ING LIFE INSURANCE & ANNUITY CO - 10-K Annual Report

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

Form 10-K

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

For the fiscal year-ended December 31, 2001 Commission file number 33-23376

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

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

151 Farmington Avenue, Hartford, Connecticut 06156
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(Address of principal executive offices) (ZIP Code)

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

Aetna Life Insurance and Annuity Company
(former name if changed since last report)

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

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

Yes __X__ No ______

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

As of March 25, 2002, there were 55,000 shares of common stock outstanding, par
value $50 per share, all of which shares were held by Aetna Retirement
Holdings, Inc.

Reduced Disclosure Format:

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

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(Formerly known as Aetna Life Insurance and Annuity Company,
a wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Annual Report on Form 10-K
For the year-ended December 31, 2001

TABLE OF CONTENTS

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

2

PART I

ITEM 1. BUSINESS

Organization of Business

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

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

HOLDCO contributed AIS to the Company on June 30, 2000 and contributed IA Holdco
to the Company on July 1, 1999. On February 28, 2002, IA Holdco was distributed
by ILIAC in the form of a dividend to HOLDCO. The primary operating subsidiary
of IA Holdco is Aeltus Investment Management, Inc. ("Aeltus"). Accordingly, fees
earned by Aeltus will not be included in Company results subsequent to the
dividend date. Refer to Notes 2 and 16 of the Notes to Consolidated Financial
Statements.

Effective January 1, 2002, the board of directors of the Company approved an
amendment to the Certificate of Incorporation of the Company to change the name
of the corporation to ING Life Insurance and Annuity Company. The sole
shareholder of the Company executed a written consent approving and adopting the
name change effective January 1, 2002. Appropriate approvals were obtained from
the State of Connecticut Department of Insurance.

The Company has three business segments, which make up its continuing
operations: Worksite Products, Individual Products and Investment Management
Services.

WORKSITE PRODUCTS

PRODUCTS AND SERVICES

Through its Worksite Products segment, the Company 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). Additionally, the Company

3

ITEM 1. BUSINESS (continued)
WORKSITE PRODUCTS (continued)
offers programs to qualified plans and nonqualified deferred compensation plans
that package administrative and recordkeeping services along with a menu of
investment options, including affiliated and nonaffiliated mutual funds and
fixed investment options. The Company may enter into wrapper agreements with
retirement plans. These agreements 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 Company also offers pension
plan administrative services through the Worksite Products segment.

INVESTMENT OPTIONS

Annuity contracts offered by the Worksite Products segment contain variable
and/or fixed investment options. Variable options generally provide for full
assumption (and, in limited cases, provide for partial assumption) by the
customer of investment risks. Assets supporting variable annuity options are
held in separate accounts that invest in affiliated and/or unaffiliated mutual
funds. Affiliated mutual funds include funds managed by Aeltus Investment
Management, Inc. ("Aeltus"), an indirect wholly-owned subsidiary of HOLDCO,
funds managed by ILIAC and subadvised by outside investment advisers, and funds
managed by ING Pilgrim Investments, LLC. Variable separate account investment
income and realized capital gains and losses are not reflected in the Company's
consolidated statements of income. Fully-guaranteed fixed options provide
guarantees on investment return, maturity values and, if applicable, benefit
payments. Other fixed options are "experience rated" and require the customer to
assume investment (including realized capital gains and losses on the sale of
invested assets) and other risks subject to, among other things, principal and
interest guarantees.

FEES AND MARGINS

Insurance and expense charges, investment management fees and other fees earned
by the Company vary by product and depend on, among other factors, the funding
option selected by the customer under the product.

For annuity products where assets are allocated to variable funding options, the
Company may charge the separate account asset-based insurance and expense fees.
In addition, where the customer selects an affiliated mutual fund as a variable
funding option, ILIAC may receive compensation from the fund's adviser,
administrator or other affiliated entity for the performance of certain
shareholder services, which is reflected in the Worksite Products segment's
results. In the case of funds advised by Aeltus, these fees are equal to
one-half the investment advisory fee Aeltus receives. Aeltus, whose operating
results are reported in the Investment Management Services' segment, records the
advisory fees net of the amount it pays to ILIAC. In the case of the variable
option mutual funds advised by ILIAC and subadvised by outside managers, ILIAC
receives an investment advisory fee from which it pays a subadvisory fee to the
outside manager.

Additionally, ILIAC may receive administrative service, distribution (12b-1) and
service plan fees. If the customer selects an unaffiliated mutual fund as a
variable funding option, ILIAC and/or AIS may

4

ITEM 1. BUSINESS (continued)
WORKSITE PRODUCTS (continued)
receive distribution (12b-1) and service plan fees, as well as, compensation
from the fund's adviser, administrator or other affiliated entity for the
performance of certain shareholder services.

In connection with programs offered to qualified plans and nonqualified deferred
compensation plans that package administrative and recordkeeping services along
with a menu of investment options, ILIAC and/or AIS may receive distribution
(12b-1) and service plan fees, as well as, compensation from the affiliated or
unaffiliated fund's adviser, administrator or other affiliated entity for the
performance of certain shareholder services.

For fixed funding options, ILIAC earns a margin, which is based on the
difference between income earned on the investments supporting the liability and
interest credited to customers. The Company may also receive other fees or
charges depending on the nature of the products.

Refer to "Organization of Business" for discussion regarding the dividend of IA
Holdco to HOLDCO.

ASSETS UNDER MANAGEMENT AND ADMINISTRATION

The substantial portion of the Company's fees or other charges and margins are
based on assets under management. Assets under management are principally
affected by net deposits (i.e., deposits, including new contracts, less
surrenders), investment performance (i.e., interest credited to customer
accounts for fixed options or market performance for variable options) and
customer retention. Worksite Products' assets under management, excluding net
unrealized capital gains and losses on debt securities that support fixed
annuities, were $43.0 billion, $44.9 billion and $46.5 billion at December 31,
2001, 2000, and 1999, respectively.

Worksite Products' assets under management include assets that are also reported
in the Investment Management Services segment. Both segments report certain
assets under management because they each earn a different component of revenue
derived from these assets. Refer to "Consolidated Results--Continuing
Operations" in Management's Analysis of the Results of Operations for the
elimination adjustment required to calculate consolidated assets under
management.

Approximately 93% and 94% of assets under management at December 31, 2001 and
2000, respectively, allowed for contractholder withdrawal. Approximately 82% and
85% of assets under management at December 31, 2001 and 2000, respectively, are
subject to market value adjustments and/or deferred surrender charges. To
encourage customer retention and recover acquisition expenses, contracts
typically impose a surrender charge on policyholder balances withdrawn within a
period of time after the contract's inception. The period of time and level of
the charge vary by product. In addition, an approach incorporated into certain
recent variable annuity contracts with fixed funding options allows
contractholders to receive an incremental interest rate if withdrawals from the
fixed account are spread over a period of five years. Further, more favorable
credited rates may be offered after policies have been in force for a period of
time. Existing tax penalties on annuity and certain custodial account
distributions prior to age 59 1/2 provide further disincentive to customers for
premature surrenders of account balances, but generally do not impede transfers
of those balances to products of competitors.

5

ITEM 1. BUSINESS (continued)
WORKSITE PRODUCTS (continued)
Assets under management of the Worksite Products segment are summarized in the
"Worksite Products" section of Management's Analysis of the Results of
Operation.

A portion of the Worksite Products' fee revenue is also based on assets under
administration. Assets under administration are assets for which the Company
provides administrative services only. Assets under administration were
$10.3 billion at December 31, 2001, $8.3 billion at December 31, 2000 and
$4.4 billion at December 31, 1999.

PRINCIPAL MARKETS AND METHOD OF DISTRIBUTION

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

COMPETITION

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

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

RESERVES

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

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

6

ITEM 1. BUSINESS (continued)
INDIVIDUAL PRODUCTS

PRODUCTS AND SERVICES

The Individual Products segment includes qualified and nonqualified annuity
contacts that are offered for sale to individuals. These annuity contracts may
be deferred or immediate (payout annuities).

INVESTMENT OPTIONS

The Individual Products segment offers customers products that contain variable
and/or fixed investment options. Variable options generally provide for full
assumption (and, in limited cases, provide for partial assumption) by the
customer of investment risks. Assets supporting variable annuity options are
held in separate accounts that invest in affiliated and/or unaffiliated mutual
funds.

FEES AND INVESTMENT MARGINS

Insurance and expense charges, investment management fees and other fees earned
by the Company vary by product and depend on, among other factors, the funding
option selected by the customer under the product. For annuity products where
assets are allocated to variable funding options, the Company may charge the
separate account asset-based insurance and expense fees.

In addition, where the customer selects an affiliated mutual fund as a variable
funding option ILIAC may receive compensation from the fund's adviser,
administrator or other affiliated entity for the performance of certain
shareholder services which is reflected in the Individual Products segment's
results. In the case of funds advised by Aeltus, these fees are equal to
one-half the investment advisory fee Aeltus receives. Aeltus, whose operating
results are reported in the Investment Management Services' segment, records the
advisory fees net of the amount it pays to ILIAC. In the case of the variable
option mutual funds advised by ILIAC and subadvised by outside managers, ILIAC
receives an investment advisory fee from which it pays a subadvisory fee to the
outside manager. Additionally, ILIAC and/or AIS may also receive administrative
service, distribution (12b-1) and service plan fees.

For fixed funding options, ILIAC earns a margin, which is based on the
difference between income earned on the investments supporting the liability and
interest credited to customers.

The Company may also receive other fees or charges depending on the nature of
the products.

Refer to "Organization of Business" for discussion regarding the dividend of IA
Holdco to HOLDCO.

ASSETS UNDER MANAGEMENT

The substantial portion of the Company's fees or other charges and margins are
based on assets under management. Assets under management are principally
affected by net deposits (i.e., deposits, including new contracts, less
surrenders), investment performance (i.e., interest credited to customer

7

ITEM 1. BUSINESS (continued)
INDIVIDUAL PRODUCTS (continued)
accounts for fixed options or market performance for variable options) and
customer retention. Individual Products' assets under management, excluding net
unrealized capital gains and losses on debt securities that support fixed
annuities, were $7.8 billion, $8.3 billion and $8.3 billion at December 31,
2001, 2000, and 1999, respectively.

Individual Products' assets under management include assets that are also
reported in the Investment Management Services segment. Both segments report
certain assets under management because they each earn a different component of
revenue derived from these assets. Refer to "Consolidated Results--Continuing
Operations" in Management's Analysis of the Results of Operations for the
elimination adjustment required to calculate consolidated assets under
management.

Approximately 98% and 99% of assets under management at December 31, 2001 and
2000, respectively, allowed for contractholder withdrawal. Approximately 87% and
90% of assets under management at December 31, 2001 and 2000, respectively, are
subject to market value adjustments and/or deferred surrender charges. To
encourage customer retention and recover acquisition expenses, contracts
typically impose a surrender charge on policyholder balances withdrawn within a
period of time after the contract's inception. The period of time and level of
the charge vary by product. Existing tax penalties on annuity distributions
provide further disincentive to customers for premature surrenders of account
balances, but generally do not impede transfers of those balances to products of
competitors.

Assets under management of the Individual Products segment are summarized by
principal business channel in the "Individual Products" section of Management's
Analysis of the Results of Operation.

PRINCIPAL MARKETS AND METHOD OF DISTRIBUTION

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

COMPETITION

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

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

RESERVES

Reserves for limited payment contracts (i.e. annuities with life contingent
payout) are computed on the basis of assumed investment yield and mortality,
including a margin for adverse deviation, which is assumed to provide for
expenses. The assumptions vary by plan, year of issue and policy duration.

8

ITEM 1. BUSINESS (continued)
INDIVIDUAL PRODUCTS (continued)
Reserves for investment contracts (i.e. deferred annuities and immediate
annuities without life contingent payouts) are equal to cumulative deposits plus
credited interest for fixed options, less withdrawals and charges thereon. Of
those investment contracts which are experience-rated, the reserves also reflect
net realized capital gains/losses on the sale of invested assets, which the
Company reflects through credited rates on an amortized basis, and unrealized
capital gains/losses related to FAS No. 115.

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

INVESTMENT MANAGEMENT SERVICES

The Investment Management Services segment primarily consists of the operations
of Aeltus, the primary operating subsidiary of IA Holdco, which has two
wholly-owned operating subsidiaries: Aeltus Capital, Inc. ("ACI"), a broker
dealer, and Aeltus Trust Company ("ATC"), a limited purpose banking entity. IA
Holdco was contributed to ILIAC on July 1, 1999 by HOLDCO. On February 28, 2002,
ILIAC distributed IA Holdco to HOLDCO in the form of a dividend. Refer to
"Organization of Business" and Note 2 and Note 16 of the Notes to Consolidated
Financial Statements.

PRODUCTS AND SERVICES

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

FEES

Investment management fees earned by the Company depend primarily on the
investment style (e.g. equity vs. fixed income) and the service level (e.g.
asset allocation service) selected by the client, as well as the size (measured
by assets under management) of the account. Fees are generated by client money
invested in advisory accounts, individual and pooled trust accounts,
collateralized bond obligations, affiliated mutual funds and separate accounts
of the Company. Prior to April 1, 2001, advisory fees were also earned on
investments supporting the Company's fixed annuity products.

Effective April 1, 2001, ING Investment Management, LLC (IIM), an affiliate of
the Company, replaced Aeltus as the adviser for the investments supporting the
Company's fixed annuity products.

9

ITEM 1. BUSINESS (continued)
INVESTMENT MANAGEMENT SERVICES (continued)
ASSETS UNDER MANAGEMENT

Fee income is substantially derived from a charge assessed on assets under
management. Assets under management are principally affected by net deposits
(i.e., deposits, including new contracts, less surrenders), market performance
and customer retention. Investment Management Services' assets under management,
excluding net unrealized capital gains and losses on debt securities that
support fixed annuities, were $41.7 billion, $55.6 billion and $55.0 billion at
December 31, 2001, 2000, and 1999, respectively. Investment Management Services'
assets under management include assets which are also reported in the Worksite
Products and Individual Products segments. Each of the segments report certain
assets under management because they each earn a different component of revenue
derived from these assets. Refer to "Consolidated Results-Continuing Operations"
in Management's Analysis of the Results of Operations for the elimination
adjustment required to calculate consolidated assets under management.

Substantially all assets under management invested through the products of the
Investment Management Services segment at December 31, 2001, 2000 and 1999
allowed for contractholder withdrawal subject to market value adjustments and/or
deferred contingent sales charges. Collateralized bond obligations managed by
the segment are generally not withdrawable. To encourage customer retention and
recover acquisition expenses, certain mutual fund assets under management are
subject to deferred contingent sales charges on balances withdrawn within a
period of time after contribution to the fund.

Assets under management are summarized for the principal business channels of
the Investment Management Services segment in the "Investment Management
Services" section in Management's Analysis of the Results of Operations.

PRINCIPAL MARKETS AND METHOD OF DISTRIBUTION

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

COMPETITION

Competition arises from an array of financial services companies including
banks, mutual funds and other investment managers. Principal competitive factors
are reputation for investment performance, product features, service, cost and
the perceived financial strength of the investment manager or sponsor.
Competition may affect, among other matters, both business growth and the
pricing of the Company's products and services.

10

ITEM 1. BUSINESS (continued)
DISCONTINUED OPERATIONS--DOMESTIC INDIVIDUAL LIFE INSURANCE

PRODUCTS AND SERVICES

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

LIFE INSURANCE IN FORCE AND OTHER STATISTICAL DATA

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

ASSETS UNDER MANAGEMENT

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

RESERVES

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

The domestic individual life business sold consisted of universal life business
and other fixed individual life business. Reserves for universal life products
are equal to cumulative deposits less withdrawals and charges plus credited
interest for fixed options. Reserves for all other fixed individual life
contracts, which are ceded under the sale agreement, are computed on a basis of

11

ITEM 1. BUSINESS (continued)
DISCONTINUED OPERATIONS--DOMESTIC INDIVIDUAL LIFE INSURANCE (continued)
assumed investment yield, mortality, morbidity and expenses including a margin
for adverse deviation. These assumptions vary by plan, year of issue and policy
duration.

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

GENERAL ACCOUNT INVESTMENTS

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

During the second quarter of 2001, ING Investment Management, LLC, an affiliate
of the Company, became the advisor of the Company's general account investments.
Aeltus was the previous advisor of the Company's general account investments.

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

OTHER MATTERS

REGULATION

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

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

12

ITEM 1. BUSINESS (continued)
OTHER MATTERS (continued)

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

a) Economic Growth and Tax Relief Reconciliation Act of 2001

On June 7, 2001 the Economic Growth and Tax Relief Reconciliation Act of 2001
("EGTRRA") was signed into law. EGTRRA contains important changes to many of the
Internal Revenue Code provisions governing qualified defined contribution and
defined benefit plans, Section 457 deferred compensation plans,
Section 403(b) tax sheltered annuity arrangements and individual retirement
accounts and annuities ("IRAs"). These changes include significant increases in
the contribution limits under retirement plans and IRAs and new rollover
provisions that increase the portability of retirement account assets.

b) Federal Employee Benefit Regulation

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

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

The Small Business Job Protection Act (the "Act"), was signed into law in 1996.
The Act created a framework for resolving potential issues raised by the Supreme
Court decision. The Act provides that, absent criminal conduct, insurers
generally will not have liability with respect to general account assets held
under contracts that are not guaranteed benefit policies based on claims that
those assets are plan assets. The relief afforded extends to conduct that
occurred before the date that is eighteen months after the DOL issues final
regulations required by the Act, except as provided in the anti-avoidance
portion of the regulations. The regulations, which were issued on January 5,
2001, address ERISA's application to the general account assets of insurers
attributable to policies issued on or before December 31, 1998 that are not
guaranteed benefit policies. The conference report relating to the Act states
that policies issued after December 31, 1998 that are not guaranteed benefit
policies will be subject to ERISA's fiduciary obligations. The Company is not
currently able to predict how these matters may ultimately affect its
businesses.

13

ITEM 1. BUSINESS (continued)
OTHER MATTERS (continued)
c) Insurance Holding Company Laws

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

d) Insurance Company Guaranty Fund Assessments

Under insurance guaranty fund laws existing in all states, insurers doing
business in those states can be assessed (up to prescribed limits) for certain
obligations of insolvent insurance companies to policyholders and claimants.
There were no charges to earnings for guaranty fund obligations during 2001 and
no material charges during 2000 and 1999. While the Company has historically
recovered more than half of its guaranty fund assessments through statutorily
permitted premium tax offsets, significant increases in assessments could
jeopardize future efforts to recover such assessments. For information regarding
certain other potential regulatory changes relating to the Company's businesses,
see Management's Analysis of the Results of Operations--Forward-Looking
Information/ Risk Factors.

RATINGS

The Company's financial strength ratings at March 25, 2002 and November 9, 2001
are as follows:

MISCELLANEOUS

The Company had approximately 3000 employees at December 31, 2001.

Management believes that the Company's computer facilities, systems and related
procedures are adequate to meet its business needs. The Company's data
processing systems and backup and security policies, practices and procedures
are regularly evaluated by the Company's management and internal auditors and
are modified as considered necessary.

The Company is not dependent upon any single customer and no single customer
accounted for more than 10% of consolidated revenue in 2001. In addition, the
loss of business from any one, or a few, independent brokers or agents would not
have a material adverse effect on the earnings of the Company.

14

ITEM 2. PROPERTIES

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

ITEM 3. LEGAL PROCEEDINGS

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

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

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

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

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

15

PART II

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

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

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

ITEM 6. SELECTED FINANCIAL DATA

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

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

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

OVERVIEW

SALE OF AETNA FINANCIAL SERVICES AND AETNA INTERNATIONAL

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 1 of the Notes to Consolidated
Financial Statements.

CONTRIBUTIONS FROM AND DISTRIBUTIONS TO HOLDCO

On June 30, 2000, HOLDCO contributed AIS to the Company. Refer to Note 2 of the
Notes to Consolidated Financial Statements.

On July 1 1999, HOLDCO contributed IA Holdco to the Company. On February 28,
2002, ILIAC distributed IA Holdco to HOLDCO in the form of a dividend. The
primary operating subsidiary of IA Holdco is Aeltus Investment Management, Inc.
("Aeltus"). Aeltus, along with its subsidiaries, comprises the Investment
Management Services segment. Refer to Notes 2 and 16 of the 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 and certain items not directly allocable to the business segments.
Refer to Note 14 of Condensed Notes to Financial Statements.

16

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
CONSOLIDATED RESULTS (continued)

OPERATING SUMMARY

(1) Year-ended 2000 reflects an aggregation of the pre-acquisition period of
the eleven months ended November 30, 2000 and the post acquisition period
of one month ended December 31, 2000.
(2) Includes $75.0 million in 2001, $107.8 million in 2000 and $71.5 million in
1999 for annuity premiums on contracts converting from the accumulation
phase to payout options with life contingencies.
(3) Represents consolidating adjustment related to the assets under management
reported in the Worksite Products and Individual Products segments and also
in the Investment Management Services segment.
(4) Includes $11,272.2 million, $13,492.1 million and $13,472.4 million at
December 31, 2001, 2000 and 1999, respectively, of assets invested through
the Company's products in unaffiliated mutual funds.
(5) Assets under management relating to fixed options excludes net unrealized
capital gains of $291.0 million at December 31, 2001, net unrealized
capital losses of $126.9 million at December 31, 2000 and net unrealized
capital gains of $247.9 million at December 31, 1999.
(6) As of December 31, 2001, 2000 and 1999, amounts included $2,648.1 million,
$5,837.1 million and $6,986.3 million, respectively, of assets managed for
Aetna Life Insurance Company, a former affiliate of the Company (refer to
Note 1 of the Notes to Consolidated Financial Statements).
(7) Represents assets for which the Company provides administrative services
only.

17

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
CONSOLIDATED RESULTS (continued)
CONTINUING OPERATIONS

Income from continuing operations decreased $84 million in 2001 and increased $2
million in 2000. Income from continuing operations includes Year 2000 costs of
$18 million in 1999. Excluding amortization of goodwill and the restructuring
charge in 2001 and net realized capital losses, income from continuing
operations decreased $2 million in 2001 and increased $11 million in 2000.

The decrease in income in 2001 is primarily due to a decrease in charges
assessed against policyholders resulting from lower levels of assets under
management and an increase in the effective tax rate substantially offset by a
decrease in operating expenses and an increase in other income.

The increase in income in 2000 primarily reflects an increase in charges
assessed against policyholders and other income resulting from higher levels of
assets under management and administration partially offset by higher operating
expenses.

Substantially all of the charges assessed against policyholders and other income
reported for continuing operations are derived from assets under management and
administration. Compared to prior years, assets under management and
administration at December 31, 2001 decreased 2% and at December 31, 2000
increased 5%. The decrease in 2001 is primarily due to a decline in the stock
market, substantially offset by additional assets associated with new
administrative contracts. The increase in 2000 is primarily due to additional
assets associated with new investment advisory and administrative contracts
(including approximately $3 billion of plan assets from a new large case, which
closed in the second quarter of 2000) and additional net deposits. This increase
was partially offset by the stock market decline in the last half of 2000.

Certain assets under management reported under the Worksite Products and
Individual Products segments are also reported under the Investment Management
Services segment, because each segment reports a different component of the
revenue generated from this particular group of assets. The group of assets that
are reported in more than one segment must be deducted from the aggregate
segment assets to determine the consolidated assets under management of the
Company.

Salaries and related benefits for the years-ended December 31, 2001 and 2000
decreased 17% and increased 42%, respectively, over the prior years. The
decrease in 2001 is primarily due to lower staffing levels resulting from
integration efforts and the implementation of new long-term compensation
agreements by Aeltus at the beginning of the year. The increase in 2000
primarily reflects higher staffing levels needed to support business growth and
the implementation of strategic business initiatives and higher variable
compensation triggered in certain compensation plans when ING purchased the
Company. Other operating expenses for the years-ended December 31, 2001 and 2000
decreased 5% and increased 15%, respectively, over prior years. The decrease in
2001 is primarily a result of management's continued focus on expense reduction
initiatives. The increase in 2000 is primarily due to business growth and
implementation of strategic business initiatives. Other operating expenses in
1999 include Year 2000 costs, before tax, of approximately $27 million. Year
2000 costs for 1999 are not allocated to the Company's segments.

18

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
CONSOLIDATED RESULTS (continued)
The increase in the effective tax rate for the year-ended December 31, 2001
primarily relates to the disallowance of goodwill amortization as a deduction
and a decrease in the deduction for dividends received.

OUTLOOK

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

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

19

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
WORKSITE PRODUCTS

OPERATING SUMMARY

(1) Year-ended 2000 data reflects an aggregation of the pre-acquisition period
of the eleven months ended November 30, 2000 and the post acquisition
period of one month ended December 31, 2000.
(2) Includes $75.0 million in 2001, $107.8 million in 2000 and $71.5 million in
1999 for annuity premiums on contracts converting from the accumulation
phase to payout options with life contingencies.
(3) Restructuring charges and amortization of goodwill incurred in 2001 and
Year 2000 costs incurred in 1999 are not allocated to segment expenses;
and, therefore, are excluded in the determination of segment net income.
(4) Includes $12,287.2 million, $24,367.5 million, and $26,582.4 million of
assets under management at December 31, 2001, 2000 and 1999, respec-
tively, that are also reported in the Investment Management Services
segment (refer to "Consolidated Results").
(5) Excludes net unrealized capital gains of $253.6 million and $106.8 million
at December 31, 2001 and 2000, respectively, and net unrealized capital
losses of $217.8 million at December 31, 1999.
(6) Includes $8,546.1 million at December 31, 2001, $10,068.6 million at
December 31, 2000, and $9,935.7 million at December 31, 1999 related to
assets invested through the Company's products in unaffiliated mutual
funds.
(7) Represents assets for which the Company provides administrative services
only.

Worksite Products' net income decreased $8 million in 2001 and $14 million in
2000. Excluding net realized capital losses, net income decreased $9 million, or
6%, in 2001 and $6 million, or 3% in 2000. The decrease in 2001 net income
excluding net realized capital losses is primarily due to a

20

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
WORKSITE PRODUCTS (continued)
decrease in charges assessed against policyholders primarily offset by a
decrease in operating expenses. The decrease in 2000 net income excluding net
realized capital losses primarily reflects an increase in operating expenses
partially offset by an increase in charges assessed against policyholders and
other income.

Charges assessed against policyholders for the year-ended December 31, 2001
decreased because assets under management were lower throughout most of 2001
when compared to 2000. Assets under management were lower in 2001 due to a
continued decline in the stock market through the first three quarters of 2001,
partially offset by additional net deposits (i.e., deposits less surrenders).

For the year-ended December 31, 2000, charges assessed against policyholders
increased when compared to 1999. This increase resulted from higher levels of
assets under management through the first three quarters of 2000. The decrease
in assets under management in the fourth quarter of 2000 resulted from a decline
in the stock market that began in the last half of 2000 but was more than offset
by additional net deposits until the fourth quarter.

Assets under administration increased 24% and 87% at December 31, 2001 and 2000,
respectively, compared to prior year-ends, due primarily to additional assets
associated with new administration contracts offset by declines in the stock
market.

Annuity deposits relate to annuity contracts not containing life contingencies.
Compared to prior years, deposits were relatively level for the year-ended
December 31, 2001 and decreased 9%, for the year-ended December 31, 2000. The
decrease for the year-ended December 31, 2000 results from the fact that net
deposits in 1999 included the plan assets from two large new cases.

Compared to prior years, salaries and related benefits decreased 6% for the
year-ended December 31, 2001 and increased 34% for the year-ended December 31,
2000. The decrease in 2001 primarily reflects lower staffing levels due to
continued integration efforts. The increase in 2000 primarily reflects higher
staffing levels needed to support business growth and the implementation of
strategic business initiatives, particularly improving system infrastructures
and adding new distribution capabilities. Other operating expenses decreased 8%
for the year-ended December 31, 2001 and increased 23% for the year-ended
December 31, 2000 compared to prior years. The decrease in 2001 is primarily the
result of management's continued focus on expense reduction initiatives. The
increase in 2000 is primarily due to business growth and implementation of
strategic business initiatives.

21

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
INDIVIDUAL PRODUCTS

OPERATING SUMMARY

(1) Year-ended 2000 data reflects an aggregation of the pre-acquisition period
of the eleven months ended November 30, 2000 and the post acquisition
period of one month ended December 31, 2000.
(2) Restructuring charges and amortization of goodwill incurred in 2001 and
Year 2000 costs incurred in 1999 are not allocated to segment expenses;
and, therefore, are excluded in the determination of segment net income.
(3) Includes $2,482.6 million, $4,409.7 million, and $4,185.6 million of assets
under management at December 31, 2001, 2000 and 1999, respectively, that
are also reported in the Investment Management Services segment (refer to
"Consolidated Results").
(4) Excludes net unrealized capital gains of $37.4 million and $20.1 million at
December 31, 2001 and 2000, respectively, and net unrealized capital losses
of $30.1 million at December 31, 1999.
(5) Includes $2,726.1 million at December 31, 2001, $3,423.7 million at
December 31, 2000, and $3,537.0 million at December 31, 1999 related to
assets invested through the Company's products in unaffiliated mutual
funds.

Individual Products' net income was level in 2001 and increased $9 million in
2000 when compared to the prior year. Excluding net realized capital gains and
losses, net income decreased $9 million, or 27%, in 2001 and increased $11
million, or 49%, in 2000. The decrease in 2001 net income excluding net realized
capital gains and losses is primarily due to a decrease in charges assessed
against policyholders and an increase in operating expenses. The increase in
2000 net income excluding net realized capital losses primarily reflects an
increase in charges assessed against policyholders and other income partially
offset by an increase in operating expenses.

Compared to the previous year, charges assessed against policyholders for the
year-ended December 31, 2001 decreased because assets under management were
lower throughout most of 2001

22

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
INDIVIDUAL PRODUCTS (continued)
when compared to 2000. Assets under management were lower in 2001 due to a
continued decline in the stock market through the first three quarters of 2001,
partially offset by additional net deposits (i.e., deposits less surrenders).
Charges assessed against policyholders for the year-ended December 31, 2000
increased due to higher levels of assets under management resulting from
additional net deposits substantially offset by a decline in the stock market in
the last half of 2000.

Annuity deposits relate to annuity contracts not containing life contingencies.
Compared to prior years, deposits decreased 37% for the year-ended December 31,
2001 and 16%, for the year-ended December 31, 2000 due to a decrease in
individual annuity sales.

Compared to prior years, salaries and related benefits decreased 18% for the
year-ended December 31, 2001 and increased 36% for the year-ended December 31,
2000. The decrease in 2001 primarily reflects lower staffing levels due to
integration efforts. The increase in 2000 primarily reflects higher staffing
levels needed to support business growth and the implementation of strategic
business initiatives, particularly improving system infrastructures and adding
new distribution capabilities. Other operating expenses increased 35% for the
year-ended December 31, 2001 and 30% for the year-ended December 31, 2000
compared to prior years. Other operating expenses in 2001 were affected by a
lower level of policy acquisition expenses being deferred in order to conform
with ING's deferral practice. The resulting increase was partially offset by
lower overall operating expenses due to management's continued focus on expense
reduction initiatives. The increase in 2000 is primarily due to business growth
and implementation of strategic business initiatives.

INVESTMENT MANAGEMENT SERVICES

Effective April 1, 2001, ING Investment Management, LLC (IIM), an affiliate of
the Company, replaced Aeltus Investment Management, Inc. ("Aeltus"), an indirect
wholly owned subsidiary of the Company at that time, as the advisor for the
investments supporting the Company's fixed annuity products. Aeltus, along with
its subsidiaries, comprises the Investment Management Services segment.
Subsequent to the effective date of the new advisory agreement, ILIAC pays
advisory fees relating to these assets under management to IIM instead of
Aeltus.

23

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
INVESTMENT MANAGEMENT SERVICES (continued)
OPERATING SUMMARY

(1) Year-ended 2000 data reflects an aggregation of the pre-acquisition period
of the eleven months ended November 30, 2000 and the post acquisition
period of one month ended December 31, 2000.
(2) Primarily includes investment advisory fees earned on assets under
management.
(3) Restructuring charges and amortization of goodwill incurred in 2001 and
Year 2000 costs incurred in 1999 are not allocated to segment operating
expenses and, therefore, excluded in the determination of segment net
income.
(4) As of December 31, 2001, 2000 and 1999, amounts included $2,648.1 million,
$5,837.1 million and $6,986.3 million, respectively, of assets managed for
Aetna Life Insurance Company, a former affiliate of the Company (refer to
Note 1 of the Notes to Consolidated Financial Statements).
(5) The Investment Management Services segment earns investment advisory fees
on these assets, which are also reported in the Worksite Products and
Individual Products segments.
(6) In accordance with a new advisory agreement effective April 1, 2001, ING
Investment Management, LLC, an affiliate of the Company, manages the
investments supporting the Company 's fixed annuity products.
(7) Excludes net unrealized capital losses of $126.9 million at December 31,
2000 and net unrealized capital gains of $247.9 million at December 31,
1999.

24

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

For the Investment Management Services segment, net income excluding realized
capital gains in 2001 and 2000 increased $18 million, or over 100%, for the
year-ended December 31, 2001, and decreased $18 million, or 65%, for the
year-ended December 31, 2000. The increase for 2001 primarily reflects a
decrease in operating expenses partially offset by a decrease in investment
advisory fees. The decrease for 2000 primarily reflects an increase in operating
expenses partially offset by an increase in investment advisory fees.

Compared to prior years, salary and related benefits decreased 44% for the
year-ended December 31, 2001 and increased 78% for the year-ended December 31,
2000. The decrease in 2001 is primarily due to the implementation of new
long-term compensation agreements by Aeltus at the beginning of the year. The
increase in 2000 is the result of higher variable compensation expense caused by
change in control provisions in certain compensation plans, which were triggered
by ING's purchase of the Company, and business growth. For the years-ended
December 31, 2001 and 2000, other operating expenses decreased 9% and increased
26%, respectively, compared to prior years. The decrease in 2001 is primarily
due to management's continued focus on expense reduction initiatives and the
increase in 2000 is due to business growth.

Investment advisory fees, reported in "other income" are calculated based on
assets under management. Assets under management were 25% lower at December 31,
2001 than the prior year primarily due to the change in the advisory agreements
previously discussed and a decline in the stock market. At December 31, 2000,
assets under management were relatively level when compared to the prior year.

Refer to "Overview" and Notes 2 and 16 of the Notes to Consolidated Financial
Statements.

DISCONTINUED OPERATIONS--DOMESTIC INDIVIDUAL LIFE INSURANCE

On October 1, 1998, the Company sold its domestic individual life insurance
business to Lincoln. Refer to Note 3 of the Notes to Consolidated Financial
Statements for further discussion on the sale.

GENERAL ACCOUNT INVESTMENTS

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

25

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
GENERAL ACCOUNT INVESTMENTS (continued)
The Company's invested assets were comprised of the following:

(1) Includes $467.2 million and $126.7 million of debt securities pledged to
creditors at December 31, 2001 and 2000, respectively. Refer to
"Investments" in Note 1 of Notes to Consolidated Financial Statements.
(2) Includes $2.3 million of short-term investments pledged to creditors at
December 31, 2000. Refer to "Investments" in Note 1 of Notes to
Consolidated Financial Statements

DEBT SECURITIES

At December 31, 2001 and 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 95% of the general
account invested assets. For the same periods, $11.4 billion, or 81% of total
debt securities, and $8.9 billion, or 79% of total debt securities supported
experience rated products. Total debt securities reflected net unrealized
capital gains of $291.0 million and $126.9 million at December 31, 2001 and
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 at December 31, 2001 and 2000 was AA- and AA,
respectively.

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

26

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
GENERAL ACCOUNT INVESTMENTS (continued)
The portfolio of debt securities at December 31, 2001 and 2000 included
$735 million (5.3% of the total debt securities) and $482 million (4.3% of the
total debt securities), respectively, of investments that are considered "below
investment grade". "Below investment grade" securities are defined to be
securities that carry a rating below BBB- and Baa3, by Standard & Poor's and
Moody's Investors Services, respectively.

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

(1) Substantially all U.S. Dollar Denominated

RISK MANAGEMENT AND MARKET SENSITIVE INSTRUMENTS

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

The Company's use of derivatives is generally limited to hedging purposes. When
used for hedging, the expectation is that these derivative instruments would
reduce overall risk. (Refer to Notes 1 and 5 of the Notes to Consolidated
Financial Statements for additional information.)

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

27

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
GENERAL ACCOUNT INVESTMENTS (continued)
INTEREST RATE RISK

Assuming an immediate increase of 100 basis points in interest rates, the net
hypothetical loss in fair value of shareholder's equity related to financial and
derivative instruments is estimated to be $28 million (after tax) at
December 31, 2001 and $44 million (after tax) at December 31, 2000. The Company
believes that an interest rate shift of this magnitude represents a moderately
adverse scenario, and is approximately equal to the historical annual volatility
of interest rate movements for the Company's intermediate term
available-for-sale debt securities. The Company has included corresponding
changes in certain insurance liabilities in this sensitivity analysis.

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

The risks associated with investments supporting experience rated pension and
annuity products are assumed by those contractholders, not by the Company
(subject to, among other things, principal and interest guarantees). Risks
associated with the investments and liabilities related to experience-rated
pension and annuity products are not included in the sensitivity analysis
presented below.

EQUITY PRICE RISK

The Company's available-for-sale equity securities are comprised primarily of
domestic stocks. Assuming an immediate decrease of 10% in equity prices for
domestic equity securities, the hypothetical loss in fair value of shareholder's
equity related to financial and derivative instruments is estimated to be
$2 million (after tax) at December 31, 2001 and 2000.

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

28

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
As the Company's investment strategy focuses on matching asset and liability
cashflow characteristics, and since the assessments of these characteristics are
dependent on numerous cash flow assumptions, asset sales may, from time to time,
be required to satisfy liability obligations and/or rebalance asset portfolios.
The investment portfolios are closely monitored to assess asset and liability
matching in order to rebalance the portfolios as conditions warrant.

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

The Company did not receive any capital contributions in 2001 and 1999. In 2000,
the Company received capital contributions of $73.5 million in cash and
$56.0 million in assets from HOLDCO.

The Company paid $10.1 million and $255.7 million in cash dividends to HOLDCO in
2000 and 1999, respectively. Of the $255.7 million paid in 1999, $206.0 million
was accrued for in 1998. For the year-ended December 31, 2001, the Company did
not pay any cash dividends to HOLDCO. The Company is restricted from paying any
dividends to HOLDCO in 2002 without prior approval by the Insurance Commissioner
of the State of Connecticut.

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

CRITICAL ACCOUNTING POLICIES

GENERAL

We have identified the accounting policies below as critical to our business
operations and understanding of our results of operations. For a detailed
discussion of the application of these and other accounting policies, see Note 1
in the Notes to Consolidated Financial Statements. Note that the application of
these accounting policies in the preparation of this report requires management
to use judgments involving assumptions and estimates concerning future results
or other developments including the likelihood, timing or amount of one or more
future transactions or events. There can be no assurance that actual results
will not differ from those estimates. These judgments are reviewed frequently by
senior management, and an understanding of them may enhance the reader's
understanding of the Company's financial statements and Management's Discussion
and Analysis.

AMORTIZATION OF DEFERRED ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED

We amortize our deferred policy acquisition costs and value of business acquired
on our annuity and pension contracts in proportion to estimated gross profits
and adjusted to reflect actual gross profits over the life of the contracts (up
to 30 years for annuity and pension contracts). Our estimated gross profits are
computed based on assumptions related to the underlying contracts including, but
not limited to, charges assessed against policyholders, margins, lapse,
persistency, expenses and asset growth rates.

29

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
CRITICAL ACCOUNTING POLICIES (continued)
Our current estimated gross profits include certain judgments concerning charges
assessed against policyholders, margins, lapse, persistency, expenses and asset
growth that are based on a combination of actual company experience and
historical market experience of equity and fixed income returns. Estimated gross
profits are adjusted periodically to take into consideration the actual
experience to date and changes in future assumptions. Short-term variances of
actual results from the judgments made by management can impact quarter to
quarter earnings.

INCOME TAXES

The Company establishes reserves for possible adjustments by various taxing
authorities. Management believes there are sufficient reserves provided for, or
adequate defenses against, any such adjustments.

FORWARD-LOOKING INFORMATION/RISK FACTORS

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

Certain information contained in this Management's Analysis of the Results of
Operations is forward-looking within the meaning of the 1995 Act or Securities
and Exchange Commission rules. This information includes, but is not limited to
the information that appears under the headings: (1) Overview--Outlook and
(2) General Account Investments--Risk Management and Market Sensitive
Instruments/Interest Rate Risk/Equity Price Risk. In writing this Management's
Analysis of the Results of Operations, we also used the following words, or
variations of these words and similar expressions, where we intended to identify
forward-looking statements:

- - Expects - Plans
- - Projects - Believes
- - Anticipates - Seeks
- - Intends - Estimates

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

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

30

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
FORWARD-LOOKING INFORMATION/RISK FACTORS (continued)
CERTAIN FACTORS PARTICULAR TO THE COMPANY'S OPERATIONS

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

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

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

LITIGATION CAN ADVERSELY AFFECT US. Litigation also could adversely affect us,
both through costs of defense and adverse results or settlements. Refer to
Note 15 of the Notes to Consolidated Financial Statements and Legal Proceedings
for information regarding litigation.

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKETRISK

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

31

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

33

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
ING Life Insurance and Annuity Company

We have audited the accompanying consolidated balance sheet of ING Life
Insurance and Annuity Company and Subsidiaries (formerly Aetna Life Insurance
and Annuity Company and Subsidiaries and hereafter referred to as the Company)
as of December 31, 2001, and the related consolidated statements of income,
changes in shareholder's equity, and cash flows for the then year ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ING Life Insurance
and Annuity Company and Subsidiaries at December 31, 2001, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States.

As discussed in Note 1, the Company adopted Financial Accounting Standards (FAS)
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, and FAS
No. 140, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES.

/s/ Ernst & Young LLP

Hartford, Connecticut
January 31, 2002

34

REPORT OF INDEPENDENT AUDITORS

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

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

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

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

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

/s/ KPMG LLP

Hartford, Connecticut
March 27, 2001

35

ITEM 1. FINANCIAL STATEMENTS

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(Formerly known as Aetna Life Insurance and Annuity Company, a wholly-owned
subsidiary of Aetna Retirement Holdings, Inc.)

CONSOLIDATED STATEMENTS OF INCOME
(millions)

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

36

ITEM 1. FINANCIAL STATEMENTS (continued)

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(Formerly known as Aetna Life Insurance and Annuity Company, a wholly-owned
subsidiary of Aetna Retirement Holdings, Inc.)

CONSOLIDATED BALANCE SHEETS
(millions, except share data)

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

37

ITEM 1. FINANCIAL STATEMENTS (continued)

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(Formerly known as Aetna Life Insurance and Annuity Company, a wholly-owned
subsidiary of Aetna Retirement Holdings, Inc.)

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

(1) Net of reclassification adjustments.

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

38

ITEM 1. FINANCIAL STATEMENTS (continued)

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(Formerly known as Aetna Life Insurance and Annuity Company, a wholly-owned
subsidiary of Aetna Retirement Holdings, Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ING Life Insurance and Annuity Company ("ILIAC"), formerly known as Aetna
Life Insurance and Annuity Company ("ALIAC") and its wholly owned
subsidiaries (collectively, the "Company") are providers of financial
products and services and investment management services in the United
States. The Company has 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 (refer to Note 3).

On December 13, 2000, ING America Insurance Holdings, Inc. ("ING AIH"), 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 recorded as of November 30,
2000 using the purchase method. The effects of this transaction, including
the recognition of goodwill, were pushed down and reflected on the financial
statements of certain ARSI (a subsidiary of Lion) subsidiaries, including
the Company. The Balance Sheet changes related to accounting for this
purchase were entirely non-cash in nature and accordingly have been excluded
from the pre-acquisition Consolidated Statement of Cash Flow for the eleven
months ended November 30, 2000.

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

The allocation of the purchase price to assets and liabilities has been
subjected to further refinement throughout 2001 as additional information
has become available to more precisely estimate the fair values of the
Company's respective assets and liabilities at the purchase date. The
refinements to the Company's purchase price allocations are as follows:

The Company completed a full review relative to the assumptions and
profit streams utilized in the development of value of business acquired
("VOBA") and determined that certain refinements were necessary. Such
refinements resulted in a reduction of VOBA;

The Company completed the review of the fixed assets that existed at or
prior to the acquisition and determined that an additional write down was
necessary;

The Company completed the review of severance actions related to
individuals who were employed before or at the acquisition date and
determined that an additional severance accrual was necessary;

40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company completed its valuation of certain benefit plan liabilities
and, as a result, reduced those benefit plan liabilities;

The Company adjusted its reserve for policyholders' funds left with the
company in order to conform its accounting policies with those of ING;

The Company, after giving further consideration to certain exposures in
the general market place, determined that a reduction of its investment
portfolio carrying value was warranted;

The Company determined that the establishment of a liability for certain
noncancellable operating leases that existed prior to or at the
acquisition date but are no longer providing a benefit to the Company's
operations, was warranted; and

The Company determined that the contractual lease payment of one of its
operating leases was more than the current market rate, and established a
corresponding unfavorable lease liability.

The net impact of the refinements in purchase price allocations, as
described above, resulted in a net decrease to assets, excluding the effects
of goodwill, of $236.4 million, a net decrease to liabilities of $59.8
million and a net increase to the Company's goodwill of $176.6 million.

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

The Worksite Products segment includes annuity contracts that offer a
variety of funding and payout options for employer-sponsored retirement
plans qualified under Internal Revenue Code Sections 401, 403, 408, and 457,
nonqualified annuity contracts, and mutual funds. Annuity contracts may be
deferred or immediate ("payout annuities"). These products also include
programs offered to qualified plans and nonqualified deferred compensation
plans that package administrative and recordkeeping services along with a
menu of investment options, including mutual funds (both ILIAC and
nonaffiliated mutual funds), variable and fixed investment options. Worksite
products also include investment advisory services and pension plan
administrative services.

The Individual Products segment includes both deferred and immediate annuity
contracts, which may be qualified or nonqualified, that are sold to
individuals. These contracts also offer a choice of fixed or variable
investment options, including both ILIAC and nonaffiliated mutual funds.

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 ING Series Fund, Inc.
(formerly known as the Aetna Series Fund, Inc.), and the ING Variable

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Portfolios, Inc. (formerly known as the Aetna Variable Portfolios, Inc.);
distribution services for other company products; and trustee,
administrative, and other fiduciary services to retirement plans requiring
or otherwise utilizing a trustee or custodian.

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

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include ILIAC and its wholly-owned
subsidiaries, ING Insurance Company of America ("IICA"), Aetna Investment
Adviser Holding Company, Inc. ("IA Holdco") and Aetna Investment Services,
LLC ("AIS"). ILIAC is a wholly-owned subsidiary of Aetna Retirement
Holdings, Inc. ("HOLDCO"), which is a wholly- owned subsidiary of Aetna
Retirement Services, Inc. ("ARSI"). ARSI is ultimately owned by ING Groep
N.V. (ING). HOLDCO contributed AIS to the Company on June 30, 2000 and
contributed IA Holdco to the Company on July 1, 1999 (refer to Note 2).

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

Certain reclassifications have been made to 2000 and 1999 financial
information to conform to the 2001 presentation.

NEW ACCOUNTING STANDARD

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard ("FAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended and interpreted by FAS No.
137, Accounting for Derivative Instruments and Hedging Activites -- 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 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. FAS 133 was effective for the Company's financial statements
beginning January 1, 2001.

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).

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company utilizes options, interest rate floors 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 the 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
December 31, 2001, the estimated value of these warrants was immaterial.
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 that is "embedded" in the instrument. In addition, the Company's
insurance products are reviewed to determine whether they contain an
embedded derivative. The Company assesses whether the economic
characteristics of the embedded derivative are clearly and closely related
to the economic characteristics of the remaining component of the financial
instrument or insurance product (i.e., the host contract) and whether a
separate instrument with the same terms as the embedded instrument would
meet the definition of a derivative instrument. When it is determined that
the embedded derivative possesses economic characteristics that are clearly
and closely related to the economic characteristics of the host contract and
that a separate instrument with the same terms would qualify as a derivative
instrument, the embedded derivative is separated from the host contract and
carried at fair value. However, in cases where the host contract is measured
at fair value, with changes in fair value reported in current period
earnings or the Company is unable to reliably identify and measure the
embedded derivative for separation from its host contracts, the entire
contract is carried on the balance sheet at fair value and is not designated
as a hedging instrument (refer to Note 5).

FUTURE ACCOUNTING STANDARD

ACCOUNTING FOR GOODWILL AND INTANGIBLE ASSETS

In July 2001, the FASB issued FAS No. 142, Accounting for Goodwill and
Intangible Assets. Under the new standard, goodwill and intangible assets
deemed to have indefinite lives will no

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
longer be amortized but will be subject to annual impairment tests in
accordance with the new standard. Other intangible assets will continue to
be amortized over their useful lives.

The Company will apply the new rules on the accounting for goodwill and
other intangible assets beginning in the first quarter of 2002. Application
of the nonamortization provisions of the new standard is expected to result
in an increase in net income; however, the Company is still assessing the
impact of the new standard. During 2002, the Company will perform the
required impairment tests of goodwill as of January 1, 2002 and has not yet
determined what the effect of these tests will be on the earnings and
financial position of the Company.

USE OF ESTIMATES

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

CASH AND CASH EQUIVALENTS

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

INVESTMENTS

All of the Company's fixed maturity and equity securities are currently
designated as available-for-sale. Available-for-sale securities are reported
at fair value.

Securities determined to have a decline in value that is other than
temporary are written down to estimated fair value which becomes the
securities' new cost basis by a charge to realized losses in the
accompanying consolidated statements of operations. Premiums and discounts
are amortized/ accrued utilizing the scientific interest method which
results in a constant yield over the securities' expected lives.
Amortization/accrual of premiums and discounts on mortgage-related
securities incorporates a prepayment assumption to estimate the securities
expected lives.

Included in available-for-sale securities are investments that support
experience-rated products. Experience-rated products are products where the
customer, not the Company, assumes investment (including realized capital
gains and losses on the sale of invested assets) and other risks, subject
to, among other things, principal and interest guarantees. Realized gains
and losses on the sale of, as well as unrealized capital gains and losses
on, investments supporting these products are reflected in policyholders'
funds left with the Company. Realized capital gains and losses on all other
investments are reflected on all other investments are reflected in the
Company's results of operations. Unrealized capital gains and losses on all
other investments are reflected in shareholder's equity, net of related
income taxes.

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

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

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

Total securities pledged to creditors at December 31, 2001 consisted
entirely of debt securities.

Dollar rolls and reverse repurchase agreement transactions are accounted for
as collateral borrowings, where the amount borrowed is equal to the sales
price of the underlying securities. These transactions are reported in
"Other Liabilities."

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The investment in affiliated mutual funds represents an investment in funds
managed by Aeltus Investment Management, Inc. ("Aeltus"), an indirect wholly
owned subsidiary of HOLDCO. Funds managed by ILIAC and subadvised by outside
investment advisers, and funds managed by ING Pilgrim Investments, LLC, and
is carried at fair value.

Mortgage loans on real estate are reported at amortized cost less a
valuation allowance. If the value of any mortgage loan is determined to be
impaired (i.e., when it is probable the Company will be unable to collect
all amounts due according to the contractual terms of the loan agreement),
the carrying value of the mortgage loan is reduced to the present value of
expected cash flows from the loan, discounted at the loan's effective
interest rate, or to the loan's observable market price, or the fair value
of the underlying collateral. The carrying value of the impaired loans is
reduced by establishing a valuation allowance which is adjusted at each
reporting date for significant changes in the calculated value of the loan.
Changes in this valuation allowance are charged or credited to income.

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

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

The Company's use of derivatives is limited to hedging purposes. The Company
enters into interest rate and currency contracts, including swaps, caps, and
floors to reduce and manage risks associated with changes in value, yield,
price, cash flow or exchange rates of assets or liabilities held or intended
to be held. Changes in the fair value of open derivative contracts are
recorded in net realized capital gains and losses (Refer to Note 5).

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

GOODWILL

Goodwill, which represents the excess of cost over the fair value of net
assets acquired, was amortized on a straight-line basis over 40 years. Refer
to "Future Accounting Standard" within Note 1 for related information
regarding the accounting for goodwill.

DEFERRED POLICY ACQUISITION COSTS

Certain costs of acquiring certain insurance business are deferred. These
costs, all of which vary with and are primarily related to the production of
new and renewal business, consist principally of commissions, certain
expenses of underwriting and issuing contracts, and certain agency expenses.
For certain annuity and pension contracts, such costs are amortized in
proportion to estimated gross profits and adjusted to reflect actual gross
profits over the life of the contracts (up to 30 years for annuity and
pension contracts).

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

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). VOBA is written off to the extent that it is determined
that gross profits are not adequate to recover the asset.

Activity for the year-ended December 31, 2001 within VOBA was as follows:

The estimated amount of VOBA to be amortized, net of interest, over the next
five years is $81.1 million, $95.5 million, $103.3 million, $96.6 million
and $89.5 million for the years 2002, 2003, 2004, 2005 and 2006,
respectively. Actual amortization incurred during these years may vary as
assumptions are modified to incorporate actual results.

INSURANCE RESERVE LIABILITIES

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

Reserves for immediate annuities with life contingent payout contracts are
computed on the basis of assumed investment yield, mortality, and expenses,
including a margin for adverse deviations. Such assumptions generally vary
by plan, year of issue and policy duration. Reserve interest rates

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
range from 2.0% to 9.5% for all years presented. Investment yield is based
on the Company's experience.

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

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

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

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

REVENUE RECOGNITION

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

SEPARATE ACCOUNTS

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

Separate Accounts assets supporting variable options under universal life
and annuity contracts are invested, as designated by the contractholder or
participant under a contract (who bears the investment risk subject, in
limited cases, to minimum guaranteed rates) in shares of mutual funds

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
which are managed by the Company, or other selected mutual funds not managed
by the Company.

Separate Accounts assets are carried at fair value. At December 31, 2001 and
2000, unrealized gains of $10.8 million and of $9.5 million, respectively,
after taxes, on assets supporting a guaranteed interest option are reflected
in shareholder's equity.

Separate Accounts liabilities are carried at fair value, except for those
relating to the guaranteed interest option. Reserves relating to the
guaranteed interest option are maintained at fund value and reflect interest
credited at rates ranging from 3.0% to 14.0% in 2001 and 3.8% to 14.0% in
2000.

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

REINSURANCE

The Company utilizes indemnity reinsurance agreements to reduce its exposure
to large losses in all aspects of its insurance business. Such reinsurance
permits recovery of a portion of losses from reinsurers, although it does
not discharge the primary liability of the Company as direct insurer of the
risks reinsured. The Company evaluates the financial strength of potential
reinsurers and continually monitors the financial condition of reinsurers.
Only those reinsurance recoverable balances deemed probable of recovery are
reflected as assets on the Company's Consolidated Balance Sheets. Of the
reinsurance recoverable on the Consolidated Balance Sheets, $3.0 billion at
both December 31, 2001 and 2000 is related to the reinsurance recoverable
from Lincoln arising from the sale of the Company's domestic life insurance
business (refer to Note 3).

INCOME TAXES

The Company files a consolidated federal income tax return with its
subsidiary IICA. The Company is taxed at regular corporate rates after
adjusting income reported for financial statement purposes for certain
items. Deferred income tax expenses/benefits result from changes during the
year in cumulative temporary differences between the tax basis and book
basis of assets and liabilities.

49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

2. RECENT DEVELOPMENTS

CONTRIBUTIONS OF AIS AND IA HOLDCO FROM HOLDCO

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

On July 1, 1999, HOLDCO contributed IA Holdco to the Company. The primary
operating subsidiary of IA Holdco is Aeltus which has two wholly-owned
operating subsidiaries: Aeltus Capital, Inc. ("ACI"), a broker dealer, and
Aeltus Trust Company ("ATC"), a limited purpose banking entity. Aeltus is a
registered investment advisor under the Investment Advisers Act of 1940 and
provides investment advisory services to institutional and retail clients on
a fee-for-service basis. In addition, Aeltus, through its ACI subsidiary,
serves as underwriter to the ING Series Fund, Inc. (formerly known as the
Aetna Series Fund, Inc.), and the ING Variable Portfolios, Inc. (formerly
known as the Aetna Variable Portfolios, Inc.),and provides distribution
services for other Company products. Aeltus' ATC subsidiary provides
trustee, administrative, and other fiduciary services to retirement plans
requiring or otherwise utilizing a trustee or custodian (refer to Note 16).

3. DISCONTINUED OPERATIONS--INDIVIDUAL LIFE INSURANCE

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

In conjunction with the accounting for the 2000 acquisition of the Aetna
Financial Services business, of which the Company is a part, the deferred
gain, which was previously part of other liabilities, was written off (Refer
to Note 1).

The operating results of the domestic individual life insurance business are
presented as Discontinued Operations. Premiums ceded and reinsurance
recoveries made for domestic individual life insurance in 2001 totaled
$334.9 million and $363.7 million, in 2000 totaled

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. DISCONTINUED OPERATIONS--INDIVIDUAL LIFE INSURANCE (continued)
$419.1 million and $416.1 million, and in 1999 totaled $476.5 million and
$513.4 million, respectively.

4. INVESTMENTS

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

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. INVESTMENTS (continued)

At December 31, 2001 and 2000, net unrealized appreciation of $291.0 million
and $126.9 million, respectively, on available-for-sale debt securities
including debt securities pledged to creditors included $233.0 million and
$92.9 million, respectively, related to experience-rated contracts, which
were not reflected in shareholder's equity but in policyholders' funds left
with the Company.

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. INVESTMENTS (continued)
The amortized cost and fair value of total debt securities for the
year-ended December 31, 2001 are shown below by contractual maturity. Actual
maturities may differ from contractual maturities because securities may be
restructured, called, or prepaid.

At December 31, 2001 and 2000, debt securities with carrying values of $9.0
million and $8.6 million, respectively, were on deposit as required by
regulatory authorities.

The Company did not have any investments in a single issuer, other than
obligations of the U.S. government, with a carrying value in excess of 10%
of the Company's shareholder's equity at December 31, 2001.

Included in the Company's total debt securities were residential
collateralized mortgage obligations ("CMOs") supporting the following:

(1) At December 31, 2001 and 2000, approximately 80% and 84%,
respectively, of the Company's residential CMO holdings were backed by
government agencies such as GNMA, FNMA, and FHLMC.

There are various categories of CMOs which are subject to different degrees
of risk from changes in interest rates and, for CMOs that are not
agency-backed, defaults. The principal risks inherent in holding CMOs are
prepayment and extension risks related to dramatic decreases and increases
in interest rates resulting in the repayment of principal from the
underlying mortgages either earlier or later than originally anticipated. At
December 31, 2001 and 2000, approximately 3% and 2%, respectively, of the
Company's CMO holdings were invested in types of CMOs

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. INVESTMENTS (continued)
which are subject to more prepayment and extension risk than traditional
CMOs (such as interest-only or principal-only strips).

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

Beginning in April 2001, the Company entered into dollar roll and reverse
repurchase agreement transactions to increase its return on investments and
improve liquidity. These transactions involve a sale of securities by the
Company and an agreement to repurchase substantially the same securities as
those sold, typically within one month. The dollar rolls and reverse
repurchase agreements are accounted for as short-term collateralized
financings and are reported within "Other Liabilities" on the Consolidated
Balance Sheets. The repurchase obligation totaled $1.0 billion at
December 31, 2001. Such borrowings averaged approximately $882.1 million
from April through December 2001 and were collateralized by investment
securities with fair values approximately equal to loan value. The primary
risk associated with short-term collateralized borrowings is that the
counterparty will be unable to perform under the terms of the contract. The
Company's exposure is limited to the excess of the net replacement cost of
the securities over the value of the short-term investments, an amount that
was not material at December 31, 2001. The Company believes the
counterparties to the dollar roll and reverse repurchase agreements are
financially responsible and that the counterparty risk is immaterial.

5. FINANCIAL INSTRUMENTS

ESTIMATED FAIR VALUE

The carrying values and estimated fair values of certain of the Company's
financial instruments at December 31, 2001 and 2000 were as follows:

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

MORTGAGE LOANS: The fair values for commercial mortgages are estimated using
a discounted cash flow approach. Commercial loans in good standing are
discounted using interest rates determined by U.S. Treasury yields on each
December 31 and spreads required on new loans with similar characteristics.
The amortizing features of all loans are incorporated into the valuation.
Where data on option features was available, option values were determined
using a binomial valuation method and were incorporated into the mortgage
valuation.

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

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

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

DERIVATIVE FINANCIAL INSTRUMENTS

INTEREST RATE FLOORS

Interest rate floors are used to manage the interest rate risk in the
Company's bond portfolio. Interest rate floors are purchased contracts that
provide the Company with an annuity in a declining interest rate
environment. The Company had no open interest rate floors at December 31,
2001 or 2000.

FOREIGN EXCHANGE SWAPS

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

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. FINANCIAL INSTRUMENTS (continued)
of the Company's open foreign exchange rate swaps as of December 31, 2001
were $25.0 million, $0.7 and $0.7 million, respectively.

WARRANTS

Included in common stocks are warrants which are instruments giving the
Company the right, but not the obligation to buy a security at a given price
during a specified period. The carrying values and estimated fair values of
the Company's warrants to purchase equity securities at December 31, 2001
and 2000 were both $0.3 million.

OPTIONS

The Company earned $1.1 million of investment income for writing call
options on underlying securities for the year-ended December 31, 2000. For
the year-ended December 31, 2001 the Company earned no investment income for
writing call options on underlying securities. At December 31, 2001 and
2000, there were no option contracts outstanding.

EMBEDDED DERIVATIVES

The Company also had investments in certain debt instruments that contain
embedded derivatives, including those whose market value is at least
partially determined by, among other things, levels of or changes in
domestic and/or foreign interest rates (short- or long-term), exchange
rates, prepayment rates, equity markets or credit ratings/spreads. The
estimated fair value of the embedded derivatives within such securities as
of December 31, 2001 was ($15.5) million.

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. NET INVESTMENT INCOME

Sources of net investment income were as follows:

Net investment income includes amounts allocable to experience-rated
contractholders of $704.2 million for the year-ended December 31, 2001 and
$55.9 million and $622.2 million for the one month and eleven month periods
ended December 31, 2000 and November 30, 2000, respectively, and
$659.6 million for the year-ended December 31, 1999. Interest credited to
contractholders is included in current and future benefits.

7. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY

The Company paid $10.1 million and $255.7 million in cash dividends to
HOLDCO in 2000 and 1999, respectively. Of the $255.7 million paid in 1999,
$206.0 million was accrued for in 1998. For the year-ended December 31,
2001, the Company did not pay any cash dividends to HOLDCO.

The Company did not receive any capital contributions in 2001 and 1999. In
2000, the Company received capital contributions of $73.5 million in cash
and $56.0 million in assets from HOLDCO.

In conjunction with the sale of Aetna, Inc. to ING AIH, the Company was
restricted from paying any dividends to the its parent in 2001 without prior
approval by the Insurance Commissioner of the State of Connecticut. This
restriction continues for a two year period from the date of the sale.

The Insurance Department of the State of Connecticut (the "Department")
recognizes as net income and capital and surplus those amounts determined in
conformity with statutory

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

7. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY (continued)
accounting practices prescribed or permitted by the Department, which differ
in certain respects from generally accepted accounting principles. Statutory
net (loss) income was $(92.3) million, $100.6 million and $133.9 million for
the years-ended December 31, 2001, 2000, and 1999, respectively. Statutory
capital and surplus was $826.2 million and $931.1 million as of
December 31, 2001 and 2000, respectively.

As of December 31, 2001, the Company does not utilize any statutory
accounting practices, which are not prescribed by state regulatory
authorities that, individually or in the aggregate, materially affect
statutory capital and surplus.

For 2001, the Company was required to implement statutory accounting changes
("Codification") ratified by the National Association of Insurance
Commissioners and state insurance departments. The cumulative effect of
Codification to the Company's statutory surplus as of December 31, 2001 was
a decrease of $12.5 million.

8. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS

Realized capital gains or losses are the difference between the carrying
value and sale proceeds of specific investments sold. Net realized capital
(losses) gains on investments were as follows:

Net realized capital gains (losses) of $117.0 million, $(16.8) million and
$(36.7) million for 2001, 2000, and 1999, respectively, allocable to
experience-rated contracts, were deducted from net realized capital gains
and an offsetting amount was reflected in Policyholders' funds left with the
Company. Net unamortized gains allocable to experienced-rated
contractholders were $172.7 million and $45.1 million at December 31, 2001
and 2000, respectively.

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Proceeds from the sale of total debt securities and the related gross gains
and losses were as follows:

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

Net unrealized capital gains allocable to experience-rated contracts of
$233.0 million and $92.9 million at December 31, 2001 and 2000,
respectively, are reflected on the Consolidated Balance Sheets in
Policyholders' funds left with the Company and are not included in
shareholder's equity. Shareholder's equity included the following
accumulated other comprehensive income (loss), which is net of amounts
allocable to experience-rated contractholders, at December 31:

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

8. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (continued)
Changes in accumulated other comprehensive income related to changes in
unrealized gains (losses) on securities, including securities pledged to
creditors (excluding those related to experience-rated contractholders) were
as follows:

(1) Pretax unrealized holding gains (losses) arising during the year were
$12.7 million, $108.0 million and $(225.2) million for 2001, 2000, and
1999, respectively.
(2) Pretax reclassification adjustments for (losses) gains and other items
included in net income were $(19.8) million, $(0.1) million and
$5.0 million for 2001, 2000, and 1999, respectively.

9. SEVERANCE AND FACILITIES CHARGES

In December 2001, ING announced its intentions to further integrate and
streamline the U.S.-based operations of ING Americas, of which the Company
is a part, in order to build a more customer-focused organization. In
connection with these actions, the Company recorded a charge of
$29.2 million pretax. The severance portion of this charge ($28.4 million
pretax) is based on a plan to eliminate 580 positions (primarily operations,
information technology and other administrative/staff support personnel).
Severance actions are expected to be substantially complete by March 31,
2003. The facilities portion ($.8 million pretax) of the charge represents
the amount to be incurred by the Company to terminate a contractual
obligation.

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.
Subsequent to the date of the acquisition, the Company completed a full
review of severance actions related to individuals who were employed before
or at the acquisition date and determined that certain refinements in the
allocation of the purchase price to the severance liability were necessary.
Activity for the year-ended December 31, 2001 within this severance
liability and positions eliminated related to such actions were as follows:

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

9. SEVERANCE AND FACILITIES CHARGES (continued)
Severance actions related to the liability established in December 2000 are
expected to be substantially complete by March 31, 2002.

10. INCOME TAXES

The Company files a consolidated federal income tax return with IICA. The
Company has a tax allocation agreement with IICA whereby the Company charges
its subsidiary for taxes it would have incurred were it not a member of the
consolidated group and credits the member for losses at the statutory tax
rate.

Income taxes from continuing operations consist of the following:

61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Net unrealized capital gains and losses are presented in shareholder's
equity net of deferred taxes. As of December 31, 2001 and 2000, no valuation
allowance was required for unrealized capital gains and losses.

The "Policyholders' Surplus Account," which arose under prior tax law, is
generally that portion of a life insurance company's statutory income that
has not been subject to taxation. As of December 31, 1983, no further
additions could be made to the Policyholders' Surplus Account for tax return
purposes under the Deficit Reduction Act of 1984. The balance in such
account was approximately $17.2 million at December 31, 2001. This amount
would be taxed only under certain conditions. No income taxes have been
provided on this amount since management believes under current tax law the
conditions under which such taxes would become payable are remote.

The Internal Revenue Service (the "Service") has completed examinations of
the federal income tax returns of the Company through 1997. Discussions are
being held with the Service with respect to proposed adjustments. Management
believes there are adequate defenses against, or sufficient reserves to
provide for, any such adjustments. The Service has commenced its
examinations for the years 1998 through 2000.

63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. BENEFIT PLANS

Prior to December 31, 2001, ILIAC, in conjunction with ING, had a qualified
defined benefit pension plan covering substantially all employees
("Transition Pension Plan"). The Transition Pension Plan provided pension
benefits based on a cash balance formula, which credited employees annually
with an amount equal to a percentage of eligible pay based on age and years
of service as well as an interest credit based on individual account
balances. Contributions were determined using the Projected Unit Credit
Method and were limited to the amounts that are tax-deductible. The
accumulated benefit obligation and plan assets were recorded by ILIAC. As of
the measurement date (i.e., January 1, 2001), fair value of plan assets
exceeded projected benefit obligations.

As of December 31, 2001, the Transition Pension Plan merged into the ING
Americas Retirement Plan ("ING Pension Plan"), which is sponsored by ING
North America Insurance Corporation ("ING North America"), an affiliate of
ILIAC. The ING Pension Plan covers substantially all U.S. employees.
Accordingly, the Company transferred $17.4 million of net assets ($11.3
million after tax) related to the movement of the Transition Pension Plan to
ING North America. The Company reported this transfer of net assets as a
$11.3 million reduction in paid in capital. The new plan's benefits are
based on years of service and the employee's average annual compensation
during the last five years of employment. Contributions are determined using
the Projected Unit Credit Method and are limited to the amounts that are
tax-deductible.

Prior to December 31, 2001, ILIAC, in conjunction with ING, had a
non-qualified defined benefit pension plan covering certain eligible
employees. The plan provided pension benefits based on a cash balance
formula, which credited employees annually with an amount equal to a
percentage of eligible pay based on age and years of service as well as an
interest credit based on individual account balances. As of December 31,
2001, ILIAC, in conjunction with ING, established a non-qualified defined
benefit pension plan providing benefits to certain eligible employees based
on years of service and the employee's average annual compensation during
the last five years of employment. Contributions are determined using the
Projected Unit Credit Method. The unfunded accumulated benefit obligation is
recorded by ILIAC.

In addition to providing pension benefits, ILIAC, in conjunction with ING,
provides certain health care and life insurance benefits for retired
employees. Retirees are generally required to contribute to the plans based
on their years of service with the Company. The costs to the Company
associated with the former Aetna postretirement plans for 2001, 2000, and
1999 were $0.6 million, $1.2 million and $2.1 million, respectively.

ILIAC, in conjunction with ING, also has a non-qualified pension plan
covering certain agents. The plan provides pension benefits based on annual
commission earnings. As of the measurement date (i.e. January 1, 2001), the
unfunded projected benefit obligation is recorded by the Company. The costs
to the Company associated with the agents non-qualified pension plan for
2001, 2000, and 1999 were $6.6 million, $3.5 million and $3.3 million,
respectively.

The Company, in conjunction with ING, also provides certain postretirement
health care and life insurance benefits for certain agents. The costs to the
Company associated with the agents'

64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. BENEFIT PLANS (continued)
postretirement plans for 2001, 2000, and 1999 were $0.5 million,
$1.4 million and $2.1 million, respectively.

ILIAC, in conjunction with ING, also has a Savings Plan. Substantially all
employees are eligible to participate in the savings plan under which
designated contributions, which may be invested in a variety of financial
instruments, are matched up to 5% of compensation by ING. Pretax charges to
operations for the former Aetna incentive savings plan were $11.0 million,
$9.0 million and $7.7 million in 2001, 2000, and 1999, respectively.

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

The costs to the Company associated with the former Aetna stock plans for
2001, 2000, and 1999, were $1.8 million, $2.7 million and $0.4 million,
respectively.

Effective January 1, 1998, Aeltus established an additional deferred
incentive compensation plan, designed to attract, retain and incent key
members of Aeltus. The plan had a five year vesting period. Payments under
the plan were conditioned upon continued employment and were based upon an
imputed share price of Aeltus at the end of the vesting period. The plan
value was determined annually and the cost of the plan was expensed ratably
over the vesting period. A change in control at Aeltus, as defined in the
plan, would cause immediate full vesting of all outstanding shares. The
purchase of Aetna Inc. by ING in 2000 met this definition. As a result, all
outstanding shares became fully vested based on Aeltus's imputed value at
the date of the sale and were subsequently paid out in early 2001. The
appropriate annual share of the cost of the plan, including the additional
cost in 2000 associated with this full vesting, has been reflected in
salaries and related benefits in the Consolidated Statements of Income for
each of the years-ended December 31, 1999 and 2000, respectively. In 2001, a
new deferred compensation plan was developed with attributes similar to
those in the previous plans. The costs reflected in the Consolidated
Financial Statements associated with Aeltus' new deferred incentive
compensation plan for 2001 was $4.1 million. The costs for its former
deferred incentive compensation plan for 2000 and 1999 were, $42.2 million
and $4.7 million, respectively.

65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

12. RELATED PARTY TRANSACTIONS

INVESTMENT ADVISORY AND OTHER FEES

ILIAC and Aeltus serve as investment advisors and administrators to the
Company's mutual funds and variable funds (collectively, the Funds). Company
mutual funds pay Aeltus or ILIAC, as investment advisor or administrator, a
daily fee which, on an annual basis, ranged, depending on the fund, from
0.33% to 1.15% of their average daily net assets. All of the funds managed
by ILIAC and certain of the funds managed by Aeltus are subadvised by
investment advisors, in which case, Aeltus or ILIAC pays a subadvisory fee
to the investment advisors. The Company is also compensated by the Separate
Accounts (variable funds) for bearing mortality and expense risks pertaining
to variable life and annuity contracts. Under the insurance and annuity
contracts, the Separate Accounts pay the Company a daily fee, which, on an
annual basis is, depending on the product, up to 3.40% of their average
daily net assets. The amount of compensation and fees received from the
Company mutual funds and Separate Accounts, included in charges assessed
against policyholders and other income, amounted to $421.7 million, $506.3
million and $424.2 million in 2001, 2000, and 1999, respectively.

RECIPROCAL LOAN AGREEMENT

ILIAC maintains a reciprocal loan agreement with ING AIH, a Delaware
corporation and affiliate, to facilitate the handling of unusual and/or
unanticipated short-term cash requirements. Under this agreement, which
became effective in June 2001 and expires in April, 2011, ILIAC and ING AIH
can borrow up to 3% of ILIAC's statutory admitted assets as of the preceding
December 31 from one another. Interest on any ILIAC borrowings is charged at
the rate of ING AIH's cost of funds for the interest period plus 0.15%.
Interest on any ING AIH borrowings is charged at a rate based on the
prevailing interest rate of U.S. commercial paper available for purchase
with a similar duration. Under this agreement, ILIAC incurred interest
expense of $0.1 million and earned interest income of $3.3 million for the
year-ended December 31, 2001. At December 31, 2001, ILIAC had
$191.1 million of receivables and no outstanding borrowings from ING AIH
under this agreement.

CAPITAL TRANSACTIONS

In 2000, the Company received capital contributions in the form of cash and
assets of $73.5 million, and $56.0 million, respectively from HOLDCO. The
Company received no capital contributions in 1999 or 2001.

Refer to Note 7 for dividends paid to HOLDCO. Refer to Note 11 for a
discussion related to a return of capital to ING AIH.

OTHER

Premiums due and other receivables include $1.0 million and $4.7 million due
from affiliates in 2001 and 2000, respectively. Other liabilities include
$0.6 million and $4.1 million due to affiliates for 2001 and 2000,
respectively.

66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

12. RELATED PARTY TRANSACTIONS (continued)
Former Aetna transferred to the Company $0.4 million and $0.8 million for
the years 2000 and 1999, respectively, based on former Aetna's decision not
to settle state tax liabilities as permitted under the tax sharing
arrangement, which is reported in other changes in retained earnings. There
was no transfer of funds from former Aetna to the Company to settle state
tax liabilities for the year 2001.

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

13. REINSURANCE

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

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

Effective December 31, 1988, the Company entered into a modified coinsurance
reinsurance agreement ("MODCO") with Aetna Life Insurance Company ("Aetna
Life"), (formerly an affiliate of the Company), in which substantially all
of the nonparticipating individual life and annuity business written by
Aetna Life prior to 1981 was assumed by the Company. Effective January 1,
1997, this agreement was amended to transition (based on underlying
investment rollover in Aetna Life) from a modified coinsurance arrangement
to a coinsurance agreement. As a result of this change, reserves were ceded
to the Company from Aetna Life as investment rollover occurred. Effective
October 1, 1998, this agreement was fully transitioned to a coinsurance
arrangement and this business along with the Company's direct individual
life insurance business, with the exception of certain supplemental
contracts with reserves of $70.5 million and $74.9 million as of
December 31, 2001 and 2000, respectively, was sold to Lincoln (refer to
Note 3).

On December 16, 1988, the Company assumed $25.0 million of premium revenue
from Aetna Life, (formerly an affiliate of the Company) for the purchase and
administration of a life contingent single premium variable payout annuity
contract. In addition, the Company is also responsible for administering
fixed annuity payments that are made to annuitants receiving variable
payments. Reserves of $24.1 million and $29.2 million were maintained for
this contract as of December 31, 2001 and 2000, respectively.

67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The Company had $35.9 billion, $38.9 billion and $43.4 billion of life
insurance in force at December 31, 2001, 2000 and 1999, respectively.
Substantially all life insurance in force at December 31, 2001, 2000 and
1999 was ceded to Lincoln.

68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

14. SEGMENT INFORMATION

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

(1) Worksite Products include deferred annuity contracts that fund defined
contribution and deferred compensation plans; immediate annuity
contracts; mutual funds; distribution services for annuities and
mutual funds; programs offered to defined contribution plans and
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 the
following services: investment advisory to affiliated and unaffiliated
institutional and retail clients, underwriting, distribution for
Company's mutual funds and affiliate's separate accounts; and trustee,
administrative and other services to retirement plans (Refer to Notes
1 and 2). Discontinued operations include life insurance products
(Refer to Note 3). Other includes consolidating adjustments, Year 2000
costs, and taxes not allocated back to the segment.
(2) Operating earnings is comprised of net income (loss) excluding net
realized capital gains and losses and Year 2000 costs. While operating
earnings is the measure of profit or loss used by the Company's
management when assessing performance or making operating decisions,
it does not replace operating income or net income as a measure of
profitability.
(3) Represents after-tax Year 2000 costs.
(4) Taxes on the amortization of deferred gain on sale were $3.2 million.
(5) Expenditures of long-lived assets represent additions to property and
equipment not allocable to business segments.

71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

15. COMMITMENTS AND CONTINGENT LIABILITIES

LEASES

In conjunction with the acquisition by ING, the Company entered into or
assumed from a former affiliate operating leases for office space. For the
year-ended December 31, 2001, rent expense for these leases was $17.6
million. The future net minimum payments under noncancelable leases for 2002
through 2006 are estimated to be $24.8 million, $20.6 million, $17.6
million, $16.2 million and $14.4 million, respectively, and $15.6 million,
thereafter.

COMMITMENTS

Through the normal course of investment operations, the Company commits to
either purchase or sell securities or money market instruments at a
specified future date and at a specified price or yield. The inability of
counterparties to honor these commitments may result in either higher or
lower replacement cost. Also, there is likely to be a change in the value of
the securities underlying the commitments. At December 31, 2001, the Company
had off-balance sheet commitments to purchase investments of $4.8 million
with an estimated fair value of $4.8 million. At December 31, 2000 and 1999,
there were no off-balance sheet commitments.

LITIGATION

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

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

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

16. SUBSEQUENT EVENT

Effective February 28, 2002, the Company distributed 100% of the stock of IA
Holdco to HOLDCO. The transaction was accounted for as a dividend. Refer to
Note 2 for further information about IA Holdco.

72

QUARTERLY DATA (UNAUDITED)

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

73

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

On May 3, 2001, ALIAC terminated the engagement of KPMG LLP ("KPMG") as its
independent accountants. This decision was approved by the Board of Directors of
the Company.

The reports of KPMG on the Company's financial statements for the years-ended
December 31, 2000 and 1999 contained no adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle. In connection with its audits for the years-ended
December 31, 2000 and 1999 and through May 3, 2001, there have been no
disagreements with KPMG on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of KPMG, would have caused
them to make reference thereto in their reports on the financial statements for
such years. During the years-ended December 31, 2000 and 1999 and through
May 3, 2001, there were no reportable events as defined in Regulation S-K Item
304(a)(1)(v).

On May 3, 2001, the Company engaged Ernst & Young LLP ("Ernst & Young") as its
independent accountants for the fiscal year ending December 31, 2001, including
interim periods. The engagement was approved by the Board of Directors of the
Company. The Company has not consulted with Ernst & Young during the fiscal
years-ended December 31, 1999 and December 31, 2000 nor during the subsequent
period to such date of engagement regarding either (i) the application of
accounting principles to a sepcified transaction or transactions, either
completed or proposed, or (ii) the type of audit opinions Ernst & Young might
render on the Company's financial statements.

A Form 8-K was filed on May 8, 2001 to disclose this change in certifying
accountant.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

PART IV

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

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

1. Financial statements. See Item 8 on Page 33.
2. Financial statement schedules. See Index to Consolidated Financial
Statement Schedules on Page 79.

74

ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K. (continued)
3. Exhibits:

3(i)(a) Certificate of Incorporation as amended and restated
January 1, 2002.

3(ii) By-Laws, as restated January 1, 2002.

4. Instruments Defining the Rights of Security Holders, Including
Indentures (Annuity Contracts)

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

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

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

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

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

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

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

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

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

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

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

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

75

ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K. (continued)
Incorporated by reference to Post-Effective Amendment No. 6 to
Registration Statement on Form N-4 (File No. 33-75974), as filed on
February 28, 1997.

Incorporated by reference to Post-Effective Amendment No. 6 to
Registration Statement on Form N-4 (File No. 33-75962), as filed on
April 17, 1996.

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

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

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

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

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

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

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

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

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

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

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

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

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

76

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

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

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

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

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

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

Incorporated by reference to the Registration Statement on Form S-2
(File No. 33-64331), as filed on November 16, 1995.

Incorporated by reference to Pre-Effective Amendment No. 2 to the
Registration Statement on Form S-2 (File No. 33-64331), as filed on
January 17,1996.

10. Material Contracts

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

10.2 Distribution Agreement, dated as of December 13, 2000, between Lion
Connecticut Holdings Inc. and Aetna Inc., incorporated by reference to
the Company's Form 10-K filed on March 30, 2001.

10.3 Employee Benefits Agreement, dated as of December 13, 2000, between
Lion Connecticut Holdings Inc. and Aetna Inc., incorporated by
reference to the Company's Form 10-K filed on March 30, 2001.

10.4 Tax Sharing Agreement, dated as of December 13, 2000, among Lion
Connecticut Holdings Inc., Aetna Inc. and ING America Insurance
Holdings, Inc., incorporated by reference to the Company's Form 10-K
filed on March 30, 2001.

77

ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K. (continued)
10.5 Transition Services Agreement, dated as of December 13, 2000, between
Lion Connecticut Holdings Inc. and Aetna Inc., incorporated by
reference to the Company's Form 10-K filed on March 30, 2001.

10.6 Lease Agreement, dated as of December 13, 2000, by and between Aetna
Life Insurance Company and Aetna Life Insurance and Annuity Company,
incorporated by reference to the Company's Form 10-K filed on
March 30, 2001.

10.7 Real Estate Services Agreement, dated as of December 13, 2000, between
Aetna Inc. and Aetna Life Insurance and Annuity Company, incorporated
by reference to the Company's Form 10-K filed on March 30, 2001.

10.8 10 State House Square Services Agreement, dated as of December 13,
2000, between Aetna Inc. and Lion Connecticut Holdings Inc.,
incorporated by reference to the Company's Form 10-K filed on
March 30, 2001.

21 Subsidiaries of the Registrant

Incorporated by reference to Item 26 of Post-Effective Amendment No.18
to Registration Statement on Form N-4 (File Number 33-81216), as filed
on April 9, 2001.

24 Power of Attorney

(Filed herein immediately after Signature page.)

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

(b) Reports on Form 8-K.

None.

78

INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

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

79

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
ING Life Insurance and Annuity Company

We have audited the consolidated financial statements of ING Life Insurance and
Annuity Company and Subsidiaries (formerly Aetna Life Insurance and Annuity
Company and Subsidiaries and hereafter referred to as the Company) as of
December 31, 2001, and for the year then ended, and have issued our report
thereon dated January 31, 2002. Our audit also included the financial statement
schedules listed in Item 14. These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audit.

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

/s/ Ernst & Young LLP

Hartford, Connecticut
January 31, 2002

80

REPORT OF INDEPENDENT AUDITORS

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

Under date of March 27, 2001, we reported on the consolidated balance sheet of
ING Life Insurance and Annuity Company and Subsidiaries, formerly known as Aetna
Life Insurance and Annuity Company and Subsidiaries, as of December 31, 2000,
and the related consolidated statements of income, changes in shareholder's
equity and cash flows for the period from December 1, 2000 to December 31, 2000
("Successor Company"), and for the period from January 1, 2000 to November 30,
2000 and the year ended December 31, 1999 ("Preacquisition Company"), as
included herein. In connection with our audits of the aforementioned financial
statements, we audited the related 2000 financial statement schedules as listed
in the accompanying index. These financial statement schedules are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statement schedules based on our audits.

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

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

/s/ KPMG LLP

Hartford, Connecticut
March 27, 2001

81

SCHEDULE I
Summary of Investments--Other than Investments in Affiliates
As of December 31, 2001
(in millions)

* See Notes 1 and 5 of Notes to Consolidated Financial Statements.

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

82

SCHEDULE III
Supplementary Insurance Information
As of and for the years-ended December 31, 2001, 2000 and 1999
(in millions)

NOTES TO SCHEDULE III:
(1) Domestic individual life insurance business.

83

SCHEDULE III (continued)
Supplementary Insurance Information
As of and for the years-ended December 31, 2001, 2000 and 1999
(in millions)

NOTES TO SCHEDULE III (continued):
(2) The allocation of net investment income is based upon the investment
year method or specific identification of certain portfolios within
specific segments.
(3) Includes net realized capital losses and gains, charges assessed against
policyholders and other income.
(4) Restructuring charges and amortization of goodwill in 2001 and Year 2000
costs in 1999 are not included in the amounts reported for the Worksite
Products, Individual Products and Investment Management Services
segments.
(5) Includes consolidating adjustments, restructuring charges and
amortization of goodwill in 2001, and Year 2000 costs in 1999.
(6) Year-ended 2000 reflects an aggregation of the pre-acquisition period of
the eleven months ended November 30, 2000 and the post acquisition
period of one month ended December 31, 2000.
(7) Domestic individual life insurance business.

84

SIGNATURES

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

ING LIFE INSURANCE AND ANNUITY COMPANY
(Registrant)

Date: March 27, 2002 By: /s/ Deborah Koltenuk
- --------------------------------- --------------------------------------------
Deborah Koltenuk
Vice President and Corporate Controller

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 27th, 2002.

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

85

POWER OF ATTORNEY

We, the undersigned directors and officers of ING Life Insurance and Annuity
Company, hereby severally constitute and appoint Paula Cludray-Engelke and
Deborah Koltenuk and each of them individually, our true and lawful attorneys,
with full power to them and each of them to sign for us, and in our names and in
the capacities indicated below, the 2001 Form 10-K and any and all amendments
thereto to be filed with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, hereby ratifying and confirming our signatures
as they may be signed by our said attorney to the Form 10-K and any and all
amendments thereto.

WITNESS our hands and common seal on this 27th day of March, 2002.

86

RESTATED CERTIFICATE OF INCORPORATION
OF
ING LIFE INSURANCE AND ANNUITY COMPANY
(AMENDED AND RESTATED AS OF JANUARY 1, 2002)

The Restated Certificate of Incorporation supersedes and takes the place of the
existing certificate of incorporation and all amendments to it.

ARTICLE I
NAME

The name of the company is ING Life Insurance and Annuity Company.

ARTICLE II
OFFICES

The principal place of business and Home Office of the company shall be 151
Farmington Avenue, Hartford, Connecticut.

ARTICLE III
POWERS AND PRIVILEGES

The company shall have the power to acquire, by purchase or otherwise, invest
in, hold, sell, convey and have and exercise any and all rights of ownership or
interest in or to any real or personal property whatsoever, including, without
limitation, shares, securities and any other interest in or obligation of other
firms, persons, corporations, governmental bodies, or other entities; to borrow
money, issue promissory notes, bonds or other evidences of indebtedness and
secure the same by mortgage, pledge or other form of security on any or all of
its real or personal property or an interest therein; to make contracts of any
nature and give security therefor; to carry on business in any place, if not
prohibited by the laws of the place where such business is carried on; and to
exercise all legal powers necessary or convenient to effect any or all of the
purposes stated whether or not such powers are expressly set forth herein.

ARTICLE IV
NATURE OF BUSINESS

The business of the company shall be life insurance, endowments, annuities,
accident insurance, health insurance and any other business or type of business
which any other corporation now or hereafter chartered by Connecticut and
empowered to do a life insurance business may now or hereafter lawfully do; and
the company is specifically empowered to accept and to cede reinsurance of any
such risks or hazards. The company may exercise such powers outside of
Connecticut to the extent permitted by the laws of the particular jurisdiction.
Policies or other contracts may be issued stipulated to be with or without
participation in profits; and they may be with or without seal. The company may
carry on any other lawful business in connection with the foregoing or which is
calculated, directly or indirectly, to promote the interest of the company or to
enhance the value of its properties.

ARTICLE V
CAPITALIZATION

The capital with which the company shall commence business shall be an amount
not less than one thousand dollars. The authorized number of shares of capital
stock shall be one hundred thousand (100,000) shares of common capital stock
with a par value of fifty dollars ($50) each.

ARTICLE VI
BOARD OF DIRECTORS

SECTION 1. The company shall have three (3) or more directors, the exact number
of which shall be determined from time to time in accordance with the company's
by-laws. The names and residence addresses of the board of directors of the
company as of the adoption of the amended and restated Certificate of
Incorporation are as follows:

Wayne R. Huneke
4875 Mulberry Drive
Marietta, GA 30068

Thomas J. McInerney
4 Brook Ridge
West Simsbury, CT 06092

Mark A. Tullis
115 Spindale Court
Atlanta, GA 30350

P. Randall Lowery
70 Glen Oaks Drive
Atlanta, GA 30327

Robert C. Salipante
14555 Durham Road
Minnetonka, MN 55345

SECTION 2. The by-laws of the company may provide for classification of
directors as to terms of office, provided no director shall be elected by the
shareholders for a shorter term than one year or for a longer term than five
years and the classification shall be such that the term of one or more classes
shall expire each succeeding year. If any vacancy occurs in the board of
directors, such vacancy may be filled by the remaining directors for the
unexpired portion of the term, and if the number of directors is increased by an
amendment to the by-laws voted by the board of directors between meetings of
shareholders, the additional directors, not to exceed three, may be chosen by
the board of directors for terms expiring with the next annual meeting
thereafter. The by-laws of the company may determine what number of directors
shall constitute a quorum for the transaction of business.

SECTION 3. In action to the powers and authorities herein or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the company, subject to the provisions of the laws of the State of Connecticut,
these Certificate of Incorporation, and the by-laws of the company; provided,
however, that no by-law hereafter adopted by the shareholders shall invalidate
any prior act of the directors which would have been valid if such by-law had
not been adopted.

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ARTICLE VII
ANNUAL MEETING

The annual meeting of the shareholders of the company shall be held at such time
and place within the state and upon such notice as may be prescribed in the
by-laws of the company.

ARTICLE VIII
DURATION

The company shall have a perpetual duration.

ARTICLE IX
INDEMNIFICATION

The company shall have every power and duty of indemnification of directors,
officers, and employees without limitation, as provided in the by-laws and in
accordance with the laws of the State of Connecticut.

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ING LIFE INSURANCE AND ANNUITY COMPANY

RESTATED BY-LAWS
(EFFECTIVE JANUARY 1, 2002)
HARTFORD, CONNECTICUT

ARTICLE I
OFFICES

SECTION 1. The principal office of the company shall be in the City of
Hartford, County of Hartford, State of Connecticut.

SECTION 2. The company may also have offices at such other places, both within
and without the State of Connecticut, as the Board of Directors may from time to
time determine or the business of the company may require. Such additional
offices within or without the State of Connecticut may include one or more
regional home offices and, with the approval of the Commissioner of Insurance of
Connecticut, an operational home office.

ARTICLE II
SHAREHOLDER MEETINGS

SECTION 1. The Annual Meeting of the Shareholders of the company shall be held
each year at such date, time and place as may be designated by the Board of
Directors from time to time. At such Annual Meeting, the shareholders shall
elect Directors to serve until the next annual meeting and until their
successors shall be elected and qualified. In addition, any other proper
business may be transacted at the annual meeting. Annual meetings may be called
by the Board of Directors or by any officer instructed by the Board of Directors
to call the meeting.

SECTION 2. Special meetings of the shareholders may be called by the Board of
Directors, a designated committee of the Board of Directors, or by the President
and shall be held at such time and at such place as shall be specified in such
call.

SECTION 3. Written notice of each shareholders' meeting stating the place, date
and hour of the meeting and (in the case of a special meeting) the purpose or
purposes for which the meeting is called shall be given by or at the direction
of the Board, the President, the Secretary or any designated committee of the
Board of Directors not less than five (5) days before the date of the meeting to
each shareholder of record entitled to vote at such meeting. Shareholders by
written notice may waive notice of any meeting, and the presence of a
shareholder at any meeting in person or by proxy, shall constitute a waiver of
notice of such meeting.

SECTION 4. The quorum for each meeting of shareholders shall consist of 25% of
the voting power of shares entitled to vote at such meeting.

SECTION 5. Persons entitled to vote at any shareholders' meeting may vote in
person or by proxy executed in writing by the shareholder or his duly authorized
attorney-in-fact and filed with the Secretary of the company not less than
twenty-four (24) hours prior to the meeting.

SECTION 6. Any action required or permitted by law to be taken at any annual or
special meeting of Shareholders may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by all the holders of outstanding stock

who are entitled to vote on such action. Such consents may be signed in
counterparts each of which shall be considered an original and all of which
together shall constitute one original.

ARTICLE III
DIRECTORS

SECTION 1. The Board of Directors shall consist of not less than three and not
more than fifteen Directors, and the number of directorships at any time within
such minimum and maximum range shall be the number fixed by vote of the
Shareholders or Directors or, in the absence thereof, shall be the number of
Directors elected at the preceding Annual Meeting of Shareholders.

SECTION 2. Vacancies in the Board of Directors shall be filled for the
unexpired term by majority vote of the remaining Directors, and each person so
elected shall be a Director until his successor is elected by the shareholders
at the next Annual Meeting of Shareholders or at any special meeting of
shareholders called for that purpose and held prior to that Annual Meeting, or
until an earlier resignation, death or removal.

SECTION 3. Regular meetings of the Board shall be held at such place and on
such day and hour at such periodic intervals as the Board may from time to time
designate. Notice of such regular meetings need not be given, but the Secretary
shall notify each Director by mail or electronic media of the action of the
Board designating or changing the place, period, day, or hour of such regular
meetings.

SECTION 4. Special meetings of the Board shall be held at the call of the
President, the Secretary, or not less than one-third of the Directors then in
office.

SECTION 5. The Board of Directors of the company may hold meetings, both
regular and special, either within or without the State of Connecticut.

SECTION 6. A quorum shall consist of a majority of the Directors at the time in
office, but not less than two Directors nor less than one-third of the number of
Directors provided for by Article II, Section 1.

SECTION 7. Unless otherwise restricted by the certificate of incorporation or
these by-laws, any action required or permitted to be taken at any meeting of
the Board of Directors may be taken without a meeting if all members of the
Board consent thereto in writing, and the writing or writings are filed with the
minutes of the proceedings of the Board. Such consents may be signed in
counterpart each of which shall be considered an original and all of which
together shall constitute one original.

ARTICLE IV
COMMITTEES OF THE BOARD

SECTION 1. The Board of Directors may appoint, by resolution passed by a
majority of the whole Board, two or more Directors of the Board of Directors to
constitute an Executive Committee, and which may provide for one or more
Directors to serve as alternate members of the Committee; which

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Committee, to the extent provided in such resolution, shall have and exercise
all the powers of the Board when it is not in session, except as otherwise
required by law.

SECTION 2. The Board of Directors may also appoint two or more Directors, by
resolution passed by a majority of the whole Board, to constitute other
outstanding committees of the Board of Directors, which may provide for one or
more Directors to serve as alternate members of any such committees. There may
be temporary committees, invested with such powers and subject to such
conditions as the Board may prescribe. The Board of Directors may also appoint
an advisory committee to any committee or to the Board itself. The members of
such advisory committee need not be members of the Board of Directors.

SECTION 3. Each such committee other than advisory committees, shall cause
regular minutes of its meetings to be recorded in the corporate records of the
company. The presence of a majority of the members of each such committee shall
be necessary to constitute a quorum. The members of each such committee shall
continue in office until their successors are chosen, or until their earlier
resignation or removal.

ARTICLE V
OFFICERS

SECTION 1. The Board of Directors may elect a Chief Executive Officer, a
President, one or more Vice Presidents, a Secretary, and a Treasurer and such
other officers the Board may from time to time determine. The Board may
authorize the classification of certain Vice Presidents as Executive, Senior,
Second or Assistant, and may authorize Assistant Treasurers, Assistant
Secretaries and such other titles and designations as in its discretion seems
proper. Insofar as permitted by statute, the same person may hold two or more
offices.

SECTION 2. The Chief Executive Officer shall have general supervision of the
affairs of the company and shall be responsible to ensure that all directives
and resolutions of the Board of Directors are carried into effect. The Chief
Executive Officer shall perform all such duties usually incident to the office
of the Chief Executive Officer and such additional duties as are assigned by the
Board of Directors.

SECTION 3. The President shall have such powers and perform such duties as may
be assigned by the Board of Directors or by the Chief Executive Officer. In the
President's absence or disability, such duties shall be performed by such
Executive Vice Presidents, Senior Vice Presidents, or Vice Presidents as may be
designated by the Board of Directors or Chief Executive Officer.

SECTION 4. The Secretary shall keep a record of all meetings and acts of the
Board and, except as may be otherwise provided herein or in the resolution
appointing a committee, of all committees appointed by the Board, and the
Secretary shall act as the clerk and shall be the custodian of the records of
all meetings of the shareholders. The Secretary shall have such other authority
and responsibility and perform such other duties as may be delegated to the
Secretary by the Board or the President may from time to time.

SECTION 5. The Treasurer, except as otherwise required by law, shall have
charge and custody of and be responsible for all funds and securities of the
company; shall keep or cause to be kept full and accurate accounts of receipts
and disbursements in books belonging to the company; shall be

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responsible for receiving and giving receipts for monies paid to the company
from any source; shall cause all monies and other valuable effects to be
deposited in the name and to the credit of the company in such depositories as
may be designated by the Board of Directors, and shall perform such other duties
as the Board of Directors or the President may from time to time require.

SECTION 6. Each officer shall have such further authority and responsibility
and shall perform such further duties as may from time to time be delegated to
the officer by the Board or the President.

ARTICLE VI
NOTICES

SECTION 1. Whenever, under the provisions of the statutes or of the Certificate
of Incorporation or of these By-Laws, notice is required to be given to any
Director or shareholder, it shall not be construed to mean personal notice, but
such notice may be given in writing, by mail or electronic mail, addressed to
such Director or shareholder, at the Director's address as it appears on the
records of the company, with postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall be deposited in the United
States mail.

SECTION 2. Whenever any notice whatever is required to be given under the
provisions of the statutes or the Certificate of Incorporation or these By-Laws,
a waiver thereof in writing signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Attendance at any meeting shall
constitute a waiver of notice unless attendance is for the purpose of objecting
to the transaction of business

ARTICLE VII
VOTING RIGHTS

SECTION 1. Contract Owners of and Participants under variable annuity contracts
funded in any company separate account which is registered with the Securities
and Exchange Commission as a unit investment trust under the Investment Company
Act of 1940 shall be granted rights to direct the company as to the voting of
any shares held in such account of any company registered under that Act as a
management investment company ("fund") in the manner provided below:

A) Group Contracts:

(1) Each registered owner of a Group Contract shall be entitled to give
directions with respect to that number of votes to be cast by the
company at meetings of the shareholders of the given fund as shall be
determined by the following calculations:

(a) for each Participant under the contract who is in the Accumulation
Period, an amount equal to that portion of the current value of
the Participant's Individual Account attributable to that fund,
divided by the book value (net asset value) of one share of that
fund; plus

(b) for each Annuitant under the contract, an amount equal to the
valuation reserve (established pursuant to the insurance laws of
Connecticut) applicable to that portion of the current value of
the Annuitant's Individual Account under the contract attributable
to that fund, divided by the book value (net asset value) of one
share of that fund.

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(2) Unless otherwise provided under the terms of the plan under which a
group contract has been issued, every Participant who has acquired a
fully (100%) vested interest in the benefits provided for him under a
Group Contract shall have the right to instruct the Contract Owner with
respect to the number of votes attributable to his Individual Account.
All votes for which the Contract Owner is entitled to give direction
but for which no instructions have been received will be cast by the
company, at the direction of the Contract Owner, for or against each
proposal to be voted upon in the same proportion as votes for which
instructions have been received by the Contract Owner.

B) Individual Contracts

Each registered owner of an Individual Contract shall be entitled to give
direction with respect to that number of votes to be cast by the company at
meetings of the shareholders of the given fund as shall be determined by
the following calculations:

(a) during the Accumulation Period, an amount equal to that portion of the
current value of the contract attributable to the fund, divided by the
book value (net asset value) of one share of that fund; and

(b) during the Annuity Period, an amount equal to the valuation reserve
(established pursuant to the insurance laws of Connecticut) applicable
to that portion of the contract attributable to that fund, divided by
the book value (net asset value) of one share of that fund.

C) Votes attributable to Contract Owners who do not direct the company will be
cast by the company in the same proportion as votes for which directions
have been received by the company.

D) In determining the number of votes hereunder, fractional votes will be
recognized. Where the value of the contract relates to two or more funds,
the calculation of votes will be performed separately for each fund.

SECTION 2. Each Contract Owner and Participant entitled to give directions or
instructions to the company in connection with any meeting of shareholders of
any fund will receive a notice of that meeting together with appropriate
solicitation materials and a statement of the number of votes as to which he is
entitled to give directions or instructions.

SECTION 3. For the purposes of determining (a) those Contract Owners and
Participants entitled to notice of any meeting of the shareholders of any fund,
and (b) the number of fund shares for which each such Contract Owner and
Participant may direct or instruct votes therefore, the Board of Directors shall
set a record date which date may be prior to, as of, or after the date of the
Board meeting at which it is set but in no event earlier than 40 days prior to
the date of the shareholders' meeting.

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ARTICLE VIII
GENERAL PROVISIONS

SECTION 1. The Board of Directors, by resolution, shall declare any and all
dividends to be paid by the company and fix the record date therefore and the
date on which such dividends are to be paid.

SECTION 2. The fiscal year of the company shall begin on the first day of
January and end on the thirty-first day of December of each year.

SECTION 3. The corporate seal shall be in the custody of the Secretary and may
be affixed to any instrument requiring a seal and may be duly attested by any
officer of the company. The seal shall contain the words "ING Life Insurance and
Annuity Company" in a circle, and the words "Hartford, Conn." within the circle.

ARTICLE IX
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES

To the full extent permitted by Connecticut Statutes, Section 33-771, as amended
from time to time, or by other provisions of law, each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, wherever brought, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director, officer or employee of the company, or is or was serving at the
request of the company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall be
indemnified by the company against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding. The indemnification
provided by this Section shall continue as to a person who has ceased to be
director, officer, employee or agent and shall apply whether or not the claim
against such person arises out of matters occurring before the adoption of this
By-law.

ARTICLE X
AMENDMENTS

These By-Laws may be amended, added to, or repealed by the holders of a majority
of the outstanding shares of stock entitled to vote at any annual or special
meeting of shareholders, or by a majority of the whole Board of Directors as
then constituted at any meeting of the Board, provided that notice of the
proposal to amend, add to, or repeal the By-Laws is included in the notice of
the meeting of shareholders or Directors at which such action takes place.

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