<PAGE>   1
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    Form 10-K

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
                1934 for the fiscal year ended DECEMBER 31, 1999

                         COMMISSION FILE NUMBER 1-11913

                                   AETNA INC.
             (Exact name of registrant as specified in its charter)

          CONNECTICUT                                           02-0488491
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                              Identification No.)

<TABLE>
<S>                                                                   <C>
151 FARMINGTON AVENUE, HARTFORD, CONNECTICUT  06156                                       (860) 273-0123
    (Address of principal executive offices)   (ZIP Code)             (Registrant's telephone number, including area code)
</TABLE>

<TABLE>
<CAPTION>
Title of each class                                                   Name of each exchange on which registered
-------------------                                                   ------------------------------------------

<S>                                                                   <C>
Common Stock $.01 par value                                                   New York Stock Exchange

6 3/8% Notes due August 15, 2003                                              New York Stock Exchange
</TABLE>


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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                         Yes [X]          No [ ]

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

The aggregate market value of the voting stock held by non affiliates of the
registrant as of January 31, 2000 was $7,467,027,791.

As of January 31, 2000, 141,289,941 shares of the registrant's Common Stock $.01
par value were outstanding.

                               DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's 1999 Annual Report to Shareholders (the "Annual
Report"). (Parts I, II and IV)

Portions of the registrant's proxy statement to be filed on or about March 20,
2000 (the "Proxy Statement"). (Parts III and IV)

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<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                       Page
                                                                                                                       ----
<S>                                                                                                                   <C>
PART I

Item 1.          Business.
                 A.   Organization of Business.                                                                         3
                 B.   Financial Information about Industry Segments.                                                    4
                 C.   Description of the Business.
                      1.  Aetna U.S. Healthcare.                                                                        4
                      2.  Aetna Financial Services.                                                                    13
                      3.  Aetna International.                                                                         16
                      4.  Large Case Pensions.                                                                         18
                      5.  Total Investments.                                                                           19
                      6.  Other Matters.
                          a.  Regulation.                                                                              20
                          b.  NAIC IRIS Ratios.                                                                        22
                          c.  Ratios of Earnings to Fixed Charges and Earnings
                              to Combined Fixed Charges and Preferred Stock Dividends.                                 23
                          d.  Trademarks.                                                                              23
                          e.  Ratings.                                                                                 24
                          f.  Miscellaneous.                                                                           24
Item  2.         Properties.                                                                                           25
Item  3.         Legal Proceedings.                                                                                    25
Item  4.         Submission of Matters to a Vote of Security Holders.                                                  28
Executive Officers of Aetna Inc.                                                                                       28

PART II

Item  5.         Market for Registrant's Common Equity and Related Stockholder Matters.                                29
Item  6.         Selected Financial Data.                                                                              29
Item  7.         Management's Discussion and Analysis of Financial Condition and Results of Operations.                29
Item 7A.         Quantitative and Qualitative Disclosure About Market Risk.                                            29
Item  8.         Financial Statements and Supplementary Data.                                                          30
Item  9.         Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.                 30

PART III

Item 10.         Directors and Executive Officers of the Registrant.                                                   30
Item 11.         Executive Compensation.                                                                               30
Item 12.         Security Ownership of Certain Beneficial Owners and Management.                                       30
Item 13.         Certain Relationships and Related Transactions.                                                       30

PART IV

Item 14.         Exhibits, Financial Statement Schedules and Reports on Form 8-K.                                      30
Index to Financial Statement Schedules.                                                                                37
Signatures.                                                                                                            50
</TABLE>


                                     Page 2

<PAGE>   3

PART I

Item 1.  Business.

A.  Organization of Business

Aetna Inc. and its subsidiaries (collectively, the "Company") constitute one of
the nation's largest health benefits companies, based on membership, and one of
the nation's largest insurance and financial services organizations. Aetna Inc.,
a Connecticut corporation, is the parent corporation of Aetna Services, Inc.
("Aetna Services") and Aetna U.S. Healthcare Inc. The Company acquired New York
Life Insurance Company's NYLCare health business ("NYLCare") on July 15, 1998,
and the Company sold its domestic individual life insurance business on October
1, 1998. On August 6, 1999, the Company acquired The Prudential Insurance
Company of America's ("Prudential's") health care business ("PHC"), and on
October 1, 1999, completed the sale of its Canadian operations. The Company also
acquired several international operations in 1999.

At December 31, 1999, the Company's business operations were conducted in the
following segments: Aetna U.S. Healthcare, Aetna Financial Services (formerly
Aetna Retirement Services), Aetna International and Large Case Pensions. The
principal products included in these segments are:

Aetna U.S. Healthcare:
     Health products (including health maintenance organization,
       point-of-service, preferred provider organization and indemnity products)
     Group life and disability insurance
     Long-term care insurance

Aetna Financial Services:
     Financial services products (including fixed and variable annuity
       contracts, investment advisory services, financial planning services and
       pension plan administrative services)

Aetna International:
     Primarily life insurance, health insurance and financial services products

Large Case Pensions:
     Retirement products (including pension and annuity products) primarily for
       defined benefit and defined contribution plans

In addition, the Corporate segment includes interest expense and corporate
expenses not directly related to the Company's business segments, such as staff
area expenses, national advertising and charitable contributions.

Business Realignment

In January 2000, the Company announced a realignment of the Company's
health care, financial services and international businesses, a structure
intended to strengthen the linkage between the international and domestic
businesses and increase the sharing of technology and product expertise. Under
this new structure, Global Health will be made up of the following: Aetna U.S.
Healthcare (except its Group Life and Disability Insurance business) and Aetna
International's health businesses. Global Financial Services will be made up of
the following: Aetna Financial Services, Aetna International's life and pension
businesses, Aetna U.S. Healthcare's group life and disability insurance business
and the Large Case Pension business. This realignment will result in the
formation of new reportable segments in 2000.

                                     Page 3

<PAGE>   4

B.  Financial Information about Industry Segments

Required financial information by industry segment is set forth in Note 17 of
Notes to Consolidated Financial Statements, which is incorporated herein by
reference to the Annual Report. Revenue and income from continuing operations
attributable to each industry segment are incorporated herein by reference to
the Selected Financial Data in the Annual Report.

Certain reclassifications have been made to the 1998 and 1997 financial
information to conform to the 1999 presentation.

C.  Description of Industry Segments

1.  Aetna U.S. Healthcare

Products and Services

Aetna U.S. Healthcare provides a full spectrum of health products (managed care
and indemnity) and group insurance products (life, disability and long-term
care) on both an insured and an employer-funded basis. Under insured plans, the
Company assumes all or a majority of health care cost, utilization, mortality,
morbidity or other risk depending on the product. Under employer-funded plans,
the plan sponsor, and not the Company, assumes all or a majority of these risks.

Aetna U.S. Healthcare consists of the Health Risk and PHC business and the Group
Insurance and Other Health business.

The Health Risk and PHC business includes health plans offered on an insured
basis and the results of servicing Prudential's administrative services only
business.

The Group Insurance and Other Health business includes group life and disability
insurance, long-term care insurance and dental products, offered on both an
insured and employer-funded basis, and all health plans offered on an
employer-funded basis.

The following table summarizes premiums and fees and other income for the Health
Risk and PHC and Group Insurance and Other Health businesses:

<TABLE>
<CAPTION>
(Millions)                                              1999 (1)              1998 (2)           1997
-----------------------------------------------------------------------------------------------------
<S>                                             <C>                    <C>               <C>
Health Risk and PHC                             $   17,467.2           $  11,780.8       $    9,735.0
Group Insurance and Other Health                     2,812.7               2,666.5            2,573.5
-----------------------------------------------------------------------------------------------------
Total Aetna U.S. Healthcare                     $   20,279.9           $  14,447.3       $   12,308.5
=====================================================================================================
</TABLE>

(1) Includes results of PHC since August 6, 1999.

(2) Includes results of NYLCare since July 15, 1998.

Under insured plans, Aetna U.S. Healthcare charges a premium and under
employer-funded plans, Aetna U.S. Healthcare charges a fee for administrative
and claim services.

                                     Page 4


<PAGE>   5

The principal Commercial health products offered by Aetna U.S. Healthcare are:

Health Maintenance Organization ("HMO") plans offer comprehensive managed care
benefits generally through participating network physicians, hospitals and other
providers. When an individual enrolls in one of the Company's HMOs, he or she
selects a primary care physician ("PCP") from among the physicians participating
in the Aetna U.S. Healthcare network. PCPs generally are family practitioners,
internists, general practitioners or pediatricians who provide necessary
preventive and primary medical care, and are generally responsible for
coordinating other necessary health care, including making referrals to
participating network specialists. Preventive care and quality improvement are
emphasized in these plans. The Company offers HMO plans with varying levels of
copayments which result in different levels of premium rates. HMO plans are
principally offered on an insured basis. Commercial HMO membership totaled 7.1
million as of December 31, 1999 (including 3.0 million PHC members), 4.4 million
as of December 31, 1998 and 3.3 million as of December 31, 1997.

Point-of-Service ("POS") plans blend the characteristics of HMO and indemnity
plans. Members can have comprehensive HMO-style benefits through network
providers with minimum out-of-pocket expense (copayments) and also can go
directly, without a referral, to any provider they choose, subject to, among
other things, certain deductibles and coinsurance, with member cost sharing
limited by out-of-pocket maximums. POS plans are offered on both an insured and
employer-funded basis. Commercial POS membership totaled 6.2 million as of
December 31, 1999 (including 1.2 million PHC members), 4.1 million as of
December 31, 1998 and 3.7 million as of December 31, 1997.

Preferred Provider Organization ("PPO") plans offer the member the ability to
select any health care provider, with benefits paid at a higher level when care
is received from a network provider. Coverage is subject to deductibles and
coinsurance, with member cost sharing limited by out-of-pocket maximums. PPO
plans are offered on both an insured and employer-funded basis. PPO membership
totaled 4.0 million as of December 31, 1999 (including .1 million PHC members),
and December 31, 1998 and 3.6 million as of December 31, 1997.

Indemnity plans offer the member the ability to select any health care provider
for covered services. Some managed care and medical cost containment features
may be included in these plans, such as inpatient precertification, limiting
payments to reasonable and customary charges and benefits for preventive
services. Coverage is subject to deductibles and coinsurance, with member cost
sharing limited by out-of-pocket maximums. Indemnity plans are offered on both
an insured and employer-funded basis. Indemnity membership totaled 2.8 million
as of December 31, 1999 (including .6 million PHC members), 2.5 million as of
December 31, 1998 and 2.6 million as of December 31, 1997.

In addition to Commercial health products, the Company also offers coverage for
Medicare beneficiaries and individuals eligible for Medicaid benefits and
subsidized children's health insurance programs. Such coverages include the
following:

Through annual contracts with the Health Care Financing Administration ("HCFA"),
Aetna U.S. Healthcare HMOs offer coverage for Medicare-eligible individuals in
certain geographic areas. Generally, services must be obtained through network
providers, with the exception of emergency and urgent care. Members generally
receive enhanced benefits over standard Medicare fee-for-service coverage,
including vision, hearing and pharmacy coverage. Such Medicare plans are offered
on an insured basis. Medicare membership totaled .7 million as of December 31,
1999 (including .1 million PHC members), .5 million as of December 31, 1998 and
 .4 million as of December 31, 1997.

                                     Page 5


<PAGE>   6

The Company exited certain unprofitable Medicare markets effective January 1,
1999, and certain additional unprofitable Medicare markets were exited on
January 1, 2000. The Company continues to review the profitability of its
Medicare business in certain markets.

In the past the Company also served as an administrator of Medicare benefits in
certain states, providing claim services for physicians, hospitals, skilled
nursing facilities and home health agencies in exchange for a fee. The contract
with HCFA to provide these services expired on September 30, 1997.

The Company has contracts with certain state and local agencies to offer
coverage for individuals eligible for Medicaid and subsidized children's health
insurance programs. Benefits are determined by the contracting agencies. This
coverage is offered on an insured basis. This coverage membership totaled .2
million as of December 31, 1999, and .1 million as of December 31, 1998 and
1997.

Aetna U.S. Healthcare offers a variety of specialty health care coverages
offered as either supplements to health products or as stand-alone products.
Such coverages include indemnity and managed dental plans and prescription drug
and vision programs. These specialty health coverages and services are included
in either Health Risk and PHC or Group Insurance and Other Health business, with
the exception of behavioral health (including employee assistance programs) and
network-based workers' compensation case management services, which are included
in Group Insurance and Other Health.

During 1997, the Company sold certain subsidiaries primarily to more effectively
focus its health business resources. On December 5, 1997, the Company sold Human
Affairs International ("HAI"), a behavioral health management business. Aetna
U.S. Healthcare continues to market HAI's behavioral health services, including
employee assistance programs, through a long-term arrangement with the acquiring
company. During 1997, the Company also sold Healthcare Data Interchange
Corporation ("HDIC"), a provider of health care electronic data interchange
services, and Aetna Professional Management Corporation ("APMC"), a physician
practice management business.

Aetna U.S. Healthcare Group Insurance and Other Health products consist
primarily of the following:

Group Life Insurance consists principally of renewable term coverage, the
amounts of which may be fixed or linked to individual employee wage levels.
Basic and supplemental term coverage and spouse and dependent coverages are
available. Group universal life and accidental death benefit coverages are also
available. Group life insurance is offered on an insured basis. Group life
insurance membership totaled 9.4 million as of December 31, 1999 and 9.8 million
as of December 31, 1998 and 1997.

Group Disability Insurance provides coverage for disabled employees' income
replacement benefits for both short-term disability and long-term disability.
The Company also offers a managed disability product with additional case
management features. Group disability insurance coverages are offered on both an
insured and employer-funded basis. Group disability membership totaled 2.3
million as of December 31, 1999 and 2.6 million as of December 31, 1998 and
1997.

Long-Term Care Insurance provides coverage for long-term care expenses in a
nursing home, adult day care or home setting. Long-term care insurance is
offered on an insured basis. Long-term care membership totaled .1 million as of
December 31, 1999, 1998 and 1997.

Many group insurance members participate in more than one type of Aetna U.S.
Healthcare coverage and are counted in each.

                                     Page 6


<PAGE>   7

Provider Networks

General

Aetna U.S. Healthcare provides members of its managed care plans with access to
health care services through networks of independent health care providers. The
Company contracts with providers to participate in its provider networks in
order to provide members with broad access to high quality, cost effective
medical care. The providers in the Company's networks are independent
contractors and are neither employees nor agents of the Company.

The HMOs operated by Aetna U.S. Healthcare most closely adhere to the individual
practice model. Under the individual practice model, the HMO contracts with
independent physicians who are broadly dispersed throughout a community and who
care for patients in their own offices. Participating physicians generally also
have patients who are not members of the Company's HMOs. In the Company's HMOs,
the primary care physician plays an important role in practicing preventive
medicine and acts on behalf of the HMO member to coordinate the care provided by
specialist physicians, hospitals, and other health care providers.

Aetna U.S. Healthcare uses a variety of practices to help contain the rate of
increase in the cost of medical services. In addition to contracts with health
care providers, such procedures include the development and implementation of
standards for the appropriate utilization of health care resources and working
with health care providers to review data in order to help them improve
consistency and quality.

At December 31, 1999, Aetna U.S. Healthcare had approximately 429,000 providers
in its networks nationwide.

Contracting

Primary Care Physicians

Compensation by the Company's HMOs to directly contracted PCPs is principally on
a capitated basis, although fee-for-service contracts also exist. Under a
capitation arrangement, physicians receive a monthly fixed fee for each HMO
member, regardless of the medical services provided to the member. In some
instances, the capitation rate is subject to adjustment based on the attainment
of certain criteria including comprehensiveness of care, quality of care and
utilization. This quality-based incentive program is administered via the
Company's Quality Care Compensation System. In a fee-for-service arrangement,
network physicians are paid for health care services provided to the member
based upon a fee schedule.

Hospitals

The Company typically enters into contracts that provide for all-inclusive per
diem and per case, with fixed rates for ambulatory surgery and emergency room
services. Certain contracted hospitals' final compensation is based upon
attainment of agreed-upon quality and other measures. The Company has some
hospital contracts that pay a percentage of billed charges.

Aetna U.S. Healthcare HMOs generally require precertification of elective
admissions and monitoring of the length of hospital stays. Participating
physicians generally admit their HMO patients to participating hospitals using
referral procedures that direct the hospital to contact the Company's patient
management unit, which confirms the patient's membership status while obtaining
pertinent data. This unit also coordinates related activities, including the
subsequent transition to the home environment and home care, if necessary. Case
management assistance for complex or "catastrophic" cases is provided by a
special case unit.

                                     Page 7


<PAGE>   8

Specialist and Ancillary Services

Specialist physicians participating in the Company's networks are generally
reimbursed at contracted rates per visit or procedure.

Aetna U.S. Healthcare's HMOs have capitated payment arrangements for most mental
health, substance abuse, laboratory, radiology, diagnostic imaging, podiatric
and physical therapy services.

Integrated Delivery Systems

Aetna U.S. Healthcare has developed contractual relationships with integrated
delivery systems ("IDS") to provide comprehensive medical and hospital services.
Under these arrangements, the Company's HMOs contract with an IDS for a fixed,
per member fee or a percentage of premium. These arrangements cover most or all
of the care required by the member which is generally delivered by the IDS and
its affiliated PCPs, hospitals and specialists.

Quality Assessment

Quality assessment programs begin with the initial selection of providers.
Physicians wanting to participate in the Company's HMO networks must satisfy an
extensive set of criteria, including licensing, hospital admission privileges,
demonstrated proficiency, written references, patient access, office standards,
after-hours coverage and many other factors. Hospitals also have an extensive
set of criteria, including HCFA and the Joint Commission on Accreditation of
Healthcare Organizations ("JCAHO") accreditation.

Participating physicians are recredentialed regularly. Recredentialing of PCPs
covers many aspects of patient care including an analysis of member grievances
filed with the Company, the transfer and termination rate of members from the
practice, on-site interviews, analysis of utilization patterns, extensive member
surveys and analysis of drug prescription patterns. Committees, each composed of
a peer group of participating private physicians, review participating PCPs
being considered for recredentialing.

The Company also offers quality and outcome measurement and improvement
programs, and health care data analysis systems for providers and purchasers of
health care.

The Company seeks accreditation for certain of its HMO plans from the National
Committee for Quality Assurance ("NCQA"), a national organization established to
review the quality and medical management systems of HMOs and other managed care
plans. Accreditation by NCQA is a nationally recognized standard. As of December
31, 1999, 16 of the Company's HMOs have received full 3 year accreditation by
the NCQA.

Principal Markets and Sales

Total Commercial, Medicare and Medicaid HMO, POS, PPO and Indemnity membership
("health membership") is widely dispersed throughout the United States. The
Company offers a wide array of benefit plans, many of which are available in all
50 states.

Products offered by the Group Insurance and Other Health business are available
in all 50 states. Depending on the product, the Company markets to small groups
up to National Accounts (i.e., those with at least 3,000 eligible lives).

                                     Page 8


<PAGE>   9

The following table presents total health membership by region and funding
arrangement, for the years indicated:

<TABLE>
<CAPTION>
                                  1999 (1)                          1998 (2)                               1997
                     -------------------------------     ------------------------------       ---------------------------------
(Thousands)           Risk        Nonrisk     Total       Risk        Nonrisk     Total          Risk     Nonrisk         Total
-------------------------------------------------------------------------------------------------------------------------------
<S>                 <C>           <C>        <C>         <C>          <C>        <C>            <C>         <C>          <C>
Northeast            1,535            858     2,393      1,347            708     2,055         1,089         735         1,824
Mid-Atlantic         2,140          1,462     3,602      1,759          1,268     3,027         1,864       1,159         3,023
Capitol                900          1,107     2,007        791            984     1,775           315         950         1,265
Southeast            1,518          1,263     2,781        613          1,009     1,622           509       1,045         1,554
Mid-West             1,091          1,995     3,086        710          1,817     2,527           497       1,814         2,311
West Central           711            998     1,709        208            785       993           146       1,046         1,192
Southwest            1,785          1,286     3,071        997            910     1,907           266         860         1,126
Pacific Coast        1,359          1,047     2,406        878            881     1,759           649         790         1,439
-------------------------------------------------------------------------------------------------------------------------------
Total Health
  Membership        11,039         10,016    21,055      7,303          8,362    15,665         5,335       8,399        13,734
===============================================================================================================================
</TABLE>

(1)  Includes 5,093 PHC health members of which 1,688 represent Administrative
     Services Only members that Aetna U.S. Healthcare has agreed to service for
     Prudential.
(2)  Includes 1,975 NYLCare members.

For membership composition of Aetna U.S. Healthcare's products by funding
arrangement, refer to Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") - Aetna U.S. Healthcare -
Membership in the Annual Report.

For both Health Risk and PHC and Group Insurance and Other Health businesses,
products and services are marketed primarily to employers for the benefit of
employees and their dependents. Frequently, employers offer employees a choice
of coverages, from which the employee makes his or her selection during a
designated annual open enrollment period. In some instances, Aetna U.S.
Healthcare is the only health care coverage offered. Employers pay all or a
portion of the monthly premiums, and employees, through payroll deductions, pay
any premium not provided as an employee benefit.

Within the Health Risk and PHC business, Medicare coverage is sold on an
individual basis as well as through employer groups to their retirees. Medicaid
and subsidized children's health insurance programs are marketed to individuals
rather than employer groups.

Aetna U.S. Healthcare products are sold primarily through Company sales
personnel who frequently work with independent consultants and brokers who
assist in the production and servicing of business. Sales representatives also
sell to employers on a direct basis.

For large customers, independent consultants and brokers are frequently involved
in employer health plan selection decisions and sales.

Marketing and sales efforts are promoted by an advertising program which
includes television, radio, billboards and print media, supported by market
research and direct marketing efforts.

Health Pricing

For insured Commercial plans, customer contracts are generally established in
advance of the policy period, for a duration of one year. In determining the
premium rates to be charged to the customer, prospective and retrospective
rating methodologies are used.

Under prospective rating, a fixed premium rate is determined at the beginning of
the policy period. Unanticipated increases in medical costs cannot be recovered
in the current policy year; however, prior experience for a product in the
aggregate is considered, among other factors, in determining premium rates for
future periods. Federally-qualified HMOs are required to set premiums in this
manner.

                                     Page 9


<PAGE>   10

Aetna U.S. Healthcare Commercial HMO plans establish premium rates prior to
contract inception, without regard to actual utilization of services incurred by
individual members, using one of three approved community rating methods. These
rates may vary from account to account to reflect projected family size and
contract mix, benefit levels, renewal date, and other factors. Under the
"traditional community rating" method, an HMO establishes premium rates based on
its revenue requirements for its entire enrollment in a given community. Under
the "community rating by class" method, an HMO establishes premium rates based
on its revenue requirements for broad classes of membership distinguished by
factors such as age and sex. Under the "group specific community rating" method,
an HMO establishes premium rates based on the HMO's revenue requirements for
providing services to the group. State laws, in certain of the states in which
the Company operates HMOs, require the filing with and approval by the state of
HMO premium rates, and certain states may prohibit the use of one or more of
these rating methods. In addition to reviewing anticipated medical costs, some
states also review anticipated administrative costs as part of the approval
process. Future results of the Company could be affected if the premium rates
requested by the Company are not approved or are adjusted downward by state
regulators.

Under retrospective rating, a preliminary premium rate is determined at the
beginning of the policy period. Once the policy period has ended, the actual
experience is reviewed. If the experience is positive (i.e., actual claim costs
and other expenses are less than those expected) then a refund is credited to
the policy. If the experience is negative, then the resulting deficit may, in
certain instances, be recovered through contractual provisions; otherwise the
deficit is considered in setting future premium levels. If a customer elects to
terminate coverage, these deficits generally cannot be recovered. Retrospective
rating is often used for non-HMO, employee funded plans which exceed 300 lives.

Aetna U.S. Healthcare has contracts with HCFA to provide HMO coverage to
Medicare beneficiaries who choose health care coverage through an HMO. Under
these annual contracts, HCFA pays the HMO at a capitated rate based on
membership and adjusted for demographic factors and a user fee. Inflation,
changes in utilization patterns and benefit plans, demographic factors such as
age and sex, and both local county and national fee for service average per
capita Medicare costs are considered in the rate calculation process. Amounts
payable under Medicare risk arrangements are subject to annual unilateral
revision by HCFA. In addition to premiums received from HCFA, some of the
Medicare products offered by Aetna U.S. Healthcare require a supplemental
premium to be paid by the member. Under Medicare risk arrangements, Aetna U.S.
Healthcare assumes the risk of higher than expected medical expenses. Medicare
contracts generate higher per member per month revenues, but also higher per
member per month medical expenses, than Commercial plans.

Aetna U.S. Healthcare also has HMO contracts with a variety of federal
government employee groups under the Federal Employees Health Benefit Program.
Premium rates are subject to federal government review and audit. Premium rates
for these contracts are set prospectively but are subject to retrospective
adjustments.

Premiums and fees from the federal government accounted for 21% of Aetna U.S.
Healthcare's revenue in 1999. Contracts with HCFA accounted for 81% of these
premiums and fees, with the balance from federal employee related benefit
programs.

The Company has contracts with state and local agencies to provide fully-insured
health benefits to persons eligible for Medicaid and subsidized children's
health insurance program benefits. These contracts are generally for a period of
one to three years. Aetna U.S. Healthcare receives a fixed monthly payment based
on membership in return for the coverage of health care services. The rates are
subject to periodic unilateral revision by the contracting agencies. Aetna U.S.
Healthcare assumes the risk of higher than expected medical expenses.

                                     Page 10


<PAGE>   11

Contracts with the customer to provide administrative services for
employer-funded plans are generally for a period of one year. Aetna U.S.
Healthcare has entered into certain guarantees with respect to certain functions
such as customer service response time, claim processing accuracy and claim
processing turnaround time, as well as certain guarantees that claim expenses to
be incurred by the customer will fall within a certain range. With any of these
guarantees, Aetna U.S. Healthcare is financially at risk if the conditions of
the arrangements are not met, though the maximum at risk is typically 10% - 30%
of fees for the customer involved.

Competition

Competition in the health care industry has intensified in recent years,
primarily due to more aggressive marketing and pricing, a proliferation of
competing products, including new products developed in an effort to contain
health care costs, and increased quality and price sensitivity. New entrants
into the marketplace as well as significant consolidation within the industry
have also contributed to the more intense competitive environment.

Aetna U.S. Healthcare believes that the most significant factors which
distinguish competing health plans are quality of service and managed care
programs (including NCQA accreditation status), comprehensiveness of coverage,
cost (including both premium and member out-of-pocket costs), product design,
financial stability and the geographic scope of provider networks and the
providers available in such networks. Aetna U.S. Healthcare believes that it is
competitive in each of these areas. The ability to increase the number of
persons covered by Aetna U.S. Healthcare benefits or to increase revenues is
affected by competition in any particular area. In addition, the ability to
increase the number of persons enrolled in Health Risk products is affected by
the desire and ability of employers to self fund their health coverage.
Competition may also affect the availability of services from health care
providers, including primary care physicians, specialists and hospitals.

Within the Health Risk and PHC business, Aetna U.S. Healthcare competes with
local and regional managed care plans, in addition to managed care plans
sponsored by large health insurance companies and Blue Cross/Blue Shield plans.
Additional competitors include other types of medical and dental provider
organizations, various specialty service providers, integrated health care
delivery organizations, and in certain plans, with programs sponsored by the
federal or state governments.

Within the Other Health component of the Group Insurance and Other Health
business, Aetna U.S. Healthcare competes primarily with other commercial
insurance companies and third party administrators.

For the Group Insurance industry, Aetna U.S. Healthcare believes that the most
significant factors which distinguish competing companies are price, quality of
service, comprehensiveness of coverage, and product array and design. Specialty
carriers have increased market penetration in the life and disability business.
The deeply-penetrated group life market remains highly competitive.

Reserves

For the Health Risk and PHC business, the liability for medical claims payable
reflects estimates of the ultimate cost of claims that have been incurred but
not yet reported or reported but not yet paid. Medical claims payable are
estimated periodically, and any resulting adjustments are reflected in current
period operating results within current and future benefits. Medical claims
payable are based on a number of factors, including those derived from
historical claim experience. An extensive degree of judgment is used in this
estimation process, considerable variability is inherent in such estimates and
the adequacy of the estimate is highly sensitive to changes in medical claims
payment patterns and changes in medical cost trends. Refer to the MD&A - Aetna
U.S. Healthcare - Health Risk and PHC for a discussion of certain factors
relating to reserves at December 31, 1999.

                                     Page 11


<PAGE>   12

For Group Insurance products, reserves are established as premiums become due to
reflect the present value of expected future obligations net of the present
value of expected future premiums. Policy reserves for group paid-up life
insurance generally reflect long-term fixed obligations and are computed on the
basis of assumed or guaranteed yield and benefit payments. Assumptions are based
on the Company's historical claim experience. For long-term disability products,
reserves are established for (i) lives currently in payment status (using both
standard industry, as well as the Company's own morbidity and interest rate
assumptions), (ii) lives who have not yet satisfied the waiting period, but are
expected to do so and (iii) claims that have been incurred but not yet reported.
Long-term care reserves are a long-term obligation calculated using industry
data for morbidity and mortality assumptions. Reserves for unpaid claims for
other group health products (including short duration contracts) are estimated
periodically and any resulting adjustments are reflected in current earnings.

Group health and group insurance premiums are generally recorded as premium
revenue over the term of the coverage. Some group contracts allow for premiums
to be adjusted to reflect emerging experience. Such premiums are recognized as
the related experience emerges.

Reinsurance

Aetna U.S. Healthcare uses reinsurance agreements with nonaffiliated insurers
for Group Insurance businesses to control its exposure to large losses and
certain other risks. The Company maintains catastrophic life reinsurance which
provides protection against accidents involving five or more covered lives. For
disability business, certain reinsurance arrangements have been established to
reflect the circumstances of the specific disability risks. These include an
excess individual amount arrangement for a particular market segment of the
disability business, a quota share treaty for another market segment of the
disability business, and facultative treaties on a case by case basis. In
addition, the Company carries excess medical malpractice professional liability
insurance.

In connection with the acquisition of PHC, the Company and Prudential entered
into a reinsurance agreement for which the Company paid a premium. Refer to Note
3 of Notes to Consolidated Financial Statements for further discussion.

Group Life Insurance In Force and Other Statistical Data

The following table summarizes changes in group life insurance in force before
deductions for reinsurance ceded to other companies for the years indicated:

<TABLE>
<CAPTION>
(Dollars in Millions)                                                                1999              1998                 1997
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>               <C>                  <C>
In force, end of year                                                           $ 355,014         $ 378,727            $ 316,478
--------------------------------------------------------------------------------------------------------------------------------
Terminations (lapses and all other)                                             $  77,648         $  14,018            $  10,678
--------------------------------------------------------------------------------------------------------------------------------
Number of policies and contracts in force, end of year:
   Group Life Contracts (1)                                                        14,519            14,044               13,849
   Group Conversion Policies (2)                                                   28,767            31,024               32,660
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Due to the diversity of coverages and size of covered groups, statistics
     are not provided for average size of policies in force.
(2)  Reflects conversion privileges exercised by insureds under group life
     policies to replace those policies with individual life policies.

Factors Affecting Forward-Looking Information

For information regarding certain important factors that may materially affect
Aetna U.S. Healthcare's business, refer to the MD&A - Forward-Looking
Information/Risk Factors, Aetna U.S. Healthcare - Outlook and financial results
discussions in the Annual Report.

                                     Page 12

<PAGE>   13
2.  Aetna Financial Services

Products and Services

Aetna Financial Services ("AFS") (formerly Aetna Retirement Services) offers
financial services products primarily through Aetna Life Insurance and Annuity
Company ("ALIAC") and Aetna Insurance Company of America ("AICA"), indirect
wholly owned subsidiaries of the Company. Prior to October 1, 1998, AFS also
offered individual life insurance products through ALIAC. Investment advisory
services are offered through ALIAC and Aeltus Investment Management, Inc.
("Aeltus"), which are registered investment advisers, and other indirect wholly
owned subsidiaries of the Company. Aeltus is also an adviser to most of Aetna's
mutual funds. Financial planning services are offered through Financial Network
Investment Corporation ("FNIC"), a broker/dealer acquired in 1997, and Aetna
Financial Services, Inc. ("AFSI"), an indirect wholly owned subsidiary of the
Company. Aetna Investment Services, Inc., an indirect wholly owned subsidiary of
the Company, acts as distributor for many of the securities products AFS offers.

Financial Services

AFS principally offers financial services products to employer-sponsored
retirement plans qualified under Internal Revenue Code Sections 401, 403, 408
and 457 (collectively "qualified plans"), and to individuals on a qualified and
nonqualified basis. These products include annuity contracts that offer a
variety of funding and payout options, mutual funds, and products that offer a
combination of both. Annuity contracts may be deferred or immediate ("payout
annuities"). These products also include programs offered to qualified plans and
nonqualified deferred compensation plans that package administrative and
recordkeeping services along with a menu of investment options, including mutual
funds (both Aetna and nonaffiliated mutual funds) and variable, and fixed
investment options. Financial services also includes investment advisory
services, financial planning, pension plan administrative services and trust
services.

Individual Life Insurance

AFS' domestic individual life insurance business was sold on October 1, 1998.
The transaction was generally in the form of an indemnity reinsurance
arrangement. Individual life insurance products included universal life and
variable universal life, which have both life insurance and investment
characteristics, traditional whole life and term insurance. Refer to MD&A -
Overview and Aetna Financial Services and Note 3 of Notes to Consolidated
Financial Statements in the Annual Report for more information.

Investment Options

AFS' financial services products provide customers with variable and/or fixed
investment options. Variable options and mutual funds generally provide for full
assumption (and, in limited cases, provide for partial assumption) by the
customer of investment risks. Assets supporting variable options are held in
separate accounts that invest in Aetna mutual funds and/or unaffiliated mutual
funds. Aetna mutual funds include funds managed by Aeltus and, beginning in
November 1997, funds managed by outside investment advisors under subadvisory
arrangements. Variable separate account investment income and realized capital
gains and losses are not reflected in the Company's consolidated results of
operations. Fixed options can be either "fully guaranteed" or "experience-
rated". Fully guaranteed options provide guarantees on investment return,
maturity values, and if applicable, benefit payments. Experience-rated options
require the customer to assume investment (including realized capital gains and
losses) and other risks subject, among other things, to certain minimum
guarantees. As long as minimum guarantees are not triggered, the effect of
experience-rated products' investment performance does not impact the Company's
consolidated results.

                                     Page 13


<PAGE>   14

Fees and Investment Margins

Insurance charges, investment management or other fees earned by AFS vary by
product and depend, among other factors, on the funding option selected by the
customer under the product. For products where assets are allocated to variable
funding options, AFS may charge the separate account an asset-based insurance
fee and expense charge. In addition, where the customer selects an Aetna mutual
fund as a variable funding option, AFS receives an asset-based investment
management fee and, in the case of those funds subadvised by outside managers,
AFS pays a subadvisory fee to the fund manager. For unaffiliated mutual funds,
AFS receives distribution fees and/or expense reimbursements. For fixed funding
options, AFS earns an investment margin, which is based on the difference
between income earned on the investments supporting the liability and interest
credited to customers. Other fees or charges, such as administrative fees, may
be assessed depending on the nature of the product or service provided.

AFS also provides direct investment advisory services to unaffiliated customers
through Aeltus and FNIC generally for fees based on assets under management.
FNIC provides financial planning services generally for fees which may or may
not be asset based.

Assets Under Management and Administration

The substantial portion of fees or other charges and investment margins that AFS
receives are based on assets under management. Assets under management are
principally affected by net deposits (i.e., deposits, including new contracts,
less surrenders), investment growth (e.g., interest credited to customer
accounts for fixed options or market performance for variable options) and
customer retention. Financial Services' assets under management, excluding net
unrealized capital gains and losses on debt securities other than those held in
separate accounts, were $68.0 billion at December 31, 1999, $51.9 billion at
December 31, 1998 and $42.2 billion at December 31, 1997. Approximately 96% of
assets under management at December 31, 1999 and 95% at December 31, 1998,
allowed for contractholder withdrawal. Approximately 88% at December 31, 1999
and 84% at December 31, 1998 are subject to market value adjustments and/or
deferred surrender charges.

To encourage customer retention and recover acquisition expenses, contracts
typically impose a surrender charge on policyholder balances withdrawn within a
period of time after the contract's inception, which may be waived at the
Company's discretion. The period of time and level of the charge vary by
product. In addition, an approach incorporated into recent variable annuity
contracts with fixed funding options allows contractholders to receive an
incremental interest rate if withdrawals from the fixed account are spread over
a period of five years. Further, more favorable credited rates may be offered
after policies have been in force for a period of time. Existing tax penalties
on annuity distributions prior to age 59-1/2 provide further disincentive to
customers for premature surrenders of annuity balances, but generally do not
impede transfers of those balances to products of competitors.

A portion of AFS' fee revenue is also based on assets under administration.
Assets under administration are assets for which AFS provides administrative
services only. Assets under administration were $4.4 billion at December 31,
1999, $2.9 billion at December 31, 1998 and $2.3 billion at December 31, 1997.

                                     Page 14


<PAGE>   15

Life Insurance In Force and Other Statistical Data

For individual life insurance products, life insurance in force is a key
determinant of earnings as contract charges for cost of insurance coverage are
typically based on amounts of coverage in force less accumulated policy
reserves. The key drivers of life insurance in force are new sales, surrenders
and mortality. The table below summarizes changes in life insurance in force
before deductions for reinsurance ceded to other companies. As a result of the
sale of the individual life business on October 1, 1998, substantially all of
the in force amounts shown in the table for the years 1999 and 1998 have been
ceded to an outside company.

<TABLE>
<CAPTION>

(Dollars in Millions, except average size of policies in force)             1999       1998       1997
------------------------------------------------------------------------------------------------------
<S>                                                                     <C>        <C>        <C>
Sales and additions:
   Permanent:
     Nonparticipating                                                   $  1,490   $  3,522   $  4,281
     Participating                                                             9         13         13
   Term:
     Nonparticipating                                                        180        513      1,586
     Participating                                                             -         18         53
------------------------------------------------------------------------------------------------------
       Total                                                            $  1,679   $  4,066   $  5,933
======================================================================================================
Terminations:
   Surrenders and conversions                                           $  2,861   $  1,807   $  1,865
   Lapses                                                                  1,778      2,046      2,126
   Other                                                                   1,087        323      1,130
------------------------------------------------------------------------------------------------------
       Total                                                            $  5,726   $  4,176   $  5,121
======================================================================================================
In force, end of year:
   Permanent                                                            $ 37,567   $ 39,275   $ 36,614
   Term                                                                    8,071     10,410     13,181
------------------------------------------------------------------------------------------------------
       Total                                                            $ 45,638   $ 49,685   $ 49,795
======================================================================================================
Number of policies in force, end of year:
    Nonparticipating                                                     516,160    554,776    597,221
    Participating                                                         83,999     90,904     97,533
------------------------------------------------------------------------------------------------------
       Total                                                             600,159    645,680    694,754
======================================================================================================
Average size of policies in force, end of year:
    Nonparticipating                                                    $ 79,147   $ 79,357   $ 72,654
    Participating                                                         56,965     62,266     65,664
------------------------------------------------------------------------------------------------------
</TABLE>

Refer to Note 11 of Notes to Consolidated Financial Statements in the Annual
Report for a discussion of participating life insurance contracts.

The following table summarizes premiums and deposits for AFS:

<TABLE>
<CAPTION>
(Millions)                                                   1999             1998 (1)           1997
-----------------------------------------------------------------------------------------------------
<S>                                                     <C>              <C>                <C>
Premiums                                                $   107.5        $   131.9          $   158.5
Deposits                                                  6,907.7          5,142.5            4,969.0
-----------------------------------------------------------------------------------------------------
       Total                                            $ 7,015.2        $ 5,274.4          $ 5,127.5
=====================================================================================================
</TABLE>

(1)  1998 amounts reflect the operations of the individual life business through
     the sale date of October 1, 1998.

Principal Markets and Method of Distribution

AFS products and services are offered primarily to individuals, pension plans,
small businesses and employer-sponsored groups in the health care, government,
education (collectively "not-for-profit" organizations) and corporate markets.
AFS products generally are sold through pension professionals, independent
agents and brokers, third party administrators, banks, dedicated career agents
and financial planners.

                                    Page 15


<PAGE>   16

Competition

AFS competes with other insurance companies and an array of financial services
companies including banks and mutual funds, as well as other investment
managers. Principal competitive factors are reputation for investment
performance, product features, service, cost and the perceived financial
strength of the investment manager or sponsor.

Competition may affect, among other matters, both business growth and the
pricing of AFS' products and services.

Reserves

Reserves for limited payment contracts (annuities with life contingent payout)
are computed on the basis of assumed investment yield, mortality, morbidity and
expenses and include a margin for adverse deviation. The assumptions vary by
plan, year of issue and policy duration. Reserves for investment contracts
(deferred annuities and immediate annuities without life contingent payouts) are
equal to cumulative deposits plus credited interest less withdrawals and charges
thereon. Of those investment contracts which are experience-rated, the reserves
also reflect net realized capital gains/losses (which AFS reflects through
credited rates on an amortized basis) and unrealized capital gains/losses
related to Financial Accounting Standard ("FAS") No. 115.

Prior to the sale of the individual life business on October 1, 1998, reserves
for universal life products were equal to cumulative deposits less withdrawals
and charges plus credited interest thereon, plus/less net realized capital
gains/losses (which were reflected through credited rates on an amortized
basis). These reserves also included unrealized capital gains/losses related to
FAS No. 115. As a result of the sale and transfer of assets supporting the
business, reserves for universal life products no longer include net realized
capital gains/losses and unrealized gains/losses related to FAS No. 115 for the
years ended December 31, 1998 and beyond. Reserves for all other fixed
individual life contracts are computed on a basis consistent with that described
above for limited payment contracts.

Because the sale of the individual life business was substantially in the form
of an indemnity reinsurance agreement, the Company reported an addition to its
reinsurance receivable approximating the total AFS individual life reserves at
the sale date.

Reserves, as described above, are computed amounts that, with additions from
premiums and deposits to be received and with interest on such reserves
compounded annually at assumed rates, are expected to be sufficient to meet the
Company's policy obligations at their maturities or to pay expected death or
retirement benefits or other withdrawal requests.

Factors Affecting Forward-Looking Information

For information regarding certain important factors that may materially affect
AFS' business, refer to the MD&A - Forward-Looking Information/Risk Factors,
Aetna Financial Services - Outlook and financial results discussions in the
Annual Report.

3.  Aetna International

Aetna International, through subsidiaries and joint venture affiliates, sells
primarily life insurance, health insurance and financial services products in
markets outside of the United States.

The Company seeks to invest in emerging and other selected markets outside the
U.S. that have the potential for attractive long-term returns. The Company
intends to sharpen its focus on its international operations as part of its
realignment and may explore opportunities for additional international
investments or divestitures, where appropriate.


                                    Page 16

<PAGE>   17

The Company may invest in a new market or increase its position in a market
through a combination of acquisitions, joint ventures and de novo initiatives.
Over the past 5 years, the Company has invested $1.2 billion in its
international operations, of which $200 million was invested in 1999, a majority
of which related to the acquisition of Assistencia Medica Social Argentina S.A.,
Argentina's largest HMO.

Aetna International conducts its business in the following major geographic
locations:

     -    Asia Pacific - Operations are conducted through majority-owned
          subsidiaries in Hong Kong, Indonesia, Malaysia, New Zealand, the
          Philippines, Taiwan and Thailand as well as through an equity
          affiliate in China. In the fourth quarter of 1999, the Company
          acquired an equity interest in a Japanese life insurance company. It
          expects to acquire substantially all outstanding shares of that
          company during the first quarter of 2000. The products and services
          sold by these businesses include individual and group life and health
          insurance, deposit administration and related financial products and
          services.

     -    Americas - Operations are conducted through wholly owned and
          majority-owned subsidiaries in Argentina and Chile and equity
          affiliates in Brazil, Colombia, Mexico, Peru, Poland and Venezuela.
          The products and services sold by these businesses include individual
          and group life and health insurance, annuities, personal and
          commercial property-casualty insurance, and pension fund
          administration services.

Each of the affiliates through which Aetna International conducts business
operates within guidelines established by the Company. Methods of distributing
products vary by country and product depending on local laws, customs and the
needs of the particular customer segment. Distribution channels include career
agents, independent agents and brokers, financial institutions and direct sales.
Competition varies by country and includes well established local companies, as
well as foreign based companies with a strong international presence.

The following table sets forth Aetna International's revenue and operating
earnings or losses by major geographic location (including its share of net
income in minority owned affiliates and excluding Year 2000 costs in 1999 and
1998 and net realized capital gains or losses in all three years) and premiums,
before deductions for reinsurance ceded to other companies:

<TABLE>
<CAPTION>
                                        Revenue                                                  Operating Earnings
                       ----------------------------------------------           -------------------------------------------------
(Millions)                  1999            1998                 1997               1999                 1998                1997
---------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>             <C>                  <C>                 <C>                  <C>                 <C>
Asia Pacific (1)       $ 1,621.5       $ 1,191.6            $ 1,092.6            $  67.5             $   65.2            $   55.7
Americas (2)             1,153.8           982.5                863.1              147.5                112.9                83.0
Other (3)                    1.7             2.4                  3.1              (20.8)               (12.4)              (10.0)
---------------------------------------------------------------------------------------------------------------------------------
                       $ 2,777.0       $ 2,176.5            $ 1,958.8            $ 194.2              $ 165.7             $ 128.7
=================================================================================================================================
</TABLE>

(1)  Includes China, Hong Kong, Indonesia, Japan, Malaysia, New Zealand,
     Philippines, Taiwan and Thailand.
(2)  Includes Argentina, Brazil, Canada (through September 30, 1999), Chile,
     Colombia, Mexico, Peru, Poland and Venezuela.
(3)  Includes general and other miscellaneous expenses.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
                                          1999             1998                1997
--------------------------------------------------------------------------------------
<S>                                  <C>              <C>                 <C>
Premiums (included in
    revenue above)                   $ 2,152.3        $ 1,578.5           $ 1,434.1
--------------------------------------------------------------------------------------
</TABLE>

Factors Affecting Forward-Looking Information

For information regarding certain important factors that may materially affect
Aetna International's business, refer to the MD&A - Forward-Looking
Information/Risk Factors, Aetna International - Outlook and financial results
discussions in the Annual Report.

                                     Page 17

<PAGE>   18

4. Large Case Pensions

Principal Products

Large Case Pensions manages a variety of retirement products (including pension
and annuity products) offered to IRC Section 401 qualified defined benefit and
defined contribution plans. Contracts provide nonguaranteed, partially
guaranteed (experience-rated) and fully guaranteed investment options through
general and Separate Account products. The majority of Large Case Pensions'
products that use Separate Accounts provide contractholders with a vehicle for
investments under which the contractholders assume the investment risk as well
as the benefit of favorable performance. Large Case Pensions earns a management
fee on these Separate Accounts.

In 1993, the Company discontinued its fully guaranteed large case pension
products. (For additional information, refer to MD&A - Large Case Pensions -
Discontinued Products in the Annual Report.)

Factors Affecting Forward-Looking Information

For information regarding certain important factors that may materially affect
Large Case Pension's business, refer to the MD&A - Forward-Looking
Information/Risk Factors, Large Case Pensions - Outlook and financial results
discussions in the Annual Report.


                                    Page 18

<PAGE>   19

5. Total Investments

Consistent with the nature of the contract obligations involved in the Company's
health, life, annuity and pension operations, the majority of general account
assets have been invested in intermediate and long-term, fixed-income
obligations such as treasury obligations, mortgage-backed securities, corporate
debt securities and mortgage loans.

For information concerning the valuation of investments, refer to Notes 1, 4 and
7 of Notes to Consolidated Financial Statements in the Annual Report.

The following table sets forth the distribution of invested assets, cash and
cash equivalents and accrued investment income of the Company's general account
portfolio (excluding Discontinued Operations) as of the end of the years
indicated: (1) (2)

<TABLE>
<CAPTION>
(Millions)                                                                         1999                 1998              1997
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                 <C>               <C>
Debt securities:
    Bonds:
         U.S. government and government agencies and authorities              $ 2,315.9           $  1,998.6        $  3,928.6
         States, municipalities and political subdivisions                        769.0                550.1             206.6
    U.S. corporate securities:
         Utilities                                                              2,259.9              2,578.0           2,505.5
         Financial                                                              4,061.9              4,945.9           5,216.8
         Transportation/capital goods                                           2,055.1              2,501.9           2,589.4
         Health care/consumer products                                          2,876.4              2,656.3           1,735.3
         Natural resources                                                        412.3              1,550.7           1,559.9
         Other corporate securities                                               864.6              1,355.8           1,506.2
------------------------------------------------------------------------------------------------------------------------------
             Total U.S. corporate securities                                   12,530.2             15,588.6          15,113.1
------------------------------------------------------------------------------------------------------------------------------
    Foreign:
         Government, including political subdivisions                           2,210.2              2,883.8           2,629.8
         Utilities                                                                231.7                676.6             689.1
         Other                                                                  2,397.7              2,868.0           3,830.4
------------------------------------------------------------------------------------------------------------------------------
             Total foreign securities                                           4,839.6              6,428.4           7,149.3
------------------------------------------------------------------------------------------------------------------------------
    Residential mortgage-backed securities:
         Pass-throughs                                                          1,825.3              2,322.7           1,812.5
         Collateralized mortgage obligations                                    2,782.6              2,041.2           2,710.4
------------------------------------------------------------------------------------------------------------------------------
             Total residential mortgage-backed securities                       4,607.9              4,363.9           4,522.9
------------------------------------------------------------------------------------------------------------------------------
    Commercial/Multifamily mortgage-backed securities                           2,482.5              2,123.2           1,622.0
    Other asset-backed securities                                                 985.8                971.0           1,635.1
------------------------------------------------------------------------------------------------------------------------------
             Total bonds                                                       28,530.9             32,023.8          34,177.6
    Redeemable preferred stocks                                                   130.7                157.0              67.4
------------------------------------------------------------------------------------------------------------------------------
             Total debt securities                                             28,661.6             32,180.8          34,245.0
------------------------------------------------------------------------------------------------------------------------------
Equity securities:
    Common stocks                                                                 619.5                566.9             866.4
    Nonredeemable preferred stocks                                                171.6                233.6             175.0
------------------------------------------------------------------------------------------------------------------------------
             Total equity securities                                              791.1                800.5           1,041.4
------------------------------------------------------------------------------------------------------------------------------
Short-term investments                                                            788.2                942.2           1,003.9
Mortgage loans                                                                  3,238.2              3,553.0           4,207.8
Real estate                                                                       361.8                270.3             369.5
Policy loans                                                                      541.5                458.7             746.9
Other                                                                           1,394.8              1,300.3             974.3
------------------------------------------------------------------------------------------------------------------------------
             Total investments                                               $ 35,777.2           $ 39,505.8        $ 42,588.8
==============================================================================================================================
Cash and cash equivalents                                                    $  2,504.5           $  1,951.5        $  1,805.8
==============================================================================================================================
Accrued investment income                                                    $    466.5           $    537.1        $    545.8
==============================================================================================================================
</TABLE>
(1)  Excludes Separate Accounts.

(2)  Includes $5.9 billion in 1999, $7.1 billion in 1998 and $7.9 billion in
     1997 of investments supporting discontinued products.



                                     Page 19


<PAGE>   20

The following table summarizes the Company's investment results:  (1)

<TABLE>
<CAPTION>
                                        Net               Earned Net             Net Realized     Change in
                                        Investment        Investment             Capital          Accumulated Other
(Dollar amounts in millions)            Income (2)        Income Rate (3)        Gains (4)        Comprehensive Income (5)
--------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                  <C>                 <C>                   <C>
For the year:
1999                                    $ 2,965.9             7.4 %              $  71.9               $(1,038.1)
1998                                      3,220.5             7.7                  271.8                  (199.3)
1997                                      3,392.7             7.8                  334.2                   (50.6)
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Excludes Separate Accounts and investments in affiliates.
(2)  Net investment income excludes net realized capital gains and losses, as
     well as income taxes and includes investment expenses.
(3)  The Earned Net Investment Income Rate for any given year is equal to (a)
     net investment income divided by (b) the average amount of cash, invested
     assets, excluding unrealized gains and losses, and accrued investment
     income for the year.
(4)  Net realized capital gains exclude income taxes and gains and losses
     allocable to experience-rated pension contractholders.
(5)  Accumulated other comprehensive income (loss) excludes federal income taxes
     and changes in unrealized capital gains (losses) related to
     experience-rated contractholders and discontinued products.

6.  Other Matters

a.  Regulation

General

The Company's operations are subject to comprehensive regulation throughout the
United States and the foreign jurisdictions in which it does business. The laws
of these jurisdictions establish supervisory agencies, including state health,
insurance and securities departments, with broad authority to grant licenses to
transact business and regulate many aspects of the products and services offered
by the Company, as well as solvency and reserve adequacy. Many agencies also
regulate investment activities on the basis of quality, diversification, and
other quantitative criteria. The Company's operations and accounts are subject
to examination at regular intervals by certain of these regulators.

Health Care

The federal government and the states in which the Company conducts its HMO and
other health operations have adopted laws and regulations that govern the
business activities of the Company to varying degrees. These laws and
regulations may restrict how the Company conducts its businesses and may result
in additional burdens and costs to the Company. Areas of governmental regulation
include licensure, premium rates, benefits, service areas, quality assurance
procedures, plan design, eligibility requirements, provider rates of payment,
surcharges on provider payments, provider contract forms, underwriting,
financial arrangements, financial condition (including reserves) and corporate
governance. These laws and regulations are subject to amendments and changing
interpretations in each jurisdiction.

States generally require HMOs to obtain a certificate of authority prior to
commencing operations. To establish an HMO in any state where it does not
presently operate an HMO, the Company generally has to obtain such a
certificate. The time necessary to obtain such a certificate varies from state
to state. Each HMO must file periodic financial and operating reports with the
states in which it does business. In addition, the HMOs are subject to state
examination and periodic license renewal.

                                     Page 20


<PAGE>   21

The provision of services to certain employee health benefit plans is subject to
the Employee Retirement Income Security Act of 1974 ("ERISA"), a complex set of
laws and regulations subject to interpretation and enforcement by the Internal
Revenue Service and the Department of Labor ("DOL"). ERISA regulates certain
aspects of the relationships between the Company and employers who maintain
employee benefit plans subject to ERISA. Some of the administrative services and
other activities of the Company may also be subject to regulation under ERISA.
In addition, some states require licensure or registration of companies
providing third party claims administration services for benefit plans.

Many legislative and regulatory changes related to health products have recently
been enacted or are being seriously considered by the federal and state
governments. For a discussion of these matters refer to MD&A - Regulatory
Environment and Forward-Looking Information/Risk Factors in the Annual Report.
For information regarding regulation of pricing by the Company's HMOs, refer to
"Aetna U.S. Healthcare - Health Pricing", on page 9.

Investment and Retirement Products and Services

Operations conducted by AFS and Large Case Pensions are subject to regulation by
various government agencies where the Company conducts business, in particular
the insurance departments of Connecticut and New York. Among other matters,
these agencies may regulate premium rates, trade practices, agent licensing,
policy forms, underwriting and claims practices, the maximum interest rates that
can be charged on life insurance policy loans, and the minimum rates that must
be provided for accumulation of surrender value.

The Securities and Exchange Commission ("SEC"), the National Association of
Securities Dealers ("NASD") and, to a lesser extent, the states regulate the
sales and investment management activities and operations of broker-dealer and
investment advisory subsidiaries of the Company. Regulations of the SEC, DOL and
Internal Revenue Service also impact certain of the Company's pension, annuity,
life insurance and other investment and retirement products. These products
involve Separate Accounts of ALIAC and AICA and mutual funds registered under
the Investment Company Act of 1940.

International

The nature and extent of regulations affecting the Company's international
operations varies by jurisdiction and line of business. Most operations are
subject to local insurance and/or health laws and regulations. These laws
typically regulate the types of business that can be written, policy forms and
terms, currency, permitted investments, reserves, taxation and other matters
affecting the conduct of the business. International operations are also subject
to a variety of additional investment and other controls that may be imposed by
governments. Certain jurisdictions may require that portions of the business be
reinsured through designated state-affiliated institutions. As a foreign
investor, the Company is also subject to a variety of restrictions regarding
permitted levels of equity ownership, remittance of foreign earnings,
repatriation of capital, exchange of currency, and entry into new lines of
business. Regulation of international operations may also be subject to other
political factors not typically associated with doing business in the United
States, such as more rapid change of regulatory policy, possible nationalization
of businesses, hostilities and unrest.

Federal Employee Benefit Regulation

AFS and Large Case Pensions also provide a variety of products and services to
employee benefit plans that are covered by ERISA.

                                     Page 21


<PAGE>   22

In December 1993, in a case involving an employee benefit plan and an insurance
company, the United States Supreme Court ruled that assets in the insurance
company's general account that were attributable to a portion of a group pension
contract issued to the plan that was not a "guaranteed benefit policy" were
"plan assets" for purposes of ERISA and that the insurance company had fiduciary
responsibility with respect to those assets. In reaching its decision, the Court
declined to follow a 1975 DOL interpretive bulletin that had suggested that
insurance company general account assets were not plan assets.

The Small Business Job Protection Act (the "Act") was signed into law in 1996.
The Act created a framework for resolving potential issues raised by the Supreme
Court decision. The Act provides that, absent criminal conduct, insurers
generally will not have liability with respect to general account assets held
under contracts that are not guaranteed benefit policies based on claims that
those assets are plan assets. The relief afforded extends to conduct that
occurred before the date that is eighteen months after the DOL issues final
regulations required by the Act, except as provided in the anti-avoidance
portion of the regulations. The regulations, which were issued on January 5,
2000 address ERISA's application to the general account assets of insurers
attributable to contracts issued on or before December 31, 1998 that are not
guaranteed benefit policies. The conference report relating to the Act states
that policies issued after December 31, 1998 that are not guaranteed benefit
policies will be subject to ERISA's fiduciary obligations. The Company is not
currently able to predict how these matters may ultimately affect its
businesses.

HMO and Insurance Holding Company Laws

A number of states, including Connecticut, regulate affiliated groups of HMOs
and insurers such as the Company under holding company statutes. These laws may
require these companies to maintain certain levels of equity. For information
regarding restrictions on certain payments of dividends or other distributions
by HMO and insurance company subsidiaries of the Company, refer to MD&A -
Liquidity and Capital Resources in the Annual Report. Some of these laws also
regulate changes in control (as do Connecticut corporate laws), and other
matters such as transactions with affiliates. Refer to Note 15 of Notes to
Consolidated Financial Statements in the Annual Report.

Insurance Company Guaranty Fund Assessments

Under insurance guaranty fund laws existing in all states, insurers doing
business in those states can be assessed (up to prescribed limits) for certain
obligations of insolvent insurance companies to policyholders and claimants.
There were no material charges to earnings for guaranty fund obligations during
1999, 1998, or 1997. While the Company historically has recovered more than half
of guaranty fund assessments through statutorily permitted premium tax offsets,
significant increases in assessments could jeopardize future efforts to recover
such assessments.

For information regarding certain other potential regulatory changes relating to
the Company's businesses, refer to MD&A - Regulatory Environment and
Forward-Looking Information/Risk Factors. (Refer to Note 1 of Notes to
Consolidated Financial Statements for further discussion of accounting standards
related to guaranty fund assessments.)

b.  NAIC IRIS Ratios

The National Association of Insurance Commissioners' ("NAIC") Insurance
Regulatory Information System ("IRIS") ratios cover 12 categories of financial
data with defined usual ranges for each category. The ratios are intended to
provide insurance regulators with "early warnings" as to when a given company
might warrant special attention. An insurance company may fall out of the usual
range for one or more ratios, and such variances may result from specific
transactions that are in themselves immaterial or eliminated at the consolidated
level. In 1999, none of Aetna Inc.'s significant insurance subsidiaries had more
than three IRIS ratios that were outside of the NAIC usual ranges.

                                     Page 22


<PAGE>   23

Management does not expect that any of the Company's significant subsidiaries
will have more than three IRIS ratios outside of the NAIC usual ranges for 2000.

Refer to MD&A - Liquidity and Capital Resources in the Annual Report for
additional discussion regarding solvency regulation.

c.   Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed Charges
and Preferred Stock Dividends

The following table sets forth the Company's and Aetna Services' ratios of
earnings to fixed charges and ratios of earnings to combined fixed charges and
preferred stock dividends for the years indicated:

<TABLE>
<CAPTION>
Aetna Inc.                                              1999          1998          1997          1996          1995
--------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>           <C>           <C>           <C>           <C>
Ratio of Earnings to Fixed Charges                      4.11          4.96          5.74          2.45          4.97
Ratio of Earnings to Combined Fixed Charges
  and Preferred Stock Dividends                         3.63          3.94          4.46          2.10          4.97
</TABLE>

<TABLE>
<CAPTION>
Aetna Services, Inc.                                    1999          1998          1997          1996
-------------------------------------------------------------------------------------------------------
<S>                                                     <C>           <C>           <C>           <C>
Ratio of Earnings to Fixed Charges                      3.61          4.31          5.78          2.44
Ratio of Earnings to Combined Fixed Charges
  and Preferred Stock Dividends                         3.61          4.31          5.78          2.44
</TABLE>

For purposes of computing both the ratio of earnings to fixed charges and the
ratio of earnings to combined fixed charges and preferred stock dividends,
"earnings" represent consolidated earnings from continuing operations before
income taxes, cumulative effect adjustments and extraordinary items plus fixed
charges and minority interest. "Fixed charges" consist of interest (and the
portion of rental expense deemed representative of the interest factor) and
include the dividends paid to preferred shareholders of a subsidiary. (Refer to
Note 13 of Notes to Consolidated Financial Statements in the Annual Report.)

During 1995, there was no preferred stock outstanding. As a result, the ratio of
earnings to combined fixed charges and preferred stock dividends was the same as
the ratio of earnings to fixed charges. On July 19, 1999, the Company redeemed
all outstanding shares of its preferred stock. Therefore, there were no
preferred stock dividends paid after that date.

d.  Trademarks

The trademarks Aetna (Registered Trademark), Aetna U.S. Healthcare (Registered
Trademark), and U.S. Healthcare (Registered Trademark), together with the
corresponding design logos are owned by the Company. The Company considers these
trademarks and its other trademarks and trade names important in the operation
of its business. However, the business of the Company is not dependent on any
individual trademark or trade name.

                                     Page 23


<PAGE>   24

e.  Ratings

The ratings of certain of Aetna Inc.'s subsidiaries follow:

<TABLE>
<CAPTION>
                                                                                             Rating Agencies
                                                                       ----------------------------------------------------
                                                                                                    Moody's
                                                                                       Duff &      Investors       Standard
                                                                       A.M. Best       Phelps       Service        & Poor's
                                                                       ----------------------------------------------------
<S>                                                                    <C>             <C>         <C>             <C>
Aetna Services, Inc. (senior debt)**
   October 27, 1999                                                        *              A            A3             A
   February 7, 2000 (1)                                                    *              A            A3             A

Aetna Services, Inc. (commercial paper)**
   October 27, 1999                                                        *             D-1          P-2            A-1
   February 7, 2000 (1)                                                    *             D-1          P-2            A-1

Aetna Life Insurance Company (claims paying/financial strength)
   October 27, 1999                                                        A             AA-           A1             A+
   February 7, 2000 (1)                                                    A             AA-           A1             A+

Aetna Life Insurance and Annuity Company (claims paying/
  financial strength)
   October 27, 1999                                                        A             AA           Aa3            AA-
   February 7, 2000 (1)                                                    A             AA           Aa3            AA-
</TABLE>

*     Nonrated by the agency.
**    Fully and unconditionally guaranteed by Aetna Inc.

(1)   Moody's Investors Service and Standard & Poor's have the debt and
financial strength ratings on outlook negative.

f.  Miscellaneous

The Company had approximately 46,700 domestic employees at December 31, 1999. In
addition, the Company had approximately 9,200 international employees at
December 31, 1999 in its majority and wholly owned non-U.S. subsidiaries.

Management believes that the Company's computer facilities, systems and related
procedures are adequate to meet its business needs. The Company's data
processing systems and backup and security policies, practices and procedures
are regularly evaluated by the Company's management and its internal auditors
and are modified as considered necessary. Refer to MD&A - Year 2000 for
information regarding the results to date of the Company's efforts to prepare
its systems, applications and facilities to accommodate Year 2000 date-sensitive
information.

The federal government is a significant customer of the Aetna U.S. Healthcare
segment and the Company, accounting for approximately 17% of the Company's
consolidated revenue in 1999. No other customer accounted for 10% or more of the
Company's consolidated revenues in 1999. No other segment of the Company's
business is dependent upon a single customer or a few customers, the loss of
which would have a significant effect on the earnings of the segment. Refer to
Note 17 of Notes to Consolidated Financial Statements in the Annual Report
regarding segment information.

The loss of business from any one, or a few, independent brokers or agents would
not have a material adverse effect on the earnings of the Company or any of its
segments.

                                     Page 24


<PAGE>   25

Item 2.  Properties.

The home office of the Company is a building complex located at 151 Farmington
Avenue, Hartford, Connecticut, with approximately 1.6 million square feet. The
Company and certain of its subsidiaries also own or lease other space in the
greater Hartford area; Blue Bell, Pennsylvania; Fairfield, New Jersey and
Roseland, New Jersey; as well as various field locations throughout the country.
The Company believes its properties are adequate and suitable for its business
as presently conducted.

The foregoing does not include numerous investment properties held by the
Company in its general and Separate Accounts.

Item 3.  Legal Proceedings.

Class Action Complaints were filed in the United States District Court for the
Eastern District of Pennsylvania on November 5, 1997 by Eileen Herskowitz and
Michael Wolin, and on December 4, 1997 by Pamela Goodman and Michael J. Oring.
Other Class Action Complaints were filed in the United States District Court for
the District of Connecticut on November 25, 1997 by Evelyn Silvert; on November
26, 1997 by the Rainbow Fund, Inc.; and on December 24, 1997 by Terry B. Cohen.
The Connecticut actions were transferred to the United States District Court for
the Eastern District of Pennsylvania (the "Court") for consolidated pretrial
proceedings with the cases pending there. The plaintiffs filed a Consolidated
and Amended Complaint (the "Complaint") seeking, among other remedies,
unspecified damages resulting from defendants' alleged violations of federal
securities laws. The Complaint alleged that the Company and three of its current
or former officers or directors, Ronald E. Compton, Richard L. Huber and Leonard
Abramson, are liable for certain misrepresentations and omissions regarding,
among other matters, the integration of the merger with U.S. Healthcare and the
Company's medical claim reserves. The Company and the individual defendants
filed a motion to dismiss the Complaint on July 31, 1998. On February 2, 1999,
the Court dismissed the Complaint, but granted the plaintiffs leave to file a
second amended complaint. On February 22, 1999, the plaintiffs filed a second
amended complaint against the Company, Ronald E. Compton and Richard L. Huber.
The Company and the remaining individual defendants filed a motion to dismiss
the second amended complaint, and the Court denied that motion in March 1999.
On August 9, 1999, the Court entered an order certifying as plaintiffs those
persons who purchased Company common stock on the market from March 6, 1997
through 7:00 a.m. on September 29, 1997. Merits discovery was completed in early
2000. On February 3, 2000, defendants filed motions for summary judgment
dismissing the complaint. Also on February 3, 2000, plaintiffs moved for
permission to file a third amended complaint and file expert reports.
Proceedings regarding defendants' summary judgment motions, along with the
remaining exchange of expert reports and expert discovery, are scheduled to be
completed in the second quarter of 2000. Trial is scheduled to begin in the
second quarter of 2000. Defendants are defending the actions vigorously.

The Company is involved in several purported class action lawsuits that it
believes are part of a wave of similar actions targeting the health care
industry and, in particular, the conduct of business by managed care companies.

A purported class action complaint was filed in the United States District Court
for the Eastern District of Pennsylvania on April 19, 1999 by Joseph Maio, Jo
Ann Maio and Gary Bender seeking various forms of relief, including unspecified
damages and treble damages, from the Company and a number of its subsidiaries
for alleged violations of the Racketeer Influenced and Corrupt Organizations Act
("RICO"), the Pennsylvania Unfair Trade Practices and Consumer Protection Law,
and state common law. On September 29, 1999, the Court dismissed the RICO claims
with prejudice and dismissed the state law claims for lack of subject matter
jurisdiction. The Court held, among other things, that the plaintiffs lacked
standing to pursue the federal RICO claims because they had not alleged an
injury in fact. Plaintiffs have appealed the dismissal to the United States
Court of Appeals for the Third Circuit.

                                     Page 25


<PAGE>   26

A purported class action complaint was filed in the United States District Court
for the Eastern District of Pennsylvania on October 4, 1999 by Anthony Conte
(the "Conte Complaint"). The Conte Complaint seeks various forms of relief,
including unspecified damages, from Aetna U.S. Healthcare Inc. for alleged
violations of the Employee Retirement Income Security Act of 1974 ("ERISA"). The
Conte Complaint alleges that Aetna U.S. Healthcare does not make adequate
disclosure of provider compensation arrangements in the literature that it makes
available to actual or prospective members. The Company intends to defend the
action vigorously and on November 1, 1999, filed a motion to dismiss the
litigation for failure to state a claim upon which relief can be granted. On
December 15, 1999, the Court suspended further proceedings pending the
resolution of the Maio appeal by the Third Circuit Court of Appeals.

A purported class action complaint was filed in the United States District Court
for the Southern District of Mississippi on October 7, 1999 by Jo Ann O'Neill
(the "O'Neill Complaint"). An Amended Complaint was filed on November 9, 1999 by
Jo Ann O'Neill, Lydia K. Rouse and Danny E. Waldrop. The O'Neill Complaint seeks
various forms of relief, including unspecified damages and treble damages, from
the Company, Aetna U.S. Healthcare Inc., Richard L. Huber and unnamed members of
the Board of Directors of Aetna Inc. for alleged violations of ERISA and RICO.
The O'Neill Complaint alleges that defendants are liable for alleged
misrepresentations and omissions relating to advertising, marketing and member
materials directed to Aetna HMO members. On November 22, 1999, defendants moved
to stay, dismiss or transfer the action to the United States District Court for
the Eastern District of Pennsylvania based on the Conte and Maio complaints
filed in that court. On January 25, 2000, the Court suspended further
proceedings pending resolution of a motion by another managed care company in
separate cases to consolidate those actions in a single court for pretrial
purposes. This litigation is in the preliminary stages. Defendants intend to
defend the action vigorously.

A purported class action complaint was filed in the Superior Court of
California, County of Contra Costa on October 28, 1999 by Jeanne E. Curtright in
her individual capacity and on behalf of the general public of the State of
California (the "Curtright Complaint"). The Curtright Complaint seeks various
forms of relief, including injunctive relief, restitution and disgorgement of
amounts allegedly wrongfully acquired, from the Company, Aetna U.S. Healthcare
Inc., Aetna U.S. Healthcare of California Inc. and unnamed "John Doe" defendants
for alleged violations of California Business and Professions Code Sections
17200 and 17500, California Civil Code Section 1750 and state common law in
connection with the sale and marketing of health plans in California. The
Curtright Complaint alleges that defendants are liable for alleged
misrepresentations and omissions relating to advertising, marketing and member
materials directed to Aetna HMO, POS and PPO members and members of the general
public. On December 16, 1999, defendants removed the action to the United States
District Court for the Northern District of California. On January 18, 2000,
plaintiff moved to remand the action to state court. On the same date, the
Company moved to dismiss the Curtright Complaint for failure to state a claim
upon which relief can be granted and moved for a stay of the action pending
resolution of the Maio and Conte matters. This litigation is in the preliminary
stages. Defendants intend to defend the action vigorously.

A complaint was filed in the Superior Court of the State of California, County
of San Diego on November 5, 1999 by Linda Ross and The Stephen Andrew Olsen
Coalition for Patients Rights, purportedly on behalf of the general public of
the State of California (the "Ross Complaint"). The Ross Complaint seeks various
forms of relief, including injunctive relief, restitution and disgorgement of
amounts allegedly wrongfully acquired, from Aetna Inc., Aetna U.S. Healthcare
Inc., Aetna U.S. Healthcare of California, Inc. and additional unnamed "John
Doe" defendants for alleged violations of California Business and Professions
Code Sections 17200 and 17500. The Ross Complaint alleges that defendants are
liable for alleged misrepresentations and omissions relating to advertising,
marketing and member materials directed to Aetna HMO, POS and PPO members and
the general public and for alleged unfair practices relating to contracting of
doctors. This litigation is in the preliminary stages. Defendants intend to
defend the action vigorously.


                                     Page 26


<PAGE>   27
A purported class action complaint was filed in the United States District Court
for the Southern District of Mississippi on November 22, 1999 by Raymond D.
Williamson, III (the "Williamson Complaint"). The Williamson Complaint names as
defendant The Prudential Insurance Company of America, and also names as
defendants Aetna Inc. and Aetna U.S. Healthcare Inc. solely to the extent that
the Company has assumed liability for the actions of Prudential in connection
with the Company's acquisition of the Prudential health care business. The
Williamson Complaint seeks various forms of relief from defendants, including
unspecified damages, treble damages and imposition of a constructive trust, for
alleged violations of RICO and ERISA. The Williamson Complaint alleges that the
Prudential Health Plans engaged in a nationwide fraudulent scheme of
misrepresentation by stating that coverage and treatment decisions were made on
the basis of medical necessity when Prudential allegedly implemented undisclosed
policies designed to deny or limit claims and medical services. On December 30,
1999, the Company moved to stay, dismiss or transfer the action to the United
States District Court for the Eastern District of Pennsylvania based on the fact
that the Maio and Conte Complaints were filed in that court. On January 25,
2000, the Court suspended further proceedings pending resolution of a motion by
another managed care company in separate cases to consolidate those actions in a
single court for pretrial purposes. This litigation is in the preliminary
stages. The Company intends to defend the action vigorously.

A purported class action complaint was filed in the United States District Court
for the District of New Jersey on December 3, 1999 by Michael V. Amorosi (the
"Amorosi Complaint"). The Amorosi Complaint seeks various forms of relief,
including unspecified damages, treble damages and restitutionary relief for
unjust enrichment, from Aetna Inc. and Aetna U.S. Healthcare Inc. for alleged
violations of RICO and ERISA. The Amorosi Complaint alleges that defendants told
subscribers that coverage and treatment decisions would be based on medical
necessity but instead took into account undisclosed cost-based criteria that
were unrelated to members' medical needs. On January 7, 2000, the Company moved
to stay, dismiss or transfer the action to the United States District Court for
the Eastern District of Pennsylvania based on the fact that the Maio and Conte
Complaints were filed in that court. This litigation is in the preliminary
stages. The Company intends to defend the action vigorously.

A purported amended class action complaint was filed in the United States
District Court for the Northern District of Alabama on January 19, 2000 by
Eugene Mangieri, M.D. (the "Mangieri Complaint"). The Mangieri Complaint seeks
various forms of relief, including unspecified damages, treble damages and
punitive damages, from Aetna Inc., Aetna U.S. Healthcare Inc. and Richard L.
Huber for alleged violations of RICO. The Mangieri Complaint claims that
physicians suffer actual and potential harm from allegedly coercive terms
contained in their contracts with the Company. This litigation is in the
preliminary stages. Defendants intend to defend the action vigorously.

The Company is also involved in numerous other lawsuits arising, for the most
part, in the ordinary course of its business operations, including bad faith,
medical malpractice, marketing and other litigation in its health business. Some
of these other lawsuits are purported to be class actions. Aetna U.S. Healthcare
of California Inc., an indirect subsidiary of the Company, is currently a party
to a bad faith and medical malpractice action brought by Teresa Goodrich,
individually and as successor in interest of David Goodrich. The action was
originally filed in March 1996 in Superior Court for the State of California,
county of San Bernardino. The action alleges damages for unpaid medical bills,
punitive damages and compensatory damages for wrongful death based upon, among
other things, alleged denial of claims for services provided to David Goodrich
by out-of-network providers without prior authorization. On January 20, 1999, a
jury rendered a verdict in favor of the plaintiff for $750,000 for unpaid
medical bills, $3.7 million for wrongful death and $116 million for punitive
damages. On April 12, 1999, the trial court amended the judgment to include
Aetna Services, Inc., a direct subsidiary of the Company, as a defendant. On
April 27, 1999, Aetna Services, Inc. and Aetna U.S. Healthcare of California
Inc. filed appeals with the California Court of Appeal and will continue to
defend this matter vigorously. While the ultimate outcome of the lawsuits
referred to in this paragraph cannot be determined at this time, after
consideration of the defenses available to the Company and any related reserves
established, and after consultation with counsel, the lawsuits referred to in
this paragraph are not expected to result in liability for amounts material to
the financial condition of the Company, although they may adversely affect
results of operations in future periods.


                                     Page 27

<PAGE>   28
Item 4.  Submission of Matters to a Vote of Security Holders.

None.

EXECUTIVE OFFICERS OF AETNA INC.*

The Chairman of the Company is elected and all other executive officers listed
below are appointed by the Board of Directors of the Company at its Annual
Meeting each year to hold office until the next Annual Meeting of the Board or
until their successors are elected or appointed. None of these officers have
family relationships with any other executive officer or Director.

<TABLE>
<CAPTION>
Name of Officer                     Principal Position                          Age *
---------------                     ------------------                          ---

<S>                                 <C>                                         <C>
William H. Donaldson                Chairman, President and Chief               68
                                    Executive Officer

Michael J. Cardillo                 Executive Vice President,                   56
                                    Aetna U.S. Healthcare

Timothy A. Holt                     Senior Vice President,                      46
                                    Aetna Investment
                                    Management Group

Thomas J. McInerney                 Executive Vice President,                   43
                                    Aetna Financial Services

L. Edward Shaw, Jr.                 Senior Vice President and                   55
                                    General Counsel

Alan J. Weber                       Vice Chairman for Strategy                  51
                                    and Finance
</TABLE>

*As of February 28, 2000

EXECUTIVE OFFICERS' BUSINESS EXPERIENCE DURING PAST FIVE YEARS

WILLIAM H. DONALDSON was named Chairman, President and Chief Executive Officer
on February 25, 2000. Prior to assuming his current position, he served as
Co-Founder and Senior Advisor of Donaldson, Lufkin & Jenrette, Inc. (investment
banking) since September 1995. Mr. Donaldson served as Chairman and Chief
Executive Officer of the New York Stock Exchange, Inc. from January 1991 to June
1995.

MICHAEL J. CARDILLO has served in his current position since July 19, 1996. He
also serves as President of Aetna U.S. Healthcare Inc., a position he assumed in
March 1997 after serving as Co-President since July 19, 1996. Mr. Cardillo had
been Co-President of U.S. Healthcare Inc. since 1995.


                                     Page 28


<PAGE>   29

TIMOTHY A. HOLT assumed his current position on January 29, 1999, having served
as Vice President, Aetna Investment Management Group since September 1997. From
1996 to September 1997, he served as Vice President and Chief Financial Officer
of Aetna Financial Services. He served as Vice President, Portfolio Management
Group, from 1992 to 1996.

THOMAS J. MCINERNEY assumed his current position on August 18, 1997, having
served as Vice President, Strategic Planning, since March 1997. He also
currently serves as President, Aetna Financial Services. From 1996 to 1997, he
served as Vice President, National Accounts, for Aetna Health Plans and then as
Vice President, National Accounts and Sales and Marketing, for the successor
business, Aetna U.S. Healthcare. During 1995 and 1996, he also served as Vice
President, Corporate Strategy. From 1992 to 1996, Mr. McInerney served as Vice
President, Large Case Pensions.

L. EDWARD SHAW, JR. assumed his current position on May 24, 1999. From August
1997 to May 1999, he served as Chief Corporate Officer, North America of
National Westminster Bank and from May 1996 to August 1997, he served as General
Counsel of NatWest Markets. From 1985 to 1996, Mr. Shaw served as Executive Vice
President and General Counsel of The Chase Manhattan Corporation.

ALAN J. WEBER assumed his current position on August 1, 1998. From July 1994 to
July 1998, Mr. Weber served as Chairman of Citibank International.


PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

Aetna Inc.'s common stock is listed on the New York Stock Exchange. Its symbol
is AET. As of January 31, 2000, there were 17,704 record holders of the common
stock.

The dividends declared and the high and low sales prices with respect to the
Company's common stock for each quarterly period for the past two years are
incorporated herein by reference from "Quarterly Data" in the Annual Report.

Information regarding restrictions on the Company's present and future ability
to pay dividends is incorporated herein by reference from Note 15 of Notes to
Consolidated Financial Statements and MD&A - Liquidity and Capital Resources in
the Annual Report.

Item 6.  Selected Financial Data.

The information contained in "Selected Financial Data" in the Annual Report is
incorporated herein by reference.

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

The information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Annual Report is incorporated herein
by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Total Investments" in the Annual Report is
incorporated herein by reference.


                                     Page 29


<PAGE>   30

Item 8.  Consolidated Financial Statements and Supplementary Data.

The 1999 Consolidated Financial Statements and the report of the registrant's
independent auditors and the unaudited information set forth under the caption
"Quarterly Data" are incorporated herein by reference to the Annual Report.

Item 9. Changes in and disagreements with Accountants on Accounting and
Financial Disclosure.

None.

PART III

Item 10.  Directors and Executive Officers of the Registrant.

Information concerning Executive Officers is included in Part I pursuant to
General Instruction G to Form 10-K.

Information concerning Directors and concerning compliance with Section 16 (a)
of the Securities Exchange Act of 1934 is incorporated herein by reference to
the Proxy Statement.

Item 11. Executive Compensation.

The information under the captions, "Director Compensation in 1999", "Other
Information Regarding Directors" and "Executive Compensation" in the Proxy
Statement is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

The information under the caption "Security Ownership of Certain Beneficial
Owners, Directors, Nominees and Executive Officers" in the Proxy Statement is
incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions.

The information under the caption, "Other Information Regarding Directors" and
"Certain Transactions and Relationships" in the Proxy Statement is incorporated
herein by reference.

PART IV

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

(a) The following documents are filed as part of this report:

1.  Financial statements:

The Consolidated Financial Statements and the report of the registrant's
independent auditors are incorporated herein by reference to the Annual Report.

2. Financial statement schedules:

The supporting schedules of the consolidated entity are included in this Item
14. Refer to Index to Financial Statement Schedules on page 37.


                                     Page 30


<PAGE>   31

3.  Exhibits: *

(3)    Articles of Incorporation and By-Laws.

3.1        Aetna Inc. Amended and Restated Certificate of Incorporation,
           incorporated herein by reference to Exhibit 3.1 to the Company's
           Registration Statement on Form S-4 (File No. 333-5791) filed on June
           12, 1996.

3.2        Aetna Inc. Bylaws, as amended, incorporated herein by reference to
           Exhibit 3.1 to the Company's Form 10-K filed on February 28, 1997.

(4) Instruments defining the rights of security holders, including indentures.

4.1        Rights Agreement dated as of September 24, 1999, between the Company
           and First Chicago Trust Company of New York, as Rights Agent,
           incorporated herein by reference to the Company's Registration
           Statement on Form 8-A filed on October 15, 1999.

4.2        Designations, Rights and Preferences of the Company's Class B Voting
           Preferred Stock, Class B Voting Preferred Stock, Series A, and 6.25%
           Class C Voting Preferred Stock, incorporated herein by reference to
           Exhibit 4.1 to the Company's Form 8-K filed on July 26, 1996.

4.3        Indenture, dated as of October 15, 1986, between Aetna Services, Inc.
           and The First National Bank of Boston, Trustee, incorporated herein
           by reference to Exhibit 4 to the Company's Form 10-K filed on
           February 26, 1999.

4.4        First Indenture Supplement, dated as of August 1, 1996, to Indenture,
           dated as of October 15, 1986, between Aetna Services, Inc. and State
           Street Bank and Trust Company, as Successor Trustee, incorporated
           herein by reference to Exhibit 4.6 to the Company's Form 10-Q filed
           on October 25, 1996.

4.5        Indenture, dated as of August 1, 1993, between Aetna Services, Inc.
           and State Street Bank and Trust Company of Connecticut, National
           Association, as Trustee, incorporated herein by reference to Aetna
           Services, Inc.'s Registration Statement on Form S-3 (File No.
           33-50427).

4.6        First Indenture Supplement, dated as of August 1, 1996, to the
           Indenture dated as of August 1, 1993 between Aetna Services, Inc. and
           State Street Bank and Trust Company of Connecticut, National
           Association, as Trustee, incorporated herein by reference to Exhibit
           4.8 to the Company's Form 10-Q filed on October 25, 1996.

4.7        Senior Indenture, dated July 1, 1996, among Aetna Services, Inc., the
           Company and State Street Bank and Trust Company of Connecticut,
           National Association, as Trustee, incorporated herein reference to
           Exhibit 4.1 to the Company's Form 10-Q filed on October 25, 1996.

4.8        Form of Subordinated Indenture, dated as of July 1, 1996, among the
           Company, Aetna Services, Inc. and State Street Bank and Trust Company
           of Connecticut, National Association, as Trustee (including the forms
           of Subordinated Debt Securities and Subordinated Debt Guarantees),
           incorporated herein by reference to Exhibit 4.2 to the Company's and
           Aetna Services, Inc.'s Amendment No. 1 to its Registration Statement
           on Form S-3 (File Nos. 333-52321; 333-52321-01; 333-52321-02;
           333-52321-03; 333-52321-04; 333-52321-05) filed on June 19, 1998.

4.9        Form of Junior Subordinated Indenture among the Company, Aetna
           Services, Inc. and The First National Bank of Chicago, as Trustee,
           incorporated herein by reference to Exhibit 4.3 to the Company's and
           Aetna Services, Inc.'s Amendment No. 1 to its Registration Statement
           on Form S-3 (File Nos. 333-52321; 333-52321-01; 333-52321-02;
           333-52321-03; 333-52321-04; 333-52321-05) filed on June 19, 1998.


                                     Page 31


<PAGE>   32

4.10       Form of Supplemental Indenture to be used in connection with the
           issuance of Junior Subordinated Debt Securities and Preferred
           Securities (including the forms of Junior Subordinated Debt
           Securities and Junior Subordinated Debt Guarantees), incorporated
           herein by reference to Exhibit 4.3.1 to the Company's and Aetna
           Services, Inc.'s Amendment No. 1 to its Registration Statement on
           Form S-3 (File Nos. 333-52321; 333-52321-01; 333-52321-02;
           333-52321-03; 333-52321-04; 333-52321-05) filed on June 19, 1998.

4.11       Declaration of Trust of Aetna Capital Trust I, incorporated herein by
           reference to Exhibit 4.4 to the Company's and Aetna Services, Inc.'s
           Registration Statement on Form S-3 (File Nos. 333-52321;
           333-52321-01; 333-52321-02; 333-52321-03; 333-52321-04; 333-52321-05)
           filed on May 11, 1998.

4.12       Declaration of Trust of Aetna Capital Trust II, incorporated herein
           by reference to Exhibit 4.5 to the Company's and Aetna Services,
           Inc.'s Registration Statement on Form S-3 (File Nos. 333-52321;
           333-52321-01; 333-52321-02; 333-52321-03; 333-52321-04; 333-52321-05)
           filed on May 11, 1998.

4.13       Declaration of Trust of Aetna Capital Trust III, incorporated herein
           by reference to Exhibit 4.6 to the Company's and Aetna Services,
           Inc.'s Registration Statement on Form S-3 (File Nos. 333-52321;
           333-52321-01; 333-52321-02; 333-52321-03; 333-52321-04; 333-52321-05)
           filed on May 11, 1998.

4.14       Declaration of Trust of Aetna Capital Trust IV, incorporated herein
           by reference to Exhibit 4.7 to the Company's and Aetna Services,
           Inc.'s Registration Statement on Form S-3 (File Nos. 333-52321;
           333-52321-01; 333-52321-02; 333-52321-03; 333-52321-04; 333-52321-05)
           filed on May 11, 1998.

4.15       Certificate of Trust of Aetna Capital Trust I, incorporated herein by
           reference to Exhibit 4.8 to the Company's and Aetna Services, Inc.'s
           Registration Statement on Form S-3 (File Nos. 333-52321;
           333-52321-01; 333-52321-02; 333-52321-03; 333-52321-04; 333-52321-05)
           filed on May 11, 1998.

4.16       Certificate of Trust of Aetna Capital Trust II, incorporated herein
           by reference to Exhibit 4.9 to the Company's and Aetna Services,
           Inc.'s Registration Statement on Form S-3 (File Nos. 333-52321;
           333-52321-01; 333-52321-02; 333-52321-03; 333-52321-04; 333-52321-05)
           filed on May 11, 1998.

4.17       Certificate of Trust of Aetna Capital Trust III, incorporated herein
           by reference to Exhibit 4.10 to the Company's and Aetna Services,
           Inc.'s Registration Statement on Form S-3 (File Nos. 333-52321;
           333-52321-01; 333-52321-02; 333-52321-03; 333-52321-04; 333-52321-05)
           filed on May 11, 1998.

4.18       Certificate of Trust of Aetna Capital Trust IV, incorporated herein
           by reference to Exhibit 4.11 to the Company's and Aetna Services,
           Inc.'s Registration Statement on Form S-3 (File Nos. 333-52321;
           333-52321-01; 333-52321-02; 333-52321-03; 333-52321-04; 333-52321-05)
           filed on May 11, 1998.

4.19       Form of Amended and Restated Declaration of Trust for each of Aetna
           Capital Trust I, II, III, and IV (including the form of Preferred
           Securities), incorporated herein by reference to Exhibit 4.12 to the
           Company's and Aetna Services, Inc.'s Amendment No. 1 to its
           Registration Statement on Form S-3 (File Nos. 333-52321;
           333-52321-01; 333-52321-02; 333-52321-03; 333-52321-04; 333-52321-05)
           filed on June 19, 1998.

4.20       Form of Guarantee Agreement among the Company, Aetna Services, Inc.,
           and The First National Bank of Chicago, as Trustee, with respect to
           each of Aetna Capital Trust I, II, III and IV's Preferred Securities,
           incorporated herein by reference to Exhibit 4.13 to the Company's and
           Aetna Services, Inc.'s Amendment No. 1 to its Registration Statement
           on Form S-3 (File Nos. 333-52321; 333-52321-01; 333-52321-02;
           333-52321-03; 333-52321-04; 333-52321-05) filed on June 19, 1998.

4.21       Indenture, dated as of August 5, 1999, by and among the Company,
           Aetna Services, Inc. and State Street Bank and Trust Company of
           Connecticut, National Association, incorporated herein by reference
           to Exhibit 4.03 to the Company's Form 8-K filed on August 9, 1999.


                                     Page 32


<PAGE>   33

4.22       Certificate dated August 6, 1999 representing Stock Appreciation
           Rights to purchase shares of Common Stock of the Company,
           incorporated herein by reference to Exhibit 4.01 to the Company's
           Form 8-K filed on August 9, 1999.

(10)  Material contracts.

10.1       Stock Purchase Agreement, dated as of November 28, 1995, between The
           Travelers Insurance Group Inc. and Aetna Services, Inc. relating to
           the purchase and sale of 100% of the Common Stock of The Aetna
           Casualty and Surety Company and The Standard Fire Insurance Company,
           incorporated herein by reference to Exhibit 10.1 to Aetna Services,
           Inc.'s Form 10-K filed on February 26, 1996.

10.2       Letter Agreement, dated as of January 31, 1996, between Aetna
           Services, Inc. and The Travelers Insurance Group Inc., incorporated
           herein by reference to Exhibit 10.5 to Aetna Services, Inc.'s Form
           10-Q filed on April 26, 1996.

10.3       Amendment, dated as of April 2, 1996, to Stock Purchase Agreement,
           dated as of November 28, 1995, between Aetna Services, Inc. and The
           Travelers Insurance Group Inc., incorporated herein by reference to
           Exhibit 10.6 to Aetna Services, Inc.'s Form 10-Q filed on April 26,
           1996.

10.4       Agreement and Plan of Merger, dated as of March 30, 1996, among Aetna
           Services, Inc., U.S. Healthcare, Inc., the Company, Antelope Sub,
           Inc. and New Merger Corporation, incorporated herein by reference to
           Exhibit 10.1 to Aetna Services, Inc.'s Form 10-Q filed on April 26,
           1996.

10.5       Amendment No. 1, dated as of May 30, 1996, to the Agreement and Plan
           of Merger, dated as of March 30, 1996, among Aetna Services, Inc.,
           U.S. Healthcare, Inc., the Company, Antelope Sub, Inc. and New Merger
           Corporation, incorporated herein by reference to Exhibit 2.2 to the
           Company's Registration Statement on Form S-4 (Registration No.
           333-5791) filed on June 12, 1996.

10.6       Registration Rights Agreement, dated as of August 6, 1999, by and
           between the Company and The Prudential Insurance Company of America,
           incorporated herein by reference to Exhibit 4.02 to the Company's
           Form 8-K filed on August 9, 1999.

10.7       Share Exchange and Registration Rights Agreement dated as of December
           16, 1999, between the Company and Citibank, N.A.

10.8       $2,500,000 Credit Agreement dated as of June 28, 1996, among Aetna
           Services, Inc., as Borrower, the Company, as Guarantor, the Banks
           listed therein, and Morgan Guaranty Trust Company of New York, as
           Administrative Agent, incorporated herein by reference to Exhibit 1
           to Aetna Services, Inc.'s Form 8-K filed on July 16, 1996.

10.9       Notification from Aetna Services, Inc. dated October 22, 1996
           electing to reduce Credit Facility to $1.5 billion, incorporated
           herein by reference to Exhibit 10.2 to the Company's Form 10-K filed
           on February 28, 1997.

10.10      Assignment dated June 29, 1998 of Credit Agreement dated as of June
           28, 1996, incorporated herein by reference to Exhibit 10 to the
           Company's Form 10-Q filed on August 5, 1998.

10.11      $500,000,000 Credit Agreement dated as of April 1, 1999, among Aetna
           Services, Inc., as Borrower, the Company, as Guarantor, the Banks
           listed therein, Morgan Guaranty Trust Company of New York, as
           Administrative Agent, J.P. Morgan Securities Inc., as Arranger,
           Deutsche Bank AG, New York Branch, as Co-Administrative Agent, The
           Chase Manhattan Bank, as Senior Managing Agent, and Citibank, N.A.,
           as Syndication Agent, incorporated herein by reference to Exhibit
           10.3 to the Company's Form 10-Q filed on April 28, 1999.


                                     Page 33


<PAGE>   34

10.12      Amended and Restated Agreement, dated as of May 30, 1996, between the
           Company and Leonard Abramson, incorporated herein by reference to
           Exhibit 10.3 to the Company's Registration Statement on Form S-4
           (Registration No. 333-5791) filed on June 12, 1996.

10.13      Amendment dated as of April 9, 1997, to the Amended and Restated
           Agreement, dated as of May 30, 1996, between the Company and Leonard
           Abramson, incorporated herein by reference to Exhibit 10.4 to the
           Company's Form 10-Q filed on May 6, 1997.

10.14      Amendment, dated as of September 4, 1997, to the Amended and Restated
           Agreement, dated as of May 30, 1996, between the Company and Leonard
           Abramson, incorporated herein by reference to Exhibit 10.1 to the
           Company's Form 10-Q filed on November 4, 1997.

10.15      Registration Rights Agreement, dated as of March 30, 1996, between
           the Company and Leonard Abramson, incorporated herein by reference to
           Exhibit 10.3 to Aetna Services, Inc.'s Form 10-Q filed on April 26,
           1996.

10.16      Amendment No. 1, dated as of May 30, 1996, to the Registration Rights
           Agreement, dated as of March 30, 1996, between the Company and
           Leonard Abramson, incorporated herein by reference to Exhibit 10.3 to
           the Company's Registration Statement on Form S-4 (Registration No.
           333-5791) filed on June 12, 1996.

10.17      Split Dollar Insurance Agreement, dated as of February 1, 1990, among
           Madlyn K. Abramson, Marcy A. Shoemaker (formerly Marcy Abramson),
           Nancy Wolfson, Judith Abramson and David B. Soll, and U.S.
           Healthcare, Inc., and the related Collateral Assignment Agreement,
           dated as of February 1, 1990, among Madlyn K. Abramson, Marcy A.
           Shoemaker (formerly Marcy Abramson), Nancy Wolfson, Judith Abramson
           and David B. Soll, and U.S. Healthcare, Inc.

10.18      Split Dollar Insurance Agreement, dated as of January 21, 1991, among
           Marcy A. Shoemaker (formerly Marcy Abramson), Nancy Wolfson, Judith
           Abramson, David B. Soll, Jerome Goodman and Edward M. Glickman, and
           U.S. Healthcare, Inc., and the related Collateral Assignment
           Agreement, dated as of January 21, 1991, among Marcy A. Shoemaker
           (formerly Marcy Abramson), Nancy Wolfson, Judith Abramson, David B.
           Soll, Jerome Goodman and Edward M. Glickman, and U.S. Healthcare,
           Inc.

10.19      Amended and Restated U.S. Healthcare, Inc. Savings Plan, incorporated
           herein by reference to Exhibit 10.18 to U.S. Healthcare, Inc.'s Form
           10-K filed on March 30, 1995.**

10.20      The Aetna Inc. 1996 Stock Incentive Plan, incorporated herein by
           reference to Exhibit 10.5 to the Company's Registration Statement on
           Form S-4 (Registration No. 333-5791) filed on June 12, 1996.**

10.21      The Aetna Inc. Annual Incentive Plan, incorporated herein by
           reference to Exhibit 10.6 to the Company's Registration Statement on
           Form S-4 (Registration No. 333-5791) filed on June 12, 1996.**

10.22      The Aetna Services, Inc. Supplemental Incentive Savings Plan Amended
           and Restated as of January 1, 1999, incorporated herein by reference
           to Exhibit 10.2 to the Company's Form 10-Q filed on July 29, 1999.**

10.23      The Aetna Services, Inc. Supplemental Pension Benefit Plan Amended
           and Restated as of January 1, 1999, incorporated herein by reference
           to Exhibit 10.1 to the Company's Form 10-Q filed on July 29, 1999.**

10.24      The Aetna Inc. Non-Employee Director Deferred Stock and Deferred
           Compensation Plan, as amended, incorporated herein by reference to
           Exhibit 10.1 to the Company's Form 10-K filed on February 28, 1997.**


                                     Page 34


<PAGE>   35

10.25      The Aetna Inc. 1998 Stock Incentive Plan, incorporated herein by
           reference to Exhibit 4.4 to the Company's Registration Statement on
           Form S-8 (Registration No. 333-68881) filed on December 14, 1998.**

10.26      1999 Director Charitable Award Program, incorporated herein by
           reference to Exhibit 10.1 to the Company's Form 10-Q filed on April
           28, 1999.**

10.27      Employment Agreement, dated as of December 19, 1995, between Aetna
           Services, Inc. and Daniel P. Kearney, incorporated herein by
           reference to Exhibit 10.5 to Aetna Services, Inc.'s Form 10-K filed
           on February 26, 1996.**

10.28      Amendment dated as of July 22, 1996, to Employment Agreement, dated
           as of December 19, 1995, between Aetna Services, Inc. and Daniel P.
           Kearney, incorporated herein by reference to Exhibit 10.7 to the
           Company's Form 10-Q filed on May 6, 1997.**

10.29      Amendment, dated as of September 8, 1997, to Employment Agreement,
           dated as of December 19, 1995, between Aetna Services, Inc. and
           Daniel P. Kearney, incorporated herein by reference to Exhibit 10.2
           to the Company's Form 10-Q filed on November 4, 1997.**

10.30      Letter Agreement, dated January 19, 1995, between Aetna Services,
           Inc. and Richard L. Huber, incorporated herein by reference to
           Exhibit 10.2 to Aetna Services, Inc.'s Form 10-K filed on February
           26, 1996.**

10.31      Amendment No. 1, dated March 1, 1996, to Letter Agreement, dated
           January 19, 1995, between Aetna Services, Inc. and Richard L. Huber,
           incorporated herein by reference to Exhibit 10.12 to the Company's
           Registration Statement on Form S-4 (Registration No. 333-5791) filed
           on June 12, 1996.**

10.32      Amendment, dated July 22, 1996, to Letter Agreement, dated as of
           January 19, 1995, between the Company and Richard L. Huber,
           incorporated herein by reference to Exhibit 10.5 to the Company's
           Form 10-Q filed on May 6, 1997.**

10.33      Employment Agreement, dated as of March 30, 1996, between U.S.
           Healthcare, Inc. and Michael Cardillo, incorporated herein by
           reference to Exhibit 10.2 to the Company's Form 10-Q filed on October
           25, 1996.**

10.34      Letter Agreement, dated as of June 6, 1995, between Aetna Services,
           Inc. and Frederick C. Copeland, Jr.**

10.35      Amendment, dated July 22, 1996, to Letter Agreement, dated as of June
           6, 1995, between the Company and Frederick C. Copeland, Jr.**

10.36      Letter Agreement, dated as of September 26, 1997, between the Company
           and Frederick C. Copeland, Jr., incorporated herein by reference to
           Exhibit 10.3 to the Company's Form 10-Q filed on July 29, 1999.**

10.37      Letter Agreement, dated as of May 4, 1999, between the Company and
           Frederick C. Copeland, Jr., incorporated herein by reference to
           Exhibit 10.5 to the Company's Form 10-Q filed on July 29, 1999.**

10.38      Letter Agreement, dated December 3, 1999, between the Company and
           Frederick C. Copeland, Jr.**

10.39      Letter Agreement, dated as of April 6, 1999, between the Company and
           Thomas J. McInerney, incorporated herein by reference to Exhibit 10.4
           to the Company's Form 10-Q filed on July 29, 1999.**


                                     Page 35


<PAGE>   36

10.40      Letter Agreement, dated as of June 11, 1998, between the Company and
           Alan J. Weber, incorporated herein by reference to Exhibit 10.2 to
           the Company's Form 10-Q filed on April 28, 1999.**

10.41      Description of certain arrangements not embodied in formal documents,
           as described under the headings "Director Compensation in 1999" and
           "Executive Compensation", are incorporated herein by reference to the
           Company's 2000 Proxy Statement.

*     Exhibits other than those listed are omitted because they are not required
      to be listed or are not applicable. Copies of exhibits (including certain
      investments defining the rights of holders of long-term debt of the
      Company and certain of its subsidiaries that are not required to be
      listed) will be furnished without charge upon written request to the
      Office of the Corporate Secretary, Aetna Inc., 151 Farmington Avenue,
      Hartford, Connecticut 06156.

**    Management contract or compensatory plan or arrangement.

(11) Statement re: computation of per share earnings.

Incorporated herein by reference to Note 2 of Notes to Consolidated Financial
Statements in the Annual Report.

(12) Statement re: computation of ratios.

Statement re: computation of ratio of earnings to fixed charges for the Company
for the years ended December 31, 1999, 1998, 1997, 1996 and 1995 and Aetna
Services for the years ended December 31, 1999, 1998 and 1997.

Statement re: computation of ratio of earnings to combined fixed charges and
preferred stock dividends for the Company for the years ended December 31, 1999,
1998, 1997, 1996 and 1995 and Aetna Services for the years ended December 31,
1999, 1998 and 1997.

(13) Annual Report to security holders.

Selected Financial Data, Management's Discussion and Analysis of Financial
Condition and Results of Operations, Consolidated Financial Statements and the
report of the Company's independent auditors, and unaudited Quarterly Data are
incorporated herein by reference to the Annual Report.

(21) Subsidiaries of the registrant.

A listing of subsidiaries of Aetna Inc.

(23) Consents of experts and counsel.

Consent of Independent Auditors to Incorporation by Reference in the
Registration Statements on Form S-3 and Form S-8.

(24.1) Power of attorney.

(24.2) Power of attorney.

(27)   Financial data schedule.

(b)    Reports on Form 8-K

None.


                                     Page 36

<PAGE>   37

                     INDEX TO FINANCIAL STATEMENT SCHEDULES
                                   AETNA INC.

<TABLE>
<CAPTION>
                                                                                                         Page
                                                                                                         ----

<S>                                                                                                      <C>
Independent Auditors' Report                                                                              38

I          Summary of Investments - Other than Investments in Affiliates as of December 31, 1999.         39

II         Condensed Financial Information of the Registrant:
                  Balance sheet of Aetna Inc. as of December 31, 1999 and 1998
                  and the related statements of income, shareholders' equity and
                  cash flows for the years ended December 31, 1999, 1998 and
                  1997.                                                                                   40

III        Supplementary Insurance Information as of and for the years ended December 31,
                  1999, 1998 and 1997.                                                                    46

V          Valuation and Qualifying Accounts and Reserves for the years ended December 31,
                  1999, 1998 and 1997.                                                                    49
</TABLE>

Certain of the required information is shown in the Consolidated Financial
Statements or Notes thereto in the Annual Report. Certain information has been
omitted from the schedules filed because the information is not applicable.

Certain reclassifications have been made to the 1998 and 1997 financial
information to conform to the 1999 presentation.


                                     Page 37
<PAGE>   38
                          INDEPENDENT AUDITORS' REPORT


The Shareholders and Board of Directors
Aetna Inc.:


Under date of February 7, 2000, we reported on the consolidated balance sheets
of Aetna Inc. and Subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1999, as contained in
the 1999 annual report to shareholders. These consolidated financial statements
and our report thereon are incorporated by reference in the annual report on
Form 10-K for the year 1999. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related financial
statement schedules as listed in the accompanying index. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.

In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.




                                  /s/ KPMG LLP



Hartford, Connecticut
February 7, 2000



                                     Page 38
<PAGE>   39
                          AETNA INC. AND SUBSIDIARIES
                                   SCHEDULE I
         Summary of Investments - Other than Investments in Affiliates
                            As of December 31, 1999

<TABLE>
<CAPTION>
                                                                                                                    Amount
                                                                                                                  at which
                                                                                                              shown in the
(Millions)                                                                    Cost           Value*          balance sheet
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>               <C>                  <C>
Debt securities:
  Bonds:
         U. S. government and government agencies and authorities     $    2,357.6      $    2,315.9          $    2,315.9
         States, municipalities and political subdivisions                   778.3             769.0                 769.0
     U.S. corporate securities:
         Utilities                                                         2,317.1           2,259.9               2,259.9
         Financial                                                         4,206.1           4,061.9               4,061.9
         Transportation/capital goods                                      2,102.9           2,055.1               2,055.1
         Health care/consumer products                                     2,999.2           2,876.4               2,876.4
         Natural resources                                                   426.6             412.3                 412.3
         Other corporate securities                                          917.6             864.6                 864.6
--------------------------------------------------------------------------------------------------------------------------
               Total U.S. corporate securities                            12,969.5          12,530.2              12,530.2
--------------------------------------------------------------------------------------------------------------------------
      Foreign:
         Government, including political subdivisions                      2,190.3           2,210.2               2,210.2
         Utilities                                                           237.3             231.7                 231.7
         Other                                                             2,434.4           2,397.7               2,397.7
--------------------------------------------------------------------------------------------------------------------------
               Total foreign securities                                    4,862.0           4,839.6               4,839.6
--------------------------------------------------------------------------------------------------------------------------
     Residential mortgage-backed securities:
         Pass-throughs                                                     1,891.1           1,825.3               1,825.3
         Collateralized mortgage obligations                               2,793.0           2,782.6               2,782.6
--------------------------------------------------------------------------------------------------------------------------
               Total residential mortgage-backed securities                4,684.1           4,607.9               4,607.9
--------------------------------------------------------------------------------------------------------------------------
     Commercial/Multifamily mortgage-backed securities                     2,621.3           2,482.5               2,482.5
     Other asset-backed securities                                           996.9             985.8                 985.8
--------------------------------------------------------------------------------------------------------------------------
               Total bonds                                                29,269.7          28,530.9              28,530.9
     Redeemable preferred stocks                                             139.7             130.7                 130.7
--------------------------------------------------------------------------------------------------------------------------
               Total debt securities                                  $   29,409.4      $   28,661.6          $   28,661.6
==========================================================================================================================
Equity securities:
     Common stocks:
     Public utilities                                                 $       12.3      $       13.1          $       13.1
     Banks, trust and insurance companies                                     77.6              81.0                  81.0
     Industrial, miscellaneous and all other                                 465.8             525.4                 525.4
--------------------------------------------------------------------------------------------------------------------------
               Total common stocks                                           555.7             619.5                 619.5
     Nonredeemable preferred stocks                                          176.9             171.6                 171.6
--------------------------------------------------------------------------------------------------------------------------
               Total equity securities                                $      732.6      $      791.1          $      791.1
==========================================================================================================================
Short-term investments                                                       788.2                                   788.2
Mortgage loans                                                             3,238.2                                 3,238.2
Real estate                                                                  361.8                                   361.8
Policy loans                                                                 541.5                                   541.5
Other                                                                        935.0(1)                              1,394.8(2)
--------------------------------------------------------------------------------------------------------------------------
               Total investments                                      $   36,006.7                            $   35,777.2
==========================================================================================================================
</TABLE>

*  Refer to Notes 1 and 4 of Notes to Consolidated Financial Statements in the
   Company's 1999 Annual Report.


(1) Excludes investments in affiliates of $459.8 million.
(2) Includes investments in affiliates of $459.8 million.


                                    Page 39



<PAGE>   40


                          AETNA INC. AND SUBSIDIARIES

                                  SCHEDULE II

                        Condensed Financial Information

                                   AETNA INC.

                              Statements of Income

<TABLE>
<CAPTION>
                                                                                          For the years ended December 31,

(Millions)                                                                           1999              1998              1997
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>               <C>             <C>
Net investment income                                                             $   2.2           $   2.0          $     .5
-----------------------------------------------------------------------------------------------------------------------------
               Total revenue                                                          2.2               2.0                .5
Operating expenses                                                                      -                 -                 -
-----------------------------------------------------------------------------------------------------------------------------
Income before income taxes and equity in earnings of affiliates                       2.2               2.0                .5
Income taxes                                                                          1.7                .6                .1
Equity in earnings of affiliates                                                    716.4             846.7             900.7
-----------------------------------------------------------------------------------------------------------------------------
Net income                                                                        $ 716.9           $ 848.1          $  901.1
=============================================================================================================================
</TABLE>

See Notes to Condensed Financial Statements.



                                    Page 40


<PAGE>   41



                          AETNA INC. AND SUBSIDIARIES

                                  SCHEDULE II

                        Condensed Financial Information

                                   AETNA INC.

                                 Balance Sheets

<TABLE>
<CAPTION>
                                                                                                       As of December 31,

(Millions, except share data)                                                                1999                   1998
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                   <C>
Assets:
Investments:
  Short-term investments                                                                  $      4.0           $      3.1
  Investments in affiliates                                                                 10,674.3             11,400.7
-------------------------------------------------------------------------------------------------------------------------
Total investments                                                                           10,678.3             11,403.8
 Cash and cash equivalents                                                                      11.7                 15.8
 Due from affiliates                                                                             3.4                  2.2
 Affiliate dividends receivable                                                                 70.0                 50.0
 Deferred income taxes                                                                           1.6                  1.5
-------------------------------------------------------------------------------------------------------------------------
Total assets                                                                              $ 10,765.0           $ 11,473.3
=========================================================================================================================

Liabilities:
 Dividends payable to shareholders                                                        $     28.5           $     35.2
 Other liabilities                                                                              23.5                 29.0
 Current income taxes                                                                           22.6                 20.2
-------------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                               74.6                 84.4
-------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
 Class C Voting Mandatorily Convertible Preferred Stock
      ($.01 par value; 15,000,000 shares authorized;
      11,614,816 in 1998 issued and outstanding)                                                 -                  862.1
 Common stock ($.01 par value; 500,000,000 shares authorized,
      142,680,694 in 1999 and 141,272,628 in 1998 issued and
      outstanding)                                                                           3,719.3              3,292.4
 Accumulated other comprehensive income (loss)                                                (655.6)               177.8
 Retained earnings                                                                           7,626.7              7,056.6
-------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                                  10,690.4             11,388.9
-------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                                $ 10,765.0           $ 11,473.3
=========================================================================================================================
</TABLE>


See Notes to Condensed Financial Statements.



                                    Page 41


<PAGE>   42

                          AETNA INC. AND SUBSIDIARIES
                                  SCHEDULE II
                        Condensed Financial Information
                                   AETNA INC.
                       Statements of Shareholders' Equity


<TABLE>
<CAPTION>
                                                                                  Three years ended December 31, 1999
                                                                     ---------------------------------------------------------
                                                                                                            Accumulated Other
                                                                                                   Comprehensive Income(Loss)
                                                                                                  ---------------------------
                                                                                                   Unrealized         Foreign
                                                                                    Retained     Gains(Losses)       Currency
(Millions, except share data)                                         Total         Earnings     on Securities   Gains(Losses)
------------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                 <C>             <C>                  <C>
Balances at December 31, 1996                                  $   10,889.7      $   5,651.5     $       440.7        $(100.7)
==============================================================================================================================
Comprehensive income:
     Net income                                                       901.1            901.1
     Other comprehensive loss, net of tax:
         Unrealized gains on securities ($66.5 pretax)        (1)      43.2                               43.2
         Foreign currency (($117.1) pretax)                           (76.1)                                            (76.1)
                                                                  ----------
     Other comprehensive loss                                         (32.9)
                                                                  ----------
               Total comprehensive income                             868.2
                                                                  ==========
Common stock issued for benefit
     plans (1,883,945 shares)                                         134.7
Repurchase of common shares (6,173,3,900 shares)                     (523.1)
Common stock dividends                                               (118.6)          (118.6)
Preferred stock dividends                                             (55.5)           (55.5)
------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1997                                  $   11,195.4      $   6,378.5     $       483.9         (176.8)
==============================================================================================================================
Comprehensive income:
     Net income                                                       848.1            848.1
     Other comprehensive loss, net of tax:
         Unrealized losses on securities (($156.0) pretax)   (1)     (101.4)                            (101.4)
         Foreign currency (($43.3) pretax)                            (27.9)                                            (27.9)
                                                                  ----------
     Other comprehensive loss                                        (129.3)
                                                                  ----------
               Total comprehensive income                             718.8
                                                                  ==========
Common stock issued for benefit
     plans (576,387 shares)                                            39.6
Repurchase of common shares (5,131,700 shares)                       (394.9)
Conversion of preferred securities (40,390 preferred
  shares converted to 33,097 shares)
Common stock dividends                                               (114.7)          (114.7)
Preferred stock dividends                                             (55.3)           (55.3)
------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1998                                  $   11,388.9      $   7,056.6     $       382.5        $(204.7)
==============================================================================================================================
Comprehensive loss:
     Net income                                                       716.9            716.9
     Other comprehensive loss, net of tax:
         Unrealized losses on securities (($904.9) pretax)   (1)     (588.2)                            (588.2)
         Foreign currency (($377.2) pretax)                          (245.2)                                           (245.2)
                                                                  ----------
     Other comprehensive loss                                        (833.4)
                                                                  ----------
               Total comprehensive loss                              (116.5)
                                                                  ==========
Common stock issued for benefit
     plans (588,580 shares)                                            44.8
Issuance of stock appreciation rights                                  32.5
Repurchase of common shares (8,700,00 shares)                        (512.5)
Conversion of preferred securities (11,614,816
   preferred shares converted to 9,519,486 shares)
Common stock dividends                                               (116.3)          (116.3)
Preferred stock dividends                                             (30.5)           (30.5)
------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1999                                  $   10,690.4      $   7,626.7     $      (205.7)       $(449.9)
==============================================================================================================================
</TABLE>




<TABLE>
<CAPTION>
                                                              Three years ended December 31, 1999
                                                              -----------------------------------
                                                                        Class C
                                                                         Voting
                                                                    Mandatorily
                                                                    Convertible
                                                                      Preferred            Common
(Millions, except share data)                                             Stock             Stock
---------------------------------------------------------------------------------------------------
<S>                                                                 <C>              <C>
Balances at December 31, 1996                                        $    865.4      $    4,032.8
===================================================================================================
Comprehensive income:
     Net income
     Other comprehensive loss, net of tax:
         Unrealized gains on securities ($66.5 pretax)
         Foreign currency (($117.1) pretax)

     Other comprehensive loss

               Total comprehensive income

Common stock issued for benefit
     plans (1,883,945 shares)                                                               134.7
Repurchase of common shares (6,173,900 shares)                                             (523.1)
Common stock dividends
Preferred stock dividends
---------------------------------------------------------------------------------------------------
Balances at December 31, 1997                                       $     865.4      $    3,644.4
===================================================================================================
Comprehensive income:
     Net income
     Other comprehensive loss, net of tax:
         Unrealized losses on securities (($156.0) pretax)
         Foreign currency (($43.3) pretax)

     Other comprehensive loss

               Total comprehensive income

Common stock issued for benefit
     plans (576,387 shares)                                                                  39.6
Repurchase of common shares (5,131,700 shares)                                             (394.9)
Conversion of preferred securities (40,390 preferred                      (3.3)               3.3
  shares converted to 33,097 shares)
Common stock dividends
Preferred stock dividends
---------------------------------------------------------------------------------------------------
Balances at December 31, 1998                                        $    862.1      $    3,292.4
===================================================================================================
Comprehensive loss:
     Net income
     Other comprehensive loss, net of tax:
         Unrealized losses on securities (($904.9) pretax)
         Foreign currency (($377.2) pretax)

     Other comprehensive loss

               Total comprehensive loss

Common stock issued for benefit
     plans (588,580 shares)                                                                  44.8
Issuance of stock appreciation rights                                                        32.5
Repurchase of common shares (8,700,00 shares)                                              (512.5)
Conversion of preferred securities (11,614,816                           (862.1)            862.1
   preferred shares converted to 9,519,486 shares)
Common stock dividends
Preferred stock dividends
---------------------------------------------------------------------------------------------------
Balances at December 31, 1999                                        $        -      $    3,719.3
===================================================================================================
</TABLE>


(1)  Net of reclassification adjustments.
See Notes to the Condensed Financial Statements.



                                    Page 42




<PAGE>   43


                          AETNA INC. AND SUBSIDIARIES

                                  SCHEDULE II

                        Condensed Financial Information

                                   AETNA INC.

                            Statements of Cash Flows


<TABLE>
<CAPTION>
                                                                                           For the years ended December 31,
                                                                                --------------------------------------------------

(Millions)                                                                              1999             1998                1997
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>              <C>                <C>
Cash Flows from Operating Activities:
    Net income                                                                    $    716.9       $    848.1         $     901.1
    Adjustments to reconcile net income to net cash (used for) provided by
         operating activities:
             Equity in earnings of affiliates                                         (716.4)          (846.7)             (900.7)
             Other, net                                                                 (4.1)             2.4                (8.4)
---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities                                    (3.6)             3.8                (8.0)
---------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
    Proceeds from sales of short-term investments                                      540.4            431.6               619.4
    Cost of investments in short-term investments                                     (541.3)          (431.5)             (613.8)
    Capital contributions to affiliates                                                (12.8)               -              (160.0)
    Dividends received from affiliates                                                 634.7            520.0               746.2
    Other, net                                                                           (.3)            (4.0)              (25.3)
---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities                                              620.7            516.1               566.5
---------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
    Common stock issued under benefit plans                                             44.8             39.6               134.7
    Common shares repurchased                                                         (512.5)          (394.9)             (523.1)
    Dividends paid to shareholders                                                    (153.5)          (170.9)             (174.9)
---------------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities                                                (621.2)          (526.2)             (563.3)
---------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents                                               (4.1)            (6.3)               (4.8)
Cash and cash equivalents, beginning of year                                            15.8             22.1                26.9
---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                                            $     11.7       $     15.8         $      22.1
=================================================================================================================================
Supplemental disclosure of cash flow information:
    Interest paid                                                                 $        -       $        -         $         -
    Income taxes paid (received), net                                             $     (9.8)      $     (1.1)        $       1.0
=================================================================================================================================
</TABLE>

See Notes to Condensed Financial Statements.



                                    Page 43


<PAGE>   44



                          AETNA INC. AND SUBSIDIARIES

                                  SCHEDULE II

                        Condensed Financial Information

                                   AETNA INC.

                    Notes to Condensed Financial Statements

1.  Background of Organization

Aetna Inc. was incorporated under the Stock Corporation Act of the state of
Connecticut on March 25, 1996 for the purpose of effecting the combination of
Aetna Services, Inc. ("Aetna Services") (formerly Aetna Life and Casualty
Company) and Aetna U.S. Healthcare Inc. ("Aetna U.S. Healthcare") (formerly
U.S. Healthcare, Inc. ("U.S. Healthcare")) in accordance with the terms of the
Agreement and Plan of Merger dated as of March 30, 1996.  The merger was
consummated on July 19, 1996.  As a result, Aetna Services and Aetna U.S.
Healthcare are each direct wholly owned subsidiaries of Aetna Inc.  The
accompanying condensed financial statements should be read in conjunction with
the Consolidated Financial Statements and Notes thereto in the Annual Report.

2.  Guarantee of Debt Securities

Aetna Inc. had fully and unconditionally guaranteed the payment of all
principal, premium, if any, and interest on all outstanding debt securities of
Aetna Services, including the $348 million 9.5% Subordinated Debentures due
2024 (the "Subordinated Debentures") issued to Aetna Capital L.L.C. ("ACLLC"),
a wholly owned subsidiary of Aetna Services. These Subordinated Debentures
represented substantially all of the assets of ACLLC until they were redeemed
in December 1999.

ACLLC issued $275 million of 9.5% Cumulative Monthly Income Preferred
Securities, Series A. These securities were redeemed on December 10, 1999.
Refer to Note 14 of Notes to Consolidated Financial Statements in the Annual
Report for a description of outstanding debt.

3.  Dividends

Cash dividends paid to Aetna Inc. by Aetna Services were $.5 billion in 1999
and 1998, and $.4 billion in 1997. Cash dividends paid to Aetna Inc. by Aetna
U.S. Healthcare were $.1 billion in 1999 and $.3 billion in 1997. No dividends
were paid by Aetna U.S. Healthcare in 1998. Also, in 1997 Aetna U.S. Healthcare
made a non-cash dividend of $.3 billion to Aetna Inc. Refer to Note 15 of Notes
to Consolidated Financial Statements in the Annual Report for a description of
dividend restrictions.

4.  New Accounting Standards

Refer to Note 1 of Notes to Consolidated Financial Statements in the Annual
Report for a description of new accounting standards.

5.  Discontinued Products

Refer to Note 8 of Notes to Consolidated Financial Statements in the Annual
Report for a description of discontinued products.

                                    Page 44



<PAGE>   45



                          AETNA INC. AND SUBSIDIARIES

                                  SCHEDULE II

                        Condensed Financial Information

                                   AETNA INC.

              Notes to Condensed Financial Statements (Continued)



6.  Other Acquisitions and Dispositions

Refer to Note 3 of Notes to Consolidated Financial Statements in the Annual
Report for a description of other acquisitions and dispositions.


7.  Income Taxes

Refer to Note 9 of Notes to Consolidated Financial Statements in the Annual
Report for a description of income taxes.

                                    Page 45



<PAGE>   46



                          AETNA INC. AND SUBSIDIARIES

                                  SCHEDULE III

                      Supplementary Insurance Information

                 As of and for the year ended December 31, 1999

<TABLE>
<CAPTION>
                                 Deferred                                 Unpaid                    Policyholders'
                                   policy                Future           claims                        funds left
                              acquisition                policy       and claims       Unearned           with the        Premium
Segment                             costs              benefits         expenses       premiums            Company        revenue
---------------------------------------------------------------------------------------------------------------------------------
(Millions)
<S>                       <C>               <C>                    <C>            <C>              <C>               <C>
Aetna U.S. Healthcare            $    3.7             $ 1,170.9         $4,820.0         $458.5          $   678.6      $18,522.6
Aetna Financial Services          1,046.4               4,201.8             29.9              -           11,292.2          107.5
Aetna International               1,009.7               3,981.5            124.8           48.6               33.6        2,152.3
Large Case Pensions                     -               8,245.1              1.8              -            3,477.0          118.9
---------------------------------------------------------------------------------------------------------------------------------
   Total                         $2,059.8             $17,599.3         $4,976.5         $507.1          $15,481.4      $20,901.3
=================================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                   Amortization
                                                                                    of deferred
                                                   Other income          Current         policy              Other
                           Net investment   (including realized       and future    acquisition          operating       Premiums
Segment                        income (1)        capital gains)     benefits (2)          costs       expenses (3)    written (4)
---------------------------------------------------------------------------------------------------------------------------------
(Millions)
<S>                       <C>               <C>                    <C>            <C>              <C>               <C>
Aetna U.S. Healthcare            $  612.8              $1,752.6        $15,890.7         $   .5           $4,194.4      $17,627.5
Aetna Financial Services            904.7                 518.2            746.5          104.9              389.4              -
Aetna International                 456.5                 199.0          1,850.2           99.1              603.7          803.6
Large Case Pensions                 982.5                  70.4            904.1              -               31.3              -
Corporate                             9.4                  45.3                -              -              413.7              -
---------------------------------------------------------------------------------------------------------------------------------
   Total                         $2,965.9              $2,585.5        $19,391.5         $204.5           $5,632.5      $18,431.1
=================================================================================================================================
</TABLE>

(1) The allocation of net investment income is based upon the investment year
    method or specific identification of certain portfolios within specific
    segments.

(2) Includes reductions of the loss on discontinued products.

(3) Includes operating expenses, salaries and related benefits, interest
    expense, amortization of goodwill and other acquired intangible assets and
    severance and facilities charges (reserve reductions).

(4) Excludes life insurance business pursuant to Regulation S-X.

                                    Page 46



<PAGE>   47




                          AETNA INC. AND SUBSIDIARIES

                                  SCHEDULE III

                      Supplementary Insurance Information

                 As of and for the year ended December 31, 1998

<TABLE>
<CAPTION>
                                 Deferred                                Unpaid                    Policyholders'
                                   policy                Future          claims                        funds left
                              acquisition                policy      and claims        Unearned          with the         Premium
Segment                             costs              benefits        expenses        premiums           Company         revenue
---------------------------------------------------------------------------------------------------------------------------------
(Millions)
<S>                           <C>                  <C>              <C>            <C>                <C>             <C>
Aetna U.S. Healthcare            $    3.6             $ 1,165.8        $3,807.1          $306.3         $   608.5       $13,006.2
Aetna Financial Services            893.1               4,178.0            14.4               -          11,473.9           131.9
Aetna International                 871.9               4,429.3           131.0           122.6             343.7         1,578.5
Large Case Pensions                     -               8,768.0             1.4               -           5,206.4           122.7
---------------------------------------------------------------------------------------------------------------------------------
   Total                         $1,768.6             $18,541.1        $3,953.9          $428.9         $17,632.5       $14,839.3
=================================================================================================================================
</TABLE>


<TABLE>
<CAPTION>
                                                                                   Amortization
                                                                                    of deferred
                                                   Other income         Current          policy             Other
                           Net investment   (including realized      and future     acquisition         operating        Premiums
Segment                        income (1)        capital gains)    benefits (2)           costs      expenses (3)     written (4)
---------------------------------------------------------------------------------------------------------------------------------
(Millions)
<S>                           <C>                  <C>              <C>            <C>                <C>             <C>
Aetna U.S. Healthcare            $  537.2              $1,576.0       $11,186.5         $    .6          $3,133.3       $12,058.7
Aetna Financial Services          1,054.1                 701.4           918.2           128.3             408.6               -
Aetna International                 459.8                 109.3         1,336.6            86.4             532.7           594.7
Large Case Pensions               1,152.5                  88.7         1,054.4               -              37.1               -
Corporate                            16.9                 106.6               -               -             410.8               -
---------------------------------------------------------------------------------------------------------------------------------
   Total                         $3,220.5              $2,582.0       $14,495.7          $215.3          $4,522.5       $12,653.4
=================================================================================================================================
</TABLE>

(1) The allocation of net investment income is based upon the investment year
    method or specific identification of certain portfolios within specific
    segments.

(2) Includes reductions of the loss on discontinued products.

(3) Includes operating expenses, salaries and benefits, interest expense,
    amortization of goodwill and other acquired intangible assets and severance
    and facilities charges (reserve reductions).

(4) Excludes life insurance business pursuant to Regulation S-X.

                                    Page 47



<PAGE>   48


                          AETNA INC. AND SUBSIDIARIES

                                  SCHEDULE III

                      Supplementary Insurance Information

                 As of and for the year ended December 31, 1997

<TABLE>
<CAPTION>
                                 Deferred                                Unpaid                  Policyholders'
                                   policy                Future          claims                      funds left
                              acquisition                policy      and claims       Unearned         with the       Premium
Segment                             costs              benefits        expenses       premiums          Company       revenue
-----------------------------------------------------------------------------------------------------------------------------
(Millions)
<S>                          <C>                  <C>              <C>             <C>            <C>             <C>
Aetna U.S. Healthcare            $   19.5             $ 1,166.5        $3,163.5         $254.2        $   556.9     $10,844.6
Aetna Financial Services          1,645.3               4,111.9            40.4              -         11,339.5         158.5
Aetna International                 702.5               3,430.7            89.0          105.0            384.1       1,434.1
Large Case Pensions                     -               9,128.0             1.5              -          6,480.7         155.0
-----------------------------------------------------------------------------------------------------------------------------
   Total                         $2,367.3             $17,837.1        $3,294.4         $359.2        $18,761.2     $12,592.2
=============================================================================================================================
</TABLE>


<TABLE>
<CAPTION>
                                                                                  Amortization
                                                                                   of deferred
                                                   Other income         Current         policy            Other
                           Net investment   (including realized      and future    acquisition        operating      Premiums
Segment                        income (1)        capital gains)    benefits (2)          costs     expenses (3)   written (4)
-----------------------------------------------------------------------------------------------------------------------------
(Millions)
<S>                          <C>                  <C>              <C>             <C>            <C>             <C>
Aetna U.S. Healthcare            $  451.2              $1,605.6       $ 9,239.2         $ 20.3         $2,797.1     $10,001.9
Aetna Financial Services          1,129.9                 614.1         1,034.1          110.6            385.6             -
Aetna International                 384.4                 157.0         1,206.3           86.6            486.1         465.0
Large Case Pensions               1,408.7                  71.3         1,199.9              -             47.3             -
Corporate                            18.5                 119.8               -              -            428.4             -
-----------------------------------------------------------------------------------------------------------------------------
   Total                         $3,392.7              $2,567.8       $12,679.5         $217.5         $4,144.5     $10,466.9
=============================================================================================================================
</TABLE>



(1) The allocation of net investment income is based upon the investment year
    method or specific identification of certain portfolios within specific
    segments.

(2) Includes reductions of the loss on discontinued products.

(3) Includes operating expenses, salaries and benefits, interest expense,
    amortization of goodwill and other acquired intangible assets and severance
    and facilities charges (reserve reductions).

(4) Excludes life insurance business pursuant to Regulation S-X.



                                    Page 48





<PAGE>   49
                          AETNA INC. AND SUBSIDIARIES

                                   SCHEDULE V

                 Valuation and Qualifying Accounts and Reserves


For the years ended December 31,
(Millions)



<TABLE>
<CAPTION>
                                                                                  Additions
                                                                    -------------------------------------
                                                                                                  Charged
                       Balance at                       Balance at              Charged     (credited) to                    Balance
                        beginning                     beginning of  (credited) to costs   other accounts-    Deductions-   at end of
                        of period  Adjustments  period as adjusted     and expenses (1)      describe (2)   describe (3)      period
------------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>         <C>          <C>                 <C>                   <C>               <C>            <C>
1999
Asset valuation
Reserves:
    Mortgage loans         $ 66.9     $      -              $ 66.9                $ 4.6            $ (1.5)        $(20.7)    $  49.3
    Real Estate              91.1            -                91.1                  2.0                .1              -        93.2
    Other                     2.8            -                 2.8                    -                 -              -         2.8
------------------------------------------------------------------------------------------------------------------------------------
                           $160.8     $      -              $160.8                $ 6.6            $ (1.4)        $(20.7)    $ 145.3
====================================================================================================================================
1998
Asset valuation
Reserves:
    Mortgage loans         $114.5     $      -              $114.5                $(8.0)           $(34.3)        $ (5.3)    $  66.9
    Real Estate             101.3            -               101.3                  5.5               2.8          (18.5)       91.1
    Other                     2.8            -                 2.8                    -                 -              -         2.8
------------------------------------------------------------------------------------------------------------------------------------
                           $218.6     $      -              $218.6                $(2.5)           $(31.5)        $(23.8)    $ 160.8
====================================================================================================================================
1997
Asset valuation
Reserves:
    Mortgage loans         $247.0     $      -              $247.0               $(10.6)           $(45.0)       $ (76.9)    $ 114.5
    Real Estate             142.1            -               142.1                  6.1              14.8          (61.7)      101.3
    Other                     2.8            -                 2.8                    -                 -             -          2.8
------------------------------------------------------------------------------------------------------------------------------------
                           $391.9     $      -              $391.9               $ (4.5)           $(30.2)       $(138.6)    $ 218.6
====================================================================================================================================
</TABLE>

(1) Charged (credited) to net realized capital (gains) losses in the
    Consolidated Statements of Income.

(2) Reflects additions to (reductions of) reserves related to assets
    supporting experience-rated contracts and discontinued products for which
    a corresponding reduction was included in Policyholders' Funds Left with
    the Company in the Consolidated Balance Sheets and the reserve for future
    losses, respectively.

(3) Reduction in reserves is primarily a result of related asset write-downs
    (including foreclosures of real estate) and sales.




                                    Page 49

<PAGE>   50
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Date:  February 29, 2000                 AETNA INC.

                                         By         /s/ Alan M. Bennett
                                                    ---------------------------
                                                    Alan M. Bennett
                                                    Vice President and
                                                    Corporate Controller


Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on February 29, 2000.

<TABLE>
<S>                                                                <C>
*                                                                  *
--------------------------------------------------------           -----------------------------------------------------------
William H. Donaldson                                               Gerald Greenwald, Director
Chairman, President, Chief Executive Officer
and Director                                                       *
(Principal Executive Officer)                                      -----------------------------------------------------------
                                                                   Ellen M. Hancock, Director

                                                                   *
*                                                                  -----------------------------------------------------------
--------------------------------------------------------           Michael H. Jordan, Director
Leonard Abramson, Director
                                                                   *
*                                                                  -----------------------------------------------------------
--------------------------------------------------------           Jack D. Kuehler, Director
Betsy Z. Cohen, Director
                                                                   *
*                                                                  -----------------------------------------------------------
--------------------------------------------------------           Frank R. O'Keefe, Jr., Director
Barbara Hackman Franklin, Director
                                                                   *
*                                                                  -----------------------------------------------------------
--------------------------------------------------------           Judith Rodin, Director
Jeffrey E. Garten, Director
                                                                   *
*                                                                  -----------------------------------------------------------
--------------------------------------------------------           Alan J. Weber
Jerome S. Goodman, Director                                        Vice Chairman for Strategy and Finance
                                                                   (Principal Financial Officer)
*
--------------------------------------------------------
Earl G. Graves, Sr., Director



/s/ Alan M. Bennett
--------------------------------------------------------
Alan M. Bennett, Vice President
and Corporate Controller


*By    /s/ Alan M. Bennett
       -------------------------------------------------
       (Attorney-in-Fact)
</TABLE>

                                    Page 50


<PAGE>   51




                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit                                                                                        Filing
Number         Description of Exhibit                                                          Method
------         ----------------------                                                          ------
<S>            <C>                                                                             <C>
    10.7       Share Exchange and Registration Rights Agreement dated as                       Electronic
               of December 16, 1999, between the Company and Citibank,
               N.A.

    10.17      Split Dollar Insurance Agreement, dated as of February 1,                       Electronic
               1990, among Madlyn K. Abramson, Marcy A. Shoemaker
               (formerly Marcy Abramson), Nancy Wolfson, Judith Abramson
               and David B. Soll, and U.S. Healthcare, Inc., and the
               related Collateral Assignment Agreement, dated as of
               February 1, 1990, among Madlyn K. Abramson, Marcy A.
               Shoemaker (formerly Marcy Abramson), Nancy Wolfson, Judith
               Abramson and David B. Soll, and U.S. Healthcare, Inc.

    10.18      Split Dollar Insurance Agreement, dated as of January 21,                       Electronic
               1991, among Marcy A. Shoemaker (formerly Marcy Abramson),
               Nancy Wolfson, Judith Abramson, David B. Soll, Jerome
               Goodman and Edward M. Glickman, and U.S. Healthcare, Inc.,
               and the related Collateral Assignment Agreement, dated as
               of January 21, 1991, among Marcy A. Shoemaker (formerly
               Marcy Abramson), Nancy Wolfson, Judith Abramson, David B.
               Soll, Jerome Goodman and Edward M. Glickman, and U.S.
               Healthcare, Inc.

    10.34      Letter Agreement, dated as of June 6, 1995, between Aetna                       Electronic
               Services, Inc. and Frederick C. Copeland, Jr.

    10.35      Amendment, dated July 22, 1996, to Letter Agreement, dated as of                Electronic
               June 6, 1995, between the Company and Frederick C. Copeland, Jr.

    10.38      Letter Agreement, dated as of December 3, 1999, between                         Electronic
               the Company and Frederick C. Copeland, Jr.

     12        Statement re: computation of ratios.                                            Electronic

               Statement re: computation of ratio of earnings to fixed charges
               for the Company for the years ended December 31, 1999, 1998,
               1997, 1996, and 1995 and Aetna Services for the years ended
               December 31, 1999, 1998, 1997 and 1996.

               Statement re: computation of ratio of earnings to combined fixed
               charges and preferred stock dividends for the Company for the
               years ended December 31, 1999, 1998, 1997, 1996, and 1995 and
               Aetna Services for the years ended December 31, 1999, 1998, 1997
               and 1996.

     13        Annual Report to security holders.                                              Electronic

               Selected Financial Data, Management's Discussion and Analysis of
               Financial Condition and Results of Operations, Consolidated
               Financial Statements and the report of the Company's independent
               auditors, and unaudited Quarterly Data from the Annual Report.

     21        Subsidiaries of the registrant.                                                 Electronic

               A listing of subsidiaries of Aetna Inc.
</TABLE>



                                    Page 51


<PAGE>   52

                               INDEX TO EXHIBITS
                                  (Continued)


<TABLE>
<CAPTION>
Exhibit                                                                        Filing
Number         Description of Exhibit                                          Method
------         ----------------------                                          ------
<S>            <C>                                                             <C>
     23        Consents of experts and counsel.                                Electronic

               Consent of Independent Auditors to Incorporation by
               Reference in the Registration Statements
               on Form S-3 and Form S-8.

     24.1      Power of attorney.                                              Electronic

     24.2      Power of attorney.                                              Electronic

     27        Financial data schedule for December 31, 1999.                  Electronic
</TABLE>



                                    Page 52