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 March 31, 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 ororganization)              


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  28,922,816  shares of the  registrant's  Common  Stock,  $.01 par
value,  and 327,160 shares of the  registrant's  Series A Convertible  Preferred
Stock, $.01 par value, outstanding as of April 30, 1997.

Exhibit Index - Page 18                                             Page 1 of 21


<PAGE>


                        LIBERTY FINANCIAL COMPANIES, INC.
          QUARTERLY REPORT ON FORM 10-Q FOR PERIOD ENDED MARCH 31, 1997


                                TABLE OF CONTENTS


Part I.    FINANCIAL INFORMATION                                       Page


Item 1.    Financial Statements

           Consolidated Balance Sheets as of March 31, 1997 and
            December 31, 1996

           Consolidated Income Statements for the Three Months Ended
            March 31, 1997 and 1996

           Consolidated Statements of Cash Flows for the Three
            Months Ended March 31, 1997 and 1996

           Consolidated Statement of Stockholders' Equity for the
            Three Months Ended March 31, 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 6.    Exhibits and Reports on Form 8-K

Signatures

Exhibit Index


<PAGE>

<TABLE>

                        LIBERTY FINANCIAL COMPANIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                                (in millions)


<CAPTION>
                                               March 31       December 31
                                                 1997            1996
                                               --------       -----------
                                               Unaudited
                                     ASSETS

<S>                                             <C>             <C>      
Assets:
   Investments                                  $11,541.5       $11,537.9
   Cash and cash equivalents                      1,123.5           875.8
   Accrued investment income                        156.7           146.8
   Deferred policy acquisition costs                321.9           250.4
   Value of insurance in force                       85.9            70.8
   Deferred distribution costs                      113.2           114.4
   Intangible assets                                199.9           205.4
   Other assets                                     127.2           134.7
   Separate account assets                        1,088.9         1,091.5
                                                ---------       ---------
                                                $14,758.7       $14,427.7
                                                =========       ========= 



                      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
   Policyholder balances                        $11,687.7       $11,637.5
   Notes payable to affiliates                      229.0           229.0
   Payable for investments purchased and            
    loaned                                          517.5           211.2
   Other liabilities                                230.2           267.1
   Separate account liabilities                   1,037.5         1,017.7
                                                ---------       ---------
     Total liabilities                           13,701.9        13,362.5
                                                ---------       ---------
                                             

Series A redeemable convertible preferred
 stock, par value $.01; authorized, issued and 
 outstanding 327,340 shares in 1997 and 1996         14.0            13.8 
                                                ---------       ---------

Stockholders' Equity:
 Common stock, par value $.01; authorized
  100,000,000 shares, issued and outstanding 
  28,904,131 shares in 1997 and 28,705,015 shares 
  in 1996                                             0.3             0.3
Additional paid-in capital                          840.1           835.3
Net unrealized investment gains                      30.7            74.4
Retained earnings                                   171.7           141.4
                                                ---------       ---------
                                              
     Total stockholders' equity                   1,042.8         1,051.4
                                                ---------       ---------
                                                $14,758.7       $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
                                                            March 31 
                                                   --------------------------
                                                      1997            1996
                                                      ----            ----
                                                
<S>                                               <C>             <C>  
Investment income                                 $     208.0     $     189.2
Interest credited to policyholders                     (147.3)         (138.1)
                                                  -----------     -----------
Investment spread                                        60.7            51.1
                                                  -----------     -----------
Net realized investment gains                            12.9             3.8
                                                  -----------     -----------
Fee income:
 Investment advisory and administrative fees             53.1            46.4
 Distribution and service fees                           12.1            10.6
 Transfer agency fees                                    11.8            10.4
 Surrender charges and net commissions                    8.5             7.7
 Separate account fees                                    3.9             3.5
                                                  -----------     -----------
Total fee income                                         89.4            78.6
                                                  -----------     -----------
Expenses:
 Operating expenses                                     (75.8)          (65.9)
 Amortization of deferred policy acquisition
  costs                                                 (16.3)          (14.1)
 Amortization of deferred distribution costs             (8.2)           (6.8)
 Amortization of value of insurance in force             (3.2)           (1.7)
 Amortization of intangible assets                       (3.2)           (3.7)
 Interest expense, net                                   (4.5)           (5.0)
                                                  -----------     -----------
Total expenses                                         (111.2)          (97.2)
                                                  -----------     -----------
Pretax income                                            51.8            36.3
Income tax expense                                      (16.8)          (12.5)
                                                  -----------     -----------
Net income                                        $      35.0     $      23.8
                                                  ===========     ===========
Net income per share                              $      1.14     $      0.81
                                                  ===========     ===========
Common stock and common stock equivalents          30,490,150      29,262,329
                                                  ===========     ===========





                             See accompanying notes.

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

<CAPTION>
                                                           Three Months Ended
                                                                March 31
                                                           ------------------
                                                            1997        1996
                                                            ----        ----
<S>                                                       <C>         <C> 
Cash flows from operating activities:
Net income                                                $  35.0     $   23.8
Adjustments to reconcile net income to net cash
provided by operating activities:
   Depreciation and amortization                             18.2         14.8
   Interest credited to policyholders                       147.3        138.1
   Net realized investment gains                            (12.9)        (3.8)
   Net amortization (accretion) on investments               (8.1)         1.5
   Change in deferred policy acquisition  costs              (0.6)        (1.6)
   Net change in other assets and liabilities,
    net of effect of acquisitions                           (18.0)       (42.7)
                                                         --------     --------
      Net cash provided by operating activities             160.9        130.1
                                                         --------     --------

Cash flows from investing activities:
   Investments purchased available for sale                (717.6)      (544.0)
   Investments sold available for sale                       45.0         92.7
   Investments matured available for sale                   671.1        300.6
   Change in policy loans, net                               (6.0)        (4.2)
   Change in mortgage loans, net                              1.7          1.7
   Acquisitions, net of cash acquired                         0.0         (7.1)
                                                         --------     --------
      Net cash used in investing activities                  (5.8)      (160.3)
                                                         --------     --------

Cash flows from financing activities:
   Withdrawals from policyholder accounts                  (299.4)      (252.6)
   Deposits to policyholder accounts                        202.3        218.9
   Securities lending                                       194.9        198.0
   Change in revolving credit facility                       (5.5)         3.0
   Exercise of stock options                                  1.3          0.2
   Dividends paid                                            (1.0)        (0.9)
                                                         --------     --------
      Net cash provided by financing activities              92.6        166.6
                                                         --------     --------
   Increase in cash and cash equivalents                    247.7        136.4
   Cash and cash equivalents at beginning of period         875.8        875.3
                                                         --------     --------
   Cash and cash equivalents at end of period            $1,123.5     $1,011.7
                                                         ========     ========
                                                          
                                                         










                             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    Stockholders'
                    Stock     Capital       Gains     Earnings       Equity
                    ------    -------     ----------  --------    -------------   
<S>                  <C>       <C>          <C>        <C>         <C>   
Balance 
 December 31, 1996   $0.3      $835.3       $74.4      $141.4      $1,051.4
Proceeds from
 exercise of stock       
 options              0.0         1.3         0.0         0.0           1.3
Accretion to face
 value of preferred                   
 stock                0.0         0.0         0.0        (0.2)         (0.2)   
Common stock
 dividends            0.0         3.5         0.0        (4.3)         (0.8)
Preferred stock          
 dividends            0.0         0.0         0.0        (0.2)         (0.2)
Change in net
 unrealized               
 investment gains     0.0         0.0       (43.7)        0.0         (43.7)
Net income            0.0         0.0         0.0        35.0          35.0
                     ----      ------       -----      ------      --------
Balance,
 March 31, 1997      $0.3      $840.1       $30.7      $171.7      $1,042.8
                     ====      ======       =====      ======      ========

























                             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,  although the Company
   believes the  disclosures  in these  consolidated  financial  statements  are
   adequate  to  present  fairly  the  information   contained   herein.   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
   ended  March 31,  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.  The principal  reclassifications relate to the presentation of
   investment spread (the amount by which net investment income exceeds interest
   credited to  policyholder  balances) and the  components of the Company's fee
   income. These  reclassifications  were made to provide additional information
   with respect to the Company's major sources of revenue.


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,  and Newport
   Pacific Management,  Inc. ("Newport"),  an investment advisor to mutual funds
   and institutional  accounts  specializing in Asian equity markets.  The asset
   management business derives fee income from investment products and services.

      Approximately  64.7% of the  Company's  operating  earnings  for the three
   months  ended  March  31,  1997 was  attributable  to the  Company's  annuity
   insurance  business,  with the remaining 35.3%  attributable to the Company's
   asset management activities.  This compares to approximately 58.5% and 41.5%,
   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>
                               March 31     December 31   
                                 1997           1996
                               --------     -----------

<S>                          <C>            <C>      
Fixed maturities             $10,683.7      $10,718.6
Mortgage loans                    65.3           67.0
Policy loans                     538.8          532.8
Other invested assets            216.3          183.6
Equity securities                 37.4           35.9
                             ---------      ---------
    Total                    $11,541.5      $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.  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   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  $1.21  and  $0.85  for  the  first  quarters  of 1997  and  1996,
   respectively.  The  calculation of diluted  earnings per share under SFAS 128
   for these quarters would not materially  differ from the calculation of fully
   diluted earnings per share.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL 
CONDITION

Results of Operations

   Net Income was $35.0  million or $1.14 per share in the first quarter of 1997
compared to $23.8 million or $0.81 per share in the first  quarter of 1996.  The
improvement  of $11.2  million in 1997  compared  to 1996  resulted  from higher
investment spread,  higher fee income, and higher net realized investment gains.
Partially offsetting these items were increased operating expenses, amortization
expense, and income tax expense.

   Pretax  Income was $51.8  million in the first  quarter of 1997  compared  to
$36.3  million in the first  quarter of 1996.  The higher  pretax income in 1997
compared to 1996 resulted from higher investment spread,  higher fee income, and
higher net realized investment gains.  Partially offsetting these increases were
the higher 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 $60.7  million in the first  quarter of 1997  compared to
$51.1  million  in the first  quarter of 1996.  The amount by which the  average
yield on investments  exceeds the average interest credited rate on policyholder
balances is the investment spread percentage.  Such investment spread percentage
in the first quarter of 1997 was 1.90% compared to 1.82% in the first quarter of
1996.  Assuming a constant  interest rate environment,  the Company  anticipates
that the investment spread percentage in 1997 will be comparable to 1996.

   Investment income was $208.0 million in the first quarter of 1997 compared to
$189.2  million in the first  quarter of 1996.  The increase of $18.8 million in
1997 compared to 1996 primarily  relates to a $27.4 million increase as a result
of the higher  level of average  invested  assets,  partially  offset by an $8.6
million decrease  resulting from a lower average  investment  yield. The average
investment yield was 6.94% in the first quarter of 1997 compared to 7.27% in the
first quarter of 1996.

   Interest  credited  to  policyholders  totaled  $147.3  million  in the first
quarter of 1997  compared to $138.1  million in the first  quarter of 1996.  The
increase of $9.2 million in 1997 compared to 1996  primarily  relates to a $19.5
million increase as a result of a higher level of average policyholder balances,
partially  offset by a $10.3  million  decrease  resulting  from a lower average
interest  credited  rate.  Policyholder  balances  averaged $11.7 billion in the
first  quarter of 1997  compared to $10.2  billion in the first quarter of 1996.
The  average  interest  credited  rate was  5.04% in the first  quarter  of 1997
compared to 5.45% in the first quarter of 1996.

   Average Investments (computed without giving effect to SFAS 115), including a
portion of the Company's  cash and cash  equivalents,  were $12.0 billion in the
first  quarter of 1997  compared to $10.4  billion in the first quarter of 1996.
The increase of $1.6 billion in 1997 compared to 1996  primarily  relates to the
$0.9 billion  coinsurance  agreement  entered into with Fidelity & Guaranty Life
Insurance during the third quarter of 1996 (the "F&G Life  transaction") and the
investment  of portfolio  earnings for the twelve months ended March 31, 1997 of
$0.8 billion.

   Net Realized Investment Gains were $12.9 million in the first quarter of 1997
compared  to $3.8  million  in the  first  quarter  of  1996.  The net  realized
investment  gains  in  1997  included  gains  on the  sales  of  fixed  maturity
investments  of $7.2  million  and  gains on sales of other  invested  assets in
separate  account mutual funds  sponsored by the Company of $5.7 million.  These
sales were made to maximize total return.  The net realized  investment gains in
1996 were  attributable  to sales of the Company's  fixed  maturity  investments
which were made to maximize total return.

   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 $53.1  million in the first
quarter of 1997  compared  to $46.4  million in the first  quarter of 1996.  The
increase of $6.7 million in 1997  compared to 1996  primarily  reflects a higher
level of average fee-based assets under management.

   Average  fee-based  assets under  management  were $35.8 billion in the first
quarter of 1997  compared  to $32.5  billion in the first  quarter of 1996.  The
increase of $3.3 billion  during 1997 compared to 1996 resulted  primarily  from
market appreciation of $1.8 billion and net sales of $1.2 billion for the twelve
months  ended  March 31,  1997.  In  addition,  approximately  $0.3  billion  in
fee-based assets under management were acquired during this twelve month period.
Investment  advisory  and  administrative  fees were 0.59% of average  fee-based
assets  under  management  in the first  quarter  of 1997 and 0.57% in the first
quarter of 1996. This increase in the effective fee rate in the first quarter of
1997 was primarily due to the increased  proportion of higher  fee-based  mutual
fund assets under management.

   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 March 31
                                                       --------------
                                                     1997        1996
                                                     ----        ----
 <S>                                                 <C>         <C>  
  Mutual Funds:
   Broker-distributed                                $15.6       $15.7
   Direct-marketed                                     6.2         5.4
   Closed-end                                          1.9         1.8
   Variable annuity                                    1.1         1.0
                                                     -----       -----
                                                      24.8        23.9
  Wealth Management                                    5.5         4.4
  Institutional                                        4.5         4.4
                                                     -----       -----    
     Total Fee-Based Assets Under Management*        $34.8       $32.7
                                                     =====       =====

--------------
*  As of March 31, 1997,  Keyport's  investments  of $12.2  billion  bring total
   assets under management to $47.0 billion.
</TABLE>
<TABLE>
Changes in Fee-Based Assets Under Management
<CAPTION>
                                                       As of March 31
                                                       --------------
                                                     1997        1996
                                                     ----        ---- 
<S>                                                  <C>         <C>  
Fee-based assets under management - beginning        $35.9       $31.9
Sales and reinvestments                                1.9         1.9
Redemptions and withdrawals                           (2.1)       (1.2)
Market appreciation (depreciation)                    (0.9)        0.1
                                                     -----       -----
Fee-based assets under management - ending           $34.8       $32.7
                                                     =====       =====
</TABLE>

   Distribution  and Service Fees are based on the market value of the Company's
broker-distributed  mutual funds.  Distribution  fees of 0.75% are earned on the
average assets  attributable  to such funds sold without  front-end sales loads,
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 $12.1
million in the first  quarter  of 1997  compared  to $10.6  million in the first
quarter of 1996.  The  increase  of $1.5  million in 1997  compared  to 1996 was
primarily  attributable  to the  higher  asset  levels of mutual  funds  without
front-end sales loads.  As a percentage of the  corresponding  weighted  average
assets,  distribution and service fees  approximated  0.71% in 1997 and 0.70% in
1996.

    Transfer  Agency Fees are based on the market value of assets managed in the
Company's  broker-distributed  and direct-marketed  mutual funds. Such fees were
$11.8  million on average  assets of $23.6  billion in the first quarter of 1997
and $10.4  million on average  assets of $21.8  billion in the first  quarter of
1996. The increase of $1.4 million in 1997 compared to 1996 was primarily due to
higher average assets in direct-marketed  mutual funds. As a percentage of total
average  mutual  fund  assets  under  management,   transfer  agency  fees  were
approximately   0.20%  and  0.19%  in  the  first  quarters  of  1997  and 1996,
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  without
front-end sales loads; 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  investment
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 $8.5  million  in the first  quarter of 1997
compared to $7.7 million in the first quarter 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 $4.8 million and $4.9
million  in the first  quarters  of 1997 and 1996,  respectively.  Total  fixed,
indexed and variable annuity withdrawals represented 11.2% and 9.8% of the total
average  annuity   policyholder  and  separate  account  balances  in  the first
quarters of 1997 and 1996,  respectively.  The percentage  increase in  1997 was
primarily attributable  to surrenders of annuities  acquired  in  the  F&G  Life
transaction; excluding  these surrenders, the withdrawal  percentage in 1997 was
9.4%.

   Net  commissions  were $3.7  million  in the first  quarter  of 1997 and $2.8
million in the first quarter of 1996.  The increase in 1997 compared to 1996 was
primarily  attributable  to   the  acquisition  of  Independent  Holdings,  Inc.
("Independent") in March 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 $3.9  million  in the first  quarter  of 1997  compared  to $3.5
million in the first quarter of 1996. Such fees  represented  1.55% and 1.52% of
average variable annuity and variable life separate account balances in 1997 and
1996, respectively.

   Operating Expenses primarily  represent  compensation,  marketing,  and other
general and  administrative  expenses.  These expenses were $75.8 million in the
first  quarter of 1997  compared to $65.9  million in the first quarter of 1996.
The  increase  in 1997  compared  to 1996  was  primarily  due to  increases  in
compensation of $6.3 million,  in marketing expenses of $1.4 million relating to
mutual  fund  sales  and to  the  acquisition  of  Independent  which  increased
operating  expenses by $1.6  million,  partially  offset by a first quarter 1996
$1.9 million restructuring charge.  Operating expenses expressed as a percent of
average total assets under management were 0.63% and 0.60% in the first quarters
of 1997 and 1996, respectively.

   Amortization  of Deferred Policy  Acquisition  Costs was $16.3 million in the
first  quarter of 1997  compared to $14.1  million in the first quarter of 1996.
The increase in  amortization  in the first quarter of 1997 compared to 1996 was
primarily due to the growth of business in force associated with fixed,  indexed
and variable annuity sales.  Amortization expense represented 0.62% and 0.64% of
the total average  policyholder  and separate account balances in 1997 and 1996,
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  without
front-end  sales loads.  Amortization  was $8.2 million in the first  quarter of
1997 compared to $6.8 million in the first quarter of 1996. The increase in 1997
was primarily  attributable  to the continuing  sales of such fund shares during
1997 and 1996.

   Amortization of Value of Insurance in Force totaled $3.2 million in the first
quarter  of 1997  compared  to $1.7  million in the first  quarter of 1996.  The
increase in  amortization  in 1997  compared to 1996 was  primarily  due to $1.5
million of amortization relating to the F&G Life transaction.

   Amortization  of  Intangible  Assets was $3.2 million in the first quarter of
1997 compared to $3.7 million in the first quarter of 1996. The decrease in 1997
was primarily  attributable  to certain assets  becoming fully  amortized in the
third quarter of 1996 which  reduced  amortization  by $1.0  million,  partially
offset  by  an  increase  of  $0.4  million  in  amortization  relating  to  the
acquisition of Independent.

   Interest  Expense was $4.5 million in the first  quarter of 1997  compared to
$5.0  million in the first  quarter of 1996.  The  decrease  of $0.5  million is
principally  due to higher  interest  income  which is netted  against  interest
expense.

   Income Tax Expense was $16.8  million or 32.4% of pretax  income in the first
quarter of 1997  compared  to $12.5  million,  or 34.3% of pretax  income in the
first quarter of 1996.  Substantially all the federal income tax expense related
to the Company's annuity insurance business.

Financial Condition

   Stockholders' Equity as of March 31, 1997 was $1.04 billion compared to $1.05
billion as of December  31,  1996.  Net income in the first  quarter of 1997 was
$35.0 million,  and cash  dividends on the Company's  preferred and common stock
totaled  $1.0  million.  Common  stock  totaling  $1.3  million  was  issued  in
connection  with the  exercise of stock  options.  A decrease in net  unrealized
investment  gains,  net of taxes and adjustments to deferred policy  acquisition
costs and value of insurance in force, during the period decreased stockholders'
equity by $43.7 million.

   Book Value Per Share  amounted to $36.08 at March 31, 1997 compared to $36.63
at December 31, 1996. Excluding net unrealized gains on investments,  book value
per share  amounted to $35.01 at March 31, 1997 and $34.04 at December 31, 1996.
As of March 31, 1997, there were 28.9 million common shares outstanding compared
to 28.7 million shares as of December 31, 1996.

   Investments not including cash and cash equivalents, totaled $11.5 billion as
of March 31, 1997 and December 31, 1996.  The  Company's  total  investments  at
March 31, 1997 reflected net unrealized gains of $78.3 million.  At December 31,
1996, such net unrealized  investment gains were $229.8 million. The decrease in
net  unrealized  gains in the first  quarter of 1997  principally  reflects  the
higher interest rates at the end of the first quarter.

   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.

   Approximately $10.4 billion, or 97.2%, of the fixed maturities investments at
March 31, 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 ("NAIC"). At March 31, 1997, the
carrying value of  investments  in below  investment  grade  securities  totaled
$991.5 million,  or 7.9% of total investments  (including  certain cash and cash
equivalents)  of $12.6 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  disintermediation.  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  adequate  risk-adjusted  returns  consistent  with  the  investment
objectives  of effective  asset-liability  duration  management,  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 a  predictable  spread  between  what it earns on its
assets and what it pays on its policyholder balances by investing principally in
fixed  maturities.   The  Company's   fixed-rate  and  equity  indexed  products
incorporate surrender charges to encourage  persistency,  discourage withdrawals
and make the cost of its policyholder  balances more predictable.  Approximately
85.0% of the  Company's  fixed and indexed  annuity  policyholder  balances were
subject to surrender charges at March 31, 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 rate paid on policyholder balances under a
variety of possible  future  interest  rate  scenarios.  At March 31, 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, the Company utilizes interest rate
swap agreements ("swap 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. At March 31, 1997, the Company had 41 outstanding swap agreements
with an aggregate  notional  principal amount of $2.3 billion.  These agreements
mature in various years through 2001. In addition, with respect to the Company's
indexed  annuity,  the Company  buys call options on the S&P 500 Index to manage
its obligation to provide  returns based upon this Index. At March 31, 1997, the
Company had call options with an estimated fair value of $131.2 million.

   There are risks  associated  with some of the  techniques the Company uses to
match  its  assets  and  liabilities.  The  primary  risk  associated  with swap
agreements is the risk associated with counterparty nonperformance.  The Company
believes  that  the  counterparties  to  its  swap  agreements  are  financially
responsible and that the counterparty risk associated with these transactions is
minimal. In addition,  swap agreements have interest rate risk.  However,  these
swap  agreements  hedge  fixed-rate  assets;  any interest rate  movements  that
adversely  affect the market value of swap agreements  would be more than offset
by changes in the market values of such fixed rate assets.

   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  declines in value may be other than temporary.  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.
<PAGE>
Liquidity

   The Company is a holding company whose liquidity needs include the following:
(i) operating  expenses;  (ii) debt service;  (iii) dividends on 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).

   Regulatory  authorities  permit dividend payments from Keyport to the Company
up to the lesser of (i) 10% of statutory surplus as of the preceding December 31
or (ii) the net gain from operations for the preceding  fiscal year. As of March
31,  1997,  Keyport  could pay  dividends  of up to $42.5  million  without  the
approval of the Department of Business  Regulation of the State of Rhode Island.
As of March 31, 1997 under its credit facility,  Colonial could pay dividends of
up to $26.5 million.  In April 1997, this Facility was renewed and various terms
were  revised.  Under the  revised  terms of the  Facility,  Colonial  could pay
dividends up to $87.2 million as of March 31, 1997.

   Based upon the  historical  cash flow of the Company,  the Company's  current
financial  condition  and 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, 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 (assuming  Liberty Mutual continues to
participate in  the Dividend Reinvestment Plan) its  intentions to pay dividends
on the Common Stock. The Company's cash flow may be influenced by,  among  other
things,  general economic conditions,  realized investment gains and losses, the
interest rate environment, the level of assets under management, market changes,
regulatory changes and tax law changes.

   Each of the  Company's  business  segments  has its own  liquidity  needs and
financial resources. 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.  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 net investment income, annuity premiums
and  deposits,  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 March 31,
1997, $9.2 billion of Keyport's investments,  including short-term  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. However, Keyport
believes that liquidity to fund 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.  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 instance,  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, the Financial  Accounting  Standards Board 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 $1.21 and $0.85 for the
first  quarters  of 1997 and 1996,  respectively.  The  calculation  of  diluted
earnings per share under SFAS 128 for these quarters would not materially differ
from the calculation of fully diluted earnings per share.


<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 March 31,
   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:   May 14, 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