UNUM CORP, 10-K, 1998-03-10

UNUM CORP
10-K, 1998-03-10
ACCIDENT & HEALTH INSURANCE

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UNITED STATES 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
For the fiscal year ended December 31, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number 1-9254

UNUM Corporation
(Exact name of registrant as specified in its charter)

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

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 Exchange
Preferred stock purchase rights New York Stock Exchange
Pacific 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. [ ]

The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 20, 1998, was approximately $6,947,700,000.

As of February 20, 1998, 137,937,518 shares of the registrant's common
stock were outstanding.

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

DOCUMENTS INCORPORATED BY REFERENCE

Information from the Registrant's proxy statement for the Annual Meeting of
Shareholders on May 8, 1998, is incorporated by reference into Part III.

Exhibit Index appears on page 70.

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<PAGE>

TABLE OF CONTENTS

PART I

<TABLE>
<S> <C> <C>
Item Page
- ---- ----
1. Business ................................................................................. 1
A. Description of Business ............................................................... 1
B. Disability Insurance Segment .......................................................... 2
C. Special Risk Insurance Segment ........................................................ 4
D. Colonial Products Segment ............................................................. 4
E. Retirement Products Segment ........................................................... 5
F. Investments ........................................................................... 5
G. Risk Management and Reinsurance ....................................................... 6
H. Reserves .............................................................................. 7
I. Employees ............................................................................. 7
J. Competition ........................................................................... 7
K. Regulation ............................................................................ 7
L. Participation Fund Account ............................................................ 8
2. Properties ............................................................................... 8
3. Legal Proceedings ........................................................................ 8
4. Submission of Matters to a Vote of Security Holders ...................................... 8

PART II
5. Market for the Registrant's Common Equity and Related Stockholder Matters ................ 8
6. Selected Financial Data .................................................................. 9
7. Management's Discussion and Analysis of Financial Condition and Results of Operations .... 11
7A. Quantitative and Qualitative Information about Market Risk ............................... 28
8. Financial Statements and Supplementary Data .............................................. 29
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..... 60

PART III
10. Directors and Executive Officers of the Registrant ....................................... 60
A. Directors of the Registrant ........................................................... 60
B. Executive Officers of the Registrant .................................................. 60
11. Executive Compensation ................................................................... 61
12. Security Ownership of Certain Beneficial Owners and Management ........................... 61
13. Certain Relationships and Related Transactions ........................................... 61

PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .......................... 62
Signatures ............................................................................... 63
Index to Exhibits ........................................................................ 70
</TABLE>

<PAGE>

UNUM Corporation and Subsidiaries

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 the leading provider of
group short term disability ("group STD") in the United States, as well as a
major provider of group life, individual disability ("ID"), long term care
("LTC") insurance, special risk reinsurance and payroll-deducted voluntary
employee benefit products offered to employees at their worksites. The
operations of the subsidiaries, 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, the Pacific Rim and Latin America.

UNUM conducts its operations in North America through a number of
wholly-owned subsidiaries including: UNUM Life Insurance Company of America
("UNUM America"), a Maine life insurance company licensed in 49 states and
Canada; First UNUM Life Insurance Company ("First UNUM"), a New York life
insurance company; Colonial Companies, Inc. ("Colonial Companies"), a Delaware
holding company whose wholly-owned subsidiary, Colonial Life & Accident
Insurance Company ("Colonial"), is a South Carolina life insurance company
licensed in 49 states; and Duncanson & Holt, Inc. ("D&H"), a New York
Corporation. Effective December 31, 1996, UNUM merged Commercial Life Insurance
Company ("Commercial Life") into UNUM America.

UNUM's United Kingdom operations are conducted by UNUM Limited, a
wholly-owned subsidiary of UNUM European Holding Company, and by Duncanson &
Holt Europe Ltd., a wholly-owned subsidiary of D&H. UNUM European Holding
Company, incorporated in the United Kingdom, is wholly-owned by UNUM
Corporation.

UNUM's Pacific Rim operations are led by a wholly-owned subsidiary, UNUM
Japan Accident Insurance Company Limited, a Japanese non-life insurance company
established in 1994.

UNUM's Latin American operations were established on July 31, 1997, with
the purchase of Boston Compania Argentina de Seguros SA ("Boston Seguros"), a
general lines property/casualty, life and workers compensation insurance company
based in Buenos Aires, Argentina.

During 1997, UNUM acquired Options and Choices Inc. ("OCI"), which
delivers integrated information and analysis to help organizations manage their
health and disability program costs. OCI is based in Cheyenne, Wyoming, and is
a wholly-owned subsidiary.

Effective June 2, 1997, UNUM completed a two-for-one common stock split as
discussed in Item 8, Note 10 "Stockholders' Equity." Accordingly, all numbers
of common shares and per common share data have been restated to reflect the
stock split.

On October 1, 1996, UNUM America and 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,
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 were initially reinsured on an
indemnity basis. Upon consent of the TSA contractholders and participants, the
contracts are considered reinsured on an assumption basis, legally releasing
UNUM America and First UNUM from future contractual obligation to the
respective contractholders and participants. As of December 31, 1997, consents
for assumption reinsurance have been received relating to approximately 92% of
assets under management.

On March 26, 1993, UNUM merged with Colonial Companies. Under the merger
agreement, UNUM exchanged 1.462 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 22.8 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.

Premiums for insurance products described in the following sections are
based on expected morbidity, mortality and persistency, as well as on
assumptions concerning operating expenses and investment income.

1
<PAGE>

B. Disability Insurance Segment

The Disability Insurance segment, which in 1997 accounted for 58% of
UNUM's revenues and income before income taxes, includes disability products
offered in North America, the United Kingdom and Japan including: group LTD,
group STD, ID, 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, included in the Disability Insurance and Special Risk Insurance
segments, through a network of 45 offices in the United States and Canada
utilizing brokers to distribute these products. As of December 31, 1997, these
branch offices were organized into five regions and were staffed with
approximately 1,040 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 educators, consultants, health care providers,
accountants and engineers. Since 1976, UNUM America and First UNUM combined
have been the United States' leading provider of group LTD based on inforce
cases and premium 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 a certain age between 65 and 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.

The group LTD product is sold primarily on a basis permitting periodic
repricing. This enables UNUM to adjust the pricing of its products to more
closely align with the underlying claims experience and interest rate
environment.

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 providers of group STD for 1996 based on premium and number of inforce
lives.

Individual Disability

ID products provide coverage for loss of income in the event of
disability. Sales are targeted to professionals, corporate executives, business
owners and administrative support personnel. As reported in the Life Insurance
Marketing Research Association's 1996 Individual Health Issues and Inforce
Survey for the United States and Canada, UNUM America and First UNUM combined
were the fourth largest providers of individual disability income policies
measured by inforce premium.

Effective December 31, 1996, UNUM America and Centre Life Reinsurance
Limited ("Centre Re"), a Bermuda-based reinsurance specialist, entered into an
agreement for reinsurance coverage of the active life reserves of UNUM
America's existing United States non-cancellable 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. For a
detailed discussion of the reinsurance agreement refer to Item 8 Note 6
"Reinsurance."

UNUM announced in November 1994 that it would discontinue sales of the
traditional, fixed price, non-cancellable ID product ("non-cancellable
product") in the United States upon introduction of a new ID 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
UNUM cannot refuse to renew any policy, but it does reserve the right to
increase premiums for inforce

2
<PAGE>

UNUM Corporation and Subsidiaries

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 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, (e.g. bathing, dressing, feeding independently) 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.

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 introduced new conditionally renewable products for sale through its
association channel in the first quarter of 1997, which were available in 41
states at December 31, 1997.

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.

Long Term Care

UNUM America and First UNUM market guaranteed renewable LTC insurance on a
group and individual basis. The group LTC product is offered on an employer or
employee-paid basis to employer groups of at least 15 participants. Under group
policies employers may offer coverage to retirees and employees, as well as
spouses, parents and grandparents of those employees. Individual LTC is
marketed through independent brokers and general agents on a single customer
basis and to smaller employer groups.

LTC insurance pays a benefit when the insured suffers the loss of two or
more Activities of Daily Living and requires stand-by assistance of another
person or suffers cognitive impairment. Benefits are paid on an indemnity basis
that provides a daily or monthly payment, regardless of actual expenses
incurred, up to a maximum lifetime benefit. All policies cover costs related to
licensed nursing home care with options provided to add coverage for
professional and/or informal home care and inflation protection. Benefits start
after an elimination period, generally of 90 days or less.

UNUM Limited:

UNUM Limited was the leading provider for 1996 of group LTD insurance in
the United Kingdom, as reported by ERC Frankona Reassurance Ltd's annual group
risk survey, based on premium revenue. UNUM Limited targets group LTD sales to
executive, administrative and management personnel, and other professionals,
providing 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 a network of independent financial
advisors.

UNUM Japan:

UNUM Japan, which began operations in 1994, targets sales of group and
individual long term disability products ("LTD products") to executive,
administrative and management personnel and other professionals. The contract
terms and insurance coverage of these products are similar to those offered by
UNUM in the U.S. and are marketed through contracted independent agents and
brokers. Beginning in 1997, UNUM Japan received approval to market Credit Long
Term Disability insurance through banks and credit unions. This product
protects salaried workers from inability to make their monthly mortgage/home
lease payments in the event of disability.

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

3
<PAGE>

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

C. Special Risk Insurance Segment

The Special Risk Insurance segment in 1997 accounted for 23% and 19% of
UNUM's revenues and income before income taxes, respectively. The Special Risk
Insurance segment includes group life, special risk accident insurance,
reinsurance underwriting management operations, non-disability reinsurance
operations and other special risk insurance products.

The Special Risk Insurance segment's group insurance products are sold
primarily on a basis permitting periodic repricing. This enables UNUM to adjust
the pricing of its products to more closely align with the underlying claims
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 1996, UNUM America and First UNUM combined were the fifth 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 term life insurance through the association group
channel. Group accidental death and dismemberment coverage is offered as a
rider on most group life insurance products.

UNUM America is also a leading provider of group special risk accident
products, including travel and voluntary accident insurance. These products are
offered on an employer or employee-paid basis through a network of independent
brokers and specialty agents.

D&H has offices throughout the United States and in London, Toronto,
Bermuda and Singapore. A leading accident and health 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
reinsurance facility management services which may include marketing,
underwriting, administration, claims payment and actuarial services for client
companies. On May 3, 1996, D&H acquired three associated reinsurance
underwriting managers specializing in accident and health business.

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. During 1995, Duncanson & Holt Europe Ltd., a
subsidiary of D&H based in the United Kingdom, was authorized by Lloyd's of
London to establish two Lloyd's Managing Agents and to acquire a third existing
Lloyd's Managing Agent. These agents manage syndicates that underwrite
primarily personal accident and other non-marine and marine classes of business
at Lloyd's of London.

Non-disability reinsurance operations include UNUM America's participation
in reinsurance facilities managed by D&H and direct reinsurance arrangements
primarily for accident and health, long term care and other special risk
business. As a member company in reinsurance facilities, UNUM America assumes a
share of the insurance risk of the facility.

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

D. Colonial Products Segment

The Colonial Products segment in 1997 accounted for 14% and 18% of UNUM's
revenues and income before income taxes, respectively. The Colonial Products
segment includes Colonial and affiliates. Colonial markets a broad line of
payroll-deducted, voluntary employee benefit products to employees at their
worksites, which includes accident and sickness, disability, cancer and life
products. Colonial markets its products nationwide through a 9,500-member
independent contractor sales force and through collaborative sales with UNUM
America. All Colonial products are purchased solely with employee funds.

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.

4
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UNUM Corporation and Subsidiaries

Colonial's premiums for 1997 were primarily derived from policies marketed
to employees at their worksites, with premiums in most cases collected through
payroll deduction. Such policies are issued on a guaranteed renewable basis,
which means Colonial cannot refuse to renew any policy, but 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 employee dollars as part of a
flexible benefits program pursuant to Section 125 of the Internal Revenue Code.
In 1997, 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. Congress could change the tax laws to limit or eliminate fringe
benefits available on a pretax basis, eliminating Colonial's ability to
continue marketing its products in this way. However, Colonial believes its
products provide policyholders value, which will remain even if the tax
advantages offered by flexible benefit programs are eliminated.

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

E. Retirement Products Segment

The Retirement Products segment in 1997 accounted for 5% and 14% of UNUM's
revenues and income before income taxes, respectively. This segment includes
products no longer actively marketed by UNUM including: TSAs, guaranteed
investment contracts, deposit administration accounts, 401(k) plans, individual
life and group medical insurance. On October 1, 1996, UNUM America and First
UNUM closed the sale of their respective TSA businesses to Lincoln, as
discussed in Item 1 A, "Description of Business."

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

F. Investments

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

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,
1997, and 1996, were as follows:

Geographic Region

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
New England ................. 12.8% 12.4%
Mid-Atlantic ................ 12.0 12.7
South Atlantic .............. 19.1 16.1
Mountain .................... 6.0 7.5
Pacific ..................... 15.9 15.7
West South Central .......... 5.7 6.8
East South Central .......... 10.7 5.4
West North Central .......... 13.1 11.3
East North Central .......... 4.6 12.0
Other ....................... 0.1 0.1
----- -----
Total ..................... 100.0% 100.0%
===== =====
</TABLE>

Property Type

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Office Building ........... 24.6% 26.1%
Retail .................... 28.1 33.0
Industrial ................ 32.2 27.1
Apartment ................. 10.6 8.2
Hotel/Motel ............... 2.7 3.8
1-4 Family ................ -- 0.1
Other Commercial .......... 1.8 1.7
----- -----
Total ................... 100.0% 100.0%
===== =====
</TABLE>

5
<PAGE>

Mortgage loans delinquent 60 days or more on a contract delinquency basis
by geographic region and property type were as follows at December 31, 1997,
and 1996 (dollars in millions):

Geographic Region

<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
New England ................. $ 2.9 $ --
Mid-Atlantic ................ -- 3.5
West North Central .......... 5.0 --
East North Central .......... -- 2.1
------ ----
Total ..................... $ 7.9 $ 5.6
====== =====
</TABLE>

Property Type

<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Office Building .......... $ 2.9 $ --
Retail ................... 5.0 5.6
------ ----
Total .................. $ 7.9 $ 5.6
====== =====
</TABLE>

Impaired loans by geographic region and property type were as follows at
December 31, 1997, and 1996 (dollars in millions):

Geographic Region

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
New England ................. $ 14.3 $ 14.6
Mid-Atlantic ................ 8.2 8.4
South Atlantic .............. -- 9.1
Mountain .................... 8.6 8.8
West South Central .......... 4.7 4.8
West North Central .......... 7.6 2.6
East North Central .......... -- 2.1
------- -------
$ 43.4 $ 50.4
======= =======
</TABLE>

Property Type

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Office Building .......... $ 29.7 $ 22.0
Retail ................... 13.7 18.2
Industrial ............... -- 10.2
------- -------
Total .................. $ 43.4 $ 50.4
======= =======
</TABLE>

Restructured mortgage loans by geographic region and property type were as
follows at December 31, 1997, and 1996 (dollars in millions):

Geographic Region

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
New England ................. $ 0.7 $ 0.7
South Atlantic .............. 7.6 13.3
Mountain .................... 3.3 7.7
Pacific ..................... 7.8 7.9
West South Central .......... 2.5 2.5
West North Central .......... 3.7 8.7
East North Central .......... 13.7 14.0
------ ------
Total ..................... $ 39.3 $ 54.8
====== ======
</TABLE>

Property Type

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Office Building .......... $ 23.8 $ 24.3
Retail ................... 12.3 12.5
Industrial ............... 0.9 5.8
Apartment ................ -- 4.4
Hotel/Motel .............. 2.3 7.8
------- -------
Total .................. $ 39.3 $ 54.8
======= =======
</TABLE>

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 an insurer is willing to accept, administration and evaluation
of business inforce and determination of claim liability. UNUM's underwriters
evaluate policy applications on the basis of information provided by the
applicant and other sources. The underwriters are responsible for specific
products and are further specialized by geographic sales region.

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 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. UNUM does not generally reinsure
risk on a product-specific basis for group LTD, group STD or association group
disability. For other insurance products, UNUM reinsures benefits over various
amounts, depending on the type of coverage.

In addition to product-specific reinsurance arrangements, UNUM's insurance
companies are covered by catastrophe reinsurance, providing additional
protection against aggregate losses in excess of $1 million up to a

6
<PAGE>

UNUM Corporation and Subsidiaries

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.

During 1996, UNUM America entered into an agreement for reinsurance
coverage of the active life reserves of its existing United States
non-cancellable ID block of business. This agreement does not reinsure any
claims incurred prior to January 1, 1996. For more information on this
reinsurance agreement refer to Item 8 Note 6 "Reinsurance."

Total reinsurance premiums assumed and ceded for the year ended December
31, 1997, were $281.6 million and $402.8 million, respectively. Current or
planned reinsurance activity is not expected to have a significant impact on
UNUM's ability 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 in statutory financial
statements. Statutory reserves are subject to minimum reserves established by
the laws of the various states. The differences between GAAP and statutory
reserves arise from the use of different morbidity, mortality, interest,
expense and lapse assumptions.

Pursuant to insurance laws of the states of Maine, New York and South
Carolina, as well as the United Kingdom, Japan and Argentina, UNUM's insurance
subsidiaries (UNUM America, First UNUM, Colonial, UNUM Limited, UNUM Japan and
Boston Seguros, respectively) set up statutory reserves, carried as
liabilities, to meet obligations on their various policies. These statutory
reserves, together with premiums and interest based on statutory assumptions,
are sufficient to meet the policy and contract obligations of UNUM's insurance
subsidiaries that result from using statutory assumptions. 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 with actual
experience. The assumptions may be revised when it is determined that future
expected experience differs from the assumed estimates.

I. Employees

At December 31, 1997, UNUM had approximately 7,200 full-time employees.
Some employees in Argentina, comprising less than 1% of UNUM's total workforce,
are members of a union.

J. Competition

The principal competitive factors affecting all of 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 1997, there were more than 1,700 legal reserve life
insurance companies in the United States and Canada, more than 200 life
assurance offices in the United Kingdom, approximately 100 life and non-life
insurance companies in Japan, and more than 200 insurance companies in
Argentina. These companies may offer insurance products similar to those
marketed by UNUM.

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, Japanese and Argentine
insurance laws generally establish supervisory agencies with broad
administrative powers. These powers relate chiefly to the granting and
revocation of the licenses to transact business, establishing reserve
requirements and the form, content and frequency 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, Japan and Argentina, as applicable.
Insurance subsidiaries operate under insurance laws which require they
establish and carry, as liabilities, statutory reserves to meet obligations on
their disability, life, accident and health policies and annuities. These
reserves are verified periodically by various regulators. UNUM's domestic
insurance subsidiaries are examined periodically by examiners from their states
of domicile and by other states in which they are licensed to conduct business.

7
<PAGE>

The laws of the State of Maine require periodic registration and reporting
by insurance companies domiciled within its jurisdiction that 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, the domiciliary state of First UNUM, and South Carolina,
the domiciliary state of Colonial, have similar laws. Accordingly, UNUM's
domestic 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.

L. Participation Fund Account

Participating policies issued by the former Union Mutual Life Insurance
Company ("Union Mutual") prior to November 14, 1986, the date of UNUM's
demutualization, will remain participating as long as they remain in force. A
Participation Fund Account ("PFA") has been established for the benefit of all
of Union Mutual's individual participating life and annuity policies and
contracts. At December 31, 1997, the PFA had approximately $367 million in
assets, held by UNUM America, the successor to Union Mutual.

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

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

Item 2--Properties

UNUM owns home office property consisting of six office buildings and four
service buildings located throughout the Portland, Maine area. UNUM also owns
office buildings in the United Kingdom, South Carolina and Argentina, which
serve as the home offices of UNUM Limited, the Colonial Companies and Boston
Seguros, respectively. In addition, UNUM leases office space, on periods
principally from five to ten years, for use by its home office, affiliates and
sales forces.

Item 3--Legal Proceedings

Refer to Item 8 Note 15 "Litigation" for information on legal proceedings.

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 1997.

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 Exchange. UNUM's ticker symbol is "UNM." As
of December 31, 1997, there were 22,548 shareholders of record of common stock.
Information concerning restrictions on the ability of UNUM's affiliates to
transfer funds to UNUM in the form of cash dividends is described in Item 8
Note 11 "Dividend Restrictions."

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>
1997 1996
--------------------------------------------------- ---------------------------------------------------
4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High .............. $ 54.438 $ 48.250 $ 46.500 $ 39.813 $ 36.750 $ 33.000 $ 31.500 $ 30.938
Low ............... $ 45.125 $ 40.688 $ 33.625 $ 35.313 $ 30.500 $ 28.375 $ 27.750 $ 27.375
Close ............. $ 54.375 $ 45.625 $ 42.250 $ 36.500 $ 36.125 $ 32.063 $ 31.125 $ 29.750
Dividend Paid ..... $ 0.1425 $ 0.1425 $ 0.1425 $ 0.1375 $ 0.1375 $ 0.1375 $ 0.1375 $ 0.1325
</TABLE>

8
<PAGE>

UNUM Corporation and Subsidiaries

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. On June 2, 1997,
UNUM completed a two-for-one common stock split. Accordingly, all numbers of
common shares and per common share data have been restated to reflect the stock
split.

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

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Revenues:
Premiums and fees and other income:
Disability Insurance Segment ...................... $ 1,882.6 $ 1,917.7 $ 1,879.9 $ 1,716.2 $ 1,547.9
Special Risk Insurance Segment .................... 878.6 755.4 702.3 607.1 559.4
Colonial Products Segment ......................... 530.8 498.2 475.1 441.3 407.4
Retirement Products Segment ....................... 130.3 65.8 34.1 31.4 42.5
Corporate ......................................... 0.1 -- 0.1 0.8 --
---------- ------------ ---------- ---------- -----------
Total premiums and fees and other income ........... 3,422.4 3,237.1 3,091.5 2,796.8 2,557.2
---------- ------------ ---------- ---------- -----------
Net investment income: (a)
Disability Insurance Segment ...................... 468.0 468.5 592.9 400.3 369.8
Special Risk Insurance Segment .................... 68.4 56.5 48.4 40.7 34.8
Colonial Products Segment ......................... 57.6 47.3 52.2 32.6 41.4
Retirement Products Segment ....................... 54.4 217.2 323.7 338.0 387.6
Corporate ......................................... 5.9 16.1 14.2 4.2 6.2
---------- ------------ ---------- ---------- -----------
Total net investment income ........................ 654.3 805.6 1,031.4 815.8 839.8
---------- ------------ ---------- ---------- -----------
Total revenues ..................................... 4,076.7 4,042.7 4,122.9 3,612.6 3,397.0
---------- ------------ ---------- ---------- -----------
Benefits and expenses:
Disability Insurance Segment ...................... 2,037.9 2,170.9 2,255.8 2,060.3 1,603.6
Special Risk Insurance Segment .................... 845.7 732.7 690.4 581.9 555.3
Colonial Products Segment ......................... 489.6 453.1 439.6 411.2 378.4
Retirement Products Segment ....................... 108.5 281.6 312.3 327.4 375.8
Corporate ......................................... 58.6 62.8 42.9 33.2 23.6
---------- ------------ ---------- ---------- -----------
Total benefits and expenses ........................ 3,540.3 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 ...................... 312.7 215.3 217.0 56.2 314.1
Special Risk Insurance Segment .................... 101.3 79.2 60.3 65.9 38.9
Colonial Products Segment ......................... 98.8 92.4 87.7 62.7 70.4
Retirement Products Segment ....................... 76.2 1.4 45.5 42.0 54.3
Corporate ......................................... (52.6) (46.7) (28.6) (28.2) (17.4)
------------ ------------ ------------ ------------ -----------
Total income before income taxes and cumulative
effects of accounting changes ..................... 536.4 341.6 381.9 198.6 460.3
Income taxes ....................................... 166.1 103.6 100.8 43.9 148.3
Cumulative effects of accounting changes ........... -- -- -- -- (12.1)(b)
------------ ------------ ------------ ------------ -----------
Net income ......................................... $ 370.3 $ 238.0 $ 281.1 $ 154.7 $ 299.9
============ ============ ============ ============ ===========
Per common share:
Net income--basic .................................. $ 2.65 $ 1.63 $ 1.93 $ 1.04 $ 1.90
Net income--diluted ................................ $ 2.59 $ 1.61 $ 1.92 $ 1.04 $ 1.88
Dividends paid ..................................... $ 0.5650 $ 0.5450 $ 0.5175 $ 0.4600 $ 0.3825
============ ============ ============ ============ ============

</TABLE>

- --------
(a) Includes investment income and net realized investment gains (losses).

(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 and Financial
Accounting Standard No. 109, "Accounting for Income Taxes," which
increased net income by $20.0 million.

9
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars and shares in millions)

<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------
1997 1996 1995 1994 1993
Balance Sheet Data -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Assets ............................................. $ 13,200.3 $ 15,467.5 $ 14,787.8 $ 13,127.2 $ 12,437.3
Long-term debt ..................................... $ 509.2 $ 409.2 $ 457.3 $ 182.1 $ 128.6
Stockholders' equity ............................... $ 2,434.8 $ 2,263.1 $ 2,302.9 $ 1,915.4 $ 2,102.7
Shares outstanding ................................. 138.3 143.6 146.0 144.8 152.0
Weighted average shares outstanding during the year:
Basic ............................................. 139.9 145.9 145.4 148.3 157.6
Diluted ........................................... 142.9 148.0 146.6 149.5 159.3
</TABLE>

10
<PAGE>

UNUM Corporation and Subsidiaries

Item 7--Management's Discussion and Analysis of Financial Condition and Results
of Operations

Management's discussion and analysis reviews the consolidated financial
condition of UNUM at December 31, 1997 and 1996, the consolidated results of
operations for the past three years and, where appropriate, factors that may
affect future financial performance. This discussion should be read in
conjunction with the Consolidated Financial Statements, Notes to Consolidated
Financial Statements and Selected Consolidated Financial Data.

FORWARD-LOOKING INFORMATION

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information contained in this
discussion, or in any other written or oral statements made by UNUM, are or may
be considered as forward-looking. Forward-looking statements relate to future
operations, strategies, financial results or other developments, and contain
words or phrases such as "may," "expects," "should" or similar expressions.
Forward- looking statements are based upon estimates and assumptions that are
subject to significant business, economic and competitive uncertainties, many
of which are beyond UNUM's control or are subject to change.

Inherent in UNUM's business are certain risks and uncertainties.
Therefore, UNUM cautions the reader that revenues and income could differ
materially from those expected to occur depending on factors such as general
economic conditions including changes in interest rates and the performance of
financial markets, changes in domestic and foreign laws, regulations and taxes,
competition, industry consolidation, competitor demutualization, credit risks
and other factors. Insurance reserve liabilities can fluctuate as a result of
changes in numerous factors, and such fluctuations can have material positive
or negative effects on net income. The factors include, but are not limited to,
interest rates, incidence rates and recovery rates. Incidence and recovery
rates may be influenced by many factors, including but not limited to, the
emergence of new diseases, new trends and developments in medical treatments,
general economic and societal conditions of the markets where UNUM has
operations, and the effectiveness of risk management programs. UNUM disclaims
any obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future developments or otherwise.

CONSOLIDATED OVERVIEW

<TABLE>
<CAPTION>
(Dollars and shares in millions,
except per common share data) 1997 % Change 1996 % Change 1995
- --------------------------------------------- ------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Income Data
Revenues
Premiums ................................... $ 3,188.7 2.2% $ 3,120.4 3.4% $ 3,018.2
Investment income .......................... 657.9 (18.0) 802.2 (0.5) 806.3
Net realized investment gains (losses) ..... (3.6) nm 3.4 (98.5) 225.1
Fees and other income ...................... 233.7 nm 116.7 59.2 73.3
---------- ----- --------- ----- ---------
Total revenues ............................ 4,076.7 0.8 4,042.7 (1.9) 4,122.9
Benefits and expenses ....................... 3,540.3 (4.3) 3,701.1 (1.1) 3,741.0
---------- ----- --------- ----- ---------
Income before income taxes .................. 536.4 57.0 341.6 (10.6) 381.9
Income taxes ................................ 166.1 60.3 103.6 2.8 100.8
---------- ----- --------- ----- ---------
Net income ................................ $ 370.3 55.6% $ 238.0 (15.3)% $ 281.1
========== ===== ========= ===== =========
Net income per common share:
Basic ...................................... $ 2.65 62.6% $ 1.63 (15.5)% $ 1.93
Diluted .................................... $ 2.59 60.9% $ 1.61 (16.1)% $ 1.92
========== ===== ========== ===== ==========
Summary of income (loss) before
income taxes
Disability Insurance Segment ............... $ 312.7 45.2% $ 215.3 (0.8)% $ 217.0
Special Risk Insurance Segment ............. 101.3 27.9 79.2 31.3 60.3
Colonial Products Segment .................. 98.8 6.9 92.4 5.4 87.7
Retirement Products Segment ................ 76.2 nm 1.4 (96.9) 45.5
Corporate .................................. (52.6) 12.6 (46.7) 63.3 (28.6)
---------- ----- ---------- ----- ----------
Total income before income taxes .......... $ 536.4 57.0% $ 341.6 (10.6)% $ 381.9
========== ===== ========== ===== ==========
</TABLE>

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

11
<PAGE>

<TABLE>
<CAPTION>
(Dollars and shares in millions) 1997 1996 1995
- ------------------------------------------------------ -------------- -------------- --------------
<S> <C> <C> <C>
Balance Sheet Data
Assets ............................................... $ 13,200.3 $ 15,467.5 $ 14,787.8
Notes Payable ........................................ $ 635.8 $ 526.9 $ 583.8
Stockholders' equity ................................. $ 2,434.8 $ 2,263.1 $ 2,302.9
Shares outstanding ................................... 138.3 143.6 146.0
Weighted average shares outstanding--basic ........... 139.9 145.9 145.4
Weighted average shares outstanding--diluted ......... 142.9 148.0 146.6
</TABLE>

Effective tax rates, which reflect income tax expense as a percentage of
income before income taxes, were 31.0%, 30.3% and 26.4% for 1997, 1996 and
1995, respectively. Reported income tax expense was below the federal statutory
tax rate of 35% primarily due to tax savings from investments in tax-exempt
bonds and mortgages. The increase in the effective tax rate over the three year
period was primarily due to reduced tax-exempt income as a percentage of income
before income taxes.

A comparison of net income is impacted by the inclusion of realized
investment gains (losses), and special items that occurred in 1997, 1996 and
1995. Operating income in 1997, 1996 and 1995, which excludes realized
investment gains (losses) and the special items, was as follows:

<TABLE>
<CAPTION>
(Dollars in millions,
except per common share amounts) 1997 % Change 1996 % Change 1995
- ---------------------------------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Operating income ................. $ 341.7 13.3% $ 301.7 18.2% $ 255.2
Operating income per common share:
Basic ........................... $ 2.44 17.9% $ 2.07 17.6% $ 1.76
Diluted ......................... $ 2.39 17.2% $ 2.04 17.2% $ 1.74
</TABLE>

This management's discussion and analysis focuses on results on a pretax
operating income basis, which is defined as income (loss) before income taxes
exclusive of realized investment gains (losses) and special items. Special
items are excluded from this discussion as management considers them to be
unusual and believes a discussion of the results on a pretax operating income
basis provides a better understanding of the results of ongoing operations. The
following table summarizes pretax operating income (loss) for the four business
segments and Corporate for the years ended December 31, 1997, 1996 and 1995,
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) 1997 % Change 1996 % Change 1995
- ----------------------------------------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Summary of pretax operating income (loss)
Disability Insurance Segment ........... $ 315.8 13.4% $ 278.4 28.2% $ 217.2
Special Risk Insurance Segment ......... 124.8 38.4 90.2 50.8 59.8
Colonial Products Segment .............. 98.8 6.6 92.7 20.7 76.8
Retirement Products Segment ............ 4.7 (65.4) 13.6 (37.3) 21.7
Corporate .............................. (51.8) 38.1 (37.5) 29.8 (28.9)
-------- ----- -------- ----- --------
Total pretax operating income ......... $ 492.3 12.6% $ 437.4 26.2% $ 346.6
======== ===== ======== ===== ========
</TABLE>

UNUM reported increased pretax operating income for the year ended
December 31, 1997, as compared with the same period in 1996. The increase was
primarily attributable to improvements in pretax operating income for the
Disability Insurance and Special Risk Insurance segments. Both segments have
experienced strong sales and premium growth during 1997, leading to the
improvement in operating earnings. These favorable results were partially
offset by the increased pretax operating loss in Corporate, which was driven by
a reduction in investment income as UNUM utilized excess capital to repurchase
shares of its common stock. See the segment discussions that follow for a more
detailed analysis of operating results.

For the year ended December 31, 1996, as compared with the same period in
1995, UNUM reported increased pretax operating income, driven by improved
results in the Disability Insurance and Special Risk Insurance segments. These
increases were primarily the result of improved claims experience in UNUM's
core disability lines and in group life, along with an increase in investment
income.

12
<PAGE>

UNUM Corporation and Subsidiaries

Special Items in 1997

TSA Deferred Gain Recognition

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 tax-sheltered annuity ("TSA") businesses to The Lincoln
National Life Insurance Company and Lincoln Life & Annuity Company of New York,
both subsidiaries of Lincoln National Corporation. The sale involved
approximately 1,700 group contractholders, assets under management of
approximately $3.3 billion and resulted in a deferred pretax gain which is
recognized in income in proportion to contractholder and participant consents
for assumption reinsurance. Refer to the caption "Retirement Products Segment"
for further information. For the year ended December 31, 1997, consent for
assumption reinsurance was provided by TSA contractholders and participants
owning approximately 92% of assets under management. During 1997, these
consents resulted in the recognition of $72.6 million of the total deferred
pretax gain of $80.8 million. The recognized gains are reflected as fees and
other income in the Retirement Products segment.

Reorganization Costs

During fourth quarter 1997, UNUM recognized $6.5 million of operating
expenses related to a management and field office reorganization within its
North American reinsurance operations, reducing income before income taxes in
the Special Risk Insurance segment. Included in the $6.5 million of costs is a
$6.0 million restructuring charge and $0.5 million of direct costs, primarily
relocation expenses. The restructuring charge of $6.0 million was comprised of
$4.0 million of lease exit costs, $1.4 million of severance related costs and
$0.6 million of abandoned assets.

Reinsurance Pool Results

During fourth quarter 1997, certain reinsurance pools managed by UNUM's
wholly-owned subsidiary, Duncanson & Holt Inc. ("D&H"), received new claim
information from ceding insurance enterprises about certain older pool years
and completed an analysis of recent claims experience deterioration. As a
result of these factors, certain pools have strengthened claim reserves. The
impact to UNUM in fourth quarter 1997 from these pool claim reserve increases
was an $11.7 million reduction in fee income and a $6.7 million increase in
benefits to policyholders in the Special Risk Insurance segment, reducing
income before income taxes by $18.4 million. The $11.7 million reduction in fee
income reflects lower profit commission levels in certain older pool years
after the pool claim reserve strengthening. The $6.7 million increase in
benefits to policyholders represents the amount of additional claim reserves
UNUM recognized as a result of its participation in the pools that strengthened
claim reserves.

Special Items in 1996

Individual Disability Reinsurance Fees

During the fourth quarter of 1996, UNUM executed 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. As a result, UNUM recognized a
pretax charge of $49.7 million, reflected as operating expenses 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 regarding the reinsurance agreement 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 TSA 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.

13
<PAGE>

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. Losses for these
products are charged to the reserve at the time realized. The products
incorporated in the charge consist of certain discontinued special risk,
retirement and medical products.

For the year ended December 31, 1996, these charges reduced income before
income taxes by $13.1 million in the Disability Insurance segment, reflected as
$0.5 million of benefits to policyholders, $0.9 million of operating expenses,
and $11.7 million as a change in deferred policy acquisition costs; $11.3
million in the Special Risk Insurance segment, reflected as $6.9 million of
benefits to policyholders and $4.4 million of operating expenses; and $15.0
million in the Retirement Products segment, reflected as benefits to
policyholders.

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 severance costs 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, discussed under the caption
"Realized Investment Gains," 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 long term
disability ("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
reserves for claims which have been incurred but not yet 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 association group disability, reported in the Disability Insurance
segment, by $15.0 million. These increased reserves were based on management's
expectations of slower than expected claim recoveries.

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.

14
<PAGE>

UNUM Corporation and Subsidiaries

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 1997 and 1996.
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.

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, 1997, 1996 and 1995:

<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, 1997:
Income (loss) before income taxes ........ $ 312.7 $ 101.3 $ 98.8 $ 76.2 $ (52.6) $ 536.4
Exclude realized investment (gains)
losses .................................. 3.1 (1.4) -- 1.1 0.8 3.6
-------- -------- ------- ------- ------- --------
315.8 99.9 98.8 77.3 (51.8) 540.0
Special items:
TSA deferred gain recognition ........... -- -- -- (72.6) -- (72.6)
Reorganization costs .................... -- 6.5 -- -- -- 6.5
Reinsurance pool results ................ -- 18.4 -- -- -- 18.4
-------- -------- ------- ------- ------- --------
Pretax operating income (loss) ........... $ 315.8 $ 124.8 $ 98.8 $ 4.7 $ (51.8) $ 492.3
======== ======== ======= ======= ======= ========
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
======== ======== ======= ======= ======= ========
</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, 1997, 1996 and 1995. These
discussions are based on pretax operating income (loss), which excludes
realized investment gains (losses) and the special items previously described.
The summary financial information provided prior to each segment discussion has
been adjusted to exclude the impact of special items from all income statement
line items, consistent with the discussion of results on a pretax operating
income basis.

15
<PAGE>

DISABILITY INSURANCE SEGMENT

<TABLE>
<CAPTION>
(Dollars in millions) 1997 % Change 1996 % Change 1995
- --------------------------------------- ------------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Revenues
Premiums
Group LTD ............................ $ 1,219.1 11.4% $ 1,094.6 0.6% $ 1,088.6
Group STD ............................ 205.3 29.9 158.1 19.0 132.9
UNUM Limited ......................... 147.0 10.8 132.7 6.0 125.2
Individual disability ................ 143.5 (65.9) 420.8 (0.5) 423.0
Other disability insurance ........... 101.6 21.4 83.7 (2.2) 85.6
--------- ----- --------- ----- ---------
Total premiums ...................... 1,816.5 (3.9) 1,889.9 1.9 1,855.3
Investment income ..................... 471.1 0.5 468.8 14.8 408.2
Fees and other income ................. 66.1 nm 27.8 13.0 24.6
--------- ----- --------- ----- ---------
Total operating revenues ............ 2,353.7 (1.4) 2,386.5 4.3 2,288.1
Benefits and expenses
Benefits to policyholders ............. 1,503.9 (0.7) 1,514.4 (1.0) 1,529.2
Operating expenses .................... 452.0 (1.8) 460.4 10.0 418.4
Commissions ........................... 167.9 (8.8) 184.2 (4.8) 193.5
Increase in deferred policy acquisition
costs ................................ (85.9) 68.8 (50.9) (27.5) (70.2)
---------- ----- ---------- ----- ----------
Total benefits and expenses ......... 2,037.9 (3.3) 2,108.1 1.8 2,070.9
---------- ----- ---------- ----- ----------
Pretax operating income (a) ........... $ 315.8 13.4% $ 278.4 28.2% $ 217.2
========== ===== ========== ===== ==========
Sales (annualized new premiums)
Group LTD ............................ $ 294.4 $ 218.7 $ 197.9
Group STD ............................ $ 94.8 $ 74.0 $ 52.4
UNUM Limited ......................... $ 20.0 $ 14.3 $ 14.2
Individual disability ................ $ 26.7 $ 26.4 $ 35.6
Persistency (premiums)
Group LTD ............................ 87.7% 83.6% 82.8%
Group STD ............................ 86.7% 84.5% 84.8%
UNUM Limited ......................... 91.3% 85.6% 89.1%
Individual disability ................ 93.6% 92.5% 91.8%
Benefit ratio (% of premiums) ......... 82.8% 80.1% 82.4%
Operating expense ratio
(% of premiums) ...................... 24.9% 24.4% 22.6%
</TABLE>

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

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

The Disability Insurance segment includes disability products offered
through: UNUM America and 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"), ID, disability reinsurance operations and long term
care insurance.

16
<PAGE>

UNUM Corporation and Subsidiaries

Overview

UNUM completed a reinsurance agreement during the fourth quarter of 1996
for coverage related to its United States non-cancellable block of ID business
(see the "Individual Disability" caption within this segment discussion).
Starting January 1, 1997, the individual components of the operating results
for the reinsured ID business are not reflected on separate lines in UNUM's
statements of income; instead, components of the operating results are combined
and reflected as a net amount in fees and other income. UNUM continues to focus
on the underlying trends of the reinsured business, and in the following
discussion reference to ID includes both the reinsured and non-reinsured
portions of the business.

The increase in the Disability Insurance segment's pretax operating
earnings in 1997, as compared with 1996, was primarily attributable to improved
premium growth, increased investment income and improved operating expense
ratios across most lines of business. These favorable factors were partially
offset by higher benefit ratios in certain disability businesses including ID
and group STD.

After adjusting for $255.4 million of premium ceded during 1997 under the
ID reinsurance agreement and the effect of claim block acquisitions, the
Disability Insurance segment reported premium growth of 9.4% compared with
growth of 5.6% in 1996. The improvement in premium growth was driven by record
sales levels and persistency improvements, primarily in group LTD and group
STD. Investment income, adjusted for the effect of the reinsured ID business,
increased in 1997, primarily as a result of the increased cash flow created by
improved premium growth in group disability products.

Pretax operating income increased in 1996, as compared with 1995,
primarily as a result of increased investment income and lower benefit ratios
in group LTD and at UNUM Limited. Partially offsetting these favorable factors
were increased operating expenses for the segment and higher benefit ratios in
disability reinsurance operations and ID. The increase in investment income for
1996 was primarily the result of reinvestment of the proceeds from the 1995
sale of UNUM's 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.

Claim block acquisitions, which generate one-time premiums, are summarized
in the table below. Management intends to pursue additional claim block
acquisitions in the future.

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
(Dollars in millions) 1997 1996 1995
- ------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Group LTD ................................. $ 18.9 $ 10.0 $ 63.8
UNUM Limited .............................. 2.6 8.4 10.6
Long Term Care ............................ 0.5 -- 4.9
Disability Reinsurance Operations ......... 2.1 -- 3.6
------- ------- -------
Total ..................................... $ 24.1 $ 18.4 $ 82.9
======= ======= =======
</TABLE>

Additionally, premium for ID includes the recapture of reinsurance premium
totaling $10.6 million in 1996.

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 and risk management programs. 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, management periodically performs a review of reserve
estimates and assumptions. If management determines reserve assumptions need to
be updated, any resulting adjustments to reserves are reflected in current
results. Given that insurance products contain inherent risks and
uncertainties, the ultimate liability may be more or less than such estimates
indicate.

Group Long Term Disability

During 1997, group LTD experienced increased pretax operating income that
was driven primarily by strong premium growth of 11.4%. Premium growth in 1997
resulted from record sales levels and improved persistency,

17
<PAGE>

which reflects a lower level of price increases during the year and the success
of product modifications and continuing customer service actions. Increased
investment income and continued expense management also contributed to the
improvement in 1997 earnings. Management continues to focus on steps to
increase premiums and sales, including a strengthened emphasis on customer
service to further improve persistency and additional investments in
distribution channels. The significant sales growth experienced in 1997,
combined with general pricing competition, may affect UNUM's ability to
continue to increase sales by the same percentage growth seen in 1997, as
compared with 1996.

The benefit ratio for 1997 was consistent with 1996. While the average
incidence rate of claims declined in 1997, an increase in the average size of
claims offset the favorable impact of incidence. Management continually
monitors claim trends and responds to changes by periodically adjusting prices,
altering underwriting guidelines, changing product features and strengthening
risk management policies and procedures.

Group Short Term Disability

Strong sales and improved persistency resulted in increased premium growth
for group STD, driving improved pretax operating income in 1997. The strong
sales levels reflect management's continuing efforts to cross-sell group STD
products with other group products sold by UNUM. Additionally, premium growth
and continued expense management contributed to a lower operating expense
ratio, partially offset by a higher benefit ratio.

UNUM Limited

During 1997, UNUM Limited's pretax operating income was favorably affected
by premium growth, driven by solid sales levels and improved persistency.
Increased investment income, a lower benefit ratio and a lower operating
expense ratio also contributed to improved results as compared with the
corresponding period in 1996. The lower benefit ratio was primarily the result
of UNUM Limited's continuing focus on risk management.

In general, UNUM Limited's earnings expressed in U.S. dollars are affected
by fluctuations in the exchange rates used in the translation of earnings from
British pounds sterling. The weighted average exchange rate was approximately
$1.64, $1.56 and $1.58 for the years ended December 31, 1997, 1996 and 1995,
respectively. At December 31, 1997, the spot rate was approximately $1.65.

Individual 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 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. Centre Re
has an obligation to absorb losses within a defined risk layer, while UNUM must
fund an experience layer representing the difference between reserves related
to the reinsured block, based on generally accepted accounting principles
("GAAP"), and the bottom of Centre Re's defined risk layer. Within this
experience layer, UNUM retains the earnings risk related to potential adverse
experience from the reinsured block. Under the agreement, UNUM funds a trust
account, initially established in late 1996, with assets equal to the related
amount of GAAP reserves plus the amount of its experience layer. The value of
UNUM's experience layer increases or decreases in conjunction with the
underlying operating results of the reinsured block. Additionally, realized
gains or losses on assets sold, and unrealized gains or losses on marketable
securities held in the trust and the related claim reserves, affect the
valuation of the experience layer. UNUM reflects the carrying value of the
experience layer in its Consolidated Balance Sheet as a deposit asset, which at
December 31, 1997, totaled approximately $347 million. Changes in the
experience layer derived from the underlying operating results of the reinsured
block are reflected in fees and other income and realized gains or losses from
sales of trust assets are reflected as realized investment gains (losses) in
UNUM's Consolidated Statement of Income. Changes in the experience layer
resulting from unrealized gains or losses on marketable securities held in the
trust and the related claim reserves are reflected as unrealized gains or
losses in the equity section of UNUM's Consolidated Balance Sheet.

18
<PAGE>

UNUM Corporation and Subsidiaries

For the year ended December 31, 1997, pretax operating income for
individual disability was negatively affected by unfavorable claims experience,
primarily resulting from increased incidence, partially offset by lower expense
levels, as compared with the same period in 1996. Premium growth continued to
decline as a result of UNUM's exit from the traditional, fixed price,
non-cancellable product in the United States. Sales of the guaranteed renewable
Lifelong Disability Protection product, which replaced the non-cancellable
product, have grown 94% in 1997 over 1996.

Long Term Care

The Long Term Care ("LTC") block of business, while still relatively small,
should provide one of the company's most significant growth opportunities in the
future. LTC's pretax operating results improved for the year ended December 31,
1997, compared with the same period in 1996, driven by significant premium
growth of 32%. LTC's contribution to the segment's pretax operating income
continues to increase when compared with 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, 1997, as compared with the same period in 1996.
Management continues to focus on improving risk management programs and
strengthening underwriting standards to address this claims experience.

SPECIAL RISK INSURANCE SEGMENT

<TABLE>
<CAPTION>
(Dollars in millions) 1997 % Change 1996 % Change 1995
- ------------------------------------------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenues
Premiums
Group life ............................... $ 528.1 20.1% $ 439.6 14.2% $ 384.8
Other special risk products .............. 312.4 12.6 277.5 (0.1) 277.8
------- ---- ------- ---- -------
Total premiums .......................... 840.5 17.2 717.1 8.2 662.6
Investment income ......................... 67.0 19.2 56.2 27.7 44.0
Fees and other income ..................... 49.8 30.0 38.3 (1.8) 39.0
------- ---- ------- ---- -------
Total revenues .......................... 957.3 18.0 811.6 8.9 745.6
Benefits and expenses
Benefits to policyholders ................. 593.7 18.8 499.6 1.5 492.0
Operating expenses ........................ 180.0 (0.2) 180.4 21.2 148.8
Commissions ............................... 88.2 31.6 67.0 10.0 60.9
Increase in deferred policy acquisition
costs .................................... (29.4) 14.8 (25.6) 61.0 (15.9)
-------- ---- -------- ---- --------
Total benefits and expenses ............. 832.5 15.4 721.4 5.2 685.8
-------- ---- -------- ---- --------
Pretax operating income (a) ............... $ 124.8 38.4% $ 90.2 50.8% $ 59.8
======== ==== ======== ==== ========
Group life sales (annualized new
premiums) ................................ $ 175.8 $ 150.0 $ 106.1
Group life persistency (premiums) ......... 86.2% 85.6% 83.0%
Benefit ratio (% of premiums) ............. 70.6% 69.7% 74.3%
Operating expense ratio (% of
premiums) ................................ 21.4% 25.2% 22.5%
</TABLE>

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

19
<PAGE>

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.

Pretax operating income for the Special Risk Insurance segment increased
for the year ended December 31, 1997, as compared with 1996, primarily driven
by strong premium growth in the group life business. Additionally, pretax
operating income for this period was positively affected by favorable expense
growth levels across most lines of business, increased investment income for
the segment and additional fees and other income largely from reinsurance
underwriting management operations. Higher benefit ratios in certain product
lines partially offset these increases. Due to the nature of the risks
underwritten and the relative size of the blocks of businesses, several of the
products in the Special Risk Insurance segment can exhibit claims variability.

Solid sales results and improved persistency trends continued and were the
primary drivers of group life premium growth of 20.1% in 1997. Claim block
acquisitions generated one-time premiums for group life of $0.2 million, $3.6
million and $1.3 million, respectively, for 1997, 1996 and 1995, and for
reinsurance operations of $16.3 million and $38.3 million, respectively, for
1996 and 1995. Management intends to pursue additional claim block acquisitions
in the future.

The segment's operating expense ratio improved in 1997 to 21.4% from 25.2%
in 1996, primarily driven by favorable expense growth across most lines of
business combined with the strong premium growth in group life. In 1997, the
segment's benefit ratio increased to 70.6% as compared with 69.7% in 1996. The
increase was primarily the result of unfavorable claims experience in the
special risk accident insurance product line and certain reinsurance pools.

The increase in pretax operating income for 1996, as compared with 1995,
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.

COLONIAL PRODUCTS SEGMENT

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

20
<PAGE>

UNUM Corporation and Subsidiaries

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

Pretax operating income for the Colonial Products segment increased for
the year ended December 31, 1997, as compared with 1996. The increase was
primarily attributable to additional investment income, premium growth and
reduced operating expense ratios across most lines of business, partially
offset by a higher benefit ratio in the cancer product line and an increase in
interest credited. During 1997, management continued its efforts to increase
sales and premium at Colonial by enhancing collaborative sales across UNUM and
implementing organizational changes to focus on specific distribution channels
to market Colonial products. Colonial's pretax operating income increased in
1996 as compared with 1995, primarily due to favorable benefit ratios in
certain product lines and increased investment income.

During 1997, Colonial formed a strategic marketing alliance with The
Lincoln National Life Insurance Company ("Lincoln Life") in order to create
cross-selling opportunities in the worksite market. In addition, Colonial
coinsures and administers Lincoln Life's existing block of worksite-marketed
universal life insurance. This reinsurance agreement affects reported line
items in Colonial's income statement, including premiums, investment income,
operating expenses and interest credited, in relation to the amount of business
coinsured. During 1996, Colonial entered into an agreement to reinsure a
majority of the mortality risk on new and inforce universal life business. This
reinsurance agreement has negatively affected reported premium growth and
related operating expense ratios while positively affecting reported benefit
ratios.

The increase in investment income in 1997 and 1996 was primarily due to
the growth in the asset base resulting from increased cash flows largely from a
product mix shift, along with a change in asset composition to higher yielding
securities. Additionally, the alliance formed with Lincoln Life positively
affected investment income growth. The additional investment income generated
from the alliance was partially offset by the increase in interest credited.

Excluding the impact of the Lincoln Life reinsurance agreement, Colonial's
operating expense ratio improved in 1997, primarily because of management's
continued efforts to control expenses. Colonial's benefit ratio increased in
1997 primarily as a result of unfavorable claims experience in the cancer
product line. The decrease in Colonial's benefit ratio in 1996 was primarily
driven by the effect of the universal life reinsurance agreement and improved
benefit ratios in the life, and accident and sickness product lines.

RETIREMENT PRODUCTS SEGMENT

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

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

21
<PAGE>

The Retirement Products segment includes products no longer actively
marketed by UNUM including: TSAs, guaranteed investment contracts ("GICs"),
deposit administration accounts ("DAs"), 401(k) plans, individual life and
group medical insurance. The segment reported decreased pretax operating income
for 1997 as compared with 1996, primarily due to the sale of UNUM's TSA
business in October 1996, as discussed below, partially offset by favorable
volatility in the run-off of certain other discontinued products. UNUM expects
these blocks of business to continue to decline in size over several years and
experience some slight earnings volatility, reflecting their run-off nature.

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
contracts were initially reinsured on an indemnity basis. Upon consent of the
TSA contractholders and participants, the contracts are considered reinsured on
an assumption basis, legally releasing UNUM America and First UNUM from future
contractual obligation to the respective contractholders and participants. The
sale resulted in a deferred pretax gain of $80.8 million, which is being
recognized in income, as a special item, in proportion to consents for
assumption reinsurance. Through December 31, 1997, consent for assumption
reinsurance has been provided by TSA contractholders and participants owning
approximately 92% of assets under management.

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 transfer of these assets and subsequent novations reduced investment income
and interest credited significantly in 1997, as compared with 1996.

UNUM continues 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 TSA businesses
accounted for $0.4 million, $13.5 million and $16.4 million of the Retirement
Products segment's pretax operating income in 1997, 1996 and 1995,
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. Also, 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.

CORPORATE

<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996 1995
- ------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Pretax operating loss (a) .......... $ (51.8) $ (37.5) $ (28.9)
======= ======= =======
</TABLE>

- --------
(a) For the definition of pretax operating loss 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, 1997, as compared with 1996, was primarily due to decreased investment
income, principally from the Company's increased use of capital to repurchase
shares of its common stock, and higher operating expenses. The increased pretax
operating loss in 1996, compared with 1995, was primarily the result of
increased international development costs and interest expense on corporate
borrowings, partially offset by increased investment income.

INVESTMENTS

Overview

UNUM's investment objective is to optimize total asset return within
appropriate risk criteria established for each product line. UNUM seeks to meet
this objective through its asset/liability management process and active asset
management of the portfolios. Asset/liability management requires a balance
between investment risk and business risk and is a key element for managing
certain market risks (see Item 7A "Quantitative and Qualitative

22
<PAGE>

UNUM Corporation and Subsidiaries

Information about Market Risk" for further discussion). UNUM's long term
investment strategy is to invest primarily in investment grade bonds and
commercial mortgages. 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 generally 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 on an overall portfolio basis,
considering the value of the underlying assets and collateral. 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 $8,934.1 million and $8,724.7 million at
December 31, 1997, and 1996, respectively. The composition of UNUM's invested
assets at December 31, 1997, was 81.8% fixed maturities, 12.7% mortgage loans,
2.6% real estate and 2.9% other invested assets.

Gross realized investment gains were $24.4 million, $40.2 million and
$287.0 million, and gross realized investment losses were $28.0 million, $36.8
million and $61.9 million for the years ended December 31, 1997, 1996 and 1995,
respectively.

Significant Investment Transactions

In late 1996, UNUM transferred approximately $403 million of 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 (see Item 8 Note 6 "Reinsurance").

On October 1, 1996, UNUM transferred approximately $2,690 million of
assets into a trust account held for the benefit of The Lincoln National Life
Insurance Company and Lincoln Life & Annuity Company of New York to effect the
sale of the TSA business (see Item 8 Note 5 "Sale of Tax-Sheltered Annuity
Business"). The assets transferred consisted of approximately $1,826 million of
short-term investments, $589 million of fixed maturities and $275 million of
cash.

Fixed Maturities

Fixed maturities at fair value were $7,310.9 million and $6,942.7 million
at December 31, 1997, and 1996, respectively. 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,
1997, approximately 80% of the bond portfolio was rated "A" or better. Fixed
maturity ratings are obtained from external rating agencies or are determined
internally by UNUM using similar methods if external ratings are not available.
The bond portfolio is primarily comprised of taxable corporate bonds.
Tax-exempt bonds were 13.7% of the total bond portfolio at December 31, 1997,
compared with 8.7% at December 31, 1996. Dependent on market conditions and tax
considerations, UNUM may invest in tax-exempt securities in the future.

23
<PAGE>

The table below summarizes fixed maturity holdings by credit quality as of
December 31, 1997, and 1996.

<TABLE>
<CAPTION>
Bond Credit Quality Ratings 1997 1996
- ----------------------------- ---------- ----------
<S> <C> <C>
AAA ......................... 16.2% 10.6%
AA .......................... 13.3 12.2
A ........................... 50.5 57.3
BAA ......................... 18.9 18.4
Below BAA ................... 1.1 1.5
----- -----
Total ..................... 100.0% 100.0%
===== =====
</TABLE>

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 higher vulnerability
to default.

At December 31, 1997, and 1996, the fixed maturity portfolio included
$83.7 million and $102.0 million, respectively, of below investment grade bonds
(below "BAA") recorded at fair value. These bonds had an associated amortized
cost of $80.2 million and $101.7 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 effect 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, 1997, and
1996.

Mortgages

At December 31, 1997, and 1996, UNUM's mortgage loans were $1,131.0
million and $1,132.1 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 continued to remain very low in 1997, 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 0.7% and 0.5% at
December 31, 1997, and 1996, respectively.

At December 31, 1997, and 1996, impaired loans totaled $43.4 million and
$50.4 million, respectively. Included in the $43.4 million of impaired loans at
December 31, 1997, were $20.8 million of loans which had a related allowance
for probable losses of $3.5 million, and $22.6 million of loans which had no
related allowance for probable losses. Interest lost on impaired loans in 1997,
1996 and 1995, was not material.

Realized investment losses related to impaired mortgage loans amounted to
$3.3 million, $1.0 million and $9.2 million for 1997, 1996 and 1995,
respectively. Impaired mortgage loans as of December 31, 1997, are not expected
to have a significant impact on UNUM's results of operations, liquidity or
capital resources.

Restructured mortgage loans are those 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, 1997, restructured
mortgage loans totaled $39.3 million, as compared with $54.8 million at
December 31, 1996. Interest lost on restructured loans was not material in
1997, 1996 or 1995.

Real Estate

At December 31, 1997, investment real estate amounted to $231.5 million,
compared with $248.1 million at December 31, 1996. 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.

24
<PAGE>

UNUM Corporation and Subsidiaries

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. 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, 1997, and 1996, real estate held for sale amounted to
$23.3 million and $9.4 million, respectively. Real estate held for sale is
included in other assets in the Consolidated Balance Sheets and is valued net
of a valuation allowance that 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 realized investment losses of $3.0 million and $6.3
million for the years ended December 31, 1997, and 1995, respectively. For the
year ended December 31, 1996, an investment gain of $0.4 million was realized.
Additions to the allowance represent charges to net realized investment gains
or losses less recoveries. Real estate acquired through foreclosure is not
expected to have a significant effect on UNUM's results of operations,
liquidity or capital resources.

LIQUIDITY AND CAPITAL RESOURCES

UNUM's businesses produce positive cash flows which are invested primarily
in intermediate term, 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 to UNUM
Corporation. These dividends, along with other funds, are used to service the
needs of UNUM Corporation including: debt service, common stock dividends,
corporate development, stock repurchase and administrative costs. Net statutory
operating income, which excludes realized investment gains and losses net of
tax, is one of the major determinants of an insurance company's dividend
capacity to its parent. Statutory accounting rules and practices, which differ
in certain respects from generally accepted accounting principles, are mandated
by regulators in an insurance company's state of domicile. In addition to the
level of net statutory operating income, UNUM's determination of amounts to be
dividended by affiliates to UNUM Corporation depends on other factors such as
risk-based capital ratios, funding growth objectives at an affiliate level and
maintaining appropriate capital adequacy ratios as defined by certain rating
agencies (see "Ratings" section).

The states of domicile for UNUM's subsidiaries generally limit dividend
payments to the greater of the prior year's net statutory operating income or
10% of the prior year's statutory surplus. In 1997, UNUM's United States
insurance subsidiaries reported net statutory operating income of approximately
$227 million, compared with approximately $167 million in 1996. The amount
available under current law for payment of dividends during 1998 to UNUM
Corporation from all U.S. domiciled insurance subsidiaries without state
insurance regulatory approval is approximately $210 million, as compared with
approximately $153 million for 1997. UNUM Corporation also has the ability to
draw a dividend from its United Kingdom-based affiliate, UNUM Limited. It is
not uncommon for an insurance entity to request regulatory approval for
dividends in excess of amounts available without such approval.

The risk-based capital ("RBC") standards for life insurance companies, as
prescribed by the National Association of Insurance Commissioners, establish an
RBC ratio comparing adjusted surplus to required surplus for each of UNUM's
United States domiciled insurance subsidiaries. If the RBC ratio falls within
certain ranges, regulatory action may be taken ranging from increased
information requirements to mandatory control by the domiciliary insurance
department. The RBC ratios for UNUM's insurance subsidiaries, measured at
December 31, 1997, were significantly above the ranges that would require
regulatory action.

Cash flow requirements are also supported by a committed revolving credit
facility totaling $500 million, which expires 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 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.

25
<PAGE>

On December 4, 1997, UNUM borrowed 100 million pounds sterling ($168.3
million) through a private placement with an investor in the United Kingdom (see
Item 8 Note 8 "Notes Payable"). The borrowing has an expected term of ten years.
The borrowing is callable by either party over the life of the agreement, under
certain circumstances. UNUM used the net proceeds to repay commercial paper and
for general corporate purposes.

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 ("MTN")
program under the shelf registration.

At December 31, 1997, UNUM had short-term and long-term debt totaling
$126.6 million and $509.2 million, respectively. At December 31, 1997,
approximately $449 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.

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 $84.6 million and $56.7
million at December 31, 1997, and 1996, respectively.

Effective February 13, 1998, UNUM's Board of Directors approved an
expansion of the Company's stock repurchase program by authorizing an
additional 4.6 million shares. At February 13, 1998, following the increased
authorization, approximately 6.0 million shares of common stock remained
authorized for repurchase. During 1997 and 1996, UNUM acquired approximately
7.1 million and 3.8 million shares, respectively, of its common stock in the
open market at an aggregate cost of $285.2 million and $119.1 million,
respectively. UNUM did not acquire any shares in the open market in 1995.

UNUM was committed at December 31, 1997, to purchase fixed maturities and
other invested assets in the amount of $52.8 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.

26
<PAGE>

UNUM Corporation and Subsidiaries

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 February 23, 1998:

<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 A A2
(Monthly Income Debt Securities) (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 February 23, 1998, the unsold portion of the shelf registration related
to preferred stock carried a rating of "(P)"a1" " (Upper-Medium Quality) from
Moody's.

DERIVATIVES

Refer to Item 8 Note 14 "Derivatives" for information.

LITIGATION

Refer to Item 8 Note 15 "Litigation" for information.

EFFECT OF INFLATION

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.

YEAR 2000 ISSUE

The year 2000 issue relates to whether computer systems will properly
recognize date-sensitive information when the year changes to 2000. UNUM has
determined that it is required to modify or replace significant portions of its
software so its computer systems will properly function using dates beyond
December 31, 1999. Management presently believes that with modifications to
existing software and conversions to new software, the year 2000 issue can be
rectified. UNUM has initiated formal communications with its critical suppliers
and large customers to determine the extent to which it is vulnerable to the
possibility of third parties' failing to remediate their own year 2000 issues.
Management is utilizing both internal and external resources to reprogram, or
replace, and test the software for year 2000 modifications and plans to have
its computer systems compliant by year 2000. The financial impact of addressing
the year 2000 issue has not had, and is not anticipated to have, a material
adverse impact on UNUM's results of operations, liquidity or capital resources.
The costs of the project and the date on which UNUM plans to complete year 2000
modifications are based on management's best estimates, derived using numerous
assumptions about future events including the continued availability of certain
resources, third party modification plans and other factors.

ACCOUNTING PRONOUNCEMENTS ADOPTED

Refer to Item 8 Note 1 under the caption "Accounting Pronouncements
Adopted" for information.

NEW ACCOUNTING PRONOUNCEMENTS

Refer to Item 8 Note 1 under the caption "New Accounting Pronouncements"
for information.

27
<PAGE>

Item 7A--Quantitative and Qualitative Information About Market Risk

Market-Sensitive Instruments and Risk Management

The following discussion about UNUM's risk-management activities includes
"forward-looking statements" that involve risk and uncertainties. Actual
results could differ materially from those projected in the forward-looking
statements (see "Forward-Looking Information" in Item 7).

UNUM's financial instruments are exposed to market risk, which is the risk
of market volatility and potential disruptions in the market that may result in
certain financial instruments becoming less valuable. UNUM's primary market
risk is interest rate risk, which is the sensitivity of earnings, cash flows
and the fair value of financial instruments to changes in the level of interest
rates. In accordance with the Securities and Exchange Commission's Financial
Reporting Release No. 48, the following quantitative analysis provides the
estimated loss in fair value of certain market sensitive financial assets and
liabilities held at December 31, 1997, given a hypothetical 10-percent adverse
change in interest rates and related qualitative information on how UNUM
manages interest rate risk. All of UNUM's financial instruments are held for
purposes other than trading.

Interest-Rate Risk Management

UNUM's asset/liability duration management activities represent a key
element for managing interest rate risk to the overall business. The objective
of asset/liability duration management is to support the achievement of
business strategies while minimizing levels of investment risk, which includes
interest rate risk. As part of the Company's asset/liability duration
management strategy, detailed actuarial models of the cash flows associated
with each type of insurance liability are generated under various interest rate
scenarios allowing the calculation of an estimated duration for each insurance
product line. This duration measure can then be used to compare the price
sensitivities of the insurance liabilities versus the price sensitivities of
the financial assets held to provide the required liability cash flows. When
the durations of assets and liabilities are equal, interest rate exposure is
effectively neutralized on an economic basis as the change in value of
financial assets should be largely offset by the change in the value of the
liabilities.

The model used in the following analysis included UNUM's fixed maturities,
mortgage loans and deposit assets held at December 31, 1997, and incorporated
assumptions regarding the impact of changing interest rates on expected cash
flows for certain financial assets with prepayment features, such as callable
bonds, mortgage-backed securities and mortgage loans. The hypothetical
reduction in the fair value of UNUM's financial assets included in the model
resulting from a hypothetical 10-percent adverse change in interest rates
prevalent at December 31, 1997, is estimated to be $323 million. In
consideration of UNUM's ongoing strategy of asset/liability duration alignment,
this hypothetical reduction in fair value would be largely offset by the
corresponding decrease in the fair value of insurance reserves.

UNUM has established policies and procedures governing its issuance of
debt. UNUM manages its debt composition and related interest rate risk by
considering such factors as the debt to equity ratio, fixed rate to variable
rate debt ratio, future debt requirements, interest rate environment and market
conditions. Based upon the interest rate exposure relating to UNUM's notes
payable at December 31, 1997, a hypothetical 10-percent adverse change in
interest rates in the near term would not materially affect the fair value of
UNUM's notes payable.

Additionally, UNUM periodically uses options, futures and interest rate
swaps, which are common derivative financial instruments, to hedge interest
rate risk associated with anticipated purchases and sales of investments and
debt issuance (see Item 8 Note 14 "Derivatives" for further information on
derivatives).

28
<PAGE>

UNUM Corporation and Subsidiaries

Item 8--Financial Statements and Supplementary Data

<TABLE>
<CAPTION>
INDEX Page
- ------------------------------------------------------------------------------------------ -----
<S> <C>
Report of Independent Accountants ........................................................ 30
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended December 31, 1997, 1996 and 1995 .. 31
Consolidated Balance Sheets as of December 31, 1997, and 1996 ........................... 32
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995 ....................................................... 33
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995 ................................................. 34
Notes to Consolidated Financial Statements ............................................... 36
</TABLE>

29
<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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 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 4, 1998, except for Note 10 for which the
date is February 13, 1998

30
<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
(Dollars in millions, except per common share data) 1997 1996 1995
- ------------------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Revenues
Premiums .............................................. $ 3,188.7 $ 3,120.4 $ 3,018.2
Investment income ..................................... 657.9 802.2 806.3
Net realized investment gains (losses) ................ (3.6) 3.4 225.1
Fees and other income ................................. 233.7 116.7 73.3
---------- --------- ---------
Total revenues ...................................... 4,076.7 4,042.7 4,122.9
Benefits and expenses
Benefits to policyholders ............................. 2,395.3 2,324.7 2,493.0
Interest credited ..................................... 83.5 200.6 227.4
Operating expenses .................................... 790.6 862.6 728.2
Commissions ........................................... 371.2 364.2 369.9
Increase in deferred policy acquisition costs ......... (142.7) (91.7) (114.7)
Interest expense ...................................... 42.4 40.7 37.2
---------- ---------- ----------
Total benefits and expenses ......................... 3,540.3 3,701.1 3,741.0
---------- ---------- ----------
Income before income taxes 536.4 341.6 381.9
Income taxes
Current ............................................... 68.3 122.3 98.6
Deferred .............................................. 97.8 (18.7) 2.2
---------- ---------- ----------
Total income taxes .................................. 166.1 103.6 100.8
---------- ---------- ----------
Net income ............................................ $ 370.3 $ 238.0 $ 281.1
========== ========== ==========
Net income per common share:
Basic ................................................ $ 2.65 $ 1.63 $ 1.93
Diluted .............................................. $ 2.59 $ 1.61 $ 1.92
========== ========== ==========
</TABLE>

See notes to consolidated financial statements.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
-----------------------------
(Dollars in millions) 1997 1996
- ------------------------------------------------------------- ------------- -------------
<S> <C> <C>
ASSETS
Investments
Fixed maturities available for sale--at fair value
(amortized cost: 1997--$6,893.0; 1996--$6,656.7) .......... $ 7,310.9 $ 6,942.7
Equity securities available for sale--at fair value
(cost: 1997--$21.1; 1996--$23.8) .......................... 30.7 31.3
Mortgage loans ............................................. 1,131.0 1,132.1
Real estate, net ........................................... 231.5 248.1
Policy loans ............................................... 128.5 232.9
Other long-term investments ................................ 1.8 14.2
Short-term investments ..................................... 99.7 123.4
---------- ----------
Total investments ........................................ 8,934.1 8,724.7
Cash ........................................................ 47.9 77.0
Accrued investment income ................................... 160.3 166.1
Premiums due ................................................ 307.8 252.4
Deferred policy acquisition costs ........................... 983.5 844.2
Property and equipment, net ................................. 196.2 181.0
Reinsurance receivables ..................................... 1,357.0 1,113.8
Deposit assets .............................................. 688.3 2,846.6
Other assets ................................................ 495.6 518.0
Separate account assets ..................................... 29.6 743.7
---------- ----------
Total assets ............................................. $ 13,200.3 $ 15,467.5
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Future policy benefits ..................................... $ 1,981.4 $ 1,881.1
Unpaid claims and claim expenses ........................... 5,831.6 5,289.3
Other policyholder funds ................................... 1,004.9 3,533.6
Income taxes
Current ................................................... 20.7 61.3
Deferred .................................................. 496.2 341.8
Notes payable .............................................. 635.8 526.9
Other liabilities .......................................... 765.3 826.7
Separate account liabilities ............................... 29.6 743.7
---------- ----------
Total liabilities ........................................ 10,765.5 13,204.4
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
240,000,000 shares, issued 199,975,916 shares ............. 20.0 10.0
Additional paid-in capital ................................. 1,123.0 1,103.4
Unrealized gains, net ...................................... 211.4 82.3
Unrealized foreign currency translation adjustment ......... (16.0) (1.2)
Retained earnings .......................................... 2,162.5 1,871.4
---------- ----------
3,500.9 3,065.9
Less:
Treasury stock, at cost (1997--61,703,924 shares;
1996--56,331,188 shares) .................................. 1,050.3 792.2
Restricted stock deferred compensation ..................... 15.8 10.6
---------- ----------
Total stockholders' equity ................................. 2,434.8 2,263.1
---------- ----------
Total liabilities and stockholders' equity ............... $ 13,200.3 $ 15,467.5
========== ==========
</TABLE>

See notes to consolidated financial statements.

<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Unrealized
(Dollars in Gains (Losses) Unrealized
millions, Common On Available Foreign Restricted
except per Stock Additional for Sale Currency Stock
common share $0.10 Par Paid-in Securities, Translation Retained Treasury Deferred
data) Value Capital Net Adjustment Earnings Stock Compensation Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1995 .......$ 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
($0.5175 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
($0.545 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
1997 Transactions:
Net income ............. 370.3 370.3
Unrealized gains
on available
for sale
securities, net ....... 129.1 129.1
Unrealized foreign
currency
translation
adjustment ............ (14.8) (14.8)
Two-for-one
common stock split .... 10.0 (10.0) --
Dividends to
stockholders
($0.565 per
common share) ......... (79.2) (79.2)
Treasury stock
acquired .............. (285.2) (285.2)
Employee stock
option and other
transactions .......... 29.6 27.1 (5.2) 51.5
------- ---------- -------- ------- ---------- ---------- ------- ----------
Balance at
December 31, 1997 .....$ 20.0 $ 1,123.0 $ 211.4 $ (16.0) $ 2,162.5 $ (1,050.3) $ (15.8) $ 2,434.8
======= ========== ======== ======= ========== ========== ======= ==========

</TABLE>

See notes to consolidated financial statements.

33
<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
(Dollars in millions) 1997 1996 1995
- ------------------------------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net income ........................................................ $ 370.3 $ 238.0 $ 281.1
Adjustments to reconcile net income to net cash provided by
operating activities:
Increase in future policy benefits and unpaid claims and
claim expenses .................................................. 599.7 630.1 905.3
Increase in amounts receivable under reinsurance
agreements ...................................................... (227.8) (686.7) (61.0)
Increase (decrease) in income tax liability ...................... 52.8 20.4 (3.5)
(Increase) decrease in deferred policy acquisition costs ......... (140.0) 299.2 (114.9)
Increase in deposit assets ....................................... (55.9) (432.1) --
Deferral (recognition) of gain on sale of tax-sheltered
annuities ....................................................... (72.6) 80.8 --
Charge for individual disability reinsurance fees ................ -- 49.7 --
Realized investment (gains) losses ............................... 4.4 4.0 (242.0)
Other ............................................................ (59.7) 76.4 (8.9)
---------- ---------- ----------
Net cash provided by operating activities ...................... 471.2 279.8 756.1
---------- ---------- ----------
Investing activities:
Maturities of fixed maturities available for sale ................. 457.7 775.2 99.3
Maturities of fixed maturities held to maturity ................... -- -- 835.7
Sales of fixed maturities available for sale ...................... 652.1 2,514.4 577.3
Sales of fixed maturities held to maturity ........................ -- -- 2.8
Sales of equity securities available for sale ..................... 2.2 -- 836.7
Sales and maturities of other investments ......................... 232.7 269.5 312.0
Purchases of fixed maturities available for sale .................. (1,360.6) (1,890.9) (1,971.9)
Purchases of fixed maturities held to maturity .................... -- -- (230.2)
Purchases of equity securities available for sale ................. -- -- (131.3)
Purchases of other investments .................................... (216.3) (263.0) (322.4)
Net (increase) decrease in short-term investments ................. 23.5 (1,051.9) (604.8)
Net additions to property and equipment ........................... (26.1) (54.3) (28.9)
---------- ---------- ----------
Net cash provided by (used in) investing activities ............ (234.8) 299.0 (625.7)
---------- ---------- ----------
Financing activities:
Deposits and interest credited to investment contracts ............ 285.1 597.1 669.6
Maturities and withdrawals from investment contracts .............. (327.2) (903.8) (888.1)
Dividends to stockholders ......................................... (79.2) (79.8) (75.1)
Treasury stock acquired ........................................... (285.2) (119.1) --
Proceeds from notes payable ....................................... 168.3 -- 291.5
Repayment of notes payable ........................................ (48.5) (15.0) (1.3)
Net decrease in short-term debt ................................... (10.6) (42.3) (135.1)
Other ............................................................. 32.8 18.9 13.8
---------- ---------- ----------
Net cash used in financing activities .......................... (264.5) (544.0) (124.7)
---------- ---------- ----------
Effect of exchange rate changes on cash ........................... (1.0) (0.3) 0.7
---------- ---------- ----------
Net increase (decrease) in cash ................................... (29.1) 34.5 6.4
Cash at beginning of year ......................................... 77.0 42.5 36.1
---------- ---------- ----------
Cash at end of year ............................................... $ 47.9 $ 77.0 $ 42.5
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes ..................................................... $ 76.1 $ 76.4 $ 82.6
Interest ......................................................... $ 43.3 $ 40.8 $ 44.7
</TABLE>

See notes to consolidated financial statements.

34
<PAGE>

UNUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Supplemental disclosure of noncash operating and investing activities:

As discussed in Note 5, "Sale of Tax-Sheltered Annuity Business," consent
for assumption reinsurance has been given by contractholders and participants
owning approximately 92% of assets under management related to the
tax-sheltered annuity business UNUM sold in 1996. In connection with the
consents received during 1997, UNUM reduced its deposit assets by $2,317.8
million, policy loan assets by $104.8 million, other policyholder fund
liabilities by $2,486.5 million and separate account assets and liabilities by
$526.5 million.

In conjunction with the sale of UNUM's tax-sheltered annuity business
during 1996, 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>

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 1996 and 1995 amounts have been reclassified in 1997 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.

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.

36
<PAGE>

UNUM Corporation and Subsidiaries

Real estate held for sale is included in other assets in the Consolidated
Balance Sheets and is valued net of a valuation allowance that 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.

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:

Separate Accounts

Certain assets from tax-sheltered annuity ("TSA") contracts are in
separate accounts that are pooled investment funds of securities. Prior to
January 1, 1997, the assets of UNUM's defined benefit plan were held in the
separate accounts (see Note 9 "Employee Benefit and Incentive Plans").
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.

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 TSA businesses to The Lincoln National Life Insurance
Company and Lincoln Life & Annuity Company of New York, both subsidiaries of
Lincoln National Corporation (see Note 5 "Sale of Tax-Sheltered Annuity
Business"). For legal considerations, the separate account's TSA related assets
were not transferred on October 1, 1996. TSA related assets are transferred
only upon receipt of a contractholder and participant's consent for assumption
reinsurance.

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 benefit
of all of Union Mutual's individual participating life and annuity policies and
contracts.

The assets of the PFA 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 2.8% and 2.3% of consolidated assets
and 3.3% and 2.7% of consolidated liabilities at December 31, 1997, and 1996,
respectively.

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.

37
<PAGE>

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.

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. 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.

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 matched 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.

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.

Earnings Per Share

Effective December 31, 1997, UNUM adopted Financial Accounting Standards
("FAS") No. 128, "Earnings Per Share," which requires dual presentation of
basic and diluted earnings per share ("EPS"). Basic EPS is computed by dividing
net income available to common stockholders by the weighted average number of
common shares outstanding. The weighted average number of shares outstanding
used to calculate basic EPS was approximately 139,852,000, 145,939,000 and
145,354,000 in 1997, 1996 and 1995, respectively. Diluted EPS is computed by
dividing net income available to common stockholders by the weighted average
number of common shares outstanding while giving effect to all dilutive
potential common shares outstanding. The weighted average number of shares
outstanding used to calculate diluted EPS was approximately 142,923,000,
148,028,000 and 146,609,000, in 1997, 1996 and 1995, respectively. Outstanding
options to purchase approximately 227,000 shares, 143,000 shares and 1,769,000
shares for 1997, 1996 and 1995, respectively, were not dilutive because the
options' exercise prices were greater than the average market price. These
options were excluded from the diluted EPS calculation.

Changes in Accounting Estimates

38
<PAGE>

UNUM Corporation and Subsidiaries

older pool years and completed an analysis of recent claims experience
deterioration. As a result of these factors, certain pools have strengthened
claim reserves. The impact to UNUM in fourth quarter 1997 from these pool claim
reserve increases was an $11.7 million reduction in fee income and a $6.7
million increase in benefits to policyholders reported in the Special Risk
Insurance segment, reducing net income by $12.0 million in the Consolidated
Statement of Income.

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.

During 1995, UNUM increased 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.

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 reported in the Disability Insurance segment,
decreased net income by $9.8 million.

Accounting Pronouncements Adopted

Effective December 31, 1997, UNUM adopted FAS No. 128 which changed the
computation of EPS and requires dual presentation of "basic" and "diluted" EPS.
FAS 128 supersedes Accounting Principles Board ("APB") Opinion No. 15,
"Earnings Per Share."

Effective December 31, 1997, UNUM adopted FAS No. 129, "Disclosures of
Information About Capital Structure," which consolidates disclosure
requirements related to the type and nature of securities contained in an
entity's capital structure. FAS 129 does not add to or change any of UNUM's
disclosures.

Effective January 1, 1997, UNUM adopted FAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which established 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. The
adoption of FAS 125 did not have a material effect on UNUM's results of
operations or financial position.

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. 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 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 APB
25, "Accounting for Stock Issued to Employees." UNUM retained the accounting
defined under APB 25, and as required, discloses in a footnote the pro forma
effects of stock-based compensation using the fair value based method defined
under FAS 123. Refer to Note 10 "Stockholders' Equity" for the related
disclosures.

New Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board ("FASB") issued FAS
No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components in a financial
statement with the same prominence as other financial statements. Comprehensive
income is defined as net income adjusted for changes in stockholders' equity
resulting from events other than net income

39
<PAGE>

or transactions related to an entity's capital instruments. UNUM is required to
adopt FAS 130 effective January 1, 1998, with reclassification of financial
statements for earlier years required.

In June 1997, the FASB issued FAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for
reporting information about operating segments. Generally, FAS 131 requires
that financial information be reported on the basis that is used internally for
evaluating performance. UNUM is required to adopt FAS 131 effective January 1,
1998, and comparative information for earlier years must be restated. This
statement does not need to be applied to interim financial statements in the
initial year of application. UNUM is currently considering what impact, if any,
FAS 131 will have on its current segment reporting structure.

In February 1998, the FASB issued FAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which revises current
disclosure requirements for employers' pension and other retiree benefits. FAS
132 does not change the measurement or recognition of pension or other
postretirement benefit plans. UNUM is required to adopt FAS 132 effective
January 1, 1998, with restatement of disclosures for earlier years required.

In December 1997, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments," which provides guidance on
accounting for insurance-related assessments. UNUM is required to adopt SOP
97-3 effective January 1, 1999. Previously issued financial statements should
not be restated unless the SOP is adopted prior to the effective date and
during an interim period. The adoption of SOP 97-3 is not expected to have a
material impact on UNUM's results of operations, liquidity or financial
position.

40
<PAGE>

UNUM Corporation and Subsidiaries

NOTE 2. INVESTMENTS

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

Investment Income

Net Realized Investment Gains (Losses)

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
(Dollars in millions) 1997 1996 1995
- ----------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Gross realized investment gains:
Fixed maturities:
Available for sale .............................. $ 17.1 $ 22.0 $ 14.2
Held to maturity ................................ -- -- 0.1
Equity securities available for sale ............. 0.7 -- 253.3
Mortgage loans, real estate and other ............ 6.6 18.2 19.4
------- ------- -------
Gross realized investment gains ................. 24.4 40.2 287.0
------- ------- -------
Gross realized investment losses:
Fixed maturities:
Available for sale .............................. (14.6) (29.2) (12.8)
Held to maturity ................................ -- -- (0.7)
Equity securities available for sale ............. -- -- (18.7)
Mortgage loans, real estate and other ............ (13.4) (7.6) (29.7)
------- ------- -------
Gross realized investment losses ................ (28.0) (36.8) (61.9)
------- ------- -------
Net realized investment gains (losses) ......... $ (3.6) $ 3.4 $ 225.1
======= ======= =======
</TABLE>

During 1995, UNUM sold fixed maturities of two issuers classified as held
to maturity due to evidence of significant deterioration of the issuers'
creditworthiness, as evidenced by bankruptcy filings.

41
<PAGE>

Change in Unrealized Gains, Net

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
(Dollars in millions) 1997 1996
- ------------------------------------------------------------------------------ ----------- ------------
<S> <C> <C>
Fixed maturities available for sale ....................................... $ 131.9 $ (265.9)
Equity securities available for sale ...................................... 2.1 3.4
Marketable securities held in trust ....................................... 127.8 --
Unpaid claims adjustment .................................................. (68.4) 92.5
Deferred taxes ............................................................ (64.3) 39.2
-------- --------
Total change in unrealized gains, net, as included in stockholders' equity $ 129.1 $ (130.8)
======== ========
</TABLE>

UNUM's fixed maturities are reported at fair value as a result of being
classified as available for sale. Accordingly, the related liability for unpaid
claims and claims expenses is adjusted to reflect the changes that would have
been necessary if the related fixed maturities were sold at their fair value
and the proceeds were reinvested at current yields. At December 31, 1997, and
1996, the unrealized gain on available for sale fixed maturities was $417.9
million and $286.0 million, respectively, and the related unpaid claims
adjustment was $237.1 million and $168.7 million, respectively.

The marketable securities held in trust relate to the individual
disability reinsurance agreement (see Note 6 "Reinsurance"). Changes in fair
value of the assets and the related adjustment to unpaid claims are reflected
in the equity section of UNUM's Consolidated Balance Sheet.

Fixed Maturities

The amortized cost and fair values of fixed maturities available for sale
at December 31, 1997, 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 ..................... $ 48.8 $ 2.5 $ -- $ 51.3
States and municipalities ........... 942.5 36.6 (0.2) 978.9
Foreign governments ................. 359.6 40.3 -- 399.9
Public utilities .................... 1,369.0 89.0 (0.1) 1,457.9
Corporate bonds ..................... 3,964.6 248.7 (1.1) 4,212.2
Redeemable preferred stocks ......... 3.5 -- (0.2) 3.3
Mortgage-backed securities .......... 205.0 2.4 -- 207.4
--------- ------- ------ ---------
Total .............................. $ 6,893.0 $ 419.5 $ (1.6) $ 7,310.9
========= ======= ====== =========
</TABLE>

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 value of fixed maturities available for sale
at December 31, 1997, 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.

42
<PAGE>

UNUM Corporation and Subsidiaries

<TABLE>
<CAPTION>
Amortized Fair
(Dollars in millions) Cost Value
- ----------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Due in one year or less ............................................ $ 222.4 $ 225.1
Due after one year through five years .............................. 2,359.3 2,481.7
Due after five years through ten years ............................. 3,521.6 3,752.7
Due after ten years ................................................ 584.7 644.0
--------- ---------
6,688.0 7,103.5
Mortgage-backed securities (primarily due after 10 years) ......... 205.0 207.4
--------- ---------
Total ............................................................ $ 6,893.0 $ 7,310.9
========= =========
</TABLE>

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, 1997:

<TABLE>
<CAPTION>
Fair
(Dollars in millions) Cost Value
- ----------------------------------------------------- ---------- ----------
<S> <C> <C>
Common stocks:
Industrial, miscellaneous and all other ......... $ 21.1 $ 30.7
====== ======
</TABLE>

Gross unrealized investment gains on equity securities available for sale
totaled $9.6 million and $7.5 million, at December 31, 1997, and 1996,
respectively. Gross unrealized investment losses were immaterial at December
31, 1997, and 1996.

Mortgages

At December 31, 1997, and 1996, impaired loans totaled $43.4 million and
$50.4 million, respectively. Included in the $43.4 million were $20.8 million
of loans which had a related allowance for probable losses of $3.5 million, and
loans of $22.6 million which had no related allowance for probable losses.
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.

Restructured mortgage loans amounted to $39.3 million and $54.8 million at
December 31, 1997, and 1996, respectively. Troubled debt restructurings
represent loans that are refinanced with terms more favorable to the borrower.
Interest lost on restructured loans was not material for the years ended
December 31, 1997, 1996 or 1995.

Real Estate and Other

Real estate acquired in satisfaction of debt cumulatively amounted to
$78.8 million at December 31, 1997. Real estate held for sale amounted to $23.3
million at December 31, 1997, and $9.4 million at December 31, 1996.

Real estate with a depreciated cost of $3.5 million and no bonds or
mortgages were non-income producing for the twelve months ended December 31,
1997. Interest lost on these investments was not material in 1997, 1996 or
1995.

UNUM was committed at December 31, 1997, to purchase fixed maturities and
other invested assets in the amount of $52.8 million.

43
<PAGE>

NOTE 3. ALLOWANCE FOR PROBABLE LOSSES ON INVESTED ASSETS AND REAL ESTATE HELD
FOR SALE

Changes in the allowance for probable losses on mortgage loans 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, 1997
Mortgage loans .................... $ 37.7 $ 3.3 $ (7.1) $ 33.9
Real estate held for sale ......... 14.8 3.0 -- 17.8
------- ------ ------- -------
Total ............................ $ 52.5 $ 6.3 $ (7.1) $ 51.7
======= ====== ======= =======
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
======= ====== ======= =======
</TABLE>

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

NOTE 4. RESERVES

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 with actual experience and may be
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, 1997, and 1996, principally
ranged from 5.0% to 9.5%. Certain reserve calculations are based on variable
interest rates within these ranges.

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. Management periodically performs a
review of reserve estimates and assumptions. If management determines reserve
assumptions need to be updated, any resulting adjustment to reserves are
reflected in current results. Given that insurance products contain inherent
risks and uncertainties, 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, 1997, and 1996, were principally as follows:

<TABLE>
<CAPTION>
1997 1996
-------------- ---------------
<S> <C> <C>
Group long term disability (North America) ........... 7.84% 7.88%
Group long term disability (United Kingdom) .......... 9.27% 9.46%
Individual disability ................................ 7.0% to 9.5% 6.75% to 9.46%
</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.
The discount rate may decline further depending on the interest rate

44
<PAGE>

UNUM Corporation and Subsidiaries

environment. 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.

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

<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996 1995
- ------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Balance at January 1 ................... $ 5,289.3 $ 4,856.4 $ 3,853.9
Less reinsurance receivables .......... (346.8) (115.4) (82.7)
Effect of unrealized gains ............. (170.1) (261.2) --
---------- ---------- ----------
Net balance at January 1 ............... 4,772.4 4,479.8 3,771.2
Incurred related to:
Current year .......................... 1,854.0 1,673.9 1,825.0
Prior years ........................... 373.2 366.0 507.0
---------- ---------- ----------
Total incurred ......................... 2,227.2 2,039.9 2,332.0
Paid related to:
Current year .......................... 615.7 532.8 523.9
Prior years ........................... 1,341.4 1,214.5 1,099.5
---------- ---------- ----------
Total paid ............................. 1,957.1 1,747.3 1,623.4
Net balance at December 31 ............. 5,042.5 4,772.4 4,479.8
Plus reinsurance receivables .......... 552.2 346.8 115.4
Effect of unrealized gains ............. 236.9 170.1 261.2
---------- ---------- ----------
Balance at December 31 ................. $ 5,831.6 $ 5,289.3 $ 4,856.4
========== ========== ==========
</TABLE>

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

<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996 1995
- ---------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Interest accrued on reserves .......................... $ 300.5 $ 292.9 $ 270.0
Changes in reserve estimates and assumptions .......... 89.9 36.2 239.0
Changes in foreign exchange rates ..................... (17.2) 36.9 (2.0)
-------- -------- --------
Incurred related to prior years ....................... $ 373.2 $ 366.0 $ 507.0
======== ======== ========
</TABLE>

The additional reserves for amounts incurred 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, primarily as a result of increased reserves from lower
discount rates for certain disability products following the sale of the common
stock portfolio, and adjustments to strengthen certain disability reserves in
1995.

Beginning in 1995, as explained in Note 2 "Investments," unpaid claims are
adjusted to reflect changes that would have been necessary if the unrealized
gains and losses 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 in
stockholders' equity.

NOTE 5. SALE OF TAX-SHELTERED ANNUITY BUSINESS

45
<PAGE>

considered reinsured on an assumption basis, legally releasing UNUM America and
First UNUM from future contractual obligation to the respective contractholders
and 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.
UNUM has recorded a deposit asset in its Consolidated Balance Sheet
representing the assets which support the TSA contracts of those
contractholders and participants that have not given consent for assumption
reinsurance. At December 31, 1997, the deposit asset related to the TSA
transaction was approximately $264 million.

The sale resulted in a deferred pretax gain of $80.8 million, which is
being recognized in income in proportion to contractholder and participant
consents for assumption reinsurance. Through December 31, 1997, consent for
assumption reinsurance has been provided by TSA contractholders and
participants owning approximately 92% 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, expect per common share data) 1997 1996 1995
- ----------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Revenues ......................................... $ 126.2 $ 206.7 $ 247.6
Net income ....................................... $ 48.4 $ 12.8 $ 31.1
Net income per common share:
Basic ........................................... $ 0.35 $ 0.09 $ 0.21
Diluted ......................................... $ 0.34 $ 0.09 $ 0.21
======== ======== ========
</TABLE>

The results shown above for the year ended December 31, 1997, include
$72.6 million of revenues, reported as fees and other income, $47.0 million of
net income and basic and diluted net income per common share of $0.34 and
$0.33, respectively, related to the recognition of the deferred pretax gain for
those contractholders and participants that have given consent for assumption
reinsurance.

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.

The agreement is a finite reinsurance arrangement that transfers
liabilities to Centre Re based on the level of statutory reserves. Centre Re
has an obligation to absorb losses within a defined risk layer, while UNUM must
fund an experience layer representing the difference between reserves related
to the reinsured block, based on generally accepted accounting principles
("GAAP"), and the bottom of Centre Re's defined risk layer. Within this
experience layer, UNUM retains the earnings risk related to potential adverse
experience from the reinsured block. Under the agreement, UNUM funds a trust
account, initially established in late 1996, with assets equal to the amount of
GAAP reserves related to the reinsured block plus the amount of its experience
layer. The value of UNUM's experience layer increases or decreases in
conjunction with the underlying operating results of the reinsured block.
Additionally, realized gains or losses on assets sold, and unrealized gains or
losses on marketable securities held in the trust and the related claim
reserves, affect the valuation of the experience layer. UNUM reflects the
carrying value of the experience layer in its Consolidated Balance Sheet as a
deposit asset, which at December 31, 1997, totaled approximately $347 million.
Changes in the experience layer derived from the underlying operating results
of the reinsured block are reflected in fees and other income and realized
gains or losses from sales of trust assets are reflected as realized investment
gains (losses) in UNUM's Consolidated Statement of Income. Changes in the
experience layer resulting from unrealized gains or losses on marketable
securities held in the trust and the related claim reserves are reflected as
unrealized gains or losses in the equity section of UNUM's Consolidated Balance
Sheet.

46
<PAGE>

UNUM Corporation and Subsidiaries

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 all reinsurance on premiums earned and written for the years
ended December 31, 1997, 1996 and 1995 was as follows:

<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996 1995
- ------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Premiums earned:
Direct .................... $ 3,309.9 $ 2,973.9 $ 2,842.9
Assumed ................... 281.6 252.9 241.5
Ceded ..................... (402.8) (106.4) (66.2)
---------- ---------- ----------
Premiums earned .......... $ 3,188.7 $ 3,120.4 $ 3,018.2
========== ========== ==========
Premiums written:
Direct .................... $ 3,315.2 $ 3,008.1 $ 2,877.2
Assumed ................... 330.3 289.3 250.4
Ceded ..................... (436.3) (131.0) (64.4)
---------- ---------- ----------
Premiums written ......... $ 3,209.2 $ 3,166.4 $ 3,063.2
========== ========== ==========
</TABLE>

For the years ended December 31, 1997, 1996 and 1995, recoveries
recognized under reinsurance agreements offset benefits to policyholders by
$309.7 million, $90.8 million and $58.9 million, respectively.

NOTE 7. BUSINESS RESTRUCTURING AND OTHER CHARGES

Business Restructuring

Charges of $6.0 million, $7.2 million and $8.4 million were recorded in
1997, 1996 and 1995, respectively. The charge in 1997 was related to a
management and field office reorganization within the North American
reinsurance operations, and consisted of $4.0 million of lease exit costs, $1.4
million of severance related costs, and $0.6 million of abandoned assets. The
charge in 1996 was related to the merger of Commercial Life Insurance Company
("Commercial Life") into UNUM America. The charge in 1995 related 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 curtailment gain, related to
workforce reductions in UNUM Corporation's noncontributory defined benefit
pension plan. As of December 31, 1997, the liability carried in the
Consolidated Balance Sheet for all three charges was $5.7 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 "Sale of 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
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.

The total charges of $39.4 million included the write-off of certain
intangible assets, primarily deferred acquisition costs, totaling $17.0
million. These intangible assets were 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. Losses for these products are charged to the reserve at the time
realized. The products incorporated in the charge consist of certain
discontinued special risk, retirement and medical products.

47
<PAGE>

NOTE 8. NOTES PAYABLE

Notes payable consisted of the following at December 31:

<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Short-term debt:
Commercial paper, with weighted average interest rates of
6.3% in 1997 and 5.5% in 1996 .................................. $ 50.9 $ 60.6
Other notes payable, with weighted average interest rates of
1.0% in 1997 and 0.7% in 1996 .................................. 7.7 8.6
Medium-term notes payable, due 1998, with interest rates
ranging from 5.1% to 6.7% ...................................... 68.0 48.5
------- -------
Total short-term debt ......................................... 126.6 117.7
------- -------
Long-term debt:
Medium-term notes payable, due 1999 to 2024, with interest
rates ranging from 5.9% to 7.5% ................................ 174.2 242.1
Monthly income debt securities, due 2025, with interest rate of
8.8%, $172.5 million issued net of unamortized offering
costs of $5.2 million in 1997 and $5.4 million in 1996 ......... 167.3 167.1
Other borrowing, due 2007, with effective interest rate of 5.8%
$168.3 million issued net of unamortized costs of $0.6
million in 1997 ................................................ 167.7 --
------- -------
Total long-term debt .......................................... 509.2 409.2
------- -------
Total notes payable ........................................... $ 635.8 $ 526.9
======= =======
</TABLE>

At December 31, 1997, 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 and stock
repurchase. The committed revolving credit facility contains certain covenants
which, among other provisions, require maintenance of certain levels of
stockholders' equity and limits on debt levels.

On December 4, 1997, UNUM borrowed 100 million pounds sterling ($168.3
million) through a private placement with an investor in the United Kingdom. The
borrowing has an expected term of 10 years. The borrowing is callable by either
party over the life of the agreement, under certain circumstances. UNUM used the
net proceeds to repay commercial paper and for general corporate purposes.

Upon issuance of the 100 million pounds sterling borrowing, UNUM entered
into currency and interest rate swap agreements that converted the principal
amount to U.S. dollars and the interest obligation on the debt from a pound
sterling based fixed rate to a U.S. dollar fixed rate.

Aggregate maturities of notes payable are as follows: 1998-$126.6 million;
1999-$21.5 million; 2000-$60.0 million; 2001-none; thereafter-$427.7 million.

NOTE 9. EMPLOYEE BENEFIT AND INCENTIVE PLANS

Pension Plans

At December 31, 1997, UNUM had a noncontributory defined benefit pension
plan ("Lifecycle Plan") covering substantially all domestic UNUM employees,
including employees of Duncanson & Holt, Inc. ("D&H") and Colonial Companies,
Inc. ("Colonial Companies"). The Lifecycle Plan provides benefits based on the
employee's age at retirement, years of service and earnings during the highest
five of the last ten years of employment. UNUM funds its pension plan in
accordance with the requirements of the Employee Retirement Income Security Act
of

48
<PAGE>

UNUM Corporation and Subsidiaries

1974, as amended. Beginning in 1997, plan assets were transferred from UNUM's
separate accounts into a trust for the exclusive benefit of plan participants,
and include 448,784 shares of UNUM Corporation common stock.

Prior to January 1, 1997, UNUM had a noncontributory defined benefit
pension plan covering substantially all domestic UNUM employees, excluding
employees of D&H and Colonial Companies, who were covered under separate plans.
These plans were replaced by the Lifecycle Plan.

In 1997, UNUM changed the measurement date for the valuation of its
pension plan and postretirement benefit plan assets and actuarially determined
obligations from December 31, to September 30. The change in measurement date
had no effect on 1997 or prior years' net pension and periodic postretirement
benefit costs.

Net pension cost included the following components:

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
(Dollars in millions) 1997 1996 1995
- ---------------------------------------------------------- ---------- ---------- ---------
<S> <C> <C> <C>
Service cost--benefits earned during the year ......... $ 12.9 $ 13.5 $ 7.7
Interest cost on projected benefit obligation ......... 15.2 15.1 12.3
Actual return on plan assets .......................... (61.4) (57.1) (42.5)
Net amortization and deferral ......................... 33.8 36.9 28.2
Curtailment gain ...................................... -- -- ( 3.4)
------- ------- -------
Net pension cost ..................................... $ 0.5 $ 8.4 $ 2.3
======= ======= =======
</TABLE>

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

<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996
- ---------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation ........................................ $ 196.9 $ 166.9
======== ========
Accumulated benefit obligation ................................... $ 206.6 $ 189.3
======== ========
Projected benefit obligation for service rendered to date ......... $ (230.4) $ (203.2)
Plan assets at fair value ......................................... 324.2 267.7
-------- --------
Projected benefit obligation less than plan assets ................ 93.8 64.5
Unrecognized net gain ............................................. (86.8) (54.7)
Unrecognized prior service cost ................................... (25.8) (28.4)
Unamortized net obligation ........................................ 1.5 1.8
-------- --------
Accrued pension cost ............................................. $ (17.3) $ (16.8)
======== ========
</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 7.25% and 4.75%, respectively, at September
30, 1997, and 7.50% and 5.00%, respectively, at December 31, 1996. The expected
long-term rate of return on plan assets was 9.0% in 1997, 1996 and 1995. 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, 1997, 1996 and 1995.

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 $4.3 million, $10.3 million and $10.0 million for the years
ended December 31, 1997, 1996 and 1995, respectively. At December 31, 1997, and
1996 the liability associated with these plans was $83.2 million and $80.9
million, respectively.

49
<PAGE>

Retirement Savings Plans

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. Dependent upon the employee's annual earnings, eligible
employees may contribute up to 15% of their annual compensation, including
incentive payouts. UNUM matches 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. Expense for this
plan and the former plans amounted to $9.6 million in 1997, and $8.4 million in
1996 and 1995, 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 1997, 1996 and 1995, expense for these plans was $37.2 million, $41.7
million and $19.9 million, respectively.

NOTE 10. STOCKHOLDERS' EQUITY

Common Stock

On March 14, 1997, UNUM's Board of Directors authorized a two-for-one
common stock split, subject to shareholder approval of a proposal to increase
the number of authorized shares of common stock. On May 9, 1997, UNUM's
shareholders approved an increase in the number of authorized shares of common
stock to 240 million from 120 million. The stock split was completed on June 2,
1997, through the distribution of one additional share for each share of stock
already issued, to holders of record on May 19, 1997. Accordingly, all numbers
of common shares and per common share data have been restated to reflect the
stock split. Par value of $10.0 million was transferred to common stock from
additional paid-in capital in second quarter 1997.

Changes in the number of shares outstanding were as follows:

<TABLE>
<CAPTION>
(Shares in millions) 1997 1996 1995
- --------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Shares outstanding, beginning of year .......... 143.6 146.0 144.8
Shares issued under stock plans ................ 1.8 1.4 1.2
Shares reacquired .............................. (7.1) (3.8) --
------ ------ -----
Shares outstanding, end of year ................ 138.3 143.6 146.0
====== ====== =====
</TABLE>

Stock Options

At December 31, 1997, 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 (see Note 1
"Summary of Significant Accounting Policies"), 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) 1997 1996 1995
- ---------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Net income:
As reported ..................................... $ 370.3 $ 238.0 $ 281.1
Pro forma ....................................... $ 361.4 $ 231.9 $ 277.2
Earnings per common share:
As reported .....................................
Basic .......................................... $ 2.65 $ 1.63 $ 1.93
Diluted ........................................ $ 2.59 $ 1.61 $ 1.92
Pro forma
Basic .......................................... $ 2.58 $ 1.59 $ 1.91
Diluted ........................................ $ 2.53 $ 1.57 $ 1.89
======== ======== ========
</TABLE>

50
<PAGE>

UNUM Corporation and Subsidiaries

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>
1997 1996 1995
---------------- ---------------- ---------------
<S> <C> <C> <C>
Dividend yield ........................... 1.0% 1.5% 1.9%
Expected stock price volatility .......... 22.7% to 24.2% 23.1% to 24.8% 24.8% to 25.9%
Risk-free interest rate .................. 5.7% to 6.8% 5.2% to 6.5% 5.4% to 7.9%
Expected option lives .................... 4 to 8 years 4 to 8 years 4 to 8 years
</TABLE>

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 5.0 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 11,600 shares granted
in 1996 and 40,400 shares granted in 1995, 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 1997,
1996 and 1995.

The unamortized 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 13.6 million, including both options and shares of restricted stock. At
December 31, 1997, 1996 and 1995, 1,603,580 shares, 1,385,036 shares and
3,360,470 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 7.0 million. At December 31, 1997, and 1996, 5,003,480
and 6,990,000 shares, respectively, 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 300 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 at the
discretion of the plan administrator. Grants of 166,200 shares, 205,000 shares
and 2,210,700 shares were made in 1997, 1996 and 1995, respectively. No further
grants will be made under this plan.

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.

51
<PAGE>

A summary of the status of UNUM's four stock-based compensation plans as
of December 31, 1997, 1996 and 1995, 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, 1995 ........................... 7,706,044 219,900

1995 Activity:
Granted at $20.53 per share .............................. 4,400,000 --
Granted for restricted stock at $21.50 per share ......... -- 141,900
Lapse of restrictions on restricted stock ................ -- (66,200)
Exercised at $12.88 per share ............................ (1,082,376) --
Forfeited at $23.43 per share for options ................ (628,400) (11,200)
---------- -------
Outstanding at December 31, 1995 ......................... 10,395,268 284,400
---------- -------
1996 Activity:
Granted at $30.38 per share .............................. 2,161,380 --
Granted for restricted stock at $29.68 per share ......... -- 186,600
Exercised at $18.86 per share ............................ (1,274,522) --
Forfeited at $23.39 per share for options ................ (543,482) (65,200)
---------- -------
Outstanding at December 31, 1996 ......................... 10,738,644 405,800
---------- -------
1997 Activity:
Granted at $39.18 per share .............................. 2,064,820 --
Granted for restricted stock at $37.75 per share ......... -- 224,700
Exercised at $20.59 per share ............................ (1,617,469) --
Forfeited at $26.88 per share for options ................ (734,850) (128,800)
---------- --------
Outstanding at December 31, 1997 ......................... 10,451,145 501,700
========== ========
</TABLE>

The weighted-average exercise price of options outstanding at December 31,
1997, 1996 and 1995, was $26.32, $22.93 and $20.91 per share, respectively.

The number and weighted-average exercise price of exercisable shares as of
December 31, 1997, 1996 and 1995 was 4,686,562 shares at $22.71 per share,
4,763,184 shares at $20.73 per share and 4,216,120 shares at $19.57 per share,
respectively.

The weighted-average fair value of options granted during the years ended
December 31, 1997, 1996, and 1995 was $8.56, $6.92 and $5.10, respectively.

The following table summarizes information about stock options outstanding
at December 31, 1997:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------ ---------------------------------
Range of Number Weighted-Average Number
Exercise Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Prices at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price
- -------------- ------------- ------------------ ------------------ ------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 5 to 15 632,919 2.69 $ 11.93 632,919 $ 11.93
16 to 24 3,758,125 6.47 19.79 1,631,160 19.85
25 to 37 4,142,331 6.90 28.43 2,422,483 27.45
38 to 54 1,917,770 9.28 39.33 -- --
----------- ---------- ---- -------- --------- --------
$ 5 to 54 10,451,145 6.93 $ 26.32 4,686,562 $ 22.71
========== =========
</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, 1997, 1996 and 1995, there
were 557,800 LSARs, 796,600 LSARs and 961,650 LSARs outstanding, respectively.

52
<PAGE>

UNUM Corporation and Subsidiaries

Preferred Stock Purchase Rights

UNUM adopted a Shareholder Rights Plan on March 13, 1992. Under the Plan,
each Right, under specific circumstances, entitles the holder to purchase one
one-hundredth of a share of Series A Junior Participating Preferred Stock at a
purchase price of $150. The Rights become exercisable at a specified time after
(1) a person or group acquires 10% or more of UNUM 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 11. 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 1998 to UNUM Corporation from
all U.S. domiciled insurance subsidiaries without state insurance regulatory
approval is approximately $210 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 $1,186 million and $1,205 million, at
December 31, 1997, and 1996, respectively. The aggregate statutory net
operating income, which excludes realized investment gains and losses net of
tax, of UNUM Corporation's United States domiciled insurance subsidiaries was
approximately $227 million, $167 million and $143 million for 1997, 1996 and
1995, 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.

NOTE 12. 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) 1997 1996 1995
- ------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Tax at federal statutory rate of 35% ......... $ 187.7 $ 119.6 $ 133.7
Tax-exempt income ............................ (20.3) (18.8) (30.0)
Other ........................................ (1.3) 2.8 (2.9)
-------- -------- --------
Income taxes ................................. $ 166.1 $ 103.6 $ 100.8
======== ======== ========
</TABLE>

53
<PAGE>

Deferred income tax liabilities and assets consist of the following:

<TABLE>
<CAPTION>
December 31,
-------------------------
(Dollars in millions) 1997 1996
- ----------------------------------------------- ----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs ......... $ 239.4 $ 210.7
Policy reserve adjustments ................ 118.0 106.5
Net unrealized gains ...................... 144.0 101.7
Value of business acquired ................ 23.2 19.8
Invested assets ........................... 12.0 9.6
Other ..................................... 12.2 11.0
-------- --------
Gross deferred tax liabilities ........... 548.8 459.3
-------- --------
Deferred tax assets:
Net realized losses ....................... $ 6.9 $ 17.4
Postretirement benefits ................... 26.6 26.7
Deferred gains ............................ 2.2 28.5
Accrued liabilities ....................... 13.3 27.0
Other ..................................... 10.6 27.9
-------- --------
Gross deferred tax assets ................ 59.6 127.5
Less valuation allowance ................... 7.0 10.0
-------- --------
Net deferred tax assets .................. 52.6 117.5
-------- --------
Net deferred tax liability ................. $ 496.2 $ 341.8
======== ========
</TABLE>

UNUM has not provided for a deferred tax liability of approximately $11
million that arose prior to 1984, which related to the policyholders' surplus
accounts of UNUM's life insurance subsidiaries, as management believes the
conditions under which such taxes would be paid to be remote.

UNUM's Consolidated Statements of Income for 1997, 1996 and 1995, included
the following amounts of foreign income and related income tax expense:

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
(Dollars in millions) 1997 1996 1995
- ------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Foreign income ............. $ 46.7 $ 27.4 $ (1.2)
======= ======= ======
Income tax expense (credit):
Current .................... $ 23.3 $ 10.4 $ 1.4
Deferred ................... (7.6) 1.8 (0.2)
------- ------- ------
Total ...................... $ 15.7 $ 12.2 $ 1.2
======= ======= ======
</TABLE>

UNUM subsidiaries had operating loss carryforwards totaling $5.3 million
as of December 31, 1997. The operating loss carryforwards will expire, if not
utilized, in 1999 through 2003.

NOTE 13. 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.

54
<PAGE>

UNUM Corporation and Subsidiaries

The following table summarizes the carrying amounts and fair values of
UNUM's financial instruments at December 31, 1997, and 1996:

<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------------
Carrying Fair Carrying Fair
(Dollars in millions) Amount Value Amount Value
- ---------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities available for sale ............ $ 7,310.9 $ 7,310.9 $ 6,942.7 $ 6,942.7
Equity securities available for sale ........... 30.7 30.7 31.3 31.3
Mortgage loans ................................. 1,131.0 1,243.7 1,132.1 1,213.4
Policy loans ................................... 128.5 128.5 232.9 232.9
Short-term investments ......................... 99.7 99.7 123.4 123.4
Cash ........................................... 47.9 47.9 77.0 77.0
Accrued investment income ...................... 160.3 160.3 166.1 166.1
Deposit assets ................................. 688.3 688.3 2,846.6 2,846.6
Financial liabilities:
Other policyholder funds:
Investment-type insurance contracts:
With defined maturities ..................... $ 141.6 $ 159.3 $ 191.0 $ 216.0
With no defined maturities .................. 332.0 328.0 2,901.0 2,839.0
Individual annuities and
supplementary contracts not
involving life contingencies ................. 67.1 67.1 76.2 76.2
Notes payable .................................. 635.8 656.0 526.9 542.5
</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.

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.

55
<PAGE>

NOTE 14. DERIVATIVE FINANCIAL INSTRUMENTS

UNUM periodically uses options, futures, forward exchange contracts and
interest rate swaps, which are common derivative financial instruments, to
hedge certain risks associated with anticipated purchases and sales of
investments, anticipated debt issuance and certain payments denominated in
foreign currencies, primarily British pounds sterling, Canadian dollars 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.
Additionally, UNUM uses swap agreements to convert foreign currency based debt
instruments to U.S. dollars and to convert variable rate debt to a fixed rate.

In using these instruments, UNUM is subject to the off-balance-sheet
credit 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 or issue derivative
financial instruments for the purpose of trading.

Historically, all positions UNUM has taken in derivative contracts have
qualified for hedge accounting in accordance with the criteria established by
FAS 52, "Foreign Currency Translation," and FAS 80, "Accounting for Futures
Contracts." Upon entering a derivative contract, UNUM uses this criteria to
evaluate the correlation of risk protection provided by a derivative contract
to the risk created by market fluctuations to ensure hedge accounting is
appropriate for the contract. Accordingly, gains or losses related to
qualifying hedges of firm commitments or anticipated transactions involving
investment purchases and debt issuance are deferred and recognized as an
adjustment to the carrying amount of the underlying asset or liability when the
hedged transaction occurs. Gains or losses related to qualifying hedges of
anticipated transactions involving the sale of investments are deferred and
recognized in income when the hedged transaction occurs. No gains or losses
related to qualifying hedges of anticipated transactions involving payments
denominated in foreign currencies are recorded if the hedged transaction is
likely to occur.

The amount of any deferred gains or losses on outstanding interest rate
futures contracts, which require daily cash settlement, are included in fixed
maturities in UNUM's Consolidated Balance Sheet. The fair values of any
outstanding forward exchange rate contracts, options and swap agreements, which
do not require daily cash settlement, are not recognized in UNUM's Consolidated
Balance Sheet.

Any resulting gains or losses from early termination of a derivative
designated as a hedge are deferred and recognized in income or as an adjustment
of the carrying amount of the underlying asset or liability when the hedged
transaction occurs. Any gains or losses that result when the designated item is
extinguished, such as maturity, sale, or termination, or when the hedged
transaction is no longer likely to occur, are included in income in the period
in which the extinguishment takes place or it is known that the hedged
anticipated transaction will not occur.

On December 4, 1997, UNUM borrowed 100 million pounds sterling ($168.3
million) through a private placement with an investor in the United Kingdom (see
Note 8 "Notes Payable"). Upon issuance of the 100 million pounds sterling
borrowing, UNUM entered into currency and interest rate swap agreements that
converted the principal amount to U.S. dollars and the interest obligation on
the debt from a pound sterling based fixed rate to a U.S. dollar fixed rate. No
gains or losses on the swap agreements, which qualify for hedge accounting, are
recorded while the related debt is outstanding. These swap agreements expire in
December 2007 and have notional amounts that equal the principal amount of the
loan.

Other than the swap agreements discussed previously, UNUM had no other
open derivative financial instruments at December 31, 1997. UNUM had open
interest rate futures contracts at December 31, 1996, with notional amounts of
$178.2 million to hedge anticipated sales of investments in 1997. These futures
contracts had a related net unrealized gain of $1.6 million.

NOTE 15. LITIGATION

In the normal course of its business operations, UNUM is involved in
litigation from time to time with claimants, beneficiaries and others, and a
number of lawsuits were pending at December 31, 1997. 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

56
<PAGE>

UNUM Corporation and Subsidiaries

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, operating results or liquidity 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
was 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. On
December 2, 1997, the United States Court of Appeals affirmed the decision of
the District Court denying UNUM's claim for refund. UNUM is currently
considering whether to request that the United States Supreme Court review the
decision of the United States Court of Appeals.

NOTE 16. SEGMENT INFORMATION

UNUM's markets for its insurance products are the United States, its
principal market, Canada, the United Kingdom, the Pacific Rim and Argentina.
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 educators, consultants, health care providers,
accountants and engineers.

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, 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 Life & Accident Insurance Company and subsidiaries, which offer,
primarily through payroll deduction, accident and sickness, disability, cancer
and life insurance products to employees at their worksites. The Retirement
Products segment includes products no longer actively marketed by UNUM
including: tax-sheltered annuities, guaranteed investment contracts, deposit
administration accounts, 401(k) plans, individual life and group medical
products. Corporate includes transactions that are generally non-insurance
related.

Investment income and net realized investment gains and losses 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.

57
<PAGE>

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

<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
(Dollars in millions) 1997 1996 1995
- ----------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Disability Insurance ................ $ 2,350.6 $ 2,386.2 $ 2,472.8
Special Risk Insurance .............. 947.0 811.9 750.7
Colonial Products ................... 588.4 545.5 527.3
Retirement Products ................. 184.7 283.0 357.8
Corporate ........................... 6.0 16.1 14.3
---------- ---------- ----------
Total revenues ..................... $ 4,076.7 $ 4,042.7 $ 4,122.9
========== ========== ==========
Income (loss) before income taxes:
Disability Insurance ................ $ 312.7 $ 215.3 $ 217.0
Special Risk Insurance .............. 101.3 79.2 60.3
Colonial Products ................... 98.8 92.4 87.7
Retirement Products ................. 76.2 1.4 45.5
Corporate ........................... (52.6) (46.7) (28.6)
---------- ---------- ----------
Income before income taxes ......... 536.4 341.6 381.9
Income taxes ......................... 166.1 103.6 100.8
---------- ---------- ----------
Net income ......................... $ 370.3 $ 238.0 $ 281.1
========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
December 31,
-----------------------------
(Dollars in millions) 1997 1996
- ------------------------------------------------------- ------------- -------------
<S> <C> <C>
Identifiable Assets:
Disability Insurance .............................. $ 8,546.6 $ 7,846.8
Special Risk Insurance ............................ 1,581.8 1,297.1
Colonial Products ................................. 1,334.7 1,094.1
Retirement Products ............................... 1,115.9 4,478.8
Corporate ......................................... 254.0 396.7
Individual Participating Life and Annuity ......... 367.3 354.0
---------- ----------
Total assets ..................................... $ 13,200.3 $ 15,467.5
========== ==========
</TABLE>

58
<PAGE>

UNUM Corporation and Subsidiaries

NOTE 17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of unaudited quarterly results of operations
for 1997 and 1996:

<TABLE>
<CAPTION>
1997
-----------------------------------------------------
(Dollars in millions, except per common share data) 4th 3rd 2nd 1st
- ----------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Premiums ......................................... $ 840.2 $ 813.5 $ 768.7 $ 766.3
Investment income ................................ 164.7 163.5 164.9 164.8
Net realized investment gains (losses) ........... (1.1) 2.7 (3.0) (2.2)
Benefits to policyholders ........................ 625.8 617.0 573.9 578.6
Net income ....................................... 76.2 91.5 87.6 115.0
Basic net income per common share ................ 0.55 0.66 0.63 0.81
Diluted net income per common share .............. 0.54 0.64 0.62 0.79
</TABLE>

<TABLE>
<CAPTION>
1996
-----------------------------------------------------
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
Basic net income per common share .............. 0.33 0.30 0.50 0.49
Diluted net income per common share ............ 0.33 0.30 0.50 0.49
</TABLE>

59
<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 8, 1998,
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 10, 1998) Position held with UNUM Since
- ----------------------- ----------------- ----------------------------- -----------
<S> <C> <C> <C>
James F. Orr III 55 Chairman, President and 1986
Chief Executive Officer
Robert E. Broatch 49 Senior Vice President 1996
and Chief Financial Officer
Thomas G. Brown 53 Executive Vice President 1992
Robert W. Crispin 51 Executive Vice President 1995
Peter J. Moynihan 54 Senior Vice President 1979
Kevin P. O'Connell 52 Executive Vice President 1987
Elaine D. Rosen* 45 President, UNUM America 1983
Robert E. Staton* 51 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. Broatch was elected Senior Vice President of UNUM in May 1996. In
addition, he was elected as Chief Financial Officer in September 1997. Prior to
joining UNUM in 1996, Mr. Broatch served as Senior Vice President of Finance at
Aetna Life & Casualty Company from 1993 until May 1996.

Mr. Brown was elected Executive Vice President of UNUM in January 1995. In
addition, he served as Chairman of the Board and Chief Executive Officer of
Duncanson & Holt, Inc. ("D&H") from 1987 until September 1997. 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. Crispin was elected Executive Vice President of UNUM in January 1995.
In addition he served as Chief Financial Officer from August 1995 until
September 1997. Prior to joining UNUM in 1995, 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.

60
<PAGE>

UNUM Corporation and Subsidiaries

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 8, 1998, 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 8, 1998, 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 8, 1998, is incorporated by reference.

61
<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 ....................... 30
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995 ...................... 31
Consolidated Balance Sheets as of December 31, 1997,
and 1996 .............................................. 32
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995 .......... 33
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995 ................ 34
Notes to Consolidated Financial Statements .............. 36

2. Financial Statement Schedules

II Condensed Financial Information of UNUM Corporation (Registrant) 64
III Supplementary Insurance Information 68
IV Reinsurance 69

3. Exhibits. See Index to Exhibits on page 70 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 1997.

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.

62
<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 10, 1998.

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 10, 1998
(James F. Orr III)

/s/ Robert E. Broatch Senior Vice President
- ------------------------------------- and Chief Financial Officer March 10, 1998
(Robert E. Broatch)

/s/ John M. Lang, Jr. Vice President and
- ------------------------------------- Corporate Controller March 10, 1998
(John M. Lang, Jr.)

*
- ------------------------------------- Director March 10, 1998
(Gayle O. Averyt)

*
- ------------------------------------- Director March 10, 1998
(Robert E. Dillon, Jr.)

*
- ------------------------------------- Director March 10, 1998
(Gwain H. Gillespie)

*
- ------------------------------------- Director March 10, 1998
(Ronald E. Goldsberry)

*
- ------------------------------------- Director March 10, 1998
(Donald W. Harward)

*
- ------------------------------------- Director March 10, 1998
(George J. Mitchell)

- ------------------------------------- Director March 10, 1998
(Cynthia A. Montgomery)

*
- ------------------------------------- Director March 10, 1998
(James L. Moody, Jr.)

*
- ------------------------------------- Director March 10, 1998
(Lawrence R. Pugh)

*
- ------------------------------------- Director March 10, 1998
(Lois Dickson Rice)

*
- ------------------------------------- Director March 10, 1998
(John W. Rowe)

/s/ Kevin J. Tierney
- -------------------------------------
*(Kevin J. Tierney, as Attorney-in-fact
for each of the persons indicated)
(Senior Vice President, General Counsel & Secretary)
</TABLE>

63
<PAGE>

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

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
(Dollars in millions) 1997 1996 1995
- ---------------------------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C>
Revenues
Dividends from subsidiaries* ......................... $ 462.4 $ 259.7 $ 23.6
Investment income .................................... 0.1 0.3 0.4
Interest income on loans to subsidiaries* ............ 2.6 2.5 5.5
Fees and other income ................................ 0.1 -- 0.3
-------- -------- -------
Total revenues ...................................... 465.2 262.5 29.8
Expenses
Operating expenses ................................... 8.3 4.7 2.3
Interest expense ..................................... 41.7 40.7 37.2
Interest expense on loans from subsidiaries* ......... 2.5 0.1 3.9
-------- -------- -------
Total expenses ...................................... 52.5 45.5 43.4
-------- -------- -------
Income (loss) before income taxes ..................... 412.7 217.0 (13.6)
Income tax benefit .................................... 17.3 15.1 13.1
-------- -------- -------
Income (loss) before equity in undistributed net
income (loss) of subsidiaries ........................ 430.0 232.1 (0.5)
Equity in undistributed net income (loss) of
subsidiaries* ........................................ (59.7) 5.9 281.6
-------- -------- -------
Net income ............................................ $ 370.3 $ 238.0 $ 281.1
======== ======== =======
</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) 1997 1996
- ---------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Assets
Investments
Investment in subsidiaries* ............................... $ 3,085.2 $ 2,749.8
Short-term investments .................................... 2.1 0.6
---------- ----------
Total investments ........................................ 3,087.3 2,750.4
Amounts receivable from subsidiaries, net* ................. 16.2 15.0
Notes receivable from subsidiary* .......................... 35.7 32.5
Property and equipment, net ................................ 28.8 22.3
---------- ----------
Total assets ............................................. $ 3,168.0 $ 2,820.2
========== ==========
Liabilities and Stockholders' Equity
Liabilities
Notes payable ............................................. $ 467.5 $ 526.9
Notes payable to subsidiary* .............................. 245.8 --
Income taxes .............................................. 8.3 16.5
Other liabilities ......................................... 11.6 13.7
---------- ----------
Total liabilities ........................................ 733.2 557.1
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
240,000,000 shares, issued 199,975,916 .................... 20.0 10.0
Additional paid-in capital ................................. 1,086.0 1,077.2
Unrealized gains, net ...................................... 248.4 108.5
Unrealized foreign currency translation adjustment ......... (16.0) (1.2)
Retained earnings (including undistributed earnings of
subsidiaries of $1,342.1 million and $1,401.8 million in
1997 and 1996, respectively) .............................. 2,162.5 1,871.4
---------- ----------
3,500.9 3,065.9
Less:
Treasury stock, at cost (1997--61,703,924 shares;
1996--56,331,188 shares) .................................. 1,050.3 792.2
Restricted stock deferred compensation ..................... 15.8 10.6
---------- ----------
Total stockholders' equity ................................ 2,434.8 2,263.1
---------- ----------
Total liabilities and stockholders' equity ................ $ 3,168.0 $ 2,820.2
========== ==========
</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) 1997 1996 1995
- ---------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net income ........................................... $ 370.3 $ 238.0 $ 281.1
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase (decrease) in income tax liability .......... (8.2) 11.7 2.1
(Increase) decrease in amounts due to/from
subsidiaries* ....................................... (1.2) (8.4) 11.8
Other ................................................ 11.3 16.1 (3.1)
Equity in undistributed net income of subsidiaries* (104.1) (5.9) (281.6)
-------- -------- --------
Net cash provided by operating activities ........... 268.1 251.5 10.3
-------- -------- --------
Investing activities:
Investment in subsidiaries, net* ..................... (107.8) (13.1) (1.1)
Issuance of notes receivable from subsidiaries* ...... (3.2) (32.5) (100.0)
Repayment of notes receivable from subsidiaries* ..... -- 50.0 50.0
Net increase in short-term investments ............... (1.5) -- (0.1)
Net additions to property and equipment .............. (10.7) (8.6) (5.4)
-------- -------- --------
Net cash used in investing activities ............... (123.2) (4.2) (56.6)
-------- -------- --------
Financing activities:
Dividends to stockholders ............................ (79.2) (79.8) (75.1)
Treasury stock acquired .............................. (285.2) (119.1) --
Proceeds from notes payable .......................... -- -- 291.5
Repayment of notes payable ........................... (48.5) (15.0) --
Net decrease in short-term debt ...................... (10.6) (42.3) (135.1)
Proceeds from notes payable to subsidiaries* ......... 245.8 -- --
Repayment of notes payable to subsidiaries* .......... -- (10.0) (50.0)
Other ................................................ 32.8 18.9 13.0
-------- -------- --------
Net cash provided by (used in) financing
activities ......................................... (144.9) (247.3) 44.3
-------- -------- --------
Net decrease in cash .................................. -- -- (2.0)
Cash at beginning of year ............................. -- -- 2.0
-------- -------- --------
Cash at end of year ................................... $ -- $ -- $ --
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Income taxes ........................................ $ (10.6) $ (25.8) $ (15.1)
Interest ............................................ $ 43.3 $ 40.8 $ 36.2
Interest to subsidiaries* ........................... $ -- $ 0.2 $ 4.0

Supplemental disclosure of noncash operating and investing activities:
During 1997, UNUM Corporation received a $168.3 note receivable in
satisfaction of a dividend payment from one affiliate, which was
immediately contributed to another affiliate.
</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)

<TABLE>
<CAPTION>
(1)(2)
Future policy
Deferred benefits, and
policy unpaid claims (3)
acquisition and claim Premium
Segment costs expenses revenue
- -------------------------------- ------------- --------------- -------------
<S> <C> <C> <C>
Year Ended December 31, 1997
Disability Insurance .......... $ 526.7 $ 5,977.4 $ 1,882.6
Special Risk Insurance ........ 154.7 761.5 878.6
Colonial Products ............. 302.1 458.6 530.8
Retirement Products ........... -- 615.5 130.3
Corporate ..................... -- -- 0.1
--------- ---------- ----------
Total ........................ $ 983.5 $ 7,813.0 $ 3,422.4
========= ========== ==========
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
========= ========== ==========

<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, 1997
Disability Insurance .......... $ 468.0 $ 1,503.9 $ 52.1 $ 481.9 $ 1,828.5
Special Risk Insurance ........ 68.4 600.4 65.8 179.5 236.2
Colonial Products ............. 57.6 271.8 80.7 137.1 467.2
Retirement Products ........... 54.4 102.7 0.1 5.7 2.5
Corporate ..................... 5.9 -- -- 58.6 --
--------- ---------- ------- -------- ----------
Total ........................ $ 654.3 $ 2,478.8 $ 198.7 $ 862.8 $ 2,534.4
========= ========== ======= ======== ==========
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
========= ========== ======= ======== ==========
</TABLE>

(1) Excludes other policyholder funds, as follows:

<TABLE>
<CAPTION>
December 31,
----------------------------------------
Segment 1997 1996 1995
- ------------------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
Disability Insurance ........... $ 2.4 $ 5.9 $ 3.1
Special Risk Insurance ......... 15.4 12.7 14.6
Colonial Products .............. 258.1 156.6 128.0
Retirement Products ............ 729.0 3,358.4 3,694.6
--------- --------- ---------
Total .......................... $ 1,004.9 $ 3,533.6 $ 3,840.3
========= ========= =========
</TABLE>

(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
(losses).

(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.

68
<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, 1997
Life insurance inforce ........................ $ 260,014.8 $ 16,036.5 $ 2,069.7 $ 246,048.0 0.8%
============ =========== ========== ============ ====
Premiums
Life insurance and individual annuities ...... $ 650.7 $ 33.9 $ 9.0 $ 625.8 1.4%
Accident and health insurance ................ 2,656.7 368.9 272.6 2,560.4 10.6%
Group annuities .............................. 2.5 -- -- 2.5 --
------------ ----------- ---------- ------------
Total premiums .............................. $ 3,309.9 $ 402.8 $ 281.6 $ 3,188.7
============ =========== ========== ============
Year Ended December 31, 1996
Life insurance inforce ....................... $ 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 inforce ....................... $ 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
============ =========== ========== ============
</TABLE>

69
<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 as Exhibit 3.2 to the Registrant's Annual Report on Form
Corporation 10-K dated March 25, 1997, and incorporated herein by reference.

4 Rights Agreement Filed as Exhibit 1 to the Registrant's Current Report on Form 8-K
dated March 18, 1992, and incorporated herein by reference.

10.1 Deferred Compensation Plan Filed as Exhibit 10.1 to the Registrant's Annual Report on Form
10-K dated March 27, 1996, and incorporated herein by reference.

10.2 Incentive Compensation Plan Filed as Exhibit 3.2 to the Registrant's Annual Report on Form
for Designated Executive 10-K dated March 25, 1997, and incorporated herein by reference.
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 herewith.
Incentive Plan

10.5 1996 Long-Term Stock Filed herewith.
Incentive Plan

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 (a) 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.
(b) Employment Letter Filed herewith.

10.10 $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.

10.11 Non-Qualified 401(k) Plan Filed as Exhibit 3.2 to the Registrant's Annual Report on Form
10-K dated March 25, 1997, and incorporated herein by reference.

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>

Exhibit 3.1

CERTIFICATE OF INCORPORATION of

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 250,000,000 shares, consisting of
240,000,000 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

<PAGE>

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;

(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

<PAGE>

(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.

<PAGE>

(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.

(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

<PAGE>

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 ByLaws 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 ByLaws 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

<PAGE>

the right of stockholders to act by written consent in lieu of a meeting is
specifically denied.

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 ByLaws, 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 ByLaws 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).

<PAGE>

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 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).

<PAGE>

(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

<PAGE>

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 12b2 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.

(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

<PAGE>

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

<PAGE>

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.

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.

<PAGE>

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 entitling
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.

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

<PAGE>

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

<PAGE>

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 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

<PAGE>

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 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

<PAGE>

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

<PAGE>

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 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

<PAGE>

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.

<PAGE>

(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.

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

<PAGE>

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 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.

<PAGE>

(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.

<PAGE>

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.

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.

UNUM CORPORATION

1990 LONG-TERM STOCK INCENTIVE PLAN

SECTION 1. Purpose.

The purpose of the UNUM Corporation 1990 Long-Term Stock Incentive Plan (the
"Plan") is to promote the interests of UNUM Corporation and its stockholders by
(i) attracting and retaining executive officers, other key employees and
corporation directors of outstanding ability; (ii) motivating such individuals,
by means of performance-related incentives, to achieve longer-range performance
goals; and (iii) enabling such individuals to participate in the long-term
growth and financial success of UNUM Corporation.

SECTION 2. Definitions.

"Affiliate" shall mean any corporation or other entity which is not a Subsidiary
but as to which the Corporation possesses a direct or indirect ownership
interest and has representation on the board of directors or any similar
governing body.

"Award" shall mean a grant or award under Sections 6 through 10, inclusive, of
the Plan, as evidenced in a written document delivered to a Participant.

"Board" shall mean the Board of Directors of the Corporation.

"Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.

"Committee" shall mean the Compensation Committee of the Board.

"Common Stock" or "Stock" shall mean the common stock, $.10 par value, of the
Corporation.

"Corporation" shall mean UNUM Corporation.

"Employee" shall mean any employee of the Employer.

"Employer" shall mean the Corporation and any Subsidiary or Affiliate.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from
time to time.

"Fair Market Value" shall mean the average of the highest and lowest sales
prices reported for consolidated trading of the Stock on the New York Stock
Exchange on the date in question,

<PAGE>

or, if the Stock shall not have been traded on such date, the average of such
highest and lowest sales prices on the first day prior thereto on which the
Stock was so traded.

"Fiscal Year" shall mean the fiscal year of the Corporation.

"Incentive Stock Option" shall mean a stock option granted under Section 6 which
is intended to meet the requirements of Section 422A of the Code.

"Limited Right" shall mean a limited stock appreciation right granted under
Section 8.

"Non-Qualified Stock Option" shall mean a stock option granted under Section 6
which is not intended to be an Incentive Stock Option.

"Option" shall mean an Incentive Stock Option or a Non-Qualified Stock Option.

"Participant" shall mean an Employee who is selected by the Committee to receive
an Award under the Plan.

"Restricted Period" shall mean the period of years selected by the Committee
during which a grant of Restricted Stock may be forfeited to the Corporation.

"Restricted Stock" shall mean shares of Common Stock contingently granted to a
Participant under Section 9 of the Plan.

"Subsidiary" shall mean any business entity in which the Corporation possesses
directly or indirectly fifty percent (50%) or more of the total combined voting
power.

SECTION 3. Administration.

Except as provided in Section 10, the Committee shall have full power to
interpret and administer the Plan and full authority to select the individuals
to whom Awards will be granted and to determine the type and amount of Award(s)
to be granted to each Participant, the terms and conditions of Awards granted
under the Plan and the terms and conditions of the agreements which will be
entered into with Participants. As to the selection and grant of Awards to
Participants who are not subject to Sections 16(a) and 16(b) of the Exchange
Act, or any successor sections, the Committee may delegate its responsibilities
to members of the Company's management consistent with applicable law.

<PAGE>

Any interpretation and administration of the Plan by the Committee, and all
actions of the Committee, shall be final, binding and conclusive on the
Corporation, its stockholders, Subsidiaries, Affiliates, all Participants, their
respective legal representatives, successors and assigns and upon all persons
claiming under or through any of them. No member of the Board or of the
Committee shall incur any liability for any action taken or omitted, or any
determination made, in good faith in connection with the Plan.

SECTION 4. Eligibility.

Participation in the Plan shall be limited to those key employees of the
Corporation and any Subsidiary and Affiliate selected at the sole discretion of
the Committee.

SECTION 5. Maximum Amount Available for Awards.

Subject to adjustment as provided in Section 12(j), the maximum number of shares
of Stock in respect of which Awards may be made under the Plan shall be a total
of 13,600,000 shares of Common Stock. Shares of Common Stock may be made
available from the authorized but unissued shares of the Corporation or from
shares reacquired by the Corporation, including shares purchased in the open
market. In the event that (i) an Option, or Stock Appreciation Right, or Limited
Right expires or is cancelled unexercised as to any shares of Common Stock
covered thereby, or (ii) any Award in respect of shares is forfeited for any
reason under the Plan, such shares shall thereafter be again available for award
pursuant to the Plan.

SECTION 6. Stock Options.

(a) Grant. Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Employees to whom Options
shall be granted, the number of shares to be covered by each Option, the
Option Price, as defined below, therefor and the conditions and
limitations applicable to the exercise of the Option. The Committee
shall have the authority to grant Incentive Stock Options, or to grant
Non-Qualified Stock Options, or to grant both types of Options. In the
case of Incentive Stock Options, the terms and conditions of such grants
shall be subject to and comply with such rules as may be prescribed by
Section 422A of the Code and any regulations implementing Section 422A.

(b) Option Price. The Committee shall establish the exercise price of the
Option (the "Option Price") at the time each Option is granted, which
Option Price shall not be less than 100% of the Fair Market Value of the
Common Stock on the date of grant.

<PAGE>

(1) Each Option shall be exercisable at such times and subject to
such terms and conditions as the Committee may, in its sole
discretion, specify in the applicable Award or thereafter;
provided, however, that in no event may any Option granted
hereunder be exercisable after the expiration of ten years from
the date of grant. The Committee may impose such conditions with
respect to the exercise of Options, including without limitation,
any relating to the application of federal or state securities
laws, as it may deem necessary or advisable.

(2) No shares shall be delivered pursuant to any exercise of an
Option until payment in full of the Option Price therefor is
received by the Corporation. Such payment may be made in cash, or
its equivalent, or, subject to such rules and guidelines as the
Committee may establish, by exchanging shares of Common Stock
owned by the optionee (which are not the subject of any pledge or
other security interest), or by a combination of the foregoing,
provided that the combined value of all cash and cash equivalents
and the Fair Market Value of any such Common Stock so tendered to
the Corporation, valued as of the date of such tender, is at
least equal to such Option Price.

(d) Termination of Employment.

(1) Except as provided below, if a Participant ceases to be an
Employee other than by reason of death, retirement or disability,
any then outstanding Options may be exercised any time before
their expiration date or within three months after the date of
termination, whichever is earlier, but only to the extent that
such Options were exercisable when employment ceased, absent a
determination by the Committee to the contrary; provided,
however, that a Participant is terminated for cause the Committee
may determine that no Option may be exercised at any time after
the termination date.

(2) If a Participant's employment terminates because of death or
disability, all then outstanding Options previously granted to
the Participant will become exercisable. In the case of death of
the Participant, such Options may be exercised at any time before
their expiration date or within three years after the date of
termination, whichever is earlier. In the case of permanent
disability, such Options may be exercised at any time before
their expiration date.

(3) If a Participant's employment terminates because of retirement
prior to January 1, 1995, any then outstanding Options may be
exercised any time before their expiration date or within three
years after the date of termination, whichever is earlier, but
only to the extent that such Options were exercisable when
employment ceased absent a determination by the Committee to the
contrary. If a Participant's employment terminates because of
retirement on or after January 1,

<PAGE>

1995, any then outstanding Options may be exercised any time
before their expiration date or within five years after the date
of termination, whichever is earlier, but only to the extent that
such Options were exercisable when employment ceased absent a
determination by the Committee to the contrary.

SECTION 7. Stock Appreciation Rights.

(a) The Committee shall have the authority to grant Stock Appreciation
Rights in tandem with the grant of an Option or freestanding and
unrelated to an Option. Stock Appreciation Rights granted in tandem with
an Option may be granted either at or after the time of the grant of
such Option.

Stock Appreciation Rights or any applicable portion thereof granted in
tandem with a given Option shall only be exercisable to the extent that
the related Option is exercisable and shall terminate and no longer be
exercisable upon the expiration or cancellation of the related Option.

The exercise of an Option shall result in an immediate forfeiture of any
Stock Appreciation Right granted in tandem with that Option, and the
exercise of such Stock Appreciation Right shall cause an immediate
forfeiture of its related Option. Stock Appreciation Rights shall not be
exercisable after the expiration of ten years from date of grant. A
Stock Appreciation Right granted in tandem with an Option may be
exercised by an optionee, in accordance with this Section 7, by
surrendering the applicable portion of the related Option. Upon such
exercise and surrender, the optionee shall be entitled to receive an
amount determined in the manner prescribed in this Section 7.

(b) A Stock Appreciation Right shall entitle the Participant to receive from
the Corporation an amount equal to the excess of the Fair Market Value
of a share of Common Stock on the date of the exercise of the Stock
Appreciation Right over the grant price thereof, provided that the
Committee may for administrative convenience determine that, for any
Stock Appreciation Right which is not related to an Incentive Stock
Option and can only be exercised during limited periods of time in order
to satisfy the conditions of certain rules of the Securities and
Exchange Commission, the exercise of any such Stock Appreciation Right
for cash during such limited period shall be deemed to occur for all
purposes hereunder on the day during such limited period on which the
Fair Market Value of the Stock is the highest. Any such determination by
the Committee may be changed by the Committee from time to time and may
govern the exercise of Stock Appreciation Rights granted prior to such
determination as well as Stock Appreciation Rights thereafter granted.
The Committee shall determine whether Stock Appreciation Rights shall be
settled in cash, shares of Common Stock or a combination of cash and
shares of Common Stock.

<PAGE>

SECTION 8. Limited Rights.

(a) The Committee shall have the authority to grant Limited Rights in tandem
with the grant of an Option or freestanding and unrelated to an Option.
Limited Rights granted in tandem with an Option may be granted either at
or after the time of the grant of such Option.

Limited Rights or any applicable portion thereof granted in tandem with
a given Option shall terminate and no longer be exercisable upon the
expiration or cancellation of the related Option. The exercise of an
Option shall result in an immediate forfeiture of any Limited Right
granted in tandem with that Option, and the exercise of such Limited
Right shall cause an immediate forfeiture of its related Option.

A Limited Right granted in tandem with an Option may be exercised by an
optionee, in accordance with this Section 8, by surrendering the
applicable portion of the related Option. Upon such exercise and
surrender, the optionee shall be entitled to receive an amount
determined in the manner prescribed in this Section 8.

(b) Limited Rights shall only be exercisable during the 30 day period
following a Change in Control as defined in Section 11 and shall not be
exercisable after the expiration of ten years from the date of grant.

(c) Upon the exercise of a Limited Right, an optionee shall be entitled to
receive from the Corporation an amount in cash equal in value to the
excess of (i) the higher of (A) the highest price per share paid in
connection with the Change in Control or (B) the highest Fair Market
Value per share as reported in the Wall Street Journal at any time
during the 60 day period preceding the Change in Control over (ii) in
the case of a Limited Right granted in tandem with an Option, the Option
Price per share specified in the related Option and in the case of all
other Limited Rights, the price per share established in the grant of
the Limited Right, such excess to be multiplied by the number of shares
in respect of which the Limited Right shall have been exercised;
provided, however, that upon the exercise of a Limited Right granted in
tandem with an Incentive Stock Option, the amount set forth in clause
(i) shall not exceed the Fair Market Value of a share on the date of
exercise of the Limited Right.

(d) Limited Rights shall be subject to such other terms and conditions, not
inconsistent with the provisions of the Plan, as shall be determined
from time to time by the Committee. This Section 8 shall be interpreted
in accordance and consistent with the principles set forth in Rule 16b-3
of the Exchange Act.

<PAGE>

SECTION 9. Restricted Stock.

(a) Subject to the provisions of the Plan, the Committee shall have sole and
complete authority to determine the Employees to whom shares of
Restricted Stock shall be granted, the number of shares of Restricted
Stock to be granted to each Participant, the duration of the Restricted
Period during which, and the conditions under which, the Restricted
Stock may be forfeited to the Corporation, and the other terms and
conditions of such Awards. The Committee may determine that the
Restricted Period applicable to a particular grant may vary depending
upon the attainment of particular conditions, such as corporate
earnings, share price or other targets set by the Committee.

(b) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as herein provided, during the
Restricted Period. Certificates issued in respect of shares of
Restricted Stock shall be registered in the name of the Participant and
deposited by such Participant, together with a stock power endorsed in
blank, with the Corporation. At the expiration of the Restricted Period,
the Corporation shall deliver such certificates to the Participant or
the Participant's legal representative.

(c) If a Participant's employment terminates by reasons of disability or
death, any Restricted Stock held by such Participant shall thereafter
vest and any restriction lapse, to the extent such Restricted Stock
would have become vested and no longer subject to such restrictions
within one year from the time of termination had the Participant
continued to fulfill all of the conditions of the Restricted Stock
during such period (or on such accelerated basis as the Committee may
determine at or after grant). Unless otherwise determined by the
Committee, if a Participant's employment terminates for any reasons
other than permanent disability or death, any Restricted Stock which is
unvested or subject to restriction shall thereupon be forfeited.

SECTION 10. Non-Employee Director Options.

Notwithstanding any of the other provisions of the Plan to the contrary, the
provisions of this Section 10 shall only apply to a non-employee member of the
Board. The other provisions of the Plan shall apply to grants of Options under
this Section 10 to the extent not inconsistent with the provisions of this
Section.

(a) This Section 10 shall be administered by the Board.

(b) Each non-employee member of the Board shall receive Non-Qualified Stock
Options in accordance with the provisions of this Section 10.

<PAGE>

(c) (i) Recipients of Options under this Section 10 shall enter into a
stock option agreement with the Corporation, which agreement
shall set forth, among other things, the exercise price of the
Option, the term of the Option and provisions regarding
exercisability of the Option granted thereunder.

(ii) On the Effective Date (as defined below) each non-employee
member of the Board of the Corporation shall receive Options to
purchase 2,000 shares of Common Stock. Beginning in 1997, on the
date after each annual stockholders meeting of the Corporation
each continuing non-employee member of the Board shall be
granted an Option to purchase 4,000 shares of Common Stock and,
beginning in 1990, each newly elected non-employee director
shall be granted an Option to purchase 6,000 shares of Common
Stock. The Option Price per share of Common Stock purchasable
under such Options shall be equal to the Fair Market Value of
the Common Stock on the date of grant. Such Option shall remain
exercisable until the earlier of ten years from the date of
grant or the termination of any post-directorship consultancy
agreement with the Corporation; provided, however, that if such
consultancy agreement terminates by reason of death or
disability any then outstanding Options may be exercised (x) at
any time before their expiration date or (y), if such
termination is by reason of death, within three years of the
date of death, whichever is earlier. Such Options shall be
exercisable one year from the date of grant by payment in full
in cash or in shares of Common Stock having a Fair Market Value
equal to the Option Price or in a combination of cash and such
shares.

(d) The Board may not amend, alter, or discontinue this Section 10 without
the approval of the stockholders of the Corporation.

SECTION 11. Change of Control.

Notwithstanding anything to the contrary contained herein, and notwithstanding
any contrary waiting period or installment period in any agreement relating to
an Award or in the Plan, each outstanding Option, Stock Appreciation Right and
Limited Right granted under the Plan shall become exercisable in full for the
aggregate number of shares covered thereby, and any restriction or deferral
limitation applicable to any Restricted Stock shall lapse and such shares and
Awards shall be deemed fully vested, in the event of a Change in Control (as
hereinafter defined).

For purposes of this Plan, a Change in Control shall be deemed to have occurred
upon the first to occur of the following events:

(i) any "person," as such term is used in Sections 13(d) and 14(d) of
the Exchange Act (other than the Corporation or any corporation
owned, directly or indirectly, by the stockholders of the
Corporation in substantially the same proportions as their
ownership of stock of the Corporation), is or becomes the
"beneficial

<PAGE>

owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation
representing more than 40% of the number of the Corporation's
then outstanding securities;

(ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has
entered into an agreement with the Corporation to effect a
transaction described in Subsection 11(i), (iii) or (iv) of this
Section 11) whose election by the Board or nomination for
election by the Corporation's stockholders was approved by a vote
of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period
or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority
thereof;

(iii) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation,
other than a merger or consolidation which would result in the
voting securities of the Corporation outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or being converted into voting securities of the
surviving entity) more than 60% of the number of outstanding
securities of the Corporation or such surviving entity
outstanding immediately after such merger or consolidation; or

(iv) the stockholders of the Corporation approve a plan of complete
liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all of the
Corporation's assets.

SECTION 12. General Provisions.

(a) Withholding. The Employer shall have the right to deduct from all
amounts paid to a Participant in cash (whether under this Plan or
otherwise) any taxes required by law to be withheld in respect of Awards
under this Plan. In the case of payments of Awards in the form of Common
Stock, at the Committee's discretion the Participant may be required to
pay to the Employer the amount of any taxes required to be withheld with
respect to such Common Stock, or, in lieu thereof, to the extent
permitted by applicable federal and state securities laws, the Employer
shall have the right to retain (or the Participant may be offered the
opportunity to elect to tender) the number of shares of Common Stock
whose Fair Market Value equals the amount required to be withheld. The
Optionee shall be entitled to elect to pay all or a portion of the
exercise price for options granted under this Plan and any withholding
taxes in connection with such exercise by having the shares of Common
Stock to be issued by UNUM Corporation pursuant to such exercise sold by
a broker-dealer under circumstances meeting the requirements of 12
C.F.R. Section 220.

<PAGE>

(b) Nontransferability. No Award shall be assignable or transferable, and no
right or interest of any Participant shall be subject to any lien,
obligation or liability of the Participant, except by will or the laws
of descent and distribution.

(c) No Right to Employment. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ of the
Employer. Further, the Employer expressly reserves the right at any time
to dismiss a Participant free from any liability, or any claim under the
Plan, except as provided herein or in any agreement entered into with
respect to an Award.

(d) No Rights as Stockholder. Subject to the provisions of the applicable
Award, no Participant or transferee of an Option shall have any rights
as a stockholder with respect to any shares of Common Stock to be
distributed under the Plan until he or she has become the holder
thereof. Notwithstanding the foregoing, in connection with each grant of
Restricted Stock hereunder, the applicable Award shall specify if and to
what extent the Participant shall not be entitled to the rights of a
stockholder in respect of such Restricted Stock.

(e) Construction of the Plan. The validity, construction, interpretation,
administration and effect of the Plan and of its rules and regulations,
and rights relating to the Plan, shall be determined solely in
accordance with the laws of the State of Delaware.

(f) Effective Date. Subject to the approval of the stockholders of the
Corporation, the Plan shall be effective on February 9, 1990 (the
"Effective Date"). No Options or Awards may be granted under the Plan
after February 9, 2000.

(g) Amendment of Plan. The Board may amend, suspend or terminate the Plan or
any portion thereof at any time, provided that no amendment shall be
made without stockholder approval if such approval is necessary to
comply with any tax or regulatory requirement, including for these
purposes any approval requirement which is a prerequisite for exemptive
relief under Section 16(b) of the Exchange Act. Notwithstanding anything
to the contrary contained herein, the Committee may amend the Plan in
such manner as may be necessary so as to have the Plan conform with
local rules and regulations. The Chief Executive Officer shall be
authorized to make minor or administrative modifications to the Plan as
well as modification to the Plan which may be dictated by requirements
of federal or state statutes applicable to the Corporation or authorized
or made desirable by such statutes. No modification or termination of
the Plan shall, without the optionee's consent, alter or impair any of
his or her rights or obligations under any Option, Stock Appreciation
Right or Limited Right theretofore granted to him or her under the Plan.

<PAGE>

limitation, (i) to change the date or dates as of which (A) an Option,
Stock Appreciation Right or Limited Right becomes exercisable; (B)
Restricted Stock becomes nonforfeitable; or (ii) to cancel and reissue
an Award under such different terms and conditions as it determines
appropriate.

(i) Hardship Distributions. In no event shall any Option granted under this
Plan be exercisable through payment of the Option Price in cash during
the period of one year following a hardship distribution under the UNUM
Employees Retirement Savings Plan and Trust, as defined therein.

(j) Adjustments and Assumption. In the event of a reorganization,
recapitalization, stock split, stock dividend, combination of shares,
merger, consolidation, distribution of assets, or any other change in
the corporate structure or shares of the Corporation, the Committee
shall make such adjustments as it deems appropriate in the number and
kind of shares authorized by the Plan, in the number and kind of shares
covered by the Awards granted, and in the purchase price of outstanding
Options. In the event of any merger, consolidation or other
reorganization in which the Corporation is not the surviving or
continuing corporation, all Awards granted hereunder and outstanding on
the date of such event shall be assumed by the surviving or continuing
corporation with appropriate adjustment as to the number and kind of
shares and purchase price of the shares.

(k) In addition to the purposes set forth in Section 1, the Committee may
grant Awards to eligible Participants in order to compensate such
Participants to surrender existing rights to receive benefits from the
Employer under this or any other benefit plan or arrangement.

UNUM CORPORATION

1996 LONG-TERM STOCK INCENTIVE PLAN

SECTION 1. Purpose.

The purpose of the UNUM Corporation 1996 Long-Term Stock Incentive Plan (the
"Plan") is to promote the interests of UNUM Corporation and its stockholders by
(i) attracting and retaining executive officers and other key employees of
outstanding ability; (ii) motivating such individuals, by means of
performance-related incentives, to achieve longer-range performance goals; and
(iii) enabling such individuals to participate in the long-term growth and
financial success of UNUM Corporation.

SECTION 2. Definitions.

"Award" shall mean a grant or award under Sections 6 through 10, inclusive, of
the Plan, as evidenced in a written document delivered to a Participant.

"Board" shall mean the Board of Directors of the Corporation.

"Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.

"Committee" shall mean the Compensation Committee of the Board, or, to the
extent necessary to satisfy the requirements of Section 162(m) of the Code, a
subcommittee thereof.

"Common Stock" or "Stock" shall mean the common stock, $.10 par value, of the
Corporation.

"Corporation" shall mean UNUM Corporation.

"Employee" shall mean any employee of the Employer.

"Employer" shall mean the Corporation and any Subsidiary or Affiliate.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from
time to time.

<PAGE>

-2-

"Fair Market Value" shall mean the average of the highest and lowest sales
prices reported for consolidated trading of the Stock on the New York Stock
Exchange on the date in question, or, if the Stock shall not have been traded on
such date, the average of such highest and lowest sales prices on the first day
prior thereto on which the Stock was so traded.

"Fiscal Year" shall mean the fiscal year of the Corporation.

"Incentive Stock Option" shall mean a stock option granted under Section 6 which
is intended to meet the requirements of Section 422 of the Code.

"Limited Right" shall mean a limited stock appreciation right granted under
Section 8.

"Non-Qualified Stock Option" shall mean a stock option granted under Section 6
which is not intended to be an Incentive Stock Option.

"Option" shall mean an Incentive Stock Option or a Non-Qualified Stock Option.

"Participant" shall mean an Employee who is selected by the Committee to receive
an Award under the Plan.

"Performance Measures" shall mean the criteria and objectives, established by
the Committee, which shall be satisfied as a condition to the receipt of shares
by a Participant under a Restricted Stock Award, or to the payment or receipt of
shares or cash under a Performance Share Award. With respect to any Restricted
Stock or Performance Share Award which the Committee designates as being
intended to satisfy the requirements of Section 162(m) of the Code and the
regulations thereunder, such criteria and objectives shall be 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 of the Corporation on a GAAP or statutory accounting basis, revenues,
market share, cash flow or cost reduction goals, underwriting margin, or any
combination of the foregoing. Such criteria and objectives may be expressed on
either an absolute basis or relative to the performance of a peer group selected
by the Committee. In the case of any Restricted Stock or Performance Share Award
which the Committee does not designate as being intended to satisfy the
requirements of Section 162(m) of the Code and the regulations thereunder, such
criteria and objectives, if any, may include one or more of the criteria and
objectives referred to above or such other criteria and objectives as the
Committee may determine.

"Performance Period" shall mean a period designated by the Committee during
which the Performance Measures applicable to a Performance Share Award shall be
measured.

<PAGE>

-3-

"Performance Share" shall mean a right, granted to a Participant under Section
10 of this Plan, contingent upon the attainment of specified Performance
Measures within a specified Performance Period, to receive one share of Common
Stock, which may be Restricted Stock, or in lieu thereof, the Fair Market Value
of such Performance Share in cash.

"Restricted Stock" shall mean shares of Common Stock contingently granted to a
Participant under Section 9 of this Plan.

"Restriction Period" shall mean a period designated by the Committee during
which the Performance Measures and other conditions applicable to a Restricted
Stock Award or Performance Share Award shall be measured.

"Stock Appreciation Right" shall mean an Award granted under Section 7 of the
Plan.

"Subsidiary" shall mean any business entity in which the Corporation possesses
directly or indirectly fifty percent (50%) or more of the total combined voting
power.

"Voting Securities" shall mean securities which are entitled to cast votes as to
general corporate matters, including the election of directors.

SECTION 3. Administration.

The Committee shall have full power to interpret and administer the Plan and
full authority to select the individuals to whom Awards will be granted and to
determine the type and amount of Award(s) to be granted to each Participant, the
terms and conditions of Awards granted under the Plan and the terms and
conditions of the agreements which will be entered into with Participants.

The Committee shall have the authority to adopt, alter and repeal such rules,
guidelines and practices governing the Plan as it shall, from time to time, deem
advisable; to interpret the terms and provisions of the Plan and any Award
issued under the Plan (and any agreements relating thereto); to direct employees
of the Corporation and its subsidiaries or other advisors to prepare such
materials or perform such analysis as the Committee deems necessary or
appropriate; and otherwise to supervise the administration of the Plan. The
Committee may delegate such of its responsibilities set forth above to members
of the Corporation's management as the Committee may determine, with regard to
the grant, amendment, interpretation and administration of Awards to
Participants who are not subject to Sections 16(a) and 16(b) of the Exchange
Act, and except with respect to Awards which are designed to satisfy the
requirements of Section 162(m) of the Code and the regulations thereunder.

<PAGE>

-4-

Any interpretation and action under this Plan by the Committee, or members of
the Corporation's management acting under authority delegated by the Committee,
shall be final, binding and conclusive on the Corporation, its stockholders,
Subsidiaries, Affiliates, all Participants, their respective legal
representatives, successors and assigns and upon all persons claiming under or
through any of them. Neither any member of the Board of Directors or of the
Committee nor any member of the Corporation's management acting under authority
delegated by the Committee shall incur any liability for any action taken or
omitted, or any determination made, in good faith in connection with the Plan.

SECTION 4. Eligibility.

Participation in the Plan shall be limited to those key employees of the
Corporation and any Subsidiary and Affiliate selected at the sole discretion of
the Committee.

SECTION 5. Maximum Amount Available for Awards.

Subject to adjustment as provided in Section 12(j), the maximum number of shares
of Stock in respect of which Awards may be made under the Plan shall be a total
of 7,000,000 shares of Common Stock, provided that during any single calendar
year (i) Options shall not be granted to any individual Participant to purchase
more than 400,000 shares of the Common Stock, and (ii) the sum of all shares of
Restricted Stock plus all Performance Shares granted to any individual
Participant shall not exceed 200,000. Common Stock may be made available from
the authorized but unissued shares of the Corporation or from shares reacquired
by the Corporation, including shares purchased in the open market. In the event
that (i) an Option, or Stock Appreciation Right, or Limited Right expires,
terminates, or is canceled, surrendered or exchanged unexercised as to any
shares of Common Stock covered thereby, or (ii) any other Award in respect of
shares is forfeited for any reason under the Plan, such shares shall thereafter
be again available for award pursuant to the Plan.

SECTION 6. Stock Options.

(a) Grant. The Committee may, in its discretion, grant Options to such
eligible Participants as it may select. The Committee shall determine
the number of shares to be covered by each Option, the Option Price, as
defined below, therefor and the conditions and limitations applicable to
the exercise of the Option. The Committee shall have the authority to
grant Incentive Stock Options, or to grant Non-Qualified Stock Options,
or to grant both types of Options. In the case of

<PAGE>

-5-

Incentive Stock Options, the terms and conditions of such grants shall
be subject to and comply with such rules as may be prescribed by Section
422 of the Code and any regulations implementing Section 422.

(d) Termination of Employment.

(1) If a Participant ceases to be an Employee other than by reason of
death, retirement or permanent disability, any then outstanding
Options may be exercised at any time before their expiration date
or within three months after the date of termination, whichever
is earlier, but only (unless otherwise determined by the
Committee) to the extent that such Options were exercisable when
employment ceased, and to the extent not so exercisable, the
Option shall terminate on the date employment ceases; provided,
however, that if a Participant is terminated for cause the
Committee may determine that no Option may be exercised at any
time after the termination date.

<PAGE>

-6-

(2) If a Participant's employment terminates because of death or
permanent disability, all then outstanding Options previously
granted to the Participant will become exercisable. In the case
of death of the Participant, such Options may be exercised at any
time before their expiration date or within three years after the
date of termination, whichever is earlier. In the case of
permanent disability, such Options may be exercised at any time
before their expiration date.

(3) If a Participant's employment terminates because of retirement,
any then outstanding Options may be exercised at any time before
their expiration date or within five years after the date of
termination, whichever is earlier, but only (unless otherwise
determined by the Committee) to the extent that such Options were
exercisable when employment ceased, and to the extent not so
exercisable, the Option shall terminate on the date employment
ceases.

SECTION 7. Stock Appreciation Rights.

<PAGE>

-7-

grant price thereof, provided that the Committee may for administrative
convenience determine that, for any Stock Appreciation Right which is
not related to an Incentive Stock Option and can only be exercised
during limited periods of time in order to satisfy the conditions of
certain rules of the Securities and Exchange Commission, the exercise of
any such Stock Appreciation Right for cash during such limited period
shall be deemed to occur for all purposes hereunder on the day during
such limited period on which the Fair Market Value of the Stock is the
highest. Any such determination by the Committee may be changed by the
Committee from time to time and may govern the exercise of Stock
Appreciation Rights granted prior to such determination as well as Stock
Appreciation Rights thereafter granted. The Committee shall determine
whether Stock Appreciation Rights shall be settled in cash, shares of
Common Stock or a combination of cash and shares of Common Stock.

SECTION 8. Limited Rights.

Limited Rights or any applicable portion thereof granted in tandem with
a given Option shall terminate and no longer be exercisable upon the
expiration, termination or cancellation of the related Option. The
exercise of an Option shall result in an immediate forfeiture of any
Limited Right granted in tandem with that Option, and the exercise of
such Limited Right shall cause an immediate forfeiture of its related
Option.

<PAGE>

-8-

case of a Limited Right granted in tandem with an Option, the Option
Price per share specified in the related Option and in the case of all
other Limited Rights, the price per share established in the grant of
the Limited Right (which shall not be less than the Fair Market Value of
a share of Common Stock on the date of grant), such excess to be
multiplied by the number of shares in respect of which the Limited Right
shall have been exercised; provided, however, that upon the exercise of
a Limited Right granted in tandem with an Incentive Stock Option, the
amount set forth in clause (i) shall not exceed the Fair Market Value of
a share on the date of exercise of the Limited Right.

SECTION 9. Restricted Stock.

(a) Grant. The Committee may, in its discretion, grant shares of Restricted
Stock to such eligible Participants as it may select. The Committee
shall determine the number of shares of Restricted Stock to be granted
to each Participant, whether or not the Restricted Stock Award is
designed to satisfy the requirements of Section 162(m) of the Code and
the regulations thereunder, the duration of the Restriction Period ( if
any) during which, and the conditions under which, the Restricted Stock
may be forfeited to the Corporation, and the other terms and conditions
of such Awards. The Committee may condition the vesting of shares of
Restricted Stock on Performance Measures to be attained by the
Corporation and/or the Participant over a stated Performance Period.

(b) Assignability. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as herein provided,
during the Restriction Period.

(c) Dividends. The Committee shall determine whether dividends payable on
shares of Restricted Stock shall be paid to the Participant during the
Restriction Period or held in a suspense account for payment (with or
without interest) to the Participant only in the event of the vesting of
the underlying shares of Restricted Stock.

(d) Termination of employment. Subject to Section 11 of this Plan, all of
the provisions governing the satisfaction of Performance Measures and
the termination of the Restriction Period relating to a Restricted Stock
Award, or any cancellation or forfeiture of shares of Restricted Stock
upon termination of employment of the

<PAGE>

-9-

Participant, whether by reason of death, permanent disability,
retirement, or otherwise, shall be set forth in the Agreement relating
to such Restricted Stock Award, or in guidelines established by the
Committee and made applicable to such Restricted Stock Award.

SECTION 10. Performance Share Awards

(a) Grant. The Committee may, in its discretion, grant Performance Share
Awards to such eligible Participants as it may select. The Committee
shall determine the number of Performance Shares to be granted to each
Participant, whether or not the Performance Share Award is designed to
satisfy the requirements of Section 162(m) of the Code and the
regulations thereunder, the Performance Measures and Performance Period
applicable to each grant, and any other terms and conditions relating to
each grant, not inconsistent with the terms of this Plan, as the
Committee shall deem advisable.

(b) Settlement. The Agreement relating to a Performance Share Award (i)
shall specify whether such award may be settled in shares of Common
Stock (including shares of Restricted Stock) or cash or a combination
thereof; and (ii) may specify whether the holder thereof shall be
entitled to receive, on a current or deferred basis, dividend
equivalents, and if determined by the Committee, interest on any
deferred dividend equivalents with respect to the number of shares of
Common Stock subject to such Award. Prior to the settlement of a
Performance Share Award in shares of Common Stock, including Restricted
Stock, the holders of such award shall have no rights as a stockholder
of the Corporation with respect to the shares of Common Stock subject to
such Award.

(c) Termination of Employment. Subject to Section 11 of this Plan, all of
the terms relating the satisfaction of Performance Measures and the
termination of the Performance Period relating to a Performance Share
Award, or any cancellation or forfeiture of such Performance Share Award
upon a termination of employment, whether by reason of death,
disability, retirement, or otherwise, shall be set forth in the
Agreement relating to such Performance Share Award, or in guidelines
established by the Committee and made applicable to such Performance
Share Award.

SECTION 11. Change of Control.

Notwithstanding anything to the contrary contained herein, and notwithstanding
any contrary waiting period or installment period in any agreement relating to
an Award or in the Plan, in the event of a Change in Control (as hereinafter
defined), (i) each outstanding Option, Stock Appreciation Right and Limited
Right granted under the Plan shall become

<PAGE>

-10-

exercisable in full for the aggregate number of shares covered thereby; (ii) any
Performance Measure relating to any Restricted Stock or Performance Share Award
(including any Restricted Stock already granted or to be granted in satisfaction
of a Performance Share Award) shall be deemed to be satisfied at the maximum
level; and (iii) any Restriction Period and/or Performance Period relating to
any Restricted Stock or Performance Share Award (including any Restricted Stock
already granted or to be granted in satisfaction of a Performance Share Award)
shall lapse (and any other conditions pertaining to the vesting of any such
Award shall be waived) and such shares and Awards shall be deemed fully vested.

For purposes of this Plan, a Change in Control shall be deemed to have occurred
upon the first to occur of the following events:

(i) any "person," as such term is used in Sections 13(d) and 14(d)
of the Exchange Act (other than the Corporation, a trustee or
other fiduciary holding Voting Securities under an employee
benefit plan of the Corporation, or any corporation owned,
directly or indirectly, by the stockholders of the Corporation
in substantially the same proportions as their ownership of
stock of the Corporation), is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing more
than 40% of the number of the Corporation's then outstanding
Voting Securities, excluding any "person" who becomes such a
beneficial owner in connection with an Excluded Transaction
described in clause (iii) below;

(ii) the following individuals cease for any reason to constitute a
majority of the directors then serving: individuals who on
January 1, 1996, constitute the Board, and any new director
(other than a director whose initial assumption of office is in
connection with an actual or threatened election contest,
including but not limited to a consent solicitation, relating to
the election of directors of the Corporation) whose appointment
or election by the Board or nomination for election by the
Corporation's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who
either were directors on January 1, 1996 or whose appointment or
election or nomination for election was previously so approved;

(iii) there is consummated a merger or consolidation of the
Corporation (or any direct or indirect wholly-owned Subsidiary
of the Corporation) with any other corporation, other than a
merger or consolidation which would result in the Voting
Securities of the Corporation outstanding immediately prior
thereto continuing to represent (either by remaining outstanding
or being converted into voting securities of the surviving
entity or any parent thereof) more than

<PAGE>

-11-

60% of the combined voting power of the Voting Securities of the
Corporation (or the voting securities of such surviving entity
or any parent thereof) outstanding immediately after such merger
or consolidation (an Excluded Transaction"); or

(iv) the stockholders of the Corporation approve a plan of complete
liquidation of the Corporation or there is consummated an
agreement for the sale or disposition by the Corporation of all
or substantially all of the Corporation's assets.

SECTION 12. General Provisions.

(a) Withholding. The Employer shall have the right to deduct from all
amounts paid to a Participant in cash (whether under this Plan or
otherwise) any taxes required by law to be withheld in respect of Awards
under this Plan. In the case of payments of Awards in the form of Common
Stock, at the Committee's discretion the Participant may be required to
pay to the Employer the amount of any taxes required to be withheld with
respect to such Common Stock, or, in lieu thereof, to the extent
permitted by applicable federal and state securities laws, the Employer
shall have the right to retain (or the Participant may be offered the
opportunity to elect to tender) the number of shares of Common Stock
whose Fair Market Value equals the amount required to be withheld. The
Optionee shall be entitled to elect to pay all or a portion of the
exercise price for options granted under this Plan and any withholding
taxes in connection with such exercise by having the shares of Common
Stock to be issued by the Corporation pursuant to such exercise sold by
a broker-dealer under circumstances meeting the requirements of 12
C.F.R. Section 220.

(b) Nontransferability. Unless so provided in the Agreement with respect to
such Award, no Award shall be assignable or transferable, and no right
or interest of any Participant shall be subject to any lien, obligation
or liability of the Participant, except by will or the laws of descent
and distribution.

<PAGE>

-12-

(f) Effective Date. Subject to the approval of the stockholders of the
Corporation, the Plan shall be effective on March 8, 1996 (the
"Effective Date"). No Options or Awards may be granted under the Plan
after March 7, 2006.

(g) Amendment of Plan. The Board may amend, suspend or terminate the Plan or
any portion thereof at any time. The Chief Executive Officer shall be
authorized to make minor or administrative modifications to the Plan as
well as modifications to the Plan which may be dictated by requirements
of federal or state statutes applicable to the Corporation or authorized
or made desirable by such statutes. No modification or termination of
the Plan shall, without the optionee's consent, alter or impair any of
his or her rights or obligations under any Award theretofore granted to
him or her under the Plan.

(h) Amendment of Award. The Committee may amend, modify or terminate any
outstanding Award with the Participant's consent at any time prior to
payment or exercise in any manner not inconsistent with the terms of the
Plan, including without limitation, (i) to change the date or dates as
of which (A) an Option, Stock Appreciation Right or Limited Right
becomes exercisable, or (B) shares of Restricted Stock or Performance
Share Awards become nonforfeitable; or (ii) to cancel and reissue an
Award under such different terms and conditions as it determines
appropriate.

(j) Adjustments and Assumption. In the event of a reorganization,
recapitalization, stock split, stock dividend, combination of shares,
merger, consolidation,

<PAGE>

-13-

distribution of assets, or any other change in the corporate structure
or shares of the Corporation, the Committee shall make such adjustments
as it deems appropriate in the number and kind of shares authorized by
the Plan, in the number and kind of shares or Performance Shares covered
by the Awards granted, in the maximum number of Options, Restricted
Stock and Performance Shares which may be granted to any individual
Participant in a single calendar year, and in the purchase price of
outstanding Options. In the event of any merger, consolidation or other
reorganization in which the Corporation is not the surviving or
continuing corporation, unless otherwise provided for in the documents
governing such merger, consolidation or other reorganization, all Awards
granted hereunder and outstanding on the date of such event shall be
assumed by the surviving or continuing corporation with appropriate
adjustment as to the number and kind of shares and purchase price of the
shares.

February 29, 1996

Robert E. Broatch
17 Whitehall Place
Farmington, CT 06032

Dear Bob:

I am very pleased to extend to you the offer of Senior Vice President,
Enterprise Finance of UNUM Corporation. Based on our discussions over the past
weeks, I am convinced that you will make important strategic contributions to
UNUM's success and be a key addition to UNUM's senior management group. On the
attached pages I have outlined the details of the offer that we have discussed.
I look forward to receiving your formal acceptance.

Should you accept this position, it will be important to begin to plan and
coordinate the timing of the communication of your move to UNUM consistent with
a planned start date of April 1. Please give me a call at your earliest
convenience to discuss this.

I am very excited to have you join us and am confident that your leadership and
strengths will enhance our ability to meet our future challenges and build on
our past success.

Very truly yours,

/s/ Robert W. Crispin
Robert W. Crispin

<PAGE>

TOTAL COMPENSATION PLAN

A. Base Annual Salary Compensation Rate: $300,000

To be effective the first day of active employment in 1996 through the annual
review cycle of March of 1997. Any recommendation for salary increase would be
based upon demonstrated performance in the position and be part of our regular
salary review process.

B. Annual Incentive:

Officer Annual Incentive Compensation Plan:

1996 Participation...(Payout March of 1997). Currently, the targeted award is
50% of base salary. The plan is designed to provide a range of opportunity based
upon performance generally from 50% to 200% of target (25% to 100% of base
salary). The plan payout will be based upon the attainment of Corporate and
Financial Group performance. As part of your hiring agreement we will guarantee
payment of at least $80,000, payable in March of 1997. If performance would
warrant a higher payment you will receive the payment called for under the terms
of the plan. For this year, contingent on a employment date of April 1, your
incentive will be calculated on the basis of a full year of employment. Starting
in 1997 you will participate in the Annual Incentive Plan that may apply to
executives at your level.

C. Long Term Incentive:

The long term incentive program is comprised of two components:

- Stock Option grant
- Performance Based restricted stock option grant.

During each annual cycle (typically March of each year) you will participate in
this program. For this cycle, effective on your start date, you will receive a
long term incentive grant with an estimated value of $348,000. The value is
established using the Black Scholes valuation methodology. This grant will be
comprised of the following:

- A stock option grant of 10,250 shares will be provided to you on your
date of hire. This grant will vest over a three year period at the rate
of 33% a year and have a life of ten years. The estimated value of this
grant of options is $174,000.

- A performance based restricted stock grant of 3,900 shares will be
granted to you on your date of hire. This grant has an estimated value
of $174,000.

<PAGE>

Currently the restricted stock plan is a three year performance plan,
with restrictions lapsing contingent upon the attainment of ROE targets relative
to the established Peer Group of companies. For example: The total grant is
designed to approach a targeted 75th percentile total compensation position for
executives when the company performs at the 75th percentile of the Peer Group of
companies. Should Unum perform at the 75th percentile level, restrictions lapse
on 100% of the stock. Should performance be at the 60th percentile level
restrictions will lapse on 60% of the stock, etc. You should be aware that
dividends accrue on the restricted stock and will be paid in proportion to the
shares that have restrictions lapse at the end of the cycle.

D. Pension

For the first five years of employment with Unum, you will receive two years of
service credit for each year of employment. A portion of this benefit will be
covered under a non-qualified plan. Please be aware, however, that in order to
have any vested benefit, you must be employed at Unum for five years.

E. Change in Control:

In the event of a change in control of Unum Corporation, if within two years
thereafter your employment is terminated without cause or if you leave for "good
reason", you would receive a severance payment equal to two years salary plus
incentive, plus a lump sum payment equal to the present value of two years extra
credit under your retirement plan. In addition you would continue to be provided
for two years with life, disability, and accident & health benefits, except to
the extent that equivalent benefits are provided by a subsequent employer. In
addition, all unvested stock options and restricted stock in your name will
immediately vest.

F. Severance:

Absent a change in control of Unum Corporation, if you terminate from Unum for
any reason other than resignation or cause, you will receive a severance payment
equivalent to one year base salary, and Unum's standard executive out placement
support. Restricted stock in your name and stock options, as well as other
employee benefits, will be governed by the terms of the applicable plan or
program.

G. Financial Counseling:

You will be provided the services of a Financial Counselor (currently the Colony
Group) or reimbursement to procure the services of a Counselor of your choosing
($5,800 for 1996 and $3,800 a year thereafter), plus $2,500 a year reimbursement
for related services (will preparation, tax returns, etc.).

<PAGE>

SPECIAL HIRING CONSIDERATIONS

A. Sign On Bonus: $300,000

This amount is payable as follows:

- - $150,000 to be paid on the first day of active employment

- - $75,000 to be paid on the anniversary date of active employment during 1997,
and 1998
if you are employed by Unum on these dates.

B. Stock Options:

On your first day of employment, you will receive a grant of 14,000 shares of
stock options. The estimated value of this grant is $238,000. These options will
vest over a five year period as follows:

- - 20% on your first anniversary date,

- - 20% at each of your next four anniversaries,
if you are employed by Unum on these dates.

C. Time Lapse Restricted Stock

On the first day of employment you will be granted 5,800 shares of time lapse
restricted stock. These shares carry a 5 year cliff vesting provision making
them fully vested on the fifth anniversary from the date of grant.
The estimated value of this grant is $260,000.

D. Forfeiture Provision:

If you are separated by the Company for any reason other than resignation, cause
(defined as willful refusal to perform duties, unlawful acts to enrich yourself
at the Company's expense, material violation of your duties to the Company, or
gross misconduct), or performance (defined as a substantial and documented
failure to perform or to make a good faith effort to correct any performance
issues), during the first five years of employment, any unvested portion of this
package will vest or be paid.

E. Relocation:

Unum will purchase your Connecticut home at market appraised value and will
provide you with up to $100,000 protection for loss on sale of your home. Please
be aware that purchase by Unum must occur within the first 12 months of
employment.

Louise Delafield, manager of our relocation package will work with you on your
relocation arrangements.

<PAGE>

F. Other:

Unum will provide appropriate temporary housing in the Portland area while you
and your family are in transition. Coverage is for a sixty day period.

Exhibit 12

EXHIBIT 12

UNUM CORPORATION AND SUBSIDIARIES

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)

Year Ended December 31,
---------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------
Earnings:
Income before income taxes $536.4 $341.6 $381.9
Add: Fixed charges 53.4 52.2 48.0
------- -------- --------
Earnings as adjusted $589.8 $393.8 $429.9
===============================================================================

Fixed charges:
Interest expense $ 42.4 $ 40.7 $ 37.2
Interest portion of rent expense 11.0 11.5 10.8
-------- ---- -------
Total fixed charges $ 53.4 $ 52.2 $ 48.0
===============================================================================

Ratio of earnings to fixed charges 11.0 7.5 9.0
===============================================================================

For purposes of computing the ratio of earnings to fixed charges, earnings as
adjusted consist of income 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, 1997,
with their respective jurisdiction of incorporation.

UNUM Holding Company (Delaware)

First UNUM Life Insurance Company (New York)
Claims Service International, Inc. (Delaware)
UNUM International Underwriters Inc. (Delaware)

UNUM Life Insurance Company of America (Maine)

Colonial Companies, Inc. (Delaware)

Colonial Life & Accident Insurance Company (South Carolina)
BenefitAmerica, Inc. (South Carolina)

Options and Choices, Inc. (Wyoming)

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 International Ltd. (Bermuda)

Boston Compania Argentina de Seguros (Argentina)

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 4, 1998, except
for Note 10 for which the date is February 13, 1998, on our audits of the
consolidated financial statements and the financial statements schedules of UNUM
Corporation and subsidiaries as of December 31, 1997 and 1996, and for the years
ended December 31, 1997, 1996, and 1995, which report is included in the Annual
Report on Form 10-K:

Form S-8 No. 33-31270 pertaining to the UNUM Employees 401(k) Plan
(formerly 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 (additional shares)

Form S-3 No. 33-36873 pertaining to the 1990 Debt Securities

Form S-3 No. 33-69132 pertaining to the 1993 Debt Securities, Preferred
Stock, Common Stock and Warrants

Post-Effective Amendment No. 1 on Form S-8 to Registration Statement on
Form S-4 No. 33-55870 pertaining to the issuance of UNUM Corporation
shares upon the exercise of stock options granted under the Colonial
Plans as defined therein

Form S-3 No. 333-08187 pertaining to the 1996 Debt Securities, Preferred
Stock, Common Stock and Warrants

Form S-8 No. 333-41917 pertaining to the 1998 Goals Stock Option Plan

Form S-8 No. 333-41897 pertaining to the 1996 Long-Term Stock Incentive
Plan

/s/ COOPERS & LYBRAND L.L.P.
Portland, Maine
March 10, 1998

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Kevin J. Tierney his true and lawful attorney-in-fact
and agent, with full powers of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities to sign the Annual Report
on Form 10-K for the year ending December 31, 1997 of UNUM Corporation pursuant
to the Securities Exchange Act of 1934 and any or all amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, and hereby ratifies and confirms his said attorney-in-fact and agent, 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 13, 1998
Gayle O. Averyt

/s/ Robert E. Dillon, Jr. Director February 13, 1998
Robert E. Dillon, Jr.

/s/ Gwain H. Gillespie Director February 13, 1998
Gwain H. Gillespie

/s/ Ronald E. Goldsberry Director February 13, 1998
Ronald E. Goldsberry

/s/ Donald W. Harward Director February 13, 1998
Donald W. Harward

<PAGE>

Signature Title Date

/s/ George J. Mitchell Director February 13, 1998
George J. Mitchell

Cynthia A. Montgomery Director

/s/ James L. Moody, Jr. Director February 13, 1998
James L. Moody, Jr.

/s/ Lawrence R. Pugh Director February 13, 1998
Lawrence R. Pugh

/s/ Lois Dickson Rice Director February 13, 1998
Lois Dickson Rice

/s/ John W. Rowe Director February 13, 1998
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, 1997.
</LEGEND>
<CIK> 0000795581
<NAME> UNUM CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 7,310,900
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 30,700
<MORTGAGE> 1,131,000
<REAL-ESTATE> 231,500
<TOTAL-INVEST> 8,934,100
<CASH> 47,900
<RECOVER-REINSURE> 1,357,000
<DEFERRED-ACQUISITION> 983,500
<TOTAL-ASSETS> 13,200,300
<POLICY-LOSSES> 7,813,000
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 1,004,900
<NOTES-PAYABLE> 635,800
0
0
<COMMON> 20,000
<OTHER-SE> 2,414,800
<TOTAL-LIABILITY-AND-EQUITY> 13,200,300
3,188,700
<INVESTMENT-INCOME> 657,900
<INVESTMENT-GAINS> (3,600)
<OTHER-INCOME> 233,700
<BENEFITS> 2,395,300
<UNDERWRITING-AMORTIZATION> (142,700)<F1>
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 536,400
<INCOME-TAX> 166,100
<INCOME-CONTINUING> 370,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 370,300
<EPS-PRIMARY> 2.65
<EPS-DILUTED> 2.59
<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>