##### 



FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549


Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934

|                                     |  |                              
|------------------------------------ |  | -----------------------------
|For Quarter Ended September 30, 2003 |  | Commission file number 1-5955

Jefferson-Pilot Corporation

(Exact name of registrant as specified in its charter)


|                                                                              |  |                                                
|----------------------------------------------------------------------------- |  | -----------------------------------------------
|North Carolina
(State or other jurisdiction of
incorporation or organization) |  | 56-0896180
(I.R.S. Employer
Identification No.)

|                                                                                             |  |                 
|-------------------------------------------------------------------------------------------- |  | ----------------
|100 North Greene Street, Greensboro, North Carolina
(Address of principal executive offices) |  | 27401
(Zip Code)

(336) 691-3000
(Registrants telephone number, including area code)

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 whether the registrant is an accelerated filer (as
defined in Exchange Act
Rule 12b-2).   Yes  [X]  No [   ]

|                                                                   |  |  |             | 
|------------------------------------------------------------------ |  |  | ----------- | 
|Number of shares of common stock outstanding at September 30, 2003 |  |  | 141,055,347 | 





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##### 



JEFFERSON-PILOT CORPORATION

Explanatory note: We have made certain reclassifications from the presentation
provided in our Earnings Release furnished on Form 8-K, dated October 27, 2003,
related to the adoption and subsequent deferral of certain provisions of SFAS
150. See Note 6 for further discussion.

INDEX

|                                    |                                                                                                                 |  |              |    | 
|----------------------------------- | --------------------------------------------------------------------------------------------------------------- |  | ------------ | -- | 
|                                    |                                                                                                                 |  | - Page No. -
|Part I.                             | Financial Information                                                                                           |  |              |    | 
|Item 1.                             | Consolidated Unaudited Condensed Balance Sheets
- September 30, 2003 and December 31, 2002                      |  |              | 3  | 
|                                    | Consolidated Unaudited Condensed Statements of Income
- Three and Nine Months ended September 30, 2003 and 2002 |  |              | 4  | 
|                                    | Consolidated Unaudited Condensed Statements of Cash Flows
- Nine Months ended September 30, 2003 and 2002       |  |              | 5  | 
|                                    | Notes to Consolidated Unaudited Condensed Financial Statements                                                  |  |              | 6  | 
|Item 2.                             | Managements Discussion and Analysis of
Financial Condition and Results of Operations                           |  |              | 12 | 
|Item 3.                             | Quantitative
and Qualitative Disclosures about Market Risk                                                      |  |              | 42 | 
|Item 4.                             | Controls
and Procedures                                                                                         |  |              | 42 | 
|Part II.                            | Other
Information                                                                                               |  |              |    | 
|Item 1.                             | Legal
Proceedings                                                                                               |  |              | 43 | 
|Item 6.                             | Exhibits
and Reports on Form 8-K                                                                                |  |              | 43 | 
|Signatures                          |                                                                                                                 |  | 44           |   
|Exhibit Index, followed by Exhibits |                                                                                                                 |  | 45           |   

2



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##### 



PART I  FINANCIAL INFORMATION

Item 1. Financial Statements

JEFFERSON-PILOT CORPORATION AND SUBSIDIARIES
CONSOLIDATED UNAUDITED CONDENSED BALANCE SHEETS
(Dollar Amounts in Millions Except Share Information)

|                                                                                           |                                                                |                                                                                                                                                                     |                          |                                            |        |              |        |             |        |        |        | 
|------------------------------------------------------------------------------------------ | -------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ | ------------------------------------------ | ------ | ------------ | ------ | ----------- | ------ | ------ | ------ | 
|                                                                                           |                                                                |                                                                                                                                                                     |                          |                                            |        | September 30 |        | December 31
|                                                                                           |                                                                |                                                                                                                                                                     |                          |                                            |        | 2003         |        | 2002       
|                                                                                           |                                                                |                                                                                                                                                                     |                          |                                            |        |              |        |            
|                                                                                           |                                                                |                                                                                                                                                                     |                          | ASSETS                                     |        |              |        |             |        |        |        | 
|Investments:                                                                               |                                                                |                                                                                                                                                                     |                          |                                            |        |              |        |            
|                                                                                           |                                                                | Debt securities available for sale, at fair value
(amortized cost $16,350 and $15,591)                                                                              |                          | $                                          | 17,409 |              |        | $           | 16,465 |       
|                                                                                           |                                                                | Debt securities held to maturity, at amortized cost
(fair value $3,035 and $3,225)                                                                                  |                          |                                            | 2,834  |              |        |             | 3,036  |       
|                                                                                           |                                                                | Equity securities available for sale, at fair value
(cost $304 and $46)                                                                                             |                          |                                            | 714    |              |        |             | 409    |       
|                                                                                           |                                                                | Mortgage loans on real estate                                                                                                                                       |                          |                                            | 3,347  |              |        |             | 3,294  |       
|                                                                                           |                                                                | Policy loans                                                                                                                                                        |                          |                                            | 873    |              |        |             | 909    |       
|                                                                                           |                                                                | Real estate                                                                                                                                                         |                          |                                            | 132    |              |        |             | 133    |       
|                                                                                           |                                                                | Other investments                                                                                                                                                   |                          |                                            | 34     |              |        |             | 33     |       
|                                                                                           |                                                                |                                                                                                                                                                     |                          |                                            |        |              |        |            
|                                                                                           |                                                                |                                                                                                                                                                     |                          | Total investments                          |        |              | 25,343 |             |        |        | 24,279 | 
|Cash and cash equivalents                                                                  |                                                                |                                                                                                                                                                     | 49                       |                                            |        |              | 67     |            
|Accrued investment income                                                                  |                                                                |                                                                                                                                                                     | 313                      |                                            |        |              | 302    |            
|Due from reinsurers                                                                        |                                                                |                                                                                                                                                                     | 1,348                    |                                            |        |              | 1,375  |            
|Deferred policy acquisition costs and value
of business acquired                           |                                                                |                                                                                                                                                                     | 2,111                    |                                            |        |              | 2,027  |            
|Goodwill                                                                                   |                                                                |                                                                                                                                                                     | 312                      |                                            |        |              | 312    |            
|Assets held in separate accounts                                                           |                                                                |                                                                                                                                                                     | 1,975                    |                                            |        |              | 1,785  |            
|Other assets                                                                               |                                                                |                                                                                                                                                                     | 535                      |                                            |        |              | 462    |            
|                                                                                           |                                                                |                                                                                                                                                                     |                          |                                            |        |              |        |             |        |       
|                                                                                           |                                                                |                                                                                                                                                                     | Total assets             |                                            | $      | 31,986       |        |             | $      | 30,609 |       
|                                                                                           |                                                                |                                                                                                                                                                     |                          |                                            |        |              |        |            
|                                                                                           |                                                                |                                                                                                                                                                     |                          | LIABILITIES AND STOCKHOLDERS EQUITY       |        |              |        |             |        |        |        | 
|Policy liabilities:                                                                        |                                                                |                                                                                                                                                                     |                          |                                            |        |              |        |            
|                                                                                           | Future policy benefits                                         |                                                                                                                                                                     | $                        | 2,655                                      |        |              | $      | 2,592       |       
|                                                                                           | Policyholder contract deposits                                 |                                                                                                                                                                     |                          | 20,249                                     |        |              |        | 19,545      |       
|                                                                                           | Dividend accumulations and other policyholder funds on deposit |                                                                                                                                                                     |                          | 251                                        |        |              |        | 248         |       
|                                                                                           | Policy and contract claims                                     |                                                                                                                                                                     |                          | 161                                        |        |              |        | 161         |       
|                                                                                           | Other                                                          |                                                                                                                                                                     |                          | 634                                        |        |              |        | 586         |       
|                                                                                           |                                                                |                                                                                                                                                                     |                          |                                            |        |              |        |            
|                                                                                           |                                                                |                                                                                                                                                                     | Total policy liabilities |                                            |        | 23,950       |        |             |        | 23,132 |       
|Commercial paper and revolving credit borrowings                                           |                                                                |                                                                                                                                                                     | 487                      |                                            |        |              | 453    |            
|Securities sold under repurchase agreements                                                |                                                                |                                                                                                                                                                     | 367                      |                                            |        |              | 499    |            
|Currently payable income taxes                                                             |                                                                |                                                                                                                                                                     | (10                      | )                                          |        |              | 46     |            
|Deferred income tax liabilities                                                            |                                                                |                                                                                                                                                                     | 509                      |                                            |        |              | 385    |            
|Liabilities related to separate accounts                                                   |                                                                |                                                                                                                                                                     | 1,975                    |                                            |        |              | 1,785  |            
|Accounts payable, accruals and other liabilities                                           |                                                                |                                                                                                                                                                     | 599                      |                                            |        |              | 469    |            
|                                                                                           |                                                                |                                                                                                                                                                     |                          |                                            |        |              |        |             |        |       
|                                                                                           |                                                                |                                                                                                                                                                     | Total liabilities        |                                            |        | 27,877       |        |             |        | 26,769 |       
|                                                                                           |                                                                |                                                                                                                                                                     |                          |                                            |        |              |        |            
|Commitments and contingent liabilities                                                     |                                                                |                                                                                                                                                                     |                          |                                            |        |              |        |            
|Guaranteed preferred beneficial interest in
subordinated debentures (Capital Securities) |                                                                |                                                                                                                                                                     | 300                      |                                            |        |              | 300    |            
|Stockholders Equity:                                                                      |                                                                |                                                                                                                                                                     |                          |                                            |        |              |        |            
|                                                                                           |                                                                | Common stock and paid in capital, par value $1.25 per share: authorized
350,000,000 shares; issued and outstanding 2003-141,055,347 shares;
2002-142,798,768 shares |                          |                                            | 176    |              |        |             | 180    |       
|                                                                                           |                                                                | Retained earnings                                                                                                                                                   |                          |                                            | 2,907  |              |        |             | 2,750  |       
|                                                                                           |                                                                | Accumulated other comprehensive income                                                                                                                              |                          |                                            | 726    |              |        |             | 610    |       
|                                                                                           |                                                                |                                                                                                                                                                     |                          |                                            |        |              |        |            
|                                                                                           |                                                                |                                                                                                                                                                     | 3,809                    |                                            |        |              | 3,540  |            
|                                                                                           |                                                                |                                                                                                                                                                     |                          |                                            |        |              |        |             |        |       
|                                                                                           |                                                                |                                                                                                                                                                     |                          | Total liabilities and stockholders equity |        | $            | 31,986 |             |        | $      | 30,609 | 
|                                                                                           |                                                                |                                                                                                                                                                     |                          |                                            |        |              |        |            

See Notes to Consolidated Financial Statements

3



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JEFFERSON-PILOT CORPORATION
CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF INCOME
(Dollar Amounts in Millions Except Per Share Information)

|                                                                                    |                             |   |                    |     |                   |   |       |     |      |   |       |       |  |   |       |       | 
|----------------------------------------------------------------------------------- | --------------------------- | - | ------------------ | --- | ----------------- | - | ----- | --- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                                                                    |                             |   | Three Months Ended |     | Nine Months Ended
|                                                                                    |                             |   | September 30       |     | September 30     
|                                                                                    |                             |   |                    |     |                  
|                                                                                    |                             |   | 2003               |     | 2002              |   | 2003  |     | 2002
|                                                                                    |                             |   |                    |     |                   |   |       |     |     
|Revenue:                                                                            |                             |   |                    |     |                   |   |       |     |      |   |       |       |  |   |       |      
|Premiums and other considerations                                                   |                             | $ | 434                |     |                   | $ | 400   |     |      | $ | 1,286 |       |  | $ | 1,163 |      
|Net investment income                                                               |                             |   | 412                |     |                   |   | 406   |     |      |   | 1,237 |       |  |   | 1,218 |      
|Realized investment gains (losses)                                                  |                             |   | (5                 | )   |                   |   | 4     |     |      |   | (4    | )     |  |   | 42    |      
|Communications sales                                                                |                             |   | 52                 |     |                   |   | 50    |     |      |   | 153   |       |  |   | 148   |      
|Other                                                                               |                             |   | 28                 |     |                   |   | 24    |     |      |   | 76    |       |  |   | 81    |      
|                                                                                    |                             |   |                    |     |                   |   |       |     |      |   |       |       |  |   |       |      
|                                                                                    | Total revenue               |   |                    | 921 |                   |   |       | 884 |      |   |       | 2,748 |  |   |       | 2,652 | 
|                                                                                    |                             |   |                    |     |                   |   |       |     |      |   |       |       |  |   |       |      
|Benefits and Expenses:                                                              |                             |   |                    |     |                   |   |       |     |      |   |       |       |  |   |       |      
|Insurance and annuity benefits                                                      |                             |   | 517                |     |                   |   | 513   |     |      |   | 1,562 |       |  |   | 1,494 |      
|Insurance commissions, net of deferrals                                             |                             |   | 31                 |     |                   |   | 28    |     |      |   | 81    |       |  |   | 91    |      
|General and administrative expenses, net of deferrals                               |                             |   | 58                 |     |                   |   | 52    |     |      |   | 167   |       |  |   | 161   |      
|Amortization of policy acquisition costs and value of
business acquired             |                             |   | 92                 |     |                   |   | 72    |     |      |   | 255   |       |  |   | 204   |      
|Interest expense                                                                    |                             |   | 2                  |     |                   |   | 3     |     |      |   | 7     |       |  |   | 8     |      
|Communications operations                                                           |                             |   | 28                 |     |                   |   | 29    |     |      |   | 90    |       |  |   | 91    |      
|                                                                                    |                             |   |                    |     |                   |   |       |     |      |   |       |       |  |   |       |      
|                                                                                    | Total benefits and expenses |   |                    | 728 |                   |   |       | 697 |      |   |       | 2,162 |  |   |       | 2,049 | 
|                                                                                    |                             |   |                    |     |                   |   |       |     |      |   |       |       |  |   |       |      
|Income before income taxes                                                          |                             |   | 193                |     |                   |   | 187   |     |      |   | 586   |       |  |   | 603   |      
|Income taxes                                                                        |                             |   | 61                 |     |                   |   | 62    |     |      |   | 193   |       |  |   | 201   |      
|                                                                                    |                             |   |                    |     |                   |   |       |     |      |   |       |       |  |   |       |      
|Net income before dividends on Capital Securities                                   |                             |   | 132                |     |                   |   | 125   |     |      |   | 393   |       |  |   | 402   |      
|Dividends on Capital Securities                                                     |                             |   | (6                 | )   |                   |   | (6    | )   |      |   | (18   | )     |  |   | (18   | )    
|                                                                                    |                             |   |                    |     |                   |   |       |     |      |   |       |       |  |   |       |      
|Net income available to common stockholders                                         |                             | $ | 126                |     |                   | $ | 119   |     |      | $ | 375   |       |  | $ | 384   |      
|                                                                                    |                             |   |                    |     |                   |   |       |     |      |   |       |       |  |   |       |      
|Net income available to common stockholders, before dividends
on Capital Securities |                             | $ | 132                |     |                   | $ | 125   |     |      | $ | 393   |       |  | $ | 402   |      
|Other comprehensive income                                                          |                             |   | (104               | )   |                   |   | 84    |     |      |   | 116   |       |  |   | 170   |      
|                                                                                    |                             |   |                    |     |                   |   |       |     |      |   |       |       |  |   |       |      
|Comprehensive income                                                                |                             | $ | 28                 |     |                   | $ | 209   |     |      | $ | 509   |       |  | $ | 572   |      
|                                                                                    |                             |   |                    |     |                   |   |       |     |      |   |       |       |  |   |       |      
|Average number of shares outstanding                                                |                             |   | 141.4              |     |                   |   | 144.6 |     |      |   | 142.1 |       |  |   | 148.0 |      
|                                                                                    |                             |   |                    |     |                   |   |       |     |      |   |       |       |  |   |       |      
|Net Income Per Share of Common Stock:                                               |                             |   |                    |     |                   |   |       |     |      |   |       |       |  |   |       |      
|Net income available to common stockholders                                         |                             | $ | 0.89               |     |                   | $ | 0.82  |     |      | $ | 2.64  |       |  | $ | 2.59  |      
|                                                                                    |                             |   |                    |     |                   |   |       |     |      |   |       |       |  |   |       |      
|Net income available to common stockholders -
assuming dilution                     |                             | $ | 0.88               |     |                   | $ | 0.81  |     |      | $ | 2.62  |       |  | $ | 2.57  |      
|                                                                                    |                             |   |                    |     |                   |   |       |     |      |   |       |       |  |   |       |      
|Dividends declared per common share                                                 |                             | $ | 0.330              |     |                   | $ | 0.303 |     |      | $ | 0.963 |       |  | $ | 0.908 |      
|                                                                                    |                             |   |                    |     |                   |   |       |     |      |   |       |       |  |   |       |      

See Notes to Consolidated Financial Statements

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JEFFERSON-PILOT CORPORATION
CONSOLIDATED UNAUDITED CONDENSED
STATEMENTS OF CASH FLOWS
(In Millions)

|                                                 |  |                   |        |      |  |   |        |  
|------------------------------------------------ |  | ----------------- | ------ | ---- |  | - | ------ | -
|                                                 |  | Nine Months Ended
|                                                 |  | September 30     
|                                                 |  | 2003              |        | 2002
|                                                 |  |                   |        |     
|Net cash provided by operations                  |  | $                 | 467    |      |  | $ | 316    |  
|                                                 |  |                   |        |      |  |   |        |  
|Cash Flows from Investing Activities:            |  |                   |        |      |  |   |        |  
|Investments purchased, net                       |  |                   | (842   | )    |  |   | (1,114 | )
|Other investing activities                       |  |                   | (1     | )    |  |   | (9     | )
|                                                 |  |                   |        |      |  |   |        |  
|Net cash used in investing activities            |  |                   | (843   | )    |  |   | (1,123 | )
|                                                 |  |                   |        |      |  |   |        |  
|Cash Flows from Financing Activities:            |  |                   |        |      |  |   |        |  
|Policyholder contract deposits                   |  |                   | 1,782  |      |  |   | 2,190  |  
|Policyholder contract withdrawals                |  |                   | (1,082 | )    |  |   | (1,062 | )
|Net short-term repayments                        |  |                   | (99    | )    |  |   | 36     |  
|Repurchase of common shares, net                 |  |                   | (87    | )    |  |   | (301   | )
|Cash dividends paid                              |  |                   | (161   | )    |  |   | (149   | )
|Other financing activities                       |  |                   | 5      |      |  |   | 4      |  
|                                                 |  |                   |        |      |  |   |        |  
|Net cash provided by financing activities        |  |                   | 358    |      |  |   | 718    |  
|                                                 |  |                   |        |      |  |   |        |  
|Decrease in cash and cash equivalents            |  |                   | (18    | )    |  |   | (89    | )
|Cash and cash equivalents at beginning of period |  |                   | 67     |      |  |   | 139    |  
|                                                 |  |                   |        |      |  |   |        |  
|Cash and cash equivalents at end of period       |  | $                 | 49     |      |  | $ | 50     |  
|                                                 |  |                   |        |      |  |   |        |  
|Supplemental Cash Flow Information:              |  |                   |        |      |  |   |        |  
|Income taxes paid                                |  | $                 | 193    |      |  | $ | 174    |  
|                                                 |  |                   |        |      |  |   |        |  
|Interest paid                                    |  | $                 | 9      |      |  | $ | 17     |  
|                                                 |  |                   |        |      |  |   |        |  

See Notes to Consolidated Financial Statements

5



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##### 



JEFFERSON-PILOT CORPORATION

NOTES TO CONSOLIDATED UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Dollar amounts in millions)

1. Basis of Presentation

The accompanying consolidated unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. All significant intercompany accounts and transactions have
been eliminated in consolidation. Operating results for the nine-month period
ended September 30, 2003 are not necessarily indicative of the results that may
be expected for the year ended December 31, 2003. To improve disclosure of our
cost of borrowing, we have reclassified interest expense from net investment
income to benefits and expenses on the accompanying consolidated unaudited
condensed statements of income. Prior year amounts have been reclassified to
conform with the current year presentation.

2. Significant Accounting Policies

Stock Based Compensation

The Company accounts for stock incentive awards in accordance with APB Opinion
No. 25, Accounting for Stock Issued to Employees, and accordingly, recognizes
no compensation expense for stock option awards to employees or directors when
the option price is not less than the market value of the stock at the date of
award. The Company recognizes expense utilizing the fair value method in
accordance with SFAS 123 for stock options granted to non-employees,
specifically agents.

SFAS 123 requires the presentation of pro forma information as if the Company
had accounted for its employee and director stock options granted after
December 31, 1994 under the fair value method of that Statement.

6



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##### 



The following is a reconciliation of reported net income and pro forma
information as if the Company had adopted SFAS 123 for its employee and
director stock option awards:

|                                                                                                                                            |  |                    |      |                   |  |      |      |      |  |   |      |   |  |   |      |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---- | ----------------- |  | ---- | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                                                                                                                            |  | Three Months Ended |      | Nine Months Ended
|                                                                                                                                            |  | September 30       |      | September 30     
|                                                                                                                                            |  | 2003               |      | 2002              |  | 2003 |      | 2002
|                                                                                                                                            |  |                    |      |                   |  |      |      |     
|Net income, as reported                                                                                                                     |  | $                  | 126  |                   |  | $    | 119  |      |  | $ | 375  |   |  | $ | 384  |  
|Deduct: Total
stock-based employee
compensation expense
determined under fair
value based method for
all awards, net of
related tax effects |  |                    | (1   | )                 |  |      | (3   | )    |  |   | (4   | ) |  |   | (10  | )
|                                                                                                                                            |  |                    |      |                   |  |      |      |      |  |   |      |   |  |   |      |  
|Pro forma net income
available to common
stockholders                                                                                       |  | $                  | 125  |                   |  | $    | 116  |      |  | $ | 371  |   |  | $ | 374  |  
|                                                                                                                                            |  |                    |      |                   |  |      |      |      |  |   |      |   |  |   |      |  
|Earnings per share
available to common
stockholders, as
reported                                                                            |  | $                  | 0.89 |                   |  | $    | 0.82 |      |  | $ | 2.64 |   |  | $ | 2.59 |  
|Pro forma earnings per
share available to
common stockholders                                                                               |  | $                  | 0.89 |                   |  | $    | 0.80 |      |  | $ | 2.61 |   |  | $ | 2.53 |  
|Earnings per share
available to common
stockholders 
assuming dilution, as
reported                                                        |  | $                  | 0.88 |                   |  | $    | 0.81 |      |  | $ | 2.62 |   |  | $ | 2.57 |  
|Pro forma earnings per
share available to
common stockholders 
assuming dilution                                                           |  | $                  | 0.88 |                   |  | $    | 0.80 |      |  | $ | 2.59 |   |  | $ | 2.50 |  

All Significant Accounting Policies remain as we described in our Form 10-K for
2002.

3. Segment Reporting

The Company has five reportable segments that are defined based on the nature
of the products and services offered: Individual Products, Annuity and
Investment Products (AIP), Benefit Partners, Communications, and Corporate and
Other. The segments remain as we described in our Form 10-K for 2002.

The following table summarizes certain financial information regarding the
Companys reportable segments:

|       |                     |              |   |              |        |             |   |        |        | 
|------ | ------------------- | ------------ | - | ------------ | ------ | ----------- | - | ------ | ------ | 
|       |                     |              |   | September 30 |        | December 31
|       |                     |              |   | 2003         |        | 2002       
|       |                     |              |   |              |        |            
|Assets |                     |              |   |              |        |             |   |       
|       | Individual Products |              | $ | 17,365       |        |             | $ | 16,671 |       
|       | AIP                 |              |   | 9,581        |        |             |   | 9,397  |       
|       | Benefit Partners    |              |   | 1,032        |        |             |   | 909    |       
|       | Communications      |              |   | 202          |        |             |   | 204    |       
|       | Corporate & Other   |              |   | 3,806        |        |             |   | 3,428  |       
|       |                     |              |   |              |        |             |   |        |       
|       |                     | Total assets |   | $            | 31,986 |             |   | $      | 30,609 | 
|       |                     |              |   |              |        |             |   |       

7



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##### 



|                                                                                              |                                                |                                             |     |                    |     |                   |     |      |     |      |       |       |       |  |       |       |       | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------------- | --- | ------------------ | --- | ----------------- | --- | ---- | --- | ---- | ----- | ----- | ----- |  | ----- | ----- | ----- | 
|                                                                                              |                                                |                                             |     | Three Months Ended |     | Nine Months Ended
|                                                                                              |                                                |                                             |     | September 30       |     | September 30     
|                                                                                              |                                                |                                             |     | 2003               |     | 2002              |     | 2003 |     | 2002
|                                                                                              |                                                |                                             |     |                    |     |                   |     |      |     |     
|Revenues                                                                                      |                                                |                                             |     |                    |     |                   |     |      |     |      |       |       |       |  |       |      
|                                                                                              | Individual Products                            |                                             | $   | 465                |     |                   | $   | 459  |     |      | $     | 1,388 |       |  | $     | 1,357 |      
|                                                                                              | AIP                                            |                                             |     | 173                |     |                   |     | 170  |     |      |       | 516   |       |  |       | 511   |      
|                                                                                              | Benefit Partners                               |                                             |     | 206                |     |                   |     | 180  |     |      |       | 611   |       |  |       | 520   |      
|                                                                                              | Communications                                 |                                             |     | 51                 |     |                   |     | 49   |     |      |       | 151   |       |  |       | 146   |      
|                                                                                              | Corporate & Other                              |                                             |     | 31                 |     |                   |     | 22   |     |      |       | 86    |       |  |       | 76    |      
|                                                                                              |                                                |                                             |     |                    |     |                   |     |      |     |      |       |       |       |  |       |      
|                                                                                              |                                                |                                             | 926 |                    |     |                   | 880 |      |     |      | 2,752 |       |       |  | 2,610 |      
|                                                                                              | Realized investment gains (losses),
before tax |                                             |     | (5                 | )   |                   |     | 4    |     |      |       | (4    | )     |  |       | 42    |      
|                                                                                              |                                                |                                             |     |                    |     |                   |     |      |     |      |       |       |       |  |       |       |      
|                                                                                              |                                                | Total revenues                              |     | $                  | 921 |                   |     | $    | 884 |      |       | $     | 2,748 |  |       | $     | 2,652 | 
|                                                                                              |                                                |                                             |     |                    |     |                   |     |      |     |      |       |       |       |  |       |      
|Reportable segments results and
reconciliation to net income available
to common stockholders |                                                |                                             |     |                    |     |                   |     |      |     |      |       |       |       |  |       |      
|                                                                                              | Individual Products                            |                                             | $   | 79                 |     |                   | $   | 73   |     |      | $     | 229   |       |  | $     | 218   |      
|                                                                                              | AIP                                            |                                             |     | 20                 |     |                   |     | 19   |     |      |       | 63    |       |  |       | 60    |      
|                                                                                              | Benefit Partners                               |                                             |     | 10                 |     |                   |     | 10   |     |      |       | 34    |       |  |       | 35    |      
|                                                                                              | Communications                                 |                                             |     | 11                 |     |                   |     | 10   |     |      |       | 30    |       |  |       | 27    |      
|                                                                                              | Corporate & Other                              |                                             |     | 10                 |     |                   |     | 5    |     |      |       | 22    |       |  |       | 17    |      
|                                                                                              |                                                |                                             |     |                    |     |                   |     |      |     |      |       |       |       |  |       |      
|                                                                                              |                                                | Total reportable segment results            |     |                    | 130 |                   |     |      | 117 |      |       |       | 378   |  |       |       | 357   | 
|                                                                                              | Realized investment gains (losses),
net of tax |                                             |     | (4                 | )   |                   |     | 2    |     |      |       | (3    | )     |  |       | 27    |      
|                                                                                              |                                                |                                             |     |                    |     |                   |     |      |     |      |       |       |       |  |       |       |      
|                                                                                              |                                                | Net income available to common
stockholders |     | $                  | 126 |                   |     | $    | 119 |      |       | $     | 375   |  |       | $     | 384   | 
|                                                                                              |                                                |                                             |     |                    |     |                   |     |      |     |      |       |       |       |  |       |       |      

8



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##### 



4. Income from Continuing Operations Per Share of Common Stock

The following table sets forth the computation of earnings per share and
earnings per share assuming dilution:

|                                       |                                                                                                                           |               |      |                    |           |                   |      |             |           |      |      |             |           |   |      |             |           | 
|-------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | ------------- | ---- | ------------------ | --------- | ----------------- | ---- | ----------- | --------- | ---- | ---- | ----------- | --------- | - | ---- | ----------- | --------- | 
|                                       |                                                                                                                           |               |      | Three Months Ended |           | Nine Months Ended
|                                       |                                                                                                                           |               |      | September 30       |           | September 30     
|                                       |                                                                                                                           |               |      | 2003               |           | 2002              |      | 2003        |           | 2002
|                                       |                                                                                                                           |               |      |                    |           |                   |      |             |           |     
|Numerator:                             |                                                                                                                           |               |      |                    |           |                   |      |             |           |      |      |             |           |   |      |            
|                                       | Net income before dividends on
Capital Securities                                                                         |               | $    | 132                |           |                   | $    | 125         |           |      | $    | 393         |           |   | $    | 402         |          
|                                       | Dividends on Capital Securities                                                                                           |               |      | (6                 | )         |                   |      | (6          | )         |      |      | (18         | )         |   |      | (18         | )        
|                                       |                                                                                                                           |               |      |                    |           |                   |      |             |           |      |      |             |           |   |      |             |          
|                                       | Numerator for earnings per
share and earnings per
share - assuming dilution 
Net income available to common
stockholders |               | $    | 126                |           |                   | $    | 119         |           |      | $    | 375         |           |   | $    | 384         |          
|                                       |                                                                                                                           |               |      |                    |           |                   |      |             |           |      |      |             |           |   |      |             |          
|Denominator:                           |                                                                                                                           |               |      |                    |           |                   |      |             |           |      |      |             |           |   |      |            
|                                       | Denominator for earnings per
share  weighted-average
shares outstanding                                                  |               |      | 141,365,238        |           |                   |      | 144,641,968 |           |      |      | 142,063,945 |           |   |      | 148,017,421 |          
|                                       | Effect of dilutive securities:                                                                                            |               |      |                    |           |                   |      |             |           |      |      |             |           |   |      |             |          
|                                       |                                                                                                                           | Stock options |      |                    | 1,157,211 |                   |      |             | 1,180,378 |      |      |             | 1,010,835 |   |      |             | 1,516,237 | 
|                                       |                                                                                                                           |               |      |                    |           |                   |      |             |           |      |      |             |           |   |      |             |          
|                                       | Denominator for earnings per
share assuming dilution 
adjusted weighted-average
shares outstanding                       |               |      | 142,522,449        |           |                   |      | 145,822,346 |           |      |      | 143,074,780 |           |   |      | 149,533,658 |          
|                                       |                                                                                                                           |               |      |                    |           |                   |      |             |           |      |      |             |           |   |      |             |          
|Earnings per share                     |                                                                                                                           | $             | 0.89 |                    |           | $                 | 0.82 |             |           | $    | 2.64 |             |           | $ | 2.59 |            
|                                       |                                                                                                                           |               |      |                    |           |                   |      |             |           |      |      |             |           |   |      |             |          
|Earnings per share  assuming
dilution |                                                                                                                           | $             | 0.88 |                    |           | $                 | 0.81 |             |           | $    | 2.62 |             |           | $ | 2.57 |            
|                                       |                                                                                                                           |               |      |                    |           |                   |      |             |           |      |      |             |           |   |      |             |          

9



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##### 



5. Contingent Liabilities

A life insurance subsidiary has been a defendant in two separate proposed class
action suits. The plaintiffs fundamental claim in the first suit is that
policy illustrations were misleading to consumers. A settlement of this case
was approved by the court on June 17, 2003. In agreeing to settle, the life
company has denied any wrongdoing but believes that the settlement provides
benefits to the policyholder class and to the life company by resolving and
eliminating the need for corporate resources to be spent on a lawsuit that has
been pending for seven years.

The second proposed class action suit alleges that a predecessor company,
decades ago, unfairly discriminated in the sale of certain small face amount
life insurance policies, and unreasonably priced these policies. Management
believes that the life companys practices have complied with state insurance
laws and intends to vigorously defend the claims asserted.

In the normal course of business, the Company and its subsidiaries are parties
to various lawsuits, including several proposed class action suits in addition
to those noted above. Because of the considerable uncertainties that exist,
the Company cannot predict the outcome of pending or future litigation.
However, management believes that the resolution of pending legal proceedings
will not have a material adverse effect on the Companys financial position or
liquidity, although it could have a material adverse effect on the results of
operations for a specified period.

6. Accounting Pronouncements

In November 2002, the Financial Accounting Standards Board issued
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others
(Interpretation No. 45). The disclosure requirements of Interpretation No. 45
were effective for financial statements of interim or annual periods ending
after December 15, 2002. Adoption of Interpretation No. 45 had no impact on
the Companys financial statement disclosure for 2002. The initial recognition
and initial measurement provisions are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002 and did not have a
significant impact on the Companys financial position or results of
operations.

In January 2003, the Financial Accounting Standards Board issued Interpretation
No. 46, Consolidation of Variable Interest Entities, and interpretation of
Accounting Research Bulletin No. 51(the Interpretation). The Interpretation
requires the consolidation of entities in which an enterprise absorbs a
majority of the entitys expected losses, receives a majority of the entitys
expected residual returns, or both, as a result of ownership, contractual or
other financial interests in the entity. Currently, entities are generally
consolidated by an enterprise when it has a controlling financial interest
through ownership of a majority voting interest in the entity.

One of the Companys subsidiaries has sold certain of its loans receivables to
an unrelated third-party bank sponsored conduit under a securitization
facility. Under the securitization facility, the Company has an agreement to
sell, on an initial and periodic basis, pools of certain loans receivable to a
special-purpose entity (SPE). The SPE then sells a senior interest in the
receivables at a discount to the conduit in exchange for cash, which is used to
purchase additional receivables from the Company. The Companys maximum
exposure to loss as a result of its
involvement with the conduit is limited to the carrying value of the retained
subordinate interest of approximately $10 at September 30, 2003.

10



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##### 



The transfer of the loans receivable are recognized as sales in accordance with
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. Gains and losses from transfers are recognized
in the income statement when the Company relinquishes control of the
transferred financial assets. The gain or loss recognized on a sale depends in
part on the previous carrying amount of the assets involved in the transfer,
allocated between the portion of the assets sold and the retained interests
based upon their respective fair values at the date of sale. The
application of the Interpretation will not have an effect on
consolidation of any of the entities involved in the on-going sales
of these loans receivables.

Additionally, the Company is in the process of evaluating the implications of
the Interpretation to a few small selected interests in partnerships and
investment companies. Presently, it is not anticipated that the application
of FIN 46 will have a significant impact on our consolidation
practices or financial position.

In April 2003, the Financial
Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities(SFAS 149), which is effective
for contracts entered into or modified after June 30, 2003, with certain
exceptions. The adoption of SFAS 149 did not impact the Companys financial
position or results of operations.

In April 2003, the FASBs
Derivative Implementation Group issued SFAS No. 133
Implementation Issue No. B36, Embedded Derivatives:
Modified Coinsurance Arrangements and Debt Instruments that
Incorporate Credit Risk Exposures that are Unrelated or Only
Partially Related to the Creditworthiness of the Obligor of Those
Instruments (DIG B36), which is effective
October 1, 2003. DIG B36 requires the bifurcation of a
derivative from the receivable or payable related to a modified
coinsurance agreement, where the yield on the receivable and payable
is based on a return of a specified block of assets rather than the
creditworthiness of the ceding company. We have determined that
certain of our reinsurance payable balances contain embedded
derivatives that will be required to be bifurcated pursuant to DIG
B36. While we have not yet determined the fair value of the embedded
derivatives, we do not believe that application of the guidance will
have a material impact on the Companys consolidated financial
position or results of operations.

In May 2003, the FASB issued Statement of
Financial Accounting Standards No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity(the
Statement). The Statement requires the classification of certain financial
instruments as either a liability or equity, depending on the characteristics
of the instrument. Currently, the Company has its Capital Securities
classified as Mezzanine Capital in that they are grouped neither as a
liability or equity. The application of the Statement would require the
Capital Securities to be classified as a liability. Additionally, payments to
Capital Security holders that are currently classified as dividends will be
required to be included as interest expense on a prospective basis. Prior
reported amounts of dividends will not be restated. There will be no
cumulative effect of the change in accounting principle upon adoption, only
reclassification on both the balance sheet and income statement on a
prospective basis. This statement was to be effective as of July 1, 2003. As
such, we reflected the impacts of adoption in our Earnings Release, which was
furnished on Form 8-K dated October 27, 2003. On October 29, 2003, the FASB
decided to defer indefinitely the effective date of the portions of the
Statement that impact classification of our Capital Securities.
Classifications herein are consistent with our past presentation.

In July 2003, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 03-1
Accounting and Reporting by Insurance Enterprises for Certain Nontraditional
Long-Duration Contracts and for Separate Accounts ( the SOP). The SOP
addresses: (i) separate account presentation; (ii) accounting for an insurance
companys proportionate interest in separate accounts; (iii) transfers of
assets from the general account to a separate account; (iv) valuation of
certain insurance liabilities and policy features such as guaranteed minimum
death benefits and annuitization benefits; and (v) accounting for sales
inducements. The SOP will be effective as of January 1, 2004. We are
still evaluating certain aspects of the SOP. Currently, we do not
anticipate adoption will have a
material impact on the Companys financial position.

11



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##### 



Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations

Managements Discussion and Analysis of Financial Condition and Results of
Operations analyzes the consolidated financial condition, changes in financial
position and results of operations for the three month and nine month periods
ended September 30, 2003, as compared to the same periods of 2002, of
Jefferson-Pilot Corporation and subsidiaries. The discussion supplements
Managements Discussion and Analysis in Form 10-K for the year ended December
31, 2002, and should be read in conjunction with the interim financial
statements and notes contained herein. All dollar amounts are in millions
except share and per share amounts.

Company Profile

As detailed in our Form 10-K, we have five reportable segments: Individual
Products, Annuity and Investment Products (AIP), Benefit Partners,
Communications, and Corporate and Other.

Our reportable segments revenues as a percentage of total revenues, excluding
realized gains and losses, were as follows:

|                    |  |                    |    |                   |  |      |    |      |  |  |    |   |  |  |    |  
|------------------- |  | ------------------ | -- | ----------------- |  | ---- | -- | ---- |  |  | -- | - |  |  | -- | -
|                    |  | Three Months Ended |    | Nine Months Ended
|                    |  | September 30       |    | September 30     
|                    |  |                    |    |                  
|                    |  | 2003               |    | 2002              |  | 2003 |    | 2002
|                    |  |                    |    |                   |  |      |    |     
|Individual Products |  |                    | 50 | %                 |  |      | 52 | %    |  |  | 50 | % |  |  | 52 | %
|AIP                 |  |                    | 19 | %                 |  |      | 20 | %    |  |  | 19 | % |  |  | 19 | %
|Benefit Partners    |  |                    | 22 | %                 |  |      | 20 | %    |  |  | 22 | % |  |  | 20 | %
|Communications      |  |                    | 6  | %                 |  |      | 6  | %    |  |  | 6  | % |  |  | 6  | %
|Corporate and Other |  |                    | 3  | %                 |  |      | 2  | %    |  |  | 3  | % |  |  | 3  | %

Update on Critical Accounting Policies

Our Form 10-K described our accounting policies that are critical to the
understanding of our results of operations and our financial position. They
relate to deferred acquisition costs (DAC) and value of business acquired
(VOBA), assumptions and judgments utilized in determining if declines in fair
values of investments are other than temporary, valuation methods for
infrequently traded securities and private placements, and accruals relating to
legal and administrative proceedings.

We believe that these policies were applied in a consistent manner during the
first nine months of 2003. Legal proceedings are discussed in Note 5 to the
Consolidated Condensed Financial Statements.

12



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##### 



Results of Operations

In the following discussion, reportable segment results and total reportable
segment results include all elements of net income available to common
stockholders except realized investment gains and losses. We use reportable
segment results in assessing the performance of our business segments
internally and believe that it is relevant and useful information. Reportable
segment results as described above may not be comparable to similarly titled
measures reported by other companies. The following tables illustrate our
results before and after including realized investment gains and losses and
reconcile reportable segment results to net income available to common
stockholders, the most directly comparable Generally Accepted Accounting
Principles (GAAP) financial measure:

|                                                                   |                                                                    |   |                    |       |                   |   |       |      |      |   |       |       |   |   |       |      | 
|------------------------------------------------------------------ | ------------------------------------------------------------------ | - | ------------------ | ----- | ----------------- | - | ----- | ---- | ---- | - | ----- | ----- | - | - | ----- | ---- | 
|                                                                   |                                                                    |   | Three Months Ended |       | Nine Months Ended
|                                                                   |                                                                    |   | September 30       |       | September 30     
|                                                                   |                                                                    |   |                    |       |                  
|                                                                   |                                                                    |   | 2003               |       | 2002              |   | 2003  |      | 2002
|                                                                   |                                                                    |   |                    |       |                   |   |       |      |     
|Consolidated Summary of Income                                     |                                                                    |   |                    |       |                   |   |       |      |      |   |       |       |   |   |       |     
|Total reportable segment results                                   |                                                                    | $ | 130.0              |       |                   | $ | 116.3 |      |      | $ | 378.4 |       |   | $ | 356.4 |     
|Realized
investment gains (losses), net of applicable income taxes |                                                                    |   | (3.9               | )     |                   |   | 2.5   |      |      |   | (3.1  | )     |   |   | 27.2  |     
|                                                                   |                                                                    |   |                    |       |                   |   |       |      |      |   |       |       |   |   |       |     
|Net income available to common stockholders                        |                                                                    | $ | 126.1              |       |                   | $ | 118.8 |      |      | $ | 375.3 |       |   | $ | 383.6 |     
|                                                                   |                                                                    |   |                    |       |                   |   |       |      |      |   |       |       |   |   |       |     
|Consolidated Earnings Per Share                                    |                                                                    |   |                    |       |                   |   |       |      |      |   |       |       |   |   |       |     
|Basic:                                                             |                                                                    |   |                    |       |                   |   |       |      |      |   |       |       |   |   |       |     
|                                                                   | Total reportable segment results                                   |   | $                  | 0.92  |                   |   | $     | 0.81 |      |   | $     | 2.66  |   |   | $     | 2.40 | 
|                                                                   | Realized
investment gains (losses), net of
applicable income taxes |   |                    | (0.03 | )                 |   |       | 0.01 |      |   |       | (0.02 | ) |   |       | 0.19 | 
|                                                                   |                                                                    |   |                    |       |                   |   |       |      |      |   |       |       |   |   |       |     
|                                                                   | Net income available to common
stockholders                        |   | $                  | 0.89  |                   |   | $     | 0.82 |      |   | $     | 2.64  |   |   | $     | 2.59 | 
|                                                                   |                                                                    |   |                    |       |                   |   |       |      |      |   |       |       |   |   |       |     
|Fully-diluted:                                                     |                                                                    |   |                    |       |                   |   |       |      |      |   |       |       |   |   |       |     
|                                                                   | Total reportable segment results                                   |   | $                  | 0.91  |                   |   | $     | 0.80 |      |   | $     | 2.64  |   |   | $     | 2.38 | 
|                                                                   | Realized
investment gains (losses), net of
applicable income taxes |   |                    | (0.03 | )                 |   |       | 0.01 |      |   |       | (0.02 | ) |   |       | 0.19 | 
|                                                                   |                                                                    |   |                    |       |                   |   |       |      |      |   |       |       |   |   |       |     
|                                                                   | Net income available to common
stockholders                        |   | $                  | 0.88  |                   |   | $     | 0.81 |      |   | $     | 2.62  |   |   | $     | 2.57 | 
|                                                                   |                                                                    |   |                    |       |                   |   |       |      |      |   |       |       |   |   |       |     

|                                                         |  |                    |             |                   |  |      |             |      |  |  |             |  |  |  |             | 
|-------------------------------------------------------- |  | ------------------ | ----------- | ----------------- |  | ---- | ----------- | ---- |  |  | ----------- |  |  |  | ----------- | 
|                                                         |  | Three Months Ended |             | Nine Months Ended
|                                                         |  | September 30       |             | September 30     
|                                                         |  |                    |             |                  
|                                                         |  | 2003               |             | 2002              |  | 2003 |             | 2002
|                                                         |  |                    |             |                   |  |      |             |     
|Average number of
shares outstanding                     |  |                    | 141,365,238 |                   |  |      | 144,641,968 |      |  |  | 142,063,945 |  |  |  | 148,017,421 | 
|                                                         |  |                    |             |                   |  |      |             |      |  |  |             |  |  |  |             | 
|Average number of
shares outstanding
 assuming dilution |  |                    | 142,522,449 |                   |  |      | 145,822,346 |      |  |  | 143,074,780 |  |  |  | 149,533,658 | 
|                                                         |  |                    |             |                   |  |      |             |      |  |  |             |  |  |  |             | 

Compared to third quarter 2002, net income available to common stockholders
increased 6.1% driven by improvements in operating results, and for the first
nine months decreased 2.2% from 2002, due to a reduction in realized investment
gains (which include other-than-temporary

13



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##### 



impairments in all of these periods) from the prior year which included
significant gains on sales of equity securities. Total reportable segment
results increased 11.8% over third quarter 2002 and 6.2% over the first nine
months of 2002, reflecting improved results in all segments, except that
Benefit Partners results were essentially flat when compared to the first nine
months of 2002.

Increases in earnings per share amounts were larger than the increases in total
earnings amounts due to continued share repurchases. Average diluted shares
outstanding declined 2.3% and 4.3% from the third quarter and first nine months
of 2002.

Results by Business Segment

We assess profitability by business segment and measure other operating
statistics as detailed in the separate segment discussions that follow. We
determine reportable segments in a manner consistent with the way we organize
for purposes of making operating decisions and assessing performance. Sales
performance is a statistic we use to assess results. Our sales, which are
primarily of long-duration contracts in the Individual Products and AIP
segments, do not have a material impact on operating results in a given quarter
and are not considered to be material information. However, trends relating to
new product sales over a longer period of time may be an indicator of future
growth and profitability.

Reportable Segment Results

|                                            |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       | 
|------------------------------------------- |  | ------------------ | ----- | ----------------- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- | 
|                                            |  | Three Months Ended |       | Nine Months Ended
|                                            |  | September 30       |       | September 30     
|                                            |  |                    |       |                  
|                                            |  | 2003               |       | 2002              |  | 2003 |       | 2002
|                                            |  |                    |       |                   |  |      |       |     
|Individual Products                         |  | $                  | 78.6  |                   |  | $    | 73.9  |      |  | $ | 228.9 |   |  | $ | 218.4 | 
|AIP                                         |  |                    | 19.9  |                   |  |      | 18.9  |      |  |   | 62.7  |   |  |   | 59.6  | 
|Benefit Partners                            |  |                    | 10.1  |                   |  |      | 9.2   |      |  |   | 34.5  |   |  |   | 34.6  | 
|Communications                              |  |                    | 11.4  |                   |  |      | 9.7   |      |  |   | 30.0  |   |  |   | 26.8  | 
|Corporate and Other                         |  |                    | 10.0  |                   |  |      | 4.6   |      |  |   | 22.3  |   |  |   | 17.0  | 
|                                            |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       | 
|Total reportable segment results            |  |                    | 130.0 |                   |  |      | 116.3 |      |  |   | 378.4 |   |  |   | 356.4 | 
|Net
realized investment gains (losses)      |  |                    | (3.9  | )                 |  |      | 2.5   |      |  |   | (3.1  | ) |  |   | 27.2  | 
|                                            |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       | 
|Net income available to common
stockholders |  | $                  | 126.1 |                   |  | $    | 118.8 |      |  | $ | 375.3 |   |  | $ | 383.6 | 
|                                            |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       | 

14



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##### 



Segment Assets

We assign invested assets backing insurance liabilities to our segments in
relation to policyholder funds and reserves. We assign net DAC and VOBA,
reinsurance receivables and Communications assets to the respective segments
where those assets originate. We also assign invested assets to back capital
allocated to each segment in relation to our philosophy for managing business
risks. We assign the remainder of invested and other assets, including all
defaulted securities, to the Corporate and Other segment.

|                    |              |   |              |        |      |   |        |        | 
|------------------- | ------------ | - | ------------ | ------ | ---- | - | ------ | ------ | 
|                    |              |   | September 30
|                    |              |   |             
|                    |              |   | 2003         |        | 2002
|                    |              |   |              |        |     
|Individual Products |              | $ | 17,365       |        |      | $ | 16,392 |       
|AIP                 |              |   | 9,581        |        |      |   | 9,250  |       
|Benefit Partners    |              |   | 1,032        |        |      |   | 878    |       
|Communications      |              |   | 202          |        |      |   | 199    |       
|Corporate and Other |              |   | 3,806        |        |      |   | 3,270  |       
|                    |              |   |              |        |      |   |        |       
|                    | Total assets |   | $            | 31,986 |      |   | $      | 29,989 | 
|                    |              |   |              |        |      |   |        |       

Individual Products

The Individual Products segment markets individual life insurance policies
through independent general agents, independent national account marketing
firms, agency building general agents, home service agents, broker/dealers,
banks and other strategic alliances.

Individual Products include universal life (UL) and variable universal life
(VUL), together referred to as UL-type products, as well as traditional life
products. The operating cycle for life insurance products is long-term in
nature; therefore, actuarial assumptions and the judgments used in those
assumptions are important to the financial reporting for these products.

Traditional products require the policyholder to pay scheduled premiums over
the life of the coverage. We recognize traditional premium receipts as
revenues, and profits are expected to emerge in relation thereto.

UL-type product premiums may vary over the life of the policy at the discretion
of the policyholder, so we do not recognize them as revenues when received,
although UL-type premiums do increase assets and liabilities. We recognize
revenues on these products from mortality, expense and surrender charges to
policyholder fund balances (product charges). Additionally, we earn interest
spreads on all UL-type and traditional products. Policy benefits include
interest credited to policyholder fund balances as well as claim related costs.

15



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##### 



Reportable segment results were:

|                                               |  |                    |       |                   |  |      |       |      |  |   |         |  |  |   |         | 
|---------------------------------------------- |  | ------------------ | ----- | ----------------- |  | ---- | ----- | ---- |  | - | ------- |  |  | - | ------- | 
|                                               |  | Three Months Ended |       | Nine Months Ended
|                                               |  | September 30       |       | September 30     
|                                               |  |                    |       |                  
|                                               |  | 2003               |       | 2002              |  | 2003 |       | 2002
|                                               |  |                    |       |                   |  |      |       |     
|Traditional premiums and other considerations  |  | $                  | 41.2  |                   |  | $    | 44.9  |      |  | $ | 127.4   |  |  | $ | 137.7   | 
|UL and investment product charges              |  |                    | 193.9 |                   |  |      | 181.4 |      |  |   | 572.1   |  |  |   | 524.0   | 
|Net investment income                          |  |                    | 228.0 |                   |  |      | 231.3 |      |  |   | 684.1   |  |  |   | 690.5   | 
|Other income                                   |  |                    | 1.8   |                   |  |      | 1.6   |      |  |   | 4.7     |  |  |   | 5.2     | 
|                                               |  |                    |       |                   |  |      |       |      |  |   |         |  |  |   |         | 
|Total revenues                                 |  |                    | 464.9 |                   |  |      | 459.2 |      |  |   | 1,388.3 |  |  |   | 1,357.4 | 
|                                               |  |                    |       |                   |  |      |       |      |  |   |         |  |  |   |         | 
|Policy benefits                                |  |                    | 259.9 |                   |  |      | 269.5 |      |  |   | 800.7   |  |  |   | 805.7   | 
|Expenses                                       |  |                    | 85.6  |                   |  |      | 76.0  |      |  |   | 237.0   |  |  |   | 215.7   | 
|                                               |  |                    |       |                   |  |      |       |      |  |   |         |  |  |   |         | 
|Total benefits and expenses                    |  |                    | 345.5 |                   |  |      | 345.5 |      |  |   | 1,037.7 |  |  |   | 1,021.4 | 
|                                               |  |                    |       |                   |  |      |       |      |  |   |         |  |  |   |         | 
|Reportable segment results before income taxes |  |                    | 119.4 |                   |  |      | 113.7 |      |  |   | 350.6   |  |  |   | 336.0   | 
|Provision for income taxes                     |  |                    | 40.8  |                   |  |      | 39.8  |      |  |   | 121.7   |  |  |   | 117.6   | 
|                                               |  |                    |       |                   |  |      |       |      |  |   |         |  |  |   |         | 
|Reportable segment results                     |  | $                  | 78.6  |                   |  | $    | 73.9  |      |  | $ | 228.9   |  |  | $ | 218.4   | 
|                                               |  |                    |       |                   |  |      |       |      |  |   |         |  |  |   |         | 

Individual Products reportable segment results increased 6.4% and 4.8% over the
third quarter and first nine months of 2002, reflecting improved profitability
on our UL-type products from higher interest spreads and product charges.
Lower earnings on our older traditional products partially offset the favorable
results on UL-type products driven by a decline in income earned on invested
assets as the traditional block of business continues to decline.

The following table summarizes key data for Individual Products that we believe
are our important drivers and indicators of future profitability:

|                                           |                                                       |   |                    |         |                   |   |        |         |      |   |        |         |  |   |        |         | 
|------------------------------------------ | ----------------------------------------------------- | - | ------------------ | ------- | ----------------- | - | ------ | ------- | ---- | - | ------ | ------- |  | - | ------ | ------- | 
|                                           |                                                       |   | Three Months Ended |         | Nine Months Ended
|                                           |                                                       |   | September 30       |         | September 30     
|                                           |                                                       |   |                    |         |                  
|                                           |                                                       |   | 2003               |         | 2002              |   | 2003   |         | 2002
|                                           |                                                       |   |                    |         |                   |   |        |         |     
|Annualized life insurance premium sales:   |                                                       |   |                    |         |                   |   |        |         |      |   |        |         |  |   |        |        
|                                           | Individual markets excluding
Community Banks and BOLI |   | $                  | 48      |                   |   | $      | 52      |      |   | $      | 154     |  |   | $      | 142     | 
|                                           | Community Banks and BOLI                              |   | $                  | 2       |                   |   | $      | 7       |      |   | $      | 7       |  |   | $      | 50      | 
|                                          
|Average UL policyholder fund balances      |                                                       | $ | 10,658             |         |                   | $ | 9,990  |         |      | $ | 10,505 |         |  | $ | 9,775  |        
|Average VUL separate account assets        |                                                       |   | 1,277              |         |                   |   | 1,137  |         |      |   | 1,183  |         |  |   | 1,253  |        
|                                           |                                                       |   |                    |         |                   |   |        |         |      |   |        |         |  |   |        |        
|                                           |                                                       | $ | 11,935             |         |                   | $ | 11,127 |         |      | $ | 11,688 |         |  | $ | 11,028 |        
|                                           |                                                       |   |                    |         |                   |   |        |         |      |   |        |         |  |   |        |        
|Average face amount of insurance in
force: |                                                       |   |                    |         |                   |   |        |         |      |   |        |         |  |   |        |        
|                                           | Total                                                 |   | $                  | 164,669 |                   |   | $      | 161,863 |      |   | $      | 164,231 |  |   | $      | 160,669 | 
|                                           | UL-type policies                                      |   | $                  | 123,497 |                   |   | $      | 120,168 |      |   | $      | 122,871 |  |   | $      | 119,154 | 
|                                          
|Average assets                             |                                                       | $ | 17,245             |         |                   | $ | 16,356 |         |      | $ | 16,991 |         |  | $ | 16,292 |        

Sales from our Individual markets excluding Community Banks and bank owned life
insurance (BOLI) declined 7.7% from third quarter 2002, primarily due to market
repositioning related to the introduction of new fixed UL products. For the
first nine months, however, these sales increased 8.5% due to sales earlier
this year of several UL products introduced in 2002 and the success of our
Premier Partnering initiative. Community Banks and BOLI business decreased $5
million for the quarter and $43 million from the first nine months of 2002.
Community Bank and BOLI sales will

16



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##### 



vary widely between periods as we respond to sales opportunities for these
single premium products only when the market accommodates our required returns.
This has not occurred in recent quarters.

Revenues include traditional insurance premiums and policy charges, net of
reinsurance, and net investment income. Individual traditional premiums
decreased 8.2% and 7.5% from the third quarter and first nine months of 2002
due to the continued decline in our traditional business in force as we are
focusing our efforts towards UL-type products. UL and investment product
charges increased 6.9% and 9.2% from the third quarter and first nine months of
2002. Embedded in product charges for the third quarter is $8.4 from a
reinsurance recapture of an older block of business where mortality had
consistently been better than expectations. Excluding this contribution, UL
and investment product charges grew 2.3% and 7.6% over the third quarter and
first nine months of 2002. For the quarter, growth in UL product charges was
below the growth of average UL policyholder fund balances of 6.7% due to a drop
in UL surrender activity. For the first nine months, UL product charge growth
was in line with the growth in the average UL fund balances of 7.5%. Mortality
policy charges per thousand dollars of face amount of insurance in force,
excluding the recapture, were $4.10 and $4.07 for the third quarter and first
nine months of 2003 compared to $4.02 and $3.99 for the 2002 periods,
reflecting the increase in average age of our insureds. Recent products are
designed with a heavier reliance on policy and expense charges.

Net investment income decreased 1.4% and was flat when compared to the third
quarter and first nine months of 2002, reflecting a decline in investment
yields despite growth in policyholder fund balances and segment assets.
Negatively impacting net investment income was an increase in default charges
to the Individual Products segment from the Corporate and Other segment of $1.8
and $4.5 over the third quarter and the first nine months of 2002, as further
discussed under Corporate and Other. During third quarter 2003, we continued
to experience a higher level of prepayments of mortgage-backed securities held
by this segment. Our mortgage backed securities portfolio is primarily a
discount portfolio and assumptions are made regarding prepayment speeds and the
accretion of this discount into income. Therefore, the effect of prepayments
in excess of levels originally assumed was to accelerate the accretion of
discount and increase effective yields. For the third quarter and first nine
months of 2003, the excess accretion of discount increased earned
yields by 28 and 19 basis points.
Only a portion of this excess accretion of discount affected operating results
due to offsets from interest credited to policyholders, DAC amortization and
income taxes. The resulting increase to third quarter 2003 reportable
segment results is estimated at approximately $3. Proceeds from these prepayments are invested at current market
yields, which are lower than our portfolio yields.

In response to a decline in portfolio yields, we have actively managed interest
spreads (calculated as the difference between portfolio yields earned on
invested assets less interest credited to policyholder funds, included in
policy benefits) on our fixed UL-type products through crediting rate
reductions. The average investment spread on fixed UL products increased 21
basis points to 2.08% and 9 basis points to 2.01% over the third quarter and
first nine months of 2002, and the average crediting rate decreased 67 basis
points to 4.90% and 57 basis points to 5.02% from these same periods. After
these reductions our crediting rates are approximately 63 basis points on
average in excess of our minimum guaranteed rates at September 30, 2003
including some policies that are already at their minimum guaranteed rates.
Continued declines in general market interest rates may impact future
profitability to the extent that these declines cannot be recovered through
policy crediting rate reductions, and interest spreads may vary over time due
to our competitive strategies and changes in product design.

Total policy benefits decreased 3.6% from the third quarter and were flat when
compared to the first nine months of 2002. Policy benefits on traditional
business include death benefits, dividends, surrenders and changes in reserves,
with the most significant being death benefits. The recapture of

17



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##### 



an older block of business mentioned earlier increased the third quarter
benefits by $7.6. Excluding this recapture, policy benefits decreased 6.4% and
1.6% from the third quarter and first nine months of 2002 primarily due to
declines in interest credited on UL policies and dividend accruals on
traditional policies. Total policy benefits on traditional contracts
represented 104.7% and 100.0% of premiums for the third quarter of 2003 and
2002 as the 2002 quarter reflected favorable mortality on traditional products.
For the first nine months of 2003 and 2002, total policy benefits on
traditional contracts remained flat at 118.7% and 118.6% of premiums.

Policy benefits on UL-type products include interest credited to policyholder
accounts, death benefits in excess of fund balances and changes in unearned
revenue reserves. Total policy benefits on UL-type products, on an annualized
basis, decreased to 7.3% and 7.5% of average policyholder funds and separate
accounts versus 8.1% and 7.8% for the third quarter and first nine months of
2003 and 2002. Interest credited declined $6.7 and $13.8 or 4.9% and 3.5% from
the third quarter and first nine months of 2002, despite an increase in average
UL fund balances of 6.7% and 7.5%, reflecting the crediting rate reductions
described above. As discussed in previous filings, recent years sales have
been of products with higher up-front expense charges that are deferred and
amortized into income over time. Amortization of these charges into income
increased $8.7 and $19.5 over the third quarter and first nine months of 2002
whereas the deferrals increased $0.9 and $21.0 over these same periods further
contributing to the improvement in policy benefits for the quarter. Actual
mortality experience, net of reinsurance, for UL-type products per thousand
dollars of face amount of insurance in force, excluding the recapture mentioned
earlier, was $2.01 and $2.16 for the third quarter and first nine months of
2003 compared to $2.17 and $2.13 for the 2002 periods.

Total expenses (including the net deferral and amortization of DAC and VOBA)
increased 12.6% and 9.9% from the third quarter and first nine months of 2002.
The expense details are as follows:

|                                                 |  |                    |       |                   |  |      |       |      |  |   |        |   |  |   |        |  
|------------------------------------------------ |  | ------------------ | ----- | ----------------- |  | ---- | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                 |  | Three Months Ended |       | Nine Months Ended
|                                                 |  | September 30       |       | September 30     
|                                                 |  |                    |       |                  
|                                                 |  | 2003               |       | 2002              |  | 2003 |       | 2002
|                                                 |  |                    |       |                   |  |      |       |     
|Commissions                                      |  | $                  | 66.6  |                   |  | $    | 66.1  |      |  | $ | 212.2  |   |  | $ | 196.6  |  
|General and administrative
 acquisition related |  |                    | 21.0  |                   |  |      | 20.9  |      |  |   | 66.2   |   |  |   | 62.8   |  
|General and administrative
 maintenance related |  |                    | 7.7   |                   |  |      | 9.7   |      |  |   | 25.3   |   |  |   | 30.6   |  
|Taxes, licenses and fees                         |  |                    | 13.3  |                   |  |      | 13.7  |      |  |   | 40.7   |   |  |   | 42.3   |  
|                                                 |  |                    |       |                   |  |      |       |      |  |   |        |   |  |   |        |  
|Total commissions and
expenses incurred          |  |                    | 108.6 |                   |  |      | 110.4 |      |  |   | 344.4  |   |  |   | 332.3  |  
|Less commissions and
expenses capitalized        |  |                    | (76.5 | )                 |  |      | (76.1 | )    |  |   | (251.2 | ) |  |   | (232.5 | )
|Amortization of DAC and VOBA                     |  |                    | 53.5  |                   |  |      | 41.7  |      |  |   | 143.8  |   |  |   | 115.9  |  
|                                                 |  |                    |       |                   |  |      |       |      |  |   |        |   |  |   |        |  
|Total expense                                    |  | $                  | 85.6  |                   |  | $    | 76.0  |      |  | $ | 237.0  |   |  | $ | 215.7  |  
|                                                 |  |                    |       |                   |  |      |       |      |  |   |        |   |  |   |        |  

The increases in expenses over 2002 are primarily driven by higher amortization
of DAC and VOBA, partially offset by decreases in taxes, licenses and fees and
maintenance expenses. Recent years sales growth combined with higher
emergence of gross profits on UL products are the primary contributors to the
increase in the amortization of DAC and VOBA. The expense amounts we
capitalize as DAC include first year commissions, as well as a portion of
acquisition related general and administrative expenses. We generally limit
our capitalization of acquisition related

18



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##### 



general and administrative expenses to the lower of product specific pricing
allowables or the actual expenses incurred. See further discussion of DAC and
VOBA under the Financial Position section.

Average Individual Products assets grew 5.4% and 4.3% over the third quarter
and first nine months of 2002, driven by the growth in existing UL policyholder
fund balances. Average VUL separate account assets increased 12.3% over the
third quarter due to the increases in market value as capital markets improved.
For the first nine months of 2003, average VUL separate account assets
declined 5.6% from the first nine months of 2002. Compared to the first nine
months of 2002, excluding the change in market value, net of dividends, average
separate account balances increased 2.8%, and total average fund balances grew
by 6.8%.

Our financial and operating risks for this segment include, among others,
interest spread risks, mortality risks, variances between actual and underlying
assumptions of DAC and VOBA, changes in taxation of our products and competing
offerings and the effects of unresolved litigation. We discuss these risks in
more detail in the Financial Position, Capital Resources and Liquidity, and
Market Risk Exposures sections of our Form 10-K.

Annuity and Investment Products

Annuity and Investment Products are marketed through most distribution channels
discussed in the Individual Products segment as well as through financial
institutions, investment professionals and annuity marketing organizations.
Jefferson Pilot Securities Corporation (with related entities, JPSC), a
registered non-clearing broker/dealer, markets variable life insurance and
variable annuities written by our insurance subsidiaries and other carriers,
and also sells other securities and mutual funds.

Reportable segment results were:

|                                                  |  |                    |       |                   |  |      |       |      |  |   |       |  |  |   |       | 
|------------------------------------------------- |  | ------------------ | ----- | ----------------- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                                                  |  | Three Months Ended |       | Nine Months Ended
|                                                  |  | September 30       |       | September 30     
|                                                  |  |                    |       |                  
|                                                  |  | 2003               |       | 2002              |  | 2003 |       | 2002
|                                                  |  |                    |       |                   |  |      |       |     
|Policy charges, premiums and other considerations |  | $                  | 1.6   |                   |  | $    | 2.9   |      |  | $ | 6.1   |  |  | $ | 9.5   | 
|Net investment income                             |  |                    | 145.5 |                   |  |      | 145.0 |      |  |   | 438.4 |  |  |   | 426.5 | 
|Concession and other income                       |  |                    | 26.5  |                   |  |      | 22.6  |      |  |   | 71.8  |  |  |   | 75.2  | 
|                                                  |  |                    |       |                   |  |      |       |      |  |   |       |  |  |   |       | 
|Total revenues                                    |  |                    | 173.6 |                   |  |      | 170.5 |      |  |   | 516.3 |  |  |   | 511.2 | 
|                                                  |  |                    |       |                   |  |      |       |      |  |   |       |  |  |   |       | 
|Policy benefits                                   |  |                    | 101.2 |                   |  |      | 110.2 |      |  |   | 308.5 |  |  |   | 313.7 | 
|Expenses                                          |  |                    | 41.9  |                   |  |      | 31.2  |      |  |   | 111.4 |  |  |   | 105.8 | 
|                                                  |  |                    |       |                   |  |      |       |      |  |   |       |  |  |   |       | 
|Total benefits and expenses                       |  |                    | 143.1 |                   |  |      | 141.4 |      |  |   | 419.9 |  |  |   | 419.5 | 
|                                                  |  |                    |       |                   |  |      |       |      |  |   |       |  |  |   |       | 
|Reportable segment results before income taxes    |  |                    | 30.5  |                   |  |      | 29.1  |      |  |   | 96.4  |  |  |   | 91.7  | 
|Provision for income taxes                        |  |                    | 10.6  |                   |  |      | 10.2  |      |  |   | 33.7  |  |  |   | 32.1  | 
|                                                  |  |                    |       |                   |  |      |       |      |  |   |       |  |  |   |       | 
|Reportable segment results                        |  | $                  | 19.9  |                   |  | $    | 18.9  |      |  | $ | 62.7  |  |  | $ | 59.6  | 
|                                                  |  |                    |       |                   |  |      |       |      |  |   |       |  |  |   |       | 

AIP reportable segment results increased by 5.3% and 5.2% compared to the third
quarter and first nine months of 2002 as interest spreads improved and fund
balances grew, as detailed in the following discussion.

19



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The following table summarizes key information for AIP:

|                                                                    |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  
|------------------------------------------------------------------- |  | ------------------ | ----- | ----------------- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                                    |  | Three Months Ended |       | Nine Months Ended
|                                                                    |  | September 30       |       | September 30     
|                                                                    |  |                    |       |                  
|                                                                    |  | 2003               |       | 2002              |  | 2003 |       | 2002
|                                                                    |  |                    |       |                   |  |      |       |     
|Fixed annuity premium sales                                         |  | $                  | 188   |                   |  | $    | 365   |      |  | $ | 435   |   |  | $ | 807   |  
|Variable annuity premium sales                                      |  |                    |      |                   |  |      | 2     |      |  |   | 2     |   |  |   | 9     |  
|                                                                    |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  
|                                                                    |  | $                  | 188   |                   |  | $    | 367   |      |  | $ | 437   |   |  | $ | 816   |  
|                                                                    |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  
|Investment product sales                                            |  | $                  | 926   |                   |  | $    | 754   |      |  | $ | 2,204 |   |  | $ | 2,271 |  
|                                                                    |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  
|Average policyholder fund balances                                  |  | $                  | 8,428 |                   |  | $    | 7,905 |      |  | $ | 8,330 |   |  | $ | 7,704 |  
|Average separate account policyholder fund
balances                 |  |                    | 344   |                   |  |      | 386   |      |  |   | 338   |   |  |   | 444   |  
|                                                                    |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  
|                                                                    |  | $                  | 8,772 |                   |  | $    | 8,291 |      |  | $ | 8,668 |   |  | $ | 8,148 |  
|                                                                    |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  
|                                                                   
|Effective investment spreads for fixed annuities                    |  |                    | 1.94  | %                 |  |      | 1.81  | %    |  |   | 1.90  | % |  |   | 1.82  | %
|                                                                   
|Fixed annuity surrenders as a percentage of
beginning fund balances |  |                    | 8.5   | %                 |  |      | 8.5   | %    |  |   | 8.1   | % |  |   | 9.3   | %
|                                                                   
|Average assets                                                      |  | $                  | 9,534 |                   |  | $    | 9,136 |      |  | $ | 9,463 |   |  | $ | 8,978 |  

We derive annuity revenues from investment income on segment assets, policy
charges and concession income earned on investment product sales by JPSC. Our
policy charge income declined $1.3 and $3.4 from the third quarter and first
nine months of 2002 as a result of lower surrender charge income. Net
investment income was flat compared to the third quarter of 2002 and grew 2.8%
over the first nine months of 2002. This growth was lower than the growth in
average policyholder fund balances of 5.8% and 6.4%, primarily due to a decline
in new investment yields combined with an increase in default charges over
third quarter and first nine months of 2002 of $0.7 and $1.5 from the AIP
segment to the Corporate and Other segment. The AIP segment experienced a
higher level of prepayments of mortgage backed securities, which increased net
investment income in the AIP segment through acceleration of the accretion of
discount on our mortgage backed portfolio. For the third quarter and first
nine months of 2003, the excess accretion of discount increased
earned yields by 34 and 25 basis points.
Only a portion of this excess accretion of discount affected operating results
due to offsets from interest credited to contract holders, DAC amortization and
income taxes. The resulting increase to third quarter 2003 reportable
segment results is estimated at approximately $1.5. Fixed annuity premium sales decreased 48.5% and 46.1% from the
third quarter and first nine months of 2002, reflecting continued competition
in the fixed annuity market and our unwillingness to match our competitors
crediting rates, especially in our bank channel. Sales trends have shown
improvement this quarter following the introduction of new fixed annuity
products in the second quarter. As capital markets are beginning to improve,
JPSCs concession and other income increased 17.3% over the third quarter of
2002, yet was still 4.5% below the level achieved in the first nine months of
2002.

Fixed annuity surrenders as a percentage of beginning fund balances on an
annualized basis remained at 8.5% for the third quarter 2003 and 2002 and
declined to 8.1% versus 9.3% for the first nine months of 2002. The lower
lapse rates reflect the effects of the lower interest rate environment and the
increasing percentage of our annuity block with multi-year crediting rate
guarantees. The surrender rate in the AIP segment is influenced by many other
factors such as: 1) the portion of the business that has low or no remaining
surrender charges; 2) competition from annuity products

20



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##### 



including those which pay up-front interest rate bonuses or higher market
rates; and 3) rising interest rates that may make returns available on new
annuities or investment products more attractive than on older annuities.
Fixed annuity fund balances with 5% or more surrender charges were 50% of total
fixed annuity fund balances at September 30, 2003 compared to 52% a year
earlier.

Policy benefits, which are mainly comprised of interest credited to
policyholder accounts, decreased 8.2% compared to third quarter 2002 and 1.7%
from the first nine months of 2002 despite growth in average fund balances,
reflecting crediting rate reductions.

Effective investment spreads on fixed annuities increased to 1.94% and 1.90%
from 1.81% and 1.82% for the third quarter and first nine months of 2002. We
are continuing to realize the effects of crediting rate reductions we made in
late 2002 and during the first nine months of 2003, which generally take effect
on annuity contract anniversary dates. The average crediting rate on the
portfolio decreased to 4.87% and 5.02% in the third quarter and first nine
months of 2003 from 5.44% and 5.48% for the same 2002 periods. We have
approximately $4 billion of policyholder fund balances with crediting rates on
an annual reset basis, and our crediting rates on average are approximately 53
basis points in excess of our minimum guaranteed rates at September 30, 2003
including some policies that are already at minimum guaranteed rates. We also
have approximately $4 billion of policyholder fund balances with multi-year
guaranteed rates, which will begin to reset in 2004. As mentioned earlier,
increased accretion of discount on mortgage backed securities is also
continuing to positively impact our investment spreads.

The expense details for the AIP segment are as follows:

|                                                 |  |                    |      |                   |  |      |       |      |  |   |       |   |  |   |       |  
|------------------------------------------------ |  | ------------------ | ---- | ----------------- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                 |  | Three Months Ended |      | Nine Months Ended
|                                                 |  | September 30       |      | September 30     
|                                                 |  |                    |      |                  
|                                                 |  | 2003               |      | 2002              |  | 2003 |       | 2002
|                                                 |  |                    |      |                   |  |      |       |     
|Commissions  insurance companies                |  | $                  | 8.6  |                   |  | $    | 18.0  |      |  | $ | 21.6  |   |  | $ | 41.1  |  
|Commissions - broker/dealer                      |  |                    | 22.0 |                   |  |      | 18.5  |      |  |   | 59.2  |   |  |   | 63.0  |  
|General and administrative  acquisition related |  |                    | 3.3  |                   |  |      | 4.2   |      |  |   | 9.6   |   |  |   | 11.3  |  
|General and administrative  maintenance related |  |                    | 3.6  |                   |  |      | 3.8   |      |  |   | 10.0  |   |  |   | 11.0  |  
|Taxes, licenses and fees                         |  |                    | 0.8  |                   |  |      | 0.8   |      |  |   | 2.3   |   |  |   | 2.3   |  
|                                                 |  |                    |      |                   |  |      |       |      |  |   |       |   |  |   |       |  
|Total commissions and expenses incurred          |  |                    | 38.3 |                   |  |      | 45.3  |      |  |   | 102.7 |   |  |   | 128.7 |  
|Less commissions and expenses capitalized        |  |                    | (8.9 | )                 |  |      | (22.7 | )    |  |   | (27.4 | ) |  |   | (52.5 | )
|Amortization of DAC and VOBA                     |  |                    | 12.5 |                   |  |      | 8.6   |      |  |   | 36.1  |   |  |   | 29.6  |  
|                                                 |  |                    |      |                   |  |      |       |      |  |   |       |   |  |   |       |  
|Total expense                                    |  | $                  | 41.9 |                   |  | $    | 31.2  |      |  | $ | 111.4 |   |  | $ | 105.8 |  
|                                                 |  |                    |      |                   |  |      |       |      |  |   |       |   |  |   |       |  

Total AIP expenses increased 34.3% and 5.3% over the third quarter and first
nine months of 2002, due to lower expense capitalization levels as a result of
lower sales volume, higher DAC and VOBA amortization and higher broker/dealer
commissions. We continue to closely manage the maintenance related general and
administrative expenses, which declined 5.3% and 9.1% from the third quarter
and first nine months of 2002. Broker/dealer commissions increased $3.5 over
the third quarter 2002 consistent with the increase in sales, yet were $3.8
lower than the first nine months of 2002.

JPSC earnings were essentially flat for the third quarter and first nine months
of 2003 compared to the same periods of 2002.

21



---



##### 



An inherent risk in the annuity business is that continued low or further
declines in investment yields coupled with competition from competing products
and minimum rate guarantees could further reduce our investment spread and
reduce annuity sales. Other risks associated with the annuity business include
increased lapses when interest rates rise, particularly in the portion of
business subject to low or no surrender charges, and changes in taxation of our
products and competing offerings. We discuss these risks in more detail in the
Financial Position, Capital Resources and Liquidity, and Market Risk Exposures
sections of our Form 10-K.

Benefit Partners

The Benefit Partners segment offers group non-medical products such as term
life, disability and dental insurance to the employer marketplace. These
products are marketed primarily through a national distribution system of
regional offices. These offices develop business through employee benefit
brokers, third party administrators and other employee benefit firms.

Reportable segment results were:

|                                               |  |                    |       |                   |  |      |       |      |  |   |       |  |  |   |       | 
|---------------------------------------------- |  | ------------------ | ----- | ----------------- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                                               |  | Three Months Ended |       | Nine Months Ended
|                                               |  | September 30       |       | September 30     
|                                               |  |                    |       |                  
|                                               |  | 2003               |       | 2002              |  | 2003 |       | 2002
|                                               |  |                    |       |                   |  |      |       |     
|Premiums and other considerations              |  | $                  | 190.3 |                   |  | $    | 165.1 |      |  | $ | 563.4 |  |  | $ | 475.5 | 
|Investment income, net of expenses             |  |                    | 15.9  |                   |  |      | 14.9  |      |  |   | 48.3  |  |  |   | 44.5  | 
|                                               |  |                    |       |                   |  |      |       |      |  |   |       |  |  |   |       | 
|Total revenues                                 |  |                    | 206.2 |                   |  |      | 180.0 |      |  |   | 611.7 |  |  |   | 520.0 | 
|                                               |  |                    |       |                   |  |      |       |      |  |   |       |  |  |   |       | 
|Policy benefits                                |  |                    | 148.4 |                   |  |      | 128.7 |      |  |   | 433.9 |  |  |   | 358.8 | 
|Expenses                                       |  |                    | 42.4  |                   |  |      | 37.1  |      |  |   | 124.8 |  |  |   | 107.9 | 
|                                               |  |                    |       |                   |  |      |       |      |  |   |       |  |  |   |       | 
|Total benefits and expenses                    |  |                    | 190.8 |                   |  |      | 165.8 |      |  |   | 558.7 |  |  |   | 466.7 | 
|                                               |  |                    |       |                   |  |      |       |      |  |   |       |  |  |   |       | 
|Reportable segment results before
income taxes |  |                    | 15.4  |                   |  |      | 14.2  |      |  |   | 53.0  |  |  |   | 53.3  | 
|Provision for income taxes                     |  |                    | 5.3   |                   |  |      | 5.0   |      |  |   | 18.5  |  |  |   | 18.7  | 
|                                               |  |                    |       |                   |  |      |       |      |  |   |       |  |  |   |       | 
|Reportable segment results                     |  | $                  | 10.1  |                   |  | $    | 9.2   |      |  | $ | 34.5  |  |  | $ | 34.6  | 
|                                               |  |                    |       |                   |  |      |       |      |  |   |       |  |  |   |       | 

Benefit Partners reportable segment results increased 9.8% for the third
quarter and were flat compared to the first nine months of 2002 as discussed
below.

The following table summarizes key information for Benefit Partners:

|                                    |                  |   |                    |      |                   |   |      |      |      |   |      |      |   |   |      |      |  
|----------------------------------- | ---------------- | - | ------------------ | ---- | ----------------- | - | ---- | ---- | ---- | - | ---- | ---- | - | - | ---- | ---- | -
|                                    |                  |   | Three Months Ended |      | Nine Months Ended
|                                    |                  |   | September 30       |      | September 30     
|                                    |                  |   |                    |      |                  
|                                    |                  |   | 2003               |      | 2002              |   | 2003 |      | 2002
|                                    |                  |   |                    |      |                   |   |      |      |     
|Life, Disability, and Dental:       |                  |   |                    |      |                   |   |      |      |      |   |      |      |   |   |      |     
|                                    | Annualized sales |   | $                  | 38   |                   |   | $    | 38   |      |   | $    | 151  |   |   | $    | 131  |  
|                                    | Loss ratio       |   |                    | 74.3 | %                 |   |      | 76.1 | %    |   |      | 74.3 | % |   |      | 73.7 | %
|                                   
|Total expenses, % of premium
income |                  |   | 22.3               | %    |                   |   | 22.5 | %    |      |   | 22.2 | %    |   |   | 22.8 | %   
|                                   
|Average assets                      |                  | $ | 1,006              |      |                   | $ | 865  |      |      | $ | 965  |      |   | $ | 837  |     

Benefit Partners revenues increased 14.6% and 17.6% over the third quarter and
first nine months of 2002. Annualized new sales for the core life, disability
and dental lines were flat compared to the

22



---



##### 



third quarter of 2002, reflecting primarily lower life sales. For the first
nine months of 2003, these sales grew 15.3% over the 2002 period.

Policy benefits increased 15.3% and 20.9% over the third quarter and first nine
months of 2002 driven by growth in the business coupled with adverse claims
experience during the first nine months of 2003 in the life product line. Our
life, disability and dental incurred loss ratio decreased to 74.3% versus 76.1%
in the quarter and increased to 74.3% versus 73.7% over the first nine months
of 2002 due to the adverse mortality experienced in the life product line.
While loss ratios for our life products are higher than levels we consider
typical, they did improve modestly from third quarter 2002. During the quarter
we implemented further improvements to our underwriting practices and increased
pricing on new and renewal business on the segment of the life block that has
not been performing up to expectations. Policy benefits in the third quarter
of 2003 also reflect a $3.5 charge to strengthen reserves for a small block of
group medical conversion policies that are in a run-off mode. This block has
less than $0.2 in premiums and represents about sixty policies in force.
Further, in the third quarter of 2003, we lowered the discount rate on newly
incurred claims in 2003 in the long-term disability block of business from 5.5%
to 5.0% and brought our assumptions regarding future benefit offsets from
Social Security payments in line with our experience.

Total expenses for the Benefit Partners segment increased 14.3% and 15.7% over
the third quarter and first nine months of 2002, in line with overall growth in
the business. As a percentage of premium income, total expenses were 22.3%
versus 22.5% and 22.2% versus 22.8% for the third quarter and first nine months
of 2002.

The expense details are as follows:

|                                          |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  
|----------------------------------------- |  | ------------------ | ----- | ----------------- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                          |  | Three Months Ended |       | Nine Months Ended
|                                          |  | September 30       |       | September 30     
|                                          |  |                    |       |                  
|                                          |  | 2003               |       | 2002              |  | 2003 |       | 2002
|                                          |  |                    |       |                   |  |      |       |     
|Commissions                               |  | $                  | 21.8  |                   |  | $    | 18.9  |      |  | $ | 64.2  |   |  | $ | 55.0  |  
|General and administrative                |  |                    | 18.2  |                   |  |      | 17.1  |      |  |   | 55.9  |   |  |   | 50.7  |  
|Taxes, licenses and fees                  |  |                    | 5.1   |                   |  |      | 4.4   |      |  |   | 15.4  |   |  |   | 13.4  |  
|                                          |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  
|Total commissions and expenses incurred   |  |                    | 45.1  |                   |  |      | 40.4  |      |  |   | 135.5 |   |  |   | 119.1 |  
|Less commissions and expenses capitalized |  |                    | (28.1 | )                 |  |      | (24.2 | )    |  |   | (85.3 | ) |  |   | (69.3 | )
|Amortization of DAC                       |  |                    | 25.4  |                   |  |      | 20.9  |      |  |   | 74.6  |   |  |   | 58.1  |  
|                                          |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  
|Total expense                             |  | $                  | 42.4  |                   |  | $    | 37.1  |      |  | $ | 124.8 |   |  | $ | 107.9 |  
|                                          |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  

Acquisition costs consisting of commissions and other expenses that are
primarily related to contracts issued or renewed are capitalized and are
charged to expense in proportion to the revenue recognized. The amount of
acquisition costs capitalized as well as the amount amortized grew in
proportion with the growth in the business during 2003.

Risks beyond normal competition that may impact this segment include: 1)
increased morbidity risk due to a weak economy that may increase disability
claim costs; 2) continued medical cost inflation that can put pressure on
non-medical benefit premium rates because employers may focus more on the
employers cost of non-medical programs; and 3) mortality risks including
concentration risks from acts of terrorism not priced for or reinsured. We
discuss these risks in more detail in the Benefit Partners section of our Form
10-K.

23



---



##### 



Communications

JPCC operates radio and television broadcast properties and produces syndicated
sports programming. Reportable segment results were:

|                                              |  |                    |      |                   |  |      |      |      |  |   |       |  |  |   |       | 
|--------------------------------------------- |  | ------------------ | ---- | ----------------- |  | ---- | ---- | ---- |  | - | ----- |  |  | - | ----- | 
|                                              |  | Three Months Ended |      | Nine Months Ended
|                                              |  | September 30       |      | September 30     
|                                              |  |                    |      |                  
|                                              |  | 2003               |      | 2002              |  | 2003 |      | 2002
|                                              |  |                    |      |                   |  |      |      |     
|Communications revenues (net)                 |  | $                  | 51.7 |                   |  | $    | 49.9 |      |  | $ | 152.9 |  |  | $ | 148.5 | 
|Operating costs and expenses                  |  |                    | 28.1 |                   |  |      | 29.3 |      |  |   | 90.4  |  |  |   | 90.8  | 
|                                              |  |                    |      |                   |  |      |      |      |  |   |       |  |  |   |       | 
|Broadcast cash flow                           |  |                    | 23.6 |                   |  |      | 20.6 |      |  |   | 62.5  |  |  |   | 57.7  | 
|Depreciation and amortization                 |  |                    | 2.0  |                   |  |      | 1.9  |      |  |   | 6.2   |  |  |   | 5.7   | 
|Corporate general and administrative expenses |  |                    | 1.7  |                   |  |      | 2.2  |      |  |   | 4.4   |  |  |   | 5.4   | 
|Net interest expense                          |  |                    | 0.5  |                   |  |      | 0.8  |      |  |   | 1.6   |  |  |   | 2.3   | 
|                                              |  |                    |      |                   |  |      |      |      |  |   |       |  |  |   |       | 
|Operating revenue before income taxes         |  |                    | 19.4 |                   |  |      | 15.7 |      |  |   | 50.3  |  |  |   | 44.3  | 
|Provision for income taxes                    |  |                    | 8.0  |                   |  |      | 6.0  |      |  |   | 20.3  |  |  |   | 17.5  | 
|                                              |  |                    |      |                   |  |      |      |      |  |   |       |  |  |   |       | 
|Reportable segment results                    |  | $                  | 11.4 |                   |  | $    | 9.7  |      |  | $ | 30.0  |  |  | $ | 26.8  | 
|                                              |  |                    |      |                   |  |      |      |      |  |   |       |  |  |   |       | 

Reportable segment results increased 17.5% and 11.9% over the third quarter and
first nine months of 2002, primarily due to increased share in our Television
and Radio markets and effective ongoing operating expense management.

Combined revenues for Radio and Television increased 2.7% and 2.9% over the
third quarter and first nine months of 2002, reflecting increases in market
share in Television and in Radio somewhat offset by a decline in political
revenues. Political revenues for combined Radio and Television declined by $1.0
and $1.6 from the third quarter and first nine months of 2002. Disregarding
revenues from political advertising, combined revenues for Radio and Television
increased 5.0% and 4.1% over the third quarter and first nine months of 2002.
Revenues from Sports operations increased $0.6 from the third quarter of 2002
and $0.4 from the first nine months of 2002, due to increased collegiate
football sales in the current quarter, partially offset by disappointing first
quarter basketball revenues. See our Form 10-K for a description of our
contractual commitments related to Sports operation.

Broadcast cash flow increased 14.6% and 8.3% over the third quarter and first
nine months of 2002 due to improved profitability at our Radio and Television
properties, despite disappointing first quarter 2003 results in our Sports
basketball product.

Total expenses, excluding net interest expense, decreased $1.6 or 4.8% from the
third quarter and $0.9 or 0.9% from the first nine months of 2002. As a percent
of Communication revenues, these expenses were 61.5% versus 66.9% and 66.1%
versus 68.6% in the third quarter and first nine months of 2003 and 2002,
reflecting continued expense discipline in this segment.

Risks for this segment include sensitivity to cyclical changes in both the
general economy and the economic strength of local markets, concentration of
our advertising revenues from the automotive industry, the ability to
periodically renew FCC licenses, technological changes and consolidation in the
broadcast industry. We discuss these risks in more detail in the Communications
section of our Form 10-K.

24



---



##### 



Corporate and Other

The Corporate and Other segment includes the excess capital of the insurance
subsidiaries, other corporate investments including impaired securities,
benefit plan net assets, goodwill related to insurance acquisitions and
corporate debt. The reportable segment results primarily contain the earnings
on the invested excess capital, interest expense related to the corporate debt
and operating expenses that are corporate in nature (such as advertising and
charitable and civic contributions). All net realized capital gains and
losses, which include all impairments of securities, are reported in this
segment.

The following table summarizes results for this segment:

|                                                                  |  |                    |      |                   |  |      |      |      |  |   |       |   |  |   |       |  
|----------------------------------------------------------------- |  | ------------------ | ---- | ----------------- |  | ---- | ---- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                                  |  | Three Months Ended |      | Nine Months Ended
|                                                                  |  | September 30       |      | September 30     
|                                                                  |  |                    |      |                  
|                                                                  |  | 2003               |      | 2002              |  | 2003 |      | 2002
|                                                                  |  |                    |      |                   |  |      |      |     
|Earnings on investments                                           |  | $                  | 24.1 |                   |  | $    | 15.6 |      |  | $ | 68.0  |   |  | $ | 58.7  |  
|Interest expense on debt and
Exchangeable Securities              |  |                    | 1.9  |                   |  |      | 2.8  |      |  |   | 6.5   |   |  |   | 7.8   |  
|Operating expenses                                                |  |                    | 8.0  |                   |  |      | 3.2  |      |  |   | 21.0  |   |  |   | 15.4  |  
|Provision for income tax expense                                  |  |                    | (1.9 | )                 |  |      | (1.1 | )    |  |   | (0.2  | ) |  |   | 0.1   |  
|                                                                  |  |                    |      |                   |  |      |      |      |  |   |       |   |  |   |       |  
|Total expenses                                                    |  |                    | 8.0  |                   |  |      | 4.9  |      |  |   | 27.3  |   |  |   | 23.3  |  
|                                                                  |  |                    |      |                   |  |      |      |      |  |   |       |   |  |   |       |  
|Reportable segment results before
dividends on Capital Securities |  |                    | 16.1 |                   |  |      | 10.7 |      |  |   | 40.7  |   |  |   | 35.4  |  
|Dividends on Capital Securities                                   |  |                    | (6.1 | )                 |  |      | (6.1 | )    |  |   | (18.4 | ) |  |   | (18.4 | )
|                                                                  |  |                    |      |                   |  |      |      |      |  |   |       |   |  |   |       |  
|Reportable segment results                                        |  |                    | 10.0 |                   |  |      | 4.6  |      |  |   | 22.3  |   |  |   | 17.0  |  
|Realized investment gains (losses), net                           |  |                    | (3.9 | )                 |  |      | 2.5  |      |  |   | (3.1  | ) |  |   | 27.2  |  
|                                                                  |  |                    |      |                   |  |      |      |      |  |   |       |   |  |   |       |  
|Reportable segment results, including
realized gains              |  | $                  | 6.1  |                   |  | $    | 7.1  |      |  | $ | 19.2  |   |  | $ | 44.2  |  
|                                                                  |  |                    |      |                   |  |      |      |      |  |   |       |   |  |   |       |  

Reportable segment results increased $5.4 from the third quarter and $5.3 from
the first nine months of 2002 due to increased earnings on investments and
lower interest expense on debt.

Earnings on investments increased $8.5 and $9.3 over the third quarter and
first nine months of 2002 driven by increases in earnings on equity investments
and dividends on equity securities, resumed income on certain previously
defaulted securities, and an increase in default charges for securities to the
operating segments. These charges are received from the operating segments for
this segments assumption of all credit related losses on the invested assets
of those segments. Default charges are calculated in part as a percentage of
invested assets. In response to the recent default environment in the
securities market, we increased default charges to the other operating
segments. This resulted in default charge income of $8.1 and $22.7 for the
third quarter and first nine months compared to $5.5 and $16.5 for the same
periods of 2002. Earnings on investments in this segment can fluctuate based
upon opportunistic repurchases of common stock, the amount of excess capital
generated by the operating segments and investment income fluctuations on bonds
impaired or sold, among other factors.

Operating expenses increased $4.8 and $5.6 over the third quarter and first
nine months of last year due to increases in general and administrative expense
accruals and expenses related to a block of discontinued group business from a
previous acquisition. Operating expenses for this segment will vary with the
level of corporate activities and strategies.

25



---



##### 



Realized investment gains and losses were as follows:

|                              |             |   |                    |     |                   |   |       |      |      |   |       |     |  |   |        |       |  
|----------------------------- | ----------- | - | ------------------ | --- | ----------------- | - | ----- | ---- | ---- | - | ----- | --- |  | - | ------ | ----- | -
|                              |             |   | Three Months Ended |     | Nine Months Ended
|                              |             |   | September 30       |     | September 30     
|                              |             |   |                    |     |                  
|                              |             |   | 2003               |     | 2002              |   | 2003  |      | 2002
|                              |             |   |                    |     |                   |   |       |      |     
|Bond gains                    |             | $ | 7.9                |     |                   | $ | 8.7   |      |      | $ | 44.7  |     |  | $ | 20.9   |      
|Bond losses                   |             |   | (13.2              | )   |                   |   | (15.2 | )    |      |   | (17.9 | )   |  |   | (27.3  | )    
|Bond impairment charges       |             |   | (14.9              | )   |                   |   | (49.8 | )    |      |   | (56.0 | )   |  |   | (102.6 | )    
|Stock
gains, net              |             |   |                   |     |                   |   | 63.3  |      |      |   | 13.8  |     |  |   | 157.3  |      
|Other losses                  |             |   | (1.1               | )   |                   |   | (0.8  | )    |      |   | (1.8  | )   |  |   | (4.4   | )    
|DAC and VOBA amortization     |             |   | 16.1               |     |                   |   | (2.4  | )    |      |   | 13.2  |     |  |   | (2.1   | )    
|                              |             |   |                    |     |                   |   |       |      |      |   |       |     |  |   |        |      
|Gross realized gains (losses) |             |   | (5.2               | )   |                   |   | 3.8   |      |      |   | (4.0  | )   |  |   | 41.8   |      
|                              | Less: taxes |   |                    | 1.3 |                   |   |       | (1.3 | )    |   |       | 0.9 |  |   |        | (14.6 | )
|                              |             |   |                    |     |                   |   |       |      |      |   |       |     |  |   |        |      
|Net realized gains (losses)   |             | $ | (3.9               | )   |                   | $ | 2.5   |      |      | $ | (3.1  | )   |  | $ | 27.2   |      
|                              |             |   |                    |     |                   |   |       |      |      |   |       |     |  |   |        |      

Realized gains and losses reflect several initiatives implemented this quarter
designed to enhance our long-term investment portfolio performance. The
increase in market yields provided opportunities for sales of lower yielding
bonds, thus creating realized losses to take advantage of expiring tax gain
carryforwards and increase portfolio yield. The mortgage backed security
portfolio was reduced by $775 during the quarter and the proceeds were
primarily reinvested in investment grade corporate bonds. We also sold $47
million of non-interest earning assets during the quarter at a $2 million gain.

Bond impairments for third quarter 2003 were lower as a result of significant
improvement in the corporate credit environment and proactive portfolio
management. Approximately $2.6 of bond gains were realized on sales of
previously defaulted securities.

As reflected in the preceding table, we record DAC and VOBA amortization on
realized gains and losses on investments that back UL-type products. Such
amortization favorably impacted pre-tax results for the third quarter and first
nine months of 2003 by $18.5 and $15.3 compared to the same periods of 2002.
This was primarily due to a DAC unlocking related to credit losses amounting to
$15.6 in the third quarter of 2003. This unlocking relates to higher actual
credit losses than what we had assumed in our expected gross profits models.
Modeling of expected gross profits is discussed further in the DAC and VOBA
section that follows.

The following table summarizes assets assigned to this segment.

|                                                                                                 |  |              |       |      |  |   |       | 
|------------------------------------------------------------------------------------------------ |  | ------------ | ----- | ---- |  | - | ----- | 
|                                                                                                 |  | September 30
|                                                                                                 |  |             
|                                                                                                 |  | 2003         |       | 2002
|                                                                                                 |  |              |       |     
|Parent company, passive investment companies and
Corporate line assets of insurance subsidiaries |  | $            | 1,107 |      |  | $ | 776   | 
|Unrealized gain on fixed interest investments                                                    |  |              | 729   |      |  |   | 558   | 
|Co-insurance receivables on acquired blocks                                                      |  |              | 997   |      |  |   | 1,057 | 
|Employee benefit plan assets                                                                     |  |              | 344   |      |  |   | 319   | 
|Goodwill arising from insurance acquisitions                                                     |  |              | 270   |      |  |   | 270   | 
|Other                                                                                            |  |              | 359   |      |  |   | 290   | 
|                                                                                                 |  |              |       |      |  |   |       | 
|Total                                                                                            |  | $            | 3,806 |      |  | $ | 3,270 | 
|                                                                                                 |  |              |       |      |  |   |       | 

Total assets for the Corporate and Other segment increased 16.4% over September
30, 2002 as the corporate credit environment continues to improve and
investments are holding their values. We

26



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took a record level of bond impairment charges during the first nine months of
2002 due to the deterioration of the bond market during that period. Further,
unrealized gains on available-for-sale fixed income securities, which are
assigned to this segment, increased $171.

Risks for this segment include investment impairments and defaults due to
continuing economic weakness or further economic decline, the risk of rising
interest rates on our short-term debt, the ability to replace existing debt
agreements with comparable terms, declines in the values of our equity
securities which would limit our potential for realized gains, the general
uncertainty regarding litigation, and the potential for future impairment of
goodwill. Additionally, as discussed in the Liquidity section, to service our
debt and to pay shareholder dividends, this segment relies on excess cash flows
through dividends from the insurance subsidiaries. These dividends depend upon
regulatory approval when above certain limits.

Financial Position

Our primary resources are investments related to our Individual Products, AIP
and Benefit Partners segments, properties and other assets utilized in all
segments and investments backing corporate capital. This section identifies
several items on our balance sheet that are important to the overall
understanding of our financial position. The Investments section reviews our
investment portfolio and key portfolio management strategies.

Total assets increased $1,377 from year end 2002 due to net policyholder
contract deposits, unrealized gains on investments, and growth in separate
account assets, all of which more than offset dividends, stock repurchases and
impairment losses.

Intangible assets on our balance sheet include DAC, VOBA and goodwill.

DAC and VOBA

The Individual Products, AIP and Benefit Partners segments defer the costs of
acquiring new business, which is referred to as DAC. These costs include first
year commissions, first year bonus interest or day one premium bonuses on
annuities, certain costs of underwriting and issuing policies plus agency
office expenses. We limit our capitalization of acquisition costs other than
commissions in the Individual Products and AIP segments to the lower of product
specific pricing allowables or the actual deferrable acquisition costs. When
we acquire new business through an acquisition, we allocate a portion of the
purchase price to a separately identifiable intangible asset, referred to as
VOBA. We initially establish VOBA as the actuarially determined present value
of future gross profits of each business acquired. Both DAC and VOBA are
amortized through expenses as revenues are recognized in the future. Some of
the assumptions regarding future experience that can affect the carrying value
of DAC and VOBA balances include mortality, interest spreads, lapse rates and
policy fees earned. Significant differences between actual experience and
assumptions utilized can impact the carrying balance of DAC and VOBA and
therefore produce changes that must be reflected in earnings. These changes
can be positive or negative.

We amortize DAC and VOBA on traditional products in proportion to premium
revenue recognized. The DAC and VOBA balances on these products were $200.9 or
8.2% of the gross balances at September 30, 2003 compared to $208.2 or 8.9% at
December 31, 2002, and are generally subject to little volatility.

We amortize DAC and VOBA on UL-type products and annuity products relative to
the future estimated gross profits (EGP) from those products. In calculating
the EGP for these products,

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management must make assumptions regarding the following components: 1)
estimates of fees charged to policyholders to cover mortality, surrenders and
maintenance costs; 2) estimated mortality in excess of fund balances
accumulated; 3) expected interest rate spreads between income earned and
amounts credited to policyholder accounts; and 4) estimated costs of policy
administration (maintenance). DAC and VOBA calculations are sensitive to a
change in our assumptions regarding EGP components, and any significant change
in these assumptions will immediately impact the current DAC and VOBA balances
with the change reflected through the income statement. We continuously review
the models and our assumptions regarding EGP that we use for calculation of
amortization expense for these products so that the assumptions reflect
managements view of future events.

We consider the following assumptions to be most significant to UL-type
products: 1) estimated mortality; 2) estimated interest spreads; and 3)
estimated future policy lapses. The DAC and VOBA balances on UL-type products
were $1,837.3 or 74.8% of the gross balances at September 30, 2003 compared to
$1,711.3 or 73.3% at December 31, 2002.

In addition to these three assumptions on all UL-type products, VUL products
and VA products contain an additional assumption that affects the DAC and VOBA
amortization. This critical assumption is the rate of growth of the separate
account mutual funds that generate additional policy fees utilized in the EGP
on VUL and VA products. We assume a long-term total net return on separate
account assets, including dividends and market value increases, of 8.25% and a
five-year reversion period. The reversion period is a period over which a
short-term return assumption is used to maintain the models overall long-term
rate of return. We cap the reversion rate of return at 8.25% for one year and
10% for years two through five. The effect of this limitation is to reduce the
cumulative effective long-term rate.

We provided a sensitivity analysis of changes in significant assumptions to DAC
and VOBA relating to UL-type products in the Individual Products segment
discussion in our Form 10-K. That analysis continues to accurately portray the
sensitivity of DAC and VOBA to the significant underlying assumptions used
therein.

We consider estimated interest spreads and estimated future policy lapses to be
the most significant assumptions related to our annuity products. The DAC and
VOBA balances on these products were $352.4 or 14.3% of the gross balances at
September 30, 2003 compared to $356.6 or 15.3% at December 31, 2002. We
provided a sensitivity analysis of changes in significant assumptions to DAC
and VOBA relating to annuity products in our Form 10-K. In the first nine
months of 2003, no variances were significant enough to have caused us to
change the significant assumptions or the estimated results utilized in this
analysis.

We also adjust the carrying value of DAC and VOBA to reflect changes in the
unrealized gains and losses in available-for-sale securities backing UL-type
and annuity products, since this impacts the timing of and possible realization
of EGPs.

Goodwill

Goodwill was $312 at September 30, 2003 or 8.2% as a percentage of
stockholders equity. Effective January 1, 2002, the Company adopted Statement
of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets, which primarily addresses the accounting for goodwill and intangible
assets subsequent to their acquisition. Under SFAS 142, we test goodwill for
impairment at least on an annual basis. We regularly review the carrying
amounts for indications of value impairment, considering financial performance
and other relevant factors such

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as a significant adverse change in the business or legal climate, an adverse
action or assessment by a regulator, or unanticipated competition. Nothing
indicated an impairment of goodwill during the first nine months of 2003. When
considered impaired, the carrying amounts are required to be written down to a
value determined by using a combination of fair value and discounted cash
flows.

Other

At September 30, 2003 and December 31, 2002, we had reinsurance receivables of
$857 and $889 and policy loans of $104 and $135, which are related to the
businesses of JP Financial that are coinsured with Household International
(HI), affiliates. HI has provided payment, performance and capital maintenance
guarantees with respect to the balances receivable. We regularly evaluate the
financial condition of our reinsurers and monitor concentrations of credit risk
related to reinsurance activities. We have not suffered any significant credit
losses from reinsurance activities in the last three years.

At September 30, 2003, the fair values of the assets related to the defined
benefit pension plans were $344 compared to $331 at December 31, 2002. The
market related values of these assets are projected to be $402 at December 31,
2003 compared to $400 at December 31, 2002. Pension expense for the first nine
months of 2003 was $1.7 compared to a benefit of $1.3 for the same period of
2002 due to increases in the service cost and interest cost components.

Capital Resources

Stockholders Equity

The following table shows our capital adequacy.

|                                                               |  |              |        |             |  |   |        |  
|-------------------------------------------------------------- |  | ------------ | ------ | ----------- |  | - | ------ | -
|                                                               |  | September 30 |        | December 31
|                                                               |  | 2003         |        | 2002       
|                                                               |  |              |        |            
|Total assets less separate accounts                            |  | $            | 30,011 |             |  | $ | 28,824 |  
|Total stockholders equity                                     |  |              | 3,809  |             |  |   | 3,540  |  
|Ratio of stockholders equity to assets less
separate accounts |  |              | 12.7   | %           |  |   | 12.3   | %

The ratio of equity to assets less separate accounts has remained relatively
constant in recent years. Unrealized gains on all available-for-sale
securities, which are included as a component of stockholders equity,
increased $116 from year-end 2002, reflecting an increase in the bond and
equity securities markets.

During the first nine months of 2003, we repurchased 2,500,000 of our common
shares at an average cost of $40.91 per share.

We consider existing capital resources to be more than adequate to support the
current level of our business activities.

The Individual Products, AIP and Benefit Partners segments are subject to
regulatory constraints. Our insurance subsidiaries have statutory surplus and
risk based capital levels well above required levels. These capital levels
together with the rating agencies assessments of our business strategies have
enabled our major life insurance affiliates to attain the highest available
claims paying ratings by A.M. Best and Standard & Poors and the second highest
rating by Fitch Ratings.

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Short-Term Borrowings and Debt

We have bank credit agreements for unsecured revolving credit, under which we
have the option to borrow at various interest rates. The two agreements
currently aggregate $525 with half available until May of 2004 and half
available until May of 2007. The credit agreements principally support our
issuance of commercial paper. Outstanding commercial paper has various
maturities, with $156 at September 30, 2003 in excess of 90 days. Maturities
can be up to 270 days. If we cannot remarket commercial paper at maturity, we
have sufficient liquidity, consisting of the bank credit agreements, liquid
assets, such as equity securities, and other resources to retire these
obligations. The weighted-average interest rates for commercial paper
borrowings outstanding of $487 and $453 at September 30, 2003 and December 31,
2002 were 1.10% and 1.44%. The maximum amount outstanding during the first
nine months of 2003 was $529 versus $455 for the year ended December 31, 2002.

Our commercial paper has retained the highest ratings by Standard & Poors and
Fitch Ratings as detailed in our Form 10-K. A significant drop in these
ratings, while not anticipated, could cause us to pay higher rates on
commercial paper borrowings or lose access to the commercial paper market.

Our insurance subsidiaries have sold U.S. Treasury obligations and
collateralized mortgage obligations under repurchase agreements involving
various counterparties, accounted for as financing arrangements. We have used
the proceeds to purchase securities with longer durations as an asset/liability
management strategy. We also may use repurchase agreements from time to time
in lieu of commercial paper borrowings. At September 30, 2003 and December 31,
2002, repurchase agreements, including accrued interest, were $367 and $499,
which include $66 and $244 of repurchase agreements in lieu of commercial paper
borrowings. The securities involved had a fair value and amortized cost of
$257 and $239 at September 30, 2003 versus $532 and $493 at December 31, 2002.
The maximum principal amounts outstanding were $597 during the first nine
months of 2003 compared to $636 for the year ended December 31, 2002.

Liquidity

We meet liquidity requirements primarily by positive cash flows from
operations. We have sufficient overall sources of liquidity to satisfy
operating requirements. Primary sources of cash from our insurance operations
are premiums, other insurance considerations, receipts for policyholder
accounts, investment sales and maturities and investment income. Primary uses
of cash for our insurance operations include purchases of investments, payment
of insurance benefits, operating expenses, withdrawals from policyholder
accounts, costs related to acquiring new business, dividends and income taxes.
Primary sources of cash from the Communications operations are revenues from
broadcast advertising, and primary uses include payments for commissions,
compensation and related costs, sports rights, interest, income taxes and
purchases of fixed assets.

Cash provided by operations in the first nine months of 2003 and 2002 was $467
and $316. The primary drivers of this increase are a change in realized gains
of $46 and a lower increase in the DAC and VOBA balances of $41, combined with
larger increases in policy reserves, all of which serve as adjustments to cash
generated from operations.

Net cash used in investing activities was $843 and $1,123 for the first nine
months of 2003 and 2002 as lower proceeds from fixed annuity sales have reduced
investing activity.

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Net cash provided by financing
activities was $358 and $718 for the first nine
months of 2003 and 2002, including net cash inflows of $700 and $1,127 from
policyholder contract deposits less withdrawals, reflecting the 2002 processing
of the premiums received in late 2001 combined with lower annuity contract
deposits in 2003. Net cash provided by borrowings decreased in 2003 as funds
were used to pay down debt rather than for investing purposes.

In order to meet the parent companys dividend payments, debt servicing
obligations and other expenses, we receive dividends from subsidiaries.
Subsidiaries paid total cash dividends during the first nine months of $224 and
$261 in 2003 and 2002. Our life insurance subsidiaries are subject to laws in
their states of domicile that limit the amount of dividends that can be paid
without the prior approval of the respective states insurance regulator. The
limits are based in part on the prior years statutory income and capital,
which are negatively impacted by bond losses and write-downs. Approval of
dividends above these limits will depend upon the circumstances at the time,
but we have not experienced problems with state approvals in the past.

Cash and cash equivalents were $49 and $67 at September 30, 2003 and December
31, 2002. The parent company and non-regulated subsidiaries held equity and
fixed income securities of $721 and $424 at these dates. We consider the
majority of these securities to be sources of liquidity to support our
strategies.

Total debt and equity securities available-for-sale at September 30, 2003 and
December 31, 2002 were $18,123 and $16,874.

Off Balance Sheet Liabilities and Commitments

One of our subsidiaries entered into an agreement with an unaffiliated third
party to provide for the initial and periodic purchase of the majority of its
loans receivable. This agreement is renewable on an annual basis and the
amount of loans involved continues to decline. If the agreement is not
renewed, we can issue debt to fund the amounts or terminate the entire program.
The amount of loans outstanding at September 30, 2003 was $10 compared to $16
at December 31, 2002. We have no other off balance sheet arrangements of a
financing nature.

JPCC has commitments for purchases of syndicated television programming and
commitments on other contracts and future sports programming rights of
approximately $408 as of September 30, 2003, payable through the year 2011. We
have commitments to sell a portion of the sports programming rights to other
entities for $245 over the same period. These commitments are not reflected as
an asset or liability in the accompanying consolidated balance sheet because
the programs are not currently available for use. We expect advertising
revenues that are sold on an annual basis to fund the purchase commitments.

We routinely enter into commitments to extend credit in the form of mortgage
loans and to purchase certain debt instruments in private placement
transactions for our investment portfolio. The fair value of such outstanding
commitments as of September 30, 2003 and December 31, 2002 approximated $160
and $73. These commitments will be funded through cash flows from operations
and investment maturities.

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Investments

Portfolio Description

Our strategy for managing the investment portfolio of our insurance
subsidiaries is to consistently meet pricing assumptions while appropriately
managing credit risk. We invest for the long term, and most of our investments
are held until they mature. Our investment portfolio includes primarily fixed
income securities and commercial mortgage loans. The nature and quality of
investments our insurance subsidiaries hold must comply with state regulatory
requirements. We have established a formal investment policy, which describes
our overall quality and diversification objectives and limits.

The following table shows the carrying values of our invested assets.
Approximately 85% of our portfolio has been designated as available-for-sale
(AFS) and is carried on the balance sheet at fair value. We determine fair
values of our securities, including securities not actively traded, using the
methodology described in the Critical Accounting Policies section above.
Changes in fair values of AFS securities are reflected in other comprehensive
income. The remainder of our portfolio has been designated as held-to-maturity
(HTM). As prescribed by generally accepted accounting principles, HTM
securities are carried at amortized cost, and accordingly there will be a
difference between fair value and carrying value for HTM securities.

|                                |                          |   |              |        |             |  |      |       |   |   |        |        |  |  |      |       |  
|------------------------------- | ------------------------ | - | ------------ | ------ | ----------- |  | ---- | ----- | - | - | ------ | ------ |  |  | ---- | ----- | -
|                                |                          |   | September 30 |        | December 31
|                                |                          |   | 2003         |        | 2002       
|                                |                          |   |              |        |            
|Publicly-issued bonds           |                          | $ | 15,680       |        |             |  | 61.7 | %     |   | $ | 15,239 |        |  |  | 62.6 | %    
|Privately-placed bonds          |                          |   | 4,542        |        |             |  | 17.9 |       |   |   | 4,238  |        |  |  | 17.4 |      
|                                |                          |   |              |        |             |  |      |       |   |   |        |        |  |  |      |      
|                                | Subtotal bonds           |   |              | 20,222 |             |  |      | 79.6  |   |   |        | 19,477 |  |  |      | 80.0  |  
|Redeemable preferred stock      |                          |   | 21           |        |             |  | 0.1  |       |   |   | 24     |        |  |  | 0.1  |      
|                                |                          |   |              |        |             |  |      |       |   |   |        |        |  |  |      |      
|                                | Subtotal debt securities |   |              | 20,243 |             |  |      | 79.7  |   |   |        | 19,501 |  |  |      | 80.1  |  
|Mortgage loans on real property |                          |   | 3,347        |        |             |  | 13.2 |       |   |   | 3,294  |        |  |  | 13.5 |      
|Common stock                    |                          |   | 712          |        |             |  | 2.8  |       |   |   | 407    |        |  |  | 1.7  |      
|Non-redeemable preferred stock  |                          |   | 2            |        |             |  | 0.0  |       |   |   | 2      |        |  |  | 0.0  |      
|Policy loans                    |                          |   | 873          |        |             |  | 3.5  |       |   |   | 909    |        |  |  | 3.7  |      
|Real estate                     |                          |   | 132          |        |             |  | 0.5  |       |   |   | 133    |        |  |  | 0.6  |      
|Other                           |                          |   | 34           |        |             |  | 0.1  |       |   |   | 33     |        |  |  | 0.1  |      
|Cash and equivalents            |                          |   | 49           |        |             |  | 0.2  |       |   |   | 67     |        |  |  | 0.3  |      
|                                |                          |   |              |        |             |  |      |       |   |   |        |        |  |  |      |      
|                                | Total                    |   | $            | 25,392 |             |  |      | 100.0 | % |   | $      | 24,346 |  |  |      | 100.0 | %
|                                |                          |   |              |        |             |  |      |       |   |   |        |        |  |  |      |      

The table above reflects the investment of $250 in common stocks in the first
half of 2003 by our non-insurance subsidiaries, which we view
as attractive for capital appreciation as well as dividend yields.

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Credit Risk Management and Impairment Review

Our internal guidelines require an average quality of an S&P or equivalent
rating of A or higher for the entire bond portfolio. At September 30, 2003
the average quality rating of our bond portfolio was A. We monitor the
overall credit quality of our portfolio within internal investment guidelines.
This table describes our debt security portfolio by credit rating at September
30, 2003.

|       |  |                    |  |           |        |       |  |          |        |          |  |   |        |  |  |      |       |  
|------ |  | ------------------ |  | --------- | ------ | ----- |  | -------- | ------ | -------- |  | - | ------ |  |  | ---- | ----- | -
|       |  | S&P or             |  |           |        |       |  |          |        |          |  |   |        |  |  | % of
|SVO    |  | Equivalent         |  | Amortized |        | Fair  |  | Carrying |        | Carrying
|Rating |  | Designation        |  | Cost      |        | Value |  | Value    |        | Value   
|       |  |                    |  |           |        |       |  |          |        |         
|1      |  | AAA                |  | $         | 3,884  |       |  | $        | 4,102  |          |  | $ | 4,098  |  |  |      | 20.2  | %
|1      |  | AA                 |  |           | 1,633  |       |  |          | 1,771  |          |  |   | 1,756  |  |  |      | 8.7   |  
|1      |  | A                  |  |           | 5,662  |       |  |          | 6,107  |          |  |   | 6,013  |  |  |      | 29.7  |  
|2      |  | BBB                |  |           | 6,527  |       |  |          | 7,016  |          |  |   | 6,916  |  |  |      | 34.2  |  
|3      |  | BB                 |  |           | 721    |       |  |          | 725    |          |  |   | 728    |  |  |      | 3.6   |  
|4      |  | B                  |  |           | 492    |       |  |          | 477    |          |  |   | 479    |  |  |      | 2.4   |  
|5      |  | CCC and lower      |  |           | 200    |       |  |          | 182    |          |  |   | 185    |  |  |      | 0.9   |  
|6      |  | In or near default |  |           | 65     |       |  |          | 64     |          |  |   | 68     |  |  |      | 0.3   |  
|       |  |                    |  |           |        |       |  |          |        |          |  |   |        |  |  |      |       |  
|       |  | Total              |  | $         | 19,184 |       |  | $        | 20,444 |          |  | $ | 20,243 |  |  |      | 100.0 | %
|       |  |                    |  |           |        |       |  |          |        |          |  |   |        |  |  |      |       |  

Limiting our bond exposure to any one creditor is another way we manage credit
risk. The following table lists our ten largest exposures to an individual
creditor in our bond portfolio as of September 30, 2003. As noted above, the
carrying values in the following tables are stated at fair value for AFS
securities and amortized cost for HTM securities.

|                             |  |                        |  |          |     | 
|---------------------------- |  | ---------------------- |  | -------- | --- | 
|                             |  |                        |  | Carrying
|Creditor                     |  | Sector                 |  | Value   
|                             |  |                        |  |         
|General Electric             |  | Capital Goods          |  | $        | 103 | 
|HSBC Holdings PLC            |  | Financial Institutions |  |          | 90  | 
|Bank of America              |  | Financial Institutions |  |          | 90  | 
|U S Bancorp                  |  | Financial Institutions |  |          | 88  | 
|National Rural Utilities     |  | Utilities              |  |          | 88  | 
|Wells Fargo                  |  | Financial Institutions |  |          | 88  | 
|Verizon Communications       |  | Communications         |  |          | 87  | 
|Citigroup                    |  | Financial Institutions |  |          | 87  | 
|Scana                        |  | Utilities              |  |          | 86  | 
|Burlington Northern Santa Fe |  | Transportation         |  |          | 85  | 

As noted above, credit risk is inherent in our bond portfolio. We manage this
risk through a structured approach in which we assess the effects of the
changing economic landscape. We devote a significant amount of effort of both
highly specialized, well-trained internal resources and external experts in our
approach to managing credit risk.

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To identify potentially distressed securities, we first screen for all
securities that have a fair value to amortized cost ratio of less than 80%. As
part of this identification process, management must make assumptions and
judgments using the following information:



| |  |  | current fair value of the security compared to amortized cost                                         
| | - |  | ------------------------------------------------------------------------------------------------------
|
| |  |  | length of time the fair value has been below amortized cost                                           
|
| |  |  | industry factors or conditions related to a geographic area
that are negatively affecting the security
|
| |  |  | downgrades by a rating agency                                                                         
|
| |  |  | past due interest or principal payments or other violation of covenants                               
|
| |  |  | deterioration of the overall financial condition of the specific issuer                               

In analyzing securities for other-than-temporary impairments, we then pay
special attention to securities that have been potentially distressed for a
period greater than nine months. We assume that, absent reliable contradictory
evidence, a security that is potentially distressed for a continuous period
greater than twelve months has incurred an other-than-temporary impairment.
Such reliable contradictory evidence might include, among other factors, a
liquidation analysis performed by our investment professionals and consultants,
improving financial performance or valuation of underlying assets specifically
pledged to support the credit.

When we identify a security as potentially impaired, we add it to our
potentially distressed security list and determine if the impairment is other
than temporary. Various committees comprised of senior management and
investment analysts intensively review the potentially distressed security list
to determine if a security is deemed to be other than temporarily impaired. In
this review, we consider the following criteria:



| |  |  | fundamental analysis of the liquidity and financial condition of the specific issuer      
| | - |  | ------------------------------------------------------------------------------------------
|
| |  |  | underlying valuation of assets specifically pledged to support the credit                 
|
| |  |  | time period in which the fair value has been significantly below amortized cost           
|
| |  |  | industry sector or geographic area applicable to the specific issuer                      
|
| |  |  | our ability and intent to retain the investment for a sufficient time to recover its value

When this intensive review determines that the decline is other than temporary,
the security is written down to fair value through a charge to realized
investment gains and losses. We adjust the amortized cost for both AFS and HTM
securities that have experienced other-than-temporary impairments to reflect
fair value at the time of the impairment. We consider factors that lead to an
other-than-temporary impairment of a particular security in order to determine
whether these conditions have impacted other similar securities.

Below Investment Grade Securities

We monitor those securities that are rated below investment grade as to
individual exposures and in comparison to the entire portfolio, as an
additional credit risk management strategy.

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The following table shows the ten largest below investment grade debt security
exposures by individual creditor at September 30, 2003.

|                        |  |                       |  |           |    |          |  |             |    |  |  |       |    |  
|----------------------- |  | --------------------- |  | --------- | -- | -------- |  | ----------- | -- |  |  | ----- | -- | -
|                        |  |                       |  |           |    |          |  |             |    |  |  | Gross
|                        |  |                       |  | Amortized |    | Carrying |  | Unrealized 
|Creditor                |  | Sector                |  | Cost      |    | Value    |  | Gain/(Loss)
|                        |  |                       |  |           |    |          |  |            
|El Paso                 |  | Utilities             |  | $         | 61 |          |  | $           | 56 |  |  | $     | (6 | )
|Rite Aid                |  | Consumer Cyclical     |  |           | 49 |          |  |             | 44 |  |  |       | (4 | )
|Ahold, Royal            |  | Consumer Non Cyclical |  |           | 40 |          |  |             | 42 |  |  |       | 2  |  
|Thomas & Betts Company  |  | Technology            |  |           | 36 |          |  |             | 36 |  |  |       | 1  |  
|Qwest Communications    |  | Communications        |  |           | 35 |          |  |             | 33 |  |  |       | (2 | )
|Intertape Polymer Group |  | Capital Goods         |  |           | 35 |          |  |             | 33 |  |  |       | (1 | )
|Williams Companies      |  | Utilities             |  |           | 26 |          |  |             | 26 |  |  |       | 1  |  
|Homer City Funding LLC  |  | Utilities             |  |           | 25 |          |  |             | 26 |  |  |       | 1  |  
|Delta Airlines          |  | Transportation        |  |           | 29 |          |  |             | 24 |  |  |       | (6 | )
|Allied Waste N America  |  | Capital Goods         |  |           | 25 |          |  |             | 24 |  |  |       | (1 | )

Bonds of these creditors that are investment grade are not included in these
values. Securities of some of these creditors are also on the potentially
distressed security list and are subject to additional analysis for
other-than-temporary impairment.

At September 30, 2003 and December 31, 2002, below investment grade bonds were
$1,460 or 7.2% and $1,287 or 6.6% of the carrying value of the bond portfolio.

Unrealized Gains and Losses

The majority of our unrealized gains and losses can be attributed to changes in
interest rates and market changes in credit spreads, which have caused
temporary price fluctuations. However, within the specific bonds with
unrealized losses, we further stratify and analyze them as discussed above to
determine if the unrealized loss is other than temporary.

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The following table summarizes by category the unrealized gains and losses in
our entire securities portfolios, including common stock and redeemable
preferred stock, as of September 30, 2003.

|                                                                                                     |                           |   |           |        |            |   |            |       |       |   |          |      |   |   |        |        |  |   |        |        | 
|---------------------------------------------------------------------------------------------------- | ------------------------- | - | --------- | ------ | ---------- | - | ---------- | ----- | ----- | - | -------- | ---- | - | - | ------ | ------ |  | - | ------ | ------ | 
|                                                                                                     |                           |   |           |        |            |   | Gross      |       | Gross |   |          |      |   |   |        |        | 
|                                                                                                     |                           |   | Amortized |        | Unrealized |   | Unrealized |       | Fair  |   | Carrying
|                                                                                                     |                           |   | Cost      |        | Gains      |   | Losses     |       | Value |   | Value   
|                                                                                                     |                           |   |           |        |            |   |            |       |       |   |         
|Available-for-sale, carried at fair
value:                                                           |                           |   |           |        |            |   |            |       |       |   |          |      |   |   |        |        |  |   |        |       
|US Treasury obligations and direct
obligations of US Government
agencies                             |                           | $ | 247       |        |            | $ | 25         |       |       | $ |         |      |   | $ | 272    |        |  | $ | 272    |       
|Federal agency mortgage backed
securities (including collateralized
mortgage obligations)            |                           |   | 2,425     |        |            |   | 136        |       |       |   | (4       | )    |   |   | 2,557  |        |  |   | 2,557  |       
|Obligations of states and political
subdivisions                                                     |                           |   | 98        |        |            |   | 4          |       |       |   |         |      |   |   | 102    |        |  |   | 102    |       
|Corporate obligations                                                                                |                           |   | 12,531    |        |            |   | 948        |       |       |   | (105     | )    |   |   | 13,374 |        |  |   | 13,374 |       
|Corporate private-labeled mortgage
backed securities (including
collateralized mortgage obligations) |                           |   | 1,029     |        |            |   | 57         |       |       |   | (3       | )    |   |   | 1,083  |        |  |   | 1,083  |       
|Redeemable preferred stock                                                                           |                           |   | 20        |        |            |   | 1          |       |       |   |         |      |   |   | 21     |        |  |   | 21     |       
|                                                                                                     |                           |   |           |        |            |   |            |       |       |   |          |      |   |   |        |        |  |   |        |       
|                                                                                                     | Subtotal, debt securities |   |           | 16,350 |            |   |            | 1,171 |       |   |          | (112 | ) |   |        | 17,409 |  |   |        | 17,409 | 
|Non-redeemable preferred stock                                                                       |                           |   | 2         |        |            |   |           |       |       |   |         |      |   |   | 2      |        |  |   | 2      |       
|Common stock                                                                                         |                           |   | 302       |        |            |   | 415        |       |       |   | (5       | )    |   |   | 712    |        |  |   | 712    |       
|                                                                                                     |                           |   |           |        |            |   |            |       |       |   |          |      |   |   |        |        |  |   |        |       
|Securities available-for-sale                                                                        |                           |   | 16,654    |        |            |   | 1,586      |       |       |   | (117     | )    |   |   | 18,123 |        |  |   | 18,123 |       
|                                                                                                     |                           |   |           |        |            |   |            |       |       |   |          |      |   |   |        |        |  |   |        |       
|Held-to-maturity, carried at
amortized cost:                                                         |                           |   |           |        |            |   |            |       |       |   |          |      |   |   |        |        |  |   |        |       
|Obligations of state and political
subdivisions                                                      |                           |   | 7         |        |            |   | 2          |       |       |   |         |      |   |   | 9      |        |  |   | 7      |       
|Corporate obligations                                                                                |                           |   | 2,827     |        |            |   | 221        |       |       |   | (22      | )    |   |   | 3,026  |        |  |   | 2,827  |       
|                                                                                                     |                           |   |           |        |            |   |            |       |       |   |          |      |   |   |        |        |  |   |        |       
|Debt securities held-to-maturity                                                                     |                           |   | 2,834     |        |            |   | 223        |       |       |   | (22      | )    |   |   | 3,035  |        |  |   | 2,834  |       
|                                                                                                     |                           |   |           |        |            |   |            |       |       |   |          |      |   |   |        |        |  |   |        |       
|Total AFS and HTM securities                                                                         |                           | $ | 19,488    |        |            | $ | 1,809      |       |       | $ | (139     | )    |   | $ | 21,158 |        |  | $ | 20,957 |       
|                                                                                                     |                           |   |           |        |            |   |            |       |       |   |          |      |   |   |        |        |  |   |        |       

These unrealized gains and losses do not necessarily represent future gains or
losses that we will realize. Changing conditions related to specific bonds,
overall market interest rates or credit spreads as well as our decisions
concerning the timing of any sales may impact values we ultimately realize.
Gross unrealized gains and losses at December 31, 2002 were $1,716 and $(290).

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The following table shows the diversification of unrealized gains and losses
for our debt securities portfolio across industry sectors as of September 30,
2003:

|                                                                             |                       |       |       |           |        |            |     |            |       |       |     |          |      |   |       |       |        |  |       |       |        | 
|---------------------------------------------------------------------------- | --------------------- | ----- | ----- | --------- | ------ | ---------- | --- | ---------- | ----- | ----- | --- | -------- | ---- | - | ----- | ----- | ------ |  | ----- | ----- | ------ | 
|                                                                             |                       |       |       |           |        |            |     | Gross      |       | Gross |     |          |      |   |       |       |        | 
|                                                                             |                       |       |       | Amortized |        | Unrealized |     | Unrealized |       | Fair  |     | Carrying
|                                                                             |                       |       |       | Cost      |        | Gains      |     | Losses     |       | Value |     | Value   
|                                                                             |                       |       |       |           |        |            |     |            |       |       |     |         
|Industrials                                                                  |                       |       |       |           |        |            |     |            |       |       |     |          |      |   |       |       |        |  |       |      
|                                                                             | Basic Materials       |       | $     | 883       |        |            | $   | 58         |       |       | $   | (10      | )    |   | $     | 931   |        |  | $     | 922   |       
|                                                                             | Capital Goods         |       |       | 1,294     |        |            |     | 91         |       |       |     | (10      | )    |   |       | 1,375 |        |  |       | 1,353 |       
|                                                                             | Communications        |       |       | 1,096     |        |            |     | 89         |       |       |     | (8       | )    |   |       | 1,177 |        |  |       | 1,157 |       
|                                                                             | Consumer Cyclical     |       |       | 947       |        |            |     | 70         |       |       |     | (13      | )    |   |       | 1,004 |        |  |       | 987   |       
|                                                                             | Consumer Non-Cyclical |       |       | 1,833     |        |            |     | 145        |       |       |     | (6       | )    |   |       | 1,972 |        |  |       | 1,944 |       
|                                                                             | Energy                |       |       | 1,045     |        |            |     | 78         |       |       |     | (2       | )    |   |       | 1,121 |        |  |       | 1,113 |       
|                                                                             | Technology            |       |       | 359       |        |            |     | 9          |       |       |     | (6       | )    |   |       | 362   |        |  |       | 361   |       
|                                                                             | Transportation        |       |       | 737       |        |            |     | 70         |       |       |     | (21      | )    |   |       | 786   |        |  |       | 776   |       
|                                                                             | Other Industrials     |       |       | 805       |        |            |     | 53         |       |       |     | (1       | )    |   |       | 857   |        |  |       | 853   |       
|Utilities                                                                    |                       |       | 3,204 |           |        |            | 251 |            |       |       | (30 | )        |      |   | 3,425 |       |        |  | 3,381 |      
|Financials                                                                   |                       |       |       |           |        |            |     |            |       |       |     |          |      |   |       |       |        |  |       |      
|                                                                             | Banks                 |       |       | 1,826     |        |            |     | 169        |       |       |     | (12      | )    |   |       | 1,983 |        |  |       | 1,958 |       
|                                                                             | Insurance             |       |       | 425       |        |            |     | 27         |       |       |     | (2       | )    |   |       | 450   |        |  |       | 446   |       
|                                                                             | Other Financials      |       |       | 1,276     |        |            |     | 91         |       |       |     | (6       | )    |   |       | 1,361 |        |  |       | 1,352 |       
|Mortgage Backed Securities
(including Commercial
Mortgage Backed
Securities) |                       |       | 3,454 |           |        |            | 193 |            |       |       | (7  | )        |      |   | 3,640 |       |        |  | 3,640 |      
|                                                                             |                       |       |       |           |        |            |     |            |       |       |     |          |      |   |       |       |        |  |       |      
|                                                                             |                       | Total |       | $         | 19,184 |            |     | $          | 1,394 |       |     | $        | (134 | ) |       | $     | 20,444 |  |       | $     | 20,243 | 
|                                                                             |                       |       |       |           |        |            |     |            |       |       |     |          |      |   |       |       |        |  |       |      

We monitor unrealized losses through further analysis according to maturity
date, credit quality, individual creditor exposure and the length of time the
individual security has continuously been in an unrealized loss position.

The following table shows the maturity date distribution of our debt securities
in an unrealized loss position at September 30, 2003. The fair values of these
securities could fluctuate over the respective periods to maturity or sale.

|                                          |          |   |                |       |       |   |        |       |                |   |       |      |   |   |     |       | 
|----------------------------------------- | -------- | - | -------------- | ----- | ----- | - | ------ | ----- | -------------- | - | ----- | ---- | - | - | --- | ----- | 
|                                          |          |   |                |       |       |   |        |       |                |   | Gross |      |   |   |    
|                                          |          |   |                |       |       |   | Fair   |       | Unrealized     |   |       |      |  
|                                          |          |   | Amortized Cost |       | Value |   | Losses |       | Carrying Value
|                                          |          |   |                |       |       |   |        |       |               
|Due in one year or less                   |          | $ | 6              |       |       | $ | 3      |       |                | $ | (3    | )    |   | $ | 3   |      
|Due after one year through five years     |          |   | 403            |       |       |   | 380    |       |                |   | (23   | )    |   |   | 387 |      
|Due after five years through ten years    |          |   | 860            |       |       |   | 830    |       |                |   | (30   | )    |   |   | 836 |      
|Due after ten years through twenty years  |          |   | 837            |       |       |   | 781    |       |                |   | (56   | )    |   |   | 789 |      
|Due after twenty years                    |          |   | 255            |       |       |   | 239    |       |                |   | (16   | )    |   |   | 240 |      
|Amounts not due at a single maturity
date |          |   | 67             |       |       |   | 61     |       |                |   | (6    | )    |   |   | 61  |      
|                                          |          |   |                |       |       |   |        |       |                |   |       |      |   |   |     |      
|                                          | Subtotal |   |                | 2,428 |       |   |        | 2,294 |                |   |       | (134 | ) |   |     | 2,316 | 
|Redeemable preferred stocks               |          |   | 4              |       |       |   | 4      |       |                |   |      |      |   |   | 4   |      
|                                          |          |   |                |       |       |   |        |       |                |   |       |      |   |   |     |      
|                                          | Total    |   | $              | 2,432 |       |   | $      | 2,298 |                |   | $     | (134 | ) |   | $   | 2,320 | 
|                                          |          |   |                |       |       |   |        |       |                |   |       |      |   |   |     |      

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The following table shows the credit quality of our debt securities with
unrealized losses at September 30, 2003.

|       |  |                    |  |           |       |       |  |       |       |            |  |            |       |          |  |            |      |   |  |  |       |   |  |   |       | 
|------ |  | ------------------ |  | --------- | ----- | ----- |  | ----- | ----- | ---------- |  | ---------- | ----- | -------- |  | ---------- | ---- | - |  |  | ----- | - |  | - | ----- | 
|       |  | S&P or             |  |           |       |       |  |       |       |            |  | % of       |       | Gross    |  | % of Gross |      |   |  | 
|SVO    |  | Equivalent         |  | Amortized |       | Fair  |  | Fair  |       | Unrealized |  | Unrealized |       | Carrying
|Rating |  | Designation        |  | Cost      |       | Value |  | Value |       | Losses     |  | Losses     |       | Value   
|       |  |                    |  |           |       |       |  |       |       |            |  |            |       |         
|1      |  | AAA/AA/A           |  | $         | 952   |       |  | $     | 914   |            |  |            | 39.8  | %        |  | $          | (38  | ) |  |  | 28.4  | % |  | $ | 916   | 
|2      |  | BBB                |  |           | 761   |       |  |       | 732   |            |  |            | 31.8  |          |  |            | (29  | ) |  |  | 21.6  |   |  |   | 737   | 
|3      |  | BB                 |  |           | 245   |       |  |       | 225   |            |  |            | 9.8   |          |  |            | (20  | ) |  |  | 14.9  |   |  |   | 231   | 
|4      |  | BB                 |  |           | 284   |       |  |       | 259   |            |  |            | 11.3  |          |  |            | (25  | ) |  |  | 18.7  |   |  |   | 262   | 
|5      |  | CCC and lower      |  |           | 162   |       |  |       | 143   |            |  |            | 6.2   |          |  |            | (19  | ) |  |  | 14.2  |   |  |   | 146   | 
|6      |  | In or near default |  |           | 28    |       |  |       | 25    |            |  |            | 1.1   |          |  |            | (3   | ) |  |  | 2.2   |   |  |   | 28    | 
|       |  |                    |  |           |       |       |  |       |       |            |  |            |       |          |  |            |      |   |  |  |       |   |  |   |       | 
|       |  | Total              |  | $         | 2,432 |       |  | $     | 2,298 |            |  |            | 100.0 | %        |  | $          | (134 | ) |  |  | 100.0 | % |  | $ | 2,320 | 
|       |  |                    |  |           |       |       |  |       |       |            |  |            |       |          |  |            |      |   |  |  |       |   |  |   |       | 

In prior periods, we have presented a table showing bonds of individual issuers
that have unrealized losses of $10 or greater. At September 30, 2003 we held
no bonds that met this criteria.

The following table shows the length of time that individual debt securities
have been in a continuous unrealized loss position.

|                   |       |   |       |       |            |   |            |      |            |  |      |       |   |   |       |       | 
|------------------ | ----- | - | ----- | ----- | ---------- | - | ---------- | ---- | ---------- |  | ---- | ----- | - | - | ----- | ----- | 
|                   |       |   |       |       |            |   | Gross      |      | % of Gross |  |      |       |  
|                   |       |   | Fair  |       | Unrealized |   | Unrealized |      | Carrying  
|                   |       |   | Value |       | Losses     |   | Losses     |      | Value     
|                   |       |   |       |       |            |   |            |      |           
|More than 1 year   |       | $ | 669   |       |            | $ | (81        | )    |            |  | 60.4 | %     |   | $ | 682   |      
|6 months  1 year  |       |   | 245   |       |            |   | (15        | )    |            |  | 11.2 |       |   |   | 250   |      
|Less than 6 months |       |   | 1,384 |       |            |   | (38        | )    |            |  | 28.4 |       |   |   | 1,388 |      
|                   |       |   |       |       |            |   |            |      |            |  |      |       |   |   |       |      
|                   | Total |   | $     | 2,298 |            |   | $          | (134 | )          |  |      | 100.0 | % |   | $     | 2,320 | 
|                   |       |   |       |       |            |   |            |      |            |  |      |       |   |   |       |      

As we described previously, we pay particular attention to those securities
with unrealized losses that we have identified as potentially impaired and
include them in our potentially distressed securities list. Of the $134 gross
unrealized losses in the table above, approximately $17 was included in our
potentially distressed securities list. The length of time that securities
have continuously remained on our potentially distressed securities listing is
summarized as follows:

|                   |       |   |       |    |            |   |            |     |            |  |      |       |   |   |    |    | 
|------------------ | ----- | - | ----- | -- | ---------- | - | ---------- | --- | ---------- |  | ---- | ----- | - | - | -- | -- | 
|                   |       |   |       |    |            |   | Gross      |     | % of Gross |  |      |       |  
|                   |       |   | Fair  |    | Unrealized |   | Unrealized |     | Carrying  
|                   |       |   | Value |    | Losses     |   | Losses     |     | Value     
|                   |       |   |       |    |            |   |            |     |           
|More than 1 year   |       | $ | 14    |    |            | $ | (5         | )   |            |  | 29.4 | %     |   | $ | 14 |   
|6 months  1 year  |       |   | 17    |    |            |   | (7         | )   |            |  | 41.2 |       |   |   | 17 |   
|Less than 6 months |       |   | 13    |    |            |   | (5         | )   |            |  | 29.4 |       |   |   | 17 |   
|                   |       |   |       |    |            |   |            |     |            |  |      |       |   |   |    |   
|                   | Total |   | $     | 44 |            |   | $          | (17 | )          |  |      | 100.0 | % |   | $  | 48 | 
|                   |       |   |       |    |            |   |            |     |            |  |      |       |   |   |    |   

Information about unrealized gains and losses is subject to rapidly changing
conditions. Securities with unrealized gains and losses will fluctuate, as
will those securities that we have identified as potentially distressed. We
consider all of the factors discussed earlier when we determine if an
unrealized loss is other than temporary, including our ability and intent to
hold the security until the value recovers. Our current evaluation of
other-than-temporary impairments reflects our positive intent to hold certain
securities until maturity. However, we may subsequently decide to sell certain
of these securities in future periods within the overall context of our
portfolio management

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strategies. If we make the decision to dispose of a security with an
unrealized loss, we write down the security to its fair value if we have not
sold it by the end of the reporting period.

Realized Losses  Write Downs and Sales

Realized losses are comprised of both write downs on other-than-temporary
impairments and actual sales of securities. For the 2003 quarter and nine
months, we had other-than-temporary impairments on bonds of $15 and $56 as
compared to $50 and $103 for the 2002 periods. We had no individual
impairments in excess of $10 for the third quarter of 2003.

For the third quarter and first nine months of 2003, we incurred net losses of
$13 and $18 on actual sales of securities as discussed in the Corporate and
Other section.

Mortgage Backed Securities

Mortgage backed securities (including Commercial Mortgage Backed Securities),
all of which are included in debt securities available-for-sale, were as
follows:

|                                                     |       |   |               |       |              |   |       |       | 
|---------------------------------------------------- | ----- | - | ------------- | ----- | ------------ | - | ----- | ----- | 
|                                                     |       |   | September 30, |       | December 31,
|                                                     |       |   | 2003          |       | 2002        
|                                                     |       |   |               |       |             
|Federal agency issued mortgage backed securities     |       | $ | 2,557         |       |              | $ | 3,449 |      
|Corporate private-labeled mortgage backed
securities |       |   | 1,083         |       |              |   | 1,938 |      
|                                                     |       |   |               |       |              |   |       |      
|                                                     | Total |   | $             | 3,640 |              |   | $     | 5,387 | 
|                                                     |       |   |               |       |              |   |       |      

Our investment strategy with respect to our mortgage backed securities (MBS)
portfolio focuses on actively traded issues with less volatile cash flows. The
majority of the MBS holdings are sequential and planned amortization class
tranches of federal agency issuers. The MBS portfolio has been constructed
with underlying mortgage collateral characteristics and structure in order to
mitigate cash flow volatility over a range of interest rates.

Because of the steep decline in interest rates to record lows, the mortgage
market experienced record levels of refinancings in 2002, and the structural
protection of our MBS portfolio eroded. During 2003, we continued to
experience prepayments on our MBS portfolio. Our MBS portfolio is primarily a
discount portfolio; therefore, prepayments accelerate the accretion of discount
into income. The excess accretion of discount increased investment income in
the third quarter and first nine months of 2003 by $16.3 and $34.9 compared to
$2.8 and $13.4 for the same periods of 2002, on a pre-tax basis. These
repayments are reinvested at yields that are lower than our current portfolio
yields, producing less investment income going forward. As mentioned earlier,
the mortgage backed security portfolio was reduced by $775 during the quarter
and the proceeds were primarily reinvested in investment grade corporate bonds.

Mortgage Loans

We record mortgage loans on real property net of an allowance for credit
losses. This allowance includes both reserve amounts for specific loans that
are believed to be at a higher risk of becoming impaired in the near future,
and a general reserve that is calculated by review of historical industry loan
loss statistics. We consider future cash flows and the probability of payment
when we calculate our specific loan loss reserve. At September 30, 2003 and
December 31, 2002, our allowance for mortgage loan credit losses was $35 and
$36.

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Derivative Instruments

Our guidelines permit use of derivative financial instruments such as futures
contracts and interest rate swaps in conjunction with specific direct
investments. Our actual use of derivatives through September 30, 2003 has been
limited to managing well-defined interest rate risks. Interest rate swaps
utilized in our asset/liability management strategy with a current notional
value of $324 and $278 were open as of September 30, 2003 and December 31,
2002. During 2002, we began using interest rate swaps to hedge prospective
bond purchases to back deposits on certain annuity contracts. This hedging
strategy protects the spread between the annuity crediting rate offered at the
time the annuities are sold and the income that will eventually be earned on
bonds that will back annuity contracts issued. These interest rate contracts
are generally terminated within a month. We also purchase S&P 500 Index®
options in association with our current sales of equity indexed annuities. The
reinsurance agreement on previously issued equity indexed annuities remains in
existence.

Market Risk Exposure

We believe that the amounts shown in Form 10-K with respect to interest rates,
changes in spreads over U.S. Treasuries on new investment opportunities,
changes in the yield curve, and equity price risks continue to be
representative. As of September 30, 2003, 10 year U.S. Treasury rates had
increased 13 basis points to 3.94% since December 31, 2002. See further
discussion in our Form 10-K regarding the impacts that a changing interest rate
environment has on our financial position and earnings.

External Trends and Forward Looking Information

With respect to external trends, general economic conditions, interest rate
risks, credit risks, environmental liabilities and the legal environment, see
managements comments in our Form 10-K.

Forward Looking Information

You should note that this document and our other SEC filings reflect
information that we believe was accurate as of the date the respective
materials were made publicly available. They do not reflect later
developments.

As a matter of policy, we do not normally make projections or forecasts of
future events or our performance. When we do, we rely on a safe harbor
provided by the Private Securities Litigation Reform Act of 1995 for statements
that are not historical facts, called forward looking statements. These may
include statements relating to our future actions, sales and product
development efforts, expenses, the outcome of contingencies such as legal
proceedings, or financial performance.

Certain information in our SEC filings and in any other written or oral
statements made by us or on our behalf, involves forward looking statements.
We have used appropriate care in developing this information, but any forward
looking statements may turn out to be wrong. They can be affected by
inaccurate assumptions or by known or unknown risks and uncertainties that
could significantly affect our actual results. These risks and uncertainties
include among others, general economic conditions (including the uncertainty as
to the depth and duration of the economic slowdown and the rate at which the
economy recovers), the impact on the economy from any further terrorist

40



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activities or US military engagements, and interest rate levels, changes and
fluctuations, all of which can impact our sales, investment portfolios, and
earnings; competitive factors, including pricing pressures, technological
developments, new product offerings and the emergence of new competitors;
changes in federal and state taxes (including recent or future changes as to
dividends, capital gains, retirement savings, and estate taxes); changes in the
regulation of the financial services industry; or changes in other laws and
regulations and their impact; and the various risks discussed earlier.

We undertake no obligation to publicly correct or update any forward looking
statements, whether as a result of new information, future developments or
otherwise. You are advised, however, to consult any further disclosures we
make on related subjects in our press releases and filings with the SEC. In
particular, you should read the discussion in the section entitled External
Trends and Forward Looking Information, and other sections it may reference,
in our most recent 10-K report as it may be updated in our subsequent 10-Q and
8-K reports. This discussion covers certain risks, uncertainties and possibly
inaccurate assumptions that could cause our actual results to differ materially
from expected and historical results. Other factors besides those listed there
could also adversely affect our performance.

41



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##### 



Item 3. Quantitative and Qualitative Disclosures about Market Risk

Information under the heading Market Risk Exposures in Managements
Discussion and Analysis of Financial Condition and Results of Operations is
incorporated herein by reference.

Item 4. Controls and Procedures



|(a) |  | We carried out an evaluation, under the supervision and with the
participation of our management, including the Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), of the effectiveness of our
disclosure controls and procedures pursuant to Securities Exchange Act of
1934 (Act) Rule 13a-15. Based on that evaluation, our management,
including our CEO and CFO, concluded, as of the end of the period covered
by this report, that our disclosure controls and procedures were
effective. Disclosure controls and procedures include controls and
procedures designed to ensure that management, including our CEO and CFO,
is alerted to material information required to be disclosed in our filings
under the Act so as to allow timely decisions regarding our disclosures.
In designing and evaluating disclosure controls and procedures, we
recognized that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the
desired control objectives, as ours are designed to do.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | There have been no changes in our internal controls over financial
reporting identified in connection with the evaluation described in the
above paragraph that occurred during the third quarter 2003 that have
materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material developments in the proceedings described in Item 3
of Form 10-K, except for a settlement approved by the court on June 17, 2003
for a proposed class action suit alleging that policy illustrations were
misleading to consumers. In agreeing to settle, the life company has denied
any wrongdoing but believes that the settlement provides benefits to the
policyholder class and to the life company by resolving and eliminating the
need for corporate resources to be spent on a lawsuit that has been pending for
seven years. There are no new material proceedings to report here.

Item 6. Exhibits and Reports on Form 8-K



|(a) |  | Exhibits. See Exhibit Index on page 44.           
|--- |  | --------------------------------------------------
|   
|(b) |  | Reports on Form 8-K since the
second quarter 2003:



| | 1. |  | July 29, 2003 - a Form 8-K furnished under items 7 and 9 (for item
12) the press release reporting financial results for the second
quarter of 2003.  
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | October 27, 2003 - a Form 8-K furnished under items 7 and 9 (for
item 12) the press release reporting financial results for the third
quarter of 2003.

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SIGNATURES

Pursuant to the requirements 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.

|                                                                    |                                      
|------------------------------------------------------------------- | -------------------------------------
|JEFFERSON-PILOT CORPORATION                                        
|                                                                   
|By (Signature) /s/Theresa M. Stone                                 
|(Name and Title) Theresa M. Stone, Executive Vice President,       
|                                                                    | Chief Financial Officer and Treasurer
|Date November 14, 2003                                             
|                                                                   
|By (Signature) /s/Reggie D. Adamson                                
|(Name and Title) Reggie D.
Adamson, Senior Vice President - Finance
|                                                                    | Principal Accounting Officer         
|Date November 14, 2003                                             

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EXHIBIT INDEX

|               |  |                                                                                                                                                                                
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                    
|               |  |                                                                                                                                                                                
|31(i)          |  | Certification of Chief Executive Officer pursuant to
Exchange Act Rule 13a-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.                        
|               |  |                                                                                                                                                                                
|31(ii)         |  | Certification of Chief Financial Officer pursuant to
Exchange Act Rule 13a-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.                        
|               |  |                                                                                                                                                                                
|32             |  | Certifications of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.

45