------------------------------------------------------------------------------


                                    FORM 10-Q
                      ------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549


              [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 333-42425

                   AMERICAN FOUNDATION LIFE INSURANCE COMPANY
             (Exact name of registrant as specified in its charter)

           ALABAMA                                       63-0761690
(State or other jurisdiction of             (IRS Employer Identification Number)
 incorporation or organization)

                             2801 HIGHWAY 280 SOUTH
                            BIRMINGHAM, ALABAMA 35223
              (Address of principal executive offices and zip code)

                                 (205) 879-9230
              (Registrant's telephone number, including area code)

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. YES [ ] NO [X]

Number of shares of Common Stock, $10.00 par value, outstanding as of August 7, 
1998: 200,000 shares.

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(A) AND
(B) OF FORM 10-Q AND IS THEREFORE  FILING THIS FORM WITH THE REDUCED  DISCLOSURE
FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).


<PAGE>





                   AMERICAN FOUNDATION LIFE INSURANCE COMPANY



                                      INDEX



PART I.   FINANCIAL INFORMATION:
   Item 1.   Financial Statements:
        Report of Independent Accountants....................................
        Condensed Statements of Income for the Three and Six  Months
          Months ended June 30, 1998 and 1997 (unaudited)....................
        Condensed Balance Sheets as of June 30, 1998
          (unaudited) and December 31, 1997..................................
        Condensed Statements of Cash Flows for the
          Six Months ended June 30, 1998 and 1997 (unaudited)................
        Notes to Condensed Financial Statements (unaudited)..................

   Item 2.   Management's Narrative Analysis of the Results of Operations....

PART II.  OTHER INFORMATION:
   Item 6. Exhibits and Reports on Form 8-K..................................

Signature....................................................................



<PAGE>





                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Directors and Stockholders
American Foundation Life Insurance Company
Birmingham, Alabama


We have reviewed the accompanying condensed balance sheet of American Foundation
Life Insurance Company as of June 30, 1998, and the related condensed statements
of income for the three-month and six-month periods ended June 30, 1998 and 1997
and condensed  statements of cash flows for the six-month periods ended June 30,
1998  and  1997.  These  financial  statements  are  the  responsibility  of the
Company's management.

We conducted our review in accordance with standards established by the American
Institute  of  Certified  Public  Accountants.  A review  of  interim  financial
information consists principally of applying analytical  procedures to financial
data and making  inquiries of persons  responsible  for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with  generally  accepted  auditing  standards,  the  objective  of which is the
expression of an opinion  regarding the financial  statements  taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material  modifications that should
be made to the condensed  financial  statements referred to above for them to be
in conformity with generally accepted accounting principles.

We have  previously  audited,  in accordance  with generally  accepted  auditing
standards, the balance sheet as of December 31, 1997, and the related statements
of  income,  stockholders'  equity,  and cash flows for the year then ended (not
presented  herein);  and in our report dated  February 11, 1998, we expressed an
unqualified  opinion  on  those  financial  statements.   In  our  opinion,  the
information set forth in the accompanying condensed balance sheet as of December
31, 1997, is fairly  stated in all material  respects in relation to the balance
sheet from which it has been derived.




                                                      PricewaterhouseCoopers LLP

Birmingham,  Alabama  
July 28,  1998,  except for Note G 
as to which the date is August 7, 1998

                                        2

<PAGE>
<TABLE>
<CAPTION>



                   AMERICAN FOUNDATION LIFE INSURANCE COMPANY
                         CONDENSED STATEMENTS OF INCOME
                                   (Unaudited)


                                                                          THREE MONTHS ENDED                SIX MONTHS ENDED
                                                                               JUNE 30                           JUNE 30
                                                                       ---------------------------------------------------------
                                                                       1998              1997              1998           1997
                                                                       ----             -----              ----           ----


<S>                                                                    <C>            <C>               <C>            <C>   
REVENUES
     Premiums and policy fees (net of reinsurance ceded:
        three months: 1998 - $350,465; 1997 - $359,326
        six months: 1998 - $785,579; 1997 - $1,306,672)                $1,574,295     $2,494,389        $3,102,267     $4,675,394
     Net investment income                                              1,265,388      1,471,088         2,845,683      3,172,472
     Realized investment gains (losses)                                  (500,000)                        (500,000)
     Other income                                                                          8,718                            8,718
                                                                  ---------------   ------------   ---------------   ------------
                                                                        2,339,683      3,974,195         5,447,950      7,856,584
                                                                       ----------     ----------        ----------     ----------

BENEFITS AND EXPENSES
     Benefits and settlement expenses (net of reinsurance ceded:
        three months: 1998 - $1,464,688; 1997 - $1,115,056
        six months: 1998 - $1,611,589; 1997 - $1,818,056)               2,125,140      2,651,956         3,281,445      4,714,738
     Amortization of deferred policy acquisition costs                     77,998         89,702           204,596        175,405
     Other operating expenses (net of reinsurance ceded:
        three months: 1998 - $74,910; 1997 - $8,727
        six months: 1998 - $(8,074); 1997 - $40,935)                      517,489        614,582           915,015      1,231,840
                                                                       ----------     ----------       -----------     ----------
                                                                        2,720,627      3,356,240         4,401,056      6,121,983
                                                                       ----------     ----------        ----------     ----------

INCOME (LOSS) BEFORE INCOME TAX                                          (380,944)       617,955         1,046,894      1,734,601

Income tax expense (benefit)                                             (106,664)       210,104           293,130        589,764
                                                                       ----------     ----------        ----------    -----------

NET INCOME (LOSS)                                                      $ (274,280)     $ 407,851        $  753,764     $1,144,837
                                                                       ==========      =========        ==========     ==========

</TABLE>




















SEE NOTES TO CONDENSED FINANCIAL STATEMENTS

                                        3

<PAGE>

<TABLE>
<CAPTION>



                                    AMERICAN FOUNDATION LIFE INSURANCE COMPANY
                                             CONDENSED BALANCE SHEETS


                                                                                    JUNE 30             DECEMBER 31
                                                                                      1998                 1997
                                                                                 ---------------      -------------
                                                                                   (Unaudited)
<S>                                                                              <C>                <C>  
ASSETS
  Investments:
    Fixed maturities                                                             $  69,976,596       $  68,201,559
    Mortgage loans on real estate                                                    9,510,921          10,902,986
    Investment in real estate, net                                                     401,266             407,624
    Policy loans                                                                    10,884,766          11,635,376
    Short-term investments                                                           3,042,238             873,844
                                                                                --------------      --------------
     Total investments                                                              93,815,787          92,021,389
  Cash                                                                                 522,103           2,218,201
  Accrued investment income                                                          1,279,372           1,230,529
  Accounts and premiums receivable, net                                                572,448           1,233,659
  Reinsurance receivables                                                            7,882,507           7,680,586
  Deferred policy acquisition costs                                                  1,841,534           1,692,285
  Other assets                                                                          52,401              70,809
                                                                               ---------------     ---------------
                                                                                  $105,966,152        $106,147,458


LIABILITIES
  Policy liabilities and accruals                                                 $ 55,872,901        $ 56,717,914
  Annuity deposits                                                                     958,808             929,124
  Other policyholders' funds                                                        12,064,067          12,080,458
  Other liabilities                                                                  6,192,203           8,964,653
  Deferred income taxes                                                              2,136,942           2,005,168
                                                                                 -------------       -------------
                                                                                    77,224,921          80,697,317
                                                                                  ------------        ------------

COMMITMENTS AND CONTINGENT LIABILITIES - NOTE B

STOCKHOLDERS' EQUITY
  Preferred Stock, $1.00 par value, shares authorized, issued, and
    outstanding: 2,000                                                                   2,000               2,000
  Common Stock, $10 par value
    Shares authorized, issued, and outstanding: 200,000                              2,000,000           2,000,000
  Additional paid-in capital                                                         8,200,000           6,200,000
  Retained earnings                                                                 17,242,718          16,538,954
  Accumulated other comprehensive income
    Net unrealized  gains on investments (net of income
     tax: 1998 -$504,200; 1997 - $381,870)                                           1,296,513             709,187
                                                                                --------------      --------------
                                                                                    28,741,231          25,450,141
                                                                                --------------      --------------
                                                                                  $105,966,152        $106,147,458
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
</TABLE>

                                        4

<PAGE>
<TABLE>
<CAPTION>



                                    AMERICAN FOUNDATION LIFE INSURANCE COMPANY
                                        CONDENSED STATEMENTS OF CASH FLOWS
                                                    (UNAUDITED)
                                                                                              SIX MONTHS ENDED
                                                                                                  JUNE 30
                                                                                           1998            1997
                                                                                           ----            ----

<S>                                                                                   <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                                        $    753,764    $  1,144,837
    Adjustments to reconcile net income to net cash provided by operating activities:
       Amortization of deferred policy acquisition costs                                   204,596         175,405
       Capitalization of deferred policy acquisition costs                                (353,845)
       Deferred income tax                                                                 131,774         (10,724)
       Interest credited to universal life and investment products                         502,210         531,276
       Policy fees assessed on universal life and investment products                     (501,699)       (533,373)
       Change in accrued investment income and other receivables                           410,447       1,188,324
       Change in policy liabilities and other policyholders'
          funds of traditional life and health products                                   (331,383)     (2,552,726)
       Change in other liabilities                                                      (2,772,450)       (486,734)
       Other (net)                                                                          18,409          20,169
                                                                                   ---------------  --------------
    Net cash used in operating activities                                               (1,938,177)       (523,546)
                                                                                     -------------   -------------

CASH FLOWS FROM INVESTING ACTIVITIES
    Maturities and principal reductions of investments
       Investments available for sale                                                   43,867,398      55,713,990
       Other                                                                             1,396,084       1,514,020
    Sale of investments
       Investments available for sale                                                                      275,980
    Cost of investments acquired
       Investments available for sale                                                  (46,470,555)    (57,746,562)
                                                                                      ------------    ------------
    Net cash used in investing activities                                               (1,207,073)       (242,572)
                                                                                     -------------   -------------

CASH FLOWS FROM FINANCING ACTIVITIES
    Dividends to stockholders                                                              (50,000)
    Change in universal life deposits                                                     (500,848)       (282,172)
    Capital contributions                                                                2,000,000
                                                                                      ------------
    Net cash provided by (used in) financing activities                                  1,449,152        (282,172)
                                                                                     -------------   -------------

INCREASE (DECREASE) IN CASH                                                             (1,696,098)     (1,048,290)
CASH AT BEGINNING OF PERIOD                                                              2,218,201       1,574,181
                                                                                     -------------    ------------
CASH AT END OF PERIOD                                                                $     522,103    $    525,891
                                                                                     =============    ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
     Cash paid during the period:
       Income taxes                                                                    $   200,000      $  675,000



</TABLE>



























SEE NOTES TO CONDENSED FINANCIAL STATEMENTS

                                        5

<PAGE>



                   AMERICAN FOUNDATION LIFE INSURANCE COMPANY
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE A - BASIS OF PRESENTATION

         The accompanying  unaudited condensed financial  statements of American
Foundation  Life  Insurance  Company  ("the  Company")  have  been  prepared  in
accordance with generally accepted  accounting  principles for interim financial
information and with the  instructions to Form 10-Q and Rule 10-01 of Regulation
S-X.  Accordingly,  they  do not  include  all of the  disclosures  required  by
generally accepted accounting principles for complete financial  statements.  In
the opinion of  management,  all  adjustments  (consisting  of normal  recurring
accruals)  necessary  for a fair  presentation  have  been  included.  Operating
results  for the six month  period  ended  June 30,  1998,  are not  necessarily
indicative of the results that may be expected for the year ending  December 31,
1998.  The  year-end  condensed  balance  sheet data was  derived  from  audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. For further information,  refer to the financial
statements  and notes thereto  included in the Company's Form S-1 filed on April
16, 1998.

         All  outstanding  shares  of the  Company's  common  stock are owned by
Protective Life Insurance Company (Protective), which is the principal operating
subsidiary of Protective Life  Corporation  (PLC), an insurance  holding company
domiciled  in the state of Delaware.  All  outstanding  shares of the  Company's
preferred  stock are owned by PLC.  Protective is a  wholly-owned  subsidiary of
PLC.


NOTE B - COMMITMENTS AND CONTINGENT LIABILITIES

         Under insurance guaranty fund laws in most states,  insurance companies
doing business therein can be assessed up to prescribed  limits for policyholder
losses  incurred  by  insolvent  companies.  The Company  does not believe  such
assessments  will be materially  different from amounts already  provided for in
the  financial  statements.  Most of these  laws do  provide,  however,  that an
assessment  may be excused or deferred if it would  threaten  an  insurer's  own
financial strength.

         A number of civil jury verdicts have been returned  against insurers in
the  jurisdictions  in which the Company does  business  involving the insurers'
sales practices, alleged agent misconduct, failure to properly supervise agents,
and other  matters.  Increasingly  these  lawsuits have resulted in the award of
substantial  judgments  against the insurers  that are  disproportionate  to the
actual damages,  including material amounts of punitive damages. In addition, in
some class  action  and other  lawsuits  involving  insurers'  sales  practices,
insurers  have made  material  settlement  payments.  In some states  (including
Alabama),  juries have substantial discretion in awarding punitive damages which
creates the potential for unpredictable  material adverse judgments in any given
punitive damages suit. The Company and its affiliates,  like other insurers,  in
the ordinary course of business,  are involved in such litigation.  Although the
outcome of any such litigation  cannot be predicted with certainty,  the Company
believes that at the present time

                                        6

<PAGE>



there are no pending or threatened lawsuits that are reasonably likely to have a
material  adverse effect on the financial  position,  results of operations,  or
liquidity of the Company.


NOTE C - OPERATING SEGMENTS

         The following table sets forth operating  segment income and assets for
the periods shown.  Adjustments  represent the inclusion of unallocated realized
investment  gains (losses) and the recognition of income tax expense.  There are
no asset adjustments.
<TABLE>
<CAPTION>


                                                             OPERATING SEGMENT INCOME FOR THE
                                                              SIX  MONTHS ENDED JUNE 30, 1998

                                                                          DENTAL AND
                                                                            CONSUMER                 FINANCIAL
                                              ACQUISITIONS                BENEFITS                 INSTITUTIONS

<S>                                             <C>                       <C>                          <C>     
Premiums and policy fees                        $1,928,635                $  900,620                   $273,012
Net investment income                            2,095,553                   327,846
Realized investment gains (losses)
Other income
     Total revenues                              4,024,188                 1,228,466                    273,012
                                                ----------                ----------                   --------
Benefits and settlement expenses                 2,691,819                   465,462                    124,164
Amortization of deferred policy
 acquisition costs                                 156,597                                               47,999
Other operating expenses                           358,701                   552,412                     29,763
                                               -----------               -----------                  ---------
     Total benefits and expenses                 3,207,117                 1,017,874                    201,926
                                                ----------                ----------                   --------
Income before tax                                  817,071                   210,592                     71,086



                                                                  CORPORATE
                                                INVESTMENT          AND
                                                 PRODUCTS          OTHER             ADJUSTMENTS       TOTAL

Premiums and policy fees                                                                            $ 3,102,267
Net investment income                                             $ 422,284                           2,845,683
Realized investment gains (losses)                                                   $(500,000)        (500,000)
Other income
     Total revenues                                                 422,284           (500,000)      (5,447,950)
                                                                 ----------         ----------      -----------
Benefits and settlement expenses                                                                      3,281,445
Amortization of deferred policy
 acquisition costs                                                                                      204,596
Other operating expenses                          $(25,861)                                             915,015
                                                  --------                                         ------------
     Total benefits and expenses                   (25,861)                                           4,401,056
                                                 ---------      -----------       ------------      -----------
Income before tax                                   25,861          422,284           (500,000)       1,046,894
Income tax expense                                                                     293,130          293,130
                                                                                                   ------------
     Net income                                                                                     $   753,764
                                                                                                    ===========
</TABLE>


                                        7

<PAGE>

<TABLE>
<CAPTION>


                                                         OPERATING SEGMENT INCOME FOR THE
                                                          SIX  MONTHS ENDED JUNE 30, 1997

                                                          DENTAL AND       CORPORATE
                                                             CONSUMER        AND
                                        ACQUISITIONS       BENEFITS         OTHER      ADJUSTMENTS       TOTAL

<S>                                       <C>              <C>                                          <C>       
Premiums and policy fees                  $2,003,471       $2,671,923                                   $4,675,394
Net investment income                      2,339,872          517,623      $314,977                      3,172,472
Realized investment gains (losses)
Other income                                                                  8,718                          8,718
                                     ---------------  ---------------    ----------                   ------------
     Total revenues                        4,343,343        3,189,546       323,695                      7,856,584
                                          ----------       ----------     ---------                     ----------
Benefits and settlement expenses           2,828,472        1,886,266                                    4,714,738
Amortization of deferred policy
  acquisition costs                          175,405                                                       175,405
Other operating expense                      441,555          790,285                                    1,231,840
                                         -----------       ----------                                   ----------
     Total benefits and expenses           3,445,432        2,676,551                                    6,121,983
                                          ----------       ---------- ------------- -------------       ----------
Income before tax                            897,911          512,995       323,695                      1,734,601
Income tax expense                                                                       $589,764          589,764
                                                                                                       -----------
      Net income                                                                                        $1,144,837

</TABLE>
<TABLE>
<CAPTION>

                                                           OPERATING SEGMENT ASSETS
                                                               JUNE 30, 1998

                                                       DENTAL AND                      CORPORATE
                                                         CONSUMER     FINANCIAL         AND
                                       ACQUISITIONS    BENEFITS      INSTITUTIONS       OTHER          TOTAL

<S>                                     <C>            <C>             <C>            <C>             <C>         
Investments and other assets            $74,608,108    $6,615,480      $1,515,594     $21,385,436     $104,124,618
Deferred policy acquisition costs         1,449,999                       391,535                        1,841,534
                                       ---------------------------    ----------------------------  --------------
     Total assets                       $76,058,107    $6,615,480      $1,907,129     $21,385,436     $105,966,152
                                        ===========    ==========      ==========     ===========     ============



                                                           OPERATING SEGMENT ASSETS
                                                             DECEMBER 31, 1997

                                                             DENTAL AND          CORPORATE
                                                               CONSUMER           AND
                                       ACQUISITIONS          BENEFITS             OTHER                TOTAL

Investments and other assets            $76,644,539          $7,111,880          $20,698,754        $104,455,173
Deferred policy acquisition costs         1,692,285                                                    1,692,285
                                       ------------     ---------------    -----------------       -------------
     Total assets                       $78,336,824          $7,111,880          $20,698,754        $106,147,458
                                        ===========          ==========          ===========        ============



</TABLE>

                                        8

<PAGE>



NOTE D - STATUTORY REPORTING PRACTICES

         Financial  statements  prepared in conformity  with generally  accepted
accounting  principles  (i.e.,  GAAP) differ in some respects from the statutory
accounting   practices   prescribed   or  permitted   by  insurance   regulatory
authorities.  At June 30, 1998,  and for the six months then ended,  the Company
had  stockholders'  equity and net income  prepared in conformity with statutory
reporting practices of $23.0 million and $0.7 million, respectively.


NOTE E - INVESTMENTS

         As prescribed by Statement of Financial  Accounting  Standards ("SFAS")
No.  115,  certain  investments  are  recorded at their  market  values with the
resulting net  unrealized  gains and losses  reduced by a related  adjustment to
deferred policy acquisition costs, net of income tax, recorded as a component of
stockholders' equity. The market values of fixed maturities increase or decrease
as interest rates fall or rise. Therefore, although the adoption of SFAS No. 115
does not affect the Company's operations, its reported stockholders' equity will
fluctuate significantly as interest rates change.

         The  Company's  balance  sheets at June 30, 1998 and December 31, 1997,
prepared on the basis of reporting  investments at amortized cost rather than at
market values, are as follows:

                              JUNE 30, 1998                DECEMBER 31, 1997
                              -------------                -----------------

Total investments            $  91,821,158                   $  90,930,332
All other assets                12,150,366                      14,126,069
                              -------------                   -------------
                              $103,971,524                    $105,056,401
                              ============                    ============

Deferred income taxes        $   1,438,828                   $   1,623,298
All other liabilities           75,087,978                      78,692,149
                             -------------                   -------------
                                76,526,806                      80,315,447
Stockholders' equity            27,444,718                      24,740,954
                             -------------                   -------------
                              $103,971,524                    $105,056,401
                              ============                    ============




                                        9

<PAGE>



NOTE F - COMPREHENSIVE INCOME

         The following table sets forth the Company's  comprehensive  income for
the six months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>

                                                                                          SIX MONTHS ENDED
                                                                                   1998                  1997
                                                                                   ----                  ----

<S>                                                                              <C>                    <C>       
          Net income                                                             $   753,764            $1,144,837
          Increase (decrease) in net unrealized gains
              on investments (net of income tax:
              1998 - $(17,670); 1997 - $(6,850))                                     227,326               (12,722)
          Reclassification adjustment for amounts
              included in net income (net of income
              tax: 1998 - $140,000)                                                  360,000
                                                                                ------------           -----------
          Comprehensive income                                                    $1,341,090            $1,132,115
                                                                                  ==========            ==========

</TABLE>

NOTE G - ACQUISITION

          On August 7, 1998,  PLC  announced  an  agreement in which the Company
will  acquire,  through  a  coinsurance  transaction,  a block of  approximately
260,000  individual life insurance  policies from Lincoln National  Corporation.
The transaction represents approximately $330 million of life insurance reserves
and approximately $65 million of annual premium.


NOTE H - RECLASSIFICATIONS

          Certain  reclassifications  have been made in the previously  reported
financial  statements  and  accompanying  notes to make the prior  year  amounts
comparable to those of the current year. Such reclassifications had no effect on
previously reported net income, total assets, or stockholders' equity.



                                       10

<PAGE>



                 ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE
                              RESULTS OF OPERATIONS


         American  Foundation Life Insurance  Company ("the  Company"),  a stock
life  insurance  company,  was founded in 1978.  All  outstanding  shares of the
Company's   common  stock  are  owned  by  Protective  Life  Insurance   Company
("Protective"),  which is the principal operating  subsidiary of Protective Life
Corporation  ("PLC"),  an insurance holding company whose common stock is traded
on the New York Stock Exchange under the symbol "PL". All outstanding  shares of
Company's  preferred  stock are  owned by PLC.  The  Company  is  authorized  to
transact insurance business in 29 states, including New York.

         In accordance with General  Instruction  H(2)(a),  the Company includes
the following analysis with the reduced disclosure format.

         PLC through its subsidiaries  provides  financial  services through the
production,   distribution,  and  administration  of  insurance  and  investment
products. PLC operates through seven divisions whose principal strategic focuses
can  be  grouped  into  three  general  categories:  life  insurance,  specialty
insurance  products,  and retirement savings and investment  products.  The life
insurance  category includes the  Acquisitions,  Individual Life, and West Coast
Divisions.  The specialty  insurance  products  category includes the Dental and
Consumer  Benefits  ("Dental")  and Financial  Institutions  Divisions.  And the
retirement  savings and  investment  products  category  includes the Guaranteed
Investment Contracts and Investment Products Divisions.

         The  Company,  since it is  licensed  in the State of New York,  is the
entity  through  which PLC  markets,  distributes,  and services  insurance  and
annuity  products in New York. As of June 30, 1998,  the Company was involved in
the operations of three of PLC's Divisions: the Acquisition Division, the Dental
Division and the Financial  Institutions  Division.  PLC's  Investment  Products
Division has plans to begin  marketing  through the Company in the third quarter
of 1998.  The Company has an  additional  business  segment  which is  described
herein as Corporate and Other.

         Protective  has  entered  into  an  inter-company  guaranty  agreement,
enforceable by the Company or its successors,  whereby Protective has guaranteed
the  Company's  payment  of  claims  made by the  holders  of  Company  policies
according  to the terms of such  policies.  The  guarantee  will remain in force
until the earlier of (a) when the Company achieves a claims-paying  rating equal
to or better than Protective  without the benefit of any inter-company  guaranty
agreement  or (b) 90 days  after the  guaranty  agreement  is revoked by written
instrument;  provided, however, even after any revocation or termination by such
notice,  the guarantee  shall remain  effective as to policies issued during the
existence of the guaranty agreement.

         This  report  includes   "forward-looking   statements"  which  express
expectations  of future events and/or  results.  All statements  based on future
expectations rather than on historical facts are forward-looking statements that
involve  a number  of risks  and  uncertainties,  and the  Company  cannot  give
assurance that such statements will prove to be correct. Please refer to Exhibit
99 for more information about factors which could affect future results.



                                       11

<PAGE>



REVENUES

         The following table sets forth revenues by source for the period shown,
and the percentage change from the prior period:
<TABLE>
<CAPTION>

                                                                SIX MONTHS
                                                                  ENDED                          PERCENTAGE
                                                                  JUNE 30                         DECREASE
                                                          1998                1997
                                                          ----                ----

<S>                                                     <C>                 <C>                    <C>    
         Premiums and policy fees                       $3,102,267          $4,675,394             (33.6)%
         Net investment income                           2,845,683           3,172,472             (10.3)
         Realized investment losses                       (500,000)                                 --
         Other income                                                            8,718              --
                                                  ----------------       -------------
                                                        $5,447,950          $7,856,584
                                                        ==========          ==========
</TABLE>


         Premiums and policy fees  decreased  $1.6 million or 33.6% in the first
six months of 1998 over the first six months of 1997.  Premiums  and policy fees
from the Acquisitions Division decreased $0.1 million.  Premiums and policy fees
related to the Dental Division decreased $1.8 million in the first six months of
1998 as  compared  to the same  period in 1997,  primarily  due to the loss of a
large customer at December 31, 1997. The Financial  Institutions  Division began
operations in the Company in 1998 which resulted in $0.3 million of new premiums
and policy fees in the first six months of 1998.

         Net investment income in the first six months of 1998 decreased by $0.3
million over the corresponding  period of the preceding year, primarily due to a
decline in interest rates.

         The Company generally purchases its investments with the intent to hold
to  maturity  by  purchasing  investments  that match  future  cash-flow  needs.
However,  the Company may sell any of its  investments  to maintain  approximate
matching of assets and liabilities.  Accordingly, the Company has classified its
fixed maturities and certain other securities as "available for sale." The sales
of  investments  that have  occurred have resulted  principally  from  portfolio
management decisions to maintain approximate matching of assets and liabilities.

         The Company reported a $500,000  realized  investment loss in the first
six  months of 1998 due to the  establishment  of an  allowance  for  investment
defaults.



                                       12

<PAGE>



INCOME BEFORE INCOME TAX

         The following table sets forth  operating  income or loss and income or
loss before income tax by business segment for the periods shown:
<TABLE>
<CAPTION>

                                 OPERATING INCOME (LOSS) AND INCOME (LOSS) BEFORE
                                        INCOME TAX SIX MONTHS ENDED JUNE 30

                                                                                  1998               1997
                                                                                  ----               ----
<S>                                                                           <C>                <C>
Operating Income (Loss)(1)
      Acquisitions                                                            $   817,071        $   897,911
      Dental and Consumer Benefits                                                210,592            512,995
      Financial Institutions                                                       71,086
      Investment Products                                                          25,861
      Corporate and Other                                                         422,284            323,695
                                                                              -----------        -----------
              Total operating income                                            1,546,894          1,734,601
                                                                               ----------         ----------

Realized Investment Gains (Losses)                                               (500,000)
              Total net                                                          (500,000)
Income (Loss) Before Income Tax
      Acquisitions                                                                817,071            897,911
      Dental and Consumer Benefits                                                210,592            512,995
      Financial Institutions                                                       71,086
      Investment Products                                                          25,861
      Corporate and Other                                                         (77,716)           323,695
                                                                             ------------        -----------
              Total income before tax                                          $1,046,894         $1,734,601
                                                                               ==========         ==========

</TABLE>

(1) Income before tax excluding realized investment gains and losses.

         Pretax earnings from the Acquisitions  Division  decreased $0.1 million
in the first six months of 1998 as compared to the same period of 1997. Earnings
from the  Acquisitions Division  are  expected to decline  over time (due to the
lapsing of  policies  resulting  from  deaths of  insureds  or  terminations  of
coverage) unless new acquisitions are made.

         Dental  Division  pretax  earnings were $0.3 million lower in the first
six months of 1998 as compared to the first six months of 1997  primarily due to
the loss of a large customer at December 31, 1997.

         The Financial  Institutions Division began operations in the Company in
1998. The Division had pretax  earnings of $0.1 million for the first six months
of 1998.

         The Investment  Products Division which plans to began marketing in the
third  quarter of 1998  incurred a small  amount  (less  than $0.1  million)  of
start-up expenses in the first six months of 1998.

         The Corporate and Other segment  consists of net investment  income not
identified  with the  preceding  operating  divisions.  Pretax  income from this
segment was $0.4 million in the first six months of 1998 and $0.3 million in the
first six months of 1997.


                                       13

<PAGE>



INCOME TAXES

         The following  table sets forth the effective tax rates for the periods
shown:

            SIX MONTHS
              ENDED                                     ESTIMATED EFFECTIVE
             JUNE 30                                      INCOME TAX RATES

              1997                                            34.0  %
              1998                                            28.0

         The  effective  income  tax rate for the full  year of 1997 was  34.0%.
Management's estimate of the effective income tax rate for 1998 is 28%.

NET INCOME

         The following  table sets forth net income for the periods  shown,  and
the percentage change from the prior period:

          SIX MONTHS                                 NET INCOME
            ENDED                                                    PERCENTAGE
           JUNE 30                        TOTAL                       DECREASE

            1997                        $1,144,837                    (35.3)  %
            1998                           753,764                    (34.2)


         Compared to the same period in 1997, net income in the first six months
of  1998  decreased   $0.4  million,   reflecting   decreases   related  to  the
Acquisitions,  Dental and Investment  Products Divisions and realized investment
losses  which  were  partially  offset by  increases  related  to the  Financial
Institutions Division and the Corporate and Other segment.

RECENTLY ISSUED ACCOUNTING STANDARDS

      The Financial  Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting  Standards ("SFAS") No. 132, "Employers'  Disclosures About
Pension  and  Other   Postretirement   Benefits"   which  revises  the  footnote
disclosures about pension and other  postretirement  benefit plans. The FASB has
also issued SFAS No. 133,  "Accounting  for Derivative  Instruments  and Hedging
Activities." The adoption of these accounting standards are not expected to have
a material effect on the Company's financial condition

YEAR 2000 DISCLOSURE.

      Computer  hardware  and  software  often  denote the year using two digits
rather than four;  for example,  the year 1998 often is denoted by such hardware
and  software as "98." It is  probable  that such  hardware  and  software  will
malfunction when calculations  involving the year 2000 are attempted because the
hardware  and/or  software will  interpret  "00" as  representing  the year 1900
rather  that the year 2000.  This "Year  2000"  issue  potentially  affects  all
individuals and companies

                                       14

<PAGE>



(including the Company,  its customers,  business  partners,  suppliers,  banks,
custodians and  administrators) The problem is most prevalent in older mainframe
systems,  but personal computers and equipment  containing  computer chips could
also be affected.

      The Company shares  computer  hardware and software with PLC,  Protective,
and other affiliates of PLC. PLC began work on the Year 2000 problem in 1995 and
has developed and  implemented a Year 2000  transition plan intended to identify
and modify or replace  important  hardware and/or  software  systems on which it
relies  that  have  Year  2000  issues  or to  develop  appropriate  contingency
measures.  PLC has also developed and  implemented a plan to identify and modify
or replace  secondary  hardware and/or software  systems on which it relies that
have Year 2000 issues.  Substantial  resources are being devoted to this effort;
however,  the total costs to develop and implement  these plans are not expected
to  be  material.  PLC  is  also  confirming  that  its  service  providers  are
implementing  plans to identify and modify or replace  their systems that have a
Year 2000 issue.

      The majority of the modifications necessary for PLC's mainframe systems to
be able to process  transactions  dated  beyond  1999 have been  completed.  PLC
currently  anticipates that its remaining  systems with Year 2000 issues will be
addressed and appropriate action taken before December 31, 1999. Due to the fact
that PLC does not  control all of the  factors  that could  impact its Year 2000
readiness,  there can be no assurances  that PLC's  efforts will be  successful,
that  interactions  with other service  providers with Year 2000 issues will not
impair  PLC's  operations,  or that  the Year  2000  issue  will  not  otherwise
adversely affect PLC.

      PLC is developing detailed contingency plans for a large percentage of its
remaining Year 2000 issues. PLC is also using research,  direct inquiry,  and/or
testing to determine  the Year 2000  readiness of critical  vendors and business
partners.

      Should some of PLC's systems not be available  due to Year 2000  problems,
in a  reasonably  likely worst case  scenario,  PLC may  experience  significant
delays in its  ability  to  perform  certain  functions,  but does not expect an
inability to perform critical functions or to otherwise conduct business.



                                       15

<PAGE>



Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

      (a)Exhibit 27 - Financial data schedule
         Exhibit 99 - Safe Harbor for Forward-Looking Statements


                                                     SIGNATURE



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



                                      AMERICAN FOUNDATION LIFE INSURANCE COMPANY




Date:   August 14, 1998               /S/ JERRY W. DEFOOR
                                      -------------------
                                      Jerry W. DeFoor
                                      Vice President and Controller,
                                      and Chief Accounting Officer
                                      (Duly authorized officer)


                                       16