<PAGE>

                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549

                                      Form 10-Q

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

For the quarterly period ended March 31, 2001
                               --------------
Commission file number   33-23376
                         --------

                    AETNA LIFE INSURANCE AND ANNUITY COMPANY
--------------------------------------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

              CONNECTICUT                                  71-0294708
--------------------------------------------------------------------------------
     (STATE OR OTHER JURISDICTION OF                   (I.R.S. EMPLOYER
      INCORPORATION OR ORGANIZATION)                  IDENTIFICATION NO.)

  151 FARMINGTON AVENUE, HARTFORD, CONNECTICUT                06156
--------------------------------------------------------------------------------
    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                (ZIP CODE)

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

                                      NONE
--------------------------------------------------------------------------------
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR IF CHANGED SINCE LAST REPORT

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

                   Yes     X               No
                      -------------          -------------

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

                                                              SHARES OUTSTANDING
TITLE OF CLASS                                                 AT MAY 11, 2001

Common Stock, par value $50                                          55,000



The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form with the reduced disclosure
format.

<PAGE>

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


                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                            PAGE
                                                                        ------------
<S>                                                                     <C>
PART I.      FINANCIAL INFORMATION  (UNAUDITED)

   Item 1.   Financial Statements:
                Consolidated Statements of Income..............................3
                Consolidated Balance Sheets....................................4
                Consolidated Statements of Changes in Shareholder's Equity.....5
                Consolidated Statements of Cash Flows..........................6
                Condensed Notes to Consolidated Financial Statements...........7
             Independent Auditors' Review Report..............................15

   Item 2.   Management's Analysis of the Results of Operations...............16

PART II.     OTHER INFORMATION

   Item 1.   Legal Proceedings................................................26

   Item 5.   Other Information................................................26

   Item 6.   Exhibits and Reports on Form 8-K.................................26

Signature    .................................................................27
</TABLE>
                                      2

<PAGE>

PART I.   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

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

                        Consolidated Statements of Income
                                   (Unaudited)
                                   (millions)
<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED MARCH 31,
                                                                        ------------------------------
                                                                            2001               2000
                                                                            ----               ----
<S>                                                                         <C>                <C>
Revenue:
  Premiums                                                                   $ 31.8              $36.0
  Charges assessed against policyholders                                       99.7              116.0
  Net investment income                                                       224.2              228.3
  Net realized capital losses                                                  (4.0)              (8.9)
  Other income                                                                 43.8               36.9
                                                                         -----------        -----------
Total revenue                                                                 395.5              408.3

Benefits and expenses:
  Current and future benefits                                                 183.4              201.2
  Operating expenses:
      Salaries and related benefits                                            44.0               44.1
      Other                                                                    58.7               55.3
  Amortization of deferred policy acquisition costs
      and value of business acquired                                           30.8               31.2
  Amortization of goodwill                                                     14.3                  -
                                                                         -----------        -----------
Total benefits and expenses                                                   331.2              331.8

                                                                         -----------        -----------
Income from continuing operations before income taxes                          64.3               76.5

  Income taxes                                                                 28.2               25.1
                                                                         -----------        -----------

Income from continuing operations                                              36.1               51.4
Discontinued operations, net of tax:
  Amortization of deferred gain on sale                                           -                1.6
                                                                         -----------        -----------

Net income                                                                    $36.1              $53.0
                                                                         ===========        ===========
</TABLE>

See Condensed Notes to Consolidated Financial Statements.

                                      3

<PAGE>

ITEM 1.   FINANCIAL STATEMENTS (continued)

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

                           Consolidated Balance Sheets
                          (millions, except share data)
<TABLE>
<CAPTION>
                                                                        MARCH 31,        DECEMBER 31,
ASSETS                                                                     2001              2000
------                                                                     ----              ----
                                                                       (UNAUDITED)
<S>                                                                    <C>                <C>
Investments:
  Debt securities available for sale, at fair value
    (amortized cost:  $11,654.5 and $11,120.0)                             $11,947.8         $11,244.7
Equity securities, at fair value:
    Nonredeemable preferred stock (cost: $109.1 and  $109.0)                   106.0             100.7
    Investment in affiliated mutual funds (cost:  $8.5 and $9.6)                10.5              12.7
    Common stock (cost:  $2.3 and $2.2)                                          3.4               3.5
  Short-term investments                                                        18.1             109.4
  Mortgage loans                                                                 4.6               4.6
  Policy loans                                                                 336.6             339.3
  Other investments                                                             13.3              13.4
  Securities pledged to creditors (amortized cost: $8.9 and $126.8)              9.1             129.0
                                                                      ---------------    --------------
Total investments                                                           12,449.4          11,957.3

  Cash and cash equivalents                                                    465.6             796.3
  Short-term investments under securities loan agreement                         9.5             131.8
  Accrued investment income                                                    155.4             147.2
  Premiums due and other receivables                                            28.7              82.9
  Reinsurance recoverable                                                    3,005.6           3,005.8
  Current income taxes                                                             -              40.6
  Deferred policy acquisition costs                                             47.8              12.3
  Value of business acquired                                                 1,775.6           1,780.9
  Goodwill                                                                   2,283.1           2,297.4
  Other assets                                                                 129.8             154.7
  Separate Accounts assets                                                  32,586.0          36,745.8
                                                                      ---------------    --------------

Total assets                                                               $52,936.5         $57,153.0
                                                                      ===============    ==============

LIABILITIES AND SHAREHOLDER'S EQUITY

Liabilities:
  Future policy benefits                                                    $3,986.1         $ 3,977.7
  Unpaid claims and claim expenses                                              25.1              29.6
  Policyholders' funds left with the Company                                11,482.9          11,125.6
                                                                      ---------------    --------------
Total insurance reserve liabilities                                         15,494.1          15,132.9
  Payables under securities loan agreement                                       9.5             131.8
  Current income taxes                                                          79.6                 -
  Deferred income taxes                                                        222.2             248.0
  Other liabilities                                                            133.8             549.9
  Separate Accounts liabilities                                             32,586.0          36,745.8
                                                                      ---------------    --------------
Total liabilities                                                           48,525.2          52,808.4
                                                                      ---------------    --------------

Shareholder's equity:
  Common stock, par value $50 (100,000 shares
   authorized; 55,000 shares issued and outstanding)                             2.8               2.8
  Paid-in capital                                                            4,303.8           4,303.8
  Accumulated other comprehensive gain                                          56.0              25.4
  Retained earnings                                                             48.7              12.6
                                                                      ---------------    --------------
Total shareholder's equity                                                   4,411.3           4,344.6
                                                                      ---------------    --------------

Total liabilities and shareholder's equity                                 $52,936.5         $57,153.0
                                                                      ===============    ==============
</TABLE>
See Condensed Notes to Consolidated Financial Statements.

                                      4

<PAGE>

ITEM 1.   FINANCIAL STATEMENTS (continued)

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

           Consolidated Statements of Changes in Shareholder's Equity
                                   (Unaudited)
                                   (millions)
<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED MARCH 31,
                                                                   ------------------------------
                                                                      2001               2000
                                                                      ----               ----
<S>                                                                  <C>                 <C>
Shareholder's equity, beginning of period                             $4,344.6            $1,385.6

Comprehensive income:
   Net income                                                             36.1                53.0
   Other comprehensive income, net of tax:
      Unrealized gains on securities $46.9, $5.7
      pretax (1)                                                          30.6                 3.7
                                                                  -------------      --------------
Total comprehensive income                                                66.7                56.7
                                                                  -------------      --------------

Other changes                                                                -                 0.6
                                                                  -------------      --------------

Shareholder's equity, end of period                                   $4,411.3            $1,442.9
                                                                  =============      ==============
</TABLE>
(1) Net of reclassification adjustments.

See Condensed Notes to Consolidated Financial Statements.

                                      5

<PAGE>

ITEM 1.   FINANCIAL STATEMENTS (continued)

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

                      Consolidated Statements of Cash Flows
                                   (Unaudited)
                                   (millions)
<TABLE>
<CAPTION>
                                                                                           THREE MONTHS ENDED MARCH 31,
                                                                                          ------------------------------
                                                                                             2001               2000
                                                                                             ----               ----
<S>                                                                                       <C>                <C>
Cash Flows from Operating Activities:
     Net income                                                                           $  36.1            $  53.0
     Adjustments to reconcile net income to net cash (used for) provided by
     operating activities:
         Net accretion of discount on investments                                            (7.2)              (9.0)
         Amortization of deferred gain on sale                                                  -               (1.6)
         Net realized capital losses                                                          4.0                8.9
         Changes in assets and liabilities:
                 Increase in accrued investment income                                       (8.1)              (3.7)
                 Decrease in premiums due and other receivables                              64.5                7.7
                 Decrease (increase) in policy loans                                          2.8               (3.7)
                 Increase in deferred policy acquisition costs                              (35.6)             (41.6)
                 Decrease in value of business acquired                                       5.3                  -
                 Amortization of goodwill                                                    14.3                  -
                 Net increase in universal life account balances                              8.6                6.3
                 (Decrease) increase in other insurance reserve liabilities                 (43.3)              43.0
                 (Decrease) increase in other liabilities and other assets                 (320.7)               1.5
                 Increase in income taxes                                                    77.8               24.4
                                                                                   ---------------  -----------------
Net cash (used for) provided by operating activities                                       (201.5)              85.2
                                                                                   ---------------  -----------------

Cash Flows from Investing Activities:
         Proceeds from sales of:
            Debt securities available for sale                                              969.1            2,870.0
            Equity securities                                                                 4.3                8.9
            Mortgage loans                                                                      -                2.1
         Investment maturities and collections of:
            Debt securities available for sale                                              170.1              177.8
            Short-term investments                                                           96.6               43.1
         Cost of investment purchases in:
            Debt securities available for sale                                           (1,544.0)          (2,807.6)
            Equity securities                                                                (3.9)              (7.9)
            Short-term investments                                                           (2.8)             (13.6)
         Decrease in property and equipment                                                   3.3                3.7
         Other, net                                                                           0.1               (4.7)
                                                                                   ---------------  -----------------
Net cash (used for) provided by investing activities                                       (307.2)             271.8
                                                                                   ---------------  -----------------

Cash Flows from Financing Activities:
         Deposits and interest credited for investment contracts                            518.3              479.2
         Withdrawals of investment contracts                                               (270.0)            (729.7)
         Other, net                                                                         (70.3)             (12.1)
                                                                                   ---------------  -----------------
Net cash provided by (used for) financing activities                                        178.0             (262.6)
                                                                                   ---------------  -----------------

Net (decrease) increase in cash and cash equivalents                                       (330.7)              94.4
Cash and cash equivalents, beginning of period                                              796.3              694.4
                                                                                   ---------------  -----------------

Cash and cash equivalents, end of period                                                  $ 465.6            $ 788.8
                                                                                   ===============  =================


Supplemental cash flow information:
          Income taxes (received) paid, net                                               $ (49.5)           $   0.5
                                                                                   ===============  =================
</TABLE>
See Condensed Notes to Consolidated Financial Statements.

                                      6

<PAGE>

ITEM 1.    FINANCIAL STATEMENTS (continued)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.  BASIS OF PRESENTATION

    The consolidated financial statements include Aetna Life Insurance and
    Annuity Company ("ALIAC") and its wholly owned subsidiaries, Aetna Insurance
    Company of America ("AICA"), Aetna Investment Adviser Holding Company, Inc.
    ("IA Holdco") and Aetna Investment Services, LLC ("AIS"). ALIAC, together
    with its wholly owned subsidiaries, is herein called the "Company." ALIAC is
    a wholly owned subsidiary of Aetna Retirement Holdings, Inc. ("HOLDCO"),
    which is a wholly owned subsidiary of Aetna Retirement Services, Inc.
    ("ARSI"). ARSI is owned by ING Groep N.V. ("ING"). On June 30, 2000 HOLDCO
    contributed AIS to the Company. (Refer to note 4).

    The Company has three business segments: Worksite Products, Individual
    Products and Investment Management Services. On October 1, 1998, the Company
    sold its individual life insurance business to Lincoln National Corporation
    ("Lincoln") and accordingly, it is now classified as Discontinued
    Operations.

    These consolidated financial statements have been prepared in accordance
    with accounting principles generally accepted in the United States of
    America and are unaudited. The contribution of AIS to the Company was
    accounted for in a manner similar to that of a pooling-of-interests and,
    accordingly, the Company's historical consolidated financial statements have
    been restated to include the accounts and results of operations of AIS.
    Certain reclassifications have been made to 2000 financial information to
    conform to the 2001 presentation. These interim financial statements
    necessarily rely heavily on estimates, including assumptions as to
    annualized tax rates. In the opinion of management, all adjustments
    necessary for a fair statement of results for the interim periods have been
    made. All such adjustments are of a normal, recurring nature. The
    accompanying condensed consolidated financial statements should be read in
    conjunction with the consolidated financial statements and related notes as
    presented in ALIAC's 2000 Annual Report on Form 10-K. Certain financial
    information that is normally included in annual financial statements
    prepared in accordance with accounting principles generally accepted in the
    United States of America, but that is not required for interim reporting
    purposes, has been condensed or omitted.

2.  NEW ACCOUNTING STANDARD

    As of January 1, 2001, the Company adopted 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 No. 133, FAS No 138,
    Accounting for Certain Derivative Instruments and Certain Hedging Activities
    - an Amendment of FASB Statement No 133, and certain FAS No 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.

                                      7

<PAGE>

ITEM 1.    FINANCIAL STATEMENTS (continued)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

2.  NEW ACCOUNTING STANDARD (continued)

    Adoption of FAS No. 133 did not have a material effect on the Company's
    financial position or results of operations given the Company's limited
    derivative and embedded derivative holdings. (Refer to Note 5.)

    The Company utilizes futures contracts, options, interest rate swap
    agreements and warrants in order to manage interest rate and price risk
    (collectively, market risk). These financial exposures are monitored and
    managed by the Company as an integral part of its overall risk management
    program. (Refer to Note 5.) Derivatives are recognized on the balance sheet
    at their fair value. The Company chose not to designate its derivative
    instruments as part of hedge transactions. Therefore changes in the fair
    value of the Company's derivative instruments are recorded immediately in
    the consolidated statements of income as part of realized capital gains and
    losses.

    Warrants are carried at fair value and are recorded as either derivative
    instruments or FAS No. 115 available for sale securities. Warrants that are
    considered derivatives are carried at fair value if they are readily
    convertible to cash. The values of these warrants can fluctuate given that
    the companies which underlie the warrants are non-public companies. At March
    31, 2001, the estimated value of these warrants was approximately $0.3
    million. These warrants will be revalued each quarter and the change in the
    value of the warrants will be included in the consolidated statements of
    income.

    The Company, at times, may own warrants on common stock which are not
    readily convertible to cash as they contain certain conditions which
    preclude their convertibility and therefore, will not be included in assets
    or liabilities as derivatives. If conditions are satisfied and the
    underlying stocks become marketable, the warrants would be reclassified as
    derivatives and recorded at fair value as an adjustment through current
    period results of operations.

    The Company occasionally purchases a financial instrument that contains a
    derivative instrument that is "embedded" in the instrument. 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 contract, the
    entire contract is carried on the balance sheet at fair value and is not
    designated as a hedging instrument. The Company had no material amounts of
    embedded derivatives at March 31, 2001.

                                      8

<PAGE>

ITEM 1.    FINANCIAL STATEMENTS (continued)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

3.  SALE OF AETNA FINANCIAL SERVICES AND AETNA INTERNATIONAL

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

    For accounting purposes, the acquisition was accounted for as of November
    30, 2000 using the purchase method. The application of the purchase method,
    including the recognition of goodwill was pushed down and reflected on the
    financial statements of certain ARSI subsidiaries, including the Company.

    The purchase price was allocated to assets and liabilities based on their
    respective fair values. This revaluation resulted in a net increase to
    assets, excluding the effects of goodwill, of $592.0 million and a net
    increase to liabilities of $310.6 million. . Additionally, the Company
    established goodwill of $2.3 billion. Goodwill is being amortized over a
    period of 40 years. The allocation of the purchase price to assets and
    liabilities is subject to further refinement.

    Unaudited proforma consolidated income from continuing operations and net
    income of the Company for three months ended March 31, 2000, assuming that
    the acquisition of the Company occurred at the beginning of 2000, would each
    have been approximately $36.9 million. The pro forma adjustments, which do
    not affect revenues, reflect primarily goodwill amortization, amortization
    of a favorable lease asset and the elimination of amortization of the
    deferred gain on the sale of the life business.

4.  CONTRIBUTION OF AIS FROM HOLDCO

    On June 30, 2000, HOLDCO contributed AIS to the Company. AIS is registered
    with the Securities Exchange Commission as a broker/dealer and is a member
    of the National Association of Securities Dealers, Inc. It is also
    registered with the appropriate state securities authorities as a
    broker/dealer. The principal operation of AIS is the sale of fixed and
    variable annuities and mutual funds through its registered representatives.

                                      9

<PAGE>

ITEM 1.    FINANCIAL STATEMENTS (continued)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

5.  DERIVATIVE INSTRUMENTS

    The Company enters into derivative instruments to manage interest rate and
    equity price risks. By using derivative instruments to manage exposures in
    these risks, the Company exposes itself to credit risk and market risk.
    Credit risk is the failure of the counterparty to perform under the terms of
    the derivative contract. When the fair value of a derivative contract is
    positive, the counterparty owes the Company, which creates credit risk for
    the Company. The Company generally does not require collateral or other
    security to support the types of financial instruments presented below.
    However, the Company minimizes its credit risk exposure by entering into
    transactions with high credit quality counterparties, limiting the amount of
    exposure to each counterparty and monitoring the financial condition of its
    counterparties. At March 31, 2001, such counterparties' credit ratings
    averaged A- or higher.

    Market risk is the risk of change in the market price of the underlying
    instrument and the related derivative instrument. Such price changes result
    from movements in interest rates and equity markets as well as time value
    and volatility considerations. The Company's exposure to market risk for
    changes in interest rates and equity prices relates primarily to the
    Company's investment portfolio and debt obligations. The portfolio includes
    only marketable securities with active secondary or resale markets to ensure
    portfolio liquidity.

    The Company maintains an interest rate risk management strategy that uses
    derivatives instruments to minimize significant unanticipated earnings
    fluctuations caused by interest rate volatility. As a result of interest
    rate fluctuations, assets and liabilities will appreciate or depreciate in
    market value. Income or loss on the derivative instruments that are linked
    to the related assets or liabilities will generally offset the effect of
    this unrealized appreciation or depreciation. The Company views this
    strategy as a prudent management of interest rate sensitivity, such that
    earnings are not exposed to undue risk presented by changes in interest
    rates.

    The notional amounts, carrying amounts and estimated fair values of the
    Company's financial instruments at March 31, were as follows:
<TABLE>
<CAPTION>
                                                     2001                                    2000
    ----------------------------------------------------------------------------------------------------------------
                                       NOTIONAL      CARRYING    ESTIMATED      NOTIONAL     CARRYING     ESTIMATED
    (MILLIONS)                          AMOUNTS      AMOUNTS     FAIR VALUE     AMOUNTS      AMOUNTS      FAIR VALUE
    ----------------------------------------------------------------------------------------------------------------
    <S>                                <C>           <C>         <C>           <C>           <C>          <C>
    Futures contracts to sell
     securities                         $  -          $  -         $  -         $ 54.7        $ (0.2)    $   (0.2)
    Warrants                               -             0.3          0.3            -           0.3          0.3
    Embedded Derivatives                   -             1.9          1.9            -           2.0          2.0
</TABLE>
    The fair value of these instruments was estimated based on quoted market
    prices, dealer quotations or internal price estimates believed to be
    comparable to dealer quotations. These fair value amounts reflect the
    estimated amounts that the Company would have to pay or would receive if the
    contracts were terminated.

                                      10

<PAGE>

ITEM 1.    FINANCIAL STATEMENTS (continued)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

5.  DERIVATIVE INSTRUMENTS (continued)

    FUTURES CONTRACTS

    Futures contracts represent commitments to either purchase or sell
    securities at a specified future date and at a specified price or yield.
    Futures contracts trade on organized exchanges and, therefore, have minimal
    credit risk. Cash settlements are made daily based on changes in the prices
    of the underlying assets.

    OPTION CONTRACTS

    Options are contracts that grant the purchaser, for a fee, the right but not
    the obligation, to buy or sell a security at a contracted price on or before
    a specified date. The option writer is obligated to buy or sell the security
    if the purchaser chooses to exercise the option. The purchaser pays a
    nonrefundable fee (premium) to the writer of the option. The buyer of the
    option has limited risk. The maximum loss to the buyer is the premium paid.

    As of March 31, 2001, the Company did not have any investment income or loss
    for writing call options on underlying securities and, as of March 31, 2000,
    had a $1.1 million investment loss for writing call options on underlying
    securities.

    WARRANTS

    Warrants are instruments that give the holder the right, but not the
    obligation, to buy or sell a fixed amount of an underlying asset at a fixed
    price in the future.

6.  ADDITIONAL INFORMATION - ACCUMULATED OTHER COMPREHENSIVE INCOME

    Changes in accumulated other comprehensive income related to changes in
    unrealized gains on securities (excluding those related to experience-rated
    contractholders) were as follows:
<TABLE>
<CAPTION>
                                                                                    THREE MONTHS ENDED MARCH 31,
                                                                               ---------------------------------------
     (MILLIONS)                                                                        2001                2000
     -----------------------------------------------------------------------------------------------------------------
     <S>                                                                               <C>                 <C>
     Unrealized holding gains arising during the period (1)                            $ 32.6              $ 3.8
     Less:  reclassification adjustments for accretion of net investment
       discounts and gains included in net income (2)                                     2.1                0.1
     -----------------------------------------------------------------------------------------------------------------
     Net unrealized gains on securities                                                 $30.5           $     3.7
     =================================================================================================================
</TABLE>
    (1) Pretax unrealized holding gains arising during the period were
        $50.1 million and $5.8 million for the three months ended March 31, 2001
        and March 31, 2000, respectively.
    (2) Pretax reclassification adjustments for accretion of net investment
        discounts and gains included in net income for the period were
        $3.2 million and $0.1 million for the three months ended March 31, 2001
        and March 31, 2000, respectively.

                                      11

<PAGE>

ITEM 1.    FINANCIAL STATEMENTS (continued)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

7.  VALUE OF BUSINESS ACQUIRED

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

    Activity for the three months ended March 31, 2001 within VOBA was as
    follows:
<TABLE>
<CAPTION>
     (MILLIONS)
    --------------------------------------------------------------------
    <S>                                                    <C>
     Balance at December 31, 2000                          $ 1,780.9
     Additions                                                  25.1
     Interest accrued at 7 %                                    30.3
     Amortization                                              (60.7)
    --------------------------------------------------------------------
     Balance at March 31, 2001                              $1,775.6
    ====================================================================
</TABLE>
8.  SEVERANCE

    In December 2000, the Company, in accounting for its acquisition by ING,
    established a severance liability related to actions taken or expected to be
    taken with respect to the integration of the Company's and ING's businesses.

    Activity for the three months ended March 31, 2001 within the severance
    liability and positions eliminated related to such actions was as follows:
<TABLE>
<CAPTION>
                                                            SEVERANCE         POSITIONS
     (MILLIONS)                                             LIABILITY
     -------------------------------------------------------------------------------------
     <S>                                                     <C>               <C>
     Balance at December 31, 2000                            $  10.7              175
     Actions taken                                              (1.7)             (24)
     -------------------------------------------------------------------------------------
     Balance at March 31, 2001                               $   9.0              151
     =====================================================================================
</TABLE>
    Severance actions are expected to be substantially completed by March 31,
    2002.

                                      12

<PAGE>

ITEM 1.    FINANCIAL STATEMENTS (continued)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

9.  SEGMENT INFORMATION

    Summarized financial information for the Company's principal operations for
    the three months ended March 31, was as follows:
<TABLE>
<CAPTION>
                                                                          INVESTMENT
                                             WORKSITE      INDIVIDUAL     MANAGEMENT     DISCONTINUED
     (MILLIONS)                            PRODUCTS (1)   PRODUCTS (1)   SERVICES (1)   OPERATIONS (1)    OTHER (1)     TOTAL
     -------------------------------------------------------------------------------------------------------------------------
     <S>                                   <C>            <C>            <C>            <C>               <C>           <C>
     2001
     Revenues from external customers        $ 124.1        $  28.9         $  32.5         $   -          $(10.2)      $ 175.3
     Net investment income                     196.6           25.9             0.4                           1.3         224.2
     -------------------------------------------------------------------------------------------------------------------------
     Total revenue excluding net
      realized capital losses                $ 320.7        $  54.8         $  32.9         $   -          $ (8.9)      $ 399.5
     =========================================================================================================================

     Operating earnings (2)                  $  40.4        $   8.3         $   8.0         $   -          $(18.1)      $  38.6
     Net realized capital losses, net of
      tax                                       (2.3)          (0.2)            -               -             -            (2.5)
     -------------------------------------------------------------------------------------------------------------------------
     Net income (loss)                       $  38.1        $  8.1          $   8.0         $              $(18.1)      $  36.1
     =========================================================================================================================
     2000
     Revenues from external customers        $ 140.8        $ 26.9          $  33.2         $   -          $(12.0)      $ 188.9
     Net investment income                     200.1          26.6              0.6                           1.0         228.3
     -------------------------------------------------------------------------------------------------------------------------
     Total revenue excluding net
      realized capital (losses) gains        $ 340.9        $ 53.5          $  33.8         $   -          $(11.0)      $ 417.2
     =========================================================================================================================

     Operating earnings (2)                  $  42.5        $  6.8          $   7.4         $              $  0.5       $  57.2
     Net realized capital (losses) gains,
      net of tax                                (4.7)         (1.2)             0.1             -             -            (5.8)
     -------------------------------------------------------------------------------------------------------------------------
     Income  from continuing operations         37.8           5.6              7.5             -             0.5          51.4

     Discontinued operations, net of tax:
       Amortization of deferred gain on
         sale                                    -             -                -               1.6                         1.6
     -------------------------------------------------------------------------------------------------------------------------
     Net income                              $  37.8        $  5.6          $   7.5         $   1.6        $  0.5       $  53.0
     =========================================================================================================================
</TABLE>
    (1) Worksite Products include: defined contribution and immediate annuity
        contracts; mutual funds; distribution services for annuities and mutual
        funds; programs offered to qualified plans and nonqualified deferred
        compensation plans that package administrative and recordkeeping
        services along with a menu of investment options; wrapper agreements
        containing certain benefit response guarantees that are entered into
        with retirement plans, whose assets are not invested with the Company;
        investment advisory services and pension plan administrative services.
        Individual Products include deferred and immediate annuity contracts,
        both qualified and nonqualified, that are sold to individuals and
        provide variable or fixed investment options or a combination of both.
        Investment Management Services include: investment advisory services to
        affiliated and unaffiliated institutional and retail clients;
        underwriting; distribution for Company mutual funds and a former
        affiliate's separate accounts; and trustee, administrative and other
        services to retirement plans. Discontinued Operations include life
        insurance products. In 2001, Other includes: consolidating adjustments,
        amortization of goodwill and ING corporate expense. In 2000 Other
        includes: consolidating adjustments and taxes not allocated back to
        segment.
    (2) Operating earnings is comprised of net income (loss) excluding net
        realized capital gains and losses. While operating earnings is the
        measure of profit or loss used by the Company's management when
        assessing performance or making operating decisions, it does not
        replace net income as a measure of profitability.

                                      13

<PAGE>

ITEM 1.    FINANCIAL STATEMENTS (continued)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

10. COMMITMENTS AND CONTINGENT LIABILITIES

    COMMITMENTS

    Through the normal course of investment operations, the Company commits to
    either purchase or sell securities or money market instruments at a
    specified future date and at a specified price or yield. The inability of
    counterparties to honor these commitments may result in either higher or
    lower replacement cost. Also, there is likely to be a change in the value of
    the securities underlying the commitments between the time that the Company
    enters into the commitments and the specified future date on which the
    Company must purchase or sell the securities, as the case may be. As of
    March 31, 2001, there were no such off-balance sheet commitments.

    LITIGATION

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

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

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

                                      14

<PAGE>

                     INDEPENDENT ACCOUNTANTS' REVIEW REPORT


The Board of Directors
Aetna Life Insurance and Annuity Company

We have reviewed the accompanying condensed consolidated balance sheet of Aetna
Life Insurance and Annuity Company and Subsidiaries (the "Company") as of March
31, 2001, and the related condensed consolidated statements of income, changes
in shareholder's equity and cash flows for the three-month period then ended.
These financial statements are the responsibility of the Company's management.
The condensed consolidated balance sheet and the related condensed consolidated
statements of income, changes in shareholder's equity and cash flows as of
March 31, 2000, and for the three-month period then ended were reviewed by
other accountants whose report (dated April 26, 2000) stated that they were not
aware of any material modifications that should be made to those statements for
them to be in conformity with accounting principles generally accepted in the
United States.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data, and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with accounting principles generally
accepted in the United States.


                                             /s/ Ernst & Young LLP

Hartford, Connecticut
May 11, 2001

                                      15

<PAGE>

ITEM 2.    MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS

The following analysis presents a review of the Company for the three-month
periods ended March 31, 2001 and 2000. This review should be read in conjunction
with the consolidated financial statements and other data presented herein as
well as the "Management's Analysis of the Results of Operations" section
contained in ALIAC's 2000 Annual Report on Form 10-K.

OVERVIEW

RECENT DEVELOPMENTS

On December 13, 2000, ING America Insurance Holdings, Inc., an indirect
wholly owned subsidiary of ING Groep N.V. ("ING"), acquired Aetna Inc.,
comprised of the Aetna Financial Services business, of which the Company
is a part, and the Aetna International business, for approximately $7.7
billion. The purchase price was comprised of approximately $5.0 billion in
cash and the assumption of $2.7 billion of outstanding debt and other net
liabilities. In connection with the acquisition, Aetna Inc. was renamed
Lion Connecticut Holdings Inc. ("Lion"). At the time of the sale, Lion
entered into certain transition services agreements with a former related
party, Aetna U.S. Healthcare, which was renamed Aetna Inc. ("former
Aetna").  Refer to Note 3 of Condensed Notes to Consolidated Financial
Statements.

As a result of ING's purchase of the Aetna Financial Services business, the
Company's Financial Products segment was realigned into two new segments,
Worksite Products and Individual Products. Accordingly, the financial results of
the prior period were restated.

The Worksite Products segment offers annuity contracts that include a variety of
funding and payout options for employer-sponsored retirement plans qualified
under Internal Revenue Code Sections 401, 403, 408 and 457, as well as
nonqualified deferred compensation plans. Annuity contracts may be deferred or
immediate (payout annuities). These products also include programs offered to
qualified plans and nonqualified deferred compensation plans that package
administrative and recordkeeping services along with a menu of investment
options, including Company and nonaffiliated mutual funds and variable and fixed
investment options. The Worksite Products segment also includes wrapper
agreements entered into with retirement plans which contain certain benefit
responsive guarantees (i.e.liquidity guarantees of principal and previously
accrued interest for benefits paid under the terms of the plan) with respect to
portfolios of plan-owned assets not invested with the Company. The Worksite
Products segment also offers pension plan administrative services.

The Individual Products segment includes qualified and nonqualified annuity
contracts that are offered for sale to individuals and may provide variable or
fixed investment options, or a combination of both. These annuity contracts may
be deferred or immediate (payout annuities).

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

                                      16

<PAGE>

ITEM 2.    MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
OVERVIEW (continued)

On June 30, 2000, HOLDCO contributed Aetna Investment Services, LLC ("AIS") to
the Company. AIS's financial results are included in the Worksite Products
segment. Refer to Note 4 of Condensed Notes to Consolidated Financial
Statements.

CONSOLIDATED RESULTS

Consolidated results include results from continuing operations and discontinued
operations. Results of continuing operations are comprised of the results of the
Worksite Products, Individual Products and Investment Management Services
segments plus certain items not directly allocable to the business segments.
Refer to Note 9 of Condensed Notes to Financial Statements.














                                      17

<PAGE>

ITEM 2.    MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
CONSOLIDATED RESULTS (continued)
<TABLE>
<CAPTION>
OPERATING SUMMARY
                                                                     THREE MONTHS ENDED MARCH 31,
                                                                  ----------------------------------
(MILLIONS)                                                              2001             2000
----------------------------------------------------------------------------------------------------
<S>                                                                 <C>              <C>
Premiums (1)                                                        $      31.8      $      36.0
Charges assessed against policyholders                                     99.7            116.0
Net investment income                                                     224.2            228.3
Net realized capital losses                                                (4.0)            (8.9)
Other income                                                               43.8             36.9
----------------------------------------------------------------------------------------------------
      Total revenue                                                       395.5            408.3
----------------------------------------------------------------------------------------------------
Current and future benefits                                               183.4            201.2
Operating expenses:
    Salaries and related benefits                                          44.0             44.1
    Other                                                                  58.7             55.3
Amortization of deferred policy acquisition costs and value of
 business acquired                                                         30.8             31.2
Amortization of goodwill                                                   14.3              -
----------------------------------------------------------------------------------------------------
      Total benefits and expenses                                         331.2            331.8
----------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes                      64.3             76.5
Income taxes                                                               28.2             25.1
----------------------------------------------------------------------------------------------------
Income from continuing operations                                   $      36.1      $      51.4
Discontinued operations, net of tax:
    Amortization of deferred gain on sale                                   -                1.6
----------------------------------------------------------------------------------------------------
Net Income                                                                 36.1             53.0
====================================================================================================
Net realized capital losses, net of tax (included above)            $      (2.5)     $      (5.8)
====================================================================================================
Deposits (not included in premiums above)
     Annuities -fixed options                                       $     410.3      $     452.3
    Annuities -variable options                                         1,230.8          1,324.2
----------------------------------------------------------------------------------------------------
    Total - deposits                                                $   1,641.1      $   1,776.5
====================================================================================================
Assets under management:
  Worksite Products                                                 $  41,986.4      $  48,256.7
  Individual Products                                                   7,739.6          8,910.7
  Investment Management Services (2)                                   53,302.9         56,374.7
  Consolidating adjustment (3)                                        (35,456.4)       (36,939.7)
----------------------------------------------------------------------------------------------------
       Total assets under management (4) (5)                           67,572.5         76,602.4
----------------------------------------------------------------------------------------------------
Assets under administration:  (6)
  Worksite Products                                                     8,636.5          5,034.1
----------------------------------------------------------------------------------------------------
Assets under management and administration                          $  76,209.0      $  81,636.5
====================================================================================================
</TABLE>
(1)  Includes $24.2 million and $28.3 million for the three months ended March
     31, 2001 and 2000, respectively, for annuity premiums on contracts
     converting from the accumulation phase to payout options with life
     contingencies.
(2)  Includes $5,461.4 million and $7,182.0 million of assets managed for Aetna
     Life Insurance Company, a former affiliate of the Company, as of March 31,
     2001 and 2000, respectively.
(3)  Assets under management reported in either the Worksite Products or the
     Individual Products segments and also in the Investment Management Services
     segments must be deducted from the aggregate segment assets to determine
     the Company's consolidated assets under management.
(4)  Includes $11,392.6 million and $15,730.8 million at March 31, 2001 and
     2000, respectively, of assets invested through the Company's products in
     unaffiliated mutual funds.
(5)  Excludes net unrealized capital gains of $293.5 million at March 31, 2001
     and net unrealized capital losses of $198.7 million at March 31, 2000 on
     assets invested through annuities with fixed options.
(6)  Represents assets for which the Company provides administrative
     services only.

                                      18

<PAGE>

ITEM 2.    MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
OVERVIEW (continued)

CONTINUING OPERATIONS

Income from continuing operations decreased $12 million for the three months
ended March 31, 2001 compared to the same period in 2000. Excluding goodwill
amortization of $14 million in 2001 and net realized capital losses in 2001 and
2000, income from continuing operations for the three months ended March 31,
2001 decreased $4 million, or 7%, compared to the same period in 2000.

The decrease in earnings for the three months ended March 31, 2001 primarily
reflects a decrease in charges assessed against policyholders resulting from
lower levels of assets under management and administration and an increase in
the effective tax rate.

Substantially all of the charges assessed against policyholders and other income
reported for continuing operations are derived from assets under management and
administration. Compared to March 31, 2000, assets under management and
administration at March 31, 2001 decreased 7% primarily due to a decline in the
stock market partially offset by the addition of approximately $3 billion of
assets related to a new large case, which closed in the second quarter of 2000,
and additional net deposits (i.e., deposits less surrenders).

Certain assets under management that are reported in the Worksite Products and
the Individual Products segments are also reported in the Investment Management
Services segment, because Investment Management Services reports a different
component of the revenue generated by these particular assets under management.
A consolidating adjustment, which eliminates the duplication of such assets, is
recorded in order to determine consolidated assets under management of the
Company.

Annuity deposits relate to annuity contracts not containing life contingencies.
Compared to the first quarter of 2000, deposits for the three months ended
March 31, 2001 decreased 8%. This decrease is primarily due to a decrease in
individual annuity sales partially offset by higher sales in the corporate
(i.e., 401(k)) market during the first quarter of 2001.

The increase in the effective tax rate for the first quarter of 2001 is
primarily related to the disallowance of goodwill amortization as a deduction
and a decrease in the deduction for dividends received.

DISCONTINUED OPERATIONS

Results of discontinued operations for the three months ended March 31, 2000
consist of the recognized portion of the deferred gain relating to the sale of
the domestic individual life insurance business that occurred on October 1,
1998. In conjunction with the accounting for the acquisition of the Aetna
Financial Services business, of which the Company is a part, the deferred gain
was written off. Refer to Note 3 of the Condensed Notes to Consolidated
Financial Statements.

                                      19

<PAGE>

ITEM 2.    MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)

WORKSITE PRODUCTS
<TABLE>
<CAPTION>
OPERATING SUMMARY
                                                                      THREE MONTHS ENDED MARCH 31,
                                                                     ------------------------------
                                                                         2001              2000
(MILLIONS)
------------------------------------------------------------------------------------------------------
<S>                                                                  <C>               <C>
Premiums (1)                                                         $      31.8       $      36.0
Charges assessed against policyholders                                      74.0              90.1
Net investment income                                                      196.6             200.1
Net realized capital losses                                                 (3.6)             (7.2)
Other income                                                                18.3              14.7
------------------------------------------------------------------------------------------------------
      Total revenue                                                        317.1             333.7
------------------------------------------------------------------------------------------------------
Current and future benefits                                                163.9             181.8
Operating expenses:
    Salaries and related benefits                                           32.0              31.1
    Other                                                                   46.9              45.2
Amortization of deferred policy acquisition costs and value of
 business acquired                                                          15.7              17.4
------------------------------------------------------------------------------------------------------
      Total benefits and expenses                                          258.5             275.5
------------------------------------------------------------------------------------------------------
Income from operations before income taxes                                  58.6              58.2
Income taxes                                                                20.5              20.4
------------------------------------------------------------------------------------------------------
      Net income                                                     $      38.1       $      37.8
======================================================================================================
Net realized capital losses, net of tax (included above)             $      (2.3)      $      (4.7)
======================================================================================================
Deposits (not included in premiums above)
    Annuities - fixed options                                        $     210.0       $     180.2
    Annuities - variable options                                         1,131.4           1,129.4
------------------------------------------------------------------------------------------------------
    Total - deposits                                                 $   1,341.4       $   1,309.6
======================================================================================================
Assets Under Management (2)
    Annuities - fixed options  (3)                                    $ 10,573.8        $ 10,183.3
    Annuities - variable options (4)                                    23,232.3          31,491.9
------------------------------------------------------------------------------------------------------
       Subtotal - annuities                                             33,806.1          41,675.2
    Plan Sponsored and Other                                             8,180.3           6,581.5
------------------------------------------------------------------------------------------------------
    Total - assets under management                                     41,986.4          48,256.7
Assets under administration  (5)                                         8,636.5           5,034.1
------------------------------------------------------------------------------------------------------
Total assets under management and administration                      $ 50,622.9        $ 53,290.8
======================================================================================================
</TABLE>
(1)  Includes $24.2 million and $28.3 million for the three months ended March
     31, 2001 and 2000, respectively, for annuity premiums on contracts
     converting from the accumulation phase to payout options with life
     contingencies.
(2)  Includes $31,053.6 million at March 31, 2001 and $32,557.3 million at March
     31, 2000 of assets under management that are also reported in the
     Investment Management Services segment (refer to "Overview").
(3)  Excludes net unrealized capital gains of $259.0 million at March 31, 2001
     and net unrealized capital losses of $166.0 at March 31, 2000.
(4)  Includes $8,459.0 million at March 31, 2001 and $11,822.0 million at March
     31, 2000 related to assets invested through the Company's products in
     unaffiliated mutual funds.
(5)  Represents assets for which the Company provides administrative
     services only.

Worksite Products' net income reflected a slight increase for the three months
ended March 31, 2001 compared to the same period in 2000. Excluding net realized
capital losses, net income for the three months ended March 31, 2001 decreased
$2 million, or 5%, compared to the same period in 2000. This decrease is
primarily the result of a decrease in charges assessed against policyholders
that were due to lower levels of assets under management.

                                      20

<PAGE>

ITEM 2.    MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
WORKSITE PRODUCTS (continued)

Substantially all of the charges assessed against policyholders and a majority
of other income reported for the Worksite Products segment are calculated based
on assets under management and administration. Assets under management and
administration at March 31, 2001 decreased 5% compared to March 31, 2000. The
decrease in 2001 is primarily due to a decline in the stock market partially
offset by the addition of approximately $3 billion of assets related to a new
large case, which closed in the second quarter of 2000, and additional net
deposits (i.e., deposits less surrenders).

Annuity deposits relate to annuity contracts not containing life contingencies.
Compared to the first quarter of 2000, deposits for the three months ended March
31, 2001 increased 2%. This increase is primarily due to higher sales in the
corporate (i.e., 401(k)) market.











                                      21

<PAGE>

ITEM 2.    MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)

INDIVIDUAL PRODUCTS
<TABLE>
<CAPTION>
OPERATING SUMMARY
                                                                      THREE MONTHS ENDED MARCH 31,
                                                                     ------------------------------
                                                                         2001              2000
(MILLIONS)
------------------------------------------------------------------------------------------------------
<S>                                                                    <C>               <C>
Charges assessed against policyholders                                 $    25.7         $    25.9
Net investment income                                                       25.9              26.6
Net realized capital losses                                                 (0.4)             (1.8)
Other income                                                                 3.2               1.0
------------------------------------------------------------------------------------------------------
      Total revenue                                                         54.4              51.7
------------------------------------------------------------------------------------------------------
Current and future benefits                                                 19.5              19.4
Operating expenses:
    Salaries and related benefits                                            4.0               5.5
    Other                                                                    6.8               7.2
Amortization of deferred policy acquisition costs and value of
 business acquired                                                          11.7              11.0
------------------------------------------------------------------------------------------------------
      Total benefits and expenses                                           42.0              43.1
------------------------------------------------------------------------------------------------------
Income from operations before income taxes                                  12.4               8.6
Income taxes                                                                 4.3               3.0
------------------------------------------------------------------------------------------------------
      Net income                                                       $     8.1         $     5.6
======================================================================================================
Net realized capital losses, net of tax (included above)               $    (0.2)        $    (1.2)
======================================================================================================
Deposits (not included in premiums above)
    Annuities - fixed options                                          $   200.3         $   272.1
    Annuities - variable options                                            99.4             194.8
------------------------------------------------------------------------------------------------------
      Total - deposits                                                 $   299.7         $   466.9
======================================================================================================
Assets Under Management (1)
    Annuities - fixed options  (2)                                     $ 2,197.0         $ 2,220.8
    Annuities - variable options (3)                                     5,542.6           6,689.9
------------------------------------------------------------------------------------------------------
       Total - assets under management                                 $ 7,739.6         $ 8,910.7
======================================================================================================
</TABLE>
(1)  Includes $4,402.8 million at March 31, 2001 and $4,382.4 million at March
     31, 2000 of assets under management that are also reported in the
     Investment Management Services segment (refer to "Overview").
(2)  Excludes net unrealized capital gains of $34.5 million at March 31, 2001
     and net unrealized capital losses of $32.7 at March 31, 2000.
(3)  Includes $2,933.6 million at March 31, 2001 and $3,908.8 million at March
     31, 2000 related to assets invested through the Company's products in
     unaffiliated mutual funds.

Individual Products' net income increased $3 million for the three months ended
March 31, 2001 compared to the same period in 2000. Excluding net realized
capital losses, net income increased $2 million, or 22%, for the three months
ended March 31, 2001 compared to the same period in 2000. This increase is
primarily the result of an increase in other income and a decrease in operating
expenses.

Substantially all of the charges assessed against policyholders reported for the
Individual Products segment are calculated based on assets under management.
Assets under management at March 31, 2001 decreased 13% compared to March 31,
2000. This decrease is primarily due to a decline in the stock market partially
offset by additional net deposits (i.e., deposits less surrenders).

Annuity deposits relate to annuity contracts not containing life contingencies.
Compared to the prior quarter, deposits decreased 36% for the three months ended
March 31, 2001 due to a decrease in individual annuity sales.

                                      22

<PAGE>

ITEM 2.    MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)

INVESTMENT MANAGEMENT SERVICES
<TABLE>
<CAPTION>
OPERATING SUMMARY
                                                                  THREE MONTHS ENDED MARCH 31,
                                                                 ------------------------------
(MILLIONS)                                                          2001              2000
------------------------------------------------------------------------------------------------
<S>                                                             <C>               <C>
Net investment income                                           $      0.4        $      0.6
Net realized capital gains                                             -                 0.1
Other income  (1)                                                     32.5              33.2
------------------------------------------------------------------------------------------------
      Total revenue                                                   32.9              33.9
------------------------------------------------------------------------------------------------
Operating expenses:
  Salaries and related benefits                                        8.0               7.5
  Other                                                               12.3              14.5
------------------------------------------------------------------------------------------------
      Total operating expenses                                        20.3              22.0
------------------------------------------------------------------------------------------------
Income from operations before income taxes                            12.6              11.9
Income taxes                                                           4.6               4.4
------------------------------------------------------------------------------------------------
      Net income                                                $      8.0        $      7.5
================================================================================================
Net realized capital gains, net of tax (included above)         $      -          $      0.1
================================================================================================
Assets under management:
  Retail mutual funds                                           $  1,607.3        $  1,555.0
  Plan sponsored (2)                                              14,213.2          15,835.0
  Collateralized bond obligations                                  2,026.0           2,045.0
------------------------------------------------------------------------------------------------
       Subtotal                                                   17,846.5          19,435.0
------------------------------------------------------------------------------------------------
  Invested through products offered by the Worksite
    Products and Individual Products segments:  (3)
     Variable annuity mutual funds                                14,749.5          18,342.7
     Fixed annuities (4)                                          12,770.9          12,404.0
     Plan sponsored and other                                      7,936.0           6,193.0
------------------------------------------------------------------------------------------------
       Subtotal                                                   35,456.4          36,939.7
------------------------------------------------------------------------------------------------
Total assets under management                                   $ 53,302.9        $ 56,374.7
================================================================================================
</TABLE>
(1)  Primarily includes investment advisory fees earned on assets under
     management.
(2)  Includes $5,461.4 million and $7,182.0 million of assets managed for Aetna
     Life Insurance Company, a former affiliate of the Company, as of March 31,
     2001 and 2000, respectively.
(3)  The Investment Management Services segment earns investment advisory fees
     on these assets, which are also reported in the Financial Products segment.
(4)  Excludes net unrealized capital gains of $293.5 million at March 31, 2001
     and net unrealized capital losses of $198.7 million at March 31, 2000.

For the three months ended March 31, 2001, the Investment Management Services
segment's net income excluding net realized capital gains in 2000, increased $1
million, or 8%, compared to the same period in 2000. This increase in earnings
primarily reflects a decrease in other operating expenses partially offset by a
decrease in investment advisory fees.

Investment advisory fees are calculated based on assets under management. The
decrease in advisory fee income is due to lower levels of assets under
management. At March 31, 2001, assets under management decreased 5% over those
reported as of March 31, 2000. This decrease was primarily due to a decline in
the stock market partially offset by additional net sales.

Effective April 1, 2001, ING Investment Management, LLC, an affiliate of the
Company, became the advisor of the Company's general account investments. As a
result of this new agreement, the Investment Management Services segment will
not report any fixed annuities assets under

                                      23

<PAGE>

ITEM 2.    MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
INVESTMENT MANAGEMENT SERVICES (continued)

management, approximately $12.8 billion at March 31, 2001, and will not receive
advisory fees related to these assets after the first quarter. Effective at the
end of May, an unaffiliated investment manager will become the advisor for
certain collateralized bond obligation assets under management reported by the
Investment Management Services segment. Accordingly, this segment will not
report these assets, approximately $0.4 billion at March 31, 2001, and will not
receive advisory fees related to these assets after the end of May.

DISCONTINUED OPERATIONS - DOMESTIC INDIVIDUAL LIFE INSURANCE

Results of discontinued operations consist solely of the amortization of the
deferred gain from the sale of the domestic individual life insurance business.
The after tax amortization recognized during the three months ended March 31,
2000 was $1.6 million. In conjunction with the accounting for the acquisition of
the Aetna Financial Services business, of which the Company is a part, the
deferred gain relating to the sale of the domestic individual life insurance
business was written off.

Individual life insurance coverage in force was approximately $38 billion at
March 31, 2001. The entire amount of this coverage in force has been ceded to
Lincoln under the indemnity reinsurance arrangement entered into as part of the
sale.

For more details about the transaction and the indemnity reinsurance
arrangement, refer to Note 3 of Condensed Notes to Consolidated Financial
Statements in the Company's 2000 Annual Report on Form 10-K.

GENERAL ACCOUNT INVESTMENTS

The Company's invested assets were comprised of the following:
<TABLE>
<CAPTION>
   (MILLIONS)                                                          MARCH 31, 2001           DECEMBER 31, 2000
   -------------------------------------------------------------------------------------------------------------------
   <S>                                                                <C>                       <C>
   Debt securities, available for sale, at fair value (1)             $    11,956.9             $    11,371.4
   Equity securities, at fair value:
       Nonredeemable preferred stock                                          106.0                     100.7
       Investment in affiliated mutual funds                                   10.5                      12.7
       Common stock                                                             3.4                       3.5
   Short-term investments (2)                                                  18.1                     111.7
   Mortgage loans                                                               4.6                       4.6
   Policy loans                                                               336.6                     339.3
   Other investments                                                           13.3                      13.4
   -------------------------------------------------------------------------------------------------------------------
        Total Investments                                             $    12,449.4             $    11,957.3
   ===================================================================================================================
</TABLE>
   (1)  At March 31, 2001 and 2000, $9.1 million and $126.7 million,
        respectively, of debt securities were pledged to creditors.
   (2)  At December 31, 2000, $2.3 million of short-term investments were
        pledged to creditors; and, at March 31, 2001, there were no short-term
        investments pledged to creditors.

                                      24

<PAGE>

ITEM 2.    MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
GENERAL ACCOUNT INVESTMENTS (continued)

DEBT SECURITIES

At March 31, 2001 and December 31, 2000, the Company's carrying value of
available for sale debt securities including debt securities pledged to
creditors (herein after referred to as "total debt securities") represented 96%
and 95% of the total general account invested assets, respectively. At March 31,
2001 and December 31, 2000, $9.4 billion, or 79% of total debt securities, and
$8.9 billion, or 79% of total debt securities, respectively, supported
experience-rated contracts. The carrying value of the Company's total debt
securities included net unrealized capital gains of $293.5 million and $126.9
million at March 31, 2001 and December 31, 2000, respectively.

It is management's objective that the portfolio of debt securities be of high
quality and be well diversified by market sector. The debt securities in the
Company's portfolio are generally rated by external rating agencies and, if not
externally rated, are rated by the Company on a basis believed to be similar to
that used by the rating agencies. The average quality rating of the Company's
debt security portfolio was AA- at March 31, 2001 and AA at December 31, 2000.

The percentage of total debt securities by quality rating category is as
follows:
<TABLE>
<CAPTION>
                                            MARCH 31, 2001              DECEMBER 31, 2000
------------------------------------------------------------------------------------------------
<S>                                         <C>                         <C>
AAA                                                53.8%                        53.2%
AA                                                  8.3                          9.1
A                                                  23.5                         23.5
BBB                                                10.3                          9.9
BB                                                  1.4                          1.5
B and Below                                         2.7                          2.8
------------------------------------------------------------------------------------------------
   Total                                          100.0%                       100.0%
================================================================================================
</TABLE>
The percentage of total debt securities by market sector is as follows:
<TABLE>
<CAPTION>
                                                                     MARCH 31, 2001          DECEMBER 31, 2000
------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                     <C>
U.S. Corporate                                                             43.0%                    43.0%
Residential Mortgage-backed                                                26.8                     27.1
U.S. Treasuries/Agencies                                                   10.0                      8.4
Commercial/Multi-family Mortgage-backed                                     9.3                      9.8
Asset-backed                                                                6.3                      6.7
Foreign (1)                                                                 4.6                      5.0
------------------------------------------------------------------------------------------------------------------
  Total                                                                   100.0%                   100.0%
==================================================================================================================
</TABLE>
(1)      Primarily U.S. dollar denominated

FORWARD-LOOKING INFORMATION/RISK FACTORS

The "Forward-Looking Information/Risk Factors" section of ALIAC's 2000 Annual
Report on Form 10-K contains discussions of important risk factors related to
the Company's businesses.

                                      25

<PAGE>

PART II.   OTHER INFORMATION

ITEM 1.       LEGAL PROCEEDINGS.

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

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

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

ITEM 5.    OTHER INFORMATION

RATINGS

The Company's financial strength ratings at May 11, 2001 and March 28, 2001 are
as follows:
<TABLE>
<CAPTION>
                                                                 RATING AGENCIES
                                --------------------------------------------------------------------------------
                                                                         MOODY'S INVESTORS       STANDARD &
                                    A.M. BEST             FITCH               SERVICE              POOR'S
----------------------------------------------------------------------------------------------------------------
<S>                                 <C>                   <C>            <C>                      <C>
May 11, 2001                            A+                   AA+                Aa2                    AA+
March 28, 2001 (1)                      A+                   AA+                Aa2                    AA+
----------------------------------------------------------------------------------------------------------------
</TABLE>

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          (a)      Exhibits

                   None

          (b)      Reports on Form 8-K.

                   None

                                      26

<PAGE>

                                    SIGNATURE


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.


                                       AETNA LIFE INSURANCE AND ANNUITY COMPANY
                                       ----------------------------------------
                                                      (Registrant)



     May 14, 2001                 By    /s/ Deborah Koltenuk
----------------------                 ----------------------------------------
       (Date)                           Deborah Koltenuk
                                        Vice President and Corporate Controller
                                        (Chief Accounting Officer)










                                      27