------------
Total net assets applicable to outstanding shares
 of beneficial interest ($11.53 per share)                      $926,418,938
                                                                =============

See Notes to Financial Statements.

                                      20
<PAGE>

                          LIBERTY ALL*STAR EQUITY FUND

Statement of
Operations
Six months ended
June 30, 1996
(Unaudited)

<TABLE>
<CAPTION>
 <S>                                                      <C>             <C>
 Investment income:
   Dividends                                                              $ 7,285,900
   Interest                                                                 1,084,028
                                                                          -----------
     Total investment income (net of nonrebatable foreign
      taxes withheld at source which amounted to $169,103)                  8,369,928
 Expenses:
   Management fees                                        $  3,269,896
   Administrative fee                                          854,970
   Custodian and transfer agent fees                           147,646
   Proxy and shareholder communication expense                 119,538
   Printing expense                                             57,203
   Legal and audit fees                                         37,818
   Insurance expense                                            40,755
   Trustees' fees and expense                                   21,492
   Miscellaneous expense                                       159,584
                                                              --------
     Total expense                                                          4,708,902
                                                                          -----------
 Net investment income                                                      3,661,026 

Realized and unrealized gains on investments:
   Net realized gains on investment transactions:
    Proceeds from sales                                    587,001,375
    Cost of investments sold                               522,964,910
                                                              --------
     Net realized gains on investment transactions                         64,036,465
   Net unrealized appreciation of investments:
    Beginning of period                                    231,810,919
    End of period                                          251,256,025
                                                              --------
     Change in unrealized appreciation-net                                 19,445,106
                                                                          -----------
  Net increase in net assets resulting from operations                    $87,142,597
                                                                          ===========
</TABLE>

See Notes to Financial Statements.

                                      21
<PAGE>

                          LIBERTY ALL*STAR EQUITY FUND

Statement of
Changes in
Net Assets

<TABLE>
<CAPTION>
                                                     Six months
                                                       ended
                                                      June 30,        Year ended
                                                        1996         December 31,
                                                    (Unaudited)          1995
- ---------------------------------------------------------------------------------
<S>                                                <C>              <C>
Operations:
  Net investment income                            $  3,661,026     $  7,397,838
  Net realized gains on investment transactions      64,036,465       78,814,527
  Change in unrealized appreciation-net              19,445,106      130,987,777
                                                     ----------   --------------
  Net increase in net assets resulting from
   operations                                        87,142,597      217,200,142
                                                     ----------   --------------
Distributions declared from:
  Net investment income                                 --            (7,397,838)
  Paid-in Capital                                   (13,820,791)         --
  Net realized gains on investments                 (32,813,514)     (72,731,982)
                                                     ----------   --------------
  Total distributions                               (46,634,305)     (80,129,820)
                                                     ----------   --------------
Capital transactions:
  Increase in net assets from capital share
   transactions                                      14,199,818       24,187,453
                                                     ----------   --------------
  Total increase in net assets                       54,708,110      161,257,775
Net Assets:
  Beginning of period                               871,710,828      710,453,053
                                                     ----------   --------------
  End of period                                    $926,418,938     $871,710,828
                                                     ==========   ==============
</TABLE>

See Notes to Financial Statements.

                                      22
<PAGE>

                          LIBERTY ALL*STAR EQUITY FUND

Financial
Highlights

<TABLE>
<CAPTION>
                                                 Six months
                                                   ended                    Year ended December 31,
                                               June 30, 1996    ------------------------------------------------
                                                (Unaudited)       1995      1994      1993      1992      1991
<S>                                              <C>           <C>        <C>      <C>       <C>        <C>
Per Share Operating Performance:
 Net asset value at beginning of period          $ 11.03       $  9.26    $10.40   $ 10.78   $ 11.20    $  8.92
                                                ------------    ------      ----      ----      ----      ------
Income from investment operations:
  Net investment income                             0.05          0.10      0.11      0.12      0.16       0.17
  Net realized and unrealized gains
   (losses) on securities                           1.04          2.71     (0.20)     0.78(a)   0.54       3.13
  Provision for Federal income tax                     -             -         -     (0.18)        -          -
                                                ------------    ------      ----      ----      ----      ------
  Total from investment operations                  1.09          2.81     (0.09)     0.72      0.70       3.30
                                                ------------    ------      ----      ----      ----      ------
Less distributions:
  Dividends from net investment income              --           (0.10)    (0.12)    (0.12)    (0.18)     (0.15)
  Distributions from realized capital gains        (0.42)        (0.94)    (0.52)    (0.58)    (0.66)     (0.87)
  Returns of Capital                               (0.17)            -     (0.36)    (0.37)    (0.23)         -
                                                ------------    ------      ----      ----      ----      ------
  Total distributions                              (0.59)        (1.04)    (1.00)    (1.07)    (1.07)     (1.02)
                                                ------------    ------      ----      ----      ----      ------
  Change due to rights offering (b)                    -             -     (0.05)    (0.03)    (0.05)         -
                                                ------------    ------      ----      ----      ----      ------
  Net asset value at end of period               $ 11.53       $ 11.03    $ 9.26   $ 10.40   $ 10.78    $ 11.20
                                                ============    ======      ====      ====      ====      ======
  Per share market value at end of period        $10.750       $10.875    $8.500   $11.125   $11.125    $10.750
                                                ============    ======      ====      ====      ====      ======
Total Investment Return for Shareholders: (c)
  Based on net asset value                          10.2%(d)      31.8%     (0.8%)     8.8%      6.9%      39.3%
  Based on market price                              4.2%(d)      41.4%    (14.9%)    12.7%     14.9%      53.9%
Ratios and Supplemental Data:
  Net assets at end of period (millions)         $   926       $   872    $  710   $   725   $   665    $   601
  Ratio of expenses to average net assets           1.04%(e)      1.06%     1.07%     1.08%     1.08%      1.16%
  Ratio of net investment income to
   average net assets                               0.81%(e)      0.92%     1.16%     1.08%     1.44%      1.66%
  Portfolio turnover rate                             28%(d)        54%       44%       72%       57%        72%
</TABLE>

(a) Before provision for Federal income tax.
(b) Effect of ALL-STAR's rights offering for shares at a price below net
    asset value.
(c) Calculated assuming all distributions reinvested and all rights
    exercised.
(d) Not annualized.
(e) Annualized

See Notes to Financial Statements.

                                      23
<PAGE>

                          LIBERTY ALL*STAR EQUITY FUND

Notes to
Financial
Statements
June 30, 1996

Note 1. Organization and
Accounting Policies
Liberty ALL-STAR Equity Fund (ALL-STAR or the Fund), organized as a
Massachusetts business trust on August 20, 1986, is a closed-end, diversified
management investment company. ALL-STAR's investment objective is to seek total
investment return, comprised of long term capital appreciation and current
income, through investment primarily in a diversified portfolio of equity
securities. ALL-STAR is managed by Liberty Asset Management Company (the
"Manager"), an indirect majority-owned subsidiary of Liberty Mutual Insurance
Company.

The following is a summary of significant accounting policies followed by
ALL-STAR in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results, if different,
are expected to be immaterial to the net assets of the Fund.

Valuation of Investments-Portfolio securities listed on an exchange and
over-the-counter securities quoted on the NASDAQ system are valued on the basis
of the last sale on the date as of which the valuation is made, or, lacking any
sales, at the current bid prices. Over-the-counter securities not quoted on the
NASDAQ system are valued on the basis of the mean between the current bid and
asked prices on that date. Securities for which reliable quotations are not
readily available are valued at fair value, as determined in good faith and
pursuant to procedures established by the Trustees. Short-term instruments
maturing in more than 60 days for which market quotations are readily available
are valued at current market value. Short-term instruments with remaining
maturities of 60 days or less are valued at amortized cost, unless the Board of
Trustees determines that this does not represent fair value.

Provision for Federal Income Tax-ALL-STAR qualifies as a "regulated investment
company." As a result, a Federal income tax provision is not required for
amounts distributed to shareholders.

Other-Security transactions are accounted for on the trade date. Interest income
and expenses are recorded on the accrual basis. Dividend income is recorded on
the ex-dividend date.

Note 2. Management and
Administrative Fees
Under ALL-STAR's Fund Management and Portfolio Management Agreements, ALL-STAR
pays the Manager a management fee for its investment management services at an
annual rate of 0.80% of ALL-STAR's average weekly net asset value. The Manager
pays each Portfolio Manager a portfolio management fee at an annual rate of
0.40% of the average weekly net asset value of the portion of the investment
portfolio managed by it. ALL-STAR also pays the Manager a fee for its
administrative services at an annual rate of 0.20% of ALL-STAR's average weekly
net asset value. The annual fund management and administrative fees are reduced
to 0.72% and 0.18%, respectively, on average weekly net assets in excess of
$400,000,000 and the aggregate annual fees payable by the Manager to the
Portfolio Managers are

                                      24
<PAGE>

                          LIBERTY ALL*STAR EQUITY FUND

reduced to 0.36% of ALL-STAR's average weekly net assets in excess of
$400,000,000.

Under the terms of a settlement of litigation initiated in 1988, the Manager
will, until July 1997 or ALL-STAR's conversion to an open-end fund, whichever
occurs first, make monthly rebates of a portion of its fee for investment
management services ranging from 3.875% of such fee if the Fund's net assets are
more than $550 million to zero if such assets are under $300 million. During the
six months ended June 30, 1996, $132,518 in rebates has been offset against
management fees of the Fund.

Note 3. Capital Transactions
During the six months ended June 30, 1996, distributions in the amount of
$14,199,818 were paid in newly issued shares valued at market value or net asset
value, but not less than 95% of market value, resulting in the issuance of
1,301,565 shares. During the year ended December 31, 1995, distributions in the
amount of $24,187,453 were paid in newly issued shares valued at market value or
net asset value, but not less than 95% of market value, resulting in the
issuance of 2,276,314 shares.

Note 4. Securities Transactions
Realized gains and losses are recorded on the identified cost basis for both
financial reporting and Federal income tax purposes. The cost of investments
purchased and the proceeds from investments sold excluding short-term debt
obligations for the six months ended June 30, 1996 were $538,617,449 and
$587,001,375, respectively.

Note 5. Distributions to Shareholders
ALL-STAR currently has a policy of paying distributions on its common shares
totaling approximately 10% of its net asset value per year, payable in four
quarterly distributions of 2.5% of ALL-STAR's net asset value at the close of
the New York Stock Exchange on the Friday prior to each quarterly declaration
date. Distributions to shareholders are recorded on the ex-dividend date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations, which may differ from generally accepted accounting principles.
Reclassifications are made to the Fund's capital accounts to reflect income and
gains available for distribution (or available capital loss carryovers) under
income tax regulations.

                                      25
<PAGE>

                          LIBERTY ALL*STAR EQUITY FUND

1996 Annual
Meeting of
Shareholders

Liberty ALL-STAR Equity Fund's 1996 Annual Meeting of Shareholders was held
on April 17, 1996. At the Meeting, Mr. Harold W. Cogger was elected a Trustee
of the class whose term expires with the 1999 Annual Meeting to fill the
vacancy created by the retirement of Richard I. Roberts, and Mr. James E.
Grinnell was reelected as a Trustee of that class. Messrs. Robert J. Birnbaum
and Richard W. Lowry continue in office as Trustees.

In addition, shareholders ratified the Board of Trustees' selection of KPMG Peat
Marwick LLP as ALL-STAR's independent auditors for the year ending December 31,
1996 by a vote of 74,363,296 shares in favor, 407,271 against and 809,016
abstaining.

                                      26
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