<PAGE>
                                 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, 2000      Commission file number 33-23376

                    Aetna Life Insurance and Annuity Company
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                 <C>
                   Connecticut                                          71-0294708
------------------------------------------------------------------------------------------------------
         (State or other jurisdiction of                             (I.R.S. Employer
          incorporation or organization)                           Identification No.)

   151 Farmington Avenue, Hartford, Connecticut                           06156
------------------------------------------------------------------------------------------------------
     (Address of principal executive offices)                           (ZIP Code)
</TABLE>

(Registrant's telephone number, including area code) (860) 273-0123

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

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

                             Yes  __X__  No  ______

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

As of March 28, 2001, there were 55,000 shares of common stock outstanding, par
value $50 per share, all of which shares were held by Aetna Retirement
Holdings, Inc.

Reduced Disclosure Format:

The registrant meets the conditions set forth in General Instruction
I(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format.
<PAGE>
           AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
         (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
                           Annual Report on Form 10-K
                      For the year ended December 31, 2000

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
Form 10-K
Item No.                                             Page
---------                                            ----
<S>        <C>                                       <C>
                         PART I

Item 1.    Business**..............................    3
Item 2.    Properties**............................   12
Item 3.    Legal Proceedings.......................   13
Item 4.    Submission of Matters to a Vote of
           Security Holders*.......................   13

                         PART II

Item 5.    Market for Registrant's Common Equity
           and Related Stockholder Matters.........   13
Item 6.    Selected Financial Data*................   13
Item 7.    Management's Analysis of the Results of
           Operations**............................   13
Item 7A.   Quantitative and Qualitative Disclosure
           About Market Risk.......................   26
Item 8.    Financial Statements and Supplementary
           Data....................................   27
Item 9.    Changes in and Disagreements with
             Accountants on Accounting and
             Financial Disclosure..................   65

                        PART III

Item 10.   Directors and Executive Officers of the
           Registrant*.............................   65
Item 11.   Executive Compensation*.................   65
Item 12.   Security Ownership of Certain Beneficial
           Owners and Management*..................   65
Item 13.   Certain Relationships and Related
           Transactions*...........................   65

                         PART IV

Item 14.   Exhibits, Consolidated Financial
           Statement Schedules, and Reports on Form
           8-K.....................................   65
           Index to Consolidated Financial
           Statement Schedules.....................   70
           Signatures..............................   75
</TABLE>

  *  Item omitted pursuant to General Instruction I(2) of Form 10-K
 **  Item prepared in accordance with General Instruction I(2) of Form 10-K

                                       2
<PAGE>
                                     PART I

ITEM 1.  BUSINESS.

ORGANIZATION OF BUSINESS

Aetna Life Insurance and Annuity Company ("ALIAC") is a Connecticut stock life
insurance company, which was originally organized in 1976. ALIAC, together with
its wholly owned subsidiaries, Aetna Insurance Company of America ("AICA"),
Aetna Investment Adviser Holding Company, Inc. ("IA Holdco") and Aetna
Investment Services, LLC ("AIS") is herein called the "Company". ALIAC is a
wholly owned subsidiary of Aetna Retirement Holdings, Inc. ("HOLDCO"), which is
a wholly owned subsidiary of Aetna Retirement Services, Inc. ("ARSI"). ARSI is
ultimately owned by ING Groep N.V. ("ING").

On December 13, 2000, ING America Insurance Holdings, Inc., an indirect wholly
owned subsidiary of ING, acquired Aetna Inc., comprised of the Aetna Financial
Services business, of which the Company is a part, and Aetna International
businesses, for approximately $7.7 billion. The purchase price was comprised of
approximately $5.0 billion in cash and the assumption of $2.7 billion of
outstanding debt and other net liabilities. In connection with the acquisition,
Aetna Inc. was renamed Lion Connecticut Holdings Inc. ("Lion"). At the time of
the sale, Lion entered into certain transition services agreements with a former
related party, Aetna U.S. Healthcare, which was renamed Aetna Inc. ("former
Aetna"). Refer to Note 1 of the Notes to Consolidated Financial Statements.

HOLDCO contributed AIS to the Company on June 30, 2000 and contributed IA Holdco
to the Company on July 1, 1999 (refer to Note 2 of the Notes to Consolidated
Financial Statements). As a result of the contribution of IA Holdco, the Company
has two business segments: Financial Products and Investment Management
Services. On October 1, 1998, the Company sold its domestic individual life
insurance business to Lincoln National Corporation ("Lincoln") and accordingly,
such business was classified as Discontinued Operations. Refer to Note 3 of the
Notes to Consolidated Financial Statements for further discussion on the sale.

FINANCIAL PRODUCTS

PRODUCTS AND SERVICES

The Financial Products segment includes annuity contracts that offer a variety
of funding and payout options for individual and employer-sponsored retirement
plans qualified under Internal Revenue Code Sections 401, 403, 408 and 457,
nonqualified annuity contracts and mutual funds. 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 Company and nonaffiliated
mutual funds), variable and fixed investment options. Financial Products
includes wrapper agreements entered into with retirement plans which contain
certain benefit responsive guarantees (i.e. liquidity guarantees of principal
and previously accrued interest for benefits paid under the terms of the plan)
with respect to portfolios of plan-owned assets not invested with the Company.
Financial Products also include investment advisory services and pension plan
administrative services.

                                       3
<PAGE>
ITEM 1.  BUSINESS. (continued)
FINANCIAL PRODUCTS (continued)
INVESTMENT OPTIONS

The Financial Products segment offers customers products that contain variable
and/or fixed investment options. Variable options generally provide for full
assumption (and, in limited cases, provide for partial assumption) by the
customer of investment risks. Assets supporting variable annuity options are
held in separate accounts that invest in Company mutual funds and/or
unaffiliated mutual funds. Company mutual funds include funds managed by Aeltus
Investment Management, Inc. ("Aeltus"), an indirect wholly owned subsidiary of
ALIAC, and funds managed by ALIAC and subadvised by outside investment advisors.
Variable separate account investment income and realized capital gains and
losses are not reflected in the Company's consolidated statements of income.
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 to, among other things, 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.

FEES AND INVESTMENT MARGINS

Insurance and expense charges, investment management fees and other fees earned
by the Company vary by product and depend on, among other factors, the funding
option selected by the customer under the product. For annuity products where
assets are allocated to variable funding options, the Company may charge the
separate account asset-based insurance and expense fees. In addition, where the
customer selects a mutual fund managed by Aeltus as a variable funding option,
Aeltus receives an advisory fee. Aeltus then pays ALIAC half of this advisory
fee, which is reflected in the Financial Products segment's results. Aeltus,
whose operating results are reported in the Investment Management Services'
segment, records the advisory fees net of the amount it pays to ALIAC. In the
case of the variable option mutual funds advised by ALIAC and subadvised by
outside managers, the Company receives an investment advisory fee from the fund
and pays a subadvisory fee to the fund manager. If the customer selects an
unaffiliated mutual fund as a variable funding option, the Company receives
distribution fees and/or expense reimbursements. For fixed funding options, the
Company earns an investment margin, which is based on the difference between
income earned on the investments supporting the liability and interest credited
to customers. The Company may also receive other fees or charges depending on
the nature of the products.

ASSETS UNDER MANAGEMENT AND ADMINISTRATION

The substantial portion of the Company's fees or other charges and investment
margins 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 (i.e., interest credited to customer
accounts for fixed options or market performance for variable options) and
customer retention. Financial Products' assets under management, excluding net
unrealized capital gains and losses on debt securities that support fixed
annuities, were $53.3 billion, $54.8 billion and $44.5 billion at December 31,
2000, 1999, and 1998, respectively.

                                       4
<PAGE>
ITEM 1.  BUSINESS. (continued)
FINANCIAL PRODUCTS (continued)
Financial Products' assets under management include assets that are also
reported in the Investment Management Services segment. Both segments report
certain assets under management because they each earn a different component of
revenue derived from these assets. Refer to "Overview-Continuing Operations" in
Management's Analysis of the Results of Operations for the elimination
adjustment required to calculate consolidated assets under management.

Approximately 94% and 95% of assets under management at December 31, 2000 and
1999, respectively, allowed for contractholder withdrawal. Approximately 86% and
85% of assets under management at December 31, 2000 and 1999, respectively, 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. 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 and certain custodial account distributions prior to age
59 1/2 provide further disincentive to customers for premature surrenders of
account balances, but generally do not impede transfers of those balances to
products of competitors.

The following table summarizes assets under management for the principal
customer groups of the Financial Products segment, excluding net unrealized
capital gains and losses related to fair value adjustments required under
Financial Accounting Standard ("FAS") No. 115. Refer to "Overview" and
"Financial Products" in Management's Analysis of the Results of Operations for
further discussion of assets under management.

<TABLE>
<CAPTION>
(Millions)                                2000       1999       1998
<S>                                  <C>        <C>        <C>
--------------------------------------------------------------------
Corporate pensions                   $17,628.1  $16,974.9  $14,450.4
Not-for-profit organizations          22,872.6   24,721.1   19,611.5
Individuals                           12,761.7   13,116.8   10,414.1
--------------------------------------------------------------------
         Total (1)                   $53,262.4  $54,812.8  $44,476.0
--------------------------------------------------------------------
</TABLE>

(1)  Excludes net unrealized capital gains of $126.9 million at December 31,
     2000, net unrealized capital losses of $247.9 million at December 31, 1999
     and net unrealized capital gains of $496.9 million at December 31, 1998.

Deposits, which are not included in premiums or revenue, are shown in the
following table:

<TABLE>
<CAPTION>
(Millions)                               2000      1999      1998
<S>                                  <C>       <C>       <C>
-----------------------------------------------------------------
Corporate pensions                   $2,700.1  $2,444.2  $1,871.0
Not-for-profit organizations          1,930.4   2,638.7   1,591.7
Individuals                           1,527.3   1,824.8   1,305.6
-----------------------------------------------------------------
         Total                       $6,157.8  $6,907.7  $4,768.3
-----------------------------------------------------------------
</TABLE>

A portion of the Financial Products' fee revenue is also based on assets under
administration. Assets under administration are assets for which the Company
provides administrative services only. Assets

                                       5
<PAGE>
ITEM 1.  BUSINESS. (continued)
FINANCIAL PRODUCTS (continued)
under administration were $8.3 billion at December 31, 2000, $4.4 billion at
December 31, 1999 and $2.9 billion at December 31, 1998.

PRINCIPAL MARKETS AND METHOD OF DISTRIBUTION

Products and services of the Financial Products segment 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. The Company's products generally are sold
through pension professionals, independent agents and brokers, third party
administrators, banks, dedicated career agents and financial planners.

COMPETITION

Competition arises from other insurance companies and from 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 the Company's products and services.

RESERVES

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

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.

INVESTMENT MANAGEMENT SERVICES

The Investment Management Services segment primarily consists of the operations
of Aeltus, the primary operating subsidiary of IA Holdco, which has two
wholly-owned operating subsidiaries: Aeltus Capital, Inc. ("ACI"), a broker
dealer, and Aeltus Trust Company ("ATC"), a limited purpose banking entity. IA
Holdco was contributed to ALIAC on July 1, 1999 by HOLDCO. Refer to Note 2 of
the Notes to Consolidated Financial Statements.

                                       6
<PAGE>
ITEM 1.  BUSINESS. (continued)
INVESTMENT MANAGEMENT SERVICES (continued)
PRODUCTS AND SERVICES

Investment Management Services provides investment advisory services to
affiliated and unaffiliated institutional and retail clients on a
fee-for-service basis; underwriting services to the Aetna Series Fund, Inc.;
distribution services for other Company products; and trustee, administrative
and other fiduciary services to retirement plans requiring or otherwise
utilizing a trustee or custodian.

FEES

Investment management fees earned by the Company depend primarily on the
investment style (e.g. equity vs. fixed income) and the service level (e.g.
asset allocation service) selected by the client, as well as the size (measured
by assets under management) of the account. Fees are generated by client money
invested in advisory accounts, individual and pooled trust accounts,
collateralized bond obligations, affiliated mutual funds and separate accounts
and the general account investments of the Company, which collectively represent
substantially all assets under management.

During the second quarter of 2001, ING Investment Management, LLC, an affiliate
of the Company, will become the advisor of the Company's general account
investments.

ASSETS UNDER MANAGEMENT

Fee income is substantially derived from a charge assessed on assets under
management. Assets under management are principally affected by net deposits
(i.e., deposits, including new contracts, less surrenders), market performance
and customer retention. Investment Management Services' assets under management,
excluding net unrealized capital gains and losses on debt securities that
support fixed annuities, were $55.6 billion, $55.0 billion and $47.8 billion at
December 31, 2000, 1999, and 1998, respectively. Investment Management Services'
assets under management include assets which are also reported in the Financial
Products segment. Both segments report certain assets under management because
they each earn a different component of revenue derived from these assets. Refer
to "Overview-Continuing Operations" in Management's Analysis of the Results of
Operations for the elimination adjustment required to calculate consolidated
assets under management.

Substantially all assets under management invested through the products of the
Investment Management Services segment at December 31, 2000 and 1999 allowed for
contractholder withdrawal subject to market value adjustments and/or deferred
contingent sales charges. Collaterized bond obligations managed by the segment
are generally not withdrawable. To encourage customer retention and recover
acquisition expenses, certain mutual fund assets under management are subject to
deferred contingent sales charges on balances withdrawn within a period of time
after contribution to the fund. For withdrawal characteristics on assets under
management invested through the Financial Products segment refer to "Financial
Products" in the Business section.

The following table summarizes assets under management for the principal
business channels of the Investment Management Services segment. Amounts
reflected exclude net unrealized capital gains and losses related to fair value
adjustments required by FAS No. 115. Refer to "Overview" and

                                       7
<PAGE>
ITEM 1.  BUSINESS. (continued)
INVESTMENT MANAGEMENT SERVICES (continued)
"Investment Management Services" in Management's Analysis of the Results of
Operations for further discussion on assets under management.

<TABLE>
<CAPTION>
(Millions)                                2000       1999       1998
<S>                                  <C>        <C>        <C>
--------------------------------------------------------------------
Plan sponsored (1)                   $15,719.4  $14,244.5  $11,581.5
Collateralized bond obligations        2,020.7    2,051.8    1,492.8
Retail mutual funds                    1,670.0    1,447.7      616.6
--------------------------------------------------------------------
         Subtotal                    $19,410.1  $17,744.0  $13,690.9
--------------------------------------------------------------------
Invested through products of the
  Financial Products segment:
    Variable annuity mutual funds    $16,327.1  $18,144.2  $15,423.3
    Fixed annuities (2)               12,450.3   12,641.1   12,131.1
    Plan sponsored and other           7,441.8    6,466.9    6,542.8
--------------------------------------------------------------------
         Subtotal                     36,219.2   37,252.2   34,097.2
--------------------------------------------------------------------
         Total                       $55,629.3  $54,996.2  $47,788.1
====================================================================
</TABLE>

(1)  As of December 31, 2000, 1999 and 1998, amounts included $5,837.1 million,
     $6,986.3 million and $7,809.3 million, respectively, of assets managed for
     Aetna Life Insurance Company, a former affiliate of the Company (refer to
     Note 1 of the Notes to Consolidated Financial Statements).
(2)  Excludes net unrealized capital gains of $126.9 million at December 31,
     2000, net unrealized capital losses of $247.9 million at December 31, 1999
     and net unrealized capital gains of $496.9 million at December 31, 1998.

PRINCIPAL MARKETS AND METHOD OF DISTRIBUTION

Investment Management Services' products and services are offered primarily to
pension plans (e.g. corporate, public, health care, religious), non-profit
organizations (e.g. endowments, foundations), taxable entities (e.g. corporate,
health care), corporate sponsored retirement plans and individual investors. The
Company's products are sold through an in-house sales force utilizing consultant
relationships, affiliated and unaffiliated brokers, banks, and financial
planners.

COMPETITION

Competition arises from an array of financial services companies including
banks, mutual funds and 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 the Company's products and services.

DISCONTINUED OPERATIONS--DOMESTIC INDIVIDUAL LIFE INSURANCE

PRODUCTS AND SERVICES

Discontinued Operations include universal life and variable universal life
products, which have both life insurance and investment characteristics,
traditional whole life and term insurance.

                                       8
<PAGE>
ITEM 1.  BUSINESS. (continued)
DISCONTINUED OPERATIONS--DOMESTIC INDIVIDUAL LIFE INSURANCE (continued)
LIFE INSURANCE IN FORCE AND OTHER STATISTICAL DATA

The table below summarizes nonparticipating life insurance in force before
deductions for reinsurance ceded to other companies. As a result of the sale of
the Company's domestic individual life insurance business on October 1, 1998,
substantially all of the in force amounts shown in the table have been ceded to
Lincoln.

<TABLE>
<CAPTION>
                                      Life Insurance In Force at
                                             December 31,
                                     ----------------------------
(Billions, except as noted below)        2000      1999      1998
<S>                                  <C>       <C>       <C>
-----------------------------------------------------------------
Direct:
  Permanent                           $ 34.1    $ 36.1    $ 37.8
  Term                                   1.6       3.6       5.1
Assumed:
  Permanent                              0.7       0.9       0.9
  Term                                   1.2       1.5       1.6
-----------------------------------------------------------------
         Total                        $ 37.6    $ 42.1    $ 45.4
=================================================================
Number of direct policies in force,
  end of year (thousands)              359.7     390.2     419.8
=================================================================
Average size of direct policy in
  force, end of year (thousands)      $ 99.3    $101.7    $102.2
=================================================================
</TABLE>

ASSETS UNDER MANAGEMENT

No assets under management were reported for the years presented due to the sale
of the domestic individual life business to Lincoln on October 1, 1998.

RESERVES

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

The domestic individual life business sold consisted of universal life business
and other fixed individual life business. Reserves for universal life products,
are equal to cumulative deposits less withdrawals and charges plus credited
interest for fixed options. Reserves for all other fixed individual life
contracts, which are ceded under the sale agreement, are computed on a basis of
assumed investment yield, mortality, morbidity and expenses including a margin
for adverse deviation. These assumptions vary by plan, year of issue and policy
duration.

                                       9
<PAGE>
ITEM 1.  BUSINESS. (continued)
DISCONTINUED OPERATIONS--DOMESTIC INDIVIDUAL LIFE INSURANCE (continued)

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.

GENERAL ACCOUNT INVESTMENTS

Consistent with the nature of the contract obligations involved in the Company's
operations, the majority of the general account assets are invested in long-term
debt securities such as: U.S. corporate debt securities, residential
mortgage-backed securities, foreign government and foreign corporate debt
securities, commercial and multifamily mortgage-backed securities, other
asset-backed securities and U.S. government securities. It is management's
objective that the portfolios be of high quality while achieving competitive
investment yields and returns. Investment portfolios generally match the
duration of the insurance liabilities they support. The general account of the
Company has been segmented to improve the asset/liability matching process. The
duration of investments is monitored and security purchases and sales are
executed with the objective of having adequate funds available to satisfy the
Company's maturing liabilities.

The Company's general account investments are currently managed by Aeltus.
During the second quarter of 2001, ING Investment Management, LLC, an affiliate
of the Company, will become the advisor of the Company's general account
investments.

See "General Account Investments" in Management's Analysis of the Results of
Operations for a further discussion of investments.

OTHER MATTERS

REGULATION

The Company's operations are subject to comprehensive regulation throughout the
United States. The laws of the various jurisdictions establish supervisory
agencies, including the state insurance 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.

Operations conducted by the Company are subject to regulation by various
insurance agencies where the Company conducts business, in particular the
insurance departments of Connecticut, Florida and New York. Among other matters,
these agencies may regulate premium rates, trade practices, agent licensing,
policy forms, underwriting and claims practices and the maximum interest rates
that can be charged on policy loans.

                                       10
<PAGE>
ITEM 1.  BUSINESS. (continued)
OTHER MATTERS (continued)
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 the Company.
Regulations of the SEC, Department of Labor ("DOL") and Internal Revenue Service
also impact certain of the Company's annuity, life insurance and other
investment and retirement products. These products involve Separate Accounts and
mutual funds registered under the Investment Company Act of 1940.

a) Federal Employee Benefit Regulation

The Company provides a variety of products and services to employee benefit
plans that are covered by the Employee Retirement Income Security Act of 1974
("ERISA").

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 policies 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.

b) Insurance Holding Company Laws

A number of states, including Connecticut and Florida, regulate affiliated
groups of insurers such as the Company under holding company statutes. These
laws, among other things, place certain restrictions on transactions between
affiliates such as dividends and other distributions that may be paid to the
Company's parent corporation. For information regarding payments of dividends by
the Company, refer to "Liquidity & Capital Resources" in Management's Analysis
of the Results of Operations and Note 7 of the Notes to Consolidated Financial
Statements.

                                       11
<PAGE>
ITEM 1.  BUSINESS. (continued)
OTHER MATTERS (continued)
c) 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
2000, 1999 and 1998. While the Company has historically recovered more than half
of its 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, see Management's
Analysis of the Results of Operations--Forward-Looking Information/Risk Factors.

RATINGS

The Company's financial strength ratings at March 28, 2001 and November 8, 2000
are as follows:

<TABLE>
<CAPTION>
                                                 Rating Agencies
                                --------------------------------------------------
                                                       Moody's        Standard &
                                A.M. Best  Fitch  Investors Service     Poor's
<S>                             <C>        <C>    <C>                <C>
----------------------------------------------------------------------------------
March 28, 2001 (1)                 A+       AA+          Aa2              AA+
November 8, 2000                    A       AA           Aa3              AA-
----------------------------------------------------------------------------------
</TABLE>

(1)  Company ratings were upgraded by each of the rating agencies shown in the
     table upon completion of ING's acquisition of Aetna Financial Services
     businesses on December 13, 2000 (refer to Note 1 of the Consolidated Notes
     to Financial Statements).

MISCELLANEOUS

The Company had approximately 3,100 employees at December 31, 2000.

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 internal auditors and
are modified as considered necessary.

The Company is not dependent upon any single customer and no single customer
accounted for more than 10% of consolidated revenue in 2000. In addition, 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.

ITEM 2.  PROPERTIES

ALIAC's home office is located at 151 Farmington Avenue, Hartford, Connecticut
06156. All Company office space is leased or subleased by ALIAC or other
affiliates. ALIAC pays substantially all expenses associated with its leased and
subleased office properties. Expenses not paid directly by ALIAC are paid by an
affiliate and allocated back to ALIAC.

                                       12
<PAGE>
ITEM 3.  LEGAL PROCEEDINGS

In recent years, a number of life insurance companies have been named as
defendants in class action lawsuits relating to life insurance sales practices.
The Company is currently a defendant in one such lawsuit.

A purported class action complaint was filed in the United States District Court
for the Middle District of Florida on June 30, 2000, by Helen Reese, Richard
Reese, Villere Bergeron and Allan Eckert against ALIAC (the "Reese Complaint").
The Reese Complaint seeks compensatory and punitive damages and injunctive
relief from ALIAC. The Reese Complaint claims that ALIAC engaged in unlawful
sales practices in marketing life insurance policies. ALIAC has moved to dismiss
the Reese Complaint for failure to state a claim upon which relief can be
granted. This litigation is in the preliminary stages. The Company intends to
defend the action vigorously.

The Company is also involved in other lawsuits arising, for the most part, in
the ordinary course of its business operations. While the outcome of these other
lawsuits cannot be determined at this time, after consideration of the defenses
available to the Company, applicable insurance coverage and any related reserves
established, these other lawsuits are not expected to result in liability for
amounts material to the financial condition of the Company, although it may
adversely affect results of operations in future periods.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Omitted pursuant to General Instruction I(2)(c) of Form 10-K.

                                    PART II

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

All of the Company's outstanding shares are directly owned by HOLDCO, which is a
wholly owned subsidiary of ARSI whose ultimate parent is ING.

For information on dividends refer to Note 7 of the Notes to Consolidated
Financial Statements. For information on capital contributions refer to Note 12
of the Notes to the Consolidated Financial Statements.

ITEM 6.  SELECTED FINANCIAL DATA

Omitted Pursuant to General Instruction I(2)(a) of Form 10-K.

ITEM 7.  MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS.

Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction I(2)(a) of Form 10-K.

                                       13
<PAGE>
ITEM 7.  MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS. (continued)

OVERVIEW

RECENT DEVELOPMENTS

On December 13, 2000, ING America Insurance Holdings, Inc., an indirect wholly
owned subsidiary of ING, acquired Aetna Inc., comprised of the Aetna Financial
Services business, of which the Company is a part, and Aetna International
businesses, for approximately $7.7 billion. The purchase price was comprised of
approximately $5.0 billion in cash and the assumption of $2.7 billion of
outstanding debt and other net liabilities. In connection with the acquisition,
Aetna Inc. was renamed Lion Connecticut Holdings Inc. ("Lion"). Refer to Note 1
of the Notes to Consolidated Financial Statements.

HOLDCO contributed AIS to the Company on June 30, 2000 and contributed IA Holdco
to the Company on July 1, 1999. Refer to Note 2 of the Notes to Consolidated
Financial Statements.

SALE OF THE DOMESTIC INDIVIDUAL LIFE INSURANCE BUSINESS

On October 1, 1998, the Company sold its domestic individual life insurance
business to Lincoln for $1 billion in cash. The sale resulted in an after-tax
gain of approximately $117 million. Since the principal agreement to sell this
business was generally in the form of an indemnity reinsurance arrangement, the
Company deferred approximately $58 million of the gain and was recognizing it
over approximately 15 years. Approximately $6 million (after tax) and $5 million
(after tax) of the deferred gain was recognized during 2000 and 1999,
respectively. During the fourth quarter of 1999, the Company refined certain
accrual and tax estimates which had been established in connection with the
recording of the deferred gain. As a result, the deferred gain was increased by
$13 million (after tax) to $65 million at December 31, 1999.

In conjunction with the accounting for the acquisition of the Aetna Financial
Services business, of which the Company is a part, the deferred gain, which was
previously part of other liabilities, was written off. Refer to Note 3 of the
Notes to Consolidated Financial Statements.

CONSOLIDATED RESULTS

Consolidated results include results from continuing operations and discontinued
operations. Continuing operations is comprised of the Financial Products and
Investment Management Services segments plus certain items not directly
allocable to the business segments. Discontinued Operations is comprised of the
domestic individual life insurance business.

CONTINUING OPERATIONS

Income from continuing operations increased $2 million and $9 million in 2000
and 1999, respectively. Income from continuing operations includes Year 2000
costs of $18 million in 1999 and $22 million in 1998. Excluding net realized
capital losses of $23 million and $14 million in 2000 and 1999, respectively,
and net realized capital gains of $7 million in 1998, income from continuing

                                       14
<PAGE>
ITEM 7.  MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS. (continued)
OVERVIEW (continued)
operations increased $11 million in 2000 and $30 million in 1999. These
increases in income excluding net realized capital losses and gains in 2000 and
1999 primarily reflect an increase in charges assessed against policyholders and
other income resulting from higher levels of assets under management and
administration partially offset by higher operating expenses.

Substantially all of the charges assessed against policyholders and other income
reported for continuing operations are derived from assets under management and
administration. Compared to prior years, assets under management and
administration at December 31, 2000 and 1999 increased 5% and 26%. The increase
in 2000 is primarily due to new investment advisory and administrative contracts
(including approximately $3 billion of plan assets from a new large case, which
closed in the second quarter of 2000) and additional net deposits. This increase
was partially offset by the stock market decline in the last half of 2000. The
increase in 1999 is primarily due to appreciation in the stock market, new
investment advisory and administrative contracts and additional net deposits
(i.e., deposits less surrenders).

Assets under management and administration for continuing operations are shown
in the table below. Certain assets under management are reported for both the
Financial Products and the Investment Management Services segments, because each
segment reports a different component of the revenue generated from this
particular group of assets. The group of assets that are reported in both
segments must be deducted from the aggregate segment assets to determine the
consolidated assets under management of the Company.

<TABLE>
<CAPTION>
(Millions)                                                           2000         1999         1998
<S>                                                            <C>          <C>          <C>
---------------------------------------------------------------------------------------------------
Assets under management:
  Financial Products                                           $ 53,262.4   $ 54,812.8   $ 44,476.0
  Investment Management Services                                 55,629.3     54,996.2     47,788.1
  Consolidating adjustment (1)                                  (36,219.2)   (37,252.2)   (34,097.1)
---------------------------------------------------------------------------------------------------
      Total--assets under management (2) (3) (4)               $ 72,672.5   $ 72,556.8   $ 58,167.0
Assets under administration: (5)
  Financial Products                                           $  8,293.7   $  4,441.7   $  2,860.1
---------------------------------------------------------------------------------------------------
Assets under management and administration                     $ 80,966.2   $ 76,998.5   $ 61,027.1
===================================================================================================
</TABLE>

(1)  Represents consolidating adjustment related to the assets under management
     reported by both the Financial Products and Investment Management segments.
(2)  Includes $13,492.1 million, $13,472.4 million and $7,467.5 million at
     December 31, 2000, 1999 and 1998, respectively, of assets invested through
     the Company's products in unaffiliated mutual funds.
(3)  Excludes net unrealized capital gains of $126.9 million at December 31,
     2000, net unrealized capital losses of $247.9 million at December 31, 1999
     and net unrealized capital gains of $496.9 million at December 31, 1998.
(4)  As of December 31, 2000, 1999 and 1998, amounts included $5,837.1 million,
     $6,986.3 million and $7,809.3 million of assets managed for Aetna Life
     Insurance Company, a former affiliate of the Company refer to Note 1 of the
     Notes to Consolidated Financial Statements).
(5)  Represents assets for which the Company provides administrative services
     only.

Salaries and related benefits in the years ended December 31, 2000 and 1999
increased 42% and 9%, respectively, over the prior years. The increase in 2000
primarily reflects higher staffing levels needed to support business growth and
the implementation of strategic business initiatives and higher variable
compensation triggered in certain compensation plans when ING purchased the
Company. The increase in 1999 primarily reflects business growth. Other
operating expenses for the years ended

                                       15
<PAGE>
ITEM 7.  MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS. (continued)
OVERVIEW (continued)
December 31, 2000 and 1999 increased 15% and 7%, respectively, over prior years.
The increase in 2000 is also primarily due to business growth and implementation
of strategic business initiatives and the increase in 1999 is primarily due to
business growth. Other operating expenses in 1999 and 1998 include Year 2000
costs, before tax, of approximately $27 million and $35 million, respectively.
Year 2000 costs for 1999 and 1998 are not allocated to the Company's segments.

OUTLOOK

The Company's strategy is to increase assets under management and administration
and improve profitability by focusing on strategic markets and products in its
businesses. In doing so, the Company may take a variety of actions intended to
improve its investment and product management, marketing, distribution and
customer service. The recent acquisition of the Company by ING presents
opportunities for improved execution of this strategy. Integration with ING's
current businesses, technology platforms and distribution channels will provide
the Company with increased business scale as well as expanded brokerage and
distribution capabilities and allow it to explore cross-selling opportunities
with other affiliates. Additionally, as a result of the integration with ING's
businesses, it is anticipated that the Company will not continue to actively
market certain single premium deferred annuity products.

See "Forward-Looking Information/Risk Factors" regarding other important factors
that may materially affect the Company.

                                       16
<PAGE>
ITEM 7.  MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS. (continued)

FINANCIAL PRODUCTS

OPERATING SUMMARY

<TABLE>
<CAPTION>
(Millions)                                                                  2000        1999        1998
<S>                                                                    <C>         <C>         <C>
--------------------------------------------------------------------------------------------------------
Premiums (1)                                                           $   154.2   $   107.5   $    79.4
Charges assessed against policyholders                                     461.0       388.3       324.3
Net investment income                                                      905.8       881.5       865.3
Net realized capital (losses) gains                                        (35.6)      (21.5)       10.4
Other income                                                                76.9        55.3        41.9
--------------------------------------------------------------------------------------------------------
      Total revenue                                                      1,562.3     1,411.1     1,321.3
--------------------------------------------------------------------------------------------------------
Current and future benefits                                                795.6       746.2       714.4
Operating expenses:
  Salaries and related benefits                                            172.6       127.9       123.4
  Other                                                                    218.0       177.3       156.7
Amortization of deferred policy acquisition costs and value of
  business acquired                                                        115.6        93.4        80.3
--------------------------------------------------------------------------------------------------------
      Total benefits and expenses                                        1,301.8     1,144.8     1,074.8
--------------------------------------------------------------------------------------------------------
Income from operations before income taxes                                 260.5       266.3       246.5
Income taxes                                                                79.0        87.5        68.2
--------------------------------------------------------------------------------------------------------
      Net income (2)                                                   $   181.5   $   178.8   $   178.3
========================================================================================================
Net realized capital (losses) gains, net of tax (included above)       $   (23.1)  $   (14.0)  $     7.3
========================================================================================================
Deposits (not included in premiums above)
  Annuities--fixed options                                             $ 1,479.1   $ 1,973.2   $ 1,125.6
  Annuities--variable options                                            4,678.7     4,934.5     3,642.7
--------------------------------------------------------------------------------------------------------
Total--deposits                                                        $ 6,157.8   $ 6,907.7   $ 4,768.3
========================================================================================================
Assets Under Management (3)
  Annuities--fixed options (4)                                         $12,450.3   $12,641.1   $12,131.1
  Annuities--variable options (5)                                       33,084.0    35,352.9    25,527.0
--------------------------------------------------------------------------------------------------------
      Subtotal--annuities                                               45,534.3    47,994.0    37,658.1
  Plan Sponsored and Other                                               7,728.1     6,818.8     6,817.9
--------------------------------------------------------------------------------------------------------
  Total--assets under management                                        53,262.4    54,812.8    44,476.0
Assets under administration (6)                                          8,293.7     4,441.7     2,860.1
--------------------------------------------------------------------------------------------------------
Total assets under management and administration                       $61,556.1   $59,254.5   $47,336.1
========================================================================================================
</TABLE>

(1)  Includes $107.8 million in 2000, $71.5 million in 1999 and $67.4 million in
     1998 for annuity premiums on contracts converting from the accumulation
     phase to payout options with life contingencies.
(2)  Year 2000 costs incurred in 1999 and 1998 are not allocated to segment
     operating expenses; and, therefore, excluded in the determination of
     segment net income.
(3)  Includes $36,219.2 million, $37,252.2 million, and $34,097.1 million of
     assets under management that are also reported in the Investment Management
     Services segment at December 31, 2000, 1999 and 1998, respectively (refer
     to "Overview").
(4)  Excludes net unrealized capital gains of $126.9 million at December 31,
     2000, net unrealized capital losses of $247.9 million at December 31, 1999
     and net unrealized capital gains of $496.9 million at December 31, 1998.
(5)  Includes $13,492.1 million at December 31, 2000, $13,472.4 million at
     December 31, 1999, and $7,467.5 million at December 31, 1998 related to
     assets invested through the Company's products in unaffiliated mutual
     funds.
(6)  Represents assets for which the Company provides administrative services
     only.

Financial Products' net income increased $3 million in 2000 and $1 million in
1999. Excluding net realized capital losses and gains, net income increased $12
million, or 6%, in 2000 and $22 million, or

                                       17
<PAGE>
ITEM 7.  MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS. (continued)
FINANCIAL PRODUCTS (continued)
13% in 1999. The increase in net income excluding net realized capital losses
and gains primarily reflects an increase in charges assessed against
policyholders and other income partially offset by an increase in operating
expenses.

Substantially all of the charges assessed against policyholders and other income
reported for the segment are calculated based on assets under management and
administration. Compared to prior years, assets under management and
administration at December 31, 2000 and 1999 increased 4% and 25%. The increase
in 2000 is primarily due to new investment advisory and administration contracts
(including approximately $3.0 billion of plan assets from a new large case,
which closed in the second quarter of 2000) and additional net deposits (i.e.,
deposits less surrenders). This increase was partially offset by the stock
market decline in the last half of 2000. The increase in 1999 is primarily due
to appreciation in the stock market, new investment advisory and administration
contracts and additional net deposits.

Annuity deposits relate to annuity contracts not containing life contingencies.
Compared to prior years, deposits decreased 11% for the year ended December 31,
2000 and increased 45%, for the year ended December 31, 1999. The decrease for
the year ended December 31, 2000 results from the fact that net deposits in 1999
included the plan assets from two large new cases and higher individual annuity
sales due to a new mutual fund offering. These same factors contributed to the
increase in net deposits in 1999 compared to 1998.

Salaries and related benefits for the year ended December 31, 2000 and 1999
increased 35% and 3%, respectively, over prior years. The increase in 2000
primarily reflects higher staffing levels needed to support business growth and
the implementation of strategic business initiatives, particularly improving
system infrastructures and adding new distribution capabilities. The increase in
1999 reflects business growth. Other operating expenses for the year ended
December 31, 2000 and 1999 increased 23% and 13%, respectively, over prior
years. The increase in 2000 is also primarily due to business growth and
implementation of strategic business initiatives and the increase in 1999 is
primarily due to business growth.

Of the $12.5 billion at December 31, 2000, $12.6 billion at December 31, 1999
and $12.1 billion at December 31, 1998 of fixed annuity assets under management,
25% were fully guaranteed and 75% were experienced rated for each of the three
years. The average earned rate on investments supporting fully guaranteed
investment contracts was 7.5%, 7.4% and 7.6%, and the average annualized earned
rate on investments supporting experience rated investment contracts was 7.7%,
7.6% and 7.8% for the years ended December 31, 2000, 1999 and 1998,
respectively. The average credited rate on fully guaranteed investment contracts
was 6.2%, 6.3% and 6.5%, and the average credited rate on experience rated
investment contracts was 5.6%, 5.6% and 5.8% for the years ended December 31,
2000, 1999 and 1998, respectively. The resulting interest margins on fully
guaranteed investment contracts were 1.3%, 1.1% and 1.1% and on experience rated
investment contracts were 2.1%, 2.0%, and 2.0% for the years ended December 31,
2000, 1999 and 1998, respectively.

                                       18
<PAGE>
ITEM 7.  MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS. (continued)
INVESTMENT MANAGEMENT SERVICES

OPERATING SUMMARY

<TABLE>
<CAPTION>
(Millions)                                                          2000        1999        1998
<S>                                                            <C>         <C>         <C>
------------------------------------------------------------------------------------------------
Net investment income                                          $     2.8   $     1.5   $     1.5
Net realized capital gains                                           0.2          --          --
Other income (1)                                                   138.2       118.3        96.7
------------------------------------------------------------------------------------------------
      Total revenue                                                141.2       119.8        98.2
------------------------------------------------------------------------------------------------
Operating expenses:
  Salaries and related benefits                                     44.9        25.1        17.7
  Other                                                             77.5        50.1        41.8
------------------------------------------------------------------------------------------------
      Total operating expenses                                     122.4        75.2        59.5
------------------------------------------------------------------------------------------------
Income from operations before income taxes                          18.8        44.6        38.7
Income taxes                                                         9.0        16.5        14.7
------------------------------------------------------------------------------------------------
      Net income (2)                                           $     9.8   $    28.1   $    24.0
================================================================================================
Net realized capital gains, net of tax (included above)        $     0.1          --          --
------------------------------------------------------------------------------------------------
Assets under management:
  Retail mutual funds                                          $ 1,670.0   $ 1,447.7   $   616.6
  Plan sponsored (3)                                            15,719.4    14,244.5    11,581.5
  Collateralized bond obligations                                2,020.7     2,051.8     1,492.8
------------------------------------------------------------------------------------------------
      Subtotal                                                 $19,410.1   $17,744.0   $13,690.9
------------------------------------------------------------------------------------------------
  Invested through products of the Financial Products
    segment: (4)
    Variable annuity mutual funds                              $16,327.1   $18,144.2   $15,423.3
    Fixed annuities (5)                                         12,450.3    12,641.1    12,131.1
    Plan sponsored and other                                     7,441.8     6,466.9     6,542.8
------------------------------------------------------------------------------------------------
      Subtotal                                                 $36,219.2   $37,252.2   $34,097.2
------------------------------------------------------------------------------------------------
Total assets under management                                  $55,629.3   $54,996.2   $47,788.1
================================================================================================
</TABLE>

(1)  Primarily includes investment advisory fees earned on assets under
     management.
(2)  Year 2000 costs are not allocated to segment operating expenses and,
     therefore, excluded in the determination of segment net income.
(3)  As of December 31, 2000, 1999 and 1998, amounts included $5,837.1 million,
     $6,986.3 million and $7,809.3 million of assets managed for Aetna Life
     Insurance Company, a former affiliate of the Company (refer to Note 1 of
     the Notes to Consolidated Financial Statements).
(4)  The Investment Management Services segment earns investment advisory fees
     on these assets, which are also reported in the Financial Products segment.
(5)  Excludes net unrealized capital gains of $126.9 million at December 31,
     2000, net unrealized capital losses of $247.9 million at December 31, 1999
     and net unrealized capital gains of $496.9 million at December 31, 1998.

For the Investment Management Services segment, net income excluding realized
capital gains in 2000 decreased $18 million, or 65%, for the year ended
December 31, 2000, and increased $4 million, or 17%, for the year ended
December 31, 1999. The decrease in net income excluding realized capital gains
for the year ended December 31, 2000 primarily reflects an increase in operating
expenses. The increase in net income for the year ended December 31, 1999
primarily reflects an increase in investment advisory fees partially offset by
higher operating expenses.

Investment advisory fees, reported in "other income" are calculated based on
assets under management. At December 31, 2000, assets under management increased
1% over the prior year due to additional net sales. This increase was partially
offset by the stock market decline in the last half of 2000. At December 31,
1999, assets under management increased 15% over the prior year

                                       19
<PAGE>
ITEM 7.  MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS. (continued)
INVESTMENT MANAGEMENT SERVICES (continued)
primarily due to appreciation in the stock market and, to a lesser extent,
additional net deposits (i.e. deposits, including new contracts, less
surrenders).

For the years ended December 31, 2000 and 1999, salaries and related benefits
increased 79% and 42%, respectively, because of higher variable compensation
expense caused by change in control provisions in certain compensation plans,
which were triggered by ING's purchase of the Company, and business growth. For
the same periods, other operating expenses increased 55% and 20%, respectively,
due to business growth.

DISCONTINUED OPERATIONS--DOMESTIC INDIVIDUAL LIFE INSURANCE

On October 1, 1998, the Company sold its domestic individual life insurance
business to Lincoln. See "Overview" in Management's Analysis of the Results of
Operations and Note 3 of the Notes to Consolidated Financial Statements for
further discussion on the sale.

GENERAL ACCOUNT INVESTMENTS

The Company's investment strategies and portfolios are intended to match the
duration of the related liabilities and provide sufficient cash flow to meet
obligations while maintaining a competitive rate of return. The duration of the
investment portfolios supporting the Company's liabilities is regularly
monitored and adjusted in order to maintain an aggregate duration that is within
0.5 years of the estimated duration of the underlying liabilities. Customers
assume the risks associated with the investments supporting experience rated
products subject to, among other things, certain minimum guarantees.

The Company's invested assets were comprised of the following:

<TABLE>
<CAPTION>
(Millions)                                   December 31, 2000     December 31, 1999
<S>                                       <C>                   <C>
------------------------------------------------------------------------------------
Debt securities, available for sale, at
  fair value (1)                               $11,371.4             $11,410.1
Equity securities, at fair value:
  Nonredeemable preferred stock                    100.7                 130.9
  Investment in affiliated mutual funds             12.7                  64.1
  Common stock                                       3.5                  11.5
Short-term investments (2)                         111.7                  74.2
Mortgage loans                                       4.6                   6.7
Policy loans                                       339.3                 314.0
Other investments                                   13.4                  13.2
------------------------------------------------------------------------------------
  Total Investments                            $11,957.3             $12,024.7
====================================================================================
</TABLE>

(1)  Includes $126.7 million of debt securities pledged to creditors at
     December 31, 2000. Refer to "Investments" in Note 1 of Notes to
     Consolidated Financial Statements.
(2)  Includes $2.3 million of short-term investments pledged to creditors at
     December 31, 2000. Refer to "Investments" in Note 1 of Notes to
     Consolidated Financial Statements

                                       20
<PAGE>
ITEM 7.  MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS. (continued)
GENERAL ACCOUNT INVESTMENTS (continued)
DEBT SECURITIES

At December 31, 2000 and 1999, the Company's carrying value of available for
sale debt securities including debt securities pledged to creditors (herein
after referred to as "total debt securities") represented 95% of the general
account invested assets. For the same periods, $8.9 billion, or 79% of total
debt securities, and $8.9 billion, or 78% of total debt securities supported
experience rated products. Total debt securities reflected net unrealized
capital gains of $126.9 million at December 31, 2000 and net unrealized capital
losses of $247.9 million at December 31, 1999.

It is management's objective that the portfolio of debt securities be of high
quality and be well-diversified by market sector. The debt securities in the
Company's portfolio are generally rated by external rating agencies, and, if not
externally rated, are rated by the Company on a basis believed to be similar to
that used by the rating agencies. The average quality rating of the Company's
debt security portfolio at December 31, 2000 and 1999 was AA.

The percentage of total debt securities investments by quality rating category
is as follows:

<TABLE>
<CAPTION>
                                           December 31, 2000     December 31, 1999
<S>                                       <C>                   <C>
------------------------------------------------------------------------------------
AAA                                                   53.2%                 48.4%
AA                                                     9.1                   9.5
A                                                     23.5                  24.5
BBB                                                    9.9                  11.1
BB                                                     1.5                   2.5
B and Below                                            2.8                   4.0
------------------------------------------------------------------------------------
  Total                                              100.0%                100.0%
====================================================================================
</TABLE>

The portfolio of debt securities at December 31, 2000 and 1999 included $482
million (4.3% of the total debt securities) and $739 million (6.5% of the total
debt securities), respectively, of investments that are considered "below
investment grade". "Below investment grade" securities are defined to be
securities that carry a rating below BBB- and Baa3, by Standard & Poor's and
Moody's Investors Services, respectively.

The percentage of total debt securities investments by market sector is as
follows:

<TABLE>
<CAPTION>
                                           December 31, 2000     December 31, 1999
<S>                                       <C>                   <C>
------------------------------------------------------------------------------------
U.S. Corporate                                        43.0%                 40.6%
Residential Mortgage-Backed                           27.1                  23.9
Commercial/Multifamily Mortgage-Backed                 9.8                   8.6
U.S. Treasuries/Agencies                               8.4                   9.4
Asset-Backed                                           6.7                   6.1
Foreign (1)                                            5.0                  11.4
------------------------------------------------------------------------------------
  Total                                              100.0%                100.0%
====================================================================================
</TABLE>

(1)  Substantially all U.S. Dollar Denominated

                                       21
<PAGE>
ITEM 7.  MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS. (continued)
GENERAL ACCOUNT INVESTMENTS (continued)

RISK MANAGEMENT AND MARKET SENSITIVE INSTRUMENTS

The Company regularly evaluates the appropriateness of investments relative to
its management approved investment guidelines and the business objective of the
portfolios. The Company manages interest rate risk by seeking to maintain a
tight duration band, while credit risk is managed by maintaining high average
quality ratings and diversified sector exposure within the debt securities
portfolio. In connection with its investment and risk management objectives, the
Company also uses financial instruments whose market value is at least partially
determined by, among other things, levels of or changes in domestic and/or
foreign interest rates (short-term or long-term), duration, exchange rates,
prepayment rates, equity markets or credit ratings/spreads.

The Company's use of derivatives is generally limited to hedging purposes and
has principally consisted of using futures contracts to hedge interest rate and
equity price risk. When used for hedging, the expectation is that these
instruments would reduce overall risk. (Refer to Notes 1 and 5 of the Notes to
Consolidated Financial Statements for additional information.)

The following discussion about the Company's risk management activities includes
"forward-looking statements" that involve risk and uncertainties. Set forth
below are management's projections of hypothetical net losses in fair value of
shareholder's equity of the Company's market sensitive instruments if an
immediate increase of 100 basis points in interest rates and an immediate
decrease of 10% in prices for domestic equity securities were to occur
(sensitivity analysis). The instruments included in this analysis are not
leveraged and are held for purposes other than trading. While the Company
believes that the assumed market rate changes are reasonably possible in the
near term, actual results may differ, particularly as a result of any management
actions that would be taken to mitigate such hypothetical losses in fair value
of shareholder's equity.

INTEREST RATE RISK

Assuming an immediate increase of 100 basis points in interest rates, the net
hypothetical loss in fair value of shareholder's equity related to financial and
derivative instruments is estimated to be $44 million (after tax) at
December 31, 2000 and $12 million (after tax) at December 31, 1999. The Company
believes that an interest rate shift of this magnitude represents a moderately
adverse scenario, and is approximately equal to the historical annual volatility
of interest rate movements for the Company's intermediate term
available-for-sale debt securities. The Company has included corresponding
changes in certain insurance liabilities in this sensitivity analysis.

The potential effect of interest rate risk on fair value was determined based on
commonly used models. The models project the impact of interest rate changes on
a wide range of factors, including duration, prepayment, put options and call
options. Fair value was estimated based on the net present value of cash flows
or duration estimates, using a representative set of likely future interest rate
scenarios.

The risks associated with investments supporting experience rated pension and
annuity products are assumed by those contractholders, not by the Company
(subject to, among other things, certain

                                       22
<PAGE>
ITEM 7.  MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS. (continued)
GENERAL ACCOUNT INVESTMENTS (continued)
minimum guarantees). Risks associated with the investments and liabilities
related to experience-rated pension and annuity products are not included in the
sensitivity analysis presented below.

EQUITY PRICE RISK

The Company's available-for-sale equity securities are comprised primarily of
domestic stocks. Assuming an immediate decrease of 10% in equity prices for
domestic equity securities, the hypothetical loss in fair value of shareholder's
equity related to financial and derivative instruments is estimated to be $2
million (after tax) at December 31, 2000 and $5 million (after tax) at
December 31, 1999.

Based on the Company's overall exposure to interest rate risk and equity price
risk, the Company believes that these changes in market rates and prices would
not materially affect the consolidated near-term financial position, results of
operations or cash flows of the Company.

LIQUIDITY AND CAPITAL RESOURCES

Generally, the Company meets its operating requirements by maintaining
appropriate levels of liquidity in its investment portfolio and using overall
cash flows from premiums, deposits, asset maturities and income received on
investments. Cash provided from these sources is used primarily for benefit
payments, contract withdrawals and operating expenses.

Debt securities and mortgage loans have durations that were selected to
approximate the durations of the liabilities they support. The general account
of the Company has been segmented to improve the asset/liability matching
process. The duration of these investments is monitored, and investment
purchases and sales are executed with the objective of having adequate funds
available to satisfy the Company's maturing liabilities.

As the Company's investment strategy focuses on matching asset and liability
durations, and not specific cash flows, and since these duration assessments are
dependent on numerous cash flow assumptions, asset sales may, from time to time,
be required to satisfy liability obligations and/or rebalance asset portfolios.
The investment portfolios are closely monitored to assess asset and liability
matching in order to rebalance the portfolios as conditions warrant.

Given the high quality of the debt securities portfolio (see "General Account
Investments"), management expects the vast majority of the Company's investments
in debt securities to be repaid in accordance with contractual terms. In
addition, most of the debt securities in the portfolio are highly marketable and
can be sold to enhance cash flow before maturity.

In 2000, the Company received capital contributions of $73.5 million in cash and
$56.0 million in assets from HOLDCO. The Company did not receive any capital
contributions in 1999, but it received a capital contribution of $9.3 million in
cash from HOLDCO in 1998.

                                       23
<PAGE>
ITEM 7.  MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS. (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
The Company paid $10.1 million, $255.7 million and $570.0 million in cash
dividends to HOLDCO in 2000, 1999 and 1998, respectively. Of the $255.7 million
paid in 1999, $206.0 million was accrued for in 1998. Of the $776.0 million
dividends paid or accrued in 1998, $756.0 million (all of which was approved by
the Insurance Commissioner of the State of Connecticut) was attributable to
proceeds from the sale of the domestic individual life insurance business. The
Company may not pay distributions, including dividends, to HOLDCO in excess of a
statutory limit unless approved by the Insurance Commissioner of the State of
Connecticut. As of March 28, 2001, the Company had not exceeded such statutory
limit.

See "Consolidated Statements of Cash Flows" for additional information.

YEAR 2000

As of March 28, 2001, the Company has not experienced any material difficulties
with its mission-critical IT systems, embedded systems, suppliers, or customers
due to Year 2000 issues. The Company has reassigned its Year 2000 personnel and
transferred Year 2000 related responsibilities to its businesses. The Company
remains Year 2000 vigilant and any potential future Year 2000 issues will be
addressed by IT personnel within the Company's business segments.

YEAR 2000 COSTS

Year 2000 costs for the year ended December 31, 2000 were immaterial. Total Year
2000 project costs were $18 million (after tax) for the year ended December 31,
1999 and $22 million (after tax) for the year ended December 31, 1998. The
Company funded these costs through operating cash flows.

FORWARD-LOOKING INFORMATION/RISK FACTORS

The Private Securities Litigation Reform Act of 1995 (the "1995 Act") provides a
"safe harbor" for forward-looking statements, so long as (1) those statements
are identified as forward-looking, and (2) the statements are accompanied by
meaningful cautionary statements that identify important factors that could
cause actual results to differ materially from those discussed in the statement.
We want to take advantage of these safe harbor provisions.

Certain information contained in this Management's Analysis of the Results of
Operations is forward-looking within the meaning of the 1995 Act or Securities
and Exchange Commission rules. This information includes, but is not limited to
the information that appears under the headings: (1) Overview--Outlook,
(2) General Account Investments--Risk Management and Market Sensitive
Instruments/Interest Rate Risk/Equity Price Risk and (3) "Year 2000." In writing
this Management's

                                       24
<PAGE>
ITEM 7.  MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS. (continued)
FORWARD-LOOKING INFORMATION/RISK FACTORS (continued)
Analysis of the Results of Operations, we also used the following words, or
variations of these words and similar expressions, where we intended to identify
forward-looking statements:

<TABLE>
<S>                                                 <C>
- Expects                                           - Plans
- Projects                                          - Believes
- Anticipates                                       - Seeks
- Intends                                           - Estimates
</TABLE>

These forward-looking statements rely on a number of assumptions concerning
future events, and are subject to a number of significant uncertainties and
other factors, many of which are outside our control, that could cause actual
results to differ materially from these statements. You should not put undue
reliance on these forward-looking statements. We disclaim any intention or
obligation to update or revise forward-looking statements, whether as a result
of new information, future events or otherwise.

Set forth below are certain important risk factors that, in addition to general
economic conditions and other factors (some of which are discussed elsewhere in
this report), may affect these forward-looking statements and our businesses
generally.

CERTAIN FACTORS PARTICULAR TO THE COMPANY'S OPERATIONS

SIGNIFICANT CHANGES IN FINANCIAL MARKETS COULD AFFECT EARNINGS.  Significant
changes in financial markets could impact the level of assets under management
and administration in our businesses, and, in turn, our level of asset-based
fees in those businesses. For example, significant increases in interest rates
or decreases in equity markets would directly affect the level of assets under
management and administration and, in addition, may increase the level of
withdrawals and decrease the level of deposits by customers. Customers under
those circumstances may seek to diversify among asset managers or seek
investment alternatives that we do not offer. Significant declines in the value
of investments also may affect our ability to pass through investment losses to
certain experience rated customers, whether due to triggering minimum guarantees
or other business reasons.

DECREASES IN RATINGS COULD AFFECT ASSETS UNDER MANAGEMENT.  Decreases in the
claims-paying ratings of the Company could have the effect of decreasing new
sales and deposits and increasing withdrawals and surrenders in our businesses.
Such changes in sales and deposits, withdrawals and surrenders would adversely
affect the level of asset-based fees of our businesses. The claims-paying
ratings are periodically reviewed and subject to changes, in certain cases,
based on factors beyond our control.

EARLY WITHDRAWAL OF ASSETS COULD AFFECT EARNINGS.  We incur up-front costs, such
as commissions, when we sell our annuity and other financial services products.
We generally defer these costs and recognize them over time. As a result, the
retention of assets under these products is an important component of
profitability. We generally seek to structure our products and sales to
encourage retention of assets under management and administration or recover
costs, through surrender charges, higher credited rates to customers if we
retain their assets for longer periods, paying renewal commissions, paying
service fees or other terms. However, if customers withdraw assets earlier than

                                       25
<PAGE>
ITEM 7.  MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS. (continued)
FORWARD-LOOKING INFORMATION/RISK FACTORS (continued)
we anticipated when we priced the products, it would adversely affect
profitability. We could also experience competitive pressure to lower margins.

LITIGATION CAN ADVERSELY AFFECT US.  Litigation also could adversely affect us,
both through costs of defense and adverse results or settlements. Refer to Note
14 of the Notes to Consolidated Financial Statements and Legal Proceedings for
information regarding litigation.

ADVERSE CHANGES IN REGULATION COULD AFFECT THE OPERATIONS OF EACH OF OUR
BUSINESSES.  Each of our businesses is subject to comprehensive regulation.
These businesses could be adversely affected by:

-   Increases in minimum capital and other financial viability requirements for
    insurance operations;
-   Changes in the taxation of insurance companies; and
-   Changes in the tax treatment of annuity, pension and other insurance
    products as well as changes in capital gains tax rates. Certain of these
    changes, should they occur, could affect the attractiveness to customers of
    our financial services products.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

See "General Account Investments" in Management's Analysis of the Results of
Operations.

                                       26
<PAGE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

Independent Auditors' Report......................    28

Consolidated Financial Statements:

    Consolidated Statements of Income for the One
       Month Ended December 31, 2000, the Eleven
       Months Ended November 30, 2000 and for the
       Years Ended December 31, 1999 and 1998.....    29

    Consolidated Balance Sheets as of
       December 31, 2000 and 1999.................    30

    Consolidated Statements of Changes in
       Shareholder's Equity for the One Month
       Ended December 31, 2000, the Eleven Months
       Ended November 30, 2000 and for the Years
       Ended December 31, 1999 and 1998...........    31

    Consolidated Statements of Cash Flows for the
       One Month Ended December 31, 2000, the
       Eleven Months Ended November 30, 2000 and
       for the Years Ended December 31, 1999 and
       1998.......................................    32

    Notes to Consolidated Financial Statements....    33
</TABLE>

                                       27
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

The Shareholder and Board of Directors
Aetna Life Insurance and Annuity Company:

We have audited the accompanying consolidated balance sheets of Aetna Life
Insurance and Annuity Company and Subsidiaries as of December 31, 2000
("Successor Company") and December 31, 1999 ("Preacquisition Company"), and the
related consolidated statements of income, changes in shareholder's equity and
cash flows for the period from December 1, 2000 to December 31, 2000 ("Successor
Company"), and for the period from January 1, 2000 to November 30, 2000 and the
years ended December 31, 1999 and 1998 ("Preacquisition Company"). These
consolidated financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the Successor Company's consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Aetna Life Insurance and Annuity Company and Subsidiaries at
December 31, 2000, and the results of their operations and their cash flows for
the period from December 1, 2000 to December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
Further, in our opinion, the Preacquisition Company's consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Aetna Life Insurance and Annuity Company and Subsidiaries
at December 31, 1999, and the results of their operations and their cash flows
for the period from January 1, 2000 to November 30, 2000, and the years ended
December 31, 1999 and 1998, in conformity with accounting principles generally
accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, effective
November 30, 2000, ING America Insurance Holdings Inc. acquired all of the
outstanding stock of Aetna Inc., Aetna Life Insurance and Annuity Company's
indirect parent and sole shareholder in a business combination accounted for as
a purchase. As a result of the acquisition, the consolidated financial
information for the periods after the acquisition is presented on a different
cost basis than that for the periods before the acquisition and, therefore, is
not comparable.

                                                /s/ KPMG LLP

Hartford, Connecticut
March 27, 2001

                                       28
<PAGE>
           AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
         (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)

                       CONSOLIDATED STATEMENTS OF INCOME
                                   (millions)

<TABLE>
<CAPTION>
                                                                                           Preacquisition
                                                                             -------------------------------------------
                                                                One month    Eleven months
                                                                  ended          ended       Year ended     Year ended
                                                              December 31,   November 30,   December 31,   December 31,
                                                                  2000           2000           1999           1998
                                                              -------------  -------------  -------------  -------------
<S>                                                           <C>            <C>            <C>            <C>
Revenue:
  Premiums                                                        $ 16.5       $  137.7       $  107.5       $   79.4
  Charges assessed against policyholders                            36.4          424.6          388.3          324.3
  Net investment income                                             78.6          833.8          886.3          871.8
  Net realized capital (losses) gains                                1.8          (37.2)         (21.5)          10.4
  Other income                                                      13.4          148.7          129.7          100.2
                                                                  ------       --------       --------       --------
      Total revenue                                                146.7        1,507.6        1,490.3        1,386.1
                                                                  ------       --------       --------       --------
Benefits and expenses:
  Current and future benefits                                       68.9          726.7          746.2          714.4
  Operating expenses:
    Salaries and related benefits                                   29.9          187.5          153.0          141.0
    Other                                                           19.2          227.1          213.7          199.6
  Amortization of deferred policy acquisition costs
    and value of business acquired                                  10.2          116.7          104.9           91.2
                                                                  ------       --------       --------       --------
      Total benefits and expenses                                  128.2        1,258.0        1,217.8        1,146.2
                                                                  ------       --------       --------       --------

Income from continuing operations before income taxes               18.5          249.6          272.5          239.9
Income taxes                                                         5.9           78.1           90.6           67.1
                                                                  ------       --------       --------       --------

Income from continuing operations                                   12.6          171.5          181.9          172.8
Discontinued operations, net of tax:
  Income from operations                                              --             --             --           61.8
  Amortization of deferred gain on sale                               --            5.7            5.7             --
  Immediate gain on sale                                              --             --             --           59.0
                                                                  ------       --------       --------       --------

Net income                                                        $ 12.6       $  177.2       $  187.6       $  293.6
                                                                  ======       ========       ========       ========
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       29
<PAGE>
           AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
         (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)

                          CONSOLIDATED BALANCE SHEETS
                         (millions, except share data)

<TABLE>
<CAPTION>
                                                                       December 31,     December 31,
                                                                           2000             1999
                                                                      ---------------  ---------------
<S>                                                                   <C>              <C>
                               ASSETS
Investments:
  Debt securities available for sale, at fair value
    (amortized cost: $11,120.0 and $11,657.9)                            $11,244.7        $11,410.1
  Equity securities, at fair value:
    Nonredeemable preferred stock (cost: $109.0 and $134.7)                  100.7            130.9
    Investment in affiliated mutual funds (cost: $9.6 and $63.5)              12.7             64.1
    Common stock (cost: $2.2 and $6.7)                                         3.5             11.5
  Short-term investments                                                     109.4             74.2
  Mortgage loans                                                               4.6              6.7
  Policy loans                                                               339.3            314.0
  Other investments                                                           13.4             13.2
  Securities pledged to creditors (amortized cost: $126.8)                   129.0               --
                                                                         ---------        ---------
        Total investments                                                 11,957.3         12,024.7
Cash and cash equivalents                                                    796.3            694.4
Short-term investments under securities loan agreement                       131.8            238.8
Accrued investment income                                                    147.2            150.7
Premiums due and other receivables                                            82.9            298.3
Reinsurance recoverable                                                    3,005.8          3,001.2
Current income taxes                                                          40.6               --
Deferred income taxes                                                           --            150.4
Deferred policy acquisition costs                                             12.3          1,046.4
Value of business acquired                                                 1,780.9               --
Goodwill                                                                   2,297.4               --
Other assets                                                                 154.7             96.5
Separate Accounts assets                                                  36,745.8         38,692.6
                                                                         ---------        ---------
        Total assets                                                     $57,153.0        $56,394.0
                                                                         =========        =========
                LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
  Future policy benefits                                                 $ 3,977.7        $ 3,850.4
  Unpaid claims and claim expenses                                            29.6             27.3
  Policyholders' funds left with the Company                              11,125.6         11,121.7
                                                                         ---------        ---------
        Total insurance reserve liabilities                               15,132.9         14,999.4
  Payables under securities loan agreement                                   131.8            238.8
  Current income taxes                                                          --             14.7
  Deferred income taxes                                                      248.0               --
  Other liabilities                                                          549.9          1,062.8
  Separate Accounts liabilities                                           36,745.8         38,692.6
                                                                         ---------        ---------
        Total liabilities                                                 52,808.4         55,008.3
                                                                         ---------        ---------
Shareholder's equity:
  Common stock, par value $50 (100,000 shares authorized; 55,000
    shares issued and outstanding)                                             2.8              2.8
  Paid-in capital                                                          4,303.8            431.9
  Accumulated other comprehensive gain (loss)                                 25.4            (44.8)
  Retained earnings                                                           12.6            995.8
                                                                         ---------        ---------
        Total shareholder's equity                                         4,344.6          1,385.7
                                                                         ---------        ---------
          Total liabilities and shareholder's equity                     $57,153.0        $56,394.0
                                                                         =========        =========
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       30
<PAGE>
           AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
         (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
                                   (millions)

<TABLE>
<CAPTION>
                                                                                                   Preacquisition
                                                                                     -------------------------------------------
                                                                        One month    Eleven months
                                                                          ended          ended       Year ended     Year ended
                                                                      December 31,   November 30,   December 31,   December 31,
                                                                          2000           2000           1999           1998
                                                                      -------------  -------------  -------------  -------------
<S>                                                                   <C>            <C>            <C>            <C>
Shareholder's equity, beginning of period                                $4,313.4      $1,385.7       $1,394.5       $1,853.3

Comprehensive income:
  Net income                                                                 12.6         177.2          187.6          293.6
  Other comprehensive income (loss), net of tax:
      Unrealized gains (losses) on securities
      ($28.7, $79.4, ($230.2), $18.2 pretax) (1)                             18.6          51.6         (149.6)          11.9
                                                                         --------      --------       --------       --------
Total comprehensive income                                                   31.2         228.8           38.0          305.5
                                                                         --------      --------       --------       --------

Capital contributions:
  Cash                                                                         --          73.5             --            9.3
  Assets                                                                       --          56.0             --             --
                                                                         --------      --------       --------       --------
Total capital contributions                                                    --         129.5             --            9.3
                                                                         --------      --------       --------       --------

Other changes                                                                  --           0.8            2.9            2.4
                                                                         --------      --------       --------       --------

Common stock dividends                                                         --         (10.1)         (49.7)        (776.0)
                                                                         --------      --------       --------       --------

Adjustment for purchase accounting                                             --       2,578.7             --             --
                                                                         --------      --------       --------       --------

Shareholder's equity, end of period                                      $4,344.6      $4,313.4       $1,385.7       $1,394.5
                                                                         ========      ========       ========       ========
</TABLE>

(1) Net of reclassification adjustments.

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       31
<PAGE>
           AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
         (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (millions)

<TABLE>
<CAPTION>
                                                                                                  Preacquisition
                                                                                  -----------------------------------------------
                                                                    One month     Eleven months
                                                                      ended           ended        Year ended       Year ended
                                                                  December 31,    November 30,    December 31,     December 31,
                                                                      2000            2000            1999             1998
                                                                 ---------------  -------------  ---------------  ---------------
<S>                                                              <C>              <C>            <C>              <C>
Cash Flows from Operating Activities:
Net income                                                           $  12.6       $    177.2       $   187.6        $   293.6
Adjustments to reconcile net income to net cash (used for)
  provided by operating activities:
  Net accretion of discount on investments                              (2.7)           (32.6)          (26.5)           (29.5)
  Amortization of deferred gain on sale                                   --             (5.7)           (5.7)             0.0
  Immediate gain on sale                                                  --               --              --            (59.0)
  Net realized capital gains (losses)                                   (1.8)            37.2            21.5            (11.1)
  Changes in assets and liabilities:
    Decrease (increase) in accrued investment income                     6.6             (3.1)            0.9             11.4
    Decrease (increase) in premiums due and other receivables           31.1            (23.7)           23.3            (24.0)
    Decrease (increase) in policy loans                                  0.1            (25.4)          (21.8)           177.4
    Increase in deferred policy acquisition costs/value of
      business acquired                                                (12.2)          (136.6)         (153.3)          (132.8)
    Decrease in reinsurance loan to affilitate                            --               --              --            397.2
    Net (decrease) increase in universal life account balances          (3.8)            23.8            55.7            122.9
    (Decrease) increase in other insurance reserve liabilities          (5.3)            85.6           (28.6)           (41.8)
    Increase (decrease) in other liabilities and other assets          103.9            (75.2)          (42.5)           (35.3)
    (Decrease) increase in income taxes                                (14.3)            23.1          (259.8)           106.5
                                                                     -------       ----------       ---------        ---------
Net cash provided by (used for) operating activities                   114.2             44.6          (249.2)           775.5
                                                                     -------       ----------       ---------        ---------
Cash Flows from Investing Activities:
  Proceeds from sales of fixed maturities
    Debt securities available for sale                                 233.0         10,083.2         5,890.1          6,790.2
    Equity securities                                                    1.5            118.4           111.2            150.1
    Mortgage loans                                                       0.1              2.1             6.1              0.3
    Life Business                                                         --               --              --            966.5
  Investment maturities and collections of:
    Debt securities available for sale                                  53.7            573.1         1,216.5          1,296.3
    Short-term investments                                               0.4             59.9            80.6            135.3
  Cost of investment purchases in:
    Debt securities available for sale                                (230.7)       (10,505.5)       (7,099.7)        (6,706.4)
    Equity securities                                                  (27.8)           (17.6)          (13.0)          (125.7)
    Short-term investments                                             (10.0)          (113.1)         (106.0)           (83.9)
  Decrease (increase) in property and equipment                          1.9              5.4            (5.7)
  Other, net                                                             0.3             (4.0)            3.7         (2,725.9)
                                                                     -------       ----------       ---------        ---------
Net cash provided by (used for) investing activities                    22.4            201.9            83.8           (312.2)
                                                                     -------       ----------       ---------        ---------
Cash Flows from Financing Activities:
  Deposits and interest credited for investment contracts              164.2          1,529.7         2,040.2          1,571.1
  Withdrawals of investment contracts                                 (156.3)        (1,832.6)       (1,680.8)        (1,393.1)
  Capital contribution from HOLDCO                                        --             73.5              --              9.3
  Return of capital to Separate Account                                   --               --              --              1.7
  Dividends paid to shareholder                                           --            (10.1)         (255.7)          (570.0)
  Other, net                                                           (73.6)            22.0           126.7            (34.3)
                                                                     -------       ----------       ---------        ---------
Net cash (used for) provided by financing activities                   (65.7)          (217.5)          230.4           (415.3)
                                                                     -------       ----------       ---------        ---------
Net increase in cash and cash equivalents                               70.9             29.0            65.0             48.0
Effect of exchange rate changes on cash and cash equivalents              --              2.0              --               --
Cash and cash equivalents, beginning of period                         725.4            694.4           629.4            581.4
                                                                     -------       ----------       ---------        ---------
Cash and cash equivalents, end of period                             $ 796.3       $    725.4       $   694.4        $   629.4
                                                                     =======       ==========       =========        =========
Supplemental cash flow information:
Income taxes paid, net                                               $  20.3       $     39.9       $   316.9        $    60.9
                                                                     =======       ==========       =========        =========
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Aetna Life Insurance and Annuity Company ("ALIAC") and its wholly owned
    subsidiaries (collectively, the "Company") are providers of financial
    products and services and investment management services in the United
    States. The Company has two business segments: Financial Products and
    Investment Management Services. On October 1, 1998, the Company sold its
    individual life insurance business to Lincoln National Corporation
    ("Lincoln") and accordingly, it is now classified as Discontinued Operations
    (refer to Note 3).

    On December 13, 2000, ING America Insurance Holdings, Inc., an indirect
    wholly owned subsidiary of ING, acquired Aetna Inc., comprised of the Aetna
    Financial Services business, of which the Company is a part, and the Aetna
    International business, for approximately $7.7 billion. The purchase price
    was comprised of approximately $5.0 billion in cash and the assumption of
    $2.7 billion of outstanding debt and other net liabilities. In connection
    with the acquisition, Aetna Inc. was renamed Lion Connecticut Holdings Inc.
    ("Lion"). At the time of the sale, Lion entered into certain transition
    services agreements with a former related party, Aetna U.S. Healthcare,
    which was renamed Aetna Inc. ("former Aetna").

    For accounting purposes, the acquisition has been accounted for as of
    November 30, 2000 using the purchase method. The application of the purchase
    method, including the recognition of goodwill, is being pushed down and
    reflected on the financial statements of certain ARSI (a subsidiary of Lion)
    subsidiaries, including the Company. The Balance Sheet changes related to
    accounting for this purchase were entirely non-cash in nature and
    accordingly have been excluded from the pre-acquisition Consolidated
    Statement of Cash Flow for the eleven months ended November 30, 2000.

    The purchase price was allocated to assets and liabilities based on their
    respective fair values. This revaluation resulted in a net increase to
    assets, excluding the effects of goodwill, of $592.0 million and a net
    increase to liabilities of $310.6 million. The allocation of the purchase
    price to assets and liabilities is subject to further refinement.

    The net increase to assets reflects the write off of deferred acquisition
    costs of $1,183.0 million, which was the balance as of November 30, 2000,
    the establishment of value of business acquired of $1,780.9, an increase to
    other assets of $6.0 million and a decrease of $12.0 million in current
    income taxes. The increase to other assets reflects the write down of
    certain fixed assets and capitalized software costs resulting from
    conforming accounting policies, the establishment of a favorable lease asset
    and the reclassification of certain pension assets (previously reflected in
    other liabilities). The balances in other assets and current income taxes
    prior to push down accounting were $148.7 million and $52.6 million,
    respectively.

    The net increase to liabilities reflects an increase to insurance reserves
    of $60.0 million representing the revaluation of the reserves using current
    assumptions, an increase to deferred tax liabilities of $266.4 million
    primarily representing the deferred tax effect of the purchase accounting
    adjustments and a decrease to other liabilities of $15.8 million. The
    decrease in other liabilities includes the write-off of the deferred gain
    related to the sale of the individual life insurance business (refer to Note
    3) partially offset by the establishment of a severance liability

                                       33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
    and the revaluation of certain benefit plan liabilities. The balances in
    insurance reserves and other liabilities prior to push down accounting were
    $15,072.9 million and $565.7 million. With respect to deferred taxes, prior
    to push down accounting, the Company had a deferred tax asset of $18.4
    million. As a result of the application of push down accounting, retained
    earnings immediately prior to the sale was reclassified to paid-in capital.

    Additionally, the Company established goodwill of $2.3 billion. Goodwill is
    being amortized over a period of 40 years.

    Unaudited proforma consolidated income from continuing operations and net
    income of the Company for the period from January 1, 2000 to November 30,
    2000 and for the year-ended December 31, 1999, assuming that the acquisition
    of the Company occurred at the beginning of each period, would have been
    approximately $118.1 million and $123.5 million, respectively. The pro forma
    adjustments, which do not affect revenues, reflect primarily goodwill
    amortization, amortization of the favorable lease asset and the elimination
    of amortization of the deferred gain on sale associated with the life
    business.

    Financial Products include annuity contracts that offer a variety of funding
    and payout options for individual and employer-sponsored retirement plans
    qualified under Internal Revenue Code Sections 401, 403, 408 and 457,
    nonqualified annuity contracts and mutual funds. 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 ALIAC and
    nonaffiliated mutual funds), variable and fixed investment options.
    Financial Products also include investment advisory services and pension
    plan administrative services.

    Investment Management Services provides: investment advisory services to
    affiliated and unaffiliated institutional and retail clients on a
    fee-for-service basis; underwriting services to the Aetna Series Fund Inc.;
    distribution services for other company products; and trustee,
    administrative, and other fiduciary services to retirement plans requiring
    or otherwise utilizing a trustee or custodian.

    Discontinued Operations include universal life, variable universal life,
    traditional whole life and term insurance.

    PRINCIPLES OF CONSOLIDATION

    The consolidated financial statements include ALIAC and its wholly owned
    subsidiaries, Aetna Insurance Company of America ("AICA"), Aetna Investment
    Adviser Holding Company, Inc. ("IA Holdco") and Aetna Investment Services,
    LLC ("AIS"). ALIAC is a wholly owned subsidiary of Aetna Retirement
    Holdings, Inc. ("HOLDCO"), which is a wholly owned subsidiary of Aetna
    Retirement Services, Inc. ("ARSI"). ARSI is ultimately owned by ING Groep
    N.V.

                                       34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
    (ING). HOLDCO contributed AIS to the Company on June 30, 2000 and
    contributed IA Holdco to the Company on July 1, 1999 (refer to Note 2).

    The consolidated financial statements have been prepared in accordance with
    accounting principles generally accepted in the United States of America.
    The contributions of AIS and IA Holdco to the Company were accounted for in
    a manner similar to that of a pooling-of-interests and, accordingly, the
    Company's historical consolidated financial statements have been restated to
    include the accounts and results of operations of both companies.

    Certain reclassifications have been made to 1999 and 1998 financial
    information to conform to the 2000 presentation.

    NEW ACCOUNTING STANDARDS

    ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
    EXTINGUISHMENTS OF LIABILITIES

    In September 2000, the Financial Accounting Standard Board ("FASB") issued
    Financial Accounting Standard ("FAS") No. 140, Accounting for Transfers and
    Servicing of Financial Assets and Extinguishments of Liabilities, which
    replaces FAS No. 125, Accounting for Transfers and Servicing of Financial
    Assets and Extinguishments of Liabilities. This standard revises the
    accounting for securitizations, other financial asset transfers and
    collateral associated with securities lending transactions and requires
    certain additional disclosures. FAS No. 140 is effective for transfers and
    servicing of financial assets and extinguishments of liabilities occurring
    after March 31, 2001. However, for recognition and disclosure of collateral
    and for additional disclosures related to securitization transactions, FAS
    No. 140 was effective for the Company's December 31, 2000 financial
    statements. With respect to the provisions effective December 31, 2000, the
    Company reclassified debt securities on loan to other institutions from
    "Debt Securities" to "Securities Pledged to Creditors" on the Company's
    Consolidated Balance Sheet. The Company does not expect the adoption of
    those provisions effective after March 31, 2001 to have a material effect on
    its financial position or results of operations (Refer to Note 4).

    DEPOSIT ACCOUNTING: ACCOUNTING FOR INSURANCE AND REINSURANCE CONTRACTS THAT
    DO NOT TRANSFER INSURANCE RISK

    On January 1, 2000, the Company adopted Statement of Position 98-7, Deposit
    Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not
    Transfer Insurance Risk, issued by the American Institute of Certified
    Public Accountants. This statement provides guidance on how to account for
    all insurance and reinsurance contracts that do not transfer insurance risk,
    except for long-duration life and health insurance contracts. The adoption
    of this standard had no impact on the Company's financial position or
    results of operations.

                                       35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
    FUTURE APPLICATION OF ACCOUNTING STANDARDS

    ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

    In June 1998, the FASB issued FAS No. 133, Accounting for Derivative
    Instruments and Hedging Activities. This June 2000, further guidance related
    to accounting for derivative instruments and hedging activities was provided
    when the FASB issued FAS No. 138, Accounting for Certain Derivative
    Instruments and Certain Hedging Activities--an Amendment of FASB Statement
    No. 133. This standard, as amended, requires companies to record all
    derivatives on the balance sheet as either assets or liabilities and measure
    those instruments at fair value. The manner in which companies are to record
    gains or losses resulting from changes in the values of those derivatives
    depends on the use of the derivative and whether it qualifies for hedge
    accounting. As amended by FAS No. 137, Accounting for Derivative Instruments
    and Hedging Activities--Deferral of the Effective Date of FASB Statement No.
    133, this standard is effective for the Company's financial statements
    beginning January 1, 2001, with early adoption permitted. The impact to the
    Company, of the adoption of this standard, as amended, will not have a
    material effect on the Company's financial position or results of
    operations.

    USE OF ESTIMATES

    The preparation of financial statements in conformity with accounting
    principles generally accepted in the United States of America requires
    management to make estimates and assumptions that affect the amounts
    reported in the financial statements and accompanying notes. Actual results
    could differ from reported results using those estimates.

    CASH AND CASH EQUIVALENTS

    Cash and cash equivalents include cash on hand, money market instruments and
    other debt issues with a maturity of 90 days or less when purchased.

    INVESTMENTS

    Debt and equity securities are classified as available for sale and carried
    at fair value. Securities are written down (as realized capital losses) for
    other than temporary declines in value. Included in available-for-sale
    securities are investments that support experience-rated products.

    Experience-rated products are products where the customer, not the Company,
    assumes investment (including realized capital gains and losses) and other
    risks, subject to, among other things, minimum guarantees. As long as
    minimum guarantees are not triggered, the effect of experience-rated
    products' investment performance does not impact the Company's results of
    operations. Realized and unrealized capital gains and losses on investments
    supporting these products are reflected in policyholders' funds left with
    the Company. Realized capital gains and losses on all other investments are
    reflected in the Company's results of operations. Unrealized capital gains
    and losses on all other investments are reflected in shareholder's equity,
    net of related income taxes.

                                       36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
    Purchases and sales of debt and equity securities are recorded on the trade
    date. Sales of mortgage loans are recorded on the closing date.

    Fair values for debt and equity securities are based on quoted market prices
    or dealer quotations. Where quoted market prices or dealer quotations are
    not available, fair values are measured utilizing quoted market prices for
    similar securities or by using discounted cash flow methods. Cost for
    mortgage-backed securities is adjusted for unamortized premiums and
    discounts, which are amortized using the interest method over the estimated
    remaining term of the securities, adjusted for anticipated prepayments. The
    Company does not accrue interest on problem debt securities when management
    believes the collection of interest is unlikely.

    The Company engages in securities lending whereby certain securities from
    its portfolio are loaned to other institutions for short periods of time.
    Initial collateral, primarily cash, is required at a rate of 102% of the
    market value of a loaned domestic security and 105% of the market value of a
    loaned foreign security. The collateral is deposited by the borrower with a
    lending agent, and retained and invested by the lending agent according to
    the Company's guidelines to generate additional income. The market value of
    the loaned securities is monitored on a daily basis with additional
    collateral obtained or refunded as the market value of the loaned securities
    fluctuates.

    In September 2000, the FASB issued FAS No. 140, Accounting for Transfers and
    Servicing of Financial Assets and Extinguishments of Liabilities. In
    accordance with this new standard, general account securities on loan are
    reflected on the balance sheet as "Securities pledged to creditors", which
    includes the following:

<TABLE>
<CAPTION>
                                                Gross       Gross
   December 31, 2000               Amortized  Unrealized  Unrealized    Fair
   (Millions)                        Cost       Gains       Losses     Value
   <S>                             <C>        <C>         <C>         <C>
   ---------------------------------------------------------------------------
   Debt securities                  $124.5       $5.3        $3.1      $126.7

   Short-term investments              2.3         --          --         2.3
   ---------------------------------------------------------------------------
   Total securities pledged to
     creditors                      $126.8       $5.3        $3.1      $129.0
   ---------------------------------------------------------------------------
</TABLE>

    At December 31, 1999, the Company had securities pledged to creditors with a
    fair value of approximately $232.5 million reflected as debt securities.

    The investment in affiliated mutual funds represents an investment in Aetna
    managed mutual funds by the Company, and is carried at fair value.

    Mortgage loans and policy loans are carried at unpaid principal balances,
    net of impairment reserves.

                                       37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
    Short-term investments, consisting primarily of money market instruments and
    other debt issues purchased with an original maturity of 91 days to one
    year, are considered available for sale and are carried at fair value, which
    approximates amortized cost.

    The Company utilizes futures contracts for other than trading purposes in
    order to hedge interest rate risk (i.e. market risk, refer to Note 5).
    Futures contracts are carried at fair value and require daily cash
    settlement. Changes in the fair value of futures contracts allocable to
    experience rated contracts are deducted from capital gains and losses with
    an offsetting amount reported in future policy benefits. Changes in the fair
    value of futures contracts allocable to non-experienced-rated contracts that
    qualify as hedges are deferred and recognized as an adjustment to the hedged
    asset or liability. Deferred gains or losses on such futures contracts are
    amortized over the life of the acquired asset or liability as a yield
    adjustment or through net realized capital gains or losses upon disposal of
    an asset. Changes in the fair value of futures contracts that do not qualify
    as hedges are recorded in net realized capital gains or losses. Hedge
    designation requires specific asset or liability identification, a
    probability at inception of high correlation with the position underlying
    the hedge, and that high correlation be maintained throughout the hedge
    period. If a hedging instrument ceases to be highly correlated with the
    position underlying the hedge, hedge accounting ceases at that date and
    excess gains or losses on the hedging instrument are reflected in net
    realized capital gains or losses.

    Included in common stock are warrants which represent the right to purchase
    specific securities. Upon exercise, the cost of the warrants is added to the
    basis of the securities purchased.

    On occasion, the Company sells call options written on underlying securities
    which are carried at fair value. Changes in fair value of these options are
    recorded in net realized capital gains or losses.

    GOODWILL

    Goodwill, which represents the excess of cost over the fair value of net
    assets acquired, is amortized on a straight-line basis over 40 years.

    The Company regularly evaluates the recoverability of goodwill. The carrying
    value of goodwill would be reduced through a direct write-off, if, in
    management's judgement, it was probable that projected future operating
    income (before amortization of goodwill) would not be sufficient on an
    undiscounted basis to recover the carrying value. Operating earnings
    considered in such an analysis are those of the entity acquired, if
    separately identifiable, or the business segment that acquired the entity if
    the entity's earnings are not separately identifiable.

    DEFERRED POLICY ACQUISITION COSTS

    Certain costs of acquiring certain insurance business are deferred. These
    costs, all of which vary with and are primarily related to the production of
    new and renewal business, consist principally of commissions, certain
    expenses of underwriting and issuing contracts, and certain agency

                                       38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
    expenses. For certain annuity and pension contracts, such costs are
    amortized in proportion to estimated gross profits and adjusted to reflect
    actual gross profits over the life of the contracts (up to 20 years for
    annuity and pension contracts.)

    Periodically, modifications may be made to deferred annuity contract
    features, such as shortening the surrender charge period or waiving the
    surrender charge, changing the mortality and expense fees, etc. Unamortized
    deferred policy acquisition costs associated with these modified contracts
    are not written off, but rather, continue to be associated with the original
    block of business to which these costs were previously recorded. Such costs
    are amortized based on revised estimates of expected gross profits based
    upon the contract after the modification.

    Deferred policy acquisition costs are written off to the extent that it is
    determined that future policy premiums and investment income or gross
    profits are not adequate to cover related expenses.

    Refer to "Principles of Consolidation" within Note 1 for related discussions
    regarding the application of the purchase method to deferred policy
    acquisition costs.

    VALUE OF BUSINESS ACQUIRED

    Value of business acquired ("VOBA") is an asset and represents the present
    value ofestimated net cash flows embedded in the Company's contracts
    acquired by ING. VOBA is amortized in proportion to estimated gross profits
    and adjusted to reflect actual gross profits over the contracts (up to 30
    years for annuity contracts and pension contracts).

    VOBA is written off to the extent that it is determined that gross profits
    are not adequate to recover the asset. The estimated amount of VOBA to be
    amortized, net of interest, over the next five years is $104.3 million,
    $112.6 million, $114.3 million, $110.8 million and $106.3 million for the
    years 2001, 2002, 2003, 2004 and 2005, respectively. Actual amortization
    incurred during these years may vary as assumptions are modified to
    incorporate actual results.

    INSURANCE RESERVE LIABILITIES

    Future policy benefits include reserves for universal life, immediate
    annuities with life contingent payouts and traditional life insurance
    contracts. Reserves for universal life products are equal to cumulative
    deposits less withdrawals and charges plus credited interest thereon.
    Reserves for traditional life insurance contracts represent the present
    value of future benefits to be paid to or on behalf of policyholders and
    related expenses less the present value of future net premiums.

    Reserves for immediate annuities with life contingent payouts contracts are
    computed on the basis of assumed investment yield, mortality, and expenses,
    including a margin for adverse deviations. Such assumptions generally vary
    by plan, year of issue and policy duration. Reserve interest rates range
    from 2.0% to 9.5% for all years presented. Investment yield is based on the
    Company's experience. Mortality and withdrawal rate assumptions are based on
    relevant

                                       39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
    Company experience and are periodically reviewed against both industry
    standards and experience.

    Because the sale of the domestic individual life insurance business was
    substantially in the form of an indemnity reinsurance agreement, the Company
    reported an addition to its reinsurance recoverable approximating the
    Company's total individual life reserves at the sale date.

    Policyholders' funds left with the Company include reserves for deferred
    annuity investment contracts and immediate annuities without life contingent
    payouts. Reserves on such contracts are equal to cumulative deposits less
    charges and withdrawals plus credited interest thereon (rates range from
    2.0% to 14.0% for all years presented) net of adjustments for investment
    experience that the Company is entitled to reflect in future credited
    interest. These reserves also include unrealized gains/losses related to FAS
    No. 115. Reserves on contracts subject to experience rating reflect the
    rights of contractholders, plan participants and the Company.

    Unpaid claims for all lines of insurance include benefits for reported
    losses and estimates of benefits for losses incurred but not reported.

    REVENUE RECOGNITION

    For certain annuity contracts, charges assessed against policyholders' funds
    for the cost of insurance, surrender charges, actuarial margin and other
    fees are recorded as revenue in charges assessed against policyholders.
    Other amounts received for these contracts are reflected as deposits and are
    not recorded as revenue. Related policy benefits are recorded in relation to
    the associated premiums or gross profit so that profits are recognized over
    the expected lives of the contracts. When annuity payments with life
    contingencies begin under contracts that were initially investment
    contracts, the accumulated balance in the account is treated as a single
    premium for the purchase of an annuity and reflected as an offsetting amount
    in both premiums and current and future benefits in the Consolidated
    Statements of Income.

    SEPARATE ACCOUNTS

    Separate Accounts assets and liabilities generally represent funds
    maintained to meet specific investment objectives of contractholders who
    bear the investment risk, subject, in some cases, to minimum guaranteed
    rates. Investment income and investment gains and losses generally accrue
    directly to such contractholders. The assets of each account are legally
    segregated and are not subject to claims that arise out of any other
    business of the Company.

    Separate Account assets supporting variable options under universal life and
    annuity contracts are invested, as designated by the contractholder or
    participant under a contract (who bears the investment risk subject, in
    limited cases, to minimum guaranteed rates) in shares of mutual funds which
    are managed by the Company, or other selected mutual funds not managed by
    the Company.

                                       40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
    Separate Accounts assets are carried at fair value. At December 31, 2000 and
    1999, unrealized gains of $9.5 million and unrealized losses of $8.0
    million, respectively, after taxes, on assets supporting a guaranteed
    interest option are reflected in shareholder's equity. Separate Accounts
    liabilities are carried at fair value, except for those relating to the
    guaranteed interest option. Reserves relating to the guaranteed interest
    option are maintained at fund value and reflect interest credited at rates
    ranging from 3.8% to 14.0% in 2000 and 3.7% to 12.0% in 1999.

    Separate Accounts assets and liabilities are shown as separate captions in
    the Consolidated Balance Sheets. Deposits, investment income and net
    realized and unrealized capital gains and losses of the Separate Accounts
    are not reflected in the Consolidated Financial Statements (with the
    exception of realized and unrealized capital gains and losses on the assets
    supporting the guaranteed interest option). The Consolidated Statements of
    Cash Flows do not reflect investment activity of the Separate Accounts.

    REINSURANCE

    The Company utilizes indemnity reinsurance agreements to reduce its exposure
    to large losses in all aspects of its insurance business. Such reinsurance
    permits recovery of a portion of losses from reinsurers, although it does
    not discharge the primary liability of the Company as direct insurer of the
    risks reinsured. The Company evaluates the financial strength of potential
    reinsurers and continually monitors the financial condition of reinsurers.
    Only those reinsurance recoverable balances deemed probable of recovery are
    reflected as assets on the Company's Consolidated Balance Sheets. Of the
    reinsurance recoverable on the Consolidated Balance Sheets at December 31,
    2000 and 1999, $2,991 million and $2,989 million, respectively, is related
    to the reinsurance recoverable from Lincoln arising from the sale of the
    Company's domestic life insurance business. (Refer to Note 3).

    INCOME TAXES

    The Company is included in the consolidated federal income tax return of
    Lion through December 13, 2000. Subsequent to December 13, 2000 the Company
    will file a consolidated return with AICA. The Company is taxed at regular
    corporate rates after adjusting income reported for financial statement
    purposes for certain items. Deferred income tax expenses/ benefits result
    from changes during the year in cumulative temporary differences between the
    tax basis and book basis of assets and liabilities.

2.  RECENT DEVELOPMENTS

    CONTRIBUTIONS OF AIS AND IA HOLDCO FROM HOLDCO

    On June 30, 2000, HOLDCO contributed AIS to the Company. AIS is registered
    with the Securities and Exchange Commission as a broker/dealer and is a
    member of the National Association of Securities Dealers, Inc. It is also
    registered with the appropriate state securities authorities as a
    broker/dealer and is a Registered Investment Advisor. The principal
    operation of

                                       41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

2.  RECENT DEVELOPMENTS (continued)
    AIS is acting as underwriter for ALIAC's manufactured products, as well as
    the sale of fixed and variable annuities and mutual funds through its
    registered representatives.

    On July 1, 1999, HOLDCO contributed IA Holdco to the Company. The primary
    operating subsidiary of IA Holdco is Aeltus Investment Management, Inc.
    ("Aeltus") which has two wholly-owned operating subsidiaries: Aeltus
    Capital, Inc. ("ACI"), a broker dealer, and Aeltus Trust Company ("ATC"), a
    limited purpose banking entity. Aeltus is a registered investment advisor
    under the Investment Advisers Act of 1940 and provides investment advisory
    services to institutional and retail clients on a fee-for-service basis. In
    addition, Aeltus, through its ACI subsidiary, serves as underwriter to the
    Aetna Series Fund, Inc. and provides distribution services for other Company
    products. Aeltus' ATC subsidiary provides trustee, administrative, and other
    fiduciary services to retirement plans requiring or otherwise utilizing a
    trustee or custodian.

3.  DISCONTINUED OPERATIONS-INDIVIDUAL LIFE INSURANCE

    On October 1, 1998, the Company sold its domestic individual life insurance
    business to Lincoln for $1 billion in cash. The transaction was generally in
    the form of an indemnity reinsurance arrangement, under which Lincoln
    contractually assumed from the Company certain policyholder liabilities and
    obligations, although the Company remains directly obligated to
    policyholders. Assets related to and supporting the life policies were
    transferred to Lincoln and the Company recorded a reinsurance recoverable
    from Lincoln. The transaction resulted in an after-tax gain on the sale of
    approximately $117 million, of which $57.7 million was deferred and was
    being recognized over approximately 15 years. The remaining portion of the
    gain was recognized immediately in net income and was largely attributed to
    access to the agency sales force and brokerage distribution channel.
    Approximately $5.7 million and $5.2 million (after tax) of the deferred gain
    was recognized during 2000 and 1999, respectively. During the fourth quarter
    of 1999, the Company refined certain accrual and tax estimates which had
    been established in connection with the recording of the deferred gain. As a
    result, the deferred gain was increased by $12.9 million (after tax) to
    $65.4 million at December 31, 1999.

    In conjunction with the accounting for the acquisition of the Aetna
    Financial Services business, of which the Company is a part, the deferred
    gain, which was previously part of other liabilities, was written off.
    (Refer to Note 1).

    The operating results of the domestic individual life insurance business are
    presented as Discontinued Operations. Revenues for the individual life
    segment were $652.2 million for 1998. Premiums ceded and reinsurance
    recoveries made in 2000 totaled $419.1 million and $416.1 million,
    respectively, and in 1999 totaled $476.5 million and $513.4 million,
    respectively.

                                       42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

4.  INVESTMENTS

    Debt securities available for sale as of December 31 were as follows:

<TABLE>
<CAPTION>
                                                Gross       Gross
                                   Amortized  Unrealized  Unrealized     Fair
   2000 (Millions)                   Cost       Gains       Losses      Value
   <S>                             <C>        <C>         <C>         <C>
   -----------------------------------------------------------------------------
   U.S. government and government
     agencies and authorities      $  920.8     $ 34.3      $  2.1    $   953.0
   States, municipalities and
     political subdivisions             0.3         --          --          0.3

   U.S. corporate securities:
       Utilities                      282.2       13.8         6.2        289.8
       Financial                    1,753.1       33.8        21.2      1,765.7
       Transportation/capital
         goods                        660.2       21.4        11.3        670.3
       Health care/consumer
         products                     758.9       16.2        27.9        747.2
       Natural resources              499.3        7.6        15.6        491.3
       Other corporate securities     972.0        7.1        52.3        926.8
   -----------------------------------------------------------------------------
     Total U.S. corporate
       securities                   4,925.7       99.9       134.5      4,891.1
   -----------------------------------------------------------------------------

   Foreign securities:
       Government, including
         political subdivisions       384.7       23.9         4.3        404.3
       Utilities                      122.9       18.6          --        141.5
       Other                           31.2         --         9.3         21.9
   -----------------------------------------------------------------------------
     Total foreign securities         538.8       42.5        13.6        567.7
   -----------------------------------------------------------------------------

   Residential mortgage-backed
     securities:
       Pass-throughs                1,390.3       37.1         4.1      1,423.3
       Collateralized mortgage
         obligations                1,606.6       61.2         7.1      1,660.7
   -----------------------------------------------------------------------------
   Total residential
     mortgage-backed securities     2,996.9       98.3        11.2      3,084.0
   -----------------------------------------------------------------------------

   Commercial/Multifamily
     mortgage-backed securities     1,108.3       27.5        24.2      1,111.6

   Other asset-backed securities      753.7       13.4         3.4        763.7
   -----------------------------------------------------------------------------
   Total debt securities,
     including debt securities
     pledged to creditors          11,244.5      315.9       189.0     11,371.4

   Less: Debt securities pledged
     to creditors                     124.5        5.3         3.1        126.7
   -----------------------------------------------------------------------------

   Debt securities                 $11,120.0    $310.6      $185.9    $11,244.7
   =============================================================================
</TABLE>

                                       43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

4.  INVESTMENTS (continued)
    Debt securities available for sale as of December 31 were as follows:

<TABLE>
<CAPTION>
                                                Gross       Gross
                                   Amortized  Unrealized  Unrealized     Fair
   1999 (Millions)                   Cost       Gains       Losses      Value
   <S>                             <C>        <C>         <C>         <C>
   -----------------------------------------------------------------------------
   U.S. government and government
     agencies and authorities      $1,087.2     $  4.6      $ 22.1    $ 1,069.7

   States, municipalities and
     political subdivisions             0.3         --          --          0.3

   U.S. corporate securities:
       Utilities                      514.5        5.6        12.7        507.4
       Financial                    1,869.8        8.2        44.7      1,833.3
       Transportation/capital
         goods                        623.4         .9        39.0        585.3
       Health care/consumer
         products                   1,138.7        9.3        51.3      1,096.7
       Natural resources              424.6        1.3        15.4        410.5
       Other corporate securities     214.0        1.0        14.9        200.1
   -----------------------------------------------------------------------------
     Total U.S. corporate
       securities                   4,785.0       26.3       178.0      4,633.3
   -----------------------------------------------------------------------------
   Foreign securities:
       Government, including
         political subdivisions       364.6       17.1        11.9        369.8
       Utilities                      196.4        7.3          .4        203.3
       Other                          748.2        8.9        34.3        722.8
   -----------------------------------------------------------------------------
     Total foreign securities       1,309.2       33.3        46.6      1,295.9
   -----------------------------------------------------------------------------

   Residential mortgage-backed
     securities:
       Pass-throughs                1,055.9       19.8        17.6      1,058.1
       Collateralized mortgage
         obligations                1,683.1       25.1        37.7      1,670.5
   -----------------------------------------------------------------------------
     Total residential
       mortgage-backed securities   2,739.0       44.9        55.3      2,728.6
   -----------------------------------------------------------------------------

   Commercial/Multifamily
     mortgage-backed securities     1,031.5        3.4        48.7        986.2

   Other asset-backed securities      705.7        0.3         9.9        696.1
   -----------------------------------------------------------------------------

   Debt securities                 $11,657.9    $112.8      $360.6    $11,410.1
   =============================================================================
</TABLE>

                                       44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

4.  INVESTMENTS (continued)

    At December 31, 2000 and 1999, net unrealized appreciation (depreciation) of
    $126.9 million and $(247.8) million, respectively, on available-for-sale
    debt securities including debt securities pledged to creditors, herein after
    referred to as "total debt securities", included $92.9 million and $(189.7)
    million, respectively, related to experience-rated contracts, which were not
    reflected in shareholder's equity but in insurance reserves.
    The amortized cost and fair value of total debt securities for the year
    ended December 31, 2000 are shown below by contractual maturity. Actual
    maturities may differ from contractual maturities because securities may be
    restructured, called, or prepaid.

<TABLE>
<CAPTION>
                                             Amortized    Fair
   (Millions)                                  Cost       Value
   <S>                                       <C>        <C>
   --------------------------------------------------------------
   Due to mature:
     One year or less                        $  405.4   $   405.9
     After one year through five years        2,272.8     2,299.2
     After five years through ten years       1,754.3     1,731.5
     After ten years                          1,953.1     1,975.6
     Mortgage-backed securities               4,105.2     4,195.5
     Other asset-backed securities              753.7       763.7
   --------------------------------------------------------------
   Less: Debt securities pledged to
     creditors                                  124.5       126.7
   ==============================================================
   Debt securities                           $11,120.0  $11,244.7
   ==============================================================
</TABLE>

    At December 31, 2000 and 1999, debt securities carried at fair value of $8.6
    million and $8.7 million, respectively, were on deposit as required by
    regulatory authorities.
    The Company did not have any investments in a single issuer, other than
    obligations of the U.S. government, with a carrying value in excess of 10%
    of the Company's shareholder's equity at December 31, 2000.
    Included in the Company's total debt securities were residential
    collateralized mortgage obligations ("CMOs") supporting the following:

<TABLE>
<CAPTION>
                                          2000                 1999
                                   -------------------  -------------------
                                   Amortized    Fair    Amortized    Fair
   (Millions)                        Cost      Value      Cost      Value
   <S>                             <C>        <C>       <C>        <C>
   ------------------------------------------------------------------------
   Total residential CMOs (1)      $1,606.6   $1,660.7  $1,683.1   $1,670.5
   ========================================================================
   Percentage of total:
     Supporting experience rated
       products                                   80.6%                80.7%
     Supporting remaining
       products                                   19.4%                19.3%
   ------------------------------------------------------------------------
                                                 100.0%               100.0%
   ========================================================================
</TABLE>

(1)  At December 31, 2000 and 1999, approximately 84% and 81%, respectively, of
     the Company's residential CMO holdings were backed by government agencies
     such as GNMA, FNMA, and FHLMC.

                                       45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

4.  INVESTMENTS  (continued)
    There are various categories of CMOs which are subject to different degrees
    of risk from changes in interest rates and, for CMO's that are not
    agency-backed, defaults. The principal risks inherent in holding CMOs are
    prepayment and extension risks related to dramatic decreases and increases
    in interest rates resulting in the repayment of principal from the
    underlying mortgages either earlier or later than originally anticipated. At
    December 31, 2000 and 1999, approximately 2% and 1%, respectively, of the
    Company's CMO holdings were invested in types of CMOs which are subject to
    more prepayment and extension risk than traditional CMOs (such as interest-
    or principal-only strips).

    Investments in equity securities as of December 31 were as follows:

<TABLE>
<CAPTION>
   (Millions)                                 2000    1999
   <S>                                       <C>     <C>
   --------------------------------------------------------
   Amortized Cost                            $120.8  $204.9
   Gross unrealized gains                       6.0    12.5
   Gross unrealized losses                      9.9    10.9
   --------------------------------------------------------
   Fair Value                                $116.9  $206.5
   ========================================================
</TABLE>

5.  FINANCIAL INSTRUMENTS

    ESTIMATED FAIR VALUE

    The carrying values and estimated fair values of certain of the Company's
    financial instruments at December 31, 2000 and 1999 were as follows:

<TABLE>
<CAPTION>
                                          2000                 1999
                                   -------------------  -------------------
                                   Carrying     Fair    Carrying     Fair
   (Millions)                        Value     Value      Value     Value
   <S>                             <C>        <C>       <C>        <C>
   ------------------------------------------------------------------------
   Assets:
     Mortgage loans                $     4.6  $    4.5  $     6.7  $    6.8
   Liabilities:
     Investment contract
       liabilities:
       With a fixed maturity         1,041.0     982.3    1,055.3     991.0
       Without a fixed maturity     10,084.6   9,549.9   10,066.4   9,452.8
   ------------------------------------------------------------------------
</TABLE>

    Fair value estimates are made at a specific point in time, based on
    available market information and judgments about the financial instrument,
    such as estimates of timing and amount of future cash flows. Such estimates
    do not reflect any premium or discount that could result from offering for
    sale at one time the Company's entire holdings of a particular financial
    instrument, nor do they consider the tax impact of the realization of
    unrealized gains or losses. In many cases, the fair value estimates cannot
    be substantiated by comparison to independent markets, nor can the disclosed
    value be realized in immediate settlement of the instrument. In evaluating
    the Company's management of interest rate, price and liquidity risks, the
    fair values of all assets and liabilities should be taken into
    consideration, not only those presented above.

                                       46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

5.  FINANCIAL INSTRUMENTS (continued)
    The following valuation methods and assumptions were used by the Company in
    estimating the fair value of the above financial instruments:

    MORTGAGE LOANS: Fair values are estimated by discounting expected mortgage
    loan cash flows at market rates which reflect the rates at which similar
    loans would be made to similar borrowers. The rates reflect management's
    assessment of the credit quality and the remaining duration of the loans.

    INVESTMENT CONTRACT LIABILITIES (INCLUDED IN POLICYHOLDERS' FUNDS LEFT WITH
    THE COMPANY):

    WITH A FIXED MATURITY: Fair value is estimated by discounting cash flows at
    interest rates currently being offered by, or available to, the Company for
    similar contracts.

    WITHOUT A FIXED MATURITY: Fair value is estimated as the amount payable to
    the contractholder upon demand. However, the Company has the right under
    such contracts to delay payment of withdrawals which may ultimately result
    in paying an amount different than that determined to be payable on demand.

    OFF-BALANCE-SHEET AND OTHER FINANCIAL INSTRUMENTS

    FUTURES CONTRACTS:

    Futures contracts are used to manage interest rate risk in the Company's
    bond portfolio. Futures contracts represent commitments to either purchase
    or sell securities at a specified future date and at a specified price or
    yield. Futures contracts trade on organized exchanges and, therefore, have
    minimal credit risk. Cash settlements are made daily based on changes in the
    prices of the underlying assets. The notional amounts, carrying values and
    estimated fair values of the Company's open treasury futures as of
    December 31, 1998 were $250.9 million, $.1 million, and $.1 million,
    respectively. There were no open treasury futures at December 31, 2000 and
    1999.

    WARRANTS:

    Included in common stocks are warrants which are instruments giving the
    Company the right, but not the obligation to buy a security at a given price
    during a specified period. The carrying values and estimated fair values of
    the Company's warrants to purchase equity securities at December 31, 2000
    were both $0.3 million. The carrying values and estimated fair values at
    December 31, 1999 were both $6.5 million.

    OPTIONS:

    As of December 31, 2000 and 1999, the Company earned $1.1 million and $0.4
    million respectively, of investment income for writing call options on
    underlying securities. At December 31, 2000 and 1999, there were no option
    contracts outstanding.

                                       47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

5.  FINANCIAL INSTRUMENTS (continued)
    DEBT INSTRUMENTS WITH DERIVATIVE CHARACTERISTICS:

    The Company also had investments in certain debt instruments with derivative
    characteristics, including those whose market value is at least partially
    determined by, among other things, levels of or changes in domestic and/or
    foreign interest rates (short- or long-term), exchange rates, prepayment
    rates, equity markets or credit ratings/spreads. The amortized cost and fair
    value of these securities, included in the debt securities portfolio, as of
    December 31, 2000 was as follows:

<TABLE>
<CAPTION>
                                             Amortized    Fair
   (Millions)                                  Cost      Value
   <S>                                       <C>        <C>
   -------------------------------------------------------------
   Residential collateralized mortgage
     obligations                             $1,606.6   $1,660.7
     Principal-only strips (included above)      28.1       32.1
     Interest-only strips (included above)        8.2        9.7
   Other structured securities with
     derivative characteristics (1)              51.5       51.5
   -------------------------------------------------------------
</TABLE>

(1)  Represents non-leveraged instruments whose fair values and credit risk are
     based on underlying securities, including fixed income securities and
     interest rate swap agreements.

6.  NET INVESTMENT INCOME

    Sources of net investment income were as follows:

<TABLE>
<CAPTION>
                                      One month     Eleven months
                                        ended           ended        Year ended       Year ended
                                    December 31,    November 30,    December 31,     December 31,
   (Millions)                           2000            2000            1999             1998
   <S>                             <C>              <C>            <C>              <C>
   ------------------------------------------------------------------------------------------------
   Debt securities                      $70.3          $768.9          $823.3           $798.8
   Nonredeemable preferred stock          1.8             9.5            17.1             18.4
   Investment in affiliated
     mutual funds                         0.5             2.1             2.4              6.6
   Mortgage loans                         0.1             0.5             1.1              0.6
   Policy loans                           0.7             7.9             7.7              7.2
   Cash equivalents                       4.4            50.3            39.0             46.1
   Other                                  2.6            13.1            15.3             15.5
   ------------------------------------------------------------------------------------------------
   Gross investment income               80.4           852.3           905.9            893.2
   Less: investment expenses             (1.8)          (18.5)          (19.6)           (21.4)
   ------------------------------------------------------------------------------------------------
   Net investment income                $78.6          $833.8          $886.3           $871.8
   ================================================================================================
</TABLE>

    Net investment income includes amounts allocable to experience rated
    contractholders of $55.9 million and $622.2 million for the one month and
    eleven month periods ended December 31, 2000 and November 30, 2000,
    respectively, and $659.6 million and $655.6 million for the years ended
    December 31, 1999 and 1998, respectively. Interest credited to
    contractholders is included in current and future benefits.

                                       48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

7.  DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY

    The Company paid $10.1 million, $255.7 million and $570.0 million in cash
    dividends to HOLDCO in 2000, 1999 and 1998, respectively. Of the $255.7
    million paid in 1999, $206.0 million was accrued for in 1998. Of the $776.0
    million dividends paid or accrued in 1998, $756.0 million (all of which was
    approved by the Insurance Commissioner of the State of Connecticut) was
    attributable to proceeds from the sale of the domestic individual life
    insurance business.

    The Insurance Department of the State of Connecticut (the "Department")
    recognizes as net income and capital and surplus those amounts determined in
    conformity with statutory accounting practices prescribed or permitted by
    the Department, which differ in certain respects from generally accepted
    accounting principles. Statutory net income was $100.6 million, $133.9
    million and $148.1 million for the years ended December 31, 2000, 1999 and
    1998, respectively. Statutory capital and surplus was $931.1 million and
    $844.9 million as of December 31, 2000 and 1999, respectively.

    As of December 31, 2000, the Company does not utilize any statutory
    accounting practices which are not prescribed by state regulatory
    authorities that, individually or in the aggregate, materially affect
    statutory capital and surplus.

    For 2001, the Company is required to implement statutory accounting changes
    ratified by the NAIC and state insurance departments ("Codification"). The
    cumulative effect of Codification to the Company's statutory surplus as of
    January 1, 2001 is estimated to be an increase of $27.4 million.

8.  CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS

    Realized capital gains or losses are the difference between the carrying
    value and sale proceeds of specific investments sold.

    Net realized capital gains (losses) on investments were as follows:

<TABLE>
<CAPTION>
                                   One month     Eleven months
                                     ended           ended        Year ended       Year ended
                                 December 31,    November 30,    December 31,     December 31,
(Millions)                           2000            2000            1999             1998
<S>                             <C>              <C>            <C>              <C>
------------------------------------------------------------------------------------------------
Debt securities                      $1.2           $(36.3)         $(23.6)           $ 7.4
Equity securities                     0.6             (0.9)            2.1              3.0
------------------------------------------------------------------------------------------------
Pretax realized capital gains
 (losses)                            $1.8           $(37.2)         $(21.5)           $10.4
================================================================================================
After-tax realized capital
 gains (losses)                      $1.3           $(24.3)         $(14.0)           $ 7.3
================================================================================================
</TABLE>

    Net realized capital (losses) gains of $(16.8) million, $(36.7) million and
    $15.0 million for 2000, 1999 and 1998, respectively, allocable to experience
    rated contracts, were deducted from net realized capital gains and an
    offsetting amount was reflected in Policyholders' funds left with the
    Company. Net unamortized gains allocable to experienced-rated
    contractholders were $45.1 million and $68.5 million at December 31, 2000
    and 1999, respectively.

                                       49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

8.  CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (continued)
    Proceeds from the sale of total debt securities and the related gross gains
    and losses were as follows:

<TABLE>
<CAPTION>
                                      One month     Eleven months
                                        ended           ended        Year ended       Year ended
                                    December 31,    November 30,    December 31,     December 31,
   (Millions)                           2000            2000            1999             1998
   <S>                             <C>              <C>            <C>              <C>
   ------------------------------------------------------------------------------------------------
   Proceeds on sales                   $233.0         $10,083.2       $5,890.1         $6,790.2
   Gross gains                            1.4               2.5           10.5             98.8
   Gross losses                            --              39.0           34.1             91.4
   ------------------------------------------------------------------------------------------------
</TABLE>

    Changes in shareholder's equity related to changes in accumulated other
    comprehensive income (unrealized capital gains and losses on securities
    including securities pledged to creditors, excluding those related to
    experience-rated contractholders) were as follows:

<TABLE>
<CAPTION>
   (Millions)                            2000    1999     1998
   <S>                                  <C>     <C>      <C>
   ------------------------------------------------------------
   Debt securities                      $ 92.1  $(199.2) $ 18.9
   Equity securities                      (5.5)    (3.4)  (16.1)
   Other                                  21.5    (27.6)   15.4
   ------------------------------------------------------------
       Subtotal                          108.1   (230.2)   18.2
   Increase (decrease) in deferred
     income taxes
     (Refer to Note 10)                   37.9    (80.6)    6.3
   ------------------------------------------------------------
   Net changes in accumulated other
     comprehensive income (loss)        $ 70.2  $(149.6) $ 11.9
   ============================================================
</TABLE>

                                       50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

8.  CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (continued)

    Net unrealized capital gains (losses) allocable to experience-rated
    contracts of $92.9 million and $(189.7) million at December 31, 2000 and
    1999, respectively, are reflected on the Consolidated Balance Sheets in
    Policyholders' funds left with the Company and are not included in
    shareholder's equity. Shareholder's equity included the following
    accumulated other comprehensive (loss) income, which is net of amounts
    allocable to experience-rated contractholders, at December 31:

<TABLE>
<CAPTION>
   (Millions)                            2000    1999    1998
   <S>                                  <C>     <C>     <C>
   -----------------------------------------------------------
   Total debt securities:
     Gross unrealized capital gains     $ 78.5  $ 18.6  $157.3
     Gross unrealized capital losses     (44.5)  (76.7)  (16.2)
   -----------------------------------------------------------
                                          34.0   (58.1)  141.1
   -----------------------------------------------------------
   Equity securities:
     Gross unrealized capital gains        6.0    12.5    13.1
     Gross unrealized capital losses      (9.9)  (10.9)   (8.1)
   -----------------------------------------------------------
                                          (3.9)    1.6     5.0
   -----------------------------------------------------------
   Other:
     Gross unrealized capital gains       15.0     1.3    17.1
     Gross unrealized capital losses      (5.9)  (13.7)   (1.8)
   -----------------------------------------------------------
                                           9.1   (12.4)   15.3
   -----------------------------------------------------------
   Deferred income taxes (Refer to
     Note 10)                             13.8   (24.1)   56.6
   -----------------------------------------------------------
   Net accumulated other comprehensive
     income (loss)                      $ 25.4  $(44.8) $104.8
   ===========================================================
</TABLE>

    Changes in accumulated other comprehensive income related to changes in
    unrealized gains (losses) on securities, including securities pledged to
    creditors (excluding those related to experience-rated contractholders) were
    as follows:

<TABLE>
<CAPTION>
   (Millions)                           2000    1999    1998
   <S>                                  <C>    <C>      <C>
   ----------------------------------------------------------
   Unrealized holding gains (losses)
     arising during the year (1)        $70.1  $(146.3) $38.3
   Less: reclassification adjustment
     for (losses) gains and other
     items included in net income (2)    (0.1)     3.3   26.4
   ==========================================================
   Net unrealized gains (losses) on
     securities                         $70.2  $(149.6) $11.9
   ==========================================================
</TABLE>

(1)  Pretax unrealized holding gains (losses) arising during the year were
     $108.0 million, $(225.2) million and $58.8 million for 2000, 1999 and 1998,
     respectively.
(2)  Pretax reclassification adjustments for (losses) gains and other items
     included in net income were $(0.1) million, $5.0 million and $40.6 million
     for 2000, 1999 and 1998, respectively.

                                       51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

9.  SEVERANCE

    In December 2000, the Company, in accounting for its acquisition by ING,
    established a severance liability of $10.7 million related to actions taken
    or expected to be taken with respect to the integration of the Company's and
    ING's businesses. The severance liability is based on a plan to eliminate
    approximately 175 positions (primarily in the retail annuity operations).
    The severance liability is reflected in other liabilities in the
    Consolidated Balance Sheets. Severance actions are expected to be
    substantially completed by December 31, 2001. No significant severance
    actions took place in 2000.

10. INCOME TAXES

    The Company is included in the consolidated federal income tax return of
    Lion through December 13, 2000. For tax settlements related to tax periods
    ending on or prior to December 13, 2000, the purchase agreement between ING
    America Insurance Holdings, Inc. and the former Aetna provides for the
    settlement of balances owed by the Company based on an amount approximating
    the tax the Company would have incurred were it not a member of the
    consolidated group, and owed to the Company for the use of its tax saving
    attributes in the consolidated federal income tax return.

    Subsequent to December 13, 2000, as a result of the sale, the Company will
    be filing a consolidated return with AICA. The Company allocates to each
    member, an amount approximating the tax the member would have incurred were
    it not a member of the consolidated group, and credits the member for use of
    its tax saving attributes in the consolidated federal income tax return.

    Income taxes from continuing operations consist of the following:

<TABLE>
<CAPTION>
                                   One month     Eleven months
                                     ended           ended        Year ended       Year ended
                                 December 31,    November 30,    December 31,     December 31,
(Millions)                           2000            2000            1999             1998
<S>                             <C>              <C>            <C>              <C>
------------------------------------------------------------------------------------------------
Current taxes (benefits):
  Federal                            $ 9.4          $  5.3          $ 64.3           $ 257.9
  State                                0.2             2.6             2.5               3.0
  Net realized capital
    (losses) gains                     0.3           (11.5)          (20.1)             16.8
------------------------------------------------------------------------------------------------
                                       9.9            (3.6)           46.7             277.7
------------------------------------------------------------------------------------------------
Deferred taxes (benefits):
  Federal                             (4.3)           83.2            31.3            (196.7)
  Net realized capital gains
    (losses)                           0.3            (1.5)           12.6             (13.9)
------------------------------------------------------------------------------------------------
                                      (4.0)           81.7            43.9            (210.6)
------------------------------------------------------------------------------------------------
    Total                            $ 5.9          $ 78.1          $ 90.6           $  67.1
================================================================================================
</TABLE>

                                       52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. INCOME TAXES (continued)
    Income taxes were different from the amount computed by applying the federal
    income tax rate to income from continuing operations before income taxes for
    the following reasons:

<TABLE>
<CAPTION>
                                     One month      Eleven months
                                       ended            ended         Year ended       Year ended
                                   December 31,     November 30,     December 31,     December 31,
  (Millions)                           2000             2000             1999             1998
  <S>                             <C>              <C>              <C>              <C>
  --------------------------------------------------------------------------------------------------
  Income from continuing
    operations before
    income taxes                      $ 18.5           $ 249.6          $ 272.5          $ 239.9
  Tax rate                                35%               35%              35%              35%
  --------------------------------------------------------------------------------------------------
  Application of the tax rate            6.4              87.4             95.4             84.0
  Tax effect of:
    State income tax, net of
      federal benefit                    0.1               1.7              1.6              2.0
    Excludable dividends                (0.9)            (12.6)            (6.1)           (17.1)
    Other, net                           0.3               1.6             (0.3)            (1.8)
  --------------------------------------------------------------------------------------------------
  Income taxes                        $  5.9           $  78.1          $  90.6          $  67.1
  ==================================================================================================
</TABLE>

                                       53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. INCOME TAXES (continued)
    The tax effects of temporary differences that give rise to deferred tax
    assets and deferred tax liabilities at December 31 are presented below:

<TABLE>
<CAPTION>
   (Millions)                                 2000     1999
   <S>                                       <C>      <C>
   ---------------------------------------------------------
   Deferred tax assets:
     Deferred policy acquisition costs       $  44.8  $   --
     Insurance reserves                        306.3   323.1
     Unrealized gains allocable to
       experience rated contracts               32.5      --
     Net unrealized capital losses                --    90.5
     Investment losses                           9.0     1.3
     Postretirement benefits other than
       pensions                                  5.8    24.8
     Deferred compensation                      65.6    42.5
     Sale of individual life insurance
       business                                   --    44.9
     Other                                      21.1    23.7
   ---------------------------------------------------------
   Total gross assets                          485.1   550.8
   ---------------------------------------------------------

   Deferred tax liabilities:
     Value of business acquired                623.3      --
     Deferred policy acquisition costs            --   324.0
     Market discount                             4.9     6.5
     Net unrealized capital gains               46.3      --
     Unrealized losses allocable to
       experience rated contracts                 --    66.4
     Depreciation                                4.4     3.5
     Sale of Individual life insurance
       business                                 15.1      --
     Excludable dividends                        5.0      --
     Other                                      34.1      --
   ---------------------------------------------------------
   Total gross liabilities                     733.1   400.4
   ---------------------------------------------------------
   Net deferred tax (liability) asset        $(248.0) $150.4
   =========================================================
</TABLE>

    Net unrealized capital gains and losses are presented in shareholder's
    equity net of deferred taxes. As of December 31, 2000 and 1999, no valuation
    allowance was required for unrealized capital gains and losses.

    The "Policyholders' Surplus Account," which arose under prior tax law, is
    generally that portion of a life insurance company's statutory income that
    has not been subject to taxation. As of December 31, 1983, no further
    additions could be made to the Policyholders' Surplus Account for tax return
    purposes under the Deficit Reduction Act of 1984. The balance in such
    account was approximately $17.2 million at December 31, 2000. This amount
    would be taxed only under certain conditions. No income taxes have been
    provided on this amount since management believes under current tax law the
    conditions under which such taxes would become payable are remote.

                                       54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. INCOME TAXES (continued)
    The Internal Revenue Service (the "Service") has completed examinations of
    the consolidated federal income tax returns of Lion through 1994.
    Discussions are being held with the Service with respect to proposed
    adjustments. Management believes there are adequate defenses against, or
    sufficient reserves to provide for, any such adjustments. The Service has
    commenced its examinations for the years 1995 through 1997.

11. BENEFIT PLANS

    ALIAC, in conjunction with ING, has noncontributory defined benefit pension
    plans covering substantially all employees. The plans provide pension
    benefits based on years of service and average annual compensation (measured
    over 60 consecutive months of highest earnings in a 120 - month period).
    Contributions are determined using the Projected Unit Credit Method and, for
    qualified plans subject to ERISA requirements, are limited to the amount
    that are tax-deductible. The accumulated benefit obligation and plan assets
    are recorded by ALIAC. As of the measurement date (i.e. December 13, 2000),
    fair value of plan assets exceed projected benefit obligations. Allocated
    pretax charges to operations for the former Aetna pension plan (based on the
    Company's total salary cost as a percentage of former Aetna's total salary
    cost) were $3.7 million and $6.6 million for the years ended December 31,
    2000 and 1999, respectively. There were no charges in 1998 due to favorable
    plan asset performance.

    Effective January 1, 1999 ALIAC, in conjunction with former Aetna, changed
    the formula for providing pension benefits from the existing final average
    pay formula to a cash balance formula, which credits employees annually with
    an amount equal to a percentage of eligible pay based on age and years of
    service as well as an interest credit based on individual account balances.
    The formula also provides for a transition period until December 1, 2006,
    which allows certain employees to receive vested benefits at the higher of
    the final average pay or cash balance formula. The changing of this formula
    will not have a material effect on ALIAC's results of operations, liquidity
    or financial condition.

    In addition to providing pension benefits, ALIAC, in conjunction with ING,
    provides certain health care and life insurance benefits for retired
    employees. A comprehensive medical and dental plan is offered to all
    full-time employees retiring at age 45 with 10 years of service. There is a
    cap on the portion of the cost paid by the Company relating to medical and
    dental benefits. Retirees are generally required to contribute to the plans
    based on their years of service with the Company. The costs to the Company
    associated with the former Aetna postretirement plans for 2000, 1999 and
    1998 were $1.2 million, $2.1 million and $1.0 million, respectively.

    ALIAC, in conjunction with ING, has a non-qualified pension plan covering
    certain agents. The plan provides pension benefits based on annual
    commission earnings. As of the measurement date (i.e. December 13, 2000),
    the projected benefit obligation exceeded the fair value of plan assets. The
    Company, in conjunction with ING, also provides certain postretirement
    health care and life insurance benefits for certain agents. The costs to the
    Company associated with the agents' postretirement plans for 2000, 1999 and
    1998 were $1.4 million, $2.1 million and $1.4 million, respectively.

                                       55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. BENEFIT PLANS (continued)
    Incentive Savings Plan--Substantially all employees are eligible to
    participate in a savings plan under which designated contributions, which
    may be invested in certain investments are matched, up to 5% of
    compensation, by ING. Pretax charges to operations for former Aetna the
    incentive savings plan were $9.0 million, $7.7 million and $5.3 million in
    2000, 1999 and 1998, respectively.

    Stock Plans--ALIAC, in conjunction with former Aetna, had a stock incentive
    plan that provided for stock options, deferred contingent common stock or
    equivalent cash awards or restricted stock to employees. Certain executive,
    middle management and non-management employees were granted options to
    purchase common stock of former Aetna at or above the market price on the
    date of grant. Options generally became 100% vested three years after the
    grant was made, with one-third of the options vesting each year. The former
    Aetna did not recognize compensation expense for stock options granted at or
    above the market price on the date of grant under its stock incentive plans.
    In addition, executives were, from time to time, granted incentive units
    which were rights to receive common stock or an equivalent value in cash.
    The sale of ALIAC to ING America Insurance Holdings, Inc by former Aetna
    caused all outstanding stock options to vest immediately. The costs to the
    Company associated with the former Aetna stock plans for 2000, 1999 and
    1998, were $2.7 million, $0.4 million and $4.2 million, respectively.

    During 2001, the benefits plans offered by ALIAC to its employees and agents
    will be transitioned to plans directly offered by ING. These plans are
    substantially similar to those offered by ALIAC, in conjunction with ING,
    and any differences are not expected to be material in nature.

    Effective January 1, 1998, Aeltus established an additional deferred
    incentive compensation plan, designed to attract, retain and incent key
    members of Aeltus. The plan had a five year vesting period. Payments under
    the plan were conditioned upon continued employment and were based upon an
    imputed share price of Aeltus at the end of the vesting period. The plan
    value was determined annually and the cost of the plan was expensed ratably
    over the vesting period. A change in control at Aeltus, as defined in the
    plan, would cause immediate full vesting of all outstanding shares. The
    purchase of Aetna Inc. by ING meets this definition. As a result, all
    outstanding shares became fully vested based on Aeltus's imputed value at
    the date of the sale and were subsequently paid out in early 2001. The
    appropriate annual share of the cost of the plan, including the additional
    cost in 2000 associated with this full vesting, has been reflected in
    salaries and related benefits in the Consolidated Statements of Income for
    each of the three years ended December 31, 2000. The costs to Aeltus
    associated with the deferred incentive compensation plan for 2000, 1999 and
    1998, were $42.2 million, $4.7 million and $3.1 million, respectively.

12. RELATED PARTY TRANSACTIONS

    INVESTMENT ADVISORY AND OTHER FEES

    ALIAC and Aeltus serve as investment advisors and administrators to the
    Company's mutual funds and variable funds (collectively, the Funds). Company
    Funds pay Aeltus or ALIAC, as

                                       56
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

12. RELATED PARTY TRANSACTIONS (continued)
    investment advisor or administrator, a daily fee which, on an annual basis,
    ranged, depending on the fund, from 0.33% to 1.15% of their average daily
    net assets. All of the funds managed by ALIAC and certain of the Funds
    managed by Aeltus are subadvised by investment advisors, in which case,
    Aeltus or ALIAC pays a subadvisory fee to the investment advisors. The
    Company is also compensated by the Separate Accounts (variable funds) for
    bearing mortality and expense risks pertaining to variable life and annuity
    contracts. Under the insurance and annuity contracts, the Separate Accounts
    pay the Company a daily fee, which, on an annual basis is, depending on the
    product, up to 3.40% of their average daily net assets. The amount of
    compensation and fees received from the Funds and Separate Accounts,
    included in charges assessed against policyholders and other income,
    amounted to $506.3 million, $424.2 million and $349.0 million in 2000, 1999
    and 1998, respectively.

    CAPITAL TRANSACTIONS

    The Company received capital contributions in the form of cash and assets of
    $73.5 million, and $56.0 million, respectively from HOLDCO in 2000. In 1998,
    the Company received capital contributions in the form of cash of $9.3
    million from HOLDCO. The Company received no capital contribution in 1999.

    Refer to Note 7 for dividends paid to HOLDCO.

    OTHER

    Premiums due and other receivables include $4.7 million and $10.5 million
    due from affiliates in 2000 and 1999, respectively. Other liabilities
    include $4.1 million and $1.9 million due to affiliates for 2000 and 1999,
    respectively.

    Former Aetna transferred to the Company $.4 million, $.8 million and $1.7
    million based on its decision not to settle state tax liabilities for the
    years 2000, 1999 and 1998, respectively, as permitted under the tax sharing
    arrangement, which is reported in other changes in retained earnings.

    Certain administrative and support functions of the Company are provided by
    former Aetna and its affiliates for a specified transition period. At the
    end of the transition period, these functions will be provided by ING
    affiliates. The financial statements reflect allocated charges for these
    services based upon measures appropriate for the type and nature of the
    service provided.

13. REINSURANCE

    On October 1, 1998, the Company sold its domestic individual life insurance
    business to Lincoln for $1 billion in cash. The transaction is generally in
    the form of an indemnity reinsurance arrangement, under which Lincoln
    contractually assumed from the Company certain policyholder liabilities and
    obligations, although the Company remains directly obligated to
    policyholders. (Refer to Note 3).

                                       57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

13. REINSURANCE (continued)
    Effective January 1, 1998, 90% of the mortality risk on substantially all
    individual universal life product business written from June 1, 1991 through
    October 31, 1997 was reinsured externally. Beginning November 1, 1997, 90%
    of new business written on these products was reinsured externally.
    Effective October 1, 1998 this agreement was assigned from the third party
    reinsurer to Lincoln.

    Effective December 31, 1988, the Company entered into a modified coinsurance
    reinsurance agreement ("MODCO") with Aetna Life Insurance Company ("Aetna
    Life"), (formerly an affiliate of the Company), in which substantially all
    of the non-participating individual life and annuity business written by
    Aetna Life prior to 1981 was assumed by the Company. Effective January 1,
    1997, this agreement was amended to transition (based on underlying
    investment rollover in Aetna Life) from a modified coinsurance arrangement
    to a coinsurance agreement. As a result of this change, reserves were ceded
    to the Company from Aetna Life as investment rollover occurred. Effective
    October 1, 1998, this agreement was fully transitioned to a coinsurance
    arrangement and this business along with the Company's direct individual
    non-participation life insurance business, with the exception of certain
    supplementary contracts with reserves of $74.9 million and $81.9 million as
    of December 31, 2000 and 1999, respectively, was sold to Lincoln (refer to
    Note 3).

    The operating results of the domestic individual life business are presented
    as Discontinued Operations. Premiums of $15.8 million, $17.9 million and
    $336.3 million and current and future benefits of $34.6 million, $8.6
    million and $341.1 million, were assumed in 2000, 1999 and 1998,
    respectively. Investment income of $17.0 million was generated from a
    reinsurance loan to affiliate for the year ended December 31, 1998.

    Prior to the sale of the domestic individual life insurance business to
    Lincoln on October 1, 1998, the Company's retention limit per individual
    life was $2.0 million and amounts in excess of this limit, up to a maximum
    of $8.0 million on any new individual life business was reinsured with Aetna
    Life on a yearly renewable term basis. The premium amount related to this
    agreement was $2.0 million for 1998. This agreement was terminated effective
    October 1, 1998.

    Effective October 1, 1997, the Company entered into a reinsurance agreement
    with Aetna Life, (formerly an affiliate of the Company) to assume amounts in
    excess of $0.2 million for certain of its participating life insurance, on a
    yearly renewable term basis. Premium amounts related to this agreement were
    $4.4 million in 1998. The business assumed under this agreement was
    retroceded to Lincoln effective October 1, 1998.

    On December 16, 1988, the Company assumed $25.0 million of premium revenue
    from Aetna Life, (formerly an affiliate of the Company) for the purchase and
    administration of a life contingent single premium variable payout annuity
    contract. In addition, the Company is also responsible for administering
    fixed annuity payments that are made to annuitants receiving variable
    payments. Reserves of $29.2 million and $33.4 million were maintained for
    this contract as of December 31, 2000 and 1999, respectively.

                                       58
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

13. REINSURANCE (continued)
    The following table includes premium amounts ceded/assumed.

<TABLE>
<CAPTION>
                                           Ceded to    Assumed
                                   Direct    Other    from Other    Net
   (Millions)                      Amount  Companies  Companies   Amount
   <S>                             <C>     <C>        <C>         <C>
   ----------------------------------------------------------------------

               2000
   ------------------------------
   Premiums:
     Discontinued Operations       $366.6   $382.4      $ 15.8    $   --
     Accident and Health
       Insurance                    15.2      15.2          --        --
     Annuities                     160.4       7.1         0.9     154.2
   ----------------------------------------------------------------------
       Total earned premiums       $542.2   $404.7      $ 16.7    $154.2
   ======================================================================

               1999
   ------------------------------
   Premiums:
     Discontinued Operations       $460.1   $478.0      $ 17.9    $   --
     Accident and Health
       Insurance                    33.4      33.4          --        --
     Annuities                     111.5       4.9         0.9     107.5
   ----------------------------------------------------------------------
       Total earned premiums       $605.0   $516.3      $ 18.8    $107.5
   ======================================================================

               1998
   ------------------------------
   Premiums:
     Discontinued Operations       $166.8   $165.4      $340.6    $342.0
     Accident and Health
       Insurance                    16.3      16.3          --        --
     Annuities                      80.8       2.9         1.5      79.4
   ----------------------------------------------------------------------
       Total earned premiums       $263.9   $184.6      $342.1    $421.4
   ======================================================================
</TABLE>

                                       59
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

14. SEGMENT INFORMATION

    Summarized financial information for the Company's principal operations was
    as follows:

<TABLE>
<CAPTION>
                                                 Investment
   Year ended December 31, 2000    Financial     Management    Discontinued
   (Millions) (1)                 Products (2)  Services (2)  Operations (2)  Other (2)     Total
   <S>                            <C>           <C>           <C>             <C>         <C>
   -------------------------------------------------------------------------------------------------
   Revenue from external
     customers                     $   692.1       $138.2              --       $(53.0)   $   777.3
   Net investment income               905.8          2.8              --          3.8        912.4
   -------------------------------------------------------------------------------------------------
   Total revenue excluding net
     realized
     capital (losses) gains        $ 1,597.9       $141.0              --       $(49.2)   $ 1,689.7
   =================================================================================================
   Amortization of deferred
     policy acquisition costs      $   115.6                                    $ 11.3    $   126.9
   -------------------------------------------------------------------------------------------------
   Income taxes (benefits)         $    79.0       $  9.0              --       $ (4.0)   $    84.0
   -------------------------------------------------------------------------------------------------
   Operating earnings (losses)
     (3)                           $   204.7       $  9.7              --       $ (7.3)   $   207.1
   Net realized capital (losses)
     gains, net
     of tax                            (23.1)         0.1              --           --        (23.0)
   -------------------------------------------------------------------------------------------------
   Income (loss) from continuing
     operations                        181.6          9.8              --         (7.3)       184.1
   Discontinued operations, net
     of tax:
     Amortization of deferred
       gain on sale (4)                   --           --        $    5.7           --          5.7
   -------------------------------------------------------------------------------------------------
   Net income (loss)               $   181.6       $  9.8        $    5.7       $ (7.3)   $   189.8
   =================================================================================================
   Segment assets                  $54,117.7       $ 44.1        $2,991.2           --    $57,153.0
   -------------------------------------------------------------------------------------------------
   Expenditures for long-lived
     assets (5)                           --           --              --       $  3.4    $     3.4
   -------------------------------------------------------------------------------------------------
   Balance of long-lived assets           --           --              --       $ 54.3    $    54.3
   -------------------------------------------------------------------------------------------------
</TABLE>

(1)  Year ended 2000 data reflects an aggregation of the pre-acquisition period
     of the eleven months ended November 30, 2000 and the post-acquisition
     period of one month ended December 31, 2000.
(2)  Financial Products include: deferred and immediate annuity contracts,
     mutual funds, distribution services for annuities and mutual funds and
     programs offered to qualified plans and nonqualified deferred compensation
     plans that package administrative and recordkeeping services along with a
     menu of investment options, investment advisory services and pension plan
     administrative services. Investment Management Services include the
     following services: investment advisory to affiliated and unaffiliated
     institutional and retail clients, underwriting, distribution for Company's
     mutual funds and affiliate's separate accounts; and trustee, administrative
     and other services to retirement plans. (Refer to Notes 1 and 2.)
     Discontinued operations include life insurance products. (Refer to Note 3.)
     Other includes consolidating adjustments and Year 2000 costs.
(3)  Operating earnings is comprised of net income (loss) excluding net realized
     capital gains and losses and any other items. While operating earnings is
     the measure of profit or loss used by the Company's management when
     assessing performance or making operating decisions, it does not replace
     operating income or net income as a measure of profitability.
(4)  Taxes on the amortization of deferred gain on sale amounted to $3.3
     million.
(5)  Expenditures of long-lived assets represent additions to property and
     equipment not allocable to business segments.

                                       60
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

14. SEGMENT INFORMATION (continued)

<TABLE>
<CAPTION>
                                              Investment
Year ended December 31, 1999    Financial     Management    Discontinued
(Millions)                     Products (1)  Services (1)  Operations (1)  Other (1)     Total
<S>                            <C>           <C>           <C>             <C>         <C>
-------------------------------------------------------------------------------------------------
Revenue from external
  customers                     $   551.1       $118.3              --       $(43.9)   $   625.5
Net investment income               881.5          1.5              --          3.3        886.3
-------------------------------------------------------------------------------------------------
Total revenue excluding net
  realized capital losses       $ 1,432.6       $119.8              --       $(40.6)   $ 1,511.8
=================================================================================================
Amortization of deferred
  policy acquisition costs      $    93.4           --              --       $ 11.5    $   104.9
-------------------------------------------------------------------------------------------------
Income taxes (benefits)         $    87.5       $ 16.5              --       $(13.4)   $    90.1
-------------------------------------------------------------------------------------------------
Operating earnings
  (losses) (2)                  $   192.8       $ 28.1              --       $ (7.5)   $   213.4
Other item (3)                         --           --              --        (17.5)       (17.5)
Net realized capital losses,
  net of tax                        (14.0)          --              --           --        (14.0)
-------------------------------------------------------------------------------------------------
Income (loss) from continuing
  operations                        178.8         28.1              --        (25.0)       181.9
Discontinued operations, net
  of tax:
  Amortization of deferred
    gain on sale (4)                   --           --        $    5.7           --          5.7
-------------------------------------------------------------------------------------------------
Net income (loss)               $   178.8       $ 28.1        $    5.7       $(25.0)   $   187.6
=================================================================================================
Segment assets                  $53,362.1       $ 36.6        $2,989.0           --    $56,387.7
-------------------------------------------------------------------------------------------------
Expenditures for long-lived
  assets (5)                           --           --              --       $  3.9    $     3.9
-------------------------------------------------------------------------------------------------
Balance of long-lived assets           --           --              --       $ 12.2    $    12.2
-------------------------------------------------------------------------------------------------
</TABLE>

(1)  Financial Products include: deferred and immediate annuity contracts,
     mutual funds, distribution services for annuities and mutual funds and
     programs offered to qualified plans and nonqualified deferred compensation
     plans that package administrative and recordkeeping services along with a
     menu of investment options, investment advisory services and pension plan
     administrative services. Investment Management Services include the
     following services: investment advisory to affiliated and unaffiliated
     institutional and retail clients, underwriting, distribution for Company's
     mutual funds and affiliate's separate accounts; and trustee, administrative
     and other services to retirement plans. (Refer to Notes 1 and 2.)
     Discontinued operations include life insurance products. (Refer to Note 3.)
     Other includes consolidating adjustments and Year 2000 costs
(2)  Operating earnings is comprised of net income (loss) excluding net realized
     capital gains and losses and any other items. While operating earnings is
     the measure of profit or loss used by the Company's management when
     assessing performance or making operating decisions, it does not replace
     operating income or net income as a measure of profitability.
(3)  Other item excluded from operating earnings represents after-tax Year 2000
     costs.
(4)  Taxes on the amortization of deferred gain on sale amounted to $3.2
     million.
(5)  Expenditures of long-lived assets represent additions to property and
     equipment not allocable to business segments.

                                       61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

14. SEGMENT INFORMATION (continued)

<TABLE>
<CAPTION>
                                                 Investment
   Year ended December 31, 1998    Financial     Management    Discontinued
   (Millions)                     Products (1)  Services (1)  Operations (1)  Other (1)     Total
   <S>                            <C>           <C>           <C>             <C>         <C>
   -------------------------------------------------------------------------------------------------
   Revenue from external
     customers                     $   445.6        $96.7              --       $(38.4)   $   503.9
   Net investment income               865.3          1.5              --          5.0        871.8
   -------------------------------------------------------------------------------------------------
   Total revenue excluding net
     realized capital gains        $ 1,310.9        $98.2              --       $(33.4)   $ 1,375.7
   =================================================================================================
   Amortization of deferred
     policy acquisition costs      $    80.3           --              --       $ 10.9    $    91.2
   -------------------------------------------------------------------------------------------------
   Income Taxes (benefits)         $    68.2        $14.7              --       $(15.8)   $    67.1
   -------------------------------------------------------------------------------------------------
   Operating earnings (2)          $   171.0        $24.0              --       $ (7.1)   $   187.9
   Other item (3)                         --           --              --        (22.4)       (22.4)
   Net realized capital gains,
     net of tax                          7.3           --              --           --          7.3
   -------------------------------------------------------------------------------------------------
   Income from continuing
     operations                        178.3         24.0              --        (29.5)       172.8
   Discontinued operations, net
     of tax:
     Income from operations (4)           --           --        $   61.8           --         61.8
     Immediate gain on sale (4)           --           --            59.0           --         59.0
   -------------------------------------------------------------------------------------------------
   Net income (loss)               $   178.3        $24.0        $  120.8       $(29.5)   $   293.6
   =================================================================================================
   Segment assets                  $44,367.4        $13.4        $2,946.4           --    $47,327.2
   -------------------------------------------------------------------------------------------------
   Expenditures for long-lived
     assets (5)                           --           --              --       $  6.4    $     6.4
   -------------------------------------------------------------------------------------------------
   Balance of long-lived assets           --           --              --       $ 12.2    $    12.2
   -------------------------------------------------------------------------------------------------
</TABLE>

(1)  Financial Products include: deferred and immediate annuity contracts,
     mutual funds, distribution services for annuities and mutual funds and
     programs offered to qualified plans and nonqualified deferred compensation
     plans that package administrative and recordkeeping services along with a
     menu of investment options, investment advisory services and pension plan
     administrative services. Investment Management Services include the
     following services: investment advisory to affiliated and unaffiliated
     institutional and retail clients, underwriting, distribution for Company's
     mutual funds and affiliate's separate accounts; and trustee, administrative
     and other services to retirement plans. (Refer to Notes 1 and 2.)
     Discontinued operations include life insurance products. (Refer to Note 3.)
     Other includes consolidating adjustments and Year 2000 costs.
(2)  Operating earnings is comprised of net income (loss) excluding net realized
     capital gains and losses and any other items. While operating earnings is
     the measure of profit or loss used by the Company's management when
     assessing performance or making operating decisions, it does not replace
     operating income or net income as a measure of profitability.
(3)  Other item excluded from operating earnings represents after-tax Year 2000
     costs.
(4)  Taxes on the income from operations and the immediate gain on sale amounted
     to $32.1million and $29.3 million, respectively.
(5)  Expenditures of long-lived assets represent additions to property and
     equipment not allocable to business segments.

                                       62
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

14. COMMITMENTS AND CONTINGENT LIABILITIES

    LEASES

    In conjunction with the acquisition by ING, the Company entered into with or
    assumed from a former affiliate operating leases for office space. Since
    December 13, 2000, rent expense for these leases was immaterial. The future
    net minimum payments under noncancelable leases for 2001 through 2005 are
    estimated to be $25.5 million, $24.5 million, $21.5 million, $19.1 million
    and $16.3 million, respectively, and 29.9 million, thereafter.

    COMMITMENTS

    Through the normal course of investment operations, the Company commits to
    either purchase or sell securities or money market instruments at a
    specified future date and at a specified price or yield. The inability of
    counterparties to honor these commitments may result in either higher or
    lower replacement cost. Also, there is likely to be a change in the value of
    the securities underlying the commitments. At December 31,1998, the Company
    had off-balance sheet commitments to purchase investments of $68.7 million
    with an estimated fair value of $68.9 million. At December 31, 2000 and
    1999, there were no off-balance sheet commitments.

    LITIGATION

    In recent years, life insurance companies have been named as defendants in
    class action lawsuits relating to life insurance sales practices. The
    Company is currently a defendant in one such lawsuit.

    A purported class action complaint was filed in the United States District
    Court for the Middle District of Florida on June 30, 2000, by Helen Reese,
    Richard Reese, Villere Bergeron and Allan Eckert against ALIAC (the "Reese
    Complaint"). The Reese Complaint seeks compensatory and punitive damages and
    injunctive relief from ALIAC. The Reese Complaint claims that ALIAC engaged
    in unlawful sales practices in marketing life insurance policies. ALIAC has
    moved to dismiss the Reese Complaint for failure to state a claim upon which
    relief can be granted. This litigation is in the preliminary stages. The
    Company intends to defend the action vigorously.

    The Company is also involved in other lawsuits arising, for the most part,
    in the ordinary course of its business operations. While the outcome of
    these other lawsuits cannot be determined at this time, after consideration
    of the defenses available to the Company, applicable insurance coverage and
    any related reserves established, these other lawsuits are not expected to
    result in liability for amounts material to the financial condition of the
    Company, although it may adversely affect results of operations in future
    periods.

                                       63
<PAGE>
    QUARTERLY DATA (UNAUDITED)

<TABLE>
<CAPTION>
   2000 (Millions)                 First   Second   Third   Fourth
   <S>                             <C>     <C>      <C>     <C>
   ----------------------------------------------------------------
   Total Revenue                   $408.3  $409.3   $426.4  $410.3
   ----------------------------------------------------------------
   Income from continuing
     operations
     before income taxes           $ 76.5  $ 85.0   $ 77.4  $ 29.2
   Income Taxes                      25.1    28.1     22.7     8.1
   ----------------------------------------------------------------
   Income from continuing
     operations                    $ 51.4  $ 56.9   $ 54.7  $ 21.1
   Income from discontinued
     operations                       1.6     1.6      1.5     1.0
   ----------------------------------------------------------------
   Net income                      $ 53.0  $ 58.5   $ 56.2  $ 22.1
   ================================================================
</TABLE>

(1)  Fourth quarter data reflects an aggregation of the pre-acquisition period
     of the eleven months ended November 30, 2000 and the post acquisition
     period of one month ended December 31, 2000.

<TABLE>
<CAPTION>
   1999 (Millions)                 First   Second   Third   Fourth
   <S>                             <C>     <C>      <C>     <C>
   ----------------------------------------------------------------
   Total Revenue                   $366.3  $366.9   $382.4  $374.7
   ----------------------------------------------------------------
   Income from continuing
     operations before income
     taxes                         $ 73.3  $ 72.2   $ 65.7  $ 61.3
   Income Taxes                      24.1    23.7     21.8    21.0
   ----------------------------------------------------------------
   Income from continuing
     operations                    $ 49.2  $ 48.5   $ 43.9  $ 40.3
   Income from discontinued
     operations                       1.3     1.4      1.4     1.6
   ----------------------------------------------------------------
   Net income                      $ 50.5  $ 49.9   $ 45.3  $ 41.9
   ================================================================
</TABLE>

                                       64
<PAGE>
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.

          Omitted pursuant to General Instruction I(2) of Form 10-K.

ITEM 11.  EXECUTIVE COMPENSATION.

          Omitted pursuant to General Instruction I(2) of Form 10-K.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

          Omitted pursuant to General Instruction I(2) of Form 10-K.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

          Omitted pursuant to General Instruction I(2) of Form 10-K.

                                    PART IV

ITEM 14.  EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
          FORM 8-K.

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

     1.  Financial statements. See Item 8 on Page 27.
     2.  Financial statement schedules. See Index to Consolidated Financial
         Statement Schedules on Page 70.
     3.  Exhibits:

         3(i)(a)  Certificate of Incorporation

                  Incorporated herein by reference to post-effective amendment
                  No. 1 to Registration Statement on Form S-1 (File No.
                  33-60477) as filed on April 15, 1996.

         3(i)(b)  Amendment of Certificate of Incorporation of Aetna Life
                  Insurance and Annuity Company incorporated herein by reference
                  to Post-Effective Amendment No. 12 to Registration Statement
                  on Form N-4 (File No. 33-75964) as filed on February 11, 1997.

         3(ii)     By-Laws, as amended September 17, 1997.

                  Incorporated herein by reference to Post-Effective Amendment
                  No. 12 to Registration Statement on Form N-4 (File No.
                  33-91846) as filed on October 30, 1997.

                                       65
<PAGE>
ITEM 14.  EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
          FORM 8-K. (continued)
     4.  Instruments Defining the Rights of Security Holders, Including
         Indentures (Annuity Contracts)

        Incorporated by reference to Post-Effective Amendment No. 14 to
        Registration Statement on Form N-4 (File No. 33-75964), as filed on
        July 29, 1997.

        Incorporated by reference to Post-Effective Amendment No. 6 to
        Registration Statement on Form N-4 (File No. 33-75980), as filed on
        February 12, 1997.

        Incorporated by reference to Post-Effective Amendment No. 12 to
        Registration Statement on Form N-4 (File No. 33-75964), as filed on
        February 11, 1997.

        Incorporated by reference to Post-Effective Amendment No. 5 to
        Registration Statement on Form N-4 (File No. 33-75986), as filed on
        April 12, 1996.

        Incorporated by reference to Post-Effective Amendment No. 12 to
        Registration Statement on Form N-4 (File No. 333-01107), as filed on
        February 4, 1999.

        Incorporated by reference to Post-Effective Amendment No. 4 to
        Registration Statement on Form N-4 (File No. 33-75988), as filed on
        April 15, 1996.

        Incorporated by reference to Post-Effective Amendment No. 3 to
        Registration Statement on Form N-4 (File No. 33-81216), as filed on
        April 7, 1996.

        Incorporated by reference to Post-Effective Amendment No. 3 to
        Registration Statement on Form N-4 (File No. 33-91846), as filed on
        April 15, 1996.

        Incorporated by reference to Post-Effective Amendment No. 6 to
        Registration Statement on Form N-4 (File No. 33-91846), as filed on
        August 6, 1996.

        Incorporated by reference to Registration Statement on Form N-4 (File
        No. 333-01107), as filed on February 21, 1996.

        Incorporated by reference to Post-Effective Amendment No. 12 to
        Registration Statement on Form N-4 (File No. 33-75982), as filed on
        February 20, 1997.

        Incorporated by reference to Post-Effective Amendment No. 7 to
        Registration Statement on Form N-4 (File No. 33-75992), as filed on
        February 13, 1997.

        Incorporated by reference to Post-Effective Amendment No. 6 to
        Registration Statement on Form N-4 (File No. 33-75974), as filed on
        February 28, 1997.

                                       66
<PAGE>
ITEM 14.  EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
          FORM 8-K. (continued)
        Incorporated by reference to Post-Effective Amendment No. 6 to
        Registration Statement on Form N-4 (File No. 33-75962), as filed on
        April 17, 1996.

        Incorporated by reference to Post-Effective Amendment No. 14 to
        Registration Statement on Form N-4 (File No. 33-75962), as filed on
        April 17, 1998.

        Incorporated by reference to Post-Effective Amendment No. 6 to
        Registration Statement on Form N-4 (File No. 33-75982), as filed on
        April 22, 1996.

        Incorporated by reference to Post-Effective Amendment No. 8 to
        Registration Statement on Form N-4 (File No. 33-75980), as filed on
        August 19, 1997.

        Incorporated by reference to Registration Statement on Form N-4 (File
        No. 333-56297), as filed on June 8, 1998.

        Incorporated by reference to Post-Effective Amendment No. 3 to
        Registration Statement on Form N-4 (File No. 33-79122), as filed on
        August 16, 1995.

        Incorporated by reference to Post-Effective Amendment No. 32 to
        Registration Statement on Form N-4 (File No. 33-34370), as filed on
        December 16, 1997.

        Incorporated by reference to Post-Effective Amendment No. 30 to
        Registration Statement on Form N-4 (File No. 33-34370), as filed on
        September 29, 1997.

        Incorporated by reference to Post-Effective Amendment No. 26 to
        Registration Statement on Form N-4 (File No. 33-34370), as filed on
        February 21, 1997.

        Incorporated by reference to Post-Effective Amendment No. 35 to
        Registration Statement on Form N-4 (File No. 33-34370), as filed on
        April 17, 1998.

        Incorporated by reference to Post-Effective Amendment No. 1 to
        Registration Statement on Form N-4 (File No. 33-87932), as filed on
        September 19, 1995.

        Incorporated by reference to Post-Effective Amendment No. 8 to
        Registration Statement on Form N-4 (File No. 33-79122), as filed on
        April 17, 1998.

        Incorporated by reference to Post-Effective Amendment No. 7 to
        Registration Statement on Form N-4 (File No. 33-79122), as filed on
        April 22, 1997.

        Incorporated by reference to Post-Effective Amendment No. 21 to
        Registration Statement on Form N-4 (File No. 33-75996), as filed on
        February 16, 2000.

                                       67
<PAGE>
ITEM 14.  EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
          FORM 8-K. (continued)
        Incorporated by reference to Post-Effective Amendment No. 13 to
        Registration Statement on Form N-4 (File No. 333-01107), as filed on
        April 7, 1999.

        Incorporated by reference to Post-Effective Amendment No. 37 to
        Registration Statement on Form N-4 (File No. 33-34370), as filed on
        April 9, 1999.

        Incorporated by reference to Post-Effective Amendment No. 1 to
        Registration Statement on Form N-4 (File No. 333-87305), as filed on
        December 13, 1999.

        Incorporated by reference to Post-Effective Amendment No. 18 to
        Registration Statement on Form N-4 (File No. 33-56297), as filed on
        August 30, 2000.

        Incorporated by reference to Post-Effective Amendment No. 17 to
        Registration Statement on Form N-4 (File No. 33-75996), as filed on
        April 7, 1999.

        Incorporated by reference to Post-Effective Amendment No. 19 to
        Registration Statement on From N-4 (File No. 333-01107), as filed on
        February 16, 2000.

     10. Material Contracts

         10.1 Amended and Restated Asset Purchase Agreement by and among Aetna
              Life Insurance Company, Aetna Life Insurance and Annuity Company,
              The Lincoln National Life Insurance Company and Lincoln Life &
              Annuity Company of New York, dated May 21, 1998, incorporated
              herein by reference to the Company's Form 10-Q filed on August 8,
              1998. (The Company will provide to the Securities and Exchange
              Commission a copy of omitted schedules or similar attachments upon
              request.)

         10.2 Distribution Agreement, dated as of December 13, 2000, between
              Lion Connecticut Holdings Inc. and Aetna Inc.

         10.3 Employee Benefits Agreement, dated as of December 13, 2000,
              between Lion Connecticut Holdings Inc. and Aetna Inc.

         10.4 Tax Sharing Agreement, dated as of December 13, 2000, among Lion
              Connecticut Holdings Inc., Aetna Inc. and ING America Insurance
              Holdings, Inc.

         10.5 Transition Services Agreement, dated as of December 13, 2000,
              between Lion Connecticut Holdings Inc. and Aetna Inc.

         10.6 Lease Agreement, dated as of December 13, 2000, by and between
              Aetna Life Insurance Company and Aetna Life Insurance and Annuity
              Company

                                       68
<PAGE>
ITEM 14.  EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
          FORM 8-K. (continued)
         10.7 Real Estate Services Agreement, dated as of December 13, 2000,
              between Aetna Inc. and Aetna Life Insurance and Annuity Company

         10.8 10 State House Square Services Agreement, dated as of
              December 13, 2000, between Aetna Inc. and Lion Connecticut
              Holdings Inc.

     21  Subsidiaries of the Registrant

        Incorporated by reference to Exhibit Item 24 of Post-Effective Amendment
        No.38 to Registration Statement on Form N-1A (File Number 33-81216), as
        filed on January 19, 2001.

     24  Power of Attorney

        (Filed herein immediately after Signature page.)

    Exhibits, other than these listed, are omitted because they are not required
    or not applicable.

(b)  Reports on Form 8-K.

    None.

                                       69
<PAGE>
              INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

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

Independent Auditors' Report......................    71

I.        Summary of Investments--Other than
            Investments in Affiliates as of
            December 31, 2000.....................    72

III.      Supplementary Insurance Information as
            of and for the years ended
            December 31, 2000, 1999 and 1998......    73
</TABLE>

Schedules other than those listed above are omitted because they are not
required or are not applicable.

                                       70
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

The Shareholder and Board of Directors
Aetna Life Insurance and Annuity Company:

Under date of March 27, 2001, we reported on the consolidated balance sheets of
Aetna Life Insurance and Annuity Company and Subsidiaries as of December 31,
2000 ("Successor Company") and December 31, 1999 ("Preacquisition Company"), and
the related consolidated statements of income, changes in shareholder's equity
and cash flows for the period from December 1, 2000 to December 31, 2000
("Successor Company"), and for the period from January 1, 2000 to November 30,
2000 and the years ended December 31, 1999 and 1998 ("Preacquisition Company"),
as included herein. In connection with our audits of the aforementioned
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 Companies' 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.

As discussed in Note 1 to the consolidated financial statements, effective
November 30, 2000, ING America Insurance Holdings Inc. acquired all of the
outstanding stock of Aetna Inc., Aetna Life Insurance and Annuity Company's
indirect parent and sole shareholder in a business combination accounted for as
a purchase. As a result of the acquisition, the consolidated financial
information for the periods after the acquisition is presented on a different
cost basis than that for the periods before the acquisition and, therefore, is
not comparable.

                                                                /s/ KPMG LLP

Hartford, Connecticut
March 27, 2001

                                       71
<PAGE>
                                   SCHEDULE I
          Summary of Investments--Other than Investments in Affiliates
                            As of December 31, 2000
                                 (in millions)

<TABLE>
<CAPTION>
                                                             Amount at
                                                            Which Shown
                                                              in the
        Type of Investment             Cost      Value*    Balance Sheet
        ------------------           ---------  ---------  -------------
<S>                                  <C>        <C>        <C>
Debt Securities:
  U.S. government and government
    agencies and authorities         $   920.8  $   953.0    $   953.0
  States, municipalities and
    political subdivisions                 0.3        0.3          0.3
  U.S. corporate securities            4,925.7    4,891.1      4,891.1
  Foreign securities (1)                 538.8      567.7        567.7
  Residential mortgage-backed
    securities                         2,996.9    3,084.0      3,084.0
  Commercial/Multifamily
    mortgage-backed securities         1,108.3    1,111.6      1,111.6
  Other asset-backed securities          753.7      763.7        763.7
  Less: debt securities pledged to
    creditors                            124.5      126.7        126.7
                                     ---------  ---------    ---------
    Total debt securities             11,120.0   11,244.7     11,244.7
                                     ---------  ---------    ---------

Equity securities:
  Non-redeemable preferred stock         109.0      100.7        100.7
  Investment in affiliated mutual
    funds                                  9.6       12.7         12.7
  Common stock                             2.2        3.5          3.5
                                     ---------  ---------    ---------
    Total equity securities              120.8      116.9        116.9
                                     ---------  ---------    ---------

Short-term investments                   109.4      109.4        109.4
Mortgage loans                             4.6        4.5          4.6
Policy loans                             339.3      339.3        339.3
Other                                     13.4       13.4         13.4
Securities pledges to creditors          126.8      129.0        129.0
                                     ---------  ---------    ---------
    Total investments                $11,834.3  $11,957.2    $11,957.3
                                     =========  =========    =========
</TABLE>

  *  See Notes 1 and 4 of Notes to Consolidated Financial Statements.
(1)  The term "foreign" includes foreign governments, foreign political
     subdivisions, foreign public utilities and all other bonds of foreign
     issuers. Substantially all of the Company's foreign securities are
     denominated in U.S. dollars.

                                       72
<PAGE>
                                  SCHEDULE III
                      Supplementary Insurance Information
         As of and for the years ended December 31, 2000, 1999 and 1998
                                 (in millions)

<TABLE>
<CAPTION>
                                                                             Policy-
                            Deferred                Unpaid                   holders'
                             policy      Future     claims                  funds left
                           acquisition   policy    and claim    Unearned     with the
         Segment              costs     benefits   expenses   premiums (1)   Company
<S>                        <C>          <C>        <C>        <C>           <C>
--------------------------------------------------------------------------------------
          2000
Financial Products          $   13.0    $1,017.4     $ 7.2        $1.0      $11,116.2
Investment Management
  Services                        --          --        --          --             --
Other                           (0.7)         --        --          --            9.4
Discontinued Operations
  (2)                             --     2,959.3      22.4          --             --
--------------------------------------------------------------------------------------
Total                       $   12.3    $3,976.7     $29.6        $1.0      $11,125.6
======================================================================================
          1999
Financial Products          $1,080.8    $  889.8     $ 7.4        $1.0      $11,112.2
Investment Management
  Services                        --          --        --          --             --
Other                          (34.4)         --        --          --             --
Discontinued Operations
  (2)                             --     2,959.6      19.9          --            9.5
--------------------------------------------------------------------------------------
Total                       $1,046.4    $3,849.4     $27.3        $1.0      $11,121.7
======================================================================================
          1998
Financial Products          $  916.0    $  878.0     $ 0.3        $1.1      $11,295.1
Investment Management
  Services                        --          --        --          --             --
Other                          (22.9)         --        --          --             --
Discontinued Operations
  (2)                             --     2,936.8      18.5          --           10.5
--------------------------------------------------------------------------------------
Total                       $  893.1    $3,814.8     $18.8        $1.1      $11,305.6
======================================================================================
</TABLE>

NOTES TO SCHEDULE III:
(1)  Included in future policy benefits on the Company's Consolidated Balance
     Sheets.
(2)  Domestic individual life insurance business.

                                       73
<PAGE>
                            SCHEDULE III (continued)
                      Supplementary Insurance Information
         As of and for the years ended December 31, 2000, 1999 and 1998
                                 (in millions)

<TABLE>
<CAPTION>
                                                                        Amortization
                                                                        of deferred
                                       Net                   Current       policy        Other
                           Premium  investment    Other     and future  acquisition    Operating
         Segment           Revenue  income (3)  Income (4)   benefits      costs      Expenses (5)
<S>                        <C>      <C>         <C>         <C>         <C>           <C>
--------------------------------------------------------------------------------------------------

        2000 (6)
Financial Products         $154.2     $905.8      $502.3      $795.6       $115.6        $390.6
Investment Management
  Services                     --        2.8       138.4          --           --         122.3
Other (7)                      --        3.8       (53.0)         --         11.3         (49.2)
--------------------------------------------------------------------------------------------------
Continuing Operations      $154.2     $912.4      $587.7      $795.6       $126.9        $463.7
==================================================================================================
Discontinued Operations
  (8)                          --         --      $  9.0          --           --            --
==================================================================================================

          1999
Financial Products         $107.5     $881.5      $422.1      $746.2       $ 93.4        $305.2
Investment Management
  Services                     --        1.5       118.3          --           --          75.2
Other (7)                      --        3.3       (43.9)         --         11.5         (13.7)
--------------------------------------------------------------------------------------------------
Continuing Operations      $107.5     $886.3      $496.5      $746.2       $104.9        $366.7
==================================================================================================
Discontinued Operations
  (8)                          --         --      $  8.7          --           --            --
==================================================================================================

          1998
Financial Products         $ 79.4     $865.3      $376.6      $714.4       $ 80.3        $280.3
Investment Management
  Services                     --        1.5        96.7          --           --          59.5
Other (7)                      --        5.0       (38.4)         --         10.9           1.0
--------------------------------------------------------------------------------------------------
Continuing Operations      $ 79.4     $871.8      $434.9      $714.4       $ 91.2        $340.6
==================================================================================================
Discontinued Operations
  (8)                      $342.0     $146.1      $164.1      $482.4       $ 34.7        $ 41.3
==================================================================================================
</TABLE>

NOTES TO SCHEDULE III (continued):
(3)  The allocation of net investment income is based upon the investment year
     method or specific identification of certain portfolios within specific
     segments.
(4)  Includes net realized capital losses and gains and charges assessed against
     policyholders.
(5)  Year 2000 costs are not included in the amounts reported for the Financial
     Products and Investment Management Services segments.
(6)  Year ended 2000 data reflects an aggregation of the pre-acquisition period
     of the eleven months ended November 30, 2000 and the post acquisition
     period of one month ended December 31, 2000.
(7)  Includes consolidating adjustments and Year 2000 costs.
(8)  Domestic individual life insurance business

                                       74
<PAGE>
                                   SIGNATURES

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

                                        AETNA LIFE INSURANCE AND ANNUITY COMPANY
                                            (Registrant)

<TABLE>
<S>                                                 <C>

Date  March 30, 2001                                By  /s/ Deborah Koltenuk
  ----------------------------                      -----------------------------------------------
                                                        Deborah Koltenuk
                                                        Vice President and Corporate Controller
</TABLE>

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 March 30th, 2001.

<TABLE>
<CAPTION>
                    SIGNATURES                                            TITLE
<S>                                                 <C>

----------------------------------------------
Wayne R. Huneke                                     Director and Chief Financial Officer
                                                      (Principal Financial Officer)

----------------------------------------------
P. Randall Lowery                                   Director

----------------------------------------------
Thomas J. McInerney                                 Director and President (Principal Executive
                                                      Officer)

----------------------------------------------
Robert C. Salipante                                 Director

----------------------------------------------
Mark A. Tullis                                      Director

/s/ Deborah Koltenuk                                Vice President and Corporate Controller
----------------------------------------------
Deborah Koltenuk
</TABLE>

* By:  /s/ Paula Cludray-Engelke
      ------------------------------------------------
      Paula Cludray-Engelke
      Attorney-in-fact

                                       75
<PAGE>
                               POWER OF ATTORNEY

We, the undersigned directors and officers of Aetna Life Insurance and Annuity
Company, hereby severally constitute and appoint Paula Cludray-Engelke and
Deborah Koltenuk and each of them individually, our true and lawful attorneys,
with full power to them and each of them to sign for us, and in our names and in
the capacities indicated below, the 2000 Form 10-K and any and all amendments
thereto to be filed with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, hereby ratifying and confirming our signatures
as they may be signed by our said attorney to the Form 10-K and any and all
amendments thereto.

WITNESS our hands and common seal on this 30th day of March, 2001.

<TABLE>
<CAPTION>
                    SIGNATURES                                            TITLE
<S>                                                 <C>

/s/ Wayne R. Huneke
-------------------------------------------
Wayne R. Huneke                                     Director and Chief Financial Officer

/s/ P. Randall Lowery
-------------------------------------------
P. Randall Lowery                                   Director

/s/ Thomas J. McInerney
-------------------------------------------
Thomas J. McInerney                                 Director and President

/s/ Robert C. Salipante
-------------------------------------------
Robert C. Salipante                                 Director

/s/ Mark A. Tullis
-------------------------------------------
Mark A. Tullis                                      Director

/s/ Deborah Koltenuk
-------------------------------------------
Deborah Koltenuk                                    Vice President and Corporate Controller
</TABLE>

                                       76
<PAGE>
                  ASSISTANT CORPORATE SECRETARY'S CERTIFICATE

                    AETNA LIFE INSURANCE AND ANNUITY COMPANY

I, Lena A.Rabbitt, the duly elected Assistant Corporate Secretary of Aetna Life
Insurance and Annuity Company (the "Company"), do hereby certify that the
attached resolutions entitled "Company Name, Authority to Sign (Duplicate
Corporate Seals)" adopted by the Board of Directors on June 22, 1995, are
currently in full force and effect, and have not been amended, restated, or
superceded.

IN WITNESS WHEREOF, I have affixed my name as Assistant Corporate Secretary and
have caused the corporate seal of said Company to be hereunto affixed this 30th
day of March, 2001.

<TABLE>
<S>                                                 <C>
                                                    By: /s/ Lena A. Rabbitt
                                                    -------------------------------------------------
(Corporate Seal)                                    Lena A. Rabbitt
                                                    Assistant Corporate Secretary
                                                    Aetna Life Insurance and Annuity Company
</TABLE>

                                       77
<PAGE>
                    AETNA LIFE INSURANCE AND ANNUITY COMPANY

                           COMPANY NAME, AUTHORITY TO
                        SIGN (DUPLICATE CORPORATE SEALS)

June 22, 1995

RESOLVED: That the following officers:

     President
      Senior Vice President
      Vice President
      General Counsel
      Corporate Secretary
      Treasurer
      Assistant Corporate Secretary

  (1)  are hereby severally authorized to sign in the Company's name:

      (a)   insurance contracts of every type and description which the Company
            is authorized to write;
      (b)   agreements relating to the purchase, sale, or exchange of securities
            including any consents and modifications given or made under such
            agreements;
      (c)   conveyances and leases of real estate or any interest therein
            including any modifications thereof;
      (d)   assignments and releases of mortgages and other liens, claims or
            demands;
      (e)   any other written instrument which they are authorized to approve in
            the normal course of Company business; and
      (f)   any other written instrument when specifically authorized by the
            Board of Directors or the President;

      and are further severally authorized (i) to delegate all or any part of
      the foregoing authority to one or more officers, employees or agents of
      this Company, provided that each such delegation is in writing and a copy
      thereof is filed in the Office of the Corporate Secretary, or (ii) to
      designate any attorney at law representing this Company on a matter under
      their direction, to so sign this Company's name;

  (2)  are hereby severally authorized to possess the Company's duplicate seals
       and to affix the same to items (a) through (f) above;

      and are further severally authorized to designate any Company officer
      under their direction to possess and to so affix the Company's duplicate
      seals; and

      that the Senior Vice President, Investments is hereby authorized to
      designate any officer, employee or agent of this Company under his
      direction to sign the Company's name and to affix the Company's seal to
      any and all documents required in connection with any investment
      transaction in which the Company has an interest.

                                       78