SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-Q

[ X ] QUARTERLY  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  
EXCHANGE ACT OF 1934
                  For the quarterly period ended June 30, 1997
                                                 -------------
                                       or

[   ] TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  
EXCHANGE ACT OF 1934
          For the transition period from               to
                                         -------------    -------------

                         Commission file number: 1-13654
                                                 -------

                    LIBERTY FINANCIAL COMPANIES, INC.
--------------------------------------------------------------------------------
         (Exact name of registrant as specified in its charter)

        Massachusetts                                   04-3260640
--------------------------------------------------------------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)     
        
600 Atlantic Avenue, Boston, Massachusetts                           02210-2214
--------------------------------------------------------------------------------
 (Address of principal executive offices)                            (Zip Code)

                                 (617) 722-6000
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last 
 report)

   Indicate  by  check  mark  whether  the registrant (1) has filed  all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. [ X ] Yes [ ] No

   There were  29,384,398  shares of the  registrant's  Common  Stock,  $.01 par
value,  and 327,006 shares of the  registrant's  Series A Convertible  Preferred
Stock, $.01 par value, outstanding as of July 31, 1997.

Exhibit Index - Page 25                                             Page 1 of 28
<PAGE>
                        LIBERTY FINANCIAL COMPANIES, INC.
          QUARTERLY REPORT ON FORM 10-Q FOR PERIOD ENDED JUNE 30, 1997


                                TABLE OF CONTENTS


Part I.    FINANCIAL INFORMATION                                       Page


Item 1.    Financial Statements

           Consolidated Balance Sheets as of June 30, 1997 and          
              December 31, 1996

           Consolidated Income Statements for the Three Months and      
              Six Months Ended June 30, 1997 and 1996

           Consolidated Statements of Cash Flows for the Six Months     
              Ended June 30, 1997 and 1996

           Consolidated Statement of Stockholders' Equity for the       
              Six Months Ended June 30, 1997

           Notes to Consolidated Financial Statements                  

Item 2.    Management's Discussion and Analysis of Results of         
              Operations and Financial Condition


Part II.   OTHER INFORMATION

Item 5.    Other Information                                          

Item 6.    Exhibits and Reports on Form 8-K                           

Signatures                                                            

Exhibit Index                                                         
<PAGE>
<TABLE>
                        LIBERTY FINANCIAL COMPANIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                                  (in millions)
<CAPTION>
                                                June 30       December 31
                                                 1997            1996
                                              -----------     -----------
                                               Unaudited
                                     ASSETS
<S>                                             <C>             <C>      
Assets:
   Investments                                  $12,032.6       $11,537.9
   Cash and cash equivalents                      1,309.6           875.8
   Accrued investment income                        163.0           146.8
   Deferred policy acquisition costs                253.3           250.4
   Value of insurance in force                       65.7            70.8
   Deferred distribution costs                      109.8           114.4
   Intangible assets                                201.6           205.4
   Other assets                                     122.7           134.7
   Separate account assets                        1,171.1         1,091.5
                                                ---------       ---------
                                                $15,429.4       $14,427.7
                                                =========       =========
                                               
                                             

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
   Policyholder balances                        $11,942.0       $11,637.5                                                
   Notes payable to affiliates                      229.0           229.0
   Payable for investments purchased and 
      loaned                                        738.5           211.2
   Other liabilities                                269.3           267.1
   Separate account liabilities                   1,117.6         1,017.7
                                                ---------       ---------
      Total liabilities                          14,296.4        13,362.5
                                                ---------       ---------


Series A redeemable convertible preferred
 stock, par value $.01; authorized, issued and 
 outstanding 327,006 shares in 1997 and 
 327,340 shares in 1996                              14.2            13.8
                                                ---------       ---------

Stockholders' Equity:
   Common stock, par value $.01; authorized
    100,000,000 shares, issued and outstanding 
    29,118,449 shares in 1997 and 28,705,015 
    shares in 1996                                    0.3             0.3
   Additional paid-in capital                       847.6           835.3
   Net unrealized investment gains                   76.6            74.4
   Retained earnings                                196.9           141.4
   Unearned compensation                             (2.6)            0.0
                                                ---------       ---------      
      Total stockholders' equity                  1,118.8         1,051.4
                                                ---------       ---------
                                                $15,429.4       $14,427.7
                                                =========       =========
      



                             See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
                        LIBERTY FINANCIAL COMPANIES, INC.
                         CONSOLIDATED INCOME STATEMENTS
                 (in millions, except share and per share data)
                                    Unaudited
<CAPTION>
                                      Three Months Ended      Six Months Ended
                                           June 30                 June 30
                                      ------------------      ----------------
                                       1997       1996        1997         1996
                                       ----       ----        ----         ----
 
<S>                              <C>        <C>         <C>          <C>       
Investment income                $    212.2 $     189.8 $     420.2  $    379.0                              
Interest credited to 
 policyholders                       (147.2)     (136.2)     (294.5)     (274.3)
                                 ---------- ----------- -----------  ----------
Investment spread                      65.0        53.6       125.7       104.7
                                 ---------- ----------- -----------  ----------
Net realized investment gains
 (losses)                               3.1        (1.7)       16.0         2.1
                                 ---------- ----------- -----------  ----------
Fee income:
  Investment advisory and         
   administrative fees                 52.6        48.8       105.7        95.2
  Distribution and service fees        11.9        11.1        24.0        21.7
  Transfer agency fees                 11.5        10.8        23.3        21.2
  Surrender charges and net       
   commissions                          9.0         9.4        17.5        17.1
  Separate account fees                 4.1         3.6         8.0         7.1
                                 ---------- ----------- -----------  ----------
Total fee income                       89.1        83.7       178.5       162.3
                                 ---------- ----------- -----------  ----------
Expenses:
  Operating expenses                  (75.6)      (67.8)     (151.4)     (133.7)
  Amortization of deferred policy
   acquisition costs                  (19.4)      (14.9)      (35.7)      (29.0)
  Amortization of deferred          
   distribution costs                  (8.7)       (7.4)      (16.9)      (14.2)
  Amortization of value of          
    insurance in force                 (1.9)       (1.9)       (5.1)       (3.6)
  Amortization of intangible assets    (3.3)       (4.6)       (6.5)       (8.3)
  Interest expense, net                (4.4)       (5.0)       (8.9)      (10.0)
                                 ---------- ----------- -----------  ----------
Total expenses                       (113.3)     (101.6)     (224.5)     (198.8)
                                 ---------- ----------- -----------  ----------
Pretax income                          43.9        34.0        95.7        70.3
Income tax expense                    (13.9)      (10.9)      (30.7)      (23.4)
                                 ---------- ----------- -----------  ----------
Net income                       $     30.0 $      23.1 $      65.0  $     46.9
                                 ========== =========== ===========  ==========
                                 
Net income per share             $     0.97 $      0.77 $      2.11  $     1.58
                                 ========== =========== ===========  ==========
                                 
Common stock and common stock
  equivalents                    30,630,884  29,611,394  30,564,803  29,436,900
                                 ==========  ==========  ==========  ==========


                             See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
                        LIBERTY FINANCIAL COMPANIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (in millions)
                                    Unaudited
<CAPTION>

                                                            Six Months Ended
                                                                June 30
                                                            ----------------
                                                            1997        1996
                                                            ----        ----
<S>                                                     <C>         <C> 
Cash flows from operating activities:
Net income                                              $   65.0    $   46.9
Adjustments to reconcile net income to net cash
provided by operating activities:
  Depreciation and amortization                             35.9        32.0
  Interest credited to policyholders                       294.5       274.3
  Net realized investment gains                            (16.0)       (2.1)
  Net amortization on investments                           16.3         2.2
  Change in deferred policy acquisition costs               (5.2)       (9.8)
  Net change in other assets and liabilities, net of       
   effect of acquisitions                                   (9.1)      (53.5)
                                                        --------    --------
    Net cash provided by operating activities              381.4       290.0
                                                        --------    --------
Cash flows from investing activities:
 Investments purchased available for sale               (2,225.3)   (1,315.9)
 Investments sold available for sale                       975.7       478.7
 Investments matured available for sale                    969.7       680.0
 Change in policy loans, net                               (13.8)      (13.5)
 Change in mortgage loans, net                               3.4         4.0
 Acquisitions, net of cash acquired                          0.0        (7.1)
                                                        --------    -------- 
   Net cash used in investing activities                 (290.3)      (173.8)
                                                       --------     --------
Cash flows from financing activities:
 Withdrawals from policyholder accounts                   (631.8)     (548.2)
 Deposits to policyholder accounts                         507.6       572.1
 Securities lending                                        478.8        90.1
 Change in revolving credit facility                       (12.5)        0.0
 Exercise of stock options                                   2.7         1.2
 Dividends paid                                             (2.1)       (1.9)
                                                        --------    --------
    Net cash provided by financing activities              342.7       113.3
                                                        --------    -------- 
Increase in cash and cash equivalents                      433.8       229.5
Cash and cash equivalents at beginning of period           875.8       875.3
                                                        --------    --------
Cash and cash equivalents at end of period              $1,309.6    $1,104.8
                                                        ========    ========
                                                        









                             See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
                        LIBERTY FINANCIAL COMPANIES, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                  (in millions)
                                    Unaudited

<CAPTION>
                                      Net
                        Additional Unrealized                         Total
                Common   Paid-In   Investment Retained   Unearned  Stockholders'
                Stock    Capital     Gains    Earnings     Comp.      Equity
                -------  ---------  --------  --------  ----------  -----------
<S>               <C>      <C>        <C>      <C>         <C>        <C>     
Balance,
 December          
 31, 1996         $0.3     $835.3     $74.4    $141.4      $  0.0     $1,051.4
Proceeds from
 exercise of            
 stock options     0.0        2.7       0.0       0.0         0.0          2.7
Unearned
 compensation      0.0        2.6       0.0       0.0        (2.6)         0.0
Accretion to
 face value of 
 preferred stock   0.0        0.0       0.0      (0.4)        0.0         (0.4)
Common stock
 dividends         0.0        7.0       0.0      (8.6)        0.0         (1.6)
Preferred
 stock dividends   0.0        0.0       0.0      (0.5)        0.0         (0.5)
Change in net
 unrealized
 investment gains  0.0        0.0       2.2       0.0         0.0          2.2
Net income         0.0        0.0       0.0      65.0         0.0         65.0
                  ----     ------     -----    ------       -----     --------
Balance,
 June 30, 1997    $0.3     $847.6     $76.6    $196.9       $(2.6)    $1,118.8
                  ====     ======     =====    ======       =====     ========













                             See accompanying notes.
</TABLE>
<PAGE>
                        LIBERTY FINANCIAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                    Unaudited

1.  General

       The accompanying  unaudited consolidated financial statements include all
   adjustments,   consisting  of  normal  recurring  accruals,  that  management
   considers  necessary  for a  fair  presentation  of the  Company's  financial
   position  and  results  of  operations  as of and  for  the  interim  periods
   presented.  Certain  footnote  disclosures  normally  included  in  financial
   statements   prepared  in  accordance  with  generally  accepted   accounting
   principles  have  been  condensed  or  omitted  pursuant  to  the  rules  and
   regulations  of the  Securities  and Exchange  Commission.  Therefore,  these
   consolidated  financial  statements  should be read in  conjunction  with the
   audited  consolidated  financial  statements  contained in the Company's 1996
   Annual Report to Stockholders. The results of operations for the three months
   and six months  ended June 30,  1997 are not  necessarily  indicative  of the
   results to be expected for the full year. Certain prior period amounts in the
   accompanying  unaudited consolidated income statements have been reclassified
   to conform to the current period presentation.

2.  Industry Segment Information

      The Company is an asset accumulation and management company which operates
   in  two  industry  segments:   retirement-oriented   insurance   (principally
   annuities) and asset management.  The annuity insurance business is conducted
   at Keyport Life Insurance Company  ("Keyport").  Keyport generates investment
   spread  income from the  investment  portfolio  which  supports  policyholder
   balances  associated  with its fixed and  indexed  annuity  business  and its
   closed block of single premium whole life  insurance.  The annuity  insurance
   business also derives fee income from the  administration  of fixed,  indexed
   and variable annuity  contracts.  The asset management  business is conducted
   principally at The Colonial Group, Inc. ("Colonial"),  an investment advisor,
   distributor  and  transfer  agent  to  mutual  funds,  Stein  Roe  &  Farnham
   Incorporated ("Stein Roe"), a diversified investment advisor, Newport Pacific
   Management,  Inc.  ("Newport"),  an  investment  advisor to mutual  funds and
   institutional  accounts  specializing  in Asian equity  markets,  and Liberty
   Asset Management  Company  ("LAMCO"),  an investment advisor to mutual funds.
   The asset management business derives fee income from investment products and
   services.

      Approximately  65%  of  the  Company's  income  before  interest  expense,
   amortization  of intangible  assets,  net realized gains or losses and income
   taxes  for the six  months  ended  June  30,  1997  was  attributable  to the
   Company's annuity insurance business,  with the remaining 35% attributable to
   the Company's asset management activities. This compares to approximately 60%
   and 40%, respectively, during the year earlier period.

3.  Investments

       Investments,  all of which  pertain to the  Company's  annuity  insurance
   operations, were comprised of the following (in millions):

<TABLE>
<CAPTION>
                                June 30     December 31                              
                                 1997           1996
                              -----------   -----------

<S>                            <C>           <C>      
Fixed maturities               $11,051.4     $10,718.6
Mortgage loans                      63.6          67.0
Policy loans                       546.6         532.8
Other invested assets              330.1         183.6
Equity securities                   40.9          35.9
                               ---------     ---------
    Total                      $12,032.6     $11,537.9
                               =========     =========
</TABLE>
                          
      The Company's  general  investment policy is to hold fixed maturity assets
   for  long-term  investment  and,  accordingly,  the  Company  does not have a
   trading  portfolio.  To provide for maximum portfolio  flexibility and enable
   appropriate tax planning,  the Company classifies its entire fixed maturities
   investments  as  "available  for sale"  which are carried at  estimated  fair
   value.

4.  Other Financial Instruments

       As a component of its  investment  strategy and to reduce its exposure to
   interest rate risk, the Company utilizes interest rate swap agreements ("swap
   agreements")  and interest rate cap agreements  ("cap  agreements")  to match
   assets  more  closely to  liabilities.  Swap  agreements  are  agreements  to
   exchange with a  counterparty  interest rate payments of differing  character
   (e.g.,  fixed-rate payments exchanged for variable-rate payments) based on an
   underlying  principal balance (notional  principal) to hedge against interest
   rate changes.  The Company currently utilizes swap agreements to reduce asset
   duration and to better match interest rates earned on longer-term  fixed rate
   assets with  interest  rates  credited to  policyholders.  The Company had 43
   outstanding  swap agreements with an aggregate  notional  principal amount of
   $2.4 billion and 39 outstanding  swap agreements  with an aggregate  notional
   principal amount of $2.3 billion,  as of June 30, 1997 and December 31, 1996,
   respectively.

       Cap  agreements  are  agreements  with a  counterparty  which require the
   payment of a premium  for the right to receive  payments  for the  difference
   between the cap interest rate and a market interest rate on specified  future
   dates based on an underlying  principal balance (notional principal) to hedge
   against rising interest  rates.  The Company had interest rate cap agreements
   with an aggregate  notional  amount of $450.0 million as of June 30, 1997 and
   December 31, 1996.

       With respect to the Company's  equity-indexed  annuity,  the Company buys
   call  options on the  Standard & Poor's 500  Composite  Stock Index ("S&P 500
   Index") to hedge its obligation to provide returns based upon this index. The
   Company  had call  options  with a book  value of $241.3  million  and $109.6
   million as of June 30, 1997 and December 31, 1996, respectively.

       Hedge  accounting is applied after the Company  determines that the items
   to be  hedged  expose  it to  interest  rate or price  risk,  designates  the
   instruments  as hedges,  and  assesses  whether  the  instruments  reduce the
   indicated  risks  through  the  measurement  of  changes  in the value of the
   instruments  and the items being hedged at both  inception and throughout the
   hedge  period.  From  time  to  time,  interest  rate  swap  agreements,  cap
   agreements,  and call options are terminated.  If the terminated position was
   accounted for as a hedge, realized gains or losses are deferred and amortized
   over the remaining lives of the hedged assets or liabilities.  Conversely, if
   the terminated  position was not accounted for as a hedge,  or the assets and
   liabilities  that were  hedged no longer  exist,  the  position is "marked to
   market," and realized gains or losses are immediately recognized in income.

       The net  differential  to be paid  or  received  on  interest  rate  swap
   agreements is recognized as a component of net  investment  income.  Premiums
   paid for interest  rate cap  agreements  are  deferred  and  amortized to net
   investment income on a straight-line  basis over the terms of the agreements.
   The unamortized premium is included in other invested assets.  Amounts earned
   on  interest  rate  cap  agreements  are  recorded  as an  adjustment  to net
   investment  income.  Interest rate swap agreements and cap agreements hedging
   investments  designated as available for sale are adjusted to fair value with
   the resulting unrealized gains and losses included in stockholders' equity.

       Premiums paid on call options are amortized to net investment income over
   the terms of the  contracts.  The call options are included in other invested
   assets and are carried at amortized cost plus intrinsic value, if any, of the
   call options as of the valuation date. Changes in intrinsic value of the call
   options are recorded as an adjustment to interest credited to policyholders.

       There are risks  associated  with some of the techniques the Company uses
   to match its assets and  liabilities.  The primary risk associated with swap,
   cap, and call option  agreements  is the risk  associated  with  counterparty
   nonperformance.  The Company  believes that the  counterparties  to its swap,
   cap, and call option  agreements  are  financially  responsible  and that the
   counterparty risk associated with these transactions is minimal.

5.  Unearned Compensation

       Under the Company's 1995 Stock Incentive Plan, certain key employees were
   granted a total of 61,000  restricted shares of Common Stock on May 14, 1997.
   Holders  of  restricted  stock  have all the  rights of  other  shareholders,
   subject to certain  restrictions and  forfeiture  provisions. Restrictions on
   the shares expire no more than  six years after the date of award, or earlier
   if certain stock price targets are met.

       Unearned  compensation  of $2.6 million was recorded at the date of award
   based on the market  value of the  shares.  Unearned  compensation,  which is
   shown as a separate  component of stockholders' equity, is being amortized to
   expense over a period of four years.

6.  Net Income Per Share

       Net  income per share is calculated  by dividing applicable net income by
   the weighted average number of shares of common stock outstanding during each
   period, adjusted  for  the  incremental  shares  attributable to common stock
   equivalents.  Common  stock  equivalents  consist  primarily  of  outstanding
   employee  stock options.  In calculating  net income per share, net income is
   reduced by convertible preferred stock dividend requirements.  Such preferred
   stock  earns cumulative  dividends at the annual rate of $2.875 per share and
   is  redeemable  at the option of the Company, subject to certain  conditions,
   anytime  after  March 24, 1998.  At  the  time  of issuance, the  convertible
   preferred stock was determined not to be a common stock equivalent.

       In  February  1997,  the  Financial  Accounting  Standards Board ("FASB")
   issued  Statement of Financial  Accounting  Standards No. 128,  "Earnings per
   Share" ("SFAS 128"), which is required to be adopted for periods ending after
   December 15, 1997. SFAS 128 replaces  primary and fully diluted  earnings per
   share with basic and diluted earnings per share.  Basic earnings per share is
   computed by dividing income available to common  stockholders by the weighted
   average  number of common  shares  outstanding  during  the  period.  Diluted
   earnings per share is computed similarly to fully diluted earnings per share.
   Assuming that SFAS 128 had been  implemented,  basic earnings per share would
   have  been  $1.03  and  $0.81  for the  second  quarters  of 1997  and  1996,
   respectively.  For the first six months of 1997 and 1996,  basic earnings per
   share  would have been  $2.23 and $1.66,  respectively.  The  calculation  of
   diluted earnings per share under SFAS 128 for each of these periods would not
   materially differ from the calculation of fully diluted earnings per share.

7.  Recent Accounting Proposal

      In June 1996,  FASB issued an  exposure  draft of an  accounting  standard
   entitled "Accounting for Derivative and Similar Financial Instruments and for
   Hedging  Activities." This exposure draft, if adopted in the form in which it
   was issued,  would  require  companies to report  derivatives  on the balance
   sheet at fair value with changes in fair value  recorded in income or equity.
   The exposure draft also would change the accounting for  derivatives  used in
   hedging  strategies  from  traditional   deferral  accounting  to  a  current
   recognition  approach  which could impact a company's  income  statement  and
   balance  sheet  and  expand  the  definition  of  a  derivative   instrument.
   Management expects that this accounting standard,  in whatever form, will not
   be effective  until 1999.  FASB's Rules of Procedure  require that,  prior to
   approving a new  accounting  standard,  extensive  "due process" be followed.
   FASB requests written  comments from interested  parties on an exposure draft
   and also may hold public  hearings.  This exposure draft has drawn  criticism
   primarily  because  the  required  accounting  treatment  would not match the
   perceived economic effect of such hedging  strategies.  As a result of, among
   other things,  the concerns and  criticisms in comment  letters and at public
   hearings  held on this exposure  draft,  the Company is unable to predict the
   form that the final accounting standard, if adopted, may take and believes it
   would be  inappropriate  to speculate on the effects of any such  adoption at
   this time.
<PAGE>
Item 2. Management's  Discussion  and Analysis of Results of Operations  and 
Financial Condition

Results of Operations

   Net Income was $30.0  million or $0.97 per share for the  quarter  ended June
30, 1997 compared to $23.1 million or $0.77 per share for the quarter ended June
30,  1996.  For the first six months of 1997,  net  income was $65.0  million or
$2.11 per share  compared to $46.9  million or $1.58 per share for the first six
months of 1996.  These  increases  resulted  from higher  investment  spread and
higher fee income.  In addition,  the six month 1997 period  included higher net
realized investment gains. The quarter ended June 30, 1997 included net realized
investment gains of $3.1 million compared to net realized  investment  losses of
$1.7 million for the quarter  ended June 30, 1996.  Partially  offsetting  these
items  were  increased  operating  expenses,  amortization  expense  related  to
deferred policy  acquisition costs and deferred  distribution  costs, and income
tax expense.

   Pretax  Income was $43.9 million for the quarter ended June 30, 1997 compared
to $34.0 million for the quarter  ended June 30, 1996.  For the first six months
of 1997, pretax income was $95.7 million compared to $70.3 million for the first
six months of 1996.  These  increases  resulted from higher  investment  spread,
higher  fee  income,  and  higher  net  realized  investment  gains.   Partially
offsetting these increases were the higher  operating and amortization  expenses
referred to above.

   Investment  Spread is the  amount by which  investment  income  earned on the
Company's  investments  exceeds  interest  credited  on  policyholder  balances.
Investment spread was $65.0 million for the quarter ended June 30, 1997 compared
to $53.6  million for the quarter  ended June 30, 1996.  The amount by which the
average  yield on  investments  exceeds the average  interest  credited  rate on
policyholder balances is the investment spread percentage. The investment spread
percentage  for the quarter ended June 30, 1997 was 1.98%  compared to 1.90% for
the quarter  ended June 30, 1996.  For the first six months of 1997,  investment
spread was $125.7 million compared to $104.7 million for the first six months of
1996.  The  investment  spread  percentage was 1.95% for the first six months of
1997 compared to 1.86% for the first six months of 1996.

   Investment  income was $212.2  million  for the  quarter  ended June 30, 1997
compared to $189.8  million for the quarter ended June 30, 1996. The increase of
$22.4  million in 1997  compared to 1996  primarily  relates to a $28.0  million
increase as a result of the higher level of invested assets, partially offset by
a $5.6 million  decrease  resulting from a lower average  investment  yield. The
average  investment yield was 6.97% for the quarter ended June 30, 1997 compared
to 7.19% for the quarter ended June 30, 1996.  For the first six months of 1997,
investment  income was $420.2  million  compared to $379.0 million for the first
six months of 1996.  The  increase  of $41.2  million in 1997  compared  to 1996
primarily relates to a $55.5 million increase as a result of the higher level of
average invested assets,  partially offset by a $14.3 million decrease resulting
from a lower average  investment  yield. The average  investment yield was 6.96%
for the first six months of 1997  compared  to 7.23% for the first six months of
1996.

   Interest  credited to  policyholders  totaled  $147.2 million for the quarter
ended June 30, 1997  compared to $136.2  million for the quarter  ended June 30,
1996. The increase of $11.0 million in 1997 compared to 1996  primarily  relates
to  an  $18.8  million  increase  as a  result  of a  higher  level  of  average
policyholder  balances,  partially offset by a $7.8 million  decrease  resulting
from a lower average  interest  credited rate.  Policyholder  balances  averaged
$11.8  billion for the quarter ended June 30, 1997 compared to $10.3 billion for
the quarter ended June 30, 1996.  The average  interest  credited rate was 4.99%
for the quarter ended June 30, 1997 compared to 5.29% for the quarter ended June
30, 1996. For the first six months of 1997, interest credited was $294.5 million
compared  to $274.3  million for the first six months of 1996.  The  increase of
$20.2  million in 1997  compared to 1996  primarily  relates to a $38.4  million
increase  as a  result  of a  higher  level of  average  policyholder  balances,
partially  offset by an $18.2 million  decrease  resulting  from a lower average
interest  credited rate.  Policyholder  balances  averaged $11.7 billion for the
first six months of 1997  compared to $10.2  billion for the first six months of
1996. The average  interest  credited rate was 5.01% for the first six months of
1997 compared to 5.37% for the first six months of 1996.

   Average Investments (computed without giving effect to SFAS 115), including a
portion of the Company's cash and cash  equivalents,  were $12.2 billion for the
quarter ended June 30, 1997 compared to $10.6 billion for the quarter ended June
30, 1996. For the first six months of 1997, such average  investments were $12.1
billion  compared  to $10.5  billion  for the  first six  months of 1996.  These
increases primarily relate to a 100 percent  coinsurance  agreement with respect
to a $954.0 million block of single premium  deferred fixed annuities  ("SPDAs")
entered into with Fidelity & Guaranty Life Insurance Company ("F&G Life") during
the third  quarter of 1996 and the  investment  of  portfolio  earnings  for the
twelve  months  ended  June  30,  1997  of $0.8  billion.  Under  the  F&G  Life
transaction,  the  investment  risk of the policies was  transferred to Keyport,
while F&G Life continues to administer the policies.

   Net Realized  Investment  Gains were $3.1 million for the quarter  ended June
30, 1997  compared to net  realized  investment  losses of $1.7  million for the
quarter  ended June 30,  1996.  For the first six months of 1997,  net  realized
investment  gains were $16.0 million  compared to $2.1 million for the first six
months  of 1996.  Sales  of fixed  maturity  investments  generally  are made to
maximize total return. The net realized  investment gains in 1997 included gains
on the  sales  of  fixed  maturity  investments  of $8.1  million  and  gains on
redemption of seed money  investments in separate account mutual funds sponsored
by the Company of $7.4  million.  In addition,  there were $0.5 million in gains
related  to  sales  of  general  corporate  securities  in the  Company's  asset
management   operations.   The  net  realized  investment  gains  in  1996  were
attributable to sales of fixed maturity investments.

   Investment  Advisory and Administrative Fees are based on the market value of
assets managed for mutual funds, wealth management and institutional  investors.
Investment  advisory and administrative  fees were $52.6 million for the quarter
ended June 30,  1997  compared to $48.8  million for the quarter  ended June 30,
1996. For the first six months of 1997,  investment  advisory and administrative
fees were $105.7  million  compared to $95.2 million for the first six months of
1996. The increase in 1997 compared to 1996 primarily reflects a higher level of
average fee-based assets under management.

   Average  fee-based assets under management were $36.1 billion for the quarter
ended June 30,  1997  compared to $33.4  billion for the quarter  ended June 30,
1996.  For the first six months of 1997,  average  fee-based  assets  were $36.1
billion  compared  to $33.0  billion  for the  first six  months of 1996.  These
increases   during  1997  compared  to  1996  resulted   primarily  from  market
appreciation of $3.3 billion and net sales of $0.3 billion for the twelve months
ended June 30, 1997.  Investment  advisory and administrative fees were 0.58% of
average  fee-based  assets under management for the quarters ended June 30, 1997
and 1996. For the first six months of 1997 and 1996, such amounts were 0.59% and
0.58%,  respectively.  This  increase  in the  effective  fee  rate in 1997  was
primarily  due to the increased  proportion of assets under  management in funds
with relatively higher fees.

   The amount of fee-based  assets under management is affected by product sales
and  redemptions  and by  changes  in the  market  values of such  assets  under
management. Fee-based assets under management and changes in such assets are set
forth in the tables below (in billions).

<TABLE>
Fee-Based Assets Under Management
<CAPTION>
                                                  As of June 30
                                                  -------------
                                                1997        1996
                                                ----        ----
<S>                                             <C>        <C>
Mutual Funds:  
  Intermediary-distributed                      $16.3      $15.6
  Direct-marketed                                 6.9        6.1
  Closed-end                                      2.1        1.9
  Variable annuity                                1.2        1.0
                                                -----      -----
                                                 26.5       24.6
Wealth Management                                 6.0        4.7
Institutional                                     5.0        4.6
                                                -----      -----
Total Fee-Based Assets Under Management*        $37.5      $33.9
                                                =====      =====
                                    
--------------
*  As of June 30, 1997 and 1996, Keyport's insurance assets of $12.5 billion and
   $10.8  billion,  respectively,  bring total assets under  management to $50.0
   billion and $44.7 billion, respectively.
</TABLE>
<TABLE>
Changes in Fee-Based Assets Under Management
<CAPTION>
                                               Three Months       Six Months
                                               Ended June 30     Ended June 30
                                               -------------     -------------
 
                                               1997     1996     1997     1996
                                               ----     ----     ----     ----
<S>                                            <C>      <C>      <C>      <C>  
Fee-based assets under management - beginning  $34.8    $32.7    $35.9    $31.9
Sales and reinvestments                          1.4      2.0      3.3      3.9
Redemptions and withdrawals                     (1.4)    (1.4)    (3.5)    (2.7)
Acquisitions                                     0.0      0.3      0.0      0.4
Market appreciation                              2.7      0.3      1.8      0.4
                                               -----    -----    -----    -----
Fee-based assets under management - ending     $37.5    $33.9    $37.5    $33.9
                                               =====    =====    =====    =====
</TABLE>

   Distribution  and Service Fees are based on the market value of the Company's
intermediary-distributed  mutual funds. Distribution fees of 0.75% are earned on
the average  assets  attributable  to such funds sold with  contingent  deferred
sales  charges,  and service fees of 0.25% (net of amounts  passed on to selling
brokers) are earned on the total of such average mutual fund assets.  These fees
totaled  $11.9  million  for the quarter  ended June 30, 1997  compared to $11.1
million for the quarter  ended June 30, 1996.  For the first six months of 1997,
distribution  and service fees were $24.0 million  compared to $21.7 million for
the first six months of 1996.  These  increases  in 1997  compared  to 1996 were
primarily  attributable  to  the  higher  asset  levels  of  mutual  funds  with
contingent deferred sales charges. As a percentage of the corresponding weighted
average assets,  distribution and service fees approximated  0.70% and 0.69% for
the  quarters  ended  June 30,  1997 and 1996,  respectively.  For the first six
months of 1997 and 1996, such percentages were 0.70% and 0.69%, respectively.

    Transfer  Agency Fees are based on the market value of assets managed in the
Company's  intermediary-distributed  and direct-marketed mutual funds. Such fees
were $11.5 million on average assets of $23.5 billion for the quarter ended June
30, 1997 and $10.8  million on average  assets of $22.4  billion for the quarter
ended June 30, 1996. For the first six months of 1997, transfer agency fees were
$23.3  million on average  assets of $23.7  billion and $21.2 million on average
assets of $22.1  billion for the first six months of 1996.  These  increases  in
1997  compared  to  1996  were   primarily  due  to  higher  average  assets  in
direct-marketed  mutual  funds.  As a percentage  of average  mutual fund assets
under management,  transfer agency fees were  approximately  0.20% and 0.19% for
the  quarters  ended  June 30,  1997 and 1996,  respectively.  For the first six
months of 1997 and 1996, such percentages were 0.20% and 0.19%, respectively.

   Surrender  Charges and Net  Commissions  are revenues earned on: a) the early
withdrawal of fixed,  indexed and variable annuity  policyholder  balances,  and
redemptions  of  the  broker-distributed  mutual  funds  which  were  sold  with
contingent  deferred  sales  charges;  b)  the  distribution  of  the  Company's
broker-distributed  mutual  funds  (net  of  the  substantial  portion  of  such
commissions  that is  passed  on to the  selling  brokers);  and c) the sales of
non-proprietary products in the Company's bank marketing businesses (net of such
commissions  that are paid to the  Company's  client banks and  brokers).  Total
surrender  charges and net  commissions  were $9.0 million for the quarter ended
June 30, 1997 compared to $9.4 million for the quarter ended June 30, 1996.  For
the first six months of 1997,  total surrender  charges and net commissions were
$17.5 million compared to $17.1 million for the first six months of 1996.

   Surrender  charges  on  fixed,   indexed  and  variable  annuity  withdrawals
generally are assessed at declining  rates applied to  policyholder  withdrawals
during the first five to seven years of the contract;  contingent deferred sales
charges on mutual fund  redemptions  are assessed at declining  rates on amounts
redeemed  during the first six years.  Such charges totaled $5.3 million for the
quarter  ended June 30, 1997 and $5.0  million  for the  quarter  ended June 30,
1996.  For the first six months of 1997,  surrender  charges were $10.1  million
compared to $9.9 million for the first six months of 1996. Total fixed,  indexed
and  variable  annuity  withdrawals  represented  10.9%  and  10.8% of the total
average  annuity  policyholder  and separate  account  balances for the quarters
ended June 30, 1997 and 1996, respectively. For the first six months of 1997 and
1996, the  corresponding  percentages  were 11.0% and 10.3%,  respectively.  The
percentage  increases  in  the  three month  and  six month  1997  periods  were
primarily  attributable  to  surrenders  of  annuities  acquired in the F&G Life
transaction; excluding these surrenders, the withdrawal percentages in 1997 were
9.9% and 9.7%, respectively.

   Net  commissions  were $3.7  million  for the  quarter  ended  June 30,  1997
compared to $4.4 million for the quarter  ended June 30,  1996.  The decrease of
$0.7  million in 1997  compared to 1996  resulted  largely  from a $0.4  million
decrease related to lower sales of Colonial  A-Shares.  For the first six months
of 1997,  net  commissions  were $7.4  million  compared to $7.2 million for the
first six months of 1996.  The increase of $0.2 million in 1997 compared to 1996
resulted  largely from higher net  commissions  for the Company's bank marketing
businesses  of  $1.3  million  primarily  attributable  to  the  acquisition  of
Independent  Holdings,  Inc.  ("Independent")  in March  1996  offset  by a $0.9
million decrease related to lower sales of Colonial A-Shares.

   Separate  Account Fees are primarily  mortality and expense charges earned on
variable annuity and variable life policyholder balances.  These fees, which are
based on the market  values of the assets  supporting  the contracts in separate
accounts, were $4.1 million for the quarter ended June 30, 1997 compared to $3.6
million for the quarter  ended June 30, 1996.  Such fees  represented  1.50% and
1.52%,  respectively,  of average  variable  annuity and variable  life separate
account balances.  For the first six months of 1997,  separate account fees were
$8.0  million  compared to $7.1  million for the first six months of 1996.  Such
fees  represented  1.52% of average  variable annuity and variable life separate
account balances in both 1997 and 1996.

   Operating Expenses primarily  represent  compensation,  marketing,  and other
general and administrative  expenses.  These expenses were $75.6 million for the
quarter ended June 30, 1997 compared to $67.8 million for the quarter ended June
30, 1996.  The increase in 1997  compared to 1996 was primarily due to increases
in  compensation  of $5.2  million and in  marketing  expenses  of $1.4  million
relating to mutual  fund sales.  Operating  expenses  expressed  as a percent of
average total assets under  management were 0.63% for the quarter ended June 30,
1997  compared to 0.62% for the quarter  ended June 30, 1996.  For the first six
months of 1997,  operating  expenses  were  $151.4  million  compared  to $133.7
million for the first six months of 1996.  The increase in 1997 compared to 1996
was primarily due to increases in  compensation  of $11.5 million,  in marketing
expenses of $2.0 million relating to mutual fund sales and to the acquisition of
Independent which increased operating expenses by $1.7 million, partially offset
by a first  quarter  1996  $1.9  million  restructuring  charge  related  to the
consolidation  of the Company's bank marketing  operations.  Operating  expenses
expressed as a percent of average total assets under  management  were 0.63% for
the first six months of 1997 and 0.62% for the first six months of 1996.

   Amortization  of Deferred  Policy  Acquisition  Costs relates to the costs of
acquiring  new  business  which vary with,  and are  primarily  related  to, the
production of new annuity  business.  Such costs include  commissions,  costs of
policy issuance and  underwriting and selling  expenses.  Amortization was $19.4
million for the quarter  ended June 30, 1997  compared to $14.9  million for the
quarter ended June 30, 1996. For the first six months of 1997,  amortization  of
deferred policy acquisitions was $35.7 million compared to $29.0 million for the
first six months of 1996. The increase in  amortization in 1997 compared to 1996
was primarily  related to the increase in  investment  spread from the growth of
business in force associated with fixed,  indexed and variable annuity products.
Amortization  expense  represented  29.9% and 27.7% of investment spread for the
quarters ended June 30, 1997 and 1996, respectively. For the first six months of
1997 and 1996, the corresponding percentages were 28.4% and 27.7%, respectively.

   Amortization  of Deferred  Distribution  Costs relates to the deferred  sales
commissions  acquired in connection  with the Colonial  acquisition in the first
quarter of 1995 and the  distribution of mutual fund shares sold with contingent
deferred sales charges. Amortization was $8.7 million for the quarter ended June
30, 1997 compared to $7.4 million for the quarter  ended June 30, 1996.  For the
first six months of 1997,  amortization of deferred distribution costs was $16.9
million  compared  to $14.2  million  for the  first  six  months  of 1996.  The
increases in 1997 were primarily  attributable  to the continuing  sales of such
fund shares during 1997 and 1996.

   Amortization    of   Value   of   Insurance   in   Force   relates   to   the
actuarially-determined  present  value of projected  future  gross  profits from
policies in force at the date of acquisition.  Amortization totaled $1.9 million
for each of the quarters  ended June 30, 1997 and 1996.  The quarter  ended June
30, 1997 included increased amortization of $1.5 million related to the F&G Life
transaction  offset by decreased  amortization  related to a change in mortality
assumptions.  For the  first  six  months  of  1997,  amortization  of  value of
insurance in force  totaled $5.1 million  compared to $3.6 million for the first
six months of 1996. The first six months of 1997 included increased amortization
of $3.0  million  related  to the  F&G  Life  transaction  partially  offset  by
decreased amortization related to a change in mortality assumptions.

   Amortization   of   Intangible   Assets   relates  to  goodwill  and  certain
identifiable  intangible assets arising from business combinations accounted for
as purchases.  Amortization was $3.3 million for the quarter ended June 30, 1997
compared to $4.6 million for the quarter ended June 30, 1996.  For the first six
months of 1997,  amortization of intangible  assets was $6.5 million compared to
$8.3  million  for the  first  six  months  of 1996.  The  decrease  in 1997 was
primarily  attributable  to certain assets becoming fully amortized in the third
quarter of 1996.

   Interest  Expense,  Net was $4.4 million for the quarter  ended June 30, 1997
compared to $5.0 million for the quarter ended June 30, 1996.  For the first six
months of 1997,  interest expense was $8.9 million compared to $10.0 million for
the first six months of 1996. The decrease in 1997 was principally due to higher
interest income which is netted against interest expense.

   Income  Tax  Expense  was $13.9  million  or 31.7% of pretax  income  for the
quarter  ended June 30, 1997 compared to $10.9 million or 32.3% of pretax income
for the quarter  ended June 30, 1996.  For the first six months of 1997,  income
tax  expense  was $30.7  million  or 32.1% of pretax  income  compared  to $23.4
million,  or  33.3%  of  pretax  income  for  the  first  six  months  of  1996.
Substantially  all the  federal  income tax  expense  related  to the  Company's
annuity insurance business.

Financial Condition

   Stockholders'  Equity as of June 30,  1997 was  $1.119  billion  compared  to
$1.051  billion as of December 31, 1996.  Net income for the first six months of
1997 was $65.0 million, and cash dividends on the Company's preferred and common
stock  totaled $2.1  million.  Common stock  totaling $2.7 million was issued in
connection  with the exercise of stock  options.  An increase in net  unrealized
investment  gains, net of adjustments to deferred policy  acquisition  costs and
value of insurance in force, during the six month period increased stockholders'
equity by $2.2 million.

   Book Value Per Share  amounted to $38.42 at June 30, 1997  compared to $36.63
at December 31, 1996. Excluding net unrealized gains on investments,  book value
per share  amounted to $35.79 at June 30, 1997 and $34.04 at December  31, 1996.
As of June 30, 1997, there were 29.1 million common shares outstanding  compared
to 28.7 million shares as of December 31, 1996.

   Investments not including cash and cash equivalents, totaled $12.0 billion at
June 30, 1997  compared to $11.5  billion at December  31,  1996.  The  increase
primarily reflects general account investment earnings.

   The  Company  manages  the  substantial   majority  of  its  invested  assets
internally.  The Company's  general  investment policy is to hold fixed maturity
assets for long-term  investment and,  accordingly,  the Company does not have a
trading portfolio.  To provide for maximum portfolio flexibility and appropriate
tax planning,  the Company classifies its entire fixed maturities investments as
"available for sale" and accordingly carries such investments at fair value. The
Company's total investments at June 30, 1997 and December 31, 1996 reflected net
unrealized gains of $231.3 million and $229.8 million, respectively, relating to
its fixed maturity and equity portfolios.

   Approximately $10.7 billion, or 97.1%, of the fixed maturities investments at
June 30, 1997,  was rated by Standard & Poor's  Corporation,  Moody's  Investors
Service or under  comparable  statutory  rating  guidelines  established  by the
National Association of Insurance Commissioners.  At June 30, 1997, the carrying
value of investments in below investment grade securities  totaled $1.0 billion,
or 7.7% of total  investments  (including  certain cash and cash equivalents) of
$13.2 billion. Below investment grade securities generally provide higher yields
and involve greater risks than investment grade securities because their issuers
typically  are more highly  leveraged and more  vulnerable  to adverse  economic
conditions than investment  grade issuers.  In addition,  the trading market for
these securities may be more limited than for investment grade securities.

Management of the Company's Investments

   Asset-liability  duration  management  is utilized by the Company to minimize
the risks of  interest  rate  fluctuations  and  policyholder  withdrawals.  The
Company  believes  that its fixed and indexed  policyholder  balances  should be
backed by investments,  principally comprised of fixed maturities, that generate
predictable rates of return. The Company does not have a specific target rate of
return.  Instead,  its rates of return vary over time  depending  on the current
interest  rates,  the slope of the yield  curve  and the  excess at which  fixed
maturities are priced over the yield curve.  Its portfolio  strategy is designed
to achieve acceptable  risk-adjusted  returns by effectively  managing portfolio
liquidity and credit quality.

   The Company conducts its investment  operations to closely match the duration
of the assets in its investment  portfolio and its  policyholder  balances.  The
Company  seeks to  achieve an  acceptable  spread  between  what it earns on its
assets  and  interest  credited  on  its  policyholder   balances  by  investing
principally in fixed maturities.  The Company's  fixed-rate products incorporate
surrender charges to encourage persistency and make the cost of its policyholder
balances more  predictable.  Approximately  85.9% of the Company's fixed annuity
policyholder balances were subject to surrender charges at June 30, 1997.

   As part of its asset-liability  management  discipline,  the Company conducts
detailed  computer   simulations  that  model  its  fixed-maturity   assets  and
liabilities  under commonly used stress-test  interest rate scenarios.  Based on
the results of these computer  simulations,  the  investment  portfolio has been
constructed with a view toward  maintaining a desired  investment spread between
the yield on portfolio assets and the interest credited on policyholder balances
under a variety of possible future  interest rate  scenarios.  At June 30, 1997,
the effective duration of the Company's fixed maturities  investments (including
certain cash and cash equivalents) was approximately 2.8 years.

    As a component  of its  investment  strategy  and to reduce its  exposure to
interest  rate risk,  the Company  utilizes  interest rate swap  agreements  and
interest rate cap agreements to match assets more closely to  liabilities.  Swap
agreements are agreements to exchange with a counterparty interest rate payments
of differing  character (e.g.  fixed-rate  payments  exchanged for variable-rate
payments) based on an underlying principal balance (notional principal) to hedge
against interest rate changes. The Company currently utilizes swap agreements to
reduce asset duration and to better match interest  earned on longer-term  fixed
rate  assets  with  interest  credited  to  policyholders.  The  Company  had 43
outstanding swap agreements with an aggregate  notional principal amount of $2.4
billion and 39 outstanding swap agreements with an aggregate  notional principal
amount of $2.3 billion, as of June 30, 1997 and December 31, 1996, respectively.

    Cap agreements are agreements with a counterparty  which require the payment
of a premium for the right to receive  payments for the  difference  between the
cap interest rate and a market interest rate on specified  future dates based on
an underlying  principal  balance  (notional  principal) to hedge against rising
interest  rates.  The Company had interest rate cap agreements with an aggregate
notional amount of $450.0 million as of June 30, 1997 and December 31, 1996.

    With respect to the Company's  equity-indexed annuity, the Company buys call
options on the S&P 500 Index to hedge its  obligation  to provide  returns based
upon this  index.  The  Company  had call  options  with a book  value of $241.3
million  and  $109.6  million  as of  June  30,  1997  and  December  31,  1996,
respectively.

   There are risks  associated  with some of the  techniques the Company uses to
match its assets and  liabilities.  The primary risk  associated with swap, cap,
and call option agreements is counterparty nonperformance.  The Company believes
that the  counterparties  to its  swap,  cap,  and call  option  agreements  are
financially  responsible  and that the  counterparty  risk associated with these
transactions  is minimal.  In addition,  swap agreements have interest rate risk
and call  options have stock market risk.  However,  the swap  agreements  hedge
fixed-rate  assets;  the Company  expects that any interest rate  movements that
adversely  affect the market value of swap agreements would be offset by changes
in the market  values of such fixed rate  assets.  Similarly,  the call  options
hedge the Company's  obligations to provide returns on equity-indexed  annuities
based upon the S&P 500 Index,  and the Company  believes  that any stock  market
movements that  adversely  affect the market value of S&P 500 Index call options
would be  substantially  offset  by a  reduction  in  policyholder  liabilities.
However,  there can be no  assurance  that these  hedges  will be  effective  in
offsetting the  potentially  adverse effects of changes in S&P 500 Index levels.
Keyport's  profitability could be adversely affected if the value of its S&P 500
Index call options  increase  less than (or decrease more than) the value of the
guarantees made to equity-indexed policyholders.

   The Company  routinely  reviews its portfolio of investment  securities.  The
Company identifies  monthly any investments that require additional  monitoring,
and carefully  reviews the carrying value of such investments at least quarterly
to determine whether specific investments should be placed on a nonaccrual basis
and to determine  whether  declines in value may be other than temporary.  There
were  no  non-income  producing  investments  in the  Company's  fixed  maturity
portfolio at June 30, 1997 or December 31, 1996.  In making these  reviews,  the
Company  principally  considers the adequacy of collateral (if any),  compliance
with contractual covenants,  the borrower's recent financial  performance,  news
reports,  and other externally generated  information  concerning the borrower's
affairs. In the case of publicly traded fixed maturities investments, management
also considers market value quotations if available.

Liquidity

   The Company is a holding company whose liquidity needs include the following:
(i)  operating  expenses;  (ii) debt service;  (iii)  dividends on the preferred
stock and Common Stock; (iv) acquisitions;  and (v) working capital where needed
to its  operating  subsidiaries.  The  Company's  principal  sources of cash are
dividends  from its  operating  subsidiaries,  and,  in the case of funding  for
acquisitions and certain long-term capital needs of its subsidiaries,  long-term
borrowings  (which to date have been from affiliates of Liberty Mutual Insurance
Company).

   Current Rhode Island  insurance law applicable to Keyport permits the payment
of dividends or distributions,  which, together with dividends and distributions
paid  during the  preceding  12  months,  do not exceed the lesser of (i) 10% of
Keyport's  statutory  surplus as of the preceding  December 31 or (ii) Keyport's
statutory net gain from  operations for the preceding  fiscal year. Any proposed
dividend in excess of this amount is called an "extraordinary  dividend" and may
not be paid until it is approved by the  Commissioner  of Insurance of the State
of Rhode Island. As of June 30, 1997, the amount of dividends that Keyport could
pay without such approval was $42.5 million.  However,  Keyport has not paid any
dividends since its acquisition in 1988. The terms of Colonial's existing senior
credit  facility  place  certain   limitations  on  Colonial's  ability  to  pay
dividends.  Under the terms of the facility (as amended in April 1997), Colonial
could pay dividends of up to $95.6 million as of June 30, 1997.

   Based upon the  historical  cash flow of the Company,  the Company's  current
financial condition, the Company's expectation that there will not be a material
adverse change in the results of operations of the Company and its  subsidiaries
during the next twelve months and the  assumption  that LFC Holdings,  Inc. will
continue to participate in the Dividend  Reinvestment Plan, the Company believes
that cash flow  provided by operating  activities  over this period will provide
sufficient  liquidity  for the  Company  to meet its  working  capital,  capital
investment and other operational cash needs, its debt service  obligations,  its
obligations to pay dividends on the Preferred  Stock,  and its intentions to pay
dividends on the Common  Stock.  The Company  anticipates  that it would require
external  sources of liquidity in order to finance material  acquisitions  where
the purchase price is not paid in equity.

   Each of the  Company's  business  segments  has its own  liquidity  needs and
financial resources.  The Company expects that, based upon their historical cash
flow and current  prospects,  its  operating  subsidiaries  will be able to meet
their liquidity needs from internal sources.  In the Company's annuity insurance
operations, liquidity needs and financial resources pertain to the management of
the general account assets and policyholder balances.  Keyport uses cash for the
payment of annuity and life insurance  benefits,  operating  expenses and policy
acquisition costs, and the purchase of investments.  Keyport generates cash from
annuity  premiums and deposits,  net investment  income,  and from maturities of
fixed  investments.  Annuity premiums,  maturing  investments and net investment
income have  historically  been sufficient to meet Keyport's cash  requirements.
Keyport monitors cash and cash  equivalents in an effort to maintain  sufficient
liquidity  and has  strategies  in place to  maintain  sufficient  liquidity  in
changing  interest  rate  environments.   Consistent  with  the  nature  of  its
obligations,  Keyport has invested a substantial  amount of its general  account
assets in readily marketable securities.  As of June 30, 1997, $10.0 billion, or
75.2%,  of  Keyport's  general  account   investments  are  considered   readily
marketable.  To the extent that  unanticipated  surrenders cause Keyport to sell
for liquidity  purposes a material amount of securities prior to their maturity,
such surrenders could have a material adverse effect on the Company. Although no
assurances can be given,  Keyport  believes that  liquidity to fund  anticipated
withdrawals  would  be  available  through  incoming  cash  flow,  the  sale  of
short-term or  floating-rate  instruments or investment  securities in its short
duration portfolio, thereby precluding the sale of fixed maturity investments in
a potentially  unfavorable  market. In the Company's asset management  business,
liquidity needs and financial resources pertain to the investment management and
distribution of mutual funds, wealth management and institutional accounts.

Effects of Inflation

   Inflation has not had a material effect on the Company's consolidated results
of operations to date. The Company  manages its investment  portfolio in part to
reduce its exposure to interest rate fluctuations.  In general, the market value
of the  Company's  fixed  maturity  portfolio  increases or decreases in inverse
relationship  with  fluctuations  in  interest  rates,  and  the  Company's  net
investment  income increases or decreases in direct  relationship  with interest
rate changes.  For example,  if interest  rates  decline,  the  Company's  fixed
maturity  investments  generally  will  increase  in  market  value,  while  net
investment income will decrease as fixed maturity investments mature or are sold
and the proceeds are reinvested at reduced rates. However,  inflation may result
in  increased  operating  expenses  that may not be readily  recoverable  in the
prices of the services charged by the Company.

Recent Accounting Pronouncement

   In February 1997, FASB issued Statement of Financial Accounting Standards No.
128,  "Earnings  per Share"  ("SFAS  128"),  which is required to be adopted for
periods  ending after  December 15,  1997.  SFAS 128 replaces  primary and fully
diluted  earnings  per share with basic and diluted  earnings  per share.  Basic
earnings  per  share  is  computed  by  dividing  income   available  to  common
stockholders by the weighted average number of common shares  outstanding during
the period.  Diluted  earnings per share is computed  similarly to fully diluted
earnings per share. Assuming that SFAS 128 had been implemented,  basic earnings
per share  would have been $1.03 and $0.81 for the second  quarters  of 1997 and
1996,  respectively.  For the first six months of 1997 and 1996,  basic earnings
per share  would have been $2.23 and $1.66,  respectively.  The  calculation  of
diluted  earnings per share under SFAS 128 for each of these  periods  would not
materially differ from the calculation of fully diluted earnings per share.
<PAGE>
Item 5.     Other Information

   Set forth below is a  description  of the Company's  business.  The following
business  description is not required in this report,  but is included to assist
investors  and  analysts.  For a more  complete  description,  see the Company's
Registration  Statement  on Form S-3 (No.  333-29315)  including  the  Company's
Prospectus contained therein dated July 17, 1997.

                                    BUSINESS

   Liberty Financial is a leading asset accumulation and management company. The
Company is a leader in each of its two core product lines -  retirement-oriented
insurance  products  and  investment  management  products.  Retirement-oriented
insurance products consist substantially of annuities, and investment management
products  consist of mutual funds,  wealth  management and  institutional  asset
management.  The  Company  sells  its  products  through  multiple  distribution
channels,  including  brokerage firms, banks and other depository  institutions,
financial planners and insurance agents, as well as directly to investors.

   Multiple  Asset  Accumulation  Products.  The  Company  sells a full range of
retirement-oriented  insurance products,  grouped by whether they provide fixed,
indexed  or  variable  returns  to  policyholders.  Substantially  all of  these
products  currently  are  annuities  that are written by Keyport.  Annuities are
insurance  products which provide a tax-deferred  means of accumulating  savings
for retirement needs, as well as a tax-efficient  source of income in the payout
period.  The  Company's  principal  fixed  annuity  products  are  SPDAs,  which
represented  $8.6 billion of  policyholder  liabilities  as of June 30, 1997. In
addition to SPDAs,  Keyport also sells  equity-indexed  and variable  annuities.
Equity-indexed  annuities  are an  innovative  product  first  introduced to the
marketplace  by the Company  when it began  selling its  KeyIndex(R)  product in
1995.  An  equity-indexed  annuity  credits  interest to the  policyholder  at a
"participation  rate"  equal to a portion of the change in value of a  specified
equity index (in the case of KeyIndex, the Standard & Poor's 500 Composite Stock
Index).

   The  Company  has four  operating  units  engaged in  investment  management:
Colonial,  Stein Roe, Newport and LAMCO, each of which carries strong brand name
recognition  in the markets it serves.  As of June 30, the Company  sponsored 67
open-end  mutual funds,  as well as seven  closed-end  funds. The open-end funds
consist of 36 intermediary-distributed Colonial mutual funds, 20 direct-marketed
Stein  Roe funds  and 11 other  funds  included  among  the  investment  options
available under the Company's variable  annuities.  The closed-end funds consist
of five Colonial funds and two LAMCO funds.

   Multiple Distribution Channels.  Liberty Financial sells its products through
multiple distribution channels. The Company distributes its products through all
the major third party intermediary  channels,  including  brokerage firms, banks
and other depository  institutions,  financial planners and insurance agents. To
capitalize on the growing importance of banks and other depository  institutions
as  intermediaries  for  its  products,   the  Company  also  operates  its  own
distribution  unit which sells mutual funds and annuities through such entities.
Certain of the Company's products are also sold directly to investors, including
its mutual funds sold without a sales load,  wealth management and institutional
asset management products.  The Company believes that it is one of the few asset
accumulators  with a significant  presence in both the  intermediary  and direct
channels.

   Business Strategy.  The  Company's  business  strategy has four  interrelated
elements:

      Diversification.  The Company  believes  that the  diversification  in its
      products  and  distribution  channels  allows it to  accumulate  assets in
      different market cycles, thereby reducing earnings volatility.  Within its
      two core product  lines,  the Company sells a range of products that serve
      individuals at different stages of their life and earnings cycle. This mix
      also is  designed  to  include  products  that will be in  demand  under a
      variety of economic and market conditions.  Similarly, the Company reaches
      customers through a variety of distribution  channels.  Diversification of
      distribution  channels  allows the  Company to reach many  segments of the
      marketplace and lessens its dependence on any one source of assets.

      Innovation.  Liberty  Financial  believes  that product  and  distribution
      innovations  are  essential  in order to grow its asset  base and meet the
      ever changing financial needs of its customers.  The Company believes that
      it has an  impressive  track  record  in such  innovations.  For  example,
      Newport created the first U.S.-based  mutual fund to focus  exclusively on
      the "Tiger"  countries of Asia. This fund had $1.9 billion of assets under
      management as of June 30, 1997.  The Stein Roe Young Investor Fund was the
      first mutual fund to be coupled with an educational program to teach young
      people about investing, while offering parents an excellent device to save
      for  educational and other family needs.  The Stein Roe Young  Investor(R)
      Fund had  $417.3  million  of assets  under  management  and over  100,000
      shareholders  of record as of June 30, 1997.  The Company  introduced  the
      first equity-indexed annuity product to the marketplace. At June 30, 1997,
      the Company's  equity-indexed  annuity  policyholder  balance was $1,159.0
      million. The Company's  equity-indexed annuity sales during the six months
      ended  June 30,  1997 and  during  1996 were  $242.9  million  and  $655.2
      million,  respectively.  The  Company  is also  recognized  as a leader in
      electronic  commerce on the  Internet.  For  example,  in early 1997,  the
      Company  introduced a new Web site for Stein Roe funds which  incorporates
      state-of-the-art security and customization features.

      Integration.  Liberty  Financial  actively  promotes  integration  of  its
      operating  units  and  believes  that  such  efforts  will  enable  it  to
      accumulate additional assets by leveraging  distribution  capabilities and
      to reduce expenses by consolidating  redundant back office functions.  For
      example,  upon the  Company's  acquisition  of  Newport  in  April,  1995,
      Colonial  assumed the  marketing,  sales,  service and  administration  of
      Newport's  flagship  Tiger Fund,  which was  rebranded  under the Colonial
      name. In conjunction with Colonial's  sales efforts,  the Colonial Newport
      Tiger Fund's  assets have more than  tripled from April,  1995 to June 30,
      1997. The  availability of the Colonial Newport Tiger Fund has facilitated
      new  intermediary  distribution  relationships  for  Colonial,   including
      approximately  6,000  new  broker  relationships.   Stein  Roe  manages  a
      substantial  portion of Keyport's general account assets and together with
      Colonial and Newport  manages  certain of the funds  underlying  Keyport's
      variable annuity products.  Colonial's  transfer agency operations perform
      these functions for the Stein Roe funds.  The Company's bank  distribution
      unit was the largest  distributor  of Keyport's  annuities both during the
      six months ended June 30, 1997 and during  1996,  and the second and third
      largest  distributor,  respectively,  of the  Colonial  funds  during such
      periods.

      Acquisitions.  Where  appropriate,  the Company  seeks  acquisitions  that
      provide  additional  assets,  new or complementary  investment  management
      capabilities,   distribution   capabilities   or  other   integration   or
      diversification  opportunities in its core product areas. Acquisitions are
      an  integral  part of Liberty  Financial's  business  strategy.  Stein Roe
      (acquired  in 1986),  Keyport  (acquired in 1988),  Colonial  (acquired in
      1995),  Newport  (acquired in 1995) and major  components of the Company's
      bank  distribution  unit  (including  Independent,  acquired  in 1996) all
      joined Liberty  Financial by acquisition.  The Company has also made asset
      acquisitions, including most recently a coinsurance agreement with respect
      to a $954.0 million block of SPDAs entered into in August,  1996.  Current
      areas  of  focus  for  the  Company's   acquisition  efforts  include  the
      following:  mutual funds,  with  particular  focus on equities and foreign
      markets;  other  new  or  complementary   investment  skills;   additional
      distribution capabilities;  wealth management firms that can be integrated
      into Stein Roe and can leverage  and expand  Stein Roe's  franchise in the
      wealth  management  market;  and  blocks  of  annuity  assets  that can be
      purchased  or  coinsured.  While  the  Company  is  constantly  evaluating
      acquisition  opportunities,  as of the date of this filing the Company has
      not entered into any definitive agreement for a material acquisition.

  The  Company's business strategy is based on its belief that its products have
attractive  growth  prospects due  to important demographic and economic trends.
These  trends  include the need for the aging baby boom  generation  to increase
savings and  investment, lower public  confidence in  the adequacy of government
and employer-provided  retirement benefits, longer life expectancies, and rising
health care costs.  The  Company  believes that its product mix and distribution
strength  are well  suited to  exploit these demographic and economic trends and
will help  the Company  maintain  and  enhance its  position as a leading  asset
accumulation and management company.
<PAGE>
 Item 6.  Exhibits and Reports on Form 8-K

(a)    Exhibits

   11 Statement re Computation of Per Share Earnings
   12 Statement re Computation of Ratios
   27 Financial Data Schedule

(b)    Reports on Form 8-K

   There  were no reports on Form 8-K filed  during the  quarter  ended June 30,
1997.
<PAGE>
                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                    LIBERTY FINANCIAL COMPANIES, INC.

                                             /s/ J. Andy Hilbert
                                     -------------------------------------
                                               J. Andy Hilbert
                                         (Duly Authorized Officer and
                                           Chief Financial Officer)








Date:   August 13, 1997
<PAGE>
                                  Exhibit Index


Exhibit No.     Description                                               Page
-----------     -----------                                               ----

    11          Statement re Computation of Per Share Earnings              
    12          Statement re Computation of Ratios                          
    27          Financial Data Schedule