<PAGE>   1
                                                                      EXHIBIT 13

STOCK DATA

The Liberty Corporation's Common Stock is listed on the New York Stock Exchange.
Its symbol is LC. As of December 31, 1997, 1,251 shareholders of record in 40
states, the District of Columbia, Canada and Australia held the 20,712,686
Common Stock shares outstanding. Quarterly high and low stock prices and
dividends per share as reported by the Wall Street Journal were:

<TABLE>
<CAPTION>
                                                                              Quarterly
                                             Market Price Per Share         Dividend Per
                                             High              Low              Share
                                        ---------------- ----------------- ----------------

             1997
-------------------------------

<S>                                     <C>              <C>               <C>
Fourth Quarter                              47 5/16          42 9/16             .20
Third Quarter                               45 3/4           40 1/4              .20
Second Quarter                              42               38 3/8              .20
First Quarter                               43 3/8           37 3/8             .185

<CAPTION>

             1996
-------------------------------
<S>                                     <C>              <C>               <C>
Fourth Quarter                              41 1/4            32 1/4            .185
Third Quarter                               35 7/8            30 1/8            .185
Second Quarter                              33 3/8            30 7/8            .185
First Quarter                               36                33                 .17


<CAPTION>
             1995
-------------------------------
<S>                                     <C>              <C>               <C>
Fourth Quarter                              34                31 1/4             .17
Third Quarter                               33 3/4            27 5/8             .17
Second Quarter                              28 1/4            25 3/4             .17
First Quarter                               27 1/2            24 3/4            .155
</TABLE>

The Company expects to continue its policy of paying regular cash dividends,
although there is no assurance as to future dividends because they are dependent
on future earnings, capital requirements and financial condition. Also, the
payment of dividends is subject to the restrictions described in Notes 5 and 9
of the Consolidated Financial Statements.

                       CO-REGISTRAR AND CO-TRANSFER AGENTS
-------------------------------------------------------------------------------

        Wachovia Bank, N.A.                       The Bank of New York
        Winston-Salem, North Carolina             101 Barclay Street
        1-800-633-4236                            New York, New York  10286
                                                  1-800-524-4458

        Written shareholder correspondence and
        requests for transfer should be sent to:

        Wachovia Shareholder Services
        P.O. Box 8217
        Boston, Massachusetts  02266-8217


For a Copy of the 10-K or other information, contact:
The Liberty Corporation Shareholder Relations
Box 789
Greenville, SC  29602
Telephone (864) 609-8256

Stock Exchange Listing:
New York Stock Exchange
Symbol:  LC

Annual Meeting
The Liberty Corporation will hold its annual meeting on Tuesday, May 5, 1998, at
10:30 a.m. in The Liberty Corporation Headquarters, Greenville, South Carolina.
All Shareholders are invited to attend.

                                       28

<PAGE>   2


SELECTED FINANCIAL DATA               The Liberty Corporation and Subsidiaries
                                                             December 31, 1997

<TABLE>
<CAPTION>
(In 000's, except per share data)                 1997           1996           1995          1994         1993          1992
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>             <C>              <C>         <C>            <C>           <C>
Revenues
   Insurance                                  $   509,093     $  482,500     $  486,980    $   439,451    $  384,132    $   305,934
   Broadcasting                                   137,898        137,336        119,529         97,381        87,984         89,989
   Parent & Minor Subsidiaries                     22,978         17,008         19,090         19,600        16,089         20,301
   Adjustments & Eliminations                      (9,713)       (17,747)       (19,918)       (16,071)      (15,260)       (13,468)
-----------------------------------------------------------------------------------------------------------------------------------
      Total Revenues *                        $   660,256     $  619,097     $  605,681    $   540,361    $  472,945    $   402,756
-----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes &
   Cumulative Effect of Accounting Changes
   Insurance                                  $    89,183     $   50,009     $   83,483    $    31,590    $    71,518   $    53,962
   Broadcasting                                    33,866         33,739         27,127         21,701         16,180        16,859
   Parent & Minor Subsidiaries                    (15,921)       (28,686)       (19,994)       (14,423)       (12,846)      (13,690)
   Adjustments & Eliminations                       4,449          1,437         (1,821)            --          2,472         4,768
-----------------------------------------------------------------------------------------------------------------------------------
      Consolidated Income Before  Income
        Taxes & Cumulative Effect of
         Accounting Changes                   $   111,577     $   56,499     $   88,795    $    38,868    $    77,324   $    61,899
-----------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss)
   Insurance                                  $    60,473     $   34,196     $   56,582    $    21,803    $    33,459   $    35,369
   Broadcasting                                    21,726         20,284         16,590         12,919         12,217        10,262
   Parent & Minor Subsidiaries                    (10,175)       (18,117)       (12,635)        (8,544)        (8,141)       (8,153)
   Adjustments & Eliminations                       2,927            977         (1,184)            --          1,612         3,407
-----------------------------------------------------------------------------------------------------------------------------------
      Net Income                              $    74,951     $   37,340     $   59,353    $    26,178    $    39,147   $    40,885
-----------------------------------------------------------------------------------------------------------------------------------
Earnings Per Diluted Share **                 $      3.34     $     1.66     $     2.72    $      1.26    $      2.01   $      2.51
-----------------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Investment
  Gains (Losses)                              $    21,789     $  (18,260)    $  111,095    $   (58,286)   $     1,276   $       (78)
-----------------------------------------------------------------------------------------------------------------------------------
Dividends Per Common Share                    $      .785     $    0.725     $    0.665    $      0.62    $      0.56   $     0.515
-----------------------------------------------------------------------------------------------------------------------------------
Depreciation and Amortization
   Insurance                                  $     3,614     $    3,815     $    4,515    $     5,125    $     3,286   $     3,424
   Broadcasting                                     9,884          9,927          9,244          6,276          6,566         6,848
   Parent & Minor Subsidiaries                      7,372          8,645          5,275          4,618          3,670         4,628
-----------------------------------------------------------------------------------------------------------------------------------
Total Depreciation and Amortization           $    20,870     $   22,387     $   19,034    $    16,019    $    13,522   $    14,900
-----------------------------------------------------------------------------------------------------------------------------------
Capital Expenditures
   Insurance                                       $3,387     $    4,391     $    4,413    $     2,270    $     5,814   $     3,618
   Broadcasting                                     5,752          6,030          5,863          3,900          2,168         2,513
   Parent & Minor Subsidiaries                        999            470          3,012          3,446          7,483           698
-----------------------------------------------------------------------------------------------------------------------------------
Total Capital Expenditures                    $    10,138     $   10,891     $   13,288    $     9,616    $    15,465   $     6,829
-----------------------------------------------------------------------------------------------------------------------------------
Assets
   Insurance                                  $ 2,905,726     $2,785,468     $2,769,619    $ 2,494,264    $ 2,057,126   $ 1,937,908
   Broadcasting                                   167,948        169,477        168,672         98,705        101,982       110,849
   Parent & Minor Subsidiaries                    915,226        878,182        873,933        666,319        581,406       565,135
   Adjustments & Eliminations                    (804,142)      (772,362)      (777,928)      (592,024)      (553,481)     (539,014)
-----------------------------------------------------------------------------------------------------------------------------------
      Total Assets                            $ 3,184,758     $3,060,765     $3,034,296    $ 2,667,264    $ 2,187,033   $ 2,074,878
-----------------------------------------------------------------------------------------------------------------------------------
Notes, Mortgages and Other Debts              $   191,914     $  247,861     $  258,444    $   231,647    $   149,489   $   176,632
-----------------------------------------------------------------------------------------------------------------------------------
Redeemable Preferred Stock                    $    37,369     $   45,599     $   45,667    $    45,816            ---           ---
-----------------------------------------------------------------------------------------------------------------------------------
Consolidated Shareholders' Equity             $   674,447     $  580,861     $  575,762    $   395,589    $   433,845   $   389,188
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

*     See Note 16 to the Consolidated Financial Statements related to the 1995
      acquisition.

**    The earnings per share amounts prior to 1997 have been re-stated as
      required to comply with Statement of Financial Accounting Standards No.
      128, "Earnings Per Share". See Note 11 to the Consolidated Financial
      Statements for further discussion of SFAS 128.


                                       29
<PAGE>   3


-------------------------------------------------------------------------------
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
-------------------------------------------------------------------------------

                    The Liberty Corporation and Subsidiaries

    The Liberty Corporation is a holding company with operations in insurance
and broadcasting. Liberty ("the Company") markets its insurance products through
its two insurance subsidiaries, Liberty Life Insurance Company and Pierce
National Life Insurance Company (doing business and marketing products under the
brand name "FamilySide"). Additionally, Liberty is one of the nation's largest
life insurance third-party administrators, providing administrative services for
over 4.5 million policies through Liberty Insurance Services Corporation. The
Company's broadcasting subsidiary, Cosmos Broadcasting, consists of eight
network affiliated stations in the Southeast and Midwest. Five stations are
affiliated with NBC, two with ABC, and one with CBS.

                            SIGNIFICANT TRANSACTIONS

    On May 14, 1997, Liberty completed the sale of its business rental property
and the majority of its business park land development projects to a partnership
in which the general partner is a publicly-traded real estate investment trust
("REIT"). Liberty received cash, a note receivable, and partnership units (which
are convertible into shares of the REIT) in exchange for the properties. The
properties sold were held by both Liberty Life and the parent company, and had a
book value of approximately $71.2 million at the sale date. The total
consideration received on the sale of the real estate was approximately $79.8
million including the note receivable and the partnership units of the REIT. The
cash proceeds of approximately $35 million from the sale were used to repay
debt. Concurrent with the decision to sell its business rental property and
business park land developments Liberty also de-emphasized its residential real
estate operations. Future investments in residential real estate operations are
expected to be limited to the amount necessary to complete on-going residential
projects and the existing portfolio will be reduced as projects currently under
development are sold. For financial reporting purposes all residential
properties have been classified as held for disposal and are reported at the
lower of cost or the fair market value less cost to sell. Liberty has recognized
realized investment losses of approximately $6.6 million on its residential
properties as a result of writing them down to net realizable value. The total
net realized gain on the real estate transactions (including expenses associated
with the sale and the residential write-downs) was approximately $1.2 million.
    On November 13, 1997, the Company announced that it had agreed to sell its
wholly-owned subsidiary, Pierce National Life Insurance Company, to Fortis,
Inc.. Under the agreement Fortis will acquire Pierce for $180 million cash,
subject to certain adjustments, payable at closing. In connection with the sale
of Pierce, the Company entered into a multi-year $51 million administrative
services contract with Fortis, Inc. in which Liberty will provide back office
administrative services for the pre-need insurance operations of Fortis. During
December 1997, Fortis purchased newly issued shares of Pierce National for $37.2
million in cash, resulting in Fortis owning approximately 21% of the outstanding
stock of Pierce at December 31, 1997. The company anticipates recognizing a loss
on the sale of Pierce of approximately $14 million to $18 million. The sale is
expected to close in the first quarter of 1998 pending final regulatory
approvals.

    On February 10, 1998, the Company announced a tender offer whereby the
Company planned to repurchase up to 2 million shares of its outstanding common
stock pursuant to a "Dutch Auction" self-tender offer. The offer closed on March
11, 1998 and the Company repurchased 2.4 million shares of its common stock
(including an additional 400,000 as a result of exercising its option to
purchase an additional 2% of its outstanding common shares) for $52.00 per share
under the offer. The stock purchase was funded from the Company's current credit
facility.

     The combined effect of these transactions is expected to be slightly
dilutive to earnings for 1998.


                             SUMMARY OF CONSOLIDATED
                              RESULTS OF OPERATIONS

    Consolidated net income for 1997 was $75.0 million, an increase of $37.6
million from the $37.3 million reported for 1996. The amounts reported for 1996
included a special charge of $26.9 million related principally to losses on
unprofitable insurance products.

<TABLE>
<CAPTION>
(In 000s)                    1997        1996        1995
------------------------- ----------- ----------- ------------
<S>                       <C>         <C>         <C>
Revenues                   $660,256    $619,097    $605,681
------------------------- ----------- ----------- ------------

Income before income
    taxes                  $111,577    $ 56,499    $ 88,795
Income taxes                 36,626      19,159      29,442
------------------------- ----------- ----------- ------------
Net income                 $ 74,951    $ 37,340    $ 59,353
------------------------- ----------- ----------- ------------
</TABLE>


                                       30
<PAGE>   4



    Adjusting for the special charges of $26.9 million in 1996, net income was
$64.3 million, resulting in an increase in 1997 of $10.7 million (17%) over the
adjusted 1996 earnings. The increase for 1997 was primarily the result of
earnings growth of $2.1 million in the insurance operations (which included
approximately $9.3 million of realized losses associated with the sale of the
commercial real estate owned by Liberty Life and certain residential writedowns
as previously mentioned), $1.4 million in Cosmos Broadcasting, with the
remainder primarily from investment gains in the parent company associated with
the sale of the Company's commercial real estate.

    The special charges for 1996 resulted from a detailed study of the
profitability of all of Liberty's insurance products. The study identified a
small group of products whose mortality and expense experience was significantly
worse than assumed when the products were sold. Approximately $22 million of the
special charges were provisions for losses related to these products. In
addition to the product-related charges, the Company wrote-off previously
deferred costs associated with acquiring and modifying an administrative system
for the Company's pre-need business based on a decision to move to a new
administrative platform for pre-need. All of the charges represented non-cash
items, and had no material impact on the insurance companies' statutory
financial condition.

    Consolidated net income for 1996 was $37.3 million ($64.3 million excluding
the special charges) and compares with $59.4 million earned in 1995. The
adjusted 1996 increase over 1995 was primarily the result of earnings growth of
$3.7 million in Cosmos Broadcasting.

    Consolidated 1997 revenues of $660.3 million were up 7% compared with the
$619.1 million reported in 1996. A $26.6 million increase in insurance
operations and a $14.0 million increase in the parent company contributed to the
increase. Liberty Life's revenue increase of $24.9 million drove the insurance
operations and was due to significant premium growth in the Specialized
Marketing Division. The FamilySide pre-need operations reported an increase of
$2.3 million. The growth in the parent company was related to approximately
$10.5 million of net gains realized on the sale of its business rental property
and the majority of its business park land development projects.

    Consolidated 1996 revenues of $619.1 million were up $13.4 million (2%) over
the $605.7 million reported in 1995. A $17.8 million increase in broadcasting
operations was partially offset by a $4.5 million decline in insurance revenues.
Contributing to the decline in insurance operations revenues was a decrease of
$23.9 million in the FamilySide pre-need operations as actions taken in mid-1995
to increase the profitability of the product portfolio had a detrimental impact
on 1996 revenues.

    The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") which changes the requirements for earnings
per share disclosure. The new standard requires presentation of basic earnings
per share and diluted earnings per share. Basic earnings per share excludes all
potentially dilutive securities from the calculation and is calculated by
dividing income available to common shareholders by the weighted average number
of common shares outstanding. Diluted earnings per share reflects the potential
dilution that could occur if all securities or other contracts to issue common
stock were exercised or converted into common stock. Further discussion of
earnings per share is contained in Note 11 to the Consolidated Financial
Statements.

                                BUSINESS SEGMENTS

-------------------------------------------------------------------------------
Chart 1

Consolidated Income from Operations (in millions)

Data

<TABLE>
<S>      <C>
1997     $70.9
1996     $66.0
1995     $60.8
1994     $52.9
1993     $45.4
1992     $37.1
</TABLE>
-------------------------------------------------------------------------------

    Liberty reports the results of its business operations in two segments:
Insurance and Broadcasting. The insurance segment consists of Liberty's
insurance operations, which markets life and health insurance through its three
primary distribution systems, Agency, Specialized Marketing, and FamilySide. The
broadcasting segment consists of Cosmos Broadcasting, which owns and operates
eight network-affiliated television stations in the Southeast and Midwest.
Activities of Corporate and other include financing and real estate operations.
In order to make more meaningful comparisons, the segment data excludes the
effect of realized investment gains and losses and special charges.


                                       31

<PAGE>   5

A reconciliation of the segment operations to net income is as follows:


<TABLE>
(In 000s)                      1997       1996      1995
----------------------------------------------------------
<S>                           <C>        <C>       <C>
Segment Operating Earnings:
Insurance                     $62,947    $56,508   $54,789
Broadcasting                   21,726     20,284    16,590
Corporate and other           (13,764)   (10,760)  (10,546)
----------------------------------------------------------
Total operating earnings       70,909     66,032    60,833
----------------------------------------------------------
Net realized investment
    gains (losses)              4,042     (1,748)   (1,480)
Special charges                   ---    (26,944)      ---
----------------------------------------------------------
Net income                    $74,951    $37,340   $59,353
----------------------------------------------------------

Diluted Earnings per Share:
Operating earnings            $  3.16    $  2.98   $  2.79
Net realized investment
    gains (losses)                .18      (0.09)    (0.07)
Special charges                   ---      (1.23)      ---
----------------------------------------------------------
Diluted Earnings per Share    $  3.34    $  1.66   $  2.72
----------------------------------------------------------
</TABLE>


                         INSURANCE RESULTS OF OPERATIONS

    Operating earnings from insurance operations for 1997 were $62.9 million, an
increase of 11% over the $56.5 million reported in 1996. Liberty Life's
operating earnings increased $2.7 million to $44.8 million in 1997. Liberty
Life's Specialized Marketing division continued to experience strong premium and
profit growth primarily from one product line. This division reported a $32.7
million increase in premiums and a $4.9 million (110%) increase in operating
earnings over 1996. The Specialized Marketing product line historically has
contributed a relatively small portion of Liberty Life's earnings but over the
past three years it has shown substantial growth. The Agency division of Liberty
Life reported earnings that were level with the prior year. The FamilySide
pre-need operating earnings of $18.0 million in 1997 represented a 29% increase
compared with 1996. The increase resulted from a modest increase in premium
revenues and a $3.9 million improvement in net investment income.

-------------------------------------------------------------------------------
Chart 2

Insurance Operations
Income from Operations (in millions)

Data

<TABLE>
<S>      <C>
1997     $62.9
1996     $56.5
1995     $54.8
1994     $46.4
1993     $41.4
1992     $35.7
</TABLE>
-------------------------------------------------------------------------------
Operating earnings from insurance operations for 1996 were $56.5 million, an
increase of 3% over the $54.8 million reported in 1995. Liberty Life's operating
earnings increased $1.4 million to $42.0 million in 1996. Strong premium and
profit growth from an accidental death product in Liberty Life's Specialized
Marketing division was partially offset as the Agency division reported lower
profits due primarily to higher deferred policy acquisition cost amortization
resulting from higher lapse experience. The FamilySide pre-need operating
earnings of $14.0 million in 1996 represented a 3% increase compared with 1995.
The increase in 1996 earnings came notwithstanding a 20% decline in premiums in
1996 compared with 1995. Several actions taken in 1995 and 1996 to consolidate
the operations and improve the profitability of several prior year acquisitions
combined to have a negative impact on premium revenues in 1996.

Insurance Operating Earnings (in 000s)

<TABLE>
<CAPTION>
                                      1997       1996        1995
------------------------------------------------------------------
<S>                                <C>         <C>        <C>
Revenues (exclusive of realized
   investment gains and losses)
Insurance premiums and
   policy charges                  $350,692    $321,671   $331,370
Net investment income               155,007     150,349    144,483
Service contract revenues             7,121       7,751      9,025
------------------------------------------------------------------
Total revenues                      512,820     479,771    484,878
Policy benefits                     227,927     218,901    236,774
Commissions                          78,939      66,146     54,583
General insurance expenses           67,480      64,326     68,246
Amortization of deferred
   acquisition costs and
   cost of business                  45,564      47,142     43,697
   acquired
Other                                   ---          21        114
------------------------------------------------------------------
Income from operations
   before income taxes               92,910      83,235     81,464
Income taxes                         29,964      26,727     26,675
------------------------------------------------------------------
Income from operations             $ 62,946    $ 56,508   $ 54,789
------------------------------------------------------------------
</TABLE>


                                       32
<PAGE>   6

Insurance Operations Revenues *
(in millions)

Data

<TABLE>
<S>               <C>
1997              512.8
1996              479.8
1995              484.9
1994              451.3
1993              369.8
1992              306.7
</TABLE>

* Excluding realized investment gains and losses

    Revenues from insurance operations increased 7% to $512.8 million in 1997.
Liberty Life reported an increase in operating revenues of $29.2 million, almost
all of which was generated in the Specialized Marketing division. FamilySide
reported an increase in operating revenues of $4.4 million, primarily from
higher investment income.

    For 1996 revenues from insurance operations were $479.8 million, a decrease
of $5.1 million compared with 1995. Liberty Life had a $17.5 million increase on
the strength of the growth in Specialized Marketing premiums. Offsetting the
growth in Liberty Life was a $21.3 million reduction in FamilySide operating
revenues as premiums declined for the reasons previously discussed.

Pie Charts
Insurance Premiums and Policy Charges

<TABLE>
<S>                        <C>
1997
Agency                     39%
FamilySide Pre-need        30%
Specialized Marketing      29%
Other                       2%

1996
Agency                     43%
FamilySide Pre-need        32%
Specialized Marketing      22%
Other                       3%
</TABLE>

    Policy benefits as a percent of premium were 65% in 1997, compared with 68%
in 1996 and 71% in 1995. The decline in the ratio from 1996 to 1997 and from
1995 to 1996 was more a function of a change in the mix of business than an
actual decline in mortality. The growth of Specialized Marketing premiums has
the effect of reducing the overall benefit to premium ratio. The death benefit
on the product that is providing the growth in Specialized Marketing is fully
reinsured and there is no mortality cost associated with the product. The
FamilySide products are primarily limited-pay or single pay products that have
higher benefit to premium ratios than other Liberty products. Adjusting for the
fluctuation in ratio caused by the change in mix of business, the Liberty Life
benefit-to-premium ratio was 70% in 1997 compared with 68% in 1996, and the
benefit-to-premium ratio for FamilySide was 93% and 91% for 1997 and 1996,
respectively. Overall, the benefit-to-premium ratio for 1997 was within the
expected levels, considering that claims are inherently variable and will
fluctuate, particularly when measured over a short period of time.

    The commission-to-premium ratio was 23% in 1997, compared with 21% and 16%
in 1996 and 1995, respectively. Similar to the benefit-to-premium ratio, the
increase for 1997 over 1996 and for 1996 over 1995 was caused primarily by a
change in the mix of business due to the growth of the Specialized Marketing
accidental death product. The product is marketed by a third party marketing
group. Payments to the group include the traditional commissions as well as
compensation for certain general and administrative functions performed by the
marketing group. For financial reporting purposes all payments to the marketing
group are classified as commissions.

    General insurance expenses increased $3.2 million in 1997 from the amounts
reported in 1996. The majority of this increase occurred in Liberty Life where
the Company recognized charges to increase reserves on a self-insured health
plan and charges related to a system conversion. Excluding Liberty Insurance
Services expenses from all years, the expense-to-premium ratio was 17% for 1997,
compared with 18% for 1996 and 1995.

    Amortization of deferred acquisition costs and cost of business acquired
decreased $1.6 million from 1996. The amortization-to-premium ratio was 13% in
1997, compared with 15% and 13% in 1996 and 1995, respectively. The primary
variable in the amortization expense from year to year is policy persistency, or
lapses. Lapse experience in 1997 in Liberty Life's Agency division was slightly
below the prior year. Lapse experience in 1996 was higher than the previous two
years resulting in higher levels of amortization expense in 1996 compared with
1995. During 1996 FamilySide recorded a one-time adjustment related to a master
file conversion that resulted in higher amortization expense, and accounted for
the majority of the decrease in 1997 from the prior year. Specialized Marketing
lapses are influenced by, among other factors, the level of mortgage loan
refinancing activity. Mortgage loan interest rates have been gradually
decreasing over the last couple of years and the trend has continued into early
1998. Assuming the low interest rates begin to result in a large number of
refinancings, there is a risk that the Specialized Marketing lapses could
increase as a result of the loans on which this protection is carried being
refinanced; however, there has not been any marked increase in the level of
Specialized Marketing lapses to date.



                                     33

<PAGE>   7

                       BROADCASTING RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
(In 000s)                       1997        1996       1995
-------------------------------------------------------------
<S>                           <C>         <C>        <C>
Gross broadcasting revenues   $137,898    $137,336   $119,529
Agency commissions              19,005      19,433     16,378
-------------------------------------------------------------
Net broadcasting revenues      118,893     117,903    103,151
Broadcasting expenses           76,679      75,534     67,568
-------------------------------------------------------------
Income from operations
   before interest and          42,214      42,369     35,583
   taxes
Interest expense                 8,348       8,630      8,456
-------------------------------------------------------------
Income from operations
   before income taxes          33,866      33,739     27,127
-------------------------------------------------------------
Income taxes                    12,140      13,455     10,537
-------------------------------------------------------------
Income from operations        $ 21,726    $ 20,284   $ 16,590
-------------------------------------------------------------
</TABLE>

   Gross broadcasting revenues for 1997 were $137.9 million compared with $137.3
million in 1996. Although 1997 was expected to be a down year in the revenue
cycle due to the lack of major political races and Olympic Games, Cosmos managed
to report increases in all revenue categories that more than offset a decline of
over $7.0 million in political revenues from the prior year. Cosmos major
sources of revenue growth were national and local advertising due to the
continued strength in the economy, as well as revenue from its cable operations.
Cable advertising sales, a business Cosmos entered in 1994, produced revenue of
$7.5 million in 1997, compared with $6.3 million in 1996 and $5.1 million in
1995.

   Gross broadcasting revenues for 1996 were $137.3 million, an increase of
$17.8 million (15%) from 1995. All revenue categories increased in 1996, with
political revenues more than doubling to $8.1 million as Cosmos capitalized on
the strength on its stations in its local markets to capture a significant
portion of the political dollars spent. The Summer Olympics also provided
incremental revenue as 5 of the 8 Cosmos stations are NBC affiliates.

    Broadcasting expenses rose only 2% in 1997 compared with the 1996 levels.
This compares with a 12% increase in 1996 over the 1995 levels. A portion of the
expense increase in 1996 came from the cost of the extensive coverage of the
Olympics. Cosmos also benefited from a favorable $1.3 million adjustment to
income tax expense during 1997.


-------------------------------------------------------------------------------
Broadcasting Operations
Income from Operations (in millions)

<TABLE>
<S>      <C>
1997     $21.7
1996     $20.3
1995     $16.6
1994     $12.9
1993     $ 9.7
1992     $10.3
</TABLE>
-------------------------------------------------------------------------------



   An additional measure of broadcasting performance is operating cash flow,
defined as operating earnings before depreciation and amortization, interest,
taxes and corporate expenses. Operating cash flow, and the related efficiency
ratio (operating cash flow divided by revenues net of agency commissions) are
measurements of broadcasting operating margins. For the year broadcasting cash
flow was $51.9 million compared to $52.5 million in 1996 and $44.9 million in
1995. The efficiency ratio was 44% in 1997, compared with 45% in 1996 and 43% in
1995.


-------------------------------------------------------------------------------
Broadcasting Operations
Cash Flow (in millions)

<TABLE>
<S>      <C>
1997     $51.9
1996     $52.5
1995     $44.9
1994     $33.0
1993     $27.8
1992     $28.2
</TABLE>
-------------------------------------------------------------------------------

    The Company closed the acquisition of WLOX-TV on February 28, 1995. The
purchase price of $40.1 million was funded with a combination of 599,985 shares
of 1995-A Series convertible preferred stock with a stated value of $35 per
share; cash of $5.6 million; and a note payable for $13.5 million. The Company
continues to look for attractive opportunities within the broadcasting industry
for future acquisitions. Recognizing that the value of broadcast properties is
very high in the current market, Cosmos will selectively evaluate acquisition
opportunities that fit our goal of operating stations that are the premier
provider of news and programming in our markets.

                               CORPORATE AND OTHER
    Corporate and other includes general corporate activities such as the
overall management, legal and finance operations, debt service on debt not
allocated to segments, intercompany eliminations and


                                       34

<PAGE>   8

the operations of Liberty Properties Group and Liberty Capital Advisors. The
increased loss in Corporate and Other was due to higher expense levels in the
parent company and lower earnings in the remaining real estate operations. There
was no significant change in the financial results in this area for 1996
compared with 1995.


                               IMPACT OF YEAR 2000

    The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send premium
notices, or engage in similar normal business activities.

    The Company has completed an assessment and will have to modify or replace
portions of its software so that its systems will function properly with respect
to dates in the year 2000 and thereafter. The Company believes that with
modifications to existing software and conversions to new software, the Year
2000 issue will not pose significant operational problems for its computer
systems.

    The Company has initiated formal communications with all of its significant
suppliers and vendors to determine the extent to which the Company's interface
systems are vulnerable to those third parties' failure to remediate their own
Year 2000 issues. The Company's total Year 2000 project costs and estimates to
complete include the estimated costs and time associated with the impact of
third party Year 2000 issues based on information presently available. However,
there can be no guarantee that the systems of other companies on which the
Company's systems rely will be timely converted and would not have an adverse
effect on the Company's systems.

    The Company has begun the process of reprogramming, replacing and testing
software for Year 2000 modifications. The Company anticipates being
substantially complete with the Year 2000 project by December 31, 1998. The
Company has implemented several major systems projects during the last three
years that were not specifically performed to remediate Year 2000 issues.
However, during the course of those projects, systems have been modified to
ensure that they are Year 2000 compliant. The total cost of the projects
undertaken beginning in 1995 for which a component of the project, or the entire
project, had to do with remediating the Year 2000 problem is estimated to be
approximately $17 million and is being funded through operating cash flows. Of
the total, approximately $2.3 million will be expensed as incurred, with the
remainder to be capitalized as it relates primarily to upgrading or replacing
systems for business reasons other than the Year 2000. To date the Company has
incurred approximately $9.3 million dollars of costs ($8.7 million capitalized
and $0.6 million expensed).

                                   INVESTMENTS

   As of December 31, 1997, Liberty's consolidated investment portfolio was
carried at $2.2 billion compared with $2.1 billion at the end of 1996.
Approximately 77% of consolidated invested assets were in fixed maturity
securities (bonds and redeemable preferred stocks), 11% were in mortgage loans,
5% in policy loans, with the balance consisting of equity securities (4%), real
estate (2%), and other long-term investments (1%).

   The overall average credit rating of fixed maturity securities as of December
31, 1997 was AA-. Less than investment grade securities comprised 3.2% of the
fixed maturity portfolio at December 31, 1997, compared with 2.6% at December
31, 1996.



-------------------------------------------------------------------------------
Bond Portfolio Quality Rating

<TABLE>
<S>               <C>
AAA               46.2%
AA                10.4%
A                 19.5%
BBB               20.7%
Below BBB          3.2%
</TABLE>

-------------------------------------------------------------------------------


   Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" requires that all debt and
equity securities be classified into one of three categories -- held to
maturity, available for sale, or trading. As of December 31, 1997 and 1996, all
securities have been classified as available for sale and are carried at fair
value.

   SFAS 115 requires that available for sale securities be carried at fair
value, with unrealized gains and losses, net of adjustment for deferred income
taxes and deferred acquisition costs related to universal life products,
reported directly in shareholders' equity. The fair value of Liberty's fixed
maturity portfolio, and the related adjustment to shareholders' equity, is
significantly affected by changes in the overall interest rate environment.
During 1997 and 1996 interest rates have been relatively stable. In 1997, there
was an increase in equity resulting from an increase in the fair value of the
portfolio of $21.8 million, whereas during 1996 shareholders' equity decreased
$18.3 million as a result of changes in fair value of security holdings. The
1997 and 1996 results were in marked contrast to the significant fluctuations
reported in 1995, when, as interest rates fell throughout the year,
shareholders' equity increased $111.1 million, reflecting the change in the fair
value of the portfolio. While the volatility experienced in the last two years
was not as great as that experienced in 1995, it is likely that there


                                       35


<PAGE>   9


will continue to be significant fluctuations in shareholders' equity as a result
of carrying fixed maturity securities at market value.


Fixed Maturity Securities
Ratio of Fair Value to Amortized Cost Chart

<TABLE>
<S>      <C>
1997     105.4%
1996     103.6%
1995     106.1%
1994      95.7%
1993     107.4%
1992     107.9%
</TABLE>

   Although Liberty's entire fixed maturity and equity security portfolios have
been classified as available for sale, Liberty follows a value-oriented, as
opposed to a trading-oriented, investment philosophy concerning its securities
portfolios. Accordingly, turnover in the portfolios has historically been low
and has related primarily to restructuring portfolios acquired through
acquisitions or to manage Liberty's tax position. Gains trading, which Liberty
believes is short-sighted, is not consistent with its investment philosophy of
longer term value-oriented investing. Throughout 1997 and continuing into 1998,
yields were at historically low levels and the yield curve is relatively flat.
In this environment, in order to generate incremental returns above market
yields without sacrificing credit quality, it may be necessary to more actively
trade securities.

   Approximately 40% of Liberty's $1.7 billion fixed maturity portfolio at
December 31, 1997, was composed of mortgage-backed securities. This compares
with approximately 45% at year-end 1996. Certain mortgage-backed securities are
subject to significant prepayment risk or extension risk due to changes in
interest rates. In periods of declining interest rates mortgages may be repaid
more rapidly than scheduled as borrowers refinance higher rate mortgages to take
advantage of the lower current rates. As a result, holders of mortgage-backed
securities may receive large prepayments on their investments that cannot be
reinvested at interest rates comparable to the rates on the prepaid mortgages.
In a rising interest rate environment refinancings are significantly curtailed
and the payments to the holders of the securities decline, limiting the ability
of the holder to reinvest at the higher interest rates. Mortgage-backed
pass-through securities and sequential collateralized mortgage obligations
("CMO's"), which comprised 19% of the book value of Liberty's mortgage-backed
securities at December 31, 1997, and 17% at year-end 1996, are sensitive to
prepayment or extension risk. The remaining 81% of Liberty's mortgage-backed
investment portfolio at December 31, 1997, consisted of planned amortization
class ("PAC") instruments. This compares to 83% at December 31, 1996. These
investments are designed to amortize in a more predictable manner by shifting
the primary prepayment and extension risk of the underlying collateral to
investors in other tranches of the CMO. PAC's are tranches of CMO's specifically
designed to protect against prepayment or extension risk. In periods of
declining interest rates, prepayments are first applied to the non-PAC tranches
of the CMO, creating improved call protection for the PAC tranches. Only after
all non-PAC tranches have been paid off are prepayments applied to the PAC
tranche. In periods of increasing interest rates, prepayments are first applied
to the PAC tranche, thus reducing extension risk for PACs. As a result, PACs
have a more stable cash flow than most other mortgage securities because they
have better call protection and less extension risk.

   Mortgage loans of $244.8 million comprised 11% of the consolidated investment
portfolio at December 31, 1997. This compares to mortgage loans of $230.9
million, or 11%, of the consolidated investment portfolio at December 31, 1996.
Substantially all of these mortgage loans are commercial mortgages with a
loan-to-value ratio not exceeding 75% when made. Approximately 53% of these
loans at December 31, 1997, are concentrated in North and South Carolina; and
92% are in the states of North Carolina, South Carolina, Virginia, Florida,
Georgia, Tennessee and Louisiana. Mortgage loan delinquencies, defined as
payments 60 or more days past due, have historically been low and were 1.0% at
the end of 1997 compared to the latest available industry rate of 1.3%.

As of December 31, 1997 and 1996, investment real estate totaled $49.2 million
and $132.7 million, representing 2% and 6%, respectively, of the consolidated
investment portfolio. As previously mentioned, the decline is due to the sale of
the Company's business rental property and the majority of its business park
land development projects during the second quarter of 1997. The majority of the
remaining residential property is located in South Carolina and Georgia.

   Liberty has experienced pre-tax impairments on investment assets of $7.2
million, $4.3 million and $9.5 million for the years ended December 31, 1997,
1996, and 1995, respectively. The high level of impairments in 1997 was due to
approximately $6.6 million of writedowns associated with the remaining
residential properties which are being carried at the lower of cost or fair
market value less costs to sell, and write-downs taken on an oil and gas
investment. The high level of write-downs in 1995 was due primarily to
write-downs taken on an oil and gas investment. While the level of impairments
is not predictable, management does not expect impairments to have a significant
impact on Liberty's results of operations or liquidity.


                                       36

<PAGE>   10
                   LIABILITIES, REDEEMABLE PREFERRED STOCK AND
                              SHAREHOLDERS' EQUITY

    In March 1995, Liberty entered into a $375 million multi-tranche credit
facility. The facility consisted of a $225 million revolving credit facility
maturing in 1999; a $100 million seven year term loan facility; and a $50
million facility substantially identical to the revolving facility, which was
convertible into terms substantially identical to the term facility anytime
prior to March 1997. In March 1997, the Company terminated the $50 million
convertible loan commitment and reduced the amount available under the revolving
credit agreement by $50 million, thereby reducing the total amount available
under the facility to $275 million consisting of the $100 million term loan
facility and the $175 million revolving facility. In August 1997, the Company
repaid the term portion of its previous credit facility, using a combination of
funds available under the revolving portion of the facility and short term
borrowings from various lending institutions. Additionally, the Company repaid
approximately $35.0 million under the revolving facility using the cash proceeds
from the sale of its business rental property and the majority of its business
park land development projects. The current credit facility contains various
restrictive covenants typical of a credit facility agreement of this size and
nature. These restrictions primarily pertain to levels of indebtedness,
limitations on payment of dividends, limitations on the quality and types of
investments, and capital expenditures. Additionally, Liberty must also comply
with several financial covenant restrictions under the revolving credit
agreement including defined ratios of consolidated debt to cash flow,
consolidated debt to consolidated total capital, and fixed charges coverage.

    In January 1998, the Company entered into a short term loan agreement for
$140 million whereby the Company may borrow any amount up to $140 million to use
for financing the stock repurchase plan as previously discussed, or for other
general operating purposes. Any amount borrowed under this agreement matures and
is to be paid in full on March 31, 1998.

    In February 1998, Liberty initiated the process of refinancing its current
remaining facility into a new $300 million credit facility, with an option to
borrow up to an additional $150 million for a total commitment of $450 million.
The new revolving credit facility is expected to mature five years from the date
of closing of the facility.

    The sale of Pierce National Life is expected to close during the first
quarter of 1998. The Company will use a portion of the proceeds from the sale to
repay debt under the credit facility.

    During March 1998, the Company borrowed approximately $125 million under the
facility to fund the repurchase of 2.4 million shares of its common stock
pursuant to the stock tender transaction previously discussed.



Debt to Capital Ratio
Excluding Unrealized Investment Gains and Losses

<TABLE>
<S>      <C>
1997     22.8%
1996     29.7%
1995     31.4%
1994     31.9%
1993     25.9%
1992     31.4%
</TABLE>

    Liberty has entered into interest rate swaps and caps in an attempt to
minimize the impact of a potential significant rise in short-term interest rates
on Liberty's outstanding variable-rate debt. See Note 5 to the Consolidated
Financial Statements for additional discussion of these contracts.

    In 1994, Liberty issued 668,207 shares of Series 1994-A Voting Cumulative
Preferred Stock having a total redemption value of $23.4 million, or $35.00 per
share, in connection with the acquisition of State National Capital Corporation
and 598,656 shares of Series 1994-B Voting Cumulative Preferred Stock having a
total redemption value of $22.4 million, or $37.50 per share, in connection with
the acquisition of American Funeral Assurance Company. The shares have
preference in liquidation and each share is entitled to one vote on any matters
submitted to a vote of the shareholders of the Company. Both the Company and the
holders of the preferred stock have the right to redeem any or all of the shares
from time to time beginning five years and one month after the date of issue in
exchange for cash or shares of the Company's common stock. There is no sinking
fund for the redemption of either series of preferred stock. Both the 1994-A and
1994-B series of preferred stock are considered redeemable preferred stock and
are classified outside permanent equity.

    In 1995, Liberty issued 599,985 shares of Series 1995-A Voting Cumulative
Convertible Preferred Stock, having a total redemption value of $21.0 million,
or $35.00 per share, in connection with the acquisition of WLOX-TV. The Company
has the right to redeem any or all of the shares from time to time at any time
beginning five years and one month after the date of issue in exchange for cash,
common stock, or a combination of both. Generally, the amount of consideration
on the 1995-A Series will be equivalent to $35.00 per share plus the amount of
any accumulated and unpaid dividends. There is no sinking fund for the
redemption of the preferred stock. These shares are considered common stock
equivalents for financial reporting purposes.

                                       37


<PAGE>   11

   The National Association of Insurance Commissioners (the "NAIC") has
Risk-Based Capital ("RBC") requirements for life/health insurance companies to
evaluate the adequacy of statutory capital and surplus in relation to investment
and insurance risks such as asset quality, mortality and morbidity, asset and
liability matching, and other business factors. The RBC formula is used by
states as an early warning tool to identify companies that potentially are
inadequately capitalized for the purpose of initiating regulatory action. In
addition, the formula defines minimum capital standards that supplement the
current system of low fixed minimum capital and surplus requirements on a
state-by-state basis. The RBC ratios for the insurance subsidiaries
significantly exceed the minimum capital requirements at December 31, 1997.


                                   CASH FLOWS

   The parent company's short-term cash needs consist primarily of: (1) working
capital requirements, (2) interest on corporate debt, (3) dividends to
shareholders and (4) funds for real estate investments. The parent company's
primary long-term cash need is the repayment of corporate debt. The parent
company depends primarily on dividends, debt service payments and consolidated
tax return benefits paid to it by its subsidiaries to meet its short-term and
long-term cash needs. Historically, Liberty's primary businesses - insurance and
broadcasting - have provided sufficient liquidity to fund their operations and
the operations of the parent company. Liberty receives funds from its insurance
subsidiaries primarily in the form of dividends. Dividends from each insurance
subsidiary are restricted under applicable state law. Annual dividends in excess
of maximum amounts prescribed by state statutes ("extraordinary dividends") may
not be paid without the approval of the insurance commissioner of each state in
which an insurance subsidiary is domiciled. See Note 9 to the Consolidated
Financial Statements.

   On a consolidated basis, Liberty's net cash flow from operating activities
was $61.8 million for 1997 compared with $74.2 million for 1996 and $87.4
million for 1995. Liberty's net cash provided by investing activities was $2.8
million for 1997 compared with net cash used of $88.9 million in 1996 and $133.6
million in 1995. The sources of net cash provided in 1997 was the sale of the
commercial real estate as described previously, and the sale of Pierce National
Stock to Fortis, Inc.. For financial reporting, notes receivable of
approximately $17.3 million and partnership units of the REIT received as
consideration for the real estate are non-cash items and are not reported in the
Statement of Cash Flows. The net cash used in investing activities in 1996 and
1995 was primarily to fund the purchase of investment securities. Cash flow from
financing activities fluctuates primarily based on the level of borrowings or
debt repayment. In 1997 cash flow used in financing activities was $39.6
million, compared with cash provided by financing activities of $7.7 million and
$38.4 million in 1996 and 1995, respectively. The Company used cash proceeds of
approximately $35 million from the sale of real estate to repay debt in 1997.
Debt repayments exceed borrowing proceeds by $55.9 million in 1997 and by $12.3
million in 1996. In 1995 proceeds from borrowings exceeded debt repayments by
$11.4 million. As a result of its activities, Liberty had a net increase in cash
of $25.0 million in 1997, a decrease in cash of $7.0 million in 1996 and a $7.7
million decrease in 1995.

   Liberty believes that its current level of cash and future cash flows from
operations is sufficient to meet the needs of its business and to satisfy its
debt service. If suitable opportunities arise for additional acquisitions,
Liberty plans to draw on its revolving credit facility or use Common Stock or
Preferred Stock as payment of all or part of the consideration for such
acquisitions; or Liberty may seek additional funds in the equity or debt
markets. As previously mentioned, during the first quarter of 1998 the Company
used a substantial amount of the proceeds from the sale of Pierce National to
repurchase common stock. Under Liberty's credit facility, there exists no
restriction on acquisition funding; however, consolidated debt is limited to a
maximum of $385 million and the total debt to capital ratio is limited to 35%.
At December 31, 1997 outstanding debt totaled $191.9 million and the debt to
capital ratio was 22.8%.

   Management believes liquidity risk of the insurance operations is minimized
by investment strategies that stress high quality assets and an integrated
asset/liability matching process. Investments are primarily in intermediate to
long-term maturities in order to match the long-term nature of insurance
liabilities. Liberty has a relatively small block of universal life products
that are interest-sensitive. Liberty actively manages the rates credited on
these policies to maintain an acceptable spread between the earned and credited
rate. In addition, Liberty has an integrated asset/liability matching process to
minimize the liquidity risk that is associated with interest-sensitive products.
Accordingly, most long-term investments are held to maturity and interim market
fluctuations present no significant liquidity problems. Liberty's only use of
derivative financial instruments is to minimize the exposure on its variable
rate debt.

   Most states have laws requiring solvent life insurance companies to pay
guaranty fund assessments to protect the interests of policyholders of insolvent
life insurance companies. Due to the recent increase in the number of companies
that are under regulatory supervision, there is expected to be an increase in
assessments by state guaranty funds. Under present law, most assessments can be
recovered through a credit against future premium taxes. Liberty has reviewed
its exposure to potential assessments, and the effect on its financial position
and results of operations is not expected to be material.

   Other Company commitments are shown in Note 8 to the Consolidated Financial
Statements. Further discussion of investments and valuation is contained in
Notes 1, 2 and 17 to the Consolidated Financial Statements.


                                       38

                           FORWARD LOOKING INFORMATION

   The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward looking statements. Certain information contained herein or in any
other written or oral statements made by, or on behalf of the Company, are or
may be viewed as forward looking. Although the Company has used appropriate care
in developing any such forward looking information, forward looking information
involves risks and uncertainties that could significantly impact actual results.
These risks and uncertainties include, but are not limited to, the following:
changes in general economic conditions, including the performance of financial
markets and interest rates; competitive, regulatory, or tax changes that affect
the cost of or demand for the Company's products; and adverse litigation
results. The Company undertakes no obligation to publicly update or revise any
forward looking statements, whether as a result of new information, future
developments, or otherwise.


                                       39
<PAGE>   12



CONSOLIDATED BALANCE SHEETS
THE LIBERTY CORPORATION AND SUBSIDIARIES
(In 000's)

<TABLE>
<CAPTION>
At December 31                                                                                  1997             1996
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>              <C>
ASSETS

Investments:
  Fixed maturity securities
     Available for sale, at market, cost of $1,587,587 in 1997 and $1,465,213 in 1996          $1,673,888       $1,517,539
  Equity securities, primarily at market, cost of $55,992 in 1997, $61,431 in 1996                 74,568           75,591
  Mortgage loans                                                                                  244,821          230,910
  Investment real estate, at cost less accumulated depreciation $10,742 in 1997,                   49,169          132,696
       $13,619 in 1996
  Policy loans                                                                                    100,322           98,816
  Other long-term investments                                                                      18,459           22,470
  Short-term investments                                                                              250              250
--------------------------------------------------------------------------------------------------------------------------
Total Investments                                                                               2,161,477        2,078,272
--------------------------------------------------------------------------------------------------------------------------

Cash                                                                                               61,786           36,774
Accrued investment income                                                                          21,723           20,817
Receivables net of bad debt reserves, $1,441 in 1997, $2,310 in 1996                               69,433           64,074
Receivable from reinsurers                                                                        278,165          277,578
Deferred acquisition costs                                                                        275,615          262,182
Cost of business acquired                                                                          62,226           70,764
Buildings and equipment, at cost, less accumulated depreciation $114,473 in 1997,                  74,338           79,808
       $106,513 in 1996
Intangibles related to television operations, at cost, net of amortization $29,168 in              90,080           93,979
       1997, $25,269 in 1996
Goodwill related to insurance acquisitions, at cost, net of amortization $10,929 in                33,950           35,608
       1997, $9,315 in 1996
Other assets                                                                                       55,965           40,909
--------------------------------------------------------------------------------------------------------------------------
Total Assets                                                                                   $3,184,758       $3,060,765
--------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       40
<PAGE>   13


<TABLE>
<CAPTION>
At December 31                                                                                 1997             1996
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>               <C>
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY

Liabilities:
   Policy liabilities:
     Future policy benefits                                                                  $1,890,786        $1,853,173
     Claims and benefits payable                                                                 36,991            31,450
     Policyholder funds                                                                          28,154            28,488
-------------------------------------------------------------------------------------------------------------------------
                                                                                              1,955,931         1,913,111

Notes and mortgages payable                                                                     191,914           147,861
Long-term debt                                                                                      ---           100,000
Accrued income taxes                                                                              3,282             5,163
Deferred income taxes                                                                           173,562           163,139
Accounts payable and accrued expenses                                                           106,191           101,209
Other liabilities                                                                                 4,902             3,822
Minority interest                                                                                37,160               ---
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Total Liabilities                                                                             2,472,942         2,434,305
-------------------------------------------------------------------------------------------------------------------------

Redeemable Preferred Stock:
   1994-A Series, $35.00 redemption value, 504,168 and 668,207 shares issued and
       outstanding in 1997 and 1996, respectively                                                17,646            23,387
   1994-B Series, $37.50 redemption value, 525,948 and 592,334 shares issued and
       outstanding in 1997 and 1996, respectively                                                19,723            22,212
-------------------------------------------------------------------------------------------------------------------------
Total Redeemable Preferred Stock                                                                 37,369            45,599
-------------------------------------------------------------------------------------------------------------------------

Shareholders' Equity:
   Common stock
     Authorized - 50,000,000 shares, no par value
     Issued and outstanding - 20,712,686 shares in 1997, 20,214,738 shares in 1996              182,994           163,443
   Convertible preferred stock 1995-A Series, 599,985 shares issued and outstanding              20,999            20,999
   Preferred stock
     Authorized - 10,000,000 shares
     Issued and outstanding - 1,630,101 shares in 1997, 1,860,526 shares in 1996
   Unearned stock compensation                                                                  (10,872)           (7,168)
   Unrealized appreciation on fixed maturity securities available for sale and equity
       securities                                                                                61,515            39,726
   Cumulative foreign currency translation adjustment                                               335              (204)
   Retained earnings                                                                            419,476           364,065
-------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity                                                                      674,447           580,861
-------------------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------------------
Total Liabilities, Redeemable Preferred Stock and Shareholders' Equity                       $3,184,758        $3,060,765
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.

                                       41


<PAGE>   14


CONSOLIDATED STATEMENTS OF INCOME
THE LIBERTY CORPORATION AND SUBSIDIARIES
(In $000's, except per share data)


<TABLE>
<CAPTION>
For the Years Ended December 31                                              1997              1996             1995
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>               <C>               <C>
REVENUES
   Insurance premiums and policy charges                                     $350,692          $321,371          $331,370
   Broadcasting revenues                                                      137,898           137,336           119,529
   Net investment income                                                      158,319           155,221           148,670
   Service contract revenues                                                    7,121             7,751             9,025
   Realized investment gains (losses)                                           6,226            (2,582)           (2,913)
-------------------------------------------------------------------------------------------------------------------------
Total revenues                                                                660,256           619,097           605,681
-------------------------------------------------------------------------------------------------------------------------

EXPENSES
   Policyholder benefits                                                      227,927           218,751           236,774
   Insurance commissions                                                       78,939            66,483            54,583
   General insurance expenses                                                  67,270            73,790            67,703
   Amortization of deferred acquisition costs and cost of business
      acquired                                                                 45,564            73,967            43,780
   Broadcasting expenses                                                       95,588            94,867            83,849
   Interest expense                                                            13,209            15,139            15,047
   Other expenses                                                              20,182            19,601            15,150
-------------------------------------------------------------------------------------------------------------------------
Total expenses                                                                548,679           562,598           516,886
-------------------------------------------------------------------------------------------------------------------------

Income before income taxes                                                    111,577            56,499            88,795
Provision for income taxes                                                     36,626            19,159            29,442
-------------------------------------------------------------------------------------------------------------------------

Net income                                                                   $ 74,951          $ 37,340          $ 59,353
-------------------------------------------------------------------------------------------------------------------------

EARNINGS PER COMMON SHARE
-------------------------------------------------------------------------------------------------------------------------
Basic earnings per common share                                              $   3.50          $   1.67          $   2.80
-------------------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share                                            $   3.34          $   1.66          $   2.72
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.



                                       42

<PAGE>   15


CONSOLIDATED STATEMENTS OF CASH FLOWS
THE LIBERTY CORPORATION AND SUBSIDIARIES
(In 000's)

<TABLE>
<CAPTION>
For the Years Ended December 31                                              1997              1996             1995
------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                <C>               <C>

OPERATING ACTIVITIES
Net income                                                               $    74,951        $   37,340        $   59,353
Adjustments to reconcile net income to net cash provided by
     operating activities:
   Increase in policy liabilities                                              7,390             5,545            18,845
   Increase (decrease) in accounts payable and accrued expenses                2,571            14,050            (3,964)
   Increase in receivables                                                    (6,600)           (4,645)           (3,311)
   Amortization of deferred acquisition costs and cost of business
     acquired                                                                 45,564            73,967            43,780
   Policy acquisition costs deferred                                         (55,312)          (51,122)          (54,522)
   Realized investment (gains) losses                                         (6,226)            2,582             2,913
   Gain on sale of operating assets                                           (2,011)           (3,172)           (3,231)
   Depreciation and amortization                                              20,870            22,387            19,034
   Amortization of bond premium and discount                                  (7,575)           (5,835)           (7,485)
   Provision for deferred income taxes                                         1,613            (8,905)            6,225
   All other operating activities, net                                       (13,394)           (7,957)            9,803
------------------------------------------------------------------------------------------------------------------------
   NET CASH PROVIDED BY OPERATING ACTIVITIES                                  61,841            74,235            87,440
------------------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES
Investment securities sold - Available for sale                              128,513           181,572           155,670
Investment securities matured or redeemed by issuer:
     Available for sale                                                      100,031            75,369            32,913
     Held to maturity                                                            ---               ---            35,494
Cost of investment securities acquired - Available for sale                 (288,053)         (322,633)         (329,918)
Mortgage loans made                                                          (50,067)          (38,845)          (32,905)
Mortgage loan repayments                                                      35,535            21,111            22,712
Purchase of investment properties, buildings and equipment                   (21,552)          (43,926)          (62,955)
Sale of investment properties, buildings and equipment                        63,164            37,858            49,103
Purchases of short-term investments                                          (42,423)          (73,602)          (43,607)
Sales of short-term investments                                               42,423            73,352            50,871
Cash received on issuance of Pierce National Life common stock                37,160               ---               ---
Net cash paid on purchase of television station                                  ---               ---            (5,140)
All other investment activities, net                                          (1,940)              823            (5,828)
------------------------------------------------------------------------------------------------------------------------
   NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
                                                                               2,791           (88,921)         (133,590)
------------------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES
Proceeds from borrowings                                                   2,505,000         2,957,704         1,901,901
Principal payments on debt                                                (2,560,947)       (2,970,011)       (1,890,521)
Dividends paid                                                               (19,540)          (18,366)          (16,814)
Stock issued for employee benefit and compensation programs                    3,884             1,441             2,909
Return of policyholders' account balances                                    (38,949)          (35,966)          (32,637)
Receipts credited to policyholders' account balances                          70,932            72,917            73,653
------------------------------------------------------------------------------------------------------------------------
   NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
                                                                             (39,620)            7,719            38,491
------------------------------------------------------------------------------------------------------------------------

INCREASE (DECREASE) IN CASH                                                   25,012            (6,967)           (7,659)
Cash at beginning of year                                                     36,774            43,741            51,400
------------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR                                                      $    61,786        $   36,774        $   43,741
------------------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.


                                       43
<PAGE>   16


CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THE LIBERTY CORPORATION AND SUBSIDIARIES
(Amounts in 000's except per share data)



<TABLE>
<CAPTION>
                                                                        UNEARNED     UNREALIZED    CUMULATIVE
                                     COMMON               CONVERTIBLE    STOCK         SECURITY     FOREIGN
                                     SHARES      COMMON    PREFERRED    COMPEN-     APPRECIATION    CURRENCY   RETAINED
                                   OUTSTANDING   STOCK       STOCK       SATION    (DEPRECIATION)  TRANSLATION EARNINGS     TOTAL
----------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>          <C>       <C>          <C>         <C>             <C>         <C>        <C>
Balance at January 1, 1995            19,841    $ 152,956         ---  $  (5,319)   $     (53,109)  $(1,491)   $302,552   $395,589

Net income                                                                                                       59,353     59,353
Net unrealized investment gains                                                           111,095                          111,095
Dividends - Common Stock -
   $0.665 per share                                                                                             (13,283)   (13,283)
Dividends - Redeemable Preferred
   Stock - $2.10 per share                                                                                       (2,658)    (2,658)
Dividends - Convertible
   Preferred Stock - $1.4583 per                                                                                   (873)      (873)
   share
Foreign currency translation
    adjustment                                                                                          492                    492
Stock issued for employee
   benefit and performance
   incentive compensation                216       5,631                    (731)                                            4,900
   programs
Stock issued as part of the
   purchase price of                                           20,999                                                       20,999
   acquisitions
Stock issued for conversion of
    redeemable preferred stock             4         148                                                                       148
----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995          20,061     158,735       20,999     (6,050)          57,986      (999)    345,091    575,762

Net income                                                                                                       37,340     37,340
Net unrealized investment losses                                                          (18,260)                         (18,260)
Dividends - Common Stock -
    $0.725 per share                                                                                            (14,666)   (14,666)
Dividends - Redeemable Preferred
    Stock - $2.10 per share                                                                                      (2,652)    (2,652)
Dividends - Convertible
   Preferred Stock - $1.75 per                                                                                   (1,048)    (1,048)
   share
Foreign currency translation
    adjustment                                                                                          795                    795
Stock issued for employee
   benefit and performance
   incentive compensation                152       4,641                  (1,118)                                            3,523
   programs
Stock issued for conversion of
    redeemable preferred stock             2          67                                                                        67
----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996          20,215     163,443       20,999     (7,168)          39,726      (204)    364,065    580,861

Net income                                                                                                       74,951     74,951
Net unrealized investment gains                                                            21,789                            1,789
Dividends - Common Stock -
    $0.785 per share                                                                                            (15,957)   (15,957)
Dividends - Redeemable Preferred
    Stock - $2.10 per share                                                                                      (2,535)    (2,535)
Dividends - Convertible Preferred
    Stock - $1.75 per share                                                                                      (1,048)    (1,048)
Foreign currency translation
    adjustment                                                                                          539                    539
Stock issued for employee
   benefit
    and performance incentive            268      11,320                  (3,704)                                            7,616
   compensation programs
Stock issued for conversion of
    redeemable preferred stock           230       8,231                                                                     8,231
----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997          20,713    $182,994      $20,999   $(10,872)        $61,515    $   335    $419,476   $674,447
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


See notes to consolidated financial statements.

                                       44
<PAGE>   17


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements of The Liberty Corporation and Subsidiaries (the Company) include the
accounts of the Company after elimination of all significant intercompany
balances and transactions. The primary subsidiaries of the Company are Liberty
Life Insurance Company, Pierce National Life Insurance Company (doing business
as FamilySide) and Liberty Insurance Services Corporation (collectively referred
to as the insurance operations) and Cosmos Broadcasting Corporation.

   ORGANIZATION - The Company's operations include the sale and service of life
insurance products in the United States and Canada and television broadcasting
operations in the United States. The insurance operations are licensed to do
business in 49 states plus the District of Columbia and all Canadian provinces
and territories. While the majority of the Company's assets and revenues are
generated from its insurance operations, the Company also is a major television
group broadcaster, owning and operating eight network affiliated television
stations throughout the southeastern and midwestern states. Information on the
Company's operations by segment is included on page 27 of this report (see Note
18).

   USE OF ESTIMATES AND ASSUMPTIONS - Financial statements prepared in
accordance with generally accepted accounting principles require management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes to the consolidated
financial statements. Actual results could differ from those estimates and
assumptions.

   INSURANCE PREMIUMS AND POLICY CHARGES - Revenues for traditional life
insurance and accident and health insurance are recognized over the premium
paying period as they become due. For limited payment whole life products, the
excess of the premiums received over the portion of the premiums required to
provide for benefits and expenses is deferred and recognized in income over the
anticipated life of the policy. For universal life products, revenues consist of
policy charges for the cost of insurance, administration of the policies and
surrender charges during the period. Policy issue fees are deferred and
recognized in income over the life of the policies in relation to the incidence
of expected gross profits.

   POLICYHOLDER BENEFITS - Benefits for traditional life insurance and accident
and health insurance products include claims paid during the period, accrual for
claims reported but not yet paid, accrual for claims incurred but not reported
based on historical claims experience modified for expected future trends, and
changes in the liability for future policy benefits. Benefits for universal life
products are the amount of claims paid in excess of the policy value accrued to
the benefit of the policyholder plus interest credited on account values.

   FUTURE POLICY BENEFITS include insurance reserves and policy maintenance
expenses for traditional life insurance and accident and health insurance.
Future policy benefits are associated with earned premiums so as to recognize
profits over the premium paying period. This association is accomplished by
recognizing the liabilities for insurance reserves on a net level premium method
based on assumptions deemed appropriate at the date of issue (or as of the date
of acquisition for acquired blocks of business) as to future investment yield,
mortality, morbidity, withdrawals and maintenance expenses and including margins
for adverse deviations. Interest assumptions are based on Company experience.
Mortality, morbidity, and withdrawal assumptions are based on recognized
actuarial tables or Company experience, as appropriate. Accident and health
reserves consist principally of unearned premiums and claims reserves, including
provisions for incurred but unreported claims.

   Insurance reserves for universal life products are determined following the
retrospective deposit method and consist of policy values that accrue to the
benefit of the policyholder, unreduced by surrender charges.

   DEFERRED ACQUISITION COSTS - Acquisition costs incurred by the Company in the
process of acquiring new business are deferred and amortized to income as
discussed below. Costs deferred consist primarily of commissions and certain
policy underwriting, issue and agency expenses that vary with and are primarily
related to production of new business.

   COST OF BUSINESS ACQUIRED is the value assigned the insurance inforce of
acquired insurance companies at the date of acquisition.

   For traditional insurance products, the amortization of deferred acquisition
costs and the cost of business acquired is recognized in proportion to the ratio
of annual premium revenue to the total anticipated premium revenue, which gives
effect to actual terminations. Deferred acquisition costs and the cost of
business acquired are amortized over the premium paying period (not to exceed 30
years) of the related policies. Anticipated premium revenue is determined using
assumptions consistent with those utilized in the determination of liabilities
for insurance reserves.

   For universal life products, the deferred acquisition costs are amortized in
relation to the incidence of expected gross profits over the life of the
policies (not to exceed 30 years). Gross profits are equal to revenues, as
defined previously, plus investment income (including applicable realized
investments gains and losses) less expenses. Expenses include interest credited
to policy account balances, policy administration expenses, and expected benefit
payments in excess of policy account balances.

   INVESTMENTS - The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" effective January 1, 1994. SFAS No. 115 requires that all debt and
equity securities be classified into one of three categories -- held to
maturity, available for sale, or trading. The Company currently has no
securities classified as held to maturity or trading. Prior to the adoption of
SFAS No. 115, all fixed maturity securities were carried at amortized cost. On
November 15, 1995, the Financial Accounting Standards Board issued a Special
Report, "A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities". In accordance with the provisions in
that Special Report, on


                                       45



<PAGE>   18

December 31, 1995, the Company chose to reclassify all securities previously
classified as held to maturity to available for sale. The market value and
amortized cost of the securities transferred were $307,100,000 and $281,691,000,
respectively, at December 31, 1995. As a result of the transfer, shareholders'
equity was increased $14,645,000 (net of deferred income taxes and adjustment to
deferred acquisition costs related to universal life products) to reflect the
unrealized gain on securities previously carried at cost.



    Investments are reported on the following basis:

-   Fixed maturities classified as available-for-sale are stated at fair value
    with unrealized gains and losses, after adjustment for deferred income taxes
    and deferred acquisition costs related to universal life products, reported
    directly in shareholders' equity. Fair values for fixed maturity securities
    are based on quoted market prices, where available. For fixed maturity
    securities not actively traded, fair values are estimated using values
    obtained from independent pricing services or, in the case of private
    placements, are estimated by discounting expected future cash flows using a
    current market rate applicable to the yield, credit quality, and maturity of
    the investments.
-   Equity securities (common stocks and nonredeemable preferred stocks) are all
    considered available for sale and are carried at fair value. The fair values
    for equity securities are based on quoted market prices.
-   Mortgage loans on real estate are carried at amortized cost, less an
    allowance for credit losses and provisions for impaired value, where
    appropriate.
-   Investment real estate is carried at cost less accumulated depreciation and
    provisions for impaired value where appropriate. Depreciation over the
    estimated useful lives of the properties is determined principally using the
    straight-line method.
-   Policy loans are carried at cost.
-   Other long-term investments are carried at cost which includes provisions
    for impaired value where appropriate. Included in other long-term
    investments are investments in venture capital funds and oil and gas
    properties.
-   Short-term investments are carried at cost which approximates fair value.

    UNREALIZED INVESTMENT GAINS AND LOSSES on investments carried at fair value,
net of deferred taxes and adjustment for deferred acquisition costs related to
universal life products, are recorded directly in shareholders' equity.

    REALIZED INVESTMENT GAINS AND LOSSES are recognized using the specific
identification method to determine the cost of investments sold. Gains or losses
on the sale of real estate held for investment are included in realized
investment gains (losses), in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" which is discussed below. Gains and losses
on the sale of real estate acquired for development and resale are included in
net investment income. Realized gains and losses include write-downs for
impaired values of investment assets. The Company establishes impairments on
individual, specific assets at the time the Company judges the assets to have
been impaired and this impairment can be estimated (see Note 2).

    BUILDINGS AND EQUIPMENT are recorded at cost. Depreciation over the
estimated useful lives of the properties is determined principally using the
straight-line method.

    INTANGIBLE ASSETS arose in the acquisition of certain television stations.
Amounts not being amortized ($4,071,000) represent the excess of the total cost
over the underlying value of the tangible and amortizable intangible assets
acquired prior to 1970. Amounts being amortized are expensed principally over
forty years.

    GOODWILL arose in the acquisition of insurance companies and is being
amortized over lives ranging from twenty to forty years.

    FOREIGN CURRENCY TRANSLATION has been accounted for in accordance with SFAS
No. 52, "Foreign Currency Translation." The assets and liabilities of the
Canadian operations of FamilySide are translated into U.S. dollars at the rate
of exchange in effect at the respective balance sheet date. Net exchange gains
and losses resulting from translation are included as a separate component of
shareholders' equity. Revenues and expenses are translated at average exchange
rates for the year. Gains and losses from foreign currency transactions are
included in net income.

    INTEREST RATE CAPS AND SWAPS are used to limit the impact of changing
interest rates on the Company's debt, which is all floating rate (see Note 5).
The net interest effect of the swap transaction is reported as an adjustment to
interest expense as incurred. Interest rate caps are occasionally used to
protect a portion of the remaining debt against significant increases in
interest rates. Premiums paid for the interest rate caps are being amortized to
interest expense over the terms of the caps.

    INCOME TAXES are computed using the liability method required by Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under
SFAS 109, deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax basis of assets and liabilities
and are measured using the enacted tax rates and law that will be in effect when
the differences are expected to reverse.

    STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 114, "Accounting by
Creditors for Impairments of a Loan" and Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairments of a Loan--Income
Recognition and Disclosures" were adopted by the Company effective January 1,
1995. Under the standards, the Company provides for estimated credit losses
related to the mortgage loans where it is probable that all amounts due
according to the contractual terms of the mortgage agreement will not be
collected. This provision for credit losses is based on discounting the expected
cash flows from the loan using the loan's initial effective interest rate, or
the fair value of the collateral for certain collateral dependent loans. The
initial adoption of the standards resulted in recording an allowance for credit
losses of $507,000 ($330,000 after-tax), which was included as a component of
realized investment gains (losses) in the consolidated statement of income.


                                       46


<PAGE>   19

    STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" was
adopted by the Company effective January 1, 1996. This statement prescribes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill that are used in the business, as well as
establishing accounting standards for long-lived assets and certain identifiable
intangibles to be disposed of. Under the provisions of the statement, certain of
the Company's investment real estate assets were required to be valued at fair
value, rather than net realizable value as previously required. The adoption of
this standard resulted in a $1,800,000 charge which was reported as a component
of realized investment gains and losses.

    STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123, "Accounting for
Stock-Based Compensation" was adopted by the Company on January 1, 1996. This
statement requires companies to measure the fair value of employee stock options
at the date granted and expense the estimated fair value of grants or,
alternatively, disclose the pro forma impact on net income and earnings per
share of the grants in the notes to the financial statements. The Company has
adopted SFAS 123 by disclosing the pro forma net income and earnings per share
impact. The pro forma amounts are not materially different from the actual
amounts reported (see Note 10).

    STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "Earnings Per Share"
was adopted by the Company on December 31, 1997. This statement replaces
Accounting Principles Board Opinion No. 15, "Earnings Per Share" ("APB 15") by
making the requirements for earnings per share information more consistent with
international accounting standards. SFAS 128 replaces the presentation of
primary earnings per share with basic earnings per share, which is a simpler
calculation that assumes no dilution for common stock equivalents. Basic
earnings per share is calculated by dividing net income available to common
shareholders by the weighted average number of common shares outstanding for the
period. In addition to basic earnings per share, diluted earnings per share must
also be presented, which is calculated similar to fully diluted earnings per
share as calculated under APB 15. The adoption of this standard did not result
in material differences in the earnings per share as previously reported (see
Note 11).

    STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130, "Reporting
Comprehensive Income" was issued by the Financial Accounting Standards Board in
June, 1997. This statement will require companies to report and display
comprehensive income and its components as part of the general financial
statements. The most significant items which will affect the Company's
comprehensive income are the change in unrealized security gains and losses and
the change in the foreign currency translation adjustment, both items of which
have historically been reported only as a component of shareholders' equity. The
Company will adopt this standard January 1, 1998.

    STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131") was issued by
the Financial Accounting Standards Board in June, 1997. This statement, which is
effective for years beginning after December 15, 1997, establishes standards for
the way that public companies report information about operating segments in
annual financial statements and requires that companies report selected
information about operating segments in interim financial reports. The financial
information to be reported includes segment profit or loss, certain revenue and
expense items, and segment assets and reconciliations to corresponding amounts
in the general purpose financial statements. It also establishes requirements
for related disclosures about products and services, geographic areas, and major
customers. The Company has not completed its review of Statement 131, but the
adoption of Statement 131 will not affect results of operations or financial
position, but will affect the disclosure of segment information. The Company
will adopt this standard retroactively in 1998.

    RECLASSIFICATIONS have been made in the 1996 and 1995 Consolidated Financial
Statements to conform to the 1997 presentation.


                                       47


<PAGE>   20



  2.     INVESTMENTS

    Amortized cost and estimated fair values of investments in available for
sale securities at December 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                           Gross        Gross
                             Amortized   Unrealized  Unrealized      Fair
1997 (In 000s)                 Cost        Gains       Losses        Value
----------------------------------------------------------------------------
<S>                         <C>          <C>         <C>          <C>
AVAILABLE FOR SALE:
Fixed maturity securities
 US government
  obligations               $   15,248   $    571    $     12     $   15,807
 States and
  political
  subdivisions
                                   ---        ---         ---            ---
 Foreign
  Government                     7,537         48          22          7,563
 Foreign
  Corporate
  and Other                    104,607      8,210         558        112,259
 Corporate
  securities                   847,826     47,886       1,897        893,815

  Mortgage-backed
  securities                   612,369     32,213         138        644,444
----------------------------------------------------------------------------
 Total                       1,587,587     88,928       2,627      1,673,888
Equity                          55,992     21,326       2,750         74,568
  securities
----------------------------------------------------------------------------
Total                       $1,643,579   $110,254    $  5,377     $1,748,456
----------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
                                           Gross        Gross
                             Amortized   Unrealized  Unrealized      Fair
1996 (In 000s)                 Cost        Gains       Losses        Value
---------------------------------------------------------------------------
<S>                         <C>          <C>         <C>          <C>
AVAILABLE FOR SALE:
Fixed maturity securities
 US
  government                $   14,795     $   255    $    83     $   14,967
  obligations
 States and
  political
  subdivisions                      50           1        ---             51
 Foreign
  Government                     7,080         184          3          7,261
 Foreign
  Corporate                     98,669       6,452        488        104,633
  and Other
 Corporate
  securities                   697,521      27,665      5,130        720,056
  Mortgage-backed              647,098      24,924      1,451        670,571
  securities
----------------------------------------------------------------------------
 Total                       1,465,213      59,481      7,155      1,517,539
Equity securities               61,431      17,074      2,914         75,591

----------------------------------------------------------------------------
Total                       $1,526,644     $76,555    $10,069     $1,593,130
----------------------------------------------------------------------------
</TABLE>

   Realized gains (losses) and the change in unrealized gains (losses) on the
Company's fixed maturities and equity securities are summarized as follows:

<TABLE>
<CAPTION>
                                                   Total Gains
                              Fixed      Equity    (Losses) on
   (In 000s)               Maturities   Securities Investments
--------------------------------------------------------------
1997
<S>                        <C>          <C>        <C>
Realized investment
  gains (losses)           $    (150)   $   8,755  $    8,605
Change in unrealized
  investment gains
  (losses)                    33,975        4,416      38,391
-------------------------------------------------------------
Combined                   $  33,825    $  13,171  $   46,996
-------------------------------------------------------------
1996

Realized investment
  gains (losses)           $  (2,864)   $  10,160  $    7,296
Change in unrealized
  investment gains
  (losses)                   (31,389)         289     (31,100)
-------------------------------------------------------------
Combined                   $ (34,253)   $  10,449  $  (23,804)
-------------------------------------------------------------
1995

Realized investment
  gains (losses)           $  (2,347)   $   8,071  $    5,724
Change in unrealized
  investment gains           136,197       13,779     149,976
  (losses)
-------------------------------------------------------------
Combined                   $ 133,850    $  21,850  $  155,700
-------------------------------------------------------------
</TABLE>

   The schedule below details consolidated investment income and related
investment expenses for the years ended December 31.

<TABLE>
<CAPTION>
(In 000s)                    1997        1996        1995
------------------------------------------------------------
<S>                         <C>         <C>         <C>
Interest on
    Bonds                   $123,932    $113,016    $107,825
    Mortgage loans            21,191      19,858      18,247
    Policy loans               4,981       4,932       4,872
    Short-term                   708         600         752
   investments
Dividends on
   Preferred stocks            4,543       6,196       6,624
   Common stocks                 574       1,050       1,180
Investment property            4,121       9,712       9,238
   rentals
Net gain on investment
   real estate held for
   development                 3,838       6,518       6,947
Other investment income        6,705       5,643       3,269
------------------------------------------------------------
Total investment income      170,593     167,525     158,954
Investment expenses           12,274      12,304      10,284
------------------------------------------------------------
Net investment income       $158,319    $155,221    $148,670
------------------------------------------------------------
</TABLE>


   Proceeds from sales of fixed maturities and the related gross realized gains
 nd losses for the three years ended December 31 are shown below. The amounts
 hown below do not include those related to unscheduled redemptions or
 repayments, nor do they reflect any impairments taken during the years
 resented.

<TABLE>
<CAPTION>
(In 000s)                    1997        1996        1995
------------------------------------------------------------
<S>                          <C>        <C>         <C>
Proceeds from sales          $83,978    $157,425    $111,260
Gross realized gains             315       1,088       1,750
Gross realized losses         (1,489)     (4,832)     (3,910)
</TABLE>


                                       48

<PAGE>   21

The following investment assets were non-income producing for the twelve months
ended December 31, 1997:

<TABLE>
<CAPTION>
                                               Balance Sheet
(In 000s)                                          Amount
------------------------------------------------------------

<S>                                            <C>
Investment real estate                          $   6,997
Other long-term investments                        18,924
Mortgage loans                                         27
------------------------------------------------------------
Total                                           $  25,948
------------------------------------------------------------
</TABLE>

   For the year ended December 31, 1997, the Company incurred realized losses of
$7,228,000 due to impairment of assets included in the year-end investment
portfolio.

   Cumulative provisions for impairments on the total investment portfolio by
asset category at December 31, 1997, are as follows:

<TABLE>
<CAPTION>
                                         Cumulative Provision
(In 000s)                                   for Impairments
-------------------------------------------------------------
<S>                                      <C>
Mortgage loans                                $  2,190
Investment real estate                           8,610
Other long-term investments                     15,080
Fixed maturities                                 1,709
-------------------------------------------------------------
Total                                         $ 27,589
-------------------------------------------------------------
</TABLE>

   The amortized cost and estimated fair value of fixed maturities at December
31, 1997, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                        Amortized      Fair
(In 000s)                                 Cost         Value
--------------------------------------------------------------
<S>                                     <C>         <C>
Due in one year or less                 $  24,591   $   24,904
Due after one year through five years     226,616      242,289
Due after five years through ten          320,949      339,579
years
Due after ten years                       403,062      422,672
--------------------------------------------------------------
                                          975,218    1,029,444
Mortgage-backed securities primarily
maturing in five to twenty-five years     612,369      644,444
--------------------------------------------------------------
Total                                  $1,587,587   $1,673,888
--------------------------------------------------------------
</TABLE>



3.       REINSURANCE AGREEMENTS

   The Company uses reinsurance as a risk management tool in the normal course
of business and in isolated, strategic assumption transactions to effectively
buy or sell blocks of in force business. The reinsurance contracts do not
relieve the Company from its contract with its policyholders, and it remains
liable should any reinsurer be unable to meet its obligations. At December 31,
1997, $3.7 billion (18%) of the Company's total $20.8 billion gross insurance in
force was ceded to other companies. In the accompanying financial statements,
insurance premiums and policy charges, policyholder benefits and deferred
acquisition costs are reported net of reinsurance ceded with policy liabilities
being reported gross of reinsurance ceded.

   Amounts paid or deemed to be paid for reinsurance contracts are recorded as
reinsurance receivables. The cost of reinsurance related to long-duration
contracts is accounted for over the life of the underlying reinsured policies
using assumptions consistent with those used to account for the underlying
policies.

   In 1991 Liberty Life entered into an agreement with Life Reassurance
Corporation (Life Re) to coinsure the Company's General Agency Division's
universal life policies in force. The initial agreement provided for 80%
coinsurance on policies in force at December 31, 1991, and 50% coinsurance on
policies issued subsequent to such date. Effective July 1, 1995, the amount
coinsured on policies written after December 31, 1991, was increased to 80%.
Under the terms of the agreement, assets supporting the business ceded are
required to be held in escrow. At December 31, 1997, Liberty Life's interest in
the assets held in escrow consisted of investments with an amortized cost of
$63.3 million and a fair value of $66.5 million. Comparable book and fair value
at December 31, 1996 was $58.5 million and $59.9 million, respectively. These
investments had an average rating of AA+. The total face value of insurance
ceded to Life Re at December 31, 1997, was $2.4 billion and the Company has
recorded a receivable related to this transaction from Life Re of $254.4 million
as of December 31, 1997. Currently, Life Re has an A.M. Best rating of A+.
During 1997 and 1996, Liberty Life had ceded premiums and policy charges of
$17.1 million and $18.6 million, respectively, under the agreement.

   Effective September 30, 1991, Liberty Life entered into an agreement to
coinsure 50% of its Home Service line of business. Under generally accepted
accounting principles this agreement has been treated as financial reinsurance,
and no reserve reduction had been taken for the business ceded. The reinsurance
contract contains an escrow agreement that requires assets equal to the reserves
reinsured, as determined under statutory accounting principles, be held in
escrow for the benefit of this block of business. At December 31, 1997, the
amortized cost and fair value of the invested assets held in escrow was $235.9
million and $253.7 million, respectively.

   The insurance subsidiaries also reinsure with other insurance companies
portions of the life insurance they write in order to limit exposure on large or
substandard risks. Due to this broad allocation of reinsurance with several
insurance companies, there exists no significant concentration of credit risk.
The maximum amount of life insurance that Liberty Life will retain on any life
is $300,000, plus an additional $50,000 in the event of accidental death. This
maximum is reduced for higher ages and for special classes of risks. The maximum
amount of life insurance that FamilySide will retain on any life is $50,000.
Insurance in excess of the retention limits is either automatically ceded under
reinsurance agreements or is reinsured on an individually agreed basis with
other insurance companies.



                                       49


<PAGE>   22


   The effect of reinsurance on premiums and policy charges and benefits was as
follows for the years ending December 31:

<TABLE>
<CAPTION>
(In 000s)                   1997           1996          1995
---------------------------------------------------------------
<S>                     <C>            <C>           <C>
Direct premiums and
   policy charges         $384,010       $356,660      $364,797
Reinsurance assumed            873          1,209         1,314
Reinsurance ceded          (34,191)       (36,498)      (34,741)
---------------------------------------------------------------
Net premiums and
   policy charges         $350,692       $321,371      $331,370
---------------------------------------------------------------

Gross benefits            $257,685       $243,584      $249,861
Reinsurance recoveries     (29,758)       (24,833)      (13,087)
---------------------------------------------------------------
Net benefits              $227,927       $218,751      $236,774
---------------------------------------------------------------
</TABLE>


4.  DEFERRED ACQUISITION COSTS, COST OF BUSINESS ACQUIRED AND FUTURE POLICY
    BENEFITS

    A summary of the changes in deferred acquisition costs is as follows:

<TABLE>
<CAPTION>
(In 000s)                      1997        1996       1995
-------------------------------------------------------------
<S>                          <C>        <C>         <C>
Beginning balance             $262,182   $265,188    $259,799
Deferred during the year        55,312     51,122      54,522
Amortized during the year      (37,069)   (57,812)    (32,594)
Adjustment related to
   unrealized investment
   (gains) losses               (4,508)     3,712     (10,327)
Insurance in force ceded           ---        ---      (6,331)
Foreign currency                  (302)       (28)        119
   translation
-------------------------------------------------------------
Ending balance                $275,615   $262,182    $265,188
-------------------------------------------------------------
</TABLE>

   Included in amortization for 1996 is $20.1 million of costs determined not to
be recoverable from future premiums on certain lines of business. Actual
experience on these lines of business was significantly less favorable than what
was projected at the time the policies were sold.

   A summary of the changes in costs of business acquired through acquisitions
is as follows:

<TABLE>
<CAPTION>
(In 000s)                      1997        1996         1995
--------------------------------------------------------------
<S>                         <C>         <C>          <C>
Beginning balance              $70,764     $86,925     $98,056
Interest accrued                 5,070       5,860       6,621
Foreign currency                                            55
   adjustment                      (43)         (6)
Amortized during the year                              (17,807)
                               (13,565)    (22,015)
--------------------------------------------------------------
Ending balance                 $62,226     $70,764     $86,925
--------------------------------------------------------------
</TABLE>

    The Company accounts for these costs in a manner consistent with deferred
acquisition costs. The Company's interest rate used to amortize these costs is
7.77% for a majority of the asset. Periodically, the Company performs tests to
determine that the cost of business acquired remains recoverable from future
premiums from the business acquired. During 1996 the Company determined that
actual experience was materially different than what was assumed at the time of
acquisition for certain blocks of acquired business. Accordingly, $6.1 million
of cost of business acquired was determined not to be recoverable based on the
expected present value of the future cash flows from the business. The charge
was included in amortization expense. There were no similar charges in either
1997 or 1995.

    Under current assumptions, amortization of cost of business acquired, prior
to consideration of accrued interest implicit in the calculation of the
amortization, for the next five years is expected to be as follows:

<TABLE>
<CAPTION>
(In 000s)                                       Amortization
--------------------------------------------- -----------------
<S>                                           <C>
1998                                              $12,464
1999                                               10,093
2000                                                9,006
2001                                                7,938
2002                                                7,587
</TABLE>

   The liabilities for traditional life insurance and accident and health
insurance policy benefits and expenses are computed using a net level premium
method, including assumptions based on the Company's experience, modified as
necessary to reflect anticipated trends and to include provisions for possible
unfavorable deviations. Reserve interest assumptions are graded and range from
3.5% to 9.5%. Such liabilities are, for some plans, graded to equal statutory
values or cash values at or prior to maturity. The weighted average assumed
investment yield for all traditional life and accident and health policy
reserves was 6.7% for 1997 and 6.6% for both 1996 and 1995. Benefit reserves for
traditional life insurance policies include certain deferred profits on
limited-payment policies that are being recognized in income over the policy
term. Policy benefit claims are charged to expense in the period that the claims
are incurred.

   Benefit reserves for universal life insurance and investment products are
computed under a retrospective deposit method and represent policy account
balances before applicable surrender charges. Policy benefits and claims that
are charged to expense include benefit claims incurred in the period in excess
of related policy account balances. Interest crediting rates for universal life
and investment products range from 4.0% to 6.45% in 1997, 4.0% to 6.75% in 1996,
and 5.5% to 6.8% in 1995.

Participating business accounts for approximately 1% of the Company's life
insurance in force and premium income. The dividend to be paid is determined
annually by the Board of Directors.


                                       50

<PAGE>   23


5.  DEBT

    The debt obligations at December 31 are as follows:

<TABLE>
<CAPTION>
                              Interest
    (In 000s)                   Rate        1997       1996
    ----------------------------------------------------------
    <S>                       <C>         <C>        <C>
    Borrowings under
      revolving credit
      agreement and lines
      of credit                  6.2%      $188,000   $140,000
    Long-term debt               ---            ---    100,000
    Mortgage loans on
      investment property        8.0%         1,214      3,703
    Other                        ---          2,700      4,158
    ----------------------------------------------------------
    Total                                  $191,914   $247,861
    ----------------------------------------------------------
</TABLE>

   The mortgage loans are secured by property with a net carrying value of $10.9
million at December 31, 1997.

   Maturities of the debt obligations at December 31, 1997, are as follows:

<TABLE>
<CAPTION>
     Maturities (In 000s)                            Amount
     ------------------------------------------------------------
     <S>                                         <C>
     1998                                            $ 41,914
     1999                                             148,700
     2000                                                 650
     2001                                                 650
     2002                                                 ---
     Thereafter                                           ---
     ------------------------------------------------------------
     Total                                           $191,914
     ------------------------------------------------------------
</TABLE>

   On March 21, 1995, the Company refinanced its then-existing $325,000,000
revolving credit facility into a new $375,000,000, multi-tranche credit
facility. The facility consisted of a $225,000,000 three-year revolving credit
facility; a $100,000,000 seven-year term loan facility; and a $50,000,000
facility substantially identical to the revolving facility, which was
convertible into terms substantially identical to the term facility within two
years of the closing date of the loan. The revolving portion of the loan matures
in 1999, and the term portion was scheduled to be repaid in twenty quarterly
installments of $5,000,000 commencing June 1997, and ending in March 2002.

   In March 1997, the Company terminated the $50,000,000 convertible loan
commitment and reduced the amount available under the revolving facility by
$50,000,000, thereby reducing the total facility by $100,000,000. In August
1997, the Company repaid the term portion of the facility using a combination of
funds available under the revolving portion of the facility and short term
borrowings from various lending institutions. Additionally, the Company repaid
approximately $35,000,000 of debt under the revolving facility during 1997 using
the cash proceeds from the sale of its business rental property and the majority
of its business park land development projects.

   The Company's borrowings against the revolving credit facility were
$148,000,000 at December 31, 1997. During 1997, the maximum amount outstanding
on the revolving facility amounted to approximately $152,000,000 with an average
balance outstanding of approximately $128,000,000 and an average weighted
interest rate of 5.88%. In addition to the revolving facility, the Company also
uses several lines of credit to manage day-to-day cash flow. The outstanding
amount and total amount available under lines of credit at December 31, 1997 was
$40,000,000. The average balance outstanding on available lines of credit was
approximately $26,000,000 during 1997, with a maximum borrowing of $67,000,000
and an average weighted interest rate of 6.19%.

   The Company has the option to solicit money market interest quotes from the
bank group for borrowings under the revolving credit facility. The revolving
credit agreement also provides for borrowing at interest rates based on a
formula that incorporates the use of the London Interbank Offered Rate ("LIBOR")
plus an interest rate margin. A facility fee is charged on the facility based on
the $175,000,000 total commitment. The facility fee and the interest rate margin
for the revolving credit facility are all based upon the ratio of consolidated
debt to cash flow, as defined in the credit agreement.

   The credit agreement contains various restrictive covenants typical of a
credit facility of this size and nature. These restrictions primarily pertain to
levels of indebtedness, limitations on payment of dividends, limitations on the
quality and types of investments, and capital expenditures. Additionally, the
Company must also comply with several financial covenant restrictions under the
revolving credit agreement, including defined ratios of consolidated debt to
cash flow, consolidated debt to consolidated total capital, and fixed charges
coverage. As of December 31, 1997, the Company was in compliance with all
covenants under its debt agreement.

   In January 1998, the Company entered into a short term loan agreement for
$140,000,000 whereby the Company may borrow any amount up to $140,000,000 to use
for financing the repurchase of shares of common stock of for other general
operating purposes. Any amount borrowed under this agreement will mature and is
payable in full on March 31, 1998.

   In February 1998, the Company initiated the process of refinancing its
current credit facility. It is expected that the new facility will be a
committed $300,000,000 revolving facility, with an option to borrow up to an
additional $150,000,000. It is expected that the new facility will mature five
years from the closing date.

   The Company has entered into interest rate swap and cap agreements as a means
of managing its interest rate exposure on its floating rate debt. The interest
rate swap effectively fixes the interest rate on $85,000,000 of floating rate
debt as of December 31, 1997 at 5.965% plus the interest rate margin and will
expire in March, 2002. The agreement is a contract to exchange fixed and
floating interest rate payments periodically over the life of the agreement
without the exchange of the underlying notional amounts. The Company will pay
the counterparty interest at 5.965%, and the counterparty will pay the Company
interest at a variable rate based on the 3-month LIBOR rate. The notional
principal amount under the agreement will be reduced by $5,000,000 per quarter.
The interest differential to be paid or received on interest rate swaps is
accrued and included in interest expense for financial reporting purposes. The
agreement is with a major financial institution and the


                                       51


<PAGE>   24

Company's credit exposure is limited to the value of the interest-rate swap that
has, or may become favorable to the Company.

   The Company has occasionally entered into interest rate caps in an attempt to
minimize the impact of a potential significant rise in short-term interest rates
on the Company's outstanding floating rate debt. As of December 31, 1997, the
Company had no outstanding caps. The Company is generally required to pay an
up-front fee related to these instruments at inception of the contract, which is
amortized straight-line over the term of each contract.

   Interest paid, net of amounts capitalized, amounted to approximately
$13,576,000, $18,102,000, and $14,021,000 in 1997, 1996, and 1995, respectively.
Interest capitalized amounted to $1,071,000, $2,367,000, and $2,303,000 in 1997,
1996, and 1995, respectively.

   6.    MINORITY INTEREST

   On November 13, 1997, the Company announced an agreement to sell Pierce
National Life Insurance Company ("Pierce") to Fortis, Inc. for $180,000,000
cash. The transaction is expected to close in April 1998, subject to regulatory
approvals. The current estimate of the loss on the sale is between $14 million
and $18 million. On December 31, 1997, Fortis purchased 2,660 newly issued
shares of Pierce common stock for $37,160,000 in cash. Subsequent to this stock
purchase, Fortis, Inc. maintained a twenty-one percent ownership interest in the
common stock of Pierce as of December 31, 1997. For financial reporting
purposes, Fortis' interest in Pierce is included in the financial statements as
minority interest.

   7.    REDEEMABLE PREFERRED STOCK

   On February 24, 1994, the Company issued 598,656 shares of Series 1994-B
Voting Cumulative Preferred Stock having a total redemption value of
$22,449,000, or $37.50 per share, in connection with the acquisition of American
Funeral Assurance Company. Additionally, on April 1, 1994, the Company issued
668,207 shares of Series 1994-A Voting Cumulative Preferred Stock having a total
redemption value of $23,387,000, or $35.00 per share, in connection with the
acquisition of State National Capital Corporation. The shares have preference in
liquidation, and each share is entitled to one vote on any matters submitted to
a vote of the shareholders of the Company. In accordance with the financial
reporting requirements of the Securities and Exchange Commission, the preferred
stock has been classified outside of permanent equity as Redeemable Preferred
Stock.

   Both the Company and the holders of the preferred stock have the right to
redeem any or all of the shares from time to time beginning five years and one
month after the date of issue in exchange for cash or shares of the Company's
common stock. The Company will determine the form of all redemptions, which will
consist of cash, common stock, or a combination of both. Generally, the amount
of consideration on the 1994-A Series will be equivalent to $35.00 per share
plus the amount of any accumulated and unpaid dividends; and for the 1994-B
Series will be equivalent to $37.50 per share plus the amount of any accumulated
and unpaid dividends. In addition, each share of the 1994-A Series and 1994-B
Series is convertible, at the option of the shareholder, at any time into one
share of the Company's common stock (plus a corresponding attached right to
acquire a share of the Company's Series A Participating Cumulative Preferred
Stock). As of December 31, 1997, 164,039 shares of the 1994-A Series and 72,708
shares of the 1994-B Series have been converted by the shareholders. There is no
sinking fund for the redemption of either series of preferred stock.

   Dividends shall be paid on the 1994-A Series at the rate of 6% per annum and
on the 1994-B Series at the rate of 5.6% per annum. Dividends accrue daily, are
cumulative, and are payable quarterly. Both the 1994-A Series and the 1994-B
Series are on a parity in rank with all other series of preferred stock of the
Company whether or not such series exist now or are created in the future, with
respect to payment of all dividends and distributions, unless a series of
preferred stock expressly provides that it is junior or senior to the 1994-A and
1994-B Series. No dividends or distributions on the Company's common stock shall
be declared or paid until all accumulated and unpaid dividends on the 1994-A
Series and 1994-B Series have been declared and set aside for payment.

   8.  COMMITMENTS AND CONTINGENCIES

   In January 1996, a lawsuit was filed by the Company against a software
development company alleging breach of contract in connection with an agreement
to develop a state-of-art software system to administer the Company's insurance
operations. The suit seeks to recover amounts paid to the software developer and
other costs incurred by the Company in the attempt to develop the system. In
1997 the software developer filed a counterclaim against the Company alleging
breach of contract. Management, after consultation with legal counsel, believes
this counterclaim is without merit and is a response to the suit filed by the
Company. The Company intends to contest the counterclaim vigorously. The Company
believes its lawsuit is meritorious; however, no estimated recovery is included
in the accompanying financial statements.

   In December 1995, a lawsuit was filed against the Company alleging breach of
contract. The lawsuit relates to a transaction in which the Company was
unsuccessful in acquiring certain entities partially owned by the plaintiff.
Management, after consultation with legal counsel, believes the lawsuit is
without merit and intends to contest the suit vigorously.

   The Company and its subsidiaries are also defendants in various lawsuits
arising primarily from claims made under insurance policies. Where applicable,
these lawsuits are considered in establishing the Company's policy liabilities.
It is the opinion of management and legal counsel that the settlement of these
actions will not have a material effect on the financial position or results of
operations of the Company.

   In connection with the sale of the Company's business rental property and
business park land development projects during May 1997, the Company has
guaranteed approximately $37 million of debt of the purchaser of the properties.


                                       52

<PAGE>   25

   The Company has lease agreements, primarily for branch offices, data
processing and telephone equipment, which expire on various dates through 2007,
none of which are material capital leases. Most of these agreements have
optional renewal provisions covering additional periods of one to ten years. All
leases were made in the ordinary course of business and contain no significant
restrictions or obligations. Future commitments under operating leases are not
material. Annual rental expense amounted to approximately $6,275,000,
$5,601,000, and $5,825,000 in 1997, 1996, and 1995, respectively.

   Most states have laws requiring solvent life insurance companies to pay
guaranty fund assessments to protect the interests of policyholders of insolvent
life insurance companies. Due to the recent increase in the number of companies
that are under regulatory supervision, there is expected to be an increase in
assessments by state guaranty funds. Under present law, most assessments can be
recovered through a credit against future premium taxes. The Company has
reviewed its exposure to potential assessments, and the effect on its financial
position and results of operations is not expected to be material.

   At December 31, 1997, the Company had commitments for additional investments
and other items totaling $54,061,000.

   9.  SHAREHOLDERS' EQUITY

   On February 28, 1995, the Company issued 599,985 shares of Series 1995-A
Voting Cumulative Convertible Preferred Stock having a total redemption value of
$20,999,475 or $35.00 per share in connection with the acquisition of WLOX-TV.
The shares have preference in liquidation, and each share is entitled to one
vote on any matters submitted to a vote of the shareholders of the Company. Each
share of preferred stock is convertible at the option of the holder into one
share of common stock. The Company has the right to redeem any or all of the
shares from time to time at any time beginning five years and one month after
the date of issue in exchange for cash, common stock, or a combination of both.
Generally, the amount of consideration on the 1995-A Series will be equivalent
to $35.00 per share plus the amount of any accumulated and unpaid dividends.
There is no sinking fund for the redemption of the preferred stock.

   Dividends shall be paid on the preferred stock at the rate of 5% per annum.
Dividends accrue daily, are cumulative, and are payable quarterly. The 1995-A
Series preferred stock is on a parity in rank with all other series of preferred
stock of the Company whether or not such series exist now or are created in the
future, with respect to payment of all dividends and distributions, unless a
series of preferred stock expressly provides that it is junior or senior to the
1995-A Series. No dividends or distributions on the Company's common stock shall
be declared or paid until all accumulated and unpaid dividends on the 1995-A
Series have been declared and set aside for payment.

   The Company has adopted a Shareholder Rights Plan and declared a dividend of
one preferred stock purchase right for each outstanding share of common stock.
Upon becoming exercisable, each right entitles the holder to purchase for a
price of $150.00 one one-hundredth of a share of Series A Participating
Cumulative Preferred Stock. All of the rights may be redeemed by the Company at
a price of $.01 per right until ten business days (or such later date as the
Board of Directors determines) after the public announcement that a person or
group has acquired beneficial ownership of 20 percent or more of the outstanding
common shares ("Acquiring Person"). Upon existence of an Acquiring Person, the
Company may redeem the rights only with the concurrence of a majority of the
directors not affiliated with the Acquiring Person. The rights, which do not
have voting power and are not entitled to dividends, expire on August 7, 2000.
The rights are not exercisable until ten business days after the public
announcement that a person has become an Acquiring Person or after the
commencement of a tender offer or exchange offer if, upon consummation, such
person or group would become an Acquiring Person. If, after the rights become
exercisable, the Company becomes involved in a merger or certain other major
corporate transactions, each right will entitle its holder, other than the
Acquiring Person, to receive common shares with a deemed market value of twice
such exercise price. There are 10,000,000 shares of preferred stock, no par
value per share authorized for issuance. At December 31, 1997, there were
1,630,101 shares of preferred stock outstanding (see Note 7 for discussion of
Redeemable Preferred Stock), and 140,000 shares of preferred stock were reserved
for issuance in connection with the Shareholder Rights Plan.

   Shareholders' equity as determined under generally accepted accounting
principles of the Company's insurance operations was $724,639,000 and
$669,411,000 at December 31, 1997 and 1996, respectively. The comparable amounts
as determined under statutory accounting practices were $212,513,000 and
$183,506,000 at December 31, 1997 and 1996, respectively. The amount that
retained earnings exceed statutory unassigned surplus ($449,817,000) is
restricted and, therefore, not available for dividends. Without regulatory
approval, dividends are generally limited to prior year statutory gain from
operations.

   The components of the balance sheet caption unrealized appreciation on fixed
maturity securities available for sale and equity securities in shareholders'
equity as of December 31 are as follows:

<TABLE>
<CAPTION>
(In 000s)                                 1997          1996
--------------------------------------------------------------
<S>                                   <C>           <C>
Carrying value of securities          $1,748,456    $1,593,130
Amortized cost of securities           1,643,579     1,526,644
--------------------------------------------------------------
Net unrealized appreciation              104,877        66,486
Adjustment to deferred acquisition
  costs                                   (8,745)       (4,236)
Deferred income taxes                    (34,617)      (22,524)
--------------------------------------------------------------
  Total                               $   61,515    $   39,726
--------------------------------------------------------------
</TABLE>

   On February 10, 1998, the Company announced a stock tender offer whereby the
Company planned to repurchase up to 2,000,000 shares of its common stock
pursuant to a "Dutch Auction" self tender offer. The offer closed on March 11,
1998 and the Company repurchased 2,400,000 shares of its common stock (including
an additional 400,000 shares as a result of exercising its option to purchase an
additional 2% of its outstanding common shares) for $52.00 per share under the
offer.


                                       53


<PAGE>   26
10.      STOCK OWNERSHIP AND STOCK OPTION PLANS

   The Company has a Performance Incentive Compensation Program (the "Program")
which provides that the Compensation Committee of the Board of Directors may
grant: (a) incentive stock options within the meaning of Section 422 of the
Internal Revenue Code; (b) non-qualified stock options; (c) performance units;
(d) awards of restricted shares of the Company's common stock; (e) awards of
unrestricted shares of the Company's common stock; (f) phantom stock units; (g)
or any combination of the foregoing to outside directors, officers and key
employees. Only common stock, not to exceed 4,300,000 shares, may be delivered
under the Program; and shares so delivered will be made available from the
authorized but unissued shares or from shares reacquired by the Company,
including shares purchased in the open market. The aggregate number of shares
that may be acquired by any participant in the Program is limited to a maximum
of 400,000 stock options during a single calendar year and a maximum of 100,000
shares of other stock-based awards during a single calendar year. As of December
31, 1997, 90 outside directors, officers and employees were participants in the
Program.

   Restricted shares awarded to participants under the Program generally vest in
equal annual installments, generally over the five-year period commencing on the
date the shares are awarded. Vesting of restricted shares may be contingent on
the achievement of certain performance goals as established by the Compensation
Committee at the time of the grant. Non-vested shares may not be assigned,
transferred, pledged or otherwise encumbered or disposed of. During the
applicable restriction period, the Company retains possession of the
certificates for the restricted shares with executed stock powers attached.
Participants are entitled to dividends and voting rights with respect to the
restricted shares.

   Stock options under the Program are issued at at least 100% of the market
price on the date of grant, are vested over such period of time, which may not
be less than one year, as may be established by the Compensation Committee, and
expire no more than ten years after the grant. Of the incentive stock options
outstanding, 25,500 were exercisable at December 31, 1996; and 51,165 were
exercisable at December 31, 1995. Of the non-qualified options outstanding,
349,609 were exercisable at December 31, 1997; 323,900 were exercisable at
December 31, 1996; and 290,480 were exercisable at December 31, 1995. The
options expire on various dates beginning July 1, 1998, and ending July 2, 2007.

   The Company has adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). In accordance with the
provisions of SFAS 123, the Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations in accounting for its plans and does not recognize
compensation expense for its stock-based compensation plans other than for
awards of restricted shares. Expense is recognized over the vesting period of
the restricted shares, and totaled $2,330,000, $2,143,000, and $1,714,000 for
the years ended December 31, 1997, 1996 and 1995, respectively. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of the grant, no compensation
expense is recognized. Pro forma information regarding net income and earnings
per share is required by SFAS 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions for 1997, 1996 and 1995, respectively: risk free interest rates of
6.3%, 6.6% and 6.2%; dividend yields of 2%; volatility factors of the expected
market price of the Company's common stock of .16 for each period; and a
weighted average expected life of 7 years for each period. The weighted average
fair value of options granted for the three years ending December 31, 1997, 1996
and 1995, respectively was $10.65, $8.39 and $6.73.

   The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

   For purposes of pro forma disclosures the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:

<TABLE>
<CAPTION>
IN $000S, EXCEPT PER SHARE AMOUNTS        1997      1996     1995
--------------------------------------------------------------------
<S>                                     <C>       <C>       <C>
Net Income:
   As Reported                           $74,951  $37,340   $59,353
   Pro forma                             $74,554  $37,201   $59,309

Basic Earnings per Share:
   As Reported                           $  3.50   $ 1.67   $  2.80
   Pro forma                             $  3.48   $ 1.66   $  2.80

Diluted Earnings per Share:
   As Reported                           $  3.34   $ 1.66   $  2.72
   Pro forma                             $  3.32   $ 1.65   $  2.72
</TABLE>

                                       54

<PAGE>   27



   Because SFAS 123 is applicable only to options granted subsequent to December
31, 1994, its pro forma effect will not be fully reflected until 1999.


   The following schedule summarizes activity in the Program during the three
years ending December 31, 1997.

<TABLE>
<CAPTION>
                                 Restricted Shares           Incentive Stock Options       Non-Qualified Stock Options
-------------------------------------------------------------------------------------------------------------------------
                              Number of    Market Price     Number of         Average        Number of        Average
                               Shares      at Date Given     Options      Exercise Price     Options      Exercise Price
-------------------------------------------------------------------------------------------------------------------------
<S>                           <C>          <C>              <C>           <C>                <C>          <C>
Outstanding 1/1/95              262,634                       81,465          $18.31         540,600          $23.97
Awarded                         108,915        26.35             ---                          56,500           26.80
Vested                          (80,679)       24.98
Exercised                                                    (30,300)          17.98         (37,900)          21.20
Forfeited                       (15,826)       26.84             ---                         (46,000)          23.37
-------------------------------------------------------------------------------------------------------------------------
Outstanding 12/31/95            275,044                       51,165          $18.50         513,200          $24.54
Awarded                         109,375        32.09             ---                         129,945           32.97
Vested                          (83,564)       25.51
Exercised                                                    (25,665)          18.50         (37,800)          21.81
Forfeited                        (9,600)       25.86             ---                          (9,100)          23.20
-------------------------------------------------------------------------------------------------------------------------
Outstanding 12/31/96            291,255                       25,500          $18.50         596,245          $26.52
Awarded                         209,340        40.63                                         340,600           40.63
Vested                          (66,399)       28.18
Exercised                                                    (25,500)          18.50         (78,900)          25.03
Forfeited                       (90,223)       27.39                                         (15,135)          30.24
-------------------------------------------------------------------------------------------------------------------------
Outstanding 12/31/97            343,973                          ---             ---         842,810          $32.29
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

   The following table summarizes information concerning currently outstanding
and exercisable stock options:

<TABLE>
<CAPTION>

                                           WEIGHTED AVERAGE
     RANGE OF              NUMBER              REMAINING       WEIGHTED AVERAGE                           WEIGHTED AVERAGE
 EXERCISE PRICES         OUTSTANDING       CONTRACTUAL LIVE     EXERCISE PRICE      NUMBER EXERCISABLE     EXERCOSE PRICE
-------------------------------------------------------------------------------------------------------------------------
<S>                      <C>               <C>                 <C>                  <C>                   <C>
  $16.25-$26.00             316,500               4.3 years         $23.73                262,180              $23.29
  $29.38-$40.63             526,310               8.7                37.44                 87,429               31.20
-------------------------------------------------------------------------------------------------------------------------
                            842,810               7.1               $32.29                349,609              $25.27
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

   At December 31, 1997, there were 1,239,244 shares of the Company's stock
reserved for future grants under the Program.


                                       55

<PAGE>   28




11.      EARNINGS PER SHARE


   The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"). SFAS 128 replaces Accounting Principles Board
Opinion No. 15, "Earnings Per Share" ("APB 15") and requires disclosure of basic
earnings per share and diluted earnings per share. Basic earnings per share
excludes all potentially dilutive securities from the calculation and is
calculated by dividing net income available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. The diluted earnings per share computation is computed
similarly to the fully diluted earnings per share calculation under APB 15. The
following tables reconcile the numerators and denominators for the basic and
diluted earnings per share calculations for the years ended December 31, 1997,
1996 and 1995:


<TABLE>
<CAPTION>
($000s)                              For the year ended 1997
                                                        Per-
                             Income        Shares      Share
                           (Numerator)  (Denominator)  Amount
                           ----------------------------------
<S>                        <C>          <C>            <C>
Net income                     $74,951
Less:  Preferred stock          (3,583)
dividends
                           -----------

BASIC EPS
Income available to common
shareholders                    71,368     20,406        $3.50
                                                       =======

Effect of Dilutive
Securities:
Stock Options                      ---        220
Redeemable preferred stock       2,535      1,208
Convertible preferred stock      1,048        600
                            ---------------------

DILUTED EPS
Income available to common
shareholders plus assumed
conversions                    $74,951     22,434        $3.34
                            ==================================
</TABLE>



<TABLE>
<CAPTION>
($000s)                              For the year ended 1996
                                                        Per-
                              Income        Shares      Share
                           (Numerator)   (Denominator) Amount
                           ----------------------------------
<S>                        <C>           <C>          <C>
Net income                     $37,340
Less:  Preferred stock          (3,700)
dividends
                           ----------------------------------

BASIC EPS
Income available to common
shareholders                    33,640     20,150       $1.67
                                                      =======

Effect of Dilutive
Securities:
Stock Options                      ---        153
Redeemable preferred stock         ---        ---
Convertible preferred stock        ---        ---
                           ----------------------

DILUTED EPS
Income available to common
shareholders plus assumed
conversions                    $33,640     20,303       $1.66
                           ==================================
</TABLE>



<TABLE>
<CAPTION>
                                     For the year ended 1995
($000s)
                                                        Per-
                             Income        Shares      Share
                           (Numerator)  (Denominator)  Amount
                           ----------------------------------
<S>                         <C>         <C>           <C>

Net income                     $59,353
Less:  Preferred stock          (3,531)
dividends
                           -----------

BASIC EPS
Income available to common
shareholders                    55,822    19,951        $2.80
                                                      =======

Effect of Dilutive
Securities:
Stock Options                      ---       119
Redeemable preferred stock       2,658     1,265
Convertible preferred stock        873       502
                            --------------------

DILUTED EPS
Income available to common
shareholders plus assumed
conversions                    $59,353    21,837        $2.72
                            =================================
</TABLE>


In March, 1998, the Company completed a tender offer program whereby it
repurchased 2,400,000 shares of the outstanding common stock of the Company. The
impact of this transaction if it had occurred prior to December 31, 1997, would
be to reduce the number of shares outstanding and increase the earnings per
share for the year ended December 31, 1997.



                                       56


<PAGE>   29
12.      EMPLOYEE BENEFITS

   The Company has several postretirement plans that provide medical and life
insurance benefits for qualified retired employees. The postretirement medical
plans are generally contributory with retiree contributions adjusted annually to
limit employer contributions to predetermined amounts. The postretirement life
plans provide free insurance coverage up to a maximum of $5,000 for retirees
prior to January 1, 1993, of the Company with the exception of Cosmos, whose
retirees are insured with an outside company.

   Net periodic postretirement benefit cost was $1,378,000, $1,494,000, and
$1,506,000 for the years ended December 31, 1997, 1996, and 1995, respectively,
and included the following components:

<TABLE>
<CAPTION>
--------------------------------------------------------------
(In $000s)         1997             1996           1995
--------------------------------------------------------------
              Medical   Life    Medical  Life   Medical  Life
--------------------------------------------------------------
<S>          <C>       <C>     <C>       <C>   <C>      <C>
Service      $  143    $ --    $   162   $      $   140  $  --
 cost                                       --
Interest        936     299      1,042      290   1,082    284
 cost
--------------------------------------------------------------
Net
 periodic
 postretire-
 ment
 benefit     $1,079    $299    $1,204     $290  $1,222  $284
 cost
--------------------------------------------------------------
</TABLE>

The following schedule reconciles the status of the Company's plans with the
unfunded postretirement benefit obligation included in its balance sheets at
December 31:


<TABLE>
<CAPTION>
                            1997               1996
--------------------------------------------------------------
(In $000s)             Medical    Life   Medical    Life
--------------------------------------------------------------
<S>                   <C>        <C>     <C>       <C>
Retirees               $12,052   $4,221   $11,374  $4,121
Fully eligible
   active plan             820       60       802     ---
   participants
Other active plan
   participants            928       57       936     ---
--------------------------------------------------------------
Accumulated
   postretirement
   benefit              13,800    4,338    13,112   4,121
   obligation
Unrecognized net
   gain (loss)             712     (471)    1,657    (347)
--------------------------------------------------------------
Accrued
   postretirement
   benefit             $14,512   $3,867   $14,769  $3,774
   obligation
--------------------------------------------------------------
</TABLE>

   At December 31, 1997, the weighted-average annual assumed rate of increase in
the per capita cost of covered medical benefits is 8.5% for 1998, and is assumed
to decrease to 8% in 1999, then decrease 1% per year to 5.5% in 2002 and
thereafter. At December 31, 1996, the health care cost trend rate assumption was
9.0% for 1997 and the rate graded down by 0.5% per year to 8% in 1999, then
decreased 1% per year to 5.5% in 2002 and thereafter. A 1% increase in the per
capita cost of health care benefits results in a $929,000 increase in the
accrued postretirement benefit obligation and an $85,000 increase in
postretirement benefit expense. The assumed weighted average discount rate used
in determining the accrued postretirement medical and life benefit obligation
was 7.5% at both December 31, 1997 and 1996.

   In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". This standard revises the
disclosure requirements currently required by adding certain required
disclosures and eliminating others. This standard is effective for fiscal years
beginning after December 15, 1997 and is not expected to significantly change
the disclosures made by the Company.

   The Company has a retirement and savings plan for substantially all of its
employees. The plan has features of both a profit sharing plan and a voluntary
Thrift Plan qualified under Section 401(k) of the Internal Revenue Code. The
profit sharing component of the Plan allows for contributions to be made to the
Plan at the discretion of the Board of Directors. Contributions for this
component of the Plan were $4,853,000, $4,959,000, and $5,067,000 in 1997, 1996,
and 1995, respectively. The 401(k) component of the Plan allows employees to
contribute to the Plan and the Company will make a matching contribution of up
to 3% of the employees compensation. The Company's matching contribution
percentage may be changed at the discretion of each participating subsidiary's
Board of Directors. The Company's contributions for this component of the Plan
were $2,379,000, $2,218,000, and $2,102,000 in 1997, 1996, and 1995,
respectively.


                                       57



<PAGE>   30


   13.   PROVISION FOR INCOME TAXES

   The provision for income taxes consists of the following:


<TABLE>
<CAPTION>
(In 000s)                1997        1996          1995
----------------------------------------------------------
<S>                     <C>         <C>           <C>
Current:
   Federal              $34,595     $25,717       $21,761
   State and local          418       2,347         1,456
---------------------------------------------------------
Total current            35,013      28,064        23,217
Deferred:
   Federal                1,923      (8,460)        6,226
   State and local         (310)       (445)           (1)
---------------------------------------------------------
Total deferred            1,613      (8,905)        6,225
---------------------------------------------------------
Total tax provision      36,626     $19,159       $29,442
---------------------------------------------------------
</TABLE>


   Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31, 1997 and
1996, are as follows:

<TABLE>
<CAPTION>
 (In 000s)                            1997          1996
----------------------------------------------------------
<S>                                  <C>          <C>
Insurance operations deferred tax
liabilities:
   Deferred acquisition costs        $  84,862    $ 86,469
   Policy liabilities                   20,325      22,177
   Market discount on investments       11,476      11,869
   Tax over book partnership losses      1,118       1,249
   Unrealized investment gains
   recognized in equity                 34,617      22,524
Non-insurance companies deferred
tax liabilities:
   Book over tax basis in acquired
   television station                   13,884      19,973
   Book over tax basis in
investment property transferred to       5,310         ---
partnership
   Unrealized investment gains
   recognized in equity                  1,517         ---
   Tax over book depreciation            5,161       7,024
   Tax over book amortization            3,593       4,086
   Other                                 1,953         ---
----------------------------------------------------------
Total deferred tax liabilities         183,816     175,371
----------------------------------------------------------
Insurance operations deferred
tax assets:
   Employee benefit accruals             6,048       6,128
   Other                                   ---         597
Non-insurance companies deferred
tax assets:
   Net operating loss carryover            358         358
   Book over tax partnership losses      3,848       2,838
   Other                                   ---       2,311
----------------------------------------------------------
Total deferred tax assets               10,254      12,232
----------------------------------------------------------
Net deferred tax liability           $ 173,562    $163,139
----------------------------------------------------------
</TABLE>

At December 31, 1997 and 1996, the Company had unrealized gains from securities
classified as available for sale and equity securities of $104,877,000 and
$66,486,000, respectively, for which a deferred tax liability has been
established.

    The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is:

<TABLE>
<CAPTION>
(In 000s)                     1997       1996        1995
-----------------------------------------------------------
<S>                         <C>        <C>        <C>
Federal income tax rate            35%        35%        35%
Rate applied to pre-tax
   income                     $39,052    $19,775    $31,078
Tax exempt interest and
   dividends                   (1,036)    (1,166)    (1,384)
State and local income
   taxes                          248      1,233        948
Other                          (1,638)      (683)    (1,200)
-----------------------------------------------------------
Provision for income taxes    $36,626    $19,159    $29,442
-----------------------------------------------------------
</TABLE>

The Company has net operating loss carryforwards of $1,023,000 at December 31,
1997 and 1996, which will expire between the years 2006 and 2009. The
utilization of these carryforwards are subject to special rules which provide
that these loss carryforwards can only be utilized through earnings from the
non-life insurance companies.

Income taxes paid were approximately $35,644,000, $30,047,000, and $21,199,000
in 1997, 1996, and 1995, respectively.

Under prior tax law, a portion of the life insurance subsidiaries' earnings was
not taxed when earned. Such accumulated income ("policyholders' surplus")
amounts to approximately $65,293,000 at December 31, 1983 and, under the Tax
Reform Act of 1984, was frozen at that amount. That amount is not taxable unless
it is distributed to the Company or unless it exceeds certain limitations under
the Internal Revenue Code. The Company does not intend to take actions nor does
it expect any events to occur that would cause tax to be payable on
policyholders' surplus; therefore, no income tax provision on that amount has
been made in the accompanying financial statements. However, if such taxes were
assessed, the amount of the taxes payable would be approximately $22,853,000.

                                       58

<PAGE>   31
14.       QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

   Quarterly results of operations for each of the years ended December 31, 1997
and 1996, are as follows:

<TABLE>
<CAPTION>
                                                                               Quarter Ended
----------------------------------------------------------------------------------------------------------------------
1997 (In 000s except per share amounts)                 March 31          June 30          Sept. 30            Dec. 31
----------------------------------------------------------------------------------------------------------------------
<C>                                                     <C>               <C>              <C>                <C>
Revenues                                                 $159,917          $170,454         $166,684          $163,201
----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                        $ 24,122          $ 31,850         $  0,994          $ 24,611
----------------------------------------------------------------------------------------------------------------------
Net income (loss)                                        $ 15,867          $ 20,398         $ 20,229          $ 18,457
----------------------------------------------------------------------------------------------------------------------
Basic Earnings per common share                          $   0.74          $   0.96         $   0.94          $   0.86
----------------------------------------------------------------------------------------------------------------------
Diluted Earnings per common share                        $   0.71          $   0.92         $   0.90          $   0.81
----------------------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
                                                                                Quarter Ended
----------------------------------------------------------------------------------------------------------------------
1996 (In 000s except per share amounts)                 March 31          June 30          Sept. 30          Dec. 31
----------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>               <C>              <C>               <C>
Revenues                                                 $146,708          $152,352         $156,469          $163,568
----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                        $ 20,660          $ 24,465         $(16,231)         $ 27,605
----------------------------------------------------------------------------------------------------------------------
Net income (loss)                                        $ 14,055          $ 16,300         $(10,820)         $ 17,805
----------------------------------------------------------------------------------------------------------------------
Basic Earnings (loss) per common share                   $   0.65          $   0.76         $  (0.58)         $   0.84
----------------------------------------------------------------------------------------------------------------------
Diluted Earnings (loss) per common share                 $   0.64          $   0.74         $  (0.58)         $   0.80
----------------------------------------------------------------------------------------------------------------------
</TABLE>


   During the third quarter of 1996, and concurrent with a realignment of the
Company's management structure, the Company completed a detailed study of its
insurance product lines, including products currently being marketed as well as
those previously sold by the Company's subsidiaries (including recently acquired
companies). This study identified several specific products, marketing programs,
underwriting and service methods that were inconsistent with the Company's
current strategies and profit objectives. Based on this analysis, the Company
took a $26.9 million after-tax charge, which principally represented the
write-off of deferred acquisition costs where recovery was no longer assured due
to actual experience on these products being worse than originally assumed. In
addition to the product-related charges, the Company wrote-off previously
deferred costs associated with acquiring and modifying an administrative system
for the Company's pre-need business. With the realignment previously mentioned,
a decision was made to move to a new administrative platform for pre-need. All
of the charges represented non-cash items, and had no material impact on the
insurance companies' statutory financial condition.


15.      STATUTORY RESULTS OF OPERATIONS

   Statutory net income of the Insurance Group for each of the years ended
December 31, 1997, 1996, and 1995 was $53.0 million, $42.8 million, and $32.4
million, respectively.



16.      ACQUISITIONS

In February 1995, the Company completed the acquisition of WLOX television
located in Biloxi, Mississippi. WLOX-TV is affiliated with the ABC television
network. This acquisition was accounted for as a purchase, and the results of
operations of WLOX have been included in the accompanying consolidated financial
statements since the date of acquisition. The purchase price of $40.1 million
was funded through a combination of proceeds from the Company's credit facility
totaling $5.6 million, a new class of convertible preferred stock totaling $21.0
million (see Note 9), and notes payable totaling $13.5 million.


                                       59

<PAGE>   32

17.      FAIR VALUES OF FINANCIAL INSTRUMENTS

   SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
requires the disclosure of the estimated fair value of all financial
instruments, including both assets and liabilities unless specifically exempted.
The following methods were used to estimate the fair values of the Company's
financial instruments.

-   Cash and short-term investments: The carrying amounts reported in the
    balance sheet for these instruments approximate their fair values.

-   Investment securities: Fair values for fixed maturity securities are based
    on quoted market prices, where available. For fixed maturity securities not
    actively traded, fair values are estimated using values obtained from
    independent pricing services or, in the case of private placements, are
    estimated by discounting expected future cash flows using a current market
    rate applicable to the yield, credit quality, and maturity of the
    investments. The fair values for equity securities are based on quoted
    market prices.

-   Mortgage loans and policy loans: The fair values for mortgage loans and
    policy loans are estimated using discounted cash flow analyses, using
    interest rates currently being offered for similar loans to borrowers with
    similar credit ratings. Loans with similar characteristics are aggregated
    for purposes of the calculations.

-   Other long-term investments: Other long-term investments consist primarily
    of venture capital investments and investments in oil and gas producing
    property. The Company determined that it was not practicable to estimate the
    fair values of its venture capital investments because of a lack of primary
    and secondary market prices and the inability to estimate fair values
    without incurring excessive costs. The Company's investment in venture
    capital totaled $18,924,000 and $20,376,000 at December 31, 1997 and 1996,
    respectively.

-   Policy liabilities: Fair values for the Company's liabilities under
    investment-type insurance contracts that are not subject to policyholder
    mortality or morbidity risk are estimated using discounted cash flow
    calculations, based on interest rates currently being offered for similar
    contracts with remaining maturities consistent with those for the contracts
    being valued.

-   Short and long-term debt: Substantially all of the Company's short and
    long-term debt is floating rate debt. Accordingly, the carrying amount
    approximates its fair value.

-   Other liabilities: Fair values on film contract obligations related to the
    Company's broadcasting operations were determined by discounting future cash
    flows using current fixed borrowing rates for similar types of borrowing
    arrangements.

-   Interest Rate Swap: Fair value of the interest rate swap is based on an
    estimate provided by the financial institution which is the counterparty to
    the swap, and was determined by discounting the value of estimated future
    cash flows.


                                       60


<PAGE>   33




  The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:

<TABLE>
<CAPTION>
                                                                         1997                               1996
--------------------------------------------------------------------------------------------------------------------------------
                                                                                Estimated                          Estimated
                                                               Carrying           Fair            Carrying           Fair
(in 000s)                                                       Amount            Value            Amount            Value
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>              <C>               <C>
ASSETS
Fixed maturity securities available for sale                     $1,673,888       $1,673,888     $1,517,539        $1,517,539
Equity securities                                                    74,568           74,568         75,591            75,591
Mortgage loans                                                      244,821          250,889        230,910           230,166
Policy loans                                                        100,322           97,960         98,816            94,451
Other long-term investments                                          18,459           18,459         22,470            22,470
Short-term investments and cash                                      62,036           62,036         37,024            37,024
Interest rate swap                                                      ---              ---            ---               505

LIABILITIES
Investment-type insurance contracts                                  79,317           75,450         76,573            72,437
Notes, mortgages and other debt                                     191,914          191,914        147,861           147,861
Long-term debt                                                          ---              ---        100,000           100,000
Film contract obligations included in other liabilities               9,738            8,765          8,154             7,382
Interest rate swap                                                      ---               87            ---               ---
</TABLE>

    SFAS No. 107 excludes insurance contract liabilities, except for
investment-type contracts, from the definition of financial instruments.
However, the fair value of the liabilities under all insurance contracts is
taken into consideration in the overall management of interest rate risk.
Because of the exclusion of the majority of the Company's insurance contracts as
well as other non-financial assets and liabilities from fair value disclosure,
care should be taken in deriving conclusions about the Company's financial
position based on the fair value information presented above.


18.      BUSINESS SEGMENT INFORMATION

   The Company is actively engaged through its subsidiaries in two major
business segments: insurance and broadcasting. Sales between the various
subsidiaries of the Company are not material and are eliminated. Information for
these segments is contained in the Selected Financial Data on page 27 and, with
respect to the years 1995 through 1997, is incorporated by reference.

                                       61



<PAGE>   34


MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

         The consolidated financial statements included in this Annual Report
have been prepared by management which is responsible for the integrity and fair
presentation of the financial data and related disclosures. The consolidated
financial statements are in accordance with generally accepted accounting
principles and necessarily include amounts that are based on management's
estimates and assumptions. Management believes that the consolidated financial
statements fairly reflect the Company's financial position and results of
operations.

         To gather and control financial data, the Company maintains accounting
systems supported by internal controls that provide reasonable assurance over
the preparation of reliable financial statements. Management believes that a
high level of internal control is maintained by the selection and training of
qualified personnel, by the establishment and communication of accounting and
business policies, and by internal audits.

         Ernst & Young LLP, independent auditors, are engaged to audit and to
render an opinion as to whether the Company's financial statements, considered
in the entirety, present the Company's financial condition and operating results
fairly. Their audit is conducted in accordance with generally accepted auditing
standards, and their report is included on this page.

         The Audit Committee of the Board of Directors, composed of four outside
directors, reviews the Company's accounting and auditing policies and meets
regularly with the Company's internal audit staff and the independent auditors.




REPORT OF INDEPENDENT AUDITORS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
THE LIBERTY CORPORATION

         We have audited the accompanying consolidated balance sheets of The
Liberty Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

         We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Liberty Corporation and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.


                                              /s/  Ernst & Young LLP

Greenville, South Carolina
February 6, 1998



                                       62