<PAGE>   1
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-Q/A





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

                 For the quarterly period ended March 31, 1998




                       Commission File Number :  1-11396


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


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

7300 CORPORATE CENTER DRIVE, MIAMI, FLORIDA                                            33126-1223
         (Address of principal executive offices)                                       (Zip Code)
</TABLE>

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


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

  As of May 11, 1998, 24,538,604 shares of Common Stock, par value $.01, were
                                 outstanding.





<PAGE>   2
                        JOHN ALDEN FINANCIAL CORPORATION

                                  FORM 10-Q/A

                      For the Quarter Ended March 31, 1998

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

Item 1.      Condensed Consolidated Financial Statements as of March 31, 1998
             (unaudited) and December 31, 1997, and for the three months
             ended March 31, 1998 (unaudited) and March 31, 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  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    18

Item 6.      Exhibits and Reports on Form 8-K   . . . . . . . . . . . . . . . . . . . . . . . . . . . .    19
</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>
                                                                                            MARCH 31,
                                                                                              1998       DECEMBER 31,
                                        ASSETS                                             (UNAUDITED)         1997
                                                                                          -------------  ---------------
<S>                                                                                       <C>            <C>
Debt securities:
   Held-to-maturity securities, at amortized cost (market $44,318 and $46,464)..........  $     42,446   $        44,780
   Available-for-sale securities, at market (cost $486,422 and $518,018)................       519,523          550,585
   Trading account securities, at market (cost $3,409 and $3,411).......................         3,502            3,504
Equity securities, at market (cost $8)..................................................            26               23
Investment in affiliate.................................................................         4,445            5,066
Mortgage loans..........................................................................       146,460          145,770
Investment in real estate, at cost, less accumulated depreciation of $4,038 and $3,621..        40,452           40,354
Real estate owned.......................................................................         3,021            3,021
Policy loans and other notes receivable.................................................        32,061           41,247
Short-term investments..................................................................         2,694          176,192
                                                                                          -------------  ---------------
     Total invested assets..............................................................       794,630        1,010,542
Cash and cash equivalents...............................................................       206,806           15,238
Accrued investment income...............................................................        10,592           15,525
Reinsurance receivables.................................................................       163,687          169,588
Other assets............................................................................       206,745          219,805
                                                                                          -------------  ---------------
       Total assets.....................................................................  $  1,382,460   $    1,430,698
                                                                                          =============  ===============


             LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS' EQUITY

Liabilities:
  Contract holder liabilities..........................................................   $    681,364   $      726,270
  Short-term debt......................................................................         76,500           41,500
  Long-term debt.......................................................................              -           35,000
  Other liabilities....................................................................        126,273          140,694
  Deferred gain on sale of discontinued operations.....................................         19,498           21,038
                                                                                          -------------  ---------------
        Total liabilities..............................................................        903,635          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 $623 and $286; $104.15 and $101.91 per share.................         15,623           15,286
                                                                                          -------------  ---------------
        Total redeemable securities....................................................         15,623           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..................................................................        291,545          276,552
    Accumulated other comprehensive income:
         Net unrealized gain on investments, net of income taxes.......................         17,731           17,706
    Unearned compensation..............................................................           (286)            (357)
    Treasury stock, at cost; 1,435,669 and 1,297,669 shares............................        (33,831)         (30,672)
                                                                                          -------------  ---------------
         Total stockholders' equity....................................................        463,202          450,910
                                                                                          -------------  ---------------
         Total liabilities, redeemable securities and stockholders' equity.............   $  1,382,460   $    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>
                                                                                                 THREE MONTHS ENDED
                                                                                                      MARCH 31,
                                                                                           --------------------------------
                                                                                                1998             1997
                                                                                           ---------------  ---------------
<S>                                                                                         <C>              <C>
   Revenues:
       Gross insurance premiums and contract charges earned...........................      $     253,317    $     405,433
       Ceded insurance premiums and contract charges earned...........................           (113,769)        (173,488)
                                                                                           ---------------  ---------------
            Net insurance premiums and contract charges earned........................            139,548          231,945
       Net investment income..........................................................             18,256           11,080
       Other income, including experience refunds and expense allowances
          on reinsurance ceded........................................................             21,727           26,351
       Net realized investment gains  ................................................              2,335            2,802
                                                                                           ---------------  ---------------
            Total revenues............................................................            181,866          272,178
                                                                                           ---------------  ---------------
   Benefits and expenses:
       Gross claims incurred on insurance products....................................            167,507          256,414
       Ceded claims incurred on insurance products....................................            (74,453)        (126,401)
                                                                                           ---------------  ---------------
            Net claims incurred on insurance products.................................             93,054          130,013
       Universal life and investment-type contract benefits...........................              4,622            4,683
       (Decrease) increase in life insurance reserves.................................             (3,850)          34,784
                                                                                           ---------------  ---------------
            Total benefits............................................................             93,826          169,480
                                                                                           ---------------  ---------------
       Commissions, net of commissions ceded .........................................             12,242           15,208
       General expenses, net of expenses ceded .......................................             41,392           73,233
       Amortization of purchased intangibles..........................................                998            1,115
       Amortization of deferred policy acquisition costs..............................              3,369            3,812
       Interest expense...............................................................              1,143            1,585
                                                                                           ---------------  ---------------
              Total benefits and expenses.............................................            152,970          264,433
                                                                                           ---------------  ---------------
   Income from continuing operations before provision for income taxes and
               equity in net (loss) earnings of affiliate.............................             28,896            7,745
   Provision for income taxes.........................................................             11,539            3,427
                                                                                           ---------------  ---------------
   Net income from continuing operations before equity in net (loss) earnings of
     affiliate........................................................................             17,357            4,318
   Equity in net (loss) earnings of affiliate.........................................               (621)             385
                                                                                           ---------------  ---------------
   Net income from continuing operations..............................................             16,736            4,703
   Net income from discontinued operations:
      Income from Annuity Operations and Western Diversified Group (net of income
          taxes of $-- and $3,541)....................................................                  -            5,693
      Gain on disposal of Annuity Operations and Western Diversified Group (net of
          income taxes of $830 and $--)...............................................              1,541                -
                                                                                           ---------------  ---------------
     
   Net income.........................................................................      $      18,277    $      10,396
                                                                                           ===============  =============== 
   Net income applicable to common stock..............................................      $      17,939    $      10,058
                                                                                           ===============  ===============

   Comprehensive income...............................................................      $      18,302    $     (11,014)
                                                                                           ===============  ===============

   Net income per common share (see Note 3):
         Net income from continuing operations........................................      $        0.67    $        0.17
         Net income from discontinued operations......................................               0.06             0.22
                                                                                           ---------------  --------------- 
         Net income...................................................................      $        0.73    $        0.39
                                                                                           ===============  ===============

   Net income per common share - assuming dilution (see Note 3):
         Net income from continuing operations........................................      $        0.66    $        0.17
         Net income from discontinued operations......................................               0.06             0.22
                                                                                           ---------------  ---------------
         Net income...................................................................      $        0.72    $        0.39
                                                                                           ===============  ===============
</TABLE>


            See Notes to Condensed Consolidated Financial Statements.

                                       2
<PAGE>   5
                JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
      CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                   (UNAUDITED)
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                              THREE MONTHS ENDED
                                                                                                   MARCH 31,
                                                                                     --------------------------------------
                                                                                           1998                1997
                                                                                     ------------------ -------------------

<S>                                                                                  <C>                <C>
      Number of shares outstanding..............................................            24,538,604          24,669,308
                                                                                     ================== ===================

      Common stock, beginning of period.........................................     $             259  $              250
         Stock option exercises.................................................                     1                  --
                                                                                     ------------------ -------------------
      Common stock, end of period...............................................     $             260  $              250
                                                                                     ================== ===================

      Paid-in capital, beginning of period......................................     $         187,422  $          181,863
         Stock option exercises.................................................                   361                  --
         Transfer from redeemable common stock..................................                    --                   1
                                                                                     ------------------ -------------------
      Paid-in capital, end of period............................................     $         187,783  $          181,864
                                                                                     ================== ===================

      Retained earnings, beginning of period....................................     $         276,552  $          268,109
         Net income.............................................................                18,277              10,396
         Dividends on cumulative preferred stock ($2.25 per share)..............                  (338)               (338)
         Dividends on common stock ($0.12 per share)............................                (2,946)             (3,039)
                                                                                     ------------------ -------------------
      Retained earnings, end of period..........................................     $         291,545  $          275,128
                                                                                     ================== ===================

      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 ...................................................                    25             (21,410)
                                                                                     ------------------ -------------------
           Net unrealized gain on investments, net of income taxes, end
             of period..........................................................     $          17,731  $            5,567
                                                                                     ================== ===================

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

      Unearned compensation, beginning of period................................     $            (357) $             (643)
         Compensation expense recognized........................................                    71                  72
                                                                                     ------------------ -------------------
      Unearned compensation, end of period......................................     $            (286) $             (571)
                                                                                     ================== ===================

      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.............................................................                18,277              10,396
         Change in accumulated other comprehensive income:
              Change in net unrealized gain (loss) on investments, net of
                income taxes....................................................                    25             (21,410)
         Dividends on cumulative preferred stock ($2.25 per share)..............                  (338)               (338)
         Dividends on common stock ($0.12 per share)............................                (2,946)             (3,039)
         Change in redemption value of common stock in excess of cost...........                    --                 286
         Stock option exercises.................................................                   362                  --
         Compensation expense recognized........................................                    71                  72
         Adjustment of put holder shares to market value........................                    --                  (2)
         Treasury stock purchase................................................                (3,159)                 --
         Transfer from redeemable common stock..................................                    --                   1
                                                                                     ------------------ -------------------
      Stockholders' equity, end of period.......................................     $         463,202  $          451,177
                                                                                     ================== ===================
</TABLE>



            See Notes to Condensed Consolidated Financial Statements.

                                       3
<PAGE>   6
                JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                             THREE MONTHS ENDED
                                                                                                 MARCH 31,
                                                                                      ---------------------------------
                                                                                             1998             1997
                                                                                      ---------------  ----------------

<S>                                                                                       <C>              <C>
Net cash (used in) provided by operating activities.............................           $ (20,741)       $   93,584
                                                                                      ---------------  ----------------
Cash flows from investing activities:
     Proceeds from investments sold:
            Available-for-sale..................................................              30,531           100,396
            Real estate owned...................................................                 165             1,564
      Maturities, calls  and scheduled loan payments:
            Held-to-maturity....................................................               2,360               248
            Available-for-sale..................................................               2,213            71,055
            Mortgage loans and other notes receivable...........................              26,547            90,688
       Investments purchased:
            Available-for-sale..................................................                 (24)          (16,782)
            Mortgage loans and other notes receivable...........................             (15,235)          (55,689)
            Investment in real estate...........................................                (526)              (76)
     Inflows from net sales and purchases of short-term investments ............             173,492             3,043
     Sale of Annuity Operations.................................................                  --          (177,616)
     Sale of Western Diversified Group .........................................                 579           (19,710)
     Purchases of property and equipment........................................                (273)             (982)
                                                                                      ---------------  ----------------
   Net cash provided by (used in) investing activities..........................             219,829            (3,861)
                                                                                      ---------------  ----------------
Cash flows from financing activities:
     Receipts from universal life and investment-type contracts.................               4,390            69,587
     Payments on universal life and investment-type contracts...................              (6,102)         (166,854)
     Purchase of  treasury stock, net...........................................              (3,159)               --
     Payment of dividends.......................................................              (2,960)           (3,040)
     Stock option exercises.....................................................                 311                --
     Payments made under reinsurance agreement..................................                  --            (2,080)
                                                                                      ---------------  ----------------
   Net cash used in financing activities........................................              (7,520)         (102,387)
                                                                                      ---------------  ----------------
Net increase (decrease) in cash and cash equivalents............................             191,568           (12,664)
Cash and cash equivalents, beginning of period .................................              15,238           139,710
                                                                                      ---------------  ----------------
Cash and cash equivalents, end of period .......................................           $ 206,806        $  127,046
                                                                                      ===============  ================
</TABLE>


            See Notes to Condensed Consolidated Financial Statements.

                                       4


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


NOTE 1 -- BASIS OF PRESENTATION

         The condensed consolidated financial statements of John Alden
Financial Corporation and its subsidiaries (the "Company") have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted.  The interim financial data is
unaudited; however, in the opinion of management, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results of operations for the interim periods presented.
The results of operations for the three months ended March 31, 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.
The Company has changed its accounting policy to the equity method and restated
its financial statements as of March 31, 1998 and 1997.  This change had no
effect on total stockholders' equity or net income as previously reported.
Total assets of NHP as of March 31, 1998 and December 31, 1997 were $77.8
million and $64.3 million, respectively.  Total revenues of NHP for the three
months ended March 31, 1998 and 1997 were $70.2 million and $40.3 million,
respectively.

         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.
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 $20.0 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>
                                                                   THREE MONTHS ENDED MARCH 31,
                                                                   ----------------------------

                                                                      1998              1997
                                                                 --------------   ---------------

<S>                                                                 <C>               <C>
Net income  . . . . . . . . . . . . . . . . . . . . . . . . .       $ 18,277          $ 10,396
Dividends on redeemable preferred stock . . . . . . . . . . .           (338)             (338)
                                                                    --------          --------
Net income applicable to common stock . . . . . . . . . . . .       $ 17,939          $ 10,058
                                                                    ========          ========


Average common shares outstanding . . . . . . . . . . . . . .         24,532            25,336
Potentially dilutive securities . . . . . . . . . . . . . . .            283               165
                                                                    --------          --------

Average common and potentially dilutive shares outstanding  .         24,815            25,501
                                                                    ========          ========

</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.

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

         In June 1997, the Financial Accounting Standards Board 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.

NOTE 6 --  INDEBTEDNESS

         As of March 31, 1998, the Company was not in compliance with certain
financial covenants under its credit agreement. The Company intends to prepay
the full amount of indebtedness outstanding under the credit agreement during
May 1998.  As a result, the total outstanding indebtedness included in the
accompanying condensed consolidated balance sheet as of March 31, 1998 of $76.5
million is classified as short-term debt.

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

                                       6



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



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 March
31, 1998, approximately 72% 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 three months 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 March 31, 1998, the
Company has recognized approximately 72% 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 $25.5 million of the net deferred gain in
income as a result of these assumptions including approximately $1.5 million
during the three months ended March 31, 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 three months ended March
31, 1997.

         The results of operations relating to the Annuity Operations and the
Western Diversified Group for the three months ended March 31, 1997 are
reflected as discontinued operations in the accompanying condensed consolidated
statements of income.  Total revenues for the discontinued operations for the
three months ended March 31, 1997 were $102.9 million for the Annuity
Operations and $17.0 million for the Western Diversified Group.

         Included in other assets at March 31, 1998 and December 31, 1997 in
the accompanying consolidated balance sheets were investment contract deposits
recoverable on the JALIC coinsurance of $1.3 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.
During March 1998, the Company and certain of its officers and directors were
named as defendants in putative class actions

                                       7



<PAGE>   10

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


alleging that the Company is not being sold for the highest price possible.
With respect to these actions, the Company and individual defendants deny any
wrongdoing, believe they have meritorious defenses against the claims asserted,
and intend to vigorously defend the lawsuits. While it is not possible to
determine the ultimate disposition of any of these proceedings, the Company
believes that the ultimate dispositions 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 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.
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 $20.0 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 March 31, 1998, approximately 72% 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 three months 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 March 31, 1998, the Company has
recognized approximately 72% of the ceding commission on the coinsurance of the
JALIC annuity business in relation to the amount of ceded reserves that

                                       9
<PAGE>   12
had either transitioned to an assumption basis or lapsed.  The Company has
recognized approximately $25.5 million of the net deferred gain in income as a
result of these assumptions including approximately $1.5 million during the
three months ended March 31, 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.  The Company intends to use a portion of the
remaining excess capital to prepay the remaining outstanding indebtedness under
its credit agreement of $75.0 million.  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>
                                            THREE MONTHS ENDED MARCH 31,
                                         -----------------------------------
                                               1998               1997
                                         ---------------      --------------
                                    (In millions, except share and per share data)

<S>                                           <C>               <C>
Operating income (1):
  Continuing operations.................       $14.9              $2.5
  Discontinued operations...............         -                 8.0
   Total................................        14.9              10.5
Net income:
  Continuing operations.................        16.7               4.7
  Discontinued operations (2)...........         1.5               5.7
   Total................................        18.2              10.4
Net income applicable to common stock...        17.9              10.1
Operating income per common share (1):
  Continuing operations.................        0.61              0.10
  Discontinued operations...............        -                 0.31
   Total................................        0.61              0.41
Net income per common share.............        0.73              0.39
Average common shares outstanding(000's)      24,532            25,336
Average common and potentially
  dilutive shares outstanding (000's)...      24,815            25,501
</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 three months
     ended March 31, 1998 includes $1.5 million of recognition of the
     net deferred gain on the sale of the discontinued operations.

    Operating income from continuing operations increased to $14.9 million, or
$0.61 per common share, for the three months ended March 31, 1998 from $2.5
million, or $0.10 per common share, for the three months ended March 31, 1997.
The increase in operating income was primarily attributable to $23.0 million of
pre-tax severance and related charges, or $0.59 per common share, resulting
from the Company's restructuring of its operations during the three months
ended March 31, 1997 in conjunction with the closing of the sale of the Annuity
Operations and anticipated reduced premium volume in its group operations.
During the three months ended March 31, 1998, the Company recorded a pre-tax
charge of $3.0 million, or $0.08 per common share, relating to charges
attributable to

                                       10
<PAGE>   13
discontinued product lines in the Company's stop-loss reinsurance product line.
Excluding these charges, operating income decreased to $16.9 million, or $0.69
per common share, for the three months ended March 31, 1998 from $17.5 million,
or $0.69 per common share, for the three months ended March 31, 1997.  As a
result of the share repurchase program described above, the average common
shares outstanding have decreased from 25,336,000 to 24,532,000 during these
periods.  As discussed below, 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.  Excluding the favorable development of
claims experience and the charges discussed above, the operating results of the
Company's group product decreased primarily due to a drop in gross earned
premiums to $217.6 million for the three months ended March 31, 1998 from
$324.3 million for the three months ended March 31, 1997.

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 three months ended March
31, 1998 and 1997 as a percent of net insurance premiums and contract charges
earned ("net premiums"), and provide other relevant information:



<TABLE>
<CAPTION>

                                                             THREE MONTHS ENDED MARCH 31,   POINT CHANGE
                                                             ----------------------------     POSITIVE
                                                                               PRO FORMA     (NEGATIVE)
                                                                 1998           1997 (1)       EFFECT
                                                             ------------   -------------   ------------
<S>                                                              <C>           <C>           <C>
Revenues:
  Gross insurance premiums and contract charges earned...         181.5%        188.5%        (7.0)%
  Ceded insurance premiums and contract charges earned...         (81.5)        (88.5)         7.0
                                                                -------       -------      -------
    Net insurance premiums and contract charges earned...         100.0         100.0          0.0
  Net investment income..................................          13.1           5.3          7.8
  Other income...........................................          15.5          13.7          1.8
  Net realized investment gains..........................           1.7           1.4          0.3
                                                                -------       -------      -------
    Total revenues.......................................         130.3         120.4          9.9
                                                                -------       -------      -------
Benefits and expenses:
  Gross claims incurred on insurance products............         120.1         130.5         10.4
  Ceded claims incurred on insurance products............         (53.4)        (64.5)       (11.1)
                                                                -------       -------      -------
    Net claims incurred on  insurance products...........          66.7          66.0         (0.7)
  Universal life and investment-type contract benefits...           3.3           2.4         (0.9)
  (Decrease) increase in life insurance reserves.........          (2.8)         (0.2)         2.6
                                                                -------       -------      -------
    Total benefits.......................................          67.2          68.2          1.0
                                                                -------       -------      -------
  Commissions............................................           8.8           7.7         (1.1)
  General expenses.......................................          29.7          37.4          7.7
  Amortization of purchased intangibles..................           0.7           0.6         (0.1)
  Amortization of deferred policy acquisition costs......           2.4           1.9         (0.5)
  Interest expense.......................................           0.8           0.7         (0.1)
                                                                -------       -------      -------
    Total benefits and expenses..........................         109.6         116.5          6.9
                                                                -------       -------      -------
Income from continuing operations before
  provision for income taxes and equity in
  net (loss) earnings of affiliate.......................          20.7           3.9         16.8
Provision for income taxes...............................           8.3           1.7         (6.6)
                                                                -------       -------      -------
Net income from continuing operations before                       12.4           2.2         10.2
   equity in net (loss) earnings of affiliate............
Equity in net (loss) earnings of affiliate...............          (0.4)          0.2         (0.6)
                                                                -------       -------      -------
Net income from continuing operations....................          12.0%          2.4%         9.6%
                                                                =======       =======      =======


<CAPTION>

                                                              THREE MONTHS ENDED MARCH 31,   PERCENTAGE CHANGE
                                                              ----------------------------  POSITIVE (NEGATIVE)
                                                                  1998           1997             EFFECT
                                                              ------------   -------------  -------------------

<S>                                                             <C>            <C>          <C>
Other relevant information:
  Group insured data:
    Employers (2)........................................       100,000        165,000      (39.4)%
    Employee lives.......................................       264,000        419,000      (37.0)
    Group covered lives..................................       506,000        793,000      (36.2)
  Group gross medical loss ratio.........................          62.5%          67.6%       5.1
</TABLE>

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

(2)  Includes 20,000 and 30,000 groups, each group made up of one individual,
as of March 31, 1998 and 1997, respectively, marketed through an association
trust.

                                       12
<PAGE>   15
         Gross premiums decreased 37.5% to $253.3 million for the three months
ended March 31, 1998 from $405.4 million for the three months ended March 31,
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 31.4% during these periods.  The primary factor affecting the change
in gross premiums was the decline in group covered lives.  Group covered lives
declined from 793,000 at March 31, 1997 to 506,000 at March 31, 1998.  The
Company estimates that this decline in covered lives resulted in a decrease in
gross premiums of approximately $123.3 million.  Further, the Company estimates
that the group gross premiums were increased by approximately $16.6 million
from rate increases and changes in insureds electives for deductibles and other
product features.  Gross premiums from the Company's other product lines
decreased $9.5 million during this period.  The changes in the group gross
premiums were estimated using an average premium per covered life.  The Company
can give no assurance as to the accuracy of the allocation among the various
factors causing the decrease in gross premiums.

         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 addition,
the Company began the introduction of a new product in April 1997 and as of
March 1998 is offering this product in 31 states which represents most of the
states in which the Company expects to focus its marketing efforts.  These
actions contributed to a 36.2% decrease in group covered lives to 506,000 at
March 31, 1998 from 793,000 at March 31, 1997, which resulted in the decrease
in gross premiums noted above.

         Net investment income increased 76.0% to $18.3 million for the three
months ended March 31, 1998 from $10.4 million for the three months March 31,
1997.  As a percentage of net premiums, net investment income increased to
13.1% for the three months ended March 31, 1998 from 5.3% for the three months
ended March 31, 1997.  This increase was primarily attributable to the proceeds
of the sale of the Annuity Operations as 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
fluctuates between periods primarily due to changes in the group gross combined
ratio and group gross earned premiums.

         Total benefits decreased 29.8% to $93.8 million for the three months
ended March 31, 1998 from $133.7 million for the three months ended March 31,
1997.  As a percentage of net premiums, total benefits decreased to 67.2% from
68.2% during these same periods. The group gross medical loss ratio was 62.5%
for the three months ended March 31, 1998 as compared to 67.6% for the three
months ended March 31, 1997.  Included in operating results for the three
months ended March 31, 1998 was $11.0 million of favorable development of group
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 the 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. Excluding this favorable development,
the group gross medical loss ratio was 67.6% for the three months ended March
31, 1998.  Much of the gross medical loss ratio improvement is recorded as an
experience refund under the Group Reinsurance Agreement and is included in
other income, as discussed above.

                                       13

<PAGE>   16
         General expenses decreased 43.4% to $41.4 million for the three months
ended March 31, 1998 from $73.2 million for the three months ended March 31,
1997, and general expenses as a percentage of net premiums decreased to 29.7%
from 37.4% for these same periods. 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.  Excluding these
charges, general expenses decreased 17.5% to $41.4 million for the three months
ended March 31, 1998 from $50.2 million for the three months ended March 31,
1997, and general expenses as a percentage of net premiums increased to 29.7%
from 25.6% for these same periods.  This increase is primarily due to the
increase in the group gross expense ratio to 28.6% for the three months ended
March 31, 1998 from 25.2% for the three months ended March 31, 1997, excluding
the charges discussed above, which was attributable primarily to the decrease
in group earned premiums.

         The provision for income taxes, as a percentage of net premiums, has
increased during these periods due primarily to the increase in pre-tax income
from continuing operations and the decrease in net premiums.

         The Company's investment in the HMO joint venture ("NHP") resulted in
a loss of $0.6 million for the three months ended March 31, 1998 compared to
income of $0.4 million for the three months ended March 31, 1997.

                              BUSINESS DEVELOPMENT

         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.
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 $20.0 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 March 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 the Company could experience an increase in
the group medical loss ratio for existing business in additional exit states,
if any.

                                       14
<PAGE>   17
         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
provided 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.

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

                                       15

<PAGE>   18
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 three months ended March 31, 1998, the
Company expended approximately $3.2 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 maintains a Credit Agreement with The Chase Manhattan Bank
which was amended in July 1994 to increase the commitment amount of the term
loan to $110.0 million and to establish a revolving credit loan with a
commitment amount of $40.0 million and an expiration of July 1998 (the "Credit
Agreement").  As of March 31, 1998, the Company has $23.5 million available
under the revolving credit loan.  The principal amount of outstanding
indebtedness of the Company was $76.5 million as of both March 31, 1998 and
December 31, 1997.  The Company made a scheduled principal payment of $25.0
million on the term loan and borrowed the remaining commitment amount on the
revolver of $23.5 million in April 1998.  The Company intends to prepay the
remaining outstanding principal amount under the Credit Agreement of $75.0
million during May 1998.  As of March 31, 1998 and December 31, 1997, the
Company's ratio of debt and redeemable securities to stockholders' equity was
0.20 to 1.  The weighted average interest rates on the Company's indebtedness
were approximately 6.1% and 6.4% for the three months ended March 31, 1998 and
1997, respectively.

DIVIDENDS

         The Credit Agreement restricts dividends and other distributions
payable by the Company.  In any period of 12 consecutive months, the Company
may pay cash dividends on, or repurchase for cash, capital stock in an amount
not to exceed 15% of net worth (representing stockholders' equity excluding net
unrealized gains (losses) on investments plus redeemable securities) as of the
end of the fiscal quarter ending on or most recently prior to the last day of
such 12 month period ($69.2 million for the 12 months ended March 31, 1998).

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

CASH FLOWS

         Net cash used in operating activities aggregated $20.7 million for the
three months ended March 31, 1998 compared to net cash provided by operating
activities of $93.6 million for the three months ended March 31, 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 $219.8 million for the
three months ended March 31, 1998 compared to net cash used in investing
activities of $3.9 million for the three months ended March 31, 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 three months
ended March 31, 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, which is included in other assets
on the accompanying condensed

                                       16


<PAGE>   19
consolidated balance sheet as of March 31, 1997.  This reclassification reduced
cash and cash equivalents by $19.7 million. Offsetting these uses of cash and
cash equivalents during the three months ended March 31, 1997 were proceeds
from sales, maturities and repayments of investments.  During the three months
ended March 31, 1998, the Company recognized cash inflows from net sales and
purchases of short-term investments of $173.5 million compared to $3.0 million
for the three months ended March 31, 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 $7.5 million for
the three months ended March 31, 1998 from $102.4 million for the three months
ended March 31, 1997.  This was due to the sale of the Annuity Operations on
March 31, 1997 as discussed above.  During the three months ended March 31,
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.

         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 March 31, 1998.

         In addition to internal resources dedicated to the project, during
1997 and for the three months ended March 31, 1998, the Company expended
approximately $3.2 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 prepay its
debt, redeem preferred stock, pay anticipated dividends and satisfy other
requirements.

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 March
31, 1998, approximately 72% of the ceded annuity reserves have either
transitioned to

                                       17

<PAGE>   20
an assumption basis or lapsed.  The majority of the remaining policies are
expected to be assumed by December 31, 1998.  At March 31, 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
$180.8 million at March 31, 1998. Additionally, included in other assets at
March 31, 1998 in the accompanying condensed consolidated balance sheet was
approximately $1.3 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 March 31, 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>           <C>
Rating (1)
AAA (2)       $ 20,175     $ 139,017       $  3,502   $ 162,694      28.8%
AA               4,252        86,168             --      90,420      16.0
A               15,019       225,773             --     240,792      42.5
BBB              3,000        68,565             --      71,565      12.7
              --------     ---------       --------   ---------     -----
 Total        $ 42,446     $ 519,523       $  3,502   $ 565,471     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 $28,013,000 of U.S. government and agency
     debt securities.


                                    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

                                       18

<PAGE>   21
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, plaitiffs seek an injunction
against consummation of the proposed transaction with Fortis and an award of
damages.  The Company and individual defendants deny any wrongdoing, believe
they have meritorious defenses against the claims asserted, and intend to
vigorously defend the lawsuit.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits
          27.  Financial Data Schedule.

     (b)  Reports on Form 8-K
          The Company filed a report on Form 8-K dated March 9, 1998
          relating to the proposed sale of the Company to Fortis.

                                       19
<PAGE>   22





                                   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: July 29, 1998                     By: /s/ Scott L. Stanton
                                           -----------------------
                                                 Scott L. Stanton
                                                 Senior Vice President and
                                                 Chief Financial Officer

                                       20