SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


                                   FORM 10-Q

[X]  QUARTERLY   REPORT  PURSUANT  TO  SECTION  13  OR 15(d) OF  THE  SECURITIES
EXCHANGE ACT OF 1934
                  For the quarterly period ended  June 30, 1998
                                                  --------------
                                      or

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

                        Commission file number:  1-13654
                                                ---------
 
                       LIBERTY FINANCIAL COMPANIES, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

        Massachusetts                                  04-3260640
--------------------------------------------------------------------------------
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
incorporation or organization)           


600 Atlantic Avenue, Boston, Massachusetts                           02210-2214
--------------------------------------------------------------------------------
  (Address of principal executive offices)                           (Zip Code)


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


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

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

     There  were  45,566,530  shares of the registrant's Common Stock,  $.01 par
value,  and 324,959 shares of the registrant's Series  A  Convertible  Preferred
Stock,   $.01  par  value, outstanding as of July 31, 1998.

Exhibit Index - Page 21                                             Page 1 of 23
<PAGE>
                       LIBERTY FINANCIAL COMPANIES, INC.
         QUARTERLY REPORT ON FORM 10-Q FOR PERIOD ENDED JUNE 30, 1998

                               TABLE OF CONTENTS

Part I.   FINANCIAL INFORMATION                                          Page

Item 1.   Financial Statements

          Consolidated Balance Sheets as of June 30, 1998 and              
           December 31, 1997

          Consolidated Income Statements for the Three Months        
           and Six Months Ended June 30, 1998 and 1997

          Consolidated Statements of Cash Flows for the Six Months 
           Ended June 30, 1998 and 1997

          Consolidated Statement of Stockholders' Equity for the 
           Six Months Ended June 30, 1998

          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>
                                                  June 30        December 31
                                                   1998              1997  
                                                 ----------       ----------
                                                  Unaudited
                                    ASSETS
<S>                                              <C>               <C>
Assets:
   Investments                                   $12,554.7         $12,343.5
   Cash and cash equivalents                       1,322.8           1,290.1
   Accrued investment income                         164.3             165.0
   Deferred policy acquisition costs                 264.0             232.0
   Value of insurance in force                        53.1              53.3
   Deferred distribution costs                       116.7             108.1
   Intangible assets                                 199.1             199.0
   Other assets                                      241.6             131.4
   Separate account assets                         1,488.7           1,329.2
                                                 ----------        ----------
                                                 $16,405.0         $15,851.6
                                                 ==========        ==========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
   Policyholder balances                         $12,291.4         $12,086.1
   Notes payable to affiliates                       229.0             229.0
   Payable for investments purchased                              
    and loaned                                       845.4             722.1
   Other liabilities                                 309.6             336.9
   Separate account liabilities                    1,448.0           1,264.0
                                                 ----------        ----------
      Total liabilities                           15,123.4          14,638.1
                                                 ----------        ----------

Series A redeemable convertible preferred 
 stock, par value $.01; authorized, issued
 and outstanding 325,959 shares in 1998 and
 327,006 shares in 1997                               14.9              14.6
                                                 ----------        ----------

Stockholders' Equity:
 Common stock, par value $.01; authorized
  100,000,000 shares, issued 45,514,360 
  shares in 1998 and 44,706,398 shares in 1997         0.5               0.4
Additional paid-in capital                           882.7             866.5
Accumulated other comprehensive income                85.5              83.0
Retained earnings                                    302.8             251.5
Cost of common stock held in treasury                  
 (9,465 shares at December 31, 1997)                   0.0              (0.3)
Unearned compensation                                 (4.8)             (2.2)
                                                 ----------        ----------
     Total stockholders' equity                    1,266.7           1,198.9
                                                 ----------        ----------                               
                                                 $16,405.0         $15,851.6
                                                 ==========        ==========

         See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
                       LIBERTY FINANCIAL COMPANIES, INC.
                         CONSOLIDATED INCOME STATEMENTS
                      (in millions, except per share data)
                                   Unaudited
<CAPTION>
                                         Three Months Ended   Six Months Ended
                                               June 30            June 30
                                         ------------------   ------------------
                                           1998      1997       1998      1997
                                         --------  --------   --------  --------
<S>                                       <C>       <C>        <C>       <C>
Investment income                         $202.3    $212.2     $409.7    $420.2
Interest credited to policyholders        (140.2)   (147.2)    (282.3)   (294.5)
                                         --------  --------   --------  --------
Investment spread                           62.1      65.0      127.4     125.7
                                         --------  --------   --------  --------
Net realized investment gains (losses)      (2.4)      3.1       (0.2)     16.0
                                         --------  --------   --------  --------
Fee income:
 Investment advisory and administrative    
  fees                                      59.3      52.6      116.1     105.7
 Distribution and service fees              13.2      11.9       25.8      24.0
 Transfer agency fees                       12.5      11.5       24.7      23.3
 Surrender charges and net commissions       9.6       9.0       18.0      17.5
 Separate account fees                       5.4       4.1       10.1       8.0
                                         --------  --------   --------  --------
Total fee income                           100.0      89.1      194.7     178.5
                                         --------  --------   --------  --------
Expenses:
 Operating expenses                        (80.1)    (75.6)    (160.0)   (151.4)
 Amortization of deferred policy   
  acquisition costs                        (18.3)    (19.4)     (37.3)    (35.7)
 Amortization of deferred distribution 
  costs                                     (9.1)     (8.7)     (18.1)    (16.9)
 Amortization of value of insurance in  
  force                                     (1.2)     (1.9)      (2.7)     (5.1)
 Amortization of intangible assets          (3.6)     (3.3)      (7.1)     (6.5)
 Interest expense, net                      (3.9)     (4.4)      (7.8)     (8.9)
                                         --------  --------   --------  --------
Total expenses                            (116.2)   (113.3)    (233.0)   (224.5)
                                         --------  --------   --------  --------

Pretax income                               43.5      43.9       88.9      95.7
Income tax expense                         (13.8)    (13.9)     (27.7)    (30.7)
                                         --------  --------   --------  --------
Net income                               $  29.7   $  30.0    $  61.2   $  65.0
                                         ========  ========   ========  ========
Net income per share - basic             $   0.65  $   0.68   $   1.35  $   1.49
                                         ========  ========   ========  ========
Net income per share - assuming dilution $   0.63  $   0.65   $   1.29  $   1.40
                                         ========  ========   ========  ========

         See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
                       LIBERTY FINANCIAL COMPANIES, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in millions)
                                   Unaudited
<CAPTION>
                                                            Six Months Ended
                                                                June 30
                                                         ---------------------
                                                            1998        1997
                                                         ---------   ---------
<S>                                                       <C>         <C>
Cash flows from operating activities:
Net income                                                $  61.2     $  65.0
Adjustments to reconcile net income to net
cash provided by operating activities:
   Depreciation and amortization                             37.3        35.9
   Interest credited to policyholders                       282.3       294.5
   Net realized investment losses (gains)                     0.2       (16.0)
   Net amortization on investments                           28.2        16.3
   Change in deferred policy acquisition costs              (20.9)       (5.2)
   Net change in other assets and liabilities               (70.2)       (9.1)
                                                         ---------   ---------
      Net cash provided by operating activities             318.1       381.4
                                                         ---------   ---------

Cash flows from investing activities:
   Investments purchased available for sale              (3,498.3)   (2,225.3)
   Investments sold available for sale                    2,690.8       975.7
   Investments matured available for sale                   561.2       969.7
   Change in policy loans, net                              (19.3)      (13.8)
   Change in mortgage loans, net                              2.9         3.4
   Other assets sold, net                                    32.1         0.0
                                                         ---------   ---------
      Net cash used in investing activities                (230.6)     (290.3)
                                                         ---------   ---------

Cash flows from financing activities:
   Withdrawals from policyholder accounts                  (850.8)     (631.8)
   Deposits to policyholder accounts                        775.2       507.6
   Securities lending                                        17.0       478.8
   Change in revolving credit facility                        2.0       (12.5)
   Exercise of stock options                                  4.7         2.7
   Dividends paid                                            (2.9)       (2.1)
                                                         ---------   ---------
      Net cash (used in) provided by financing              
       activities                                           (54.8)      342.7
                                                         ---------   ---------
   Increase in cash and cash equivalents                     32.7       433.8
   Cash and cash equivalents at beginning of period       1,290.1       875.8
                                                         ---------   ---------
   Cash and cash equivalents at end of period            $1,322.8    $1,309.6
                                                         =========   =========

         See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
                       LIBERTY FINANCIAL COMPANIES, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                 (in millions)
                                   Unaudited
<CAPTION>
                                 Accum.
                       Addt'l.   Other                                Total
                Common Paid-In Comprehen. Retained Treas. Unearned Stockholders'
                 Stock Capital   Income   Earnings Stock   Compen.    Equity
                 ------ ------- --------- -------- ------- ------- ------------
<S>              <C>    <C>       <C>      <C>      <C>     <C>       <C>
Balance,
 December 
 31, 1997        $0.4   $866.5    $83.0    $251.5   $(0.3)  $(2.2)    $1,198.9
Effect of
 stock-based 
 compensation
 plans            0.1      9.6                        0.3    (2.6)         7.4
Accretion to
 face value    
 of preferred                               
 stock                                       (0.4)                        (0.4)
Common stock
 dividends                 6.6               (9.0)                        (2.4)
Preferred 
 stock
 dividends                                   (0.5)                        (0.5)
Net income                                   61.2                         61.2
Other
 comprehensive                     
 income,
 net of tax                         2.5                                    2.5
                 -----  ------- --------  -------- -------  ------ ------------
Balance,
 June 
 30, 1998        $0.5   $882.7    $85.5    $302.8    $0.0   $(4.8)    $1,266.7
                 =====  ======= ========  ======== ======= ======= ============

         See accompanying notes to consolidated financial statements.
</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 1997
   Annual  Report to  Stockholders.  The  results of  operations  for the three
   months and six months ended June 30, 1998 are not necessarily  indicative of
   the results to be expected for the full year.  Certain  previously  reported
   amounts  have  been   reclassified   to  conform  with  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  64% of  the  Company's  income  before  interest  expense,
   amortization of intangible  assets,  net realized gains and income taxes for
   the six  months  ended  June 30,  1998  was  attributable  to the  Company's
   annuity  insurance  business,  with the  remaining 36%  attributable  to the
   Company's asset management  activities.  This compares to approximately  65%
   and 35%, respectively, for the six months ended June 30, 1997.

3.  Investments

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

<TABLE>
<CAPTION>
                                 June 30     December 31
                                  1998           1997
                               ----------   -------------
<S>                            <C>            <C> 
Fixed maturities               $11,272.2      $11,246.5
Equity securities                   67.7           40.8
Mortgage loans                      57.7           60.7
Policy loans                       574.0          554.7
Other invested assets              583.1          440.8
                               ----------     ----------
  Total                        $12,554.7      $12,343.5
                               ==========     ==========
</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 fair
   value.

<PAGE>

4.  Net Income Per Share

      On December 10, 1997, the Company  effected a three-for-two  common stock
   split in the form of a 50 percent stock  dividend.  The following table sets
   forth the  computation  of net  income  per  share-basic  and net income per
   share-assuming dilution:

<TABLE>
<CAPTION>
                                      Three Months Ended      Six Months Ended
                                            June 30               June 30
                                   ---------------------  ----------------------
                                        1998       1997        1998        1997
                                   ---------- ----------  ----------  ----------
<S>                                <C>        <C>         <C>         <C>
Numerator:
  Net income                       $    29.7  $    30.0   $    61.2   $    65.0
  Preferred stock dividends             (0.3)      (0.3)       (0.5)       (0.5)
                                   ---------- ----------  ----------  ----------
  Numerator for net
   income per share - basic
   - income available to common     
   stockholders                         29.4       29.7        60.7        64.5
  Effect of dilutive securities:  
   Preferred stock dividends             0.3        0.3         0.5         0.5
                                   ---------- ----------  ----------  ----------
                                         0.3        0.3         0.5         0.5
                                   ---------- ----------  ----------  ----------
   Numerator for net income per 
    share - assuming dilution - 
    income available to common  
    stockholders after assumed    
    conversions                    $    29.7  $    30.0   $    61.2   $    65.0

Denominator:
  Denominator for net income per
   share - basic - weighted-   
   average shares                  45,136,599 43,429,139  44,943,104  43,297,151
Effect of dilutive securities:
 Employee stock options             1,726,855  2,517,188   1,805,931   2,550,054
 Convertible preferred stock          516,335    518,012     516,902     518,232
                                   ---------- ----------  ----------  ----------
Dilutive potential common shares    2,243,190  3,035,200   2,322,833   3,068,286
                                   ---------- ----------  ----------  ----------
  Denominator for net income per 
    share - assuming dilution - 
    adjusted weighted-average    
    shares and assumed conversions 47,379,789 46,464,339  47,265,937  46,365,437
                                   ========== ==========  ==========  ==========
Net income per share - basic       $    0.65  $    0.68   $    1.35   $    1.49
                                   ========== ==========  ==========  ==========
Net income per share - assuming
 dilution                          $    0.63  $    0.65   $    1.29   $    1.40
                                   ========== ==========  ==========  ==========

</TABLE>

5.   Recent Accounting Change

      As of  January  1, 1998,  the  Company  adopted  Statement  of  Financial
   Accounting  Standards  No.  130, "Reporting   Comprehensive  Income"  ("SFAS
   130").  SFAS 130  establishes  new rules for the  reporting  and  display of
   comprehensive  income and its components;  however, the adoption of SFAS 130
   had no impact on the  Company's  net income or  stockholders'  equity.  SFAS
   130 requires unrealized gains or losses on the Company's  available-for-sale
   securities,   which  prior  to  adoption   were   reported   separately   in
   stockholders'  equity,  to be included in  accumulated  other  comprehensive
   income.  Prior year financial  statements have been  reclassified to conform
   to the requirements of SFAS 130.

      Comprehensive income was comprised of the following (in millions):
<TABLE>
<CAPTION>
                                           Three Months Ended  Six Months Ended
                                                 June 30           June 30
                                           ------------------  -----------------
                                             1998       1997     1998      1997
                                           --------  --------  -------- --------
  <S>                                        <C>       <C>       <C>      <C>
  Net income                                 $29.7     $30.0     $61.2    $65.0
  Other comprehensive income, net of tax: 
    Change  in  net  unrealized 
      investment gains                        (2.4)     45.9       2.5      2.2
                                           --------  --------  -------- --------
  Comprehensive income                       $27.3     $75.9     $63.7    $67.2
                                           ========  ========  ======== ========
</TABLE>

6.  Recent Accounting Pronouncement

      In June  1998,  Statement  of  Financial  Accounting  Standards  No.  133
   "Accounting  for  Derivative   Instruments  and  Hedging   Activities,"  was
   issued.   This   statement   standardizes   the  accounting  for  derivative
   instruments and the derivative  portion of certain other contracts that have
   similar   characteristics  by  requiring  that  an  entity  recognize  those
   instruments  at fair value.  This  statement  also  requires a new method of
   accounting  for  hedging  transactions,  prescribes  the type of  items  and
   transactions that may be hedged,  and specifies  detailed criteria to be met
   to qualify for hedge  accounting.  This  statement is  effective  for fiscal
   years  beginning  after June 15, 1999.  Earlier  adoption is permitted as of
   July 1, 1998.  The Company is evaluating the impact of this statement.

7.  Acquisition
 
      On June 11, 1998, the Company  announced an agreement to acquire  certain
   assets and  assume  certain  liabilities  of The Crabbe  Huson  Group,  Inc.
   ("Crabbe  Huson"),  a  registered  investment  advisor.  This  agreement  is
   expected to close  during the fourth  quarter of 1998.  Total  assets  under
   management  of Crabbe  Huson as of March 31,  1998 were  approximately  $5.3
   billion.  The purchase  price for this  transaction is $96.0 million in cash
   and common  stock.  In addition,  the Company has agreed to make  contingent
   payments  of up  to  $51.5  million  in  cash  and  common  stock  upon  the
   attainment of certain objectives.  This transaction will be accounted for as
   a purchase.
 
<PAGE>
   MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION

Results of Operations

   Net Income was $29.7  million or $0.63 per share for the quarter  ended June
30,  1998  compared to $30.0  million or $0.65 per share for the quarter  ended
June 30, 1997.  For the first six months of 1998,  net income was $61.2 million
or $1.29 per share  compared to $65.0  million or $1.40 per share for the first
six  months  of 1997.  These  decreases  resulted  largely  from  net  realized
investment  losses in 1998  compared to net realized  investment  gains in 1997
and higher  operating  expenses.  Partially  offsetting these items were higher
fee income and lower interest expense, net and income tax expense.

   Pretax  Income  was  $43.5  million  for the  quarter  ended  June 30,  1998
compared to $43.9  million for the quarter  ended June 30, 1997.  For the first
six months of 1998,  pretax income was $88.9 million  compared to $95.7 million
for the first six months of 1997.  These  decreases  resulted  largely from net
realized  investment  losses in 1998 compared to net realized  investment gains
in 1997 and higher operating  expenses.  Partially  offsetting these items were
higher fee income and lower interest expense, net.

   Investment  Spread is the amount by which  investment  income  earned on the
Company's  investments  exceeds  interest  credited on  policyholder  balances.
Investment  spread  was $62.1  million  for the  quarter  ended  June 30,  1998
compared to $65.0  million for the quarter  ended June 30, 1997.  The amount by
which the average yield on investments  exceeds the average  interest  credited
rate  on  policyholder  balances  is  the  investment  spread  percentage.  The
investment  spread  percentage  for the  quarter  ended June 30, 1998 was 1.76%
compared  to 1.98%  for the  quarter  ended  June 30,  1997.  For the first six
months  of 1998,  investment  spread  was  $127.4  million  compared  to $125.7
million  for the first six months of 1997.  The  investment  spread  percentage
was  1.82% for the first  six  months of 1998  compared  to 1.95% for the first
six months of 1997.

   Investment  income was $202.3  million for the  quarter  ended June 30, 1998
compared to $212.2  million for the quarter  ended June 30, 1997.  The decrease
of $9.9  million  in  1998  compared  to 1997  primarily  relates  to an  $18.5
million decrease  resulting from a lower average  investment  yield,  partially
offset by an $8.6  million  increase as a result of the higher level of average
invested  assets.  The 1998  investment  income was net of $17.9 million of S&P
500  Index  call  option   amortization   expense   related  to  the  Company's
equity-indexed  annuities  compared  to  $9.8  million  in  1997.  The  average
investment  yield was 6.37% for the  quarter  ended June 30,  1998  compared to
6.97% for the quarter  ended June 30,  1997.  For the first six months of 1998,
investment  income was $409.7 million  compared to $420.2 million for the first
six months of 1997.  The  decrease  of $10.5  million in 1998  compared to 1997
primarily  relates to a $28.8 million  decrease  resulting from a lower average
investment  yield,  partially  offset by an $18.3 million  increase as a result
of the higher level of average  invested  assets.  The 1998  investment  income
was net of $35.2  million of S&P 500 Index  call  option  amortization  expense
related to the  Company's  equity-indexed  annuities  compared to $17.6 million
in 1997.  The  average  investment  yield was 6.48% for the first six months of
1998 compared to 6.96% for the first six months of 1997.

   Interest  credited to  policyholders  totaled $140.2 million for the quarter
ended June 30, 1998  compared to $147.2  million for the quarter ended June 30,
1997. The decrease of $7.0 million in 1998 compared to 1997  primarily  relates
to an $11.1 million decrease  resulting from a lower average interest  credited
rate,  partially  offset  by a $4.1  million  increase  as a result of a higher
level of average policyholder  balances.  Policyholder  balances averaged $12.2
billion  (including  $10.4  billion  of  fixed  products,  consisting  of fixed
annuities  and the closed block of single  premium  whole life  insurance,  and
$1.8 billion of  equity-indexed  annuities) for the quarter ended June 30, 1998
compared to $11.8 billion  (including  $10.7 billion of fixed products and $1.1
billion of  equity-indexed  annuities) for the quarter ended June 30, 1997. The
average  interest  credited  rate was 4.61% (5.31% on fixed  products and 0.85%
on  equity-indexed  annuities)  for the quarter ended June 30, 1998 compared to
4.99% (5.42% on fixed products and 0.85% on  equity-indexed  annuities) for the
quarter  ended  June  30,  1997.  Keyport's   equity-indexed  annuities  credit
interest  to the  policyholder  at a  "participation  rate"  equal to a portion
(ranging for existing  policies  from 55% 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 if held to term,  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  six  months  of  1998,  interest  credited  to
policyholders  totaled $282.3 million  compared to $294.5 million for the first
six months of 1997.  The  decrease  of $12.2  million in 1998  compared to 1997
primarily  relates to a $21.0 million  decrease  resulting from a lower average
interest  credited  rate,  partially  offset by an $8.8  million  increase as a
result  of a  higher  level  of  average  policyholder  balances.  Policyholder
balances  averaged $12.1 billion  (including  $10.4 billion of fixed  products,
consisting  of fixed  annuities  and the closed block of single  premium  whole
life  insurance,  and $1.7 billion of  equity-indexed  annuities) for the first
six  months of 1998  compared  to $11.7  billion  (including  $10.8  billion of
fixed  products and $0.9  billion of  equity-indexed  annuities)  for the first
six months of 1997.  The average  interest  credited  rate was 4.66%  (5.31% on
fixed  products  and  0.85% on  equity-indexed  annuities)  for the  first  six
months  of 1998  compared  to 5.01%  (5.39%  on  fixed  products  and  0.85% on
equity-indexed annuities) for the first six months of 1997.

   Average  investments  in the Company's  general  account  (computed  without
giving  effect to SFAS  115),  including  a portion of the  Company's  cash and
cash  equivalents,  were $12.7  billion  for the  quarter  ended June 30,  1998
compared to $12.2  billion for the quarter  ended June 30, 1997.  For the first
six months of 1998,  such average  investments  were $12.7 billion  compared to
$12.1  billion  for the first six  months of 1997.  These  increases  primarily
relate to net insurance cash flows for the twelve months ended June 30, 1998.

   Net Realized  Investment  Gains (Losses) were $(2.4) million for the quarter
ended June 30,  1998  compared to $3.1  million for the quarter  ended June 30,
1997.  For the  first  six  months  of  1998,  net  realized  investment  gains
(losses)  were  $(0.2)  million  compared  to $16.0  million  for the first six
months  of 1997.  Sales of fixed  maturity  investments  generally  are made to
maximize  total  return.  The net realized  investment  losses in 1998 included
losses on the  sales of fixed  maturity  investments  of $1.7  million  largely
offset by gains on sales of general corporate  securities of $1.5 million.  The
net  realized  investment  gains in 1997  included  gains on the sales of fixed
maturity  investments  of $8.1  million and gains on  redemption  of seed money
investments in separate  account mutual funds  sponsored by the Company of $7.4
million.  In  addition,  there were $0.5  million in gains  related to sales of
general corporate securities.

   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 $59.3 million for
the  quarter  ended June 30,  1998  compared  to $52.6  million for the quarter
ended  June 30,  1997.  For the first six months of 1998,  investment  advisory
and  administrative  fees were $116.1  million  compared to $105.7  million for
the first six months of 1997.  These  increases  during  1998  compared to 1997
primarily reflect a higher level of average fee-based assets under management.

   Average  fee-based  assets  under  management  were  $40.7  billion  for the
quarter  ended June  30, 1998  compared to $36.1  billion for the quarter ended
June 30,  1997.  For the first six  months of 1998,  average  fee-based  assets
were  $40.0  billion  compared  to $36.1  billion  for the first six  months of
1997.  These  increases  during 1998 compared to 1997 resulted from both market
appreciation  and  net  sales  for the  twelve  months  ended  June  30,  1998.
Investment  advisory and  administrative  fees were 0.58% of average  fee-based
assets  under  management  for the quarters  ended June 30, 1998 and 1997.  For
the first six months of 1998 and 1997, such  percentages  were 0.58% and 0.59%,
respectively.

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

<TABLE>
Fee-Based Assets Under Management
<CAPTION>
                                                       As of June 30
                                                   --------------------
                                                       1998       1997
                                                   ---------  ---------
<S>                                                   <C>        <C>    
Mutual Funds:
  Intermediary-distributed                            $16.6      $16.3
  Direct-marketed                                       7.5        6.9
  Closed-end                                            2.4        2.1
  Variable annuity                                      1.4        1.2
                                                   ---------  ---------
                                                       27.9       26.5
Wealth Management                                       7.4        6.0
Institutional                                           5.7        5.0
                                                   ---------  ---------
  Total Fee-Based Assets Under Management*            $41.0      $37.5
                                                   =========  =========
______________
* As  of June 30, 1998 and 1997, Keyport's insurance assets of $13.1 billion and
  $12.5  billion,  respectively,  bring  total  assets under management to $54.1
  billion and $50.0 billion, respectively.
</TABLE>
<PAGE>
<TABLE>
Changes in Fee-Based Assets Under Management
<CAPTION>
                                          Three Months Ended   Six Months Ended
                                                June 30            June 30
                                          ------------------   -----------------
                                             1998      1997       1998     1997
                                          --------  --------   -------- --------
  <S>                                       <C>       <C>        <C>       <C>
  Fee-based assets under management      
   - beginning                              $40.8     $34.8      $38.7    $35.9
  Sales and reinvestments                     2.2       1.4        4.1      3.2
  Redemptions and withdrawals                (1.4)     (1.4)      (3.1)    (3.4)
  Market appreciation (depreciation)         (0.6)      2.7        1.3      1.8
                                          --------  --------   -------- --------
  Fee-based assets under management
   - ending                                 $41.0     $37.5      $41.0    $37.5
                                          ========  ========   ======== ========
</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  generally  earned  on the  total of such
average  mutual fund assets.  These fees totaled  $13.2 million for the quarter
ended June 30, 1998  compared to $11.9  million for the quarter  ended June 30,
1997.  For the first six months of 1998,  distribution  and  service  fees were
$25.8  million  compared  to $24.0  million  for the first six  months of 1997.
These  increases  during 1998 compared to 1997 were primarily  attributable  to
the  higher  asset  levels of  mutual  funds  with  contingent  deferred  sales
charges.  As a percentage of weighted average assets,  distribution and service
fees were  approximately  0.71% and 0.70% for the quarters  ended June 30, 1998
and  1997,  respectively.  For the first  six  months  of 1998 and  1997,  such
percentages were 0.72% and 0.70%, 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 $12.5  million on average  assets of $25.5  billion  for the  quarter
ended June 30, 1998 and $11.5  million on average  assets of $23.5  billion for
the quarter  ended June 30,  1997.  For the first six months of 1998,  transfer
agency  fees were $24.7  million on average  assets of $25.2  billion and $23.3
million on average  assets of $23.7  billion  for the first six months of 1997.
As  a  percentage  of  total  average  mutual  fund  assets  under  management,
transfer agency fees were  approximately  0.20% for the quarters ended June 30,
1998 and  1997.  For the first six  months of 1998 and 1997,  such  percentages
were also 0.20%.

   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
commissions  that are paid to the Company's  client banks and  brokers).  Total
surrender  charges and net commissions  were $9.6 million for the quarter ended
June 30, 1998  compared to $9.0  million for the quarter  ended June 30,  1997.
For the first six months of 1998,  total surrender  charges and net commissions
were $18.0 million compared to $17.5 million for the first six months of 1997.

   Surrender charges on fixed,  equity-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  generally  during the first six years.  Such charges totaled
$6.5  million  for the  quarter  ended June 30,  1998 and $5.3  million for the
quarter  ended  June 30,  1997.  For the  first six  months of 1998,  surrender
charges were $11.8  million  compared to $10.1 million for the first six months
of 1997.  Total annuity  withdrawals  represented  14.7% and 10.9% of the total
average annuity  policyholder  and separate  account  balances for the quarters
ended June 30,  1998 and 1997,  respectively.  For the first six months of 1998
and 1997, the  corresponding  percentages  were 14.4% and 11.0%,  respectively.
Net  commissions  were $3.1  million  for the  quarter  ended June 30, 1998 and
$3.7 million for the quarter  ended June 30, 1997.  For the first six months of
1998,  net  commissions  were $6.2  million  compared  to $7.4  million for the
first six months of 1997.

   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 in separate  accounts  supporting
the  contracts  were $5.4 million for the quarter  ended June 30, 1998 compared
to $4.1  million  for the  quarter  ended  June 30,  1997.  For the  first  six
months of 1998,  separate  account  fees were $10.1  million  compared  to $8.0
million  for the first  six  months of 1997.  Such fees  represented  1.51% and
1.50% of average  variable  annuity and variable life separate account balances
for the  quarters  ended June 30,  1998 and 1997,  respectively.  For the first
six  months  of  1998  and  1997,  such   percentages  were  1.47%  and  1.52%,
respectively.

   Operating Expenses primarily represent  compensation,  marketing,  and other
general and  administrative  expenses.  These  expenses  were $80.1 million for
the  quarter  ended June 30,  1998  compared  to $75.6  million for the quarter
ended  June 30,  1997.  For the first six  months of 1998,  operating  expenses
were  $160.0  million  compared  to $151.4  million for the first six months of
1997.  These  increases  during  1998  compared to 1997 were  primarily  due to
increases  in  compensation   and  marketing   expenses.   Operating   expenses
expressed  as a percent of average  total assets  under  management  were 0.60%
for the  quarter  ended June 30, 1998  compared to 0.63% for the quarter  ended
June 30,  1997.  For the first six  months of 1998 and 1997,  such  percentages
were 0.61% and 0.63%, respectively.

   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 June 30, 1998  compared to $19.4 million for the
quarter  ended June 30,  1997.  For the first six months of 1998,  amortization
of  deferred  policy  acquisition  costs was $37.3  million  compared  to $35.7
million for the first six months of 1997.  The  increase  during 1998  compared
to 1997 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  29.5% and 29.8% of investment  spread for the quarters  ended June
30,  1998 and 1997,  respectively.  For the first six  months of 1998 and 1997,
the corresponding percentages were 29.3% and 28.4%, respectively.

   Amortization  of Deferred  Distribution  Costs relates to the deferred sales
commissions  acquired  in  connection  with the  Colonial  acquisition  and the
distribution  of  mutual  fund  shares  sold  with  contingent  deferred  sales
charges.  Amortization  was $9.1  million for the  quarter  ended June 30, 1998
compared to $8.7  million for the quarter  ended June 30,  1997.  For the first
six  months of 1998,  amortization  of  deferred  distribution  costs was $18.1
million  compared  to $16.9  million  for the first six  months of 1997.  These
increases  during 1998  compared  to 1997 were  primarily  attributable  to the
continuing sales of such fund shares during 1998 and 1997.

   Amortization   of   Value   of   Insurance   in   Force   relates   to   the
actuarially-determined  present  value of projected  future gross  profits from
policies  in  force  at the  date of  acquisition.  Amortization  totaled  $1.2
million for the quarter  ended June 30, 1998  compared to $1.9  million for the
quarter  ended June 30,  1997.  For the first six months of 1998,  amortization
of value of insurance  in force was $2.7  million  compared to $5.1 million for
the first six months of 1997.  These  decreases  during  1998  compared to 1997
were  primarily  due to reduced  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 $3.6  million for the quarter  ended June
30, 1998  compared to $3.3  million for the quarter  ended June 30,  1997.  For
the first six  months  of 1998,  amortization  of  intangible  assets  was $7.1
million compared to $6.5 million for the first six months of 1997.

   Interest  Expense,  Net was $3.9 million for the quarter ended June 30, 1998
compared to $4.4  million for the quarter  ended June 30,  1997.  For the first
six months of 1998,  interest  expense,  net was $7.8 million  compared to $8.9
million  for the  first  six  months  of  1997.  These  decreases  during  1998
compared  to 1997 were due to lower  interest  expense  related  to  Colonial's
credit  facility  which is  utilized  to  finance  the sale of shares of mutual
funds which have  contingent  deferred  sales  charges  and to higher  interest
income which is netted against interest expense.

   Income  Tax  Expense  was $13.8  million  or 31.7% of pretax  income for the
quarter  ended June 30,  1998  compared  to $13.9  million,  or 31.7% of pretax
income for the quarter  ended June 30, 1997.  For the first six months of 1998,
income tax  expense  was $27.7  million or 31.2% of pretax  income  compared to
$30.7 million, or 32.1% of pretax income for the first six months of 1997.

Financial Condition

   Stockholders'  Equity as of June 30,  1998 was  $1.27  billion  compared  to
$1.20  billion as of December 31, 1997.  Net income for the first six months of
1998 was $61.2  million  and cash  dividends  on the  Company's  preferred  and
common stock  totaled $2.9  million.  Common  stock  totaling  $4.6 million was
issued in  connection  with the exercise of stock  options.  In  addition,  the
exercise of certain stock options  resulted in a federal  income tax benefit to
the Company of $2.2 million which was credited to additional  paid-in  capital.
An  increase  in  accumulated  other   comprehensive   income,  net  unrealized
investment  gains, net of adjustments to deferred policy  acquisition costs and
value of insurance in force, during the period increased  stockholders'  equity
by $2.5 million.

   Book Value Per Share  amounted to $27.83 at June 30, 1998 compared to $26.82
at December 31, 1997.  Excluding  net  unrealized  gains on  investments,  book
value per share  amounted  to $25.95 at June 30,  1998 and  $24.97 at  December
31,  1997.  As of  June  30,  1998,  there  were  45.5  million  common  shares
outstanding compared to 44.7 million shares as of December 31, 1997.

   The  Company  manages  the  substantial  majority  of  its  invested  assets
internally.  The Company's general  investment policy is to hold fixed maturity
assets for long-term investment and,  accordingly,  the Company does not have a
trading   portfolio.   To  provide  for  maximum   portfolio   flexibility  and
appropriate tax planning,  the Company  classifies its entire fixed  maturities
investments as "available for sale" and  accordingly  carries such  investments
at fair value.  The Company's  total  investments at June 30, 1998 and December
31, 1997 reflected net unrealized  gains of $268.3 million and $280.2  million,
respectively, relating to its fixed maturity and equity portfolios.

   Approximately  $11.1 billion,  or 80.0%,  of the Company's  general  account
investments  at June 30,  1998,  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 June 30, 1998, the carrying value of investments in below  investment  grade
securities  totaled $1.1 billion,  or 8.0% of general  account  investments  of
$14.0 billion.  Below  investment  grade  securities  generally  provide higher
yields and involve  greater  risks than  investment  grade  securities  because
their  issuers  typically  are more highly  leveraged  and more  vulnerable  to
adverse  economic  conditions than investment grade issuers.  In addition,  the
trading  market for these  securities  may be more limited than for  investment
grade securities.

Management of the Company's Investments

   Asset-liability  duration  management is utilized by the Company to minimize
the risks of interest  rate  fluctuations  and  policyholder  withdrawals.  The
Company  believes  that its  fixed  and  equity-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  to  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 to make the cost
of its  policyholder  balances  more  predictable.  Approximately  82.1% of the
Company's  fixed  annuity  policyholder  balances  were  subject  to  surrender
charges at June 30, 1998.

   As part of its asset-liability  management discipline,  the Company conducts
detailed  computer  simulations  that  model  its  fixed-maturity   assets  and
liabilities under commonly used stress-test  interest rate scenarios.  Based on
the results of these computer  simulations,  the investment  portfolio has been
constructed  with  a  view  toward  maintaining  a  desired  investment  spread
between  the  yield  on  portfolio   assets  and  the   interest   credited  on
policyholder  balances  under  a  variety  of  possible  future  interest  rate
scenarios.  At June 30, 1998,  the effective  duration of the  Company's  fixed
maturities  investments  (including  certain  cash  and cash  equivalents)  was
approximately  3.0.  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  ("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   credited  to   policyholders.   The  Company  had  47
outstanding  swap agreements  with an aggregate  notional  principal  amount of
$2.4 billion and 45  outstanding  swap  agreements  with an aggregate  notional
principal  amount of $2.6  billion as of June 30, 1998 and  December  31, 1997,
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 $250.0  million as of June 30, 1998 and December
31, 1997.

   With respect to the  Company's  equity-indexed  annuities,  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
$473.1  million and $323.3  million as of June 30, 1998 and  December 31, 1997,
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 and cap  agreements  have
interest  rate risk and call options  have stock  market  risk.  These swap and
cap  agreements  hedge  fixed-rate  assets  and the  Company  expects  that any
interest  rate  movements  that  adversely  affect the market value of swap and
cap  agreements  would be offset by changes in the market  values of such fixed
rate  assets.  However,  there can be no  assurance  that these  hedges will be
effective in offsetting  the potential  adverse  effects of changes in interest
rates.  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  swap  and cap  agreements
increase  less than (or  decrease  more than) the change in the market value of
its fixed rate  assets  and/or 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.

   In  June  1998,   Statement  of  Financial   Accounting  Standards  No.  133
"Accounting  for Derivative  Instruments and Hedging  Activities,"  was issued.
This statement  standardizes the accounting for derivative  instruments and the
derivative   portion   of   certain   other   contracts   that   have   similar
characteristics  by requiring  that an entity  recognize  those  instruments at
fair  value.  This  statement  also  requires  a new method of  accounting  for
hedging  transactions,  prescribes the type of items and transactions  that may
be hedged,  and  specifies  detailed  criteria  to be met to qualify  for hedge
accounting.  This  statement is  effective  for fiscal  years  beginning  after
June  15,  1999.  Earlier  adoption  is  permitted  as of  July  1,  1998.  The
Company is evaluating the impact of this statement.

   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  declines in value that 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.

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 by 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 ("Liberty Mutual").

   Current  Rhode  Island  insurance  law  applicable  to Keyport  permits  the
payment of dividends or  distributions,  which,  together  with  dividends  and
distributions  paid during the  preceding  12 months,  do not exceed the lesser
of (i) 10% of Keyport's  statutory  surplus as of the preceding  December 31 or
(ii)  Keyport's  statutory net gain from  operations  for the preceding  fiscal
year.   Any   proposed   dividend  in  excess  of  this  amount  is  called  an
"extraordinary  dividend"  and may  not be paid  until  it is  approved  by the
Commissioner  of Insurance of the State of Rhode  Island.  As of June 30, 1998,
the amount of  dividends  that  Keyport  could pay without  such  approval  was
$70.3million.   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  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 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,  these 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 the sales  and  maturities  of fixed  investments.
Annuity  premiums,   maturing   investments  and  net  investment  income  have
historically  been  sufficient to meet  Keyport's  cash  requirements.  Keyport
monitors  cash  and  cash  equivalents  in an  effort  to  maintain  sufficient
liquidity  and has  strategies  in place to maintain  sufficient  liquidity  in
changing  interest  rate  environments.  Consistent  with  the  nature  of  its
obligations,  Keyport has invested a substantial  amount of its general account
assets in readily  marketable  securities.  As of June 30, 1998, $10.5 billion,
or 75.0% 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 and the
sale of short-term or floating-rate  instruments,  thereby  precluding the sale
of fixed maturity investments in a potentially unfavorable market.

Year 2000

   Many companies and  organizations  have computer  programs that use only two
digits to  identify a year in the date  field.  These  programs  were  designed
and  developed  without  considering  the impact of the upcoming  change in the
century.   If  not   corrected,   this   could   cause  a  system   failure  or
miscalculations  causing  disruptions  of  operations,  including,  among other
things, a temporary inability to process transactions.

   In addressing the Year 2000 issue, the Company has  substantially  completed
an  inventory of its  computer  programs and assessed its Year 2000  readiness.
The  Company's  computer  programs  include  internally   developed   programs,
third-party  purchased  programs and  third-party  custom  developed  programs.
For programs  which were  identified as not being Year 2000 ready,  the Company
is in the process of  implementing a remedial plan which includes  repairing or
replacing  the programs  and  appropriate  testing for Year 2000.  In addition,
the Company has  initiated  communication  with third  parties to determine the
extent to which the Company's  interface  systems are vulnerable to those third
parties' failure to remediate their own Year 2000 issues.

   If such  modifications  and  conversions  are not  made,  or are not  timely
completed,  or  if  the  systems  of  the  companies  on  which  the  Company's
interface  system relies are not timely  converted,  the Year 2000 issues could
have  a  material  impact  on  the  operations  of the  Company.  However,  the
Company believes that with  modifications to existing  software and conversions
to new  software,  the Year 2000  issue will not pose  significant  operational
problems for its computer systems.

   In the opinion of management,  the cost of addressing the Year 2000 issue is
not  expected  to have a material  adverse  effect on the  Company's  financial
condition or its results of operation.

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.

<PAGE>

 Item 6.  Exhibits and Reports on Form 8-K

(a)    Exhibits

   12 Statement re Computation of Ratios
   27 Financial Data Schedule

(b)    Reports on Form 8-K

   There were no reports on Form 8-K filed during the quarter ended June 30,
   1998.


<PAGE>
                                  SIGNATURES


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


                               LIBERTY FINANCIAL COMPANIES, INC.

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








Date:   August 13, 1998

<PAGE>

                                 Exhibit Index


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

   12         Statement re Computation of Ratios               
   27         Financial Data Schedule