UNUM CORP, 10-K, 1997-03-25

UNUM CORP
10-K, 1997-03-25
ACCIDENT & HEALTH INSURANCE

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to

Commission file number 1-9254

UNUM Corporation

(Exact name of registrant as specified in its charter)

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Delaware 01-0405657
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

2211 Congress Street, Portland, Maine 04122
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (207) 770-2211

Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Common stock, $0.10 par value New York Stock Exchange
Pacific Stock Exchange
Preferred stock purchase rights New York Stock Exchange
Pacific Stock Exchange
8.8% Junior Subordinated Deferrable Interest New York Stock Exchange
Debentures, Series A, Due 2025
</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. [X]

The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 7, 1997, was approximately $5,384,300,000.

As of March 7, 1997, 70,832,485 shares of the registrant's common stock were
outstanding.

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DOCUMENTS INCORPORATED BY REFERENCE

Information from the Registrant's proxy statement for the Annual Meeting of
Shareholders on May 9, 1997, is incorporated by reference into Part III.

Exhibit Index appears on page 76.

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<PAGE>

TABLE OF CONTENTS

PART I

<TABLE>
<CAPTION>
Item Page
- ---- ----
<S> <C> <C>
1. Business .............................................................................. 1
A. Description of Business ............................................................ 1
B. Disability Insurance Segment ....................................................... 2
C. Special Risk Insurance Segment .................................................... 4
D. Colonial Products Segment ......................................................... 5
E. Retirement Products Segment ....................................................... 5
F. Investments ......................................................................... 6
G. Risk Management and Reinsurance ................................................... 7
H. Reserves ........................................................................... 8
I. Employees ......................................................................... 8
J. Competition ......................................................................... 8
K. Regulation ........................................................................ 8
L. Participation Fund Account .......................................................... 9
2. Properties ........................................................................... 10
3. Legal Proceedings ..................................................................... 10
4. Submission of Matters to a Vote of Security Holders .................................... 10
PART II
5. Market for the Registrant's Common Equity and Related Stockholder Matters ............ 10
6. Selected Financial Data ............................................................... 11
7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13
8. Financial Statements and Supplementary Data .......................................... 33
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ... 66
PART III
10. Directors and Executive Officers of the Registrant .................................... 66
A. Directors of the Registrant ......................................................... 66
B. Executive Officers of the Registrant ................................................ 66
11. Executive Compensation ............................................................... 67
12. Security Ownership of Certain Beneficial Owners and Management ........................ 67
13. Certain Relationships and Related Transactions ....................................... 67
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ..................... 68
Signatures ........................................................................... 69
Index to Exhibits ..................................................................... 76
</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 providers 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 insurance. The operations of the subsidiaries, as
described below, 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.

Effective December 31, 1996, UNUM merged Commercial Life Insurance Company
("Commercial Life") into UNUM Life Insurance Company of America ("UNUM America")
to accelerate growth of its special risk business, increase its commitment to
the Association Group disability business, and to improve operating and capital
efficiencies. Following the merger, UNUM America is a leader in special risk
insurance and professional association insurance marketing.

UNUM conducts its operations in the United States through a number of
wholly-owned subsidiaries including: 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 and long
term care insurance; First UNUM Life Insurance Company ("First UNUM"), a New
York life insurance company; Duncanson & Holt, Inc. ("D&H"), a New York
corporation and a leading accident and health reinsurance underwriting manager;
Colonial Companies, Inc. ("Colonial Companies"), a Delaware holding company
whose wholly-owned subsidiary, Colonial Life & Accident Insurance Company
("Colonial"), is a leader in payroll-deducted voluntary employee benefits
offered to employees at their worksites; and UNUM Holding Company, a Delaware
corporation. Through UNUM Holding Company, UNUM Corporation also owns Claims
Service International, Inc., a Delaware corporation, which provides claims
administration services, and UNUM Sales Corporation, a Delaware corporation. As
of December 31, 1996, UNUM Sales Corporation is no longer registered as a
licensed broker-dealer coinciding with the sale of UNUM America and First UNUM's
respective group tax-sheltered annuity ("TSA") businesses as discussed below.

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 by Duncanson & Holt Europe Ltd., a
wholly-owned subsidiary of D&H.

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

On March 26, 1993, UNUM merged with Colonial Companies. Under the merger
agreement, UNUM exchanged 0.731 shares of its common stock for each share of
Colonial Companies 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 Companies 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.

<PAGE>

Disability Insurance, Special Risk Insurance, Colonial Products and Retirement
Products. Corporate includes transactions that are generally non-insurance
related and interest expense on corporate borrowings. For comparative purposes,
1994 information was previously restated to reflect reporting in these segments.

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

B. Disability Insurance Segment

The Disability Insurance segment, which in 1996 accounted for 59.0% of
UNUM's revenues and 63.0% of its income before income taxes, includes disability
products offered in North America, the United Kingdom and Japan including: group
LTD, group short term disability ("group STD"), individual disability,
Association Group disability, disability reinsurance operations and long term
care insurance.

UNUM America and First UNUM:

UNUM America and First UNUM market their group and individual insurance
products, which are included in the Disability Insurance and Special Risk
Insurance segments, through a network of 35 offices in the United States and
Canada which utilize brokers to distribute these products. As of December 31,
1996, these branch offices were organized into five regions and were staffed
with approximately 870 management, sales, service and administrative personnel.

Group Long Term Disability

UNUM America and First UNUM's group LTD product is the Disability Insurance
segment's principal product. UNUM America and First UNUM target sales of group
LTD to executive, administrative and management personnel, and other
professionals, such as doctors, attorneys, accountants and engineers. Since
1976, UNUM America and First UNUM combined have been the United States' 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 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 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 investment
income.

The group LTD product 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.

Individual Disability

Individual disability 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 1995 INDIVIDUAL HEALTH ISSUES AND INFORCE
SURVEY for the United States and Canada, the most recent available data, UNUM
America and First UNUM combined were the fourth largest provider of individual
disability income policies measured by inforce premium.

On October 23, 1996, UNUM announced the execution of a definitive
reinsurance agreement between UNUM America and Centre Life Reinsurance Limited
("Centre Re"), a Bermuda based reinsurance specialist, for reinsurance coverage
of the active life reserves of UNUM America's existing United States
non-cancellable individual disability ("ID") block of business. This agreement
does not reinsure any claims incurred prior to January 1, 1996. The agreement
follows UNUM's announcement in late 1994, as discussed below, that it would no
longer market the non-cancellable form of ID coverage in the United States. The
agreement was effective December 31, 1996. For a detailed discussion of the
reinsurance agreement refer to Item 8 (Note 6).

UNUM announced in November 1994 that it would discontinue sales of the
traditional, fixed price, non-cancellable individual disability product
("non-cancellable product") in the United States upon introduction of a new
disability product in each state. During the second quarter of 1995, UNUM
introduced the Lifelong Disability Protection ("LDP") product, which replaces
the non-cancellable product. LDP policies are issued on a "guaranteed renewable"
basis, which means that UNUM cannot refuse to renew any policy, but it does
reserve the right to

2
<PAGE>

increase premiums for inforce policies. This right to change premiums is or may
be subject to various state insurance department rules, regulations, and
approvals.

The LDP product provides benefits and transitional support for moderate
disabilities, while providing richer benefits for severe disabilities. Various
options are available that permit tailoring of insurance coverage to the
specific client's needs. The most common options include up to 60% base income
replacement coverage, an option to purchase up to 40% further coverage in the
event of catastrophic injury or illness involving the loss of two or more
Activities of Daily Living, and an automatic option to convert to a long term
care policy at retirement age. Following the approval of the LDP product, sales
of the non-cancellable product have been discontinued in the United States. 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.

Following the completion of its merger with Commercial Life, UNUM America
is a leading provider of disability insurance in the association marketplace,
offering disability income coverage to members of professional associations.
UNUM expects to introduce new conditionally renewable products for sale through
its association channel in the first quarter of 1997, subject to regulatory
approvals. As a result of the merger, UNUM now reports the operations of the
Association Group disability business with the individual disability business.

Group Short Term Disability

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 America and First UNUM combined were the top
provider of group STD for 1995, based on premium and number of inforce lives.

Long Term Care

UNUM America and First UNUM market long term care ("LTC") insurance to
employer groups and individuals. The group LTC 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. LTC provides
insurance coverage for nursing home and home care costs when the insured
sustains the loss of two or more Activities of Daily Living or sustains
cognitive impairment.

LTD Reinsurance

UNUM America assumes certain insurance risks through long term disability
reinsurance operations managed by Duncanson & Holt Services Inc., a leading
manager of group LTD reinsurance in the United States and wholly-owned
subsidiary of D&H.

UNUM Limited:

UNUM Limited was the leading provider for 1995 of group LTD insurance in
the United Kingdom, as reported by EMPLOYERS RE. INTERNATIONAL. UNUM Limited
targets group LTD sales to executive, administrative and management personnel,
and other professionals. These products are marketed through a network of
independent brokers. UNUM Limited's group LTD 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
through brokers and agents to self-employed individuals and those not covered
under group policies. Premiums for group LTD and individual disability insurance
are based upon the expected mortality, morbidity and persistency of the insured
group, as well as assumptions concerning operating expenses and investment
income.

In May 1994, UNUM Limited assumed the management of the group risk
portfolio of Windsor Life Assurance Company Limited ("Windsor Life"), which
included group LTD and group life products. Windsor Life was the third largest
group LTD provider in the United Kingdom in 1993, as reported by EMPLOYERS RE.
INTERNATIONAL.

<PAGE>

UNUM Japan:

On June 20, 1994, the Japanese Ministry of Finance granted UNUM a
provisional license that 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.

UNUM Japan targets sales of group and individual long term disability
products ("LTD products") to executive, administrative and management personnel,
and other professionals. These products are marketed through contracted
independent agents and brokers. The LTD products provide 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 365-day waiting periods and continue providing benefits until the
employee reaches age 65-70. The benefits of the LTD products are paid monthly
and generally are limited to 60% of the employee's earned income up to a
specified maximum benefit. Premiums for LTD insurance are based upon the
expected mortality, morbidity and persistency of the insured group, as well as
assumptions concerning operating expenses and investment income.

UNUM Japan also acquires premiums as a reinsurer of LTD products in Japan
and Hong Kong. These reinsurance treaty arrangements are mostly quota share
coinsurance. The direct insurer is subject to compliance with UNUM Japan's risk
management standards for pricing, underwriting, and claims management.

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

C. Special Risk Insurance Segment

The Special Risk Insurance segment in 1996 accounted for 20.1% of UNUM's
revenues and 23.2% of its income before income taxes. The Special Risk Insurance
segment includes group life, special risk accident insurance, non-disability
reinsurance operations, reinsurance underwriting management operations and other
special risk insurance products.

The Special Risk Insurance segment's group insurance products are 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 America and First UNUM's group life insurance products provide term
insurance to a broad range of employees. As reported by EMPLOYEE BENEFIT PLAN
REVIEW for 1995, UNUM America and First UNUM combined were the seventh largest
writer of group life insurance in the United States, based on number of inforce
contracts. UNUM America and First UNUM also offer group universal life insurance
on a payroll deduction basis through a network of independent brokers and
specialty agents, and group accidental death and dismemberment riders. In
addition, term life insurance is sold through the association group channel.

Following the completion of its merger with Commercial Life, UNUM America
is a leading provider of group special risk accident products, including group
travel and voluntary accident insurance. UNUM America markets special risk
products, which are offered on an employer or employee-paid basis, through a
network of independent brokers and specialty agents.

On July 30, 1992, UNUM purchased D&H, a leading accident and health
reinsurance underwriting manager. As a reinsurance underwriting manager, D&H is
authorized to conduct reinsurance business on behalf of the member companies
participating in its reinsurance facilities. D&H provides pool management
services that may include marketing, underwriting, administration, claims
payment and actuarial services for client companies. D&H and its subsidiaries do
not bear any insurance risk, with the exception of Duncanson & Holt Underwriters
Ltd., a wholly- owned subsidiary of Duncanson & Holt Europe Ltd. On May 3, 1996,
D&H acquired three associated reinsurance underwriting managers specializing in
accident and health business. D&H has offices throughout the United States and
in London, Toronto, Bermuda and Singapore.

During 1995, Duncanson & Holt Europe Ltd., an affiliate of D&H based in the
United Kingdom, was authorized by Lloyd's of London to establish two new Lloyd's
Managing Agents and to acquire a third existing Lloyd's Managing Agent. Each
manages a syndicate that underwrites primarily personal accident and other
"non-marine" classes of business at Lloyd's of London.

The non-disability reinsurance operations include UNUM America's
participation in reinsurance facilities managed by D&H, facilities managed by
non-related companies and direct reinsurance arrangements primarily for

4
<PAGE>

accident and health, long term care and special risks. As a member company in
reinsurance facilities, UNUM America assumes a share of the insurance risk of
the facility.

Refer to Item 7 and Item 8 (Note 16) under the caption "Special Risk
Insurance Segment" for more information.

D. Colonial Products Segment

The Colonial Products segment in 1996 accounted for 13.5% of UNUM's
revenues and 27.0% of its income before income taxes. The Colonial Products
segment includes Colonial and affiliates. Colonial markets a broad line of
payroll-deducted, voluntary benefits to employees at their worksites, while
focusing on accident and sickness, cancer and life products. Colonial markets
its products nationwide primarily through a 7,900-member independent contractor
sales force.

Colonial'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 offers a wide range
of life insurance products, with universal life and whole life accounting for
most of the life insurance sold. Colonial's cancer policies are designed to
provide payments for hospitalization and scheduled medical benefits. All of
Colonial's insurance policies are issued on a nonparticipating basis.

More than 98% of Colonial's premiums for 1996 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" basis, which means that Colonial 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.

Colonial markets 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 1996,
premiums from sales to employees participating in such programs accounted for
approximately 50% 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's ability to continue marketing its products in this way, Colonial
believes its products provide policyholders value, which will remain even if the
tax advantages offered by flexible benefit programs are eliminated.

Colonial Companies' subsidiary, BenefitAmerica, Inc. ("BenefitAmerica"),
offers employers administrative services for their employee benefit programs.
The services offered by BenefitAmerica include administration of flexible
spending accounts, 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.

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

E. Retirement Products Segment

The Retirement Products segment accounted for 7.0% of UNUM's revenues and
0.4% of its income before income taxes in 1996. This segment includes UNUM
America and First UNUM's tax-sheltered annuities ("TSA"), guaranteed investment
contracts, deposit administration accounts, 401(k) plans, individual life and
group medical insurance, all of which are no longer actively marketed.

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

<PAGE>

F. Investments

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

Effective January 1, 1996, UNUM began using the categories for geographic
region and property type established by the American Council of Life Insurance.
For comparative purposes, 1995 information has been restated in the tables below
to reflect this change.

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, 1996, and
1995, were as follows:

Geographic Region

1996 1995
---- ----
New England ............ 12.4% 12.3%
Mid-Atlantic ............ 12.7 11.3
South Atlantic ......... 16.1 16.6
Mountain ............... 7.5 7.9
Pacific .................. 15.7 14.1
West South Central ...... 6.8 7.8
East South Central ...... 5.4 5.6
West North Central ...... 11.3 10.1
East North Central ...... 12.0 14.2
Other .................. 0.1 0.1
------ ------
Total .................. 100.0% 100.0%
====== ======

Property Type

1996 1995
---- ----
Office Building ......... 26.1% 28.2%
Retail ............... 33.0 33.5
Industrial ............ 27.1 23.3
Apartment ............ 8.2 7.1
Hotel/Motel ............ 3.8 5.6
1-4 Family ............ 0.1 0.1
Other Commercial ...... 1.7 2.2
------ ------
Total ............... 100% 100%
====== ======

Mortgage loans delinquent 60 days or more on a contract delinquency basis
by geographic region and property type were as follows at December 31, 1996, and
1995 (dollars in millions):

Geographic Region

1996 1995
---- ----
Mid-Atlantic ............ $3.5 $--
East North Central ...... 2.1 2.8
----- ----
Total .................. $5.6 $2.8
===== ====

Property Type

1996 1995
---- ----
Office Building ...... $-- $2.8
Retail ............... 5.6 --
---- -----
Total ............... $5.6 $2.8
==== =====

Effective January 1, 1995, UNUM adopted Financial Accounting Standard
("FAS") No. 114, "Accounting by Creditors for Impairment of a Loan," which
defined 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.

Impaired loans by geographic region and property type were as follows at
December 31, 1996, and 1995 (dollars in millions):

Geographic Region

1996 1995
---- ----
New England ............ $14.6 $14.9
Mid-Atlantic ............ 8.4 3.6
South Atlantic ......... 9.1 11.7
Mountain ............... 8.8 12.3
West South Central ...... 4.8 4.8
West North Central ...... 2.6 --
East North Central ...... 2.1 2.8
------ ------
Total .................. $50.4 $50.1
====== ======

Property Type

1996 1995
---- ----
Office Building ...... $22.0 $28.7
Retail ............... 18.2 16.0
Industrial ............ 10.2 5.4
------ ------
Total ............... $50.4 $50.1
====== ======

<PAGE>

Mortgage loans that were restructured prior to the adoption of FAS 114, by
geographic region and property type were as follows at December 31, 1996, and
1995 (dollars in millions):

Geographic Region

1996 1995
---- ----
New England ............ $0.7 $3.3
South Atlantic ......... 13.3 13.5
Mountain ............... 7.7 7.8
Pacific .................. 7.9 9.6
West South Central ...... 2.5 2.6
West North Central ...... 8.7 8.7
East North Central ...... 14.0 14.4
----- -----
Total .................. $54.8 $59.9
===== =====

Property Type

1996 1995
---- ----
Office Building ...... $24.3 $25.0
Retail ............... 12.5 12.6
Industrial ............ 5.8 5.8
Apartment ............ 4.4 7.0
Hotel/Motel ............ 7.8 7.9
Other Commercial ...... -- 1.6
------ ------
Total ............... $54.8 $59.9
====== ======

G. 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 and
evaluation 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 risk it has
underwritten. Reinsurance allows UNUM to sell policies with higher 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.

Within the Disability Insurance and Special Risk Insurance segments, UNUM
America and First UNUM have underwriters for group disability, individual
disability, Association Group disability, group life, long term care, and
accidental death and dismemberment products. These underwriting functions are
aligned geographically with UNUM America and First UNUM's five sales regions.
Quotes for prospective customers are based upon UNUM America and First UNUM's
experience with profitability and persistency of the respective employer's risk
category. The maximum group LTD, group STD, Association Group disability and LTC
monthly benefit varies, but the usual maximum monthly amount available is
$35,000, $10,000, $10,000 and $6,000, respectively. For group life insurance
products, UNUM retains up to $750,000 per individual life and reinsures the
balance with other insurance carriers. In addition, UNUM America reinsures the
risk on its accidental death and dismemberment contracts that exceeds $400,000
on any one life.

During 1996, UNUM America entered into an agreement for reinsurance
coverage of the active life reserves of UNUM America's existing United States
non-cancellable individual disability block of business. For more information on
the reinsurance agreement refer to Item 1B under the caption "Individual
Disability."

During 1995, UNUM America and First UNUM introduced the guaranteed
renewable Lifelong Disability Protection product ("LDP"), following the decision
in late 1994 to discontinue sales of the traditional fixed price,
non-cancellable individual disability insurance product in the United States. At
the end of 1996, the LDP product has been approved in all 50 states and the
District of Columbia. 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 LDP product, UNUM retains up to $8,000 basic
monthly indemnity per life for personal disability coverages. UNUM also retains
up to $20,000 per life for business overhead expense coverages and $500,000 per
life for buy/sell coverages.

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 initial 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 225,000 pounds sterling per individual life.

UNUM (except for Colonial) reinsures the risk of individual life insurance
contracts that exceed $425,000 on any one life. Colonial limits its risk for
death and dismemberment benefits to $100,000 per life. During 1996,

<PAGE>

Colonial entered into an agreement to reinsure a majority of the mortality risk
on new and inforce universal life business, for which Colonial retains 20% of
the risk under $100,000 per individual life. Colonial also has reinsurance on
its cancer insurance products that provides coverage for claim payments in
excess of $55,000 in any one year, per claimant, up to a lifetime maximum of $1
million per claimant.

In addition to the reinsurance arrangements above, UNUM is covered by
catastrophe reinsurance, which provides additional protection against aggregate
losses in excess of $1 million up to a maximum of $250 million. This protection
is activated whenever one catastrophic event causes the disability and/or death
of three or more lives insured under UNUM's disability, life, or personal
accident contracts.

Reinsurance premiums assumed and ceded for the year ended December 31,
1996, were $252.9 million and $106.4 million, respectively. No current or
planned reinsurance activity is expected to have a significant impact on the
ability of UNUM to underwrite additional insurance.

H. Reserves

The reserves reported in the consolidated financial statements have been
computed in accordance with generally accepted accounting principles ("GAAP").
These reserve balances generally differ from those specified by the laws of the
various states and 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, and South
Carolina, the United Kingdom and Japan, UNUM's insurance subsidiaries (UNUM
America, First UNUM, Colonial 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 that, 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 federal 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 on 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.

I. Employees

At December 31, 1996, UNUM had approximately 6,700 full-time employees.
UNUM does not have collective bargaining agreements with employees.

J. Competition

The principal competitive factors affecting UNUM's business are reputation,
financial strength, quality of service, risk management expertise, distribution,
product design, and price. There is competition among insurance companies for
the types of group and individual insurance products sold by UNUM. At the end of
1996, there were more than 1,700 legal reserve life insurance companies in the
United States and Canada and life assurance offices in the United Kingdom. These
companies may offer insurance products similar to those marketed by UNUM. Group
insurance is highly competitive because of the large number of insurance
companies and other entities offering these products.

K. 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, Canada, the United Kingdom and Japan, as applicable.

<PAGE>

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 from Maine, New
York and South Carolina, and from other states (on an "association" 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 laws and regulations. UNUM Japan is required to file financial
statements annually 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 disability, life, accident and health policies, and
annuities. These reserves are verified periodically by various regulators.

UNUM's reinsurance underwriting manager, 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 Lloyd's of London and is subject to rules
applicable to such members.

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, and South
Carolina, which is the domiciliary state of Colonial, 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 and South Carolina.
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, 1996, the required deposit was $313.5
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.

L. 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, 1996, the
PFA had $354.0 million in assets, which were held by UNUM America. UNUM agreed
to pay certain expenses associated with the PFA and at December 31, 1996, the
reserve for the present value of such expenses was $13.9 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.

<PAGE>

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 six 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
Limited. The home office of the Colonial Companies, located in Columbia, South
Carolina, is also owned by UNUM. In addition, UNUM leases, on periods
principally from three to six years, office 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, 1996. In some instances, these
proceedings include claims for punitive damages and similar types of relief in
unspecified or substantial amounts, in addition to amounts for alleged
contractual liability or other compensatory damages. 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.

On December 29, 1993, UNUM filed a suit in the United States District Court
for the District of Maine, seeking a federal income tax refund. The suit is
based on a claim for a deduction in certain prior tax years, for $652 million in
cash and stock distributed to policyholders in connection with the 1986
conversion of Union Mutual Life Insurance Company to a stock company. UNUM has
fully paid, and provided for in prior years' financial statements, the tax at
issue in this litigation. On May 23, 1996, the District Court issued its
decision that the distribution in question was not a deductible expenditure.
UNUM believes its claims are meritorious, and has appealed the decision to the
United States Court of Appeals for the First Circuit. The ultimate recovery, if
any, cannot be determined at this time.

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 of 1996.

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, 1996, there were 23,303 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 13).

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>
1996 1995
--------------------------------------------------- ------------------------------------------------
4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High ............... $73.500 $66.000 $63.000 $61.875 $56.500 $54.000 $48.000 $46.000
Low ............... $61.000 $56.750 $55.500 $54.750 $50.625 $45.375 $39.875 $37.750
Close ............... $72.250 $64.125 $62.250 $59.500 $55.000 $52.750 $46.875 $45.250
Dividend Paid ...... $ 0.275 $ 0.275 $ 0.275 $ 0.265 $ 0.265 $ 0.265 $ 0.265 $ 0.240
</TABLE>

<PAGE>

Item 6--Selected Financial Data

The following should be read in conjunction with UNUM's Consolidated
Financial Statements and related notes reported in Item 8.

UNUM CORPORATION AND SUBSIDIARIES

SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in millions, except per common share data)

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1996 1995 1994 1993
----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Income Statement Data
Revenues:
Premiums and other income
(expense):
Disability Insurance Segment ...... $1,917.7 $1,879.9 $1,716.2 $ 1,547.9
Special Risk Insurance Segment ... 755.4 702.3 607.1 559.4
Colonial Products Segment ......... 498.2 475.1 441.3 407.4
Retirement Products Segment ...... 65.8 34.1 31.4 42.5
Corporate ........................ -- 0.1 0.8 --
-------- -------- -------- ---------
Total premiums and other income ... 3,237.1 3,091.5 2,796.8 2,557.2
-------- -------- -------- ---------
Net investment income (expense): (a)
Disability Insurance Segment ...... 468.5 592.9 400.3 369.8
Special Risk Insurance Segment ... 56.5 48.4 40.7 34.8
Colonial Products Segment ......... 47.3 52.2 32.6 41.4
Retirement Products Segment ...... 217.2 323.7 338.0 387.6
Corporate ........................ 16.1 14.2 4.2 6.2
-------- -------- -------- ---------
Total net investment income ...... 805.6 1,031.4 815.8 839.8
-------- -------- -------- ---------
Total revenues ..................... 4,042.7 4,122.9 3,612.6 3,397.0
-------- -------- -------- ---------
Benefits and expenses:
Disability Insurance Segment ...... 2,170.9 2,255.8 2,060.3 1,603.6
Special Risk Insurance Segment ... 732.7 690.4 581.9 555.3
Colonial Products Segment ......... 453.1 439.6 411.2 378.4
Retirement Products Segment ...... 281.6 312.3 327.4 375.8
Corporate ........................ 62.8 42.9 33.2 23.6
-------- -------- -------- ---------
Total benefits and expenses ...... 3,701.1 3,741.0 3,414.0 2,936.7
-------- -------- -------- ---------
Income (loss) before income taxes
and cumulative effects of
accounting changes:
Disability Insurance Segment ...... 215.3 217.0 56.2 314.1
Special Risk Insurance Segment ... 79.2 60.3 65.9 38.9
Colonial Products Segment ......... 92.4 87.7 62.7 70.4
Retirement Products Segment ...... 1.4 45.5 42.0 54.3
Corporate ........................ (46.7) (28.6) (28.2) (17.4)
-------- -------- -------- ---------
Total income before income taxes and
cumulative effects of accounting
changes ........................... 341.6 381.9 198.6 460.3
-------- -------- -------- ---------
Income taxes (credit) ............... 103.6 100.8 43.9 148.3
-------- -------- -------- ---------
Cumulative effects of accounting
changes ........................... -- -- -- (12.1)(b)
-------- -------- -------- ---------
Net income ........................ $ 238.0 $ 281.1 $ 154.7 $ 299.9
======== ======== ======== =========
Per common share:
Net income ........................ $ 3.26 $ 3.87 $ 2.09 $ 3.81(b)
Dividends paid ..................... $ 1.09 $ 1.035 $ 0.92 $ 0.765
======== ======== ======== =========

<PAGE>

<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1992 1991 1990 1989 1988 1987
----------- ----------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data
Revenues:
Premiums and other income
(expense):
Disability Insurance Segment ...... $1,339.8 $1,214.6 $1,004.7 $ 803.8 $ 681.7 $ 630.8
Special Risk Insurance Segment ... 432.8 368.5 347.0 306.2 176.3 165.7
Colonial Products Segment ......... 371.9 325.4 281.1 241.0 216.7 192.1
Retirement Products Segment ...... 52.5 64.4 92.8 130.2 180.0 238.5
Corporate ........................ 0.8 -- (0.1) 0.2 -- 0.9
-------- -------- -------- ------- -------- -------
Total premiums and other income ... 2,197.8 1,972.9 1,725.5 1,481.4 1,254.7 1,228.0
-------- -------- -------- ------- -------- -------
Net investment income (expense): (a)
Disability Insurance Segment ...... 370.5 333.8 285.4 239.4 193.1 167.8
Special Risk Insurance Segment ... 32.2 26.5 23.4 24.5 12.5 12.1
Colonial Products Segment ......... 35.4 38.5 25.2 26.7 22.3 19.0
Retirement Products Segment ...... 408.7 411.3 426.1 424.0 413.2 418.2
Corporate ........................ 3.9 1.5 (9.0) 5.9 20.3 19.1
-------- -------- -------- ------- -------- -------
Total net investment income ...... 850.7 811.6 751.1 720.5 661.4 636.2
-------- -------- -------- ------- -------- -------
Total revenues ..................... 3,048.5 2,784.5 2,476.6 2,201.9 1,916.1 1,864.2
-------- -------- -------- ------- -------- -------
Benefits and expenses:
Disability Insurance Segment ...... 1,446.6 1,306.4 1,093.7 878.8 756.0 701.4
Special Risk Insurance Segment ... 418.7 355.2 342.2 312.9 180.4 172.0
Colonial Products Segment ......... 346.8 306.4 259.6 225.5 201.1 178.6
Retirement Products Segment ...... 427.5 484.4 491.6 535.9 580.1 685.0
Corporate ........................ 10.4 12.5 10.8 12.3 9.5 15.7
-------- -------- -------- ------- -------- -------
Total benefits and expenses ...... 2,650.0 2,464.9 2,197.9 1,965.4 1,727.1 1,752.7
-------- -------- -------- ------- -------- -------
Income (loss) before income taxes
and cumulative effects of
accounting changes:
Disability Insurance Segment ...... 263.7 242.0 196.4 164.4 118.8 97.2
Special Risk Insurance Segment ... 46.3 39.8 28.2 17.8 8.4 5.8
Colonial Products Segment ......... 60.5 57.5 46.7 42.2 37.9 32.5
Retirement Products Segment ...... 33.7 (8.7) 27.3 18.3 13.1 (28.3)
Corporate ........................ (5.7) (11.0) (19.9) (6.2) 10.8 4.3
-------- -------- -------- ------- -------- -------
Total income before income taxes and
cumulative effects of accounting
changes ........................... 398.5 319.6 278.7 236.5 189.0 111.5
-------- -------- -------- ------- -------- -------
Income taxes (credit) ............... 107.3 74.3 60.9 51.1 30.1 (4.7)
-------- -------- -------- ------- -------- -------
Cumulative effects of accounting
changes ........................... -- -- -- -- -- --
-------- -------- -------- ------- -------- -------
Net income ........................ $ 291.2 $ 245.3 $ 217.8 $ 185.4 $ 158.9 $ 116.2
======== ======== ======== ======= ======== =======
Per common share:
Net income ........................ $ 3.71 $ 3.15 $ 2.73 $ 2.03 $ 1.57 $ 1.06
Dividends paid ..................... $ 0.625 $ 0.49 $ 0.375 $ 0.285 $ 0.23 $ 0.20
======== ======== ======== ======= ======== =======
</TABLE>

- --------

(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.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars and shares in millions)

December 31,
---------------------------------------------------
Balance Sheet Data 1996 1995 1994 1993
------------ ------------ ------------ ------------
Assets ............... $15,467.5 $14,787.8 $13,127.2 $12,437.3
Long-term debt ......... $ 409.2 $ 457.3 $ 182.1 $ 128.6
Stockholders' equity ... $ 2,263.1 $ 2,302.9 $ 1,915.4 $ 2,102.7
Shares outstanding ... 71.8 73.0 72.4 76.0
Weighted average shares
outstanding during the
year .................. 73.0 72.7 74.2 78.8

<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------
Balance Sheet Data 1992 1991 1990 1989 1988 1987
------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Assets ............... $11,959.8 $11,310.9 $10,063.4 $ 9,045.7 $ 8,592.3 $ 7,783.0
Long-term debt ......... $ 77.2 $ 51.5 $ 77.2 $ 1.5 $ 1.5 $ 1.7
Stockholders' equity ... $ 2,010.9 $ 1,755.5 $ 1,490.1 $ 1,445.0 $ 1,512.3 $ 1,463.8
Shares outstanding ... 79.1 78.2 77.4 82.0 96.8 104.2
Weighted average shares
outstanding during the
year .................. 78.5 77.8 79.9 91.4 101.3 109.1
</TABLE>

<PAGE>

Item 7--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, 1996, 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.

To more clearly reflect UNUM's management of its businesses and to more
appropriately group its product portfolios, UNUM began reporting its operations,
effective January 1, 1995, principally in four business segments: Disability
Insurance, Special Risk Insurance, Colonial Products and Retirement Products.
Corporate includes transactions that are generally non-insurance related. For
comparative purposes, 1994 information was previously restated to reflect the
new reporting segments.

CONSOLIDATED OVERVIEW

<TABLE>
<CAPTION>
(Dollars and shares in millions, except per
common share amounts, and percentage
increase (decrease) over prior year) 1996 1995 1994
- --------------------------------------------- ----------------------------- ------------------------- -----------
<S> <C> <C> <C> <C> <C>
Income Data
Revenues
Premiums ................................. $3,120.4 3.4% $3,018.2 10.9% $2,721.3
Investment income ........................ 802.2 (0.5) 806.3 4.7 770.2
Net realized investment gains ............ 3.4 nm 225.1 nm 45.6
Fees and other income ..................... 116.7 59.2 73.3 (2.9) 75.5
-------- --------- -------- ------ --------
Total revenues ........................... 4,042.7 (1.9) 4,122.9 14.1 3,612.6
Benefits and expenses ..................... 3,701.1 (1.1) 3,741.0 9.6 3,414.0
-------- --------- -------- ------ --------
Income before income taxes .................. 341.6 (10.6) 381.9 92.3 198.6
Income taxes .............................. 103.6 2.8 100.8 nm 43.9
-------- --------- -------- ------ --------
Net income .............................. $ 238.0 (15.3)% $ 281.1 81.7% $ 154.7
======== ========= ======== ====== ========
Net income per common share ............... $ 3.26 $ 3.87 $ 2.09
======== ======== ========
Summary of income (loss)
before income taxes
Disability Insurance Segment ............... $ 215.3 (0.8)% $ 217.0 nm% $ 56.2
Special Risk Insurance Segment ............ 79.2 31.3 60.3 (8.5) 65.9
Colonial Products Segment .................. 92.4 5.4 87.7 39.9 62.7
Retirement Products Segment ............... 1.4 (96.9) 45.5 8.3 42.0
Corporate ................................. (46.7) 63.3 (28.6) 1.4 (28.2)
-------- --------- -------- ------ --------
Total income before income taxes ......... $ 341.6 (10.6)% $ 381.9 92.3% $ 198.6
======== ========= ======== ====== ========
Balance Sheet Data
Assets .................................... $15,467.5 $14,787.8 $13,127.2
Notes Payable .............................. $ 526.9 $ 583.8 $ 428.7
Stockholders' equity ........................ $2,263.1 $2,302.9 $1,915.4
Shares outstanding ........................ 71.8 73.0 72.4
Weighted average shares outstanding
during the year ........................... 73.0 72.7 74.2
</TABLE>

- --------
nm = not meaningful or in excess of 100%

<PAGE>

CONSOLIDATED OVERVIEW

In 1996, net income decreased by $43.1 million to $238.0 million, or $3.26
per share, from $281.1 million, or $3.87 per share, in 1995. Net income was
$154.7 million, or $2.09 per share, for the year ended December 31, 1994. A
comparison of net income is impacted by the inclusion of realized investment
gains, which were significantly higher in 1995, and several special items that
occurred in 1996, 1995 and 1994. This management's discussion and analysis
discusses the results of operations on a pretax operating income basis, which is
defined as income (loss) before income taxes exclusive of realized investment
gains (losses) and certain special items. Special items are excluded from pretax
operating income as management considers them to be unusual, and also believes a
discussion of the results on a pretax operating income basis provides a better
understanding of the results of operations. The following table summarizes
pretax operating income (loss) for the four business segments and Corporate for
the years ended December 31, 1996, 1995 and 1994, and is followed by a
discussion of the special items for those periods and a reconciliation of income
(loss) before income taxes to pretax operating income (loss).

<TABLE>
<CAPTION>
(Dollars in millions and percentage increase
(decrease) over prior year) 1996 1995 1994
- ---------------------------------------------- ------------------------ -------------------- ---------
<S> <C> <C> <C> <C> <C>
Summary of pretax operating
income (loss)
Disability Insurance Segment ............... $278.4 28.2% $217.2 (1.7)% $220.9
Special Risk Insurance Segment ............ 90.2 50.8 59.8 (9.0) 65.7
Colonial Products Segment .................. 92.7 20.7 76.8 25.9 61.0
Retirement Products Segment ............... 13.6 (37.3) 21.7 (45.5) 39.8
Corporate ................................. (37.5) 29.8 (28.9) 4.7 (27.6)
------ ------ ------ ---- ------
Total pretax operating income ............ $437.4 26.2% $346.6 (3.7)% $ 359.8
====== ====== ====== ==== ======
</TABLE>

UNUM reported increased pretax operating income for the year ended December
31, 1996, as compared with the same period in 1995. The increase was primarily
attributable to improved claims experience and management's continued focus on
risk management programs, both of which lowered the benefit ratios for certain
product lines. In particular, group long term disability ("group LTD") and UNUM
Limited, reported in the Disability Insurance segment, and the group life
business, reported in the Special Risk Insurance segment, were favorably
affected by lower benefit ratios. Increased investment income also favorably
affected pretax operating income in the Disability Insurance and Special Risk
Insurance segments. Partially offsetting these favorable items were increased
operating expenses in the Disability Insurance segment, in the group life
business reported in the Special Risk Insurance segment and in Corporate. In
addition, certain other disability products were negatively affected by higher
benefit ratios.

The decrease in pretax operating income in 1995 was primarily attributable
to higher benefit ratios at UNUM Limited and in the group LTD and group life
businesses, increased interest expense, and lower interest spread margins on the
tax sheltered annuity business. Partially offsetting these items were increased
investment income, a lower benefit ratio in the individual disability business,
and lower expenses.

Realized Investment Gains

During the second quarter of 1995, UNUM sold virtually all of the common
stock portfolio of its United States subsidiaries, primarily due to
consideration of statutory capital requirements associated with investment in
common stocks and to increase future investment income. The sale of the common
stock portfolio contributed to significantly higher pretax realized investment
gains for the year ended December 31, 1995, as compared with 1996 and 1994. UNUM
reinvested the proceeds from the sale of the common stock portfolio primarily in
investment grade fixed income assets, which decreased the required amount of
statutory capital for regulatory purposes and increased investment income.
Dependent on capital considerations and market conditions, UNUM may invest in
equity securities in the future.

Special Items in 1996

Individual Disability Reinsurance Fees

During the fourth quarter of 1996, UNUM executed a definitive reinsurance
agreement between UNUM Life Insurance Company of America ("UNUM America") and
Centre Life Reinsurance Limited ("Centre Re"), a

<PAGE>

Bermuda based reinsurance specialist, for reinsurance coverage of the active
life reserves of UNUM America's existing United States non-cancellable
individual disability block of business. As a result, UNUM recognized a pretax
charge of $49.7 million in the Disability Insurance segment, which represents
the present value of the anticipated minimum amount of fees to be paid to Centre
Re under the agreement. For additional information see the Disability Insurance
segment discussion.

Intangible Asset Write-offs and Future Loss Reserves

In connection with the merger of Commercial Life Insurance Company
("Commercial Life") into UNUM America, the sale of UNUM America's tax sheltered
annuity business, as well as UNUM's continued efforts to strengthen its focus on
its core products, the company initiated a review of certain products, which
resulted in the recognition of pretax charges totaling $39.4 million during
third quarter 1996. These charges reduced income before income taxes by $13.1
million in the Disability Insurance segment, $11.3 million in the Special Risk
Insurance segment, and $15.0 million in the Retirement Products segment, for the
year ended December 31, 1996.

The charges include the write-off of certain intangible assets, primarily
deferred acquisition costs, totaling $17.0 million. These intangible assets have
been deemed unrecoverable primarily due to the expectation of continued losses
in the Association Group disability business. Additionally, in conjunction with
the completion of a review of UNUM's discontinued product portfolio, a $22.4
million charge was taken to establish a reserve for the present value of
expected future losses on certain discontinued products. Future losses for these
products will be charged to the reserve at the time the losses are realized. The
products incorporated in the charge consist of certain discontinued special
risk, retirement and medical products. UNUM is pursuing the sale of some of
these discontinued product lines.

Commercial Life Merger and Integration Costs

During the third quarter of 1996, actions related to the merger of
Commercial Life into UNUM America resulted in a $10.1 million increase in
operating expenses for Corporate. The $10.1 million charge consisted of $2.9
million of direct costs incurred and the recording of a $7.2 million
restructuring charge to recognize $2.8 million of future severance costs for 120
employees and $4.4 million of lease exit costs, primarily related to the merger.

Special Items in 1995

Disability Reserve Increase from Portfolio Rate Adjustment

Reserves for certain disability products are discounted using an interest
rate which is a composite yield of assets identified with each product. As a
result of the sale of the common stock portfolio, which had partially supported
these disability reserves, and the subsequent reinvestment of the proceeds
primarily in investment grade fixed income assets at yields below the average
portfolio yield, certain reserve discount rates were lowered during second
quarter 1995. For the year ended December 31, 1995, the effect of lowering these
discount rates was an increase to the reserve liabilities and benefits to
policyholders reported in the Disability Insurance segment of $128.6 million.

Group LTD IBNR Increase

During the second quarter of 1995, UNUM increased the group LTD reserves
for incurred but not reported ("IBNR") claims and benefits to policyholders
reported in the Disability Insurance segment by $38.4 million. IBNR reserves,
which are established to fund anticipated case reserves for claims which have
been incurred but not reported to UNUM, are actuarially established based on
various factors, including incidence levels and claims severity. The increased
IBNR reserves were based on management's judgment that claims incurred but not
yet reported would reflect increased levels of claims incidence and severity.

Association Group Disability Reserve Strengthening

In 1995, the Association Group disability business was negatively affected
by unfavorable claims experience, which management attributed to certain
geographical and occupational segments, particularly dentists and physicians.
During the fourth quarter of 1995, UNUM increased reserves for unpaid claims
related to the Association Group disability business by $15.0 million reported
in the Disability Insurance segment. These increased reserves were based on
management's expectations of slower than expected claim recoveries.

<PAGE>

Other Charges

To strengthen its focus on its core products, UNUM recognized a charge in
the third quarter of 1995 for costs associated with the sale of its dental
business reported in the Special Risk Insurance segment. The charge, which
primarily consisted of the write-off of deferred acquisition costs, reduced
income before income taxes by $2.8 million.

During the second quarter of 1995, UNUM recorded an additional charge for
costs associated with the previously announced decision to discontinue the
individual disability non-cancellable product and organizational changes within
UNUM America, which increased operating expenses by $5.0 million. This charge
reduced income before income taxes by $2.9 million in the Disability Insurance
segment, $1.1 million in the Special Risk Insurance segment, and $1.0 million in
the Retirement Products segment for the year ended December 31, 1995.

Special Items in 1994

Individual Disability Reserve Strengthening

Throughout 1994, UNUM's individual disability business experienced a higher
incidence of new claims and a disproportionate number of large claims, which
management attributed to certain geographic and occupational segments of the
business, particularly physicians. 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. As a result, in third quarter 1994, UNUM increased
reserves for existing claims by $83.3 million and strengthened reserves for
estimated future losses by $109.1 million, resulting in an increase to benefits
to policyholders reported in the Disability Insurance segment of $192.4 million.
These increased reserves reflected management's expectations of morbidity trends
for the existing non-cancellable individual disability business. It is not
possible to predict whether morbidity trends will be consistent with UNUM's
assumptions; however, as of December 31, 1996, management believes that the
strengthened reserve levels continue to be adequate.

Restructuring Charges

In the fourth quarter of 1994, UNUM recorded a pretax charge of $14.4
million related to the decision to discontinue the individual disability
non-cancellable product and the acceleration of organizational changes within
UNUM America, which increased operating expenses in the Disability Insurance
segment for the year ended December 31, 1994. The charge consisted of $9.2
million for severance costs for 379 employees and $5.2 million for exit costs of
certain leased facilities and equipment.

<PAGE>

Reconciliation of Income (Loss) Before Income Taxes to Pretax Operating Income
(Loss)

The following table reconciles income (loss) before income taxes to pretax
operating income (loss) for the four business segments and Corporate for the
years ended December 31, 1996, 1995 and 1994:

<TABLE>

<CAPTION>
Disability Special Risk Colonial Retirement Consolidated
(Dollars in millions) Insurance Insurance Products Products Corporate UNUM
- -------------------------------------------- ------------- --------------- ----------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1996:
Income (loss) before income taxes ......... $ 215.3 $ 79.2 $ 92.4 $ 1.4 $ (46.7) $ 341.6
Exclude realized investment (gains) losses 0.3 (0.3) 0.3 (2.8) (0.9) (3.4)
------- ---- ------ ------ -------- -------
215.6 78.9 92.7 (1.4) (47.6) 338.2
Special items:
ID reinsurance fees ..................... 49.7 -- -- -- -- 49.7
Write-offs and future loss reserves ...... 13.1 11.3 -- 15.0 -- 39.4
Merger and integration costs ............ -- -- -- -- 10.1 10.1
------- ---- ------ ------ -------- -------
Pretax operating income (loss) ............ $ 278.4 $ 90.2 $ 92.7 $ 13.6 $ (37.5) $ 437.4
======= ==== ====== ======= ======== =======
Year Ended December 31, 1995:
Income (loss) before income taxes ......... $ 217.0 $ 60.3 $ 87.7 $ 45.5 $ (28.6) $ 381.9
Exclude realized investment gains ......... (184.7) (4.4) (10.9) (24.8) (0.3) (225.1)
------- ---- ------ ------ -------- -------
32.3 55.9 76.8 20.7 (28.9) 156.8
Special items:
Disability reserve increases ............ 128.6 -- -- -- -- 128.6
Group LTD IBNR increase .................. 38.4 -- -- -- -- 38.4
Association Group reserves ............... 15.0 -- -- -- -- 15.0
Other charges ........................... 2.9 3.9 -- 1.0 -- 7.8
------- ---- ------ ------ -------- -------
Pretax operating income (loss) ............ $ 217.2 $ 59.8 $ 76.8 $ 21.7 $ (28.9) $ 346.6
======= ==== ====== ======= ======== =======
Year Ended December 31, 1994:
Income (loss) before income taxes ......... $ 56.2 $ 65.9 $ 62.7 $ 42.0 $ (28.2) $ 198.6
Exclude realized investment (gains) losses (42.1) (0.2) (1.7) (2.2) 0.6 (45.6)
------- ---- ------ ------ -------- -------
14.1 65.7 61.0 39.8 (27.6) 153.0
Special items:
ID reserve strengthening .................. 192.4 -- -- -- -- 192.4
Restructuring charges ..................... 14.4 -- -- -- -- 14.4
------- ---- ------ ------ -------- -------
Pretax operating income (loss) ............ $ 220.9 $ 65.7 $ 61.0 $ 39.8 $ (27.6) $ 359.8
======= ==== ====== ======= ======== =======
</TABLE>

Pretax Operating Income (Loss) by Segment

The following sections discuss the results of the four business segments
and Corporate for the years ended December 31, 1996, 1995 and 1994. These
business segment discussions are based on pretax operating income (loss), which
excludes realized investment gains (losses) and the special items noted above.

<PAGE>

DISABILITY INSURANCE SEGMENT

<TABLE>
<CAPTION>
(Dollars in millions and percentage increase
(decrease) over prior year) 1996 1995 1994
- ---------------------------------------------- ------------------------- --------------------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues
Premiums
Group LTD ................................. $1,094.6 0.6% $ 1,088.6 14.0% $ 955.0
Group STD ................................. 158.1 19.0 132.9 23.5 107.6
UNUM Limited .............................. 132.7 6.0 125.2 (11.2) 141.0
Individual disability ..................... 420.8 (0.5) 423.0 3.3 409.5
Other disability insurance .................. 83.7 (2.2) 85.6 5.9 80.8
-------- ------ --------- -------- -------
Total premiums ........................... 1,889.9 1.9 1,855.3 9.5 1,693.9
Investment income 468.8 14.8 408.2 14.0 358.2
Net realized investment gains (losses) ...... (0.3) nm 184.7 nm 42.1
Fees and other income ........................ 27.8 13.0 24.6 10.3 22.3
-------- ------ --------- -------- -------
Total revenues ........................... 2,386.2 (3.5) 2,472.8 16.8 2,116.5
Benefits and expenses
Benefits to policyholders .................. 1,514.9 (11.5) 1,711.2 8.8 1,572.1
Operating expenses ........................... 511.0 21.3 421.3 1.5 415.0
Commissions ................................. 184.2 (4.8) 193.5 (0.9) 195.3
Increase in deferred policy acquisition costs (39.2) (44.2) (70.2) (42.5) (122.1)
-------- ------ --------- -------- -------
Total benefits and expenses ............... 2,170.9 (3.8) 2,255.8 9.5 2,060.3
-------- ------ --------- -------- -------
Income before income taxes .................. 215.3 (0.8) 217.0 nm 56.2
Exclude realized investment (gains) losses 0.3 (184.7) (42.1)
Special items (a) ........................... 62.8 184.9 206.8
-------- --------- -------
Pretax operating income (a) .................. $ 278.4 28.2% $ 217.2 (1.7)% $ 220.9
======== ====== ========= ======== =======
Sales (annualized new premiums)
Group LTD ................................. $ 218.7 $ 197.9 $ 215.4
Group STD ................................. $ 74.0 $ 52.4 $ 47.8
UNUM Limited .............................. $ 14.3 $ 14.2 $ 15.5
Individual disability ..................... $ 26.4 $ 35.6 $ 74.0
Persistency (premiums)
Group LTD ................................. 83.6% 82.8% 84.0%
Group STD ................................. 84.5% 84.8% 83.8%
UNUM Limited .............................. 85.6% 89.1% 89.9%
Individual disability ..................... 92.5% 91.8% 92.4%
Benefit ratio (% of premiums) ............... 80.2% 92.2% 92.8%
Operating expense ratio
(% of premiums) ........................... 27.0% 22.7% 24.5%
</TABLE>

- --------
nm = not meaningful or in excess of 100%

(a) For the definition of pretax operating income and a detailed description of
special items see the Consolidated Overview.

<PAGE>

The Disability Insurance segment includes disability products offered
through: UNUM Life Insurance Company of America ("UNUM America") and First UNUM
Life Insurance Company ("First UNUM") in North America; UNUM Limited in the
United Kingdom; and UNUM Japan Accident Insurance Company Limited ("UNUM
Japan"). The products included in this segment are group LTD, group short term
disability ("group STD"), individual disability, Association Group disability,
disability reinsurance operations and long term care insurance.

Summary

The Disability Insurance segment's pretax operating income increased in
1996, as compared with 1995. The increase was primarily attributable to
increased investment income and lower benefit ratios in group LTD and at UNUM
Limited, partially offset by increased operating expenses for the segment and
higher benefit ratios in certain other disability businesses including
individual disability, disability reinsurance operations and Association Group
disability.

On October 23, 1996, UNUM announced the execution of a definitive
reinsurance agreement between UNUM America and Centre Life Reinsurance Limited
("Centre Re"), a Bermuda based reinsurance specialist, for reinsurance coverage
of the active life reserves of UNUM America's existing United States
non-cancellable individual disability ("ID") block of business. This agreement
does not reinsure any claims incurred prior to January 1, 1996. The agreement
follows UNUM's announcement in late 1994 that it would no longer market the
non-cancellable form of ID coverage in the United States.

The agreement is a finite reinsurance arrangement that transfers
liabilities to Centre Re based on the level of statutory reserves. At December
31, 1996, active life reserves of $427 million and reserves established for
claims in 1996 of $137 million were ceded to Centre Re. Under the agreement,
Centre Re has an obligation to fund a defined risk layer, while UNUM will retain
the earnings risk related to potential adverse claims experience up to a certain
threshold. This threshold amount represents the existence of an experience layer
with a value of $195 million at December 31, 1996. UNUM has recorded the value
of the experience layer on its Consolidated Balance Sheet as a deposit asset.
UNUM funded its obligation under the agreement by transferring assets totaling
approximately $403 million into a trust account in late December 1996. The
assets transferred were equal to the experience layer plus reserves, determined
under generally accepted accounting principles, net of related deferred
acquisition costs. Future net cash flows of the block will be transferred
to/from the trust account and, together with changes in reserve levels, will
determine the value of UNUM's deposit asset. Changes in the deposit asset will
flow through UNUM's results of operations. The agreement generated slightly more
than $200 million of statutory capital, which will be available to repurchase
UNUM common stock.

Increased investment income in the Disability Insurance segment for 1996
and 1995 was primarily a result of the reinvestment of the proceeds from the
sale of the common stock portfolio into investment grade fixed income assets.
During second quarter 1995, UNUM sold virtually all of the common stock
portfolio of its United States subsidiaries, primarily due to consideration of
statutory capital requirements associated with investment in common stocks and
to increase future investment income. As a result of the sale of the common
stock portfolio and the subsequent reinvestment of the proceeds, certain reserve
discount rates were lowered during the second quarter 1995. The discount rate
used to determine group LTD reserves was reduced to 8.00% at June 30, 1995, as
compared with 9.18% at December 31, 1994. Since that time the reserve discount
rates for certain disability products have continued to decline. Management
expects further declines, since current cash flows are invested in high quality
assets at current yields, which are below the composite yield of the existing
assets purchased in prior years. The group LTD discount rate was 7.88% and 7.94%
at December 31, 1996, and 1995, respectively. The impact of increased investment
income was partially offset by the effects of these lower discount rates for
certain disability products in 1996 and 1995. UNUM periodically adjusts prices
on both existing and new business in an effort to mitigate the impact of the
current interest rate environment.

Reserves for unpaid claims are estimates based on UNUM's historical
experience and other actuarial assumptions that 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. Management continuously monitors
claim trends and responds by periodically adjusting prices on selected new and
inforce business, refining underwriting guidelines, and strengthening risk
management programs. In addition, reserve estimates and assumptions are
periodically reviewed and updated with any resulting adjustments to reserves

<PAGE>

reflected in benefits to policyholders of the current operating period. Given
the complexity of the reserving process, the ultimate liability may be more or
less than such estimates indicate.

Deferrals of policy acquisition costs decreased in 1996 and 1995 primarily
due to lower sales of the traditional, fixed price, non-cancellable individual
disability product, as it was discontinued in each state during 1996 and 1995
following regulatory approval of the Lifelong Disability Protection product.

Pretax operating income decreased slightly in 1995, as compared with 1994,
primarily attributable to higher benefit ratios at UNUM Limited and in group
LTD, and the inclusion of the results of UNUM Japan's operations in the
Disability Insurance segment effective January 1, 1995. Partially offsetting
these decreases were increased investment income, a lower benefit ratio in the
individual disability business, and decreased operating expenses for the
segment.

Claim block acquisitions, which generated one-time premium in the
Disability Insurance segment in 1996, 1995 and 1994, are summarized in the table
below. Management intends to pursue additional claim block acquisitions in the
future. Additionally, premium for individual disability includes the recapture
of reinsurance premium totaling $10.6 million in 1996.

Year Ended December 31,
-----------------------------
(Dollars in millions) 1996 1995 1994
- ----------------------------------------- -------- -------- -------
Group LTD .............................. $10.0 $63.8 $17.4
UNUM Limited ........................... 1.3 -- 40.2
Long Term Care Insurance ............... -- 4.9 14.7
Disability Reinsurance Operations ...... -- 3.6 --
------ ------ ------
Total ................................. $11.3 $72.3 $72.3
====== ====== ======

Group Long Term Disability

During 1996, pretax operating income for group LTD was favorably affected
by increased investment income and a lower benefit ratio, partially offset by
increased operating expenses primarily from continued investment in benefit
management practices and product distribution. The lower benefit ratio was
primarily the result of lower claims incidence and higher claim recoveries,
which management primarily attributes to the continued success of its risk
management programs.

Excluding the effects of claim block acquisitions, group LTD reported
premium growth of 5.8% in 1996, reflecting increased new sales and selected
price increases. Group LTD experienced improved sales and persistency in 1996,
as compared with 1995, when prices were significantly increased in certain
segments of the business resulting in a high level of case terminations for
1995. In general, case terminations from price increases have occurred in less
profitable segments of the business. Management continues to take actions to
increase premium and sales growth, including a focus on improving premium
persistency and strengthening the product distribution channel.

During 1995 and 1994, management implemented and strengthened various risk
management programs to address the unfavorable claims experience in group LTD
during those periods. In addition to the selected price increases on new and
inforce business, more stringent underwriting practices, and the reduction of
benefit options for certain segments of the business, management established
special claims units for both its group LTD and individual disability businesses
to address specific aspects of disability claims, including complex and
fraudulent claims. Additionally, management implemented new group LTD contract
provisions that provide risk management features and claimant rehabilitation
incentives. Management continually reviews the benefits management process to
identify and strengthen risk management policies and procedures.

UNUM Limited

For the year ended December 31, 1996, UNUM Limited's pretax operating
income was favorably affected by a lower benefit ratio and increased investment
income, as compared with the corresponding period in 1995. The lower benefit
ratio was primarily the result of a focus on strengthening risk management
programs and improved new claims experience. Management believes that the level
of future earnings for UNUM Limited will be a function of various factors,
including but not limited to, the effectiveness of these continuing risk
management actions over

<PAGE>

time. Additionally, UNUM Limited incurred increased operating expenses in 1996,
which were primarily the result of increased investments in information systems
technology and risk management programs. Due to the relative size of UNUM
Limited's block of business, operating results can exhibit claims variability.

In general, UNUM Limited's earnings expressed in British pound sterling are
affected by fluctuations in the exchange rates used in the translation of
earnings into U.S. dollars. The weighted average exchange rate was approximately
$1.56, $1.58 and $1.53 for the years ended December 31, 1996, 1995 and 1994,
respectively. At December 31, 1996, the spot rate was approximately $1.71.

Individual Disability

As a result of the merger of Commercial Life into UNUM America, which was
effective December 31, 1996, UNUM now reports the operations of the Association
Group disability business with the individual disability business. Current and
prior period information for individual disability has been restated to reflect
this change.

For the year ended December 31, 1996, pretax operating income for
individual disability was favorably affected by increased investment income,
partially offset by a higher benefit ratio as compared with the same period in
1995. The higher benefit ratio was primarily attributable to a decrease in
premium growth and the inclusion of the Association Group disability business,
which was affected by unfavorable claims experience. Premium growth continued to
decline as a result of the transition to the guaranteed renewable Lifelong
Disability Protection ("LDP") product as a result of management's decision in
late 1994 to discontinue sales of the traditional, fixed price, non-
cancellable product in the United States. Following the approval of the LDP
product, sales of the non-cancellable individual disability product have been
discontinued in the United States.

Group Short Term Disability

Group STD's contribution to the Disability Insurance segment's pretax
operating income continued to increase in 1996, primarily due to strong premium
growth, reflecting management's continuing efforts to cross-sell the group STD
products with group LTD and group life products. Partially offsetting the
effects of strong premium growth were higher operating expenses primarily
relating to investments in risk management programs and the inclusion of certain
office relocation expenses in 1996.

Disability Reinsurance Operations

Pretax operating income for the disability reinsurance operations was
adversely affected by unfavorable claims experience and decreased premium, for
the year ended December 31, 1996, as compared with the same period in 1995.
Management continues to focus on improving risk management programs and
strengthening underwriting standards to address this claims experience.

<PAGE>

SPECIAL RISK INSURANCE SEGMENT

<TABLE>
<CAPTION>
(Dollars in millions and percentage increase
(decrease) over prior year) 1996 1995 1994
- ---------------------------------------------- ------------------------ ------------------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues
Premiums
Group life insurance ........................ $439.6 14.2% $384.8 12.1% $ 343.3
Other special risk products ............... 277.5 (0.1) 277.8 26.4 219.8
------ ------ ------ --------- -------
Total premiums ........................... 717.1 8.2 662.6 17.7 563.1
Investment income ........................... 56.2 27.7 44.0 8.6 40.5
Net realized investment gains ............... 0.3 (93.2) 4.4 nm 0.2
Fees and other income ........................ 38.3 (3.5) 39.7 (9.8) 44.0
------ ------ ------ --------- -------
Total revenues ........................... 811.9 8.2 750.7 15.9 647.8
Benefits and expenses
Benefits to policyholders .................. 506.5 2.9 492.3 24.8 394.4
Operating expenses ........................... 184.8 20.7 153.1 4.8 146.1
Commissions ................................. 67.0 10.0 60.9 11.7 54.5
Increase in deferred policy acquisition costs (25.6) 61.0 (15.9) 20.5 (13.2)
Interest expense ........................... -- nm -- (100.0) 0.1
------ ------ ------ --------- -------
Total benefits and expenses ............... 732.7 6.1 690.4 18.6 581.9
------ ------ ------ --------- -------
Income before income taxes .................. 79.2 31.3 60.3 (8.5) 65.9
Exclude realized investment gains ............ (0.3) (4.4) (0.2)
Special items (a) ........................... 11.3 3.9 --
------ ------ -------
Pretax operating income (a) .................. $ 90.2 50.8% $ 59.8 (9.0)% $ 65.7
====== ====== ====== ========= =======
Sales (annualized new premiums)
Group life insurance ........................ $150.0 $106.1 $ 90.8
Persistency (premiums)
Group life insurance ........................ 85.6% 83.0% 84.8%
Benefit ratio (% of premiums) ............... 70.6% 74.3% 70.0%
Operating expense ratio (% of
premiums) ................................. 25.8% 23.1% 25.9%
</TABLE>

- --------

nm = not meaningful or in excess of 100%

(a) For the definition of pretax operating income and a detailed description of
special items see the Consolidated Overview.

The Special Risk Insurance segment includes group life products sold by
UNUM America and First UNUM, special risk accident insurance previously sold by
Commercial Life, which has been merged with UNUM America, and other special risk
insurance products. The segment also includes non-disability reinsurance
operations, which represent UNUM's participation in various reinsurance pools,
and the reinsurance underwriting management operations of Duncanson & Holt, Inc.

For the year ended December 31, 1996, as compared with 1995, the Special
Risk Insurance segment reported an increase in pretax operating income. The
increase was primarily due to an improved benefit ratio in the group life
business, increased investment income, and premium growth driven by strong
sales. These favorable factors were partially offset by a higher operating
expense ratio in group life, a higher benefit ratio in certain reinsurance
pools, and increased expenses in the reinsurance underwriting management
operations. Due to the nature of the risks underwritten and the relative size of
the blocks of businesses, several of the Special Risk Insurance segment's
products can exhibit claims variability.

The improved benefit ratio for group life was primarily attributable to
favorable claims experience, coupled with pricing and risk management actions
implemented in 1995. Solid sales results, improved persistency trends,

<PAGE>

and continued renewal efforts contributed to the group life premium growth of
14.2%. Claim block acquisitions generated one-time premiums for group life and
reinsurance operations of $3.6 million and $16.3 million, respectively, for
1996, and $1.3 million and $38.3 million, respectively, for 1995.

The decrease in pretax operating income for 1995, as compared with 1994,
was primarily attributable to increased claims in the group life and special
risk accident insurance businesses, combined with reduced fee income from the
reinsurance underwriting management operations. Partially offsetting these
decreases were continued premium growth, and favorable claims experience in
certain reinsurance pools.

COLONIAL PRODUCTS SEGMENT

- --------

nm = not meaningful or in excess of 100%

(a) For the definition of pretax operating income see the Consolidated Overview.

The Colonial Products segment includes Colonial Life & Accident Insurance
Company ("Colonial") and affiliates. Colonial offers payroll-deducted, voluntary
employee benefits to employees at their worksites. Accident and sickness, cancer
and life insurance products are marketed by Colonial primarily through
independent sales representatives.

The Colonial Products segment reported increased pretax operating income
for the year ended December 31, 1996, as compared with 1995. The increase in
pretax operating income was primarily attributable to favorable benefit ratios
in the life, and accident and sickness product lines, and increased investment
income, partially offset by an increased operating expense ratio. During 1996,
Colonial entered into an agreement to reinsure a majority of the mortality risk
on new and inforce universal life business. The reinsurance agreement negatively
affects reported premium growth and related expense ratios while positively
affecting reported benefit ratios. Colonial's pretax operating income increased
in 1995 as compared to 1994, primarily because of increased investment income
and an improved benefit ratio.

<PAGE>

Colonial's benefit ratio improved again in 1996 to 48.5%, as compared with
49.7% in 1995 and 50.4% in 1994, primarily driven by the effect of the universal
life reinsurance agreement, continued favorable claims experience, and improved
incidence rates in the life, and accident and sickness product lines.

Investment income increased during 1996, primarily because of increased
cash flows resulting from a product mix shift and a change in asset mix to
higher yielding securities. Investment income increased during 1995, primarily
because of increased cash flows and additional income realized from the
reinvestment of the proceeds from the second quarter 1995 sale of Colonial's
equity portfolio into investment grade fixed income assets.

The expense ratio increased in 1996 primarily due to the impact of the
universal life reinsurance agreement. Excluding the impact of the universal life
reinsurance agreement, the expense ratio declined slightly compared to 1995 as a
result of continuing expense management efforts.

During 1996, Colonial experienced slower growth in sales and premium as
compared with 1995, reflecting the effects of weaker sales growth during the
third and fourth quarters of the year. Management is focusing on increasing
sales and premium at Colonial by enhancing collaborative sales across the UNUM
enterprise, introducing several new products and developing alternative
distribution channels.

RETIREMENT PRODUCTS SEGMENT

- --------
nm = not meaningful or in excess of 100%

(a) For the definition of pretax operating income and a detailed description of
special items see the Consolidated Overview.

The Retirement Products segment includes tax sheltered annuities ("TSA") in
UNUM America and First UNUM, guaranteed investment contracts ("GICs"), deposit
administration accounts ("DAs"), 401(k) plans, individual life and group medical
insurance, all of which are no longer actively marketed by UNUM.

<PAGE>

On October 1, 1996, UNUM America and First UNUM closed the sale of their
respective TSA businesses to The Lincoln National Life Insurance Company and
Lincoln Life & Annuity Company of New York ("Lincoln"), both subsidiaries of
Lincoln National Corporation. The sale involved approximately 1,700 group
contractholders and assets under management of approximately $3.3 billion. The
purchase price (ceding commission) paid upon closing was approximately $71
million, and the transaction generated statutory capital of approximately $160
million. The contracts have initially been reinsured on an indemnity basis. Upon
consent of the TSA contractholders and/or participants, the contracts will be
considered reinsured on an assumption basis, legally releasing UNUM America and
First UNUM from future contractual obligation to the respective contractholders
and/or participants. The sale resulted in a deferred pretax gain of $80.8
million, which will be recognized in income as a special item in proportion to
contractholder and/or participant consents for assumption reinsurance, the
majority of which management believes will occur during 1997. Through March 1,
1997, consent for assumption reinsurance has been provided by TSA
contractholders and/or participants owning approximately 60% of assets under
management.

Fees and other income reported by the TSA business increased in 1996,
reflecting a $38.2 million reimbursement of interest credited from Lincoln under
the reinsurance agreement. UNUM will continue to report the amount of interest
credited to TSA contracts for which the consent to transfer from indemnity
reinsurance to assumption reinsurance has not been received, with an equivalent
amount being reported in fees and other income for the reimbursement from
Lincoln. The group TSA businesses accounted for $13.5 million, $16.4 million and
$31.6 million of the Retirement Products segment's pretax operating income in
1996, 1995 and 1994, respectively.

For the year ended December 31, 1996, the Retirement Products segment
reported decreased pretax operating income as compared with the same period in
1995. The decrease was primarily due to reduced earnings from the runoff of
GICs, DAs and 401(k) plans during the year and lower interest spread margins on
tax sheltered annuities through October 1, 1996, the effective date of the TSA
sale. For 1995, the decrease in pretax operating income was primarily
attributable to lower interest spread margins on tax sheltered annuities, as
compared with the unusually favorable levels experienced during 1994.

During 1996, investment income declined reflecting the transfer of $2,690
million of assets to Lincoln on October 1, 1996, to effect the sale of the TSA
business, and the shifting of assets to lower yielding, highly liquid,
instruments during the year in anticipation of the transfer. During 1995,
investment income decreased primarily due to investments in lower yielding
tax-exempt securities and a reduced average investment yield caused by the low
interest rate environment. In addition, the reduced asset base under management
for GICs, DAs and 401(k) plans has resulted in lower investment income and
reduced amounts of interest credited during 1996 and 1995. Management expects
continued decreases in the amounts of investment income and interest credited as
the related GICs, DAs and 401(k) contracts mature or terminate.

CORPORATE

<TABLE>
<CAPTION>
(Dollars in millions) 1996 1995 1994
- -------------------------------------------------- ---------------- ---------------- ---------
<S> <C> <C> <C>
Loss before income taxes ........................ $ (46.7) $ (28.6) $ (28.2)
Exclude realized investment (gains) losses ...... (0.9) (0.3) 0.6
Special items (a) .............................. 10.1 -- --
----- ----- -------
Pretax operating loss (a) ........................ $ (37.5) $ (28.9) $ (27.6)
===== ===== =======
</TABLE>

- --------

(a) For the definition of pretax operating loss and a detailed description of
special items see the Consolidated Overview.

Corporate includes transactions that are generally non-insurance related.
The increased pretax operating loss in Corporate for the year ended December 31,
1996, as compared with 1995, was primarily the result of increased international
development costs and interest expense on corporate borrowings, partially offset
by increased investment income.

The increased pretax operating loss in 1995, compared with 1994, was
primarily attributable to increased interest expense, partially offset by
reduced operating expenses. Effective January 1, 1995, the operations of UNUM
Japan are reported in the Disability Insurance segment. Costs related to UNUM's
investment in Japan prior to January 1, 1995, were reported as operating
expenses in Corporate.

25
<PAGE>

INCOME TAXES

Effective tax rates, which reflect income tax expense as a percentage of
income before income taxes, were 30.3%, 26.4% and 22.1% for 1996, 1995 and 1994,
respectively. Reported income tax expense was below the federal statutory tax
rate of 35% primarily due to tax savings from investments in tax-exempt
securities. The increase in the effective tax rate over the three year period
was primarily due to reduced tax-exempt income, both in amount and as a
percentage of income before income taxes. Beginning in late 1996, UNUM commenced
a plan to increase purchases of tax-exempt bonds and mortgages.

INVESTMENTS

UNUM's long term investment strategy is to invest primarily in investment
grade bonds and commercial mortgages. UNUM evaluates total expected return after
consideration of 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 with maturities, expected cash flows and
prepayment conditions that 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 at
net realizable value or net of applicable allowances for probable losses.
Allowances for real estate held for sale and mortgages 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 fair value is
considered to be other than temporary or if a long-lived asset is deemed
permanently impaired, 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.

UNUM's invested assets were $8.7 billion and $11.7 billion at December 31,
1996, and 1995, respectively. The decrease from 1995 reflects asset transfers
that occurred in the fourth quarter of 1996, as discussed below. The composition
of UNUM's invested assets at December 31, 1996, was 79.6% fixed maturities,
13.0% mortgage loans, 2.8% real estate and 4.6% other invested assets.

In late December 1996, UNUM transferred approximately $403 million in cash
into a trust account held for the benefit of Centre Life Reinsurance Limited
("Centre Re"), in accordance with the reinsurance agreement between UNUM America
and Centre Re, which became effective December 31, 1996 (see Note 6 in Item 8).
On October 1, 1996, UNUM transferred approximately $2,690 million of assets into
a trust account held for the benefit of Lincoln to effect the sale of the TSA
business (see Note 5 in Item 8). The assets transferred consisted of
approximately $1,826 million of short-term investments, $589 million of fixed
maturities and $275 million of cash.

Gross realized investment gains were $40.2 million, $287.0 million and
$117.0 million, and gross realized investment losses were $36.8 million, $61.9
million and $71.4 million for the years ended December 31, 1996, 1995 and 1994,
respectively.

Fixed Maturities

UNUM's fixed maturity portfolio is concentrated in high quality
intermediate term bonds, which management believes are well diversified by
company and industry sector. At December 31, 1996, over 80% of the bond
portfolio was rated "A" or better. Fixed maturity ratings are obtained from
external rating agencies or are determined by UNUM internally using similar
methods if external ratings are not available. The bond portfolio is primarily
composed of taxable corporate bonds. In late 1996, UNUM commenced a plan to
increase purchases of tax-exempt bonds and mortgages due to after-tax yield
considerations. Dependent on market conditions and tax considerations, these
tax-exempt securities can provide attractive after-tax yields as compared with
similarly rated taxable securities.

<PAGE>

The table below summarizes fixed maturity holdings by credit quality as of
December 31, 1996, and 1995.

Bond Credit Quality Ratings 1996 1995
- ----------------------------- ---------- ----------
AAA ........................ 10.6% 12.0%
AA ........................ 12.2 12.4
A ........................... 57.3 57.1
BAA ........................ 18.4 17.0
Below BAA .................. 1.5 1.5
------ ------
Total ..................... 100.0% 100.0%
====== ======

Bond credit quality ratings are based on the capacity of the borrower to
meet interest and principal payments as they come due. Capacity is considered
extremely strong for AAA rated issues; AA very strong; A strong; and BAA
adequate. Bonds rated below BAA are considered to have a vulnerability to
default.

At December 31, 1996, and 1995, the fixed maturity portfolio included
$102.0 million and $139.4 million, respectively, of below investment grade bonds
(below "BAA") recorded at fair value. These bonds had an associated amortized
cost of $101.7 million and $133.8 million, respectively. Virtually all of the
below investment grade bonds were purchased at investment grade, but were
subsequently downgraded. 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 amount of
fixed maturities delinquent 60 days or more was zero at December 31, 1996, and
1995.

In November 1995, the Financial Accounting Standards Board issued "A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities," which provided a one-time opportunity to reassess the
appropriateness of the classifications of securities described in Financial
Accounting Standard ("FAS") No. 115, and to reclassify fixed maturities from the
held to maturity category without calling into question the intent to hold other
debt securities to maturity in the future. On December 31, 1995, UNUM reassessed
its fixed maturity portfolio, and as allowed under the implementation guidance,
reclassified fixed maturities with an amortized cost of $6,082.8 million and a
related unrealized gain of $393.0 million from the held to maturity category to
available for sale. The unrealized gain on the total available for sale fixed
maturity portfolio was $551.9 million at December 31, 1995. In connection with
the reclassification of the held to maturity fixed maturities to available for
sale, on December 31, 1995, UNUM adjusted its unpaid claims by $261.2 million to
reflect the changes that would have been necessary if the unrealized gains and
losses related to fixed maturities classified as available for sale had been
realized. At December 31, 1996, the unrealized gain on available for sale fixed
maturities was $286.0 million and the related unpaid claims adjustment was
$168.7 million.

Mortgages

At December 31, 1996, and 1995, UNUM's mortgage loans were $1,132.1 million
and $1,163.4 million, respectively. UNUM invests new funds in commercial
properties in targeted geographical areas that meet UNUM's underwriting
standards. Management uses a comprehensive rating system to evaluate the
investment and credit risk of each mortgage loan and to identify specific
properties for inspection and reevaluation. Management establishes allowances
for mortgage loans based on a review of individual loans and the overall loan
portfolio, considering the value of the underlying collateral.

Management believes that its mortgage loan portfolio is well diversified
geographically and among property types, as summarized in Item 1 F. Investments.
UNUM's incidence of new problem mortgage loans and foreclosure activity has
remained very low in 1996, reflecting improvements in overall economic activity
and improving real estate markets in the geographic areas where UNUM has
mortgage loans. Management expects a modest level of delinquencies and problem
loans in the future. The percentage of mortgage loans delinquent 60 days or more
on a contract delinquency basis was 0.5% and 0.2% at December 31, 1996, and
1995, respectively.

Effective January 1, 1995, UNUM adopted FAS 114, "Accounting by Creditors
for Impairment of a Loan," and FAS 118, "Accounting by Creditors for Impairment
of a Loan-- Income Recognition and Disclosures," which defined 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. The adoption of FAS 114 and FAS 118 did not have a material affect on
UNUM's results of operations or financial position.

27
<PAGE>

At December 31, 1996, and 1995, impaired loans totaled $50.4 million and
$50.1 million, respectively. Included in the $50.4 million of impaired loans at
December 31, 1996, were $38.9 million of loans which had a related allowance for
probable losses of $5.7 million, and a loan of $11.5 million which had no
related allowance for probable losses. Interest lost on impaired loans in 1996,
1995 and 1994, was not material.

Realized investment losses related to impaired mortgage loans amounted to
$1.0 million, $9.2 million and $8.5 million for 1996, 1995 and 1994,
respectively. Impaired mortgage loans as of December 31, 1996, are not expected
to have a significant impact on UNUM's results of operations, liquidity, or
capital resources.

Mortgage loans that were restructured prior to the adoption of FAS 114 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, 1996, restructured mortgage loans totaled
$54.8 million, as compared with $59.9 million at December 31, 1995. Interest
lost on restructured loans was not material in 1996, 1995 or 1994.

Real Estate

At December 31, 1996, investment real estate amounted to $248.1 million,
compared with $222.2 million at December 31, 1995. UNUM purchases investment
real estate in selected markets when certain investment criteria are met.
Investment real estate is intended to be held long-term and is carried at cost
less accumulated depreciation. If investment real estate is determined to be
permanently impaired, the carrying amount of the asset is reduced to fair value.
Occasionally, investment real estate is reclassified and revalued as real estate
held for sale when it no longer meets UNUM's investment criteria.

At December 31, 1996, and 1995, real estate held for sale amounted to $9.4
million and $35.5 million, respectively. Real estate acquired through
foreclosure is valued at fair value at the date of foreclosure and may be
classified as investment real estate, if it meets UNUM's investment criteria.
Real estate held for sale is included in other assets in the Consolidated
Balance Sheets and is valued net of a valuation allowance which reduces the
carrying value to the lower of fair value less estimated costs to sell, or cost.
This valuation allowance is periodically adjusted based on subsequent changes in
UNUM's estimate of fair value less costs to sell.

Additions to the allowance for probable losses related to real estate held
for sale resulted in a realized investment gain of $0.4 million and realized
investment losses of $6.3 million and $0.8 million for the years ended December
31, 1996, 1995 and 1994, respectively. Additions to the allowance represent
charges to net realized investment gains less recoveries. 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.

Effective January 1, 1996, UNUM adopted FAS 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long- lived assets and certain identifiable intangibles to
be disposed of. FAS 121 applies to both real estate held for investment and real
estate held for sale. The adoption of FAS 121 did not have a material affect on
UNUM's results of operations or financial position.

LIQUIDITY AND CAPITAL RESOURCES

UNUM's businesses produce positive cash flows that are invested primarily
in intermediate, fixed maturity investments intended to reflect the anticipated
cash obligations of insurance benefit payments and insurance contract maturities
and to optimize investment returns at appropriate risk levels. Unexpected cash
requirements and liquidity needs can be met through UNUM's investment portfolio
of 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. Net statutory operating income, which excludes realized investment
gains net of tax, 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

<PAGE>

from generally accepted accounting principles, are mandated by regulators in an
insurance company's state of domicile.

In 1996, UNUM's United States insurance subsidiaries reported net statutory
operating income of approximately $167 million, compared with approximately $143
million in 1995. The amount available under current law for payment of dividends
during 1997 to UNUM Corporation from all U.S. domiciled insurance subsidiaries
without state insurance regulatory approval is approximately $153 million, as
compared with approximately $135 million for 1996. UNUM Corporation also has the
ability to draw a dividend from its United Kingdom-based affiliate, UNUM
Limited, subject to certain U.S. tax consequences.

In connection with the closing of the TSA sale on October 1, 1996, as
described in the Retirement Products segment, UNUM America paid an extraordinary
dividend of $123 million to UNUM Corporation during the fourth quarter of 1996.
As a result of the reinsurance of the individual disability business, discussed
in the Disability Insurance segment, UNUM America and First UNUM intend to pay
extraordinary dividends to UNUM Corporation during 1997, subject to regulatory
approval and certain capital considerations.

Cash flow requirements are also supported by a committed revolving credit
facility totaling $500 million. On October 29, 1996, a new committed revolving
credit facility became effective, expiring on October 1, 2001, which replaced a
previously existing facility of the same amount. UNUM'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 that, among other
provisions, require maintenance of certain levels of stockholders' equity and
limits on debt levels.

On July 16, 1996, UNUM filed an omnibus shelf registration with the
Securities and Exchange Commission, which became effective August 2, 1996,
relating to $500 million of securities (including debt securities, preferred
stock, common stock and other securities). On August 15, 1996, UNUM filed a
prospectus supplement to establish a $250 million medium-term note program under
the shelf registration.

At December 31, 1996, UNUM had short-term and long-term debt totaling
$117.7 million and $409.2 million, respectively. At December 31, 1996,
approximately $439 million was available for additional financing under the
existing revolving credit facility and $500 million of investment grade debt
instruments was available for issuance under the shelf registration. Contingent
upon market conditions and corporate needs, management may refinance short-term
notes payable for longer term securities.

In the normal course of business, UNUM enters into letters of credit,
primarily to satisfy capital requirements related to certain subsidiary
transactions. UNUM had outstanding letters of credit of $56.7 million and $12.3
million at December 31, 1996, and 1995, respectively.

Effective October 23, 1996, UNUM's Board of Directors approved an expansion
of the Company's stock repurchase program to 6.0 million shares by authorizing
an additional 3.7 million shares. At December 31, 1996, approximately 4.5
million shares of common stock remained authorized for repurchase. During 1996,
UNUM acquired approximately 1.9 million shares of its common stock in the open
market at an aggregate cost of $119.1 million. UNUM did not acquire any shares
in the open market in 1995. During 1994, UNUM repurchased 3.9 million shares in
the open market at an aggregate cost of $183.3 million.

UNUM was committed at December 31, 1996, to purchase fixed maturities and
other invested assets in the amount of $104.3 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.

RATINGS

Standard & Poor's Corporation ("Standard & Poor's"), Moody's Investors
Service ("Moody's") and A.M. Best Company ("A.M. Best") 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 individual 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. Debt ratings for UNUM Corporation are based on
consolidated financial information prepared using generally accepted accounting
principles.

<PAGE>

The table below reflects the debt ratings for UNUM Corporation and the
claims paying ability and financial strength ratings for UNUM's United States
domiciled insurance company subsidiaries at March 7, 1997:

<TABLE>
<CAPTION>
Standard &
Poor's Moody's A.M. Best
----------------- ---------------------- ------------
<S> <C> <C> <C>
UNUM Corporation Ratings:
Senior Debt (MTN program) A+ A1
(Strong) (Upper Medium Grade)
Commercial Paper A-1 P-1
(Strong) (Superior Ability)
Subordinated Debt (MIDS) A A2
(Strong) (Upper Medium Grade)

Claims Paying
United States Subsidiaries' Ratings: Ability Rating Financial Strength Rating
UNUM America AA Aa2 A++
(Excellent) (Excellent) (Superior)
First UNUM AA Aa2 A+
(Excellent) (Excellent) (Superior)
Colonial AA Aa3 A+
(Excellent) (Excellent) (Superior)
</TABLE>

At March 7, 1997, the unsold portion of the shelf registration related to
preferred stock carried a rating of "(P)"a1" " (Upper-Medium Quality) from
Moody's.

INSURANCE REGULATION

The Risk-Based Capital standards for life insurance companies, as
prescribed by the National Association of Insurance Commissioners, 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.

At December 31, 1996, the ACL ratios for UNUM America, First UNUM, and
Colonial were 406%, 467%, and 389%, respectively. This compares with ACL ratios
at December 31, 1995, of 382%, 382%, and 436%, respectively. For 1996, UNUM
America's ACL ratio reflects the merger of Commercial Life into UNUM America as
of December 31, 1996. At December 31, 1995, Commercial Life had an ACL ratio of
329% that is not included in the UNUM America 1995 ACL ratio.

DERIVATIVE FINANCIAL INSTRUMENTS

UNUM periodically uses common derivative financial instruments such as
options, futures and forward exchange contracts to hedge certain risks
associated with anticipated purchases and sales of 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. In using these instruments, UNUM is subject to the
off-balance-sheet risk that the counterparties of the transactions will fail to
perform as contracted. UNUM manages this risk by only entering into contracts
with highly rated institutions and listed exchanges. UNUM does not hold
derivative financial instruments for the purpose of trading.

At December 31, 1996, UNUM had open interest rate futures contracts with
notional amounts of $178.2 million to hedge anticipated sales of investments in
1997. These contracts had a related net unrealized gain of $1.6 million. At
December 31, 1995, UNUM had no open derivative financial instruments.

<PAGE>

LITIGATION

On December 29, 1993, UNUM filed suit in the United States District Court
for the District of Maine, seeking a federal income tax refund. The suit is
based on a claim for a deduction in certain prior tax years, for $652 million in
cash and stock distributed to policyholders in connection with the 1986
conversion of Union Mutual Life Insurance Company to a stock company. UNUM has
fully paid, and provided for in prior years' financial statements, the tax at
issue in this litigation. On May 23, 1996, the District Court issued its
decision that the distribution in question was not a deductible expenditure.
UNUM believes its claims are meritorious, and has appealed the decision to the
United States Court of Appeals for the First Circuit. The ultimate recovery, if
any, cannot be determined at this time.

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 the company is 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.

ACCOUNTING CHANGES

Effective January 1, 1996, UNUM adopted Financial Accounting Standard
("FAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which established accounting standards for
the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used and for long-lived assets
and certain identifiable intangibles to be disposed of. The adoption of FAS 121
did not have a material effect on UNUM's results of operations or financial
position.

Effective January 1, 1996, UNUM adopted FAS 123, "Accounting for
Stock-Based Compensation." FAS 123 established financial accounting and
reporting standards for stock-based employee compensation plans. The statement
defines a new method of accounting for employee stock compensation plans using a
fair value based method, under which compensation cost is measured and
recognized in results of operations. Alternatively, FAS 123 allows an entity to
retain the accounting for employee stock compensation plans defined under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." UNUM retained the accounting defined under APB No. 25, and as
required, will disclose in a footnote the pro forma effects of stock-
based compensation using the fair value based method defined under FAS 123.
Refer to Note 9 in Item 8 for the related disclosures.

Effective January 1, 1995, UNUM adopted FAS 114, "Accounting by Creditors
for Impairment of a Loan," and FAS No. 118, "Accounting by Creditors for
Impairment of a Loan--Income Recognition and Disclosures," which defined 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. The adoption of FAS 114 and FAS 118 did not have a material
effect on UNUM's results of operations or financial position.

Effective January 1, 1994, UNUM adopted FAS 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. In November 1995, the Financial Accounting Standards Board
("FASB") issued "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities," which provided a one-time
opportunity to reassess the appropriateness of the classifications of securities
described in FAS 115, and to reclassify fixed maturities from the held to
maturity category without calling into question the

<PAGE>

intent to hold other debt securities to maturity in the future. On December 31,
1995, UNUM reassessed its fixed maturity portfolio and, as allowed under the
implementation guidance, reclassified fixed maturities with an amortized cost of
$6,082.8 million and a related unrealized gain of $393.0 million from the held
to maturity category to available for sale. In connection with the
reclassification of the held to maturity fixed maturities to available for sale,
on December 31, 1995, UNUM adjusted its unpaid claims by $261.2 million to
reflect the changes that would have been necessary if the unrealized gains and
losses related to fixed maturities classified as available for sale had been
realized.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1996, the FASB issued FAS 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
establishes accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. The statement provides
guidance for recognition or derecognition of assets and liabilities, focusing on
the concepts of control and extinguishment. UNUM is required to adopt FAS 125
effective January 1, 1997. The adoption of FAS 125 is not expected to have a
material effect on UNUM's results of operations or financial position.

In March 1997, the FASB issued FAS No. 128, "Earnings Per Share," which is
intended to simplify the computation and presentation of earnings per share
("EPS"). FAS 128 supersedes Accounting Principles Board ("APB") Opinion No. 15,
"Earnings Per Share." FAS 128 will eliminate the concept of "primary" EPS and
require dual presentation of "basic" and "diluted" EPS. Diluted EPS under FAS
128 is similar to "fully diluted" EPS as defined by APB 15. UNUM is required to
adopt FAS 128 effective December 31, 1997. As stated in Note 1 in Item 8, under
the caption "Earnings Per Share," the assumed exercise of UNUM's outstanding
stock options does not result in a material dilution of earnings per share.

In March 1997, the FASB issued FAS No. 129, "Disclosures of Information
About Capital Structure," which clarifies disclosure requirements related to the
type, and nature, of securities contained in an entity's capital structure. UNUM
is required to adopt FAS 129 effective December 31, 1997.

<PAGE>

Item 8--Financial Statements and Supplementary Data

<TABLE>
<CAPTION>
INDEX Page
- ------------------------------------------------------------------------------------------ ------
<S> <C>
Report of Independent Accountants ...................................................... 34
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended December 31, 1996, 1995 and 1994 35
Consolidated Balance Sheets as of December 31, 1996, and 1995 ........................ 36
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996,
1995 and 1994 ........................................................................ 38
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 39
1994
Notes to Consolidated Financial Statements ............................................. 40
</TABLE>

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Directors and Stockholders

UNUM Corporation

We have audited the consolidated financial statements of UNUM Corporation and
subsidiaries as listed in Item 8 and the financial statement schedules as listed
in Item 14(a) of this Form 10-K. 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 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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles. In addition, in our opinion, the 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.

/s/COOPERS & LYBRAND L.L.P.

Portland, Maine

February 5, 1997,

except for Note 5 for which the date is March 1, 1997,

and Note 18 for which the date is March 14, 1997

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
(Dollars in millions, except per common share data) 1996 1995 1994
- ----------------------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C>
Revenues
Premiums $3,120.4 $3,018.2 $2,721.3
Investment income ................................. 802.2 806.3 770.2
Net realized investment gains ..................... 3.4 225.1 45.6
Fees and other income .............................. 116.7 73.3 75.5
-------- -------- --------
Total revenues .................................... 4,042.7 4,122.9 3,612.6
Benefits and expenses
Benefits to policyholders ........................... 2,324.7 2,493.0 2,239.0
Interest credited ................................. 200.6 227.4 242.7
Operating expenses ................................. 862.6 728.2 713.0
Commissions ....................................... 364.2 369.9 355.9
Increase in deferred policy acquisition costs ...... (91.7) (114.7) (155.3)
Interest expense .................................... 40.7 37.2 18.7
-------- -------- --------
Total benefits and expenses ..................... 3,701.1 3,741.0 3,414.0
-------- -------- --------
Income before income taxes ........................ 341.6 381.9 198.6
Income taxes
Current ............................................. 122.3 98.6 30.4
Deferred .......................................... (18.7) 2.2 13.5
-------- -------- --------
Total income taxes .............................. 103.6 100.8 43.9
-------- -------- --------
Net income .......................................... $ 238.0 $ 281.1 $ 154.7
======== ======== ========
Net income per common share ........................ $ 3.26 $ 3.87 $ 2.09
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
--------------------------
(Dollars in millions) 1996 1995
- --------------------------------------------------------- ------------ -----------
<S> <C> <C>
ASSETS
Investments
Fixed maturities available for sale--at fair value
(amortized cost: 1996--$6,656.7; 1995--$8,583.5) ...... $6,942.7 $9,135.4
Equity securities available for sale--at fair value
(cost: 1996--$23.8; 1995--$21.1) ..................... 31.3 25.2
Mortgage loans ....................................... 1,132.1 1,163.4
Real estate, net ....................................... 248.1 222.2
Policy loans .......................................... 232.9 219.2
Other long-term investments ........................... 14.2 30.4
Short-term investments ................................. 123.4 896.7
--------- ---------
Total investments .................................... 8,724.7 11,692.5
Cash ................................................... 77.0 42.5
Accrued investment income .............................. 166.1 208.5
Premiums due .......................................... 252.4 224.3
Deferred policy acquisition costs ..................... 844.2 1,142.3
Property and equipment, net ........................... 181.0 153.7
Reinsurance receivables ................................. 1,113.8 420.9
Deposit assets .......................................... 2,846.6 --
Other assets .......................................... 518.0 370.9
Separate account assets ................................. 743.7 532.2
--------- ---------
Total assets .......................................... $15,467.5 $14,787.8
========= =========
</TABLE>

See notes to consolidated financial statements.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
--------------------------
(Dollars in millions) 1996 1995
- --------------------------------------------------------------- ------------ -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Future policy benefits ....................................... $1,881.1 $1,718.7
Unpaid claims and claim expenses ........................... 5,289.3 4,856.4
Other policyholder funds .................................... 3,533.6 3,840.3
Income taxes
Current ................................................... 61.3 20.7
Deferred ................................................... 341.8 392.0
Notes payable ................................................ 526.9 583.8
Other liabilities .......................................... 826.7 540.8
Separate account liabilities ................................. 743.7 532.2
-------- --------
Total liabilities .......................................... 13,204.4 12,484.9
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 ................................. 1,103.4 1,088.2
Unrealized gains on available for sale securities, net ...... 82.3 213.1
Unrealized foreign currency translation adjustment ......... (1.2) (23.1)
Retained earnings .......................................... 1,871.4 1,713.2
-------- --------
3,065.9 3,001.4
Less:
Treasury stock, at cost (1996--28,165,594 shares;
1995--26,980,331 shares) .................................... 792.2 691.6
Restricted stock deferred compensation ..................... 10.6 6.9
-------- --------
Total stockholders' equity ................................. 2,263.1 2,302.9
-------- --------
Total liabilities and stockholders' equity .................. $15,467.5 $14,787.8
======== ========
</TABLE>

See notes to consolidated financial statements.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Unrealized
Gains (Losses) Unrealized
Common On Available Foreign Restricted
Stock Additional for Sale Currency Stock
(Dollars in millions, $0.10 Par Paid-in Securities, Translation Retained Treasury Deferred
except per common share data) Value Capital Net Adjustment Earnings Stock Compensation Total
- -------------------------------- --------- ----------- ------------- ----------- -------- -------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 .... $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 .... (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
1995 Transactions:
Net income ................... 281.1 281.1
Unrealized gains on available
for sale securities, net .... 163.5 163.5
Unrealized foreign currency
translation adjustment ....... 0.6 0.6
Dividends to stockholders
($1.035 per common share) .... (75.1) (75.1)
Employee stock option and
other transactions .......... 7.7 15.0 (5.3) 17.4
----- --------- ------- -------- -------- -------- ------ --------
Balance at December 31, 1995 .. 10.0 1,088.2 213.1 (23.1) 1,713.2 (691.6) (6.9) 2,302.9
1996 Transactions:
Net income ................... 238.0 238.0
Unrealized losses on available
for sale securities, net .... (130.8) (130.8)
Unrealized foreign currency
translation adjustment ....... 21.9 21.9
Dividends to stockholders
($1.09 per common share) ..... (79.8) (79.8)
Treasury stock acquired ....... (119.1) (119.1)
Employee stock option and other
transactions ................ 15.2 18.5 (3.7) 30.0
----- --------- ------- -------- -------- -------- ------ --------
Balance at December 31, 1996 .. $10.0 $1,103.4 $ 82.3 $ (1.2) $1,871.4 $ (792.2) $(10.6) $2,263.1
====== ========= ======= ======= ======== ======== ====== ========
</TABLE>

See notes to consolidated financial statements.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
(Dollars in millions) 1996 1995 1994
- ----------------------------------------------------------------- ------------- ------------- ---------
<S> <C> <C> <C>
Operating activities:
Net income ...................................................... $ 238.0 $ 281.1 $ 154.7
Adjustments to reconcile net income to net cash provided by
operating activities:
Increase in future policy benefits and unpaid claims and
claim expenses ................................................ 630.1 905.3 720.1
Increase in amounts receivable under reinsurance agreements . (686.7) (61.0) (18.6)
Increase (decrease) in income tax liability .................. 20.4 (3.5) (3.3)
(Increase) decrease in deferred policy acquisition costs ...... 299.2 (114.9) (155.4)
Increase in deposit assets .................................... (432.1) -- --
Deferred gain on sale of tax sheltered annuities ............... 80.8 -- --
Charge for individual disability reinsurance fees ............ 49.7 -- --
Realized investment (gains) losses ........................... 4.0 (242.0) (59.0)
Other ......................................................... 76.4 (8.9) 62.3
--------- --------- -------
Net cash provided by operating activities .................. 279.8 756.1 700.8
--------- --------- -------
Investing activities:
Maturities of fixed maturities held to maturity ............... -- 835.7 754.8
Maturities of fixed maturities available for sale ............... 775.2 99.3 41.2
Sales of fixed maturities held to maturity ..................... -- 2.8 46.8
Sales of fixed maturities available for sale .................. 2,514.4 577.3 407.6
Sales of equity securities available for sale .................. -- 836.7 314.1
Sales and maturities of other investments ..................... 269.5 312.0 414.9
Purchases of fixed maturities held to maturity .................. -- (230.2) (795.2)
Purchases of fixed maturities available for sale ............... (1,890.9) (1,971.9) (943.9)
Purchases of equity securities available for sale ............... -- (131.3) (216.6)
Purchases of other investments ................................. (263.0) (322.4) (211.5)
Net increase in short-term investments ........................ (1,051.9) (604.8) (221.7)
Net additions to property and equipment ........................ (54.3) (28.9) (29.9)
--------- --------- -------
Net cash provided by (used in) investing activities ......... 299.0 (625.7) (439.4)
--------- --------- -------
Financing activities:
Deposits and interest credited to investment contracts ......... 597.1 669.6 608.6
Maturities and withdrawals from investment contracts ............ (903.8) (888.1) (800.5)
Dividends to stockholders ....................................... (79.8) (75.1) (68.3)
Treasury stock acquired ....................................... (119.1) -- (183.3)
Proceeds from notes payable .................................... -- 291.5 54.7
Repayment of notes payable .................................... (15.0) (1.3) (1.2)
Net increase (decrease) in short-term debt ..................... (42.3) (135.1) 136.6
Other ......................................................... 18.9 13.8 7.2
--------- --------- -------
Net cash used in financing activities ........................ (544.0) (124.7) (246.2)
--------- --------- -------
Effect of exchange rate changes on cash ........................ (0.3) 0.7 0.1
--------- --------- -------
Net increase in cash .......................................... 34.5 6.4 15.3
Cash at beginning of year ....................................... 42.5 36.1 20.8
--------- --------- -------
Cash at end of year ............................................. $ 77.0 $ 42.5 $ 36.1
========= ========= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes ................................................... $ 76.4 $ 82.6 $ 48.8
Interest ...................................................... $ 40.8 $ 44.7 $ 20.4
</TABLE>

Supplemental disclosure of noncash operating and investing activities:

In conjunction with the sale of UNUM's tax sheltered annuity business, as
discussed in Note 5, fixed maturities available for sale of $588.6 million and
short-term investments of $1,825.9 million were transferred to the buyer on
October 1, 1996. Upon transfer, there was a corresponding increase in UNUM's
deposit assets.

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. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

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 1995 and 1994 amounts have been reclassified in 1996 for
comparative purposes.

Investments

Investments are reported as follows:

[bullet] Fixed maturities available for sale (certain bonds and redeemable
preferred stocks)--at fair value.

[bullet] Equity securities available for sale (common stocks and
non-redeemable preferred stocks)--at fair value.

[bullet] Mortgage loans--at amortized cost less an allowance for probable
losses.

[bullet] Real estate--at cost less accumulated depreciation.

[bullet] Policy loans--at unpaid principal balance.

[bullet] Other long-term investments--at cost plus UNUM's equity in
undistributed net earnings since acquisition.

[bullet] Short-term investments--are considered available for sale and are
carried at cost which approximates fair value.

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.
Unrealized gains and losses related to securities classified as available for
sale are excluded from net income and reported in a separate component of
stockholders' equity, net of applicable deferred taxes and related adjustments
to unpaid claims and claim expenses. The unrealized gains and losses are
determined based on estimated market values at the balance sheet date and are
not necessarily the amounts which would be realized upon sale of the securities
or representative of future market values. Changing interest rates affect the
level of unrealized gains and losses related to securities classified as
available for sale. 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.

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.

If a decline in fair value of an invested asset is considered to be other
than temporary or if a long-lived asset is deemed to be permanently impaired,
the investment is reduced to its net realizable value and the reduction is
accounted for as a realized investment loss.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

Real estate held for sale is included in other assets in the Consolidated
Balance Sheets and is valued net of a valuation allowance which reduces the
carrying value to the lower of fair value less estimated costs to sell, or cost.
This valuation allowance is periodically adjusted based on subsequent changes in
UNUM's estimate of fair value less costs to sell.

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 by amortizing deferred policy acquisition costs.

For retirement and universal life products, premium and other policy fee
revenue consist 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 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) 1996 1995 1994
- -------------------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
Deferred ............................................. $ 305.6 $ 308.3 $ 308.1
Less amortized ....................................... (213.9) (193.6) (152.8)
------- ------- -------
Increase in deferred policy acquisition costs ...... $ 91.7 $ 114.7 $ 155.3
======= ======= =======
</TABLE>

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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. The reserve assumptions are periodically
reviewed and compared to actual experience and are revised if it is determined
that future expected experience is different from the reserve assumptions.
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, 1996, and 1995, principally ranged from:

1996 1995
--------------- --------------
Individual disability ............... 6.0% to 9.5% 5.5% to 9.5%
Individual life ..................... 5.0% to 9.0% 5.0% to 9.0%
Individual accident and health ...... 5.0% to 9.0% 5.0% to 9.0%
Individual and group annuities ...... 5.0% to 9.0% 5.0% to 9.0%

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 that 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 claims reserves at
December 31, 1996, and 1995, were principally as follows:

<TABLE>
<CAPTION>
1996 1995
----------------- ----------------
<S> <C> <C>
Group long term disability (North America) ......... 7.88% 7.94%
Group long term disability (United Kingdom) ...... 9.46% 9.67%
Individual disability .............................. 6.75% to 9.46% 6.75% to 9.67%
</TABLE>

The interest rate used to discount the disability reserves is a composite
of the yields on assets specifically identified with each block of business.
Management expects the reserve discount rate for certain disability products
will further decline, since current cash flows are invested in high quality
assets at current yields, which are below the composite yield of the existing
assets purchased in prior years. UNUM periodically adjusts prices on both
existing and new business in an effort to mitigate the impact of the current
interest rate environment.

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

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

<TABLE>
<CAPTION>
(Dollars in millions) 1996 1995 1994
- ------------------------------------------------------- ------------------- ------------------ ------------------
<S> <C> <C> <C>
Balance at January 1 ................................. $4,856.4 $3,853.9 $3,341.5
Less reinsurance recoverables ..................... (115.4) (82.7) (68.0)
Effect of unrealized gains on fixed maturities ...... (261.2) -- --
---- ----- -----
Net Balance at January 1 ........................... 4,479.8 3,771.2 3,273.5
Incurred related to:
Current year ....................................... 1,673.9 1,825.0 1,609.3
Prior years ....................................... 366.0 507.0 436.0
---- ----- -----
Total incurred ....................................... 2,039.9 2,332.0 2,045.3
Paid related to:
Current year ....................................... 532.8 523.9 517.6
Prior years ....................................... 1,214.5 1,099.5 1,030.0
---- ----- -----
Total paid .......................................... 1,747.3 1,623.4 1,547.6

Net Balance at December 31 ........................... 4,772.4 4,479.8 3,771.2
Plus reinsurance recoverables ..................... 346.8 115.4 82.7
Effect of unrealized gains on fixed maturities ...... 170.1 261.2 --
---- ----- -----
Balance at December 31 .............................. $5,289.3 $4,856.4 $3,853.9
==== ===== =====
</TABLE>

The components of the increase in unpaid claims and claims expenses
incurred and related to prior years were as follows:

<TABLE>
<CAPTION>
(Dollars in millions) 1996 1995 1994
- ----------------------------------------------------- --------- --------- --------
<S> <C> <C> <C>
Interest accrued on reserves ..................... $292.9 $270.0 $267.0
Changes in reserve estimates and assumptions ...... 36.2 239.0 154.0
Changes in foreign exchange rates .................. 36.9 (2.0) 15.0
------- ------ -------
Increase in incurrals related to prior years ...... $366.0 $507.0 $436.0
======= ====== =======
</TABLE>

The increases in incurrals related to prior years were primarily the result
of interest accrued on reserves, changes in reserve estimates and assumptions of
interest rates, morbidity, mortality and expense costs, and changes in foreign
exchange rates, primarily related to the disability reserves of UNUM's United
Kingdom-based affiliate, UNUM Limited. Due to the long-term claims payment
pattern of some of UNUM's businesses, certain reserves, particularly disability,
are discounted for interest.

The effects of changes in reserve estimates and assumptions were more
significant in 1995 and 1994, primarily as a result of increased reserves from
lower discount rates for certain disability products following the sale of the
common stock portfolio in 1995, and adjustments to strengthen certain disability
reserves in 1995 and 1994.

Beginning in 1995, as explained in Note 2, unpaid claims are adjusted to
reflect changes that would have been necessary if the unrealized gains and
losses related to fixed maturities classified as available for sale had been
realized. Where applicable, UNUM has reflected those adjustments in the
liability balances with corresponding credits or charges, net of related
deferred taxes, reported as a component of unrealized gains on available for
sale securities in stockholders' equity.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Changes in Accounting Estimates

During 1995, UNUM sold virtually all of the common stock portfolio of its
United States subsidiaries. The sale of the common stock portfolio, which
partially supported certain disability reserves, and the reinvestment of the
proceeds primarily in investment grade fixed income assets at yields below the
average portfolio yield, resulted in lower reserve discount rates for certain
disability products reported in the Disability Insurance segment. This change in
accounting estimate to lower certain discount rates resulted in an increase of
$128.6 million to benefits to policyholders in the Consolidated Statement of
Income, and a decrease to net income of $83.6 million, or $1.15 per share.

During 1995, UNUM increased the group long term disability reserves for
incurred but not reported ("IBNR") claims, as reported in the Disability
Insurance segment. The increased IBNR reserves were based on management's
judgment that claims incurred but not yet reported would reflect increased
levels of claims incidence and severity. This change in accounting estimate
resulted in an increase to benefits to policyholders in the Consolidated
Statement of Income of $38.4 million, and a decrease to net income of $25.0
million, or $0.34 per share.

During 1995, UNUM increased reserves for unpaid claims related to the
Association Group disability business by $15.0 million to reflect management's
expectations of slower than expected claim recoveries. This change in accounting
estimate, which was reflected in the Disability Insurance segment, decreased net
income by $9.8 million, or $0.14 per share.

During 1994, UNUM increased reserves for existing claims by $83.3 million
and strengthened reserves for estimated future losses by $109.1 million. These
increased reserves reflected management's expectations of morbidity trends for
the existing non-cancellable individual disability business, reported in the
Disability Insurance 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.

Liabilities for Restructuring Activities

Liabilities for restructuring activities are recorded when management,
prior to the balance sheet date, commits to execute an exit plan that will
result in the incurral of costs that have no future economic benefit, or
approves a plan of termination and communicates sufficient detail of the plan to
employees. Liabilities for restructuring activities are included in other
liabilities in the Consolidated Balance Sheets.

Separate Accounts

Certain assets from tax sheltered annuity ("TSA") contracts and UNUM's
defined benefit plans 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 that arise out of any other business of UNUM.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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") was established for the sole
benefit of all of Union Mutual's individual participating life and annuity
policies and contracts.

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 represented approximately 2.3% and 2.5% of consolidated assets
and 2.7% and 2.8% of consolidated liabilities at December 31, 1996, and 1995,
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 could generate
additional U.S. tax if remitted to UNUM Corporation. A valuation allowance is
established for deferred tax assets when it is more likely than not that an
amount will not be realized.

Foreign Currency Translation

Foreign subsidiaries' balance sheet and income statement accounts expressed
in local functional currencies are translated into U.S. dollars using ending and
quarterly average exchange rates, respectively. The resulting translation
adjustments are reported in a separate component of stockholders' equity.

Earnings Per Share

The weighted average number of shares outstanding used to calculate
earnings per share was approximately 72,969,000, 72,677,000 and 74,158,000 in
1996, 1995 and 1994, respectively. The assumed exercise of outstanding stock
options does not result in a material dilution of earnings per share.

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,
benefits and expenses are stated net of reinsurance ceded to other companies.
UNUM evaluates the financial condition of its reinsurers and monitors
concentrations of credit risk to minimize exposure to significant losses from
reinsurer insolvencies.

Letters of Credit

New Accounting Pronouncements

In June 1996, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard ("FAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
establishes accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. The statement provides
guidance for recognition or derecognition of assets and

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
liabilities, focusing on the concepts of control and extinguishment. UNUM is
required to adopt FAS 125 effective January 1, 1997. The adoption of FAS 125 is
not expected to have a material effect on UNUM's results of operations or
financial position.

In March 1997, the FASB issued FAS No. 128, "Earnings Per Share," which is
intended to simplify the computation and presentation of earnings per share
("EPS"). FAS 128 supersedes Accounting Principles Board ("APB") Opinion No. 15,
"Earnings Per Share." FAS 128 will eliminate the concept of "primary" EPS and
require dual presentation of "basic" and "diluted" EPS. Diluted EPS under FAS
128 is similar to "fully diluted" EPS as defined by APB 15. UNUM is required to
adopt FAS 128 effective December 31, 1997. As stated in Note 1, under the
caption "Earnings Per Share," the assumed exercise of UNUM's outstanding stock
options does not result in a material dilution of earnings per share.

NOTE 2. INVESTMENTS

In November 1995, the FASB issued "A Guide to Implementation of Statement
115 on Accounting for Certain Investments in Debt and Equity Securities," which
provided a one-time opportunity to reassess the appropriateness of the
classifications of securities described in FAS 115, and to reclassify fixed
maturities from the held to maturity category without calling into question the
intent to hold other debt securities to maturity in the future. On December 31,
1995, UNUM reassessed its fixed maturity portfolio and as allowed under the
implementation guidance, reclassified fixed maturities with an amortized cost of
$6,082.8 million and a related unrealized gain of $393.0 million from the held
to maturity category to available for sale. The unrealized gain on the total
available for sale fixed maturity portfolio was $551.9 million at December 31,
1995. In connection with the reclassification of the held to maturity fixed
maturities to available for sale, on December 31, 1995, UNUM adjusted its unpaid
claims by $261.2 million to reflect the changes that would have been necessary
if the unrealized gains and losses related to fixed maturities classified as
available for sale had been realized. At December 31, 1996, the unrealized gain
on available for sale fixed maturities was $286.0 million and the related unpaid
claims adjustment was $168.7 million.

The following tables summarize the components of investment income, net
realized investment gains, and changes in unrealized investment gains on
available for sale securities:

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. INVESTMENTS (Continued)

Investment Income

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
(Dollars in millions) 1996 1995 1994
- ------------------------------------------------------ --------- --------- ----------
<S> <C> <C> <C>
Fixed maturities:
Available for sale ................................. $642.2 $182.2 $ 87.9
Held to maturity ................................. -- 488.0 548.1
Equity securities available for sale ............... -- 5.3 10.4
Mortgage loans .................................... 112.1 119.9 137.4
Real estate ....................................... 20.0 15.2 15.8
Policy loans ....................................... 10.2 8.6 10.2
Other long-term investments ........................ 7.3 1.6 0.9
Short-term investments .............................. 51.2 27.1 8.5
------ ------ ------
Gross investment income ........................... 843.0 847.9 819.2
Less investment expenses ........................... (16.3) (17.0) (23.9)
Less investment income on participating individual
life insurance policies and annuity contracts ...... (24.5) (24.6) (25.1)
------ ------ ------
Investment income ................................. $802.2 $806.3 $770.2
====== ====== ======
</TABLE>

Net Realized Investment Gains

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
(Dollars in millions) 1996 1995 1994
- ---------------------------------------------- --------- --------- ----------
<S> <C> <C> <C>
Gross realized investment gains:
Fixed maturities:
Available for sale ........................ $ 22.0 $ 14.2 $ 10.2
Held to maturity ........................... -- 0.1 0.2
Equity securities available for sale ...... -- 253.3 93.1
Mortgage loans, real estate and other ...... 18.2 19.4 13.5
------ ------ ------
Gross realized investment gains ............ 40.2 287.0 117.0
------ ------ ------
Gross realized investment losses:
Fixed maturities:
Available for sale ........................ (29.2) (12.8) (28.8)
Held to maturity ........................... -- (0.7) (6.8)
Equity securities available for sale ...... -- (18.7) (12.2)
Mortgage loans, real estate and other ...... (7.6) (29.7) (23.6)
------ ------ ------
Gross realized investment losses ......... (36.8) (61.9) (71.4)
------ ------ ------
Net realized investment gains ............ $ 3.4 $225.1 $ 45.6
====== ====== ======
</TABLE>

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. INVESTMENTS (Continued)

Change in Unrealized Gains on Available For Sale Securities

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
(Dollars in millions) 1996 1995 1994
- -------------------------------------------------------- ----------- ---------- -----------------
<S> <C> <C> <C>
Fixed maturities available for sale .................. $ (265.9) $ 612.7 $ (60.8)
Equity securities available for sale .................. 3.4 (131.6) (86.0)
Unpaid claims adjustment .............................. 92.5 (261.2) --
Deferred taxes ....................................... 39.2 (56.4) 47.3
-------- ------- -------
Total change in unrealized gains on available for sale
securities, as included in stockholders' equity ...... $ (130.8) $ 163.5 $ (99.5)
======== ======= =======
</TABLE>

Fixed Maturities

The amortized cost and fair values of fixed maturities available for sale
at December 31, 1996, were as follows:

<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollars in millions) Cost Gains Losses Value
- ------------------------------------ ------------ ------------- ------------- ----------
<S> <C> <C> <C> <C>
U.S. Government .................. $ 57.0 $ 3.6 $ -- $ 60.6
States and municipalities ......... 550.2 14.9 (0.8) 564.3
Foreign governments ............... 379.9 32.6 (0.7) 411.8
Public utilities .................. 1,354.7 60.4 (4.2) 1,410.9
Corporate bonds .................. 4,299.7 197.5 (17.1) 4,480.1
Redeemable preferred stocks ...... 3.6 -- (0.7) 2.9
Mortgage-backed securities ...... 11.6 0.5 -- 12.1
-------- ------ ------ --------
Total ........................... $6,656.7 $309.5 $(23.5) $6,942.7
======== ====== ====== ========
</TABLE>

The amortized cost and fair values of fixed maturities available for sale
at December 31, 1995, were as follows:

<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollars in millions) Cost Gains Losses Value
- ------------------------------------ ------------ ------------- ------------- ----------
<S> <C> <C> <C> <C>
U.S. Government .................. $ 402.6 $10.3 $ -- $ 412.9
States and municipalities ......... 670.5 23.7 (0.7) 693.5
Foreign governments ............... 229.4 26.1 (0.5) 255.0
Public utilities .................. 1,617.8 117.6 (0.6) 1,734.8
Corporate bonds .................. 5,617.9 377.3 (2.7) 5,992.5
Redeemable preferred stocks ...... 27.8 1.5 (1.2) 28.1
Mortgage-backed securities ...... 17.5 1.1 -- 18.6
-------- ------ ----- --------
Total ........................... $8,583.5 $557.6 $(5.7) $9,135.4
======== ====== ===== ========
</TABLE>

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. INVESTMENTS (Continued)

The amortized cost and fair value of fixed maturities available for sale at
December 31, 1996, 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 Fair
(Dollars in millions) Cost Value
- ------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Due in one year or less .......................................... $ 279.4 $ 288.9
Due after one year through five years ........................... 2,181.8 2,292.6
Due after five years through ten years ........................... 3,551.3 3,674.9
Due after ten years ............................................. 632.6 674.2
-------- --------
6,645.1 6,930.6
Mortgage-backed securities (primarily due after 10 years) ...... 11.6 12.1
-------- --------
Total ......................................................... $6,656.7 $6,942.7
======== ========
</TABLE>

During 1995, UNUM sold fixed maturities of two issuers classified as held
to maturity with an amortized cost of $4.0 million due to evidence of
significant deterioration of the issuers' creditworthiness, as evidenced by
bankruptcy filings. These sales resulted in a net realized loss of $1.2 million
in 1995. During 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 deterioration of the issuers' creditworthiness. These sales resulted
in a net realized loss of $3.0 million in 1994.

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, 1996:

<TABLE>
<CAPTION>
Fair
(Dollars in millions) Cost Value
- ------------------------------------------------- -------- -------
<S> <C> <C>
Common stocks:
Industrial, miscellaneous and all other ...... $23.8 $31.3
====== ======
</TABLE>

Gross unrealized investment gains on equity securities available for sale
totaled $7.5 million and $5.5 million, at December 31, 1996, and 1995,
respectively. There were no gross unrealized investment losses at December 31,
1996, and gross unrealized investment losses totaled $1.4 million, at December
31, 1995.

Mortgages

Effective January 1, 1995, UNUM adopted Financial Accounting Standard
("FAS") No. 114, "Accounting by Creditors for Impairment of a Loan" and FAS No.
118, "Accounting by Creditors for Impairment of a Loan--Income Recognition and
Disclosures," which defined the principles to measure and record an impaired
loan. When it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms of a loan agreement, the loan is deemed
impaired. Once a loan is determined to be impaired, an allowance for probable
losses is established for the difference between the carrying amount of the loan
and its estimated value. The estimated value is based on either the present
value of expected future cash flows discounted using the loan's effective
interest rate, the loan's observable market price, or the fair value of the
collateral. The adoption of FAS 114 and FAS 118 did not have a material effect
on UNUM's results of operations or financial position.

At December 31, 1996, and 1995, impaired loans totaled $50.4 million and
$50.1 million, respectively. Included in the $50.4 million were $38.9 million of
loans which had a related allowance for probable losses of $5.7 million, and a
loan of $11.5 million which had no related allowance for probable losses.
Included in the $50.1 million of impaired loans at December 31, 1995, were $38.4
million of loans which had a related allowance for probable losses of $7.1
million, and a loan of $11.7 million which had no related allowance for probable
losses.

Mortgage loans that were restructured prior to the adoption of FAS 114
amounted to $54.8 million and $59.9 million at December 31, 1996, and 1995,
respectively. Troubled debt restructurings represent loans that are

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. INVESTMENTS (Continued)
refinanced with terms more favorable to the borrower. Interest lost on
restructured loans was not material for the years ended December 31, 1996, 1995
or 1994.

Real Estate and Other

Effective January 1, 1996, UNUM adopted FAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. FAS 121 applies to both real estate held for investment and real
estate held for sale. The adoption of FAS 121 did not have a material effect on
UNUM's results of operations or financial position.

Real estate acquired in satisfaction of debt cumulatively amounts to $86.4
million at December 31, 1996. Real estate held for sale amounted to $9.4 million
at December 31, 1996, and $35.5 million at December 31, 1995.

Real estate with a depreciated cost of $7.7 million and no bonds or
mortages were non-income producing for the twelve months ended December 31,
1996. Interest lost on these investments was not material in 1996, 1995 or 1994.

UNUM was committed at December 31, 1996, to purchase fixed maturities and
other invested assets in the amount of $104.3 million.

NOTE 3. 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 at end
(Dollars in millions) of year Additions Deductions of year
- ------------------------------------ ------------- ------------ ------------- ---------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Mortgage loans .................. $39.2 $ 1.0 $ (2.5) $37.7
Real estate held for sale ...... 19.1 (0.4) (3.9) 14.8
------ ----- ------ ------
Total ........................... $58.3 $ 0.6 $ (6.4) $52.5
====== ===== ====== ======
Year Ended December 31, 1995
Mortgage loans .................. $43.2 $ 9.2 $(13.2) $39.2
Real estate held for sale ...... 13.2 6.3 (0.4) 19.1
------ ----- ------ ------
Total ........................... $56.4 $15.5 $(13.6) $58.3
====== ===== ====== ======
Year Ended December 31, 1994
Fixed maturities held to maturity
and available for sale ......... $ 0.3 $ -- $ (0.3) $ --
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 $ 9.3 $(22.7) $56.4
====== ===== ====== ======
</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 (Continued)

NOTE 4. DERIVATIVE FINANCIAL INSTRUMENTS

NOTE 5. SALE OF TAX SHELTERED ANNUITY BUSINESS

On October 1, 1996, UNUM Life Insurance Company of America ("UNUM America")
and First UNUM Life Insurance Company ("First UNUM") closed the sale of their
respective group tax-sheltered annuity ("TSA") businesses to The Lincoln
National Life Insurance Company and Lincoln Life & Annuity Company of New York
("Lincoln"), both subsidiaries of Lincoln National Corporation. The sale
involved approximately 1,700 group contractholders and assets under management
of approximately $3.3 billion. The contracts have initially been reinsured on an
indemnity basis. Upon consent of the TSA contractholders and/or participants,
the contracts will be considered reinsured on an assumption basis, legally
releasing UNUM America and First UNUM from future contractual obligation to the
respective contractholders and/or participants.

To effect the sale of the TSA business, UNUM transferred into a trust
account held for the benefit of Lincoln approximately $2,690 million of assets.
The assets transferred consisted of approximately $1,826 million of short-
term investments, $589 million of fixed maturities, and $275 million of cash.
The amount of assets in the trust will increase or decrease in conjunction with
the on-going activity in participant accounts, and assets will be released from
the trust to Lincoln upon consents for assumption reinsurance. UNUM has recorded
a deposit asset in its Consolidated Balance Sheet representing the assets
remaining in the trust, which supports the TSA contracts of those
contractholders and/or participants that have not given consent for assumption
reinsurance. At December 31, 1996, the deposit asset related to the TSA
transaction was approximately $2,651 million.

The sale resulted in a deferred pretax gain of $80.8 million, which will be
recognized in income in proportion to contractholder and/or participant consents
for assumption reinsurance, the majority of which management believes will occur
during 1997. The purchase price (ceding commission) paid upon closing was
approximately $71 million, and the transaction generated statutory capital of
approximately $160 million. As of March 1, 1997, consent for assumption
reinsurance has been provided by TSA contractholders and/or participants owning
approximately 60% of assets under management.

Historical results of the TSA business included in UNUM's Consolidated
Statements of Income were as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
(Dollars in millions, except per common share data) 1996 1995 1994
- ------------------------------------------------------ --------- --------- --------
<S> <C> <C> <C>
Revenues .......................................... $206.7 $247.6 $238.1
Net income .......................................... $ 12.8 $ 31.1 $ 29.9
Net income per common share ........................ $ 0.18 $ 0.43 $ 0.40
</TABLE>

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6. REINSURANCE

UNUM, through its life insurance subsidiaries, is involved in both the
cession and assumption of reinsurance with other companies.

On October 23, 1996, UNUM announced the execution of a definitive
reinsurance agreement between UNUM America and Centre Life Reinsurance Limited
("Centre Re"), a Bermuda based reinsurance specialist, for reinsurance coverage
of the active life reserves of UNUM America's existing United States
non-cancellable individual disability ("ID") block of business. This agreement
does not reinsure any claims incurred prior to January 1, 1996. The agreement
follows UNUM's announcement in late 1994 that it would no longer market the
non-cancellable form of ID coverage in the United States.

In fourth quarter 1996, UNUM recognized a pretax charge of $49.7 million,
which represents the present value of the anticipated minimum amount of fees to
be paid to Centre Re under the agreement. UNUM has the right, but no obligation,
to recapture the business after five years, with certain penalties.

The effect of reinsurance on premiums earned and written for the years
ended December 31, 1996, 1995 and 1994 was as follows:

Year Ended December 31,
--------------------------------------
(Dollars in millions) 1996 1995 1994
- --------------------------- ----------- ----------- ----------
Premiums earned:
Direct .................. $2,973.9 $2,842.9 $2,663.1
Assumed ............... 252.9 241.5 170.7
Ceded .................. (106.4) (66.2) (112.5)
-------- -------- --------
Premiums earned ...... $3,120.4 $3,018.2 $2,721.3
======== ======== ========
Premiums written:
Direct .................. $3,008.1 $2,877.2 $2,702.7
Assumed ............... 289.3 250.4 170.9
Ceded .................. (131.0) (64.4) (112.6)
-------- -------- --------
Premiums written ...... $3,166.4 $3,063.2 $2,761.0
======== ======== ========

For the years ended December 31, 1996, 1995 and 1994, recoveries recognized
under reinsurance agreements reduced benefits to policyholders by $90.8 million,
$58.9 million and $53.3 million, respectively.

NOTE 7. BUSINESS RESTRUCTURING AND OTHER CHARGES

Business Restructuring

Charges of $7.2 million, $8.4 million and $14.4 million were recorded in
1996, 1995 and 1994, respectively. The charge in 1996 was related to the merger
of Commercial Life Insurance Company ("Commercial Life") into

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7. BUSINESS RESTRUCTURING AND OTHER CHARGES (Continued)
UNUM America, and consisted of $2.8 million of severance costs for 120 employees
and $4.4 million of lease exit costs. The charges in 1995 and 1994 relate to the
acceleration of organizational changes within UNUM America and the decision to
discontinue the individual disability non-cancellable product. Partially
offsetting the charge recorded in 1995 was a $3.4 million curtailment gain,
related to workforce reductions in UNUM Corporation's noncontributory defined
benefit pension plan. As of December 31, 1996, the liability carried in the
Consolidated Balance Sheet for all three charges was $5.3 million.

Intangible Asset Write-offs and Future Loss Reserves

In connection with the merger of Commercial Life into UNUM America, the
sale of the tax-sheltered annuity business (see Note 5), as well as UNUM's
continued efforts to strengthen its focus on its core products, the company
initiated a review of certain products, which resulted in the recognition of
pretax charges totaling $39.4 million during 1996. These charges reduced income
before income taxes by $13.1 million in the Disability Insurance segment, $11.3
million in the Special Risk Insurance segment, and $15.0 million in the
Retirement Products segment. On an after-tax basis the charges reduced net
income by $26.3 million, or $0.36 per share for 1996.

NOTE 8. EMPLOYEE BENEFIT PLANS

Pension Plans

At December 31, 1996, UNUM had a noncontributory defined benefit pension
plan covering substantially all domestic employees, excluding employees of
Colonial Companies, Inc. ("Colonial Companies") and Duncanson & Holt, Inc.
("D&H"), who were covered under separate plans through 1996. The plan provided
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. Plan
assets, which were held in UNUM's separate accounts, consisted primarily of
group annuity contracts and 224,392 shares of UNUM Corporation common stock.
UNUM funds its pension plan in accordance with the requirements of the Employee
Retirement Income Security Act of 1974, as amended.

Effective January 1, 1997, UNUM replaced its existing pension plans with a
new noncontributory defined benefit pension plan ("Lifecycle Plan") covering
substantially all domestic employees, including employees of Colonial Companies
and D&H. Under the Lifecycle Plan, a new benefit formula is used, resulting in
benefits being earned more consistently over an employee's career, and is based
on the employee's age at retirement, years of service, and earnings during the
highest five of the last ten years of employment. Beginning in 1997, plan assets
were transferred from UNUM's separate accounts into a trust for the exclusive
benefit of plan participants.

The calculation of the December 31, 1996, benefit obligations shown below
is based on the Lifecycle Plan, reflecting the impacts of adding Colonial
Companies and D&H employees to the plan, merging Colonial Companies' previous
defined benefit plan, and changes in certain actuarial assumptions related to
the new benefit formula.

53
<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 8. EMPLOYEE BENEFIT PLANS (Continued)

Net pension cost included the following components:

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
(Dollars in millions) 1996 1995 1994
- ------------------------------------------------------ --------- ---------- ----------
<S> <C> <C> <C>
Service cost--benefits earned during the year ...... $ 13.5 $ 7.7 $ 9.2
Interest cost on projected benefit obligation ...... 15.1 12.3 11.6
Actual return on plan assets ........................ (57.1) (42.5) 3.3
Net amortization and deferral ..................... 36.9 28.2 (16.5)
Curtailment gain .................................... -- (3.4) --
------ ------ ------
Net pension cost ................................. $ 8.4 $ 2.3 $ 7.6
====== ====== ======
</TABLE>

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:

<TABLE>
<CAPTION>
December 31,
------------------------
(Dollars in millions) 1996 1995
- ------------------------------------------------------------------ ---------- -----------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation .................................... $ 166.9 $ 174.4
======= =======
Accumulated benefit obligation ................................. $ 189.3 $ 178.7
======= =======
Projected benefit obligation for service rendered to date ...... $(203.2) $(183.9)
Plan assets at fair value ....................................... 267.7 192.7
------- -------
Projected benefit obligation less than plan assets ............ 64.5 8.8
Unrecognized net gain .......................................... (54.7) (0.7)
Unrecognized prior service cost ................................. (28.4) (17.0)
Unamortized net obligation .................................... 1.8 2.1
------- -------
Accrued pension cost .......................................... $ (16.8) $ (6.8)
======= =======
</TABLE>

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 7.50% and 5.00%, respectively, at December 31,
1996, and 7.25% and 4.70%, respectively, at December 31, 1995. The expected
long-term rate of return on plan assets was 9.0% in 1996, 1995 and 1994. 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, 1996, 1995 and 1994.

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. The cost of these
plans was $10.3 million, $10.0 million and $8.2 million for the years ended
December 31, 1996, 1995 and 1994, respectively. At December 31, 1996, and 1995
the liability associated with these plans was $80.9 million and $72.4 million,
respectively.

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

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 8. EMPLOYEE BENEFIT PLANS (Continued)
plan the employee participates in, eligible employees may contribute primarily
up to 10% of their annual base salary, and UNUM matches a portion of each
employee's contribution up to 6% of the employee's compensation. Employees may
become 100% vested immediately upon becoming eligible to participate, or
incrementally over a five year period. Expense for these plans amounted to $8.4
million in 1996, 1995 and 1994, respectively.

Effective January 1, 1997, UNUM introduced a single retirement savings plan
for all domestic employees who meet the eligibility requirement of one year of
service, including all employees eligible under the former plans. Dependent upon
the employee's annual earnings, eligible employees may contribute up to 15% of
their annual compensation, including incentive payouts. UNUM will match 100% of
the employee's contribution up to 3% of the employee's compensation, plus 50% of
the employee's contribution on the next 2% of the employee's compensation, to a
maximum of 4%. Employees become 100% vested immediately upon becoming eligible
to participate.

NOTE 9. STOCK-BASED COMPENSATION PLANS AND INCENTIVE PLANS

Stock-Based Compensation Plans

Effective January 1, 1996, UNUM adopted FAS No. 123, "Accounting for
Stock-Based Compensation." FAS 123 established financial accounting and
reporting standards for stock-based employee compensation plans. The statement
defines a new method of accounting for employee stock compensation plans using a
fair value based method, under which compensation cost is measured and
recognized in results of operations. Alternatively, FAS 123 allows an entity to
retain the accounting for employee stock compensation plans defined under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." UNUM retained the accounting defined in APB No. 25, under which
no compensation expense is recognized for fixed stock option grants. As
required, UNUM will disclose the pro forma effects of stock-based compensation
using the fair value based method defined under FAS 123.

At December 31, 1996, UNUM had four stock-based compensation plans, which
are described below. Had compensation cost for options issued under UNUM's four
stock-based compensation plans been determined based on the fair value at the
grant dates consistent with the methods defined under FAS 123, UNUM's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
(Dollars in millions, except per common share data) 1996 1995
- ------------------------------------------------------ --------- --------
<S> <C> <C>
Net income:
As reported ....................................... $238.0 $281.1
Pro forma .......................................... $231.9 $277.2
Earnings per common share:
As reported ....................................... $ 3.26 $ 3.87
Pro forma .......................................... $ 3.18 $ 3.81
</TABLE>

The fair value of each option granted is estimated on the date of grant
using a modified Black-Scholes option-
pricing model with the following assumptions:

<TABLE>
<CAPTION>
1996 1995
----------------- ----------------
<S> <C> <C>
Dividend yield ........................ 1.5% 1.9%
Expected stock price volatility ...... 23.1% to 24.8% 24.8% to 25.9%
Risk-free interest rate ............... 5.2% to 6.5% 5.4% to 7.9%
Expected option lives ............... 4 to 8 years 4 to 8 years
</TABLE>

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9. STOCK-BASED COMPENSATION PLANS AND INCENTIVE PLANS (Continued)

Because some options vest over several years and additional awards
generally are made each year, the pro forma amounts above may not be
representative of the effects on net income for future years.

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. Options were granted at the discretion of the Compensation
Committee of the Board of Directors ("the Committee") and had vesting schedules
of one to four years. The number of shares subject to options under the Option
Plan could not exceed 2.5 million. Grants are no longer made under this plan.

The 1990 Long-Term Stock Incentive Plan ("Incentive Plan") 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. Options may be granted annually at the
discretion of the Committee and vest in one to five years.

The Incentive Plan also provides for granting to key officers restricted
stock awards whose vesting is contingent upon UNUM's achieving prescribed
financial performance objectives, with the exception of 5,800 shares granted in
1996, 20,200 shares granted in 1995 and 10,000 shares granted in 1994, which
will vest upon the grantee remaining in UNUM's employ for a specified period of
time. Plan participants are entitled to voting rights on their respective shares
at grant. The compensation cost related to restricted stock grants was not
material in 1996, 1995 and 1994.

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 number of shares subject to issuance under the Incentive Plan cannot
exceed 6.8 million, including both options and shares of restricted stock. At
December 31, 1996, 1995 and 1994, 692,518 shares, 1,680,235 shares and 2,511,145
shares, respectively, were available for grant under the Incentive Plan.

The 1996 Long-Term Stock Incentive Plan ("1996 Incentive Plan") 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. The
1996 Incentive Plan also provides for granting to key officers restricted stock
awards whose vesting is contingent upon achieving prescribed financial
performance objectives or upon the grantee remaining in UNUM's employ for a
specified period of time. Options and restricted stock may be granted annually
at the discretion of the Committee. The number of shares subject to issuance
cannot exceed 3.5 million. At December 31, 1996, 3,495,000 shares were available
for grant under the 1996 Incentive Plan.

The 1998 Goals Stock Option Plan ("1998 Option Plan") provides for granting
to all eligible employees up to 150 options to purchase UNUM Corporation common
stock. The options will vest to the employee nine years from the date of grant.
Vesting may be accelerated to an earlier date if it is determined that UNUM has
attained the 1998 Goals. Grants of 102,500 shares and 1,105,350 shares were made
in 1996 and 1995, respectively. Additional grants will be made in 1997. The
number of shares subject to options under this plan cannot exceed 1.5 million.

For all of UNUM's stock based compensation plans, the exercise price of
each option is not less than 100% of the fair market value of UNUM's stock on
the date of grant.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9. STOCK-BASED COMPENSATION PLANS AND INCENTIVE PLANS (Continued)

A summary of the status of UNUM's four stock-based compensation plans as of
December 31, 1996, 1995 and 1994, and changes during the years then ended is
presented below:

<TABLE>
<CAPTION>
Restricted
(Per share amounts are weighted-average) Options Stock
- -------------------------------------------------------- ------------ ------------
<S> <C> <C>
Outstanding at January 1, 1994 ........................ 3,402,954 146,425
1994 Activity:
Granted at $50.92 per share ........................... 884,375 --
Granted for restricted stock at $50.05 per share ...... -- 46,850
Lapse of restrictions on restricted stock ............ -- (80,800)
Exercised at $24.99 per share ........................ (282,729) --
Forfeited at $46.08 per share for options ............ (151,578) (2,525)
---------- --------
Outstanding at December 31, 1994 ..................... 3,853,022 109,950
---------- --------
1995 Activity
Granted at $41.06 per share ........................... 2,200,000 --
Granted for restricted stock at $42.99 per share ...... -- 70,950
Lapse of restrictions on restricted stock ............ -- (33,100)
Exercised at $25.75 per share ........................ (541,188) --
Forfeited at $46.85 per share for options ............ (314,200) (5,600)
---------- --------
Outstanding at December 31, 1995 ..................... 5,197,634 142,200
---------- --------
1996 Activity
Granted at $60.75 per share ........................... 1,080,690 --
Granted for restricted stock at $59.36 per share ...... -- 93,300
Exercised at $37.72 per share ........................ (637,261) --
Forfeited at $46.78 per share for options ............ (271,741) (32,600)
---------- --------
Outstanding at December 31, 1996 ..................... 5,369,322 202,900
========== ========
</TABLE>

The weighted-average exercise price of options outstanding at December 31,
1996, 1995 and 1994, was $45.85, $41.81 and $40.32 per share, respectively.

The number and weighted-average exercise price of exercisable shares as of
December 31, 1996, 1995 and 1994 was 2,381,592 shares at $41.45 per share,
2,108,060 shares at $39.13 per share, and 1,975,219 shares at $32.54 per share,
respectively.

The weighted-average fair value of options granted during the years ended
December 31, 1996, and 1995 was $13.83 and $10.20, respectively.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9. STOCK-BASED COMPENSATION PLANS AND INCENTIVE PLANS (Continued)

The following table summarizes information about stock options outstanding
at December 31, 1996:

Options Outstanding Options Exercisable
- --------------------------------------------------------------------------- ----------------------------------------------
Range of Number Weighted-Average Number
Exercise Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
- ------------ -------------- ------------------- ------------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
$10 to 30 487,086 3.49 $23.38 487,086 $23.38
31 to 48 2,414,512 7.35 39.43 970,009 38.78
49 to 72 2,467,724 7.81 56.57 924,497 53.76
---------- ---------- ------ ------- ---------- -------
$10 to 72 5,369,322 7.21 $45.85 2,381,592 $41.45
========== ==========
</TABLE>

Between 1991 and 1994, certain officers were granted limited stock
appreciation rights ("LSARs") in conjunction with their options for those years.
If a change in control of UNUM Corporation, as defined in the plans, should
occur, the option holder can exercise the LSAR. An LSAR is meant to compensate
an officer if the associated options lose value due to a change in control by
allowing the officer to receive payment for the difference between the option
exercise price and the highest price paid per share in connection with the
change in control. As an underlying stock option is exercised, the LSARs are
automatically canceled. At December 31, 1996, 1995 and 1994, there were 398,300
LSARs, 480,825 LSARs and 590,275 LSARs outstanding, respectively.

Annual Incentive Plans

UNUM has several annual incentive plans for certain employees and executive
officers that provide additional compensation based on achievement of
predetermined annual corporate and affiliate financial and non-financial goals.
In 1996, 1995 and 1994, expense for these plans was $41.7 million, $19.9 million
and $7.5 million, respectively.

NOTE 10. INCOME TAXES

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:

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
(Dollars in millions) 1996 1995 1994
- --------------------------------------------- ---------- ----------------- ----------
<S> <C> <C> <C>
Tax at federal statutory rate of 35% ...... $119.6 $ 133.7 $ 69.5
Tax-exempt income ........................ (18.8) (30.0) (32.0)
Prior years' taxes ........................ (1.2) (6.6) --
State income tax ........................... 2.5 3.8 2.2
Realized investment gains .................. -- (5.0) (1.3)
Other .................................... 1.5 4.9 5.5
------ ---- ------
Income taxes .............................. $103.6 $ 100.8 $ 43.9
====== ==== ======
</TABLE>

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10. INCOME TAXES (Continued)

Deferred income tax liabilities and assets consist of the following:

December 31,
--------------------
(Dollars in millions) 1996 1995
- ------------------------------------------------------ --------- --------
Deferred tax liabilities:
Deferred policy acquisition costs .................. $210.7 $321.6
Policy reserve adjustments ........................ 106.5 --
Net unrealized gains .............................. 101.7 174.0
Value of business acquired ........................ 19.8 17.7
Invested assets .................................... 9.6 10.9
Other ............................................. 11.0 16.0
------- -------
Gross deferred tax liabilities .................. 459.3 540.2
------- -------
Deferred tax assets:
Alternative minimum tax credit carryforwards ...... 1.1 29.0
Policy reserve adjustments ........................ -- 65.9
Net realized losses .............................. 17.4 25.1
Postretirement benefits ........................... 26.7 22.1
Deferred gains .................................... 28.5 --
Accrued liabilities .............................. 27.0 --
Other ............................................. 26.8 12.1
------- -------
Gross deferred tax assets ........................ 127.5 154.2
Less valuation allowance ........................... 10.0 6.0
------- -------
Net deferred tax assets ........................... 117.5 148.2
------- -------
Net deferred tax liability ........................ $341.8 $392.0
======= =======

Deferred income taxes relating to cumulative net unrealized gains on
available for sale fixed maturity and equity securities were $101.7 million,
$174.0 million and $27.1 million at December 31, 1996, 1995 and 1994,
respectively.

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, 1996. 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, 1996, for all life insurance subsidiaries, the tax
would have amounted to $11.1 million.

UNUM's Consolidated Statements of Income for 1996, 1995 and 1994, included
the following amounts of foreign income and related income tax expense:

Year Ended December 31,
------------------------------
(Dollars in millions) 1996 1995 1994
- ------------------------------ -------- --------- -------
Foreign income ............ $27.4 $ (1.2) $24.2
====== ====== ======
Income tax expense (credit):
Current .................. $10.4 $ 1.4 $ 0.7
Deferred .................. 1.8 (0.2) 9.7
------ ------ ------
Total ..................... $12.2 $ 1.2 $10.4
====== ====== ======

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10. INCOME TAXES (Continued)

UNUM subsidiaries had operating loss carryforwards totaling $3.6 million as
of December 31, 1996. The operating loss carryforward will expire, if not
utilized, in 1999 through 2002.

NOTE 11. NOTES PAYABLE

Notes payable consisted of the following at December 31, 1996, and 1995:

<TABLE>
<CAPTION>
December 31,
--------------------
(Dollars in millions) 1996 1995
- --------------------------------------------------------------- --------- --------
<S> <C> <C>
Short-term debt:
Commercial paper, with weighted average interest rates of
5.5% in 1996 and 5.9% in 1995 .............................. $60.6 $82.4
Other notes payable, with weighted average interest rates of
0.7% in 1996 and 1.0% in 1995 .............................. 8.6 29.1
Medium-term notes payable, due 1997, with interest rates
ranging from 6.0% to 6.7% ................................. 48.5 15.0
------ ------
Total short-term debt .................................... 117.7 126.5
------ ------
Long-term debt:
Medium-term notes payable, due 1998 to 2024, with interest
rates ranging from 5.1% to 7.5% ........................... 242.1 290.4
Monthly income debt securities, due 2025, with interest rate
of 8.8%, $172.5 million issued net of unamortized offering
costs of $5.4 million in 1996 and $5.6 million in 1995 ...... 167.1 166.9
------ ------
Total long-term debt .................................... 409.2 457.3
------ ------
Total notes payable ....................................... $526.9 $583.8
====== ======
</TABLE>

At December 31, 1996, UNUM Corporation had a $500 million committed
revolving credit facility that expires on October 1, 2001. 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 debt levels.

Aggregate maturities of notes payable are as follows: 1997-$117.7 million;
1998-$68.0 million; 1999-$21.5 million; 2000-$60.0 million; thereafter-$259.7
million.

NOTE 12. CAPITAL STOCK AND PREFERRED STOCK PURCHASE RIGHTS

Effective October 23, 1996, UNUM's Board of Directors approved an expansion
of the Company's stock repurchase program to 6.0 million shares by authorizing
an additional 3.7 million shares. At December 31, 1996, approximately 4.5
million shares of common stock remained authorized for stock repurchase. During
1996, UNUM acquired approximately 1.9 million shares of its common stock in the
open market at an aggregate cost of $119.1 million. UNUM did not acquire any
shares in the open market in 1995. During 1994, UNUM repurchased 3.9 million
shares in the open market at an aggregate cost of $183.3 million.

Under UNUM's stock-based compensation plans and the plans of Colonial
Companies (see Note 9), 730,561 shares, 612,138 shares and 329,579 shares were
issued in 1996, 1995 and 1994, respectively.

UNUM adopted a Shareholder Rights Plan on March 13, 1992. Under the Plan,
each Right, under certain specific circumstances, entitles the holder to
purchase one one-hundredth of a share of Series A Junior Participating

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12. CAPITAL STOCK AND PREFERRED STOCK PURCHASE RIGHTS (Continued)
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
Corporation common stock or (2) a tender or exchange offer for 10% or more of
UNUM Corporation 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 13. 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. The amount available under
current law for payment of dividends during 1997 to UNUM Corporation from all
U.S. domiciled insurance subsidiaries without state insurance regulatory
approval is approximately $153 million. 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 $1,205 million and $1,149 million, at
December 31, 1996, and 1995, respectively. The aggregate statutory net operating
income, which excludes realized investment gains net of tax, of UNUM
Corporation's United States domiciled insurance subsidiaries was approximately
$167 million, $143 million and $33 million for 1996, 1995 and 1994,
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 from its United
Kingdom based affiliate, UNUM Limited, subject to certain U.S. tax consequences.

NOTE 14. LITIGATION

NOTE 15. 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 that could be realized in immediate
settlement of the financial instrument.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 15. FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

The following table summarizes the carrying amounts and fair values of
UNUM's financial instruments at December 31, 1996, and 1995:

<TABLE>
<CAPTION>
1996 1995
--------------------------- ------------------------
Carrying Fair Carrying Fair
(Dollars in millions) Amount Value Amount Value
- ----------------------------------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities available for sale ... $6,942.7 $6,942.7 $9,135.4 $9,135.4
Equity securities available for sale .. 31.3 31.3 25.2 25.2
Mortgage loans ........................ 1,132.1 1,213.4 1,163.4 1,274.9
Policy loans ........................ 232.9 232.9 219.2 219.2
Short-term investments ............... 123.4 123.4 896.7 896.7
Cash ................................. 77.0 77.0 42.5 42.5
Accrued investment income ............ 166.1 166.1 208.5 208.5
Deposit assets ..................... 2,846.6 2,846.6 -- --
Financial liabilities:
Other policyholder funds:
Investment-type insurance
contracts:
With defined maturities ............ $ 191.0 $ 216.0 $ 400.0 $ 440.0
With no defined maturities ......... 2,901.0 2,839.0 3,031.0 2,967.0
Individual annuities and
supplementary contracts not
involving life contingencies ........ 76.2 76.2 81.4 81.4
Notes payable ........................ 526.9 542.5 583.8 610.8
</TABLE>

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

Fixed Maturities Available for Sale: 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.

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, Short-term Investments, Cash, Accrued Investment Income and
Deposit Assets: 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 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. 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.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 15. FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

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.

NOTE 16. SEGMENT INFORMATION

UNUM's markets for its insurance products are the United States, its
principal market, Canada, the United Kingdom and the Pacific Rim. Through its
affiliates, UNUM is the leading provider of group long term disability
insurance, its principal product, in the United States and the United Kingdom.
Products are marketed through sales personnel, independent contractors and
brokers, and specialty agents. UNUM targets sales of its disability products to
executive, administrative and management personnel, and other professionals such
as doctors, attorneys, accountants and engineers.

To more clearly reflect UNUM's management of its businesses and to more
appropriately group its product portfolios, UNUM began reporting its operations,
effective January 1, 1995, principally in four business segments: Disability
Insurance, Special Risk Insurance, Colonial Products and Retirement Products.
For comparative purposes, 1994 information was previously restated to reflect
reporting in these segments.

The Disability Insurance segment includes disability products offered in
North America, the United Kingdom and Japan including: group long term
disability, group short term disability, individual disability, Association
Group disability, disability reinsurance operations and long term care
insurance. The Special Risk Insurance segment includes group life, special risk
accident insurance, non-disability reinsurance operations, reinsurance
underwriting management operations and other special risk insurance products.
The Colonial Products segment includes Colonial Companies, Inc. and
subsidiaries, which offer payroll-deducted, voluntary employee benefits
including accident and sickness, cancer and life insurance products to employees
at their worksites. The Retirement Products segment includes tax sheltered
annuities, guaranteed investment contracts, deposit administration accounts,
401(k) plans, individual life and group medical products, all of which are no
longer actively marketed by UNUM. Corporate includes transactions that are
generally non-insurance related.

Investment income and net realized investment gains are allocated to the
segments based on designation of ownership of assets identified to the products
in each segment. Operating expenses are allocated to the segments based on
direct association with a product whenever possible. If 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.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 16. SEGMENT INFORMATION (Continued)

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

Year Ended December 31,
---------------------------------------
(Dollars in millions) 1996 1995 1994
- ------------------------------------ ----------- ----------- -----------
Revenues:
Disability Insurance ............ $2,386.2 $2,472.8 $2,116.5
Special Risk Insurance ......... 811.9 750.7 647.8
Colonial Products ............... 545.5 527.3 473.9
Retirement Products ............ 283.0 357.8 369.4
Corporate ........................ 16.1 14.3 5.0
-------- -------- --------
Total revenues .................. $4,042.7 $4,122.9 $3,612.6
======== ======== ========
Income (loss) before income taxes:
Disability Insurance ............ $ 215.3 $ 217.0 $ 56.2
Special Risk Insurance ......... 79.2 60.3 65.9
Colonial Products ............... 92.4 87.7 62.7
Retirement Products ............ 1.4 45.5 42.0
Corporate ........................ (46.7) (28.6) (28.2)
-------- -------- --------
Income before income taxes ...... 341.6 381.9 198.6
Income taxes ..................... 103.6 100.8 43.9
-------- -------- --------
Net income ..................... $ 238.0 $ 281.1 $ 154.7
======== ======== ========

<TABLE>
<CAPTION>
December 31,
-----------------------------------------
(Dollars in millions) 1996 1995 1994
- --------------------------------------------------- ------------ ------------ -----------
<S> <C> <C> <C>
Identifiable Assets:
Disability Insurance ........................... $7,846.8 $7,280.3 $6,131.9
Special Risk Insurance ........................ 1,297.1 1,056.5 846.8
Colonial Products .............................. 1,094.1 996.5 846.2
Retirement Products ........................... 4,478.8 4,717.4 4,504.0
Corporate ....................................... 396.7 372.9 451.3
Individual Participating Life and Annuity ...... 354.0 364.2 347.0
--------- --------- ---------
Total assets ................................. $15,467.5 $14,787.8 $13,127.2
========= ========= =========
</TABLE>

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of unaudited quarterly results of operations for
1996 and 1995:

<TABLE>
<CAPTION>
1996
--------------------------------------------
(Dollars in millions, except per common share data) 4th 3rd 2nd 1st
- ------------------------------------------------------ --------- --------- --------- --------
<S> <C> <C> <C> <C>
Premiums .......................................... $793.8 $796.2 $762.3 $768.1
Investment income ................................. 172.6 207.7 212.2 209.7
Net realized investment gains (losses) ............ 1.4 1.6 (3.1) 3.5
Benefits to policyholders ........................... 573.1 605.2 563.5 582.9
Net income .......................................... 48.0 44.0 73.9 72.1
Net income per common share ........................ 0.66 0.60 1.01 0.99
</TABLE>

<TABLE>
<CAPTION>
1995
--------------------------------------------
4th 3rd 2nd 1st
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Premiums ........................... $817.0 $738.0 $729.2 $734.0
Investment income .................. 207.3 207.8 199.3 191.9
Net realized investment gains ...... 3.2 2.9 208.1 10.9
Benefits to policyholders ......... 634.8 568.7 717.7 571.8
Net income ........................ 62.1 66.7 88.9 63.4
Net income per common share ......... 0.85 0.92 1.22 0.87
</TABLE>

NOTE 18. SUBSEQUENT EVENTS

On March 14, 1997, UNUM's Board of Directors authorized a two-for-one
common stock split. The split is subject to shareholder approval of a proposal
to increase the number of authorized shares of common stock to 240 million from
120 million. UNUM's shareholders will vote on the proposal to increase the
number of authorized shares at the Annual Meeting of Shareholders on May 9,
1997. Under the proposed split, on or about June 2, 1997, one additional share
would be distributed for each share of common stock already issued, to holders
of record on May 19, 1997. The financial information contained in this report
has not been adjusted to reflect the impact of the proposed common stock split.

On March 14, 1997, the Board of Directors also announced its intent to
increase the next regularly scheduled cash dividend, payable in May, to 28.5
cents from 27.5 cents per common share on a pre-split basis.

<PAGE>

Item 9--Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

No disagreements with accountants on any matter of accounting principles or
practices or financial statement disclosure have been reported on a Form 8-K
during the past two years prior to the date of the most recent financial
statements.

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 for the Annual Meeting of Shareholders on May 9, 1997, 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 25, 1997) Position held with UNUM Since
- --------------------- ------------------ ------------------------------ ------------
<S> <C> <C> <C>
James F. Orr III 54 Chairman, President and 1986
Chief Executive Officer
Thomas G. Brown 52 Executive Vice President 1992
Stephen B. Center 59 Executive Vice President 1972
Robert W. Crispin 50 Executive Vice President 1995
and Chief Financial Officer
Peter J. Moynihan 53 Senior Vice President 1979
Kevin P. O'Connell 51 Executive Vice President 1987
Elaine D. Rosen* 44 President, UNUM America 1983
Robert E. Staton* 50 President, Colonial 1993
</TABLE>

- --------

*Denotes an officer of a subsidiary 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 By-Laws, the UNUM Board, or the delegatee may prescribe.

Mr. Orr was elected Chairman of the Board of UNUM in February 1988. In
addition, 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 Chairman of the Board and Chief Executive
Officer of Duncanson & Holt, Inc. ("D&H"), a post he has held since 1987.
Additionally, he served as President of D&H from 1987 until May 1996. D&H became
a wholly-owned subsidiary of UNUM in July 1992.

Mr. Center was elected Executive Vice President of UNUM in September 1992.
Additionally, he served as President of UNUM America from September 1992 until
December 1996. Previously, he served as Group Executive Vice President of UNUM
America from May 1990 to August 1992. He joined UNUM America in 1963.

Mr. Crispin was elected Executive Vice President of UNUM in January 1995
and additionally as Chief Financial Officer in August 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.

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

Mr. O'Connell was elected Executive Vice President of UNUM in February 1996
and Executive Vice President of UNUM America in May 1995. Previously, he served
as Senior Vice President of UNUM America from November 1988 to May 1995. He
joined UNUM America in 1968.

<PAGE>

Ms. Rosen was elected President of UNUM America in January 1997.
Previously, she served as Executive Vice President of UNUM America from May 1995
to December 1996 and as Senior Vice President of UNUM America from November 1988
to May 1995. She joined UNUM America in 1975.

Mr. Staton was elected President of Colonial in January 1997. Previously he
served as Chairman of Colonial from December 1993 to December 1996, and
additionally as Chief Executive Officer from July 1995 to December 1996.
Previously, he served as Senior Vice President from February 1990 to December
1993; General Counsel from August 1985 to November 1993; and Corporate Secretary
from February 1992 to August 1993. Colonial's parent company merged with UNUM in
March 1993.

Item 11--Executive Compensation

The information under the captions "Compensation of Directors", "Board
Compensation Report on Executive Compensation", and "Executive Compensation"
included in UNUM's proxy statement for the Annual Meeting of Shareholders on May
9, 1997, 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 for the Annual Meeting of Shareholders on May 9, 1997, is
incorporated by reference.

Item 13--Certain Relationships and Related Transactions

The information under the captions "Executive Compensation" and "Other
Agreements and Transactions" included in UNUM's proxy statement for the Annual
Meeting of Shareholders on May 9, 1997, is incorporated by reference.

<PAGE>

PART IV

Item 14--Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) Index of documents filed as part of this report:

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

Page
------
Report of Independent Accountants ..................... 34
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994 ..................... 35
Consolidated Balance Sheets as of December 31, 1996,
and 1995 ............................................. 36
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994 ......... 38
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994 ............... 39
Notes to Consolidated Financial Statements ............ 40

2. Financial Statement Schedules

II Condensed Financial Information of UNUM Corporation
(Registrant) 70

III Supplementary Insurance Information 74

IV Reinsurance 75

3. Exhibits. See Index to Exhibits on page 76 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 1996.

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 25, 1997.

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
- ----------------------------------------- ----------------------------- ----------------
<S> <C> <C>
/s/ JAMES F. ORR III Chairman, President and
- ------------------------------------- Chief Executive Officer March 25, 1997
(James F. Orr III)

/s/ ROBERT W. CRISPIN Executive Vice President
- ------------------------------------- and Chief Financial Officer March 25, 1997
(Robert W. Crispin)

/s/ STEPHEN D. ROBERTS Vice President and
- ------------------------------------- Corporate Controller March 25, 1997
(Stephen D. Roberts)

* Director March 25, 1997
- -------------------------------------
(Gayle O. Averyt)

* Director March 25, 1997
- -------------------------------------
(Robert E. Dillon, Jr.)

* Director March 25, 1997
- -------------------------------------
(Gwain H. Gillespie)

* Director March 25, 1997
- -------------------------------------
(Ronald E. Goldsberry)

* Director March 25, 1997
- -------------------------------------
(Donald W. Harward)

* Director March 25, 1997
- -------------------------------------
(George J. Mitchell)

* Director March 25, 1997
- -------------------------------------
(Cynthia A. Montgomery)

* Director March 25, 1997
- -------------------------------------
(James L. Moody, Jr.)

* Director March 25, 1997
- -------------------------------------
(Lawrence R. Pugh)

* Director March 25, 1997
- -------------------------------------
(Lois Dickson Rice)

* Director March 25, 1997
- -------------------------------------
(John W. Rowe)

*/s/ JOHN-PAUL DEROSA
- -------------------------------------
(John-Paul DeRosa, as Attorney-in-fact
for each of the persons indicated)
(Assistant Secretary)

</TABLE>
69
<PAGE>

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

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
(Dollars in millions) 1996 1995 1994
- ------------------------------------------------------------ --------- --------- --------
<S> <C> <C> <C>
Revenues
Dividends from subsidiaries* ........................... $259.7 $ 23.6 $102.0
Investment income ....................................... 0.3 0.4 0.1
Interest income on loans to subsidiaries* ............... 2.5 5.5 --
Fees and other income .................................... -- 0.3 0.8
------- ------ -------
Total revenues .......................................... 262.5 29.8 102.9
Expenses
Operating expenses ....................................... 4.7 2.3 8.7
Interest expense ....................................... 40.7 37.2 18.6
Interest expense on loans from subsidiaries* ............ 0.1 3.9 2.3
------- ------ -------
Total expenses .......................................... 45.5 43.4 29.6
------- ------ -------
Income (loss) before income taxes ........................ 217.0 (13.6) 73.3
Income tax benefit ....................................... 15.1 13.1 6.2
------- ------ -------
Income (loss) before equity in undistributed net
income of subsidiaries .................................... 232.1 (0.5) 79.5
Equity in undistributed net income of subsidiaries* ...... 5.9 281.6 75.2
------- ------ -------
Net income ................................................ $238.0 $281.1 $154.7
======= ====== =======
</TABLE>

- --------

*Eliminated in consolidation

See note to condensed financial statements.

<PAGE>

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

BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
------------------------
(Dollars in millions) 1996 1995
- ------------------------------------------------------------ ----------- ----------
<S> <C> <C>
Assets
Investments
Investment in subsidiaries* ........................... $2,749.8 $2,836.1
Short-term investments ................................. 0.6 0.6
-------- --------
Total investments .................................... 2,750.4 2,836.7
Amounts receivable from subsidiaries, net* ............... 15.0 6.6
Notes receivable from subsidiary* ........................ 32.5 50.0
Property and equipment, net .............................. 22.3 18.1
-------- --------
Total assets .......................................... $2,820.2 $2,911.4
======== ========
Liabilities and Stockholders' Equity
Liabilities
Notes payable .......................................... $ 526.9 $ 583.8
Notes payable to subsidiary* ........................... -- 10.0
Income taxes .......................................... 16.5 4.8
Other liabilities ....................................... 13.7 9.9
-------- --------
Total liabilities .................................... 557.1 608.5
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 .............................. 1,077.2 1,065.7
Unrealized gains on available for sale securities of
subsidiaries, net ....................................... 108.5 235.6
Unrealized foreign currency translation adjustment ...... (1.2) (23.1)
Retained earnings (including undistributed earnings of
subsidiaries of $1,401.8 million and $1,395.9 million in
1996 and 1995, respectively) .............................. 1,871.4 1,713.2
-------- --------
3,065.9 3,001.4
Less:
Treasury stock, at cost (1996--28,165,594 shares;
1995--26,980,331 shares) ................................. 792.2 691.6
Restricted stock deferred compensation .................. 10.6 6.9
-------- --------
Total stockholders' equity .............................. 2,263.1 2,302.9
-------- --------
Total liabilities and stockholders' equity ............ $2,820.2 $2,911.4
======== ========
</TABLE>

- --------

*Eliminated in consolidation

See note to condensed financial statements.

<PAGE>

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

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
(Dollars in millions) 1996 1995 1994
- ------------------------------------------------------------- ---------- ---------- ---------
<S> <C> <C> <C>
Operating activities:
Net income ................................................ $ 238.0 $ 281.1 $ 154.7
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in income tax liability ........................ 11.7 2.1 0.4
(Increase) decrease in amounts due to/from
subsidiaries* ............................................. (8.4) 11.8 (6.0)
Other ................................................... 16.1 (3.1) 11.1
Equity in undistributed net income of subsidiaries* ...... (5.9) (281.6) (75.2)
------- ------- -------
Net cash provided by operating activities ............... 251.5 10.3 85.0
------- ------- -------
Investing activities:
Investment in subsidiaries, net* ........................ (13.1) (1.1) (30.6)
Issuance of notes receivable from subsidiaries* ......... (32.5) (100.0) --
Repayment of notes receivable from subsidiaries* ......... 50.0 50.0 --
Net (increase) decrease in short-term investments ......... -- (0.1) 3.9
Net additions to property and equipment .................. (8.6) (5.4) (3.3)
------- ------- -------
Net cash used in investing activities .................. (4.2) (56.6) (30.0)
------- ------- -------
Financing activities:
Dividends to stockholders ................................. (79.8) (75.1) (68.3)
Treasury stock acquired ................................. (119.1) -- (183.3)
Proceeds from notes payable .............................. -- 291.5 54.7
Repayment of notes payable .............................. (15.0) -- --
Net increase (decrease) in short-term debt ............... (42.3) (135.1) 136.7
Repayment of notes payable to subsidiaries* ............... (10.0) (50.0) --
Other ................................................... 18.9 13.0 5.9
------- ------- -------
Net cash provided by (used in) financing
activities ............................................. (247.3) 44.3 (54.3)
------- ------- -------
Net increase (decrease) in cash ........................... -- (2.0) 0.7
Cash at beginning of year ................................. -- 2.0 1.3
------- ------- -------
Cash at end of year ....................................... $ -- $ -- $ 2.0
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Income taxes ............................................. $ (25.8) $ (15.1) $ (6.6)
Interest ................................................ $ 40.8 $ 36.2 $ 18.1
Interest to subsidiaries* .............................. $ 0.2 $ 4.0 $ 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.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
SCHEDULE III--SUPPLEMENTARY INSURANCE INFORMATION

(Dollars in millions)

(1)(2)
Future policy
Deferred benefits, and
policy unpaid claims (3)
acquisition and claim Premium
Segment costs expenses revenue
- ------------------------------ -------------- --------------- -----------
Year Ended December 31, 1996
Disability Insurance ...... $ 443.1 $5,526.0 $1,917.7
Special Risk Insurance ...... 125.6 615.0 755.4
Colonial Products ......... 274.6 410.8 498.2
Retirement Products ......... 0.9 618.6 65.8
Corporate .................. -- -- --
-------- ------- ---------
Total ..................... $ 844.2 $7,170.4 $3,237.1
======== ======= =========
Year Ended December 31, 1995
Disability Insurance ...... $ 758.3 $5,130.6 $1,879.9
Special Risk Insurance ...... 99.8 476.5 702.3
Colonial Products ......... 250.5 372.0 475.1
Retirement Products ......... 33.7 596.0 34.1
Corporate .................. -- -- 0.1
-------- ------- ---------
Total ..................... $1,142.3 $6,575.1 $3,091.5
======== ======= =========
Year Ended December 31, 1994
Disability Insurance ...... $ 695.6 $4,175.9 $1,716.2
Special Risk Insurance ...... 84.1 357.7 607.1
Colonial Products ......... 224.8 330.5 441.3
Retirement Products ......... 30.7 581.9 31.4
Corporate .................. -- (0.5) 0.8
-------- ------- ---------
Total ..................... $1,035.2 $5,445.5 $2,796.8
======== ======= =========

<TABLE>
<CAPTION>
Amortization
(4)(5) Benefits to of deferred (5)
Net policyholders policy Other (6)
investment and interest acquisition operating Premiums
Segment income credited costs expenses written
- ------------------------------ ---------- ------------ ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Disability Insurance ...... $ 468.5 $1,514.9 $99.0 $557.0 $1,893.0
Special Risk Insurance ...... 56.5 506.5 42.4 183.8 220.1
Colonial Products ......... 47.3 246.8 72.5 133.8 446.5
Retirement Products ......... 217.2 257.1 -- 24.5 15.0
Corporate .................. 16.1 -- -- 62.8 --
-------- --------- ------ ------- ---------
Total ..................... $ 805.6 $2,525.3 $213.9 $961.9 $2,574.6
======== ========= ====== ======= =========
Year Ended December 31, 1995
Disability Insurance ...... $ 592.9 $1,711.2 $90.6 $454.0 $1,853.2
Special Risk Insurance ...... 48.4 492.3 35.5 162.6 223.6
Colonial Products ......... 52.2 241.6 66.7 131.3 417.5
Retirement Products ......... 323.7 275.3 0.8 36.2 23.3
Corporate .................. 14.2 -- -- 42.9 --
-------- --------- ------ ------- ---------
Total ..................... $1,031.4 $2,720.4 $193.6 $827.0 $2,517.6
======== ========= ====== ======= =========
Year Ended December 31, 1994
Disability Insurance ...... $ 400.3 $1,572.1 $70.7 $417.5 $1,705.5
Special Risk Insurance ...... 40.7 394.4 19.2 168.3 156.8
Colonial Products ......... 32.6 226.1 60.6 124.5 388.1
Retirement Products ......... 338.0 289.1 2.3 36.0 21.6
Corporate .................. 4.2 -- -- 33.2 --
-------- --------- ------ ------- ---------
Total ..................... $ 815.8 $2,481.7 $152.8 $779.5 $2,272.0
======== ========= ====== ======= =========
</TABLE>

<PAGE>

(1) Excludes other policyholder funds, as follows:

December 31,
--------------------------------------
Segment 1996 1995 1994
- ------------------------------- ----------- ----------- ----------
Disability Insurance ......... $ 5.9 $ 3.1 $ 2.1
Special Risk Insurance ...... 12.7 14.6 8.4
Colonial Products ............ 156.6 128.0 100.1
Retirement Products ......... 3,358.4 3,694.6 3,948.2
-------- -------- --------
Total ........................ $3,533.6 $3,840.3 $4,058.8
======== ======== ========

(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.

Certain 1994 amounts have been reclassified for comparative purposes.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
SCHEDULE IV--REINSURANCE

<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed
(Dollars in millions) Amount companies companies Amount to net
- ------------------------------------------------ ------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Life insurance in force ..................... $199,019.2 $11,476.5 $ -- $187,542.7 --
=========== ========== ====== ===========
Premiums
Life insurance and individual annuities . $ 552.0 $ 28.6 $ -- $ 523.4 --
Accident and health insurance ............ 2,406.9 77.8 252.9 2,582.0 9.8%
Group annuities ........................... 15.0 -- -- 15.0 --
----------- ---------- ------ -----------
Total premiums ........................... $ 2,973.9 $ 106.4 $252.9 $ 3,120.4
=========== ========== ====== ===========
Year Ended December 31, 1995
Life insurance in force ..................... $164,478.4 $ 4,119.5 $ -- $160,358.9 --
=========== ========== ====== ===========
Premiums
Life insurance and individual annuities . $ 571.4 $ 19.3 $ 2.0 $ 554.1 0.4%
Accident and health insurance ............ 2,248.4 46.9 239.5 2,441.0 9.8%
Group annuities ........................... 23.1 -- -- 23.1 --
----------- ---------- ------ -----------
Total premiums ........................... $ 2,842.9 $ 66.2 $241.5 $ 3,018.2
=========== ========== ====== ===========
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 ............... 2,123.9 96.8 169.1 2,196.2 7.7%
Group annuities ........................... 21.3 -- -- 21.3 --
----------- ---------- ------ -----------
Total premiums ........................... $ 2,663.1 $ 112.5 $170.7 $ 2,721.3
=========== ========== ====== ===========
</TABLE>

Certain 1994 amounts have been reclassified for comparative purposes.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Number Description Method of Filing
- -------- ------------------------------- ---------------------------------------------------------------------
<S> <C> <C>
3.1 Certificate of Incorporation Filed herewith.
of UNUM Corporation, as
amended
3.2 By-Laws of UNUM Filed herewith.
Corporation
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 27, 1996, and incorporated herein by reference.
10.2 Incentive Compensation Plan Filed herewith.
for Designated Executive
Officers
10.3 1987 Executive Stock Filed as Exhibit 10.3 to the Registrant's Annual Report on Form
Option Plan 10-K dated March 27, 1996, and incorporated herein by reference.
10.4 1990 Long-Term Stock Filed as Exhibit 10.4 to the Registrant's Annual Report on Form
Incentive Plan 10-K dated March 27, 1996, and incorporated herein by reference.
10.5 1996 Long-Term Stock Filed as Exhibit 10.5 to the Registrant's Annual Report on Form
Incentive Plan 10-K dated March 27, 1996, and incorporated herein by reference.
10.6 Supplementary Retirement Filed as Exhibit 10.4 to the Registrant's Registration Statement on
Plan Form S-1 (Registration No. 33-6571) dated June 18, 1986, and
incorporated herein by reference.
10.7 Supplemental Executive Filed as Exhibit 10.6 to the Registrant's Annual Report on Form
Retirement Plan 10-K dated March 26, 1991, and incorporated herein by reference.
10.8 Form of Executive Filed as Exhibit 10.7 to the Registrant's Annual Report on Form
Severance Agreement 10-K dated March 25, 1992, and incorporated herein by reference.
10.9 Employment Agreement Filed as Exhibit 10.9 to the Registrant's Annual Report on Form
10-K dated March 27, 1996, and incorporated herein by reference.
10.10 Employment Letter Filed as Exhibit 10.10 to the Registrant's Annual Report on Form
10-K dated March 27, 1996, and incorporated herein by reference.
10.11 $500 Million Revolving Filed as Exhibit 10.9 to the Registrant's Annual Report on Form
Credit Agreement 10-K dated March 24, 1995, and incorporated herein by reference.
10.12 Asset Transfer and Filed as Exhibit 10.12 to the Registrant's Annual Report on Form
Acquisition Agreement 10-K dated March 27, 1996, and incorporated herein by reference.
10.13 Non-Qualified 401(k) Plan Filed herewith.
12 Computation of Ratio of Filed herewith.
Earnings to Fixed Charges
21 Subsidiaries of UNUM Filed herewith.
Corporation
23 Consent of Independent Filed herewith.
Accountants
24 Power of Attorney Filed herewith.
27 Financial Data Schedule Filed herewith.
</TABLE>

<PAGE>

(This page intentionally left blank)

<PAGE>

(This page intentionally left blank)

Exhibit 3.1

CERTIFICATE OF INCORPORATION

UNUM CORPORATION
as amended

FIRST: The name of the Corporation is UNUM Corporation.

SECOND: The address of the registered office of the Corporation in the state
of Delaware is 1209 Orange Street, in the city of Wilmington, county of New
Castle. The name of the Corporation's registered agent at that address is The
Corporation Trust Center.

THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware as set forth in Title 8 of the Delaware Code (the "GCL").

FOURTH: A. The total number of shares of capital stock which the Corporation
shall have authority to issue is 130,000,000 shares, consisting of 120,000,000
shares of Common Stock, par value $.10 per share (the "Common Stock") and
10,000,000 shares of Preferred Stock, par value $.10 per share (the "Preferred
Stock").

B. Shares of Preferred Stock may be issued from time to time in one or more
classes or series as may be determined from time to time by the Board of
Directors of the Corporation (the "Board of Directors"), each such class or
series to be distinctly designated. Except in respect of the particulars fixed
by the Board of Directors for classes or series provided for by the Board of
Directors as permitted hereby, all shares of Preferred Stock shall be of equal
rank and shall be identical. All shares of any one series of Preferred Stock so
designated by the Board of Directors shall be alike in every particular, except
that shares of any one series issued at different times may differ as to the
dates from which dividends thereon shall be cumulative. The voting rights, if
any, of each such class or series and the preferences and relative,
participating, optional and other special rights of each such class or series
and the qualifications, limitations and restrictions thereof, if any, may differ
from those of any and all other classes or series at any time outstanding; and
the Board of Directors of the Corporation is hereby expressly granted authority
to fix, by resolutions duly adopted prior to the issuance of any shares of a
particular class or series of Preferred Stock so designated by the Board of
Directors, the voting powers of stock of such class or series, if any, and the
designations, preferences and relative, participating, optional and other
special rights and the qualifications, limitations and restrictions of such
class or series, including, but without limiting the generality of the
foregoing, the following:

(1) The distinctive designation of, and the number of shares of Preferred
Stock which shall constitute, such class or series, and such number may be
increased (except where otherwise provided by the Board of Directors) or
decreased (but not below the number of shares thereof then outstanding) from
time to time by like action of the Board of Directors;

(2) The rate and time at which, and the terms and conditions upon which,
dividends, if any, on Preferred Stock of such class or series shall be paid,
the extent of the preference or relation, if any, of such dividends to the
dividends payable on any other class or classes, or series of the same or
other classes of stock and whether such dividends shall be cumulative or
non-cumulative;
<PAGE>
-2-

(3) The right, if any, of the holders of Preferred Stock of such class or
series to convert the same into, or exchange the same for, shares of any
other class or classes or of any series of the same or any other class or
classes of stock and the terms and conditions of such conversion or exchange;

(4) Whether or not Preferred Stock of such class or series shall be
subject to redemption, and the redemption price or prices and the time or
times at which, and the terms and conditions upon which, Preferred Stock of
such class or series may be redeemed;

(5) The rights, if any, of the holders of Preferred Stock of such class
or series upon the voluntary or involuntary liquidation of the Corporation;

(6) The terms of the sinking fund or redemption or purchase account, if
any, to be provided for the Preferred Stock of such class or series; and

(7) The voting powers, if any, of the holders of such class or series of
Preferred Stock.

C. Except as otherwise provided in this Certificate of Incorporation, the
Board of Directors shall have authority to authorize the issuance, from time to
time without any vote or other action by the stockholders, of any or all shares
of stock of the Corporation of any class or series at any time authorized, and
any securities convertible into or exchangeable for any such shares, and any
options, rights or warrants to purchase or acquire any such shares, in each case
to such persons and on such terms (including as a dividend or distribution on or
with respect to, or in connection with a split or combination of, the
outstanding shares of stock of the same or any other class) as the Board of
Directors from time to time in its discretion lawfully may determine; provided,
however, that the consideration for the issuance of shares of stock of the
Corporation having par value (unless issued as such a dividend or distribution
or in connection with such a split or combination) shall not be less than such
par value. Shares so issued shall be fully paid stock, and the holders of such
stock shall not be liable to any further call or assessments thereon.

D. Except as provided in this Certificate of Incorporation, each holder of
Common Stock shall be entitled to one vote for each share of Common Stock held
by him.

FIFTH: The name and mailing address of the Sole Incorporator is as follows:

Name Mailing Address
---- ---------------
Colin C. Hampton c/o UNUM Life Insurance Company
2211 Congress Street
Portland, Maine 04122

SIXTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
the Board of Directors and stockholders:

(1) The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors.

(2) The Board of Directors shall consist of not less than three nor more
than fifteen directors. The exact number of directors shall be determined
from time to time by resolution adopted by the affirmative vote of a majority
of the Board of Directors. The Directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as
nearly as may be possible, of one-third of the total number of Directors
constituting the entire Board of Directors.
<PAGE>
-3-

(3) Upon, or as soon as practicable following, the filing of this
Certificate of Incorporation, Class I Directors shall be elected for a
one-year term, Class II Directors for a two-year term and Class III Directors
for a three-year term. At each succeeding annual meeting of stockholders,
successors to the class of Directors whose term expires at that annual
meeting shall be elected for a three-year term. If the number of Directors is
changed in accordance with the terms of this Certificate of Incorporation,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of Directors in each class as nearly equal as possible,
and any additional Director of any class elected to fill a vacancy resulting
from an increase in such class shall hold office for a term that shall
coincide with the remaining term of that class, but in no case will a
decrease in the number of Directors shorten the term of any incumbent
Director. A Director shall hold office until the annual meeting for the year
in which his term expires and until his successor shall be elected and shall
qualify, subject, however, to the Director's prior death, resignation,
disqualification or removal from office. The stockholders shall not have the
right to remove any one or all of the Directors except for cause and by the
affirmative vote of the holders of eighty percent (80%) of the votes entitled
to be cast by the holders of all outstanding shares of Voting Stock (as
hereinafter defined) voting together as a single class. Any vacancy on the
Board of Directors that results from a newly created Directorship may be
filled by the affirmative vote of a majority of the Board of Directors then
in office, and any other vacancy occurring on the Board of Directors may be
filled by a majority of the Directors then in office, although less than a
quorum, or by a sole remaining Director. Any Director elected to fill a
vacancy not resulting from an increase in the number of Directors shall have
the same remaining term as that of his predecessor.

(4) Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of Preferred Stock issued by the Corporation shall
have the right, voting separately by class or series, to elect Directors at
an annual or special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such Directorships shall be
governed by the terms of this Certificate of Incorporation applicable thereto
(including the resolutions adopted by the Board of Directors pursuant to
Section B of Article FOURTH), and such Directors so elected shall not be
divided into classes pursuant to Paragraph (2) of this Article SIXTH unless
expressly provided by such terms. Election of Directors need not be by
written ballot unless the By-Laws so provide.

(5) The Board of Directors may from time to time determine whether, to
what extent, at what times and places and under what conditions and
regulations the accounts, books and papers of the Corporation, or any of
them, shall be open to the inspection of the stockholders, and no stockholder
shall have any right to inspect any account, book or document of the
Corporation, except as and to the extent expressly provided by law with
reference to the right of stockholders to examine the original or duplicate
stock ledger, or otherwise expressly provided by law, or except as expressly
authorized by resolution of the Board of Directors.

(6) In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the Directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done
by the Corporation, subject, nevertheless, to the provisions of the statutes
of Delaware, this Certificate of Incorporation, and any By-Laws adopted by
the stockholders; provided, however, that no By-Laws hereafter adopted by the
stockholders shall invalidate any prior act of the Directors which would have
been valid if such By-Laws had not been adopted.

(7) No action shall be taken by stockholders of the Corporation except at
an annual or special meeting of stockholders of the Corporation and the right
of stockholders to act by written consent in lieu of a meeting is
specifically denied.
<PAGE>
-4-

SEVENTH: A. The Board of Directors shall have concurrent power with the
stockholders as set forth in this Certificate of Incorporation to make, alter,
amend, change, add to or repeal the By-Laws of the Corporation.

B. The Board of Directors may amend the By-Laws of the Corporation upon the
affirmative vote of the number of directors which shall constitute, under the
terms of the By-Laws, the action of the Board of Directors. Stockholders may not
amend the By-Laws of the Corporation except upon the affirmative vote of at
least eighty percent (80%) of the votes entitled to be cast by the holders of
all outstanding shares of Voting Stock voting together as a single class.

EIGHTH: A. In addition to any affirmative vote required by law, this
Certificate of Incorporation, the By-Laws of the Corporation or otherwise,
except as otherwise expressly provided in Section B of this Article EIGHTH, the
Corporation shall not engage, directly or indirectly, in any Business
Combination (as hereinafter defined) with an Interested Stockholder (as
hereinafter defined) without the affirmative vote of (i) not less than eighty
percent (80%) of the votes entitled to be cast by the holders of all outstanding
shares of Voting Stock voting together as a single class, and (ii) not less than
a majority of the votes entitled to be cast by the holders of all outstanding
shares of Voting Stock which are beneficially owned by persons other than such
Interested Stockholder voting together as a single class. Such affirmative vote
shall be required notwithstanding the fact that no vote may be required, or that
a lesser percentage or separate class vote may be specified, by law or in any
agreement with any national securities exchange or otherwise.

B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote, if any, as is required by law, this
Certificate of Incorporation, the By-Laws of the Corporation, or otherwise, if
such Business Combination shall have been approved by a majority (whether such
approval is made prior to or subsequent to the acquisition of beneficial
ownership of Voting Stock that caused the Interested Stockholder to become an
Interested Stockholder) of the Continuing Directors (as hereinafter defined).

C. For the purposes of this Certificate of Incorporation:

(1) The term "Business Combination" shall mean:

(a) any merger or consolidation of this Corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested Stockholder
or (ii) any other corporation (whether or not itself an Interested
Stockholder) which is or after such merger or consolidation would be an
Affiliate or Associate of an Interested Stockholder; or

(b) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions)
between the Corporation or any Subsidiary and any Interested Stockholder
or any Affiliate or Associate of any Interested Stockholder involving any
assets or securities of the Corporation, any Subsidiary or any Interested
Stockholder or any Affiliate or Associate of any Interested Stockholder
the value of which would constitute, immediately prior to such
transaction, a Substantial Part (as hereinafter defined) of the assets of
the Corporation; or

(c) the adoption of any plan or proposal for the liquidation or
dissolution of, or similar transaction involving, the Corporation
proposed by or on behalf of an Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder; or

(d) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or otherwise involving an

<PAGE>
-5-

Interested Stockholder) that has the effect, directly or indirectly, of
increasing the proportionate share of any class or series of Capital
Stock, or any securities convertible into Capital Stock or into equity
securities of any Subsidiary, that is beneficially owned by any
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder; or

(e) any agreement, contract or other arrangement providing for
any one or more of the actions specified in the foregoing clauses (a) to
(d).

(2) The term "Capital Stock" shall mean all capital stock of the
Corporation authorized to be issued from time to time under Article FOURTH of
this Certificate of Incorporation, and the term "Voting Stock" shall mean all
Capital Stock which by its terms may be voted on all matters submitted to
stockholders of the Corporation generally.

(3) The term "person" shall mean any individual, firm, corporation or
other entity and shall include any group comprised of any person and any
other person with whom such person or any Affiliate or Associate of such
person has any agreement, arrangement or understanding, directly or
indirectly, for the purpose of acquiring, holding, voting or disposing of
Capital Stock.

(4) The term "Interested Stockholder" shall mean any person (other than
the Corporation or any Subsidiary and other than any profit-sharing, employee
stock ownership or other employee benefit plan of the Corporation or any
Subsidiary or any trustee of or fiduciary with respect to any such plan when
acting in such capacity) who (without giving effect to the provisions of
Article NINTH) (a) is the beneficial owner of Voting Stock representing ten
percent (10%) or more of the votes entitled to be cast by the holders of all
then outstanding shares of Voting Stock; or (b) is an Affiliate or Associate
of the Corporation and at any time within the two-year period immediately
prior to the date in question was the beneficial owner of Voting Stock
representing ten percent (10%) or more of the votes entitled to be cast by
the holders of all then outstanding share of Voting Stock.

(5) A person shall be a "beneficial owner" of any Capital Stock (a) which
such person or any of its Affiliates or Associates beneficially owns,
directly or indirectly; (b) which such person or any of its Affiliates or
Associates has, directly or indirectly, (i) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any agreement, arrangement
or understanding; or (c) which are beneficially owned, directly or
indirectly, by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of any shares of
Capital Stock. For the purposes of determining whether a person is an
Interested Stockholder pursuant to Paragraph 4 of this Section C, the number
of shares of Capital Stock deemed to be outstanding shall include shares
deemed beneficially owned by such person through application of Paragraph 5
of this Section C, but shall not include any other shares of Capital Stock
that may be issuable pursuant to any agreement, arrangement or understanding,
or upon exercise of conversion rights, warrants or options, or otherwise.

(6) The terms "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Act as in effect on
January 8, 1985 (the term "registrant" in Rule 12b-2 meaning in this case the
Corporation).

(7) The term "Subsidiary" means any corporation of which a majority of
any class of equity security is beneficially owned by the Corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in Paragraph 4 of this Section C, the term "Subsidiary"
shall mean only a corporation of which a majority of each class of equity
security is beneficially owned by the Corporation.
<PAGE>
-6-

(8) The term "Continuing Director" means any member of the Board of
Directors, while such person is a member of the Board of Directors, who is
not an Affiliate or Associate or representative of the Interested Stockholder
and was a member of the Board prior to the time that the Interested
Stockholder became an Interested Stockholder, and any successor of a
Continuing Director, while such successor is a member of the Board of
Directors, who is not an Affiliate or Associate or representative of the
Interested Stockholder and is recommended or elected to succeed the
Continuing Director by a majority of Continuing Directors.

(9) The term "Substantial Part" means assets having an aggregate Fair
Market Value (as hereinafter defined) in excess of ten percent (10%) of the
book value of the total consolidated assets of the Corporation and its
Subsidiaries as of the end of the Corporation's most recent fiscal year
ending prior to the time the stockholders of the Corporation would be
required to approve or authorize the Business Combination involving assets
constituting any such Substantial Part.

(10) The term "Fair Market Value" means (a) in the case of cash, the
amount of such cash; (b) in the case of stock, the highest closing sale
price, during the 30-day period immediately preceding the date in question,
of a share of such stock on the Composite Tape for New York Stock Exchange,
Inc. Listed Stocks, or, if such stock is not quoted on the Composite Tape, on
the New York Stock Exchange, Inc., or, if such stock is not listed on such
exchange, on the principal United States securities exchange registered under
the Act on which such stock is listed, or if such stock is not listed on any
such exchange, the highest closing bid quotation with respect to a share of
such stock, during the 30-day period preceding the date in question, on the
National Association of Securities Dealers, Inc. Automated Quotation System
or any similar system then in use, or if no such quotations are available,
the fair market value on the date in question of a share of such stock as
determined by a majority of the Continuing Directors in good faith; and (c)
in the case of property other than cash or stock, the fair market value of
such property on the date in question as determined in good faith by a
majority of the Continuing Directors.

D. The Board of Directors shall have the power and duty to determine for the
purposes of this Article EIGHTH, on the basis of information known to them after
reasonable inquiry, (a) whether a person is an Interested Stockholder, (b) the
number of shares of Capital Stock or other securities beneficially owned by any
person, (c) whether a person is an Affiliate or Associate of another and (d)
whether the assets that are the subject of any Business Combination have, or the
consideration to be received for the issuance or transfer of securities by this
Corporation or any Subsidiary in any Business Combination has, an aggregate Fair
Market Value in excess of the amount set forth in Paragraph 1(b) of Section C of
this Article EIGHTH. Any such determination made in good faith shall be binding
and conclusive on all parties.

E. Nothing contained in this Article EIGHTH shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.

NINTH: A. So long as any person other than the Corporation or any Subsidiary
(a "Substantial Stockholder") is (without giving effect to the provisions of
this Article NINTH) the beneficial owner of Voting Stock representing ten
percent (10%) or more of the votes entitled to be cast by the holders of all
outstanding shares of Voting Stock, the record holders of the shares of Voting
Stock beneficially owned by such Substantial Stockholder shall have limited
voting rights on any matter requiring their vote. With respect to the shares of
Voting Stock which would entitle such record holders in the aggregate to cast
ten percent (10%) of the votes entitled to be cast by the holders of all
outstanding shares of Voting Stock, such record holders shall be entitled to
cast the votes per share specified in this Certificate of Incorporation. With
respect to the shares of Voting Stock which would entitle such record holders in
the aggregate to cast in excess of ten percent (10%) of the votes entitled to be
cast by the holders of all outstanding shares of Voting Stock, such record
holders in the aggregate shall be entitled to cast only one/one hundredth
(1/100th) of the votes per share to which a holder of such shares would
otherwise be entitled to cast.

<PAGE>
-7-

Notwithstanding anything contained in the two preceding sentences to the
contrary, in the event that, after giving effect to the two preceding sentences,
the aggregate voting power of such record holders would still exceed fifteen
percent (15%) of the votes entitled to be cast by the holders of all outstanding
shares of Voting Stock, the aggregate voting power of such record holders shall
be further limited so that such record holders shall be entitled to cast only
such number of votes that would equal (after giving effect to the provisions of
this Article NINTH) fifteen percent (15%) of the votes entitled to be cast by
all holders of outstanding shares of Voting Stock. The aggregate voting power of
such record holders, so limited, for all shares of Voting Stock beneficially
owned by the Substantial Stockholders shall be allocated proportionately among
such record holders. For each such record holder, this allocation shall be
accomplished by multiplying the aggregate voting power (after giving effect to
the provisions of this Article NINTH) of the outstanding shares of Voting Stock
beneficially owned by the Substantial Stockholder by a fraction whose numerator
is the number of votes which the shares of Voting Stock owned of record by such
record holder would have entitled such record holder to cast were no effect
given to this Article NINTH, and whose denominator is the total number of votes
which all shares of Voting Stock beneficially owned by the Substantial
Stockholder would have entitled their record holders to cast were no effect
given to this Article NINTH.

B. Notwithstanding any other definition contained in this Certificate of
Incorporation, for purposes of Section A of this Article NINTH, the term "Voting
Stock" shall include the Common Stock and any class or series of Preferred
Stock, if and only if the resolutions of the Board of Directors designating such
class or series of Preferred Stock expressly provide that such class or series
of Preferred Stock are to be included within the term "Voting Stock" for
purposes of Section A of this Article NINTH.

C. Except as otherwise provided in this Article NINTH, the presence in
person or by proxy, of the holders of record of shares of Voting Stock entiting
the holders thereof to cast a majority of the votes (after giving effect, if
required, to the provisions of this Article NINTH) entitled to be cast by the
holders of all outstanding shares of Voting Stock entitled to vote shall
constitute a quorum at all meetings of the stockholders.

D. The Board of Directors shall have the power and duty to determine for the
purposes of this Article NINTH, on the basis of information known to them after
reasonable inquiry, (a) whether a person is a Substantial Stockholder, (b) the
number of shares of Common Stock and/or Voting Stock beneficially owned by any
person, (c) whether a person is an Affiliate or Associate of another, and (d)
the persons who may be deemed to be the record holders of shares beneficially
owned by a Substantial Stockholder. Any such determination made in good faith
shall be binding and conclusive on all parties.

E. The Board of Directors shall have the right to demand that any person who
is reasonably believed to be a Substantial Stockholder (or holds of record
shares of Voting Stock beneficially owned by any Substantial Stockholder) supply
the Corporation with complete information as to (a) the record holder(s) of all
shares beneficially owned by such person who is reasonably believed to be a
Substantial Stockholder, (b) the number of shares of Common Stock and/or Voting
Stock beneficially owned by such person who is reasonably believed to be a
Substantial Stockholder and held of record by each such record holder, and (c)
any other factual matter relating to the applicability or effect of this Article
NINTH, as may reasonably be requested of such person, such person shall furnish
such information within ten days after the receipt of such demand.

F. Nothing contained in this Article NINTH shall be construed to relieve any
Substantial Stockholder from any fiduciary obligation imposed by law.
<PAGE>
-8-

G. The provisions of this Article NINTH shall become null and void of no
further force and effect on the fifth anniversary (the "Fifth Anniversary Date")
of the date on which the amended charter of Union Mutual Life Insurance Company
("Union Mutual") reflecting the conversion of Union Mutual from a mutual to a
stock life insurance company is filed with the Maine Secretary of State, the
Maine Attorney General and the Superintendent of the Maine Bureau of Insurance,
except that with respect to any person who is or was a Substantial Stockholder
at any time before the Fifth Anniversary Date, the record holders of any shares
of Voting Stock beneficially owned by such Substantial Stockholder shall have
limited voting rights in accordance with the terms of Sections A through F of
this Article NINTH at such times after the Fifth Anniversary Date that such
Substantial Stockholder is a Substantial Stockholder, as such term is defined in
Section A of this Article NINTH.

TENTH: When considering a merger, consolidation, Business Combination or
similar transaction, the Board of Directors, committees of the Board, individual
directors and individual officers may, in considering the best interests of the
Corporation and its stockholders, consider the effects of any such transaction
upon the employees, customers and suppliers of the Corporation, and upon
communities in which offices of the Corporation are located.

ELEVENTH: Notwithstanding any other provisions of this Certificate of
Incorporation or the By-Laws of the Corporation (and notwithstanding the fact
that a lesser percentage or separate class vote may be specified by law, this
Certificate of Incorporation or the By-Laws of the Corporation), (i) the
affirmative vote of the holders of not less than eighty percent (80%) of the
votes entitled to be cast by the holders of all outstanding shares of Voting
Stock, voting together as a single class, shall be required to amend or repeal,
or adopt any provisions inconsistent with, Articles SIXTH, SEVENTH, and NINTH,
and (ii) the affirmative vote of the holders of (x) not less than eighty percent
(80%) of the votes entitled to be cast by the holders of all outstanding shares
of Voting Stock voting together as a single class, and (y) not less than a
majority of the votes entitled to be cast by the holders of all outstanding
shares of Voting Stock which are beneficially owned by persons other than
Interested Stockholders, if any, voting together as a single class, shall be
required to amend or repeal, or adopt any provisions inconsistent with, Articles
EIGHTH and ELEVENTH; provided, however, that, with respect to Articles SIXTH,
SEVENTH, EIGHTH, NINTH and ELEVENTH, such special voting requirements shall not
apply to, and such special votes shall not be required for, any amendment,
repeal or adoption recommended by the Board if a majority of the directors then
in office are persons who would be eligible to serve as Continuing Directors.

TWELFTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the state of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of the GCL or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of the GCL, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.

THIRTEENTH: No director shall be personally liable to the Corporation or any
of its stockholders for monetary damages for any breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of

<PAGE>
-9-

the Delaware General Corporation Law or (iv) for any transaction from which
the director derived an improper personal benefit. Any repeal of modification of
this Article Thirteenth by the stockholders of the Corporation shall not
adversely affect any right of protection of a director of the Corporation
existing at the time of such repeal or modification with respect to acts or
omissions occurring prior to such repeal or modification.

FOURTEENTH: Subject to the provisions of this Certificate of Incorporation,
the Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
thereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.

<PAGE>

CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS OF JUNIOR PARTICIPATING PREFERRED STOCK, SERIES A

UNUM CORPORATION

Pursuant to Section 151 of the General Corporation Law
of the State of Delaware

We, James F. Orr, III, Chairman and Chief Executive Officer, and Kevin J.
Tierney, Secretary, of UNUM Corporation, a corporation organized and existing
under the General Corporation Law of the State of Delaware, in accordance with
the provisions of Section 103 thereof, DO HEREBY CERTIFY:

That pursuant to the authority conferred upon the Board of Directors by
the Certificate of Incorporation, as amended, of the said Corporation, the said
Board of Directors on March 13, 1992, adopted the following resolution creating
a series of 1,000,000 shares of Preferred Stock designated as Junior
Participating Preferred Stock, Series A:

RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its Certificate of
Incorporation, as amended, a series of Preferred Stock of the Corporation be and
it hereby is created, and that the designation and amount thereof and the voting
powers, preferences and relative, participating, optional and other special
rights of the shares of such series, and the qualifications, limitations or
restrictions thereof are as follows:

Section 1. Designation and Amount. The shares of such series shall be
designated as Junior Participating Preferred Stock, Series A (the "Series A
Stock") and the number of shares constituting such series shall be 1,000,000.

Section 2. Dividends and Distributions.

(A) Subject to the prior and superior rights of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the shares of
Series A Stock with respect to dividends, the holders of shares of Series A
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the 19th day of February, May, August and November in each
year (each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $5.00 or (b)
subject to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of common stock, par value
$.10 per share, of the Corporation (the "Common Stock") or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise), declared
on the Common Stock, since the immediately preceding Quarterly Dividend Payment
Date, or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series A Junior
Participating Preferred Stock. In the event the Corporation shall at any time
after March 13, 1992 (the "Rights Declaration Date") (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount to which holders of shares
of Series A Junior Participating Preferred Stock were entitled immediately prior
to such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of

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shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

(B) The Corporation shall declare a dividend or distribution on the Series
A Stock as provided in paragraph (A) above immediately after it declares a
dividend or distribution on the Common Stock (other than a dividend payable in
shares of Common Stock); provided that, in the event no dividend or distribution
shall have been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $5.00 per share on the Series A Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Stock from the Quarterly Dividend Payment Date next preceding
the date of issue of such shares of Series A Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Stock entitled to receive a quarterly dividend and before
such Quarterly Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of Series A Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of holders of
shares of Series A Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 30 days
prior to the date fixed for the payment thereof.

Section 3. Voting Rights. The holders of shares of Series A Stock shall
have the following voting rights:

(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Stock shall entitle the holder thereof to 100 votes on all
matters submitted to a vote of the stockholders of the Corporation. In the event
the Corporation shall at any time after the Rights Declaration Date (i) declare
any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide
the outstanding Common Stock, or (iii) combine the outstanding Common Stock into
a smaller number of shares, then in each case the number of votes per share to
which holders of shares of Series A Stock were entitled immediately prior to
such event shall be adjusted by multiplying such number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.

(B) Except as otherwise provided herein or by law, the holders of shares
of Series A Stock and the holders of shares of Common Stock shall vote together
as one class on all matters submitted to a vote of stockholders of the
Corporation.

(C) (i) If at any time dividends on any Series A Stock shall be in arrears
in an amount equal to six (6) quarterly dividends thereon, the occurrence of
such contingency shall mark the beginning of a period (herein called a "default
period") which shall extend until such time when all accrued and unpaid
dividends for all previous quarterly dividend periods and for the current
quarterly dividend period on all shares of Series A Stock then outstanding shall
have been declared and paid or set apart for payment. During each default
period, all holders of Preferred Stock (including holders of the Series A Stock)
with dividends in arrears in an amount equal to six (6) quarterly dividends
thereon, voting as a class, irrespective of series, shall have the right to
elect two (2) Directors.

(ii) During any default period, such voting right of the holders of
Series A Stock may be exercised initially at a special meeting called pursuant
to subparagraph (iii) of this Section 3(C) or at any annual meeting of
stockholders, and thereafter at annual meetings of stockholders, provided that
neither

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such voting right nor the right of the holders of any other series of
Preferred Stock, if any, to increase, in certain cases, the authorized number of
Directors shall be exercised unless the holders of one-third in number of shares
of Preferred Stock outstanding shall be present in person or by proxy. The
absence of a quorum of the holders of Common Stock shall not affect the exercise
by the holders of Preferred Stock of such voting right. At any meeting at which
the holders of Preferred Stock shall exercise such voting right initially during
an existing default period, they shall have the right, voting as a class, to
elect Directors to fill such vacancies, if any, in the Board of Directors as may
then exist up to two (2) Directors or, if such right is exercised at an annual
meeting, to elect two (2) Directors. If the number which may be so elected at
any special meeting does not amount to the required number, the holders of the
Preferred Stock shall have the right to make such increase in the number of
Directors as shall be necessary to permit the election by them of the required
number. After the holders of the Preferred Stock shall have exercised their
right to elect Directors in any default period and during the continuance of
such period, the number of Directors shall not be increased or decreases except
by vote of the holders of Preferred Stock as herein provided or pursuant to the
rights of any equity securities ranking senior to or pari passu with the Series
A Stock.

(iii) Unless the holders of Preferred Stock shall, during an existing
default period, have previously exercised their right to elect Directors, the
Board of Directors may order, or any stockholder or stockholders owning in the
aggregate not less than ten percent (10%) of the total number of shares of
Preferred Stock outstanding, irrespective of series, may request, the calling of
a special meeting of the holders of Preferred Stock, which meeting shall
thereupon be called by the President, a Vice President or the Secretary of the
Corporation. Notice of such meeting and of any annual meeting at which holders
of Preferred Stock are entitled to vote pursuant to this paragraph (C) (iii)
shall be given to each holder of record of Preferred Stock by mailing a copy of
such notice to him at his last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not earlier than 20 days
and not later than 60 days after such order or request or in default of the
calling of such meeting within 60 days after such order or request, such meeting
may be called on similar notice by any stockholder or stockholders owning in the
aggregate not less than ten percent (10%) of the total number of shares of
Preferred Stock outstanding. Notwithstanding the provisions of this paragraph
(C) (iii), no such special meeting shall be called during the period within 60
days immediately preceding the date fixed for the next annual meeting of the
stockholders.

(iv) In any default period, the holders of Common Stock, and other
classes of stock of the Corporation if applicable, shall continue to be entitled
to elect the whole number of Directors until the holders of Preferred Stock
shall have exercised their right to elect two (2) Directors voting as a class,
after the exercise of which right (x) the Directors so elected by the holders of
Preferred Stock shall continue in office until their successors shall have been
elected by such holders or until the expiration of the default period, and (y)
any vacancy in the Board of Directors may (except as provided in paragraph (C)
(ii) of this Section 3) be filled by vote of a majority of the remaining
Directors theretofore elected by the holders of the class of stock which elected
the Director whose office shall have become vacant. References in this paragraph
(C) to Directors elected by the holders of a particular class of stock shall
include Directors elected by such Directors to fill vacancies as provided in
clause (y) of the foregoing sentence.

(v) Immediately upon the expiration of a default period, (x) the right
of the holders of Preferred Stock as a class to elect Directors shall cease, (y)
the term of any Directors elected by the holders of Preferred Stock as a class
shall terminate, and (z) the number of Directors shall be such number as may be
provided for in the certificate of incorporation or by-laws irrespective of any
increase made pursuant to the provisions of paragraph (C) (ii) of this Section 3
(such number being subject, however, to change thereafter in any manner provided
by law or in the certificate of incorporation or bylaws). Any vacancies in the
Board of Directors effected by the provisions of clauses (y) and (z) in the
preceding sentence may be filled by a majority of the remaining Directors.

(D) Except as set forth herein, holders of Series A Stock shall have no
special voting rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
<PAGE>
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Section 4. Certain Restrictions.

(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Stock outstanding shall have been paid in
full, the Corporation shall not

(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Stock;

(ii) declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Stock, except dividends paid
ratably on the Series A Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the holders of
all such shares are then entitled;

(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or winding up)
to the Series A Stock;

(iv) purchase or otherwise acquire for consideration any shares of
Series A Stock, or any shares of stock ranking on a parity with the Series A
Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.

(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.

Section 5. Reacquired Shares. Any shares of Series A Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and cancelled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors, subject to the conditions
and restrictions on issuance set forth herein.

Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any
liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Stock unless, prior thereto, the holders of shares
of Series A Stock shall have received $250 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment (the "Series A Liquidation Preference"). Following
the payment of the full amount of the Series A Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series A
Stock unless, prior thereto, the holders of shares of Common Stock shall have
received an amount per share (the "Common Adjustment") equal to the quotient
obtained by dividing (i) the Series A Liquidation Preference by (ii) 100 (as
appropriately adjusted as set forth in subparagraph C below to reflect such
events as stock splits, stock dividends and recapitalizations with respect to
the Common Stock) (such number in clause (ii) immediately above being referred
to as the "Adjustment Number"). Following the payment of the full amount of the
Series A Liquidation Preference and the

<PAGE>
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Common Adjustment in respect of all outstanding shares of Series A Stock
and Common Stock, respectively, holders of Series A Stock and holders of shares
of Common Stock shall receive their ratable and proportionate share of the
remaining assets to be distributed in the ratio of the Adjustment Number to one
(1) with respect to such Preferred Stock and Common Stock, on a per share basis,
respectively.

(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Series A Liquidation Preference and the
liquidation preferences of all other series of preferred stock, if any, which
rank on a parity with the Series A Stock, then such remaining assets shall be
distributed ratably to the holders of such parity shares in proportion to their
respective liquidation preferences. In the event, however, that there are not
sufficient assets available to permit payment in full of the Common Adjustment,
then such remaining assets shall be distributed ratably to the holders of Common
Stock.

(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.

Section 7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Stock shall at the same time be similarly exchanged or changed in an
amount per share (subject to the provision for adjustment hereinafter set forth)
equal to 100 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the Corporation
shall at any time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series A Stock
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.

Section 8. Redemption. The outstanding shares of Series A Stock may be
redeemed at the option of the Board of Directors as a whole, but not in part, at
any time, or from time to time, at a cash price per share equal to 105 percent
of (i) the product of the Adjustment Number times the Average Market Value (as
such term is hereinafter defined) of the Common Stock, plus (ii) all dividends
which on the redemption date have accrued on the shares to be redeemed and have
not been paid, or declared and a sum sufficient for the payment thereof set
apart, without interest. The "Average Market Value" is the average of the
closing sale prices of the Common Stock during the 30 day period immediately
preceding the date before the redemption date on the Composite Tape for New York
Stock Exchange Listed Stocks, or, if such stock is not quoted on the Composite
Tape, on the New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934, as amended, on which such stock is listed,
or, if such stock is not listed on any such exchange, the average of the closing
sale prices with respect to a share of Common Stock during such 30-day period,
as quoted on the National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or if no such quotations are
available, the fair market value of the Common Stock as determined by the Board
of Directors in good faith.

Section 9. Ranking. The Series A Stock shall rank junior to all other
series of the Corporation's Preferred Stock as to the payment of dividends and
the distribution of assets, unless the terms of any such series shall provide
otherwise.
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Section 10. Amendment. The Certificate of Incorporation of the Corporation
shall not be further amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Stock so as to
affect them adversely without the affirmative vote of the holders of a majority
or more of the outstanding shares of Series A Stock, voting separately as a
class.

Section 11. Fractional Shares. Series A Stock may be issued in fractions
of a share which shall entitle the holder, in proportion to such holders
fractional shares, to exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of holders of Series A
Stock.

This Certificate of Designation, Preferences and Rights of Junior
Participating Preferred Stock, Series A shall be effective at 9:05 a.m. on March
23, 1992.

Exhibit 3.2

BY-LAWS

UNUM CORPORATION
(hereinafter called the "Corporation")

ARTICLE I

OFFICES

SECTION 1. Registered Office. The registered office of the Corporation shall
be in the City of Wilmington, County of New Castle, State of Delaware.

SECTION 2. Other Offices. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine.

ARTICLE II

MEETINGS OF STOCKHOLDERS

SECTION 1. Place of Meetings. Meetings of the stockholders for the election
of directors or for any other purpose shall be held at such time and place,
either within or without the State of Delaware as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting or in
a duly executed waiver of notice thereof.

SECTION 2. Annual Meetings. The Annual Meetings of Stockholders shall be held
on such date and at such time as shall be designated from time to time by the
Board of Directors and stated in the notice of the meetings, at which meetings
the stockholders shall elect by a plurality vote the directors to be elected at
such meetings, and transact such other business as may properly be brought
before the meetings. Written notice of the Annual Meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not less than ten nor more than sixty days before the date of
the meeting.

SECTION 3. Special Meetings. Unless otherwise prescribed by law or by the
Certificate of Incorporation, Special Meetings of Stockholders, for any purpose
or purposes, may be called by either (i) the Chairman, if there be one, or (ii)
the President,

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and shall be called by any such officer at the request in writing of a
majority of the Board of Directors. Such request shall state the purpose or
purposes of the proposed meeting. Written notice of a Special Meeting stating
the place, date and hour of the meeting and the purpose or purposes for which
the meeting is called shall be given not less than ten nor more than sixty days
before the date of the meeting to each stockholder entitled to vote at such
meeting.

SECTION 4. Quorum. Except as otherwise provided by law or by the Certificate
of Incorporation, the holders of a majority of the capital stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder entitled to vote at the
meeting. The foregoing provisions shall be subject to the voting rights of
holders of any Preferred Stock of the Corporation and any quorum requirements
relating thereto.

SECTION 5. Voting. Unless otherwise required by law, the Certificate of
Incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by a majority of the votes entitled to be cast by
the holders of stock represented and entitled to vote thereat and each
stockholder represented at a meeting of stockholders shall be entitled to cast
one vote for each share of the capital stock entitled to vote thereat held by
such stockholder. Such votes may be cast in person or by proxy but no proxy
shall be voted on or after three years from its date, unless such proxy provides
for a longer period. The Board of Directors, in its discretion, or the officer
of the Corporation presiding at a meeting of stockholders, in his discretion,
may require that any votes cast at such meeting shall be cast by written ballot.

SECTION 6. Proper Business at Annual Meetings. At any annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before such meeting. To be properly brought before an annual meeting,
business must be specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, or otherwise properly
brought before the meeting by or at the direction of the Board of Directors, or
otherwise properly brought before the meeting by a stockholder. For business to
be properly brought before an annual meeting by a Stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to, or
mailed and received at, the principal executive offices of the Corporation, not
less than 60 days nor more than 90 days prior to the annual meeting; provided,
however, that in

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the event that less than 75 days' notice or prior public disclosure of the
date of such meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on the
15th day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made. A stockholder's notice to
the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (i) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class and number of shares of the
Corporation which are beneficially owned by the stockholder and (iv) any
material interest of the stockholder in such business. The chairman of an annual
meeting shall, if the facts warrant, determine and declare to the meeting that
such business was not properly brought before the meeting in accordance with
these provisions, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted.

SECTION 7. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.

SECTION 8. Stock Ledger. The stock ledger of the Corporation shall be the
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.

ARTICLE III

DIRECTORS

SECTION 1. Number and Election of Directors. The number of directors
constituting the Board of Directors shall be fixed from time to time by the
Board of Directors in the manner prescribed in the Certificate of Incorporation.
Except as provided in Section 3 of this Article, the directors to be elected at
each Annual Meeting of Stockholders shall be elected by a plurality of the votes
cast at such Annual Meeting of Stockholders, and each director so elected shall
hold office until the third Annual Meeting

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<PAGE>

following such election and until his successor is duly elected and
qualified, or until his earlier resignation, retirement or removal. No person
elected or re-elected a director shall serve as a director of the Corporation
beyond the day of its annual meeting occurring soonest after such person's
seventy-second birthday anniversary. Any director may resign at any time upon
notice to the Corporation. Directors need not be stockholders.

SECTION 2. Nomination Procedures. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors, by any nominating committee or person appointed by the
Board of Directors or by any stockholder of the Corporation entitled to vote for
the election of Directors at the meeting. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to, or mailed and received at, the
principal executive offices of the Corporation not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 75 days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must be
so received not later than the close of business on the 15th day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or re-election as
a director, (i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the person, (iii) the
class and number of shares of the Corporation which are beneficially owned by
the person and (iv) any other information relating to the person that is
required to be disclosed in solicitations of proxies for election of Directors
pursuant to Rule 14(a) under the Securities Exchange Act of 1934, as amended
(the "Act"), and any other applicable laws or rules or regulations of any
governmental authority or of any national securities exchange or similar body
overseeing any trading market on which shares of the corporation are traded, and
(b) as to the stockholder giving the notice (i) the name and record address of
stockholder and (ii) the class and number of shares of the Corporation which are
beneficially owned by the stockholder. No person shall be eligible for election
as a Director of the Corporation unless nominated in accordance with the
procedures set forth herein. The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded.

SECTION 3. Vacancies. Subject to the provisions of the Certificate of
Incorporation, vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and qualified, or until
their earlier resignation or removal.

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SECTION 4. Duties and Powers. The business of the Corporation shall be
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these By-Laws
directed or required to be exercised or done by the stockholders.

SECTION 5. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the state of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman, if there be one, the President, or any three directors. Notice
thereof stating the place, date and hour of the meeting shall be given to each
director either by mail not less than forty-eight (48) hours before the date of
the meeting, by telephone or telegram on twenty-four (24) hours' notice, or on
much shorter notice as the person or person calling such meeting may deem
necessary or appropriate in the circumstances.

SECTION 6. Quorum. Except as may be otherwise specifically provided by law,
the Certificate of Incorporation or these By-Laws, at all meetings of the Board
of Directors, a majority of the entire Board of Directors shall constitute a
quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.

SECTION 7. Actions of Board. Unless otherwise provided by the Certificate of
Incorporation or these By-Laws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all the members of the Board of Directors or committee, as
the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or committee.

SECTION 8. Meetings by Means of Conference Telephone. Unless otherwise
provided by the Certificate of Incorporation or these By-Laws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 8 shall constitute
presence in person at such meeting.

SECTION 9. Committees. The Board of Directors may, by resolution passed by a
majority of the entire Board of Directors, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board of

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Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
any such committee. In the absence or disqualification of a member of a
committee, and in the absence of a designation by the Board of Directors of an
alternate member to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any absent or
disqualified member. Any committee, to the extent allowed by law and provided in
the resolution establishing such committee, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation. Each committee shall keep regular minutes and
report to the Board of Directors when required.

SECTION 10. Compensation. The directors may be paid their expenses, if any,
of attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors and/or a stated
retainer as director. No such payment shall preclude any director from serving
the Corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.

SECTION 11. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the shareholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
shareholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the shareholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.

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ARTICLE IV

OFFICERS

SECTION 1. General. The officers of the Corporation shall be chosen by the
Board of Directors and shall be a President, a Secretary and a Treasurer. The
Board of Directors, in its discretion, may also choose a Chairman of the Board
of Directors (who must be a director) and one or more Vice-Presidents, Assistant
Secretaries, Assistant Treasurers and other officers. Any number of offices may
be held by the same person, unless otherwise prohibited by law, the Certificate
of Incorporation or these By-Laws. The officers of the Corporation need not be
stockholders of the Corporation nor, except in the case of the Chairman of the
Board of Directors, need such officers be directors of the Corporation.

SECTION 2. Election. The Board of Directors shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors.

SECTION 3. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the President or any Vice- President and any such
officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and power incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.

SECTION 4. Chairman of the Board of Directors. The Chairman of the Board of
Directors, if there be one, shall preside at all meetings of the stockholders
and of the Board of Directors. Except where by law the signature of the
President is required, the Chairman of the Board of Directors shall possess the
same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such

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other duties and may exercise such other powers as from time to time may be
assigned to him by these By-Laws or by the Board of Directors.

SECTION 5. President. The President shall, subject to the control of the
Board of Directors and, if there be one, the Chairman of the Board of Directors,
have general supervision of the business of the Corporation and shall see that
all orders and resolutions of the Board of Directors are carried into effect. He
shall execute all bonds, mortgages, contracts and other instruments of the
Corporation requiring a seal, under the seal of the Corporation, except where
required or permitted by law to be otherwise signed and executed and except that
the other officers of the Corporation may sign and execute documents when so
authorized by these By-Laws, the Board of Directors or the President. In the
absence or disability of the Chairman of the Board of Directors, or if there be
none, the President shall preside at all meetings of the stockholders and the
Board of Directors. The President shall also perform such other duties and may
exercise such other powers as from time to time may be assigned to him by these
By-Laws or by the Board of Directors.

SECTION 6. Vice-Presidents. At the request of the President or in his absence
or in the event of his inability or refusal to act (and if there be no Chairman
of the Board of Directors), the Vice-President or the Vice-Presidents if there
is more than one (in the order designated by the Board of Directors) shall
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. Each Vice-
President shall perform such other duties and have such other powers as the
Board of Directors from time to time may prescribe. If there be no Chairman of
the Board of Directors and no Vice-President, the Board of Directors shall
designate the officer of the Corporation who, in the absence of the President or
in the event of the inability or refusal of the President to act, shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President.

SECTION 7. Secretary. The Secretary shall attend all meetings of the Board of
Directors and all meetings of stockholders and record all the proceedings
thereat in a book or books to be kept for that purpose; the Secretary shall also
perform like duties for the standing committees when required. The Secretary
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or President, under whose
supervision he shall be. If the Secretary shall be unable or shall refuse to
cause to be given notice of all meetings of the stockholders and special
meetings of the Board of Directors, and if there be no Assistant Secretary, then
either the Board of Directors or the President may choose another officer to
cause such notice to be given. The Secretary shall have custody of the seal of
the Corporation and the Secretary or any Assistant Secretary, if there be one,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by the signature of the Secretary or by the
signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to

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<PAGE>

attest the affixing by his signature. The Secretary shall see that all books,
reports, statements, certificates and other documents and records required by
law to be kept or filed are properly kept or filed, as the case may be.

SECTION 8. Treasurer. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his transactions as Treasurer
and of the financial condition of the Corporation. If required by the Board of
Directors, the Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.

SECTION 9. Assistant Secretaries. Except as may be otherwise provided in
these By-Laws, Assistant Secretaries, if there be any, shall perform such duties
and have such powers as from time to time may be assigned to them by the Board
of Directors, the President, any Vice-President, if there be one, or the
Secretary, and in the absence of the Secretary or in the event of his disability
or refusal to act, shall perform the duties of the Secretary, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the Secretary.

SECTION 10. Assistant Treasurers. Assistant Treasurers, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice-President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer. If required by the Board of Directors,
an Assistant Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.

SECTION 11. Other Officers. Such other officers as the Board of Directors may
choose shall perform such duties and have such powers as from time to time may
be assigned to them by the Board of Directors. The Board of Directors may
delegate to any

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other officer of the Corporation the power to choose such other officers and
to prescribe their respective duties and powers.

ARTICLE V

STOCK

SECTION 1. Form of Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed, in the name of the Corporation
(i) by the Chairman of the Board of Directors, the President or a Vice-President
and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation, certifying the number of shares owned by
him in the Corporation.

SECTION 2. Signatures. Where a certificate is countersigned by (i) a transfer
agent other than the Corporation or its employee, or (ii) a registrar other than
the Corporation or its employee, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.

SECTION 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.

SECTION 4. Transfers. Stock of the Corporation shall be transferable in the
manner prescribed by law and in these By-Laws. Transfers of stock shall be made
on the books of the Corporation only by the person named in the certificate or
by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate shall be
issued.

SECTION 5. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty days nor less than ten days before the
date of such meeting, nor more than sixty days prior to

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<PAGE>

any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.

SECTION 6. Beneficial Owners. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares
to receive dividends, and to vote as such owner, and to hold liable for calls
and assessments a person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by law.

SECTION 7. Restrictions on Transfer. The Board of Directors may impose
restrictions on transfer of securities of the Corporation pursuant to the Rights
Agreement dated as of March 13, 1992 by and between the Corporation and First
Chicago Trust Company of New York, as and to the extent required by such Rights
Agreement, as amended from time to time.

ARTICLE VI

NOTICES

SECTION 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his address
as it appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given personally
or by telegram, telex or cable.

SECTION 2. Waivers of Notice. Whenever any notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed, by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.

ARTICLE VII

GENERAL PROVISIONS

SECTION 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, and may be
paid in cash, in

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<PAGE>

property, or in shares of the capital stock. Before payment of any dividend,
there may be set aside out of any funds of the Corporation available for
dividends such sum or sums as the Board of Directors from time to time, in its
absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.

SECTION 2. Disbursements. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.

SECTION 3. Fiscal Year. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.

SECTION 4. Corporate Seal. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.

ARTICLE VIII

INDEMNIFICATION

SECTION 1. Indemnification in Actions, Suits, or Proceedings Other Than Those
by or in the Right of the Corporation. Subject to Section 3 of this Article
VIII, the Corporation shall indemnify each person who is or was, or is
threatened to be made, a party to or witness in any threatened, pending or
completed action, suit, proceeding or claim, whether civil, criminal,
administrative or investigative (other than one by or in the right of the
Corporation), by reason of the fact that he is or was a director, officer or
employee of the Corporation or of Union Mutual Life Insurance Company, a Maine
mutual insurance company (the "Mutual Company"), or is or was serving at the
request of the Corporation or the Mutual Company as a director, officer,
employee or trustee of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorney's fees and expenses), judgments, fines, penalties, and amounts paid in
settlement, incurred by him in connection with defending, investigating,
preparing to defend, or being or preparing to be a witness in, such action,
suit, proceeding or claim, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.

SECTION 2. Indemnification in Actions, Suits or Proceedings by or in the
Right of the Corporation. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify each person who is or was, or is threatened to be
made, a party to or witness in

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<PAGE>

any threatened, pending or completed action, suit, proceeding or claim by or
in the right of the Corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer or employee of the Corporation or
of the Mutual Company or is or was serving at the request of the Corporation or
the Mutual Company as a director, officer, employee or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorney's fees and expenses), and, if
and to the extent permitted by applicable law, judgments, penalties and amounts
paid in settlement, incurred by him in connection with defending, investigating,
preparing to defend, or being or preparing to be a witness in, such action,
suit, proceeding or claim, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation; provided, however, that no indemnification shall be made in respect
of any such claim or any issue or matter in any such action, suit or proceeding
as to which such person shall have been adjudged to be liable to the Corporation
unless (and only to the extent that) the Court of Chancery or the court in which
such claim, action, suit or proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnification for such expenses and amounts which the Court of Chancery or
such other court shall deem proper.

SECTION 3. Authorization of Indemnification. (a) Any indemnification under
this Article VIII (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the person seeking indemnification is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 1 or 2 of this Article VIII, as the case may be. Such determination (and
determinations under Sections 5 and 6 of this Article VIII) shall be made (i) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to the action, suit, proceeding or claim with respect to
which indemnification is sought ("disinterested directors"), or (ii) if such a
quorum is not obtainable, or if a quorum of disinterested directors so directs,
in a written opinion of independent legal counsel chosen by the Board of
Directors, or (iii) by the stockholders; provided, however, that if a Change in
Control (as defined in this Section 3) has occurred and the person seeking
indemnification so requests, such determination (and determination under
Sections 5 and 6 of this Article VIII) shall be made in a written opinion
rendered by independent legal counsel chosen by the person seeking
indemnification and not reasonably objected to by the Board of Directors (whose
fees and expenses shall be paid by the Corporation). To the extent, however,
that a director, officer, employee or trustee or former director, officer,
employee or trustee has been successful on the merits or otherwise in defense of
any action, suit, proceeding or claim described above, or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorney's fees and expenses) incurred by him in connection
therewith, without the necessity of authorization in the specific case.

(b) For purposes of the proviso to the second sentence of Section 3(a),
"independent legal counsel" shall mean legal counsel other than an attorney, or
a firm having associated

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with it an attorney, who has been retained by or who has performed services
for the Corporation, the Mutual Company or the person seeking indemnification
within the previous three years.

(c) A "Change in Control" shall mean a change in control of the Corporation
of a nature that would be required to be reported in response to Item 5(f) of
Schedule 14A of Regulation 14A promulgated under the Act, whether or not the
Corporation is then subject to such reporting requirement; provided that,
without limitation, such a change in control shall be deemed to have occurred if
(i) any "person" (as such term is used in sections 13(d) and 14(d) of the Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Corporation representing 35% or
more of the combined voting power of the Corporation's then outstanding
securities without the prior approval of at least two-thirds of the members of
the Board of Directors in office immediately prior to such acquisition, or (ii)
the Corporation is a party to a merger, consolidation, sale of assets or other
reorganization, or proxy contest, as a consequence of which members of the Board
of Directors in office immediately prior to such transaction or event constitute
less than a majority of the Board of Directors thereafter, or (iii) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors (including for this purpose any new director
whose election or nomination for election by the Corporation's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period) cease for any reason to
constitute at least a majority of the Board of Directors.

SECTION 4. Good Faith Defined, Etc. (a) For purposes of any determination
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if such person relied on the records or books of account of the Corporation, the
Mutual Company or another enterprise, or on information supplied to him by the
officers of the Corporation, the Mutual Company or another enterprise, or on
information or records given or reports made to the Corporation, the Mutual
Company or another enterprise by an independent certified public accountant or
by an appraiser or other expert selected with reasonable care by the
Corporation, the Mutual Company or another enterprise. The term "another
enterprise" as used in this Section 4(a) shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation or the
Mutual Company as a director, officer, employee or trustee.

(b) The termination of any action, suit, proceeding or claim by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the

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<PAGE>

Corporation, or, with respect to any criminal action or proceeding, that he
had no reasonable cause to believe that his conduct was unlawful.

(c) References in this Article VIII to "penalties" include any excise taxes
assessed on a person with respect to an employee benefit plan; references in
this Article VIII to "serving at the request of the Corporation or the Mutual
Company" include any service as a director, officer or employee or former
director, officer or employee of the Corporation or the Mutual Company which
imposes duties on, or involves services by, such person with respect to an
employee benefit plan or its participants or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the participants or beneficiaries of such an
employee benefit plan shall be deemed to have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Corporation.

(d) The provisions of this Section 4 shall not be deemed to be exclusive or
to limit in any way the circumstances in which a person may be deemed to have
met the applicable standard of conduct set forth in Section 1 or 2 of this
Article VIII, as the case may be.

SECTION 5. Right to Indemnification Upon Application; Procedure Upon
Application; Etc. Except as otherwise provided in the proviso to Section 2 of
this Article VIII:

(a) any indemnification under Section 1 or 2 of this Article VIII shall be
made no later than 45 days after receipt by the Corporation of the written
request of the director, officer, employee or trustee or former director,
officer, employee or trustee unless a determination is made within said 45-day
period in accordance with Section 3 of this Article VIII that such person has
not met the applicable standard of conduct set forth in Section 1 or 2 of this
Article VIII.

(b) The right to indemnification under Section 1 or 2 of this Article VIII or
advances under Section 6 of this Article VIII shall be enforceable by the
director, officer, employee or trustee or former director, officer, employee or
trustee in any court of competent jurisdiction. Following a Change in Control,
the burden of proving that indemnification is not appropriate shall be on the
Corporation. Neither the absence of any prior determination that indemnification
is proper in the circumstances, nor a prior determination that indemnification
is not proper in the circumstances, shall be a defense to the action or create a
presumption that the director, officer, employee or trustee or former director,
officer, employee or trustee has not met the applicable standard of conduct. The
expenses (including attorney's fees and expenses) incurred by the director,
officer, employee or trustee or former director, officer, employee or trustee in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such action (or in any action or claim brought by him to
recover under any insurance policy or policies referred to in Section 9 of this
Article VIII) shall also be indemnified by the Corporation.

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<PAGE>

(c) If any person is entitled under any provision of this Article VIII to
indemnification by the Corporation for some or a portion of expenses, judgments,
fines, penalties or amounts paid in settlement incurred by him, but not,
however, for the total amount thereof, the Corporation shall nevertheless
indemnify such person for the portion of such expenses, judgments, fines,
penalties and amounts to which he is entitled.

SECTION 6. Expenses Payable in Advance. Expenses (including attorney's fees
and expenses) incurred by a director, officer, employee or trustee or a former
director, officer, employee or trustee in defending, investigating, preparing to
defend, or being or preparing to be a witness in, a threatened or pending
action, suit, proceeding or claim against him, whether civil or criminal, may be
paid by the Corporation in advance of the final disposition of such action,
suit, proceeding or claim upon receipt by the Corporation of a written request
therefor and a written undertaking by or on behalf of the director, officer,
employee or trustee or former director, officer, employee or trustee to repay
such amounts if it shall be determined in accordance with Section 3 of this
Article VIII that he is not entitled to be indemnified by the Corporation;
provided, however, that if he seeks to enforce his rights in a court of
competent jurisdiction pursuant to Section 5(b) of this Article VIII, said
undertaking to repay shall not be applicable or enforceable unless and until
there is a final court determination that he is not entitled to indemnification
as to which all rights of approval have been exhausted or have expired.

SECTION 7. Certain Persons Not Entitled to Indemnification. Notwithstanding
any other provision of this Article VIII, no person shall be entitled to
indemnification under this Article VIII or to advances under Section 6 of this
Article VIII with respect to any action, suit, proceeding or claim brought or
made by him against the Corporation or the Mutual Company, other than an action,
suit, proceeding or claim seeking, or defending such person's right to,
indemnification and/or expense advances pursuant to this Article VIII or
otherwise.

SECTION 8. Non-Exclusivity and Survival of Indemnification. The provisions of
this Article VIII shall not be deemed exclusive of any other rights to which the
person seeking indemnification or expense advances may be entitled under any
agreement, contract, or vote of stockholders or disinterested directors, or
pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office. Except as otherwise
provided in Section 7 of this Article VIII, but notwithstanding any other
provision of this Article VIII, it is the policy of the Corporation that
indemnification of and expense advances to the persons specified in Sections 1
and 2 of this Article VIII shall be made to the fullest extent permitted by law,
and, accordingly, in the event of any change in law, by legislation or
otherwise, permitting greater indemnification of and/or expense advances to any
such person, the provisions of this Article VIII shall be construed so as to
require such greater indemnification and/or expense advances. The provisions of
this Article VIII shall not be deemed to preclude the indemnification of any
person who is not specified in Section 1 or

16
<PAGE>

2 of this Article VIII but whom the Corporation has the power to indemnify
under the provisions of the General Corporation Law of the State of Delaware or
otherwise. The provisions of this Article VIII shall continue as to a person who
has ceased to be a director, officer, employee or trustee and shall inure to the
benefit of the heirs, executors and administrators of such person.

SECTION 9. Insurance. The Corporation may purchase and maintain at its
expense insurance on behalf of any person who is or was a director, officer or
employee of the Corporation or the Mutual Company or is or was serving at the
request of the Corporation or the Mutual Company as a director, officer,
employee or trustee of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against any liability or expense
asserted against or incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power or the
obligation to indemnify him against such liability or expense under the
provisions of this Article VIII or the provisions of Section 145 of the General
Corporation Law of the State of Delaware. The Company shall not be obligated
under this Article VIII to make any payment in connection with any claim made
against any person if and to the extent that such person has actually received
payment therefor under any insurance policy or policies.

SECTION 10. Successors; Meaning of "Corporation". This Article VIII shall be
binding upon and enforceable against any direct or indirect successor by
purchase, merger, consolidation or otherwise to all or substantially all of the
business and/or assets of the Corporation. For purposes of this Article VIII,
but subject to the provisions of any agreement relating to any merger or
consolidation of the kind referred to in clause (i) below or of any agreement
relating to the acquisition of any corporation of the kind referred to in clause
(ii) below, references to "the Corporation" shall include (i) any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger with the Corporation which, if its separate existence
had continued, would have had power and authority to indemnify its directors,
officers and employees, so that any person who is or was a director, officer or
employee of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or trustee of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, shall stand in the same position under the provisions of this
Article VIII with respect to the Corporation as he would have with respect to
such constituent corporation if its separate existence had continued; and (ii)
any corporation of which at least a majority of the voting power (as represented
by its outstanding stock having voting power generally in the election of
directors) is owned directly or indirectly by the Corporation.

SECTION 11. Severability. The provisions of this Article VIII shall be
severable in the event that any provision hereof (including any provision within
a single section, subsection, clause, paragraph or sentence) is held invalid,
void or otherwise unenforceable on any ground by any court of competent
jurisdiction. In the event of any

17
<PAGE>

such holding, the remaining provisions of this Article VIII shall continue in
effect and be enforceable to the fullest extent permitted by law.

ARTICLE IX

AMENDMENTS

SECTION 1. Power to Amend. The Board of Directors shall have concurrent power
with the stockholders as set forth in the By-Laws and the Certificate of
Incorporation to make, alter, amend, change, add to or repeal the By-Laws.

SECTION 2. Required Vote. The Board of Directors may amend the By-Laws upon
the affirmative vote of the number of directors which shall constitute, under
the terms of the By-Laws, the action of the Board of Directors. Stockholders may
not amend the By-Laws except upon the affirmative vote of at least eighty
percent (80%) of the votes entitled to be cast by the holders of all outstanding
shares of Voting Stock (as such term is defined in the Certificate of
Incorporation) voting together as a single class.

Exhibit 10.2

THE UNUM CORPORATION
INCENTIVE COMPENSATION PLAN
FOR DESIGNATED EXECUTIVE OFFICERS

1. PURPOSE OF THE PLAN

The purpose of the UNUM Corporation ("UNUM" or the "Corporation")
Incentive Compensation Plan for Designated Executive Officers (the "Plan") is to
provide a means of rewarding certain executive officers of the Corporation and
its subsidiaries with compensation which, when coupled with a base salary,
produces a competitive level of total compensation that reflects their
contributions to the overall long term enhancement of the value of the
Corporation in a manner which permits such compensation to be deductible for
federal income tax purposes.

2. ADMINISTRATION OF THE PLAN

The administration of this Plan shall be vested in the Compensation
Committee of the Board (the "Committee") which shall make all determinations
necessary under this Plan. All members of the Committee shall qualify as
"outside directors" (as that term is defined in Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder or
as may from time to time be in effect (the "Regulations")).

3. PARTICIPATION IN THE PLAN

All executive officers, as defined by rules of the Securities and
Exchange Commission, shall be eligible to participate in the Plan. Within the
period specified in the Regulations within which a performance goal is required
to be established to qualify as a pre-established performance goal (the
"Designation Period"), the Committee may designate one or more such executive
officers of the Corporation (each, a "Participant") who shall participate in the
Plan for the Performance Period.

4. PERFORMANCE GOALS AND AWARDS TO PARTICIPANTS

Within the Designation Period the Committee will allocate amounts on
behalf of each Participant which will be awarded if the Corporation and/or a
business unit attains objective performance goals established by the Committee
within the Designation Period based on one or more of the following: the market
price of a share of the Common stock, earnings-per-share, return to stockholders
(including dividends), return-on-equity, earnings on a GAAP, operating, or
statutory accounting basis, revenues, annualized sales, market share, cash flow
or cost reduction goals, underwriting margin, or any combination of the
foregoing. Such goals may be expressed either on an absolute basis or relative
to the performance of a peer group selected by the Committee.
<PAGE>

Where applicable, the Performance Goals may be expressed in terms of
attaining a specified level of the particular criteria or the attainment of a
percentage increase or decrease in the particular criteria. The Performance
Goals may include a threshold level of performance below which no payment will
be made (or no vesting will occur), levels of performance at which specified
payments will be made (or no vesting will occur) and a maximum level of
performance above which no additional payment will be made (or at which full
vesting will occur). Each of the foregoing Performance Goals shall be determined
in accordance with generally accepted accounting principles and shall be subject
to certification by the Committee; provided that the Committee shall have the
authority to make equitable adjustments to the Performance Goals in recognition
of unusual or non-recurring events affecting the Corporation or any subsidiary
or affiliate thereof or the financial statements of the Corporation or any
subsidiary or affiliate thereof, in response to changes in applicable laws or
regulations, or to account for items of gain, loss or expense determined to be
extraordinary or unusual in nature or infrequent in occurrence or related to the
disposal of a segment of a business or to a change in accounting principles.

The Committee may, in its sole discretion, reduce or cancel any award
under the Plan. At the discretion of the Committee, Awards shall be satisfied in
cash or restricted stock under the Company's 1996 Stock Long-Term Incentive Plan
or a combination of the above.

The maximum amount payable in cash and Restricted Stock (valued at the fair
market value on the date of grant) to any single participant with respect to any
Performance Period shall be the lesser of 250% of the base salary of the
participant at the time of designation or $3,000,000.

5. PERFORMANCE PERIOD

The Performance Period as to which awards may be made under this Plan
shall be the twelve-month period commencing January 1 of a calendar year and
ending on December 31 of such calendar year.

6. PAYMENT OF INCENTIVE AWARDS UNDER THE PLAN

(a) Following the completion of each Performance Period, the Committee
will certify in writing (i) whether the performance goals and any other material
terms of each award were attained, and (ii) the award payable to the
Participants.

(b) Except as provided in Section 7 of this Plan, each Participant
shall receive payment, in cash or certificates representing shares of Restricted
Stock, subject to all required tax withholdings, of his or her incentive award
as soon as practicable following the determination of the amount of such award.

<PAGE>

7. DEFERRAL OF PAYMENT OF AWARDS

At the discretion of the Committee and subject to such terms and
conditions as the Committee may determine, any Participant may elect to defer
payment of the cash portion of all or part of any award which such Participant
might earn with respect to a Performance Period (together with interest thereon
from the date as of which the award would have been paid but for such
Participant's election to defer payment at the rate, if any, fixed by the
Committee) by complying with such procedures as the Committee may from time to
time prescribe.

8. SEPARATION FROM THE CORPORATION AND ITS SUBSIDIARIES

The Committee may adopt rules governing the rights of Participants who
cease to be employed by the Corporation or its subsidiaries prior to the end of
the Performance Period to receive award payments.

10. AMENDMENTS

The Committee may amend this Plan at any time, provided that if Section
162(m) of the Code or the Regulations would require stockholder approval of such
an amendment in order for payments under the Plan to be deductible then no such
amendment shall be effective without such approval.

11. TERMINATION

The Board of Directors of the Corporation may terminate this Plan at
any time. No termination of this Plan shall adversely affect the right of any
person to receive any award for a Performance Period or Periods for which such
person had been designated under Section 3 of this Plan, or amounts previously
awarded to such person but deferred in accordance with Section 7 of this Plan
plus any earnings thereon, or as provided in rules adopted under Section 8 of
this Plan.

12. MISCELLANEOUS

(a) Nothing contained in this Plan shall be construed as giving any
executive officer of the Corporation the right to participate in the Plan, to
continued employment or any interest in any asset of the Corporation or any of
its subsidiaries, or to prevent the Corporation or any of its subsidiaries or
affiliates from taking any action which it deems to be appropriate or in its
best interests, whether or not such action would have an adverse effect on this
Plan or the amounts payable hereunder.

(b) This Plan shall be unfunded and the Corporation shall not be
required to establish any segregation of assets to assure payment of any awards
made hereunder.

<PAGE>

(c) A Participant may not sell, transfer or assign any right or
interest in the Plan except as provided in rules adopted by the Committee under
Section 8 hereof and any attempted sale, transfer or assignment shall be null
and void.

(d) This Plan shall be governed by and construed in accordance with the
laws of the State of Delaware and the applicable provisions of the Code and the
Regulations.

13. EFFECTIVE DATE

This Plan shall be effective as of January 1, 1997, subject to the
subsequent approval hereof by the Corporation's stockholders at the 1997 Annual
Meeting of Stockholders and, if so approved, shall remain in effect until
terminated in accordance with Section 11 hereof.

Exhibit 10.13

UNUM CORPORATION NONQUALIFIED 401(K) PLAN

Effective January 1, 1997

<PAGE>

PREAMBLE

The purpose of the Plan is to provide employees with retirement
benefits that would have been available under the Company's Retirement Savings
Plan, but for the limitations on contributions and benefits under the Code.
Participation in the Plan shall be limited to a select group of management or
highly compensated employees within the meaning of ERISA. The Plan shall be
effective January 1, 1997.

ARTICLE I
Definitions

1.1 "Board" or "Board of Directors" shall mean the Board of Directors
of the Company.

1.2 "Code" shall mean the Internal Revenue Code of 1986, as amended.

1.3 "Committee" shall mean the committee appointed by the Board in
accordance with Section 11.1 of the Retirement Savings Plan.

1.4 "Company" shall mean UNUM Corporation.

1.5 "Compensation" shall mean a Participant's compensation as defined
in Section 1.10 of the Retirement Savings Plan, except that Compensation shall
be determined without regard to the limit on the amount of compensation that may
be taken into account under Code Section 401(a)(17) and shall include amounts
deferred under this Plan. Notwithstanding the foregoing to the contrary, the
annual Compensation of any Participant in excess of $500,000 shall not be taken
into account.

1.6 "Deferred Compensation Account" shall mean a bookkeeping account
established in accordance with Section 2.3.

1.7 "Effective Date" shall mean January 1, 1997.

1.8 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.

<PAGE>

1.9 "Fair Market Value" shall mean, with respect to a Share, the
closing price as reported on the New York Stock Exchange.

1.10 "Participant" shall mean (a) an employee of the Company or one of
its domestic subsidiaries listed on Schedule A, who is a director or above with
an annual base salary of $100,000 or more, or (b) a field employee of the
Company or such subsidiary who is a manager, assistant manager or regional vice
president and who has an annual draw of $100,000 or more. The dollar limit in
the preceding sentence shall be adjusted at the same time and in the same manner
as the dollar limit under Code Section 415(d).

1.11 "Plan" shall mean the UNUM Corporation Nonqualified 401(k) Plan as
set forth herein and as hereafter amended from time to time.

1.12 "Plan Year" shall mean the calendar year.

1.13 "Retirement Savings Plan" shall mean the UNUM Employees Retirement
Savings Plan.

1.14 "Share" shall mean a share of common stock, par value ten cents
($0.10), of the Company.

1.15 "Valuation Date" shall mean the last business day of each calendar
month and such additional dates as the Committee may designate.

ARTICLE II
Deferred Compensation

2.1 Deferral Election. A Participant may elect to defer for any Plan
Year under this Plan the amount of Compensation, if any, that would have been
deferred as elective contributions in accordance with the Participant's initial
deferral election for such Plan Year under the Retirement Savings Plan, but for
the limit on compensation under Code Section 401(a)(17), the nondiscrimination
requirements of Code Section 401(k), the limit on elective deferrals under Code
Section 402(g), and the limit on annual additions under Code Section 415.

Once each Plan Year a Participant may elect to defer Compensation
payable for services to be performed after the date of the deferral election. An
election to defer shall be made by executing and delivering to the Committee a
deferred compensation agreement, in the form prescribed by the Committee. An
election to defer Compensation shall continue in effect until the last day of
the Plan

<PAGE>

Year in which it becomes effective, the date the Participant terminates the
election, or the date the Participant ceases to be a Participant, whichever
occurs first.

A deferral election may not be modified. A Participant may make a new
deferral election on or before December 31 of any year to increase or decrease
the amount of Compensation to be deferred during the following Plan Year. A
Participant may terminate a deferral election at any time by delivering a
written notice of termination to the Committee, on such form as the Committee
may prescribe. Such notice shall specify the effective date, and deferrals shall
cease as soon as practicable thereafter. Such notice shall not be effective with
regard to amounts previously deferred. If a Participant ceases to be a member of
a select group of management or highly compensated employees, within the meaning
of ERISA, his or her deferral election shall terminate, provided that the loss
of such status shall not cause amounts previously deferred to become payable.

A deferral election may not be made with respect to this Plan for any
Plan Year unless the Participant makes a deferral election for such year under
the Retirement Savings Plan. Termination or modification of a Participant's
deferral election under the Retirement Savings Plan for any Plan Year shall
terminate the Participant's deferral election for such year under this Plan. Any
such termination under this Plan shall not be effective with respect to amounts
previously deferred.

2.2 Matching Contribution. The Company shall make a matching
contribution under this Plan on behalf of each Participant who defers
Compensation hereunder with respect to any Plan Year for which a matching
contribution is in effect under the Retirement Savings Plan. The amount of such
contribution shall equal the matching contribution that would have been made
pursuant to the formula for matching contributions then in effect under the
Retirement Savings Plan (without regard to the nondiscrimination requirements of
Code Section 401(m) and the limit on annual additions under Code Section 415) if
the Compensation deferred hereunder had been an elective contribution to such
plan.

2.3 Account. The Company shall establish a Deferred Compensation
Account for each Participant who defers Compensation under the Plan and shall
adjust such account as of each Valuation Date as follows:

(a) credit the account with the number of Shares that could
have been purchased with the amount, if any, deferred by the
Participant and the matching contributions, if any, made by the Company
since the last Valuation Date, at the Fair Market Value of a Share on
the day (or days) the amounts deferred would have been used to purchase
Shares under the Retirement Savings Plan had such amounts been deferred
under that Plan;

(b) credit the account with the number of Shares that could
have been purchased with any cash dividend paid since the last
Valuation Date at the Fair Market Value of a Share

<PAGE>

on the dividend payment date, based on the number of Shares credited
to such account on the dividend record date; and

The Company shall appropriately adjust the number of Shares credited to the
account to reflect any stock split or stock dividend.

The Committee shall provide each Participant with an account statement
at least quarterly.

2.4 Investment of Account. Solely for purposes of valuing a Deferred
Compensation Account, such account shall be deemed invested in Shares. No
Participant shall become a shareholder of the Company or acquire any rights or
privileges with respect to Shares by participating in this Plan. The Company
shall be under no obligation to make any particular investment pursuant to the
Plan.

2.5 Death Benefits. In the event of a Participant's death, his or her
Deferred Compensation Account shall be paid, in accordance with Article III, to
the surviving spouse or designated beneficiary entitled to receive any death
benefit payable with respect to the Participant under the Retirement Savings
Plan. In the absence of such surviving spouse or designated beneficiary, the
account shall be paid to the Participant's estate.

ARTICLE III
Distributions

3.1 Form and Time. A Participant's Deferred Compensation Account shall
be distributed in cash to the Participant in the form of a lump sum, annual
installments over a period of five (5) or ten (10) years or in such other form
as the Committee may permit. Payment shall be made or commence on the last
business day of the calendar month following the month in which the Participant
terminates employment, or January 31 of the calendar year following the calendar
year in which the Participant terminates employment. Each Participant shall
elect the form and time of payment in the first deferred compensation agreement
he or she executes pursuant to Section 2.1, and such election shall apply to any
subsequent deferred compensation agreement executed by the Participant. For
purposes of this Plan, a termination of employment occurs on the date a
Participant

<PAGE>

ceases to be employed by the Company or one of its subsidiaries and is no
longer employed by any of them.

Death benefits shall be paid in a cash lump sum as soon as practicable
following a Participant's death and not later than the last business day of the
calendar month following the month in which the Participant dies. Except as
provided in Section 3.2, distribution shall be made under this Plan only on
account of a Participant's retirement, death, disability, or other termination
of service, and no loans to Participants shall be permitted.

3.2 Acceleration By Committee. In the event a Participant suffers a
severe financial hardship as a result of an unforeseeable emergency, the
Committee may, in its discretion, accelerate payment of the Participant's
Deferred Compensation Account to the extent necessary to eliminate such
hardship. An "unforeseeable emergency" means a sudden and unexpected illness,
accident, loss of property due to casualty, or other similar extraordinary and
unforeseeable circumstance arising as a result of events beyond the control of
the Participant.

ARTICLE IV
Administration

4.1 Administrative Committee. The Committee shall have complete
discretionary authority to control and manage the operation and administration
of the Plan and to construe Plan provisions. Subject to the provisions of the
Plan, the Committee from time to time may establish rules for the administration
and interpretation of the Plan. The final determination of the Committee as to
any disputed questions shall be conclusive. All actions, decisions and
interpretations of the Committee in administering the Plan shall be made in a
uniform and nondiscriminatory manner.

4.2 Action By Committee. A majority of the Committee shall constitute a
quorum, and an action of the majority present at any meeting shall be deemed the
action of the Committee. Any member of the Committee may participate in a
meeting of the Committee through conference telephone or similar communications
equipment by means of which all individuals participating in the meeting can
hear each other. Any action of the Committee may be taken without a meeting if
all

<PAGE>

members of the Committee sign written consents setting forth the action taken or
to be taken, at any time before or after the intended effective date of such
action.

4.3 Delegation. The Committee may authorize one or more of its members
to execute or deliver any instrument, make any payment or perform any other act
which the Plan authorizes or requires the Committee to do. The Committee may
employ counsel and other agents, may delegate ministerial duties to such agents
or to employees of the Company and may procure such clerical, accounting,
actuarial, consulting and other services as it may require in carrying out the
provisions of the Plan.

4.4 Benefit Payments. No benefit shall be paid under the Plan until an
application is made to the Committee in writing. The Committee may require an
applicant to furnish such information as it may reasonably request, and may
delay the commencement of benefits, if necessary, until such information is made
available. The Committee shall have the sole discretion to determine the form
and time of benefit payments under the Plan.

4.5 Claims Procedure. If an application for a benefit ("claim") is
denied by the Committee, the Committee shall give written notice of such denial
to the applicant, by certified or registered mail, within 60 days after the
claim was filed with the Committee; provided, however, that such 60-day period
may be extended to 120 days by the Committee if it determines that special
circumstances exist which require an extension of the time required for
processing the claim. Such denial shall set forth:

(a) the specific reason or reasons for the denial;

(b) the specific Plan provisions on which the denial is based;

(c) any additional material or information necessary for the
applicant to perfect the claim and an explanation of why such material
or information is necessary; and

(d) an explanation of the Plan's claim review procedure.

Following receipt of such denial, the applicant or his or her duly authorized
representative may:

(a) request a review of the denial by filing a written
application for review with the Committee within 60 days after receipt
by the applicant of such denial;

(b) review documents pertinent to the claim at such reasonable
time and location as shall be mutually agreeable to the applicant and
the Committee; and

<PAGE>

The Committee shall, after consideration of the application for review,
render a decision and shall give written notice thereof to the applicant, by
certified or registered mail, within 60 days after receipt by the Committee of
the application for review; provided, however, that such 60-day period may be
extended to 120 days by the Committee if it determines that special
circumstances exist which require an extension of the time required for
processing the application for review. Such notice shall include specific
reasons for the decision and specific references to the pertinent Plan
provisions on which the decision is based.

4.6 Indemnification. The Company shall indemnify and hold harmless each
member of the Committee against all expenses and liabilities arising out of his
or her acts or omissions with respect to the Plan, provided such member would be
entitled to indemnification pursuant to the bylaws of the Company.

ARTICLE V
Miscellaneous

5.1 Amendment and Termination of Plan. The Board may at any time, in
its sole discretion, terminate this Plan or amend the Plan in whole or in part.
No such termination or amendment shall affect the right of any Participant or
his or her spouse or designated beneficiary to receive a benefit under the terms
of this Plan on the date immediately preceding such termination or amendment.

5.2 Employee Status. Nothing contained herein shall confer upon any
Participant the right to be retained in the service of the Company or any other
right not expressly provided for herein, nor shall the existence of this Plan
impair the right of the Company to discharge or otherwise deal with a
Participant.

5.3 Funding. This Plan is unfunded for purposes of the Code and Title I
of ERISA and is not intended to meet the requirements of Code Section 401(a).
The Plan constitutes the Company's mere promise to pay benefits in the future,
and a Participant hereunder shall have no greater rights than a general,
unsecured creditor of the Company.

<PAGE>

5.4 Assignment. To the maximum extent permitted by law, no benefit
under this Plan shall be assignable or subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, attachment, or encumbrance of
any kind.

5.5 Taxes. Any and all taxes that may be due and owing with respect to
any payment under the Plan shall be the sole responsibility of the persons to
whom and for whose benefit such payment is made, provided, however, that the
Company shall withhold from any amount payable under the Plan all amounts that
are required by law to be withheld.

5.6 Plan Documents. Each Participant shall receive a copy of this Plan
and the Committee shall make available for inspection by the Participant a copy
of any rules and regulations adopted by the Committee in administering the Plan.

5.7 Governing Law. This Plan is established under and shall be
construed according to the laws of the State of Maine, except to the extent such
laws may be preempted by ERISA.

IN WITNESS WHEREOF, UNUM Corporation has caused this document to be
executed by its duly authorized officer on this day of , 1997.

UNUM CORPORATION

By:_____________________________________
Its

<PAGE>

SCHEDULE A

UNUM CORPORATION NONQUALIFIED 401(K) PLAN

Employees of the following domestic subsidiaries shall be eligible to
participate in the Plan in accordance with Section 1.10 effective as of the
dates specified below:

Subsidiary Date

First UNUM Life Insurance Company 1/1/97
UNUM Life Insurance Company of America 1/1/97
Colonial Life & Accident Insurance Co. 1/1/97
Duncanson & Holt Inc. 1/1/97
Duncanson & Holt Services Inc. 1/1/97

EXHIBIT 12

UNUM CORPORATION AND SUBSIDIARIES

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(Dollars in millions)

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings:
Income from continuing operations before income taxes $341.6 $381.9 $198.6

Add:
Fixed charges 52.2 48.0 29.6
------ ------ ------
Earnings as adjusted $393.8 $429.9 $228.2
====== ====== ======

Fixed charges:
Interest expense $ 40.7 $ 37.2 $ 18.7
Interest portion of rent expense 11.5 10.8 10.9
------ ------ ------
Total fixed charges $ 52.2 $ 48.0 $ 29.6
====== ====== ======

Ratio of earnings to fixed charges 7.5 9.0 7.7
====== ====== ======
</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.

EXHIBIT 21

SUBSIDIARIES OF UNUM CORPORATION

Listed below are the subsidiaries of UNUM Corporation, as of December 31, 1996,
with their respective jurisdiction of incorporation.

UNUM Holding Company (Delaware)

First UNUM Life Insurance Company (New York)
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)

UNUM European Holding Company Limited (United Kingdom)

UNUM Limited (United Kingdom)
Claims Services International Limited (United Kingdom)

Duncanson & Holt, Inc. (New York)

Duncanson & Holt Services, Inc. (Maine)
Group Management Services, Inc. (Washington)
Duncanson & Holt Administrative Services, Inc. (Delaware)
Duncanson & Holt Canada Ltd. (Canada)
TRI-CAN Reinsurance, Inc. (Canada)
Duncanson & Holt Asia PTE Ltd. (Singapore)
Duncanson & Holt Europe Ltd. (United Kingdom)

Duncanson & Holt Underwriters Ltd. (United Kingdom)
Duncanson & Holt Agencies Ltd. (United Kingdom)
Duncanson & Holt Syndicate Management Ltd. (United Kingdom)
Trafalgar Underwriting Agencies Ltd. (United Kingdom)

UNUM Japan Accident Insurance Company Limited (Japan)

UNUM (Bermuda) Holdings Ltd.

Duncanson & Holt (Bermuda) Ltd.
UNUM International Ltd. (Bermuda)

EXHIBIT 23

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the following Registration
Statements and related Prospectuses of our report dated February 5, 1997, except
for Note 5, for which the date is March 1, 1997, and Note 18, for which the date
is March 14, 1997, on our audits of the consolidated financial statements and
the financial statement schedules of UNUM Corporation and subsidiaries as of
December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995, and
1994, which report is included in the 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

Form S-3 No. 333-08187

/s/ COOPERS & LYBRAND L.L.P.
Portland, Maine
March 25, 1997

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, each acting alone, 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, 1996 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, each acting alone, 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:

Signature Title Date
--------- ----- ----

/s/ Gayle O. Averyt Director February 14, 1997
- --------------------
Gayle O. Averyt

/s/ Robert E. Dillon, Jr. Director February 14, 1997
- --------------------------
Robert E. Dillon, Jr.

/s/ Gwain H. Gillespie Director February 14, 1997
- -----------------------
Gwain H. Gillespie

/s/ Ronald E. Goldsberry Director February 14, 1997
- -------------------------
Ronald E. Goldsberry

/s/ Donald W. Harward Director February 14, 1997
- ----------------------
Donald W. Harward

<PAGE>

Signature Title Date
--------- ----- ----

/s/ George J. Mitchell Director February 14, 1997
- -----------------------
George J. Mitchell

/s/ Cynthia A. Montgomery Director February 14, 1997
- --------------------------
Cynthia A. Montgomery

/s/ James L. Moody, Jr. Director February 14, 1997
- ------------------------
James L. Moody, Jr.

/s/ Lawrence R. Pugh Director February 14, 1997
- ---------------------
Lawrence R. Pugh

/s/ Lois Dickson Rice Director February 14, 1997
- ----------------------
Lois Dickson Rice

/s/ John W. Rowe Director February 14, 1997
- -----------------
John W. Rowe

<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 for the year ended December 31, 1996.
</LEGEND>
<CIK> 0000795581
<NAME> Form 10-K
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 6,942,700
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 31,300
<MORTGAGE> 1,132,100
<REAL-ESTATE> 248,100
<TOTAL-INVEST> 8,724,700
<CASH> 77,000
<RECOVER-REINSURE> 1,113,800
<DEFERRED-ACQUISITION> 844,200
<TOTAL-ASSETS> 15,467,500
<POLICY-LOSSES> 7,170,400
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 3,533,600
<NOTES-PAYABLE> 526,900
0
0
<COMMON> 10,000
<OTHER-SE> 2,253,100
<TOTAL-LIABILITY-AND-EQUITY> 15,467,500
3,120,400
<INVESTMENT-INCOME> 802,200
<INVESTMENT-GAINS> 3,400
<OTHER-INCOME> 116,700
<BENEFITS> 2,324,700
<UNDERWRITING-AMORTIZATION> (91,700)<F1>
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 341,600
<INCOME-TAX> 103,600
<INCOME-CONTINUING> 238,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 238,000
<EPS-PRIMARY> 3.26
<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>