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 September 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
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(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 29,624,624  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 October 31, 1997.

Exhibit Index - Page 23                                        Page 1 of  26


<PAGE>

                      LIBERTY FINANCIAL COMPANIES, INC.
      QUARTERLY REPORT ON FORM 10-Q FOR PERIOD ENDED SEPTEMBER 30, 1997


                              TABLE OF CONTENTS


Part I.    FINANCIAL INFORMATION                                       Page
                                                                       ----

Item 1.    Financial Statements

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

           Consolidated Income Statements for the Three Months and      
             Nine Months Ended September 30, 1997 and 1996

           Consolidated Statements of Cash Flows for the Nine Months    
             Ended September 30, 1997 and 1996

           Consolidated Statement of Stockholders' Equity for the       
             Nine Months Ended September 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>
                                              September 30    December 31
                                                  1997           1996
                                              ------------    ------------
                                               Unaudited
                                    ASSETS
<S>                                             <C>             <C>   
Assets:
   Investments                                  $12,281.7       $11,537.9
   Cash and cash equivalents                      1,263.7           875.8
   Accrued investment income                        162.5           146.8
   Deferred policy acquisition costs                211.7           250.4
   Value of insurance in force                       52.0            70.8
   Deferred distribution costs                      111.0           114.4
   Intangible assets                                201.0           205.4
   Other assets                                     137.2           134.7
   Separate account assets                        1,262.0         1,091.5
                                              ------------    -----------
                                                $15,682.8       $14,427.7
                                              ============    ============


                     LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
   Policyholder balances                        $12,071.9       $11,637.5
   Notes payable to affiliates                      229.0           229.0
   Payable for investments purchased and                            
     loaned                                         675.1           211.2
   Other liabilities                                299.0           267.1
   Separate account liabilities                   1,212.5         1,017.7
                                              ------------    ------------
      Total liabilities                          14,487.5        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                         14.4           13.8
                                              ------------    ------------

Stockholders' Equity:
  Common stock, par value $.01; authorized
  100,000,000 shares, issued and outstanding  
  29,617,090 shares in 1997 and 28,705,015                         
  shares in 1996                                      0.3             0.3
Additional paid-in capital                          857.0           835.3
Net unrealized investment gains                     101.1            74.4
Retained earnings                                   224.9           141.4
Unearned compensation                                (2.4)            0.0
                                              ------------    ------------
      Total stockholders' equity                  1,180.9         1,051.4
                                              ------------    ------------
                                                $15,682.8       $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       Nine Months Ended
                                      September 30            September 30
                                ----------------------- ----------------------
                                     1997        1996       1997       1996
                                ----------- ----------- ----------- -----------
<S>                                 <C>         <C>         <C>         <C> 
Investment income                   $212.0      $201.7      $632.2      $580.7
Interest credited to                
  policyholders                     (150.9)     (146.0)     (445.4)     (420.3)
                                ----------- ----------- ----------- -----------
Investment spread                     61.1        55.7       186.8       160.4
                                ----------- ----------- ----------- -----------
                             
Net realized investment gains          6.1         0.7        22.1         2.8
                                ----------- ----------- ----------- -----------
Fee income:
 Investment advisory and              
   administrative fees                56.1        49.6       161.8       144.8
 Distribution and service fees        12.6        11.3        36.6        33.0
 Transfer agency fees                 12.3        11.4        35.6        32.6
 Surrender charges and net             
   commissions                         9.5         8.7        27.0        25.8
 Separate account fees                 4.7         4.9        12.7        12.0
                                ----------- ----------- ----------- -----------
Total fee income                      95.2        85.9       273.7       248.2
                                ----------- ----------- ----------- -----------
Expenses:
 Operating expenses                  (77.8)      (71.5)     (229.2)     (205.2)
 Amortization of deferred           
   policy acquisition costs          (18.3)      (15.4)      (54.0)      (44.4)
 Amortization of deferred            
   distribution costs                 (8.5)       (7.8)      (25.4)      (22.0)
 Amortization of value of           
   insurance in force                 (2.2)       (2.4)       (7.3)       (6.0)
 Amortization of intangible           
   assets                             (3.7)       (3.8)      (10.2)      (12.1)
 Interest expense, net                (4.1)       (5.0)      (13.0)      (15.0)
                                ----------- ----------- ----------- -----------
Total expenses                      (114.6)     (105.9)     (339.1)     (304.7)
                                ----------- ----------- ----------- -----------

Pretax income                         47.8        36.4       143.5       106.7
Income tax expense                   (14.9)      (11.7)      (45.6)      (35.1)
                                ----------- ----------- ----------- -----------
Net income                           $32.9       $24.7       $97.9       $71.6
                                =========== =========== =========== ===========

Net income per share                 $1.05       $0.82       $3.17       $2.40
                                =========== =========== =========== ===========

Common stock and common
  stock equivalents             31,019,911  29,708,119  30,678,095  29,527,352
                                =========== =========== =========== ===========



                           See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
                      LIBERTY FINANCIAL COMPANIES, INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in millions)
                                  Unaudited
<CAPTION>
                                                           Nine Months Ended
                                                              September 30
                                                          ---------------------
                                                            1997       1996
                                                          ---------   ---------
<S>                                                        <C>          <C> 
Cash flows from operating activities:
Net income                                                   $97.9       $71.6
Adjustments to reconcile net income to net cash
 provided by operating activities:
  Depreciation and amortization                               54.3        50.4
  Interest credited to policyholders                         445.4       420.3
  Net realized investment gains                              (22.1)       (2.8)
  Net amortization on investments                             22.0        15.6
  Change in deferred policy acquisition costs                (10.3)      (16.4)
  Net change in other assets and liabilities, net of       
   effect of acquisitions                                    (15.4)     (102.4)
                                                          ---------   ---------
      Net cash provided by operating activities              571.8       436.3
                                                          ---------   ---------

Cash flows from investing activities:
  Investments purchased available for sale                (3,006.4)   (3,116.5)
  Investments sold available for sale                      1,414.2       760.5
  Investments matured available for sale                   1,230.5       927.4
  Change in policy loans, net                                (15.0)      (23.0)
  Change in mortgage loans, net                                4.6         6.1
  Acquisitions, net of cash acquired                           0.0       (38.4)
                                                          ---------   ---------
          Net cash used in investing activities             (372.1)   (1,483.9)
                                                          ---------   ---------

Cash flows from financing activities:
  Withdrawals from policyholder accounts                    (948.9)     (807.5)
  Deposits to policyholder accounts                          738.4     1,849.7
  Securities lending                                         415.9       194.9
  Change in revolving credit facility                        (20.0)       (4.0)
  Exercise of stock options                                    6.2         1.4
  Dividends paid                                              (3.5)       (2.9)
  Other                                                        0.1         0.0
                                                          ---------   ---------
          Net cash provided by financing activities          188.2     1,231.6
                                                          ---------   ---------
Increase in cash and cash equivalents                        387.9       184.0
Cash and cash equivalents at beginning of period             875.8       875.3
                                                          ---------   ---------
Cash and cash equivalents at end of period                $1,263.7    $1,059.3
                                                          =========   =========


                           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
Common stock
 issued in
 Independent 
 acquisition       0.0       2.5         0.0       0.0        0.0         2.5
Proceeds from
 exercise of 
 stock options     0.0       6.2         0.0       0.0        0.0         6.2
Unearned         
 compensation      0.0       2.6         0.0       0.0       (2.4)        0.2
Accretion to 
 face value of 
 preferred stock   0.0       0.0         0.0      (0.6)       0.0        (0.6)
Common stock           
 dividends         0.0      10.3         0.0     (13.1)       0.0        (2.8)
Preferred   
 stock dividends   0.0       0.0         0.0      (0.7)       0.0        (0.7)
Change in net
 unrealized 
 investment gains  0.0       0.0        26.7       0.0        0.0        26.7
Common stock
 issued to
 401-K plan        0.0       0.1         0.0       0.0        0.0         0.1
Net income         0.0       0.0         0.0      97.9        0.0        97.9
                -------  --------  ----------  --------  ---------  ----------
Balance,
 September        
 30, 1997         $0.3    $857.0      $101.1    $224.9      ($2.4)   $1,180.9
                =======  ========  ==========  ========  =========  ==========






                           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 nine  months  ended  September  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  63% of the  Company's  income  before  interest  expense,
   amortization of intangible  assets, net realized gains or losses and income
   taxes  for  the  nine  months  ended   September  30,  1997  and  1996  was
   attributable  to  the  Company's  annuity  insurance  business,   with  the
   remaining 37% attributable to the Company's asset management activities.

3.  Investments

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

<TABLE>
<CAPTION>                                            
                               September 30   December 31 
                                   1997          1996
                               ------------  ------------
<S>                              <C>           <C>
Fixed maturities                 $11,207.3     $10,718.6
Mortgage loans                        62.4          67.0
Policy loans                         547.8         532.8
Other invested assets                421.0         183.6
Equity securities                     43.2          35.9
                               ------------  ------------
    Total                        $12,281.7     $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 45  outstanding  swap  agreements  with an
   aggregate  notional  principal  amount of $2.6  billion and 39  outstanding
   swap  agreements  with  an  aggregate  notional  principal  amount  of $2.3
   billion, as of September 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
   September 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 $321.5  million  and
   $109.6   million  as  of   September   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,  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 $1.11 and $0.86
   for the third quarters of 1997 and 1996,  respectively.  For the first nine
   months of 1997 and 1996,  basic  earnings  per share  would have been $3.34
   and $2.52,  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  August  1997, the  FASB  issued a  draft  of  an  accounting standard
   entitled "Accounting for Derivative Instruments and for Hedging Activities."
   This accounting  standard,  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
   accounting  standard 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.  The  Company  is evaluating  the  impact of
   the proposed accounting standard.

8.  Subsequent Event

      On  November 12, 1997, the  Company's  Board  of Directors  authorized a 
   three-for-two  stock  split  effected in  the form  of a 50% stock dividend
   payable  on  December 10, 1997  to  stockholders  of record on November 26,
   1997.

<PAGE>

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

Results of Operations

   Net  Income  was $32.9  million  or $1.05 per share for the  quarter  ended
September  30,  1997  compared  to $24.7  million  or $0.82  per share for the
quarter  ended  September  30,  1996.  For the first nine months of 1997,  net
income  was $97.9  million  or $3.17 per share  compared  to $71.6  million or
$2.40 per share for the first nine months of 1996.  These  increases  resulted
from higher investment spread,  higher net realized  investment gains,  higher
fee income,  and lower  interest  expense,  net.  Partially  offsetting  these
items were increased operating expenses,  amortization expense, and income tax
expense.

   Pretax Income was $47.8  million for the quarter  ended  September 30, 1997
compared to $36.4  million for the quarter ended  September 30, 1996.  For the
first  nine  months of 1997,  pretax  income was $143.5  million  compared  to
$106.7  million for the first nine months of 1996.  These  increases  resulted
from higher investment spread,  higher net realized  investment gains,  higher
fee income,  and lower  interest  expense,  net.  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 $61.1 million for the quarter ended  September 30, 1997
compared to $55.7  million for the  quarter  ended  September  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 September 30, 1997 was
1.80%  compared to 1.85% for the quarter  ended  September  30, 1996.  For the
first nine months of 1997,  investment  spread was $186.8 million  compared to
$160.4  million  for the first  nine  months of 1996.  The  investment  spread
percentage  was 1.89% for the first nine months of 1997  compared to 1.85% for
the first nine months of 1996.

   Investment  income was $212.0  million for the quarter ended  September 30,
1997 compared to $201.7 million for the quarter ended  September 30, 1996. The
increase  of $10.3  million in 1997  compared to 1996  primarily  relates to a
$19.8  million  increase as a result of the higher  level of invested  assets,
partially  offset by a $9.5 million  decrease  resulting  from a lower average
investment  yield. The third quarter of 1997 included $13.6 million of S&P 500
Index call option amortization  expense compared to $4.3 million for the third
quarter of 1996. The average  investment yield was 6.82% for the quarter ended
September  30,  1997  compared to 7.16% for the quarter  ended  September  30,
1996. For the first nine months of 1997,  investment income was $632.2 million
compared to $580.7  million for the first nine months of 1996. The increase of
$51.5  million in 1997 compared to 1996  primarily  relates to a $73.6 million
increase  as a  result  of  the  higher  level  of  average  invested  assets,
partially  offset by a $22.1 million  decrease  resulting from a lower average
investment  yield. The first nine months of 1997 included $31.2 million of S&P
500 Index call option  amortization  expense  compared to $7.8 million for the
first nine  months of 1996.  The  average  investment  yield was 6.91% for the
first nine months of 1997 compared to 7.18% for the first nine months of 1996.

   Interest  credited to policyholders  totaled $150.9 million for the quarter
ended  September  30, 1997  compared to $146.0  million for the quarter  ended
September  30, 1996.  The  increase of $4.9  million in 1997  compared to 1996
primarily  relates to a $12.9  million  increase as a result of a higher level
of  average  policyholder  balances,  partially  offset  by  an  $8.0  million
decrease  resulting from a lower average interest credited rate.  Policyholder
balances  averaged $12.0 billion  (including  $10.7 billion of fixed annuities
and $1.3 billion of equity-indexed  annuities) for the quarter ended September
30,  1997  compared  to  $11.0  billion  (including  $10.5  billion  of  fixed
annuities and $0.5 billion of equity-indexed  annuities) for the quarter ended
September  30, 1996.  The average  interest  credited rate was 5.02% (5.52% on
fixed annuities and 0.85% on  equity-indexed  annuities) for the quarter ended
September  30, 1997  compared to 5.31% (5.53% on fixed  annuities and 0.85% on
equity-indexed   annuities)   for  the  quarter  ended   September  30,  1996.
Keyport's  equity-indexed  annuities  credit interest to the policyholder at a
"participation  rate" equal to a portion  (ranging for existing  policies from
60% to  95%)  of  the  change  in  value  of  the  S&P  500  Index.  Keyport's
equity-indexed  annuities  also provide a full  guarantee  of  principal  plus
interest at 0.85%  annually.  For each of the periods  presented  the interest
credited  to  equity-indexed policyholders  related to the  participation rate
was offset by investment  income recognized  on the S&P 500 Index call options 
resulting  in a 0.85%  net credited  rate. For the  first nine months of 1997,
interest  credited  was $445.4  million  compared  to $420.3  million  for the 
first nine months of 1996.  The  increase  of $25.1  million  in 1997 compared
to 1996  primarily relates to a $50.0 million increase as a result of a higher
level of average policyholder  balances,  partially  offset by a $24.9 million
decrease resulting from a lower average interest  credited rate.  Policyholder
balances averaged $11.8 billion  (including  $10.7 billion  of fixed annuities
and $1.1 billion of equity-indexed annuities)for the first nine months of 1997
compared to $10.5 billion  (including  $10.2  billion  of fixed  annuities and
$0.3  billion of equity-indexed  annuities) for the first nine months of 1996.
The  average interest  credited  rate  was  5.02%  (5.44%  on fixed  annuities
and 0.85% on  equity-indexed  annuities) for  the  first  nine  months of 1997
compared  to  5.33% (5.47%  on  fixed  annuities  and  0.85% on equity-indexed
annuities)  for the first nine months of 1996.

   Average   Investments   (computed  without  giving  effect  to  SFAS  115),
including a portion of the  Company's  cash and cash  equivalents,  were $12.4
billion for the quarter  ended  September  30, 1997  compared to $11.3 billion
for the quarter ended  September 30, 1996.  For the first nine months of 1997,
such average  investments were $12.2 billion compared to $10.8 billion for the
first nine 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
September  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 $6.1  million for the  quarter  ended
September 30, 1997  compared to $0.7 million for the quarter  ended  September
30, 1996.  For the first nine months of 1997,  net realized  investment  gains
were $22.1  million  compared  to $2.8  million  for the first nine  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 $12.7 million and gains on redemption
of seed money  investments in separate  account mutual funds  sponsored by the
Company  of $7.7  million.  In  addition,  there  were $1.7  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
primarily attributable to sales of general corporate securities.

   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 $56.1 million for
the  quarter  ended  September  30,  1997  compared  to $49.6  million for the
quarter  ended  September  30,  1996.  For the  first  nine  months  of  1997,
investment  advisory and  administrative  fees were $161.8 million compared to
$144.8  million  for the first  nine  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 $38.4  billion  for the
quarter  ended  September  30, 1997  compared to $34.0 billion for the quarter
ended  September  30,  1996.  For the  first  nine  months  of  1997,  average
fee-based  assets were $36.9  billion  compared to $33.3 billion for the first
nine months of 1996.  These  increases  during 1997  compared to 1996 resulted
primarily from market  appreciation  of $3.7 billion and net sales,  including
reinvested  dividends,  of $0.4 billion for the twelve months ended  September
30, 1997.  Investment  advisory and administrative  fees were 0.58% of average
fee-based  assets under  management for the quarters ended  September 30, 1997
and 1996. For the first nine months of 1997 and 1996,  such  percentages  were
also 0.58%.

<PAGE>

   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 September 30
                                     --------------------
                                       1997        1996
                                     --------    --------
<S>                                    <C>         <C>  
Mutual Funds:
    Intermediary-distributed            $16.6       $15.7
    Direct-marketed                       7.2         6.6
    Closed-end                            2.2         1.9
    Variable annuity                      1.3         1.1
                                     ---------   ---------
                                         27.3        25.3
Wealth Management                         6.4         5.0
Institutional                             5.4         4.7
                                     ---------   ---------
Total Fee-Based Assets Under        
    Management*                          $39.1      $35.0
                                     ==========   ========
______________
*  As  of  September   30,  1997  and  1996,   Keyport's
   insurance   assets   of  $12.8   billion   and  $11.9
   billion,  respectively,   bring  total  assets  under
   management  to  $51.9  billion  and  $46.9   billion,
   respectively.
</TABLE>
<TABLE>
Changes in Fee-Based Assets Under Management
<CAPTION>
                             Three Months Ended    Nine Months Ended
                                September 30         September 30
                            --------------------  --------------------
                               1997       1996       1997      1996
                            ---------  ---------  ---------  ---------
<S>                            <C>        <C>        <C>        <C>
Fee-based assets under
 management - beginning        $37.5      $33.9      $35.9      $31.9
Sales and reinvestments          1.9        1.9        5.2        5.8
Redemptions and withdrawals     (1.5)      (1.5)      (5.0)      (4.2)
Acquisitions                     0.0        0.0        0.0        0.4
Market appreciation              1.2        0.7        3.0        1.1
                            ---------  ---------  ---------  ---------   
Fee-based assets under
 management - ending           $39.1      $35.0      $39.1      $35.0
                            =========  =========  =========  =========
</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 $12.6 million for the quarter ended September
30, 1997 compared to $11.3  million for the quarter ended  September 30, 1996.
For the first nine months of 1997,  distribution  and service  fees were $36.6
million  compared to $33.0  million  for the first nine 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  0.71% and 0.69% for the quarters  ended  September
30, 1997 and 1996,  respectively.  For the first nine 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 $12.3  million on average  assets of $24.8  billion  for the quarter
ended  September 30, 1997 and $11.4 million on average assets of $22.7 billion
for the quarter ended  September 30, 1996.  For the first nine months of 1997,
transfer  agency fees were $35.6  million on average  assets of $24.1  billion
and $32.6  million  on  average  assets of $22.3  billion  for the first  nine
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% for the quarters  ended  September 30, 1997 and 1996. For
the first  nine  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 annuity  policyholder  balances,  and  redemptions of the
intermediary-distributed   mutual  funds  which  were  sold  with   contingent
deferred   sales   charges;    b)   the    distribution   of   the   Company's
intermediary-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 $9.5 million for the quarter
ended  September  30,  1997  compared to $8.7  million  for the quarter  ended
September  30,  1996.  For the  first  nine  months of 1997,  total  surrender
charges and net commissions  were $27.0 million  compared to $25.8 million for
the first nine months of 1996.

   Surrender charges on fixed 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 $5.5 million for
the quarter  ended  September  30, 1997 and $4.6 million for the quarter ended
September 30, 1996. For the first nine months of 1997,  surrender charges were
$15.6 million  compared to $14.5 million for the first nine months of 1996. On
an annualized basis,  annuity  withdrawals  represented 10.9% and 11.6% of the
total  average  annuity  policyholder  and separate  account  balances for the
quarters ended September 30, 1997 and 1996,  respectively.  For the first nine
months of 1997 and 1996, the  corresponding  percentages were 11.0% and 10.7%,
respectively.   Excluding   surrenders  from  the  older  block  of  annuities
acquired in the F&G Life  transaction,  the withdrawal  percentages were 10.3%
and 9.5% for the quarters  ended  September  30, 1997 and 1996,  respectively.
For the first nine  months of 1997 and 1996,  such  percentages  were 9.9% and
10.0%, respectively.

   Net commissions  were $4.0 million for the quarter ended September 30, 1997
compared to $4.1 million for the quarter  ended  September  30, 1996.  For the
first nine months of 1997,  net  commissions  were $11.4  million  compared to
$11.3 million for the first nine months of 1996.

   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 $4.7 million for the quarter ended  September 30,
1997 compared to $4.9 million for the quarter ended  September 30, 1996.  Such
fees represented  1.61% and 2.07%,  respectively,  of average variable annuity
and variable  life  separate  account  balances.  For the first nine months of
1997,  separate  account fees were $12.7 million compared to $12.0 million for
the first nine  months of 1996.  For the first  nine  months of 1997 and 1996,
such percentages were 1.56% and 1.72%, respectively.

   Operating Expenses primarily represent compensation,  marketing,  and other
general and  administrative  expenses.  These  expenses were $77.8 million for
the  quarter  ended  September  30,  1997  compared  to $71.5  million for the
quarter ended  September  30, 1996.  The increase in 1997 compared to 1996 was
largely due to  increases in  marketing  expenses of $3.1 million  relating to
mutual  fund  sales  and the  launch  in July  1997 of the  Company's  Newport
Greater  China  Fund.  Operating  expenses  expressed  as a percent of average
total assets under  management  were 0.61% for the quarter ended September 30,
1997  compared to 0.63% for the quarter  ended  September  30,  1996.  For the
first nine months of 1997,  operating expenses were $229.2 million compared to
$205.2  million  for the first  nine  months  of 1996.  The  increase  in 1997
compared  to 1996  was  largely  due to  increases  in  compensation  of $12.0
million  and to  marketing  expenses of $5.8  million  relating to mutual fund
sales,   including  the  Newport  Greater  China  Fund.   Operating   expenses
expressed as a percent of average  total assets  under  management  were 0.62%
for the first nine months of 1997 and 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 $18.3
million for the quarter  ended  September  30, 1997  compared to $15.4 million
for the quarter ended  September 30, 1996.  For the first nine months of 1997,
amortization of deferred  policy  acquisitions  was $54.0 million  compared to
$44.4 million for the first nine 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 and indexed
products and the increased sales of variable  annuity  products.  Amortization
expense  represented  29.95% and 27.65% of investment  spread for the quarters
ended September 30, 1997 and 1996, respectively.  For the first nine months of
1997  and  1996,  the  corresponding   percentages  were  28.91%  and  27.68%,
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 $8.5  million for the
quarter  ended  September  30, 1997  compared to $7.8  million for the quarter
ended  September 30, 1996. For the first nine months of 1997,  amortization of
deferred  distribution  costs was $25.4 million  compared to $22.0 million for
the  first  nine  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  $2.2
million for the quarter ended  September 30, 1997 compared to $2.4 million for
the  quarter  ended  September  30,  1996.  For the first nine months of 1997,
amortization  of value of insurance in force totaled $7.3 million  compared to
$6.0  million  for the first nine  months of 1996.  The first  nine  months of
1997 included  increased  amortization of $4.2 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  $3.7  million  for  the  quarter  ended
September 30, 1997  compared to $3.8 million for the quarter  ended  September
30,  1996.  For the first  nine  months of 1997,  amortization  of  intangible
assets was $10.2  million  compared to $12.1 million for the first nine 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 $4.1 million for the quarter ended September 30,
1997  compared to $5.0 million for the quarter ended  September 30, 1996.  For
the  first  nine  months of 1997,  interest  expense,  net was  $13.0  million
compared to $15.0  million for the first nine months of 1996.  The decrease in
1997 was due to lower interest  expense related to Colonial's  credit facility
which is  utilized  to  finance  the sale of  shares  of the  mutual  funds it
sponsors which have  contingent  deferred sales charges and to higher interest
income which is netted against interest expense.

   Income Tax  Expense  was $14.9  million  or 31.2% of pretax  income for the
quarter ended  September 30, 1997 compared to $11.7 million or 32.1% of pretax
income for the quarter ended  September 30, 1996. For the first nine months of
1997,  income tax expense was $45.6 million or 31.8% of pretax income compared
to $35.1  million,  or 32.9% of pretax  income  for the first  nine  months of
1996.  Substantially  all  the  federal  income  tax  expense  related  to the
Company's annuity insurance business.

   Effective  July  18,  1997,  the  Company  is no  longer  included  in  the
consolidated  tax return of Liberty  Mutual  Insurance  Company.  The  Company
will be required to file a separate life  return  and a  consolidated non-life 
return.  The  Company does not expect  this change  to have a material  effect
on its financial condition or its results of operations.

Financial Condition

   Stockholders'  Equity as of September 30, 1997 was $1.181 billion  compared
to $1.051  billion  as of  December  31,  1996.  Net income for the first nine
months  of 1997  was  $97.9  million,  and  cash  dividends  on the  Company's
preferred and common stock totaled $3.5  million.  Common stock  totaling $6.2
million and $2.5 million was issued in  connection  with the exercise of stock
options  and  for  earn-out  stock  payments  related  to the  acquisition  of
Independent,  respectively.  An increase in net unrealized  investment  gains,
net  of  adjustments  to  deferred  policy  acquisition  costs  and  value  of
insurance  in force,  during the nine  month  period  increased  stockholders'
equity by $26.7 million.

   Book Value Per Share  amounted to $39.87 at September  30, 1997 compared to
$36.63 at December 31, 1996.  Excluding net unrealized  gains on  investments,
book value per share  amounted to $36.46 at  September  30, 1997 and $34.04 at
December 31, 1996.  As of September 30, 1997,  there were 29.6 million  common
shares outstanding compared to 28.7 million shares as of December 31, 1996.

   Investments not including cash and cash equivalents,  totaled $12.3 billion
at September  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 September  30, 1997 and
December 31, 1996 reflected net unrealized  gains of $327.5 million and $229.8
million, respectively, relating to its fixed maturity and equity portfolios.

   Approximately $10.8 billion, or 96.7%, of the fixed maturities  investments
at September  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 September  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 $13.4 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.
<PAGE>
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  86%  of  the
Company's  fixed  annuity  policyholder  balances  were  subject to  surrender
charges at September 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 September  30, 1997,  the  effective  duration of the Company's
fixed maturities  investments  (including  certain cash and cash  equivalents)
was approximately  2.8.  Effective  duration is a common measure for the price
sensitivity  of a  fixed-income  portfolio  to changes in interest  rates.  It
measures the approximate  percentage change in the market value of a portfolio
when  interest  rates  change by  100 basis points.  This measure includes the
impact of  estimated  changes  in  portfolio cash  flows from features such as 
prepayment and bond calls.

    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  45  outstanding  swap  agreements  with  an
aggregate  notional  principal  amount of $2.6 billion and 39 outstanding swap
agreements with an aggregate notional principal amount of $2.3 billion,  as of
September 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 September 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
$321.5  million and $109.6  million as of September  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  September  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 September 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.

   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. In the Company's annuity insurance operations,  liquidity
needs  and  financial  resources  pertain  to the  management  of the  general
account assets and  policyholder  balances.  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. 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  and,  in the  case  of
Colonial,  from its  credit  facility  used to  finance  sales of mutual  fund
shares sold with contingent deferred sales charges.

   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 September 30, 1997, $10.1 billion, or 75.4%, 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.

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  $1.11  and $0.86 for the third
quarters  of 1997 and 1996,  respectively.  For the first nine  months of 1997
and  1996,  basic  earnings  per  share  would  have  been  $3.34  and  $2.52,
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  $8.5 billion of  policyholder  liabilities as of September
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 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 September  30, the Company
sponsored  67  open-end  mutual  funds,  as well as 7  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 $1.6
      billion of assets under  management as of September 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  Fund had $475.6 million of
      assets under  management and over 100,000  shareholders  of record as of
      September  30, 1997.  The Company  introduced  the first  equity-indexed
      annuity  product  to  the  marketplace.   At  September  30,  1997,  the
      Company's  equity-indexed annuity policyholder balance was $1.4 billion.
      The Company's  equity-indexed annuity sales during the nine months ended
      September  30,  1997 and 1996 were $390.0  million  and $474.9  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 September  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 nine months ended
      September  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.

   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 September
   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:   November 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