<PAGE>   1
                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    Form 10-K

              Annual Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

     For the fiscal year ended December 31, 1998 Commission file No. 0-6764
                               -----------------                     ------

                           Mobile America Corporation
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

            FLORIDA                                      59-1218935
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

    10475 Fortune Parkway Suite 110
        Jacksonville, Florida                                  32256         
----------------------------------------                    ----------
(Address of principal executive offices)                    (Zip Code)

Registrant's telephone number, including area code (904) 363-6339
                                                   --------------

Securities registered pursuant to Section 12(b) of the Act:

                                                      Name of each exchange
    Title of each class                                on which registered

          None                                                 None
    -------------------                                -------------------

Securities Registered pursuant to Section 12(g) of the Act:

                          Common Stock $.025 par value
--------------------------------------------------------------------------------
                                (Title of Class)

--------------------------------------------------------------------------------
                                (Title of Class)

The aggregate market value of the voting stock held by non-affiliates of the
Registrant at March 2, 1999: $14,032,344
                             -----------

Common Stock ($.025 Par value) outstanding at March 2, 1999:   7,167,542 Shares
                                                               ----------------



         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  X    No
                                              ---     ---



         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

<PAGE>   2


                                     PART 1
Item 1. Business
Introduction

         Mobile America Corporation (the "Registrant"), through its two (2)
principal, wholly owned subsidiaries, Mobile America Insurance Group, Inc.
("MAIG"), a managing general agent for the Registrant's insurance company
subsidiaries, and Fortune Insurance Company ("Fortune"), a Florida domiciled
property and casualty insurance company, is engaged primarily in the
underwriting and marketing of minimum requirement automobile insurance in
Florida. Minimum requirement automobile insurance includes personal injury
protection and property damage liability coverage sold to individuals at the
minimum coverage levels required to maintain a vehicle registration in the State
of Florida. This business has accounted for more than 80% of the Registrant's
direct (before reinsurance) consolidated revenues in each of the last five
years.

         Fortune also writes automobile physical damage coverage, personal
property insurance, commercial automobile coverage and commercial multi-peril
insurance.

         The Registrant's other significant wholly owned subsidiaries are as
follows:

         Pegasus Insurance Company ("Pegasus"), an Oklahoma domiciled property
and casualty insurance company, was acquired in 1993 to operate as an excess and
surplus lines insurer in Florida. Excess and surplus insurers accept business
that cannot be placed through the markets more traditional outlets due to
underwriting limits or risk concentration. Pegasus' primary product is
homeowners insurance, which accounted for 80% of direct premium volume in 1998.
It also offers fire, general liability, auto liability and commercial property
coverage. Pegasus maintains significant reinsurance cover which limits its loss
on any one risk to $40,000.

         Fortune Financial Corporation ("Fortune Financial") acts as a servicing
provider for Fortune Insurance Company which is a servicing carrier for the
Florida Automobile Joint Underwriting Association (FAJUA) and a subcontractor,
through a third party arrangement, for the Florida Residential Property and
Casualty Joint Underwriting Association (FRPCJUA). Fortune Financial provides
administrative services including underwriting and claims settlement for these
entities for a fee and accepts no insurance risk.

         Big Gorilla, Inc., a licensed Florida premium finance company, provides
a policy premium financing source for MAIG's brokers.

         Fortune Life Insurance Company ("Fortune Life"), an Arizona domiciled
company, is engaged in the business of writing life insurance coverage primarily
in Florida. Fortune Life is also licensed in Louisiana.

Operations

         The Registrant and its subsidiaries are primarily engaged in insurance
and insurance related services with the bulk of the business being minimum
requirement automobile insurance coverage in the State of Florida. The insurance
operations of the Registrant generated gross written insurance premiums of $75.9
million during 1998. Insurance premiums earned, net of reinsurance cessions,
were $34.9 million, 72.3% of reported revenue in 1998.

         The Registrant's reportable segments are business entities that offer
different insurance related products or services. This includes Fortune,
automobile insurance; Pegasus, excess and surplus lines insurance; Fortune
Financial, fee-for-service policy administration; and Big Gorilla, premium
finance. Fortune writes a small amount of personal property insurance and
commercial multi peril insurance, as discussed below, which is considered
immaterial to the entities operations and is included in the automobile segment
for reporting purposes.

         MAIG collects fees for placing and servicing business underwritten by
Fortune and Pegasus. These fees and related expenses have been allocated to the
Fortune automobile and Pegasus excess and surplus line segments.
MAIG has no other source of operating revenue.




                                       I-1


<PAGE>   3


Fortune Insurance Company

Automobile Insurance

         During 1980, Fortune began to market automobile insurance, placing
emphasis on physical damage, personal injury protection, and in recent years,
property damage liability coverage in the private passenger automobile market.
Because of the nature of private passenger and commercial automobile insurance,
Fortune carefully monitors underwriting results in these lines. Fortune's
marketing and underwriting will strive to improve results and the Registrant
will continue to emphasize and actively market these lines.

         Total written premium for all automobile lines totaled $69.8 million in
1998, with $62.0 million from private passenger personal injury protection and
property damage liability coverage. During 1997 $80.2 million and $75.6 million
were produced from these sources, respectively. The decline in premium volume
during 1998 reflects a decrease in market share the result of rate increases and
increased competition. Even with this increased competition, Fortune has done
well in obtaining rate increases in selective markets. Two of Fortune's direct
competitors are withdrawing from the market in early 1999 and it is expected
other competitors will either have to raise rates or withdraw from the market as
well. Fortune remains a market leader in Florida in the minimum requirement
automobile business and expects to be able to increase market share in 1999 as
recent entrants into the market realize they are selling under cost.

          Also, the transfer of Fortune's primary automobile business to a Year
2000 compliant operating system, which was completed during the second half of
1998, has been less than fully successful resulting in the backlog of policies,
endorsements and cancellations to be processed. This slow down in operating
performance has resulted in a drop off in new business policy submissions from
the sales force. Management has increased staffing and engaged outsourcing
assistance to overcome these system and backlog problems and expects to be at
normal operating capacity by the end of the second quarter 1999.

Personal Property Insurance and Other

         Fortune writes homeowners, mobile homeowners and dwelling fire policies
throughout the State of Florida. During 1998 and 1997 direct written premium for
these lines of business totaled $1.3 million and $1.6 million, respectively. In
addition, Fortune issues commercial multi peril policies. Management plans to be
active in these lines of business, however, extreme caution will be exercised
with respect to rates, profitability, risk concentration and the competitive
market.


Pegasus Insurance Company

Excess and Surplus Lines Insurance

         During 1993, the Registrant purchased Pegasus, which was subsequently
admitted on an excess and surplus lines basis in Florida during December 1993.
In September 1994, Pegasus marketed its first insurance program, a commercial
general liability (CGL) policy for artisan contractors. Pegasus wrote $133,000
in premiums in 1995 and has increased its premium writings to $1.9 million in
1996, $4.4 million in 1997 and $4.0 million in 1998. This growth has been
accomplished by expanding its product line to include homeowners, mobile
homeowners and commercial multi-peril products.

         The decline in premium volume during 1998 was primarily due to
increased competition in the property market and efforts by the Florida
Department of Insurance to reduce the placement of excess and surplus business.
Management believes that Pegasus will continue to maintain a strong presence in
the excess and surplus market but growth may not be as originally anticipated.
Pegasus continues to design and introduce new products such as fire, auto
liability, commercial property and products that are more casualty oriented.




                                       I-2


<PAGE>   4



Fortune Financial Corporation

Fee for Service Operations

         During 1993, Fortune Financial was formed to act as a servicing carrier
for Fortune which was selected as one of eight carriers for the FRPCJUA, the
first residential underwriting association in the nation. This association was
formed to function as an insurance pool for individuals who, because of
Hurricane Andrew, either lost their homeowners insurance or could not obtain
homeowners insurance. This agreement terminated during 1996.

         Since June of 1996, Fortune Financial has processed in excess of $41
million in premiums as a subcontractor for Policy Management Systems Corporation
(PMSC) with responsibility for processing FRPCJUA policies. For providing this
service, Fortune Financial retains a percentage of the gross written premiums
(less catastrophe premiums) generated from the policies it services. In the last
quarter of 1997 the Registrant increased its share of FRPCJUA business. The
premium processed for the FRPCJUA in 1998 increased by approximately 83%. This
contract expires March 1999 and has been extended for 90 days. Management is
currently negotiating the renewal of this contract and is pursuing additional
policies in this pool of business.

         Fortune Financial has been servicing the FAJUA since October 1994. In
October 1997, the Registrant was awarded a three year contract by the FAJUA,
effective January 1, 1998. Since this contract began, the Registrant's share of
this pool of business has increased from 17.8% to 34.7%. Processed premiums
increased to $6.6 million in 1998 from $6.0 million in 1997.

         The FRPCJUA and the FAJUA pools of available business are declining.
More insurance companies are accepting risks in areas where only the JUA would
underwrite risk a few years ago. Both associations have begun take out practices
where outside insurance companies can purchase JUA polices. The FRPCJUA written
premiums have declined 22% in their 1998 fiscal year. The FAJUA written premiums
have decreased 46.1% in their 1998 fiscal year. Management is actively seeking
to obtain larger percentages of these pools of business.

         In November 1994, Fortune was selected by the Federal Insurance
Administration to be a producer of the Federal Government's Write Your Own Flood
Program. Fortune has written $484,192 in gross premium during 1998.

Big Gorilla, Inc.

Premium Finance

         The Registrant's premium finance company subsidiary, now entering it's
sixth year in the premium finance business, provide some 312 broker agents a
source for financing policy premiums. During 1998, the subsidiary financed
nearly 15,500 policies. The subsidiary is planning for significant growth in
this area since 95% of Fortune's and Pegasus' insureds utilize this method of
financing by either using Big Gorilla or a third party finance company.
Currently Big Gorilla finances policies underwritten by Fortune, Pegasus and the
FAJUA business processed through Fortune Financial.

Life Insurance

         Fortune Life sells annual renewable term life insurance with limited
first year benefits. During 1998, total life insurance premium written was
$24,000.


                                       I-3


<PAGE>   5



Financial Information about Industry Segments

         The financial information regarding the Registrant's segments presented
in Note 10 of Notes to Consolidated Financial Statements for the three years
ended December 31, 1998, is incorporated herein by reference.

Competitive Conditions

         The insurance industry is a highly competitive industry. Certain of the
Registrant's competitors have been in the business longer, have a larger volume
of business and have substantially greater financial resources than the
Registrant. Since the Registrant's insurance operations are modest compared to
several of its significant competitors (the Registrant employed 220 people at
year-end), management is continuing to focus its marketing and other operations
on specialized insurance coverages. Additionally, since the Registrant's
insurance subsidiaries transact their business in a heavily regulated industry,
they are sensitive to both adverse legislation and administrative directives.

Loss and Loss Adjustment Expense Reserves

         Reserves for unpaid claims and adjustment expenses are maintained to
cover the probable ultimate cost of settling all losses incurred, including
those not yet reported. Reserves for losses incurred in prior years may be
adjusted by review or by payment which could result in either a redundancy or
deficiency to the reserve reported at the end of the prior year. Such changes
are reflected in current operations.

         The Registrant's insurance subsidiaries have entered into several
reinsurance agreements covering specific lines of business, which provide
reinsurance protection on a quota share or excess of loss basis.

         Adverse loss and loss adjustment expense development is generally
experienced in liability lines where settlements may not be reached until
several years following the initial claim. Claims adjustment costs consisting
primarily of legal expenses are traditionally high on these particular losses.

         The following tables present loss and loss adjustment expenses on a
paid and incurred basis for the past three one year periods, and development of
losses and loss adjustment expenses over the past ten years, all net of
reinsurance.

                       Losses and Loss Adjustment Expenses

<TABLE>
<CAPTION>
  Unpaid             Incurred Related to                                Payments Related to             Unpaid
Beginning          Current           Prior            Total           Current           Prior           End of
 of Year            Year              Year           Incurred           Year             Year            Year
---------          -----------------------           --------         -----------------------           ------
<S>              <C>              <C>               <C>              <C>              <C>              <C>        

Year ended December 31, 1998:
------------------------------------------

$15,905,704      $22,435,796      $ 3,469,432       $25,905,228      $15,897,843      $14,512,958      $11,400,131

Year ended December 31, 1997:
------------------------------------------

$20,040,739      $35,706,903      $(2,736,845)      $32,970,058      $23,961,413      $13,143,680      $15,905,704

Year ended December 31, 1996:
------------------------------------------

$20,808,027      $27,215,881      $(3,390,000)      $23,825,881      $15,428,840      $ 9,164,329      $20,040,739
</TABLE>


                                       I-4


<PAGE>   6



            Analysis of Loss and Loss Adjustment Expense Development
                                 (In Thousands)


<TABLE>
<CAPTION>
Year Ended December 31,         1988      1989    1990      1991     1992      1993      1994     1995     1996       1997     1998
-----------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>      <C>      <C>      <C>      <C>       <C>      <C>       <C>      <C>       <C>       <C>    

Liability for Unpaid Losses
   And Loss Adjustment
   Expenses                    $7,981   $13,577  $14,996  $14,906  $17,207   $19,410  $ 19,103  $20,808  $20,041   $ 15,906  $11,400

Paid (Cumulative) As of:
   End of Year                     --        --       --       --       --        --        --       --       --         --       --
   One Year Later               3,792     6,311    8,583    6,245   13,306    13,641    13,273    9,164   13,143     14,513
   Two Years Later              4,528     8,854   10,899   11,806   15,520    16,292    17,601   13,361   14,084
   Three Years Later            5,173     9,772   11,918   12,380   16,355    17,912    19,809   14,100
   Four Years Later             5,459    10,297   12,170   12,783   16,856    18,782    20,034
   Five Years Later             5,603    10,390   12,313   12,939   17,175    18,735
   Six Years Later              5,632    10,455   12,373   13,083   17,047
   Seven Years Later            5,636    10,496   12,445   12,893
   Eight Years Later            5,661    10,565   12,242
   Nine Years Later             5,720    10,355
   Ten Years Later              5,720


Liability Reestimated as of:
   End of Year                  7,981    13,577   14,996   14,906   17,207    19,410    19,103   20,808   20,041     15,906   11,400
   One Year Later               7,090    10,173   12,653   12,434   16,488    19,392    19,292   16,485   17,304     18,260
   Two Years Later              5,555    10,496   12,203   12,916   17,507    18,856    21,027   16,732   15,317
   Three Years Later            5,674    10,204   12,332   13,111   17,235    19,458    20,799   14,748
   Four Years Later             5,605    10,396   12,382   13,009   17,414    19,339    20,362
   Five Years Later             5,626    10,464   12,373   13,190   17,528    18,976
   Six Years Later              5,675    10,487   12,517   13,388   17,180
   Seven Years Later            5,655    10,628   12,731   12,979
   Eight Years Later            5,788    10,832   12,301
   Nine Years Later             5,982    10,399
   Ten Years Later              5,720


Redundancy (Deficiency)         2,261     3,178    2,695    1,927       27       434    (1,259)   6,060    4,724     (2,354)
</TABLE>






                                       I-5


<PAGE>   7


Item 2. Properties


The executive and general offices of the Registrant and its subsidiaries,
consisting of approximately 23,000 square feet, are located at 10475 Fortune
Parkway, Suite 110, Jacksonville, Florida. In 1997 the Registrant exercised a
renewal option extending the term of the lease on this space to 2002. Annual
lease payments range from $257,352 to $269,796 in the final year of the lease.

         In 1997, the Registrant expanded its facilities by leasing
approximately 7,500 square feet for its personal property, excess and surplus
lines and fee for service processing, This lease is on a month to month term
with current monthly lease payments of $6,455.

         The Registrant's subsidiaries, Fortune Insurance Company and Fortune
Life Insurance Company own property in Jacksonville, Florida for which there are
no definite plans for development at this time. Fortune Insurance Company
purchased land in 1987 and 1986 for $165,000 and $140,000 respectively. During
1982, Fortune Life Insurance Company purchased land and a building for $88,000.
In 1996 the Registrant purchased land and a building in Jacksonville, Florida
for $167,000. This facility serves as off-sight storage.


Item 3. Legal Proceedings

         The Registrant, through its subsidiaries, is routinely a party to
pending or threatened legal proceedings and arbitration. These proceedings may
include claims for punitive damages in addition to other specified relief. Based
upon information currently available, and in light of legal and other defenses
available to the Registrant and its subsidiaries, management does not consider
liability from threatened or pending litigation to be material.

Item 4. Submission of Matters to a Vote of Security Holders

         No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.



                                       I-6

<PAGE>   8

                                     PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
        Matters

Market Information

         The Registrant's common stock is traded on the NASDAQ Stock Market
under the symbol MAME.

         The following table shows the range of high and low sale quotations for
the Registrant's common stock for each of the last eight quarters ended December
31, 1998, as obtained from the National Association of Securities Dealers.

<TABLE>
<CAPTION>
 Quarterly Period Ended
 --------------------------------------
                             High         Low
                         ---------------------
 <S>                     <C>         <C>      
 March 31, 1997          $   11.85   $    9.13
 June 30, 1997               11.75        9.78
 September 30, 1997          10.50        9.38
 December 31, 1997           14.75        9.63
 March 31, 1998              13.88       11.00
 June 30, 1998               10.38        9.75
 September 30, 1998           9.25        4.50
 December 31, 1998            5.13        3.23
</TABLE>

Holders

         At March 2, 1999, the Registrant had 384 record holders of its common
stock.

Dividends (adjusted for stock dividends)

         In January, 1993 the Registrant declared and paid a dividend of $.29
per share on each of its shares of $.025 par value common stock.

         In September, 1993 the Registrant declared and paid a dividend of $.09
per share on each of its shares of $.025 par value common stock.

         In January, 1994 the Registrant declared and paid a dividend of $.18
per share on each of its shares of $.025 par value common stock.

         In January, 1995 the Registrant declared and paid a dividend of $.16
per share on each of its shares of $.025 par value common stock.

         In January, 1996 the Registrant declared and paid a dividend of $.30
per share on each of its shares of $.025 par value common stock.

         In January, 1997 the Registrant declared and paid a dividend of $.35
per share on each of its shares of $.025 par value common stock.

         In January, 1998 the Registrant declared and paid a dividend of $.35
per share on each of its shares of $.025 par value common stock.

         In January, 1999 the Registrant declared and paid a dividend of $.11
per share on each of its shares of $.025 par value common stock.


         Dividends to stockholders are limited to 50% of net income pursuant to
terms of the Registrant's long term loan agreement. Also, the Registrant's
insurance subsidiaries ability to pay dividends to the Registrant are limited by
State statutes and regulations.

                                      II-1


<PAGE>   9



Item 6. Selected Financial Data

        Mobile America Corporation & Subsidiaries

            Years Ended December 31, 1998, 1997, 1996, 1995, and 1994


<TABLE>
<CAPTION>
                                                      1998               1997              1996            1995            1994
                                                 -------------      ------------      -----------      -----------      -----------
<S>                                              <C>                <C>               <C>              <C>              <C>       

Total Revenues                                   $ 48,302,029       $ 58,810,207       48,163,935       52,925,874       43,767,330

Net Income (loss)                                $   (999,534)      $  6,175,796        7,571,392        5,999,694        4,048,446

Basic and diluted earnings (loss) per share      $      (0.14)      $       0.86             1.05             0.84             0.56

Total Assets at Year-End                         $124,663,416       $138,242,138      168,414,452      182,771,162      143,815,295

Long-Term Obligations                            $  9,600,000       $ 12,000,000       12,000,000       12,000,000                0

Cash Dividends Per Common Share                  $       0.35       $       0.35             0.30             0.16             0.18
</TABLE>

         Earnings per share and cash dividends per share amounts have been
         restated to conform with stock dividends and splits.

         Earnings per share amounts are presented in conformity with Statement
         of Financial Accounting Standards No. 128.



                                      II-2


<PAGE>   10



Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

1998 Compared to 1997

Operations

The Registrant reports a net loss of $999,534 ($.14 a share) for the year ended
December 31, 1998. This is a significant departure from the net income of
$6,175,796 ($.86 a share) reported during 1997. The loss is primarily due to
lower earned revenues, increases in loss reserves, less favorable reinsurance
recoveries and higher operating expenses. These factors were off set to some
degree by tax benefits which will allow the Registrant to recover approximately
$2,700,000.

Total consolidated revenues decreased 17.9% during 1998 due to a 20.9% reduction
in earned insurance premiums and a 14.1% reduction in investment income.

Direct earned premium in the automobile segment declined 12.2% to $77,766,225
from $88,555,721 earned in 1997. This decline is due to lower direct premium
writings the result of reduced market share resulting from rate increases,
increased competition and processing backlogs the result of computer
modification problems during the Year 2000 conversion process. Net earned
premium (after reinsurance ceded premium of $45,426,237) in the automobile
segment declined 21.9% to $32,339,988 from $41,448,497 reported in 1997
following the trend in direct business but also reflecting a 25% increase in the
reinsurance cession rate which reduced net earned premium by $5,000,000.

Direct excess and surplus lines earned premium increased 18.0% to $4,027,051 in
1998, however net earned premium remained flat at $2,600,000 reflecting higher
reinsurance cost for excess loss coverage.

Net investment income declined 14.1% the result of a 12.9% decrease in invested
assets during the period and the reinvestment of maturities at lower interest
rates. The decline in premium volume coupled with quicker claim settlement
procedures, higher operating expenses, debt repayment requirements and computer
system enhancements has resulted in reduced cash flow.

Service fee revenue which includes fee-for-service revenue, premium finance
revenue and MAIG agency revenue remained steady in 1998. Revenues from the
fee-for-service business increased 7.9% and premium finance revenues increased
63.5%. MAIG agency revenue from the automobile segment declined 12.0% following
the trend in direct premium volume for this segment. Fees from the excess and
surplus lines segment remained steady.

Net loss and loss adjustment expenses declined 20.5% in 1998 to $26,142,808. The
incurred loss and loss expense to earned premium ratio is 74.8% in 1998 compared
to 74.4% in 1997.

During 1998 net incurred loss and loss expenses in the automobile segment
declined 22.6% to $24,482,706 which includes a 14.7% decline in direct paid loss
and loss adjustment expense to $72,257,900 compared to $84,671,040 paid in 1997.
The loss and loss expense ratio in this segment was 75.7% in 1998 and 76.3% in
1997.

Excess and surplus lines net incurred loss and loss expense totaled $1,422,524
in 1998, 6.2% higher than in 1997. Direct loss and loss expense payments totaled
$1,951,703 in 1998, 44.4% higher than in 1997 primarily due to storm damage
during the first quarter of 1998. For 1998 the loss and loss expense ratio was
56.5% compared to 51.2% in 1997.

Policy acquisition costs increased significantly in 1998 reflecting $6,700,000
in expense recovery recognized in 1997 and in lower reinsurance commission
credits in 1998. In 1998 certain quota share reinsurance agreements covering
automobile business were restructured under less favorable terms limiting loss
recovery provisions. The effect of these changes flows through the reinsurance
commission credits.

During 1998 salary and wages remained level and general and administrative
expenses increased 23.3%. This increase is due to costs associated with the
computer modification problems and higher professional fees resulting from the
due diligence process, associated with the possible sale of the Registrant,
which took place during 1998.

                                      II-3


<PAGE>   11


1998 Compared to 1997 (continued)

Fourth Quarter 1998

As expected the Registrant experienced a net loss of $4,251,378 during the
fourth quarter after reporting net income of $3,251,844 during the first nine
months of the year. This loss results from reduced earned premium revenue in the
automobile segment due to increased competition as well as processing backlogs
the result of computer modification problems during the Year 2000 conversion
process and reserve increases. Net earned premium for the fourth quarter was
$6,836,508 compared to $8,610,027 reported during the third quarter. In
addition, ultimate losses in the automobile segment were increased $20,130,000
during this period resulting in loss and loss expenses of $7,193,566, a 105.2%
loss ratio.

As a result of loss cost studies, the Registrant has historically been operating
at the low end of the actuarial range. During the fourth quarter, loss and loss
adjustment expense reserves increased from approximately 90% of the Registrant's
independent actuary's estimate of $37.4 million at year end 1997 to
approximately 93% of the estimate of $31.3 million at year end 1998.

Due to the inherent uncertainty in estimating reserves for losses and loss
adjustment expenses, which are estimates of the amounts necessary to settle
reported and unreported claims and their related loss adjustment expenses, there
can be no assurance that the ultimate liability will not exceed the amounts
reserved, resulting in an adverse effect on the Registrant. The Registrant
believes its current reserves are adequate. The Registrant's independent
actuary's range of reasonable direct reserve estimates as of December 31, 1998
is between $26.6 million and $36.0 million and net of reinsurance recoveries the
reserve range is between $10.4 million to $14.1 million.

The loss and loss adjustment expense experienced on the business which the
Registrant originates and cedes to its reinsurers may also adversely affect the
Registrant's profitability in the future. The Registrant increased the ceding
percentage to 75% from 60% on certain lines effective January 1, 1998. If the
Registrant's ratio of loss and loss adjustment expenses to earned premium
deteriorates, it is likely that over time, the Registrant's cost of reinsurance
would increase, and it is possible that at some future point the Registrant
could not obtain reinsurance on economically viable terms.

In order to promote top-line growth, effective January 1, 1999 the Registrant
reduced its ceding percentage on personal injury protection and property damage
liability products by 13% to a ceding percentage of 65%.

Financial Position, Liquidity and Capital Resources

Net cash flow from operations was negative in 1998 as loss and loss adjustment
expense payments and consolidated operating expense payments and debt payments
exceeded premiums, fees and investment revenues. The Registrant put forth a
concerted effort in 1997 and 1998 to settle outstanding claims, thereby reducing
the number of claims outstanding in the minimum limits automobile personal
injury protection line of business. This process accelerated loss payments
contributing to the negative cash flow the Registrant experienced. The
Registrant believes this practice will improve overall loss and loss expense
experience by reducing ultimate loss settlement costs and litigation expenses.
The Registrant's practice of maintaining a highly liquid investment portfolio
allowed the Registrant to meet cash demands. The Registrant is optimistic that
cash flow will improve as rate increases take effect, premium volume improves
and the settlement of losses returns to a more normal pattern.

The Registrant maintains sufficient liquidity to meet operational needs. Cash
dividend, capital expenditure, debt repayment and operating requirements will be
provided by operations and investment activities. The investment policy
continues to emphasize higher quality securities matched closely with the short
liability duration.

Year 2000 Disclosure

The Registrant is aware of the issues associated with the programming code in
existing computer systems as the Year 2000 approaches. The "Year 2000" problem
is pervasive and complex, as virtually every computer system will be affected in
some way by the rollover of the two-digit value to "00". The issue is whether
computer systems will properly recognize date-sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or fail.

                                      II-4


<PAGE>   12


1998 compared to 1997 (continued)

In the ordinary course of business, the Registrant has installed various
software and hardware that is Year 2000 compliant. The Registrant's telephone
system is not completely Year 2000 compliant but the Registrant expects to
install the necessary upgrades prior to September 30, 1999. The Registrant
believes all other mission critical systems to be Year 2000 compliant.

The Registrant has confirmed with its primary processing vendors that they have
or will make the necessary software and hardware upgrades prior to the end of
1999.

As a result of installing a new Year 2000 compliant premium and claims
processing system the Registrant has experienced an increase in the backlog of
policies, endorsements and cancellations to be processed. While progress
continues to be made, it was necessary to increase staffing and engage
outsourcing assistance in order to be able to eliminate the backlog in a
reasonable time. At this time the Registrant is not able to estimate the extent
to which costs of implementing this system will be in excess of the proposed
budget of $1.4 million. However, the Registrant has budgeted an additional
$200,000 for these expenses. Expenses associated with the installation of the 
Year 2000 compliant system were approximately $139,000 in 1998. Capital 
investments for this project approximate $860,000.

Failure of the Registrant, or its significant third party suppliers and vendors,
to become fully Year 2000 compliant prior to December 31, 1999 could have a
material adverse impact on the Registrant's results of operations, financial
position and cash flows. The Registrant has identified certain third parties 
that could service its major lines of business in the event that critical 
system applications should fail as a result of the date roll-over to January 1, 
2000.

The Registrant has conducted a comprehensive review of its underwriting
guidelines and has determined that there is very little Year 2000 exposure in
the insurance policies it sells. The Registrant believes that its exposure to
Year 2000 claims will not be material. However, changing social and legal trends
may create unintended coverage for exposures by reinterpreting insurance
contracts and exclusions. It is impossible to predict what, if any, exposure
insurance companies may ultimately have for Year 2000 claims whether coverage
for the issue is specifically excluded or included.

Market Risk - Interest Rate Risk

The Registrant's exposure to market risk for changes in interest rates is
concentrated in its investment portfolio and to a lesser extent its debt
obligation. The following table provides information as of December 31, 1998
about our fixed maturity investments that are sensitive to interest rates. The
table presents principal cash flow and related weighted-average interest rates
by expected maturity dates. Actual cash flows may differ from those stated as a
result of calls and prepayments. Short-term investments, which total $21,210,230
at December 31, 1998, all mature within one year. Principal payments on the note
payable are scheduled at $600,000 per quarter over the next 48 months. The note
payable accrues interest at 90 day LIBOR plus 250 basis points and is payable
monthly.

<TABLE>
<CAPTION>
                                                                 Weighted
                                            Principal            average
Fixed Maturities                           Cash Flows         interest rate

<S>                                        <C>                <C> 
1999                                        $12,735                 5.7%
2000                                         12,704                 6.2%
2001                                         11,507                 6.4%
2002                                          4,455                 6.2%
2003                                          3,920                 6.3%
Thereafter                                   10,077                 6.4%
                                            -------

Total                                       $55,398
                                            =======

Market Value at December 31,1998            $57,222
                                            =======
</TABLE>

Other Items

The Registrant paid an annual dividend of $.11 per share on February 5, 1999 to
shareholders of record on January 22, 1999. The dividend payment totaled
$794,988

                                      II-5


<PAGE>   13



1998 compared to 1997 (continued)

During 1998 the Registrant conducted discussions with various companies
interested in merging with or acquiring the Registrant and its subsidiaries. Due
to stock market volatility during the last half of 1998 and an inability to
reach a firm offer, the Registrant has discontinued any further negotiation and
is not currently pursuing a merger or acquisition candidate.

Forward-Looking Statements

This Form 10-K contains certain forward-looking statements within the meaning of
section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements are deemed by the Registrant to be covered by and to
qualify for safe harbor protection provided by the Private Securities Litigation
Reform Act of 1995. These forward-looking statements relate to, among other
things, (a) the expected benefits from (i) the award of a three year servicing
contract by the Florida Automobile Joint Underwriting Association, and (ii) the
extension of a service contract by the Florida Residential Property and Casualty
Joint Underwriting Association, (b) the improvement of cash flow as a result of
rate increases and a return to a more normal pattern of loss settlements, (c)
the Registrant's third party vendors state of readiness and the Registrant's
potential underwriting exposure to Year 2000 claims. Such statements reflect the
current views of the Registrant and are subject to certain risks and
uncertainties that include, but are not limited to, obtaining policy volume
service levels under the Joint Underwriting Association service contracts,
continued market acceptance of premium rate increases in the automobile minimum
limits personal injury protection line of business and adequacy of loss
reserves. The Registrant disclaims any intent or obligation to update publicly
these forward-looking statements, whether as a result of new information, future
events or otherwise.

1997 Compared to 1996

Operations

Income before provision for income taxes decreased 1.3% in 1997 to $8,867,896
compared to $8,986,164 reported in 1996 primarily due to increased earned
premium and lower acquisition costs being offset by reduced service fee income
and higher salaries, wages and general and administrative costs. Net income
decreased 18.4% in 1997 to $6,175,796 compared to $7,571,392 reported in 1996
principally due to a nonrecurring tax benefit resulting from the release of a
valuation allowance and the recognition of income tax credits during 1996.

Total consolidated revenues, exclusive of state mandated automobile assigned
risk pool business, increased 3.9% from $57,836,017 in 1996 to $58,921,414 in
1997. Overall, total consolidated revenues increased 22.1% to $58,810,207 during
1997 from $48,163,935 for 1996. This change was influenced by an increase in
insurance premiums earned (which was adversely affected by adjustments to state
mandated assigned risk pool business in 1996), offset by a decline in service
fees earned and lower net investment income.

Insurance premiums earned, exclusive of state mandated automobile assigned risk
pool business, increased 9.7% during 1997 due primarily to a 55.6% increase in
property earned premium and a 6.7% increase in private passenger automobile
personal injury protection/property damage earned premium. Overall insurance
premiums earned increased 43.9% after giving effect to business associated with
the state mandated automobile assigned risk pool.

Direct written premium in the Registrant's automobile lines decreased 10% in
1997 to $80,727,841 reflecting a decrease in market share as a result of rate
increases instituted in December 1996 and increased competition in the market
place. The Registrant took steps, with a March 1998 rate revision, to exploit
pockets of opportunity resulting in the establishment of new territories, more
competitive rates and a revised commission structure.

Property insurance direct written premium produced through the Registrant's
surplus lines insurance subsidiary increased 135% in 1997 to $4,367,466. The
Registrant plans to remain active in this market.

Service fees earned declined 18.6% in 1997 to $8,957,080 compared to $11,001,222
reported in 1996. This decrease is the result of lower fee-for-service revenue
due to the cancellation of certain service agreements with the FRPCJUA during
the second quarter of 1996. In the fourth quarter of 1997, the Registrant was
awarded a three year servicing contract by the FAJUA, effective January 1, 1998.
In November 1997, the FRPCJUA extended a major servicing contract through March
1999.

                                      II-6


<PAGE>   14


1997 Compared to 1996  (continued)

Investment income decreased 9.2% in 1997 due to lower available rates and the
utilization of cash to meet the maturation of prior years loss costs.

Total consolidated expenses, exclusive of state mandated automobile assigned
risk pools, increased 3.7% from $48,385,265 during 1996 to $50,173,849 during
1997. Overall, total consolidated expenses increased 27.5% from $39,177,771 in
1996 to $49,942,311 in 1997, primarily due to losses and expenses associated
with assigned risk pool business.

Loss and loss adjustment expenses incurred increased 5.0% during 1997 over 1996,
exclusive of assigned risk pool business, for all lines of business written by
the Registrant's insurance company subsidiaries. However, substantially all of
this increase is attributable to the minimum limits automobile personal injury
protection line of business. Loss and loss adjustment expenses incurred as a
percentage of earned premium were 81.3% in 1995, 78.2% in 1996 and 74.8% in
1997, in each case, exclusive of assigned risk pool business. In its efforts to
reduce loss and loss adjustment expenses incurred, as it relates to earned
premium, the Registrant initiated a significant rate increase in the minimum
limits personal injury protection line of business in the fourth quarters of
1995 and 1996. The Registrant introduced a new rate increase in March 1998.

Due to the inherent uncertainty in estimating reserves for losses and loss
adjustment expenses, which are estimates of the amounts necessary to settle
reported and unreported claims and their related loss adjustment expenses, there
can be no assurance that the ultimate liability will not exceed the amounts
reserved, resulting in an adverse effect on the Registrant. At year end 1997,
the Registrant's loss and loss adjustment expense reserves were at the lower end
of a range which the Registrant's independent actuary deems appropriate. The
Registrant's independent actuary's range of reasonable direct reserve estimates
as of December 31, 1997 is between $31.8 million and $43.0 million and net of
reinsurance recoveries the reserve range is between $15.1 million to $20.5
million.

The loss and loss adjustment expense experienced on the business which the
Registrant originates and cedes to its reinsurers may also adversely affect the
Registrant's profitability in the future. The Registrant decreased the ceding
percentage from 70% to 60% on certain lines effective January 1, 1996. The
Registrant will increase the ceding percentage to 75% in 1998, taking advantage
of reduced reinsurance costs. If the Registrant's ratio of loss and loss
adjustment expenses to earned premium deteriorates, it is likely that over time,
the Registrant's cost of reinsurance would increase, and it is possible that at
some future point the Registrant could not obtain reinsurance on economically
viable terms.

Policy acquisition costs decreased 13.5% during 1997 due principally to a
reduction in direct premium volume. Salary and wages increased 10.3% due to the
hiring of a number of key personnel to help manage the Registrant into the next
century. This included a senior vice president of claims, a vice president of
information systems and a vice president of human resources.

Financial Position, Liquidity and Capital Resources

Net cash flow from operations was negative in 1997 as loss and loss adjustment
expense payments and consolidated operating expense payments exceeded premiums,
fees and investment revenues. The Registrant put forth a concerted effort in
1997 to settle outstanding claims, thereby reducing the number of claims
outstanding in the minimum limits automobile personal injury protection line of
business. This process accelerated loss payments contributing to the negative
cash flow the Registrant experienced. The Registrant believes this practice will
improve overall loss and loss expense experience by reducing ultimate loss
settlement costs and litigation expenses. The Registrant's practice of
maintaining a highly liquid investment portfolio allowed the Registrant to meet
cash demands with no adverse impact on operating performance. The Registrant is
optimistic that cash flow will improve as rate increases take effect and the
settlement of losses returns to a more normal pattern.

On June 10, 1997, the Registrant issued 924,018 shares of common stock pursuant
to a 15% stock dividend on its $.025 par value common stock, effective for
shareholders of record on June 23, 1997. Earnings per share and dividend per
share amounts have been adjusted to reflect this stock dividend.




                                      II-7


<PAGE>   15



Item 8.  Financial Statements and Supplementary Data

         Index to Financial Statements and Supplementary Data

<TABLE>
         <S>                                                                                              <C>
         Report of Independent Certified Public Accountants                                               II-9


         Consolidated Balance Sheets, December 31, 1998 and 1997                                          II-10


         Consolidated Statements of Operations                                                            II-11
                   Years ended December 31, 1998, 1997 and 1996


         Consolidated Statements of Comprehensive Income                                                  II-12
                   Years ended December 31, 1998, 1997 and 1996


         Consolidated Statements of Cash Flows                                                            II-13
                   Years ended December 31, 1998, 1997 and 1996


         Consolidated Statements of Changes in Stockholders' Equity                                       II-14
                   Years ended December 31, 1998, 1997 and 1996


         Notes to Consolidated Financial Statements                                                       II-15-39
</TABLE>


Item 9.  Disagreements on Accounting and Financial Disclosure

         None.





                                      II-8


<PAGE>   16


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors
  and Stockholders
Mobile America Corporation
Jacksonville, Florida

         We have audited the accompanying consolidated balance sheets of Mobile
America Corporation and Subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, comprehensive income changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements and schedules referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedules based on our
audits.

         We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mobile
America Corporation and Subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.

         Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the accompanying
Index in Item 14(a)2 of this Form 10-K are presented for purposes of complying
with the Securities and Exchange Commission's rules and are not part of the
basic financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.




                                         CHERRY, BEKAERT & HOLLAND, L.L.P.

Orlando, Florida
March 17, 1999



                                      II-9


<PAGE>   17


                   Mobile America Corporation and Subsidiaries
                           Consolidated Balance Sheets
                           December 31, 1998 and 1997

<TABLE>
<CAPTION>
                   Assets                                 1998               1997
----------------------------------------------      -------------       -------------

<S>                                                 <C>                 <C>       
Investments:
   Securities held to maturity
     at amortized cost (fair value
     $30,811,888 and $43,511,416)                   $  30,321,793       $  43,620,417
   Securities available for sale at fair value
     (amortized cost $27,240,132
      and $30,557,149)                                 27,919,593          30,676,634

   Short-term investments                              21,210,230          16,940,962
                                                    -------------       -------------

     Total investments                                 79,451,616          91,238,013
                                                    -------------       -------------

Cash                                                    1,082,422           4,518,020
Receivables:
   Insurance premiums                                   3,974,909           3,324,666
   Accrued investment income                              904,692           1,181,450
   Reinsurance, paid losses and other                     398,395             100,486
   Reinsurance recoverable, unpaid losses              17,688,861          17,720,613
   Current income taxes                                 2,747,359             384,568
                                                    -------------       -------------

      Total receivables                                25,714,216          22,711,783
                                                    -------------       -------------

Deferred income tax                                       985,578           1,581,487

Ceded unearned premium                                 16,372,379          16,752,315

Deferred policy acquisition costs                      (2,743,281)         (2,047,989)

Property and equipment                                  2,153,357           1,553,683


Equity in pools and associations                        1,132,210             996,160
Other assets                                              514,919             938,666
                                                    -------------       -------------

                                                    $ 124,663,416       $ 138,242,138
                                                    =============       =============
</TABLE>


<TABLE>
<CAPTION>

         Liabilities and Stockholders' Equity                       1998                1997
-------------------------------------------------------       -------------       -------------
                                                                                             
<S>                                                           <C>                 <C>          
Insurance loss reserves, including
   life insurance policy benefits of $17,741 and $16,983      $  29,106,729       $  33,643,295
Unearned premium                                                 26,913,770          32,893,437
Unearned service fees                                               448,117             568,215
Contractholders funds                                            11,740,802           7,644,869
Reinsurance funds withheld and
   balances payable                                               6,664,985           7,001,015
Claim payments outstanding                                        2,073,901           3,845,055
Accrued expenses and other liabilities                            1,324,670             919,956
Deferred income tax on net unrealized gains on
   securities available for sale                                    231,017              40,625
Note payable                                                      9,600,000          12,000,000
                                                              -------------       -------------

        Total liabilities                                        88,103,991          98,556,467
                                                              -------------       -------------

Stockholders' equity:
Common stock, $.025 par value per share
   Authorized - 18,000,000 shares
   Issued - 7,644,414 shares                                        191,110             191,110

Preferred stock, $.10 par value per share
   Authorized - 500,000 shares
   Issued and outstanding - none                                          0                   0

Capital in excess of par value                                    4,348,842           4,348,842

Accumulated other comprehensive income:
Net unrealized appreciation on securities
   available for sale net of deferred
   income taxes of $231,017 and $40,625                             448,444              78,861

Treasury stock at cost, 476,872 and
   476,580 shares                                                (1,233,069)         (1,229,403)

Retained earnings                                                32,804,098          36,296,261
                                                              -------------       -------------

          Total stockholders' equity                             36,559,425          39,685,671
                                                              -------------       -------------

                                                              $ 124,663,416       $ 138,242,138
                                                              =============       =============
</TABLE>

See notes to consolidated financial statements.


                                      II-10
<PAGE>   18


                   Mobile America Corporation and Subsidiaries
                      Consolidated Statements of Operations
                  Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                              1998              1997              1996
                                                         ------------       ------------       ------------
<S>                                                      <C>                <C>                <C>    
Revenues:
   Insurance premiums earned net of
      premiums ceded of $45,672,465,
      $48,192,318 and $52,488,683                        $ 34,501,693       $ 44,282,566       $ 40,363,615
   Insurance premiums earned, pools and
      associations net of premium ceded of 
      $1,265,102, $(278,099) and $(6,296,113)                 442,038           (111,207)        (9,672,082)
   Service fees earned                                      8,897,068          8,957,080         11,001,222
   Investment income                                        4,629,349          5,390,681          5,935,194
   Other                                                       62,322             27,376             13,991
   Net realized gains (losses) on investments                (230,441)           263,711            521,995
                                                         ------------       ------------       ------------

         Total revenues                                    48,302,029         58,810,207         48,163,935
                                                         ------------       ------------       ------------


Expenses:
   Losses and loss adjustment expenses,  net of
      reinsurance recoveries of $42,637,114,
      $39,290,318 and $45,237,935                          25,569,250         33,107,714         31,545,501
   Losses and expenses incurred  pools and
      associations net of reinsurance recoveries
      of $1,265,797, $(251,630) and $(7,267,588)              573,558           (231,538)        (9,207,494)
   Policy acquisition costs                                 8,410,046          2,295,965          2,653,599
   Salaries and wages                                       7,470,166          7,454,778          6,756,416
   General and administrative                               7,770,182          6,301,231          6,423,989
   Interest on note                                           886,583          1,014,161          1,005,760
                                                         ------------       ------------       ------------

         Total expenses                                    50,679,785         49,942,311         39,177,771
                                                         ------------       ------------       ------------


Income (loss) before provision for income taxes            (2,377,756)         8,867,896          8,986,164
                                                         ------------       ------------       ------------

Provision (benefit) for income taxes:
   Current                                                 (1,974,131)         2,230,330          2,698,004
   Deferred                                                   595,909            461,770         (1,283,232)
                                                         ------------       ------------       ------------

         Total provision (benefit) for income taxes        (1,378,222)         2,692,100          1,414,772
                                                         ------------       ------------       ------------


Net income (loss)                                        $   (999,534)      $  6,175,796       $  7,571,392
                                                         ============       ============       ============

Basic and diluted earnings (loss) per share:
   Net income (loss)                                     $      (0.14)      $       0.86       $       1.05
                                                         ============       ============       ============

Weighted average number of shares of common
stock outstanding                                           7,167,605          7,148,471          7,179,058
                                                         ============       ============       ============
</TABLE>


See notes to consolidated financial statements.

                                      II-11
<PAGE>   19



                         Mobile America Corporation and Subsidiaries
                       Consolidated Statements of Comprehensive Income
                         Years Ended December 31, 1998, 1997 and 1996



<TABLE>
<CAPTION>
                                                      1998             1997             1996
                                                   ---------       -----------       -----------

<S>                                                <C>             <C>               <C>        
 Net Income (loss)                                 $(999,534)      $ 6,175,796       $ 7,571,392
                                                   ---------       -----------       -----------

 Other comprehensive income:

 Unrealized gains on securities:
     Unrealized holding gains (losses)
     arising during period net of taxes
     $97,476, $(10,179), and $(112,464)              189,216           (19,759)         (218,310)
 Reclassification adjustment for (gains)
     losses included in net income (loss) net
     of taxes $92,916, $(52,592) and $(139,140)      180,367          (102,092)         (272,164)
                                                   ---------       -----------       -----------

 Other comprehensive income (loss)                   369,583          (121,851)         (490,474)
                                                   ---------       -----------       -----------
                                                                                                 

 Comprehensive income (loss)                       $(629,951)      $ 6,053,945       $ 7,080,918
                                                   =========       ===========       ===========
</TABLE>


See notes to consolidated financial statements.




                                      II-12


<PAGE>   20



                   Mobile America Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows
                  Years Ended December 31, 1998, 1997 and 1996


<TABLE>
<CAPTION>
                                                                 1998              1997              1996
                                                            -------------      ------------       ------------

<S>                                                         <C>                <C>                <C>         
Cash Flows from Operating Activities:
   Net Income (loss)                                        $   (999,534)      $  6,175,796       $  7,571,392
   Adjustments to reconcile net income to
    net cash used in operating activities:
   Provision for depreciation                                    299,273            161,611            200,882
   Gain on sale of investments                                   230,441           (263,711)          (521,995)
   Change in assets and liabilities:
     Insurance premium receivable                               (786,294)           781,455          2,373,767
     Accrued investment income                                   276,758            420,348            369,558
     Deferred policy acquisition costs                           695,292           (687,006)        (1,474,845)
     Prepaid expenses and other assets                           423,747            (38,260)          (346,401)
     Insurance loss reserves                                  (4,536,566)       (14,052,360)        (6,950,031)
     Unearned premium                                         (5,979,667)        (5,225,192)        (1,416,520)
     Contractholders funds                                     4,095,933           (374,376)          (398,406)
     Reinsurance funds held and balances payable                (336,030)       (10,352,352)        (8,767,138)
     Claim payments outstanding                               (1,771,154)        (2,830,605)          (159,649)
     Accrued expenses                                            404,715            (21,890)           555,744
     Current income taxes                                     (2,362,791)           (57,017)          (879,419)
     Deferred income taxes recoverable                           595,909            461,770         (1,283,232)
     Ceded unearned premium                                      379,936          3,595,121          3,913,258
     Reinsurance recoverable                                    (266,157)         9,849,468          6,151,559
     Unearned service fees                                      (120,098)          (761,417)        (1,281,270)
                                                            ------------       ------------       ------------

      Net cash used in operating activities                   (9,756,287)       (13,218,617)        (2,342,746)
                                                            ------------       ------------       ------------


Cash Flows from Investing Activities:
   Net change in short term investments                       (4,269,268)         5,290,513            238,839
   Purchase of investments                                   (12,113,463)        (9,547,210)       (32,924,649)
   Proceeds from sale and maturity of investments             28,675,543         23,472,111         32,817,300
   Purchase of property and equipment                         (1,075,828)          (643,588)          (279,671)
                                                            ------------       ------------       ------------

      Net cash provided (used) in investing activities        11,216,984         18,571,826           (148,181)
                                                            ------------       ------------       ------------

Cash Flows from Financing Activities:
   Purchase, sale of treasury stock, net                          (3,666)          (162,754)           (45,650)
   Dividends paid to stockholders                             (2,492,629)        (2,475,079)        (2,171,236)
   Principal repayment, note payable                          (2,400,000)                 0                  0
                                                            ------------       ------------       ------------
                   Net cash used in
                        financing activities                  (4,896,295)        (2,637,833)        (2,216,886)
                                                            ------------       ------------       ------------

Net increase (decrease) in cash                               (3,435,598)         2,715,376         (4,707,813)

Cash, beginning of year
                                                               4,518,020          1,802,644          6,510,457
                                                            ------------       ------------       ------------

Cash, end of year                                           $  1,082,422       $  4,518,020       $  1,802,644
                                                            ============       ============       ============
</TABLE>

See notes to consolidated financial statements.





                                      II-13

<PAGE>   21


                   Mobile America Corporation and Subsidiaries
           Consolidated Statements of Changes in Stockholders' Equity
                  Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                          1998               1997               1996
                                                      ------------       ------------       ------------
<S>                                                   <C>                <C>                <C>         
Common stock:
    Balance beginning of year                         $    191,110       $    168,010       $    168,010
    Stock dividend                                               0             23,100                  0
                                                      ------------       ------------       ------------

    Balance end of year                                    191,110            191,110            168,010
                                                      ------------       ------------       ------------

Preferred stock:
    No change during year                                        0                  0                  0
                                                      ------------       ------------       ------------

Capital in excess of par value:
    Balance beginning of year                            4,348,842          2,729,588          2,686,060
    Stock dividend                                               0            970,219                  0
    Sale of treasury stock                                       0            556,527             43,528
    Deferred compensation                                        0             92,508                  0
                                                      ------------       ------------       ------------

    Balance end of year                                  4,348,842          4,348,842          2,729,588
                                                      ------------       ------------       ------------

Accumulated other comprehensive income:
Net unrealized appreciation on securities
 available for sale:
    Balance beginning of year                               78,861            200,712            691,185
    Increase (decrease)                                    559,975           (184,623)          (742,076)
    Deferred taxes                                        (190,392)            62,772            251,603
                                                      ------------       ------------       ------------

    Balance end of year                                    448,444             78,861            200,712
                                                      ------------       ------------       ------------

Treasury stock:
    Balance beginning of year                           (1,229,403)          (510,122)          (420,944)
    Purchases of 292, 86,224, and 10,000 shares             (3,666)          (912,754)           (93,750)
    Sale of 0, 75,000 and 5,000 shares                           0            193,473              4,572
                                                      ------------       ------------       ------------

    Balance end of year                                 (1,233,069)        (1,229,403)          (510,122)
                                                      ------------       ------------       ------------

Retained earnings:
    Balance beginning of year                           36,296,261         33,588,833         28,188,679
    Net income (loss)                                     (999,534)         6,175,796          7,571,392
    Cash dividends $.35, $.35 and $.30 per share        (2,492,629)        (2,474,416)        (2,171,238)
    Stock dividend                                               0           (993,952)                 0
                                                      ------------       ------------       ------------

    Balance end of year                                 32,804,098         36,296,261         33,588,833
                                                      ------------       ------------       ------------

Total stockholders' equity end of year                $ 36,559,425       $ 39,685,671       $ 36,177,021
                                                      ============       ============       ============
</TABLE>

See notes to consolidated financial statements.

                                      II-14


<PAGE>   22


                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements

Note 1.  Summary of Significant Accounting Policies

(a)      Basis of Financial Statement Presentation

         The consolidated financial statements have been prepared on the basis
of generally accepted accounting principles (GAAP). The Company follows the
accounting standards established by the Financial Accounting Standards Board
(FASB) and the American Institute of Certified Public Accountants.

(b)      Principles of Consolidation

         The accompanying consolidated financial statements include Mobile
America Corporation (the Company) and its subsidiaries, including Fortune
Insurance Company (Fortune), Pegasus Insurance Company (Pegasus), both property
and casualty insurers and Fortune Life Insurance Company (Fortune Life), all of
which are wholly-owned. All significant intercompany transactions have been
eliminated in consolidation.

(c)      Nature of Operations

         The Company is a publicly held holding company providing property and
casualty insurance, life insurance, insurance administrative services to various
state underwriting associations on a fee for service basis and premium
financing. The Company is principally involved in writing personal lines
automobile insurance in Florida.

(d) Estimates

         The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures. The most
significant estimates are those relating to reserves for losses and loss
adjustment expenses. Management continually reviews the estimates and makes
adjustments as necessary. Accordingly, actual results could differ significantly
from those estimates.

(e)      Method for Valuing Investments

         The Company classifies all of its fixed maturities and equity
securities as either available-for-sale or held-to-maturity. Fixed maturities
held-to-maturity consist of certain bonds, presented at amortized cost, that
management intends and has the ability to hold to maturity. Fixed maturities
available-for-sale consist of bonds, presented at fair value, that management
may not hold until maturity. All equity securities are available-for-sale and
include common and preferred stock which are carried at fair value. Unrealized
gains or losses on

                                      II-15


<PAGE>   23


                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements

Note 1.  Summary of Significant Accounting Policies (continued)

investments classified as available-for-sale, net of deferred income taxes, are
included as a separate component of stockholders' equity. The change in
unrealized gains or losses during the year is a component of comprehensive
income. Fair values are based on quoted market prices or dealer quotes, if
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.

         Realized gains and losses on sale of fixed maturities and equity
securities are determined on the specific-identification basis using amortized
cost for fixed maturities and cost for equity securities. Any gains and losses
are reflected in the accompanying statements of operations.

(f)       Cash and Short-term Investments

         For purposes of the consolidated statement of cash flows, cash includes
balances in bank deposit accounts maintained with high credit quality financial
institutions. Short-term investments are stated at cost, and consist primarily
of certificates of deposits, money market accounts, commercial paper and
repurchase agreements. For purposes of the consolidated statement of cash flows,
the Company does not consider short-term investments to be cash equivalents as
they generally have original maturities in excess of three months. 

(g) Financial Instruments

         In the normal course of business, the Company enters into transactions
involving various financial instruments, including debt investments such as
fixed maturities, and equity securities. These instruments involve credit risk
and also may be subject to risk of loss due to interest rate fluctuations. The
Company evaluates and monitors each financial instrument to minimize the risk of
loss. 

(h) Deferred Policy Acquisition Costs

         The costs, primarily commissions, associated with acquiring new
insurance contracts have been deferred. Such costs are being amortized to income
as premiums are earned or over the contracts premium paying period. 

(i) Property and Equipment

         Property and equipment is carried at cost and is depreciated
principally using the straight-line method over the estimated useful lives of
the respective assets. Maintenance and repairs are charged to expenses as
incurred; additions and major betterments are capitalized and depreciated. Upon
retirement or disposal of assets,

                                      II-16


<PAGE>   24


                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements

Note 1.  Summary of Significant Accounting Policies (continued)

the accounts are relieved of the cost and the related accumulated depreciation
and any gains or losses are reflected in the consolidated statements of
operations.

(j)      Insurance Contracts

         The insurance contracts accounted for in these financial statements
include both short-duration contracts and long-duration contracts.
Short-duration contracts provide insurance protection for a fixed period of
short-duration, usually six months to one year, and enable the insurer to cancel
the contract or to adjust the provisions at the end of any contract period. Most
property-liability insurance contracts and certain term life insurance contracts
are short-term and generally are not subject to unilateral changes in their
provisions and require the performance of various functions and services,
including insurance protection, for the contract term. Long-duration contracts
include whole-life contracts and guaranteed renewable term life contracts. The
Company has not issued participating policies. 

(k) Insurance Loss Reserves

         The liabilities for unpaid claims of property-liability contracts and
related adjustment expenses are determined using case basis evaluations and
statistical analysis and represent estimates of the ultimate net cost of all
reported and unreported claims relating to insured events which are unpaid at
year-end. The liabilities include estimates of future trends in claims severity
and frequency and other factors which could vary as the claims are ultimately
settled. Although such estimates may vary, management believes that the
liabilities for unpaid claims and related adjustment expenses are adequate. The
estimates are continually reviewed, and as adjustments to these liabilities
become necessary, they are reflected in current operations.

         The liability for future policy benefits of life insurance contracts
has been provided for on a net level premium method based on estimated
investment yields, withdrawals, mortality, termination's, morbidity, and other
assumptions which were appropriate at the time the contracts were issued.

         Estimates of life insurance benefits were based on past experience as
adjusted to provide for possible adverse deviation from the estimates. Interest
assumptions are based on historical assumptions and experience, and range from
3% to 4.5% at December 31, 1998.

                                      II-17


<PAGE>   25


                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements

Note 1.  Summary of Significant Accounting Policies (continued)

(l)      Recognition of Premium Revenues and Related Expenses

         Premiums for long-duration life insurance contracts are recognized as
revenues when due from the policyholders. Premiums for short-duration property
and casualty insurance contracts are recognized as revenues on a pro rata basis
over the term of the policies. The portion of premiums written applicable to the
unexpected terms of the policies is recorded as unearned premium. Benefits,
losses and related expenses are matched with premiums, resulting in their
recognition over the expected lives of the contracts. This matching is
accomplished through the provision for future policy benefits, estimates of
unpaid losses and amortization of deferred policy acquisition costs.

         Earned premiums and incurred losses are stated after a reduction for
amounts ceded to reinsurers. The Company considers anticipated investment income
in determining if a premium deficiency exists on short-duration contracts.

(m)      Recognition of Service Fee Income

         Service fees represent proceeds from servicing insurance policies for
third parties on a fee-for-service basis. Fees are recognized as revenue over
the expected term of the underlying insurance policies.

(n)      Earnings Per Share

         In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". Statement 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully dilutive earnings per share. All earnings per share
amounts for all periods have been presented, and where appropriate, restated to
conform to the Statement 128 requirements.

 (o)     Supplemental Cash Flow Information

         Income Taxes Paid - Income taxes paid totaled $396,510 in 1998,
$2,230,000 in 1997 and $3,577,423 in 1996. Interest paid totaled $886,583 in
1998, $1,014,161 in 1997 and $1,005,760 in 1996.

                                      II-18

<PAGE>   26
                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 1.  Summary of Significant Accounting Policies (continued)

(p)    Income Taxes

       Income taxes are calculated under the liability method. Deferred taxes
are provided for temporary differences between amounts of assets and liabilities
for financial reporting purposes and such amounts as measured by tax laws. Items
giving rise to such differences are primarily insurance reserves and unearned
premiums.

(q)      Stock-Based Compensation

         Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" , encourages, but does not require companies to record
compensation costs for stock-based employee compensation plans at fair value.
The Company has chosen to continue to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, compensation cost of stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of grant over
the amount an employee must pay to acquire the stock.

(r)      Stock Dividend

         All common shares and per share amounts have been adjusted to give
effect to a 15% stock dividend distributed to shareholders on June 23,1997.

(s)      Accounting Change

         In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income". Statement 130 requires the reporting and display of comprehensive
income and its components in a full set of financial statements. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. It includes all changes in equity, including net income, during a
period except those resulting from investments by owners and distributions to
owners. The Company adopted Statement 130 in the first quarter of 1998 and
elected to present comprehensive income in a separate financial schedule to the
consolidated financial statements. The only component of comprehensive income to
be reported is the change in the net unrealized gain or loss on securities
available for sale.


                                           II-19

<PAGE>   27

                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 1.  Summary of Significant Accounting Policies (continued)

(s)      Accounting Change (continued)

         Also in June 1997, the FASB issued Statement No. 131, "Disclosure about
Segments of an Enterprise and Related Information". This Statement establishes
standards for the way enterprises report information about operating segments
and also establishes standards for related disclosure about products and
services, geographic area and major customers. The Company has adopted Statement
131 in 1998 and has presented the required segment disclosure in a note to the
consolidated financial statements.

(t)      Reclassifications

         Certain prior-year amounts have been reclassified to conform with
current-year presentations. These reclassifications had no effect on the net
income or stockholder's equity.


                                           II-20
<PAGE>   28

                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 2.  Investments

         Major categories of investment income are summarized as follows:

<TABLE>
<CAPTION>
                               1998            1997            1996
                            ----------      ----------      ----------
<S>                         <C>             <C>             <C>
Fixed Maturities            $3,632,583      $4,578,852      $4,961,776
Equity Securities               23,922          30,364          51,884
Short Term Investments         972,844         781,465         921,534
                            ----------      ----------      ----------
                            $4,629,349      $5,390,681      $5,935,194
                            ==========      ==========      ==========
</TABLE>

         Net realized and change in net unrealized gains (losses) on fixed
maturities and equity securities are summarized as follows:

<TABLE>
<CAPTION>
                           Fixed          Equity
                        Maturities      Securities       Other           Total
                        ---------       ---------       --------       -----------
           1998
         ---------
         <S>            <C>             <C>             <C>            <C>
         Realized       $ (18,320)      $(212,121)      $      0       $  (230,441)
         Unrealized      (907,865)       (251,207)             0        (1,159,072)
                        ---------       ---------       --------       -----------
         Combined       $(926,185)      $(463,328)      $      0       $(1,389,513)
                        =========       =========       ========       ===========

           1997
         ---------
         Realized       $ (26,430)      $ 284,396       $  5,745       $   263,711
         Unrealized      (157,110)        (32,755)             0          (189,865)
                        ---------       ---------       --------       -----------
         Combined       $(183,540)      $ 251,641       $  5,745       $    73,846
                        =========       =========       ========       ===========

           1996
         ---------
         Realized       $ 126,194       $ 431,862       $(36,061)      $   521,995
         Unrealized      (997,948)       (172,805)             0        (1,170,753)
                        ---------       ---------       --------       -----------
         Combined       $(871,754)      $ 259,057       $(36,061)      $  (648,758)
                        =========       =========       ========       ===========
</TABLE>


                                      II-21
<PAGE>   29

                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 2.  Investments (continued)

         The aggregate fair value, gross unrealized gains, gross unrealized
losses and amortized cost of available for sale and held to maturity securities
by major security type at December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                        Gross             Gross
                                      Amortized      Unrealized         Unrealized          Fair
                                        Cost            Gains            (Losses)           Value
                                     -----------      ---------       ------------       -----------
<S>                                  <C>              <C>             <C>                <C>
 Available for sale securities:
 December 31, 1998
 ------------------------------
 U. S. Government and
   government agencies               $ 7,018,385      $ 112,553       $     (2,051)      $ 7,128,887
 States, municipalities and
   political subdivisions             12,679,552        348,640                 (4)       13,028,188
 Corporate debt securities             6,143,925        112,241             (3,254)        6,252,912
 Equity securities                     1,398,270        240,182           (128,846)        1,509,606
                                     -----------      ---------       ------------       -----------
                                     $27,240,132      $ 813,616       $   (134,155)      $27,919,593
                                     ===========      =========       ============       ===========
 Held to maturity securities:
 December 31, 1998
 ------------------------------
 U. S. Government and
   government agencies               $ 6,850,288      $  87,151       $       (486)      $ 6,936,953
 States, municipalities and
   political subdivisions             19,118,163        376,841            (11,244)       19,483,760
 Corporate debt securities             3,497,342         40,760             (3,274)        3,534,828
 Mortgage backed securities              856,000          4,748             (4,401)          856,347
                                     -----------      ---------       ------------       -----------
                                     $30,321,793      $ 509,500       $    (19,405)      $30,811,888
                                     ===========      =========       ============       ===========

 Available for sale securities:
 December 31, 1997
 ------------------------------
 U. S. Government and
   government agencies               $11,510,997      $  73,063       $     (6,442)      $11,577,618
 States, municipalities and
   political subdivisions             12,273,279        336,565                 (2)       12,609,842
 Corporate debt securities             5,259,932         75,235           (219,062)        5,116,104
 Equity securities                     1,512,941        177,757           (317,629)        1,373,070
                                     -----------      ---------       ------------       -----------
                                     $30,557,149      $ 662,620       $   (543,135)      $30,676,634
                                     ===========      =========       ============       ===========
 Held to maturity securities:
 December 31, 1997
 ------------------------------
 U. S. Government and
   government agencies               $12,194,912      $  27,567       $    (22,208)      $12,200,271
 States, municipalities and
   political subdivisions             24,926,045        279,417            (62,055)       25,143,407
 Corporate debt securities             5,253,806         29,095           (362,292)        4,920,609
 Mortgage backed securities            1,245,654          4,459             (2,984)        1,247,129
                                     -----------      ---------       ------------       -----------
                                     $43,620,417      $ 340,538       $   (449,539)      $43,511,416
                                     ===========      =========       ============       ===========
</TABLE>


                                      II-22

<PAGE>   30

                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 2.  Investments (continued)

         The scheduled maturities of available for sale and held to maturity
securities at December 31, 1998 are as follows. Expected maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations without penalties.

<TABLE>
<CAPTION>
                                             Amortized          Fair
                                                Cost            Value
                                            -----------      -----------
<S>                                         <C>              <C>
Available for sale securities:

Due in one year or less                     $ 5,477,565      $ 5,510,582
Due after one through five years             16,770,295       17,145,466
Due after five years through ten years        1,535,875        1,604,914
Due after ten years                           2,058,127        2,149,025
                                            -----------      -----------
                                            $25,841,862      $26,409,987
                                            ===========      ===========

Held to maturity securities:

Due in one year or less                     $ 7,065,555      $ 7,101,241
Due after one through five years             17,621,218       17,962,711
Due after five years through ten years        3,292,700        3,386,381
Due after ten years                           1,486,320        1,505,209
Mortgage backed securities                      856,000          856,346
                                            -----------      -----------
                                            $30,321,793      $30,811,888
                                            ===========      ===========
</TABLE>

         Proceeds from sales of held to maturity securities and related gross
realized gains and losses were as follows:

<TABLE>
<CAPTION>
                                        1998            1997            1996
                                    ----------      ----------      ----------
         <S>                        <C>             <C>             <C>
         Proceeds from sales        $1,131,268      $1,723,087      $3,695,874
         Gross realized gains            2,161             349         142,421
         Gross realized losses               0           6,472             956
</TABLE>

         The Company's three insurance subsidiaries, Fortune, Fortune Life, and
Pegasus maintain certain deposits with state regulatory agencies as a statutory
licensing requirement. The carrying value of the investments on deposit was
$1,552,720 at December 31, 1998 and $1,551,924 at December 31, 1997. These
deposits are included in the investment tables and exhibits of this report.

         The Company's two finance companies also maintain certain deposits with
state regulatory agencies as a statutory licensing requirement. The carrying
value of these investments was $70,000 at December 31, 1998 and 1997.


                                      II-23
<PAGE>   31

                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 3.  Deferred Policy Acquisition Costs

         Costs, principally commissions, related to the production of new
business, are deferred and amortized as summarized below:

<TABLE>
<CAPTION>
Fortune                                 1998              1997              1996
------------------------------      -----------       -----------       -----------
<S>                                 <C>               <C>               <C>
Balance at beginning of year        $  (714,114)      $   (40,541)      $(1,421,049)
Commissions and other costs
      deferred                        5,402,399         5,669,882         5,898,751
Charged to expense                   (6,410,483)       (6,343,455)       (4,518,243)
                                    -----------       -----------       -----------
Balance at end of year              $(1,722,198)      $  (714,114)      $   (40,541)
                                    ===========       ===========       ===========


Mobile America Insurance Group          1998              1997              1996
------------------------------      -----------       -----------       -----------
Balance at beginning of year        $(1,863,658)      $(2,971,365)      $(2,812,521)
Commissions and other costs
      deferred                        1,532,174        (3,997,252)       (3,784,189)
Charged to expense                   (1,144,684)        5,104,959         3,625,345
                                    -----------       -----------       -----------
Balance at end of year              $(1,476,168)      $(1,863,658)      $(2,971,365)
                                    ===========       ===========       ===========


Fortune Life                            1998              1997              1996
------------------------------      -----------       -----------       -----------
Balance at beginning of year        $    58,679       $    44,532       $     7,690
Commissions and other costs
      deferred                           17,639           106,402            60,855
Charged to expense                      (68,795)          (92,255)          (24,013)
                                    -----------       -----------       -----------
Balance at end of year              $     7,523       $    58,679       $    44,532
                                    ===========       ===========       ===========


Pegasus                                 1998              1997              1996
------------------------------      -----------       -----------       -----------
Balance at beginning of year        $   471,104       $   232,379       $    16,040
Commissions and other costs
      deferred                          555,731         1,091,866           464,398
Charged to expense                     (579,273)         (853,141)         (248,059)
                                    -----------       -----------       -----------
Balance at end of year              $   447,562       $   471,104       $   232,379
                                    ===========       ===========       ===========
Consolidated totals                 $(2,743,281)      $(2,047,989)      $(2,734,995)
                                    ===========       ===========       ===========
</TABLE>

         Several of the automobile insurance lines written by Fortune have been
reinsured on a quota share basis, whereby a reinsurer provides ceding commission
to the Company in return for ceded premium. In some instances


                                      II-24

<PAGE>   32

                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 3.  Deferred Policy Acquisition Costs (continued)

the ceding commissions received exceed the costs to the Company of soliciting
new business, thereby generating credits to commission expense and deferred
policy acquisition costs. Ceding commission received in 1998, 1997 and 1996 is
approximately $4,447,000, $7,932,000, and $7,527,000, respectively. Deferred
policy acquisition cost reinsurance credits reported in the Company's balance
sheet at December 31, 1998 and 1997 are $6,787,291 and $7,049,081, respectively.

Note 4.  Property and Equipment

         Property and equipment consists of the following at December 31,1998
and 1997:

<TABLE>
<CAPTION>
                                        1998              1997
                                    -----------       -----------
<S>                                 <C>               <C>
EDP equipment                       $ 2,191,731       $ 1,506,191
Office equipment and furniture        1,426,572         1,420,554
Land                                    433,000           433,000
Buildings                               105,522           105,522
Transportation equipment                412,935           228,329
Leasehold improvements                   71,357            68,193
Other                                    10,982            10,982
                                    -----------       -----------

Property and equipment                4,652,099       $ 3,772,771

Less accumulated depreciation        (2,498,742)       (2,219,088)
                                    -----------       -----------

Property and equipment, net         $ 2,153,357       $ 1,553,683
                                    ===========       ===========
</TABLE>

         Depreciation expense charged to operations was $299,274, $161,611, and
$200,881 in 1998,1997, and 1996, respectively. The useful lives of property and
equipment for purposes of computing depreciation are: buildings from ten to
twenty years, EDP equipment, office equipment and furniture and transportation
equipment from three to ten years, and leasehold improvements five to ten years.


                                      II-25

<PAGE>   33

                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 4.  Property and Equipment (continued)

         Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
requires the recognition of an impairment loss for an asset held for use when
the estimate of undiscounted future cash flows expected to be generated by the
asset is less than its carrying amount. Due to the nature of the Company's
business, with limited use of long-lived assets, it has been determined that no
impairment loss need be recognized.



Note 5.  Reinsurance

         The insurance subsidiaries have various reinsurance agreements which
significantly affect their operations. Risks are reinsured to limit loss size
and to increase underwriting capacity, although the Company remains primarily
liable to the policyholders on all risks transferred.

         The Company acquires property and casualty excess of loss reinsurance
separately for it's primary insurance business lines. This program provides the
Company with coverage ranging from $260,000 in excess of $40,000 on a per risk
basis, and up to $520,000 on a per occurrence basis.

         Catastrophic property losses are reinsured under two programs. Fortune
limits its liability from hurricane losses to 10% of losses in excess of
$1,079,400 by participation in the Florida Hurricane Catastrophe Fund. Pegasus
limits it's liability to 5% of losses in excess $1,300,000 up to $10,000,000.
Catastrophic reinsurance, provided by various reinsures in multiple layers,
serves to protect the insurer from significant aggregate loss exposure arising
from a single event such as windstorm, hail, tornado, hurricane, riot,
vandalism, earthquake, freezing temperatures or other extraordinary events. The
Company also maintains reinsurance coverage for extra contractual obligations
and excess limits judgements up to $1,000,000 for each property risk and/or each
casualty occurrence subject to a deductible of the greater of $100,000 or a loss
in excess of its underlying reinsurance programs.


                                      II-26

<PAGE>   34

                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 5.  Reinsurance (continued)

The effect of reinsurance on premiums written and earned for 1998, 1997 and 1996
is as follows (dollars in thousands):

<TABLE>
<CAPTION>
                     1998                     1997                      1996
             --------------------      --------------------      -------------------
             Written      Earned       Written      Earned       Written      Earned
             --------------------      --------------------      -------------------
<S>          <C>          <C>          <C>          <C>          <C>          <C>
Direct       $75,902      $81,881      $86,860      $92,085      $75,468      $76,884
Assumed            0            0            0            0            0            0
Ceded         46,557       46,938       44,319       47,914       42,279       46,193
             -------      -------      -------      -------      -------      -------

Net          $29,345      $34,943      $42,541      $44,171      $33,189      $30,691
             =======      =======      =======      =======      =======      =======
</TABLE>

         The amount of reinsurance recoveries deducted from direct and pool
participation losses incurred during 1998, 1997 and 1996 was approximately
$43,767,000, $39,000,000 and $37,970,000, respectively.

         The Company evaluates the financial condition of its reinsurers to
minimize its exposures to significant losses from reinsurer insolvency.
Reinsurance receivables, ceded unearned premiums and offsetting funds
withheld/payable balances for each significant reinsurer at December 31, 1998 is
presented below (in thousands):

<TABLE>
<CAPTION>
                                                                 Ceded
                                             Reinsurance        Unearned         Funds Held
                                             Recoverable        Premium       or Balances Due
                                             -----------        --------      ---------------
<S>                                          <C>                <C>           <C>
Clarendon National Insurance Company           $ 2,529          $ 1,071          $(6,948)
Sirius Reinsurance Company                       4,934            4,285            2,850
National Union Fire Insurance Company            4,830            5,357            7,816
Everest Reinsurance Company                        541                0           (3,415)
Ranger Insurance Company                           174                0             (207)
Motors Insurance Company                         3,593            4,285            4,620
Odyssey Reinsurance Company                      1,033            1,071            1,579
Other                                               55              303              370
                                               -------          -------          -------

                                               $17,689          $16,372          $ 6,665
                                               =======          =======          =======
</TABLE>

       The amount due from Everest Reinsurance Company is in dispute and may be
settled through arbitration as specified in the reinsurance contract. The
balance reported, $3,415,000, is the amount expected to be collected and is net
of an allowance of $522,670.


                                      II-27

<PAGE>   35

                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 6.  Regulatory Restrictions

         Fortune, Fortune Life and Pegasus are subject to regulation by the
insurance departments of the states in which they are licensed. Under the
regulations, cash dividends may only be paid out of accumulated surplus funds
derived from net operating profits and capital gains, or out of earned surplus
even though total surplus may be less than capital stock and paid-in capital.
Fortune, which is subject to Florida law, may not pay, unless otherwise approved
by the State Insurance Commissioner, dividends in any one year which exceed the
greater of (a) 10% of such surplus funds or (b) the total amount of such funds
derived during the immediate preceding year. The insurance companies did not pay
dividends in 1998, 1997 and 1996.

         Following are reconciliations of net income and stockholders' equity
for Fortune, Fortune Life and Pegasus from a statutory basis to those presented
on a GAAP basis for the year ended December 31, 1998:

<TABLE>
<CAPTION>
                                                                Fortune
                                              Fortune             Life           Pegasus
                                           ------------       -----------       -----------
<S>                                        <C>                <C>               <C>
Net gain(loss) from operations -
   statutory basis                         $ (1,399,602)      $    95,048       $   411,718
                                           ------------       -----------       -----------

Change in deferred acquisition costs         (1,269,873)          (51,156)          (23,542)
Change in deferred ceding commissions           261,790                 0                 0
Change in reserves                                    0            38,441                 0
Other                                          (533,009)            1,689                 0
                                           ------------       -----------       -----------
                                             (1,541,093)          (11,026)          (23,542)
                                           ------------       -----------       -----------
Net gain(loss) from operations -
   GAAP basis                              $ (2,940,695)      $    84,022       $   388,176
                                           ============       ===========       ===========
Stockholder's equity -
   statutory basis                         $ 13,296,992       $ 3,237,049       $ 5,035,532
                                           ------------       -----------       -----------

Deferred acquisition costs                    5,065,094             7,523           447,563
Deferred ceding commissions                  (6,787,291)                0                 0
Adjustments to reserves                               0                18                 0
Deferred income taxes                         1,370,526           (20,702)                0
Non-admitted assets                             305,231           (17,375)                0
Unrealized gains                                (65,629)           32,761           (41,742)
Other                                           199,506            10,038                 0
                                           ------------       -----------       -----------
                                                 87,436            12,263           405,821
                                           ------------       -----------       -----------
Stockholder's equity - GAAP basis          $ 13,384,428       $ 3,249,311       $ 5,441,353
                                           ============       ===========       ===========
</TABLE>


                                      II-28

<PAGE>   36

                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 7.  Pension Plan

The Company's defined contribution pension plan covers substantially all
full-time employees. Contributions are based on employee earnings. Total
contributions made by the Company during 1998, 1997, and 1996 were $324,000,
$288,000, and $240,000, respectively.

Note 8. Capital Stock

Stock Options

         The Company's incentive plan, adopted in 1995, provides for the
issuance to key employees and directors of up to 500,000 shares of common stock
through options, stock appreciation rights and other stock-based awards as
defined under current tax laws. Incentive stock options for employees are
exercisable for periods of up to ten years from the date of the grant at a price
equal to the fair market value on the date of the grant. In the case of an
incentive option granted to an individual who owns at least 10% of the total
combined voting power of the Company, the exercise price must be at least 110%
of the fair market value of the common stock on the date of grant and the option
term cannot exceed five years. Stock appreciation rights entitle the recipient
to receive the difference between the fair market value of the common stock on
the date of exercise and the stock appreciation rights price in cash or in
shares of common stock, or a combination. Restricted stock awards entitle the
recipient to receive shares of common stock subject to forfeiture restrictions
that lapse over time or upon the occurrence of specific events.

         The options are accounted for under Accounting Principles Board Opinion
No. 25 (APB 25). Under APB 25, if the exercise price of the options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. In August 1998, the Company granted options to purchase
50,000 shares at $7.13. These options are fully vested. In November 1998,
options were granted to purchase 36,750 shares at $5.56. These options vest 20%
per year. During 1997, the Company granted options to purchase 5,000 shares at
$4.40 when the market price of the Company's common stock was $9.63. These
options vest 20% per year beginning on the first anniversary date of grant.
Compensation expense of $10,460 and $3,487 was charged to operations in 1998 and
1997, respectively. Deferred compensation of $38,353 is reported in other assets
at December 31, 1998 and will be charged to operations over the vesting period.


                                      II-29

<PAGE>   37

                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 8.  Capital Stock (continued)

Changes in Stock Options were as follows:

<TABLE>
<CAPTION>
                                    Average
                        1998     Exercise Price        1997        1996
                        ----     --------------        ----        ----
<S>                    <C>       <C>                  <C>         <C>
Beginning Balance      269,363           $9.92        176,363     105,438
Granted                 86,750           $6.49        170,000      77,175
Exercised                    0           $   0        (75,000)     (5,000)
Cancelled/ Expired     (11,000)          $9.78         (2,000)     (1,250)
                       -------           -----        -------     -------
Ending Balance         345,113           $8.45        269,363     176,363
                       =======           =====        =======     =======

Exercisable            231,383           $8.30        138,150      87.250
                       =======           =====        =======     =======
</TABLE>

       In compliance with Statement of Financial Accounting Standards No. 123,
the Company has elected to provide pro forma disclosures. As such, the Company's
net income and earnings per share for 1998, 1997 and 1996 adjusted to reflect
pro forma amounts are indicated below (dollar amounts in thousands except for
earnings per share)

<TABLE>
<CAPTION>
                               1998             1997            1996
                               ----             ----            ----
<S>                          <C>               <C>             <C>
Net Income:
    As reported              $  (999)          $6,176          $7,571
                             =======           ======          ======

    Pro forma                $(1,170)          $5,935          $7,469
                             =======           ======          ======

Earnings Per Share:
    As reported              $ (0.14)          $ 0.86          $ 1.05
                             =======           ======          ======

    Pro forma                $ (0.16)          $ 0.83          $ 1.04
                             =======           ======          ======
</TABLE>

The fair value of options granted in 1998, 1997 and 1996 was estimated using the
Black-Scholes option pricing model. The weighted average fair value and related
assumptions were as follows:

<TABLE>
<CAPTION>
                                        1998      1997     1996
                                        ----      ----     ----

         <S>                          <C>       <C>      <C>
         Weighted average fair          $3.32     $3.72    $3.61
         value:

         Expected volatility               60%       39%      39%

         Risk free interest rate         4.70%     6.20%    6.24%

         Expected lives               5 Years   5 Years   5 Years

         Dividend yield                   1.2%      2.5%     2.5%
</TABLE>


                                      II-30

<PAGE>   38

                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 8.  Capital Stock (continued)

Earnings (Loss) Per Share:

<TABLE>
<CAPTION>
                                                   1998             1997            1996
                                                   ----             ----            ----
<S>                                           <C>               <C>             <C>
Numerator:
Income available to common shareholders'      $  (999,534)      $6,175,796      $7,571,392
                                              ===========       ==========      ==========

Denominator:
  Basic earnings per share
  weighted average shares                       7,167,605        7,148,471       7,179,058

Effect of dilution:
  Employee stock options                           36,511           57,066          12,019
                                              -----------       ----------      ----------

Diluted earnings per share adjusted
weighted average shares and assumed
conversions                                     7,204,116        7,205,537       7,191,077
                                              ===========       ==========      ==========

Basic earnings per share                      $     (0.14)      $     0.86      $     1.05
                                              ===========       ==========      ==========

Diluted earnings per share                    $     (0.14)      $     0.86      $     1.05
                                              ===========       ==========      ==========
</TABLE>

Note 9.  Income Taxes

         The following analysis reconciles the statutory Federal income tax rate
to the effective tax rates (dollars in thousands):


<TABLE>
<CAPTION>
                                                             1998               1997                1996
                                                        --------------   ----------------    ----------------
         <S>                                         <C>          <C>     <C>      <C>        <C>        <C>
         Statutory Federal rate                        ($808)      34%    $3,015     34%      $3,055      34%
         Increase (reductions) in effective tax
           rate resulting from:
              Tax exempt interest                       (537)     22.6      (754)    (8.5)      (698)    (7.8)
              Dividends received deduction                (5)      0.2        (7)    (0.1)       (11)    (0.1)
              Special life insurance
               company deductions                        (22)      0.9       (46)    (0.5)       (38)    (0.4)
              State income taxes                         (63)      2.7       304      3.4        265      2.9
              Change in valuation allowance                0       0.0         0      0.0       (733)    (8.2)
              Other                                       57      (2.4)      180      2.1       (425)    (4.7)
                                                       -----      ----     -----     ----     ------     ----
         Effective tax rate                          ($1,378)     58.0%   $2,692     30.4%    $1,415      15.7%
                                                     =======      ====    ======     ====     ======     =====
</TABLE>


                                      II-31

<PAGE>   39

                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 9.  Income Taxes (continued)

         Consolidated deferred tax expense (credit) results from timing
differences in the recognition of revenue and expense for tax and financial
statement purposes. The source of these differences and their tax effect are
summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                             1998          1997          1996
                                             ----          ----          ----

<S>                                          <C>         <C>           <C>
Increase (decrease) in discounted loss
   and loss adjustment expense reserves      $ 212       $   143       $   (37)
Increase (decrease) in deferred
   insurance premiums                          416           124          (300)
Decrease in valuation allowance                  0             0          (733)
Various                                        (33)          195          (213)
                                             -----       -------       -------
                                             $ 595       $   462       $(1,283)
                                             =====       =======       =======
</TABLE>

         Consolidated deferred taxes receivable resulting from temporary
differences in the recognition of revenue and expense for tax and financial
statement purposes are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                           1998          1997
                                           ----          ----

<S>                                      <C>           <C>
Discounted loss and loss adjustment
 expense reserves                        $   471       $   627
Deferred insurance premiums                  793         1,209
Various                                     (278)         (255)
                                         -------       -------
                                         $   986       $ 1,581
Valuation allowance                            0             0
                                         -------       -------
                                         $   986       $ 1,581
                                         =======       =======
</TABLE>

         The Company believes, that based upon its lengthy and consistent
history of profitable operations, it is probable that the deferred tax asset
will be realized and no deferred tax allowance is deemed necessary at December
31, 1998.

         Deferred taxes payable of $231,017 and $40,625 are provided on
unrealized gains, on equity securities and fixed maturities available for sale
at December 31, 1998 and 1997, respectively.

         Beginning in 1995, the Company and its subsidiaries filed a
consolidated federal income tax return, while prior to 1995 the life insurance
subsidiary filed a separate return.

         The Internal Revenue Service (IRS) is currently examining the Company's
federal income tax returns for 1995 and 1996. The IRS has proposed certain
adjustments to the returns for possible additional income tax due. The Company
believes that any additional tax due will be immaterial.


                                      II-32

<PAGE>   40

                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 10. Business Segments

         The Company and its subsidiaries operate exclusively in Florida within
principally six business segments: automobile insurance, excess surplus lines
property insurance, fee for service administration, premium finance, corporate
and other miscellaneous. The automobile insurance segment sells personal lines
automobile insurance through independent insurance agents primarily in south
Florida. The excess surplus lines segment writes specialized property insurance
coverage. The fee for service segment contracts as a servicing carrier for the
Florida Residential Property and Casualty Joint Underwriting Association, the
Florida Automobile Joint Underwriting Association and as a subcontractor for
Policy Management Systems Corporation performing various underwriting and claims
administration services for a fee. The premium finance segment finances policies
written through the Company. The corporate segment includes home office revenues
and assets that are not specific to any particular segment. The other category
is attributable to a life insurance company and other small inactive companies
that do not meet the quantitative thresholds for a separate segment.

         Management evaluates performance and allocates assets based on the
separate entities owned by the Company. The reportable segments are business
units that offer different products or services. The reportable segments are
each managed separately. Fortune's business is over 95% automobile insurance and
a small amount of personal property insurance, Pegasus sells excess and surplus
lines insurance, Fortune Life sells life insurance, Fortune Financial operates a
fee for service business and Big Gorilla, Inc. is involved in premium finance.

         The following schedule presents revenues, profit (loss) before taxes
and assets by operating segment for 1998, 1997 and 1996. The reconciling items
for revenues and assets include adjusting available for sale securities to
market value and the reclassification of reinsurance recoverable balances and
the eliminations of intercompany holdings.


                                      II-33

<PAGE>   41

                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 10.  Business Segments (continued)

<TABLE>
<CAPTION>
                                                           1998                1997                1996
                                                      -------------       -------------       -------------
Segment revenues:

<S>                                                   <C>                 <C>                 <C>
Automobile insurance                                  $  39,772,697       $  50,587,743       $  40,293,771
Excess and surplus lines insurance                        3,626,913           3,634,305           1,279,767
Fee for service                                           2,912,680           2,784,602           4,771,683
Corporate                                                 1,677,145           1,777,974           1,575,824
Premium finance                                             675,839             409,530             706,436
Other                                                       288,756             371,842             288,111
                                                      -------------       -------------       -------------

   Total segment revenues                                48,954,030          59,565,996          48,915,592

Intercompany eliminations                                  (652,001)           (755,789)           (751,657)
                                                      -------------       -------------       -------------

   Total consolidated revenues                        $  48,302,029       $  58,810,207       $  48,163,935
                                                      =============       =============       =============

Segment profit (loss) before taxes:

Automobile insurance                                  $  (4,528,347)      $   6,390,798       $   5,317,519
Excess and surplus lines insurance                        1,209,607           1,181,557             307,428
Fee for service                                             940,628           1,042,298           2,686,587
Corporate                                                  (385,929)           (101,563)            (54,316)
Premium finance                                             303,887             119,990             523,016
Other                                                        82,398             234,816             205,930
                                                      -------------       -------------       -------------

   Total consolidated profit (loss) before taxes      $  (2,377,756)      $   8,867,896       $   8,986,164
                                                      =============       =============       =============

Segment assets:

Automobile insurance                                  $  69,603,743       $  84,761,747       $ 107,426,445
Excess and surplus lines insurance                        9,589,246           8,404,569           7,122,283
Fee for service                                           6,250,161           5,331,845           6,007,467
Corporate                                                35,101,117          39,543,115          34,379,290
Premium finance                                           3,494,370           2,400,943           3,272,152
Other                                                     3,180,653           3,358,286           4,125,463
                                                      -------------       -------------       -------------

   Total segment assets                                 127,219,290         143,800,505         162,333,100

GAAP adjustments & reclassifications                    (41,623,102)        (41,623,102)        (37,257,058)
Intercompany Eliminations                                39,067,228          36,064,734          43,338,410
                                                      -------------       -------------       -------------

   Total consolidated segment assets                  $ 124,663,416       $ 138,242,137       $ 168,414,452
                                                      =============       =============       =============
</TABLE>


                                      II-34

<PAGE>   42

                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 11.  Pools and Associations

         Fortune Insurance Company, as a direct premium writer in the state of
Florida, is required to participate in the Florida Automobile Joint Underwriting
Association (FAJUA). Fortune's participation is based on its automobile premium
to total automobile premiums written state wide by all automobile insurers. A
summary of FAJUA participation as reported in the accompanying financial
statements for 1998,1997 and 1996 is presented below:

<TABLE>
<CAPTION>
                                             1998          1997           1996
                                             ----          ----           ----

         <S>                               <C>          <C>           <C>
         Written premium                   $477,421     $(165,306)    $(10,682,231)

         Earned premium                     442,038      (111,207)      (9,672,082)

         Losses and loss
         adjustment expenses paid           353,320       (43,252)      (6,256,191)

         Loss and loss
         adjustment expenses incurred       366,738      (119,464)      (7,718,866)

         Commissions                        206,821      (112,074)      (1,488,628)
</TABLE>

In 1996 the FAJUA issued reports amending Fortune's participation for years
prior to 1996. These changes were reported in the 1996 financial statements. A
summary of Fortune's 1996 participation and the prior year adjustment is
presented below.

<TABLE>
<CAPTION>
                                             1996          Prior years           Total
                                             ----          -----------           -----

         <S>                               <C>             <C>                <C>
         Written premium                   $ 144,099       $(10,826,330)      $(10,682,231)

         Earned premium                       65,169         (9,737,251)        (9,672,082)

         Losses and loss
         adjustment expenses paid             32,863         (6,289,054)        (6,256,191)

         Loss and loss
         adjustment expenses incurred         62,361         (7,781,227)        (7,718,866)

         Commissions                         (15,669)        (1,472,959)        (1,488,628)
</TABLE>


                                     II-35

<PAGE>   43

                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 12.  Operating Leases

         The Company leases office facilities under operating leases which
contain renewal options. Lease terms range from 1 month to five years. Rent
expense was $335,483, $329,464 and $295,499 for 1998, 1997 and 1996,
respectively.

         Minimum future rental payments are as follows:

<TABLE>
                          <S>                 <C>
                          1999                $262,947
                          2000                $269,272
                          2001                $275,841
                          2002                $ 23,032
                                              --------
                                              $831,092
                                              ========
</TABLE>

Note 13.  Concentrations of Credit Risk

         The Company is subject to credit risk through short-term cash
investments, insurance premium receivables and reinsurance receivables.
Short-term investments are placed with high credit quality financial
institutions or in short duration high quality debt securities. At times, such
investments may be in excess of FDIC insurance limits. No losses have been
experienced on such investments.

         A significant portion of insurance premium receivables relates to the
financing of automobile insurance premiums in south Florida. An allowance for
non-collection of $73,000 and $900,000 has been provided for at December 31,
1998 and 1997, respectively. The Company's exposure to loss is limited by the
fact that non-payment of premiums will result in cancellation of the underlying
insurance policy.

         For a discussion of credit risk related to reinsurance see note (5) of
the consolidated financial statements.

Note 14.  Note Payable

         On October 24, 1995 the Company obtained a bank loan in the amount of
$12,000,000, for which the proceeds have been used primarily as additional
capital for the insurance subsidiaries. The note accrues interest at the 90 day
LIBOR rate plus 275 basis points, reduced to 250 basis points during 1997.
Interest only is paid through January 24, 1998 with the first principal payment
due on the twenty seventh monthly interest payment date and quarterly thereafter
in the amount of $600,000 each payment. The entire unpaid principal balance,
together with accrued interest thereon is due and payable on the loan maturity
date of October 24, 2002.


                                      II-36

<PAGE>   44

                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 14.  Note Payable (continued)

         The note was collateralized by the assignment of the capital stock of
the Company's subsidiaries on October 24, 1995, as well as the execution of
guaranty agreements between the bank and certain subsidiaries of the Company.

         The following is a schedule of the required annual principal payments:

<TABLE>
             <S>                              <C>
             1999                             $ 2,400,000
             2000                               2,400,000
             2001                               2,400,000
             2002                               2,400,000
                                               ----------
                                               $9,600,000
                                               ==========
</TABLE>

         Loan acquisition costs are being amortized on a straight-line basis
over the term of the loan and are included in the other asset section of the
consolidated balance sheets.

<TABLE>
<CAPTION>
                                                     1998         1997
                                                   --------     --------
             <S>                                   <C>          <C>
             Beginning Balance                     $311,364     $363,262
             Less annual amortization                62,278       51,898
                                                   --------     --------
             Net loan acquisition costs            $249,086     $311,364
                                                   ========     ========
</TABLE>

Note 15.  Insurance Loss Reserves

         Reserves for unpaid losses and loss adjustment expenses are maintained
to cover the probable ultimate cost of settling all losses incurred including
those not yet reported. Reserves for losses incurred in prior years may be
adjusted by review or by payment which could result in either a redundancy or
deficiency to the reserve reported at the end of the prior year. Such changes
are reflected in current operations.


                                      II-37

<PAGE>   45

                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 15.  Insurance Loss Reserves (continued)

         Activity in the liability for insurance loss reserves is summarized as
follows:

<TABLE>
<CAPTION>
                                                   1998              1997

                                               -----------      ------------
         <S>                                   <C>              <C>
         Balance at beginning of year          $33,643,295      $ 47,695,655
           Less reinsurance recoverables        17,720,613        27,638,632
                                               -----------      ------------
         Net balance at beginning of year       15,922,682        20,057,023
                                               ===========      ============

         Incurred related to:
           Current year                         22,466,555        35,725,095
           Prior years                           3,469,432        (2,736,845)
                                               -----------      ------------
         Total incurred                         25,935,987        32,988,250
                                               ===========      ============

         Paid related to:
            Current year                        15,927,843        23,978,911
            Prior years                         14,512,958        13,143,680
                                               -----------      ------------
         Total paid                             30,440,801        37,122,591
                                               ===========      ============

         Net balance at end of year             11,417,868        15,922,682
            Plus reinsurance recoverables       17,688,861        17,720,613
                                               -----------      ------------
         Balance at end of year                $29,106,729      $ 33,643,295
                                               ===========      ============
</TABLE>

Note 16.   Fair Value of Financial Instruments

         The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable to
estimate that value:

-   Cash and Short-term Investments
         The carrying amounts approximates fair value because of the short-term
         maturity of these investments.

-   Investment in Securities
         Fair values are based on quoted market prices or dealer quotes, if
         available. If a quoted market price is not available, fair value is
         estimated using quoted market prices for similar securities.

-   Insurance Premium Receivable
         The carrying amount approximates fair value due to the short-term
         nature of the receivable.

-   Note Payable
         The interest rate on the note payable is reset monthly to reflect
         current market rates, consequently the carrying value of the note
         approximates fair value.


                                      II-38

<PAGE>   46

                   Mobile America Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



Note 16. Fair Value of Financial Instruments (continued)

         The carrying amounts and fair values of the Company's financial
instruments at December 31,1998 and 1997 are presented below:

<TABLE>
<CAPTION>
                                                1998                              1997
                                     ---------------------------       ----------------------------
                                      Carrying          Fair            Carrying           Fair
                                        Value           Value             Value            Value
                                     ---------------------------       ----------------------------
         <S>                         <C>              <C>              <C>              <C>
         Cash and
         short-term investments      $22,292,652      $22,292,652      $21,458,982      $21,458,982
         Fixed maturities:
         Held to maturity             30,321,793       30,811,888       43,620,417       43,511,416
         Available for sale           26,409,987       26,409,987       29,303,564       29,303,564
         Equity securities             1,509,606        1,509,606        1,373,070        1,373,070
         Premiums receivable           3,974,909        3,974,909        3,324,666        3,324,666
         Note payable                  9,600,000        9,600,000       12,000,000       12,000,000
</TABLE>
















                                     II-39
<PAGE>   47
                                    Part III

         Items 10, 11, 12, and 13 have been omitted pursuant to instructions to
Form 10-K. The Registrant intends to file with the Securities and Exchange
Commission not later than April 30, 1999 a definitive proxy statement to be used
in connection with its Annual Meeting of Shareholders, at which time directors
will be elected for the ensuing year.







                                      III-1

<PAGE>   48


                                     PART IV

<TABLE>
<S>                                                                                                             <C>
Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8K

         (a)  1.  Financial Statements

                  The following financial statements are included in Part II, Item 8:                              Page
                                                                                                                   ----
                  Report of Independent Certified Public Accountants                                               II-9

                  Consolidated Balance Sheets, December 31, 1998 and 1997                                          II-10

                  Consolidated Statements of Operations                                                            II-11
                           Years ended December 31, 1998, 1997 and 1996

                  Consolidated Statements of Comprehensive Income                                                  II-12
                           Years ended December 31, 1998, 1997 and 1996

                  Consolidated Statements of Cash Flows                                                            II-13
                           Years ended December 31, 1998, 1997 and 1996

                  Consolidated Statements of Changes in Stockholders' Equity                                       II-14
                           Years ended December 31, 1998, 1997 and 1996

                  Notes to Consolidated Financial Statements                                                    II-15-39

              2.  Financial Statements Schedules

                    The following financial schedules are included in Part IV of this report:

Schedule I.                Summary of Investments - Other than Investments in
                           Related Parties                                                                          IV-5
                           December 31, 1998 and 1997

Schedule II.               Condensed Financial Information of Registrant                                          IV-6-8
                           Years ended December 31, 1998, 1997 and 1996

Schedule III.              Supplementary Insurance Information                                                   IV-9-11
                           Years ended December 31, 1998, 1997 and 1996

Schedule IV.               Supplementary Insurance Information - Reinsurance                                       IV-12
                           Years ended December 31, 1998, 1997 and 1996

Schedule VI.               Supplementary Insurance Information -
                           Consolidated Property-Casualty Entities                                                 IV-13
                           Years ended December 31, 1998, 1997 and 1996
</TABLE>

         All other schedules are omitted as the required information is not
applicable or the required information is otherwise presented in the financial
statements or notes thereto.







                                      IV-1


<PAGE>   49


<TABLE>
<S>                                                                                                  <C>
(a)  3. Exhibits
        --------
         3.3      The Articles of Incorporation and by-laws of the Company
                  originally filed on Form S-1 Registration Statement No.
                  2-42438, effective March 3, 1972 are hereby incorporated
                  herein by reference.

                           The Amendment to the Articles of Incorporation filed
                  as Exhibit C to the Registrant's form 10-Q for the quarter
                  ended September 30, 1980, is also hereby incorporated herein
                  by reference.

                           The Amendment to the Articles of Incorporation filed
                  as Exhibit 4 to the Registrant's Form 10-Q for the quarter
                  ended September 30, 1987, is also hereby incorporated by
                  reference.

                           The Amendment to the Articles of Incorporation filed
                  as Exhibit 4 to the Registrant's Form 10-Q for the quarter
                  ended September 30, 1993 is also hereby incorporated by
                  reference.

     3.11 Earnings Per Share Computations                                                               IV-3

     3.21 Subsidiaries of Registrant                                                                    IV-4

     3.27 Financial Data Schedule (for SEC use only)

(b) Reports on Form 8-K
</TABLE>

                  No reports on Form 8-K were filed during the fourth quarter of
         the year ended December 31, 1998.








                                      IV-2











<PAGE>   50



         Exhibit 3.11 Schedule of Computation of Earnings Per Share 

         See Note 8 to the consolidated financial statements.













                                      IV-3

<PAGE>   51



Exhibit 3.21 Subsidiaries of Registrant

     The following table lists the Registrant and its subsidiaries as of
December 31, 1998, the jurisdiction in which each subsidiary was organized, and
the percentage of voting securities of each subsidiary owned by the immediate
parent:


<TABLE>
<CAPTION>
                                                                                                             Percentage of
                                                                                       Jurisdiction        Voting Securities
                                                                                           Where          Owned  by Immediate
                        Name                                                            Organized               Parent
                        ----                                                           ------------        ------------------
<S>                                                                                    <C>                 <C> 
Mobile America Corporation                                                                Florida

     Mobile America Insurance
      Group, Inc.                                                                         Florida                100%

         Fortune Insurance
          Company                                                                         Florida                100%

     Fortune Life
      Insurance Company                                                                   Arizona                100%

     Pegasus Insurance Company                                                            Oklahoma               100%

     Fortune Financial Corporation                                                        Florida                100%

     Big Gorilla  Inc.                                                                    Florida                100%
</TABLE>

All of the above subsidiaries are included in the Consolidated Financial
Statements of the Registrant and its subsidiaries. All unnamed subsidiaries and
other affiliates, when considered in the aggregate as a single subsidiary, would
not constitute a significant subsidiary.





                                      IV-4


<PAGE>   52





                                                                      SCHEDULE I

                   Mobile America Corporation and Subsidiaries

              Summary of Investments - Other than Related Parties

                                December 31, 1998

<TABLE>
<CAPTION>
                                                                Amount
                                                             which carried
                                                              in balance           Market
Consolidated                                   Cost              Sheet             Value
--------------------------------------      -----------      -------------      -----------
<S>                                         <C>               <C>               <C>        
Industrial Bonds                            $ 9,641,267       $ 9,750,254       $ 9,787,740
Municipal Bonds                              31,797,715        32,146,352        32,511,948
U. S. Government Bonds                       14,724,673        14,835,174        14,922,187
                                            -----------       -----------       -----------
         Total Bonds                         56,163,655        56,731,780        57,221,875
                                            -----------       -----------       -----------

Common Stock                                  1,201,530         1,303,020         1,303,020
Preferred Stock                                 196,740           206,586           206,586
                                            -----------       -----------       -----------
         Total Stocks                         1,398,270         1,509,606         1,509,606
                                            -----------       -----------       -----------

Certificates of Deposit                      18,469,167        18,469,167        18,469,167
Industrial Bonds                              2,741,063         2,741,063         2,741,063
                                            -----------       -----------       -----------
         Total Short Term Investments        21,210,230        21,210,230        21,210,230
                                            -----------       -----------       -----------

         Total Investments                  $78,772,155       $79,451,616       $79,941,711
                                            ===========       ===========       ===========
</TABLE>


                                December 31, 1997

<TABLE>
<CAPTION>
                                                                Amount
                                                             which carried
                                                               in balance         Market
Consolidated                                   Cost              sheet            Value
---------------------------------------     -----------      -------------      -----------
<S>                                         <C>              <C>               <C>        
Industrial Bonds                            $10,513,738       $10,369,910       $10,036,713
Municipal Bonds                              37,199,324        37,535,888        37,753,249
U. S. Government Bonds                       24,951,563        25,018,183        25,025,018
                                            -----------       -----------       -----------
         Total Bonds                         72,664,625        72,923,981        72,814,980
                                            -----------       -----------       -----------

Common Stock                                  1,269,859         1,188,566         1,188,566
Preferred Stock                                 243,082           184,504           184,504
                                            -----------       -----------       -----------
         Total Stocks                         1,512,941         1,373,070         1,373,070
                                            -----------       -----------       -----------

Certificates of Deposit                      14,119,180        14,119,180        14,119,180
Industrial Bonds                              2,446,881         2,446,881         2,446,881
U.S. Government Bonds                           374,901           374,901           374,901
                                            -----------       -----------       -----------
         Total Short Term Investments        16,940,962        16,940,962        16,940,962
                                            -----------       -----------       -----------

         Total Investments                  $91,118,528       $91,238,013       $91,129,012
                                            ===========       ===========       ===========
</TABLE>





                                      IV-5


<PAGE>   53


                                                                     SCHEDULE II

                   Mobile America Corporation and Subsidiaries
                  Condensed Financial Information of Registrant
                           December 31, 1998 and 1997
                         Parent Company - Balance Sheets
                                     Assets
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                  1998                 1997
                                                                              ------------        ------------
<S>                                                                           <C>                 <C>         
Cash                                                                          $     15,782        $      6,520
Receivables:
   Accrued investment income                                                        91,727             145,599
   Accounts receivable                                                              70,859             209,343
   Income taxes recoverable                                                        198,058                   0
   Intercompany receivables                                                      5,699,533           6,693,156
                                                                              ------------        ------------
         Total receivables                                                       6,060,177           7,048,098
                                                                              ------------        ------------

Investments:
   Short-term investments                                                        3,789,238           5,083,684
   Securities - held to maturity at
      amortized cost                                                             3,399,666           5,160,183
   Securities - available for sale at market                                     2,670,878           3,974,555
                                                                              ------------        ------------
         Total investments                                                       9,859,782          14,218,422
                                                                              ------------        ------------

Investments in subsidiaries                                                     30,512,298          30,969,042

Other assets                                                                       287,439             360,177
Deferred income taxes                                                              281,456             282,946
Equipment less accumulated depreciation                                            375,436             198,576
                                                                              ------------        ------------
                                                                              $ 47,392,370        $ 53,083,781
                                                                              ============        ============

                                   Liabilities and Stockholders' Equity
--------------------------------------------------------------------------------------------------------------

Note payable                                                                  $  9,600,000        $ 12,000,000
Income taxes payable                                                                     0             213,850
Accrued expenses and other liabilities                                             213,711             165,026
Intercompany payables                                                            1,019,234           1,019,234
                                                                              ------------        ------------
         Total liabilities                                                      10,832,945          13,398,110
                                                                              ------------        ------------

Stockholders' equity:
   Common stock                                                                    191,110             191,110
   Capital in excess of par                                                      4,348,842           4,348,842
   Net unrealized appreciation on
      securities available for sale
      net of deferred taxes                                                        448,444              78,861
   Treasury stock, at cost                                                      (1,233,069)         (1,229,403)
   Retained earnings                                                            32,804,098          36,296,261
                                                                              ------------        ------------
         Total stockholders' equity                                             36,559,425          39,685,671
                                                                              ------------        ------------
                                                                              $ 47,392,370        $ 53,083,781
                                                                              ============        ============

Cash dividends paid by consolidated subsidiaries to parent                            1998        $          0
                                                                                      1997        $  2,489,378
                                                                                      1996        $  2,425,000
</TABLE>



                                      IV-6


<PAGE>   54



                                                                     SCHEDULE II

                   Mobile America Corporation and Subsidiaries
                  Condensed Financial Information of Registrant
                  Years Ended December 31, 1998, 1997 and 1996
                    Parent Company - Statements of Operations

<TABLE>
<CAPTION>
                                                 1998             1997             1996
                                              -----------      -----------      -----------
<S>                                           <C>              <C>              <C>        
Revenues:
   Investment Income                          $   595,829      $   679,988      $   704,100
   Rental Income                                        0                0            1,520
   Other                                          728,927          758,589          752,962
   Realized gains                                   9,102          102,383          109,915
   Service fees                                   343,286          237,014            7,327
                                              -----------      -----------      -----------

         Total revenues                         1,677,144        1,777,974        1,575,824
                                              -----------      -----------      -----------

Expenses:
   General and administrative                   1,174,491          865,376          624,380
   Interest on note payable                       888,583        1,014,161        1,005,760
                                              -----------      -----------      -----------

         Total expenses                         2,063,074        1,879,537        1,630,140
                                              -----------      -----------      -----------

Loss before income taxes                         (385,930)        (101,563)         (54,316)

    Income tax benefit                           (209,825)         (92,802)        (501,870)
                                              -----------      -----------      -----------

Income (loss) before equity in
   earnings of subsidiaries                      (176,105)          (8,761)         447,554

Equity in earnings (loss) of subsidiaries        (823,429)       6,184,557        7,123,838
                                              -----------      -----------      -----------

Net income (loss)                             ($  999,534)     $ 6,175,796      $ 7,571,392
                                              ===========      ===========      ===========
</TABLE>






                                      IV-7



<PAGE>   55


                                                                     SCHEDULE II

                   Mobile America Corporation and Subsidiaries

                  Condensed Financial Information of Registrant

                  Years Ended December 31, 1998, 1997 and 1996

                    Parent Company - Statements of Cash Flows

<TABLE>
<CAPTION>
                                                      1998              1997             1996
                                                   -----------      -----------      -----------
<S>                                                <C>              <C>              <C>        
Cash Flows from Operating Activities:
   Net Income (loss)                               $  (999,534)     $ 6,175,796      $ 7,571,392
   Adjustments to reconcile net income to net
      cash provided by operating activities:
         Gain on sale of investments                    (9,102)        (102,383)        (109,915)
         Provisions for depreciation                    30,469            6,500            3,002
         Equity in earnings (loss) of 
            subsidiaries                               823,429       (6,184,557)      (7,123,838)
         Decrease in accrued investment income          53,872           38,993           62,925
         Decrease (increase) in prepaid and
            other assets                               211,222         (177,407)         133,427
         Decrease in intercompany balances             993,623          463,650          691,972
         Net change in current income taxes           (411,908)         795,044         (639,722)
         Increase (decrease) in accrued
            expenses and other liabilities              48,685           32,080          105,677
         Decrease (increase) in deferred taxes           1,490           29,632            9,010
                                                   -----------      -----------      -----------
         Net cash provided by
            operating activities                       742,246        1,077,348          703,930
                                                   -----------      -----------      -----------

Cash Flows from Investing Activities:
   Dividends from subsidiaries                               0        2,489,378        2,425,000
   Investment in subsidiaries                                0                0       (1,100,000)
   Net change in short term investments              1,294,446       (2,858,511)         774,730
   Purchase of investments                            (121,610)        (520,565)      (4,642,577)
   Proceeds from sale and maturity of 
      investments                                    3,197,804        2,478,790        1,997,631
   Purchase of property and equipment                 (207,329)         (16,631)        (167,073)
                                                   -----------      -----------      -----------
      Net cash provided by (used in)
         investing activities                        4,163,311        1,572,461         (712,289)
                                                   -----------      -----------      -----------

Cash Flows from Financing Activities:
   Principal repayment, note payable                (2,400,000)               0                0
   Purchase, sale  of treasury stock                    (3,666)        (162,754)         (45,650)
   Dividends paid to stockholders                   (2,492,629)      (2,474,416)      (2,171,238)
   Stock dividend , fractional shares                        0             (663)               0
                                                   -----------      -----------      -----------
      Net cash provided by (used in)
         financing activities                       (4,896,295)      (2,637,833)      (2,216,888)
                                                   -----------      -----------      -----------
Net increase (decrease) in cash                          9,262           11,976       (2,225,247)

Cash, beginning of year                                  6,520           (5,456)       2,219,791
                                                   -----------      -----------      -----------

Cash, end of year                                  $    15,782      $     6,520      ($    5,456)
                                                   ===========      ===========      ===========
</TABLE>



                                      IV-8


<PAGE>   56


                                                                    Schedule III

                   Mobile America Corporation and Subsidiaries

                       Supplementary Insurance Information

                  Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                        Losses, Claims and Policy Acquisition Costs
                                                                                        --------------------------------------
                                                       Premiums                                                   Commissions
                                  ----------------------------------------------------                               and
                                   Unearned                     Unearned    Premiums      Losses       Losses      brokerage
                                   premiums        Net          premiums     earned     outstanding   incurred     incurred
                                  beginning      premiums        end of      during       end of       during       during
Lines of Insurance                of period      written         period      period       period       period       period
                                  -----------  ------------   -----------  -----------  -----------  -----------  -----------
<S>                               <C>          <C>            <C>          <C>          <C>          <C>          <C>        
Year ended December 31, 1996      

Fortune Insurance Company
Homeowners                        $   791,308  $  1,580,533   $   739,609  $ 1,632,232  $   640,362  $   925,804  $   520,625
Business Owners Package               161,624       159,949        77,049      244,524      482,564      304,639       52,682
Automobile Physical Damage          1,856,644     3,574,174     1,397,118    4,033,700      722,143    3,411,448      914,071
Automobile Liability               12,388,788    26,254,197    14,668,654   23,974,331   17,874,116   18,749,139    3,030,867
Other                                       0             0             0            0        7,460          326            0
                                  -----------  ------------   -----------  -----------  -----------  -----------  -----------
                                  $15,198,364  $ 31,568,853   $16,882,430  $29,884,787  $19,726,645  $23,391,356  $ 4,518,245
                                  -----------  ------------   -----------  -----------  -----------  -----------  -----------

Fortune Life Insurance Company
Individual Credit Life            $       541  $          0   $       369  $       172  $         0  $         0  $         0
Ordinary Life                          11,392        77,410        53,978       34,824       16,291          751       24,013
Accident and Health                         0             0             0            0            0            0            0
                                  -----------  ------------   -----------  -----------  -----------  -----------  -----------
                                  $    11,933  $     77,410   $    54,347  $    34,996  $    16,291  $       751  $    24,013
                                  -----------  ------------   -----------  -----------  -----------  -----------  -----------

Pegasus Insurance Company
Homeowners                        $    48,058  $  1,500,450   $   818,032  $   730,476  $   270,379  $   406,297  $   236,932
Business Owners Package                 2,094          (172)            0        1,922        2,246        1,269          567
Other Liability                        14,006        41,730        16,384       39,352       41,462       26,962       10,559
                                  -----------  ------------   -----------  -----------  -----------  -----------  -----------
                                  $    64,158  $  1,542,008   $   834,416  $   771,750  $   314,087  $   434,528  $   248,058
                                  -----------  ------------   -----------  -----------  -----------  -----------  -----------

Eliminations                                0             0             0            0            0            0   (3,625,344)
                                  -----------  ------------   -----------  -----------  -----------  -----------  -----------

Consolidated Totals               $15,274,455  $ 33,188,271   $17,771,193  $30,691,533  $20,057,023  $23,826,635  $ 1,164,972
                                  ===========  ============   ===========  ===========  ===========  ===========  ===========
</TABLE>

                                      IV-9


<PAGE>   57
                                                                    Schedule III

                   Mobile America Corporation and Subsidiaries

                       Supplementary Insurance Information

                  Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                      Losses, Claims and Policy Acquisition Costs
                                                                                      -------------------------------------------
                                                      Premiums                                                  Commissions
                                 ---------------------------------------------------                               and
                                 Unearned                     Unearned    Premiums       Losses      Losses      brokerage
                                 premiums         Net         premiums     earned     outstanding   incurred      incurred
                                 beginning     premiums        end of      during        end of      during        during
Lines of Insurance               of period      written        period      period        period      period        period
                                -----------  ------------   -----------  -----------  -----------  -----------  -----------
<S>                             <C>          <C>            <C>          <C>          <C>          <C>          <C>
Year ended December 31, 1997

Fortune Insurance Company
Homeowners                      $   739,609  $  1,125,121   $   579,759  $ 1,284,971  $   549,356  $   484,418  $   391,120
Business Owners Package              77,049       223,125        69,383      230,791      308,601       34,832       49,439
Automobile Physical Damage        1,397,118     3,572,259     1,108,801    3,860,576    1,082,960    3,135,312      860,730
Automobile Liability             14,668,654    33,830,649    12,427,143   36,072,160   13,393,970   27,978,986    5,042,166
Other                                     0             0             0            0        4,085        1,676            0
                                -----------  ------------   -----------  -----------  -----------  -----------  -----------

                                $16,882,430  $ 38,751,154   $14,185,086  $41,448,498  $15,338,972  $31,635,224  $ 6,343,455
                                -----------  ------------   -----------  -----------  -----------  -----------  -----------

Fortune Life Insurance Company  
Individual Credit Life          $       369  $          0   $       230  $       139  $         0  $         0  $         0
Ordinary Life                        53,978       134,193        71,697      116,474       16,983       18,192       92,255
Accident and Health                       0             0             0            0            0            0            0
                                -----------  ------------   -----------  -----------  -----------  -----------  -----------
                                $    54,347  $    134,193   $    71,927  $   116,613  $    16,983  $    18,192  $    92,255
                                -----------  ------------   -----------  -----------  -----------  -----------  -----------

Pegasus Insurance Company
Homeowners                      $   818,032  $  3,612,626   $ 1,869,292  $ 2,561,366  $   497,642  $ 1,282,636  $   840,600
Business Owners Package                   0           487             0          487        3,408        1,162          287
Other Liability                      16,384        42,828        14,817       44,395       65,676       51,034       12,254
                                -----------  ------------   -----------  -----------  -----------  -----------  -----------

                                $   834,416  $  3,655,941   $ 1,884,109  $ 2,606,248  $   566,726  $ 1,334,832  $   853,141
                                -----------  ------------   -----------  -----------  -----------  -----------  -----------

Eliminations                              0             0             0            0            0            0   (5,104,959)
                                -----------  ------------   -----------  -----------  -----------  -----------  -----------

Consolidated Totals             $17,771,193  $ 42,541,288   $16,141,122  $44,171,359  $15,922,681  $32,988,248  $ 2,183,892
                                ===========  ============   ===========  ===========  ===========  ===========  ===========
</TABLE>
                                      
                                    IV-10

<PAGE>   58
                                                                    Schedule III
                   Mobile America Corporation and Subsidiaries

                       Supplementary Insurance Information

                  Years Ended December 31, 1998, 1997 and 1996



<TABLE>
<CAPTION>
                                                                                     Losses, Claims and Policy Acquisition Costs
                                                                                     -------------------------------------------
                                                      Premiums                                                  Commissions
                                 --------------------------------------------------                                and
                                  Unearned                  Unearned      Premiums     Losses        Losses      brokerage
                                  premiums        Net       premiums       earned    outstanding    incurred     incurred
                                  beginning     premiums     end of        during      end of        during       during
Lines of Insurance                of period     written      period        period      period        period       period
                                 -----------  -----------  -----------  -----------  -----------  ------------   ----------
<S>                              <C>          <C>          <C>          <C>          <C>          <C>            <C>       
Year ended December 31, 1998

Fortune Insurance Company
Homeowners                       $   579,759  $ 1,540,202  $   504,807  $ 1,615,154  $   295,448  $    148,422   $  296,362
Business Owners Package               69,383      230,871       86,137      214,117       87,954      (343,327)      41,591
Automobile Physical Damage         1,108,801    3,106,511      979,717    3,235,595      678,058     1,729,175      690,489
Automobile Liability              12,427,143   22,000,457    7,152,478   27,275,122    9,904,582    22,946,772    6,738,852
Other                                      0            0            0            0        4,085         1,665            0
                                 -----------  -----------  -----------  -----------  -----------  ------------   ----------
                                 $14,185,086  $26,878,041  $ 8,723,139  $32,339,988  $10,970,127  $ 24,482,707   $7,767,294
                                 -----------  -----------  -----------  -----------  -----------  ------------   ----------

Fortune Life Insurance Company
Individual Credit Life           $       230  $         0  $       230  $         0  $         0  $          0   $        0
Ordinary Life                         71,697       23,269        7,716       87,249       17,741        30,758       68,795
Accident and Health                        0            0            0            0            0             0            0
                                 -----------  -----------  -----------  -----------  -----------  ------------   ----------
                                 $    71,927  $    23,269  $     7,946  $    87,249  $    17,741  $     30,758   $   68,795
                                 -----------  -----------  -----------  -----------  -----------  ------------   ----------

Pegasus Insurance Company
Homeowners                       $ 1,869,292  $ 2,339,532  $ 1,770,974  $ 2,437,850  $   308,659  $  1,285,102   $  556,884
Business Owners Package                    0        6,128        4,486        1,642        6,372         2,964        2,682
Other Liability                       14,817       97,030       34,846       77,001      114,968       134,457       19,708
                                 -----------  -----------  -----------  -----------  -----------  ------------   ----------
                                 $ 1,884,109  $ 2,442,690  $ 1,810,306  $ 2,516,493  $   429,999  $  1,422,523   $  579,274
                                 -----------  -----------  -----------  -----------  -----------  ------------   ----------

Eliminations                               0            0            0            0            0             0      201,504
                                 -----------  -----------  -----------  -----------  -----------  ------------   ----------

Consolidated Totals              $16,141,122  $29,344,000  $10,541,391  $34,943,730  $11,417,867  $ 25,935,988   $8,616,867
                                 ===========  ===========  ===========  ===========  ===========  ============   ==========
</TABLE>


                                      IV-11



<PAGE>   59

                                                                     Schedule IV

                   Mobile America Corporation and Subsidiaries

                Supplementary Insurance Information- Reinsurance

                  Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                                       Percentage
                                                            Ceded to       Assumed                     of Amount
                                             Gross           Other        From Other                    Assumed
                                             Amount        Companies      Companies      Net Amount     to Net
                                           -----------    -----------    -----------    -----------    ----------
<S>                                        <C>            <C>            <C>            <C>            <C>       
Year ended December 31, 1998

Life insurance in force                    $ 1,543,000    $    13,000    $         0    $ 1,530,000    $        0
                                           ===========    ===========    ===========    ===========    ==========

Insurance premiums earned:
   Life insurance                          $    88,023    $       774    $         0    $    87,249    $        0
   Property and Casualty                    81,793,276     46,936,794              0     34,856,482             0
                                           -----------    -----------    -----------    -----------    ----------
                                           $81,881,299    $46,937,568    $         0    $34,943,731    $        0
                                           ===========    ===========    ===========    ===========    ==========

Year ended December 31, 1997

Life insurance in force                    $ 8,949,000    $    13,000    $         0    $ 8,936,000    $        0
                                           ===========    ===========    ===========    ===========    ==========

Insurance premiums earned:
   Life insurance                          $   117,293    $       680    $         0    $   116,613    $        0
   Property and Casualty                    91,968,284     47,913,538              0     44,054,746             0
                                           -----------    -----------    -----------    -----------    ----------
                                           $92,085,577    $47,914,218    $         0    $44,171,359    $        0
                                           ===========    ===========    ===========    ===========    ==========

Year ended December 31, 1996

Life insurance in force                    $ 5,138,000    $    13,000    $         0    $ 5,125,000    $       0
                                           ===========    ===========    ===========    ===========    =========

Insurance premiums earned:
   Life insurance                          $    35,464    $       468    $         0    $    34,996    $       0
   Property and Casualty                    76,848,640     46,192,103              0     30,656,537            0
                                           -----------    -----------    -----------    -----------    ---------
                                           $76,884,104    $46,192,571    $         0    $30,691,533    $       0
                                           ===========    ===========    ===========    ===========    =========
</TABLE>

                                     IV-12


<PAGE>   60



                                                                     Schedule VI

                   Mobile America Corporation and Subsidiaries

                       Supplemental Insurance Information

                     Consolidated Property-Casualty Entities

                  Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                             Claim and Claim  
                         Reserves for    Discount                                          Adjustment Expenses
            Deferred     Unpaid Claims   if any,                                           Incurred Related to      Amortization  
             Policy       and Claim    deducted in                              Net         (1)          (2)        of Deferred   
          Acquisition    Adjustment     previous     Unearned     Earned    Investment    Current       Prior         Policy      
             Costs        Expenses       column      Premiums    Premiums     Income       Year         Years    Acquisition Costs
----------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>              <C>      <C>           <C>        <C>           <C>           <C>       <C>              
Year Ended December 31, 1998

          ($1,274,635)   $11,400,127      $0       $10,533,445   $34,856,481  $3,273,711  $22,435,796   $3,469,432   $8,346,568    

Year Ended December 31, 1997

            ($243,009)   $15,905,698      $0       $16,069,195   $44,054,746  $3,858,580  $36,833,718  ($3,863,662)   $7,196,596    

Year Ended December 31, 1996

             $191,839    $20,040,734      $0       $17,716,845   $30,656,536  $4,337,687  $27,317,000  ($3,491,118)   $4,766,302    
</TABLE>





<TABLE>
<CAPTION>
                                           Paid
                                          Claims
                                         and Claim
                                         Adjustment      Premium
                                          Expenses       Written
---------------------------------------------------------------------
<S>                                     <C>            <C>
Year Ended December 31, 1998

                                        $30,410,801    $29,320,731

Year Ended December 31, 1997

                                         $37,105,090   $42,407,097

Year Ended December 31, 1996

                                         $24,593,170   $33,110,861
</TABLE>


                                      IV-13

<PAGE>   61


                                   SIGNATURES

  Pursuant to the requirements of Section 13 or 15(d) 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.


                                     MOBILE AMERICA CORPORATION    
                                           Registrant


March 29, 1999
                               By:  /s/ Allan J. McCorkle
                                  ------------------------------
                                      Allan J. McCorkle
                                         President


March 29, 1999
                               By: /s/  Thomas L. Stinson
                                  ------------------------------
                                       Thomas L. Stinson
                                       Vice President and
                                    Chief Financial Officer


  Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

<TABLE>
<S>                                              <C>                          <C> 
By    /s/  Allan J. McCorkle                     Chairman of the Board,       March 29, 1999
   -------------------------------                  and Director
          Allan J. McCorkle       

By   /s/ Thomas J. McCorkle                            Director               March 29, 1999
  -------------------------------
         Thomas J. McCorkle

By  /s/ R. Lee Smith                                   Director               March 29, 1999
  -------------------------------
        R. Lee Smith

By  /s/  Robert Thomas III                             Director               March 29, 1999
  -------------------------------
        Robert Thomas III

By  /s/ John Michael Garrity                           Director               March 29, 1999
  -------------------------------
        John Michael Garrity

By  /s/  Thomas Edwin Perry                            Director               March 29, 1999
  -------------------------------
         Thomas Edwin Perry


By  /s/  Randal L. Ringhaver                           Director               March 29, 1999
  -------------------------------
         Randal L. Ringhaver


By  /s/  Jack H. Chambers                              Director               March 29, 1999
  -------------------------------
         Jack H. Chambers   











</TABLE>


                                      IV-14