UNUM CORP, 10-K, 1995-03-24

UNUM CORP
10-K, 1995-03-24
ACCIDENT & HEALTH INSURANCE

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 COMMISSION FILE NUMBER 1-9254

UNUM CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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<S> <C>
DELAWARE 01-0405657
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

2211 CONGRESS STREET, PORTLAND, MAINE 04122
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (207) 770-2211

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

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<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------------------- -------------------------------------------
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Common stock, $0.10 par value New York Stock Exchange
Pacific Stock Exchange
Preferred stock purchase rights New York Stock Exchange
Pacific Stock Exchange
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

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

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 10, 1995, was approximately $3,044,100,000.

As of March 10, 1995, 72,536,338 shares of the registrant's common stock
were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Information from the Registrant's proxy statement dated March 28, 1995, is
incorporated by reference into Part III.

Exhibit Index appears on page
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TABLE OF CONTENTS

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<CAPTION>
ITEM PAGE
---- ----

PART I

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1. Business......................................................................................................
A. Description of Business...................................................................................
B. Employee Benefits Segment.................................................................................
C. Related Businesses Segment................................................................................
D. Colonial Companies Segment................................................................................
E. Individual Disability Segment.............................................................................
F. Retirement Security Segment...............................................................................
G. Other Operations Segment..................................................................................
H. Investments...............................................................................................
I. Risk Management and Reinsurance...........................................................................
J. Reserves..................................................................................................
K. Employees.................................................................................................
L. Competition...............................................................................................
M. Regulation................................................................................................
N. Participation Fund Account................................................................................
2. Properties....................................................................................................
3. Legal Proceedings.............................................................................................
4. Submission of Matters to a Vote of Security Holders...........................................................

PART II

5. Market for the Registrant's Common Equity and Related Stockholder Matters.....................................
6. Selected Financial Data.......................................................................................
7. Management's Discussion and Analysis of Financial Condition and Results of Operations.........................
8. Financial Statements and Supplementary Data...................................................................
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..........................

PART III

10. Directors and Executive Officers of the Registrant............................................................
A. Directors of the Registrant...............................................................................
B. Executive Officers of the Registrant......................................................................
11. Executive Compensation........................................................................................
12. Security Ownership of Certain Beneficial Owners and Management................................................
13. Certain Relationships and Related Transactions................................................................

PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..............................................
Signatures....................................................................................................
Report of Independent Accountants.............................................................................
Report of Independent Auditors................................................................................
Index to Financial Statement Schedules........................................................................
Index to Exhibits.............................................................................................
</TABLE>

<PAGE>
PART I

ITEM 1. BUSINESS

A. DESCRIPTION OF BUSINESS

UNUM Corporation is a Delaware corporation organized in 1985 as an insurance
holding company. UNUM Corporation and subsidiaries ("UNUM") are the leading
provider of group long term disability insurance ("group LTD") in the United
States and the United Kingdom. UNUM is also a major provider of employee
benefits, individual disability insurance and special risk reinsurance. UNUM
also markets long term care and retirement income products. The operations of
the following subsidiaries account for substantially all of UNUM's consolidated
assets and revenues. UNUM Corporation is based in Portland, Maine and through
its affiliates has operations in North America, the United Kingdom and the
Pacific Rim.

UNUM conducts its operations in the United States through a number of
wholly-owned subsidiaries: UNUM Life Insurance Company of America ("UNUM
America"), a Maine life insurance company licensed in 49 states and Canada, the
leading provider of group disability insurance in the nation, and a provider of
employee benefits, long term care and retirement products; First UNUM Life
Insurance Company ("First UNUM"), a New York life insurance company; Commercial
Life Insurance Company, a Wisconsin life insurance company and a leader in
special risk insurance and professional association insurance marketing;
Duncanson & Holt, Inc., a New York corporation and a leading accident and health
reinsurance underwriting manager; Colonial Companies, Inc., a Delaware holding
company; and UNUM Holding Company, a Delaware corporation. Colonial Life &
Accident Insurance Company, a wholly-owned subsidiary of Colonial Companies,
Inc., is the leader in payroll-deducted voluntary employee benefits offered to
employees at their worksites. Through UNUM Holding Company, UNUM Corporation
also owns UNUM Sales Corporation, a licensed broker-dealer incorporated in
Delaware, and Claims Service International, Inc., a Delaware corporation, which
provides claims administration services.

UNUM Corporation also holds all of the outstanding capital stock of UNUM
European Holding Company, which is incorporated in the United Kingdom. UNUM's
United Kingdom operations are conducted by UNUM Limited, which is the United
Kingdom's leader in group disability insurance and a wholly-owned subsidiary of
UNUM European Holding Company, and Duncanson & Holt Europe Ltd., a wholly-owned
subsidiary of Duncanson & Holt, Inc.

UNUM's Japanese operations are conducted through a wholly-owned subsidiary,
UNUM Japan Accident Insurance Company Limited ("UNUM Japan"), a Japanese
non-life insurance company, which was established in 1994.

On December 3, 1992, UNUM and Colonial Companies, Inc. ("Colonial"), signed
a definitive merger agreement. On March 26, 1993, Colonial Class A common stock
shareholders voted to approve the merger. Under the agreement, UNUM exchanged
0.731 shares of its common stock for each share of Colonial Class A and B common
stock outstanding on March 26, 1993. UNUM issued approximately 11.4 million
shares of common stock from treasury in connection with the merger. In addition,
outstanding options to acquire shares of Colonial Class B common stock were
converted into options to acquire shares of UNUM common stock. The merger was
accounted for as a pooling of interests.

UNUM reports its operations principally in six business segments: Employee
Benefits, Related Businesses, Colonial Companies, Individual Disability,
Retirement Security and Other Operations. Corporate includes transactions which
are generally non-insurance related, expenses incurred in connection with UNUM's
long-term strategic investment in Japan, and interest expense on corporate
borrowings.

Refer to Item 7 and Item 8 (Note 16) for more information.

B. EMPLOYEE BENEFITS SEGMENT

The Employee Benefits segment, which in 1994 accounted for 47.3% of UNUM's
revenues and 129.8% of its income before income taxes, markets a range of group
disability, group life and other specialty insurance products to employers.

Group LTD is the Employee Benefits segment's principal product. UNUM targets
sales of group LTD to executive, administrative and management personnel and
other professionals. Since 1976, UNUM has been the nation's leading provider of
group LTD according to EMPLOYEE BENEFIT PLAN REVIEW, a recognized industry
publication.

Group LTD provides employees with insurance coverage for loss of income in
the event of inability to work due to sickness or injury. Most of these policies
begin providing benefits following 90 or 180 day waiting periods and continue
providing benefits until the employee reaches age 65-70. Group LTD benefits are
paid monthly and generally are limited to

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two-thirds of the employee's earned income up to a specified maximum benefit.
Premiums for group LTD insurance are based upon the expected mortality,
morbidity and persistency of the insured group as well as assumptions concerning
operating expenses and future interest rates.

UNUM's group life insurance product provides term insurance for employees.
It is marketed primarily to executive, administrative and management personnel.
As reported by EMPLOYEE BENEFIT PLAN REVIEW FOR 1993, the most recent available
data, UNUM was the third largest writer of group life insurance, based on number
of contracts inforce.

Group short term disability insurance ("Group STD") provides employees with
insurance coverage for loss of income in the event of inability to work due to
sickness or injury. Most of these policies begin providing benefits immediately
for accidents or following a one week waiting period for sickness and continue
providing benefits for up to 26 weeks. Group STD benefits are paid weekly and
generally are limited to 60% of the employee's earned income up to a specified
maximum benefit. As reported by EMPLOYEE BENEFIT PLAN REVIEW, UNUM was one of
the top five providers of STD for 1993, based on premium and number of lives
inforce.

UNUM markets other employee benefits products including accidental death and
dismemberment, and dental insurance. UNUM's flexible benefits product provides
employees with the opportunity to allocate benefit dollars among the various
combinations of employee benefits products.

Employee Benefits' group insurance is sold primarily on a basis that permits
annual repricing. This enables UNUM to adjust the pricing of its products to
more closely match the underlying claim experience and interest rate
environment.

UNUM markets its Employee Benefits' insurance products through a network of
33 offices in the United States and Canada, which distribute these products as
well as the products offered by the Retirement Security segment, through
brokers. As of December 31, 1994, these branch offices were organized into four
regions and were staffed with approximately 590 management, sales, service and
administrative personnel.

Refer to Item 7 and Item 8 (Note 16) under the caption "Employee Benefits
Segment" for more information.

C. RELATED BUSINESSES SEGMENT

The Related Businesses segment in 1994 accounted for 15.6% of UNUM's
revenues and 30.4% of its income before income taxes. The Related Businesses
segment includes UNUM Limited in the United Kingdom, Commercial Life Insurance
Company ("Commercial Life"), and reinsurance operations including Duncanson &
Holt, Inc.

On July 2, 1990, UNUM acquired all of the outstanding shares of National
Employers' Life Assurance Company Limited ("NEL"). On August 1, 1990, UNUM
acquired certain remaining policyholder interests of a NEL subsidiary, N.E.L.
Permanent Health Insurances Limited (now known as UNUM Limited). In the third
quarter of 1990, UNUM announced plans to restructure the operations of its
United Kingdom acquisition by continuing to develop the permanent health
insurance (long term disability) business through UNUM Limited and by divesting
the life, pension and mortgage businesses of NEL. On January 6, 1992, the NEL
businesses were sold.

UNUM Limited is the leading provider of group long term disability insurance
in the United Kingdom. UNUM Limited targets group long term disability sales to
management personnel, other professionals and technical and skilled artisans.
These products are marketed through a network of independent brokers. UNUM
Limited's long term disability products provide employees with insurance
coverage for loss of income in the event of inability to work due to sickness or
injury. UNUM Limited also markets individual disability insurance to
self-employed individuals and those not covered under group policies through
brokers and agents.

In May 1994, UNUM Limited assumed the management of the group risk portfolio
of Windsor Life Assurance Company Limited ("Windsor Life"), which included group
long term disability and group life products. Windsor Life was the third largest
group long term disability provider in the United Kingdom in 1993, as reported
by Employers Re. International.

Commercial Life is a leading provider of group special risk accident
products, including group travel and voluntary accident insurance. Commercial
Life also provides group universal life, group term life, and long term
disability, along with payroll deduction programs for employees through a
network of independent brokers and specialty agents. Commercial Life is a leader
in the association group marketplace, offering disability income, business
overhead expense, accidental death and dismemberment, hospital indemnity and
term life insurance to members of professional associations.

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On July 30, 1992, UNUM purchased Duncanson & Holt, Inc. ("D&H"), a leading
accident and health reinsurance underwriting manager. As a reinsurance manager,
D&H provides pool management as well as marketing, underwriting, administration,
claims payment and actuarial services for client companies, but does not bear
any insurance risk. D&H has offices throughout the United States and in London,
Toronto, and Singapore.

Refer to Item 7 and Item 8 (Note 16) under the caption "Related Businesses
Segment" for more information.

D. COLONIAL COMPANIES SEGMENT

The Colonial Companies segment in 1994 accounted for 13.1% of UNUM's
revenues and 31.6% of its income before income taxes. Colonial Companies'
principal subsidiary, Colonial Life & Accident Insurance Company ("Colonial
Life"), markets a broad line of payroll-deducted, voluntary benefits to
employees at their worksites. Colonial Life focuses on personal accident and
sickness, life and cancer insurance plans.

Colonial Life's accident policies generally provide benefit payments for
disability income, death, dismemberment or major injury. Accident policies are
designed to supplement other benefits available through Social Security,
workers' compensation, and other insurance plans. Colonial Life offers a wide
range of life insurance products, with universal life and whole life accounting
for most of the life insurance sold. Colonial Life's cancer policies are
designed to provide payments for hospitalization and scheduled medical benefits,
with the amounts of such payments established by the policies. All of Colonial
Life's insurance policies are issued on a nonparticipating basis.

More than 95% of Colonial Life's premiums for 1994 were derived from
policies marketed to employees at their worksites, with premiums in most cases
to be collected through payroll deduction. Such policies are issued on a
"guaranteed renewable for life" basis, which means that Colonial Life cannot
refuse to renew any policy, but it does reserve the right on a
product-by-product basis to increase premiums for inforce policies. This right
to change premiums is or may be subject to various state insurance department
rules, regulations and approvals.

Since 1985, Colonial Life has marketed its accident and health products as
qualified fringe benefits that can be purchased with pretax dollars as part of a
flexible benefits program pursuant to Section 125 of the Internal Revenue Code.
In 1994, premiums from sales to employees participating in such programs
accounted for approximately 48% of total premiums. A flexible benefits program
assists employers in managing their benefits and compensation packages and
provides policyholders with the ability to choose the benefits that best meet
their needs. Although Congress might change the tax laws to limit or eliminate
fringe benefits available on a pretax basis and such a change could limit or
eliminate Colonial Life's ability to continue marketing its products in this
way, Colonial Life believes its products provide policyholders value, which will
remain even if the tax advantages offered by flexible benefit programs are
eliminated.

Colonial Life markets its products nationwide primarily through a
5,300-member independent contractor sales force. Approximately 1,150 home office
employees provide corporate administration, sales support, internal services and
systems, claims processing, policyholder services, and employer services.

Colonial Companies' subsidiary, BenefitAmerica, Inc. ("BenefitAmerica"),
offers employers administrative services for their employee benefit programs.
The services offered by BenefitAmerica include claims adjudication and payment
for reimbursement plans, which are offered under an employer's flexible benefits
plan pursuant to Section 125 of the Internal Revenue Code, as well as other
administrative services to those plans. The services offered by BenefitAmerica
complement the services and products offered to employers by Colonial Life.

Refer to Item 7 and Item 8 (Note 16) under the caption "Colonial Companies
Segment" for more information.

E. INDIVIDUAL DISABILITY SEGMENT

The Individual Disability segment accounted for 12.2% of UNUM's revenues and
(94.8)% of its income before income taxes in 1994. This segment's products
provide coverage for loss of income for professionals, corporate executives,
business owners and administrative support personnel in the event of disability.
As reported in the Life Insurance Marketing Research Association's 1993
INDIVIDUAL HEALTH ISSUES AND INFORCE SURVEY for the United States, the most
recent available data, UNUM was the fourth largest provider of individual
disability income policies measured by premium inforce.

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Until the new products are introduced, UNUM will continue to sell individual
disability products on a non-cancellable basis, with a fixed premium for the
duration of the policy. The basic individual disability policy provides the
insured with a portion of the earned income which is lost as a result of
sickness or injury. Monthly benefits available range from 30% to 70% of the
insured's earned income up to a specified maximum benefit. Various options are
available that permit tailoring of an insurance policy to the specific client's
needs. The most common options include the length of period before benefits are
paid, the length of the benefit period, partial disability payments, and
cost-of-living adjustments, college benefits and retirement benefits. UNUM also
markets buy/sell and key person coverage and policies that provide reimbursement
for business overhead expenses incurred during a period of disability.
Individual Disability insurance premium rates are based on expected mortality,
morbidity and persistency as well as assumptions concerning policy related
expenses, inflation and investment income.

UNUM currently distributes this segment's products in the United States and
Canada through a branch office system of Individual Disability sales
consultants, who distribute these products as well as products offered by the
Retirement Security Segment, through brokers and agents. UNUM has a network of
36 Individual Disability offices in the United States that are staffed with
approximately 105 management, sales, service and administrative employees.
Another 11 sales offices, staffed by approximately 39 employees, are located
throughout Canada.

Refer to Item 7 and Item 8 (Note 16) under the caption "Individual
Disability Segment" for more information.

F. RETIREMENT SECURITY SEGMENT

The Retirement Security segment accounted for 8.0% of UNUM's revenues and
12.9% of its income before income taxes in 1994. This segment markets and
services tax-sheltered annuities ("TSA"), long term care insurance and lifestyle
security protection ("LSP") products.

TSA products (Section 403(b) plans under the Internal Revenue Code) are
marketed to non-profit hospitals and organizations. These contracts offer a
fixed fund which provides for annual renewable guarantees of principal and
interest. In addition, some TSA contracts offer variable annuity investment
alternatives. These investment alternatives are mutual funds offered as
subaccounts in a UNUM separate account. The mutual funds, managed by nationally
recognized investment managers, include a variety of choices such as growth,
balanced and stock index funds. UNUM also offers recordkeeping and reporting
services to TSA contractholders.

LSP products are marketed to employers to supplement their employees'
retirement planning needs. It provides plan participants with insurance coverage
for retirement savings in the event of the inability to continue retirement
contributions due to death or disability.

UNUM markets its TSA and LSP products through a network of 13 offices in the
United States, which distribute these products as well as the products offered
by the Employee Benefits segment, primarily through brokers.

UNUM markets long term care insurance to employer groups, continuing care
retirement communities and individuals. The group product is offered on an
employer or employee paid basis, and employer groups may offer coverage to
retirees, spouses, parents and grandparents, in addition to the employee. UNUM
distributes long term care products in the United States through brokers and
agents from the branch office system as described in the Employee Benefits and
Individual Disability Segments.

Refer to Item 7 and Item 8 (Note 16) under the caption "Retirement Security
Segment" for more information.

G. OTHER OPERATIONS SEGMENT

The Other Operations segment accounted for 3.6% of UNUM's revenues and 4.3%
of its income before income taxes in 1994. This segment includes individual life
insurance business of UNUM America, group medical insurance, guaranteed
investment contracts ("GICs"), deposit administration accounts ("DAs"), and
401(k) plans, all of which are no longer actively marketed by UNUM.

In the fourth quarter of 1991, UNUM announced plans to withdraw from the
401(k) market by the end of 1992. UNUM has transferred 401(k) service
responsibilities to its formerly wholly-owned subsidiary, Preferred Benefits
Corporation, which was sold in the second quarter of 1992.

UNUM discontinued active marketing of GICs and DAs primarily due to the lack
of demand and the level of investment risk. UNUM discontinued new sales of
universal life and other individual life policies as of January 1, 1988. UNUM
began exiting the group medical product line in 1987 with the discontinuance of
new sales on the traditional group medical product. In 1990, management
announced its intention to exit the group medical product entirely. Beginning
with

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the February 1991 renewals, policyholders had the option of transferring their
group medical product to another insurer. UNUM services commitments to inforce
policyholders, which include conversions of group life and group medical
insurance.

Refer to Item 7 and Item 8 (Note 16) under the caption "Other Operations
Segment" for more information.

H. INVESTMENTS

Refer to Item 7 under the caption "Investments" for more information.
Additional information about UNUM's mortgage loan portfolio is provided below:

Overall, UNUM management believes that its mortgage loan portfolio is well
diversified geographically and among property types. The mortgage loan portfolio
percentages by geographic region and property type at December 31, 1994, and
1993, were as follows:

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GEOGRAPHIC REGION
1994 1993
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New England............................. 10.6% 10.5%
Mid-Atlantic............................ 17.4 16.6
Southeast............................... 15.0 16.4
Southwest............................... 8.4 7.7
Pacific................................. 15.1 16.2
North Central........................... 16.0 15.1
Farm Belt............................... 9.5 9.9
Oil Patch............................... 8.0 7.6
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Total............................... 100.0% 100.0%
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PROPERTY TYPE
1994 1993
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Office Building......................... 26.2% 28.1%
Retail.................................. 30.9 29.5
Industrial.............................. 19.5 19.1
Residential............................. 7.2 6.4
Medical................................. 6.5 6.5
Nursing Home............................ 2.7 3.6
Hotel/Motel............................. 5.8 5.5
Other................................... 1.2 1.3
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Total............................... 100.0% 100.0%
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Mortgage loans delinquent 60 days or more on a contract delinquency basis by
geographic region and property type were as follows at December 31, 1994, and
1993 (Dollars in millions):

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GEOGRAPHIC REGION
1994 1993
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New England.................................. $ 15.7 $ 15.7
Mid-Atlantic................................. 3.5 4.6
Southwest.................................... -- 2.7
Pacific...................................... 0.9 3.1
North Central................................ 2.2 --
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Total.................................... $ 22.3 $ 26.1
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PROPERTY TYPE
1994 1993
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Office Building.............................. $ 22.3 $ 23.4
Retail....................................... -- 2.7
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Total.................................... $ 22.3 $ 26.1
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</TABLE>

Restructured mortgage loans by geographic region and property type were as
follows at December 31, 1994, and 1993 (Dollars in millions):

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<CAPTION>
GEOGRAPHIC REGION
1994 1993
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New England.................................. $ 3.3 $ 3.4
Mid-Atlantic................................. 4.4 2.2
Southeast.................................... 9.5 12.2
Pacific...................................... 10.8 5.6
North Central................................ 14.5 13.9
Farm Belt.................................... 8.8 8.8
Oil Patch.................................... 14.4 16.3
Other........................................ 7.9 3.5
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Total.................................... $ 73.6 $ 65.9
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</TABLE>

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PROPERTY TYPE
1994 1993
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Office Building.............................. $ 32.2 $ 31.5
Retail....................................... 12.8 8.5
Industrial................................... 8.6 7.6
Residential.................................. 7.1 6.2
Hotel/Motel.................................. 2.4 --
Other........................................ 10.5 12.1
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Total.................................... $ 73.6 $ 65.9
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Potential problem mortgage loans are defined by UNUM as current and
performing loans with which management has some concerns about the ability of
the borrower to comply with present loan terms and whose book value exceeds the
market value of the underlying collateral. Potential problem loans by geographic
region and property type were as follows at December 31, 1994, and 1993 (Dollars
in millions):

<TABLE>
<CAPTION>
GEOGRAPHIC REGION
1994 1993
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New England.................................. $ 3.4 $ 6.2
Mid-Atlantic................................. 9.3 31.3
Southeast.................................... 6.3 3.1
Southwest.................................... 1.5 2.2
Oil Patch.................................... 4.9 3.5
Pacific...................................... 4.1 17.4
North Central................................ 0.8 22.1
Farm Belt.................................... 5.9 6.9
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Total.................................... $ 36.2 $ 92.7
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</TABLE>

<TABLE>
<CAPTION>
PROPERTY TYPE
1994 1993
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<S> <C> <C>
Office Building.............................. $ 17.2 $ 25.9
Industrial................................... -- 25.5
Retail....................................... 0.7 20.7
Residential.................................. 2.2 --
Hotel/Motel.................................. 11.5 18.3
Medical...................................... 4.6 2.3
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Total.................................... $ 36.2 $ 92.7
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</TABLE>

I. RISK MANAGEMENT AND REINSURANCE

Risk management, which includes product design, pricing, underwriting,
reserving and benefits management, involves a determination of the type and
amount of risk that an insurer is willing to accept, administration of business
inforce, and control of claims. UNUM has underwriters organized within business
segments who evaluate policy applications on the basis of information provided
by the applicant and other sources.

UNUM reinsures with other companies portions of the insurance policies it
has underwritten. Reinsurance allows UNUM to sell policies with greater benefits
than the entire risk that UNUM is willing to assume. UNUM remains liable to the
insured for the payment of policy benefits if the reinsurers cannot meet their
obligations under the reinsurance agreements.

In the Employee Benefits segment, UNUM has underwriters for each major
product line. Quotes for prospective customers are based on UNUM's experience
with the profitability and persistency of the respective employer's risk
category. The maximum group LTD and group STD monthly benefit varies, but the
usual maximum monthly amount available is $35,000 and $2,500, respectively. For
group life insurance products, UNUM retains up to $750,000 per individual life
and reinsures the balance with other insurance carriers.

Colonial Life has reinsurance on its cancer insurance products that provides
coverage for claim payments in excess of $50,000 in any one year, per claimant,
up to a lifetime maximum of $1 million per claimant.

The financial and medical underwriting areas of UNUM Limited handle the
underwriting of group and individual disability policies and group life
policies. The maximum yearly benefit for group LTD is 326,000 pounds
sterling. UNUM Limited retains 75,000 pounds sterling of this risk and
reinsures the balance. The maximum yearly initial benefit for individual
disability insurance is 125,000 pounds sterling and amounts over 40,000 pounds
sterling per annum are reinsured. On group life business, UNUM Limited retains
60% of the risk up to a maximum of 150,000 pounds sterling per individual life.

Commercial Life reinsures the risk on its accidental death and dismemberment
contracts that exceed $400,000 on any one life. Commercial Life also reinsures
the risk on individual, group, and franchise life contracts that exceed $250,000
on any one life.

UNUM requires medical examinations, financial data, and other information to
make a decision on the acceptability of the individual risk and to appropriately
classify an applicant for individual disability insurance products. On new sales
of the existing non-cancellable product, UNUM retains up to $8,000 plus 25% of
amounts in excess of $8,000 basic monthly indemnity per life for personal
disability coverages, $20,000 plus 25% of amounts in excess of $20,000 per life
for business overhead expenses coverages and $500,000 per life for buy/sell
coverages. UNUM announced in November 1994 that it will discontinue sales of the
traditional, fixed price, non-cancellable product in the United States upon
introduction of new disability products in each state. Subject to regulatory
approval, UNUM expects to introduce new disability products to most states
during the second quarter of 1995.

UNUM (except for Colonial Life) reinsures the risk of individual life
insurance contracts that exceed $425,000 on any one life. Colonial Life limits
its risk for death and dismemberment benefits to $100,000 per life.

<PAGE>
In addition to the reinsurance arrangements above, UNUM (except for Colonial
Life, UNUM Limited and Commercial Life) is covered by catastrophe reinsurance,
which provides additional protection against aggregate losses in excess of $1
million up to a maximum of $100 million. This protection is activated whenever
one event causes the disability and/or death of five or more people covered
under UNUM's life or disability contracts. Colonial Life is covered by
catastrophe reinsurance for accidental deaths totaling more than $300,000 from a
single disaster, up to a limit of $5 million. UNUM Limited's group disability
business is partially covered by catastrophe reinsurance of 3 million
pounds sterling for losses from one event involving more than twenty-five
lives. Commercial Life is covered by catastrophe reinsurance, which provides
additional protection against aggregate losses in excess of $1 million up to a
maximum of $54 million for losses involving three or more covered lives.
Also, UNUM purchased excess-of-loss reinsurance totaling $60 million over
three years through a Lloyd's of London syndicate for the non-cancellable
individual disability business of UNUM America and First UNUM.

Reinsurance premiums assumed and ceded for the year ended December 31, 1994,
were $170.7 million and $112.5 million, respectively. No current or planned
reinsurance activity is expected to have a significant impact on the ability of
UNUM to underwrite additional insurance.

J. RESERVES

The reserves reported in the consolidated financial statements of UNUM
Corporation and subsidiaries have been computed in accordance with generally
accepted accounting principles ("GAAP") for stock life insurance companies.
These reserve balances generally differ from those specified by the laws of the
various states and those carried in the statutory financial statements. The
differences between GAAP and statutory reserves arise from the use of different
mortality, morbidity, interest, expense and lapse assumptions.

Pursuant to insurance laws of the states of Maine, New York, South Carolina,
and Wisconsin, the United Kingdom and of Japan, UNUM's insurance subsidiaries
(UNUM America, First UNUM, Colonial Life, Commercial Life, UNUM Limited and UNUM
Japan, respectively) set up statutory reserves, carried as liabilities, to meet
obligations on their various policies. These statutory reserves are amounts
which, together with premiums to be received and interest on such reserves at
assumed rates, are calculated to be sufficient to meet the policy and contract
obligations of UNUM's insurance subsidiaries. Pursuant to insurance laws of
Canada, UNUM America has established regulatory reserves to meet the obligations
of policies written in its Canadian branch.

Statutory, GAAP and regulatory reserves are based upon UNUM's insurance
subsidiaries' experience as adjusted to provide for possible adverse deviations.
These estimates are periodically reviewed and compared to actual experience. The
assumptions are revised when it is determined that future expected experience
differs from the assumed estimates.

K. EMPLOYEES

At December 31, 1994, UNUM had approximately 7,200 full-time employees. UNUM
does not have collective bargaining agreements with employees.

L. COMPETITION

The principal competitive factors affecting UNUM's business are reputation,
financial strength, quality of service, risk management, product design and
price. There is competition among insurance companies for the types of
individual and group insurance and retirement products sold by UNUM. At the end
of 1994, there were approximately 1,900 legal reserve life insurance companies
in the United States and Canada and life assurance offices in the United
Kingdom, which may offer insurance products similar to those marketed by UNUM.
UNUM also competes with banks, investment advisors, mutual funds and other
financial entities to provide products and services. All areas of group
insurance are highly competitive because of the large number of insurance
companies and other entities offering these products.

M. REGULATION

UNUM's insurance subsidiaries are subject to regulation and supervision in
the jurisdictions in which they do business. Although the extent of such
regulation varies, U.S. state, Canadian, United Kingdom and Japanese insurance
laws generally establish supervisory agencies, such as state insurance
departments, the Office of the Superintendent of Financial Institutions
("OSFI"), The Department of Trade and Industry ("DTI") and the Ministry of
Finance ("MOF"), respectively, with broad administrative powers. These powers
relate chiefly to the granting and revocation of the licenses to transact
business, and establishing reserve requirements and the form and content of
required financial statements. Such powers also include the licensing of agents
in the U.S. and the approval of policy forms in the U.S. and Japan. UNUM's
insurance operations and subsidiaries must meet the standards and tests for its
investments promulgated by insurance laws and regulations of Maine, New York,
South Carolina, Wisconsin, Canada, the United Kingdom and Japan, as applicable.

UNUM's United States domiciled insurance subsidiaries are required to file
quarterly and annual statements with the various insurance departments in state
jurisdictions in which they do business. These statements comply with the rules
of the National Association of Insurance Commissioners ("NAIC"). UNUM's
insurance subsidiaries are examined periodically by examiners of the states of
Maine, New York, South Carolina and Wisconsin and of other states (on an
"association"

<PAGE>
or "zone" basis) in which they are licensed to do business. UNUM's insurance
branch operation in Canada is periodically examined by Canadian insurance
regulatory authorities and is required to file annual reports that comply with
the insurance laws of Canada and with the rules of the OSFI of the Canadian
Federal government and each of the provinces. UNUM's United Kingdom subsidiary
is required to file financial statements annually with the DTI, in accordance
with United Kingdom law and regulation. UNUM Japan is required to file periodic
financial statements with the MOF, in accordance with Japanese laws and
regulations.

UNUM's insurance subsidiaries operate under insurance laws, which require
that they establish and carry, as liabilities, actuarial reserves to meet their
obligations on their life, disability, accident and health policies and
annuities. These reserves are verified periodically by various regulators.

UNUM's reinsurance underwriting manager, Duncanson & Holt, Inc., ("D&H") is
a licensed reinsurance intermediary in New York. It is subject to regulation in
New York and other states where it does business. Duncanson & Holt Underwriters,
Ltd., a subsidiary of D&H, is a corporate member of Lloyds of London and is
subject to all rules applicable to such members.

UNUM Sales Corporation, a registered broker-dealer, is regulated by the
National Association of Securities Dealers, Inc. and the Securities and Exchange
Commission. It is the principal underwriter for variable annuity contracts
offered by UNUM America and First UNUM.

The laws of the State of Maine require periodic registration and reporting
by insurance companies domiciled within its jurisdiction, which control or are
controlled by other corporations or persons. This constitutes, by definition, a
holding company system. UNUM America is domiciled in Maine and is subject to
these laws. New York, which is the domiciliary state of First UNUM; South
Carolina, which is the domiciliary state of Colonial Life; and Wisconsin, which
is the domiciliary state of Commercial Life, have similar laws. Accordingly, the
UNUM insurance subsidiaries are registered as members of the UNUM holding
company system in the states of Maine, New York, South Carolina and Wisconsin.
The statutes of these states require periodic disclosure concerning the ultimate
controlling person and intercorporate transactions within the holding company
system, some of which require prior approval.

Effective December 31, 1991, UNUM America merged with two of UNUM
Corporation's wholly-owned Maine life insurance subsidiaries, UNUM Life
Insurance Company ("UNUM Life") and UNUM Pension and Insurance Company ("UPIC"),
with UNUM America remaining as the surviving corporation. In connection with the
merger of UNUM Life and UPIC into UNUM America, UNUM Life ceased to maintain its
licensing status in the State of New York effective December 31, 1991, with all
future New York business being transacted by First UNUM. As a condition of New
York regulatory approval, UNUM America agreed to maintain a security deposit in
the State of New York equal to 102% of outstanding statutory liabilities to New
York policyholders, insureds and claimants of UNUM Life. The security deposit
consists of certain cash and invested assets. An initial deposit was made in
February 1992 and at December 31, 1994, the required deposit was $819.2 million.
UNUM America has the ability to withdraw assets from this account and to
substitute other assets at its discretion. The balance of the security deposit
will be reviewed and adjusted at least annually based upon the outstanding
liabilities described above.

N. PARTICIPATION FUND ACCOUNT

Participating policies issued prior to November 14, 1986, by the former
Union Mutual Life Insurance Company ("Union Mutual") will remain participating
as long as they remain in force. A Participation Fund Account ("PFA") has been
established for the sole benefit of all of Union Mutual's individual
participating life and annuity policies and contracts. At December 31, 1994, the
PFA had $347.0 million in assets, which are held by UNUM America. UNUM has
agreed to pay certain expenses associated with the PFA and at December 31, 1994,
the reserve for the present value of such expenses was $15.9 million.

PFA assets, investment earnings and income from operations are not available
to UNUM America or UNUM during the operation or upon the termination of the PFA.
In the unlikely event that the assets of the PFA are not adequate to provide for
policyholder benefits (exclusive of dividends, which are not guaranteed), UNUM
America would be required to provide for any shortfall, and such amounts, if
any, would reduce earnings of UNUM America and UNUM.

All operating data of the individual participating life and annuity
contracts has been excluded from the Consolidated Statements of Income and all
other operating data included in this report unless otherwise noted. The assets
and liabilities associated with the participating business are included in
UNUM's Consolidated Balance Sheets.

ITEM 2. PROPERTIES

UNUM owns home office property consisting of five office buildings and four
service buildings located throughout the Portland, Maine area. UNUM also owns an
office building in the United Kingdom, which is the home office of UNUM

<PAGE>
Limited. The home office of the Colonial Companies is located in Columbia, South
Carolina, and is also owned by UNUM. In addition, UNUM leases, on periods
principally from five to ten years, office and warehouse space for use by its
home office affiliates and sales forces.

ITEM 3. LEGAL PROCEEDINGS

In the normal course of its business operations, UNUM is involved in
litigation from time to time with claimants, beneficiaries and others, and a
number of lawsuits were pending at December 31, 1994. In the opinion of
management, the ultimate liability, if any, arising from this litigation is not
expected to have a material adverse effect on the consolidated financial
position or the consolidated operating results of UNUM.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of shareholders, through solicitation of
proxies or otherwise, during the fourth quarter 1994.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The principal markets in which UNUM's common stock is traded are the New
York Stock Exchange and the Pacific Stock Exchange. UNUM's ticker symbol is
"UNM." As of December 31, 1994, there were 25,280 shareholders of record of
common stock. Information concerning restrictions on the ability of UNUM's
subsidiaries to transfer funds to UNUM in the form of cash dividends is
described in Item 8 (Note 14).

The market price (as quoted by the New York Stock Exchange) and cash
dividends paid, per share of UNUM's common stock, by calendar quarter for the
past two years were as follows:

<TABLE>
<CAPTION>
1994 1993
------------------------------------------ ------------------------------------------
4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
High.................................... $ 46.875 $ 50.000 $ 56.750 $ 58.000 $ 54.750 $ 60.125 $ 57.750 $ 58.375
Low..................................... $ 35.125 $ 43.000 $ 44.500 $ 48.000 $ 47.750 $ 53.250 $ 51.000 $ 49.250
Close................................... $ 37.750 $ 46.000 $ 44.750 $ 52.750 $ 52.500 $ 54.500 $ 54.000 $ 56.500
Dividend Paid........................... $ 0.24 $ 0.24 $ 0.24 $ 0.20 $ 0.20 $ 0.20 $ 0.20 $0.16 1/2
</TABLE>

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

UNUM CORPORATION AND SUBSIDIARIES

SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
(DOLLARS IN MILLIONS, EXCEPT PER COMMON SHARE DATA) 1994 1993 1992 1991 1990 1989 1988 1987
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues:
Premiums and other income (expense):
Employee Benefits $1,451.4 $1,362.6 $1,116.2 $1,000.0 $ 909.8 $ 769.3 $ 723.3 $ 670.5
Related Businesses 477.5 402.5 354.4 324.2 269.2 192.9 -- --
Colonial Companies 441.3 407.4 371.9 325.4 281.1 241.0 216.6 192.1
Individual Disability 357.5 322.5 292.9 253.4 169.4 147.2 134.7 126.1
Retirement Security 62.5 36.3 32.3 28.0 21.7 22.7 17.1 9.1
Other Operations 16.9 25.9 29.3 41.9 74.4 108.1 162.9 229.3
Corporate 0.8 -- 0.8 -- (0.1) 0.2 0.1 0.9
--------------------------------------------------------------------------------------------------------------------------------
Total premiums and other income 2,807.9 2,557.2 2,197.8 1,972.9 1,725.5 1,481.4 1,254.7 1,228.0
--------------------------------------------------------------------------------------------------------------------------------
Net investment income (expense): (a)
Employee Benefits 263.5 234.7 234.4 196.1 176.5 160.8 151.3 133.7
Related Businesses 89.6 85.5 91.6 95.3 63.5 38.3 -- --
Colonial Companies 32.6 41.4 35.4 38.5 25.2 26.7 22.3 19.0
Individual Disability 84.6 82.5 75.0 67.5 67.3 64.1 54.4 46.2
Retirement Security 226.9 235.5 228.8 227.8 209.6 196.8 172.4 157.6
Other Operations 114.4 154.0 181.6 184.9 218.0 227.8 240.7 260.6
Corporate 4.2 6.2 3.9 1.5 (9.0) 6.0 20.3 19.1
--------------------------------------------------------------------------------------------------------------------------------
Total net investment income 815.8 839.8 850.7 811.6 751.1 720.5 661.4 636.2
--------------------------------------------------------------------------------------------------------------------------------
Total revenues 3,623.7 3,397.0 3,048.5 2,784.5 2,476.6 2,201.9 1,916.1 1,864.2
--------------------------------------------------------------------------------------------------------------------------------

Benefits and expenses:
Employee Benefits 1,457.1 1,358.2 1,128.1 1,002.2 915.6 779.7 743.5 703.7
Related Businesses 506.8 430.7 392.6 358.4 298.3 213.4 -- --
Colonial Companies 411.2 378.4 346.8 306.4 259.6 225.5 201.1 178.6
Individual Disability 630.3 336.0 323.3 284.2 210.8 195.0 192.3 169.8
Retirement Security 263.7 250.7 254.4 257.9 230.9 212.9 176.2 151.1
Other Operations 122.8 159.1 194.4 243.3 271.9 326.5 404.5 533.7
Corporate 33.2 23.6 10.4 12.5 10.8 12.4 9.5 15.8
--------------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 3,425.1 2,936.7 2,650.0 2,464.9 2,197.9 1,965.4 1,727.1 1,752.7
--------------------------------------------------------------------------------------------------------------------------------

<PAGE>

<CAPTION>
Year Ended December 31,
-----------------------
(DOLLARS IN MILLIONS, EXCEPT PER COMMON SHARE DATA) 1994 1993 1992 1991 1990 1989 1988 1987
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes and
cumulative effects of accounting changes:
Employee Benefits 257.8 239.1 222.5 193.9 170.7 150.4 131.1 100.5
Related Businesses 60.3 57.3 53.4 61.1 34.4 17.8 -- --
Colonial Companies 62.7 70.4 60.5 57.5 46.7 42.2 37.8 32.5
Individual Disability (188.2) 69.0 44.6 36.7 25.9 16.3 (3.2) 2.5
Retirement Security 25.7 21.1 6.7 (2.1) 0.4 6.6 13.3 15.6
Other Operations 8.5 20.8 16.5 (16.5) 20.5 9.4 (0.9) (43.8)
Corporate (28.2) (17.4) (5.7) (11.0) (19.9) (6.2) 10.9 4.2
--------------------------------------------------------------------------------------------------------------------------------
Total income before income taxes and
cumulative effects of accounting changes 198.6 460.3 398.5 319.6 278.7 236.5 189.0 111.5
--------------------------------------------------------------------------------------------------------------------------------
Income taxes (credit) 43.9 148.3 107.3 74.3 60.9 51.1 30.1 (4.7)
--------------------------------------------------------------------------------------------------------------------------------
Cumulative effects of accounting changes -- (12.1)(b) -- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------------
Net income $ 154.7 $ 299.9 $ 291.2 $ 245.3 $ 217.8 $ 185.4 $ 158.9 $ 116.2
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
Per common share:
Net income $2.09 $3.81(b) $3.71 $3.15 $2.73 $2.03 $1.57 $1.06
Dividends paid $0.92 $0.76-1/2 $0.62-1/2 $0.49 $0.37-1/2 $0.28-1/2 $0.23 $0.20
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------

<FN>

(a) Includes investment income and net realized investment gains.
(b) Effective January 1, 1993, UNUM adopted Financial Accounting Standard No.
106, "Employers' Accounting for Postretirement Benefits Other than
Pensions," which decreased net income by $32.1 million, or $0.40 per share,
and Financial Accounting Standard No. 109, "Accounting for Income Taxes,"
which increased net income by $20.0 million, or $0.25 per share.

</TABLE>

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
December 31,
------------
(DOLLARS AND SHARES IN MILLIONS) 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Assets $13,127.2 $12,437.3 $11,959.8 $11,310.9 $10,063.4 $9,045.7 $8,592.3 $7,783.0 $7,333.8 $6,019.0
Long-term debt $ 182.1 $ 128.6 $ 77.2 $ 51.5 $ 77.2 $ 1.5 $ 1.5 $ 1.7 $ 1.4 --
Stockholders' equity $ 1,915.4 $ 2,102.7 $ 2,010.9 $ 1,755.5 $ 1,490.1 $1,445.0 $1,512.3 $1,463.8 $1,471.1 $ 770.0(a)
Shares outstanding 72.4 76.0 79.1 78.2 77.4 82.0 96.8 104.2 111.4 NA(a)
Weighted average shares
outstanding during
the year 74.2 78.8 78.5 77.8 79.9 91.4 101.3 109.1 NA(a) NA(a)

-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
<FN>
(a) In November 1986, UNUM converted to a stock company from a mutual company.

</TABLE>

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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

This management's discussion and analysis reviews the consolidated financial
condition of UNUM at December 31, 1994, and the consolidated results of
operations for the past three years and, where appropriate, factors that may
affect future financial performance are identified and discussed. Management's
Discussion and Analysis of Financial Condition and Results of Operations should
be read in conjunction with the Consolidated Financial Statements, Notes to
Consolidated Financial Statements and Selected Consolidated Financial Data.

<PAGE>

CONSOLIDATED OVERVIEW
<TABLE>
<CAPTION>

(Dollars and shares in millions, except per share amounts, and
percentage increase (decrease) over prior year) 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES

Premiums $2,732.4 10.4% $2,474.1 15.5% $2,142.4
Investment income 770.2 (2.6) 790.4 (2.3) 809.2
Net realized investment gains 45.6 (7.7) 49.4 19.0 41.5
Fees and other income 75.5 (9.1) 83.1 50.0 55.4
---------------------------------------------------------------------------------------------------------------------------
Total revenues 3,623.7 6.7 3,397.0 11.4 3,048.5

BENEFITS AND EXPENSE 3,425.1 16.6 2,936.7 10.8 2,650.0
---------------------------------------------------------------------------------------------------------------------------

INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECTS OF ACCOUNTING CHANGES 198.6 (56.9) 460.3 15.5 398.5

INCOME TAXES 43.9 (70.4) 148.3 38.2 107.3
---------------------------------------------------------------------------------------------------------------------------
Income before cumulative effects of
accounting changes 154.7 (50.4) 312.0 7.1 291.2

CUMULATIVE EFFECTS OF ACCOUNTING CHANGES
Income taxes -- nm 20.0 nm --
Postretirement benefits other than pensions, net of tax -- nm (32.1) nm --
---------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 154.7 (48.4)% $ 299.9 3.0% $ 291.2
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------

PER COMMON SHARE
Income before cumulative effects of accounting changes $ 2.09 $ 3.96 $ 3.71
CUMULATIVE EFFECTS OF ACCOUNTING CHANGES
Income taxes -- 0.25 --
Postretirement benefits other than pensions, net of tax -- (0.40) --
---------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 2.09 $ 3.81 $ 3.71
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------

SUMMARY OF INCOME (LOSS) BEFORE INCOME TAXES
Employee Benefits Segment $ 257.8 7.8% $ 239.1 7.5% $ 222.5
Related Businesses Segment 60.3 5.2 57.3 7.3 53.4
Colonial Companies Segment 62.7 (10.9) 70.4 16.4 60.5
Individual Disability Segment (188.2) nm 69.0 54.7 44.6
Retirement Security Segment 25.7 21.8 21.1 nm 6.7
Other Operations Segment 8.5 (59.1) 20.8 26.1 16.5
Corporate (28.2) 62.1 (17.4) nm (5.7)
---------------------------------------------------------------------------------------------------------------------------
Total income before income taxes $ 198.6 (56.9)% $ 460.3 15.5% $ 398.5
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------

nm = not meaningful or in excess of 100%

<PAGE>

1994 1993 1992
BALANCE SHEET DATA
Assets $13,127.2 $12,437.3 $11,959.8
Long-term debt $ 182.1 $ 128.6 $ 77.2
Stockholders' equity $ 1,915.4 $ 2,102.7 $ 2,010.9
Shares outstanding 72.4 76.0 79.1
Weighted average shares outstanding
during the year 74.2 78.8 78.5

---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

CONSOLIDATED OVERVIEW

During 1994, UNUM reported decreased income before income taxes, which was
primarily attributable to unfavorable claims experience in two of UNUM's largest
product lines, individual disability as reported in the Individual Disability
segment, and group long term disability, as reported in the Employee Benefits
segment.

As further described in the Individual Disability segment, throughout 1994
UNUM's individual disability business in the United States experienced a higher
incidence of new claims and a disproportionate number of larger claims that
management has attributed to certain geographical and occupational segments,
particularly physicians. As a result, in 1994 UNUM increased reserves for
existing claims by $83.3 million and established a reserve for future estimated
losses of $109.1 million. These increased reserves reflect management's current
expectations for morbidity trends for the existing individual disability
business, as reported in the Individual Disability segment. This reserve
strengthening resulted in an increase to benefits to policyholders in the
Consolidated Statement of Income of $192.4 million and a decrease to net income
of $125.1 million, or $1.69 per share, for the year ended December 31, 1994. It
is not possible to predict whether morbidity trends will be consistent with
UNUM's current assumptions.

During 1994, UNUM's North American group long term disability results, as
reported in the Employee Benefits segment, were adversely affected through a
combination of increased incidence of new claims and an increased number of
large claims. Management continues to address these unfavorable claim trends by
increasing prices on selected new and inforce business, implementing more
stringent underwriting guidelines, and strengthening risk management programs.
Management believes these actions will strengthen UNUM's ability to deal with
these disability claims trends into the future, and that the level of future
earnings of the group long term disability product will be a function of the
effectiveness of these continuing actions and the time required for these
actions to take effect.

<PAGE>

During 1994, several of UNUM's businesses were contending with various proposals
to reform the health care delivery system in the United States. While proposed
federal health care legislation was not enacted in 1994, structural reform is
under way, which UNUM believes has and will continue to alter the medical
profession, as well as the social and economic environment of the health care
industry. Management believes the uncertainties as to how the health care
industry will emerge from such structural reform, as well as changes in and
consolidation of the health care delivery system, contributed to a higher
incidence of new and larger claims for physicians.

The interest rate environment changed dramatically during 1994, as long-term
interest rates rose from a more than twenty-year low experienced in 1993, along
with increases in the prime lending rates and short-term rates. However,
average investment yields on new fixed maturity purchases for the past two years
remain below the existing average portfolio yield, which has decreased the
average rate used to discount disability claim reserve liabilities and decreased
levels of investment income in 1994 and 1993, despite continued growth in
invested assets. Management anticipates that the average investment portfolio
yield will further decline, since UNUM invests its cash flows in high quality
assets that currently have yields below the existing average portfolio yields.

Economic indicators at the end of 1994 and in early 1995 were predicting modest
growth in 1995 for UNUM's major markets: the United States, Canada and the
United Kingdom. In February 1995, the Federal Reserve Board tightened credit
policy, due to continued concerns about inflation, by raising the federal funds
rate to 6%, the highest level in four years. This represents an increase of
three full percentage points since the Federal Reserve Board started raising
rates in February 1994. Also in 1994, the central banks in Canada and the
United Kingdom increased interest rates. During 1994, long-term yields
increased; however, since long-term yields are based on market dynamics,
management cannot predict the impact of a higher short-term rate on future long-
term yields.

The increase in income before income taxes in 1993 was primarily due to expense
management, favorable claims experience in the Individual Disability segment and
unusually favorable interest spread margins on tax sheltered annuities in the
Retirement Security segment. Expenses of $9.6 million, or $0.12 per share,
incurred in connection with the merger of UNUM and Colonial Companies, Inc.,
included in Corporate, and unfavorable group life claims experience in the
Employee Benefits segment partially offset these results.

<PAGE>

ACCOUNTING CHANGES

Effective January 1, 1994, UNUM adopted Financial Accounting Standard ("FAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities,"
which specified the accounting and reporting for certain investments in equity
securities and for all investments in debt securities. UNUM adopted the
provisions of FAS 115 for these investments held as of or acquired after January
1, 1994. Upon the adoption of FAS 115, UNUM increased unrealized gains on
available for sale securities included in stockholders' equity on January 1,
1994, by $41.8 million (net of deferred taxes of $22.5 million) to reflect the
unrealized holding gains on fixed maturities classified as available for sale
which were previously carried at amortized cost. In accordance with FAS 115,
prior year consolidated financial statements have not been restated to reflect
the change in accounting principle. The adoption of FAS 115 did not affect 1994
net income.

Included in 1993 net income were the cumulative and incremental effects of the
adoption of FAS No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions," and FAS No. 109, "Accounting for Income Taxes."

Effective January 1, 1993, UNUM adopted FAS 106, which changed the method for
recognition of the cost of postretirement benefits other than pensions from a
cash basis to an accrual basis over the years in which employees render the
related services. UNUM elected to recognize the FAS 106 liability at January 1,
1993, of $48.8 million as a cumulative effect of an accounting change which
decreased net income by $32.1 million, or $0.40 per share, in 1993. The
incremental effect of FAS 106 for 1993 was increased operating expenses of
approximately $6.0 million from 1992.

Also effective January 1, 1993, UNUM adopted FAS 109, which changed the method
for calculating and reporting deferred income taxes in the financial statements
from the deferred method to the liability method. The cumulative effect of this
accounting change amounted to a $20.0 million increase, or $0.25 per share, in
1993 net income.

UNUM also adopted FAS No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts," effective January 1, 1993, which
resulted in an increase in other assets of $80.0 million and a corresponding
increase in future policy benefits and unpaid claims and claim expenses, but did
not affect 1993 net income.

<PAGE>

INCOME TAXES

Effective tax rates, which reflect income tax expense as a percentage of pretax
income, were 22.1%, 32.2% and 26.9% for 1994, 1993 and 1992, respectively. The
significant reduction in the effective tax rate for 1994 resulted primarily from
reduced pretax earnings. Reported income tax expense was below the federal
statutory tax rate of 35% for 1994 and 1993, and 34% for 1992, primarily due to
tax savings from investments in tax-exempt securities. Although investments in
tax-exempt securities result in increased consolidated net income, these
investments reduce UNUM's business segments' income before income taxes.

In 1993, UNUM's growth in pretax income outpaced the growth of income from tax-
exempt securities, which resulted in an increased effective tax rate. On August
10, 1993, legislation was enacted to increase the federal corporate income tax
rate of 34% to 35%, retroactive to January 1, 1993. The change in tax rates
resulted in a $7.8 million, or $0.10 per share, charge related to the adjustment
of deferred tax liabilities. Excluding the adjustment to deferred income tax
expense of $7.8 million for the enacted tax rate change, the 1993 effective tax
rate would have been 30.5%.

<PAGE>

EMPLOYEE BENEFITS SEGMENT

Investment income 229.2 8.2 211.9 5.4 201.0
Net realized investment gains 34.3 50.4 22.8 (31.7) 33.4
Fees and other income 10.8 10.2 9.8 19.5 8.2
--------------------------------------------------------------------------------------------------------------------------
Total revenues 1,714.9 7.4 1,597.3 18.3 1,350.6

BENEFITS AND EXPENSES
Benefits to policyholders 1,117.0 9.7 1,018.3 26.0 808.0
Operating expenses 290.9 2.2 284.6 9.7 259.5
Commissions 108.0 10.3 97.9 10.7 88.4
Increase in deferred policy
acquisition costs (58.8) 38.0 (42.6) 53.2 (27.8)
--------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 1,457.1 7.3 1,358.2 20.4 1,128.1
--------------------------------------------------------------------------------------------------------------------------

INCOME BEFORE INCOME TAXES $ 257.8 7.8% $ 239.1 7.5% $ 222.5

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

Sales (annualized new premiums)
Group LTD $ 218.0 $ 196.2 $ 160.0
Group life insurance $ 91.2 $ 89.4 $ 77.6
Other employee benefits $ 63.6 $ 52.9 $ 46.7
Persistency (premiums)
Group LTD 84.0% 88.7% 90.3%
Group life insurance 84.8% 89.2% 89.2%
Benefit ratio (% of premiums) 77.5% 75.3% 72.9%
Operating expense ratio (% of premiums) 20.2% 21.0% 23.4%
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

EMPLOYEE BENEFITS SEGMENT

The Employee Benefits segment includes group long term disability ("group LTD"),
group life and other employee benefits products including short term disability,
accidental death and dismemberment and dental insurance, which are sold by UNUM
Life Insurance Company of America ("UNUM America") and First UNUM Life Insurance
Company ("First UNUM").

Increased sales and selected price increases on new and inforce cases
contributed to the premium growth of 6.5% in the Employee Benefits segment in
1994. Rate increases to address unfavorable experience on selected segments of
the inforce business contributed to the decline in both the group LTD and group
life premium persistency rates in 1994. In general, case terminations resulting
from rate increases have occurred in less profitable segments of these
businesses. Management expects to continue to seek inforce case rate increases,
as appropriate, given claims experience, to improve profitability. However,
such rate actions may increase case terminations and decrease persistency rates
for these businesses. In 1994 and 1993, group LTD was active in acquiring
closed blocks of claims which generated one-time premiums totaling $8.6 million
and $58.3 million, respectively. Management intends to pursue additional claim
block acquisitions in the future.

The 22.1% premium growth in 1993 reflected record sales in all of the Employee
Benefits segment's product lines. Premium growth also reflected selected price
increases, acquisitions of closed blocks of claims, and slight growth of the
employment and salary levels for group LTD's existing customer base. Renewal
rate actions for group LTD had a minimal impact on the premium persistency rate
for 1993.

During 1994, the group LTD business experienced a higher incidence of new claims
and an increased number of large claims, which were the primary causes of the
increased benefit ratio for the Employee Benefits segment from 1993. Management
has identified a number of geographical and occupational segments of the group
LTD business which are experiencing higher than expected claims. Management
continues to pursue these segments of the business for underwriting and pricing
actions, and is addressing increased incidence rates, lower recovery rates, and
the more subjective nature of the types of disability claims by implementing
new, and enhancing existing, risk management programs.

Group LTD earnings in 1994 were also adversely affected by a decrease in the
discount rate used to determine reserves, from 9.34% at December 31, 1993, to
9.18% at December 31, 1994, which resulted in an increase to claim reserves.
The discount rate is a composite yield of assets specifically matched with the
group LTD reserves. Management expects the discount rate will further decline,
since current cash flows are invested in high quality assets at current yields,
which are below the composite yields of the existing assets purchased in prior
years. UNUM has increased prices on both existing and new business in order to
mitigate the impact of the interest rate environment.

<PAGE>

Reserves for unpaid claims are estimates based on UNUM's historical experience
and other actuarial assumptions, which consider the effects of current
developments, anticipated trends, risk management programs and renewal actions.
Many factors affect actuarial calculations of claim reserves, including but not
limited to interest rates, and current and anticipated incidence rates, recovery
rates, and economic and societal conditions. Reserve estimates and assumptions
are periodically reviewed and updated with any resulting adjustments to reserves
reflected in current operating results. Given the complexity of the reserving
process, the ultimate liability may be more or less than such estimates
indicate.

During 1994, management implemented and strengthened various risk management
programs to address the unfavorable claims trends experienced in group LTD. In
addition to the selected price increases on new and inforce business, more
stringent underwriting practices, and reducing benefit options for certain
segments of the business, management has established special units to address
specific aspects of disability claims, including complex and fraudulent claims.
Additionally, management has implemented new group LTD contract provisions which
provide risk management features and claimant rehabilitation incentives. Also,
management continually reviews the benefits management process to identify and
strengthen risk management policies and procedures.

Management believes these underwriting, pricing and risk management actions will
strengthen UNUM's ability to deal with these disability claims trends into the
future, and that the level of future earnings of the group LTD product will be a
function of the effectiveness of these continuing actions and the time required
for these actions to take effect.

The group life business reported favorable claims experience in 1994.
Management continues to address higher than expected claims in certain portions
of the business by imposing more stringent underwriting requirements and
increasing prices. Management believes these actions improved overall claims
experience for group life products in 1994.

The ratio of operating expenses to premiums was 20.2%, 21.0%, and 23.4% in 1994,
1993 and 1992, respectively. The decreases in 1994 and 1993 were attributable
to continued efforts to manage expense growth and increased premium from claim
block purchases in 1993, which do not have proportionally higher expenses.
Deferred policy acquisition costs increased in 1994 and 1993 due primarily to
deferrals of higher marketing costs associated with increased sales and renewal
activity.

In summary, the improvement in income before income taxes for the Employee
Benefits segment in 1994 was primarily due to favorable claims experience in the
group life and short term disability businesses, a lower operating expense
ratio, and increased realized investment gains, which were partially offset by
unfavorable claims experience in the group LTD business. Strong premium growth
and a lower operating expense ratio, which were partially offset by unfavorable
claims experience in the group life business and lower realized investment
gains, resulted in increased income before income taxes for 1993 as compared
with 1992.

<PAGE>

RELATED BUSINESSES SEGMENT

REVENUES
Premiums $ 434.0 22.8% $ 353.4 4.9% $ 336.8
Investment income 88.8 8.2 82.1 (6.2) 87.5
Net realized investment gains 0.8 (76.5) 3.4 (17.1) 4.1
Fees and other income 43.5 (11.4) 49.1 nm 17.6
--------------------------------------------------------------------------------------------------------------------------
Total revenues 567.1 16.2 488.0 9.4 446.0

BENEFITS AND EXPENSES
Benefits to policyholders 333.2 24.0 268.7 2.3 262.7
Operating expenses 127.3 3.6 122.9 30.1 94.5
Commissions 53.1 13.5 46.8 9.1 42.9
Increase in deferred policy
acquisition costs (6.9) (12.7) (7.9) 3.9 (7.6)
Interest expense 0.1 (50.0) 0.2 nm 0.1
--------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 506.8 17.7 430.7 9.7 392.6

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

INCOME BEFORE INCOME TAXES $ 60.3 5.2% $ 57.3 7.3% $ 53.4

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

Benefit ratio (% of premiums) 76.8% 76.0% 78.0%

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

</TABLE>

nm = not meaningful or in excess of 100%

<PAGE>

RELATED BUSINESSES SEGMENT

The Related Businesses segment includes: UNUM Limited, the United Kingdom's
leader in group disability insurance; Commercial Life Insurance Company
("Commercial"), a leader in special risk insurance and professional association
insurance marketing; and Reinsurance Operations, which includes Duncanson &
Holt, Inc. ("D&H"), a leading accident and health reinsurance underwriting
manager, and other special risk reinsurance operations.

UNUM LIMITED
The depressed economic environment that affected the United Kingdom in 1992 and
1993 experienced a modest recovery in 1994, which positively affected UNUM
Limited's ability to sell long term disability insurance. UNUM Limited
experienced strong premium growth in 1994 as sales increased and persistency
rates improved. Also in 1994, claim block acquisitions generated one-time
premium of $25.8 million. A reallocation of capital from UNUM Limited in 1992,
and a decreasing interest rate environment, resulted in decreased investment
income for the Related Businesses segment in 1993.

UNUM Limited experienced favorable claims levels for most of 1994, which
improved the benefit ratio from 1993. However, in late 1994, UNUM Limited
incurred unfavorable claims experience, which management is evaluating to
determine the need for pricing actions, changes in underwriting standards or
risk management programs. If the unfavorable claims experience that developed
in late 1994 were to continue, UNUM Limited's earnings could be negatively
affected. Due to the nature of the risks insured and the relative size of the
U.K. block of business, UNUM Limited's operating results can exhibit claims
variability. Investment in administrative procedures and systems was the
primary reason for increased operating expenses in 1993.

On April 1, 1995, the United Kingdom's new Social Security (Incapacity for Work)
Act of 1994 will be effective, and will shift a greater financial responsibility
for disability benefits from the U.K. government to the private sector.
Management believes this legislation will increase awareness of the need for
disability insurance and expand the U.K. insurance market for long term
disability products, which could favorably affect UNUM Limited's sales.
However, it is unclear when the effects of this legislation will be evidenced.

During 1994, the U.S. dollar weakened slightly against the British pound
sterling, increasing UNUM Limited's earnings as reported in U.S. dollars. This
reversed the trend in 1993 and 1992 when the U.S. dollar strengthened against
the British pound sterling, decreasing earnings as reported in U.S. dollars.
The weighted average exchange rate was approximately $1.53, $1.51 and $1.78 for
the years ended December 31, 1994, 1993 and 1992. At December 31, 1994, the
spot rate had increased to $1.56.

<PAGE>

COMMERCIAL
Increased sales across all lines of Commercial's businesses in 1994 benefited
premium growth, which was partially offset by higher than expected case
terminations. The 1994 benefit ratio was driven by favorable experience in the
special risk product line, offset by unfavorable claims experience in the
association group disability business within certain occupational groups and
geographical areas. Management is implementing rate increases and stronger
underwriting policies to mitigate this unfavorable claims experience. The
decrease in the benefit ratio in 1993 was primarily due to more favorable claims
experience in the association group disability business. Due to the nature of
the risks underwritten and relative size of the block of business, Commercial's
special risk products can exhibit claims variability.

REINSURANCE OPERATIONS
In 1994, Reinsurance Operations had unfavorable claims experience in certain
reinsurance pools and decreased fee income for D&H due to increased competition
and contract terminations. Fee income and operating expenses increased in the
Related Businesses segment in 1993 due to the full year inclusion of D&H, which
was acquired in third quarter 1992.

SUMMARY
Income before income taxes increased in 1994 for the Related Businesses segment,
primarily due to strong premium growth and favorable claims experience at UNUM
Limited, partially offset by unfavorable claims experience in Commercial's
association group disability business and in certain reinsurance pools. The
principal reason for the increase in income before income taxes for the Related
Businesses segment in 1993 was the inclusion of D&H results for a full year,
which was partially offset by less favorable earnings for UNUM Limited due to a
lower weighted average exchange rate.

<PAGE>

COLONIAL COMPANIES SEGMENT

BENEFITS AND EXPENSES
Benefits to policyholders 221.1 6.6 207.5 10.4 187.9
Interest credited 5.0 19.0 4.2 16.7 3.6
Operating expenses 107.1 13.7 94.2 1.0 93.3
Commissions 96.7 4.3 92.7 8.0 85.8
Increase in deferred policy acquisition costs (18.7) (7.9) (20.3) (15.1) (23.9)
Interest expense -- (100.0) 0.1 -- 0.1
--------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 411.2 8.7 378.4 9.1 346.8
--------------------------------------------------------------------------------------------------------------------------

INCOME BEFORE INCOME TAXES $ 62.7 (10.9)% $ 70.4 16.4% $ 60.5

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

Sales (annualized first month's premiums) $ 183.1 $ 171.4 $ 179.7
Benefit ratio (% of premiums) 50.4% 51.4% 51.5%
Operating expense ratio (% of premiums) 24.4% 23.3% 25.6%

--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

nm = not meaningful or in excess of 100%

<PAGE>

COLONIAL COMPANIES SEGMENT

The Colonial Companies segment includes Colonial Life & Accident Insurance
Company and affiliates, which offer payroll-deducted, voluntary employee
benefits to employees at their worksites. The Colonial Companies segment
("Colonial") markets accident and sickness, cancer, and life insurance products
primarily through independent sales representatives.

In 1994, Colonial experienced an increase in sales, which was attributed to
increased productivity from the sales organization and the offering of a number
of new products. In 1993, Colonial experienced a slight decrease in sales,
which management attributed to uncertainty in the marketplace as to the types of
coverage that would be included in health care reform proposals. Management
does not feel that 1994 sales were as negatively affected by health care reform
fears, as the focus shifted away from legislative health care restructuring
toward private market restructuring. Additionally, management views health care
reform as an opportunity for UNUM by allowing Colonial to leverage its expertise
in worksite marketing, since the workplace is considered to be a primary means
of access to insurance benefits in the developing healthcare environment. While
premium growth slowed in 1994, enhanced customer conservation programs have
partially offset the weaker sales levels in 1993 and 1992 by improving
persistency.

Realized investment gains for 1993 include approximately $8.5 million of gains
associated with Colonial's sales of higher yielding but callable investments to
realign its investment portfolio with UNUM's investment philosophy. Fees and
other income for 1992 reflect $4.0 million received from the settlement of a
lawsuit against a competitor.

Colonial's benefit ratio improved to 50.4% in 1994 from 51.4% in 1993. The
lower 1994 benefit ratio was driven by favorable claims experience and improved
incidence rates in most product lines, particularly in the cancer product line.
Management expects the benefit ratio to increase in the future as Colonial
continues to shift its product mix toward products with higher benefit ratios,
lower expense ratios and better persistency.

During 1994, the expense ratio increased because of higher than expected costs
associated with a sales organization realignment and litigation expenses, which
were partially offset by continued expense control efforts. The decline in
1993's expense ratio reflected management's efforts to control expenditures and
improve operational efficiencies.

Income before income taxes decreased in 1994 primarily because of reduced
realized investment gains and increased expenses, partially offset by favorable
claims experience. For 1993, Colonial's income before income taxes increased
primarily through continued expense control and a higher level of realized
investment gains attributed to the investment portfolio realignment.

<PAGE>

INDIVIDUAL DISABILITY SEGMENT

BENEFITS AND EXPENSES
Benefits to policyholders 487.2 nm 212.0 3.7 204.4
Operating expenses 122.3 18.2 103.5 3.5 100.0
Commissions 82.5 9.1 75.6 6.0 71.3
Increase in deferred policy acquisition costs (61.7) 12.0 (55.1) 5.2 (52.4)
--------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 630.3 87.6 336.0 3.9 323.3
--------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES $ (188.2) nm% $ 69.0 54.7% $ 44.6

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

Sales (annualized new premiums) $ 65.8 $ 63.2 $ 60.1
Persistency (premiums) 92.4% 92.1% 91.7%
Benefit ratio (% of premiums) 140.5% 67.9% 72.4%
Operating expense ratio (% of premiums) 35.3% 33.2% 35.4%

--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

nm = not meaningful or in excess of 100%

<PAGE>

INDIVIDUAL DISABILITY SEGMENT

The Individual Disability segment includes disability income products sold in
the United States and Canada through UNUM America and First UNUM, as well as
private label agreements through these companies.

The loss before income taxes of $(188.2) million for the Individual Disability
segment for 1994 is primarily due to the $192.4 million reserve strengthening
recorded in the third quarter of 1994 and a $12.3 million restructuring charge
incurred in the fourth quarter as a result of the decision to stop selling non-
cancellable disability income policies in the United States. During 1994, the
Individual Disability segment experienced a higher incidence of new claims and a
disproportionate number of large claims that management has attributed to
certain geographic and occupational segments of the business, particularly
physicians. Management believes that changes in and consolidation of the health
care delivery system in the United States and the increased prevalence of
emerging and often subjective types of disabilities have contributed to
increased benefit costs.

During the third quarter of 1994, management concluded that the deterioration of
claims experience was not a temporary fluctuation in certain segments of the
business, but was indicative of expected claim trends for the future. Unlike
the group long term disability product, management has limited ability to manage
the claims risk associated with non-cancellable individual disability business,
since UNUM is contractually unable to reprice or cancel inforce policies that
have become unprofitable because of changes in claims experience that were
unforeseen when the policy was sold. The combination of these factors prompted
UNUM to assess the adequacy of future premiums to provide for future benefits
and expenses and the assumptions used in the existing claim reserves for the
Individual Disability segment. As a result, in third quarter 1994, UNUM
increased reserves for existing claims by $83.3 million and established a
reserve for estimated future losses of $109.1 million. These increased reserves
reflect management's current expectations for morbidity trends and record the
estimated future losses for the existing individual disability business, as
reported in the Individual Disability segment.

It is not possible to predict whether future morbidity trends will be consistent
with UNUM's current assumptions. During the fourth quarter of 1994, excess-of-
loss reinsurance totaling $60 million over three years was purchased through a
Lloyd's of London syndicate to cover UNUM's exposure to claims exceeding levels
assumed in the strengthened reserves. Management continues to evaluate its
financial options for this business, including reinsurance opportunities.

<PAGE>

UNUM announced in November 1994 that it will discontinue sales of the
traditional, fixed price, non-cancellable product in the United States upon
introduction of new disability products in each state. Subject to state
regulatory approval, UNUM expects to introduce the new disability products to
most states during the second quarter of 1995. In connection with these product
changes, management expects to incur costs during 1995 to develop and market the
new individual disability products.

UNUM has further tightened underwriting rules and practices, and made other
product design limitations for the interim sales of the existing product. As a
result of the tightened underwriting of the existing product and the time needed
to develop the new products, management expects that sales of the Individual
Disability segment will decrease significantly in 1995 from levels in 1994.

UNUM is in continuing discussions with its private label partners as it develops
the new disability products to determine the future course of its private label
agreements. Private label agreements allow other insurance companies to market
UNUM's individual disability product under their own names.

In the fourth quarter of 1994, UNUM recorded a pretax charge of $12.3 million
related to the restructuring of the individual disability business and resulting
consolidation of home office operations in UNUM America, which was comprised of
$7.1 million for severance costs for 150 field and 150 home office employees and
$5.2 million for exit costs of certain leased facilities and equipment, expiring
through 1998. The severance costs are expected to be paid by the end of 1995.

The increase in income before income taxes for the Individual Disability segment
in 1993 from 1992 was primarily due to more favorable claims experience and
continued expense management.

<PAGE>

RETIREMENT SECURITY SEGMENT

BENEFITS AND EXPENSES
Benefits to policyholders 53.7 69.4 31.7 -- 31.7
Interest credited 158.4 (3.9) 164.9 (8.4) 180.0
Operating expenses 47.1 (11.5) 53.2 43.4 37.1
Commissions 14.5 15.1 12.6 41.6 8.9
Increase in deferred policy acquisition costs (10.0) (14.5) (11.7) nm (3.3)
-----------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 263.7 5.2 250.7 (1.5) 254.4
-----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES $ 25.7 21.8% $ 21.1 nm% $ 6.7
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------

Invested assets under management, at end of period $3,065.0 $3,033.0 $2,929.9

nm = not meaningful or in excess of 100%

<PAGE>

RETIREMENT SECURITY SEGMENT

The Retirement Security segment includes tax sheltered annuities ("TSAs"), long
term care insurance, and beginning in 1993, lifestyle security protection
products, all of which are marketed by UNUM America and First UNUM.

During 1994 and 1993, UNUM offered the holders of certain types of TSA contracts
the opportunity to modify such contracts. The proposed contract amendments
provide for UNUM to increase the minimum guaranteed credited rates in return for
contractholders relinquishing the right to make lump-sum withdrawals without an
associated fee. As expected, certain contractholders elected to withdraw their
funds rather than convert to the modified contract provisions, which affected
the overall growth of invested assets under management. Management expects
these types of withdrawals to continue, which may affect future growth of
invested assets under management for TSAs.

During 1994, UNUM implemented an investment strategy to increase investments in
tax-exempt securities which has reduced income before income taxes for the
segment. Although investments in tax-exempt securities resulted in increased
consolidated net income, this investment strategy reduced the Retirement
Security segment's income before income taxes by approximately $6.7 million in
1994. In addition, the low interest rate environment during the past two years
has reduced the investment yields on TSA assets. As a result of these factors,
investment income decreased by $8.4 million and increased by only $0.8 million,
during 1994 and 1993, respectively.

As interest rates declined in 1993, the rate and level of interest credited to
TSA contractholders declined as well. Despite a rising interest rate
environment in 1994, the level of interest credited to TSA contractholders
continued to decline. As a result, the TSA business experienced unusually
favorable interest spread margins in 1994 and 1993. In 1994, 1993 and 1992, the
amount of interest credited to funds on deposit amounted to 70.3%, 70.5%, and
77.3% of investment income, respectively. Management does not expect interest
spread margins experienced by TSAs in 1994 and 1993 to continue at the same
level, which may reduce future earnings for the Retirement Security segment.

Management believes the failure of the last Congress to pass health care reform
legislation positively affected long term care insurance products, which
experienced premium and sales growth during 1994 after lower than expected
growth in 1993 due to the announcement of President Clinton's health care reform
proposal that included long term care coverage. During 1994, block acquisitions
generated one-time net premiums for long term care insurance products of $15.0
million. Management may pursue additional block acquisitions in the future.
Long term care insurance products experienced an increased incidence of new
claims during 1994, which management has addressed by implementing new
underwriting guidelines.

<PAGE>

Income before income taxes increased in 1994 reflecting continued premium growth
and expense reductions in the long term care insurance products partially offset
by unfavorable claims experience. Additionally, during 1994 UNUM continued its
investment in the development of long term care and lifestyle security
protection products, and in a TSA business initiative which management expects
will improve customer acquisition and service functions as well as reduce future
operating expenses. Unusually favorable interest spread margins on tax
sheltered annuities were the primary reason for increased income before income
taxes in 1993.

<PAGE>

OTHER OPERATIONS SEGMENT

(Dollars in millions and percentage increase (decrease)
over prior year) 1994 1993 1992
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES $131.3 (27.0)% $179.9 (14.7)% $210.9
BENEFITS AND EXPENSES
Benefits to policyholders 35.9 (4.3) 37.5 (1.1) 37.9
Interest credited 79.3 (29.1) 111.9 (22.7) 144.8
Operating expenses 5.7 (5.0) 6.0 (11.8) 6.8
Commissions 1.1 (8.3) 1.2 (25.0) 1.6
Decrease in deferred policy acquisition costs 0.8 (68.0) 2.5 (24.2) 3.3
----------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 122.8 (22.8) 159.1 (18.2) 194.4
----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES $ 8.5 (59.1)% $ 20.8 26.1% $ 16.5
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

OTHER OPERATIONS SEGMENT

The Other Operations segment includes individual life insurance business of UNUM
Life Insurance Company of America, group medical insurance, guaranteed
investment contracts ("GICs"), deposit administration accounts ("DAs"), and
401(k) plans, all of which are no longer actively marketed by UNUM.

The reduced invested asset base under management for GICs, DAs and 401(k) plans
resulted in lower revenues from investment income and reduced amounts of
interest credited. Management expects continued decreases in the amounts of
investment income and interest credited as the related GIC, DA and 401(k)
contracts mature or terminate. Management expects future earnings in the Other
Operations segment to decline, reflecting the run-off nature of these closed
blocks of businesses.

During 1992, UNUM released the remaining restructuring reserve for the costs of
withdrawal from the 401(k) business since actual costs were less than expected,
resulting in increased pretax income of $5.3 million. The gain associated with
the release of this restructuring reserve reduced operating expenses in the 1992
Consolidated Statement of Income.

<PAGE>

CORPORATE

(DOLLARS IN MILLIONS) 1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Loss before income taxes $(28.2) $(17.4) $(5.7)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>

Corporate includes transactions that are generally non-insurance related,
expenses incurred in conjunction with UNUM's long-term strategic investment in
Japan and interest expense on corporate borrowings. The increased loss before
income taxes in 1994 in Corporate was primarily due to increased interest
expense and increased costs related to the investment in Japan. The increased
loss before income taxes in 1993 was primarily due to the expenses incurred in
connection with the March 26, 1993, merger of UNUM Corporation and Colonial
Companies, Inc., decreased interest income and increased investment in Japan.

UNUM JAPAN

On June 20, 1994, the Japanese Ministry of Finance granted UNUM a provisional
operating license which allowed UNUM to establish a non-life insurance company,
UNUM Japan Accident Insurance Company Limited ("UNUM Japan"), to market
disability and other accident products in Japan. UNUM Japan has subsequently
received an official license and began selling group long term disability
products in the fourth quarter of 1994, with the first policies effective
January 1, 1995.

UNUM Japan formed a cooperative relationship with Japan's leading short term
disability insurer, Yasuda Fire & Marine Insurance Co., Ltd. to develop the new
long term disability products and introduce them in Japan. The two companies
continue to work together on market and product development and will also market
their own separate long term disability products. UNUM expects to continue
incurring costs to develop UNUM Japan's distribution network, advertising and
risk management programs.

<PAGE>

INVESTMENTS

UNUM has a fairly conservative investment philosophy, with a portfolio that is
concentrated in investment grade bonds. UNUM evaluates total expected return
after consideration of all associated expenses and losses, within criteria
established for each product line. Product line investment strategies are
developed to complement business risks by meeting the liquidity and solvency
requirements of each product. UNUM purchases assets whose maturities, expected
cash flows and prepayment conditions are consistent with these strategies. The
nature and quality of the types of investments comply with policies established
by management, which are more stringent overall than the statutes and
regulations imposed by the jurisdictions in which UNUM's insurance subsidiaries
are licensed.

UNUM's investments are reported in the consolidated financial statements net of
any allowances for probable losses. Allowances are established based on a
review of specific assets as well as the overall portfolio, considering the
carrying value of the underlying assets. If a decline in market value is
considered to be other than temporary, the investment is reduced to estimated
net realizable value and the reduction is recorded as a realized investment
loss. UNUM discontinues the accrual of investment income on invested assets
when it is determined that collectability is doubtful. Management monitors the
risk associated with the invested asset portfolio and regularly reviews and
adjusts the allowance for probable losses.

At December 31, 1994, the composition of UNUM's $10,433.8 million of invested
assets was 75.4% fixed maturities, 11.7% mortgage loans, 6.0% equity securities,
1.8% real estate and 5.1% other invested assets. Gross realized investment
gains were $117.0 million, $85.2 million and $94.4 million, and gross realized
investment losses were $71.4 million, $35.8 million and $52.9 million for the
years ended December 31, 1994, 1993 and 1992, respectively.

FIXED MATURITIES:

- Fixed maturities that UNUM has the positive intent and ability to hold to
maturity are classified as "held to maturity" and are reported at amortized
cost, less an allowance for probable losses. The majority of UNUM's
insurance reserve liabilities are generally long-term in nature and not
subject to withdrawal. Since UNUM purchases assets whose maturities,
expected cash flows, and prepayment conditions complement business risks
by meeting the liquidity and solvency requirements of each product, the

<PAGE>

majority of UNUM's fixed maturities have been classified as "held to
maturity" to match the longer term nature of UNUM's products.

- Fixed maturities and equity securities classified as "available for sale"
are reported at fair value. Related unrealized holding gains and losses,
net of deferred taxes, are reported in a separate component of
stockholders' equity. Fair values of fixed maturities are generally
obtained from external quoted market sources, and if not externally quoted,
are determined by UNUM primarily by using discounted cash flow models.

Upon the adoption of FAS 115, UNUM increased unrealized gains on available for
sale securities included in stockholders' equity on January 1, 1994, by $41.8
million (net of deferred taxes of $22.5 million) to reflect the unrealized
holding gains on fixed maturities classified as available for sale which were
previously carried at amortized cost. In accordance with FAS 115, prior year
consolidated financial statements have not been restated to reflect the change
in accounting principle. UNUM reclassified certain fixed maturities from held
to maturity to available for sale on January 1, 1994, in connection with the
adoption of FAS 115. The increasing interest rate environment during 1994
resulted in depressed fair values for available for sale fixed maturities, which
has decreased the initial $41.8 million increase in stockholders' equity to an
unrealized loss of $42.8 million at December 31, 1994.

At December 31, 1994, and 1993, the fixed maturity portfolio included $193.8
million and $263.3 million of below investment grade bonds (below "Baa"), which
represented 2.5% and 3.5% of the fixed maturity portfolio, respectively. These
bonds had associated market values of $193.4 million and $279.1 million,
respectively. Virtually all of the nonconvertible, below investment grade bonds
were purchased at investment grade, but were subsequently downgraded. UNUM's
investment policy is to invest primarily in fixed maturities of investment grade
quality. Selected purchases of convertible subordinated debentures, which UNUM
considers to be part of its investment strategy for equity securities, have
contributed to the amount of below investment grade bonds. Fixed maturity
ratings are obtained from external rating agencies, and if not externally rated,
are rated by UNUM internally using similar methods. Management does not expect
any risks or uncertainties associated with below investment grade bonds to have
a significant affect on UNUM's consolidated financial position or results of
operations. The percentage of fixed maturities delinquent 60 days or more
compared to total fixed maturities was 0.25% at December 31, 1994, and 0.24% at
December 31, 1993.

During fourth quarter 1994, UNUM sold fixed maturities of five issuers
classified as held to maturity with an amortized cost of $49.8 million due to
evidence of significant unexpected deterioration of the issuers'
creditworthiness. These sales resulted in a net realized loss of $3.0 million.

<PAGE>

MORTGAGES:

At December 31, 1994, and 1993, UNUM's mortgage loans were $1,216.3 million and
$1,432.2 million, respectively. The mortgage loan portfolio, as a percentage of
total invested assets, has decreased to 11.7% as of December 31, 1994, from
14.1% as of December 31, 1993. It is anticipated that mortgages as a percentage
of total invested assets will decline further, but at a slower rate, as new
mortgage investments and refinances in selected markets will partially offset
prepayments and scheduled maturities. Management establishes allowances for
mortgage loans based upon a review of individual loans and the overall loan
portfolio, considering the value of the underlying collateral. UNUM uses a
comprehensive rating system to evaluate the investment and credit risk of each
mortgage loan and to target specific properties for inspection and reevaluation.

Overall, management believes that its mortgage loan portfolio is well
diversified geographically and among property types. UNUM's incidence of new
problem mortgage loans declined in 1994 as overall economic activity improved
modestly, and many of the real estate markets in which UNUM has mortgage loans
stabilized. Foreclosure activity and new reserve additions remained modest in
1994; however, management continues to expect additional delinquencies and
problem loans in the future. Management believes the allowance provided on
mortgage loans as of December 31, 1994, is adequate to cover probable losses.

Restructured loans are defined by UNUM as loans whose terms have been modified
to interest rates less than market at the time of restructure and are currently
expected to perform pursuant to such modified terms. UNUM modifies loans to
protect its investment and only when it is anticipated that the borrower will be
able to meet the modified terms. As of December 31, 1994, restructured mortgage
loans totaled $73.6 million, as compared with $65.9 million at December 31,
1993. Interest lost on restructured loans was not material in 1994, 1993 or
1992.

Problem loans are defined as mortgage loans that were delinquent 60 days or more
on a contract delinquency basis. Mortgage loans in the amount of $22.3 million
and $26.1 million, both representing 1.8% of the mortgage loan portfolio, were
delinquent 60 days or more on a contract delinquency basis, and were accounted
for on a nonaccrual basis at December 31, 1994, and 1993, respectively.
Interest lost on problem loans was not material in 1994, 1993 or 1992.

<PAGE>

Potential problem loans are defined by UNUM as current and performing loans with
which management has some concerns about the ability of the borrower to comply
with present loan terms and whose book value exceeds the market value of the
underlying collateral. Loans in this category amounted to $36.2 million at
December 31, 1994, versus $92.7 million at December 31, 1993. Active asset
management contributed to the decline in this category during 1994.

Realized investment losses related to restructured and problem mortgage loans in
1994 amounted to $8.5 million, compared with $4.8 million and $26.5 million for
1993 and 1992, respectively. Problem and potential problem mortgage loans as of
December 31, 1994, are not expected to have a significant impact on UNUM's
results of operations, liquidity, or capital resources.

REAL ESTATE:

At December 31, 1994, investment real estate and real estate held for sale
amounted to $190.8 million and $31.0 million, respectively. This compares with
$193.5 million of investment real estate and $24.7 million of real estate held
for sale at December 31, 1993. UNUM has limited the growth of its real estate
exposure, as a percentage of invested assets, through an active sales program.
UNUM sold $25.4 million and $40.5 million of real estate at 103% and 105% of
carrying value during 1994 and 1993, respectively.

Real estate which meets certain investment criteria and is intended to be held
long-term is carried at cost less accumulated depreciation. Real estate that
has been acquired through foreclosure is valued at fair value at the date of
foreclosure. Real estate held for sale is included in other assets in the
Consolidated Balance Sheets and is valued net of an allowance which reduces the
carrying value to the lower of fair value less estimated costs to sell, or cost.
Occasionally, investment real estate is reclassified and revalued as real estate
held for sale when it no longer meets UNUM's investment criteria. Additions to
allowances for probable losses related to real estate held for sale resulted in
realized investment losses of $0.8 million, $18.8 million and $7.2 million for
the years ended December 31, 1994, 1993 and 1992, respectively.

Given the current real estate environment, additional foreclosures are
anticipated, but at a reduced level from the early 1990s. Current and
anticipated real estate acquired through foreclosure is not expected to have a
significant affect on UNUM's results of operations, liquidity, or capital
resources.

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

UNUM's businesses produce positive cash flows, which are invested primarily in
intermediate, fixed maturity investments intended to reflect the nature of
anticipated cash obligations of insurance benefit payments and insurance
contract maturities and to optimize investment returns at appropriate risk
levels. To meet unexpected cash requirements and liquidity needs, UNUM maintains
part of its investment portfolio in fixed maturities classified as available for
sale, equity securities, cash and short-term investments.

From time to time, dividend payments, which may be subject to approval by
insurance regulatory authorities, are made from UNUM's affiliates and insurance
subsidiaries to UNUM Corporation. These dividends, along with other funds, are
used to service the needs of UNUM Corporation including: debt service, common
stock dividends, stock repurchase, administrative costs and corporate
development. Income determined using statutory accounting is one of the major
determinants of an insurance company's dividend capacity to its parent in the
following fiscal year. Statutory accounting rules and practices, which differ
in certain respects from generally accepted accounting principles, are mandated
by regulators in an insurance company's state of domicile.

In 1994, UNUM America's disability businesses were adversely affected by
unfavorable claims experience as discussed in the Employee Benefits and
Individual Disability segments. As described in the Individual Disability
segment, UNUM America strengthened reserves for existing claims related to the
traditional non-cancellable individual disability products. As a result, UNUM
America recognized a statutory after-tax charge of $69.6 million in third
quarter 1994. These factors caused the 1994 statutory income of UNUM America to
be significantly reduced to $39.2 million, as compared with $165.2 million in
1993.

As a result of this reduction in UNUM America's statutory earnings, the amount
available under current law for payment of dividends to UNUM Corporation from
all U.S. domiciled insurance subsidiaries during 1995, without state insurance
regulatory approval, decreased to approximately $81.3 million, as compared with
$176.8 million for 1994. UNUM Corporation also has the ability to draw a
dividend of approximately $30 million from its United Kingdom based affiliate,
UNUM Limited, subject to certain U.S. tax consequences.

<PAGE>

Effective December 13, 1994, management expanded UNUM Corporation's lines of
credit with a new committed revolving credit facility totaling $500 million,
expiring on October 1, 1999, which replaced previously existing facilities
totaling $300 million. UNUM Corporation's commercial paper program is supported
by the revolving credit facility, and is available for general liquidity needs,
capital expansion, acquisitions and stock repurchase. The committed revolving
credit facility contains certain covenants which, among other provisions,
require maintenance of certain levels of stockholders' equity and limits on
level of debt.

In September 1993, UNUM announced the filing of an omnibus shelf registration
statement with the Securities and Exchange Commission which became effective on
October 8, 1993, relating to $450 million of securities (including debt
securities, preferred stock, common stock and other securities). On October 8,
1993, UNUM filed a prospectus supplement to establish a $250 million medium-term
note program under the shelf registration. The medium-term note program and the
unsold portion of the shelf registration carry ratings of "A1" (Medium Quality)
and "(P)A1" (Medium Quality), respectively, from Moody's Investors Service, and
"A+" (Strong) from Standard & Poor's Corporation. The unsold portion of the
shelf registration relating to subordinated debt and preferred stock carries
ratings of "(P)A2" (Medium Quality) and "(P)"a1"" (Upper-Medium Quality),
respectively, from Moody's Investors Service.

At December 31, 1994, UNUM had short-term and long-term debt totaling $246.6
million and $182.1 million, respectively. At December 31, 1994, approximately
$280 million was available for additional financing under the existing revolving
credit facility and approximately $390 million of investment grade debt
instruments was available for issuance under the shelf registration. On
February 28, 1995, UNUM borrowed $100 million under the revolving credit
facility, which was infused into UNUM America in exchange for surplus
debentures. Repayment of principal and interest on the surplus debentures is
subject to state insurance regulatory approval. Contingent upon market
conditions and corporate needs, management may refinance short-term notes
payable with longer term securities.

In September 1993, UNUM announced the resumption of a program to repurchase its
common stock pursuant to an existing Board of Directors' resolution. On
February 11, 1994, UNUM's Board of Directors voted to expand UNUM's
authorization to repurchase an additional 5.0 million shares, bringing the total
number of shares authorized for repurchase to 44.0 million shares. Since the
resumption of the stock repurchase program, UNUM has acquired 7.6 million shares
through December 31, 1994, in the open market at an aggregate cost of $375.8
million that was primarily funded through additional borrowings. This share
repurchase contributed to the decrease in the number of shares outstanding at
December 31, 1994, to 72.4 million, from 76.0 million at December 31, 1993.
Prior to the resumption of this repurchase program, UNUM had not acquired any
shares in the open market since 1990. At December 31, 1994, approximately 2.7
million outstanding shares remained authorized for repurchase.

<PAGE>

During 1994 and 1993, withdrawals of contracts reported in the Other Operations
segment, including contract terminations, payments to participants and transfers
to other carriers, were approximately $130 million and $309 million,
respectively. Withdrawals during 1994 and 1993 were at levels expected by
management and reflect the run-off nature of these closed blocks of businesses.
UNUM manages liquidity objectives by including certain conditions in pension
contracts which prohibit or restrict availability of funds.

UNUM was committed at December 31, 1994, to purchase fixed maturities and other
invested assets in the amount of $37.5 million. Independent of the cash flows
of UNUM Corporation, management anticipates that the operating cash flows of the
subsidiaries of UNUM Corporation will be sufficient to meet benefit obligations,
planned investment commitments and operational needs of those companies.

EFFECT OF INFLATION

Inflation is one of the factors that has increased the need for insurance. Many
policyholders who once had adequate insurance programs at lower coverage levels
have increased their disability insurance coverage to provide the same relative
financial benefits and protection.

Changing interest rates, which are traditionally linked to changes in inflation,
affect UNUM's level of discounted reserves. While rising interest rates are
beneficial when investing current cash flows, they can also reduce the fair
value of existing fixed rate long-term investments. In addition, lower interest
rates can lead to early payoffs and refinancing of some of UNUM's fixed rate
investments. Management generally invests in fixed rate instruments that are
structured to limit the exposure to such reinvestment risk.

RATINGS

A.M. Best Company ("Best's"), Moody's Investors Service ("Moody's") and Standard
& Poor's Corporation ("S&P") are among the third parties that provide UNUM
independent assessments of its overall financial position. Ratings from these
agencies for financial strength and claims-paying ability are available for the
United States domiciled insurance company subsidiaries rather than on a
consolidated basis, since the financial information used to develop the ratings
is based on statutory accounting practices in the United States.

UNUM's largest affiliate, UNUM Life Insurance Company of America ("UNUM
America"), had its Best's financial strength rating affirmed at "A++"
(Superior), the highest rating assigned by Best's, in May 1994. Best's again
affirmed UNUM America's "A++" rating in November 1994. In January 1995, S&P
completed its review of UNUM America and lowered its claims-paying ability
rating to "AA" (Excellent) from "AA+" (Excellent). According to S&P, the
downgrade was a result of pressures on risk-adjusted capitalization and higher
financial leverage, due in part to lower profitability. In March 1995, Moody's
completed its review of UNUM America and lowered its financial strength

<PAGE>

rating to "Aa2" (Excellent) from "Aa1" (Excellent) citing the outlook for UNUM's
group long term disability business as well as UNUM's increasing leverage and
moderately reduced financial flexibility.

First UNUM Life Insurance Company ("First UNUM") also had its financial strength
rating reaffirmed by Best's in May 1994, at "A+" (Superior). In January 1995,
S&P lowered First UNUM's claims-paying ability rating to "AA" (Excellent) from
"AA+" (Excellent). In March 1995, Moody's confirmed First UNUM's "Aa2"
(Excellent) financial strength rating.

Colonial Life & Accident Insurance Company ("Colonial Life") had its Best's
financial strength rating affirmed as "A+" (Superior) in May 1994. In March
1994, S&P assigned an "AA-" (Excellent) claims-paying ability rating to
Colonial. Subsequently, in January 1995, S&P affirmed Colonial's "AA-"
(Excellent) rating. In March 1995, Moody's lowered Colonial's financial
strength rating to "Aa3" (Excellent) from "Aa2" (Excellent).

Commercial Life Insurance Company had its Best's financial strength rating
upgraded to "A" (Excellent) in July 1994.

UNUM Corporation has the following debt ratings based on consolidated financial
information under generally accepted accounting principles. In January 1995,
S&P lowered the senior debt rating of UNUM Corporation to "A+" (Strong) from
"AA" (Very Strong), and lowered the commercial paper rating to "A-1" (Strong)
from "A-1+" (Extremely Strong). In March 1995, Moody's lowered UNUM
Corporation's senior debt rating to "A1" (Medium Quality) from "Aa3" (High
Quality) and confirmed the commercial paper rating of "P-1" (Superior Ability).

INSURANCE REGULATION

The National Association of Insurance Commissioners adopted a set of Risk-Based
Capital standards for the life and health insurance industry, which became
effective in 1993. These Risk-Based Capital standards are one way to measure
the risk that insurance companies assume in the course of conducting insurance
and investment activities.

The Risk-Based Capital standards for life insurance companies are based on a
formula that establishes capital requirements relating to existing asset default
risk, insurance risk, interest rate (asset/liability mismatch) risk and business
risk. A company's Total Adjusted Capital (statutory capital, surplus, and Asset
Valuation Reserve plus certain other adjustments) is compared to the Authorized
Control Level ("ACL") of Risk-Based Capital produced by the formula. Subject to
certain trend tests to determine the change in the ACL ratio from year to year,
companies with Total Adjusted Capital above 200% of ACL are assumed to be
adequately capitalized. Companies below 200% of ACL are identified as requiring
various levels of regulatory action ranging from increased information
requirements for companies between 150% and 200% of ACL, to mandatory control by
the domiciliary insurance department for companies below 70% of ACL.

<PAGE>

At December 31, 1994, the ACL ratios for UNUM America, First UNUM, Colonial Life
and Commercial Life were approximately 305%, 355%, 440% and 380%, respectively.
This compares with ACL ratios at December 31, 1993, of approximately 350%, 390%,
450% and 380%, respectively.

DERIVATIVE FINANCIAL INSTRUMENTS

UNUM periodically uses common derivative financial instruments such as options,
futures and forward exchange contracts to hedge certain risks associated with
future investments and certain payments denominated in foreign currencies,
primarily British pound sterling, Canadian dollar and Japanese yen. These
derivative financial instruments are used to protect UNUM from the effect of
market fluctuations in interest and exchange rates between the contract date and
the date on which the hedged transaction occurs. UNUM does not intend to hold
derivative financial instruments for the purpose of trading.

At December 31, 1994, UNUM had no open derivative financial instruments. At
December 31, 1993, UNUM held interest rate futures contracts with commitments to
purchase government securities with total par values of $207.0 million. In
using these instruments, UNUM is subject to the off-balance-sheet risk that the
counterparties to the transactions will fail to completely perform as
contracted. UNUM manages this risk by only entering into contracts with highly
rated institutions and listed exchanges.

NEW ACCOUNTING PRONOUNCEMENT

ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN

In May 1993, the Financial Accounting Standards Board ("FASB") issued Financial
Accounting Standard ("FAS") No. 114 "Accounting by Creditors for Impairment of a
Loan," which defines the principles to measure and record a loan when it is
probable that a creditor will be unable to collect all amounts due according to
the contractual terms of the loan agreement.

In October 1994, the FASB issued FAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures," which amends FAS 114
to allow a creditor to use existing methods for recognizing, measuring and
displaying interest income on an impaired loan. UNUM will adopt FAS 114 and FAS
118 effective January 1, 1995. Adoption of FAS 114 and FAS 118 is not expected
to have a material effect on UNUM's results of operations or financial position.

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

UNUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Year Ended December 31,
----------------------------------
(DOLLARS IN MILLIONS, EXCEPT PER COMMON SHARE DATA) 1994 1993 1992
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums $2,732.4 $2,474.1 $2,142.4
Investment income 770.2 790.4 809.2
Net realized investment gains 45.6 49.4 41.5
Fees and other income 75.5 83.1 55.4
----------------------------------------------------------------------------------------------
Total revenues 3,623.7 3,397.0 3,048.5

BENEFITS AND EXPENSES
Benefits to policyholders 2,248.1 1,775.7 1,532.6
Interest credited 242.7 281.0 328.4
Operating expenses 715.0 675.6 590.9
Commissions 355.9 326.8 298.9
Increase in deferred policy acquisition costs (155.3) (135.1) (111.7)
Interest expense 18.7 12.7 10.9
----------------------------------------------------------------------------------------------
Total benefits and expenses 3,425.1 2,936.7 2,650.0
----------------------------------------------------------------------------------------------

INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECTS
OF ACCOUNTING CHANGES 198.6 460.3 398.5

INCOME TAXES
Current 30.4 73.4 68.0
Deferred 13.5 74.9 39.3
----------------------------------------------------------------------------------------------
Total income taxes 43.9 148.3 107.3
----------------------------------------------------------------------------------------------
Income before cumulative effects of accounting changes 154.7 312.0 291.2

CUMULATIVE EFFECTS OF ACCOUNTING CHANGES
Income taxes -- 20.0 --
Postretirement benefits other than pensions, net of tax -- (32.1) --
----------------------------------------------------------------------------------------------
NET INCOME $ 154.7 $ 299.9 $ 291.2
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------

PER COMMON SHARE
Income before cumulative effects of accounting changes $ 2.09 $ 3.96 $ 3.71
CUMULATIVE EFFECTS OF ACCOUNTING CHANGES
Income taxes -- 0.25 --
Postretirement benefits other than pensions, net of tax -- (0.40) --
----------------------------------------------------------------------------------------------
NET INCOME $ 2.09 $ 3.81 $ 3.71
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
---------------------
(DOLLARS IN MILLIONS) 1994 1993
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments
Fixed maturities:
Held to maturity-principally at amortized cost
(fair value: 1994-$6,168.6; 1993-$7,149.9) $ 6,227.2 $ 6,560.7
Available for sale-at fair value (amortized
cost: $1,701.4) 1,640.6 --
Available for sale-principally at amortized
cost (fair value: $929.9) -- 872.0
Equity securities available for sale-at fair value
(cost: 1994-$492.2; 1993-$508.3) 627.9 730.0
Mortgage loans 1,216.3 1,423.2
Real estate, net 190.8 193.5
Policy loans 201.0 187.9
Other long-term investments 38.1 59.0
Short-term investments 291.9 69.6
-------------------------------------------------------------------------------------------------------
Total investments 10,433.8 10,095.9
Cash 36.1 20.8
Accrued investment income 195.9 184.0
Premiums due 189.7 165.5
Deferred policy acquisition costs 1,035.2 879.1
Property and equipment, net 153.4 143.5
Other assets 737.2 681.8
Separate account assets 345.9 266.7
-------------------------------------------------------------------------------------------------------
Total assets $13,127.2 $12,437.3
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
</TABLE>

(Continued on next page)

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
--------------------
(DOLLARS IN MILLIONS) 1994 1993
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Future policy benefits $ 1,591.6 $ 1,362.5
Unpaid claims and claim expenses 3,853.9 3,341.5
Other policyholder funds 4,058.8 4,250.7
Income taxes
Current 12.4 31.5
Deferred 348.6 376.7
Notes payable 428.7 238.6
Other liabilities 571.9 466.4
Separate account liabilities 345.9 266.7
-------------------------------------------------------------------------------------------------------
Total liabilities 11,211.8 10,334.6
Stockholders' equity
Preferred stock, par value $0.10 per share, authorized
10,000,000 shares, none issued
Common stock, par value $0.10 per share, authorized
120,000,000 shares, issued 99,987,958 shares 10.0 10.0
Additional paid-in capital 1,080.5 1,078.4
Unrealized gains on available for sale securities, net of deferred taxes 49.6 149.1
Unrealized foreign currency translation adjustment (23.7) (24.1)
Retained earnings 1,507.2 1,420.8
-------------------------------------------------------------------------------------------------------
2,623.6 2,634.2
Less:
Treasury stock, at cost (1994-27,575,430 shares;
1993-24,006,816 shares) 706.6 529.8
Restricted stock deferred compensation 1.6 1.7
-------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,915.4 2,102.7
-------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $13,127.2 $12,437.3
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Unrealized
Gains (Losses)
On Available Unrealized
Common for Sale Foreign Restricted
Stock Additional Securities, Net Currency Stock
(DOLLARS IN MILLIONS, $0.10 Par Paid-in Of Deferred Translation Retained Treasury Deferred
EXCEPT PER COMMON SHARE DATA) Value Capital Taxes Adjustment Earnings Stock Compensation Total
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1992 $ 5.0 $ 1,061.1 $ 98.7 $ 7.1 $ 945.9 $ (360.1) $ (2.2) $1,755.5
1992 Transactions:
Net income 291.2 291.2
Unrealized gains on equity
securities, net of deferred taxes 22.4 22.4
Unrealized foreign currency
translation adjustment (28.0) (28.0)
Two-for-one stock split 5.0 (5.0) --
Dividends to stockholders
($0.62 1/2 per common share) (53.1) (53.1)
Employee stock option and
other transactions 10.5 (1.7) 14.6 (0.5) 22.9
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1992 10.0 1,066.6 121.1 (20.9) 1,182.3 (345.5) (2.7) 2,010.9
1993 Transactions:
Net income 299.9 299.9
Unrealized gains on equity
securities, net of deferred taxes 28.0 28.0
Unrealized foreign currency
translation adjustment (3.2) (3.2)
Dividends to stockholders
($0.76 1/2 per common share) (61.4) (61.4)
Treasury stock acquired (192.5) (192.5)
Employee stock option and
other transactions 11.8 8.2 1.0 21.0
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 10.0 1,078.4 149.1 (24.1) 1,420.8 (529.8) (1.7) 2,102.7
1994 Transactions:
Net income 154.7 154.7
Unrealized losses on available for sale
securities, net of deferred taxes (99.5) (99.5)
Unrealized foreign currency
translation adjustment 0.4 0.4
Dividends to stockholders
($0.92 per common share) (68.3) (68.3)
Treasury stock acquired (183.3) (183.3)
Employee stock option and
other transactions 2.1 6.5 0.1 8.7
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 $10.0 $ 1,080.5 $ 49.6 $(23.7) $1,507.2 $ (706.6) $ (1.6) $1,915.4
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,
- --------------------------------------
(DOLLARS IN MILLIONS) 1994 1993 1992
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>

OPERATING ACTIVITIES:
Net income $ 154.7 $ 299.9 $ 291.2
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effects of accounting changes, net of tax -- 12.1 --
Increase in future policy benefits and unpaid
claims and claim expenses 720.1 412.9 335.7
(Increase) decrease in amounts receivable under
reinsurance agreements (18.6) (129.1) 6.1
Increase (decrease) in income tax liability (3.3) 109.8 51.6
Increase in deferred policy acquisition costs (155.4) (125.5) (111.7)
Other 3.3 (22.8) 26.5
--------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 700.8 557.3 599.4
--------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Maturities of fixed maturities -- 924.6 783.7
Maturities of fixed maturities held to maturity 754.8 -- --
Maturities of fixed maturities available for sale 41.2 -- --
Sales of fixed maturities held to maturity 46.8 45.7 122.4
Sales of fixed maturities available for sale 407.6 218.2 477.2
Sales of equity securities available for sale 314.1 -- --
Sales and maturities of other investments 414.9 550.2 825.0
Purchases of investments -- (1,832.2) (2,700.7)
Purchases of fixed maturities held to maturity (795.2) -- --
Purchases of fixed maturities available for sale (943.9) -- --
Purchases of equity securities available for sale (216.6) -- --
Purchases of other investments (211.5) -- --
Net (increase) decrease in short-term investments (221.7) 38.8 21.8
Net additions to property and equipment (29.9) (18.2) (23.1)
Investments in subsidiaries, net -- 0.9 (49.3)
--------------------------------------------------------------------------------------------------------
Net cash used in investing activities (439.4) (72.0) (543.0)
--------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Deposits and interest credited to investment contracts 608.6 735.2 835.7
Maturities and withdrawals from investment contracts (800.5) (1,022.4) (871.3)
Dividends to stockholders (68.3) (61.4) (53.1)
Treasury stock acquired (183.3) (192.5) --
Proceeds from notes payable 54.7 51.5 74.6
Repayment of notes payable (1.2) (50.1) (34.6)
Net increase (decrease) in short-term debt 136.6 37.3 (42.9)
Other 7.2 15.1 21.2
--------------------------------------------------------------------------------------------------------
Net cash used in financing activities (246.2) (487.3) (70.4)
--------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 0.1 2.4 0.1
--------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 15.3 0.4 (13.9)
Cash at beginning of year 20.8 20.4 34.3
--------------------------------------------------------------------------------------------------------
Cash at end of year $ 36.1 $ 20.8 $ 20.4
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------

</TABLE>

(Continued on next page)

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,
-----------------------------------
(DOLLARS IN MILLIONS) 1994 1993 1992
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes $ 48.8 $ 67.3 $ 41.6
Interest $ 20.4 $ 13.3 $ 11.7
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying consolidated financial statements of UNUM Corporation and
subsidiaries ("UNUM") have been prepared on the basis of generally accepted
accounting principles for stock life insurance companies.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of UNUM Corporation
and subsidiaries. Significant intercompany accounts and transactions have been
eliminated.

RECLASSIFICATION

Certain December 31, 1993, and 1992 amounts have been reclassified in 1994 for
comparative purposes.

INVESTMENTS

Investments are reported as follows:

- Fixed maturities held to maturity (certain bonds and redeemable preferred
stocks) - principally at amortized cost, less an allowance for probable
losses.
- Fixed maturities available for sale (certain bonds and redeemable
preferred stocks) - commencing January 1, 1994, at fair value. Prior to
January 1, 1994, at lower of aggregate amortized cost less an allowance
for probable losses, or fair value. See Note 3 "Investments" for a
discussion of the adoption of Financial Accounting Standard No. 115.
- Equity securities available for sale (common stocks and non-redeemable
preferred stocks) - at fair value.
- Mortgage loans - at amortized cost less an allowance for probable losses.
- Real estate - at cost less accumulated depreciation.
- Policy loans - at unpaid principal balance.
- Other long-term investments - at cost plus UNUM's equity in undistributed
net earnings since acquisition.
- Short-term investments - at cost.

Fixed maturities that UNUM has the positive intent and ability to hold to
maturity are classified as held to maturity.

Certain fixed maturities and equity securities are classified as available for
sale as they may be sold in response to changes in interest rates, resultant
prepayment risk, liquidity and capital needs, or other similar economic
factors. Related unrealized holding gains and losses, net of deferred taxes,
are reported in a separate component of stockholders' equity.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

INVESTMENTS (Continued)

Real estate held for sale, which is included in other assets in the
Consolidated Balance Sheets, is valued at the lower of fair value less
estimated costs to sell, or cost. UNUM has provided an allowance for probable
losses on real estate held for sale which reduces the carrying value of the
asset to fair value.

If a decline in fair value of an invested asset is considered to be other than
temporary, the investment is reduced to its net realizable value and the
reduction is accounted for as a realized investment loss. Subsequent increases
and decreases in fair value, if not an other than temporary impairment, of
available for sale securities are reported in a separate component of
stockholders' equity, net of deferred taxes.

UNUM discontinues the accrual of investment income on invested assets when it
is determined that collectability is doubtful.

Realized investment gains and losses, which are determined on the basis of
specific identification and include adjustments for allowances for probable
losses, are reported separately in the Consolidated Statements of Income.

Purchases and sales of short-term financial instruments are part of investing
activities and not necessarily a part of the cash management program.
Therefore, short-term financial instruments are classified as investments in
the Consolidated Balance Sheets and are included as investing activities in the
Consolidated Statements of Cash Flows.

DERIVATIVE FINANCIAL INSTRUMENTS

Gains or losses on hedges of existing assets or liabilities are deferred and
included in the carrying amounts of those assets or liabilities. Gains or
losses related to qualifying hedges of firm commitments or anticipated
transactions are also deferred and recognized in the carrying amount of the
underlying asset or liability when the hedged transaction occurs.

RECOGNITION OF PREMIUM REVENUES AND RELATED EXPENSES

Group insurance premiums are recognized as income over the period to which the
premiums relate. Individual disability premiums are recognized as income when
due. Benefits and expenses are associated with earned premiums to result in
recognition of profits over the life of the contracts. This association is
accomplished by recording a provision for future policy benefits and unpaid
claims and claim expenses, and amortizing deferred policy acquisition costs.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

RECOGNITION OF PREMIUM REVENUES AND RELATED EXPENSES (Continued):

For retirement and universal life products, premium and other policy fee
revenue consists of charges for the cost of insurance, policy administration,
and surrenders assessed during the period. Charges related to services to be
performed in the future are deferred until earned. The amounts received in
excess of premium and fees are recorded as deposits and included in other
policyholder funds in the Consolidated Balance Sheets. Benefits and expenses
include benefit claims in excess of related account balances, interest credited
at various rates and amortization of deferred policy acquisition costs.

DEFERRED POLICY ACQUISITION COSTS

The costs of acquiring new business that vary with and are related primarily to
the production of new business, have been deferred to the extent such costs are
deemed recoverable from future profits. Such costs include commissions, certain
costs of policy issue and underwriting, and certain variable field office
expenses.

For individual disability, group disability, and group life and health
business, the costs are amortized in proportion to expected future premiums.
For universal life and certain retirement products, the costs are amortized in
proportion to estimated gross profits from interest margins, mortality and
other elements of performance under the contracts. Amortization is adjusted
periodically to reflect differences between actual experience and original
assumptions, with any resulting changes reflected in current operating
results. The amounts deferred and amortized were as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
(DOLLARS IN MILLIONS) 1994 1993 1992
----------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred $308.1 $282.8 $237.6
Less amortized (152.8) (147.7) (125.9)
----------------------------------------------------------------------------
Increase in deferred policy acquisition
costs $155.3 $135.1 $111.7
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

RESERVES FOR FUTURE POLICY BENEFITS

Reserves for future policy benefits are calculated by the net-level premium
method, and are based on UNUM's expected morbidity, mortality and interest
rate assumptions at the time a policy is issued. These reserves represent the
portion of premiums received, accumulated with interest and held to provide
for claims that have not yet been incurred. Reserves for group insurance
policies consist primarily of unearned premiums.

The interest rates used in the calculation of reserves for future policy
benefits at December 31, 1994, and 1993, principally ranged from:

<TABLE>
<CAPTION>
1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Individual disability 5.5% to 9.5% 7.0% to 9.5%
Individual life 5.0% to 9.0% 5.0% to 9.0%
Individual accident and health 5.0% to 9.0% 6.0% to 11.8%
Individual and group annuities 5.0% to 9.0% 5.0% to 9.0%
-------------------------------------------------------------------------------
</TABLE>

Certain reserve calculations are based on interest rates within these ranges
graded down over periods from 15 to 20 years.

RESERVES FOR UNPAID CLAIMS AND CLAIM EXPENSES

Unpaid claims and claim expense reserves represent the amount estimated to
fund claims that have been reported but not settled and claims incurred but
not reported. Reserves for unpaid claims are estimated based on UNUM's
historical experience and other actuarial assumptions which consider the
effects of current developments, anticipated trends, risk management programs
and renewal actions. Many factors affect actuarial calculations of claim
reserves, including but not limited to interest rates, and current and
anticipated incidence rates, recovery rates, and economic and societal
conditions. Reserve estimates and assumptions are periodically reviewed
and updated with any resulting adjustments to reserves reflected in current
operating results. Given the complexity of the reserving process, the
ultimate liability may be more or less than such estimates indicate.

The interest rates used in the calculation of disability product reserves at
December 31, 1994, and 1993, were principally as follows:

1994 1993
----------------------------------------------------------------------------
<S> <C> <C>
Group long term disability (North America) 9.18% 9.34%
Group long term disability (United Kingdom) 9.9% 10.5%
Individual disability 6.75% to 9.9% 8.0% to 10.0%
-----------------------------------------------------------------------------
</TABLE>

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

RESERVES FOR UNPAID CLAIMS AND CLAIM EXPENSES (Continued)

The interest rate used to discount the disability reserves is a composite of
the yields on assets specifically matched with each block of business.

For other accident and health business, reserves are based on projections of
historical claims run-out patterns.

Activity in the liability for unpaid claims and claim expenses is summarized
as follows:

(DOLLARS IN MILLIONS) 1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $3,341.5 $2,983.6 $2,808.0
Less reinsurance recoverables (68.0) -- --
------------------------------------------------------------------------------
Net Balance at January 1 3,273.5 2,983.6 2,808.0

Incurred related to:
Current year 1,609.3 1,417.8 1,253.6
Prior years 436.0 238.0 126.8
------------------------------------------------------------------------------
Total incurred 2,045.3 1,655.8 1,380.4

Paid related to:
Current year 517.6 471.0 405.3
Prior years 1,030.0 894.9 799.5
-------------------------------------------------------------------------------
Total paid 1,547.6 1,365.9 1,204.8

Net Balance at December 31 3,771.2 3,273.5 2,983.6
Plus reinsurance recoverables 82.7 68.0 --
-------------------------------------------------------------------------------
Balance at December 31 $3,853.9 $3,341.5 $2,983.6
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>

The increase in incurrals related to prior years was $436.0 million, $238.0
million, and $126.8 million (net of reinsurance), for 1994, 1993 and 1992,
respectively. These increases were primarily the result of interest accrued
on reserves, changes in reserve estimates and assumptions, and changes in
foreign exchange rates. Due to the long-term claims payment pattern of some
of UNUM's businesses, certain reserves, particularly disability, are
discounted for interest.

Interest accrued on reserves increased prior years' incurrals by approximately
$267 million, $237 million and $225 million in 1994, 1993 and 1992,
respectively. Approximately $154 million of the increase in prior years'
incurrals in 1994 was primarily related to changes in reserve estimates and
assumptions of morbidity, mortality and expense costs of the group long term
and individual disability reserves, which were affected by the third quarter
1994 reserve strengthening. Changes in estimates of morbidity, mortality and
expense costs caused an increase in prior years' incurrals of approximately
$6 million in 1993 and a decrease of approximately $46 million in 1992.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

RESERVES FOR UNPAID CLAIMS AND CLAIM EXPENSES (Continued)

Foreign exchange translations, primarily related to the disability reserves of
UNUM's United Kingdom based affiliate, UNUM Limited, caused prior years'
incurrals to increase by approximately $15 million in 1994, and decrease by
approximately $5 million and $52 million in 1993 and 1992, respectively.

Effective January 1, 1993, UNUM adopted Financial Accounting Standard ("FAS")
No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts," which eliminated the practice by insurance
enterprises of reporting assets and liabilities relating to reinsured
contracts net of the effects of reinsurance. Since UNUM did not restate its
financial statements upon adoption of FAS 113, reserve balances prior to
December 31, 1993, are shown net of reinsurance recoverables.

CHANGE IN ACCOUNTING ESTIMATE

During 1994, UNUM increased reserves for existing claims by $83.3 million and
established a reserve for estimated future losses of $109.1 million. These
increased reserves reflect management's current expectations of morbidity
trends for the existing individual disability business, as reported in the
Individual Disability segment. This change in accounting estimate resulted in
an increase to benefits to policyholders in the Consolidated Statement of
Income of $192.4 million, and a decrease to net income of $125.1 million, or
$1.69 per share.

OTHER POLICYHOLDER FUNDS

Other policyholder funds are liabilities for investment-type contracts and
represent customer deposits plus interest credited to those deposits at
various rates.

SEPARATE ACCOUNTS

Certain assets of UNUM's defined benefit plans, 401(k) contracts and tax
sheltered annuity contracts are in separate accounts that are pooled
investment funds of securities. Investment income and realized gains and
losses on these accounts accrue directly to the contractholders. Assets,
carried at market value, and liabilities of the separate accounts are shown
separately in the Consolidated Balance Sheets. The assets of the separate
accounts are legally segregated and are not subject to claims which arise out
of any other business of UNUM.

ACCOUNTING FOR PARTICIPATING INDIVIDUAL LIFE INSURANCE

Participating policies issued by the former Union Mutual Life Insurance
Company ("Union Mutual") prior to UNUM's conversion to a stock life insurance
company on November 14, 1986, will remain participating as long as they remain
in force. A Participation Fund Account ("PFA") has been established for the
sole benefit of all of Union Mutual's individual participating life and
annuity policies and contracts.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

ACCOUNTING FOR PARTICIPATING INDIVIDUAL LIFE INSURANCE (Continued)

The assets of the PFA are to provide for the benefit, dividend and certain
expense obligations of the participating individual life insurance policies
and annuity contracts. This line of business participates in the experience of
the PFA and its operations have been excluded from the Consolidated Statements
of Income. The PFA represents approximately 2.5% and 3.0% of total assets and
3.0% and 3.5% of total liabilities at December 31, 1994, and 1993,
respectively.

INCOME TAXES

The provision for income taxes includes amounts currently payable and deferred
income taxes, which result from differences between financial reporting and
tax bases of assets and liabilities, and are measured using enacted tax rates
and laws. Deferred U.S. income taxes have not been provided on accumulated
earnings of UNUM's foreign subsidiaries. These earnings would become subject
to U.S. tax if remitted to UNUM Corporation.

EARNINGS PER SHARE

The weighted average number of shares outstanding used to calculate earnings
per share was approximately 74,158,000, 78,779,000 and 78,542,000 in 1994,
1993 and 1992, respectively. The assumed exercise of outstanding stock
options does not result in a material dilution of earnings per share.

FAIR VALUES OF FINANCIAL INSTRUMENTS

Fair values are based on quoted market prices, when available. In cases where
quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. These valuation techniques
require management to develop a significant number of assumptions, including
discount rates and estimates of future cash flow. Derived fair value
estimates cannot be substantiated by comparison to independent markets or to
disclosures by other companies with similar financial instruments. These fair
value disclosures do not purport to be the amount which could be realized in
immediate settlement of the financial instrument.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

The following table summarizes the carrying amounts and fair values of UNUM's
financial instruments at December 31, 1994, and 1993:

<TABLE>
<CAPTION>
1994 1993
----------------------- ---------------------------
Carrying Fair Carrying Fair
(DOLLARS IN MILLIONS) Amount Value Amount Value
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities:
Held to maturity $6,227.2 $6,168.6 $6,560.7 $7,149.9
Available for sale 1,640.6 1,640.6 872.0 929.9
Equity securities available for sale 627.9 627.9 730.0 730.0
Mortgage loans 1,216.3 1,265.4 1,423.2 1,558.4
Policy loans 201.0 201.0 187.9 187.9
Short-term investments 291.9 291.9 69.6 69.6
Cash 36.1 36.1 20.8 20.8
Accrued investment income 195.9 195.9 184.0 184.0

Financial liabilities:
Other policyholder funds:
Investment-type insurance contracts:
With defined maturities $ 667.0 $ 685.0 $ 847.0 $ 956.0
With no defined maturities 3,013.0 2,948.0 3,044.0 2,952.0
Individual annuities and
supplementary contracts not
involving life contingencies 84.6 84.6 89.0 89.0
Notes payable 428.7 414.5 238.6 241.9

Off-balance sheet financial instruments:
Interest rate futures contracts -- -- -- 0.3
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
</TABLE>

The following methods and assumptions were used in estimating fair value
disclosures for financial instruments:

FIXED MATURITIES: Fair values for fixed maturities are based on quoted market
prices, where available. If quoted market prices are not available, fair
values are estimated using values obtained from independent pricing services
or, in the case of private placements, are estimated by discounting expected
future cash flows using a current market rate applicable to the yield, credit
quality and maturity of the investments.

EQUITY SECURITIES AVAILABLE FOR SALE: Fair values for equity securities
available for sale are based on quoted market prices and are reported in the
Consolidated Balance Sheets at these values.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

MORTGAGE LOANS: Fair values for mortgage loans are estimated based on
discounted cash flow analyses using interest rates currently being offered for
similar mortgage loans to borrowers with similar credit ratings and
maturities. Mortgage loans with similar characteristics are aggregated for
purposes of the calculations.

POLICY LOANS: Fair values for policy loans approximate the carrying amounts
reported in the Consolidated Balance Sheets.

SHORT-TERM INVESTMENTS, CASH AND ACCRUED INVESTMENT INCOME: Fair values for
these instruments approximate the carrying amounts reported in the
Consolidated Balance Sheets.

INVESTMENT-TYPE INSURANCE CONTRACTS: Fair values for liabilities under
investment-type insurance contracts with no defined maturities are the amounts
payable on demand after surrender charges at the balance sheet date. Fair
values for liabilities under investment-type insurance contracts with defined
maturities are estimated using discounted cash flow calculations based on
interest rates that would be offered currently for similar contracts with
maturities consistent with those remaining for the contracts being valued.

The estimated fair values of liabilities under all insurance contracts
(investment-type and other than investment-type) are taken into consideration
in UNUM's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.

INDIVIDUAL ANNUITIES AND SUPPLEMENTARY CONTRACTS NOT INVOLVING LIFE
CONTINGENCIES: Fair values approximate the carrying amounts reported in other
policyholder funds in the Consolidated Balance Sheets.

NOTES PAYABLE: Fair values of short-term borrowings approximate the carrying
amount. Fair values of long-term notes are estimated using discounted cash
flow analyses based on UNUM's current incremental borrowing rates for similar
types of borrowing arrangements.

OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS: Fair values for off-balance-sheet
financial instruments are based on current settlement values.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

NEW ACCOUNTING PRONOUNCEMENT

ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN

In May 1993, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard ("FAS") No. 114, "Accounting by Creditors for
Impairment of a Loan" which defines the principles to measure and record a
loan when it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms of the loan agreement.

In October 1994, the FASB issued FAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures," which amends FAS
114 to allow a creditor to use existing methods for recognizing, measuring and
displaying interest income on an impaired loan. UNUM will adopt FAS 114 and
FAS 118 effective January 1, 1995. Adoption of FAS 114 and FAS 118 is not
expected to have a material effect on UNUM's results of operations or
financial position.

NOTE 2. COLONIAL MERGER

On December 3, 1992, UNUM and Colonial Companies, Inc. ("Colonial"), signed a
definitive merger agreement. On March 26, 1993, Colonial Class A common stock
shareholders voted to approve the merger. Under the agreement, UNUM exchanged
0.731 shares of its common stock for each share of Colonial Class A and
Class B common stock outstanding on March 26, 1993. UNUM issued approximately
11.4 million shares of common stock from treasury in connection with the
merger. In addition, outstanding options to acquire shares of Colonial
Class B common stock were converted into options to acquire shares of UNUM
common stock. The merger was accounted for as a pooling of interests.

Net income for the year ended December 31, 1993, included a $9.6 million
charge, or $0.12 per share, for expenses incurred to effect the merger.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. INVESTMENTS

- Fixed maturities that UNUM has the positive intent and ability to hold to
maturity are classified as "held to maturity" and are reported at
amortized cost, less an allowance for probable losses.
- Fixed maturities and equity securities classified as "available for sale"
are reported at fair value. Related unrealized holding gains and losses,
net of deferred taxes, are reported in a separate component of
stockholders' equity.

Upon the adoption of FAS 115, UNUM increased unrealized gains on available for
sale securities included in stockholders' equity on January 1, 1994, by $41.8
million (net of deferred taxes of $22.5 million) to reflect the unrealized
holding gains on fixed maturities classified as available for sale which were
previously carried at amortized cost. In accordance with FAS 115, prior year
consolidated financial statements and disclosures have not been restated to
reflect the change in accounting principle. UNUM reclassified certain
fixed maturities from held to maturity to available for sale on January 1,
1994, in connection with the adoption of FAS 115.

The following tables summarize the components of investment income, realized
investment gains (losses) and changes in unrealized investment gains (losses):

INVESTMENT INCOME
Year Ended December 31,
--------------------------------
(DOLLARS IN MILLIONS) 1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
Held to maturity $548.1 $570.1 $568.2
Available for sale 87.9 59.5 56.9
Equity securities available for sale 10.4 12.6 14.7
Mortgage loans 137.4 165.2 187.2
Real estate 15.8 12.8 14.1
Policy loans 10.2 10.4 10.6
Other long-term investments 0.9 4.5 2.1
Short-term investments 8.5 7.1 7.1
-------------------------------------------------------------------------------
Gross investment income 819.2 842.2 860.9
Less investment expenses (23.9) (26.6) (25.8)
Less investment income on participating
individual life insurance policies and
annuity contracts (25.1) (25.2) (25.9)
-------------------------------------------------------------------------------
Investment income $770.2 $790.4 $809.2
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. INVESTMENTS (Continued)

GROSS REALIZED INVESTMENT GAINS (LOSSES)

<TABLE>
<CAPTION>
Year Ended
December 31, 1994
--------------------
(DOLLARS IN MILLIONS) Gains Losses
---------------------------------------------------------------------------
<S> <C> <C>
Fixed maturities:
Held to maturity $ 0.2 $ (6.8)
Available for sale 10.2 (28.8)
Equity securities available for sale 93.1 (12.2)
Mortgage loans, real estate and other 13.5 (23.6)
----------------------------------------------------------------------------
Gross realized investment gains (losses) $ 117.0 $ (71.4)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>

NET REALIZED INVESTMENT GAINS (LOSSES)
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------
(DOLLARS IN MILLIONS) 1993 1992
-----------------------------------------------------------------------------
<S> <C> <C>
Fixed maturities:
Held to maturity $ 9.5 $ 7.6
Available for sale 7.8 9.1
Equity securities available for sale 48.3 38.3
Mortgage loans, real estate and other (16.2) (13.5)
------------------------------------------------------------------------------
Net realized investment gains $49.4 $41.5
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. INVESTMENTS (Continued)

CHANGE IN UNREALIZED INVESTMENT GAINS (LOSSES)

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
(DOLLARS IN MILLIONS) 1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities available for sale $(60.8) $ -- $ --
Equity securities available for sale (86.0) 43.2 34.0
Deferred taxes 47.3 (15.2) (11.6)
-------------------------------------------------------------------------------
Total change in unrealized
investment gains on available
for sale securities, as included
in stockholders' equity $(99.5) $28.0 $22.4
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>

The following changes in unrealized investment gains (losses) were not
reflected in the consolidated financial statements as these securities
are carried at amortized cost:

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
(DOLLARS IN MILLIONS) 1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
Held to maturity $(647.8) $154.2 $ 14.2
Available for sale -- 30.9 (1.3)
-------------------------------------------------------------------------------
Total $(647.8) $185.1 $ 12.9
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. INVESTMENTS (Continued)

FIXED MATURITIES

The amortized cost and estimated fair values of fixed maturities at December
31, 1994, were as follows:

<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(DOLLARS IN MILLIONS) Cost Gains Losses Value
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to maturity:
U. S. Government $ 10.9 $ -- $ -- $ 10.9
States and municipalities 631.8 9.1 (31.3) 609.6
Foreign governments 176.1 12.4 (1.4) 187.1
Public utilities 1,375.5 12.8 (46.8) 1,341.5
Corporate bonds 4,014.3 92.7 (106.8) 4,000.2
Mortgage-backed securities 10.8 0.5 -- 11.3
Other debt securities 7.8 0.2 -- 8.0
----------------------------------------------------------------------------------------------------------
Total held to maturity $ 6,227.2 $ 127.7 $ (186.3) $ 6,168.6
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------

Available for sale:
U. S. Government $ 353.2 $ 0.8 $ (7.5) $ 346.5
States and municipalities 433.2 2.3 (13.9) 421.6
Foreign governments 58.9 0.2 (1.5) 57.6
Public utilities 229.4 3.8 (9.6) 223.6
Corporate bonds 552.1 0.8 (31.8) 521.1
Redeemable preferred stocks 63.2 2.9 (7.0) 59.1
Mortgage-backed securities 11.4 0.1 (0.4) 11.1
----------------------------------------------------------------------------------------------------------
Total available for sale $ 1,701.4 $ 10.9 $ (71.7) $ 1,640.6
----------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. INVESTMENTS (Continued)

FIXED MATURITIES (Continued)

The amortized cost and estimated fair values of fixed maturities at December
31, 1993, were as follows:

<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(DOLLARS IN MILLIONS) Cost Gains Losses Value
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to maturity:
U. S. Government $ 10.0 $ 0.6 $ -- $ 10.6
States and municipalities 718.7 64.5 (0.2) 783.0
Foreign governments 255.3 50.3 (0.2) 305.4
Public utilities 1,333.7 98.6 (1.6) 1,430.7
Corporate bonds 4,186.8 377.7 (5.0) 4,559.5
Certificates of deposit 36.4 1.1 -- 37.5
Mortgage-backed securities 15.2 2.6 -- 17.8
Other debt securities 4.6 0.8 -- 5.4
----------------------------------------------------------------------------------------------------------
Total held to maturity $ 6,560.7 $ 596.2 $ (7.0) $ 7,149.9
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------

Available for sale:
U. S. Government $ 388.9 $ 27.7 $ (0.3) $ 416.3
States and municipalities 73.5 5.1 -- 78.6
Foreign governments 13.7 1.3 -- 15.0
Public utilities 107.3 6.5 -- 113.8
Corporate bonds 166.0 10.1 (0.6) 175.5
Redeemable preferred stocks 105.8 7.7 (1.0) 112.5
Mortgage-backed securities 16.8 1.4 -- 18.2
----------------------------------------------------------------------------------------------------------
Total available for sale $ 872.0 $ 59.8 $ (1.9) $ 929.9
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. INVESTMENTS (Continued)

FIXED MATURITIES (Continued)

The amortized cost and estimated fair value of fixed maturities at December
31, 1994, by contractual maturity date, are shown below. Expected maturities
will differ from contractual maturities since certain borrowers have the right
to call or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
Amortized Estimated
(DOLLARS IN MILLIONS) Cost Fair Value
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Held to maturity:
Due in one year or less $ 619.6 $ 622.3
Due after one year through five years 2,555.2 2,551.3
Due after five years through ten years 2,465.5 2,387.1
Due after ten years 576.1 596.6
-------------------------------------------------------------------------------------------------------
6,216.4 6,157.3
Mortgage-backed securities (primarily due after 10 years) 10.8 11.3
--------------------------------------------------------------------------------------------------------
Total held to maturity $ 6,227.2 $ 6,168.6
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------

Available for sale:
Due in one year or less $ 46.8 $ 47.3
Due after one year through five years 845.2 816.3
Due after five years through ten years 500.8 482.0
Due after ten years 297.2 283.9
--------------------------------------------------------------------------------------------------------
1,690.0 1,629.5
Mortgage-backed securities (primarily due after 10 years) 11.4 11.1
--------------------------------------------------------------------------------------------------------
Total available for sale $ 1,701.4 $1,640.6
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
</TABLE>

Gross gains of $12.4 million and $18.9 million, and gross losses of $1.3
million and $3.5 million, were realized on sales of fixed maturities in 1993
and 1992, respectively.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. INVESTMENTS (Continued)

FIXED MATURITIES (Continued)

During fourth quarter 1994, UNUM sold fixed maturities of five issuers
classified as held to maturity with an amortized cost of $49.8 million
due to evidence of significant unexpected deterioration of the issuers'
creditworthiness. These sales resulted in a net realized loss of $3.0 million.

EQUITY SECURITIES

The fair values, which also represent carrying amounts, and the cost of equity
securities available for sale were as follows at December 31, 1994:

<TABLE>
<CAPTION>
Fair
(DOLLARS IN MILLIONS) Cost Value
-----------------------------------------------------------------------------
<S> <C> <C>
Common stocks:
Public utilities $ 57.5 $ 53.1
Industrial, miscellaneous and all other 434.7 574.8
------------------------------------------------------------------------------
Total $ 492.2 $ 627.9
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>

At December 31, 1994, cumulative gross unrealized investment gains on equity
securities available for sale totaled $158.7 million and losses totaled
$(23.0) million.

MORTGAGE LOANS

Restructured mortgage loans at amortized cost amounted to $73.6 million and
$65.9 million at December 31, 1994, and 1993, respectively. Troubled debt
restructurings represent loans that are refinanced with terms more favorable
to the borrower. Interest foregone on these loans was not material for the
years ended December 31, 1994, 1993 or 1992.

OTHER

Real estate acquired in satisfaction of debt cumulatively amounts to $119.3
million at December 31, 1994. Real estate held for sale amounted to $31.0
million at December 31, 1994, and $24.7 million at December 31, 1993.

At December 31, 1994, bonds with an amortized cost of $16.1 million, real
estate with a depreciated cost of $4.7 million and no mortgage loans were
non-income producing for the twelve months ended December 31, 1994. Interest
lost on these investments was not material in 1994, 1993 or 1992.

UNUM was committed at December 31, 1994, to purchase fixed maturities and
other invested assets in the amount of $37.5 million.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. ALLOWANCE FOR PROBABLE LOSSES ON INVESTED ASSETS AND
REAL ESTATE HELD FOR SALE

Changes in the allowance for probable losses on invested assets and real
estate held for sale were as follows:

<TABLE>
<CAPTION>
Balance at Balance
beginning Addi- Deduc- at end
(DOLLARS IN MILLIONS) of year tions tions of year
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1994
Fixed maturities held to maturity and
available for sale $ 0.3 $ 4.1 $ -- $ 4.4
Mortgage loans 48.6 8.5 (13.9) 43.2
Real estate held for sale 20.9 0.8 (8.5) 13.2
---------------------------------------------------------------------------------------------------------
Total $ 69.8 $13.4 $ (22.4) $ 60.8
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------

Year Ended December 31, 1993
Fixed maturities held to maturity and
available for sale $ 4.1 $(3.8) $ -- $ 0.3
Mortgage loans 51.5 4.8 (7.7) 48.6
Real estate held for sale 13.6 18.8 (11.5) 20.9
---------------------------------------------------------------------------------------------------------
Total $ 69.2 $19.8 $ (19.2) $ 69.8
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------

Year Ended December 31, 1992
Fixed maturities held to maturity $ 5.5 $(1.0) $ (0.4) $ 4.1
Mortgage loans 43.1 26.5 (18.1) 51.5
Real estate held for sale 15.9 7.2 (9.5) 13.6
---------------------------------------------------------------------------------------------------------
Total $ 64.5 $32.7 $ (28.0) $ 69.2
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
</TABLE>

Additions represent charges to net realized investment gains less recoveries,
and deductions represent reserves released upon disposal or restructuring of
the related asset.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5. DERIVATIVE FINANCIAL INSTRUMENTS

UNUM periodically uses common derivative financial instruments such as options,
futures and forward exchange contracts to hedge certain risks associated with
future investments and certain payments denominated in foreign currencies,
primarily British pound sterling, Canadian dollar and Japanese yen. These
derivative financial instruments are used to protect UNUM from the effect of
market fluctuations in interest and exchange rates between the contract date
and the date on which the hedged transaction occurs. UNUM does not intend
to hold derivative financial instruments for the purpose of trading.

At December 31, 1994, UNUM had no open derivative financial instruments. At
December 31, 1993, UNUM held interest rate futures contracts with commitments
to purchase government securities with total par values of $207.0 million. In
using these instruments, UNUM is subject to the off-balance-sheet risk that the
counterparties to the transactions will fail to completely perform as
contracted. UNUM manages this risk by only entering into contracts with highly
rated institutions and listed exchanges.

NOTE 6. REINSURANCE

UNUM, through its life insurance subsidiaries, is involved in both the cession
and assumption of reinsurance with other companies. Risks are reinsured with
other companies to reduce UNUM's exposure to large losses and permit recovery
of a portion of direct losses. UNUM remains liable to the insured for the
payment of policy benefits if the reinsurers cannot meet their obligations
under the reinsurance agreements. Deferred policy acquisition costs,
premiums and expenses are stated net of reinsurance ceded to other companies.

Effective January 1, 1993, UNUM adopted Financial Accounting Standard No. 113,
"Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts," which eliminated the practice by insurance enterprises of reporting
assets and liabilities relating to reinsured contracts net of the effects of
reinsurance. The standard required prepaid reinsurance premiums and
reinsurance receivables, for amounts to be recovered, to be reported as
assets. It also prescribed conditions required for a contract with a
reinsurer to be accounted for as reinsurance and defined accounting standards
for short-duration and long-duration reinsurance contracts. As permitted,
consolidated financial statements prior to adoption have not been restated.
The effect of the adoption on the Consolidated Balance Sheet was an increase
in other assets of $80.0 million and a corresponding increase in future policy
benefits and unpaid claims and claim expenses.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6. REINSURANCE (continued)

The effect of reinsurance on premiums earned and written for the years ended
December 31, 1994, and 1993, was as follows:

1994 1993
-------------------- --------------------
(DOLLARS IN MILLIONS) Earned Written Earned Written
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Direct $2,674.2 $2,702.7 $2,331.5 $2,335.6
Assumed 170.7 170.9 192.6 196.2
Ceded (112.5) (112.6) (50.0) (50.5)
-------------------------------------------------------------------------------
Premiums $2,732.4 $2,761.0 $2,474.1 $2,481.3
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

</TABLE>

For the years ended December 31, 1994, and 1993, recoveries recognized under
reinsurance agreements reduced benefits to policyholders by $53.3 million and
$28.9 million, respectively.

Reinsurance premiums ceded and assumed were $51.5 million and $136.2 million,
respectively, for 1992.

NOTE 7. BUSINESS RESTRUCTURING AND OTHER CHARGES

In the fourth quarter of 1994, UNUM recorded pretax charges totaling $14.4
million, or $0.13 per share, which were reflected as operating expenses in the
Consolidated Statement of Income. Of this total, the Individual Disability
segment recorded $12.3 million related to the restructuring of the individual
disability business and resulting consolidation of home office operations in
UNUM America, which was comprised of $7.1 million for severance costs for 150
field and 150 home office employees and $5.2 million for exit costs of certain
leased facilities and equipment, expiring through 1998. The remaining $2.1
million, recorded in the Employee Benefits segment, was for termination
benefits for approximately 100 employees related to the acceleration of
organizational changes within UNUM America. All employee related costs are
expected to be paid by the end of 1995.

During 1992, UNUM released the restructuring reserve remaining for the costs of
withdrawal and reassignment of employees associated with the 401(k) business in
excess of amounts incurred, since actual costs were less than expected, which
resulted in a pretax gain of $5.3 million. The gain associated with the
release of this restructuring reserve reduced operating expenses in the 1992
Consolidated Statement of Income.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8. EMPLOYEE BENEFIT PLANS

PENSION PLANS

UNUM has a noncontributory defined benefit pension plan covering substantially
all domestic employees, excluding employees of Colonial Companies, Inc., and
Duncanson & Holt, Inc. The plan provides benefits based on the employee's
years of service and compensation during the highest five consecutive years
out of the last ten years of employment. UNUM funds the plan in accordance
with the requirements of the Employee Retirement Income Security Act of 1974,
as amended. Plan assets consist primarily of group annuity contracts and
include approximately 224,392 shares of UNUM Corporation common stock.

Net pension cost included the following components:

Year Ended December 31,
----------------------------
(DOLLARS IN MILLIONS) 1994 1993 1992
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 9.2 $ 8.6 $ 7.5
Interest cost on projected benefit obligation 11.6 10.9 9.4
Actual return on plan assets 3.3 (16.5) (14.5)
Net amortization and deferral (16.5) 5.2 4.1
-------------------------------------------------------------------------------
Net pension cost $ 7.6 $ 8.2 $ 6.5
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

</TABLE>

<PAGE>

The funded status of the plan and amounts recognized in UNUM's Consolidated
Balance Sheets, as determined by the plan's actuaries, were as follows:

December 31,
--------------------
(DOLLARS IN MILLIONS) 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation $ 96.2 $ 102.3
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Accumulated benefit obligation $ 99.1 $ 104.8
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date $(141.9) $(147.6)
Plan assets at fair value 153.5 156.7
-------------------------------------------------------------------------------
Projected benefit obligation less than plan assets 11.6 9.1
Unrecognized net gain (26.2) (21.6)
Unrecognized prior service cost (3.3) (6.1)
Unamortized net obligation 2.7 3.1
-------------------------------------------------------------------------------
Accrued pension cost $ (15.2) $ (15.5)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8. EMPLOYEE BENEFIT PLANS (Continued)

PENSION PLANS (Continued)

The weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation were 8.25% and 5.20%, respectively, at December 31, 1994, and 7.25%
and 4.70%, respectively, at December 31, 1993. The expected long-term rate of
return on plan assets was 9.0% in 1994 and 8.25% in 1993 and 1992. Prior year
service costs are being amortized on a straight-line basis over expected
employment periods for active employees.

UNUM also administers certain supplemental retirement plans for eligible
employees and officers and certain other pension plans. The cost of these
plans was not significant for the years ended December 31, 1994, 1993 and 1992.

RETIREMENT SAVINGS PLANS

UNUM has several retirement savings and profit sharing plans for substantially
all full-time and part-time employees who work 1,000 hours a year and have been
employed for at least one year. Dependent upon which plan the employee
participates in, eligible employees may contribute primarily up to 10% of their
annual salary, and UNUM matches a portion of each employee's contribution up to
6% of the employee's bi-weekly compensation. Participants may become 100%
vested immediately upon becoming eligible to participate, or incrementally over
a five year period. In 1994, 1993 and 1992, expense for these plans amounted
to $8.4 million, $8.3 million and $6.5 million, respectively.

POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS

UNUM provides certain health care and life insurance benefits for retired
employees and covered dependents. Substantially all domestic employees of UNUM
may become eligible for these benefits if they meet minimum age and service
requirements, if they are eligible for retirement benefits and if they agree to
contribute a portion of the cost. UNUM has the right to modify or terminate
these benefits. The underlying plans are not currently funded.

Effective January 1, 1993, UNUM adopted Financial Accounting Standard ("FAS")
No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions," which changed the method for recognition of the cost of these
benefits from a cash basis to an accrual basis over the years in which the
employees render the related services. UNUM elected to immediately recognize
the FAS 106 liability at January 1, 1993, of $48.8 million as a cumulative
effect of an accounting change, which decreased net income by $32.1 million, or
$0.40 per share, during 1993.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8. EMPLOYEE BENEFIT PLANS (Continued)

POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS (Continued)

Postretirement benefits expense included the following components:

Year Ended December 31,
-----------------------
(DOLLARS IN MILLIONS) 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C>
Service cost $ 3.8 $ 3.4
Interest cost 4.4 4.0
-------------------------------------------------------------------------------
Postretirement benefits expense $ 8.2 $ 7.4
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

</TABLE>

The following represents the unfunded accumulated postretirement benefits
obligation as determined by the plans' actuaries:

December 31,
--------------------
(DOLLARS IN MILLIONS) 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C>
Retirees $21.3 $19.6
Active employees fully eligible 4.5 6.5
Other active participants 38.9 29.7
-------------------------------------------------------------------------------
Accumulated postretirement benefits obligation 64.7 55.8
Unrecognized other amounts (1.0) 1.2
-------------------------------------------------------------------------------
Accrued postretirement benefits cost $63.7 $57.0
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

</TABLE>

Under UNUM's plans, the cost of covered health care benefits is assumed to
increase 10.00% and 10.75% for retirees less than 65 years old, and 7.50% and
8.25% for retirees 65 years and older for 1995. These rates are assumed to
decrease incrementally to 5.50% and 6.25% by 2001, and remain at that level
thereafter. The weighted average discount rates used in determining the
accumulated postretirement benefits obligation were 8.00% and 8.25%, at
December 31, 1994, and 7.25% and 7.50%, at December 31, 1993. The rates of
increase in future compensation levels used in determining the accumulated
postretirement benefits obligation were 5.2% and 4.7%, at December 31, 1994
and 1993, respectively.

At December 31, 1994, a 1% increase in the trend rate for health care costs
would increase the accumulated postretirement benefits obligation by $13.4
million and postretirement benefits expense by $1.8 million.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. OPTION AND INCENTIVE PLANS

LONG-TERM STOCK INCENTIVE PLAN AND EXECUTIVE STOCK OPTION PLAN

The 1990 Long-Term Stock Incentive Plan ("Incentive Plan") provides for
granting of restricted shares of UNUM Corporation common stock to key officers.
The Incentive Plan also provides for granting of options to officers,
non-employee directors of UNUM Corporation and key employees, to purchase UNUM
Corporation common stock over ten years at a price not less than 100% of the
fair market value on the date of grant. The maximum number of shares reserved
for issuance under the Incentive Plan was 6,800,000 in 1994 and 1993, and
3,500,000 in 1992. At December 31, 1994, 1993 and 1992, 2,511,145 shares,
3,316,734 shares, and 1,006,684 shares, respectively, were available for grant
under the Incentive Plan.

The restriction period for each restricted stock award under the Incentive Plan
is in excess of three years, with the restrictions lapsing as a result of the
achievement of prescribed financial performance objectives during each three
year period, with the exception of 10,000 shares of restricted stock granted in
1994 on which restrictions will lapse on January 6, 1998, provided the grantee
remains continuously in the employ of UNUM. Plan participants are entitled to
cash dividends and voting rights on their respective shares. In 1994,
restrictions lapsed on 80,800 shares granted for the 1991 - 1993 performance
period. All other restricted stock shares issued remained subject to
restrictions.

The market value of the restricted shares issued under the Incentive Plan has
been recorded as deferred compensation and is included as a reduction of
stockholders' equity in the Consolidated Balance Sheets.

The 1987 Executive Stock Option Plan ("Option Plan") provided for granting to
officers and key employees options to purchase UNUM Corporation common stock
over ten years at a price not less than 100% of the fair market value on the
date of grant. Options outstanding under the Option Plan are included in the
summary of stock options.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. OPTION AND INCENTIVE PLANS (Continued)

LONG-TERM STOCK INCENTIVE PLAN AND EXECUTIVE STOCK OPTION PLAN (Continued)

Beginning in 1991, certain officers were granted limited stock appreciation
rights ("LSARs") in tandem with their outstanding options. LSARs afford the
optionee the right to receive payment upon a change in control as defined in
the plans equal to the higher of the excess of the highest price per share
paid in connection with such change in control or the fair market value per
share, over the option price per share. As an underlying stock option is
exercised, the LSARs are automatically canceled. At December 31, 1994, 1993
and 1992, there were 590,275 LSARs, 556,500 LSARs, and 685,550 LSARs
outstanding, respectively.

The following is a summary of stock options and restricted stock information:
<TABLE>
<CAPTION>

Restricted
Options Stock
-------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1992 3,085,014 80,800

1992 Activity:
Granted at $33.17 to $40.70 per share 1,043,969 --
Granted for restricted stock -- 34,600
Exercised at $7.13 to $54.00 per share (860,147) --
Canceled/reissued (141,954) --
-------------------------------------------------------------------------------
Outstanding at December 31, 1992 3,126,882 115,400
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
1993 Activity:
Granted at $52.88 to $57.75 per share 1,031,650 --
Granted for restricted stock -- 32,525
Exercised at $9.03 to $36.75 per share (655,300) --
Canceled/reissued (100,278) (1,500)
-------------------------------------------------------------------------------
Outstanding at December 31, 1993 3,402,954 146,425
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
1994 Activity:
Granted at $38.00 to $51.31 per share 884,375 --
Granted for restricted stock -- 46,850
Lapse of restrictions on restricted stock -- (80,800)
Exercised at $9.03 to $47.88 per share (282,729) --
Canceled/reissued (151,578) (2,525)
-------------------------------------------------------------------------------
Outstanding at December 31, 1994 3,853,022 109,950
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>

The number of exercisable shares as of December 31, 1994, 1993 and 1992, were
1,975,219 shares, 1,396,182 shares, and 1,305,720 shares, respectively.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. OPTION AND INCENTIVE PLANS (Continued)

LONG-TERM STOCK INCENTIVE PLAN AND EXECUTIVE STOCK OPTION PLAN (Continued)

In connection with the March 26, 1993, merger with Colonial Companies, Inc.
("Colonial"), outstanding options to acquire shares of Colonial Class B common
stock were converted into options to acquire shares of UNUM common stock, and
are included in the preceding summary of stock options. Pursuant to the
merger, no further options will be granted under the Colonial stock option
plans.

THE 1998 GOALS STOCK OPTION PLAN

The 1998 Goals Stock Option Plan ("1998 Option Plan") was introduced in January
1995. The 1998 Option Plan provides for granting to all eligible employees up
to 150 options to purchase UNUM Corporation common stock at a price not less
than 100% of the fair market value on the date of the grant. The options will
vest to the employee in January 2004; however, if UNUM achieves its 1998 goals,
vesting will be accelerated to early 1999.

ANNUAL INCENTIVE PLANS

UNUM has several annual incentive plans for certain employees and executive
officers, which provide additional compensation based on achievement of
predetermined annual corporate and affiliate financial and non-financial
goals. In 1994, 1993 and 1992, expense for these plans was $7.5 million,
$27.9 million and $24.6 million, respectively.

NOTE 10. INCOME TAXES

Effective January 1, 1993, UNUM adopted Financial Accounting Standard No. 109,
"Accounting for Income Taxes," which changed the method for calculating and
reporting deferred income taxes in the financial statements from the deferred
method to the liability method. The liability method of accounting for income
taxes requires that deferred tax liabilities or assets at the end of each
period be determined using the tax rate expected to be in effect when taxes are
actually paid or recovered. Under this method, income tax will increase or
decrease in the same period in which a change in tax rate is enacted. The
cumulative effect of this accounting change amounted to a $20.0 million
increase in net income, or $0.25 per share, for the year ended December 31,
1993.

On August 10, 1993, legislation was enacted to increase the federal corporate
income tax rate of 34% to 35%, retroactive to January 1, 1993. The tax rate
increase resulted in a charge to net income totaling $11.4 million, or $0.15
per share, which included $3.6 million, or $0.05 per share, related to 1993
pretax income, and a $7.8 million, or $0.10 per share, adjustment to the
deferred income tax liability.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10. INCOME TAXES (Continued)

A reconciliation of income taxes computed by applying the federal income tax
rate to income before income taxes and the consolidated income tax expense
charged to operations follows:

Year Ended December 31,
-----------------------
(DOLLARS IN MILLIONS) 1994 1993 1992
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at federal statutory rate (35% for 1994 and 1993,
34% for 1992) $ 69.5 $161.1 $135.5
Tax-exempt income (32.0) (29.4) (31.8)
Prior years' taxes -- (2.0) (2.0)
State income tax 2.2 3.9 3.7
Tax on foreign operations -- 0.1 0.1
Adjustment to deferred tax liability due to
tax rate increase -- 7.8 --
Other 4.2 6.8 1.8
-------------------------------------------------------------------------------
Income taxes $ 43.9 $148.3 $107.3
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

</TABLE>

<PAGE>

Deferred income tax liabilities and assets were comprised of the following:

December 31,
--------------------
(DOLLARS IN MILLIONS) 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs $298.9 $257.8
Policy reserve adjustments 59.3 69.6
Net unrealized gains 27.1 79.4
Value of business acquired 17.9 19.0
Invested assets 28.9 10.5
Other 10.6 7.4
-------------------------------------------------------------------------------
Total deferred tax liabilities 442.7 443.7
-------------------------------------------------------------------------------

Deferred tax assets:
Alternative minimum tax credit carryforwards 45.3 20.2
Net realized losses 15.0 17.3
Postretirement benefits 20.3 19.7
Loss carryforward 5.9 8.0
Other 7.6 1.8
-------------------------------------------------------------------------------
Total deferred tax assets 94.1 67.0
------------------------------------------------------------------------------
Net deferred tax liability $348.6 $376.7
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

</TABLE>

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10. INCOME TAXES (Continued)

Deferred income taxes relating to cumulative net unrealized gains on available
for sale securities were $27.1 million, $79.4 million and $57.4 million at
December 31, 1994, 1993 and 1992, respectively. At December 31, 1994, $5.0
million of the $27.1 million deferred income taxes was reflected in retained
earnings, while the remaining $22.1 million was netted against the unrealized
gains component of stockholders' equity.

As of December 31, 1994, deferred U.S. income taxes have not been provided on
the accumulated earnings of UNUM's foreign subsidiaries. These earnings would
become subject to U.S. tax if remitted to UNUM Corporation.

Prior to the Tax Reform Act of 1984 ("1984 Act"), half the excess of the tax
basis gain from operations of a life insurance company over its taxable
investment income was currently taxable. The other half was set aside in a
Policyholders Surplus Account, together with certain special life insurance
company deductions. The cumulative amount in the Policyholders Surplus Account
as of December 31, 1983, was frozen by the 1984 Act and amounted to $31.8
million at December 31, 1994. Any direct or indirect distributions from this
account would be taxed at current tax rates; however, no provision has been
made for related taxes. If the amount set aside in this account were taxed at
the current rate at December 31, 1994, for all life insurance subsidiaries,
the tax would have amounted to $11.1 million.

UNUM's Consolidated Statements of Income for 1994, 1993 and 1992, included the
following amounts of foreign income and related income tax expense:

Year Ended December 31,
------------------------
(DOLLARS IN MILLIONS) 1994 1993 1992
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign income $24.2 $ 20.9 $32.7
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Income tax expense (credit):
Current $ 0.7 $(12.5) $ 1.6
Deferred 9.7 20.2 10.4
-------------------------------------------------------------------------------
Total $10.4 $ 7.7 $12.0
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

</TABLE>

UNUM subsidiaries had operating loss carryforwards totaling $16.5 million and
alternative minimum tax ("AMT") credit carryforwards totaling $45.3 million as
of December 31, 1994. Substantially all of the operating loss carryforwards
relate to foreign operations and can be carried forward indefinitely. The AMT
credits can also be carried forward indefinitely.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11. NOTES PAYABLE

Notes payable consisted of the following at December 31, 1994, and 1993:

December 31,
-----------------
(DOLLARS IN MILLIONS) 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C>
Short-term debt:
Commercial paper $216.5 $109.9
Other notes payable, with weighted average interest
rate of 2.7% 30.1 0.1
-------------------------------------------------------------------------------
Total short-term debt 246.6 110.0
-------------------------------------------------------------------------------

Long-term debt:
Medium-term notes payable due 1996 to 2024
with interest rates ranging from 5.1% to 7.5% 180.8 126.1
Other notes payable 1.3 2.5
-------------------------------------------------------------------------------
Total long-term debt 182.1 128.6
-------------------------------------------------------------------------------
Total notes payable $428.7 $238.6
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

</TABLE>

At December 31, 1994, UNUM Corporation had a $500 million committed revolving
credit facility which expires on October 1, 1999. UNUM's commercial paper
program is supported by the revolving credit facility and is available for
general liquidity needs, capital expansion, acquisitions or stock repurchase.
The committed revolving credit facility contains certain covenants which, among
other provisions, require maintenance of certain levels of stockholders' equity
and limits on level of debt. The commercial paper outstanding at December 31,
1994, and 1993, had a weighted average interest rate of approximately 6.34% and
3.41%, respectively.

Aggregate maturities of long-term debt are as follows: 1995-$0; 1996-$16.2
million; 1997-$48.2 million; 1998-$29.8 million; 1999-$21.4 million;
thereafter-$66.5 million.

On February 28, 1995, UNUM borrowed $100 million under the revolving credit
facility, which was infused into UNUM America in exchange for surplus
debentures. Repayment of principal and interest on the surplus debentures is
subject to state insurance regulatory approval.

NOTE 12. CAPITAL STOCK

In September 1993, UNUM announced the resumption of a program to repurchase its
common stock pursuant to an existing Board of Directors' resolution. On
February 11, 1994, UNUM's Board of Directors voted to expand UNUM's
authorization to repurchase an additional 5.0 million shares, bringing the
total number of shares authorized for repurchase to 44.0 million shares. Since
the resumption of the stock repurchase program, UNUM has acquired approximately
7.6 million shares of its common stock through December 31, 1994, in the open
market at an aggregate cost of $375.8 million. No shares were acquired in the
open market during 1992 or 1991. At December 31, 1994, approximately 2.7
million shares remained authorized for repurchase.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12. CAPITAL STOCK (Continued)

Under the Long-Term Stock Incentive Plan and Executive Stock Option Plan and
the plans of Colonial Companies, Inc. (see Note 9 "Option and Incentive
Plans"), 329,579 shares, 687,825 shares, and 894,747 shares were issued in
1994, 1993 and 1992, respectively.

NOTE 13. PREFERRED STOCK PURCHASE RIGHTS

On March 13, 1992, UNUM's Board of Directors ordered redemption of the 1988
Rights Agreement and adopted a new Shareholder Rights Plan. Shareholders of
record on March 23, 1992, received $0.05 for every two shares of common stock
held, which was distributed April 2, 1992. The total amount of the redemption
was $1.7 million.

As a result of the adoption of a new Shareholder Rights Plan, a dividend
distribution was declared of one Right for each share of outstanding Common
Stock to stockholders of record at the close of business on March 23, 1992.
Each Right under certain specific circumstances entitles the holder to purchase
one one-hundredth of a share of Series A Junior Participating Preferred Stock
at a purchase price of $150.

The Rights become exercisable at a specified time after (1) a person or group
acquires 10% or more of UNUM's Common Stock or (2) a tender or exchange offer
for 10% or more of UNUM's Common Stock.

The Rights expire at the close of business on March 13, 2002, unless earlier
redeemed by the Company under certain circumstances at a price of $0.01 per
Right.

NOTE 14. DIVIDEND RESTRICTIONS

UNUM is subject to various state insurance regulatory restrictions that limit
the maximum amount of dividends available from its United States domiciled
insurance subsidiaries without prior approval. Under current law, during 1995
approximately $81.3 million will be available for payment of dividends to UNUM
Corporation without state insurance regulatory approval. Dividends in excess
of this amount may only be paid with state insurance regulatory approval. The
aggregate statutory capital and surplus of the United States domiciled
insurance subsidiaries of UNUM Corporation was approximately $840.1 million
and $953.9 million, at December 31, 1994, and 1993, respectively. The
aggregate statutory net income of UNUM Corporation's United States domiciled
insurance subsidiaries was approximately $70.4 million, $216.0 million and
$154.1 million for 1994, 1993 and 1992, respectively. State insurance
regulatory authorities prescribe statutory accounting practices that differ in
certain respects from generally accepted accounting principles. The
significant differences relate to deferred acquisition costs, deferred income
taxes, non-admitted asset balances, required investment risk reserves and
reserve calculation assumptions.

UNUM Corporation also has the ability to draw a dividend of approximately $30
million from its United Kingdom based affiliate, UNUM Limited, subject to
certain U.S. tax consequences.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15. LITIGATION

In the normal course of its business operations, UNUM is involved in litigation
from time to time with claimants, beneficiaries and others, and a number of
lawsuits were pending at December 31, 1994. In the opinion of management, the
ultimate liability, if any, arising from this litigation is not expected to
have a material adverse effect on the consolidated financial position or the
consolidated operating results of UNUM.

NOTE 16. SEGMENT INFORMATION

UNUM reports its operations principally in six business segments: Employee
Benefits, Related Businesses, Colonial Companies, Individual Disability,
Retirement Security and Other Operations.

Investment income and net realized investment gains are allocated to the
segments based on designation of ownership of assets identified to the
segments. Operating expenses are allocated to the segments based on direct
association with a product whenever possible. If, however, the expense cannot
be readily associated with a particular product, the costs are allocated based
on ratios of the relative time spent, extent of usage or varying volume of
work performed for each segment.

The Employee Benefits segment includes group long term disability, group life
and other employee benefits products, including short term disability,
accidental death and dismemberment and dental insurance. The Related
Businesses segment includes UNUM Limited in the United Kingdom, Commercial
Life Insurance Company, and reinsurance operations including Duncanson & Holt,
Inc. The Colonial Companies segment includes Colonial Companies, Inc. and
subsidiaries, which offer payroll-deducted, voluntary employee benefits to
employees at their worksites. The Individual Disability segment includes
disability income products. The Retirement Security segment includes tax
sheltered annuities, long term care insurance and lifestyle security protection
products. The Other Operations segment includes individual life insurance
business of UNUM Life Insurance Company of America, group medical operations,
guaranteed investment contracts, deposit administration accounts, and 401(k)
plans, all of which are no longer actively marketed by UNUM. Corporate
includes transactions which are generally non-insurance related and expenses
incurred to effect the March 26, 1993, merger of UNUM and Colonial.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16. SEGMENT INFORMATION (Continued)

Summarized financial information for the six business segments and Corporate is
as follows:

Year Ended December 31,
-----------------------------------
(DOLLARS IN MILLIONS) 1994 1993 1992
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Employee Benefits $ 1,714.9 $ 1,597.3 $ 1,350.6
Related Businesses 567.1 488.0 446.0
Colonial Companies 473.9 448.8 407.3
Individual Disability 442.1 405.0 367.9
Retirement Security 289.4 271.8 261.1
Other Operations 131.3 179.9 210.9
Corporate 5.0 6.2 4.7
-------------------------------------------------------------------------------
Total revenues $ 3,623.7 $ 3,397.0 $ 3,048.5
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Income (loss) before income taxes and
cumulative effects of accounting changes:
Employee Benefits $ 257.8 $ 239.1 $ 222.5
Related Businesses 60.3 57.3 53.4
Colonial Companies 62.7 70.4 60.5
Individual Disability (188.2) 69.0 44.6
Retirement Security 25.7 21.1 6.7
Other Operations 8.5 20.8 16.5
Corporate (28.2) (17.4) (5.7)
-------------------------------------------------------------------------------
Income before income taxes and cumulative
effects of accounting changes 198.6 460.3 398.5
Income taxes 43.9 148.3 107.3
-------------------------------------------------------------------------------
Income before cumulative effects of accounting
changes 154.7 312.0 291.2
Cumulative effects of accounting changes -- (12.1) --
-------------------------------------------------------------------------------
Net income $ 154.7 $ 299.9 $ 291.2
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

</TABLE>

December 31,
-----------------------------------
(DOLLARS IN MILLIONS) 1994 1993 1992
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Identifiable Assets:
Employee Benefits $ 3,660.6 $ 3,294.5 $ 2,936.4
Related Businesses 1,467.2 1,269.0 1,113.2
Colonial Companies 846.2 819.2 745.9
Individual Disability 1,756.5 1,516.3 1,349.1
Retirement Security 3,384.8 3,249.3 3,051.7
Other Operations 1,213.6 1,493.9 1,982.7
Corporate 451.3 452.3 442.8
Individual Participating
Life and Annuity 347.0 342.8 338.0
-------------------------------------------------------------------------------
Total assets $13,127.2 $12,437.3 $11,959.8
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

</TABLE>

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of unaudited quarterly results of operations for
1994 and 1993:

(DOLLARS IN MILLIONS, EXCEPT PER COMMON SHARE DATA)
-------------------------------------------------------------------------------
1994
-------------------------------------------------------------------------------
4th 3rd 2nd 1st
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums $705.7 $670.3 $701.4 $655.0
Investment income 194.4 192.3 192.4 191.1
Net realized investment gains 9.6 11.6 12.5 11.9
Benefits to policyholders 539.8 708.2 518.7 481.4
Net income (loss) $ 54.0 $(61.7) $ 85.3 $ 77.1
-------------------------------------------------------------------------------
Net income (loss) per common share $ 0.75 $(0.84) $ 1.14 $ 1.02
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

1993
-------------------------------------------------------------------------------
4th 3rd 2nd 1st
-------------------------------------------------------------------------------
Premiums $647.7 $622.9 $624.6 $578.9
Investment income 193.2 196.4 200.3 200.5
Net realized investment gains 8.5 10.6 9.8 20.5
Benefits to policyholders 460.5 446.9 449.8 418.5
Net income $ 83.1 $ 72.1 $ 80.8 $ 63.9
-------------------------------------------------------------------------------
Net income per common share $ 1.08 $ 0.91 $ 1.02 $ 0.81
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

</TABLE>

<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On August 2, 1993, the Registrant determined not to reappoint Ernst & Young
L.L.P. as the Registrant's independent auditors for 1993. Also on August 2,
1993, the Registrant engaged Coopers & Lybrand L.L.P. as the Registrant's
independent auditors. In connection with the audit of the fiscal year ended
December 31, 1992, and for the interim period dating from January 1, 1993, until
August 2, 1993, there were no disagreements between Ernst & Young L.L.P. and the
Registrant on any matter of accounting principles or practices, financial
statements disclosure, or auditing scope or procedure, which, if not resolved to
the satisfaction of Ernst & Young L.L.P., would have resulted in reference or
disclosure in Ernst & Young L.L.P.'s reports.

Ernst & Young L.L.P.'s report for the fiscal year ended December 31, 1992,
contained no adverse opinion, no disclaimer of opinion and no qualification or
modification of opinion as to uncertainty, audit scope, or accounting
principles.

The change of independent auditors was recommended by the Audit Committee of
the Registrant's Board of Directors and approved by the Board of Directors.

<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

A. DIRECTORS OF THE REGISTRANT

The information under the caption "Election of Directors" included in UNUM's
proxy statement dated March 28, 1995, is incorporated by reference.

B. EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of UNUM are as follows:

<TABLE>
<CAPTION>
AGE (AS OF AN OFFICER
NAME MARCH 24, 1995) POSITION HELD WITH UNUM SINCE
----------------------- ------------------- ------------------------------------------------------------------ ----------
<S> <C> <C> <C>
James F. Orr III 52 Chairman, President and Chief Executive Officer 1986
Thomas G. Brown 50 Executive Vice President 1992
Stephen B. Center 57 Executive Vice President 1972
Robert W. Crispin 48 Executive Vice President 1995
Rodney N. Hook 48 Senior Vice President and Chief Financial Officer 1989
Peter J. Moynihan 51 Senior Vice President 1979
Kevin P. O'Connell* 49 Senior Vice President, UNUM America 1987
Elaine D. Rosen* 42 Senior Vice President, UNUM America 1983
Robert E. Staton* 48 Chairman, Colonial Life 1984
</TABLE>

------------
*Denotes an executive of UNUM America or Colonial Life who is not an officer of
the Corporation but who is considered an "executive officer" under regulations
of the Securities and Exchange Commission.

The officers are elected annually and hold office until their respective
successors have been chosen and qualified, or until death, resignation or
removal. The UNUM Board may also appoint or delegate the appointment of
officers, assistant officers and agents as it may deem necessary for such
periods as the President, the By-Laws or the UNUM Board may prescribe.

Mr. Orr was elected Chairman of the Board of UNUM in February 1988. He has
served as President and Chief Executive Officer since September 1987. He joined
UNUM in 1986.

Mr. Brown was elected Executive Vice President of UNUM in January 1995. In
addition, he continues to serve as President and Chief Executive Officer of
Duncanson & Holt, Inc. ("D&H"), a post he has held since 1987. D&H became a
wholly-owned subsidiary of UNUM in July 1992.

Mr. Center was elected President of UNUM America and Executive Vice
President of UNUM in September 1992. Previously, he served as Group Executive
Vice President of UNUM America from May 1990 to August 1992, Executive Vice
President for the Employee Benefits Division from September 1989 to May 1990,
and Senior Vice President for the Employee Benefits Division from October 1985
to September 1989. He joined UNUM America in 1963.

Mr. Crispin was elected Executive Vice President of UNUM in January 1995.
Prior to joining UNUM, Mr. Crispin served as Vice Chairman and Chief Investment
Officer of The Travelers Insurance Companies, from July 1991 to January 1995 and
as Executive Vice President of Lincoln National Corporation from 1986 to 1991.

Mr. Hook was elected Senior Vice President and Chief Financial Officer in
April 1989. He served additionally as Treasurer from May 1989 to September 1992.
Prior to joining UNUM in April 1989, Mr. Hook served as a consultant to The
Equitable Life Assurance Society of New York from September 1988 to April 1989.

Mr. Moynihan was elected Senior Vice President of UNUM in September 1993 and
Senior Vice President for Investments of UNUM America in October 1987. He joined
UNUM America in 1973.

Mr. O'Connell was elected Senior Vice President of UNUM America in January
1992. Previously, he served as Senior Vice President for Group Life and Health
from November 1988 to January 1992 and additionally for Group Retirement
Products from May 1990 to January 1992. He joined UNUM America in 1968.

Ms. Rosen was elected Senior Vice President of UNUM America in January 1991.
Previously, she served as Senior Vice President for Long Term Disability from
November 1988 to January 1991. She joined UNUM America in 1975.

<PAGE>
Mr. Staton was elected Chairman of Colonial Life in December 1993.
Previously, he served as Senior Vice President from February 1990 to December
1993 and Vice President from August 1985 to February 1990; and additionally as
General Counsel from August 1985 to November 1993, and Corporate Secretary from
February 1992 to August 1993. He joined Colonial Life in 1984.

ITEM 11. EXECUTIVE COMPENSATION

The information under the captions "Compensation of Directors" and
"Executive Compensation" included in UNUM's proxy statement dated March 28,
1995, is incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information under the caption "Security Ownership" included in UNUM's
proxy statement dated March 28, 1995, is incorporated by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information under the caption "Executive Compensation" included in
UNUM's proxy statement dated March 28, 1995, is incorporated by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)Documents filed:

1.The following Consolidated Financial Statements of UNUM Corporation
and subsidiaries are included in Item 8.

<S> <C>
Consolidated Statements of Income for the Years Ended December 31, 1994, 1993 and 1992............................
Consolidated Balance Sheets as of December 31, 1994, and 1993.....................................................
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994, 1993 and 1992..............
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and 1992........................
Notes to Consolidated Financial Statements........................................................................
</TABLE>

2.Financial Statement Schedules. See Index to Financial Statement
Schedules on page of this report.

3. Exhibits. See Index to Exhibits on page of this report.

(b)Reports on Form 8-K:

No reports on Form 8-K were filed by the Registrant during the
fourth quarter of 1994.

Schedules and exhibits required by Article 7 of Regulation S-X other than
those listed are omitted because they are not required, are not applicable, or
equivalent information has been included in the financial statements, and notes
thereto, or elsewhere herein.

<PAGE>
SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
PORTLAND, STATE OF MAINE, ON MARCH 24, 1995.
UNUM Corporation
By /s/ JAMES F. ORR III
------------------------------------
James F. Orr III (Chairman, President
and Chief Executive Officer)

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
NAME TITLE DATE
--------------------------------------------------------- --------------------------------------------------------- --------------
<C> <S> <C>
/s/ JAMES F. ORR III Chairman, President and Chief Executive Officer March 24, 1995
-------------------------------------------
(James F. Orr III)
/s/ RODNEY N. HOOK Senior Vice President and Chief Financial Officer March 24, 1995
-------------------------------------------
(Rodney N. Hook)
/s/ STEPHEN D. ROBERTS Vice President and Corporate Controller March 24, 1995
-------------------------------------------
(Stephen D. Roberts)
* Director March 24, 1995
-------------------------------------------
(Gayle O. Averyt)
* Director March 24, 1995
-------------------------------------------
(Kenneth S. Axelson)
* Director March 24, 1995
-------------------------------------------
(Robert E. Dillon, Jr.)
* Director March 24, 1995
-------------------------------------------
(Gwain H. Gillespie)
* Director March 24, 1995
-------------------------------------------
(Ronald E. Goldsberry)
* Director March 24, 1995
-------------------------------------------
(Donald W. Harward)
* Director March 24, 1995
-------------------------------------------
(George J. Mitchell)
* Director March 24, 1995
-------------------------------------------
(Cynthia A. Montgomery)
Director March 24, 1995
-------------------------------------------
(James L. Moody, Jr.)
* Director March 24, 1995
-------------------------------------------
(Lawrence R. Pugh)
* Director March 24, 1995
-------------------------------------------
(Lois Dickson Rice)
* Director March 24, 1995
-------------------------------------------
(John W. Rowe)
*/s/ JOHN-PAUL DEROSA
-------------------------------------------
(John-Paul DeRosa, as Attorney-in-fact
for each of the persons indicated)
(Assistant Secretary)
</TABLE>

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Directors and Stockholders
UNUM Corporation

We have audited the consolidated financial statements and the financial
statement schedules of UNUM Corporation and subsidiaries listed in Item 14(a) of
this Form 10-K as of and for the years ended December 31, 1994 and 1993. These
consolidated financial statements and financial statement schedules are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedules based on our audits.

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

In our opinion, the 1994 and 1993 consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of UNUM Corporation and subsidiaries as of December 31, 1994 and 1993,
and the consolidated results of their operations and their cash flows for the
two years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles. In addition, in our opinion, the 1994 and 1993
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.

As discussed in Notes 3, 8 and 10 of the consolidated financial statements,
the Corporation changed its method of accounting for certain investments in debt
securities in 1994 and its method of accounting for postretirement benefits
other than pensions, and accounting for income taxes in 1993.

/s/ COOPERS & LYBRAND L.L.P.
Portland, Maine
February 7, 1995, except for Note 11 for
which the date is February 28, 1995

<PAGE>
REPORT OF INDEPENDENT AUDITORS

To the Directors and Stockholders
UNUM Corporation
Portland, Maine

We have audited the consolidated statements of income, stockholders' equity,
and cash flows of UNUM Corporation and Subsidiaries for the year ended December
31, 1992. Our audit also included the financial statement schedules for 1992
listed in the Index at Item 14(a). These financial statements and schedules are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audit.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of UNUM Corporation and subsidiaries for the year ended December
31, 1992, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.

/s/ ERNST & YOUNG L.L.P.
Boston, Massachusetts
March 26, 1993

<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES

SCHEDULES

The following financial statement schedules of UNUM Corporation and
subsidiaries are included in Item 14(a):

II Condensed Financial Information of UNUM Corporation (Registrant)..
III Supplementary Insurance Information...............................
IV Reinsurance.......................................................
</TABLE>

<PAGE>
UNUM CORPORATION (PARENT COMPANY)
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
<S> <C> <C> <C>
------------------------------------------------------------------------------------------------------
Revenues
Dividends from subsidiaries*........................................ $102.0 $131.8 $110.8
Investment income................................................... 0.1 0.2 0.8
Net realized investment gains....................................... -- -- 1.9
Fees and other income............................................... 0.8 -- --
------- ------- -------
Total revenues.................................................. 102.9 132.0 113.5
Expenses
Operating expenses.................................................. 8.7 11.6 9.2
Interest expense.................................................... 18.6 12.4 10.7
Interest expense on loans from subsidiaries*........................ 2.3 0.1 --
------- ------- -------
Total expenses.................................................. 29.6 24.1 19.9
------- ------- -------
Income before income taxes............................................ 73.3 107.9 93.6
Income tax expense (benefit).......................................... (6.2) (5.7) 3.5
------- ------- -------
Income before equity in undistributed net income of subsidiaries...... 79.5 113.6 90.1
Equity in undistributed net income of subsidiaries*................... 75.2 186.3 201.1
------- ------- -------
Net income............................................................ $154.7 $299.9 $291.2
------- ------- -------
------- ------- -------
<FN>
------------
*Eliminated in consolidation
</TABLE>

See note to condensed financial statements.

<PAGE>
UNUM CORPORATION (PARENT COMPANY)
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(DOLLARS IN MILLIONS)

DECEMBER 31,
1994 1993
<S> <C> <C>
----------------------------------------------------------------------------------------------------
Assets
Investments
Investment in subsidiaries*................................................. $2,386.0 $2,376.9
Short-term investments...................................................... 0.5 4.4
-------- --------
Total investments......................................................... 2,386.5 2,381.3
Cash.......................................................................... 2.0 1.3
Amounts receivable from subsidiaries, net*.................................... 18.4 12.4
Property and equipment, net................................................... 16.7 17.3
-------- --------
Total assets.............................................................. $2,423.6 $2,412.3
-------- --------
-------- --------
Liabilities and Stockholders' Equity
Liabilities
Notes payable............................................................... $ 427.4 $ 236.0
Notes payable to subsidiary*................................................ 60.0 60.0
Income taxes................................................................ 2.7 2.3
Other liabilities........................................................... 18.1 11.3
-------- --------
Total liabilities......................................................... 508.2 309.6
Stockholders' Equity
Preferred stock, par value $0.10 per share, authorized 10,000,000 shares,
none issued
Common stock, par value $0.10 per share, authorized 120,000,000 shares,
issued 99,987,958 shares................................................... 10.0 10.0
Additional paid-in capital.................................................. 1,062.4 1,062.3
Unrealized gains on available for sale securities of subsidiaries, net of
deferred taxes............................................................. 67.7 165.2
Unrealized foreign currency translation adjustment.......................... (23.7) (24.1)
Retained earnings (including undistributed earnings of subsidiaries of
$1,114.3 million and $1,039.1 million in 1994 and 1993, respectively)...... 1,507.2 1,420.8
-------- --------
2,623.6 2,634.2
Less:
Treasury stock, at cost (1994-27,575,430 shares; 1993-24,006,816 shares).... 706.6 529.8
Restricted stock deferred compensation...................................... 1.6 1.7
-------- --------
Total stockholders' equity................................................ 1,915.4 2,102.7
-------- --------
Total liabilities and stockholders' equity................................ $2,423.6 $2,412.3
-------- --------
-------- --------
<FN>

*Eliminated in consolidation
</TABLE>

See note to condensed financial statements.

<PAGE>
UNUM CORPORATION (Parent Company)
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------
Operating activities:
Net income.................................................................... $ 154.7 $ 299.9 $ 291.2
Adjustments to reconcile net income to net cash provided by operating
activities:
Increase in income tax liability............................................ 0.4 2.3 3.2
(Increase) decrease in amounts due to/from subsidiaries..................... (6.0) 7.5 (1.2)
Other....................................................................... 11.1 4.6 (5.4)
Equity in undistributed net income of subsidiaries*........................... (75.2) (186.3) (201.1)
------- ------- -------
Net cash provided by operating activities................................. 85.0 128.0 86.7
------- ------- -------
Investing activities:
Sales of investments.......................................................... -- -- 86.2
Purchases of investments...................................................... -- 0.3 (89.9)
Investment in subsidiaries, net*.............................................. (30.6) 0.9 (43.8)
Net (increase) decrease in short-term investments............................. 3.9 (2.3) 1.4
Net additions to property and equipment....................................... (3.3) (2.4) (1.7)
------- ------- -------
Net cash used in investing activities..................................... (30.0) (3.5) (47.8)
------- ------- -------
Financing activities:
Dividends to stockholders..................................................... (68.3) (61.4) (41.9)
Treasury stock acquired....................................................... (183.3) (192.5) --
Proceeds from notes payable................................................... 54.7 51.5 74.6
Repayment of notes payable.................................................... -- (50.0) (25.0)
Increase (decrease) in short-term debt........................................ 136.7 58.1 (58.1)
Net proceeds from notes payable to subsidiaries*.............................. -- 60.0 1.3
Other......................................................................... 5.9 10.4 10.7
------- ------- -------
Net cash used in financing activities..................................... (54.3) (123.9) (38.4)
------- ------- -------
Net increase in cash............................................................ 0.7 0.6 0.5
Cash at beginning of year....................................................... 1.3 0.7 0.2
------- ------- -------
Cash at end of year............................................................. $ 2.0 $ 1.3 $ 0.7
------- ------- -------
------- ------- -------
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Income taxes................................................................ $ (6.6) $ (8.1) $ (4.7)
Interest.................................................................... $ 18.1 $ 12.1 $ 11.0
Interest to subsidiaries*................................................... $ 2.2 $ -- $ --
</TABLE>

*Eliminated in consolidation

See note to condensed financial statements.

<PAGE>
UNUM CORPORATION (PARENT COMPANY)
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTE TO CONDENSED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

The accompanying condensed financial statements should be read in
conjunction with the consolidated financial statements and notes of UNUM
Corporation and subsidiaries, which are included in Item 8.

Certain December 31, 1993, and 1992 amounts have been reclassified in 1994
for comparative purposes.

<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN MILLIONS)

(1)(2)
FUTURE
POLICY AMORTIZATION
BENEFITS, BENEFITS TO OF
DEFERRED AND UNPAID (4)(5) POLICYHOLDERS DEFERRED (5)
POLICY CLAIMS AND (3) NET AND POLICY OTHER (6)
ACQUISITION CLAIM PREMIUM INVESTMENT INTEREST ACQUISITION OPERATING PREMIUMS
SEGMENT COSTS EXPENSES REVENUE INCOME CREDITED COSTS EXPENSES WRITTEN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1994
Employee Benefits...... $ 308.2 $2,301.1 $1,451.4 $263.5 $1,117.0 $ 39.6 $300.5 $1,108.8
Related Businesses..... 33.3 887.8 477.5 89.6 333.2 8.0 165.6 358.4
Colonial Companies..... 224.8 330.5 441.3 32.6 226.1 60.7 124.4 388.1
Individual Disability.. 409.9 1,289.1 357.5 84.6 487.2 39.5 103.6 346.6
Retirement Security.... 57.5 137.0 62.5 226.9 212.1 4.2 47.4 57.8
Other Operations....... 1.5 500.5 16.9 114.4 115.2 0.8 6.8 12.3
Corporate.............. -- (0.5) 0.8 4.2 -- -- 33.2 --
----------- ------------ ---------- --------- ----------- ---------- --------- ----------
Total................ $1,035.2 $5,445.5 $2,807.9 $815.8 $2,490.8 $152.8 $781.5 $2,272.0
----------- ------------ ---------- --------- ----------- ---------- --------- ----------
----------- ------------ ---------- --------- ----------- ---------- --------- ----------
Year Ended December 31, 1993
Employee Benefits...... $ 249.4 $2,080.8 $1,362.6 $234.7 $1,018.3 $ 42.1 $297.8 $1,060.6
Related Businesses..... 25.6 795.4 402.5 85.5 268.7 1.1 160.9 282.2
Colonial Companies..... 206.0 282.2 407.4 41.4 211.7 56.1 110.6 365.4
Individual Disability.. 348.2 949.1 322.5 82.5 212.0 35.3 88.7 313.1
Retirement Security.... 47.5 106.4 36.3 235.5 196.6 10.6 43.5 34.4
Other Operations....... 2.4 490.6 25.9 154.0 149.4 2.5 7.2 14.0
Corporate.............. -- (0.5) -- 6.2 -- -- 23.6 --
----------- ------------ ---------- --------- ----------- ---------- --------- ----------
Total................ $ 879.1 $4,704.0 $2,557.2 $839.8 $2,056.7 $147.7 $732.3 $2,069.7
----------- ------------ ---------- --------- ----------- ---------- --------- ----------
----------- ------------ ---------- --------- ----------- ---------- --------- ----------
Year Ended December 31, 1992
Employee Benefits...... $ 206.8 $1,865.6 $1,116.2 $234.4 $ 808.0 $ 34.4 $285.7 $ 895.1
Related Businesses..... 18.0 696.5 354.4 91.6 262.7 (2.9) 132.8 287.1
Colonial Companies..... 185.7 243.0 371.9 35.4 191.5 50.5 104.8 330.8
Individual Disability.. 293.1 827.7 292.9 75.0 204.4 31.2 87.7 283.5
Retirement Security.... 35.8 90.0 32.3 228.8 211.7 9.4 33.3 11.9
Other Operations....... 14.4 475.0 29.3 181.6 182.7 3.3 8.4 0.9
Corporate.............. -- -- 0.8 3.9 -- -- 10.4 --
----------- ------------ ---------- --------- ----------- ---------- --------- ----------
Total................ $ 753.8 $4,197.8 $2,197.8 $850.7 $1,861.0 $125.9 $663.1 $1,809.3
----------- ------------ ---------- --------- ----------- ---------- --------- ----------
----------- ------------ ---------- --------- ----------- ---------- --------- ----------
</TABLE>

<PAGE>

(1) Excludes other policyholder funds, as follows:

DECEMBER 31,
------------------------------------
SEGMENT 1994 1993 1992
<S> <C> <C> <C>
--------------------------------------------------------------------
Employee Benefits............. $ 6.3 $ 6.8 $ 5.8
Related Businesses............ 4.2 4.0 8.9
Colonial Companies............ 100.1 76.0 57.0
Individual Disability......... -- -- --
Retirement Security........... 3,192.0 3,204.1 3,229.9
Other Operations.............. 756.2 959.8 1,236.3
---------- ---------- ----------
Total..................... $ 4,058.8 $ 4,250.7 $ 4,537.9
---------- ---------- ----------
---------- ---------- ----------
<FN>
(2) Includes unearned premiums, other policy claims and benefits payable.
(3) Includes fees and other income (expense).
(4) Includes investment income (expense) and net realized investment gains.
(5) Investment income and net realized investment gains are allocated to the
segments based on designation of ownership of assets identified to the
segments. Operating expenses are allocated to the segments based on direct
association with a product whenever possible. If, however, the expense
cannot be readily associated with a particular product, the costs are
allocated based on ratios of the relative time spent, extent of usage or
varying volume of work performed for each segment.
(6) Premiums written for health and disability income policies.
</TABLE>

Certain December 31, 1993, and 1992 amounts have been reclassified in 1994
for comparative purposes.

<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
SCHEDULE IV -- REINSURANCE
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------

Year Ended December 31, 1994
Life insurance in force..................... $145,425.9 $4,425.3 $ -- $141,000.6 --
---------- --------- ------ ----------
---------- --------- ------ ----------
Premiums
Life insurance and individual annuities... $ 517.9 $ 15.7 $ 1.6 $ 503.8 0.3%
Accident and health insurance............. 2,135.0 96.8 169.1 2,207.3 7.7%
Group annuities........................... 21.3 -- -- 21.3 --
---------- --------- ------ ----------
Total premiums........................ $ 2,674.2 $ 112.5 $170.7 $ 2,732.4
---------- --------- ------ ----------
---------- --------- ------ ----------
Year Ended December 31, 1993
Life insurance in force................... $130,323.4 $2,247.9 $ -- $128,075.5 --
---------- --------- ------ ----------
---------- --------- ------ ----------
Premiums
Life insurance and individual annuities... $ 487.2 $ 11.9 $ 1.6 $ 476.9 0.3%
Accident and health insurance............. 1,818.6 38.1 191.0 1,971.5 9.7%
Group annuities........................... 25.7 -- -- 25.7 --
---------- --------- ------ ----------
Total premiums........................ $ 2,331.5 $ 50.0 $192.6 $ 2,474.1
---------- --------- ------ ----------
---------- --------- ------ ----------
Year Ended December 31, 1992
Life insurance in force..................... $105,361.0 $ 586.8 $ -- $104,774.2 --
---------- --------- ------ ----------
---------- --------- ------ ----------
Premiums
Life insurance and individual annuities... $ 409.9 $ 6.2 $ 0.5 $ 404.2 0.1%
Accident and health insurance............. 1,615.7 45.3 135.7 1,706.1 8.0%
Group annuities........................... 32.1 -- -- 32.1 --
---------- --------- ------ ----------
Total premiums........................ $ 2,057.7 $ 51.5 $136.2 $ 2,142.4
---------- --------- ------ ----------
---------- --------- ------ ----------
</TABLE>

<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
NUMBER DESCRIPTION METHOD OF FILING PAGE NO.
--------- -------------------------------------------------- -------------------------------------------------- --------

<C> <S> <C> <C>
3.1 Certificate of Incorporation of UNUM Corporation, Filed as Exhibit 3.1 to the Registrant's Annual
as amended Report on Form 10-K dated March 25, 1992, and
incorporated herein by reference.
3.2 By-Laws of UNUM Corporation Filed as Exhibit 3.2 to the Registrant's Annual
Report on Form 10-K dated March 25, 1992, and
incorporated herein by reference.
4 Rights Agreement Filed as Exhibit 1 to the Registrant's Current
Report on Form 8-K dated March 18, 1992, and
incorporated herein by reference.
10.1 Deferred Compensation Plan Filed as Exhibit 10.1 to the Registrant's Annual
Report on Form 10-K dated March 26, 1991, and
incorporated herein by reference.
10.2 Annual Incentive Plan Filed as Exhibit 10.2 to the Registrant's Annual
Report on Form 10-K dated March 29, 1993, and
incorporated herein by reference.
10.2.1 Annual Incentive Plan-Summary of Significant Filed herewith.
Changes
10.3 Executive Stock Option Plan Filed as Exhibit 10.3 to the Registrant's Annual
Report on Form 10-K dated March 29, 1993, and
incorporated herein by reference.
10.4 1990 Long-Term Stock Incentive Plan Filed as Exhibit 10.4 to the Registrant's Annual
Report on Form 10-K dated March 29, 1993, and
incorporated herein by reference.
10.5 Supplemental Retirement Plan Filed as Exhibit 10.4 to the Registrant's
Registration Statement on Form S-1 (Registration
No. 33-6571) dated June 18, 1986, and incorporated
herein by reference.
10.6 Supplemental Executive Retirement Plan Filed as Exhibit 10.6 to the Registrant's Annual
Report on Form 10-K dated March 26, 1991, and
incorporated herein by reference.
10.7 Form of Executive Severance Agreement Filed as Exhibit 10.7 to the Registrant's Annual
Report on Form 10-K dated March 25, 1992, and
incorporated herein by reference.
10.8 Colonial Life & Accident Insurance Co. Annual Filed herewith.
Incentive Plan

10.9 $500 Million Revolving Credit Agreement Filed herewith

12 Computation of Ratio of Earnings to Fixed Charges Filed herewith.
16 Letter Regarding Change in Certifying Accountant Filed as Exhibit 16 to the Registrant's Current
Report on Form 8-K dated August 9, 1993, and
incorporated herein by reference.
21 Subsidiaries of UNUM Corporation Filed herewith.
23.1 Consent of Independent Accountants Filed herewith.
23.2 Consent of Independent Auditors Filed herewith.
24 Power of Attorney Filed herewith.
27 Financial Data Schedule Filed herewith.
</TABLE>

<PAGE>

EXHIBIT 10.2.1

ANNUAL INCENTIVE PLAN--
SUMMARY OF SIGNIFICANT CHANGES

The following provides a summary of the significant changes to the plan for 1995
which have been approved by the UNUM Life Insurance Company of America Board of
Directors.

--> Eligibility to participate in this plan now generally includes all full-
time and part-time employees of UNUM Life Insurance Company of America,
who meet the criteria stated in the 1993 Plan Document.

--> For employees who work in the UNUM America CVT organization:
- a UNUM America performance measure has been introduced;
- weightings have been changed as stated below; and
- for a payout to be made under the UNUM America CVT and Business Unit
components of this plan, a minimum threshold of UNUM America CVT
performance has to be met.

--> Target payouts and weightings follow:

<TABLE>

ORGANIZATION: UNUM AMERICA ENTERPRISE ENTERPRISE

STAFF UNITS LINE UNITS

Band Payout % Weightings
_________________ __________________________________________________
Ent U/A PC/ Ent BU/ Ent BU/

Min Trgt Max Function Div Div
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

1-12 5% 10% 20% 20% 50% 30% 60% 40% 40% 60%
13-16 10% 20% 40% 20% 50% 30% 60% 40% 40% 60%
17-19 12.5% 30% 50% 20% 50% 30% 60% 40% 40% 60%
20-22 17.5% 35% 60% 30% 50% 20% 60% 40% 40% 60%
23-24 20% 40% 60% 30% 50% 20% 60% 40% 40% 60%
25-29 25% 50% 100% 100% 100% 100%
CEO 30% 60% 120% 100%

</TABLE>

<PAGE>

EXHIBIT 10.8

COLONIAL LIFE & ACCIDENT INSURANCE CO.
ANNUAL INCENTIVE PLAN

OBJECTIVES
1) Provide meaningful incentive geared to the achievement of specific
Colonial and UNUM business goals.

2) Maintain a highly competitive total pay opportunity that will support
the attraction and retention of outstanding performers for key positions.

3) Encourage an environment of shared vision and collaboration between
UNUM Corporation and Colonial, as well as promote teamwork within
Colonial.

PLAN ADMINISTRATION
The Colonial Board of Directors (hereafter referred to as "The Board") is
responsible for the administration of the Plan. The Board may elect to delegate
Plan responsibilities to a committee.

All decisions made by The Board regarding Plan design, participation,
interpretation and payouts are final.

ELIGIBILITY
All regular full-time and regular part-time employees who are not participating
in another incentive or commission program may be eligible if they meet the
following criteria:

1) Are in a position at salary grade 18 or above, and

2) Are employed on or before October 1 of the Plan
Year and are still employed at the end of the Plan Year,
except in cases of death, disability or retirement, which
are discussed in the "Termination of Employment" section.
The Plan Year is defined as January 1 to December 31.

Participation in the Plan is not automatic. Individual participants will be
recommended by senior management and approved by The Board, generally based on
their ability to directly and significantly impact the continued success of
Colonial and UNUM. The Board has the discretion to initiate or discontinue
participation of any individual at any time for any reason.

<PAGE>

COMPONENTS
The Plan is based on a qualitative and quantitative assessment of both financial
and business goals of Colonial and UNUM Corporation.

For determining payouts, the components are weighted as follows:

Colonial Performance 60%

UNUM Corporation Performance 40%

DETERMINATION OF PERFORMANCE MEASURES
Performance measures are established for each Plan Year as follows:

COLONIAL COMPONENT:
In consultation with UNUM Corporation's CEO, Colonial's senior management will
make a recommendation to The Board on appropriate performance measures for the
Plan year.

ENTERPRISE COMPONENT:
Determination of UNUM Enterprise performance measures is the responsibility of
the UNUM Corporation Board of Directors, in consultation with the CEO.

DETERMINATION OF TARGET AWARDS
UNUM Corporation's CEO will make a recommendation to The Board on target payouts
for Colonial's senior officers. Colonial's senior management, in consultation
with UNUM Corporation's CEO, will make recommendations to The Board on target
payouts for other plan participants.

PAYOUTS
Payouts are at the discretion of The Board. The Board will accept the
determination of the UNUM Corporation Board of Directors (or a committee
thereof) as to the amount, if any, of payout for the Enterprise component of the
Plan. Payouts will be determined by assessing both the achievement of the
financial goal(s) and progress against other business goals established at the
beginning of the Plan Year. Colonial's senior management will review progress
for the Plan Year and make a recommendation to UNUM Corporation's CEO on payout
level, if any. The Board may elect to modify or disallow payouts for any reason
at any time.

Senior management may elect to recommend an adjustment in payout for any
participant based on individual performance.

<PAGE>

Payouts will be made as soon as practical after year-end results are determined,
certified by Colonial's outside auditors, and approved by The Board.

Payouts will be a percentage of base salary earned between January 1 and
December 31 of the Plan Year. For purposes of this Plan, base salary includes
base pay, shift pay and geographic differential pay. Base salary excludes
overtime, all bonuses and awards, and any other compensation that is not salary
related.

In the event of transfers between affiliates, payouts will be based on earnings
received while at each Affiliate and will reflect the performance of the
respective organization with which the employee was associated.

Taxes will be withheld from payouts in accordance with tax regulations and
withholding allowances (IRS form W-4) as they exist on the day of the
distribution.

TERMINATION OF EMPLOYMENT
In the event that an employee separates from the Company by reason of death,
disability or retirement during the Plan Year, the employee or the employee's
estate will be eligible for a payout, provided the employee was on active
employment status at the beginning of the Plan Year. Any payout would be based
on base salary earnings while on active employment status during the Plan Year.
For purposes of this Plan, active employment status is defined as being actively
at work or on sick leave, short-term disability or approved leave of absence.

If an employee separates from the Company during the Plan Year for any reason
other than death, disability or retirement, any payout for that Plan Year is
forfeited, unless otherwise determined by The Board.

CHANGES IN PARTICIPATION/PAYOUT STATUS
If an employee has a job change or reclassification during the Plan Year that
would make the employee eligible for a different target payout level, the payout
level for that year will be based on the new level if the position change occurs
before July 1. If such a change occurs after July 1 of the Plan Year, any
payout would be prorated for the time under each payout level.

Employees who become ineligible for the Annual Incentive Plan because of
position changes would become eligible for the Success Sharing Plan. Any payout
for that Plan Year would be prorated for the time spent in each plan.

In cases of prorated payouts because of position changes, the new participation
status will take effect the first full month in the new position.

<PAGE>

PLAN AMENDMENTS, MODIFICATIONS AND TERMINATION
The Board has the right to modify, amend, or terminate the Plan, with or without
notice. The Board also has the right to discontinue (either temporarily or
permanently) the distribution of incentive awards. Award payments, if any, are
not a vested right of any individual but subject to the determination of The
Board in its sole discretion.

<PAGE>

1994 ANNUAL INCENTIVE PLAN
PAYOUT GUIDELINES

COLONIAL COMPONENT 60% OF PAYOUT
-------------------------------------------------

The Colonial component consists of two factors: a) a specific financial goal,
and b) progress against other business goals. BOTH FACTORS will be assessed in
determining any Plan payout. Payout is at the full discretion of The Board.

The financial goals for 1994 are based on operating earnings, defined as after-
tax corporate earnings excluding realized gains and losses on investments.

For purposes of the Plan, the goals are as follows:

THRESHOLD: a. 40.8 million operating earnings
b. Reach business goals

TARGET: a. 44.0 million operating earnings
b. Exceed business goals

MAXIMUM: NOT ESTABLISHED

ENTERPRISE COMPONENT 40% OF PAYOUT
-------------------------------------------------------

The Enterprise component of the Plan consists of a qualitative assessment of
Corporate performance, which will be based upon an EVALUATION of BOTH the
financial performance (Net EPS, defined as UNUM Corporation's net income after
realized capital gains and losses divided by the average number of shares
outstanding) and strategic goals (progress toward 1998 Goals, Corporate
Marketing Strategy, Information Technology Strategy, development of Core
Competencies, and long term positioning of the business). The evaluation of
financial performance will consider not only the LEVEL of results but also HOW
the results were attained. The Targeted Net EPS will be $4.60, and the
Performance range will be between a threshold of $4.25 and a maximum of $5.20.
In addition to this evaluation of financial results, final payout will consider
the overall performance of UNUM Corporation in key strategic goals.

<PAGE>

Payout guidelines are as follows, expressed as a percentage of base salary
earned:

Grade Grade Grade Chairman/
18 - 20 21-22 23-24 President
------- ----- ----- ----------
<S> <C> <C> <C> <C>
THRESHOLD 5% 7.5% 10% 17.5%

TARGET 10% 15% 20% 35%

MAXIMUM 20% 30% 40% 70%

</TABLE>

A Plan participant's payout may be adjusted based on individual performance, at
the recommendation of senior management and approval of The Board.

The preceding should be considered as general guidelines. Determination of
payouts rests solely with The Board at its full discretion. The Board may
adjust payments upward or downward depending on Enterprise or Colonial
performance.

<PAGE>

$500,000,000

CREDIT AGREEMENT

dated as of

December 13, 1994

among

UNUM CORPORATION

The BANKS Listed Herein

and

MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Agent

<PAGE>

TABLE OF CONTENTS*

Page
----

ARTICLE I
DEFINITIONS

SECTION 1.01 Definitions. . . . . . . . . . . . . . . . . . 1
1.02 Accounting Terms and Determinations. . . . . . 15
1.03 Types of Borrowings. . . . . . . . . . . . . . 15
1.04 Basis for Ratings. . . . . . . . . . . . . . . 16

ARTICLE II
THE CREDITS

SECTION 2.01 Commitments to Lend. . . . . . . . . . . . . . 16
2.02 Notice of Committed Borrowing. . . . . . . . . 16
2.03 Money Market Borrowings. . . . . . . . . . . . 17
2.04 Notice to Banks; Funding of Loans. . . . . . . 21
2.05 Notes. . . . . . . . . . . . . . . . . . . . . 22
2.06 Maturity of Loans. . . . . . . . . . . . . . . 23
2.07 Interest Rates . . . . . . . . . . . . . . . . 23
2.08 Fees . . . . . . . . . . . . . . . . . . . . . 27
2.09 Optional Termination or
Reduction of Commitments . . . . . . . . . . . 28
2.10 Mandatory Termination of Commitments . . . . . 28
2.11 Optional Prepayments . . . . . . . . . . . . . 28
2.12 General Provisions as to Payments. . . . . . . 29
2.13 Funding Losses . . . . . . . . . . . . . . . . 29
2.14 Computation of Interest and Fees . . . . . . . 30
2.15 Withholding Tax Exemption. . . . . . . . . . . 30

ARTICLE III
CONDITIONS

SECTION 3.01 Effectiveness. . . . . . . . . . . . . . . . . 31
3.02 Borrowings . . . . . . . . . . . . . . . . . . 32

----------
* The Table of Contents is not a part of this Agreement.

i
<PAGE>

Page
----

ARTICLE IV
REPRESENTATIONS AND WARRANTIES

SECTION 4.01 Corporate Existence and Power. . . . . . . . . 33
4.02 Corporate and Governmental
Authorization; No Contravention. . . . . . . . 33
4.03 Binding Effect . . . . . . . . . . . . . . . . 33
4.04 Financial Information. . . . . . . . . . . . . 33
4.05 Litigation.. . . . . . . . . . . . . . . . . . 35
4.06 Compliance with ERISA. . . . . . . . . . . . . 36
4.07 Taxes. . . . . . . . . . . . . . . . . . . . . 36
4.08 Subsidiaries.. . . . . . . . . . . . . . . . . 36
4.09 Not an Investment Company. . . . . . . . . . . 37
4.10 Full Disclosure. . . . . . . . . . . . . . . . 37

ARTICLE V
COVENANTS

SECTION 5.01 Financial Statements . . . . . . . . . . . . . 37
5.02 Litigation . . . . . . . . . . . . . . . . . . 42
5.03 Corporate Existence, Etc.. . . . . . . . . . . 42
5.04 Use of Proceeds. . . . . . . . . . . . . . . . 43
5.05 Prohibition of Fundamental Changes . . . . . . 43
5.06 Limitation on Liens. . . . . . . . . . . . . . 46
5.07 Transactions with Affiliates . . . . . . . . . 47
5.08 Minimum Total Stockholders' Equity . . . . . . 47
5.09 Ratio of Funded Indebtedness to
Total Capital. . . . . . . . . . . . . . . . . 47
5.10 Restricted and Unrestricted
Subsidiaries . . . . . . . . . . . . . . . . . 47

ARTICLE VI
DEFAULTS

SECTION 6.01 Events of Default. . . . . . . . . . . . . . . 48
6.02 Notice of Default. . . . . . . . . . . . . . . 51

ARTICLE VII
THE AGENT

SECTION 7.01 Appointment and Authorization. . . . . . . . . 51

ii
<PAGE>

Page
----

7.02 Agent and Affiliates.. . . . . . . . . . . . . 51
7.03 Action by Agent. . . . . . . . . . . . . . . . 51
7.04 Consultation with Experts. . . . . . . . . . . 51
7.05 Liability of Agent . . . . . . . . . . . . . . 52
7.06 Indemnification. . . . . . . . . . . . . . . . 52
7.07 Credit Decision. . . . . . . . . . . . . . . . 52
7.08 Successor Agent. . . . . . . . . . . . . . . . 53
7.09 Agent's Fee. . . . . . . . . . . . . . . . . . 53

ARTICLE VIII
CHANGE IN CIRCUMSTANCES

SECTION 8.01 Basis for Determining Interest
Rate Inadequate or Unfair. . . . . . . . . . . 53
8.02 Illegality . . . . . . . . . . . . . . . . . . 54
8.03 Increased Cost and Reduced Return. . . . . . . 55
8.04 Base Rate Loans Substituted for
Affected Fixed Rate Loans. . . . . . . . . . . 57

ARTICLE IX
MISCELLANEOUS

SECTION 9.01 Notices. . . . . . . . . . . . . . . . . . . . 57
9.02 No Waivers . . . . . . . . . . . . . . . . . . 58
9.03 Expenses; Documentary Taxes;
Indemnification. . . . . . . . . . . . . . . . 58
9.04 Sharing of Set-Offs. . . . . . . . . . . . . . 59
9.05 Amendments and Waivers . . . . . . . . . . . . 59
9.06 Successors and Assigns . . . . . . . . . . . . 59
9.07 Collateral . . . . . . . . . . . . . . . . . . 61
9.08 Governing Law; Submission to Jurisdiction. . . 61
9.09 Counterparts; Integration. . . . . . . . . . . 62
9.10 Confidentiality. . . . . . . . . . . . . . . . 62

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<PAGE>

CREDIT AGREEMENT

AGREEMENT dated as of December 13, 1994 among UNUM CORPORATION, the
BANKS listed on the signature pages hereof and MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Agent.

The parties hereto agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01. DEFINITIONS. The following terms, as used herein, have
the following meanings:

"Absolute Rate Auction" means a solicitation of Money Market Quotes
setting forth Money Market Absolute Rates pursuant to Section 2.03.

"Adjusted CD Rate" has the meaning set forth in Section 2.07(b).

"Adjusted London Interbank Offered Rate" has the meaning set forth in
Section 2.07(c).

"Administrative Questionnaire" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Agent and submitted to
the Agent (with a copy to the Borrower) duly completed by such Bank.

"Affiliate" means any Person which directly or indirectly controls, or
is under common control with, or is controlled by, the Borrower. As used in
this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") means possession, directly or
indirectly, of power to direct or cause the direction of management or policies
(whether through ownership of securities or partnership or other ownership
interests, by contract or otherwise), PROVIDED that, in any event, any Person
which owns directly or indirectly 15% or more of the securities having ordinary
voting power for the election of directors or other governing body of a
corporation or 15% or more of the partnership or other ownership interests of
any other Person (other than as a limited partner of such other Person) will
<PAGE>

be rebuttably presumed to control such corporation or other Person, such
presumption to be rebutted only if the Required Banks agree in writing that such
Person does not control such corporation or other Person. Notwithstanding the
foregoing, (i) no individual shall be deemed to be an Affiliate of any Person
solely by reason of his or her being an officer of such Person and (ii) the
Borrower and the Restricted Subsidiaries shall not be deemed to be Affiliates of
each other.

"Agent" means Morgan Guaranty Trust Company of New York in its
capacity as agent for the Banks hereunder, and its successors in such capacity.

"Applicable Insurance Regulatory Authority" means, when used with
respect to any Restricted Insurance Subsidiary, the insurance commission,
department or similar regulatory authority or agency located in the jurisdiction
in which such Restricted Insurance Subsidiary is domiciled.

"Applicable Lending Office" means, with respect to any Bank, (i) in
the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of
its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of
its Money Market Loans, its Money Market Lending Office.

"Applicable Margin" has the meaning set forth in Section 2.07(h).

"Assessment Rate" has the meaning set forth in Section 2.07(b).

"Assignee" has the meaning set forth in Section 9.06(c).

"Bank" means each bank listed on the signature pages hereof, each
Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective
successors.

"Base Rate" means, for any day, a rate per annum equal to the higher
of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the
Federal Funds Rate for such day.

"Base Rate Loan" means a Committed Loan to be made by a Bank as a Base
Rate Loan in accordance with the applicable Notice of Committed Borrowing or
pursuant to Article VIII.

"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of

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<PAGE>

ERISA which is not a Plan or a Multiemployer Plan and which is maintained or
otherwise contributed to by any member of the ERISA Group.

"Borrower" means UNUM Corporation, a Delaware corporation, and its
successors.

"Borrower's 1993 Form 10-K" means the Borrower's annual report on Form
10-K for 1993, as filed with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934.

"Borrowing" has the meaning set forth in Section 1.03.

"Capitalized Lease Obligations" means, as to any Person, the
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real and/or personal property, which
obligations are required to be classified and accounted for as a capital lease
on the balance sheet of such Person under generally accepted accounting
principles (including Statement of Financial Accounting Standards No. 13 of the
Financial Accounting Standards Board) and, for purposes of this Agreement, the
amount of such obligations shall be the capitalized amount thereof, determined
in accordance with generally accepted accounting principles (including such
Statement No. 13).

"CD Base Rate" has the meaning set forth in Section 2.07(b).

"CD Loan" means a Committed Loan to be made by a Bank as a CD Loan in
accordance with the applicable Notice of Committed Borrowing.

"CD Reference Banks" means Credit Suisse, NationsBank of Georgia, N.A.
and Morgan Guaranty Trust Company of New York.

"Commitment" means, with respect to each Bank, the amount set forth
opposite the name of such Bank on the signature pages hereof, as such amount may
be reduced from time to time pursuant to Sections 2.09 and 2.10.

"Committed Loan" means a loan made by a Bank pursuant to Section 2.01.

"Confidential Information" has the meaning set forth in Section 9.10.

3
<PAGE>

"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which would be consolidated with those of the Borrower in
its consolidated financial statements if such statements were prepared as of
such date.

"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.

"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.

"Domestic Lending Office" means, as to each Bank, its office located
at its address set forth in its Administrative Questionnaire (or identified in
its Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Agent; PROVIDED that any Bank may so designate
separate Domestic Lending Offices for its Base Rate Loans, on the one hand, and
its CD Loans, on the other hand, in which case all references herein to the
Domestic Lending Office of such Bank shall be deemed to refer to either or both
of such offices, as the context may require.

"Domestic Loans" means CD Loans or Base Rate Loans or both.

"Domestic Reserve Percentage" has the meaning set forth in Section
2.07(b).

"Effective Date" means the date this Agreement becomes effective in
accordance with Section 3.01.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.

"ERISA Group" means the Borrower, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or any
Subsidiary, are treated as a single employer under Section 414 of the Internal
Revenue Code.

"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.

4
<PAGE>

"Euro-Dollar Lending Office" means, as to
each Bank, its office, branch or affiliate located at
its address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Euro-Dollar Lending Office) or such other
office, branch or affiliate of such Bank as it may hereafter designate as its
Euro-Dollar Lending Office by notice to the Borrower and the Agent.

"Euro-Dollar Loan" means a Committed Loan to be made by a Bank as a
Euro-Dollar Loan in accordance with the applicable Notice of Committed
Borrowing.

"Euro-Dollar Reference Banks" means the principal London offices of
Credit Suisse, NationsBank of Georgia, N.A. and Morgan Guaranty Trust Company of
New York.

"Euro-Dollar Reserve Percentage" has the meaning set forth in Section
2.07(c).

"Event of Default" has the meaning set forth in Section 6.01.

"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, PROVIDED that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to Morgan Guaranty Trust Company of New
York on such day on such transactions as determined by the Agent.

"Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money Market
Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate
pursuant to Section 8.01(a)) or any combination of the foregoing.

"Funded Indebtedness" means, for the Borrower and the Restricted
Subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles, Indebtedness that (i) matures more than one year
from the date of its creation or (ii) matures on or within

5
<PAGE>

one year from the date of its creation but is renewable or extendable at the
option of the obligor thereof to a date more than one year from the date of its
creation, PROVIDED that, for purposes of this definition, Indebtedness shall be
deemed to be renewable or extendable at the option of the obligor thereof if it
arises under a credit or other similar agreement that obligates the lender or
lenders thereunder to extend credit to such obligor notwithstanding that the
ability of such obligor to renew or extend such Indebtedness is subject to the
satisfaction of conditions precedent.

"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Indebtedness
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness (whether arising by virtue of partnership arrangements, by
agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or (ii)
entered into for the purpose of assuring in any other manner the obligee of such
Indebtedness of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part), PROVIDED that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.

"Home Office Properties" means any building in which the principal
office of the Borrower or any Restricted Subsidiary of the Borrower is located.

"Indebtedness" of any Person means at any date, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business, (iv) all Capitalized Lease Obligations of such Person, (v)
all Indebtedness secured by a Lien on any asset of such Person, whether or not
such Indebtedness is otherwise an obligation of such Person, (vi) all
obligations of such Person to purchase securities (or other property) which
arise out of or in connection with the sale of the same or substantially similar
securities or property, (vii) all non-contingent obligations of such Person to
reimburse any bank or other Person in respect of amounts paid under a

6
<PAGE>

letter of credit or similar instrument and (viii) all Indebtedness of others
Guaranteed by such Person.

"Indemnitee" has the meaning set forth in Section 9.03(b).

"Insurance Subsidiary" means a Subsidiary that is a Restricted
Insurance Subsidiary or would be a Restricted Insurance Subsidiary if it were a
Restricted Subsidiary.

"Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending one,
two, three or six months thereafter, as the Borrower may elect in the applicable
Notice of Borrowing; PROVIDED that:

(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;

(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business
Day of a calendar month; and

(2) with respect to each CD Borrowing, the period commencing on the date of
such Borrowing and ending 30, 60, 90 or 180 days thereafter, as the Borrower may
elect in the applicable Notice of Borrowing; PROVIDED that:

(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and

(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date;

(3) with respect to each Base Rate Borrowing, the period commencing on the date
of such Borrowing and ending 30 days

7
<PAGE>

thereafter; PROVIDED that:

(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and

(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date;

(4) with respect to each Money Market LIBOR Borrowing, the period commencing on
the date of such Borrowing and ending such whole number of months thereafter as
the Borrower may elect in accordance with Section 2.03; PROVIDED that:

(5) with respect to each Money Market Absolute Rate Borrowing, the period
commencing on the date of such Borrowing and ending such number of days
thereafter (but not less than 30 days) as the Borrower may elect in accordance
with Section 2.03; PROVIDED that:

(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and

(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.

8
<PAGE>

"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.

"Investment" means any investment in any Person whether by means of
share purchase, capital contribution, loan, time deposit or otherwise, PROVIDED
that, in the case of any investment in any Unrestricted Subsidiary, the
definition of "Investment" shall not include investments resulting from (i) the
provision of administrative services by the Borrower or any Restricted
Subsidiary to such Unrestricted Subsidiary, which services are provided in the
ordinary course of the business of the Borrower or such Restricted Subsidiary,
as the case may be, and of such Unrestricted Subsidiary, (ii) the operation of
the cash management system of the Borrower and its Subsidiaries so long as it is
operated in the ordinary course of their business or (iii) transfers made, or
accounts created, in connection with any tax sharing agreement to which the
Borrower or any Restricted Subsidiary, as the case may be, and such Unrestricted
Subsidiary is a party.

"Level I Status" exists on any date (1) if, on such date, the Borrower
has outstanding senior unsecured long-term Indebtedness which is rated at least
A+ from S&P and at least A1 from Moody's or (2) in the case that no such
Indebtedness is outstanding, if the Borrower provides written evidence from S&P
and Moody's to the Banks, such evidence to be satisfactory to the Required
Banks, to the effect that if the Borrower had any such Indebtedness outstanding
on such date, such Indebtedness would be rated at least A+ from S&P and at least
A1 from Moody's. For purposes of this definition, the provisions in clause (2)
in the preceding sentence shall not apply for more than 365 consecutive days
after the first date of the written evidence most recently provided by the
Borrower from S&P and Moody's to the Banks, which evidence was relied on by the
Required Banks to establish that the provisions of such clause (2) were then
operative.

"Level II Status" exists on any date (1) if, on such date, the
Borrower has outstanding senior unsecured long-term Indebtedness which is rated
at least A from S&P or at least A2 from Moody's or (2) in the case that no such
Indebtedness is outstanding, if the Borrower provides written evidence from S&P
and Moody's to the Banks, such evidence to be satisfactory to the Required
Banks, to the effect that if the Borrower had any such Indebtedness outstanding
on such date, such Indebtedness would be rated at least A from S&P or at least
A2 from Moody's. For purposes of this definition, the provisions in clause (2)
in the preceding sentence shall not apply for more than 365

9
<PAGE>

consecutive days after the first date of the written evidence most recently
provided by the Borrower from S&P and Moody's to the Banks, which evidence was
relied on by the Required Banks to establish that the provisions of such clause
(2) were then operative.

"Level III Status" exists on any date (1) if, on such date, the
Borrower has outstanding senior unsecured long-term Indebtedness which is rated
at least A- from S&P and at least A3 from Moody's or (2) in the case that no
such Indebtedness is outstanding, if the Borrower provides written evidence from
S&P and Moody's to the Banks, such evidence to be satisfactory to the Required
Banks, to the effect that if the Borrower had any such Indebtedness outstanding
on such date, such Indebtedness would be rated at least A- from S&P and at least
A3 from Moody's. For purposes of this definition, the provisions in clause (2)
in the preceding sentence shall not apply for more than 365 consecutive days
after the first date of the written evidence most recently provided by the
Borrower from S&P and Moody's to the Banks, which evidence was relied on by the
Required Banks to establish that the provisions of such clause (2) were then
operative.

"Level IV Status" exists on any date if neither Level I Status nor
Level II Status nor Level III Status exists on such date.

"LIBOR Auction" means a solicitation of Money Market Quotes setting
forth Money Market Margins based on the London Interbank Offered Rate pursuant
to Section 2.03.

"Lien" means, with respect to any asset owned by any Person, any
mortgage, lien, pledge, charge, security interest or encumbrance of any kind in
respect of such asset. For the purposes of this Agreement, any Person shall be
deemed to own subject to a Lien any asset which it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such asset.

"Loan" means a Domestic Loan or a Euro-Dollar Loan or a Money Market
Loan and "Loans" means Domestic Loans or Euro-Dollar Loans or Money Market Loans
or any combination of the foregoing.

"London Interbank Offered Rate" has the meaning set forth in Section
2.07(c).

"Material Indebtedness" means Indebtedness (other than the Notes) of
the Borrower and/or one or more of its

10
<PAGE>

Subsidiaries, arising in one or more related or unrelated transactions, in an
aggregate principal amount exceeding $10,000,000.

"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $20,000,000.

"Money Market Absolute Rate" has the meaning set forth in Section
2.03(d).

"Money Market Absolute Rate Loan" means a loan to be made by a Bank
pursuant to an Absolute Rate Auction.

"Money Market Lending Office" means, as to each Bank, its Domestic
Lending Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Money Market Lending Office by notice to the Borrower
and the Agent; PROVIDED that any Bank may from time to time by notice to the
Borrower and the Agent designate separate Money Market Lending Offices for its
Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate
Loans, on the other hand, in which case all references herein to the Money
Market Lending Office of such Bank shall be deemed to refer to either or both of
such offices, as the context may require.

"Money Market LIBOR Loan" means a loan to be made by a Bank pursuant
to a LIBOR Auction (including such a loan bearing interest at the Base Rate
pursuant to Section 8.01(a)).

"Money Market Loan" means a Money Market LIBOR Loan or a Money Market
Absolute Rate Loan.

"Money Market Margin" has the meaning set forth in Section 2.03(d).

"Money Market Quote" means an offer by a Bank to make a Money Market
Loan in accordance with Section 2.03.

"Moody's" means Moody's Investors Service, Inc.

"Multiemployer Plan" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the ERISA Group is then making or accruing an obligation to make contributions
or has within the preceding five plan years made contributions, including for
these purposes any Person which ceased to be a member of the ERISA Group during
such five year period.

11
<PAGE>

"Notes" means promissory notes of the Borrower, substantially in the
form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the
Loans, and "Note" means any one of such promissory notes issued hereunder.

"Notice of Borrowing" means a Notice of Committed Borrowing (as
defined in Section 2.02) or a Notice of Money Market Borrowing (as defined in
Section 2.03(f)).

"Parent" means, with respect to any Bank, any Person controlling such
Bank.

"Participant" has the meaning set forth in Section 9.06(b).

"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.

"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.

"Plan" means at any time an employee pension benefit plan (other than
a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.

"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.

"Reference Banks" means the CD Reference Banks or the Euro-Dollar
Reference Banks, as the context may require, and "Reference Bank" means any one
of such Reference Banks.

"Refunding Borrowing" means a Committed Borrowing which, after
application of the proceeds thereof, results in no net increase in the
outstanding principal amount of Committed Loans made by any Bank.

12
<PAGE>

"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.

"Regulation X" means Regulation X of the Board of Governors of the
Federal Reserve System, as in effect from time to time.

"Required Banks" means at any time Banks having at least a majority of
the aggregate amount of the Commitments or, if the Commitments shall have been
terminated, holding Notes evidencing at least a majority of the aggregate unpaid
principal amount of the Loans.

"Restricted Insurance Subsidiary" means a Restricted Subsidiary that
is licensed, authorized or admitted to carry on or transact the business of
insurance.

"Restricted Subsidiary" means: (i) the Subsidiaries listed as such on
Schedule I hereto and (ii) any Subsidiary acquired or organized after the
Effective Date and any Unrestricted Subsidiary in each case that is duly
designated by the Borrower, pursuant to Section 5.10, to be a Restricted
Subsidiary; PROVIDED that any such Subsidiary included solely within clause (ii)
shall cease being a Restricted Subsidiary if and when it is duly designated by
the Borrower, pursuant to Section 5.10, as an Unrestricted Subsidiary.

"S&P" means Standard & Poor's Corporation.

"Status" means, at any date, whichever of Level I Status, Level II
Status, Level III Status or Level IV Status exists at such date.

"Subsidiary" means any corporation or other entity of which securities
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Borrower.

"Termination Date" means October 1, 1999, or, if such day is not a
Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day unless
such Euro-Dollar Business Day falls in another calendar month, in which case the
Termination Date shall be on the next preceding Euro-Dollar Business Day.

"Total Assets" means the total assets of the Borrower and the
Restricted Subsidiaries determined on a consolidated basis in accordance with
generally accepted

13
<PAGE>

accounting principles, LESS the excess (if any) of (i) any Investment of the
Borrower or any Restricted Subsidiary in any Unrestricted Subsidiary to the
extent that such Investment appears on the consolidated balance sheet of the
Borrower and the Restricted Subsidiaries used in the calculation of Total Assets
over (ii) the amount of such Investment in such Unrestricted Subsidiary which
constitutes Indebtedness of, or other amounts receivable from, such Unrestricted
Subsidiary to the extent that the amount referred to above in this clause (ii)
does not exceed the consolidated stockholders' equity of such Unrestricted
Subsidiary and its consolidated subsidiaries.

"Total Capital" means the sum of Funded Indebtedness and Total
Stockholders' Equity.

"Total Stockholders' Equity" means the total stockholders' equity of
the Borrower and the Restricted Subsidiaries determined on a consolidated basis
in accordance with generally accepted accounting principles, LESS the excess (if
any) of (i) any Investment of the Borrower or any Restricted Subsidiary in any
Unrestricted Subsidiary to the extent that such Investment appears on the
consolidated balance sheet of the Borrower and the Restricted Subsidiaries used
in the calculation of Total Stockholders' Equity over (ii) the amount of such
Investment in such Unrestricted Subsidiary which constitutes Indebtedness of, or
other amounts receivable from, such Unrestricted Subsidiary to the extent that
the amount referred to above in this clause (ii) does not exceed the
consolidated stockholders' equity of such Unrestricted Subsidiary and its
consolidated subsidiaries.

"Unfunded Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market
value of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.

"Unrestricted Subsidiary" means: (i) the Subsidiaries listed on
Schedule I hereto which are not listed therein as Restricted Subsidiaries and
(ii) any Subsidiary acquired or organized after the Effective Date that has not
been duly designated by the Borrower as a

14
<PAGE>

Restricted Subsidiary; PROVIDED that any such Subsidiary shall cease being an
Unrestricted Subsidiary if and when it is duly designated by the Borrower,
pursuant to Section 5.10 hereof, as a Restricted Subsidiary.

"Utilization" means at any date the percentage equivalent of a
fraction (i) the numerator of which is the aggregate outstanding principal
amount of the Loans at such date, after giving effect to any borrowing or
payment on such date, and (ii) the denominator of which is the aggregate amount
of the Commitments at such date, after giving effect to any reduction of the
Commitments on such date. For purposes of Section 2.07(h), if for any reason
any Loans remain outstanding after termination of the Commitments, the
Utilization for each date on or after the date of such termination shall be
deemed to be greater than 50%.

SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a basis consistent (except for changes concurred in by the Borrower's
independent public accountants) with the most recent audited consolidated
financial statements of the Borrower and its Consolidated Subsidiaries delivered
to the Banks; PROVIDED that, if the Borrower notifies the Agent that the
Borrower wishes to amend any covenant in Article V to eliminate the effect of
any change in generally accepted accounting principles on the operation of such
covenant (or if the Agent notifies the Borrower that the Required Banks wish to
amend Article V for such purpose), then the Borrower's compliance with such
covenant shall be determined on the basis of generally accepted accounting
principles in effect immediately before the relevant change in generally
accepted accounting principles became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Borrower
and the Required Banks.

SECTION 1.03. TYPES OF BORROWINGS. The term "Borrowing" denotes the
aggregation of Loans of one or more Banks to be made to the Borrower pursuant to
Article II on a single date and for a single Interest Period. Borrowings are
classified for purposes of this Agreement either by reference to the pricing of
Loans comprising such Borrowing (E.G., a "Euro-Dollar Borrowing" is a Borrowing
comprised of Euro-Dollar Loans) or by reference to the provisions of

15
<PAGE>

Article II under which participation therein is determined (I.E., a "Committed
Borrowing" is a Borrowing under Section 2.01 in which all Banks participate in
proportion to their Commitments, while a "Money Market Borrowing" is a Borrowing
under Section 2.03 in which the Bank participants are determined on the basis of
their bids in accordance therewith).

SECTION 1.04. BASIS FOR RATINGS. The credit ratings to be utilized
in the determination of a Status and for purposes of Section 5.05(c) are the
ratings assigned to senior unsecured long-term Indebtedness of the Borrower
without third party credit support; ratings assigned to any such Indebtedness
which is secured or which has the benefit of third party credit support shall be
disregarded.

ARTICLE II

THE CREDITS

SECTION 2.01. COMMITMENTS TO LEND. During the period from and
including the Effective Date to but excluding the Termination Date, each Bank
severally agrees, on the terms and conditions set forth in this Agreement, to
make loans to the Borrower pursuant to this Section from time to time in amounts
such that the aggregate principal amount of Committed Loans by such Bank at any
one time outstanding shall not exceed the amount of its Commitment. Each
Borrowing under this Section shall be in an aggregate principal amount of
$10,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing
may be in the aggregate amount available in accordance with Section 3.02(b)) and
shall be made from the several Banks ratably in proportion to their respective
Commitments. Within the foregoing limits, the Borrower may borrow under this
Section, repay, or to the extent permitted by Section 2.11, prepay Loans and
reborrow at any time prior to the Termination Date under this Section.

SECTION 2.02. NOTICE OF COMMITTED BORROWING. The Borrower shall give
the Agent notice (a "Notice of Committed Borrowing") not later than 10:00 A.M.
(New York City time) on (x) the date of each Base Rate Borrowing, (y) the second
Domestic Business Day before each CD Borrowing and (z) the third Euro-Dollar
Business Day before each Euro-Dollar Borrowing, specifying:

(a) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Domestic

16
<PAGE>

Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar
Borrowing,

(b) the aggregate amount of such Borrowing,

(d) in the case of a Fixed Rate Borrowing, the duration of the
Interest Period applicable thereto, subject to the provisions of the
definition of Interest Period.

SECTION 2.03. MONEY MARKET BORROWINGS.

(a) THE MONEY MARKET OPTION. In addition to Committed Borrowings
pursuant to Section 2.01, the Borrower may, as set forth in this Section,
request the Banks at any time prior to the Termination Date to make offers to
make Money Market Loans to the Borrower. The Banks may, but shall have no
obligation to, make such offers and the Borrower may, but shall have no
obligation to, accept any such offers in the manner set forth in this Section.

(b) MONEY MARKET QUOTE REQUEST. When the Borrower wishes to request
offers to make Money Market Loans under this Section, it shall transmit to the
Agent by telex or facsimile transmission a Money Market Quote Request
substantially in the form of Exhibit B hereto so as to be received no later than
10:00 A.M. (New York City time) on (x) the fifth Euro-Dollar Business Day prior
to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y)
the Domestic Business Day next preceding the date of Borrowing proposed therein,
in the case of an Absolute Rate Auction (or, in either case, such other time or
date as the Borrower and the Agent shall have mutually agreed and shall have
notified to the Banks not later than the date of the Money Market Quote Request
for the first LIBOR Auction or Absolute Rate Auction for which such change is to
be effective) specifying:

(i) the proposed date of Borrowing, which shall be a Euro-Dollar
Business Day in the case of a LIBOR Auction or a Domestic Business Day in
the case of an Absolute Rate Auction,

(ii) the aggregate amount of such Borrowing, which shall be
$10,000,000 or a larger multiple of $1,000,000,

17
<PAGE>

(iii) the duration of the Interest Period applicable thereto, subject
to the provisions of the definition of Interest Period, and

(iv) whether the Money Market Quotes requested are to set forth a
Money Market Margin or a Money Market Absolute Rate.

The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request. No Money Market Quote
Request shall be given within five Euro-Dollar Business Days (or such other
number of days as the Borrower and the Agent may agree) of any other Money
Market Quote Request.

(c) INVITATION FOR MONEY MARKET QUOTES. Promptly upon receipt of a
Money Market Quote Request, the Agent shall send to the Banks by telex or
facsimile transmission an Invitation for Money Market Quotes substantially in
the form of Exhibit C hereto, which shall constitute an invitation by the
Borrower to each Bank to submit Money Market Quotes offering to make the Money
Market Loans to which such Money Market Quote Request relates in accordance with
this Section.

(d) SUBMISSION AND CONTENTS OF MONEY MARKET QUOTES. (i) Each Bank
may submit a Money Market Quote containing an offer or offers to make Money
Market Loans in response to any Invitation for Money Market Quotes. Each Money
Market Quote must comply with the requirements of this subsection (d) and must
be submitted to the Agent by telex or facsimile transmission at its offices
specified in or pursuant to Section 9.01 not later than (x) 2:00 P.M. (New York
City time) on the fourth Euro-Dollar Business Day prior to the proposed date of
Borrowing, in the case of a LIBOR Auction or (y) 9:15 A.M. (New York City time)
on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or,
in either case, such other time or date as the Borrower and the Agent shall have
mutually agreed and shall have notified to the Banks not later than the date of
the Money Market Quote Request for the first LIBOR Auction or Absolute Rate
Auction for which such change is to be effective); PROVIDED that Money Market
Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity of
a Bank may be submitted, and may only be submitted, if the Agent or such
affiliate notifies the Borrower of the terms of the offer or offers contained
therein not later than (x) one hour prior to the deadline for the other Banks,
in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the
other Banks, in the case of an Absolute Rate Auction. Subject to Articles III
and VI, any Money

18
<PAGE>

Market Quote so made shall be irrevocable except with the written consent of the
Agent given on the instructions of the Borrower.

(ii) Each Money Market Quote shall be in substantially the form of
Exhibit D hereto and shall in any case specify:

(A) the proposed date of Borrowing,

(B) the principal amount of the Money Market Loan for which each such
offer is being made, which principal amount (w) may be greater than or less
than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger
multiple of $1,000,000, (y) may not exceed the principal amount of Money
Market Loans for which offers were requested and (z) may be subject to an
aggregate limitation as to the principal amount of Money Market Loans for
which offers being made by such quoting Bank may be accepted,

(C) in the case of a LIBOR Auction, the margin above or below the
applicable London Interbank Offered Rate (the "Money Market Margin")
offered for each such Money Market Loan, expressed as a percentage
(specified to the nearest 1/10,000th of 1%) to be added to or subtracted
from such base rate,

(D) in the case of an Absolute Rate Auction, the rate of interest per
annum (specified to the nearest 1/10,000th of 1%) (the "Money Market
Absolute Rate") offered for each such Money Market Loan, and

(E) the identity of the quoting Bank.

A Money Market Quote may set forth up to five separate offers by the quoting
Bank with respect to each Interest Period specified in the related Invitation
for Money Market Quotes.

(iii) Any Money Market Quote shall be disregarded if it:

(A) is not substantially in conformity with Exhibit D hereto or does
not specify all of the information required by subsection (d)(ii);

(B) contains qualifying, conditional or similar language;

19
<PAGE>

(D) arrives after the time set forth in subsection (d)(i).

(e) NOTICE TO BORROWER. The Agent shall promptly notify the Borrower
of the terms (x) of any Money Market Quote submitted by a Bank that is in
accordance with subsection (d) and (y) of any Money Market Quote that amends,
modifies or is otherwise inconsistent with a previous Money Market Quote
submitted by such Bank with respect to the same Money Market Quote Request. Any
such subsequent Money Market Quote shall be disregarded by the Agent unless such
subsequent Money Market Quote is submitted solely to correct a manifest error in
such former Money Market Quote. The Agent's notice to the Borrower shall
specify (A) the aggregate principal amount of Money Market Loans for which
offers have been received for each Interest Period specified in the related
Money Market Quote Request, (B) the respective principal amounts and Money
Market Margins or Money Market Absolute Rates, as the case may be, so offered
and (C) if applicable, limitations on the aggregate principal amount of Money
Market Loans for which offers in any single Money Market Quote may be accepted.

(f) ACCEPTANCE AND NOTICE BY BORROWER. Not later than 10:00 A.M.
(New York City time) on (x) the third Euro-Dollar Business Day prior to the
proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed
date of Borrowing, in the case of an Absolute Rate Auction (or, in either case,
such other time or date as the Borrower and the Agent shall have mutually agreed
and shall have notified to the Banks not later than the date of the Money Market
Quote Request for the first LIBOR Auction or Absolute Rate Auction for which
such change is to be effective), the Borrower shall notify the Agent of its
acceptance or non-acceptance of the offers so notified to it pursuant to
subsection (e). In the case of acceptance, such notice (a "Notice of Money
Market Borrowing") shall specify the aggregate principal amount of offers for
each Interest Period that are accepted. The Borrower may accept any Money
Market Quote in whole or in part; PROVIDED that:

(i) the aggregate principal amount of each Money Market Borrowing may
not exceed the applicable amount set forth in the related Money Market
Quote Request,

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<PAGE>

(ii) the principal amount of each Money Market Borrowing must be
$10,000,000 or a larger multiple of $1,000,000,

(iii) acceptance of offers may only be made on the basis of ascending
Money Market Margins or Money Market Absolute Rates, as the case may be,
and

(iv) the Borrower may not accept any offer that is described in
subsection (d)(iii) or that otherwise fails to comply with the requirements
of this Agreement.

(g) ALLOCATION BY AGENT. If offers are made by two or more Banks
with the same Money Market Margins or Money Market Absolute Rates, as the case
may be, for a greater aggregate principal amount than the amount in respect of
which such offers are accepted for the related Interest Period, the principal
amount of Money Market Loans in respect of which such offers are accepted shall
be allocated by the Agent among such Banks as nearly as possible (in multiples
of $1,000,000, as the Agent may deem appropriate) in proportion to the aggregate
principal amounts of such offers. Determinations by the Agent of the amounts of
Money Market Loans shall be conclusive in the absence of manifest error.

SECTION 2.04. NOTICE TO BANKS; FUNDING OF LOANS.

(a) Upon receipt of a Notice of Borrowing, the Agent shall promptly
notify each Bank of the contents thereof and of such Bank's share (if any) of
such Borrowing and such Notice of Borrowing shall not thereafter be revocable by
the Borrower.

(b) Not later than 12:00 Noon (New York City time) on the date of
each Borrowing, each Bank participating therein shall (except as provided in
subsection (c) of this Section) make available its share of such Borrowing, in
Federal or other funds immediately available in New York City, to the Agent at
its address referred to in Section 9.01. Unless the Agent determines that any
applicable condition specified in Article III has not been satisfied, the Agent
will make the funds so received from the Banks available to the Borrower at the
Agent's aforesaid address.

(c) If any Bank makes a new Loan hereunder on a day on which the
Borrower is to repay all or any part of an outstanding Loan from such Bank, such
Bank shall apply the proceeds of its new Loan to make such repayment and only an
amount equal to the difference (if any) between the amount

21
<PAGE>

being borrowed and the amount being repaid shall be made available by such Bank
to the Agent as provided in subsection (b), or remitted by the Borrower to the
Agent as provided in Section 2.12, as the case may be.

(d) Unless the Agent shall have received notice from a Bank prior to
the date of any Borrowing that such Bank will not make available to the Agent
such Bank's share of such Borrowing, the Agent may assume that such Bank has
made such share available to the Agent on the date of such Borrowing in
accordance with subsections (b) and (c) of this Section 2.04 and the Agent may,
in reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so
made such share available to the Agent, such Bank and the Borrower severally
agree to repay to the Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from the date such amount is made
available to the Borrower until the date such amount is repaid to the Agent, at
(i) in the case of the Borrower, a rate per annum equal to the higher of the
Federal Funds Rate and the interest rate applicable thereto pursuant to Section
2.07 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank
shall repay to the Agent such corresponding amount, such amount so repaid shall
constitute such Bank's Loan included in such Borrowing for purposes of this
Agreement.

SECTION 2.05. NOTES. (a) The Loans of each Bank shall be evidenced
by a single Note payable to the order of such Bank for the account of its
Applicable Lending Office in an amount equal to the aggregate unpaid principal
amount of such Bank's Loans.

(b) Each Bank may, by notice to the Borrower and the Agent, request
that its Loans of a particular type be evidenced by a separate Note in an amount
equal to the aggregate unpaid principal amount of such Loans. Each such Note
shall be in substantially the form of Exhibit A hereto with appropriate
modifications to reflect the fact that it evidences solely Loans of the relevant
type. Each reference in this Agreement to the "Note" of such Bank shall be
deemed to refer to and include any or all of such Notes, as the context may
require.

(c) Upon receipt of each Bank's Note pursuant to Section 3.01(b), the
Agent shall mail such Note to such Bank. Each Bank shall record the date,
amount, type and maturity of each Loan made by it and the date and amount of
each payment of principal made by the Borrower with respect thereto, and prior
to any transfer of its Note shall endorse

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<PAGE>

on the schedule forming a part thereof appropriate notations to evidence the
foregoing information with respect to each such Loan then outstanding; PROVIDED
that the failure of any Bank to make any such recordation or endorsement shall
not affect the obligations of the Borrower hereunder or under the Notes. Each
Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and
to attach to and make a part of its Note a continuation of any such schedule as
and when required.

SECTION 2.06. MATURITY OF LOANS. Each Loan included in any Borrowing
shall mature, and the principal amount thereof shall be due and payable, on the
last day of the Interest Period applicable to such Borrowing.

SECTION 2.07. INTEREST RATES. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from the date
such Loan is made until it becomes due, at a rate per annum equal to the Base
Rate for such day. Such interest shall be payable for each Interest Period on
the last day thereof. Any overdue principal of or interest on any Base Rate
Loan shall bear interest, payable on demand, for each day until paid at a rate
per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate
Loans for such day.

(b) Each CD Loan shall bear interest on the outstanding principal
amount thereof, for the Interest Period applicable thereto, at a rate per annum
equal to the sum of the Applicable Margin plus the applicable Adjusted CD Rate;
PROVIDED that if any CD Loan or any portion thereof shall, as a result of clause
(2)(b) of the definition of Interest Period, have an Interest Period of less
than 30 days, such portion shall bear interest during such Interest Period at
the rate applicable to Base Rate Loans during such period. Such interest shall
be payable for each Interest Period on the last day thereof and, if such
Interest Period is longer than 90 days, at intervals of 90 days after the first
day thereof. Any overdue principal of or interest on any CD Loan shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to the sum of 2% plus the higher of (i) the sum of the Applicable Margin plus
the Adjusted CD Rate applicable to such Loan and (ii) the rate applicable to
Base Rate Loans for such day.

The "Adjusted CD Rate" applicable to any Interest Period means a rate
per annum determined pursuant to the following formula:

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<PAGE>

[ CDBR ]*
ACDR = [ ---------- ] + AR
[ 1.00 - DRP ]

ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate

__________
* The amount in brackets being rounded upward, if necessary, to the next
higher 1/100 of 1%

The "CD Base Rate" applicable to any Interest Period is the rate of
interest determined by the Agent to be the average (rounded upward, if
necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid
at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the
first day of such Interest Period by two or more New York certificate of deposit
dealers of recognized standing for the purchase at face value from each CD
Reference Bank of its certificates of deposit in an amount comparable to the
principal amount of the CD Loan of such CD Reference Bank to which such Interest
Period applies and having a maturity comparable to such Interest Period.

"Domestic Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including without limitation any
basic, supplemental or emergency reserves) for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of new non-personal time deposits in dollars in New York City having a
maturity comparable to the related Interest Period and in an amount of $100,000
or more. The Adjusted CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Domestic Reserve Percentage.

"Assessment Rate" means for any day the annual assessment rate in
effect on such day which is payable by a member of the Bank Insurance Fund
classified as adequately capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within the meaning of 12
C.F.R. Section 327.3(e) (or any successor provision) to the Federal Deposit
Insurance Corporation (or any successor) for such Corporation's (or such
successor's) insuring time deposits at offices of such institution in the

24
<PAGE>

United States. The Adjusted CD Rate shall be adjusted automatically on and as
of the effective date of any change in the Assessment Rate.

(c) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for the Interest Period applicable thereto, at a rate
per annum equal to the sum of the Applicable Margin plus the applicable Adjusted
London Interbank Offered Rate. Such interest shall be payable for each Interest
Period on the last day thereof and, if such Interest Period is longer than three
months, at intervals of three months after the first day thereof.

The "Adjusted London Interbank Offered Rate" applicable to any
Interest Period means a rate per annum equal to the quotient obtained (rounded
upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the
applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar
Reserve Percentage.

The "London Interbank Offered Rate" applicable to any Interest Period
means the average (rounded upward, if necessary, to the next higher 1/16 of 1%)
of the respective rates per annum at which deposits in dollars are offered to
each of the Euro-Dollar Reference Banks in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to
which such Interest Period is to apply and for a period of time comparable to
such Interest Period.

"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents). The Adjusted London Interbank Offered Rate shall be adjusted
automatically on and as of the effective date of any change in the Euro-Dollar
Reserve Percentage.

(d) Any overdue principal of or interest on any Euro-Dollar Loan
shall bear interest, payable on demand, for

25
<PAGE>

each day from and including the date payment thereof was due to but excluding
the date of actual payment, at a rate per annum equal to the sum of 2% plus the
higher of (i) the sum of the Applicable Margin plus the Adjusted London
Interbank Offered Rate applicable to such Loan and (ii) the Applicable Margin
plus the quotient obtained (rounded upward, if necessary, to the next higher
1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the
next higher 1/16 of 1%) of the respective rates per annum at which one day (or,
if such amount due remains unpaid more than three Euro-Dollar Business Days,
then for such other period of time not longer than six months as the Agent may
select) deposits in dollars in an amount approximately equal to such overdue
payment due to each of the Euro-Dollar Reference Banks are offered to such
Euro-Dollar Reference Bank in the London interbank market for the applicable
period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve
Percentage (or, if the circumstances described in clause (a) or (b) of Section
8.01 shall exist, at a rate per annum equal to the sum of 2% plus the rate
applicable to Base Rate Loans for such day).

(e) Subject to Section 8.01(a), each Money Market LIBOR Loan shall
bear interest on the outstanding principal amount thereof, for the Interest
Period applicable thereto, at a rate per annum equal to the sum of the London
Interbank Offered Rate for such Interest Period (determined in accordance with
Section 2.07(c) as if the related Money Market LIBOR Borrowing were a Committed
Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the
Bank making such Loan in accordance with Section 2.03. Each Money Market
Absolute Rate Loan shall bear interest on the outstanding principal amount
thereof, for the Interest Period applicable thereto, at a rate per annum equal
to the Money Market Absolute Rate quoted by the Bank making such Loan in
accordance with Section 2.03. Such interest shall be payable for each Interest
Period on the last day thereof and, if such Interest Period is longer than three
months, at intervals of three months after the first day thereof. Any overdue
principal of or interest on any Money Market Loan shall bear interest, payable
on demand, for each day until paid at a rate per annum equal to the sum of 2%
plus the Base Rate for such day.

(f) The Agent shall determine each interest rate applicable to the
Loans hereunder. The Agent shall give prompt notice to the Borrower and the
participating Banks of each rate of interest so determined, and its
determination thereof shall be conclusive in the absence of manifest error.

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<PAGE>

(g) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Agent as contemplated by this Section. If any Reference Bank
does not furnish a timely quotation, the Agent shall determine the relevant
interest rate on the basis of the quotation or quotations furnished by the
remaining Reference Bank or Banks or, if none of such quotations is available on
a timely basis, the provisions of Section 8.01 shall apply.

(h) The "Applicable Margin" with respect to any Euro-Dollar Loan or
CD Loan at any date is the applicable percentage amount set forth in the table
below based on the Utilization and Status on such day:

Level I Level II Level III Level IV
Status Status Status Status
------- -------- --------- --------

If Utilization is
equal to or less
than 50%:

Euro-Dollar Loans 0.2000% 0.2500% 0.2750% 0.2750%

CD Loans 0.3250% 0.3750% 0.4000% 0.4000%

If Utilization is
greater than 50%:

Euro-Dollar Loans 0.2750% 0.3000% 0.3250% 0.3750%

CD Loans 0.4000% 0.4250% 0.4500% 0.5000%

SECTION 2.08. FEES.

(a) FACILITY FEE. The Borrower shall pay to the Agent for the
account of the Banks ratably a facility fee at the rate of (i) 0.1000% per annum
for each day on which Level I Status shall exist, (ii) 0.1250% per annum for
each day on which Level II Status shall exist, (iii) 0.1500% per annum for each
day on which Level III Status shall exist and (iv) 0.2000% per annum for each
day on which Level IV Status shall exist. Such facility fee shall accrue for
each day (i) from and including the Effective Date to but excluding the
Termination Date (or earlier date of termination of the Commitments in their
entirety), on the aggregate amount of the Commitments (whether used or unused)
and (ii) from and including the Termination Date (or earlier date of termination
of the Commitments in their entirety) to but excluding the date the Loans shall
be repaid in their

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<PAGE>

entirety, on the aggregate outstanding principal amount of the Loans.

(b) PAYMENTS. Accrued fees under this Section shall be payable
quarterly on each March 1, June 1, September 1 and December 1 and upon the date
of termination of the Commitments in their entirety (and, if later, the date the
Loans shall be repaid in their entirety).

SECTION 2.09. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. The
Borrower may, upon at least three Domestic Business Days' notice to the Agent,
(i) terminate the Commitments at any time, if no Loans are outstanding at such
time or (ii) ratably reduce from time to time by an aggregate amount of
$10,000,000 or any larger multiple of $1,000,000, the aggregate amount of the
Commitments in excess of the aggregate outstanding principal amount of the
Loans.

SECTION 2.10. MANDATORY TERMINATION OF COMMITMENTS. The Commitments
shall terminate on the Termination Date, and any Loans then outstanding
(together with accrued interest thereon) shall be due and payable on such date.

SECTION 2.11. OPTIONAL PREPAYMENTS. (a) The Borrower may (i) upon
at least one Domestic Business Days' notice to the Agent, prepay any Base Rate
Borrowing (or any Money Market Borrowing bearing interest at the Base Rate
pursuant to Section 8.01(a)) or, subject to Section 2.13, any CD Borrowing and
(ii) upon at least three Euro-Dollar Business Days' notice to the Agent, subject
to Section 2.13, prepay any Euro-Dollar Borrowing, in whole at any time, or from
time to time in part in amounts aggregating $10,000,000 or any larger multiple
of $1,000,000, by paying the principal amount to be prepaid together with
accrued interest thereon to the date of prepayment. Each such optional
prepayment shall be applied to prepay ratably the Loans of the several Banks
included in such Borrowing.

(b) Except as provided in clause (i) of subsection (a) above, the
Borrower may not prepay all or any portion of the principal amount of any Money
Market Loan prior to the maturity thereof.

(c) Upon receipt of a notice of prepayment pursuant to this Section,
the Agent shall promptly notify each Bank of the contents thereof and of such
Bank's ratable share (if any) of such prepayment and such notice shall not
thereafter be revocable by the Borrower.

28
<PAGE>

SECTION 2.12. GENERAL PROVISIONS AS TO PAYMENTS. (a) The Borrower
shall make each payment of principal of, and interest on, the Loans and of fees
hereunder, not later than 12:00 Noon (New York City time) on the date when due,
in Federal or other funds immediately available in New York City, to the Agent
at its address referred to in Section 9.01. The Agent will promptly distribute
to each Bank its ratable share of each such payment received by the Agent for
the account of the Banks. Whenever any payment of principal of, or interest on,
the Domestic Loans or of fees shall be due on a day which is not a Domestic
Business Day, the date for payment thereof shall be extended to the next
succeeding Domestic Business Day. Whenever any payment of principal of, or
interest on, the Euro-Dollar Loans shall be due on a day which is not a
Euro-Dollar Business Day, the date for payment thereof shall be extended to the
next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day
falls in another calendar month, in which case the date for payment thereof
shall be the next preceding Euro-Dollar Business Day. Whenever any payment of
principal of, or interest on, the Money Market Loans shall be due on a day which
is not a Euro-Dollar Business Day, the date for payment thereof shall be
extended to the next succeeding Euro-Dollar Business Day. If the date for any
payment of principal is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.

(b) Unless the Agent shall have received notice from the Borrower
prior to the date on which any payment is due to the Banks hereunder that the
Borrower will not make such payment in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date and the Agent
may, in reliance upon such assumption, cause to be distributed to each Bank on
such due date an amount equal to the amount then due such Bank. If and to the
extent that the Borrower shall not have so made such payment, each Bank shall
repay to the Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Agent, at the Federal Funds Rate.

SECTION 2.13. FUNDING LOSSES. If the Borrower makes any payment of
principal with respect to any Fixed Rate Loan (pursuant to Section 2.11 or
Article VI or VIII or otherwise) on any day other than the last day of the
Interest Period applicable thereto, or the last day of an applicable period
fixed pursuant to Section 2.07(d), or if the Borrower fails to borrow any Fixed
Rate Loans after notice has been given to any Bank in accordance with Section
2.04(a), or if the Borrower fails to prepay after giving

29
<PAGE>

notice thereof under Section 2.11, the Borrower shall reimburse each Bank within
15 days after demand for any resulting loss or expense incurred by it (or by an
existing or prospective Participant in the related Loan), including (without
limitation) any loss incurred in obtaining, liquidating or employing deposits
from third parties, but excluding loss of margin for the period after any such
payment or failure to borrow, PROVIDED that such Bank shall have delivered to
the Borrower a certificate as to the amount of such loss or expense, which
certificate shall be conclusive in the absence of manifest error.

SECTION 2.14. COMPUTATION OF INTEREST AND FEES. Interest based on
the Prime Rate hereunder and fees shall be computed on the basis of a year of
365 days (or 366 days in a leap year) and paid for the actual number of days
elapsed (including the first day but excluding the last day). All other
interest shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).

SECTION 2.15. WITHHOLDING TAX EXEMPTION. At least five Domestic
Business Days prior to the first date on which interest or fees are payable
hereunder for the account of any Bank, each Bank that is not incorporated under
the laws of the United States of America or a state thereof agrees that it will
deliver to each of the Borrower and the Agent two duly completed copies of
United States Internal Revenue Service Form 1001 or 4224, certifying in either
case that such Bank is entitled to receive payments under this Agreement and the
Notes without deduction or withholding of any United States federal income
taxes. Each Bank which so delivers a Form 1001 or 4224 further undertakes to
deliver to each of the Borrower and the Agent two additional copies of such form
(or a successor form) on or before the date that such form expires or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent form so delivered by it, and such amendments thereto or extensions or
renewals thereof as may be reasonably requested by the Borrower or the Agent, in
each case certifying that such Bank is entitled to receive payments under this
Agreement and the Notes without deduction or withholding of any United States
federal income taxes, unless an event (including without limitation any change
in treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Bank from duly completing and delivering any such
form with respect to it and such Bank advises the Borrower and the Agent that it
is not capable of receiving payments

30
<PAGE>

without any deduction or withholding of United States federal income tax.

ARTICLE III

CONDITIONS

SECTION 3.01. EFFECTIVENESS. This Agreement shall become effective
on the date that each of the following conditions shall have been satisfied (or
waived in accordance with Section 9.05):

(a) receipt by the Agent of counterparts hereof signed by each of the
parties hereto (or, in the case of any party as to which an executed
counterpart shall not have been received, receipt by the Agent in form
satisfactory to it of telegraphic, telex or other written confirmation from
such party of execution of a counterpart hereof by such party);

(b) receipt by the Agent for the account of each Bank of a duly
executed Note dated on or before the Effective Date complying with the
provisions of Section 2.05;

(c) receipt by the Agent of an opinion of Kevin J. Tierney, Esq.,
General Counsel of the Borrower, substantially in the form of Exhibit E
hereto and covering such additional matters relating to the transactions
contemplated hereby as the Required Banks may reasonably request;

(d) receipt by the Agent of an opinion of Davis Polk & Wardwell,
special counsel for the Agent, substantially in the form of Exhibit F
hereto and covering such additional matters relating to the transactions
contemplated hereby as the Required Banks may reasonably request;

(e) receipt by the Agent of evidence satisfactory to it that each of
the Credit Agreements dated as of April 1, 1993 among the Borrower, the
banks listed on the signature pages thereof and Morgan Guaranty Trust
Company of New York, as agent, has been terminated and that all amounts
owing thereunder as of the Effective Date by the Borrower have been paid in
full; and

(f) receipt by the Agent of all documents it may reasonably request
relating to the existence of the

31
<PAGE>

Borrower, the corporate authority for and the validity and enforceability
of this Agreement and the Notes, and any other matters relevant hereto, all
in form and substance satisfactory to the Agent;

PROVIDED that this Agreement shall not become effective or be binding on any
party hereto unless all of the foregoing conditions are satisfied not later than
December 31, 1994. The Agent shall promptly notify the Borrower and the Banks
of the Effective Date, and such notice shall be conclusive and binding on all
parties hereto.

SECTION 3.02. BORROWINGS. The obligation of any Bank to make a Loan
on the occasion of any Borrowing is subject to the satisfaction of the following
conditions:

(a) receipt by the Agent of a Notice of Borrowing as required by
Section 2.02 or 2.03, as the case may be;

(b) the fact that, immediately after such Borrowing, the aggregate
outstanding principal amount of the Loans will not exceed the aggregate
amount of the Commitments;

(d) the fact that the representations and warranties of the Borrower
contained in this Agreement (except, in the case of a Refunding Borrowing,
the representations and warranties set forth in Sections 4.04(g) and 4.05
as to any matter which has theretofore been disclosed in writing by the
Borrower to the Banks) shall be true on and as of the date of such
Borrowing.

Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such Borrowing as to the facts specified in clauses
(b), (c) and (d) of this Section.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants that:

32
<PAGE>

SECTION 4.01. CORPORATE EXISTENCE AND POWER. The Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted.

SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO
CONTRAVENTION. The execution, delivery and performance by the Borrower of this
Agreement and the Notes (1) are within the Borrower's corporate powers, have
been duly authorized by all necessary corporate action, require no action by or
in respect of, or filing with, any governmental body, agency or official, (2) do
not contravene, or constitute a default under, any provision of applicable law
or regulation or of the certificate of incorporation or by-laws of the Borrower
or any Restricted Subsidiary or of any agreement, judgment, injunction, order,
decree or other instrument binding upon the Borrower or any Restricted
Subsidiary or result in the creation or imposition of any Lien on any asset of
the Borrower or any Restricted Subsidiary and (3) do not contravene, or
constitute a default under, any provision of applicable law or regulation or of
the certificate of incorporation or by-laws of any Unrestricted Subsidiary or of
any agreement, judgment, injunction, order, decree or other instrument binding
upon any Unrestricted Subsidiary or result in the creation or imposition of any
Lien on any asset of any Unrestricted Subsidiary, where there is a reasonable
possibility that such contravention or default or creation or imposition of a
Lien, together with any contraventions and/or defaults and/or Liens so created
or imposed and in each case referred to in clauses (1) through (3), inclusive,
above, could materially adversely affect the business, consolidated financial
position or consolidated results of operations of the Borrower and the
Restricted Subsidiaries, taken as a whole.

SECTION 4.03. BINDING EFFECT. This Agreement constitutes a valid and
binding agreement of the Borrower and the Notes, when executed and delivered in
accordance with this Agreement, will constitute valid and binding obligations of
the Borrower.

SECTION 4.04. FINANCIAL INFORMATION.

(a) The consolidated statements of income, stockholders' equity and
of cash flows of the Borrower and the Restricted Subsidiaries for the fiscal
year ended December 31, 1993 and the related consolidated balance

33
<PAGE>

sheets as at the end of such period, a copy of which has been delivered to each
of the Banks, fairly present, in all material respects and in conformity with
generally accepted accounting principles, the consolidated financial condition
of the Borrower and the Restricted Subsidiaries as of such date and their
consolidated results of operations and cash flows for such period.

(b) The consolidated statements of income and of cash flows of the
Borrower and the Restricted Subsidiaries for the nine months ended September 30,
1994 and the related consolidated balance sheets as at the end of such period, a
copy of which has been delivered to each of the Banks, fairly present, in all
material respects and in conformity with generally accepted accounting
principles applied on a basis consistent with the financial statements referred
to in subsection (a) above, the consolidated financial condition of the Borrower
and the Restricted Subsidiaries as of such date and their consolidated results
of operations and cash flows for such nine-month period (subject to normal year-
end adjustments).

(c) The consolidated statements of income, stockholders' equity and
of cash flows of the Borrower and the Consolidated Subsidiaries for the fiscal
year ended December 31, 1993 and the related consolidated balance sheets as at
the end of such period, reported on by Ernst & Young and set forth in the
Borrower's 1993 Form 10-K, a copy of which has been delivered to each of the
Banks, fairly present, in all material respects and in conformity with generally
accepted accounting principles, the consolidated financial condition of the
Borrower and the Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such period.

(d) The consolidated statements of income and of cash flows of the
Borrower and the Consolidated Subsidiaries for the nine months ended September
30, 1994 and the related consolidated balance sheets as at the end of such
period, set forth in the Borrower's quarterly report for the fiscal quarter
ended September 30, 1994 as filed with the Securities and Exchange Commission on
Form 10-Q, a copy of which has been delivered to each of the Banks, fairly
present, in all material respects and in conformity with generally accepted
accounting principles applied on a basis consistent with the financial
statements referred to in subsection (c) above, the consolidated financial
condition of the Borrower and the Consolidated Subsidiaries as of such date and
their consolidated results of operations and cash flows for such nine-month
period (subject to normal year-end adjustments).

34
<PAGE>

(e) The Annual Statement of each Restricted Insurance Subsidiary for
the fiscal year ended December 31, 1993, as filed with the Applicable Insurance
Regulatory Authority of such Restricted Insurance Subsidiary, a copy of which
has been delivered to each of the Banks, presents the statutory financial
condition of such Restricted Insurance Subsidiary in accordance with statutory
accounting practices required or permitted by such Applicable Insurance
Regulatory Authority, and the amounts carried in the balance sheet referred to
therein on account of the actuarial items referred to in clauses (1) through
(5), inclusive, of the statement of the Corporate Actuary contained therein (i)
are computed in accordance with commonly accepted actuarial standards
consistently applied and are fairly stated in accordance with sound actuarial
principles, (ii) are based on actuarial assumptions that produce reserves at
least as great as those called for in any contract provision and are in
accordance with all other contract provisions, (iii) meet the requirements of
the insurance laws and regulations of the State in which such Restricted
Insurance Subsidiary is domiciled, (iv) make a good and sufficient provision for
all unmatured obligations of such Restricted Insurance Subsidiary guaranteed
under the terms of its policies, (v) are computed on the basis of assumptions
consistent with those used in computing the corresponding items in the Annual
Statement of such Restricted Insurance Subsidiary for the fiscal year ended
December 31, 1990, except as noted in the notes thereto and (vi) include
provisions for all actuarial reserves and related statement items that ought to
be established, and such actuarial methods, considerations and analyses conform
to the appropriate Standards of Practice as promulgated by the Actuarial
Standards Board, which standards form the basis of this statement of opinion.

(f) The Quarterly Statement of each Restricted Insurance Subsidiary
for the nine months ended September 30, 1994, as filed with the Applicable
Insurance Regulatory Authority of such Restricted Insurance Subsidiary, a copy
of which has been delivered to each of the Banks, presents the statutory
financial condition of such Restricted Insurance Subsidiary in accordance with
statutory accounting practices required or permitted by such Applicable
Insurance Regulatory Authority.

(g) Since September 30, 1994 there has been no material adverse
change in the business, financial position, results of operations or prospects
of the Borrower and the Restricted Subsidiaries, considered as a whole.

SECTION 4.05. LITIGATION. There is no action, suit or proceeding
pending against, or to the knowledge of

35
<PAGE>

the Borrower threatened against or affecting, the Borrower or any of its
Subsidiaries before any court or arbitrator or any governmental body, agency or
official in which there is a reasonable possibility of an adverse decision which
could materially adversely affect the business, consolidated financial position
or consolidated results of operations of the Borrower and the Restricted
Subsidiaries, taken as a whole, or which in any manner draws into question the
validity or enforceability of this Agreement or the Notes.

SECTION 4.06. COMPLIANCE WITH ERISA. Each member of the ERISA Group
has fulfilled its obligations under the minimum funding standards of ERISA and
the Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.

SECTION 4.07. TAXES. United States Federal income tax returns of the
Borrower and its Subsidiaries have been examined and closed through the fiscal
year ended December 31, 1986. The Borrower and the Restricted Subsidiaries have
filed all United States Federal income tax returns and all other material tax
returns which are required to be filed by them and have paid all taxes due
pursuant to such returns or pursuant to any assessment received by the Borrower
or any Restricted Subsidiary. The charges, accruals and reserves on the books
of the Borrower and the Restricted Subsidiaries in respect of taxes or other
governmental charges are, in the opinion of the Borrower, adequate. There has
been no failure by any Unrestricted Subsidiary to file any tax return required
to be filed by it or to pay any tax when due which failure, together with any
other failures referred to in this Section 4.07, could materially adversely
affect the business, consolidated financial position or consolidated results of
operations of the Borrower and the Restricted Subsidiaries, taken as a whole.

SECTION 4.08. SUBSIDIARIES. Each of the Restricted Subsidiaries is a
corporation duly incorporated,

36
<PAGE>

validly existing and in good standing under the laws of its jurisdiction of
incorporation, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.

SECTION 4.09. NOT AN INVESTMENT COMPANY. Neither the Borrower nor
any Restricted Subsidiary is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.

SECTION 4.10. FULL DISCLOSURE. All information heretofore furnished
by the Borrower to the Agent or any Bank for purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all such
information hereafter furnished by the Borrower to the Agent or any Bank will
be, true and accurate in all material respects on the date as of which such
information is stated or certified. The Borrower has disclosed to the Banks in
writing any and all facts known to it which materially and adversely affect or
may affect (to the extent the Borrower can now reasonably foresee), the
business, operations or financial condition of the Borrower and the Restricted
Subsidiaries, taken as a whole, or the ability of the Borrower to perform its
obligations under this Agreement.

ARTICLE V

COVENANTS

The Borrower agrees that so long as any Bank has any Commitment
hereunder or any amount payable under any Note remains unpaid:

SECTION 5.01. FINANCIAL STATEMENTS. The Borrower shall deliver to
each of the Banks:

(a) as soon as available and in any event within 60 days after the end
of each of the first three fiscal quarterly periods of each fiscal year of
the Borrower, consolidated statements of income and of cash flows of the
Borrower and the Restricted Subsidiaries for such period and for the period
from the beginning of the respective fiscal year to the end of such period,
and the related consolidated balance sheets as at the end of such period,
setting forth in each case in comparative form the corresponding figures
for the corresponding periods in the preceding fiscal year, accompanied by
a certificate of a senior financial

37
<PAGE>

officer of the Borrower, which certificate shall state that said financial
statements fairly present, in all material respects, the consolidated
financial condition and results of operations and cash flows of the
Borrower and the Restricted Subsidiaries in accordance with generally
accepted accounting principles, consistently applied, as at the end of, and
for, such periods (subject to normal year-end audit adjustments);

(b) as soon as available and in any event within 100 days after the
end of each fiscal year of the Borrower, consolidated statements of income,
stockholders' equity and of cash flows of the Borrower and the Restricted
Subsidiaries for such year and the related consolidated balance sheets as
at the end of such year, setting forth in each case in comparative form the
corresponding figures for the preceding fiscal year, and accompanied by an
opinion thereon of independent certified public accountants of recognized
national standing, which opinion shall state that said financial statements
fairly present, in all material respects, the consolidated financial
condition and results of operations and cash flows of the Borrower and the
Restricted Subsidiaries as at the end of, and for, such fiscal year, and a
certificate of such accountants stating that, in making the audit necessary
for their opinion, they obtained no knowledge, except as specifically
stated, of any Default;

(c) as soon as available and in any event within 60 days after the end
of each of the first three fiscal quarterly periods of each fiscal year of
the Borrower, consolidated statements of income and of cash flows of the
Borrower and the Consolidated Subsidiaries for such period and for the
period from the beginning of the respective fiscal year to the end of such
period, and the related consolidated balance sheets as at the end of such
period, setting forth in each case in comparative form the corresponding
figures for the corresponding periods in the preceding fiscal year,
accompanied by a certificate of a senior financial officer of the Borrower,
which certificate shall state that said financial statements fairly
present, in all material respects, the consolidated financial condition and
results of operations and cash flows of the Borrower and the Consolidated
Subsidiaries in accordance with generally accepted accounting principles,
consistently applied, as at the end of, and for, such periods (subject to
normal year-end audit adjustments);

38
<PAGE>

(d) as soon as available and in any event within 100 days after the
end of each fiscal year of the Borrower, consolidated statements of income,
stockholders' equity and of cash flows of the Borrower and the Consolidated
Subsidiaries for such year and the related consolidated balance sheets as
at the end of such year, setting forth in each case in comparative form the
corresponding figures for the preceding fiscal year, and accompanied by an
opinion thereon of independent certified public accountants of recognized
national standing, which opinion shall state that said financial statements
fairly present, in all material respects, the consolidated financial
condition and results of operations and cash flows of the Borrower and the
Consolidated Subsidiaries as at the end of, and for, such fiscal year;

(e) as soon as available and in any event not later than 90 days after
the end of each fiscal year of each Restricted Insurance Subsidiary, (i)
the Annual Statements of such Restricted Insurance Subsidiary (prepared in
accordance with the statutory accounting practices required or permitted by
its Applicable Insurance Regulatory Authority) for such fiscal year as
filed with such Applicable Insurance Regulatory Authority, together with
the opinion thereon of a senior financial officer of such Restricted
Insurance Subsidiary stating that such Annual Statements present the
statutory financial condition of such Restricted Insurance Subsidiary in
accordance with statutory accounting practices required or permitted by
such Applicable Insurance Regulatory Authority, and (ii) a certificate of
the Corporate Actuary of such Restricted Insurance Subsidiary affirming
that the amounts carried in the balance sheet referred to therein on
account of the actuarial items referred to in clauses (1) through (5),
inclusive, of such certificate (i) are computed in accordance with commonly
accepted actuarial standards consistently applied and are fairly stated in
accordance with sound actuarial principles, (ii) are based on actuarial
assumptions that produce reserves at least as great as those called for in
any contract provision and are in accordance with all other contract
provisions, (iii) meet the requirements of the insurance laws and
regulations of the State in which such Restricted Insurance Subsidiary is
domiciled, (iv) make a good and sufficient provision for all unmatured
obligations of such Restricted Insurance Subsidiary guaranteed under the
terms of its policies, (v) are computed on the basis of assumptions
consistent with those used in computing the corresponding items in the

39
<PAGE>

Annual Statement of such Restricted Insurance Subsidiary for the preceding
fiscal year, except as noted in the notes thereto and (vi) include
provisions for all actuarial reserves and related statement items that
ought to be established, and affirming that such actuarial methods,
considerations and analyses conform to the appropriate Standards of
Practice as promulgated by the Actuarial Standards Board, which Standards
of Practice form the basis of this certification;

(f) as soon as available and in any event within 60 days after the end
of each fiscal quarter of each Restricted Insurance Subsidiary (except for
the fourth fiscal quarter of any fiscal year), (i) quarterly statutory
financial statements of such Restricted Insurance Subsidiary (prepared in
accordance with statutory accounting practices required or permitted by its
Applicable Insurance Regulatory Authority) for such fiscal quarter as filed
with such Applicable Insurance Regulatory Authority, together with the
opinion thereon of a senior financial officer of such Restricted Insurance
Subsidiary stating that such statutory financial statements present the
statutory financial condition of such Restricted Insurance Subsidiary in
accordance with statutory accounting practices required or permitted by
such Applicable Insurance Regulatory Authority;

(g) promptly upon their becoming available, copies of all registration
statements and regular periodic reports (including, without limitation,
Form 8-K), if any, which the Borrower shall have filed with the Securities
and Exchange Commission (or any governmental agency substituted therefor)
or any national securities exchange;

(h) promptly upon the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, reports and proxy
statements so mailed;

(i) if and when any member of the ERISA Group (i) gives or is required
to give notice to the PBGC of any "reportable event" (as defined in Section
4043 of ERISA) with respect to any Plan which might constitute grounds for
a termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any
such reportable event, a copy of the notice of such reportable event given
or required to be given to the PBGC; (ii) receives notice of complete or
partial

40
<PAGE>

withdrawal liability under Title IV of ERISA or notice that any
Multiemployer Plan is in reorganization, is insolvent or has been
terminated, a copy of such notice; (iii) receives notice from the PBGC
under Title IV of ERISA of an intent to terminate, impose liability (other
than for premiums under Section 4007 of ERISA) in respect of, or appoint a
trustee to administer any Plan, a copy of such notice; (iv) applies for a
waiver of the minimum funding standard under Section 412 of the Internal
Revenue Code, a copy of such application; (v) gives notice of intent to
terminate any Plan under Section 4041(c) of ERISA, a copy of such notice
and other information filed with the PBGC; (vi) gives notice of withdrawal
from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or
(vii) fails to make any payment or contribution to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement or makes any
amendment to any Plan or Benefit Arrangement which has resulted or could
result in the imposition of a Lien or the posting of a bond or other
security, a certificate of the chief financial officer or the chief
accounting officer of the Borrower setting forth details as to such
occurrence and action, if any, which the Borrower or applicable member of
the ERISA Group is required or proposes to take;

(j) promptly after the Borrower knows that any Default has occurred, a
notice of such Default describing the same in reasonable detail and,
together with such notice or as soon thereafter as possible, a description
of the action that the Borrower as taken and proposes to take with respect
thereto;

(k) promptly upon the occurrence of any change in the rating of any
obligation of the Borrower by either Moody's or S&P, a notice setting forth
the details thereof; and

(l) from time to time such other information regarding the business,
affairs or financial condition of the Borrower or any of the Subsidiaries
as the Agent, at the request of any Bank, may reasonably request, if the
requesting Bank in good faith determines that such information is or may be
necessary or useful to it to determine or monitor the Borrower's compliance
with the provisions of this Agreement.

The Borrower will furnish to each Bank, at the time it furnishes each set of
financial statements pursuant to paragraph (a), (b), (c) or (d) above, a
certificate of a senior financial officer of the Borrower (i) to the effect

41
<PAGE>

that no Default has occurred and is continuing (or, if any Default has occurred
and is continuing, describing the same in reasonable detail and describing the
action that the Borrower has taken and proposes to take with respect thereto)
and (ii) setting forth in reasonable detail the computations necessary to
determine whether the Borrower is in compliance with Sections 5.08 and 5.09 as
of the end of the respective fiscal quarter or fiscal year.

SECTION 5.02. LITIGATION. The Borrower shall promptly give to each
Bank notice of all legal or arbitral actions, suits and proceedings, and of all
actions, suits and proceedings by or before any governmental or regulatory
authority or agency, affecting the Borrower or any Subsidiary, except actions,
suits and proceedings which in the aggregate, if adversely determined, would
not, in the judgment of the Borrower, have a material adverse effect on the
business, consolidated financial condition or consolidated results of operations
of the Borrower and the Restricted Subsidiaries, taken as a whole.

SECTION 5.03. CORPORATE EXISTENCE, ETC. Except as provided in
Section 5.05, the Borrower shall, and shall cause each Restricted Subsidiary to:
preserve and maintain its corporate existence and all of its material rights,
privileges and franchises; comply with the requirements of all applicable laws,
rules, regulations and orders of governmental or regulatory authorities if
failure to comply with such requirements would materially and adversely affect
the consolidated financial condition or operations, or the business taken as a
whole, of the Borrower and the Restricted Subsidiaries; pay and discharge all
taxes, assessments and governmental charges or levies imposed on it or on its
income or profits or on any of its property prior to the date on which penalties
attach thereto, except for any such tax, assessment, charge or levy the payment
of which is being contested in good faith and by proper proceedings and against
which adequate reserves are being maintained; maintain all of its properties
used or useful in its business in good working order and condition, ordinary
wear and tear excepted; permit one or more representatives acting on behalf of
all of the Banks, during normal business hours, to examine, copy and make
extracts from its books and records, to inspect its properties, and to discuss
its business and affairs with its officers, all to the extent reasonably
requested by the Required Banks for the purposes described in Section 5.01(l),
PROVIDED that such representatives shall have the right to copy and make
extracts from such books and records only after the occurrence and during the
continuance of a Default; and keep insured by financially sound and reputable
insurers all

42
<PAGE>

property of a character usually insured by corporations engaged in the same or
similar business similarly situated against loss or damage of the kinds and in
the amounts customarily insured against by such corporations and carry such
other insurance as is usually carried by such corporations and/or self insure
all property, in a manner and in amounts, in accordance with generally accepted
actuarial and accounting principles.

SECTION 5.04. USE OF PROCEEDS. The Borrower shall use the proceeds
of the Loans hereunder to finance general corporate activities (including,
without limitation, the repurchase of stock of the Borrower and the purchase of
stock of other companies) in compliance with all applicable legal and regulatory
requirements, including, without limitation, the Securities Exchange Act of
1934, as amended, and the regulations promulgated thereunder, including, without
limitation, Regulations U and X.

SECTION 5.05. PROHIBITION OF FUNDAMENTAL CHANGES. The Borrower shall
not, nor shall it permit any Restricted Subsidiary to, enter into any
transaction of merger or consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), convey, sell, lease,
transfer or otherwise dispose of, in one transaction or a series of
transactions, all or a substantial part of its business or assets, whether now
owned or hereafter acquired (including, without limitation, receivables and
leasehold interests, but excluding (i) any inventory or other assets sold or
disposed of in the ordinary course of business according to ordinary business
terms and (ii) obsolete or worn-out property) or make any material change in its
present method of conducting business except that:

(a) any Restricted Subsidiary may merge with or consolidate into (i)
the Borrower if the Borrower shall be the surviving corporation or (ii) any
other Restricted Subsidiary;

(b) any Restricted Subsidiary may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or
otherwise) to the Borrower or another Restricted Subsidiary;

(c) (I) the Borrower may merge with or consolidate into any other
Person if the Borrower is the surviving corporation; (II) the Borrower may
merge with or consolidate into any other Person where the Borrower is not
the surviving corporation and may transfer substantially all its assets as
an entirety to any

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other Person, if, but only if (i) the corporation into which the Borrower
is merged or formed by such consolidation or the Person which acquires
substantially all the Borrower's assets as an entirety is a corporation
organized and existing under the laws of the United States or any State
thereof, and shall expressly assume, by an agreement executed and delivered
to the Agent and the Banks and in form and substance satisfactory to the
Agent and the Banks, the due and punctual payment of the principal of, and
interest on, all Loans then outstanding or thereafter made hereunder and
the due and punctual payment of all other amounts then outstanding or
thereafter required to be paid hereunder and the performance of every
covenant and agreement contained herein, (ii) after giving effect to such
merger, consolidation or transfer, no Default shall exist hereunder, (iii)
the corporation referred to in clause (i) above shall have outstanding
senior unsecured long-term Indebtedness rated at least A- by S&P and at
least A3 by Moody's or, if no such Indebtedness is outstanding, the
Borrower shall have provided written evidence from S&P and Moody's to the
Banks, such evidence to be satisfactory to the Required Banks, that, if
such corporation had such Indebtedness outstanding, such Indebtedness would
be rated at least A- by S&P and at least A3 by Moody's and (iv) at the time
of such merger, consolidation or transfer the Borrower and the Restricted
Subsidiaries would be permitted to incur at least $1.00 of additional
Funded Indebtedness under Section 5.09, PROVIDED that no such transfer
shall have the effect of releasing the Borrower from any of its obligations
hereunder or under the Notes; and (III) a Restricted Subsidiary may merge
or consolidate with or into or transfer substantially all its assets as an
entirety to any other Person if the surviving or transferee corporation is
or contemporaneously therewith becomes a Restricted Subsidiary; PROVIDED
that in each case, after giving effect to such merger, consolidation or
transfer, (i) no Default shall exist hereunder, (ii) the Borrower's
outstanding senior unsecured long-term Indebtedness shall be rated at least
A- by S&P and at least A3 by Moody's or, if no such Indebtedness is
outstanding, if the Borrower provides written evidence from S&P and Moody's
to the Banks, such evidence to be satisfactory to the Required Banks, to
the effect that, if the Borrower had any such Indebtedness outstanding at
such time, such Indebtedness would be rated at least A- by S&P and at least
A3 by Moody's and (iii) the Borrower and the Restricted Subsidiaries would
be

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<PAGE>

permitted to incur at least $1.00 of additional Funded Indebtedness under
Section 5.09;

(d) the Borrower or any Restricted Subsidiary may change its present
lines of business or, in connection therewith, may abandon or otherwise
dispose of any material rights, privileges and franchises, or its present
method of conducting business if such change, abandonment or disposition
will not, in the Borrower's Board of Directors' good faith judgment, have a
material adverse effect on the business, operations, property, financial or
other condition of the Borrower and the Restricted Subsidiaries, taken as a
whole;

(e) the Borrower or any Restricted Subsidiary may, in any fiscal
quarter of the Borrower, convey, sell, lease, transfer or otherwise dispose
of assets (not otherwise permitted under this Section 5.05 to be disposed
of) which, together with all other assets (not otherwise permitted under
this Section 5.05 to be disposed of) theretofore so disposed of in such
fiscal quarter and in the immediately preceding three consecutive fiscal
quarters of the Borrower, have a book value not exceeding in the aggregate
20% of Total Assets as at the first day of such period of three consecutive
fiscal quarters so long as (i) any such conveyance, sale, lease, transfer
or other disposition, together with all such conveyances, sales, leases,
transfers or other dispositions since the first day of such period of three
consecutive fiscal quarters, will not, in the Borrower's Board of
Directors' good faith judgment, have a material adverse effect on the
business, operations, property or financial or other condition of the
Borrower and the Restricted Subsidiaries, taken as a whole and (ii) after
giving effect to such conveyance, sale, lease, transfer or other
disposition, no Default exists and the Borrower and the Restricted
Subsidiaries would be permitted to incur at least $1.00 of additional
Funded Indebtedness under Section 5.09; PROVIDED that the aggregate book
value of all assets conveyed, sold, leased, transferred or otherwise
disposed of during such fiscal quarter and the immediately preceding three
consecutive fiscal quarters shall not exceed 10% of Total Assets as at such
first day except to the extent that such assets were first acquired by the
Borrower or any Restricted Subsidiary, taken together, not earlier than one
year prior to such conveyance, sale, lease, transfer or other disposition;
and

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(f) the Borrower or any Restricted Subsidiary may sell, lease,
transfer or otherwise dispose of real property (and personal property
necessary to the use thereof) acquired by the Borrower or such Restricted
Subsidiary, as the case may be, pursuant to foreclosure proceedings or by
deed in lieu of foreclosure;

PROVIDED that none of the foregoing shall prevent the Borrower or any Restricted
Subsidiary from conveying, selling, leasing, transferring or otherwise disposing
of any Home Office Properties the fair market value of which in the aggregate
does not exceed $100,000,000.

SECTION 5.06. LIMITATION ON LIENS. The Borrower shall not, nor shall
it permit any Restricted Subsidiary to, create, incur, assume or suffer to
exist, any Lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired, except:

(a) Liens, not otherwise excepted hereunder, existing on the date of
this Agreement, which Liens do not secure Indebtedness in an aggregate
principal amount in excess of $20,000,000;

(b) Liens arising in the ordinary course of its business which (i) do
not secure Indebtedness, (ii) in the case of any judgment or order for the
payment of money, do not secure any judgment or order for the payment of
money in an amount exceeding $10,000,000 and (iii) do not in the aggregate
materially detract from the value of its assets or materially impair the
use thereof in the operation of its business;

(c) Liens on assets of corporations which become Restricted
Subsidiaries after the date of this Agreement, PROVIDED that such Liens are
in existence at the time the respective corporations become Restricted
Subsidiaries and were not created in anticipation thereof;

(d) Liens upon real and/or tangible personal property acquired after
the date hereof (by purchase, construction or otherwise) by the Borrower or
any Restricted Subsidiary, each of which Liens either (A) existed on such
property before the time of its acquisition and was not created in
anticipation thereof, or (B) was created solely for the purpose of securing
Indebtedness representing, or incurred to finance, refinance or refund, the
cost (including the cost of construction) of the respective property;
PROVIDED that no such Lien shall extend to or cover any

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<PAGE>

property of the Borrower or such Restricted Subsidiary other than the
respective property so acquired and improvements thereon and no such Lien
shall secure any additional Indebtedness; and PROVIDED FURTHER that the
principal amount of Indebtedness secured by any such Lien shall at no time
exceed the cost of the respective property at the time it was acquired (by
purchase, construction or otherwise);

(e) Liens created after the Effective Date upon real and/or personal
property securing Indebtedness incurred after the Effective Date, PROVIDED
that the aggregate Indebtedness secured thereby shall not at any time
exceed 7.5% of Total Stockholders' Equity; and

(f) any extension, renewal or replacement of the foregoing, PROVIDED,
HOWEVER, that the Liens permitted hereunder shall not secure any additional
Indebtedness (if applicable) or cover any additional property.

SECTION 5.07. TRANSACTIONS WITH AFFILIATES. The Borrower will not,
nor will it permit any Restricted Subsidiary to, directly or indirectly, enter
into any transaction with or for the benefit of any Affiliate (including,
without limitation, transfers of assets to or from an Affiliate and guarantees
and assumptions of obligations of an Affiliate) other than transactions with
Affiliates (i) otherwise permitted by this Agreement or (ii) (x) entered into on
an arm's length basis, on terms no more favorable to such Affiliate than would
be available to unrelated Persons and (y) after giving effect to which the
Borrower and the Restricted Subsidiaries would be permitted to incur at least
$1.00 of additional Funded Indebtedness under Section 5.09.

SECTION 5.08. MINIMUM TOTAL STOCKHOLDERS' EQUITY. The Borrower shall
not permit at any time Total Stockholders' Equity to be less than 10% of Total
Assets.

SECTION 5.09. RATIO OF FUNDED INDEBTEDNESS TO TOTAL CAPITAL. The
Borrower shall not, nor shall it permit any Restricted Subsidiary to, incur or
otherwise become liable in respect of any Funded Indebtedness (including,
without limitation the borrowing of Loans hereunder) unless, after giving effect
thereto, the ratio of (i) the aggregate principal amount of Funded Indebtedness
to (ii) Total Capital will not exceed 0.3 to 1.

SECTION 5.10. RESTRICTED AND UNRESTRICTED SUBSIDIARIES. The Borrower
may at any time by resolution of its Board of Directors designate any Subsidiary

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prospectively as a Restricted Subsidiary or as an Unrestricted Subsidiary if,
after giving effect to such designation, no Default would exist and the Borrower
and the Restricted Subsidiaries would be permitted to incur at least $1.00 of
additional Funded Indebtedness under Section 5.09; PROVIDED HOWEVER, that no
Subsidiary designated by an asterisk on Schedule I hereof as a Restricted
Subsidiary may be designated as an Unrestricted Subsidiary; PROVIDED FURTHER
that, if any Unrestricted Subsidiary listed on Schedule I hereof is duly
designated pursuant to this Section 5.10 as a Restricted Subsidiary, it may not
at any time thereafter be designated as an Unrestricted Subsidiary; and PROVIDED
further that any designation under this Section 5.10 must remain unchanged over
the last day of at least two consecutive fiscal quarters of the Borrower. A
certified copy of such resolution, together with a pro forma consolidated
balance sheet of the Borrower and the Restricted Subsidiaries as at a date not
more than 30 days prior to the effective date of (but giving effect to) such
designation, shall be delivered to each Bank no later than five Domestic
Business Days prior to the effective date of such designation.

ARTICLE VI

DEFAULTS

SECTION 6.01. EVENTS OF DEFAULT. If one or more of the following
events ("Events of Default") shall have occurred and be continuing:

(a) the Borrower shall fail to pay when due any principal of any
Loan, or the Borrower shall fail to pay within five days of the due date
thereof any interest on any Loan, any fees or any other amount payable
hereunder;

(b) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.04 to 5.10, inclusive, PROVIDED that, if a failure
to observe the covenant contained in Section 5.08 occurs and, but only so
long as, Total Stockholders' Equity is at least 7% of Total Assets, then
the failure to observe such covenant shall not be an Event of Default
unless such failure continues for 30 days;

(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause
(a) or (b) above)

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for 30 days after written notice thereof has been given to the Borrower by
the Agent at the request of any Bank;

(d) any representation, warranty, certification or statement made by
the Borrower in this Agreement or in any certificate, financial statement
or other document delivered pursuant to this Agreement shall prove to have
been incorrect in any material respect when made (or deemed made);

(e) the Borrower or any Restricted Subsidiary or any Insurance
Subsidiary shall fail to make any payment in respect of any Material
Indebtedness when due or within any applicable grace period;

(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Indebtedness of the Borrower
or any Restricted Subsidiary or any Insurance Subsidiary or enables the
holder of such Material Indebtedness or any Person acting on such holder's
behalf to accelerate the maturity thereof;

(g) the Borrower or any Restricted Subsidiary or any Insurance
Subsidiary shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its
debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary
case or other proceeding commenced against it, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any corporate action to authorize
any of the foregoing;

(h) an involuntary case or other proceeding shall be commenced
against the Borrower or any Restricted Subsidiary or any Insurance
Subsidiary seeking liquidation, reorganization or other relief with respect
to it or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding shall

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<PAGE>

remain undismissed and unstayed for a period of 60 days; or an order for
relief shall be entered against the Borrower or any Restricted Subsidiary
or any Insurance Subsidiary under the federal bankruptcy laws as now or
hereafter in effect;

(i) any member of the ERISA Group shall fail to pay when due an
amount or amounts aggregating in excess of $10,000,000 which it shall have
become liable to pay under Title IV of ERISA; or notice of intent to
terminate a Material Plan shall be filed under Title IV of ERISA by any
member of the ERISA Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA
to terminate, to impose liability (other than for premiums under Section
4007 of ERISA) in respect of, or to cause a trustee to be appointed to
administer any Material Plan; or a condition shall exist by reason of which
the PBGC would be entitled to obtain a decree adjudicating that any
Material Plan must be terminated; or there shall occur a complete or
partial withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which
could cause one or more members of the ERISA Group to incur a current
payment obligation in excess of $10,000,000;

(j) a judgment or order for the payment of money in excess of
$10,000,000 shall be rendered against the Borrower or any Restricted
Subsidiary or any Insurance Subsidiary and such judgment or order shall
continue unsatisfied and unstayed for a period of 30 days; or

(k) any person or group of persons (within the meaning of Section 13
or 14 of the Securities Exchange Act of 1934, as amended) shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated
by the Securities and Exchange Commission under said Act) of 25% or more of
the outstanding shares of common stock of the Borrower; or, during any
period of twelve consecutive calendar months, individuals who were
directors of the Borrower on the first day of such period shall cease to
constitute a majority of the board of directors of the Borrower;

then, and in every such event, the Agent shall, (i) if requested by Banks having
more than 50% in aggregate amount of the Commitments, by notice to the Borrower
terminate the Commitments and they shall thereupon terminate and (ii) if
requested by Banks holding Notes evidencing more than 50% in aggregate principal
amount of the Loans, by notice to the

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<PAGE>

Borrower declare the Notes (together with accrued interest thereon) to be, and
the Notes shall thereupon become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower; PROVIDED that in the case of any of the Events of
Default specified in clause (g) or (h) above with respect to the Borrower,
without any notice to the Borrower or any other act by the Agent or the Banks,
the Commitments shall thereupon terminate and the Notes (together with accrued
interest thereon) shall become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower.

SECTION 6.02. NOTICE OF DEFAULT. The Agent shall give notice to the
Borrower under Section 6.01(c) promptly upon being requested to do so by any
Bank and shall thereupon notify all the Banks thereof.

ARTICLE VII

THE AGENT

SECTION 7.01. APPOINTMENT AND AUTHORIZATION. Each Bank irrevocably
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement and the Notes as are delegated to
the Agent by the terms hereof or thereof, together with all such powers as are
reasonably incidental thereto.

SECTION 7.02. AGENT AND AFFILIATES. Morgan Guaranty Trust Company of
New York shall have the same rights and powers under this Agreement as any other
Bank and may exercise or refrain from exercising the same as though it were not
the Agent, and Morgan Guaranty Trust Company of New York and its affiliates may
accept deposits from, lend money to, and generally engage in any kind of
business with the Borrower or any Subsidiary or affiliate of the Borrower as if
it were not the Agent hereunder.

SECTION 7.03. ACTION BY AGENT. The obligations of the Agent
hereunder are only those expressly set forth herein. Without limiting the
generality of the foregoing, the Agent shall not be required to take any action
with respect to any Default, except as expressly provided in Article VI.

SECTION 7.04. CONSULTATION WITH EXPERTS. The Agent may consult with
legal counsel (who may be counsel for the

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<PAGE>

Borrower), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken by it in good
faith in accordance with the advice of such counsel, accountants or experts.

SECTION 7.05. LIABILITY OF AGENT. Neither the Agent nor any of its
affiliates nor any of their respective directors, officers, agents or employees
shall be liable for any action taken or not taken by it in connection herewith
(i) with the consent or at the request of the Required Banks or (ii) in the
absence of its own gross negligence or willful misconduct. Neither the Agent
nor any of its affiliates nor any of their respective directors, officers,
agents or employees shall be responsible for or have any duty to ascertain,
inquire into or verify (i) any statement, warranty or representation made in
connection with this Agreement or any borrowing hereunder; (ii) the performance
or observance of any of the covenants or agreements of the Borrower; (iii) the
satisfaction of any condition specified in Article III, except receipt of items
required to be delivered to the Agent; or (iv) the validity, effectiveness or
genuineness of this Agreement, the Notes or any other instrument or writing
furnished in connection herewith. The Agent shall not incur any liability by
acting in reliance upon any notice, consent, certificate, statement, or other
writing (which may be a bank wire, telex or similar writing) believed by it to
be genuine or to be signed by the proper party or parties.

SECTION 7.06. INDEMNIFICATION. Each Bank shall, ratably in
accordance with its initial Commitment, indemnify the Agent, its affiliates and
their respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from such indemnitees' gross negligence or willful misconduct) that such
indemnitees may suffer or incur in connection with this Agreement or any action
taken or omitted by such indemnitees hereunder.

SECTION 7.07. CREDIT DECISION. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its

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<PAGE>

own credit decisions in taking or not taking any action under this Agreement.

SECTION 7.08. SUCCESSOR AGENT. The Agent may resign at any time by
giving notice thereof to the Banks and the Borrower, and such notice shall be
effective on the date specified therein (unless otherwise stated therein)
whether or not a successor Agent is appointed and accepts such appointment as
provided below. Upon any such resignation, the Required Banks shall have the
right to appoint a successor Agent with the consent of the Borrower. If no such
successor Agent shall have been so appointed, and shall have accepted such
appointment, within 30 days after the retiring Agent gives notice of
resignation, then the retiring Agent may, on behalf of the Banks, appoint a
successor Agent, which shall be a commercial bank organized or licensed under
the laws of the United States of America or of any State thereof and having a
combined capital and surplus of at least $50,000,000. Upon the acceptance of
its appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent.

SECTION 7.09. AGENT'S FEE. The Borrower shall pay to the Agent for
its own account fees in the amounts and at the times previously agreed upon
between the Borrower and the Agent.

ARTICLE VIII

CHANGE IN CIRCUMSTANCES

SECTION 8.01. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR
UNFAIR. If on or prior to the first day of any Interest Period for any Fixed
Rate Borrowing:

(a) the Agent is advised by the Reference Banks that deposits in
dollars (in the applicable amounts) are not being offered to the Reference
Banks in the relevant market for such Interest Period, or

(b) in the case of a Committed Borrowing, Banks having 50% or more of
the aggregate amount of the Commitments advise the Agent that the Adjusted
CD Rate

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<PAGE>

or the Adjusted London Interbank Offered Rate, as the case may be, as
determined by the Agent will not adequately and fairly reflect the cost to
such Banks of funding their CD Loans or Euro-Dollar Loans, as the case may
be, for such Interest Period,

the Agent shall forthwith give notice thereof to the Borrower and the Banks,
whereupon until the Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, the obligations of the Banks to make CD
Loans or Euro-Dollar Loans, as the case may be, shall be suspended. Unless the
Borrower notifies the Agent at least two Domestic Business Days before the date
of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been
given that it elects not to borrow on such date, (i) if such Fixed Rate
Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a
Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market
LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall
bear interest for each day from and including the first day to but excluding the
last day of the Interest Period applicable thereto at the Base Rate for such
day.

SECTION 8.02. ILLEGALITY. If, on or after the date of this
Agreement, the adoption of any applicable law, rule or regulation, or any change
in any applicable law, rule or regulation, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Bank (or its Euro-Dollar Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall make it unlawful or impossible for any
Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its
Euro-Dollar Loans and such Bank shall so notify the Agent, the Agent shall
forthwith give notice thereof to the other Banks and the Borrower, whereupon
until such Bank notifies the Borrower and the Agent that the circumstances
giving rise to such suspension no longer exist, the obligation of such Bank to
make Euro-Dollar Loans shall be suspended. Before giving any notice to the
Agent pursuant to this Section, such Bank shall designate a different
Euro-Dollar Lending Office if such designation will avoid the need for giving
such notice and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. If such Bank shall determine that it may not
lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans
to maturity and shall so specify in such notice, the Borrower shall immediately
prepay in full the

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<PAGE>

then outstanding principal amount of each such Euro-Dollar Loan, together with
accrued interest thereon. Concurrently with prepaying each such Euro-Dollar
Loan, the Borrower shall borrow a Base Rate Loan in an equal principal amount
from such Bank (on which interest and principal shall be payable
contemporaneously with the related Euro-Dollar Loans of the other Banks), and
such Bank shall make such a Base Rate Loan.

SECTION 8.03. INCREASED COST AND REDUCED RETURN. (a) If on or after
(x) the date hereof, in the case of any Committed Loan or any obligation to make
Committed Loans or (y) the date of the related Money Market Quote, in the case
of any Money Market Loan, the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency:

(i) shall subject any Bank (or its Applicable Lending Office) to any
tax, duty or other charge with respect to its Fixed Rate Loans, its Note or
its obligation to make Fixed Rate Loans, or shall change the basis of
taxation of payments to any Bank (or its Applicable Lending Office) of the
principal of or interest on its Fixed Rate Loans or any other amounts due
under this Agreement in respect of its Fixed Rate Loans or its obligation
to make Fixed Rate Loans (except for changes in the rate of tax on the
overall net income of such Bank or its Applicable Lending Office imposed by
the jurisdiction in which such Bank's principal executive office or
Applicable Lending Office is located); or

(ii) shall impose, modify or deem applicable any reserve (including,
without limitation, any such requirement imposed by the Board of Governors
of the Federal Reserve System, but excluding (A) with respect to any CD
Loan any such requirement included in an applicable Domestic Reserve
Percentage and (B) with respect to any Euro-Dollar Loan any such
requirement included in an applicable Euro-Dollar Reserve Percentage),
special deposit, insurance assessment (excluding, with respect to any CD
Loan, any such requirement reflected in an applicable Assessment Rate) or
similar requirement against assets of, deposits with or for the account of,
or credit extended by, any Bank

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<PAGE>

(or its Applicable Lending Office) or shall impose on any Bank (or its
Applicable Lending Office) or on the United States market for certificates
of deposit or the London interbank market any other condition affecting its
Fixed Rate Loans, its Note or its obligation to make Fixed Rate Loans;

and the result of any of the foregoing is to increase the cost to such Bank (or
its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or
to reduce the amount of any sum received or receivable by such Bank (or its
Applicable Lending Office) under this Agreement or under its Note with respect
thereto, by an amount deemed by such Bank to be material, then, within 15 days
after demand by such Bank (with a copy to the Agent), the Borrower shall pay to
such Bank such additional amount or amounts as will compensate such Bank for
such increased cost or reduction.

(b) If any Bank shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such law, rule or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency has or would have the effect of reducing the rate of return on
capital of such Bank (or its Parent) as a consequence of such Bank's obligations
hereunder to a level below that which such Bank (or its Parent) could have
achieved but for such adoption, change, request or directive (taking into
consideration its policies with respect to capital adequacy) by an amount deemed
by such Bank to be material, then from time to time, within 15 days after demand
by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank
such additional amount or amounts as will compensate such Bank (or its Parent)
for such reduction.

(c) Each Bank will promptly notify the Borrower and the Agent of any
event of which it has knowledge, occurring after the date hereof, which will
entitle such Bank to compensation pursuant to this Section and will designate a
different Applicable Lending Office if such designation will avoid the need for,
or reduce the amount of, such compensation and will not, in the judgment of such
Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank
claiming compensation under this Section and setting forth the additional amount
or amounts to be paid to it hereunder (and, to the extent deemed

56
<PAGE>

feasible by such Bank, setting forth the calculation thereof) shall be
conclusive in the absence of manifest error. In determining such amount, such
Bank may use any reasonable averaging and attribution methods.

SECTION 8.04. BASE RATE LOANS SUBSTITUTED FOR AFFECTED FIXED RATE
LOANS. If (i) the obligation of any Bank to make Euro-Dollar Loans has been
suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation
under Section 8.03(a) and the Borrower shall, by at least five Euro-Dollar
Business Days' prior notice to such Bank through the Agent, have elected that
the provisions of this Section shall apply to such Bank, then, unless and until
such Bank notifies the Borrower that the circumstances giving rise to such
suspension or demand for compensation no longer exist:

(a) all Loans which would otherwise be made by such Bank as CD Loans
or Euro-Dollar Loans, as the case may be, shall be made instead as Base
Rate Loans (on which interest and principal shall be payable
contemporaneously with the related Fixed Rate Loans of the other Banks),
and

(b) after each of its CD Loans or Euro-Dollar Loans, as the case may
be, has been repaid, all payments of principal which would otherwise be
applied to repay such Fixed Rate Loans shall be applied to repay its Base
Rate Loans instead.

ARTICLE IX

MISCELLANEOUS

SECTION 9.01. NOTICES. All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telecopier, facsimile transmission or similar writing) and shall be given to
such party: (x) in the case of the Borrower or the Agent, at its address or
telecopy number set forth on the signature pages hereof, (y) in the case of any
Bank, at its address or telecopy number set forth in its Administrative
Questionnaire or (z) in the case of any party, such other address or telecopy
number as such party may hereafter specify for the purpose by notice to the
Agent and the Borrower. Each such notice, request or other communication shall
be effective (i) if given by telecopy, when such telecopy is transmitted to the
telecopy number specified in this Section and is received, (ii) if given by
mail, 72

57
<PAGE>

hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other means,
when delivered at the address specified in this Section; PROVIDED that notices
to the Agent under Article II or Article VIII shall not be effective until
received.

SECTION 9.02. NO WAIVERS. No failure or delay by the Agent or any
Bank in exercising any right, power or privilege hereunder or under any Note
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.

SECTION 9.03. EXPENSES; DOCUMENTARY TAXES; INDEMNIFICATION. (a) The
Borrower shall pay (i) all reasonable out-of-pocket expenses of the Agent,
including fees and disbursements of Davis Polk & Wardwell, special counsel for
the Agent, in connection with the preparation and administration of this
Agreement, any waiver or consent hereunder or any amendment hereof or any
Default hereunder and (ii) if an Event of Default occurs, all reasonable
out-of-pocket expenses incurred by the Agent and each Bank, including fees and
disbursements of counsel, in connection with such Event of Default and
collection, bankruptcy, insolvency and other enforcement proceedings resulting
therefrom. The Borrower shall indemnify each Bank against any transfer taxes,
documentary taxes, assessments or charges made by any governmental authority by
reason of the execution and delivery of this Agreement or the Notes.

(b) The Borrower agrees to indemnify the Agent and each Bank, their
respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in connection
with any investigative, administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) brought or threatened
relating to or arising out of this Agreement or any actual or proposed use of
proceeds of Loans hereunder; PROVIDED that no Indemnitee shall have the right to
be indemnified hereunder for such Indemnitee's own gross negligence or willful
misconduct as determined by a court of competent jurisdiction.

58
<PAGE>

SECTION 9.04. SHARING OF SET-OFFS. Each Bank agrees that if it
shall, by exercising any right of set-off or counterclaim or otherwise, receive
payment of a proportion of the aggregate amount of principal and interest due
with respect to any Note held by it which is greater than the proportion
received by any other Bank in respect of the aggregate amount of principal and
interest due with respect to any Note held by such other Bank, the Bank
receiving such proportionately greater payment shall purchase such
participations in the Notes held by the other Banks, and such other adjustments
shall be made, as may be required so that all such payments of principal and
interest with respect to the Notes held by the Banks shall be shared by the
Banks pro rata; PROVIDED that nothing in this Section shall impair the right of
any Bank to exercise any right of set-off or counterclaim it may have and to
apply the amount subject to such exercise to the payment of indebtedness of the
Borrower other than its indebtedness under the Notes. The Borrower agrees, to
the fullest extent it may effectively do so under applicable law, that any
holder of a participation in a Note, whether or not acquired pursuant to the
foregoing arrangements, may exercise rights of set-off or counterclaim and other
rights with respect to such participation as fully as if such holder of a
participation were a direct creditor of the Borrower in the amount of such
participation.

SECTION 9.05. AMENDMENTS AND WAIVERS. Any provision of this
Agreement or the Notes may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by the Borrower and the Required Banks
(and, if the rights or duties of the Agent are affected thereby, by the Agent);
PROVIDED that no such amendment or waiver shall, unless signed by all the Banks
(and the Borrower and, if and to the extent provided above, the Agent), (i)
increase or decrease the Commitment of any Bank (except for a ratable decrease
in the Commitments of all Banks) or subject any Bank to any additional
obligation, (ii) reduce the principal of or rate of interest on any Loan or any
fees hereunder, except as provided below, (iii) postpone the date fixed for any
payment of principal of or interest on any Loan or any fees hereunder or for any
reduction or termination of any Commitment or (iv) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Notes, or the
number of Banks, which shall be required for the Banks or any of them to take
any action under this Section or any other provision of this Agreement.

SECTION 9.06. SUCCESSORS AND ASSIGNS. (a) The provisions of this
Agreement shall be binding upon and inure

59
<PAGE>

to the benefit of the parties hereto and their respective successors and
permitted assigns, except that the Borrower may not assign or otherwise transfer
any of its rights under this Agreement without the prior written consent of all
Banks, and no Bank may grant participating interests in its Commitment or any of
its Loans or assign all or any of its rights and obligations under this
Agreement and the Notes in violation of subsections (b) and (c) below, taking
into account the applicability of the last sentence of such subsection (b).

(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment or
any or all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrower and the Agent, such Bank shall remain responsible for the performance
of its obligations hereunder, and the Borrower and the Agent shall continue to
deal solely and directly with such Bank in connection with such Bank's rights
and obligations under this Agreement. Any agreement pursuant to which any Bank
may grant such a participating interest shall provide that such Bank shall
retain the sole right and responsibility to enforce the obligations of the
Borrower hereunder including, without limitation, the right to approve any
amendment, modification or waiver of any provision of this Agreement; PROVIDED
that such participation agreement may provide that such Bank will not agree to
any modification, amendment or waiver of this Agreement described in clause (i),
(ii) or (iii) of Section 9.05 without the consent of the Participant. The
Borrower agrees that each Participant shall, to the extent provided in its
participation agreement and subject to subsection (e) below, be entitled to the
benefits of Article VIII with respect to its participating interest. An
assignment or other transfer which is not permitted by subsection (c) or (d)
below shall be given effect for purposes of this Agreement only to the extent of
a participating interest granted in accordance with this subsection (b).

(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part of all, of its
rights and obligations under this Agreement and the Notes, and such Assignee
shall assume such rights and obligations, pursuant to an Assignment and
Assumption Agreement in substantially the form of Exhibit G hereto executed by
such Assignee and such transferor Bank, with (and subject to) the subscribed
consent of the Borrower and the Agent; PROVIDED that if an Assignee is an
affiliate of such transferor Bank, no such consent shall be required; PROVIDED
FURTHER that such

60
<PAGE>

assignment may, but need not, include rights of the transferor Bank in respect
of outstanding Money Market Loans; and PROVIDED FURTHER that such assignment
shall be in a principal amount not less than $10,000,000. Upon execution and
delivery of such instrument and payment by such Assignee to such transferor Bank
of an amount equal to the purchase price agreed between such transferor Bank and
such Assignee, such Assignee shall be a Bank party to this Agreement and shall
have all the rights and obligations of a Bank with a Commitment as set forth in
such instrument of assumption, and the transferor Bank shall be released from
its obligations hereunder to a corresponding extent, and no further consent or
action by any party shall be required. Upon the consummation of any assignment
pursuant to this subsection (c), the transferor Bank, the Agent and the Borrower
shall make appropriate arrangements so that, if required, a new Note is issued
to the Assignee. In connection with any such assignment, the transferor Bank
shall pay to the Agent an administrative fee for processing such assignment in
the amount of $2,000. If the Assignee is not incorporated under the laws of the
United States of America or a state thereof, it shall, prior to the first date
on which interest or fees are payable hereunder for its account, deliver to the
Borrower and the Agent certification as to exemption from deduction or
withholding of any United States federal income taxes in accordance with Section
2.15.

(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note to a Federal Reserve Bank. No such assignment
shall release the transferor Bank from its obligations hereunder.

(e) No Assignee, Participant or other transferee of any Bank's rights
shall be entitled to receive any greater payment under Section 8.03 than such
Bank would have been entitled to receive with respect to the rights transferred,
unless such transfer is made with the Borrower's prior written consent or by
reason of the provisions of Section 8.02 or 8.03 requiring such Bank to
designate a different Applicable Lending Office under certain circumstances or
at a time when the circumstances giving rise to such greater payment did not
exist.

SECTION 9.07. COLLATERAL. Each of the Banks represents to the Agent
and each of the other Banks that it in good faith is not relying upon any
"margin stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.

SECTION 9.08. GOVERNING LAW; SUBMISSION TO JURISDICTION. This
Agreement and each Note shall be

61
<PAGE>

governed by and construed in accordance with the laws of the State of New York.
The Borrower hereby submits to the nonexclusive jurisdiction of the United
States District Court for the Southern District of New York and of any New York
State court sitting in New York City for purposes of all legal proceedings
arising out of or relating to this Agreement or the transactions contemplated
hereby. The Borrower irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of the venue
of any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum.

SECTION 9.09. COUNTERPARTS; INTEGRATION. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof.

SECTION 9.10. CONFIDENTIALITY. The Agent and each Bank agree that
they will maintain the confidentiality of any material information provided
under, or in connection with, this Agreement by or on behalf of the Borrower
that has been identified by the Borrower as confidential or that the Agent or
such Bank knows, or has reason to know, is confidential (hereinafter
collectively called "Confidential Information"), subject to the Agent's and each
Bank's (a) obligation to disclose any such Confidential Information pursuant to
a request or order under applicable laws and regulations or pursuant to a
subpoena or other legal process, (b) right to disclose any such Confidential
Information to its bank examiners, auditors, counsel and other professional
advisors and to other Banks, (c) right to disclose any such Confidential
Information in connection with any litigation or dispute involving one or more
of the Banks or the Agent and the Borrower, PROVIDED that the Banks so involved
or the Agent, as the case may be, shall provide the Borrower with reasonable
notice of the disclosure of such Confidential Information solely to enable the
Borrower to attempt to obtain a court order limiting the disclosure thereof
outside of the scope of such litigation or dispute but only if such notice is
not prejudicial to such Banks or the Agent and (d) right to provide such
information to participants, prospective participants or prospective assignees
pursuant to Section 9.06 if such participant, prospective participant or
prospective assignee agrees in writing to maintain the confidentiality of such
information on terms substantially similar to those of this Section 9.10

62
<PAGE>

as if it were a "Bank" party hereto. Notwithstanding the foregoing, any such
information supplied to a Bank, participant, prospective participant or
prospective assignee under this Agreement shall cease to be Confidential
Information if it is or becomes known to such Person by other than unauthorized
disclosure, or if it becomes a matter of public knowledge.

63
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.

UNUM CORPORATION

By /s/ Timothy W. Ludden
--------------------------------
Title: Vice President and
Treasurer
2211 Congress Street
Portland, Maine 04122
Telecopy number:

64
<PAGE>

COMMITMENTS

$50,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK

By /s/ Joseph T. Wilson, Jr.
------------------------------
Title: Vice President

$50,000,000 THE BANK OF NEW YORK

By /s/ Lizanne T. Eberle
------------------------------
Title: Vice President

$50,000,000 THE BANK OF TOKYO TRUST COMPANY

By /s/ Alta M. Fleming
------------------------------
Title: Vice President

$50,000,000 MELLON BANK N.A.

By /s/ W. Scott Sanford
------------------------------
Title: Senior Vice President

$50,000,000 THE SUMITOMO BANK, LIMITED

By /s/ Yoshinori Kawamura
------------------------------
Title: Joint General Manager

$50,000,000 WACHOVIA BANK OF GEORGIA, N.A.

By /s/ Linda Harris
------------------------------
Title: Senior Vice President

65
<PAGE>

COMMITMENTS

$25,000,000 ABN AMRO BANK, N.V.

By /s/ Brian M. Horgan
------------------------------
Title: Corporate Banking
Officer

$25,000,000 CIBC, INC.

By /s/ Stephen D. Reynolds
------------------------------
Title: Vice President

$25,000,000 CREDIT LYONNAIS NEW YORK BRANCH

By /s/ Robert Ivosevich
------------------------------
Title: Senior Vice President

$25,000,000 FIRST NATIONAL BANK OF BOSTON

By /s/ Nancy E. Fuller
------------------------------
Title: Director

$25,000,000 FLEET BANK OF MAINE

By /s/ Tracy L. Hawkins
------------------------------
Title: Vice President

$25,000,000 THE INDUSTRIAL BANK OF JAPAN,
LIMITED

By /s/ Toshiyuki Ban
------------------------------
Title: Senior Vice President

66
<PAGE>

COMMITMENTS

$25,000,000 LLOYDS BANK PLC

By /s/ David Brealey
------------------------------
Title: Assistant Vice
President

$25,000,000 NATIONSBANK OF GEORGIA, N.A.

By /s/ Frank R. Callison
------------------------------
Title: Vice President

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

Total Commitments

$500,000,000
=================
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent

By /s/ Joseph T. Wilson, Jr.
------------------------------
Title: Vice President
60 Wall Street
New York, New York 10260-0060
Attention: Joseph T. Wilson, Jr.
Telecopy number: 212-648-5249

<PAGE>

EXHIBIT 12

UNUM CORPORATION AND SUBSIDIARIES

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

Year Ended December 31,
-----------------------------
(Dollars in millions) 1994 1993 1992
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EARNINGS:
Income from continuing operations before income taxes $198.6 $460.3 $398.5
Add:
Fixed charges 29.6 24.2 22.0
------ ------ ------
Earnings as adjusted $228.2 $484.5 $420.5
------ ------ ------
------ ------ ------

FIXED CHARGES:
Interest expense $ 18.7 $ 12.7 $ 10.9
Interest portion of rent expense 10.9 11.5 11.1
------ ------ ------
Total fixed charges $ 29.6 $ 24.2 $ 22.0
------ ------ ------
------ ------ ------

RATIO OF EARNINGS TO FIXED CHARGES 7.7 20.0 19.1
------ ------ ------
------ ------ ------

</TABLE>

For purposes of computing the ratio of earnings to fixed charges, earnings as
adjusted consist of income from continuing operations before income taxes plus
fixed charges. Fixed charges consist of interest expense and the estimated
interest portion of rent expense.

<PAGE>

EXHIBIT 21

SUBSIDIARIES OF UNUM CORPORATION

Listed below are subsidiaries of UNUM Corporation, as of December 31, 1994,
with their respective jurisdiction of incorporation.

UNUM Holding Company (Delaware)

First UNUM Life Insurance Company (New York)
UNUM Sales Corporation (Delaware)
Claims Service International, Inc. (Delaware)

UNUM Life Insurance Company of America (Maine)

Colonial Companies, Inc. (Delaware)

Colonial Life & Accident Insurance Company (South Carolina)
BenefitAmerica, Inc. (South Carolina)

Commercial Life Insurance Company (Wisconsin)

UNUM European Holding Company Limited (United Kingdom)

UNUM Limited (United Kingdom)

Duncanson & Holt, Inc. (New York)

Duncanson & Holt Services, Inc. (Maine)
Group Management Services, Inc. (Washington)
Duncanson & Holt Canada Ltd. (Canada)
Duncanson & Holt Asia PTE Ltd. (Singapore)
Duncanson & Holt Europe Ltd. (United Kingdom)

Duncanson & Holt Underwriters Ltd. (United Kingdom)

UNUM Japan Accident Insurance Company Limited (Japan)

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the following Registration
Statements and related Prospectuses of our report dated February 7, 1995, except
for Note 11 for which the date is February 28, 1995, on our audits of the
consolidated financial statements and the financial statement schedules of UNUM
Corporation and subsidiaries as of December 31, 1994 and 1993 and for the years
then ended which report is included in this Annual Report on Form 10-K:

Form S-8 No. 33-31270 pertaining to the UNUM Employees Retirement Savings
Plan and Trust

Form S-8 No. 33-19090 pertaining to the 1987 Executive Stock Option Plan

Form S-8 No. 33-38225 pertaining to the 1990 Long-Term Stock Incentive Plan

Form S-8 No. 33-52741 pertaining to the 1990 Long-Term Stock Incentive Plan

Form S-3 No. 33-36873

Form S-3 No. 33-69132

Form S-8 No. 33-60124 pertaining to the Colonial Companies, Inc. Security
Saver Plan

Post-Effective Amendment No. 1 on Form S-8 to Registration Statement on
Form S-4 No. 33-55870

/s/ COOPERS & LYBRAND L.L.P.
Portland, Maine
March 23, 1995

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the following Registration
Statements and related Prospectuses of our report dated March 26, 1993, with
respect to the 1992 consolidated financial statements and schedules of UNUM
Corporation and subsidiaries incorporated by reference or included in this
Annual Report (Form 10-K) for the year ended December 31, 1994:

Form S-8 No. 33-31270 pertaining to the UNUM Employees Retirement
Savings Plan and Trust

Form S-8 No. 33-19090 pertaining to the 1987 Executive Stock
Option Plan

Form S-8 No. 33-38225 pertaining to the 1990 Long-Term Stock
Incentive Plan

Form S-8 No. 33-60124 pertaining to the Colonial Companies, Inc.
Security Saver Plan

Form S-8 No. 33-52741 pertaining to the 1990 Long-Term Stock
Incentive Plan.

Form S-3 No. 33-36873

Form S-3 No. 33-69132

Post-Effective Amendment No. 1 on Form S-8 to Registration
Statement on Form S-4 No. 33-55870

/s/ ERNST & YOUNG L.L.P.
Boston, Massachusetts
March 22, 1995

<PAGE>

EXHIBIT 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Kevin J. Tierney and John-Paul DeRosa his true and
lawful attorney-in-fact and agent, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign the Annual Report on Form 10-K for the year ending December
31, 1994 of UNUM Corporation pursuant to the Securities Exchange Act of 1934 and
any or all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, and hereby ratifies and confirms all his said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.

Witness our signatures on the date set forth below:

<TABLE>

Signature Title Date

<S> <C> <C>
/s/ Gayle O. Averyt Director March 24, 1995
Gayle O. Averyt

/s/ Kenneth S. Axelson Director March 24, 1995
Kenneth S. Axelson

/s/ Robert E. Dillon, Jr. Director March 24, 1995
Robert E. Dillon, Jr.

/s/ Gwain H. Gillespie Director March 24, 1995
Gwain H. Gillespie

/s/ Ronald E. Goldsberry Director March 24, 1995
Ronald E. Goldsberry

</TABLE>

<PAGE>

<TABLE>

Signature Title Date

/s/ Donald W. Harward Director March 24, 1995
Donald W. Harward

/s/ George J. Mitchell Director March 24, 1995
George J. Mitchell

/s/ Cynthia A. Montgomery Director March 24, 1995
Cynthia A. Montgomery

________________ Director March 24, 1995
James L. Moody, Jr.

/s/ Lawrence R. Pugh Director March 24, 1995
Lawrence R. Pugh

/s/ Lois Dickson Rice Director March 24, 1995
Lois Dickson Rice

/s/ John W. Rowe Director March 24, 1995
John W. Rowe

</TABLE>

<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS OF UNUM CORPORATION AND SUBSIDIARIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONTAINED IN UNUM CORPORATION'S
SEC FORM 10-K DATED DECEMBER 31, 1994.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<DEBT-HELD-FOR-SALE> 1,640,600
<DEBT-CARRYING-VALUE> 6,227,200
<DEBT-MARKET-VALUE> 6,168,600
<EQUITIES> 627,900
<MORTGAGE> 1,216,300
<REAL-ESTATE> 190,800
<TOTAL-INVEST> 10,433,800
<CASH> 36,100
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 1,035,200
<TOTAL-ASSETS> 13,127,200
<POLICY-LOSSES> 5,445,500
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 4,058,800
<NOTES-PAYABLE> 428,700
<COMMON> 10,000
0
0
<OTHER-SE> 1,905,400
<TOTAL-LIABILITY-AND-EQUITY> 13,127,200
2,732,400
<INVESTMENT-INCOME> 770,200
<INVESTMENT-GAINS> 45,600
<OTHER-INCOME> 75,500
<BENEFITS> 2,248,100
<UNDERWRITING-AMORTIZATION> (155,300)<F1>
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 198,600
<INCOME-TAX> 43,900
<INCOME-CONTINUING> 154,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 154,700
<EPS-PRIMARY> 2.09
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>THIS ITEM CONTAINS THE AMOUNTS OF DEFERRED AND AMORTIZED POLICY ACQUISITION
COSTS FOR THE PERIOD PRESENTED.
</FN>

</TABLE>