485BPOS 1 a2048527z485bpos.txt 485BPOS As filed with the Securities and Exchange Registration No. 33-75996* Commission on April 10, 2002 Registration No. 811-2512 ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 POST-EFFECTIVE AMENDMENT NO. 27 TO REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 and Amendment to REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Variable Annuity Account B of ING Life Insurance and Annuity Company (formerly Variable Annuity Account B of Aetna Life Insurance and Annuity Company) ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) 151 Farmington Avenue, TS31, Hartford, Connecticut 06156 Depositor's Telephone Number, including Area Code: (860) 273-4686 Julie E. Rockmore, Counsel ING Life Insurance and Annuity Company 151 Farmington Avenue, TS31, Hartford, Connecticut 06156 (NAME AND ADDRESS OF AGENT FOR SERVICE) It is proposed that this filing will become effective: immediately upon filing pursuant to paragraph (b) of Rule 485 -------- X on May 1, 2002 pursuant to paragraph (b) of Rule 485 -------- *Pursuant to Rule 429(a) under the Securities Act of 1933, Registrant has included a combined prospectus under this Registration Statement which includes all the information which would currently be required in a prospectus relating to the securities covered by the following earlier Registration Statements: 33-88722, 2-52448; and the individual deferred compensation contracts covered by Registration Statement No. 33-76000. VARIABLE ANNUITY ACCOUNT B ING LIFE INSURANCE AND ANNUITY COMPANY SUPPLEMENT DATED MAY 1, 2002 TO THE PROSPECTUS AND CONTRACT PROSPECTUS SUMMARY DATED MAY 1, 2002 GROUP VARIABLE ANNUITY CONTRACTS FOR EMPLOYER-SPONSORED DEFERRED COMPENSATION PLANS PRODUCERS' DEFERRED COMPENSATION PLAN AND PRODUCERS' INCENTIVE SAVINGS PLAN This supplement relates to the Producers' Deferred Compensation Plan and the Producers' Incentive Savings Plan (the "Plans") for career agents and certain brokers of ING Life Insurance Company and ING Life Insurance and Annuity Company. The Plans have met the criteria allowing for the reduction or elimination of certain charges under the contract. The Company will not deduct a maintenance fee or an early withdrawal charge under the contract. See "Fees." XCS.75996-02AB May 2002 VARIABLE ANNUITY ACCOUNT B ING LIFE INSURANCE AND ANNUITY COMPANY SUPPLEMENT DATED MAY 1, 2002 TO THE PROSPECTUS AND CONTRACT PROSPECTUS SUMMARY DATED MAY 1, 2002 GROUP VARIABLE ANNUITY CONTRACTS FOR EMPLOYER-SPONSORED DEFERRED COMPENSATION PLANS The following is a negotiated provision regarding the early withdrawal charge applicable to the participants of the American Chamber of Commerce Executives Deferred Compensation Plan. See "Fees." In addition to the applicable reasons listed in this Prospectus, an early withdrawal charge is not deducted for any Account Value which is withdrawn due to the Participant's separation from service. XCS.75996-02CC May 2002 PROSPECTUS - MAY 1, 2002 -------------------------------------------------------------------------------- THE CONTRACTS. The contracts described in this prospectus are group deferred variable annuity contracts issued by ING Life Insurance and Annuity Company (the Company) (formerly known as Aetna Life Insurance and Annuity Company). They are intended to be used as funding vehicles for certain types of retirement plans, including those that qualify for beneficial tax treatment, and/or to provide current income reduction under certain sections of the Internal Revenue Code of 1986, as amended (Tax Code). The contracts were formerly sold as both group contracts and employer-owned individual contracts. WHY READING THIS PROSPECTUS IS IMPORTANT. Before you participate in the contract through a retirement plan, you should read this prospectus. It provides facts about the contract and its investment options. Plan sponsors (generally your employer) should read this prospectus to help determine if the contract is appropriate for their plan. Keep this document for future reference. TABLE OF CONTENTS . . . PAGE 3 INVESTMENT OPTIONS. The contracts offer variable investment options and fixed interest options. When we establish your account(s), the contract holder, or you if permitted by the plan, instructs us to direct account dollars to any of the available options. Some investment options may be unavailable through certain contracts and plans, or in some states. THE FUNDS ING VP Ascent Portfolio (Class R Shares)(1) ING VP Balanced Portfolio, Inc. (Class R Shares)(1) ING VP Bond Portfolio (Class R Shares)(1) ING VP Crossroads Portfolio (Class R Shares)(1) ING VP Growth Portfolio (Class R Shares)(1) ING VP Growth and Income Portfolio (Class R Shares)(1) ING VP Index Plus LargeCap Portfolio (Class R Shares)(1) ING VP Index Plus MidCap Portfolio (Class R Shares)(1) ING VP Index Plus SmallCap Portfolio (Class R Shares)(1) ING VP International Equity Portfolio (Class R Shares)(1) ING VP Legacy Portfolio (Class R Shares)(1) ING VP Money Market Portfolio (Class R Shares)(1) ING VP Small Company Portfolio (Class R Shares)(1) ING VP Technology Portfolio (Class R Shares)(1) ING VP Value Opportunity Portfolio (Class R Shares)(1) ING VP Natural Resources Trust(1)(2) ING VP Growth Opportunities Portfolio (Class R Shares)(1) ING VP International Value Portfolio (Class R Shares)(1) ING VP MagnaCap Portfolio (Class R Shares)(1) ING VP MidCap Opportunities Portfolio (Class R Shares)(1) ING VP SmallCap Opportunities Portfolio (Class R Shares)(1) THE FUNDS (CONTINUED) ING Alger Aggressive Growth Portfolio (Service Class)(1) ING Alger Growth Portfolio (Service Class)(1) ING American Century Small Cap Value Portfolio (Service Class) ING Baron Small Cap Growth Portfolio (Service Class) ING DSI Enhanced Index Portfolio (Service Class)(1) ING Goldman Sachs-Registered Trademark- Capital Growth Portfolio (Service Class)(1)(3) ING JPMorgan Mid Cap Value Portfolio (Service Class) ING MFS Capital Opportunities Portfolio (Initial Class)(1) ING MFS Emerging Equities Portfolio (Initial Class)(1) ING MFS Global Growth Portfolio (Service Class) ING MFS Research Portfolio (Initial Class)(1) ING OpCap Balanced Value Portfolio (Service Class)(1) ING PIMCO Total Return Portfolio (Service Class) ING Salomon Brothers Capital Portfolio (Service Class)(1) ING Salomon Brothers Investors Value Portfolio (Service Class)(1) ING Scudder International Growth Portfolio (Initial Class)(1) ING T. Rowe Price Growth Equity Portfolio (Initial Class)(1) ING UBS Tactical Asset Allocation Portfolio (Service Class)(1) ING Van Kampen Comstock Portfolio (Service Class) THE FUNDS (CONTINUED) AIM V.I. Capital Appreciation Fund (Series I Shares) AIM V.I. Core Equity Fund (Series I Shares)(1) AIM V.I. Growth Fund (Series I Shares) AIM V.I. Premier Equity Fund (Series I Shares)(1) Calvert Social Balanced Portfolio Fidelity-Registered Trademark- VIP Contrafund-Registered Trademark- Portfolio (Initial Class) Fidelity-Registered Trademark- VIP Equity-Income Portfolio (Initial Class) Fidelity-Registered Trademark- VIP Growth Portfolio (Initial Class) Fidelity-Registered Trademark- VIP Overseas Portfolio (Initial Class) Franklin Small Cap Value Securities Fund (Class 2 Shares)(1) Janus Aspen Aggressive Growth Portfolio (Institutional Shares) Janus Aspen Balanced Portfolio (Institutional Shares) Janus Aspen Flexible Income Portfolio (Institutional Shares) Janus Aspen Growth Portfolio (Institutional Shares) Janus Aspen Worldwide Growth Portfolio (Institutional Shares) Lord Abbett Growth and Income Portfolio (Class VC Shares) Lord Abbett Mid-Cap Value Portfolio (Class VC Shares) Oppenheimer Global Securities Fund/VA Oppenheimer Strategic Bond Fund/VA Pioneer Equity Income VCT Portfolio (Class I Shares) Pioneer Fund VCT Portfolio (Class I Shares) Pioneer Mid Cap Value VCT Portfolio (Class I Shares) ------------------------ (1) Effective May 1, 2002 this fund has changed its name to the name listed above. See Appendix IV--Fund Descriptions on page 48 for a complete list of former and current fund names. (2) Transfers or deposits are not allowed into the subaccount investing in this fund, except from accounts established under the contract before May 1, 1998. As soon as all those who have current allocations to the subaccount under the contract have redirected their allocations to other investment options, we will close the subaccount to all investments. (3) Goldman Sachs-Registered Trademark- is a registered service mark of Goldman, Sachs & Co., and it is used by agreement with Goldman, Sachs & Co. PROSPECTUS - MAY 1, 2000 (CONTINUED) -------------------------------------------------------------------------------- [SIDE NOTE] [END SIDE NOTE] VARIABLE INVESTMENT OPTIONS. These options are called subaccounts. The subaccounts are within Variable Annuity Account B (the separate account), a separate account of the Company. You do not invest directly in or hold shares of the funds. Each subaccount invests in one of the mutual funds (funds) listed on this page. Earnings on amounts invested in a subaccount will vary depending upon the performance and fees of its underlying fund. RISKS ASSOCIATED WITH INVESTING IN THE FUNDS. Information about the risks of investing in the funds is located in the "Investment Option" section of this prospectus at page 13 and in each fund prospectus. Read this prospectus in conjunction with the fund prospectus, and retain the prospectus for future reference. GETTING ADDITIONAL INFORMATION. You may obtain the May 1, 2002, Statement of Additional Information (SAI) by indicating your request on your enrollment materials or calling the Company at 1-800-262-3862. You may also obtain an SAI for any of the funds by calling that number. This prospectus, the SAI and other information about the separate account may be obtained by accessing the Securities and Exchange Commission's (SEC) web site, www.sec.gov. Copies of this information may also be obtained, after paying a duplicating fee, by contacting the SEC Public Reference Room. Information on the operation of the SEC Public Reference Room may be obtained by calling 1-202-942-8090 or 1-800-SEC-0330, e-mailing publicinfo@sec.gov or by writing to SEC Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549. The SAI table of contents is listed on page 42 of this prospectus. The SAI is incorporated into this prospectus by reference. ADDITIONAL DISCLOSURE INFORMATION. Neither the SEC, nor any state securities commission, has approved or disapproved the securities offered through this Prospectus or passed on the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. This prospectus is valid only when accompanied by current prospectuses of the funds and the Guaranteed Accumulation Account. We do not intend for this prospectus to be an offer to sell or a solicitation of an offer to buy these securities in any state that does not permit their sale. We have not authorized anyone to provide you with information that is different than that contained in this prospectus. FIXED INTEREST OPTIONS. -- Guaranteed Accumulation Account -- Fixed Plus Account -- Fixed Account Except as specifically mentioned, this prospectus describes only the variable investment options. However, we describe the fixed interest options in the appendices to this prospectus. There is also a separate prospectus for the Guaranteed Accumulation Account. TABLE OF CONTENTS CONTRACT OVERVIEW............................... 4 Questions: Contacting the Company (sidebar) Sending Forms and Written Requests in Good Order (sidebar) Who's Who The Contract and Your Retirement Plan Contract Rights Contract Facts CONTRACT PHASES: THE ACCUMULATION PHASE, THE INCOME PHASE.................................... 6 FEE TABLE......................................... 7 CONDENSED FINANCIAL INFORMATION................... 13 INVESTMENT OPTIONS................................ 13 TRANSFERS......................................... 15 CONTRACT PURCHASE AND PARTICIPATION............... 16 CONTRACT OWNERSHIP AND RIGHTS..................... 18 RIGHT TO CANCEL................................... 18 FEES.............................................. 19 YOUR ACCOUNT VALUE................................ 23 WITHDRAWALS....................................... 26 SYSTEMATIC DISTRIBUTION OPTIONS................... 27 DEATH BENEFIT..................................... 28 THE INCOME PHASE.................................. 29 TAXATION.......................................... 33 OTHER TOPICS...................................... 37 The Company - Variable Annuity Account B - Performance Reporting - Voting Rights - Contract Distribution - Contract Modification - Legal Matters and Proceedings - Payment Delay or Suspension - Transfer of Ownership; Assignment - Intent to Confirm Quarterly CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION....................................... 42 APPENDIX I - GUARANTEED ACCUMULATION ACCOUNT...... 43 APPENDIX II - FIXED ACCOUNT....................... 45 APPENDIX III - FIXED PLUS ACCOUNT................. 46 APPENDIX IV - FUND DESCRIPTIONS................... 48 APPENDIX V - CONDENSED FINANCIAL INFORMATION...... 63
3 [SIDE NOTE] QUESTIONS: CONTACTING THE COMPANY. Contact your local representative or write or call our Home Office: ING Annuity Services 151 Farmington Avenue Hartford, CT 06156-1277 1-800-262-3862 SENDING FORMS AND WRITTEN REQUESTS IN GOOD ORDER. If you are writing to change your beneficiary, request a withdrawal or for any other purpose, contact your local representative or the Company to learn what information is required in order for the request to be in "good order." Generally, a request is considered to be in "good order" when it is signed, dated and made with such clarity and completeness that we are not required to exercise any discretion in carrying it out. We can only act upon written requests that are received in good order. [END SIDE NOTE] CONTRACT OVERVIEW ---------------------------------------------- The following is intended as a summary. Please read each section of this prospectus for additional information. WHO'S WHO ------------------------------------------------------------------- YOU (THE PARTICIPANT): The individual participating in a retirement plan, where the plan uses the contract as a funding option. PLAN SPONSOR: The sponsor of your retirement plan. Generally, your employer. CONTRACT HOLDER: The person or entity to whom we issue the contract. Generally, the plan sponsor. WE (THE COMPANY): ING Life Insurance and Annuity Company. We issue the contract. For greater detail, please review "Contract Ownership and Rights" and "Contract Purchase and Participation". THE CONTRACT AND YOUR RETIREMENT PLAN ------------------------------------------------------------------- RETIREMENT PLAN (PLAN): A plan sponsor has established a retirement plan for you. This contract is offered as a funding option for that plan. We are not a party to the plan, so the terms and the conditions of the contract and the plan may differ. PLAN TYPE. We refer to plans in this prospectus as 457 plans or non-section 457 plans. For a description of each. See "Taxation--Your Retirement Plan". USE OF AN ANNUITY CONTRACT IN YOUR PLAN. Under the federal tax laws, earnings on amounts held in annuity contracts are generally not taxed until they are withdrawn. However, in the case of a qualified retirement account (such as 457 plans or non-section 457 plans), an annuity contract is not necessary to obtain this favorable tax treatment and does not provide any tax benefits beyond the deferral already available to the tax qualified account itself. However, annuities do provide other features and benefits (such as guaranteed death benefit under some contracts or the option of lifetime income phase options at established rates) which may be valuable to you. You should discuss your alternatives with your financial representative taking into account the additional fees and expenses you may incur in an annuity. See "Contract Purchase and Participation." CONTRACT RIGHTS ------------------------------------------------------------------- The contract holder holds all rights under the contract, but may permit you to exercise those rights through the plan. FOR EXAMPLE: The contract may permit the contract holder to select investment options for your account dollars. The plan may permit you to exercise that right. For greater detail see "Contract Ownership and Rights". 4 CONTRACT FACTS ------------------------------------------------------------------- FREE LOOK/RIGHT TO CANCEL: Contract holders may cancel the contract no later than 10 days after they receive the contract (or a longer period if required by state law). See "Right To Cancel". DEATH BENEFIT: A beneficiary may receive a benefit in the event of your death prior to the income phase. Any death benefit during the income phase will depend upon the income phase payment option selected. See "Death Benefit" and "The Income Phase". WITHDRAWALS: During the accumulation phase, the contract holder may, on your behalf and subject to the limits in the contract, withdraw all or a part of your account value. Certain fees and taxes may apply. See "Withdrawals" and "Taxation". SYSTEMATIC DISTRIBUTION OPTIONS: If available under your contract, the contract holder may elect on your behalf for you to receive regular payments from your account, while retaining the account in the accumulation phase. See "Systematic Distribution Options". FEES: Certain fees are deducted from your account value. See "Fee Table" and "Fees". TAXATION: You will not generally pay taxes on any earnings from the annuity contract described in this prospectus until they are withdrawn (or otherwise made available to you or a beneficiary). Tax-qualified retirement arrangements (e.g., 457 plans) also defer payment of taxes on earnings until they are withdrawn (or otherwise made available to you or a beneficiary). When an annuity contract is used to fund a tax-qualified retirement arrangement, you should know that the annuity contract does not provide any additional tax deferral of earnings beyond the tax deferral provided by the tax-qualified retirement arrangement. However, annuities do provide other features and benefits which may be valuable to you. You should discuss your alternatives with your financial representative. Amounts you receive as a distribution will be generally included in your gross income and will be subject to taxation. Tax penalties may apply in some circumstances. See "Taxation". 5 CONTRACT PHASES ------------------------------------------------------------------- I. ACCUMULATION PHASE (accumulating retirement benefits) STEP 1: You or the contract holder provide the Company with your completed enrollment materials. The contract holder directs us to set up an account for you. STEP 2: The contract holder, or you if permitted by your plan, directs us to invest your account dollars in any of the: (a) Fixed Interest Options; and/or (b) Variable Investment Options. (The variable investment options are the subaccounts of Variable Annuity Account B. Each one invests in a specific mutual fund.) STEP 3: The subaccount(s) selected purchases shares of its corresponding fund. Payments to Your Account Step 1 ING Life Insurance and Annuity Company (a) Step 2 (b) Fixed Interest Options VARIABLE ANNUITY ACCOUNT B Variable Investment Options THE SUBACCOUNTS A B ETC. Step 3 Mutual Fund A Mutual Fund B
II. THE INCOME PHASE The contract offers several payment options. See "The Income Phase". In general, you may: -- Receive income phase payments over a lifetime or for a specified period; -- Receive income phase payments monthly, quarterly, semi-annually or annually; -- Select an option that provides a death benefit to beneficiaries; or -- Select fixed income phase payments or payments that vary based on the performance of the variable investment options you select. 6 [SIDE NOTE] IN THIS SECTION: -- Maximum Transaction Fees; -- Maximum Fees Deducted from the Subaccounts; -- Fees Deducted by the Funds; and -- Examples of Fee Deductions. ALSO SEE THE "FEES" SECTION FOR: -- Early Withdrawal Charge Schedules; -- How, When and Why Fees are Deducted; -- Reduction, Waiver and/or Elimination of Certain Fees; -- Premium and Other Taxes; and -- Charges for ING GET Fund. SEE "THE INCOME PHASE" FOR: -- Fees during the income phase. [END SIDE NOTE] FEE TABLE ---------------------------------------------- The tables and examples in this section show the fees your account may incur while accumulating dollars under the contract (the Accumulation Phase). See "The Income Phase" for fees that may apply after you begin receiving payments under the contract. The fees shown below do not include premium taxes that may be applicable. MAXIMUM TRANSACTION FEES EARLY WITHDRAWAL CHARGE. (As a percentage of the amount withdrawn) EARLY WITHDRAWAL CHARGE SCHEDULES INSTALLMENT PURCHASE PAYMENT ACCOUNTS SINGLE PURCHASE PAYMENT ACCOUNTS Purchase Payment Early Withdrawal Account Years Early Withdrawal Periods Completed Charge Completed Charge --------------------- ----------------- ----------------- ----------------- Fewer than 5 5% Fewer than 5 5% 5 or more but fewer 5 or more but than 7 4% fewer than 6 4% 7 or more but fewer 6 or more but than 9 3% fewer than 7 3% 9 or more but fewer 7 or more but than 10 2% fewer than 8 2% 8 or more but 10 or more 0% fewer than 9 1% 9 or more 0%
ANNUAL MAINTENANCE FEE INSTALLMENT PURCHASE PAYMENT ACCOUNTS............. $20.00(1) SINGLE PURCHASE PAYMENT ACCOUNTS.................. $0.00
MAXIMUM FEES DEDUCTED FROM THE SUBACCOUNTS (Daily deductions equal to the given percentage on an annual basis) MORTALITY AND EXPENSE RISK CHARGE................. 1.25%(1) ADMINISTRATIVE EXPENSE CHARGE..................... 0.25%(2) ---- TOTAL SEPARATE ACCOUNT EXPENSES................... 1.50% ====
------------------------ 1 These charges may be waived, reduced or eliminated in certain circumstances. See "Fees". 2 We only impose this charge under some contracts. See "Fees". 7 FEES DEDUCTED BY THE FUNDS USING THIS INFORMATION. The following table shows the investment advisory fees, 12b-1 fees and other expenses including service fees (if applicable) charged annually by each fund. See the "Fees" section of this prospectus, and the fund prospectus for additional information. HOW FEES ARE DEDUCTED. Fund fees are not deducted from account values. Instead, fees are deducted from the value of fund shares on a daily basis, which in turn will affect the value of each subaccount on a daily basis. Except as noted below, the following figures are a percentage of the average net assets of each fund, and are based on figures for the year ended December 31, 2001.
FUND EXPENSE TABLE(1) TOTAL FEES AND TOTAL NET MANAGEMENT FUND EXPENSES FUND (ADVISORY) 12B-1 OTHER ANNUAL WAIVED OR ANNUAL FUND NAME FEES FEE EXPENSES EXPENSES REIMBURSED EXPENSES --------- ---------- ------- -------- -------- ---------- --------- ING VP Ascent Portfolio (Class R Shares)(2) 0.60% -- 0.14% 0.74% -- 0.74% ING VP Balanced Portfolio, Inc. (Class R Shares)(2) 0.50% -- 0.09% 0.59% -- 0.59% ING VP Bond Portfolio(Class R Shares)(2) 0.40% -- 0.10% 0.50% -- 0.50% ING VP Crossroads Portfolio (Class R Shares)(2) 0.60% -- 0.14% 0.74% 0.04% 0.70% ING VP Growth Portfolio (Class R Shares)(2) 0.60% -- 0.10% 0.70% -- 0.70% ING VP Growth and Income Portfolio (Class R Shares)(2) 0.50% -- 0.09% 0.59% -- 0.59% ING VP Index Plus LargeCap Portfolio (Class R Shares)(2) 0.35% -- 0.10% 0.45% -- 0.45% ING VP Index Plus MidCap Portfolio (Class R Shares)(2) 0.40% -- 0.15% 0.55% -- 0.55% ING VP Index Plus SmallCap Portfolio (Class R Shares)(2) 0.40% -- 0.31% 0.71% 0.11% 0.60% ING VP International Equity Portfolio (Class R Shares)(2) 0.85% -- 0.41% 1.26% 0.11% 1.15% ING VP Legacy Portfolio (Class R Shares)(2) 0.60% -- 0.16% 0.76% 0.11% 0.65% ING VP Money Market Portfolio (Class R Shares)(2) 0.25% -- 0.09% 0.34% -- 0.34% ING VP Small Company Portfolio (Class R Shares)(2) 0.75% -- 0.11% 0.86% -- 0.86% ING VP Technology Portfolio (Class R Shares)(2) 0.95% -- 0.16% 1.11% -- 1.11% ING VP Value Opportunity Portfolio (Class R Shares)(2) 0.60% -- 0.11% 0.71% -- 0.71% ING VP Natural Resources Trust(3) 1.00% -- 0.35% 1.35% -- 1.35% ING VP Growth Opportunities Portfolio (Class R Shares)(3) 0.75% -- 1.07% 1.82% 0.92% 0.90% ING VP International Value Portfolio (Class R Shares)(3) 1.00% -- 0.53% 1.53% 0.53% 1.00% ING VP MagnaCap Portfolio (Class R Shares)(3) 0.75% -- 1.47% 2.22% 1.32% 0.90% ING VP MidCap Opportunities Portfolio (Class R Shares)(3) 0.75% -- 1.91% 2.66% 1.76% 0.90% ING VP SmallCap Opportunities Portfolio (Class R Shares)(3) 0.75% -- 0.40% 1.15% 0.25% 0.90% ING Alger Aggressive Growth Portfolio (Service Class)(4) 0.85% -- 0.45% 1.30% -- 1.30% ING Alger Growth Portfolio (Service Class)(4) 0.80% -- 0.45% 1.25% -- 1.25% ING American Century Small Cap Value Portfolio (Service Class)(4) 1.00% -- 0.65% 1.65% -- 1.65% ING Baron Small Cap Growth Portfolio (Service Class)(4) 0.85% -- 0.65% 1.50% -- 1.50% ING DSI Enhanced Index Portfolio (Service Class)(4) 0.60% -- 0.45% 1.05% -- 1.05% ING Goldman Sachs-Registered Trademark- Capital Growth Portfolio (Service Class)(4) 0.85% -- 0.45% 1.30% -- 1.30% ING JPMorgan Mid Cap Value Portfolio (Service Class)(4) 0.75% -- 0.60% 1.35% -- 1.35% ING MFS Capital Opportunities Portfolio (Initial Class) 0.65% -- 0.25% 0.90% -- 0.90% ING MFS Emerging Equities Portfolio (Initial Class) 0.68% -- 0.13% 0.81% -- 0.81% ING MFS Global Growth Portfolio (Service Class)(4) 0.60% -- 0.85% 1.45% -- 1.45% ING MFS Research Portfolio (Initial Class) 0.70% -- 0.15% 0.85% -- 0.85% ING OpCap Balanced Value Portfolio (Service Class)(4) 0.80% -- 0.45% 1.25% -- 1.25% ING PIMCO Total Return Portfolio (Service Class)(4) 0.50% -- 0.60% 1.10% -- 1.10% ING Salomon Brothers Capital Portfolio (Service Class)(4) 0.90% -- 0.45% 1.35% -- 1.35% ING Salomon Brothers Investors Value Portfolio (Service Class)(4) 0.80% -- 0.45% 1.25% -- 1.25% ING Scudder International Growth Portfolio (Initial Class) 0.80% -- 0.20% 1.00% -- 1.00%
8
FUND EXPENSE TABLE(1) TOTAL FEES AND TOTAL NET MANAGEMENT FUND EXPENSES FUND (ADVISORY) 12B-1 OTHER ANNUAL WAIVED OR ANNUAL FUND NAME FEES FEE EXPENSES EXPENSES REIMBURSED EXPENSES --------- ---------- ------- -------- -------- ---------- --------- ING T. Rowe Price Growth Equity Portfolio (Initial Class) 0.60% -- 0.15% 0.75% -- 0.75% ING UBS Tactical Asset Allocation Portfolio (Service Class)(4) 0.90% -- 0.45% 1.35% -- 1.35% ING Van Kampen Comstock Portfolio (Service Class)(4) 0.60% -- 0.60% 1.20% -- 1.20% AIM V.I. Capital Appreciation Fund (Series I Shares)(5) 0.61% -- 0.24% 0.85% -- 0.85% AIM V.I. Core Equity Fund (Series I Shares)(5) 0.61% -- 0.21% 0.82% -- 0.82% AIM V.I. Growth Fund (Series I Shares)(5) 0.62% -- 0.26% 0.88% -- 0.88% AIM V.I. Premier Equity Fund (Series I Shares)(5) 0.60% -- 0.25% 0.85% -- 0.85% Calvert Social Balanced Portfolio(6) 0.70% 0.18% 0.88% -- 0.88% Fidelity-Registered Trademark- VIP Contrafund-Registered Trademark- Portfolio (Initial Class)(7) 0.58% -- 0.10% 0.68% -- 0.68% Fidelity-Registered Trademark- VIP Equity-Income Portfolio (Initial Class)(7) 0.48% -- 0.10% 0.58% -- 0.58% Fidelity-Registered Trademark- VIP Growth Portfolio (Initial Class)(7) 0.58% -- 0.10% 0.68% -- 0.68% Fidelity-Registered Trademark- VIP Overseas Portfolio (Initial Class)(7) 0.73% -- 0.19% 0.92% -- 0.92% Franklin Small Cap Value Securities Fund (Class 2 Shares)(8) 0.60% 0.25% 0.20% 1.05% -- 1.05% Janus Aspen Aggressive Growth Portfolio (Institutional Shares)(9) 0.65% -- 0.02% 0.67% -- 0.67% Janus Aspen Balanced Portfolio (Institutional Shares)(9) 0.65% -- 0.01% 0.66% -- 0.66% Janus Aspen Flexible Income Portfolio (Institutional Shares)(9) 0.64% -- 0.03% 0.67% -- 0.67% Janus Aspen Growth Portfolio (Institutional Shares)(9) 0.65% -- 0.01% 0.66% -- 0.66% Janus Aspen Worldwide Growth Portfolio (Institutional Shares)(9) 0.65% -- 0.04% 0.69% -- 0.69% Lord Abbett Growth and Income Portfolio (Class VC Shares)(10) 0.50% -- 0.47% 0.97% -- 0.97% Lord Abbett Mid-Cap Value Portfolio (Class VC Shares)(11) 0.75% -- 0.35% 1.10% -- 1.10% Oppenheimer Global Securities Fund/VA 0.64% -- 0.06% 0.70% -- 0.70% Oppenheimer Strategic Bond Fund/VA(12) 0.74% -- 0.05% 0.79% -- 0.79% Pioneer Equity Income VCT Portfolio (Class I Shares) 0.65% -- 0.10% 0.75% -- 0.75% Pioneer Fund VCT Portfolio (Class I Shares) 0.65% -- 0.09% 0.74% -- 0.74% Pioneer Mid Cap Value VCT Portfolio (Class I Shares) 0.65% -- 0.14% 0.79% -- 0.79%
FOOTNOTES TO "FUND EXPENSE TABLE" (1) The Company may receive compensation from each of the funds or the funds' affiliates based on an annual percentage of the average net assets held in that fund by the Company. The percentage paid may vary from one fund company to another. For certain funds, some of this compensation may be paid out of 12b-1 fees or service fees that are deducted from fund assets. Any such fees deducted from fund assets are disclosed in this Fund Expense Table and the fund prospectuses. The Company may also receive additional compensation from certain funds for administrative, recordkeeping or other services provided by the Company to the funds or the funds' affiliates. These additional payments are made by the funds or the funds' affiliates to the Company and do not increase, directly or indirectly, the fees and expenses shown above. See "Fees--Fund Expenses" for additional information. (2) ING Investments, LLC, the investment adviser to each Portfolio, has entered into written expense limitation agreements with each Portfolio (except Balanced, Growth and Income, Bond and Money Market) under which it will limit expenses of the Portfolios, excluding interest, brokerage and extraordinary expenses, subject to possible reimbursement to ING Investments, LLC within three years. The amount of each Portfolio's expenses waived or reimbursed during the last fiscal year by the Portfolio's investment adviser is shown under the heading "Fees and Expenses Waived or Reimbursed" in the table above. For each Portfolio, the expense limits will continue through at least December 31, 2002. (3) ING Investments, LLC has entered into written expense limitation agreements with each Portfolio under which it will limit expenses of the Portfolio, excluding interest, taxes, brokerage and extraordinary expenses subject to possible reimbursement to ING Investments, LLC within three years. The amount of each Portfolio's expenses waived or reimbursed during the last fiscal year by ING Investments, LLC is shown under the heading "Fees and Expenses Waived or Reimbursed" in the table above. For the Natural Resources Trust, the expense limit will continue through at least July 26, 2002. For the remaining ING VP portfolios, the expense limits will continue through at least October 31, 2002. 9 (4) Other Expenses shown in the above table are based on estimated amounts for the current fiscal year and include a Shareholder Services fee of 0.25%. (5) Compensation to the Company for administrative or recordkeeping services may be paid out of fund assets in an amount up to 0.25% annually. Any such fees paid from the AIM Funds' assets are included in the "Other Expenses" column. (6) "Management (Advisory) Fees" include an administrative fee paid by the Fund to Calvert Administrative Services Company, an affiliate of Calvert. "Other Expenses" listed above reflect an indirect fee of 0.01% resulting from the Portfolio's offset arrangement with the custodian bank whereby the custodian's and transfer agent's fees may be paid indirectly by credits earned on the Portfolio's uninvested cash balances. These credits are used to reduce the Portfolio's expenses. A voluntary reduction of fees paid indirectly is not reflected in the above table. If this voluntary reduction was reflected, the amounts shown under "Other Expenses" and "Total Net Fund Annual Expenses" would be 0.17% and 0.87%, respectively. (7) Actual annual class operating expenses were lower because a portion of the brokerage commissions that the fund paid was used to reduce the fund's expenses. In addition, through arrangements with the fund's custodian, credits realized as a result of uninvested cash balances are used to reduce a portion of the fund's custodian expenses. These offsets may be discontinued at any time. (8) The Fund's Class 2 distribution plan or "Rule 12b-1 plan" is described in the Fund's prospectus. The Fund's manager had agreed in advance to make a reduction of 0.03% to its fee to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. This reduction is required by the Fund's Board of Trustees and an order of the Securities and Exchange Commission. The amounts shown under "Management (Advisory) Fees" and "Total Net Fund Annual Expenses" do not reflect this voluntary reduction of fees. If this reduction was reflected, the amounts shown under "Management (Advisory) Fees" and "Total Net Fund Annual Expenses" would be 0.57% and 1.02%, respectively. (9) All expenses are shown without the effect of any expense offset arrangements. (10) The Lord Abbett Growth and Income Portfolio has entered into an arrangement with its custodian pursuant to which any daily uninvested cash balances among the Portfolio's assets are used to reduce the Portfolio's custody fees. For the fiscal year ended December 31, 2001, this reduction was less than 0.01% of the Portfolio's average daily net assets. "Other Expenses" also includes 0.25% for a non 12b-1 service fee arrangement. (11) The information in the chart above has been restated to reflect the fees and expenses that will be applicable during 2002. For the year 2001, Lord, Abbett & Co. (Lord Abbett), the Portfolio's investment adviser, voluntarily waived a portion of its management fees of 0.75% of average daily net assets and voluntarily reimbursed a portion of the Portfolio's expenses to the extent necessary to maintain its "Other Expenses" at an aggregate of 0.35% of its average daily net assets. For the year 2001, "Fees and Expenses Waived or Reimbursed" for the Portfolio were 0.21%, and absent any waivers and reimbursements the "Total Fund Annual Expenses" for the Portfolio would have been 1.20%. For the year 2002, Lord Abbett does not intend to waive its management fees for the Portfolio but has contractually agreed to continue to reimburse a portion of the Portfolio's expenses to the extent necessary to maintain its "Other Expenses" at an aggregate of 0.35% of its average daily net assets. "Other Expenses" also includes 0.25% for a non 12b-1 service fee arrangement. (12) OppenheimerFunds, Inc., will reduce the management fee by 0.10% as long as the fund's trailing 12-month performance at the end of the quarter is in the fifth Lipper peer-group quintile; and by 0.05% as long as it is in the fourth quintile. The waiver is voluntary and may be terminated by the Manager at any time. 10 HYPOTHETICAL EXAMPLES ACCOUNT FEES INCURRED OVER TIME. The following hypothetical examples show the fees paid over time if $1,000 is invested in a subaccount, assuming a 5% annual return on the investment. For the purpose of these examples, we deducted the maximum allowed under the contract for the following fees: mortality and expense risk charge of 1.25% annually, an administrative expense charge of 0.25% annually and maintenance fee of $20 (converted to a percentage of assets equal to 0.024%). The total fund expenses are those shown in the column "Total Net Fund Annual Expenses" in the Fund Expense Table, assuming that any applicable fee waivers or reimbursements would apply during all periods shown. EXAMPLE B EXAMPLE A -- These examples are purely hypothetical. IF YOU LEAVE YOUR ENTIRE ACCOUNT -- They should not be considered a representation IF YOU WITHDRAW YOUR ENTIRE VALUE INVESTED OR IF YOU SELECT of past or future fees or expected returns. ACCOUNT VALUE AT THE END OF THE AN INCOME PHASE PAYMENT OPTION -- Actual fees and/or returns may be more or less PERIODS SHOWN, YOU WOULD PAY THE AT THE END OF THE PERIODS SHOWN, than those shown in these examples. FOLLOWING FEES, INCLUDING ANY YOU WOULD PAY THE FOLLOWING FEES APPLICABLE EARLY WITHDRAWAL (NO EARLY WITHDRAWAL CHARGE IS CHARGE ASSESSED:* REFLECTED):**
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- ------ ------- ------- -------- ING VP Ascent Portfolio (Class R Shares) $74 $125 $178 $260 $23 $71 $121 $260 ING VP Balanced Portfolio, Inc. (Class R Shares) $73 $121 $171 $245 $21 $66 $114 $245 ING VP Bond Portfolio (Class R Shares) $72 $118 $167 $235 $21 $63 $109 $235 ING VP Crossroads Portfolio (Class R Shares) $74 $124 $177 $256 $23 $70 $119 $256 ING VP Growth Portfolio (Class R Shares) $74 $124 $177 $256 $23 $70 $119 $256 ING VP Growth and Income Portfolio (Class R Shares) $73 $121 $171 $245 $21 $66 $114 $245 ING VP Index Plus LargeCap Portfolio (Class R Shares) $72 $117 $164 $230 $20 $62 $106 $230 ING VP Index Plus MidCap Portfolio (Class R Shares) $73 $120 $169 $240 $21 $65 $112 $240 ING VP Index Plus SmallCap Portfolio (Class R Shares) $73 $121 $172 $246 $22 $67 $114 $246 ING VP International Equity Portfolio (Class R Shares) $78 $137 $198 $301 $27 $83 $142 $301 ING VP Legacy Portfolio (Class R Shares) $73 $122 $174 $251 $22 $68 $117 $251 ING VP Money Market Portfolio (Class R Shares) $70 $113 $159 $218 $19 $59 $101 $218 ING VP Small Company Portfolio (Class R Shares) $75 $128 $184 $272 $24 $74 $127 $272 ING VP Technology Portfolio (Class R Shares) $78 $135 $196 $297 $27 $82 $140 $297 ING VP Value Opportunity Portfolio (Class R Shares) $74 $124 $177 $257 $23 $70 $120 $257 ING VP Natural Resources Trust $80 $142 $207 $320 $29 $89 $152 $320 ING VP Growth Opportunities Portfolio (Class R Shares) $76 $130 $186 $276 $25 $76 $129 $276 ING VP International Value Portfolio (Class R Shares) $77 $132 $191 $286 $26 $79 $134 $286 ING VP MagnaCap Portfolio (Class R Shares) $76 $130 $186 $276 $25 $76 $129 $276 ING VP MidCap Opportunities Portfolio (Class R Shares) $76 $130 $186 $276 $25 $76 $129 $276 ING VP SmallCap Opportunities Portfolio (Class R Shares) $76 $130 $186 $276 $25 $76 $129 $276 ING Alger Aggressive Growth Portfolio (Service Class) $80 $141 $205 $315 $29 $88 $149 $315 ING Alger Growth Portfolio (Service Class) $79 $139 $202 $310 $28 $86 $147 $310 ING American Century Small Cap Value Portfolio (Service Class) $83 $151 $221 $348 $32 $98 $166 $348 ING Baron Small Cap Growth Portfolio (Service Class) $82 $146 $214 $334 $31 $93 $159 $334 ING DSI Enhanced Index Portfolio (Service Class) $77 $134 $193 $291 $26 $80 $137 $291 ING Goldman Sachs-Registered Trademark- Capital Growth Portfolio (Service Class) $80 $141 $205 $315 $29 $88 $149 $315 ING JPMorgan Mid Cap Value Portfolio (Service Class) $80 $142 $207 $320 $29 $89 $152 $320 ING MFS Capital Opportunities Portfolio (Initial Class) $76 $130 $186 $276 $25 $76 $129 $276 ING MFS Emerging Equities Portfolio (Initial Class) $75 $127 $182 $267 $24 $73 $125 $267 ING MFS Global Growth Portfolio (Service Class) $81 $145 $212 $329 $30 $92 $156 $329 ING MFS Research Portfolio (Initial Class) $75 $128 $184 $271 $24 $74 $127 $271
11
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- ------ ------- ------- -------- ING OpCap Balanced Value Portfolio (Service Class) $79 $139 $202 $310 $28 $86 $147 $310 ING PIMCO Total Return Portfolio (Service Class) $78 $135 $195 $296 $27 $82 $139 $296 ING Salomon Brothers Capital Portfolio (Service Class) $80 $142 $207 $320 $29 $89 $152 $320 ING Salomon Brothers Investors Value Portfolio (Service Class) $79 $139 $202 $310 $28 $86 $147 $310 ING Scudder International Growth Portfolio (Initial Class) $77 $132 $191 $286 $26 $79 $134 $286 ING T. Rowe Price Growth Equity Portfolio (Initial Class) $74 $125 $179 $261 $23 $71 $122 $261 ING UBS Tactical Asset Allocation Portfolio (Service Class) $80 $142 $207 $320 $29 $89 $152 $320 ING Van Kampen Comstock Portfolio (Service Class) $79 $138 $200 $306 $28 $85 $144 $306 AIM V.I. Capital Appreciation Fund (Series I Shares) $75 $128 $184 $271 $24 $74 $127 $271 AIM V.I. Core Equity Fund (Series I Shares) $75 $127 $182 $268 $24 $73 $125 $268 AIM V.I. Growth Fund (Series I Shares) $76 $129 $185 $274 $24 $75 $128 $274 AIM V.I. Premier Equity Fund (Series I Shares) $75 $128 $184 $271 $24 $74 $127 $271 Calvert Social Balanced Portfolio $76 $129 $185 $274 $24 $75 $128 $274 Fidelity-Registered Trademark- VIP Contrafund-Registered Trademark- Portfolio (Initial Class) $74 $123 $176 $254 $22 $69 $118 $254 Fidelity-Registered Trademark- VIP Equity-Income Portfolio (Initial Class) $73 $120 $171 $244 $21 $66 $113 $244 Fidelity-Registered Trademark- VIP Growth Portfolio (Initial Class) $74 $123 $176 $254 $22 $69 $118 $254 Fidelity-Registered Trademark- VIP Overseas Portfolio (Initial Class) $76 $130 $187 $278 $25 $76 $130 $278 Franklin Small Cap Value Securities Fund (Class 2 Shares) $77 $134 $193 $291 $26 $80 $137 $291 Janus Aspen Aggressive Growth Portfolio (Institutional Shares) $74 $123 $175 $253 $22 $69 $118 $253 Janus Aspen Balanced Portfolio (Institutional Shares) $74 $123 $175 $252 $22 $68 $117 $252 Janus Aspen Flexible Income Portfolio (Institutional Shares) $74 $123 $175 $253 $22 $69 $118 $253 Janus Aspen Growth Portfolio (Institutional Shares) $74 $123 $175 $252 $22 $68 $117 $252 Janus Aspen Worldwide Growth Portfolio (Institutional Shares) $74 $124 $176 $255 $22 $69 $119 $255 Lord Abbett Growth and Income Portfolio (Class VC Shares) $77 $132 $189 $283 $25 $78 $133 $283 Lord Abbett Mid-Cap Value Portfolio (Class VC Shares) $78 $135 $195 $296 $27 $82 $139 $296 Oppenheimer Global Securities Fund/VA $74 $124 $177 $256 $23 $70 $119 $256 Oppenheimer Strategic Bond Fund/VA $75 $126 $181 $265 $23 $72 $124 $265 Pioneer Equity Income VCT Portfolio (Class I Shares) $74 $125 $179 $261 $23 $71 $122 $261 Pioneer Fund VCT Portfolio (Class I Shares) $74 $125 $178 $260 $23 $71 $121 $260 Pioneer Mid Cap Value VCT Portfolio (Class I Shares) $75 $126 $181 $265 $23 $72 $124 $265
-------------------------- * This example reflects deduction of an early withdrawal charge calculated using the schedule applicable to Installment Purchase Payment Accounts. Under that schedule, if only one $1,000 payment was made as described above, fewer than 5 purchase payment periods would have been completed at the end of years 1, 3 and 5, and the 5% charge would apply. At the end of the tenth account year, the early withdrawal charge is waived regardless of the number of purchase payment periods completed, and no early withdrawal charge would apply. ** This example does not apply if during the income phase, a nonlifetime payment option with variable payments is selected and a lump-sum withdrawal is requested within 3 years after payments start. In this case, the lump-sum payment is treated as a withdrawal during the accumulation phase and may be subject to an early withdrawal charge as shown in Example A. 12 CONDENSED FINANCIAL INFORMATION ---------------------------------------------- UNDERSTANDING CONDENSED FINANCIAL INFORMATION. In Appendix V, we provide condensed financial information about the Variable Annuity Account B (the separate account) subaccounts available under the contracts. The tables show the value of the subaccounts over the past 10 years. For subaccounts that were not available 10 years ago, we give a history from the date of first availability. INVESTMENT OPTIONS ---------------------------------------------- The contract offers variable investment options and fixed interest options. When we establish your account(s), the contract holder, or you if permitted by the plan, instructs us to direct account dollars to any of the available options. VARIABLE INVESTMENT OPTIONS. These options are called subaccounts. The subaccounts are within Variable Annuity Account B (the separate account), a separate account of the Company. Earnings on amounts invested in a subaccount will vary depending upon the performance and fees of its underlying fund. You do not invest directly in or hold shares of the funds. -- FUND DESCRIPTIONS. We provide brief descriptions of the funds in Appendix IV. Please refer to the fund prospectuses for additional information. Fund prospectuses may be obtained, free of charge, from our Home Office at the address and telephone number listed in "Contract Overview--Questions" or by accessing the SEC's web site or by contacting the SEC Public Reference Room. FIXED INTEREST OPTIONS. For descriptions of the fixed interest options, see Appendices I, II, and III and the Guaranteed Accumulation Account prospectus. SELECTING INVESTMENT OPTIONS - CHOOSE OPTIONS APPROPRIATE FOR YOU. Your local representative can help you evaluate which subaccounts or fixed interest options may be appropriate for your financial goals. - UNDERSTAND THE RISKS ASSOCIATED WITH THE OPTIONS YOU CHOOSE. Some subaccounts invest in funds that are considered riskier than others. Funds with additional risks are expected to have a value that rises and falls more rapidly and to a greater degree than other funds. For example: funds investing in foreign or international securities are subject to additional risks not associated with domestic investments, and their performance may vary accordingly. Also, funds using derivatives in their investment strategy may be subject to additional risks. - BE INFORMED. Read this prospectus, the fund prospectus, fixed interest option appendices and the Guaranteed Accumulation Account prospectus. LIMITS ON OPTION AVAILABILITY. Some subaccounts and fixed interest options may not be available through certain contracts and plans or in some states. We may add, withdraw or substitute investment options, subject to the conditions in the contract and regulatory requirements. In the case of a substitution, the new fund may have different fees and charges than the fund it replaced. 13 LIMITS ON NUMBER OF OPTIONS SELECTED. No more than 18 investment options may be selected for your account at any one time. Each subaccount, the Fixed Account, the Fixed Plus Account and each classification of the Guaranteed Accumulation Account selected counts as one option. LIMITS IMPOSED BY THE UNDERLYING FUND. Orders for the purchase of fund shares may be subject to acceptance by the fund. We reserve the right to reject, without prior notice, any allocation of a purchase payment to a subaccount if the subaccount's investment in the corresponding fund is not accepted by the fund for any reason. ADDITIONAL RISKS OF INVESTING IN THE FUNDS. (MIXED AND SHARED FUNDING) "Shared funding" occurs when shares of a fund, which the subaccounts buy for variable annuity contracts, are also bought by other insurance companies for their variable annuity contracts. "Mixed funding" occurs when shares of a fund, which the subaccounts buy for variable annuity contracts, are bought for variable life insurance contracts issued by us or other insurance companies. -- Shared--bought by more than one company -- Mixed--bought for annuities and life insurance POSSIBLE CONFLICTS OF INTEREST. With respect to the funds, it is possible that a conflict of interest may arise due to mixed and shared funding, a change in law affecting the operations of variable annuity separate accounts, differences in the voting instructions of the contract holder and others maintaining a voting interest in the funds, or some other reason. Such a conflict could adversely impact the value of a fund. For example, if a conflict of interest occurred and one of the subaccounts withdrew its investment in a fund, the fund may be forced to sell its securities at disadvantageous prices, causing its share value to decrease. Each fund's board of directors or trustees will monitor events in order to identify any material irreconcilable conflicts which may arise and to determine what action, if any, should be taken to address such conflicts. With respect to the funds, in the event of a conflict, the Company will take any steps necessary to protect contract holders and annuitants maintaining a voting interest in the funds, including the withdrawal of Variable Annuity Account B from participation in the funds which are involved in the conflict. 14 TRANSFERS ---------------------------------------------- TRANSFERS AMONG INVESTMENT OPTIONS. During the accumulation phase and under some contracts the income phase, the contract holder, or you if permitted by the plan, may transfer amounts among investment options. Transfers from fixed interest options are restricted as outlined in Appendices I, II and III. Transfers may be requested in writing, by telephone or, where available, electronically. Transfers must be made in accordance with the terms of the contract. VALUE OF TRANSFERRED DOLLARS. The value of amounts transferred into or out of the funds will be based on the subaccount unit values next determined after we receive your transfer request in good order at our Home Office, or if you are participating in the dollar cost averaging program, after your scheduled transfer. The contracts may restrict how many transfers, if any, are allowed among options during the income phase. TELEPHONE AND ELECTRONIC TRANSFERS: SECURITY MEASURES. To prevent fraudulent use of telephone or electronic transactions (including, but not limited to, internet transactions), we have established security procedures. These include recording calls on our toll-free telephone lines and requiring use of a personal identification number (PIN) to execute transactions. You are responsible for keeping your PIN and account information confidential. If we fail to follow reasonable security procedures, we may be liable for losses due to unauthorized or fraudulent telephone or other electronic transactions. We are not liable for losses resulting from following telephone or electronic instructions we believe to be genuine. If a loss occurs when we rely on such instructions, you will bear the loss. LIMITS ON FREQUENT TRANSFERS. The contracts are not designed to serve as vehicles for frequent trading in response to short-term fluctuations in the market. Such frequent trading can disrupt management of a fund and raise its expenses. This in turn can have an adverse effect on fund performance. Accordingly, organizations or individuals that use market-timing investment strategies and make frequent transfers should not purchase the contracts. We reserve the right to restrict, in our sole discretion and without prior notice, transfers initiated by a market-timing organization or individual or other party authorized to give transfer instructions on behalf of multiple contract holders or participants. Such restrictions could include: (1) Not accepting transfer instructions from an agent acting on behalf of more than one contract holder or participant; and (2) Not accepting preauthorized transfer forms from market timers or other entities acting on behalf of more than one contract holder or participant at a time. We further reserve the right to impose, without prior notice, restrictions on any transfers that we determine, in our sole discretion, will disadvantage or potentially hurt the rights or interests of other contract holders or participants. THE DOLLAR COST AVERAGING PROGRAM. If available under your plan, you may participate in our dollar cost averaging program. There is no additional charge for this service. Dollar cost averaging is a system for investing that buys fixed dollar amounts of an investment at regular intervals, regardless of price. Our program transfers, at regular intervals, a fixed dollar amount to one or more subaccounts that you select. Dollar cost averaging is not permitted into the ING VP Natural Resources Trust subaccount. Dollar cost averaging neither ensures a profit nor guarantees against loss in a declining market. You should consider your financial ability to continue purchases through periods of low price levels. For additional information about this program, contact your local representative or call the Company at the number listed in "Contract Overview--Questions." 15 CONTRACT PURCHASE AND PARTICIPATION ---------------------------------------------- CONTRACTS AVAILABLE FOR PURCHASE. The contracts are designed for deferred compensation plans sponsored by an employer for its employees and/or independent contractors. The plans may be sponsored by: (1) Non-governmental tax-exempt organizations for deferrals that are subject to Tax Code Section 457 (457 Plans); (2) Tax-exempt organizations for deferrals not subject to Tax Code Section 457; or (3) Taxable organizations. The types of plans described in (2) and (3) above are referred to as non- section 457 plans. USE OF AN ANNUITY CONTRACT IN YOUR PLAN. Under the federal tax laws, earnings on amounts held in annuity contracts are generally not taxed until they are withdrawn. However, in the case of a qualified retirement account (such as 457 plans or non-section 457 plans), an annuity contract is not necessary to obtain this favorable tax treatment and does not provide any tax benefits beyond the deferral already available to the tax qualified account itself. However, annuities do provide other features and benefits (such as guaranteed death benefit under some contracts or the option of lifetime income phase options at established rates) which may be valuable to you. You should discuss your alternatives with your financial representative, taking into account the additional fees and expenses you may incur in an annuity. PURCHASING THE CONTRACT. (1) The contract holder submits the required forms and application to the Company. (2) We approve the forms and issue a contract to the contract holder. PARTICIPATING IN THE CONTRACT. To participate in the contract, complete an enrollment form and submit it to us. If your enrollment is accepted, we establish an account for you under the contract. ACCEPTANCE OR REJECTION. We must accept or reject an application or your enrollment materials within two business days of receipt. If the forms are incomplete, we may hold any forms and accompanying purchase payments for five business days, unless you consent to our holding them longer. Under limited circumstances, we may also agree, for a particular plan, to hold purchase payments for longer periods with the permission of the contract holder. If we agree to do this, we will deposit the purchase payments in the ING VP Money Market Portfolio subaccount until the forms are completed (or for a maximum of 105 days). If we reject the application or enrollment, we will return the forms and any purchase payments. METHODS OF PURCHASE PAYMENT. The following purchase payment methods are available: -- Continuous payments over time into an installment purchase payment account. Payments to an installment purchase payment account must be at least $100 per month ($1,200 annually). No payment may be less than $25. -- Lump-sum transfer from a previous plan into a single purchase payment account, in accordance with our procedures in effect at the time of purchase. 16 If you participate in a 457 plan, the Tax Code places limits on how much of your compensation may be deferred annually. See "Taxation" for further information. ALLOCATION OF PURCHASE PAYMENTS. The contract holder or you, if the contract holder permits, directs us to allocate initial contributions to the investment options available under the plan. Generally you will specify this information on your enrollment materials. After your enrollment, changes to allocations for future purchase payments or transfer of existing balances among investment options may be requested in writing and, where available, by telephone or electronically. Allocations must be in whole percentages and there may be limitations on the number of investment options that can be selected at any one time. See "Investment Options and Transfers". TRANSFER CREDITS. The Company provides a transfer credit in some cases on transferred assets, as defined by the Company, subject to certain conditions and state approvals. This benefit is provided on a nondiscriminatory basis. If a transfer credit is due under the contract, you will be provided with additional information specific to the contract. TAX CODE RESTRICTIONS. The Tax Code places some limitations on contributions to your account. See "Taxation". FACTORS TO CONSIDER IN THE PURCHASE DECISION. The decision to purchase or participate in the contract should be discussed with your financial representative, making sure that you understand the investment options it provides, its other features, the risks and potential benefits you will face, and the fees and expenses you will incur. You should pay attention to the following issues, among others: 1. Long-Term Investment--This contract is a long-term investment, and is typically most useful as part of a personal retirement plan. Early withdrawals may be restricted by the Tax Code or your plan, or may expose you to early withdrawal charges or tax penalties. The value of deferred taxation on earnings grows with the amount of time funds are left in the contract. You should not participate in this contract if you are looking for a short-term investment or expect to need to make withdrawals before you are 59 1/2. 2. Investment Risk--The value of investment options available under this contract may fluctuate with the markets and interest rates. You should not participate in this contract in order to invest in these options if you cannot risk getting back less money than you put in. 3. Features and Fees--The fees for this contract reflect costs associated with the features and benefits it provides. As you consider this contract, you should determine the value that these various benefits and features have for you, given your particular circumstances, and consider the charges for those features. 4. Exchanges--If this contract will be a replacement for another annuity contract or mutual fund option under the plan, you should compare the two options carefully, compare the costs associated with each, and identify additional benefits available under this contract. You should consider whether these additional benefits justify incurring a new schedule of early withdrawal charges or any increased charges that might apply under this contract. Also, be sure to talk to your financial professional or tax adviser to make sure that the exchange will be handled so that it is tax-free. 17 CONTRACT OWNERSHIP AND RIGHTS ---------------------------------------------- WHO OWNS THE CONTRACT? The contract holder. This is the person or entity to whom we issue the contract. WHO OWNS MONEY ACCUMULATED UNDER THE CONTRACT? All dollars accumulated under the contracts, including contributions attributable to deferred compensation, are part of your employer's general assets and subject to the claims of its general creditors. The plan exclusively governs what benefits are available to you and those benefits are provided from your employer's general assets. WHAT RIGHTS DO I HAVE UNDER THE CONTRACT? The contract holder, usually your employer, holds all rights under the contract. The contract holder's plan, which you participate in, may permit you to exercise some of those rights. RIGHT TO CANCEL ---------------------------------------------- WHEN AND HOW TO CANCEL. If the contract holder chooses to cancel a contract, we must receive the contract and a written notice of cancellation within 10 days (or a longer period if required by state law) after the contract holder's receipt of the contract. REFUNDS TO CONTRACT HOLDERS. We will produce a refund to the contract holder not later than seven days after we receive the contract and the written notice of cancellation at our Home Office. The refund will equal amounts contributed to the contract plus any earnings or less any losses attributable to the investment options in which amounts were invested. Any mortality and expense risk charges and administrative expense charges (if any) deducted during the period you held the contract will not be returned. We will not deduct an early withdrawal charge, nor apply a market value adjustment to any amounts you contributed to the Guaranteed Accumulation Account. In certain states, we are required to refund contributions. When a refund of contributions is not required, the investor bears any investment risk. 18 [SIDE NOTE] TYPES OF FEES There are three types of fees your account may incur: -- Maximum Transaction Fees - Early Withdrawal Charge - Annual Maintenance Fee -- Maximum Fees Deducted from the Subaccounts - Mortality and Expense Risk Charge - Administrative Expense Charge -- Fund Expenses -- Premium and Other Taxes -- Charges for ING GET Fund TERMS TO UNDERSTAND IN SCHEDULES -- Account Year--a 12-month period measured from the date we establish your account, or measured from any anniversary of that date. -- Purchase Payment Period (for installment purchase payments)--the period of time it takes to complete the number of installment payments expected to be made to your account over a year. For example, if your payment frequency is monthly, a payment period is completed after 12 purchase payments are made. If only 11 purchase payments are made, the payment period is not completed until the twelfth purchase payment is made. At any given time, the number of payment periods completed cannot exceed the number of account years completed, regardless of the number of payments made. [END SIDE NOTE] FEES ---------------------------------------------- The following repeats and adds to information provided in the "Fee Table" section. Please review both this section and the Fee Table for information on fees. I. MAXIMUM TRANSACTION FEES EARLY WITHDRAWAL CHARGE Withdrawals of all or a portion of your account value may be subject to a charge. In the case of a partial withdrawal where you request a specified dollar amount, the amount withdrawn from your account will be the amount you specified plus adjustment for any applicable early withdrawal charge. PURPOSE. This is a deferred sales charge. It reimburses us for some of the sales and administrative expenses associated with the contract. If our expenses are greater than the amount we collect for the early withdrawal charge, we may use any of our corporate assets, including potential profit that may arise from the mortality and expense risk charge, to make up any difference. AMOUNT. This charge is a percentage of the amount withdrawn. The percentage is determined by the early withdrawal charge schedule that applies to your account. It will never be more than 8.5% of your total purchase payments to your account. EARLY WITHDRAWAL CHARGE SCHEDULES INSTALLMENT PURCHASE PAYMENT ACCOUNTS SINGLE PURCHASE PAYMENT ACCOUNTS Purchase Payment Early Withdrawal Account Years Early Withdrawal Periods Completed Charge Completed Charge --------------------- ----------------- ----------------- ----------------- Fewer than 5 5% Fewer than 5 5% 5 or more but fewer 5 or more but than 7 4% fewer than 6 4% 7 or more but fewer 6 or more but than 9 3% fewer than 7 3% 9 or more but fewer 7 or more but than 10 2% fewer than 8 2% 8 or more but 10 or more 0% fewer than 9 1% 9 or more 0%
WAIVER. The early withdrawal charge is waived for portions of a withdrawal that are: -- Used to provide payments to you during the income phase; -- Paid because of your death before income phase payments begin; -- Paid where your account value is $3,500 or less (or, if applicable, as otherwise allowed by the plan for lump-sum cashout without participant's consent) and no part of the account has been taken as a withdrawal or used to provide income phase payments within the prior 12 months (if the contract holder makes a full withdrawal from more than one of the accounts on your behalf, the value of those accounts will be added together to be eligible for the $3,500 exemption. This option is not available for contracts where we do not maintain participant accounts or for withdrawals of all accounts under one contract); -- Taken because of the election of a systematic distribution option (if available under your contract), See "Systematic Distribution Options"; 19 -- Taken when you are 59 1/2 or older, have an installment purchase payment account and have completed at least nine purchase payment periods; -- Taken on or after the tenth anniversary of the effective date of the account; -- For 457 plans only, withdrawn due to a hardship resulting from an unforseeable emergency as defined by the Tax Code, and regulations thereunder; or -- For contracts issued in connection with retirement programs for select management and highly compensated healthcare employees in plans formerly carried under certain hospital association endorsements, withdrawn due to your separation from service with your current employer (not including a severance of employment due to a merger, liquidation, consolidation or other employer transaction). REDUCTION, WAIVER OR ELIMINATION. In addition to the specific waivers described above, we may reduce, waive or eliminate the early withdrawal charge for a particular plan. Any such reduction will reflect the differences we expect in distribution costs or services meant to be defrayed by this charge. Factors we consider for a reduction include, but are not limited to, the following: -- The number of participants under the plan; -- The expected level of assets or cash flow under the plan; -- Our agent's involvement in sales activities; -- Our sales-related expenses; -- Distribution provisions under the plan; -- The plan's purchase of one or more other variable annuity contracts from us and the features of those contracts; -- The level of employer involvement in determining eligibility for distributions under the contract; and -- Our assessment of financial risk to the Company relating to withdrawals. We will not reduce the early withdrawal charge in a manner that is unfairly discriminatory against any person. We may also apply different early withdrawal charge provisions in contracts issued to certain employer groups or associations which have negotiated the contract terms on behalf of their employees. We will offer any resulting early withdrawal charge uniformly to all employees in the group. MAINTENANCE FEE MAXIMUM AMOUNT. $20.00 (This fee only applies to installment purchase payment accounts.) WHEN/HOW. For those plans that have a maintenance fee, each year during the accumulation phase we deduct this fee from your account value. We deduct it on your account anniversary and, in some cases, at the time of full withdrawal. It is deducted on a pro rata basis from your account value invested in the subaccounts and the fixed interest options. PURPOSE. This fee helps defray the administrative expenses we incur in establishing and maintaining your account. REDUCTION, WAIVER OR ELIMINATION. When the plan meets certain criteria, we may reduce, waive or eliminate the maintenance fee. Factors we consider reflect differences in our level of administrative costs and services, such as: -- The size, type and nature of the group for which a contract is issued; 20 -- The anticipated level of administrative expenses such as billing for payments, producing periodic reports, providing for the direct payment of account charges rather than having them deducted from account values, and any other factors pertaining to the level and expense of administrative services we will provide; and -- The number of eligible participants and the program's participation rate. We will not unfairly discriminate against any person if we reduce or eliminate the maintenance fee. We will make any reduction or elimination of this fee according to our own rules in effect at the time an application for a contract is approved. We reserve the right to change these rules from time to time. II. MAXIMUM FEES DEDUCTED FROM THE SUBACCOUNTS MORTALITY AND EXPENSE RISK CHARGE MAXIMUM AMOUNT. 1.25% annually of your account value invested in the subaccount. WHEN/HOW. This fee is deducted daily from the subaccount. We do not deduct this from any fixed interest option. This fee is assessed during the accumulation phase and the income phase. See "The Income Phase -- Fees Deducted." PURPOSE. This fee compensates us for the mortality and expense risks we assume under the contracts. -- The mortality risks are those risks associated with our promise to make lifetime income phase payments based on annuity rates specified in the contracts and our funding of the death benefit and other payments we make to owners or beneficiaries of the accounts. -- The expense risk is the risk that the actual expenses we incur under the contracts will exceed the maximum costs that we can charge. If the amount we deduct for this fee is not enough to cover our mortality costs and expenses under the contracts, we will bear the loss. We may use any excess to recover distribution costs relating to the contract and as a source of profit. We expect to make a profit from this fee. REDUCTION. We may reduce the mortality and expense risk charge from the maximum when the plan meets certain criteria and we agree to the reduction with the contract holder in writing. Some contracts have a reduced mortality and expense risk charge only during the accumulation phase of the account which then increases during the income phase (but not beyond the maximum amount). Any reduction will reflect differences in expenses for administration based on such factors as: -- The plan design (for example, the plan may favor stability of invested assets and limit the conditions for withdrawals and available investment options, which in turn lowers administrative expenses); -- The size of the prospective group, projected annual number of eligible participants and the program's participation rate, or the number of participants estimated to choose the contract; -- The frequency, consistency and method of submitting payments; -- The method and extent of onsite services we provide and the contract holder's involvement in services such as enrollment and ongoing participant services; -- The contract holder's support and involvement in the communication, enrollment, participant education and other administrative services; 21 -- The projected frequency of distributions; and -- The type and level of other factors that affect the overall administrative expense. We will determine any reduction of mortality and expense risk on a basis that is not unfairly discriminatory according to our rules in effect at the time a contract application is approved. We reserve the right to change these rules from time to time. ADMINISTRATIVE EXPENSE CHARGE MAXIMUM AMOUNT. 0.25% annually of your account value invested in the subaccount. WHEN/HOW. For all participants who became covered under a contract on or before November 5, 1984, we reserve the right to charge an administrative expense fee of up to 0.25% annually. This fee may be assessed during the accumulation phase and/or the income phase. If we are imposing this fee under the contract issued in connection with your plan when you enter the income phase, the fee will apply to you during the entire income phase. The administrative expense charge is not imposed on all contracts: -- We do not currently impose this charge under any contracts issued in connection with retirement programs for select management and highly compensated healthcare employees in plans formerly carried under certain hospital association endorsements. -- For contracts not in the above category, beginning on April 4, 1997 we began to deduct this charge during the accumulation phase only for contracts effective before October 31, 1996 where the number of participants was less than 30 as of November 30, 1996 and the contract holder had chosen not to elect one of the Company's electronic standards for cash collection and application of participant contribution data. However, we do not impose the administrative expense charge for participants under those contracts who enrolled in a group contract or became covered under an individual contract before November 5, 1984. -- We do not currently deduct an administrative expense charge during the accumulation phase for any contracts other than those described above. -- We do not currently deduct an administrative expense charge during the income phase for any contracts. PURPOSE. This fee helps defray our administrative expenses that cannot be covered by the mortality and expense risk charge described above. The fee is not intended to exceed the average expected cost of administering the contracts. We do not expect to make a profit from this fee. III. FUND EXPENSES AMOUNT. Each fund determines its own advisory fee, service fees or 12b-1 fees (if applicable) and other expenses. Service fees and 12b-1 fees are generally deducted from fund assets in order to pay for the servicing or distribution of fund shares. If a fund has such fees, some or all of such fees may be remitted to the Company as compensation for distribution or shareholder services performed by the Company with respect to the use of the funds as investment options under the contracts. The Fund Expense Table in this prospectus identifies which funds have service fees or 12b-1 fees. In addition to any service fees or 12b-1 fees that the Company may receive from a fund or its affiliate, the Company also receives additional compensation from certain funds or their affiliates for administrative, recordkeeping or other services provided by the Company to the fund or the fund affiliates. Such additional payments do not 22 increase, directly or indirectly, the fund's fees and expenses. As of December 31, 2001, the amount of such additional payments ranged up to 0.425% annually for affiliated funds, and 0.25% annually for unaffiliated funds, of the average net assets held in a fund by the Company. For a list of fund fees, see Fee Table. The fees are described in more detail in each fund prospectus. WHEN/HOW. Fund fees are not deducted from your account. Fund advisory fees and expenses are reflected in the daily value of the fund shares, which will in turn affect the daily value of each subaccount. PURPOSE. These amounts help to pay the funds' investment advisor and operating expenses. IV. PREMIUM AND OTHER TAXES MAXIMUM AMOUNT. Some states and municipalities charge a premium tax on annuities. These taxes currently range from 0% to 4%, depending upon the jurisdiction. WHEN/HOW. We reserve the right to deduct a charge for premium taxes from your account value or from purchase payments to the account at any time, but not before there is a tax liability under state law. For example, we may deduct a charge for premium taxes at the time of a complete withdrawal or we may reflect the cost of premium taxes in our income phase payment rates when you commence income phase payments. We will not deduct a charge for any municipal premium tax of 1% or less, but we reserve the right to reflect such an expense in our annuity purchase rates. In addition, the Company reserves the right to assess a charge for any federal taxes due against the separate account. See "Taxation". V. CHARGES FOR ING GET FUND Various series of ING GET Fund may be offered from time to time, and additional charges may apply if you elect to invest in one of these series. If a series is available, it will be described in a supplement to this prospectus at the time it is offered. The supplement will include fee table information about the option. YOUR ACCOUNT VALUE ---------------------------------------------- During the accumulation phase, your account value at any given time equals: -- Account dollars directed to the fixed interest options, including interest earnings to date -- Less any deductions from the fixed interest options (e.g., withdrawals, fees) -- Plus the current dollar value of amounts invested in the subaccounts. SUBACCOUNT ACCUMULATION UNITS. When a fund is selected as an investment option, your account dollars invest in "accumulation units" of the Variable Annuity Account B subaccount corresponding to that fund. The subaccount invests directly in the fund shares. The value of your interests in a subaccount is expressed as the number of accumulation units you hold multiplied by an "Accumulation Unit Value, as described below," for each unit. ACCUMULATION UNIT VALUE (AUV). The value of each accumulation unit in a subaccount is called the accumulation unit value or AUV. The value of accumulation units vary daily in relation to the underlying fund's investment 23 performance. The value also reflects deductions for fund fees and expenses, the mortality and expense risk charge, and the administrative charge (if any). We discuss these deductions in more detail in "Fee Table" and "Fees." VALUATION. We determine the AUV every business day after the close of the New York Stock Exchange (normally at 4:00 p.m. Eastern Time). At that time, we calculate the current AUV by multiplying the AUV last calculated by the net investment factor of the subaccount. The "net investment factor" measures the investment performance of the subaccount from one valuation to the next. Current AUV = Prior AUV x Net Investment Factor NET INVESTMENT FACTOR. The net investment factor for a subaccount between two consecutive valuations, equals the sum of 1.0000 plus the net investment rate. NET INVESTMENT RATE. The net investment rate is computed according to a formula that is equivalent to the following: -- The net assets of the fund held by the subaccount as of the current valuation, minus -- The net assets of the fund held by the subaccount at the preceding valuation, plus or minus -- Taxes or provisions for taxes, if any, due to subaccount operations (with anyfederal income tax liability offset by foreign tax credits to the extent allowed) -- Divided by the total value of the subaccount units at the preceding valuation -- Less a daily deduction for the mortality and expense risk charge and the administrative expense charge, if any, and any other fees deducted from investments in the separate account (such as guarantee charges for the ING GET Fund). See "Fees". The net investment rate may be either positive or negative. 24 HYPOTHETICAL ILLUSTRATION. As a hypothetical illustration, assume that an investor contributes $5,000 to his account and directs us to invest $3,000 in Fund A and $2,000 in Fund B. After receiving the contribution and following the next close of business of the New York Stock Exchange (normally at 4:00 p.m. Eastern Time), the applicable AUV's are $10 for Subaccount A, and $25 for Subaccount B. The investor's account is credited with 300 accumulation units of Subaccount A and 80 accumulation units of Subaccount B. STEP 1: An Investor contributes $5,000. STEP 2: A. He directs us to invest $3,000 in Fund A. His dollars purchase 300 accumulation units of Subaccount A ($3,000 divided by the current $10 AUV). B. He directs us to invest $2,000 in Fund B. His dollars purchase 80 accumulation units of Subaccount B ($2,000 divided by the current $25 AUV). STEP 3: The separate account then purchases shares of the applicable funds at the current market value (net asset value or NAV). $5,000 contribution STEP 1 ING Life Insurance and Annuity Company STEP 2 VARIABLE ANNUITY ACCOUNT B Subaccount A Subaccount B Etc. 300 accumulation units 80 accumulation units STEP 3 Fund A Fund B
The fund's subsequent investment performance, expenses and charges, and the daily charges deducted from the subaccount, will cause the AUV to move up or down on a daily basis. 25 [SIDE NOTE] TAXES, FEES AND DEDUCTIONS Amounts withdrawn may be subject to one or more of the following: -- Early Withdrawal Charge. See "Fees--Early Withdrawal Charge" -- Maintenance Fee. See "Fees--Maintenance Fee" -- Market Value Adjustment. See "Appendix I" -- Tax Penalty. See "Taxation" -- Tax Withholding. See "Taxation" To determine which may apply, refer to the appropriate sections of this prospectus, contact your local representative or call the Company at the number listed in "Contract Overview--Questions." [END SIDE NOTE] PURCHASE PAYMENTS TO YOUR ACCOUNT. If all or a portion of initial purchase payments are directed to the subaccounts, they will purchase subaccount accumulation units at the AUV next computed after our acceptance of the applicable application or enrollment forms. Subsequent purchase payments or transfers directed to the subaccounts that we receive by the close of business of the New York Stock Exchange (Exchange) will purchase subaccount accumulation units at the AUV computed after the close of the Exchange on that day (normally at 4:00 p.m. Eastern Time). The value of subaccounts may vary day to day. WITHDRAWALS ---------------------------------------------- MAKING A WITHDRAWAL. Subject to limitations on withdrawals from the Fixed Plus Account, the contract holder, or you if permitted by the plan, may withdraw all or a portion of your account value (on your behalf) at any time during the accumulation phase. STEPS FOR MAKING A WITHDRAWAL. The contract holder, or you if permitted by the plan must: -- Select the Withdrawal Amount; 1) Full Withdrawal: You will receive, reduced by any required withholding tax, your account value allocated to the subaccounts, the Guaranteed Accumulation Account (plus or minus any applicable market value adjustment) and the Fixed Account, minus any applicable early withdrawal charge, plus the amount available for withdrawal from the Fixed Plus Account. 2) Partial Withdrawal (Percentage or Specified Dollar Amount): You will receive, reduced by any required withholding tax, the amount you specify, subject to the value available in your account. However, the amount actually withdrawn from your account will be adjusted by any applicable early withdrawal charge for amounts withdrawn from the subaccounts, the Guaranteed Accumulation Account or the Fixed Account, and any positive or negative market value adjustment for amounts withdrawn from the Guaranteed Accumulation Account. The amount available from the Fixed Plus Account may be limited. For a description of limitations on withdrawals from the Fixed Plus Account, see Appendix III. -- Select Investment Option (if this is not specified, we will withdraw dollars in the same proportion as the values you hold in the various investment options from each investment option in which you have an account value); and -- Properly complete a disbursement form and submit it to our Home Office. CALCULATION OF YOUR WITHDRAWAL. We determine your account value every normal business day after the close of the New York Stock Exchange (normally at 4:00 p.m. Eastern Time). We pay withdrawal amounts based on your account value either: (1) as of the next valuation after we receive a request for withdrawal in good order at our Home Office, or (2) on such later date as specified on the disbursement form. DELIVERY OF PAYMENT. Payments for withdrawal requests will be made in accordance with SEC requirements. Normally, the payment will be sent not later than seven calendar days following our receipt of the disbursement form in good order. 26 [SIDE NOTE] FEATURES OF A SYSTEMATIC DISTRIBUTION OPTION If available under your contract, a Systematic Distribution Option allows you to receive regular payments from your account without moving into the income phase. By remaining in the accumulation phase, you retain certain rights and investment flexibility not available during the income phase. Because the account remains in the accumulation phase, all accumulation phase charges continue to apply. [END SIDE NOTE] SYSTEMATIC DISTRIBUTION OPTIONS ---------------------------------------------- AVAILABILITY OF SYSTEMATIC DISTRIBUTION OPTIONS. These options may be exercised at any time during the accumulation phase of the contract. To exercise one of these options the account value must meet any minimum dollar amount and age criteria applicable to that option. To determine what Systematic Distribution Options are available, check with the contract holder or the Company. The Systematic Distribution Options currently available under the contract include the following: -- SWO--SYSTEMATIC WITHDRAWAL OPTION. SWO is a series of automatic partial withdrawals from your account based on the payment method selected. It is designed for those who want a periodic income while retaining investment flexibility for amounts accumulated under the contract. -- ECO--ESTATE CONSERVATION OPTION. ECO offers the same investment flexibility as SWO, but is designed for those who want to receive only the minimum distribution that the Tax Code requires each year. Under ECO, we calculate the minimum distribution amount required by law, generally at age 70 1/2 , and pay you that amount once a year. ECO is available under 457 plans only. -- OTHER SYSTEMATIC DISTRIBUTION OPTIONS. We may add additional Systematic Distribution Options from time to time. You may obtain additional information relating to any of the Systematic Distribution Options from your local representative or from our Home Office. AVAILABILITY OF SYSTEMATIC DISTRIBUTION OPTIONS. The Company may discontinue the availability of one or all of the Systematic Distribution Options at any time, and/or change the terms of future elections. TERMINATING A SYSTEMATIC DISTRIBUTION OPTION. Once a Systematic Distribution Option is elected, the contract holder may revoke it at any time by submitting a written request to our Home Office. Any revocation will apply only to the amount not yet paid. Once an option is revoked for an account, it may not be elected again, nor may any other Systematic Distribution Option be elected. TAXATION. Taking a withdrawal through a Systematic Distribution Option or revocation of election of a Systematic Distribution Option may have tax consequences. If you are concerned about tax implications consult a tax adviser before one of these options is elected. 27 [SIDE NOTE] DURING THE INCOME PHASE This section provides information about the accumulation phase. For death benefit information applicable to the income phase, see "The Income Phase". [END SIDE NOTE] DEATH BENEFIT ---------------------------------------------- The contract provides a death benefit in the event of your death, which is payable to the contract holder (usually your employer). The contract holder may direct that we make any payments to the beneficiary you name under the plan (plan beneficiary). DURING THE ACCUMULATION PHASE PAYMENT PROCESS. 1. Following your death, the contract holder (on behalf of your plan beneficiary) must provide the Company with proof of death acceptable to us and a payment request in good order. 2. The payment request should include selection of a benefit payment option. 3. Within seven days after we receive proof of death acceptable to us and payment request in good order at our Home Office, we will mail payment, unless otherwise requested. Until a payment option is selected, account dollars will remain invested as at the time of your death, and no distribution will be made. If you die during the accumulation phase of your account, the following payment options are available to your plan beneficiary, if allowed by your contract and the Tax Code: -- Lump-sum payment; -- Payment in accordance with any of the available income phase payment options (see "The Income Phase--Payment Options"); and -- If the plan beneficiary is your spouse, payment in accordance with an available Systematic Distribution Option. See "Systematic Distribution Options". The following options are also available under some contracts; however, the Tax Code limits how long the death benefit proceeds may be left in these options: -- Leaving your account value invested in the contract; or -- Under some contracts, leaving your account value on deposit in the Company's general account, and receiving monthly, quarterly, semi-annual or annual interest payments at the interest rate then being credited on such deposits. The beneficiary may withdraw the balance on deposit at any time or request to receive payment in accordance with any of the available income phase payment options. See "The Income Phase--Payment Options". THE VALUE OF THE DEATH BENEFIT. The death benefit will be based on your account value as calculated on the next valuation following the date on which we receive proof of death in good order. In addition to this amount, some states require we pay interest calculated from date of death at a rate specified by state law. For amounts held in the Guaranteed Accumulation Account (GAA), any positive aggregate market value adjustment (the sum of all market value adjustments calculated due to a withdrawal) will be included in your account value. If a negative market value adjustment applies, it would be deducted only if the death benefit is withdrawn more than six months after your death. We describe the market value adjustment in Appendix I and in the GAA prospectus. TAX CODE REQUIREMENTS. The Tax Code requires distribution of death benefit proceeds within a certain period of time. Failure to begin receiving death benefit payments within those time periods can result in tax penalties. Regardless of the method of payment, death benefit proceeds will generally be taxed to the beneficiary in the same manner as if you had received those payments. See "Taxation" for additional information. 28 [SIDE NOTE] We may have used the following terms in prior prospectuses: ANNUITY PHASE--Income Phase ANNUITY OPTION--Payment Option ANNUITY PAYMENT--Income Phase Payment ANNUITIZATION--Initiating Income Phase Payments [END SIDE NOTE] THE INCOME PHASE ---------------------------------------------- During the income phase you receive payments from your accumulated account value. INITIATING INCOME PHASE PAYMENTS. At least 30 days prior to the date you want to start receiving payments, the contract holder or you, if permitted by the plan, must notify us in writing of the following: -- Start date; -- Income Phase Payment option (see the income phase payment options table in this section); -- Income Phase Payment frequency (i.e., monthly, quarterly, semi-annually or annually); -- Choice of fixed or variable payments; -- Selection of an assumed net investment rate (only if variable payments are elected); and -- Under some plans, certification from your employer and/or submission of the appropriate forms is also required. The account will continue in the accumulation phase until the contract holder or you, as applicable, properly initiate income phase payments. Once an income phase payment option is selected, it may not be changed; however, certain options allow you to withdraw a lump sum. WHAT AFFECTS INCOME PHASE PAYMENT AMOUNTS? Some of the factors that may affect income phase payment amounts include: your age, your account value, the income phase payment option selected, number of guaranteed payments (if any) selected, and whether variable or fixed payments are selected. FIXED PAYMENTS. Amounts funding fixed income phase payments will be held in the Company's general account. Fixed payment amounts do not vary over time. VARIABLE PAYMENTS. Amounts funding your variable income phase payments will be held in the subaccount(s) selected. The contracts may restrict the subaccounts available, the number of investment options to be selected and how many transfers, if any, are allowed among options during the income phase. For variable income phase payments, an assumed net investment rate must be selected. PAYMENTS FROM THE FIXED PLUS ACCOUNT. If a nonlifetime payment option is selected, payments from the Fixed Plus Account may only be made on a fixed basis. ASSUMED NET INVESTMENT RATE. If you select income phase payments, an assumed net investment rate must also be selected. If you select a 5% rate, your first payment will be higher, but subsequent income phase payments will increase only if the investment performance of the subaccounts selected is greater than 5% annually, after deduction of fees. Payment amounts will decline if the investment performance is less than 5%, after deduction of fees. If a 3 1/2% rate is selected, your first income phase payment will be lower and subsequent payments will increase more rapidly or decline more slowly depending upon the investment performance of the subaccounts selected. For more information about selecting an assumed net investment rate, request a copy of the Statement of Additional Information by calling us. See "Contract Overview--Questions". 29 REQUIRED MINIMUM PAYMENT AMOUNTS. The income phase payment option selected must meet the minimum stated in the contract: -- A first income phase payment of at least $20; or -- Total yearly income phase payments of at least $100. If your account value is too low to meet these minimum payment amounts, the contract holder, on your behalf, must elect a lump-sum payment. FEES DEDUCTED. When you select an income payment phase option (one of the options listed in the tables immediately below), a mortality and expense risk charge, consisting of a daily deduction of 1.25% on an annual basis, will be deducted from amounts held in the subaccounts. This charge compensates us for mortality and expense risks we assume under variable income phase payout options and is applicable to all variable income phase payout options, including variable nonlifetime options under which we do not assume mortality risk. Although we expect to make a profit from this fee, we do not always do so. We may also deduct a daily administrative charge of 0.25% annually from amounts held in the subaccounts. We may also deduct a daily administrative charge from amounts held in the separate account. We currently charge this under some contracts and reserve the right to charge it under all others. The maximum amount is 0.25% on an annual basis of your account value invested in the subaccount. If we are currently imposing this fee under the contract issued in connection with your plan when you enter the income phase, the fee will apply throughout the entire income phase. DEATH BENEFIT DURING THE INCOME PHASE. The death benefits that may be available to a beneficiary are outlined in the income phase payment option table below. If a lump-sum payment is due as a death benefit, we will make payment within seven calendar days after we receive proof of death acceptable to us in good order and the payment request in good order at our Home Office. TAXATION. To avoid certain tax penalties, you and any beneficiary must meet the distribution rules imposed by the Tax Code. See "Taxation". 30 INCOME PHASE PAYMENT OPTIONS The following tables list the income phase payment options and accompanying death benefits which may be available under the contracts. Some contracts restrict the options and the terms available. Check with your contract holder for details. We may offer additional income phase payment options under the contract from time to time. TERMS USED IN THE TABLES: ANNUITANT: The person(s) on whose life expectancy the income phase payments are calculated. BENEFICIARY: The person designated to receive the death benefit payable under the contract. --------------------------------------------------------------------------------------- LIFETIME INCOME PHASE PAYMENT OPTIONS LENGTH OF PAYMENTS: For as long as the annuitant lives. It is possible that only one payment will be made should the Life Income annuitant die prior to the second payment's due date. DEATH BENEFIT--NONE: All payments end upon the annuitant's death. --------------------------------------------------------------------------------------- LENGTH OF PAYMENTS: For as long as the annuitant lives, with payments guaranteed for a choice of 5-20 years or as otherwise specified in the contract. DEATH BENEFIT--PAYMENT TO THE BENEFICIARY: If the annuitant Life Income-- dies before we have made all the guaranteed payments, we Guaranteed Payments will continue to pay the beneficiary the remaining payments. Unless prohibited by a prior election of the contract holder, the beneficiary may elect to receive a lump-sum payment equal to the present value of the remaining guaranteed payments. --------------------------------------------------------------------------------------- LENGTH OF PAYMENTS: For as long as either annuitant lives. It is possible that only one payment will be made should both annuitants die before the second payment's due date. CONTINUING PAYMENTS: (a) This option allows a choice of 100%, 66 2/3% or 50% of Life Income--Two the payment to continue to the surviving annuitant after the Lives first death; or (b) 100% of the payment to continue to the annuitant on the second annuitant's death, and 50% of the payment to continue to the second annuitant on the annuitant's death. DEATH BENEFIT--NONE: All Payments end after the deaths of both annuitants. --------------------------------------------------------------------------------------- LENGTH OF PAYMENTS: For as long as either annuitant lives, with payments guaranteed for a minimum of 120 months, or as otherwise specified in the contract. CONTINUING PAYMENTS: 100% of the payment to continue to the Life Income--Two surviving annuitant after the first death. Lives--Guaranteed DEATH BENEFIT--PAYMENT TO THE BENEFICIARY: If both Payments annuitants die before the guaranteed payments have all been paid, we will continue to pay the beneficiary the remaining payments. Unless prohibited by a prior election of the contract holder, the beneficiary may elect to receive a lump-sum payment equal to the present value of the remaining guaranteed payments. --------------------------------------------------------------------------------------- Life Income--Cash LENGTH OF PAYMENTS: For as long as the annuitant lives. Refund Option DEATH BENEFIT--PAYMENT TO THE BENEFICIARY: Following the (limited annuitant's death, we will pay a lump-sum payment equal to Availability-- the amount originally applied to the income phase payment fixed Payment option (less any premium tax) and less the total amount of only) fixed income phase payments paid. --------------------------------------------------------------------------------------- Life Income--Two LENGTH OF PAYMENTS: For as long as either annuitant lives. Lives--Cash CONTINUING PAYMENT: 100% of the payment to continue after Refund Option the first death. (limited DEATH BENEFIT--PAYMENT TO THE BENEFICIARY: When both availability--fixed annuitants die, we will pay a lump- sum payment equal to the payment only) amount applied to the income phase payment option (less any premium tax) and less the total amount of fixed income phase payments paid. ---------------------------------------------------------------------------------------
Table continued --> 31 Income phase payment options continued NONLIFETIME INCOME PHASE PAYMENT OPTIONS --------------------------------------------------------------------------------------- LENGTH OF PAYMENTS: Payments generally may be fixed or variable and may be made for 3-30 years. However, for amounts held in the Fixed Plus Account during the accumulation phase, the payment must be on a fixed basis and must be for at least 5 years. In certain cases a lump-sum Nonlifetime-- payment may be requested at any time (see below). Guaranteed DEATH BENEFIT-PAYMENT TO THE BENEFICIARY: If the annuitant Payments dies before we make all the guaranteed payments, we will continue to pay the beneficiary the remaining payments. Unless prohibited by a prior election of the contract holder, the beneficiary may elect to receive a lump-sum payment equal to the present value of the remaining guaranteed payments. We will not impose any early withdrawal charge. --------------------------------------------------------------------------------------- LUMP-SUM PAYMENT: If the Nonlifetime--Guaranteed Payments option is elected with variable payments, you may request at any time that all or a portion of the present value of the remaining payments be paid in one lump sum. A lump sum elected before three years of income phase payments have been completed will be treated as a withdrawal during the accumulation phase and we will charge any applicable early withdrawal charge. If the early withdrawal charge is based on completed purchase payment periods, each year that passes after income payments begin will be treated as a completed purchase payment period, even if no additional purchase payments are made. See "Fees--Early Withdrawal Charge." Lump-sum payments will be sent within seven calendar days after we receive the request for payment in good order at our Home Office. CALCULATION OF LUMP-SUM PAYMENTS: If a lump-sum payment is available to a beneficiary or to you in the income phase payment options above, the rate we use to calculate the present value of the remaining guaranteed payments is the same rate we use to calculate the income phase payments (i.e., the actual fixed rate used for the fixed payments, or the 3 1/2% or 5% assumed net investment rate for variable payments). ---------------------------------------------------------------------------------------
32 [SIDE NOTE] IN THIS SECTION I. Introduction II. Your Retirement Plan III. Withdrawals and other Distributions - Taxation of Distributions - Taxation of Death Benefit Proceeds - Withholding for Federal Income Tax Liability IV. Minimum Distribution Requirements - Contribution and Distribution Limits - Restrictions on Distributions - 415(m) Arrangements - Bona Fide Severance Pay Plans V. Taxation of the Company When consulting a tax adviser, be certain that he or she has expertise in the Tax Code sections applicable to your tax concerns. [END SIDE NOTE] TAXATION ---------------------------------------------- I. INTRODUCTION This section discusses our understanding of current federal income tax laws affecting the contract. You should keep the following in mind when reading it: -- Your tax position (or the tax position of the designated beneficiary, as applicable) determines federal taxation of amounts held or paid out under the contract. -- Tax laws change. It is possible that a change in the future could affect contracts issued in the past. -- This section addresses federal income tax rules and does not discuss federal estate and gift tax implications, state and local taxes or any other tax provisions. -- We do not make any guarantee about the tax treatment of the contract or transactions involving the contract. We do not intend this information to be tax advice. For advice about the effect of federal income taxes or any other taxes on amounts held or paid out under the contract, consult a tax adviser. For more comprehensive information contact the Internal Revenue Service. II. YOUR RETIREMENT PLAN The tax rules applicable to retirement plans vary according to plan type, and terms and conditions of the plan. To understand what tax rules apply, you need to know the Tax Code section under which your plan qualifies. Contact your plan sponsor, local representative or the Company to learn which Tax Code section applies to your plan. PLAN TYPES. The contract is designed for use with deferred compensation plans that qualify under Tax Code section 457 or non-section 457 deferred compensation plans. Tax Code section 457 provides for certain deferred compensation plans. These plans may be offered by state governments, local governments, political subdivisions, agencies, instrumentalities and certain affiliates of such entities, and non-governmental tax exempt organizations. A 457 plan may be either a 457(b) (eligible) plan or a 457(f) (ineligible) plan. Either type of plan may permit participants to specify the form of investment for their deferred compensation account. A non-section 457 deferred compensation plan may be either a deferred compensation plan of a tax-exempt employer that is grandfathered and not subject to 457 rules, or a deferred compensation plan of a for-profit employer. The contract may also be used with Tax Code section 415(m) arrangements. You will not generally pay taxes on any earnings from the annuity contract described in this prospectus until they are withdrawn (or otherwise made available to you or a designated beneficiary). Tax qualified arrangements under Tax Code section 457 and other types of deferred compensation arrangements also generally defer payment of taxes of earnings until they are withdrawn (or otherwise made available to you or a designated beneficiary), (see "Taxation of Distributions" later in this "Taxation" section for a discussion of how distributions under the plan are taxed). When an annuity contract is used to fund one of these tax-qualified retirement arrangements, you should know that the annuity contract does not provide any additional tax deferral of earnings beyond the tax deferral provided by the tax-qualified retirement arrangement. 33 However, annuities do provide other features and benefits which may be valuable to you. You should discuss your alternatives with your financial representative. THE CONTRACT AND RETIREMENT PLANS. We make this contract available to plans subject to Tax Code section 457 only if a non-governmental tax exempt employer sponsors the plan. Under such plans, as well as non-section 457 deferred compensation plans, all amounts of deferred compensation, all property and rights purchased with such amounts and all income attributable to such amounts, property and rights remains solely the property and rights of the employer and is subject to the claims of the employer's general creditors. Contract holders and contract participants are responsible for determining that contributions, distributions and other transactions satisfy applicable laws. Legal counsel and a tax adviser should be consulted regarding the suitability of the contract. Because the plan is not part of the contract, we are not bound by any plan's terms or conditions. III. WITHDRAWALS AND OTHER DISTRIBUTIONS Certain tax rules apply to distributions from the contract. A distribution is any amount taken from the contract including withdrawals, income payments, transfers and death benefit proceeds. We report the taxable portion of all distributions to the IRS. TAXATION OF DISTRIBUTIONS 457(B) PLANS. All amounts received under a 457(b) plan are includible in gross income when paid or otherwise made available to you or your designated beneficiary. 457(F) PLANS. Compensation deferred under a 457(f) plan is includible in gross income in the first year when it is no longer subject to a "substantial risk of forfeiture" as defined by the Tax Code. NON-SECTION 457 DEFERRED COMPENSATION PLANS. Compensation deferred under a non-section 457 deferred compensation plan is includible in gross income in the first year when paid or otherwise made available to you or your designated beneficiary. TAXATION OF DEATH BENEFIT PROCEEDS In general, payments received by your designated beneficiaries after your death are taxed in the same manner as if you had received those payments. WITHHOLDING FOR FEDERAL INCOME TAX LIABILITY Any taxable distributions under the contracts are generally subject to withholding. Federal income tax liability rates vary according to the type of distribution and the recipient's tax status. All distributions, except death benefit proceeds, are subject to mandatory federal income tax withholding as wages. No withholding is required on payments to designated beneficiaries. NON-RESIDENT ALIENS. If you or a designated beneficiary is a non-resident alien, then any withholding is governed by Tax Code section 1441 based on the individual's citizenship, the country of domicile and treaty status. Section 1441 does not apply to participants in 457(b) plans sponsored by tax-exempt, non-governmental employers or 457(f) plans. 34 IV. MINIMUM DISTRIBUTION REQUIREMENTS To avoid certain tax penalties, you and any designated beneficiary must meet the minimum distribution requirements imposed by the Tax Code. These requirements only apply to 457(b) plans. These rules may dictate one or more of the following: -- Start date for distributions; -- The time period in which all amounts in your account(s) must be distributed; and/or -- Distribution amounts. START DATE. Generally, you must begin receiving distributions by April 1 of the calendar year following the calendar year in which you attain age 70 1/2 or retire, whichever occurs later, unless you are a 5% owner, in which case such distributions must begin by April 1 of the calendar year following the calendar year in which you attain age 70 1/2. TIME PERIOD. We must pay out distributions from the contract over one of the following time periods: -- Over your life or the joint lives of you and your designated beneficiary, or -- Over a period not greater than your life expectancy or the joint life expectancies of you and your designated beneficiary. 50% EXCISE TAX. If you fail to receive the minimum required distribution for any tax year, a 50% excise tax is imposed on the required amount that was not distributed. MINIMUM DISTRIBUTION OF DEATH BENEFIT PROCEEDS. The following only applies to 457(b) plans. Different distribution requirements apply if your death occurs: -- After you begin receiving minimum distributions under the contract, or -- Before you begin receiving such distributions. If your death occurs after you begin receiving minimum distributions under the contract, distributions must be made at least as rapidly as under the method in effect at the time of your death. Tax Code section 401(a)(9) provides specific rules for calculating the minimum required distributions at your death. Should you die before you begin receiving minimum distributions under the contract, your entire balance must be distributed by December 31 of the calendar year in which the fifth anniversary of the date of your death falls. For example, if you die on September 1, 2002, your entire balance must be distributed to the designated beneficiary by December 31, 2007. However, if the distribution begins by December 31 of the calendar year following the calendar year of your death, then payments may be made in one of the following time- frames: -- Over the life of the designated beneficiary, or -- Over a period not extending beyond the life expectancy of the designated beneficiary. START DATES FOR SPOUSAL BENEFICIARIES. If the designated beneficiary is your spouse, the distribution must begin on or before the later of the following: -- December 31 of the calendar year following the calendar year of your death; or -- December 31 of the calendar year in which you would have attained age 70 1/2. CONTRIBUTION AND DISTRIBUTION LIMITS CONTRIBUTIONS TO A 457(b) Plan Excluded from Gross Income. Effective January 1, 2002, in order to be excludable from gross income for federal 35 income tax purposes, total annual contributions made by you and your employer to a 457(b) plan cannot exceed, generally, the lesser of the dollar amount limit set forth below, or 100% of your includible compensation. Includible compensation means your compensation from the employer sponsoring the plan, including deferrals to the employer's Tax Code section 457, 401(k), 403(b) and 125 cafeteria plans, or any other amounts not includible in the participant's gross income as wages from the employer. The annual dollar amount limits are as follows: - $11,000 in 2002; - $12,000 in 2003; - $13,000 in 2004; - $14,000 in 2005; - $15,000 in 2006. After 2006, the annual dollar limits will be subject to indexing. RESTRICTIONS ON DISTRIBUTIONS Under a 457(b) plan of a non-governmental tax exempt employer, amounts may not be made available to you earlier than (1) the calendar year you attain age 70 1/2, (2) when you experience a separation from your employer, or (3) when you are faced with an unforeseeable emergency. A one-time in-service distribution may also be permitted if the total amount payable to the participant does not exceed $5,000 and no amounts have been deferred by the participant during the 2-year period ending on the date of distribution. 457(f) Plan. A 457(f) plan is not subject to restrictions on contributions or distributions, but must contain a substantial risk of forfeiture as defined by the Tax Code. Generally, substantial risk of forfeiture means that your right to receive deferred compensation is dependent upon your performance of future services to an employer or other entity. NON-SECTION 457 DEFERRED COMPENSATION PLANS. Non-Section 457 Deferred Compensation Plans are not subject to restrictions on contributions or distributions. 415(m) Arrangements If you participate in the contract through a qualified governmental excess benefit arrangement, defined in Tax Code section 415(m), the amounts provided under the contract may be subject to the same requirements as those applied to Tax Code section 457(b) plans described above, except that the limits described in Contribution and Distribution Limits do not apply. If the Tax Code section 415(m) arrangement is not designed to meet the requirements of Tax Code section 457(b), then the amounts provided under the contract are taxed in accordance with Tax Code section 451 and are generally taxable when paid or made available to you. BONA FIDE SEVERANCE PAY PLANS If you participate in the contract through certain bona fide severance pay plans, described in Tax Code section 457(e)(11), amounts provided under the contract are not generally taxable until paid or made available to you. However, because these plans are not clearly defined in the Tax Code, it may be determined that your plan does not qualify as a bona fide severance pay plan. If the plan does not qualify, then amounts provided under the contract are taxable in the year in which they are deferred. Because of this lack of clarity, it is imperative that you consult your tax adviser for guidance regarding taxation. 36 V. TAXATION OF THE COMPANY We are taxed as a life insurance company under the Tax Code. Variable Annuity Account B is not a separate entity from us. Therefore, it is not taxed separately as a "regulated investment company," but is taxed as part of the Company. We automatically apply investment income and capital gains attributable to the separate account to increase reserves under the contracts. Because of this, under existing federal tax law we believe that any such income and gains will not be taxed to the extent that such income and gains are applied to increase reserves under the contracts. In addition, any foreign tax credits attributable to the separate account will be first used to reduce any income taxes imposed on the separate account before being used by the Company. In summary, we do not expect that we will incur any federal income tax liability attributable to the separate account and we do not intend to make any provision for such taxes. However, changes in federal tax laws and/or their interpretation may result in our being taxed on income or gains attributable to the separate account. In this case, we may impose a charge against the separate account (with respect to some or all of the contracts) to set aside provisions to pay such taxes. We may deduct this amount from the separate account, including from your account value invested in the subaccounts. OTHER TOPICS ---------------------------------------------- THE COMPANY ING Life Insurance and Annuity Company (the Company, we, us, our) issues the contracts described in this prospectus and is responsible for providing each contract's insurance and annuity benefits. We are a stock life insurance company organized under the insurance laws of the State of Connecticut in 1976 and an indirect wholly-owned subsidiary of ING Groep N.V., a global financial institution active in the fields of insurance, banking and asset management. Through a merger, our operations include the business of Aetna Variable Annuity Insurance Company (formerly known as Participating Annuity Life Insurance Company, an Arkansas life insurance company organized in 1954). Prior to May 1, 2002, the Company was known as Aetna Life Insurance and Annuity Company. We are engaged in the business of issuing life insurance and annuities. Our principal executive offices are located at: 151 Farmington Avenue Hartford, Connecticut 06156 37 VARIABLE ANNUITY ACCOUNT B We established Variable Annuity Account B (the "separate account") under Connecticut Law in 1976 as a continuation of the separate account established in 1974 under Arkansas law of Aetna Variable Annuity Life Insurance Company. The separate account was established as a segregated asset account to fund variable annuity contracts. The separate account is registered as a unit investment trust under the Investment Company Act of 1940 (the "40 Act"). It also meets the definition of "separate account" under the federal securities laws. The separate account is divided into "subaccounts." These subaccounts invest directly in shares of a corresponding fund. Although we hold title to the assets of the separate account, such assets are not chargeable with the liabilities of any other business that we conduct. Income, gains or losses of the separate account are credited to or charged against the assets of the separate account without regard to other income, gains or losses of the Company. All obligations arising under the contracts are obligations of the Company. PERFORMANCE REPORTING We may advertise different types of historical performance for the subaccounts including: -- standardized average annual total returns; and -- non-standardized average annual total returns. We may also advertise certain ratings, rankings or other information related to the Company, the subaccounts or the funds. For further details regarding performance reporting and advertising, request a Statement of Additional Information at the number listed in "Contract Overview--Questions." STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS. We calculate standardized average annual total returns according to a formula prescribed by the SEC. This shows the percentage return applicable to $1,000 invested in the subaccount over the most recent one, five and 10-year periods. If the investment option was not available for the full period, we give a history from the date money was first received in that option under the separate account. We include all recurring charges during each period (e.g., mortality and expense risk charges, annual maintenance fees, administrative expense charges (if any), and any applicable early withdrawal charges). NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS. We calculate non-standardized average annual total returns in a similar manner as that stated above, except we do not include the deduction of any applicable early withdrawal charge. Some non-standardized returns may also exclude the effect of a maintenance fee. If we reflected these charges in the calculation, they would decrease the level of performance reflected by the calculation. Non-standardized returns may also include performance from the fund's inception date, if that date is earlier than the one we use for standardized returns. VOTING RIGHTS Each of the subaccounts holds shares in a fund and each is entitled to vote at regular and special meetings of that fund. Under our current view of applicable law, we will vote the shares for each subaccount as instructed by persons having a voting interest in the subaccount. Under the contracts described in this prospectus, the contract holder, not the plan participant, has all voting rights. We will vote shares for which instructions have not been received in the same proportion as those for which we received instructions. Each person who has a voting interest in the separate account will receive periodic reports relating to 38 the funds in which he or she has an interest, as well as any proxy materials and a form on which to give voting instructions. Voting instructions will be solicited by a written communication at least 14 days before the meeting. The number of votes (including fractional votes) the contract holder is entitled to direct will be determined as of the record date set by any fund the contract holder invests in through the subaccounts. -- During the accumulation phase, the number of votes is equal to the portion of the account value invested in the fund, divided by the net asset value of one share of that fund. -- During the income phase, the number of votes is equal to the portion of reserves set aside for the contract's share of the fund, divided by the net asset value of one share of that fund. CONTRACT DISTRIBUTION The Company's subsidiary, ING Financial Advisers, LLC (IFA) (prior to May 1, 2002, known as Aetna Investment Services, LLC), serves as the principal underwriter for the contracts. IFA, a Delaware limited liability company, is registered as a broker-dealer with the SEC. IFA is also a member of the National Association of Securities Dealers, Inc. (NASD) and the Securities Investor Protection Corporation. IFA's principal office is located at 151 Farmington Avenue, Hartford, Connecticut 06156. The contracts are offered to the public by individuals who are registered representatives of IFA or other broker-dealers which have entered into a selling arrangement with IFA. We refer to IFA and the other broker-dealers selling the contracts as "distributors." All registered representatives selling the contracts must also be licensed as insurance agents for the Company. Broker-dealers which have or may enter into selling agreements with IFA include the following broker-dealers which are affiliated with the Company: Aeltus Capital, Inc. BancWest Investment Services, Inc. Baring Investment Services, Inc. Compulife Investor Services, Inc. Directed Services, Inc. Financial Network Investment Corporation Financial Northeastern Securities, Inc. Granite Investment Services, Inc. Guaranty Brokerage Services, Inc. IFG Network Securities, Inc. ING America Equities, Inc. ING Barings Corp. ING Direct Funds Limited ING DIRECT Securities, Inc. ING Funds Distributor, Inc. ING Furman Selz Financial Services LLC ING TT&S (U.S.) Securities, Inc. Locust Street Securities, Inc. Multi-Financial Securities Corporation PrimeVest Financial Services, Inc. Systematized Benefits Administrators, Inc. United Variable Services, Inc. VESTAX Securities Corporation Washington Square Securities, Inc. COMMISSION PAYMENTS. Persons who offer and sell the contracts may be paid a commission. The maximum percentage amount that may be paid with respect to a given purchase payment is the first-year percentage which ranges from 1% 39 to a maximum of 6% of the first year of payments to an account. Renewal commissions on payments made after the first year and asset-based service fees may also be paid. The average of all commissions and asset-based service fees paid is estimated to equal approximately 3% of the total payments made over the life of an average contract. Some sales personnel may receive various types of non-cash compensation as special sales incentives, including trips and educational and/or business seminars. Supervisory and other management personnel of the Company may receive additional compensation if the overall amount of investments in the funds advised by the Company or its affiliates increases over time. The total compensation package for sales, supervisory and management personnel of affiliated or related broker-dealers may be positively impacted if the overall amount of investments in the contracts and other products issued or advised by the Company or its affiliates increases over time. We may pay wholesaling fees to certain distributors that may be calculated as a percentage of the commissions paid to distributors or of purchase payments received under the contracts. Sales management personnel may also receive compensation that may be calculated as a percentage of the commissions paid to distributors or of purchase payments received under the contracts. Distributors may also be reimbursed for certain expenses. The names of the distributor and the registered representative responsible for your account are stated in your enrollment materials. THIRD PARTY COMPENSATION ARRANGEMENTS. Occasionally: -- Commissions and fees may be paid to distributors affiliated or associated with the contract holder, you and/or other contract participants; and/or -- The Company may enter into agreements with entities associated with the contract holder, you and/or other participants. Through such agreements, we may pay the entities for certain services in connection with administering the contract. In both these circumstances there may be an understanding that the distributor or entities would endorse us as a provider of the contract. You will be notified if you are purchasing a contract that is subject to these arrangements. CONTRACT MODIFICATION We may change the contract as required by federal or state law. In addition, we may, upon 30 days' written notice to the contract holder, make other changes to group contracts that would apply only to individuals who become participants under that Contract after the effective date of such changes. If the group contract holder does not agree to a change, we reserve the right to refuse to establish new accounts under the Contract. Certain changes will require the approval of appropriate state or federal regulatory authorities. LEGAL MATTERS AND PROCEEDINGS We are aware of no material legal proceedings pending which involve the separate account as a party or which would materially affect the separate account. The validity of the securities offered by this prospectus has been passed upon by Counsel to the Company. In recent years, a number of companies have been named as defendants in class action lawsuits relating to life insurance sales practices. The Company is a defendant in one such lawsuit, a purported class action which was filed against the Company in the United States District Court for the Middle District of Florida on June 30, 2000, by Helen Reese, Richard Reese, Villere Bergeron, and Alan Eckert (the "Reese Complaint"). The Reese Complaint claims that the Company engaged in unlawful sales practices in marketing life insurance 40 policies. The Company 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 this action vigorously. The Company also is a party to other litigation and arbitration proceedings in the ordinary course of its business, none of which is expected to have a material adverse effect on the Company. PAYMENT DELAY OR SUSPENSION We reserve the right to suspend or postpone the date of any payment of benefits or values under the following circumstances: (a) on any valuation date when the New York Stock Exchange is closed (except customary weekend and holiday closings) when trading on the Exchange is restricted; (b) when an emergency exists as determined by the SEC so that disposal of the securities held in the subaccounts is not reasonably practicable or it is not reasonably practicable for us fairly to determine the value of the subaccount's assets; or (c) during any other periods the SEC may, by order, permit for the protection of investors. The conditions under which restricted trading or an emergency exists shall be determined by the rules and regulations of the SEC. TRANSFER OF OWNERSHIP; ASSIGNMENT An assignment of a contract will only be binding on us if it is made in writing and sent to us at our Home Office. We will use reasonable procedures to confirm that the assignment is authentic, including verification of signature. If we fail to follow our own procedures, we will be liable for any losses to you directly resulting from the failure. Otherwise, we are not responsible for the validity of any assignment. The rights of the contract holder and the interest of the annuitant and any beneficiary will be subject to the rights of any assignee we have on our records. INTENT TO CONFIRM QUARTERLY Under certain contracts, we will provide confirmation of scheduled transactions quarterly rather than immediately to the participant. 41 CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ---------------------------------------------- The Statement of Additional Information contains more specific information on the separate account and the contract, as well as the financial statements of the separate account and the Company. A list of the contents of the SAI is set forth below: General Information and History Variable Annuity Account B Offering and Purchase of Contracts Performance Data General Average Annual Total Return Quotations Income Phase Payments Sales Material and Advertising Independent Auditors Financial Statements of the Separate Account Financial Statements of ING Life Insurance and Annuity Company and Subsidiaries You may request an SAI by calling the Company at the number listed in "Contract Overview--Questions". 42 APPENDIX I GUARANTEED ACCUMULATION ACCOUNT ------------------------------------------------------------------ The Guaranteed Accumulation Account (GAA) is a fixed interest option that may be available during the accumulation phase under the contracts. This appendix is only a summary of certain facts about GAA. Please read the GAA prospectus before investing in this option. IN GENERAL. Amounts that you invest in GAA will earn a guaranteed interest rate if amounts are left in GAA for the specified period of time. If you withdraw or transfer those amounts before the specified period of time has elapsed, we may apply a "market value adjustment," which may be positive or negative. When you decide to invest money in GAA, you will want to contact your representative or the Company to learn: -- The interest rate we will apply to the amounts that you invest in GAA. We change this rate periodically, so be certain you know what rate we guarantee on the day your account dollars are invested into GAA. -- The period of time your account dollars need to remain in GAA in order to earn that rate. You are required to leave your account dollars in GAA for a specified period of time (guaranteed term), in order to earn the guaranteed interest rate. DEPOSIT PERIODS. A deposit period is the time during which we offer a specific interest rate if you deposit dollars for a certain guaranteed term. For a particular interest rate and guaranteed term to apply to your account dollars, you must invest them during the deposit period during which that rate and term are offered. INTEREST RATES. We guarantee different interest rates, depending upon when account dollars are invested in GAA. The interest rate we guarantee is an annual effective yield; that means that the rate reflects a full year's interest. We credit interest daily at a rate that will provide the guaranteed annual effective yield over one year. The guaranteed interest rate will never be less than the rate stated in the contract. FEES AND OTHER DEDUCTIONS. If all or a portion of your account value in GAA is withdrawn, you may incur the following: -- Market Value Adjustment (MVA)--as described in this appendix and in the GAA prospectus; -- Tax Penalties and/or Tax withholding--see "Taxation"; -- Early Withdrawal Charge--see "Fees"; or -- Maintenance Fee--see "Fees". We do not make deductions from amounts in the GAA to cover mortality and expense risks. Rather, we consider these risks when determining the credited rate. MARKET VALUE ADJUSTMENT (MVA). If you withdraw or transfer your account value from GAA before the guaranteed term is completed, an MVA may apply. The MVA reflects the change in the value of the investment due to changes in interest rates since the date of deposit. The MVA may be positive or negative. -- If interest rates at the time of withdrawal have increased since the date of deposit, the value of the investment decreases and the MVA will be negative. This could result in your receiving less than the amount you paid into GAA. -- If interest rates at the time of withdrawal have decreased since the date of deposit, the value of the investment increases and the MVA will be positive. GUARANTEED TERMS. The guaranteed term is the period of time account dollars must be left in GAA in order to earn the guaranteed interest rate specified for that guaranteed term. We offer different guaranteed terms at different times. Check with your representative or the Company to learn the details about the guaranteed term(s) currently being offered. 43 In general we offer the following guaranteed terms: -- Short-term--three years or fewer; and -- Long-term--ten years or less, but greater than three years. At the end of a guaranteed term, your contract holder or you if permitted may: -- Transfer dollars to a new guaranteed term; -- Transfer dollars to other available investment options; or -- Withdraw dollars. Deductions may apply to withdrawals. See "Fees and Other Deductions" in this section. TRANSFER OF ACCOUNT DOLLARS. Generally, account dollars invested in GAA may be transferred among guaranteed terms offered through GAA, and/or to other investment options offered through the contract. However, transfers may not be made during the deposit period in which your account dollars are invested in GAA or for 90 days after the close of that deposit period. We will apply an MVA to transfers made before the end of a guaranteed term. INCOME PHASE. GAA cannot be used as an investment option during the income phase. However, the contract holder (or you, if permitted) may notify us at least 30 days in advance to elect a variable payment option and to transfer your GAA account dollars to any of the subaccounts available during the income phase. 44 APPENDIX II FIXED ACCOUNT ------------------------------------------------------------------ The Fixed Account is an investment option available during the accumulation phase under the contracts. Amounts allocated to the Fixed Account are held in the Company's general account which supports insurance and annuity obligations. Additional information about this option may be found in the contract. GENERAL DISCLOSURE. Interests in the Fixed Account have not been registered with the SEC in reliance upon exemptions under the Securities Act of 1933, as amended. Disclosure in this prospectus about the Fixed Account may be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of the statements. Disclosure in this Appendix regarding the Fixed Account has not been reviewed by the SEC. INTEREST RATES. The Fixed Account guarantees that amounts allocated to this option will earn the minimum interest rate specified in the contract. We may credit a higher interest rate from time to time, but the rate we credit will never fall below the guaranteed minimum specified in the contract. Among other factors, the safety of the interest rate guarantee depends upon the claims-paying ability of the Company. Amounts applied to the Fixed Account will earn the interest rate in effect at the time money is applied. Amounts in the Fixed Account will reflect a compound interest rate as credited by us. The rate we quote is an annual effective yield. Our determination of credited interest rates reflects a number of factors, including mortality and expense risks, interest rate guarantees, the investment income earned on invested assets and the amortization of any capital gains and/or losses realized on the sale of invested assets. Under this option, we assume the risk of investment gain or loss by guaranteeing the amounts you allocate to this option and promising a minimum interest rate and income phase payment. WITHDRAWALS. Under certain emergency conditions, we may defer payment of any withdrawal for a period of up to 6 months or as provided by federal law. Additionally, if allowed by state law, we may pay withdrawals in equal payments with interest, over a period not to exceed 60 months when: (a) the Fixed Account withdrawal value for the contract or for the total of the accounts under the contract exceeds $250,000 on the day before withdrawal; and (b) the sum of the current Fixed Account withdrawal and total of all Fixed Account withdrawals from the contract or any account under the contract within the past 12 calendar months exceeds 20% of the amount in the Fixed Account on the day before current withdrawal. The contract describes how we will determine the interest rate credited to amounts held in the Fixed Account during the payment period, including the minimum interest rate. CHARGES. We do not make deductions from amounts in the Fixed Account to cover mortality and expense risks. We consider these risks when determining the credited rate. If you make a withdrawal from amounts in the Fixed Account, an early withdrawal charge may apply. See "Fees--Early Withdrawal Charge". TRANSFERS. During the accumulation phase, you may transfer account dollars from the Fixed Account to any other available investment option. We may vary the dollar amount that you are allowed to transfer, but it will never be less than 10% of your account value held in the Fixed Account. This 10% limit does not apply to amounts being transferred into the Fixed Plus Account (if available under the contract). By notifying our Home Office at least 30 days before income phase payments begin, you may elect to have amounts transferred to one or more of the subaccounts available during the income phase to provide variable payments. 45 APPENDIX III FIXED PLUS ACCOUNT ------------------------------------------------------------------ The Fixed Plus Account is an investment option available under some contracts. Amounts allocated to the Fixed Plus Account are held in the Company's general account which supports insurance and annuity obligations. We reserve the right to limit investment in or transfers to the Fixed Plus Account. Additional information about this option may be found in the contract. GENERAL DISCLOSURE. Interests in the Fixed Plus Account have not been registered with the SEC in reliance upon exemptions under the Securities Act of 1933, as amended. Disclosure in this prospectus about the Fixed Plus Account may be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of the statements. Disclosure in this Appendix regarding the Fixed Plus Account has not been reviewed by the SEC. INTEREST RATES. The Fixed Plus Account guarantees that amounts allocated to this option will earn the minimum interest rate specified in the contract. We may credit a higher interest rate from time to time, but the rate we credit will never fall below the guaranteed minimum specified in the contract. Among other factors, the safety of the interest rate guarantee depends upon the claims-paying ability of the Company. For some contracts we credit amounts held in the Fixed Plus Account with a rate 0.25% higher than the then-declared rate beginning in the tenth year after your account was established. Amounts applied to the Fixed Plus Account will earn the interest rate in effect at the time money is applied. Amounts in the Fixed Plus Account will reflect a compound interest rate as credited by us. The rate we quote is an annual effective yield. We do not make deductions from amounts in the Fixed Plus Account to cover mortality and expense risks. We consider these risks in determining the credited rate. Our determination of credited interest rates reflects a number of factors, including mortality and expense risks, interest rate guarantees, the investment income earned on invested assets and the amortization of any capital gains and/or losses realized on the sale of invested assets. Under this option, we assume the risk of investment gain or loss by guaranteeing the amounts you allocate to this option and promising a minimum interest rate and income phase payment. REQUEST FOR PARTIAL WITHDRAWAL. Partial withdrawals are limited to 20% of the amount held in the Fixed Plus Account on the day we receive a request in good order at our Home Office. The 20% limit is reduced by any Fixed Plus withdrawals, transfers or income phase payments made in the last 12 months. In calculating the 20% limit, we reserve the right to include payments made through a Systematic Distribution Option, if available under your contract. The 20% limit is waived if a partial withdrawal is taken proportionally from each investment option in which the account invests and is due to one or more of the following: -- Election of any income phase payment option with fixed payments or a lifetime payment option with variable payments; and/or -- Due to your death (the withdrawal must occur within six months after death and can only be exercised once). REQUEST FOR FULL WITHDRAWAL. If the contract holder or you, if allowed by the plan, request a full withdrawal of your account value, we will pay any amounts held in the Fixed Plus Account, with interest, in five annual payments equal to: -- One-fifth of the Fixed Plus Account value on the day we receive the request, reduced by any Fixed Plus Account withdrawals, transfers or income phase payments made during the past 12 months -- One-fourth of the remaining Fixed Plus Account value 12 months later -- One-third of the remaining Fixed Plus Account value 12 months later -- One-half of the remaining Fixed Plus Account value 12 months later, and -- The balance of the Fixed Plus Account value 12 months later 46 A full withdrawal may be canceled at any time before the end of the five-payment period. Once we receive a request for full withdrawal, no further withdrawals or transfers will be permitted from Fixed Plus Account. We will waive the above full withdrawal five-payment period if full withdrawal is made due to any of the following: -- Your death before income phase payments have begun (request must be received within 6 months after date of death); or -- Election of any income phase payment option with fixed payments or a lifetime payment option with variable payments; or -- Your account value in the Fixed Plus Account is $3,500 or less and no withdrawals, transfers or income phase payments have been made from your account within the past 12 months. CHARGES. We do not make deductions from amounts in the Fixed Plus Account to cover mortality and expense risks. We consider these risks when determining the credited rate. TRANSFERS. Transfers are limited to 20% of the amount held in the Fixed Plus Account on the day a request in good order is received at our Home Office. The 20% is reduced by any Fixed Plus Account withdrawals, transfers or income phase payments made in the past 12 months. We reserve the right to include payments made through a Systematic Distribution Option, if available under your contract, in calculating the 20% limit. The 20% limit will be waived if your account value in the Fixed Plus Account is $1,000 or less. INCOME PHASE. Amounts accumulating under the Fixed Plus Account can be transferred to the subaccounts to fund variable lifetime income options during the income phase. However, Fixed Plus Account values may not be used to fund nonlifetime income options with variable payments. SYSTEMATIC WITHDRAWAL OPTION (SWO). If available under your contract, SWO described in "Systematic Distribution Options," may not be elected if you have requested a Fixed Plus Account transfer or withdrawal within the past 12 months. 47 APPENDIX IV FUND DESCRIPTIONS ------------------------------------------------------------------ LIST OF FUND NAME CHANGES --------------------------------------------------------------------------------
CURRENT FUND NAME FORMER FUND NAME ING Generation Portfolios, Inc.--ING VP Ascent Aetna Generation Portfolios, Inc.--Aetna Ascent VP Portfolio (Class R Shares) ING VP Balanced Portfolio, Inc. (Class R Shares) Aetna Balanced VP, Inc. ING VP Bond Portfolio (Class R Shares) Aetna Income Shares d/b/a Aetna Bond VP ING Generation Portfolios, Inc.--ING VP Crossroads Aetna Generation Portfolios, Inc.--Aetna Portfolio (Class R Shares) Crossroads VP ING Variable Portfolios, Inc.--ING VP Growth Aetna Variable Portfolios, Inc.--Aetna Growth VP Portfolio (Class R Shares) ING Variable Funds--ING VP Growth and Income Aetna Variable Fund d/b/a Aetna Growth and Income Portfolio (Class R Shares) VP ING Variable Portfolios, Inc.--ING VP Index Plus Aetna Variable Portfolios, Inc.--Aetna Index Plus LargeCap Portfolio (Class R Shares) Large Cap VP ING Variable Portfolios, Inc.--ING VP Index Plus Aetna Variable Portfolios, Inc.--Aetna Index Plus MidCap Portfolio (Class R Shares) Mid Cap VP ING Variable Portfolios, Inc.--ING VP Index Plus Aetna Variable Portfolios, Inc.--Aetna Index Plus SmallCap Portfolio (Class R Shares) Small Cap VP ING Variable Portfolios, Inc.--ING VP Aetna Variable Portfolios, Inc.--Aetna International Equity Portfolio (Class R Shares) International VP ING Generation Portfolios, Inc.--ING VP Legacy Aetna Generation Portfolios, Inc.--Aetna Legacy VP Portfolio (Class R Shares) ING VP Money Market Portfolio (Class R Shares) Aetna Variable Encore Fund d/b/a Aetna Money Market VP ING Variable Portfolios, Inc.--ING VP Small Aetna Variable Portfolios, Inc.--Aetna Small Company Portfolio (Class R Shares) Company VP ING Variable Portfolios, Inc.--ING VP Technology Aetna Variable Portfolios, Inc.--Aetna Technology Portfolio (Class R Shares) VP ING Variable Portfolios, Inc.--ING VP Value Aetna Variable Portfolios, Inc.--Aetna Value Opportunity Portfolio (Class R Shares) Opportunity VP ING VP Natural Resources Trust Pilgrim Natural Resources Trust ING Variable Products Trust--ING VP Growth Pilgrim Variable Products Trust--Pilgrim VP Growth Opportunities Portfolio (Class R Shares) Opportunities Portfolio (Class R Shares) ING Variable Products Trust--ING VP International Pilgrim Variable Products Trust--Pilgrim VP Value Portfolio (Class R Shares) International Value Portfolio (Class R Shares) ING Variable Products Trust--ING VP MagnaCap Pilgrim Variable Products Trust--Pilgrim VP Portfolio (Class R Shares) MagnaCap Portfolio (Class R Shares) ING Variable Products Trust--ING VP MidCap Pilgrim Variable Products Trust--Pilgrim VP MidCap Opportunities Portfolio (Class R Shares) Opportunities Portfolio (Class R Shares) ING Variable Products Trust--ING VP SmallCap Pilgrim Variable Products Trust--Pilgrim VP Opportunities Portfolio (Class R Shares) SmallCap Opportunities Portfolio (Class R Shares) ING Partners, Inc.--ING Alger Aggressive Growth Portfolio Partners, Inc.--PPI Alger Aggressive Portfolio (Service Class) Growth Portfolio (Service Class) ING Partners, Inc.--ING Alger Growth Portfolio Portfolio Partners, Inc.--PPI Alger Growth (Service Class) Portfolio (Service Class) ING Partners, Inc.--ING DSI Enhanced Index Portfolio Partners, Inc.--PPI DSI Enhanced Index Portfolio (Service Class) Portfolio (Service Class)
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CURRENT FUND NAME FORMER FUND NAME ING Partners, Inc.--ING Goldman Portfolio Partners, Inc.--PPI Goldman Sachs-Registered Trademark- Capital Growth Sachs-Registered Trademark- Capital Growth Portfolio* (Service Class) Portfolio* (Service Class) ING Partners, Inc.--ING MFS Capital Opportunities Portfolio Partners, Inc. (PPI) MFS Capital Portfolio (Initial Class) Opportunities Portfolio (Initial Class) ING Partners, Inc.--ING MFS Emerging Equities Portfolio Partners, Inc. (PPI) MFS Emerging Portfolio (Initial Class) Equities Portfolio (Initial Class) ING Partners, Inc.--ING MFS Research Portfolio Portfolio Partners, Inc. (PPI) MFS Research Growth (Initial Class) Portfolio (Initial Class) ING Partners, Inc.--ING OpCap Balanced Value Portfolio Partners, Inc.--PPI OpCap Balanced Value Portfolio (Service Class) Portfolio (Service Class) ING Partners, Inc.--ING Salomon Brothers Capital Portfolio Partners, Inc.--PPI Salomon Brothers Portfolio (Service Class) Capital Portfolio (Service Class) ING Partners, Inc.--ING Salomon Brothers Investors Portfolio Partners, Inc.--PPI Salomon Brothers Value Portfolio (Service Class) Investors Value Portfolio (Service Class) ING Partners, Inc.--ING Scudder International Portfolio Partners, Inc. (PPI) Scudder Growth Portfolio (Initial Class) International Growth Portfolio (Initial Class) ING Partners, Inc.--ING T. Rowe Price Growth Portfolio Partners, Inc. (PPI) T. Rowe Price Equity Portfolio (Initial Class) Growth Equity Portfolio (Initial Class) ING Partners, Inc.--ING UBS Tactical Asset Portfolio Partners, Inc.--PPI Brinson Tactical Allocation Portfolio (Service Class) Asset Allocation Portfolio (Service Class) AIM Variable Insurance Funds--AIM V.I. Core Equity AIM Variable Insurance Funds--AIM V.I. Growth and Fund (Series I Shares) Income Fund (Series I Shares) AIM Variable Insurance Funds--AIM V.I. Premier AIM Variable Insurance Funds--AIM V.I. Value Fund Equity Fund (Series I Shares) (Series I Shares) Franklin Templeton Variable Insurance Products Franklin Templeton Variable Insurance Products Trust--Franklin Small Cap Value Securities Fund Trust-- Franklin Value Securities Fund (Class 2 (Class 2 Shares) Shares)
* Goldman Sachs-Registered Trademark- is a registered service mark of Goldman, Sachs & Co., and it is used by agreement with Goldman, Sachs & Co. FUND DESCRIPTIONS -------------------------------------------------------------------------------- THE INVESTMENT RESULTS OF THE MUTUAL FUNDS (FUNDS) ARE LIKELY TO DIFFER SIGNIFICANTLY AND THERE IS NO ASSURANCE THAT ANY OF THE FUNDS WILL ACHIEVE THEIR RESPECTIVE INVESTMENT OBJECTIVES. SHARES OF THE FUNDS WILL RISE AND FALL IN VALUE AND YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS. SHARES OF THE FUNDS ARE NOT BANK DEPOSITS AND ARE NOT GUARANTEED, ENDORSED OR INSURED BY ANY FINANCIAL INSTITUTION, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. EXCEPT AS NOTED, ALL FUNDS ARE DIVERSIFIED, AS DEFINED UNDER THE INVESTMENT COMPANY ACT OF 1940. PLEASE REFER TO THE FUND PROSPECTUSES FOR ADDITIONAL INFORMATION. FUND PROSPECTUSES MAY BE OBTAINED FREE OF CHARGE, FROM OUR HOME OFFICE AT THE ADDRESS AND TELEPHONE NUMBER LISTED IN "CONTRACT OVERVIEW--QUESTIONS", BY ACCESSING THE SEC'S WEB SITE OR BY CONTACTING THE SEC PUBLIC REFERENCE ROOM. CERTAIN FUNDS OFFERED UNDER THE CONTRACTS HAVE INVESTMENT OBJECTIVES AND POLICIES SIMILAR TO OTHER FUNDS MANAGED BY THE FUND'S INVESTMENT ADVISER. THE INVESTMENT RESULTS OF A FUND MAY BE HIGHER OR LOWER THAN THOSE OF OTHER FUNDS MANAGED BY THE SAME ADVISER. THERE IS NO ASSURANCE AND NO REPRESENTATION IS MADE THAT THE INVESTMENT RESULTS OF ANY FUND WILL BE COMPARABLE TO THOSE OF ANOTHER FUND MANAGED BY THE SAME INVESTMENT ADVISER. 49
INVESTMENT ADVISER/ FUND NAME SUBADVISER INVESTMENT OBJECTIVE ING GENERATION PORTFOLIOS, INC.--ING VP ASCENT ING Investments, LLC Seeks to provide capital appreciation. PORTFOLIO (formerly Aetna Generation Subadviser: Aeltus Managed for investors seeking capital Portfolios, Inc.--Aetna Ascent VP) Investment appreciation who generally have an (CLASS R SHARES) Management, Inc. investment horizon exceeding 15 years (Aeltus) and who have a high level of risk tolerance. Under normal market conditions, allocates assets among several classes of equities, fixed-income securities (including up to 15% of total assets in high-yield instruments) and money market instruments. The benchmark portfolio is 80% equities and 20% fixed-income under neutral market conditions. ING VP BALANCED PORTFOLIO, INC. (formerly Aetna ING Investments, LLC Seeks to maximize investment return, Balanced VP, Inc.) Subadviser: Aeltus consistent with reasonable safety of (CLASS R SHARES) Investment principal, by investing in a diversified Management, Inc. portfolio of one or more of the (Aeltus) following asset classes: stocks, bonds and cash equivalents, based on the judgment of the Fund's management, of which of those sectors or mix thereof offers the best investment prospects. Typically, maintains approximately 60% of total assets in equities and approximately 40% of total assets in debt (including money market instruments). ING VP BOND PORTFOLIO (formerly Aetna Income Shares ING Investments, LLC Seeks to maximize total return as is d/b/a Aetna Bond VP) Subadviser: Aeltus consistent with reasonable risk, through (CLASS R SHARES) Investment investment in a diversified portfolio Management, Inc. consisting of debt securities. Under (Aeltus) normal market conditions, invests at least 80% of net assets in high-grade corporate bonds, mortgage-related and other asset-backed securities, and securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. ING GENERATION PORTFOLIOS, INC.--ING VP CROSSROADS ING Investments, LLC Seeks to provide total return (i.e., PORTFOLIO (formerly Aetna Generation Subadviser: Aeltus income and capital appreciation, both Portfolios, Inc.--Aetna Crossroads VP) (CLASS R Investment realized and unrealized). Managed for SHARES) Management, Inc. investors seeking a balance between (Aeltus) income and capital appreciation who generally have an investment horizon exceeding ten years and who have a moderate level of risk tolerance. Under normal market conditions, allocates assets among several classes of equities, fixed-income securities (including up to 15% of total assets in high-yield instruments) and money market instruments. The benchmark portfolio is 60% equities and 40% fixed-income under neutral market conditions.
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INVESTMENT ADVISER/ FUND NAME SUBADVISER INVESTMENT OBJECTIVE ING VARIABLE PORTFOLIOS, INC.--ING VP GROWTH ING Investments, LLC Seeks growth of capital through PORTFOLIO (formerly Aetna Variable Subadviser: Aeltus investment in a diversified portfolio Portfolios, Inc.--Aetna Growth VP) Investment consisting primarily of common stocks (CLASS R SHARES) Management, Inc. and securities convertible into common (Aeltus) stocks believed to offer growth potential. Under normal market conditions, invests at least 65% of total assets in common stocks and securities convertible into common stock. ING VARIABLE FUNDS--ING VP GROWTH AND INCOME ING Investments, LLC Seeks to maximize total return through PORTFOLIO (formerly Aetna Variable Fund d/b/a Subadviser: Aeltus investments in a diversified portfolio Aetna Growth and Income VP) Investment of common stocks and securities (CLASS R SHARES) Management, Inc. convertible into common stock. Under (Aeltus) normal market conditions, invests at least 65% of total assets in common stocks that Aeltus (the Portfolio's subadviser) believes have significant potential for capital appreciation or income growth or both. ING VARIABLE PORTFOLIOS, INC.--ING VP INDEX PLUS ING Investments, LLC Seeks to outperform the total return LARGECAP PORTFOLIO (formerly Aetna Variable Subadviser: Aeltus performance of the Standard & Poor's 500 Portfolios, Inc.--Aetna Index Plus Large Cap VP) Investment Composite Index (S&P 500), while (CLASS R SHARES) Management, Inc. maintaining a market level of risk. (Aeltus) Invests at least 80% of net assets in stocks included in the S&P 500. The S&P 500 is a stock market index comprised of common stocks of 500 of the largest companies traded in the U.S. and selected by Standard & Poor's Corporation. ING VARIABLE PORTFOLIOS, INC.--ING VP INDEX PLUS ING Investments, LLC Seeks to outperform the total return MIDCAP PORTFOLIO(formerly Aetna Variable Subadviser: Aeltus performance of the Standard & Poor's Portfolios, Inc.--Aetna Index Plus Mid Cap VP) Investment MidCap 400 Index (S&P 400), while (CLASS R SHARES) Management, Inc. maintaining a market level of risk. (Aeltus) Invests at least 80% of net assets in stocks included in the S&P 400. The S&P 400 is a stock market index comprised of common stocks of 400 mid-capitalization companies traded in the U.S. and selected by Standard & Poor's Corporation. ING VARIABLE PORTFOLIOS, INC.--ING VP INDEX PLUS ING Investments, LLC Seeks to outperform the total return SMALLCAP PORTFOLIO (formerly Aetna Variable Subadviser: Aeltus performance of the Standard and Poor's Portfolios, Inc.--Aetna Index Plus Small Cap VP) Investment SmallCap 600 Index (S&P 600), while (CLASS R SHARES) Management, Inc. maintaining a market level of risk. (Aeltus) Invests at least 80% of net assets in stocks included in the S&P 600. The S&P 600 is a stock market index comprised of common stocks of 600 small-capitalization companies traded in the U.S. and selected by Standard & Poor's Corporation.
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INVESTMENT ADVISER/ FUND NAME SUBADVISER INVESTMENT OBJECTIVE ING VARIABLE PORTFOLIOS, INC.--ING VP INTERNATIONAL ING Investments, LLC Seeks long-term capital growth primarily EQUITY PORTFOLIO (formerly Aetna Variable Subadviser: Aeltus through investment in a diversified Portfolios, Inc.--Aetna International VP) Investment portfolio of common stocks principally (CLASS R SHARES) Management, Inc. traded in countries outside of the (Aeltus) United States. The Portfolio will not target any given level of current income. Under normal market conditions, invests at least 80% of assets in equity securities and at least 65% of its assets in securities principally traded in three or more countries outside of the U.S. These securities may include common stocks as well as securities convertible into common stock. ING GENERATION PORTFOLIOS, INC.--ING VP LEGACY ING Investments, LLC Seeks to provide total return consistent PORTFOLIO (formerly Aetna Generation Subadviser: Aeltus with preservation of capital. Managed Portfolios, Inc.--Aetna Legacy VP) Investment for investors primarily seeking total (CLASS R SHARES) Management, Inc. return consistent with capital (Aeltus) preservation who generally have an investment horizon exceeding five years and who have a low level of risk tolerance. Under normal market conditions, allocates assets among several classes of equities, fixed-income securities (including up to 15% of total assets in high-yield instruments) and money market instruments. The benchmark portfolio is 40% equities and 60% fixed-income under neutral market conditions. ING VP MONEY MARKET PORTFOLIO (formerly Aetna ING Investments, LLC Seeks to provide high current return, Variable Encore Fund d/b/a Aetna Money Market VP) Subadviser: Aeltus consistent with preservation of capital (CLASS R SHARES) Investment and liquidity, through investment in Management, Inc. high-quality money market instruments. (Aeltus) Invests in a diversified portfolio of high-quality fixed income securities denominated in U.S. dollars, with short remaining maturities. ING VARIABLE PORTFOLIOS, INC.--ING VP SMALL COMPANY ING Investments, LLC Seeks growth of capital primarily PORTFOLIO (formerly Aetna Variable Subadviser: Aeltus through investment in a diversified Portfolios, Inc.--Aetna Small Company VP) Investment portfolio of common stocks and (CLASS R SHARES) Management, Inc. securities convertible into common (Aeltus) stocks of companies with smaller market capitalizations. Under normal market conditions, invests at least 80% of net assets in common stocks and securities convertible into common stock of small-capitalization companies, defined as: 1) the 2,000 smallest of the 3,000 largest U.S. companies (as measured by market capitalization); 2) all companies not included above that are included in the Standard & Poor's SmallCap 600 Index or the Russell 2000 Index; and 3) companies with market capitalizations lower than companies included in the first two categories.
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INVESTMENT ADVISER/ FUND NAME SUBADVISER INVESTMENT OBJECTIVE ING VARIABLE PORTFOLIOS, INC.--ING VP TECHNOLOGY ING Investments, LLC Seeks long-term capital appreciation. PORTFOLIO (formerly Aetna Variable Subadviser: Elijah Invests at least 80% of net assets in Portfolios, Inc.--Aetna Technology VP) Asset Management, LLC common stocks and securities convertible (CLASS R SHARES) (EAM) into common stock of companies in the information technology industry sector. ING VARIABLE PORTFOLIOS, INC.--ING VP VALUE ING Investments, LLC Seeks growth of capital primarily OPPORTUNITY PORTFOLIO (formerly Aetna Variable Subadviser: Aeltus through investment in a diversified Portfolios, Inc.--Aetna Value Opportunity VP) Investment portfolio of common stocks and (CLASS R SHARES) Management, Inc. securities convertible into common (Aeltus) stock. Under normal market conditions, invests at least 65% of total assets in common stocks and securities convertible into common stock. ING VP NATURAL RESOURCES TRUST (formerly Pilgrim ING Investments, LLC A NONDIVERSIFIED Portfolio that seeks Natural Resources Trust) (ING Investments) long- term growth of capital primarily (formerly ING Pilgrim through investment in common stocks of Investments, LLC) companies that own or develop natural resources and other basic commodities, or supply goods and services to such companies. Current income will not be a factor. Total return will consist primarily of capital appreciation. Normally invests at least 80% of assets in companies with substantial natural resource assets. May also lend portfolio securities, up to 33 1/3% of its total assets. ING VARIABLE PRODUCTS TRUST--ING VP GROWTH ING Investments, LLC Seeks long-term growth of capital. OPPORTUNITIES PORTFOLIO (formerly Pilgrim Variable (ING Investments) Invests primarily in common stock of Products Trust--Pilgrim VP Growth Opportunities (formerly ING Pilgrim U.S. companies that the portfolio Portfolio) Investments, LLC) managers feel have above average (CLASS R SHARES) prospects for growth. Under normal market conditions, invests at least 65% of total assets in securities purchased on the basis of the potential for capital appreciation. These securities may be from large-cap, mid-cap or small-cap companies. ING VARIABLE PRODUCTS TRUST--ING VP INTERNATIONAL ING Investments, LLC Seeks long-term capital appreciation. VALUE PORTFOLIO (ING Investments) Invests primarily in foreign companies (formerly Pilgrim Variable Products Trust--Pilgrim (formerly ING Pilgrim with market capitalizations greater than VP International Value Portfolio) Investments, LLC) $1 billion, but may hold up to 25% of (CLASS R SHARES) Subadviser: Brandes assets in companies with smaller market Investment Partners, capitalization. Under normal L.P. circumstances, will invest at least 65% of total assets in securities of companies located in at least three countries other than the U.S., which may include emerging market countries.
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INVESTMENT ADVISER/ FUND NAME SUBADVISER INVESTMENT OBJECTIVE ING VARIABLE PRODUCTS TRUST--ING VP MAGNACAP ING Investments, LLC Seeks growth of capital, with dividend PORTFOLIO (formerly Pilgrim Variable Products (ING Investments) income as a secondary consideration. Trust--Pilgrim VP MagnaCap Portfolio) (formerly ING Pilgrim Under normal conditions, invests at (CLASS R SHARES) Investments, LLC) least 80% of assets in equity securities that meet the following criteria: attractive valuation characteristics; dividends; and balance sheet strength. Candidates are also analyzed for some catalyst or vector of change that may spark an increase in share price. Normally, investments are generally in larger companies that are included in the largest 500 U.S. companies as measured by sales, earnings or assets. ING VARIABLE PRODUCTS TRUST--ING VP MIDCAP ING Investments, LLC Seeks long-term capital appreciation. OPPORTUNITIES PORTFOLIO (formerly Pilgrim Variable (ING Investments) Normally invests at least 80% of assets Products Trust--Pilgrim VP MidCap Opportunities (formerly ING Pilgrim in the common stocks of mid-sized U.S. Portfolio) Investments, LLC) companies that the portfolio managers (CLASS R SHARES) feel have above average prospects for growth. For this Portfolio, mid-size companies are those with market capitalizations that fall within the range of companies in the Standard & Poor's MidCap 400 Index (S&P MidCap 400 Index). ING VARIABLE PRODUCTS TRUST--ING VP SMALLCAP ING Investments, LLC Seeks long-term capital appreciation. OPPORTUNITIES PORTFOLIO (formerly Pilgrim Variable (ING Investments) Normally invests at least 80% of assets Products Trust--Pilgrim VP SmallCap Opportunities (formerly ING Pilgrim in the common stock of smaller, lesser- Portfolio) Investments, LLC) known U.S. companies that the portfolio (CLASS R SHARES) manager believes have above average prospects for growth. For this Portfolio, smaller companies are those with market capitalizations that fall within the range of companies in the Russell 2000 Index, which is an index that measures the performance of small companies. ING PARTNERS, INC.--ING ALGER AGGRESSIVE GROWTH ING Life Insurance and Seeks long-term capital appreciation. PORTFOLIO (formerly Portfolio Partners, Inc.--PPI Annuity Company Invests primarily (at least 65% of total Alger Aggressive Growth Portfolio) (formerly Aetna Life assets) in the equity securities of (SERVICE CLASS) Insurance and Annuity companies having a market capitalization Company) Subadviser: within the range of companies in the S&P Fred Alger MidCap 400 Index. Management, Inc. ING PARTNERS, INC.--ING ALGER GROWTH PORTFOLIO ING Life Insurance and Seeks long-term capital appreciation. (formerly Portfolio Partners, Inc.--PPI Alger Annuity Company Invests primarily (at least 65% of total Growth Portfolio) (formerly Aetna Life assets) in the equity securities of (SERVICE CLASS) Insurance and Annuity large companies having a market Company) capitalization of $10 billion or Subadviser: Fred Alger greater. Management, Inc.
54
INVESTMENT ADVISER/ FUND NAME SUBADVISER INVESTMENT OBJECTIVE ING PARTNERS, INC.--ING AMERICAN CENTURY SMALL CAP ING Life Insurance and Seeks long-term growth of capital; VALUE PORTFOLIO Annuity Company income is a secondary objective. Invests (SERVICE CLASS) (formerly Aetna Life primarily (at least 80% of net assets Insurance and Annuity under normal circumstances) in equity Company) securities of smaller companies. The Subadviser: American Portfolio's subadviser considers smaller Century Investment companies to include those with a market Management, Inc. capitalization no bigger than that of (American Century) the largest company in the S&P Small Cap 600 Index or the Russell 2000 Index. ING PARTNERS, INC.--ING BARON SMALL CAP GROWTH ING Life Insurance and Seeks capital appreciation. Invests PORTFOLIO Annuity Company primarily in common stocks of smaller (SERVICE CLASS) (formerly Aetna Life companies selected for capital Insurance and Annuity appreciation potential. Invests Company) primarily (at least 80% of net assets Subadviser: under normal circumstances) in small BAMCO, Inc. sized companies with market values under $1.5 billion measured at the time of purchase. ING PARTNERS, INC.--ING DSI ENHANCED INDEX PORTFOLIO ING Life Insurance and Seeks higher total return over the long (formerly Portfolio Partners, Inc.--PPI DSI Annuity Company term than the Standard & Poor's 500 Enhanced Index Portfolio) (formerly Aetna Life Index (S&P 500). Usesthe subadviser's (SERVICE CLASS) Insurance and Annuity proprietary enhanced S&P 500 strategy to Company) invest in a selection of common stocks Subadviser: DSI that are included in the S&P 500 Index. International Normally invests in approximately 250 to Management, Inc. (DSI) 500 stocks and weights its holdings of individual stocks based on DSI's proprietary enhanced S&P 500 strategy. ING PARTNERS, INC.--ING GOLDMAN ING Life Insurance and Seeks long-term growth of capital. SACHS-REGISTERED TRADEMARK- CAPITAL GROWTH Annuity Company Invests, under normal circumstances, at PORTFOLIO (formerly Portfolio Partners, Inc.-- (formerly Aetna Life least 90% of total assets in equity PPI Goldman Sachs-Registered Trademark- Capital Insurance and Annuity securities. Growth Portfolio) Company) (SERVICE CLASS) Subadviser: Goldman Sachs Asset Management ING PARTNERS, INC.--ING JPMORGAN MID CAP VALUE ING Life Insurance and A NONDIVERSIFIED Portfolio that seeks PORTFOLIO Annuity Company growth from capital appreciation. (SERVICE CLASS) (formerly Aetna Life Invests primarily (at least 80% of net Insurance and Annuity assets under normal circumstances) in a Company) broad portfolio of common stocks of Subadviser: Robert companies with market capitalizations of Fleming Inc., a $1 billion to $20 billion at the time of subsidiary of JPMorgan purchase that the subadviser believes to Chase & Co. (Fleming) be undervalued. ING PARTNERS, INC.--ING MFS CAPITAL OPPORTUNITIES ING Life Insurance and Seeks capital appreciation. Invests PORTFOLIO (formerly Portfolio Partners, Inc. (PPI) Annuity Company primarily (at least 65% of net assets) MFS Capital Opportunities Portfolio) (formerly Aetna Life in common stocks and related securities, (INITIAL CLASS) Insurance and Annuity such as preferred stocks, convertible Company) securities and depositary receipts. Subadviser: Massachusetts Financial Services Company
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INVESTMENT ADVISER/ FUND NAME SUBADVISER INVESTMENT OBJECTIVE ING PARTNERS, INC.--ING MFS EMERGING EQUITIES ING Life Insurance and Seeks long-term growth of capital. PORTFOLIO (formerly Portfolio Partners, Inc. (PPI) Annuity Company Invests primarily (at least 80% of net MFS Emerging Equities Portfolio) (formerly Aetna Life assets under normal circumstances) in (INITIAL CLASS) Insurance and Annuity common stocks and related securities, Company) such as preferred stocks, convertible Subadviser: securities and depositary receipts, of Massachusetts emerging growth companies. Financial Services Company ING PARTNERS, INC.--ING MFS GLOBAL GROWTH PORTFOLIO ING Life Insurance and A NONDIVERSIFIED Portfolio that seeks (SERVICE CLASS) Annuity Company capital appreciation. Invests primarily (formerly Aetna Life (at least 65% of net assets under normal Insurance and Annuity circumstances) in securities of Company) companies worldwide including common Subadviser: stocks and related equity securities Massachusetts such as preferred stock, convertible Financial Services securities and depositary receipts. Company ING PARTNERS, INC.--ING MFS RESEARCH PORTFOLIO ING Life Insurance and Seeks long-term growth of capital and (formerly Portfolio Partners, Inc. (PPI) MFS Annuity Company future income. Invests primarily (at Research Growth Portfolio) (formerly Aetna Life least 80% of total assets) in common (INITIAL CLASS) Insurance and Annuity stocks and related securities, such as Company) Subadviser: preferred stocks, convertible securities Massachusetts and depositary receipts. Financial Services Company ING PARTNERS, INC.--ING OPCAP BALANCED VALUE ING Life Insurance and Seeks capital growth, and secondarily, PORTFOLIO (formerly Portfolio Partners, Inc.--PPI Annuity Company investment income. Under normal market OpCap Balanced Value Portfolio) (formerly Aetna Life conditions, invests at least 25% of (SERVICE CLASS) Insurance and Annuity total assets in equity securities, Company) including common stocks and preferred Subadviser: OpCap stocks and expects to have between 50% Advisors LLP to 70% of total assets invested in equities. Also invests at least 25% of total assets in fixed-income senior securities including bonds, debentures, notes, participation interests in loans, convertible securities, U.S. Government securities and cash equivalents. ING PARTNERS, INC.--ING PIMCO TOTAL RETURN PORTFOLIO ING Life Insurance and Seeks maximum total return, consistent (SERVICE CLASS) Annuity Company with capital preservation and prudent (formerly Aetna Life investment management. Invests under Insurance and Annuity normal circumstances at least 65% of its Company) assets in a diversified portfolio of Subadviser: Pacific fixed income instruments of varying Investment Management maturities. Invests primarily in Company LLC (PIMCO) investment grade debt securities, but may invest up to 10% of its assets in high yield securities ("junk bonds") rated B or higher by Moody's or S&P, or, if unrated, determined by PIMCO to be of comparable quality.
56
INVESTMENT ADVISER/ FUND NAME SUBADVISER INVESTMENT OBJECTIVE ING PARTNERS, INC.--ING SALOMON BROTHERS CAPITAL ING Life Insurance and A NONDIVERSIFIED Portfolio that seeks PORTFOLIO (formerly Portfolio Partners, Inc.--PPI Annuity Company capital appreciation. Invests primarily Salomon Brothers Capital Portfolio) (formerly Aetna Life in equity securities of U.S. companies (SERVICE CLASS) Insurance and Annuity ranging in size from established large Company) capitalization companies (over $5 Subadviser: Salomon billion in market capitalization) to mid Brothers Asset capitalization companies at the Management Inc. beginning of their life cycles. May invest in investment grade fixed-income securities, but no more than 20% of its net assets in non-convertible debt securities rated below investment grade or, if unrated, of equivalent quality as determined by the subadviser. ING PARTNERS, INC.--ING SALOMON BROTHERS INVESTORS ING Life Insurance and Seeks long-term growth of capital, and VALUE PORTFOLIO (formerly Portfolio Annuity Company secondarily, current income. Invests Partners, Inc.--PPI Salomon Brothers Investors (formerly Aetna Life primarily in common stocks of Value Portfolio) Insurance and Annuity established U.S. companies. May also (SERVICE CLASS) Company) invest in other equity securities, Subadviser: Salomon including up to 20% of its assets in Brothers Asset securities of foreign issuers. Management Inc. ING PARTNERS, INC.--ING SCUDDER INTERNATIONAL GROWTH ING Life Insurance and Seeks long-term growth of capital. PORTFOLIO (formerly Portfolio Partners, Inc. (PPI) Annuity Company Invests primarily (at least 65% of total Scudder International Growth Portfolio) (formerly Aetna Life assets) in the equity securities of (INITIAL CLASS) Insurance and Annuity foreign companies that the subadviser Company) believes have high growth potential. Subadviser: Deutsche Will normally invest in securities of at Investment Management least three different countries other Americas Inc. than the U.S. and will invest in (Deutsche) securities in both developed and developing markets. ING PARTNERS, INC.--ING T. ROWE PRICE GROWTH EQUITY ING Life Insurance and Seeks long-term capital growth, and PORTFOLIO (formerly Portfolio Partners, Inc. (PPI) Annuity Company secondarily, increasing dividend income. T. Rowe Price Growth Equity Portfolio) (formerly Aetna Life Invests primarily (at least 80% of net (INITIAL CLASS) Insurance and Annuity assets under normal circumstances) in Company) common stocks. Concentrates its Subadviser: T. Rowe investments in growth companies. Price Investments in foreign securities are Associates, Inc. limited to 30% of total assets. ING PARTNERS, INC.--ING UBS TACTICAL ASSET ING Life Insurance and Seeks total return, consisting of ALLOCATION PORTFOLIO (formerly Portfolio Annuity Company long-term capital appreciation and Partners, Inc.--PPI Brinson Tactical Asset (formerly Aetna Life current income. Allocates assets between Allocation Portfolio) Insurance and Annuity a stock portion designed to track the (SERVICE CLASS) Company) performance of the Standard & Poor's Subadviser: UBS Global Composite Index of 500 Stocks (S&P 500 Asset Management Inc. Index) and a fixed income portion (formerly Brinson consisting of either five-year U.S. Advisors, Inc.) Treasury notes or U.S. Treasury bills with remaining maturities of 30 days.
57
INVESTMENT ADVISER/ FUND NAME SUBADVISER INVESTMENT OBJECTIVE ING PARTNERS, INC.--ING VAN KAMPEN COMSTOCK ING Life Insurance and Seeks capital growth and income. Invests PORTFOLIO Annuity Company in a portfolio of equity securities, (SERVICE CLASS) (formerly Aetna Life including common stocks, preferred Insurance and Annuity stocks and securities convertible into Company) common and preferred stocks consisting Subadviser: Morgan principally of common stocks. Stanley Investment Management Inc. d/b/a Van Kampen AIM VARIABLE INSURANCE FUNDS--AIM V.I. CAPITAL A I M Advisors, Inc. Seeks growth of capital. Seeks to meet APPRECIATION FUND its objective by investing principally (SERIES I SHARES) in common stocks of companies the portfolio managers believe are likely to benefit from new or innovative products, services or processes as well as those that have experienced above-average, long-term growth in earnings and have excellent prospects for future growth. AIM VARIABLE INSURANCE FUNDS--AIM V.I. CORE EQUITY A I M Advisors, Inc. Seeks growth of capital with a secondary FUND (formerly AIM V.I. Growth and Income Fund) objective of current income. Seeks to (SERIES I SHARES) meet its objectives by investing, normally, at least 80% of net assets in equity securities, including convertible securities, of established companies that have long-term above-average growth in earnings and dividends, and growth companies that the portfolio managers believe have the potential for above-average growth in earnings and dividends. AIM VARIABLE INSURANCE FUNDS--AIM V.I. GROWTH FUND A I M Advisors, Inc. Seeks growth of capital. Seeks to meet (SERIES I SHARES) its investment objective by investing principally in seasoned and better capitalized companies considered to have strong earnings momentum. AIM VARIABLE INSURANCE FUNDS--AIM V.I. PREMIER A I M Advisors, Inc. Seeks to achieve long-term growth of EQUITY FUND (formerly AIM V.I. Value Fund) capital with a secondary objective of (SERIES I SHARES) income. Seeks to meet its objectives by investing, normally, at least 80% of net assets in equity securities, including convertible securities. CALVERT VARIABLE SERIES, INC.--CALVERT SOCIAL Calvert Asset Seeks to achieve a competitive total BALANCED PORTFOLIO Management return through an actively managed Company, Inc. NONDIVERSIFIED portfolio of stocks, Subadviser: NCM bonds and money market instruments which Capital Management offer income and capital growth Group, Inc. opportunity and which satisfy the investment and social criteria for the Portfolio. Typically invests about 60% of its assets in stocks and 40% in bonds or other fixed-income investments. Stock investments are primarily common stock in large-cap companies, while the fixed- income investments are primarily a wide variety of investment grade bonds.
58
INVESTMENT ADVISER/ FUND NAME SUBADVISER INVESTMENT OBJECTIVE FIDELITY-REGISTERED TRADEMARK- VARIABLE INSURANCE Fidelity Management & Seeks long-term capital appreciation. PRODUCTS--FIDELITY-REGISTERED TRADEMARK- VIP Research Company Normally invests primarily in common CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO Subadvisers: Fidelity stocks of companies whose value the (INITIAL CLASS) Management & Research Portfolio's investment adviser believes (U.K.) Inc.; Fidelity is not fully recognized by the public. Management & Research (Far East) Inc.; Fidelity Investments Japan Limited; FMR Co., Inc. FIDELITY-REGISTERED TRADEMARK- VARIABLE INSURANCE Fidelity Management & Seeks reasonable income. Also considers PRODUCTS--FIDELITY-REGISTERED TRADEMARK- VIP Research Company the potential for capital appreciation. EQUITY-INCOME PORTFOLIO Subadviser: FMR Seeks to achieve a yield which exceeds (INITIAL CLASS) Co., Inc. the composite yield on the securities comprising the Standard & Poor's 500 Index. Normally invests at least 80% of total assets in income-producing equity securities, which tends to lead to investments in large cap "value" stocks. FIDELITY-REGISTERED TRADEMARK- VARIABLE INSURANCE Fidelity Management & Seeks to achieve capital appreciation. PRODUCTS--FIDELITY-REGISTERED TRADEMARK- VIP Research Company Normally invests primarily in common GROWTH PORTFOLIO Subadviser: FMR stocks of companies the investment (INITIAL CLASS) Co., Inc. adviser believes have above-average growth potential (often called "growth" stocks). FIDELITY-REGISTERED TRADEMARK- VARIABLE INSURANCE Fidelity Management & Seeks long-term growth of capital. PRODUCTS--FIDELITY-REGISTERED TRADEMARK- VIP Research Company Normally invests at least 80% of total OVERSEAS PORTFOLIO Subadvisers: Fidelity assets in foreign securities, primarily (INITIAL CLASS) Management & Research in common stocks. (U.K.) Inc.; Fidelity Management & Research (Far East) Inc.; Fidelity International Investment Advisors (U.K.) Limited; Fidelity Investments Japan Limited; FMR Co., Inc. FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS Franklin Advisory A NONDIVERSIFIED fund that seeks TRUST--FRANKLIN SMALL CAP VALUE SECURITIES FUND Services, LLC long-term total return. Income, while (formerly Franklin Value Securities Fund) (Advisory Services) not a goal, is a secondary (CLASS 2 SHARES) consideration. The fund will normally invest at least 80% of net assets in investments of small capitalization companies that have market capitalization values not exceeding $2.5 billion, at the time of purchase. JANUS ASPEN SERIES--AGGRESSIVE GROWTH PORTFOLIO Janus Capital A NONDIVERSIFIED Portfolio that seeks (INSTITUTIONAL SHARES) long- term growth of capital. Invests primarily in common stocks selected for their growth potential and normally invests at least 50% of its equity assets in medium-sized companies. Medium-sized companies are those whose market capitalization falls within the range of companies in the Standard and Poor's (S&P) MidCap 400 Index.
59
INVESTMENT ADVISER/ FUND NAME SUBADVISER INVESTMENT OBJECTIVE JANUS ASPEN SERIES--BALANCED PORTFOLIO Janus Capital Seeks long-term capital growth, (INSTITUTIONAL SHARES) consistent with preservation of capital and balanced by current income. Normally invests 40-60% of its assets in securities selected primarily for their growth potential and 40-60% of its assets in securities selected primarily for their income potential. Will normally invest at least 25% of its assets in fixed-income securities. JANUS ASPEN SERIES--FLEXIBLE INCOME PORTFOLIO Janus Capital Seeks to obtain maximum total return, (INSTITUTIONAL SHARES) consistent with preservation of capital. Invests primarily in a wide variety of income-producing securities such as corporate bonds and notes, government securities and preferred stock. Will invest at least 80% of its assets in income-producing securities. JANUS ASPEN SERIES--GROWTH PORTFOLIO Janus Capital Seeks long-term growth of capital in a (INSTITUTIONAL SHARES) manner consistent with the preservation of capital. Invests primarily in common stocks selected for their growth potential. Although it can invest in companies of any size, it generally invests in larger, more established companies. JANUS ASPEN SERIES--WORLDWIDE GROWTH PORTFOLIO Janus Capital Seeks long-term growth of capital in a (INSTITUTIONAL SHARES) manner consistent with the preservation of capital. Invests primarily in common stocks of companies of any size located throughout the world. Normally invests in issuers from at least five different countries, including the United States. May at times invest in fewer than five countries or even in a single country. LORD ABBETT SERIES FUND, INC.--GROWTH AND INCOME Lord, Abbett & Co. Seeks long-term growth of capital and PORTFOLIO (Lord Abbett) income without excessive fluctuations in (CLASS VC SHARES) market value. Primarily purchases equity securities of large, seasoned, U.S. and multinational companies which Lord Abbett believes are undervalued. May invest in equity securities such as common stocks, convertible bonds, convertible preferred stocks and warrants and similar instruments. Under normal circumstances, will invest at least 80% of net assets in equity securities of large companies with market capitalizations of at least $5 billion at the time of purchase. This market capitalization may vary in response to changes in the markets.
60
INVESTMENT ADVISER/ FUND NAME SUBADVISER INVESTMENT OBJECTIVE LORD ABBETT SERIES FUND, INC.--MID-CAP VALUE Lord, Abbett & Co. Seeks capital appreciation through PORTFOLIO (Lord Abbett) investments, primarily in equity (CLASS VC SHARES) securities, which are believed to be undervalued in the marketplace. Normally invests at least 80% of net assets, plus the amount of any borrowings for investment purposes, in equity securities of mid-sized companies, those with market capitalizations of roughly $500 million to $10 billion, at the time of purchase. This market capitalization range may vary in response to changes in the markets. OPPENHEIMER VARIABLE ACCOUNT FUNDS--OPPENHEIMER OppenheimerFunds, Inc. Seeks long-term capital appreciation by GLOBAL SECURITIES FUND/VA investing a substantial portion of assets in securities of foreign issuers, "growth-type" companies, cyclical industries and special situations that are considered to have appreciation possibilities. Invests mainly in common stocks and can also buy other equity securities, including preferred stocks and convertible securities in the U.S. and foreign countries. OPPENHEIMER VARIABLE ACCOUNT FUNDS--OPPENHEIMER OppenheimerFunds, Inc. Seeks a high level of current income STRATEGIC BOND FUND/VA principally derived from interest on debt securities. Invests mainly in debt securities of issuers in three market sectors: foreign governments and companies, U.S. Government securities, and lower-grade high-yield securities of U.S. and foreign companies. PIONEER VARIABLE CONTRACTS TRUST--PIONEER EQUITY Pioneer Investment Seeks current income and long-term INCOME VCT PORTFOLIO Management, Inc. growth of capital from a portfolio (CLASS I SHARES) (Pioneer) consisting primarily of income producing equity securities of U.S. corporations. Invests at least 80% of total assets in income producing equity securities. Income producing equity securities of U.S. issuers include common stocks, preferred stocks and interests in real estate investment trusts. Remainder of the portfolio may be invested in debt securities, most of which are expected to be convertible into common stocks. PIONEER VARIABLE CONTRACTS TRUST--PIONEER FUND VCT Pioneer Investment Seeks reasonable income and capital PORTFOLIO Management, Inc. growth. Invests in a broad list of (CLASS I SHARES) (Pioneer) carefully selected, reasonably priced securities rather than in securities whose prices reflect a premium resulting from their current market popularity. Invests the major portion of its assets in equity securities, primarily of U.S. issuers.
61
INVESTMENT ADVISER/ FUND NAME SUBADVISER INVESTMENT OBJECTIVE PIONEER VARIABLE CONTRACTS TRUST--PIONEER MID CAP Pioneer Investment Seeks capital appreciation by investing VALUE VCT PORTFOLIO Management, Inc. in a diversified portfolio of securities (CLASS I SHARES) (Pioneer) consisting primarily of common stocks. Normally, invests at least 80% of total assets in equity securities of mid-size companies, that is, companies with market values within the range of market values of companies included in Standard & Poor's MidCap 400 Index.
62 APPENDIX V CONDENSED FINANCIAL INFORMATION ------------------------------------------------------------------ TABLE OF CONTENTS TABLE I--FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT CHARGES OF 0.75%................................. 63 TABLE II--FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT CHARGES OF 0.80%......................... 67 TABLE III--FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT CHARGES OF 0.95%......................... 69 TABLE IV--FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT CHARGES OF 1.25%......................... 71 TABLE V--FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT CHARGES OF 1.50% INCLUDING A 0.25% ADMINISTRATIVE EXPENSE CHARGE BEGINNING APRIL 7, 1997.......................... 75 TABLE VI--FOR CONTRACTS CONTAINING LIMITS ON FEES............................................. 78
63 CONDENSED FINANCIAL INFORMATION ------------------------------------------------------------------ TABLE I FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT CHARGES OF 0.75% (SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR THE PERIOD ENDED DECEMBER 31, 2001 IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH HAVE BEEN AUDITED BY ERNST & YOUNG LLP, INDEPENDENT AUDITORS. THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR EACH OF THE PERIODS IN THE NINE-YEAR PERIOD ENDED DECEMBER 31, 2000 (AS APPLICABLE), IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH HAVE BEEN AUDITED BY OTHER AUDITORS. THE FINANCIAL STATEMENTS AND THE INDEPENDENT AUDITORS' REPORT THEREON FOR THE YEAR ENDED DECEMBER 31, 2001 ARE INCLUDED IN THE STATEMENT OF ADDITIONAL INFORMATION.
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- ING VP ASCENT PORTFOLIO Value at beginning of period $17.996 $18.253 $16.082 $15.535 $13.055 Value at end of period $15.799 $17.996 $18.253 $16.082 $15.535 Number of accumulation units outstanding at end of period 123,989 118,220 129,605 104,608 90,134 ING VP BALANCED PORTFOLIO, INC. Value at beginning of period $24.755 $25.081 $22.244 $19.166 $15.765 Value at end of period $23.535 $24.755 $25.081 $22.244 $19.166 Number of accumulation units outstanding at end of period 1,282,885 1,315,034 1,579,288 1,798,425 1,970,116 ING VP BOND PORTFOLIO Value at beginning of period $15.519 $14.260 $14.475 $13.486 $12.546 Value at end of period $16.749 $15.519 $14.260 $14.475 $13.486 Number of accumulation units outstanding at end of period 1,582,543 1,459,552 1,654,932 2,012,308 1,921,538 ING VP CROSSROADS PORTFOLIO Value at beginning of period $16.694 $16.750 $15.312 $14.566 $12.483 Value at end of period $15.410 $16.694 $16.750 $15.312 $14.566 Number of accumulation units outstanding at end of period 120,719 125,910 124,069 119,246 100,256 ING VP GROWTH PORTFOLIO Value at beginning of period $21.151 $24.203 $18.067 $13.239(1) Value at end of period $15.311 $21.151 $24.203 $18.067 Number of accumulation units outstanding at end of period 662,293 791,027 626,397 428,697 ING VP GROWTH AND INCOME PORTFOLIO Value at beginning of period $26.020 $29.444 $25.265 $22.233 $17.246 Value at end of period $21.072 $26.020 $29.444 $25.265 $22.233 Number of accumulation units outstanding at end of period 8,597,331 10,227,817 11,813,416 12,975,484 14,879,862 ING VP INDEX PLUS LARGECAP PORTFOLIO Value at beginning of period $21.065 $23.427 $18.989 $14.538 $10.940 Value at end of period $18.059 $21.065 $23.427 $18.989 $14.538 Number of accumulation units outstanding at end of period 1,191,685 1,133,418 1,552,902 1,060,363 485,417 ING VP INDEX PLUS MIDCAP PORTFOLIO Value at beginning of period $14.951 $12.561 $10.928 $9.950(2) Value at end of period $14.642 $14.951 $12.561 $10.928 Number of accumulation units outstanding at end of period 512,594 357,969 60,811 16,207 ING VP INDEX PLUS SMALLCAP PORTFOLIO Value at beginning of period $10.602 $9.727 $8.846 $9.407(3) Value at end of period $10.776 $10.602 $9.727 $8.846 Number of accumulation units outstanding at end of period 169,151 74,216 76,971 53,460 ING VP INTERNATIONAL EQUITY PORTFOLIO Value at beginning of period $11.639 $14.718 $9.798 $10.288(3) Value at end of period $8.793 $11.639 $14.718 $9.798 Number of accumulation units outstanding at end of period 80,011 84,649 44,538 29,000 ING VP LEGACY PORTFOLIO Value at beginning of period $15.775 $15.164 $14.266 $13.441 $11.826 Value at end of period $15.285 $15.775 $15.164 $14.266 $13.441 Number of accumulation units outstanding at end of period 51,743 59,794 77,496 120,312 54,849 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- ING VP ASCENT PORTFOLIO Value at beginning of period $10.652 $10.000(1) Value at end of period $13.055 $10.652 Number of accumulation units outstanding at end of period 35,959 16,791 ING VP BALANCED PORTFOLIO, INC. Value at beginning of period $13.803 $10.971 $11.164 $10.286 $12.717(1) Value at end of period $15.765 $13.803 $10.971 $11.164 $10.286 Number of accumulation units outstanding at end of period 2,141,189 6,430,772 3,541,703 318,711 6,537 ING VP BOND PORTFOLIO Value at beginning of period $12.212 $10.457 $11.006 $10.160 $37.815(2) Value at end of period $12.546 $12.212 $10.457 $11.006 $10.160 Number of accumulation units outstanding at end of period 2,206,334 4,853,662 1,988,960 166,913 4,196 ING VP CROSSROADS PORTFOLIO Value at beginning of period $10.594 $10.000(1) Value at end of period $12.483 $10.594 Number of accumulation units outstanding at end of period 26,260 16,953 ING VP GROWTH PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP GROWTH AND INCOME PORTFOLIO Value at beginning of period $13.972 $10.698 $10.940 $10.378 $84.249(3) Value at end of period $17.246 $13.972 $10.698 $10.940 $10.378 Number of accumulation units outstanding at end of period 14,930,380 30,554,957 11,117,383 879,670 3,107 ING VP INDEX PLUS LARGECAP PORTFOLIO Value at beginning of period $10.000(1) Value at end of period $10.940 Number of accumulation units outstanding at end of period 72,973 ING VP INDEX PLUS MIDCAP PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP INDEX PLUS SMALLCAP PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP INTERNATIONAL EQUITY PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP LEGACY PORTFOLIO Value at beginning of period $10.443 $10.000(2) Value at end of period $11.826 $10.443 Number of accumulation units outstanding at end of period 7,510 2,222
64 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- ING VP MONEY MARKET PORTFOLIO Value at beginning of period $13.879 $13.145 $12.604 $12.041 $11.502 Value at end of period $14.318 $13.879 $13.145 $12.604 $12.041 Number of accumulation units outstanding at end of period 2,482,499 2,718,810 2,521,960 2,102,275 2,066,545 ING VP SMALL COMPANY PORTFOLIO Value at beginning of period $18.917 $17.859 $13.751 $13.704 $13.211(1) Value at end of period $19.526 $18.917 $17.859 $13.751 $13.704 Number of accumulation units outstanding at end of period 356,106 282,407 177,817 90,092 2,408 ING VP TECHNOLOGY PORTFOLIO Value at beginning of period $5.850 $9.999(1) Value at end of period $4.473 $5.850 Number of accumulation units outstanding at end of period 549,436 319,735 ING VP VALUE OPPORTUNITY PORTFOLIO Value at beginning of period $20.989 $19.190 $16.169 $12.632(1) Value at end of period $18.828 $20.989 $19.190 $16.169 Number of accumulation units outstanding at end of period 283,291 121,019 93,802 91,722 AIM V.I. CAPITAL APPRECIATION FUND Value at beginning of period $12.204 $13.801 $9.979(1) Value at end of period $9.292 $12.204 $13.801 Number of accumulation units outstanding at end of period 119,757 134,675 11,915 AIM V.I. GROWTH FUND Value at beginning of period $9.558 $12.111 $9.722(1) Value at end of period $6.272 $9.558 $12.111 Number of accumulation units outstanding at end of period 144,931 167,340 47,999 AIM V.I. CORE EQUITY FUND Value at beginning of period $9.970 $11.756 $10.215(2) Value at end of period $7.636 $9.970 $11.756 Number of accumulation units outstanding at end of period 108,312 148,348 36,163 AIM V.I. PREMIER EQUITY FUND Value at beginning of period $9.781 $11.546 $9.764(3) Value at end of period $8.488 $9.781 $11.546 Number of accumulation units outstanding at end of period 200,922 129,960 83,637 CALVERT SOCIAL BALANCED PORTFOLIO Value at beginning of period $22.178 $23.066 $20.708 $17.944 $15.056 Value at end of period $20.484 $22.178 $23.066 $20.708 $17.944 Number of accumulation units outstanding at end of period 15,423 32,222 37,046 35,544 31,512 FIDELITY-REGISTERED TRADEMARK- VIP EQUITY-INCOME PORTFOLIO Value at beginning of period $20.045 $18.627 $17.650 $15.930 $12.529 Value at end of period $18.908 $20.045 $18.627 $17.650 $15.930 Number of accumulation units outstanding at end of period 619,584 417,042 519,885 630,682 744,774 FIDELITY-REGISTERED TRADEMARK- VIP GROWTH PORTFOLIO Value at beginning of period $23.418 $26.504 $19.430 $14.034 $11.451 Value at end of period $19.140 $23.418 $26.504 $19.430 $14.034 Number of accumulation units outstanding at end of period 978,004 1,030,486 874,557 595,859 444,057 FIDELITY-REGISTERED TRADEMARK- VIP OVERSEAS PORTFOLIO Value at beginning of period $15.894 $19.796 $13.984 $12.496 $11.286 Value at end of period $12.436 $15.894 $19.796 $13.984 $12.496 Number of accumulation units outstanding at end of period 193,611 193,260 182,517 141,714 102,509 FIDELITY-REGISTERED TRADEMARK- VIP CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO Value at beginning of period $22.881 $24.687 $20.018 $15.517 $12.593 Value at end of period $19.928 $22.881 $24.687 $20.018 $15.517 Number of accumulation units outstanding at end of period 719,837 642,878 732,243 779,942 710,711 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- ING VP MONEY MARKET PORTFOLIO Value at beginning of period $11.007 $10.509 $10.223 $10.031 $34.122(4) Value at end of period $11.502 $11.007 $10.509 $10.223 $10.031 Number of accumulation units outstanding at end of period 2,421,519 4,354,272 1,822,449 90,782 2,808 ING VP SMALL COMPANY PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP TECHNOLOGY PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP VALUE OPPORTUNITY PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period AIM V.I. CAPITAL APPRECIATION FUND Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period AIM V.I. GROWTH FUND Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period AIM V.I. CORE EQUITY FUND Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period AIM V.I. PREMIER EQUITY FUND Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period CALVERT SOCIAL BALANCED PORTFOLIO Value at beginning of period $13.480 $10.518 $11.010 $10.296 $10.000(5) Value at end of period $15.056 $13.480 $10.518 $11.010 $10.296 Number of accumulation units outstanding at end of period 33,352 25,730 752 1,383 82 FIDELITY-REGISTERED TRADEMARK- VIP EQUITY-INCOME PORTFOLIO Value at beginning of period $11.054 $10.000(1) Value at end of period $12.529 $11.054 Number of accumulation units outstanding at end of period 544,657 294,244 FIDELITY-REGISTERED TRADEMARK- VIP GROWTH PORTFOLIO Value at beginning of period $10.066 $10.000(1) Value at end of period $11.451 $10.066 Number of accumulation units outstanding at end of period 379,385 288,576 FIDELITY-REGISTERED TRADEMARK- VIP OVERSEAS PORTFOLIO Value at beginning of period $10.052 $10.000(1) Value at end of period $11.286 $10.052 Number of accumulation units outstanding at end of period 70,271 33,813 FIDELITY-REGISTERED TRADEMARK- VIP CONTRAFUND-REGISTERED TRADEMAR PORTFOLIO Value at beginning of period $10.468 $10.000(1) Value at end of period $12.593 $10.468 Number of accumulation units outstanding at end of period 569,561 379,862
65 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $31.380 $46.370 $20.726 $15.554 $13.909 Value at end of period $18.857 $31.380 $46.370 $20.726 $15.554 Number of accumulation units outstanding at end of period 1,131,518 1,382,322 1,056,343 459,710 427,692 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $24.619 $25.370 $20.165 $15.130 $12.484 Value at end of period $23.285 $24.619 $25.370 $20.165 $15.130 Number of accumulation units outstanding at end of period 787,162 688,649 545,606 241,070 152,646 JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $16.731 $15.864 $15.731 $14.527 $13.096 Value at end of period $17.891 $16.731 $15.864 $15.731 $14.527 Number of accumulation units outstanding at end of period 323,208 237,152 190,660 199,467 97,715 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $25.390 $29.936 $20.948 $15.558 $12.770 Value at end of period $18.966 $25.390 $29.936 $20.948 $15.558 Number of accumulation units outstanding at end of period 710,104 757,793 668,409 244,107 197,548 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $29.545 $35.298 $21.626 $16.901 $13.940 Value at end of period $22.744 $29.545 $35.298 $21.626 $16.901 Number of accumulation units outstanding at end of period 1,445,274 1,691,751 1,601,735 1,346,457 1,273,110 OPPENHEIMER GLOBAL SECURITIES FUND / VA Value at beginning of period $16.495 $15.814 $10.053 $10.004(2) Value at end of period $14.400 $16.495 $15.814 $10.053 Number of accumulation units outstanding at end of period 242,920 177,896 38,363 9,360 OPPENHEIMER STRATEGIC BOND FUND / VA Value at beginning of period $10.323 $10.133 $9.929 $10.098(2) Value at end of period $10.742 $10.323 $10.133 $9.929 Number of accumulation units outstanding at end of period 17,304 13,676 3,553 625 ING VP NATURAL RESOURCES TRUST Value at beginning of period $14.886 $12.670 $11.189 $14.025 $13.188 Value at end of period $12.420 $14.886 $12.670 $11.189 $14.025 Number of accumulation units outstanding at end of period 40,152 43,624 65,370 92,175 106,926 ING MFS CAPITAL OPPORTUNITIES PORTFOLIO Value at beginning of period $37.448 $40.017 $27.097 $21.541 $21.225(1) Value at end of period $27.966 $37.448 $40.017 $27.097 $21.541 Number of accumulation units outstanding at end of period 212,226 260,806 202,966 167,065 164,474 ING MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period $20.927 $29.605 $19.769 $15.361 $15.547(1) Value at end of period $15.534 $20.927 $29.605 $19.769 $15.361 Number of accumulation units outstanding at end of period 443,965 478,944 457,665 562,097 598,078 ING MFS RESEARCH PORTFOLIO Value at beginning of period $18.328 $19.332 $15.703 $12.863 $13.110(1) Value at end of period $14.392 $18.328 $19.332 $15.703 $12.863 Number of accumulation units outstanding at end of period 270,714 292,094 331,760 428,785 462,383 ING SCUDDER INTERNATIONAL GROWTH PORTFOLIO Value at beginning of period $26.801 $33.582 $21.359 $18.070 $17.838(1) Value at end of period $19.437 $26.801 $33.582 $21.359 $18.070 Number of accumulation units outstanding at end of period 242,232 266,458 331,362 257,953 280,633 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $12.992 $10.319 $10.000(1) Value at end of period $13.909 $12.992 $10.319 Number of accumulation units outstanding at end of period 433,363 723,839 131,702 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $10.835 $10.000(1) Value at end of period $12.484 $10.835 Number of accumulation units outstanding at end of period 111,525 7,772 JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $12.094 $9.886 $10.000(1) Value at end of period $13.096 $12.094 $9.886 Number of accumulation units outstanding at end of period 73,340 84,048 15,893 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $10.870 $10.000(1) Value at end of period $12.770 $10.870 Number of accumulation units outstanding at end of period 144,443 26,022 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $10.893 $10.000(1) Value at end of period $13.940 $10.893 Number of accumulation units outstanding at end of period 803,488 227,582 OPPENHEIMER GLOBAL SECURITIES FUND / VA Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period OPPENHEIMER STRATEGIC BOND FUND / VA Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP NATURAL RESOURCES TRUST Value at beginning of period $10.479 $9.079 $9.716 $10.000(1) Value at end of period $13.188 $10.479 $9.079 $9.716 Number of accumulation units outstanding at end of period 73,699 162,462 141,076 27,908 ING MFS CAPITAL OPPORTUNITIES PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING MFS RESEARCH PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING SCUDDER INTERNATIONAL GROWTH PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period
66 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- ING T. ROWE PRICE GROWTH EQUITY PORTFOLIO Value at beginning of period $22.174 $22.348 $18.407 $14.534 $14.237(1) Value at end of period $19.759 $22.174 $22.348 $18.407 $14.534 Number of accumulation units outstanding at end of period 246,671 271,254 314,992 335,510 360,615 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- ING T. ROWE PRICE GROWTH EQUITY PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period
---------------------------------- FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 2000: (1) Funds were first received in this option during May 2000. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1999: (1) Funds were first received in this option during August 1999. (2) Funds were first received in this option during July 1999. (3) Funds were first received in this option during May 1999. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1998: (1) Funds were first received in this option during January 1998. (2) Funds were first received in this option during July 1998. (3) Funds were first received in this option during June 1998. FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 1997: (1) Funds were first received in this option during November 1997. FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 1996: (1) The initial accumulation unit value was established at $10.000 during September 1996 when the portfolio became available under the contract. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1995: (1) The initial accumulation unit value was established at $10.000 during August 1995, when the fund became available under the contract. (2) The initial accumulation unit value was established at $10.000 during September 1995, when the fund became available under the contract. FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 1994: (1) The initial accumulation unit value was established at $10.000 during October 1994, when the funds were first received in this option. FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 1993: (1) The initial accumulation unit value was established at $10.000 on May 26, 1993, the date on which the fund became available under the contract. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1992: (1) The accumulation unit value was converted to $10.000 on November 2, 1992 upon the commencement of a new administrative system. Immediately prior to that date, the accumulation unit value of the fund was $12.991. On the date of conversion, additional units were issued so that account values were not changed as a result of the conversion. (2) The accumulation unit value was converted to $10.000 on November 2, 1992 upon the commencement of a new administrative system. Immediately prior to that date, the accumulation unit value of the fund was $39.496. On the date of conversion, additional units were issued so that account values were not changed as a result of the conversion. (3) The accumulation unit value was converted to $10.000 on November 2, 1992 upon the commencement of a new administrative system. Immediately prior to that date, the accumulation unit value of the fund was $85.546. On the date of conversion, additional units were issued so that account values were not changed as a result of the conversion. (4) The accumulation unit value was converted to $10.000 on November 2, 1992 upon the commencement of a new administrative system. Immediately prior to that date, the accumulation unit value of the fund was $34.828. On the date of conversion, additional units were issued so that account values were not changed as a result of the conversion. (5) The initial accumulation unit value was established at $10.000 on November 2, 1992, the date on which the fund/portfolio became available under the contract. 67 CONDENSED FINANCIAL INFORMATION ------------------------------------------------------------------ TABLE II FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT CHARGES OF 0.80% (SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR THE PERIOD ENDED DECEMBER 31, 2001 IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH HAVE BEEN AUDITED BY ERNST & YOUNG LLP, INDEPENDENT AUDITORS. THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR EACH OF THE PERIODS IN THE TWO-YEAR PERIOD ENDED DECEMBER 31, 2000 (AS APPLICABLE), IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH HAVE BEEN AUDITED BY OTHER AUDITORS. THE FINANCIAL STATEMENTS AND THE INDEPENDENT AUDITORS' REPORT THEREON FOR THE YEAR ENDED DECEMBER 31, 2001 ARE INCLUDED IN THE STATEMENT OF ADDITIONAL INFORMATION.
2001 2000 1999 ---- ---- ---- ING VP BALANCED PORTFOLIO, INC. Value at beginning of period $11.741 $11.902 $10.548(1) Value at end of period $11.157 $11.741 $11.902 Number of accumulation units outstanding at end of period 5,808 8,875 7,910 ING VP BOND PORTFOLIO Value at beginning of period $11.121 $10.970(1) Value at end of period $11.996 $11.121 Number of accumulation units outstanding at end of period 809 8 ING VP GROWTH PORTFOLIO Value at beginning of period $13.184 $15.094 $11.536(1) Value at end of period $9.539 $13.184 $15.094 Number of accumulation units outstanding at end of period 8,282 6,155 4,940 ING VP GROWTH AND INCOME PORTFOLIO Value at beginning of period $10.495 $11.882 $10.246(1) Value at end of period $8.495 $10.495 $11.882 Number of accumulation units outstanding at end of period 35,672 34,376 25,734 ING VP INDEX PLUS LARGECAP PORTFOLIO Value at beginning of period $12.292 $13.677 $11.411(1) Value at end of period $10.532 $12.292 $13.677 Number of accumulation units outstanding at end of period 16,047 21,613 18,623 ING VP INDEX PLUS MIDCAP PORTFOLIO Value at beginning of period $15.591 $15.024(1) Value at end of period $15.261 $15.591 Number of accumulation units outstanding at end of period 4,872 2,190 ING VP INDEX PLUS SMALLCAP PORTFOLIO Value at beginning of period $11.423 $10.485 $8.325(1) Value at end of period $11.604 $11.423 $10.485 Number of accumulation units outstanding at end of period 10 10 10 ING VP LEGACY PORTFOLIO Value at beginning of period $11.139 $10.713 $9.846(1) Value at end of period $10.788 $11.139 $10.713 Number of accumulation units outstanding at end of period 525 832 3,827 ING VP MONEY MARKET PORTFOLIO Value at beginning of period $11.260 $11.066(2) Value at end of period $11.610 $11.260 Number of accumulation units outstanding at end of period 8,973 46 ING VP SMALL COMPANY PORTFOLIO Value at beginning of period $13.077 $12.352 $8.741(1) Value at end of period $13.491 $13.077 $12.352 Number of accumulation units outstanding at end of period 31,307 35,990 25,984 ING VP TECHNOLOGY PORTFOLIO Value at beginning of period $5.848 $7.729(3) Value at end of period $4.469 $5.848 Number of accumulation units outstanding at end of period 3,508 3,062 ING VP VALUE OPPORTUNITY PORTFOLIO Value at beginning of period $14.220 $13.007 $10.626(1) Value at end of period $12.749 $14.220 $13.007 Number of accumulation units outstanding at end of period 23,907 14,497 11,412 AIM V.I. GROWTH FUND Value at beginning of period $9.550 $12.772(4) Value at end of period $6.263 $9.550 Number of accumulation units outstanding at end of period 2,465 2,234 AIM V.I. CORE EQUITY FUND Value at beginning of period $9.962 $10.973(1) Value at end of period $7.626 $9.962 Number of accumulation units outstanding at end of period 207 56 AIM V.I. PREMIER EQUITY FUND Value at beginning of period $9.773 $10.772(5) Value at end of period $8.477 $9.773 Number of accumulation units outstanding at end of period 1,681 1,829
68 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------
2001 2000 1999 ---- ---- ---- FIDELITY-REGISTERED TRADEMARK- VIP EQUITY-INCOME PORTFOLIO Value at beginning of period $11.457 $10.651 $10.184(1) Value at end of period $10.802 $11.457 $10.651 Number of accumulation units outstanding at end of period 1,968 1,315 654 FIDELITY-REGISTERED TRADEMARK- VIP GROWTH PORTFOLIO Value at beginning of period $14.152 $16.024 $12.390(1) Value at end of period $11.560 $14.152 $16.024 Number of accumulation units outstanding at end of period 8,593 6,686 4,299 FIDELITY-REGISTERED TRADEMARK- VIP OVERSEAS PORTFOLIO Value at beginning of period $11.081 $10.700(1) Value at end of period $8.665 $11.081 Number of accumulation units outstanding at end of period 61 42 FIDELITY-REGISTERED TRADEMARK- VIP CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO Value at beginning of period $12.772 $13.787 $11.460(1) Value at end of period $11.118 $12.772 $13.787 Number of accumulation units outstanding at end of period 9,644 7,548 5,461 JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $17.646 $26.089 $12.588(1) Value at end of period $10.599 $17.646 $26.089 Number of accumulation units outstanding at end of period 26,238 16,278 11,071 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $14.043 $14.479 $12.137(1) Value at end of period $13.276 $14.043 $14.479 Number of accumulation units outstanding at end of period 13,630 2,450 436 JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $10.967 $10.404 $10.355(1) Value at end of period $11.721 $10.967 $10.404 Number of accumulation units outstanding at end of period 1,721 1,409 978 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $13.829 $16.313 $12.040(1) Value at end of period $10.325 $13.829 $16.313 Number of accumulation units outstanding at end of period 23,971 13,511 4,195 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $13.899 $16.613 $10.532(1) Value at end of period $10.694 $13.899 $16.613 Number of accumulation units outstanding at end of period 30,407 26,789 17,701 OPPENHEIMER GLOBAL SECURITIES FUND/VA Value at beginning of period $16.571 $16.352(6) Value at end of period $14.460 $16.571 Number of accumulation units outstanding at end of period 5,322 151 ING MFS CAPITAL OPPORTUNITIES PORTFOLIO Value at beginning of period $14.714 $15.732 $10.883(1) Value at end of period $10.983 $14.714 $15.732 Number of accumulation units outstanding at end of period 2,679 718 188 ING MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period $11.453 $16.210 $10.087(1) Value at end of period $8.497 $11.453 $16.210 Number of accumulation units outstanding at end of period 1,964 8,940 12,648 ING SCUDDER INTERNATIONAL GROWTH PORTFOLIO Value at beginning of period $12.397 $15.541 $10.107(1) Value at end of period $9.832 $12.397 $15.541 Number of accumulation units outstanding at end of period 0 321 230 ING T. ROWE PRICE GROWTH EQUITY PORTFOLIO Value at beginning of period $13.138 $13.248 $10.925(1) Value at end of period $11.702 $13.138 $13.248 Number of accumulation units outstanding at end of period 1,873 1,705 1,256
---------------------------------- FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 2000: (1) Funds were first received in this option during November 2000. (2) Funds were first received in this option during August 2000. (3) Funds were first received in this option during September 2000. (4) Funds were first received in this option during March 2000. (5) Funds were first received in this option during January 2000. (6) Funds were first received in this option during October 2000. FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 1999: (1) Funds were first received in this option during March 1999. 69 CONDENSED FINANCIAL INFORMATION ------------------------------------------------------------------ TABLE III FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT CHARGES OF 0.95% (SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR THE PERIOD ENDED DECEMBER 31, 2001 IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH HAVE BEEN AUDITED BY ERNST & YOUNG LLP, INDEPENDENT AUDITORS. THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR EACH OF THE PERIODS IN THE TWO-YEAR PERIOD ENDED DECEMBER 31, 2000 (AS APPLICABLE), IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH HAVE BEEN AUDITED BY OTHER AUDITORS. THE FINANCIAL STATEMENTS AND THE INDEPENDENT AUDITORS' REPORT THEREON FOR THE YEAR ENDED DECEMBER 31, 2001 ARE INCLUDED IN THE STATEMENT OF ADDITIONAL INFORMATION.
2001 2000 1999 ---- ---- ---- ING VP BALANCED PORTFOLIO, INC. Value at beginning of period $29.875(1) Value at end of period $30.012 Number of accumulation units outstanding at end of period 32 ING VP CROSSROADS PORTFOLIO Value at beginning of period $16.387 $16.474 $15.521(1) Value at end of period $15.133 $16.387 $16.474 Number of accumulation units outstanding at end of period 2,469 2,097 1,778 ING VP GROWTH PORTFOLIO Value at beginning of period $18.142 $15.198(1) Value at end of period $19.263 $18.142 Number of accumulation units outstanding at end of period 0 2,736 ING VP GROWTH AND INCOME PORTFOLIO Value at beginning of period $251.601 $285.280 $263.583(1) Value at end of period $203.849 $251.601 $285.280 Number of accumulation units outstanding at end of period 252 240 347 ING VP INDEX PLUS LARGECAP PORTFOLIO Value at beginning of period $20.701 $22.657(1) Value at end of period $17.754 $20.701 Number of accumulation units outstanding at end of period 244 101 ING VP INDEX PLUS MIDCAP PORTFOLIO Value at beginning of period $13.477(2) Value at end of period $15.107 Number of accumulation units outstanding at end of period 66 ING VP MONEY MARKET PORTFOLIO Value at beginning of period $47.809(3) Value at end of period $48.445 Number of accumulation units outstanding at end of period 216 ING VP SMALL COMPANY PORTFOLIO Value at beginning of period $14.029(3) Value at end of period $14.099 Number of accumulation units outstanding at end of period 2,044 ING VP VALUE OPPORTUNITY PORTFOLIO Value at beginning of period $14.079(1) Value at end of period $13.998 Number of accumulation units outstanding at end of period 68 AIM V.I. CAPITAL APPRECIATION FUND Value at beginning of period $12.316 $14.871(2) Value at end of period $9.382 $12.316 Number of accumulation units outstanding at end of period 581 166 AIM V.I. PREMIER EQUITY FUND Value at beginning of period $9.981 $10.090(3) Value at end of period $8.666 $9.981 Number of accumulation units outstanding at end of period 423 380 FIDELITY-REGISTERED TRADEMARK- VIP GROWTH PORTFOLIO Value at beginning of period $23.250 $26.366 $22.058(1) Value at end of period $19.011 $23.250 $26.366 Number of accumulation units outstanding at end of period 338 246 152 FIDELITY-REGISTERED TRADEMARK- VIP CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO Value at beginning of period $25.197 $27.241 $23.549(1) Value at end of period $21.956 $25.197 $27.241 Number of accumulation units outstanding at end of period 4,992 4,544 4,166 JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $36.266 $53.698 $32.641(1) Value at end of period $21.803 $36.266 $53.698 Number of accumulation units outstanding at end of period 2,367 4,041 2,972 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $24.167 $24.954 $21.430(1) Value at end of period $22.867 $24.167 $24.954 Number of accumulation units outstanding at end of period 42 3,057 3,842
70 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------
2001 2000 1999 ---- ---- ---- JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $17.723(1) Value at end of period $17.584 Number of accumulation units outstanding at end of period 54 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $27.143 $32.068 $25.578(1) Value at end of period $20.285 $27.143 $32.068 Number of accumulation units outstanding at end of period 617 616 597 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $32.317 $38.687 $26.861(1) Value at end of period $24.889 $32.317 $38.687 Number of accumulation units outstanding at end of period 2,238 2,080 1,791 ING MFS CAPITAL OPPORTUNITIES PORTFOLIO Value at beginning of period $40.304 $43.155 $33.592(1) Value at end of period $30.112 $40.304 $43.155 Number of accumulation units outstanding at end of period 375 1,516 1,516 ING MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period $20.274 $28.739 $21.207(1) Value at end of period $15.056 $20.274 $28.739 Number of accumulation units outstanding at end of period 380 380 547 ING T. ROWE PRICE GROWTH EQUITY PORTFOLIO Value at beginning of period $25.061 $25.309 $21.843(1) Value at end of period $22.342 $25.061 $25.309 Number of accumulation units outstanding at end of period 1,013 1,629 1,557
---------------------------------- FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 2001: (1) Funds were first received in this option during November 2001. (2) Funds were first received in this option during October 2001. (3) Funds were first received in this option during July 2001. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 2000: (1) Funds were first received in this option during March 2000. (2) Funds were first received in this option during June 2000. (3) Funds were first received in this option during October 2000. FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 1999: (1) Funds were first received in this option during September 1999. 71 CONDENSED FINANCIAL INFORMATION ------------------------------------------------------------------ TABLE IV FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT CHARGES OF 1.25% (SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR THE PERIOD ENDED DECEMBER 31, 2001 IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH HAVE BEEN AUDITED BY ERNST & YOUNG LLP, INDEPENDENT AUDITORS. THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR EACH OF THE PERIODS IN THE NINE-YEAR PERIOD ENDED DECEMBER 31, 2000 (AS APPLICABLE), IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH HAVE BEEN AUDITED BY OTHER AUDITORS. THE FINANCIAL STATEMENTS AND THE INDEPENDENT AUDITORS' REPORT THEREON FOR THE YEAR ENDED DECEMBER 31, 2001 ARE INCLUDED IN THE STATEMENT OF ADDITIONAL INFORMATION.
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- ING VP ASCENT PORTFOLIO Value at beginning of period $17.566 $17.905 $15.855 $15.392 $12.999 Value at end of period $15.344 $17.566 $17.905 $15.855 $15.392 Number of accumulation units outstanding at end of period 76,069 79,352 96,551 274,115 317,579 ING VP BALANCED PORTFOLIO, INC. Value at beginning of period $24.163 $24.603 $21.929 $18.989 $15.698 Value at end of period $22.856 $24.163 $24.603 $21.929 $18.989 Number of accumulation units outstanding at end of period 1,725,814 2,014,690 2,278,136 2,929,720 3,174,738 ING VP BOND PORTFOLIO Value at beginning of period $15.147 $13.988 $14.270 $13.361 $12.493 Value at end of period $16.266 $15.147 $13.988 $14.270 $13.361 Number of accumulation units outstanding at end of period 862,575 722,494 887,371 1,129,589 1,168,988 ING VP CROSSROADS PORTFOLIO Value at beginning of period $16.295 $16.431 $15.095 $14.432 $12.430 Value at end of period $14.966 $16.295 $16.431 $15.095 $14.432 Number of accumulation units outstanding at end of period 99,986 99,845 115,324 218,649 175,559 ING VP GROWTH PORTFOLIO Value at beginning of period $20.761 $23.875 $17.912 $13.173 $14.437(1) Value at end of period $14.953 $20.761 $23.875 $17.912 $13.173 Number of accumulation units outstanding at end of period 114,785 133,052 172,425 140,522 2,695 ING VP GROWTH AND INCOME PORTFOLIO Value at beginning of period $25.397 $28.883 $24.907 $22.028 $17.173 Value at end of period $20.465 $25.397 $28.883 $24.907 $22.028 Number of accumulation units outstanding at end of period 5,447,988 6,188,910 7,212,849 9,491,619 10,689,845 ING VP INDEX PLUS LARGECAP PORTFOLIO Value at beginning of period $20.618 $23.044 $18.772 $14.444 $10.924 Value at end of period $17.587 $20.618 $23.044 $18.772 $14.444 Number of accumulation units outstanding at end of period 331,962 331,181 347,854 527,155 266,429 ING VP INDEX PLUS MIDCAP PORTFOLIO Value at beginning of period $14.751 $12.455 $10.891 $10.107(1) Value at end of period $14.374 $14.751 $12.455 $10.891 Number of accumulation units outstanding at end of period 107,714 90,357 6,907 17,011 ING VP INDEX PLUS SMALLCAP PORTFOLIO Value at beginning of period $10.461 $9.645 $8.815 $9.996(1) Value at end of period $10.579 $10.461 $9.645 $8.815 Number of accumulation units outstanding at end of period 51,505 28,764 15,816 55,564 ING VP INTERNATIONAL EQUITY PORTFOLIO Value at beginning of period $11.484 $14.594 $9.765 $10.149(1) Value at end of period $8.632 $11.484 $14.594 $9.765 Number of accumulation units outstanding at end of period 16,486 19,208 10,655 35,872 ING VP LEGACY PORTFOLIO Value at beginning of period $15.397 $14.875 $14.064 $13.317 $11.776 Value at end of period $14.844 $15.397 $14.875 $14.064 $13.317 Number of accumulation units outstanding at end of period 82,972 99,655 111,343 197,742 133,741 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- ING VP ASCENT PORTFOLIO Value at beginning of period $10.652 $10.000(1) Value at end of period $12.999 $10.652 Number of accumulation units outstanding at end of period 99,589 16,791 ING VP BALANCED PORTFOLIO, INC. Value at beginning of period $13.803 $10.971 $11.164 $10.286 $12.717(1) Value at end of period $15.698 $13.803 $10.971 $11.164 $10.286 Number of accumulation units outstanding at end of period 3,885,730 6,430,772 3,541,703 318,711 6,537 ING VP BOND PORTFOLIO Value at beginning of period $12.212 $10.457 $11.006 $10.160 $37.815(2) Value at end of period $12.493 $12.212 $10.457 $11.006 $10.160 Number of accumulation units outstanding at end of period 1,947,629 4,853,662 1,988,960 166,913 4,196 ING VP CROSSROADS PORTFOLIO Value at beginning of period $10.594 $10.000(1) Value at end of period $12.430 $10.594 Number of accumulation units outstanding at end of period 74,128 16,953 ING VP GROWTH PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP GROWTH AND INCOME PORTFOLIO Value at beginning of period $13.972 $10.698 $10.940 $10.378 $84.249(3) Value at end of period $17.173 $13.972 $10.698 $10.940 $10.378 Number of accumulation units outstanding at end of period 15,372,944 30,554,957 11,117,383 879,670 3,107 ING VP INDEX PLUS LARGECAP PORTFOLIO Value at beginning of period $10.000(1) Value at end of period $10.924 Number of accumulation units outstanding at end of period 89,498 ING VP INDEX PLUS MIDCAP PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP INDEX PLUS SMALLCAP PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP INTERNATIONAL EQUITY PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP LEGACY PORTFOLIO Value at beginning of period $10.443 $10.000(1) Value at end of period $11.776 $10.443 Number of accumulation units outstanding at end of period 25,977 2,222
72 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- ING VP MONEY MARKET PORTFOLIO Value at beginning of period $13.547 $12.894 $12.425 $11.930 $11.453 Value at end of period $13.905 $13.547 $12.894 $12.425 $11.930 Number of accumulation units outstanding at end of period 1,134,800 894,024 1,034,154 1,146,661 974,714 ING VP SMALL COMPANY PORTFOLIO Value at beginning of period $18.568 $17.617 $13.633 $13.654 $13.503(1) Value at end of period $19.070 $18.568 $17.617 $13.633 $13.654 Number of accumulation units outstanding at end of period 51,364 64,122 19,165 91,992 17,392 ING VP TECHNOLOGY PORTFOLIO Value at beginning of period $5.831 $9.558(1) Value at end of period $4.436 $5.831 Number of accumulation units outstanding at end of period 172,469 127,430 ING VP VALUE OPPORTUNITY PORTFOLIO Value at beginning of period $20.602 $18.930 $16.030 $13.261 $12.904(1) Value at end of period $18.388 $20.602 $18.930 $16.030 $13.261 Number of accumulation units outstanding at end of period 68,336 27,040 23,354 60,870 6,194 AIM V.I. CAPITAL APPRECIATION FUND Value at beginning of period $12.101 $13.753 $10.008(1) Value at end of period $9.168 $12.101 $13.753 Number of accumulation units outstanding at end of period 21,607 16,498 2,630 AIM V.I. GROWTH FUND Value at beginning of period $9.477 $12.069 $9.663(1) Value at end of period $6.188 $9.477 $12.069 Number of accumulation units outstanding at end of period 22,530 15,454 1,843 AIM V.I. CORE EQUITY FUND Value at beginning of period $9.887 $11.716 $9.568(1) Value at end of period $7.534 $9.887 $11.716 Number of accumulation units outstanding at end of period 40,659 55,310 10,587 AIM V.I. PREMIER EQUITY FUND Value at beginning of period $9.699 $11.506 $9.891(2) Value at end of period $8.375 $9.699 $11.506 Number of accumulation units outstanding at end of period 23,206 11,764 6,924 CALVERT SOCIAL BALANCED PORTFOLIO Value at beginning of period $21.647 $22.626 $20.415 $17.779 $14.992 Value at end of period $19.893 $21.647 $22.626 $20.415 $17.779 Number of accumulation units outstanding at end of period 7,168 7,201 8,236 8,742 20,122 FIDELITY-REGISTERED TRADEMARK- VIP EQUITY-INCOME PORTFOLIO Value at beginning of period $19.565 $18.272 $17,400 $15.784 $12.475 Value at end of period $18.363 $19.565 $18.272 $17.400 $15.784 Number of accumulation units outstanding at end of period 304,410 204,704 236,374 298,921 328,562 FIDELITY-REGISTERED TRADEMARK- VIP GROWTH PORTFOLIO Value at beginning of period $22.858 $25.999 $19.155 $13.904 $11.402 Value at end of period $18.588 $22.858 $25.999 $19.155 $13.904 Number of accumulation units outstanding at end of period 497,068 536,656 474,649 324,558 229,060 FIDELITY-REGISTERED TRADEMARK- VIP OVERSEAS PORTFOLIO Value at beginning of period $15.514 $19.419 $13.786 $12.381 $11.238 Value at end of period $12.077 $15.514 $19.419 $13.786 $12.381 Number of accumulation units outstanding at end of period 40,745 33,208 37,275 54,226 51,781 FIDELITY-REGISTERED TRADEMARK- VIP CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO Value at beginning of period $22.333 $24.217 $19.735 $15.374 $12.540 Value at end of period $19.354 $22.333 $24.217 $19.735 $15.374 Number of accumulation units outstanding at end of period 350,846 365,499 449,134 488,102 465,699 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- ING VP MONEY MARKET PORTFOLIO Value at beginning of period $11.007 $10.509 $10.223 $10.031 $34.122(4) Value at end of period $11.453 $11.007 $10.509 $10.223 $10.031 Number of accumulation units outstanding at end of period 1,984,269 4,354,272 1,822,449 90,782 2,808 ING VP SMALL COMPANY PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP TECHNOLOGY PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP VALUE OPPORTUNITY PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period AIM V.I. CAPITAL APPRECIATION FUND Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period AIM V.I. GROWTH FUND Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period AIM V.I. CORE EQUITY FUND Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period AIM V.I. PREMIER EQUITY FUND Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period CALVERT SOCIAL BALANCED PORTFOLIO Value at beginning of period $13.480 $10.518 $11.010 $10.296 $10.000(5) Value at end of period $14.992 $13.480 $10.518 $11.010 $10.296 Number of accumulation units outstanding at end of period 6,303 25,730 752 1,383 82 FIDELITY-REGISTERED TRADEMARK- VIP EQUITY-INCOME PORTFOLIO Value at beginning of period $11.054 $10.000(1) Value at end of period $12.475 $11.054 Number of accumulation units outstanding at end of period 208,072 294,244 FIDELITY-REGISTERED TRADEMARK- VIP GROWTH PORTFOLIO Value at beginning of period $10.066 $10.000(1) Value at end of period $11.402 $10.066 Number of accumulation units outstanding at end of period 199,720 288,576 FIDELITY-REGISTERED TRADEMARK- VIP OVERSEAS PORTFOLIO Value at beginning of period $10.052 $10.000(1) Value at end of period $11.238 $10.052 Number of accumulation units outstanding at end of period 38,994 33,813 FIDELITY-REGISTERED TRADEMARK- VIP CONTRAFUND-REGISTERED TRADEMAR PORTFOLIO Value at beginning of period $10.468 $10.000(1) Value at end of period $12.540 $10.468 Number of accumulation units outstanding at end of period 273,189 379,862
73 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $30.628 $45.486 $20.433 $15.410 $13.850 Value at end of period $18.313 $30.628 $45.486 $20.433 $15.410 Number of accumulation units outstanding at end of period 759,840 986,825 828,592 512,154 469,230 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $24.030 $24.886 $19.880 $14.990 $12.431 Value at end of period $22.613 $24.030 $24.886 $19.880 $14.990 Number of accumulation units outstanding at end of period 594,286 582,229 527,201 334,508 193,429 JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $16.331 $15.562 $15.509 $14.393 $13.040 Value at end of period $17.375 $16.331 $15.562 $15.509 $14.393 Number of accumulation units outstanding at end of period 114,775 62,404 73,596 85,517 109,812 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $24.782 $29.366 $20.651 $15.414 $12.716 Value at end of period $18.419 $24.782 $29.366 $20.651 $15.414 Number of accumulation units outstanding at end of period 458,627 541,342 432,037 217,310 179,226 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $28.839 $34.626 $21.320 $16.745 $13.880 Value at end of period $22.088 $28.839 $34.626 $21.320 $16.745 Number of accumulation units outstanding at end of period 760,308 966,698 902,510 1,069,704 953,522 OPPENHEIMER GLOBAL SECURITIES FUND / VA Value at beginning of period $16.275 $15.681 $10.018 $10.027(1) Value at end of period $14.137 $16.275 $15.681 $10.018 Number of accumulation units outstanding at end of period 112,013 93,133 12,402 3,998 OPPENHEIMER STRATEGIC BOND FUND / VA Value at beginning of period $10.185 $10.048 $9.895 $9.952(1) Value at end of period $10.545 $10.185 $10.048 $9.895 Number of accumulation units outstanding at end of period 9,854 831 5,340 3,006 ING VP NATURAL RESOURCES TRUST Value at beginning of period $14.530 $12.428 $11.030 $13.896 $13.132 Value at end of period $12.062 $14.530 $12.428 $11.030 $13.896 Number of accumulation units outstanding at end of period 40,257 44,844 57,916 89,735 149,149 ING MFS CAPITAL OPPORTUNITIES PORTFOLIO Value at beginning of period $36.551 $39.254 $26.713 $21.343 $21.038(1) Value at end of period $27.159 $36.551 $39.254 $26.713 $21.343 Number of accumulation units outstanding at end of period 300,792 335,970 278,562 303,746 296,540 ING MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period $20.426 $29.040 $19.489 $15.219 $15.411(1) Value at end of period $15.086 $20.426 $29.040 $19.489 $15.219 Number of accumulation units outstanding at end of period 420,422 455,264 485,026 695,813 742,913 ING MFS RESEARCH PORTFOLIO Value at beginning of period $17.889 $18.963 $15.481 $12.744 $12.995(1) Value at end of period $13.976 $17.889 $18.963 $15.481 $12.744 Number of accumulation units outstanding at end of period 351,117 395,373 408,870 605,271 664,979 ING SCUDDER INTERNATIONAL GROWTH PORTFOLIO Value at beginning of period $26.160 $32.942 $21.057 $17.903 $17.682(1) Value at end of period $18.876 $26.160 $32.942 $21.057 $17.903 Number of accumulation units outstanding at end of period 254,404 286,301 316,726 360,392 411,600 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $12.992 $10.319 $10.000(1) Value at end of period $13.850 $12.992 $10.319 Number of accumulation units outstanding at end of period 590,904 723,839 131,702 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $10.835 $10.000(1) Value at end of period $12.431 $10.835 Number of accumulation units outstanding at end of period 74,184 7,772 JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $12.094 $9.886 $10.000(1) Value at end of period $13.040 $12.094 $9.886 Number of accumulation units outstanding at end of period 96,128 84,048 15,893 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $10.870 $10.000(1) Value at end of period $12.716 $10.870 Number of accumulation units outstanding at end of period 132,465 26,022 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $10.893 $10.000(1) Value at end of period $13.880 $10.893 Number of accumulation units outstanding at end of period 520,275 227,582 OPPENHEIMER GLOBAL SECURITIES FUND / VA Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period OPPENHEIMER STRATEGIC BOND FUND / VA Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP NATURAL RESOURCES TRUST Value at beginning of period $10.479 $9.079 $9.716 $10.000(1) Value at end of period $13.132 $10.479 $9.079 $9.716 Number of accumulation units outstanding at end of period 115,869 162,462 141,076 27,908 ING MFS CAPITAL OPPORTUNITIES PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING MFS RESEARCH PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING SCUDDER INTERNATIONAL GROWTH PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period
74 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- ING T. ROWE PRICE GROWTH EQUITY PORTFOLIO Value at beginning of period $21.643 $21.922 $18.146 $14.400 $14.112(1) Value at end of period $19.189 $21.643 $21.922 $18.146 $14.400 Number of accumulation units outstanding at end of period 212,838 192,790 177,799 287,914 231,297 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- ING T. ROWE PRICE GROWTH EQUITY PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period
---------------------------------- FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 2000: (1) Funds were first received in this option during May 2000. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1999: (1) Funds were first received in this option during June 1999. (2) Funds were first received in this option during May 1999. FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 1998: (1) Funds were first received in this option during May 1998. FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 1997: (1) Funds were first received in this option during November 1997. FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 1996: (1) The initial accumulation unit value was established at $10.000 during September 1996, when the portfolio became available under the contract. FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 1995: (1) The initial accumulation unit value was established at $10.000 during August 1995, when the fund became available under the contract. FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 1994: (1) The initial accumulation unit value was established at $10.000 during October 1994, when the funds were first received in this option. FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 1993: (1) The initial accumulation unit value was established at $10.000 on May 26, 1993, the date on which the fund became available under the contract. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1992: (1) The accumulation unit value was converted to $10.000 on November 2, 1992 upon the commencement of a new administrative system. Immediately prior to that date, the accumulation unit value of the fund was $12.991. On the date of conversion, additional units were issued so that account values were not changed as a result of the conversion. (2) The accumulation unit value was converted to $10.000 on November 2, 1992 upon the commencement of a new administrative system. Immediately prior to that date, the accumulation unit value of the fund was $39.496. On the date of conversion, additional units were issued so that account values were not changed as a result of the conversion. (3) The accumulation unit value was converted to $10.000 on November 2, 1992 upon the commencement of a new administrative system. Immediately prior to that date, the accumulation unit value of the fund was $85.546. On the date of conversion, additional units were issued so that account values were not changed as a result of the conversion. (4) The accumulation unit value was converted to $10.000 on November 2, 1992 upon the commencement of a new administrative system. Immediately prior to that date, the accumulation unit value of the fund was $34.828. On the date of conversion, additional units were issued so that account values were not changed as a result of the conversion. (5) The initial accumulation unit value was established at $10.000 on November 2, 1992, the date on which the fund/portfolio became available under the contract. 75 CONDENSED FINANCIAL INFORMATION ------------------------------------------------------------------ TABLE V FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT CHARGES OF 1.50% INCLUDING A 0.25% ADMINISTRATIVE EXPENSE CHARGE BEGINNING APRIL 7, 1997 (SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR THE PERIOD ENDED DECEMBER 31, 2001 IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH HAVE BEEN AUDITED BY ERNST & YOUNG LLP, INDEPENDENT AUDITORS. THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR EACH OF THE PERIODS IN THE FOUR-YEAR PERIOD ENDED DECEMBER 31, 2000 (AS APPLICABLE), IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH HAVE BEEN AUDITED BY OTHER AUDITORS. THE FINANCIAL STATEMENTS AND THE INDEPENDENT AUDITORS' REPORT THEREON FOR THE YEAR ENDED DECEMBER 31, 2001 ARE INCLUDED IN THE STATEMENT OF ADDITIONAL INFORMATION.
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- ING VP ASCENT PORTFOLIO Value at beginning of period $17.403 $17.783 $15.786 $15.364 $12.994(1) Value at end of period $15.163 $17.403 $17.783 $15.786 $15.364 Number of accumulation units outstanding at end of period 671 775 1,438 1,718 911 ING VP BALANCED PORTFOLIO, INC. Value at beginning of period $23.939 $24.436 $21.834 $18.954 $15.823(1) Value at end of period $22.588 $23.939 $24.436 $21.834 $18.954 Number of accumulation units outstanding at end of period 16,028 16,800 28,079 30,064 25,112 ING VP BOND PORTFOLIO Value at beginning of period $15.007 $13.893 $14.208 $13.337 $12.417(1) Value at end of period $16.075 $15.007 $13.893 $14.208 $13.337 Number of accumulation units outstanding at end of period 13,589 7,623 22,155 18,429 36,018 ING VP CROSSROADS PORTFOLIO Value at beginning of period $16.319 $15.030 $14.406 $12.428(1) Value at end of period $15.812 $16.319 $15.030 $14.406 Number of accumulation units outstanding at end of period 0 470 458 7,855 ING VP GROWTH PORTFOLIO Value at beginning of period $20.569 $23.713 $17.834 $15.727(1) Value at end of period $14.777 $20.569 $23.713 $17.834 Number of accumulation units outstanding at end of period 8,427 9,672 5,532 2,089 ING VP GROWTH AND INCOME PORTFOLIO Value at beginning of period $25.162 $28.686 $24.800 $21.988 $17.728(1) Value at end of period $20.224 $25.162 $28.686 $24.800 $21.988 Number of accumulation units outstanding at end of period 80,698 91,088 134,360 148,051 188,162 ING VP INDEX PLUS LARGECAP PORTFOLIO Value at beginning of period $20.427 $22.887 $18.691 $14.418 $11.345(1) Value at end of period $17.381 $20.427 $22.887 $18.691 $14.418 Number of accumulation units outstanding at end of period 25,188 24,239 31,248 23,367 11,672 ING VP INDEX PLUS MIDCAP PORTFOLIO Value at beginning of period $14.653 $12.403 $10.872 $8.579(2) Value at end of period $14.242 $14.653 $12.403 $10.872 Number of accumulation units outstanding at end of period 5,969 1,566 1,361 1,230 ING VP INDEX PLUS SMALLCAP PORTFOLIO Value at beginning of period $10.391 $9.604 $8.800 $7.685(3) Value at end of period $10.481 $10.391 $9.604 $8.800 Number of accumulation units outstanding at end of period 4,090 964 1,041 807 ING VP LEGACY PORTFOLIO Value at beginning of period $14.774 $14.003 $13.292 $12.076(2) Value at end of period $14.898 $14.774 $14.003 $13.292 Number of accumulation units outstanding at end of period 0 502 1,188 397 ING VP MONEY MARKET PORTFOLIO Value at beginning of period $13.422 $12.806 $12.372 $11.908 $11.572(1) Value at end of period $13.741 $13.422 $12.806 $12.372 $11.908 Number of accumulation units outstanding at end of period 4,687 6,362 28,274 32,767 23,882 ING VP SMALL COMPANY PORTFOLIO Value at beginning of period $18.396 $17.497 $13.574 $13.320(4) Value at end of period $18.845 $18.396 $17.497 $13.574 Number of accumulation units outstanding at end of period 1,605 1,843 1,733 797 ING VP TECHNOLOGY PORTFOLIO Value at beginning of period $5.821 $10.754(1) Value at end of period $4.417 $5.821 Number of accumulation units outstanding at end of period 13,314 8,565 ING VP VALUE OPPORTUNITY PORTFOLIO Value at beginning of period $20.412 $18.801 $15.960 $14.467(5) Value at end of period $18.172 $20.412 $18.801 $15.960 Number of accumulation units outstanding at end of period 3,848 762 299 54 AIM V.I. CORE EQUITY FUND Value at beginning of period $8.933(1) Value at end of period $7.483 Number of accumulation units outstanding at end of period 2,154
76 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- AIM V.I. GROWTH FUND Value at beginning of period $9.437 $12.347(2) Value at end of period $6.146 $9.437 Number of accumulation units outstanding at end of period 307 279 AIM V.I. PREMIER EQUITY FUND Value at beginning of period $9.203(2) Value at end of period $8.318 Number of accumulation units outstanding at end of period 13 FIDELITY-REGISTERED TRADEMARK- VIP EQUITY-INCOME PORTFOLIO Value at beginning of period $19.384 $18.147 $17.325 $15.755 $12.668(1) Value at end of period $18.147 $19.384 $18.147 $17.325 $15.755 Number of accumulation units outstanding at end of period 11,575 4,142 8,863 6,720 9,385 FIDELITY-REGISTERED TRADEMARK- VIP GROWTH PORTFOLIO Value at beginning of period $22.646 $25.822 $19.072 $13.879 $11.373(1) Value at end of period $18.369 $22.646 $25.822 $19.072 $13.879 Number of accumulation units outstanding at end of period 11,273 13,914 23,653 17,622 8,432 FIDELITY-REGISTERED TRADEMARK- VIP OVERSEAS PORTFOLIO Value at beginning of period $15.370 $19.287 $13.727 $12.358 $11.356(1) Value at end of period $11.935 $15.370 $19.287 $13.727 $12.358 Number of accumulation units outstanding at end of period 846 878 1,319 1,827 2,264 FIDELITY-REGISTERED TRADEMARK- VIP CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO Value at beginning of period $22.126 $24.052 $19.649 $15.346 $12.473(1) Value at end of period $19.126 $22.126 $24.052 $19.649 $15.346 Number of accumulation units outstanding at end of period 20,194 19,458 20,988 20,097 19,168 JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $30.344 $45.177 $20.345 $15.382 $12.282(1) Value at end of period $18.097 $30.344 $45.177 $20.345 $15.382 Number of accumulation units outstanding at end of period 27,005 34,444 29,490 12,305 10,357 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $23.807 $24.717 $19.794 $14.963 $12.742(1) Value at end of period $22.348 $23.807 $24.717 $19.794 $14.963 Number of accumulation units outstanding at end of period 9,179 6,368 6,163 7,705 7,255 JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $16.179 $15.456 $15.442 $14.367 $13.043(1) Value at end of period $17.170 $16.179 $15.456 $15.442 $14.367 Number of accumulation units outstanding at end of period 1,348 3,166 2,080 3,383 2,833 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $24.552 $29.166 $20.562 $15.386 $12.975(1) Value at end of period $18.202 $24.552 $29.166 $20.562 $15.386 Number of accumulation units outstanding at end of period 10,801 12,556 11,840 4,445 3,305 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $28.571 $34.390 $21.228 $16.714 $14.460(1) Value at end of period $21.829 $28.571 $34.390 $21.228 $16.714 Number of accumulation units outstanding at end of period 30,915 33,746 31,115 28,230 23,481 OPPENHEIMER GLOBAL SECURITIES FUND / VA Value at beginning of period $16.166 $15.615 $10.001 $9.378(6) Value at end of period $14.007 $16.166 $15.615 $10.001 Number of accumulation units outstanding at end of period 4,399 2,910 953 24 OPPENHEIMER STRATEGIC BOND FUND / VA Value at beginning of period $10.117 $10.006 $9.878 $9.889(6) Value at end of period $10.449 $10.117 $10.006 $9.878 Number of accumulation units outstanding at end of period 152 153 114 67 ING VP NATURAL RESOURCES TRUST Value at beginning of period $14.395 $12.344 $10.982 $13.870 $12.300(1) Value at end of period $11.920 $14.395 $12.344 $10.982 $13.870 Number of accumulation units outstanding at end of period 32 33 191 753 4,339 ING MFS CAPITAL OPPORTUNITIES PORTFOLIO Value at beginning of period $36.213 $38.987 $26.598 $21.304 $21.005(3) Value at end of period $26.840 $36.213 $38.987 $26.598 $21.304 Number of accumulation units outstanding at end of period 3,303 4,077 3,143 1,926 2,468 ING MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period $20.236 $28.843 $19.405 $15.192 $15.386(3) Value at end of period $14.908 $20.236 $28.843 $19.405 $15.192 Number of accumulation units outstanding at end of period 7,437 12,426 11,547 13,060 11,491 ING MFS RESEARCH PORTFOLIO Value at beginning of period $17.723 $18.834 $15.414 $12.721 $12.975(3) Value at end of period $13.812 $17.723 $18.834 $15.414 $12.721 Number of accumulation units outstanding at end of period 12,675 15,099 18,743 21,363 17,743 ING SCUDDER INTERNATIONAL GROWTH PORTFOLIO Value at beginning of period $25.917 $32.718 $20.966 $17.870 $17.653(3) Value at end of period $18.654 $25.917 $32.718 $20.966 $17.870 Number of accumulation units outstanding at end of period 3,764 5,490 5,869 5,411 4,502 ING T. ROWE PRICE GROWTH EQUITY PORTFOLIO Value at beginning of period $21.443 $21.773 $18.068 $14.374 $14.090(3) Value at end of period $18.964 $21.443 $21.773 $18.068 $14.374 Number of accumulation units outstanding at end of period 9,150 9,182 10,244 16,259 14,429
77 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------ ---------------------------------- FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 2001: (1) Funds were first received in this option during May 2001. (2) Funds were first received in this option during April 2001. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 2000: (1) Funds were first received in this option during July 2000. (2) Funds were first received in this option during January 2000. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1998: (1) Funds were first received in this option during May 1998. (2) Funds were first received in this option during October 1998. (3) Funds were first received in this option during September 1998. (4) Funds were first received in this option during January 1998. (5) Funds were first received in this option during March 1998. (6) Funds were first received in this option during December 1998. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1997: (1) Funds were first received in this option during April 1997. (2) Funds were first received in this option during May 1997. (3) Funds were first received in this option during November 1997. 78 CONDENSED FINANCIAL INFORMATION ------------------------------------------------------------------ TABLE VI FOR CONTRACTS CONTAINING LIMITS ON FEES (SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR THE PERIOD ENDED DECEMBER 31, 2001 IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH HAVE BEEN AUDITED BY ERNST & YOUNG LLP, INDEPENDENT AUDITORS. THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR EACH OF THE PERIODS IN THE FOUR-YEAR PERIOD ENDED DECEMBER 31, 2000 (AS APPLICABLE), IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH HAVE BEEN AUDITED BY OTHER AUDITORS. THE FINANCIAL STATEMENTS AND THE INDEPENDENT AUDITORS' REPORT THEREON FOR THE YEAR ENDED DECEMBER 31, 2001 ARE INCLUDED IN THE STATEMENT OF ADDITIONAL INFORMATION.
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- ING VP ASCENT PORTFOLIO Value at beginning of period $17.786 $18.066 $15.942 $15.422 $13.943(1) Value at end of period $15.591 $17.786 $18.066 $15.942 $15.422 Number of accumulation units outstanding at end of period 21,776 21,776 21,776 24,014 23,868 ING VP BALANCED PORTFOLIO, INC. Value at beginning of period $24.379 $24.762 $22.015 $19.016 $16.898(1) Value at end of period $23.119 $24.379 $24.762 $22.015 $19.016 Number of accumulation units outstanding at end of period 340,426 361,203 383,141 452,764 477,504 ING VP BOND PORTFOLIO Value at beginning of period $15.229 $14.042 $14.304 $13.373 $12.747(1) Value at end of period $16.378 $15.229 $14.042 $14.304 $13.373 Number of accumulation units outstanding at end of period 362,413 364,573 387,135 452,992 489,431 ING VP CROSSROADS PORTFOLIO Value at beginning of period $16.499 $16.579 $15.179 $14.461 $13.178(1) Value at end of period $15.207 $16.499 $16.579 $15.179 $14.461 Number of accumulation units outstanding at end of period 9,895 9.913 9,939 10,769 10,798 ING VP GROWTH AND INCOME PORTFOLIO Value at beginning of period $25.624 $29.069 $25.005 $22.060 $19.527(1) Value at end of period $20.700 $25.624 $29.069 $25.005 $22.060 Number of accumulation units outstanding at end of period 2,540,138 2,862,933 3,297,663 3,821,349 4,106,796 ING VP INDEX PLUS LARGECAP PORTFOLIO Value at beginning of period $18.720(1) Value at end of period $17.668 Number of accumulation units outstanding at end of period 2,331 ING VP LEGACY PORTFOLIO Value at beginning of period $14.141 $13.343 $12.335(1) Value at end of period $14.497 $14.141 $13.343 Number of accumulation units outstanding at end of period 0 1,958 2,254 ING VP MONEY MARKET PORTFOLIO Value at beginning of period $13.547 $12.894 $12.425 $11.930 $11.654(1) Value at end of period $13.905 $13.547 $12.894 $12.425 $11.930 Number of accumulation units outstanding at end of period 362,580 424,946 457,619 505,775 580,412 ING VP TECHNOLOGY PORTFOLIO Value at beginning of period $5.841 $9.564(1) Value at end of period $4.454 $5.841 Number of accumulation units outstanding at end of period 7,505 7,135 FIDELITY-REGISTERED TRADEMARK- VIP EQUITY-INCOME PORTFOLIO Value at beginning of period $19.565 $18.272 $17.400 $15.784 $14.017(1) Value at end of period $18.363 $19.565 $18.272 $17.400 $15.784 Number of accumulation units outstanding at end of period 5,108 7,656 11,370 13,539 35,342 FIDELITY-REGISTERED TRADEMARK- VIP GROWTH PORTFOLIO Value at beginning of period $22.858 $25.999 $19.155 $13.904 $12.498(1) Value at end of period $18.588 $22.858 $25.999 $19.155 $13.904 Number of accumulation units outstanding at end of period 30,698 29,626 32,858 24,195 3,029 FIDELITY-REGISTERED TRADEMARK- VIP CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO Value at beginning of period $22.333 $24.217 $19.735 $15.374 $13.535(1) Value at end of period $19.354 $22.333 $24.217 $19.735 $15.374 Number of accumulation units outstanding at end of period 11,769 8,064 13,750 14,618 13,675 JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $30.628 $45.486 $20.433 $15.410 $13.806(1) Value at end of period $18.313 $30.628 $45.486 $20.433 $15.410 Number of accumulation units outstanding at end of period 34,366 37,118 34,550 24,373 19,818 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $24.030 $24.886 $19.880 $14.990 $13.554(1) Value at end of period $22.613 $24.030 $24.886 $19.880 $14.990 Number of accumulation units outstanding at end of period 30,038 16,214 12,101 6,712 2,819 JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $16.331 $15.562 $15.509 $14.630(1) Value at end of period $17.375 $16.331 $15.562 $15.509 Number of accumulation units outstanding at end of period 3,110 3,110 3,110 5,158
79 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $24.782 $29.366 $20.651 $15.414 $13.985(1) Value at end of period $18.419 $24.782 $29.366 $20.651 $15.414 Number of accumulation units outstanding at end of period 45,290 46,192 29,284 1,028 750 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $28.839 $34.626 $21.320 $16.745 $15.851(1) Value at end of period $22.088 $28.839 $34.626 $21.320 $16.745 Number of accumulation units outstanding at end of period 36,002 42,596 44,861 45,971 44,433 ING VP NATURAL RESOURCES TRUST Value at beginning of period $14.530 $12.428 $11.030 $13.896 $13.610(1) Value at end of period $12.062 $14.530 $12.428 $11.030 $13.896 Number of accumulation units outstanding at end of period 1,753 1,753 1,753 1,753 1,753 ING MFS CAPITAL OPPORTUNITIES PORTFOLIO Value at beginning of period $36.551 $39.254 $26.713 $21.343 $21.038(2) Value at end of period $27.159 $36.551 $39.254 $26.713 $21.343 Number of accumulation units outstanding at end of period 9,287 11,362 9,451 9,947 8,563 ING MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period $20.426 $29.040 $19.489 $15.219 $15.411(2) Value at end of period $15.086 $20.426 $29.040 $19.489 $15.219 Number of accumulation units outstanding at end of period 15,417 13,795 12,142 11,330 11,848 ING MFS RESEARCH PORTFOLIO Value at beginning of period $17.889 $18.963 $15.481 $12.744 $12.995(2) Value at end of period $13.976 $17.889 $18.963 $15.481 $12.744 Number of accumulation units outstanding at end of period 141,938 162,448 135,420 148,963 141,582 ING SCUDDER INTERNATIONAL GROWTH PORTFOLIO Value at beginning of period $26.160 $32.942 $21.057 $17.903 $17.682(2) Value at end of period $18.876 $26.160 $32.942 $21.057 $17.903 Number of accumulation units outstanding at end of period 2,389 4,808 4,496 5,245 3,986 ING T. ROWE PRICE GROWTH EQUITY PORTFOLIO Value at beginning of period $21.643 $21.922 $18.146 $14.400 $14.112(2) Value at end of period $19.189 $21.643 $21.922 $18.146 $14.400 Number of accumulation units outstanding at end of period 6,688 4,920 4,491 4,730 3,310
---------------------------------- FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 2001: (1) Funds were first received in this option during August 2001. FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 2000: (1) Funds were first received in this option during August 2000. FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 1998: (1) Funds were first received in this option during February 1998. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1997: (1) Funds were first received in this option during June 1997. (2) Funds were first received in this option during November 1997. 80 FOR MASTER APPLICATIONS ONLY ------------------------------------------------------------------ I HEREBY ACKNOWLEDGE RECEIPT OF AN ACCOUNT B GROUP DEFERRED VARIABLE PROSPECTUS DATED MAY 1, 2002 FOR EMPLOYER-SPONSORED DEFERRED COMPENSATION PLANS, AS WELL AS ALL CURRENT PROSPECTUSES PERTAINING TO THE VARIABLE INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACTS. ____ PLEASE SEND AN ACCOUNT B STATEMENT OF ADDITIONAL INFORMATION (FORM NO. SAI.75996-02) DATED MAY 1, 2002. -------------------------------------------------------------------------------- CONTRACT HOLDER' S SIGNATURE -------------------------------------------------------------------------------- DATE PRO.75996-02 -------------------------------------------------------------------------------- VARIABLE ANNUITY ACCOUNT B OF ING LIFE INSURANCE AND ANNUITY COMPANY -------------------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 2002 Group Variable Annuity Contracts for Employer-Sponsored Deferred Compensation Plans This Statement of Additional Information is not a prospectus and should be read in conjunction with the current prospectus for Variable Annuity Account B (the "Separate Account") dated May 1, 2002. A free prospectus is available upon request from the local ING Life Insurance and Annuity Company office or by writing to or calling: ING Life Insurance and Annuity Company Customer Service 151 Farmington Avenue Hartford, Connecticut 06156 1-800-262-3862 Read the prospectus before you invest. Terms used in this Statement of Additional Information shall have the same meaning as in the prospectus. TABLE OF CONTENTS PAGE ---- General Information and History 2 Variable Annuity Account B 2 Offering and Purchase of Contracts 3 Performance Data 3 General 3 Average Annual Total Return Quotations 4 Income Phase Payments 7 Sales Material and Advertising 8 Independent Auditors 8 Financial Statements of the Separate Account S-1 Financial Statements of ING Life Insurance and Annuity Company F-1 GENERAL INFORMATION AND HISTORY ING Life Insurance and Annuity Company (the "Company," we, us, our) is a stock life insurance company which was organized under the insurance laws of the State of Connecticut in 1976. Prior to May 1, 2002, the Company was known as Aetna Life Insurance and Annuity Company. Through a merger, it succeeded to the business of Aetna Variable Annuity Life Insurance Company (formerly Participating Annuity Life Insurance Company organized in 1954). As of December 31, 2001, the Company and its subsidiary life company had $48 billion invested through their products, including $33 billion in their separate accounts (of which the Company, or its affiliate ING Investments, LLC manages or oversees the management of $21 billion). The Company is ranked based on assets among the top 1% of all life insurance companies rated by A.M. Best Company as of December 31, 2000. The Company is an indirect wholly-owned subsidiary of ING Groep N.V., a global financial institution active in the fields of insurance, banking and asset management. The Company is engaged in the business of issuing life insurance policies and annuity contracts. Our Home Office is located at 151 Farmington Avenue, Hartford, Connecticut 06156. In addition to serving as the depositor for the separate account, the Company is a registered investment adviser under the Investment Advisers Act of 1940. We provide investment advice to several of the registered management investment companies offered as variable investment options under the contracts funded by the separate account (see "Variable Annuity Account B" below). Other than the mortality and expense risk charge and administrative expense charge, if any, described in the prospectus, all expenses incurred in the operations of the separate account are borne by the Company. However, the Company does receive compensation for certain administrative or distribution costs from the funds or affiliates of the funds used as funding options under the contract. (See "Fees" in the prospectus.) The assets of the separate account are held by the Company. The separate account has no custodian. However, the funds in whose shares the assets of the separate account are invested each have custodians, as discussed in their respective prospectuses. From this point forward, the term "contract(s)" refers only to those offered through the prospectus. VARIABLE ANNUITY ACCOUNT B Variable Annuity Account B is a separate account established by the Company for the purpose of funding variable annuity contracts issued by the Company. The separate account is registered with the Securities and Exchange Commission ("SEC") as a unit investment trust under the Investment Company Act of 1940, as amended. Payments to accounts under the contract may be allocated to one or more of the subaccounts. Each subaccount invests in the shares of only one of the funds listed below. We may make additions to, deletions from or substitutions of available investment options as permitted by law and subject to the conditions of the contract. The availability of the funds is subject to applicable regulatory authorization. Not all funds are available in all jurisdictions, under all contracts, or under all plans. 2 The funds currently available under the contract are as follows: - ING VP Ascent Portfolio (Class R Shares)(1) - ING VP Balanced Portfolio, Inc. (Class R Shares)(1) - ING VP Bond Portfolio (Class R Shares)(1) - ING VP Crossroads Portfolio (Class R Shares)(1) - ING VP Growth Portfolio (Class R Shares)(1) - ING VP Growth and Income Portfolio (Class R Shares)(1) - ING VP Index Plus Large Cap Portfolio (Class R Shares)(1) - ING VP Index Plus Mid Cap Portfolio (Class R Shares)(1) - ING VP Index Plus Small Cap Portfolio (Class R Shares)(1) - ING VP International Equity Portfolio (Class R Shares)(1) - ING VP Legacy Portfolio (Class R Shares)(1) - ING VP Money Market Portfolio (Class R Shares)(1) - ING VP Small Company Portfolio (Class R Shares)(1) - ING VP Technology Portfolio (Class R Shares)(1) - ING VP Value Opportunity Portfolio (Class R Shares)(1) - ING VP Natural Resources Trust(1)(2) - ING VP Growth Opportunities Portfolio (Class R Shares)(1) - ING VP International Value Portfolio (Class R Shares)(1) - ING VP MagnaCap Portfolio (Class R Shares)(1) - ING VP MidCap Opportunities Portfolio (Class R Shares)(1) - ING VP SmallCap Opportunities Portfolio (Class R Shares)(1) - ING Alger Aggressive Growth Portfolio (Service Class)(1) - ING Alger Growth Portfolio (Service Class)(1) - ING American Century Small Cap Value Portfolio (Service Class) - ING Baron Small Cap Growth Portfolio (Service Class) - ING DSI Enhanced Index Portfolio (Service Class)(1) - ING Goldman Sachs(R) Capital Growth Portfolio (Service Class)(1)(3) - ING JPMorgan Mid Cap Value Portfolio (Service Class) - ING MFS Capital Opportunities Portfolio (Initial Class)(1) - ING MFS Emerging Equities Portfolio (Initial Class)(1) - ING MFS Global Growth Portfolio (Service Class) - ING MFS Research Portfolio (Initial Class)(1) - ING OpCap Balanced Value Portfolio (Service Class)(1) - ING PIMCO Total Return Portfolio (Service Class) - ING Salomon Brothers Capital Portfolio (Service Class)(1) - ING Salomon Brothers Investors Value Portfolio (Service Class)(1) - ING Scudder International Growth Portfolio (Initial Class)(1) - ING T. Rowe Price Growth Equity Portfolio (Initial Class)(1) - ING UBS Tactical Asset Allocation Portfolio (Service Class)(1) - ING Van Kampen Comstock Portfolio (Service Class) - AIM V.I. Capital Appreciation Fund (Series I Shares) - AIM V.I. Core Equity Fund (Series I Shares)(1) - AIM V.I. Growth Fund (Series I Shares) - AIM V.I. Premier Equity Fund (Series I Shares)(1) - Calvert Social Balanced Portfolio - Fidelity(R) VIP Contrafund(R) Portfolio (Initial Class) - Fidelity(R) VIP Equity-Income Portfolio (Initial Class) - Fidelity(R) VIP Growth Portfolio (Initial Class) - Fidelity(R) VIP Overseas Portfolio (Initial Class) - Franklin Small Cap Value Securities Fund (Class 2 Shares)(1) - Janus Aspen Aggressive Growth Portfolio (Institutional Shares) - Janus Aspen Balanced Portfolio (Institutional Shares) - Janus Aspen Flexible Income Portfolio (Institutional Shares) - Janus Aspen Growth Portfolio (Institutional Shares) - Janus Aspen Worldwide Growth Portfolio (Institutional Shares) - Lord Abbett Growth and Income Portfolio (Class VC Shares) - Lord Abbett Mid-Cap Value Portfolio (Class VC Shares) - Oppenheimer Global Securities Fund/VA - Oppenheimer Strategic Bond Fund/VA - Pioneer Equity Income VCT Portfolio (Class I Shares) - Pioneer Fund VCT Portfolio (Class I Shares) - Pioneer Mid Cap Value VCT Portfolio (Class I Shares) (1) Effective May 1, 2002 this fund has changed its name to the name listed above. See Appendix IV on page 48 in the prospectus for a complete list of former and current fund names. (2) Transfer or deposits are not allowed into the subaccount investing in this fund, except from accounts established under the contract before May 1, 1998. As soon as all those who have current allocations to the subaccount under the contract have redirected their allocations to other investment options, we will close the subaccount to all investments. (3) Goldman Sachs(R)is a registered service mark of Goldman, Sachs & Co., and it is used by agreement with Goldman, Sachs & Co. Complete descriptions of each of the funds, including their investment objectives, policies, risks and fees and expenses, are contained in the prospectuses and statements of additional information for each of the funds. OFFERING AND PURCHASE OF CONTRACTS The Company's subsidiary, ING Financial Advisers, LLC (IFA) (prior to May 1, 2002, known as Aetna Investment Services, LLC) serves as the principal underwriter for the contracts. IFA, a Delaware limited liability company, is registered as a broker-dealer with the SEC. IFA is also a member of the National Association of Securities Dealers, Inc. and the Securities Investor Protection Corporation. IFA's principal office is located at 151 Farmington Avenue, Hartford, Connecticut 06156. The contracts are distributed through life insurance agents licensed to sell variable annuities who are registered representatives 3 of IFA or of other registered broker-dealers who have entered into sales arrangements with IFA. The offering of the contracts is continuous. A description of the manner in which contracts are purchased may be found in the prospectus under the sections entitled "Contract Ownership and Rights" and "Your Account Value." PERFORMANCE DATA GENERAL From time to time, we may advertise different types of historical performance for the subaccounts of the separate account available under the contracts. We may advertise the "standardized average annual total returns," calculated in a manner prescribed by the SEC (the "standardized return"), as well as "non-standardized returns," both of which are described below. The standardized total return figures are computed according to a formula in which a hypothetical initial purchase payment of $1,000 is applied to the various subaccounts under the contract, and then related to the ending redeemable values over one, five and ten year periods (or fractional periods thereof). The redeemable value is then divided by the initial investment and this quotient is taken to the Nth root (N represents the number of years in the period) and 1 is subtracted from the result which is then expressed as a percentage, carried to at least the nearest hundredth of a percent. 1/N TR = ((ERV/P) ) - 1 Where: TR = The standardized returns net of subaccount recurring charges. ERV = The ending redeemable value of the hypothetical account at the end of the period. P = A hypothetical initial payment of $1,000. N = The number of years in the period. The standardized figures use the actual returns of the fund since the date contributions were first received in the corresponding subaccount of the separate account and then adjust them to reflect the deduction of all recurring charges under the contracts during each period (e.g., mortality and expense risk charges, maintenance fees, administrative expense charges, if any, and early withdrawal charges). These charges will be deducted on a pro rata basis in the case of fractional periods. The maintenance fee is converted to a percentage of assets based on the average account size under the contracts described in the prospectus. The total return figures shown below may be different from the actual historical total return under your contract because for periods prior to 1994, the subaccount's investment performance was based on the performance of the underlying fund plus any cash held by the subaccount. The non-standardized figures will be calculated in a similar manner, except that they will not reflect the deduction of any applicable early withdrawal charge, and in some advertisements will also exclude the effect of the maintenance fee. The deduction of the early withdrawal charge and the maintenance fee would decrease the level of performance shown if reflected in these calculations. The non-standardized figures may also include monthly, quarterly, year-to-date and three year periods, and may include returns calculated from the fund's inception date and/or the date contributions were first received in the corresponding subaccount of the separate account. The non-standardized returns shown in the tables below reflect the deduction of all charges under the contract except the early withdrawal charge. The maintenance fee has been deducted for the purposes of calculating the returns. Investment results of the subaccounts will fluctuate over time, and any presentation of the subaccounts' total return quotations for any prior period should not be considered as a representation of how the subaccounts will 4 perform in any future period. Additionally, the contract value and/or account value upon redemption may be more or less than your original cost. AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - STANDARDIZED AND NON-STANDARDIZED The tables below show the average annual standardized and non-standardized total return quotation figures for the periods ended December 31, 2001 for the subaccounts under installment payment accounts with a $20 annual maintenance fee. Both sets of returns below reflect a mortality and expense risk charge of 1.25% annually and the 0.25% administrative expense charge applicable under some contracts. The non-standardized returns do not reflect the deduction of the early withdrawal charge. We may also advertise returns based on other fee schedules that apply to a particular contract holder. These fee schedules may result in higher returns than those shown. For the ING MFS Capital Opportunities Portfolio (Initial Class), ING MFS Emerging Equities Portfolio (Initial Class), ING MFS Research Portfolio (Initial Class), ING Scudder International Growth Portfolio (Initial Class) and ING T. Rowe Price Growth Equity Portfolio (Initial Class) subaccounts, two sets of performance returns are shown for each subaccount: one showing performance based solely on the performance of the ING Partners, Inc. (IPI) portfolio from November 28, 1997, the date the portfolio commenced operations; and one quotation based on (a) performance through November 26, 1997 of the fund it replaced under many contracts and; (b) after November 26, 1997, based on the performance of the IPI portfolio. For those subaccounts where results are not available for the full calendar period indicated, performance for such partial periods is shown in the column labeled "Since Inception." For standardized performance, the "Since Inception" column shows the average annual return since the date contributions were first received in the fund under the separate account. For non-standardized performance, the "Since Inception" column shows average annual total return since the fund's inception date. 5
DATE CONTRIBUTIONS STANDARDIZED FIRST RECEIVED UNDER THE SEPARATE ACCOUNT ----------------------------------------------------------------------------------------------------------------------------------- SINCE SUBACCOUNT 1 YEAR 5 YEAR 10 YEAR INCEPTION* ----------------------------------------------------------------------------------------------------------------------------------- ING VP Ascent Portfolio (Class R Shares) (17.25%) 2.04% 5.65% 08/31/1995 ING VP Balanced Portfolio, Inc. (Class R Shares)(1) (10.39%) 6.41% 8.55% ING VP Bond Portfolio (Class R Shares)(1) 1.74% 4.06% 5.15% ING VP Crossroads Portfolio (Class R Shares) (12.99%) 2.44% 5.25% 08/31/1995 ING VP Growth Portfolio (Class R Shares) (31.77%) 5.30% 05/30/1997 ING VP Growth and Income Portfolio (Class R Shares)(1) (23.67%) 2.23% 7.30% ING VP Index Plus LargeCap Portfolio (Class R Shares) (19.19%) 8.57% 9.23% 10/31/1996 ING VP Index Plus MidCap Portfolio (Class R Shares) (7.68%) 8.27% 05/04/1998 ING VP Index Plus SmallCap Portfolio (Class R Shares) (4.19%) (0.13%) 05/04/1998 ING VP International Equity Portfolio (Class R Shares) (28.79%) (5.92%) 05/05/1998 ING VP Legacy Portfolio (Class R Shares) (8.67%) 3.39% 5.33% 08/31/1995 ING VP Money Market Portfolio (Class R Shares)(1)(2) (2.76%) 2.61% 3.28% ING VP Small Company Portfolio (Class R Shares) (2.71%) 10.50% 05/30/1997 ING VP Technology Portfolio (Class R Shares) (27.94%) (40.63%) 05/01/2000 ING VP Value Opportunity Portfolio (Class R Shares) (15.45%) 10.35% 05/30/1997 ING VP Natural Resources Trust(1) (21.36%) (2.96%) 1.39% 05/28/1993 ING MFS Capital Opportunities Portfolio (Initial Class) (29.61%) 4.83% 11/28/1997 Neuberger Berman AMT Growth/ING MFS Capital Opportunities(3) (29.61%) 8.27% 8.38% 11/30/1992 ING MFS Emerging Equities Portfolio (Initial Class) (30.04%) (2.03%) 11/28/1997 Alger American Small Cap/ING MFS Emerging Equities(3) (30.04%) 0.04% 4.19% 09/30/1993 ING MFS Research Portfolio (Initial Class) (25.99%) 0.25% 11/28/1997 American Century VP Capital Appreciation/ING MFS Research(3) (25.99%) (0.31%) 3.60% 08/31/1992 ING Scudder International Growth Portfolio (Initial Class) (31.65%) 0.07% 11/28/1997 Scudder VLIF International/ING Scudder International Growth(3) (31.65%) 1.24% 5.53% 08/31/1992 ING T. Rowe Price Growth Equity Portfolio (Initial Class) (16.01%) 9.60% 12.80% 02/28/1995 Alger American Growth/ING T. Rowe Price Growth Equity(3) (16.01%) 6.17% 11/28/1997 AIM V.I. Capital Appreciation Fund (Series I Shares) (28.23%) 4.65% 10/02/1998 AIM V.I. Core Equity Fund (Series I Shares) (27.82%) 1.37% 10/02/1998 AIM V.I. Growth Fund (Series I Shares) (38.16%) (4.72%) 10/02/1998 AIM V.I. Premier Equity Fund (Series I Shares) (18.20%) 4.45% 10/02/1998 Calvert Social Balanced Portfolio(1) (12.94%) 4.45% 6.80% 11/30/1992 Fidelity(R) VIP Contrafund(R) Portfolio (Initial Class) (17.91%) 7.66% 10.52% 06/30/1995 Fidelity(R) VIP Equity-Income Portfolio (Initial Class) (11.09%) 6.64% 10.92% 12/30/1994 Fidelity(R) VIP Growth Portfolio (Initial Class) (22.96%) 8.85% 12.64% 12/30/1994 Fidelity(R) VIP Overseas Portfolio (Initial Class) (26.26%) 0.14% 3.48% 01/31/1995 Janus Aspen Aggressive Growth Portfolio (Institutional Shares) (43.37%) 4.38% 7.04% 10/31/1994 Janus Aspen Balanced Portfolio (Institutional Shares) (10.81%) 11.26% 13.21% 01/31/1995 Janus Aspen Flexible Income Portfolio (Institutional Shares) 0.80% 4.54% 6.95% 10/31/1994 Janus Aspen Growth Portfolio (Institutional Shares) (29.60%) 6.30% 10.11% 07/29/1994 Janus Aspen Worldwide Growth Portfolio (Institutional Shares) (27.44%) 8.32% 13.56% 04/28/1995 Oppenheimer Global Securities Fund/VA (17.71%) 11.02% 05/30/1997 Oppenheimer Strategic Bond Fund/VA (1.91%) 1.51% 05/30/1997
Please refer to the discussion preceding the tables for an explanation of the charges included and methodology used in calculating the standardized and non-standardized figures. These figures represent historical performance and should not be considered a projection of future performance. * Reflects performance from the date contributions were first received in the fund under the separate account. (1) These funds have been available through the separate account for more than ten years. (2) The current yield for the subaccount for the seven-day period ended December 31, 2001 (on an annualized basis) was 0.67%. Current yield more closely reflects current earnings than does total return. The current yield reflects the deduction of all charges under the contract that are deducted from the total return quotations shown above except the maximum 5% early withdrawal charge. (3) The fund first listed was replaced with the applicable ING Portfolio after the close of business on November 26, 1997. The performance shown is based on the performance of the replaced fund until November 26, 1997, and the performance of the applicable ING Portfolio after that date. The replaced fund may not have been available under all contracts. The "Date Contributions First Received Under the Separate Account" refers to the applicable date for the replaced fund. If no date is shown, contributions were first received in the replaced fund under the separate account more than ten years ago. 6
FUND INCEPTION NON-STANDARDIZED DATE --------------------------------------------------------------- SINCE SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION** ----------------------------------------------------------------------------------------------------------------------------------- ING VP Ascent Portfolio (Class R Shares) (12.89%) (1.36%) 3.09% 7.03% 07/05/1995 ING VP Balanced Portfolio, Inc. (Class R Shares)(1) (5.67%) 1.11% 7.51% 8.55% ING VP Bond Portfolio (Class R Shares)(1) 7.09% 4.18% 5.13% 5.15% ING VP Crossroads Portfolio (Class R Shares) (8.41%) (0.56%) 3.50% 6.53% 07/05/1995 ING VP Growth Portfolio (Class R Shares) (28.18%) (6.10%) 8.02% 8.26% 12/13/1996 ING VP Growth and Income Portfolio (Class R Shares)(1) (19.65%) (6.60%) 3.29% 7.30% ING VP Index Plus LargeCap Portfolio (Class R Shares) (14.94%) (2.42%) 9.69% 10.96% 09/16/1996 ING VP Index Plus MidCap Portfolio (Class R Shares) (2.82%) 9.39% 13.32% 12/16/1997 ING VP Index Plus SmallCap Portfolio (Class R Shares) 0.85% 5.98% 4.74% 12/19/1997 ING VP International Equity Portfolio (Class R Shares) (25.05%) (4.29%) 1.32% 12/22/1997 ING VP Legacy Portfolio (Class R Shares) (3.86%) 1.54% 4.45% 6.48% 07/05/1995 ING VP Money Market Portfolio (Class R Shares)(1)(2) 2.36% 3.54% 3.67% 3.28% ING VP Small Company Portfolio (Class R Shares) 2.42% 11.53% 12.85% 13.09% 12/27/1996 ING VP Technology Portfolio (Class R Shares) (24.14%) (38.78%) 05/01/2000 ING VP Value Opportunity Portfolio (Class R Shares) (10.99%) 4.40% 13.49% 13.81% 12/13/1996 ING VP Natural Resources Trust(1) (17.22%) 2.74% (1.95%) 3.04% ING VP Growth Opportunities Portfolio (Class R Shares) (39.53%) (31.26%) 04/30/2000 ING VP International Value Portfolio (Class R Shares) (13.03%) 9.36% 9.93% 08/08/1997 ING VP MagnaCap Portfolio (Class R Shares) (11.81%) (6.94%) 05/01/2000 ING VP MidCap Opportunities Portfolio (Class R Shares) (33.98%) (26.94%) 04/30/2000 ING VP SmallCap Opportunities Portfolio (Class R Shares) (30.40%) 18.09% 16.77% 15.08% 05/06/1994 ING Alger Aggressive Growth Portfolio (Service Class) 2.13% 12/10/2001 ING Alger Growth Portfolio (Service Class) 0.92% 12/10/2001 ING DSI Enhanced Index Portfolio (Service Class) 0.63% 12/10/2001 ING Goldman Sachs(R) Capital Growth Portfolio (Service Class) 0.79% 12/10/2001 ING MFS Capital Opportunities Portfolio (Initial Class) (25.91%) 0.28% 6.12% 11/28/1997 Neuberger Berman AMT Growth/ING MFS Capital Opportunities(3) (25.91%) 0.28% 9.39% 8.78% ING MFS Emerging Equities Portfolio (Initial Class) (26.35%) (8.44%) (0.79%) 11/28/1997 Alger American Small Cap/ING MFS Emerging Equities(3) (26.36%) (8.44%) 1.07% 5.13% ING MFS Research Portfolio (Initial Class) (22.09%) (3.62%) 1.52% 11/28/1997 American Century VP Capital Appreciation/ING MFS Research(3) (22.09%) (3.62%) 0.72% 2.63% ING OpCap Balanced Value Portfolio (Service Class) (0.43%) 12/10/2001 ING Salomon Brothers Capital Portfolio (Service Class) 2.19% 12/10/2001 ING Salomon Brothers Investors Value Portfolio (Service Class) 1.38% 12/10/2001 ING Scudder International Growth Portfolio (Initial Class) (28.05%) (3.84%) 1.33% 11/28/1997 Scudder VLIF International/ING Scudder International Growth(3) (28.05%) (3.84%) 2.28% 5.77% ING T. Rowe Price Growth Equity Portfolio (Initial Class) (11.59%) 1.60% 7.51% 11/28/1997 Alger American Growth/ING T. Rowe Price Growth Equity(3) (11.59%) 1.60% 10.73% 12.79% ING UBS Tactical Asset Allocation Portfolio (Service Class) 0.57% 12/10/2001 AIM V.I. Capital Appreciation Fund (Series I Shares) (24.46%) (1.89%) 4.41% 10.07% 05/05/1993 AIM V.I. Core Equity Fund (Series I Shares) (24.02%) (5.44%) 5.67% 9.69% 05/02/1994 AIM V.I. Growth Fund (Series I Shares) (34.90%) (12.10%) 2.32% 7.18% 05/05/1993 AIM V.I. Premier Equity Fund (Series I Shares) (13.90%) (2.53%) 8.04% 11.71% 05/05/1993 Calvert Social Balanced Portfolio(1) (8.36%) (1.13%) 5.53% 7.15% Fidelity(R) VIP Contrafund(R) Portfolio (Initial Class) (13.58%) (0.92%) 8.77% 14.02% 01/03/1995 Fidelity(R) VIP Equity-Income Portfolio (Initial Class)(1) (6.40%) 1.53% 7.74% 11.90% Fidelity(R) VIP Growth Portfolio (Initial Class)(1) (18.91%) (1.27%) 9.97% 11.69%
7
FUND INCEPTION NON-STANDARDIZED DATE --------------------------------------------------------------- SINCE SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION** ----------------------------------------------------------------------------------------------------------------------------------- Fidelity(R) VIP Overseas Portfolio (Initial Class)(1) (22.37%) (4.58%) 1.17% 4.29% Franklin Small Cap Value Securities Fund (Class 2 Shares) 12.08% 11.29% 1.67% 05/01/1998 Janus Aspen Aggressive Growth Portfolio (Institutional Shares) (40.38%) (3.85%) 5.46% 10.82% 09/13/1993 Janus Aspen Balanced Portfolio (Institutional Shares) (6.12%) 4.10% 12.41% 12.59% 09/13/1993 Janus Aspen Flexible Income Portfolio (Institutional Shares) 6.10% 3.58% 5.62% 6.50% 09/13/1993 Janus Aspen Growth Portfolio (Institutional Shares) (25.89%) (4.01%) 7.40% 10.14% 09/13/1993 Janus Aspen Worldwide Growth Portfolio (Institutional Shares) (23.62%) 0.91% 9.44% 14.01% 09/13/1993 Lord Abbett Growth and Income Portfolio (Class VC Shares)(1) (8.14%) 6.40% 10.46% 12.40% Lord Abbett Mid-Cap Value Portfolio (Class VC Shares) 6.42% 21.74% 09/15/1999 Oppenheimer Global Securities Fund/VA(1) (13.38%) 11.86% 13.66% 12.18% Oppenheimer Strategic Bond Fund/VA 3.25% 1.87% 2.78% 4.01% 05/03/1993 Pioneer Equity Income VCT Portfolio (Class I Shares) (8.37%) 1.10% 10.55% 12.86% 03/01/1995 Pioneer Fund VCT Portfolio (Class I Shares) (12.19%) (0.02%) 6.61% 10/31/1997 Pioneer Mid Cap Value VCT Portfolio (Class I Shares) 4.89% 10.72% 9.54% 11.20% 03/01/1995
Please refer to the discussion preceding the tables for an explanation of the charges included and methodology used in calculating the standardized and non-standardized figures. These figures represent historical performance and should not be considered a projection of future performance. ** Reflects performance from the fund's inception date. (1) These funds have been in operation for more than ten years. (2) The current yield for the subaccount for the seven-day period ended December 31, 2001 (on an annualized basis) was 0.67%. Current yield more closely reflects current earnings than does total return. The current yield reflects the deduction of all charges under the contract that are deducted from the total return quotations shown above. As in the table above, the maximum 5% early withdrawal charge is not reflected. (3) The fund first listed was replaced with the applicable ING Portfolio after the close of business on November 26, 1997. The performance shown is based on the performance of the replaced fund until November 26, 1997, and the performance of the applicable ING Portfolio after that date. The replaced fund may not have been available under all contracts. The "Fund Inception Date" refers to the applicable date for the replaced fund. If no date is shown, the replaced fund has been in operation for more than ten years. 8 INCOME PHASE PAYMENTS When you begin receiving payments under the contract during the income phase (see "The Income Phase" in the prospectus), the value of your account is determined using accumulation unit values as of the tenth valuation before the first income phase payment is due. Such value (less any applicable premium tax charge) is applied to provide payments to you in accordance with the income phase payment option and investment options elected. The Annuity option tables found in the contract show, for each option, the amount of the first income phase payment for each $1,000 of value applied. Thereafter, variable payments fluctuate as the Annuity Unit value(s) fluctuates with the investment experience of the selected investment option(s). The first income phase payment and subsequent payments also vary depending on the assumed net investment rate selected (3.5% or 5% per annum). Selection of a 5% rate causes a higher first income phase payment, but income phase payments will increase thereafter only to the extent that the net investment rate increases by more than 5% on an annual basis. Income phase payments would decline if the rate failed to increase by 5%. Use of the 3.5% assumed rate causes a lower first income phase payment, but subsequent income phase payments would increase more rapidly or decline more slowly as changes occur in the net investment rate. When the income phase begins, the annuitant is credited with a fixed number of Annuity Units (which does not change thereafter) in each of the designated investment options. This number is calculated by dividing (a) by (b), where (a) is the amount of the first payment based upon a particular investment option, and (b) is the then current Annuity Unit value for that investment option. As noted, Annuity Unit values fluctuate from one valuation to the next (see "Your Account Value" in the prospectus); such fluctuations reflect changes in the net investment factor for the appropriate subaccount(s) (with a ten valuation lag which gives the Company time to process payments) and a mathematical adjustment which offsets the assumed net investment rate of 3.5% or 5% per annum. The operation of all these factors can be illustrated by the following hypothetical example. These procedures will be performed separately for the investment options selected during the income phase. EXAMPLE: Assume that, at the date income phase payments are to begin, there are 3,000 accumulation units credited under a particular contract or account and that the value of an accumulation unit for the tenth valuation prior to retirement was $13.650000. This produces a total value of $40,950. Assume also that no premium tax charge is payable and that the Annuity table in the contract provides, for the income phase payment option elected, a first monthly variable income phase payment of $6.68 per $1000 of value applied; the annuitant's first monthly income phase payment would thus be 40.950 multiplied by $6.68, or $273.55. Assume then that the value of an Annuity Unit upon the valuation on which the first payment was due was $13.400000. When this value is divided into the first monthly income phase payment, the number of Annuity Units is determined to be 20.414. The value of this number of Annuity Units will be paid in each subsequent month. If the net investment factor with respect to the appropriate subaccount is 1.0015000 as of the tenth valuation preceding the due date of the second monthly income phase payment, multiplying this factor by .9999058* (to take into account the assumed net investment rate of 3.5% per annum built into the number of Annuity Units determined above) produces a result of 1.0014057. This is then multiplied by the Annuity Unit value for the -------- * If an assumed net investment rate of 5% is elected, the appropriate factor to take into account such assumed rate would be .9998663. 9 prior valuation (assume such value to be $13.504376) to produce an Annuity Unit value of $13.523359 for the valuation occurring when the second income phase payment is due. The second monthly income phase payment is then determined by multiplying the number of Annuity Units by the current Annuity Unit value, or 20.414 times $13.523359, which produces a payment of $276.07. SALES MATERIAL AND ADVERTISING We may include hypothetical illustrations in our sales literature that explain the mathematical principles of dollar cost averaging, compounded interest, tax deferred accumulation, and the mechanics of variable annuity contracts. We may also discuss the difference between variable annuity contracts and other types of savings or investment products such as personal savings accounts and certificates of deposit. We may distribute sales literature that compares the percentage change in accumulation unit values for any of the subaccounts to established market indices such as the Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average or to the percentage change in values of other management investment companies that have investment objectives similar to the subaccount being compared. We may publish in advertisements and reports, the ratings and other information assigned to us by one or more independent rating organizations such as A.M. Best Company, Duff & Phelps, Standard & Poor's Corporation and Moody's Investors Service, Inc. The purpose of the ratings is to reflect our financial strength and/or claims-paying ability. We may also quote ranking services such as Morningstar's Variable Annuity/Life Performance Report and Lipper's Variable Insurance Products Performance Analysis Service (VIPPAS), which rank variable annuity or life subaccounts or their underlying funds by performance and/or investment objective. We may categorize the underlying funds in terms of the asset classes they represent and use such categories in marketing materials for the contracts. We may illustrate in advertisements the performance of the underlying funds, if accompanied by performance which also shows the performance of such funds reduced by applicable charges under the separate account. We may also show in advertisements the portfolio holdings of the underlying funds, updated at various intervals. From time to time, we will quote articles from newspapers and magazines or other publications or reports such as The Wall Street Journal, Money magazine, USA Today and The VARDS Report. We may provide in advertising, sales literature, periodic publications or other materials information on various topics of interest to current and prospective contract holders or participants. These topics may include the relationship between sectors of the economy and the economy as a whole and its effect on various securities markets, investment strategies and techniques (such as value investing, market timing, dollar cost averaging, asset allocation, constant ratio transfer and account rebalancing), the advantages and disadvantages of investing in tax-deferred and taxable investments, customer profiles and hypothetical purchase and investment scenarios, financial management and tax and retirement planning, and investment alternatives to certificates of deposit and other financial instruments, including comparison between the contracts and the characteristics of and market for such financial instruments. INDEPENDENT AUDITORS Ernst & Young LLP, 225 Asylum Street, Hartford, Connecticut 06103, are the independent auditors for the separate account and for the Company. The services provided to the separate account include primarily the audit of the separate account's financial statements and review of filings made with the SEC. Prior to May 3, 2001, KPMG LLP were the independent auditors for the separate account and for the Company. 10 FINANCIAL STATEMENTS VARIABLE ANNUITY ACCOUNT B INDEX
PAGE -------- Statement of Assets and Liabilities......................... S-2 Statement of Operations..................................... S-9 Statements of Changes in Net Assets......................... S-9 Condensed Financial Information............................. S-10 Notes to Financial Statements............................... S-24 Report of Independent Auditors.............................. S-47
S-1 VARIABLE ANNUITY ACCOUNT B STATEMENT OF ASSETS AND LIABILITIES - December 31, 2001 ASSETS: Investments, at net asset value: (Note 1)
Net Shares Cost Assets ------ ---- ------ Aetna Ascent VP 1,088,304 $ 15,815,611 $ 13,875,871 Aetna Balanced VP, Inc. 15,711,135 229,580,461 189,947,624 Aetna Bond VP 11,155,136 143,268,042 144,459,012 Aetna Crossroads VP 1,412,700 19,037,152 17,390,337 Aetna GET Fund, Series D 12,314,500 124,353,556 119,943,234 Aetna GET Fund, Series E 30,495,731 314,738,971 300,382,953 Aetna GET Fund, Series G 17,292,535 173,328,945 171,369,027 Aetna GET Fund, Series H 13,116,129 134,580,235 131,685,935 Aetna GET Fund, Series I 8,784,141 88,253,709 87,402,202 Aetna GET Fund, Series J 7,594,044 76,465,610 74,801,330 Aetna GET Fund, Series K 8,873,577 90,164,047 88,558,302 Aetna GET Fund, Series L 8,148,546 82,337,273 80,344,662 Aetna GET Fund, Series M 12,555,053 126,755,617 123,165,075 Aetna GET Fund, Series N 10,155,897 102,401,962 104,605,741 Aetna GET Fund, Series P 8,251,720 82,819,738 83,012,301 Aetna GET Fund, Series Q 161,926 1,619,591 1,620,348 Aetna Growth and Income VP 33,963,483 960,964,170 663,646,452 Aetna Growth VP 5,403,321 55,538,229 52,088,016 Aetna Index Plus Large Cap VP 16,216,575 271,339,503 224,761,728 Aetna Index Plus Mid Cap VP 680,504 9,502,672 9,214,027 Aetna Index Plus Small Cap VP 207,813 2,361,104 2,410,626 Aetna International VP 1,011,511 7,745,617 7,990,934 Aetna Legacy VP 1,947,177 24,416,643 23,346,657 Aetna Money Market VP 21,987,775 291,406,975 293,026,678 Aetna Small Company VP 3,751,585 60,925,431 62,576,432 Aetna Technology VP 2,592,691 11,873,209 11,744,890 Aetna Value Opportunity VP 1,989,602 29,280,623 26,362,220 AIM V.I. Funds: Capital Appreciation Fund 1,082,359 34,045,585 23,508,842 Government Securities Fund 793,482 9,273,209 9,148,842 Growth and Income Fund 2,121,662 61,162,059 42,857,568 Growth Fund 1,695,601 46,594,677 27,756,988 Value Fund 3,169,496 89,591,378 74,007,730 Alger American Funds: Balanced Portfolio 287,877 4,087,017 3,765,427 Income & Growth Portfolio 1,067,110 14,454,506 11,279,354 Leveraged AllCap Portfolio 330,389 15,055,043 10,423,772 Alliance Funds: Growth and Income Portfolio 1,271,515 29,473,164 28,176,776 Premier Growth Portfolio 339,110 9,849,017 8,532,015 Quasar Portfolio 90,939 852,298 910,302 American Century VP Funds: Balanced Fund 310,007 2,274,010 2,042,947 International Fund 418,677 4,176,556 2,759,081 Calvert Social Balanced Portfolio 1,113,898 2,368,856 1,959,346 Federated Insurance Series: American Leaders Fund II 4,321,694 82,596,996 83,192,617
S-2 VARIABLE ANNUITY ACCOUNT B STATEMENT OF ASSETS AND LIABILITIES - December 31, 2001 (continued):
Net Shares Cost Assets ------ ---- ------ Equity Income Fund II 1,399,160 $ 18,664,947 $ 17,475,504 Growth Strategies Fund II 1,188,348 26,101,950 20,974,345 High Income Bond Fund II 2,707,153 25,753,022 20,899,224 International Equity Fund II 964,484 16,498,191 10,975,829 Prime Money Fund II 8,811,721 8,811,721 8,811,721 U.S. Government Securities Fund II 1,023,793 11,168,962 11,701,955 Utility Fund II 1,275,802 16,968,875 13,230,067 Fidelity-Registered Trademark- Variable Insurance Products Funds: Asset Manager Portfolio -- Initial Class 971,360 15,663,632 14,094,432 Contrafund-Registered Trademark- Portfolio -- Initial Class 8,643,758 204,483,677 173,998,846 Equity-Income Portfolio -- Initial Class 8,484,355 200,043,432 193,019,070 Growth Portfolio -- Initial Class 4,978,243 230,739,612 167,318,754 High Income Portfolio -- Initial Class 6,144,285 50,562,454 39,384,866 Index 500 Portfolio -- Initial Class 774,834 112,730,031 100,782,644 Investment Grade Bond Portfolio -- Initial Class 238,677 2,895,492 3,083,702 Overseas Portfolio -- Initial Class 714,297 13,935,474 9,914,449 Janus Aspen Series: Aggressive Growth Portfolio -- I Shares 6,451,608 230,159,108 141,806,354 Balanced Portfolio -- I Shares 10,644,264 259,828,435 240,241,035 Flexible Income Portfolio -- I Shares 2,053,192 23,727,351 23,940,216 Growth Portfolio -- I Shares 8,892,289 254,623,884 176,778,711 Worldwide Growth Portfolio -- I Shares 11,611,628 445,168,249 331,395,857 MFS-Registered Trademark- Funds: Global Government Series 172,686 1,724,214 1,742,404 Total Return Series 5,046,188 93,513,316 93,909,551 Mitchell Hutchins Tactical Allocation Portfolio 1,129,585 17,186,186 14,334,434 Oppenheimer Funds: Aggressive Growth Fund/VA 993,355 41,547,885 40,449,398 Global Securities Fund/VA 718,166 19,410,146 16,402,909 Main Street Growth & Income Fund/VA 3,460,173 76,087,806 65,708,686 Strategic Bond Fund/VA 6,253,640 29,081,847 28,891,817 Pilgrim Funds: Emerging Markets Fund 184,958 1,316,419 911,844 Natural Resources Trust Fund 161,512 2,105,803 2,002,754 Pilgrim Variable Funds: Growth Opportunities Portfolio -- Class S 25,765 141,505 141,451 Magna Cap Portfolio -- Class S 47,941 424,228 430,510 Mid Cap Opportunities Portfolio -- Class S 143,159 854,323 864,683 Small Cap Opportunities Portfolio -- Class S 67,872 1,253,809 1,280,069 Portfolio Partners, Inc. (PPI): PPI MFS Capital Opportunities Portfolio -- I Class 2,316,819 100,026,276 62,832,128 PPI MFS Emerging Equities Portfolio -- I Class 2,247,369 104,364,788 91,535,353 PPI MFS Research Growth Portfolio -- I Class 8,567,145 110,137,720 69,393,878 PPI Scudder International Growth Portfolio -- I Class 3,035,807 30,089,100 30,449,146 PPI T. Rowe Price Growth Equity Portfolio -- I Class 1,972,530 116,031,960 89,395,051 Prudential Jennison Portfolio 39,217 702,834 723,553 SP Jennison International Growth Portfolio 10,918 58,630 59,286 -------------- -------------- NET ASSETS $6,851,316,361 $5,771,340,707 ============== ==============
S-3 VARIABLE ANNUITY ACCOUNT B STATEMENT OF ASSETS AND LIABILITIES - December 31, 2001 (continued): NET ASSETS REPRESENTED BY: Reserves for annuity contracts in accumulation and payment period: (Notes 1 and 6) Aetna Ascent VP Annuity contracts in accumulation....................... $ 13,540,715 Annuity contracts in payment period..................... 335,156 Aetna Balanced VP, Inc. Annuity contracts in accumulation....................... 152,717,924 Annuity contracts in payment period..................... 37,229,700 Aetna Bond VP Annuity contracts in accumulation....................... 135,538,187 Annuity contracts in payment period..................... 8,920,825 Aetna Crossroads VP Annuity contracts in accumulation....................... 15,875,749 Annuity contracts in payment period..................... 1,514,588 Aetna GET Fund, Series D Annuity contracts in accumulation....................... 119,943,234 Aetna GET Fund, Series E Annuity contracts in accumulation....................... 300,382,953 Aetna GET Fund, Series G Annuity contracts in accumulation....................... 171,369,027 Aetna GET Fund, Series H Annuity contracts in accumulation....................... 131,685,935 Aetna GET Fund, Series I Annuity contracts in accumulation....................... 87,402,202 Aetna GET Fund, Series J Annuity contracts in accumulation....................... 74,801,330 Aetna GET Fund, Series K Annuity contracts in accumulation....................... 88,558,302 Aetna GET Fund, Series L Annuity contracts in accumulation....................... 80,344,662 Aetna GET Fund, Series M Annuity contracts in accumulation....................... 123,165,075 Aetna GET Fund, Series N Annuity contracts in accumulation....................... 104,605,741 Aetna GET Fund, Series P Annuity contracts in accumulation....................... 83,012,301 Aetna GET Fund, Series Q Annuity contracts in accumulation....................... 1,620,348 Aetna Growth and Income VP Annuity contracts in accumulation....................... 535,753,075 Annuity contracts in payment period..................... 127,893,377 Aetna Growth VP Annuity contracts in accumulation....................... 47,460,299 Annuity contracts in payment period..................... 4,627,717 Aetna Index Plus Large Cap VP Annuity contracts in accumulation....................... 181,854,675 Annuity contracts in payment period..................... 42,907,053 Aetna Index Plus Mid Cap VP Annuity contracts in accumulation....................... 9,214,027
S-4 VARIABLE ANNUITY ACCOUNT B STATEMENT OF ASSETS AND LIABILITIES - December 31, 2001 (continued): Aetna Index Plus Small Cap VP Annuity contracts in accumulation....................... $ 2,410,626 Aetna International VP Annuity contracts in accumulation....................... 7,627,170 Annuity contracts in payment period..................... 363,764 Aetna Legacy VP Annuity contracts in accumulation....................... 20,015,480 Annuity contracts in payment period..................... 3,331,177 Aetna Money Market VP Annuity contracts in accumulation....................... 283,692,298 Annuity contracts in payment period..................... 9,334,380 Aetna Small Company VP Annuity contracts in accumulation....................... 58,389,629 Annuity contracts in payment period..................... 4,186,803 Aetna Technology VP Annuity contracts in accumulation....................... 11,744,890 Aetna Value Opportunity VP Annuity contracts in accumulation....................... 26,362,220 AIM V.I. Funds: Capital Appreciation Fund Annuity contracts in accumulation....................... 22,655,949 Annuity contracts in payment period..................... 852,893 Government Securities Fund Annuity contracts in accumulation....................... 9,148,842 Growth and Income Fund Annuity contracts in accumulation....................... 38,679,045 Annuity contracts in payment period..................... 4,178,523 Growth Fund Annuity contracts in accumulation....................... 26,700,689 Annuity contracts in payment period..................... 1,056,299 Value Fund Annuity contracts in accumulation....................... 70,561,466 Annuity contracts in payment period..................... 3,446,264 Alger American Funds: Balanced Portfolio Annuity contracts in accumulation....................... 3,765,427 Income & Growth Portfolio Annuity contracts in accumulation....................... 11,279,354 Leveraged AllCap Portfolio Annuity contracts in accumulation....................... 10,423,772 Alliance Funds: Growth and Income Portfolio Annuity contracts in accumulation....................... 28,176,776 Premier Growth Portfolio Annuity contracts in accumulation....................... 8,532,015 Quasar Portfolio Annuity contracts in accumulation....................... 910,302 American Century VP Funds: Balanced Fund Annuity contracts in accumulation....................... 2,042,947
S-5 VARIABLE ANNUITY ACCOUNT B STATEMENT OF ASSETS AND LIABILITIES - December 31, 2001 (continued): International Fund Annuity contracts in accumulation....................... $ 2,759,081 Calvert Social Balanced Portfolio Annuity contracts in accumulation....................... 1,959,346 Federated Insurance Series: American Leaders Fund II Annuity contracts in accumulation....................... 83,034,442 Annuity contracts in payment period..................... 158,175 Equity Income Fund II Annuity contracts in accumulation....................... 17,415,666 Annuity contracts in payment period..................... 59,838 Growth Strategies Fund II Annuity contracts in accumulation....................... 20,974,345 High Income Bond Fund II Annuity contracts in accumulation....................... 20,876,591 Annuity contracts in payment period..................... 22,633 International Equity Fund II Annuity contracts in accumulation....................... 10,925,630 Annuity contracts in payment period..................... 50,199 Prime Money Fund II Annuity contracts in accumulation....................... 8,811,721 U.S. Government Securities Fund II Annuity contracts in accumulation....................... 11,701,955 Utility Fund II Annuity contracts in accumulation....................... 13,189,192 Annuity contracts in payment period..................... 40,875 Fidelity-Registered Trademark- Variable Insurance Products Funds: Asset Manager Portfolio -- Initial Class Annuity contracts in accumulation....................... 14,094,432 Contrafund-Registered Trademark- Portfolio -- Initial Class Annuity contracts in accumulation....................... 173,998,846 Equity-Income Portfolio -- Initial Class Annuity contracts in accumulation....................... 193,019,070 Growth Portfolio -- Initial Class Annuity contracts in accumulation....................... 167,318,754 High Income Portfolio -- Initial Class Annuity contracts in accumulation....................... 38,455,260 Annuity contracts in payment period..................... 929,606 Index 500 Portfolio -- Initial Class Annuity contracts in accumulation....................... 100,782,644 Investment Grade Bond Portfolio -- Initial Class Annuity contracts in accumulation....................... 3,083,702 Overseas Portfolio -- Initial Class Annuity contracts in accumulation....................... 9,914,449 Janus Aspen Series: Aggressive Growth Portfolio -- I Shares Annuity contracts in accumulation....................... 141,806,354 Balanced Portfolio -- I Shares Annuity contracts in accumulation....................... 240,241,035 Flexible Income Portfolio -- I Shares Annuity contracts in accumulation....................... 23,940,216
S-6 VARIABLE ANNUITY ACCOUNT B STATEMENT OF ASSETS AND LIABILITIES - December 31, 2001 (continued): Growth Portfolio -- I Shares Annuity contracts in accumulation....................... $ 165,825,143 Annuity contracts in payment period..................... 10,953,568 Worldwide Growth Portfolio -- I Shares Annuity contracts in accumulation....................... 319,679,090 Annuity contracts in payment period..................... 11,716,767 MFS-Registered Trademark- Funds: Global Government Series Annuity contracts in accumulation....................... 1,742,404 Total Return Series Annuity contracts in accumulation....................... 93,909,551 Mitchell Hutchins Tactical Allocation Portfolio Annuity contracts in accumulation....................... 14,334,434 Oppenheimer Funds: Aggressive Growth Fund/VA Annuity contracts in accumulation....................... 39,285,820 Annuity contracts in payment period..................... 1,163,578 Global Securities Fund/VA Annuity contracts in accumulation....................... 16,402,909 Main Street Growth & Income Fund/VA Annuity contracts in accumulation....................... 62,764,050 Annuity contracts in payment period..................... 2,944,636 Strategic Bond Fund/VA Annuity contracts in accumulation....................... 28,186,645 Annuity contracts in payment period..................... 705,172 Pilgrim Funds: Emerging Markets Fund Annuity contracts in accumulation....................... 911,844 Natural Resources Trust Fund Annuity contracts in accumulation....................... 2,002,754 Pilgrim Variable Funds: Growth Opportunities Portfolio -- Class S Annuity contracts in accumulation....................... 141,451 Magna Cap Portfolio -- Class S Annuity contracts in accumulation....................... 430,510 Mid Cap Opportunities Portfolio -- Class S Annuity contracts in accumulation....................... 864,683 Small Cap Opportunities Portfolio -- Class S Annuity contracts in accumulation....................... 1,280,069 Portfolio Partners, Inc. (PPI): PPI MFS Capital Opportunities Portfolio -- I Class Annuity contracts in accumulation....................... 58,410,271 Annuity contracts in payment period..................... 4,421,857 PPI MFS Emerging Equities Portfolio -- I Class Annuity contracts in accumulation....................... 89,074,576 Annuity contracts in payment period..................... 2,460,777 PPI MFS Research Growth Portfolio -- I Class Annuity contracts in accumulation....................... 69,393,878 PPI Scudder International Growth Portfolio -- I Class Annuity contracts in accumulation....................... 29,651,417 Annuity contracts in payment period..................... 797,729
S-7 VARIABLE ANNUITY ACCOUNT B STATEMENT OF ASSETS AND LIABILITIES - December 31, 2001 (continued): PPI T. Rowe Price Growth Equity Portfolio -- I Class Annuity contracts in accumulation....................... $ 87,329,290 Annuity contracts in payment period..................... 2,065,761 Prudential Jennison Portfolio Annuity contracts in accumulation....................... 723,553 SP Jennison International Growth Portfolio Annuity contracts in accumulation....................... 59,286 -------------- $5,771,340,707 ==============
See Notes to Financial Statements S-8 VARIABLE ANNUITY ACCOUNT B STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001 ----------------- INVESTMENT INCOME: Income: (Notes 1, 3 and 5) Dividends................................................... $ 218,813,159 Expenses: (Notes 2 and 5) Valuation period deductions............................... (78,210,934) --------------- Net investment income....................................... $ 140,602,225 --------------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS: Net realized loss on sales of investments: (Notes 1, 4 and 5) Proceeds from sales....................................... $ 2,444,944,910 Cost of investments sold.................................. (3,030,846,267) --------------- Net realized loss on investments.......................... (585,901,357) --------------- Net unrealized loss on investments: (Note 5) Beginning of year......................................... (650,455,465) End of year............................................... (1,079,975,654) --------------- Net change in unrealized loss on investments............ (429,520,189) --------------- Net realized and unrealized loss on investments............. (1,015,421,546) --------------- Net decrease in net assets resulting from operations........ $ (874,819,321) ---------------
See Notes to Financial Statements -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 2001 2000 ---- ---- FROM OPERATIONS: Net investment income....................................... $ 140,602,225 $ 443,418,285 Net realized (loss) gain on investments..................... (585,901,357) 331,595,273 Net change in unrealized loss on investments................ (429,520,189) (1,510,718,463) --------------- --------------- Net decrease in net assets resulting from operations........ (874,819,321) (735,704,905) --------------- --------------- FROM UNIT TRANSACTIONS: Variable annuity contract purchase payments................. 238,895,881 587,979,766 Transfers from the Company for mortality guarantee adjustments............................................... 6,961,311 1,823,656 Transfer from the Company's other variable annuity accounts.................................................. 566,193,784 813,910,948 Redemptions by contract holders............................. (458,712,625) (481,282,116) Annuity payments............................................ (37,204,692) (40,923,357) Other....................................................... 5,760,734 4,610,611 --------------- --------------- Net increase in net assets from unit transactions (Note 6)...................................................... 321,894,393 886,119,508 --------------- --------------- Change in net assets........................................ (552,924,928) 150,414,603 NET ASSETS: Beginning of year........................................... 6,324,265,635 6,173,851,032 --------------- --------------- End of year................................................. $ 5,771,340,707 $ 6,324,265,635 --------------- ---------------
See Notes to Financial Statements S-9 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001
---------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Investment Outstanding Beginning End of Total Expense Income at End of Year Year Return Ratio Ratio of Year ---------------------------------------------------------------------------------------------------------------------------------- AETNA ASCENT VP: .45% to 2.25% 1.59% Non-Qualified V $ 17.566 $ 15.344 (12.65%) 76,069.1 Non-Qualified V (0.75) 17.996 15.799 (12.21%) 123,989.2 Non-Qualified VII 17.415 15.187 (12.79%) 554,667.1 Non-Qualified VIII 15.521 13.557 (12.65%) 121,058.6 Non-Qualified IX 17.403 15.163 (12.87%) 671.0 Non-Qualified X 17.786 15.591 (12.34%) 21,776.1 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- AETNA BALANCED VP, INC.: .45% to 2.25% 5.84% Non-Qualified V 24.163 22.856 (5.41%) 1,725,814.1 Non-Qualified V (0.75) 24.755 23.535 (4.93%) 1,282,885.1 Non-Qualified VI 20.348 19.259 (5.35%) 26,628.7 Non-Qualified VII 23.622 22.309 (5.56%) 1,777,783.9 Non-Qualified VIII 16.759 15.852 (5.41%) 387,906.9 Non-Qualified IX 23.939 22.588 (5.64%) 16,028.2 Non-Qualified X 24.379 23.119 (5.17%) 340,426.1 Non-Qualified XI 20.530 19.481 (5.11%) 3,129.6 Non-Qualified XII 11.741 11.157 (4.97%) 5,807.6 Non-Qualified XIII 11.457 10.870 (5.12%) 1,075,273.9 Non-Qualified XIV 11.372 10.757 (5.41%) 759,422.0 Non-Qualified XV 11.330 10.701 (5.55%) 390,129.6 Non-Qualified XVI 9.532 8.998 (5.60%) 255,686.3 Non-Qualified XVII 29.875 30.012 0.46% (10) 32.2 Non-Qualified XVIII 9.520 8.945 (6.04%) 74,574.8 Non-Qualified XIX 9.524 8.963 (5.89%) 156,037.8 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- AETNA BOND VP: .45% to 2.25% 6.51% Non-Qualified V 15.147 16.266 7.39% 862,575.0 Non-Qualified V (0.75) 15.519 16.749 7.93% 1,582,542.7 Non-Qualified VI 13.860 14.892 7.45% 54,433.1 Non-Qualified VII 14.811 15.880 7.22% 2,227,649.4 Non-Qualified VIII 12.640 13.573 7.38% 512,374.0 Non-Qualified IX 15.007 16.075 7.12% 13,589.4 Non-Qualified X 15.229 16.378 7.54% 362,413.1 Non-Qualified XI 13.934 14.995 7.61% 5,034.9 Non-Qualified XII 11.121 11.996 7.87% 808.9 Non-Qualified XIII 11.018 11.867 7.71% 1,338,811.7 Non-Qualified XIV 10.937 11.743 7.37% 1,394,133.1 Non-Qualified XV 10.896 11.682 7.21% 504,705.6 Non-Qualified XVI 10.472 11.222 7.16% 358,474.3 Non-Qualified XVIII 10.459 11.157 6.67% 134,013.2 Non-Qualified XIX 10.463 11.178 6.83% 174,378.2 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- AETNA CROSSROADS VP: .45% to 2.25% 2.50% Non-Qualified V 16.295 14.966 (8.16%) 99,985.8 Non-Qualified V (0.75) 16.694 15.410 (7.69%) 120,718.7 Non-Qualified VII 16.155 14.814 (8.30%) 671,069.7 Non-Qualified VIII 14.665 13.468 (8.16%) 177,459.5 Non-Qualified X 16.499 15.207 (7.83%) 9,895.0 Non-Qualified XVII 16.387 15.133 (7.65%) 2,468.9 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES D: .70% to 2.15% 1.44% Non-Qualified V 10.188 10.235 0.46% 1,682,213.2 Non-Qualified V (0.75) 10.301 10.402 0.98% 1,182,191.8 Non-Qualified VII 10.150 10.181 0.31% 3,609,935.1 Non-Qualified VIII 10.199 10.246 0.46% 1,702,121.6 Non-Qualified IX 10.131 10.153 0.22% 307.4 Non-Qualified X 10.188 10.235 0.46% 150,204.9 Non-Qualified XIII 10.258 10.337 0.77% 1,397,580.0 Non-Qualified XIV 10.190 10.237 0.46% 1,561,773.4 Non-Qualified XV 10.156 10.187 0.31% 418,259.5 ---------------------------------------------------------------------------------------------------------------------------------- ----------------------------------- -------------- Net Assets at End of Year ----------------------------------- AETNA ASCENT VP: Non-Qualified V $ 1,167,204 Non-Qualified V (0.75) 1,958,905 Non-Qualified VII 8,423,729 Non-Qualified VIII 1,641,192 Non-Qualified IX 10,174 Non-Qualified X 339,511 Annuity contracts in payment period 335,156 ----------------------------------- AETNA BALANCED VP, INC.: Non-Qualified V 39,445,206 Non-Qualified V (0.75) 30,192,700 Non-Qualified VI 512,842 Non-Qualified VII 39,660,581 Non-Qualified VIII 6,149,100 Non-Qualified IX 362,046 Non-Qualified X 7,870,310 Non-Qualified XI 60,968 Non-Qualified XII 64,795 Non-Qualified XIII 11,688,227 Non-Qualified XIV 8,169,102 Non-Qualified XV 4,174,777 Non-Qualified XVI 2,300,665 Non-Qualified XVII 966 Non-Qualified XVIII 667,072 Non-Qualified XIX 1,398,567 Annuity contracts in payment period 37,229,700 ----------------------------------- AETNA BOND VP: Non-Qualified V 14,030,645 Non-Qualified V (0.75) 26,506,008 Non-Qualified VI 810,618 Non-Qualified VII 35,375,072 Non-Qualified VIII 6,954,452 Non-Qualified IX 218,450 Non-Qualified X 5,935,602 Non-Qualified XI 75,498 Non-Qualified XII 9,704 Non-Qualified XIII 15,887,678 Non-Qualified XIV 16,371,305 Non-Qualified XV 5,895,971 Non-Qualified XVI 4,022,799 Non-Qualified XVIII 1,495,185 Non-Qualified XIX 1,949,200 Annuity contracts in payment period 8,920,825 ----------------------------------- AETNA CROSSROADS VP: Non-Qualified V 1,496,387 Non-Qualified V (0.75) 1,860,275 Non-Qualified VII 9,941,227 Non-Qualified VIII 2,390,024 Non-Qualified X 150,474 Non-Qualified XVII 37,362 Annuity contracts in payment period 1,514,588 ----------------------------------- AETNA GET FUND, SERIES D: Non-Qualified V 17,217,452 Non-Qualified V (0.75) 12,297,159 Non-Qualified VII 36,752,749 Non-Qualified VIII 17,439,938 Non-Qualified IX 3,121 Non-Qualified X 1,537,347 Non-Qualified XIII 14,446,784 Non-Qualified XIV 15,987,874 Non-Qualified XV 4,260,810 -----------------------------------
S-10 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------- Value Units Per Unit -------- Net Assets Investment Outstanding BeatnEndg End of Total Expense Income at End of Year Year Return Ratio Ratio of Year ---------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES E: 1.00% to 2.40% 0.78% Non-Qualified V $ 10.139 $ 10.068 (0.70%) 1,517,298.0 Non-Qualified V (0.75) 10.218 10.197 (0.21%) 197,595.1 Non-Qualified VII 10.081 9.968 (1.12%) 3,265,872.1 Non-Qualified VIII 10.105 10.007 (0.97%) 412,301.5 Non-Qualified X 10.145 10.073 (0.71%) 106,210.6 Non-Qualified XIII 10.152 10.084 (0.67%) 9,107,348.5 Non-Qualified XIV 10.105 10.007 (0.97%) 8,446,206.0 Non-Qualified XV 10.081 9.968 (1.12%) 6,920,371.4 ---------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES G: 1.00% to 2.40% 0.38% Non-Qualified V 9.914 9.903 (0.11%) 212,337.3 Non-Qualified V (0.75) 9.978 10.018 0.40% 176,706.3 Non-Qualified VII 9.866 9.815 (0.52%) 2,271,252.4 Non-Qualified VIII 9.886 9.849 (0.37%) 284,930.3 Non-Qualified X 9.920 9.910 (0.10%) 12,410.2 Non-Qualified XIII 9.925 9.919 (0.06%) 4,727,604.0 Non-Qualified XIV 9.886 9.849 (0.37%) 6,503,863.6 Non-Qualified XV 9.866 9.815 (0.52%) 3,191,517.5 ---------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES H: 1.00% to 2.40% 0.47% Non-Qualified V 10.069 9.985 (0.83%) 104,877.8 Non-Qualified V (0.75) 10.121 10.088 (0.33%) 49,219.1 Non-Qualified VII 10.031 9.907 (1.24%) 1,451,934.2 Non-Qualified VIII 10.047 9.938 (1.08%) 102,689.4 Non-Qualified IX 10.043 9.934 (1.09%) 470.3 Non-Qualified X 10.075 9.992 (0.82%) 989.5 Non-Qualified XIII 10.079 10.000 (0.78%) 4,489,408.2 Non-Qualified XIV 10.047 9.938 (1.08%) 4,727,543.2 Non-Qualified XV 10.031 9.907 (1.24%) 2,306,087.0 ---------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES I: 1.35% to 2.40% 0.25% Non-Qualified VII 9.850 9.775 (0.76%) 356,212.3 Non-Qualified VIII 9.862 9.802 (0.61%) 27,299.0 Non-Qualified XIII 9.886 9.856 (0.30%) 2,750,608.9 Non-Qualified XIV 9.862 9.802 (0.61%) 3,503,071.1 Non-Qualified XV 9.850 9.775 (0.76%) 2,271,666.3 ---------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES J: 1.35% to 2.40% 0.18% Non-Qualified VII 9.722 9.661 (0.63%) 216,729.0 Non-Qualified VIII 9.730 9.684 (0.47%) 36,672.8 Non-Qualified XIII 9.746 9.730 (0.16%) 2,141,039.3 Non-Qualified XIV 9.730 9.684 (0.47%) 3,401,459.2 Non-Qualified XV 9.722 9.661 (0.63%) 1,923,230.4 ---------------------------------------------------------------------------------------------------------------------------------- AETBA GET FUND, SERIES K: 1.35% to 2.40% 0.00% Non-Qualified VII 10.036 9.766 (2.69%) 78,143.7 Non-Qualified VIII 10.040 9.786 (2.53%) 4,926.2 Non-Qualified XIII 10.049 9.824 (2.24%) 1,511,453.1 Non-Qualified XIV 10.040 9.786 (2.53%) 2,113,395.5 Non-Qualified XV 10.036 9.766 (2.69%) 936,724.1 Non-Qualified XVI 10.009 9.735 (2.74%) 1,763,129.2 Non-Qualified XVIII 9.997 9.678 (3.19%) 1,224,137.5 Non-Qualified XIX 10.001 9.697 (3.04%) 1,449,667.5 ---------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES L: 1.35% to 2.40% 4.63% Non-Qualified VII 10.014 9.923 (0.91%) (1) 97,143.3 Non-Qualified VIII 10.051 9.939 (1.11%) (1) 29,165.1 Non-Qualified XIII 10.017 9.971 (0.46%) 1,457,277.8 Non-Qualified XIV 10.016 9.939 (0.77%) 927,449.4 Non-Qualified XV 10.015 9.923 (0.92%) 829,950.2 Non-Qualified XVI 10.015 9.918 (0.97%) 2,113,062.2 Non-Qualified XVIII 10.023 9.870 (1.53%) (1) 1,083,226.6 Non-Qualified XIX 10.013 9.886 (1.27%) 1,563,625.9 ---------------------------------------------------------------------------------------------------------------------------------- ----------------------------------- AETNA GET FUND, SERIES E: Non-Qualified V $ 15,276,156 Non-Qualified V (0.75) 2,014,877 Non-Qualified VII 32,554,213 Non-Qualified VIII 4,125,901 Non-Qualified X 1,069,859 Non-Qualified XIII 91,838,502 Non-Qualified XIV 84,521,183 Non-Qualified XV 68,982,262 ----------------------------------- AETNA GET FUND, SERIES G: Non-Qualified V 2,102,776 Non-Qualified V (0.75) 1,770,244 Non-Qualified VII 22,292,342 Non-Qualified VIII 2,806,279 Non-Qualified X 122,985 Non-Qualified XIII 46,893,104 Non-Qualified XIV 64,056,553 Non-Qualified XV 31,324,744 ----------------------------------- AETNA GET FUND, SERIES H: Non-Qualified V 1,047,205 Non-Qualified V (0.75) 496,522 Non-Qualified VII 14,384,312 Non-Qualified VIII 1,020,527 Non-Qualified IX 4,672 Non-Qualified X 9,887 Non-Qualified XIII 44,894,082 Non-Qualified XIV 46,982,324 Non-Qualified XV 22,846,404 ----------------------------------- AETNA GET FUND, SERIES I: Non-Qualified VII 3,481,975 Non-Qualified VIII 267,585 Non-Qualified XIII 27,110,001 Non-Qualified XIV 34,337,103 Non-Qualified XV 22,205,538 ----------------------------------- AETNA GET FUND, SERIES J: Non-Qualified VII 2,093,819 Non-Qualified VIII 355,139 Non-Qualified XIII 20,832,312 Non-Qualified XIV 32,939,731 Non-Qualified XV 18,580,329 ----------------------------------- AETBA GET FUND, SERIES K: Non-Qualified VII 763,151 Non-Qualified VIII 48,208 Non-Qualified XIII 14,848,515 Non-Qualified XIV 20,681,688 Non-Qualified XV 9,148,048 Non-Qualified XVI 17,164,063 Non-Qualified XVIII 11,847,203 Non-Qualified XIX 14,057,426 ----------------------------------- AETNA GET FUND, SERIES L: Non-Qualified VII 963,953 Non-Qualified VIII 289,872 Non-Qualified XIII 14,530,517 Non-Qualified XIV 9,217,920 Non-Qualified XV 8,235,596 Non-Qualified XVI 20,957,351 Non-Qualified XVIII 10,691,447 Non-Qualified XIX 15,458,006 -----------------------------------
S-11 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------- Value Units Per Unit -------- Net Assets Investment Outstanding BeatnEndg End of Total Expense Income at End of Year Year Return Ratio Ratio of Year ---------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES M: 1.45% to 2.40% 3.29% Non-Qualified VII $ 10.005 $ 9.836 (1.69%) (2) 205,866.1 Non-Qualified VIII 10.012 9.848 (1.64%) (2) 17,603.3 Non-Qualified XIII 10.005 9.872 (1.33%) (2) 1,579,244.5 Non-Qualified XIV 10.002 9.848 (1.54%) (2) 1,529,222.4 Non-Qualified XV 10.011 9.836 (1.75%) (2) 830,126.1 Non-Qualified XVI 10.018 9.832 (1.86%) (3) 4,033,463.4 Non-Qualified XVIII 10.019 9.796 (2.23%) (3) 2,002,817.5 Non-Qualified XIX 10.022 9.808 (2.14%) (3) 2,332,280.1 ---------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES N: 1.45% to 2.40% 1.44% Non-Qualified VII 10.009 10.279 2.70% (5) 506,633.7 Non-Qualified VIII 10.009 10.288 2.79% (5) 3,138.6 Non-Qualified XIII 10.003 10.305 3.02% (5) 1,261,949.6 Non-Qualified XIV 10.010 10.288 2.78% (5) 942,831.0 Non-Qualified XV 10.006 10.279 2.73% (6) 557,403.3 Non-Qualified XVI 10.003 10.276 2.73% (5) 3,716,836.9 Non-Qualified XVIII 10.032 10.251 2.18% (8) 1,186,388.5 Non-Qualified XIX 10.002 10.259 2.57% (5) 2,005,662.6 ---------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES P: 1.45% to 2.40% 0.12% Non-Qualified VII 9.997 10.020 0.23% (8) 516,506.7 Non-Qualified VIII 9.997 10.025 0.28% (8) 61,726.6 Non-Qualified XIII 9.998 10.034 0.36% (8) 1,023,951.1 Non-Qualified XIV 9.998 10.025 0.27% (8) 711,645.3 Non-Qualified XV 9.997 10.020 0.23% (8) 455,060.3 Non-Qualified XVI 9.997 10.018 0.21% (8) 2,390,243.0 Non-Qualified XVIII 9.996 10.004 0.08% (8) 1,649,971.3 Non-Qualified XIX 9.997 10.009 0.12% (8) 1,478,474.9 ---------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES Q: .95% to 1.90% 0.00% Non-Qualified VII 10.000 9.999 (0.01%) (11) 27,343.5 Non-Qualified VIII 9.999 10.000 0.01% (11) 1,669.4 Non-Qualified XIII 10.000 10.002 0.02% (11) 29,828.3 Non-Qualified XIV 10.000 10.000 0.00% (11) 29,133.7 Non-Qualified XVI 10.000 9.999 (0.01%) (11) 41,105.9 Non-Qualified XVIII 10.000 9.997 (0.03%) (11) 5,527.1 Non-Qualified XIX 10.000 9.998 (0.02%) (11) 27,434.9 ---------------------------------------------------------------------------------------------------------------------------------- AETNA GROWTH AND INCOME VP: .45% to 2.25% 0.60% Non-Qualified 1964 272.607 219.661 (19.42%) 958.7 Non-Qualified V 25.397 20.465 (19.42%) 5,447,988.0 Non-Qualified V (0.75) 26.020 21.072 (19.02%) 8,597,330.9 Non-Qualified VI 23.810 19.197 (19.37%) 1,307,273.8 Non-Qualified VII 25.247 20.311 (19.55%) 5,533,622.8 Non-Qualified VIII 16.928 13.640 (19.42%) 1,051,190.1 Non-Qualified IX 25.162 20.224 (19.62%) 80,697.9 Non-Qualified X 25.624 20.700 (19.22%) 2,540,138.3 Non-Qualified XI 24.023 19.418 (19.17%) 36,261.2 Non-Qualified XII 10.495 8.495 (19.06%) 35,672.2 Non-Qualified XIII 10.140 8.195 (19.18%) 1,650,395.2 Non-Qualified XIV 10.065 8.110 (19.42%) 1,759,668.7 Non-Qualified XV 10.028 8.067 (19.56%) 598,187.7 Non-Qualified XVI 8.973 7.215 (19.59%) 229,034.9 Non-Qualified XVII 251.601 203.849 (18.98%) 251.7 Non-Qualified XVIII 8.962 7.173 (19.96%) 70,511.4 Non-Qualified XIX 8.965 7.187 (19.83%) 140,248.8 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- AETNA GROWTH VP: .45% to 2.25% 12.13% Non-Qualified V 20.761 14.953 (27.98%) 114,784.7 Non-Qualified V (0.75) 21.151 15.311 (27.61%) 662,293.1 Non-Qualified VII 20.638 14.840 (28.09%) 801,460.5 Non-Qualified VIII 20.755 14.948 (27.98%) 312,227.8 Non-Qualified IX 20.569 14.777 (28.16%) 8,426.6 Non-Qualified XII 13.184 9.539 (27.65%) 8,282.1 ----------------------------------- AETNA GET FUND, SERIES M: Non-Qualified VII $ 2,024,899 Non-Qualified VIII 173,357 Non-Qualified XIII 15,590,302 Non-Qualified XIV 15,059,782 Non-Qualified XV 8,165,120 Non-Qualified XVI 39,657,012 Non-Qualified XVIII 19,619,600 Non-Qualified XIX 22,875,003 ----------------------------------- AETNA GET FUND, SERIES N: Non-Qualified VII 5,207,688 Non-Qualified VIII 32,290 Non-Qualified XIII 13,004,391 Non-Qualified XIV 9,699,845 Non-Qualified XV 5,729,549 Non-Qualified XVI 38,194,216 Non-Qualified XVIII 12,161,669 Non-Qualified XIX 20,576,093 ----------------------------------- AETNA GET FUND, SERIES P: Non-Qualified VII 5,175,397 Non-Qualified VIII 618,809 Non-Qualified XIII 10,274,325 Non-Qualified XIV 7,134,244 Non-Qualified XV 4,559,704 Non-Qualified XVI 23,945,454 Non-Qualified XVIII 16,506,313 Non-Qualified XIX 14,798,055 ----------------------------------- AETNA GET FUND, SERIES Q: Non-Qualified VII 273,408 Non-Qualified VIII 16,694 Non-Qualified XIII 298,343 Non-Qualified XIV 291,337 Non-Qualified XVI 411,018 Non-Qualified XVIII 55,254 Non-Qualified XIX 274,294 ----------------------------------- AETNA GROWTH AND INCOME VP: Non-Qualified 1964 210,583 Non-Qualified V 111,493,075 Non-Qualified V (0.75) 181,162,957 Non-Qualified VI 25,095,735 Non-Qualified VII 112,393,412 Non-Qualified VIII 14,338,233 Non-Qualified IX 1,632,035 Non-Qualified X 52,580,862 Non-Qualified XI 704,120 Non-Qualified XII 303,035 Non-Qualified XIII 13,524,989 Non-Qualified XIV 14,270,913 Non-Qualified XV 4,825,580 Non-Qualified XVI 1,652,487 Non-Qualified XVII 51,313 Non-Qualified XVIII 505,778 Non-Qualified XIX 1,007,968 Annuity contracts in payment period 127,893,377 ----------------------------------- AETNA GROWTH VP: Non-Qualified V 1,716,376 Non-Qualified V (0.75) 10,140,370 Non-Qualified VII 11,893,674 Non-Qualified VIII 4,667,181 Non-Qualified IX 124,520 Non-Qualified XII 79,003
S-12 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------- Value Units Per Unit -------- Net Assets Investment Outstanding BeatnEndg End of Total Expense Income at End of Year Year Return Ratio Ratio of Year ---------------------------------------------------------------------------------------------------------------------------------- AETNA GROWTH VP: (continued): Non-Qualified XIII $ 12.229 $ 8.834 (27.76%) 962,023.1 Non-Qualified XIV 12.139 8.742 (27.98%) 822,256.5 Non-Qualified XV 12.094 8.697 (28.09%) 179,315.1 Non-Qualified XVI 8.027 5.769 (28.13%) 144,532.5 Non-Qualified XVIII 8.017 5.736 (28.45%) 15,657.4 Non-Qualified XIX 8.021 5.747 (28.35%) 116,473.8 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- AETNA INDEX PLUS LARGE CAP VP: .45% to 2.25% 4.07% Non-Qualified V 20.618 17.587 (14.70%) 331,961.8 Non-Qualified V (0.75) 21.065 18.059 (14.27%) 1,191,684.9 Non-Qualified VII 20.478 17.439 (14.84%) 2,099,793.6 Non-Qualified VIII 20.261 17.281 (14.71%) 719,529.3 Non-Qualified IX 20.427 17.381 (14.91%) 25,187.7 Non-Qualified X 18.720 17.668 (5.62%) (7) 2,330.9 Non-Qualified XII 12.292 10.532 (14.32%) 16,047.2 Non-Qualified XIII 11.839 10.129 (14.44%) 4,201,883.7 Non-Qualified XIV 11.752 10.024 (14.70%) 3,558,546.9 Non-Qualified XV 11.709 9.971 (14.84%) 1,515,400.0 Non-Qualified XVI 9.002 7.662 (14.89%) 649,181.3 Non-Qualified XVII 19.121 17.754 (7.15%) (6) 243.5 Non-Qualified XVIII 8.991 7.618 (15.27%) 197,497.0 Non-Qualified XIX 8.995 7.633 (15.14%) 651,208.0 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- AETNA INDEX PLUS MID CAP VP: .45% to 1.50% 6.54% Non-Qualified V 14.751 14.374 (2.56%) 107,714.1 Non-Qualified V (0.75) 14.951 14.642 (2.07%) 512,593.5 Non-Qualified IX 14.653 14.242 (2.80%) 5,968.9 Non-Qualified XII 15.591 15.261 (2.12%) 4,871.8 Non-Qualified XVII 13.477 15.107 12.09% (9) 65.8 ---------------------------------------------------------------------------------------------------------------------------------- AETNA INDEX PLUS SMALL CAP VP: .45% to 1.50% 3.71% Non-Qualified V 10.461 10.579 1.13% 51,504.5 Non-Qualified V (0.75) 10.602 10.776 1.64% 169,151.4 Non-Qualified IX 10.391 10.481 0.87% 4,090.2 Non-Qualified XII 11.423 11.604 1.58% 10.0 ---------------------------------------------------------------------------------------------------------------------------------- AETNA INTERNATIONAL VP: .45% to 2.25% 0.12% Non-Qualified V 11.484 8.632 (24.83%) 16,485.6 Non-Qualified V (0.75) 11.639 8.793 (24.45%) 80,010.6 Non-Qualified VII 11.434 8.581 (24.95%) 93,668.3 Non-Qualified VIII 11.481 8.630 (24.83%) 38,227.6 Non-Qualified XIII 10.824 8.160 (24.61%) 304,009.4 Non-Qualified XIV 10.744 8.075 (24.84%) 191,553.3 Non-Qualified XV 10.704 8.033 (24.95%) 79,278.6 Non-Qualified XVI 8.741 6.557 (24.99%) 77,492.1 Non-Qualified XVIII 8.730 6.518 (25.34%) 6,119.7 Non-Qualified XIX 8.734 6.531 (25.22%) 66,651.7 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- AETNA LEGACY VP: .45% to 2.25% 4.36% Non-Qualified V 15.397 14.844 (3.59%) 82,971.8 Non-Qualified V (0.75) 15.775 15.285 (3.11%) 51,742.5 Non-Qualified VII 15.267 14.695 (3.75%) 917,448.8 Non-Qualified VIII 14.271 13.757 (3.60%) 327,498.4 Non-Qualified XII 11.139 10.788 (3.15%) 524.5 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- AETNA MONEY MARKET VP: .45% to 2.25% 4.69% Non-Qualified V 13.547 13.905 2.64% 1,134,799.9 Non-Qualified V (0.75) 13.879 14.318 3.16% 2,482,499.2 Non-Qualified VI 13.243 13.601 2.70% 28,410.0 Non-Qualified VII 13.392 13.723 2.47% 7,306,702.8 Non-Qualified VIII 12.145 12.465 2.63% 1,479,115.6 ----------------------------------- AETNA GROWTH VP: (continued): Non-Qualified XIII $ 8,498,512 Non-Qualified XIV 7,188,166 Non-Qualified XV 1,559,503 Non-Qualified XVI 833,808 Non-Qualified XVIII 89,811 Non-Qualified XIX 669,375 Annuity contracts in payment period 4,627,717 ----------------------------------- AETNA INDEX PLUS LARGE CAP VP: Non-Qualified V 5,838,212 Non-Qualified V (0.75) 21,520,638 Non-Qualified VII 36,618,301 Non-Qualified VIII 12,434,185 Non-Qualified IX 437,788 Non-Qualified X 41,182 Non-Qualified XII 169,009 Non-Qualified XIII 42,560,880 Non-Qualified XIV 35,670,874 Non-Qualified XV 15,110,053 Non-Qualified XVI 4,974,027 Non-Qualified XVII 4,323 Non-Qualified XVIII 1,504,532 Non-Qualified XIX 4,970,671 Annuity contracts in payment period 42,907,053 ----------------------------------- AETNA INDEX PLUS MID CAP VP: Non-Qualified V 1,548,282 Non-Qualified V (0.75) 7,505,394 Non-Qualified IX 85,009 Non-Qualified XII 74,348 Non-Qualified XVII 994 ----------------------------------- AETNA INDEX PLUS SMALL CAP VP: Non-Qualified V 544,866 Non-Qualified V (0.75) 1,822,775 Non-Qualified IX 42,869 Non-Qualified XII 116 ----------------------------------- AETNA INTERNATIONAL VP: Non-Qualified V 142,304 Non-Qualified V (0.75) 703,533 Non-Qualified VII 803,768 Non-Qualified VIII 329,904 Non-Qualified XIII 2,480,717 Non-Qualified XIV 1,546,793 Non-Qualified XV 636,845 Non-Qualified XVI 508,116 Non-Qualified XVIII 39,888 Non-Qualified XIX 435,302 Annuity contracts in payment period 363,764 ----------------------------------- AETNA LEGACY VP: Non-Qualified V 1,231,633 Non-Qualified V (0.75) 790,884 Non-Qualified VII 13,481,910 Non-Qualified VIII 4,505,395 Non-Qualified XII 5,658 Annuity contracts in payment period 3,331,177 ----------------------------------- AETNA MONEY MARKET VP: Non-Qualified V 15,779,393 Non-Qualified V (0.75) 35,544,423 Non-Qualified VI 386,404 Non-Qualified VII 100,269,882 Non-Qualified VIII 18,437,176
S-13 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------- Value Units Per Unit -------- Net Assets Investment Outstanding BeatnEndg End of Total Expense Income at End of Year Year Return Ratio Ratio of Year ---------------------------------------------------------------------------------------------------------------------------------- AETNA MONEY MARKET VP: (continued): Non-Qualified IX $ 13.422 $ 13.741 2.38% 4,686.8 Non-Qualified X 13.547 13.905 2.64% 362,579.5 Non-Qualified XI 13.243 13.601 2.70% 2,249.9 Non-Qualified XII 11.260 11.610 3.11% 8,972.9 Non-Qualified XIII 11.186 11.515 2.94% 3,693,592.2 Non-Qualified XIV 11.103 11.396 2.64% 2,794,371.4 Non-Qualified XV 11.062 11.336 2.48% 1,293,085.8 Non-Qualified XVI 10.143 10.389 2.43% 825,725.8 Non-Qualified XVII 47.809 48.445 1.33% (6) 215.8 Non-Qualified XVIII 10.130 10.328 1.95% 290,006.2 Non-Qualified XIX 10.135 10.348 2.10% 716,590.6 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- AETNA SMALL COMPANY VP: .45% to 2.25% 3.89% Non-Qualified V 18.568 19.070 2.70% 51,364.3 Non-Qualified V (0.75) 18.917 19.526 3.22% 356,105.6 Non-Qualified VII 18.458 18.926 2.54% 993,412.1 Non-Qualified VIII 18.563 19.063 2.69% 287,178.1 Non-Qualified IX 18.396 18.845 2.44% 1,604.5 Non-Qualified XII 13.077 13.491 3.17% 31,307.2 Non-Qualified XIII 12.820 13.205 3.00% 886,919.2 Non-Qualified XIV 12.726 13.068 2.69% 558,858.4 Non-Qualified XV 12.679 13.000 2.53% 165,136.6 Non-Qualified XVI 9.234 9.463 2.48% 272,628.3 Non-Qualified XVII 14.029 14.099 0.50% (6) 2,043.8 Non-Qualified XVIII 9.223 9.408 2.01% 31,929.6 Non-Qualified XIX 9.226 9.426 2.17% 175,853.9 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- AETNA TECHNOLOGY VP: .45% to 1.90% 0.00% Non-Qualified V 5.831 4.436 (23.92%) 172,468.9 Non-Qualified V (0.75) 5.850 4.473 (23.54%) 549,436.2 Non-Qualified VII 5.824 4.424 (24.04%) 451,032.1 Non-Qualified VIII 5.830 4.435 (23.93%) 70,053.7 Non-Qualified IX 5.821 4.417 (24.12%) 13,314.2 Non-Qualified X 5.841 4.454 (23.75%) 7,504.5 Non-Qualified XII 5.848 4.469 (23.58%) 3,507.7 Non-Qualified XIII 5.842 4.458 (23.69%) 572,939.4 Non-Qualified XIV 5.830 4.435 (23.93%) 433,715.4 Non-Qualified XV 5.824 4.424 (24.04%) 79,126.4 Non-Qualified XVI 6.088 4.622 (24.08%) 115,833.4 Non-Qualified XVIII 6.080 4.595 (24.42%) 31,072.5 Non-Qualified XIX 6.083 4.604 (24.31%) 130,825.2 ---------------------------------------------------------------------------------------------------------------------------------- AETNA VALUE OPPORTUNITY VP: .45% to 1.50% 5.21% Non-Qualified V 20.602 18.388 (10.75%) 68,336.4 Non-Qualified V (0.75) 20.989 18.828 (10.30%) 283,291.3 Non-Qualified VII 20.480 18.250 (10.89%) 849,749.6 Non-Qualified VIII 20.596 18.382 (10.75%) 211,524.2 Non-Qualified IX 20.412 18.172 (10.97%) 3,848.1 Non-Qualified XII 14.220 12.749 (10.34%) 23,906.7 Non-Qualified XVII 14.079 13.998 (0.58%) (10) 68.4 ---------------------------------------------------------------------------------------------------------------------------------- AIM V.I. FUNDS: CAPITAL APPRECIATION FUND: .45% to 2.25% 7.71% Non-Qualified V 12.101 9.168 (24.24%) 21,607.0 Non-Qualified V (0.75) 12.204 9.292 (23.86%) 119,757.2 Non-Qualified XIII 12.951 9.841 (24.01%) 613,912.3 Non-Qualified XIV 12.855 9.738 (24.25%) 752,138.0 Non-Qualified XV 12.808 9.687 (24.37%) 424,755.1 Non-Qualified XVI 7.678 5.805 (24.39%) 228,065.8 Non-Qualified XVII 12.316 9.382 (23.82%) 581.0 Non-Qualified XVIII 7.669 5.771 (24.75%) 177,076.2 Non-Qualified XIX 7.672 5.782 (24.64%) 261,736.1 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- ----------------------------------- AETNA MONEY MARKET VP: (continued): Non-Qualified IX $ 64,401 Non-Qualified X 5,041,668 Non-Qualified XI 30,601 Non-Qualified XII 104,175 Non-Qualified XIII 42,531,714 Non-Qualified XIV 31,844,657 Non-Qualified XV 14,658,421 Non-Qualified XVI 8,578,465 Non-Qualified XVII 10,454 Non-Qualified XVIII 2,995,184 Non-Qualified XIX 7,415,280 Annuity contracts in payment period 9,334,380 ----------------------------------- AETNA SMALL COMPANY VP: Non-Qualified V 979,518 Non-Qualified V (0.75) 6,953,318 Non-Qualified VII 18,801,317 Non-Qualified VIII 5,474,476 Non-Qualified IX 30,237 Non-Qualified XII 422,366 Non-Qualified XIII 11,711,768 Non-Qualified XIV 7,303,162 Non-Qualified XV 2,146,776 Non-Qualified XVI 2,579,882 Non-Qualified XVII 28,816 Non-Qualified XVIII 300,394 Non-Qualified XIX 1,657,599 Annuity contracts in payment period 4,186,803 ----------------------------------- AETNA TECHNOLOGY VP: Non-Qualified V 765,072 Non-Qualified V (0.75) 2,457,628 Non-Qualified VII 1,995,366 Non-Qualified VIII 310,688 Non-Qualified IX 58,809 Non-Qualified X 33,425 Non-Qualified XII 15,676 Non-Qualified XIII 2,554,164 Non-Qualified XIV 1,923,528 Non-Qualified XV 350,055 Non-Qualified XVI 535,382 Non-Qualified XVIII 142,778 Non-Qualified XIX 602,319 ----------------------------------- AETNA VALUE OPPORTUNITY VP: Non-Qualified V 1,256,570 Non-Qualified V (0.75) 5,333,808 Non-Qualified VII 15,507,931 Non-Qualified VIII 3,888,238 Non-Qualified IX 69,928 Non-Qualified XII 304,787 Non-Qualified XVII 958 ----------------------------------- AIM V.I. FUNDS: CAPITAL APPRECIATION FUND: Non-Qualified V 198,093 Non-Qualified V (0.75) 1,112,784 Non-Qualified XIII 6,041,511 Non-Qualified XIV 7,324,320 Non-Qualified XV 4,114,603 Non-Qualified XVI 1,323,922 Non-Qualified XVII 5,451 Non-Qualified XVIII 1,021,907 Non-Qualified XIX 1,513,358 Annuity contracts in payment period 852,893 -----------------------------------
S-14 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------- Value Units Per Unit -------- Net Assets Investment Outstanding BeatnEndg End of Total Expense Income at End of Year Year Return Ratio Ratio of Year ---------------------------------------------------------------------------------------------------------------------------------- AETNA MONEY MARKET VP: (continued): GOVERNMENT SECURITIES FUND: .50% to 1.90% 5.55% Non-Qualified XIII $ 10.800 $ 11.383 5.40% 178,807.9 Non-Qualified XIV 10.843 11.325 4.45% (1) 245,191.8 Non-Qualified XV 10.767 11.296 4.91% 86,120.3 Non-Qualified XVI 10.392 10.897 4.86% 184,082.0 Non-Qualified XVIII 10.379 10.834 4.38% 52,315.8 Non-Qualified XIX 10.384 10.855 4.54% 72,881.5 ---------------------------------------------------------------------------------------------------------------------------------- GROWTH AND INCOME FUND: .45% to 2.25% 0.05% Non-Qualified V 9.887 7.534 (23.80%) 40,659.1 Non-Qualified V (0.75) 9.970 7.636 (23.41%) 108,312.3 Non-Qualified IX 8.933 7.483 (16.23%) (4) 2,154.3 Non-Qualified XII 9.962 7.626 (23.45%) 207.2 Non-Qualified XIII 12.001 9.172 (23.57%) 1,160,319.7 Non-Qualified XIV 11.912 9.076 (23.81%) 1,890,198.1 Non-Qualified XV 11.868 9.029 (23.92%) 607,793.1 Non-Qualified XVI 8.214 6.246 (23.96%) 248,334.1 Non-Qualified XVIII 8.204 6.210 (24.31%) 135,663.9 Non-Qualified XIX 8.207 6.222 (24.19%) 297,126.8 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- GROWTH FUND: .45% to 2.25% 0.20% Non-Qualified V 9.477 6.188 (34.71%) 22,530.4 Non-Qualified V (0.75) 9.558 6.272 (34.38%) 144,930.5 Non-Qualified IX 9.437 6.146 (34.87%) 306.9 Non-Qualified XII 9.550 6.263 (34.42%) 2,465.3 Non-Qualified XIII 11.371 7.446 (34.52%) 964,133.5 Non-Qualified XIV 11.288 7.369 (34.72%) 1,455,035.8 Non-Qualified XV 11.246 7.330 (34.82%) 500,452.8 Non-Qualified XVI 7.611 4.958 (34.86%) 256,728.9 Non-Qualified XVIII 7.601 4.939 (35.02%) 442,717.4 Non-Qualified XIX 7.604 4.929 (35.18%) 122,962.5 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- VALUE FUND: .45% to 2.25% 2.16% Non-Qualified V 9.699 8.375 (13.65%) 23,206.2 Non-Qualified V (0.75) 9.781 8.488 (13.22%) 200,922.1 Non-Qualified IX 9.203 8.318 (9.62%) (3) 13.3 Non-Qualified XII 9.773 8.477 (13.26%) 1,681.4 Non-Qualified XIII 11.548 10.001 (13.40%) 1,985,504.0 Non-Qualified XIV 11.463 9.897 (13.66%) 3,031,051.6 Non-Qualified XV 11.420 9.845 (13.79%) 1,050,807.0 Non-Qualified XVI 8.804 7.585 (13.85%) 371,812.8 Non-Qualified XVII 9.981 8.666 (13.18%) 422.7 Non-Qualified XVIII 8.793 7.541 (14.24%) 168,626.8 Non-Qualified XIX 8.796 7.556 (14.10%) 575,874.3 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- ALGER AMERICAN FUNDS: BALANCED PORTFOLIO: .85% to 1.40% 3.07% Non-Qualified VII 25.588 24.740 (3.31%) 152,200.0 ---------------------------------------------------------------------------------------------------------------------------------- INCOME & GROWTH PORTFOLIO: .85% to 1.40% 6.98% Non-Qualified VII 30.172 25.486 (15.53%) 442,570.6 ---------------------------------------------------------------------------------------------------------------------------------- LEVERAGED ALLCAP PORTFOLIO: .85% to 1.40% 3.28% Non-Qualified VII 32.379 26.838 (17.11%) 388,272.5 Non-Qualified VIII 23.765 19.728 (16.99%) 168.0 ---------------------------------------------------------------------------------------------------------------------------------- ALLIANCE FUNDS: GROWTH AND INCOME PORTFOLIO: .50% to 1.90% 4.75% Non-Qualified XIII 10.129 10.068 (0.60%) 713,344.5 Non-Qualified XIV 10.108 10.017 (0.90%) 929,828.6 Non-Qualified XV 10.098 9.991 (1.06%) 341,168.3 Non-Qualified XVI 10.387 10.272 (1.11%) 433,112.6 Non-Qualified XVIII 10.374 10.212 (1.56%) 72,599.9 Non-Qualified XIX 10.378 10.232 (1.41%) 301,191.9 ---------------------------------------------------------------------------------------------------------------------------------- ----------------------------------- AETNA MONEY MARKET VP: (continued) GOVERNMENT SECURITIES FUND: Non-Qualified XIII $ 2,035,370 Non-Qualified XIV 2,776,797 Non-Qualified XV 972,815 Non-Qualified XVI 2,005,942 Non-Qualified XVIII 566,789 Non-Qualified XIX 791,129 ----------------------------------- GROWTH AND INCOME FUND: Non-Qualified V 306,326 Non-Qualified V (0.75) 827,073 Non-Qualified IX 16,121 Non-Qualified XII 1,580 Non-Qualified XIII 10,642,452 Non-Qualified XIV 17,155,438 Non-Qualified XV 5,487,764 Non-Qualified XVI 1,551,095 Non-Qualified XVIII 842,473 Non-Qualified XIX 1,848,723 Annuity contracts in payment period 4,178,523 ----------------------------------- GROWTH FUND: Non-Qualified V 139,418 Non-Qualified V (0.75) 909,004 Non-Qualified IX 1,886 Non-Qualified XII 15,440 Non-Qualified XIII 7,178,938 Non-Qualified XIV 10,722,159 Non-Qualified XV 3,668,319 Non-Qualified XVI 1,272,862 Non-Qualified XVIII 2,186,581 Non-Qualified XIX 606,082 Annuity contracts in payment period 1,056,299 ----------------------------------- VALUE FUND: Non-Qualified V 194,352 Non-Qualified V (0.75) 1,705,427 Non-Qualified IX 111 Non-Qualified XII 14,253 Non-Qualified XIII 19,857,026 Non-Qualified XIV 29,998,318 Non-Qualified XV 10,345,195 Non-Qualified XVI 2,820,200 Non-Qualified XVII 3,663 Non-Qualified XVIII 1,271,615 Non-Qualified XIX 4,351,306 Annuity contracts in payment period 3,446,264 ----------------------------------- ALGER AMERICAN FUNDS: BALANCED PORTFOLIO: Non-Qualified VII 3,765,427 ----------------------------------- INCOME & GROWTH PORTFOLIO: Non-Qualified VII 11,279,354 ----------------------------------- LEVERAGED ALLCAP PORTFOLIO: Non-Qualified VII 10,420,457 Non-Qualified VIII 3,315 ----------------------------------- ALLIANCE FUNDS: GROWTH AND INCOME PORTFOLIO: Non-Qualified XIII 7,181,952 Non-Qualified XIV 9,314,093 Non-Qualified XV 3,408,612 Non-Qualified XVI 4,448,933 Non-Qualified XVIII 741,390 Non-Qualified XIX 3,081,796 -----------------------------------
S-15 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------- Value Units Per Unit -------- Net Assets Investment Outstanding BeatnEndg End of Total Expense Income at End of Year Year Return Ratio Ratio of Year ---------------------------------------------------------------------------------------------------------------------------------- PREMIER GROWTH PORTFOLIO: .50% to 1.90% 6.31% Non-Qualified XIII $ 7.620 $ 6.249 (17.99%) 378,916.5 Non-Qualified XIV 7.605 6.217 (18.25%) 313,434.8 Non-Qualified XV 7.597 6.201 (18.38%) 85,676.0 Non-Qualified XVI 8.198 6.688 (18.42%) 174,116.8 Non-Qualified XVIII 8.188 6.649 (18.80%) 79,454.2 Non-Qualified XIX 8.191 6.662 (18.67%) 298,931.4 ---------------------------------------------------------------------------------------------------------------------------------- QUASAR PORTFOLIO: .50% to 1.90% 3.62% Non-Qualified XIII 9.511 8.218 (13.59%) 23,023.4 Non-Qualified XIV 9.491 8.177 (13.84%) 36,073.1 Non-Qualified XV 9.482 8.156 (13.98%) 8,785.4 Non-Qualified XVI 8.589 7.384 (14.03%) 16,639.4 Non-Qualified XVIII 8.579 7.341 (14.43%) 5,613.4 Non-Qualified XIX 8.582 7.356 (14.29%) 25,883.5 ---------------------------------------------------------------------------------------------------------------------------------- AMERICAN CENTURY VP FUNDS: BALANCED FUND: .85% to 1.40% 6.22% Non-Qualified VII 18.208 17.316 (4.90%) 117,980.3 ---------------------------------------------------------------------------------------------------------------------------------- INTERNATIONAL FUND: .85% to 1.40% 10.20% Non-Qualified VII 21.410 14.950 (30.17%) 184,388.2 Non-Qualified VIII 19.425 13.585 (30.06%) 182.3 ---------------------------------------------------------------------------------------------------------------------------------- CALVERT SOCIAL BALANCED PORTFOLIO: .45% to 1.50% 4.91% Non-Qualified V 21.647 19.893 (8.10%) 7,168.4 Non-Qualified V (0.75) 22.178 20.484 (7.64%) 15,422.5 Non-Qualified VII 12.089 11.092 (8.25%) 73,665.0 Non-Qualified VIII 12.146 11.161 (8.11%) 61,261.5 ---------------------------------------------------------------------------------------------------------------------------------- FEDERATED INSURANCE SERIES: AMERICAN LEADERS FUND II: .85% to 1.40% 2.06% Non-Qualified VII 24.983 23.593 (5.56%) 3,513,341.3 Non-Qualified VIII 17.966 16.993 (5.42%) 8,484.7 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- EQUITY INCOME FUND II: .75% to 1.40% 1.97% Non-Qualified VII 14.335 12.581 (12.24%) 1,384,283.1 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- GROWTH STRATEGIES FUND II: .85% to 1.40% 1.68% Non-Qualified VII 24.528 18.770 (23.48%) 1,117,439.8 ---------------------------------------------------------------------------------------------------------------------------------- HIGH INCOME BOND FUND II: .85% to 1.40% 11.00% Non-Qualified VII 13.493 13.487 (0.04%) 1,547,649.3 Non-Qualified VIII 11.464 11.476 0.10% 300.2 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUND II: .85% to 1.40% 12.94% Non-Qualified VII 20.476 14.248 (30.42%) 766,700.4 Non-Qualified VIII 18.870 13.150 (30.31%) 127.9 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- PRIME MONEY FUND II: .85% to 1.40% 3.44% Non-Qualified VII 12.398 12.681 2.28% 694,875.9 ---------------------------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES FUND II: .85% to 1.40% 3.90% Non-Qualified VII 13.528 14.276 5.53% 819,694.2 ---------------------------------------------------------------------------------------------------------------------------------- UTILITY FUND II: .85% to 1.40% 3.57% Non-Qualified VII 16.802 14.292 (14.94%) 922,782.7 Non-Qualified VIII 13.971 11.902 (14.81%) 65.6 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- FIDELITY-REGISTERED TRADEMARK- VARIABLE INSURANCE PRODUCTS FUNDS: ASSET MANAGER PORTFOLIO -- INITIAL CLASS: .85% to 1.40% 6.08% Non-Qualified VII 18.456 17.452 (5.44%) 690,330.7 Non-Qualified VIII 15.387 14.572 (5.30%) 140,459.8 ---------------------------------------------------------------------------------------------------------------------------------- ----------------------------------- PREMIER GROWTH PORTFOLIO: Non-Qualified XIII $ 2,367,849 Non-Qualified XIV 1,948,624 Non-Qualified XV 531,277 Non-Qualified XVI 1,164,493 Non-Qualified XVIII 528,291 Non-Qualified XIX 1,991,481 ----------------------------------- QUASAR PORTFOLIO: Non-Qualified XIII 189,206 Non-Qualified XIV 294,970 Non-Qualified XV 71,654 Non-Qualified XVI 122,865 Non-Qualified XVIII 41,208 Non-Qualified XIX 190,399 ----------------------------------- AMERICAN CENTURY VP FUNDS: BALANCED FUND: Non-Qualified VII 2,042,947 ----------------------------------- INTERNATIONAL FUND: Non-Qualified VII 2,756,604 Non-Qualified VIII 2,477 ----------------------------------- CALVERT SOCIAL BALANCED PORTFOLIO: Non-Qualified V 142,600 Non-Qualified V (0.75) 315,914 Non-Qualified VII 817,092 Non-Qualified VIII 683,740 ----------------------------------- FEDERATED INSURANCE SERIES: AMERICAN LEADERS FUND II: Non-Qualified VII 82,890,261 Non-Qualified VIII 144,181 Annuity contracts in payment period 158,175 ----------------------------------- EQUITY INCOME FUND II: Non-Qualified VII 17,415,666 Annuity contracts in payment period 59,838 ----------------------------------- GROWTH STRATEGIES FUND II: Non-Qualified VII 20,974,345 ----------------------------------- HIGH INCOME BOND FUND II: Non-Qualified VII 20,873,146 Non-Qualified VIII 3,445 Annuity contracts in payment period 22,633 ----------------------------------- INTERNATIONAL EQUITY FUND II: Non-Qualified VII 10,923,948 Non-Qualified VIII 1,682 Annuity contracts in payment period 50,199 ----------------------------------- PRIME MONEY FUND II: Non-Qualified VII 8,811,721 ----------------------------------- U.S. GOVERNMENT SECURITIES FUND II: Non-Qualified VII 11,701,955 ----------------------------------- UTILITY FUND II: Non-Qualified VII 13,188,411 Non-Qualified VIII 781 Annuity contracts in payment period 40,875 ----------------------------------- FIDELITY-REGISTERED TRADEMARK- VARI PRODUCTS FUNDS: ASSET MANAGER PORTFOLIO -- INITIAL Non-Qualified VII 12,047,652 Non-Qualified VIII 2,046,780 -----------------------------------
S-16 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------- Value Units Per Unit -------- Net Assets Investment Outstanding BeatnEndg End of Total Expense Income at End of Year Year Return Ratio Ratio of Year ---------------------------------------------------------------------------------------------------------------------------------- CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO -- INITIAL CLASS: .45% to 1.90% 3.56% Non-Qualified V $ 22.333 $ 19.354 (13.34%) 350,846.0 Non-Qualified V (0.75) 22.881 19.928 (12.91%) 719,836.5 Non-Qualified VII 24.674 21.347 (13.48%) 3,675,854.6 Non-Qualified VIII 19.792 17.150 (13.35%) 614,226.7 Non-Qualified IX 22.126 19.126 (13.56%) 20,193.9 Non-Qualified X 22.333 19.354 (13.34%) 11,768.5 Non-Qualified XII 12.772 11.118 (12.95%) 9,643.9 Non-Qualified XIII 11.993 10.424 (13.08%) 2,109,546.6 Non-Qualified XIV 11.904 10.315 (13.35%) 2,524,942.7 Non-Qualified XV 11.860 10.262 (13.47%) 1,021,501.7 Non-Qualified XVI 9.440 8.163 (13.53%) 229,470.4 Non-Qualified XVII 22.694 21.956 (3.25%) (6) 4,991.9 Non-Qualified XVIII 9.428 8.115 (13.93%) 68,936.0 Non-Qualified XIX 9.432 8.131 (13.79%) 255,867.9 ---------------------------------------------------------------------------------------------------------------------------------- EQUITY-INCOME PORTFOLIO -- INITIAL CLASS: .45% to 1.90% 6.26% Non-Qualified V 19.565 18.363 (6.14%) 304,410.3 Non-Qualified V (0.75) 20.045 18.908 (5.67%) 619,584.3 Non-Qualified VII 23.395 21.922 (6.30%) 4,671,456.0 Non-Qualified VIII 16.799 15.765 (6.16%) 895,708.2 Non-Qualified IX 19.384 18.147 (6.38%) 11,575.3 Non-Qualified X 19.565 18.363 (6.14%) 5,108.1 Non-Qualified XII 11.457 10.802 (5.72%) 1,968.0 Non-Qualified XIII 11.210 10.553 (5.86%) 1,805,355.3 Non-Qualified XIV 11.127 10.443 (6.15%) 2,332,214.2 Non-Qualified XV 11.086 10.388 (6.30%) 681,661.0 Non-Qualified XVI 10.654 9.978 (6.35%) 402,042.1 Non-Qualified XVIII 10.640 9.920 (6.77%) 61,951.4 Non-Qualified XIX 10.645 9.939 (6.63%) 376,900.9 ---------------------------------------------------------------------------------------------------------------------------------- GROWTH PORTFOLIO -- INITIAL CLASS: .45% to 1.90% 7.26% Non-Qualified V 22.858 18.588 (18.68%) 497,068.2 Non-Qualified V (0.75) 23.418 19.140 (18.27%) 978,003.5 Non-Qualified VII 31.342 25.446 (18.81%) 3,217,102.3 Non-Qualified VIII 20.785 16.901 (18.69%) 772,781.3 Non-Qualified IX 22.646 18.369 (18.89%) 11,273.3 Non-Qualified X 22.858 18.588 (18.68%) 30,697.7 Non-Qualified XII 14.152 11.560 (18.32%) 8,593.3 Non-Qualified XIII 11.154 9.097 (18.44%) 1,711,082.4 Non-Qualified XIV 11.102 9.027 (18.69%) 1,544,436.9 Non-Qualified XV 11.076 8.993 (18.81%) 556,572.1 Non-Qualified XVI 8.554 6.941 (18.86%) 646,256.7 Non-Qualified XVII 23.250 19.011 (18.23%) 337.6 Non-Qualified XVIII 8.543 6.900 (19.23%) 111,951.6 Non-Qualified XIX 8.546 6.914 (19.10%) 547,139.4 ---------------------------------------------------------------------------------------------------------------------------------- HIGH INCOME PORTFOLIO -- INITIAL CLASS: .50% to 2.25% 13.71% Non-Qualified VII 10.735 9.342 (12.98%) 1,838,000.7 Non-Qualified VIII 9.648 8.409 (12.84%) 511,032.2 Non-Qualified XIII 7.362 6.436 (12.58%) 941,816.2 Non-Qualified XIV 7.307 6.369 (12.84%) 1,005,300.5 Non-Qualified XV 7.280 6.336 (12.97%) 442,313.6 Non-Qualified XVI 8.470 7.367 (13.02%) 110,265.6 Non-Qualified XVIII 8.459 7.324 (13.42%) 45,716.5 Non-Qualified XIX 8.463 7.338 (13.29%) 78,147.3 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- INDEX 500 PORTFOLIO -- INITIAL CLASS: .85% to 1.40% 1.20% Non-Qualified VII 24.151 20.929 (13.34%) 4,072,090.4 Non-Qualified VIII 20.173 17.509 (13.21%) 888,563.8 ---------------------------------------------------------------------------------------------------------------------------------- INVESTMENT GRADE BOND PORTFOLIO -- INITIAL CLASS: .85% to 1.40% 5.86% Non-Qualified VII 13.317 14.241 6.94% 216,261.8 Non-Qualified VIII 12.998 13.921 7.10% 281.4 ---------------------------------------------------------------------------------------------------------------------------------- ----------------------------------- CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO -- INITIAL CLASS: Non-Qualified V $ 6,790,274 Non-Qualified V (0.75) 14,344,902 Non-Qualified VII 78,468,469 Non-Qualified VIII 10,533,988 Non-Qualified IX 386,229 Non-Qualified X 227,767 Non-Qualified XII 107,221 Non-Qualified XIII 21,989,914 Non-Qualified XIV 26,044,784 Non-Qualified XV 10,482,650 Non-Qualified XVI 1,873,167 Non-Qualified XVII 109,603 Non-Qualified XVIII 559,416 Non-Qualified XIX 2,080,462 ----------------------------------- EQUITY-INCOME PORTFOLIO -- INITIAL Non-Qualified V 5,589,886 Non-Qualified V (0.75) 11,715,099 Non-Qualified VII 102,407,658 Non-Qualified VIII 14,120,839 Non-Qualified IX 210,057 Non-Qualified X 93,800 Non-Qualified XII 21,258 Non-Qualified XIII 19,051,914 Non-Qualified XIV 24,355,313 Non-Qualified XV 7,081,094 Non-Qualified XVI 4,011,576 Non-Qualified XVIII 614,558 Non-Qualified XIX 3,746,018 ----------------------------------- GROWTH PORTFOLIO -- INITIAL CLASS: Non-Qualified V 9,239,504 Non-Qualified V (0.75) 18,718,987 Non-Qualified VII 81,862,384 Non-Qualified VIII 13,060,776 Non-Qualified IX 207,079 Non-Qualified X 570,609 Non-Qualified XII 99,338 Non-Qualified XIII 15,565,717 Non-Qualified XIV 13,941,632 Non-Qualified XV 5,005,253 Non-Qualified XVI 4,485,668 Non-Qualified XVII 6,419 Non-Qualified XVIII 772,466 Non-Qualified XIX 3,782,922 ----------------------------------- HIGH INCOME PORTFOLIO -- INITIAL CLASS: Non-Qualified VII 17,170,603 Non-Qualified VIII 4,297,270 Non-Qualified XIII 6,061,529 Non-Qualified XIV 6,402,759 Non-Qualified XV 2,802,499 Non-Qualified XVI 812,327 Non-Qualified XVIII 334,828 Non-Qualified XIX 573,445 Annuity contracts in payment period 929,606 ----------------------------------- INDEX 500 PORTFOLIO -- INITIAL CLAS Non-Qualified VII 85,224,780 Non-Qualified VIII 15,557,864 ----------------------------------- INVESTMENT GRADE BOND PORTFOLIO -- Non-Qualified VII 3,079,785 Non-Qualified VIII 3,917 -----------------------------------
S-17 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------- Value Units Per Unit -------- Net Assets Investment Outstanding BeatnEndg End of Total Expense Income at End of Year Year Return Ratio Ratio of Year ---------------------------------------------------------------------------------------------------------------------------------- OVERSEAS PORTFOLIO -- INITIAL CLASS: .45% to 1.50% 13.97% Non-Qualified V $ 15.514 $ 12.077 (22.15%) 40,745.1 Non-Qualified V (0.75) 15.894 12.436 (21.76%) 193,610.7 Non-Qualified VII 17.062 13.261 (22.28%) 489,657.4 Non-Qualified VIII 14.491 11.280 (22.16%) 45,271.5 Non-Qualified IX 15.370 11.935 (22.35%) 845.8 Non-Qualified XII 11.081 8.665 (21.80%) 60.5 ---------------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO -- I SHARES: .45% to 1.90% 0.00% Non-Qualified V 30.628 18.313 (40.21%) 759,840.2 Non-Qualified V (0.75) 31.380 18.857 (39.91%) 1,131,518.3 Non-Qualified VII 30.497 18.205 (40.31%) 2,092,270.0 Non-Qualified VIII 21.226 12.690 (40.21%) 466,910.4 Non-Qualified IX 30.344 18.097 (40.36%) 27,005.1 Non-Qualified X 30.628 18.313 (40.21%) 34,365.5 Non-Qualified XII 17.646 10.599 (39.94%) 26,237.8 Non-Qualified XIII 16.650 9.985 (40.03%) 2,548,969.9 Non-Qualified XIV 16.527 9.881 (40.21%) 2,197,460.3 Non-Qualified XV 16.466 9.829 (40.31%) 849,467.7 Non-Qualified XVI 6.975 4.161 (40.34%) 600,078.1 Non-Qualified XVII 36.266 21.803 (39.88%) 2,366.5 Non-Qualified XVIII 6.966 4.137 (40.61%) 273,183.2 Non-Qualified XIX 6.969 4.145 (40.52%) 470,611.3 ---------------------------------------------------------------------------------------------------------------------------------- BALANCED PORTFOLIO -- I SHARES: .45% to 1.90% 2.63% Non-Qualified V 24.030 22.613 (5.90%) 594,285.6 Non-Qualified V (0.75) 24.619 23.285 (5.42%) 787,161.7 Non-Qualified VII 26.630 25.019 (6.05%) 2,695,283.0 Non-Qualified VIII 21.234 19.980 (5.91%) 769,233.8 Non-Qualified IX 23.807 22.348 (6.13%) 9,178.9 Non-Qualified X 24.030 22.613 (5.90%) 30,038.0 Non-Qualified XII 14.043 13.276 (5.46%) 13,629.5 Non-Qualified XIII 13.308 12.560 (5.62%) 3,515,601.2 Non-Qualified XIV 13.210 12.430 (5.90%) 4,073,987.6 Non-Qualified XV 13.161 12.365 (6.05%) 1,450,692.3 Non-Qualified XVI 9.746 9.152 (6.09%) 656,846.9 Non-Qualified XVII 24.167 22.867 (5.38%) 42.0 Non-Qualified XVIII 9.734 9.098 (6.53%) 159,510.4 Non-Qualified XIX 9.738 9.116 (6.39%) 483,590.9 ---------------------------------------------------------------------------------------------------------------------------------- FLEXIBLE INCOME PORTFOLIO -- I SHARES: .45% to 1.50% 5.95% Non-Qualified V 16.331 17.375 6.39% 114,774.9 Non-Qualified V (0.75) 16.731 17.891 6.93% 323,207.6 Non-Qualified VII 16.170 17.176 6.22% 751,089.7 Non-Qualified VIII 13.554 14.419 6.38% 219,465.5 Non-Qualified IX 16.179 17.170 6.13% 1,348.2 Non-Qualified X 16.331 17.375 6.39% 3,109.7 Non-Qualified XII 10.967 11.721 6.88% 1,720.9 Non-Qualified XVII 17.723 17.584 (0.78%) (10) 54.4 ---------------------------------------------------------------------------------------------------------------------------------- GROWTH PORTFOLIO -- I SHARES: .45% to 2.25% 0.26% Non-Qualified V 24.782 18.419 (25.68%) 458,626.9 Non-Qualified V (0.75) 25.390 18.966 (25.30%) 710,104.4 Non-Qualified VII 29.345 21.775 (25.80%) 2,272,404.5 Non-Qualified VIII 20.951 15.570 (25.68%) 470,607.5 Non-Qualified IX 24.552 18.202 (25.86%) 10,800.6 Non-Qualified X 24.782 18.419 (25.68%) 45,289.8 Non-Qualified XII 13.829 10.325 (25.34%) 23,971.3 Non-Qualified XIII 13.203 9.842 (25.46%) 2,954,711.4 Non-Qualified XIV 13.106 9.740 (25.68%) 3,897,751.1 Non-Qualified XV 13.057 9.689 (25.79%) 1,297,820.4 Non-Qualified XVI 8.308 6.162 (25.83%) 388,433.0 Non-Qualified XVII 27.143 20.285 (25.27%) 617.3 Non-Qualified XVIII 8.298 6.126 (26.17%) 140,973.1 ----------------------------------- OVERSEAS PORTFOLIO -- INITIAL CLASS: Non-Qualified V $ 492,078 Non-Qualified V (0.75) 2,407,743 Non-Qualified VII 6,493,347 Non-Qualified VIII 510,662 Non-Qualified IX 10,095 Non-Qualified XII 524 ----------------------------------- JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO -- I SH Non-Qualified V 13,914,954 Non-Qualified V (0.75) 21,337,040 Non-Qualified VII 38,089,775 Non-Qualified VIII 5,925,093 Non-Qualified IX 488,711 Non-Qualified X 629,336 Non-Qualified XII 278,094 Non-Qualified XIII 25,451,464 Non-Qualified XIV 21,713,105 Non-Qualified XV 8,349,418 Non-Qualified XVI 2,496,925 Non-Qualified XVII 51,596 Non-Qualified XVIII 1,130,159 Non-Qualified XIX 1,950,684 ----------------------------------- BALANCED PORTFOLIO -- I SHARES: Non-Qualified V 13,438,580 Non-Qualified V (0.75) 18,329,061 Non-Qualified VII 67,433,285 Non-Qualified VIII 15,369,292 Non-Qualified IX 205,130 Non-Qualified X 679,250 Non-Qualified XII 180,945 Non-Qualified XIII 44,155,951 Non-Qualified XIV 50,639,666 Non-Qualified XV 17,937,810 Non-Qualified XVI 6,011,463 Non-Qualified XVII 961 Non-Qualified XVIII 1,451,226 Non-Qualified XIX 4,408,415 ----------------------------------- FLEXIBLE INCOME PORTFOLIO -- I SHARES: Non-Qualified V 1,994,214 Non-Qualified V (0.75) 5,782,507 Non-Qualified VII 12,900,716 Non-Qualified VIII 3,164,473 Non-Qualified IX 23,148 Non-Qualified X 54,031 Non-Qualified XII 20,171 Non-Qualified XVII 956 ----------------------------------- GROWTH PORTFOLIO -- I SHARES: Non-Qualified V 8,447,448 Non-Qualified V (0.75) 13,467,840 Non-Qualified VII 49,481,607 Non-Qualified VIII 7,327,359 Non-Qualified IX 196,592 Non-Qualified X 834,192 Non-Qualified XII 247,504 Non-Qualified XIII 29,080,270 Non-Qualified XIV 37,964,096 Non-Qualified XV 12,574,582 Non-Qualified XVI 2,393,524 Non-Qualified XVII 12,522 Non-Qualified XVIII 863,601
S-18 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------- Value Units Per Unit -------- Net Assets Investment Outstanding BeatnEndg End of Total Expense Income at End of Year Year Return Ratio Ratio of Year ---------------------------------------------------------------------------------------------------------------------------------- GROWTH PORTFOLIO -- I SHARES: (continued) Non-Qualified XIX $ 8.301 $ 6.138 (26.06%) 478,006.8 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- WORLDWIDE GROWTH PORTFOLIO -- I SHARES: .45% to 2.25% 0.44% Non-Qualified V 28.839 22.088 (23.41%) 760,307.5 Non-Qualified V (0.75) 29.545 22.744 (23.02%) 1,445,273.7 Non-Qualified VII 32.413 24.786 (23.53%) 5,466,150.7 Non-Qualified VIII 23.476 17.979 (23.42%) 978,798.4 Non-Qualified IX 28.571 21.829 (23.60%) 30,914.7 Non-Qualified X 28.839 22.088 (23.41%) 36,001.6 Non-Qualified XII 13.899 10.694 (23.06%) 30,407.3 Non-Qualified XIII 13.030 10.010 (23.18%) 4,534,178.5 Non-Qualified XIV 12.934 9.906 (23.41%) 4,448,459.3 Non-Qualified XV 12.886 9.854 (23.53%) 1,330,767.3 Non-Qualified XVI 8.570 6.550 (23.57%) 821,676.3 Non-Qualified XVII 32.317 24.889 (22.98%) 2,237.7 Non-Qualified XVIII 8.559 6.512 (23.92%) 210,061.4 Non-Qualified XIX 8.563 6.525 (23.80%) 883,452.4 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- MFS-REGISTERED TRADEMARK- FUNDS: GLOBAL GOVERNMENT SERIES: .85% to 1.40% 3.89% Non-Qualified VII 10.799 11.153 3.28% 123,681.3 Non-Qualified VIII 10.875 11.249 3.44% 32,268.4 ---------------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN SERIES: .50% to 1.90% 5.19% Non-Qualified VII 16.782 16.586 (1.17%) 2,148,560.5 Non-Qualified VIII 16.901 16.730 (1.01%) 486,345.7 Non-Qualified XIII 11.934 11.850 (0.70%) 1,083,171.8 Non-Qualified XIV 11.846 11.726 (1.01%) 1,711,650.3 Non-Qualified XV 11.803 11.665 (1.17%) 515,485.9 Non-Qualified XVI 10.763 10.632 (1.22%) 560,756.8 Non-Qualified XVIII 10.749 10.570 (1.67%) 152,627.1 Non-Qualified XIX 10.754 10.591 (1.52%) 343,894.7 ---------------------------------------------------------------------------------------------------------------------------------- MITCHELL HUTCHINS SERIES TRUST: TACTICAL ALLOCATION PORTFOLIO: .50% to 1.90% 7.95% Non-Qualified XIII 10.326 8.944 (13.38%) 229,676.1 Non-Qualified XIV 10.273 8.871 (13.65%) 1,022,443.2 Non-Qualified XV 10.247 8.835 (13.78%) 100,436.8 Non-Qualified XVI 9.567 8.244 (13.83%) 149,872.3 Non-Qualified XVIII 9.555 8.196 (14.22%) 65,707.5 Non-Qualified XIX 9.559 8.212 (14.09%) 66,813.4 ---------------------------------------------------------------------------------------------------------------------------------- OPPENHEIMER FUNDS: AGGRESSIVE GROWTH FUND/VA: .50% to 2.25% 15.39% Non-Qualified VII 21.423 14.517 (32.24%) 827,071.7 Non-Qualified VIII 21.545 14.622 (32.13%) 262,224.3 Non-Qualified XIII 14.970 10.191 (31.92%) 733,700.7 Non-Qualified XIV 14.860 10.085 (32.13%) 774,542.9 Non-Qualified XV 14.805 10.032 (32.24%) 257,899.5 Non-Qualified XVI 6.828 4.625 (32.26%) 548,565.0 Non-Qualified XVIII 6.820 4.598 (32.58%) 361,045.2 Non-Qualified XIX 6.823 4.607 (32.48%) 297,833.7 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- GLOBAL SECURITIES FUND/VA: .75% to 1.50% 12.79% Non-Qualified V 16.275 14.137 (13.14%) 112,012.5 Non-Qualified V (0.75) 16.495 14.400 (12.70%) 242,920.2 Non-Qualified VII 21.023 18.231 (13.28%) 517,494.8 Non-Qualified VIII 21.142 18.363 (13.14%) 95,208.5 Non-Qualified IX 16.166 14.007 (13.36%) 4,399.2 Non-Qualified XII 16.571 14.460 (12.74%) 5,322.0 ---------------------------------------------------------------------------------------------------------------------------------- ----------------------------------- GROWTH PORTFOLIO -- I SHARES: (cont Non-Qualified XIX $ 2,934,006 Annuity contracts in payment period 10,953,568 ----------------------------------- WORLDWIDE GROWTH PORTFOLIO -- I SHA Non-Qualified V 16,793,673 Non-Qualified V (0.75) 32,871,305 Non-Qualified VII 135,484,011 Non-Qualified VIII 17,597,817 Non-Qualified IX 674,837 Non-Qualified X 795,203 Non-Qualified XII 325,176 Non-Qualified XIII 45,387,127 Non-Qualified XIV 44,066,438 Non-Qualified XV 13,113,381 Non-Qualified XVI 5,381,980 Non-Qualified XVII 55,695 Non-Qualified XVIII 1,367,920 Non-Qualified XIX 5,764,527 Annuity contracts in payment period 11,716,767 ----------------------------------- MFS-REGISTERED TRADEMARK- FUNDS: GLOBAL GOVERNMENT SERIES: Non-Qualified VII 1,379,417 Non-Qualified VIII 362,987 ----------------------------------- TOTAL RETURN SERIES: Non-Qualified VII 35,636,024 Non-Qualified VIII 8,136,563 Non-Qualified XIII 12,835,586 Non-Qualified XIV 20,070,812 Non-Qualified XV 6,013,143 Non-Qualified XVI 5,961,966 Non-Qualified XVIII 1,613,268 Non-Qualified XIX 3,642,189 ----------------------------------- MITCHELL HUTCHINS SERIES TRUST: TACTICAL ALLOCATION PORTFOLIO: Non-Qualified XIII 2,054,223 Non-Qualified XIV 9,070,094 Non-Qualified XV 887,359 Non-Qualified XVI 1,235,547 Non-Qualified XVIII 538,539 Non-Qualified XIX 548,672 ----------------------------------- OPPENHEIMER FUNDS: AGGRESSIVE GROWTH FUND/VA: Non-Qualified VII 12,006,600 Non-Qualified VIII 3,834,244 Non-Qualified XIII 7,477,144 Non-Qualified XIV 7,811,265 Non-Qualified XV 2,587,248 Non-Qualified XVI 2,537,113 Non-Qualified XVIII 1,660,086 Non-Qualified XIX 1,372,120 Annuity contracts in payment period 1,163,578 ----------------------------------- GLOBAL SECURITIES FUND/VA: Non-Qualified V 1,583,521 Non-Qualified V (0.75) 3,498,051 Non-Qualified VII 9,434,447 Non-Qualified VIII 1,748,314 Non-Qualified IX 61,620 Non-Qualified XII 76,956 -----------------------------------
S-19 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------- Value Units Per Unit -------- Net Assets Investment Outstanding BeatnEndg End of Total Expense Income at End of Year Year Return Ratio Ratio of Year ---------------------------------------------------------------------------------------------------------------------------------- MAIN STREET GROWTH & INCOME FUND/VA: .50% to 2.25% 0.53% Non-Qualified VII $ 14.248 $ 12.620 (11.43%) 1,868,140.6 Non-Qualified VIII 14.329 12.711 (11.29%) 616,805.4 Non-Qualified XIII 9.891 8.801 (11.02%) 872,460.5 Non-Qualified XIV 9.818 8.710 (11.29%) 1,636,808.5 Non-Qualified XV 9.782 8.664 (11.43%) 542,225.4 Non-Qualified XVI 8.838 7.824 (11.47%) 260,613.9 Non-Qualified XVIII 8.827 7.779 (11.87%) 94,123.8 Non-Qualified XIX 8.831 7.794 (11.74%) 249,384.5 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- STRATEGIC BOND FUND/VA: .50% to 2.25% 6.16% Non-Qualified V 10.185 10.545 3.53% 9,854.1 Non-Qualified V (0.75) 10.323 10.742 4.06% 17,303.9 Non-Qualified VII 11.206 11.583 3.36% 773,099.5 Non-Qualified VIII 11.269 11.667 3.53% 230,729.8 Non-Qualified IX 10.117 10.449 3.28% 152.2 Non-Qualified XIII 10.171 10.562 3.84% 554,901.8 Non-Qualified XIV 10.096 10.453 3.54% 574,225.7 Non-Qualified XV 10.059 10.398 3.37% 190,058.3 Non-Qualified XVI 9.939 10.269 3.32% 129,252.5 Non-Qualified XVIII 9.927 10.209 2.84% 33,697.5 Non-Qualified XIX 9.931 10.229 3.00% 72,122.0 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- PILGRIM FUNDS: EMERGING MARKETS FUND: .85% to 1.40% 19.78% Non-Qualified VII 8.011 7.075 (11.68%) 128,882.5 ---------------------------------------------------------------------------------------------------------------------------------- NATURAL RESOURCES TRUST FUND: .45% to 1.50% 0.00% Non-Qualified V 14.530 12.062 (16.99%) 40,257.1 Non-Qualified V (0.75) 14.886 12.420 (16.57%) 40,151.9 Non-Qualified VII 14.354 11.897 (17.12%) 83,798.8 Non-Qualified IX 14.395 11.920 (17.19%) 32.4 Non-Qualified X 14.530 12.062 (16.99%) 1,753.1 ---------------------------------------------------------------------------------------------------------------------------------- PILGRIM VARIABLE FUNDS: GROWTH OPPORTUNITIES PORTFOLIO -- CLASS S: .95% to 1.90% 0.00% Non-Qualified XIII 9.367 7.998 (14.62%) (6) 6,966.1 Non-Qualified XIV 10.031 7.981 (20.44%) (5) 3,705.2 Non-Qualified XV 10.086 7.973 (20.95%) (4) 2,168.4 Non-Qualified XVI 8.467 7.970 (5.87%) (7) 3,466.9 Non-Qualified XIX 9.970 7.954 (20.22%) (4) 1,413.8 ---------------------------------------------------------------------------------------------------------------------------------- MAGNA CAP PORTFOLIO -- CLASS S: .95% to 1.90% 0.91% Non-Qualified XIII 9.602 9.335 (2.78%) (5) 28,148.5 Non-Qualified XIV 9.567 9.316 (2.62%) (5) 6,683.0 Non-Qualified XV 9.624 9.306 (3.30%) (5) 701.1 Non-Qualified XVI 9.883 9.303 (5.87%) (4) 7,866.6 Non-Qualified XIX 9.284 9.284 0.00% (11) 2,776.6 ---------------------------------------------------------------------------------------------------------------------------------- MID CAP OPPORTUNITIES PORTFOLIO -- CLASS S: .95% to 1.90% 0.00% Non-Qualified XIII 10.181 8.476 (16.75%) (4) 31,788.1 Non-Qualified XIV 10.125 8.458 (16.46%) (4) 27,540.0 Non-Qualified XV 9.402 8.449 (10.14%) (5) 14,863.5 Non-Qualified XVI 10.001 8.447 (15.54%) (4) 13,286.8 Non-Qualified XVIII 9.481 8.420 (11.19%) (5) 288.0 Non-Qualified XIX 9.630 8.429 (12.47%) (6) 14,482.5 ---------------------------------------------------------------------------------------------------------------------------------- SMALL CAP OPPORTUNITIES PORTFOLIO -- CLASS S: .95% to 1.90% 0.35% Non-Qualified XIII 10.065 8.497 (15.58%) (4) 73,606.7 Non-Qualified XIV 10.064 8.479 (15.75%) (4) 37,134.7 Non-Qualified XV 11.291 8.470 (24.98%) (4) 14,405.0 Non-Qualified XVI 10.136 8.467 (16.47%) (4) 18,432.1 Non-Qualified XVIII 10.175 8.441 (17.04%) (4) 2,354.2 Non-Qualified XIX 9.638 8.450 (12.33%) (6) 4,949.2 ---------------------------------------------------------------------------------------------------------------------------------- ----------------------------------- MAIN STREET GROWTH & INCOME FUND/VA Non-Qualified VII $ 23,575,934 Non-Qualified VIII 7,840,213 Non-Qualified XIII 7,678,525 Non-Qualified XIV 14,256,602 Non-Qualified XV 4,697,841 Non-Qualified XVI 2,039,043 Non-Qualified XVIII 732,189 Non-Qualified XIX 1,943,703 Annuity contracts in payment period 2,944,636 ----------------------------------- STRATEGIC BOND FUND/VA: Non-Qualified V 103,912 Non-Qualified V (0.75) 185,878 Non-Qualified VII 8,954,812 Non-Qualified VIII 2,691,925 Non-Qualified IX 1,590 Non-Qualified XIII 5,860,873 Non-Qualified XIV 6,002,381 Non-Qualified XV 1,976,226 Non-Qualified XVI 1,327,294 Non-Qualified XVIII 344,018 Non-Qualified XIX 737,736 Annuity contracts in payment period 705,172 ----------------------------------- PILGRIM FUNDS: EMERGING MARKETS FUND: Non-Qualified VII 911,844 ----------------------------------- NATURAL RESOURCES TRUST FUND: Non-Qualified V 485,581 Non-Qualified V (0.75) 498,687 Non-Qualified VII 996,954 Non-Qualified IX 386 Non-Qualified X 21,146 ----------------------------------- PILGRIM VARIABLE FUNDS: GROWTH OPPORTUNITIES PORTFOLIO -- C Non-Qualified XIII 55,715 Non-Qualified XIV 29,571 Non-Qualified XV 17,289 Non-Qualified XVI 27,631 Non-Qualified XIX 11,245 ----------------------------------- MAGNA CAP PORTFOLIO -- CLASS S: Non-Qualified XIII 262,766 Non-Qualified XIV 62,259 Non-Qualified XV 6,524 Non-Qualified XVI 73,183 Non-Qualified XIX 25,778 ----------------------------------- MID CAP OPPORTUNITIES PORTFOLIO -- Non-Qualified XIII 269,436 Non-Qualified XIV 232,933 Non-Qualified XV 125,582 Non-Qualified XVI 112,234 Non-Qualified XVIII 2,425 Non-Qualified XIX 122,073 ----------------------------------- SMALL CAP OPPORTUNITIES PORTFOLIO - Non-Qualified XIII 625,436 Non-Qualified XIV 314,865 Non-Qualified XV 122,010 Non-Qualified XVI 156,065 Non-Qualified XVIII 19,872 Non-Qualified XIX 41,821 -----------------------------------
S-20 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------- Value Units Per Unit -------- Net Assets Investment Outstanding BeatnEndg End of Total Expense Income at End of Year Year Return Ratio Ratio of Year ---------------------------------------------------------------------------------------------------------------------------------- PORTFOLIO PARTNERS, INC. (PPI): PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO -- I CLASS: .45% to 2.25% 19.25% Non-Qualified V $ 36.551 $ 27.159 (25.70%) 300,791.5 Non-Qualified V (0.75) 37.448 27.966 (25.32%) 212,226.4 Non-Qualified VII 17.303 12.836 (25.82%) 1,075,773.3 Non-Qualified VIII 17.385 12.917 (25.70%) 308,780.4 Non-Qualified IX 36.213 26.840 (25.88%) 3,302.6 Non-Qualified X 36.551 27.159 (25.70%) 9,287.1 Non-Qualified XII 14.714 10.983 (25.36%) 2,679.3 Non-Qualified XIII 14.030 10.456 (25.47%) 863,568.1 Non-Qualified XIV 13.926 10.347 (25.70%) 911,394.0 Non-Qualified XV 13.875 10.293 (25.82%) 268,472.4 Non-Qualified XVI 8.801 6.526 (25.85%) 339,484.1 Non-Qualified XVII 40.304 30.112 (25.29%) 374.7 Non-Qualified XVIII 8.790 6.488 (26.19%) 126,421.4 Non-Qualified XIX 8.794 6.500 (26.09%) 287,459.2 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- PPI MFS EMERGING EQUITIES PORTFOLIO -- I CLASS: .45% to 2.25% 6.31% Non-Qualified V 20.426 15.086 (26.14%) 420,422.3 Non-Qualified V (0.75) 20.927 15.534 (25.77%) 443,964.5 Non-Qualified VII 19.644 14.485 (26.26%) 3,504,571.0 Non-Qualified VIII 13.372 9.875 (26.15%) 482,714.9 Non-Qualified IX 20.236 14.908 (26.33%) 7,437.3 Non-Qualified X 20.426 15.086 (26.14%) 15,416.5 Non-Qualified XII 11.453 8.497 (25.81%) 1,963.9 Non-Qualified XIII 10.933 8.099 (25.92%) 853,538.0 Non-Qualified XIV 10.853 8.015 (26.15%) 1,011,359.3 Non-Qualified XV 10.812 7.973 (26.26%) 336,247.7 Non-Qualified XVI 7.614 5.612 (26.29%) 140,982.7 Non-Qualified XVII 20.274 15.056 (25.74%) 380.3 Non-Qualified XVIII 7.605 5.579 (26.64%) 74,706.8 Non-Qualified XIX 7.608 5.590 (26.52%) 184,512.2 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- PPI MFS RESEARCH GROWTH PORTFOLIO -- I CLASS: .45% to 1.90% 20.49% Non-Qualified V 17.889 13.976 (21.87%) 351,117.2 Non-Qualified V (0.75) 18.328 14.392 (21.48%) 270,714.1 Non-Qualified VI 15.133 11.830 (21.83%) 21,904.6 Non-Qualified VII 17.659 13.775 (21.99%) 2,768,106.8 Non-Qualified VIII 12.169 9.506 (21.88%) 491,017.8 Non-Qualified IX 17.723 13.812 (22.07%) 12,674.6 Non-Qualified X 17.889 13.976 (21.87%) 141,938.0 Non-Qualified XI 15.133 11.830 (21.83%) 1,303.0 Non-Qualified XIII 11.755 9.211 (21.64%) 416,033.9 Non-Qualified XIV 11.668 9.115 (21.88%) 766,264.9 Non-Qualified XV 11.625 9.068 (22.00%) 239,620.4 Non-Qualified XVI 8.726 6.803 (22.04%) 165,807.7 Non-Qualified XVIII 8.715 6.763 (22.40%) 51,496.2 Non-Qualified XIX 8.719 6.777 (22.27%) 131,798.1 ---------------------------------------------------------------------------------------------------------------------------------- PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO -- I CLASS: .45% to 2.25% 25.04% Non-Qualified V 26.160 18.876 (27.84%) 254,403.9 Non-Qualified V (0.75) 26.801 19.437 (27.48%) 242,231.6 Non-Qualified VII 14.415 10.384 (27.96%) 218,708.8 Non-Qualified VIII 14.482 10.449 (27.85%) 56,361.3 Non-Qualified IX 25.917 18.654 (28.02%) 3,764.1 Non-Qualified X 26.160 18.876 (27.84%) 2,388.8 Non-Qualified XIII 11.557 8.364 (27.63%) 856,531.9 Non-Qualified XIV 11.472 8.277 (27.85%) 529,984.2 Non-Qualified XV 11.430 8.234 (27.96%) 415,390.2 Non-Qualified XVI 9.775 7.038 (28.00%) 227,334.0 Non-Qualified XVIII 9.763 6.997 (28.33%) 10,818.9 Non-Qualified XIX 9.767 7.011 (28.22%) 74,030.1 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- ----------------------------------- PORTFOLIO PARTNERS, INC. (PPI): PPI MFS CAPITAL OPPORTUNITIES PORTF CLASS: Non-Qualified V $ 8,169,197 Non-Qualified V (0.75) 5,935,123 Non-Qualified VII 13,808,626 Non-Qualified VIII 3,988,516 Non-Qualified IX 88,643 Non-Qualified X 252,229 Non-Qualified XII 29,427 Non-Qualified XIII 9,029,468 Non-Qualified XIV 9,430,194 Non-Qualified XV 2,763,386 Non-Qualified XVI 2,215,473 Non-Qualified XVII 11,282 Non-Qualified XVIII 820,222 Non-Qualified XIX 1,868,485 Annuity contracts in payment period 4,421,857 ----------------------------------- PPI MFS EMERGING EQUITIES PORTFOLIO Non-Qualified V 6,342,491 Non-Qualified V (0.75) 6,896,544 Non-Qualified VII 50,763,711 Non-Qualified VIII 4,766,810 Non-Qualified IX 110,875 Non-Qualified X 232,573 Non-Qualified XII 16,687 Non-Qualified XIII 6,912,804 Non-Qualified XIV 8,106,045 Non-Qualified XV 2,680,903 Non-Qualified XVI 791,195 Non-Qualified XVII 5,726 Non-Qualified XVIII 416,789 Non-Qualified XIX 1,031,423 Annuity contracts in payment period 2,460,777 ----------------------------------- PPI MFS RESEARCH GROWTH PORTFOLIO - Non-Qualified V 4,907,214 Non-Qualified V (0.75) 3,896,117 Non-Qualified VI 259,132 Non-Qualified VII 38,130,671 Non-Qualified VIII 4,667,615 Non-Qualified IX 175,062 Non-Qualified X 1,983,726 Non-Qualified XI 15,415 Non-Qualified XIII 3,832,088 Non-Qualified XIV 6,984,505 Non-Qualified XV 2,172,878 Non-Qualified XVI 1,127,990 Non-Qualified XVIII 348,269 Non-Qualified XIX 893,196 ----------------------------------- PPI SCUDDER INTERNATIONAL GROWTH PO Non-Qualified V 4,802,128 Non-Qualified V (0.75) 4,708,255 Non-Qualified VII 2,271,072 Non-Qualified VIII 588,919 Non-Qualified IX 70,215 Non-Qualified X 45,091 Non-Qualified XIII 7,164,033 Non-Qualified XIV 4,386,679 Non-Qualified XV 3,420,323 Non-Qualified XVI 1,599,977 Non-Qualified XVIII 75,700 Non-Qualified XIX 519,025 Annuity contracts in payment period 797,729 -----------------------------------
S-21 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------- Value Units Per Unit -------- Net Assets Investment Outstanding BeatnEndg End of Total Expense Income at End of Year Year Return Ratio Ratio of Year ---------------------------------------------------------------------------------------------------------------------------------- PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO -- I CLASS: .45% to 2.25% 15.41% Non-Qualified V $ 21.643 $ 19.189 (11.34%) 212,838.0 Non-Qualified V (0.75) 22.174 19.759 (10.89%) 246,671.1 Non-Qualified VII 27.438 24.288 (11.48%) 3,007,877.4 Non-Qualified VIII 19.893 17.636 (11.35%) 281,779.1 Non-Qualified IX 21.443 18.964 (11.56%) 9,149.6 Non-Qualified X 21.643 19.189 (11.34%) 6,687.7 Non-Qualified XII 13.138 11.702 (10.93%) 1,872.9 Non-Qualified XVII 25.061 22.342 (10.85%) 1,012.6 Annuity contracts in payment period ---------------------------------------------------------------------------------------------------------------------------------- PRUDENTIAL JENNISON PORTFOLIO: .95% to 1.90% 0.00% Non-Qualified XIII 9.126 8.903 (2.44%) (6) 16,482.2 Non-Qualified XIV 9.208 8.884 (3.52%) (6) 24,556.3 Non-Qualified XV 9.047 8.875 (1.90%) (6) 7,748.4 Non-Qualified XVI 8.978 8.872 (1.18%) (6) 25,615.0 Non-Qualified XVIII 8.105 8.844 9.12% (9) 629.1 Non-Qualified XIX 9.109 8.854 (2.80%) (6) 6,445.3 ---------------------------------------------------------------------------------------------------------------------------------- SP JENNISON INTERNATIONAL GROWTH PORTFOLIO: .95% to 1.90% 0.00% Non-Qualified XIV 9.347 7.521 (19.54%) (7) 259.7 Non-Qualified XVI 8.170 7.510 (8.08%) (5) 6,248.6 Non-Qualified XVIII 7.170 7.487 4.42% (6) 213.2 Non-Qualified XIX 8.295 7.495 (9.64%) (6) 1,175.5 ---------------------------------------------------------------------------------------------------------------------------------- TOTAL ================================================================================================================================== ----------------------------------- PPI T. ROWE PRICE GROWTH EQUITY POR Non-Qualified V $ 4,084,148 Non-Qualified V (0.75) 4,873,974 Non-Qualified VII 73,055,327 Non-Qualified VIII 4,969,456 Non-Qualified IX 173,513 Non-Qualified X 128,331 Non-Qualified XII 21,917 Non-Qualified XVII 22,624 Annuity contracts in payment period 2,065,761 ----------------------------------- PRUDENTIAL JENNISON PORTFOLIO: Non-Qualified XIII 146,741 Non-Qualified XIV 218,158 Non-Qualified XV 68,767 Non-Qualified XVI 227,256 Non-Qualified XVIII 5,564 Non-Qualified XIX 57,067 ----------------------------------- SP JENNISON INTERNATIONAL GROWTH PO Non-Qualified XIV 1,953 Non-Qualified XVI 46,927 Non-Qualified XVIII 1,596 Non-Qualified XIX 8,810 ----------------------------------- TOTAL $5,771,340,707 ===================================
NON-QUALIFIED 1964 Individual contracts issued from December 1, 1964 to March 14, 1967. NON-QUALIFIED V Certain AetnaPlus contracts issued in connection with Deferred Compensation Plans issued since August 28, 1992, and certain individual non-qualified contracts. NON-QUALIFIED VI Certain existing contracts that were converted to ACES, an administrative system (previously valued under Non-Qualified I). NON-QUALIFIED VII Certain individual and group contracts issued as non-qualified deferred annuity contracts or Individual Retirement Annuity contracts issued since May 4, 1994. NON-QUALIFIED VIII Certain individual Retirement Annuity contracts issued since May 1, 1998. NON-QUALIFIED IX Group Aetna Plus contracts assessing an administrative expense charge effective April 7, 1997 issued in connection with Deferred Compensation Plans. NON-QUALIFIED X Group AetnaPlus contracts containing contractual limits on fees, issued in connection with Deferred Compensation Plans and as individual non-qualified contracts, resulting in reduced daily charges for certain funding options effective May 29, 1997. NON-QUALIFIED XI Certain contracts, previously valued under Non-Qualified VI, containing contractual limits on fees, resulting in reduced daily charges for certain funding options effective May 29, 1997. NON-QUALIFIED XIII Certain individual Retirement Annuity contracts issued since October 1, 1998. NON-QUALIFIED XIV Certain individual Retirement Annuity contracts issued since September 1, 1998. NON-QUALIFIED XVI Certain individual Retirement Annuity contracts issued since August 2000. NON-QUALIFIED XVII Group AetnaPlus contracts issued in connection with Deferred Compensation Plans having contract modifications effective September 1, 1999. NON-QUALIFIED XVIII Certain individual Retirement Annuity contracts issued since September 2000. NON-QUALIFIED XIX Certain individual Retirement Annuity contracts issued since August 2000. NON-QUALIFIED XV Certain individual Retirement Annuity contracts issued since September 1, 1998.
S-22 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued): NOTES TO CONDENSED FINANCIAL INFORMATION: (1) - Reflects less than a full year of performance activity. Funds were first received in this option during January 2001. (2) - Reflects less than a full year of performance activity. Funds were first received in this option during March 2001. (3) - Reflects less than a full year of performance activity. Funds were first received in this option during April 2001. (4) - Reflects less than a full year of performance activity. Funds were first received in this option during May 2001. (5) - Reflects less than a full year of performance activity. Funds were first received in this option during June 2001. (6) - Reflects less than a full year of performance activity. Funds were first received in this option during July 2001. (7) - Reflects less than a full year of performance activity. Funds were first received in this option during August 2001. (8) - Reflects less than a full year of performance activity. Funds were first received in this option during September 2001. (9) - Reflects less than a full year of performance activity. Funds were first received in this option during October 2001. (10) - Reflects less than a full year of performance activity. Funds were first received in this option during November 2001. (11) - Reflects less than a full year of performance activity. Funds were first received in this option during December 2001.
See Notes to Financial Statements S-23 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2001: 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Variable Annuity Account B (the "Account") is a separate account established by Aetna Life Insurance and Annuity Company (the "Company") and is registered under the Investment Company Act of 1940 as amended, as a unit investment trust. The Account is sold exclusively for use with variable annuity contracts that may be entitled to tax-deferred treatment under specific sections of the Internal Revenue Code of 1986, as amended. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect amounts reported therein. Actual results could differ from these estimates. a. VALUATION OF INVESTMENTS Investments in the following Funds are stated at the closing net asset value per share as determined by each Fund on December 31, 2001: Aetna Ascent VP Federated Insurance Series: (continued): Aetna Balanced VP, Inc. - Equity Income Fund II Aetna Bond VP - Growth Strategies Fund II Aetna Crossroads VP - High Income Bond Fund II Aetna GET Fund, Series D - International Equity Fund II Aetna GET Fund, Series E - Prime Money Fund II Aetna GET Fund, Series G - U.S. Government Securities Fund II Aetna GET Fund, Series H - Utility Fund II Aetna GET Fund, Series I Fidelity-Registered Trademark- Variable Insurance Aetna GET Fund, Series J Products Funds: Aetna GET Fund, Series K - Asset Manager Portfolio -- Initial Class Aetna GET Fund, Series L - Contrafund-Registered Trademark- Portfolio -- Initial Aetna GET Fund, Series M Class Aetna GET Fund, Series N - Equity-Income Portfolio -- Initial Class Aetna GET Fund, Series P - Growth Portfolio -- Initial Class Aetna GET Fund, Series Q - High Income Portfolio -- Initial Class Aetna Growth and Income VP - Index 500 Portfolio -- Initial Class Aetna Growth VP - Investment Grade Bond Portfolio -- Initial Class Aetna Index Plus Large Cap VP - Overseas Portfolio -- Initial Class Aetna Index Plus Mid Cap VP Janus Aspen Series: Aetna Index Plus Small Cap VP - Aggressive Growth Portfolio -- I Shares Aetna International VP - Balanced Portfolio -- I Shares Aetna Legacy VP - Flexible Income Portfolio -- I Shares Aetna Money Market VP - Growth Portfolio -- I Shares Aetna Small Company VP - Worldwide Growth Portfolio -- I Shares Aetna Technology VP MFS-Registered Trademark- Funds: Aetna Value Opportunity VP - Global Government Series AIM V.I. Funds: - Total Return Series - Capital Appreciation Fund Mitchell Hutchins Series Trust: - Government Securities Fund - Growth and Income Portfolio - Growth and Income Fund - Small Cap portfolio - Growth Fund - Tactical Allocation Portfolio - Value Fund Oppenheimer Funds: Alger American Funds: - Aggressive Growth Fund/VA - Balanced Portfolio - Global Securities Fund/VA - Income & Growth Portfolio - Main Street Growth & Income Fund/VA - Leveraged AllCap Portfolio - Strategic Bond Fund/VA Alliance Funds: Pilgrim Funds: - Growth and Income Portfolio - Emerging Markets Fund, Inc. - Premier Growth Portfolio - Natural Resources Trust Fund - Quasar Portfolio Pilgrim Variable Funds: American Century Investments: - Growth Opportunities Portfolio -- Class S - Balanced Fund - Magna Cap Portfolio -- Class S - International Fund - Mid Cap Opportunities Portfolio -- Class S Calvert Social Balanced Portfolio - Small Cap Opportunities Portfolio -- Class S Federated Insurance Series: Portfolio Partners, Inc. (PPI): - American Leaders Fund II - PPI MFS Capital Opportunities Portfolio -- I Class - PPI MFS Emerging Equities Portfolio -- I Class - PPI MFS Research Growth Portfolio -- I Class - PPI Scudder International Growth Portfolio -- I Class - PPI T. Rowe Price Growth Equity Portfolio -- I Class Prudential Jennison Portfolio SP Jennison International Growth Portfolio
S-24 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): b. OTHER Investment transactions are accounted for on a trade date basis and dividend income is recorded on the ex-dividend date. The cost of investments sold is determined by specific identification. c. FEDERAL INCOME TAXES The operations of the Account form a part of, and are taxed with, the total operations of the Company which is taxed as a life insurance company under the Internal Revenue Code of 1986, as amended. d. ANNUITY RESERVES Annuity reserves held in the Separate Accounts are computed for currently payable contracts according to the Progressive Annuity, a49, 1971 Individual Annuity Mortality, 1971 Group Annuity Mortality, 83a, and 1983 Group Annuity Mortality tables using various assumed interest rates not to exceed seven percent. Mortality experience is monitored by the Company. Charges to annuity reserves for mortality experience are reimbursed to the Company if the reserves required are less than originally estimated. If additional reserves are required, the Company reimburses the Account. 2. VALUATION PERIOD DEDUCTIONS Deductions by the Account for mortality and expense risk charges are made in accordance with the terms of the contracts and are paid to the Company. 3. DIVIDEND INCOME On an annual basis, the Funds distribute substantially all of their taxable income and realized capital gains to their shareholders. Distributions to the Account are automatically reinvested in shares of the Funds. The Account's proportionate share of each Fund's undistributed net investment income (distributions in excess of net investment income) and accumulated net realized gain (loss) on investments is included in net unrealized gain (loss) in the Statement of Operations. 4. PURCHASES AND SALES OF INVESTMENTS The cost of purchases and proceeds from sales of investments other than short-term investments for the year ended December 31, 2001 aggregated $2,907,441,528 and $2,444,944,910, respectively. S-25 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 5. SUPPLEMENTAL INFORMATION TO STATEMENT OF OPERATIONS Valuation Proceeds Cost of Period from Investments YEAR ENDED DECEMBER 31, 2001 Dividends Deductions Sales Sold AETNA ASCENT VP Annuity contracts in accumulation $ 249,636 $ (192,305) $ 2,505,781 $ (2,720,528) AETNA BALANCED VP, INC. Annuity contracts in accumulation 11,377,649 (2,264,628) 23,173,137 (30,276,467) AETNA BOND VP Annuity contracts in accumulation 7,945,091 (1,435,902) 20,279,853 (19,410,035) AETNA CROSSROADS VP Annuity contracts in accumulation 481,864 (239,251) 3,036,587 (3,184,113) AETNA GET FUND, SERIES C Annuity contracts in accumulation 347,661 (53,802) 4,990,486 (7,539,591) AETNA GET FUND, SERIES D Annuity contracts in accumulation 1,801,027 (1,823,039) 12,420,366 (12,841,030) AETNA GET FUND, SERIES E Annuity contracts in accumulation 2,482,472 (5,314,830) 36,784,208 (38,822,534) AETNA GET FUND, SERIES G Annuity contracts in accumulation 684,964 (3,030,137) 17,751,591 (18,186,366) AETNA GET FUND, SERIES H Annuity contracts in accumulation 643,089 (2,295,358) 11,738,713 (12,108,479) AETNA GET FUND, SERIES I Annuity contracts in accumulation 225,593 (1,534,833) 6,728,564 (6,948,467) AETNA GET FUND, SERIES J Annuity contracts in accumulation 136,636 (1,315,076) 6,370,181 (6,653,962) AETNA GET FUND, SERIES K Annuity contracts in accumulation 3,658 (1,752,808) 5,816,198 (5,928,542) AETNA GET FUND, SERIES L Annuity contracts in accumulation 1,874,334 (1,324,455) 7,492,254 (7,365,141) AETNA GET FUND, SERIES M Annuity contracts in accumulation 2,028,202 (1,382,780) 4,582,147 (4,633,814) AETNA GET FUND, SERIES N Annuity contracts in accumulation 752,868 (642,884) 9,054,819 (8,844,052) AETNA GET FUND, SERIES P Annuity contracts in accumulation 48,120 (114,682) 2,681,028 (2,680,728) AETNA GET FUND, SERIES Q Annuity contracts in accumulation 0 (1,059) 974,250 (974,087) AETNA GROWTH AND INCOME VP Annuity contracts in accumulation 4,762,495 (8,183,668) 178,157,859 (292,034,184) AETNA GROWTH VP Annuity contracts in accumulation 8,313,560 (727,122) 94,630,200 (132,444,520) -------------------------------------------------------------------------------------------
S-26 Net Net Net Net Unrealized Change in Increase Realized Gain (Loss) Unrealized (Decrease) Gain (Loss) ------------------------------ Gain (Loss) in Net Assets on Beginning of End on Resulting from YEAR ENDED DECEMBER 31, 2001 Investments Year of Year Investments Operations AETNA ASCENT VP Annuity contracts in accumulation $ (214,747) $ 88,271 $ (1,939,740) $ (2,028,011) $ (2,185,427) AETNA BALANCED VP, INC. Annuity contracts in accumulation (7,103,330) (26,671,998) (39,632,837) (12,960,839) (10,951,148) AETNA BOND VP Annuity contracts in accumulation 869,818 292,798 1,190,970 898,172 8,277,179 AETNA CROSSROADS VP Annuity contracts in accumulation (147,526) 96,848 (1,646,815) (1,743,663) (1,648,576) AETNA GET FUND, SERIES C Annuity contracts in accumulation (2,549,105) (1,291,730) 0 1,291,730 (963,516) AETNA GET FUND, SERIES D Annuity contracts in accumulation (420,664) (5,506,290) (4,410,322) 1,095,968 653,292 AETNA GET FUND, SERIES E Annuity contracts in accumulation (2,038,326) (16,149,627) (14,356,018) 1,793,609 (3,077,075) AETNA GET FUND, SERIES G Annuity contracts in accumulation (434,775) (4,092,929) (1,959,918) 2,133,011 (646,937) AETNA GET FUND, SERIES H Annuity contracts in accumulation (369,766) (3,459,172) (2,894,300) 564,872 (1,457,163) AETNA GET FUND, SERIES I Annuity contracts in accumulation (219,903) (1,839,216) (851,507) 987,709 (541,434) AETNA GET FUND, SERIES J Annuity contracts in accumulation (283,781) (2,762,925) (1,664,280) 1,098,645 (363,576) AETNA GET FUND, SERIES K Annuity contracts in accumulation (112,344) (937,549) (1,605,745) (668,196) (2,529,690) AETNA GET FUND, SERIES L Annuity contracts in accumulation 127,113 194 (1,992,611) (1,992,805) (1,315,813) AETNA GET FUND, SERIES M Annuity contracts in accumulation (51,667) 0 (3,590,542) (3,590,542) (2,996,787) AETNA GET FUND, SERIES N Annuity contracts in accumulation 210,767 0 2,203,779 2,203,779 2,524,530 AETNA GET FUND, SERIES P Annuity contracts in accumulation 300 0 192,563 192,563 126,301 AETNA GET FUND, SERIES Q Annuity contracts in accumulation 163 0 757 757 (139) AETNA GROWTH AND INCOME VP Annuity contracts in accumulation (113,876,325) (241,325,047) (297,317,718) (55,992,671) (173,290,169) AETNA GROWTH VP Annuity contracts in accumulation (37,814,320) (11,298,783) (3,450,213) 7,848,570 (22,379,312) ---------------------------------------------------------------------------------------------------------------
S-27 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 5. SUPPLEMENTAL INFORMATION TO STATEMENT OF OPERATIONS (continued): Valuation Proceeds Cost of Period from Investments YEAR ENDED DECEMBER 31, 2001 Dividends Deductions Sales Sold AETNA INDEX PLUS LARGE CAP VP Annuity contracts in accumulation $ 9,897,852 $ (2,853,167) $ 106,107,224 $ (142,896,002) AETNA INDEX PLUS MID CAP VP Annuity contracts in accumulation 521,114 (65,963) 2,436,526 (2,739,854) AETNA INDEX PLUS SMALL CAP VP Annuity contracts in accumulation 65,130 (12,012) 1,607,489 (1,591,462) AETNA INTERNATIONAL VP Annuity contracts in accumulation 10,501 (105,844) 45,584,762 (49,986,756) AETNA LEGACY VP Annuity contracts in accumulation 1,080,182 (322,665) 6,467,384 (6,615,858) AETNA MONEY MARKET VP Annuity contracts in accumulation 11,841,123 (3,370,105) 749,106,647 (749,894,537) AETNA SMALL COMPANY VP Annuity contracts in accumulation 2,133,898 (638,072) 62,327,461 (62,406,737) AETNA TECHNOLOGY VP Annuity contracts in accumulation 0 (128,546) 14,055,074 (21,224,020) AETNA VALUE OPPORTUNITY VP Annuity contracts in accumulation 1,200,310 (310,011) 7,927,547 (8,645,315) AIM V.I. FUNDS: CAPITAL APPRECIATION FUND Annuity contracts in accumulation 1,907,222 (300,008) 6,380,702 (10,324,224) GOVERNMENT SECURITIES FUND Annuity contracts in accumulation 262,179 (63,274) 2,444,070 (2,349,228) GROWTH AND INCOME FUND Annuity contracts in accumulation 21,411 (561,955) 4,861,685 (7,767,404) GROWTH FUND Annuity contracts in accumulation 66,226 (371,290) 4,277,489 (8,197,683) VALUE FUND Annuity contracts in accumulation 1,589,248 (912,322) 12,092,453 (16,269,830) ALGER AMERICAN FUNDS: BALANCED PORTFOLIO Annuity contracts in accumulation 132,843 (58,127) 1,043,081 (1,102,677) INCOME & GROWTH PORTFOLIO Annuity contracts in accumulation 972,656 (182,226) 3,002,853 (3,665,251) LEVERAGED ALLCAP PORTFOLIO Annuity contracts in accumulation 426,602 (167,563) 2,747,405 (3,877,481) ALLIANCE FUNDS: GROWTH AND INCOME PORTFOLIO Annuity contracts in accumulation 690,777 (202,992) 816,894 (871,741) -------------------------------------------------------------------------------------------
S-28 Net Net Net Net Unrealized Change in Increase Realized Gain (Loss) Unrealized (Decrease) Gain (Loss) ------------------------------ Gain (Loss) in Net Assets on Beginning of End on Resulting from YEAR ENDED DECEMBER 31, 2001 Investments Year of Year Investments Operations AETNA INDEX PLUS LARGE CAP VP Annuity contracts in accumulation $(36,788,778) $ (37,334,071) $ (46,577,775) $ (9,243,704) $ (38,987,797) AETNA INDEX PLUS MID CAP VP Annuity contracts in accumulation (303,328) 77,987 (288,645) (366,632) (214,809) AETNA INDEX PLUS SMALL CAP VP Annuity contracts in accumulation 16,027 69,502 49,522 (19,980) 49,165 AETNA INTERNATIONAL VP Annuity contracts in accumulation (4,401,994) (1,854,980) 245,317 2,100,297 (2,397,040) AETNA LEGACY VP Annuity contracts in accumulation (148,474) 473,877 (1,069,986) (1,543,863) (934,820) AETNA MONEY MARKET VP Annuity contracts in accumulation (787,890) 2,001,969 1,619,703 (382,266) 7,300,862 AETNA SMALL COMPANY VP Annuity contracts in accumulation (79,276) 1,228,137 1,651,001 422,864 1,839,414 AETNA TECHNOLOGY VP Annuity contracts in accumulation (7,168,946) (3,777,303) (128,319) 3,648,984 (3,648,508) AETNA VALUE OPPORTUNITY VP Annuity contracts in accumulation (717,768) 383,845 (2,918,403) (3,302,248) (3,129,717) AIM V.I. FUNDS: CAPITAL APPRECIATION FUND Annuity contracts in accumulation (3,943,522) (5,765,131) (10,536,743) (4,771,612) (7,107,920) GOVERNMENT SECURITIES FUND Annuity contracts in accumulation 94,842 (259) (124,367) (124,108) 169,639 GROWTH AND INCOME FUND Annuity contracts in accumulation (2,905,719) (8,539,095) (18,304,491) (9,765,396) (13,211,659) GROWTH FUND Annuity contracts in accumulation (3,920,194) (9,043,771) (18,837,689) (9,793,918) (14,019,176) VALUE FUND Annuity contracts in accumulation (4,177,377) (7,734,104) (15,583,648) (7,849,544) (11,349,995) ALGER AMERICAN FUNDS: BALANCED PORTFOLIO Annuity contracts in accumulation (59,596) (159,674) (321,590) (161,916) (146,796) INCOME & GROWTH PORTFOLIO Annuity contracts in accumulation (662,398) (550,320) (3,175,152) (2,624,832) (2,496,800) LEVERAGED ALLCAP PORTFOLIO Annuity contracts in accumulation (1,130,076) (2,906,571) (4,631,271) (1,724,700) (2,595,737) ALLIANCE FUNDS: GROWTH AND INCOME PORTFOLIO Annuity contracts in accumulation (54,847) 34,311 (1,296,388) (1,330,699) (897,761) ---------------------------------------------------------------------------------------------------------------
S-29 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 5. SUPPLEMENTAL INFORMATION TO STATEMENT OF OPERATIONS (continued): Valuation Proceeds Cost of Period from Investments YEAR ENDED DECEMBER 31, 2001 Dividends Deductions Sales Sold PREMIER GROWTH PORTFOLIO Annuity contracts in accumulation $ 354,185 $ (87,980) $ 604,172 $ (831,270) QUASAR PORTFOLIO Annuity contracts in accumulation 17,973 (6,740) 407,648 (458,690) AMERICAN CENTURY VP FUNDS: BALANCED FUND Annuity contracts in accumulation 147,073 (31,651) 555,347 (610,794) INTERNATIONAL FUND Annuity contracts in accumulation 390,807 (49,590) 809,213 (1,105,799) CALVERT SOCIAL BALANCED PORTFOLIO Annuity contracts in accumulation 109,907 (26,548) 618,082 (694,165) FEDERATED INSURANCE SERIES: AMERICAN LEADERS FUND II Annuity contracts in accumulation 1,917,273 (1,293,263) 16,943,140 (12,932,983) EQUITY INCOME FUND II Annuity contracts in accumulation 411,071 (283,176) 5,372,572 (5,124,104) GROWTH STRATEGIES FUND II Annuity contracts in accumulation 459,610 (357,879) 6,818,548 (5,379,459) HIGH INCOME BOND FUND II Annuity contracts in accumulation 2,603,114 (337,791) 6,273,583 (8,320,808) INTERNATIONAL EQUITY FUND II Annuity contracts in accumulation 2,007,286 (202,306) 3,858,005 (3,259,229) PRIME MONEY FUND II Annuity contracts in accumulation 301,310 (117,630) 6,309,600 (6,309,600) U.S. GOVERNMENT SECURITIES FUND II Annuity contracts in accumulation 445,726 (161,350) 2,460,106 (2,331,899) UTILITY FUND II Annuity contracts in accumulation 579,989 (227,895) 4,087,446 (4,116,453) FIDELITY-REGISTERED TRADEMARK- VARIABLE INSURANCE PRODUCTS FUNDS: ASSET MANAGER PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 970,762 (215,889) 3,403,615 (3,849,530) CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 6,961,120 (2,342,906) 33,597,241 (40,800,127) EQUITY-INCOME PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 11,925,239 (2,467,655) 53,521,422 (56,226,775) GROWTH PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 13,676,127 (2,276,324) 21,128,365 (31,007,047) HIGH INCOME PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 5,820,989 (571,109) 16,342,490 (21,630,485) -------------------------------------------------------------------------------------------
S-30 Net Net Net Net Unrealized Change in Increase Realized Gain (Loss) Unrealized (Decrease) Gain (Loss) ------------------------------ Gain (Loss) in Net Assets on Beginning of End on Resulting from YEAR ENDED DECEMBER 31, 2001 Investments Year of Year Investments Operations PREMIER GROWTH PORTFOLIO Annuity contracts in accumulation $ (227,098) $ (105,771) $ (1,317,002) $ (1,211,231) $ (1,172,124) QUASAR PORTFOLIO Annuity contracts in accumulation (51,042) 2,230 58,004 55,774 15,965 AMERICAN CENTURY VP FUNDS: BALANCED FUND Annuity contracts in accumulation (55,447) (44,225) (231,063) (186,838) (126,863) INTERNATIONAL FUND Annuity contracts in accumulation (296,586) 23,975 (1,417,475) (1,441,450) (1,396,819) CALVERT SOCIAL BALANCED PORTFOLIO Annuity contracts in accumulation (76,083) (217,606) (409,510) (191,904) (184,628) FEDERATED INSURANCE SERIES: AMERICAN LEADERS FUND II Annuity contracts in accumulation 4,010,157 10,746,749 595,621 (10,151,128) (5,516,961) EQUITY INCOME FUND II Annuity contracts in accumulation 248,468 2,132,983 (1,189,443) (3,322,426) (2,946,063) GROWTH STRATEGIES FUND II Annuity contracts in accumulation 1,439,089 4,337,092 (5,127,605) (9,464,697) (7,923,877) HIGH INCOME BOND FUND II Annuity contracts in accumulation (2,047,225) (4,746,268) (4,853,798) (107,530) 110,568 INTERNATIONAL EQUITY FUND II Annuity contracts in accumulation 598,776 2,439,119 (5,522,362) (7,961,481) (5,557,725) PRIME MONEY FUND II Annuity contracts in accumulation 0 0 0 0 183,680 U.S. GOVERNMENT SECURITIES FUND II Annuity contracts in accumulation 128,207 341,857 532,993 191,136 603,719 UTILITY FUND II Annuity contracts in accumulation (29,007) (860,370) (3,738,808) (2,878,438) (2,555,351) FIDELITY-REGISTERED TRADEMARK- VARIABLE INSURANCE PRODUCTS FUNDS: ASSET MANAGER PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation (445,915) (266,900) (1,569,200) (1,302,300) (993,342) CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation (7,202,886) (4,148,405) (30,484,831) (26,336,426) (28,921,098) EQUITY-INCOME PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation (2,705,353) 12,117,982 (7,024,362) (19,142,344) (12,390,113) GROWTH PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation (9,878,682) (21,859,750) (63,420,858) (41,561,108) (40,039,987) HIGH INCOME PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation (5,287,995) (5,306,372) (11,177,588) (5,871,216) (5,909,331) ---------------------------------------------------------------------------------------------------------------
S-31 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 5. SUPPLEMENTAL INFORMATION TO STATEMENT OF OPERATIONS (continued): Valuation Proceeds Cost of Period from Investments YEAR ENDED DECEMBER 31, 2001 Dividends Deductions Sales Sold INDEX 500 PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation $ 1,402,323 $ (1,558,857) $ 65,319,405 $ (75,356,934) INVESTMENT GRADE BOND PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 198,718 (47,271) 913,059 (884,626) OVERSEAS PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 1,702,110 (145,617) 4,240,265 (5,298,626) JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation 0 (2,163,717) 112,903,620 (215,885,251) BALANCED PORTFOLIO -- I SHARES Annuity contracts in accumulation 6,376,693 (2,968,062) 20,193,366 (23,710,796) FLEXIBLE INCOME PORTFOLIO -- I SHARES Annuity contracts in accumulation 1,269,158 (265,779) 6,289,940 (5,998,822) GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation 569,223 (2,672,433) 65,694,756 (94,749,332) WORLDWIDE GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation 1,798,896 (4,794,060) 128,754,688 (180,869,641) MFS-REGISTERED TRADEMARK- FUNDS: GLOBAL GOVERNMENT SERIES Annuity contracts in accumulation 63,853 (23,976) 1,082,986 (1,030,750) TOTAL RETURN SERIES Annuity contracts in accumulation 4,082,187 (1,069,865) 4,275,832 (4,280,271) MITCHELL HUTCHINS SERIES TRUST: GROWTH AND INCOME PORTFOLIO Annuity contracts in accumulation 236,069 (10,015) 945,840 (1,177,364) SMALL CAP PORTFOLIO Annuity contracts in accumulation 0 (1,968) 179,699 (240,390) TACTICAL ALLOCATION PORTFOLIO Annuity contracts in accumulation 1,066,683 (181,353) 1,725,438 (2,176,044) OPPENHEIMER FUNDS: AGGRESSIVE GROWTH FUND/VA Annuity contracts in accumulation 7,504,048 (597,444) 58,474,728 (101,406,088) GLOBAL SECURITIES FUND/VA Annuity contracts in accumulation 2,152,426 (191,905) 4,588,739 (5,649,340) MAIN STREET GROWTH & INCOME FUND/VA Annuity contracts in accumulation 354,611 (855,039) 6,097,720 (7,156,428) STRATEGIC BOND FUND/VA Annuity contracts in accumulation 1,608,010 (340,357) 3,696,563 (3,751,698) -------------------------------------------------------------------------------------------
S-32 Net Net Net Net Unrealized Change in Increase Realized Gain (Loss) Unrealized (Decrease) Gain (Loss) ------------------------------ Gain (Loss) in Net Assets on Beginning of End on Resulting from YEAR ENDED DECEMBER 31, 2001 Investments Year of Year Investments Operations INDEX 500 PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation $(10,037,529) $ (5,006,883) $ (11,947,387) $ (6,940,504) $ (17,134,567) INVESTMENT GRADE BOND PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 28,433 135,182 188,210 53,028 232,908 OVERSEAS PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation (1,058,361) (447,720) (4,021,025) (3,573,305) (3,075,173) JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation (102,981,631) (87,927,298) (88,352,754) (425,456) (105,570,804) BALANCED PORTFOLIO -- I SHARES Annuity contracts in accumulation (3,517,430) (4,667,881) (19,587,400) (14,919,519) (15,028,318) FLEXIBLE INCOME PORTFOLIO -- I SHARES Annuity contracts in accumulation 291,118 221,880 212,865 (9,015) 1,285,482 GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation (29,054,576) (39,758,620) (77,845,173) (38,086,553) (69,244,339) WORLDWIDE GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation (52,114,953) (57,305,031) (113,772,392) (56,467,361) (111,577,478) MFS-REGISTERED TRADEMARK- FUNDS: GLOBAL GOVERNMENT SERIES Annuity contracts in accumulation 52,236 58,605 18,190 (40,415) 51,698 TOTAL RETURN SERIES Annuity contracts in accumulation (4,439) 4,094,999 396,235 (3,698,764) (690,881) MITCHELL HUTCHINS SERIES TRUST: GROWTH AND INCOME PORTFOLIO Annuity contracts in accumulation (231,524) 30,611 0 (30,611) (36,081) SMALL CAP PORTFOLIO Annuity contracts in accumulation (60,691) (31,643) 0 31,643 (31,016) TACTICAL ALLOCATION PORTFOLIO Annuity contracts in accumulation (450,606) (247,834) (2,851,752) (2,603,918) (2,169,194) OPPENHEIMER FUNDS: AGGRESSIVE GROWTH FUND/VA Annuity contracts in accumulation (42,931,360) (17,023,622) (1,098,487) 15,925,135 (20,099,621) GLOBAL SECURITIES FUND/VA Annuity contracts in accumulation (1,060,601) 167,134 (3,007,237) (3,174,371) (2,274,451) MAIN STREET GROWTH & INCOME FUND/VA Annuity contracts in accumulation (1,058,708) (3,884,729) (10,379,120) (6,494,391) (8,053,527) STRATEGIC BOND FUND/VA Annuity contracts in accumulation (55,135) 145,482 (190,030) (335,512) 877,006 ---------------------------------------------------------------------------------------------------------------
S-33 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 5. SUPPLEMENTAL INFORMATION TO STATEMENT OF OPERATIONS (continued): Valuation Proceeds Cost of Period from Investments YEAR ENDED DECEMBER 31, 2001 Dividends Deductions Sales Sold PILGRIM FUNDS: EMERGING MARKETS FUND (1) Annuity contracts in accumulation $ 214,362 $ (14,049) $ 225,848 $ (271,872) NATURAL RESOURCES TRUST FUND (2) Annuity contracts in accumulation 0 (27,769) 400,464 (475,010) PILGRIM VARIABLE FUNDS: GROWTH OPPORTUNITIES PORTFOLIO -- CLASS S Annuity contracts in accumulation 0 (495) 43,605 (45,766) MAGNA CAP PORTFOLIO -- CLASS S Annuity contracts in accumulation 1,968 (1,467) 29,052 (30,707) MID CAP OPPORTUNITIES PORTFOLIO -- CLASS S Annuity contracts in accumulation 0 (3,490) 997,104 (1,008,504) SMALL CAP OPPORTUNITIES PORTFOLIO -- CLASS S Annuity contracts in accumulation 2,246 (5,564) 665,676 (785,588) PORTFOLIO PARTNERS, INC. (PPI): PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO -- I CLASS Annuity contracts in accumulation 13,575,938 (856,160) 10,458,902 (18,236,582) PPI MFS EMERGING EQUITIES PORTFOLIO -- I CLASS Annuity contracts in accumulation 7,195,393 (1,385,063) 108,410,165 (160,295,741) PPI MFS RESEARCH GROWTH PORTFOLIO -- I CLASS Annuity contracts in accumulation 17,141,681 (1,040,886) 12,539,275 (17,848,388) PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO -- I CLASS Annuity contracts in accumulation 8,604,172 (386,680) 141,291,844 (159,541,969) PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO -- I CLASS Annuity contracts in accumulation 15,614,636 (1,287,423) 17,749,888 (22,441,236) PRUDENTIAL JENNISON PORTFOLIO Annuity contracts in accumulation 0 (1,106) 506,980 (518,886) SP JENNISON INTERNATIONAL GROWTH PORTFOLIO Annuity contracts in accumulation 1 (621) 683,900 (711,700) TOTAL VARIABLE ANNUITY ACCOUNT B $218,813,159 $(78,210,934) $2,444,944,910 $(3,030,846,267)
(1) - Effective May 1, 2001, Lexington Emerging Markets Fund's name changed to Pilgrim Emerging Markets Fund. (2) - Effective May 1, 2001, Lexington Natural Resources Trust's name changed to Pilgrim Natural Resources Trust Fund. S-34 Net Net Net Net Unrealized Change in Increase Realized Gain (Loss) Unrealized (Decrease) Gain (Loss) ------------------------------ Gain (Loss) in Net Assets on Beginning of End on Resulting from YEAR ENDED DECEMBER 31, 2001 Investments Year of Year Investments Operations PILGRIM FUNDS: EMERGING MARKETS FUND (1) Annuity contracts in accumulation $ (46,024) $ (118,440) $ (404,575) $ (286,135) $ (131,846) NATURAL RESOURCES TRUST FUND (2) Annuity contracts in accumulation (74,546) 240,727 (103,049) (343,776) (446,091) PILGRIM VARIABLE FUNDS: GROWTH OPPORTUNITIES PORTFOLIO -- CLASS S Annuity contracts in accumulation (2,161) 0 (54) (54) (2,710) MAGNA CAP PORTFOLIO -- CLASS S Annuity contracts in accumulation (1,655) 0 6,282 6,282 5,128 MID CAP OPPORTUNITIES PORTFOLIO -- CLASS S Annuity contracts in accumulation (11,400) 0 10,360 10,360 (4,530) SMALL CAP OPPORTUNITIES PORTFOLIO -- CLASS S Annuity contracts in accumulation (119,912) 0 26,260 26,260 (96,970) PORTFOLIO PARTNERS, INC. (PPI): PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO -- I CLASS Annuity contracts in accumulation (7,777,680) (10,163,046) (37,194,148) (27,031,102) (22,089,004) PPI MFS EMERGING EQUITIES PORTFOLIO -- I CLASS Annuity contracts in accumulation (51,885,576) (23,512,406) (12,829,435) 10,682,971 (35,392,275) PPI MFS RESEARCH GROWTH PORTFOLIO -- I CLASS Annuity contracts in accumulation (5,309,113) (8,619,374) (40,743,842) (32,124,468) (21,332,786) PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO -- I CLASS Annuity contracts in accumulation (18,250,125) 680,506 360,046 (320,460) (10,353,093) PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO -- I CLASS Annuity contracts in accumulation (4,691,348) (3,849,578) (26,636,909) (22,787,331) (13,151,466) PRUDENTIAL JENNISON PORTFOLIO Annuity contracts in accumulation (11,906) 0 20,719 20,719 7,707 SP JENNISON INTERNATIONAL GROWTH PORTFOLIO Annuity contracts in accumulation (27,800) 0 656 656 (27,764) TOTAL VARIABLE ANNUITY ACCOUNT B $(585,901,357) $(650,455,465) $(1,079,975,654) $(429,520,189) $(874,819,321)
(1) - Effective May 1, 2001, Lexington Emerging Markets Fund's name changed to Pilgrim Emerging Markets Fund. (2) - Effective May 1, 2001, Lexington Natural Resources Trust's name changed to Pilgrim Natural Resources Trust Fund. S-35 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 2001 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year AETNA ASCENT VP Annuity contracts in accumulation $ 57,331 $ (214,747) $ (2,028,011) $ (1,458,785) $ 17,494,584 $ 13,540,715 Annuity contracts in payment period 25,499 335,156 AETNA BALANCED VP, INC. Annuity contracts in accumulation 9,113,021 (7,103,330) (12,960,839) 1,130,931 170,506,936 152,717,924 Annuity contracts in payment period 29,260,905 37,229,700 AETNA BOND VP Annuity contracts in accumulation 6,509,189 869,818 898,172 36,691,750 93,669,011 135,538,187 Annuity contracts in payment period 5,821,072 8,920,825 AETNA CROSSROADS VP Annuity contracts in accumulation 242,613 (147,526) (1,743,663) (2,051,275) 19,642,538 15,875,749 Annuity contracts in payment period 1,447,650 1,514,588 AETNA GET FUND, SERIES C Annuity contracts in accumulation 293,859 (2,549,105) 1,291,730 (4,935,189) 5,898,705 0 AETNA GET FUND, SERIES D Annuity contracts in accumulation (22,012) (420,664) 1,095,968 (10,485,646) 129,775,588 119,943,234 AETNA GET FUND, SERIES E Annuity contracts in accumulation (2,832,358) (2,038,326) 1,793,609 (30,372,937) 333,832,965 300,382,953 AETNA GET FUND, SERIES G Annuity contracts in accumulation (2,345,173) (434,775) 2,133,011 (14,428,668) 186,444,632 171,369,027 AETNA GET FUND, SERIES H Annuity contracts in accumulation (1,652,269) (369,766) 564,872 (8,620,592) 141,763,690 131,685,935 AETNA GET FUND, SERIES I Annuity contracts in accumulation (1,309,240) (219,903) 987,709 (4,985,289) 92,928,925 87,402,202 AETNA GET FUND, SERIES J Annuity contracts in accumulation (1,178,440) (283,781) 1,098,645 (4,706,710) 79,871,616 74,801,330 AETNA GET FUND, SERIES K Annuity contracts in accumulation (1,749,150) (112,344) (668,196) (2,701,829) 93,789,821 88,558,302 AETNA GET FUND, SERIES L Annuity contracts in accumulation 549,879 127,113 (1,992,805) 81,075,629 584,846 80,344,662 AETNA GET FUND, SERIES M Annuity contracts in accumulation 645,422 (51,667) (3,590,542) 126,161,862 0 123,165,075 AETNA GET FUND, SERIES N Annuity contracts in accumulation 109,984 210,767 2,203,779 102,081,211 0 104,605,741 AETNA GET FUND, SERIES P Annuity contracts in accumulation (66,562) 300 192,563 82,886,000 0 83,012,301 AETNA GET FUND, SERIES Q Annuity contracts in accumulation (1,059) 163 757 1,620,487 0 1,620,348 AETNA GROWTH AND INCOME VP Annuity contracts in accumulation (3,421,173) (113,876,325) (55,992,671) (91,273,079) 765,261,567 535,753,075 Annuity contracts in payment period 162,948,133 127,893,377
S-36 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2001 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year AETNA GROWTH VP Annuity contracts in accumulation $ 7,586,438 $ (37,814,320) $ 7,848,570 $(10,534,849) $ 78,188,522 $ 47,460,299 Annuity contracts in payment period 6,813,655 4,627,717 AETNA INDEX PLUS LARGE CAP VP Annuity contracts in accumulation 7,044,685 (36,788,778) (9,243,704) 1,954,479 217,699,546 181,854,675 Annuity contracts in payment period 44,095,500 42,907,053 AETNA INDEX PLUS MID CAP VP Annuity contracts in accumulation 455,151 (303,328) (366,632) 2,695,562 6,733,274 9,214,027 AETNA INDEX PLUS SMALL CAP VP Annuity contracts in accumulation 53,118 16,027 (19,980) 1,263,589 1,097,872 2,410,626 AETNA INTERNATIONAL VP Annuity contracts in accumulation (95,343) (4,401,994) 2,100,297 680,138 9,382,842 7,627,170 Annuity contracts in payment period 324,994 363,764 AETNA LEGACY VP Annuity contracts in accumulation 757,517 (148,474) (1,543,863) (1,909,739) 22,842,539 20,015,480 Annuity contracts in payment period 3,348,677 3,331,177 AETNA MONEY MARKET VP Annuity contracts in accumulation 8,471,018 (787,890) (382,266) 73,917,208 206,567,488 283,692,298 Annuity contracts in payment period 5,241,120 9,334,380 AETNA SMALL COMPANY VP Annuity contracts in accumulation 1,495,826 (79,276) 422,864 13,466,616 45,163,536 58,389,629 Annuity contracts in payment period 2,106,866 4,186,803 AETNA TECHNOLOGY VP Annuity contracts in accumulation (128,546) (7,168,946) 3,648,984 5,560,799 9,832,599 11,744,890 AETNA VALUE OPPORTUNITY VP Annuity contracts in accumulation 890,299 (717,768) (3,302,248) 9,782,353 19,709,584 26,362,220 AIM V.I. FUNDS: CAPITAL APPRECIATION FUND Annuity contracts in accumulation 1,607,214 (3,943,522) (4,771,612) 4,629,631 25,248,912 22,655,949 Annuity contracts in payment period 738,219 852,893 GOVERNMENT SECURITIES FUND Annuity contracts in accumulation 198,905 94,842 (124,108) 8,684,291 294,912 9,148,842 GROWTH AND INCOME FUND Annuity contracts in accumulation (540,544) (2,905,719) (9,765,396) 6,246,089 46,632,179 38,679,045 Annuity contracts in payment period 3,190,959 4,178,523 GROWTH FUND Annuity contracts in accumulation (305,064) (3,920,194) (9,793,918) 4,519,235 36,220,507 26,700,689 Annuity contracts in payment period 1,036,422 1,056,299 VALUE FUND Annuity contracts in accumulation 676,926 (4,177,377) (7,849,544) 12,007,731 70,471,041 70,561,466 Annuity contracts in payment period 2,878,953 3,446,264
S-37 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2001 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year ALGER AMERICAN FUNDS: BALANCED PORTFOLIO Annuity contracts in accumulation $ 74,716 $ (59,596) $ (161,916) $ (975,636) $ 4,887,859 $ 3,765,427 INCOME & GROWTH PORTFOLIO Annuity contracts in accumulation 790,430 (662,398) (2,624,832) (2,809,855) 16,586,009 11,279,354 LEVERAGED ALLCAP PORTFOLIO Annuity contracts in accumulation 259,039 (1,130,076) (1,724,700) (2,543,425) 15,562,934 10,423,772 ALLIANCE FUNDS: GROWTH AND INCOME PORTFOLIO Annuity contracts in accumulation 487,785 (54,847) (1,330,699) 28,176,820 897,717 28,176,776 PREMIER GROWTH PORTFOLIO Annuity contracts in accumulation 266,205 (227,098) (1,211,231) 7,016,678 2,687,461 8,532,015 QUASAR PORTFOLIO Annuity contracts in accumulation 11,233 (51,042) 55,774 811,867 82,470 910,302 AMERICAN CENTURY VP FUNDS: BALANCED FUND Annuity contracts in accumulation 115,422 (55,447) (186,838) (514,673) 2,684,483 2,042,947 INTERNATIONAL FUND Annuity contracts in accumulation 341,217 (296,586) (1,441,450) (748,774) 4,904,674 2,759,081 CALVERT SOCIAL BALANCED PORTFOLIO Annuity contracts in accumulation 83,359 (76,083) (191,904) (369,758) 2,513,732 1,959,346 FEDERATED INSURANCE SERIES: AMERICAN LEADERS FUND II Annuity contracts in accumulation 624,010 4,010,157 (10,151,128) (13,876,471) 102,497,426 83,034,442 Annuity contracts in payment period 88,623 158,175 EQUITY INCOME FUND II Annuity contracts in accumulation 127,895 248,468 (3,322,426) (3,842,680) 24,223,008 17,415,666 Annuity contracts in payment period 41,239 59,838 GROWTH STRATEGIES FUND II Annuity contracts in accumulation 101,731 1,439,089 (9,464,697) (4,910,965) 33,809,187 20,974,345 HIGH INCOME BOND FUND II Annuity contracts in accumulation 2,265,323 (2,047,225) (107,530) (5,657,520) 26,434,464 20,876,591 Annuity contracts in payment period 11,712 22,633 INTERNATIONAL EQUITY FUND II Annuity contracts in accumulation 1,804,980 598,776 (7,961,481) (3,523,772) 20,017,475 10,925,630 Annuity contracts in payment period 39,851 50,199 PRIME MONEY FUND II Annuity contracts in accumulation 183,680 0 0 (75,384) 8,703,425 8,811,721 U.S. GOVERNMENT SECURITIES FUND II Annuity contracts in accumulation 284,376 128,207 191,136 (35,167) 11,133,403 11,701,955
S-38 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2001 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year UTILITY FUND II Annuity contracts in accumulation $ 352,094 $ (29,007) $ (2,878,438) $ (3,565,172) $ 19,310,088 $ 13,189,192 Annuity contracts in payment period 40,502 40,875 FIDELITY-REGISTERED TRADEMARK- VARIABLE INSURANCE PRODUCTS FUNDS: ASSET MANAGER PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 5,249,880 (5,287,995) (5,871,216) 2,182,805 17,820,958 14,094,432 CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation (156,534) (10,037,529) (6,940,504) (25,829,941) 216,963,354 173,998,846 EQUITY-INCOME PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 754,873 (445,915) (1,302,300) 5,987,428 188,024,984 193,019,070 GROWTH PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 4,618,214 (7,202,886) (26,336,426) (13,370,131) 209,609,983 167,318,754 HIGH INCOME PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 9,457,584 (2,705,353) (19,142,344) 6,263,146 44,851,961 38,455,260 Annuity contracts in payment period 659,872 929,606 INDEX 500 PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 151,447 28,433 53,028 (32,499,293) 133,049,029 100,782,644 INVESTMENT GRADE BOND PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 1,556,493 (1,058,361) (3,573,305) 2,458,909 3,699,966 3,083,702 OVERSEAS PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 11,399,803 (9,878,682) (41,561,108) 35,503,221 14,451,215 9,914,449 JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation (2,163,717) (102,981,631) (425,456) (27,084,902) 274,462,060 141,806,354 BALANCED PORTFOLIO -- I SHARES Annuity contracts in accumulation 3,408,631 (3,517,430) (14,919,519) 11,125,134 244,144,219 240,241,035 FLEXIBLE INCOME PORTFOLIO -- I SHARES Annuity contracts in accumulation 1,003,379 291,118 (9,015) 3,925,181 18,729,553 23,940,216 GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation (2,103,210) (29,054,576) (38,086,553) (21,629,929) 253,461,282 165,825,143 Annuity contracts in payment period 14,191,697 10,953,568 WORLDWIDE GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation (2,995,164) (52,114,953) (56,467,361) (40,889,293) 467,731,442 319,679,090 Annuity contracts in payment period 16,131,186 11,716,767 MFS-REGISTERED TRADEMARK- FUNDS: GLOBAL GOVERNMENT SERIES Annuity contracts in accumulation 39,877 52,236 (40,415) 153,415 1,537,291 1,742,404 TOTAL RETURN SERIES Annuity contracts in accumulation 3,012,322 (4,439) (3,698,764) 31,202,325 63,398,107 93,909,551 MITCHELL HUTCHINS SERIES TRUST: GROWTH AND INCOME PORTFOLIO Annuity contracts in accumulation 226,054 (231,524) (30,611) (914,157) 950,238 0
S-39 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2001 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year SMALL CAP PORTFOLIO Annuity contracts in accumulation $ (1,968) $ (60,691) $ 31,643 $ (177,731) $ 208,747 $ 0 TACTICAL ALLOCATION PORTFOLIO Annuity contracts in accumulation 885,330 (450,606) (2,603,918) 3,994,345 12,509,283 14,334,434 OPPENHEIMER FUNDS: AGGRESSIVE GROWTH FUND/VA Annuity contracts in accumulation 6,906,604 (42,931,360) 15,925,135 3,496,997 55,317,044 39,285,820 Annuity contracts in payment period 1,734,978 1,163,578 GLOBAL SECURITIES FUND/VA Annuity contracts in accumulation 1,960,521 (1,060,601) (3,174,371) 1,417,786 17,259,574 16,402,909 MAIN STREET GROWTH & INCOME FUND/VA Annuity contracts in accumulation (500,428) (1,058,708) (6,494,391) 6,109,792 66,668,968 62,764,050 Annuity contracts in payment period 983,453 2,944,636 STRATEGIC BOND FUND/VA Annuity contracts in accumulation 1,267,653 (55,135) (335,512) 4,680,276 22,834,845 28,186,645 Annuity contracts in payment period 499,690 705,172 PILGRIM FUNDS: EMERGING MARKETS FUND (1) Annuity contracts in accumulation 200,313 (46,024) (286,135) (211,449) 1,255,139 911,844 NATURAL RESOURCES TRUST FUND (2) Annuity contracts in accumulation (27,769) (74,546) (343,776) (351,677) 2,800,522 2,002,754 PILGRIM VARIABLE FUNDS: GROWTH OPPORTUNITIES PORTFOLIO -- CLASS S Annuity contracts in accumulation (495) (2,161) (54) 144,161 0 141,451 MAGNA CAP PORTFOLIO -- CLASS S Annuity contracts in accumulation 501 (1,655) 6,282 425,382 0 430,510 MID CAP OPPORTUNITIES PORTFOLIO -- CLASS S Annuity contracts in accumulation (3,490) (11,400) 10,360 869,213 0 864,683 SMALL CAP OPPORTUNITIES PORTFOLIO -- CLASS S Annuity contracts in accumulation (3,318) (119,912) 26,260 1,377,039 0 1,280,069 PORTFOLIO PARTNERS, INC. (PPI): PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO -- I CLASS Annuity contracts in accumulation 12,719,778 (7,777,680) (27,031,102) 6,687,762 74,490,975 58,410,271 Annuity contracts in payment period 3,742,395 4,421,857 PPI MFS EMERGING EQUITIES PORTFOLIO -- I CLASS Annuity contracts in accumulation 5,810,330 (51,885,576) 10,682,971 (9,757,019) 134,260,645 89,074,576 Annuity contracts in payment period 2,424,002 2,460,777 PPI MFS RESEARCH GROWTH PORTFOLIO -- I CLASS Annuity contracts in accumulation 16,100,795 (5,309,113) (32,124,468) (7,183,612) 97,910,276 69,393,878 PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO -- I CLASS Annuity contracts in accumulation 8,217,492 (18,250,125) (320,460) 2,522,566 37,459,265 29,651,417 Annuity contracts in payment period 820,408 797,729
S-40 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2001 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO -- I CLASS Annuity contracts in accumulation $ 14,327,213 $ (4,691,348) $ (22,787,331) $(10,683,369) $ 111,737,190 $ 87,329,290 Annuity contracts in payment period 1,492,696 2,065,761 PRUDENTIAL JENNISON PORTFOLIO Annuity contracts in accumulation (1,106) (11,906) 20,719 715,846 0 723,553 SP JENNISON INTERNATIONAL GROWTH PORTFOLIO Annuity contracts in accumulation (620) (27,800) 656 87,050 0 59,286 TOTAL VARIABLE ANNUITY ACCOUNT B $140,602,225 $(585,901,357) $ (429,520,189) $321,894,393 $6,324,265,635 $5,771,340,707
(1) - Effective May 1, 2001, Lexington Emerging Markets Fund's name changed to Pilgrim Emerging Markets Fund. (2) - Effective May 1, 2001, Lexington Natural Resources Trust's name changed to Pilgrim Natural Resources Trust Fund. S-41 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2000 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year AETNA ASCENT VP Annuity contracts in accumulation $ (19,986) $ 80,904 $ (395,465) $ (2,126,497) $ 19,981,127 $ 17,494,584 Annuity contracts in payment period 0 25,499 AETNA BALANCED VP, INC. Annuity contracts in accumulation 25,438,446 4,392,299 (33,376,108) (3,685,639) 180,920,898 170,506,936 Annuity contracts in payment period 26,077,945 29,260,905 AETNA BOND VP Annuity contracts in accumulation 4,302,985 (3,926,075) 7,191,021 (7,130,690) 93,390,139 93,669,011 Annuity contracts in payment period 5,662,703 5,821,072 AETNA CROSSROADS VP Annuity contracts in accumulation 120,571 150,209 (451,841) (3,675,149) 23,405,948 19,642,538 Annuity contracts in payment period 1,540,450 1,447,650 AETNA GET FUND, SERIES C Annuity contracts in accumulation 1,335,752 108,141 (2,078,587) (591,069) 7,124,468 5,898,705 AETNA GET FUND, SERIES D Annuity contracts in accumulation 5,467,967 1,618,863 (15,094,126) (38,850,045) 176,632,929 129,775,588 AETNA GET FUND, SERIES E Annuity contracts in accumulation 8,639,502 8,869,525 (39,559,697) (25,814,741) 381,698,376 333,832,965 AETNA GET FUND, SERIES G Annuity contracts in accumulation 1,309,580 (876,702) (10,027,839) (15,815,466) 211,855,059 186,444,632 AETNA GET FUND, SERIES H Annuity contracts in accumulation 739,272 2,185,186 (3,461,611) 140,573,888 1,726,955 141,763,690 AETNA GET FUND, SERIES I Annuity contracts in accumulation 275,200 (694,416) (1,839,216) 95,187,357 0 92,928,925 AETNA GET FUND, SERIES J Annuity contracts in accumulation 176,931 (484,516) (2,762,925) 82,942,126 0 79,871,616 AETNA GET FUND, SERIES K Annuity contracts in accumulation 77,450 (6,354) (937,549) 94,656,274 0 93,789,821 AETNA GET FUND, SERIES L Annuity contracts in accumulation 211 (7) 194 584,448 0 584,846 AETNA GROWTH AND INCOME VP Annuity contracts in accumulation 105,139,609 (62,524,949) (172,388,883) (115,312,686) 980,638,280 765,261,567 Annuity contracts in payment period 192,658,329 162,948,133 AETNA GROWTH VP Annuity contracts in accumulation 461,767 6,743,912 (19,879,627) 26,673,488 66,260,594 78,188,522 Annuity contracts in payment period 4,742,043 6,813,655 AETNA HIGH YIELD VP Annuity contracts in accumulation (962) (25,592) 16,080 (235,208) 245,682 0 AETNA INDEX PLUS LARGE CAP VP Annuity contracts in accumulation 28,381,224 4,674,934 (61,091,320) 50,756,181 198,210,089 217,699,546 Annuity contracts in payment period 40,863,938 44,095,500
S-42 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2000 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year AETNA INDEX PLUS MID CAP VP Annuity contracts in accumulation $ (4,927) $ 73,276 $ 120,220 $ 5,677,943 $ 866,762 $ 6,733,274 AETNA INDEX PLUS SMALL CAP VP Annuity contracts in accumulation (7,596) 106,384 (26,790) 114,561 911,313 1,097,872 AETNA INTERNATIONAL VP Annuity contracts in accumulation 1,596,233 (1,644,967) (2,185,425) 7,402,219 4,434,269 9,382,842 Annuity contracts in payment period 105,507 324,994 AETNA LEGACY VP Annuity contracts in accumulation 168,261 284,243 512,081 (4,343,073) 26,597,646 22,842,539 Annuity contracts in payment period 2,972,058 3,348,677 AETNA MONEY MARKET VP Annuity contracts in accumulation 6,549,004 3,555,570 236,421 (14,305,266) 214,710,443 206,567,488 Annuity contracts in payment period 1,062,436 5,241,120 AETNA REAL ESTATE SECURITIES VP Annuity contracts in accumulation (13,273) 253,381 181,523 (2,361,351) 1,925,817 0 Annuity contracts in payment period 13,903 0 AETNA SMALL COMPANY VP Annuity contracts in accumulation 2,067,862 2,636,272 (5,013,959) 21,990,505 25,125,952 45,163,536 Annuity contracts in payment period 463,770 2,106,866 AETNA TECHNOLOGY VP Annuity contracts in accumulation (51,699) (1,245,161) (3,777,303) 14,906,762 0 9,832,599 AETNA VALUE OPPORTUNITY VP Annuity contracts in accumulation 2,255,445 1,506,660 (2,438,845) 1,467,498 16,918,826 19,709,584 AIM V.I. FUNDS: CAPITAL APPRECIATION FUND Annuity contracts in accumulation 479,698 2,920,558 (7,876,908) 20,492,644 9,923,942 25,248,912 Annuity contracts in payment period 47,197 738,219 GOVERNMENT SECURITIES FUND Annuity contracts in accumulation 1,562 0 (259) 293,609 0 294,912 GROWTH AND INCOME FUND Annuity contracts in accumulation 1,050,543 2,282,076 (12,286,042) 35,286,376 22,700,889 46,632,179 Annuity contracts in payment period 789,296 3,190,959 GROWTH FUND Annuity contracts in accumulation 843,700 823,540 (11,755,732) 28,414,358 18,608,980 36,220,507 Annuity contracts in payment period 322,083 1,036,422 VALUE FUND Annuity contracts in accumulation 2,510,869 (2,319,506) (12,406,102) 43,738,065 40,884,392 70,471,041 Annuity contracts in payment period 942,276 2,878,953 ALGER AMERICAN FUNDS: BALANCED PORTFOLIO Annuity contracts in accumulation 423,844 1,720,600 (2,328,441) (1,141,945) 6,213,801 4,887,859 INCOME & GROWTH PORTFOLIO Annuity contracts in accumulation 3,768,859 4,541,175 (8,720,878) (2,090,817) 19,087,670 16,586,009
S-43 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2000 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year LEVERAGED ALLCAP PORTFOLIO Annuity contracts in accumulation $ 1,813,579 $ 10,683,320 $ (17,950,996) $ (4,095,310) $ 25,112,341 $ 15,562,934 ALLIANCE FUNDS: GROWTH & INCOME PORTFOLIO Annuity contracts in accumulation (1,396) (30) 34,311 864,832 0 897,717 PREMIER GROWTH PORTFOLIO Annuity contracts in accumulation (3,883) (218) (105,771) 2,797,333 0 2,687,461 QUASAR PORTFOLIO Annuity contracts in accumulation (126) (160) 2,230 80,526 0 82,470 AMERICAN CENTURY VP FUNDS: BALANCED FUND Annuity contracts in accumulation 92,716 (48,893) (158,120) (653,587) 3,452,367 2,684,483 INTERNATIONAL FUND Annuity contracts in accumulation 45,347 2,194,431 (3,396,853) (1,437,282) 7,499,031 4,904,674 CALVERT SOCIAL BALANCED PORTFOLIO Annuity contracts in accumulation 89,491 169,525 (225,816) (108,598) 2,589,130 2,513,732 FEDERATED INSURANCE SERIES: AMERICAN LEADERS FUND II Annuity contracts in accumulation 2,701,430 10,076,833 (12,544,414) (22,814,712) 125,105,874 102,497,426 Annuity contracts in payment period 61,038 88,623 EQUITY INCOME FUND II Annuity contracts in accumulation (103,182) 1,436,428 (4,849,921) (2,611,778) 30,384,515 24,223,008 Annuity contracts in payment period 8,185 41,239 GROWTH STRATEGIES FUND II Annuity contracts in accumulation 2,726,135 6,275,415 (18,445,402) (3,424,589) 46,677,628 33,809,187 HIGH INCOME BOND FUND II Annuity contracts in accumulation 3,013,120 (2,605,984) (3,978,186) (11,789,080) 41,788,490 26,434,464 Annuity contracts in payment period 17,816 11,712 INTERNATIONAL EQUITY FUND II Annuity contracts in accumulation 4,109,759 2,498,090 (13,249,893) (2,226,299) 28,925,669 20,017,475 Annuity contracts in payment period 0 39,851 PRIME MONEY FUND II Annuity contracts in accumulation 365,832 0 0 (319,878) 8,657,471 8,703,425 U.S. GOVERNMENT SECURITIES FUND II Annuity contracts in accumulation 469,048 135,842 413,546 (2,699,444) 12,814,411 11,133,403 Annuity contracts in payment period 0 0 UTILITY FUND II Annuity contracts in accumulation 911,360 1,515,798 (4,760,899) (4,874,174) 26,498,835 19,310,088 Annuity contracts in payment period 59,670 40,502 FIDELITY-REGISTERED TRADEMARK- VARIABLE INSURANCE PRODUCTS FUNDS: ASSET MANAGER PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 1,951,140 (838,650) (2,164,125) (2,646,869) 21,519,462 17,820,958
S-44 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2000 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation $ 26,811,924 $ 15,477,353 $ (60,966,810) $ 642,863 $ 234,998,024 $ 216,963,354 EQUITY-INCOME PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 12,572,852 4,766,327 (5,706,151) (15,362,952) 191,754,908 188,024,984 GROWTH PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 20,362,665 39,333,103 (89,518,485) 30,450,179 208,982,521 209,609,983 HIGH INCOME PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 3,282,958 (14,490,509) (2,699,682) (3,275,558) 61,938,947 44,851,961 Annuity contracts in payment period 755,677 659,872 INDEX 500 PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 230,575 21,564,283 (37,907,339) (21,306,125) 170,467,635 133,049,029 INVESTMENT GRADE BOND PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 227,469 55,842 60,079 (763,474) 4,120,050 3,699,966 OVERSEAS PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 1,761,141 (222,759) (5,262,586) (1,913,521) 20,088,940 14,451,215 JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO Annuity contracts in accumulation 37,118,795 13,188,174 (188,064,913) 137,555,004 274,665,000 274,462,060 BALANCED PORTFOLIO Annuity contracts in accumulation 23,070,386 13,307,928 (44,850,054) 67,292,044 185,323,915 244,144,219 FLEXIBLE INCOME PORTFOLIO Annuity contracts in accumulation 800,449 (1,139,350) 1,221,110 (1,735,067) 19,582,411 18,729,553 GROWTH PORTFOLIO Annuity contracts in accumulation 20,248,007 26,376,109 (96,637,106) 94,745,263 213,572,309 253,461,282 Annuity contracts in payment period 9,348,397 14,191,697 WORLDWIDE GROWTH PORTFOLIO Annuity contracts in accumulation 38,890,587 103,517,579 (240,800,959) 100,536,442 470,413,281 467,731,442 Annuity contracts in payment period 11,305,698 16,131,186 LEXINGTON FUNDS: EMERGING MARKETS FUND Annuity contracts in accumulation (29,359) (208,854) (697,511) (383,164) 2,574,027 1,255,139 NATURAL RESOURCES TRUST FUND Annuity contracts in accumulation (23,479) (280,181) 734,872 (799,653) 3,168,963 2,800,522 MFS-REGISTERED TRADEMARK- FUNDS: GLOBAL GOVERNMENT SERIES Annuity contracts in accumulation 54,979 (117,141) 110,630 (154,591) 1,643,414 1,537,291 TOTAL RETURN SERIES Annuity contracts in accumulation 1,769,334 3,584,670 2,244,191 5,010,468 50,789,444 63,398,107 MITCHELL HUTCHINS SERIES TRUST: GROWTH & INCOME PORTFOLIO Annuity contracts in accumulation 52,069 (60,119) (43,491) 191,823 809,956 950,238
S-45 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2000 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year SMALL CAP PORTFOLIO Annuity contracts in accumulation $ 42,933 $ 21,129 $ (41,112) $ 13,275 $ 172,522 $ 208,747 TACTICAL ALLOCATION PORTFOLIO Annuity contracts in accumulation 49,580 (146,643) (283,303) 5,525,454 7,364,195 12,509,283 OPPENHEIMER FUNDS: AGGRESSIVE GROWTH FUND/VA Annuity contracts in accumulation 913,764 10,300,064 (25,312,397) 40,219,243 29,291,524 55,317,044 Annuity contracts in payment period 1,639,824 1,734,978 GLOBAL SECURITIES FUND/VA Annuity contracts in accumulation 1,710,952 438,818 (2,145,627) 7,741,683 9,513,748 17,259,574 MAIN STREET GROWTH & INCOME FUND/VA Annuity contracts in accumulation 2,421,957 1,662,650 (11,373,240) 18,574,761 56,214,303 66,668,968 Annuity contracts in payment period 151,990 983,453 STRATEGIC BOND FUND/VA Annuity contracts in accumulation 1,407,974 (1,289,825) 158,172 3,260,148 19,569,256 22,834,845 Annuity contracts in payment period 228,810 499,690 PORTFOLIO PARTNERS, INC. (PPI): PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO -- I CLASS (1) Annuity contracts in accumulation 9,624,642 10,380,017 (74,522,115) 77,813,035 53,173,898 74,490,975 Annuity contracts in payment period 1,763,893 3,742,395 PPI MFS EMERGING EQUITIES PORTFOLIO -- I CLASS Annuity contracts in accumulation (398,687) 29,823,579 (49,886,417) (26,097,535) 181,712,440 134,260,645 Annuity contracts in payment period 1,531,267 2,424,002 PPI MFS RESEARCH GROWTH PORTFOLIO -- I CLASS Annuity contracts in accumulation 6,487,565 22,426,562 (25,633,388) (7,907,361) 102,536,898 97,910,276 PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO -- I CLASS Annuity contracts in accumulation 3,513,499 (8,389,934) (2,960,925) 10,664,760 35,328,550 37,459,265 Annuity contracts in payment period 123,723 820,408 PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO -- I CLASS Annuity contracts in accumulation 8,778,480 34,445,191 (44,649,659) (12,137,687) 126,069,747 111,737,190 Annuity contracts in payment period 723,814 1,492,696 TOTAL VARIABLE ANNUITY ACCOUNT B $443,418,285 $331,595,273 $(1,510,718,463) $ 886,119,508 $6,173,851,032 $6,324,265,635
(1) - Effective May 1, 2000, PPI MFS Value Equity Portfolio's name changed to PPI MFS Capital Opportunities Portfolio. S-46 REPORT OF INDEPENDENT AUDITORS To the Contractowners of Aetna Life Insurance and Annuity Company Variable Annuity Account B and the Board of Directors and Shareholder of Aetna Life Insurance and Annuity Company: We have audited the accompanying statement of assets and liabilities of the eighty-five funds of Aetna Life Insurance and Annuity Company Variable Annuity Account B (the Account), referred to in Note 1, as of December 31, 2001, and the related statement of operations, changes in net assets and condensed financial information for the year then ended. These financial statements and condensed financial information are the responsibility of the Account's management. Our responsibility is to express an opinion on these financial statements and condensed financial information based on our audit. The statement of changes in net assets for the year ended December 31, 2000, was audited by other auditors whose report dated February 2, 2001, expressed an unqualified opinion on those statements. 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 and condensed financial information referred to above present fairly, in all material respects, the financial position of the eighty-five funds of Aetna Life Insurance and Annuity Company Variable Annuity Account B, referred to in Note 1, as of December 31, 2001, and the results of their operations, changes in their net assets and condensed financial information for the year then ended, in conformity with accounting principles generally accepted in the United States. [ERNST & YOUNG LLP SIGNATURE] Hartford, Connecticut February 8, 2002 S-47 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.) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Independent Auditors.................... F-2 Consolidated Financial Statements: Consolidated Statements of Income for the Year-ended December 31, 2001, One Month Ended December 31, 2000, the Eleven Months Ended November 30, 2000 and for the Year-ended December 31, 1999............... F-4 Consolidated Balance Sheets as of December 31, 2001 and 2000................. F-5 Consolidated Statements of Changes in Shareholder's Equity for the Year-ended December 31, 2001, One Month Ended December 31, 2000, the Eleven Months Ended November 30, 2000 and for the Year-ended December 31, 1999.......................... F-6 Consolidated Statements of Cash Flows for the Year-ended December 31, 2001, One Month Ended December 31, 2000, the Eleven Months Ended November 30, 2000 and for the Year-ended December 31, 1999............... F-7 Notes to Consolidated Financial Statements.... F-8
F-1 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 F-2 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 F-3 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)
Preacquisition ---------------------------- One month Eleven months Year-ended ended ended Year-ended December 31, December 31, November 30, December 31, 2001 2000 2000 1999 ------------- ------------- ------------- ------------- Revenue: Premiums $ 114.2 $ 16.5 $ 137.7 $ 107.5 Charges assessed against policyholders 381.3 36.4 424.6 388.3 Net investment income 888.4 78.6 833.8 886.3 Net realized capital (losses) gains (21.0) 1.8 (37.2) (21.5) Other income 172.1 13.4 148.7 129.7 -------- ------ -------- -------- Total revenue 1,535.0 146.7 1,507.6 1,490.3 Benefits and expenses: Current and future benefits 729.6 68.9 726.7 746.2 Operating expenses: Salaries and related benefits 181.0 29.9 187.5 153.0 Restructing charge 29.2 -- -- -- Other 234.0 19.2 227.1 213.7 Amortization of deferred policy acquisition costs and value of business acquired 112.0 10.2 116.7 104.9 Amortization of goodwill 61.9 -- -- -- -------- ------ -------- -------- Total benefits and expenses 1,347.7 128.2 1,258.0 1,217.8 Income from continuing operations before income taxes 187.3 18.5 249.6 272.5 Income taxes 87.4 5.9 78.1 90.6 -------- ------ -------- -------- Income from continuing operations 99.9 12.6 171.5 181.9 Discontinued operations, net of tax: Income from operations -- -- 5.7 5.7 -------- ------ -------- -------- Net income $ 99.9 $ 12.6 $ 177.2 $ 187.6 ======== ====== ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-4 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)
December 31, December 31, 2001 2000 --------------- --------------- ASSETS Investments: Debt securities available for sale, at fair value (amortized cost: $13,249.2 and $11,120.0) $13,539.9 $11,244.7 Equity securities, at fair value: Nonredeemable preferred stock (cost: $27.0 and $109.0) 24.6 100.7 Investment in affiliated mutual funds (cost: $22.9 and $9.6) 25.0 12.7 Common stock (cost: $2.3 and $2.2) 0.7 3.5 Short-term investments 31.7 109.4 Mortgage loans 241.3 4.6 Policy loans 329.0 339.3 Other investments 18.2 13.4 Securities pledged to creditors (amortized cost: $466.9 and $126.8) 467.2 129.0 --------- --------- Total investments 14,677.6 11,957.3 Cash and cash equivalents 82.0 796.3 Short-term investments under securities loan agreement 488.8 131.8 Accrued investment income 160.9 147.2 Premiums due and other receivables 21.5 82.9 Reciprocal loan with affiliate 191.1 -- Reinsurance recoverable 2,990.7 3,005.8 Current income taxes -- 40.6 Deferred policy acquisition costs 121.3 12.3 Value of business acquired 1,601.8 1,780.9 Goodwill 2,412.1 2,297.4 Other assets 194.3 154.7 Separate Accounts assets 32,663.1 36,745.8 --------- --------- Total assets $55,605.2 $57,153.0 ========= ========= LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities: Future policy benefits $ 3,996.8 $ 3,977.7 Unpaid claims and claim expenses 28.8 29.6 Policyholders' funds left with the Company 12,135.8 11,125.6 --------- --------- Total insurance reserve liabilities 16,161.4 15,132.9 Payables under securities loan agreement 488.8 131.8 Current income taxes 59.2 -- Deferred income taxes 153.7 248.0 Other liabilities 1,624.7 549.9 Separate Accounts liabilities 32,663.1 36,745.8 --------- --------- Total liabilities 51,150.9 52,808.4 --------- --------- Shareholder's equity: Common stock, par value $50 (100,000 shares authorized; 55,000 shares issued and outstanding) 2.8 2.8 Paid-in capital 4,292.4 4,303.8 Accumulated other comprehensive gain 46.6 25.4 Retained earnings 112.5 12.6 --------- --------- Total shareholder's equity 4,454.3 4,344.6 --------- --------- Total liabilities and shareholder's equity $55,605.2 $57,153.0 ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-5 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)
Preacquisition ---------------------------- One month Eleven month Year-ended ended ended Year-ended December 31, December 31, November 30, December 31, 2001 2000 2000 1999 ------------- ------------- ------------- ------------- Shareholder's equity, beginning of period $4,344.6 $4,313.4 $1,385.7 $1,394.5 Comprehensive income: Net income 99.9 12.6 177.2 187.6 Other comprehensive income (loss), net of tax: Unrealized gains (losses) on securities ($32.5, $28.7, $79.4 and ($230.2) pretax) (1) 21.2 18.6 51.6 (149.6) -------- -------- -------- -------- Total comprehensive income 121.1 31.2 228.8 38.0 -------- -------- -------- -------- Capital contributions: Cash -- -- 73.5 -- Assets -- -- 56.0 -- -------- -------- -------- -------- Total capital contributions -- -- 129.5 -- -------- -------- -------- -------- Return of capital (11.3) -- -- -- Other changes (0.1) -- 0.8 2.9 Common stock dividends -- -- (10.1) (49.7) Adjustment for purchase accounting -- -- 2,578.7 -- -------- -------- -------- -------- Shareholder's equity, end of period $4,454.3 $4,344.6 $4,313.4 $1,385.7 ======== ======== ======== ========
(1) Net of reclassification adjustments. SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-6 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)
Preacquisition ------------------------------ One month Eleven months Year-ended ended ended Year-ended December 31, December 31, November 30, December 31, 2001 2000 2000 1999 --------------- --------------- ------------- --------------- Cash Flows from Operating Activities: Net income $ 99.9 $ 12.6 $ 177.2 $ 187.6 Adjustments to reconcile net income to net cash (used for) provided by operating activities: Net accretion of discount on investments (1.2) (2.7) (32.6) (26.5) Amortization of deferred gain on sale -- -- (5.7) (5.7) Net realized capital losses (gains) 21.0 (1.8) 37.2 21.5 Changes in assets and liabilities: (Increase) decrease in accrued investment income (13.7) 6.6 (3.1) 0.9 (Increase) decrease in premiums due and other receivables (95.6) 31.1 (23.7) 23.3 Decrease (increase) in policy loans 10.3 0.1 (25.4) (21.8) Increase in deferred policy acquisition costs (121.3) (12.2) (136.6) (153.3) Decrease in value of business acquired 13.9 -- -- -- Goodwill amortization 61.8 -- -- -- Net increase (decrease) in universal life account balances 17.6 (3.8) 23.8 55.7 (Decrease) increase in other insurance reserve liabilities (136.3) (5.3) 85.6 (28.6) (Decrease) increase in other liabilities and other assets (67.9) 103.9 (75.2) (42.5) Increase (decrease) in income taxes 89.5 (14.3) 23.1 (259.8) --------- ------- --------- --------- Net cash (used for) provided by operating activities (122.0) 114.2 44.6 (249.2) --------- ------- --------- --------- Cash Flows from Investing Activities: Proceeds from sales of: Debt securities available for sale 14,216.7 233.0 10,083.2 5,890.1 Equity securities 4.4 1.5 118.4 111.2 Mortgage loans 5.2 0.1 2.1 6.1 Investment maturities and collections of: Debt securities available for sale 1,121.8 53.7 573.1 1,216.5 Short-term investments 7,087.3 0.4 59.9 80.6 Cost of investment purchases in: Debt securities available for sale (16,489.8) (230.7) (10,505.5) (7,099.7) Equity securities (50.0) (27.8) (17.6) (13.0) Mortgages debt securities (242.0) -- -- -- Short-term investments (6,991.1) (10.0) (113.1) (106.0) (Increase) decrease in property and equipment 7.4 1.9 5.4 (5.7) Other, net (4.7) 0.3 (4.0) 3.7 --------- ------- --------- --------- Net cash (used for) provided by investing activities (1,334.8) 22.4 201.9 83.8 --------- ------- --------- --------- Cash Flows from Financing Activities: Deposits and interest credited for investment contracts 1,941.5 164.2 1,529.7 2,040.2 Withdrawals of investment contracts (1,082.7) (156.3) (1,832.6) (1,680.8) Capital contribution from HOLDCO -- -- 73.5 -- Return of capital (11.3) -- -- -- Dividends paid to Shareholder -- -- (10.1) (255.7) Other, net (105.0) (73.6) 22.0 126.7 --------- ------- --------- --------- Net cash provided by (used for) financing activities 742.5 (65.7) (217.5) 230.4 --------- ------- --------- --------- Net (decrease) increase in cash and cash equivalents (714.3) 70.9 29.0 65.0 Effect of exchange rate changes on cash and cash equivalents -- -- 2.0 -- Cash and cash equivalents, beginning of period 796.3 725.4 694.4 629.4 --------- ------- --------- --------- Cash and cash equivalents, end of period $ 82.0 $ 796.3 $ 725.4 $ 694.4 ========= ======= ========= ========= Supplemental cash flow information: Income taxes (received) paid, net $ (12.3) $ 20.3 $ 39.9 $ 316.9 ========= ======= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-7 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; F-8 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 F-9 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). F-10 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 F-11 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. F-12 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:
Gross Gross December 31, 2001 Amortized Unrealized Unrealized Fair (Millions) Cost Gains Losses Value ------------------------------------------------------------------------------------------ Total securities pledged to creditors $466.9 $1.1 $0.8 $467.2 ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ Gross Gross December 31, 2000 Amortized Unrealized Unrealized Fair (Millions) Cost Gains Losses Value ------------------------------------------------------------------------------------------ Debt securities $124.5 $5.3 $3.1 $126.7 Short-term investments 2.3 -- -- 2.3 ------------------------------------------------------------------------------------------ Total securities pledged to creditors $126.8 $5.3 $3.1 $129.0 ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------
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." F-13 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). F-14 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:
(Millions) -------------------------------------------------------- Balance at December 31, 2000 $ 1,780.9 Adjustment of allocation of purchase price (165.3) Additions 90.0 Interest accrued at 7% 110.0 Amortization (213.8) -------------------------------------------------------- Balance at December 31,2001 $ 1,601.8 -------------------------------------------------------- --------------------------------------------------------
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 F-15 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 F-16 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. F-17 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 F-18 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:
Gross Gross Amortized Unrealized Unrealized Fair 2001 (Millions) Cost Gains Losses Value ------------------------------------------------------------------------------ U.S. government and government agencies and authorities $ 391.0 $ 11.0 $ 4.2 $ 397.8 States, municipalities and political subdivisions 173.7 7.7 -- 181.4 U.S. corporate securities: Public utilities 268.5 6.5 7.9 267.1 Other corporate securities 6,138.8 203.0 62.6 6,279.2 ------------------------------------------------------------------------------ Total U.S. corporate securities 6,407.3 209.5 70.5 6,546.3 ------------------------------------------------------------------------------ Foreign securities: Government 153.2 5.2 0.9 157.5 ------------------------------------------------------------------------------ Total foreign securities 153.2 5.2 0.9 157.5 ------------------------------------------------------------------------------ Mortgage-backed securities 4,513.3 90.1 15.9 4,587.5 Other asset-backed securities 2,077.6 67.1 8.1 2,136.6 ------------------------------------------------------------------------------ Total debt securities, including debt securities pledged to creditors 13,716.1 390.6 99.6 14,007.1 Less: Debt securities pledged to creditors 466.9 1.1 0.8 467.2 ------------------------------------------------------------------------------ Debt securities $13,249.2 $389.5 $98.8 $13,539.9 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------
F-19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. INVESTMENTS (continued)
Gross Gross Amortized Unrealized Unrealized Fair 2000 (Millions) Cost Gains Losses Value ----------------------------------------------------------------------------- U.S. government and government agencies and authorities $ 920.8 $ 34.3 $ 2.1 $ 953.0 States, municipalities and political subdivisions 0.3 -- -- 0.3 U.S. corporate securities: Public utilities 282.2 13.8 6.2 289.8 Other corporate securities 4,643.5 86.1 128.3 4,601.3 ----------------------------------------------------------------------------- Total U.S. corporate securities 4,925.7 99.9 134.5 4,891.1 ----------------------------------------------------------------------------- Foreign securities: Government, including political subdivisions 384.7 23.9 4.3 404.3 Utilities 122.9 18.6 -- 141.5 Other 31.2 -- 9.3 21.9 ----------------------------------------------------------------------------- Total foreign securities 538.8 42.5 13.6 567.7 ----------------------------------------------------------------------------- Mortgage-backed securities 4,105.2 125.8 35.4 4,195.6 Other asset-backed securities 753.7 13.4 3.4 763.7 ----------------------------------------------------------------------------- Total debt securities, including debt securities pledged to creditors 11,244.5 315.9 189.0 11,371.4 Less: Debt securities pledged to creditors 124.5 5.3 3.1 126.7 ----------------------------------------------------------------------------- Debt securities $11,120.0 $310.6 $185.9 $11,244.7 ----------------------------------------------------------------------------- -----------------------------------------------------------------------------
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. F-20 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.
Amortized Fair (Millions) Cost Value -------------------------------------------------------------- Due to mature: One year or less $ 160.0 $ 162.1 After one year through five years 2,333.1 2,387.5 After five years through ten years 2,374.7 2,398.8 After ten years 2,257.4 2,334.6 Mortgage-backed securities 4,513.3 4,587.5 Other asset-backed securities 2,077.6 2,136.6 Less: Debt securities pledged to creditors 466.9 467.2 -------------------------------------------------------------- Debt securities $13,249.2 $13,539.9 -------------------------------------------------------------- --------------------------------------------------------------
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:
2001 2000 ------------------- ------------------- Amortized Fair Amortized Fair (Millions) Cost Value Cost Value ------------------------------------------------------------------------ Total residential CMOs (1) $1,830.5 $1,891.7 $1,606.6 $1,660.7 ------------------------------------------------------------------------ ------------------------------------------------------------------------ Percentage of total: Supporting experience rated products 84.2% 80.6% Supporting remaining products 15.8% 19.4% ------------------------------------------------------------------------ 100.0% 100.0% ------------------------------------------------------------------------ ------------------------------------------------------------------------
(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 F-21 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:
(Millions) 2001 2000 ------------------------------------------------------- Amortized Cost $52.2 $120.8 Gross unrealized gains 4.5 6.0 Gross unrealized losses 6.4 9.9 ------------------------------------------------------- Fair value $50.3 $116.9 ------------------------------------------------------- -------------------------------------------------------
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:
2001 2000 -------------------- ------------------- Carrying Fair Carrying Fair (Millions) Value Value Value Value ------------------------------------------------------------------------- Assets: Mortgage loans $ 241.3 $ 247.7 $ 4.6 $ 4.5 Liabilities: Investment contract liabilities: With a fixed maturity 1,021.7 846.5 1,041.0 982.3 Without a fixed maturity 11,114.1 10,624.3 10,084.6 9,549.9 -------------------------------------------------------------------------
F-22 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 F-23 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. F-24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6. NET INVESTMENT INCOME Sources of net investment income were as follows:
Preacquisition ------------------------------ One month Eleven months Year-ended ended ended Year-ended December 31, December 31, November 30, December 31, (Millions) 2001 2000 2000 1999 ------------------------------------------------------------------------------------------------ Debt securities $887.2 $70.3 $768.9 $823.3 Nonredeemable preferred stock 1.5 1.8 9.5 17.1 Investment in affiliated mutual funds 7.2 0.5 2.1 2.4 Mortgage loans 5.9 0.1 0.5 1.1 Policy loans 8.9 0.7 7.9 7.7 Cash equivalents 18.2 4.4 50.3 39.0 Other 15.9 2.6 13.1 15.3 ------------------------------------------------------------------------------------------------ Gross investment income 944.8 80.4 852.3 905.9 Less: investment expenses (56.4) (1.8) (18.5) (19.6) ------------------------------------------------------------------------------------------------ Net investment income $888.4 $78.6 $833.8 $886.3 ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------
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 F-25 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:
Preacquisition ------------------------------ One month Eleven months Year-ended ended ended Year-ended December 31, December 31, November 30, December 31, (Millions) 2001 2000 2000 1999 ------------------------------------------------------------------------------------------------ Debt securities $(20.6) $1.2 $(36.3) $(23.6) Equity securities (0.4) 0.6 (0.9) 2.1 ------------------------------------------------------------------------------------------------ Pretax realized capital (losses) gains $(21.0) $1.8 $(37.2) $(21.5) ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------ After-tax realized capital (losses) gains $(13.7) $1.3 $(24.3) $(14.0) ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------
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. F-26 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:
Preacquisition ------------------------------ One month Eleven months Year-ended ended ended Year-ended December 31, December 31, November 30, December 31, (Millions) 2001 2000 2000 1999 ------------------------------------------------------------------------------------------------ Proceeds on sales $14,216.7 $233.0 $10,083.2 $5,890.1 Gross gains 57.0 1.2 2.5 10.5 Gross losses 77.6 -- 38.8 34.1 ------------------------------------------------------------------------------------------------
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:
(Millions) 2001 2000 1999 ----------------------------------------------------------- Debt securities $24.0 $ 92.1 $(199.2) Equity securities 2.0 (5.5) (3.4) Other 6.5 21.5 (27.6) ----------------------------------------------------------- Subtotal 32.5 108.1 (230.2) Increase (decrease) in deferred income taxes (Refer to Note 10) 11.3 37.9 (80.6) ----------------------------------------------------------- Net changes in accumulated other comprehensive income (loss) $21.2 $ 70.2 $(149.6) ----------------------------------------------------------- -----------------------------------------------------------
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:
(Millions) 2001 2000 1999 --------------------------------------------------------- Net unrealized capital gains (losses): Debt securities $58.0 $34.0 $(58.1) Equity securities (1.9) (3.9) 1.6 Other 15.6 9.1 (12.4) --------------------------------------------------------- 71.7 39.2 (68.9) Deferred income taxes (Refer to Note 10) 25.1 13.8 (24.1) --------------------------------------------------------- Net accumulated other comprehensive income (loss) $46.6 $25.4 $(44.8) --------------------------------------------------------- ---------------------------------------------------------
F-27 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:
(Millions) 2001 2000 1999 ----------------------------------------------------------- Unrealized holding gains (losses) arising during the year (1) $ 8.3 $70.0 $(146.3) Less: reclassification adjustment for (losses) gains and other items included in net income (2) (12.9) (0.1) 3.3 ----------------------------------------------------------- Net unrealized gains (losses) on securities $ 21.2 $70.1 $(149.6) ----------------------------------------------------------- -----------------------------------------------------------
(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:
(Millions) Severance Liability Positions ------------------------------------------------------------------------ Balance at December 31, 2000 $10.7 175 Actions taken (8.4) (101) Allocation of purchase price: Additions 5.2 58 Attrition (3.3) (101) Refinements 1.0 -- ------------------------------------------------------------------------ Balance at December 31, 2001 $ 5.2 31 ------------------------------------------------------------------------ ------------------------------------------------------------------------
F-28 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:
Preacquisition ------------------------------ One month Eleven months Year-ended ended ended Year-ended December 31, December 31, November 30, December 31, (Millions) 2001 2000 2000 1999 ------------------------------------------------------------------------------------------------ Current taxes (benefits): Federal $ 3.2 $ 9.4 $ 5.3 $ 64.3 State 2.2 0.2 2.6 2.5 Net realized capital gains (losses) 16.1 0.3 (11.5) (20.1) ------------------------------------------------------------------------------------------------ Total current taxes (benefits) 21.5 9.9 (3.6) 46.7 ------------------------------------------------------------------------------------------------ Deferred taxes (benefits): Federal 89.3 (4.3) 83.2 31.3 Net realized capital (losses) gains (23.4) 0.3 (1.5) 12.6 ------------------------------------------------------------------------------------------------ Total deferred taxes (benefits) 65.9 (4.0) 81.7 43.9 ------------------------------------------------------------------------------------------------ Total $ 87.4 $ 5.9 $ 78.1 $ 90.6 ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------
F-29 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:
Preacquisition ------------------------------ One month Eleven months Year-ended ended ended Year-ended December 31, December 31, November 30, December 31, (Millions) 2001 2000 2000 1999 ------------------------------------------------------------------------------------------------ Income from continuing operations before income taxes $187.3 $18.5 $249.6 $272.5 Tax rate 35% 35% 35% 35% ------------------------------------------------------------------------------------------------ Application of the tax rate 65.6 6.4 87.4 95.4 Tax effect of: State income tax, net of federal benefit 1.4 0.1 1.7 1.6 Excludable dividends (1.8) (0.9) (12.6) (6.1) Goodwill amortization 21.6 -- -- -- Other, net 0.6 0.3 1.6 (0.3) ------------------------------------------------------------------------------------------------ Income taxes $ 87.4 $ 5.9 $ 78.1 $ 90.6 ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------
F-30 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:
(Millions) 2001 2000 ---------------------------------------------------------- Deferred tax assets: Deferred policy acquisition costs $ 11.7 $ 44.8 Insurance reserves 286.9 306.3 Unrealized gains allocable to experience rated contracts 81.5 32.5 Investment losses 36.7 9.0 Postretirement benefits other than pensions 6.1 5.8 Deferred compensation 72.2 65.6 Other 29.1 21.1 ---------------------------------------------------------- Total gross assets 524.2 485.1 ---------------------------------------------------------- Deferred tax liabilities: Value of business acquired 558.5 623.3 Market discount 4.6 4.9 Net unrealized capital gains 106.6 46.3 Depreciation 5.1 4.4 Sale of individual life insurance business -- 15.1 Excludable dividends -- 5.0 Other 3.1 34.1 ---------------------------------------------------------- Total gross liabilities 677.9 733.1 ---------------------------------------------------------- Net deferred tax liability $(153.7) $(248.0) ---------------------------------------------------------- ----------------------------------------------------------
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. F-31 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' F-32 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. F-33 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. F-34 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. F-35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 13. REINSURANCE (continued) The following table includes premium amounts ceded/assumed.
Ceded to Assumed Direct Other from Other Net (Millions) Amount Companies Companies Amount ----------------------------------------------------------------------- 2001 ------------------------------ Premiums: Discontinued Operations $301.2 $315.0 $13.8 -- Accident and Health Insurance 4.5 4.5 -- -- Annuities 112.3 (1.3) 0.6 $114.2 ----------------------------------------------------------------------- Total earned premiums $418.0 $318.2 $14.4 $114.2 ----------------------------------------------------------------------- ----------------------------------------------------------------------- 2000 ------------------------------ Premiums: Discontinued Operations $366.6 $382.4 $15.8 -- Accident and Health Insurance 15.2 15.2 -- -- Annuities 160.4 7.1 0.9 $154.2 ----------------------------------------------------------------------- Total earned premiums $542.2 $404.7 $16.7 $154.2 ----------------------------------------------------------------------- ----------------------------------------------------------------------- 1999 ------------------------------ Premiums: Discontinued Operations $460.1 $478.0 $17.9 -- Accident and Health Insurance 33.4 33.4 -- -- Annuities 111.5 4.9 0.9 $107.5 ----------------------------------------------------------------------- Total earned premiums $605.0 $516.3 $18.8 $107.5 ----------------------------------------------------------------------- -----------------------------------------------------------------------
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. F-36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 14. SEGMENT INFORMATION Summarized financial information for the Company's principal operations was as follows:
Investment Year-ended December 31, Worksite Individual Management 2001 (Millions) Products (1) Products (1) Services (1) Other (1) Total ----------------------------------------------------------------------------------------- Revenues from external customers $ 432.1 $ 151.1 $119.6 $ (35.2) $ 667.6 Net investment income 788.9 99.0 1.7 (1.2) 888.4 ----------------------------------------------------------------------------------------- Total revenue excluding net realized capital gains (losses) $ 1,221.0 $ 250.1 $121.3 $ (36.4) $ 1,556.0 ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- Amortization of deferred policy acquisition costs and value of business acquired $ 59.7 $ 41.4 -- $ 10.9 $ 112.0 ----------------------------------------------------------------------------------------- Income taxes (benefits) $ 70.1 $ 16.6 $ 15.7 $ (15.0) $ 87.4 ----------------------------------------------------------------------------------------- Operating earnings (2) $ 150.4 $ 24.3 $ 27.4 $ (88.5) $ 113.6 Net realized capital gains (losses), net of tax (20.2) 6.4 0.1 -- (13.7) ----------------------------------------------------------------------------------------- Income (loss) from continuing operations 130.2 30.7 27.5 (88.5) 99.9 ----------------------------------------------------------------------------------------- Net income (loss) $ 130.2 $ 30.7 $ 27.5 $ (88.5) $ 99.9 ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- Segment assets (3) $41,695.7 $8,432.0 $ 82.1 $2,983.3 $53,193.1 ----------------------------------------------------------------------------------------- Expenditures for long-lived assets (4) -- -- -- $ 6.3 $ 6.3 ----------------------------------------------------------------------------------------- Balance of long-lived assets -- -- -- $ 33.1 $ 33.1 -----------------------------------------------------------------------------------------
(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: investment advisory services to affiliated and unaffiliated institutional and retail clients; underwriting; distribution for Company mutual funds and a former affiliate's separate accounts; and trustee, administrative and other services to retirement plans (Refer to Notes 1 and 2). Other includes consolidating adjustments, amortization of goodwill, ING corporate expense, restructuring charges, and taxes not allocated back to the segments. (2) Operating earnings is comprised of net income (loss) excluding net realized capital gains and losses. While operating earnings is the measure of profit or loss used by the Company's management when assessing performance or making operating decisions, it does not replace operating income or net income as a measure of profitability. (3) Segment assets exclude goodwill. (4) Expenditures of long-lived assets represent additions to property and equipment not allocable to business. F-37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 14. SEGMENT INFORMATION (continued)
Investment Year-ended December 31, Worksite Individual Management Discontinued 2000 (Millions) Products (1) Products (1) Services (1) Operations (1) Other (1) Total ------------------------------------------------------------------------------------------------------------- Revenues from external customers $ 576.7 $ 115.4 $138.2 -- $(53.0) $ 777.3 Net investment income 793.6 112.2 2.8 -- 3.8 912.4 ------------------------------------------------------------------------------------------------------------- Total revenue excluding net realized capital gains (losses) $ 1,370.3 $ 227.6 $141.0 -- $(49.2) $ 1,689.7 ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- Amortization of deferred policy acquisition costs and value of business acquired $ 68.3 $ 47.3 $ -- -- $ 11.3 $ 126.9 ------------------------------------------------------------------------------------------------------------- Income taxes (benefits) $ 74.6 $ 16.6 $ 9.0 -- $(16.2) $ 84.0 ------------------------------------------------------------------------------------------------------------- Operating earnings (2) $ 159.4 $ 33.0 $ 9.7 -- $ 5.0 $ 207.1 Net realized capital (losses) gains, net of tax (20.8) (2.3) 0.1 -- -- (23.0) ------------------------------------------------------------------------------------------------------------- Income from continuing operations 138.6 30.7 9.8 -- 5.0 184.1 Discontinued operations, net of tax: Amortization of deferred gain on sale (3) -- -- -- $ 5.7 -- 5.7 ------------------------------------------------------------------------------------------------------------- Net income $ 138.6 $ 30.7 $ 9.8 $ 5.7 $ 5.0 $ 189.8 ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- Segment assets (4) $42,955.7 $8,864.6 $ 44.1 $2,991.2 -- $54,855.6 ------------------------------------------------------------------------------------------------------------- Expenditures for long- lived assets (5) -- -- -- -- $ 3.4 $ 3.4 ------------------------------------------------------------------------------------------------------------- Balance of long-lived assets -- -- -- -- $ 54.3 $ 54.3 -------------------------------------------------------------------------------------------------------------
(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. 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) Taxes on the amortization of deferred gain on sale were $3.3 million. (4) Segment assets exclude goodwill. (5) Expenditures of long-lived assets represent additions to property and equipment not allocable to business segments. F-38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 14. SEGMENT INFORMATION (continued)
Investment Year-ended December 31, Worksite Individual Management Discontinued 1999 (Millions) Products (1) Products (1) Services (1) Operations (1) Other (1) Total ------------------------------------------------------------------------------------------------------------- Revenues from external customers $ 469.8 $ 81.3 $118.3 -- $(43.9) $ 625.5 Net investment income 784.6 96.9 1.5 -- 3.3 886.3 ------------------------------------------------------------------------------------------------------------- Total revenue excluding net realized capital gains $ 1,254.5 $ 178.1 $119.8 -- $(40.6) $ 1,511.8 ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- Amortization of deferred policy acquisition costs and value of business acquired $ 63.0 $ 30.4 -- -- $ 11.5 $ 104.9 ------------------------------------------------------------------------------------------------------------- Income taxes (benefits) $ 82.0 $ 11.2 $ 16.5 -- $(19.1) $ 90.6 ------------------------------------------------------------------------------------------------------------- Operating earnings (2) $ 164.9 $ 22.2 28.1 -- $ (1.8) $ 213.4 Other Item (3) -- -- -- -- (17.5) (17.5) Net realized capital gains, net of tax (12.7) (1.3) -- -- -- (14.0) ------------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations 152.2 20.9 28.1 -- (25.0) 181.9 Discontinued operations, net of tax: Amortization of deferred gain on sale (4) -- -- -- $ 5.7 -- 5.7 ------------------------------------------------------------------------------------------------------------- Net income (loss) $ 152.2 $ 20.9 $ 28.1 $ 5.7 $(25.0) $ 187.6 ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- Segment assets $44,484.9 $8,877.2 $ 36.6 $2,989.0 -- $56,387.7 ------------------------------------------------------------------------------------------------------------- Expenditures for long- lived assets (5) -- -- -- -- $ 3.9 $ 3.9 ------------------------------------------------------------------------------------------------------------- Balance of long-lived assets -- -- -- -- $ 12.2 $ 12.2 -------------------------------------------------------------------------------------------------------------
(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. F-39 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. F-40 QUARTERLY DATA (UNAUDITED)
2001 (Millions) First Second Third Fourth -------------------------------------------------------------- Total revenue $395.5 $411.9 $387.2 $340.4 -------------------------------------------------------------- Income (loss) from continuing operations before income taxes $ 64.3 $95.0 $ 68.9 $(40.9) Income taxes (benefit) 28.2 39.1 27.1 (7.0) -------------------------------------------------------------- Income (loss) from continuing operations $ 36.1 $55.9 $ 41.8 $(33.9) -------------------------------------------------------------- Net income (loss) $ 36.1 $55.9 $ 41.8 $(33.9) -------------------------------------------------------------- -------------------------------------------------------------- 2000 (Millions) First Second Third Fourth (1) ------------------------------------------------------------------ Total revenue $408.3 $409.3 $426.4 $410.3 ------------------------------------------------------------------ Income from continuing operations before income taxes $ 76.5 $85.0 $ 77.4 $ 29.2 Income taxes 25.1 28.1 22.7 8.1 ------------------------------------------------------------------ Income from continuing operations $ 51.4 $56.9 $ 54.7 $ 21.1 Income from discontinued operations 1.6 1.6 1.5 1.0 ------------------------------------------------------------------ Net income $ 53.0 $58.5 $ 56.2 $ 22.1 ------------------------------------------------------------------ ------------------------------------------------------------------
(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. F-41 FORM NO. SAI.75996-02 ILIAC ED. MAY 2002 11 VARIABLE ANNUITY ACCOUNT B PART C - OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS ----------------------------------------------- (a) Financial Statements: (1) Included in Part A: Condensed Financial Information (2) Included in Part B: Financial Statements of Variable Annuity Account B: - Statement of Assets and Liabilities as of December 31, 2001 - Statement of Operations for the year ended December 31, 2001 - Statements of Changes in Net Assets for the years ended December 31, 2001 and 2000 - Condensed Financial Information for the year ended December 31, 2001 - Notes to Financial Statements - Report of Independent Auditors Financial Statements of ING Life Insurance and Annuity Company: - Report of Independent Auditors - Consolidated Statements of Income for the Year Ended December 31, 2001, One Month Ended December 31, 2000, the Eleven Months Ended November 30, 2000 and for the Year Ended December 31, 1999 - Consolidated Balance Sheets as of December 31, 2001 and 2000 - Consolidated Statements of Changes in Shareholder's Equity for the Year Ended December 31, 2001, One Month Ended December 31, 2000, the Eleven Months Ended November 30, 2000 and for the Year Ended December 31, 1999 - Consolidated Statements of Cash Flows for the Year Ended December 31, 2001, One Month Ended December 31, 2000, the Eleven Month Ended November 30, 2000 and for the Year Ended December 31, 1999 - Notes to Consolidated Financial Statements (b) Exhibits (1) Resolution of the Board of Directors of Aetna Life Insurance and Annuity Company establishing Variable Annuity Account B(1) (2) Not applicable (3.1) Broker-Dealer Agreement(2) (3.2) Alternative Form of Wholesaling Agreement and Related Selling Agreement(3) (3.3) Broker-Dealer Agreement dated June 7, 2000 between Aetna Life Insurance and Annuity Company and Aetna Investment Services, Inc. (AISI) and Letter of Assignment to AISI (4) (3.4) Underwriting Agreement dated November 17, 2000 between Aetna Life Insurance and Annuity Company and Aetna Investment Services, LLC(4) (4.1) Variable Annuity Contract (G-CDA-HF)(5) (4.2) Variable Annuity Contract (IA-CDA-IA)(5) (4.3) Variable Annuity Contract (G-CDA-HD)(6) (4.4) Variable Annuity Contracts (GID-CDA-HO), (GLID-CDA-HO) and (GSD-CDA-HO)(7) (4.5) Variable Annuity Contract Certificate (GDCC-HO) to Contracts GID-CDA-HO, GLID-CDA-HO and GSD-CDA-HO(8) (4.6) Variable Annuity Contract Certificate GTCC-HF(9) (4.7) Variable Annuity Contract Certificate GTCC-HD(10) (4.8) Variable Annuity Contract (I-CDA-HD)(11) (4.9) Variable Annuity Contract (ISE-CDA-HO)(8) (4.10) Endorsement EGATHDF-00 to Contracts G-CDA-HD and G-CDA-HF(12) (4.11) Endorsement EGATHO-00 to Contracts GLID-CDA-HO and GID-CDA-HO(12) (4.12) Endorsement EGAT-GSDHO-00 to Contract GST-CDA-HO(12) (4.13) Endorsement (EGET-IC(R)) to Contracts G-CDA-HF and G-CDA-HD(3) (4.14) Endorsements (EIGET-IC(R)) and (EIGF-IC) to Contracts IA-CDA-IA and I-CDA-HD(13) (4.15) Endorsement (EFUND97) to Contracts GID-CDA-HO, GLID-CDA-HO, GSD-CDA-HO and ISE-CDA-HO(5) (4.16) Endorsement (E98-G-CDA-HF/HD) to Contracts G-CDA-HF and G-CDA-HD(14) (4.17) Endorsement (E98-CDA-HO) to Contracts GLID-CDA-HO, GID-CDA-HO and GSD-CDA-HO(15) (4.18) Endorsement (EGETE-IC(R)) to Contracts GLID-CDA-HO, GID-CDA-HO and GSD-CDA-HO(15) (4.19) Endorsement (EGET(99)) to Contracts G-CDA-HF, IA-CDA-IA, G-CDA-HD, GID-CDA-HO, GLID-CDA-HO, GSD-CDA-HO, I-CDA-HD, and ISE-CDA-HO(16) (4.20) Endorsement EGLID-ME/AC-99 to Contract GLID-CDA-HO(12) (4.21) Endorsement EEGTRRA-HEG(01) to Contracts G-CDA-HF, IA-CDA-IA, G-CDA-HD, GID-CDA-HO, GLID-CDA-HO, GSD-CDA-HO, I-CDA-HD, ISE-CDA-HO and Certificate GDCC-HO(17) (4.22) Endorsement E-LOANA(01/01) to Contracts(18) (4.23) Endorsements ENMCHG (05/02) and ENMCHGI (05/02) for name change(19) (5.1) Variable Annuity Contract Application (300-GTD-IA)(20) (5.2) Variable Annuity Contract Application (710.00.141)(21) (6.1) Restated Certificate of Incorporation (amended and restated as of January 1, 2002) of ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company)(22) (6.2) By-Laws restated as of January 1, 2002 of ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company)(22) (7) Not applicable (8.1) Fund Participation Agreement dated June 30, 1998 by and among AIM Variable Insurance Funds, Inc., A I M Distributors, Inc. and Aetna Life Insurance and Annuity Company(23) (8.2) Amendment No. 1 dated October 1, 2000 to Participation Agreement dated June 30, 1998 by and among AIM Variable Insurance Funds (formerly AIM Variable Insurance Funds, Inc.), A I M Distributors, Inc. and Aetna Life Insurance and Annuity Company(24) (8.3) First Amendment dated November 17, 2000 to Participation Agreement dated June 30, 1998 by and among AIM Variable Insurance Funds (formerly AIM Variable Insurance Funds, Inc.), A I M Distributors, Inc. and Aetna Life Insurance and Annuity Company(24) (8.4) Service Agreement effective June 30, 1998 between Aetna Life Insurance and Annuity Company and AIM Advisors, Inc.(23) (8.5) First Amendment dated October 1, 2000 to the Service Agreement effective June 30, 1998 between Aetna Life Insurance and Annuity Company and AIM Advisors, Inc.(4) (8.6) Fund Participation Agreement dated as of May 1, 1998 by and among Aetna Life Insurance and Annuity Company and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios, Inc. on behalf of each of its series and Aeltus Investment Management, Inc.(2) (8.7) Amendment dated November 9, 1998 to Fund Participation Agreement dated as of May 1, 1998 by and among Aetna Life Insurance and Annuity Company and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios, Inc. on behalf of each of its series and Aeltus Investment Management, Inc.(25) (8.8) Second Amendment dated December 31, 1999 to Fund Participation Agreement dated as of May 1, 1998 and amended on November 9, 1998 by and among Aetna Life Insurance and Annuity Company and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios, Inc. on behalf of each of its series and Aeltus Investment Management, Inc.(26) (8.9) Third Amendment dated February 11, 2000 to Fund Participation Agreement dated as of May 1, 1998 and amended on November 9, 1998 and December 31, 1999 by and among Aetna Life Insurance and Annuity Company and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios, Inc. on behalf of each of its series and Aeltus Investment Management, Inc.(27) (8.10) Fourth Amendment dated May 1, 2000 to Fund Participation Agreement dated as of May 1, 1998 and amended on November 9, 1998, December 31, 1999 and February 11, 2000 by and among Aetna Life Insurance and Annuity Company and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios, Inc. on behalf of each of its series and Aeltus Investment Management, Inc.(27) (8.11) Fifth Amendment dated February 27, 2001 to Fund Participation Agreement dated as of May 1, 1998 and amended on November 9, 1998, December 31, 1999, February 11, 2000 and May 1, 2000 by and among Aetna Life Insurance and Annuity Company and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios, Inc. on behalf of each of its series and Aeltus Investment Management, Inc.(23) (8.12) Service Agreement dated as of May 1, 1998 between Aeltus Investment Management, Inc. and Aetna Life Insurance and Annuity Company in connection with the sale of shares of Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series and Aetna Variable Portfolios, Inc. on behalf of each of its series(2) (8.13) Amendment dated November 4, 1998 to Service Agreement dated as of May 1, 1998 between Aeltus Investment Management, Inc. and Aetna Life Insurance and Annuity Company in connection with the sale of shares of Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series and Aetna Variable Portfolios, Inc. on behalf of each of its series(25) (8.14) Second Amendment dated February 11, 2000 to Service Agreement dated as of May 1, 1998 and amended on November 4, 1998 between Aeltus Investment Management, Inc. and Aetna Life Insurance and Annuity Company in connection with the sale of shares of Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series and Aetna Variable Portfolios, Inc. on behalf of each of its series(27) (8.15) Third Amendment dated May 1, 2000 to Service Agreement dated as of May 1, 1998 and amended on November 4, 1998 and February 11, 2000 between Aeltus Investment Management, Inc. and Aetna Life Insurance and Annuity Company in connection with the sale of shares of Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series and Aetna Variable Portfolios, Inc. on behalf of each of its series(27) (8.16) Fund Participation Agreement dated December 1, 1997 among Calvert Responsibly Invested Balanced Portfolio, Calvert Asset Management Company, Inc. and Aetna Life Insurance and Annuity Company(28) (8.17) Service Agreement dated December 1, 1997 between Calvert Asset Management Company, Inc. and Aetna Life Insurance and Annuity Company(28) (8.18) Fund Participation Agreement dated February 1, 1994 and amended December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996 and March 1, 1996 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund and Fidelity Distributors Corporation(11) (8.19) Fifth Amendment dated as of May 1, 1997 to the Fund Participation Agreement dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996 and March 1, 1996 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund and Fidelity Distributors Corporation(29) (8.20) Sixth Amendment dated November 6, 1997 to the Fund Participation Agreement dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996, March 1, 1996 and May 1, 1997 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund and Fidelity Distributors Corporation(30) (8.21) Seventh Amendment dated as of May 1, 1998 to the Fund Participation Agreement dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996, March 1, 1996, May 1, 1997 and November 6, 1997 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund and Fidelity Distributors Corporation(2) (8.22) Eighth Amendment dated as of December 1, 1999 to the Fund Participation Agreement dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996, March 1, 1996, May 1, 1997 and November 6, 1997 and May 1, 1998 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund and Fidelity Distributors Corporation(26) (8.23) Fund Participation Agreement dated February 1, 1994 and amended December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996 and March 1, 1996 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distribution Corporation(11) (8.24) Fifth Amendment dated as of May 1, 1997 to the Fund Participation Agreement dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996 and March 1, 1996 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distributors Corporation(25) (8.25) Sixth Amendment dated as of January 20, 1998 to the Fund Participation Agreement dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996, March 1, 1996 and May 1, 1997 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distributors Corporation(31) (8.26) Seventh Amendment dated as of May 1, 1998 to the Fund Participation Agreement dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996, March 1, 1996, May 1, 1997 and January 20, 1998 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distributors Corporation(2) (8.27) Eighth Amendment dated December 1, 1999 to the Fund Participation Agreement dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996, March 1, 1996, May 1, 1997 and January 20, 1998 and May 1, 1998 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distributors Corporation(26) (8.28) Service Agreement dated as of November 1, 1995 between Aetna Life Insurance and Annuity Company and Fidelity Investments Institutional Operations Company(32) (8.29) Amendment dated January 1, 1997 to Service Agreement dated as of November 1, 1995 between Aetna Life Insurance and Annuity Company and Fidelity Investments Institutional Operations Company(29) (8.30) Service Contract dated May 2, 1997 between Fidelity Distributors Corporation and Aetna Life Insurance and Annuity Company(25) (8.31) Participation Agreement dated as of July 20, 2001 between Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc. and Aetna Life Insurance and Annuity Company(33) (8.32) Fund Participation Agreement dated December 8, 1997 among Janus Aspen Series and Aetna Life Insurance and Annuity Company and Janus Capital Corporation(34) (8.33) Amendment dated October 12, 1998 to Fund Participation Agreement dated December 8, 1997 among Janus Aspen Series and Aetna Life Insurance and Annuity Company and Janus Capital Corporation(25) (8.34) Second Amendment dated December 1, 1999 to Fund Participation Agreement dated December 8, 1997 and amended on October 12, 1998 among Janus Aspen Series and Aetna Life Insurance and Annuity Company and Janus Capital Corporation(26) (8.35) Amendment dated as of August 1, 2000 to Fund Participation Agreement dated December 8, 1997 and amended on October 12, 1998 and December 1, 1999 among Janus Aspen Series and Aetna Life Insurance and Annuity Company and Janus Capital Corporation(35) (8.36) Letter Agreement dated December 7, 2001 between Janus and Aetna Life Insurance and Annuity Company reflecting evidence of a new Fund Participation Agreement with the same terms as the current Fund Participation Agreement except with a new effective date of March 28, 2002(19) (8.37) Service Agreement dated December 8, 1997 between Janus Capital Corporation and Aetna Life Insurance and Annuity Company(34) (8.38) First Amendment dated as of August 1, 2000 to Service Agreement dated December 8, 1997 between Janus Capital Corporation and Aetna Life Insurance and Annuity Company(35) (8.39) Distribution and Shareholder Services Agreement - Service Shares of Janus Aspen Series (for Insurance Companies) dated August 1, 2000 between Janus Distributors, Inc. and Aetna Life Insurance and Annuity Company(35) (8.40) Letter Agreement dated October 19, 2001 between Janus and Aetna Life Insurance and Annuity Company reflecting evidence of a new Distribution and Shareholder Service Agreement with the same terms as the current Distribution and Shareholder Service Agreement except with a new effective date of March 28, 2002(19) (8.41) Fund Participation Agreement dated December 1, 1988 and amended on February 11, 1991 between Aetna Life Insurance and Annuity Company and Lexington Management Corporation regarding Natural Resources Trust(3) (8.42) Fund Participation Agreement dated as of July 20, 2001 between Lord Abbett Series Fund, Inc. and Aetna Life Insurance and Annuity Company(33) (8.43) Service Agreement dated as of July 20, 2001 between Lord Abbett & Co. and Aetna Life Insurance and Annuity Company(33) (8.44) Fund Participation Agreement dated March 11, 1997 between Aetna Life Insurance and Annuity Company and Oppenheimer Variable Annuity Account Funds and Oppenheimer Funds, Inc.(36) (8.45) First Amendment dated December 1, 1999 to Fund Participation Agreement dated March 11, 1997 between Aetna Life Insurance and Annuity Company and Oppenheimer Variable Annuity Account Funds and Oppenheimer Funds, Inc.(26) (8.46) Service Agreement effective as of March 11, 1997 between Oppenheimer Funds, Inc. and Aetna Life Insurance and Annuity Company(36) (8.47) Fund Participation Agreement dated as of May 1, 2001 among Pilgrim Variable Products Trust, Aetna Life Insurance and Annuity Company and ING Pilgrim Securities, Inc.(37) (8.48) Fund Participation Agreement dated as of July 1, 2001 between Pioneer Variable Contracts Trust and Aetna Life Insurance and Annuity Company(33) (8.49) Participation Agreement dated as of November 28, 2001 among Portfolio Partners, Inc., Aetna Life Insurance and Annuity Company and Aetna Investment Services, LLC(19) (8.50) Amendment dated March 5, 2002 between Portfolio Partners, Inc. (to be renamed ING Partners, Inc. effective May 1, 2002), Aetna Life Insurance and Annuity Company (to be renamed ING Life Insurance and Annuity Company effective May 1, 2002) and Aetna Investment Services LLC (to be renamed ING Financial Advisers, LLC) to Participation Agreement dated November 28, 2001(19) (8.51) Shareholder Servicing Agreement (Service Class Shares) dated as of November 27, 2001 between Portfolio Partners, Inc. and Aetna Life Insurance and Annuity Company(19) (8.52) Amendment dated March 5, 2002 between Portfolio Partners, Inc. (to be renamed ING Partners, Inc. effective May 1, 2002) and Aetna Life Insurance and Annuity Company (to be renamed ING Life Insurance and Annuity Company effective May 1, 2002) to the Shareholder Servicing Agreement dated November 27, 2001(19) (8.53) Amendment dated as of January 2, 2002 to Participation Agreement dated as of July 20, 2001 by and among Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc., Aetna Life Insurance and Annuity Company, Aetna Insurance Company of America, Golden American Life Insurance Company and Direct Services, Inc.(18) (9) Opinion and Consent of Counsel (10) Consent of Independent Auditors (11) Not applicable (12) Not applicable (13) Schedule for Computation of Performance Data(38) (14.1) Powers of Attorney(39) (14.2) Authorization for Signatures(3) 1. Incorporated by reference to Post-Effective Amendment No. 6 to Registration Statement on Form N-4 (File No. 33-75986), as filed on April 22, 1996. 2. Incorporated by reference to Registration Statement on Form N-4 (File No. 333-56297), as filed on June 8, 1998. 3. 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. 4. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration Statement on Form N-4 (File No. 333-49176), as filed on November 30, 2000. 5. 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. 6. 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. 7. 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. 8. 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. 9. 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. 10. 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. 11. 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. 12. Incorporated by reference to Post-Effective Amendment No. 22 to Registration Statement on Form N-4 (File No. 33-75996), as filed on April 11, 2000. 13. Incorporated by reference to Post-Effective Amendment No. 8 to Registration Statement on Form N-4 (File No. 33-75964), as filed on August 30, 1996. 14. Incorporated by reference to Post-Effective Amendment No. 15 to Registration Statement on Form N-4 (File No. 33-75982), as filed on April 13, 1998. 15. Incorporated by reference to Post-Effective Amendment No. 8 to Registration Statement on Form N-4 (File No. 33-75986), as filed on August 30, 1996. 16. Incorporated by reference to Post-Effective Amendment No. 17 to Registration Statement on Form N-4 (File No. 333-01107), as filed on April 7, 1999. 17. Incorporated by reference to Post-Effective Amendment No. 22 to Registration Statement on Form N-4 (File No. 33-81216), as filed on February 15, 2002. 18. Incorporated by reference to Post-Effective Amendment No. 30 to Registration Statement on Form N-4 (File No. 333-01107), as filed on April 10, 2002. 19. Incorporated by reference to Post-Effective Amendment No. 30 to Registration Statement on Form N-4 (File No. 33-75962), as filed on April 8, 2002. 20. Incorporated by reference to Post-Effective Amendment No. 14 to Registration Statement on Form N-4 (File No. 33-75986), as filed on August 19, 1997. 21. Incorporated by reference to Post-Effective Amendment No. 13 to Registration Statement on Form N-4 (File No. 33-75996), as filed on August 21, 1997. 22. Incorporated by reference to ING Life Insurance and Annuity Company annual report on Form 10-K (File No. 33-23376), as filed on March 28, 2002. 23. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration Statement on Form N-4 (File No. 333-56297), as filed on August 4, 1998. 24. Incorporated by reference to Post-Effective Amendment No. 24 to Registration Statement on Form N-4 (File No. 333-01107), as filed on April 13, 2001. 25. Incorporated by reference to Post-Effective Amendment No. 2 to Registration Statement on Form N-4 (File No. 333-56297), as filed on December 14, 1998. 26. Incorporated by reference to Post-Effective Amendment No. 19 to Registration Statement on Form N-4 (File No. 333-01107), as filed on February 16, 2000. 27. Incorporated by reference to Post-Effective Amendment No. 20 to Registration Statement on Form N-4 (File No. 333-01107), as filed on April 4, 2000. 28. Incorporated by reference to Post-Effective Amendment No. 8 to Registration Statement on Form N-4 (File No. 333-01107), as filed on February 19, 1998. 29. 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. 30. Incorporated by Reference to Post-Effective Amendment No. 16 to Registration Statement on Form N-4 (File No. 33-75964), as filed on February 9, 1998. 31. Incorporated by reference to Post-Effective Amendment No. 7 to Registration Statement on Form S-6 (File No. 33-75248), as filed on February 24, 1998. 32. Incorporated by reference to Post-Effective Amendment No. 3 to Registration Statement on Form N-4 (File No. 33-88720), as filed on June 28, 1996. 33. Incorporated by reference to Post-Effective Amendment No. 27 to Registration Statement on Form N-4 (File No. 333-01107), as filed on October 26, 2001. 34. Incorporated by reference to Post-Effective Amendment No. 10 to Registration Statement on Form N-4 (File No. 33-75992), as filed on December 31, 1997. 35. Incorporated by reference to Post-Effective Amendment No. 22 to Registration Statement on Form N-4 (File No. 333-01107), as filed on August 14, 2000. 36. Incorporated by reference to Post-Effective Amendment No. 27 to Registration Statement on Form N-4 (File No. 33-34370), as filed on April 16, 1997. 37. Incorporated by reference to Post-Effective Amendment No. 26 to Registration Statement on Form N-4 (File No. 333-01107), as filed on July 13, 2001. 38. Incorporated by reference to Post-Effective Amendment No. 14 to Registration Statement on Form N-4 (File No. 33-75996), as filed on April 16, 1998. 39. Incorporated by reference to Post-Effective Amendment No. 1 to Registration Statement on Form S-2 (File No. 333-60016), as filed on April 5, 2002. ITEM 25. DIRECTORS AND PRINCIPAL OFFICERS OF THE DEPOSITOR* --------------------------------------------------------------- NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS AND OFFICES WITH DEPOSITOR ------------------ ------------------------------------ Thomas J. McInerney** Director and President Wayne R. Huneke*** Director and Chief Financial Officer Robert C. Salipante**** Director P. Randall Lowery*** Director Mark A. Tullis*** Director David Wheat*** Chief Accounting Officer Paula Cludray-Engelke**** Secretary Brian Murphy** Vice President and Chief Compliance Officer * These individuals may also be directors and/or officers of other affiliates of the Company. ** The principal business address of all directors and officers listed is 151 Farmington Avenue, Hartford, Connecticut 06156. *** The principal business address of these Directors and Officers is 5780 Powers Ferry Road, NW, Atlanta, Georgia 30327-4390. **** The principal business address of this Director and this Officer is 20 Washington Avenue South, Minneapolis, Minnesota 55401. ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR REGISTRANT Incorporated herein by reference to Exhibit No. 999-B.16 to Registration Statement on Form N-4 (File No. 333-85326), as filed on April 1, 2002 for ReliaStar Life Insurance Company of New York.. ITEM 27. NUMBER OF CONTRACT OWNERS As of February 28, 2002, there were 127,292 individuals holding interests in variable annuity contracts funded through Variable Annuity Account B. ITEM 28. INDEMNIFICATION Section 33-779 of the Connecticut General Statutes ("CGS") provides that a corporation may provide indemnification of or advance expenses to a director, officer, employee or agent only as permitted by Sections 33-770 to 33-778, inclusive, of the CGS. Reference is hereby made to Section 33-771(e) of the CGS regarding indemnification of directors and Section 33-776(d) of CGS regarding indemnification of officers, employees and agents of Connecticut corporations. These statutes provide in general that Connecticut corporations incorporated prior to January 1, 1997 shall, except to the extent that their certificate of incorporation expressly provides otherwise, indemnify their directors, officers, employees and agents against "liability" (defined as the obligation to pay a judgment, settlement, penalty, fine, including an excise tax assessed with respect to an employee benefit plan, or reasonable expenses incurred with respect to a proceeding) when (1) a determination is made pursuant to Section 33-775 that the party seeking indemnification has met the standard of conduct set forth in Section 33-771 or (2) a court has determined that indemnification is appropriate pursuant to Section 33-774. Under Section 33-775, the determination of and the authorization for indemnification are made (a) by the disinterested directors, as defined in Section 33-770(3); (b) by special counsel; (c) by the shareholders; or (d) in the case of indemnification of an officer, agent or employee of the corporation, by the general counsel of the corporation or such other officer(s) as the board of directors may specify. Also, Section 33-772 provides that a corporation shall indemnify an individual who was wholly successful on the merits or otherwise against reasonable expenses incurred by him in connection with a proceeding to which he was a party because he was a director of the corporation. Pursuant to Section 33-771(d), in the case of a proceeding by or in the right of the corporation or with respect to conduct for which the director, officer, agent or employee was adjudged liable on the basis that he received a financial benefit to which he was not entitled, indemnification is limited to reasonable expenses incurred in connection with the proceeding against the corporation to which the individual was named a party. The statute does specifically authorize a corporation to procure indemnification insurance on behalf of an individual who was a director, officer, employee or agent of the corporation. Consistent with the statute, Aetna Inc. has procured insurance from Lloyd's of London and several major United States and international excess insurers for its directors and officers and the directors and officers of its subsidiaries, including the Depositor. Section 20 of the ING Financial Advisers, LLC (IFA) (formerly Aetna Investment Services, LLC) Limited Liability Company Agreement provides that IFA will indemnify certain persons against any loss, damage, claim or expenses (including legal fees) incurred by such person if he is made a party or is threatened to be made a party to a suit or proceeding because he was a member, officer, director, employee or agent of IFA, as long as he acted in good faith on behalf of IFA and in a manner reasonably believed to be within the scope of his authority. An additional condition requires that no person shall be entitled to indemnity if his loss, damage, claim or expense was incurred by reason of his gross negligence or willful misconduct. This indemnity provision is authorized by and is consistent with Title 8, Section 145 of the General Corporation Law of the State of Delaware. ITEM 29. PRINCIPAL UNDERWRITER (a) In addition to serving as the principal underwriter for the Registrant, ING Financial Advisers, LLC (IFA) (formerly Aetna Investment Services, LLC) also acts as the principal underwriter for ING Partners, Inc. (formerly Portfolio Partners, Inc.) (a management investment company registered under the Investment Company Act of 1940 (1940 Act)). Additionally, IFA acts as the principal underwriter for Variable Life Account B of ING Life Insurance and Annuity Company (ILIAC), Variable Life Account C of ILIAC, Variable Annuity Account B of ILIAC and Variable Annuity Account G of ILIAC (separate accounts of ILIAC registered as unit investment trusts under the 1940 Act). IFA is also the principal underwriter for Variable Annuity Account I of ING Insurance Company of America (IICA) (a separate account of IICA registered as a unit investment trust under the 1940 Act). (b) The following are the directors and officers of the Principal Underwriter: NAME AND PRINCIPAL POSITIONS AND OFFICES WITH BUSINESS ADDRESS PRINCIPAL UNDERWRITER ------------------ ---------------------- Marie Augsberger* Director and President Robert L. Francis** Director and Senior Vice President Allan Baker* Chairman of the Board and Senior Vice President Willard I. Hill, Jr.* Senior Vice President Therese Squillacote* Vice President and Chief Compliance Officer Paula Cludray-Engelke*** Secretary Jeffrey R. Berry* Chief Legal Officer Reginald Bowen* Vice President Christina Lareau* Vice President Terran Titus* Vice President William T. Abramowicz Vice President 2525 Cabot Dr., Ste. 300 Lisle, IL 60532 Douglas J. Ambrose** Vice President Louis E. Bachetti Vice President 581 Main Street, 4th Fl. Woodbridge, NJ 07095 Ronald R. Barhorst Vice President 7676 Hazard Ctr. Dr. San Diego, CA 92108 Robert H. Barley*** Vice President Steven M. Bresler Vice President 6430 South Fiddler's Green Cir., Ste. 210 Englewood, CO 80111 David Brounley*** Vice President Brian D. Comer* Vice President John B. Finigan, Jr. Vice President 1601 Trapelo Rd. Waltham, MA 02451 Brian K. Haendiges* Vice President Brian P. Harrington Vice President 12701 Fair Lakes Cir., Ste. 470 Fairfax, VA 22033 Bernard P. Heffernon**** Vice President William S. Jasien**** Vice President Jess D. Kravitz** Vice President George D. Lessner, Jr. Vice President 1755 N. Collins Blvd., Ste. 350 Richardson, TX 75080 Susan J. Lewis Vice President 16530 Ventura Blvd., Ste. 600 Encino, CA 91436 James F. Lille Vice President 159 Wolf Rd., 1st Fl. Albany, NY 12205 David J. Linney Vice President 2900 N. Loop W., Ste. 180 Houston, TX 77092 Richard T. Mason Vice President 440 S. Warren St., Ste. 702 Syracuse, NY 13202 W. Michael Montgomery Vice President 5100 W. Lemon St., Ste. 213 Tampa, FL 33609 Pamela Mulvey* Vice President Scott T. Neeb** Vice President Patrick F. O'Christie Vice President The Pavilions, 1700 Lyons Rd., Ste. D Dayton, OH 45458 Ethel Pippin* Vice President Paulette Playce Vice President Two City Place Dr., Ste. 300 St. Louis, MO 63141 Marcellous J. Reed Vice President 2677 N. Main St., Ste. 500 Santa Ana, CA 92705 Charles A. Sklader Vice President 7720 N. 16th St., Ste. 150 Phoenix, AZ 85020 Frank W. Snodgrass Vice President 150 4th Ave., N., Ste. 410 Nashville, TN 37219 S. Bradford Vaughan, Jr. Vice President 601 Union St., Ste. 810 Seattle, WA 98101 David A. Kelsey* Assistant Vice President Allissa Archer Obler*** Assistant Secretary Loralee Ann Renelt*** Assistant Secretary Rebecca A. Schoff*** Assistant Secretary Glenn Allan Black****** Tax Officer Joseph J. Elmy* Tax Officer G. Michael Fell****** Tax Officer * The principal business address of these directors and officers is 151 Farmington Avenue, Hartford, Connecticut 06156 ** The principal business address of these directors and officers is 6140 Stonehedge Mall Rd., Ste. 375, Pleasanton, California 94588 *** The principal business address of these officers is 20 Washington Avenue South, Minneapolis, Minnesota 55401 **** The principal business address of these officers is 100 Corporate Pl., 3rd Fl., Rocky Hill, Connecticut 06067 ***** The principal business address of these officers is 10740 Nall Ave, Ste. 120, Overland Park, Kansas 66211 ****** The principal business address of these officers is 5780 Powers Ferry Road, N.W., Atlanta, Georgia 30327 (c) Compensation from January 1, 2001 to December 31, 2001:
(1) (2) (3) (4) (5) NAME OF NET UNDERWRITING COMPENSATION ON PRINCIPAL DISCOUNTS AND REDEMPTION OR BROKERAGE UNDERWRITER COMMISSIONS ANNUITIZATION COMMISSIONS COMPENSATION* ------------- ---------------- ---------------- ----------- ------------- ING Financial $95,466.36 Advisers, LLC
* Reflects compensation paid to ING Financial Advisers, LLC attributable to regulatory and operating expenses associated with the distribution of all products issued by Variable Annuity Account B of ING Life Insurance and Annuity Company during 2001. ITEM 30. LOCATION OF ACCOUNTS AND RECORDS All accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the rules under it relating to the securities described in and issued under this Registration Statement are located at the home office of the Depositor as follows: ING Life Insurance and Annuity Company 151 Farmington Avenue Hartford, Connecticut 06156 ITEM 31. MANAGEMENT SERVICES Not applicable ITEM 32. UNDERTAKINGS Registrant hereby undertakes: (a) to file a post-effective amendment to this registration statement on Form N-4 as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than sixteen months old for as long as payments under the variable annuity contracts may be accepted; (b) to include as part of any application to purchase a contract offered by a prospectus which is part of this registration statement on Form N-4, a space that an applicant can check to request a Statement of Additional Information; and (c) to deliver any Statement of Additional Information and any financial statements required to be made available under this Form N-4 promptly upon written or oral request. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ING Life Insurance and Annuity Company represents that the fees and charges deducted under the contracts covered by this registration statement, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company. SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, Variable Annuity Account B of ING Life Insurance and Annuity Company, certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment to its Registration Statement on Form N-4 (File No. 33-75996) and has caused this Post-Effective Amendment to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hartford, State of Connecticut, on the 10th day of April, 2002. VARIABLE ANNUITY ACCOUNT B OF ING LIFE INSURANCE AND ANNUITY COMPANY (REGISTRANT) By: ING LIFE INSURANCE AND ANNUITY COMPANY (DEPOSITOR) By: Thomas J. McInerney* --------------------------------------- Thomas J. McInerney President As required by the Securities Act of 1933, this Post-Effective Amendment No. 27 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE Thomas J. McInerney* Director and President ) ------------------------ (principal executive officer) Thomas J. McInerney ) ) Wayne R. Huneke* ) April ------------------------ Director and Chief Financial Officer Wayne R. Huneke ) 10, 2002 ) Randy Lowery* Director ) ------------------------ P. Randall Lowery ) ) Robert C. Salipante* Director ) ------------------------ Robert C. Salipante ) ) Mark A. Tullis* ) ------------------------ Director Mark A. Tullis ) ) ) David Wheat* Chief Accounting Officer ) ------------------------ David Wheat )
By: /s/ Megan L. Dunphy ------------------------------- Megan L. Dunphy *Attorney-in-Fact VARIABLE ANNUITY ACCOUNT B EXHIBIT INDEX EXHIBIT NO. EXHIBIT 99-B.9 Opinion and Consent of Counsel --------- 99-B.10 Consent of Independent Auditors ---------