<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 June 30, 1998




                        Commission File Number: 1-11396


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



           DELAWARE                                          59-2840712
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                           Identification No.)


7300 CORPORATE CENTER DRIVE, MIAMI, FLORIDA                  33126-1208
 (Address of principal executive offices)                    (Zip Code)

                                 (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 August 10, 1998, 24,540,219 shares of Common Stock, par value
$.01, were outstanding.

<PAGE>   2


                        JOHN ALDEN FINANCIAL CORPORATION

                                    FORM 10-Q

                       For the Quarter Ended June 30, 1998

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

Item 1.       Condensed Consolidated Financial Statements as of June 30, 1998
              (unaudited) and December 31, 1997, and for the three and six months
              ended June 30, 1998 (unaudited) and June 30, 1997 (unaudited)..................................   1

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

Item 2.       Management's Discussion and Analysis of Financial Condition and
              Results of Operations..........................................................................   9

PART II. OTHER INFORMATION

Item 1.       Legal Proceedings..............................................................................  19

Item 6.       Exhibits and Reports on Form 8-K...............................................................  20
</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), medical
inflation, 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 ability to obtain dividend approval
from state regulators, the uncertainties regarding the timing of the assumption
of policies coinsured with SunAmerica, the ability to modify or replace
computerized systems to be year 2000 compliant, and the ability of the Company
to control costs. There can be no certainty as to the timing of the consummation
of the acquisition of the Company as described below or obtaining approval from
regulators and stockholders for the proposed sale of the Company. 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>
                                                                                                 JUNE 30,                 
                                                                                                   1998       DECEMBER 31,
                                    ASSETS                                                      (UNAUDITED)      1997     
                                                                                                -----------   ----------- 
<S>                                                                                             <C>           <C>         
Debt securities:
   Held-to-maturity securities, at amortized cost (market $42,289 and $46,464)...............   $   40,486    $   44,780
   Available-for-sale securities, at market (cost $473,866 and $518,018).....................      507,589       550,585
   Trading account securities, at market (cost $3,408 and $3,411)............................        3,485         3,504
Equity securities, at market (cost $8).......................................................           24            23
Investment in affiliate......................................................................        6,602         5,066
Mortgage loans...............................................................................      139,091       145,770
Investment in real estate, at cost, less accumulated depreciation of $4,512 and $3,621.......       40,587        40,354
Real estate owned............................................................................        1,409         3,021
Policy loans and other notes receivable......................................................       34,180        41,247
Short-term investments.......................................................................        2,463       176,192
                                                                                                ----------   -----------
     Total invested assets...................................................................      775,916     1,010,542
Cash and cash equivalents....................................................................      126,414        15,238
Accrued investment income....................................................................        9,990        15,525
Reinsurance receivables......................................................................      151,625       169,588
Other assets.................................................................................      204,524       219,805
                                                                                                ----------   -----------
       Total assets..........................................................................   $1,268,469    $1,430,698
                                                                                                ==========   ===========   
                                                                                                                            
          LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS' EQUITY                                                       
                                                                                                                            
Liabilities:
  Contract holder liabilities................................................................   $  660,092    $  726,270
  Short-term debt............................................................................          --         41,500
  Long-term debt.............................................................................          --         35,000
  Other liabilities..........................................................................      112,262       140,694
  Deferred gain on sale of discontinued operations...........................................       17,727        21,038
                                                                                                ----------   -----------
        Total liabilities....................................................................      790,081       964,502
                                                                                                ----------   -----------
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 $286 and $101.91 per share.........................................       15,286        15,286
                                                                                                ----------   -----------
        Total redeemable securities..........................................................       15,286        15,286
                                                                                                ----------   -----------
Stockholders' equity:
    Common stock, $.01 par value; 75,000,000 shares authorized; 25,974,273 and
      25,953,525 shares issued; 24,538,604 and
      24,655,856 shares outstanding..........................................................          260           259
    Paid-in capital..........................................................................      187,783       187,422
    Retained earnings........................................................................      291,169       276,552
    Accumulated other comprehensive income:
         Net unrealized gain on investments, net of income taxes.............................       17,935        17,706
    Unearned compensation....................................................................         (214)         (357)
    Treasury stock, at cost; 1,435,669 and 1,297,669 shares..................................      (33,831)      (30,672)
                                                                                                ----------   -----------
         Total stockholders' equity..........................................................      463,102       450,910
                                                                                                ----------   -----------
         Total liabilities, redeemable securities and stockholders' equity...................   $1,268,469    $1,430,698
                                                                                                ==========   ===========   
</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>
                                                                                                      SIX MONTHS ENDED        
                                                                                                           JUNE 30,              
                                                                                                 ------------------------------ 
                                                                                                   1998               1997       
                                                                                                 ------------      ------------
<S>                                                                                             <C>                 <C>       
Revenues:
    Gross insurance premiums and contract charges earned...................................       $503,426            $750,456
    Ceded insurance premiums and contract charges earned...................................       (224,360)           (336,074)
                                                                                                ----------          ----------
         Net insurance premiums and contract charges earned................................        279,066             414,382
    Net investment income..................................................................         34,685              30,232
    Other income, including experience refunds and expense allowances
       on reinsurance ceded................................................................         33,854              49,526
    Net realized investment gains  ........................................................          2,942               5,179
                                                                                                ----------          ----------
         Total revenues....................................................................        350,547             499,319
                                                                                                ----------          ----------
Benefits and expenses:
    Gross claims incurred on insurance products............................................        350,470             495,235
    Ceded claims incurred on insurance products............................................       (153,868)           (239,102)
                                                                                                ----------          ----------
         Net claims incurred on insurance products.........................................        196,602             256,133
    Universal life and investment-type contract benefits...................................          8,634               9,460
    (Decrease) increase in life insurance reserves.........................................         (6,890)             33,665
                                                                                                ----------          ----------
         Total benefits....................................................................        198,346             299,258
                                                                                                ----------          ----------
    Commissions, net of commissions ceded .................................................         23,931              28,296
    General expenses, net of expenses ceded ...............................................         87,092             120,885
    Amortization of purchased intangibles..................................................          2,506               2,121
    Amortization of deferred policy acquisition costs......................................          6,506               8,862
    Interest expense.......................................................................          1,896               2,945
                                                                                                ----------          ----------
           Total benefits and expenses.....................................................        320,277             462,367
                                                                                                ----------          ----------
Income from continuing operations before provision (benefit) for income taxes and
            equity in net (loss) earnings of affiliate.....................................         30,270              36,952
Provision (benefit) for income taxes.......................................................         10,934              13,841
                                                                                                   -------          ----------
Net income from continuing operations before equity in net (loss) earnings of affiliate....         19,336              23,111
Equity in net (loss) earnings of affiliate.................................................         (1,464)                838
                                                                                                   -------          ----------
Net income from continuing operations......................................................         17,872              23,949
Net income from discontinued operations:
   Income from Annuity Operations and Western Diversified Group (net of income
       taxes of $-- and $3,541, $--, and $--)..............................................            --                5,693
   Gain on disposal of Annuity Operations and Western Diversified Group (net of
       income taxes of $1,783, $--, $953, and $--).........................................          3,311                 --  
                                                                                                ----------          ----------
Net income.................................................................................       $ 21,183            $ 29,642
                                                                                                ==========          ==========

Net income applicable to common stock......................................................       $ 20,508            $ 28,967
                                                                                                ==========          ==========

Comprehensive income.......................................................................       $ 21,412            $ 15,253
                                                                                                ==========          ==========
Net income per common share (see Note 3):
      Net income from continuing operations................................................       $   0.71            $   0.92
      Net income from discontinued operations..............................................           0.13                0.22
                                                                                                ----------          ----------
      Net income...........................................................................       $   0.84            $   1.14
                                                                                                ==========          ==========

Net income per common share - assuming dilution (see Note 3):
      Net income from continuing operations................................................          $0.70               $0.91
      Net income from discontinued operations..............................................           0.13                0.22
                                                                                                ----------          ----------
      Net income...........................................................................       $   0.83            $   1.13
                                                                                                ==========          ==========
<CAPTION>
                                                                                                      THREE MONTHS ENDED
                                                                                                           JUNE 30,
                                                                                                --------------------------------
                                                                                                   1998                1997
                                                                                                ------------        ------------
<S>                                                                                             <C>               <C>
Revenues:                                                                                     
    Gross insurance premiums and contract charges earned...................................      $250,109            $345,023
    Ceded insurance premiums and contract charges earned...................................      (110,591)           (162,586)
                                                                                                ---------         -----------
         Net insurance premiums and contract charges earned................................       139,518             182,437
    Net investment income..................................................................        16,429              19,152
    Other income, including experience refunds and expense allowances                         
       on reinsurance ceded................................................................        12,127              23,175
    Net realized investment gains..........................................................           607               2,377
                                                                                                ---------         -----------
         Total revenues....................................................................       168,681             227,141
                                                                                                ---------         -----------

Benefits and expenses:                                                                        
    Gross claims incurred on insurance products............................................       182,963             238,821
    Ceded claims incurred on insurance products............................................       (79,415)           (112,701)
                                                                                                ---------         -----------
         Net claims incurred on insurance products.........................................       103,548             126,120
    Universal life and investment-type contract benefits...................................         4,012               4,777
    (Decrease) increase in life insurance reserves.........................................        (3,040)             (1,119)
                                                                                                ---------         -----------
         Total benefits....................................................................       104,520             129,778
                                                                                                ---------         -----------
    Commissions, net of commissions ceded..................................................        11,689              13,088
    General expenses, net of expenses ceded................................................        45,700              47,652
    Amortization of purchased intangibles..................................................         1,508               1,006
    Amortization of deferred policy acquisition costs......................................         3,137               5,050
    Interest expense.......................................................................           753               1,360
                                                                                                ---------         -----------
           Total benefits and expenses.....................................................       167,307             197,934
Income from continuing operations before provision (benefit) for income taxes and             
            equity in net (loss) earnings of affiliate.....................................         1,374              29,207
Provision (benefit) for income taxes.......................................................          (605)             10,414
                                                                                                ---------         -----------
Net income from continuing operations before equity in net (loss) earnings of affiliate....         1,979              18,793
Equity in net (loss) earnings of affiliate.................................................          (843)                453
                                                                                                ---------         -----------
Net income from continuing operations......................................................         1,136              19,246
Net income from discontinued operations:                                                      
   Income from Annuity Operations and Western Diversified Group (net of income                
       taxes of $-- and $3,541, $--, and $--)..............................................           --                  --
   Gain on disposal of Annuity Operations and Western Diversified Group (net of               
       income taxes of $1,783, $--, $953, and $--).........................................         1,770                 --  
                                                                                                ---------          ----------
Net income.................................................................................      $  2,906           $  19,246
                                                                                                =========          ==========
                                                                                              
Net income applicable to common stock......................................................      $  2,569           $  18,909
                                                                                                =========          ==========    
                                                                                              
Comprehensive income.......................................................................      $  3,110           $  26,267
                                                                                                =========          ==========    
Net income per common share (see Note 3):                                                     
      Net income from continuing operations................................................      $   0.04           $    0.75
      Net income from discontinued operations..............................................          0.07                 --
                                                                                                ---------          ----------
      Net income...........................................................................      $   0.11           $    0.75
                                                                                                =========          ==========    
Net income per common share - assuming dilution (see Note 3):                                 
      Net income from continuing operations................................................      $   0.04           $    0.74
      Net income from discontinued operations..............................................          0.07                 --
                                                                                                ---------          ----------
      Net income...........................................................................      $   0.11           $    0.74
                                                                                                =========          ==========    
</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>
                                                                                                       SIX MONTHS ENDED
                                                                                                            JUNE 30,
                                                                                               -------------------------------
                                                                                                   1998                1997
                                                                                               -------------      ------------
<S>                                                                                            <C>                 <C>
Number of shares outstanding..............................................................      24,538,604         24,694,197
                                                                                               ===========        ===========
Common stock, beginning of period.........................................................     $       259        $       250
   Stock option exercises.................................................................               1                  1
                                                                                               -----------        -----------
Common stock, end of period...............................................................     $       260        $       251
                                                                                               ===========        ===========

Paid-in capital, beginning of period......................................................     $   187,422        $   181,863
   Stock option exercises.................................................................             361                358
   Transfer from redeemable common stock..................................................             --                   2
                                                                                               -----------        -----------
Paid-in capital, end of period............................................................     $   187,783        $   182,223
                                                                                               ===========        ===========

Retained earnings, beginning of period....................................................     $   276,552        $   268,109
   Net income.............................................................................          21,183             29,642
   Dividends on cumulative preferred stock ($4.50, $4.50, $2.25, and
       $2.25 per share)...................................................................            (675)              (675)
   Dividends on common stock ($0.24, $0.24, $0.12, and $0.12 per share)...................          (5,891)            (6,080)
                                                                                               -----------        -----------
Retained earnings, end of period..........................................................     $   291,169        $   290,996
                                                                                               ===========        ===========

Accumulated other comprehensive income:
     Net unrealized gain on investments, net of income taxes,
       beginning of period................................................................     $    17,706        $    26,977
        Change in net unrealized gain (loss) on investments, net of income taxes .........             229            (14,389)
                                                                                               -----------        -----------
     Net unrealized gain on investments, net of income taxes, end of period...............         $17,935            $12,588
                                                                                               ===========        ===========
                                                                                           
Redemption value of common stock in excess of cost,
   beginning of period....................................................................     $      --          $    (2,669)
   Adjustment of put holder shares to market value........................................            --               (1,803)
   Change in redemption value of common stock  in excess of cost..........................            --                 (399)
                                                                                               -----------        -----------
Redemption value of common stock in excess of cost, end of period.........................     $      --          $    (4,871)
                                                                                               ===========        ===========
                                                                                           
Unearned compensation, beginning of period................................................     $      (357)       $      (643)
   Compensation expense recognized........................................................             143                143
                                                                                               -----------        -----------
Unearned compensation, end of period......................................................     $      (214)       $      (500)
                                                                                               ===========        ===========
                                                                                           
Treasury stock, beginning of period.......................................................     $   (30,672)       $    (8,676)
   Treasury stock purchase................................................................          (3,159)               --
                                                                                               -----------        -----------
Treasury stock, end of period.............................................................     $   (33,831)       $    (8,676)
                                                                                               ===========        ===========
                                                                                           
Stockholders' equity, beginning of period.................................................     $   450,910        $   465,211
   Net income.............................................................................          21,183             29,642
   Change in accumulated other comprehensive income:
        Change in net unrealized gain (loss) on investments, net of income taxes..........             229            (14,389)
   Dividends on cumulative preferred stock ($4.50, $4.50, $2.25, and
       $2.25 per share)...................................................................            (675)              (675)
   Dividends on common stock ($0.24, $0.24, $0.12, and $0.12 per share)...................          (5,891)            (6,080)
   Change in redemption value of common stock in excess of cost...........................             --                (399)
   Stock option exercises.................................................................             362                359
   Compensation expense recognized........................................................             143                143
   Adjustment of put holder shares to market value........................................             --              (1,803)
   Treasury stock purchase................................................................          (3,159)               -- 
   Transfer from redeemable common stock..................................................             --                   2
                                                                                               -----------        -----------
Stockholders' equity, end of period.......................................................     $   463,102        $   472,011
                                                                                               ===========        ===========
<CAPTION>
                                                                                                       THREE MONTHS ENDED
                                                                                                             JUNE 30,
                                                                                                  ----------------------------
                                                                                                      1998            1997
                                                                                                  -------------  -------------
<S>                                                                                            <C>                 <C>
Number of shares outstanding..............................................................       24,538,604         24,694,197
                                                                                                ===========        ===========

Common stock, beginning of period.........................................................      $       260        $       250
   Stock option exercises.................................................................              --                   1
                                                                                                -----------        -----------
Common stock, end of period...............................................................      $       260        $       251
                                                                                                ===========        ===========

Paid-in capital, beginning of period......................................................      $   187,783        $   181,864
   Stock option exercises.................................................................              --                 358
   Transfer from redeemable common stock..................................................              --                   1
                                                                                                -----------        -----------
Paid-in capital, end of period............................................................      $   187,783        $   182,223
                                                                                                ===========        ===========

Retained earnings, beginning of period....................................................      $   291,545        $   275,128
   Net income.............................................................................            2,906             19,246
   Dividends on cumulative preferred stock ($4.50, $4.50, $2.25, and
       $2.25 per share)...................................................................             (337)              (337)
   Dividends on common stock ($0.24, $0.24, $0.12, and $0.12 per share)...................           (2,945)            (3,041)
                                                                                                -----------        -----------
Retained earnings, end of period..........................................................      $   291,169        $   290,996
                                                                                                ===========        ===========

Accumulated other comprehensive income:
     Net unrealized gain on investments,  net of income taxes,
       beginning of period.................................................................     $    17,731        $     5,567
        Change in net unrealized gain (loss) on investments, net of income taxes...........             204              7,021
                                                                                                -----------        -----------
     Net unrealized gain on investments, net of income taxes, end of period................     $    17,935        $    12,588
                                                                                                ===========        ===========

Redemption value of common stock in excess of cost,
   beginning of period....................................................................      $       --         $    (2,385)  
   Adjustment of put holder shares to market value........................................              --              (1,801)
   Change in redemption value of common stock in excess of cost...........................              --                (685)
                                                                                                -----------        -----------
Redemption value of common stock in excess of cost, end of period.........................      $       --         $    (4,871)
                                                                                                ===========        ===========

Unearned compensation, beginning of period.................................................     $      (286)       $      (571)
   Compensation expense recognized.........................................................              72                 71
                                                                                                -----------        -----------
Unearned compensation, end of period.......................................................     $      (214)       $      (500)
                                                                                                ===========        ===========

Treasury stock, beginning of period.......................................................      $   (33,831)       $    (8,676)
   Treasury stock purchase................................................................              --                 --
                                                                                                -----------        -----------
Treasury stock, end of period.............................................................      $   (33,831)       $    (8,676)
                                                                                                ===========        ===========

Stockholders' equity, beginning of period.................................................      $   463,202        $   451,177
   Net income.............................................................................            2,906             19,246
   Change in accumulated other comprehensive income:
        Change in net unrealized gain (loss) on investments, net of income taxes..........              204              7,021
   Dividends on cumulative preferred stock ($4.50, $4.50, $2.25, and
       $2.25 per share)...................................................................             (337)              (337)
   Dividends on common stock ($0.24, $0.24, $0.12, and $0.12 per share)...................           (2,945)            (3,041)
   Change in redemption value of common stock in excess of cost...........................              --                (685)
   Stock option exercises.................................................................              --                 359
   Compensation expense recognized........................................................               72                 71
   Adjustment of put holder shares to market value........................................              --              (1,801)
   Treasury stock purchase................................................................              --                 --  
   Transfer from redeemable common stock..................................................              --                   1
                                                                                                -----------        -----------
Stockholders' equity, end of period.......................................................      $   463,102        $   472,011
                                                                                                ===========        ===========

</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>
                                                                                         SIX MONTHS ENDED
                                                                                              JUNE 30,
                                                                                     --------------------------
                                                                                        1998             1997
                                                                                     --------------  ----------
    <S>                                                                            <C>               <C>
    Net cash (used in) provided by operating activities........................    $ (36,460)        $   63,512
                                                                                   ---------         ----------
    Cash flows from investing activities:
         Proceeds from investments sold:

                Available-for-sale.............................................       35,919            273,318
                Equity securities..............................................            -                 20
                Real estate owned..............................................        1,698              4,063
          Maturities, calls  and scheduled loan payments:
                Held-to-maturity...............................................        4,355                510
                Available-for-sale.............................................       10,394             83,044
                Mortgage loans and other notes receivable......................       41,626            122,128
           Investments purchased:
                Available-for-sale.............................................          (24)           (54,414)
                Equity securities..............................................            -                (50)
                Mortgage loans and other notes receivable......................      (23,944)           (93,986)
                Investment in real estate......................................       (1,125)              (304)
         Inflows from net sales and purchases of short-term investments........      173,723              2,894
         Sale of Annuity Operations............................................            -           (177,616)
         Sale of Western Diversified Group.....................................          579                  -
         Reclassification to net asset held for sale...........................            -            (21,348)
         Capital contribution to affiliate.....................................       (3,000)                 -
         Purchases of property and equipment...................................         (740)            (1,659)
                                                                                   ---------         ----------
       Net cash provided by investing activities...............................      239,461            136,600
                                                                                   ---------         ----------
    Cash flows from financing activities:
         Repayments of borrowings of short-term and long-term debt.............      (76,500)           (25,000)
         Receipts from universal life and investment-type contracts............        8,726             73,883
         Payments on universal life and investment-type contracts..............      (14,624)          (174,788)
         Purchase of  treasury stock, net......................................       (3,159)                 -
         Payment of dividends..................................................       (6,579)            (6,756)
         Stock option exercises................................................          311                358
         Payments made under reinsurance agreement.............................            -             (2,080)
                                                                                   ---------         ----------
       Net cash used in financing activities...................................      (91,825)          (134,383)
                                                                                   ---------         ----------
    Net increase in cash and cash equivalents..................................      111,176             65,729
    Cash and cash equivalents, beginning of period.............................       15,238            139,710
                                                                                   ---------         ----------
    Cash and cash equivalents, end of period...................................    $ 126,414         $  205,439
                                                                                   =========         ==========
</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 six and three months ended June 30, 1998 are not necessarily
indicative of the results to be expected for the full year. Certain
reclassifications have been made to prior period condensed consolidated
financial statements to conform to current period presentation.

         The Company has a 50% ownership interest in a Health Maintenance
Organization ("HMO") joint venture, NHP Holding Company, Inc. ("NHP"). The
Company previously accounted for its investment in NHP on a consolidated basis.
Beginning in the quarter ended June 30, 1998, the Company has changed its
accounting policy to the equity method. The Company has amended its most
recently filed Annual Report on Form 10-K for the year ended December 31, 1997
and Quarterly Report on Form 10-Q for the three months ended March 31, 1998 and
restated the related financial statements. In addition, the accompanying prior
period condensed consolidated financial statements have been restated to conform
to the current period presentation for NHP. These changes had no effect on total
stockholders' equity or net income as previously reported.

         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, 1997, as amended.

NOTE 2 -- ANTICIPATED SALE OF THE COMPANY

         On March 9, 1998, the Company entered into an agreement to merge with a
wholly-owned subsidiary of Fortis, Inc. ("Fortis"), a wholly-owned subsidiary of
Fortis Amev, Netherlands, and Fortis AG, Belgium, as a result of which, among
other things, the Company will become a wholly-owned subsidiary of Fortis and
each outstanding share of the Company's common stock will be converted into the
right to receive $22.50 in cash. Consummation of the merger is subject to
regulatory and stockholder approvals, as well as other customary terms and
conditions. It is anticipated that the merger will be consummated during 1998. A
special meeting of stockholders is scheduled for August 28, 1998 at which time
the stockholders will vote upon a proposal to approve and adopt the agreement to
merge with Fortis. In connection with and as a condition to Fortis entering into
the agreement to merge, the Company granted an option to Fortis to acquire,
under certain circumstances, common stock of the Company representing up to
19.9% of the Company's outstanding common stock at an exercise price of $22.50
per share. Under certain circumstances and subject to certain limitations, the
Company may be required to repurchase the option granted to Fortis and any of
the shares acquired by Fortis pursuant to the exercise of the option, at an
aggregate price equal to the amount paid by Fortis for any shares acquired
pursuant to any exercise of the option plus $15.0 million and an additional
amount up to $2.5 million for expenses. If the anticipated sale of the Company
is consummated, the Company may be required to make payments to certain officers
under change in control employment agreements costing the Company approximately
$21.6 million after-tax. In addition, the Company may be required to make
payments to certain former officers totaling approximately $5.1 million, of
which approximately $1.6 million has previously been paid as severance benefits
to such former officers. Further, all non-vested common stock options and
restricted performance award shares currently outstanding would become fully
vested.


                                       5
<PAGE>   8


                JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            (UNAUDITED) - (CONTINUED)

NOTE 3 -- EARNINGS PER SHARE

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

<TABLE>
<CAPTION>

                                                                 SIX MONTHS ENDED JUNE 30,              THREE MONTHS ENDED JUNE 30,
                                                                 1998                1997                1998                1997
                                                               ---------           --------            --------            --------
<S>                                                           <C>                 <C>                 <C>                 <C>
Net income .........................................           $ 21,183            $ 29,642            $  2,906            $ 19,246
Dividends on redeemable preferred stock ............               (675)               (675)               (337)               (337)
                                                               --------            --------            --------            --------
Net income applicable to common stock ..............           $ 20,508            $ 28,967            $  2,569            $ 18,909
                                                               ========            ========            ========            ========
Average common shares outstanding ..................             24,535              25,344              24,539              25,353
Potentially dilutive securities ....................                285                 317                 280                 332
                                                               --------            --------            --------            --------
Average common and potentially dilutive
  shares outstanding ...............................             24,820              25,661              24,819              25,685
                                                               ========            ========            ========            ========
</TABLE>

NOTE 4 -- ACCOUNTING CHANGES

         The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income" ("SFAS 130") effective
January 1, 1998. SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income is defined as the change in equity
during the financial reporting period of a business enterprise resulting from
non-owner sources. There was no effect on the Company's results of operations or
financial position upon adoption of this statement. Disclosures required by SFAS
130 are included in the accompanying condensed financial statements. The
difference between net income and comprehensive income is comprised of
unrealized gains and losses on available-for-sale securities.

NOTE 5 -- EFFECTS OF ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED IN THE FUTURE

         In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," ("SFAS 131"). SFAS 131 establishes standards for the reporting of
operating segment information in both annual financial reports and interim
financial reports issued to shareholders. Operating segments are components of
an entity for which separate financial information is available and is evaluated
regularly by the entity's chief operating management. SFAS 131 is effective for
fiscal years beginning after December 15, 1997 and is not required to be adopted
in interim financial reports during the first year of adoption. Adoption of this
statement is not expected to have a material impact on the Company.

         In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits - an amendment of FASB
Statements No. 87, 88 and 106" ("SFAS 132"). SFAS 132 revises and standardizes
disclosures about pension and other postretirement benefit plans. This statement
is effective for fiscal years beginning after December 31, 1997. Adoption of
SFAS 132 is not expected to have a material impact on the Company.

NOTE 6 -- INDEBTEDNESS

         In May 1998, the Company prepaid the full amount of indebtedness.

                                       6
<PAGE>   9
               JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           (UNAUDITED) - (CONTINUED)


NOTE 7 -- 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 was initially on an indemnity basis and the parties
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. As of June 30, 1998, approximately 75% of the ceded annuity
reserves have either transitioned to an assumption basis or lapsed. The majority
of the remaining policies are expected to be assumed by December 31, 1998.

         As consideration for the Annuity Operations, SunAmerica paid the
Company approximately $238.2 million. The consideration represented
approximately $162.3 million of premium paid to acquire the business and
approximately $75.9 million of adjusted capital and surplus of JANY. It did not
include any capital and surplus used to support the annuity business in JALIC,
which remained in JALIC.

         On September 30, 1997, the Company sold all of the common stock of
substantially all of the subsidiaries which comprise the Western Diversified
Group (the principal subsidiaries of the Company that market credit life and
disability and retail service warranty coverage) to Protective Life Insurance
Company.

         As a result of the sales of the Annuity Operations and Western
Diversified Group, the Company recorded a net deferred gain of approximately
$45.0 million. This amount included a ceding commission on the coinsurance of
the JALIC annuity business, capital gains and losses on the sales of various
subsidiaries and estimated transaction expenses, taxes, goodwill and other
adjustments relating to these transactions.

         During the year ended December 31, 1997, the Company recognized all
estimated transaction expenses, taxes, goodwill and other adjustments relating
to these transactions as well as the capital gains and losses on the sales of
the various subsidiaries. As of June 30, 1998, the Company has recognized
approximately 75% of the ceding commission on the coinsurance of the JALIC
annuity business in relation to the amount of ceded reserves that had either
transitioned to an assumption basis or lapsed. The Company has recognized
approximately $27.3 million of the net deferred gain in income as a result of
these assumptions including approximately $3.3 million during the six months
ended June 30, 1998. The Company expects to recognize the majority of the
remainder of the net deferred gain by December 31, 1998.

         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 for the six months ended June 30, 1997.

         The results of operations relating to the Annuity Operations and the
Western Diversified Group for the six months ended June 30, 1997 are reflected
as discontinued operations in the accompanying condensed consolidated statements
of income. Total revenues for the discontinued operations for the six months
ended June 30, 1997 were $102.9 million for the Annuity Operations and $35.5
million for the Western Diversified Group.

                                       7
<PAGE>   10
               JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           (UNAUDITED) - (CONTINUED)

         Included in other assets at June 30, 1998 and December 31, 1997 in the
accompanying consolidated balance sheets were investment contract deposits
recoverable on the JALIC coinsurance of $1.1 billion and $1.4 billion,
respectively, net of a similar amount of contract holder liabilities related to
the discontinued operations.

NOTE 8 -- LEGAL PROCEEDINGS

         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. With
respect to this action, the Company and individual defendants deny any
wrongdoing, believe they have meritorious defenses against the claim asserted,
and intend to vigorously defend the lawsuit. While it is not possible to
determine the ultimate disposition of these proceedings, 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.


                                       8
<PAGE>   11


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

                                GENERAL OVERVIEW

ANTICIPATED SALE OF THE COMPANY

         On March 9, 1998, the Company entered into an agreement to merge with a
wholly-owned subsidiary of Fortis, Inc. ("Fortis"), a wholly-owned subsidiary of
Fortis Amev, Netherlands, and Fortis AG, Belgium, as a result of which, among
other things, the Company will become a wholly-owned subsidiary of Fortis and
each outstanding share of the Company's common stock will be converted into the
right to receive $22.50 in cash. Consummation of the merger is subject to
regulatory and stockholder approvals, as well as other customary terms and
conditions. It is anticipated that the merger will be consummated during 1998. A
special meeting of stockholders is scheduled for August 28, 1998 at which time
the stockholders will vote upon a proposal to approve and adopt the agreement to
merge with Fortis. In connection with and as a condition to Fortis entering into
the agreement to merge, the Company granted an option to Fortis to acquire,
under certain circumstances, common stock of the Company representing up to
19.9% of the Company's outstanding common stock at an exercise price of $22.50
per share. Under certain circumstances and subject to certain limitations, the
Company may be required to repurchase the option granted to Fortis and any of
the shares acquired by Fortis pursuant to the exercise of the option, at an
aggregate price equal to the amount paid by Fortis for any shares acquired
pursuant to any exercise of the option plus $15.0 million and an additional
amount up to $2.5 million for expenses. See Note 2 to the Company's Condensed
Consolidated Financial Statements. Further description of the merger agreement
is set forth in the Company's current report on Form 8-K dated March 9, 1998
filed with the Securities and Exchange Commission.

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
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 was initially on an indemnity basis and the parties
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. As of June 30, 1998, approximately 75% of the ceded annuity
reserves have either transitioned to an assumption basis or lapsed. The majority
of the remaining policies are expected to be assumed by December 31, 1998.

         As consideration for the Annuity Operations, SunAmerica paid the
Company approximately $238.2 million. The consideration represented
approximately $162.3 million of premium paid to acquire the business and
approximately $75.9 million of adjusted capital and surplus of JANY. It did not
include any capital and surplus used to support the annuity business in JALIC,
which remained in JALIC.

         On September 30, 1997, the Company sold all of the common stock of
substantially all of the subsidiaries which comprise the Western Diversified
Group (the principal subsidiaries of the Company that market credit life and
disability and retail service warranty coverage) to Protective Life Insurance
Company.

         As a result of the sales of the Annuity Operations and Western
Diversified Group, the Company recorded a net deferred gain of approximately
$45.0 million. This amount included a ceding commission on the coinsurance of
the JALIC annuity business, capital gains and losses on the sales of various
subsidiaries and estimated transaction expenses, taxes, goodwill and other
adjustments relating to these transactions.

         During the year ended December 31, 1997, the Company recognized all
estimated transaction expenses, taxes, goodwill and other adjustments relating
to these transactions as well as the capital gains and losses on the sales of
the various subsidiaries. As of June 30, 1998, the Company has recognized
approximately 75% of the ceding commission on the coinsurance of the JALIC
annuity business in relation to the amount of ceded reserves 


                                       9
<PAGE>   12

that had either transitioned to an assumption basis or lapsed. The Company has
recognized approximately $27.3 million of the net deferred gain in income as a
result of these assumptions including approximately $3.3 million during the six
months ended June 30, 1998. The Company expects to recognize the majority of the
remainder of the net deferred gain by December 31, 1998.

      The Company's available capital was enhanced by both the after-tax gain
generated from the transactions and by the release of the net capital previously
allocated to support these businesses. The Company continues to evaluate the
best uses of its capital, including the approximately $200 million of excess
capital generated from the sale of the Company's annuity and credit businesses.
During December 1997 and January 1998, the Company repurchased approximately 1.1
million shares of common stock for a total purchase price of approximately $25.9
million. During May 1998, the Company used a portion of the excess capital to
prepay the remaining outstanding indebtedness. In the event that the sale of the
Company does not occur, the remaining excess capital may also be used to
repurchase common stock, pay dividends, acquire blocks of business or for
general corporate purposes, or for a combination of two or more of such uses.

                              RESULTS OF OPERATIONS

RESULTS SUMMARY

<TABLE>
<CAPTION>
                                                  SIX MONTHS ENDED             THREE MONTHS ENDED
                                                      JUNE 30,                      JUNE 30,
                                             ---------------------------    -------------------------
                                                1998           1997           1998           1997
                                             -----------    ------------    ----------    -----------
                                                 (In millions, except share and per share data)
<S>                                           <C>           <C>             <C>           <C> 
Operating income (1):
  Continuing operations...................     $ 15.3        $  19.8         $  0.4        $  17.3
  Discontinued operations.................        -              8.0            -              -
      Total...............................       15.3           27.8            0.4           17.3
Net income:
  Continuing operations...................       17.9           23.9            1.1           19.2
  Discontinued operations (2).............        3.3            5.7            1.8            -
      Total...............................       21.2           29.6            2.9           19.2
Net income applicable to common stock.....       20.5           29.0            2.6           18.9
Operating income per common share (1):
  Continuing operations...................       0.63           0.79           0.02           0.69
  Discontinued operations.................        -             0.31             -              -
      Total...............................       0.63           1.10           0.02           0.69
Net income per common share...............       0.84           1.14           0.11           0.75
Average common shares outstanding
   (000's)................................     24,535         25,344         24,539         25,353
Average common and potentially dilutive
  shares outstanding (000's)..............     24,820         25,661         24,819         25,685
</TABLE>
-------------
(1)  Applicable to common stock, excluding net realized investment gains
     (losses) and after preferred stock dividends.

(2)  Net income from discontinued operations for the six and three months ended
     June 30, 1998 include $3.3 million and $1.8 million of recognition of the
     net deferred gain on the sale of the discontinued operations, respectively.

       Operating income from continuing operations decreased to $0.4 million, or
$0.02 per common share, for the three months ended June 30, 1998 from $17.3
million, or $0.69 per common share, for the three months ended June 30, 1997.
This decrease was primarily due to an increase in the group gross expense ratio
caused by a decrease in group gross earned premiums and expenses incurred in
connection with the anticipated sale of the Company and the year 2000 project.
See further discussion below regarding these variances. Operating income from
continuing 

                                       10
<PAGE>   13

operations decreased to $15.3 million, or $0.63 per common share, for the six
months ended June 30, 1998 from $19.8 million, or $0.79 per common share, for
the six months ended June 30, 1997 due primarily to the factors discussed above.
Included in operating results for the six months ended June 30, 1997 was $23.0
million of severance and related charges incurred in relation to the Company's
reduction in workforce announced on March 31, 1997 as discussed below.

         Operating income from continuing operations decreased to $0.4 million,
or $0.02 per common share, for the three months ended June 30, 1998 from $14.9
million, or $0.61 per common share, for the three months ended March 31, 1998.
This decrease was primarily attributable to increased expenses incurred in
connection with the anticipated sale of the Company and the year 2000 project
and an increase in the group gross medical loss ratio from 62.5% to 70.7% during
these periods. Included in the operating results for the three months ended
March 31, 1998 was a pre-tax benefit of $11.0 million, or $0.28 per common
share, relating to favorable development of claims experience relating to
periods prior to 1998. The Company has generally experienced a higher group
gross medical loss ratio in the fourth quarter versus other quarters of the
year. The Company believes that these higher 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. These
factors may cause the estimated reserves for policy claims recorded at the end
of the fourth quarter to change as the claims are settled. Changes in the
estimated cost to settle unpaid claims which generally occur from period to
period are charged or credited to operations as the estimates are revised. The
Company estimated its unpaid claims as of December 31, 1997 based upon
historical patterns. The favorable development noted in the first quarter
resulted from improved experience relative to the original assumptions which
were based upon historical experience and a reduction in the estimate of unpaid
claims as of December 31, 1997 from that which had originally been estimated at
that date.

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").

                                       11

<PAGE>   14


         The following tables recast the accompanying Condensed Consolidated
Statements of Income for continuing operations for the six and three months
ended June 30, 1998 and 1997 as a percent of net insurance premiums and contract
charges earned ("net premiums"), and provide other relevant information:


<TABLE>
<CAPTION>
                                           SIX MONTHS ENDED           PERCENTAGE         THREE MONTHS ENDED      PERCENTAGE
                                               JUNE 30,                 CHANGE                JUNE 30,              CHANGE
                                       -------------------------       POSITIVE      -------------------------    POSITIVE
                                                     PROFORMA         (NEGATIVE)                                  (NEGATIVE)
                                         1998        1997 (1)           EFFECT          1998           1997         EFFECT
                                       -----------    ----------     ------------    ----------     ----------   ------------
<S>                                   <C>           <C>              <C>           <C>             <C>            <C>              
Revenues:
   Gross insurance premiums and
    contract charges earned........      180.4%        188.8%          (8.4)%          179.3%         189.1%          (9.8)%
   Ceded insurance premiums and
    contract charges earned........      (80.4)        (88.8)           8.4            (79.3)         (89.1)           9.8
                                      -----------    ----------     -------------    ----------     ----------     -----------
    Net insurance premiums and
    contract charges earned.......       100.0         100.0             --            100.0          100.0             --
   Net investment income...........       12.4           7.8            4.6             11.8           10.5            1.3
   Other income....................       12.1          13.2           (1.1)             8.7           12.7           (4.0)
   Net realized investment gains...        1.1           1.4           (0.3)             0.4            1.3           (0.9)
                                      -----------    ----------     -------------    ----------     ----------     -----------

    Total revenues.................      125.6         122.4            3.2            120.9          124.5           (3.6)
                                      -----------    ----------     -------------    ----------     ----------     -----------
Benefits and expenses:
   Gross claims incurred on
     insurance products............      125.6         130.7            5.1            131.1          130.9           (0.2)
   Ceded claims incurred on
    insurance products.............      (55.1)        (63.2)          (8.1)           (56.9)         (61.8)          (4.9)
                                      -----------    ----------     -------------    ----------     ----------     -----------
     Net claims incurred on
     insurance products............       70.5          67.5           (3.0)            74.2           69.1           (5.1)
   Universal life and
    investment-type contract
    benefits:                              3.1           2.5           (0.6)             2.9            2.6           (0.3)

   Decrease in life insurance
      reserves.....................       (2.5)         (0.4)           2.1             (2.2)          (0.6)           1.6
                                      -----------    ----------     -------------    ----------     ----------     -----------
     Total benefits................       71.1          69.6           (1.5)            74.9           71.1           (3.8)
                                      -----------    ----------     -------------    ----------     ----------     -----------
   Commissions.....................        8.6           7.4           (1.2)             8.4            7.2           (1.2)
   General expenses................       31.2          31.9            0.7             32.8           26.1           (6.7)
   Amortization of purchased
    intangibles....................        0.9           0.6           (0.3)             1.1            0.6           (0.5)
   Amortization of deferred policy
      acquisition costs............        2.3           2.3             --              2.2            2.8            0.6
   Interest expense................        0.7           0.8            0.1              0.5            0.7            0.2
                                      -----------    ----------     -------------    ----------     ----------     -----------
     Total benefits and expenses...      114.8         112.6           (2.2)           119.9          108.5          (11.2)
                                      -----------    ----------     -------------    ----------     ----------     -----------
Income from continuing operations
  before provision (benefit) for
  income taxes and equity in net
  (loss) earnings of affiliate.....       10.8           9.8            1.0              1.0           16.0          (15.0)

Provision (benefit) for income taxes       3.9           3.7           (0.2)            (0.4)           5.7            6.1
                                      -----------    ----------     -------------    ----------     ----------     -----------
Net income from continuing
  operations before equity in net
  (loss) earnings of affiliate.....        6.9           6.1            0.8              1.4           10.3           (8.9)
Equity in net (loss) earnings of
 affiliate.........................       (0.5)          0.2           (0.7)            (0.6)           0.2           (0.8)
                                      -----------    ----------     -------------    ----------     ----------     -----------
Net income from continuing
  operations.......................        6.4%          6.3%           0.1%             0.8%          10.5%          (9.7)%
                                      ===========    ==========     =============    ==========     ==========     ===========
</TABLE>

                                       12

<PAGE>   15



<TABLE>
<CAPTION>
                                                                  PERCENTAGE                                      PERCENTAGE
                                      SIX MONTHS ENDED              CHANGE            THREE MONTHS ENDED            CHANGE
                                          JUNE 30,                 POSITIVE                JUNE 30,                POSITIVE
                                -----------------------------     (NEGATIVE)     -----------------------------    (NEGATIVE)
                                   1998              1997           EFFECT           1998            1997           EFFECT
                                ------------    -------------     -----------    -------------    ------------    -----------
<S>                             <C>              <C>               <C>            <C>             <C>              <C>
Other relevant information:
   Group insured data:
     Employers (2)...........      93,000          145,000         (35.9)%         93,000          145,000          (35.9)%
     Employee lives..........     256,000          368,000         (30.4)         256,000          368,000          (30.4)
     Group covered lives.....     491,000          699,000         (29.8)         491,000          699,000          (29.8)
   Group gross medical loss
     ratio...................        66.5%            68.3%          1.8%            70.7%            69.1%          (1.6)%
</TABLE>

 --------------
(1)      For the six months ended June 30, 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 19,000 and 27,000 groups, each group made up of one 
individual, as of June 30, 1998 and 1997, respectively, marketed through an
association  trust.

         Gross premiums decreased 27.5% to $250.1 million for the three months
ended June 30, 1998 from $345.0 million for the three months ended June 30,
1997. Gross premiums decreased 32.9% to $503.4 million for the six months ended
June 30, 1998 from $750.5 million for the six months ended June 30, 1997. 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 29.5% to
$503.4 million for the six months ended June 30, 1998 as compared to $714.6
million for the six months ended June 30, 1997. This decrease was primarily a
result of the 29.8% decrease in group covered lives. Group covered lives
decreased from 699,000 as of June 30, 1997 to 491,000 as of June 30, 1998.

         In the first quarter of 1997, the Company 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. In the second quarter of
1997, the Company decided to stop selling such plans in Idaho and North Dakota.
These various actions   contributed to the decrease in group covered lives.

         Net investment income, as a percentage of net premiums, increased from
10.5% for the three months ended June 30, 1997 to 11.8% for the three months
ended June 30, 1998 and from 7.8% for the six months ended June 30, 1997 to
12.4% for the six months ended June 30, 1998. This increase was primarily
attributable to the proceeds of the sale of the Annuity Operations discussed
above.

         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 changed between
these periods due primarily to changes in the group gross medical loss ratio.

         Total benefits decreased 24.7% to $198.3 million for the six months
ended June 30, 1998 from $263.5 million for the six months ended June 30, 1997.
As a percentage of net premiums, total benefits increased to 71.1% for the six
months ended June 30, 1998 from 69.6% for the six months ended June 30, 1997 and
to 74.9% for the three months ended June 30, 1998 from 71.1% for the three
months ended June 30, 1997. The group gross medical loss ratio was 70.7% for the
three months ended June 30, 1998 as compared to 69.1% for the three 

                                       13
<PAGE>   16

months ended June 30, 1997. Much of this increase in the gross medical loss
ratio over the prior year is recorded as a reduction in the experience refund
under the Group Reinsurance Agreement which is included in other income, as
discussed above.

         General expenses decreased 28.0% to $87.1 million for the six months
ended June 30, 1998 from $120.9 million for the six months ended June 30, 1997.
As a percentage of net premiums, general expenses decreased to 31.2% from 31.9%
for these same periods and increased to 32.8% for the three months ended June
30, 1998 from 26.1% for the three months ended June 30, 1997. During the three
months ended March 31, 1997, the Company restructured its operations in
conjunction 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 were included
in the Company's continuing operations and which represented 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 and six months ended June 30, 1998, the
Company incurred expenses associated with the anticipated sale of the Company
and year 2000 project totaling approximately $5.1 million and $7.4 million,
respectively. Excluding these charges, general expenses as a percentage of net
premiums increased to 28.6% for the six months ended June 30, 1998 from 24.0%
for the six months ended June 30, 1997 and to 29.1% for the three months ended
June 30, 1998 from 26.1% for the three months ended June 30, 1997. These
increases are primarily due to the decline in gross premiums at a faster rate
than the Company is able to reduce non-variable expenses.

         The Company's investment in the HMO joint venture resulted in a loss of
$1.5 million for the six months ended June 30, 1998 as compared to income of
$0.8 million for the six months ended June 30, 1997.


                                BUSINESS OUTLOOK

         On March 9, 1998, the Company entered into an agreement to merge with a
wholly-owned subsidiary of Fortis as a result of which, among other things, the
Company will become a wholly-owned subsidiary of Fortis and each outstanding
share of the Company's common stock will be converted into the right to receive
$22.50 in cash. Consummation of the merger is subject to regulatory and
stockholder approvals, as well as other customary terms and conditions. It is
anticipated that the merger will be consummated during 1998. A special meeting
of stockholders is scheduled for August 28, 1998 at which time the stockholders
will vote upon a proposal to approve and adopt the agreement to merge with
Fortis. In connection with and as a condition to Fortis entering into the
agreement to merge, the Company granted an option to Fortis to acquire, under
certain circumstances, common stock of the Company representing up to 19.9% of
the Company's outstanding common stock at an exercise price of $22.50 per share.
Under certain circumstances and subject to certain limitations, the Company may
be required to repurchase the option granted to Fortis and any of the shares
acquired by Fortis pursuant to the exercise of the option, at an aggregate price
equal to the amount paid by Fortis for any shares acquired pursuant to any
exercise of the option plus $15.0 million and an additional amount up to $2.5
million for expenses. See Note 2 to the Company's Condensed Consolidated
Financial Statements. Further description of the merger agreement is set forth
in the Company's current report on Form 8-K dated March 9, 1998 filed with the
Securities and Exchange Commission.

         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, in the first quarter of 1997, the Company 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 June 1998 is
offering this product in 31 states which represents most of the states in which
the Company expects to focus its marketing efforts. As the Company exits the
states noted above 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 general expenses, the group gross expense ratio could
increase. It is also possible that 


                                       14
<PAGE>   17

the Company could experience an increase in the group medical loss ratio for
existing business in additional exit states, if any.

         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. New business has generally produced
relatively lower gross medical loss ratios compared to the renewing inforce
business. The Company cannot predict the extent to which these historical
patterns 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 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.
One 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. Additionally, 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
Kennedy-Kassenbaum 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 the individual market, HIPAA requires guaranteed acceptance
for eligible individuals moving out of group plans who have at least 18 months
of prior 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 states have or are expected to amend
their laws to alleviate any inconsistencies with the federal minimum standards.
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.


                                       15
<PAGE>   18


YEAR 2000

         The Company uses a variety of data processing hardware and software
systems to process its business. Many of these systems utilize a two-digit field
to identify a year, as has been standard in most data processing systems. A
two-digit year field will not process correctly once a change in century occurs
in the year 2000. The Company, in common with most organizations that use
automated systems, must transition its systems to a four-digit year field by the
year 2000 or arrange for other processing alternatives. In order to process
certain calculations correctly, in some instances this transition must be
completed by January 1, 1999. To date, the Company has identified certain
existing systems that will be modified to be year 2000 compliant and
modifications are currently being made to such systems. Certain other systems
have been identified to be replaced and the Company is currently proceeding with
replacing these systems. The Company is currently evaluating which other systems
will be modified to be year 2000 compliant, and which systems will be the
subject of other processing alternatives. However, if such modifications and
conversions are not completed on a timely basis, the year 2000 problem may have
a material impact on the operations of the Company. Further, even if the Company
timely completes such modifications and conversions, there can be no assurance
that the failure by vendors or other third parties to solve the year 2000
problem will not have a material impact on the operations of the Company. In
addition to certain internal resources dedicated to the project, during 1997 and
for the six months ended June 30, 1998, the Company expended approximately $4.6
million related to the year 2000 project. The Company currently expects to incur
additional amounts between approximately $15.0 million and $20.0 million in
addition to certain internal resources dedicated to the project during 1998 and
1999 relating to the year 2000 project.


                         LIQUIDITY AND CAPITAL RESOURCES

INDEBTEDNESS

         The Company maintained 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"). During May 1998, the Company prepaid the remaining outstanding
indebtedness.

DIVIDENDS

         The Company paid preferred stock dividends of approximately $0.7
million in April 1998. In each of March and June 1998, the Company declared
common stock dividends of approximately $2.9 million which were paid in the
subsequent month.


                                       16
<PAGE>   19


CASH FLOWS

         Net cash used in operating activities aggregated $36.5 million for the
six months ended June 30, 1998 compared to net cash provided by operating
activities of $63.5 million for the six months ended June 30, 1997. This
decrease was primarily attributable to the sale of the Annuity Operations, which
had historically represented a significant source of positive operating cash
flows, as well as the timing of settlement of various accounts payable and
accrued liabilities, primarily representing severance and related charges.

         Net cash provided by investing activities was $239.5 million for the
six months ended June 30, 1998 compared to $136.6 million for the six months
ended June 30, 1997. In connection with the sale of the Annuity Operations on
March 31, 1997 as 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 during
the six months ended June 30, 1997. 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. This reclassification
reduced cash and cash equivalents by $21.3 million. Offsetting these uses of
cash and cash equivalents during the six months ended June 30, 1997 were
proceeds from sales, maturities and repayments of investments. During the six
months ended June 30, 1998, the Company recognized cash inflows from net sales
and purchases of short-term investments of $173.7 million compared to $2.9
million for the six months ended June 30, 1997 due to the sale of short-term
investments made with the excess capital generated from the sale of the Annuity
Operations.

         Net cash used in financing activities decreased to $91.8 million for
the six months ended June 30, 1998 from $134.4 million for the six months ended
June 30, 1997. This was due to the sale of the Annuity Operations on March 31,
1997 as discussed above. During the six months ended June 30, 1997, surrenders
and other payments related to the Company's Annuity Operations exceeded receipts
from these contracts, producing large negative cash flows from financing
activities during that period. During the six months ended June 30, 1998, the
Company prepaid the remaining outstanding principal amount under the Credit
Agreement.

         The Annuity Operations 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. During 1997,
prior to the sale of the Annuity Operations on March 31, 1997, surrenders or
other payments 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 no longer has the positive cash flows from operations
or negative cash flows from financing activities in connection with this
business. Future cash flows from investing activities will be reduced from
historical levels as the Company's investment portfolio has been reduced from
approximately $6.0 billion prior to the sale of the Annuity Operations to
approximately $0.8 billion at June 30, 1998.

         In addition to internal resources dedicated to the project, during 1997
and for the six months ended June 30, 1998, the Company expended approximately
$4.6 million related to the year 2000 project. The Company currently expects to
incur additional amounts between approximately $15.0 million and $20.0 million
in addition to certain internal resources dedicated to the project during 1998
and 1999 relating to the year 2000 project.

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

                                       17
<PAGE>   20

REINSURANCE

         Substantially all of the group accident and health insurance business
has been reinsured under the Group Reinsurance Agreement which provides for the
Company and the reinsurers to share on a 50-50 basis all premiums and claims
expense. Annually, the Company receives profit sharing payments from the
reinsurers equal to the excess of reinsurers' profits over contractual floor
amounts. For years where such profits fall short of floor amounts, the
shortfalls are carried forward with interest to be applied as reductions against
future profit sharing payments. In addition, under the Group Reinsurance
Agreement, to the extent the combined ratio of the group accident and health
insurance business for a rolling 12-month period exceeds contractual amounts,
the Company receives a reduced profit sharing payment.

         As discussed above, in conjunction with the sale of the Annuity
Operations, the Company entered into a coinsurance agreement with SunAmerica
relating to substantially all of the JALIC annuity business. This coinsurance
was initially on an indemnity basis and the parties 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. As of June 30,
1998, approximately 75% of the ceded annuity reserves have either transitioned
to an assumption basis or lapsed. The majority of the remaining policies are
expected to be assumed by December 31, 1998. At June 30, 1998, there are assets
held in trust directly or indirectly available for payments to policyholders
supporting the remainder of the ceded reserves. SunAmerica is rated "A+
(Superior)" by A.M. Best and Company.

         Receivables from reinsurers and investment deposits recoverable were
$168.8 million at June 30, 1998. Additionally, included in other assets at June
30, 1998 in the accompanying condensed consolidated balance sheet was
approximately $1.1 billion of investment contract deposits recoverable on the
JALIC coinsurance, net of a similar amount of contract holder liabilities
related to the discontinued operations.

INVESTMENTS

         The following table sets forth the composition of the Company's debt
securities portfolio by rating as of June 30, 1998 (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>   
Rating (1)
AAA (2).................      $ 19,751        $ 131,855        $  3,485          $ 155,091           28.1%
AA......................         4,234           86,127              --             90,361           16.4
A.......................        10,506          229,370              --            239,876           43.5
BBB.....................         5,995           60,237              --             66,232           12.0
                             ---------       ----------       ---------          ---------          -----
     Total..............     $  40,486       $  507,589        $  3,485          $ 551,560          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 $22,586,000 of U.S. government and agency debt
     securities.


                                       18
<PAGE>   21


                                     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 lawsuits 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.

         The Company and certain of its officers and directors have been named
as defendants in actions entitled Hanf v. Johnson, et al., C.A. No. 16241NC,
filed on March 10, 1998 and Abramsky v. Johnson, et al., C.A. No. 16235NC, filed
March 9, 1998, in the Court of Chancery of the State of Delaware. The plaintiffs
allege that they are owners of the Company's common stock and that they are
bringing the actions as class actions. Plaintiffs challenge the proposed sale of
the Company to Fortis and allege that the Company is not being sold for the
highest price possible. For relief, plaintiffs seek an injunction against
consummation of the proposed transaction with Fortis and an award of damages.
However, the Hanf action has been dismissed and plaintiffs in the Abramsky
action and the Company have entered into a Memorandum of Understanding, dated
July 24, 1998, pursuant to which they have agreed in principle to settle the
Abramsky litigation (the "Settlement"). Pursuant to the Settlement, the Company
agreed to (i) obtain an updated fairness opinion of Credit Suisse First Boston
Corporation in connection with the acquisition by Fortis, (ii) reduce the fixed
portion of the repurchase price under the option agreement entered into with
Fortis from $20.0 million to $15.0 million and (iii) permit plaintiffs' counsel
to review and comment upon a draft of the proxy statement mailed to stockholders
in connection with the acquisition by Fortis. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Anticipated Sale of
the Company". The Settlement is conditioned upon the parties entering into a
final settlement agreement and the subsequent approval of such agreement by the
Court of Chancery of the State of Delaware in New Castle County.


                                       19
<PAGE>   22


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits
                  27.  Financial Data Schedule

         (b)      Reports on Form 8-K
                  None.

                                       20
<PAGE>   23


                                    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: August 13, 1998                          By: /s/ Scott L. Stanton
                                                   -----------------------------
                                                       Scott L. Stanton
                                                       Senior Vice President and
                                                       Chief Financial Officer



                                       21