<PAGE>   1

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q





           QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                 For the quarterly period ended March 31, 1997




                       Commission File Number :  1-11396


                        JOHN ALDEN FINANCIAL CORPORATION
             (Exact name of registrant as specified in its charter)


                                                                          
<TABLE>                                                                   
<S>                                                                              <C>
                 DELAWARE                                                                    59-2840712
(State or other jurisdiction of incorporation or organization)                   (I.R.S. Employer Identification No.)
                                                                          
7300 CORPORATE CENTER DRIVE, MIAMI, FLORIDA                                                  33126-1208
 (Address of principal executive offices)                                                    (Zip Code)
</TABLE>                                                                  

                                 (305) 715-3767
              (Registrant's telephone number, including area code)


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

        As of May 9, 1997, 25,357,353 shares of Common Stock, par value $.01,
were outstanding.
<PAGE>   2
                        JOHN ALDEN FINANCIAL CORPORATION

                                   FORM 10-Q

                      For the Quarter Ended March 31, 1997

                                     Index
<TABLE>
<CAPTION>
                                                                                                         Page
                                                                                                         ----
<S>                                                                                                        <C>
PART I.  FINANCIAL INFORMATION

Item 1.      Condensed Consolidated Financial Statements as of March 31, 1997
             (unaudited) and December 31, 1996, and for the three months
             ended March 31, 1997 (unaudited) and March 31, 1996 (unaudited)  . . . . . . . . . . . . .     1

             Notes to Condensed Consolidated Financial Statements (unaudited)   . . . . . . . . . . . .     5

Item 2.      Management's Discussion and Analysis of Financial Condition and
             Results of Operations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     7

PART II. OTHER INFORMATION

Item 1.      Legal Proceedings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    16

Item 6.      Exhibits and Reports on Form 8-K   . . . . . . . . . . . . . . . . . . . . . . . . . . . .    16
</TABLE>



The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements.  This and any other Form 10-Q, the Company's
Annual Report to Stockholders, Form 10-K and any Form 8-K of the Company and
any other written or oral statements made by or on behalf of the Company may
include forward-looking statements which reflect the Company's current views
with respect to future events and financial performance. These forward-looking
statements are subject to certain uncertainties and other factors that could
cause actual results to differ materially from such statements.  These
uncertainties and other factors (which are described in more detail elsewhere
in this Form 10-Q) include, but are not limited to, uncertainties relating to
general economic conditions and cyclical industry conditions, uncertainties
relating to federal and state government and regulatory policies, volatile and
unpredictable developments (including utilization of medical services), the
uncertainties of the reserving process, the competitive environment in which
the Company operates, the uncertainties inherent in the development and
introduction into the marketplace of the Company's new small group health
insurance product, the ability of the Company to obtain desired contracts and
pricing with providers, the consummation of the sale of the Company's Western
Diversified Group and the ability to obtain dividend approval from state
regulators. The words "believe", "expect", "anticipate", "project" and similar
expressions identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as
of their dates.  The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
<PAGE>   3

               JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                                                 MARCH 31,
                                                                                                   1997               DECEMBER 31,
                                        ASSETS                                                  (UNAUDITED)                1996     
                                                                                              ----------------      ----------------
<S>                                                                                             <C>                 <C>
Debt securities:
   Held-to-maturity securities, at amortized cost (market $46,420 and $46,884)............      $      45,847       $       45,357
   Available-for-sale securities, at market (cost $674,660 and $4,185,263)................            685,830            4,248,774
   Trading account securities, at market (cost $3,416 and $4,435).........................              3,466                4,518
Equity securities, at market (cost $43 and $73,692).......................................                 50               82,098
Mortgage loans............................................................................            158,223            1,449,242
Investment in real estate, at cost, less accumulated depreciation of $2,391 and $2,008....             39,593               39,903
Real estate owned.........................................................................             10,501               11,483
Policy loans and other notes receivable...................................................             33,418               75,186
Short-term investments....................................................................              1,001                6,371  
                                                                                               ---------------      ---------------
     Total invested assets................................................................            977,929            5,962,932
Cash and cash equivalents.................................................................            161,759              167,511
Accrued investment income.................................................................             12,905               65,727
Deferred policy acquisition costs.........................................................             41,119              239,622
Investment deposits recoverable...........................................................             17,638              766,286
Reinsurance receivables...................................................................            177,471              204,379
Other assets..............................................................................            246,939              264,792  
                                                                                               ---------------      ---------------
       Total assets.......................................................................      $   1,635,760       $    7,671,249  
                                                                                               ===============      ===============


                   LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS' EQUITY

Liabilities:
  Contract holder liabilities.............................................................      $     805,810       $    6,887,632
  Funds payable under reinsurance treaties................................................             25,508               77,331
  Short-term debt.........................................................................             25,000               25,000
  Long-term debt..........................................................................             76,500               76,500
  Other liabilities.......................................................................            188,001              120,888
  Deferred gain on sale of Annuity Operations.............................................             45,025                   -- 
                                                                                               ---------------      ---------------
        Total liabilities.................................................................          1,165,844            7,187,351 
                                                                                               ---------------      ---------------
Redeemable securities:
  Series A 9% cumulative preferred stock, $.01 par value;
     150,000 shares authorized, issued and outstanding;
     mandatory redemption value of $100 per share; including
     accrued dividends of $623 and $286; $104.14 and $101.91 per share....................             15,623               15,286
  Common stock, $.01 par value; 666,230 and 667,430 shares
     authorized, issued and outstanding...................................................              3,116                3,401 
                                                                                               ---------------      ---------------
        Total redeemable securities.......................................................             18,739               18,687 
                                                                                               ---------------      ---------------
Stockholders' equity:
    Common stock, $.01 par value; 74,333,770 and 74,332,570 shares
      authorized; 25,057,043 and 25,055,843  shares issued; 24,669,308
      and 24,668,108 shares outstanding...................................................                250                  250
    Paid-in capital.......................................................................            181,864              181,863
    Net unrealized gain on investments, net of income taxes...............................              5,567               26,977
    Retained earnings.....................................................................            275,128              268,109
    Redemption value of common stock in excess of cost....................................             (2,385)              (2,669)
    Unearned compensation.................................................................               (571)                (643)
    Treasury stock, at cost; 387,735 shares...............................................             (8,676)              (8,676)
                                                                                               ---------------      ---------------
         Total stockholders' equity.......................................................            451,177              465,211 
                                                                                               ---------------      ---------------
         Total liabilities redeemable securities and stockholders' equity.................      $   1,635,760       $    7,671,249 
                                                                                               ===============      ===============
</TABLE>


           See Notes to Condensed Consolidated Financial Statements.

                                       1
<PAGE>   4
               JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                  (UNAUDITED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>
<CAPTION>
                                                                                                     THREE MONTHS ENDED
                                                                                                          MARCH 31,             
                                                                                        ----------------------------------------
                                                                                                  1997                1996
<S>                                                                                        <C>                    <C>
Revenues:
    Gross insurance premiums and contract charges earned.........................          $      445,108         $     483,200
    Ceded insurance premiums and contract charges earned.........................                (173,488)             (215,572)
                                                                                           ---------------       ---------------
         Net insurance premiums and contract charges earned......................                 271,620               267,628
    Net investment income........................................................                  11,454                11,802
    Other income, including experience refunds and expense allowances
       on reinsurance ceded......................................................                  26,611                19,883
    Net realized investment gains ...............................................                   2,802                   699 
                                                                                           ---------------       ---------------
         Total revenues..........................................................                 312,487               300,012 
                                                                                           ---------------       ---------------
Benefits and expenses:
    Gross claims incurred on insurance products..................................                 288,247               347,019
    Ceded claims incurred on insurance products..................................                (126,401)             (162,450)
                                                                                           ---------------       ---------------
         Net claims incurred on insurance products...............................                 161,846               184,569
    Universal life and investment-type contract benefits.........................                   4,683                 4,524
    Increase in life insurance reserves..........................................                  34,784                   115 
                                                                                           ---------------       ---------------
         Total benefits..........................................................                 201,313               189,208 
                                                                                           ---------------       ---------------
    Commissions, net of commissions ceded .......................................                  16,288                21,305
    General expenses, net of expenses ceded .....................................                  79,382                72,833
    Amortization of purchased intangibles........................................                   1,115                 1,770
    Amortization of deferred policy acquisition costs............................                   3,812                 3,087
    Interest expense.............................................................                   1,585                 1,706 
                                                                                           ---------------       ---------------
           Total benefits and expenses...........................................                 303,495               289,909 
                                                                                           ---------------       ---------------
Income from continuing operations before provision for income
            taxes and minority interest in joint venture's (income) loss.........                   8,992                10,103
Provision for income taxes.......................................................                   3,904                 4,087
Minority interest in joint venture's (income) loss...............................                    (385)                  167 
                                                                                           ---------------       ---------------
Net income from continuing operations............................................                   4,703                 6,183
Net income from discontinued operations:
   Annuity Operations (net of income taxes of $3,341 and $4,449) ................                   5,490                 7,451
   Western Diversified Group (net of income taxes of $200 and $223) .............                     203                   202 
                                                                                           ---------------       ---------------
Net income ......................................................................          $       10,396         $      13,836 
                                                                                           ===============       ===============

Net income applicable to common stock............................................          $       10,058         $      13,498 
                                                                                           ===============       ===============

Net income per common and common equivalent share (see Note 3):
      Net income from continuing operations......................................          $         0.17         $        0.23
      Net income from discontinued operations....................................                    0.22                  0.30 
                                                                                           ---------------       ---------------
      Net income.................................................................          $         0.39         $        0.53 
                                                                                           ===============       ===============
</TABLE>



           See Notes to Condensed Consolidated Financial Statements.

                                       2
<PAGE>   5


               JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
      CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                  (UNAUDITED)
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                            THREE MONTHS ENDED
                                                                                                 MARCH 31,            
                                                                               ---------------------------------------
                                                                                       1997                  1996     
                                                                               ----------------        ---------------
<S>                                                                             <C>                     <C>
Number of shares outstanding..............................................          24,669,308             24,546,637 
                                                                               ================        ===============

Common stock, beginning of period.........................................      $          250          $         248
   Stock option exercises.................................................                  --                      1
   Transfer from redeemable common stock..................................                  --                      1 
                                                                               ----------------        ---------------
Common stock, end of period...............................................      $          250          $         250 
                                                                               ================        ===============

Paid-in capital, beginning of period......................................      $      181,863          $     181,154
   Stock option exercises.................................................                  --                    111
   Transfer from redeemable common stock..................................                   1                     83 
                                                                               ----------------        ---------------
Paid-in capital, end of period............................................      $      181,864          $     181,348 
                                                                               ================        ===============

Net unrealized gain on investments,  net of income taxes,
   beginning of period....................................................      $       26,977          $      58,041
   Change in net unrealized gain on investments, net of income taxes .....             (21,410)               (44,271) 
                                                                               ----------------        ---------------
Net unrealized gain on investments, net of income taxes, end of period....      $        5,567          $      13,770 
                                                                               ================        ===============

Retained earnings, beginning of period....................................      $      268,109          $     250,167
   Net income.............................................................              10,396                 13,836
   Dividends on redeemable preferred stock ($2.25 per share)..............                (338)                  (338)
   Dividends on common stock ($0.12 and $0.11 per share)..................              (3,039)                (2,781) 
                                                                               ----------------        ---------------
Retained earnings, end of period..........................................      $      275,128          $     260,884 
                                                                               ================        ===============

Redemption value of common stock in excess of cost,
   beginning of period....................................................      $       (2,669)         $      (3,050)
   Adjustment of put holder shares to market value........................                  (2)                   (24)
   Change in redemption value of common stock in excess of cost...........                 286                    493 
                                                                               ----------------        ---------------
Redemption value of common stock in excess of cost, end of period.........      $       (2,385)         $      (2,581)
                                                                               ================        ===============

Unearned compensation, beginning of period................................      $         (643)         $          --
   Compensation expense recognized........................................                  72                     -- 
                                                                               ----------------        ---------------
Unearned compensation, end of period......................................      $         (571)         $          -- 
                                                                               ================        ===============

Treasury stock, beginning and end of period...............................      $       (8,676)         $      (9,329)
                                                                               ================        ===============

Stockholders' equity, beginning of period.................................      $      465,211          $     477,231
   Net income.............................................................              10,396                 13,836
   Change in net unrealized gain on investments, net of income taxes......             (21,410)               (44,271)
   Dividends on redeemable preferred stock ($2.25 per share)..............                (338)                  (338)
   Dividends on common stock ($0.12 and $0.11 per share)..................              (3,039)                (2,781)
   Change in redemption value of common stock in excess of cost...........                 286                    493
   Stock option exercises.................................................                  --                    112
   Compensation expense recognized........................................                  72                     --
   Adjustment of put holder shares to market value........................                  (2)                   (24)
   Transfer from redeemable common stock..................................                   1                     84 
                                                                               ----------------        ---------------
Stockholders' equity, end of period.......................................      $      451,177          $     444,342 
                                                                               ================        ===============
</TABLE>



           See Notes to Condensed Consolidated Financial Statements.

                                       3

<PAGE>   6
               JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                             (DOLLARS IN THOUSANDS)





<TABLE>
<CAPTION>
                                                                                                  THREE MONTHS ENDED
                                                                                                       MARCH 31,           
                                                                                          ---------------------------------
                                                                                               1997                  1996  
                                                                                          ---------------   ---------------
<S>                                                                                        <C>              <C>
Net cash provided by operating activities..............................................    $     100,144     $      84,187
                                                                                          ---------------   ---------------
Cash flows from investing activities:
     Proceeds from investments sold:
            Available-for-sale.........................................................          100,396            28,940
            Equity securities..........................................................               --             1,383
            Real estate owned..........................................................            1,564             3,519
      Maturities, calls  and scheduled loan payments:
            Held-to-maturity...........................................................              248            16,775
            Available-for-sale.........................................................           71,055            50,776
            Mortgage loans and other notes receivable..................................           89,964            99,795
       Investments purchased:
            Held-to-maturity...........................................................               --           (57,431)
            Available-for-sale.........................................................          (16,782)          (85,794)
            Mortgage loans and other notes receivable..................................          (54,553)          (88,340)
            Investment in real estate..................................................              (76)             (150)
     Inflows from net sales and purchases of short-term investments ...................            3,043             1,995
     Net cash outflows from sale of Annuity Operations.................................         (177,616)               --
     Reclassification to net asset held for sale.......................................          (19,710)               --
     Purchases of property and equipment...............................................           (1,042)             (629)
                                                                                          ---------------   ---------------
   Net cash used in investing activities...............................................           (3,509)          (29,161)
                                                                                          ---------------   ---------------
Cash flows from financing activities:
     Repayments of borrowings of short-term and long-term debt.........................               --               (63)
     Receipts from universal life and investment-type contracts........................           69,587           175,334
     Payments on universal life and investment-type contracts..........................         (166,854)         (195,778)
     Payment of dividends..............................................................           (3,040)           (2,777)
     Stock option exercises............................................................               --               112
     Net increase in financial reinsurance ............................................           (2,080)               -- 
                                                                                          ---------------   ---------------
   Net cash used in financing activities...............................................         (102,387)          (23,172)
                                                                                          ---------------   ---------------
Net (decrease) increase in cash and cash equivalents...................................           (5,752)           31,854
Cash and cash equivalents, beginning of period ........................................          167,511            99,606 
                                                                                          ---------------   ---------------
Cash and cash equivalents, end of period ..............................................    $     161,759    $      131,460 
                                                                                          ===============   ===============
</TABLE>

           See Notes to Condensed Consolidated Financial Statements.

                                       4

<PAGE>   7
               JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)



NOTE 1 -- BASIS OF PRESENTATION

         The condensed consolidated financial statements of John Alden
Financial Corporation and its subsidiaries (the "Company") have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted.  The interim financial data is
unaudited; however, in the opinion of management, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results of operations for the interim periods presented.
The results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full year.  As
described in Note 2, the Company is disposing of certain operations.  Certain
reclassifications have been made to prior period condensed consolidated
financial statements to conform to current period presentation.

         These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, as
amended.

NOTE 2 -- DISCONTINUED OPERATIONS

         On March 31, 1997, the Company sold substantially all of its annuity
business (the "Annuity Operations") to SunAmerica Life Insurance Company
("SunAmerica").  The transaction included the sale of all of the common stock
of John Alden Life Insurance Company of New York ("JANY") and the coinsurance
of substantially all of the annuity business of John Alden Life Insurance
Company ("JALIC").  This coinsurance will initially be on an indemnity basis
and the parties have agreed to transition the business to an assumption basis
as soon as practical.  In certain states, the transition to an assumption basis
is subject to policyholder approval.  To the extent that such transition does
not take place with respect to any particular policy, the policy will remain
reinsured on an indemnity basis.  A substantial portion of the transition to an
assumption basis is expected to be completed within two years.

         As consideration for the Annuity Operations, SunAmerica paid the
Company approximately $238.2 million, which was determined through arms-length
negotiations.  The consideration represents an approximately $162.3 million
premium paid to acquire the business and approximately $75.9 million of
adjusted capital and surplus of JANY.  It does not include any capital and
surplus used to support the annuity business in JALIC, which will remain in
JALIC.  Pursuant to the sale agreement, these amounts are subject to future
post-closing adjustments.  The Company believes that any such post-closing
adjustments will not have a material effect on these amounts.  The Company's
available capital was enhanced by both the after-tax gain generated from the
transaction and by the release of the net capital previously allocated to
support the annuity business.  The Company intends to use a portion of this
available capital to strengthen its healthcare operations, after which it
estimates there will be approximately $175 million to $200 million of capital
available for other uses. Subject to applicable regulatory approvals, this
additional capital may be used to repurchase common stock, pay dividends, pay
down debt and, to a lesser extent, for general corporate purposes.

         In addition to the $238.2 million purchase price for the Annuity
Operations, SunAmerica paid $33.1 million to the Company for accrued interest
and related items.  In turn, the Company paid SunAmerica $360.4 million of cash
and cash equivalents because policy reserves transferred exceeded invested
assets transferred.  Additionally, the Company's cash and cash equivalent
position was decreased by JANY's cash and cash equivalent balance at the time of
the sale of $88.5 million, which was retained by JANY.  Therefore, the Company
incurred a net outflow of cash and cash equivalents due to the sale of the
Annuity Operations of $177.6 million, as reflected in the accompanying
condensed consolidated statement of cash flows.  In connection with the sale of
the Annuity Operations and the anticipated sale of the Western Diversified
Group, on March 31, 1997, the Company reclassified all remaining assets and
liabilities in relation to these businesses to net assets held for sale, which 
is included in other assets on the accompanying condensed consolidated balance
sheet.  This reclassification reduced cash and cash equivalents by $19.7
million.

         As a result of this sale and the previously announced proposed sale of
its Western Diversified Group (the principal subsidiaries of the Company that
market credit life and disability and retail service warranty coverage), on
March 31, 1997 the Company recorded a net deferred gain of approximately $45.0
million. This amount is net of transaction expenses, taxes, goodwill and other
adjustments relating to these transactions including among other estimates an
adjustment to reduce the carrying value of the Western Diversified Group to its
estimated net realizable value.  The net deferred gain will be recognized as
income as SunAmerica completes the assumption of policyholder liabilities.  The
Company expects to begin recognizing the net deferred gain in late 1997 and to
earn the majority of the gain by December 31, 1998.





                                       5
<PAGE>   8
               JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                          (UNAUDITED) - (Continued)

         The Company is pursuing the sale of the Western Diversified Group.
Such sale may be in the form of a sale of all of the common stock of the
subsidiaries which comprise the Western Diversified Group or the reinsurance of
the applicable business, and would be subject to applicable regulatory
approvals.  There can be no assurance that such sale will be consummated.

         The results of operations relating to the Annuity Operations and the
Western Diversified Group for the three months ended March 31, 1997 and 1996
are reflected as discontinued operations in the accompanying condensed
consolidated statements of income.  Total revenues for the discontinued
operations for the three months ended March 31, 1997 and 1996 are as follows
(dollars in thousands):

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED MARCH 31,
                                                               ----------------------------
                                                                  1997             1996   
                                                                --------        ----------
 <S>                                                            <C>              <C>
 Annuity Operations.......................................      $102,909         $111,392
 Western Diversified Group................................        16,965           13,960
</TABLE>

         Other assets at March 31, 1997 includes approximately $4.5 billion of
investment deposits recoverable on the JALIC coinsurance, net of a similar
amount of contract holder liabilities, and the net assets held for sale of the
Western Diversified Group, adjusted to reflect the market value of
available-for-sale securities, related to the discontinued operations.

NOTE 3 -- EARNINGS PER SHARE

         Net income per common and common equivalent share was determined by
dividing net income, as adjusted below, by applicable average shares
outstanding (in thousands):


<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED MARCH 31,
                                                                   ----------------------------
                                                                      1997              1996   
                                                                   ----------        ----------
<S>                                                                 <C>               <C>
Net income...................................................       $ 10,396          $ 13,836
Dividends on redeemable preferred stock......................           (338)             (338)
                                                                    --------          -------- 
Net income applicable to common stock........................       $ 10,058          $ 13,498
                                                                    ========          ========
Average common and common equivalent shares outstanding......         25,501            25,627
                                                                    ========          ========
</TABLE>

         Average common and common equivalent shares outstanding include common
shares outstanding and common stock equivalents attributable to outstanding
stock options.  All potentially dilutive securities are considered to be common
stock equivalents.

NOTE 4 --LEGAL PROCEEDING

         During the period of April 1995 through May 1995, the Company and
certain of its officers and directors were named as defendants in a series of
putative class actions alleging violations of the federal securities laws.
While it is not possible to determine the ultimate disposition of this
proceeding, the Company believes that the ultimate disposition will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.





                                       6
<PAGE>   9



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

                                    GENERAL

SALE OF ANNUITY OPERATIONS AND WESTERN DIVERSIFIED GROUP

         On March 31, 1997, the Company sold substantially all of its annuity
business (the "Annuity Operations") to SunAmerica Life Insurance Company
("SunAmerica").  The transaction included the sale of all of the common stock
of JANY and the coinsurance of substantially all of the annuity business of
JALIC.  This coinsurance will initially be on an indemnity basis and the
parties have agreed to transition the business to an assumption basis as soon
as practical.  In certain states, the transition to an assumption basis is
subject to policyholder approval.  To the extent that such transition does not
take place with respect to any particular policy, the policy will remain
reinsured on an indemnity basis.  A substantial portion of the transition to an
assumption basis is expected to be completed within two years.

         As consideration for the Annuity Operations, SunAmerica paid the
Company approximately $238.2 million, which was determined through arms-length
negotiations.  The consideration represents an approximately $162.3 million
premium paid to acquire the business and approximately $75.9 million of
adjusted capital and surplus of JANY.  It does not include any capital and
surplus used to support the annuity business in JALIC, which will remain in
JALIC.  Pursuant to the sale agreement, these amounts are subject to future
post-closing adjustments.  The Company believes that any such post-closing
adjustments will not have a material effect on these amounts.  The Company's
available capital was enhanced by both the after-tax gain generated from the
transaction and by the release of the net capital previously allocated to
support the annuity business.  The Company intends to use a portion of this
available capital to strengthen its healthcare operations, after which it
estimates there will be approximately $175 million to $200 million of capital
available for other uses. Subject to applicable regulatory approvals, this
additional capital may be used to repurchase common stock, pay dividends, pay
down debt and, to a lesser extent, for general corporate purposes.

         As a result of this sale and the previously announced proposed sale of
its Western Diversified Group (the principal subsidiaries of the Company that
market credit life and disability and retail service warranty coverage), on
March 31, 1997 the Company recorded a net deferred gain of approximately $45.0
million. This amount is net of transaction expenses, taxes, goodwill and other
adjustments relating to these transactions including among other estimates an
adjustment to reduce the carrying value of the Western Diversified Group to its
estimated net realizable value.  The net deferred gain will be recognized as
income as SunAmerica completes the assumption of policyholder liabilities.  The
Company expects to begin recognizing the net deferred gain in late 1997 and to
earn the majority of the gain by December 31, 1998.

         The Company is pursuing the sale of the Western Diversified Group. 
Such sale may be in the form of a sale of all of the common stock of the 
subsidiaries which comprise the Western Diversified Group or the reinsurance 
of the applicable business and would be subject to applicable regulatory 
approvals.  There can be no assurance that such sale will be consummated.





                                       7
<PAGE>   10



                             RESULTS OF OPERATIONS

RESULTS SUMMARY
<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED MARCH 31,
                                                                        -----------------------------------
                                                                               1997               1996
                                                                        ----------------     --------------
                                                                  (In millions, except share and per share data)
 <S>                                                                          <C>               <C>
 Operating income (1):
   Continuing operations                                                        $2.5              $5.5
   Discontinued operations                                                       8.0               8.3
      Total                                                                     10.5              13.8
 Net income:
   Continuing operations                                                         4.7               6.2
   Discontinued operations                                                       5.7               7.6
      Total                                                                     10.4              13.8
 Net income applicable to common stock                                          10.1              13.5
 Operating income per common share (1):
   Continuing operations                                                        0.10              0.21
   Discontinued operations                                                      0.31              0.33
      Total                                                                     0.41              0.54
 Net income per common share                                                    0.39              0.53
 Average common equivalent shares outstanding (000's)                         25,501            25,627
</TABLE>

---------------------
(1)  Applicable to common stock, excluding net realized investment gains
     (losses) and after preferred stock dividends.

STATEMENT OF INCOME DATA

         The Company reports the results of operations of the Annuity
Operations and the Western Diversified Group as discontinued operations.  The
Company's continuing operations primarily consist of its group health business,
stop-loss reinsurance business and joint venture Health Maintenance
Organization ("HMO").





                                       8
<PAGE>   11



CONTINUING OPERATIONS

         The following tables recast the accompanying Condensed Consolidated
Statements of Income for continuing operations for the three months ended March
31, 1997 and 1996 as a percent of net insurance premiums and contract charges
earned ("net premiums"), and provide other relevant information:


<TABLE>
<CAPTION>
                                                                                                                 POINT CHANGE
                                                                              THREE MONTHS ENDED MARCH 31,         POSITIVE
                                                                            --------------------------------      (NEGATIVE)
                                                                                 1997 (1)           1996            EFFECT    
                                                                            ---------------      -----------    --------------
<S>                                                                               <C>              <C>              <C>
Revenues:
  Gross insurance premiums and contract charges earned.....................       173.6%           180.5%           (6.9)%
  Ceded insurance premiums and contract charges earned.....................       (73.6)%          (80.5)%           6.9%
                                                                                 ------           ------           ----- 
     Net insurance premiums and contract charges earned....................       100.0%           100.0%            0.0%
  Net investment income....................................................         4.6%             4.4%            0.2%
  Other income.............................................................        11.5%             7.4%            4.1%
  Net realized investment gains............................................         1.2%             0.3%            0.9%
                                                                                 ------           ------           ----- 
     Total revenues........................................................       117.3%           112.1%            5.2%
                                                                                 ------           ------           ----- 
Benefits and expenses:
  Gross claims incurred on insurance products..............................       122.0%           129.7%            7.7%
  Ceded claims incurred on insurance products..............................       (53.6)%          (60.7)%          (7.1)%
                                                                                 ------           ------           -----  
     Net claims incurred on insurance products.............................        68.4%            69.0%            0.6%
  Universal life and investment-type contract benefits.....................         2.0%             1.7%           (0.3)%
  Increase in life insurance reserves......................................        (0.1)%             --             0.1%
                                                                                 ------           ------           ----- 
  Total benefits...........................................................        70.3%            70.7%            0.4%
                                                                                 ------           ------           ----- 
  Commissions..............................................................         6.8%             8.0%            1.2%
  General expenses.........................................................        33.6%            27.2%           (6.4)%
  Amortization of purchased intangibles....................................         0.5%             0.7%            0.2%
  Amortization of deferred policy acquisition costs........................         1.6%             1.2%           (0.4)%
  Interest expense.........................................................         0.7%             0.6%           (0.1)%
                                                                                 ------           ------           -----  
     Total benefits and expenses...........................................       113.5%           108.4%           (5.1)%
                                                                                 ------           ------           -----  
Income from continuing operations before                                    
  provision for income taxes and minority                                  
  interest in joint venture's (income) loss................................         3.8%             3.7%            0.1%
Prsion for income taxes....................................................         1.6%             1.5%           (0.1)%
Minority interest in joint venture's (income) loss.........................        (0.2)%            0.1%           (0.3)%
                                                                                 ------           ------           -----  
Net income from continuing operations......................................         2.0%             2.3%           (0.3)%
                                                                                 ======           ======           =====  
</TABLE>



<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED MARCH 31,     PERCENTAGE CHANGE
                                                      ----------------------------    POSITIVE (NEGATIVE)
                                                           1997            1996             EFFECT 
                                                      ------------     -----------    -------------------
 <S>                                                      <C>           <C>                <C>
 Other relevant information:
    Group insured data:
       Employers (2)................................      165,000         228,000          (27.6)%
       Employee lives...............................      419,000         600,000          (30.2)
       Group covered lives..........................      793,000       1,147,000          (30.9)
       HMO covered lives............................       91,000          55,000           65.5
          Total covered lives.......................      884,000       1,202,000          (26.5)
    Group gross medical loss ratio..................         67.6%           72.5%           4.9
</TABLE>

-------------------------
(1)      For the three months ended March 31, 1997, the effects of the
assumption of a block of life insurance under a reinsurance treaty, which
increased gross premiums and contract charges earned ("gross premiums") and
benefits by approximately $35.9 million, have been excluded from this table.
The transaction resulted in no net income or loss.

(2)      Includes 30,000 and 37,000 groups, each group made up of one
individual, as of March 31, 1997 and 1996, respectively, marketed through an
association trust.


                                       9
<PAGE>   12



         Gross premiums decreased 7.9% to $445.1 million for the three months
ended March 31, 1997 from $483.2 million for the three months ended March 31,
1996.  During the three months ended March 31, 1997, the Company assumed a
block of life insurance, which had the effect of increasing gross premiums and
benefits by approximately $35.9 million.  This reinsurance treaty had no effect
on the net results of operations for the three months ended March 31, 1997.
All subsequent discussion of results of operations will exclude the effects of
this reinsurance treaty. Excluding the effects of this treaty, gross premiums
decreased 15.3% to $409.2 million from the prior year.  This decrease was
primarily a result of the 30.9% decrease in group covered lives discussed
below, partially offset by premium rate increases and growth in the premiums
earned in the joint venture HMO.  This joint venture, NHP Holding Company, Inc.
("NHP"), was formed in the third quarter of 1994 with a physician hospital
organization. Covered lives in the HMO have increased 65.5% to 91,000 at March
31, 1997 from 55,000 at March 31, 1996. The Company's 50% share of the net
income of NHP was $0.4 million for the three months ended March 31, 1997 as
compared to a loss of $0.2 million for the three months ended March 31, 1996.

         During 1996, the Company continued to experience relatively high gross
medical loss ratios.  In response, the Company significantly increased premium
rates, improved provider discount arrangements, redesigned benefit packages,
modified commission structures and discontinued portions of the business as
deemed advisable.  In 1996, the Company ceased marketing in the State of
Kentucky and terminated certain other marketing arrangements.  These various
actions contributed to a 30.9% decrease in group covered lives to 793,000 at
March 31, 1997 from 1,147,000 at March 31, 1996.

         Other income consists primarily of profit sharing provisions in
accordance with a Group Reinsurance Agreement with London Life Insurance
Company and Transamerica Occidental Life Insurance Company (the "Group
Reinsurance Agreement").  The amount of these profit sharing provisions has
increased between these periods due primarily to the decrease in the group
gross medical loss ratio.

         Total benefits decreased 12.6% to $165.4 million for the three months
ended March 31, 1997 from $189.2 million for the three months ended March 31,
1996, and total benefits as a percentage of net premiums decreased to 70.3%
from 70.7% for these same periods.  The group gross medical loss ratio was
67.6% for the three months ended March 31, 1997 as compared to 72.5% for the
three months ended March 31, 1996.  Much of this gross medical loss ratio
improvement is recorded as an experience refund under the Group Reinsurance
Agreement and is included in other income, as discussed above.  The Company
believes it is too early to know to what extent the improvement in the group
gross medical loss ratio is from external or internal factors.  The Company
believes it is also too early to know if this improvement is a temporary
improvement or a trend.

         Commissions, as a percentage of net premiums, declined to 6.8% for the
three months ended March 31, 1997 from 8.0% for the three months ended March
31, 1996.  This decrease was primarily due to the relative decrease in new
group product sales, which incur a higher commission rate than renewals.  In
addition, the decrease has been affected by the increase in sales of the HMO
product, which incur a lower commission rate than group products.

         General expenses increased 9.1% to $79.4 million for the three months
ended March 31, 1997 from $72.8 million for the three months ended March 31,
1996, and general expenses as a percentage of net premiums increased to 33.6%
from 27.2% for these same periods.  During the three months ended March 31,
1997, the Company restructured its operations in conjuction with the closing of
the sale of the Annuity Operations and anticipated reduced premium volume in
its group operations.  On March 31, 1997, the Company announced that during
1997 it would reduce its workforce by approximately 725 employees, of which
approximately 475 employees are included in the Company's continuing operations
and which represents approximately 20% of the continuing operations workforce.
Accordingly, the Company incurred a pre-tax charge to continuing operations of
$23.0 million for severance and related charges.  During the three months ended
March 31, 1996, the Company incurred a $6.7 million continuing operations
pre-tax charge related to its strategic evaluation of





                                       10
<PAGE>   13



operations.  Excluding these charges, general expenses decreased 14.7% to $56.4
million for the three months ended March 31, 1997 from $66.1 million for the
three months ended March 31, 1996, and general expenses as a percentage of net
premiums decreased to 23.9% from 24.7% for these same periods.

         The Company's net income from continuing operations was 2.0% of net
premiums for the three months ended March 31, 1997, compared to 2.3% for the
three months ended March 31, 1996. Excluding the significant charges incurred
in each period relating to the Company's strategic evaluation and restructuring
of its business, net income from continuing operations as a percent of net
premiums increased to 8.4% for the three months ended March 31, 1997 from 3.9%
for the three months ended March 31, 1996.  This increase is primarily due to
the decrease in the group gross medical loss ratio.  Due to the uncertainty
regarding future trends of the medical loss ratio and the general expense
ratio, there can be no assurance that this improvement will continue in the
future.

DISCONTINUED OPERATIONS

         On March 31, 1997, the Company sold its Annuity Operations to
SunAmerica.  The transaction included the sale of all of the common stock of
JANY and the coinsurance of substantially all of the annuity business of JALIC.
This coinsurance will initially be on an indemnity basis and the parties have
agreed to transition the business to an assumption basis as soon as practical.
In certain states, the transition to an assumption basis is subject to
policyholder approval.  To the extent that such transition does not take place
with respect to any particular policy, the policy will remain reinsured on an
indemnity basis.  A substantial portion of the transition to an assumption
basis is expected to be completed within two years.

      The Company is pursuing the sale of the Western Diversified Group.  Such
sale may be in the form of a sale of all of the common stock of the
subsidiaries which comprise the Western Diversified Group or the reinsurance of
the applicable business and would be subject to applicable regulatory
approvals.  There can be no assurance that such sale will be consummated.

ANNUITY OPERATIONS


<TABLE>
<CAPTION>
                                          THREE MONTHS ENDED MARCH 31,        PERCENTAGE CHANGE
                                          ----------------------------        POSITIVE (NEGATIVE)
                                             1997              1996                 EFFECT     
                                          ---------          ---------        ------------------
                                            (Dollars in millions)
 <S>                                       <C>               <C>                  <C>
 Total revenues.........................   $ 102.9           $ 111.4                (7.6)%
 Pre-tax operating income (net spread
   earned)..............................      12.3              13.1                (6.1)
 Net realized investment losses.........      (3.5)             (1.2)             (191.7)
 Pre-tax income.........................       8.8              11.9               (26.1)
</TABLE>

         The net spread earned decreased 6.1% to $12.3 million for the three
months ended March 31, 1997 from $13.1 million for the three months ended March
31, 1996.  Pre-tax income decreased 26.1% to $8.8 million for the three months
ended March 31, 1997 from $11.9 million for the three months ended March 31,
1996 due to the decrease in net spread earned and increased net realized
investment losses.





                                       11
<PAGE>   14



WESTERN DIVERSIFIED GROUP


<TABLE>
<CAPTION>
                                         THREE MONTHS ENDED MARCH 31,     PERCENTAGE CHANGE
                                         ----------------------------    POSITIVE (NEGATIVE)
                                           1997               1996             EFFECT
                                         --------         -----------    -------------------            
                                           (Dollars in millions)
 <S>                                       <C>               <C>               <C>
 Written premiums.......................   $19.1             $20.0             (4.5)%
 Gross insurance premiums and contract
   charges earned.......................    19.4              17.4              11.5
 Pre-tax income.........................     0.4               0.4               --
</TABLE>

         Pre-tax income of the Western Diversified Group was $0.4 million for
each of the three months ended March 31, 1997 and 1996.


                                BUSINESS OUTLOOK

         In January 1997, the Company announced that it would be focusing its
marketing efforts and resources in those markets and states in which it
believes it can best increase profitability and market share.  In connection
with this strategy, the Company has decided to stop selling small group
insurance plans in California, Maryland and New Jersey and to terminate
existing small group insurance plans in these states.  The Company began the
introduction of a new product in April 1997 and as of May 1997 is offering this
product in 19 states. The Company anticipates that by the end of the third
quarter of 1997 this product will be available in most of the states in which
the Company expects to focus its marketing efforts.  As the Company exits these
three states and possibly other states, and until the new product is sold in
sufficient quantities to exceed lapses of the existing inforce product, the
Company may experience further reductions in group covered lives, and as a
result, in gross premiums.  If gross premiums decline at a faster rate than the
Company is able to reduce non-variable general expenses, the group gross
expense ratio could increase in the future.

         The Company believes it is too early to know to what extent the
improvement in the group gross medical loss ratio realized in the three months
ended March 31, 1997 as compared to the three months ended March 31, 1996 is
from external or internal factors.  The Company believes it is also too early
to know if this improvement is a temporary improvement or a trend.

         The Company has generally experienced a higher gross
medical loss ratio in the fourth quarter versus other quarters of the year.
The Company believes that these higher medical loss ratios are primarily due to
increased incidence of claims associated with the colder, winter climate and
the fact that insureds generally exceed the calendar year deductible and
out-of-pocket expense limits of their policies by that time of year.  The
Company has also generally experienced relatively higher gross medical loss
ratios with groups that have been inforce for a longer period of time.
Therefore, new business has generally produced relatively lower gross medical
loss ratios compared to the renewing inforce business.  The Company believes
that by the end of the third quarter of 1997 it will be selling its new product
in most of the states in which the Company expects to focus its marketing
efforts.  The new product sales, together with the decline in group covered
lives discussed above, may result in premiums from new product sales
representing a relatively larger percentage of premiums in the fourth quarter
of 1997 than in recent quarters.  The Company cannot predict the level of new 
sales or the extent to which the historical pattern of relatively high medical 
loss ratios in the fourth quarter will continue, increase or decrease in the 
future.

         Historically, group insurance business has been subject to pricing and
profitability cycles that are driven by competitive price pressures within the
industry.  These pressures and other factors make it difficult to predict with
certainty the effect pricing changes will have on the Company's profitability.
Traditionally, the cycle has been





                                       12
<PAGE>   15



characterized by a period of higher profitability, which has fostered intense
price competition and aggressive marketing by new entrants and existing
companies striving to increase market share, thereby resulting in lower
profitability.  The lower profitability typically resulted in a withdrawal of
competitors and a firming of prices, resulting once again in increased
profitability and a renewal of the cycle. There are factors in the current
cycle that were not present in previous cycles.  The first significant factor
is small group and individual healthcare legislative reform and its effect on
medical underwriting and pricing.  Small group and individual healthcare
reforms, primarily at the state level and increasingly at the federal level,
include legislation on matters such as guaranteed issue, mandated benefits,
premium rate limits (including community rating and modified community rating),
guaranteed renewability, minimum loss ratio mandates, risk adjustment
mechanisms which allocate losses of individual carriers to group carriers, and
other reforms.  Secondly, managed care providers, the most significant of which
are HMO's, now represent a more significant source of competition than in
previous cycles.

         In 1996, Congress enacted HR 3103 ("Health Insurance Portability and
Accountability Act", or "HIPAA"), also commonly referred to as the
Kassenbaum-Kennedy Bill.  HIPAA provisions applicable to both insured and
self-funded employer group coverage include minimum standards for pre-existing
condition exclusions, waiver of pre-existing condition exclusions for
individuals meeting minimum prior coverage requirements and prohibition of
health related exclusion of individuals from employer group coverage.  HIPAA
also provides guaranteed acceptance of small employers with 2 to 50 employees
for insured coverage.  In other respects, HIPAA's group and small group
provisions are largely in line with state small group reform laws already
enacted by the large majority of states.  However, most of these states are
expected to amend their laws to alleviate any inconsistencies.  States which
have not already enacted all of the HIPAA group and small group standards may
enact state reforms consistent with HIPAA.  The final outcome of state
amendments or new legislation, as well as federal regulations addressing these
provisions, cannot be predicted.


                        LIQUIDITY AND CAPITAL RESOURCES

INDEBTEDNESS

      The Company maintains a Credit Agreement with The Chase Manhattan Bank
which was amended in July 1994 to increase the commitment amount of the term
loan to $110.0 million and to establish a revolving credit loan with a
commitment amount of $40.0 million and an expiration of July 1998 (the "Credit
Agreement").  As of March 31, 1997, the Company has $23.5 million available
under the revolving credit loan.  The principal amount of outstanding
indebtedness of the Company was $101.5 million as of both March 31, 1997 and
December 31, 1996. The Company made a scheduled principal payment of $25.0
million in April 1997. Future required principal payments are $41.5 million in
1998 and $35.0 million in 1999.  As of March 31, 1997 and December 31, 1996,
the Company's ratio of debt and redeemable securities to stockholders' equity
was 0.27 to 1 and 0.26 to 1, respectively. The weighted average interest rates
on the Company's indebtedness were approximately 6.4% and 6.5% for the three
months ended March 31, 1997 and 1996, respectively.

DIVIDENDS

         The Credit Agreement restricts dividends and other distributions
payable by the Company.  In any period of 12 consecutive months, the Company
may pay cash dividends on, or repurchase for cash, capital stock in an amount
not to exceed 15% of net worth (representing stockholders' equity excluding net
unrealized gains (losses) on investments plus redeemable securities) as of the
end of the fiscal quarter ending on or most recently prior to the last day of
such 12 month period ($69.7 million for the 12 months ended March 31, 1997).

         The Company paid preferred stock dividends of approximately $0.7
million in April 1997.  In March 1997, the Company declared common stock
dividends of approximately $3.0 million which were paid in April 1997.





                                      13
<PAGE>   16



CASH FLOWS

         Net cash provided by operating activities increased to $100.1 million
for the three months ended March 31, 1997 from $84.2 million for the three
months ended March 31, 1996.  While net income of $10.4 million for the three
months ended March 31, 1997 was less than the net income of $13.8 million for
the three months ended March 31, 1996, the 1997 period includes a pre-tax
charge of $23.0 million for severance and related charges, as discussed
previously.  The majority of this amount will be paid in cash in subsequent
quarters.  Therefore, the net cash flow from operations from other sources and
uses for the three months ended March 31, 1997 exceeded the net cash flow from
operations for the three months ended March 31, 1996.

         Net cash used in investing activities decreased to $3.5 million for
the three months ended March 31, 1997 from $29.2 million for the three months
ended March 31, 1996.  In connection with the sale of the Annuity Operations
discussed above, SunAmerica paid a purchase price to the Company of $238.2
million.  In addition, SunAmerica paid $33.1 million to the Company for accrued
interest and related items.  In turn, the Company paid SunAmerica $360.4
million of cash and cash equivalents because policy reserves transferred
exceeded invested assets transferred.  Additionally, the Company's cash and
cash equivalent position was decreased by JANY's cash and cash equivalent
balance at the time of the sale of $88.5 million, which was retained by JANY.
Therefore, the Company incurred a net outflow of cash and cash equivalents due
to the sale of the Annuity Operations of $177.6 million.  In connection with
the sale of the Annuity Operations and the anticipated sale of the Western
Diversified Group, on March 31, 1997, the Company reclassified all remaining
assets and liabilities in relation to these businesses to net assets held for
sale, which is included in other assets on the accompanying condensed
consolidated balance sheet.  This reclassification reduced cash and cash
equivalents by $19.7 million.  Offsetting these uses of cash and cash
equivalents during the three months ended March 31, 1997 were proceeds from
sales, maturities and repayments of investments.

         Net cash used in financing activities increased to $102.4 million for
the three months ended March 31, 1997 from $23.2 million for the three months
ended March 31, 1996.  This was due to decreased sales of annuity products and
an increase in surrender activity of such products following the announcement
in March 1996 that the Company was selling its Annuity Operations.

         The Annuity Operations have historically represented a significant
source of cash flows to the Company. Historically, the Annuity Operations were
profitable, generating a positive cash flow from operations.  As the annuity
business grew, the considerations received historically exceeded the payments
on these contracts, producing positive cash flows from financing activities.
In 1996 and for the three months ended March 31, 1997, surrenders or other
payments have exceeded receipts from these contracts, producing negative cash
flows from financing activities.  The operating cash flows and the financing
cash flows from the Annuity Operations provided the funds for the majority of
the investing activities of the Company.  Now that the sale of the Annuity
Operations is complete, the Company will no longer have the positive cash flows
from operations in connection with this business.  A large portion of the net
positive cash flows from operations for the three months ended March 31, 1997
of $100.1 million was attributable to the Annuity Operations.  Conversely, the
majority of the net negative cash flows from financing activities of $102.4 
million for the three months ended March 31, 1997 will no longer be 
experienced.  Future cash flows from investing activities will be reduced from 
historical levels because the Company's investment portfolio has been reduced 
from approximately $6.0 billion at December 31, 1996 to approximately $1.0 
billion at March 31, 1997 following the sale of the Annuity Operations.

         The Company has recently developed a new small group health insurance
product, which was introduced into the marketplace beginning in April 1997.
The Company will also be enhancing its management of provider relationships and
risk-sharing programs. In conjunction with these actions, the Company will be
reviewing its current and future information systems needs.  As a result, the
Company may need to make additional investments in its information systems in
the future to support the operations of the business and as the Company
prepares for the transitioning of operations into the year 2000.





                                       14
<PAGE>   17



         The Company believes that sufficient sources of cash flow exist which
will be available in the foreseeable future to allow the Company to service its
debt, redeem preferred stock, pay anticipated dividends and satisfy other
requirements.

REINSURANCE

         As discussed above, in conjunction with the sale of the Annuity
Operations, the Company has entered into a coinsurance agreement with
SunAmerica relating to substantially all of the JALIC annuity business.  This
coinsurance is initially on an indemnity basis and the parties have agreed to
transition the business to an assumption basis as soon as practical. In certain
states, the transition to an assumption basis is subject to policyholder
approval.  To the extent that such transition does not take place with respect
to any particular policy, the policy will remain reinsured on an indemnity
basis.  A substantial portion of the transition to an assumption basis is
expected to be completed within two years.  Assets equal to the amount of
policy reserves ceded of approximately $3.6 billion have been placed in trust
for the benefit of JALIC.  In addition, substantially all of the Company's
existing coinsurance which had previously been ceded to other reinsurers has
now been assigned to SunAmerica.  Assets equal to these reserves of
approximately $0.7 billion have been placed in trust for the benefit of
SunAmerica.  JALIC, in turn, is indemnified under these reinsurance agreements
by SunAmerica.  SunAmerica is rated "A+ (Superior)" by A.M. Best and Company.

INVESTMENTS

         The following table sets forth the composition of the Company's debt
securities portfolio by rating as of March 31, 1997 (dollars in thousands):

<TABLE>
<CAPTION>
                         HELD-TO-            AVAILABLE-             TRADING            TOTAL         % OF TOTAL
                         MATURITY             FOR-SALE              ACCOUNT           CARRYING        CARRYING
                         SECURITIES          SECURITIES            SECURITIES          VALUE            VALUE  
                         ----------          ----------            ----------        ----------      ----------
<S>                      <C>                 <C>                   <C>               <C>               <C>
Rating (1)
AAA (2).............     $ 21,032            $ 262,734             $  3,466          $ 287,232          39.1%
AA..................        6,298               98,977                   --            105,275          14.3
A...................       13,594              245,174                   --            258,768          35.2
BBB.................        4,923               78,945                   --             83,868          11.4
                         --------            ---------             --------          ---------         -----
  Total.............     $ 45,847            $ 685,830             $  3,466          $ 735,143         100.0%
                         ========            =========             ========          =========         ===== 
</TABLE>

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

(1) Debt securities are classified according to the lowest rating by a
    nationally recognized statistical rating organization.  Debt securities not
    rated by any such organization are classified according to the rating
    assigned to them by the NAIC as follows: NAIC class 1 is considered
    equivalent to an A or higher rating; class 2, BBB; class 3, BB; and classes
    4-6, B and below.

(2) Includes approximately $63,141,000 of U.S. government and agency debt
    securities.





                                       15
<PAGE>   18



                                    PART II

ITEM 1.  LEGAL PROCEEDINGS

         The Company is involved in various legal proceedings incidental to the
conduct of its business. While it is not possible to determine the ultimate
disposition of each of these proceedings, the Company believes that the
ultimate disposition of such proceedings, individually and in the aggregate
(including the lawsuit discussed below), will not have a material adverse
effect on the Company's financial position, results of operations or cash
flows.

         During the period of April 1995 through May 1995, the Company and
certain of its officers and directors were named as defendants in a series of
putative class actions alleging violations of the federal securities laws.  The
actions, Christopher W. Aronson, et. al. v. John Alden Financial Corporation,
et. al.; In Re:  John Alden Financial Corporation Securities Litigation, all of
which were filed in the United States District Court for the Southern District
of Florida (the "Court"), have been consolidated.  In October 1995, the
plaintiffs filed a Consolidated Amended Complaint purportedly on behalf of a
class of persons who purchased the Company's common stock, par value $.01 per
share (the "Common Stock") during the period of October 27, 1994 through May 3,
1995 seeking unspecified damages, fees, costs and interest.  The first of the
original complaints was filed after the Company revised its previously
announced earnings for the fourth quarter of 1994 to reflect an unanticipated
increase in claims received in 1995 for medical services rendered in 1994.  The
remainder of the original complaints were filed after the Company increased
reserves during the first quarter of 1995 to reflect a further increase in such
claims.  On September 30, 1996, the Court denied the defendants' motion to
dismiss the Consolidated Amended Complaint and the Court certified a class of
those persons who purchased the Company's Common Stock during the period
between October 27, 1994 through May 3, 1995.  Discovery in this lawsuit is
ongoing.  The Company and individual defendants deny any wrongdoing, believe
they have meritorious defenses against the claims asserted, and intend to
vigorously defend the lawsuit.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)     Exhibits
                 See accompanying Index to Exhibits below.

         (b)     Reports on Form 8-K
                 Form 8-K filed on April 15, 1997 relating to the sale of the
                 Company's Annuity Operations to SunAmerica Life Insurance
                 Company.





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<PAGE>   19



                                   SIGNATURE


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



                                JOHN ALDEN FINANCIAL CORPORATION
                                
                                
                                
Date: May 14, 1997                      By: /s/ Scott L. Stanton 
                                           ------------------------------------
                                                 Scott L. Stanton
                                                 Senior Vice President and
                                                 Chief Financial Officer
                                




                                       17
<PAGE>   20



                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 Exhibit
 No.                                                   Description
 ---                                                   -----------
 <S>       <C>
 10.48     Stock Purchase and Sale Agreement by and between John Alden Life Insurance Company ("JALIC") and
           SunAmerica Life Insurance Company ("SunAmerica") dated November 29, 1996.  Filed as Exhibit 10.1
           to the Registrant's Current Report on Form  8-K filed April 15, 1997 (Commission File No.
           1-11396) and incorporated herein by reference.

 10.49     Asset Purchase and Sale Agreement by and between JALIC and SunAmerica dated November 29, 1996.
           Filed as Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed April 15, 1997
           (Commission File No. 1-11396) and incorporated herein by reference.

 10.50     Indemnity Reinsurance Agreement by and between JALIC and SunAmerica dated as of March 31, 1997.
           Filed as Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed April 15, 1997
           (Commission File No. 1-11396) and incorporated herein by reference.

 10.51     Assumption Reinsurance Agreement dated as of March 31, 1997 by and between JALIC and SunAmerica.
           Filed as Exhibit 10.4 to the Registrant's Current Report on Form 8-K filed April 15, 1997
           (Commission File No. 1-11396) and incorporated herein by reference.

 10.52     Trust Agreement by and among SunAmerica as Grantor and JALIC as Beneficiary and Bankers Trust
           Company as Trustee dated March 31, 1997.  Filed as Exhibit 10.5 to the Registrant's Current
           Report on Form 8-K filed April 15, 1997 (Commission File No. 1-11396) and incorporated herein by
           reference.

 10.53     Transition Services Agreement between JALIC and SunAmerica dated March 31, 1997.  Filed as
           Exhibit 10.6 to the Registrant's Current Report on Form 8-K filed April 15, 1997 (Commission
           File No. 1-11396) and incorporated herein by reference.

 10.54     Transition Services Agreement between JALIC and John Alden Life Insurance Company of New York
           ("JANY") dated March 31, 1997.  Filed as Exhibit 10.7 to the Registrant's Current Report on Form
           8-K filed April 15, 1997 (Commission File No. 1-11396) and incorporated herein by reference.

 10.55     Administrative Services Agreement between JALIC and SunAmerica dated March 31, 1997.  Filed as
           Exhibit 10.8 to the Registrant's Current Report on Form 8-K filed April 15, 1997 (Commission
           File No. 1-11396) and incorporated herein by reference.

 10.56     Interim Servicing Agreement between John Alden Asset Management Company, SunAmerica and JANY
           dated as of March 31, 1997.  Filed as Exhibit 10.9 to the Registrant's Current Report on Form
           8-K filed April 15, 1997 (Commission File No. 1-11396) and incorporated herein by reference.

 10.57     Asset Repurchase Agreement by and between JALIC and SunAmerica dated March 31, 1997.  Filed as
           Exhibit 10.10 to the Registrant's Current Report on Form 8-K filed April 15, 1997 (Commission
           File No. 1-11396) and incorporated herein by reference.

 10.58     Marketing Agreement dated March 28, 1997 by and between SunAmerica and NSM Sales Corporation.
           Filed as Exhibit 10.11 to the Registrant's Current Report on Form 8-K filed April 15, 1997
           (Commission File No. 1-11396) and incorporated herein by reference.
</TABLE>





                                       18
<PAGE>   21



<TABLE>
<CAPTION>
 Exhibit
 No.                                                   Description
 ---                                                   -----------
 <S>       <C>
 10.59     Amendment No. 1 dated March 31, 1997 to the Stock Purchase and Sale Agreement dated November 29,
           1996 by and between JALIC and SunAmerica.  Filed as Exhibit 10.12 to the Registrant's Current
           Report on Form 8-K filed April 15, 1997 (Commission File No. 1-11396) and incorporated herein by
           reference.

 10.60     Amendment No. 1 dated March 31, 1997 to the Asset Purchase and Sale Agreement dated November 29,
           1996 by and between JALIC and SunAmerica.  Filed as Exhibit 10.13 to the Registrant's Current
           Report on Form 8-K filed April 15, 1997 (Commission File No. 1-11396) and incorporated herein by
           reference.

 10.61     Amendment No. 1 to Marketing Agreement between SunAmerica and NSM Sales Corporation.  Filed as
           Exhibit 10.14 to the Registrant's Current Report on Form 8-K filed April 15, 1997 (Commission
           File No. 1-11396) and incorporated herein by reference.

 10.62     Deferred Compensation Agreement dated April 2, 1997, by and between John Alden Financial
           Corporation and Glendon E. Johnson.


 27        Financial Data Schedule
</TABLE>





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