UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    ---------

                                   FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

    For the quarterly period ended June 30, 2004

                                       OR

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

    For the transition period from ___________________  to

    Commission file number: 333-57212, 333-104539, 333-104546,
                            333-104547, 333-104548
                            -----------------------------------


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

Iowa                                                                  41-0991508
--------------------------------------------------------------------------------
(State or other jurisdiction of                (IRS employer identification no.)
 incorporation or organization)

1475 Dunwoody Drive, West Chester, Pennsylvania                       19380-1478
--------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip code)

Registrant's telephone number, including area code (610) 425-3400
                                                   --------------

-------------------------------------------------------------------------------
Former name, former address and formal fiscal year, if changed since last report

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 [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest  practicable date: As of August 12, 2004, 250,000
shares of Common Stock, $10 Par Value, are authorized,  issued, and outstanding,
all of which were directly owned by Lion Connecticut  Holdings Inc.

NOTE:  WHEREAS ING USA ANNUITY AND LIFE  INSURANCE  COMPANY MEETS THE CONDITIONS
SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10Q, THIS FORM IS BEING
FILED WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).

<PAGE>

                   ING USA ANNUITY AND LIFE INSURANCE COMPANY
          (A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
                   Form 10Q for the period ended June 30, 2004


                                      INDEX

                                                                           Page
                                                                           ----
PART I.          FINANCIAL INFORMATION (Unaudited)

Item 1.          Financial Statements:
                 Condensed Statements of Income                              3
                 Condensed Balance Sheets                                    4
                 Condensed Statements of Changes in
                   Shareholder's Equity                                      6
                 Condensed Statements of Cash Flows                          7
                 Notes to Condensed Financial Statements                     8

Item 2.          Management's Narrative Analysis of the Results of
                   Operations and Financial Condition                       46

Item 4.          Controls and Procedures                                    59


PART II.         OTHER INFORMATION

Item 1.          Legal Proceedings                                          60

Item 6.          Exhibits and Reports on Form 8-K                           60

Signatures                                                                  61





                                        2

<PAGE>

                   ING USA Annuity and Life Insurance Company
          (A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)


PART I.  FINANCIAL INFORMATION (UNAUDITED)

Item 1.  Financial Statements

                         Condensed Statements of Income
                                   (Unaudited)
                                   (Millions)

<TABLE>
<S>                                                         <C>                              <C>

                                                             Three months ended June 30,       Six months ended June 30,
                                                                2004              2003             2004           2003
                                                            -------------------------------  -------------------------------
Revenue:
  Premiums                                                  $       6.8        $     7.4     $       12.4      $     14.8
  Fee income                                                      140.2             96.5            269.1           177.1
  Net investment income                                           293.6            281.7            563.9           566.0
  Net realized capital (losses) gains                              (9.7)             6.1             19.0            (5.0)
  Other (expense) income                                           (0.7)             0.3              1.5             4.1
                                                            -------------------------------  -------------------------------
Total revenue                                                     430.2            392.0            865.9           757.0
                                                            -------------------------------  -------------------------------
Benefits, losses and expenses:
  Benefits:
    Interest credited and other benefits to policyholders        285.2            236.7            576.2           537.5
  Underwriting, acquisition, and insurance expenses:
    General expenses                                              58.1             53.8            109.9           106.1
    Commissions                                                  130.6             91.7            242.9           145.1
    Policy acquisition costs deferred                           (152.3)          (128.5)          (274.9)         (212.5)
  Amortization of deferred policy acquisition costs
    and value of business acquired                                35.1             87.6            101.4           147.6
  Other:
    Expense and charges reimbursed under modified
      coinsurance agreements                                       0.1                -              0.7             0.2
    Interest expense                                               3.6              4.2              7.3             7.5
                                                            -------------------------------  -------------------------------
Total benefits, losses and expenses                              360.4            345.5            763.5           731.5
                                                            -------------------------------  -------------------------------
Income before income taxes and cumulative
 effect of change in accounting principle                         69.8             46.5            102.4            25.5

Income tax expense                                                23.2             14.4             33.2             6.9
                                                            -------------------------------  -------------------------------
Net income before cumulative effect of change
  in accounting principle                                         46.6             32.1             69.2            18.6

Cumulative effect of change in accounting principle                  -                -             (2.3)              -
                                                            -------------------------------  -------------------------------
Net income                                                  $     46.6         $   32.1      $      66.9       $    18.6
                                                            ===============================  ===============================
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                        3

<PAGE>

                   ING USA Annuity and Life Insurance Company
          (A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

                            Condensed Balance Sheets
                                   (Unaudited)
                          (Millions, except share data)

<TABLE>
<S>                                                                              <C>                <C>

                                                                                       June 30,         December 31,
                                                                                         2004               2003
                                                                                 ------------------ ------------------
Assets
Investments:
  Fixed maturities, available for sale, at fair value (amortized cost of
    $16,453.4 at 2004 and $15,558.3 at 2003)                                     $      16,563.2    $      16,075.5
  Equity securities, at fair value:
    Common stock (cost of $13.5 at 2004 and 2003)                                           13.8               13.7
    Preferred stock (cost of $6.4 at 2004 and $1.5 at 2003)                                  6.6                1.7
    Investment in mutual funds (cost of $2.3 at 2004 and $100.5 at 2003)                     2.4              104.8
  Mortgage loans on real estate                                                          3,553.2            3,388.7
  Real estate                                                                                1.8                4.5
  Policy loans                                                                             170.9              177.1
  Short-term investments                                                                    22.1                0.3
  Other investments                                                                        169.8               56.0
  Securities pledged under securities lending agreement (amortized
    cost of $391.7 at 2004 and $22.2 at 2003)                                              387.6               22.3
                                                                                 ------------------ ------------------
Total investments                                                                       20,891.4           19,844.6

Cash and cash equivalents                                                                   98.3               65.1
Short-term investments under securities loan agreement                                     398.5               22.9
Accrued investment income                                                                  200.3              185.7
Reinsurance recoverable                                                                    629.4              634.8
Receivable for securities sold                                                              49.4               11.7
Deferred policy acquisition costs                                                        1,635.1            1,826.7
Value of business acquired                                                                 135.7              111.5
Sales inducements to Contractholders                                                       496.1                  -
Due from affiliates                                                                        174.9              117.7
Deferred income tax asset                                                                   99.8               28.6
Other assets                                                                                24.9               20.1
Assets held in separate accounts                                                        20,821.7           18,220.1
                                                                                 ------------------ ------------------
Total assets                                                                     $      45,655.5    $      41,089.5
                                                                                 ================== ==================

</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                        4

<PAGE>

                   ING USA Annuity and Life Insurance Company
          (A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

                            Condensed Balance Sheets
                                   (Unaudited)
                          (Millions, except share data)

<TABLE>
<S>                                                                              <C>                <C>

                                                                                       June 30,         December 31,
                                                                                         2004               2003
                                                                                 ------------------ ------------------
Liabilities and Shareholder's Equity
Policy liabilities and accruals:
  Future policy benefits and claims reserves                                     $      20,823.6    $      19,400.5
Notes to affiliates                                                                         35.0               35.0
Due to affiliates                                                                           46.2               60.7
Payables for securities purchased                                                           77.8                  -
Payables under securities loan agreement                                                   398.5               22.9
Borrowed money                                                                             669.9              584.2
Current income taxes                                                                        12.2               19.4
Other liabilities                                                                          291.7              209.5
Liabilities related to separate accounts                                                20,821.7           18,220.1
                                                                                 -----------------  -----------------
Total liabilities                                                                       43,176.6           38,552.3
                                                                                 -----------------  -----------------
Shareholder's equity
  Common stock (250,000 shares authorized, issued and outstanding;
    $10.00 per share value)                                                                  2.5                2.5
  Additional paid-in capital                                                             3,852.7            3,812.7
  Accumulated other comprehensive income                                                    24.8              190.0
  Retained deficit                                                                      (1,401.1)          (1,468.0)
                                                                                 -----------------  -----------------
Total shareholder's equity                                                               2,478.9            2,537.2
                                                                                 -----------------  -----------------
Total liabilities and shareholder's equity                                       $      45,655.5    $      41,089.5
                                                                                 =================  =================

</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                        5

<PAGE>


                   ING USA Annuity and Life Insurance Company,
          (A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

             Condensed Statements of Changes in Shareholder's Equity
                                   (Unaudited)
                                   (Millions)

<TABLE>
<S>                                                <C>            <C>             <C>              <C>             <C>

                                                                                    Accumulated
                                                                    Additional         Other                             Total
                                                      Common         Paid-In       Comprehensive       Retained      Shareholder's
                                                       Stock         Capital          Income           Deficit          Equity
                                                   -------------- --------------- ---------------- --------------- ----------------
Balance at December 31, 2002                       $      2.5     $    3,724.0    $       135.1    $    (1,512.9)  $      2,348.7
  Dividends paid                                            -                -                -            (12.4)           (12.4)
  Contribution of capital                                   -             88.7                -                -             88.7
  Comprehensive income:
    Net income                                              -                -                -             18.6             18.6
    Other comprehensive income
      net of tax:
        Unrealized gain on securities
          ($97.4 pretax)                                    -                -             63.3                -             63.3
                                                                                                                   ----------------
  Comprehensive income                                                                                                       81.9
                                                   -------------- --------------- ---------------- --------------- ----------------
Balance at June 30, 2003                           $      2.5     $    3,812.7    $       198.4    $    (1,506.7)  $      2,506.9
                                                   ============== =============== ================ =============== ================

Balance at December 31, 2003                       $      2.5     $    3,812.7    $       190.0    $    (1,468.0)  $      2,537.2
  Contribution of capital                                   -             40.0                -                -             40.0
  Comprehensive loss:
    Net income                                              -                -                -             66.9             66.9
    Other comprehensive loss net of tax:
      Unrealized loss on securities
        (($254.2) pretax)                                   -                -           (165.2)               -           (165.2)
                                                                                                                   ----------------
  Comprehensive loss                                                                                                        (98.3)
                                                   -------------- --------------- ---------------- --------------- ----------------
Balance at June 30, 2004                           $      2.5     $    3,852.7    $        24.8    $    (1,401.1)  $      2,478.9
                                                   ============== =============== ================ =============== ================

</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                        6

<PAGE>


                   ING USA Annuity and Life Insurance Company
          (A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

                       Condensed Statements of Cash Flows
                                   (Unaudited)
                                   (Millions)

<TABLE>
<S>                                                                              <C>                <C>

                                                                                       Six months ended June 30,
                                                                                         2004             2003
                                                                                 ------------------ ------------------
Net cash provided by operating activities                                        $         648.1         $    509.2
Cash Flows from Investing Activities:
   Proceeds from the sale, maturity, or redemption of:
     Fixed maturities, available for sale                                                9,907.8           10,921.9
     Equity securities                                                                     103.2                3.6
     Mortgage loans on real estate originated                                              182.9              285.8
     Short-term investments                                                              2,569.2            3,587.8
   Acquisition of investments:
     Fixed maturities, available for sale                                              (11,211.7)         (12,124.4)
     Equity securities                                                                      (5.0)             (12.2)
     Mortgage loans on real estate                                                        (350.3)            (253.8)
     Short-term investments                                                             (2,591.0)          (3,689.6)
   Policy loans                                                                              6.2                2.5
   Proceeds from sale of real estate                                                         2.7                1.4
   Other investments                                                                      (111.1)             (33.9)
   Other                                                                                       -               (0.5)
                                                                                 ------------------ ------------------
Net cash used in investing activities                                                   (1,497.1)          (1,311.4)
                                                                                 ------------------ ------------------
Cash Flows from Financing Activities:
  Deposits and interest credited for investment contracts                                1,959.9            1,817.3
  Maturities and withdrawals from insurance and investment contracts                      (980.9)            (851.3)
  Reinsurance recapture                                                                        -              134.5
  Transfers to separate accounts                                                          (222.5)            (512.8)
  Short-term loans                                                                          85.7              130.0
  Intercompany dividends                                                                       -              (12.4)
  Intercompany loans                                                                           -               59.1
  Contribution of capital from Parent                                                       40.0               88.7
                                                                                 ------------------ ------------------
Net cash provided by financing activities                                                  882.2              853.1
                                                                                 ------------------ ------------------
Net increase in cash and cash equivalents                                                   33.2               50.9
Cash and cash equivalents, beginning of period                                              65.1              199.1
                                                                                 ------------------ ------------------
Cash and cash equivalents, end of period                                         $          98.3    $         250.0
                                                                                 ================== ==================
Supplemental cash flow information:
  Income taxes paid (received), net                                              $           7.2    $          (2.2)
                                                                                 ================== ==================
  Interest paid                                                                  $           0.1    $           5.2
                                                                                 ================== ==================

</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                        7

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

1.   Significant Accounting Policies

     Basis of Presentation

     ING USA Annuity and Life Insurance Company ("ING USA" or the "Company"),  a
     wholly-owned  subsidiary  of Lion  Connecticut  Holdings  Inc.  ("Lion"  or
     "Parent"),  is a stock life insurance  company  organized under the laws of
     the State of Iowa.  ING USA was originally  incorporated  under the laws of
     the State of  Minnesota  on January 2, 1973,  in the name of St.  Paul Life
     Insurance Company.  On December 21, 1993, the Company  redomesticated  from
     Minnesota to Delaware.

     On January 1, 2004,  the Company  redomesticated  from Delaware to Iowa. In
     addition, on January 1, 2004 (the "merger date"),  Equitable Life Insurance
     Company of Iowa ("Equitable  Life"), USG Annuity & Life Company ("USG") and
     United Life & Annuity Insurance  Company ("ULA") (the "Merger  Companies"),
     merged  with and into  Golden  American  Life  Insurance  Company  ("Golden
     American").  Immediately after the merger, Golden American changed its name
     to ING USA Annuity and Life Insurance  Company.  As of the merger date, the
     Merger  Companies  ceased to exist and were merged into ING USA. Lion is an
     indirect,  wholly-owned  subsidiary  of ING Groep  N.V.  ("ING"),  a global
     financial  services  holding company based in The  Netherlands.  ING USA is
     authorized to do business in the District of Columbia and all states except
     New York. ING USA is licensed as a life insurance company under the laws of
     the State of Delaware  until  December  31, 2003 and Iowa since  January 1,
     2004.

     Prior  to the  merger  date,  ING  USA  was a  wholly-owned  subsidiary  of
     Equitable Life from December 30, 2001 through December 31, 2003.  Formerly,
     from  October  24,  1997,  until  December  30,  2001,  Equitable  of  Iowa
     Companies,  Inc. ("EIC" or "Former Holding Company") directly owned 100% of
     Golden American's stock.

     Statement   of   Financial   Accounting   Standards   No.  141,   "Business
     Combinations" ("FAS 141"), excludes transfers of net assets or exchanges of
     shares  between  entities  under  common  control,  and notes that  certain
     provisions  under  Accounting  Principles  Board Opinion No. 16,  "Business
     Combinations"   ("APB  16"),   provide  a  source  of  guidance   for  such
     transactions.  In  accordance  with APB 16,  financial  information  of the
     combined  entity is presented as if the entities had been  combined for the
     full year,  and all  comparative  financial  statements  are  restated  and
     presented as if the  entities had  previously  been  combined,  in a manner
     similar to a pooling-of-interests.

     The unaudited condensed financial statements have been prepared in a manner
     similar to a pooling-of-interests, in accordance with the provisions of APB
     16 in order to present  the  condensed  financial  position  and results of
     operations of the Company and the Merger Companies,  as if the entities had
     previously  been  combined.  The  unaudited  condensed  balance  sheets and
     statements of income give effect to the consolidation  transaction as if it
     had occurred on December 31, 2003 and January 1, 2003, respectively.

                                       8

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     The  financial  statements  and notes as of June 30, 2004 and  December 31,
     2003 and for the three and  six-month  periods ended June 30, 2004 and 2003
     ("interim  periods"),  have been prepared in accordance with U.S. generally
     accepted accounting  principles and are unaudited.  The condensed financial
     statements  reflect  all normal  recurring  adjustments,  which are, in the
     opinion of management, necessary for the fair presentation of the financial
     position, results of operations and cash flows for the interim periods.

     Description of Business

     The Company  offers  various  insurance  products  including  deferred  and
     immediate annuities, variable annuities, interest sensitive and traditional
     life  insurance,  and health  insurance.  All health  insurance is ceded to
     other  insurers.  The  Company's  products are marketed by  broker/dealers,
     financial  institutions,  insurance agents,  and a career agency force. The
     Company's primary customers are consumers and corporations.

     Recently Adopted Accounting Standards

     Accounting   and   Reporting   by   Insurance   Enterprises   for   Certain
     Nontraditional Long-Duration Contracts and for Separate Accounts

     The Company  adopted  Statement of Position  ("SOP") 03-1,  "Accounting and
     Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration
     Contracts  and for  Separate  Accounts,"  on  January  1,  2004.  SOP  03-1
     establishes several new accounting and disclosure  requirements for certain
     nontraditional long-duration contracts and for separate accounts including,
     among other things,  a requirement  that assets and liabilities of separate
     account  arrangements that do not meet certain criteria be accounted for as
     general account assets and  liabilities,  and that the revenue and expenses
     related to such  arrangements  be  consolidated  within the respective line
     items in the Condensed Statements of Income. In addition,  the SOP requires
     additional  liabilities be  established  for certain  guaranteed  death and
     other benefits and for products with certain  patterns of cost of insurance
     charges,   and  that  sales  inducements  provided  to  contractholders  be
     recognized on the balance sheet separately from deferred  acquisition costs
     and  amortized as a component of benefits  expense  using  methodology  and
     assumptions  consistent with those used for amortization of deferred policy
     acquisition costs.

     The Company  evaluated all  requirements of SOP 03-1 and determined that it
     is affected by the SOP's requirements to establish  additional  liabilities
     for  certain  guaranteed  benefits  and  products  with  patterns  of  cost
     insurance  charges  resulting in losses in later policy  durations from the
     insurance   benefit  function  and  to  defer,   amortize,   and  recognize
     separately, sales inducements to contractholders.  Requirements for certain
     separate account arrangements that do not meet the established criteria for
     separate  asset and liability  recognition  are  applicable to the Company,
     however,  the Company's policies on separate account assets and liabilities
     have  historically  been,  and  continue  to be,  in  conformity  with  the
     requirements  newly  established.  Upon  adoption  of the SOP,  the Company

                                       9

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     recognized  a  cumulative  effect of a change in  accounting  principle  of
     $(3.6) million, before tax or $(2.3) million, net of $1.3 million of income
     taxes, as of January 1, 2004.

     The  Meaning of  Other-Than-Temporary  Impairment  and its  Application  to
     Certain Investments

     In March 2004,  the  Emerging  Issues Task Force  ("EITF")  reached a final
     consensus  on EITF Issue No.  03-1,  "The  Meaning of  Other-Than-Temporary
     Impairment  and  its  Application  to  Certain  Investments,"   adopting  a
     three-step impairment model for securities within its scope. The three-step
     model is to be applied on a security-by-security basis as follows:

     Step 1: Determine  whether an  investment  is impaired.  An  investment is
             impaired if its fair value of the investment is less than its cost
             basis.
     Step 2: Evaluate whether an impairment is other-than-temporary.
     Step 3: If the impairment is other-than-temporary,  recognize an impairment
             loss equal to the  difference  between the  investment's  cost and
             its fair value.

     The Company included this three-step model in the impairment evaluation for
     the quarter ended June 30, 2004.  This  guidance  resulted in no additional
     impairments for the Company.

     Earlier  consensus  reached by the EITF on this issue required that certain
     quantitative and qualitative  disclosures be made for unrealized  losses on
     debt  and   equity   securities   that   have  not   been   recognized   as
     other-than-temporary  impairments.  These  disclosures  were adopted by the
     Company,  effective  December  31, 2003,  and  included in the  Investments
     footnote of the Notes to  Condensed  Financial  Statements  included in the
     Company's  December  31,  2003 Form 10-K.  In  addition  to the  disclosure
     requirements  adopted by the Company effective December 31, 2003, the final
     consensus  of  EITF  03-01  reached  in  March  2004  included   additional
     disclosure  requirements  that are  effective for fiscal years ending after
     June 15, 2004.

     Accounting for Derivative Instruments and Hedging Activities

     In June 1998,  the FASB  issued FAS No.  133,  "Accounting  for  Derivative
     Instruments and Hedging  Activities," as amended and interpreted by FAS No.
     137,  "Accounting  for  Derivative  Instruments  and Hedging  Activities  -
     Deferral of the  Effective  Date of FASB  Statement  133," and FAS No. 138,
     "Accounting  for  Certain   Derivative   Instruments  and  Certain  Hedging
     Activities - an  Amendment of FASB 133, and certain FAS 133  implementation
     issues."  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 fair  values of
     those  derivatives  depends  on the use of the  derivative  and  whether it
     qualifies for hedge accounting. FAS No. 133 was effective for the Company's
     financial statements beginning January 1, 2001.

                                       10

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     The Company  occasionally  purchases a financial instrument that contains a
     derivative that is "embedded" in the instrument. In addition, the Company's
     insurance  products  are  reviewed to  determine  whether  they  contain an
     embedded   derivative.   The  Company   assesses   whether   the   economic
     characteristics of the embedded  derivative are clearly and closely related
     to the economic characteristics of the remaining component of the financial
     instrument or insurance  product  (i.e.,  the host  contract) and whether a
     separate  instrument with the same terms as the embedded  instrument  would
     meet the definition of a derivative instrument.  When it is determined that
     the embedded  derivative  possesses economic  characteristics  that are not
     clearly and closely  related to the  economic  characteristics  of the host
     contract and that a separate  instrument  with the same terms would qualify
     as a derivative  instrument,  the embedded derivative is separated from the
     host contract and carried at fair value.  However,  in cases where the host
     contract is measured at fair value,  with changes in fair value reported in
     current period  earnings or the Company is unable to reliably  identify and
     measure the embedded derivative for separation from its host contracts, the
     entire  contract is carried on the  balance  sheet at fair value and is not
     designated as a hedging instrument.

     In 2003,  the  Derivative  Implementation  Group  ("DIG")  responsible  for
     issuing guidance on behalf of the FASB for  implementation  of FAS No. 133,
     "Accounting  for  Derivative  Instruments  and Hedging  Activities"  issued
     Statement  Implementation  Issue No. B36, "Embedded  Derivatives:  Modified
     Coinsurance  Arrangements and Debt Instruments That Incorporate Credit Risk
     Exposures  That Are  Unrelated  or Only  Partially  Related  to the  Credit
     Worthiness of the Obligor under Those  Instruments" ("DIG B36"). Under this
     interpretation,  modified  coinsurance and coinsurance  with funds withheld
     reinsurance  agreements as well as other types of receivables  and payables
     where  interest is  determined  by  reference  to a pool of fixed  maturity
     assets or total  return debt index may be  determined  to contain  embedded
     derivatives that are required to be bifurcated. The Company adopted DIG B36
     on  October  1,  2003  and  has  modified  coinsurance  treaties  that  are
     applicable  to  the  guidance.  The  applicable  contracts,  however,  were
     determined  to  generate  embedded  derivatives  with a fair value of zero.
     Therefore, the guidance,  while implemented,  does not impact the Company's
     financial position, results of operations, or cash flows.

     Variable Interest Entities

     In January 2003,  the Financial  Accounting  Standards  Board (FASB) issued
     FASB  Interpretation 46,  "Consolidation of Variable Interest Entities,  an
     Interpretation of ARB No. 51" (FIN 46). In December 2003, the FASB modified
     FIN  46  to  make  certain   technical   corrections  and  address  certain
     implementation  issues that had arisen. FIN 46 provides a new framework for
     identifying  variable  interest  entities  (VIEs)  and  determining  when a
     company should include the assets,  liabilities,  noncontrolling  interests
     and  results  of  activities  of  a  VIE  in  its  consolidated   financial
     statements.

     In  general,  a  VIE  is  a  corporation,  partnership,   limited-liability
     corporation, trust, or any other legal structure used to conduct activities

                                       11

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     or hold  assets  that  either (1) has an  insufficient  amount of equity to
     carry  out  its  principal   activities  without  additional   subordinated
     financial support, (2) has a group of equity owners that are unable to make
     significant  decisions about its  activities,  or (3) has a group of equity
     owners  that do not have the  obligation  to absorb  losses or the right to
     receive returns generated by its operations.

     FIN 46  requires a VIE to be  consolidated  if a party  with an  ownership,
     contractual  or other  financial  interest in the VIE (a variable  interest
     holder)  is  obligated  to absorb a  majority  of the risk of loss from the
     VIE's  activities,  is entitled to receive a majority of the VIE's residual
     returns (if no party  absorbs a majority of the VIE's  losses),  or both. A
     variable  interest holder that  consolidates  the VIE is called the primary
     beneficiary.  Upon consolidation,  the primary  beneficiary  generally must
     initially  record all of the VIE's assets,  liabilities and  noncontrolling
     interests at fair value and subsequently  account for the VIE as if it were
     consolidated  based  on  majority  voting  interest.  FIN 46 also  requires
     disclosures about VIEs that the variable interest holder is not required to
     consolidate but in which it has a significant variable interest.

     At June 30, 2004,  the Company held the  following  investments  that,  for
     purposes of FIN 46, were evaluated and determined  that the  investments do
     not require consolidation in the Company's financial statements:

     <TABLE>
     <S>                                                     <C>                          <C>                <C>

     (Millions)
                       Asset Type                                      Purpose             Book Value (1)       Market Value
     ---------------------------------------------           --------------------------   ----------------   ----------------
     Private Corporate Securities - synthetic
       leases; project financings; credit tenant leases         Investment Holdings       $    2,962.6       $    3,036.8
     Foreign Securities - US VIE subsidiaries of
       foreign companies                                        Investment Holdings              538.4              551.1
     Commercial Mortgage Obligations (CMO)                      Investment Holdings            3,465.9            3,461.1
     Collateralized Debt Obligations (CDO)                      Investment Holdings
                                                                       and/or
                                                                 Collateral Manager               61.3               55.9
     Asset-Backed Securities (ABS)                              Investment Holdings            1,488.5            1,482.0
     Commercial Mortgage Backed Securities (CMBS)               Investment Holdings            1,048.4            1,058.2

     (1) Represents maximum exposure to loss except for those structures for which the Company also receives asset management fees.

     </TABLE>

     New Accounting Pronouncements

     FSP FAS 97-1

     The   implementation   of  the  American   Institute  of  Certified  Public
     Accountants  ("AICPA")  SOP 03-01,  "Accounting  and Reporting by Insurance
     Enterprises  for certain  Nontraditional  Long-Duration  Contracts  and for
     Separate  Accounts," has raised questions  regarding the  interpretation of
     the  requirements  of SFAS No. 97,  concerning  when it is  appropriate  to
     record an  unearned  revenue  liability  related to the  insurance  benefit
     function. To clarify its position, in June of 2004 the Financial Accounting
     Standards  Board  ("FASB")  issued  FSP  FAS  97-1,  "Situations  in  which
     paragraphs 17(b) and 20 of FASB Statement No. 97,  Accounting and Reporting

                                       12

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     by  Insurance  Enterprises  for  certain  Long-Duration  Contracts  and for
     Realized Gains and Losses from the Sale of  Investments,  Permit or Require
     Accrual of an Unearned Revenue  Liability." FSP FAS 97-1 outlines that SFAS
     No. 97 is clear in its intent and language, and requires the recognition of
     an  unearned  revenue  liability  for  amounts  that have been  assessed to
     compensate  insurers  for  services  provided  over  future  periods.   The
     requirement of SOP 03-01 is not intended to amend or limit the  requirement
     of SFAS No. 97 to recognize a liability for unearned  revenue only to those
     situations  where profits are expect to be followed by a loss. The guidance
     contained in FSP FAS 97-1 is effective for financial statements with fiscal
     periods  beginning  subsequent  to July 18, 2004.  The Company is currently
     evaluating the impact of FSP FAS 97-1 and related  accounting  guidance and
     anticipates a potential  increase in the (net) liability  established under
     SOP 03-01 in future accounting periods.

     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

     All of the Company's  fixed  maturity and equity  securities  are currently
     designated  as   available-for-sale.   Available-for-sale   securities  are
     reported at fair value and unrealized  gains and losses on these securities
     are included directly in shareholder's equity, after adjustment for related
     charges in deferred policy  acquisition  costs, value of business acquired,
     and deferred income taxes.

     The Company analyzes the general account  investments to determine  whether
     there has been an other than  temporary  decline  in fair  value  below the
     amortized  cost  basis in  accordance  with FAS No.  115,  "Accounting  for
     Certain  Investments in Debt and Equity Securities."  Management  considers
     the length of the time and the  extent to which the  market  value has been
     less than cost;  the financial  condition  and  near-term  prospects of the
     issuer; future economic conditions and market forecasts;  and the Company's
     intent and ability to retain the  investment  in the issuer for a period of
     time  sufficient to allow for recovery in market  value.  If it is probable
     that all amounts due according to the contractual  terms of a debt security
     will not be collected,  an other than temporary impairment is considered to
     have occurred.

                                       13

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     In addition,  the Company  invests in structured  securities  that meet the
     criteria  of  Emerging   Issues  Task  Force   ("EITF")  Issue  No.  99-20,
     "Recognition  of Interest  Income and  Impairment on Purchased and Retained
     Beneficial Interests in Securitized Financial Assets." Under Issue No. EITF
     99-20, a determination  of the required  impairment is based on credit risk
     and the  possibility  of  significant  prepayment  risk that  restricts the
     Company's ability to recover the investment. An impairment is recognized if
     the fair value of the  security is less than  amortized  cost and there has
     been an adverse change in cash flow since the remeasurement date.

     When a decline in fair value is determined to be other than temporary,  the
     individual security is written down to fair value and the loss is accounted
     for as a realized loss.

     Realized capital gains and losses on all other  investments are included in
     the Condensed Statements of Income.  Unrealized capital gains and losses on
     all other investments are reflected in shareholder's equity, net of related
     income taxes.

     Purchases and sales of fixed  maturities and equity  securities  (excluding
     private placements) are recorded on the trade date.  Purchases and sales of
     private placements and mortgage loans are recorded on the closing date.

     Fair values for fixed  maturities  are obtained  from  independent  pricing
     services or  broker/dealer  quotations.  Fair values for  privately  placed
     bonds are determined using a matrix-based  model.  The  matrix-based  model
     considers the level of risk-free interest rates, current corporate spreads,
     the  credit  quality of the  issuer  and cash flow  characteristics  of the
     security.  The fair values for equity securities are based on quoted market
     prices.  For equity  securities not actively traded,  estimated fair values
     are  based  upon  values  of issues of  comparable  yield  and  quality  or
     conversion value where applicable.

     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 the loaned domestic securities. 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.

     The Company engages in dollar  repurchase  agreements  ("dollar rolls") and
     repurchase agreements.  These transactions involve a sale of securities and
     an agreement to repurchase substantially the same securities as those sold.
     Company  policies  require a minimum of 95% of the fair value of securities
     pledged  under dollar rolls and  repurchase  agreement  transactions  to be
     maintained  as  collateral.   Cash  collateral   received  is  invested  in
     short-term  investments and the offsetting collateral liability is included
     in borrowed money on the Condensed Balance Sheets.

                                       14

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     The Company enters into reverse repurchase  agreements.  These transactions
     involve a purchase of securities and an agreement to sell substantially the
     same securities as those  purchased.  Company policies require a minimum of
     102% of the fair  value of  securities  pledged  under  reverse  repurchase
     agreements  to be pledged as  collateral.  The market  value of the pledged
     securities  is  monitored  on a  daily  basis  with  additional  collateral
     obtained or refunded as the market value fluctuates.

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

     Mortgage  loans  on  real  estate  are  reported  at  amortized  cost  less
     impairment  writedowns.  If the value of any mortgage loan is determined to
     be impaired  (i.e.,  when it is probable that the Company will be unable to
     collect all  amounts due  according  to the  contractual  terms of the loan
     agreement),  the  carrying  value of the  mortgage  loan is  reduced to the
     present  value of  expected  cash  flows from the loan,  discounted  at the
     loan's effective  interest rate, or to the loan's  observable market price,
     or the fair value of the underlying  collateral.  The carrying value of the
     impaired loans is reduced by establishing a permanent  writedown charged to
     realized loss.

     Investments  in  real  estate  are  reported  at  historical   cost,   less
     accumulated  depreciation and impairment writedowns,  with the exception of
     land,  which  is not  depreciated.  If the  value  of any  real  estate  is
     determined to be impaired (i.e.,  when it is probable that the Company will
     be unable to recover the carrying  value of the real estate),  the carrying
     value of the real estate is reduced to the current fair value. The carrying
     value of the impaired  real estate is reduced by  establishing  a permanent
     writedown charged to realized loss.

     Policy loans are carried at unpaid  principal  balances,  net of impairment
     reserves.

     Short-term  investments,  consisting  primarily of money market instruments
     and other fixed maturity 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's  use of  derivatives  is limited to  hedging  purposes.  The
     Company enters into interest rate and currency contracts,  including swaps,
     caps, floors,  options,  futures, and embedded  derivatives,  to reduce and
     manage risks associated with changes in value,  yield,  price, cash flow or
     exchange  rates of  assets  or  liabilities  held or  intended  to be held.
     Changes in the fair value of open derivative  contracts are recorded in net
     realized capital gains and losses.

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

                                       15

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     Deferred Policy Acquisition Costs and Value of Business Acquired

     Deferred Policy  Acquisition  Costs ("DAC") is an asset,  which  represents
     certain costs of acquiring certain insurance  business,  which are deferred
     and  amortized.  These  costs,  all of which  vary  with and are  primarily
     related to the production of new and renewal business,  consist principally
     of commissions,  certain  underwriting and contract issuance expenses,  and
     certain agency expenses.  Value of Business  Acquired ("VOBA") is an asset,
     which  represents the present value of estimated net cash flows embedded in
     the Company's contracts, which existed at the time the Company was acquired
     by ING. DAC and VOBA are evaluated for recoverability at each balance sheet
     date and these assets would be reduced to the extent that gross profits are
     inadequate to recover the asset.

     The  amortization  methodology  varies  by  product  type  based  upon  two
     accounting  standards:  FAS No. 60,  "Accounting and Reporting by Insurance
     Enterprises"  ("FAS No. 60") and FAS No. 97,  "Accounting  and Reporting by
     Insurance  Enterprises  for Certain  Long-Duration  Contracts  and Realized
     Gains and Losses from the Sale of Investments" ("FAS No. 97").

     Under  FAS  No.  60,  acquisition  costs  for  traditional  life  insurance
     products,  which  primarily  include  whole  life and term  life  insurance
     contracts,  are amortized over the premium  payment period in proportion to
     the premium revenue recognition.

     Under FAS No. 97, acquisition costs for universal life and  investment-type
     products,  which  include  universal  life  policies and fixed and variable
     deferred  annuities,  are amortized over the life of the blocks of policies
     (usually 25 years) in relation to the emergence of estimated  gross profits
     from surrender charges,  investment margins, mortality and expense margins,
     asset-based fee income,  and actual realized gains (losses) on investments.
     Amortization  is  adjusted  retrospectively  when  estimates  of current or
     future gross profits to be realized from a group of products are revised.

     DAC and VOBA 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.

                                       16

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     Activity  for the  periods  ended June 30, 2004 and 2003 within VOBA was as
     follows:

     (Millions)
     Balance at December 31, 2002                         $          134.5
       Adjustment for FAS No. 115                                    (18.5)
       Interest accrued at 5% - 7%                                     3.5
       Amortization                                                   (8.3)
                                                          ------------------
     Balance at June 30, 2003                             $          111.2
                                                          ==================


     Balance at December 31, 2003                         $          111.5
       Adjustment for FAS No. 115                                     21.5
       Interest accrued at 4% - 6%                                     3.4
       Amortization                                                   (0.7)
                                                          ------------------
     Balance at June 30, 2004                             $          135.7
                                                          ==================

     The  estimated  amount of VOBA to be amortized,  net of interest,  over the
     next five years is $3.3 million, $14.7 million, $14.0 million, $9.6 million
     and  $9.6  million  for  the  years  2004,   2005,  2006,  2007  and  2008,
     respectively.  Actual amortization  incurred during these years may vary as
     assumptions are modified to incorporate actual results.

     Separate Accounts

     Separate   Account  assets  and  liabilities   generally   represent  funds
     maintained to meet specific  investment  objectives of contractholders  who
     bear the investment  risk,  subject,  in limited cases,  to certain minimum
     guarantees.  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  policyholder or
     participant  (who bears the investment  risk subject,  in limited cases, to
     minimum  guaranteed rates) under a contract in shares of mutual funds which
     are managed by the Company,  or in other selected  mutual funds not managed
     by the Company.

     Separate  Account  assets are carried at fair  value.  At June 30, 2004 and
     2003,  unrealized gains of $35.3 million and $216.3 million,  respectively,
     after  taxes,  on  assets  supporting  a  guaranteed  interest  option  are
     reflected in shareholder's equity.

     Separate Account assets and liabilities are carried at fair value and 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.  The  Consolidated  Statements  of Cash  Flows  do not  reflect
     investment activity of the Separate Accounts.

                                       17

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     Assets and liabilities of separate  account  arrangements  that do not meet
     the criteria in SOP 03-1 for  presentation  in the separate  caption in the
     Condensed  Balance  Sheets,  and  revenue  and  expenses  related  to  such
     arrangements, are consolidated in the financial statements with the general
     account.

     Policy Liabilities and Accruals

     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 payout 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 ranged
     from 3.0% to 7.95% for all periods presented.  Investment yield is based on
     the Company's experience.

     Mortality and withdrawal  rate  assumptions  are based on relevant  Company
     experience and are periodically  reviewed  against both industry  standards
     and experience.

     Other  policyholders' fund include reserves for deferred annuity investment
     contracts and immediate annuity without life contingent  payouts.  Reserves
     on such  contracts  are  equal to  cumulative  deposits  less  charges  and
     withdrawals  plus credited  interest thereon (rates range from 2.4% to 8.0%
     for all periods  presented)  net of adjustments  for investment  experience
     that the Company is entitled to reflect in future credited interest.

     Sales Inducements

     Sales  inducements  represent  benefits  paid to  contractholders  that are
     incremental to the amounts the Company credits on similar contracts and are
     higher than the contract's  expected  ongoing  crediting  rates for periods
     after the  inducement.  As of January 1, 2004,  such  amounts are  reported
     separately on the balance sheet in accordance with SOP 03-1. Prior to 2004,
     sales  inducements  were  recorded as a component  of DAC on the  Condensed
     Balance Sheet.  Sales  inducements  are amortized as a component of benefit
     expense using  methodology and  assumptions  consistent with those used for
     amortization of DAC.

     Revenue Recognition

     For universal life and certain annuity contracts,  charges assessed against
     policyholders' funds for the cost of insurance,  surrender,  expenses,  and
     other  fees are  recorded  as  revenue  as  charges  are  assessed  against
     policyholders.  Other amounts received for these contracts are reflected as
     deposits  and are not  recorded as revenue.  Related  policy  benefits  are

                                       18

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     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 Condensed Statement of Income.

     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  Condensed
     Balance Sheets.

     Participating Insurance

     Participating  business  approximates  10% of the  Company's  ordinary life
     insurance in force and 25% of premium income. The amount of dividends to be
     paid is determined annually by the Board of Directors. Amounts allocable to
     participating  policyholders are based on published dividend projections or
     expected  dividend scales.  Dividends of $8.1 million and $8.6 million were
     incurred during the six months ended June 30, 2004 and 2003, respectively.

     Income Taxes

     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.

                                       19

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

2.   Investments

     Fixed maturities available for sale as of June 30, 2004 were as follows:

     <TABLE>
     <S>                                                     <C>              <C>              <C>              <C>

                                                                                   Gross            Gross
                                                                Amortized        Unrealized       Unrealized          Fair
     (Millions)                                                    Cost             Gains           Losses            Value
                                                             ---------------  ---------------  ---------------  ---------------
        U.S. government and government
          agencies and authorities                           $      388.5     $        1.7     $       0.4      $     389.8
        State, municipalities and political subdivisions             20.7                -             2.3             18.4

        U.S. corporate securities:
          Public utilities                                        1,714.9             54.4            25.4          1,743.9
          Other corporate securities                              7,247.9            197.8           113.8          7,331.9
                                                             ---------------  ---------------  ---------------  ---------------
        Total U.S. corporate securities                           8,962.8            252.2           139.2          9,075.8
                                                             ---------------  ---------------  ---------------  ---------------

        Foreign securities:
          Government                                                445.0              8.2            10.9            442.3
          Other                                                   2,092.5             64.8            43.4          2,113.9
                                                             ---------------  ---------------  ---------------  ---------------
        Total foreign securities                                  2,537.5             73.0            54.3          2,556.2
                                                             ---------------  ---------------  ---------------  ---------------

        Mortgage-backed securities                                3,258.7             49.9            62.5          3,246.1
        Other asset-backed securities                             1,676.9             13.2            25.6          1,664.5

        Total fixed maturities, including fixed
          maturities pledged to creditors                        16,845.1            390.0           284.3         16,950.8
        Less: fixed maturities pledged to
          creditors                                                 391.7              3.6             7.7            387.6
                                                             ---------------  ---------------  ---------------  ---------------
        Fixed maturities                                     $   16,453.4     $      386.4     $     276.6      $  16,563.2
                                                             ===============  ===============  ===============  ===============

</TABLE>

                                       20

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     Fixed  maturities  available  for  sale as of  December  31,  2003  were as
     follows:

     <TABLE>
     <S>                                                     <C>              <C>              <C>              <C>

                                                                                   Gross            Gross
                                                                Amortized        Unrealized       Unrealized          Fair
     (Millions)                                                    Cost             Gains           Losses            Value
                                                             ---------------  ---------------  ---------------  ---------------
        U.S. government and government
          agencies and authorities                           $      195.5     $        2.0     $       0.1      $     197.4
        State, municipalities and political subdivisions             31.7                -             2.5             29.2

        U.S. corporate securities:
          Public utilities                                        1,341.2             84.3             8.0          1,417.5
          Other corporate securities                              7,020.6            346.7            35.8          7,331.5
                                                             ---------------  ---------------  ---------------  ---------------
        Total U.S. corporate securities                           8,361.8            431.0            43.8          8,749.0
                                                             ---------------  ---------------  ---------------  ---------------

        Foreign securities:
          Government                                                487.1             21.7             3.9            504.9
          Other                                                   1,984.4             96.0            24.1          2,056.3
                                                             ---------------  ---------------  ---------------  ---------------
        Total foreign securities                                  2,471.5            117.7            28.0          2,561.2
                                                             ---------------  ---------------  ---------------  ---------------

        Mortgage-backed securities                                3,247.0             66.7            21.8          3,291.9
        Other asset-backed securities                             1,273.0             17.2            21.1          1,269.1

        Total fixed maturities, including fixed
          maturities pledged to creditors                        15,580.5            634.6           117.3         16,097.8
        Less: fixed maturities pledged to
          creditors                                                  22.2              0.1               -             22.3
                                                             ---------------  ---------------  ---------------  ---------------
        Fixed maturities                                     $   15,558.3     $      634.5     $     117.3      $  16,075.5
                                                             ===============  ===============  ===============  ===============

</TABLE>

     At June 30, 2004 and December  31, 2003,  net  unrealized  appreciation  is
     $105.7  million and $517.3  million,  respectively,  on  available-for-sale
     fixed maturities, including fixed maturities pledged to creditors.

     The aggregate unrealized losses and related fair values of investments with
     unrealized losses as of June 30, 2004, are shown below by duration:

     <TABLE>
     <S>                                                                         <C>

                                                                                    Unrealized             Fair
                                                                                       Loss                Value
                                                                                 ------------------  ------------------
     (Millions)
        Duration category:
          Less than six months below cost                                        $        208.6      $    7,280.3
          More than six months and less than twelve months below cost                      32.1             499.2
          More than twelve months below cost                                               43.6             428.8
                                                                                 ------------------  ------------------
        Fixed maturities                                                         $        284.3      $    8,208.3
                                                                                 ==================  ==================

     </TABLE>

                                       21

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     Of the losses less than 6 months in duration of $208.6 million,  there were
     $146.7 million in unrealized  losses that are primarily related to interest
     rate  movement or spread  widening for other than  credit-related  reasons.
     Business  and  operating  fundamentals  are  performing  as  expected.  The
     remaining  losses  of  $61.9  million  as of June  30,  2004  included  the
     following significant items:

     |X|  $59.2 million of unrealized losses related to securities  reviewed for
          impairment under the guidance  prescribed by EITF 99-20. This category
          includes  U.S.  government-backed   securities,   principal  protected
          securities  and structured  securities,  which did not have an adverse
          change  in cash  flows  for which the  carrying  amount  was  $2,589.1
          million.

     |X|  $2.7 million of unrealized  losses  related to the airlines  industry,
          for which the carrying amount was $78.3 million.

     Of the  losses  more than 6 months and less than 12 months in  duration  of
     $32.1  million,  there were $24.3  million in  unrealized  losses  that are
     primarily  related to interest rate  movement or spread  widening for other
     than  credit-related  reasons.  Business  and  operating  fundamentals  are
     performing as expected. The remaining losses of $7.8 million as of June 30,
     2004 included the following significant items:

     |X|  $6.8 million of unrealized  losses related to securities  reviewed for
          impairment under the guidance  prescribed by EITF 99-20. This category
          includes  U.S.  government-backed   securities,   principal  protected
          securities  and structured  securities,  which did not have an adverse
          change in cash flows for which the carrying amount was $162.9 million.

     |X|  $1.0 million of unrealized losses related to a foreign  security,  the
          issuer of which is in the Dominican  Republic,  for which the carrying
          amount was $3.1 million.

     Of the losses more than 12 months in duration of $43.6 million,  there were
     $23.1 million,  in unrealized losses that are primarily related to interest
     rate  movement or spread  widening for other than  credit-related  reasons.
     Business  and  operating  fundamentals  are  performing  as  expected.  The
     remaining  losses  of  $20.5  million  as of June  30,  2004  included  the
     following significant items:

     |X|  $17.2 million of unrealized losses related to securities  reviewed for
          impairment under the guidance  prescribed by EITF 99-20. This category
          includes  U.S.  government-backed   securities,   principal  protected
          securities  and structured  securities,  which did not have an adverse
          change in cash flows for which the carrying amount was $142.4 million.

                                       22

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     |X|  $1.8 million of unrealized  losses relating to the airlines  industry,
          for which the carrying amount was $22.1 million.

     |X|  $1.5 million of unrealized losses related to a foreign  security,  the
          issuer of which is in the Dominican  Republic,  for which the carrying
          amount was $4.0.

     The amortized cost and fair value of total fixed  maturities as of June 30,
     2004 are shown below by contractual maturity.  Actual maturities may differ
     from contractual maturities because securities may be restructured, called,
     or prepaid.

     <TABLE>
     <S>                                                                  <C>

                                                                             Amortized              Fair
                                                                                Cost                Value
                                                                          ------------------  ------------------
     (Millions)
        Due to mature:
          One year or less                                                $         206.4     $         211.1
          After one year through five years                                       3,625.8             3,707.6
          After five years through ten years                                      3,954.1             4,037.2
          After ten years                                                         3,026.2             2,977.1
          Mortgage-backed securities                                              4,355.7             4,353.3
          Other asset-backed securities                                           1,676.9             1,664.5
        Less: fixed maturities pledged to creditors                                 391.7               387.6
                                                                          ------------------  ------------------
        Fixed maturities                                                  $      16,453.4     $      16,563.2
                                                                          ==================  ==================

     </TABLE>

     At June 30, 2004 and December 31, 2003,  fixed  maturities with fair values
     of $14.1  million  and $20.1  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 June 30, 2004.

     The  Company  enters  into  dollar  repurchase   agreement  and  repurchase
     agreement  transactions  to increase its return on investments  and improve
     liquidity. These transactions involve a sale of securities and an agreement
     to repurchase  substantially  the same securities as those sold. The dollar
     rolls  and   repurchase   agreements   are   accounted  for  as  short-term
     collateralized  financing and the repurchase  obligation is reported on the
     Condensed  Balance Sheets in borrowed  money. At June 30, 2004 and December
     31, 2003, the carrying value of the securities  pledged in dollar rolls and
     repurchase  agreement  transactions  was $676.3 million and $536.8 million,
     respectively.  The carrying value of the securities pledged in dollar rolls
     and repurchase  agreement  transactions is included in fixed  maturities on
     the Condensed  Balance  Sheets.  The repurchase  obligation  totaled $670.0
     million  and  $534.2  million  at June 30,  2004  and  December  31,  2003,
     respectively.

                                       23

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     The primary risk associated with  short-term  collateralized  borrowings is
     that the  counterparty  will be  unable to  perform  under the terms of the
     contract.  The  Company's  exposure  is  limited  to the  excess of the net
     replacement  cost  of the  securities  over  the  value  of the  short-term
     investments,  an amount that was not material at June 30, 2004. The Company
     believes  the  counterparties  to the dollar  roll and  reverse  repurchase
     agreements are financially  responsible and that the  counterparty  risk is
     immaterial.

     During the three months ended June 30, 2004, the Company determined that 15
     fixed maturities had an other than temporary  impairment.  As a result, for
     the three months ended June 30, 2004, the Company recognized a pre-tax loss
     of $7.0 million to reduce the  carrying  value of the fixed  maturities  to
     their fair value of $15.9  million.  During the three months ended June 30,
     2003,  the  Company  determined  that 130 fixed  maturities  had other than
     temporary  impairments.  As a result,  for the three  months ended June 30,
     2003, the Company  recognized a pre-tax loss of $30.5 million to reduce the
     carrying  value of the fixed  maturities  to their  combined  fair value of
     $141.9 million.

     During the six months ended June 30, 2004, the Company  determined  that 70
     fixed maturities had an other than temporary  impairment.  As a result, for
     the six months ended June 30, 2004,  the Company  recognized a pre-tax loss
     of $13.1  million to reduce the carrying  value of the fixed  maturities to
     their fair  value of $69.2  million.  During the six months  ended June 30,
     2003,  the  Company  determined  that 170 fixed  maturities  had other than
     temporary impairments. As a result, for the six months ended June 30, 2003,
     the  Company  recognized  a pre-tax  loss of $87.0  million  to reduce  the
     carrying  value of the fixed  maturities  to their  combined  fair value of
     $351.2 million.


3.   Financial Instruments

     Estimated Fair Value

     The following  disclosures are made in accordance with the  requirements of
     FAS No. 107,  "Disclosures about Fair Value of Financial  Instruments." FAS
     No. 107  requires  disclosure  of fair value  information  about  financial
     instruments,  whether or not recognized in the balance sheet,  for which it
     is practicable to estimate that value.  In cases where quoted market prices
     are not available,  fair values are based on estimates  using present value
     or other valuation techniques.

     Those  techniques  are  significantly  affected  by the  assumptions  used,
     including  the discount  rate and  estimates of future cash flows.  In that
     regard,  the derived  fair value  estimates,  in many  cases,  could not be
     realized in immediate  settlement of the  instrument.  FAS No. 107 excludes
     certain  financial  instruments and all  nonfinancial  instruments from its
     disclosure  requirements.  Accordingly,  the  aggregate  fair value amounts
     presented do not represent the underlying value of the Company.

                                       24

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     The following valuation methods and assumptions were used by the Company in
     estimating the fair value of the above financial instruments:

     Fixed  maturities  securities:  The fair  values  for the  actively  traded
     marketable  bonds are determined  based upon the quoted market prices.  The
     fair values for  marketable  bonds  without an active  market are  obtained
     through  several  commercial  pricing  services which provide the estimated
     fair values.  Fair values of privately  placed bonds are determined using a
     matrix-based  pricing  model.  The model  considers  the  current  level of
     risk-free interest rates,  current corporate spreads, the credit quality of
     the issuer and cash flow characteristics of the security.  Using this data,
     the model  generates  estimated  market values which the Company  considers
     reflective of the fair value of each privately placed bond. Fair values for
     privately placed bonds are determined through consideration of factors such
     as the net worth of the  borrower,  the value of  collateral,  the  capital
     structure of the  borrower,  the presence of  guarantees  and the Company's
     evaluation of the borrower's ability to compete in their relevant market.

     Equity  securities:  Fair values of these  securities are based upon quoted
     market value.

     Mortgage  loans on real estate:  The fair values for mortgage loans on real
     estate  are  estimated  using  discounted  cash  flow  analyses  and  rates
     currently  being offered in the  marketplace for similar loans to borrowers
     with  similar  credit  ratings.  Loans  with  similar  characteristics  are
     aggregated for purposes of the calculations.

     Real  estate:  The fair  values for real estate are  estimated  using three
     methods  of  review:  a  discounted  cash  flow  analyses  utilizing  rates
     currently being offered in the marketplace,  market value/sales comparisons
     of similar products in the subject  property market,  and cost to reproduce
     the asset.  These reviews are done  periodically;  however,  a major event,
     such as signing/loss of a tenant, physical change to the property, or local
     governmental  zoning or  regulation  changes,  will  trigger  an  immediate
     valuation review.

     Cash,  short-term  investments and policy loans:  The carrying  amounts for
     these assets approximate the assets' fair values.

     Assets held in separate  accounts:  Assets  held in separate  accounts  are
     reported  at the quoted  fair values of the  individual  securities  in the
     separate accounts.

     Notes  to  affiliates:  Estimated  fair  value  of the  Company's  notes to
     affiliates  are based upon  discounted  future  cash flows using a discount
     rate approximating the current market value.

                                       25

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     Investment  contract  liabilities  (included in future policy  benefits and
     claims' reserves):

     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 policyholder 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.

     Liabilities  related to separate accounts:  Liabilities related to separate
     accounts  are reported at full account  value in the  Company's  historical
     balance sheet.  Estimated fair values of separate  account  liabilities are
     equal to their carrying amount.

     The carrying  values and estimated  fair values of certain of the Company's
     financial  instruments  at June 30,  2004 and  December  31,  2003  were as
     follows:

          <TABLE>
          <S>                                          <C>                            <C>

                                                                   2004                           2003
                                                       ------------------------------ ------------------------------
                                                          Carrying         Fair          Carrying         Fair
                                                           Value          Value           Value          Value
                                                       ------------------------------ ------------------------------
     (Millions)
     Assets:
       Fixed maturity, including securities
         pledged to creditors                           $  16,950.8     $  16,950.8    $  16,097.8     $  16,097.8
       Equity securities                                       22.8            22.8          120.2           120.2
       Mortgage loans on real estate                        3,553.2         3,649.2        3,388.7         3,581.4
       Real estate                                              1.8             2.0            4.5             4.8
       Policy loans                                           170.9           170.9          177.1           177.1
       Cash and short-term investments                        518.9           518.9           88.3            88.3
       Other investments                                      169.8           169.8           56.0            56.0
       Assets held in separate accounts                    20,821.7        20,821.7       18,220.1        18,220.1
     Liabilities:
       Notes to affiliates                                     35.0            54.0           35.0            57.3
       Investment contract liabilities:
         Deferred annuities                                16,833.6        15,757.2       16,072.4        15,069.0
         Supplementary contracts and
           immediate annuities                                840.1           840.1          840.1           840.1
         Liabilities related to separate accounts          20,821.7        20,821.7       18,220.1        18,220.1

          </TABLE>

     Fair  value  estimates  are made at a  specific  point  in  time,  based on
     available  market   information  and  judgments  about  various   financial
     instruments,  such as estimates of timing and amounts 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
     instruments. In evaluating the Company's management of interest rate, price

                                       26

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     and liquidity risks,  the fair values of all assets and liabilities  should
     be taken into consideration, not only those presented above.

     Derivative Financial Instruments

     Interest Rate Caps

     Interest  rate  caps are  used to  manage  the  interest  rate  risk in the
     Company's bond portfolio.  Interest rate caps are purchased  contracts that
     provide  the  Company  with  an  annuity  in an  increasing  interest  rate
     environment.  The notional amount,  carrying value and estimated fair value
     of the  Company's  open  interest rate caps as of June 30, 2004 were $736.2
     million,  $4.0  thousand  and $4.0  thousand,  respectively.  The  notional
     amount,  carrying value and estimated fair value  (liabilities  are denoted
     with  parentheses)  of the Company's open interest rate caps as of December
     31,  2003  were  $1,036.2  million,  $20.0  thousand  and  $20.0  thousand,
     respectively.

     Interest Rate Swaps

     Interest  rate  swaps  are used to  manage  the  interest  rate risk in the
     Company's  bond  portfolio as well as the Company's  liabilities.  Interest
     rate swaps  represent  contracts that require the exchange of cash flows at
     regular  interim  periods,  typically  monthly or  quarterly.  The notional
     amount,  carrying  value and  estimated  fair value of the  Company's  open
     interest  rate  swaps as of June 30,  2004  were  $1,573.4  million,  $20.4
     million and $20.4  million,  respectively.  The notional  amount,  carrying
     value and estimated fair value of the Company's open interest rate swaps as
     of December 31, 2003 were  $1,266.5  million,  $(91.2)  million and $(91.2)
     million, respectively.

     Futures

     Futures  contracts are used to hedge against a decrease in certain indexes.
     Such decrease  results in increased  reserve  liabilities,  and the futures
     offset this increased  expense.  The  underlying  reserve  liabilities  are
     carried  at market  value  with the  change in value  running  through  the
     statement  of  income,  which is offset by the daily cash  movement  of the
     futures.  The notional  amount,  carrying value and estimated fair value of
     the Company's  open interest rate swaps as of June 30, 2004,  were $(922.7)
     million,  $(4.5)  million and $(4.5)  million,  respectively.  The notional
     amount,  carrying  value and  estimated  fair value of the  Company's  open
     interest  rate swaps as of December 31,  2003,  were $491.3  million,  $0.8
     million and $0.8 million, respectively.

     Foreign Exchange Swaps

     Foreign  exchange  swaps  are used to  reduce  the risk of a change  in the
     value, yield or cash flow with respect to invested assets. Foreign exchange
     swaps  represent  contracts  that require the exchange of foreign  currency
     cash flows for US dollar cash flows at regular interim  periods,  typically
     quarterly  or  semi-annually.  The  notional  amount,  carrying  value  and
     estimated fair value of the Company's  open foreign  exchange rate swaps as

                                       27

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     of June 30, 2004 were $18.5 million,  $(19.9) million and $(19.9)  million,
     respectively.  The notional amount, carrying value and estimated fair value
     of the Company's  open foreign  exchange rate swaps as of December 31, 2003
     were $128.2 million, $(19.4) million and $(19.4) million, respectively.

     Options

     S&P  Options are used to hedge  against an increase in the S&P Index.  Such
     increase results in increased reserve  liabilities,  and the options offset
     this  increased  expense.  The options are  accounted  for in a  consistent
     manner with the underlying reserve  liabilities,  both of which are carried
     at fair value with the change in value  running  through the  statement  of
     income. If the options mature in the money, the amount received is recorded
     in income to offset the increased expense for the reserve liabilities.  The
     notional  amount,  carrying value and estimated fair value of the Company's
     open options as of June 30, 2004 were $1,762.1 million, $118.8 million, and
     $118.8  million,  respectively.  The notional  amount,  carrying  value and
     estimated  fair value of the Company's open options as of December 31, 2003
     were $1,287.8 million, $100.9 million, and $100.9 million, respectively.

     Embedded Derivatives

     The Company also had investments in certain fixed maturity  instruments and
     retail annuity products that contain embedded derivatives,  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  estimated  fair  value of the  embedded  derivatives
     within  securities as of June 30, 2004 and December 31, 2003 was $0 million
     and $(1.1) million,  respectively. The estimated fair value of the embedded
     derivatives within retail annuity products as of June 30, 2004 and December
     31, 2003, was $314.0 million and $238.9 million, respectively.

                                       28

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

4.   Net Investment Income

     Sources of net investment income were as follows:

     <TABLE>
     <S>                                                                        <C>                 <C>

                                                                                   Three months        Three months
                                                                                      ended               ended
                                                                                     June 30,            June 30,
         (Millions)                                                                    2004                2003
                                                                                ------------------  -------------------
         Fixed maturities                                                       $        241.4      $        246.9
         Equity securities                                                                 0.1                 2.6
         Mortgage loans                                                                   57.0                51.6
         Real estate                                                                       0.1                   -
         Policy loans                                                                      2.0                 1.4
         Short-term investments and cash equivalents                                       0.3                 0.7
         Other                                                                             9.8                (5.5)
                                                                                ------------------  -------------------
         Gross investment income                                                         310.7               297.7
         Less: investment expenses                                                        17.1                16.0
                                                                                ------------------  -------------------
         Net investment income                                                  $        293.6      $        281.7
                                                                                ==================  ===================


                                                                                   Six months            Six months
                                                                                      ended                 ended
                                                                                     June 30,             June 30,
         (Millions)                                                                    2004                 2003
                                                                                ------------------  -------------------
         Fixed maturities                                                       $        472.7      $         484.9
         Equity securities                                                                 0.1                  2.6
         Mortgage loans                                                                  110.3                102.2
         Real estate                                                                       0.2                  0.5
         Policy loans                                                                      4.9                  3.8
         Short-term investments and cash equivalents                                       0.6                  1.3
         Other                                                                             9.4                  0.5
                                                                                ------------------  -------------------
         Gross investment income                                                         598.2                595.8
         Less: investment expenses                                                        34.3                 29.8
                                                                                ------------------  -------------------
         Net investment income                                                  $        563.9      $         566.0
                                                                                ==================  ===================
     </TABLE>


5.   Dividend Restrictions and Shareholder's Equity

     The  Company's  ability  to pay  dividends  to its Parent is subject to the
     prior  approval  of  insurance   regulatory   authorities  for  payment  of
     dividends,  which  exceed an annual  limit.  The Company did not pay common
     stock  dividends  during the period  ended June 30,  2004 or the year ended
     December 31, 2003.

     The Insurance Department of the State of Iowa (the "Department"), effective
     January 1, 2004,  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  accounting  principles  generally  accepted  in  the  United  States.
     Statutory net income (loss) was $(10.7)  million and $8.5 million,  for the

                                       29

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     three months ended June 30, 2004 and 2003, respectively. Statutory net loss
     was $12.6 million and $60.4 million, for the six months ended June 30, 2004
     and 2003, respectively.  Statutory capital and surplus was $1,154.8 million
     and $1,020.1 million as of June 30, 2004 and 2003, respectively.

     As of June 30, 2004, 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.


6.   Capital Gains and Losses

     Realized  capital gains and losses are comprised of the difference  between
     the carrying value of  investments  and proceeds from sale,  maturity,  and
     redemption,   as  well  as  losses   incurred  due  to  the  impairment  of
     investments.  Net realized  capital gains (losses) on  investments  were as
     follows:

     <TABLE>
     <S>                                                                        <C>                 <C>

                                                                                   Six months            Six months
                                                                                      ended                 ended
                                                                                     June 30,             June 30,
     (Millions)                                                                        2004                 2003
                                                                                ------------------  -------------------
     Fixed maturities                                                           $        28.6       $         75.7
     Equity securities                                                                    5.3                 (0.3)
     Derivatives                                                                        (14.9)               (77.9)
     Real Estate                                                                            -                 (2.3)
     Other                                                                                  -                 (0.2)
                                                                                ------------------  -------------------
     Pretax realized capital gains (losses)                                              19.0                 (5.0)
                                                                                ==================  ===================
     After-tax realized capital gains (losses)                                  $        12.4       $         (3.3)
                                                                                ==================  ===================
     </TABLE>

     Proceeds  from the sale of total fixed  maturities  and the  related  gross
     gains and losses were as follows:

     <TABLE>
     <S>                                                                        <C>                 <C>

                                                                                   Six months            Six months
                                                                                      ended                 ended
                                                                                     June 30,             June 30,
     (Millions)                                                                        2004                 2003
                                                                                ------------------  -------------------
     Proceeds on sales                                                          $     9,291.4       $      8,032.9
     Gross gains                                                                         86.1                188.5
     Gross losses                                                                        38.3                 26.1

     </TABLE>

                                       30

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     Changes in  shareholder's  equity related to changes in  accumulated  other
     comprehensive income were as follows:

     <TABLE>
     <S>                                                                        <C>                 <C>

                                                                                   Six months            Six months
                                                                                      ended                 ended
                                                                                     June 30,             June 30,
     (Millions)                                                                        2004                 2003
                                                                                ------------------  -------------------
     Fixed maturities                                                           $      (411.7)      $        378.3
     Equity securities                                                                   (4.5)                 5.6
     DAC/VOBA                                                                           145.6                (96.7)
     Derivatives                                                                          2.7                (26.8)
     Sales inducements                                                                   (0.4)                   -
     Other                                                                                  -                  0.9
                                                                                ------------------  -------------------
     Subtotal                                                                          (268.3)               261.3
     Decrease (increase) in deferred income taxes                                       103.1               (198.0)
                                                                                ------------------  -------------------
     Net changes in accumulated other
       comprehensive income                                                     $      (165.2)      $         63.3
                                                                                ==================  ===================
     </TABLE>

     Shareholder's equity included the following accumulated other comprehensive
     income:

     <TABLE>
     <S>                                                                        <C>                 <C>

                                                                                     June 30,             June 30,
     (Millions)                                                                        2004                 2003
                                                                                ------------------  -------------------
      Net unrealized capital gains (losses):
        Fixed maturities                                                        $       105.6       $        986.1
        Equity securities                                                                 0.7                  2.1
        DAC/VOBA                                                                        (64.9)              (486.2)
        Derivatives                                                                     (11.3)               (26.8)
        Sales inducements                                                                (0.5)                   -
        Other                                                                               -                  1.2
                                                                                ------------------  -------------------
       Subtotal                                                                          29.6                476.4
       Less: deferred income taxes                                                        4.8                278.0
                                                                                ------------------  -------------------
       Net accumulated other comprehensive income                               $        24.8       $        198.4
                                                                                ==================  ===================
     </TABLE>

     Changes in  accumulated  other  comprehensive  income related to changes in
     unrealized gains (losses) on securities, were as follows:

     <TABLE>
     <S>                                                                        <C>                 <C>

                                                                                   Six months            Six months
                                                                                      ended                 ended
                                                                                     June 30,             June 30,
     (Millions)                                                                        2004                 2003
                                                                                ------------------  -------------------
     Unrealized holding gains (losses) arising
       during the year (1)                                                      $      (111.8)      $        113.7
     Less: reclassification adjustment for gains
       (losses) and other items included in
       net income (2)                                                                    53.4                 50.4
                                                                                ------------------  -------------------
     Net unrealized gains (losses) on securities                                $      (165.2)      $         63.3
                                                                                ==================  ===================
     </TABLE>

     (1)  Pretax  unrealized  holding gains  (losses)  arising during the period
          were $(172.0) million and $174.9 million for the six months ended June
          30, 2004 and 2003, respectively.

     (2)  Pretax reclassification adjustments for gains (losses) and other items
          included  in net income were $82.2  million and $77.5  million for the
          six months ended June 30, 2004 and 2003, respectively.

                                       31

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

7.   Additional Insurance Benefits and Minimum Guarantees

     Under  SOP  03-1,  the  Company  calculates  additional  liabilities  ("SOP
     reserves") for certain guaranteed  benefits and for Universal Life products
     with  certain  patterns  of  cost of  insurance  charges.  The SOP  reserve
     recognized  for such  products is in addition to the  liability  previously
     held (the  Account  Value) and is to  recognize  the  portion  of  contract
     assessments  received  in early  years used to  compensate  the insurer for
     services provided in later years.

     ING USA  calculates a benefit  ratio for each block of business  subject to
     the SOP, and calculates an SOP reserve by accumulating amounts equal to the
     benefit ratio  multiplied by the  assessments  for each period,  reduced by
     excess death benefits during the period.  The SOP reserve is accumulated at
     interest using the  contract-credited  rate for the period.  The calculated
     reserve  includes a provision for Universal Life contracts with patterns of
     Cost of Insurance  Charges that produce  expected  gains from the insurance
     benefit function followed by losses from that function in later years.

     The SOP  reserve for  annuities  with  minimum  guaranteed  death  benefits
     ("MGDB") is  determined  each period by  estimating  the expected  value of
     death benefits in excess of the projected  account  balance and recognizing
     the excess  ratably over the  accumulation  period based on total  expected
     assessments.  The Company regularly  evaluates estimates used to adjust the
     additional  liability  balance,  with a related charge or credit to benefit
     expense,  if actual  experience  or other  evidence  suggests  that earlier
     assumptions  should be revised.  The following  assumptions and methodology
     were used to determine the MGDB SOP reserve at June 30, 2004:

                  Area                     Assumptions/Basis for Assumptions
     ----------------------------------    -------------------------------------
     Data used                             Based on 101 investment performance
                                           scenarios stratified based on
                                           10,000 random generated scenarios
     Mean investment performance           8.5%
     Volatility                            18.0%
     Mortality                             60.0%, 60.0%, 75.0%, 75.0% of the
                                           90-95 ultimate mortality table for
                                           standard, rachet, rollup and
                                           combination rollup and rachet,
                                           respectively
     Lapse rates                           Vary by contract type and duration;
                                           range between 1.0% and 40.0%
     Discount rates                        6.5%, based on the portfolio earned
                                           rate of the general account

     The SOP reserve for annuities with guaranteed minimum accumulation benefits
     ("GMAB") and guaranteed minimum withdrawal benefits ("GMWB") are considered
     to be derivatives under Financial  Accounting  Standards Board Statement of
     Financial   Accounting   Standards  No.  133,  "Accounting  for  Derivative
     Instruments  and  Hedging  Activities,"  and are  recognized  at fair value
     through earnings.

                                       32

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     The SOP reserve for the  guaranteed  minimum  income  benefits  ("GMIB") is
     determined each period by estimating the expected value of the annutization
     benefits  in  excess  of the  projected  account  balance  at the  date  of
     annuitization  and  recognizing  the excess  ratably over the  accumulation
     period based on total expected assessments. The Company regularly evaluates
     estimates used and adjusts the additional liability balance, with a related
     charge or credit to  benefit  expense,  if the actual  experience  or other
     evidence  suggests  that  earlier   assumptions  should  be  revised.   The
     assumptions  used for calculating the additional GMIB liability at June 30,
     2004, are  consistent  with those used for the  calculating  the additional
     MGDB liability.  In addition, the calculation of the GMIB liability assumes
     dynamic surrenders and dynamic annuitization reflecting the extent to which
     the benefit, at the time of payment, has a positive value.

     The separate account liabilities subject to SOP 03-1 for minimum guaranteed
     benefits,  and the  additional  liabilities  recognized  related to minimum
     guarantees, by type, as of June 30, 2004, and the paid and incurred amounts
     by type for the six months ended June 30, 2004 are as follows:

     <TABLE>
     <S>                                                     <C>             <C>                      <C>

                                                                Minimum            Guaranteed          Guaranteed
                                                               Guaranteed           Minimum             Minimum
                                                                 Death           Accumulation/           Income
                                                                Benefit        Withdrawal Benefit       Benefit
                                                                 (MGDB)           (GMAB/GMWB)            (GMIB)
                                                             --------------- ----------------------- ---------------
     Separate account liability
       balance                                               $  20,821.7     $         1,418.6       $   6,463.8
     Additional liability balance:
       Balance at January 1, 2004                            $      56.5     $            14.5       $      13.6
       Incurred guaranteed benefits                                 22.4                  (1.8)             10.3
       Paid guaranteed benefits                                    (16.1)                    -                 -
                                                             --------------- ----------------------- ---------------
       Balance at June 30, 2004                              $      62.8     $            12.7       $       23.9
                                                             =============== ======================= ===============

     </TABLE>

     The net  amount  at risk  (net of  reinsurance)  and the  weighted  average
     attained age of contractholders by type of minimum guaranteed benefit,  are
     as follows as of June 30, 2004:

     <TABLE>
     <S>                                                     <C>             <C>                      <C>

                                                                Minimum            Guaranteed          Guaranteed
                                                               Guaranteed           Minimum             Minimum
                                                                 Death           Accumulation/           Income
                                                                Benefit        Withdrawal Benefit       Benefit
                                                                 (MGDB)           (GMAB/GMWB)            (GMIB)
                                                             --------------- ----------------------- ---------------
     Net Amount at Risk (net of reinsurance)                 $   1,565.0         $        88.5       $     263.0
     Weighted Average Attained Age                                    64                    59                59

     </TABLE>

     The aggregate  fair value of equity  securities  (including  mutual funds),
     supporting separate accounts with additional insurance benefits and minimum
     investment return guarantees as of June 30, 2004 is $20,821.7 million.

                                       33

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

8.   Sales Inducements

     Sales  inducements  represent  benefits  paid to  contractholders  that are
     incremental to the amounts the Company credits on similar contracts and are
     higher than the contract's  expected  ongoing  crediting  rates for periods
     after the inducement.  Such amounts are reported  separately on the balance
     sheet as of January 1, 2004.  Prior to 2004, these amounts were included in
     DAC.  Sales  inducements  are  amortized as a component of benefit  expense
     using   methodology  and   assumptions   consistent  with  those  used  for
     amortization  of DAC.  During the three  months  ended June 30,  2004,  the
     Company   capitalized  and  amortized  $25.9  million  and  $15.0  million,
     respectively,  of sales  inducements.  During the six months ended June 30,
     2004,  the  Company  capitalized  and  amortized  $50.8  million  and $40.2
     million,  respectively,  of sales inducements.  The unamortized  balance of
     capitalized  sales  inducements,  net of  unrealized  gains and losses,  is
     $496.1 million as of June 30, 2004.


9.   Income Taxes

     Effective  January 1, 2004, the Company files a stand-alone  federal income
     tax  return.  Prior  to that  date,  the  Company  and  each of the  Merger
     Companies,  filed federal income tax returns with their  respective  filing
     groups.

     At June 30,  2004,  the Company has net  operating  loss  carryforwards  of
     approximately  $510.7  million for federal  income tax purposes,  which are
     available to offset future taxable income. If not used, these carryforwards
     will expire between 2015 and 2019.

     At  June  30,  2004,  the  Company  has  capital  loss   carryforwards   of
     approximately  $75.5  million for federal  income tax  purposes,  which are
     available to offset future capital gains. If not used, these  carryforwards
     will expire in 2009.

     Income tax expense  (benefit) from  continuing  operations  included in the
     condensed financial statements are as follows:

     <TABLE>
     <S>                                                                        <C>                 <C>

                                                                                   Three months        Three months
                                                                                      ended               ended
                                                                                     June 30,            June 30,
     (Millions)                                                                        2004                2003
                                                                                ------------------  -------------------
     Current tax (benefit):
       Federal                                                                  $           -       $        (42.4)
                                                                                ------------------- ------------------
          Total current tax (benefit)                                                       -                (42.4)
                                                                                ------------------- ------------------
     Deferred tax (benefit):
       Operations and capital loss carryforwards                                        (42.8)                   -
       Other federal deferred tax                                                        66.0                 56.8
                                                                                ------------------- ------------------
          Total deferred tax (benefit)                                                   23.2                 56.8
                                                                                ------------------- ------------------
          Total income tax expense (benefit)                                    $        23.2       $         14.4
                                                                                =================== ==================
    </TABLE>

                                       34

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     <TABLE>
     <S>                                                                        <C>                 <C>

                                                                                    Six months          Six months
                                                                                      ended               ended
                                                                                     June 30,            June 30,
     (Millions)                                                                        2004                2003
                                                                                ------------------- -------------------
     Current tax (benefit):
       Federal                                                                  $           -       $        (44.5)
                                                                                ------------------- -------------------
          Total current tax (benefit)                                                       -                (44.5)
                                                                                ------------------- -------------------
     Deferred tax (benefit):
       Operations and capital loss carryforwards                                        (36.6)                   -
       Other federal deferred tax                                                        69.8                 51.4
                                                                                ------------------- -------------------
          Total deferred tax (benefit)                                                   33.2                 51.4
                                                                                ------------------- -------------------
     Total income tax expense (benefit)                                         $        33.2       $          6.9
                                                                                =================== ===================

     </TABLE>

     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>
     <S>                                                                        <C>                 <C>

                                                                                   Three months        Three months
                                                                                      ended               ended
                                                                                     June 30,            June 30,
     (Millions)                                                                        2004                2003
                                                                                ------------------  -------------------
     Income before income taxes                                                 $        69.8       $         46.5
     Tax rate                                                                              35%                  35%
                                                                                ------------------  -------------------
     Income tax at federal statutory rate                                                24.4                 16.3
     Tax effect of:
       Meals and entertainment                                                            0.2                  0.1
       Dividend received deduction                                                       (1.4)                (2.0)
                                                                                ------------------  -------------------
     Income taxes                                                               $        23.2       $         14.4
                                                                                ==================  ===================


                                                                                    Six months          Six months
                                                                                      ended               ended
                                                                                     June 30,            June 30,
     (Millions)                                                                        2004                2003
                                                                                ------------------  --------------------
     Income before income taxes                                                 $       102.4       $         25.5
     Tax rate                                                                              35%                  35%
                                                                                ------------------  --------------------
     Income tax at federal statutory rate                                                35.8                  8.9
     Tax effect of:
       Meals and entertainment                                                            0.3                  0.2
       Dividend received deduction                                                       (2.9)                (2.2)
                                                                                ------------------  --------------------
     Income taxes                                                               $        33.2       $         6.9
                                                                                ==================  ====================

     </TABLE>

                                       35

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     The tax effects of  temporary  differences  that give rise to deferred  tax
     assets and deferred tax  liabilities at June 30, 2004 and December 31, 2003
     are presented below:

     <TABLE>
     <S>                                                                        <C>                  <C>

     (Millions)                                                                        2004                2003
                                                                                -------------------  ------------------
     Deferred tax assets:
       Operations and capital loss carryforwards                                $       205.2        $       168.5
       Future policy benefits                                                           415.9                470.7
       Goodwill                                                                           9.1                  9.8
       Investments                                                                       13.4                 20.5
       Employee compensation and benefits                                                19.3                 16.8
       Other                                                                             33.9                 33.4
                                                                                -------------------  ------------------
          Total gross assets                                                            696.8                719.7
                                                                                -------------------  ------------------
     Deferred tax liabilities:
       Unrealized gains on investments                                                  (67.0)              (123.4)
       Deferred policy acquisition cost                                                (486.4)              (529.1)
       Value of purchased insurance in force                                            (43.2)               (38.3)
       Other                                                                             (0.4)                (0.3)
                                                                                -------------------  ------------------
          Total gross liabilities                                                      (597.0)              (691.1)
                                                                                -------------------  ------------------
     Net deferred income tax asset (liability)                                  $        99.8        $        28.6
                                                                                ===================  ==================
    </TABLE>

     The Internal Revenue Service has commenced  examinations for the years 2000
     and 2001. Management does not believe adverse consequences will result from
     those examinations.


10.  Benefit Plans

     Defined Benefit Plan

     ING North America Insurance  Corporation ("ING North America") sponsors the
     ING  Americas  Retirement  Plan (the  "Retirement  Plan"),  effective as of
     December 31, 2001. Substantially all employees of ING North America and its
     subsidiaries and affiliates  (excluding  certain employees) are eligible to
     participate, including the Company's employees other than Company agents.

     The Retirement Plan is a  tax-qualified  defined benefit plan, the benefits
     of which are  guaranteed  (within  certain  specified  legal limits) by the
     Pension Benefit Guaranty Corporation  ("PBGC"). As of January 1, 2002, each
     participant in the Retirement Plan (except for certain specified employees)
     earns a benefit under a final average compensation  formula.  Subsequent to
     December 31, 2001, ING North America is responsible for all Retirement Plan
     liabilities.  The  costs  allocated  to  the  Company  for  its  employees'
     participation  in the Retirement  Plan were $2.7 million and $(0.3) million
     for the three-month periods ended June 30, 2004 and 2003,  respectively and
     $5.5 million and $4.3 million for the six-month periods ended June 30, 2004
     and 2003, respectively.

                                       36

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     Non-Qualified Retirement Plans

     Through  December 31, 2001, the Company,  in conjunction  with ING, offered
     certain eligible employees a Supplemental  Executive Retirement Plan and an
     Excess  Plan  (collectively,  the  "SERPs").  The SERPs  are  non-qualified
     defined  benefit  pension plans,  which means all benefits are payable from
     the general assets of the Company.  SERP benefits are not guaranteed by the
     PBGC.  Benefit accruals under the SERPs ceased effective as of December 31,
     2001.  Benefits  under  the  SERPs  are  determined  based  on an  eligible
     employees years of service and such employee's average annual  compensation
     for the highest five years during the last ten years of employment. Pre-tax
     charges of  operations  of the Company for the SERPs were $0.1  million and
     $0.8  million  for the  three-month  periods  ended June 30, 2004 and 2003,
     respectively  and $0.2 million and $0.1 million for the  six-month  periods
     ended June 30, 2004 and 2003, respectively.

     The  following  tables  summarize  the benefit  obligations  and the funded
     status for the SERP and the Excess  Plan for the year  ended  December  31,
     2003:

     (Millions)
     Change in Benefit Obligation:
       Defined Benefit Obligation, January 1                 $         8.8
       Interest cost                                                   0.6
       Benefits paid                                                  (0.4)
       Actuarial (gain) loss on obligation                             2.0
                                                             ------------------
       Defined Benefit Obligation, December 31               $        11.0
                                                             ==================

     Funded status:
       Funded status at December 31                          $       (11.0)
       Unrecognized past service cost                                 (0.1)
       Unrecognized net loss                                          (1.8)
                                                             ------------------
     Net amount recognized                                   $       (12.9)
                                                             ==================


     At December 31, 2003, the accumulated benefit obligation was $9.3 million.

     The  weighted-average  assumptions  used in the  measurement of the benefit
     obligation for the Retirement Plan were as follows:

                                                    2004                2003
                                               --------------     --------------
     Discount rate at beginning of period          6.25%                6.75%
     Rate of compensation increase                 3.75                 3.75

                                       37

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     Net  periodic  benefit  costs for the periods  ended June 30, 2004 and 2003
     were as follows:

     <TABLE>
     <S>                                                                        <C>                 <C>

                                                                                   Three months        Three months
                                                                                      ended               ended
                                                                                     June 30,            June 30,
     (Millions)                                                                        2004                2003
                                                                                ------------------  -------------------
     Interest cost                                                              $         0.1       $          0.2
     Unrecognized past service cost recognized in period                                    -                 (0.1)
                                                                                ------------------  -------------------
     Net periodic benefit cost                                                  $         0.1       $          0.1
                                                                                ==================  ===================


                                                                                    Six months          Six months
                                                                                      ended               ended
                                                                                     June 30,            June 30,
     (Millions)                                                                        2004                2003
                                                                                ------------------  --------------------
     Interest cost                                                              $         0.3       $          0.3
     Unrecognized past service cost recognized in period                                 (0.1)                (0.2)
                                                                                ------------------  --------------------
     Net periodic benefit cost                                                  $         0.2       $          0.1
                                                                                ==================  ====================
     </TABLE>

     Contributions for the SERPs are expected to be $0.4 million during 2004.

     Defined Contribution Plans

     ING North  America  sponsors  the ING Savings  Plan and ESOP (the  "Savings
     Plan").   Substantially   all  employees  of  ING  North  America  and  its
     subsidiaries and affiliates (excluding certain employees, including but not
     limited  to Career  Agents  are  eligible  to  participate,  including  the
     Company's  employees  other than  Company  agents.  The  Savings  Plan is a
     tax-qualified  profit  sharing  and stock  bonus  plan,  which  includes an
     employee stock ownership plan ("ESOP") component. Savings Plan benefits are
     not guaranteed by the PBGC. The Savings Plan allows  eligible  participants
     to  defer  into  the  Savings  Plan  a  specified  percentage  of  eligible
     compensation  on a pre-tax  basis.  ING North America  matches such pre-tax
     contributions, up to a maximum of 6% of eligible compensation. All matching
     contributions  are subject to a 4-year graded  vesting  schedule  (although
     certain  specified  participants  are  subject to a 5-year  graded  vesting
     schedule).  All  contributions  made to the  Savings  Plan are  subject  to
     certain limits imposed by applicable law.  Pre-tax charges to operations of
     the Company for the Savings Plan were $1.0 million and $0.7 million for the
     three-month  periods  ended June 30, 2004 and 2003,  respectively  and $1.9
     million and $1.5 million for the six-month  periods ended June 30, 2004 and
     2003, respectively.

     Post-Retirement Benefits

     In addition to providing pension benefits, the Company, in conjunction with
     ING,  provides certain health care and life insurance  benefits for retired
     employees and certain  agents.  Generally,  retired  employees and eligible
     agents pay a portion of the cost of these post-retirement benefits, usually

                                       38

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     based on their years of service with the  Company.  The amount a retiree or
     eligible agent pays for such coverage is subject to change in the future.

     The  following  tables  summarize  the benefit  obligations  and the funded
     status for retired  employees' and retired agents'  post-retirement  health
     care benefits for the year ended December 31, 2003:

     (Millions)
     Change in Benefit Obligation:
       Defined Benefit Obligation, January 1                   $        8.8
       Service cost                                                     0.5
       Interest cost                                                    0.6
       Benefits paid                                                   (0.6)
       Actuarial loss on obligation                                    (0.7)
                                                              ------------------
       Defined Benefit Obligation, December 31                          8.6

       Funded status:
         Funded status at December 31                                  (8.6)
         Unrecognized losses                                           (0.6)
         Unrecognized past service cost                                 0.4
                                                              ------------------
         Net amount recognized                                $        (8.8)
                                                              ==================

     The medical health care trend rate was 10% for 2004,  gradually  decreasing
     to 5.0% by 2009.  Increasing the health care trend by 1% would increase the
     benefit obligation by $0.5 million as of December 31, 2003.  Decreasing the
     health care trend rate by 1% would decrease the benefit  obligation by $0.5
     million as of December 31, 2003.

     Net  periodic  benefit  costs for the periods  ended June 30, 2004 and 2003
     were as follows:

                                             Three months        Three months
                                                ended               ended
                                               June 30,            June 30,
     (Millions)                                  2004                2003
                                          -----------------  -------------------
     Service cost                         $        0.1       $          0.2
     Interest cost                                 0.2                  0.1
                                          -----------------  -------------------
     Net periodic benefit cost            $        0.3       $          0.3
                                          =================  ===================


                                              Six months          Six months
                                                ended               ended
                                               June 30,            June 30,
     (Millions)                                 2004                2003
                                         ------------------  -------------------
     Service cost                        $         0.3       $          0.3
     Interest cost                                 0.3                  0.3
                                         ------------------  -------------------
     Net periodic benefit cost           $         0.6       $          0.6
                                         ==================  ===================

     Contributions  for retired  employees' and retired agents'  post-retirement
     health care benefits are expected to be $0.5 million during 2004.

                                       39

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     Effect of Recently Enacted Legislation

     On  December 8, 2003,  the  Medicare  Prescription  Drug,  Improvement  and
     Modernization Act of 2003 ("the Act") was enacted.  The Act introduced both
     a Medicare  prescription  drug benefit and a federal subsidy to sponsors of
     retiree  healthcare  plans.  In January  2004,  the FASB  issued FASB Staff
     Position No. 106-1 ("FSP 106-1"),  "Accounting and Disclosure  Requirements
     Related to the Medicare  Prescription  Drug,  Improvement and Modernization
     Act of  2003."  This  statement  permitted  a sponsor  of a  postretirement
     benefit plan that provides a  prescription  drug benefit to make a one-time
     election to defer  recognizing  the effects of the Act until  authoritative
     guidance on accounting for the federal  subsidy was issued or until certain
     other events occurred. In May 2004, the FASB issued FASB Staff Position No.
     106-2 ("FSP 106-2"), "Accounting and Disclosure Requirements Related to the
     Medicare  Prescription  Drug,  Improvement and  Modernization Act of 2003,"
     which superseded FSP 106-1.  FSP 106-2 provides  guidance on the accounting
     for the effects of the Act and requires certain  disclosures  regarding the
     effect of the federal  subsidy  provided by the Act.  FSP 106-2 will become
     effective  for the  Company  in the  third  quarter  of 2004.  The  Company
     maintains a postretirement  benefit plan that provides a prescription  drug
     benefit.  The Company  expects that  application  of this guidance will not
     have a material impact on the Company's condensed financial statements.


11.  Related Party Transactions

     Operating Agreements

     The Company has certain agreements whereby it generates revenues and incurs
     expenses with affiliated entities. The agreements are as follows:

     |X|  Underwriting and distribution  agreement with Directed Services,  Inc.
          ("DSI"),  for the variable  insurance  products issued by the Company.
          DSI is  authorized to enter into  agreements  with  broker/dealers  to
          distribute the Company's variable products and appoint representatives
          of the  broker/dealers as agents.  For the three months ended June 30,
          2004 and 2003,  commission  expenses  were  incurred in the amounts of
          $128.1  million and $90.3  million,  respectively.  For the six months
          ended June 30, 2004 and 2003, commission expenses were incurred in the
          amounts of $237.2 million and $160.3 million,  respectively.

     |X|  Asset management agreement with ING Investment Management LLC ("IIM"),
          in which IIM provides asset  management and accounting  services.  The
          Company records a fee, which is paid quarterly,  based on the value of
          the assets under management.  For the three months ended June 30, 2004
          and 2003,  expenses  were incurred in the amounts of $16.7 million and
          $15.6  million,  respectively.  For the six months ended June 30, 2004
          and 2003,  expenses  were incurred in the amounts of $33.4 million and
          $29.1 million,  respectively.

                                       40

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     |X|  Expense   sharing   agreements   with  ING  AIH  for   administrative,
          management, financial, and information technology services, which were
          approved in 2001.  For the three  months ended June 30, 2004 and 2003,
          ING  USA  incurred  expenses  of  $16.1  million  and  $17.3  million,
          respectively. For the six months ended June 30, 2004 and 2003, ING USA
          incurred expenses of $30.4 million and $32.4 million, respectively.

     |X|  Services  agreement  with ING  Financial  Advisors,  LLC ("ING FA") to
          provide certain  administrative,  management,  professional  advisory,
          consulting  and other  services  to the Company for the benefit of its
          customers.  Charges  for  these  services  are  to  be  determined  in
          accordance  with fair and  reasonable  standards  with  neither  party
          realizing a profit nor  incurring  a loss as a result of the  services
          provided to the Company.  The Company will reimburse ING FA for direct
          and indirect costs incurred on behalf of the Company.

     Reinsurance Agreements

     ING USA entered into a reinsurance  agreement  with Security Life of Denver
     International,  Ltd.  ("SLDI"),  an affiliate,  covering  variable  annuity
     minimum guaranteed death benefits and minimum guaranteed living benefits of
     variable annuities issued after January 1, 2000. In March 2003, the Company
     amended its  reinsurance  agreement with SLDI.  Under this  amendment,  the
     Company  terminated  the  reinsurance  agreement  for all  inforce  and new
     business  and  recaptured  all  inforce   business   reinsured   under  the
     reinsurance  agreement  between the Company and SLDI retroactive to January
     1, 2003 and the Company  reduced  its  reinsurance  recoverable  related to
     these  liabilities by $150.1 million.  On March 28, 2003, SLDI  transferred
     assets to the Company in the amount of $185.6  million.  The  difference in
     amounts  transferred on March 28, 2003 and the reduction of the reinsurance
     recoverables as of January 1, 2003, reflects  adjustments on the investment
     of the  reinsurance  recoverable  as of January 1, 2003.  It also  reflects
     adjustments  on the  investment  income on the  assets and letter of credit
     costs between January 1, 2003 and the date of the asset  transfer.  It also
     encompasses  the net effect of a  recapture  fee paid in the amount of $5.0
     million  offset  by  the  receipt  of  a  $24.1  million   negative  ceding
     commission.  The net  impact of which was  deferred  in policy  acquisition
     costs and is being amortized over the period of estimated future profits.

     Reciprocal Loan Agreement

     On  January  1,  2004,  the  Company  entered  into a new  reciprocal  loan
     agreement with ING AIH, a Delaware corporation and affiliate, to facilitate
     the handling of unusual and/or unanticipated  short-term cash requirements.
     In accordance with this  agreement,  the maximum  outstanding  amount to be
     borrowed  or lent shall not exceed 3% of ING USA's total  admitted  assets.
     This agreement  supercedes the previous  reciprocal loan agreement with ING
     AIH, by which the Company and ING AIH could  borrow up to $499 million from
     one another.

     Under the  previous  reciprocal  loan  agreement,  interest  on any ING USA
     borrowings  was  charged  at the rate of ING  AIH's  cost of funds  for the

                                       41

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     interest period plus 0.15%.  Interest on any ING AIH borrowings was charged
     at a rate based on the prevailing  interest rate of U.S.  commercial  paper
     available for purchase with a similar duration.  Under this agreement,  ING
     USA incurred interest expense of $0.1 million for the six months ended June
     30, 2004 and 2003, respectively.  ING USA incurred minimal interest expense
     for the three months ended June 30, 2004 and 2003. ING USA earned  interest
     of $0.4 million and $20.0 thousand for the three months ended June 30, 2004
     and 2003,  respectively,  and $1.1  million  and $0.3  million  for the six
     months  ended June 30,  2004 and 2003,  respectively.  At June 30, 2004 and
     December 31, 2003, ING USA had $174.5 million and $120.4 million receivable
     from ING AIH under this agreement included in due from affiliates.

     Notes to Affiliates

     The Company's  promissory note in the amount of $50 million payable to Lion
     Connecticut Holdings,  Inc. was repaid on May 17, 2004. The note was issued
     on April 15, 1997.  Interest was charged at an annual rate of 8.75% and the
     face amount was due on demand.  The Company  incurred  interest  expense of
     $0.6  million and $1.1 million for the three months ended June 30, 2004 and
     2003,  respectively,  and $1.7  million and $2.2 million for the six months
     ended June 30, 2004 and 2003, respectively.

     ING USA issued a 30-year  surplus note for $35 million with its  affiliate,
     Security  Life of Denver,  which  matures on December 7, 2029.  Interest is
     charged  at an annual  rate of  7.98%.  Payment  of the  notes and  related
     accrued  interest is  subordinate  to  payments  due to  policyholders  and
     claimant and beneficiary claims, as well as debts owed to all other classes
     of debtors,  other than  surplus note  holders,  of ING USA. Any payment of
     principal and/or interest made is subject to the prior approval of the Iowa
     Insurance  Commissioner.  Interest  expense was $0.7  million for the three
     months  ended June 30, 2004 and 2003,  respectively.  Interest  expense was
     $1.4 million for the six months ended June 30, 2004 and 2003, respectively.

     Tax Sharing Agreements

     The Company has entered into a state tax sharing agreement with ING AIH and
     each of the specific  subsidiaries  that are parties to the agreement.  The
     state tax agreement  applies to situations in which ING AIH and all or some
     of the  subsidiaries  join in the  filing  of a state or  local  franchise,
     income  tax or other tax  return on a  consolidated,  combined  or  unitary
     basis.

     Capital Transactions

     During  the six  months  ended  June 30,  2004,  ING USA  received  capital
     contributions of $40.0 million.  During the six months ended June 30, 2003,
     ING USA received capital contributions of $88.7 million.

                                       42

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

12.  Financing Agreements

     The Company  maintains a  revolving  loan  agreement  with  SunTrust  Bank,
     Atlanta (the "Bank").  Under this  agreement,  which is due on demand,  the
     Company  can  borrow  up to $125  million  from the Bank.  Interest  on any
     borrowing  accrues at an annual  rate equal to a rate quoted by the Bank to
     the Company for the borrowing.  Under the agreement,  the Company  incurred
     minimal  interest  expense for the three and six months ended June 30, 2004
     and 2003. At June 30, 2004 and December 31, 2003,  the Company did not have
     any balances payable to the Bank.

     The Company  also  maintains a revolving  loan  agreement  with Bank of New
     York, New York (the "BONY").  Under this agreement,  the Company can borrow
     up to $100  million  from BONY.  Interest on any of the  Company  borrowing
     accrues at an annual rate equal to a rate quoted by BONY to the Company for
     the  borrowing.  Under this  agreement,  the  Company  incurred no interest
     expense for the three and six months ended June 30, 2004 and 2003.  At June
     30, 2004 and  December  31,  2003,  the  Company did not have any  balances
     payable to BONY.


13.  Reinsurance

     At June 30, 2004,  ING USA had  reinsurance  treaties  with 2  unaffiliated
     reinsurers and 19 affiliated  reinsurers  covering a significant portion of
     the mortality  risks and  guaranteed  death and living  benefits  under its
     variable contracts.  ING USA remains liable to the extent its reinsurers do
     not meet their obligations under the reinsurance agreements.

     Reinsurance ceded in force for life mortality risks were $957.9 million and
     $1,209.4 million at June 30, 2004 and December 31, 2003,  respectively.  At
     June 30, 2004 and  December 31, 2003,  the Company had net  receivables  of
     $629.4 million and $634.8 million,  respectively  for  reinsurance  claims,
     reserve credits,  or other receivables from these  reinsurers.  At June 30,
     2004 and  December  31,  2003,  respectively,  these net  receivables  were
     comprised  of the  following:  $8.0  million  and $17.1  million for claims
     recoverable  from  reinsurers;  $2.8 million and $6.6  million  payable for
     reinsurance premiums;  $10.5 million and $20.2 million for reserve credits;
     and $19.4 million and $21.1 million for reinsured surrenders and allowances
     due from an unaffiliated  reinsurer;  and $613.1 million and $619.4 million
     for reinsurance  ceded.  Included in the accompanying  condensed  financial
     statements,  are net policy  benefits  recoveries  of $8.5 million and $9.7
     million for the three months ended June 30, 2004 and 2003, respectively and
     $21.4  million and $22.4 million for the six months ended June 30, 2004 and
     2003, respectively.

     Premiums ceded under reinsurance were $3.7 million and $4.7 million for the
     three months  ended June 30, 2004 and 2003,  respectively.  Premiums  ceded
     under  reinsurance  were $7.0  million and $7.8  million for the six months
     ended June 30, 2004 and 2003,  respectively.  Reinsurance  recoveries  were
     $2.4  million and $0.3 million for the three months ended June 30, 2004 and

                                       43

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     2003,  respectively.  Reinsurance  recoveries  were $3.1 million and $(0.1)
     million  for the six  months  ended June 30,  2004 and 2003,  respectively.
     Premiums ceded and reinsurance recoveries are included in interest credited
     and other benefits to policyholders.

     ING  USA  participates  in  a  modified   coinsurance   agreement  with  an
     unaffiliated reinsurer. The accompanying condensed financial statements are
     presented net of the effects of the treaty which  decreased  income by $0.7
     million and $0.8 million for the three months ended June 30, 2004 and 2003,
     respectively  and $1.0  million and $0.9  million for the six months  ended
     June 30, 2004 and 2003, respectively.


14.  Commitments and Contingent Liabilities

     Leases

     The Company leases its home office space and certain other  equipment under
     operation leases that expire through 2017.

     For the three months ended June 30, 2004 and 2003,  rent expense for leases
     was $1.9 million and $1.8 million,  respectively.  For the six months ended
     June 30, 2004 and 2003,  rent  expense for leases was $3.8 million and $3.6
     million,  respectively. The future net minimum payments under noncancelable
     leases for the years ended  December 31, 2004 through 2008 are estimated to
     be $7.6 million, $7.7 million, $7.7 million, $7.5 million and $7.4 million,
     respectively, and $42.9 million, thereafter. The Company pays substantially
     all expenses  associated with its leased and subleased  office  properties.
     Expenses not paid  directly by the Company are paid for by an affiliate and
     allocated back to the Company.

     Commitments

     Through the normal course of investment operations,  the Company commits to
     either  purchase or sell  securities,  commercial  mortgage  loans 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
     June 30, 2004 and  December  31, 2003,  the Company had  off-balance  sheet
     commitments  to  purchase  investments  equal to their fair value of $450.3
     million and $154.0 million, respectively.

                                       44

<PAGE>

ING USA Annuity and Life Insurance Company
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Condensed Financial Statements (Unaudited)
--------------------------------------------------------------------------------

     Litigation

     The  Company  is a party to  threatened  or  pending  lawsuits/arbitrations
     arising  from  the  normal  conduct  of  business.  Due to the  climate  in
     insurance and business  litigation/arbitrations,  suits against the Company
     sometimes  include claims for substantial  compensatory,  consequential  or
     punitive  damages and other types of relief.  Moreover,  certain claims are
     asserted as class  actions,  purporting  to  represent a group of similarly
     situated  individuals.  While it is not possible to forecast the outcome of
     such lawsuits/arbitrations, in light of existing insurance, reinsurance and
     established  reserves, it is the opinion of management that the disposition
     of such  lawsuits/arbitrations will not have a materially adverse effect on
     the Company's operations or financial position.

                                       45

<PAGE>

Item 2.   Management's  Narrative  Analysis  of the  Results  of  Operations
          and Financial Condition

          Overview

          The  following  narrative  analysis of the results of  operations  and
          financial  condition  presents a review of the  Company as of June 30,
          2004 and  December  31, 2003 and for the three and  six-month  periods
          ended  June  30,  2004  and  2003.  This  review  should  be  read  in
          conjunction  with the condensed  financial  statements  and other data
          presented herein.

          Basis of Presentation

          On January 1, 2004, the Company  redomesticated from Delaware to Iowa.
          In addition,  on January 1, 2004 (the "merger  date"),  Equitable Life
          Insurance  Company  of Iowa  ("Equitable  Life"),  USG  Annuity & Life
          Company  ("USG") and United Life & Annuity  Insurance  Company ("ULA")
          (the "Merger  Companies"),  merged with and into Golden  American Life
          Insurance Company ("Golden  American").  Immediately after the merger,
          Golden American changed its name to ING USA Annuity and Life Insurance
          Company.  As of the merger date, the Merger  Companies ceased to exist
          and  were  merged  into  ING USA.  Lion is an  indirect,  wholly-owned
          subsidiary  of ING Groep N.V.  ("ING"),  a global  financial  services
          holding company based in The Netherlands.  ING USA is authorized to do
          business in the District of Columbia  and all states  except New York.
          ING USA is licensed as a life insurance  company under the laws of the
          State of Delaware  until  December 31, 2003 and Iowa since  January 1,
          2004.

          Prior to the merger date,  ING USA was a  wholly-owned  subsidiary  of
          Equitable  Life from  December  30, 2001  through  December  31, 2003.
          Formerly, from October 24, 1997, until December 30, 2001, Equitable of
          Iowa  Companies,  Inc. ("EIC" or "Former  Holding  Company")  directly
          owned 100% of Golden American's stock.

          Statement  of  Financial   Accounting  Standards  No.  141,  "Business
          Combinations"  ("FAS  141"),  excludes  transfers  of  net  assets  or
          exchanges of shares between  entities under common control,  and notes
          that certain provisions under Accounting  Principles Board Opinion No.
          16, "Business  Combinations"  ("APB 16"), provide a source of guidance
          for  such   transactions.   In  accordance  with  APB  16,   financial
          information of the combined entity is presented as if the entities had
          been  combined  for  the  full  year,  and all  comparative  financial
          statements   are  restated  and  presented  as  if  the  entities  had
          previously    been    combined,    in   a   manner    similar   to   a
          pooling-of-interests.

          The unaudited condensed  financial  statements have been prepared in a
          manner  similar  to a  pooling-of-interests,  in  accordance  with the
          provisions  of APB 16 in  order to  present  the  condensed  financial
          position  and  results of  operations  of the  Company  and the Merger
          Companies,  as if the  entities  had  previously  been  combined.  The
          unaudited  condensed  balance  sheets and  statements  of income  give

                                       46

<PAGE>

          effect  to the  consolidation  transaction  as if it had  occurred  on
          December 31, 2003 and January 1, 2003, respectively.

          Results of Operations

          Premiums  decreased by $0.6 million and $2.4 million for the three and
          six months  ended June 30,  2004,  respectively,  compared to the same
          periods  in 2003.  This  decrease  in premium is related to the closed
          block of participating life business.

          Fee income  and other  income  increased  by $42.7  million  and $89.4
          million   for  the  three  and  six  months   ended  June  30,   2004,
          respectively,  compared to the same  periods in 2003.  The increase is
          primarily  due to an  increase in the average  variable  assets  under
          management  by the Company.  The increase in average  variable  assets
          under  administration   reflects  continued  business  growth  in  the
          Company's variable annuity product lines.

          Net  investment  income  for the  three  months  ended  June 30,  2004
          increased by $11.9 million  compared to the same period in 2003.  This
          increase in net investment  income is consistent  with the increase in
          net invested  assets.  Net investment  income for the six months ended
          June 30, 2004 is comparable to that for the same period in 2003.

          Net realized  capital  gains  (losses) for the three months ended June
          30, 2004  decreased  by $15.8  million  compared to the same period in
          2003. The decrease is primarily due to the interest rate  environment.
          Rising interest rates during second quarter 2004 has resulted in lower
          net gains  (losses).  Net realized  capital gains (losses) for the six
          months ended June 30, 2004 increased by $24.0 million  compared to the
          same period in 2003.  The increase is primarily due to the increase in
          the value of the derivatives portfolio due to rising interest rates.

          Interest  credited  and other  benefits to the  policyholders  for the
          three and six months ended June 30, 2004  increased  by $48.5  million
          and $38.7 million, respectively, compared to the same periods in 2003.
          The  increase is  primarily  due to the  inclusion  of deferred  sales
          inducement   amortization   of  $25.1   million  and  $40.1   million,
          respectively,  as a component of benefit  expense in 2004, as required
          with the adoption of SOP 03-1.  In addition,  lower  separate  account
          benefit  guarantees were recognized during the three months ended June
          30, 2003 as a result of improved separate account market performance.

          General  expenses for the three and six months ended June 30, 2004 are
          comparable to that for the same periods in 2003.

          Commissions  increased  $38.9  million and $97.8 million for the three
          and six months ended June 30, 2004, respectively, compared to the same
          periods  in  2003.  This  increase  is  primarily  due  to  additional
          commissions  on  higher  new  sales  of  variable  and  fixed  annuity
          products.  Also  contributing  to the six months ended  increase was a
          $24.1 million ceded commission adjustment in the first quarter of 2003
          related to the recapture of an affiliate reinsurance agreement.

                                       47

<PAGE>

          Policy  acquisition  costs deferred for the three and six months ended
          June  30,  2004   increased  by  $23.8  million  and  $62.4   million,
          respectively,  compared to the same periods in 2003. This increase was
          primarily  due to the  deferral of increased  commissions  and selling
          expense on higher  annuity  product sales.

          Amortization  of  deferred  policy  acquisition  costs  and  value  of
          business  acquired  decreased  $52.5 million and $46.2 million for the
          three and six months  ended June 30, 2004,  respectively,  compared to
          the same periods in 2003.  Amortization of  long-duration  products is
          reflected in proportion to actual and estimated  future gross profits.
          Estimated  future  gross  profits  are  computed  based on  underlying
          assumptions  related to the  underlying  contracts,  including but not
          limited to interest margins,  surrenders,  withdrawals,  expenses, and
          asset  growth.  The decrease in the  amortization  of deferred  policy
          acquisition costs and value of insurance  acquired reflects the impact
          of these variables on the overall book of business.

          Expense and charges  reimbursed under modified  coinsurance  ("MODCO")
          agreements for the three and six months ended June 30, 2004, increased
          by $0.1 million and $0.5 million,  respectively,  compared to the same
          periods in 2003.  This balance  represents the net cash flows from the
          Paine Webber MODCO agreements.  As this MODCO agreement does not cover
          new business, the run-off of the reserve credit and the product charge
          reimbursement  to Paine  Webber  exceed  the  commission  and  expense
          allowances that accrue to the Company.

          Interest  expense for the three and six months  ended June 30, 2004 is
          comparable to that for the same periods in 2003.

          The  cumulative  effect of the change in accounting  principle for the
          six months ended June 30,  2004,  was a loss of $2.3  million,  net of
          tax, due to the  implementation  of SOP 03-1. The change in accounting
          principle was taken during the first quarter of 2004.

          Net income,  excluding  change in accounting  principle,  increased by
          $14.5  million and $50.6  million  for the three and six months  ended
          June 30, 2004,  respectively,  as compared to the three and six months
          ended June 30, 2003.  The  increase in net  earnings is primarily  the
          result of increased fee income and decreased  amortization of deferred
          policy acquisition costs and value of new business acquired, partially
          offset by  higher  interest  credited  and  other  guarantee  benefits
          related to expenses.  Also contributing were higher net realized gains
          for the six month period,  while lower realized gains were  recognized
          for the three months ended June 30 as interest rates increased  during
          this period in 2004.

                                       48

<PAGE>

          Financial Condition

          Investments

          Fixed Maturities

          Total fixed  maturities  reflected  net  unrealized  capital  gains of
          $105.7  million and $517.3  million at June 30, 2004 and  December 31,
          2003, respectively.

          It is management's objective that the portfolio of fixed maturities be
          of high quality and be well  diversified by market  sector.  The fixed
          maturities 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 fixed maturities portfolio
          was A+ at June 30, 2004 and December 31, 2003.

          Fixed   maturities   rated  BBB  and   below   may  have   speculative
          characteristics,   and  changes  in  economic   conditions   or  other
          circumstances  are more  likely to lead to a weakened  capacity of the
          issuer to make  principal and interest  payments than is the case with
          higher rated fixed maturities.

          The percentage of total fixed maturities by quality rating category is
          as follows:

                                                      June 30,      December 31,
                                                        2004            2003
                                                   --------------  -------------

          AAA                                          35.1%            35.3%
          AA                                            4.6              4.7
          A                                            20.5             21.3
          BBB                                          35.7             33.4
          BB                                            3.3              4.0
          B and below                                   0.8              1.3
                                                   --------------  -------------
          Total                                       100.0%           100.0%
                                                   ==============  =============

          The  percentage  of total  fixed  maturities  by  market  sector is as
          follows:

                                                      June 30,      December 31,
                                                        2004            2003
                                                   --------------  -------------

          U.S. Corporate                               47.1%            48.9%
          Residential Mortgaged-backed                 19.2             20.8
          Commercial/Multifamily Mortgage-backed        6.5              5.0
          Foreign (1)                                  15.1             15.9
          U.S. Treasuries/Agencies                      2.3              1.3
          Asset-backed                                  9.8              8.1
                                                   --------------  -------------
          Total                                       100.0%           100.0%
                                                   ==============  =============

          (1) Primarily U.S. dollar denominated

                                       49

<PAGE>

          The Company  analyzes  the general  account  investments  to determine
          whether there has been an other than  temporary  decline in fair value
          below  the  amortized  cost  basis in  accordance  with  FAS No.  115,
          "Accounting  for Certain  Investments in Debt and Equity  Securities."
          Management  considers  the  length of the time and the extent to which
          the market value has been less than cost; the financial  condition and
          near term  prospects of the issuer;  future  economic  conditions  and
          market  forecasts;  and the Company's intent and ability to retain the
          investment in the issuer for a period of time  sufficient to allow for
          recovery  in market  value.  If it is  probable  that all  amounts due
          according  to the  contractual  terms of a debt  security  will not be
          collected,  an other than  temporary  impairment is considered to have
          occurred.

          In addition,  the Company  invests in structured  securities that meet
          the criteria of Emerging  Issues Task Force  ("EITF") Issue No. 99-20,
          "Recognition  of  Interest  Income and  Impairment  on  Purchased  and
          Retained Beneficial Interests in Securitized  Financial Assets." Under
          EITF Issue No. 99-20, a  determination  of the required  impairment is
          based on credit risk and the  possibility  of  significant  prepayment
          risk that restricts the Company's  ability to recover the  investment.
          An  impairment is recognized if the fair value of the security is less
          than book  value and  there  has been an  adverse  change in cash flow
          since the last remeasurement date.

          When a decline in fair value is determined to be other than temporary,
          the individual  security is written down to fair value and the loss is
          accounted for as a realized loss.

          Liquidity and Capital Resources

          Liquidity  is the ability of the Company to generate  sufficient  cash
          flows to meet the  cash  requirements  of  operating,  investing,  and
          financing activities. The Company's principal sources of liquidity are
          annuity  premiums and product  charges,  investment  income,  maturing
          investments,  proceeds from debt issuance,  and capital contributions.
          Primary uses of these funds are payments of commissions  and operating
          expenses,   interest  and  premium  credits,   investment   purchases,
          repayment of debt, as well as withdrawals and surrenders.

          The Company's  liquidity  position is managed by maintaining  adequate
          levels  of  liquid  assets,  such  as cash  or  cash  equivalents  and
          short-term  investments.   Additional  sources  of  liquidity  include
          borrowing facilities to meet short-term cash requirements. The Company
          maintains a $499  million  revolving  note  facility  with ING America
          Insurance  Holdings,  Inc.  ("ING  AIH"),  a  perpetual  $100  million
          revolving  note  facility  with  Bank of New York  and a $125  million
          revolving  note  facility with SunTrust Bank which expires on July 30,
          2004. Management believes that these sources of liquidity are adequate
          to meet the Company's short-term cash obligations.

          The  National   Association   of  Insurance   Commissioners   ("NAIC")
          risk-based  capital   requirements   require  insurance  companies  to
          calculate and report  information under a risk-based  capital formula.
          These  requirements  are  intended to allow  insurance  regulators  to
          monitor the capitalization of insurance  companies based upon the type

                                       50

<PAGE>

          and mixture of risks inherent in a Company's  operations.  The formula
          includes  components  for asset risk,  liability  risk,  interest rate
          exposure,  and other factors. The Company has complied with the NAIC's
          risk-based capital reporting  requirements.  Amounts reported indicate
          that the Company has total adjusted capital above all required capital
          levels.

          During the six months  ended June 30, 2004,  ING USA received  capital
          contributions  of $40.0 million.  During the six months ended June 30,
          2003, ING USA received capital contributions of $88.7 million.

          Recently Adopted Accounting Standards

          Accounting  and  Reporting  by  Insurance   Enterprises   for  Certain
          Nontraditional Long-Duration Contracts and for Separate Accounts

          The Company adopted  Statement of Position  ("SOP") 03-1,  "Accounting
          and  Reporting by  Insurance  Enterprises  for Certain  Nontraditional
          Long-Duration  Contracts  and for  Separate  Accounts,"  on January 1,
          2004.  SOP 03-1  establishes  several new  accounting  and  disclosure
          requirements for certain  nontraditional  long-duration  contracts and
          for separate  accounts  including,  among other things,  a requirement
          that assets and liabilities of separate account  arrangements  that do
          not meet certain  criteria be accounted for as general  account assets
          and  liabilities,  and that the revenue and  expenses  related to such
          arrangements  be  consolidated  with the respective  line items in the
          Condensed  Statements  of  Income.  In  addition,   the  SOP  requires
          additional  liabilities be established  for certain  guaranteed  death
          benefits and for products  with certain  patterns of cost of insurance
          charges,  and that sales inducements  provided to  contractholders  be
          recognized on the balance sheet  separately from deferred  acquisition
          costs  and  amortized  as  a  component  of  benefits   expense  using
          methodology   and   assumptions   consistent   with   those  used  for
          amortization of deferred policy acquisition costs.

          The Company evaluated all requirements of SOP 03-1 and determined that
          it is  affected  by the SOP's  requirements  to  establish  additional
          liabilities for certain guaranteed benefits and products with patterns
          of  cost  insurance  charges  resulting  in  losses  in  later  policy
          durations from the insurance benefit function and to defer,  amortize,
          and  recognize  separately,   sales  inducements  to  contractholders.
          Requirements  for certain separate  account  arrangements  that do not
          meet  the  established  criteria  for  separate  asset  and  liability
          recognition  are  applicable  to the Company,  however,  the Company's
          policies on separate account assets and liabilities have  historically
          been, and continue to be, in conformity  with the  requirements  newly
          established.  Upon  adoption  of the SOP,  the  Company  recognized  a
          cumulative  effect  of a change  in  accounting  principle  of  $(3.6)
          million,  before tax or $(2.3) million,  net of $1.3 million of income
          taxes as of January 1, 2004.

                                       51

<PAGE>

          The Meaning of Other-Than-Temporary  Impairment and its Application to
          Certain  Investments

          In March 2004, the Emerging Issues Task Force ("EITF") reached a final
          consensus on EITF Issue No. 03-1, "The Meaning of Other-Than-Temporary
          Impairment  and its  Application to Certain  Investments,"  adopting a
          three-step  impairment  model for  securities  within its  scope.  The
          three-step model is to be applied on a  security-by-security  basis as
          follows:

          Step 1: Determine  whether an  investment  is impaired. An
                  investment is impaired if its fair value of the investment is
                  less than its cost basis.
          Step 2: Evaluate whether an impairment is other-than-temporary.
          Step 3: If the impairment is other-than-temporary, recognize an
                  impairment loss equal to the  difference between the
                  investment's cost and its fair value.

          The  Company   included  this  three-step   model  in  the  impairment
          evaluation for the quarter ended June 30, 2004. This guidance resulted
          in no additional impairments for the Company.

          Earlier  consensus  reached  by the EITF on this issue  required  that
          certain   quantitative   and  qualitative   disclosures  be  made  for
          unrealized  losses on debt and  equity  securities  that have not been
          recognized as other-than-temporary impairments. These disclosures were
          adopted by the Company,  effective  December 31, 2003, and included in
          the  Investments   footnote  of  the  Notes  to  Condensed   Financial
          Statements  included in the Company's  December 31, 2003 Form 10-K. In
          addition  to  the  disclosure  requirements  adopted  by  the  Company
          effective December 31, 2003, the final consensus of EITF 03-01 reached
          in March 2004 included  additional  disclosure  requirements  that are
          effective for fiscal years ending after June 15, 2004.

          Accounting for Derivative Instruments and Hedging Activities

          In June 1998, the FASB issued FAS No. 133,  "Accounting for Derivative
          Instruments and Hedging Activities," as amended and interpreted by FAS
          No. 137, "Accounting for Derivative Instruments and Hedging Activities
          - Deferral of the Effective Date of FASB  Statement  133," and FAS No.
          138,  "Accounting  for  Certain  Derivative  Instruments  and  Certain
          Hedging  Activities  - an  Amendment  of FASB 133, and certain FAS 133
          implementation issues." 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 fair  values  of those  derivatives  depends  on the use of the
          derivative and whether it qualifies for hedge accounting.  FAS No. 133
          was effective for the Company's financial statements beginning January
          1, 2001.

          The  Company  occasionally   purchases  a  financial  instrument  that
          contains  a  derivative  that  is  "embedded"  in the  instrument.  In
          addition,  the Company's  insurance products are reviewed to determine
          whether  they  contain an embedded  derivative.  The Company  assesses

                                      52

<PAGE>

          whether the economic  characteristics  of the embedded  derivative are
          clearly and closely  related to the  economic  characteristics  of the
          remaining  component of the financial  instrument or insurance product
          (i.e.,  the host contract) and whether a separate  instrument with the
          same terms as the embedded  instrument  would meet the definition of a
          derivative  instrument.  When  it  is  determined  that  the  embedded
          derivative possesses economic characteristics that are not clearly and
          closely related to the economic  characteristics  of the host contract
          and that a separate  instrument with the same terms would qualify as a
          derivative  instrument,  the embedded derivative is separated from the
          host contract and carried at fair value.  However,  in cases where the
          host  contract is measured at fair value,  with  changes in fair value
          reported  in  current  period  earnings  or the  Company  is unable to
          reliably  identify and measure the embedded  derivative for separation
          from its host contracts, the entire contract is carried on the balance
          sheet at fair value and is not designated as a hedging instrument.

          In 2003, the Derivative  Implementation  Group ("DIG") responsible for
          issuing guidance on behalf of the FASB for  implementation  of FAS No.
          133,  "Accounting for Derivative  Instruments and Hedging  Activities"
          issued Statement  Implementation Issue No. B36, "Embedded Derivatives:
          Modified   Coinsurance   Arrangements   and  Debt   Instruments   That
          Incorporate Credit Risk Exposures That Are Unrelated or Only Partially
          Related  to  the  Credit   Worthiness   of  the  Obligor  under  Those
          Instruments"   ("DIG  B36").  Under  this   interpretation,   modified
          coinsurance and coinsurance with funds withheld reinsurance agreements
          as well as other types of  receivables  and payables where interest is
          determined  by reference to a pool of fixed  maturity  assets or total
          return debt index may be  determined to contain  embedded  derivatives
          that are  required to be  bifurcated.  The Company  adopted DIG B36 on
          October  1,  2003  and has  modified  coinsurance  treaties  that  are
          applicable to the guidance.  The applicable  contracts,  however, were
          determined to generate embedded derivatives with a fair value of zero.
          Therefore,  the  guidance,  while  implemented,  does not  impact  the
          Company's financial position, results of operations, or cash flows.

          Off-Balance Sheet Arrangements

          In January  2003,  the  Financial  Accounting  Standards  Board (FASB)
          issued FASB  Interpretation  46,  "Consolidation  of Variable Interest
          Entities,  an Interpretation of ARB No.51" (FIN 46). In December 2003,
          the FASB  modified FIN 46 to make certain  technical  corrections  and
          address certain implementation issues that had arisen. FIN 46 provides
          a new framework for identifying  variable interest entities (VIEs) and
          determining  when a company  should  include the assets,  liabilities,
          noncontrolling  interests  and results of  activities  of a VIE in its
          consolidated financial statements.

          In general,  a VIE is a  corporation,  partnership,  limited-liability
          corporation,  trust,  or any other  legal  structure  used to  conduct
          activities or hold assets that either (1) has an  insufficient  amount
          of equity to carry out its  principal  activities  without  additional
          subordinated  financial support, (2) has a group of equity owners that
          are unable to make significant decisions about its activities, or (3)

                                       53

<PAGE>

          has a group of equity owners that do not have the obligation to absorb
          losses or the right to receive returns generated by its operations.

          FIN 46 requires a VIE to be consolidated if a party with an ownership,
          contractual  or  other  financial  interest  in the  VIE  (a  variable
          interest holder) is obligated to absorb a majority of the risk of loss
          from the VIE's  activities,  is  entitled to receive a majority of the
          VIE's  residual  returns (if no party  absorbs a majority of the VIE's
          losses), or both. A variable interest holder that consolidates the VIE
          is called the primary  beneficiary.  Upon  consolidation,  the primary
          beneficiary  generally must initially  record all of the VIE's assets,
          liabilities   and   noncontrolling   interests   at  fair   value  and
          subsequently  account for the VIE as if it were consolidated  based on
          majority voting interest.  FIN 46 also requires disclosures about VIEs
          that the variable  interest  holder is not required to consolidate but
          in which it has a significant variable interest.

          At June 30, 2004, the Company held the following investments that, for
          purposes of FIN 46, were evaluated and determined that the investments
          do not require consolidation in the Company's financial statements:


         <TABLE>
         <S>                                                     <C>                          <C>                <C>

         (Millions)
                           Asset Type                                      Purpose             Book Value (1)       Market Value
         ---------------------------------------------           --------------------------   ----------------   ----------------
         Private Corporate Securities - synthetic
           leases; project financings; credit tenant leases         Investment Holdings       $    2,962.6       $    3,036.8
         Foreign Securities - US VIE subsidiaries of
           foreign companies                                        Investment Holdings              538.4              551.1
         Commercial Mortgage Obligations (CMO)                      Investment Holdings            3,465.9            3,461.1
         Collateralized Debt Obligations (CDO)                      Investment Holdings
                                                                           and/or
                                                                     Collateral Manager               61.3               55.9
         Asset-Backed Securities (ABS)                              Investment Holdings            1,488.5            1,482.0
         Commercial Mortgage Backed Securities (CMBS)               Investment Holdings            1,048.4            1,058.2

         (1)  Represents  maximum  exposure to loss except for those structures for which the Company also receives asset
              management fees.

          </TABLE>

          New Accounting Pronouncements

          FSP FAS 97-1

          The  implementation  of the American  Institute  of  Certified  Public
          Accountants   ("AICPA")  SOP  03-01,   "Accounting  and  Reporting  by
          Insurance   Enterprises  for  certain   Nontraditional   Long-Duration
          Contracts and for Separate  Accounts," has raised questions  regarding
          the interpretation of the requirements of SFAS No. 97, concerning when
          it is appropriate to record an unearned revenue  liability  related to
          the insurance  benefit function.  To clarify its position,  in June of
          2004 the Financial  Accounting Standards Board ("FASB") issued FSP FAS
          97-1,  "Situations in which  paragraphs 17(b) and 20 of FASB Statement
          No. 97, Accounting and Reporting by Insurance  Enterprises for certain
          Long-Duration  Contracts  and for  Realized  Gains and Losses from the
          Sale of Investments,  Permit or Require Accrual of an Unearned Revenue
          Liability."  FSP FAS 97-1  outlines  that  SFAS No. 97 is clear in its
          intent and  language,  and  requires  the  recognition  of an unearned
          revenue  liability  for amounts that have been  assessed to compensate
          insurers for services provided over future periods. The requirement of

                                       54

<PAGE>

          SOP 03-01 is not  intended to amend or limit the  requirement  of SFAS
          No. 97 to  recognize a liability  for  unearned  revenue only to those
          situations  where  profits are expect to be  followed  by a loss.  The
          guidance  contained  in  FSP  FAS  97-1  is  effective  for  financial
          statements with fiscal periods beginning  subsequent to July 18, 2004.
          The  Company is  currently  evaluating  the impact of FSP FAS 97-1 and
          related  accounting  guidance and anticipates a potential  increase in
          the (net) liability  established  under SOP 03-01 in future accounting
          periods.

          Critical Accounting Policies

          General

          The  preparation  of  financial  statements  in  conformity  with U.S.
          generally accepted accounting principles requires the use of estimates
          and assumptions in certain  circumstances that affect amounts reported
          in  the  accompanying   condensed  financial  statements  and  related
          footnotes.  These  estimates  and  assumptions  are  evaluated  on  an
          on-going basis based on historical  developments,  market  conditions,
          industry  trends and other  information  that is reasonable  under the
          circumstances.  There can be no  assurance  that actual  results  will
          conform to estimates and  assumptions,  and that  reported  results of
          operations will not be affected in a materially  adverse manner by the
          need to make future accounting adjustments to reflect changes in these
          estimates and assumptions from time to time.

          The Company has identified the following estimates as critical in that
          they  involve  a  higher  degree  of  judgment  and are  subject  to a
          significant  degree of  variability:  investment  impairment  testing,
          amortization  of  deferred  acquisition  costs and  value of  business
          acquired  and  goodwill   impairment   testing.  In  developing  these
          estimates,  management makes subjective and complex judgments that are
          inherently  uncertain  and  subject to  material  changes as facts and
          circumstances  develop.  Although  variability  is  inherent  in these
          estimates,  management  believes the amounts  provided are appropriate
          based  upon the facts  available  upon  compilation  of the  condensed
          financial statements.

          Investment Impairment Testing

          The Company reviews the general account investments for impairments by
          analyzing  the amount and length of time  amortized  cost has exceeded
          fair value, and by making certain estimates and assumptions  regarding
          the issuing companies' business prospects,  future economic conditions
          and market  forecasts.  Based on the facts and  circumstances  of each
          case,  management  uses  judgment in deciding  whether any  calculated
          impairments  are  temporary  or  other  than   temporary.   For  those
          impairments judged to be other than temporary, the Company reduces the
          carrying  value of those  investments  to the  current  fair value and
          records impairment losses for the difference.


                                       55

<PAGE>

          Amortization  of  Deferred  Acquisition  Costs and  Value of  Business
          Acquired

          Deferred  policy  acquisition  costs  ("DAC")  and  value of  business
          acquired  ("VOBA") are  amortized  with  interest over the life of the
          contracts  (usually  25 years) in  relation  to the  present  value of
          estimated gross profits from projected interest and mortality margins,
          asset-based  fees,  policy  administration  and surrender charges less
          policy maintenance fees and non-capitalized commissions.

          Changes  in  assumptions   can  have  a  significant   impact  on  the
          calculation of DAC/VOBA and its related amortization  patterns. Due to
          the  relative  size of  DAC/VOBA  balance and the  sensitivity  of the
          calculation  to minor changes in the  underlying  assumptions  and the
          related volatility that could result in the reported DAC/VOBA balance,
          the Company performs a quarterly  analysis of DAC/VOBA for the annuity
          business (annually for the life business).

          At each  balance  sheet  date,  actual  historical  gross  profits are
          reflected and expected  future gross  profits and related  assumptions
          are  evaluated  for  continued   reasonableness.   Any  adjustment  in
          estimated  profit  requires  that  the  amortization  rate be  revised
          retroactively   to  the   date  of   policy   or   contract   issuance
          ("unlocking"),  which could be significant.  The cumulative difference
          related  to prior  periods is  recognized  as a  component  of current
          period's  amortization,  along with  amortization  associated with the
          actual gross profits of the period. In general, increases in estimated
          returns  result in increased  expected  future  profitability  and may
          lower the rate of amortization, while increases in lapse/surrender and
          mortality  assumptions  or  decreases  in returns  reduce the expected
          future  profitability of the underlying  business and may increase the
          rate of amortization.

          One of the most significant  assumptions involved in the estimation of
          future gross profits for variable universal life and variable deferred
          annuity products is the assumed return associated with future variable
          account performance. To reflect the near-term and long-term volatility
          in the equity  markets,  this  assumption  involves a  combination  of
          near-term   expectations  and  a  long-term  assumption  about  market
          performance.  The overall return  generated by the variable account is
          dependent  on  several  factors,  including  the  relative  mix of the
          underlying  sub-accounts  among bond funds and equity funds as well as
          equity sector weightings.

          Sales Inducements

          Sales inducements  represent benefits paid to contractholders that are
          incremental  to the amounts the Company  credits on similar  contracts
          and are higher than the contract's  expected  ongoing  crediting rates
          for periods after the inducement. Such amounts are reported separately
          on the  balance  sheet and are  amortized  as a  component  of benefit

                                       56

<PAGE>


          Contractual Obligations

          As of June 30, 2004, the Company had certain  contractual  obligations
          due over a period of time as summarized in the following table:

          <TABLE>
          <S>                                 <C>            <C>         <C>           <C>           <C>

                                                             Payments due by Period (in millions)
                                              -------------------------------------------------------------------
                                                            Less than                                More than
          Contractual Obligations                Total        1 Year     1-3 Years     3-5 Years      5 Years
          ----------------------------------- -------------------------------------------------------------------
          Long-Term Debt                      $   106.1       $   2.8     $  5.6        $  5.6        $    92.1
          Operating Lease Obligations              80.8           7.6       15.4          14.9             42.9
          Purchase Obligations                    450.3         450.3          -             -                -
                                              -------------------------------------------------------------------
            Total                             $   637.2       $ 460.7     $ 21.0        $ 20.5        $   135.0
                                              ===================================================================

          </TABLE>

          The  Company's  long-term  debt  consists  of a  surplus  note and the
          related  interest  payable,  with  Security  Life of Denver  Insurance
          Company.  As of June 30, 2004,  the  outstanding  principal,  interest
          rate,  and maturity  date of the surplus note are $35 million,  7.98%,
          and December 7, 2029, respectively.

          Operating lease obligations relate to the rental of office space under
          various non-cancelable  operating lease agreements that expire through
          May 2010.

          Purchase   obligations   consist  primarily  of  commitments  to  fund
          additional limited  partnerships and joint ventures and commitments to
          enter into mortgage  loan and private  placement  arrangements  during
          2004.

          Legislative Initiatives

          The Jobs and Growth Tax Relief  Reconciliation  Act of 2003, which was
          enacted in the second  quarter,  may  impact  the  Company.  The Act's
          provisions,  which reduce the tax rates on long-term capital gains and
          corporate  dividends,  impact  the  relative  competitiveness  of  the
          Company's products especially variable annuities.

          Other legislative  proposals under consideration include repealing the
          estate tax, changing the taxation of products, changing life insurance
          company   taxation  and  making  changes  to   nonqualified   deferred
          compensation arrangements.  Some of these proposals, if enacted, could
          have a material effect on life insurance, annuity and other retirement
          savings product sales.

          The impact on the tax  position of the  Company's  products  cannot be
          predicted.

          Forward-Looking Information/Risk Factors

          In  connection  with  the  "safe  harbor"  provisions  of the  Private
          Securities Litigation Reform Act of 1995, the Company cautions readers
          regarding certain forward-looking  statements contained in this report
          and in any other  statements  made by, or on behalf of,  the  Company,
          whether  or  not in  future  filings  with  the  SEC.  Forward-looking
          statements  are  statements  not based on historical  information  and
          which relate to future operations,  strategies,  financial results, or

                                       57

<PAGE>

          other   developments.   Statements   using  verbs  such  as  "expect,"
          "anticipate,"  "believe" or words of similar import generally  involve
          forward-looking   statements.    Without   limiting   the   foregoing,
          forward-looking  statements  include  statements  which  represent the
          Company's beliefs concerning future levels of sales and redemptions of
          the Company's products, investment spreads and yields, or the earnings
          and profitability of the Company's activities.

          Forward-looking  statements  are  necessarily  based on estimates  and
          assumptions  that are  inherently  subject  to  significant  business,
          economic and  competitive  uncertainties  and  contingencies,  many of
          which are beyond the  Company's  control and many of which are subject
          to change.  These  uncertainties and contingencies  could cause actual
          results   to  differ   materially   from   those   expressed   in  any
          forward-looking  statements  made by, or on behalf  of,  the  Company.
          Whether or not actual results differ  materially from  forward-looking
          statements  may  depend  on  numerous  foreseeable  and  unforeseeable
          developments.  Some may be national in scope, such as general economic
          conditions, changes in tax law and changes in interest rates. Some may
          be  related  to the  insurance  industry  generally,  such as  pricing
          competition,   regulatory  developments  and  industry  consolidation.
          Others  may  relate  to the  Company  specifically,  such  as  credit,
          volatility and other risks  associated  with the Company's  investment
          portfolio.  Investors  are also  directed to consider  other risks and
          uncertainties  discussed  in  documents  filed by the Company with the
          SEC. The Company  disclaims any  obligation to update  forward-looking
          information.

                                       58

<PAGE>


Item 4.   Controls and Procedures

          a)   The Company carried out an evaluation,  under the supervision and
               with the  participation  of its  management,  including its Chief
               Executive   Officer   and  Chief   Financial   Officer,   of  the
               effectiveness of the Company's disclosure controls and procedures
               (as defined in Rule  13a-15(e)  and  15d-15(e) of the  Securities
               Exchange Act of 1934) as of the end of the period covered by this
               report. Based on that evaluation, the Chief Executive Officer and
               the Chief  Financial  Officer have  concluded  that the Company's
               current  disclosure  controls  and  procedures  are  effective in
               ensuring  that  material  information  relating  to  the  Company
               required to be disclosed in the Company's periodic SEC filings is
               made known to them in a timely manner.

          b)   There  has not been any  change  in the  internal  controls  over
               financial  reporting  of the  Company  that  occurred  during the
               period covered by this report that has materially  affected or is
               reasonably likely to materially affect these internal controls.

                                       59

<PAGE>


PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings

          The Company is a party to threatened or pending  lawsuits/arbitrations
          arising  from the normal  conduct of  business.  Due to the climate in
          insurance  and  business  litigation/arbitrations,  suits  against the
          Company  sometimes   include  claims  for  substantial   compensatory,
          consequential or punitive damages and other types of relief. Moreover,
          certain claims are asserted as class actions,  purporting to represent
          a group of similarly situated individuals. While it is not possible to
          forecast  the  outcome  of such  lawsuits/arbitrations,  in  light  of
          existing insurance,  reinsurance and established  reserves,  it is the
          opinion    of    management    that    the    disposition    of   such
          lawsuits/arbitrations will not have a materially adverse effect on the
          Company's operations or financial position.

          As  with  many  financial  services  companies,  the  Company  and its
          affiliates  have  received   requests  for  information  from  various
          governmental   and   self-regulatory   agencies  in  connection   with
          investigations  related to trading in investment  company  shares.  In
          each case,  full  cooperation  and  responses  have been and are being
          provided. The Company is also reviewing its policies and procedures in
          this area.


Item 6.   Exhibits and reports on Form 8-K

          (a)  Exhibits

               31.1 Certificate of David A. Wheat pursuant to Section 302 of the
                    Sarbanes-Oxley Act of 2002.

               31.2 Certificate  of Keith Gubbay  pursuant to Section 302 of the
                    Sarbanes-Oxley Act of 2002.

               32.1 Certificate of David A. Wheat pursuant to Section 906 of the
                    Sarbanes-Oxley Act of 2002.

               32.2 Certificate  of Keith Gubbay  pursuant to Section 906 of the
                    Sarbanes-Oxley Act of 2002.

          (b)  Reports on Form 8-K

               None.

                                       60

<PAGE>

                                   SIGNATURES

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


                                      ING USA ANNUITY AND LIFE INSURANCE COMPANY
                                                       (Registrant)


August 12, 2004                       By:/s/ David A. Wheat
---------------                          ---------------------------------------
    (Date)                                   David A. Wheat
                                             Director, Senior Vice President and
                                               Chief Financial Officer

                                         (Duly Authorized Officer and Principal
                                           Financial Officer)


                                       61

<PAGE>

                                                                    Exhibit 31.1


                                  CERTIFICATION

I, David A. Wheat, certify that:

1.   I have reviewed this  quarterly  report on Form 10-Q of ING USA Annuity and
     Life Insurance Company;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material  fact or omit to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made,  not  misleading  with  respect  to the  period  covered by this
     report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  report,  fairly  present  in all  material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this report is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures and presented in this report our conclusions  about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     c)   disclosed  in this  report  any  change in the  registrant's  internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's  fourth fiscal quarter in
          the case of an annual  report)  that has  materially  affected,  or is
          reasonably  likely to materially  affect,  the  registrant's  internal
          control over financial reporting; and

5.   The registrant's other certifying officer(s) and I have disclosed, based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

     a)   all significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process, summarize and report financial information; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.


Date:    August 12, 2004
         ---------------
By
         /s/ David A. Wheat
         ----------------------------------
             David A. Wheat
             Director, Senior Vice President and Chief Financial Officer
             (Duly Authorized Officer and Principal Financial Officer)


<PAGE>

                                                                    Exhibit 31.2


                                  CERTIFICATION

I, Keith Gubbay, certify that:

1.   I have reviewed this  quarterly  report on Form 10-Q of ING USA Annuity and
     Life Insurance Company;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material  fact or omit to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made,  not  misleading  with  respect  to the  period  covered by this
     report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  report,  fairly  present  in all  material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this report is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures and presented in this report our conclusions  about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     c)   disclosed  in this  report  any  change in the  registrant's  internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's  fourth fiscal quarter in
          the case of an annual  report)  that has  materially  affected,  or is
          reasonably  likely to materially  affect,  the  registrant's  internal
          control over financial reporting; and

5.   The registrant's other certifying officer(s) and I have disclosed, based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

     a)   all significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process, summarize and report financial information; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.


Date    August 12, 2004
        ---------------
By
        /s/ Keith Gubbay
        ----------------------------------
            Keith Gubbay
            Director and President
            (Duly Authorized Officer and Principal Executive Officer)