AFLAC INC, 424B3, 1999-05-25

AFLAC INC
424B3, 1999-05-25
ACCIDENT & HEALTH INSURANCE

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<PAGE> 1
Registration No. 333-78403
Section 424(b)(3)

OFFER TO EXCHANGE ALL
6 1/2% SENIOR NOTES DUE 2009 FOR
6 1/2% SENIOR NOTES DUE 2009
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OF

AFLAC INCORPORATED

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, ON JUNE 23, 1999, UNLESS EXTENDED.

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

Terms of the exchange offer:

- - We are offering a total of $450,000,000 of new notes, which are registered
with the Securities and Exchange Commission, to all holders of old notes.

- - We will exchange all old notes that are validly tendered and not validly
withdrawn.

- - You may withdraw tenders of old notes at any time before the exchange offer
expires.

- - We will not receive any proceeds from the exchange offer.

- - The exchange of notes will not be a taxable exchange for U.S. federal income
tax purposes.

- - The economic terms of the new notes are substantially identical to those of
the old notes.

CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 9.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE NOTES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Each broker-dealer that receives new notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver this prospectus in
connection with any resale of those new notes.

THE DATE OF THIS PROSPECTUS IS MAY 24, 1999
<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 4
Risk Factors................................................ 9
Forward-Looking Statements.................................. 12
Use of Proceeds............................................. 12
Capitalization.............................................. 13
Ratio of Earnings to Fixed Charges.......................... 13
Selected Historical Consolidated Financial Information...... 14
The Exchange Offer.......................................... 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 52
Description of Certain Indebtedness......................... 55
Description of the Senior Notes............................. 59
United States Federal Tax Considerations.................... 80
Plan of Distribution........................................ 83
Legal Matters............................................... 84
Experts..................................................... 84
Documents Incorporated by Reference......................... 84
Where You Can Find More Information......................... 85
Index to Financial Statements............................... F-1
</TABLE>

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

Unless the context indicates otherwise, all references in this offering
memorandum to:

- "AFLAC Incorporated," "we," "our," "ours" and "us" refer to AFLAC
Incorporated and its consolidated subsidiaries;

- "AFLAC" refer to American Family Life Assurance Company of Columbus;

- "AFLAC U.S." refer to the operations of AFLAC in the United States;

- "AFLAC Japan" refer to the operations of AFLAC in Japan;

- "initial purchasers" refer collectively to Merrill Lynch, Pierce, Fenner
& Smith Incorporated, Donaldson, Lufkin & Jenrette, First Union Capital
Markets Corp., NationsBanc Montgomery Securities LLC and Salomon Smith
Barney Inc.;

- "dollars" or "$" refer to United States dollars; and

- "yen" or "Y" refer to Japanese yen.

3
<PAGE> 3

SUMMARY

This summary highlights selected information from this prospectus and may
not contain all the information that may be important to you. You should read
the entire prospectus, including the financial data and related notes, before
deciding whether to exchange your old notes for new notes.

SUMMARY OF THE EXCHANGE OFFER

On April 21, 1999, we completed the private offering of our 6 1/2% Senior
Notes due 2009. We entered into a registration rights agreement with the initial
purchasers in the private offering in which we agreed to deliver to you this
prospectus and to complete the exchange offer. Additional interest will accrue
on the old notes if the exchange offer registration statement is not filed with
the SEC on or before July 20, 1999, the exchange offer registration statement is
not declared effective on or before October 18, 1999, or the exchange offer is
not consummated and a shelf registration statement is not declared effective on
or before November 17, 1999. This additional interest will continue to accrue
until we complete each of these three tasks. See "The Exchange
Offer -- Registration Rights." You should read the discussion under the headings
"-- Summary Description of the New Notes" and "Description of the Senior Notes"
for more information about the new notes.

We believe that the notes issued in the exchange offer may be resold by you
without compliance with the registration and prospectus delivery provisions of
the Securities Act, unless you are an affiliate of AFLAC or an underwriter or a
broker-dealer. You should read the discussion under the heading "The Exchange
Offer" for further information regarding the exchange offer and resale of the
notes.

<TABLE>
<S> <C>
Registration rights agreement................ This agreement entitles holders of old notes
to exchange their notes for registered notes
with identical economic terms. The exchange
offer will satisfy those rights. After the
exchange offer is complete, you will no
longer be entitled to any exchange or
registration rights with respect to your
notes.
The exchange offer........................... We are offering to exchange up to
$450,000,000 of the new notes for up to
$450,000,000 of the old notes. Old notes may
be exchanged only in $1,000 increments.
Tenders; expiration date; withdrawal......... The exchange offer will expire at 5:00 p.m.,
New York City time, on June 23, 1999, unless
we extend it. If you decide to exchange your
old notes for new notes, you must acknowledge
that you are not engaging in, and do not
intend to engage in, a distribution of the
new notes. You may withdraw your tender of
old notes at any time before June 23, 1999.
If we decide for any reason not to accept
your notes for exchange, we will return them
to you promptly and without expense after the
exchange offer expires or terminates.
Conditions to the exchange offer............. We are not required to accept any old notes
in ex-change for new notes. We may terminate
or amend the exchange offer if we determine
that the exchange offer violates applicable
law or any applicable interpretation of the
SEC.
</TABLE>

4
<PAGE> 4
<TABLE>
<S> <C>

Federal tax considerations................... The exchange of old notes for new notes under
the exchange offer will not result in any
gain or loss to you for federal income tax
purposes.
Use of proceeds.............................. We will receive no proceeds from the exchange
offer.
Exchange agent............................... The Bank of New York is the exchange agent
for the exchange offer. The address and
telephone number of the exchange agent are
set forth under the heading "The Exchange
Offer -- Exchange Agent."
</TABLE>

SUMMARY DESCRIPTION OF THE NEW NOTES

The following is a brief summary of material terms of the new notes. For a
more complete description of the senior notes, see "Description of the Senior
Notes" in this prospectus.

The terms of the new notes and the old notes are identical in all material
respects but two:

- the transfer restrictions and registration rights relating to the old
notes do not apply to the new notes; and

- Additional interest will accrue on the old notes if the exchange offer
registration statement is not filed with the SEC on or before July 20,
1999, the exchange offer registration statement is not declared effective
on or before October 18, 1999, or the exchange offer is not consummated
and a shelf registration statement is not declared effective on or before
November 17, 1999. This additional interest will continue to accrue until
we complete each of these three tasks. See "The Exchange
Offer -- Registration Rights."

Issuer..................... AFLAC Incorporated.

Senior Notes Offered....... $450,000,000 aggregate principal amount of 6 1/2%
Senior Notes due 2009, which have been registered
under the Securities Act.

Maturity Date.............. April 15, 2009.

Interest Payment Dates..... April 15 and October 15, beginning October 15,
1999.

Ranking.................... The senior notes are unsecured senior obligations
and rank equal to all our existing and future
senior indebtedness and senior to all our existing
and future subordinated indebtedness. The senior
notes effectively rank junior to all liabilities of
our subsidiaries and also rank junior to any
existing or future secured indebtedness as to the
assets securing such indebtedness.

As of March 31, 1999, after giving pro forma effect
to the offering of old notes and our use of the net
proceeds from that offering,

- we would have had outstanding approximately $1.0
billion of senior indebtedness; and

- our subsidiaries would have had approximately $18
million of indebtedness.

Optional Redemption........ We may redeem all or a portion of the senior notes
at our option and at any time at a redemption price
equal to the sum of (1) the principal amount of the
senior notes being redeemed, plus any
5
<PAGE> 5

accrued and unpaid interest up to but not including
the redemption date and (2) a make-whole amount, if
any.

Certain Covenants.......... The indenture governing the senior notes contains
covenants that limit our ability and, in certain
instances, the ability of our subsidiaries to:

- create liens; or

- consolidate, merge or transfer all or
substantially all our assets and the assets of
our subsidiaries on a consolidated basis.

These covenants are subject to important
exceptions, which are described under the heading
"Description of the Senior Notes" in this
prospectus.

Sinking Fund............... None.

Risk Factors............... You should carefully consider all of the
information contained in this prospectus prior to
exchanging your old notes for the new notes. In
particular, we urge you to carefully consider the
factors set forth under "Risk Factors" beginning on
page 9 of this prospectus.

BUSINESS

AFLAC U.S. is a leading provider of supplemental insurance at the worksite
and a top seller of accident insurance in the United States. AFLAC Japan is the
largest foreign insurer in Japan in terms of premium and profits and the second
largest life insurer in terms of policies in force.

We were incorporated in 1973 under the laws of the State of Georgia. We are
a general business holding company and act as a management company overseeing
the operations of our subsidiaries by providing management services and making
capital available. Our supplemental health insurance business is marketed and
administered primarily through AFLAC. Most of our policies are individually
underwritten and marketed at the worksite, with premiums paid by the employee.

Our products are designed for people who already have major medical or
other primary insurance coverage and are intended to cover medical and
nonmedical costs that are not reimbursed by other forms of health insurance
coverage. We pay benefits regardless of reimbursements from other insurers. In
recent years, we have diversified our product offerings to include other types
of supplemental health products in both the United States and Japan. We
guarantee that our supplemental health insurance plans will be renewable for the
lifetime of the policyholder. We cannot cancel guaranteed-renewable coverage.
However, we can increase premium rates on existing and future policies in the
United States by class of policy if we experience claims higher than originally
expected (subject to federal and state loss-ratio guidelines) on a uniform,
nondiscriminatory basis. All premium rate increases are subject to state
regulatory approval.
6
<PAGE> 6

SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

The summary consolidated financial information presented below as of and
for the years ended December 31, 1994, 1995, 1996, 1997 and 1998 has been
derived from our consolidated financial statements and the related notes
included in this prospectus. The summary consolidated financial information
presented below for, and as of, each of the three-month periods ended March 31,
1998 and 1999 was derived from our unaudited consolidated financial statements.
The summary consolidated financial information set forth below is qualified in
its entirety by, and should be read in conjunction with, the report of KPMG LLP,
our consolidated financial statements and the related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
EARNINGS DATA:
Revenues:
Premiums, principally
supplemental health
insurance..................... $1,728 $1,472 $5,943 $5,874 $5,910 $6,071 $5,181
Net investment income........... 320 279 1,138 1,078 1,022 1,025 839
Realized investment gains
(losses)...................... (5) -- (2) (5) 2 -- --
Gain on sale of television
business...................... -- -- -- 267 60 -- --
Other income.................... 5 6 25 37 106 95 91
--------- --------- --------- --------- --------- --------- ---------
Total revenues................ 2,048 1,757 7,104 7,251 7,100 7,191 6,111
--------- --------- --------- --------- --------- --------- ---------
Benefits and expenses:
Benefits and claims............. 1,400 1,214 4,877 4,833 4,896 5,034 4,257
Expenses........................ 445 490 1,676 1,553 1,554 1,556 1,350
--------- --------- --------- --------- --------- --------- ---------
Total benefits and expenses... 1,845 1,704 6,553 6,386 6,450 6,590 5,607
--------- --------- --------- --------- --------- --------- ---------
Pretax earnings............... 203 53 551 865 650 601 504
Income taxes...................... 7 (107) 64 280 256 252 211
--------- --------- --------- --------- --------- --------- ---------
Net earnings.................. $196(1) $160(2) $487(3) $585(4) $394(5) $349 $293
========= ========= ========= ========= ========= ========= =========
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, AT DECEMBER 31,
--------------------- ---------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets:
Investments and cash............ $27,217 $22,971 $26,994 $22,880 $20,744 $20,045 $15,994
Other........................... 4,132 4,557 4,189 6,574 4,276 5,172 4,293
--------- --------- --------- --------- --------- --------- ---------
Total assets.............. $31,349 $27,528 $31,183 $29,454 $25,020 $25,217 $20,287
========= ========= ========= ========= ========= ========= =========
Liabilities and shareholders'
equity:
Policy liabilities.............. 23,976 20,184 $24,034 $19,885 $20,234 $19,514 $16,007
Notes payable................... 573 511 596 523 354 327 185
Income taxes.................... 1,733 1,694 1,865 1,827 1,181 1,398 1,392
Other liabilities............... 1,208 1,685 918 3,789 1,125 1,844 951
Shareholders' equity............ 3,859 3,454 3,770 3,430 2,126 2,134 1,752
--------- --------- --------- --------- --------- --------- ---------
Total liabilities and
shareholders' equity.... $31,349 $27,528 $31,183 $29,454 $25,020 $25,217 $20,287
========= ========= ========= ========= ========= ========= =========
</TABLE>

- ---------------
(1) Includes gain of $67 ($.25 per basic share, $.24 per diluted share) due to a
reduction in the deferred income tax liabilities from a tax rate cut in
Japan.

(2) Includes gain of $121 ($.45 per basic share, $.44 per diluted share) due to
a reduction in the deferred income tax liabilities from a tax rate cut in
Japan and a charge of $65 ($.24 per basic and diluted share) for a mandated
policyholder protection fund in Japan in 1998.

(3) Includes gain of $121 ($.46 per basic share, $.44 per diluted share) due to
a reduction in deferred income tax liabilities from a tax rate cut in Japan
and a charge of $65 ($.24 per basic and diluted share) for a mandated
policyholder protection fund in Japan in 1998.

(4) Includes gain of $211 ($.77 per basic share, $.75 per diluted share) from
the sale of the television business in 1997.

(5) Includes gain of $48 ($.17 per basic share, $.16 per diluted share) from the
sale of the television business in 1996.
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<PAGE> 7

- ---------------
(6) Excludes realized investment gains/losses and, in 1996 and 1997, the gains
from the sale of the television business.
Excludes the charge for the policyholder protection fund in 1998 and the
benefit of the tax rate reductions in 1998 and 1999.

(7) "Earnings" consists of operating earnings before income taxes and fixed
charges. "Fixed charges" consists of interest on indebtedness (including
capitalized interest) and a share of rental expenses deemed to be
representative of interest.

(8) Excludes unrealized gains on investment securities.

(9) Operating basis.

(10) Based on operating earnings and excluding unrealized gains on investment
securities, net.
8
<PAGE> 8

RISK FACTORS

You should carefully consider the information below in addition to all
other information provided to you in this prospectus in deciding whether to
exchange your old notes for the new notes. There may be additional risks and
uncertainties not presently known to us or that we currently do not believe are
material that may also impair our business operations. Except for the first risk
factor described below, the risk factors generally apply to the old notes as
well as to the new notes.

If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
such case, the trading price of the senior notes could decline and you may lose
all or part of your investment.

IF YOU DO NOT EXCHANGE YOUR NOTES PURSUANT TO THIS EXCHANGE, YOU MIGHT NOT BE
ABLE TO EVER SELL YOUR NOTES.

It may be difficult for you to sell old notes that are not exchanged in the
exchange offer. Those notes may not be offered or sold unless they are
registered or there are exemptions from the registration requirements under the
Securities Act and applicable state securities laws.

If you do not tender your old notes or if we do not accept some of your old
notes, those notes will continue to be subject to the transfer and exchange
restrictions in:

- the indenture;
- the legend on the old notes; and
- the offering circular relating to the old notes.

The restrictions on transfer of your old notes arise because we issued the
old notes pursuant to an exemption from the registration requirements of the
Securities Act and applicable state securities laws. In general, you may only
offer or sell the old notes if they are registered under the Securities Act and
applicable state securities laws, or offered and sold pursuant to an exemption
from such requirements. We do not intend to register the old notes under the
Securities Act. To the extent old notes are tendered and accepted in the
exchange offer, the trading market, if any, for the old notes would be adversely
affected.

YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THESE NOTES.

The new notes are being offered to the holders of the old notes only. There
is no public market for the new notes. The initial purchasers have informed us
that they currently intend to make a market in the new notes. However, the
initial purchasers may cease their market making at any time. The new notes
could trade at prices that may be higher or lower than the initial offering
price of the old notes. The liquidity of the trading market in these notes, and
the market price quoted for these notes, may be adversely affected by changes in
the overall market for similar securities, existing interest rates, and by our
operating results.

OUR CONCENTRATION OF BUSINESS IN JAPAN IMPOSES RISKS TO OUR OPERATIONS AND MAY
IMPAIR OUR ABILITY TO MAKE PAYMENTS ON THE SENIOR NOTES.

Continued weakness of Japan's economy could materially adversely affect our
business and our ability to make payments on the senior notes. Our operations in
Japan accounted for 80%, 79% and 82%, of our total revenues for 1998, 1997 and
1996, respectively, and 86% and 87% of our total assets at December 31, 1998 and
1997, respectively. Japan's economy has been weak for several years. The
financial strength of many Japanese financial institutions has deteriorated, and
some have experienced bankruptcy. The economic downturn has spread to several
other Asian countries since mid-1997. The weak economy in Japan has resulted in
a difficult marketing environment for AFLAC Japan, declining available
investment yields for new investments and decreased consumer confidence.

9
<PAGE> 9

Although the Japanese government has developed various economic stimulus
packages, the time required for the Japanese economy to recover remains
uncertain.

UNAVAILABILITY OF LONGER TERM YEN-DENOMINATED INVESTMENTS COULD ADVERSELY AFFECT
OUR PROFITS AND ABILITY TO REPAY THE NOTES.

We attempt to match the duration of our assets with the duration of our
liabilities. For AFLAC Japan, the duration of policy benefit liabilities is
longer than that of the related invested assets due to the unavailability of
acceptable yen-denominated long-duration securities. Therefore, there is a risk
that the reinvestment of the proceeds at the maturity of such investments will
be at a yield below that of the interest required for the accretion of policy
liabilities. At December 31, 1998, for AFLAC Japan the average duration of
policy liabilities was approximately 13 years and the average duration of
yen-denominated debt securities was approximately nine years. When our debt
securities mature, there is a risk that the proceeds will be reinvested at a
yield below that of the interest required for the accretion of policy
liabilities. If this occurs, AFLAC Japan would be adversely affected, which
could impair our ability to make payments on the senior notes. Over the next
five years, 14.8% of AFLAC Japan's yen-denominated debt securities are scheduled
to mature.

ACTIONS BY JAPANESE REGULATORS COULD HARM OUR BUSINESS AND MAY IMPAIR OUR
ABILITY TO MAKE PAYMENTS ON THE SENIOR NOTES.

An agreement between the governments of the United States and Japan calls
for the gradual liberalization of the insurance industry in Japan through the
year 2001. However, this agreement contains provisions to avoid "radical change"
in the third sector of the insurance industry. The third sector includes the
supplemental insurance products which constitutes our primary operations. One of
the measures for avoiding radical change in the third sector is the prohibition
of new entrants into the cancer or medical insurance businesses until January 1,
2001. If the process for deregulation in Japan is significantly altered or
accelerated to permit numerous new competitors to enter the supplemental
insurance products market prior to 2001, our business could be materially
adversely affected and our ability to make payments on the senior notes could be
impaired. In addition, the ultimate impact of insurance deregulation on our
business cannot be determined.

JAPANESE CURRENCY EXCHANGE RATE RISK COULD HARM OUR BUSINESS AND OPERATING
RESULTS AND MAY IMPAIR OUR ABILITY TO MAKE PAYMENTS ON THE SENIOR NOTES.

All of our premiums and most of our investment income in Japan is received
in yen, and our claims and expenses are paid in yen. In addition, the majority
of our invested assets in Japan are denominated in yen. Therefore, our economic
condition in Japan is not materially affected by currency fluctuations. However,
we must translate yen into dollars for financial reporting purposes. The
fluctuations in the yen/dollar exchange rate may have a significant effect on
our balance sheets and income statements as reported in dollars. The yen has
weakened since mid-1995, which has caused fewer dollars to be reported. In
addition, with a weaker yen we receive fewer dollars when converting yen into
dollars for repatriation of profits from AFLAC Japan to AFLAC U.S.

OUR OPERATING SUBSIDIARIES PROVIDE OUR CASH FLOW BUT THEY ARE NOT OBLIGATED TO
PAY OR GUARANTEE THE SENIOR NOTES, WHICH EFFECTIVELY SUBORDINATES THE SENIOR
NOTES TO INDEBTEDNESS OF OUR SUBSIDIARIES.

We are a holding company and have no direct operations and no significant
assets other than the stock of our subsidiaries. Because we conduct our
operations through our operating subsidiaries, we depend on those entities for
dividends and other payments to generate the funds necessary to meet our
financial obligations, including the payment of principal and interest on the
senior notes. In addition, there is no assurance that the earnings from, or
other available assets of, our operating subsidiaries will be sufficient to make
distributions to us to enable us to pay interest on the senior

10
<PAGE> 10

notes when due or principal of the senior notes at maturity. Our subsidiaries
have no direct obligation to pay amounts due on the senior notes and do not
guarantee the senior notes. As a result, the senior notes have the effect of
being subordinated to existing and future unsecured third party indebtedness and
other liabilities of the subsidiaries, including policyholder claims and trade
payables. If a subsidiary liquidates or reorganizes, the subsidiary's creditors,
including policyholders and trade creditors, will generally have preferential
rights to satisfy their claims from the subsidiary's remaining assets before
AFLAC Incorporated and its creditors, including the holders of the senior notes,
may satisfy their claims from the subsidiary's assets.

INSURANCE REGULATIONS LIMIT THE ABILITY OF OUR SUBSIDIARIES TO MAKE PAYMENTS TO
US AND MAY IMPAIR OUR ABILITY TO MAKE PAYMENTS ON THE SENIOR NOTES.

Insurance regulations limit the ability of our insurance subsidiaries to
make payments to us and may impair our ability to make payments on the senior
notes. Dividends, management fees and other payments to us by our insurance
subsidiaries are subject to various regulatory restrictions and approvals
related to safeguarding the interests of insurance policyholders. For example,
dividend payments by AFLAC to us in 1999 in excess of $213 million would require
prior regulatory approval.

FAILURE TO BE YEAR 2000 COMPLIANT COULD DISRUPT OUR OPERATIONS, ADVERSELY AFFECT
OUR BUSINESS AND IMPAIR OUR ABILITY TO MAKE PAYMENTS ON THE SENIOR NOTES.

Our business is significantly dependent upon accurate and efficient
operation of our computer systems. We also rely on a widely distributed customer
base in the United States and Japan for continued payment of premiums. Many of
the systems utilized by our group accounts are automated and date dependent. If
a large number of our customers are unable to submit premium payments or policy
and claim data in a timely or accurate manner due to year 2000 issues, the
resulting delays could have a material adverse effect on our financial condition
or results of operations. Although we have taken steps to address the year 2000
issue, we are not currently able to predict the probability of any delays
occurring or the extent of such delays.

Due to the uncertainty inherent in year 2000 issues, particularly with
regard to Japanese customers' year 2000 readiness and the various governmental
functions, public utilities, financial infrastructures and similar outside
facilities on which we depend in both the United States and Japan, we are unable
to determine at this time whether the consequences of external year 2000
failures will have a material impact on our financial condition or results of
operations. Although a year 2000 failure with respect to any single internal or
external system may not have a material adverse effect on us, the failure of
multiple systems may cause a material disruption to our business. A material
disruption in our business could materially affect our ability to make payments
on the senior notes.

See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of the actions we have taken and
expenses we have incurred and intend to incur in connection with the year 2000
issue.

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<PAGE> 11

FORWARD-LOOKING STATEMENTS

This prospectus and the documents incorporated herein by reference contain
forward-looking statements. In addition, from time to time, we or our
representatives may make forward-looking statements orally or in writing. We
base these forward-looking statements on our expectations and projections about
future events, which we derive from the information currently available to us.
Such forward-looking statements relate to future events or our future
performance, including:

- our financial performance;

- our growth in net sales and earnings;

- our cash flows from operations;

- our capital expenditures;

- our ability to refinance indebtedness; and

- sales of our assets.

In some cases, you can identify forward-looking statements by terms such as
"may," "will," "should," "expects," "plans," "contemplates," "anticipates,"
"believes," "estimates," "projected," "predicts," "potential" or "continue" or
the negative of these or similar terms. In evaluating these statements, you
should consider various factors, including the risk factors described in this
prospectus. Such factors may cause our actual results to differ materially from
any forward-looking statement.

Forward-looking statements are only predictions. The forward-looking events
discussed in this prospectus may not occur and actual events and results may
differ materially and are subject to risks, uncertainties and assumptions about
us. We are not obligated to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.

USE OF PROCEEDS

We will not receive any proceeds from the exchange offer. Our net proceeds
from the sale of old notes were approximately $445 million, after deducting
discounts and offering expenses. We currently intend that those net proceeds
will be used primarily for the repurchase of shares of our common stock.
Remaining net proceeds may be used to repay our indebtedness or for general
corporate purposes. We have temporarily invested the net proceeds in investment
grade securities.

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CAPITALIZATION

The following table sets forth our unaudited consolidated capitalization as
of March 31, 1999 and as adjusted (1) to give effect to the sale of the senior
notes, but without giving effect to the payment of expenses, and (2) to give
effect to the stock repurchase. This table should be read in conjunction with
the consolidated financial statements and the related notes, "Selected
Historical Consolidated Financial Information" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus.

<TABLE>
<CAPTION>
AT MARCH 31, 1999
--------------------------
Long-term debt: ACTUAL AS ADJUSTED
------ -----------
(IN MILLIONS,
Due to banks (yen-denominated): EXCEPT FOR SHARE AMOUNTS)
<S> <C> <C>
2.29% due annually through July 2001.............. $ 282 $ 282
1.24% due November 2002........................... 129 129
Variable interest rate due annually through July
2001............................................ 32 32
Variable interest rate due November 2002.......... 112 112
Senior notes subject to this exchange offer............ -- 450
Capitalized leases..................................... 18 18
------ ------
Total long-term debt.............................. 573 1,023
------ ------
Equity:
Common stock, $.10 par value; 400,000,000 shares
authorized; 318,570,482 shares issued................. 32 32
Additional paid-in capital............................. 241 241
Retained earnings...................................... 3,040 3,040
Accumulated other comprehensive income:
Unrealized foreign currency translation gains..... 214 214
Unrealized gains on investment securities......... 1,243 1,243
Treasury stock......................................... (910) (1,360)
Notes receivable for stock purchases................... (1) (1)
------ ------
Total equity...................................... 3,859 3,409
------ ------
Total capitalization.............................. $4,432 $4,432
====== ======

Ratio of debt to capitalization*....................... 18.0% 32.1%

Ratio of debt to capitalization........................ 12.9% 23.1%
</TABLE>

- ---------------
* Excludes unrealized gains on investment securities.

RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth the ratio of earnings to fixed charges of
AFLAC Incorporated for the periods indicated:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
----------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges*................. 56.7x 16.8x 41.8x 43.6x 36.1x 37.7x 42.1x
</TABLE>

- ---------------
* "Earnings" consists of operating earnings before income taxes and fixed
charges. "Fixed charges" consists of interest on indebtedness (including
capitalized interest) and a share of rental expenses deemed to be
representative of interest.

13
<PAGE> 13

SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

The selected historical consolidated financial information presented below
for, and as of, each of the years ended December 31, 1994, 1995, 1996, 1997, and
1998 were derived from our audited consolidated financial statements, which have
been audited by KPMG LLP, independent certified public accountants. The selected
historical consolidated financial data for, and as of, each of the three-month
periods ended March 31, 1998 and 1999 were derived from our unaudited
consolidated financial statements which, in the opinion of management, have been
prepared on the same basis as our audited consolidated financial statements and
include all adjustments, necessary for a fair and consistent presentation of our
results of operations and financial position for such periods and as of such
dates. The results for the three months ended March 31, 1999 are not necessarily
indicative of results to be expected for the full fiscal year. The following
financial information should be read in conjunction with the report of KPMG LLP,
our consolidated financial statements and the related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF EARNINGS DATA:
Revenues:
Premiums, principally supplemental health
insurance.................................. $1,728 $1,472 $5,943 $5,874 $5,910 $6,071 $5,181
Net investment income........................ 320 279 1,138 1,078 1,022 1,025 839
Realized investment gains (losses)........... (5) -- (2) (5) 2 -- --
Gain on sale of television business.......... -- -- -- 267 60 -- --
Other income................................. 5 6 25 37 106 95 91
-------- -------- -------- -------- -------- -------- --------
Total revenues......................... 2,048 1,757 7,104 7,251 7,100 7,191 6,111
-------- -------- -------- -------- -------- -------- --------
Benefits and expenses:
Benefits and claims.......................... 1,400 1,214 4,877 4,833 4,896 5,034 4,257
Expenses..................................... 445 490 1,676 1,553 1,554 1,556 1,350
-------- -------- -------- -------- -------- -------- --------
Total benefits and expenses............ 1,845 1,704 6,553 6,386 6,450 6,590 5,607
-------- -------- -------- -------- -------- -------- --------
Pretax earnings........................ 203 53 551 865 650 601 504
Income taxes................................... 7 (107) 64 280 256 252 211
-------- -------- -------- -------- -------- -------- --------
Net earnings........................... $196(1) $160(2) $487(3) $585(4) $394(5) $349 $293
======== ======== ======== ======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, AT DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets:
Investments and cash......................... $27,217 $22,971 $26,994 $22,880 $20,744 $20,045 $15,994
Other........................................ 4,132 4,557 4,189 6,574 4,276 5,172 4,293
-------- -------- -------- -------- -------- -------- --------
Total assets........................... $31,349 $27,528 $31,183 $29,454 $25,020 $25,217 $20,287
======== ======== ======== ======== ======== ======== ========
Liabilities and shareholders' equity:
Policy liabilities........................... $23,976 $20,184 $24,034 $19,885 $20,234 $19,514 $16,007
Notes payable................................ 573 511 596 523 354 327 185
Income taxes................................. 1,733 1,694 1,865 1,827 1,181 1,398 1,392
Other liabilities............................ 1,208 1,685 918 3,789 1,125 1,844 951
Shareholders' equity......................... 3,859 3,454 3,770 3,430 2,126 2,134 1,752
-------- -------- -------- -------- -------- -------- --------
Total liabilities and
shareholders' equity................. $31,349 $27,528 $31,183 $29,454 $25,020 $25,217 $20,287
======== ======== ======== ======== ======== ======== ========
</TABLE>

- ---------------
(1) Includes gain of $67 ($.25 per basic share, $.24 per diluted share) due to a
reduction in the deferred income tax liabilities from a tax rate cut in
Japan.
(2) Includes gain of $121 ($.45 per basic share, $.44 per diluted share) due to
a reduction in the deferred income tax liabilities from a tax rate cut in
Japan and a charge of $65 ($.24 per basic and diluted share) for a mandated
policyholder protection fund in Japan in 1998.
(3) Includes gain of $121 ($.46 per basic share, $.44 per diluted share) due to
a reduction in deferred income tax liabilities from a tax rate cut in Japan
and a charge of $65 ($.24 per basic and diluted share) for a mandated
policyholder protection fund in Japan in 1998.
(4) Includes gain of $211 ($.77 per basic share, $.75 per diluted share) from
the sale of the television business in 1997.
(5) Includes gain of $48 ($.17 per basic share, $.16 per diluted share) from the
sale of the television business in 1996.
14
<PAGE> 14

- ---------------
(6) Excludes realized investment gains/losses and in 1996 and 1997, the gains
from the sale of the television business. Excludes the charge for the
policyholder protection fund in 1998 and the benefit of the tax rate
reductions in 1998 and 1999.

(8) Excludes unrealized gains on investment securities.

(9) Operating basis.

(10) Based on operating earnings and excluding unrealized gains on investment
securities, net.

15
<PAGE> 15

THE EXCHANGE OFFER

TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES

Subject to the terms and conditions set forth in this prospectus and in the
accompanying letter of transmittal, we will accept for exchange old notes that
are properly tendered on or before the Expiration Date and not withdrawn as
permitted below. As used in this prospectus, the term "Expiration Date" means
5:00 p.m., New York City time, on June 23, 1999, or such later date and time to
which we, in our sole discretion, extend the exchange offer.

The form and terms of the new notes being issued in the exchange offer are
the same as the form and terms of the old notes except that:

- the new notes being issued in the exchange offer will have been
registered under the Securities Act and thus will not bear restrictive
legends restricting their transfer pursuant to the Securities Act, and

- the new notes being issued in the exchange offer will not contain the
registration rights contained in the old notes.

As of the date of this prospectus, there is $450,000,000 in total principal
amount of old notes outstanding. This prospectus and the letter of transmittal
are first being sent on or about May 24, 1999, to all holders of old notes known
to us. Our obligation to accept old notes for exchange pursuant to the exchange
offer is subject to the conditions set forth below under "-- Conditions to the
Exchange Offer."

Notes tendered in the exchange offer must be in denominations of principal
amount of $1,000 and any integral multiple thereof.

We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the exchange offer is open, and thereby delay
acceptance for exchange of any old notes, by giving oral or written notice of
such extension to the holders of old notes as described below. During any such
extension, all old notes previously tendered will remain subject to the exchange
offer and may be accepted for exchange by us. We will return, at no expense to
the holder, any old notes not accepted for exchange as promptly as practicable
after the expiration or termination of the exchange offer.

If any of the events specified in "-- Conditions to the Exchange Offer"
should occur, we may amend or terminate the exchange offer, and not accept for
exchange any old notes not previously accepted for exchange. We will give oral
or written notice of any extension, amendment, non-acceptance or termination to
holders of old notes as promptly as practicable. In the case of an extension, we
will issue a press release or other public announcement no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date.

Following consummation of the exchange offer, we may commence one or more
additional exchange offers to those holders of old notes who did not exchange
their old notes for new notes on terms which may differ from those contained in
the registration rights agreement. We may use this prospectus, as amended or
supplemented from time to time, in connection with additional exchange offers.

PROCEDURES FOR TENDERING OLD NOTES

The tendering by a holder of old notes, and our mutual acceptance of the
old notes, will constitute a binding agreement between us and the holder on the
terms and subject to the conditions set forth in this prospectus and in the
accompanying letter of transmittal. Except as set forth below,

16
<PAGE> 16

to tender in the exchange offer, a holder must transmit to The Bank of New York,
the exchange agent, at the address set forth under "--Exchange Agent" on or
before the Expiration Date either:

- a properly completed and duly executed letter of transmittal, including
all other documents required by such letter of transmittal, or

- if the old notes are tendered pursuant to the book-entry procedures set
forth below, an agent's message instead of a letter of transmittal.

In addition, on or prior to the Expiration Date, either:

- the exchange agent must receive the certificates for the old notes along
with the letter of transmittal; or

- the exchange agent must receive a timely confirmation of a book-entry
transfer of such old notes into the exchange agent's account at The
Depository Trust Company ("DTC") according to the procedure for
book-entry transfer described below, along with a letter of transmittal
or an agent's message instead of a letter of transmittal; or

- the holder must comply with the guaranteed delivery procedures described
below.

The term "agent's message" means a message, transmitted by DTC and received by
the exchange agent and forming a part of the book-entry confirmation, which
states that DTC has received an express acknowledgment from the tendering holder
that such holder has received and agrees to be bound by the letter of
transmittal and that we may enforce the letter of transmittal against the
holder.

THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL OR AGENT'S
MESSAGES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDERS. IF DELIVERY IS BY MAIL, WE RECOMMEND REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO
GUARANTEE TIMELY DELIVERY. DO NOT SEND LETTERS OF TRANSMITTAL, AGENT'S MESSAGES
OR NOTES TO US.

Signature Requirements

Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the notes surrendered for exchange are
tendered:

- by a registered holder of old notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal, or

- for the account of an eligible institution.

An "eligible institution" is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc. or
a commercial bank or trust company having an office or correspondent in the
United States that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchanges Medallion program.

If signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, the guarantor must be an eligible institution. If old
notes are registered in the name of a person other than a signer of the letter
of transmittal, the old notes surrendered for exchange must be endorsed by, or
be accompanied by a written instrument or instruments of transfer or exchange,
in satisfactory form as determined by us in our sole discretion, duly executed
by the registered holder with the holder's signature guaranteed by an eligible
institution.

If a person or persons other than the registered holder or holders of old
notes signs the letter of transmittal, such old notes must be endorsed or
accompanied by appropriate powers of attorney, in

17
<PAGE> 17

either case signed exactly as the name or names of the registered holder or
holders that appear on the old notes.

If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the letter of transmittal or any old notes or powers of attorney,
those persons should so indicate when signing, and must submit proper evidence
satisfactory to us of their authority to sign unless we waive this requirement.

Our Interpretations are Binding on You

We will determine all questions as to the validity, form, eligibility,
including time of receipt, and acceptance of old notes tendered for exchange in
our sole discretion. Our determination will be final and binding. We reserve the
absolute right to:

- reject any and all tenders of any old note not properly tendered;

- refuse acceptance of any old note if, in our judgment or the judgment of
our counsel, acceptance of the old note might be unlawful; and

- waive any defects or irregularities or conditions of the exchange offer
as to any old note either before or after the Expiration Date. This
includes the right to waive the ineligibility of any holder who seeks to
tender old notes in the exchange offer.

Our interpretation of the terms and conditions of the exchange offer as to
any particular old notes either before or after the Expiration Date, including
the letter of transmittal and the instructions to it, will be final and binding
on all parties. Holders must cure any defects or irregularities in connection
with tenders of old notes for exchange within such reasonable period of time as
we will determine, unless we waive such defects or irregularities. Neither we,
the exchange agent, nor any other person shall have a duty to notify anyone of
any defect or irregularity regarding any tender of old notes for exchange, nor
shall any of us incur any liability for failing to notify any person.

Representation You Make by Tendering

By tendering your old notes, you represent to us that, among other things:

- the person receiving the new notes in the exchange offer is obtaining
them in the ordinary course of its business, whether or not such person
is the holder;

- neither you nor such other person receiving the new notes has any
arrangement or understanding with any person to participate in the
distribution of the new notes issued in the exchange offer; and

- if you are not a broker-dealer, that you are not engaged in, or intend to
be engaged in, a distribution of new notes.

If you or any person receiving the new notes is an "affiliate," as defined under
Rule 405 of the Securities Act, of AFLAC Incorporated, or is engaged in or
intends to engage in or has an arrangement or understanding with any person to
participate in a distribution of the new notes to be acquired pursuant to the
exchange offer, you or any such other person receiving the notes may not rely on
the applicable interpretations of the staff of the SEC, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.

Each broker-dealer that receives new notes for its own account in exchange
for old notes, where such old notes were acquired by it as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the new notes. See
"Plan of Distribution." The letter of transmittal states that, by so
acknowledging and by delivering a

18
<PAGE> 18

prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" under the Securities Act.

ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES

Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the Expiration Date, all old notes properly
tendered and will issue the new notes promptly after acceptance of the old
notes. See "-- Conditions to the Exchange Offer." For purposes of the exchange
offer, we will be deemed to have accepted properly tendered old notes for
exchange when, as and if we have given oral or written notice to the exchange
agent, with written confirmation of any oral notice to be given promptly
thereafter.

For each old note accepted for exchange, the old note holder will receive a
new note having a principal amount of maturity equal to that of the surrendered
note. Interest on the new notes will accrue from April 21, 1999, the original
issue date of the old notes.

In all cases, we will issue new notes in the exchange offer for old notes
that are accepted for exchange only after the exchange agent timely receives
either:

- certificates for such old notes or a timely book-entry confirmation of
such old notes into the exchange agent's account at DTC, and

- a properly completed and duly executed letter of transmittal or, in the
case of a book-entry confirmation, an agent's message, and all other
required documents.

If tendered old notes are not accepted for any reason set forth in the
terms and conditions of the exchange offer or if a holder submits old notes for
a greater principal amount than the holder desired to exchange, we will return
such unaccepted or non-exchanged old notes without expense to the tendering
holder as promptly as practicable after the expiration or termination of the
exchange offer. In the case of old notes tendered by book-entry transfer into
the exchange agent's account at DTC, such unaccepted or non-exchanged old notes
will be credited to an account maintained with DTC as promptly as practicable
after the expiration or termination of the exchange offer.

BOOK-ENTRY TRANSFER

The exchange agent will request to establish an account for the old notes
at DTC for the exchange offer within two business days after the date of this
prospectus. Any financial institution that is a participant in DTC's systems may
make book-entry delivery of old notes by causing DTC to transfer such old notes
into the exchange agent's account at DTC in accordance with DTC's procedures for
transfer. However, although delivery of old notes may be effected through
book-entry transfer at DTC, the letter of transmittal or facsimile thereof, with
any required signature guarantees, or an agent's message in lieu of such letter
of transmittal, and any other required documents, must, in any case, be
transmitted to and received by the exchange agent at one of the addresses set
forth below under "-- Exchange Agent" on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with.

GUARANTEED DELIVERY PROCEDURES

If a registered holder of the old notes desires to tender such old notes
and the old notes are not immediately available, or time will not permit such
holder's old notes or other required documents to

19
<PAGE> 19

reach the exchange agent before the Expiration Date, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if:

- the tender is made through an eligible institution;

- before the Expiration Date, the exchange agent receives from such
eligible institution a properly completed and duly executed letter of
transmittal, or a facsimile thereof, and notice of guaranteed delivery,
substantially in the form provided by us, by telegram, telex, facsimile
transmission, mail or hand delivery, setting forth the name and address
of the holder of old notes and the amount of old notes tendered, stating
that the tender is being made thereby and guaranteeing that within three
New York Stock Exchange trading days after the date of execution of the
notice of guaranteed delivery, the certificates for all physically
tendered old notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, and any other documents required by the
letter of transmittal will be deposited by the eligible institution with
the exchange agent; and

- the exchange agent receives the certificates for all physically tendered
old notes, in proper form for transfer, or a book-entry confirmation, as
the case may be, and all other documents required by the letter of
transmittal, within three New York Stock Exchange trading days after the
date of execution of the notice of guaranteed delivery.

WITHDRAWAL RIGHTS

You may withdraw tenders of old notes at any time before the Expiration
Date.

For a withdrawal to be effective, you must send a written notice of
withdrawal to the exchange agent at one of the addresses set forth below under
"-- Exchange Agent." Any such notice of withdrawal must:

- specify the name of the person having tendered the old notes to be
withdrawn,

- identify the old notes to be withdrawn, including the principal amount of
such old notes, and

- if you have transmitted certificates for old notes, specify the name in
which such old notes are registered, if different from that of the
withdrawing holder.

If certificates for old notes have been delivered or otherwise identified
to the exchange agent, then, before the release of such certificates, the
withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an eligible institution unless such holder is an eligible
institution.

If old notes have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn old notes and
otherwise comply with the procedures of such facility.

We will determine all questions as to the validity, form and eligibility,
including time of receipt, of such notices. Our determination will be final and
binding on all parties.

Any old notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the exchange offer. Any old notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder without cost to such holder. In the case of old notes
tendered by book-entry transfer into the exchange agent's account at DTC
pursuant to the book-entry transfer procedures described above, such old notes
will be credited to an account maintained with DTC for the old notes. Any return
or credit will occur as soon as practicable after withdrawal, rejection of
tender or termination of the exchange offer. Properly withdrawn old notes may be
retendered by following one of the procedures described under "-- Procedures for
Tendering Old Notes" above at any time on or before the Expiration Date.

20
<PAGE> 20

CONDITIONS TO THE EXCHANGE OFFER

We are not required to accept for exchange, or to issue new notes in
exchange for, any old notes. We may terminate or amend the exchange offer if, at
any time before the acceptance of such old notes for exchange or the exchange of
the new notes for such old notes, we determine in our sole and absolute
discretion, that the exchange offer violates applicable law or any applicable
interpretation of the staff of the SEC.

EXCHANGE AGENT

The Bank of New York has been appointed as the exchange agent for the
exchange offer. All executed letters of transmittal should be directed to the
exchange agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this prospectus or of the
letter of transmittal and requests for notices of guaranteed delivery should be
directed to the exchange agent addressed as follows:

Delivery to: The Bank of New York, Exchange Agent

<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Delivery:
THE BANK OF NEW YORK THE BANK OF NEW YORK
101 Barclay Street, (7 East) 101 Barclay Street
New York, New York 10286 Corporate Trust Services Window
Attention: Jennifer Pedi Ground Level
Reorganization Section New York, New York 10286
Attention: Jennifer Pedi
Reorganization Section
</TABLE>

By Facsimile for Eligible Institutions:
(212) 815-6339

Confirm by Telephone:
(212) 815-6331

DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE IS NOT VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.

FEES AND EXPENSES

We will not pay any brokers, dealers or others soliciting acceptances of
the exchange offer.

We will pay the estimated cash expenses to be incurred in connection with
the exchange offer, which are estimated to total $105,000.

TRANSFER TAXES

Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes in connection with the exchange. However, holders who
instruct us to register new notes in the name of, or request that old notes not
tendered or not accepted in the exchange offer be returned to, a person other
than the registered tendering holder will be responsible for the paying of any
applicable transfer tax.

21
<PAGE> 21

HOLDERS, OTHER THAN AFFILIATES, MAY OFFER OR SELL THE NEW NOTES

Based on interpretations by the SEC staff, as set forth in no-action
letters issued to third parties, we believe that new notes issued in the
exchange offer for old notes may be offered for resale, resold or otherwise
transferred by the holders of such new notes, other than any such holder that is
an "affiliate" of AFLAC Incorporated within the meaning of Rule 405 under the
Securities Act. Such new notes may be offered for resale, resold or otherwise
transferred without compliance with the registration and prospectus delivery
requirements of the Securities Act, if:

- such new notes issued in the exchange offer are acquired in the ordinary
course of such holder's business, and

- such holders have no arrangement or understanding with any person to
participate in the distribution of such new notes issued in the exchange
offer.

Each holder, other than a broker-dealer, must acknowledge that it is not
engaged in, and does not intend to engage in, a distribution of new notes and
has no arrangement or understanding to participate in a distribution of new
notes.

However, we do not intend to request the SEC to consider, and the SEC has
not considered, the exchange offer in the context of a no-action letter. We
cannot guarantee that the SEC staff would make a similar determination with
respect to the exchange offer as in other circumstances.

If any holder is an "affiliate" of ours, as defined in Rule 405 under the
Securities Act, is engaged in or intends to engage in or has any arrangement or
understanding with respect to the distribution of the new notes to be acquired
pursuant to the exchange offer, such holder:

- could not rely on the applicable interpretations of the SEC staff, and

- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction.

Each broker-dealer that receives new notes for its own account in exchange
for old notes, where such old notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such new
notes. See "Plan of Distribution."

In addition, to comply with state securities laws, the new notes may not be
offered or sold in any state unless they have been registered or qualified for
sale in such state or an exemption from registration or qualification is
available and is complied with. The offer and sale of the new notes to
"qualified institutional buyers," as that term is defined under Rule 144A of the
Securities Act, is generally exempt from registration or qualification under the
state securities laws. We currently do not intend to register or qualify the
sale of the new notes in any state where an exemption from registration or
qualification is required and not available.

22
<PAGE> 22

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

The following analysis should be read in conjunction with the consolidated
financial statements of AFLAC Incorporated and the notes thereto and the other
financial data appearing elsewhere in this prospectus. The discussion and
analysis (1) for the quarter ended March 31, 1999 is extracted from our
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 and (2) for
the three year period ended December 31, 1998, is extracted from our Annual
Report on Form 10-K for the year ended December 31, 1998. In each case this
analysis does not give effect to subsequent events.

AFLAC Incorporated is the parent company of AFLAC. Our principal business
is supplemental health insurance, which is marketed and administered through
AFLAC. Most of AFLAC's policies are individually underwritten and marketed at
worksites through independent agents, with premiums paid by the employee. Our
operations in Japan and the United States service the two markets for our
insurance operations.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH
31, 1998.

Due to a corporate income tax rate reduction in Japan during 1999, the
statutory tax rate for AFLAC Japan declined from 41.7% to 36.2%. This tax rate
decline resulted in a reduction in our deferred income tax liability as of March
31, 1999, which increased net earnings by $67 million ($.25 per basic share and
$.24 per diluted share) in 1999. For additional information on the income tax
reduction, see Note 4 of the notes to the consolidated financial statements at
March 31, 1999.

Also, due to a corporate income tax rate reduction in Japan during 1998,
the statutory tax rate for AFLAC Japan declined from 45.3% to 41.7%. This tax
rate decline resulted in a reduction in our deferred income tax liability as of
March 31, 1998, which increased net earnings by $121 million ($.45 per basic
share and $.44 per diluted share) in 1998. For additional information on the
income tax reduction, see Note 4 of the notes to the consolidated financial
statements at March 31, 1999.

Another factor affecting net earnings was a policyholder protection fund
system mandated by the Japanese government during the first quarter of 1998. The
pretax charge for our obligation to the protection fund was $111 million ($65
million after tax, or $.24 per both basic and diluted shares). For further
information regarding this policyholder protection fund, see Note 5 of the notes
to the consolidated financial statements at March 31, 1999.

23
<PAGE> 23

The following table sets forth the results of operations by business
segment for the periods shown.

SUMMARY OF OPERATING RESULTS BY BUSINESS SEGMENT

<TABLE>
<CAPTION>
THREE MONTHS
PERCENTAGE CHANGE ENDED MARCH 31,
OVER PREVIOUS ---------------------
PERIOD 1999 1998
----------------- ------ ------
(IN MILLIONS, EXCEPT
FOR PER-SHARE
AMOUNTS)
<S> <C> <C> <C>
Operating earnings:
AFLAC Japan........................................... 26.2% $158 $125
AFLAC U.S............................................. 11.4 63 56
All other business segments........................... 1 --
---- ----
Total business segments....................... 22.3 222 181
Interest expense, non-insurance operations............ 2.4 (3) (3)
Corporate and eliminations............................ 16.5 (12) (13)
---- ----
Pretax operating earnings..................... 26.0 207 165
Income taxes.......................................... 23.8 75 61
---- ----
Operating earnings............................ 27.3 132 104
Non-operating items:
Deferred tax benefit from Japan tax rate reduction.... 67 121
Provision for the Japanese mandated policyholder
protection fund, net of tax........................ -- (65)
Realized investment gains (losses), net of tax........ (3) --
---- ----
Net earnings.................................. 21.9% $196 $160
==== ==== ====
Operating earnings per basic share...................... 28.2% $.50 $.39
Operating earnings per diluted share.................... 26.3 .48 .38
Net earnings per basic share............................ 23.3 .74 .60
Net earnings per diluted share.......................... 22.4 .71 .58
</TABLE>

The following discussion of earnings comparisons focuses on operating
earnings and excludes realized investment gains/losses, the charge for the
mandated policyholder protection fund, and the deferred income tax benefit from
the Japanese tax rate reductions. Operating earnings per share referred to in
the following discussion are based on the diluted number of average outstanding
shares.

Foreign Currency Translation. Due to the relative size of AFLAC Japan,
fluctuations in the yen/dollar exchange rate can have a significant effect on
our reported results. In years when the yen weakens, translating yen into
dollars causes fewer dollars to be reported. When the yen strengthens,
translating yen into dollars causes more dollars to be reported.

24
<PAGE> 24

The following table illustrates the effect of foreign currency translation
on our reported results by comparing those results as if foreign currency rates
had remained unchanged from the comparable period in the prior year.

SELECTED PERCENTAGE CHANGES FOR SUPPLEMENTAL CONSOLIDATED DATA*
THREE MONTHS ENDED MARCH 31, 1999

<TABLE>
<CAPTION>
INCLUDING EXCLUDING
CURRENCY CURRENCY
CHANGES CHANGES**
--------- ---------
<S> <C> <C>
Premium income.............................................. 17.4% 8.8%
Net investment income....................................... 14.8 8.1
Operating revenues.......................................... 16.8 8.6
Total benefits and expenses................................. 15.9 7.4
Operating earnings.......................................... 27.3 22.2
Operating earnings per share................................ 26.3 21.1
</TABLE>

- ---------------
* The numbers in this table are presented on an operating basis and therefore
exclude: the deferred income tax benefit from the tax rate reductions, the
charge for a mandated policyholder protection fund, and realized investment
gains and losses.

** Amounts excluding foreign currency changes were determined using the same
yen/dollar exchange rate for the current period as the comparable period in
the prior year.

The yen began to strengthen in relation to the dollar at the end of 1998
after several years of weakening. The average yen-to-dollar exchange rates were
116.58 and 128.09 for the three months ended March 31, 1999 and 1998,
respectively. The 9.9% strengthening of the yen in 1999 increased operating
earnings by approximately $.02 per share for the three months ended March 31,
1999. Operating earnings per share increased 26.3% to $.48 for the three-month
period ended March 31, 1999 compared with the same period in 1998.

Our primary financial objective is the growth of operating earnings per
share before the effect of foreign currency fluctuations. In 1996, we set this
objective at an annual growth rate of 15% to 17% through the year 2000. In 1998,
we raised our 1999 objective for growth in operating earnings per share to 20%
before the effect of currency translation.

If that objective is achieved, the following table shows the likely results
for operating earnings per share for the year 1999 when the estimated impact
from various foreign currency translations are included.

<TABLE>
<CAPTION>
ANNUAL
AVERAGE YEN ANNUAL OPERATING % GROWTH YEN IMPACT
EXCHANGE RATE DILUTED EPS OVER 1998 ON EPS
- --------------- ---------------- --------- ----------
<S> <C> <C> <C>
1999 @ 115.00 $2.00 28.2% $ .13
1999 @ 120.00 1.95 25.0 .08
1999 @ 125.00 1.91 22.4 .04
1999 @ 130.89* 1.87 19.9 --
1999 @ 135.00 1.84 17.9 (.03)
1999 @ 140.00 1.82 16.7 (.05)
1999 @ 145.00 1.79 14.7 (.08)
</TABLE>

- ---------------
* Actual exchange rate for the year ended December 31, 1998.

If the exchange rate as of March 31, 1999, would remain constant for the
remainder of 1999, the cumulative average rate would be approximately 119.56 and
the annual operating diluted earnings per share would approximate $1.96,
assuming our earnings objective is met.

25
<PAGE> 25

Profit Repatriation. AFLAC Japan repatriated profits to AFLAC U.S. of $154
million in 1998 and $347 million in 1997. The profit transfer in 1997 included
$125 million of a non-recurring nature. Since the first repatriation in 1989,
AFLAC Japan has repatriated $1.2 billion, which has enhanced our flexibility and
profitability. We expect to repatriate approximately 19 billion yen ($160
million using the March 31, 1999 exchange rate) from AFLAC Japan to AFLAC U.S.
in July 1999.

Share Repurchase Program. During the first quarter of 1999, we purchased
150,000 shares of our common stock. At the end of the first quarter of 1999, we
had approximately 7.2 million shares still available for purchase under current
repurchase authorizations. We have purchased 57.5 million shares (through March
31, 1999) since the inception of the share repurchase program. The difference in
percentage increases in net earnings and net earnings per share primarily
reflects the impact of the share repurchase program.

Income Taxes. Our combined U.S. and Japanese effective income tax rates on
operating earnings for the three months ended March 31, 1999 and 1998 were 36.4%
and 37.0%, respectively. Japanese income taxes on AFLAC Japan's operating
results, which were taxed at Japan's corporate income tax rate of 45.3% through
April 30, 1998, and 41.7% thereafter, accounted for most of our income tax
expense. The decline in the effective tax rate in 1999 resulted primarily from
the 1998 Japanese tax rate reduction.

Income tax expense for the first quarter of 1999 also includes
approximately $2 million of additional taxes from our recent income tax audit in
Japan. Excluding that amount the effective income tax rate on operating earnings
for the first quarter was 35.4%, the same as the rate for the full year 1998.

The 1999 reduction in the statutory tax rate in Japan, which is effective
April 1, 1999, will not significantly change our combined U.S./Japan effective
tax rate as it will largely shift income tax expense from Japan operations to
U.S. operations due to the U.S. foreign tax credit provisions. We expect our
effective income tax rate for financial statement purposes will be in the range
of 35% to 36% for the full year 1999.

Insurance Operations, AFLAC Japan

AFLAC Japan, a branch of AFLAC and the principal contributor to our
earnings, ranks number one in terms of premium income and profits among all
foreign life and non-life insurance companies operating in Japan. Among all life
insurance companies operating in Japan, AFLAC Japan ranks second in terms of
individual policies in force and 16th in assets.

26
<PAGE> 26

The following table presents a summary of AFLAC Japan's operating results.

AFLAC JAPAN
SUMMARY OF OPERATING RESULTS

<TABLE>
<CAPTION>
THREE-MONTH PERIOD
ENDED MARCH 31,
-------------------
1999 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
Premium income.............................................. $1,398 $1,181
Investment income........................................... 262 226
Other income................................................ -- 1
------ ------
Total revenues.................................... 1,660 1,408
------ ------
Benefits and claims......................................... 1,196 1,029
Operating expenses.......................................... 306 254
------ ------
Total benefits and expenses....................... 1,502 1,283
------ ------
Pretax operating earnings......................... $ 158 $ 125
====== ======
Percentage changes in dollars over previous period:
Premium income............................................ 18.4% .4%
Investment income......................................... 15.8 5.1
Total revenues............................................ 17.9 1.1
Pretax operating earnings................................. 26.2 (1.5)
Percentage changes in yen over previous period:
Premium income............................................ 7.8% 6.0%
Investment income......................................... 5.5 10.9
Total revenues............................................ 7.3 6.8
Pretax operating earnings................................. 15.0 3.9
Ratios to total revenues:
Benefits and claims....................................... 72.0% 73.1%
Operating expenses........................................ 18.5 18.0
Pretax operating earnings................................. 9.5 8.9
</TABLE>

AFLAC Japan Sales. The increase in premium income in yen was due to sales
of new policies and excellent policy persistency.

AFLAC Japan's new annualized premium sales were up sharply in the quarter,
rising 22.3% to 18.8 billion yen, or $161 million. These strong sales resulted
from the popularity of our latest product offering, Rider MAX, which has
broadened the appeal of our founding product, cancer life insurance. During the
quarter, we sold nearly 282,000 of these riders and about 50% of our cancer life
sales were with Rider MAX. Rider MAX accounted for approximately 40% of sales
during the first quarter.

New sales also benefitted from the timing of sales campaigns in advance of
a scheduled mid-year premium rate increase on new policy issues. All life
insurance companies are raising premium rates in 1999 to compensate for the low
level of investment yields. We anticipate that many of our insurance agencies
will aggressively market our policies before the new rates become effective.
Therefore, sales increases will likely be greater in the first half of the year
than in the second half of the year when the new premium rates take effect.
However, our new pricing assumptions will have virtually no impact on the cost
of Rider MAX and term life plans, and the premium increases to other lines of
business will be less than in previous years. As a result, we believe that the
rate increase in July of this year should be less disruptive to our future sales
results than previous rate increases.

27
<PAGE> 27

We continue to make strides toward increasing the breadth of our
distribution system. We are adding more individual agencies to complement our
large network of corporate agencies. The individual agencies will give us better
access to Japan's substantial market of small businesses and individual
customers. During the first quarter, we recruited about 360 new agencies. Our
objective is to recruit 3,000 new agencies for the full year and we expect our
recruiting to increase in the second quarter.

Although Japan's economy remains weak, we continue to believe it is one of
the best insurance markets in the world and one of great opportunities for
growth. We have set an objective for AFLAC Japan's sales to increase
approximately 10% to 15% for the year 1999 compared with 1998.

AFLAC Japan Investments. Over the last several years, Japan's weak economy
has produced an extremely challenging investment environment. Investment yields
available to us in the first quarter improved over the fourth quarter of last
year. However, they still remain at historically depressed levels. For instance,
the yield on a composite index of 20-year Japanese government bonds averaged
2.52% during the first quarter, compared with 4.10% in the first quarter of
1995. By purchasing reverse dual-currency bonds (bonds with yen principal and a
dollar coupon), we were able to invest in yen-denominated securities at an
average yield of 4.36% during the quarter. Including dollar-denominated
investments, our blended new money yield was 4.49% for the quarter. As of April
16, we had invested or committed to invest approximately 60% of our expected
1999 cash flow at an average yield of 4.69%. Not only do these yields compare
very favorably with the yield of Japanese government bonds, they also provide a
significant spread over our reserving assumptions for new business.

At the end of the first quarter, the yield on AFLAC Japan's debt securities
portfolio was 5.22%, compared with 5.24% at the end of 1998. The return on
average invested assets, net of investment expenses, was 5.01% for the quarter,
compared with 5.30% a year ago.

Investment income in yen increased 5.5% in 1999 compared with 10.9% in
1998. This is due to the effect of translating dollar-denominated investment
income into yen. The yen/dollar exchange rate was 128.09 yen to one U.S. dollar
for the first three months of 1998 compared with 116.58 for the first three
months of 1999.

AFLAC Japan -- Other. The operating expense ratio has increased slightly
due to investments in additional marketing programs including advertising and
direct response efforts. The benefits ratio has declined due to the mix of
business shifting to newer products that have a lower loss ratio than the
traditional cancer life insurance and also due to favorable claims experience on
cancer life insurance. Pretax operating earnings in yen increased 15.0% for the
three months ended March 31, 1999. This increase was largely due to the lower
loss ratio during the quarter.

28
<PAGE> 28

Insurance Operations, AFLAC U.S.

The following table presents a summary of AFLAC U.S. operating results.

AFLAC U.S.
SUMMARY OF OPERATING RESULTS

<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED
MARCH 31,
---------------
1999 1998
---- ----
(IN MILLIONS)
<S> <C> <C>
Premium income.............................................. $330 $289
Investment income........................................... 58 51
Other income................................................ -- 3
---- ----
Total revenues.................................... 388 343
---- ----
Benefits and claims......................................... 205 183
Operating expenses.......................................... 120 104
---- ----
Total benefits and expenses....................... 325 287
---- ----
Pretax operating earnings......................... $ 63 $ 56
==== ====
Percentage increases over previous period:
Premium income............................................ 13.9% 12.7%
Investment income......................................... 12.8 44.1
Total revenues............................................ 13.3 17.1
Pretax operating earnings................................. 11.4 50.3
Ratios to total revenues:
Benefits and claims....................................... 52.8% 53.4%
Operating expenses........................................ 31.1 30.2
Pretax operating earnings................................. 16.1 16.4
</TABLE>

AFLAC U.S. Sales. New annualized premium sales in the United States
continued to grow at a rapid pace. New sales topped $100 million for the seventh
consecutive quarter, rising 15.8% to $125 million. Accident/disability insurance
was once again our best selling product. However, sales of our founding product,
cancer expense insurance, were extremely robust. Cancer expense sales rose 28.5%
for the quarter.

In addition to strong sales growth, we continue to see increased use of our
electronic sales system, SmartApp. In the first quarter, we processed more than
60% of our new business electronically. With savings from innovative work
processes like SmartApp, we have increased our commitment to our national
television advertising. We believe that growing name recognition through
advertising is one of the factors that has contributed to our strong sales
growth and expanding distribution system. We have set an objective for AFLAC
U.S. sales to increase by 12% to 15% for the year 1999.

AFLAC U.S. Investments. Investment income increased 12.8% in the first
three months of 1999 compared with 44.1% in the same period of 1998. The large
increase in 1998 is the result of investment income received from investment of
the proceeds from the sale of the television business in the second quarter of
1997 and from investment of profit repatriation funds of $347 million in 1997
which included $125 million of a non-recurring nature. During the first quarter
of 1999, available cash flow was invested at an average yield-to-maturity of
8.08% compared with 7.47% during the first quarter of 1998. The overall return
on average invested assets, net of investment expenses, was 7.52% for the first
three months of 1999 compared with 7.37% for the first quarter of 1998.

29
<PAGE> 29

AFLAC U.S. Other. Management expects the operating expense ratio,
including discretionary television advertising expenses, to remain approximately
level in the future. By improving administrative systems and controlling other
costs, we have been able to redirect funds to national television advertising
programs without significantly affecting the operating expense ratio.

The aggregate benefit ratio has tended to decline slightly. The mix of
business has shifted toward accident and hospital indemnity policies, which have
lower benefit ratios than other products. We expect future benefit ratios for
some of our supplemental products to increase slightly due to our ongoing
efforts to improve policy persistency and enhance policyholder benefits.
Management expects the pretax operating profit margin, which was 16.2% for the
year 1998, to remain approximately the same in 1999.

Financial Accounting Standards Board Statements

For information regarding new Statements of Financial Accounting Standards
see Note 2 of the notes to the consolidated financial statements at March 31,
1999.

YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEARS ENDED DECEMBER 31, 1997
AND DECEMBER 31, 1996.

We paid a two-for-one stock split on June 8, 1998. All share and per-share
amounts in this report have been restated for this split.

Three significant items affected our net earnings during the three-year
period ended December 31, 1998.

First, due to a corporate income tax rate reduction in Japan during 1998,
the statutory tax rate for AFLAC Japan declined from 45.3% to 41.7%. This tax
rate decline resulted in a reduction in our deferred income tax liability as of
March 31, 1998, which increased net earnings by $121 million ($.46 per basic
share and $.44 per diluted share) in 1998. For additional information on the
income tax reduction, see Note 8 of the notes to the consolidated financial
statements at December 31, 1998.

The second factor affecting net earnings was a policyholder protection fund
system mandated by the Japanese government during the first quarter of 1998. The
pretax charge for our obligation to the new protection fund was $111 million
($65 million after tax, or $.24 per both basic and diluted shares). For further
information regarding this policyholder protection fund, see Note 2 of the notes
to the consolidated financial statements at December 31, 1998.

Also affecting net earnings was the sale of our television business, which
consisted of seven network-affiliated stations. The total pretax gain from the
sale was $327 million. The sale of one station closed on December 31, 1996. The
pretax and after-tax gains recognized in 1996 on this sale were $60 million and
$48 million, respectively. The effect of the after-tax gain on 1996 basic and
diluted net earnings per share was $.17 and $.16, respectively. The pretax and
after-tax gains recognized during the second quarter of 1997 on the closing of
the six remaining stations were $267 million and $211 million, respectively. The
effect of the after-tax gain on 1997 basic and diluted net earnings per share
was $.77 and $.75, respectively. For further information, see Note 2 of the
notes to the consolidated financial statements at December 31, 1998.

30
<PAGE> 30

The results of operations by business segment for the three-year period
ended December 31, 1998, were as follows:

SUMMARY OF OPERATING RESULTS BY BUSINESS SEGMENT

<TABLE>
<CAPTION>
PERCENTAGE
CHANGE OVER YEARS ENDED
PREVIOUS YEAR DECEMBER 31,
------------- -----------------------------
1998 1997 1998 1997 1996
----- ---- ------- ------- -------
(IN MILLIONS, EXCEPT FOR PER
SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operating earnings:
AFLAC Japan.................................... (.4)% (5.4)% $ 502 $ 504 $ 533
AFLAC U.S...................................... 24.9 43.4 230 184 129
Television operations.......................... -- 4 26
All other business segments.................... 2 (2) (8)
----- ----- -----
Total business segments................... 6.3 1.4 734 690 680
Interest expense, non-insurance operations..... 1.2 16.7 (10) (10) (13)
Corporate and eliminations..................... 23.4 4.9 (60) (77) (79)
----- ----- -----
Pretax operating earnings................. 10.1 2.6 664 603 588
Income taxes................................... 2.8 (4.9) 235 229 241
----- ----- -----
Operating earnings........................ 14.6 7.8 429 374 347
Non-operating items:
Deferred tax benefit from Japanese tax rate
reduction.................................... 121 -- --
Provision for the Japanese mandated
policyholder protection fund, net of tax..... (65) -- --
Gain on sale of television business, net of
tax.......................................... -- 211 48
Realized investment gains (losses), net of
tax.......................................... 2 -- (1)
----- ----- -----
Net earnings.............................. (16.8)% 48.3% $ 487 $ 585 $ 394
===== ==== ===== ===== =====
Operating earnings per basic share.................. 16.7% 11.3% $1.61 $1.38 $1.24
Operating earnings per diluted share................ 17.3 10.8 1.56 1.33 1.20
Net earnings per basic share........................ (14.9) 52.5 1.83 2.15 1.41
Net earnings per diluted share...................... (15.4) 52.9 1.76 2.08 1.36
</TABLE>

The following discussion of earnings comparisons focuses on pretax
operating earnings and excludes realized investment gains/losses, the charge for
the mandated policyholder protection fund, the benefit of the Japanese tax rate
reduction and the gains from the sale of the television business. Operating
earnings per share referred to in the following discussion are based on the
diluted number of average outstanding shares.

Throughout 1996, 1997 and most of 1998, the yen weakened in relation to the
dollar. The average yen-to-dollar exchange rates were 130.89 in 1998, 121.07 in
1997 and 108.84 in 1996. The weakening of the yen during the three-year period
lowered operating earnings by $.05 per share in 1998 compared with 1997, $.09
per share in 1997 compared with 1996 and $.15 per share in 1996 compared with
1995. Despite the weakening of the yen, operating earnings per share increased
17.3% to $1.56 in 1998, 10.8% to $1.33 in 1997 and 2.6% to $1.20 in 1996.

31
<PAGE> 31

The following table illustrates the effect of foreign currency translation
by comparing our reported results with pro forma results as if foreign currency
rates had remained unchanged from the previous year.

SELECTED PERCENTAGE CHANGES FOR SUPPLEMENTAL CONSOLIDATED DATA*

<TABLE>
<CAPTION>
INCLUDING FOREIGN EXCLUDING FOREIGN
CURRENCY CHANGES CURRENCY CHANGES**
-------------------- --------------------
YEARS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Premium income...................... 1.2% (.6)% (2.6)% 7.7% 8.5% 10.1%
Net investment income............... 5.6 5.5 (.3) 11.1 14.0 11.9
Total revenues...................... 1.7 (.7) (2.1) 8.0 8.2 10.4
Total benefits and expenses......... .9 (1.0) (2.1) 7.4 8.0 10.5
Operating earnings.................. 14.6 7.8 (.4) 18.6 15.2 11.5
Operating earnings per share........ 17.3 10.8 2.6 21.1 18.3 15.4
</TABLE>

- ---------------
* The amounts in this table are presented on an operating basis.

** Amounts excluding foreign currency changes were determined using the same
yen/dollar exchange rate for the current year as each respective prior year.

The increases in operating earnings per share reflected earnings
contributions in the functional currencies of our core insurance operations in
Japan and the United States, our share repurchase program and in 1998 lower
income tax expense due to the tax rate reduction in Japan.

Our primary financial objective is the growth of operating earnings per
share before the effect of foreign currency translations. In 1996, we set this
objective at an annual growth rate of 15% to 17% through the year 2000. In early
1998, we increased our goal for 1998 to 20% growth, which we exceeded. Excluding
the effect of currency fluctuations, operating earnings per share increased
21.1% in 1998, 18.3% in 1997 and 15.4% in 1996.

In April 1998, we raised our 1999 objective for growth in operating
earnings per share to 20% excluding the impact of currency translation. If that
objective is achieved, the following table shows the likely results for
operating earnings per share in 1999 when the impact from various foreign
currency translations is included.

<TABLE>
<CAPTION>
ANNUAL
ANNUAL AVERAGE YEN OPERATING % GROWTH YEN IMPACT
EXCHANGE RATE DILUTED EPS OVER 1998 ON EPS
- ------------------ ----------- --------- ----------
<S> <C> <C> <C>
1999 @ 115.00 $1.98 26.9% $ .11
1999 @ 120.00 1.94 24.4 .07
1999 @ 125.00 1.91 22.4 .04
1999 @ 130.89* 1.87 19.9 --
1999 @ 135.00 1.85 18.6 (.02)
1999 @ 140.00 1.82 16.7 (.05)
1999 @ 145.00 1.80 15.4 (.07)
</TABLE>

- ---------------
* Actual 1998 average exchange rate.

Profit Repatriation. Repatriated profits represent a portion of the
after-tax earnings reported to the Japanese Financial Supervisory Agency ("FSA")
as of March 31 each year. Such regulatory basis earnings are determined using
accounting principles that differ materially from U.S. generally accepted
accounting principles. The differences relate primarily to the valuation of
investments, policy benefit and claim reserves, acquisition costs and deferred
income taxes. Japanese regulatory earnings

32
<PAGE> 32

and related profit repatriations may therefore vary materially from year to year
because of these differences.

AFLAC Japan repatriated profits to AFLAC U.S. of $154 million in 1998, $347
million in 1997 and $217 million in 1996. The profit transfer in 1997 included
$125 million of a non-recurring nature. Since the first repatriation in 1989,
AFLAC Japan has repatriated $1.2 billion, which has enhanced our flexibility and
profitability. We estimate that cumulative profit transfers from 1992 through
1998 have benefited consolidated net earnings by $57 million in 1998, $41
million in 1997 and $26 million in 1996.

We expect that the 1999 profit repatriation will be approximately 20
billion yen ($171 million using the December 31, 1998 exchange rate). In 1999, a
substantial portion of profit repatriation will be used for debt service.

Share Repurchase Program. The shares purchased under the share repurchase
program were financed with bank borrowings and available cash. Interest expense
related to the share repurchase program was $10 million in 1998 and $9 million
in both 1997 and 1996. Consolidated interest expense, including interest expense
from insurance operations, was $13 million in 1998, $14 million in 1997 and $16
million in 1996.

The difference between the percentage changes in net earnings and net
earnings per share primarily reflects the impact of the share repurchase
program. As of December 31, 1998, we had approximately 7.4 million shares still
available for purchase under current repurchase authorizations from the board of
directors.

Income Taxes. Effective January 1, 1998, the Japanese government changed
the income tax provisions for foreign companies operating in Japan, increasing
income taxes on investment income and realized gains/losses from securities
issued by entities located in their home country. This change increased Japanese
income taxes on the income from most of AFLAC Japan's dollar-denominated
securities. In addition, in March 1998, the Japanese government enacted a
reduction in the Japanese corporate income tax rate. The statutory rate for
AFLAC Japan declined from 45.3% to 41.7% beginning May 1, 1998. The net effect
of these two Japanese tax changes increased income tax expense on consolidated
operating earnings by approximately $10 million for the year ended December 31,
1998 (an increase of approximately $22 million from increased taxes on AFLAC
Japan's dollar-denominated investment income, less approximately $12 million
from the benefit of the statutory tax rate reduction).

Our combined U.S. and Japanese effective income tax rates on operating
earnings were 35.4% in 1998, 37.9% in 1997 and 40.9% in 1996. Japanese income
taxes on AFLAC Japan's operating results, which were taxed at Japan's corporate
income tax rate of 45.3% through April 30, 1998, and 41.7% thereafter, accounted
for most of our income tax expense. The decline in the effective tax rates in
1998 and 1997 resulted primarily from: the weakening of the yen; increased
contributions in earnings from the U.S. business segment; and, in 1998, the
Japanese tax rate reduction less the effect of increased taxes on AFLAC Japan's
dollar-denominated investment income.

The most recent Japanese economic stimulus package announced in late 1998,
but not yet enacted, included proposals to further reduce the Japanese statutory
corporate income tax rate. Under the proposals being discussed, AFLAC Japan's
statutory income tax rate would be reduced to 36.2% effective April 1, 1999. We
expect the proposals to be finalized in early 1999. If the Japanese income tax
rate decreases, we expect our combined effective income tax rate to remain
relatively unchanged in 1999. For further information on the Japanese corporate
income tax rate, see Note 8 of the notes to the consolidated financial
statements at December 31, 1998.

33
<PAGE> 33

Insurance Operations, AFLAC Japan

AFLAC Japan is a branch of AFLAC and the principal contributor to our
earnings. AFLAC Japan ranks number one in terms of premium income and profits
among all foreign life and non-life insurance companies operating in Japan.
AFLAC Japan ranks second in terms of individual policies in force and 16th in
assets among all life insurance companies operating in Japan.

The transfer of profits from AFLAC Japan to AFLAC U.S. can distort
comparisons of operating results between years. Therefore, the following AFLAC
Japan summary of operations table presents investment income, total revenues and
pretax operating earnings calculated on a pro forma basis in order to improve
comparability between years. The pro forma adjustment represents cumulative
investment income foregone by AFLAC Japan on funds transferred to AFLAC U.S.
during 1992 through 1998.

AFLAC JAPAN
SUMMARY OF OPERATING RESULTS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Premium income........................................... $4,738 $4,803 $4,952
Investment income, as adjusted*.......................... 966 929 920
Other income............................................. 1 1 2
------ ------ ------
Total revenues, as adjusted*........................ 5,705 5,733 5,874
------ ------ ------
Benefits and claims...................................... 4,119 4,156 4,294
Operating expenses....................................... 1,035 1,037 1,022
------ ------ ------
Total benefits and expenses......................... 5,154 5,193 5,316
------ ------ ------
Pretax operating earnings, as adjusted*............. 551 540 558
Investment income applicable to profit repatriations..... (49) (36) (25)
------ ------ ------
Pretax operating earnings........................... $ 502 $ 504 $ 533
====== ====== ======
Percentage changes in dollars over previous year:
Premium income...................................... (1.4)% (3.0)% (4.7)%
Investment income*.................................. 4.0 .9 (2.2)
Total revenues*..................................... (.5) (2.4) (4.3)
Pretax operating earnings*.......................... 2.0 (3.2) (4.2)
Pretax operating earnings........................... (.4) (5.4) (5.1)
Percentage changes in yen over previous year:
Premium income...................................... 6.6 7.9 10.2
Investment income*.................................. 12.4 12.3 13.1
Total revenues*..................................... 7.6 8.6 10.7
Pretax operating earnings*.......................... 10.2 7.8 10.9
Pretax operating earnings........................... 7.6 5.4 9.8
Ratios to total revenues, as adjusted:*
Benefits and claims................................. 72.2 72.5 73.1
Operating expenses.................................. 18.1 18.1 17.4
Pretax operating earnings........................... 9.7 9.4 9.5
Ratio of pretax operating earnings to total reported
revenues............................................... 8.9 8.9 9.1
</TABLE>

- ---------------
* Adjusted investment income, total revenues and pretax operating earnings
include estimates of additional investment income of $49 million in 1998, $36
million in 1997 and $25 million in 1996 foregone due to profit repatriations.

Japanese Economy. Japan's economy has been weak for several years. The
economic downturn has spread to several Asian countries since mid-1997. The
financial strength of many Japanese financial institutions has deteriorated and
some have experienced bankruptcy. As we have indicated in the past, the weak
economy in Japan has resulted in a difficult marketing environment for AFLAC
Japan, declining available investment yields for new investments and decreased
consumer confidence.

34
<PAGE> 34

Although the Japanese government has developed various economic stimulus
packages, the time required for the Japanese economy to recover remains
uncertain.

AFLAC Japan Sales. AFLAC Japan produced strong sales results in 1998,
despite the weak Japanese economy. New annualized premiums from sales were: $575
million in 1998, up 11.5%; $515 million in 1997, down 28.5%; and $721 million in
1996, down 4.8%. New annualized premiums from sales in yen were: 74.9 billion
yen in 1998, up 20.1%; 62.4 billion yen in 1997, down 20.4%; and 78.4 billion
yen in 1996, up 10.0%.

AFLAC Japan's new policy sales in yen during 1998 approached their 1996
level. In 1997, new policy sales were adversely affected by a premium rate
increase that AFLAC and the insurance industry implemented in the fourth quarter
of 1996 as well as the decline of consumer confidence in the life insurance
industry following the April 1997 collapse of Nissan Mutual Life Insurance
Company.

We have taken several actions to help mitigate the impact of the weak sales
environment in Japan. Our newest product, "Rider MAX," has become one of our
most successful in a very short period of time. This product provides accident
and medical/sickness benefits as a rider to our cancer life policy. We also
introduced a new economy cancer life policy in January 1997. This plan, which
has lower premium rates and benefit levels, was developed to combat the impact
of increased premium rates for new issues. In addition, AFLAC Japan increased
the use of direct-mail marketing for its products as a supplemental distribution
method.

In 1998, we purchased a small Japanese insurance agency. Its main functions
will be policyholder-related services and direct marketing programs for AFLAC
Japan.

We continue to invest in marketing to improve sales. The incentive pay
system for AFLAC Japan's employed sales managers was revised in 1997 to better
reward them for improved sales performance. We made additional expenditures in
late 1997 and during 1998 for expanded sales promotion efforts in Japan. In
addition, we will continue our popular television advertising program. We have
also publicized our financial strength ratings in Japan and are recruiting more
individual agencies. In 1998, we recruited approximately 2,200 new agencies,
most of which are individual agencies, compared with fewer than 700 in 1997. Our
goal is to recruit 3,000 new agencies in 1999.

AFLAC Japan's sales mix is changing, although cancer life still accounts
for the majority of insurance in force. Cancer life sales accounted for 49.4% of
total new sales in yen in 1998, 52.5% in 1997 and 46.7% in 1996. We sold more
than 948,000 riders of Rider MAX in 1998, which was its first year of
availability. This product accounted for 33.2% of our sales for the year, and
39.9% of our cancer life policies were sold with Rider MAX. The rider we
introduced in the fourth quarter of 1995, living benefit life, accounted for
7.2% of total new sales in 1998, 28.3% in 1997 and 39.5% in 1996. Care product
sales represented 3.7% of total new sales in 1998, 6.8% in 1997 and 10.6% in
1996.

In September 1997, the Japanese government increased the copayments for the
employer-sponsored health care program from 10% to 20% for the primary insured,
thereby increasing the portion of the costs the insured must pay. Given the
increase in copayments, we believe our products and riders that provide
supplemental medical benefits will be especially appealing to consumers.

Our objectives for 1999 are to increase sales in yen by 10% to 15% compared
with 1998 and to improve the profit margin. We also expect revenues in yen to
increase 6% to 6.5% and our strong policy persistency to continue.

AFLAC Japan Investments. Investment income is affected by available cash
flow from operations, investment yields achievable on new investments and
foreign currency exchange rates. Investment income in dollars in 1998 and 1997
was affected by the weaker yen. Despite a general

35
<PAGE> 35

decline in available investment yields, investment income in yen increased 11.0%
in both 1998 and 1997. Funds available for investment during the three-year
period 1996 through 1998 were reduced by the annual profit repatriations
previously discussed. Rates of return on debt securities in Japan remained low
in 1998. For instance, the yield on 20-year Japanese government bonds, as
measured by a composite index, fluctuated to a low of 1.16% in October 1998 and
closed 1998 at a high of 2.97%.

AFLAC Japan's new money rates for investments in debt securities (including
dollar-denominated) were 4.19% for 1998, 5.20% for 1997 and 4.07% for 1996. The
improvement in AFLAC Japan's new money yield in 1997 resulted from restructuring
portions of the existing dollar-denominated investment portfolio and a greater
allocation of cash flow to private placement securities, which included
dual-currency securities (yen-denominated bonds with a dollar coupon) and
perpetual debentures. However, the overall rate of return (net of investment
expenses) on AFLAC Japan's average investments and cash at amortized cost has
declined. These returns, which were 5.26% in 1998, 5.37% in 1997 and 5.55% in
1996, reflect the cumulative effect of lower investment yields available in
Japan since the early 1990's.

By concentrating on selected sectors of the bond market, AFLAC Japan has
secured higher yields than 20-year Japanese government bonds would have provided
while still adhering to conservative standards for credit quality. We believe
that we can invest new money in the near term at an adequate spread over policy
premium pricing assumptions for new business and assumed interest rates for
policy liabilities. The premium rate increases recently implemented have a
positive impact on investment margins and therefore should contribute to
stability in the pretax operating profit margin.

Insurance Deregulation in Japan. In December 1996, the governments of the
United States and Japan reached an agreement on deregulation of the Japanese
insurance industry. The agreement calls for the gradual liberalization of the
industry through the year 2001 and includes provisions to avoid "radical change"
in the third sector of the insurance industry, which includes our supplemental
insurance products. AFLAC and other foreign-owned insurers, as well as some
small to medium-sized Japanese insurers, operate primarily in the third sector.
One of the measures for avoiding radical change in the third sector is the
prohibition of additional Japanese life and non-life insurance companies from
selling cancer or medical insurance until January 1, 2001. AFLAC has inherent
competitive advantages through its distribution, products, administrative
efficiency and financial soundness that should enable it to grow even in a more
competitive environment. However, the ultimate impact of deregulation isn't
known.

AFLAC Japan -- Other. The percentage increases in premium income reflect
the growth of premiums in force. The increases in annualized premiums in force
in yen of 7.2% in 1998, 5.2% in 1997 and 12.2% in 1996 reflect the high
persistency of AFLAC Japan's business and the sales of new policies. Annualized
premiums in force were: 640.8 billion yen ($5.5 billion) at December 31, 1998;
597.8 billion yen ($4.6 billion) at December 31, 1997; and 568.1 billion yen
($4.9 billion) at December 31, 1996.

The slight decline of the benefit ratio during the three-year period ended
December 31, 1998, is primarily attributable to newer products that have
somewhat lower loss ratios than the cancer life plan. Annual claims experience
and persistency studies continue to support the current reserving assumptions.

Even with Japan's depressed economic conditions, we believe the market for
supplemental insurance remains bright. The need for our products in Japan has
continued, and we remain optimistic about increasing penetration within existing
groups, selling new products, opening new accounts and developing additional
supplemental products for the Japanese market.

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<PAGE> 36

Insurance Operations, AFLAC U.S.

AFLAC U.S. pretax operating earnings continued to benefit from additional
investment income earned on profit transfers received from AFLAC Japan.
Estimated investment income earned from profits transferred to and retained by
AFLAC U.S. from 1992 through 1998, along with estimated investment income earned
from the sales proceeds of the television business, have been reclassified in
the following presentation in order to improve comparability between years.

AFLAC U.S.
SUMMARY OF OPERATING RESULTS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Premium income........................................... $1,198 $1,062 $ 946
Investment income, as adjusted*.......................... 112 104 86
Other income............................................. 4 1 2
------ ------ ------
Total revenues, as adjusted*........................ 1,314 1,167 1,034
------ ------ ------
Benefits and claims...................................... 749 667 591
Operating expenses....................................... 439 392 347
------ ------ ------
Total benefits and expenses......................... 1,188 1,059 938
------ ------ ------
Pretax operating earnings, as adjusted*............. 126 108 96
Investment income applicable to profit repatriations and
proceeds from the sale of the television business...... 104 76 33
------ ------ ------
Pretax operating earnings........................... $ 230 $ 184 $ 129
====== ====== ======
Percentage increases over previous year:
Premium income...................................... 12.8% 12.2% 10.0%
Investment income*.................................. 7.8 20.3 10.2
Total revenues*..................................... 12.6 12.9 10.0
Pretax operating earnings*.......................... 16.1 13.2 15.0
Pretax operating earnings........................... 24.9 43.4 23.0
Ratios to total revenues, as adjusted:*
Benefits and claims................................. 57.0 57.1 57.1
Operating expenses.................................. 33.4 33.6 33.6
Pretax operating earnings........................... 9.6 9.3 9.3
Ratio of pretax operating earnings to total reported
revenues............................................... 16.2 14.8 12.1
</TABLE>

- ---------------
* Excludes estimated investment income of $104 million in 1998 and $76 million
in 1997 related to investment of profit repatriation funds retained by AFLAC
U.S. and investment of the proceeds from the sale of the television business,
and $33 million in 1996 related to investment of profit repatriation funds
retained by AFLAC U.S.

AFLAC U.S. Sales. The percentage increases in premium income reflect the
growth of premiums in force. The increases in annualized premiums in force of
14.6% in 1998, 14.7% in 1997 and 11.1% in 1996 were favorably affected by
increased sales at the worksite primarily through cafeteria plans (Internal
Revenue Code Section 125) and an improvement in the persistency of several
products. Annualized premiums in force were: $1.4 billion at December 31, 1998;
$1.2 billion at December 31, 1997; and $1.1 billion at December 31, 1996.

New annualized premiums from sales and policy conversions were: $482
million in 1998, up 20.3%; $401 million in 1997, up 22.7%; and $327 million in
1996, up 17.0%. Accident/disability coverage was the best-selling product for
the fifth year in a row, accounting for more than 56% of new sales in 1998, 54%
of new sales in 1997 and 48% of new sales in 1996. Cancer expense insurance

37
<PAGE> 37

accounted for more than 25% of new sales in 1998, 24% of new sales in 1997 and
27% of new sales in 1996.

AFLAC U.S. -- Other. We expect the operating expense ratio, excluding
discretionary advertising expenses, to decline in the future due to continued
improvements in operating efficiencies. State-of-the-art technology is one way
we can control expense growth, and SmartApp is a good example. SmartApp is a
laptop-based, point-of-sale system we developed in the early 1990s. Our sales
associates use this system to input customer information, capture the customer's
signature and electronically transmit the application to headquarters. In some
cases, the policy can be "jet-issued," which requires no human intervention. In
1998, we processed approximately 58% of our business with SmartApp, and about
44% of those policies were jet-issued. Our goal for 1999 is to produce 70% of
our business via SmartApp. By improving administrative systems and controlling
other costs, we have been able to redirect funds to national advertising
programs without significantly affecting the operating expense ratio.

The aggregate benefit ratio has been relatively stable. The mix of business
has shifted towards accident and hospital indemnity policies, which have lower
benefit ratios than other products. We expect future benefit ratios for some of
our supplemental products to increase slightly due to our ongoing efforts to
improve policy persistency and enhance policyholder benefits.

We expect the pretax operating profit margin to remain approximately the
same in 1999.

We continue to believe that there are significant opportunities to market
high-quality, affordable supplemental insurance products in the U.S.
marketplace.

Other Operations

Corporate operating expenses consist primarily of overhead expenses such as
salary costs, provisions for retirement and litigation expenses and professional
fees. Corporate expenses have fluctuated in recent years primarily due to
changes in the legal environment in certain states and to enhanced benefits,
early retirements and revisions in actuarial assumptions for retirement
accruals.

On December 31, 1998, we sold our insurance operation in Taiwan, resulting
in a nominal gain.

Financial Accounting Standards Board Statements

For information regarding new Statements of Financial Accounting Standards,
see Note 1 of the notes to the consolidated financial statements at December 31,
1998.

ANALYSIS OF FINANCIAL CONDITION

THREE MONTHS ENDED MARCH 31, 1999.

Since December 31, 1998, our financial condition has remained strong in the
functional currencies of our operations. The investment portfolios of AFLAC
Japan and AFLAC U.S. have continued to grow and primarily consist of investment
grade securities.

Due to the significance of yen-denominated items in the balance sheet,
changes in the yen/dollar exchange rate can have a significant effect on our
financial statements. The yen/dollar exchange rate at the end of each period is
used to translate yen-denominated balance sheet items to U.S. dollars for
reporting purposes. The exchange rate at March 31, 1999, was 120.55 yen to one
U.S. dollar, 4.0% weaker than the exchange rate of 115.70 as of December 31,
1998. Management estimates that the weaker yen rate decreased reported
investments and cash by $932 million, total assets by $1.1 billion, and total
liabilities by $1.0 billion compared with the amounts that would have been
reported for 1999 if the exchange rate had remained unchanged from year-end
1998.

38
<PAGE> 38

Investments and Cash. The continued growth in investments and cash
reflects the substantial cash flows in the functional currencies of our
operations. Net unrealized gains of $1.7 billion on investment securities at
March 31, 1999, consisted of $2.5 billion in gross unrealized gains and $818
million in gross unrealized losses.

AFLAC invests primarily within the Japanese, U.S. and Euroyen
fixed-maturity markets. We use specific criteria to judge the credit quality and
liquidity of our investments and use a variety of credit rating services to
monitor these criteria. Applying those various credit ratings to a standardized
rating system based on the categories of a nationally recognized rating service,
the percentages of our debt securities, at amortized cost, were as follows:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
AAA................................................ 36.3% 38.1%
AA................................................. 18.3 17.6
A.................................................. 30.8 31.2
BBB................................................ 12.8 13.1
BB................................................. 1.8 --
----- -----
100.0% 100.0%
===== =====
</TABLE>

As of December 31, 1998, we held no debt securities rated below "BBB."
However, in January 1999, the credit ratings of several major Japanese financial
institutions were downgraded. We owned debt securities issued by a major
Japanese bank in the amount of $436 million, or 1.8% of total debt securities at
March 31, 1999. Following the downgrade, these securities were rated "Ba1" by
Moody's and "BB+" by Standard & Poor's.

Private placement investments accounted for 46.5% and 43.9% of our total
debt securities as of March 31, 1999 and December 31, 1998, respectively. AFLAC
Japan has made investments in the private placement market to secure higher
yields than those available from Japanese government bonds. At the same time, we
have adhered to historically conservative standards for credit quality. We
require that all private placement issuers have an initial rating of Class 1 or
2 as determined by the Securities Valuation Office of the National Association
of Insurance Commissioners ("NAIC"). Most of AFLAC's private placement issues
are issued under medium-term note programs and have standard covenants
commensurate with credit rankings, except when internal credit analysis
indicates that additional protective and/or event-risk covenants are required.

During the fourth quarter of 1998, we revised our investment management
policy regarding the holding-period intent for certain of our private placement
debt securities. Our past practice was to hold these securities to their
contractual or economic maturity dates. We have now made this our formal policy.
Accordingly, debt securities carried at a fair value of $6.4 billion were
reclassified as of October 1, 1998, from the category "available of sale" to
"held to maturity." The related unrealized gains of $1.1 billion as of October
1, 1998, on these securities are being amortized over the remaining term of the
securities. Securities that are available for sale are reported in the balance
sheet at fair value and securities that are held to maturity are reported at
amortized cost.

39
<PAGE> 39

The following table shows an analysis of investment securities (at cost or
amortized cost):

<TABLE>
<CAPTION>
AFLAC JAPAN AFLAC U.S.
------------------------ ------------------------
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1999 1998 1999 1998
--------- ------------ --------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Available for sale:
Fixed-maturity securities...................... $12,950 $12,886 $2,829 $2,772
Perpetual debentures........................... 1,710 1,344 116 111
Equity securities.............................. 28 22 74 79
------- ------- ------ ------
Total available for sale............... 14,688 14,252 3,019 2,962
------- ------- ------ ------
Held to maturity:
Fixed-maturity securities...................... 3,803 3,947 -- --
Perpetual debentures........................... 3,344 3,494 -- --
------- ------- ------ ------
Total held to maturity................. 7,147 7,441 -- --
------- ------- ------ ------
Total.................................. $21,835 $21,693 $3,019 $2,962
======= ======= ====== ======
</TABLE>

Policy Liabilities. Policy liabilities decreased $58 million, or .2%,
during the first three months of 1999. AFLAC Japan decreased $126 million, or
.6% (3.6% increase in yen), and AFLAC U.S. increased $68 million, or 3.2%.
Changes in policy liabilities were primarily due to the addition of new
business, the aging of policies in force, the weaker yen and the effect of the
market value adjustment for securities available for sale (see Note 7 of the
notes to the consolidated financial statements at March 31, 1999). The weaker
yen at March 31, 1999 compared with December 31, 1998 decreased reported policy
liabilities by $915 million.

Debt. On April 21, 1999, we issued $450 million of senior notes with a
6.50% coupon, paid semiannually, due April 15, 2009. The notes are redeemable at
our option and at any time at a redemption price equal to the principal amount
of the notes being redeemed plus a make-whole amount.

We received net proceeds of $445 million. We intend to use the proceeds
primarily to purchase shares of our common stock. Any remaining proceeds may be
used to repay indebtedness or for general corporate purposes. We intend to swap
the dollar-denominated principal and interest to be yen-denominated.

See Note 6 of the notes to the consolidated financial statements at March
31, 1999 for information on other debt outstanding at March 31, 1999.

Our ratio of debt to total capitalization (debt plus shareholders' equity,
excluding the unrealized gains on investment securities) was 18.0% and 19.6% as
of March 31, 1999 and December 31, 1998, respectively.

Security Lending. AFLAC Japan uses short-term security lending
arrangements to increase investment income with minimal risk. This program
increased AFLAC Japan's investment income by approximately $.3 million for the
three months ended March 31, 1999 and by approximately $1 million for the year
1998. For further information regarding such arrangements, see Note 8 of the
notes to the consolidated financial statements at March 31, 1999.

Policyholder Guaranty Funds. Under insurance guaranty fund laws in most
U.S. states, insurance companies doing business in those states can be assessed
for policyholder losses up to prescribed limits that are incurred by insolvent
companies with similar lines of business. Such assessments have not been
material to us in the past. We believe that future assessments relating to
companies in the U.S. currently involved in insolvency proceedings will not
materially impact the consolidated financial statements.

40
<PAGE> 40

The Life Insurance Association of Japan, an industry organization,
implemented a voluntary policyholder protection fund in 1996 to provide capital
support to insolvent life insurers. AFLAC Japan pledged investment securities to
the Life Insurance Association of Japan for this program. During the first
quarter of 1998, the Japanese government enacted a mandatory policyholder
protection fund system. The life insurance industry is making contributions to
these funds over a 10-year period. We have recorded a liability for our share of
these obligations.

Shareholders' Equity. Our insurance operations continue to provide the
primary sources of liquidity. Capital needs can also be supplemented by borrowed
funds. The principal sources of cash from insurance operations are premiums and
investment income. Primary uses of cash in the insurance operations are policy
claims, commissions, operating expenses, income taxes and payments to AFLAC
Incorporated for management fees and dividends. Both the sources and uses of
cash are reasonably predictable. Our investment objectives provide for liquidity
through the ownership of high-quality investment securities. AFLAC insurance
policies are generally not interest-sensitive and therefore are not subject to
unexpected policyholder redemptions due to investment yield changes. Also, the
majority of AFLAC policies provide indemnity benefits rather than reimbursement
for actual medical costs and therefore are not subject to the risks of medical
cost inflation.

The achievement of continued long-term growth will require growth in
AFLAC's statutory capital and surplus. We may secure additional statutory
capital through various sources, such as internally generated statutory earnings
or equity contributions by AFLAC Incorporated from funds generated through debt
or equity offerings. In April 1999 we received net proceeds of $445 million from
the issuance of $450 million of the senior notes which increased our capital
resources. We believe outside sources for additional debt and equity capital, if
needed, will continue to be available for capital expenditures, business
expansion, and the funding of our share repurchase program.

AFLAC Incorporated capital resources are largely dependent upon the ability
of AFLAC to pay management fees and dividends. The Georgia Insurance Department
imposes certain limitations and restrictions on payments of dividends,
management fees, loans and advances by AFLAC to AFLAC Incorporated. In addition
to restrictions by U.S. insurance regulators, the Japanese Financial Supervisory
Agency ("FSA") may impose restrictions on transfers of funds from AFLAC Japan.
Payments are made from AFLAC Japan to AFLAC Incorporated for management fees,
and to AFLAC U.S. for allocated expenses and remittances of earnings. Total
funds received from AFLAC Japan were $11 million in the first quarter of 1999
and $192 million and $386 million in the full years 1998 and 1997, respectively.
Profit repatriations have been remitted annually from AFLAC Japan to AFLAC U.S.
in July. The FSA maintains solvency standards, a version of risk-based capital
requirements. AFLAC Japan's solvency margin remains high and reflects a strong
capital and surplus position. For additional information on regulatory
restrictions on dividends, profit transfers and other remittances, see Note 10
of the notes to the consolidated financial statements at December 31, 1998.

Currently, prescribed or permitted statutory accounting principles ("SAP")
used by insurers for financial reporting to state insurance regulators may vary
between states and between companies. The National Association of Insurance
Commissioners ("NAIC") has recodified SAP to promote standardization throughout
the industry. These new accounting principles are presently planned by the NAIC
to be effective for 2001. The most significant change to AFLAC is the
requirement that insurance companies establish a deferred income tax liability
for statutory accounting purposes. We estimate AFLAC's deferred tax liability
would be approximately $142 million at March 31, 1999 under the provisions of
the recodified SAP. AFLAC's capital and surplus, as determined on the present
U.S. statutory accounting basis, was $1.7 billion at March 31, 1999.

Year 2000. The term "year 2000 issue" generally refers to incorrect date
calculations that might occur in computer software and hardware as the year 2000
approaches. The use of computer

41
<PAGE> 41

programs that rely on two-digit date fields to perform computations and
decision-making functions may cause systems to malfunction when processing
information involving dates after 1999. For example, any computer software that
has date-sensitive coding might recognize a code of "00" as the year 1900 rather
than the year 2000.

Our efforts to address year 2000 issues began in 1997. We established a
Year 2000 Executive Steering Committee, made up of senior management and
representatives of our information technology, financial, legal, internal audit
and various operational areas to identify and address year 2000 issues
throughout our U.S. and Japanese operations. We also established a Year 2000
Project Office consisting of department coordinators from Information
Technology, Worldwide Headquarters business operations and AFLAC Japan. The
Project Office established both domestic and Japanese plans to address year 2000
readiness and minimize the risk of business disruption caused by year 2000
issues. We also engaged third party consultants to assist AFLAC U.S. and AFLAC
Japan with their year 2000 efforts.

The plans contain five phases: (1) the assessment phase, which includes
creating awareness of the issue throughout the company and assessment of all
systems, significant business processes, facilities and third party
dependencies; (2) the remediation phase, which includes updating or modifying
systems which are identified as critical to our efforts to become year 2000
ready; (3) the testing phase, which includes the testing of systems that have
been updated or modified; (4) the implementation phase, which includes placing
systems into the production environment, as well as additional comprehensive
testing to identify and resolve any remaining year 2000 issues; and (5)
contingency planning.

We have remediated substantially all of our critical production systems in
both the United States and Japan. Verification that the critical production
systems have been correctly remediated will continue through the third quarter
of 1999 in a year 2000 test environment. The additional testing may raise new
issues that require further remediation and implementation activities, all of
which are scheduled to be completed in the third quarter of 1999. Testing and
any further remediation and implementation activities required for non-critical
systems will continue through the end of 1999.

Currently, we are in the process of developing and refining contingency
plans for our business systems and processes. These plans will be periodically
updated throughout 1999 based on currently available information and the
perceived business risk.

We rely on a widely distributed customer base in the United States and
Japan for continued payment of premiums. Many of the systems utilized by our
group accounts are automated and date dependent. We randomly surveyed group
accounts in the United States to determine their year 2000 readiness. AFLAC
Japan depends heavily on substantial premium payments that are electronically
transmitted by third party payment agents from employers of the insured. We have
surveyed our more significant customers in Japan to determine whether such
customers expect their ability to pay premiums or transmit policy and claims
data in this fashion to be impacted by year 2000 issues. We will be conducting
tests with our key external customers and suppliers during the second quarter of
1999. Any adverse results from this testing will be incorporated into our
ongoing contingency planning process. If a large number of customers (in the
U.S. and/or Japan) are unable to submit premium payments in a timely or accurate
manner due to year 2000 issues, the resulting delays could have a material
adverse effect on our financial condition or results of operations. It is not
currently possible to predict the probability of any delays occurring or the
extent of such delays.

AFLAC owns publicly traded and privately placed fixed-maturity and equity
securities in the U.S. and Japan, and other foreign countries. If a material
portion of such securities are adversely impacted by year 2000 issues, our
investment portfolio may also be adversely impacted.

42
<PAGE> 42

Since the inception of the year 2000 project, we had incurred costs of
approximately $25 million for system upgrades or modifications through March 31,
1999. Of this amount, approximately $10 million was capitalized. The remaining
cost to complete the various projects is currently estimated to be $7 million,
of which $1 million is expected to be capitalized. We may determine that
additional expenditures are necessary as testing continues. Company personnel
have spent considerable time and effort on the project, and we intend to
continue to devote additional internal resources and personnel to work on the
project. However, we believe that any deferral of information technology
projects due to the year 2000 effort will not have a material adverse effect on
our operations or financial condition.

Due to the uncertainty inherent in year 2000 issues, particularly with
regard to Japanese customers' year 2000 readiness and the various governmental
functions, public utilities, financial infrastructures and similar outside
facilities on which we depend in both the United States and Japan, we are unable
to determine at this time whether the consequences of external year 2000
failures will have a material impact on our financial condition or results of
operations. Although a year 2000 failure with respect to any single internal or
external system may not have a material adverse effect on AFLAC, the failure of
multiple systems may cause a material disruption to our business which may have
a material adverse effect on our operations or financial condition.

All statements made herein regarding our year 2000 efforts are "Year 2000
Readiness Disclosures" made pursuant to the Year 2000 Information and Readiness
Disclosure Act, and to the extent applicable, are entitled to the protections of
such act.

Other. In April 1999, Standard & Poor's announced that AFLAC Incorporated
will be added to the Standard & Poor's 500 index.

On May 3, 1999, the board of directors approved an increase in the
quarterly cash dividend from $.065 to $.075 per share. The increase is effective
with the second quarter dividend, which is payable on June 1, 1999, to
shareholders of record at the close of business on May 20, 1999.

YEAR ENDED DECEMBER 31, 1998.

Balance Sheet

During the last two years, our financial condition has remained strong in
the functional currencies of our operations. The investment portfolios of AFLAC
Japan and AFLAC U.S. have continued to grow and consist of investment-grade
securities.

The yen/dollar exchange rate at the end of each period is used to translate
yen-denominated balance sheet items to U.S. dollars for reporting purposes. The
exchange rate at December 31, 1998, was 115.70 yen to one U.S. dollar, 12.4%
stronger than the December 31, 1997 exchange rate of 130.10. The stronger yen
rate increased reported investments and cash by $2.4 billion, total assets by
$2.8 billion and total liabilities by $2.7 billion compared with the amounts
that would have been reported for 1998 if the exchange rate had remained
unchanged from year-end 1997. For additional information on exchange rates, see
Note 2 of the notes to the consolidated financial statements at December 31,
1998.

Market Risks of Financial Instruments. Our financial instruments are
exposed primarily to three types of market risks: interest rate, equity price
and foreign currency exchange rate.

Interest Rate Risk. Our primary interest rate exposure is a result of the
effect of changes in interest rates on the fair value of our investments in debt
securities. We use modified duration analysis, which provides a measure of price
percentage volatility, to estimate the amount of sensitivity to interest rate
changes in our debt securities. For example, if the current duration of a debt
security is five, then the market value of that security will increase by
approximately 5% if market interest

43
<PAGE> 43

rates decrease by 100 basis points. Likewise, the value of the debt security
will decrease by approximately 5% if market interest rates increase by 100 basis
points.

The estimated effect of potential increases in interest rates on the fair
values of our debt security investments and notes payable follows:

SENSITIVITY OF FAIR VALUES OF FINANCIAL INSTRUMENTS
TO INTEREST RATE CHANGES

<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------
1998 1997
----------------- -----------------
+100 +100
MARKET BASIS MARKET BASIS
VALUE POINTS VALUE POINTS
------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Debt securities:
Fixed-maturity securities:
Yen-denominated....................... $16,748 $15,317 $14,906 $13,634
Dollar-denominated.................... 4,603 4,272 4,101 3,807
Perpetual debentures:
Yen-denominated....................... 4,250 3,816 3,286 2,943
Dollar-denominated.................... 204 192 145 136
------- ------- ------- -------
Total............................ $25,805 $23,597 $22,438 $20,520
======= ======= ======= =======
Notes payable*.................................. $ 578 $ 587 $ 505 $ 520
======= ======= ======= =======
</TABLE>

- ---------------
* Excludes capitalized leases.

Should significant amounts of unrealized losses occur because of increases
in market yields, we would not expect to realize significant losses because we
have the ability to hold such securities to maturity.

The unrealized gains and losses on debt securities, less amounts applicable
to policy liabilities and deferred income taxes, are reported in accumulated
other comprehensive income. The portion of unrealized gains credited to policy
liabilities represents gains that would not inure to the benefit of the
shareholders if such gains were actually realized. For further information, see
Note 3 of the notes to the consolidated financial statements at December 31,
1998.

44
<PAGE> 44

The following is a comparison of the actuarially assumed interest rates for
policy reserves and investment yields (after investment expenses).

COMPARISON OF INTEREST RATES FOR POLICY RESERVES
AND INVESTMENT YIELDS
(NET OF INVESTMENT EXPENSES)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
U.S. JAPAN* U.S. JAPAN* U.S. JAPAN*
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Policies issued during year:
Required interest on policy reserves... 6.81% 3.50% 6.80% 3.50% 6.81% 4.28%
New money yield on investments......... 7.62 3.76 7.53 4.29 7.31 3.83
Policies in force at end of year:
Required interest on policy reserves... 6.41 5.38 6.40 5.46 6.38 5.53
Investment yield....................... 7.44 5.17 7.61 5.34 7.31 5.58
</TABLE>

- ---------------
* Represents yen-denominated investments for Japan.

We attempt to match the duration of our assets with the duration of our
liabilities. For AFLAC Japan, the duration of policy benefit liabilities is
longer than that of the related invested assets due to the unavailability of
acceptable yen-denominated long-duration securities. At December 31, 1998, the
average duration of policy liabilities was approximately 13 years, unchanged
from 1997. The average duration of the yen-denominated debt securities was
approximately nine years in 1998 and 1997. When our debt securities mature,
there is a risk that the proceeds will be reinvested at a yield below that of
the interest required for the accretion of policy liabilities. Over the next
five years, $3.0 billion at amortized cost, or 14.8%, of AFLAC Japan's
yen-denominated debt securities are scheduled to mature.

We have outstanding interest rate swaps on 49.6 billion yen ($428 million)
of our variable-interest-rate yen-denominated bank borrowings. These swaps
reduce the impact of fluctuations in interest rates on our borrowing costs and
effectively change our interest rates from variable to fixed. Therefore,
movements in market interest rates should have no material effect on earnings.

At December 31, 1998, we also had yen-denominated bank borrowings in the
amount of 17.3 billion yen ($150 million) with a variable interest rate of .87%.
The effect on net earnings in 1998 due to changes in market interest rates was
immaterial. For further information on our notes payable, see Note 7 of the
notes to the consolidated financial statements at December 31, 1998.

45
<PAGE> 45

Equity Price Risk. Equity securities at December 31, 1998, totaled $177
million, or .7% of total investments and cash on a consolidated basis. We use
beta analysis to measure the sensitivity of our equity securities portfolio to
fluctuations in the broad market. The beta of our equity securities portfolio is
1.02. For example, if the overall stock market value changed by 10%, the value
of AFLAC's equity securities would be expected to change by approximately 10.2%,
or $18 million.

Currency Risk. Most of AFLAC Japan's investments and cash are denominated
in yen. When the yen-denominated financial instruments mature or are sold, the
proceeds are generally reinvested in yen-denominated securities and are held to
fund yen-denominated policy obligations rather than converted into dollars.
Therefore, there is no significant foreign currency transaction risk.

In addition to the yen-denominated financial instruments held by AFLAC
Japan, AFLAC Incorporated has yen-denominated borrowings that have been
designated as a hedge of our investment in AFLAC Japan. The unrealized foreign
currency translation gains and losses related to these borrowings are reported
in accumulated other comprehensive income.

We attempt to match our yen-denominated assets to our yen-denominated
liabilities on a consolidated basis in order to minimize the exposure of our
shareholders' equity to foreign currency translation fluctuations.

The following table compares the dollar values of our yen-denominated
assets and liabilities at various exchange rates.

DOLLAR VALUE OF YEN-DENOMINATED ASSETS AND LIABILITIES
AT SELECTED EXCHANGE RATES

<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------
1998 1997
------------------------------ ------------------------------
100.70 115.70* 130.70 115.10 130.10* 145.10
YEN YEN YEN YEN YEN YEN
-------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Yen-denominated financial
instruments:
Assets:
Securities available for
sale:
Fixed maturities......... $ 15,001 $ 13,057 $ 11,558 $ 16,849 $ 14,906 $ 13,365
Perpetual debentures..... 1,286 1,119 991 3,712 3,286 2,945
Equity securities........ 26 23 20 9 7 7
Securities held to
maturity:
Fixed maturities......... 4,534 3,947 3,494 -- -- --
Perpetual debentures..... 4,014 3,494 3,093 -- -- --
Cash and cash
equivalents.............. 351 306 270 185 164 147
Securities held as
collateral**............. -- -- -- 3,430 3,034 2,721
Other financial
instruments.............. 12 8 8 10 8 8
-------- -------- -------- -------- -------- --------
Total................. 25,224 21,954 19,434 24,195 21,405 19,193
-------- -------- -------- -------- -------- --------
Liabilities:
Payables for return of
collateral**............. -- -- -- 3,430 3,034 2,721
Notes payable.............. 664 578 511 563 498 447
-------- -------- -------- -------- -------- --------
Total................. 664 578 511 3,993 3,532 3,168
-------- -------- -------- -------- -------- --------
Net yen-denominated financial
instruments................... 24,560 21,376 18,923 20,202 17,873 16,025
Other yen-denominated assets.... 3,600 3,133 2,774 2,964 2,622 2,351
Other yen-denominated
liabilities................... (27,767) (24,167) (21,395) (22,614) (20,007) (17,938)
-------- -------- -------- -------- -------- --------
Total yen-denominated
net assets subject
to foreign currency
fluctuation......... $ 393 $ 342 $ 302 $ 552 $ 488 $ 438
======== ======== ======== ======== ======== ========
</TABLE>

- ---------------
* Actual year-end rate.

** Off-balance sheet financial instruments in 1998.

46
<PAGE> 46

For information regarding the effect of foreign currency translation on
operating earnings per share, see "-- Results of Operations" and Note 2 of the
notes to the consolidated financial statements at December 31, 1998.

Investments and Cash. The continued growth in investments and cash
reflects substantial cash flows from operations. Net unrealized gains of $1.3
billion on investment securities at December 31, 1998, consisted of $2.4 billion
in gross unrealized gains and $1.1 billion in gross unrealized losses.

<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1998 1997
----- -----
<S> <C> <C>
AAA................................................ 38.1% 44.9%
AA................................................. 17.6 18.1
A.................................................. 31.2 29.7
BBB................................................ 13.1 7.3
----- -----
100.0% 100.0%
===== =====
</TABLE>

As of December 31, 1998, we held no debt securities rated below "BBB."
However, in January 1999, the credit ratings of several major Japanese financial
institutions were downgraded. We owned debt securities issued by a Japanese bank
in the amount of $454 million, or 1.8% of total debt securities at December 31,
1998. Following the downgrade, these securities were rated "Ba1" by Moody's
Investors Services, Inc. and "BB+" by Standard & Poor's Ratings Services.

Private placement investments accounted for 43.9% and 36.3% of our total
debt securities as of December 31, 1998 and 1997, respectively. AFLAC Japan has
made investments in the private placement market to secure higher yields than
those available from Japanese government bonds. At the same time, we have
adhered to historically conservative standards for credit quality. We require
that all private placement issuers have an initial rating of Class 1 or 2 as
determined by the Securities Valuation Office of the National Association of
Insurance Commissioners ("NAIC"). Most of AFLAC's private placement issues are
issued under medium-term note programs and have standard covenants commensurate
with credit rankings, except when internal credit analysis indicates that
additional protective and/or event-risk covenants are required.

During the fourth quarter of 1998, we revised our investment management
policy regarding the holding-period intent for certain of our private placement
debt securities. Our past practice was to hold these securities to their
contractual or economic maturity dates. We have now made this our formal policy.
Accordingly, debt securities carried at a fair value of $6.4 billion were
reclassified as of October 1, 1998, from the category "available for sale" to
"held to maturity." The related unrealized gain of $1.1 billion as of October 1,
1998 on these securities is being amortized over the remaining term of the
securities. Securities that are available for sale are reported in the balance
sheet at fair value and securities that are held to maturity are reported at
amortized cost.

47
<PAGE> 47

The following table shows an analysis of investment securities (at cost or
amortized cost):

<TABLE>
<CAPTION>
AFLAC JAPAN AFLAC U.S.
----------------- ---------------
AT DECEMBER 31, AT DECEMBER 31,
----------------- ---------------
1998 1997 1998 1997
------- ------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Available for sale:
Fixed-maturity securities.................... $12,886 $13,527 $2,772 $2,546
Perpetual debentures......................... 1,344 3,011 111 37
Equity securities............................ 22 7 79 73
------- ------- ------ ------
Total available for sale................ 14,252 16,545 2,962 2,656
------- ------- ------ ------
Held to maturity:
Fixed-maturity securities.................... 3,947 -- -- --
Perpetual debentures......................... 3,494 -- -- --
------- ------- ------ ------
Total held to maturity.................. 7,441 -- -- --
------- ------- ------ ------
Total.............................. $21,693 $16,545 $2,962 $2,656
======= ======= ====== ======
</TABLE>

Mortgage loans on real estate and other long-term investments remained
immaterial at both December 31, 1998 and 1997. Cash, cash equivalents and
short-term investments totaled $384 million, or 1.4% of total investments and
cash, as of December 31, 1998, compared with $279 million, or 1.2% of total
investments and cash, at December 31, 1997.

For additional information concerning investments and fair values, see
Notes 3 and 4 of the notes to the consolidated financial statements at December
31, 1998.

Policy Liabilities. Policy liabilities increased $4.1 billion, or 20.9%,
during 1998. AFLAC Japan policy liabilities increased $4.0 billion, or 22.2%,
and AFLAC U.S. policy liabilities increased $205 million, or 10.9%. Changes in
policy liabilities were primarily due to the addition of new business, the aging
of policies in force, the stronger yen and the effect of the market value
adjustment for securities available for sale (see Note 3 of the notes to the
consolidated financial statements at December 31, 1998). The stronger yen at
year-end 1998 compared with 1997 increased reported policy liabilities by $2.4
billion. The weaker yen at year-end 1997 compared with 1996 decreased reported
policy liabilities by $2.2 billion in 1997.

Debt. AFLAC Incorporated has an unsecured reducing revolving credit
agreement that provides for bank borrowings through July 2001 in either U.S.
dollars or Japanese yen. At December 31, 1998, 38.1 billion yen ($329 million)
were outstanding under this agreement.

AFLAC Incorporated also has an unsecured revolving credit agreement that
provides for bank borrowings through November 2002 in either U.S. dollars or
Japanese yen. At December 31, 1998, 28.8 billion yen ($249 million) were
outstanding.

The proceeds from these loans were used to fund our share repurchase
program. When any portion of these loans is denominated in yen, the principal
amounts of the loans in dollars will fluctuate due to changes in the yen/dollar
exchange rate.

We have entered into interest rate swaps that effectively change the
interest rates on a portion of these loans from variable to fixed. The variable
rate on the 34.1 billion yen ($294 million) loan is .95%, and the fixed rate is
2.29% after the effect of the swaps (including loan costs of 25 basis points).
The variable rate on the 15.5 billion yen ($134 million) loan is .90%, and the
fixed rate is 1.24% after the effect of the swaps (including loan costs of 20
basis points). We make interest payments to the bank based on variable interest
rates, and we either pay to or receive from the swap

48
<PAGE> 48

counterparty an amount necessary to equal the fixed rate. The variable interest
rate at December 31, 1998, was based on the three-month Tokyo Interbank Offered
Rate of .75%, plus loan costs.

We have designated these yen-denominated borrowings as a hedge of our net
investment in AFLAC Japan. Foreign currency translation gains/losses on the
borrowings are included in accumulated other comprehensive income. Outstanding
principal and related accrued interest payable on the yen-denominated borrowings
are translated into dollars at end-of-period exchange rates.

Our ratio of debt to total capitalization (debt plus shareholders' equity,
excluding the net unrealized gains on investment securities) was 19.6% as of
December 31, 1998 and 1997. For further information concerning notes payable,
see Note 7 of the notes to the consolidated financial statements at December 31,
1998.

Security Lending. AFLAC Japan uses short-term security lending
arrangements to increase investment income with minimal risk. This program
increased AFLAC Japan's investment income by approximately $1 million in both
1998 and 1997. For further information regarding such arrangements, see Note 4
of the notes to the consolidated financial statements at December 31, 1998.

Policyholder Guaranty Funds. Under insurance guaranty fund laws in most
U.S. states, insurance companies doing business in those states can be assessed
for policyholder losses up to prescribed limits that are incurred by insolvent
companies with similar lines of business. Such assessments have not been
material to us in the past. We believe that future assessments relating to
companies in the United States currently involved in insolvency proceedings will
not materially impact the consolidated financial statements.

The Life Insurance Association of Japan, an industry organization,
implemented a policyholder protection fund in 1996 to provide capital support to
insolvent life insurers. AFLAC Japan pledged investment securities to the Life
Insurance Association of Japan under this program. During the first quarter of
1998, the Japanese government enacted a mandatory policyholder protection fund
system. The life insurance industry will contribute $6.0 billion over a 10-year
period for these two funds. We have recorded a liability for our share of these
obligations. See Note 2 of the notes to the consolidated financial statements at
December 31, 1998.

Shareholders' Equity. Our insurance operations continue to provide the
primary sources of liquidity. Capital needs can also be supplemented by borrowed
funds. The principal sources of cash from insurance operations are premiums and
investment income. Primary uses of cash in the insurance operations are policy
claims, commissions, operating expenses, income taxes and payments to AFLAC
Incorporated for management fees and dividends. Both the sources and uses of
cash are reasonably predictable. Our investment objectives provide for liquidity
through the ownership of high-quality investment securities. AFLAC insurance
policies are generally not interest-sensitive and therefore are not subject to
unexpected policyholder redemptions due to investment yield changes. Also, the
majority of our policies provide indemnity benefits rather than reimbursement
for actual medical costs and thus are not subject to the risks of medical-cost
inflation.

The achievement of continued long-term growth will require growth in
AFLAC's statutory capital and surplus. We may secure additional statutory
capital through various sources, such as internally-generated statutory earnings
or equity contributions by AFLAC Incorporated from funds generated through debt
or equity offerings. The disposition of the television business increased our
capital resources. We believe outside sources for additional debt and equity
capital, if needed, will continue to be available for capital expenditures,
business expansion and the funding of our share repurchase program.

49
<PAGE> 49

AFLAC Incorporated's capital resources are largely dependent upon the
ability of AFLAC to pay management fees and dividends. The Georgia Insurance
Department imposes certain limitations and restrictions on payments of
dividends, management fees, loans and advances by AFLAC to AFLAC Incorporated.
The Georgia Insurance Statutes require prior approval for dividend distributions
that exceed the greater of the statutory net gain from operations for the
previous year or 10% of statutory capital and surplus as of the previous
year-end. In addition, the Georgia Insurance Department must approve service
arrangements and other transactions within the affiliated group. These
regulatory limitations are not expected to affect the level of management fees
or dividends paid by AFLAC to AFLAC Incorporated. A life insurance company's
statutory capital and surplus is computed according to rules prescribed by the
NAIC, as modified by the insurance company's state of domicile. Statutory
accounting rules are different from generally accepted accounting principles and
are intended to emphasize policyholder protection and company solvency.

Currently, prescribed or permitted statutory accounting principles ("SAP")
used by insurers for financial reporting to state insurance regulators may vary
between states and between companies. The NAIC has recodified SAP to promote
standardization throughout the industry. These new accounting principles are
presently planned by the NAIC to be effective for 2001. The most significant
change to AFLAC is the requirement that insurance companies establish a deferred
income tax liability for statutory accounting purposes. We estimate AFLAC's
deferred tax liability would be approximately $165 million at December 31, 1998,
under the provisions of the recodified SAP. AFLAC's capital and surplus, as
determined on the present U.S. statutory accounting basis, was $1.6 billion at
December 31, 1998.

The NAIC uses a risk-based capital formula relating to insurance risk,
business risk, asset risk and interest rate risk to facilitate identification by
insurance regulators of inadequately capitalized insurance companies based upon
the types and mixtures of risks inherent in the insurer's operations. AFLAC's
NAIC risk-based capital ratio remains high and reflects a very strong capital
and surplus position. Also, there are various ongoing regulatory initiatives by
the NAIC relating to investments, reinsurance, limited-benefit insurance
policies, revisions to the risk-based capital formula and other related matters.

In addition to restrictions by U.S. insurance regulators, the Japanese FSA
may impose restrictions on transfers of funds from AFLAC Japan. Payments are
made from AFLAC Japan to AFLAC Incorporated for management fees and to AFLAC
U.S. for allocated expenses and remittances of earnings. Total funds received
from AFLAC Japan were $192 million in 1998, $386 million in 1997 and $254
million in 1996. The FSA may not allow transfers of funds if the payment would
cause AFLAC Japan to lack sufficient financial strength for the protection of
policyholders. The FSA maintains solvency standards, a version of risk-based
capital requirements. AFLAC Japan's solvency margin remains high and reflects a
strong capital and surplus position. For additional information on regulatory
restrictions on dividends, profit transfers and other remittances, see Note 10
of the notes to the consolidated financial statements at December 31, 1998.

Rating Agencies. AFLAC is rated "AA" by Standard & Poor's Ratings Services
and "Aa3" by Moody's Investors Service, Inc. for financial strength. Duff &
Phelps Credit Rating Co. rates AFLAC "AA" in claims-paying ability. A.M. Best,
an independent rating service that analyzes the financial condition and
operating performance of insurance companies, gives AFLAC an "A+" or superior
rating.

Other. For information regarding pending litigation, see Note 12 of the
notes to the consolidated financial statements at December 31, 1998.

50
<PAGE> 50

Cash Flow

Operating cash flows for AFLAC Japan are translated using average monthly
exchange rates for the year. In years when the yen weakens, translating yen into
dollars causes fewer dollars to be reported. When the yen strengthens,
translating yen into dollars causes more dollars to be reported.

For additional information, see the Consolidated Statements of Cash Flows
on page F-16.

Operating Activities. In 1998, consolidated cash flow from operations
decreased 4.2% to $2.5 billion, compared with $2.6 billion in 1997 and $2.7
billion in 1996. Net cash flow from operations for AFLAC Japan decreased 5.8%
(increased .3% in yen) to $2.2 billion in 1998, compared with $2.3 billion in
1997 and $2.5 billion in 1996. AFLAC Japan represented 89% of the consolidated
net cash flow from operations in 1998 and 91% in both 1997 and 1996. The
decrease in cash flow from operations in 1998 and 1997 was due to the weaker
yen.

Investing Activities. Consolidated cash flow used by investing activities
decreased 7.8% to $2.2 billion in 1998, compared with $2.4 billion in 1997 and
$2.5 billion in 1996. The sale of the television business generated cash flow of
$351 million in 1997 and $99 million in 1996. AFLAC Japan accounted for 86% of
the consolidated net cash used by investing activities in 1998, compared with
81% in 1997 and 93% in 1996.

Operating cash flow is primarily used to purchase debt securities. When
market opportunities arise, we dispose of selected debt securities available for
sale to improve future investment yields or lengthen maturities. Therefore,
dispositions before maturity can vary significantly from year to year.
Dispositions before maturity ranged between 4% and 9% of the annual average
investment portfolio of debt securities available for sale during the three
years ended December 31, 1998.

Financing Activities. In 1998, net cash used by financing activities was
$141 million, compared with $121 million in 1997 and $157 million in 1996.
Treasury stock purchases of $125 million in 1998 and $314 million in 1997 were
funded by proceeds from new borrowings. In 1996, treasury stock purchases of
$204 million were funded by proceeds from new borrowings of $136 million and
available cash. Debt repayments of $108 million in 1998, $55 million in 1997 and
$36 million in 1996 on yen-denominated loans were made from annual profit
repatriations from Japan. In addition to issuing treasury shares for AFLAC Japan
stock options, we have sold treasury shares to our dividend reinvestment plan
and to the AFLAC Associate Stock Bonus Plan. These dispositions generated
proceeds in the amounts of $44 million, $40 million and $35 million for the
years 1998, 1997 and 1996, respectively. Cash dividends paid to shareholders
amounted to $67 million in 1998, an increase of 10.7% over 1997. Cash dividends
paid to shareholders in 1997 were $61 million, an increase of 11.7% over the
1996 cash dividends of $54 million. The 1998 cash dividend of $.253 per share
increased 12.9% over 1997. The 1997 cash dividend of $.224 per share represented
an increase of 15.5% over the 1996 cash dividend of $.194 per share.

51
<PAGE> 51

BUSINESS

THE COMPANY

PRODUCTS

Our insurance products can be classified into three general
groups -- cancer insurance, accident and disability insurance and other
supplemental health insurance.

Cancer Insurance. We currently offer a series of three different cancer
plans in the United States that vary by benefit amount. All three plans provide
a first occurrence benefit that pays an initial amount when internal cancer is
first diagnosed, a fixed amount for each day an insured is hospitalized for
cancer treatment, and benefits for medical, radiation, chemotherapy and surgery
and a "wellness" benefit applicable toward certain diagnostic tests such as
mammograms, pap smears, prostate exams and flexible sigmoidoscopy. These plans
also contain benefits that reimburse the insured for nursing services, home
health care, extended care facilities, hospice, second surgical opinion,
experimental treatment, evaluation/consultation from the National Cancer
Institute, bone marrow and stem cell transplant, family lodging, ambulance,
transportation, anesthesia, prosthesis, blood and plasma expenses related to
cancer treatments. We also issue several riders, including one that increases
the amount of the first occurrence benefit on each anniversary date until the
covered person reaches age 65 or until internal cancer is diagnosed. AFLAC
periodically introduces new forms of coverage, revising benefits and related
premiums based upon the anticipated needs of our policyholders and our claim
experience.

AFLAC Japan offers cancer life insurance plans with a fixed daily indemnity
benefit for hospitalization and outpatient services related to cancer and a
lump-sum benefit upon initial diagnosis of internal cancer. The plans differ
from the AFLAC U.S. cancer plans because Japanese policies also provide death
benefits and cash surrender values. We estimate that approximately 32% of
premiums earned from all cancer life plans are associated with these benefits.
In January 1997, AFLAC Japan introduced a new economy cancer life policy with
lower premium rates and benefit levels. This plan was developed to mitigate the
effect of premium rate increases due to low investment yields available in
Japan. Moreover, in December 1997, AFLAC Japan received approval from Japanese
regulators to sell three new riders to our popular cancer life policy. The
riders add
52
<PAGE> 52

cancer surgical benefits, supplemental accident coverage and supplemental
medical benefits for general hospitalization. AFLAC Japan has combined the
accident and supplemental medical benefits riders into a new product
offering -- Rider MAX. Rider MAX has become one of our most successful new
products in a short period of time and accounted for 33% of 1998 new premium
sales.

Accident and Disability Insurance. We also offer in the United States an
accident and disability policy to protect against losses resulting from
accidents. The accident portion of the policy includes lump-sum benefits for
accidental death, dismemberment and specific injuries. We also provide fixed
benefits for hospital confinement, emergency treatment, follow-up treatments,
ambulance, transportation, family lodging, wellness, prosthesis, medical
appliances and physical therapy. Optional disability riders are available to the
primary insured and include choices of a sickness disability rider, on-the-job
disability rider and off-the-job disability rider. We pay these benefits up to a
maximum benefit period of one year and for one disability at a time.

Other Supplemental Health Insurance. We also issue other supplemental
health insurance in the United States, such as intensive care, which is a
low-premium policy that provides protection against the high cost of intensive
care facilities during hospital confinement, regardless of reimbursements from
other insurers. In addition, we issue qualified and non-qualified long-term care
plans, short-term disability and a hospital confinement indemnity policy. AFLAC
Japan also sells care plans, supplemental general medical expense plans and a
living benefit life plan. Care insurance provides periodic benefits to those who
become bedridden, demented or seriously disabled due to illness or accident.
AFLAC Japan's medical expense plans are similar to hospital indemnity insurance
products in the United States and provide cash benefits to policyholders when
they are hospitalized. Our policy offers a maximum hospitalization benefit of
1,000 days which, as of the date of the issuance of the old notes was the
longest period offered in the industry. AFLAC's living benefit life plan
provides lump-sum benefits when policyholders experience a heart attack, cancer
or a stroke. We are offering this product in two forms -- as a stand-alone
policy or as a rider to the cancer life plan. The rider adds heart attack and
stroke benefits to the cancer life policy.

MARKETING AND DISTRIBUTION

Our United States sales force is comprised of independent sales agents who
are licensed to sell accident and health insurance. Many are also licensed to
sell life insurance. Most agents' efforts are directed toward selling
supplemental health insurance at the worksite. Agents' activities are
principally limited to sales. We pay commissions on first-year and renewal
premiums from the agents' sales of health and life insurance products. The
state, regional and district sales coordinators, who are also independent
contractors, are compensated by override commissions.

The corresponding primary sales force in Japan are affiliated "corporate
agencies" formed when companies establish subsidiary businesses to sell our
products to their employees, suppliers and customers. These agencies help us
reach the employees of almost all of Japan's large corporations. We have no
significant ownership interest in these corporate agencies. Our products also
are sold through independent corporate agencies and individual agencies that are
not affiliated with large companies. Agents' activities are principally limited
to insurance sales, with policyholder service functions handled by the main
office in Tokyo and 60 offices located throughout Japan.

In the United States and Japan, we focus our marketing efforts at the
worksite. Consequently, we offer policies through common media such as
employment, trade and other associations. This marketing strategy is distinct
from "group" insurance sales in that each insured is contacted directly by the
sales associate. Policies are individually underwritten and premiums are
generally paid by the employee. Additionally, AFLAC's supplemental policies are
portable because individuals may retain their full insurance coverage upon
separation from employment or such affiliation, generally at the same premium.
Marketing at the worksite not only enables our agents to reach a greater number
of

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prospective policyholders than through individual solicitation, but also lowers
distribution costs. In 1997, the Japanese government increased copayments for
the employer-sponsored health care program from 10% to 20% for the primary
insured, thereby increasing the portion of the costs the insured must pay. Given
the increase in copayments, we believe AFLAC's products and riders that provide
supplemental medical benefits will be especially appealing to consumers.

OTHER

We are authorized to conduct insurance business in all 50 states, the
District of Columbia and several United States territories and foreign
countries. Our only significant foreign operation is AFLAC Japan, which
accounted for 80%, 79% and 82% of our total revenues for 1998, 1997 and 1996,
respectively, and 86% and 87% of total assets at December 31, 1998 and 1997,
respectively. Insurance premiums and investment income from insurance operations
constitute our major source of revenues. Our consolidated premium income was
$5.9 billion for each of the years in the three-year period ended December 31,
1998.

We invest in the international financial markets with emphasis on United
States dollar- and Japanese yen-denominated securities. We maintain a strong
portfolio by investing in investment grade securities that provide a predictable
source of investment income. Debt securities represented 96.7% of AFLAC U.S.'s
total investments and cash (at amortized cost) at the end of 1998. AFLAC Japan
invested 91% of its funds available for investment in 1998 in yen-denominated
debt securities at an average yield of 3.84%.

We require that all private placement issuers have an initial rating of
class 1 or 2 as determined by the Securities Valuation Office of the National
Association of Insurance Commissioners. Most of our private placement issues are
issued under medium-term note programs and have standard covenants commensurate
with credit rankings, except when internal credit analysis indicates that
additional protective and/or event risk covenants are required.

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DESCRIPTION OF CERTAIN INDEBTEDNESS

The following summary highlights selected information from our outstanding
credit agreements and is qualified in its entirety by reference to such
agreements, each of which is available from us upon request. Capitalized terms
used in this section but not defined have the meanings specified in the
respective agreements.

REDUCING REVOLVING CREDIT AGREEMENT

We entered into a Reducing Revolving Credit Agreement, dated as of January
31, 1996, among us, The Dai-Ichi Kangyo Bank, Limited, as Agent, and other
commercial lending institutions (the "Reducing Revolving Credit Agreement"),
which provides us with an unsecured reducing revolving credit facility (the
"Reducing Revolving Credit Facility"). Under this agreement and subject to
certain conditions:

(1) We may borrow up to $500 million in either United States dollars or
Japanese yen with this amount reducing over time (the "Reducing
Commitment"). The current Reducing Commitment is $325 million.

(2) The Reducing Commitment will be reduced each year on July 15th as
follows:

- 1999, reduced to $250 million;

- 2000, reduced to $125 million; and

- 2001, reduced to $0 when the Reducing Revolving Credit Agreement
terminates in 2001, unless extended.

(3) We must pay any principal amounts outstanding in excess of the Reducing
Commitment on each reduction date.

(4) All amounts drawn under the Reducing Revolving Credit Facility will
bear interest at our option at either the:

- Base Rate, which equals the greater of (A) the Prime Rate or (B) the
Federal Funds Rate plus two percent;

- Euroyen Rate, which equals the Tokyo Inter-Bank Offered ("TIBO") Rate
plus .25%; or

- Eurodollar Rate, which equals the London Inter-Bank Offered ("LIBO")
Rate plus .25%.

Moreover, if at four days prior to the last day of the Interest Period of
every maturing Advance or on the date of a request for any new Advance the sum
of the Dollar Loan plus the Dollar Equivalent of the Yen Loan exceeds the
Reducing Commitment, we are required to repay a portion of the Loan in an amount
sufficient to cause the sum of the Dollar Loan plus the Dollar Equivalent of the
Yen Loan to equal the Reducing Commitment.

REVOLVING CREDIT AGREEMENT

We also entered into a Revolving Credit Agreement, dated as of October 31,
1997, among us, The Dai-Ichi Kangyo Bank, Limited, as Agent, The Bank of
Tokyo-Mitsubishi, Ltd., as Co-Agent, and other commercial lending institutions
(the "Revolving Credit Agreement"), which provides us with an unsecured
revolving credit facility (the "Revolving Credit Facility"). Under this
agreement and subject to certain conditions:

(1) We may borrow up to $250 million in either U.S. dollars or Japanese yen
(the "$250 Million Commitment").

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(2) The Revolving Credit Facility terminates on the earlier of November 3,
2002, or at such time as the $250 Million Commitment is terminated or
reduced to $0 pursuant to its terms.

(3) We are obligated to pay a facility fee of .065% on the $250 Million
Commitment.

(4) All amounts drawn under the Revolving Credit Facility will bear
interest at our option at either the:

- Base Rate, which equals the greater of (A) the Prime Rate or (B) the
Federal Funds Rate plus two percent;

- Euroyen Rate, which equals the TIBO Rate plus .135%; or

- Eurodollar Rate, which equals the LIBO Rate plus .135%.

Moreover, if at four days prior to the last day of the Interest Period of
every maturing Advance or on the date of a request for any new Advance the sum
of the Dollar Loan plus the Dollar Equivalent of the Yen Loan exceeds the $250
Million Commitment, we are required to repay a portion of the Loan in an amount
sufficient to cause the sum of the Dollar Loan plus the Dollar Equivalent of the
Yen Loan to equal the $250 Million Commitment.

COVENANTS AND FINANCIAL REQUIREMENTS FOR THE CREDIT AGREEMENTS

Both the Reducing Revolving Credit Agreement and the Revolving Credit
Agreement (together, the "Credit Agreements") contain negative covenants
limiting, among other things, our ability to:

(1) incur debt;

(2) create liens;

(3) sell substantially all of our assets;

(4) engage in mergers and acquisitions; and

(5) assume or make guarantees.

The Credit Agreements also contain affirmative covenants requiring us to:

(1) comply with laws;

(2) maintain our corporate existence;

(3) pay taxes;

(4) perform other material obligations; and

(5) deliver financial and other information to the respective banks.

The Credit Agreements require us to comply with certain financial tests and
to maintain certain financial ratios on a consolidated basis including:

(1) maintaining a consolidated net worth of not less than $1 billion,
excluding the effect of Statement of Financial Accounting Standards
Board Statement No. 115; and

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(2) on the last day of each calendar quarter, maintaining a ratio of not
less than 2.00 to 1.00 of:

- our consolidated earnings before interest and taxes, plus the current
portion of our consolidated long-term debt repaid, excluding voluntary
prepayments, for the immediately preceding four calendar quarters to

- our consolidated interest expense, plus the current portion of our
consolidated long-term debt repaid, excluding voluntary prepayments,
for the immediately preceding four calendar quarters.

Certain Definitions used above are:

- "consolidated earnings before interest and taxes" which includes any
consolidated earnings before interest and taxes during such fiscal
period of any person (an "acquired person") that became a subsidiary
of ours during such period or was merged into or consolidated with us
or any subsidiary or where such person's assets were acquired during
such period;

- "consolidated interest expense" which includes any consolidated
interest expense during such fiscal period for such acquired person;
and

- "long-term debt repaid" which includes repayments of long-term debt by
such acquired person during such period, excluding voluntary
prepayments which includes prepayments required by the acquisition of
such acquired person by us or any subsidiary.

EVENTS OF DEFAULT UNDER THE CREDIT AGREEMENTS

Our Credit Agreements contain customary default provisions, which include,
but are not limited to:

(1) failure to satisfy any of the financial covenants discussed above;

(2) cross-default to other indebtedness;

(3) material undischarged judgments; and

(4) bankruptcy.

Upon default or upon a "change of control," we are required to prepay
immediately all advances and all accrued interest. A "change of control" occurs
when:

(1) a person or group acquires beneficial ownership representing 51% or
more of our combined voting power for all securities entitled to
vote; and

(2) within 12 months thereafter, a majority of our Board of Directors
were not either:

(A) directors as of the date of such acquisition,

(B) selected to become directors by the Board of which a majority
consisted of individuals described in (A), or

OUTSTANDING BALANCES

At March 31, 1999, 37.9 billion yen ($314 million) was outstanding under
the Reducing Revolving Credit Agreement and 29.0 billion yen ($241 million) was
outstanding under the Revolving Credit Agreement.

We also have outstanding interest rate swaps on a portion of our
variable-interest-rate yen-denominated borrowings (49.6 billion yen or $411
million at March 31, 1999). These swaps reduce the impact of changes in interest
rates on our borrowing costs and effectively change our interest rate from
variable to fixed. The interest rate swaps have notional principal amounts that
equal the

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anticipated unpaid principal amounts. Under these agreements, we make fixed-rate
payments at 2.29% on one loan and 1.24% on another loan and receive
floating-rate payments (.19% at March 31, 1999 plus loan costs of 25 or 20 basis
points, respectively) based on the three-month TIBO Rate.

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DESCRIPTION OF THE SENIOR NOTES

We issued the old notes, and will issue the new notes, under an indenture,
dated April 21, 1999, between us and The Bank of New York, as trustee. Upon the
issuance of the new notes, the indenture will be subject to and governed by the
Trust Indenture Act of 1939. We have summarized portions of the indenture below.
You should read the entire indenture for provisions that are important to you.
We have filed a copy of the indenture as an exhibit to the registration
statement, which includes this prospectus. The indenture and not this summary
defines your rights as holders of the senior notes. Capitalized terms used in
this summary have the meanings specified in the indenture. You can find the
definitions for certain terms used in this summary under the subheading
"-- Definitions."

GENERAL

The old notes were, and the new notes will be, issued under an indenture,
dated April 21, 1999, between us and The Bank of New York, as trustee. The terms
of the senior notes include those stated in the indenture and those made part of
the indenture by reference to the Trust Indenture Act. The senior notes are
subject to all such terms, and holders of senior notes are referred to the
indenture and the Trust Indenture Act for a statement thereof.

The old notes are, and the new notes will be, senior unsecured obligations
that rank senior in right of payment to all our existing and future subordinated
indebtedness and equally in right of payment to all our existing and future
senior indebtedness. The old notes are, and the new notes will be, effectively
subordinated to all our future secured indebtedness to the extent of the value
of the assets securing such indebtedness and, because we are a holding company,
effectively subordinated to indebtedness and other liabilities of our
subsidiaries. As of March 31, 1999, on a pro forma basis after giving effect to
the sale of the old notes and the use of the net proceeds therefrom, we would
have had approximately $1.0 billion of senior indebtedness and our subsidiaries
would have had approximately $18 million of indebtedness.

Restrictions in the indenture on our ability to enter into mergers,
consolidations or sales of all or substantially all our assets may make it more
difficult to encourage or discourage a takeover, whether favored or opposed by
our management. The indenture may not afford holders protection in all
circumstances from the adverse aspects of a leveraged transaction,
reorganization, restructuring, merger or similar transaction.

PRINCIPAL, MATURITY AND INTEREST

The trustee authenticated and delivered old notes for original issue in an
aggregate principal amount of $450 million. The new notes will be treated as a
continuation of the old notes, which will mature on April 15, 2009. Interest on
the senior notes accrues at the rate of 6 1/2% per annum and is payable
semi-annually in arrears in cash on each April 15 and October 15, commencing
October 15, 1999, to holders of record on the immediately preceding April 1 and
October 1, respectively. Interest is to be computed on the basis of a 360-day
year of twelve 30-day months.

The old notes were, and the new notes will be, issued only in fully
registered form, without coupons, in denominations of $1,000 of principal amount
at maturity and any integral multiples thereof. See "--Book-Entry; Delivery and
Form." No service charge will be made for any registration of transfer or
exchange of senior notes, but we may require payment of a sum sufficient to
cover transfer tax or other similar governmental charges.

OPTIONAL REDEMPTION

We have the right to redeem the senior notes, in whole or in part, at any
time and from time to time, subject to the receipt of any consent required under
the terms of any of our indebtedness which

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may be outstanding from time to time, upon not less than 30 nor more than 60
days notice, at a redemption price equal to the sum of (1) 100% of the principal
amount of the senior notes being redeemed, plus accrued and unpaid interest and
Additional Interest, if any, thereon to the redemption date, and (2) the
Make-Whole Amount, if any, with respect to such senior notes.

The term "Make-Whole Amount" means, in connection with any optional
redemption of any senior notes, the excess, if any, of (1) the sum, as
determined by a Quotation Agent of the present values of the principal amount of
such senior notes, together with scheduled payments of interest from the
redemption date to the stated maturity of the senior notes, in each case
discounted to the redemption date on a semi-annual basis, which assumes a
360-day year consisting of twelve 30-day months, at the Adjusted Treasury Rate
over (2) 100% of the principal amount of the senior notes to be redeemed.

The term "Adjusted Treasury Rate" means, with respect to any redemption
date, the rate per annum equal to the semi-annual equivalent yield to maturity
of the Comparable Treasury Issue, calculated using a price for the Comparable
Treasury Issue, which is expressed as a percentage of its principal amount,
equal to the Comparable Treasury Price for such redemption date, calculated on
the third business day preceding the redemption date, plus in each case 25 basis
points.

The term "Comparable Treasury Issue" means the United States Treasury
security selected by the quotation agent as having a maturity comparable to the
remaining term from the redemption date to the stated maturity of the senior
notes that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of comparable maturity to the remaining term of the senior notes.

The term "Quotation Agent" means the Reference Treasury Dealer appointed by
us.

The term "Reference Treasury Dealer" means: (1) Merrill Lynch, Pierce,
Fenner & Smith Incorporated and its respective successors and two additional
Primary Treasury Dealers selected by us; provided, however, that if any of the
foregoing shall cease to be a primary U.S. Government securities dealer in New
York City (a "Primary Treasury Dealer"), we shall substitute therefor another
Primary Treasury Dealer; and (2) any other Primary Treasury Dealer selected by
the trustee after consultation with us.

The term "Comparable Treasury Price" means, with respect to any redemption
date, (1) the average of the bid and asked prices for the Comparable Treasury
Issue, which is expressed in each case as a percentage of its principal amount,
on the third business day preceding such redemption date, as set forth in the
daily statistical release, or any successor release, published by the Federal
Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (2) if such release is not published or does not
contain such prices on such business day, (A) the average of the Reference
Treasury Dealer Quotations for such redemption date, after excluding the highest
and lowest such Reference Treasury Dealer Quotations, or (B) if the Quotation
Agent obtains fewer than three such Reference Treasury Dealer Quotations, the
average of all such quotations.

The term "Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Quotation Agent, of the bid and asked prices for the Comparable Treasury
Issue, which is expressed in each case as a percentage of its principal amount,
quoted in writing to the trustee by such quotation agent at 5:00 p.m., New York
City time, on the third business day preceding such redemption date.

Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of senior notes to be redeemed
at its registered address. Unless we

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default in payment of the redemption price, on and after the redemption date
interest will cease to accrue on the senior notes called for redemption.

In the case of any partial redemption, selection of senior notes for
redemption will be made by the trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the senior notes
are listed or, if not listed, on a pro rata basis, by lot or by such other
method as the trustee in its sole discretion shall deem fair and appropriate.
However, the senior notes to be redeemed shall be equal to at least $1,000 or
any multiple thereof. If any senior note is to be redeemed in part, the notice
of redemption relating to the senior note shall state the portion of the
principal amount to be redeemed. A new senior note in principal amount equal to
the unredeemed portion will be issued in the name of the holder upon
cancellation of the original senior note.

SINKING FUND

The senior notes will not have the benefit of a sinking fund.

CERTAIN COVENANTS

Merger, Consolidation or Sale of Assets. We will not consolidate with or
merge with or into any other entity or, directly or indirectly, sell, assign,
convey, transfer, lease or otherwise dispose of all or substantially all of our
assets in one or more related transactions to any entity or group of affiliated
entities unless, at the time and after giving effect thereto:

(1) (A) We shall be the continuing corporation, or (B) the entity, if
other than us, formed by such consolidation, or into which we are merged,
or the entity that acquires by sale, assignment, transfer, lease,
conveyance or other disposition our assets, substantially as an entirety,
is a corporation duly organized and validly existing under the laws of the
United States or any other jurisdiction that is not materially adverse to
the holders of the senior notes and shall, in the case of clause (B),
expressly assume, by supplemental indenture, executed and delivered to the
trustee, in form reasonably satisfactory to the trustee, all of our
obligations under the indenture;

(2) immediately before and after such transaction, giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing;

(3) immediately after giving effect to such transaction on a pro forma
basis, the successor entity's Consolidated Net Worth, after giving pro
forma effect to such transaction but not including the effect to any
purchase accounting adjustments or the accrual of deferred tax liabilities
resulting from the transaction, is at least equal to our Consolidated Net
Worth immediately before such transaction;

(4) if any of our property or assets would thereupon become subject to
any Lien, the outstanding senior notes shall be secured equally and ratably
with, or prior to, the obligation or liability secured by such Lien, unless
we could create such Lien without equally and ratably securing the senior
notes; and

(5) we have delivered to the trustee an officers' certificate and an
opinion of counsel, each stating that such consolidation, merger, transfer
or lease and the supplemental indenture, if one is required, comply with
the provisions described herein and that all conditions precedent provided
for in the indenture relating to such transaction have been complied with.

Upon any consolidation or merger or any sale, assignment, transfer, lease
or conveyance or other disposition of all or substantially all of our assets in
accordance with the provisions described above, the successor entity formed by
such consolidation or into which we are merged or to which such sale,
assignment, transfer, lease, conveyance or other disposition is made shall
succeed to, and be

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substituted for, and may exercise every right and power of, us under the
indenture with the same effect as if such successor entity had been named as the
issuer therein. When a successor assumes all the obligations of its predecessor
under the indenture and the senior notes, the predecessor will be released from
those obligations; provided that in the case of a transfer by lease, the
predecessor corporation shall not be released from the payment of principal of,
premium and Additional Interest, if any, and interest on the senior notes.

Liens. We will not, and will not permit any of our subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien
securing Indebtedness, other than Permitted Liens, on any property or asset now
owned or hereafter acquired, or on any income or profits therefrom or assign or
convey any right to receive income therefrom, unless all payments due under the
indenture and the senior notes are secured on an equal and ratable basis with,
or prior to in the case of Liens with respect to subordinated obligations, the
obligations so secured until such time as such obligations are no longer secured
by a Lien.

EVENTS OF DEFAULT AND REMEDIES

Each of the following constitutes an Event of Default, whether or not it
shall be voluntary or involuntary or be effected by the operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body:

(1) default in the payment of interest on or Additional Interest with
respect to any senior note when the same becomes due and payable and the
continuance of such default for a period of 30 days; or

(2) default in the payment of the principal of and any premium on any
senior note when the same becomes due and payable at its Maturity upon
acceleration, optional redemption or otherwise; or

(3) default in the performance, or breach, of any covenant or
agreement of ours under the indenture, other than a default in the
performance, or breach, of a covenant or agreement that is specifically
dealt with in clauses (1), (2) and (8) of this subsection, and continuance
of such default or breach for a period of 60 days after there has been
given, by registered or certified mail, to us by the trustee or to us and
the trustee by the holders of at least 25% in principal amount of the
outstanding senior notes, a written notice specifying such default or
breach and stating that such notice is a "Notice of Default"; or

(4) (A) an event of default shall have occurred under any mortgage,
bond, indenture, loan agreement or other document evidencing any issue of
Indebtedness of us or any of our subsidiaries for money borrowed, or the
payment of which is guaranteed by us or any of our subsidiaries, which
issue has an aggregate outstanding principal amount of not less than $25
million, and such default shall have resulted in such Indebtedness
becoming, whether by declaration or otherwise, due and payable prior to the
date on which it would otherwise become due and payable, or (B) a default
in any payment when due at final Stated Maturity of any such Indebtedness
outstanding in an aggregate principal amount of not less than $25 million
and, in each case, ten business days shall have elapsed after such event
during which period such event shall not have been cured or rescinded or
such Indebtedness shall not have been satisfied; or

(5) final judgments or orders are rendered against us or any of our
subsidiaries by a court or regulatory agency of competent jurisdiction
which require the payment in money, either individually or in an aggregate
amount, that is more than $25 million, other than any judgment to the
extent a reputable non-affiliated insurance company has accepted liability,
and such judgment or order shall not be discharged and either (A) any
creditor shall have commenced an enforcement proceeding upon such judgment
or order, which enforcement proceeding shall have

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remained unstayed for a period of ten days, or (B) a period of 60 days
during which a stay of enforcement shall not be in effect shall have
elapsed following the date on which any period for appeal has expired; or

(6) a decree or order is entered by a court having jurisdiction (A)
for relief in respect of us or any Principal Subsidiary in an involuntary
case or other bankruptcy proceeding under the applicable federal or state
bankruptcy, insolvency, reorganization or similar law, or (B) adjudging us
or any Principal Subsidiary bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment or composition of or in respect of
us or any Principal Subsidiary under the applicable federal or state law,
or appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator, or other similar official, of us or any Principal Subsidiary
or of any substantial part of any of our or their properties, or ordering
the winding up or liquidation of any of our or their affairs, and any such
decree or order remains unstayed and in effect for a period of 60
consecutive days; or

(7) we or any Principal Subsidiary institute a voluntary case or
proceeding under the applicable federal or state law or any other case or
proceedings to be adjudicated bankrupt or insolvent, or we or any Principal
Subsidiary consent to the entry of a decree or order for relief in respect
of us or any Principal Subsidiary in any involuntary case or proceeding
under the applicable federal or state law or the initiation of bankruptcy
or insolvency proceedings against us or any Principal Subsidiary, or we or
any Principal Subsidiary file a petition or answer or consent seeking
reorganization or relief under the applicable federal or state law, or
consent to the filing of any such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee
or sequestrator, or other similar official, of any of us or any Principal
Subsidiary or of any substantial part of our or its property, or make an
assignment for the benefit of creditors, or admit in writing our or its
inability to pay our or its debts generally as they become due or take
corporate action in furtherance of any such action; or

(8) default in the performance or breach of the provisions described
under "-- Certain Covenants -- Merger, Consolidation or Sale of Assets."

If any Event of Default, other than an Event of Default described in
clauses (6) or (7) above, occurs and is continuing, the trustee or the holders
of at least 25% in principal amount of the outstanding senior notes, by written
notice to us, and to the trustee if such notice is given by the holders, may,
and the trustee at the request of such holders shall, declare all unpaid
principal of, premium and Additional Interest, if any, and accrued interest on,
all the senior notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default described in clauses (6) or (7)
above, the amounts described above shall by such fact itself become and be
immediately due and payable without any declaration or other act on the part of
the trustee or any holder.

After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the trustee, the holders of at
least a majority in aggregate principal amount of the outstanding senior notes,
by written notice to us and the trustee, may annul such declaration if:

(1) We have paid or deposited with the trustee a sum sufficient to pay
(A) all sums paid or advanced by the trustee under the indenture and the
reasonable compensation, expenses, disbursements and advances of the
trustee, its agents and counsel, (B) all overdue interest on all senior
notes, (C) the principal of, premium and Additional Interest, if any, on
any senior notes which have become due otherwise than by such declaration
of acceleration and interest thereon at the rate borne by the senior notes,
and (D) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate borne by the senior notes; and

(2) all Events of Default, other than the non-payment of principal of
the senior notes which have become due solely by such declaration of
acceleration, have been waived as provided

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in the indenture or cured. No such rescission shall affect any subsequent
default or impair any right consequent thereon.

Notwithstanding the preceding paragraph, in the event that a declaration of
acceleration in respect of the senior notes because of an Event of Default
specified in clause (4) above shall have occurred and be continuing, such
declaration of acceleration shall be automatically rescinded and annulled if the
Indebtedness that is the subject of such Event of Default has been discharged or
the holders thereof have rescinded their declaration of acceleration in respect
of such Indebtedness, and written notice of such discharge or rescission, as the
case may be, shall have been given to the trustee by us and countersigned by the
holders of such Indebtedness or a trustee, fiduciary or agent for such holders,
within 60 days after such declaration of acceleration in respect of the senior
notes, and no other Event of Default has occurred during such 60-day period
which has not been cured or waived during such period.

The holders of not less than a majority in aggregate principal amount of
the outstanding senior notes by notice to the trustee may on the behalf of all
holders waive any existing or past Default or Event of Default and its
consequences under the indenture, except a Default or Event of Default:

(1) in the payment of the principal of, premium or Additional
Interest, if any, or interest on any senior note when the same becomes due
and payable,

(2) in respect of a covenant or provision in the indenture which
cannot be modified or amended without the consent of a holder of each
outstanding senior note affected, or

(3) in respect of a covenant or provision of the indenture which
cannot be modified or amended without the consent of the holders of a
greater percentage in principal amount of, or all of, the outstanding
senior notes.

The holders of not less than a majority in principal amount of the
outstanding senior notes shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the trustee, or
exercising any trust or power conferred on the trustee; provided that:

(1) such direction shall not be in conflict with any rule of law or
with the indenture or expose the trustee to personal liability, and

(2) subject to the provisions of the Trust Indenture Act, the trustee
may take any other action deemed proper by the trustee which is not
inconsistent with such direction.

No holder of senior notes shall have any right to institute any proceeding,
judicial or otherwise, with respect to the indenture or the senior notes, or for
the appointment of a receiver or trustee, or for any other remedy under the
indenture, unless:

(1) such holder has previously given written notice to the trustee of
a continuing Event of Default;

(2) the holders of not less than 25% in principal amount of the
outstanding senior notes shall have made written request to the trustee to
institute proceedings in respect of such Event of Default in the trustee's
own name;

(3) such holder or holders of senior notes have offered to the trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;

(4) the trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and

(5) no direction inconsistent with such written request has been given
to the trustee during such 60-day period by the holders of a majority in
principal amount of the outstanding senior notes;

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it being understood and intended that no one or more holders of senior notes
shall have any right in any manner whatever by virtue of, or by availing of, any
provision of the indenture to affect, disturb or prejudice the rights of any
other holders, or to obtain or to seek to obtain priority or preference over any
other holders or to enforce any right under the indenture except in the manner
provided in the indenture and for the equal and ratable benefit of all the
holders of senior notes.

We will deliver to the trustee, within 120 days after the end of each
fiscal year, an officers' certificate stating that we are in compliance with all
covenants and conditions to be complied with by us under the indenture. We will
also be obligated to notify the trustee of any default under the indenture
within five business days of its occurrence.

DEFEASANCE AND COVENANT DEFEASANCE

Upon compliance with certain conditions, we may, at our option and at any
time, elect to have our obligations discharged with respect to all outstanding
senior notes ("defeasance"). Such defeasance means that we shall be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
senior notes and to have satisfied all other obligations under such senior notes
and the indenture, except for:

(1) the rights of holders of outstanding senior notes to receive
payments in respect of the principal of, premium and Additional Interest,
if any, and interest on such senior notes when such payments are due, or on
the redemption date, as the case may be;

(2) our obligations with respect to the senior notes concerning
transferring senior notes, issuing temporary senior notes, registering
senior notes, replacing mutilated, destroyed, lost or stolen senior notes
and maintaining an office or agency for payment and money for senior note
payments held in trust;

(3) the rights, powers, trusts, duties and immunities of the trustee
and our obligations in connection therewith; and

(4) the defeasance provisions of the indenture.

In addition, upon compliance with certain conditions, we may, at our option
and at any time, elect to have our obligations released with respect to certain
covenants that are described in the indenture with respect to the outstanding
senior notes ("covenant defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or an Event of Default with
respect to the senior notes.

In order to exercise either defeasance or covenant defeasance:

(1) we shall irrevocably deposit or cause to be deposited with the
trustee as trust funds in trust for the purpose of making the following
payments, specifically pledged as security for, and dedicated solely to,
for the benefit of the holders of the senior notes, (A) cash in U.S.
dollars in an amount, (B) U.S. Government Obligations which through the
scheduled payment of principal and interest thereof in accordance with
their terms provide, not later than one day before the due date of any
payment, cash in U.S. dollars in an amount, or (C), a combination thereof,
in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof to the trustee, or other qualifying trustee, to pay
and discharge the principal of, premium and Additional Interest, if any,
and interest on the outstanding senior notes on the Stated Maturity or on
the applicable optional redemption date, as the case may be, of such
principal or installment of principal of, premium and Additional Interest,
if any, and interest on the senior notes, and we shall instruct the trustee
in writing to apply such money or the proceeds of such U.S. Government
Obligations to said payments with respect to the senior notes;

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(2) in the case of defeasance, we shall have delivered to the trustee
an opinion of counsel in the United States reasonably satisfactory to the
trustee confirming that: (A) we have received from, or there has been
published by, the IRS a ruling; or (B) since the date of the indenture,
there has been a change in the applicable federal income tax law, in either
case to the effect that, and based thereon such opinion shall confirm that,
the holders of the outstanding senior notes will not recognize income, gain
or loss for federal income tax purposes as a result of such defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such defeasance
had not occurred;

(3) in the case of covenant defeasance, we shall have delivered to the
trustee an opinion of counsel in the United States reasonably satisfactory
to the trustee confirming that the holders of the outstanding senior notes
will not recognize income, gain or loss for federal income tax purposes as
a result of such covenant defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such covenant defeasance had not occurred;

(4) no Default or Event of Default with respect to the senior notes
shall have occurred and be continuing on the date of such deposit or,
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date
of such deposit;

(5) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, the indenture or any
other material agreement or instrument to which we are a party or by which
we are bound;

(6) we shall have delivered to the trustee an opinion of counsel to
the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;

(7) we shall have delivered to the trustee an officers' certificate
stating that the deposit of money described in clause (1) above was not
made by us with the intent of preferring the holders of senior notes over
our other creditors or with the intent of defeating, hindering, delaying or
defrauding our creditors or others; and

(8) we shall have delivered to the trustee an officers' certificate
and an opinion of counsel in the United States, each stating that all
conditions precedent provided for relating to either the defeasance or the
covenant defeasance, as the case may be, have been complied with.

AMENDMENT, SUPPLEMENT AND WAIVER

With the consent of the holders of not less than a majority in principal
amount of the outstanding senior notes, including consents obtained in
connection with a tender offer or exchange offer for the senior notes, by act of
such holders delivered to us and the trustee, we, when authorized by a board
resolution, and the trustee may enter into one or more supplemental indentures
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the indenture or of waiving or modifying in
any manner the rights of the holders under the indenture; provided, however,
that no such supplemental indenture, amendment or waiver shall without the
consent of the holder of each outstanding senior note affected thereby:

(1) change the Stated Maturity or the principal of, or any installment
of interest on, or change our obligation to pay any Additional Interest
with respect to, any senior note or reduce the principal amount thereof or
the rate of interest thereon or any provisions relating to the redemption
price of the senior notes or the periods during which redemption may be
effected, or change the coin or currency in which the principal of any
senior note or premium or Additional Interest, if any, or the interest
thereon is payable, or impair the right to institute suit for the
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enforcement of any such payment after the Stated Maturity thereof, or, in
the case of redemption, on or after the redemption date; or

(2) reduce the percentage in principal amount of the outstanding
senior notes, the consent of whose holders is required for any such
supplemental indenture or the consent of whose holders is required for any
waiver of compliance with certain provisions of the indenture or certain
defaults and their consequences provided for in the indenture; or

(3) modify any of the provisions of the indenture relating to
amendments or waivers of payment or covenant defaults, except to increase
any such percentage or to provide that certain other provisions of the
indenture cannot be modified or waived without the consent of the holder of
each senior note affected thereby.

Notwithstanding the foregoing, without the consent of any holder of senior
notes, we, when authorized by a board resolution, and the trustee, at any time
and from time to time, may enter into one or more supplemental indentures in
form satisfactory to the trustee, for any of the following purposes:

(1) to cure any ambiguity or to correct any provision in the indenture
which may be defective or inconsistent with any other provision therein; or

(2) to provide for the assumption of our obligations to holders of the
senior notes in the case of a merger or consolidation; or

(3) to secure the senior notes pursuant to the requirements of the
provisions described under "-- Certain Covenants -- Merger, Consolidation
or Sale of Assets" or "-- Certain Covenants -- Liens," or otherwise; or

(4) to comply with the requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust Indenture Act,
as contemplated by the indenture or otherwise; or

(5) to evidence and provide the acceptance of the appointment of a
successor trustee under the indenture; or

(6) to make any other change that would provide any additional rights
or benefits to the holders of the senior notes or that does not adversely
affect the legal rights of any holder under the indenture or the senior
notes.

NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS

No director, officer, employee or stockholder, as such, of AFLAC
Incorporated or any of our subsidiaries shall have any liability for any payment
of the principal of, premium or Additional Interest, if any, or interest on, any
of the senior notes or for any obligation, covenant or agreement made by AFLAC
Incorporated in the indenture. Each holder of old notes by accepting any of the
old notes waived and released all such liability and each holder of new notes by
accepting any of the new notes waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the senior
notes.

GOVERNING LAW

The indenture and the senior notes shall be governed by and construed in
accordance with the laws of the State of New York.

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CURRENCY INDEMNITY

U.S. dollars are the sole currency of account and payment for all sums
payable by us under or in connection with the senior notes, including damages.
Any amount received or recovered in a currency other than dollars (whether as a
result of, or of the enforcement of, a judgment or order of a court of any
jurisdiction, in our winding-up or dissolution or otherwise) by any holder of
senior notes in respect of any sum expressed to be due to it from us shall only
constitute a discharge to us to the extent of the dollar amount which the
recipient is able to purchase with the amount so received or recovered in that
other currency on the date of that receipt or recovery (or, if it is not
practicable to make that purchase on that date, on the first date on which it is
practicable to do so). If that dollar amount is less than the dollar amount
expressed to be due to the recipient under any senior note, we shall indemnify
the recipient against any loss sustained by it as a result. In any event, we
shall indemnify the recipient against the cost of making any such purchase. For
the purposes of this provision of the indenture, it will be sufficient for the
holder to certify in a satisfactory manner (indicating the sources of
information used) that it would have suffered a loss had an actual purchase of
dollars been made with the amount so received in that other currency on the date
of receipt or recovery (or, if a purchase of dollars on such date had not been
practicable, on the first date on which it would have been practicable, it being
required that the need for a change of date be certified in the manner mentioned
above). These indemnities constitute a separate and independent obligation from
our other obligations, shall give rise to a separate and independent cause of
action, shall apply irrespective of any indulgence granted by any holder and
shall continue in full force and effect despite any other judgment, order, claim
or proof for a liquidated amount in respect of any sum due under any senior
note.

CONCERNING THE TRUSTEE

The indenture contains certain limitations on the rights of the trustee,
should it become our creditor, to obtain payment of claims in certain cases or
to realize on certain property received in respect of any such claim as security
or otherwise. The trustee is permitted to engage in other transactions; however,
if the trustee acquires any conflicting interest, it must eliminate such
conflict within 90 days, apply to the SEC for permission to continue or resign.

The holders of a majority in principal amount of the outstanding senior
notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur, which shall not be cured, the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request of any holder of senior notes, unless such holder shall have offered to
the trustee security and indemnity satisfactory to it against any loss,
liability or expense.

DEFINITIONS

Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as
certain other terms used herein for which no definition is provided.

The term "Capital Lease Obligation" means, as to any entity, any obligation
of such entity and its subsidiaries on a consolidated basis under any capital
lease of real or personal property which, in accordance with GAAP, has been
recorded as a capitalized lease obligation.

The term "Capital Stock" of any entity means any and all shares, interests,
participation or other equivalent, however designated, of such entity's capital
stock and any rights, other than debt securities

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convertible into or exchangeable for capital stock, warrants or options to
purchase the foregoing whether now outstanding or issued after the date hereof.

The term "Consolidated Net Worth" of any entity means the consolidated
stockholders' equity of such entity and its subsidiaries as determined in
accordance with GAAP.

The term "Currency Agreement" means any currency swap agreements, forward
exchange rate agreements, foreign currency futures or options, exchange rate
collar agreements, exchange rate insurance or other similar agreements or
arrangements, or combinations thereof, principally designed to protect an entity
or any of its subsidiaries against fluctuations in currency values. A Currency
Agreement may also include an Interest Swap Obligation.

The term "Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.

The term "Fair Market Value" means, with respect to any asset or property,
the sale value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.

The term "GAAP" means generally accepted accounting principles in the
United States, set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants
("AICPA") and statements and pronouncements of the Financial Accounting
Standards Board ("FASB") or in such other statements by such other entity as may
be approved by a significant segment of the accounting profession, consistently
applied except for accounting changes required by the AICPA, FASB or the SEC, as
in effect from time to time.

The term "Guaranteed Debt" of any entity means, without duplication, all
Indebtedness of any other entity guaranteed directly or indirectly in any manner
by such entity, or in effect guaranteed directly or indirectly by such entity
through an agreement:

(1) to pay or purchase such Indebtedness or to advance or supply funds
for the payment or purchase of such Indebtedness;

(2) to purchase, sell or lease property, as lessee or lessor, or to
purchase or sell services, primarily for the purpose of enabling such other
entity to make payment of such Indebtedness or to assure the holder of such
Indebtedness against loss;

(3) to supply funds to, or in any other manner invest in, such other
entity, including any agreement to pay for property or services to be
acquired by such other entity irrespective of whether such property is
received or such services are rendered;

(4) to maintain working capital or equity capital of such other
entity, or otherwise to maintain the net worth, solvency or other financial
condition of the debtor; or

(5) otherwise to assure a creditor of such other entity against loss;

provided that the term "guarantee" shall not include endorsements for collection
or deposit, in either case in the ordinary course of business, or any obligation
or liability of such other entity in respect of leasehold interests assigned by
such other entity to any other entity.

The term "Indebtedness" means, with respect to any entity, without
duplication:

(1) all obligations of such entity for borrowed money or for the
deferred purchase price of property or services, excluding any trade
payables and other accrued current liabilities incurred in the ordinary
course of business, if, and to the extent, any of the foregoing would
appear as a liability upon a balance sheet of such entity prepared in
accordance with GAAP;

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(2) all obligations of such entity evidenced by bonds, notes,
debentures or other similar instruments, if, and to the extent, any of the
foregoing would appear as a liability upon a balance sheet of such entity
prepared in accordance with GAAP;

(3) all obligations created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such
entity, even if the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of
such property, but excluding trade accounts payable arising in the ordinary
course of business;

(4) all Capital Lease Obligations of such entity;

(5) all obligations referred to in, but not excluded from, clause (1),
(2), (3) or (4) above of other entities and all dividends of other
entities, the payment of which is secured by, or for which the holder of
such obligations has an existing right, contingent or otherwise, to be
secured by, any Lien, upon or in property, including, without limitation,
accounts and contract rights, owned by such entity, even though such entity
has not assumed or become liable for the payment of such obligations;

(6) all Guaranteed Debt of such entity;

(7) all Redeemable Capital Stock issued by such entity valued at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends;

(8) all obligations under Currency Agreements or Interest Swap
Obligations of such entity;

(9) all obligations for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction, other than
obligations with respect to letters of credit securing insurance
obligations entered into in the ordinary course of business of such entity
to the extent that such letters of credit are not drawn upon, or if and to
the extent drawn upon, such drawing is reimbursed not later than the 30th
business day following a demand for reimbursement following payment on the
letter of credit; and

(10) any amendment, supplement, modification, deferral, renewal,
extension or refunding of any liability of the types referred to in clauses
(1) through (9) above.

Indebtedness shall not include obligations under insurance, reinsurance or
retrocession contracts entered into in the ordinary course of business. For
purposes hereof the "maximum fixed repurchase price" of any Redeemable Capital
Stock which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock as if such Redeemable
Capital Stock were purchased on any date on which Indebtedness shall be required
to be determined pursuant to the indenture, and if such price is based upon, or
measured by, the Fair Market Value of such Redeemable Capital Stock, such Fair
Market Value shall be determined in good faith by the board of directors of the
issuer of such Redeemable Capital Stock.

The term "Interest Swap Obligations" means the obligations of any entity
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement or other similar agreement or arrangement
principally designed to protect such entity or any of its subsidiaries against
fluctuations in interest rates.

The term "Lien" means any mortgage, charge, pledge, security interest, lien
or other encumbrance of any kind.

The term "Maturity" when used with respect to any senior note means the
date on which the principal of, premium and Additional Interest, if any, and
interest on such senior note becomes due

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and payable as therein provided, whether at Stated Maturity or redemption date
and whether by declaration of acceleration, call for redemption or otherwise.

The term "Permitted Liens" means:

(1) Liens securing Indebtedness pursuant to any senior credit
agreement or senior credit facility of ours or any of our subsidiaries
existing on the date of the indenture as such agreement may be
supplemented, extended, renewed, replaced or otherwise modified from time
to time, and any refinancing, replacement or substitution thereof;

(2) Liens in favor of us or any of our subsidiaries;

(3) Liens on property of an entity existing at the time such entity is
merged into or consolidated with us or any of our subsidiaries; provided
that such Liens were not incurred in connection with, or in contemplation
of, such merger or consolidation and such Liens do not extend to any assets
of ours or any of our subsidiaries other than the assets of the entity so
merged into or consolidated with us or such subsidiaries;

(4) Liens on property existing at the time of acquisition thereof by
us or any of our subsidiaries; provided that such Liens were not incurred
in connection with, or in contemplation of, such acquisition and do not
extend to any assets of ours or any of our subsidiaries other than the
property so acquired;

(5) Liens incurred or deposits required to secure the performance of
U.S. or foreign statutory obligations (including insurance regulations),
tenders, surety or appeal bonds or performance or return of money bonds or
similar obligations, or landlords', carriers', warehousemen's, mechanics',
suppliers', materialmen's or other like Liens, in any case incurred in the
ordinary course of business;

(6) Liens required by any U.S., state or foreign authority pursuant to
applicable insurance regulations;

(7) Liens existing on the date of the indenture;

(8) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded;
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;

(9) Liens to secure Capital Lease Obligations or operating leases;

(10) judgment and attachment Liens not giving rise to an Event of
Default;

(11) Liens with respect to obligations under Currency Agreements or
Interest Swap Obligations of ours or any of our subsidiaries;

(12) Liens incurred in the ordinary course of business of us or any of
our subsidiaries other than in connection with Indebtedness for borrowed
money;

(13) purchase money Liens to finance property or assets of ours or any
of our subsidiaries acquired in the ordinary course of business; provided,
however, that (A) the related purchase money Indebtedness shall not be
secured by any property or assets of ours or any of our subsidiaries other
than the property and assets so acquired, and (B) the Lien securing such
Indebtedness shall be created within 90 days of such acquisition;

(14) Liens on assets of our subsidiaries to secure obligations of such
subsidiaries to us;

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(15) Liens in favor of collecting or payor banks having a right of
setoff, revocation, refund or chargeback with respect to money or
instruments of ours or any of our subsidiaries on deposit with or in
possession of such bank;

(16) Liens attributable to sale and leaseback transactions that
collectively do not exceed 30% of our total assets;

(17) easements, covenants, zoning restrictions, rights-of-way or other
similar changes or encumbrances not interfering in any material respect
with the ordinary conduct of our business or the business of any of our
subsidiaries;

(18) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit;

(19) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of ours
or any of our subsidiaries, including rights of offset and set-off;

(20) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of us and our subsidiaries;
and

(21) any Lien extending, renewing or replacing, in whole or in part,
any Permitted Lien; provided that any such Lien is limited to all or part
of the same property or assets (plus improvements, accessions, proceeds or
dividends or distributions in respect thereof) that secured (or, under the
written arrangements under which the original Lien arose, could secure) the
Indebtedness being refinanced or is in respect of property that is the
security for a Permitted Lien.

The term "Principal Subsidiary" means: (1) our insurance company
subsidiaries in existence on the issue date; (2) any other of our insurance
company subsidiaries that becomes a "significant subsidiary" as defined in
Regulation S-X, as promulgated by the SEC; and (3) any other of our insurance
company subsidiaries that may succeed, by merger, consolidation or otherwise, to
all or substantially all of the business of one or more of such entities as
specified in (1) and (2) above.

The term "Redeemable Capital Stock" means any Capital Stock that, either by
its terms, by the terms of any security into which it is convertible or
exchangeable or otherwise, is, or upon the happening of an event or passage of
time would be required to be, redeemed on or prior to the final Stated Maturity
of the senior notes or is redeemable at the option of the holder thereof at any
time prior to such final Stated Maturity, or is convertible into or exchangeable
for debt securities at any time prior to such final Stated Maturity.

The term "Stated Maturity" means, when used with respect to any
Indebtedness or any installment of principal or of interest thereon, the date
specified in such Indebtedness as the fixed date on which the principal of such
Indebtedness or such installment of principal or of interest is due and payable.

The term "U.S. Government Obligations" means securities that are (1) direct
obligations of the United States for the timely payment of which its full faith
and credit is pledged or (2) obligations of an entity controlled or supervised
by and acting as an agency or instrumentality of the United States, the timely
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States, which, in either case, are not callable or
redeemable at the option of the issuer thereof, and shall also include a
depository receipt issued by a bank, as defined in Section 3(a)(2) of the
Securities Act, as custodian with respect to any such U.S. Government Obligation
or a specific payment of principal of or interest on any such U.S. Government
Obligation held by such custodian for the account of the holder of such
depository receipt; provided that, except as required by law, such custodian is
not authorized to make any deduction from the amount payable to the holder of
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such depository receipt from any amount received by the custodian in respect of
the U.S. Government Obligation or the specific payment of principal of or
interest on the U.S. Government Obligation evidenced by such depository receipt.

The term "Voting Stock" means stock of the class or classes pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of a corporation, irrespective of whether or not at the time stock
of any other class or classes shall have or might have voting power by reason of
the happening of any contingency.

BOOK-ENTRY; DELIVERY AND FORM

The new notes to be exchanged for old notes that were sold to qualified
institutional buyers under Rule 144A in the United States initially will be in
the form of one or more registered global notes without interest coupons
(collectively, the "U.S. global senior note"). Upon issuance, the U.S. global
senior note will be deposited with the trustee, as custodian for DTC, in New
York, New York, and registered in the name of DTC or its nominee, in each case
for credit to the accounts of DTC's participating organizations ("direct
participants") and other entities that clear through or maintain a direct or
indirect relationship with a direct participant ("indirect participants").

The new notes to be exchanged for old notes that were sold in offshore
transactions in reliance on Regulation S, if any, initially will be in the form
of one or more registered, global notes without interest coupons (collectively,
the "Reg S global senior note"). The Reg S global senior note will be deposited
with the trustee, as custodian for DTC, in New York, New York, and registered in
the name of a nominee of DTC for credit to the accounts of indirect participants
at the Euroclear System ("Euroclear") and Cedel Bank, societe anonyme ("CEDEL").

The U.S. global senior note and the Reg S global senior note are referred
to herein collectively as "global senior notes."

Transfer of beneficial interests in any global senior notes will be subject
to the applicable rules and procedures of DTC and its direct or indirect
participants which may change from time to time.

Beneficial interests in the global senior notes may be exchanged for senior
notes in certificated form in certain limited circumstances. See "--Transfers of
Interests in Global Senior Notes for Certificated Senior Notes."

Initially, the trustee will act as paying agent and registrar under the
indenture. The senior notes may be presented for registration of transfer and
exchange at the offices of the registrar.

DEPOSITARY PROCEDURES

DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for direct participants and to facilitate the clearance and
settlement of transactions in those securities between direct participants
through electronic book-entry changes in accounts of direct participants. The
direct participants include securities brokers and dealers, including the
initial purchasers, banks, trust companies, clearing corporations and certain
other organizations, including Euroclear and CEDEL. Access to DTC's system is
also available to indirect participants. DTC may hold securities beneficially
owned by other persons only through the direct participants or indirect
participants and such other persons' ownership interest and transfer of
ownership interest will be recorded only on the records of the direct
participant and/or indirect participant, and not on the records maintained by
DTC.

DTC has also advised us that, pursuant to DTC's procedures, DTC will
maintain records of the ownership interests of direct participants in the global
senior notes and the transfer of ownership

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interests by and between direct participants. DTC will not maintain records of
the ownership interests of, or the transfer of ownership interests by and
between, indirect participants or other owners of beneficial interests in the
global senior notes. Direct participants and indirect participants must maintain
their own records of the ownership interests of, and the transfer of ownership
interests by and between, indirect participants and other owners of beneficial
interests in the global senior notes.

Investors in the U.S. global senior note may hold their interests therein
directly through DTC if they are direct participants in DTC or indirectly
through organizations that are direct participants in DTC. Investors in the Reg
S global senior note may hold their interests therein directly through Euroclear
or CEDEL or indirectly through organizations that are participants in Euroclear
or CEDEL. Investors may also hold interests in the Reg S global senior note
through organizations other than Euroclear and CEDEL that are direct
participants in the DTC system. Morgan Guaranty Trust Company of New York,
Brussels office, is the operator and depository of Euroclear and Citibank, N.A.
is the operator and depository of CEDEL (each a "nominee" of Euroclear and
CEDEL, respectively). Therefore, they will each be recorded on DTC's records as
the holders of all ownership interests held by them on behalf of Euroclear and
CEDEL, respectively. Euroclear and CEDEL will maintain on their records the
ownership interests, and transfers of ownership interests by and between, their
own customers' securities accounts. DTC will not maintain records of the
ownership interests of, or the transfer of ownership interests by and between,
customers of Euroclear or CEDEL. All ownership interests in any global senior
note, including those of customers' securities accounts held through Euroclear
or CEDEL, may be subject to the procedures and requirements of DTC.

The laws of some states require that certain persons take physical delivery
in definitive, certificated form of securities that they own. This may limit or
curtail the ability to transfer beneficial interests in a global senior note to
such persons. Because DTC can act only on behalf of direct participants, which
in turn act on behalf of indirect participants and others, the ability of a
person having a beneficial interest in a global senior note to pledge such
interest to persons or entities that are not direct participants in DTC, or to
otherwise take actions in respect of such interests, may be affected by the lack
of physical certificates evidencing such interests. For certain other
restrictions on the transferability of the senior notes, see "-- Transfers of
Interests in Global Senior Notes for Certificated Senior Notes."

EXCEPT AS DESCRIBED IN "-- TRANSFERS OF INTERESTS IN GLOBAL SENIOR NOTES
FOR CERTIFICATED SENIOR NOTES," OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL
SENIOR NOTES WILL NOT HAVE SENIOR NOTES REGISTERED IN THEIR NAMES, WILL NOT
RECEIVE PHYSICAL DELIVERY OF SENIOR NOTES IN CERTIFICATED FORM AND WILL NOT BE
CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY
PURPOSE.

Under the terms of the indenture, we and the trustee will treat the persons
in whose names the senior notes are registered, including senior notes
represented by global senior notes, as the owners thereof for the purpose of
receiving payments and for any and all other purposes whatsoever under the
indenture. Payments in respect of the principal of, Additional Interest, if any,
and interest on global senior notes registered in the name of DTC or its nominee
will be payable by the trustee to DTC or its nominee as the registered holder
under the indenture. Consequently, neither we, the trustee nor any agent of ours
or the trustee has or will have any responsibility or liability for:

(1) any aspect of DTC's records or any direct participant's or
indirect participant's records relating to or payments made on account of
beneficial ownership interests in the global senior notes or for
maintaining, supervising or reviewing any of DTC's records or any direct
participant's or indirect participant's records relating to the beneficial
ownership interests in any global senior notes; or

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(2) any other matter relating to the actions and practices of DTC or
any of its direct participants or indirect participants.

DTC has advised us that its current payment practice for payments of
principal, interest and the like with respect to securities such as the senior
notes is to credit the accounts of the relevant direct participants with such
payment on the payment date in amounts proportionate to such direct
participant's respective ownership interests in the global senior notes as shown
on DTC's records. Payments by direct participants and indirect participants to
the beneficial owners of the senior notes will be governed by standing
instructions and customary practices between them and will not be the
responsibility of DTC, the trustee or us. Neither we nor the trustee will be
liable for any delay by DTC or its direct participants or indirect participants
in identifying the beneficial owners of the senior notes, and we and the trustee
may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee as the registered owner of the senior notes for all purposes.

The global senior notes will trade in DTC's Same-Day Funds Settlement
System and, therefore, transfers between direct participants in DTC will be
effected in accordance with DTC's procedures, and will be settled in immediately
available funds. Transfers between indirect participants, other than indirect
participants who hold an interest in the senior notes through Euroclear or
CEDEL, who hold an interest through a direct participant will be effected in
accordance with the procedures of such direct participant but generally will
settle in immediately available funds. Transfers between and among indirect
participants who hold interests in the senior notes through Euroclear and CEDEL
will be effected in the ordinary way in accordance with their respective rules
and operating procedures.

Subject to compliance with the transfer restrictions applicable to the
senior notes described herein, cross market transfers between direct
participants in DTC, on the one hand, and indirect participants who hold
interests in the senior notes through Euroclear or CEDEL, on the other hand,
will be effected by Euroclear's or CEDEL's respective nominee through DTC in
accordance with DTC's rules on behalf of Euroclear or CEDEL; provided, however,
delivery of instructions relating to cross market transactions must be made
directly to Euroclear or CEDEL, as the case may be, by the counterparty in
accordance with the rules and procedures of Euroclear or CEDEL and within their
established deadlines. Indirect participants who hold interests in the senior
notes through Euroclear and CEDEL may not deliver instructions directly to
Euroclear's or CEDEL's nominee. Euroclear or CEDEL will, if the transaction
meets its settlement requirements, deliver instructions to its respective
nominee to deliver or receive interests on Euroclear's or CEDEL's behalf in the
relevant global senior note in DTC, and make or receive payment in accordance
with normal procedures for same-day fund settlement applicable to DTC.

Because of time zone differences, the securities accounts of an indirect
participant who holds an interest in the senior notes through Euroclear or CEDEL
purchasing an interest in a global senior note from a direct participant in DTC
will be credited, and any such crediting will be reported to Euroclear or CEDEL,
during the European business day immediately following the settlement date of
DTC in New York. Although recorded in DTC's accounting records as of DTC's
settlement date in New York, Euroclear and CEDEL customers will not have access
to the cash amount credited to their accounts as a result of a sale of an
interest in a Reg S global senior note to a DTC participant until the European
business day for Euroclear or CEDEL immediately following DTC's settlement date.

DTC has advised us that it will take any action permitted to be taken by a
holder of senior notes only at the direction of one or more direct participants
to whose account interests in the global senior notes are credited and only in
respect of such portion of the aggregate principal amount of the senior notes as
to which such direct participant or direct participants has or have given
direction. However, if there is an Event of Default under the senior notes, DTC
reserves the right to exchange global senior notes without the direction of one
or more of its direct participants for legended senior notes in

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certificated form, and to distribute such certificated forms of senior notes to
its direct participants. See "-- Transfers of Interests in Global Senior Notes
for Certificated Senior Notes."

DTC has further advised us that its management is aware that some computer
applications, systems, and the like for processing data ("Systems") that are
dependent upon calendar dates, including dates before, on, and after January 1,
2000, may encounter "year 2000 problems." DTC has informed its participants and
other members of the financial community (the "Industry") that it has developed
and is implementing a program so that its Systems, as the same relate to the
timely payment of distributions (including principal and income payments) to
securityholders, book-entry deliveries and settlement of trades within DTC ("DTC
Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames. However, DTC's ability to perform
properly its services is also dependent upon other parties, including but not
limited to issuers and their agents, as well as third party vendors from whom
DTC licenses software and hardware and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (1) impress upon them the importance
of such services being year 2000 compliant; and (2) determine the extent of
their efforts for year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate. According to DTC, the information contained in
this paragraph with respect to DTC has been provided to the Industry for
informational purposes only and is not intended to serve as a representation,
warranty or contract modification of any kind.

Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures
to facilitate transfers of interests in the Reg S global senior note and in the
U.S. global senior note among direct participants, Euroclear and CEDEL, they are
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. None of us, the initial
purchasers or the trustee will have any responsibility for the performance by
DTC, Euroclear or CEDEL or their respective direct and indirect participants of
their respective obligations under the rules and procedures governing any of
their operations.

The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that we believe to be
reliable, but we take no responsibility for the accuracy thereof.

TRANSFERS OF INTERESTS IN ONE GLOBAL SENIOR NOTE FOR INTERESTS IN ANOTHER GLOBAL
SENIOR NOTE

Transfers involving an exchange of a beneficial interest in the Reg S
global senior note for a beneficial interest in the U.S. global senior note or
vice versa will be effected by DTC by means of an instruction originated by the
trustee through DTC/Deposit Withdraw at Custodian system. Accordingly, in
connection with such transfer, appropriate adjustments will be made to reflect a
decrease in the principal amount of the one global senior note and a
corresponding increase in the principal amount of the other global senior note,
as applicable. Any beneficial interest in the one global senior note that is
transferred to a person who takes delivery in the form of the other global
senior note will, upon transfer, cease to be an interest in such first global
senior note and become an interest in such other global senior note and,
accordingly, will thereafter be subject to all procedures applicable to
beneficial interests in such other global senior note for as long as it remains
such an interest.

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TRANSFERS OF INTERESTS IN GLOBAL SENIOR NOTES FOR CERTIFICATED SENIOR NOTES

An entire global senior note may be exchanged for certificated senior notes
in registered form without interest coupons if:

(1) DTC (A) notifies us that it is unwilling or unable to continue as
depositary for the global senior notes and we thereupon fail to appoint a
successor depositary within 90 days or (B) has ceased to be a clearing
agency registered under the Exchange Act;

(2) we, at our option, notify the trustee in writing that we elect to
cause the issuance of certificated senior notes; or

(3) there shall have occurred and be continuing a Default or an Event
of Default with respect to the senior notes.

In any such case, we will notify the trustee in writing that, upon surrender by
the direct and indirect participants of their interest in such global senior
note, certificated senior notes will be issued to each person that such direct
participants and indirect participants and DTC identify as being the beneficial
owner of the related senior notes.

Beneficial interests in global senior notes held by any direct participant
or indirect participant may be exchanged for certificated senior notes upon
request to DTC, by such direct participant, for itself or on behalf of an
indirect participant, by the trustee in accordance with customary DTC
procedures. Certificated senior notes delivered in exchange for any beneficial
interest in any global senior note will be registered in the names, and issued
in any approved denominations, requested by DTC on behalf of such direct
participant or indirect participant, in accordance with DTC's customary
procedures.

Neither we nor the trustee will be liable for any delay by the holder of
any global senior note or DTC in identifying the beneficial owners of senior
notes, and we and the trustee may conclusively rely on, and will be protected in
relying on, instructions from the holder of the global senior note or DTC for
all purposes.

SAME DAY SETTLEMENT AND PAYMENT

Payments in respect of the senior notes represented by the global senior
notes, including principal, premium and Additional Interest, if any, and
interest must be made by wire transfer of immediately available same day funds
to the accounts specified by the holder of interests in such global senior
notes. With respect to certificated senior notes, we will make all payments of
principal, premium and Additional Interest, if any, and interest by wire
transfer of immediately available same day funds to the accounts specified by
the holders thereof in writing to the trustee by the record date for such
payment or, if no such account is specified, by mailing a check to each such
holder's registered address. We expect that secondary trading in the
certificated senior notes will also be settled in immediately available funds.

REGISTRATION RIGHTS

We entered into the registration rights agreement with the initial
purchasers for the benefit of the holders of old notes. Under this agreement, we
agreed to use our best efforts, at our cost, to file and cause to become
effective a registration statement with respect to a registered offer to
exchange the old notes for new notes with terms identical to the old notes,
except that the new notes will not bear legends restricting the transfer
thereof.

The registration statement, of which this prospectus is a part, constitutes
the registration statement for purposes of the registration rights agreement.
Upon the registration statement being declared effective, we shall offer the new
notes in return for surrender of the old notes. The exchange

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offer will remain open for not less than 30 days after the date notice of the
exchange offer is mailed to holders of the old notes, or longer if required by
applicable law. For each old note you surrender to us under the exchange offer,
you will receive a new note of equal principal amount. Interest on each new note
shall accrue from the last Interest Payment Date on which interest was paid on
the old notes so surrendered or, if no interest has been paid on such old notes,
from April 21, 1999. If the applicable interpretations of the staff of the SEC
do not permit us to effect the exchange offer, or under certain other
circumstances, we will, at our cost, use our best efforts:

- to cause to become effective a shelf registration statement with respect
to resales of the old notes, and

- to keep such shelf registration statement effective until the earlier of
(1) two years after the shelf registration statement is declared
effective; (2) the date when all old notes covered by the shelf
registration statement have been sold pursuant to the shelf registration
statement; or (3) one year after the effective date of the shelf
registration statement if it is filed at the request of one of the
initial purchasers of old notes.

We will, in the event of such a shelf registration, provide to each holder
copies of the prospectus, notify each holder of old notes when the shelf
registration statement for the old notes has become effective and take certain
other actions as are required to permit resales of the old notes. A holder that
sells its old notes pursuant to the shelf registration statement generally:

- will be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers,

- will be subject to certain of the civil liability provisions under the
Securities Act in connection with such sales and

- will be bound by the provisions of the registration rights agreement that
are applicable to such a holder, including certain indemnification and
contribution obligations.

Additional interest will accrue on the old notes if:

(1) the exchange offer registration statement is not filed with the SEC on
or before July 20, 1999;

(2) the exchange offer registration statement is not declared effective on
or before October 18, 1999; or

(3) the exchange offer is not consummated and a shelf registration
statement is not declared effective on or before November 17, 1999.

This additional interest will be payable in cash semiannually in arrears each
April 15 and October 15, at a rate per year equal to 0.25% of the principal
amount of the old notes, for each event described in (1), (2) and (3) above, up
to an aggregate maximum of 0.75% per year. Upon the filing of the exchange offer
registration statement, the effectiveness of the exchange offer registration
statement, the consummation of the exchange offer or the effectiveness of a
shelf registration statement, as the case may be, after the corresponding date
listed above, the additional interest payable on the old notes from the date of
such filing, effectiveness or consummation, as the case may be, will cease to
accrue and all accrued and unpaid additional interest as of such occurrence
shall be paid to the holders of the senior notes.

If we effect the exchange offer, we will be entitled to close the exchange
offer 30 days after the commencement thereof, or such longer period required by
applicable law, provided that we have accepted all old notes previously validly
surrendered in accordance with the terms of the exchange offer. Old notes not
tendered in the exchange offer shall bear interest at 6 1/2% per annum and be

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subject to all of the terms and conditions specified in the indenture and to the
transfer restrictions set forth in the legend on the certificate for such old
notes.

This summary of certain provisions of the registration rights agreement
does not restate the agreement in its entirety. We urge you to read the
registration rights agreement, a copy of which is filed as an exhibit to the
registration statement of which this prospectus is a part.

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UNITED STATES FEDERAL TAX CONSIDERATIONS

The following is a summary of U.S. federal income tax considerations for
beneficial owners of the senior notes.

Under the Code a "U.S. Person" means a person that is any of the following:

- a citizen or resident of the United States;

- a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision thereof;

- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or

- a trust which is either subject to the supervision of a court within the
United States and the control of one or more U.S. persons or has a valid
election in effect under applicable U.S. Treasury regulations to be
treated as a U.S. person.

A "non-U.S. Person" means a person that is not a "U.S. Person."

This summary is based on current law which is subject to change (perhaps
retroactively), is for general purposes only and should not be considered tax
advice. This summary does not represent a detailed description of the federal
income tax consequences to you in light of your particular circumstances. In
addition, it does not represent a detailed description of the U.S. federal
income tax consequences applicable to you if you are subject to special
treatment under the U.S. federal income tax laws (including if you are a
"controlled foreign corporation," "passive foreign investment company" or
"foreign personal holding company"). We cannot assure you that a change in law
will not alter significantly the tax considerations that we describe in this
summary.

YOU SHOULD CONSULT YOUR OWN TAX ADVISOR CONCERNING THE PARTICULAR U.S.
FEDERAL INCOME TAX CONSEQUENCES TO YOU OF THE OWNERSHIP OF THE SENIOR NOTES, AS
WELL AS THE CONSEQUENCES TO YOU ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.

U.S. PERSONS AND NON-U.S. PERSONS

There will be no United States federal income tax consequences to anyone
exchanging an old note for a new note pursuant to the exchange offer. Such
holder will have the same adjusted basis and holding period in the new note as
it had in the old note immediately before the exchange.

U.S. PERSONS

STATED INTEREST ON SENIOR NOTES

Stated interest on a senior note generally will be taxable to a U.S. Person
as ordinary income at the time it accrues or is received in accordance with the
U.S. Person's method of accounting for U.S. federal income tax purposes.

SALE, EXCHANGE OR RETIREMENT OF SENIOR NOTES

Upon the sale, exchange, redemption, retirement or other disposition of a
senior note, a U.S. Person generally will recognize gain or loss equal to the
difference between the amount realized upon the sale, exchange, redemption,
retirement or other disposition and such holder's adjusted tax basis in the
senior note. However, the amount attributable to accrued but unpaid interest
will be taxable as such. A U.S. Person's adjusted tax basis in a senior note
will, in general, be the U.S. Person's cost for that senior note. This gain or
loss will be capital gain or loss, and net capital gain (i.e., generally capital
gain in excess of capital loss) recognized by an individual U.S. Person upon the
disposition of

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a senior note that has been held for more than one year generally will be
subject to tax at a maximum rate of 20%. A note that has been held for one year
or less will be taxed at ordinary income tax rates. The deductibility of capital
losses is subject to limitations.

MARKET DISCOUNT

U.S. Persons other than original purchasers of the old senior notes in the
offering, should be aware that the sale of the new senior notes may be affected
by the market discount provisions of the Code. The market discount rules
generally provide that if a U.S. Person:

- purchased the senior note, after the original offering, at a "market
discount" (i.e., at an amount less than the adjusted issue price of the
senior note as determined on the date of such purchase) exceeding a
statutorily-defined de minimis amount, and

- thereafter recognizes gain upon a disposition, including a partial
redemption, of the new senior note received in exchange for an old senior
note,

the lesser of such gain or the portion of the market discount that accrued while
the old senior note and new senior note were held by such U.S. Person will be
treated as ordinary interest income at the time of disposition. The rules also
provide that a U.S. Person who acquires a senior note at a market discount may
be required to defer a portion of any interest expense that may otherwise be
deductible on any indebtedness incurred or maintained to purchase or carry the
senior note until the U.S. Person disposes of such senior note in a taxable
transaction. If a holder of a senior note elects to include market discount in
income currently, both of the foregoing rules would not apply.

NON-U.S. PERSONS

U.S. FEDERAL WITHHOLDING TAX

The 30% U.S. federal withholding tax will not apply to any payment of
principal or interest on a particular series of senior notes provided that:

- you do not actually (or constructively) own 10% or more of the total
combined voting power of all classes of our voting stock within the
meaning of the Code and the U.S. Treasury Regulations;

- you are not a controlled foreign corporation that is related to us
through stock ownership;

- you are not a bank whose receipt of interest on the senior notes is
described in the Code; and

- either (a) you provide your name and address on an IRS Form W-8, and
certify, under penalty of perjury, that you are not a U.S. person or (b)
a financial institution holding the senior notes on your behalf
certifies, under penalty of perjury, that it has received an IRS Form W-8
from the beneficial owner and provides us with a copy.

If you cannot satisfy the requirements described above, payments of
premium, and interest made to you will be subject to the 30% U.S. federal
withholding tax, unless you provide us with a properly executed (1) IRS Form
1001 claiming an exemption from (or reduction in) withholding under the benefit
of a tax treaty, or (2) IRS Form 4224 stating that interest paid on the senior
notes is not subject to withholding tax because it is effectively connected with
your conduct of a trade or business in the United States.

U.S. FEDERAL ESTATE TAX

Your estate will not be subject to U.S. federal estate tax on senior notes
of a series beneficially owned by you at the time of your death, provided that
(1) you do not own 10% or more of the total combined voting power of all classes
of our voting stock (within the meaning of the Code and the

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U.S. Treasury Regulations), and (2) interest on the senior notes would not have
been, if received at the time of your death, effectively connected with the
conduct by you of a trade or business in the United States.

U.S. FEDERAL INCOME TAX

If you are engaged in a trade or business in the United States and interest
on the senior notes is effectively connected with the conduct of that trade or
business (although exempt from the 30% withholding tax), you will be subject to
U.S. federal income tax on that interest on a net income basis in the same
manner as if you were a U.S. person as defined under the Code. In addition, if
you are a foreign corporation, you may be subject to a branch profits tax equal
to 30% (or lower applicable treaty rate) of your earnings and profits for the
taxable year, subject to adjustments that are effectively connected with the
conduct by you of a trade or business in the United States. For this purpose,
interest on senior notes will be included in earnings and profits.

Any gain or income realized on the disposition of a senior note generally
will not be subject to U.S. federal income tax unless (1) that gain or income is
effectively connected with the conduct of a trade or business in the United
States by you, or (2) you are an individual who is present in the United States
for 183 days or more in the taxable year of that disposition, and certain other
conditions are met.

INFORMATION REPORTING AND BACKUP WITHHOLDING

In general, information reporting and backup withholding will not be
required regarding payments that we make to you provided that we do not have
actual knowledge that you are a U.S. person and we have received from you the
statement described above under "U.S. federal withholding tax," or you otherwise
establish an exemption.

In addition, you will not be required to pay backup withholding and provide
information reporting regarding the proceeds of the sale of a senior note within
the United States or conducted through certain U.S.-related financial
intermediaries, if the payor receives the statement described above and does not
have actual knowledge that you are a U.S. person, as defined under the Code, or
you otherwise establish an exemption.

U.S. Treasury Regulations were recently issued that generally modify the
information reporting and backup withholding rules applicable to certain
payments made after December 31, 1999. In general, the new U.S. Treasury
Regulations would not significantly alter the present rules discussed above,
except in certain special situations.

Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against your U.S. federal income tax liability provided the
required information is furnished to the IRS.

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PLAN OF DISTRIBUTION

Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of new notes received in exchange for old notes where
such old notes were acquired as a result of market-making activities or other
trading activities. We have agreed that starting on the Expiration Date and
ending on the close of business on the 90th day following the Expiration Date,
we will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition, until
September 21, 1999, all dealers effecting transactions in the new notes may be
required to deliver a prospectus.

We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time:

- in one or more transactions in the over-the-counter market,

- in negotiated transactions,

- through the writing of options on the new notes, or

- a combination of such methods of resale.

Such notes may be sold:

- at market prices prevailing at the time of resale,

- at prices related to such prevailing market prices, or

- at negotiated prices.

Any such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer or the purchasers of any such new notes.

Any broker-dealer that resells new notes that were received by it for its
own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such new notes may be deemed to be an
"underwriter" within the meaning of the Securities Act. Any profit on any such
resale of new notes and any commissions or concessions received by any of them
may be deemed to be underwriting compensation under the Securities Act. The
letter of transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.

For a period of 90 days after the Expiration Date, we will promptly send
additional copies of the prospectus and any amendment or supplement to the
prospectus to any broker-dealer requesting these copies in the letter of
transmittal. We have agreed to pay all expenses incident to the exchange offer,
including the expenses of one counsel for the holders of the old notes other
than commissions or concessions of any brokers or dealers and will indemnify the
holders of the notes, including any broker-dealers, against various liabilities,
including liabilities under the Securities Act.

Following consummation of the exchange offer, we may, in our sole
discretion, commence one or more additional exchange offers to holders of old
notes who did not exchange their old notes for new notes in the exchange offer
on terms which may differ from those contained in the registration rights
agreement. We may use this prospectus, as it may be amended or supplemented from
time to time, in connection with any such additional exchange offers.

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LEGAL MATTERS

Certain legal matters in connection with the new notes will be passed upon
for AFLAC Incorporated by Skadden, Arps, Slate, Meagher & Flom LLP, 1440 New
York Avenue, N.W., Washington, D.C. 20005 and by Joey M. Loudermilk, Senior Vice
President and General Counsel of AFLAC Incorporated.

EXPERTS

The consolidated financial statements of AFLAC Incorporated included in
this prospectus have been audited by KPMG LLP, independent certified public
accountants, to the extent and for the periods indicated in their report
thereon. Such financial statements have been included in reliance upon the
report of KPMG LLP given upon their authority as experts in accounting and
auditing.

DOCUMENTS INCORPORATED BY REFERENCE

The SEC allows us to "incorporate by reference" certain documents, which
means that we can disclose important information to you by referring you to
those documents. The information in the documents incorporated by reference is
considered to be part of this prospectus, and information in documents that we
file later with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings we will make with the SEC under Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act:

- Annual Report on Form 10-K for the fiscal year ended December 31,
1998.

- Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.

We will provide a copy of the documents we incorporate by reference, at no
cost, to any person who receives this prospectus. To request a copy of any or
all of these documents, you should write or telephone us at the following
address and telephone number:

AFLAC Incorporated
1932 Wynnton Road
Columbus, Georgia 31999
Attention: Investor Relations Department
Telephone: (706) 323-3431

TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST THIS INFORMATION NO LATER THAN
FIVE DAYS BEFORE YOU MUST MAKE YOUR INVESTMENT DECISION. FIVE DAYS BEFORE THE
CLOSE OF THE EXCHANGE OFFER IS JUNE 18, 1999, UNLESS EXTENDED.

84
<PAGE> 84

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the SEC under the Exchange Act. The Exchange Act file number
for our SEC filings is 1-7434. You may read and copy any document we file at the
following SEC public reference rooms:

<TABLE>
<S> <C> <C>
Judiciary Plaza 500 West Madison Street 7 World Trade Center
450 Fifth Street, N.W. 14th Floor Suite 1300
Room 1024 Chicago, Illinois 60661 New York, New York 10048
Washington, D.C. 20549
</TABLE>

You may obtain information on the operation of the public reference room in
Washington, D.C. by calling the SEC at 1-800-SEC-0330.

We file information electronically with the SEC. Our SEC filings also are
available from the SEC's Internet site at http://www.sec.gov, which contains
reports, proxy and information statements and other information regarding
issuers that file electronically. Our common stock is listed on the New York
Stock Exchange. You may also read and copy our SEC filings and other information
at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005.

Whether or not we are required to do so by law, for so long as any of the
senior notes remain outstanding, we will furnish you as a holder of the senior
notes and will, if permitted, file with the SEC the following:

(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
we were required to file such forms;

(2) with respect to annual information only, a report thereon by our
independent certified public accountants; and

(3) all reports that would be required to be filed with the SEC on
Form 8-K if we were required to file such reports.

For so long as any of the senior notes remain outstanding, we have agreed
to make available to any prospective purchaser of the senior notes or beneficial
owner of the senior notes in connection with any sale of those notes the
information required by Rule 144A(d)(4) under the Securities Act.
------------------------

85
<PAGE> 85

AFLAC INCORPORATED
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Statements of Earnings for the Three Months
Ended March 31, 1999 and 1998 Unaudited................... F-2
Consolidated Balance Sheets, at March 31, 1999 and 1998
Unaudited................................................. F-3
Consolidated Statements of Shareholders' Equity for the
Three Months Ended March 31, 1999 and 1998 Unaudited...... F-4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998 Unaudited................... F-5
Consolidated Statements of Comprehensive Income for the
Three Months Ended March 31, 1999 and 1998 Unaudited...... F-6
Notes to the Consolidated Financial Statements at March 31,
1999 Unaudited............................................ F-7
Independent Auditors' Report................................ F-12
Consolidated Statements of Earnings, for each of the years
in the three-year period ended December 31, 1998.......... F-13
Consolidated Balance Sheets, at December 31, 1998 and
1997...................................................... F-14
Consolidated Statements of Shareholders' Equity, for each of
the years in the three-year period ended December 31,
1998...................................................... F-15
Consolidated Statements of Cash Flows, for each of the years
in the three-year period ended December 31, 1998.......... F-16
Consolidated Statements of Comprehensive Income, for each of
the years in the three-year period ended December 31,
1998...................................................... F-17
Notes to the Consolidated Financial Statements at December
31, 1998.................................................. F-18
</TABLE>

F-1
<PAGE> 86

AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
--------- ---------
(IN MILLIONS, EXCEPT FOR
SHARE AND PER-SHARE
AMOUNTS -- UNAUDITED)
<S> <C> <C>
Revenues:
Premiums, principally supplemental health insurance....... $ 1,728 $ 1,472
Net investment income..................................... 320 279
Realized investment gains (losses)........................ (5) --
Other income.............................................. 5 6
-------- --------
Total revenues.................................... 2,048 1,757
-------- --------
Benefits and expenses:
Benefits and claims....................................... 1,400 1,214
Acquisition and operating expenses:
Amortization of deferred policy acquisition costs...... 57 47
Insurance commissions.................................. 226 192
Insurance expenses..................................... 142 118
Provision for mandated policyholder protection fund.... -- 111
Interest expense....................................... 4 3
Other operating expenses............................... 16 19
-------- --------
Total acquisition and operating expenses.......... 445 490
-------- --------
Total benefits and expenses....................... 1,845 1,704
-------- --------
Earnings before income taxes...................... 203 53
Income tax expense (benefit):
Operations................................................ 74 14
Deferred tax benefit from Japanese tax rate reductions.... (67) (121)
-------- --------
Total income taxes................................ 7 (107)
-------- --------
Net earnings...................................... $ 196 $ 160
======== ========
Net earnings per share:
Basic..................................................... $ .74 $ .60
Diluted................................................... .71 .58
======== ========
Shares used in computing earnings per share (In thousands):
Basic..................................................... 266,115 266,831
Diluted................................................... 276,769 276,294
======== ========
Cash dividends per share.................................... $ .065 $ .058
======== ========
</TABLE>

See the accompanying Notes to Consolidated Financial Statements.
F-2
<PAGE> 87

AFLAC INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31,
1999 1998
-------- --------
(IN MILLIONS, EXCEPT FOR
PER-SHARE AMOUNTS --
UNAUDITED)
<S> <C> <C>
ASSETS:
Investments and cash:
Securities available for sale, at fair value:
Fixed maturities (amortized cost, $15,779 in 1999 and
$16,028 in 1998).................................... $17,873 $18,917
Perpetual debentures (amortized cost, $1,826 in 1999
and $3,323 in 1998)................................. 1,730 3,681
Equity securities (cost, $102 in 1999 and $85 in
1998)............................................... 180 167
Securities held to maturity, at amortized cost:
Fixed maturities (fair value, $3,686 in 1999)........ 3,803 --
Perpetual debentures (fair value, $3,091 in 1999).... 3,344 --
Mortgage loans and other............................... 9 16
Short-term investments................................. 9 45
Cash and cash equivalents.............................. 269 145
------- -------
Total investments and cash........................ 27,217 22,971
Receivables, primarily premiums........................ 230 213
Receivables for security transactions.................. 25 1
Accrued investment income.............................. 279 236
Deferred policy acquisition costs...................... 3,040 2,604
Property and equipment, at cost less accumulated
depreciation.......................................... 450 381
Securities held as collateral for loaned securities.... -- 1,028
Other.................................................. 108 94
------- -------
Total assets...................................... $31,349 $27,528
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Policy liabilities:
Future policy benefits............................... $22,119 $18,655
Unpaid policy claims................................. 1,305 1,052
Unearned premiums.................................... 306 278
Other policyholders' funds........................... 246 199
------- -------
Total policy liabilities.......................... 23,976 20,184
Notes payable.......................................... 573 511
Income taxes........................................... 1,733 1,694
Payables for return of collateral on loaned
securities............................................ -- 1,028
Payables for security transactions..................... 437 10
Other.................................................. 771 647
------- -------
Total liabilities................................. 27,490 24,074
------- -------
Shareholders' equity:
Common stock of $.10 par value. In thousands:
authorized 400,000 shares; issued 318,570 shares in
1999 and 317,097 shares in 1998....................... 32 16
Additional paid-in capital............................. 241 232
Retained earnings...................................... 3,040 2,588
Accumulated other comprehensive income:
Unrealized foreign currency translation gains........ 214 230
Unrealized gains on investment securities............ 1,243 1,202
Treasury stock, at average cost........................ (910) (812)
Notes receivable for stock purchases................... (1) (2)
------- -------
Total shareholders' equity........................ 3,859 3,454
------- -------
Total liabilities and shareholders' equity........ $31,349 $27,528
======= =======
Shareholders' equity per share.................... $ 14.47 $ 12.92
======= =======
</TABLE>

See the accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 88

AFLAC INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
------ ------
(IN MILLIONS, EXCEPT FOR
PER-SHARE AMOUNTS --
UNAUDITED)
<S> <C> <C>
Common Stock:
Balance at beginning and end of period.................... $ 32 $ 16
------ ------
Additional paid-in capital:
Balance at beginning of year.............................. 235 227
Exercise of stock options................................. 3 3
Gain on treasury stock reissued........................... 3 2
------ ------
Balance at end of period.................................. 241 232
------ ------
Retained earnings:
Balance at beginning of year.............................. 2,862 2,442
Net earnings.............................................. 196 160
Cash dividends ($.065 per share in 1999 and $.058 in
1998).................................................. (18) (14)
------ ------
Balance at end of period.................................. 3,040 2,588
------ ------
Accumulated other comprehensive income:
Balance at beginning of year.............................. 1,551 1,559
Change in unrealized foreign currency translation gains
during period, net of income taxes..................... (5) (44)
Unrealized gains (losses) on investment securities during
period, net of income taxes and reclassification
adjustments............................................ (89) (83)
------ ------
Balance at end of period.................................. 1,457 1,432
------ ------
Treasury stock:
Balance at beginning of year.............................. (910) (813)
Purchases of treasury stock............................... (11) (7)
Cost of shares issued..................................... 11 8
------ ------
Balance at end of period.................................. (910) (812)
------ ------
Notes receivable for stock purchases........................ (1) (2)
------ ------
Total shareholders' equity................................ $3,859 $3,454
====== ======
</TABLE>

See the accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 89

AFLAC INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1999 1998
----- -----
(IN MILLIONS --
UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 196 $ 160
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Increase in policy liabilities.......................... 620 570
Deferred income taxes................................... (41) (161)
Change in income taxes payable.......................... (73) (47)
Increase in deferred policy acquisition costs........... (69) (53)
Change in receivables and advance premiums.............. 2 5
Depreciation and amortization expense................... 7 7
Provision for mandated policyholder protection fund..... -- 111
Other, net.............................................. 53 29
----- -----
Net cash provided by operating activities............. 695 621
----- -----
Cash flows from investing activities:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed-maturity securities sold........................ 279 302
Fixed-maturity securities matured..................... 63 162
Equity securities..................................... 16 10
Securities held to maturity:
Fixed-maturity securities matured..................... 9 --
Mortgage loans and other investments, net............... -- 1
Short-term investments, net............................. 1 --
Costs of investments acquired:
Securities available for sale:
Fixed-maturity securities............................. (648) (869)
Perpetual debentures.................................. (434) (278)
Equity securities..................................... (19) (17)
Securities held to maturity:
Fixed-maturity securities............................. (42) --
Short-term investments, net............................. -- (2)
Additions to property and equipment, net.................. (3) (6)
----- -----
Net cash used by investing activities................. (778) (697)
----- -----
Cash flows from financing activities:
Principal payments under debt obligations................. (3) (5)
Dividends paid to shareholders............................ (18) (14)
Purchases of treasury stock............................... (11) (7)
Treasury stock reissued................................... 14 10
Other, net................................................ 5 1
----- -----
Net cash used by financing activities................... (13) (15)
----- -----
Effect of exchange rate changes on cash and cash
equivalents............................................... (9) --
----- -----
Net change in cash and cash equivalents................. (105) (91)
Cash and cash equivalents, beginning of year................ 374 236
----- -----
Cash and cash equivalents, end of period.................... $ 269 $ 145
===== =====
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest on debt obligations............................ $ 3 $ 3
Income taxes............................................ 139 103
</TABLE>

See the accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 90

AFLAC INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
------ ------
(IN MILLIONS -- UNAUDITED)
<S> <C> <C>
Net earnings................................................ $196 $160
---- ----
Other comprehensive income, before income taxes:
Foreign currency translation adjustments:
Change in unrealized foreign currency translation gains
during the period..................................... 24 7
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) arising during the
period................................................ (95) (48)
Reclassification adjustment for realized (gains) losses
included in net earnings.............................. 4 (1)
---- ----
Total other comprehensive income, before income
taxes........................................... (67) (42)
Income tax expense related to items of other comprehensive
income.................................................... 27 85
---- ----
Other comprehensive income, net of income taxes........... (94) (127)
---- ----
Total comprehensive income........................ $102 $ 33
==== ====
</TABLE>

See the accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 91

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited consolidated
financial statements of AFLAC Incorporated and subsidiaries (the "Company")
contain all adjustments necessary to fairly present the financial position as of
March 31, 1999, and the results of operations and statements of cash flows,
shareholders' equity and comprehensive income for the three months ended March
31, 1999 and 1998. Results of operations for interim periods are not necessarily
indicative of results for the entire year.

We prepare our financial statements in accordance with generally accepted
accounting principles (GAAP). These principles are established primarily by the
Financial Accounting Standards Board (FASB) and the American Institute of
Certified Public Accountants. The preparation of financial statements in
conformity with GAAP requires us to make estimates when recording transactions
resulting from business operations, based on information currently available.
The most significant items on our balance sheet that involve a greater extent of
accounting and actuarial estimates subject to changes in the future are:
deferred policy acquisition costs, liabilities for future policy benefits and
unpaid policy claims, accrued liabilities for unfunded retirement plans and
contingent liabilities. As additional information becomes available (or actual
amounts are determinable), the recorded estimates may be revised and reflected
in operating results. Although some variability is inherent in these estimates,
we believe the amounts provided are adequate.

The financial statements should be read in conjunction with the financial
statements included in our annual report to shareholders for the year ended
December 31, 1998.

(2) ACCOUNTING PRONOUNCEMENTS

We adopted SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information in 1998. This Statement requires that companies disclose
segment data on the basis that is used internally by management for evaluating
segment performance and allocating resources to segments. This Statement
requires that a company report a measure of segment profit or loss, certain
specific revenue and expense items, and segment assets. It also requires various
reconciliations of total segment information to amounts in the consolidated
financial statements. SFAS No. 131 was effective for financial statements issued
for annual periods beginning in 1998 and for interim periods beginning in 1999.
The required interim period information is presented in Note 3.

On January 1, 1999, we adopted Statement of Position (SOP) 97-3, Accounting
by Insurance and Other Enterprises for Insurance Related Assessments. This SOP
provides guidance for determining when an entity should recognize a liability
for guaranty fund and other insurance related assessments. It also provides
guidance on how to measure the liability. There was no effect on net earnings or
shareholders' equity due to our adoption of this SOP since our previous
accounting method for guaranty fund and other insurance related assessments
conformed to the requirements of this SOP.

We also adopted SOP 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, on January 1, 1999. This SOP provides
guidance for determining whether costs of software developed or obtained for
internal use should be capitalized or expensed as incurred. In the past, we have
expensed all such costs as they were incurred. The adoption of this SOP had no
material effect on net earnings for the three months ended March 31, 1999.

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
was issued in June 1998. This Statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in investment securities and other contracts, and

F-7
<PAGE> 92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative will
be included in either earnings or other comprehensive income depending on the
intended use of the derivative instrument. We are currently evaluating this
standard, which is effective for AFLAC January 1, 2000.

(3) SEGMENT INFORMATION

Information regarding components of operations for the three months ended
March 31 follows:

<TABLE>
<CAPTION>
1999 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
Total revenues:
AFLAC Japan:
Earned premiums........................................ $1,398 $1,181
Net investment income.................................. 262 226
Other income........................................... -- 1
------ ------
Total AFLAC Japan revenues........................ 1,660 1,408
------ ------
AFLAC U.S.:
Earned premiums........................................ 330 289
Net investment income.................................. 58 51
Other income........................................... -- 3
------ ------
Total AFLAC U.S. revenues......................... 388 343
------ ------
All other business segments............................... 7 7
------ ------
Total business segments........................... 2,055 1,758
Realized investment gains (losses)........................ (5) --
Corporate................................................. 7 8
Intercompany eliminations................................. (9) (9)
------ ------
Total............................................. $2,048 $1,757
====== ======
Earnings before income taxes:
AFLAC Japan............................................... $ 158 $ 125
AFLAC U.S. ............................................... 63 56
All other business segments............................... 1 --
------ ------
Total business segments........................... 222 181
Provision for the Japanese mandated policyholder
protection fund........................................ -- (111)
Realized investment gains (losses)........................ (5) --
Interest expense, non-insurance operations................ (3) (3)
Corporate................................................. (11) (14)
------ ------
Total............................................. $ 203 $ 53
====== ======
</TABLE>

(4) JAPANESE INCOME TAXES

At the end of March 1999, the Japanese government reduced the Japanese
corporate income tax rate from 41.7% to 36.2%, which increased net earnings for
the first quarter of 1999 by $67 million ($.25 per basic share, $.24 per diluted
share) from the reduction of our consolidated deferred income tax liability as
of March 31, 1999. This was the net effect of recalculating Japanese deferred
income taxes at the new 36.2% rate on the temporary differences between the
financial reporting basis of

F-8
<PAGE> 93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

AFLAC Japan's assets and liabilities reduced by the limitations in the U.S.
foreign tax credit provisions.

At the end of March 1998, the Japanese government reduced the Japanese
corporate income tax rate from 45.3% to 41.7% which increased net earnings for
the first quarter of 1998 by $121 million ($.45 per basic share, $.44 per
diluted share) from the reduction of AFLAC Japan's deferred income tax
liability. The deferred tax reduction represented the effect of recalculating
Japanese deferred income taxes at the 41.7% rate on the temporary differences
between the financial reporting basis and the Japanese income tax basis of AFLAC
Japan's assets and liabilities.

The 1998 rate reduction for AFLAC Japan was effective May 1, 1998 for
purposes of calculating income tax expense on operating earnings and the 1999
rate reduction is effective April 1, 1999.

(5) POLICYHOLDER PROTECTION FUND

During the first quarter of 1998, the Japanese government enacted a
mandatory policyholder protection fund system. The life insurance industry is
required to contribute $4.1 billion to this fund over a 10-year period. The
total charge for our share of the contribution obligation was recognized in the
first quarter of 1998 and decreased pretax earnings by $111 million for the
three months ended March 31, 1998. The after-tax charge was $65 million, or $.24
per basic and diluted share.

(6) NOTES PAYABLE

A summary of notes payable is as follows:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(IN MILLIONS)
<S> <C> <C>
Unsecured, yen-denominated notes payable to banks:
Reducing, revolving credit agreement, due annually through
July 2001:
2.29% fixed interest rate.............................. $282 $294
Variable interest rate (.93% at March 31, 1999)........ 32 35
Revolving credit agreement due November 2002:
1.24% fixed interest rate.............................. 129 134
Variable interest rate (.95% at March 31, 1999)........ 112 115
Obligations under capitalized leases, due monthly through
2003, secured by computer equipment in Japan.............. 18 18
---- ----
Total notes payable............................... $573 $596
==== ====
</TABLE>

We have a reducing, revolving credit agreement that provides for bank
borrowings through July 2001 in either U.S. dollars or Japanese yen. The current
borrowing limit is $325 million. Under the terms of the agreement, the borrowing
limit will reduce to $250 million on July 15, 1999, and $125 million on July 15,
2000. At March 31, 1999, 34.1 billion yen ($282 million) was outstanding at a
fixed interest rate and 3.8 billion yen ($32 million) was outstanding at a
variable interest rate under this agreement.

We also have an unsecured revolving credit agreement that provides for bank
borrowings through November 2002 with a borrowing limit of $250 million, payable
in either U.S. dollars or Japanese yen. At March 31, 1999, 15.5 billion yen
($129 million) was outstanding at a fixed interest rate and 13.5 billion yen
($112 million) was outstanding at a variable interest rate under this agreement.

F-9
<PAGE> 94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

We have outstanding interest rate swaps on a portion of our variable
interest rate yen-denominated borrowings (49.6 billion yen). These swaps reduce
the impact of changes in interest rates on our borrowing costs and effectively
change our interest rate from variable to fixed. The interest rate swaps have
notional principal amounts that equal the anticipated unpaid principal amounts.
Under these agreements, we make fixed rate payments at 2.29% on one loan and
1.24% on another loan and receive floating rate payments (.19% at March 31, 1999
plus loan costs of 25 or 20 basis points, respectively) based on the three-month
Tokyo Interbank Offered Rate.

We have designated our yen-denominated borrowings as a hedge of our net
investment in AFLAC Japan. Foreign currency translation gains/losses are
included in accumulated other comprehensive income. Outstanding principal and
related accrued interest payable on the yen-denominated borrowings were
translated into dollars at end-of-period exchange rates. Interest expense was
translated at average exchange rates for the period the interest expense was
incurred.

On April 21, 1999, we issued $450 million of senior notes with a 6.50%
coupon, paid semiannually. The notes are redeemable at our option and at any
time at a redemption price equal to the principal amount of the notes being
redeemed plus a make-whole amount.

(7) UNREALIZED GAINS ON INVESTMENT SECURITIES

On October 1, 1998, we reclassified certain debt securities from "available
for sale" to "held to maturity." The related net unrealized gains and losses at
the date of transfer on these securities are being amortized over the remaining
term of the securities. These unamortized net unrealized gains and losses, plus
the net unrealized gains and losses on securities available for sale, less
amounts applicable to policy liabilities and deferred income taxes, are reported
in accumulated other comprehensive income. The portion of unrealized gains
credited to policy liabilities represents gains that would not inure to the
benefit of shareholders if such gains were actually realized. These amounts
relate to policy reserve interest requirements and reflect the difference
between market investment yields and estimated minimum required interest rates.

The net effect on shareholders' equity of unrealized gains and losses from
investment securities at the following dates was:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(IN MILLIONS)
<S> <C> <C>
Unrealized gains on securities available for sale........... $2,076 $1,946
Unamortized unrealized gains on securities transferred to
held to maturity.......................................... 1,149 1,224
Less:
Policy liabilities........................................ 1,032 885
Deferred income taxes..................................... 950 953
------ ------
Shareholders' equity, net unrealized gains on investment
securities................................................ $1,243 $1,332
====== ======
</TABLE>

(8) SECURITY LENDING

AFLAC Japan uses short-term security lending arrangements to increase
investment income with minimal risk. At March 31, 1999 and December 31, 1998 we
had security loans outstanding in the

F-10
<PAGE> 95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

amounts of $543 million and $3.0 billion at fair value, respectively. At March
31, 1999, and December 31, 1998, we held Japanese government bonds as collateral
for loaned securities in the amounts of $547 million and $3.1 billion, at fair
value. Our security lending policy requires that the fair value of the
securities received as collateral be 105% or more of the fair value of the
loaned securities as of the date the securities are loaned and not less than
100% thereafter.

(9) COMMON STOCK

The following is a reconciliation of the number of shares of our common
stock for the three months ended March 31:

<TABLE>
<CAPTION>
1999 1998
--------- ---------
(IN THOUSANDS OF SHARES)
<S> <C> <C>
Common stock -- issued:
Balance at beginning of year.............................. 317,971 316,380
Exercise of stock options................................. 599 717
------- -------
Balance at end of period.................................. 318,570 317,097
------- -------
Treasury stock:
Balance at beginning of year.............................. 52,287 49,944
Purchases of treasury stock:
Open market............................................ 150 114
Received from employees for taxes on stock option
exercises............................................. 98 139
Shares issued to sales associates stock bonus plan and
dividend reinvestment plan............................. (191) (280)
Exercise of stock options................................. (429) (201)
------- -------
Balance at end of period.................................. 51,915 49,716
------- -------
Shares outstanding at end of period......................... 266,655 267,381
======= =======
</TABLE>

(10) LITIGATION

We are a defendant in various litigation considered to be in the normal
course of business. Some of this litigation is pending in Alabama, where large
punitive damages bearing little relation to the actual damages sustained by
plaintiffs have been awarded against other companies, including insurers, in
recent years. Although the final results of any litigation cannot be predicted
with certainty, we believe the outcome of pending litigation will not have a
material adverse effect on our financial position.

F-11
<PAGE> 96

INDEPENDENT AUDITORS' REPORT

The Shareholders and Board of Directors
AFLAC Incorporated:

We have audited the accompanying consolidated balance sheets of AFLAC
Incorporated and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of earnings, shareholders' equity, cash flows and
comprehensive income for each of the years in the three-year period ended
December 31, 1998. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AFLAC
Incorporated and subsidiaries at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.

KPMG LLP

Atlanta, Georgia
January 28, 1999

F-12
<PAGE> 97

AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
------- ------- -------
(IN MILLIONS, EXCEPT FOR SHARE
AND PER-SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Premiums, principally supplemental health insurance...... $ 5,943 $ 5,874 $ 5,910
Net investment income.................................... 1,138 1,078 1,022
Realized investment gains (losses)....................... (2) (5) 2
Gain on sale of television business...................... -- 267 60
Other income............................................. 25 37 106
------- ------- -------
Total revenues................................... 7,104 7,251 7,100
------- ------- -------
Benefits and expenses:
Benefits and claims...................................... 4,877 4,833 4,896
Acquisition and operating expenses:
Amortization of deferred policy acquisition costs..... 201 180 162
Insurance commissions................................. 773 773 778
Insurance expenses.................................... 504 479 437
Provision for mandated policyholder protection fund... 111 -- --
Interest expense...................................... 13 14 16
Other operating expenses.............................. 74 107 161
------- ------- -------
Total acquisition and operating expenses......... 1,676 1,553 1,554
------- ------- -------
Total benefits and expenses...................... 6,553 6,386 6,450
------- ------- -------
Earnings before income taxes..................... 551 865 650
Income tax expense (benefit):
Current.................................................. 277 292 240
Deferred -- operations................................... (92) (12) 16
Deferred tax benefit from Japanese tax rate reduction.... (121) -- --
------- ------- -------
Total income taxes............................... 64 280 256
------- ------- -------
Net earnings..................................... $ 487 $ 585 $ 394
======= ======= =======
Net earnings per share:
Basic.................................................... $ 1.83 $ 2.15 $ 1.41
Diluted.................................................. 1.76 2.08 1.36
Common shares used in computing earnings per share
(In thousands):
Basic.................................................... 266,305 272,110 280,352
Diluted.................................................. 275,872 281,596 288,922
</TABLE>

Share and per-share amounts reflect the 2-for-1 stock split paid on June 8,
1998.
See the accompanying Notes to the Consolidated Financial Statements.
F-13
<PAGE> 98

AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
-------- --------
(IN MILLIONS, EXCEPT
FOR SHARE AMOUNTS)
<S> <C> <C>
ASSETS:
Investments and cash:
Securities available for sale, at fair value:
Fixed maturities (amortized cost $15,699 in 1998
and $16,073 in 1997).............................. $17,660 $19,007
Perpetual debentures (amortized cost $1,414 in 1998
and $3,048 in 1997)............................... 1,323 3,431
Equity securities (cost $101 in 1998 and $80 in
1997)............................................. 177 146
Securities held to maturity, at amortized cost:
Fixed maturities (fair value $3,691)............... 3,947 --
Perpetual debentures (fair value $3,131)........... 3,494 --
Mortgage loans and other................................ 9 17
Short-term investments.................................. 10 43
Cash and cash equivalents............................... 374 236
------- -------
Total investments and cash..................... 26,994 22,880
Receivables, primarily premiums............................. 229 213
Receivables for security transactions....................... 43 3
Accrued investment income................................... 316 265
Deferred policy acquisition costs........................... 3,067 2,582
Property and equipment, at cost less accumulated
depreciation.............................................. 427 386
Securities held as collateral for loaned securities......... -- 3,034
Other....................................................... 107 91
------- -------
Total assets................................... $31,183 $29,454
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Policy liabilities:
Future policy benefits............................. $22,218 $18,399
Unpaid policy claims............................... 1,263 1,011
Unearned premiums.................................. 309 277
Other policyholders' funds......................... 244 198
------- -------
Total policy liabilities....................... 24,034 19,885
Notes payable........................................... 596 523
Income taxes............................................ 1,865 1,827
Payables for return of collateral on loaned
securities............................................. -- 3,034
Payables for security transactions...................... 173 216
Other................................................... 745 539
Commitments and contingencies (Notes 11 and 12)
------- -------
Total liabilities.............................. 27,413 26,024
------- -------
Shareholders' equity:
Common stock of $.10 par value. In thousands: authorized
400,000 shares; issued 317,971 shares in 1998 and
316,380 shares in 1997................................. 32 16
Additional paid-in capital.............................. 235 227
Retained earnings....................................... 2,862 2,442
Accumulated other comprehensive income:
Unrealized foreign currency translation gains...... 219 274
Unrealized gains on investment securities.......... 1,332 1,285
Treasury stock, at average cost......................... (910) (813)
Notes receivable for stock purchases.................... -- (1)
------- -------
Total shareholders' equity..................... 3,770 3,430
------- -------
Total liabilities and shareholders' equity..... $31,183 $29,454
======= =======
</TABLE>

Share and per-share amounts reflect the 2-for-1 stock split paid on June 8,
1998.
See the accompanying Notes to the Consolidated Financial Statements.
F-14
<PAGE> 99

AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS, EXCEPT FOR
PER-SHARE AMOUNTS)
<S> <C> <C> <C>
Common stock:
Balance at beginning of year.............................. $ 16 $ 16 $ 16
Two-for-one stock split................................... 16 -- --
------ ------ ------
Balance at end of year.................................... 32 16 16
------ ------ ------
Additional paid-in capital:
Balance at beginning of year.............................. 227 209 197
Exercise of stock options................................. 8 6 6
Gain on treasury stock reissued........................... 16 12 6
Two-for-one stock split................................... (16) -- --
------ ------ ------
Balance at end of year.................................... 235 227 209
------ ------ ------
Retained earnings:
Balance at beginning of year.............................. 2,442 1,918 1,578
Net earnings.............................................. 487 585 394
Cash dividends ($.253 per share in 1998, $.224 in 1997 and
$.194 in 1996)......................................... (67) (61) (54)
------ ------ ------
Balance at end of year.................................... 2,862 2,442 1,918
------ ------ ------
Accumulated other comprehensive income:
Balance at beginning of year.............................. 1,559 510 696
Change in unrealized foreign currency translation gains
during year, net of income taxes....................... (55) 44 16
Unrealized gains (losses) on investment securities during
year, net of income taxes and reclassification
adjustments............................................ 47 1,005 (202)
------ ------ ------
Balance at end of year.................................... 1,551 1,559 510
------ ------ ------
Treasury stock:
Balance at beginning of year.............................. (813) (527) (352)
Purchases of treasury stock............................... (125) (314) (204)
Cost of shares issued..................................... 28 28 29
------ ------ ------
Balance at end of year.................................... (910) (813) (527)
------ ------ ------
Notes receivable for stock purchases........................ -- (1) --
------ ------ ------
Total shareholders' equity........................ $3,770 $3,430 $2,126
====== ====== ======
</TABLE>

Per-share amounts reflect the 2-for-1 stock split paid on June 8, 1998.
See the accompanying Notes to the Consolidated Financial Statements.
F-15
<PAGE> 100

AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $487 $ 585 $ 394
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Increase in policy liabilities.......................... 2,173 2,310 2,483
Deferred income taxes................................... (213) (12) 16
Change in income taxes payable.......................... 16 68 15
Increase in deferred policy acquisition costs........... (226) (227) (265)
Change in receivables and advance premiums.............. 4 8 (32)
Depreciation and amortization expense................... 43 45 48
Gain on sale of television business..................... -- (267) (60)
Provision for mandated policyholder protection fund..... 111 -- --
Other, net.............................................. 95 88 95
------- ------- -------
Net cash provided by operating activities.......... 2,490 2,598 2,694
------- ------- -------
Cash flows from investing activities:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed-maturity securities sold....................... 941 1,722 1,708
Fixed-maturity securities matured.................... 698 422 560
Equity securities.................................... 57 64 17
Securities held to maturity:
Fixed-maturity securities matured.................... 8 -- --
Mortgage loans and other investments, net............... 8 4 4
Short-term investments, net............................. 34 6 (6)
Proceeds from sale of television business................. -- 351 99
Costs of investments acquired:
Securities available for sale:
Fixed-maturity securities............................ (2,966) (4,141) (3,942)
Perpetual debentures................................. (917) (798) (912)
Equity securities.................................... (60) (55) (23)
Additions to property and equipment, net.................. (40) (9) (10)
Purchase of subsidiary.................................... (8) -- --
------- ------- -------
Net cash used by investing activities.............. (2,245) (2,434) (2,505)
------- ------- -------
Cash flows from financing activities:
Proceeds from borrowings.................................. 124 409 136
Principal payments under debt obligations................. (125) (203) (76)
Dividends paid to shareholders............................ (67) (61) (54)
Purchases of treasury stock............................... (125) (314) (204)
Treasury stock reissued................................... 44 40 35
Other, net................................................ 8 8 6
------- ------- -------
Net cash used by financing activities.............. (141) (121) (157)
------- ------- -------
Effect of exchange rate changes on cash and cash
equivalents............................................... 34 (16) (13)
------- ------- -------
Net change in cash and cash equivalents............ 138 27 19
Cash and cash equivalents, beginning of year................ 236 209 190
------- ------- -------
Cash and cash equivalents, end of year...................... $ 374 $ 236 $ 209
======= ======= =======
Supplemental disclosures of cash flow information:
Cash payments during the year for:
Interest on debt obligations............................ $ 12 $ 12 $ 14
Income taxes............................................ 210 222 224
</TABLE>

Non-cash financing activities included capital lease obligations incurred for
computer equipment totaling $7 in 1998, $6 in 1997 and $9 in 1996.

See the accompanying Notes to the Consolidated Financial Statements.
F-16
<PAGE> 101

AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 1996
---- ------ -----
(IN MILLIONS)
<S> <C> <C> <C>
Net Earnings................................................ $487 $ 585 $ 394
---- ------ -----
Other comprehensive income, before income taxes:
Foreign currency translation adjustments:
Change in unrealized foreign currency translation
gains during year............................. (84) 43 16
Reclassification adjustment for realized currency
loss on sale of subsidiary included in net
earnings...................................... -- 1 --
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) arising during
year.......................................... 171 1,693 (314)
Reclassification adjustment for realized (gains)
losses included in net earnings............... 3 4 (5)
---- ------ -----
Total other comprehensive income, before
income taxes............................. 90 1,741 (303)
Income tax expense (benefit) related to items of other
comprehensive income.................................. 98 692 (117)
---- ------ -----
Other comprehensive income, net of income taxes... (8) 1,049 (186)
---- ------ -----
Total comprehensive income................... $479 $1,634 $ 208
==== ====== =====
</TABLE>

See the accompanying Notes to the Consolidated Financial Statements.
F-17
<PAGE> 102

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business: AFLAC Incorporated (the Parent Company) and its
subsidiaries (the Company) primarily sell supplemental health insurance in Japan
and the United States. The Company's insurance operations are conducted through
American Family Life Assurance Company of Columbus (AFLAC), which operates in
the United States (AFLAC U.S.) and as a branch in Japan (AFLAC Japan). Most of
our insurance policies are individually underwritten and marketed through
independent agents at the worksite, with premiums paid by the employee. AFLAC
Japan, which conducts its insurance operations in Japanese yen, accounted for
80%, 79% and 82% of the Company's total revenues for 1998, 1997 and 1996,
respectively, and 86% and 87% of total assets at December 31, 1998 and 1997,
respectively.

Basis of Presentation: We prepare our financial statements in accordance
with generally accepted accounting principles (GAAP). These principles are
established primarily by the Financial Accounting Standards Board (FASB) and the
American Institute of Certified Public Accountants. The preparation of financial
statements in conformity with GAAP requires us to make estimates when recording
transactions resulting from business operations, based on information currently
available. The most significant items on our balance sheet that involve a
greater extent of accounting estimates and actuarial determinations subject to
changes in the future are: deferred policy acquisition costs, liabilities for
future policy benefits and unpaid policy claims, accrued liabilities for
unfunded retirement plans and contingent liabilities. As additional information
becomes available (or actual amounts are determinable), the recorded estimates
may be revised and reflected in operating results. Although some variability is
inherent in these estimates, we believe the amounts provided are adequate.

Translation of Foreign Currencies: The functional currency of AFLAC
Japan's insurance operations is the Japanese yen. We translate financial
statement accounts that are maintained in foreign currencies into U.S. dollars
as follows. Assets and liabilities denominated in foreign currencies are
translated at end-of-period exchange rates. Realized gains and losses on
security transactions are translated at the exchange rate on the trade dates of
the transactions. Other revenues, expenses and cash flows are translated from
foreign currencies into U.S. dollars using average exchange rates for the year.
The resulting currency translation adjustments are reported in accumulated other
comprehensive income. We include realized currency exchange gains and losses
resulting from foreign currency transactions in earnings. Realized currency
exchange gains and losses were immaterial during the three-year period 1996
through 1998.

AFLAC Japan maintains an investment portfolio of dollar-denominated
securities on behalf of AFLAC U.S. The functional currency is the dollar for
these investments, the related investment income and realized/unrealized
investment gains and losses.

We have designated the yen-denominated notes payable (Note 7) held by the
Parent Company as a hedge of our net investment in AFLAC Japan. Outstanding
principal and related accrued interest payable on the yen-denominated borrowings
are translated into dollars at end-of-period exchange rates. Currency
translation adjustments are reported in accumulated other comprehensive income.

Insurance Revenue and Expense Recognition: The supplemental health
insurance policies we issue are classified as long-duration contracts. The
contract provisions generally cannot be changed or canceled during the contract
period; however, we may adjust premiums for policies issued in the United States
within prescribed guidelines and with the approval of state insurance regulatory
authorities.

F-18
<PAGE> 103
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Insurance premiums for health policies are recognized as earned income
ratably over the terms of the policies. When revenues are recorded, the related
amounts of benefits and expenses are charged against such revenues, so as to
result in recognition of profits in proportion to premium revenues during the
period the policies are expected to remain in force. This association is
accomplished by means of annual additions to the liability for future policy
benefits and the deferral and subsequent amortization of policy acquisition
costs.

The calculation of deferred policy acquisition costs and the liability for
future policy benefits requires the use of estimates consistent with sound
actuarial valuation techniques. For new policy issues, we review our actuarial
assumptions and deferrable acquisition costs each year and revise them when
necessary to more closely reflect recent experience and studies of actual
acquisition costs. For policies in force, we evaluate deferred policy
acquisition costs to determine that they are recoverable from future revenues
and charge against earnings costs that are not recoverable.

Cash and Cash Equivalents: Cash and cash equivalents include cash on hand,
money market instruments and other debt instruments with a maturity of 90 days
or less when purchased.

Investments: Our fixed-maturity securities and perpetual debentures (debt
securities) are classified as either held to maturity or available for sale.
Securities classified as held to maturity are securities that we have the
ability and intent to hold to maturity or redemption, and are carried at
amortized cost. All other debt securities and our equity securities are
classified as available for sale and are carried at fair value. If the fair
value is higher than the amortized cost for debt securities or the purchase cost
for equity securities, the excess is an unrealized gain; and if lower than cost,
the difference is an unrealized loss.

In 1998, we reclassified certain debt securities from "available for sale"
to "held to maturity." The related unrealized gains and losses at the date of
transfer on these securities are being amortized over the remaining term of the
securities. These unamortized unrealized gains and losses, plus the net
unrealized gains and losses on securities available for sale, less amounts
applicable to policy liabilities and deferred income taxes, are reported in
accumulated other comprehensive income. The portion of unrealized gains credited
to policy liabilities represents gains that would not inure to the benefit of
shareholders if such gains were actually realized. These amounts relate to
policy reserve interest requirements and reflect the difference between market
investment yields and estimated minimum required interest rates.

Amortized cost of debt securities is based on the purchase price adjusted
for accrual of discount or amortization of premium. The amortized cost of debt
securities purchased at a discount will equal the face or par value at maturity.
Debt securities purchased at a premium will have an amortized cost equal to face
or par value at the earlier of a call date or maturity.

Interest is recorded as income when earned and is adjusted for amortization
of any premium or discount. Dividends on equity securities are recorded as
income on the ex-dividend dates.

For the collateralized mortgage obligations portion of the fixed-maturity
securities portfolio, we recognize income using a constant effective yield based
on anticipated prepayments and the estimated economic life of the securities.
When estimates of prepayments change, the effective yield is recalculated to
reflect actual payments to date and anticipated future payments. The net
investment in the securities is adjusted to the amount that would have existed
had the new effective yield been applied at the time of acquisition. This
adjustment is reflected in net investment income.

We identify the cost of each individual investment so that when we sell any
of them, we are able to record the gain or loss on that transaction in our
Consolidated Statements of Earnings. Effective January 1, 1997, we changed our
method of determining the costs of investment securities sold from

F-19
<PAGE> 104
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the first-in, first-out (FIFO) method to the specific identification method.
This accounting change had no material effect on net earnings for the years
ended December 31, 1997 and 1998.

We continually monitor the difference between the cost and estimated fair
value of our investments. If any of our investments experience a decline in
value that is other than temporary, we establish a valuation allowance for the
decline and record a realized loss in the Consolidated Statements of Earnings.

We loan fixed-maturity securities to financial institutions in short-term
security lending transactions. These securities continue to be carried as
investment assets on our balance sheet during the term of the loans and are not
recorded as sales. We receive other securities as collateral for such loans.
Beginning in 1998, the collateral was not recorded as either an asset or
liability on our balance sheet due to a required change in accounting standards.
In prior years, the collateral was carried as an asset, and a liability was
recorded for the return of the collateral.

Deferred Policy Acquisition Costs: The costs of acquiring new business and
converting existing policies are deferred and amortized, with interest, over the
premium payment periods in proportion to the ratio of annual premium income to
total anticipated premium income. Anticipated premium income is estimated by
using the same mortality and withdrawal assumptions used in computing
liabilities for future policy benefits. In this manner, the related acquisition
expenses are matched with revenues. Costs deferred include first-year
commissions in excess of renewal commissions and certain direct and allocated
policy issue, underwriting and marketing expenses, all of which vary with and
are primarily related to the production of new business. Policy acquisition
costs deferred were $436 million in 1998, $408 million in 1997 and $427 million
in 1996. Of the policy acquisition costs deferred, commissions represented 69%
in 1998, 70% in 1997 and 67% in 1996.

Insurance Liabilities: The liabilities for future policy benefits are
computed by a net level premium method using estimated future investment yields,
withdrawals and recognized morbidity and mortality tables modified to reflect
our experience, with reasonable provision for possible future adverse deviations
in experience.

Unpaid policy claims are estimates computed on an undiscounted basis using
statistical analyses of historical claim experience adjusted for current trends
and changed conditions. The ultimate liability may vary significantly from such
estimates. We regularly adjust these estimates as new experience data emerges
and reflect the changes in operating results in the year such adjustments are
made.

Income Taxes: Different rules are used in computing the U.S. and Japanese
income tax expenses presented in the accompanying financial statements from
those used in preparing the Company's income tax returns. Deferred income taxes
are recognized for temporary differences between the financial reporting basis
and income tax basis of assets and liabilities, based on enacted tax laws and
statutory tax rates applicable to the periods in which the temporary differences
are expected to reverse.

Derivatives: We have only limited activity with derivative financial
instruments. We do not use them for trading purposes nor do we engage in
leveraged derivative transactions. In addition, we do not use derivatives to
hedge the foreign-currency-denominated net assets of our foreign insurance
operations, except for short-term hedges of our annual profit repatriations. We
currently use two types of derivatives -- interest rate swaps and foreign
currency forward contracts.

We use the accrual method to account for the interest rate swaps in
connection with our bank borrowings. The difference between amounts paid and
received under such agreements is reported in interest expense in the
Consolidated Statements of Earnings. Changes in the fair value of the swap

F-20
<PAGE> 105
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

agreements are not recognized in the financial statements. These swaps reduce
the impact of changes in interest rates on our borrowing costs and effectively
change our related interest exposure from variable to fixed.

We use short-term foreign currency forward contracts (usually five months
or less) in connection with annual profit transfers from AFLAC Japan. These
contracts are designated at inception as hedges of our investment in AFLAC Japan
and are accounted for using the deferral method. We record the gains and losses
during the period that the contracts are outstanding and at termination of the
contracts as unrealized foreign currency translation gains in accumulated other
comprehensive income.

Employee Stock Options: We use the intrinsic value method to value
employee stock options. Under this method, compensation cost is recognized only
for the excess, if any, of the market price of the stock at the grant date over
the amount an employee must pay upon exercise to acquire the stock. Our stock
option plan requires that the exercise price be equal to 100% of the fair market
value at the date of grant; therefore, no compensation expense is recognized.

Treasury Shares: We record treasury shares purchased at cost, which is the
market value at the time of the transaction, and as a reduction of shareholders'
equity. We use the weighted-average purchase cost to determine the cost of
treasury shares that are reissued. We record realized gains or losses in
additional paid-in capital when treasury shares are reissued.

Stock Split: We paid a two-for-one stock split on June 8, 1998. All share
and per-share amounts in the accompanying financial statements have been
restated for this split.

Earnings Per Share: We are required to present two earnings per share
(EPS) calculations -- basic EPS and diluted EPS -- in the Consolidated
Statements of Earnings. Basic EPS is computed by dividing net earnings by the
weighted-average number of shares outstanding for the period. Diluted EPS is
computed by dividing net earnings by the weighted-average number of shares
outstanding for the period plus the shares representing the dilutive effect of
stock options and other common stock equivalents.

The components of the weighted-average shares used in the EPS calculations
are as follows:

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS OF SHARES)
<S> <C> <C> <C>
Average outstanding shares used for calculating basic
EPS.................................................... 266,305 272,110 280,352
Effect of stock options.................................. 9,567 9,486 8,570
------- ------- -------
Average outstanding shares used for calculating diluted
EPS.................................................... 275,872 281,596 288,922
======= ======= =======
</TABLE>

Accounting Changes Adopted: We adopted Statement of Financial Accounting
Standards (SFAS) No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, on January 1, 1997. This Statement
established criteria for determining whether transfers of financial assets are
sales or secured borrowings and established reporting requirements for those
transactions involving secured obligations and collateral. Beginning in 1998, as
required by this standard, we no longer recognize securities held as collateral
as an asset, nor the related liability for the return of such collateral for
security lending agreements entered into after December 31, 1997. The adoption
of SFAS No. 125 had no effect on our net earnings or shareholders' equity.

As required, we adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, in 1998. This Statement requires that
companies disclose business segment data on the basis that is used internally by
management for evaluating segment performance and allocating

F-21
<PAGE> 106
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

resources to segments. This Statement requires that a company report a measure
of segment profit or loss, certain specific revenue and expense items, and
segment assets. It also requires various reconciliations of total segment
information to amounts in the consolidated financial statements. This
information is presented in Note 2.

We also adopted SFAS No. 132, Employer's Disclosures about Pensions and
Other Postretirement Benefits, in 1998. This Statement revises disclosures about
pension and other postretirement benefit plans, but does not change the
measurement or financial statement recognition of these plans. This information
is presented in Note 11.

As required, we adopted SFAS No. 128, Earnings per Share, in 1997 as
described above in this Note under the caption, "Earnings Per Share."

Accounting Pronouncements Not Yet Adopted: SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, was issued in June 1998. This
Statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in investment
securities and other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The accounting for changes in
the fair value of a derivative will be included in either earnings or other
comprehensive income depending on the intended use of the derivative instrument.
We are currently evaluating this standard, which is effective January 1, 2000.

The Accounting Standards Executive Committee issued Statement of Position
(SOP) 97-3, Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments, in December 1997. This SOP provides guidance for determining when
an entity should recognize a liability for guaranty fund and other
insurance-related assessments. It also provides guidance on how to measure the
liability. This SOP is effective for 1999. Our present accounting method for
guaranty fund and other insurance-related assessments substantially conforms to
the requirements of this SOP.

In March 1998, SOP 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, was issued. This SOP provides guidance
for determining whether costs of software developed or obtained for internal use
should be capitalized or expensed as incurred. In the past, we have expensed all
such costs when incurred. This SOP is effective beginning in 1999.

Reclassifications: Certain prior-year amounts have been reclassified to
conform to the current year presentation.

(2) FOREIGN INFORMATION AND BUSINESS SEGMENT INFORMATION

The Company consists of three reportable business segments: AFLAC Japan
insurance; AFLAC U.S. insurance; and prior to April 15, 1997, AFLAC Broadcast
Division (the Company's television business in the United States). We primarily
sell supplemental health insurance through the AFLAC Japan and AFLAC U.S.
operations. Most of our policies are individually underwritten and marketed
through independent agents at the worksite, with premiums paid by the employee.
These operations also offer various life insurance policies. We completed the
sale of our television operations in early 1997, as discussed in this Note.

Operating business segments that are not individually reportable are
included in the "All other" category, which includes minor insurance operations
in foreign countries other than Japan and our printing subsidiary.

We evaluate our business segments based on GAAP pretax operating earnings.
We do not allocate corporate overhead expenses to business segments.

F-22
<PAGE> 107
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Information regarding components of operations and lines of business for
the years ended December 31 follows:

<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Total revenues:
AFLAC Japan:
Earned premiums:
Cancer life.................................. $3,839 $4,011 $4,315
Other accident and health.................... 413 336 318
Life insurance............................... 486 456 319
Net investment income............................. 917 893 896
Other income...................................... 2 1 1
------ ------ ------
Total AFLAC Japan revenues.............. 5,657 5,697 5,849
------ ------ ------
AFLAC U.S.:
Earned premiums:
Cancer....................................... 489 456 429
Other accident and health.................... 686 586 501
Life insurance............................... 23 20 16
Net investment income............................. 216 180 119
Other income...................................... 4 1 1
------ ------ ------
Total AFLAC U.S. revenues............... 1,418 1,243 1,066
------ ------ ------
Television operations -- U.S........................... -- 16 92
All other business segments............................ 39 34 36
------ ------ ------
Total business segments................. 7,114 6,990 7,043
Realized investment gains (losses)..................... (2) (5) 2
Gain on sale of television business.................... -- 267 60
Corporate.............................................. 30 40 34
Intercompany eliminations.............................. (38) (41) (39)
------ ------ ------
Total................................... $7,104 $7,251 $7,100
====== ====== ======
Earnings before income taxes:
AFLAC Japan............................................ $ 502 $ 504 $ 533
AFLAC U.S.............................................. 230 184 129
Television operations -- U.S........................... -- 4 26
All other business segments............................ 2 (2) (8)
------ ------ ------
Total business segments........................... 734 690 680
Provision for the Japanese mandated policyholder
protection fund....................................... (111) -- --
Realized investment gains (losses)..................... (2) (5) 2
Gain on sale of television business.................... -- 267 60
Interest expense, non-insurance operations............. (10) (10) (13)
Corporate.............................................. (60) (77) (79)
------ ------ ------
Total............................................. $ 551 $ 865 $ 650
====== ====== ======
Advertising expense:
AFLAC Japan............................................ $ 22 $ 24 $ 14
AFLAC U.S.............................................. 34 23 22
------ ------ ------
Total............................................. $ 56 $ 47 $ 36
====== ====== ======
</TABLE>

F-23
<PAGE> 108
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Total assets at December 31 were as follows:

<TABLE>
<CAPTION>
1998 1997
------- -------
(IN MILLIONS)
<S> <C> <C>
Total assets:
AFLAC Japan............................................ $26,912 $25,589
AFLAC U.S.............................................. 4,212 3,763
All other business segments............................ 59 75
------- -------
Total business segments........................... 31,183 29,427
Corporate.............................................. 4,674 4,249
Intercompany eliminations.............................. (4,674) (4,222)
------- -------
Total............................................. $31,183 $29,454
======= =======
</TABLE>

Total depreciation and amortization expense was $45 million in 1998, $41
million in 1997 and $50 million in 1996. AFLAC Japan accounted for $33 million
in 1998, $28 million in 1997 and $26 million in 1996.

Total expenditures for long-lived assets were $47 million in 1998, $11
million in 1997 and $18 million in 1996. The increase in 1998 primarily relates
to the construction of an administrative office building for AFLAC U.S.

Receivables consisted primarily of monthly insurance premiums due from
individual policyholders or their employers for payroll deduction of premiums.
At December 31, 1998, $139 million, or 60.5% of total receivables were related
to AFLAC Japan's operations ($120 million at December 31, 1997).

Sale of Television Business: In 1997, we completed the sale of our
television business, which consisted of seven network-affiliated television
stations. The total pretax gain from the sale of our television business was
$327 million. Cash sales proceeds received, after applicable selling expenses,
were $449 million. Total sales proceeds also included advertising credits to be
used by the Company over a five-year period with a fair value of $6 million. We
also received cash for various current assets and liabilities.

The sale of one station closed on December 31, 1996. The pretax and
after-tax gains recognized on this sale in the fourth quarter of 1996 were $60
million and $48 million, respectively. The after-tax gain was $.17 per basic
share and $.16 per diluted share in 1996. The sale of the remaining six stations
closed on April 15, 1997. The pretax and after-tax gains recognized in the
second quarter of 1997 were $267 million and $211 million, respectively. The
1997 after-tax gain was $.77 per basic share and $.75 per diluted share.

Policyholder Protection Fund: During the first quarter of 1998, the
Japanese government enacted a mandatory policyholder protection fund system. The
life insurance industry is required to contribute $4.2 billion to this fund over
a 10-year period. The total charge for our share of the contribution obligation
was recognized in the first quarter of 1998 and decreased pretax earnings by
$111 million for the year ended December 31, 1998. The after-tax charge was $65
million, or $.24 per basic and diluted share.

During the second quarter of 1997, Nissan Mutual Life Insurance Company, a
Japanese insurer, was declared insolvent. All life insurers doing business in
Japan had previously agreed to contribute to a voluntary policyholder protection
fund that would be used to help offset insurer insolvencies. During the second
quarter of 1997, AFLAC Japan recognized a pretax charge of 3.0 billion yen ($25
million) for its obligation to this policyholder protection fund. The after-tax
charge was

F-24
<PAGE> 109
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$14 million ($.05 per basic and diluted share). This assessment is payable
semiannually over 10 years beginning in 1998.

Yen-Translation Effects: AFLAC Japan owns U.S. dollar-denominated
securities, which we have designated as an economic currency hedge of a portion
of our investment in AFLAC Japan. In addition, we have designated the Parent
Company's yen-denominated bank borrowings (Note 7) as a hedge of our net
investment in AFLAC Japan. The dollar values of our yen-denominated net assets
subject to foreign currency translation fluctuations for financial reporting
purposes were as follows at December 31 (translated at end-of-year exchange
rates):

<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
AFLAC Japan net assets...................................... $2,726 $2,541
Less:
AFLAC Japan dollar-denominated net assets.............. 1,805 1,555
Parent Company yen-denominated net liabilities......... 579 498
------ ------
Total yen-denominated net assets subject to foreign currency
translation fluctuations.................................. $ 342 $ 488
====== ======
</TABLE>

The following table shows the yen/dollar exchange rates used for the
three-year period ended December 31, 1998, and their effect on selected
financial data.

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Balance Sheets:
Yen/dollar exchange rate at December 31................ 115.70 130.10 116.10
Yen percent weakening (strengthening).................. (12.4)% 10.8% 11.3%
Exchange effect on total assets (billions)............. $ 2.8 $ (2.9) $ (2.6)
Exchange effect on total liabilities (billions)........ $ 2.7 $ (2.8) $ (2.6)
Statements of Earnings:
Average exchange rate for the year..................... 130.89 121.07 108.84
Yen percent weakening.................................. 7.5% 10.1% 13.5%
Exchange effect on net earnings (millions)............. $ (20) $ (24) $ (43)
Exchange effect on diluted EPS......................... $ (.07) $ (.08) $ (.15)
</TABLE>

Other: Payments are made from AFLAC Japan to the Parent Company for
management fees and to AFLAC U.S. for allocated expenses and remittances of
earnings. These payments totaled $192 million in 1998, $386 million in 1997 and
$254 million in 1996. See Note 10 for information concerning restrictions on
remittances from AFLAC Japan.

(3) INVESTMENTS

During the fourth quarter of 1998, we revised our investment management
policy regarding the holding-period intent for certain of our private placement
debt securities. Our past practice was to hold these securities to their
contractual or economic maturity dates. We have now made this our formal policy.
Accordingly, debt securities carried at a fair value of $6.4 billion were
reclassified as of October 1, 1998, from the category "available for sale" to
"held to maturity." The related unrealized gain of $1.1 billion as of October 1,
1998, on these securities is being amortized over the remaining term of the
securities.

F-25
<PAGE> 110
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The amortized cost for debt securities, cost for equity securities and the
fair values of these investments at December 31 are shown in the following
tables:

<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Available for sale, carried at fair value:
Fixed-maturity securities:
Yen-denominated:
Government and guaranteed...... $ 6,018 $1,515 $ 17 $ 7,516
Municipalities................. 541 55 -- 596
Public utilities............... 2,884 336 104 3,116
Banks/financial institutions... 1,447 30 140 1,337
Other corporate................ 518 11 37 492
------- ------ ---- -------
Total yen-denominated..... 11,408 1,947 298 13,057
------- ------ ---- -------
U.S. dollar-denominated:
U.S. government................ 221 14 -- 235
Municipalities................. 10 1 -- 11
Mortgage-backed securities..... 95 4 -- 99
Sovereign and Supranational.... 161 14 -- 175
Banks/financial institutions... 1,922 159 3 2,078
Other corporate................ 1,882 145 22 2,005
------- ------ ---- -------
Total
dollar-denominated...... 4,291 337 25 4,603
------- ------ ---- -------
Total fixed-maturity
securities.............. 15,699 2,284 323 17,660
------- ------ ---- -------
Perpetual debentures:
Yen-denominated:
Banks/financial institutions... 1,216 1 98 1,119
Dollar-denominated:
Banks/financial institutions... 198 6 -- 204
------- ------ ---- -------
Total perpetual
debentures.............. 1,414 7 98 1,323
------- ------ ---- -------
Equity securities........................ 101 82 6 177
------- ------ ---- -------
Total securities available
for sale................ $17,214 $2,373 $427 $19,160
======= ====== ==== =======
Held to maturity, carried at amortized cost:
Fixed-maturity securities:
Yen-denominated:
Government..................... $ 769 $-- $ 51 $ 718
Municipalities................. 334 -- 24 310
Public utilities............... 598 -- 62 536
Banks/financial institutions... 1,148 2 66 1,084
Other corporate................ 1,098 7 62 1,043
------- ------ ---- -------
Total fixed-maturity
securities.............. 3,947 9 265 3,691
------- ------ ---- -------
Perpetual debentures:
Yen-denominated:
Banks/financial institutions... 3,494 12 375 3,131
------- ------ ---- -------
Total perpetual
debentures.............. 3,494 12 375 3,131
------- ------ ---- -------
Total securities held to
maturity................ $ 7,441 $ 21 $640 $ 6,822
======= ====== ==== =======
</TABLE>

F-26
<PAGE> 111
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Available for sale, carried at fair value:
Fixed-maturity securities:
Yen-denominated:
Government and guaranteed...... $ 6,031 $1,696 $ 3 $ 7,724
Municipalities................. 759 124 -- 883
Public utilities............... 2,538 469 -- 3,007
Banks/financial institutions... 1,941 248 5 2,184
Other corporate................ 962 146 -- 1,108
------- ------ --- -------
Total yen-denominated..... 12,231 2,683 8 14,906
------- ------ --- -------
U.S. dollar-denominated:
U.S. government................ 314 16 -- 330
Municipalities................. 13 1 -- 14
Mortgage-backed securities..... 312 11 -- 323
Sovereign and Supranational.... 150 11 -- 161
Banks/financial institutions... 1,505 115 -- 1,620
Other corporate................ 1,548 112 7 1,653
------- ------ --- -------
Total
dollar-denominated...... 3,842 266 7 4,101
------- ------ --- -------
Total fixed-maturity
securities.............. 16,073 2,949 15 19,007
------- ------ --- -------
Perpetual debentures:
Yen-denominated:
Banks/financial institutions... 2,911 376 1 3,286
Dollar-denominated:
Banks/financial institutions... 137 8 -- 145
------- ------ --- -------
Total perpetual
debentures.............. 3,048 384 1 3,431
------- ------ --- -------
Equity securities........................ 80 68 2 146
------- ------ --- -------
Total securities available
for sale................ $19,201 $3,401 $18 $22,584
======= ====== === =======
</TABLE>

Fair values for debt securities were provided by outside securities
consultants using market quotations, prices provided by market makers or
estimates of fair values obtained from yield data relating to investment
securities with similar characteristics. The fair values for equity securities
were determined using market quotations on the principal public exchange
markets.

F-27
<PAGE> 112
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The amortized cost and fair values of our investments in fixed-maturity
securities at December 31, 1998, by contractual maturity are shown below:

<TABLE>
<CAPTION>
AFLAC JAPAN AFLAC U.S.
------------------- ------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------- --------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Available for sale:
Due in one year or less.................... $ 197 $ 202 $ 63 $ 63
Due after one year through five years...... 2,265 2,578 221 234
Due after five years through 10 years...... 1,532 1,761 238 256
Due after 10 years......................... 8,824 10,043 2,264 2,424
U.S. mortgage-backed securities............ 69 73 26 26
------- ------- ------ ------
Total fixed-maturity securities
available for sale.................. $12,887 $14,657 $2,812 $3,003
======= ======= ====== ======
Held to maturity:
Due in one year or less.................... $ 23 $ 23 $ -- $ --
Due after one year through five years...... 417 413 -- --
Due after five years through 10 years...... 399 385 -- --
Due after 10 years......................... 3,108 2,870 -- --
------- ------- ------ ------
Total fixed-maturity securities held
to maturity......................... $ 3,947 $ 3,691 $ -- $ --
======= ======= ====== ======
</TABLE>

Expected maturities may differ from contractual maturities because some
issuers have the right to call or prepay obligations with or without call or
prepayment penalties.

In recent years, AFLAC Japan has purchased subordinated perpetual debenture
securities issued primarily by European and Japanese banks. These securities are
subordinated to other debt obligations of the issuer, but rank higher than
equity securities. Although these securities have no contractual maturity, the
issue-date fixed-rate interest coupons subsequently increase to a market-
interest rate plus 150 to 300 basis points and change to a variable-interest
rate basis, generally by the 25th year after issuance, creating an economic
maturity date. The economic maturities of the perpetual debentures owned at
December 31, 1998, were as follows:

<TABLE>
<CAPTION>
AFLAC JAPAN AFLAC U.S.
------------------ -----------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------ --------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Available for sale:
Due after five years through 10 years........ $ 160 $ 162 $ 70 $ 73
Due after 15 years........................... 1,184 1,088 -- --
------ ------ ---- ----
Total perpetual debentures available for
sale.................................. $1,344 $1,250 $ 70 $ 73
====== ====== ==== ====
Held to maturity:
Due after one year through five years........ $ 160 $ 155 $-- $--
Due after five years through 10 years........ 578 548 -- --
Due after 10 years through 15 years.......... 1,117 1,033 -- --
Due after 15 years........................... 1,639 1,395 -- --
------ ------ ---- ----
Total perpetual debentures held to
maturity.............................. $3,494 $3,131 $-- $--
====== ====== ==== ====
</TABLE>

For AFLAC Japan, the duration of policy benefit liabilities is longer than
that of the related investment assets. Therefore, there is a risk that the
reinvestment of the proceeds at the maturity of
F-28
<PAGE> 113
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

such investments will be at a yield below that of the interest required for the
accretion of policy liabilities. At December 31, 1998, the average duration of
the yen-denominated policy liabilities was approximately 13 years, unchanged
from 1997. The average duration of the yen-denominated debt securities was
approximately nine years at both December 31, 1998 and 1997. The
weighted-average period to maturity of debt securities of AFLAC Japan at
December 31, 1998, was 13.9 years, compared with 13.5 years at December 31,
1997.

Realized and unrealized gains and losses from investments for the years
ended December 31 were as follows:

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Realized gains (losses) on sale or redemption of
securities available for sale:
Debt securities:
Gross gains from sales......................... $ 16 $ 24 $ 21
Gross losses from sales........................ (35) (32) (17)
Net gains from redemptions..................... 1 -- --
------- ------- -------
(18) (8) 4
Equity securities:
Gross gains from sales......................... 20 16 2
Gross losses from sales........................ (5) (12) (1)
Other long-term assets, net......................... 1 (1) (3)
------- ------- -------
Net realized gains (losses).................... $ (2) $ (5) $ 2
======= ======= =======
Changes in unrealized gains (losses):
Debt securities:
Available for sale............................. $(1,447) $ 930 $ (184)
Unamortized unrealized gains on securities
transferred to held to maturity.............. 1,224 -- --
Equity securities................................... 10 16 23
------- ------- -------
Net unrealized gains (losses).................. $ (213) $ 946 $ (161)
======= ======= =======
</TABLE>

The net effect on shareholders' equity of unrealized gains and losses from
investment securities at December 31 was:

<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
Unrealized gains on securities available for sale........... $1,946 $3,383
Unamortized unrealized gains on securities transferred to
held to maturity.......................................... 1,224 --
Less:
Policy liabilities..................................... 885 1,272
Deferred income taxes.................................. 953 826
------ ------
Shareholders' equity, net unrealized gains on investment
securities................................................ $1,332 $1,285
====== ======
</TABLE>

F-29
<PAGE> 114
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following debt securities individually exceeded 10% of shareholders'
equity at December 31:

<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------ --------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Japan National Government........................ $5,675 $7,157 $5,178 $6,715
The Tokyo Electric Power Co., Inc................ 811 927 742 885
Chubu Electric Power Co., Inc.................... 698 714 444 518
Dai-Ichi Kangyo Bank............................. 454 420 * *
Sumitomo Bank.................................... 404 348 * *
Credit Suisse First Boston....................... 393 394 * *
</TABLE>

- ---------------
* Less than 10%

AFLAC Japan's investments in Japanese government bonds (at amortized cost)
constituted 23.9% and 28.3% of total debt securities at December 31, 1998 and
1997, respectively. Private placement investments held by AFLAC Japan at
amortized cost accounted for 41.2% and 34.2% of total debt securities at
December 31, 1998 and 1997, respectively. Most of the securities classified as
held to maturity and perpetual debentures classified as available for sale
constitute private placement investments.

In January 1999, the credit ratings of several major Japanese financial
institutions were downgraded. We owned debt securities issued by a Japanese bank
in the amount of $454 million, or 1.8% of total debt securities at December 31,
1998. Following the downgrade, these securities were rated "Ba1" by Moody's and
"BB+" by Standard & Poor's.

The components of net investment income for the years ended December 31
were as follows:

<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed-maturity securities................................... $ 985 $ 942 $ 918
Perpetual debentures........................................ 158 134 109
Equity securities........................................... 2 2 2
Mortgage loans and other.................................... 1 2 2
Short-term investments and cash equivalents................. 8 15 9
------ ------ ------
Gross investment income................................ 1,154 1,095 1,040
Less investment expenses.................................... 16 17 18
------ ------ ------
Net investment income.................................. $1,138 $1,078 $1,022
====== ====== ======
</TABLE>

At December 31, 1998, debt securities with a fair value of $12 million were
on deposit with regulatory authorities. As of December 31, 1998, $54 million, at
fair value, of AFLAC Japan's investment securities had been pledged to the Japan
policyholder protection fund. The Company retains ownership of all securities on
deposit and receives the related investment income.

(4) FINANCIAL INSTRUMENTS

Nonderivatives: The carrying amounts for cash and cash equivalents,
receivables, accrued investment income, accounts payable and payables for
security transactions approximated their fair values due to the short-term
nature of these instruments. Consequently, such instruments are not included in
the table presented in this note.

F-30
<PAGE> 115
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The methods of determining the fair values of our investments in debt and
equity securities are described in Note 3. The fair values for mortgage loans
and notes payable with fixed interest rates were estimated using discounted cash
flow analyses based on current rates for similar loans and borrowings.

We use short-term security lending arrangements in AFLAC Japan to increase
investment income with minimal risk. At December 31, 1998 and 1997, AFLAC Japan
had security loans outstanding of $3.0 billion at fair value. At December 31,
1998 and 1997, we held Japanese government bonds as collateral for these loaned
securities. Prior to 1998, securities received as collateral for such loans were
reported separately in assets, at fair value, with a corresponding liability of
the same amount for the return of such collateral at termination of the loans.
Beginning in 1998, such collateral assets and the related liability are no
longer included on the balance sheet under the accounting provisions of SFAS No.
125 (Note 1). The Company's security lending policy requires that the fair value
of the securities received as collateral be 105% or more of the fair value of
the loaned securities as of the date the securities are loaned and not less than
100% thereafter.

Derivatives: We have only limited activity with derivative financial
instruments and do not use them for trading purposes nor engage in leveraged
derivative transactions. In addition, we do not use derivatives to hedge the
foreign-currency-denominated net assets of our foreign insurance operations,
except for short-term hedges of annual profit repatriations (none were
outstanding at December 31, 1998 or 1997). See Note 1 for a description of our
accounting policies for derivative financial instruments. See Note 2 for
additional information on our yen-denominated net assets.

We have outstanding interest rate swaps on 49.6 billion yen ($428 million)
of our variable-interest-rate yen-denominated borrowings (Note 7). These swaps
reduce the impact of changes in interest rates on our borrowing costs and
effectively change our interest rate from variable to fixed. The interest rate
swaps have notional principal amounts that equal the anticipated unpaid
principal amounts on a portion of these loans. Under these agreements, the
Company makes fixed-rate payments at 2.29% on one loan and 1.24% on another loan
and receives floating-rate payments (.75% at December 31, 1998, plus loan costs
of 25 or 20 basis points, respectively) based on the three-month Tokyo Interbank
Offered Rate.

The fair value of interest rate swaps is the estimated amount that we would
receive or pay to terminate the swap agreements at the reporting date. We are
exposed to nominal credit risk in the event of nonperformance by counterparties
to these interest rate swap agreements. The counterparties are primarily
Japanese banks with the following credit ratings as of December 31, 1998.

<TABLE>
<CAPTION>
COUNTERPARTY
CREDIT RATING NOTIONAL AMOUNT
------------- ---------------
(IN MILLIONS)
<S> <C>
AA...................................... $ 39
A....................................... 106
BBB..................................... 283
----
Total......................... $428
====
</TABLE>

F-31
<PAGE> 116
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The carrying values and estimated fair values of the Company's financial
instruments as of December 31 were as follows:

<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS:
Fixed-maturity securities.......................... $21,607 $21,351 $19,007 $19,007
Perpetual debentures............................... 4,817 4,454 3,431 3,431
Equity securities.................................. 177 177 146 146
Mortgage loans..................................... 6 8 14 17
Policy loans....................................... 1 1 1 1
Securities held as collateral for loaned
securities....................................... * 3,101 3,034 3,034
LIABILITIES:
Notes payable (excluding capitalized leases)....... 578 578 505 505
Derivatives -- interest rate swaps................. * 7 * 8
Payables for return of collateral on loaned
securities....................................... * 3,101 3,034 3,034
</TABLE>

- ---------------
* Off-balance sheet financial instrument

(5) PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31:

<TABLE>
<CAPTION>
1998 1997
---- ----
(IN MILLIONS)
<S> <C> <C>
Land..................................................... $131 $111
Buildings................................................ 335 290
Equipment................................................ 159 147
---- ----
625 548
Less accumulated depreciation............................ 198 162
---- ----
Net property and equipment.......................... $427 $386
==== ====
</TABLE>

F-32
<PAGE> 117
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(6) POLICY LIABILITIES

The liability for future policy benefits at December 31 consisted of the
following:

<TABLE>
<CAPTION>
LIABILITY AMOUNTS INTEREST RATES
-------------------- ----------------------
POLICY YEAR
ISSUE OF IN 20
YEAR 1998 1997 ISSUE YEARS
------- ------- ------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Health insurance:
Japan........................ 1997-98 $ 409 $ 97 3.5% 3.5%
1995-96 111 67 4.0 4.0
1994-96 1,763 1,226 4.5 4.5
1990-94 9,392 7,595 5.5 5.5
1988-91 711 597 5.25 5.25
1987-88 1,238 1,043 5.5 5.5
1985-86 1,051 893 6.75 5.5
1978-84 2,757 2,391 6.5 5.5
1974-79 698 616 7.0 5.0
U.S.......................... 1988-98 705 590 8.0 6.0
1986-98 542 489 6.0 6.0
1985-86 26 26 6.5 6.5
1981-86 258 261 7.0 5.5
Other 156 158
Other foreign................ -- 41
Life insurance:
Japan........................ 1997-98 114 28 3.5 3.5
1994-96 373 215 4.0 4.0
1988-93 652 489 5.25 5.25
1987-88 136 104 5.5 5.5
1985-87 210 172 5.65 5.65
U.S.......................... 1956-98 31 29 4.0-6.0 4.0-6.0
Adjustment for unrealized gains on
investments (Note 3)............ 885 1,272
------- -------
Total................... $22,218 $18,399
======= =======
</TABLE>

The weighted-average interest rates reflected in the Consolidated
Statements of Earnings for future policy benefits for Japanese policies were
5.4% in 1998, and 5.5% in both 1997 and 1996; and for U.S. policies, 6.4% for
each year in the three-year period ended December 31, 1998.

Changes in the liability for unpaid policy claims are summarized as follows
for the years ended December 31:

<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Unpaid supplemental health claims -- beginning of year...... $ 987 $1,025 $1,011
------ ------ ------
Add claims incurred during the year related to:
Current year............................................ 2,460 2,346 2,366
Prior years............................................. (136) (159) (156)
------ ------ ------
Total incurred..................................... 2,324 2,187 2,210
------ ------ ------
Less claims paid during the year:
On claims incurred during current year.................. 1,579 1,507 1,471
On claims incurred during prior years................... 617 626 617
------ ------ ------
Total paid......................................... 2,196 2,133 2,088
------ ------ ------
Effect of foreign exchange rate changes on unpaid claims.... 107 (92) (108)
------ ------ ------
Unpaid supplemental health claims -- end of year............ 1,222 987 1,025
Unpaid life claims -- end of year........................... 41 24 14
------ ------ ------
Total liability for unpaid policy claims........... $1,263 $1,011 $1,039
====== ====== ======
</TABLE>

F-33
<PAGE> 118
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Amounts shown for prior-year claims incurred during the year primarily
result from actual claim settlements at less than the original estimates.

(7) NOTES PAYABLE

A summary of notes payable at December 31 follows:

<TABLE>
<CAPTION>
1998 1997
----- -----
(IN MILLIONS)
<S> <C> <C>
Unsecured, yen-denominated notes payable to banks:
Reducing, revolving credit agreement, due annually
through July 2001:
2.29% fixed interest rate......................... $294 $349
Variable interest rate (.95% at December 31,
1998)........................................... 35 --
Revolving credit agreement due November 2002:
1.24% fixed interest rate......................... 134 149
Variable interest rate (.90% at December 31,
1998)........................................... 115 --
Obligations under capitalized leases, due monthly through
2003, secured by computer equipment in Japan.............. 18 18
Other....................................................... -- 7
---- ----
Total notes payable............................... $596 $523
==== ====
</TABLE>

The Company has a reducing revolving credit agreement that provides for
bank borrowings through July 2001 in either U.S. dollars or Japanese yen. The
current borrowing limit is $325 million. Under the terms of the agreement, the
borrowing limit will reduce to $250 million on July 15, 1999, and $125 million
on July 15, 2000. At December 31, 1998, 34.1 billion yen ($294 million) was
outstanding at a fixed interest rate and 4.0 billion yen ($35 million) was
outstanding at a variable interest rate under this agreement.

We also have an unsecured revolving credit agreement that provides for bank
borrowings through November 2002 with a borrowing limit of $250 million, payable
in either Japanese yen or U.S. dollars. At December 31, 1998, 15.5 billion yen
($134 million) was outstanding at a fixed interest rate and 13.3 billion yen
($115 million) was outstanding at a variable interest rate under this agreement.

The principal amount of the loans at any date will fluctuate due to changes
in the yen-to-dollar foreign currency exchange rate.

Since most of these loans are with Japanese banks, we also incur the
premium that Japanese banks are charged for short-term money, commonly referred
to as the "Japan premium." Interest rate swaps related to the 2.29% and 1.24%
(fixed rates after swaps) loans are described in Note 4.

The aggregate contractual maturities of notes payable during each of the
years after December 31, 1998, are: 1999, $86 million; 2000, $130 million; 2001,
$128 million; and 2002, $252 million.

We were in compliance with all of the covenants of the credit agreements at
December 31, 1998.

F-34
<PAGE> 119
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(8) INCOME TAXES

The income tax effects of the temporary differences that give rise to
deferred income tax assets and liabilities as of December 31 were as follows:

<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
Deferred income tax liabilities:
Deferred acquisition costs............................. $1,023 $ 975
Unrealized gains on investment securities.............. 461 1,332
Other basis differences in investment securities....... 792 --
Difference in tax basis of investment in AFLAC Japan... -- 86
Premiums receivable.................................... 67 73
------ ------
Total deferred income tax liabilities............. 2,343 2,466
------ ------
Deferred income tax assets:
Other basis differences in investment securities....... -- 153
Difference in tax basis of investment in AFLAC Japan... 61 --
Foreign tax credit carryforwards....................... -- 64
Policy benefit reserves................................ 440 498
Policyholder protection fund........................... 49 18
Unfunded retirement benefits........................... 71 72
Other accrued expenses................................. 33 63
Other.................................................. 223 119
------ ------
Total gross deferred tax assets................... 877 987
Less valuation allowance............................... 79 123
------ ------
Total deferred income tax assets.................. 798 864
------ ------
Net deferred income tax liability............ 1,545 1,602
Current income tax liability................. 320 225
------ ------
Total income tax liability................... $1,865 $1,827
====== ======
</TABLE>

A valuation allowance is provided when it is more likely than not that
deferred tax assets will not be realized. We have established valuation
allowances primarily for foreign tax credit and non-insurance loss carryforwards
that exceed projected future offsets. Only 35% of non-insurance losses can be
offset against life insurance taxable income each year. During 1998, the
valuation allowance for deferred tax assets decreased by $44 million (decreased
by $40 million in 1997) due to changes in carryforwards of foreign tax credits
and non-insurance losses for U.S. federal income tax purposes. No foreign tax
credit carryforwards remained at December 31, 1998. Alternative minimum tax
credit carryforwards of approximately $10 million are available at December 31,
1998.

F-35
<PAGE> 120
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of income tax expense (benefit) applicable to pretax
earnings for the years ended December 31 were as follows:

<TABLE>
<CAPTION>
JAPAN U.S. TOTAL
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
1998:
Current................................................ $ 252 $ 25 $ 277
Deferred -- operations................................. (88) (4) (92)
Deferred tax benefit from Japanese tax rate
reduction............................................ (121) -- (121)
----- ----- -----
Total............................................. $ 43 $ 21 $ 64
===== ===== =====
1997:
Current................................................ $ 203 $ 89 $ 292
Deferred -- operations................................. (6) (6) (12)
----- ----- -----
Total............................................. $ 197 $ 83 $ 280
===== ===== =====
1996:
Current................................................ $ 207 $ 33 $ 240
Deferred -- operations................................. 14 2 16
----- ----- -----
Total............................................. $ 221 $ 35 $ 256
===== ===== =====
</TABLE>

Income tax expense in the accompanying consolidated financial statements
varies from the amount computed by applying the expected U.S. tax rate of 35% to
pretax earnings. The principal reasons for the differences and the related tax
effects for the years ended December 31 are summarized as follows:

<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Income taxes based on U.S statutory rates................... $ 193 $ 303 $ 228
Deferred tax benefit from Japanese tax rate reduction....... (121) -- --
U.S. alternative minimum tax................................ 12 50 26
Utilization of foreign tax credits.......................... (47) (91) (11)
Non-insurance losses generating no current tax benefit...... 9 -- 12
Other, net.................................................. 18 18 1
----- ----- -----
Income tax expense..................................... $ 64 $ 280 $ 256
===== ===== =====
</TABLE>

Income taxes are recorded in the Statements of Earnings and directly in
certain shareholders' equity accounts. Income tax expense (benefit) for the
years ended December 31 was allocated as follows:

<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Statements of Earnings...................................... $ 64 $ 280 $ 256
----- ----- -----
Other comprehensive income:
Change in unrealized foreign currency translation gains
on AFLAC Japan's dollar-denominated securities....... (29) -- --
Unrealized gains on investment securities:
Unrealized holding gains (losses) arising during
the year........................................ 129 688 (113)
Reclassification adjustment for realized (gains)
losses included in net earnings................. (2) 4 (4)
----- ----- -----
Total income taxes allocated to other
comprehensive income....................... 98 692 (117)
----- ----- -----
Additional paid-in capital (exercise of stock options)...... (1) (1) --
----- ----- -----
Total income taxes........................... $ 161 $ 971 $ 139
===== ===== =====
</TABLE>

F-36
<PAGE> 121
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Effective January 1, 1998, the Japanese government changed the income tax
provisions for foreign companies operating in Japan, increasing income taxes on
investment income and realized gains/losses from securities issued by entities
located in their home country. This change increases Japanese income taxes on
the income from most of AFLAC Japan's dollar-denominated securities. In
addition, in March 1998, the Japanese government enacted a reduction in the
Japanese corporate income tax rate. The statutory rate for AFLAC Japan declined
from 45.3% to 41.7% beginning May 1, 1998. The net effect of these two Japanese
tax changes increased income tax expense on consolidated operating earnings by
approximately $10 million for the year ended December 31, 1998 (an increase of
approximately $22 million from increased taxes on AFLAC Japan's dollar-
denominated investment income, less approximately $12 million from the benefit
of the statutory tax rate reduction).

The Japanese tax rate reduction also increased 1998 net earnings by $121
million ($.46 per basic share, $.44 per diluted share) from the reduction of
AFLAC Japan's deferred tax liability as of March 31, 1998, the date of enactment
of the reduced tax rate. The deferred tax reduction represented the effect of
recalculating Japanese deferred income taxes at the new 41.7% rate on the
temporary differences between the financial reporting basis and the Japanese
income tax basis of AFLAC Japan's assets and liabilities.

The Japanese income tax change in 1998, relating to the income on AFLAC
Japan's dollar-denominated securities issued by U.S. entities, also impacted
income tax expense for the two other-comprehensive-income components for the
year ended December 31, 1998. Deferred income tax expense on unrealized gains
(losses) for 1998 on debt securities includes $76 million for AFLAC Japan's
dollar-denominated securities, of which $59 million related to accumulated
unrealized gains existing as of January 1, 1998, the effective date of the tax
law change. The deferred income tax benefits of $29 million on changes in
unrealized foreign currency translation gains for 1998 represents Japanese
income taxes on currency translation gains that arise for Japanese tax purposes
from conversion of AFLAC Japan's dollar-denominated investments into yen. This
tax benefit is net of a deferred income tax expense of $51 million on
accumulated currency translation gains existing as of January 1, 1998.

In late 1998, the Japanese government proposed a further reduction in the
Japanese income tax rate. The proposal would reduce AFLAC Japan's income tax
rate from 41.7% to 36.2% effective April 1, 1999. The proposal is expected to be
finalized in early 1999. Such tax rate reduction is not expected to reduce
AFLAC's future consolidated income tax expense. Instead, it will largely result
in a shift of income tax expense from Japan to the United States as a result of
the U.S. foreign tax credit provisions.

(9) SHAREHOLDERS' EQUITY

On May 4, 1998, the board of directors declared a two-for-one stock split.
This split was payable to shareholders of record as of May 22, 1998, and the
additional shares were issued on June 8, 1998. All share and per-share amounts
in the accompanying financial statements have been restated for this split.

F-37
<PAGE> 122
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a reconciliation of the number of shares of the Company's
common stock for the years ended December 31:

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS OF SHARES)
<S> <C> <C> <C>
Common stock -- issued:
Balance at beginning of year........................ 316,380 314,478 312,716
Exercise of stock options........................... 1,591 1,902 1,762
------- ------- -------
Balance at end of year.............................. 317,971 316,380 314,478
------- ------- -------
Treasury stock:
Balance at beginning of year........................ 49,944 38,708 28,767
Purchases of treasury stock:
Open market.................................... 3,806 12,737 11,849
Received from employees for taxes on stock
option exercises............................. 212 390 280
Shares issued to sales associates stock bonus plan
and dividend reinvestment plan.................... (1,218) (1,526) (1,874)
Exercise of stock options........................... (457) (365) (314)
------- ------- -------
Balance at end of year.............................. 52,287 49,944 38,708
------- ------- -------
Shares outstanding at end of year........................ 265,684 266,436 275,770
======= ======= =======
</TABLE>

Share Repurchase Program: Since the inception of the share repurchase
program in February 1994, we have purchased 57.4 million shares. Approximately
7.4 million shares are still available for purchase under current
authorizations.

Stock Options: The Company's stock option plan allows grants for both
incentive stock options (ISO) and non-qualifying stock options (NQSO) to
employees and NQSO to members of the board of directors. The option period runs
for a maximum of 10 years. The exercise price must be equal to 100% of the fair
market value at the date of grant; therefore, no compensation expense is
recognized. The options are exercisable immediately unless they are placed under
a vesting schedule that is determined by the compensation committee of the board
of directors at the time of the grant. At December 31, 1998, 10.6 million shares
were available for future grants.

F-38
<PAGE> 123
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes stock option activity:

<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
OPTION EXERCISE PRICE
SHARES PER SHARE
------ ----------------
(IN THOUSANDS OF SHARES)
<S> <C> <C>
Outstanding at December 31, 1995............................ 16,403 $ 7.31
Granted................................................ 3,660 16.40
Canceled............................................... (128) 12.60
Exercised.............................................. (2,333) 5.28
------
Outstanding at December 31, 1996............................ 17,602 9.43
Granted................................................ 1,451 26.73
Canceled............................................... (40) 15.44
Exercised.............................................. (2,542) 5.78
------
Outstanding at December 31, 1997............................ 16,471 11.50
Granted................................................ 1,953 30.18
Canceled............................................... (31) 23.74
Exercised.............................................. (2,148) 6.92
------
Outstanding at December 31, 1998............................ 16,245 14.33
======
</TABLE>

<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(IN THOUSANDS OF SHARES)
<S> <C> <C> <C>
Shares exercisable at end of year........................... 12,946 13,256 13,551
====== ====== ======
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YRS) PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- --------- ----------- ---------
(IN THOUSANDS OF SHARES)
<S> <C> <C> <C> <C> <C>
$ 1.87 - $ 3.67 912 1.3 $ 2.21 912 $ 2.21
3.73 - 8.07 1,823 2.1 5.34 1,823 5.34
9.42 5,188 4.5 9.42 5,188 9.42
9.60 - 14.10 1,518 5.9 12.57 1,512 12.56
15.83 2,586 7.1 15.83 1,691 15.83
16.97 - 27.69 2,280 8.3 23.54 1,532 23.53
30.09 - 38.00 1,938 9.5 30.18 288 30.12
------ ------
1.87 - 38.00 16,245 5.7 14.33 12,946 11.67
====== ======
</TABLE>

As permitted by SFAS No. 123, we do not recognize compensation cost in the
Consolidated Statements of Earnings for employee stock options. Had compensation
cost for stock options granted after 1994 been determined using the
fair-value-based method, as described in SFAS No. 123, the

F-39
<PAGE> 124
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

effect on our net earnings and net earnings per share would approximate the
following pro forma amounts:

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Decrease to:
Net earnings (in millions)........................... $ 13 $ 12 $ 8
Net earnings per share -- basic...................... .05 .04 .03
Net earnings per share -- diluted.................... .05 .04 .03
</TABLE>

The fair value of each option granted after 1994 was estimated on the date
of grant using the Black-Scholes multiple option approach with the following
assumptions for options granted during the three-year period ended December 31,
1998:

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Expected life from vesting date (years)........... 3.5-4.4 3.4-6.1 3.7-6.1
Dividend yield.................................... .6% 1.0% 1.0%
Expected volatility............................... 27.3% 20.2% 19.3%
Risk-free interest rate........................... 5.5% 6.0% 7.0%
</TABLE>

The pro forma information presented above is not indicative of future
amounts. The provisions of SFAS No. 123 were applicable prospectively, and the
above pro forma disclosures therefore do not include amortization of the fair
value of awards prior to 1995. Also, we expect that additional options will be
granted in future years.

Voting Rights: In accordance with the Parent Company's Articles of
Incorporation, shares of common stock are generally entitled to one vote per
share until they have been held by the same beneficial owner for a continuous
period of 48 months, at which time they become entitled to 10 votes per share.

(10) STATUTORY ACCOUNTING AND DIVIDEND RESTRICTIONS

Net assets of the insurance subsidiaries aggregated $4.6 billion at
December 31, 1998, on a GAAP basis. AFLAC Japan accounted for $2.7 billion, or
59.4%, of these net assets.

Our insurance subsidiaries are required to report their results of
operations and financial position to state insurance regulatory authorities, and
in the case of AFLAC Japan, to the Japanese Financial Supervisory Agency, on the
basis of statutory accounting practices prescribed or permitted by such
authorities. As determined on a U.S. statutory accounting basis, AFLAC's net
income was $231 million in 1998, $335 million in 1997 and $257 million in 1996,
and capital and surplus was $1.6 billion and $1.8 billion at December 31, 1998
and 1997, respectively.

F-40
<PAGE> 125
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Reconciliations of AFLAC's net assets on a GAAP basis to net assets
determined on a U.S. statutory accounting basis as of December 31 were as
follows:

<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
Net assets on GAAP basis.................................... $4,591 $4,175
Adjustment of debt securities from fair value to amortized
cost...................................................... (3,094) (3,316)
Elimination of deferred policy acquisition costs............ (3,059) (2,577)
Adjustment to policy liabilities............................ 1,788 2,111
Elimination of deferred income taxes........................ 1,578 1,642
Reduction in premiums receivable............................ (77) (84)
Establishment of asset valuation reserve.................... (147) (117)
Elimination of statutory non-admitted assets................ (110) (84)
Difference in foreign currency translation adjustment....... (73) 68
Difference in accrued expenses.............................. 139 24
Other, net.................................................. 112 (71)
------ ------
Net assets on U.S. statutory accounting basis.......... $1,648 $1,771
====== ======
</TABLE>

The Parent Company depends on its subsidiaries for cash flow, primarily in
the form of dividends and management fees. Consolidated retained earnings in the
accompanying financial statements largely represent undistributed earnings of
the insurance subsidiaries. Dividends, management fees (see Note 2) and other
payments to the Parent Company by its insurance subsidiary are subject to
various regulatory restrictions and approvals related to safeguarding the
interests of insurance policyholders. One of the primary considerations is that
the insurance subsidiary must maintain adequate risk-based capital. Also, the
maximum amount of dividends that can be paid to shareholders by insurance
companies domiciled in the State of Georgia without prior approval of the
Commissioner of Insurance is the greater of the net gain from operations for the
previous year determined under statutory accounting principles or 10% of
statutory equity as of the previous year-end. Dividend payments by AFLAC during
1999 in excess of $213 million would require such approval. Dividends paid by
AFLAC during 1998 were $172 million.

A portion of AFLAC Japan annual earnings, as determined on a Japanese
statutory accounting basis, can be remitted each year to AFLAC U.S. after
complying with risk-based capital provisions and satisfying various conditions
imposed by Japanese regulatory authorities for protecting policyholders. Profit
remittances to the United States can fluctuate due to changes in the amounts of
Japanese regulatory earnings. Among other items, factors affecting regulatory
earnings include Japanese regulatory accounting practices and fluctuations in
currency translations of AFLAC Japan's U.S. dollar-denominated investments into
yen. Earnings were remitted from AFLAC Japan to AFLAC U.S. in the amount of $154
million in 1998, $347 million in 1997 and $217 million in 1996.

Net assets (unaudited) of AFLAC Japan, based on Japanese statutory
accounting practices, aggregated $397 million and $400 million at December 31,
1998 and 1997, respectively. Japanese statutory accounting practices differ in
many respects from U.S. GAAP. Under Japanese statutory accounting practices,
policy acquisition costs are charged off immediately, policy benefit and claim
reserving methods are different, deferred income tax liabilities are not
recognized, and investment securities are carried at cost less certain market
value adjustments.

F-41
<PAGE> 126
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(11) BENEFIT PLANS

Reconciliations of the funded status of the basic employee defined benefit
pension plans with amounts recognized in the accompanying consolidated balance
sheets as of December 31 were as follows:

<TABLE>
<CAPTION>
1998 1997
------------------- -----------------
JAPAN U.S. JAPAN U.S.
-------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Projected benefit obligation:
Benefit obligation at beginning of
year................................... $ 25,627 $ 50,465 $24,651 $45,492
Service cost............................. 2,188 2,362 2,224 2,450
Interest cost............................ 973 3,491 982 3,132
Actuarial loss........................... 10,190 5,559 1,233 3,652
Benefits paid............................ (439) (1,457) (540) (800)
Effect of foreign exchange rate
changes................................ 4,884 -- (2,923) --
Other: termination of subsidiary plan.... -- -- -- (3,461)
-------- -------- ------- -------
Benefit obligation at end of year... 43,423 60,420 25,627 50,465
-------- -------- ------- -------
Plan assets:
Fair value of plan assets at beginning of
year................................... 18,547 45,530 18,445 37,574
Actual return on plan assets............. 465 2,878 301 7,166
Employer contribution.................... 2,260 1,590 2,480 1,590
Benefits paid............................ (439) (1,457) (540) (800)
Effect of foreign exchange rate
changes................................ 2,608 -- (2,139) --
-------- -------- ------- -------
Fair value of plan assets at end of
year.............................. 23,441 48,541 18,547 45,530
-------- -------- ------- -------
Funded status....................... (19,982) (11,879) (7,080) (4,935)
Unrecognized net actuarial loss............... 12,144 10,308 1,160 3,539
Unrecognized transition obligation (asset).... 502 (840) 523 (961)
Unrecognized prior service cost............... 972 165 932 182
-------- -------- ------- -------
(Accrued) prepaid benefit cost...... $ (6,364) $ (2,246) $(4,465) $(2,175)
======== ======== ======= =======
</TABLE>

The components of retirement expense and actuarial assumptions for the
years ended December 31 are as follows:

<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
JAPAN U.S. JAPAN U.S. JAPAN U.S.
------ ------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit
cost:
Service cost................... $2,188 $2,362 $2,224 $2,450 $2,169 $2,591
Interest cost.................. 973 3,491 982 3,132 1,031 3,142
Expected return on plan
assets....................... (450) (4,086) (429) (3,366) (587) (2,911)
Recognized net actuarial
loss......................... -- -- -- 405 -- 491
Amortization of transition
obligation (asset)........... 77 (122) 83 (122) 92 (122)
Amortization of prior service
cost......................... 67 16 72 (26) 80 (26)
Net curtailment gain........... -- -- -- (377) -- --
------ ------ ------ ------ ------ ------
Net periodic benefit cost...... $2,855 $1,661 $2,932 $2,096 $2,785 $3,165
====== ====== ====== ====== ====== ======
Weighted-average actuarial
assumptions as of fiscal year-end:
Discount rate-net periodic
benefit cost................. 4.0% 7.0% 4.0% 7.0% 4.0% 7.0%
Discount rate-benefit
obligations.................. 3.0 6.5 4.0 7.0 4.0 7.0
Expected return on plan
assets....................... 2.5 9.0 2.5 9.0 2.5 9.0
Rate of compensation
increase..................... 3.5 4.0 3.5 4.0 3.5 5.0
</TABLE>

F-42
<PAGE> 127
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In addition to the benefit obligations for funded employee plans, we also
maintain unfunded supplemental retirement plans for certain officers and
beneficiaries. The expense recognized for these plans was $31 million in 1998,
$29 million in 1997 and $37 million in 1996. The accrued retirement liability
for the unfunded supplemental retirement plans at December 31, 1998 and 1997,
was $223 million and $195 million, respectively. The actuarial present value of
projected benefit obligations was $226 million and $199 million at December 31,
1998 and 1997, respectively. The discount rates used were the same as for the
funded plans. Such supplemental retirement plans include a lifetime obligation
to the surviving spouse of the Company's former chairman of the board. Benefits
are payable at .5% of the Company's pretax earnings, as defined in the
agreement, for the previous year.

Reconciliation of the benefit obligation of the unfunded retiree medical
program and other postretirement benefits with amounts recognized in the
accompanying consolidated balance sheets as of December 31 were as follows:

<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Benefit obligation:
Benefit obligation at beginning of year................ $10,062 $ 9,353
Service cost........................................... 320 313
Interest cost.......................................... 684 674
Actuarial loss......................................... 95 275
Benefits paid.......................................... (339) (553)
------- -------
Unfunded benefit obligation at end of year.................. 10,822 10,062
Unrecognized net actuarial gain............................. 1,032 1,157
------- -------
Accrued (prepaid) benefit cost......................... $11,854 $11,219
======= =======
</TABLE>

The components of expenses for the retiree medical program and actuarial
assumptions are as follows:

<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................................ $ 320 $ 313 $ 296
Interest cost............................................... 684 674 630
Recognized net actuarial loss (gain)........................ (30) (34) (41)
----- ----- -----
Net periodic benefit cost.............................. $ 974 $ 953 $ 885
===== ===== =====
Discount rate:
Net periodic cost...................................... 7.0% 7.0% 7.0%
Benefit obligations.................................... 6.5 7.0 7.0
Effect of 1-percentage point increase in health care cost
trend rate:
On total of service and interest cost components....... $ 102 $ 93 $ 86
On postretirement benefit obligation................... 791 704 466
Effect of 1-percentage point decrease in health care cost
trend rate:
On total of service and interest cost components....... (97) (80) (75)
On postretirement benefit obligation................... (743) (650) (425)
</TABLE>

The projected health care cost trend rate used in 1998 was 10%, graded to
7% over three years.

F-43
<PAGE> 128
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock Bonus Plan: AFLAC U.S. maintains a stock bonus plan for eligible
U.S. sales associates. Contributions to the plan, which are determined based on
sales of insurance policies, are made by AFLAC U.S. to a trust and are used to
purchase the Parent Company's common stock for later distribution to the
participants. The vesting requirements are based on years of service. Any shares
forfeited reduce future contributions of AFLAC U.S. The net costs of this plan,
which are included in deferred policy acquisition costs, amounted to $10 million
in both 1998 and 1997, and $9 million in 1996.

(12) COMMITMENTS AND CONTINGENCIES

Litigation: We are a defendant in various litigation considered to be in
the normal course of business. Some of this litigation is pending in Alabama,
where large punitive damages bearing little relation to the actual damages
sustained by plaintiffs have been awarded against other companies, including
insurers, in recent years. Although the final results of any litigation cannot
be predicted with certainty, we believe the outcome of the litigation still
pending will not have a material adverse effect on our financial position.

F-44
<PAGE> 129

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$450,000,000
[AFIAC LOGO]

EXCHANGE OFFER

6 1/2% SENIOR NOTES DUE 2009

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

PROSPECTUS
------------------------------------------------

MAY 24, 1999

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

UNTIL SEPTEMBER 21, 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.