SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


                                   FORM 10-Q

[X]  QUARTERLY   REPORT  PURSUANT  TO  SECTION  13  OR 15(d) OF THE  SECURITIES
EXCHANGE ACT OF 1934
                  For the quarterly period ended   September 30, 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
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(State or other jurisdiction of           (I.R.S. Employer Identification No.)
incorporation or organization)              


600 Atlantic Avenue, Boston, Massachusetts                         02210-2214
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 (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  46,150,643 shares of the registrant's Common Stock, $.01 par
value,  and 324,759 shares of the registrant's Series  A  Convertible Preferred 
Stock,  $.01  par  value, outstanding as of October 15, 1998.

Exhibit Index - Page 21                                           Page 1 of 135
<PAGE>

                       LIBERTY FINANCIAL COMPANIES, INC.
       QUARTERLY REPORT ON FORM 10-Q FOR PERIOD ENDED SEPTEMBER 30, 1998


                               TABLE OF CONTENTS


Part I.    FINANCIAL INFORMATION                                      Page


Item 1.    Financial Statements

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

           Consolidated Income Statements for the Three Months        
            and Nine Months Ended September 30, 1998 and 1997

           Consolidated Statements of Cash Flows for the       
            Nine Months Ended September 30, 1998 and 1997

           Consolidated Statement of Stockholders' Equity      
            for the Nine Months Ended September 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>
                                              September 30         December 31
                                                  1998                1997
                                              ------------        -------------
                                               Unaudited
                                    ASSETS
<S>                                             <C>                 <C>
Assets:
   Investments                                  $12,580.8           $12,343.5
   Cash and cash equivalents                      1,387.6             1,290.1
   Accrued investment income                        162.3               165.0
   Deferred policy acquisition costs                281.5               232.0
   Value of insurance in force                       55.3                53.3
   Deferred distribution costs                      124.3               108.1
   Intangible assets                                297.7               199.0
   Other assets                                     272.3               131.4
   Separate account assets                        1,433.5             1,329.2
                                               -----------         -----------
                                                $16,595.3           $15,851.6
                                               ===========         ===========


                     LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
   Policyholder balances                        $12,342.5           $12,086.1
   Notes payable to affiliates                      229.0               229.0
   Revolving credit facilities                      123.5                26.5
   Payable for investments purchased                
     and loaned                                     931.4               722.1
   Other liabilities                                280.2               310.4
   Separate account liabilities                   1,395.1             1,264.0
                                               -----------        ------------
      Total liabilities                          15,301.7            14,638.1
                                               -----------        ------------

Series A redeemable convertible preferred
 stock, par value $.01; authorized, issued
 and outstanding 324,759 shares in 1998 and        
 327,006 shares in 1997                              15.1                14.6
                                               -----------        ------------

Stockholders' Equity:
 Common stock, par value $.01; authorized
  100,000,000 shares, issued 45,987,826 
  shares in 1998 and 44,706,398 shares in 1997        0.5                 0.4
Additional paid-in capital                          896.5               866.5
Accumulated other comprehensive income               54.7                83.0
Retained earnings                                   331.3               251.5
Cost of common stock held in treasury 
 (9,465 shares at December 31, 1997)                  0.0                (0.3)
Unearned compensation                                (4.5)               (2.2)
                                               -----------        ------------
    Total stockholders' equity                    1,278.5             1,198.9
                                               -----------        ------------
                                                $16,595.3           $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     Nine Months Ended
                                         September 30          September 30
                                      -------------------   -------------------
                                         1998       1997      1998        1997
                                      --------   --------   --------   --------
<S>                                    <C>        <C>        <C>        <C>
Investment income                      $202.7     $212.0     $612.4     $632.2
Interest credited to policyholders     (143.3)    (150.9)    (425.6)    (445.4)
                                      --------   --------   --------   --------
Investment spread                        59.4       61.1      186.8      186.8
                                      --------   --------   --------   --------
Net realized investment gains             4.2        6.1        4.0       22.1
                                      --------   --------   --------   --------
Fee income:
 Investment advisory and administrative  
   fees                                  58.4       56.1      174.5      161.8
 Distribution and service fees           13.2       12.6       39.0       36.6
 Transfer agency fees                    11.9       12.3       36.6       35.6
 Surrender charges and net commissions    8.2        9.5       26.2       27.0
 Separate account fees                    5.4        4.7       15.5       12.7
                                      --------   --------   --------   --------
Total fee income                         97.1       95.2      291.8      273.7
                                      --------   --------   --------   --------
Expenses:
 Operating expenses                     (78.5)     (77.8)    (238.5)    (229.2)
 Amortization of deferred policy   
  acquisition costs                     (15.5)     (18.3)     (52.8)     (54.0)
 Amortization of deferred distribution   
  costs                                  (9.8)      (8.5)     (27.9)     (25.4)
 Amortization of value of insurance in  
  force                                  (1.2)      (2.2)      (3.9)      (7.3)
 Amortization of intangible assets       (3.6)      (3.7)     (10.7)     (10.2)
 Interest expense, net                   (2.7)      (4.1)     (10.5)     (13.0)
                                      --------   --------   --------   --------
Total expenses                         (111.3)    (114.6)    (344.3)    (339.1)
                                      --------   --------   --------   --------

Pretax income                            49.4       47.8      138.3      143.5
Income tax expense                      (15.9)     (14.9)     (43.6)     (45.6)
                                      --------   --------   --------   --------
Net income                              $33.5      $32.9      $94.7      $97.9
                                      ========   ========   ========   ========
Net income per share - basic             $0.73      $0.74      $2.08      $2.23
                                      ========   ========   ========   ========
Net income per share - assuming
  dilution                               $0.71      $0.70      $2.00      $2.10
                                      ========   ========   ========   ========

         See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
                       LIBERTY FINANCIAL COMPANIES, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in millions)
                                   Unaudited
<CAPTION>
                                                           Nine Months Ended
                                                             September 30
                                                          --------------------
                                                              1998       1997
                                                          ---------   --------

<S>                                                          <C>        <C>
Cash flows from operating activities:
Net income                                                   $94.7      $97.9
Adjustments to reconcile net income to net cash
provided by operating activities:
   Depreciation and amortization                              54.3       54.3
   Interest credited to policyholders                        425.6      445.4
   Net realized investment gains                              (4.0)     (22.1)
   Net amortization on investments                           101.9       22.0
   Change in deferred policy acquisition costs               (25.8)     (10.3)
   Net change in other assets and liabilities                (26.1)       0.3
                                                          ---------   --------
      Net cash provided by operating activities              620.6      587.5
                                                          ---------   --------

Cash flows from investing activities:
   Investments purchased available for sale               (5,207.4)  (3,006.4)
   Investments sold available for sale                     4,060.6    1,414.2
   Investments matured available for sale                    938.2    1,230.5
   Change in policy loans, net                               (24.8)     (15.0)
   Change in mortgage loans, net                               4.3        4.6
   Acquisitions, net of cash acquired                        (96.4)       0.0
   Other                                                      11.3      (15.7)
                                                          ---------   --------
      Net cash used in investing activities                 (314.2)    (387.8)
                                                          ---------   --------

Cash flows from financing activities:
   Withdrawals from policyholder accounts                 (1,371.6)    (948.9)
   Deposits to policyholder accounts                       1,089.3      738.4
   Securities lending                                        (25.0)     415.9
   Change in revolving credit facilities                      97.0      (20.0)
   Exercise of stock options                                   5.8        6.3
   Dividends paid                                             (4.4)      (3.5)
                                                          ---------   --------
      Net cash (used in) provided by financing       
       activities                                           (208.9)     188.2
                                                          ---------   --------
   Increase in cash and cash equivalents                      97.5      387.9
   Cash and cash equivalents at beginning of period        1,290.1      875.8
                                                          ---------  ---------
   Cash and cash equivalents at end of period             $1,387.6   $1,263.7
                                                          =========  =========

         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    11.1                        0.3      (2.3)         9.2
Common stock
 issued for             
 acquisitions            9.0                                               9.0
Accretion to
 face value of                     
 preferred stock                            (0.6)                         (0.6)
Common stock
 dividends               9.9               (13.6)                         (3.7)
Preferred
 stock                          
 dividends                                  (0.7)                         (0.7)
Net income                                  94.7                          94.7
Other
 comprehensive                                                 
 income,
 net of tax                       (28.3)                                 (28.3)
              ------- ------- ---------- -------- ------ --------- ------------
Balance,
 September    
 30, 1998       $0.5  $896.5      $54.7   $331.3   $0.0    $ (4.5)    $1,278.5
              ======= ======= ========== ======== ====== ========= ============

         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  nine  months  ended  September  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  to the
   current period presentation.

2.    Industry Segment Information

      The  Company  is an  asset  accumulation  and  management  company  which
   operates   in   two   industry   segments:   retirement-oriented   insurance
   (principally   annuities)  and  asset  management.   The  annuity  insurance
   business  is  conducted  at  Keyport  Life  Insurance  Company  ("Keyport").
   Keyport  generates  investment  spread income from the investment  portfolio
   which supports  policyholder  balances associated with its fixed and indexed
   annuity  business  and  its  closed  block  of  single  premium  whole  life
   insurance.  The annuity insurance  business also derives fee income from the
   administration of fixed,  indexed and variable annuity contracts.  The asset
   management  business is conducted  principally at The Colonial  Group,  Inc.
   ("Colonial"),  an  investment  advisor,  distributor  and transfer  agent to
   mutual funds, Stein Roe & Farnham  Incorporated ("Stein Roe"), a diversified
   investment  advisor,  Newport  Pacific  Management,   Inc.  ("Newport"),  an
   investment advisor to mutual funds and institutional  accounts  specializing
   in Asian equity markets,  The Crabbe Huson Group, Inc. ("Crabbe Huson"),  an
   investment  advisor to mutual  funds and  institutional  accounts,  Progress
   Investment  Management  Company,  an  investment  advisor  to  institutional
   accounts, 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  66% of  the  Company's  income  before  interest  expense,
   amortization of intangible  assets,  net realized gains and income taxes for
   the nine months ended  September 30, 1998 was  attributable to the Company's
   annuity  insurance  business,  with the  remaining 34%  attributable  to the
   Company's asset management  activities.  This compares to approximately  63%
   and 37%, respectively, for the nine months ended September 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>
                                     September 30    December 31
                                         1998            1997
                                     ------------    -----------
<S>                                    <C>            <C>      
Fixed maturities                       $11,447.2      $11,246.5
Equity securities                           55.5           40.8
Mortgage loans                              56.4           60.7
Policy loans                               579.5          554.7
Other invested assets                      442.2          440.8
                                     ------------    -----------
    Total                              $12,580.8      $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      Nine Months Ended
                                       September 30           September 30
                                 -----------------------  ---------------------
                                       1998        1997        1998       1997
                                 -----------  ----------  ----------  ---------
 <S>                                  <C>         <C>         <C>        <C>
 Numerator:
   Net income                         $33.5       $32.9       $94.7      $97.9
   Preferred stock dividends           (0.2)       (0.2)       (0.7)      (0.7)
                                 -----------  ----------  ----------  ---------
   Numerator for net
    income per share - basic
    - income available to common 
    stockholders                       33.3        32.7        94.0       97.2
   Effect of dilutive securities:  
    Preferred stock dividends           0.2         0.2         0.7        0.7
                                 -----------  ----------  ---------- ----------
                                        0.2         0.2         0.7        0.7
                                 -----------  ----------  ---------- ----------
   Numerator for net income per
    share - assuming dilution -
    income available to common   
    stockholders after assumed
    conversions                       $33.5       $32.9       $94.7      $97.9

Denominator:
   Denominator for
    net income per 
    share - basic - weighted -       
    average shares               45,440,311  44,093,736  45,110,661 43,606,920
   Effect of dilutive securuties:
   Employee stock options         1,339,023   2,436,131   1,651,337  2,410,223
   Convertible preferred stock      514,493     517,929     516,090    518,130
                                 -----------  ----------  ---------- ----------
Dilutive potential common shares  1,853,516   2,954,060   2,167,427  2,928,353
                                 -----------  ----------  ---------- ----------
   Denominator for net income per
    share - assuming dilution
    - adjusted weighted-average   
    shares and assumed 
    conversions                  47,293,827  47,047,796  47,278,088 46,535,273
                                 ===========  ==========  ========== ==========
Net income per share - basic          $0.73       $0.74       $2.08      $2.23
                                 ===========  ==========  ========== ==========
Net income per share - assuming 
 dilution                             $0.71       $0.70       $2.00      $2.10
                                 ===========  ==========  ========== ==========
</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    Nine Months Ended
                                          September 30        September 30
                                      -------------------  -------------------
                                          1998      1997       1998      1997
                                      ---------   -------  ---------  --------
   <S>                                   <C>       <C>        <C>       <C>  
   Net income                            $33.5     $32.9      $94.7     $97.9
   Other comprehensive income, net of tax:               
    Change  in  net   unrealized
      investment gains                   (30.8)     24.5      (28.3)     26.7
                                      ---------   --------  --------  --------
   Comprehensive income                   $2.7     $57.4      $66.4    $124.6
                                      =========   ========  ========  ========
</TABLE>
<PAGE>
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.  The
   Company is  evaluating  the impact of this  statement.  Upon  adoption,  the
   Company  will be  required  to  record a  cumulative  effect  adjustment  to
   reflect  this  accounting   change.  At  this  time,  the  Company  has  not
   completed its analysis and evaluation of the  requirements and the impact of
   this statement.

7.    Acquisitions
 
      On August 13,  1998,  the Company  entered  into an  agreement to acquire
   100% of the  capital  stock  of  Societe  Generale  Asset  Management  Corp.
   ("SGAM"),  a registered  investment  advisor with approximately $4.1 billion
   of assets under  management  as of September  30, 1998.  The purchase  price
   for this  transaction  is $205.0  million,  subject to adjustment in certain
   circumstances,  consisting of $198.0 million in cash and $7.0 million in the
   Company's  common  stock.  In addition,  the Company has agreed to pay up to
   an  additional  $11.0  million  in  deferred  payments  contingent  upon the
   attainment of certain earnings  objectives by SGAM. The  acquisition,  which
   is subject to certain  closing  conditions,  is expected to be  completed in
   early 1999 and will be accounted for as a purchase.

      On August  31,  1998,  the  Company  completed  an  agreement  to acquire
   certain  assets  and  assume  certain  liabilities  of  Progress  Investment 
   Management  Company,  a  registered   investment  advisor  to  institutional
   accounts  with  approximately  $2.1 billion in assets  under  management  as
   of  September 30, 1998. On  September 30, 1998,  the  Company  completed  an
   agreement to acquire certain assets and assume certain liabilities of Crabbe
   Huson, a registered investment advisor with approximately  $3.3  billion  in
   assets  under  management  as of that date. The combined  purchase price for
   these  transactions was approximately $104.6  million,  including  costs  of
   acquisitions,  and  consisted of $95.6 million  in  cash  and  $9.0  million
   in the  Company's  common  stock.  In addition,  the  Company  has agreed to
   pay up to an  additional  $61.5 million in cash and  common  stock over five
   years, contingent upon the attainment of certain earnings objectives.  These
   transactions  were  accounted for as purchases and resulted in the recording
   of goodwill and other  intangible assets of approximately $102.1 million.

8.    Credit Facility
 
      In  connection  with the Crabbe Huson  acquisition,  the Company  entered
   into a $100.0 million  revolving credit facility with a commercial bank (the
   "Bridge  Facility").  The  Bridge  Facility  matures  on March 30,  1999 and
   bears  interest  at a per annum rate equal to LIBOR plus  twenty-five  basis
   points.  The Company  borrowed  $90.0 million  under the Bridge  Facility to
   finance the acquisition of Crabbe Huson.

<PAGE>
   Management's Discussion and Analysis of Results of Operations and Financial
Condition

Results of Operations

   Net  Income  was $33.5  million  or $0.71 per  share for the  quarter  ended
September  30,  1998  compared  to $32.9  million  or $0.70  per  share for the
quarter  ended  September  30,  1997.  For the first nine  months of 1998,  net
income  was $94.7  million  or $2.00 per share  compared  to $97.9  million  or
$2.10 per share for the first nine months of 1997.  The  decrease  for the nine
months  resulted  largely  from  lower net  realized  investment  gains in 1998
compared to 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 $49.4  million for the quarter  ended  September 30, 1998
compared to $47.8  million for the quarter ended  September  30, 1997.  For the
first  nine  months of 1998,  pretax  income  was $138.3  million  compared  to
$143.5  million for the first nine months of 1997.  The  decrease  for the nine
months  resulted  largely  from  lower net  realized  investment  gains in 1998
compared to 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 $59.4 million for the quarter  ended  September 30, 1998
compared  to $61.1  million for the  quarter  ended  September  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 September 30, 1998 was
1.63%  compared to 1.80% for the quarter  ended  September  30,  1997.  For the
first nine months of 1998 and 1997,  investment spread was $186.8 million.  The
investment  spread  percentage  was  1.76% for the  first  nine  months of 1998
compared to 1.89% for the first nine months of 1997.

   Investment  income was $202.7  million for the quarter  ended  September 30,
1998 compared to $212.0  million for the quarter ended  September 30, 1997. The
decrease  of $9.3  million  in 1998  compared  to 1997  primarily  relates to a
$16.9  million  decrease  resulting  from a  lower  average  investment  yield,
partially  offset by a $7.6  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 $13.6  million in 1997.  The
average  investment  yield was 6.27% for the quarter  ended  September 30, 1998
compared to 6.82% for the  quarter  ended  September  30,  1997.  For the first
nine months of 1998,  investment  income was $612.4 million  compared to $632.2
million for the first nine  months of 1997.  The  decrease of $19.8  million in
1998 compared to 1997 primarily  relates to a $45.8 million decrease  resulting
from a lower  average  investment  yield,  partially  offset by a $26.0 million
increase as a result of the higher level of average invested  assets.  The 1998
investment  income  was net of  $53.1  million  of S&P 500  Index  call  option
amortization  expense  related  to  the  Company's   equity-indexed   annuities
compared to $31.2 million in 1997. The average  investment  yield was 6.41% for
the first nine  months of 1998  compared  to 6.91% for the first nine months of
1997.

   Interest  credited to  policyholders  totaled $143.3 million for the quarter
ended  September  30,  1998  compared to $150.9  million for the quarter  ended
September  30,  1997.  The  decrease of $7.6  million in 1998  compared to 1997
primarily  relates to an $11.5 million decrease  resulting from a lower average
interest  credited  rate,  partially  offset by a $3.9  million  increase  as a
result  of a  higher  level  of  average  policyholder  balances.  Policyholder
balances  averaged $12.4 billion  (including  $10.6 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  September 30, 1998 compared to $12.0  billion  (including  $10.7 billion
of fixed  products  and  $1.3  billion  of  equity-indexed  annuities)  for the
quarter  ended  September  30, 1997.  The average  interest  credited  rate was
4.64% (5.31% on fixed products and 0.85% on  equity-indexed  annuities) for the
quarter ended  September  30, 1998  compared to 5.02% (5.52% on fixed  products
and 0.85% on  equity-indexed  annuities)  for the quarter  ended  September 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  40% to 95%) of the  change  in  value  of the  S&P 500  Index.  Keyport's
equity-indexed  annuities  also provide 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 is reflected net of income  recognized on the S&P 500 Index
call  options  resulting  in a 0.85% net  credited  rate.  For the  first  nine
months of 1998,  interest  credited to  policyholders  totaled  $425.6  million
compared to $445.4  million for the first nine months of 1997.  The decrease of
$19.8  million in 1998  compared to 1997  primarily  relates to a $32.5 million
decrease  resulting  from a lower average  interest  credited  rate,  partially
offset by a $12.7  million  increase  as a result of a higher  level of average
policyholder   balances.   Policyholder   balances   averaged   $12.2   billion
(including  $10.5 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 nine months of 1998 compared to $11.8
billion  (including  $10.7  billion  of  fixed  products  and $1.1  billion  of
equity-indexed  annuities)  for the  first  nine  months of 1997.  The  average
interest  credited  rate was  4.65%  (5.31%  on  fixed  products  and  0.85% on
equity-indexed  annuities)  for the first nine months of 1998 compared to 5.02%
(5.44% on fixed products and 0.85% on  equity-indexed  annuities) for the first
nine 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 $12.9 billion for the quarter ended September 30, 1998
compared to $12.4  billion for the quarter ended  September  30, 1997.  For the
first  nine  months  of 1998,  such  average  investments  were  $12.7  billion
compared to $12.2  billion for the first nine months of 1997.  These  increases
primarily  relate to net  insurance  cash  flows for the  twelve  months  ended
September 30, 1998.

   Net  Realized  Investment  Gains were $4.2  million  for the  quarter  ended
September  30, 1998  compared to $6.1 million for the quarter  ended  September
30,  1997.  For the first nine months of 1998,  net realized  investment  gains
were $4.0  million,  which is net of losses of $7.6  million for certain  fixed
maturity  investments  where the  decline in value was  determined  to be other
than  temporary,  compared to $22.1  million for the first nine months of 1997.
Sales of fixed  maturity  investments  generally  are  made to  maximize  total
return.

   Investment  Advisory and  Administrative  Fees are based on the market value
of  assets  managed  for  mutual  funds,   private  clients  and  institutional
investors.  Investment  advisory and administrative fees were $58.4 million for
the  quarter  ended  September  30,  1998  compared  to $56.1  million  for the
quarter  ended  September  30,  1997.  For  the  first  nine  months  of  1998,
investment  advisory and  administrative  fees were $174.5 million  compared to
$161.8 million for the first nine 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  September 30, 1998  compared  to $38.4  billion for the quarter
ended  September  30,  1997.  For  the  first  nine  months  of  1998,  average
fee-based  assets were $40.2  billion  compared to $36.9  billion for the first
nine months of 1997.  These  increases  during 1998  compared to 1997  resulted
from both  acquisitions  and net sales for the twelve  months  ended  September
30, 1998.  Investment  advisory and administrative fees were 0.57% and 0.58% of
average  fee-based  assets under  management for the quarters  ended  September
30,  1998 and 1997,  respectively.  For the first nine months of 1998 and 1997,
such percentages were 0.58%.

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

<TABLE>
Fee-Based Assets Under Management
<CAPTION>
                                                      As of September 30
                                                    ----------------------
                                                        1998         1997
                                                    ---------    ---------
  <S>                                                  <C>          <C>
  Mutual Funds:
    Intermediary-distributed                           $16.7        $16.6
    Direct-marketed                                      6.5          7.2
    Closed-end                                           2.2          2.2
    Variable annuity                                     1.2          1.3
                                                    ---------    ---------
                                                        26.6         27.3
  Private Capital Management                             7.0          6.4
  Institutional                                         10.7          5.4
                                                    ---------    ---------
    Total Fee-Based Assets Under Management*           $44.3        $39.1
                                                    =========    =========
______________
* As of  September  30,  1998 and  1997,  Keyport's  insurance
   assets of $13.2  billion and $12.8  billion,  respectively,
   bring total assets under  management  to $57.5  billion and
   $51.9 billion, respectively.
</TABLE>
<PAGE>
<TABLE>
 Changes in  Fee-Based  Assets  Under Management
<CAPTION>
                                     Three Months Ended     Nine Months Ended
                                        September 30          September 30
                                     -------------------   -------------------
                                         1998      1997        1998      1997
                                     --------- ---------   --------- ---------
<S>                                     <C>       <C>         <C>       <C>
 Fee-based assets under management 
  - beginning                           $41.0     $37.5       $38.7     $35.9
 Sales and reinvestments                  2.1       1.9         6.2       5.2
 Redemptions and withdrawals             (1.7)     (1.5)       (4.8)     (5.0)
 Acquisitions                             5.4       0.0         5.4       0.0
 Market appreciation (depreciation)      (2.5)      1.2        (1.2)      3.0
                                     --------- ---------   --------- ---------
 Fee-based assets under management  
  - ending                              $44.3     $39.1       $44.3     $39.1
                                     ========= =========   ========= =========
</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  September  30,  1998  compared to $12.6  million  for the quarter  ended
September  30,  1997.  For the  first  nine  months of 1998,  distribution  and
service fees were $39.0  million  compared to $36.6  million for the first nine
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% for the quarters ended
September 30, 1998 and 1997.  For the first nine 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 $11.9  million on average  assets of $24.4  billion  for the  quarter
ended  September 30, 1998 and $12.3 million on average  assets of $24.8 billion
for the quarter ended  September  30, 1997.  For the first nine months of 1998,
transfer  agency  fees were $36.6  million on average  assets of $24.8  billion
and $35.6  million  on  average  assets  of $24.1  billion  for the first  nine
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  September  30,  1998 and  1997.  For the first  nine  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 $8.2 million for the quarter ended
September  30, 1998  compared to $9.5 million for the quarter  ended  September
30, 1997. For the first nine months of 1998,  total  surrender  charges and net
commissions  were $26.2  million  compared to $27.0  million for the first nine
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
$5.5  million for the  quarters  ended  September  30,  1998 and 1997.  For the
first nine months of 1998,  surrender  charges were $17.3  million  compared to
$15.6  million for the first nine  months of 1997.  Total  annuity  withdrawals
represented  12.4% and  10.9% of the total  average  annuity  policyholder  and
separate  account  balances for the quarters ended September 30, 1998 and 1997,
respectively.  For the first nine  months of 1998 and 1997,  the  corresponding
percentages  were  13.7% and 11.0%,  respectively.  Net  commissions  were $2.7
million  for the quarter  ended  September  30,  1998 and $4.0  million for the
quarter  ended  September  30,  1997.  For the first nine  months of 1998,  net
commissions  were $8.9  million  compared  to $11.4  million for the first nine
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  September  30, 1998
compared to $4.7 million for the quarter  ended  September  30,  1997.  For the
first nine months of 1998,  separate  account fees were $15.5 million  compared
to $12.7  million  for the first  nine  months of 1997.  Such fees  represented
1.54%  and  1.61% of  average  variable  annuity  and  variable  life  separate
account   balances  for  the  quarters  ended  September  30,  1998  and  1997,
respectively.  For the first  nine  months of 1998 and 1997,  such  percentages
were 1.50% and 1.56%, respectively.

   Operating Expenses primarily represent  compensation,  marketing,  and other
general and  administrative  expenses.  These  expenses  were $78.4 million for
the  quarter  ended  September  30,  1998  compared  to $77.8  million  for the
quarter  ended  September  30,  1997.  For  the  first  nine  months  of  1998,
operating  expenses  were $238.4  million  compared  to $229.2  million for the
first nine 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
0.59% for the  quarter  ended  September  30,  1998  compared  to 0.61% for the
quarter ended  September 30, 1997.  For the first nine months of 1998 and 1997,
such percentages were 0.60% and 0.62%, 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 $15.5
million for the quarter  ended  September  30, 1998  compared to $18.3  million
for the quarter ended  September  30, 1997.  For the first nine months of 1998,
amortization of deferred policy  acquisition  costs was $52.8 million  compared
to  $54.0  million  for  the  first nine months of 1997.  Amortization  expense
represented  26.1% and  30.0% of  investment  spread  for  the  quarters  ended
September 30, 1998 and 1997, respectively.  For the first nine months  of  1998
and 1997, the corresponding percentages were 28.3% and 28.9%, 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 $9.8 million for the quarter  ended  September  30,
1998  compared to $8.5 million for the quarter ended  September  30, 1997.  For
the first nine  months of 1998,  amortization  of deferred  distribution  costs
was $27.9  million  compared  to $25.4  million  for the first  nine  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  September 30, 1998 compared to $2.2 million for
the  quarter  ended  September  30,  1997.  For the first nine  months of 1998,
amortization  of value of insurance in force was $3.9 million  compared to $7.3
million  for the  first  nine  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
September  30, 1998  compared to $3.7 million for the quarter  ended  September
30,  1997.  For the first  nine  months  of 1998,  amortization  of  intangible
assets was $10.7  million  compared to $10.2  million for the first nine months
of 1997.

   Interest  Expense,  Net was $2.7 million for the quarter ended September 30,
1998  compared to $4.1 million for the quarter ended  September  30, 1997.  For
the  first  nine  months  of 1998,  interest  expense,  net was  $10.5  million
compared to $13.0  million for the first nine 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 $15.9  million  or 32.2% of pretax  income for the
quarter  ended  September  30,  1998  compared  to $14.9  million,  or 31.2% of
pretax  income for the quarter  ended  September  30, 1997.  For the first nine
months  of 1998,  income  tax  expense  was  $43.6  million  or 31.5% of pretax
income  compared  to $45.6  million,  or 31.8% of pretax  income  for the first
nine months of 1997.

Financial Condition

   Stockholders'  Equity as of September 30, 1998 was $1.28 billion compared to
$1.20  billion as of December  31,  1997.  Net income for the first nine months
of 1998 was $94.7  million and cash  dividends on the  Company's  preferred and
common stock  totaled $4.4  million.  Common  stock  totaling  $9.0 million was
issued in  connection  with the  acquisition  of Crabbe  Huson and $5.7 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 $2.5 million which was credited to additional  paid-in  capital.
A  decrease  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 decreased  stockholders'  equity
by $28.3 million.

   Book Value Per Share  amounted to $27.80 at September  30, 1998  compared to
$26.82 at December 31, 1997.  Excluding net  unrealized  gains on  investments,
book value per share  amounted  to $26.61 at  September  30, 1998 and $24.97 at
December 31, 1997.  As of September  30, 1998,  there were 46.0 million  common
shares outstanding compared to 44.7 million shares as of December 31, 1997.

   Investments not including cash and  cash  equivalents  totaled $12.6 billion
at September 30, 1998  compared to  $12.3  billion  at  December 31, 1997.  The
increase primarily reflects general account investment earnings.

   The  Company  manages  the  substantial  majority  of  its  invested  assets
internally.  The Company's general  investment policy is to hold fixed maturity
assets for long-term investment and,  accordingly,  the Company does not have a
trading   portfolio.   To  provide  for  maximum   portfolio   flexibility  and
appropriate tax planning,  the Company  classifies its entire fixed  maturities
investments as "available for sale" and  accordingly  carries such  investments
at fair value.  The  Company's  total  investments  at  September  30, 1998 and
December 31, 1997 reflected net  unrealized  gains of $204.6 million and $280.2
million, respectively, relating to its fixed maturity and equity portfolios.

   Approximately  $11.3 billion,  or 81.6%,  of the Company's  general  account
investments   at  September   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 September 30, 1998,  the carrying  value of  investments in below
investment  grade securities  totaled $1.2 billion,  or 8.3% of general account
investments of $13.8  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  80.5% of the
Company's  fixed  annuity  policyholder  balances  were  subject  to  surrender
charges at September 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 September  30, 1998,  the  effective  duration of the  Company's
fixed  maturities  investments  (including  certain cash and cash  equivalents)
was  approximately  2.9.  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  38
outstanding  swap agreements  with an aggregate  notional  principal  amount of
$2.3 billion and 45  outstanding  swap  agreements  with an aggregate  notional
principal  amount of $2.6  billion as of  September  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  September  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
$329.6  million and $323.3  million as of  September  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.  The Company is evaluating  the
impact of this  statement.  Upon  adoption,  the  Company  will be  required to
record a cumulative  effect  adjustment to reflect this accounting  change.  At
this time,  the Company has not  completed  its analysis and  evaluation of the
requirements and 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").  In connection with
the Crabbe Huson  acquisition,  the Company  borrowed  $90.0  million under the
Bridge Facility.
 
   Current  Rhode  Island  insurance  law  applicable  to Keyport  permits  the
payment of dividends or  distributions,  which,  together  with  dividends  and
distributions  paid during the  preceding  12 months,  do not exceed the lesser
of (i) 10% of Keyport's  statutory  surplus as of the preceding  December 31 or
(ii)  Keyport's  statutory net gain from  operations  for the preceding  fiscal
year.   Any   proposed   dividend  in  excess  of  this  amount  is  called  an
"extraordinary  dividend"  and may  not be paid  until  it is  approved  by the
Commissioner  of Insurance of the State of Rhode  Island.  As of September  30,
1998,  the amount of  dividends  that Keyport  could pay without such  approval
was an  additional  $65.3  million.  Keyport had not paid any  dividends  since
its  acquisition  in  1988,  until  Keyport  paid a $5.0  million  dividend  on
September 30, 1998.

   The terms of Colonial's existing credit facility place certain  restrictions
on  Colonial's  ability  to pay  dividends.  Under the  terms of the  facility,
Colonial  could  pay  dividends  of up to $42.4  million  as of  September  30,
1998.  No  assurances  can be given that future  regulatory  changes and credit
agreements  will  not  create  additional  limitations  on the  ability  of the
Company's subsidiaries to pay dividends.

   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  will  require  additional
external   financing  in  order  to  finance  the  acquisition  of  SGAM.  Such
acquisition,  which is subject to the  satisfaction of certain  conditions,  is
scheduled  to  close in  early  1999.  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  September  30,  1998,  $10.2
billion,  or 73.6% 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.  The Company is
also  in  the  process  of  identifying   and  reviewing  its   non-information
technology  systems  with  respect  to  Year  2000  issues.  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.

   The Company is developing,  and will continue to develop,  contingency plans
for  dealing  with any  adverse  effects  that  become  likely in the event the
Company's  remediation  plans  are not  successful  or  third  parties  fail to
remediate  their  own  Year  2000  issues.   If  necessary   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.

<PAGE>


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

   10.32   The Colonial Group, Inc. Credit Agreement dated as of April 10, 1998
           with BankBoston N.A.  
   12      Statement re Computation of Ratios
   27      Financial Data Schedule

(b)   Reports on Form 8-K

        On September 30, 1998, the Company filed a current report on Form 8-K
   in connection with a lawsuit described therein.

<PAGE>
                                  SIGNATURES


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


                               LIBERTY FINANCIAL COMPANIES, INC.

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








Date:   November 5, 1998

<PAGE>
                                Exhibit Index


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

  10.32             The Colonial Group, Inc. Credit Agreement 
                     dated as of April 10, 1998 with BankBoston N.A.  
  12                Statement re Computation of Ratios                
  27                Financial Data Schedule