================================================================================
               UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                            -----------------------


                                  FORM 10-K/A


(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, 1998

                                       or

[ ] 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)
                                ----------------

<TABLE>
<S>                                             <C>
                      Delaware
                                                             01-0405657
         (State or other jurisdiction of        (I.R.S. Employer Identification No.)
         incorporation or organization)
                                                                04122
   2211 Congress Street, Portland, Maine                      (Zip Code)
   (Address of principal executive offices)
</TABLE>

       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
6.75% Notes, due 2028                            New York Stock Exchange
</TABLE>

        Securities registered pursuant to Section 12(g) of the Act: None

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

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

     The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 19, 1999, was approximately $6,721,800,000.

     As of February 19, 1999, 138,905,041 shares of the registrant's common
stock were outstanding.


     Exhibit Index appears on page 83.


================================================================================
<PAGE>


                                Amendment No. 1

The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on Form 10-K for
the year ended December 31, 1998:

Additional disclosures in the Disability Insurance segment section to discuss
the claim operations integration activities and additional financial
information in the chart preceding each segment discussion have been provided
in Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

Also, additional disclosures relating to the following "Notes to Consolidated
Financial Statements" in Item 8 "Financial Statements and Supplementary Data"
have been provided:

o special item designation in Note 1 "Summary of Significant Accounting
  Policies,"

o the claim operations integration activities and the description of the
  discount rate used to calculate reserves in Note 4 "Reserves" and

o the proposed merger with Provident Companies Inc. in Note 17 "Proposed Merger
  with Provident and Pro Forma Combined Condensed Financial Statements
  (Unaudited)."

In addition, the registrant hereby amends Item 12 "Security Ownership of
Certain Beneficial Owners and Management," to include a holder of more than
five percent of UNUM Corporation common stock as of December 31, 1998, that was
inadvertently excluded.

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.

Date     June 1, 1999                             /s/ ROBERT E. BROATCH
------------------------------------------------------------------------------
                                                  Robert E. Broatch
                                                  Senior Vice President and
                                                  Chief Financial Officer

<PAGE>

                               TABLE OF CONTENTS

                                    PART I

<TABLE>

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

                                                 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 ....   10
7A.    Quantitative and Qualitative Information about Market Risk ...............................   27
8.     Financial Statements and Supplementary Data ..............................................   28
9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .....   65

                                                 PART III
10.    Directors and Executive Officers of the Registrant .......................................   65
       A. Directors of the Registrant ...........................................................   65
       B. Executive Officers of the Registrant ..................................................   66
11.    Executive and Director Compensation ......................................................   67
12.    Security Ownership of Certain Beneficial Owners and Management ...........................   72
13.    Certain Relationships and Related Transactions ...........................................   73

                                                 PART IV
14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K ..........................   74
       Signatures ...............................................................................   75
       Index to Exhibits ........................................................................   83
</TABLE>


<PAGE>

                                               UNUM Corporation and Subsidiaries

                                    PART I

Item 1. BUSINESS

A. Description of Business

     UNUM Corporation is a Delaware insurance holding company organized in
1985. Operations of its subsidiaries, described below, account for
substantially all of UNUM Corporation and subsidiaries' ("UNUM") 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 is:

     o the leading provider of group long term disability insurance ("group
       LTD") in the United States and the United Kingdom;

     o the leading provider of group short term disability insurance ("group
       STD") in the United States; and

     o a major provider of group life, individual disability ("ID"), long term
       care ("LTC") insurance, special risk reinsurance operations and
       payroll-deducted voluntary employee benefit products.

UNUM conducts operations in North America through wholly-owned subsidiaries
including:

     o UNUM Life Insurance Company of America ("UNUM America"), a Maine life
       insurance company licensed in 49 states, the District of Columbia and
       Canada;

     o First UNUM Life Insurance Company ("First UNUM"), a New York life
       insurance company;

     o 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 the District of Columbia;

     o Duncanson & Holt, Inc. ("D&H"), a New York corporation; and

     o Options and Choices, Inc. ("OCI"), based in Wyoming and acquired in 1997,
       which delivers integrated information and analysis to help organizations
       manage their health and disability program costs.

UNUM's United Kingdom operations are conducted by:

     o UNUM Limited, a wholly-owned subsidiary of UNUM European Holding Company,
       which is wholly-owned by UNUM Corporation; and

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

UNUM's Pacific Rim operations are led by:

     o UNUM Japan Accident Insurance Company Limited ("UNUM Japan") a
       wholly-owned Japanese non-life insurance company established in 1994.

UNUM's Latin America operations are led by:

     o Boston Compania Argentina de Seguros SA ("Boston Seguros"), a general
       lines property/casualty, life and workers' compensation insurance
       company, purchased in 1997 and based in Argentina.

     On November 22, 1998, UNUM entered into an agreement with Provident
Companies Inc. ("Provident"), pursuant to which UNUM and Provident will merge
under the name UNUMProvident Corporation ("UNUMProvident"). Under the merger
agreement ("the merger"), each outstanding share of Provident common stock will
be reclassified and converted into 0.73 of a share of UNUMProvident common
stock and each outstanding share of UNUM common stock will be converted into
one share of UNUMProvident common stock. The merger will be accounted for as a
pooling of interests.

     The transaction is expected to be completed by midyear 1999, and is
subject to clearance or approval by certain federal and state regulators,
approval by shareholders of both companies, and customary closing conditions.
Shareholders who collectively have beneficial ownership representing
approximately 26% of Provident's common stock have agreed to vote in favor of
the merger. As a result of the merger, approximately 58% of UNUMProvident will
be owned by current UNUM shareholders immediately prior to the merger and 42%
of UNUMProvident by current Provident shareholders immediately prior to the
merger.

                                       1
<PAGE>



     In October 1996, UNUM America and First UNUM closed the sale of their
group tax-sheltered annuity ("TSA") businesses to two insurance 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. As of December 31, 1998, consents for assumption
reinsurance have been received relating to substantially all assets under
management.

B. Disability Insurance Segment

     The Disability Insurance segment, which in 1998 accounted for 57% and 59%
of UNUM's revenues and income before income taxes, respectively, includes
disability products offered in North America, the United Kingdom and Japan.
UNUM America and First UNUM market their group insurance and individual
insurance products, included in the Disability Insurance and Special Risk
Insurance segments, through a network of 40 offices in the United States and
Canada utilizing brokers. As of December 31, 1998, these branch offices were
organized into five regions and were staffed with approximately 1,140
management, sales, service and administrative personnel.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
   Product                 Description                          Customer Focus                      Other Information
------------------------------------------------------------------------------------------------------------------------------
                                                 UNUM America and First UNUM
------------------------------------------------------------------------------------------------------------------------------
<S>          <C>                                    <C>                                   <C>
 Group LTD   Coverage for loss of earned            Employer groups consisting of         Group LTD is UNUM's principal
             income due to injury or sickness,      executive, administrative,            product. Since 1976, UNUM
             effective after a waiting period, to   management personnel;                 America and First UNUM
             specified maximums as a                professionals such as educators,      combined have been the leading
             percentage of income and length        consultants, health care providers,   provider of group LTD, based on
             of time.                               accountants and engineers.            inforce cases and premium,
                                                                                          according to Employee Benefit
                                                                                          Plan Review.

                                                                                          Sold primarily on a basis
                                                                                          permitting periodic repricing to
                                                                                          address the underlying claims
                                                                                          experience and the interest rate
                                                                                          environment.
------------------------------------------------------------------------------------------------------------------------------
 Group STD   Coverage for loss of earned            Employer groups consisting of         UNUM America and First UNUM
             income due to injury or sickness,      executive, administrative,            combined are the leading provider
             effective immediately for              management personnel;                 of group STD based on premium
             accidents, and after one week for      professionals such as educators,      and inforce lives according to
             sickness, for up to 26 weeks, to       consultants, health care providers,   Employee Benefit Plan Review
             specified maximums as a                accountants and engineers.            for 1997.
             percentage of income.
                                                                                          Sold primarily on a basis
                                                                                          permitting periodic repricing to
                                                                                          address the underlying claims
                                                                                          experience and the interest rate
                                                                                          environment.
------------------------------------------------------------------------------------------------------------------------------
 LTC         Pays a benefit upon the loss of        Group LTC is offered to employer      Marketed on a guaranteed
             two or more Activities of Daily        groups of 15 or more participants.    renewable basis. All policies cover
             Living (e.g. bathing, dressing,        Groups can offer coverage to          costs related to licensed nursing
             feeding) and the insured's             retirees and employees, and their     home care; optional coverage is
             requirement of standby assistance      spouses, parents and grandparents.    available for professional and/or
             or cognitive impairment; pays on                                             informal home care and inflation
             an indemnity basis, regardless of      Individual LTC is offered on a        protection.
             expenses incurred, up to a lifetime    single customer basis and to
             maximum.                               smaller employer groups.
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       2
<PAGE>

                                               UNUM Corporation and Subsidiaries

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
      Product                   Description                        Customer Focus                     Other Information
------------------------------------------------------------------------------------------------------------------------------
                                                  UNUM America and First UNUM
------------------------------------------------------------------------------------------------------------------------------
<S>                <C>                                  <C>                                 <C>
 Lifelong          Coverage for loss of earned          Professionals, corporate            UNUM America and First UNUM
 Disability        income due to injury or sickness.    executives, business owners, and    combined are a major provider of
 Protection                                             administrative support personnel.   individual disability income
 ("LDP")                                                                                    policies measured by inforce
                                                                                            premium for the United States and
                                                                                            Canada, according to the Life
                                                                                            Insurance Marketing Research
                                                                                            Association's 1997 Individual
                                                                                            Health Issues and Inforce Survey.
                                                                                            Issued on a guaranteed renewable
                                                                                            basis, with the right to reprice
                                                                                            inforce policies subject to
                                                                                            regulatory approval.
                                                                                            Provides benefits and transitional
                                                                                            support for moderate disabilities,
                                                                                            with richer benefits for severe
                                                                                            disabilities. Common options
                                                                                            include additional coverage for
                                                                                            catastrophic injury or illness and
                                                                                            an option to convert to an LTC
                                                                                            policy at retirement age.
------------------------------------------------------------------------------------------------------------------------------
 Association       Coverage for loss of earned          Members of professional             UNUM America is a leading
 disability        income due to injury or sickness.    associations.                       provider of disability insurance in
                                                                                            the association marketplace.
                                                                                            UNUM introduced new
                                                                                            conditionally renewable products
                                                                                            in 1997.
------------------------------------------------------------------------------------------------------------------------------
 LTD reinsurance   Reinsurance of other insurance       Insurance companies participating   Managed by Duncanson & Holt
                   companies' LTD insurance risks.      in reinsurance facilities.          Services, Inc., a leading manager
                                                                                            of group LTD reinsurance in the
                                                                                            United States and a wholly-owned
                                                                                            subsidiary of D&H.
------------------------------------------------------------------------------------------------------------------------------
 Non-cancellable   No longer actively marketed by UNUM America or First UNUM in the         Refer to Item 8 Note 6
 ID products       United States.                                                           "Reinsurance" for a detailed
                                                                                            discussion of reinsurance coverage
                                                                                            of the active life reserves of
                                                                                            UNUM America's existing United
                                                                                            States non-cancellable ID block of
                                                                                            business by Centre Life
                                                                                            Reinsurance Limited.
------------------------------------------------------------------------------------------------------------------------------
                                                           UNUM Limited
------------------------------------------------------------------------------------------------------------------------------
 Group LTD         Similar to United States product.                                        The leading provider of group
                                                                                            LTD insurance in the United
                                                                                            Kingdom, based on premium
                                                        Executive, administrative and       revenue, per ERC Frankona
                                                        management personnel and other      Reassurance Ltd's annual group
                                                        professionals.                      risk survey for 1997.
-----------------------------------------------------                                    -------------------------------------
 Individual        Similar to United States product,                                        Marketed through a network of
 disability        subject to local welfare                                                 independent financial advisors and
                   regulations.                                                             selected United Kingdom
                                                                                            insurance companies.
------------------------------------------------------------------------------------------------------------------------------
                                                            UNUM Japan
------------------------------------------------------------------------------------------------------------------------------
 Group and         Similar to United States products.   Executive, administrative and       Marketed through contracted
 individual LTD                                         management personnel and other      independent agents and brokers.
                                                        professionals.
------------------------------------------------------------------------------------------------------------------------------
 Credit LTD        Protection for mortgage/home         Salaried workers.                   Marketed through banks and
                   lease payments in the event of                                           credit unions.
                   disability.
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       3
<PAGE>


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
     Product                   Description                         Customer Focus                    Other Information
------------------------------------------------------------------------------------------------------------------------------
<S>               <C>                                  <C>                                 <C>
LTD reinsurance   Assumption of certain insurance      Insurance companies participating   Primarily quota share coinsurance
                  risk through long term disability    in reinsurance facilities.          with the direct insurer subject to
                  reinsurance operations for policies                                      compliance with UNUM Japan's
                  in Japan and Hong Kong.                                                  risk management standards for
                                                                                           pricing, underwriting and claims
                                                                                           management.
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

     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 1998 accounted for 28% and 31% of
UNUM's revenues and income before income taxes, respectively. The Special Risk
Insurance segment's group insurance products are sold primarily on a basis
permitting periodic repricing, enabling UNUM to adjust the pricing of its
products to address the underlying claims experience and interest rate
environment.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
     Product                   Description                         Customer Focus                    Other Information
---------------------------------------------------------------------------------------------------------------------------------
                                        UNUM America and First UNUM
---------------------------------------------------------------------------------------------------------------------------------
<S>                   <C>                                 <C>                                 <C>
 Group life           Term life insurance; universal      Broad range of employees.           UNUM America and First UNUM
 products             life insurance; accidental                                              combined were the fourth largest
                      death and dismemberment riders.                                         writer of group life insurance in
                                                                                              the United States for 1997 based
                                                                                              on number of inforce contracts
                                                                                              per Employee Benefit Plan
                                                                                              Review. Marketed through
                                                                                              independent brokers and specialty
                                                                                              agents; also offered through the
                                                                                              association group channel.
---------------------------------------------------------------------------------------------------------------------------------
 Group special risk   Travel and voluntary accident       To employees on an employer or      Marketed through a network of
                      insurance.                          employee-paid basis.                independent brokers and specialty
                                                                                              agents.
---------------------------------------------------------------------------------------------------------------------------------
                                                Duncanson & Holt
---------------------------------------------------------------------------------------------------------------------------------
 Reinsurance          Provides reinsurance facility       Insurance companies participating   Special risk reinsurance operations
 business             management services which may       in reinsurance facilities.          include UNUM America's
                      include marketing, underwriting,                                        participation in reinsurance
                      administration, claims payment                                          facilities managed by D&H and
                      and actuarial services.                                                 direct reinsurance arrangements
                                                                                              primarily for accident and health,
                                                                                              long term care and other special
                                                                                              risk business. As a member
                                                                                              company in special risk
                                                                                              reinsurance facilities managed by
                                                                                              D&H, UNUM America assumes a
                                                                                              share of the insurance risk of
                                                                                              those facilities.

                                                                                              A leading accident and health
                                                                                              reinsurance underwriting manager
                                                                                              which has offices throughout the
                                                                                              United States and in London,
                                                                                              Toronto, Bermuda and Singapore.
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

     D&H and its subsidiaries, with the exception of Duncanson & Holt
Underwriters Ltd. ("DHU"), a wholly-owned subsidiary of Duncanson and Holt
Europe Ltd. ("D&H Europe"), do not bear any insurance risk. DHU participates in
various Lloyd's of London ("Lloyd's") syndicates as a corporate name bearing
insurance risk. D&H Europe owns three Lloyd's Managing Agents which manage
syndicates that underwrite primarily personal accident and other classes of
business at Lloyd's.

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

                                       4
<PAGE>



D. Colonial Products Segment

     The Colonial Products segment, which includes Colonial and its affiliates,
in 1998 accounted for 14% and 21% of UNUM's revenues and income before income
taxes, respectively. Colonial markets a broad line of payroll-deducted,
voluntary employee benefit products.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
       Product                   Description                     Customer Focus                  Other Information
---------------------------------------------------------------------------------------------------------------------------
<S>                  <C>                                <C>                             <C>
 Accident and        Benefit payments for disability                                    Colonial products are marketed
 sickness policies   income, death, dismemberment or                                    primarily through a 3,500 member
                     major injury. Designed to                                          career sales force and 7,700
                     supplement Social Security,                                        brokers, and through collaborative
                     workers' compensation and other                                    sales with UNUM America. All
                     insurance plans.                                                   products are purchased solely with
                                                                                        employee funds.
                                                        Employees at their worksites.   Policies are issued on a
                                                                                        guaranteed renewable basis. This
                                                                                        right to change premiums is, or
                                                                                        may be, subject to various state
                                                                                        insurance department rules,
                                                                                        regulations and approvals.
------------------------------------------------------
 Life insurance      Universal life; whole life.
------------------------------------------------------
 Cancer policies     Designed to provide payments for
                     hospitalization and scheduled
                     medical benefits.
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

     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,
accounting for approximately 47% of its total premiums in 1998. Flexible
benefits programs assist employers in managing benefit and compensation
packages and provide policyholders the ability to choose benefits that best
meet their needs. Congress could change the laws to limit or eliminate fringe
benefits available on a pretax basis, eliminating Colonial's ability to
continue marketing its products this way. However, Colonial believes its
products provide value to its policyholders, 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 1998 accounted for 1% and less than 1%
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

     UNUM management believes its mortgage loan portfolio is well diversified
geographically and by property type at year end 1998, with less than 20% in any
one region; 33% was in industrial properties, 28% in office buildings, 22% in
retail properties, and 17% in other property types. Mortgage loans that were 60
days or more delinquent on a contract basis, impaired loans and restructured
loans were immaterial at December 31, 1998.

     Refer to Item 7 under the caption "Investments" and Item 8 Note 2
"Investments" for more information.

G. Risk Management and Reinsurance

     Risk management, including 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,
organized by product and sales region, evaluate policy applications based on
information provided by the applicant and other sources. Underwriting

                                       5
<PAGE>

                                               UNUM Corporation and Subsidiaries

rules and procedures are established to produce mortality and morbidity results
consistent with assumptions used in pricing the product, while also providing
for competitive risk selection.

     Consistent with industry practice, UNUM reinsures with other unaffiliated
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 contingently liable to the insured for payment
of policy benefits if the reinsurers cannot meet their obligations under the
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 reinsurance for certain catastrophic losses.


     UNUM periodically monitors the financial condition, and in some cases
holds substantial collateral as security in the form of funds, securities
and/or letters of credit to mitigate credit risk from its reinsurers. At
December 31, 1998, approximately 85% of the reinsurance receivable balance was
due from five reinsurers. These reinsurers had a rating of A or better (Strong)
from Standard & Poor's--a recognized insurance rating agency. Additionally,
UNUM holds collateral in the form of securities comprising 53% of the balance.

     During 1996, UNUM America entered into an agreement for reinsurance
coverage of the active life reserves of its existing United States
non-cancellable individual disability 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, 1998, were $320.8 million and $414.3 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 unpaid claims reserves reported in the consolidated financial
statements are liabilities for unpaid losses, with respect to insured events
which have occurred, including events not yet reported to UNUM, in accordance
with generally accepted accounting principles ("GAAP"). These reserve balances
generally differ from those in statutory financial statements, which are
subject to minimum reserves established by state laws. The differences between
GAAP and statutory reserves arise from the use of different morbidity,
mortality, interest, expense and lapse assumptions.

     Future policy benefits 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, 1998, UNUM had approximately 8,200 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 1998, there were more than 1,600 legal reserve life
insurance companies in the United States and Canada, more than 240 life
assurance offices in the United Kingdom, approximately 106 life and non-life
insurance companies in Japan, and more than 250 insurance companies in
Argentina. These companies may offer insurance products similar to those
marketed by UNUM.

K. Regulation

     In common with other insurance companies, UNUM's insurance subsidiaries
are subject to regulation and supervision in jurisdictions in which they do
business, primarily for the protection of policyholders. Although the extent of
such regulation varies, insurance laws generally establish supervisory agencies
with broad administrative powers including: granting and revocation of licenses
to transact business; establishing reserve requirements; setting the form,
content and frequency of required financial statements; the licensing of
agents; the approval of policy

                                       6
<PAGE>



forms; prescribing the type and amount of investments permitted; and, in
general, the conduct of all insurance activities. UNUM's insurance operations
and subsidiaries must meet the standards and tests for its investments
promulgated by insurance laws and regulations of the jurisdictions in which
they are domiciled. 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.

     Certain states require periodic registration and reporting by insurance
companies domiciled in them that control or are controlled by other
corporations or persons. UNUM's domestic insurance subsidiaries are registered
as members of the UNUM holding company system in the states of Maine, New York,
South Carolina and Delaware. 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.

     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 United States
domiciled insurance companies. 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, 1998, were
significantly above the ranges that would require regulatory action.

L. Participation Fund Account

     Participating policies issued by the former Union Mutual Life Insurance
Company ("Union Mutual") prior to its demutualization will remain participating
as long as they remain in force. A Participation Fund Account ("PFA") was
established for the benefit of all Union Mutual's individual participating life
and annuity policies and contracts. At December 31, 1998, the PFA had
approximately $371 million in assets, held by UNUM America, Union Mutual's
successor.

     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
would reduce earnings of UNUM America and UNUM. All operating data of the PFA
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 seven office buildings and
three 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 1998.

                                       7
<PAGE>

                                               UNUM Corporation and Subsidiaries

                                    PART II

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

     The principal markets in which UNUM Corporation common stock is traded are
the New York Stock Exchange and the Pacific Exchange. UNUM's ticker symbol is
"UNM." As of December 31, 1998, there were 21,756 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>
                                               1998                                                1997
                        --------------------------------------------------- ---------------------------------------------------
                             4Q           3Q           2Q           1Q           4Q           3Q           2Q           1Q
                        ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S>                      <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>
High ..................  $60.063      $59.375      $59.625      $55.563      $54.438      $48.250      $46.500      $39.813
Low ...................  $42.000      $44.000      $51.500      $48.000      $45.125      $40.688      $33.625      $35.313
Close .................  $58.375      $49.688      $55.500      $55.188      $54.375      $45.625      $42.250      $36.500
Dividend Paid .........  $0.1475      $0.1475      $0.1475      $0.1425      $0.1425      $0.1425      $0.1425      $0.1375
</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.

                       UNUM Corporation and Subsidiaries

                     SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                      -------------------------------
                                                            1998            1997
(Dollars in millions, except per common share data)   --------------- ---------------
<S>                                                   <C>             <C>
Income Statement Data
Revenues:
Premiums and fees and other income: (b)
 Disability Insurance Segment .......................  $  2,167.5      $  1,882.6
 Special Risk Insurance Segment .....................     1,208.4           947.2
 Colonial Products Segment ..........................       556.5           530.8
 Retirement Products Segment ........................        26.6           130.3
 Corporate ..........................................          --             0.1
                                                       ------------    ----------
Total premiums and fees and other income ............     3,959.0         3,491.0
                                                       ------------    ----------
Net investment income: (a)
 Disability Insurance Segment .......................       491.4           468.0
 Special Risk Insurance Segment .....................        80.6            71.5
 Colonial Products Segment ..........................        67.7            57.6
 Retirement Products Segment ........................        38.6            54.4
 Corporate ..........................................         4.1             5.9
                                                       ------------    ----------
Total net investment income .........................       682.4           657.4
                                                       ------------    ----------
Total revenues ......................................     4,641.4         4,148.4
                                                       ------------    ----------
Benefits and expenses: (b)
 Disability Insurance Segment .......................     2,352.4         2,037.9
 Special Risk Insurance Segment .....................     1,127.7           917.4
 Colonial Products Segment ..........................       517.2           489.6
 Retirement Products Segment ........................        64.6           108.5
 Corporate ..........................................        62.1            58.6
                                                       ------------    ----------
Total benefits and expenses .........................     4,124.0         3,612.0
                                                       ------------    ----------
Income (loss) before income taxes: (b)
 Disability Insurance Segment .......................       306.5           312.7
 Special Risk Insurance Segment .....................       161.3           101.3
 Colonial Products Segment ..........................       107.0            98.8
 Retirement Products Segment ........................         0.6            76.2
 Corporate ..........................................       (58.0)          (52.6)
                                                       ------------    ----------
Total income before income taxes ....................       517.4           536.4
                                                       ------------    ----------
Income taxes ........................................       154.0           166.1
                                                       ------------    ----------
Net income ..........................................  $    363.4      $    370.3
                                                       ============    ==========
Per common share:
 Net income--basic ..................................  $     2.63      $     2.65
 Net income--diluted ................................  $     2.57      $     2.59
 Dividends paid .....................................  $   0.5850      $   0.5650
                                                      =============   ===========
Balance Sheet Data
Assets ..............................................  $ 15,182.9      $ 13,440.1
Long-term debt ......................................  $    598.3      $    509.2
Stockholders' equity ................................  $  2,737.7      $  2,434.8
Shares outstanding ..................................       138.7           138.3
Weighted-average shares outstanding during the year:
 Basic ..............................................       138.3           139.9
 Diluted ............................................       141.4           142.9

<CAPTION>
                                                                  Year Ended December 31,
                                                      -----------------------------------------------
                                                            1996            1995            1994
(Dollars in millions, except per common share data)   --------------- --------------- ---------------
<S>                                                   <C>             <C>             <C>
Income Statement Data
Revenues:
Premiums and fees and other income: (b)
 Disability Insurance Segment .......................  $  1,917.7      $  1,879.9      $  1,716.2
 Special Risk Insurance Segment .....................       783.3           702.3           607.1
 Colonial Products Segment ..........................       498.2           475.1           441.3
 Retirement Products Segment ........................        65.8            34.1            31.4
 Corporate ..........................................          --             0.1             0.8
                                                       ------------    ----------      ----------
Total premiums and fees and other income ............     3,265.0         3,091.5         2,796.8
                                                       ------------    ----------      ----------
Net investment income: (a)
 Disability Insurance Segment .......................       468.5           592.9           400.3
 Special Risk Insurance Segment .....................        57.6            48.4            40.7
 Colonial Products Segment ..........................        47.3            52.2            32.6
 Retirement Products Segment ........................       217.2           323.7           338.0
 Corporate ..........................................        16.1            14.2             4.2
                                                       ------------    ----------      ----------
Total net investment income .........................       806.7         1,031.4           815.8
                                                       ------------    ----------      ----------
Total revenues ......................................     4,071.7         4,122.9         3,612.6
                                                       ------------    ----------      ----------
Benefits and expenses: (b)
 Disability Insurance Segment .......................     2,170.9         2,255.8         2,060.3
 Special Risk Insurance Segment .....................       761.7           690.4           581.9
 Colonial Products Segment ..........................       453.1           439.6           411.2
 Retirement Products Segment ........................       281.6           312.3           327.4
 Corporate ..........................................        62.8            42.9            33.2
                                                       ------------    ----------      ----------
Total benefits and expenses .........................     3,730.1         3,741.0         3,414.0
                                                       ------------    ----------      ----------
Income (loss) before income taxes: (b)
 Disability Insurance Segment .......................       215.3           217.0            56.2
 Special Risk Insurance Segment .....................        79.2            60.3            65.9
 Colonial Products Segment ..........................        92.4            87.7            62.7
 Retirement Products Segment ........................         1.4            45.5            42.0
 Corporate ..........................................       (46.7)          (28.6)          (28.2)
                                                       ------------    ------------    ------------
Total income before income taxes ....................       341.6           381.9           198.6
                                                       ------------    ------------    ------------
Income taxes ........................................       103.6           100.8            43.9
                                                       ------------    ------------    ------------
Net income ..........................................  $    238.0      $    281.1      $    154.7
                                                       ============    ============    ============
Per common share:
 Net income--basic ..................................  $     1.63      $     1.93      $     1.04
 Net income--diluted ................................  $     1.61      $     1.92      $     1.04
 Dividends paid .....................................  $   0.5450      $   0.5175      $   0.4600
                                                      =============   =============   =============
Balance Sheet Data
Assets ..............................................  $ 15,580.4      $ 14,787.8      $ 13,127.2
Long-term debt ......................................  $    409.2      $    457.3      $    182.1
Stockholders' equity ................................  $  2,263.1      $  2,302.9      $  1,915.4
Shares outstanding ..................................       143.6           146.0           144.8
Weighted-average shares outstanding during the year:
 Basic ..............................................       145.9           145.4           148.3
 Diluted ............................................       148.0           146.6           149.5
</TABLE>

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

(b) Refer to the discussion of special items in Item 7 "Management's Discussion
    and Analysis of Financial Condition and Results of Operations," as these
    items may affect the comparability of the information presented in certain
    segments.

                                       9
<PAGE>



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, 1998, and 1997, the consolidated results of
operations for the past three years and, where appropriate, factors that may
affect future financial performance.

FORWARD-LOOKING INFORMATION

     The Private Securities Litigation Reform Act of 1995 ("the Act") provides
a "safe harbor" for forward-looking statements which are identified as such and
are accompanied by the identification of important factors which could cause a
material difference from the forward-looking statements. UNUM claims the
protection afforded by the safe harbor in the Act. Certain information
contained in this discussion, or in any other written or oral statements made
by UNUM, is or may be considered as forward-looking; for example, disclosures
regarding "Quantitative and Qualitative Information About Market Risk," the
"Year 2000 Date Conversion" and reserves discussed in the Disability Insurance
segment contain such information. Forward-looking statements are those not
based on historical information, but rather, relate to future operations,
strategies, financial results or other developments, and contain terms such as
"may," "expects," "should," "believes," "anticipates," "intends," "estimates,"
"projects," "goals," "objectives" or similar expressions. Although UNUM has
used appropriate care in developing forward-looking statements, such statements
are based upon estimates and assumptions that are subject to significant risks,
business, economic and competitive uncertainties, and other factors, many of
which are beyond UNUM's control or, with respect to future business decisions,
are subject to change.

     Certain risks and uncertainties are inherent in UNUM's business.
Therefore, UNUM cautions the reader that revenues and income could differ
materially from those expected to occur depending on factors which may be
global or national in scope, related to the insurance industry generally, or
applicable to UNUM specifically. Such factors are 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 earnings. These 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.

PROPOSED MERGER WITH PROVIDENT

     On November 22, 1998, UNUM entered into an agreement with Provident
Companies Inc. ("Provident"), pursuant to which UNUM and Provident will merge
under the name UNUMProvident Corporation ("UNUMProvident"). Under the merger
agreement, each outstanding share of Provident common stock will be
reclassified and converted into 0.73 of a share of UNUMProvident common stock
and each outstanding share of UNUM common stock will be converted into one
share of UNUMProvident common stock. The merger will be accounted for as a
pooling of interests.

     Certain information contained in this discussion about the merger, or in
any other written or oral statements made by UNUM, regarding the impact of the
merger on future operations, is considered as forward-looking, and should be
read as such (see previous section on "Forward-Looking Information"). In
connection with the proposed merger, UNUM is evaluating its processes and
assumptions used to calculate the discount rate for claim reserves of certain
disability businesses so that they may be more consistent with those used by
Provident. Upon completion of the merger, UNUM will reduce the rates used to
discount unpaid claims reserves for group long term disability, individual
disability and the disability businesses of UNUM Limited. The preliminary
estimates of discount rate reductions will result in an estimated increase to
UNUM's unpaid claims reserves upon consummation of the merger of approximately
$230 million on a pretax basis. Additionally, it is expected that upon
completion of the merger the combined entity, UNUMProvident, will record an
expense for merger related costs of approximately $210 million on a pretax
basis. These costs include amounts for severance and related costs, early
retirement, exit costs for duplicate facilities and asset impairments, and
merger related costs such as investment banker, legal and accountant fees. The
estimated merger related expenses represent management's best estimates based
on available information at this time. Actual charges may differ from these
estimated amounts when these items are finalized.

                                       10
<PAGE>

                                               UNUM Corporation and Subsidiaries

CONSOLIDATED OVERVIEW

<TABLE>
<CAPTION>
(Dollars and shares in millions,
except per common share data)                            1998         % Change         1997         % Change         1996
-------------------------------------------------   -------------   -----------   -------------   -----------   -------------
<S>                                                 <C>             <C>           <C>             <C>           <C>
Income Data
Revenues
 Premiums .......................................    $ 3,841.7          17.7%      $ 3,263.7           3.6%      $ 3,151.5
 Investment income ..............................        661.4          nm             661.0         (17.7)          803.3
 Net realized investment gains (losses) .........         21.0          nm              (3.6)         nm               3.4
 Fees and other income ..........................        117.3         (48.4)          227.3          nm             113.5
                                                     ---------         -----       ----------        -----       ---------
  Total revenues ................................      4,641.4          11.9         4,148.4           1.9         4,071.7
Benefits and expenses ...........................      4,124.0          14.2         3,612.0          (3.2)        3,730.1
                                                     ---------         -----       ----------        -----       ---------
Income before income taxes ......................        517.4          (3.5)          536.4          57.0           341.6
Income taxes ....................................        154.0          (7.3)          166.1          60.3           103.6
                                                     ---------         -----       ----------        -----       ---------
  Net income ....................................    $   363.4          (1.9)%     $   370.3          55.6%      $   238.0
                                                     =========         =====       ==========        =====       =========
Net income per common share:
 Diluted ........................................    $     2.57         (0.8)%     $    2.59          60.9%      $     1.61
 Basic ..........................................    $     2.63         (0.8)%     $    2.65          62.6%      $     1.63
                                                     ==========        =====       ==========        =====       ==========
Summary of income (loss) before
 income taxes
 Disability Insurance Segment ...................    $   306.5          (2.0)%     $   312.7          45.2%      $   215.3
 Special Risk Insurance Segment .................        161.3          59.2           101.3          27.9            79.2
 Colonial Products Segment ......................        107.0           8.3            98.8           6.9            92.4
 Retirement Products Segment ....................          0.6         (99.2)           76.2          nm               1.4
 Corporate ......................................        (58.0)         10.3           (52.6)         12.6           (46.7)
                                                     ----------        -----       ----------        -----       ----------
  Total income before income taxes ..............    $   517.4          (3.5)%     $   536.4          57.0%      $   341.6
                                                     ==========        =====       ==========        =====       ==========
</TABLE>

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

<TABLE>
<CAPTION>
(Dollars and shares in millions)                              1998             1997             1996
------------------------------------------------------   --------------   --------------   --------------
<S>                                                      <C>              <C>              <C>
Balance Sheet Data
Assets ...............................................    $15,182.9        $13,440.1        $15,580.4
Notes Payable ........................................    $   881.8        $   635.8        $   526.9
Stockholders' equity .................................    $ 2,737.7        $ 2,434.8        $ 2,263.1
Shares outstanding ...................................        138.7            138.3            143.6
Weighted-average shares outstanding--diluted .........        141.4            142.9            148.0
Weighted-average shares outstanding--basic ...........        138.3            139.9            145.9
</TABLE>

     During 1998, to better reflect the business of Duncanson & Holt
Underwriters Ltd., as reported in the Special Risk Insurance segment, the
results have been reflected on separate lines in UNUM's consolidated statements
of income and balance sheets. Previously, the operating results and financial
position were reported as a net amount in fees and other income and other
assets, respectively. The 1997 and 1996 amounts have been reclassified for
comparative purposes.

     Effective tax rates, which reflect income tax expense as a percentage of
income before income taxes, were 29.8%, 31.0% and 30.3% for 1998, 1997 and
1996, 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 change in the effective tax rate over the three year
period was primarily due to changes in tax-exempt income as a percentage of
income before income taxes.

                                       11
<PAGE>

                                               UNUM Corporation and Subsidiaries

     A comparison of net income is impacted by the inclusion of realized
investment gains (losses), and special items, that occurred in 1998, 1997 and
1996. Operating income in 1998, 1997 and 1996, which is presented on an after
tax basis and excludes realized investment gains (losses) and the special items
discussed below, was as follows:

<TABLE>
<CAPTION>
(Dollars in millions,
except per common share amounts)         1998       % Change        1997       % Change        1996
----------------------------------   -----------   ----------   -----------   ----------   -----------
<S>                                  <C>           <C>          <C>           <C>          <C>
Operating income .................    $388.2          13.6%       $341.7          13.3%       $301.7
Operating income per common share:
 Diluted .........................    $ 2.75          15.1%       $ 2.39          17.2%       $ 2.04
 Basic ...........................    $ 2.81          15.2%       $ 2.44          17.9%       $ 2.07
</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. Realized
investment gains (losses) are excluded from this discussion as management
believes the volatility in gains and losses associated with the selling of
invested assets in the financial markets is not representative of ongoing
operations. Special items are excluded from this discussion as management
considers them as being not representative of our ongoing operations and
believes a discussion of the results on a pretax operating income basis provides
a better understanding of the results of ongoing operations. While management
believes that pretax operating income provides relevant and useful information,
it does not replace income before income taxes and net income calculated in
accordance with generally accepted accounting principles as a measure of UNUM's
profitability. Therefore, this discussion should be read in conjunction with the
Consolidated Financial Statements, Notes to Consolidated Financial Statements
and Selected Consolidated Financial Data included elsewhere in the Form 10-K (as
amended). The following table summarizes pretax operating income (loss) for the
four business segments and Corporate for the years ended December 31, 1998, 1997
and 1996, 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)                           1998       % Change        1997       % Change        1996
-----------------------------------------   -----------   ----------   -----------   ----------   -----------
<S>                                         <C>           <C>          <C>           <C>          <C>
Summary of pretax operating income (loss)
 Disability Insurance Segment ...........    $348.3          10.3%       $315.8         13.4%       $278.4
 Special Risk Insurance Segment .........     159.4          27.7         124.8         38.4          90.2
 Colonial Products Segment ..............     105.1           6.4          98.8          6.6          92.7
 Retirement Products Segment ............       1.0         (78.7)          4.7        (65.4)         13.6
 Corporate ..............................     (58.0)         12.0         (51.8)        38.1         (37.5)
                                             ------         -----        ------        -----        ------
  Total pretax operating income .........    $555.8          12.9%       $492.3         12.6%       $437.4
                                             ======         =====        ======        =====        ======
</TABLE>

     UNUM reported increased pretax operating income for the year ended
December 31, 1998, as compared with the same period in 1997. The increase was
primarily attributable to improvements in pretax operating income for the
Special Risk Insurance and Disability Insurance segments, primarily resulting
from solid premium growth in each segment. See the segment discussions that
follow for a more detailed analysis of operating results.

     For the year ended December 31, 1997, as compared with the same period in
1996, UNUM reported increased pretax operating income, driven by improved
results in the Disability Insurance and Special Risk Insurance segments,
resulting primarily from strong premium growth in both segments during 1997.

Special Item in 1998

      Disability Claims Reserve Increase


     In connection with entering into the merger agreement with Provident in
fourth quarter 1998, UNUM anticipates that as a result of integrating its claim
operations with Provident, there will be a temporary increase in claim costs.
UNUM expects that fewer claims will be resolved or closed during the period
when the two companies are planning and implementing the integration of their
claims organizations. The average length of duration for claims will increase,
resulting in more benefit payments being paid for a relatively short time until
the consolidation of operations is complete. During the fourth quarter of 1998,
UNUM increased its unpaid claims reserve by $59.4 million related to the
expected increase in disability claim duration on existing claims. For
additional disclosures related to this reserve increase see Item 8 Note 4
"Reserves" and the discussion in the


                                       12
<PAGE>




Disability Insurance segment. This reserve increase was reflected as a $49.0
million increase in benefits to policyholders and a $10.4 million reduction in
fee income in the Disability Insurance segment. The reduction in fee income
represents increased reserves for the United States non-cancellable individual
disability business that is reinsured with Centre Life Reinsurance Limited
("Centre Re"). See Item 8 Note 6 under the caption "Reinsurance" for further
information on the reinsurance transaction. Management will continue to
evaluate the impacts of the merger on disability claims experience and the
assumptions around expected disability claims duration that were used in the
determination of the claims reserve increase.


Special Items in 1997

      TSA Deferred Gain Recognition

     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, on October 1, 1996. The sale resulted in a
deferred pretax gain, of which $72.6 million was recognized in income during
1997, 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 was 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 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 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 Item 8 Note 6 under the caption "Reinsurance."

      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. The charges included the write-off of certain intangible assets and the
establishment of a reserve for the present value of expected future losses on
certain discontinued products.

                                       13
<PAGE>



     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.

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, 1998, 1997 and 1996:

<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, 1998:
Income (loss) before income taxes ........    $306.5        $161.3       $107.0      $ 0.6        $(58.0)       $517.4
Exclude realized investment (gains)
 losses ..................................     (17.6)         (1.9)        (1.9)       0.4            --         (21.0)
                                              ------        ------       ------      -----        ------        ------
                                               288.9         159.4        105.1        1.0         (58.0)        496.4
Special item:
 Disability claims reserve increase ......      59.4            --           --         --            --          59.4
                                              ------        ------       ------      -----        ------        ------
Pretax operating income (loss) ...........    $348.3        $159.4       $105.1      $ 1.0        $(58.0)       $555.8
                                              ======        ======       ======      =====        ======        ======
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
                                              ======        ======       ======      =====        ======        ======
</TABLE>

                                       14
<PAGE>



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, 1998, 1997 and 1996. 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.

DISABILITY INSURANCE SEGMENT


<TABLE>
<CAPTION>
(Dollars in millions)                            1998         % Change          1997         % Change         1996
-----------------------------------------   -------------   ------------   -------------   -----------   --------------
<S>                                         <C>             <C>            <C>             <C>           <C>
Revenues
Premiums
 Group LTD ..............................    $ 1,385.1           13.6%      $ 1,219.1          11.4%      $  1,094.6
 Group STD ..............................        274.4            33.7          205.3          29.9            158.1
 UNUM Limited ...........................        166.8            13.5          147.0          10.8            132.7
 Individual Products ....................        131.0            34.6           97.3          17.8             82.6
 Other Disability Insurance .............        168.6            14.1          147.8         (65.0)           421.9
                                             ---------          ------      ---------         -----       ----------
 Total premiums .........................      2,125.9            17.0        1,816.5          (3.9)         1,889.9
Investment income .......................        473.8             0.6          471.1           0.5            468.8
Fees and other income ...................         52.0          (21.3)           66.1          nm               27.8
                                             ---------          ------      ---------         -----       ----------
 Total operating revenues ...............      2,651.7            12.7        2,353.7          (1.4)         2,386.5
Benefits and expenses
Benefits to policyholders ...............      1,745.7            16.1        1,503.9          (0.7)         1,514.4
Operating expenses ......................        486.7             7.7          452.0          (1.8)           460.4
Commissions .............................        196.8            17.2          167.9          (8.8)           184.2
Increase in deferred policy acquisition
 costs ..................................       (125.8)           46.4          (85.9)         68.8            (50.9)
                                             ----------         ------      ----------        -----       -----------
 Total benefits and expenses ............      2,303.4            13.0        2,037.9          (3.3)         2,108.1
                                             ----------         ------      ----------        -----       -----------
Pretax operating income (a) .............        348.3            10.3          315.8          13.4            278.4
                                             ----------         ------      ----------        -----       -----------
Special items (b) .......................        (59.4)                            --                          (62.8)
Realized gains (losses) .................         17.6                           (3.1)                          (0.3)
                                             ----------                     ----------                    -----------
Income before income taxes (c) ..........    $   306.5           (2.0)%     $   312.7          45.2%      $    215.3
                                             ==========         ======      ==========        =====       ===========
Supplemental information (d):
Sales (annualized new premiums) .........
 Group LTD ..............................    $   325.2                      $   294.4                     $    218.7
 Group STD ..............................    $   130.1                      $    94.8                     $     74.0
 UNUM Limited ...........................    $    30.6                      $    20.0                     $     14.3
 Long Term Care .........................    $    43.0                      $    24.5                     $     17.4
 Lifelong Disability Protection .........    $    17.0                      $    10.6                     $      5.5
Persistency (premiums) ..................
 Group LTD ..............................         89.4%                          87.7%                          83.6%
 Group STD ..............................         89.6%                          86.7%                          84.5%
 UNUM Limited ...........................         91.2%                          91.3%                          85.6%
Benefit ratio (% of premiums) ...........         82.1%                          82.8%                          80.1%
Operating expense ratio (% of
 premiums) ..............................         22.9%                          24.9%                          24.4%
</TABLE>


--------


nm = not meaningful or in excess of 100%

(a) For the definition of pretax operating income see page 12 of the
    Consolidated Overview.

(b) A discussion of special items begins on page 12 of the Consolidated
    Overview. For a discussion of the 1998 special item see the caption
    Disability Claims Reserve Increase and for a discussion of the 1996
    special items see the captions Individual Disability Reinsurance Fees and
    Intangible Asset Write-offs and Future Loss Reserves.

(c) The Disability Insurance segment discussion of results is on a pretax
    operating income basis. Management believes pretax operating income is a
    better representation of our ongoing operations. While management


                                       15
<PAGE>

                                               UNUM Corporation and Subsidiaries


    believes pretax operating income provides relevant and useful information,
    it does not replace income before income taxes and net income calculated in
    accordance with generally accepted accounting principles as a measure of
    UNUM's profitability. Therefore, this discussion should be read in
    conjunction with UNUM's Consolidated Financial Statements, Notes to
    Consolidated Financial Statements and Selected Consolidated Financial Data
    included elsewhere in the Form 10-K (as amended).

(d) Information relating to sales and persistency is presented as an indicator
    of premium growth in the segment. Persistency data also indicates
    experience in maintaining customers over time. Benefit ratios and
    operating expense ratios show the relative relationships among data to
    earned premiums in the segment's income statement.


     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 long term disability
("group LTD"), group short term disability ("group STD"), long term care,
individual disability and disability reinsurance operations.

Overview

     A new product grouping, Individual Products, shown in the previous table,
was reported in the Disability Insurance segment effective June 30, 1998, and
prior year amounts have been reclassified for comparative purposes. Those
products reported as Individual Products include long term care, guaranteed
renewable individual disability (Lifelong Disability Protection) and certain
other individual disability products. The traditional, fixed price, non-
cancellable individual disability ("non-cancellable ID") business is now
reported in the Other Disability Insurance line. Additionally, effective
January 1, 1997, the individual components of the operating results for the
reinsured non-cancellable 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.

     The Disability Insurance segment's pretax operating income increased in
1998, as compared with 1997, primarily as a result of strong premium growth and
favorable expense growth for the segment. Unfavorable claims experience in the
major product lines and reduced fees and other income for the segment partially
offset these favorable factors.

     The following discussion of 1997 results, as compared with 1996 results,
includes the underlying trends of both the reinsured and non-reinsured portions
of the non-cancellable ID business in order for the analysis of operating
results to be comparable. Refer to Item 8 Note 6 under the caption
"Reinsurance" for further information. 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 favorable operating expense ratios across most lines of business. These
favorable factors were partially offset by higher benefit ratios in certain
disability businesses.

     After adjusting for the effect of claim block acquisitions, the Disability
Insurance segment reported premium growth of 15.5% in 1998 compared with prior
year's growth of 9.4%, which was also adjusted for $255.4 million of premium
ceded during 1997 under the non-cancellable ID reinsurance agreement. The
improvement in premium growth was driven by strong sales results and
persistency improvements, primarily in group LTD and group STD.

     One-time premiums, which are generated by claim block acquisitions, 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)                            1998         1997         1996
-------------------------------------------   ----------   ----------   ----------
<S>                                           <C>          <C>          <C>
Group LTD .................................     $23.7        $18.9        $10.0
UNUM Limited ..............................       0.3          2.6          8.4
Long Term Care ............................        --          0.5           --
Disability Reinsurance Operations .........      31.0          2.1           --
                                                -----        -----        -----
 Total ....................................     $55.0        $24.1        $18.4
                                                =====        =====        =====
</TABLE>

     During 1998, market interest rates fell to historically low levels.
Management expects the reserve discount rate for certain disability lines will
likewise decline as current cash flows are invested in assets at current
yields,

                                       16
<PAGE>




which are below the composite yield of existing assets purchased in prior
years, resulting in higher claim liabilities. Management expects to price new
business and reprice existing business, at contract renewal dates, to mitigate
the effect on new claim liabilities from this decline in interest rates.
However, given the competitive market conditions for UNUM's disability products
in the United States and the United Kingdom, it is uncertain whether pricing
actions can mitigate the entire effect of interest rate declines. Additionally,
in connection with the proposed merger with Provident, UNUM is evaluating its
processes and assumptions used to calculate the discount rate for claim
reserves for group LTD, individual disability and the disability businesses of
UNUM Limited (see "Proposed Merger with Provident" for further information).

     The proposed merger of UNUM and Provident is expected to have a near term
adverse impact on the productivity of UNUM's claims management function
resulting in some delay in claim resolutions during 1999 and additional claim
payments to policyholders. Claim personnel will be distracted from normal claim
management activities as a result of planning and implementing the integration
of the two companies' claims organizations. As a result of the claim operations
integration activities, UNUM recorded a $59.4 million increase in the reserve
for group and individual disability claims incurred as of December 31, 1998.
See Item 8 Note 4 "Reserves" for a detailed discussion. In addition, management
expects the claims operations integration efforts to have some benefits,
primarily related to claims incurred in future periods, as well as the
potential for improved customer satisfaction and lower ultimate claim costs as
best practices in return to work and claims management are implemented. As
benefits related to the integration become known, reserve assumptions will be
revised, if appropriate. Insurance policies that are impacted by the temporary
change in claim resolution rates will not perform as anticipated when priced.
However, since the cause of the additional claim cost is of a temporary nature,
it is not anticipated to have an effect on future policy pricing. The $59.4
million reserve increase is not considered material from a capital adequacy
position.


Group Long Term Disability

     During 1998, group LTD experienced increased pretax operating income that
was driven primarily by strong premium growth of 13.6% and an improved
operating expense ratio. Premium growth in 1998 resulted from the impact of
solid sales growth and stronger persistency, which is a reflection of
continuing customer service actions.

     Group LTD was unfavorably affected by a higher benefit ratio in 1998,
largely the result of increased levels of claims incidence, an increase in the
average size of claims and a longer duration of claims as compared with 1997.
As discussed in the section titled Forward-Looking Information, certain risks
and uncertainties are inherent in UNUM's business. Components of claims
experience, including but not limited to, incidence levels and claims duration,
may continue for some period of time at or above the higher levels experienced
in 1998. Therefore, management continues to monitor claims experience in group
LTD and responds to changes by periodically adjusting prices, refining
underwriting guidelines, changing product features and strengthening risk
management policies and procedures. In addition, management will continue to
evaluate the impacts of the merger on disability claims experience and the
assumptions around expected disability claims duration that were used in the
determination of the fourth quarter 1998 claims reserve increase.

Group Short Term Disability

     Pretax operating income for group STD increased in 1998, as compared with
1997. Key drivers of the increase were premium growth from record sales and
improved persistency, and a favorable operating expense ratio. The strong sales
levels reflect UNUM's continuing efforts to cross-sell group STD products with
other UNUM group products, as well as increasing large case sales. An
unfavorable change in the benefit ratio, primarily from increased claims
incidence levels and larger size cases, partially offset these favorable
factors.

UNUM Limited

     UNUM Limited's pretax operating income declined for the year ended
December 31, 1998, as compared with 1997. The decline was primarily due to an
increased benefit ratio generally resulting from a longer duration of claims
and increased levels of claims incidence and average size of claims. Favorable
expense growth partially offset this decline.

     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
$1.66, $1.64 and $1.56 for the years ended December 31, 1998, 1997 and 1996,
respectively. At December 31, 1998, the spot rate was approximately $1.66.

                                       17
<PAGE>

                                               UNUM Corporation and Subsidiaries

Individual Products

     During 1998, the long term care ("LTC") and Lifelong Disability Protection
("LDP") blocks of business, while still relatively small, continued to
contribute favorably to pretax operating income. LTC and LDP experienced
significant premium growth in 1998, as compared with 1997, reflecting the
strong sales momentum for these businesses.

Other Disability Insurance

     The non-cancellable ID business contributed favorably to the segment's
pretax operating earnings for 1998, largely driven by a lower benefit ratio, as
compared with 1997, during which the non-cancellable ID block incurred higher
levels of claims incidence. Partially offsetting these positive results was a
decline in the operating results of the reinsured block of non-cancellable ID
business reported in fees and other income. This decline was primarily due to
unfavorable claims experience generally resulting from an increase in the
average size of claims and a higher level of claims incidence in the reinsured
block. See Item 8 Note 6 under the caption "Reinsurance" for a discussion of
the reinsurance transaction.

SPECIAL RISK INSURANCE SEGMENT


<TABLE>
<CAPTION>
(Dollars in millions)                             1998        % Change        1997        % Change        1996
-------------------------------------------   ------------   ----------   ------------   ----------   ------------
<S>                                           <C>            <C>          <C>            <C>          <C>
Revenues
Premiums
 Group Life ...............................    $  645.9      22.3%         $  528.1          20.1%     $  439.6
 Other Special Risk Products ..............       513.2      32.5             387.4          25.5         308.6
                                               --------      -----         --------          ----      --------
  Total premiums ..........................     1,159.1      26.6             915.5          22.4         748.2
Investment income .........................        78.7      12.3              70.1          22.3          57.3
Fees and other income .....................        49.3      13.6              43.4          23.6          35.1
                                               --------      -----         --------          ----      --------
  Total revenues ..........................     1,287.1      25.1           1,029.0          22.4         840.6
Benefits and expenses
Benefits to policyholders .................       803.3      26.1             637.2          23.2         517.1
Operating expenses ........................       226.8      17.5             193.1           3.4         186.8
Commissions ...............................       176.1      38.1             127.5          42.1          89.7
Increase in deferred policy acquisition
 costs ....................................       (78.5)     46.5             (53.6)         24.1         (43.2)
                                               ---------     -----         ---------         ----      ---------
  Total benefits and expenses .............     1,127.7      24.7             904.2          20.5         750.4
                                               ---------     -----         ---------         ----      ---------
Pretax operating income (a) ...............       159.4      27.7             124.8          38.4          90.2
                                               ---------     -----         ---------         ----      ---------
Special items (b) .........................          --                       (24.9)                      (11.3)
Realized gains ............................         1.9                         1.4                         0.3
                                               ---------                   ---------                   ---------
Income before income taxes (c) ............    $  161.3      59.2%         $  101.3          27.9%     $   79.2
                                               =========     =====         =========         ====      =========
Supplemental information (d):
Group life sales (annualized new
 premiums) ................................    $  208.7                    $  175.8                    $  150.0
Group life persistency (premiums) .........        86.4%                       86.5%                       85.6%
Benefit ratio (% of premiums) .............        69.3%                       69.6%                       69.1%
Operating expense ratio (% of
 premiums) ................................        19.6%                       21.1%                       25.0%
</TABLE>

--------
(a) For the definition of pretax operating income see page 12 of the
    Consolidated Overview.

(b) A discussion of special items begins on page 12 of the Consolidated
    Overview. For a discussion of the 1997 special items see the captions
    Reorganization Costs and Reinsurance Pool Results and for a discussion of
    the 1996 special items see the caption Intangible Asset Write-offs and
    Future Loss Reserves.

(c) The Special Risk Insurance segment discussion of results is on a pretax
    operating income basis. Management believes pretax operating income is a
    better representation of our ongoing operations. While management


                                       18
<PAGE>




    believes pretax operating income provides relevant and useful information,
    it does not replace income before income taxes and net income calculated in
    accordance with generally accepted accounting principles as a measure of
    UNUM's profitability. Therefore, this discussion should be read in
    conjunction with UNUM's Consolidated Financial Statements, Notes to
    Consolidated Financial Statements and Selected Consolidated Financial Data
    included elsewhere in the Form 10-K (as amended).

(d) Information relating to sales and persistency is presented as an indicator
    of premium growth in the segment. Persistency data also indicates
    experience in maintaining customers over time. Benefit ratios and
    operating expense ratios show the relative relationships among data to
    earned premiums in the segment's income statement.


     The Special Risk Insurance segment includes group life, accidental death
and dismemberment, travel and voluntary accident insurance, special risk
reinsurance operations, and other special risk insurance products.

     Pretax operating income for the Special Risk Insurance segment increased
for the year ended December 31, 1998, as compared with 1997, primarily driven
by strong premium growth and a lower operating expense ratio across the
segment. Additionally, increased fees and other income, largely from
reinsurance underwriting management operations, and increased investment income
positively affected pretax operating income for this period. Higher benefit
ratios in certain product lines partially offset these increases. UNUM's
participation in Lloyd's of London syndicates experienced a higher benefit
ratio, especially in the fourth quarter, as new information was received about
the profitability of open syndicate years. The profitability of the Lloyd's of
London market and the syndicates in which UNUM participates may continue to
deteriorate and impact future pretax operating income. UNUM is conducting a
strategic review of its reinsurance businesses, including the Lloyd's of London
syndicates, to determine the appropriateness of their fit within the context of
the UNUMProvident merged entity. The review could result in the sale of some or
all of the reinsurance businesses. 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 stable persistency continued during the year and
were the primary drivers of group life premium growth of 22.3% in 1998. Claim
block acquisitions generated one-time premiums for group life of $0.2 million
and $3.6 million, respectively, for 1997 and 1996, and for reinsurance
operations of $5.1 million and $16.3 million, respectively, for 1998 and 1996.
Management intends to pursue additional claim block acquisitions in the future.


     The segment's operating expense ratio improved in 1998, primarily driven
by continued expense management combined with the strong premium growth. In
1998, the segment's benefit ratio declined slightly, primarily due to favorable
claims experience in most lines of business offset by unfavorable experience in
certain reinsurance pools.

     The increase in pretax operating income for 1997, as compared with 1996,
was primarily due to strong premium growth in the group life business, lower
expense ratio across most lines, increased investment income and additional
fees and other income predominately from reinsurance underwriting management
operations. These favorable factors were partially offset by higher benefit
ratios in certain lines of business.


                                       19
<PAGE>

                                               UNUM Corporation and Subsidiaries

COLONIAL PRODUCTS SEGMENT


<TABLE>
<CAPTION>
(Dollars in millions)                      1998        % Change        1997        % Change        1996
------------------------------------   ------------   ----------   ------------   ----------   ------------
<S>                                    <C>            <C>          <C>            <C>          <C>
Revenues
Premiums ...........................        $552.7         5.2%       $525.4           6.4%       $493.7
Investment income ..................          65.8        14.2          57.6          21.0          47.6
Fees and other income ..............           3.8       (29.6)          5.4          20.0           4.5
                                            ------       -----        ------          ----        ------
  Total operating revenues .........         622.3         5.8         588.4           7.8         545.8
Benefits and expenses
Benefits to policyholders ..........         268.7         3.5         259.7           8.5         239.3
Interest credited ..................          16.6        37.2          12.1          61.3           7.5
Operating expenses .................         139.4         7.1         130.2           6.2         122.6
Commissions ........................         123.3         7.1         115.1           6.8         107.8
Increase in deferred policy acquisition
 costs .................................    $(30.8)       12.0%       $(27.5)         14.1%       $(24.1)
                                            -------       ----        -------         ----        -------
  Total benefits and expenses ..........     517.2         5.6         489.6           8.1         453.1
                                            -------       ----        -------         ----        -------
Pretax operating income (a) ............     105.1         6.4          98.8           6.6          92.7
Realized gains (losses) ................       1.9                        --                        (0.3)
                                            -------                   -------                     -------
Income before income taxes (b) .........    $107.0         8.3%       $ 98.8           6.9%       $ 92.4
                                            =======       ====        =======         ====        =======
Supplemental information (c):
Sales (annualized first month's
 premiums) .............................    $203.9                    $224.7                      $213.6
Benefit ratio (% of premiums) ..........      48.6%                     49.4%                       48.5%
Operating expense ratio (% of
 premiums) .............................      25.2%                     24.8%                       24.8%
</TABLE>

--------
(a) For the definition of pretax operating income see page 12 of the
    Consolidated Overview.

(b) The Colonial Products segment discussion of results is on a pretax
    operating income basis. Management believes pretax operating income is a
    better representation of our ongoing operations. While management believes
    pretax operating income provides relevant and useful information, it does
    not replace income before income taxes and net income calculated in
    accordance with generally accepted accounting principles as a measure of
    UNUM's profitability. Therefore, this discussion should be read in
    conjunction with UNUM's Consolidated Financial Statements, Notes to
    Consolidated Financial Statements and Selected Consolidated Financial Data
    included elsewhere in the Form 10-K (as amended).

(c) Information relating to sales is presented as an indicator of premium growth
    in the segment. Benefit ratios and operating expense ratios show the
    relative relationships among data to earned premiums in the segment's income
    statement.


     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, 1998, as compared with 1997. The increase was
primarily attributable to additional investment income and a reduced benefit
ratio in the accident, sickness and disability product line, partially offset
by an increase in interest credited and a higher benefit ratio in the cancer
product line. The increase in investment income and interest credited, is
largely due to the assumption of worksite-marketed universal life insurance
under reinsurance agreements Colonial entered into in 1998 and 1997. During
1998, management continued to implement organizational changes to focus on
specific distribution channels to market Colonial products.

     Colonial's pretax operating income increased in 1997, as compared with
1996, primarily due to additional investment income, premium growth and reduced
operating expense ratios across most lines of business.


                                       20
<PAGE>


RETIREMENT PRODUCTS SEGMENT


<TABLE>
<CAPTION>
(Dollars in millions)                          1998        1997        1996
-----------------------------------------   ---------   ---------   ----------
<S>                                         <C>         <C>         <C>
Pretax operating income (a) .............    $  1.0      $  4.7      $  13.6
Special items (b) .......................        --        72.6        (15.0)
Realized gains (losses) .................      (0.4)       (1.1)         2.8
                                             ------      ------      -------
Income before income taxes (c) ..........    $  0.6      $ 76.2      $   1.4
                                             ======      ======      =======
</TABLE>

--------
(a) For the definition of pretax operating income see page 12 of the
    Consolidated Overview.

(b) A discussion of special items begins on page 12 of the Consolidated
    Overview. For a discussion of the 1997 special item see the caption TSA
    Deferred Gain Recognition and for a discussion of 1996 special item see
    the caption Intangible Asset Write-offs and Future Loss Reserves.

(c) The Retirement Products segment discussion of results is on a pretax
    operating income basis. Management believes pretax operating income is a
    better representation of our ongoing operations. While management believes
    pretax operating income provides relevant and useful information, it does
    not replace income before income taxes and net income calculated in
    accordance with generally accepted accounting principles as a measure of
    UNUM's profitability. Therefore, this discussion should be read in
    conjunction with the Consolidated Financial Statements, Notes to
    Consolidated Financial Statements and Selected Consolidated Financial Data
    included elsewhere in the Form 10-K (as amended).


     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. For the years ended December 31, 1998, and 1997, the
segment reported decreased pretax operating income as compared with the
respective prior year. The decline in operating income in both periods was
primarily the result of the sale of UNUM's TSA business in October 1996, as
discussed in Item 8 Note 5 "Sale of Tax-Sheltered Annuity Business." For 1997,
the decrease in TSA results was 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
earnings volatility, reflecting their run-off nature.

CORPORATE


<TABLE>
<CAPTION>
(Dollars in millions)                           1998          1997          1996
-----------------------------------------   -----------   -----------   -----------
<S>                                         <C>           <C>           <C>
Pretax operating loss (a) ...............     $ (58.0)      $ (51.8)      $ (37.5)
Special item (b) ........................          --            --         (10.1)
Realized gains (losses) .................          --          (0.8)          0.9
                                              -------       -------       -------
Loss before income taxes (c) ............     $ (58.0)      $ (52.6)      $ (46.7)
                                              =======       =======       =======
</TABLE>

--------

(a) For the definition of pretax operating income see page 12 of the
    Consolidated Overview.

(b) A discussion of special items begins on page 12 of the Consolidated
    Overview. For a discussion of the 1996 special item see the caption
    Commercial Life Merger and Integration Costs.

(c) The Corporate discussion of results is on a pretax operating income basis.
    Management believes pretax operating income is a better representation of
    our ongoing operations. While management believes pretax operating income
    provides relevant and useful information, it does not replace income
    before income taxes and net income calculated in accordance with generally
    accepted accounting principles as a measure of UNUM's profitability.
    Therefore, this discussion should be read in conjunction with UNUM's
    Consolidated Financial Statements, Notes to Consolidated Financial
    Statements and Selected Consolidated Financial Data included elsewhere in
    the Form 10-K (as amended).


     Corporate includes transactions that are generally non-insurance related.
For the year ended December 31, 1998, as compared with the same period in 1997,
the increased pretax operating loss in Corporate was due to higher interest
expense and decreased investment income, partially offset by lower operating
expenses. The increased pretax operating loss for 1997, compared with 1996, was
primarily due to decreased investment income, principally

                                       21
<PAGE>

                                               UNUM Corporation and Subsidiaries

from the Company's increased use of capital to repurchase shares of its common
stock, and higher operating expenses.

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 Information
about Market Risk" for further discussion). 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.

     In connection with the merger as described in the "Proposed Merger with
Provident" section, UNUM is in the process of evaluating its investment
strategy and overall asset allocation by investment type in anticipation of a
combined entity.

     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 $9,837.7 million and $8,958.9 million at
December 31, 1998, and 1997, respectively. The composition of UNUM's invested
assets at December 31, 1998, was 80.3% fixed maturities, 13.2% mortgage loans,
2.6% real estate and 3.9% other invested assets.

     Gross realized investment gains were $29.1 million, $24.4 million and
$40.2 million, and gross realized investment losses were $8.1 million, $28.0
million and $36.8 million for the years ended December 31, 1998, 1997 and 1996,
respectively.

Fixed Maturities

     Fixed maturities at fair value were $7,896.9 million and $7,310.9 million
at December 31, 1998, and 1997, respectively. Management believes UNUM's fixed
maturity portfolio is well diversified by company and industry sector. The
fixed maturity portfolio is primarily comprised of taxable corporate bonds.

     At December 31, 1998, and 1997, the fixed maturity portfolio included
$89.1 million and $83.7 million, respectively, of below investment grade bonds
(below "BAA") recorded at fair value. These bonds had an associated amortized
cost of $86.2 million and $80.2 million, respectively. Fixed maturity ratings
are obtained from external rating agencies or are determined internally by UNUM
using similar methods if external ratings are not available. Below investment
grade bonds are inherently more risky than investment grade bonds since the
risk of default by the issuer, by definition and as exhibited by bond rating,
is higher. 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. There were no fixed
maturities delinquent 60 days or more at December 31, 1998, and 1997.

Mortgages

     At December 31, 1998, and 1997, UNUM's mortgage loans were $1,303.4
million and $1,131.0 million, respectively. 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.

                                       22
<PAGE>


     Management believes that its mortgage loan portfolio is well diversified
geographically and among property types. UNUM's incidence of new problem
mortgage loans and foreclosure activity has continued to remain very low in
1998, 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. There were no delinquent mortgage loans at December 31, 1998, and at
December 31, 1997, the amount was 0.7% of the portfolio.

     At December 31, 1998, and 1997, impaired loans totaled $20.7 million and
$43.4 million, respectively. Included in the $20.7 million of impaired loans at
December 31, 1998, were $9.0 million of loans which had a related allowance for
probable losses of $2.4 million, and $11.7 million of loans which had no
related allowance for probable losses. Interest lost on impaired loans in 1998,
1997 and 1996 was not material.

     Realized investment losses related to impaired mortgage loans amounted to
$2.3 million, $3.3 million and $1.0 million for 1998, 1997 and 1996,
respectively. Impaired mortgage loans as of December 31, 1998, 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, 1998, restructured
mortgage loans totaled $14.5 million, as compared with $39.3 million at
December 31, 1997. Interest lost on restructured loans was not material in
1998, 1997 or 1996.

Real Estate

     At December 31, 1998, investment real estate amounted to $250.6 million,
compared with $231.5 million at December 31, 1997. Investment real estate is
carried at cost less accumulated depreciation. 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. Real estate acquired through
foreclosure is not expected to have a significant effect on UNUM's results of
operations, liquidity or capital resources.

     At December 31, 1998, and 1997, real estate held for sale amounted to
$15.6 million and $23.3 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.

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 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. The amount available under

                                       23
<PAGE>

                                               UNUM Corporation and Subsidiaries

current law for payment of dividends during 1999 to UNUM Corporation from all
U.S. domiciled insurance subsidiaries without state insurance regulatory
approval is approximately $150 million. UNUM Corporation also has the ability to
draw a dividend from its United Kingdom-based affiliate, UNUM Limited. Such
dividends are limited in amount, based on insurance company legislation in the
United Kingdom which requires a minimum solvency margin. The amount available
under current law for payment of dividends to UNUM Corporation from UNUM Limited
during 1999 is approximately $20 million. 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, 1998, 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.

     On December 15, 1998, UNUM Corporation issued $250 million of senior
notes, which mature in 2028, under an omnibus shelf registration with the
Securities and Exchange Commission, which became effective August 2, 1996. UNUM
used the proceeds to repay short-term debt and for general corporate purposes.
The shelf registration relates to $500 million of securities (including debt
securities, preferred stock, common stock and other securities). On August 15,
1996, UNUM established a $250 million medium-term note ("MTN") program under
the shelf registration.


     On December 4, 1997, UNUM borrowed [British pound]100 million ($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.
Upon issuance of the [British pound]100 million 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. The borrowing is callable by
either party over the life of the agreement, under certain circumstances. UNUM
anticipates the debt will be called in 1999. Therefore, UNUM is currently
evaluating various financing alternatives and intends to substitute a debt
instrument to match the maturity and terms of the interest rate swap agreement.



     At December 31, 1998, UNUM had short-term and long-term debt totaling
$283.5 million and $598.3 million, respectively. At December 31, 1998,
approximately $414 million was available for additional financing under the
existing revolving credit facility and $200 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 $149.7 million and $84.6 million at
December 31, 1998, and 1997, respectively.

     Effective November 23, 1998, UNUM's Board of Directors rescinded the
company's stock repurchase program as a result of the pending merger agreement
with Provident. During 1998, 1997 and 1996, UNUM acquired approximately 1.3
million, 7.1 million and 3.8 million shares, respectively, of its common stock
in the open market at an aggregate cost of $65.0 million, $285.2 million and
$119.1 million, respectively.

     UNUM was committed at December 31, 1998, to purchase invested assets in
the amount of $45.7 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 are available for
the individual United States

                                       24
<PAGE>



domiciled insurance company subsidiaries. Financial strength ratings are based
primarily on U.S. statutory financial information for the individual U.S.
domiciled insurance companies. Debt ratings for UNUM Corporation are based
primarily on consolidated financial information prepared using generally
accepted accounting principles. Both financial strength ratings and debt ratings
incorporate qualitative analyses of UNUM companies done by rating agencies on an
ongoing basis.

     As a result of UNUM's announced plan to merge with Provident, on November
23, 1998, the aforementioned credit agencies put UNUM's credit ratings under
review. The table below reflects the debt ratings for UNUM Corporation and the
financial strength ratings for UNUM's United States domiciled insurance company
subsidiaries at February 26, 1999:

<TABLE>
<CAPTION>
                               Standard
                               & Poor's                         Moody's                         A.M. Best
                     --------------------------- ------------------------------------- --------------------------
<S>                  <C>                         <C>                                   <C>
UNUM Corporation Ratings:
 Senior Notes due                A+                    A1
 December, 2028              (Strong)            (Upper Medium Grade)
                     CreditWatch with negative   On review for possible
                            implications               downgrade

 Senior Debt                     A+                    A1
  (MTN program)             (Strong)             (Upper Medium Grade)
                     CreditWatch with negative   On review for possible
                            implications               downgrade

 Subordinated Debt               A-                    A2
  (Monthly Income           (Strong)             (Upper Medium Grade)
  Debt Securities)   CreditWatch with negative   On review for possible
                            implications               downgrade

 Commercial Paper               A-1                    P-1
                            (Strong)               (Superior Ability)
                     Rating affirmed, 11/23/98   Rating confirmed, 11/23/98

United States Subsidiaries' Ratings:
 UNUM America                    AA                    Aa2                                             A++
                         (Very Strong)               (Excellent)                           (Superior)
                     CreditWatch with negative   On review for possible                   Under review with
                            implications               downgrade                       developing implications

 First UNUM                      AA                    Aa2                                              A+
                         (Very Strong)               (Excellent)                           (Superior)
                     CreditWatch with negative   On review for possible                   Under review with
                            implications               downgrade                     developing implications

 Colonial                        AA                    Aa3                                              A+
                         (Very Strong)               (Excellent)                           (Superior)
                     CreditWatch with negative   On review for possible                   Under review with
                            implications               upgrade                       developing implications
</TABLE>

     At February 26, 1999, the unsold portion of the shelf registration related
to preferred stock carried a rating of "a1/a2" (Upper-Medium Quality) from
Moody's.

DERIVATIVES

     Refer to Item 8 Note 14 "Derivative Financial Instruments" 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

                                       25
<PAGE>

                                               UNUM Corporation and Subsidiaries

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 DATE CONVERSION

     The following discussion regarding the Year 2000 Date Conversion contains
forward-looking statements, and should be read in conjunction with the
Forward-Looking Information disclosure made at the beginning of the
Management's Discussion and Analysis.

     The year 2000 date conversion relates to whether computer systems will
properly recognize date-sensitive information when the year changes to 2000.
This inability to recognize the year 2000 may cause systems to process critical
financial and operational information incorrectly. This, in turn, could cause
disruptions of normal business operations, including the inability to process
claims, bill and collect premium, and manage investment activities. UNUM has a
corporate-wide program underway to address the year 2000 date conversion
relating to its internal computer systems and critical dependencies of its
business including suppliers, business partners, customers, facilities and
telecommunications.

     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 is utilizing both internal and
external resources to reprogram, or replace, and test the software for year
2000 compliance. UNUM's program for the year 2000 is organized into a number of
phases for rectifying its internal computer systems, including assessment, code
remediation, testing, and deployment.

     As of December 31, 1998, UNUM has completed the assessment phase for all
its critical systems and for more than 90% of its non-critical systems. Coding
remediation of UNUM's critical systems is virtually complete with approximately
95% of those remediated completing the testing phase. Greater than 85% of the
non-critical systems have been remediated and tested. Deployment is underway
for most critical systems and the majority of non-critical systems. Management
has substantially completed all phases for its critical and non-critical
systems as of December 31, 1998, and expects to complete all phases by the end
of 1999.

     In addition, UNUM continues to assess critical external dependencies,
including suppliers, business partners and customers, and non-systems aspects
of the business such as facilities and telecommunication. As part of this due
diligence program, UNUM has sent year 2000 compliance questionnaires to its
critical third party suppliers, is reviewing responses received, performing
cross-checks against other publicly available information and conducting due
diligence meetings. UNUM is performing site visits to certain third party
businesses, determining the frequency and timing of follow-up site visits, and
planning to test specific systems for compliance. To date, no significant
issues from critical external dependencies have been identified; however, there
can be no guarantee that the computer systems of these third parties will be
year 2000 compliant. UNUM is developing contingency plans to alleviate the
potential business impact of third parties not being year 2000 compliant.
Management expects all of these plans to be finalized and ready for
implementation in third quarter 1999.

     UNUM estimates that total internal (opportunity costs) and external
(out-of-pocket) costs for addressing the year 2000 date conversion will range
from $70 million to $80 million, which are expensed as incurred. As of December
31, 1998, UNUM has incurred approximately $59 million in connection with its
year 2000 program. 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. However, there can be
no guarantee that these estimates will be achieved and actual results could
differ materially from those plans.

     Failure by UNUM to make the required modifications to existing systems and
conversions to new systems in a timely manner, or failure by third parties to
successfully address year 2000 issues could have a material adverse effect on
UNUM's results of operations, liquidity or capital resources; however, the
potential impact and related costs, if any, are not known at this time. While
management does not anticipate a material adverse effect, UNUM is developing
contingency plans that would allow UNUM to devote its financial and personnel
resources to correct the problem as soon as possible if UNUM's systems were to
be non-compliant. With regard to non-compliance resulting from third party
failure, contingency plans are being developed, as previously discussed, to
attempt to mitigate the extent of this potential impact.

                                       26
<PAGE>



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.

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, 1998, and 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

     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, 1998, and 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 model
used also assumed an immediate change in interest rates without any management
of the investment portfolio in reaction to such change. 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, 1998, and 1997, was estimated to be $290 million and
$323 million, respectively. 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. The sensitivity analysis of notes payable considered the impact of
an immediate hypothetical interest rate change as of December 31, 1998, and
1997, and the effects of the interest rate swap agreement described in Item 8
Note 14 "Derivative Financial Instruments." Based upon the interest rate
exposure relating to UNUM's notes payable at December 31, 1998, and 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 "Derivative Financial Instruments" for
further information on derivatives).

                                       27
<PAGE>

                                               UNUM Corporation and Subsidiaries

Foreign Currency Exchange Risk

     UNUM generally conducts its international businesses through foreign
operating entities that maintain assets and liabilities in local currencies,
substantially limiting foreign currency exchange rate risk to net assets
denominated in foreign currencies. The unrealized foreign currency translation
gains and losses are reported in other comprehensive income in stockholders'
equity. After assessing UNUM's foreign currency exchange risk at December 31,
1998, and 1997, a hypothetical 10-percent adverse change in exchange rates in
the near term would not materially affect UNUM's consolidated stockholders'
equity at December 31, 1998, and 1997. Foreign exchange exposure was calculated
by translating the local reporting currency into U.S. dollars using foreign
currency exchange rates at December 31, 1998, and 1997, and applying a
hypothetical 10-percent adverse change in foreign exchange rates to the
translated amount.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>

<CAPTION>
                                           INDEX                                              Page
                                           -----                                             -----
<S>                                                                                          <C>
Report of Independent Accountants ........................................................    29
Consolidated Financial Statements:
 Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996 ..    30
 Consolidated Balance Sheets as of December 31, 1998, and 1997 ...........................    31
 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998,
1997
   and 1996 ..............................................................................    32
 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and        33
  1996
 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1998,
1997
   and 1996 ..............................................................................    35
Notes to Consolidated Financial Statements ...............................................    36
</TABLE>




                                       28
<PAGE>



                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Directors and Stockholders
UNUM Corporation


In our opinion, the consolidated financial statements listed in the index
appearing under Item 8 on page 28 present fairly, in all material respects, the
financial position of UNUM Corporation and its subsidiaries at December 31,
1998, and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules listed in the index appearing under Item 14(a) on
page 74 present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedules are
the responsibility of UNUM's management; our responsibility is to express an
opinion on these financial statements and financial statement schedules based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.


/s/ PRICEWATERHOUSECOOPERS LLP

Portland, Maine
February 2, 1999

                                       29
<PAGE>

      UNUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                          ---------------------------------------------
(Dollars in millions, except per common share data)            1998            1997            1996
-------------------------------------------------------   -------------   -------------   -------------
<S>                                                       <C>             <C>             <C>
Revenues
Premiums ..............................................    $ 3,841.7       $ 3,263.7       $ 3,151.5
Investment income .....................................        661.4           661.0           803.3
Net realized investment gains (losses) ................         21.0            (3.6)            3.4
Fees and other income .................................        117.3           227.3           113.5
                                                           ---------       ----------      ---------
  Total revenues ......................................      4,641.4         4,148.4         4,071.7
Benefits and expenses
Benefits to policyholders .............................      2,886.2         2,438.8         2,342.2
Interest credited .....................................         46.4            83.5           200.6
Salaries and related expenses .........................        479.3           433.4           424.0
Other operating expenses ..............................        401.1           370.3           445.0
Commissions ...........................................        496.2           410.5           386.9
Increase in deferred policy acquisition costs .........       (235.1)         (166.9)         (109.3)
Interest expense ......................................         49.9            42.4            40.7
                                                           ----------      ----------      ----------
  Total benefits and expenses .........................      4,124.0         3,612.0         3,730.1
                                                           ----------      ----------      ----------
Income before income taxes ............................        517.4           536.4           341.6
Income taxes
Current ...............................................         27.9            68.3           122.3
Deferred ..............................................        126.1            97.8           (18.7)
                                                           ----------      ----------      ----------
  Total income taxes ..................................        154.0           166.1           103.6
                                                           ----------      ----------      ----------
Net income ............................................    $   363.4       $   370.3       $   238.0
                                                           ==========      ==========      ==========
Net income per common share:
 Basic ................................................    $    2.63       $    2.65       $    1.63
 Diluted ..............................................    $    2.57       $    2.59       $    1.61
</TABLE>



                See notes to consolidated financial statements.

                                       30
<PAGE>

                       UNUM CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                          December 31,
                                                                 ------------------------------
(Dollars in millions)                                                 1998            1997
--------------------------------------------------------------   -------------   --------------
<S>                                                              <C>             <C>
                          ASSETS

Investments

 Fixed maturities available for sale--at fair value
  (amortized cost: 1998--$7,350.0; 1997--$6,893.0) ...........    $  7,896.9      $   7,310.9
 Equity securities available for sale--at fair value
  (cost:1998--$21.3; 1997--$21.1).............................          31.0             30.7
 Mortgage loans ..............................................       1,303.4          1,131.0
 Real estate, net ............................................         250.6            231.5
 Policy loans ................................................         137.6            128.5
 Other long-term investments .................................           2.0              1.8
 Short-term investments ......................................         216.2            124.5
                                                                  ----------      -----------
   Total investments .........................................       9,837.7          8,958.9
Cash .........................................................          80.5             56.8
Accrued investment income ....................................         167.4            160.3
Premiums due .................................................         518.1            390.9
Deferred policy acquisition costs ............................       1,266.0          1,031.7
Property and equipment, net ..................................         237.9            196.2
Reinsurance receivables ......................................       1,770.0          1,441.2
Deposit assets ...............................................         729.7            688.3
Other assets .................................................         540.3            486.2
Separate account assets ......................................          35.3             29.6
                                                                  ----------      -----------
   Total assets ..............................................    $ 15,182.9      $  13,440.1
                                                                  ==========      ===========
             LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
 Future policy benefits ......................................    $  2,360.2      $   2,108.4
 Unpaid claims and claim expenses ............................       6,841.2          5,944.4
 Other policyholder funds ....................................         875.4          1,004.9
 Income taxes
  Current ....................................................          47.3             20.7
  Deferred ...................................................         625.8            496.2
 Notes payable ...............................................         881.8            635.8
 Other liabilities ...........................................         778.2            765.3
 Separate account liabilities ................................          35.3             29.6
                                                                  ----------      -----------
   Total liabilities .........................................      12,445.2         11,005.3
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             20.0
 Additional paid-in capital ..................................       1,151.2          1,123.0
 Retained earnings ...........................................       2,444.9          2,162.5
 Accumulated other comprehensive income:
  Unrealized gains, net ......................................         248.4            211.4
  Unrealized foreign currency translation adjustment .........         (19.4)           (16.0)
                                                                  ----------      -----------
   Total accumulated other comprehensive income ..............         229.0            195.4
                                                                  ----------      -----------
                                                                     3,845.1          3,500.9
Less:
 Treasury stock, at cost (1998--61,266,501 shares;
   1997--61,703,924 shares) ..................................       1,085.9          1,050.3
 Restricted stock deferred compensation ......................          21.5             15.8
                                                                  ----------      -----------
 Total stockholders' equity ..................................       2,737.7          2,434.8
                                                                  ----------      -----------
   Total liabilities and stockholders' equity ................    $ 15,182.9      $  13,440.1
                                                                  ==========      ===========
</TABLE>

                See notes to consolidated financial statements.

                                       31
<PAGE>

   UNUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
                                     EQUITY

<TABLE>
<CAPTION>
                                         Common                  Accumulated
                                         Stock     Additional       Other
(Dollars in millions,                  $0.10 Par     Paid-in    Comprehensive
except per common share data)            Value       Capital        Income
------------------------------------- ----------- ------------ ---------------
<S>                                   <C>         <C>          <C>
Balance at January 1, 1996 ..........   $  10.0    $  1,088.2     $  190.0
1996 Transactions:
 Net income .........................
 Other comprehensive income .........                               (108.9)
 Dividends to stockholders
  ($0.545 per common share)..........
 Treasury stock acquired ............
 Employee stock option and
  other transactions ................                    15.2
                                        -------    ----------     --------
Balance at December 31, 1996 ........      10.0       1,103.4         81.1
1997 Transactions:
 Net income .........................
 Other comprehensive income .........                                114.3
 Two-for-one common stock split .....      10.0         (10.0)
 Dividends to stockholders
  ($0.565 per common share)..........
 Treasury stock acquired ............
Employee stock option and
  other transactions ................                    29.6
                                        -------    ----------     --------
Balance at December 31, 1997 ........      20.0       1,123.0        195.4
1998 Transactions:
 Net income .........................
 Other comprehensive income .........                                 33.6
 Dividends to stockholders ..........
  ($0.585 per common share)
 Treasury stock acquired ............
 Employee stock option and
  other transactions ................                    28.2
                                        -------    ----------     --------
Balance at December 31, 1998 ........   $  20.0    $  1,151.2     $  229.0
                                        =======    ==========     ========

<CAPTION>
                                                                     Restricted
                                                                        Stock
(Dollars in millions,                    Retained      Treasury       Deferred
except per common share data)            Earnings        Stock      Compensation      Total
------------------------------------- ------------- -------------- -------------- -------------
<S>                                   <C>           <C>            <C>            <C>
Balance at January 1, 1996 ..........  $  1,713.2     $   (691.6)    $   (6.9)     $  2,302.9
1996 Transactions:
 Net income .........................       238.0                                       238.0
 Other comprehensive income .........                                                  (108.9)
 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 ................                       18.5         (3.7)           30.0
                                       ----------     ----------     --------      ----------
Balance at December 31, 1996 ........     1,871.4         (792.2)       (10.6)        2,263.1
1997 Transactions:
 Net income .........................       370.3                                       370.3
 Other comprehensive income .........                                                   114.3
 Two-for-one common stock split .....                                                      --
 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 ................                       27.1         (5.2)           51.5
                                       ----------     ----------     --------      ----------
Balance at December 31, 1997 ........     2,162.5       (1,050.3)       (15.8)        2,434.8
1998 Transactions:
 Net income .........................       363.4                                       363.4
 Other comprehensive income .........                                                    33.6
 Dividends to stockholders ..........
  ($0.585 per common share)                 (81.0)                                      (81.0)
 Treasury stock acquired ............                      (65.0)                       (65.0)
 Employee stock option and
  other transactions ................                       29.4         (5.7)           51.9
                                       ----------     ----------     --------      ----------
Balance at December 31, 1998 ........  $  2,444.9     $ (1,085.9)    $  (21.5)     $  2,737.7
                                       ==========     ==========     ========      ==========
</TABLE>


                See notes to consolidated financial statements.

                                       32
<PAGE>

                       UNUM CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                                                      ---------------------------------------------
(Dollars in millions)                                                      1998            1997            1996
-------------------------------------------------------------------   -------------   -------------   -------------
<S>                                                                   <C>             <C>             <C>
Operating activities:
Net income ........................................................    $    363.4      $    370.3      $    238.0
Adjustments to reconcile net income to net cash provided by
 operating activities:
 Increase in future policy benefits and unpaid claims and
  claim expenses ..................................................         980.1           726.6           743.0
 Increase in reinsurance receivables ..............................        (327.8)         (277.5)         (721.2)
 Increase in premiums due .........................................        (127.1)          (94.8)          (72.6)
 Increase in income tax liability .................................         140.5            52.8            20.4
 (Increase) decrease in deferred policy acquisition costs .........        (234.2)         (163.3)          274.3
 (Increase) decrease in deposit assets ............................          12.3           (55.9)         (432.1)
 Deferral (recognition) of gain on sale of tax-sheltered
  annuities .......................................................          (3.3)          (72.6)           80.8
 Charge for individual disability reinsurance fees ................            --              --            49.7
 Other ............................................................           6.8             6.4           112.4
                                                                       ----------      ----------      ----------
   Net cash provided by operating activities ......................         810.7           492.0           292.7
                                                                       ----------      ----------      ----------
Investing activities:
Maturities of fixed maturities available for sale .................         405.4           457.7           775.2
Sales of fixed maturities available for sale ......................         715.0           652.1         2,514.4
Sales and maturities of other investments .........................         144.5           234.9           269.5
Purchases of fixed maturities available for sale ..................      (1,557.0)       (1,360.6)       (1,890.9)
Purchases of other investments ....................................        (374.4)         (216.3)         (263.0)
Net (increase) decrease in short-term investments .................         (91.7)           10.7        (1,063.9)
Net additions to property and equipment ...........................         (41.1)          (26.1)          (54.3)
                                                                       ----------      ----------      ----------
Net cash provided by (used in) investing activities ...............        (799.3)         (247.6)          287.0
                                                                       ----------      ----------      ----------
Financing activities:
Deposits and interest credited to investment contracts ............         100.7           285.1           597.1
Maturities and withdrawals from investment contracts ..............        (217.2)         (327.2)         (903.8)
Dividends to stockholders .........................................         (81.0)          (79.2)          (79.8)
Treasury stock acquired ...........................................         (65.0)         (285.2)         (119.1)
Proceeds from notes payable .......................................         278.1           168.3              --
Repayment of notes payable ........................................         (68.1)          (48.5)          (15.0)
Net increase (decrease) in short-term debt ........................          36.0           (10.6)          (42.3)
Other .............................................................          27.3            32.8            18.9
                                                                       ----------      ----------      ----------
   Net cash provided by (used in) financing activities ............          10.8          (264.5)         (544.0)
                                                                       ----------      ----------      ----------
Effect of exchange rate changes on cash ...........................           1.5            (1.0)           (0.3)
                                                                       ----------      ----------      ----------
Net increase (decrease) in cash ...................................          23.7           (21.1)           35.4
Cash at beginning of year .........................................          56.8            77.9            42.5
                                                                       ----------      ----------      ----------
Cash at end of year ...............................................    $     80.5      $     56.8      $     77.9
                                                                       ==========      ==========      ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
 Income taxes .....................................................    $     31.4      $     76.1      $     76.4
 Interest .........................................................    $     50.9      $     43.3      $     40.8
</TABLE>

                See notes to consolidated financial statements.

                                      33
<PAGE>

                       UNUM CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

Supplemental disclosure of noncash operating and investing activities:

     For the year ended December 31, 1997, in connection with contractholder
and participant consents for assumption reinsurance related to the
tax-sheltered annuity business UNUM sold in 1996, 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. Also, 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.

                                       34
<PAGE>

                       UNUM CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                   ----------------------------------------
(Dollars in millions)                                                  1998          1997          1996
----------------------------------------------------------------   -----------   -----------   ------------
<S>                                                                <C>           <C>           <C>
Net income .....................................................    $  363.4      $  370.3      $   238.0
Other comprehensive income:
 Unrealized holding gains (losses) arising
  during the period, net .......................................        47.4         131.2         (135.5)
 Reclassification adjustment for realized (gains) losses
  included in net income, net ..................................       (10.4)         (2.1)           4.7
                                                                    --------      --------      ---------
  Changes in unrealized gains (losses), net ....................        37.0         129.1         (130.8)
 Foreign currency translation adjustments ......................        (3.4)        (14.8)          21.9
                                                                    --------      --------      ---------
  Total other comprehensive income .............................        33.6         114.3         (108.9)
                                                                    --------      --------      ---------
Comprehensive income ...........................................    $  397.0      $  484.6      $   129.1
                                                                    ========      ========      =========
Supplemental disclosures of comprehensive income information:
Tax (expense) benefit related to unrealized holding (gains)
 losses ........................................................   $   (20.8)    $   (65.5)     $    41.8
Tax (expense) benefit related to reclassification adjustment for
 realized (gains) losses .......................................   $    (5.6)    $    (1.1)     $     2.5
                                                                   =========     =========      =========
</TABLE>



                See notes to consolidated financial statements.

                                       35
<PAGE>

                                               UNUM Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

     The accompanying consolidated financial statements of UNUM Corporation and
subsidiaries ("UNUM") have been prepared on the basis of generally accepted
accounting principles ("GAAP"). The preparation of financial statements in
conformity with GAAP 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

     To better reflect the business of Duncanson & Holt Underwriters Ltd., as
reported in the Special Risk Insurance segment, the results have been reflected
on separate lines in UNUM's statements of income, balance sheets and statements
of cash flows. Previously the operating results, financial position and cash
flows were reported as net amounts in fees and other income and other assets.
Prior year amounts have been reclassified for comparative purposes. Certain
other 1997 and 1996 amounts have been reclassified in 1998 for comparative
purposes.

Investments

     Investments are reported as follows:

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

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

     o Mortgage loans--at amortized cost less an allowance for probable losses.


     o Real estate--at cost less accumulated depreciation.

     o Policy loans--at unpaid principal balance.

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

     o 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.

                                       36
<PAGE>



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

     Real estate held for sale is included in other assets in the Consolidated
Balance Sheets and is valued net of a valuation allowance 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 group disability, individual 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. For the Lloyd's of London ("Lloyd's") business
the costs are amortized proportionately over the period the premium is earned.
Amortization may be adjusted periodically to reflect differences between actual
experience and original assumptions, with any resulting changes reflected in
current operating results. The amounts deferred and amortized were as follows:


<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                              ---------------------------------------
(Dollars in millions)                                             1998          1997          1996
-----------------------------------------------------------   -----------   -----------   -----------
<S>                                                           <C>           <C>           <C>
   Deferred ...............................................    $  532.7      $  393.8      $  334.7
   Less amortized .........................................      (297.6)       (226.9)       (225.4)
                                                               --------      --------      --------
    Increase in deferred policy acquisition costs .........    $  235.1      $  166.9      $  109.3
                                                               ========      ========      ========
</TABLE>

Separate Accounts

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

Accounting for Participating Individual Life Insurance

     Participating policies issued by the former Union Mutual Life Insurance
Company ("Union Mutual") prior to its 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 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 2.4% and 2.7% of consolidated assets
and 2.9% and 3.3% of consolidated liabilities at December 31, 1998, and 1997,
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.

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

                                       37
<PAGE>

                                               UNUM Corporation and Subsidiaries

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 and 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.


     UNUM follows the periodic method of accounting for its Lloyd's business
which requires that the premiums be recognized as revenue over the policy term,
and claims, including an estimate of claims incurred but not reported, are
recognized as they occur.

     Premium for the Lloyd's business is based on participation in the
individual syndicate underwriting years that generate premiums over a three-year
period of time. UNUM has participated in the Lloyd's market for a number of
years and uses its historical experience plus information obtained from its
managing agents to estimate revenues, losses, expenses, and the related assets
and liabilities. Additionally, an independent actuarial review of the
syndicates' open reserves is performed annually and management periodically
reviews its estimates as information is received from the Lloyd's syndicates.
Any resulting adjustment to the estimates is reflected in the current results.

Special Item Designation

     UNUM excludes special items from its measurement of segment profit or loss.
Special items are defined as items that management deems not to be
representative of ongoing operations. The types of items that fall within this
designation include restructuring charges, significant claim reserve increases,
nonrecurring expenses and nonrecurring gains. This list is not all-inclusive as
new events or circumstances may arise that management deems not to be
representative of ongoing operations. UNUM consistently omits significant claim
increases from its measure of segment profit or loss. Significance is not based
solely on dollar thresholds, but is determined primarily upon management's
analysis as to whether the reserve increase would distort the trends in the
underlying business.

     Special items are based on the assumption that the item is not likely to
occur each year. UNUM has not had an item recur in a subsequent year, although
there have been claim reserve increases in consecutive years for different
product lines. When a special item occurs, it results in a portion of the
financial performance for a product line (e.g., premiums) being included in
segment results, while a portion of the costs associated with that premium
(e.g., claim reserve increases) is omitted from segment results.

     The chief operating decision maker excludes special items when making
resource allocation decisions and in assessing performance of the segment and
when making other decisions such as product pricing. Special items are
consistently defined and the chief financial officer and chief executive officer
have primary responsibility for making the special item determination and
ensuring consistent measurement of segment profit or loss.


                                       38
<PAGE>




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.

Changes in Accounting Estimates

     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 reported in the Special Risk Insurance segment,
reducing net income by $12.0 million in the Consolidated Statement of Income.

Accounting Pronouncements Adopted

     Effective January 1, 1998, UNUM adopted Financial Accounting Standards
("FAS") No. 130, "Reporting Comprehensive Income," which established 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 or
transactions related to an entity's capital instruments. UNUM has reclassified
financial statements for earlier years as required by FAS 130.

     Effective January 1, 1998, UNUM adopted FAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which established standards
for reporting information about operating segments. Generally, FAS 131 requires
that financial information about operating segments be reported on the basis
that is used internally for evaluating performance. UNUM has determined that
its current segment reporting structure meets the requirements of FAS 131 and
no restatement of financial information is needed. Additional segment
information has been disclosed as required under FAS 131.

     Effective January 1, 1998, UNUM adopted FAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," which revised
disclosure requirements for employers' pension and other retiree benefits. FAS
132 did not change the measurement or recognition of pension or other
postretirement benefit plans. UNUM has restated disclosures for earlier years
presented, as required under FAS 132.

     Effective January 1, 1998, UNUM implemented Statement of Position ("SOP")
98-1, "Accounting for Costs of Computer Software Developed or Obtained for
Internal Use," which provided guidance on accounting for the costs of
developing or obtaining computer software for internal use. The adoption of SOP
98-1 did not have a material effect on UNUM's results of operations or
financial position.

     Effective December 31, 1997, UNUM adopted FAS No. 128, "Earnings Per
Share," ("EPS") which changed the computation of EPS and requires dual
presentation of "basic" and "diluted" EPS. FAS 128 superseded 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 consolidated disclosure
requirements related to the type and nature of securities contained in an
entity's capital structure. FAS 129 did 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.

New Accounting Pronouncements

     In October 1998, the Accounting Standards Executive Committee ("AcSEC")
issued SOP 98-7, "Deposit Accounting: Accounting for Insurance and Reinsurance
Contracts That Do Not Transfer Insurance Risk," which

                                       39
<PAGE>

                                               UNUM Corporation and Subsidiaries

provides guidance on applying the deposit method of accounting to insurance and
reinsurance contracts that do not transfer insurance risk. UNUM is required to
adopt SOP 98-7 effective January 1, 2000. 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 98-7 is not
expected to have a material impact on UNUM's results of operations, liquidity
or financial position.

     In June 1998, the Financial Accounting Standards Board ("FASB") issued FAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivatives embedded in other contracts, and for hedging
activities. FAS 133 requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The accounting for changes in the fair value of a
derivative under FAS 133 depends on the intended use of the derivative and its
hedging designation. UNUM is required to adopt FAS 133 effective January 1,
2000. UNUM has not yet determined the impact FAS 133 will have on its results
of operations, liquidity or financial position.

     In December 1997, the AcSEC issued SOP 97-3, "Accounting by Insurance and
Other Enterprises for Insurance-Related Assessments," which provides guidance
on accounting for the recognition and measurement of liabilities for guaranty
funds and other 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.

NOTE 2. INVESTMENTS

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

Investment Income

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                              ---------------------------------------
(Dollars in millions)                                             1998          1997          1996
-----------------------------------------------------------   -----------   -----------   -----------
<S>                                                           <C>           <C>           <C>
   Fixed maturities available for sale                         $  541.8      $  539.1      $  642.2
   Mortgage loans .........................................       105.0         110.6         112.1
   Real estate ............................................        24.9          23.1          20.0
   Policy loans ...........................................         8.3           6.7          10.2
   Other long-term investments ............................         0.1           2.8           7.3
   Short-term investments .................................        19.7          17.6          52.3
                                                               --------      --------      --------
    Gross investment income ...............................       699.8         699.9         844.1
   Less investment expenses ...............................       (14.3)        (14.5)        (16.3)
   Less investment income on participating individual
    life insurance policies and annuity contracts .........       (24.1)        (24.4)        (24.5)
                                                               --------      --------      --------
    Investment income .....................................    $  661.4      $  661.0      $  803.3
                                                               ========      ========      ========
</TABLE>

Net Realized Investment Gains (Losses)

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                        ------------------------------------
(Dollars in millions)                                      1998         1997         1996
-----------------------------------------------------   ----------   ----------   ----------
<S>                                                     <C>          <C>          <C>
   Gross realized investment gains:
   Fixed maturities available for sale ..............    $  18.6      $  17.1      $  22.0
   Equity securities available for sale .............        0.1          0.7           --
   Mortgage loans, real estate and other ............       10.4          6.6         18.2
                                                         -------      -------      -------
    Gross realized investment gains .................       29.1         24.4         40.2
                                                         -------      -------      -------
   Gross realized investment losses:
   Fixed maturities available for sale ..............       (2.8)       (14.6)       (29.2)
   Mortgage loans, real estate and other ............       (5.3)       (13.4)        (7.6)
                                                         -------      -------      -------
    Gross realized investment losses ................       (8.1)       (28.0)       (36.8)
                                                         -------      -------      -------
     Net realized investment gains (losses) .........    $  21.0     $   (3.6)     $   3.4
                                                         =======     ========      =======
</TABLE>

                                       40
<PAGE>



Change in Unrealized Gains (Losses), Net

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                         ----------------------------------------
(Dollars in millions)                                        1998          1997          1996
------------------------------------------------------   -----------   -----------   ------------
<S>                                                      <C>           <C>           <C>
   Fixed maturities available for sale ...............    $  129.0      $  131.9       $ (265.9)
   Equity securities available for sale ..............          --           2.1            3.4
   Marketable securities held in trust ...............        83.9         127.8             --
   Unpaid claims adjustment ..........................      (160.7)        (68.4)          92.5
   Deferred taxes ....................................       (15.2)        (64.3)          39.2
                                                          --------      --------       --------
    Total change in unrealized gains (losses), net, as
     included in stockholders' equity ................    $   37.0      $  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, 1998, 1997
and 1996, the net unrealized gain on available for sale fixed maturities was
$546.9 million, $417.9 million and $286.0 million, respectively, and the
related unpaid claims adjustment was $397.8 million, $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 Sheets.

Fixed Maturities
     The amortized cost and fair value of fixed maturities available for sale
at December 31, 1998, 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 ........................   $    21.6       $   3.0        $    --       $    24.6
   U.S. States and municipalities .........     1,189.4          56.1             --         1,245.5
   Foreign governments ....................       341.9          53.4             --           395.3
   Public utilities .......................     1,408.8         121.6           (7.8)        1,522.6
   Corporate bonds ........................     4,280.5         334.3          (16.3)        4,598.5
   Redeemable preferred stocks ............         0.2            --             --             0.2
   Mortgage-backed securities .............       107.6           2.6             --           110.2
                                              ---------       -------        -------       ---------
     Total ................................   $ 7,350.0       $ 571.0        $ (24.1)      $ 7,896.9
                                              =========       =======        =======       =========
</TABLE>

     The amortized cost and fair value 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
   U.S. 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 value of fixed maturities available for sale
at December 31, 1998, 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.

                                       41
<PAGE>

                                               UNUM Corporation and Subsidiaries

<TABLE>
<CAPTION>
                                                        Amortized         Fair
(Dollars in millions)                                     Cost           Value
---------------------------------------------------   ------------   -------------
<S>                                                   <C>            <C>
   Due in one year or less ........................    $   384.7      $    390.2
   Due after one year through five years ..........      2,623.4         2,811.4
   Due after five years through ten years .........      3,690.8         3,982.1
   Due after ten years ............................        543.5           603.0
                                                       ---------      ----------
                                                         7,242.4         7,786.7
    Mortgage-backed securities ....................        107.6           110.2
                                                       ---------      ----------
     Total ........................................    $ 7,350.0      $  7,896.9
                                                       =========      ==========
</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, 1998:

<TABLE>
<CAPTION>
                                                                        Fair
(Dollars in millions)                                      Cost         Value
-----------------------------------------------------   ----------   ----------
<S>                                                     <C>          <C>
   Common stocks:
    Industrial, miscellaneous and all other .........     $ 21.3       $ 31.0
                                                          ======       ======
</TABLE>

     Gross unrealized investment gains on equity securities available for sale
totaled $10.5 million, $9.6 million, and $7.5 million at December 31, 1998,
1997 and 1996, respectively. Gross unrealized investment losses were not
material at December 31, 1998, 1997 and 1996.

Mortgages

     At December 31, 1998, and 1997, impaired loans totaled $20.7 million and
$43.4 million, respectively. Included in the $20.7 million were $9.0 million of
loans which had a related allowance for probable losses of $2.4 million, and
loans of $11.7 million which had no related allowance for probable losses.
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 loans of $22.6 million which had no related allowance for
probable losses.

     Restructured mortgage loans amounted to $14.5 million and $39.3 million at
December 31, 1998, and 1997, 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, 1998, 1997, or 1996.

Real Estate and Other

     Real estate acquired in satisfaction of debt cumulatively amounted to
$62.4 million at December 31, 1998. Real estate held for sale amounted to $15.6
million at December 31, 1998, and $23.3 million at December 31, 1997.

     Real estate with a depreciated cost of $5.2 million and no bonds or
mortgages were non-income producing for the twelve months ended December 31,
1998. Interest lost on these investments was not material in 1998, 1997, or
1996.

     UNUM was committed at December 31, 1998, to purchase fixed maturities and
other invested assets in the amount of $45.7 million.

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, 1998
    Mortgage loans ....................     $  33.9        $  2.3         $ (3.4)      $  32.8
    Real estate held for sale .........        17.8          (1.0)            --          16.8
                                            -------        ------         ------       -------
     Total ............................     $  51.7        $  1.3         $ (3.4)      $  49.6
                                            =======        ======         ======       =======
</TABLE>

                                       42
<PAGE>



<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
                                            =======       ======         ======       =======
</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 worse than the
reserve assumptions. Reserves for group insurance policies consist primarily of
prepaid premiums. The interest rates used in the calculation of reserves for
future policy benefits at December 31, 1998, and 1997, principally ranged from
4.5% to 9.5% and from 5.0% to 9.5%, respectively. 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, claim
resolution 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 is reflected in current operations. 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, 1998, and 1997, were principally as follows:

<TABLE>
<CAPTION>
                                                                  1998             1997
                                                            ---------------   -------------
<S>                                                         <C>               <C>
   Group long term disability (North America) ...........   7.76%             7.84%
   Group long term disability (United Kingdom) ..........   8.95%             9.27%
   Individual disability ................................   5.5% to 8.95%     7.0% to 9.5%
</TABLE>


     The discount rate that UNUM uses considers the current and expected yields
on assets that back both product liabilities and the portion of surplus that is
allocated to the product line, adjusted for, among other factors, expected
default costs and costs of assets/liability duration differences. The discount
rate may decline further depending on the interest rate environment. UNUM
periodically adjusts prices on both existing and new business in an effort to
mitigate the impact of the current interest rate environment. See Note 17
"Proposed Merger with Provident and Combined Condensed Pro Forma Financial
Statements (Unaudited)," for a discussion of potential impacts to reserve
discount rates subsequent to the proposed merger.


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

                                       43
<PAGE>

                                               UNUM Corporation and Subsidiaries

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

<TABLE>
<CAPTION>
(Dollars in millions)                          1998            1997            1996
---------------------------------------   -------------   -------------   -------------
<S>                                       <C>             <C>             <C>
   Balance at January 1 ...............    $  5,944.4      $  5,334.7      $  4,871.8
   Reinsurance receivables ............        (636.6)         (381.3)         (125.6)
   Effect of unrealized gains .........        (236.9)         (170.1)         (261.2)
                                           ----------      ----------      ----------
   Net balance at January 1 ...........       5,070.9         4,783.3         4,485.0
   Incurred related to:
    Current year ......................       2,356.7         1,897.6         1,692.0
    Prior years .......................         399.6           373.1           365.4
                                           ----------      ----------      ----------
   Total incurred .....................       2,756.3         2,270.7         2,057.4
   Paid related to:
    Current year ......................         747.2           622.2           535.8
    Prior years .......................       1,481.9         1,360.9         1,223.3
                                           ----------      ----------      ----------
   Total paid .........................       2,229.1         1,983.1         1,759.1
   Net balance at December 31 .........       5,598.1         5,070.9         4,783.3
   Reinsurance receivables ............         846.0           636.6           381.3
   Effect of unrealized gains .........         397.1           236.9           170.1
                                           ----------      ----------      ----------
   Balance at December 31 .............    $  6,841.2      $  5,944.4      $  5,334.7
                                           ==========      ==========      ==========
</TABLE>

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

<TABLE>
<CAPTION>
(Dollars in millions)                                            1998          1997          1996
----------------------------------------------------------   -----------   -----------   -----------
<S>                                                          <C>           <C>           <C>
   Interest accrued on reserves ..........................    $  309.3      $  300.5      $  292.9
   Changes in reserve estimates and assumptions ..........        90.5          89.8          35.6
   Changes in foreign exchange rates .....................        (0.2)        (17.2)         36.9
                                                              --------      --------      --------
   Incurred related to prior years .......................    $  399.6      $  373.1      $  365.4
                                                              ========      ========      ========
</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.

Claim Operations Integration Activities

     As noted above, it is UNUM's policy to estimate the ultimate cost of
settling claims in each reporting period based upon the information available
to management at the time. Actual claim resolution results are monitored and
compared to those anticipated in claim reserve assumptions. Claim resolution
rate assumptions are based on UNUM's experience as well as company actions,
which would have a material impact on claim resolutions. Company actions for
which plans have been established and committed to by management are factors,
which would modify past experience in establishing claims reserves. Adjustments
to the reserve assumptions will be made if expectations change.

     During the fourth quarter of 1998, UNUM recorded a $59.4 million increase
in the reserve for group and individual disability claims incurred as of
December 31, 1998. Incurred claims included claims known as of that date and an
estimate of those claims that had been incurred but not yet reported. Claims
that had been incurred but were not yet reported are considered liabilities of
UNUM. These claims are expected to be reported during 1999 and will be affected
by the claim operations integration activities. The $59.4 million claim reserve
increase represents the estimated value of cash payments to be made to these
claimants as a result of the claim operations integration activities. The cash
payments will be paid over the life of the claims which is expected to average
approximately six years. Management believed the reserve adjustment was required
based upon the integration plan it had in place and to which it had committed,
and based upon its ability to develop a reasonable estimate of the financial
impact of the expected disruption to the claims management process. According to
the integration plan, the planning, training, and implementation of the new
claims management processes are expected to be substantially completed by the
end of 1999.



                                       44
<PAGE>




     Claims management is an integral part of the disability operations.
Disruptions in that process can create material, short-term increases in claim
costs. The proposed merger of UNUM and Provident is expected to have a near term
adverse impact on the efficiency and effectiveness of UNUM's claims management
function resulting in some delay in claim resolutions and additional claim
payments to policyholders. Claim personnel will be distracted from normal claim
management activities as a result of planning and implementing the integration
of the two companies' claims organizations. In addition, employee turnover and
additional training will further reduce resources and productivity. An important
part of the claims management process is assisting disabled policyholders with
rehabilitation efforts. This complex activity is important to the policyholders
because it can assist them in returning to productive work and lifestyles more
quickly, and it is important to UNUM because it shortens the duration of claim
payments and thereby reduces the ultimate cost of settling claims.

     Immediately following the announcement of the merger and continuing into
December of 1998, senior management of UNUM and Provident worked to develop the
strategic direction of the UNUMProvident claims organization. As part of the
strategic direction, senior management committed claims management personnel to
be involved in developing the detailed integration plans and implementing the
plans during 1999. For the first six months of 1999, the plan anticipated that
80 claims managers and benefits specialists will be involved up to 30% of their
time developing the detailed integration plans. Once the merger is consummated,
which was expected to be June 30, 1999, all claims personnel are expected to be
involved in the process of implementing the new work processes and will require
training. The implementation and training effort was estimated to require one
month of productive time from each of the claims staff between June 30, 1999
and December 31, 1999. Management believes that the anticipated twelve month
period is adequate to execute the integration plan. Knowing that those involved
in the claim operations integration activities would not be available full time
to perform their normal claims management functions, management deemed it
necessary to anticipate this effect on the claim reserves at December 31, 1998.


     The reserving process begins with the assumptions indicated by past
experience and modifies these assumptions for current trends and other known
factors. UNUM anticipated the merger related developments discussed above would
generate a significant change in claims department productivity, reducing claim
resolution rates, a key assumption when establishing reserves. Management
developed actions to mitigate the impact of the merger on claims department
productivity including the hiring of additional claim staff and restricting
early retirement elections by claims personnel. Where feasible, management also
planned to obtain additional claims management resources through outsourcing.
All such costs will be expensed in the period incurred and management does not
expect these additional costs to be material in relation to results of
operations. Management reviewed its integration plans and the actions intended
to mitigate the impact of the integration with claim managers to determine the
extent of disruption in normal activities. Considering all of the above, the
revised claim resolution rates, as a percentage of the original assumptions
(i.e., excluding the effect of the claim operations integration activities),
were 90% for the first and second quarters of 1999, 81% for the third quarter,
and 85% for the fourth quarter of 1999. The revised claim resolution rates for
the third and fourth quarters are lower than the first and second quarters
because all claims staff are expected to be involved in the implementation and
training efforts. The integration activities as indicated in the action plans
were expected to be completed by December 31, 1999. In order to evaluate the
financial effect of merger-related integration activities, UNUM projected the
ultimate costs of settling all claims incurred as of December 31, 1998 using the
revised claim resolution rates. This projection was compared to the projection
excluding the adjustment to the claim resolution rates to obtain the amount of
the charge. UNUM reviewed its estimates of the financial impact of the claim
operations integration activities with its actuaries and independent auditors.

     Claim reserves at December 31, 1998 include $59.4 million as the estimated
value of projected additional claim payments resulting from these claims
operations integration activities. This reserve increase was reflected as a
$49.0 million increase in benefits to policyholders and a $10.4 million
reduction in fee income in the Disability Insurance segment. The reduction in
fee income represents increased reserves for the United States non-cancellable
individual disability business that is reinsured with Centre Life Reinsurance
Limited ("Centre Re"). See Note 6 "Reinsurance" for further information on the
reinsurance transaction. The effect of lower claims resolutions is expected to
emerge quarterly in the amount of $14.1 million for each of the first two
quarters of 1999, $18.0 million in the third quarter, and $13.2 million in the
fourth quarter of 1999. If claims resolutions emerge as expected, there will be
no impact to income from operations during 1999. Any variance from the
assumptions noted above will be reflected in income in the current period. The
adverse impact of the claim operations integration activities on resolution
rates is not expected to continue beyond 1999. UNUM will report in its
subsequent filings and will discuss within the Disability


                                       45
<PAGE>

                                               UNUM Corporation and Subsidiaries


Insurance segment section of management's discussion and analysis, the status of
the claim operations integration activities, the impact of these activities and
any material variances from the revised estimate of claim resolution rates. As
part of the periodic review of claim reserves, management will review the status
and execution of the claim operations integration plan with the claims
management on a quarterly basis. The review will consider claim operations
integration activities planned for future periods and evaluate whether the
future planned activities will result in claim resolution rates consistent with
those considered in the reserve established at December 31, 1998. The claim
reserves may require further increases or decreases as facts concerning the
merger and its effect on benefits to policyholders emerges. Among the factors
that could affect the reserve assumptions is the possible delay in the
consummation of the merger, thus delaying implementation of integration of the
companies' claim management operations. Other factors include the level of
employee turnover, timing and complexity of computer system conversions, and the
timing and level of training and integration activities of the claim management
staff relative to the original integration plan of UNUM.


NOTE 5. SALE OF TAX-SHELTERED ANNUITY BUSINESS

     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.

     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, 1998, the deposit asset related to the TSA
transaction was approximately $257 million.

     The sale resulted in a deferred pretax gain of $80.8 million, of which
$72.6 million was recognized in income during 1997, reported as fees and other
income, in proportion to contractholder and participant consents for assumption
reinsurance. Additionally, the results for the year ended December 31, 1997,
included $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. Through December 31, 1998, consent for assumption
reinsurance has been provided by TSA contractholders and participants owning
substantially all assets under management.

NOTE 6. REINSURANCE

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

     UNUM periodically monitors the financial condition, and in some cases
holds substantial collateral as security in the form of funds, securities
and/or letters of credit to mitigate credit risk from its reinsurers. At
December 31, 1998, approximately 85% of the reinsurance receivable balance was
due from five reinsurers. These reinsurers had a rating of A or better (Strong)
from Standard & Poor's--a recognized insurance rating agency. Additionally,
UNUM holds collateral in the form of securities comprising 53% of the balance.

     On October 23, 1996, UNUM announced the execution of a definitive
reinsurance agreement between UNUM America and 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
("non-cancellable ID") block of business. This agreement reinsures all claims
incurred on or after 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. Under the agreement,
Centre Re has an obligation to absorb losses within a defined risk layer. UNUM
retains the risk for all experience up to Centre Re's defined risk layer, or
attachment point. Once the attachment point is reached, Centre Re assumes the
risk for all experience up to a contractually defined risk limit. Any
experience above Centre Re's defined risk limit reverts back to UNUM. As of
December 31, 1998, the attachment point had not been reached.

                                       46
<PAGE>



     The following discloses the various layers in the agreement at December
31, 1998:

<TABLE>
<CAPTION>
(Dollars in millions)
-------------------------------------------
<S>                                           <C>
   Net GAAP reserves ......................    $486
   UNUM's experience layer ................     249
                                               ----
    Attachment point ......................     735
   Centre Re's defined risk layer .........     235
                                               ----
    Defined risk limit ....................    $970
                                               ====
</TABLE>

     Under the agreement, UNUM funds a trust account equal to the amount of
UNUM's exposure (i.e., up to the attachment point). These trust assets provide
security (i.e., collateral) to Centre Re for amounts due by UNUM prior to
reaching the attachment point. UNUM acts as the investment manager for 80% of
the assets in the trust with Centre Re managing the remaining 20%.

     The actual operating results of the non-cancellable ID block of business
are accounted for under FAS No. 113 "Accounting and Reporting for Reinsurance
of Short-Duration and Long-Duration Contracts." This reinsurance agreement
transfers risk and is accounted for as reinsurance in accordance with the
requirements of FAS 113 for reinsurance of long-duration contracts. The
underlying operating results of the reinsured block are reflected in fees and
other income and realized gains and losses from sales of assets are reflected
as realized investment gains (losses) in UNUM's Consolidated Statements of
Income.

     UNUM has a deposit asset at December 31, 1998, of approximately $419
million reflected in the Consolidated Balance Sheet. The deposit asset is
comprised of UNUM's experience layer and unrealized gains or losses on the
marketable securities held in the trust. Unrealized gains or losses on
marketable securities held in the trust and the related effects on claim
reserves are reflected as unrealized gains or losses in the equity section of
UNUM's Consolidated Balance Sheets.

     UNUM controls the management of the business, including premium collection
and claims management, under this agreement. All premiums, less amounts for
management expenses and claim payments, are transferred to the trust account on
a quarterly basis.

     In 1994 UNUM recorded a premium deficiency reserve strengthening related
to the non-cancellable ID block of business in conjunction with its
announcement to exit the non-cancellable form of ID coverage in the United
States. The reinsurance fees due Centre Re are expenses that were not
contemplated when reserves were strengthened in 1994. Since these fees would
have caused the non-cancellable ID block of business to be in a loss situation,
UNUM recognized a pretax charge of $49.7 million in the fourth quarter of 1996.
The charge represented the present value of the anticipated minimum amount of
fees to be paid to Centre Re under the agreement for a period of six years.
UNUM has the right, but no obligation, to recapture the business after six
years without penalty. UNUM paid $9.4 million in fees to Centre Re during 1998
and 1997.

     The effect of all reinsurance on premiums earned and written for the years
ended December 31, 1998, 1997 and 1996, was as follows:

<TABLE>
<CAPTION>
(Dollars in millions)                  1998            1997            1996
-------------------------------   -------------   -------------   -------------
<S>                               <C>             <C>             <C>
   Premiums earned:
    Direct ....................    $  3,935.2      $  3,384.9      $  3,005.0
    Assumed ...................         320.8           281.6           252.9
    Ceded .....................        (414.3)         (402.8)         (106.4)
                                   ----------      ----------      ----------
     Premiums earned ..........    $  3,841.7      $  3,263.7      $  3,151.5
                                   ==========      ==========      ==========
   Premiums written:
    Direct ....................    $  3,918.9      $  3,390.2      $  3,039.2
    Assumed ...................         380.4           330.3           289.3
    Ceded .....................        (431.0)         (436.3)         (131.0)
                                   ----------      ----------      ----------
     Premiums written .........    $  3,868.3      $  3,284.2      $  3,197.5
                                   ==========      ==========      ==========
</TABLE>

                                       47
<PAGE>

                                               UNUM Corporation and Subsidiaries

     For the years ended December 31, 1998, 1997 and 1996, recoveries
recognized under reinsurance agreements offset benefits to policyholders by
$376.3 million, $309.7 million and $90.8 million, respectively.

NOTE 7. BUSINESS RESTRUCTURING AND OTHER CHARGES

Business Restructuring

     Charges of $6.0 million and $7.2 million were recorded in 1997 and 1996,
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. As of December 31, 1998, a liability was no longer being carried in
the Consolidated Balance Sheet for these charges.

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. The charges included the write-off of certain intangible assets and the
establishment of a reserve for the present value of expected future losses on
certain discontinued products. 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.


                                       48
<PAGE>



NOTE 8. NOTES PAYABLE

     Notes payable consisted of the following at December 31:

<TABLE>
<CAPTION>
(Dollars in millions)                                                     1998          1997
-------------------------------------------------------------------   -----------   -----------
<S>                                                                   <C>           <C>
   Short-term debt:
    Commercial paper, with weighted-average interest rates of
     5.5% and 6.3% in 1998 and 1997, respectively .................    $   85.7      $   50.9
    Other notes payable, with weighted-average interest rates of
     1.1% and 1.0% in 1998 and 1997, respectively .................         8.9           7.7
    Medium-term notes payable, due 1999, with interest
     rates of 7.0% ................................................        21.4          68.0
    Other borrowing with an effective interest rate of
     5.8%, $168.3 million issued net of unamortized offering
     costs of $0.8 million and $0.6 million in 1998 and 1997,
     respectively .................................................       167.5            --
                                                                       --------      --------
      Total short-term debt .......................................       283.5         126.6
                                                                       --------      --------
   Long-term debt:
    Long-term notes payable, due 2028, with an interest rate of
     6.75%, $250.0 million issued, net of unamortized hedging
      costs and issuance fees of $21.9 million.....................       228.1            --
    Medium-term notes payable, due 2000 to 2028, with interest
     rates ranging from 5.9% to 7.5% ..............................       202.7         174.2
    Monthly income debt securities, due 2025, with an interest rate
      of 8.8%, $172.5 million issued net of unamortized offering
      costs of $5.0 million and $5.2 million in 1998 and 1997,
      respectively ................................................       167.5         167.3
    Other borrowing, due 2007, with an effective interest rate of
      5.8%, $168.3 million issued net of unamortized offering
      costs of $0.8 million and $0.6 million in 1998 and 1997,
      respectively ................................................          --         167.7
                                                                       --------      --------
      Total long-term debt ........................................       598.3         509.2
                                                                       --------      --------
      Total notes payable .........................................    $  881.8      $  635.8
                                                                       ========      ========
</TABLE>

     At December 31, 1998, 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 15, 1998, UNUM issued $250 million notes due December 15,
2028, with interest payable semi-annually. The notes are redeemable, in whole
or in part, at the option of UNUM at any time at or above par. UNUM used the
net proceeds to repay short term-debt and for general corporate purposes.


     On December 4, 1997, UNUM borrowed [British pound]100 million ($168.3
million) through a private placement with an investor in the United Kingdom. The
borrowing has an expected term of 10 years. Upon issuance of the [British
pound]100 million 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. The borrowing is callable by either party over the life of the
agreement, under certain circumstances. UNUM anticipates the debt will be called
in 1999. Therefore, UNUM is currently evaluating various financing alternatives
and intends to substitute a debt instrument to match the maturity and terms of
the interest rate swap agreement.


     Aggregate maturities of notes payable are as follows: 1999--$283.5
million; 2000--$60.0 million; 2001--
none; 2002--$35.0 million, 2003 and thereafter--$503.3 million.

                                       49
<PAGE>

                                               UNUM Corporation and Subsidiaries

     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 $149.7 million and
$84.6 million at December 31, 1998, and 1997, respectively, which are not
reflected in the Consolidated Balance Sheets.

NOTE 9. EMPLOYEE BENEFIT AND INCENTIVE PLANS

Pension Plans

     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.

     Changes in the projected benefit obligation and plan assets, as determined
by the plan's actuaries were as follows:

<TABLE>
<CAPTION>
(Dollars in millions)                                                  1998          1997
----------------------------------------------------------------   -----------   -----------
<S>                                                                <C>           <C>
   Benefit obligation at beginning of period ...................    $  230.4      $  203.2
   Service cost--benefits earned during the period .............        14.0           9.0
   Interest cost ...............................................        16.7          11.4
   Actuarial loss ..............................................        12.1           7.6
   Benefits paid ...............................................        (2.0)         (0.8)
                                                                    --------      --------
    Benefit obligation at end of period ........................       271.2         230.4
                                                                    --------      --------
   Fair value of plan assets at beginning of period ............       324.2         267.7
   Actual return on plan assets ................................        26.9          61.4
   Employer contributions ......................................        11.2            --
   Benefits paid ...............................................        (2.0)         (0.8)
   Other transfers .............................................          --          (4.1)
                                                                    --------      --------
    Fair value of plan assets at end of period .................       360.3         324.2
                                                                    --------      --------
   Projected benefit obligation less than plan assets ..........        89.1          93.8
   Unrecognized net actuarial gain .............................       (66.8)        (86.8)
   Unrecognized prior service cost .............................       (23.1)        (25.8)
   Unamortized net obligation ..................................         1.1           1.5
                                                                    --------      --------
    Prepaid (accrued) pension cost .............................    $    0.3     $   (17.3)
                                                                    ========     =========
</TABLE>

     At December 31, 1998, the plan assets included 448,784 shares of UNUM
Corporation common stock with a fair value of $26.2 million. The amount of
dividends paid on these shares during 1998 was not material.

     Net pension cost included the following components:

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                               -------------------------------------
(Dollars in millions)                                             1998          1997         1996
------------------------------------------------------------   ----------   -----------   ----------
<S>                                                            <C>          <C>           <C>
   Service cost--benefits earned during the period .........    $  14.0      $   12.9      $  13.5
   Interest cost ...........................................       16.7          15.2         15.1
   Expected return on assets ...............................      (30.3)        (24.0)       (19.5)
   Recognized prior service cost ...........................       (2.7)         (2.6)        (1.0)
   Recognized net actuarial gain ...........................       (4.5)         (1.4)          --
   Amortization of net obligation ..........................        0.4           0.4          0.3
                                                                -------      --------      -------
    Net pension cost (benefit) .............................   $   (6.4)     $    0.5      $   8.4
                                                               ========      ========      =======
</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 6.75% and 4.25%, respectively, at September
30, 1998, and 7.25% and 4.75%, respectively, at September 30, 1997. The
expected long-term rate of return on plan assets was 9.25% in 1998 and 9.0% in
1997 and 1996. Prior year service costs are being amortized on a straight-line
basis over expected employment periods for active employees.

                                       50
<PAGE>



Postretirement Health Care and Life Insurance Benefits

     UNUM provides certain health care and life insurance benefits for retired
employees and covered dependents. The underlying plans are not currently
funded. The cost of these plans was $4.5 million, $4.3 million and $10.3
million for the years ended December 31, 1998, 1997 and 1996, respectively. At
December 31, 1998, and 1997, the liability associated with these plans was
$85.8 million and $83.2 million, respectively.

Retirement Savings Plans

     Effective January 1, 1997, UNUM introduced a single retirement savings
plan for all domestic employees. 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%
after eligibility requirements of one year of service is met. Employees become
100% vested immediately upon becoming eligible. Expense for the retirement
savings plans amounted to $10.3 million, $9.6 million and $8.4 million in 1998,
1997 and 1996, 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 1998, 1997 and 1996, expense for these plans was $33.8 million, $37.2
million and $41.7 million, respectively.

NOTE 10. STOCKHOLDERS' EQUITY

Common Stock

     Effective November 23, 1998, UNUM's Board of Directors rescinded the
Company's stock repurchase program, related to the announced merger with
Provident Companies, Inc.

     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 were 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 common shares outstanding were as follows:

<TABLE>
<CAPTION>
(Shares in millions)                                     1998         1997         1996
---------------------------------------------------   ----------   ----------   ----------
<S>                                                   <C>          <C>          <C>
   Shares outstanding, beginning of year ..........       138.3        143.6        146.0
   Shares issued under stock plans ................         1.7          1.8          1.4
   Shares reacquired ..............................        (1.3)        (7.1)        (3.8)
                                                         ------       ------       ------
   Shares outstanding, end of year ................       138.7        138.3        143.6
                                                         ======       ======       ======
</TABLE>

Earnings Per Share

     Basic earnings per share ("EPS") is computed by dividing net income
available to common stockholders by the weighted-average number of common
shares outstanding. 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 approximate number of shares used to calculate EPS was as follows:

<TABLE>
<CAPTION>
(Shares in millions)                                      1998         1997         1996
----------------------------------------------------   ----------   ----------   ----------
<S>                                                    <C>          <C>          <C>
   Weighted-average number of shares outstanding for
    basic EPS ......................................       138.3        139.9        145.9
   Effect of dilutive securities ...................         3.1          3.0          2.1
                                                           -----        -----        -----
   Weighted-average number of shares outstanding for
    diluted EPS ....................................       141.4        142.9        148.0
                                                           =====        =====        =====
</TABLE>

                                       51
<PAGE>

                                               UNUM Corporation and Subsidiaries

     The following number of outstanding options to purchase shares were
excluded from the diluted weighted-average calculation as the options' exercise
prices were greater than the average market prices.

<TABLE>
<CAPTION>
(Options in millions)                              1998       1997       1996
----------------------------------------------   --------   --------   --------
<S>                                              <C>        <C>        <C>
   Antidilutive options outstanding ..........      1.7        0.2        0.1
                                                    ===        ===        ===
</TABLE>

Stock Options

     At December 31, 1998, 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, 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)         1998          1997          1996
----------------------------------------------------   -----------   -----------   -----------
<S>                                                    <C>           <C>           <C>
   Net income:
   As reported .....................................    $ 363.4       $ 370.3       $ 238.0
   Pro forma .......................................    $ 360.8       $ 361.4       $ 231.9
   Earnings per common share:
   Basic
    As reported ....................................    $  2.63       $  2.65       $  1.63
    Pro forma ......................................    $  2.61       $  2.58       $  1.59
   Diluted
    As reported ....................................    $  2.57       $  2.59       $  1.61
    Pro forma ......................................    $  2.55       $  2.53       $  1.57
</TABLE>

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

<TABLE>
<CAPTION>
                                                    1998             1997             1996
                                              ---------------- ---------------- ---------------
<S>                                           <C>              <C>              <C>
   Dividend yield ...........................      1.0%             1.0%             1.5%
   Expected stock price volatility .......... 23.8% to 26.4%   22.7% to 24.2%   23.1% to 24.8%
   Risk-free interest rate ..................  4.2% to 5.3%     5.7% to 6.8%     5.2% to 6.5%
   Expected option lives ....................  4 to 8 years     4 to 8 years     4 to 8 years
</TABLE>

     Forfeiture rates are updated based on actual experience, and the
cumulative adjustments made to the current year's pro forma amounts. 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 achieving prescribed
financial performance objectives, with the exception of 11,600 shares granted
in 1996 and 10,000 shares granted in 1995, which will vest upon the grantee
remaining in UNUM's employ for a specified period of time or a defined change
in control. 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 1998, 1997 and 1996.

     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.

                                       52
<PAGE>



     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, 1998, 1997 and 1996, 1,617,701 shares, 1,603,580 shares, and
1,385,036 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, 1998, 1997 and 1996,
3,389,860 shares, 5,003,480 shares 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 and 205,000
shares were made in 1997 and 1996 , respectively. No 1998 Option Plan grants
were made in 1998, and no further grants can 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.


     In connection with the pending merger (see Note 17 "Proposed Merger with
Provident and Pro Forma Combined Condensed Financial Statements (Unaudited),")
outstanding options which have otherwise not vested will do so as a result of a
change in control as defined by the plans. For outstanding options related to
the Option Plan, Incentive Plan and the 1998 Option Plan, a change in control
will occur at the time shareholders vote in favor of the merger. Outstanding
options related to the 1996 Incentive Plan will vest upon the consummation of
the merger.


     A summary of the status of UNUM's four stock-based compensation plans as
of December 31, 1998, 1997 and 1996, and changes during the years then ended
are presented below:

<TABLE>
<CAPTION>
                                                                                   Restricted
(Per share amounts are weighted-average)                           Options           Stock
------------------------------------------------------------   ---------------   -------------
<S>                                                            <C>               <C>
   Outstanding at January 1, 1996 ..........................      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
                                                                  ----------        --------
   1998 Activity:
   Granted at $52.75 per share..............................       1,659,455              --
   Granted for restricted stock at $52.68 per share.........              --         124,660
   Lapse of restrictions on restricted stock ...............              --         (41,450)
   Exercised at $22.88 per share............................      (1,642,846)             --
   Forfeited at $31.84 per share for options................        (363,916)        (68,950)
                                                                  ----------        --------
   Outstanding at December 31, 1998 ........................      10,103,838         515,960
                                                                  ==========        ========
</TABLE>

     The weighted-average exercise price of options outstanding at December 31,
1998, 1997 and 1996, was $31.07, $26.32 and $22.93 per share, respectively.

                                       53
<PAGE>

                                               UNUM Corporation and Subsidiaries

     The number and weighted-average exercise price of exercisable shares as of
December 31, 1998, 1997 and 1996, was 4,802,071 shares at $25.50 per share,
4,686,562 shares at $22.71 per share and 4,763,184 shares at $20.73 per share,
respectively.

     The weighted-average fair value of options granted during the years ended
December 31, 1998, 1997 and 1996, was $12.88, $8.56 and $6.92, respectively.

     The following table summarizes information about stock options outstanding
at December 31, 1998:

<TABLE>
<CAPTION>
                          Options Outstanding                                     Options Exercisable
------------------------------------------------------------------------   ---------------------------------
   Range of          Number       Weighted-Average                             Number
   Exercise       Outstanding         Remaining        Weighted-Average     Exercisable     Weighted-Average
    Prices        at 12/31/98     Contractual Life      Exercise Price      at 12/31/98      Exercise Price
--------------   -------------   ------------------   ------------------   -------------   -----------------
<S>              <C>             <C>                  <C>                  <C>             <C>
 $ 10 to 15          412,222             1.83              $  12.22            412,222         $  12.22
   16 to 24        2,976,487             5.59                 19.78          1,367,806            20.20
   25 to 37        3,323,867             6.03                 28.62          2,483,938            27.85
   38 to 58        3,391,262             8.50                 45.68            538,105            38.27
------------       ---------             ----              --------          ---------         --------
 $ 10 to 58       10,103,838             6.63              $  31.07          4,802,071         $  25.50
                  ==========                                                 =========
</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. The LSARs were amended
such that the proposed merger with Provident would not be a change in control
of UNUM Corporation. 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 higher of (a) highest price paid per share 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 sixty day period preceding the
change of control. As an underlying stock option is exercised, the LSARs are
automatically canceled. At December 31, 1998, 1997 and 1996, there were 495,750
LSARs, 557,800 LSARs and 796,600 LSARs outstanding, respectively.

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 Shareholder Rights Plan was amended in 1998 such that Provident, as
a result of the merger and related transactions contemplated by the merger,
will not be deemed to be an Acquiring Person as defiend in the Rights
Agreement. 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 1999 to UNUM Corporation from
all U.S. domiciled insurance subsidiaries without state insurance regulatory
approval is approximately $150 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 $1,330 million and $1,186 million, at
December 31, 1998, and 1997, 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 $55 million, $227 million and $167 million for 1998, 1997 and
1996, 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. Such dividends are limited in amount, based on
insurance company legislation in the United Kingdom, which requires a minimum
solvency margin. The amount available under current law for payment of
dividends to UNUM Corporation from UNUM Limited during 1999 is approximately
$20 million.

                                       54
<PAGE>



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)                                1998          1997          1996
----------------------------------------------   -----------   -----------   -----------
<S>                                              <C>           <C>           <C>
Tax at federal statutory rate of 35% .........    $  181.1      $  187.7      $  119.6
Tax-exempt income ............................       (26.9)        (20.3)        (18.8)
Other ........................................        (0.2)         (1.3)          2.8
                                                  --------      --------      --------
Income taxes .................................    $  154.0      $  166.1      $  103.6
                                                  ========      ========      ========
</TABLE>

     Deferred income tax liabilities and assets consist of the following:

<TABLE>
<CAPTION>
                                                     December 31,
                                               -------------------------
(Dollars in millions)                              1998          1997
--------------------------------------------   -----------   -----------
<S>                                            <C>           <C>
Deferred tax liabilities:
 Deferred policy acquisition costs .........    $  292.0      $  239.4
 Policy reserve adjustments ................       175.7         118.0
 Net unrealized gains ......................       204.1         144.0
 Value of business acquired ................        25.9          23.2
 Invested assets ...........................        28.3          12.0
 Other .....................................        48.0          12.2
                                                --------      --------
  Gross deferred tax liabilities ...........       774.0         548.8
                                                --------      --------
Deferred tax assets:
 Alternative minimum tax credits ...........        35.2            --
 Net realized losses .......................        17.6           6.9
 Postretirement benefits ...................        30.4          26.6
 Deferred gains ............................         1.6           2.2
 Accrued liabilities .......................        34.5          13.3
 Other .....................................        37.1          10.6
                                                --------      --------
  Gross deferred tax assets ................       156.4          59.6
Less valuation allowance ...................         8.2           7.0
                                                --------      --------
  Net deferred tax assets ..................       148.2          52.6
                                                --------      --------
Net deferred tax liability .................    $  625.8      $  496.2
                                                ========      ========
</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. Under current law, management
believes the conditions under which such taxes would be paid to be remote.

     UNUM's Consolidated Statements of Income for 1998, 1997 and 1996, included
the following amounts of income subject to foreign taxation and the related
foreign income tax expense:

<TABLE>
<CAPTION>
                                             Year Ended December 31,
                                       ------------------------------------
(Dollars in millions)                     1998         1997         1996
------------------------------------   ----------   ----------   ----------
<S>                                    <C>          <C>          <C>
Pretax income subject to foreign
 taxation ..........................    $  46.2      $  46.7      $  27.4
                                        =======      =======      =======
Foreign income tax expense (credit):
 Current ...........................    $   6.7      $  23.3      $  10.4
 Deferred ..........................        9.8         (7.6)         1.8
                                        -------      -------      -------
  Total ............................    $  16.5      $  15.7      $  12.2
                                        =======      =======      =======
</TABLE>

                                       55
<PAGE>

                                               UNUM Corporation and Subsidiaries

     UNUM subsidiaries had operating loss carryforwards totaling $15.3 million
and alternative minimum tax credit carryforwards totaling $35.2 million as of
December 31, 1998. The operating loss carryforwards will expire, if not
utilized, in 1999 through 2004; the alternative minimum tax credits do not
expire.

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.

     The following table summarizes the carrying amounts and fair values of
UNUM's financial instruments at December 31, 1998, and 1997:

<TABLE>
<CAPTION>
                                                            1998                            1997
                                                -----------------------------   -----------------------------
                                                   Carrying          Fair          Carrying          Fair
(Dollars in millions)                               Amount          Value           Amount          Value
---------------------------------------------   -------------   -------------   -------------   -------------
<S>                                             <C>             <C>             <C>             <C>
   Financial assets:
    Fixed maturities available for sale .....    $  7,896.9      $  7,896.9      $  7,310.9      $  7,310.9
    Equity securities available for sale.....          31.0            31.0            30.7            30.7
    Mortgage loans ..........................       1,303.4         1,425.2         1,131.0         1,243.7
    Policy loans ............................         137.6           137.6           128.5           128.5
    Short-term investments ..................         216.2           216.2           124.5           124.5
    Cash ....................................          80.5            80.5            56.8            56.8
    Accrued investment income ...............         167.4           167.4           160.3           160.3
    Deposit assets ..........................         729.7           729.7           688.3           688.3
   Financial liabilities:
    Other policyholder funds: ...............
   Investment-type insurance contracts: .....
    With defined maturities .................    $     69.3      $     84.6      $    141.6      $    159.3
    With no defined maturities ..............         259.5           257.4           332.0           328.0
    Individual annuities and
    supplementary contracts not
    involving life contingencies ............          63.9            63.9            67.1            67.1
    Notes payable ...........................         881.8           944.0           635.8           656.0
   Off-balance sheet financial
    instruments:
    Interest rate futures contracts .........            --           110.7              --              --
</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

                                       56
<PAGE>



 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.

 Off-Balance Sheet Financial Instruments: Fair value for off-balance sheet
 financial instruments are based on current settlement values.

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 Sheets. 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 Sheets.

     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 [British pound]100 million ($168.3
million) through a private placement with an investor in the United Kingdom (see
Note 8 "Notes Payable"). Upon issuance of the [British pound]100 million
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


                                       57
<PAGE>

                                               UNUM Corporation and Subsidiaries

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.

     In addition to the swap agreements discussed previously, UNUM had open
interest rate futures contracts at December 31, 1998, with notional amounts of
$111.0 million to hedge anticipated cash flows in 1999. These futures contracts
had a related net unrealized loss of $0.3 million at December 31, 1998. Other
than the swap agreements discussed previously, UNUM had no other open
derivative financial instruments at December 31, 1997.

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, 1998. In some instances, these
proceedings include claims for punitive damages and similar types of relief in
unspecified or substantial amounts, in addition to amounts for alleged
contractual liability or other compensatory damages. In the opinion of
management, the ultimate liability, if any, arising from this litigation is not
expected to have a material adverse effect on the consolidated financial
position, 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
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 filed a petition
requesting that the United States Supreme Court review the decision of the
United States Court of Appeals, which was denied October 5, 1998; no further
appeal is available.

NOTE 16. SEGMENT INFORMATION

     UNUM's four reportable operating segments include: Disability Insurance,
Special Risk Insurance, Colonial Products and Retirement Products. Each
operating segment represents a product grouping based on the similarity of the
products in such areas as risk-relief, economic characteristics, market
potential and the specific markets being targeted for these products. 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, long term care, individual disability and
disability reinsurance operations. The Special Risk Insurance segment includes
group life, accidental death and dismemberment, travel and voluntary accident
insurance, special risk reinsurance operations and other special risk insurance
products. The Colonial Products segment includes Colonial Life & Accident
Insurance Company and affiliates, which offer payroll-deducted, voluntary
employee benefit products, including accident and sickness, disability, cancer
and life insurance. 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 insurance. In addition, UNUM records transactions that
are generally non-insurance related in Corporate. Interest expense is reported
by Corporate and totaled $49.9 million, $42.4 million and $40.7 million in
1998, 1997 and 1996, respectively.

     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.

     UNUM evaluates performance and allocates resources based on pretax
operating income, which is defined as income (loss) before income taxes
exclusive of realized investment gains (losses) and special items. Realized
investment gains (losses) are excluded from management's evaluation of segment
performance as management believes the volatility in gains and losses
associated with the selling of invested assets in the financial markets is not
representative of ongoing operations. Special items are excluded from
management's evaluation of segment performance as management considers them as
being not representative of ongoing operations and believes a discussion of the
results on a pretax operating income basis provides a better understanding of
the results of ongoing operations. The accounting polices of the operating
segments are the same as those described in Note 1, "Summary of Significant
Accounting Policies."

                                       58
<PAGE>


     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.

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


<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                ---------------------------------------------
(Dollars in millions)                                1998            1997            1996
---------------------------------------------   -------------   -------------   -------------
<S>                                             <C>             <C>             <C>
Premiums:
 Disability Insurance .......................    $  2,125.9      $  1,816.5      $  1,889.9
 Special Risk Insurance .....................       1,159.1           915.5           748.2
 Colonial Products ..........................         552.7           525.4           493.7
 Retirement Products ........................           4.0             6.3            19.7
                                                 ----------      ----------      ----------
  Total premiums ............................    $  3,841.7      $  3,263.7      $  3,151.5
                                                 ==========      ==========      ==========
Investment Income:
 Disability Insurance .......................    $    473.8      $    471.1      $    468.8
 Special Risk Insurance .....................          78.7            70.1            57.3
 Colonial Products ..........................          65.8            57.6            47.6
 Retirement Products ........................          39.0            55.5           214.4
 Corporate ..................................           4.1             6.7            15.2
                                                 ----------      ----------      ----------
  Total investment income ...................    $    661.4      $    661.0      $    803.3
                                                 ==========      ==========      ==========
Deferred acquisition cost amortization:
 Disability Insurance .......................    $     64.8      $     52.1      $     87.3
 Special Risk Insurance .....................         143.3            94.0            53.9
 Colonial Products ..........................          89.5            80.7            72.5
 Retirement Products ........................            --             0.1              --
                                                 ----------      ----------      ----------
  Total amortization ........................    $    297.6      $    226.9      $    213.7
                                                 ==========      ==========      ==========
Pretax operating income (loss):
 Disability Insurance .......................    $    348.3      $    315.8      $    278.4
 Special Risk Insurance .....................         159.4           124.8            90.2
 Colonial Products ..........................         105.1            98.8            92.7
 Retirement Products ........................           1.0             4.7            13.6
 Corporate ..................................         (58.0)          (51.8)          (37.5)
                                                 ----------      ----------      ----------
  Total pretax operating income .............         555.8           492.3           437.4
Taxes on pretax operating income ............         167.6           150.6           135.7
                                                 ----------      ----------      ----------
  Operating income ..........................         388.2           341.7           301.7
Special items, net of tax ...................         (38.6)           30.8           (66.0)
Realized gains (losses), net of tax .........          13.8            (2.2)            2.3
                                                 ----------      ----------      ----------
Net income ..................................    $    363.4      $    370.3      $    238.0
                                                 ==========      ==========      ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                December 31,
                                              ------------------------------------------------
(Dollars in millions)                              1998             1997             1996
-------------------------------------------   --------------   --------------   --------------
<S>                                           <C>              <C>              <C>
Identifiable Assets:
 Disability Insurance .....................    $   9,683.4      $   8,546.6      $   7,846.8
 Special Risk Insurance ...................        2,268.2          1,821.6          1,410.0
 Colonial Products ........................        1,519.4          1,334.7          1,094.1
 Retirement Products ......................          966.3          1,115.9          4,478.8
 Corporate ................................          374.5            254.0            396.7
 Individual Participating Life and Annuity.          371.1            367.3            354.0
                                               -----------      -----------      -----------
  Total assets ............................    $  15,182.9      $  13,440.1      $  15,580.4
                                               ===========      ===========      ===========
</TABLE>

                                       59
<PAGE>

                                               UNUM Corporation and Subsidiaries

     Information concerning principal geographic areas is as follows:

<TABLE>
<CAPTION>
                                                 Year Ended December 31,
                                      ---------------------------------------------
(Dollars in millions)                      1998            1997            1996
-----------------------------------   -------------   -------------   -------------
<S>                                   <C>             <C>             <C>
Geographic information on premiums:
 United States ....................    $  3,391.7      $  2,938.1      $  2,900.4
 Foreign countries ................         450.0           325.6           251.1
                                       ----------      ----------      ----------
  Total premiums ..................    $  3,841.7      $  3,263.7      $  3,151.5
                                       ==========      ==========      ==========
</TABLE>

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                           ---------------------------------------
(Dollars in millions)                          1998          1997          1996
----------------------------------------   -----------   -----------   -----------
<S>                                        <C>           <C>           <C>
Geographic information on income
 before income taxes:
 United States .........................    $  473.3      $  497.5      $  315.2
 Foreign countries .....................        44.1          38.9          26.4
                                            --------      --------      --------
  Total income before income taxes .....    $  517.4      $  536.4      $  341.6
                                            ========      ========      ========
</TABLE>

<TABLE>
<CAPTION>
                                                           December 31,
                                         ------------------------------------------------
(Dollars in millions)                         1998             1997             1996
--------------------------------------   --------------   --------------   --------------
<S>                                      <C>              <C>              <C>
Geographic information on identifiable
 assets:
 United States .......................    $  13,703.7      $  11,941.7      $  14,239.8
 Foreign countries ...................        1,479.2          1,498.4          1,340.6
                                          -----------      -----------      -----------
  Total assets .......................    $  15,182.9      $  13,440.1      $  15,580.4
                                          ===========      ===========      ===========
</TABLE>

     UNUM's long-lived assets are not material to the total consolidated assets
and are not presented by geographic region.

     The following is provided to reconcile certain financial information for
the reportable segment totals to consolidated totals and provide a description
of the reconciling items:

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                ---------------------------------------
(Dollars in millions)                               1998          1997          1996
---------------------------------------------   -----------   -----------   -----------
<S>                                             <C>           <C>           <C>
Deferred acquisition cost amortization:
 Total amortization for reportable
 segments ...................................    $  297.6      $  226.9      $  213.7
 Special item -- deferred acquisition
 cost write-offs (a) ........................          --            --          11.7
                                                 --------      --------      --------
  Total consolidated amortization ...........    $  297.6      $  226.9      $  225.4
                                                 ========      ========      ========
Income before income taxes:
 Total pretax operating income for
 reportable segments and Corporate ..........    $  555.8      $  492.3      $  437.4
 Realized investment gains (losses) .........        21.0          (3.6)          3.4
 Special items:
   Disability claims reserve
    increase (b) ............................       (59.4)           --            --
  TSA deferred gain recognition (c) .........          --          72.6            --
  Reorganization costs (a) ..................          --          (6.5)           --
  Reinsurance pool results (d) ..............          --         (18.4)           --
  Individual disability reinsurance fees (e).          --            --         (49.7)
   Write-offs and future loss
    reserves (a) ............................          --            --         (39.4)
  Merger and integration costs (f) ..........          --            --         (10.1)
                                                 --------      --------      --------
   Total consolidated income before
    income taxes ............................    $  517.4      $  536.4      $  341.6
                                                 ========      ========      ========
</TABLE>

                                       60
<PAGE>



     As previously discussed, management's evaluation of segment performance
excludes realized investment gains (losses) and special items. The following
describes or references the special items that reconcile total segment amounts
to total consolidated amounts:

   (a) See Note 7 "Business Restructuring and Other Charges." The $13.1
       million charge in the Disability Insurance segment included an $11.7
       million write-off of deferred acquisition costs. Additionally, $0.5
       million of direct costs, primarily relocation expenses, were recognized
       during fourth quarter 1997.

   (b) See Note 4 "Reserves."

   (c) See Note 5 "Sale of Tax-Sheltered Annuity Business."

   (d) See the Changes in Accounting Estimates section of Note 1 "Summary of
       Significant Accounting Policies."

   (e) See Note 6 "Reinsurance."

   (f) During third quarter 1996, actions related to the merger of Commercial
       Life into UNUM America resulted in a $10.1 million increase in operating
       expenses for Corporate.


NOTE 17. PROPOSED MERGER WITH PROVIDENT AND PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (UNAUDITED)


     The following unaudited pro forma combined condensed financial statements
and explanatory notes are presented to show the impact on the historical
financial positions and results of operations of UNUM and Provident of the
planned merger under the "pooling of interests" method of accounting. The
unaudited pro forma combined condensed financial statements combine the
historical financial information of UNUM and Provident as of December 31, 1998,
and for the years ended December 31, 1998, 1997 and 1996. The unaudited pro
forma combined condensed statements of income give effect to the merger as if
it had been completed at the beginning of the earliest period presented. The
unaudited pro forma combined condensed balance sheet assumes the merger was
completed on December 31, 1998.

     On November 22, 1998, UNUM entered into an agreement with Provident,
pursuant to which UNUM and Provident will merge under the name UNUMProvident.
Under the merger agreement, each outstanding share of Provident common stock
will be reclassified and converted into 0.73 of a share of UNUMProvident common
stock and each outstanding share of UNUM common stock will be converted into
one share of UNUMProvident common stock. The merger will be accounted for as a
pooling of interests. The merger is subject to regulatory and UNUM stockholder
and Provident stockholder approval.


     The unaudited pro forma combined condensed financial statements as of
December 31, 1998, and for each of the three years ended December 31, 1998,
1997 and 1996, are based on and derived from, and should be read in conjunction
with the UNUM and Provident historical consolidated financial statements and
related notes.

     On the date the merger is completed UNUMProvident will record an expense
related to the merger of approximately $138.0 million ($101.0 million net of
income taxes). The estimated expenses related to the merger include amounts for
severance and related costs, exit costs for duplicative facilities and asset
abandonments, and investment banking, legal and accounting fees. In addition,
Provident will record an expense related to the early retirement offer on the
date the merger is consummated of approximately $14.0 million ($9.0 million net
of income taxes). The early retirement offer to Provident's employees is
subject to acceptance by the employees and the closing of the merger. Generally
accepted accounting principles ("GAAP") requires both contingencies to be met
before the charge is recognized. UNUM will record an expense related to the
early retirement offer of approximately $58.0 million ($38.0 million net of
income taxes). The UNUM early retirement offer to employees is not contingent
upon the closing of the merger; therefore, under GAAP, the charge will be
recorded as soon as the employees accept the offer. The employees have until
June 17, 1999 to accept the offer or the offer will expire.

     The estimated expenses related to the merger and the early retirement
offers to employees have not been reflected in the unaudited pro forma combined
condensed balance sheet or statements of income and related per share
calculations. The estimated expenses represent management's best estimates
based on available information at this time. Actual charges will differ from
these estimates.


     The unaudited pro forma financial statements are presented for comparative
purposes only and are not necessarily indicative of the results of operations
that would have been realized had the merger been completed

                                       61
<PAGE>

                                               UNUM Corporation and Subsidiaries

during the periods or as of the date for which the pro forma financial
statements are presented, nor are they necessarily indicative of the results of
operations in future periods or the future financial position of UNUMProvident.



       UNUM/Provident Unaudited Pro Forma Combined Condensed Consolidated
                            Statements of Income (a)


<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                                  ---------------------------------------------
(Dollars and shares in millions except per common share data)          1998            1997            1996
---------------------------------------------------------------   -------------   -------------   -------------
<S>                                                               <C>             <C>             <C>
   Revenues
   Premium income .............................................    $ 6,189.1       $ 5,317.4       $ 4,327.2
   Net investment income ......................................      2,035.4         2,015.7         1,893.4
   Net realized investment gains ..............................         55.0            11.5            (5.2)
   Other income ...............................................        299.9           357.0           148.2
                                                                   ---------       ---------       ----------
    Total revenues ............................................      8,579.4         7,701.6         6,363.6
   Benefits and Expenses
   Policyholder benefits ......................................      5,509.8         4,880.4         4,204.0
   Commissions ................................................        826.5           716.2           555.2
   Operating expenses .........................................      1,462.2         1,286.7         1,087.1
   Increase in deferred policy acquisition costs ..............       (325.8)         (236.0)         (116.7)
   Amortization of value of business acquired and
    goodwill ..................................................         66.6            52.7             7.7
   Interest and debt expense ..................................        119.9            84.9            58.5
                                                                   ----------      ----------      ----------
    Total benefits and expenses ...............................      7,659.2         6,784.9         5,795.8
                                                                   ----------      ----------      ----------
   Income before income taxes .................................        920.2           916.7           567.8
   Income taxes ...............................................        302.8           299.1           184.2
                                                                   ----------      ----------      ----------
    Net income ................................................        617.4           617.6           383.6
   Preferred stock dividends ..................................          1.9            12.7            12.7
                                                                   ----------      ----------      ----------
    Net income available to common shareholders ...............    $   615.5       $   604.9       $   370.9
                                                                   ==========      ==========      ==========
   Net income per common share
    Basic .....................................................    $    2.60       $    2.62       $    1.75
    Diluted ...................................................    $    2.54       $    2.57       $    1.72
                                                                   ==========      ==========      ==========
   Average shares outstanding--basic (a) ......................        237.0           230.7           212.4
   Average shares outstanding--diluted (a) ....................        242.3           235.8           215.3
</TABLE>


   (a) The above unaudited pro forma combined condensed consolidated statements
       of income reflect the combined results of the operations of UNUM and
       Provident for the periods presented. No adjustments have been made to
       arrive at net income available to common shareholders. The pro forma
       combined basic and diluted earnings per share for the respective periods
       presented are based on the combined weighted-average number of common and
       dilutive potential common shares and adjusted weighted-average shares of
       UNUM and Provident. The number of weighted-average common shares and
       adjusted weighted-average shares, including all dilutive potential common
       shares, reflect the reclassification of Provident common stock on a 0.73
       to 1.0 basis and the conversion of each outstanding share of UNUM common
       stock into one share of UNUMProvident common stock in the merger.


                                       62
<PAGE>




                UNUM Corporation and Provident Companies, Inc.
             Unaudited Pro Forma Combined Condensed Balance Sheet
                            As of December 31, 1998


<TABLE>
<CAPTION>
                                                      Historical
                                            -------------------------------                        UNUM/Provident
                                                                                  Pro Forma          Pro Forma
                                                 UNUM           Provident        Adjustments          Combined
                                            --------------   --------------   -----------------   ---------------
(Dollars in millions)
-----------------------------------------
<S>                                         <C>              <C>              <C>                 <C>
   ASSETS
   Invested assets ......................    $   9,837.7      $  17,332.7        $      --          $  27,170.4
   Reinsurance receivables ..............        1,770.0          3,101.0               --              4,871.0
   All other assets .....................        3,539.9          2,276.7               --              5,816.6
   Separate account assets ..............           35.3            377.7               --                413.0
                                             -----------      -----------        ---------          -----------
    Total assets ........................    $  15,182.9      $  23,088.1        $      --          $  38,271.0
                                             ===========      ===========        =========          ===========
   LIABILITIES AND
    STOCKHOLDERS' EQUITY
   Policy liabilities, accruals and
    unearned premiums ...................    $   9,201.4      $  14,343.0        $   230.0(b)       $  23,774.4
   Other policyholders' funds ...........          875.4          3,227.3               --              4,102.7
   All other liabilities ................        2,333.1          1,431.6            (80.0)(b)          3,684.7
   Separate account liabilities .........           35.3            377.7               --                413.0
                                             -----------      -----------        ---------          -----------
    Total liabilities ...................       12,445.2         19,379.6            150.0             31,974.8
   Company Obligated Mandatorily
    Redeemable Preferred Securities
    of Subsidiary Trust Holding
    Soley Junior Subordinated Debt
    Securities of the Company ...........             --            300.0               --                300.0
                                             -----------      -----------        ---------          -----------
   Common stock .........................           20.0            135.7           (131.9)(c)             23.8
   Additional paid-in capital ...........        1,151.2            762.0           (954.0)(c)            959.2
   Accumulated other comprehensive
    income ..............................          229.0            685.7               --                914.7
   Retained earnings ....................        2,444.9          1,834.3           (150.0)(b)          4,129.2
   Treasury stock .......................       (1,085.9)            (9.2)         1,085.9 (c)             (9.2)
   Restricted stock deferred
    compensation ........................          (21.5)              --               --                (21.5)
                                             -----------      -----------        ---------          -----------
    Total stockholders' equity ..........        2,737.7          3,408.5           (150.0)             5,996.2
                                             -----------      -----------        ---------          -----------
    Total liabilities and stockholders'
      equity ............................    $  15,182.9      $  23,088.1        $      --          $  38,271.0
                                             ===========      ===========        =========          ===========
</TABLE>


   (b) UNUM and Provident are in the process of reviewing their accounting
       policies and financial statement classifications and as a result of this
       review, it may be necessary to adjust the combined financial statements
       to conform to those accounting policies and classifications that are
       determined to be most appropriate.

       One aspect of this preliminary review has indicated that UNUM's process
       and assumptions used to calculate the discount rate for claim reserves of
       certain disability businesses differs from that used by Provident. While
       UNUM and Provident's current methods for calculating the discount rate
       for disability claim reserves are in accordance with generally accepted
       accounting principles, both companies' management believe that the
       combined entity should have consistent discount rate accounting policies
       and methods for applying these policies for similar products. Anticipated
       in the merger was the combination of the investment functions of UNUM and
       Provident. UNUMProvident's investment function will be managed by
       Provident's personnel and the current investment strategies of Provident
       will be utilized by the combined entity. The current UNUM methodology
       uses the same investment strategy for assets backing both liabilities and
       surplus. The Provident


                                       63
<PAGE>

                                               UNUM Corporation and Subsidiaries


       methodology allows for different investment strategies for assets backing
       surplus than those backing product liabilities which management has
       determined to be the most appropriate approach for the combined entity.
       Accordingly, UNUM will adopt Provident's method of calculating the
       discount rate for claim reserves.

       UNUM estimated the impact of this change in method on the estimate of
       unpaid claims reserves and will record a pretax charge effective with the
       merger of approximately $230 million ($150.0 million after-tax). This
       estimated merger related adjustment has not been reflected in the
       unaudited pro forma combined condensed statements of income and related
       per share calculations. This estimate, which will be reported in
       operating earnings, was based on a projection of UNUM's investment
       portfolio and claim liabilities as of June 30, 1999, the expected
       completion date of the merger. For the discount rates affected by the
       change in methodology, the current interest rates used to discount claim
       reserves, and the projected interest rates using the Provident method as
       of June 30, 1999, are as follows:

<TABLE>
<CAPTION>
                                                                   December 31,     Projected as of
                                                                       1998          June 30, 1999
<S>                                                               <C>              <C>
   Group long term disability (North America) .................         7.76%             6.65%
   Group long term disability and individual disability (United
    Kingdom) ..................................................         8.95%             7.74%
   Individual disability (North America) ......................         7.39%             6.79%
</TABLE>

       UNUM's unpaid claim reserves for these disability lines as of June 30,
       1999, were estimated to be $5,376 million using the UNUM method for
       determining reserve discount rates, and $5,606 million using the
       Provident method.


   (c) The pro forma adjustments to common stock, additional paid-in capital
       and treasury stock reflect the retirement of shares of UNUM common stock
       held in treasury, the reduction in par value of Provident common stock
       from one dollar to ten cents, and the reclassification of Provident
       common stock on a 0.73 to 1.0 basis that results in 98.7 million shares
       issued to replace the 135.2 million shares of Provident common stock held
       by Provident stockholders on December 31, 1998, and the issuance to UNUM
       stockholders of 138.7 million shares of UNUMProvident common stock
       pursuant to the merger (calculated by multiplying the number of shares of
       UNUM common stock outstanding at December 31, 1998, of 138.7 million by
       the exchange ratio of 1.0 to 1.0 representing the number of shares UNUM
       stockholders will receive for each share of UNUM common stock they own
       immediately prior to consummation of the merger). The number of shares of
       UNUMProvident common stock that will be issued after completion of the
       merger will be based on the actual number of shares of UNUM common stock,
       and Provident common stock (after reclassification on a 0.73 to 1.0
       basis) outstanding at the effective time of the merger.

NOTE 18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

     The following is a summary of unaudited quarterly results of operations
for 1998 and 1997:

<TABLE>
<CAPTION>
                                                                                1998
(Dollars in millions, except per common share data)     -----------------------------------------------------
                                                            4th           3rd           2nd           1st
<S>                                                     <C>           <C>           <C>           <C>
   Premiums .........................................    $  983.9      $  977.2      $  962.2      $  918.4
   Investment income ................................       168.0         164.9         165.2         163.3
   Net realized investment gains ....................         8.4           7.2           2.3           3.1
   Benefits to policyholders ........................       779.9         717.2         710.0         679.1
   Net income .......................................        66.8         104.4          98.7          93.5
   Basic net income per common share ................        0.48          0.75          0.71          0.68
   Diluted net income per common share ..............        0.47          0.74          0.70          0.66
</TABLE>

<TABLE>
<CAPTION>
                                                                              1997
                                                      -----------------------------------------------------
                                                          4th           3rd           2nd           1st
                                                      -----------   -----------   -----------   -----------
<S>                                                   <C>           <C>           <C>           <C>
   Premiums .......................................    $  860.5      $  833.8      $  786.7      $  782.7
   Investment income ..............................       165.5         164.3         165.7         165.5
   Net realized investment gains (losses) .........        (1.1)          2.7          (3.0)         (2.2)
   Benefits to policyholders ......................       635.7         629.6         585.0         588.5
   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>

                                       64
<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

     Set forth below is information about each director, including age,
position(s) held with UNUM, principal occupation, business history for at least
five years and other directorships held.

<TABLE>
<CAPTION>
                                 Age (as of                                                       Term
Name                          March 31, 1999)     Director Since         Position(s) held        Expires
--------------------------   -----------------   ----------------   -------------------------   --------
<S>                          <C>                 <C>                <C>                         <C>
   James F. Orr III                 56           1986               Chairman, President and     1999
                                                                     Chief Executive Officer
   Gayle O. Averyt                  65           1993               Director                    2000
   Robert E. Dillon, Jr.            67           1990               Director                    1999
   Gwain H. Gillespie               67           1991               Director                    2000
   Ronald E. Goldsberry             56           1993               Director                    1999
   Donald W. Harward                59           1990               Director                    1999
   George J. Mitchell               65           1995               Director                    2001
   Cynthia A. Montgomery            46           1990               Director                    2000
   James L. Moody, Jr.              67           1988               Director                    2000
   Lawrence R. Pugh                 66           1988               Director                    2001
   Lois Dickson Rice                66           1993               Director                    2001
   John W. Rowe                     53           1988               Director                    2001
</TABLE>

     Mr. Orr, Chairman, President and Chief Executive Officer, UNUM, was
elected Chairman of the Board of UNUM in February 1988. Additionally, he has
served as President and Chief Executive Officer since September 1987. Mr. Orr
joined UNUM in 1986. Mr. Orr also serves as a director of Nashua Corporation.

     Mr. Averyt retired as Chairman of Colonial Companies, Inc. in December
1993, a post he had held since 1989. Additionally, Mr. Averyt served as
Chairman of Colonial Life & Accident Insurance Company from 1970 to December
1993.

     Mr. Dillon retired as Executive Vice President of Sony Electronics Inc., a
New Jersey-based electronics firm, in December 1995, a post he had held since
1981.

     Mr. Gillespie retired as Vice Chairman of UNUM in October 1992, a post he
had held since 1991. Mr. Gillespie joined UNUM in September 1988.

     Dr. Goldsberry is Vice President of Global Service Business Strategy at
Ford Motor Company, a post he has held since January 1999. Previously, Dr.
Goldsberry served as Global Vice President and General Manager of Global Ford
Customer Service Operations from January 1997 to January 1999 and General
Manager of the Customer Service Division from February 1994 to December 1996.
He is also Chairman of UNC Ventures, Inc., a venture capital firm and serves as
director of Case Corporation.

     Dr. Harward is President of Bates College in Maine, a post he has held
since October 1989.

     Senator Mitchell associated with the firm of Verner, Liipfert, Bernhard,
McPherson & Hand, Washington, D.C., as special counsel in January 1995 and
associated with the firm of Preti, Flaherty, Beliveau & Pachios, Portland,
Maine, as senior counsel in April 1997. He also serves as an advisor to B.T.
Wolfensohn, an investment banking firm. At the request of the British and Irish
governments, he served as chairman of the peace negotiations in Northern
Ireland. Previously, he served as a United States senator from Maine from 1980
to 1994 and additionally as Senate Majority Leader from 1989 to 1994. Senator
Mitchell also serves as a director or trustee of Federal Express

                                       65
<PAGE>

                                               UNUM Corporation and Subsidiaries

Corporation, KTI, Inc., Staples, Inc., Starwood Hotels and Resorts, Unilever
PLC, The Walt Disney Company and Xerox Corporation.

     Ms. Montgomery is a professor of competition and strategy at Harvard
University Graduate School of Business Administration, a post she has held
since 1989, and was named Timken Professor of Business Administration in 1998.
She also serves as a director of Newell Co. and certain Merrill Lynch mutual
funds.

     Mr. Moody retired as Chairman of Hannaford Bros. Co. ("Hannaford"), a
Maine-based food retailing company, in May 1997, a post he had held since 1984.
Mr. Moody joined Hannaford in 1959. He is also a director of Empire Company
Limited, IDEXX Laboratories, Inc., Penobscot Shoe Company, Staples, Inc. and
several funds of the Colonial Group of mutual funds.

     Mr. Pugh retired as Chairman of VF Corporation, an apparel company in
Pennsylvania, in October 1998, a post he had held since 1983. Additionally, Mr.
Pugh served as Chief Executive Officer from 1983 to 1995. He is also a director
of Mercantile Stores Company, Inc. and Milliken & Company.

     Ms. Dickson Rice is a guest scholar at The Brookings Institution, a post
she has held since October 1991. She also serves as a director of Fleet
Financial Group, Inc., HSB Group, Inc., International Multifoods Corporation
and The McGraw-Hill Companies.

     Mr. Rowe is Chairman, President and Chief Executive Officer of Unicom
Corporation and its principal subsidiary, Commonwealth Edison Company, a post
he assumed in March 1998. Previously, Mr. Rowe was President and Chief
Executive Officer of New England Electric System from 1989 to February 1998. He
is also a director of Bank of Boston Corporation, First National Bank of Boston
and Wisconsin Central Transportation Corp.

B. Executive Officers of the Registrant

     The executive officers of UNUM are as follows:

<TABLE>
<CAPTION>
                              Age (as of                                     An Officer
Name                       March 31, 1999)      Position held with UNUM        Since
-----------------------   -----------------   ---------------------------   -----------
<S>                       <C>                 <C>                           <C>
   James F. Orr III              56           Chairman, President and          1986
                                               Chief Executive Officer
   Robert E. Broatch             50           Senior Vice President and        1996
                                               Chief Financial Officer
   Robert W. Crispin             52           Executive Vice President         1995
   Peter J. Moynihan             55           Senior Vice President            1979
   Kevin P. O'Connell            53           Executive Vice President         1987
   Elaine D. Rosen               46           Executive Vice President         1983
   Robert E. Staton*             52           President, Colonial              1993
</TABLE>

--------
*Denotes an officer of a subsidiary who is not an officer of UNUM but who is
 considered an "executive officer" under regulations of the Securities and
 Exchange Commission ("SEC").

     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. Mr. Orr joined UNUM in 1986. He also serves as a director of
Nashua Corporation.

     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. 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.

                                       66
<PAGE>



     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.

     Ms. Rosen was elected Executive Vice President of UNUM in May 1998 and
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 AND DIRECTOR COMPENSATION

     The following Summary Compensation Table shows compensation paid by UNUM
Corporation and by UNUM America, a wholly-owned subsidiary of UNUM Corporation,
to the Chief Executive Officer and the other four most highly compensated
executive officers of UNUM during any of the past three fiscal years during
which such person served as an executive officer.

                                       67
<PAGE>

                                               UNUM Corporation and Subsidiaries

                          SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                         Annual Compensation      Long Term Compensation Awards
                                       ------------------------ ----------------------------------
                                                                                       Number of
                                                                                       Securities
            Name and                                 Incentive       Restricted        Underlying      All Other
       Principal Position        Year     Salary    Payment(1)     Stock Award (2)      Options     Compensation (5)
------------------------------- ------ ----------- ------------ -------------------- ------------- -----------------
<S>                             <C>    <C>         <C>          <C>                  <C>           <C>
James F. Orr III                1998    $860,000    $1,006,200  $        0 (3)       400,000 (3)        $ 20,000
Chairman, President and CEO     1997    $838,461    $1,142,000  $1,642,084 (4)       79,000             $ 20,000
                                1996    $739,923    $  740,000  $  912,600 (4)       82,400             $  9,000

Robert W. Crispin               1998    $549,999    $  426,900  $  651,775 (4)       28,190             $ 20,000
Executive Vice President        1997    $540,384    $  324,200  $  687,384 (4)       33,200             $227,673
                                1996    $500,000    $  363,000  $  450,450 (4)       40,600             $266,884

Elaine D. Rosen                 1998    $431,666    $  265,000  $  462,550 (4)       20,000             $ 20,000
Executive Vice President        1997    $340,000    $  249,000  $  565,182 (4)       27,200             $ 12,605
                                1996    $296,154    $  184,900  $  228,150 (4)       20,500             $  9,000

Robert E. Broatch               1998    $359,999    $  235,200  $  344,810 (4)       14,910             $ 95,749
Senior Vice President and CFO   1997    $312,693    $  172,000  $  400,974 (4)       19,300             $ 83,872

Kevin P. O'Connell              1998    $308,333    $  177,600  $  336,400 (4)       14,550             $ 18,333
Executive Vice President        1997    $300,000    $  212,000  $  412,430 (4)       19,800             $ 18,782
                                1996    $296,154    $  169,500  $  228,150 (4)       20,500             $  9,000
</TABLE>

(1) Cash incentive payments for 1998, 1997 and 1996 performance have been
    listed in the year earned, but were actually paid in the following fiscal
    year. Such amounts include special cash payments relative to 1997 for Mr.
    Orr: $270,000; Ms. Rosen: $62,000; and Mr. O'Connell: $62,000.

(2) The aggregate number and average market value as of December 31, 1998,
    ($58.97 per share) of shares of restricted stock held by the five named
    executive officers were as follows: Mr. Orr: 74,200, $4,375,574; Mr.
    Crispin: 45,800, $2,700,826; Ms. Rosen: 31,400, $1,851,658; Mr. Broatch:
    36,460, $2,150,046; and Mr. O'Connell: 25,000, $1,474,250.

(3) In 1998, 400,000 options were granted to Mr. Orr in recognition of his
    record of leadership. Due to the magnitude of that grant, no restricted
    stock was awarded to Mr. Orr in 1998 for the 1998-2000 performance cycle.

(4) The restrictions may lapse on some or all of the shares represented by the
    restricted stock awards shown for each named executive, provided that UNUM
    attains targeted three-year return-on-equity goals and that the executive
    remains in the company's employ as provided in the 1990 and 1996 plans. If
    no determination has been made concerning achievement of such
    return-on-equity goals at the time of a "change in control" as defined in
    the applicable plan (consummation of the merger for grants made in 1998
    and 1997, and shareholder approval of the merger for grants made in 1996),
    restrictions will lapse on all shares.

(5) Except as noted below, the stated amounts are UNUM's matching contributions
    to UNUM's qualified and nonqualified 401(k) plans. In the case of Mr.
    Crispin, UNUM made payments of $220,000 in 1997 and 1996 to compensate him
    for foregone compensation from his previous employer and provided
    relocation assistance of $37,384 relative to 1996. In the case of Mr.
    Broatch, UNUM paid $75,000 in 1998 and 1997 to compensate him for foregone
    compensation from his previous employer.

                                       68
<PAGE>



                         OPTION GRANTS IN FISCAL 1998

<TABLE>
<CAPTION>
                         Number of
                         Securities        % of Total
                         Underlying     Options Granted                                         Potential Realized Value
                          Options       to Employees in     Exercise     Expiration                 At Expiration(3)
        Name              Granted         Fiscal Year         Price         Date       0%($)         5%($)           10%($)
--------------------   -------------   -----------------   ----------   -----------   -------   --------------   --------------
<S>                    <C>             <C>                 <C>          <C>           <C>       <C>              <C>
James F. Orr III       400,000 (1)           24.10%          $ 52.59       3/13/08       $0       $13,230,383      $33,528,389
Robert W. Crispin       28,190 (2)            1.70%          $ 52.59       3/13/08       $0       $   932,411      $ 2,362,913
Elaine D. Rosen         20,000 (2)            1.21%          $ 52.59       3/13/08       $0       $   661,519      $ 1,676,419
Robert E. Broatch       14,910 (2)            0.90%          $ 52.59       3/13/08       $0       $   493,163      $ 1,249,771
Kevin P. O'Connell      14,550 (2)            0.88%          $ 52.59       3/13/08       $0       $   481,255      $ 1,219,595
</TABLE>

(1) Options were granted under the 1996 Incentive Plan on March 13, 1998, based
    on the average market value on that date. Twenty-five percent of the
    options became exercisable on March 13, 1999. An additional 25 percent
    will become exercisable on each of March 13, 2000, 2001 and 2002, or upon
    consummation of the merger, whichever is earlier.

(2) Options were granted under the 1996 Incentive Plan on March 13, 1998, based
    on the average market value on that date. Thirty-three percent of the
    options became exercisable on March 13, 1999. An additional 33 and 34
    percent become exercisable on March 13, 2000, and 2001, respectively, or
    upon consummation of the merger, whichever is earlier.

(3) Potential realizable value at expiration is based on an assumption that the
    stock price of UNUM Corporation common stock appreciates at the annual
    rate shown (compounded annually) from the date of grant until the end of
    the ten-year term. These numbers are calculated based on the requirements
    promulgated by the SEC and do not reflect UNUM's estimate of future stock
    price growth.

                  AGGREGATED OPTION EXERCISES IN FISCAL 1998
                       AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                            Number of Securities              Value of Unexercised
                                                           Underlying Unexercised             In-the-Money Options
                        Shares Acquired                   Options at Fiscal Year-End           at Fiscal Year-End(1)
                          On Exercise        Value     -------------------------------   ---------------------------------
        Name              Of Options       Realized     Exercisable     Unexercisable     Exercisable     Unexercisable
--------------------   ----------------   ----------   -------------   ---------------   -------------   --------------
<S>                    <C>                <C>          <C>             <C>               <C>             <C>
James F. Orr III                --               --       473,254          481,246       $17,653,083       $4,503,684
Robert W. Crispin               --               --       147,752           64,538       $ 5,132,505       $1,064,664
Elaine D. Rosen                 --               --        46,306           45,494       $ 1,357,830       $  729,271
Robert E. Broatch               --               --        31,099           51,811       $   840,161       $1,051,026
Kevin P. O'Connell          12,000         $307,874        31,864           35,086       $   906,475       $  589,777
</TABLE>

(1) Potential unrealized value is (i) the average fair market value as of
    December 31, 1998, ($58.97 per share) less the option exercise price times
    (ii) the number of shares acquired on exercise of options.

                                       69
<PAGE>

                                               UNUM Corporation and Subsidiaries

                                 PENSION PLAN

     The following table illustrates the combined estimated annual benefits
payable under the UNUM Employees Pension Plan and Trust (the "Pension Plan")
and the Supplemental Retirement Plan (the "Supplemental Plan") upon normal
retirement of participants with varying Final Average Earnings (as defined
below) and years of Credited Service. The amounts shown are annual payments for
the life of a participant who retires at age 65. As of December 31, 1998,
Messrs. Orr, Crispin, Broatch and O'Connell, and Ms. Rosen had 12, 8, 6, 30 and
23 years of Credited Service, respectively. If each of the above were to
continue his or her employment until age 65, the respective years of Credited
Service would be 21, 27, 23, 42 and 42 for purposes of computing benefits.

<TABLE>
<CAPTION>
                                    Estimated Annual Benefits by Years of Credited Service
               -------------------------------------------------------------------------------------------------
 Final Average
   Earnings        10          15          20          25          30          35           40           45
-------------- ---------- ----------- ----------- ----------- ----------- ------------ ------------ ------------
<S>            <C>        <C>         <C>         <C>         <C>         <C>          <C>          <C>
   $  500,000   $ 75,400   $114,700    $155,200    $196,800    $239,400    $  272,900   $  306,300   $  339,700
      600,000     91,100    138,700     187,600     237,900     289,400       329,800      370,200      410,600
      700,000    106,900    162,700     220,100     279,000     339,400       386,800      434,100      481,400
      800,000    122,700    186,700     252,500     320,100     389,400       443,700      498,000      552,200
      900,000    138,500    210,700     285,000     361,200     439,400       500,600      561,900      623,100
    1,000,000    154,300    234,700     317,400     402,300     489,400       557,600      625,700      693,900
    1,100,000    170,000    258,700     349,900     443,400     539,400       614,500      689,600      764,700
    1,200,000    185,800    282,700     382,300     484,500     589,400       671,500      753,500      835,600
    1,300,000    201,600    306,700     414,700     525,600     639,400       728,400      817,400      906,400
    1,400,000    217,400    330,700     447,200     566,800     689,400       785,400      881,300      977,200
    1,500,000    233,100    354,700     479,600     607,900     739,400       842,300      945,200    1,048,100
    1,600,000    248,900    378,700     512,100     649,000     789,400       899,300    1,009,100    1,118,900
    1,700,000    264,700    402,700     544,500     690,100     839,400       956,200    1,073,000    1,189,700
    1,800,000    280,500    426,700     577,000     731,200     889,400     1,013,100    1,136,900    1,260,600
    1,900,000    296,300    450,700     609,400     772,300     939,400     1,070,100    1,200,700    1,331,400
    2,000,000    312,000    474,700     641,900     813,400     989,400     1,127,000    1,264,600    1,402,200
</TABLE>

     The above table reflects the amendment of the Pension Plan to a Lifecycle
formula effective January 1, 1997. Retirement benefits under this plan include
a Basic Benefit based upon age at retirement, years of Credited Service, Final
Average Earnings and Social Security Covered Compensation and an additional
Transition Benefit based on the preceding factors and also upon each
participant's age at December 31, 1996. The plan also includes limited duration
grandfathered formulas in effect prior to 1997. "Final Average Earnings" is
defined as the average of salary plus annual cash incentive payments for the
five years in which earnings were highest within the last 10 years of
employment. "Social Security Covered Compensation" means the average of the
annual Social Security taxable wage bases in effect during the 35 year period
ending when the employee reaches Social Security Retirement Age. Accrued
benefits are 100 percent vested after five years of service. Because the
Transition Benefit varies based upon age at December 31, 1996, and Social
Security Covered Compensation varies with year of birth, the retirement
benefits shown above are averages; benefits for individual executives may be 10
to 15 percent higher or lower than shown.

     The Supplemental Plan provides benefits equal to the difference between
what the Pension Plan can pay reflecting the limits imposed by Sections
401(a)(17) and 415 of the Code and what the Pension Plan otherwise would have
paid had these limits not existed. All participants in the Pension Plan who
retire or terminate after January 1, 1983, and are affected by the limits are
eligible to participate in the Supplemental Plan, including Messrs. Orr,
Crispin, O'Connell and Broatch, and Ms. Rosen. Effective January 1, 1997, the
Supplemental Plan also pays benefits that would have been paid by the Pension
Plan had compensation not been deferred.

     The Supplemental Executive Retirement Plan (the "SERP") provides benefits
for certain executives who have been designated to participate by UNUM's board,
including certain of the named executive officers. The SERP benefits for
Messrs. Orr and Crispin equal 2.5 percent of Final Average Earnings for each
year of Credited Service, up to a maximum of 20 years, less benefits payable
from the Pension and Supplemental Plans. Mr. O'Connell and Ms. Rosen are
eligible to participate in a modified SERP; however, their benefits under the
Pension and Supplemental Plans are expected to exceed the minimum benefits
guaranteed under the SERP formula.

                                       70
<PAGE>



                           COMPENSATION OF DIRECTORS

     Non-employee directors are paid an annual retainer of $27,500 by UNUM.
Directors who chair a committee of UNUM's board are paid an additional annual
retainer of $4,000. Directors are also paid an attendance fee of $1,000 for
each board meeting attended, and an additional $1,000 for each committee
meeting attended. Directors may defer their compensation pursuant to a
nonqualified deferred compensation plan, including an opportunity to invest in
phantom UNUM Corporation common stock. Directors are also reimbursed for
out-of-pocket expenses relating to attendance at meetings.

     In order to further align the interests of the directors with those of the
stockholders, during 1997 the Board of Directors adopted stock ownership
expectations which provide that over a five-year period each director is to
accumulate UNUM stock (exclusive of stock options) valued at three-times the
annual retainer paid to the director. In addition, during 1997, the Board
determined to discontinue the consulting fee arrangement that was previously in
place in favor of a stock-based form of compensation. Specifically, effective
as of the 1997 Annual Meeting, further benefits under that consulting fee
arrangement ceased to accrue, so that upon termination of Board service, each
eligible director will be entitled to receive an annual consulting fee fixed at
$27,500 for only the number of full years each such director had served as of
May 31, 1997. In lieu of the continued accrual of benefits under the consulting
fee arrangement, the Board of Directors voted to increase the size of the
existing annual non-employee director stock option grants under the 1990
Long-Term Stock Incentive Plan. As of May 10, 1997, each continuing
non-employee director receives an annual automatic grant of an option to
purchase 4,000 shares of UNUM Corporation common stock. Each newly elected
non-employee director will receive an automatic grant of an option to purchase
6,000 shares of UNUM Corporation common stock.

                       OTHER AGREEMENTS AND TRANSACTIONS

Severance Agreements

     UNUM has entered into severance agreements (the "Severance Agreements")
with each of Messrs. Orr, Crispin, and Broatch and Ms. Rosen providing for
payments and other benefits to the officer if, within two years after a Change
in Control of UNUM, as defined in the Severance Agreements, his or her
employment is terminated (a) involuntarily other than for willful and continued
failure by the officer to perform substantially his or her duties or willful
conduct which is demonstrably and materially injurious to the employer; or (b)
voluntarily by the officer, if for Good Reason as defined in the Severance
Agreements. Under the Severance Agreements, an officer whose employment so
terminates will receive, in addition to accrued salary and prorated incentive
compensation, (1) a lump sum payment equal to three times the sum of his or her
salary in effect at termination or immediately prior to the Change in Control,
whichever is greater, plus three times the average of the annual incentive
compensation awards received by the officer in respect of the preceding three
years; (2) a lump sum payment equal to the present value of the reduction in
retirement payments resulting from the termination, assuming employment had
continued for three additional years; and (3) continuation of life, disability
and accident and health insurance benefits for a maximum of three years, except
to the extent that equivalent benefits are provided by a subsequent employer.
In the event of a Potential Change in Control, as defined in the Severance
Agreements, UNUM is obligated to fund a trust in an amount sufficient to
provide for all cash payments under the such agreements.

Employment Agreements

     Pursuant to an agreement entered into between UNUM and Mr. Crispin at the
time of his hire, Mr. Crispin is entitled to a partially nonqualified pension
arrangement whereby he receives the equivalent of two years credit under the
Corporation's retirement plans in which executive officers participate for each
of his first ten years of employment. Furthermore, in the event of termination
of Mr. Crispin's employment for any reason (except in connection with a change
of control of the Corporation) other than resignation or cause during the first
five years of employment, the agreement provides that Mr. Crispin will receive
a severance payment equivalent to two years' base salary.

     Pursuant to an agreement entered into between UNUM and Mr. Broatch at the
time of his hire, Mr. Broatch is entitled to a partially nonqualified pension
arrangement whereby he receives the equivalent of two years credit under the
Corporation's retirement plans in which executive officers participate for each
of his first five years of employment. Furthermore, in the event of termination
of Mr. Broatch's employment for any reason (except in connection with a change
of control of the Corporation) other than resignation or cause, the agreement
provides that Mr. Broatch will receive a severance payment equivalent to one
years' base salary.

                                       71
<PAGE>

                                               UNUM Corporation and Subsidiaries

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


     Indicated below are the number of shares beneficially owned as of December
31, 1998, by holders of more than five percent of UNUM Corporation common stock
as reported to the SEC by such holders on Form 13G and the percentage of the
total shares of UNUM Corporation common stock outstanding, which such holdings
represented on such date.


   o FMR Corp., 82 Devonshire Street, Boston, MA 02109, reported beneficial
     ownership of 8,593,853 shares (6.2%), including sole voting power over
     422,883 shares and sole dispositive power over all such shares.

   o J.P. Morgan & Co. Incorporated, 60 Wall Street, New York, NY 10260,
     reported beneficial ownership of 10,084,034 shares (7.3%), including sole
     voting power over 7,303,438 shares, shared voting power over 194,600
     shares, sole dispositive power over 9,864,984 shares and shared dispositive
     power over 216,850 shares.


                              SECURITY OWNERSHIP

     The following table sets forth information regarding the beneficial
ownership of UNUM Corporation common stock, as of March 1, 1999, by each
director, nominee and named executive officer, and by all directors, nominees
and executive officers of UNUM as a group. The share holdings reported for all
directors, nominees and executive officers as a group total 1.67 percent of the
outstanding shares on March 1, 1999, as calculated pursuant to the rules of the
SEC. All other amounts reported total less than one percent of the outstanding
shares on such date.

<TABLE>
<CAPTION>
                                                                               Number of Shares
                                                                              Beneficially Owned
                                                              Shares          Subject to Options      Total Shares
                 Directors and Named                       Beneficially        Exercisable as of      Beneficially
                  Executive Officers                        Owned(1)(2)         April 30, 1999         Owned(1)(2)
-----------------------------------------------------   ------------------   --------------------   ----------------
<S>                                                     <C>                  <C>                    <C>
   James F. Orr III .................................       302,967 (3)              627,340           930,307 (3)
   Gayle O. Averyt ..................................       300,251 (4)                6,000           306,251 (4)
   Robert E. Dillon, Jr. ............................        11,647                   17,000            28,647
   Gwain H. Gillespie ...............................        63,356 (5)               12,000            79,356 (5)
   Ronald E. Goldsberry .............................         7,537                   14,000            21,537
   Donald W. Harward ................................         6,000 (6)               12,000            18,000 (6)
   George J. Mitchell ...............................         3,583                   10,000            15,583
   Cynthia A. Montgomery ............................         9,071 (7)               18,000            27,071 (7)
   James L. Moody, Jr. ..............................         8,898                   20,000            28,898
   Lawrence R. Pugh .................................        15,988                   20,000            35,988
   Lois Dickson Rice ................................         2,382                   14,000            16,382
   John W. Rowe .....................................         3,938                   12,000            15,938
   Robert W. Crispin ................................       101,041                  181,814           282,855
   Elaine D. Rosen ..................................        62,662                   68,852           131,514
   Robert E. Broatch ................................        39,323                   54,958            94,281
   Kevin P. O'Connell ...............................        58,024                   50,169           108,193
   All directors and executive officers as a group
    (18 persons including the above named)* .........     1,116,204 (8)            1,305,075         2,421,279 (8)
</TABLE>

--------
(1) The number of shares reflected which, under applicable SEC regulations, are
    deemed to be beneficially owned. Unless otherwise indicated, the person
    indicated holds sole voting and dispositive power.
(2) Includes restricted stock units with a value equivalent to 30,400 shares of
    UNUM Corporation common stock held by Mr. Crispin; the following number of
    shares of phantom UNUM Corporation common stock credited to the named
    executive officers' accounts under UNUM's Nonqualified 401(k) Plan: Mr. Orr:
    2,108 shares; Mr. Crispin: 2,080 shares; Ms. Rosen: 1,333 shares; Mr.
    Broatch: 1,198 shares; and Mr. O'Connell: 1,831 shares; and the following
    number of shares of phantom UNUM Corporation common stock credited to the
    non-employee directors' accounts under UNUM's Director Deferred Compensation
    Plan: Mr. Dillon: 6,047; Mr. Gillespie: 5,610; Dr. Goldsberry: 5,737;
    Senator Mitchell: 2,583; Ms. Montgomery: 1,871; Mr. Moody: 898; Mr. Pugh:
    11,988; Ms. Rice: 1,782; and Mr. Rowe: 2,938.
(3) Includes 30,459 shares held by Mr. Orr's spouse and child.
(4) Includes 33,349 shares held by Mr. Averyt's spouse and 111,698 shares held
    in trust for the benefit of the family members under various trusts
    pursuant to which Mr. Averyt, as trustee, has sole or shared voting or
    dispositive power. Mr. Averyt disclaims beneficial ownership of 19,077 of
    these shares held in trust.
(5) Includes 51,694 shares held jointly with or by Mr. Gillespie's spouse.

                                       72
<PAGE>



(6) Includes 6,000 shares held jointly with Dr. Harward's spouse.
(7) Includes 7,200 shares held jointly with Ms. Montgomery's spouse.
(8) Includes 192,806 shares held in the name of a spouse, child or certain
    other relative sharing the same home as the director or executive officer,
    or held by the director or executive officer, or the spouse of the
    director or executive officer, as a trustee or as a custodian for family
    members.

* Includes officers of subsidiaries who are not officers of UNUM but are
  considered "executive officers" of UNUM under rules of the SEC.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     See Item 11 "Executive and Director Compensation" under the caption "Other
Agreements and Transactions" for this information.

                                       73
<PAGE>

                                               UNUM Corporation and Subsidiaries

                                    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.

<TABLE>

<CAPTION>
                                                                                  Page
                                                                                 -----
<S>                                                                              <C>
       Report of Independent Accountants .....................................    29
       Consolidated Statements of Income for the Years Ended
         December 31, 1998, 1997 and 1996 ....................................    30
       Consolidated Balance Sheets as of December 31, 1998 and 1997 ..........    31
       Consolidated Statements of Stockholders' Equity for the Years Ended
         December 31, 1998, 1997 and 1996 ....................................    32
       Consolidated Statements of Cash Flows for the Years Ended
         December 31, 1998, 1997 and 1996 ....................................    33
       Consolidated Statements of Comprehensive Income for the Years
         Ended December 31, 1998, 1997 and 1996 ..............................    35
       Notes to Consolidated Financial Statements ............................    36

     2. Financial Statement Schedules

       II  Condensed Financial Information of UNUM Corporation (Registrant)       76
       III Supplementary Insurance Information                                    80
       IV  Reinsurance                                                            81
       V   Valuation and Qualifying Accounts and Reserves                         82
</TABLE>

     3. Exhibits. See Index to Exhibits on page 83 of this report.


   (b) Reports on Form 8-K:

     On November 30, 1998, UNUM filed a current report on Form 8-K/A which
amended and replaced in its entirety Form 8-K filed on November 25, 1998, with
respect to UNUM entering into an Agreement and Plan of Merger dated as of
November 22, 1998, pursuant to which UNUM and Provident will merge under the
name UNUMProvident Corporation.

     On December 11, 1998, in connection with the previously announced plan to
merge between UNUM and Provident, UNUM filed a current report on Form 8-K for
the purpose of filing the Condensed Consolidated Financial Statements and notes
thereto of Provident for the periods ended September 30, 1998, December 31,
1997, December 31, 1996, and Condensed Pro Forma Combined Financial Statements
and notes thereto of UNUM and Provident at September 30, 1998, and for the nine
months ended September 30, 1998 and 1997, and for the years ended December 31,
1997, 1996 and 1995.

     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.

                                       74
<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 31, 1999.

                                          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 31, 1999
         (James F. Orr III)

       /s/ ROBERT E. BROATCH                                Senior Vice President
-------------------------------------                       and Chief Financial Officer    March 31, 1999
        (Robert E. Broatch)

        /s/ JOHN M. LANG, JR.                               Vice President and
-------------------------------------                       Corporate Controller           March 31, 1999
          (John M. Lang, Jr.)

                *
-------------------------------------                       Director                       March 31, 1999
          (Gayle O. Averyt)

                *
-------------------------------------                       Director                       March 31, 1999
         (Robert E. Dillon, Jr.)

                *
-------------------------------------                       Director                       March 31, 1999
         (Gwain H. Gillespie)

                *
-------------------------------------                       Director                       March 31, 1999
         (Ronald E. Goldsberry)

                *
-------------------------------------                       Director                       March 31, 1999
         (Donald W. Harward)

                *
-------------------------------------                       Director                       March 31, 1999
          (George J. Mitchell)

                *
-------------------------------------                       Director                       March 31, 1999
        (Cynthia A. Montgomery)

                *
-------------------------------------                       Director                       March 31, 1999
         (James L. Moody, Jr.)

                *
-------------------------------------                       Director                       March 31, 1999
          (Lawrence R. Pugh)

                *
-------------------------------------                       Director                       March 31, 1999
          (Lois Dickson Rice)

                *
-------------------------------------                       Director                       March 31, 1999
           (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>

                                       75
<PAGE>

                       UNUM CORPORATION (Parent Company)

           SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                              STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                                             --------------------------------------
(Dollars in millions)                                           1998          1997          1996
----------------------------------------------------------   ----------   -----------   -----------
<S>                                                          <C>          <C>           <C>
   Revenues
    Dividends from subsidiaries* .........................    $  44.2      $  462.4      $  259.7
    Investment income ....................................        0.2           0.1           0.3
    Interest income on loans to subsidiaries* ............        3.3           2.6           2.5
    Fees and other income ................................         --           0.1            --
                                                              -------      --------      --------
     Total revenues ......................................       47.7         465.2         262.5
   Expenses
    Operating expenses ...................................        7.5           8.3           4.7
    Interest expense .....................................       40.9          41.7          40.7
    Interest expense on loans from subsidiaries* .........       17.4           2.5           0.1
                                                              -------      --------      --------
     Total expenses ......................................       65.8          52.5          45.5
                                                              -------      --------      --------
   Income (loss) before income taxes .....................      (18.1)        412.7         217.0
   Income tax benefit ....................................       29.6          17.3          15.1
                                                              -------      --------      --------
   Income before equity in undistributed net income
    (loss) of subsidiaries ...............................       11.5         430.0         232.1
   Equity in undistributed net income (loss) of
    subsidiaries* ........................................      351.9         (59.7)          5.9
                                                              -------      --------      --------
   Net income ............................................    $ 363.4      $  370.3      $  238.0
                                                              =======      ========      ========
</TABLE>

--------
*Eliminated in consolidation

                  See note to condensed financial statements.

                                       76
<PAGE>

                       UNUM CORPORATION (Parent Company)

           SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                           December 31,
                                                                   -----------------------------
(Dollars in millions)                                                   1998            1997
----------------------------------------------------------------   -------------   -------------
<S>                                                                <C>             <C>
   Assets
    Investments
     Investment in subsidiaries* ...............................    $  3,661.5      $  3,085.2
     Short-term investments ....................................           4.5             2.1
                                                                    ----------      ----------
      Total investments ........................................       3,666.0         3,087.3
    Cash .......................................................           0.1              --
    Amounts receivable from subsidiaries, net* .................            --            16.2
    Notes receivable from subsidiary* ..........................          51.3            35.7
    Income taxes receivable ....................................           9.0              --
    Other assets ...............................................           5.1              --
    Property and equipment, net ................................          31.5            28.8
                                                                    ----------      ----------
      Total assets .............................................    $  3,763.0      $  3,168.0
                                                                    ==========      ==========
   Liabilities and Stockholders' Equity
    Liabilities
      Notes payable ............................................    $    713.5      $    467.5
      Notes payable to subsidiary* .............................         257.1           245.8
      Amounts payable to subsidiaries, net* ....................          54.7              --
      Income taxes .............................................            --             8.3
     Other liabilities .........................................            --            11.6
                                                                    ----------      ----------
       Total liabilities .......................................       1,025.3           733.2
    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            20.0
    Additional paid-in capital .................................       1,098.7         1,086.0
    Unrealized gains, net ......................................         300.9           248.4
    Unrealized foreign currency translation adjustment .........         (19.4)          (16.0)
    Retained earnings (including undistributed earnings of
      subsidiaries of $1,694.0 million and $1,342.1 million in
      1998 and 1997, respectively) .............................       2,444.9         2,162.5
                                                                    ----------      ----------
                                                                       3,845.1         3,500.9
    Less:
    Treasury stock, at cost (1998--61,266,501 shares; 1997--
      61,703,924 shares) .......................................       1,085.9         1,050.3
    Restricted stock deferred compensation .....................          21.5            15.8
                                                                    ----------      ----------
     Total stockholders' equity ................................       2,737.7         2,434.8
                                                                    ----------      ----------
     Total liabilities and stockholders' equity ................    $  3,763.0      $  3,168.0
                                                                    ==========      ==========
</TABLE>

--------
*Eliminated in consolidation

                  See note to condensed financial statements.

                                       77
<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)                                                1998          1997          1996
--------------------------------------------------------------   -----------   -----------   -----------
<S>                                                              <C>           <C>           <C>
   Operating activities:
    Net income ...............................................    $  363.4      $  370.3      $  238.0
    Adjustments to reconcile net income to net cash
      provided by operating activities:
     Increase (decrease) in income tax liability .............       (17.3)         (8.2)         11.7
     (Increase) decrease in amounts due to/from
      subsidiaries* ..........................................        70.9          (1.2)         (8.4)
     Other ...................................................        (6.6)         11.3          16.1
     Equity in undistributed net income of
      subsidiaries* ..........................................      (351.9)       (104.1)         (5.9)
                                                                  --------      --------      --------
      Net cash provided by operating activities ..............        58.5         268.1         251.5
                                                                  --------      --------      --------
   Investing activities:
    Investment in subsidiaries, net* .........................      (174.9)       (107.8)        (13.1)
    Issuance of notes receivable from subsidiaries* ..........       (15.6)         (3.2)        (32.5)
    Repayment of notes receivable from subsidiaries* .........          --            --          50.0
    Net increase in short-term investments ...................        (2.4)         (1.5)           --
    Net additions to property and equipment ..................        (4.1)        (10.7)         (8.6)
                                                                  --------      --------      --------
      Net cash used in investing activities ..................      (197.0)       (123.2)         (4.2)
                                                                  --------      --------      --------
   Financing activities:
    Dividends to stockholders ................................       (81.0)        (79.2)        (79.8)
    Treasury stock acquired ..................................       (65.0)       (285.2)       (119.1)
    Proceeds from notes payable ..............................       278.1            --            --
    Repayment of notes payable ...............................       (68.0)        (48.5)        (15.0)
    Net increase (decrease) in short-term debt ...............        36.0         (10.6)        (42.3)
    Proceeds from notes payable to subsidiaries* .............        11.3         245.8            --
    Repayment of notes payable to subsidiaries* ..............          --            --         (10.0)
    Other ....................................................        27.2          32.8          18.9
                                                                  --------      --------      --------
      Net cash provided by (used in) financing
      activities .............................................       138.6        (144.9)       (247.3)
                                                                  --------      --------      --------
   Net increase in cash ......................................         0.1            --            --
   Cash at beginning of year .................................          --            --            --
                                                                  --------      --------      --------
   Cash at end of year .......................................    $    0.1      $     --      $     --
                                                                  ========      ========      ========
   Supplemental disclosures of cash flow information:
    Cash paid (received) during the year for:
      Income taxes ...........................................    $  (13.2)     $  (10.6)     $  (25.8)
      Interest ...............................................    $   40.3      $   43.3      $   40.8
      Interest to subsidiaries* ..............................    $   17.5      $     --      $    0.2
</TABLE>

     Supplemental disclosure of noncash operating and investing activities:

     During 1997, UNUM Corporation received a $168.3 million note receivable in
satisfaction of a dividend payment from one affiliate, which was immediately
contributed to another affiliate.

--------
*Eliminated in consolidation.

                  See note to condensed financial statements.

                                       78
<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.






                                       79
<PAGE>

                       UNUM CORPORATION AND SUBSIDIARIES

               SCHEDULE III--SUPPLEMENTARY INSURANCE INFORMATION
                              (Dollars in millions)

<TABLE>
<CAPTION>
                                                               (1)(2)
                                                           Future policy
                                               Deferred    benefits, and                   (4)(5)
                                                policy     unpaid claims       (3)           Net
                                             acquisition     and claim       Premium     investment
Segment                                         costs         expenses       revenue       income
------------------------------------------- ------------- --------------- ------------- ------------
<S>                                         <C>           <C>             <C>           <C>
Year Ended December 31, 1998
 Disability Insurance .....................   $   651.8     $  6,721.6     $  2,167.5     $  491.4
 Special Risk Insurance ...................       281.3        1,318.2        1,208.4         80.6
 Colonial Products ........................       332.9          533.9          556.5         67.7
 Retirement Products ......................          --          627.7           26.6         38.6
 Corporate ................................          --             --             --          4.1
                                              ---------     ----------     ----------     --------
  Total ...................................   $ 1,266.0     $  9,201.4     $  3,959.0     $  682.4
                                              =========     ==========     ==========     ========
Year Ended December 31, 1997
 Disability Insurance .....................   $   526.7     $  5,977.4     $  1,882.6     $  468.0
 Special Risk Insurance ...................       202.9        1,001.3          947.2         71.5
 Colonial Products ........................       302.1          458.6          530.8         57.6
 Retirement Products ......................          --          615.5          130.3         54.4
 Corporate ................................          --             --            0.1          5.9
                                              ---------     ----------     ----------     --------
  Total ...................................   $ 1,031.7     $  8,052.8     $  3,491.0     $  657.4
                                              =========     ==========     ==========     ========
Year Ended December 31, 1996
 Disability Insurance .....................   $   443.1     $  5,526.0     $  1,917.7     $  468.5
 Special Risk Insurance ...................       150.5          727.9          783.3         57.6
 Colonial Products ........................       274.6          410.8          498.2         47.3
 Retirement Products ......................         0.9          618.6           65.8        217.2
 Corporate ................................          --             --             --         16.1
                                              ---------     ----------     ----------     --------
  Total ...................................   $   869.1     $  7,283.3     $  3,265.0     $  806.7
                                              =========     ==========     ==========     ========

<CAPTION>
                                                             Amortization
                                              Benefits to    of deferred      (5)
                                             policyholders      policy       Other         (6)
                                              and interest   acquisition   operating     Premiums
Segment                                         credited        costs       expenses     written
------------------------------------------- --------------- ------------- ----------- -------------
<S>                                         <C>             <C>           <C>         <C>
Year Ended December 31, 1998
 Disability Insurance .....................   $  1,794.7      $   64.8     $  492.9    $  2,114.8
 Special Risk Insurance ...................        803.3         143.3        181.1         414.5
 Colonial Products ........................        285.3          89.5        142.4         484.0
 Retirement Products ......................         49.3            --         15.3           0.8
 Corporate ................................           --            --         62.1            --
                                              ----------      --------     --------    ----------
  Total ...................................   $  2,932.6      $  297.6     $  893.8    $  3,014.1
                                              ==========      ========     ========    ==========
Year Ended December 31, 1997
 Disability Insurance .....................   $  1,503.9      $   52.1     $  481.9    $  1,828.5
 Special Risk Insurance ...................        643.9          94.0        179.5         311.2
 Colonial Products ........................        271.8          80.7        137.1         467.2
 Retirement Products ......................        102.7           0.1          5.7           2.5
 Corporate ................................           --            --         58.6            --
                                              ----------      --------     --------    ----------
  Total ...................................   $  2,522.3      $  226.9     $  862.8    $  2,609.4
                                              ==========      ========     ========    ==========
Year Ended December 31, 1996
 Disability Insurance .....................   $  1,514.9      $   99.0     $  557.0    $  1,893.0
 Special Risk Insurance ...................        524.0          53.9        183.8         251.2
 Colonial Products ........................        246.8          72.5        133.8         446.5
 Retirement Products ......................        257.1            --         24.5          15.0
 Corporate ................................           --            --         62.8            --
                                              ----------      --------     --------    ----------
  Total ...................................   $  2,542.8      $  225.4     $  961.9    $  2,605.7
                                              ==========      ========     ========    ==========
</TABLE>

   (1) Excludes other policyholder funds, as follows:

<TABLE>
<CAPTION>
                                                     December 31,
                                        --------------------------------------
Segment                                    1998         1997           1996
-------------------------------------   ---------   ------------   -----------
<S>                                     <C>         <C>            <C>
     Disability Insurance ...........   $   5.9      $     2.4     $     5.9
     Special Risk Insurance .........      13.3           15.4          12.7
     Colonial Products ..............     287.5          258.1         156.6
     Retirement Products ............     568.7          729.0       3,358.4
                                        -------      ---------     ---------
     Total ..........................   $ 875.4      $ 1,004.9     $ 3,533.6
                                        =======      =========     =========
</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.


   (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.


                                       80
<PAGE>

                        UNUM CORPORATION AND SUBSIDIARIES

                            SCHEDULE IV--REINSURANCE

                              (Dollars in millions)

<TABLE>
<CAPTION>
                                                                                                              Percentage
                                                                    Ceded to       Assumed                    of amount
                                                      Gross           other      from other        Net         assumed
                                                      Amount        companies     companies       Amount        to net
                                                 --------------- -------------- ------------ --------------- -----------
<S>                                              <C>             <C>            <C>          <C>             <C>
   Year Ended December 31, 1998
    Life insurance inforce .....................  $  314,783.7    $  15,755.0    $   670.6    $  299,699.3        0.2%
                                                  ============    ===========    =========    ============       ====
   Premiums
    Life insurance and individual annuities ....  $      788.9    $      38.3    $    16.3    $      766.9        2.1%
    Accident and health insurance ..............       3,145.5          376.0        304.5         3,074.0        9.9%
    Group annuities ............................           0.8             --           --             0.8         --
                                                  ------------    -----------    ---------    ------------       ----
      Total premiums ...........................  $    3,935.2    $     414.3    $   320.8    $    3,841.7
                                                  ============    ===========    =========    ============
   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
                                                  ============    ===========    =========    ============
</TABLE>




                                       81
<PAGE>

                       UNUM CORPORATION AND SUBSIDIARIES

          SCHEDULE V--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

                             (Dollars in millions)

<TABLE>
<CAPTION>
                                                                   Additions
                                                         ------------------------------
                                           Balance at     Charged to
                                            beginning     costs and       Charged to                      Balance at end
              Description                   of period      expenses     other accounts     Deductions       of period
---------------------------------------   ------------   -----------   ----------------   ------------   ---------------
<S>                                       <C>            <C>           <C>                <C>            <C>
   Allowances for probable losses:
    Mortgage loans ....................     $  33.9        $   2.3            $--          $   (3.4)         $  32.8
    Real estate held for sale .........     $  17.8        $  (1.0)           $--          $     --          $  16.8
</TABLE>




                                       82
<PAGE>

                        UNUM CORPORATION AND SUBSIDIARIES

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Number             Description                                       Method of Filing
-------- ------------------------------   ---------------------------------------------------------------------
<S>      <C>                              <C>
3.1      Certificate of Incorporation     Filed as Exhibit 3.1 to the Registrant's Annual Report on Form
         of UNUM Corporation, as          10-K dated March 10, 1998, and incorporated herein by reference.
         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 and as
                                          amended and filed as Exhibit 1 to the Registrant's Registration
                                          Statement on Form 8-A/A dated June 21, 1996, and as amended
                                          and filed as Exhibit 3 to the Registrant's Registration Statement on
                                          Form 8-A/A dated November 25, 1998.

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     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.

10.10    (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 as Exhibit 10.9(b) to the Registrant's Annual Report on
                                          Form 10-K dated March 10, 1998, and incorporated herein by
                                          reference.

10.11    $500 Million Revolving           Filed as Exhibit 10.9 to the Registrant's Annual Report on Form
         Credit Agreement                 10-K dated March 24, 1995, and incorporated herein by reference.

12       Computation of Ratio of          Filed herewith.
         Earnings to Fixed Charges
</TABLE>


                                       83
<PAGE>

<TABLE>
<CAPTION>
Number          Description           Method of Filing
-------- -------------------------   -----------------
<S>      <C>                         <C>
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>


                                       84