485BPOS 1 avplus_60202-485b.txt REGISTRATION STATEMENT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 2003 1933 ACT REGISTRATION NO.: 33-76018 1940 ACT REGISTRATION NO.: 811-04536 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM S-6 POST-EFFECTIVE AMENDMENT NO. 16 TO REGISTRATION STATEMENT FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 ------------------- VARIABLE LIFE ACCOUNT B OF ING LIFE INSURANCE AND ANNUITY COMPANY ------------------- ING LIFE INSURANCE AND ANNUITY COMPANY 151 FARMINGTON AVENUE, TS31, HARTFORD, CONNECTICUT 06156 DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE: (860) 723-2229 ------------------- J. NEIL McMURDIE, COUNSEL LAWRENCE A. SAMPLATSKY, CC: KIMBERLY J. SMITH, ING LIFE INSURANCE AND ESQUIRE CHIEF COUNSEL ANNUITY COMPANY, TS31 CC: THE LINCOLN NATIONAL ING AMERICAS, 151 FARMINGTON AVENUE LIFE INSURANCE COMPANY RETAIL PRODUCTS GROUP HARTFORD, CONNECTICUT 06156 350 CHURCH STREET-MLW1 1475 DUNWOODY DRIVE (NAME AND COMPLETE ADDRESS HARTFORD, CT 06103-1106 WEST CHESTER, OF AGENT FOR SERVICE) PENNSYLVANIA 19380 (610) 425-3427 ------------------- APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: Continuous. INDEFINITE NUMBER OF UNITS OF INTEREST IN VARIABLE LIFE INSURANCE CONTRACTS (Title of Securities Being Registered) ------------------- An indefinite amount of the securities being offered by the Registration Statement has been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940. The Form 24f-2 for Registrant for the fiscal year ending December 31, 2002 was filed March 26, 2003. ------------------- It is proposed that this filing will become effective: [ ] immediately upon filing pursuant to paragraph (b) of Rule 485 [X] on May 1, 2003 pursuant to paragraph (b) of Rule 485 [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment ================================================================================ VARIABLE LIFE ACCOUNT B OF ING LIFE INSURANCE AND ANNUITY COMPANY CROSS REFERENCE SHEET
FORM N-8B-2 ----------- ITEM NO. PART I PROSPECTUS -------- ----------------- 1 Cover Page; The Separate Account; The Company 2 Cover Page; The Separate Account; The Company 3 Not Applicable 4 Cover Page; The Company The Separate Account; Additional Information-- Distribution of the Policies 5 The Separate Account; The Company 6 The Separate Account; The Company 7 Not Applicable 8 Financial Statements 9 Additional Information--Legal Matters and Proceedings 10 Policy Summary; The Separate Account; Charges and Fees; Policy Choices; Policy Values; Policy Rights; Additional Information; Miscellaneous Policy Provisions 11 Policy Summary; Allocation of Premiums; Policy Choices 12 Not Applicable 13 Policy Summary; Charges and Fees; Policy Choices; Term Insurance Rider; Additional Information--Distribution of the Policies 14 Policy Values; Miscellaneous Policy Provisions 15 Policy Summary; Allocation of Premiums--The Funds; Policy Choices; Policy Values 16 Policy Summary; Allocation of Premiums--The Funds; Policy Values 17 Policy Rights 18 Allocation of Premiums; Policy Choices; Policy Rights 19 Reports to Policy Owners; Rights to Instruct Voting of Fund Shares; Additional Information--Records of Accounts 20 Not Applicable 21 Policy Rights--Policy Loans 22 Not Applicable
FORM N-8B-2 ----------- ITEM NO. PART I PROSPECTUS -------- ----------------- 23 Directors and Officers 24 Miscellaneous Policy Provisions 25 The Company 26 Policy Summary; Charges and Fees 27 The Company 28 The Company; Directors and Officers 29 The Company 30 Not Applicable 31 Not Applicable 32 Not Applicable 33 Not Applicable 34 Not Applicable 35 The Company; Additional Information 36 Not Applicable 37 Not Applicable 38 Additional Information 39 The Company 40 Policy Summary; Charges and Fees 41 The Company 42 The Company; Directors and Officers 43 Financial Statements 44 Policy Values--Accumulation Unit Value; Financial Statements 45 Not Applicable 46 The Separate Account; Policy Values; Illustrations of Death Benefit 47 Policy Summary; The Separate Accounts; Allocation of Premiums; Policy Choices; Policy Values 48 Not Applicable 49 Not Applicable 50 Not Applicable 51 Not Applicable
FORM N-8B-2 ----------- ITEM NO. PART I PROSPECTUS -------- ----------------- 52 The Separate Account; Allocation of Premiums 53 Tax Matters 54 Not Applicable 55 Not Applicable 56 Not Applicable 57 Not Applicable 58 Not Applicable 59 Financial Statements
AETNAVEST PLUS ING Life Insurance and Annuity Company Administrative Office: Home Office: Personal Service Center, VARIABLE LIFE ACCOUNT B 151 Farmington Avenue MVLI 350 Church Street Hartford, Connecticut 06156 Hartford, CT 06103-1106 PROSPECTUS Telephone: 1-(866)-723-4646 Telephone: (800)334-7586 DATED: MAY 1, 2003 ================================================================================ FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES -------------------------------------------------------------------------------- This prospectus describes AetnaVest Plus, a flexible premium variable life insurance contract (the "Policy" or "Policies"), offered by ING Life Insurance and Annuity Company (formerly known as Aetna Life Insurance and Annuity Company) (the "Company", "we", "us", "our"). In October 1998, the Company and life insurance affiliates of Lincoln Financial Group ("Lincoln") entered into a transaction whereby nearly all of the Company's variable life insurance business was reinsured by the Lincoln affiliates. The Policies feature: - flexible premium payments; - a choice of one of two death benefit options; and - a choice of underlying investment options. You may allocate net premiums to subaccounts which invest in the mutual funds listed below. Each Fund has its own investment objective. Not all Funds may be available under all Policies or in all jurisdictions. You should review each Fund's prospectus before making your decision. o ING VP BALANCED PORTFOLIO, INC. (CLASS R) o ING VP BOND PORTFOLIO (CLASS R) o ING VP GROWTH AND INCOME PORTFOLIO (CLASS R) o ING VP INDEX PLUS LARGE CAP PORTFOLIO (CLASS R) o ING VP STRATEGIC ALLOCATION BALANCED PORTFOLIO (CLASS R) o ING VP STRATEGIC ALLOCATION GROWTH PORTFOLIO (CLASS R) o ING VP STRATEGIC ALLOCATION INCOME PORTFOLIO (CLASS R) o ING VP MONEY MARKET PORTFOLIO (CLASS R) o ING JPMORGAN FLEMING INTERNATIONAL PORTFOLIO (INITIAL CLASS) o ING MFS CAPITAL OPPORTUNITIES PORTFOLIO (INITIAL CLASS) o ING MFS RESEARCH EQUITY PORTFOLIO (INITIAL CLASS) o ING SALOMON BROTHERS AGGRESSIVE GROWTH PORTFOLIO (INITIAL CLASS) o ING T. ROWE PRICE GROWTH EQUITY PORTFOLIO (INITIAL CLASS) o FIDELITY(R) VIP CONTRAFUND(R) PORTFOLIO (INITIAL CLASS) o FIDELITY(R) VIP EQUITY-INCOME PORTFOLIO (INITIAL CLASS) o JANUS ASPEN BALANCED PORTFOLIO (INSTITUTIONAL SHARES) o JANUS ASPEN GROWTH PORTFOLIO (INSTITUTIONAL SHARES) o JANUS ASPEN MID CAP GROWTH PORTFOLIO (INSTITUTIONAL SHARES) * o JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO (INSTITUTIONAL SHARES) o OPPENHEIMER GLOBAL SECURITIES FUND/VA o OPPENHEIMER STRATEGIC BOND FUND/VA *Effective May 1, 2003 this fund changed its name to the name listed above. See "The Funds" in this prospectus for a complete list of former and current fund names. Net premiums allocated to the Fixed Account earn fixed rates of interest. We determine the rates periodically, but we guarantee that they will never be less than 4.5% a year. THIS PROSPECTUS AND OTHER INFORMATION ABOUT VARIABLE LIFE ACCOUNT B FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ("COMMISSION") CAN BE FOUND IN THE COMMISSION'S WEB SITE AT HTTP://WWW.SEC.GOV. YOU CAN GET COPIES OF THIS INFORMATION BY VISITING THE COMMISSION'S PUBLIC REFERENCE ROOM OR WRITING THE COMMISSION'S PUBLIC REFERENCE ROOM, 450 FIFTH STREET, N.W., WASHINGTON, D.C. 20549-6009 AND PAYING A DUPLICATING FEE. INFORMATION ON THE OPERATION OF THE COMMISSION'S PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING 1-202-942-8090 OR 1-800-SEC-0330, E-MAILING PUBLICINFO@SEC.GOV OR WRITING TO THE ADDRESS ABOVE. THE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE. TO BE VALID, THIS PROSPECTUS MUST HAVE THE CURRENT MUTUAL FUNDS' PROSPECTUSES WITH IT. YOU SHOULD READ THE PROSPECTUS AND THE ATTACHED PROSPECTUS FOR ANY AVAILABLE FUND IF YOU ARE CONSIDERING BUYING A POLICY OR EXERCISING ELECTIONS UNDER A POLICY. YOU SHOULD ALSO KEEP THEM FOR FUTURE REFERENCE. YOU CAN OBTAIN ANY FUND'S STATEMENT OF ADDITIONAL INFORMATION (SAI), WHICH PROVIDES MORE INFORMATION ABOUT A FUND, BY CALLING (800) 334-7586. TABLE OF CONTENTS Policy Summary ....................................................................... 1 Replacements ..................................................................... 1 Initial Choices to be Made ....................................................... 1 Level or Varying Death Benefit ................................................... 1 Amount of Premium Payment ........................................................ 2 Selection of Funding Vehicles .................................................... 2 Guaranteed Death Benefit Provision ............................................... 3 No-Lapse Coverage Provision ...................................................... 3 Charges and Fees ................................................................. 3 Policy Loans ..................................................................... 4 Changes in Specified Amount ...................................................... 4 Factors to Consider Before Purchasing a Policy ................................... 4 The Company .......................................................................... 5 The Separate Account ................................................................. 5 The General Account .................................................................. 6 Allocation of Premiums ............................................................... 6 The Funds ........................................................................ 7 Mixed and Shared Funding ......................................................... 11 Fixed Account .................................................................... 11 Charges and Fees ..................................................................... 11 Premium Charge ................................................................... 11 Charges and Fees Assessed Against the Total Account Value ........................ 12 Charges and Fees Assessed Against the Separate Account ........................... 12 Charges Assessed Against the Underlying Funds .................................... 13 Surrender Charge ................................................................. 15 Surrender Charges on Full and Partial Surrenders ................................. 15 Policy Choices ....................................................................... 16 Death Benefit .................................................................... 16 Guaranteed Death Benefit Provision ............................................... 16 Premium Payments ................................................................. 17 Initial Allocations to Funding Options ........................................... 18 Transfers Between Funding Options ................................................ 18 Limits on Frequent Transfers ..................................................... 18 Telephone Transfers .............................................................. 19 Automated Transfers (Dollar Cost Averaging) ...................................... 19 Policy Values ........................................................................ 20 Total Account Value .............................................................. 20 Accumulation Unit Value .......................................................... 21 Maturity Value ................................................................... 21 Cash Surrender Value ............................................................. 21 Policy Rights ........................................................................ 21 Full Surrenders .................................................................. 21 Partial Surrenders ............................................................... 21 Avoiding Loss of Coverage ........................................................ 22 No-Lapse Coverage Provision ...................................................... 22 Reinstatement of a Lapsed Policy ................................................. 22 Policy Loans: Preferred and Nonpreferred ......................................... 23 Policy Changes ................................................................... 24 Increases .................................................................... 24 Decreases .................................................................... 24 Death Benefit Option Change .................................................. 24 Right to Examine the Policy ...................................................... 25 Payment of Death Benefit ............................................................. 25 Policy Settlement .................................................................... 25 Settlement Options ............................................................... 26 Calculation of Settlement Payments on a Variable Basis ........................... 27 Special Plans ........................................................................ 28 Directors and Officers ............................................................... 29 Additional Information ............................................................... 30 Reports to Policy Owners ......................................................... 30 Right to Instruct Voting of Fund Shares .......................................... 30 Disregard of Voting Instructions ................................................. 31 State Regulation ................................................................. 31 Legal Matters and Proceedings .................................................... 31 The Registration Statement ....................................................... 31 Distribution of the Policies ..................................................... 32 Records and Accounts ............................................................. 32 Independent Auditors ............................................................. 32 Tax Matters .......................................................................... 32 General .......................................................................... 32 Federal Tax Status of the Company ................................................ 33 Life Insurance Qualification ..................................................... 33 General Rules .................................................................... 34 Modified Endowment Contracts ..................................................... 34 Diversification Standards ........................................................ 35 Investor Control ................................................................. 35 Other Tax Considerations ......................................................... 35 Withholding ...................................................................... 36 Miscellaneous Policy Provisions ...................................................... 36 The Policy ....................................................................... 36 Payment of Benefits .............................................................. 37 Age and Sex ...................................................................... 37 Incontestability ................................................................. 37 Suicide .......................................................................... 37 Anti-Money Laundering ............................................................ 37 Coverage Beyond Maturity ......................................................... 38 Protection of Proceeds ........................................................... 38 Nonparticipation ................................................................. 38 Illustrations of Death Benefit, Total Account Values and Cash Surrender Values ....... 38 Financial Statements of the Separate Account ......................................... S-1 Financial Statements of the Company .................................................. F-1
This prospectus does not constitute an offer in any jurisdiction where prohibited. No dealer, salesman or other person is authorized to give any information or make any representation in connection with this offering other than those contained in this prospectus, or other sales material authorized by the Company and if given or made, such other information or representations must not be relied upon. The purpose of the policy is to provide insurance protection. Life insurance is a long-term investment. Owners should consider their need for insurance coverage and the policy's long-term investment potential. We do not claim that the policy is in any way similar or comparable to an investment in a mutual fund. POLICY SUMMARY This section is an overview of key policy features for AetnaVest Plus. (Regulations in your state may vary the provisions of your own Policy.) Your Policy is a flexible premium variable life insurance policy, under which flexible premium payments are permitted and the death benefit and policy values may vary with the investment performance of the funding option(s) selected. Its value may change on a: 1) fixed basis; 2) variable basis; or a 3) combination of both fixed and variable basis. Review your personal financial objectives and discuss them with a qualified financial counselor before you buy a variable life insurance policy. This Policy may, or may not, be appropriate for your individual financial goals. The value of the Policy and, under one option, the death benefit amount depend on the investment results of the funding options you select. Review this prospectus and the Funds prospectus to achieve a clear understanding of any Fund you are considering. At all times, your Policy must qualify as life insurance under the Internal Revenue Code of 1986, as amended (the "Code") to receive favorable tax treatment under Federal law. If these requirements are met, you may benefit from favorable federal tax treatment. The Company reserves the right to return your premium payment if it results in your Policy's failing to meet federal tax law requirements. REPLACEMENTS It may not be advantageous to replace existing insurance or an annuity contract or supplement an existing flexible premium variable life insurance policy with this Policy. This prospectus and prospectuses of the Funds should be read carefully to understand the Policy being offered. INITIAL CHOICES TO BE MADE The Policy owner (the "owner" or "you") is the person named in the "policy specifications" who has all of the Policy ownership rights. If no owner is named, the insured (the person whose life is insured under the Policy) will be the owner of the Policy. You, as the owner, have four important choices to make when the Policy is first purchased. You need to choose: 1) either the level or varying death benefit option; 2) the amount of premium you want to pay; 3) the amount of your net premium payment to be placed in each of the funding options you select. The net premium payment is the balance of your premium payment that remains after certain charges are deducted from it; 4) if you want the guaranteed death benefit provision, and to what age (see "Guaranteed Death Benefit Provision.") LEVEL OR VARYING DEATH BENEFIT The death benefit is the amount the Company pays to the beneficiary(ies) when the insured dies. Before we pay the beneficiary(ies), any outstanding loan account balances or outstanding amounts due are subtracted from the death benefit. We calculate the death benefit payable, as of the date the Insured died. If you choose the level death benefit option, the death benefit will be the greater of: 1) the "specified amount" in effect for the Policy at the time of the Insured's death (The initial specified amount may be found on the Policy's specification page); or 1 2) the applicable percentage of the "total account value" (The total account value is the total of the balances in the fixed account and the separate account minus any outstanding loan account amounts). If you choose the varying death benefit option, the death benefit will be the greater of: 1) the specified amount plus the total account value; or 2) the applicable percentage of the total account value. See "Policy Choices." If you have borrowed against your Policy or surrendered a portion of your Policy, the loan account balance and any surrendered amount will reduce your initial death benefit. See "Policy Choices." You may borrow within described limits against the Policy. You may surrender the Policy in full or withdraw part of its value. A surrender charge is applied if the Policy is surrendered totally. Depending on the amount of premium you pay, there may be little, or no, cash value in your Policy to borrow or surrender in the early years. AMOUNT OF PREMIUM PAYMENT When you first buy your Policy, you must decide how much premium to pay. Premium payments may be changed within certain limits. See "Policy Choices--Premium Payments." If your Policy lapses because your monthly deduction is larger than the "cash surrender value" (total account value minus the surrender charge and the amount necessary to repay any loans), you may reinstate your Policy. See "Policy Rights--Reinstatement of a Lapsed Policy." You may use the value of the Policy to pay the premiums due and continue the Policy in force if sufficient values are available for premium payments. Be careful; if the investment options you choose do not do as well as you expect, there may not be enough value to continue the Policy in force without more premium payments. Charges against policy values for the cost of insurance increase as the insured gets older. See "Charges and Fees". When you first receive your Policy you will have 10 days to look it over (more in some states). This is called the right-to-examine time period. Use this time to review your Policy and make sure it meets your needs. During this time period, your initial premium payment will be allocated to the funding options you initially select. If you then decide you do not want your Policy, you will receive a refund. See "Policy Rights-Right to Examine the Policy." SELECTION OF FUNDING VEHICLES This prospectus focuses on the separate account investment information that makes up the variable part of the Policy. If you put money into the variable funding options, you take all the investment risk on that money. This means that if the Fund(s) you select go up in value, the value of your Policy, net of charges and expenses, also goes up. If those Funds lose value, so does your Policy. See "Allocation of Premiums." You must choose the sub-accounts in which you want to place each net premium payment. Each sub-account invests in shares of a certain Fund. A sub-account is not guaranteed and will increase or decrease in value according to the particular Fund's investment performance. You may also choose to place your net premium payment or part of it into the fixed account. Net premium payments put into the fixed account become part of the Company's general account, do not share the investment experience of the separate account and have a guaranteed minimum interest rate of 4.5% per year. For additional information on the fixed account, see "Allocation of Premiums-Fixed Account." 2 GUARANTEED DEATH BENEFIT PROVISION You may elect to have a guaranteed death benefit provision to age 80 or age 100. This means that your Policy will remain in force even though the cash value is not enough to pay the current monthly deductions as long as the guaranteed death benefit premium test is met. Each year the Company will determine that the sum of premiums to that point in time is sufficient to support the guaranteed death benefit provision. Your total premiums paid to date minus the partial surrenders must be equal to the required monthly guaranteed death benefit premium times the number of months that have passed since the original policy issue date. See "Policy Choices--Guaranteed Death Benefit Provision." NO LAPSE COVERAGE PROVISION Your Policy will not terminate during the first five years after the initial issue date or the issue date of any increase in the specified amount if: 1) the sum of the basic premiums for each Policy month from the issue date, along with that month's basic premium; plus 2) any partial surrenders; plus 3) any increase in the loan account value within that same five years, equals or is more than the sum of premiums paid. CHARGES AND FEES We deduct charges in connection with the Policy to compensate us for providing the Policy's insurance benefit, administering the Policy, assuming certain risks under the Policy and for sales-related expenses we incur. We may profit from any of these charges, including the mortality and expense risk and cost of insurance charges, and may use the profit for any purpose, including covering shortfalls from other charges. A deduction, currently 3.5%, of each premium payment will be made. Monthly deductions are made for administrative expenses ($20 per month for the first policy year and $7 per month afterwards) and the cost of insurance along with any riders that are placed on your Policy. Daily deductions are subtracted from the separate account for mortality and expense risk. At this time the charge is at an annual rate of .70%. We reserve the right to change this charge but it will never exceed .90% annually. Currently, we deduct from the separate account a daily administrative charge for the administration and maintenance of the Policy. This charge is at an annual rate of .30%. It will never exceed .50% annually. Each Fund has its own management fees and other expenses which are also deducted daily. Investment results for the Funds you choose will be affected by the fund management fees and other expenses. The table in section "Charges and Fees--Charges Assessed Against the Underlying Funds," shows you the fees and other expenses currently in effect for each Fund. At any time, you may make transfers between funding options without charge. Within 45 days after each policy anniversary, you may also transfer to the separate account $500 or, if greater, 25% of the fixed account value. The Company may increase this limit in the future. If you surrender your Policy, in full or in part, within the first 15 policy years, a surrender charge will be deducted from the amount paid to you. The initial surrender charge is based on the specified amount and depends on the Insured's age, risk class and, in most states, the sex of the insured. This surrender charge will remain the same for policy years 1-5. For policy years 6 through 15 this charge reduces on a monthly basis to zero. 3 For partial surrenders, the surrender charge is imposed in proportion to the total of the account value less full surrender charges. A charge of the lesser of $25 or 2% of the net surrender payment will be made against the total account value. If you surrender your Policy within the first 15 years after an increase in the specified amount, a surrender charge will also be imposed which will be 70% of what the surrender charge would be on a new policy with that specified amount. This charge will also apply for the same time frame as stated previously. If the specified amount is decreased within the first 15 policy years, the surrender charge will remain the same. See the "Charges and Fees" section appearing later in this prospectus. POLICY LOANS If you decide to borrow against your Policy, interest will be charged to the loan account. Currently, the interest rate on loans accrues at an annual rate of 5.5%, or, if greater, the monthly average of the composite yield on corporate bonds as published by Moody's Investors Service, Inc. for the calendar month ending two months before the policy anniversary month. There are two types of policy loans: nonpreferred (those taken within the first ten policy years); and preferred (those taken in the eleventh policy year and beyond). Annual interest is credited on the loan account value at the same rate interest is charged, for preferred loans, and at 2% per year less for nonpreferred loans. See "Policy Rights--Policy Loans: Preferred and Nonpreferred. CHANGES IN SPECIFIED AMOUNT Within certain limits, you may decrease or, with satisfactory evidence of insurability, increase the specified amount. A request to increase the specified amount may be made beginning with the second policy year. A request to decrease the specified amount may be made beginning with the sixth policy year. Currently, the minimum specified amount is $100,000. Such changes will affect other aspects of your Policy. See page 20. FACTORS TO CONSIDER BEFORE PURCHASING A POLICY The decision to purchase a Policy should be discussed with your agent/registered representative. Make sure you understand the funding vehicles your Policy provides, its other features and benefits, its risks and the fees and expenses you will incur. Consider the following matters, among others: 1) Life Insurance Coverage - Life insurance is not a short-term investment and should be purchased only if you need life insurance coverage. You should evaluate your need for life insurance coverage before purchasing a Policy. 2) Investment Risk - The value of the available variable funding options may fluctuate with the markets and interest rates. You should evaluate the Policy's long-term investment potential and risks before purchasing a Policy. 3) Fees and Expenses - A Policy's fees and expenses reflect costs associated with its features and benefits. Before purchasing a Policy, compare the value that these various features and benefits have to you, given your particular circumstances, with the fees and expenses for those features and benefits. 4) Exchanges - Replacing your existing life insurance policy(ies) with this Policy may not be beneficial to you. Before purchasing a Policy, determine whether your existing policy(ies) will be subject to fees or penalties upon surrender or cancellation. Also compare the fees, charges, coverage provisions and limitations, if any, of your existing policy(ies) with those of this Policy. 5) Sales Compensation - We pay compensation to firms for sales of the Policy. 4 THE COMPANY ING Life Insurance and Annuity Company is 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, it succeeded to the business of Aetna Variable Annuity Life Insurance Company (formerly 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. The Company is engaged in the business of issuing life insurance policies and variable annuity contracts. The Company is registered as an investment adviser under the Investment Advisers Act of 1940 and, as such, is the investment adviser for ING Partners, Inc. In addition to serving as the depositor for the registrant, the Company is also the depositor of Variable Life Account C and Variable Annuity Accounts B, C and G (separate accounts of the Company registered as unit investment trusts). The Company's subsidiary, ING Financial Advisers, LLC, serves as the principal underwriter for the Policies and also acts as the principal underwriter for Variable Life Account B and Variable Annuity Accounts B, C and G of the Company and Variable Annuity Account I (a separate account of ING Insurance Company of America registered as a unit investment trust). ING Financial Advisers, LLC, a Delaware limited liability company, is registered as a broker-dealer with the Commission. ING Financial Advisers, LLC is also a member of the National Association of Securities Dealers, Inc. (NASD) and the Securities Investor Protection Corporation. ING Financial Advisers, LLC's principal office is located at 151 Farmington Avenue, Hartford, Connecticut 06156. The Lincoln National Life Insurance Company ("Lincoln") and its affiliates perform certain administrative functions relating to the Policies, and maintain books and records necessary to operate and administer the Policies. Lincoln will process requests once they receive all letters, forms or other necessary documents completed to their satisfaction, and may require a signature guarantee or some other form of authenticity. The effective date of payments, forms and requests is usually determined by the day and time received; items received before 4:00 PM Eastern Time on any business day will usually be effective on that day, items received after that time will usually be effective the next business day. Lincoln has assigned full-time staff devoted to the development of business continuity plans in conjunction with a national vendor. In addition, they have a site available in which to recover critical business functions in the event of a disaster, and will conduct tests of their capabilities and plans. THE SEPARATE ACCOUNT Variable Life Account B is the separate account providing variable options to fund the Policy. Amounts allocated to the separate account are invested in the Funds. Each of the Funds is an open-end management investment company (mutual fund) whose shares are purchased by the separate account to fund the benefits provided by the Policy. The Funds currently available under the separate account, including their investment objectives and their investment advisers, are described briefly in this prospectus. Complete descriptions of the Funds' investment objectives and restrictions and other material information relating to an investment in the Funds are contained in the prospectuses for each of the Funds which are delivered with this prospectus. Variable Life Account B was established pursuant to a June 18, 1986 resolution of the Board of Directors of the Company. Under Connecticut insurance law, the income, gains or losses of the separate account are credited without regard to the other income, gains or losses of the Company. These assets are held for the Company's variable life insurance policies. Any and all distributions made by the Funds with respect to shares held by the separate account will be reinvested in additional shares at net asset value. The assets maintained in the separate 5 account will not be charged with any liabilities arising out of any other business conducted by the Company. The Company is, however, responsible for meeting the obligations of the Policy to the policy owner. No stock certificates are issued to the separate account for shares of the Funds held in the separate account. Ownership of Fund shares is documented on the books and records of the Funds and of the Company for the separate account. The separate account is registered with the Commission as a unit investment trust under the Investment Company Act of 1940 ("1940 Act") and meets the definition of separate account under the federal securities laws. Such registration does not involve any approval or disapproval by the Commission of the separate account or the Company's management or investment practices or policies. The Company does not guarantee the separate account's investment performance. THE GENERAL ACCOUNT The general account is the Company's general asset account, in which assets attributable to the non-variable portion of the Policies are held. Both the fixed account value and the loan account value are held in the general account. ALLOCATION OF PREMIUMS You may allocate your net premiums to one or more of the subaccounts currently available through the separate account in connection with this Policy or to the fixed account (part of the Company's general account). Each subaccount invests in a Fund. Not all Funds are available under all Policies or in all jurisdictions. We reserve the right to reject, without notice, any amounts allocated to a sub-account if the sub-account investment in the corresponding Fund is not accepted by the Fund for any reason. In addition, the Company may add, withdraw or substitute Funds, subject to the conditions in the Policy and in compliance with regulatory requirements. Substitute Funds may have different fees and charges than the Funds being replaced. We reserve the right to limit the total number of Funds you may elect to 17 over the lifetime of the Policy. The investment results of the 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 1940 Act. Please refer to the Fund prospectuses for additional information. Fund prospectuses may be obtained free of charge, from our Administrative Office at the address and phone number listed on the cover of this prospectus, by accessing the SEC's web site or by contacting the SEC Public Reference Room. Certain Funds offered under the Policies have names, 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. 6 THE FUNDS
----------------------------------------------------------------------------------------------------------------------- INVESTMENT ADVISER/ FUND NAME SUBADVISER INVESTMENT OBJECTIVE ----------------------------------------------------------------------------------------------------------------------- ING VP BALANCED PORTFOLIO, INC. ING Investments, LLC Seeks to maximize investment (CLASS R) return, consistent with reasonable Subadviser: Aeltus safety of principal, by investing in a Investment Management, Inc. diversified portfolio of one or more (Aeltus) of the following asset classes: stocks, bonds and cash equivalents, based on the judgment of the Portfolio's management, of which of those sectors or mix thereof offers the best investment prospects. ----------------------------------------------------------------------------------------------------------------------- ING VP BOND PORTFOLIO ING Investments, LLC Seeks to maximize total return as is (CLASS R) consistent with reasonable risk, Subadviser: Aeltus through investment in a diversified Investment Management, Inc. portfolio consisting of debt (Aeltus) securities. ----------------------------------------------------------------------------------------------------------------------- ING VARIABLE FUNDS - ING VP ING Investments, LLC Seeks to maximize total return GROWTH AND INCOME PORTFOLIO through investments in a diversified (CLASS R) Subadviser: Aeltus portfolio of common stocks and Investment Management, Inc. securities convertible to common (Aeltus) stock. ----------------------------------------------------------------------------------------------------------------------- ING VARIABLE PORTFOLIOS, INC. - ING Investments, LLC Seeks to outperform the total return ING VP INDEX PLUS LARGE CAP performance of the Standard & PORTFOLIO Subadviser: Aeltus Poor's 500 Composite Index (S&P (CLASS R) Investment Management, Inc. 500), while maintaining a market (Aeltus) level of risk. ----------------------------------------------------------------------------------------------------------------------- ING VP MONEY MARKET PORTFOLIO ING Investments, LLC Seeks to provide high current (CLASS R) return, consistent with preservation Subadviser: Aeltus of capital and liquidity, through Investment Management, Inc. investment in high-quality money (Aeltus) market instruments. ----------------------------------------------------------------------------------------------------------------------- ING STRATEGIC ALLOCATION ING Investments, LLC Seeks to provide total return (i.e., PORTFOLIOS, INC. - ING VP income and capital appreciation, STRATEGIC ALLOCATION BALANCED Subadviser: Aeltus both realized and unrealized). PORTFOLIO (formerly ING Investment Management, Inc. Managed for investors seeking a Generation Portfolios, Inc. - ING (Aeltus) balance between income and capital VP Crossroads Portfolio) appreciation who generally have an (CLASS R) investment horizon exceeding ten years and who have a moderate level of risk tolerance. ----------------------------------------------------------------------------------------------------------------------- ING STRATEGIC ALLOCATION ING Investments, LLC Seeks to provide capital PORTFOLIOS, INC. - ING VP appreciation. Managed for investors STRATEGIC ALLOCATION GROWTH Subadviser: Aeltus seeking capital appreciation who PORTFOLIO (formerly ING Investment Management, Inc. generally have an investment Generation Portfolios, Inc. - ING (Aeltus) horizon exceeding 15 years and VP Ascent Portfolio) who have a high level of risk (CLASS R) tolerance. -----------------------------------------------------------------------------------------------------------------------
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----------------------------------------------------------------------------------------------------------------------- INVESTMENT ADVISER/ FUND NAME SUBADVISER INVESTMENT OBJECTIVE ----------------------------------------------------------------------------------------------------------------------- ING STRATEGIC ALLOCATION ING Investments, LLC Seeks to provide total return PORTFOLIOS, INC. - ING VP consistent with preservation of STRATEGIC ALLOCATION INCOME Subadviser: Aeltus capital. Managed for investors PORTFOLIO (formerly ING Investment Management, Inc. primarily seeking total return Generation Portfolios, Inc. - ING (Aeltus) consistent with capital preservation VP Legacy Portfolio) who generally have an investment (CLASS R) horizon exceeding five years and who have a low level of risk tolerance. ----------------------------------------------------------------------------------------------------------------------- ING PARTNERS, INC. - ING ING Life Insurance and Seeks long-term growth of capital. JPMORGAN FLEMING INTERNATIONAL Annuity Company Invests primarily (at least 65% of PORTFOLIO (formerly ING Scudder total assets) in the equity securities International Growth Portfolio) Subadviser: JPMorgan of foreign companies that the (INITIAL CLASS) Fleming Asset Management subadviser believes have high (London) Ltd. growth potential. ----------------------------------------------------------------------------------------------------------------------- ING PARTNERS, INC. - ING MFS ING Life Insurance and Seeks capital appreciation. Invests CAPITAL OPPORTUNITIES PORTFOLIO Annuity Company primarily (at least 65% of net (INITIAL CLASS) assets) in common stocks and Subadviser: Massachusetts related securities, such as preferred Financial Services Company stocks, convertible securities and depositary receipts. ----------------------------------------------------------------------------------------------------------------------- ING PARTNERS, INC. - ING MFS ING Life Insurance and Seeks long-term growth of capital RESEARCH EQUITY PORTFOLIO Annuity Company and future income. Invests (INITIAL CLASS) primarily (at least 80% of total Subadviser: Massachusetts assets) in common stocks and Financial Services Company related securities, such as preferred stocks, convertible securities and depositary receipts. ----------------------------------------------------------------------------------------------------------------------- ING PARTNERS, INC. - ING SALOMON ING Life Insurance and Seeks long-term growth of capital. BROTHERS AGGRESSIVE GROWTH Annuity Company Invests primarily (at least 80% of PORTFOLIO (formerly ING MFS net assets under normal Emerging Equities Portfolio) Subadviser: Salomon circumstances) in common stocks (INITIAL CLASS) Brothers Asset Management and related securities, such as Inc. preferred stocks, convertible securities and depositary receipts, of emerging growth companies. ----------------------------------------------------------------------------------------------------------------------- ING PARTNERS, INC. - ING T. ROWE ING Life Insurance and Seeks long-term capital growth, and PRICE GROWTH EQUITY PORTFOLIO Annuity Company secondarily, increasing dividend (INITIAL CLASS) income. Invests primarily (at least Subadviser: T. Rowe Price 80% of net assets under normal Associates, Inc. circumstances) in common stocks. Concentrates its investments in growth companies. Investments in foreign securities are limited to 30% of total assets. -----------------------------------------------------------------------------------------------------------------------
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----------------------------------------------------------------------------------------------------------------------- INVESTMENT ADVISER/ FUND NAME SUBADVISER INVESTMENT OBJECTIVE ----------------------------------------------------------------------------------------------------------------------- FIDELITY(R) VARIABLE INSURANCE Fidelity Management & Seeks long-term capital PRODUCTS - FIDELITY VIP Research Company appreciation. Normally invests CONTRAFUND(R) PORTFOLIO primarily in common stocks of (INITIAL CLASS) Subadvisers: Fidelity companies whose value the Management & Research Portfolio's investment adviser (U.K.) Inc.; Fidelity believes is not fully recognized by Management & Research the public. (Far East) Inc.; Fidelity Investments Japan Limited; FMR Co., Inc. ----------------------------------------------------------------------------------------------------------------------- FIDELITY(R) VARIABLE INSURANCE Fidelity Management & Seeks reasonable income. Also PRODUCTS - FIDELITY VIP EQUITY- Research Company considers the potential for capital INCOME PORTFOLIO appreciation. Seeks to achieve a (INITIAL CLASS) Subadviser: FMR Co., Inc. yield which exceeds the composite yield on the securities comprising the Standard & Poor's 500 Index (S&P500). ----------------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES - BALANCED Janus Capital Seeks long-term capital growth, PORTFOLIO consistent with preservation of (INSTITUTIONAL SHARES) 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 - GROWTH Janus Capital Seeks long-term growth of capital PORTFOLIO in a manner consistent with the (INSTITUTIONAL SHARES) 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 - MID CAP Janus Capital A nondiversified Portfolio that GROWTH PORTFOLIO (formerly invests, under normal Aggressive Growth Portfolio) circumstances, at least 80% of its (INSTITUTIONAL SHARES) net assets in equity securities of mid-sized companies whose market capitalization falls, at the time of initial purchase, in the 12-month average of the capitalization ranges of the Russell MidCap Growth Index. -----------------------------------------------------------------------------------------------------------------------
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----------------------------------------------------------------------------------------------------------------------- INVESTMENT ADVISER/ FUND NAME SUBADVISER INVESTMENT OBJECTIVE ----------------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES - WORLDWIDE Janus Capital Seeks long-term growth of capital GROWTH PORTFOLIO in a manner consistent with the (INSTITUTIONAL SHARES) 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. ----------------------------------------------------------------------------------------------------------------------- OPPENHEIMER VARIABLE ACCOUNT OppenheimerFunds, Inc. Seeks long-term capital FUNDS - OPPENHEIMER GLOBAL appreciation by investing a SECURITIES FUND/VA 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 OppenheimerFunds, Inc. Seeks a high level of current FUNDS - OPPENHEIMER STRATEGIC income principally derived from BOND FUND/VA 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. -----------------------------------------------------------------------------------------------------------------------
The investment adviser for each of the Funds deducts a daily charge as a percent of the net assets in each Fund as an asset management charge which will in turn affect the daily value of each subaccount. The charge reflects asset management fees of the investment adviser (management fees) and other expenses incurred by the Funds. Future Fund expenses will vary. Some of the above Funds may use instruments known as derivatives as part of their investment strategies, as described in their respective prospectuses. The use of certain derivatives such as inverse floaters and principal only debt instruments may involve higher risk of volatility to a Fund. The use of leverage in connection with derivatives can also increase risk of losses. See the current prospectuses of the Funds for a discussion of the risks associated with an investment in those Funds. More comprehensive information, including a discussion of potential risks, and more complete information about their investment policies and restrictions is found in the current prospectus for each Fund which is distributed with and accompanies this prospectus. You should read the Fund prospectuses and consider carefully, and on a continuing basis, which Fund or combination of Funds is best suited to your long-term investment objectives. 10 Additional prospectuses and Statements of Additional Information for each of the Funds can be obtained from the Company's Administrative Office at the address and telephone number listed on the cover of this prospectus. MIXED AND SHARED FUNDING Shares of the Funds are available to insurance company separate accounts which fund both variable annuity contracts and variable life insurance policies, including the Policy described in this prospectus. Because Fund shares are offered to separate accounts of both affiliated and unaffiliated insurance companies, it is conceivable that, in the future, it may not be advantageous for variable life insurance separate accounts and variable annuity separate accounts to invest in these Funds simultaneously, since the interests of such policyowners or contractholders may differ. Although neither the Company nor the Funds currently foresees any such disadvantages either to variable life insurance or to variable annuity policyholders, each Fund's Board of Trustees/ Directors has agreed to monitor events in order to identify any material irreconcilable conflicts which may possibly arise and to determine what action, if any, should be taken in response. If such a conflict occurs, one of the separate accounts might withdraw its investment in a Fund. This might force that Fund to sell portfolio securities at disadvantageous prices. FIXED ACCOUNT The fixed account is a fixed funding option available under the Policy that guarantees principal and a minimum interest rate of 4.5% per year. The Company assumes the risk of investment gain or loss. The investment gain or loss of the separate account or any of the Funds does not affect the fixed account value. The fixed account is secured by the general assets of the Company, which include all assets other than those held in separate accounts sponsored by the Company or its affiliates. The Company will invest the assets of the fixed account in those assets chosen by the Company, as allowed by applicable law. Investment income of such fixed account assets will be allocated by the Company between itself and those policies participating in the fixed account. Amounts held in the fixed account are guaranteed and will be credited with interest at rates of not less than 4.5% per year. Credited interest rates reflect the Company's return on fixed account invested assets and the amortization of any realized gains and/or losses which the Company may incur on these assets. Interests in the fixed account have not been registered with the Commission in reliance upon exemptions under the Securities Act of 1933, as amended. However, disclosure in this prospectus regarding 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 prospectus relating to the fixed account has not been reviewed by the Commission. CHARGES & FEES We may profit from any of these charges. The profit from any charges, including mortality and expense risk and cost of insurance charges, may be used for any purpose, including covering shortfalls from other charges. PREMIUM CHARGE A deduction, called the premium charge, currently 3.5% of each premium payment and guaranteed to be no higher than 6%, will be made to cover average applicable state premium taxes (ranging up to 4%) as well as administrative expenses and federal income tax liabilities. 11 CHARGES AND FEES ASSESSED AGAINST THE TOTAL ACCOUNT VALUE A monthly deduction is made from the total account value. The monthly deduction includes the cost of insurance attributable to the basic insurance coverage and any charges for supplemental riders or benefits. The cost of insurance depends on the attained age, risk class of the insured, the specified amount of the Policy and in most states, sex of the insured. The attained age is the issue age of the insured increased by the number of elapsed policy years. Once a Policy is issued, the monthly deductions will be charged as of the issue date, even if the issue date is earlier than the date the application is signed (see "Premium Payments"). The issue date is the effective date of initial coverage. Coverage is conditional on payment of the first premium, if required, and issue of the Policy as provided in the application. The date of issue and the effective date for any change in coverage will be the date of coverage change that is found in your supplemental policy specifications. If the Policy's issuance is delayed due to underwriting requirements, the charges will not be assessed until the underwriting is complete and the application for the Policy is approved. Cost of insurance charges will be in amounts based on the specified amount of the Policy issued, even if the temporary insurance coverage received during the underwriting period is for a lesser amount. If we decline an application, we will refund the full premium payment made. The monthly deduction also includes a monthly administrative expense charge of $20 during the first policy year and $7 during subsequent policy years. This charge is for items such as premium billing and collection, policy value calculation, confirmations and periodic reports and will not exceed our costs. The monthly deduction is deducted proportionately from each funding option, if more than one is used. This is accomplished by liquidating accumulation units and withdrawing the value of the liquidated accumulation units from each funding option in the same proportion as their respective values have to your fixed account and separate account values. The monthly deduction is made as of the same day each month, beginning with the issue date. This day is called the monthly deduction day. If the Policy's cash surrender value is not sufficient to cover the current monthly deduction, you will be notified by the Company, and a 61-day period called the grace period will begin. The Policy will lapse without value at the end of the 61-day period, unless a sufficient payment described in the notification letter is received by the Company. CHARGES AND FEES ASSESSED AGAINST THE SEPARATE ACCOUNT The Company deducts a daily charge from the assets of Variable Life Account B for mortality and expense risk assumed by it in connection with the Policy. This charge is currently equal to an annual rate of 0.70% of the average daily net assets of the separate account attributable to the Policies. The mortality and expense risk charge is assessed to compensate the Company for assuming certain mortality and expense risks under the Policies. The Company reserves the right to increase the mortality and expense risk charge if it believes that circumstances have changed so that current charges are no longer adequate. In no event will the charge exceed 0.90% of average daily net assets on an annual basis. The mortality risk assumed is that insureds, as a group, may live for a shorter period of time than estimated and, therefore, the cost of insurance charges specified in the Policy will be insufficient to meet actual claims. The expense risk assumed is that other expenses incurred in issuing and administering the Policies and operating the separate account will be greater than the charges assessed for such expenses. The Company also deducts a daily administrative charge equivalent on an annual basis to 0.30% of the average daily net assets of Variable Life Account B attributable to the Policies to compensate the Company for expenses 12 associated with the administration and maintenance of the Policy. These types of expenses are described above in connection with the monthly administrative charge. The daily administrative charge and the monthly administrative charge work together to cover the Company's administrative expenses. In later years of the Policy, the revenue collected from the daily asset-based charge grows with the total account value to cover increased expenses from account-based transactional expenses. The charge is guaranteed not to exceed 0.50% of the average daily net assets of the separate account attributable to the Policies on an annual basis. CHARGES ASSESSED AGAINST THE UNDERLYING FUNDS The following table illustrates the investment advisory (management) fees, other expenses and total expenses of the Funds as a percentage of average net assets based on figures for the year ended December 31, 2002 unless otherwise indicated. Expenses of the Funds are not fixed or specified under the terms of the Policies, and actual expenses may vary. 13 FUND EXPENSE TABLE (1)
TOTAL FEES AND TOTAL NET MANAGEMENT FUND EXPENSES FUND (ADVISORY) OTHER ANNUAL WAIVED OR ANNUAL FUND NAME FEES EXPENSES EXPENSES REIMBURSED EXPENSES --------------------------------------------------------------------------------------------------------------------------------- ING VP Balanced Portfolio, Inc. (Class R)(2) 0.50% 0.10% 0.60% - 0.60% --------------------------------------------------------------------------------------------------------------------------------- ING VP Bond Portfolio (Class R)(2) 0.40% 0.09% 0.49% - 0.49% --------------------------------------------------------------------------------------------------------------------------------- ING VP Growth and Income Portfolio (Class R)(2) 0.50% 0.09% 0.59% - 0.59% --------------------------------------------------------------------------------------------------------------------------------- ING VP Index Plus Large Cap Portfolio (Class R)(2) 0.35% 0.10% 0.45% - 0.45% --------------------------------------------------------------------------------------------------------------------------------- ING VP Money Market Portfolio (Class R)(2) 0.25% 0.09% 0.34% - 0.34% --------------------------------------------------------------------------------------------------------------------------------- ING VP Strategic Allocation Balanced Portfolio (Class R)(2) 0.60% 0.17% 0.77% 0.07% 0.70% --------------------------------------------------------------------------------------------------------------------------------- ING VP Strategic Allocation Growth Portfolio (Class R)(2) 0.60% 0.17% 0.77% 0.02% 0.75% --------------------------------------------------------------------------------------------------------------------------------- ING VP Strategic Allocation Income Portfolio (Class R)(2)(3) 0.60% 0.17% 0.77% 0.12% 0.65% --------------------------------------------------------------------------------------------------------------------------------- ING JP Morgan Fleming International Portfolio (Initial Class) 0.80% 0.20% 1.00% - 1.00% --------------------------------------------------------------------------------------------------------------------------------- ING MFS Capital Opportunities Portfolio (Initial Class) 0.65% 0.25% 0.90% - 0.90% --------------------------------------------------------------------------------------------------------------------------------- ING MFS Research Equity Portfolio (Initial Class) 0.70% 0.15% 0.85% - 0.85% --------------------------------------------------------------------------------------------------------------------------------- ING Salomon Brothers Aggressive Growth Portfolio (Initial Class) 0.69% 0.13% 0.82% - 0.82% --------------------------------------------------------------------------------------------------------------------------------- ING T. Rowe Price Growth Equity Portfolio (Initial Class) 0.60% 0.15% 0.75% - 0.75% --------------------------------------------------------------------------------------------------------------------------------- Fidelity(R) VIP Contrafund(R) Portfolio (Initial Class) 0.58% 0.10% 0.68% - 0.68% --------------------------------------------------------------------------------------------------------------------------------- Fidelity(R) VIP Equity-Income Portfolio (Initial Class) 0.48% 0.09% 0.57% - 0.57% --------------------------------------------------------------------------------------------------------------------------------- Janus Aspen Balanced Portfolio (Institutional Shares)(4) 0.65% 0.02% 0.67% - 0.67% --------------------------------------------------------------------------------------------------------------------------------- Janus Aspen Growth Portfolio (Institutional Shares)(4) 0.65% 0.02% 0.67% - 0.67% --------------------------------------------------------------------------------------------------------------------------------- Janus Aspen Mid Cap Growth Portfolio (Institutional Shares)(4) 0.65% 0.02% 0.67% - 0.67% --------------------------------------------------------------------------------------------------------------------------------- Janus Aspen Worldwide Growth Portfolio (Institutional Shares)(4) 0.65% 0.05% 0.70% - 0.70% --------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Global Securities Fund/VA 0.65% 0.02% 0.67% - 0.67% --------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Strategic Bond Fund/VA(5) 0.74% 0.05% 0.79% 0.01% 0.78% ---------------------------------------------------------------------------------------------------------------------------------
(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. 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. (2) Effective March 1, 2002, ING Investments, LLC, the investment adviser to each Portfolio, 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 recoupment by the investment adviser within three years. For each Portfolio, the expense limits will continue through at least December 31, 2003. The expense limitation agreements are contractual. The amounts of each Portfolio's expenses waived or reimbursed during the last fiscal year are shown under the heading "Fees and Expenses Waived or Reimbursed" in the table above. (3) This table shows the estimated operating expenses for each Portfolio as a ratio of expenses to average daily net assets. These estimates are based on each Portfolio's actual operating expenses for its most 14 recently completed fiscal year and fee waivers to which the Portfolio's adviser has agreed for each Portfolio. (4) All expenses are shown without the effect of any expense offset arrangement. (5) Waivers/reimbursements are voluntary and may be terminated at any time. For further details on each Fund's expenses, please refer to that Fund's prospectus. SURRENDER CHARGE If you surrender your Policy (in whole or in part) a surrender charge may apply, as described below. This charge is retained by the Company and is imposed in part as a deferred sales charge and in part to enable the Company to recover certain first year administrative costs. The maximum portion of the surrender charge applied to reimburse the Company for sales and promotional expense is 30% of the first year's basic premium. (Any surrenders may result in tax implications. See "Tax Matters.") The initial surrender charge, as specified in your Policy, is based on the specified amount. It also depends on the Insured's age, risk class and in most states, sex of the insured (except for group arrangements described under "Special Plans"). Once determined, the surrender charge will remain the same for five years following the issue date. Thereafter, it declines monthly so that beginning sixteen years after the issue date (assuming no increases in the specified amount) the surrender charge will be zero. If you increase the specified amount, a new surrender charge will be applicable, in addition to the then existing surrender charge. This charge will be determined based on the insured's attained age, risk class, and in most states, sex of the insured. The surrender charge applicable to the increase will be 70% of the surrender charge on a new policy whose specified amount equals the amount of the increase, and will cover administrative expenses. The additional surrender charge will also remain constant for five years from the start of the policy year in which the increase occurs, and will decrease to zero by the beginning of the sixteenth year. If you decrease the specified amount while the surrender charge applies, the surrender charge will remain the same. Based on its actuarial determination, the Company does not anticipate that the surrender charge will cover all sales and administrative expenses which the Company will incur in connection with the Policy. Any such shortfall, including but not limited to payment of sales and distribution expenses, would be charged to and paid by the Company. SURRENDER CHARGES ON FULL AND PARTIAL SURRENDERS FULL SURRENDER: All applicable surrender charges are imposed. PARTIAL SURRENDER: A proportional percentage of all surrender charges is imposed. The proportional percentage is the amount of the net partial surrender divided by the sum of the fixed account value and the separate account value less full surrender charges. When a partial surrender is made, any applicable remaining surrender charges will be reduced in the same proportion. A transaction charge of $25 or 2% of the amount of the net surrender payment, whichever is less, will be made against the total account value. (See "Partial Surrenders.") 15 Note: The surrender charge will vary between 41% and 100% of one year's basic annual premium, depending on the insured's age, risk class and in most states, sex of the insured. POLICY CHOICES When you buy a Policy, you make four important choices: 1) Which one of the two death benefit options you would like; 2) Whether you want the guaranteed death benefit provision, and to what age; 3) The amount of premium you intend to pay; and 4) The way your premiums will be allocated to the Funds and/or the fixed account. Each of these choices is described in detail below. DEATH BENEFIT At the time of purchase, you must choose between the two available death benefit options. The amount payable under either option will be determined as of the date of the Insured's death. Under OPTION 1, the death benefit will be the greater of the specified amount (a minimum of $100,000 on the date of this Prospectus), or the applicable percentage of the total account value. The percentage is 250% through age 40 and decreases yearly to 100% at age 100. Option 1 generally provides a level death benefit. Under OPTION 2, the death benefit will be the greater of the specified amount (a minimum of $100,000 on the date of this Prospectus), plus the total account value, or the applicable percentage (described above) of the total account value. Option 2 provides a varying death benefit which increases or decreases over time, depending on the amount of premium paid and the investment performance of the underlying funding options you choose. Under both option 1 and option 2, the death benefit may be affected by partial surrenders. The death benefit for both options will be reduced by the amount necessary to repay any loans in full. GUARANTEED DEATH BENEFIT PROVISION The guaranteed death benefit provision assures that, as long as the guaranteed death benefit premium test as described below is met, the Policy will stay in force even if the cash value is insufficient to cover the current monthly deductions. The guaranteed death benefit premium is a specified amount of premium required to keep the Policy in force to either age 80 or age 100. The guaranteed death benefit provision must be selected on the application. It may not be available to all risk classes and is only available in those states where it has been approved. (Note: not available in New York.) The guaranteed death benefit provision is available to age 80 or to age 100. We will test annually to determine if the sum of all premiums paid to date is sufficient to support the guaranteed death benefit provision. In order for the guaranteed death benefit provision to be in effect, the sum of all premiums paid less partial surrenders must be greater than or equal to the required monthly guaranteed death benefit premium times the number of months elapsed since the Policy's issue date. However, if these premiums are not sufficient, the policy owner will be notified and given two months (61 days in New Jersey) to pay the amount needed. If the guaranteed death benefit provision to age 100 had been in place, and the amount needed is not received within the two-month period; the guaranteed death benefit provision to age 80 will be substituted, if there is enough premium; if not the guaranteed death benefit provision to age 100 16 will terminate. If the guaranteed death benefit provision to age 80 had been in place and the amount needed is not received within the two-month period (61 days in New Jersey), the guaranteed death benefit provision will terminate. If a guaranteed death benefit provision is terminated it may not be reinstated. Increases, decreases, partial surrenders, and option changes may affect the guaranteed death benefit premium. These events and loans may also affect the Policy's ability to remain in force even if the cumulative annual guaranteed death benefit provision test has been met. PREMIUM PAYMENTS During the first five policy years, payment of the basic premium assures that the Policy will remain in force for that five year period, as long as there are no surrenders or loans taken during that time. The basic premium is stated in the Policy. If basic premiums are not paid, or there are surrenders or loans taken during the first five policy years, the Policy will lapse if the cash surrender value is less than the next monthly deduction. Basic premiums are current if premiums paid, minus loans and minus partial surrenders, are greater than or equal to the basic premium (expressed as a monthly amount) multiplied by the number of months the Policy has been in force. After the first five policy years, your Policy will not lapse as long as the Policy's cash surrender value is sufficient to cover the next monthly deduction. Planned premiums are those premiums you choose to pay on a scheduled basis. We will bill you annually, semiannually, or quarterly, or at any other agreed-upon frequency. Pre-authorized automatic monthly check payments may also be arranged. Additional premiums are any premiums you pay in addition to planned premiums. Payment of basic premiums, planned premiums, or additional premiums in any amount will not, except as noted above, guarantee that your Policy will remain in force. Failure to pay planned premiums or additional premiums will not necessarily cause your Policy to lapse. Not paying your planned premiums can, however, cause the guaranteed death benefit provision to terminate. (See "Guaranteed Death Benefit Provision.") You may increase your planned premium at any time by submitting a written notice to us or by paying additional premiums, except that: o We may require evidence of insurability if the additional premium or the new planned premium during the current policy year would increase the difference between the death benefit and the total account value. If satisfactory evidence of insurability is requested and not provided, we will refund the increase in premium without interest and without participation of such amounts in the underlying funding options. o In no event may the total of all premiums paid exceed the then-current maximum premium limitations established by federal law for a Policy to qualify as life insurance. (See "Tax Matters.") If, at any time, a premium is paid which would result in total premiums exceeding such maximum premium limitation, we will only accept that portion of the premium which will make total premiums equal the maximum. Any part of the premium in excess of that amount will be returned or applied as otherwise agreed and no further premiums will be accepted until allowed by the then-current maximum premium limitations prescribed by law. 17 o If you make a sufficient premium payment when you apply for a Policy, and have answered favorably certain questions relating to the Insured's health, a "temporary insurance agreement" in the amount applied for (subject to stated maximum) will be provided. o After the first premium payment, all premiums must be sent directly to our Administrative Office and will be deemed received when actually received at the Administrative Office. Your premium payments will be allocated as you have directed, and amounts allocated to the Funds will be credited to your Policy at the accumulation unit value as of the next valuation period after each payment is received in the Administrative Office. o You may reallocate your future premium payments at any time free of charge. Any reallocation will apply to premium payments made after you have received written verification from us. We may backdate a Policy, upon request and under limited circumstances, by assigning an issue date earlier than the date the application is signed but no earlier than six months prior to state approval of the Policy. Backdating may be desirable, for example, so that you can purchase a particular policy specified amount for lower cost of insurance rates based on a younger insurance age. For a backdated Policy, you must pay the minimum premium payable for the period between the issue date and the date the initial premium is invested in the separate account. Backdating of your Policy will not affect the date on which your premium payments are credited to the separate account and you are credited with accumulation units. You cannot be credited with accumulation units until your net premium is actually deposited in the separate account. (See "Policy Values--Total Account Value.") INITIAL ALLOCATIONS TO FUNDING OPTIONS At purchase, you must decide how to allocate your net premiums among the Funds and/or the fixed account. Net premiums must be allocated in whole percentages. TRANSFERS BETWEEN FUNDING OPTIONS Up until the maturity date, you may transfer policy values from one Fund to another at any time, or from Variable Life Account B to the fixed account. And, within the 45 days after each policy anniversary, you may also transfer a portion of the fixed account value to one or more Funds before the maturity date. This type of transfer is allowed only once in the 45-day period after the policy anniversary and will be effective as of the next valuation period after your request is received in good order at the Administrative Office. The amount of such transfer cannot exceed the greater of (a) 25% of the fixed account value, or (b) $500. If the fixed account value is less than or equal to $500, you may transfer all or a portion of the fixed account value. We may increase this limit from time to time. Any transfer among the Funds or to the fixed account will result in the crediting and cancellation of accumulation units based on the accumulation unit values determined for the valuation period in which a written request is received at our Administrative Office. (See "Accumulation Unit Value.") You should carefully consider current market conditions and each Fund's investment policies and related risks before allocating money to the Funds. Order for the purchase of Fund shares may be subject to acceptance by the Fund. We reserve the right to reject, without prior notice, any transfer request to a subaccount if the subaccount's investment in the corresponding Fund is not accepted by the Fund for any reason. LIMITS ON FREQUENT TRANSFERS The Policy is not designed to serve as a vehicle 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 and individuals who use market-timing investment strategies and make frequent transfers should not purchase the Policy. 18 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 policy owners. Such restrictions could include: (1) Not accepting transfer instructions from an agent acting on behalf of more than one policy owner; and (2) Not accepting preauthorized transfer forms from market-timers or other entities acting on behalf of more than one policy owner 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 policy owners. TELEPHONE TRANSFERS You may request a transfer of account values either in writing or by telephone. You may also send your request by facsimile to the Administrative Office. In order to make telephone transfers, a written telephone transfer authorization form must be completed by the policy owner and returned to the Administrative Office. Once the form is processed, the policy owner may request a transfer by telephoning the Administrative Office. All transfers must be in accordance with the terms of the Policy. Transfer instructions are currently accepted for each valuation period. Once instructions have been accepted and processed, they may not be rescinded; however, new telephone instructions may be given on the following day. If the transfer instructions are not in good order, the Company will not execute the transfer and you will be notified. We will use reasonable procedures, such as requiring identifying information from callers, recording telephone instructions, and providing written confirmation of transactions, in order to confirm that telephone instructions are genuine. Any telephone instructions which we reasonably believe to be genuine will be your responsibility, including losses arising from any errors in the communication of instructions. As a result of this procedure, the policy owner will bear the risk of loss. If the Company does not use reasonable procedures, as described above, it may be liable for losses due to unauthorized instructions. Please note that the telephone and/or facsimile may not always be available. Any telephone or facsimile, whether it is ours, yours, your service provider's or your agent's, can experience outages or slowdowns for a variety of reasons. These outages or slowdowns may delay or prevent our processing of your request. Although we have taken precautions to help our systems handle heavy use, we cannot promise complete reliability under all circumstances. If you are experiencing problems, you should send your request in writing to our Administrative Office. AUTOMATED TRANSFERS (DOLLAR COST AVERAGING) Dollar cost averaging describes a program of investing a uniform sum of money at regular intervals over an extended period of time. Dollar cost averaging is based on the economic fact that buying a security with a constant sum of money at fixed intervals results in acquiring more of the item when prices are low and less of it when prices are high. You may establish automated transfers of fund account values on a monthly or quarterly basis from the ING VP Money Market Portfolio to any other investment option through written request or other method acceptable to the Company. You must have a minimum of $5,000 allocated to the ING VP Money Market Portfolio in order to enroll in the dollar cost averaging program. The minimum automated transfer amount is $50 per month. There is no additional charge for the program. You may start or stop participation in the dollar cost averaging program at any time, but you must give the Company at least 30 days notice to change any automated transfer instructions 19 that are currently in place. The Company reserves the right to suspend or modify automated transfer privileges at any time. Before participating in the dollar cost averaging program, you should consider the risks involved in switching between investments available under the Policy. Dollar cost averaging requires regular investments regardless of fluctuating price levels, and does not guarantee profits or prevent losses. Therefore, you should carefully consider market conditions and each Fund's investment policies and related risks before electing to participate in the dollar cost averaging program. POLICY VALUES TOTAL ACCOUNT VALUE The total account value is the sum of the fixed account value, the separate account value and the loan account value. Once your Policy has been issued, each net premium (the premium paid less the premium load) allocated to a variable funding option of the separate account is credited in the form of accumulation units of the funding option. An "accumulation unit" is the measure of the net investment result of each variable funding option, based on that funding option's accumulation unit value (AUV). Accumulation units are valued once daily as of the close of trading, normally 4:00 PM, New York time, on each day that the New York Stock Exchange (NYSE) is open and trading is unrestricted ("valuation date"). On any day other than a valuation date, the accumulation units will not change. A "valuation period" is the period starting at the close of trading on the NYSE on a valuation date, and ending at the close of trading on the next valuation date. Each net premium will be credited to your Policy at the AUV determined for the valuation period in which it is received and accepted by us at our Administrative Office following the issue date of the Policy. The number of accumulation units credited is determined by dividing the net premium by the value of an accumulation unit next computed after we receive the premium. Shares in the Funds are purchased by the separate account at the net asset value determined by the Fund for the valuation period in which the net premium is received by the Company. Since each Fund has a unique AUV, a policy owner who has elected a combination of funding options will have accumulation units credited to each funding option. The total account value of your Policy is determined by: (a) multiplying the total number of accumulation units credited to the Policy for each applicable Fund by its appropriate current AUV; (b) if you have elected a combination of Funds, totaling the resulting values; and (c) adding any fixed account and loan account values. The number of accumulation units credited to a Policy will not be changed by any subsequent change in the value of an accumulation unit. The number is increased by subsequent contributions to or transfers into that funding option, and decreased by charges and withdrawals from that funding option. The fixed account value reflects amounts allocated to the general account through payment of premiums or transfers from the separate account. The fixed account value is guaranteed; however, there is no assurance that the separate account value of the Policy will equal or exceed the net premiums paid and allocated to the separate account. The loan account value is the sum of all unpaid loans, preferred and nonpreferred. You will be advised at least annually as to the number of accumulation units which remain credited to the Policy, the current AUV, the separate account value, the fixed account value, and the total account value. 20 ACCUMULATION UNIT VALUE The value of an accumulation unit for any valuation period is determined by multiplying the value of an accumulation unit for the immediately preceding valuation period by the net investment factor for the current period for the appropriate Fund. The net investment factor equals the net investment rate plus 1.0000000. The net investment rate is determined separately for each Fund. It is computed according to a formula that is equivalent to the following: (a) the net assets of the Fund held in Variable Life Account B at the end of a valuation period, minus (b) the net assets of the Fund held in Variable Life Account B at the beginning of that valuation period, plus or minus (c) taxes or provisions for taxes, if any, attributable to the operation of Variable Life Account B (with any federal tax liability offset by foreign tax credits to the extent allowed), divided by (d) the value of the accumulation units held by Variable Life Account B at the beginning of the valuation period, minus (e) a daily charge for mortality and expense risk, and administrative expenses. (See "Charges and Fees Assessed against the Separate Account.") In certain circumstances, and when permitted by law, it may be prudent for the Company to use a different standard industry method for this calculation. We will achieve substantially the same result using either method. MATURITY VALUE The maturity value of your Policy depends on whether or not the guaranteed death benefit provision is in effect. If it is, the maturity value is the greater of the total account value and the specified amount on the maturity date, less the amount necessary to repay all loans in full. If it is not, the maturity value is the total account value on the maturity date, less the amount necessary to repay all loans in full. CASH SURRENDER VALUE The cash surrender value of your Policy is the amount you can receive in cash by surrendering the Policy. This equals the total account value minus the applicable surrender charge and the amount necessary to repay any loans in full. In early policy years, or if there has been a substantial reduction in the specified amount, there may be little or no cash surrender value available. All or part of the cash surrender value may be applied to one or more of the settlement options. (See "Surrender Charge.") POLICY RIGHTS FULL SURRENDERS You may surrender your Policy for the full cash surrender value. If you surrender your Policy in its early years, there may be little or no cash surrender value. PARTIAL SURRENDERS A partial surrender may be made at any time after the first policy year. The amount of a partial surrender may not exceed the cash surrender value on the date the request is received and may not be less than $500. Partial surrenders may only be made prior to election of a settlement option. 21 For an option 1 Policy (see "Death Benefit"), a partial surrender will reduce the total account value, death benefit, and specified amount. The specified amount and total account value will be reduced by equal amounts and will reduce any past increases in the reverse order in which they occurred. For an option 2 Policy (see "Death Benefit"), a partial surrender will reduce the total account value and the death benefit, but it will not reduce the specified amount. Payment of any amount due from the separate account values on a full or partial surrender will be made within seven calendar days after we receive your written request at our Administrative Office in form satisfactory to us. Payment may be postponed when the New York Stock Exchange has been closed and for such other periods as the Commission may require. Payment from the fixed account values may be deferred up to 6 months, except when used to pay premiums to the Company. The specified amount remaining in force after a partial surrender may not be less than $100,000. Any request for a partial surrender that would reduce the specified amount below this amount will not be granted. In addition, if, following the partial surrender and the corresponding decrease in the specified amount, the Policy would not comply with the maximum premium limitations required by federal tax law, the decrease may be limited to the extent necessary to meet the federal tax law requirements. If, at the time of a partial surrender, your total account value is attributable to more than one funding option, the surrender charge, transaction charge and the amount paid to you upon the surrender will be taken proportionately from the accumulation unit values in each funding option. AVOIDING LOSS OF COVERAGE Take note: The following explanations of the No-Lapse Coverage Provision and the Reinstatement of a Lapsed Policy should be read together with the Guaranteed Death Benefit Provision, discussed earlier under Policy Choices. These three provisions, and the interrelationship between them, determine whether you keep or lose your insurance. If you have any questions about how they operate and how each provision affects the others, please contact the Administrative Office. NO-LAPSE COVERAGE PROVISION This Policy will not terminate during the five-year period after its issue date or the issue date of any increase if, on each monthly deduction day within that period, the sum of premiums paid equals or exceeds: 1) the sum of the basic premiums for each Policy month from the issue date, including the current month; plus 2) any partial surrenders; plus 3) any increase in loan account value since the Policy's issue date or the issue date of any increase. If, on each monthly deduction day within the five-year period, the sum of premiums paid is less than the sum of the items 1, 2, and 3 above, and the cash surrender value is insufficient to cover the current monthly deduction, the grace period provision will apply. After the five-year period expires, and depending on the investment performance of the Funds, the total account value may be insufficient to keep this Policy in force, and payment of an additional premium may be necessary, unless the guaranteed death benefit provision has been elected. REINSTATEMENT OF A LAPSED POLICY A lapse occurs if your monthly deduction is greater than the cash surrender value and no payment to cover the deduction is made within the 61 days of our notifying you. This may happen after the first five policy years, or during the first five policy years if your basic premiums are not current. The cash surrender value may be 22 insufficient because it has been exhausted by earlier deductions, due to poor investment performance, partial surrenders, indebtedness for policy loans, reductions in specified amount or some combination of these factors. You can apply for reinstatement within five years after the date of termination and before the maturity date. To reinstate your Policy we will require satisfactory evidence of insurability and an amount sufficient to pay for the current monthly deduction plus two additional monthly deductions. If the Policy is reinstated within five years of this policy's issue date or while the no-lapse coverage provision (see "No-Lapse Coverage Provision") would be in effect if this Policy had not lapsed, all values including the loan account value will be reinstated to the point they were on the date of lapse. However, the guaranteed death benefit provision will not be reinstated. If the Policy is reinstated after the no-lapse coverage provision (see "No-Lapse Coverage Provision") has expired, this Policy will be reinstated on the monthly deduction day following our approval. This Policy's total account value at reinstatement will be the net premium paid less the monthly deduction due that day. Any loan account value will not be reinstated, and the guaranteed death benefit will not be reinstated. If the Policy's cash surrender value less any loan account value plus accrued interest is not sufficient to cover the full surrender charge at the time of lapse, the remaining portion of the surrender charge will also be reinstated at the time of Policy reinstatement. POLICY LOANS: PREFERRED AND NONPREFERRED Unless otherwise required by state law, the maximum loan amount is 90% of the cash surrender value at the time of a loan. Loans taken during the first ten policy years are considered nonpreferred loans. Beginning in the eleventh policy year, up to 10% of the maximum loan amount available at the beginning of a policy year can be taken as a preferred loan during that policy year. Amounts borrowed that are in excess of the maximum loan amount available for a preferred loan will be considered a nonpreferred loan. An amount equal to what you receive for a loan, together with any interest added to the loan for due and unpaid interest, as described below, will be added to the loan account value. If you are using more than one underlying funding option, the amount of the loan will be withdrawn in proportion to the value of each funding option. Interest on loans will accrue at an annual rate which will be the greater of: 1) The monthly average (i.e., the composite yield on corporate bonds as published by Moody's Investors Service, Inc.) for the calendar month which ends two months before the month in which the Policy Anniversary occurs, or 2) 5.5%. Increases or decreases to the current interest rate will occur only when the new policy year's annual interest rate is greater or lower than the prior policy year's annual interest rate by at least 0.5%. We will notify you of the current interest rate charged for a loan at the time a loan is made. If your Policy has a loan outstanding, we will notify you of any change in the interest rate before the new rate becomes effective. Interest is payable by you once a year on each anniversary of the loan, or earlier upon surrender, payment of proceeds, or maturity of a Policy. Any interest you do not pay when due becomes part of the loan and bears interest. 23 An amount equal to what you receive for a loan, together with any interest accrued but not paid, will be added to the loan account value. We will credit interest on the loan account value. The loan account value for nonpreferred loans will be credited interest, during any policy year, at an annual rate that is the interest rate charged on the loan minus 2%. However, in no case will the credited interest rate be less than 4.5% annually. The loan account value on preferred loans will be credited interest at a rate equal to the interest rate charged. In no case will the credited interest rate be less than 5.5% annually. If a policy loan is requested, the amount to be borrowed will be withdrawn by the Company from the funding options and fixed account value in proportion to the value of the Policy attributable to each funding option and the fixed account. Repayments on the loan will be allocated among the funding options in the same proportion the loan was taken from the funding options. The loan account value will be reduced by the amount of any loan repayment. The amount necessary to repay all loans in full is the loan account value plus any interest accrued since the last policy anniversary. Such interest is payable in order to discharge any policy indebtedness. POLICY CHANGES You may make changes to your Policy, as described below, by submitting a written request to our Administrative Office in a form satisfactory to us. INCREASES: Beginning in the second policy year, you may increase the specified amount of your Policy subject to the following conditions: o Satisfactory evidence of insurability may be required. o The cash surrender value at the time of an increase must be at least three times the sum of (a) the most recent monthly deduction from the total account value and (b) the amount of the increase, divided by 1000, times the applicable cost of insurance rate. o An increase in the specified amount will increase the surrender charge. o The basic monthly premium will be increased when the specified amount is increased. The Policy will not terminate within five years of the issue date of the increase if the conditions of this provision and the no-lapse coverage provision are met. o Increases through the fifth year are limited to four times the initial specified amount. o Increases in the specified amount will increase the guaranteed death benefit provision amount and will affect the guaranteed death benefit premium. DECREASES: Beginning in the sixth policy year decreases will be allowed, however: o No decrease may reduce the specified amount to less than the minimum for this type of policy. (See Death Benefit.) o Any decrease will cause a decrease in the guaranteed death benefit provision. DEATH BENEFIT OPTION CHANGE: A death benefit option change will be allowed, subject to the following conditions: o The change will take effect on the monthly deduction day on or next following the date on which the Administrative Office receives your written request. o There will be no change in the surrender charge, and evidence of insurability may be required. o We will not allow a change in the death benefit option if the specified amount will be reduced below the minimum specified amount. 24 o Changes from option 1 to option 2 are allowed beginning in the sixth policy year. The new specified amount will equal the specified amount less the total account value at the time of the change.* o Changes from option 2 to option 1 are allowed after the first policy year. The new specified amount will equal the specified amount plus the total account value as of the time of the change.* *Changes in the death benefit option also affect the guaranteed death benefit provision amount and the guaranteed death benefit premium. RIGHT TO EXAMINE THE POLICY The Policy has a period during which you may examine the Policy. If for any reason you are dissatisfied, it may be returned to our Administrative Office for a refund. It must be returned within ten days (state variations may apply) after you receive the Policy and the written notice of withdrawal right, or within 45 days after you sign the application for the Policy, whichever occurs latest. If you return (cancel) the Policy, we will pay a refund of: (1) the difference between payments made and amounts allocated to the separate account, plus (2) the value of the amount allocated to the separate account as of the date the returned Policy is received by us, plus (3) any fees imposed on the amounts allocated to the separate account. If state law does not permit such a refund, then the refund will equal premiums paid, without interest. Refunds will usually occur within seven days of notice of cancellation, although a refund of premiums paid by check may be delayed until the check clears your bank. PAYMENT OF DEATH BENEFIT The death benefit is the amount payable to the beneficiary upon the death of the insured. Any outstanding loan amounts or overdue deductions are withheld from the death benefit prior to payment. The death benefit under the Policy will be paid in a lump sum within seven days after we receive due proof of the insured's death (a certified copy of the death certificate) at our Administrative Office, unless you or the beneficiary have elected that it be paid under one or more of the settlement options. (See "Settlement Options.") Payment of the death benefit may be delayed if the Policy is being contested. While the insured is living, you may elect a settlement option for the beneficiary and deem it irrevocable. You may revoke or change a prior election. The beneficiary may make or change an election within 90 days of the death of the insured, unless you have made an irrevocable election. A beneficiary who has elected settlement option 1 may elect another option within two years after the insured's death. All or a part of the death benefit may be applied under one or more of the settlement options, or such options as we may choose to make available in the future. If the Policy is assigned as collateral security, we will pay any amount due the assignee in one lump sum. Any excess death benefit due will be paid as elected. POLICY SETTLEMENT There are several ways in which a beneficiary may receive annuity payments from a death benefit. These are called settlement options. If the owner surrenders the Policy, settlement options are available for the amount of the policy cash surrender value. 25 Proceeds in the form of settlement options are payable by the Company upon the insured's death, upon maturity of the policy, or upon election of one of the following settlement options or any we make available (after any applicable surrender charges have been deducted). A written request may be made to elect, change, or revoke a settlement option before payments begin under any settlement option. This request must be in form satisfactory to us, and will take effect upon its filing at our Administrative Office. If no settlement option has been elected by the policy owner when the death benefit becomes payable to the beneficiary, that beneficiary may make the election. The first variable settlement option payment will be as of the tenth valuation period following our receipt of the properly completed election form. SETTLEMENT OPTIONS Options 2, 3 and 4 are in the form of an annuity, which is a series of payments for life or a definite period of time. The person receiving the payments is called the annuitant. OPTION 1 -- Payment of interest on the sum left with us; OPTION 2 -- Payments for a stated number of years, at least three but no more than thirty; OPTION 3 -- Payments for the lifetime of the annuitant. If also chosen, we will guarantee payments for 60, 120, 180, or 240 months; OPTION 4 -- Payments during the joint lifetimes of two annuitants. At the death of either, payments will continue to the survivor. When this option is chosen, a choice must be made of: a) 100% of the payment to continue to the survivor; b) 66 2/3% of the payment to continue to the survivor; c) 50% of the payment to continue to the survivor; d) Payments for a minimum of 120 months, with 100% of the payment to continue to the survivor; e) 100% of the payment to continue to the survivor if the survivor is the annuitant, and 50% of the payment to continue to the survivor if the survivor is the second annuitant. In most states, no election may be made that would result in a first payment of less than $25 or that would result in total yearly payments of less than $120. If the value of the Policy is insufficient to elect an option for the minimum amount specified, a lump-sum payment must be elected. Proceeds applied under option 1 will be held by us in the general account. Proceeds in the general account will be used to make payments on a fixed-dollar basis. We will add interest to such proceeds at an annual rate of not less than 3%. We may add interest daily at any higher rate. Under option 1, the annuitant may later tell the Company to (a) pay to him or her a portion or all of the sum held by the Company; or (b) apply a portion or all of the sum held by the Company to another settlement option. Proceeds applied under options 2, 3 and 4 will be held (a) in the general account; or (b) in Variable Annuity Account B, invested in one or more of the available investment options, or (c) a mix of (a) and (b). Proceeds held in Variable Annuity Account B will be used to make payments on a variable basis. 26 If payments are to be funded on a variable basis (by the Funds), the first and subsequent payments will vary depending on the assumed net investment rate. This rate will be 3 1/2% per year, unless a 5% annual rate is chosen. The assumed net investment rate is chosen by the payee. Selection of a 5% rate causes a higher first payment, but subsequent payments will increase only to the extent the actual net investment rate exceeds 5% on an annualized basis, and they will decline if the rate is less than 5%. Use of the 3 1/2% assumed net investment rate causes a lower first payment, but subsequent payments will increase more rapidly or decline more slowly as changes occur in the actual net investment rate. The investment performance of the underlying funding option(s) must equal such assumed rate, plus enough to cover the mortality and expense risk and administrative fee charges, if future payments on a variable basis are to remain level. If payments on a variable basis are not to decrease, gross return on the assets of the underlying funding option must be: a) 4.75% on an annual basis, plus an annual return of up to .25% needed to offset the administrative charge in effect at the time settlement option payments start, if an assumed net investment rate of 3 1/2% is chosen; or b) 6.25% on an annual basis, plus an annual return of up to .25% needed to offset the administrative charge in effect at the time settlement option payments start, if an assumed net investment rate of 5% is chosen. Option 2, 3 or 4 may be chosen on a fixed-dollar basis. However, if the guaranteed payments are less than the payments which would be made from the purchase of the Company's current single premium immediate annuity, the larger payment will be made instead. As to funds held under option 1, the annuitant may elect to make a withdrawal or to change options. Under option 2, if payments are made on a variable basis, the current value may be withdrawn at any time. Amounts held in the fixed account may not be withdrawn under option 2. No withdrawals or changes of option may be made under options 3 and 4. When an annuitant dies while receiving payments under option 2, 3 or 4, the present value of any remaining guaranteed payments will either be paid in one sum to the annuitant's beneficiary, or upon election by that beneficiary, any remaining guaranteed payments will continue to that beneficiary. If no beneficiary exists, the present value of any remaining guaranteed payments will be paid in one sum to the annuitant's estate. If the annuitant dies while receiving payments under option 1, the current value of the option will be paid in one sum to the beneficiary, or to the annuitant's estate. If the annuitant's beneficiary dies (and there is no contingent beneficiary), while receiving payments, the current value of the account (option 1), or the present value of any remaining guaranteed payments will be paid in one sum to the estate of that beneficiary. The interest rate used to determine the first payment will be used to calculate the present value. CALCULATION OF SETTLEMENT PAYMENTS ON A VARIABLE BASIS When you have chosen payment on a variable basis, the first payment is calculated as follows: a) the portion of the proceeds applied to make payments on the variable basis; divided by b) 1,000; times c) the payment rate per $1000 of proceeds for the option chosen as shown in the policy. Such amount, or portion, of the variable payment will be divided by the settlement option unit value (described below), as of the tenth valuation period before the due date of the first payment, to determine the number of 27 settlement option units. Each future payment is equal to the number of settlement option units, times the settlement option unit value as of the tenth valuation period prior to the due date of the payment. For any valuation period, the Fund(s) settlement option unit value is equal to: a) The settlement option unit value for the previous valuation period; times b) The net return factor (as defined below) for the valuation period; times c) A factor to reflect the assumed net investment rate. The factor for 3.5% per year is 0.9999058; for 5% per year, it is 0.9998663. The net return factor equals: 1) The net assets of the applicable fund held in Variable Annuity Account B at the end of a valuation period; minus 2) The net assets of the applicable fund held in Variable Annuity Account B at the beginning of that valuation period; plus or minus 3) Taxes or provision for taxes, if any, attributable to the operations of Variable Annuity Account B; divided by 4) The value of settlement option units and other accumulation units held in Variable Annuity Account B at the beginning of the valuation period; minus 5) A daily charge at an annual rate of 1.25% of your account value invested in the subaccount for annuity mortality and expense risk and the then-current daily administrative expense charge. The number of settlement option units remains fixed. However, the dollar value of the settlement option unit values and the payment may increase or decrease due to investment gain or loss. Payments will not be affected by changes in the mortality or expense results or administrative expense charges. SPECIAL PLANS Where allowed by law, the Company may reduce or eliminate certain charges for Policies issued under special circumstances that result in lower expenses to the Company (i.e., group arrangements with a sponsoring employer). The amount of any reduction, the charges to be reduced, and the criteria for applying a reduction will reflect the reduced sales effort, costs and differing mortality experience appropriate to the circumstances giving rise to the reduction. The charges will be reduced in accordance with the Company's practice in effect when the Policies are issued. Reductions will not be unfairly discriminatory against any person, including the purchasers to whom the reduction applies and all other owners of the Policies. The Company offers Policies on a unisex and simplified underwriting basis to certain group or sponsored arrangements. A "group arrangement" includes a program under which an employer purchases individual Policies covering a group of individuals on a group basis. A "sponsored arrangement" includes a program under which an employer permits group solicitation of its employees for the purchase of the Policies on an individual basis. Under both arrangements, the employer pays all or part of the premium. The benefits and values of these Policies do not vary based on the sex of the insured in order to be used by employers in employee benefit plans where sex discrimination is prohibited by federal or state laws. The Company recommends that any employer proposing to offer the Policies to employees under either arrangement consult its attorney before doing so. 28 DIRECTORS AND OFFICERS
------------------------------------------------------------------------------------------------------------------------------ NAME AND ADDRESS POSITION WITH COMPANY BUSINESS EXPERIENCE DURING PAST 5 YEARS ------------------------------------------------------------------------------------------------------------------------------ Keith Gubbay* Director and President Has held several directorships and various executive officer positions with various ING affiliated companies since 1999, including positions as Director, Executive Vice President and General Manager. Executive Vice President of Withall Financial Group from 1996 to 1998. ------------------------------------------------------------------------------------------------------------------------------ P. Randall Lowery* Director Has held several directorships and various executive officer positions with various ING affiliated companies since 1990, including positions as Director, Executive Vice President, General Manager and Chief Actuary. ------------------------------------------------------------------------------------------------------------------------------ Thomas J. McInerney* Director Has held several directorships and various executive officer positions with various ING affiliated companies since 1997, including positions as Director, Chief Executive Officer and President. ------------------------------------------------------------------------------------------------------------------------------ Mark A. Tullis* Director Has held several directorships and various executive officer positions with various ING affiliated companies since 1999, including positions as Director, President, Treasurer, General Manager and Chief of Staff. Executive Vice President of Primerica from 1994 to 1999. ------------------------------------------------------------------------------------------------------------------------------ Cheryl Lynn Price* Vice President, Chief Has held several executive officer positions with various Financial Officer and Chief ING affiliated companies, including positions as Vice Accounting Officer President, Chief Accounting Officer and Chief Financial Officer. ------------------------------------------------------------------------------------------------------------------------------ David S. Pendergrass* Vice President and Has held various executive officer positions with various Treasurer ING affiliated companies, including positions as Vice President and Treasurer. ------------------------------------------------------------------------------------------------------------------------------ David Wheat* Director Chief Accounting Officer of various ING affiliated companies since 2001. Partner of Ernst & Young LLP from 1999 to 2001. Office Managing Partner of Ernst & Young LLP from 1995 to 1999. ------------------------------------------------------------------------------------------------------------------------------ Paula Cludray- Secretary Has held various officer positions with various ING affiliated Engelke** companies since 1985, including positions as Secretary, Assistant Secretary, Director of Individual Compliance and Director of Contracts Compliance and Special Benefits. ------------------------------------------------------------------------------------------------------------------------------
29 Directors, officers and employees of the Company are covered by a blanket fidelity bond in an amount in excess of $100 million issued by American International Group. * The address of these Directors and Officers is 5780 Powers Ferry Road, NW, Atlanta, Georgia 30327-4390. These individuals may also be directors and/or officers of other affiliates of the Company. ** The address of this officer is 20 Washington Avenue South, Minneapolis, Minnesota 55401. This individual may also be an officer of other affiliates of the Company. ADDITIONAL INFORMATION REPORTS TO POLICY OWNERS Within 30 days after each policy anniversary and before proceeds are applied to a settlement option, we or our designee, will send you a report containing the following information: 1) A statement of changes in the total account value and cash surrender value since the prior report or since the issue date, if there has been no prior report. This includes a statement of monthly deductions and investment results and any interest earnings for the report period; 2) Cash surrender value, death benefit, and any loan account value as of the policy anniversary; 3) A projection of the total account value, loan account value and cash surrender value as of the succeeding policy anniversary. If you have policy values funded in either separate account you will receive such additional periodic reports as may be required by the Commission. Some state laws require additional reports; these requirements vary from state to state. RIGHT TO INSTRUCT VOTING OF FUND SHARES In accordance with our view of present applicable law, we will vote the shares of each of the Funds held in each separate account. The votes will be cast at meetings of the shareholders of the Fund and will be based on instructions received from policy owners. However, if the 1940 Act or any regulations thereunder should be amended or if the present interpretation should change, and as a result we determine that we are permitted to vote the shares of the Fund in our own right, we may elect to do so. To determine how many votes each policy owner is entitled to direct with respect to a Fund, first we will calculate the dollar amount of your account value attributable to that Fund. Second, we will divide that amount by $100.00. The result is the number of votes you may direct. During the settlement option period, the number of votes is determined by dividing the valuation reserve attributable in the Fund, if any, by the net asset value of one share of the Fund. Fractional votes will be counted. Where the value of the total account value or the valuation reserve relates to more than one Fund, the calculation of votes will be performed separately for each Fund. The number of shares which a person has a right to vote will be determined as of a date to be chosen by the Fund, but not more than 90 days before the meeting of the Fund. Voting instructions will be solicited by written communication at least 14 days before such meeting. Fund shares for which no timely instructions are received, and Fund shares which are not otherwise attributable to policy owners, will be voted by us in the same proportion as the voting instructions which are received for all 30 Policies participating in each Fund through Variable Life Account B. Policy owners having a voting interest will receive periodic reports relating to the Fund, proxy material and a form for giving voting instructions. DISREGARD OF VOTING INSTRUCTIONS We may, when required by state insurance regulatory authorities, disregard voting instructions if the instructions require that the shares be voted so as to cause a change in the sub-classification or investment objectives of a Fund or to approve or disapprove an investment advisory contract for a Fund. In addition, we may disregard voting instructions in favor of changes initiated by a policy owner in the investment policy or the investment adviser of the Fund if we reasonably disapprove of such changes. A change would be disapproved only if the proposed change is contrary to state law or prohibited by state regulatory authorities or we determined that the change would have an adverse effect on the separate accounts in that the proposed investment policy for a Fund may result in overly speculative or unsound investments. In the event we do disregard voting instructions, a summary of that action and the reasons for such action will be included in the next annual report to policy owners. STATE REGULATION We are subject to regulation and supervision by the Insurance Department of the State of Connecticut, which periodically examines our affairs. We are also subject to the insurance laws and regulations of all jurisdictions where we are authorized to do business. The Policies have been approved by the Insurance Department of the State of Connecticut and in other jurisdictions. We are required to submit annual statements of our operations, including financial statements, to the insurance departments of the various jurisdictions in which we do business, for the purposes of determining solvency and compliance with local insurance laws and regulations. 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. We are, or may be in the future, a defendant in various legal proceedings in connection with the normal conduct of our insurance operations. Some of these cases may seek class action status and may include a demand for punitive damages as well as for compensatory damages. In the opinion of management, the ultimate resolution of any existing legal proceeding is not likely to have a material adverse effect on our ability to meet our obligations under the policy. ING Financial Advisers, LLC, the principal underwriter and distributor of the Policy, is not involved in any legal proceeding which, in the opinion of management, is likely to have material adverse effect on its ability to distribute the policy. THE REGISTRATION STATEMENT A Registration Statement under the Securities Act of 1933 has been filed with the Commission relating to the offering described in this prospectus. This prospectus does not include all the information set forth in the Registration Statement, certain portions of which have been omitted pursuant to the rules and regulations of the Commission. The omitted information may be obtained at the Commission's principal office in Washington, DC, upon payment of the Commission's prescribed fees. The Policies are offered for sale in all jurisdictions where we are authorized to do business except Guam, Puerto Rico, and the Virgin Islands. 31 DISTRIBUTION OF THE POLICIES ING Financial Advisers, LLC serves as principal underwriter of the securities offered hereunder as defined by the federal securities laws. ING Financial Advisers, LLC is registered as a broker-dealer with the Commission and is a member of the National Association of Securities Dealers, Inc. ("NASD"). ING Financial Advisers, LLC will contract with one or more registered broker-dealers including broker-dealers affiliated with it ("distributors") to offer and sell the Policies. ING Financial Advisers, LLC may also offer and sell policies directly. All persons selling the Policies will be registered representatives of the distributors, and will also be licensed as insurance agents to sell variable life insurance. The maximum commission payable to salespersons and their supervising broker-dealers for policy distribution is 55% of the guaranteed death benefit premium to age 80, or, in the event of an increase in the specified amount, 55% of the guaranteed death benefit premium to age 80, attributable to the increase. In lieu of premium-based commission, equivalent amounts may be paid based on total account value. In particular circumstances, certain of these professionals may also be paid for their administrative expenses. In addition, some sales personnel may receive various types of non-cash compensation as special sales incentives, including trips and educational and/or business seminars. ING Financial Advisers, LLC may also contract with independent third party broker-dealers who will act as wholesalers by assisting ING Financial Advisers, LLC in finding broker-dealers to offer and sell the Policies. These parties may also provide training, marketing and other sales related functions for ING Financial Advisers, LLC and other broker-dealers and may provide certain administrative services to the Company in connection with the Policies. Such parties may receive compensation based on premium payments for the Policies purchased through broker-dealers selected by the wholesaler. RECORDS AND ACCOUNTS All records and accounts relating to the separate accounts and the Funds will be maintained by the Company or its designee. All reports required to be made and information required to be given will be provided by the Company or its designee. Lincoln and its affiliates perform certain administrative functions relating to the Policies, and maintain books and records necessary to operate and administer the Policies. INDEPENDENT AUDITORS Ernst & Young LLP, 2300 National City Center, 110 West Berry Street, Ft. Wayne, Indiana 46802 are the independent auditors for Variable Life Account B for the years ended December 31, 2000, 2001 and 2002. KPMG LLP, One Financial Plaza, 755 Main Street, Hartford, Connecticut 06103 were the independent auditors for the Company for the year ended December 31, 2000. Ernst & Young LLP, 600 Peachtree Street, Suite 2800, Atlanta, Georgia 30308-2215 are the independent auditors for the Company for the years ended December 31, 2001 and 2002. The independent auditors provide services to the Company and Variable Life Account B that include primarily the audit of the Company's and Variable Life Account B's financial statements as described in their reports, included in this Registration Statement. TAX MATTERS GENERAL The following is a discussion of the federal income tax considerations relating to the Policy. This discussion is based on the Company's understanding of federal income tax laws as they now exist and are currently interpreted by the Internal Revenue Service ("IRS"). These laws are complex, and tax results may vary among individuals. A person or persons contemplating the purchase of or the exercise of elections under the Policy described in this prospectus should seek competent tax advice. This section addresses federal income tax rules 32 only, and does not discuss federal estate, gift and generation-skipping tax implications, state and local taxes or any other tax provisions. We do not make any guarantee about the tax treatment of the Policy or transactions involving the Policies. FEDERAL TAX STATUS OF THE COMPANY The Company is taxed as a life insurance company under the Code. The separate account is a not a separate entity from the Company. Therefore, the separate account is not taxed separately as a "regulated investment company", but is taxed as part of the Company. Investment income and realized capital gains attributable to the separate account are automatically applied to increase reserves under the policy. Because of this, under existing federal income tax law we believe that any such income and gains will not be taxed to us to the extent that such income and gains are applied to increase reserves under the policy. In addition, any foreign tax credits attributable to the separate account will first be 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 provisions for any such taxes. However, if changes in the federal tax laws or their interpretation result in our being taxed on income or gains attributable to the separate account, then we may impose a charge against the separate account (with respect to the policy) to set aside provisions to pay such taxes. LIFE INSURANCE QUALIFICATION Section 7702 of the Code includes a definition of life insurance for tax purposes. These rules generally place limits on the amount of premiums payable under the contract and the level of cash surrender value. In no event may the total of all premiums paid exceed the then-current maximum premium limitations established by federal law for a Policy to qualify as life insurance. If, at any time, a premium is paid which would result in total premiums exceeding such maximum premium limitation, we will only accept that portion of the premium which will make total premiums equal the maximum. Any part of the premium in excess of that amount will be returned or applied as otherwise agreed and no further premiums will be accepted until allowed by the then-current maximum premium limitations prescribed by law. The Secretary of the Treasury has been granted authority to prescribe regulations to carry out the purposes of Section 7702, and proposed regulations governing mortality charges were issued in 1991. The Company believes that the Policy meets the statutory definition of life insurance. As such, and assuming the diversification standards of Section 817(h) (discussed below) are satisfied, then except in limited circumstances (a) death benefits paid under the Policy should generally be excluded from the gross income of the beneficiary for federal income tax purposes under Section 101(a)(1) of the Code, and (b) a policy owner should not generally be taxed on the cash value under a Policy, including increments thereof, prior to actual receipt. The principal exceptions to these rules are corporations that are subject to the alternative minimum tax, and thus may be subject to tax on increments in the Policy's total account value, and policy owners who acquire a Policy in a "transfer for value" and thus can become subject to tax on the portion of the death benefit which exceeds the total of their cost of acquisition and subsequent premium payments. The Company intends to comply with any future final regulations issued under Sections 7702 and 817(h) of the Code, and therefore reserves the right to make such changes as it deems necessary to ensure such compliance. Any such changes will apply uniformly to affected policy owners and will be made only after advance written notice. GENERAL RULES Upon the surrender or cancellation of any Policy, whether or not it is a modified endowment contract (see "Modified Endowment Contracts" below), the policy owner will be taxed on the surrender value only to the extent that it exceeds the gross premiums paid less prior untaxed withdrawals. The amount of any unpaid policy loans 33 will, upon surrender, be added to the surrender value and will be treated for this purpose as if it had been received. Assuming the Policy is not a modified endowment contract, the proceeds of any partial surrenders are generally not taxable unless the total amount received due to such surrenders exceeds total premiums paid less prior untaxed partial surrender amounts. However, partial surrenders made within the first 15 policy years in connection with reductions in death benefits may be taxable in limited circumstances in certain limited instances where the surrender value plus any unpaid Policy debt exceeds the total premiums paid less the untaxed portion of any prior partial surrenders. This result may occur even if the total amount of any partial surrenders does not exceed total premiums paid to that date. Loans received under the Policy will ordinarily be considered indebtedness of the policy owner, and assuming the Policy is not considered a modified endowment contract, policy loans will not be treated as current distributions subject to tax. Generally, amounts of loan interest paid by individuals will be considered nondeductible "personal interest." MODIFIED ENDOWMENT CONTRACTS A class of contracts known as "modified endowment contracts" has been created under Section 7702A of the Code. The tax rules applicable to loan proceeds and proceeds of a partial surrender of any Policy that is considered to be a modified endowment contract will differ from the general rules noted above. A contract will be considered a modified endowment contract if it fails the "7-pay test." A Policy fails the 7-pay test if, at any time in the first seven policy years, the amount paid into the Policy exceeds the amount that would have been paid had the Policy provided for the payment of seven (7) level annual premiums. In the event of a distribution under the Policy, the Company will notify the policy owner if the Policy is a modified endowment contract. Each Policy is subject to testing under the 7-pay test during the first seven policy years and at any time a material change takes effect. A material change, for these purposes, includes the exchange of a life insurance policy for another life insurance policy or the conversion of a term life insurance policy into a whole life or universal life insurance policy. In addition, an increase in the future benefits provided constitutes a material change unless the increase is attributable to (1) the payment of premiums necessary to fund the lowest death benefit payable in the first seven policy years or (2) the crediting of interest or other earnings with respect to such premiums. A reduction in death benefits during the first seven policy years may also cause a Policy to be considered a modified endowment contract. If the Policy is considered to be a modified endowment contract, the proceeds of any partial surrenders, any policy loans and most assignments, will be currently taxable to the extent that the Policy's total account value immediately before payment exceeds gross premiums paid (increased by the amount of loans previously taxed and reduced by untaxed amounts previously received). These rules may also apply to policy loans or partial surrender proceeds received during the two-year period prior to the time that a Policy becomes a modified endowment contract. If the Policy becomes a modified endowment contract, it may be aggregated with other modified endowment contracts purchased by you from the Company (and its affiliates) during any one calendar year for purposes of determining the taxable portion of withdrawals from the Policy. A penalty tax equal to 10% of the amount includable in income will apply to the taxable portion of the proceeds of any policy surrender or policy loan received by any policy owner of a modified endowment contract who is not an individual. The penalty tax will also apply where taxable policy loans are received by an individual who has not reached the age of 59 1/2. Taxable policy distributions made to an individual who has not reached the age of 59 1/2 will also be subject to the penalty tax unless those distributions are attributable to the individual becoming 34 disabled, or are part of a series of equal periodic payments made not less frequently than annually for the life or life expectancy of such individual (i.e., an annuity). DIVERSIFICATION STANDARDS Section 817(h) of the Code provides that separate account investments (or the investments of a mutual fund, the shares of which are owned by separate accounts of insurance companies) underlying the Policy must be "adequately diversified" in accordance with Treasury regulations in order for the Policy to qualify as life insurance. The Treasury Department has issued regulations prescribing the diversification requirements in connection with variable contracts. Our failure to comply with these regulations would disqualify your Policy as a life insurance policy under Section 7702 of the Code. If this were to occur, you would be subject to federal income tax on all income previously credited to the Policy and for subsequent periods. The separate account, through the Funds, intends to comply with these requirements. INVESTOR CONTROL In certain circumstances, owners of variable contracts may be considered the owners for federal income tax purposes of the assets of the separate account used to support their contracts. In those circumstances, income and gains from separate account assets would be currently includable in the variable contractowner's gross income. In several rulings published prior to the enactment of Section 817(h), the IRS stated that a variable contractowner will be considered the owner of separate account assets if the contractowner possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. The Treasury Department has also announced, in connection with the issuance of regulations under Section 817(h) concerning diversification, that those regulations "do not provide guidance concerning the circumstances in which investor control of the investments of a segregated asset account may cause the investor (i.e., you), rather than the insurance company, to be treated as the owner of the assets in the account." This announcement also stated that guidance would be issued by way of regulations or rulings on the "extent to which policyholders may direct their investments to particular Funds without being treated as owners of the underlying assets." As of the date of this prospectus, no such guidance has been issued. The ownership rights under the Policy are similar to, but different in certain respects from those described by the IRS in pre-Section 817(h) rulings in which it was determined that policy owners were not owners of separate account assets. For example, a policy owner has additional flexibility in allocating premium payments and account values. While the Company does not believe that these differences would result in a policy owner being treated as the owner of a pro rata portion of the assets of the separate account, there is no regulation or ruling of the IRS that confirms this conclusion. In addition, the Company does not know what standards will be set forth, if any, in the regulations or rulings which the Treasury Department has stated it expects to issue. The Company therefore reserves the right to modify the Policy as necessary to attempt to prevent a policy owner from being considered the owner of a pro rata share of the assets of the separate account. OTHER TAX CONSIDERATIONS Business-owned life insurance may be subject to certain additional rules. Section 264(a)(1) of the Code generally prohibits employers from deducting premiums on policies covering officers, employees or other financially interested parties where the employer is a beneficiary under the Policy. Additions to the Policy's total account value may also be subject to tax under the corporation alternative minimum tax provisions. In addition, Section 264(a)(4) of the Code limits the policy owner's deduction for interest on loans taken against life insurance covering the lives of officers, employees, or other financially interested in the policy owner's trade or business. Under current tax law, interest may generally be deducted on an aggregate total of $50,000 of loans per covered life only with respect to life insurance policies covering each officer, employee or others who may have a financial interest in the policy owner's trade or business and are considered key persons. 35 Generally, a key person means an officer or a 20 percent owner. However, the number of key persons will be limited to the greater of (a) 5 individuals, or (b) the lesser of 5 percent of the total officers and employees of the taxpayer or 20 individuals. Deductible interest for these contracts will be capped based on applicable Moody's corporate bond rates. Section 264(f) of the Code denies a deduction for a portion of a policy owner's otherwise deductible interest that is allocable to unborrowed policy cash values. The nondeductible interest amount is the amount that bears the same ratio to such interest as the company's average unborrowed cash value of life insurance and annuity policies issued after June 8, 1997 bears to the sum of the average unborrowed cash values of policies plus the average adjusted tax basis of other assets owned by the company. This provision does not apply to policies in which the insured is a 20 percent owner, officer, director or employee of the business, including policies jointly covering such individual and his or her spouse. The rule also will not apply where the policy owner is a natural person, unless a trade or business is directly or indirectly the beneficiary of the policy. Depending on the circumstances, the exchange of a policy, a change in the Policy's death benefit option, a policy loan, a full or partial surrender, a change in ownership or an assignment of the Policy may have federal income tax consequences. In addition, federal, state and local transfer, estate, inheritance and other tax consequences of policy ownership, premium payments and receipt of policy proceeds depend on the circumstances of each policy owner or beneficiary. The U.S. Congress frequently considers legislation that, if enacted, could change the tax treatment of life insurance policies. In addition, the Treasury Department may amend existing regulations, issue regulations on the qualification of life insurance and modified endowment contracts or adopt new interpretations of existing law. State and local tax law or, if you are not a U.S. citizen and resident, foreign tax law, may also affect the tax consequences to you, the insured person or your designated beneficiary, and are subject to change. Any changes in federal, state, local or foreign tax law or interpretation could have a retroactive effect. We suggest you consult with a qualified tax adviser. WITHHOLDING Generally, unless you provide us with a written election to the contrary before we make the distribution, we are required to withhold income tax from any portion of a distribution we make to you that is includable in your income. If you do not wish us to withhold tax from the payment, or if enough is not withheld, you will have to pay later. You may also have to pay penalties if your withholding and estimated tax payments are insufficient. MISCELLANEOUS POLICY PROVISIONS THE POLICY The Policy which you receive and the application you make when you purchase the Policy are the whole contract. A copy of the application is attached to the Policy when it is issued to you. An application for changes, once approved by us, will become part of the Policy. Application forms are completed by the applicant and forwarded to the Company for acceptance. Upon acceptance, the Policy is prepared, executed by duly authorized officers of the Company, and forwarded to the policy owner. PAYMENT OF BENEFITS All benefits are payable at our Administrative Office. We may require submission of the Policy before we grant loans, make changes or pay benefits. 36 AGE AND SEX If age or sex is misstated on the application, the amount payable on death will be that which would have been purchased by the most recent monthly deduction at the correct age and sex. (If the application is taken in a state or under an agreement where unisex rates are used, the insured's sex is inapplicable.) INCONTESTABILITY We will not contest coverage under the Policy after the Policy has been in force during the lifetime of the insured for a period of two years from the policy issue date. Our right to contest coverage is not affected by the guaranteed death benefit provision. For coverage which takes effect on a later date (e.g., an increase in coverage), we will not contest such coverage after it has been in force during the lifetime of the insured more than two years from its effective date. SUICIDE In most states, if the insured commits suicide within two years from the issue date, the only benefit paid will be the sum of: a) premiums paid less amounts allocated to the separate account; and b) the separate account value on the date of suicide, plus the portion of the monthly deduction from the separate account value, minus c) the amount necessary to repay any loans in full and any interest earned on the loan account value transferred to the separate account value, and any surrenders from the fixed account. If the insured commits suicide within two years from the effective date of any increase in coverage, we will pay as a benefit only the monthly deduction for the increase, in lieu of the face amount of the increase. All amounts described in (a) and (c) above will be calculated as of the date of death. ANTI-MONEY LAUNDERING In order to protect against the possible misuse of our products in money laundering or terrorist financing, we have adopted an anti-money laundering program satisfying the requirements of the USA PATRIOT Act. Among other things, this program requires us, our agents and customers to comply with certain procedures and standards that serve to assure that our customers' identities are properly verified and that premiums are not derived from improper sources. Under our anti-money laundering program, we may require Policy owners, insured persons and/or beneficiaries to provide sufficient evidence of identification, and we reserve the right to verify any information provided to us by accessing information databases maintained internally or by outside firms. We may also refuse to accept certain forms of premium payments or loan repayments (travelers cheques, for example) or restrict the amount of certain forms of premium payments or loan repayments (money orders totaling more than $5,000, for example). In addition, we may require information as to why a particular form of payment was used (third party checks, for example) and the source of the funds of such payment in order to determine whether or not we will accept it. Use of an unacceptable form of payment may result in your policy entering a 61-day grace period during which you must make a sufficient payment, in an acceptable form, to keep your policy from lapsing. Our anti-money laundering program is subject to change without notice to take account of changes applicable in laws or regulations and our ongoing assessment of our exposure to illegal activity. 37 COVERAGE BEYOND MATURITY The Policy is considered matured on the issue date anniversary on which the Insured reaches attained age 100. This is the maturity date. You may, by written request, in the 30 days before the maturity date of this Policy, elect to continue coverage beyond the maturity date. At age 100, the separate account value will be transferred to the fixed account. If coverage beyond maturity is elected, we will continue to credit interest to the total account value of this Policy. Monthly deductions will be calculated with a cost of insurance rate equal to zero (this provision is not available in New York). At this time, uncertainties exist regarding the tax treatment of the Policy should it continue beyond the maturity date. You should therefore consult with your tax advisor prior to making this election. (See "Tax Matters.") PROTECTION OF PROCEEDS To the extent provided by law, the proceeds of the Policy are subject neither to claims by a beneficiary's creditors nor to any legal process against any beneficiary. NONPARTICIPATION The Policy is not entitled to share in the divisible surplus of the Company. No dividends are payable. ILLUSTRATIONS OF DEATH BENEFIT, TOTAL ACCOUNT VALUES AND CASH SURRENDER VALUES The tables on the following pages illustrate how the death benefit, total account values, and cash surrender values of a Policy change with the investment experience of the variable funding options. The tables show how the death benefit, total account values, and cash surrender values of a Policy issued to an insured of a given age and a given premium would vary over time if the investment return on the assets held in each Fund were a uniform, gross, annual rate of 0%, 6%, and 12%, respectively. Actual returns will fluctuate over time and likely will be both positive and negative. The hypothetical gross investment rate of return may indeed average 0%, 6% or 12% over a period of years, however, it may fluctuate above and below those averages throughout the years shown. In that case, the actual account values, cash surrender values, and death benefit proceeds could be substantially less than those shown, and may, under certain circumstances, result in the lapse of the Policy unless more premiums are paid. Tables I through IV illustrate Policies issued to males, age 45, in the preferred nonsmoker rate class and Policies issued on a unisex basis according to the special plans section of this prospectus for both males and females, age 45, in the preferred nonsmoker rate class. Tables V through VIII illustrate Policies issued on a unisex basis, age 45, in the preferred nonsmoker rate class for contracts issued in states where unisex rates are required. The death benefit, total account values, and cash surrender values would be different from those shown if the gross annual investment rates of return averaged 0%, 6%, and 12%, respectively, over a period of years, but fluctuated above and below those averages for individual policy years. The second column of each table shows the accumulated values of the premiums paid at an assumed interest rate of 5%. The third through fifth columns illustrate the death benefit of a Policy over the designated period. The sixth through eighth columns illustrate the total account values, while the ninth through the eleventh columns illustrate the cash surrender values of each Policy over the designated period. Tables I, II, V and VI assume that the maximum cost of insurance rates allowable under the Policy are charged in all policy years. These tables 38 also assume that the maximum allowable mortality and expense risk charge of 0.90% on an annual basis, the maximum allowable administrative expense charge of 0.50% on an annual basis, and the maximum allowable premium load of 6% are assessed in each policy year. Tables III, IV, VII and VIII assume that the current scale of cost of insurance rates applies during all policy years. These tables also assume that the current mortality and expense risk charge of 0.70% on an annual basis, the current administrative expense charge of 0.30% on an annual basis, and the current premium load of 3.5% are assessed. The amounts shown for death benefit, cash surrender values, and total account values reflect the fact that the net investment return is lower than the gross return on the assets held in each Fund as a result of expenses paid by each Fund and other charges levied by the separate account. After deduction of these amounts, the illustrated gross annual investment rates of return of 0%, 6%, and 12% correspond to approximate net annual rates of -1.67%, 4.23%, and 10.14%, respectively on a current basis. On a guaranteed basis, the illustrated gross annual investment rates of return of 0%, 6%, and 12% correspond to approximate net annual rates of -2.06%, 3.82%, and 9.70%, respectively. The investment advisory fees and other Fund expenses vary by Fund from .34% to 1.00%. An arithmetic average of .68% has been used for the illustrations. The hypothetical values shown in the tables do not reflect any separate account charges for federal income taxes, since we are not currently making such charges. However, such charges may be made in the future, and in that event, the gross annual investment rate of return would have to exceed 0%, 6%, or 12% by an amount sufficient to cover the tax charges in order to produce the death benefit, total account values, and cash surrender values illustrated. The tables illustrate the policy values that would result based upon the hypothetical investment rates of return if premiums were paid as indicated, if all net premiums are allocated to Variable Life Account B and if no policy loans have been made. The tables are also based on the assumptions that the policy owner has not requested an increase or decrease in the specified amount of the Policy, and no partial surrenders have been made. Upon request, we will provide an illustration based upon the proposed insured's age, sex of insured (if necessary), and underwriting classification, the specified amount or premium requested, the proposed frequency of premium payments and any available riders requested. A fee of $25 is charged for each such illustration. The hypothetical gross annual investment return assumed in such an illustration will not exceed 12%. 39 AETNAVEST PLUS POLICY TABLE I FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1) MALE ISSUE AGE 45 - UNISEX FOR SPECIAL PLAN POLICIES GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED $6,720.00 ANNUAL GUARANTEED DEATH BENEFIT PREMIUM TO AGE 80 PREFERRED NONSMOKER RISK FACE AMOUNT $500,000 DEATH BENEFIT OPTION 1
PREMIUMS DEATH BENEFIT ACCUMULATED GROSS ANNUAL INVESTMENT TOTAL ACCOUNT VALUE CASH SURRENDER VALUE AT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF POLICY 5% INTEREST ------------------------------------- ------------------------------ ------------------------------ YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- --------- 1 7,056 500,000 500,000 500,000 4,330 4,649 4,969 658 977 1,297 2 14,465 500,000 500,000 500,000 8,608 9,521 10,474 4,936 5,849 6,802 3 22,244 500,000 500,000 500,000 12,673 14,459 16,400 9,001 10,787 12,728 4 30,412 500,000 500,000 500,000 16,521 19,458 22,784 12,849 15,786 19,112 5 38,989 500,000 500,000 500,000 20,140 24,506 29,657 16,468 20,834 25,985 6 47,994 500,000 500,000 500,000 23,526 29,599 37,066 20,191 26,264 33,731 7 57,450 500,000 500,000 500,000 26,653 34,709 45,039 23,685 31,741 42,071 8 67,379 500,000 500,000 500,000 29,495 39,807 53,609 26,894 37,206 51,008 9 77,803 500,000 500,000 500,000 32,032 44,873 62,823 29,798 42,639 60,589 10 88,750 500,000 500,000 500,000 34,229 49,869 72,716 32,362 48,002 70,849 15 152,258 500,000 500,000 500,000 39,253 72,764 134,722 39,222 72,733 134,691 20 233,313 500,000 500,000 500,000 30,414 87,804 226,667 30,414 87,804 226,667 25 336,762 500,000 500,000 500,000 0 83,205 372,174 0 83,205 372,174 30 468,793 500,000 500,000 665,910 0 33,112 622,346 0 33,112 622,346 20 (Age 65) 233,313 500,000 500,000 500,000 30,414 87,804 226,667 30,414 87,804 226,667
(1) Assumes no policy loan has been made. Guaranteed cost of insurance rates assumed. Maximum mortality and expense risk charges, administrative charges, and premium load assumed. If premiums are paid more frequently than annually, the death benefits, total account values, and cash surrender values would be less than those illustrated. The investment results are illustrative only and should not be considered a representation of past or future investments results. Actual investment results may be more or less than those shown and will depend on a number of factors including the policy owner's allocations, and the Fund's rate of return. Actual values could be substantially less than those shown, and may, under certain circumstances, result in the lapse of the Policy unless more premiums are paid. The total account value and cash value for a Policy would be different from those shown in the actual investment rates of return averaged 0%, 6%, and 12% over a period of years, but fluctuated above or below those averages for individual policy years. No representations can be made that these rates of return will definitely be achieved for any one year or sustained over a period of time. 40 AETNAVEST PLUS POLICY TABLE II FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1) MALE ISSUE AGE 45 - UNISEX FOR SPECIAL PLAN POLICIES GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED $4,080.00 ANNUAL BASIC PREMIUM PREFERRED NONSMOKER RISK FACE AMOUNT $500,000 DEATH BENEFIT OPTION 1
PREMIUMS DEATH BENEFIT ACCUMULATED GROSS ANNUAL INVESTMENT TOTAL ACCOUNT VALUE CASH SURRENDER VALUE AT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF POLICY 5% INTEREST ------------------------------------- ------------------------------ ------------------------------ YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- --------- 1 4,284 500,000 500,000 500,000 1,892 2,062 2,232 0 0 0 2 8,782 500,000 500,000 500,000 3,773 4,234 4,717 101 562 1,045 3 13,505 500,000 500,000 500,000 5,481 6,355 7,310 1,809 2,683 3,638 4 18,465 500,000 500,000 500,000 7,009 8,411 10,010 3,337 4,739 6,338 5 23,672 500,000 500,000 500,000 8,342 10,383 12,812 4,670 6,711 9,140 6 29,139 500,000 500,000 500,000 9,475 12,258 15,717 6,140 8,923 12,382 7 34,880 500,000 500,000 500,000 10,377 13,999 18,704 7,409 11,031 15,736 8 40,908 500,000 500,000 500,000 11,020 15,566 21,749 8,419 12,965 19,148 9 47,238 500,000 500,000 500,000 11,379 16,923 24,830 9,145 14,689 22,596 10 53,884 500,000 500,000 500,000 11,415 18,019 27,910 9,548 16,152 26,043 15 92,443 500,000 500,000 500,000 5,695 17,882 42,127 5,664 17,851 42,096 20 141,655 0 500,000 500,000 0 1,196 48,466 0 1,196 48,466 25 204,463 0 0 500,000 0 0 28,221 0 0 28,221 30 284,624 0 0 0 0 0 0 0 0 0 20 (Age 65) 141,655 0 500,000 500,000 0 1,196 48,466 0 1,196 48,466
(1) Assumes no policy loan has been made. Guaranteed cost of insurance rates assumed Maximum mortality and expense risk charges, administrative charges, and premium load assumed. If premiums are paid more frequently than annually, the death benefits, total account values, and cash surrender values would be less than those illustrated. The investment results are illustrative only and should not be considered a representation of past or future investments results. Actual investment results may be more or less than those shown and will depend on a number of factors including the policy owner's allocations, and the Fund's rate of return. Actual values could be substantially less than those shown, and may, under certain circumstances, result in the lapse of the Policy unless more premiums are paid. The total account value and cash value for a Policy would be different from those shown in the actual investment rates of return averaged 0%, 6%, and 12% over a period of years, but fluctuated above or below those averages for individual policy years. No representations can be made that these rates of return will definitely be achieved for any one year or sustained over a period of time. 41 AETNAVEST PLUS POLICY TABLE III FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1) MALE ISSUE AGE 45 - UNISEX FOR SPECIAL PLAN POLICIES CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED $6,720.00 ANNUAL GUARANTEED DEATH BENEFIT PREMIUM TO AGE 80 PREFERRED NONSMOKER RISK FACE AMOUNT $500,000 DEATH BENEFIT OPTION 1
PREMIUMS DEATH BENEFIT ACCUMULATED GROSS ANNUAL INVESTMENT TOTAL ACCOUNT VALUE CASH SURRENDER VALUE AT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF POLICY 5% INTEREST ------------------------------------- ------------------------------ ------------------------------ YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- --------- 1 7,056 500,000 500,000 500,000 4,908 5,249 5,592 1,236 1,577 1,920 2 14,465 500,000 500,000 500,000 9,817 10,813 11,852 6,145 7,141 8,180 3 22,244 500,000 500,000 500,000 14,566 16,540 18,683 10,894 12,868 15,011 4 30,412 500,000 500,000 500,000 19,133 22,413 26,117 15,461 18,741 22,445 5 38,989 500,000 500,000 500,000 23,493 28,410 34,193 19,821 24,738 30,521 6 47,994 500,000 500,000 500,000 27,620 34,511 42,953 24,285 31,176 39,618 7 57,450 500,000 500,000 500,000 31,532 40,735 52,490 28,564 37,767 49,522 8 67,379 500,000 500,000 500,000 35,242 47,101 62,899 32,641 44,500 60,298 9 77,803 500,000 500,000 500,000 38,761 53,628 74,291 36,527 51,394 72,057 10 88,750 500,000 500,000 500,000 42,082 60,314 86,768 40,215 58,447 84,901 15 152,258 500,000 500,000 500,000 56,072 96,853 170,736 56,041 96,822 170,705 20 233,313 500,000 500,000 500,000 63,773 137,946 307,759 63,773 137,846 307,759 25 336,762 500,000 500,000 623,257 62,486 182,965 537,290 62,486 182,965 537,290 30 468,793 500,000 500,000 976,054 45,557 230,664 912,200 45,557 230,664 912,200 20 (Age 65) 233,313 500,000 500,000 500,000 63,773 137,846 307,759 63,773 137,846 307,759
(1) Assumes no policy loan has been made. Current cost of insurance rates assumed. Current mortality and expense risk charges, administrative charges, and premium load assumed. If premiums are paid more frequently than annually, the death benefits, total account values, and cash surrender values would be less than those illustrated. The investment results are illustrative only and should not be considered a representation of past or future investments results. Actual investment results may be more or less than those shown and will depend on a number of factors including the policy owner's allocations, and the Fund's rate of return. Actual values could be substantially less than those shown, and may, under certain circumstances, result in the lapse of the Policy unless more premiums are paid. The total account value and cash value for a Policy would be different from those shown in the actual investment rates of return averaged 0%, 6%, and 12% over a period of years, but fluctuated above or below those averages for individual policy years. No representations can be made that these rates of return will definitely be achieved for any one year or sustained over a period of time. 42 AETNAVEST PLUS POLICY TABLE IV FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1) MALE ISSUE AGE 45 - UNISEX FOR SPECIAL PLAN POLICIES CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED $4,080.00 ANNUAL BASIC PREMIUM PREFERRED NONSMOKER RISK FACE AMOUNT $500,000 DEATH BENEFIT OPTION 1
PREMIUMS DEATH BENEFIT ACCUMULATED GROSS ANNUAL INVESTMENT TOTAL ACCOUNT VALUE CASH SURRENDER VALUE AT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF POLICY 5% INTEREST ------------------------------------- ------------------------------ ------------------------------ YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- --------- 1 4,284 500,000 500,000 500,000 2,397 2,585 2,774 0 0 0 2 8,782 500,000 500,000 500,000 4,830 5,361 5,918 1,158 1,689 2,246 3 13,505 500,000 500,000 500,000 7,137 8,171 9,298 3,465 4,499 5,626 4 18,465 500,000 500,000 500,000 9,293 10,989 12,912 5,621 7,317 9,240 5 23,672 500,000 500,000 500,000 11,271 13,785 16,755 7,599 10,113 13,083 6 29,139 500,000 500,000 500,000 13,044 16,528 20,821 9,709 13,193 17,486 7 34,880 500,000 500,000 500,000 14,626 19,229 25,149 11,658 16,261 22,181 8 40,908 500,000 500,000 500,000 16,028 21,895 29,778 13,427 19,294 27,177 9 47,238 500,000 500,000 500,000 17,262 24,535 34,752 15,028 22,301 32,518 10 53,884 500,000 500,000 500,000 18,318 27,137 40,099 16,451 25,270 38,232 15 92,443 500,000 500,000 500,000 21,221 39,820 74,494 21,190 39,789 74,463 20 141,655 500,000 500,000 500,000 17,881 49,343 125,708 17,881 49,343 125,708 25 204,463 500,000 500,000 500,000 4,924 51,280 204,115 4,924 51,280 204,115 30 284,624 0 500,000 500,000 0 35,390 329,721 0 35,390 329,721 20 (Age 65) 141,655 500,000 500,000 500,000 17,881 49,343 125,708 17,881 49,343 125,708
(1) Assumes no policy loan has been made. Current cost of insurance rates assumed. Current mortality and expense risk charges, administrative charges, and premium load assumed. If premiums are paid more frequently than annually, the death benefits, total account values, and cash surrender values would be less than those illustrated. The investment results are illustrative only and should not be considered a representation of past or future investments results. Actual investment results may be more or less than those shown and will depend on a number of factors including the policy owner's allocations, and the Fund's rate of return. Actual values could be substantially less than those shown, and may, under certain circumstances, result in the lapse of the Policy unless more premiums are paid. The total account value and cash value for a Policy would be different from those shown in the actual investment rates of return averaged 0%, 6%, and 12% over a period of years, but fluctuated above or below those averages for individual policy years. No representations can be made that these rates of return will definitely be achieved for any one year or sustained over a period of time. 43 AETNAVEST PLUS POLICY TABLE V FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1) UNISEX ISSUE AGE 45 GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED $6,360.00 ANNUAL GUARANTEED DEATH BENEFIT PREMIUM TO AGE 80 PREFERRED NONSMOKER RISK FACE AMOUNT $500,000 DEATH BENEFIT OPTION 1
PREMIUMS DEATH BENEFIT ACCUMULATED GROSS ANNUAL INVESTMENT TOTAL ACCOUNT VALUE CASH SURRENDER VALUE AT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF POLICY 5% INTEREST ------------------------------------- ------------------------------ ------------------------------ YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- --------- 1 6,678 500,000 500,000 500,000 4,027 4,327 4,627 517 817 1,117 2 13,690 500,000 500,000 500,000 8,017 8,872 9,765 4,507 5,362 6,255 3 21,052 500,000 500,000 500,000 11,807 13,478 15,295 8,297 9,968 11,785 4 28,783 500,000 500,000 500,000 15,385 18,131 21,241 11,875 14,621 17,731 5 36,900 500,000 500,000 500,000 18,751 22,831 27,645 15,241 19,321 24,135 6 45,423 500,000 500,000 500,000 21,897 27,568 34,543 18,709 24,380 31,355 7 54,372 500,000 500,000 500,000 24,795 32,314 41,958 21,958 29,479 39,121 8 63,769 500,000 500,000 500,000 27,430 37,049 49,929 24,944 34,563 47,443 9 73,635 500,000 500,000 500,000 29,774 41,747 58,488 27,639 39,612 56,353 10 83,995 500,000 500,000 500,000 31,798 46,372 67,672 30,014 44,588 65,888 15 144,102 500,000 500,000 500,000 36,466 67,599 125,184 36,437 67,570 125,155 20 220,814 500,000 500,000 500,000 28,590 81,704 210,143 28,590 81,704 210,143 25 318,722 500,000 500,000 500,000 0 77,632 342,572 0 77,632 342,572 30 443,679 500,000 500,000 610,767 0 32,479 570,811 0 32,479 570,811 20 (Age 65) 220,814 500,000 500,000 500,000 28,590 81,704 210,143 28,590 81,704 210,143
(1) Assumes no policy loan has been made. Guaranteed cost of insurance rates assumed. Maximum mortality and expense risk charges, administrative charges, and premium load assumed. If premiums are paid more frequently than annually, the death benefits, total account values, and cash surrender values would be less than those illustrated. The investment results are illustrative only and should not be considered a representation of past or future investments results. Actual investment results may be more or less than those shown and will depend on a number of factors including the policy owner's allocations, and the Fund's rate of return. Actual values could be substantially less than those shown, and may, under certain circumstances, result in the lapse of the Policy unless more premiums are paid. The total account value and cash value for a Policy would be different from those shown in the actual investment rates of return averaged 0%, 6%, and 12% over a period of years, but fluctuated above or below those averages for individual policy years. No representations can be made that these rates of return will definitely be achieved for any one year or sustained over a period of time. 44 AETNAVEST PLUS POLICY TABLE VI FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1) UNISEX ISSUE AGE 45 GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED $3,900.00 ANNUAL BASIC PREMIUM PREFERRED NONSMOKER RISK FACE AMOUNT $500,000 DEATH BENEFIT OPTION 1
PREMIUMS DEATH BENEFIT ACCUMULATED GROSS ANNUAL INVESTMENT TOTAL ACCOUNT VALUE CASH SURRENDER VALUE AT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF POLICY 5% INTEREST ------------------------------------- ------------------------------ ------------------------------ YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- --------- 1 4,095 500,000 500,000 500,000 1,755 1,916 2,077 0 0 0 2 8,395 500,000 500,000 500,000 3,512 3,946 4,401 2 436 891 3 12,909 500,000 500,000 500,000 5,107 5,927 6,826 1,597 2,417 3,316 4 17,650 500,000 500,000 500,000 6,523 7,840 9,341 3,013 4,330 5,831 5 22,627 500,000 500,000 500,000 7,761 9,675 11,953 4,251 6,125 8,443 6 27,854 500,000 500,000 500,000 8,809 11,417 14,659 5,621 8,229 11,471 7 33,342 500,000 500,000 500,000 9,637 13,027 17,433 6,800 10,190 14,596 8 39,104 500,000 500,000 500,000 10,225 14,476 20,262 7,739 11,990 17,776 9 45,154 500,000 500,000 500,000 10,545 15,725 23,118 8,410 13,590 20,983 10 51,506 500,000 500,000 500,000 10,560 16,726 25,968 8,776 14,942 24,184 15 88,364 500,000 500,000 500,000 5,287 16,619 39,189 5,258 16,590 39,160 20 135,405 0 500,000 500,000 0 1,636 45,487 0 1,636 45,487 25 195,442 0 0 500,000 0 0 27,786 0 0 27,786 30 272,067 0 0 0 0 0 0 0 0 0 20 (Age 65) 135,405 0 500,000 500,000 0 1,636 45,487 0 1,636 45,487
(1) Assumes no policy loan has been made. Guaranteed cost of insurance rates assumed. Maximum mortality and expense risk charges, administrative charges, and premium load assumed. If premiums are paid more frequently than annually, the death benefits, total account values, and cash surrender values would be less than those illustrated. The investment results are illustrative only and should not be considered a representation of past or future investments results. Actual investment results may be more or less than those shown and will depend on a number of factors including the policy owner's allocations, and the Fund's rate of return. Actual values could be substantially less than those shown, and may, under certain circumstances, result in the lapse of the Policy unless more premiums are paid. The total account value and cash value for a Policy would be different from those shown in the actual investment rates of return averaged 0%, 6%, and 12% over a period of years, but fluctuated above or below those averages for individual policy years. No representations can be made that these rates of return will definitely be achieved for any one year or sustained over a period of time. 45 AETNAVEST PLUS POLICY TABLE VII FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1) UNISEX ISSUE AGE 45 CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED $3,900.00 ANNUAL GUARANTEED DEATH BENEFIT PREMIUM TO AGE 80 PREFERRED NONSMOKER RISK FACE AMOUNT $500,000 DEATH BENEFIT OPTION 1
PREMIUMS DEATH BENEFIT ACCUMULATED GROSS ANNUAL INVESTMENT TOTAL ACCOUNT VALUE CASH SURRENDER VALUE AT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF POLICY 5% INTEREST ------------------------------------- ------------------------------ ------------------------------ YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- --------- 1 6,678 500,000 500,000 500,000 4,595 4,917 5,239 1,085 1,407 1,729 2 13,690 500,000 500,000 500,000 9,197 10,134 11,112 5,687 6,624 7,602 3 21,052 500,000 500,000 500,000 13,657 15,512 17,525 10,147 12,002 14,015 4 28,783 500,000 500,000 500,000 17,950 21,030 24,510 14,440 17,520 21,000 5 36,900 500,000 500,000 500,000 22,060 26,679 32,111 18,550 23,169 28,601 6 45,423 500,000 500,000 500,000 25,960 32,433 40,364 22,772 29,245 37,176 7 54,372 500,000 500,000 500,000 29,669 38,116 49,358 26,832 35,478 46,521 8 63,769 500,000 500,000 500,000 33,192 44,337 59,179 30,706 41,851 56,693 9 73,635 500,000 500,000 500,000 36,547 50,520 69,936 34,412 48,385 67,801 10 83,995 500,000 500,000 500,000 39,724 56,864 81,723 37,940 55,080 79,939 15 144,102 500,000 500,000 500,000 53,186 91,561 160,988 53,157 91,532 160,959 20 220,814 500,000 500,000 500,000 60,833 130,533 289,984 60,833 130,533 289,984 25 318,722 500,000 500,000 586,508 59,804 173,035 505,610 59,804 173,035 505,610 30 443,679 500,000 500,000 919,322 44,010 217,283 859,180 44,010 217,283 859,180 20 (Age 65) 220,814 500,000 500,000 500,000 60,833 130,533 289,984 60,833 130,533 289,984
(1) Assumes no policy loan has been made. Current cost of insurance rates assumed. Current mortality and expense risk charges, administrative charges, and premium load assumed. If premiums are paid more frequently than annually, the death benefits, total account values, and cash surrender values would be less than those illustrated. The investment results are illustrative only and should not be considered a representation of past or future investments results. Actual investment results may be more or less than those shown and will depend on a number of factors including the policy owner's allocations, and the Fund's rate of return. Actual values could be substantially less than those shown, and may, under certain circumstances, result in the lapse of the Policy unless more premiums are paid. The total account value and cash value for a Policy would be different from those shown in the actual investment rates of return averaged 0%, 6%, and 12% over a period of years, but fluctuated above or below those averages for individual policy years. No representations can be made that these rates of return will definitely be achieved for any one year or sustained over a period of time. 46 AETNAVEST PLUS POLICY TABLE VIII FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1) UNISEX ISSUE AGE 45 CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED $3,900.00 ANNUAL BASIC PREMIUM PREFERRED NONSMOKER RISK FACE AMOUNT $500,000 DEATH BENEFIT OPTION 1
PREMIUMS DEATH BENEFIT ACCUMULATED GROSS ANNUAL INVESTMENT TOTAL ACCOUNT VALUE CASH SURRENDER VALUE AT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF POLICY 5% INTEREST ------------------------------------- ------------------------------ ------------------------------ YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- --------- 1 4,095 500,000 500,000 500,000 2,256 2,434 2,614 0 0 0 2 8,395 500,000 500,000 500,000 4,551 5,055 5,582 1,041 1,545 2,072 3 12,909 500,000 500,000 500,000 6,735 7,715 8,782 3,225 4,205 5,272 4 17,650 500,000 500,000 500,000 8,782 10,388 12,209 5,272 6,878 8,699 5 22,627 500,000 500,000 500,000 10,676 13,056 15,868 7,166 9,546 12,358 6 27,854 500,000 500,000 500,000 12,384 15,685 19,751 9,196 12,497 16,563 7 33,342 500,000 500,000 500,000 13,926 18,289 23,900 11,089 15,452 21,063 8 39,104 500,000 500,000 500,000 15,304 20,870 28,346 12,818 18,384 25,860 9 45,154 500,000 500,000 500,000 16,535 23,443 33,138 14,401 21,308 31,003 10 51,506 500,000 500,000 500,000 17,610 25,994 38,302 15,826 24,210 36,518 15 88,364 500,000 500,000 500,000 20,807 38,589 71,619 20,778 38,560 71,590 20 135,405 500,000 500,000 500,000 18,298 48,560 121,458 18,298 48,560 121,458 25 195,442 500,000 500,000 500,000 6,608 51,502 197,511 6,608 51,502 197,511 30 272,067 0 500,000 500,000 0 38,076 318,683 0 38,076 318,683 20 (Age 65 ) 135,405 500,000 500,000 500,000 18,298 48,560 121,458 18,298 48,560 121,458
(1) Assumes no policy loan has been made. Current cost of insurance rates assumed. Current mortality and expense risk charges, administrative charges, and premium load assumed. If premiums are paid more frequently than annually, the death benefits, total account values, and cash surrender values would be less than those illustrated. The investment results are illustrative only and should not be considered a representation of past or future investments results. Actual investment results may be more or less than those shown and will depend on a number of factors including the policy owner's allocations, and the Fund's rate of return. Actual values could be substantially less than those shown, and may, under certain circumstances, result in the lapse of the Policy unless more premiums are paid. The total account value and cash value for a Policy would be different from those shown in the actual investment rates of return averaged 0%, 6%, and 12% over a period of years, but fluctuated above or below those averages for individual policy years. No representations can be made that these rates of return will definitely be achieved for any one year or sustained over a period of time. 47 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY B-1 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2002
Contract Purchases Mortality & Expense Charges Due From ING Payable To ING Investments Life Insurance and Life Insurance and Subaccount Annuity Company Total Assets Annuity Company ------------------------------------------------------------------------------------------------------------------------------------ Fidelity VIP Asset Manager $ 900,602 $ -- $ 900,602 $ 25 Fidelity VIP Contrafund 17,591,675 -- 17,591,675 453 Fidelity VIP Equity-Income 22,847,931 56,313 22,904,244 598 Fidelity VIP Growth 8,076,509 -- 8,076,509 221 Fidelity VIP High Income 331,272 -- 331,272 9 Fidelity VIP Overseas 1,365,147 -- 1,365,147 37 ING Partners JPMorgan Fleming International 15,796,836 2,564 15,799,400 421 ING Partners MFS Capital Opportunities 1,517,952 30,104 1,548,056 38 ING Partners MFS Research 6,799,025 -- 6,799,025 181 ING Partners Salomon Brothers Aggressive Growth 9,869,689 2,143 9,871,832 265 ING Partners T. Rowe Price Growth Equity 2,455,592 -- 2,455,592 59 ING VP Balanced 18,220,166 434 18,220,600 488 ING VP Bond 17,035,173 70,760 17,105,933 453 ING VP Growth and Income 75,159,289 61,452 75,220,741 2,004 ING VP Growth 7,238 -- 7,238 -- ING VP Index Plus Large Cap 12,165,779 -- 12,165,779 306 ING VP Money Market 44,606,536 -- 44,606,536 1,188 ING VP Small Company 434,740 -- 434,740 12 ING VP Strategic Allocation Balanced 1,083,619 -- 1,083,619 28 ING VP Strategic Allocation Growth 2,705,050 205 2,705,255 71 ING VP Strategic Allocation Income 1,375,657 -- 1,375,657 34 ING VP Value Opportunity 436,048 -- 436,048 12 Janus Aspen Series Aggressive Growth 13,898,140 -- 13,898,140 366 Janus Aspen Series Balanced 17,339,072 -- 17,339,072 445 Janus Aspen Series Flexible Income 992,181 -- 992,181 27 Janus Aspen Series Growth 13,960,371 302 13,960,673 363 Janus Aspen Series Worldwide Growth 26,073,642 1,236,378 27,310,020 684 MFS VIT Strategic Income 332,628 -- 332,628 9 MFS VIT Total Return 235,948 -- 235,948 6 Oppenheimer Aggressive Growth 452,874 -- 452,874 12 Oppenheimer Global Securities 2,326,207 -- 2,326,207 61 Oppenheimer Strategic Bond 2,050,337 58,964 2,109,301 49
Contract Redemptions Due To ING Life Insurance and Subaccount Annuity Company Net Assets ----------------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Asset Manager $ -- $ 900,577 Fidelity VIP Contrafund 4,014 17,587,208 Fidelity VIP Equity-Income -- 22,903,646 Fidelity VIP Growth -- 8,076,288 Fidelity VIP High Income -- 331,263 Fidelity VIP Overseas -- 1,365,110 ING Partners JPMorgan Fleming International -- 15,798,979 ING Partners MFS Capital Opportunities -- 1,548,018 ING Partners MFS Research 236 6,798,608 ING Partners Salomon Brothers Aggressive Growth -- 9,871,567 ING Partners T. Rowe Price Growth Equity -- 2,455,533 ING VP Balanced -- 18,220,112 ING VP Bond -- 17,105,480 ING VP Growth and Income -- 75,218,737 ING VP Growth -- 7,238 ING VP Index Plus Large Cap 2,773 12,162,700 ING VP Money Market 1,515,242 43,090,106 ING VP Small Company -- 434,728 ING VP Strategic Allocation Balanced -- 1,083,591 ING VP Strategic Allocation Growth -- 2,705,184 ING VP Strategic Allocation Income -- 1,375,623 ING VP Value Opportunity -- 436,036 Janus Aspen Series Aggressive Growth 12,952 13,884,822 Janus Aspen Series Balanced 11,706 17,326,921 Janus Aspen Series Flexible Income -- 992,154 Janus Aspen Series Growth -- 13,960,310 Janus Aspen Series Worldwide Growth -- 27,309,336 MFS VIT Strategic Income -- 332,619 MFS VIT Total Return -- 235,942 Oppenheimer Aggressive Growth -- 452,862 Oppenheimer Global Securities 5,809 2,320,337 Oppenheimer Strategic Bond -- 2,109,252
See accompanying notes. B-2 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2002
Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP Asset Manager Contrafund Equity-Income Growth Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2002 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $19,358 $ 162,299 $ 440,000 $ 23,616 o Mortality and expense guarantees (8,326) (191,779) (249,172) (95,133) ------- ---------- ----------- ----------- NET INVESTMENT INCOME (LOSS) 11,032 (29,480) 190,828 (71,517) NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments (74,631) (1,153,418) (2,861,029) (354,580) o Dividends from net realized gain on investments -- -- 598,890 -- --------------------------------------------------------------- ------- ---------- ----------- ----------- NET REALIZED GAIN (LOSS) ON INVESTMENTS (74,631) (1,153,418) (2,262,139) (354,580) NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS (28,045) (1,084,546) (2,977,718) (3,134,215) --------------------------------------------------------------- ------- ---------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(91,64) $(2,267,44) $(5,049,029) $(3,560,312) =============================================================== ======= ========== =========== ===========
ING Partners ING JPMorgan Partners Fidelity VIP Fidelity VIP Fleming MFS Capital High Income Overseas International Opportunities Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2002 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $ 37,844 $ 14,798 $ 88,170 $ -- o Mortality and expense guarantees (3,387) (17,538) (124,958) (18,641) -------- --------- --------- --------- NET INVESTMENT INCOME (LOSS) 34,457 (2,740) (36,788) (18,641) NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments (77,455) (177,523) 507,779 (1,383,47) o Dividends from net realized gain on investments -- -- -- -- --------------------------------------------------------------- -------- --------- --------- --------- NET REALIZED GAIN (LOSS) ON INVESTMENTS (77,455) (177,523) 507,779 (1,383,47) NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS 50,008 (220,942) (114,636) 646,777 --------------------------------------------------------------- -------- --------- --------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 7,010 $(401,205) $ 356,355 $(755,337) =============================================================== ======== ========= ========= ========= ING Partners Salomon Brothers ING Partners ING Partners Aggressive T. Rowe Price ING VP MFS Research Growth Growth Equity Balanced Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2002 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $ 16,620 $ -- $ 5,394 $ 203,419 o Mortality and expense guarantees (89,394) (131,493) (23,443) (194,872) ----------- ----------- --------- ----------- NET INVESTMENT INCOME (LOSS) (72,774) (131,493) (18,049) 8,547 NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments (1,703,346) (2,271,385) (871,197) (1,398,805) o Dividends from net realized gain on investments -- -- -- -- --------------------------------------------------------------- ----------- ----------- --------- ----------- NET REALIZED GAIN (LOSS) ON INVESTMENTS (1,703,346) (2,271,385) (871,197) (1,398,805) NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS (816,204) (3,807,990) 151,647 (973,532) --------------------------------------------------------------- ----------- ----------- --------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(2,592,324) $(6,210,868) $(737,599) $(2,363,790) =============================================================== =========== =========== ========= ===========
ING VP ING VP Growth ING VP Index Plus ING VP Bond and Income Growth Large Cap Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2002 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $ 514,943 $ 817,474 $ -- $ 31,605 o Mortality and expense guarantees (173,969) (892,326) (91) (124,059) ---------- ----------- ------- ----------- NET INVESTMENT INCOME (LOSS) 340,974 (74,852) (91) (92,454) NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments 93,930 (12,518,151) (785) (3,846,171) o Dividends from net realized gain on investments 75,937 -- -- -- --------------------------------------------------------------- ---------- ----------- ------- ----------- NET REALIZED GAIN (LOSS) ON INVESTMENTS 169,867 (12,518,151) (785) (3,846,171) NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS 666,764 (14,239,360) (2,399) 615,215 --------------------------------------------------------------- ---------- ----------- ------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $1,177,605 $(26,832,363) $(3,275) $(3,323,410) =============================================================== ========== =========== ======= ===========
See accompanying notes. B-3 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY STATEMENTS OF OPERATIONS (CONTINUED) YEAR ENDED DECEMBER 31, 2002
ING VP ING VP ING VP ING VP ING VP Strategic Strategic Strategic Money Small Allocation Allocation Allocation Market Company Balanced Growth Income Subaccount Subaccount Subaccount Subaccount Subaccount -------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2002 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $1,638,964 $ 2,278 $ 29,375 $ 50,673 $ 47,196 o Mortality and expense guarantees (459,238) (4,943) (11,289) (27,409) (13,428) ---------- --------- -------- --------- -------- NET INVESTMENT INCOME (LOSS) 1,179,726 (2,665) 18,086 23,264 33,768 NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments (842,824) (14,184) (28,106) (135,372) (28,467) o Dividends from net realized gain on investments -- -- -- -- -- ----------------------------------------------------------------- ---------- --------- -------- --------- -------- NET REALIZED GAIN (LOSS) ON INVESTMENTS (842,824) (14,184) (28,106) (135,372) (28,467) NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS (38,736) (120,698) (116,247) (348,866) (80,240) ----------------------------------------------------------------- ---------- --------- --------- --------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 298,166 $(137,547) $(126,267) $(460,974) $(74,939) ================================================================= ========== ========= ========= ========= ======== Janus Aspen Janus ING VP Series Aspen Value Aggressive Series Opportunity Growth Balanced Subaccount Subaccount Subaccount -------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2002 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $ 2,191 $ -- $ 464,217 o Mortality and expense guarantees (5,012) (163,267) (184,603) --------- ----------- ----------- NET INVESTMENT INCOME (LOSS) (2,821) (163,267) 279,614 NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments (22,966) (5,702,815) (722,141) o Dividends from net realized gain on investments -- -- -- ----------------------------------------------------------------- --------- ----------- ---------- NET REALIZED GAIN (LOSS) ON INVESTMENTS (22,966) (5,702,815) (722,141) NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS (132,564) (408,145) (1,084,375) ----------------------------------------------------------------- --------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(158,351) $(6,274,227) $(1,526,902) ================================================================= ========= =========== ===========
Janus Aspen Janus Janus Aspen Series Aspen Series MFS VIT MFS VIT Oppenheimer Flexible Series Worldwide Strategic Total Aggressive Income Growth Growth Income Return Growth Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2002 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $44,281 $ -- $ 300,409 $ 7,641 $ 2,838 $ 2,614 o Mortality and expense guarantees (9,593) (169,939) (327,678) (2,527) (1,943) (4,677) ------- ----------- ----------- ------- -------- --------- NET INVESTMENT INCOME (LOSS) 34,688 (169,939) (27,269) 5,114 895 (2,063) NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments 11,166 (9,896,639) (7,237,585) 210 (1,789) (155,918) o Dividends from net realized gain on investments -- -- -- -- 2,250 -- -------------------------------------------- ------- ----------- ----------- ------- -------- --------- NET REALIZED GAIN (LOSS) ON INVESTMENTS 11,166 (9,896,639) (7,237,585) 210 461 (155,918) NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS 41,578 4,340,701 (2,632,872) 14,358 (14,928) (5,546) -------------------------------------------- ------- ----------- ----------- ------- -------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $87,432 $(5,725,877) $(9,897,726) $19,682 $(13,572) $(163,527) ============================================ ======= =========== =========== ======= ======== ========= Oppenheimer Oppenheimer Main Street Oppenheimer Global Growth & Strategic Securities Income Bond Subaccount Subaccount Subaccount ------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, 2002 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $ 11,261 $ 12 $135,809 o Mortality and expense guarantees (22,733) (13) (15,533) --------- ------- -------- NET INVESTMENT INCOME (LOSS) (11,472) (1) 120,276 NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments (295,368) 1,539 (54,296) o Dividends from net realized gain on investments -- -- -- -------------------------------------------- --------- ------- -------- NET REALIZED GAIN (LOSS) ON INVESTMENTS (295,368) 1,539 (54,296) NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS (359,229) (1,855) 54,287 -------------------------------------------- --------- ------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(666,069) $ (317) $120,267 ============================================ ========= ======= ========
See accompanying notes. B-4 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY STATEMENTS OF OPERATIONS (CONTINUED) YEAR ENDED DECEMBER 31, 2001
Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP Asset Manager Contrafund Equity-Income Growth High Income Subaccount Subaccount Subaccount Subaccount Subaccount ---------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2001 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $ 25,465 $ 165,335 $ 506,956 $ 9,309 $ 57,445 o Mortality and expense guarantees (7,160) (194,619) (292,530) (122,889) (4,511) -------- ----------- ----------- ----------- -------- NET INVESTMENT INCOME (LOSS) 18,305 (29,284) 214,426 (113,580) 52,934 NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments (22,684) (5,591,613) (2,931,437) (338,160) (50,859) o Dividends from net realized gain on investments 9,549 583,534 1,424,304 875,026 -- ------------------------------------------------------- -------- ----------- ----------- ----------- -------- NET REALIZED GAIN (LOSS) ON INVESTMENTS (13,135) (5,008,079) (1,507,133) 536,866 (50,859) NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS (32,933) 2,147,032 (765,927) (3,018,863) (62,291) ------------------------------------------------------- -------- ----------- ----------- ----------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(27,763) $(2,890,331) $(2,058,634) $(2,595,577) $(60,216) ======================================================= ======== =========== =========== =========== ======== ING Partners ING JPMorgan Partners Fidelity VIP Fleming MFS Capital Overseas International Opportunities Subaccount Subaccount Subaccount ----------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2001 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $ 137,978 $ 53,100 $ -- o Mortality and expense guarantees (25,413) (158,821) (26,829) --------- ----------- --------- NET INVESTMENT INCOME (LOSS) 112,565 (105,721) (26,829) NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments (55,540) (7,842,793) (670,987) o Dividends from net realized gain on investments 218,093 4,261,277 568,104 ------------------------------------------------------- --------- ----------- --------- NET REALIZED GAIN (LOSS) ON INVESTMENTS 162,553 (3,581,516) (102,883) NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS (926,096) (173,988) (795,911) ------------------------------------------------------- --------- ----------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(650,978) $(3,861,224) $(925,623) ======================================================= ========= =========== ========= ING Partners Salomon Brothers ING Partners ING Partners Aggressive T. Rowe Price ING VP MFS Research Growth Growth Equity Balanced ING VP Bond Subaccount Subaccount Subaccount Subaccount Subaccount -------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2001 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $ -- $ -- $ 4,182 $ 493,909 $ 969,828 o Mortality and expense guarantees (133,359) (205,819) (26,026) (224,391) (192,921) ----------- ------------ --------- ----------- ---------- NET INVESTMENT INCOME (LOSS) (133,359) (205,819) (21,844) 269,518 776,907 NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments (7,322,499) (16,031,090) (185,669) (1,266,173) (54,657) o Dividends from net realized gain on investments 2,945,061 1,411,570 497,464 886,429 167,787 ------------------------------------------------------- ----------- ------------ --------- ----------- ---------- NET REALIZED GAIN (LOSS) ON INVESTMENTS (4,377,438) (14,619,520) 311,795 (379,744) 113,130 NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS 969,929 8,673,510 (658,158) (1,207,552) 552,396 ------------------------------------------------------- ----------- ------------ --------- ----------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(3,540,868) $ (6,151,830) $(368,207) $(1,317,778) $1,442,432 ======================================================= =========== ============ ========= =========== ========== ING VP ING VP Growth ING VP Index Plus and Income Growth Large Cap Subaccount Subaccount Subaccount ------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2001 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $ 786,966 $ 9 $ 139,208 o Mortality and expense guarantees (1,175,592 (136) (140,517) ------------ ------- ----------- NET INVESTMENT INCOME (LOSS) (388,626) (127) (1,309) NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments (9,860,073) (8,767) (5,185,170) o Dividends from net realized gain on investments 1,739 1,648 491,914 ------------------------------------------------------- ------------ ------- ----------- NET REALIZED GAIN (LOSS) ON INVESTMENTS (9,858,334) (7,119) (4,693,256) NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS (17,048,211) (235) 2,368,783 ------------------------------------------------------- ------------ ------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(27,295,171) $(7,481) $(2,325,782) ======================================================= ============ ======== ===========
See accompanying notes. B-5 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY STATEMENTS OF OPERATIONS (CONTINUED) YEAR ENDED DECEMBER 31, 2001
ING VP ING VP ING VP ING VP ING VP Strategic Strategic Strategic Money Small Allocation Allocation Allocation Market Company Balanced Growth Income Subaccount Subaccount Subaccount Subaccount Subaccount ---------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2001 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $2,286,790 $ 2,129 $ 35,454 $ 50,470 $ 57,298 o Mortality and expense guarantees (407,332) (3,269) (12,811) (28,869) (13,679) ---------- ------- --------- --------- --------- NET INVESTMENT INCOME (LOSS) 1,879,458 (1,140) 22,643 21,601 43,619 NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments (608,681) 72,118 (5,860) (38,220) (8,480) o Dividends from net realized gain on investments -- 10,419 -- -- 11,542 -------------------------------------------------------------- ---------- ------- --------- --------- --------- NET REALIZED GAIN (LOSS) ON INVESTMENTS (608,681) 82,537 (5,860) (38,220) 3,062 NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS (62,866) (65,203) (128,024) (395,025) (101,236) -------------------------------------------------------------- ---------- ------- --------- --------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $1,207,911 $16,195 $(111,241) $(411,644) $ (54,555) ============================================================== ========== ======= ========= ========= ========= Janus Aspen Janus ING VP Series Aspen Value Aggressive Series Opportunity Growth Balanced Subaccount Subaccount Subaccount ---------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2001 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $ 1,848 $ -- $ 538,630 o Mortality and expense guarantees (4,623) (255,808) (192,338) -------- ------------ ----------- NET INVESTMENT INCOME (LOSS) (2,775) (255,808) 346,292 NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments (3,707) (20,932,980) 500,361 o Dividends from net realized gain on investments 26,087 -- -- -------------------------------------------------------------- -------- ------------ ----------- NET REALIZED GAIN (LOSS) ON INVESTMENTS 22,380 (20,932,980) 500,361 NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS (83,335) 6,579,267 (1,973,991) -------------------------------------------------------------- -------- ------------ ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(63,730) $(14,609,520) $(1,127,338) ============================================================== ======== ============ ===========
Janus Aspen Janus Aspen Series Janus Aspen Series MFS VIT MFS VIT Oppenheimer Flexible Series Worldwide Strategic Total Aggressive Income Growth Growth Income Return Growth Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2001 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $51,716 $ 16,532 $ 227,122 $ -- $ 873 $ 6,177 o Mortality and expense guarantees (8,038) (237,768) (446,713) (162) (496) (6,053) ------- ----------- ------------ ----- ------- --------- NET INVESTMENT INCOME (LOSS) 43,678 (221,236) (219,591) (162) 377 124 NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments 3,790 (6,707,368) (21,337,791) (1) 14 (104,137) o Dividends from net realized gain on investments -- 48,639 -- 80 1,286 96,381 --------------------------------------------------- ------- ---------- ------------ ----- ------- --------- NET REALIZED GAIN (LOSS) ON INVESTMENTS 3,790 (6,658,729) (21,337,791) 79 1,300 (7,756) NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS 1,201 (533,583) 9,487,584 (786) (2,108) (253,531) --------------------------------------------------- ------- ----------- ------------ ----- ------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $48,668 $(7,413,548) $(12,069,798) $(869) $ (431) $(261,163) =================================================== ======= =========== ============ ===== ======= ========= Oppenheimer Main Oppenheimer Street Oppenheimer Global Growth & Strategic Securities Income Bond Subaccount Subaccount Subaccount ------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2001 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $ 13,886 $ 867 $40,407 o Mortality and expense guarantees (21,476) (798) (14,130) --------- -------- ------- NET INVESTMENT INCOME (LOSS) (7,590) 69 26,277 NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments (634,112) (68,866) (28,766) o Dividends from net realized gain on investments 257,441 -- 58,674 --------------------------------------------------- --------- -------- ------- NET REALIZED GAIN (LOSS) ON INVESTMENTS (376,671) (68,866) 29,908 NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS 117,147 47,590 11,542 --------------------------------------------------- --------- -------- ------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(267,115) $(21,207) $67,728 =================================================== ========= ======== =======
See accompanying notes. B-6 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY STATEMENTS OF OPERATIONS (CONTINUED) YEAR ENDED DECEMBER 31, 2000
Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP Asset Manager Contrafund Equity-Income Growth High Income Subaccount Subaccount Subaccount Subaccount Subaccount ---------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2000 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $ 54,387 $ 100,177 $ 532,994 $ 22,281 $ 61,259 o Mortality and expense guarantees (8,879) (248,336) (272,156) (179,466) (7,746) --------- ----------- ---------- ----------- --------- NET INVESTMENT INCOME (LOSS) 45,508 (148,159) 260,838 (157,185) 53,513 NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments (37,587) 1,788,416 (138,175) 1,942,147 (118,073) o Dividends from net realized gain on investments 128,134 3,636,434 2,008,025 2,216,887 -- ------------------------------------------------------ --------- ----------- ---------- ----------- --------- NET REALIZED GAIN (LOSS) ON INVESTMENTS 90,547 5,424,850 1,869,850 4,159,034 (118,073) NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS (150,800) (7,098,779) (204,255) (5,674,088) (122,203) ------------------------------------------------------ --------- ----------- ---------- ----------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (14,745) $(1,822,088) $1,926,433 $(1,672,239) $(186,763) ====================================================== ========= =========== ========== =========== ========= ING Partners ING Fidelity JPMorgan Partners VIP Fleming MFS Capital Overseas International Opportunities Subaccount Subaccount Subaccount -------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2000 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $ 60,930 $ 106,017 $ -- o Mortality and expense guarantees (36,753) (232,551) (35,643) ---------- ----------- ----------- NET INVESTMENT INCOME (LOSS) 24,177 (126,534) (35,643) NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments 179,529 (2,322,521) 171,773 o Dividends from net realized gain on investments 383,696 1,995,734 552,071 ------------------------------------------------------ ---------- ----------- ----------- NET REALIZED GAIN (LOSS) ON INVESTMENTS 563,225 (326,787) 723,844 NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS (1,372,170) (2,307,772) (1,111,836) ------------------------------------------------------ --------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (784,768) $(2,761,093) $ (423,635) ====================================================== ========== =========== =========== ING Partners ING Partners ING Salomon T. Rowe Partners Brothers Price MFS Aggressive Growth ING VP Research Growth Equity Balanced ING VP Bond Subaccount Subaccount Subaccount Subaccount Subaccount ---------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2000 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $ -- $ -- $ 6,999 $ 777,348 $ 983,072 o Mortality and expense guarantees (163,429) (324,037) (24,553) (259,568) (171,073) ---------- ------------ --------- ----------- ----------- NET INVESTMENT INCOME (LOSS) (163,429) (324,037) (17,554) 517,780 811,999 NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments 2,614,030 3,259,233 178,829 340,777 (343,983) o Dividends from net realized gain on investments 1,236,576 357,259 227,099 2,793,458 -- --------------------------------------------------------- ---------- ------------ --------- ----------- ----------- NET REALIZED GAIN (LOSS) ON INVESTMENTS 3,850,606 3,616,492 405,928 3,134,235 (343,983) NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS (4,534,319) (13,640,957) (454,266) (4,010,122) 983,838 --------------------------------------------------------- ---------- ------------ --------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (847,142) $(10,348,502) $ (65,892) $ (358,107) $1,451,854 ========================================================= ========== ============ ========= =========== ========== ING VP ING VP Growth ING VP Index Plus and Income Growth Large Cap Subaccount Subaccount Subaccount --------------------------------------------------------- ----------------------------------------- YEAR ENDED DECEMBER 31, 2000 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $ 10,914,056 $ 7 $ 140,255 o Mortality and expense guarantees (1,573,702) (292) (184,673) ------------ ------- ----------- NET INVESTMENT INCOME (LOSS) 9,340,354 (285) (44,418) NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments (2,198,685) 5,540 909,168 o Dividends from net realized gain on investments 6,955,889 322 2,137,160 --------------------------------------------------------- ------------ ------- ----------- NET REALIZED GAIN (LOSS) ON INVESTMENTS 4,757,204 5,862 3,046,328 NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS (33,395,142) (6,624) (5,005,196) --------------------------------------------------------- ------------ ------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(19,297,584) $(1,047) $(2,003,286) ========================================================= ============ ======= ===========
See accompanying notes. B-7 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY STATEMENTS OF OPERATIONS (CONTINUED) YEAR ENDED DECEMBER 31, 2000
ING VP ING VP ING VP ING VP Strategic Strategic Money Small Allocation Allocation Market Company Balanced Growth Subaccount Subaccount Subaccount Subaccount --------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2000 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $1,631,888 $ 735 $ 24,405 $ 13,600 o Mortality and expense guarantees (390,772) (8,264) (19,442) (31,515) ---------- ------- -------- -------- NET INVESTMENT INCOME (LOSS) 1,241,116 (7,529) 4,963 (17,915) NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments 874,854 36,900 32,280 7,557 o Dividends from net realized gain on investments -- 48,481 13,737 25,038 --------------------------------------------------------------------- ---------- ------- -------- -------- NET REALIZED GAIN (LOSS) ON INVESTMENTS 874,854 85,381 46,017 32,595 NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS (55,927) (60,685) (59,310) (72,924) --------------------------------------------------------------------- ---------- ------- -------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $2,060,043 $17,167 $ (8,330) $(58,244) ===================================================================== ========== ======= ======== ======== Janus ING VP Aspen Janus Strategic ING VP Series Aspen Allocation Value Aggressive Series Income Opportunity Growth Balanced Subaccount Subaccount Subaccount Subaccount --------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2000 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $10,838 $ 207 $ 3,337,939 $ 1,329,462 o Mortality and expense guarantees (11,331) (1,380) (581,012) (227,375) ------- ------- ------------ ----------- NET INVESTMENT INCOME (LOSS) (493) (1,173) 2,756,927 1,102,087 NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments 3,912 416 (9,274,566) 889,668 o Dividends from net realized gain on investments 14,135 20,931 3,359,551 1,373,996 --------------------------------------------------------------------- ------- ------- ------------ ----------- NET REALIZED GAIN (LOSS) ON INVESTMENTS 18,047 21,347 (5,915,015) 2,263,664 NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS 29,051 (8,085) (18,330,851) (4,160,802) --------------------------------------------------------------------- ------- ------- ------------ ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $46,605 $12,089 $(21,488,939) $ (795,051) ===================================================================== ======= ======= ============= ===========
Janus Aspen Janus Janus Aspen Series Aspen Series MFS VIT MFS VIT Oppenheimer Flexible Series Worldwide Strategic Total Aggressive Income Growth Growth Income Return Growth Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2000 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $29,269 $ 958,311 $ 1,322,827 $ 96 $ 76 $ -- o Mortality and expense guarantees (4,563) (374,413) (664,457) (18) (111) (9,415) ------- ----------- ------------ ---- ------ --------- NET INVESTMENT INCOME (LOSS) 24,706 583,898 658,370 78 (35) (9,415) NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments (770) 4,588,728 11,504,426 -- 1,646 7,978 o Dividends from net realized gain on investments -- 2,249,069 4,331,572 -- 73 32,650 ----------------------------------------------- ------- ----------- ------------- --- ------ --------- NET REALIZED GAIN (LOSS) ON INVESTMENTS (770) 6,837,797 15,835,998 -- 1,719 40,628 NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS 740 (13,684,101) (26,745,996) 2 1,616 (165,890) ----------------------------------------------- ------- ----------- ------------ ---- ------ --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $24,676 $(6,262,406) $(10,251,628) $ 80 $3,300 $(134,677) =============================================== ======= =========== ============ ===== ====== ========= Oppenheimer Main Oppenheimer Street Oppenheimer Global Growth & Strategic Securities Income Bond Subaccount Subaccount Subaccount ----------------------------------------------- -------------------------------------- YEAR ENDED DECEMBER 31, 2000 NET INVESTMENT INCOME (LOSS): o Dividends from investment income $ 2,396 $ 1,650 $112,010 o Mortality and expense guarantees (13,082) (3,481) (12,281) -------- -------- -------- NET INVESTMENT INCOME (LOSS) (10,686) (1,831) 99,729 NET REALIZED GAIN (LOSS) ON INVESTMENTS: o Net realized gain (loss) on investments 22,171 (1,110) (4,978) o Dividends from net realized gain on investments 133,913 21,782 -- ----------------------------------------------- -------- -------- -------- NET REALIZED GAIN (LOSS) ON INVESTMENTS 156,084 20,672 (4,978) NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS (188,420) (54,859) (69,989) ----------------------------------------------- -------- -------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(43,022) $(36,018) $ 24,762 =============================================== ======== ======== ========
See accompanying notes. B-8 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP Asset Manager Contrafund Equity-Income Growth Subaccount Subaccount Subaccount Subaccount --------------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2000 $ 1,733,346 $29,054,986 $31,722,779 $20,360,310 CHANGES FROM OPERATIONS: o Net investment income (loss) 45,508 (148,159) 260,838 (157,185) o Net realized gain (loss) on investments 90,547 5,424,850 1,869,850 4,159,034 o Net change in unrealized appreciation or depreciation on investments (150,800) (7,098,779) (204,255) (5,674,088) ---------------------------------------------------------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (14,745) (1,822,088) 1,926,433 (1,672,239) CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 194,601 3,804,179 4,257,259 915,860 o Participant withdrawals (1,320,080) (7,685,159) (6,844,319) (6,023,651) ---------------------------------------------------------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (1,125,479) (3,880,980) (2,587,060) (5,107,791) ---------------------------------------------------------- ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (1,140,224) (5,703,068) (660,627) (6,780,030) ---------------------------------------------------------- ----------- ----------- ----------- ----------- NET ASSETS AT DECEMBER 31, 2000 593,122 23,351,918 31,062,152 13,580,280 CHANGES FROM OPERATIONS: o Net investment income (loss) 18,305 (29,284) 214,426 (113,580) o Net realized gain (loss) on investments (13,135) (5,008,079) (1,507,133) 536,866 o Net change in unrealized appreciation or depreciation on investments (32,933) 2,147,032 (765,927) (3,018,863) ---------------------------------------------------------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (27,763) (2,890,331) (2,058,634) (2,595,577) CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 232,343 3,726,482 7,759,386 1,427,726 o Participant withdrawals (276,327) (3,853,091) (4,907,458) (1,073,401) ---------------------------------------------------------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (43,984) (126,609) 2,851,928 354,325 ---------------------------------------------------------- ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (71,747) (3,016,940) 793,294 (2,241,252) ---------------------------------------------------------- ----------- ----------- ----------- ----------- NET ASSETS AT DECEMBER 31, 2001 521,375 20,334,978 31,855,446 11,339,028 CHANGES FROM OPERATIONS: o Net investment income (loss) 11,032 (29,480) 190,828 (71,517) o Net realized gain (loss) on investments (74,631) (1,153,418) (2,262,139) (354,580) o Net change in unrealized appreciation or depreciation on investments (28,045) (1,084,546) (2,977,718) (3,134,215) ---------------------------------------------------------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (91,644) (2,267,444) (5,049,029) (3,560,312) CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 512,484 3,208,342 2,215,589 644,820 o Participant withdrawals (41,638) (3,688,668) (6,118,360) (347,248) ---------------------------------------------------------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 470,846 (480,326) (3,902,771) 297,572 ---------------------------------------------------------- ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS 379,202 (2,747,770) (8,951,800) (3,262,740) ---------------------------------------------------------- ----------- ----------- ----------- ----------- NET ASSETS AT DECEMBER 31, 2002 $ 900,577 $17,587,208 $22,903,646 $ 8,076,288 ========================================================== =========== =========== =========== =========== See accompanying notes. ING Partners Fidelity Fidelity JPMorgan ING Partners VIP VIP Fleming MFS Capital High Income Overseas International Opportunities Subaccount Subaccount Subaccount Subaccount --------------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2000 $ 1,078,868 $ 4,536,234 $24,458,534 $ 2,928,730 CHANGES FROM OPERATIONS: o Net investment income (loss) 53,513 24,177 (126,534) (35,643) o Net realized gain (loss) on investments (118,073) 563,225 (326,787) 723,844 o Net change in unrealized appreciation or depreciation on investments (122,203) (1,372,170) (2,307,772) (1,111,836) ---------------------------------------------------------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (186,763) (784,768) (2,761,093) (423,635) CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 127,476 132,302 3,069,692 1,942,136 o Participant withdrawals (539,272) (933,820) (6,135,899) (947,836) ---------------------------------------------------------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (411,796) (801,518) (3,066,207) 994,300 ---------------------------------------------------------- ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (598,559) (1,586,286) (5,827,300) 570,665 ---------------------------------------------------------- ----------- ----------- ----------- ----------- NET ASSETS AT DECEMBER 31, 2000 480,309 2,949,948 18,631,234 3,499,395 CHANGES FROM OPERATIONS: o Net investment income (loss) 52,934 112,565 (105,720) (26,829) o Net realized gain (loss) on investments (50,859) 162,553 (3,581,516) (102,883) o Net change in unrealized appreciation or depreciation on investments (62,291) (926,096) (173,988) (795,911) ---------------------------------------------------------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (60,216) (650,978) (3,861,224) (925,623) CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 501,619 148,934 3,310,328 613,307 o Participant withdrawals (550,694) (380,399) (5,959,510) (383,967) ---------------------------------------------------------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (49,075) (231,465) (2,649,182) 229,340 ---------------------------------------------------------- ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (109,291) (882,443) (6,510,406) (696,283) ---------------------------------------------------------- ----------- ----------- ----------- ----------- NET ASSETS AT DECEMBER 31, 2001 371,018 2,067,505 12,120,828 2,803,112 CHANGES FROM OPERATIONS: o Net investment income (loss) 34,457 (2,740) (36,788) (18,641) o Net realized gain (loss) on investments (77,455) (177,523) 507,779 (1,383,473) o Net change in unrealized appreciation or depreciation on investments 50,008 (220,942) (114,636) 646,777 ---------------------------------------------------------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 7,010 (401,205) 356,355 (755,337) CHANGE FROM UNIT TRANSACTIONS: o Participant purchases (10) (9) 5,572,310 401,290 o Participant withdrawals (46,755) (301,181) (2,250,514) (901,047) ---------------------------------------------------------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (46,765) (301,190) 3,321,796 (499,757) ---------------------------------------------------------- ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (39,755) (702,395) 3,678,151 (1,255,094) ---------------------------------------------------------- ----------- ----------- ----------- ----------- NET ASSETS AT DECEMBER 31, 2002 $ 331,263 $ 1,365,110 $15,798,979 $ 1,548,018 ========================================================== =========== =========== =========== ===========
See accompanying notes. B-9 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
ING Partners Salomon Brothers ING Partners ING Partners Aggressive T. Rowe Price ING VP MFS Research Growth Growth Equity Balanced Subaccount Subaccount Subaccount Subaccount -------------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2000 $15,901,444 $ 34,741,713 $2,405,261 $28,661,711 CHANGES FROM OPERATIONS: o Net investment income (loss) (163,429) (324,037) (17,554) 517,780 o Net realized gain (loss) on investments 3,850,606 3,616,492 405,928 3,134,235 o Net change in unrealized appreciation or depreciation on investments (4,534,319) (13,640,957) (454,266) (4,010,122) ---------------------------------------------------------- ----------- ------------ ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (847,142) (10,348,502) (65,892) (358,107) CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 3,310,835 5,188,520 1,056,511 4,709,599 o Participant withdrawals (2,038,319) (3,999,996) (352,167) (8,133,255) ---------------------------------------------------------- ----------- ------------ ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 1,272,516 1,188,524 704,344 (3,423,656) ---------------------------------------------------------- ----------- ------------ ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS 425,374 (9,159,978) 638,452 (3,781,763) ---------------------------------------------------------- ----------- ------------ ----------- ----------- NET ASSETS AT DECEMBER 31, 2000 16,326,818 25,581,735 3,043,713 24,879,948 CHANGES FROM OPERATIONS: o Net investment income (loss) (133,359) (205,820) (21,844) 269,518 o Net realized gain (loss) on investments (4,377,438) (14,619,520) 311,795 (379,744) o Net change in unrealized appreciation or depreciation on investments 969,929 8,673,510 (658,158) (1,207,552) ---------------------------------------------------------- ----------- ------------ ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (3,540,868) (6,151,830) (368,207) (1,317,778) CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 2,544,191 3,707,482 571,556 3,987,883 o Participant withdrawals (2,620,810) (4,172,546) (319,363) (5,494,195) ---------------------------------------------------------- ----------- ------------ ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (76,619) (465,064) 252,193 (1,506,312) ---------------------------------------------------------- ----------- ------------ ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (3,617,487) (6,616,894) (116,014) (2,824,090) ---------------------------------------------------------- ----------- ------------ ----------- ----------- NET ASSETS AT DECEMBER 31, 2001 12,709,331 18,964,841 2,927,699 22,055,858 CHANGES FROM OPERATIONS: o Net investment income (loss) (72,774) (131,493) (18,049) 8,547 o Net realized gain (loss) on investments (1,703,346) (2,271,385) (871,197) (1,398,805) o Net change in unrealized appreciation or depreciation on investments (816,204) (3,807,990) 151,647 (973,532) ---------------------------------------------------------- ----------- ------------ ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (2,592,324) (6,210,868) (737,599) (2,363,790) CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 1,403,406 2,169,052 712,741 3,353,224 o Participant withdrawals (4,721,805) (5,051,458) (447,308) (4,825,180) ---------------------------------------------------------- ----------- ------------ ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (3,318,399) (2,882,406) 265,433 (1,471,956) ---------------------------------------------------------- ----------- ------------ ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (5,910,723) (9,093,274) (472,166) (3,835,746) ---------------------------------------------------------- ----------- ------------ ----------- ----------- NET ASSETS AT DECEMBER 31, 2002 $ 6,798,608 $ 9,871,567 $2,455,533 $18,220,112 ========================================================== =========== ============ =========== =========== See accompanying notes. ING VP ING VP ING VP Growth ING VP Index Plus Bond and Income Growth Large Cap Subaccount Subaccount Subaccount Subaccount -------------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2000 $19,297,688 $172,252,616 $ 58,067 $20,548,071 CHANGES FROM OPERATIONS: o Net investment income (loss) 811,999 9,340,354 (285) (44,418) o Net realized gain (loss) on investments (343,983) 4,757,204 5,862 3,046,328 o Net change in unrealized appreciation or depreciation on investments 983,838 (33,395,142) (6,624) (5,005,196) ---------------------------------------------------------- ----------- ------------ -------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,451,854 (19,297,584) (1,047) (2,003,286) CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 3,884,128 15,635,030 517 3,864,513 o Participant withdrawals (5,359,192) (25,040,709) (41,681) (4,794,597) ---------------------------------------------------------- ----------- ------------ -------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (1,475,064) (9,405,679) (41,164) (930,084) ---------------------------------------------------------- ----------- ------------ -------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (23,210) (28,703,263) (42,211) (2,933,370) ---------------------------------------------------------- ----------- ------------ -------- ----------- NET ASSETS AT DECEMBER 31, 2000 19,274,478 143,549,353 15,856 17,614,701 CHANGES FROM OPERATIONS: o Net investment income (loss) 776,906 (388,626) (127) (1,309) o Net realized gain (loss) on investments 113,130 (9,858,334) (7,119) (4,693,256) o Net change in unrealized appreciation or depreciation on investments 552,396 (17,048,211) (235) 2,368,783 ---------------------------------------------------------- ----------- ------------ -------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,442,432 (27,295,171) (7,481) (2,325,782) CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 3,645,057 12,712,908 42,349 2,368,645 o Participant withdrawals (2,710,205) (17,919,440) (39,494) (2,983,611) ---------------------------------------------------------- ----------- ------------ -------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 934,852 (5,206,532) 2,855 (614,966) ---------------------------------------------------------- ----------- ------------ -------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS 2,377,284 (32,501,703) (4,626) (2,940,748) ---------------------------------------------------------- ----------- ------------ -------- ----------- NET ASSETS AT DECEMBER 31, 2001 21,651,762 111,047,650 11,230 14,673,953 CHANGES FROM OPERATIONS: o Net investment income (loss) 340,974 (74,852) (91) (92,454) o Net realized gain (loss) on investments 169,867 (12,518,151) (785) (3,846,171) o Net change in unrealized appreciation or depreciation on investments 666,764 (14,239,360) (2,399) 615,215 ---------------------------------------------------------- ----------- ------------ -------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,177,605 (26,832,363) (3,275) (3,323,410) CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 1,773,052 10,318,522 (4) 2,268,210 o Participant withdrawals (7,496,939) (19,315,072) (713) (1,456,053) ---------------------------------------------------------- ----------- ------------ -------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (5,723,887) (8,996,550) (717) 812,157 ---------------------------------------------------------- ----------- ------------ -------- ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS (4,546,282) (35,828,913) (3,992) (2,511,253) ---------------------------------------------------------- ----------- ------------ -------- ----------- NET ASSETS AT DECEMBER 31, 2002 $17,105,480 $ 75,218,737 $ 7,238 $12,162,700 ========================================================== =========== ============ ======== ===========
See accompanying notes. B-10 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
ING VP ING VP ING VP Strategic Strategic ING VP Small Allocation Allocation Money Market Company Balanced Growth Subaccount Subaccount Subaccount Subaccount ---------------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2000 $38,443,372 $ 634,048 $2,395,290 $3,136,076 CHANGES FROM OPERATIONS: o Net investment income (loss) 1,241,116 (7,529) 4,963 (17,915) o Net realized gain (loss) on investments 874,854 85,381 46,017 32,595 o Net change in unrealized appreciation or depreciation on investments (55,927) (60,685) (59,310) (72,924) ---------------------------------------------------------- ----------- --------- ---------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 2,060,043 17,167 (8,330) (58,244) CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 15,530,566 190,552 290,216 640,320 o Participant withdrawals (8,906,083) (172,292) (1,238,025) (451,562) ---------------------------------------------------------- ----------- --------- ---------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 6,624,483 18,260 (947,809) 188,758 ---------------------------------------------------------- ----------- --------- ---------- ---------- TOTAL INCREASE (DECREASE) IN NET ASSETS 8,684,526 35,427 (956,139) 130,514 ---------------------------------------------------------- ----------- --------- ---------- ---------- NET ASSETS AT DECEMBER 31, 2000 47,127,898 669,475 1,439,151 3,266,590 CHANGES FROM OPERATIONS: o Net investment income (loss) 1,879,458 (1,139) 22,643 21,601 o Net realized gain (loss) on investments (608,681) 82,537 (5,860) (38,220) o Net change in unrealized appreciation or depreciation on investments (62,866) (65,203) (128,024) (395,025) ---------------------------------------------------------- ----------- --------- ---------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,207,911 16,195 (111,241) (411,644) CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 9,355,506 327,444 244,697 491,440 o Participant withdrawals (13,406,756) (461,818) (258,046) (457,304) ---------------------------------------------------------- ----------- --------- ---------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (4,051,250) (134,374) (13,349) 34,136 ---------------------------------------------------------- ----------- --------- ---------- ---------- TOTAL INCREASE (DECREASE) IN NET ASSETS (2,843,339) (118,179) (124,590) (377,508) ---------------------------------------------------------- ----------- --------- ---------- ---------- NET ASSETS AT DECEMBER 31, 2001 44,284,559 551,296 1,314,561 2,889,082 CHANGES FROM OPERATIONS: o Net investment income (loss) 1,179,726 (2,665) 18,086 23,264 o Net realized gain (loss) on investments (842,824) (14,184) (28,106) (135,372) o Net change in unrealized appreciation or depreciation on investments (38,736) (120,698) (116,247) (348,866) ---------------------------------------------------------- ----------- --------- ---------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 298,166 (137,547) (126,267) (460,974) CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 10,026,302 47,783 223,952 553,371 o Participant withdrawals (11,518,921) (26,804) (328,655) (276,295) ---------------------------------------------------------- ----------- --------- ---------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (1,492,619) 20,979 (104,703) 277,076 ---------------------------------------------------------- ----------- --------- ---------- ---------- TOTAL INCREASE (DECREASE) IN NET ASSETS (1,194,453) (116,568) (230,970) (183,898) ---------------------------------------------------------- ----------- --------- ---------- ---------- NET ASSETS AT DECEMBER 31, 2002 $43,090,106 $ 434,728 $1,083,591 $2,705,184 ========================================================== =========== ========= ========== ========== See accompanying notes. ING VP Janus Strategic ING VP Aspen Series Janus Allocation Value Aggressive Aspen Series Income Opportunity Growth Balanced Subaccount Subaccount Subaccount Subaccount -------------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2000 $1,115,594 $ 135,120 $ 57,461,476 $22,353,327 CHANGES FROM OPERATIONS: o Net investment income (loss) (493) (1,173) 2,756,927 1,102,087 o Net realized gain (loss) on investments 18,047 21,347 (5,915,015) 2,263,664 o Net change in unrealized appreciation or depreciation on investments 29,051 (8,085) (18,330,851) (4,160,802) ---------------------------------------------------------- ---------- --------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 46,605 12,089 (21,488,939) (795,051) CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 252,614 3,484 10,041,137 5,099,656 o Participant withdrawals (95,823) (9,219) (10,324,030) (3,462,575) ---------------------------------------------------------- ---------- --------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 156,791 (5,735) (282,893) 1,637,081 ---------------------------------------------------------- ---------- --------- ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 203,396 6,354 (21,771,832) 842,030 ---------------------------------------------------------- ---------- --------- ------------ ------------ NET ASSETS AT DECEMBER 31, 2000 1,318,990 141,474 35,689,644 23,195,357 CHANGES FROM OPERATIONS: o Net investment income (loss) 43,619 (2,775) (255,807) 346,292 o Net realized gain (loss) on investments 3,062 22,380 (20,932,980) 500,361 o Net change in unrealized appreciation or depreciation on investments (101,236) (83,335) 6,579,267 (1,973,991) ---------------------------------------------------------- ---------- --------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (54,555) (63,730) (14,609,520) (1,127,338) CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 436,158 533,591 4,418,178 3,467,299 o Participant withdrawals (147,886) (62,970) (4,570,993) (5,087,662) ---------------------------------------------------------- ---------- --------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 288,272 470,621 (152,815) (1,620,363) ---------------------------------------------------------- ---------- --------- ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 233,717 406,891 (14,762,335) (2,747,701) ---------------------------------------------------------- ---------- --------- ------------ ------------ NET ASSETS AT DECEMBER 31, 2001 1,552,707 548,365 20,927,309 20,447,656 CHANGES FROM OPERATIONS: o Net investment income (loss) 33,768 (2,821) (163,267) 279,614 o Net realized gain (loss) on investments (28,467) (22,966) (5,702,815) (722,141) o Net change in unrealized appreciation or depreciation on investments (80,240) (132,564) (408,145) (1,084,375) ---------------------------------------------------------- ---------- --------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (74,939) (158,351) (6,274,227) (1,526,902) CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 248,072 80,994 2,892,060 2,545,683 o Participant withdrawals (350,217) (34,972) (3,660,320) (4,139,516) ---------------------------------------------------------- ---------- --------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (102,145) 46,022 (768,260) (1,593,833) ---------------------------------------------------------- ---------- --------- ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS (177,084) (112,329) (7,042,487) (3,120,735) ---------------------------------------------------------- ---------- --------- ------------ ------------ NET ASSETS AT DECEMBER 31, 2002 $1,375,623 $ 436,036 $ 13,884,822 $17,326,921 ========================================================== ========== ========= ============ ============
See accompanying notes. B-11 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
Janus Janus Aspen Aspen Series Janus Series MFS VIT MFS VIT Flexible Aspen Series Worldwide Strategic Total Income Growth Growth Income Return Subaccount Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2000 $ 68,267 $ 34,242,981 $ 65,986,620 $ 1,984 $ 11,344 CHANGES FROM OPERATIONS: o Net investment income (loss) 24,706 583,898 658,370 78 (35) o Net realized gain (loss) on investments (770) 6,837,797 15,835,998 -- 1,719 o Net change in unrealized appreciation or depreciation on investments 740 (13,684,101) (26,745,996) 2 1,616 ------------------------------------------------------- --------- ------------ ------------ -------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 24,676 (6,262,406) (10,251,628) 80 3,300 CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 520,978 10,405,822 9,499,951 -- 28,873 o Participant withdrawals (174,389) (8,578,152) (11,956,274) 18 (12,376) ------------------------------------------------------- --------- ------------ ------------ -------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 346,589 1,827,670 (2,456,323) 18 16,497 ------------------------------------------------------- --------- ------------ ------------ -------- -------- TOTAL INCREASE (DECREASE) IN NET ASSETS 371,265 (4,434,736) (12,707,951) 98 19,797 ------------------------------------------------------- --------- ------------ ------------ -------- -------- NET ASSETS AT DECEMBER 31, 2000 439,532 29,808,245 53,278,669 2,082 31,141 CHANGES FROM OPERATIONS: o Net investment income (loss) 43,677 (221,236) (219,591) (162) 377 o Net realized gain (loss) on investments 3,790 (6,658,729) (21,337,791) 79 1,300 o Net change in unrealized appreciation or depreciation on investments 1,201 (533,583) 9,487,584 (786) (2,108) ------------------------------------------------------- --------- ------------ ------------ -------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 48,668 (7,413,548) (12,069,798) (869) (431) CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 1,077,478 3,675,397 6,314,718 204,070 154,719 o Participant withdrawals (579,001) (5,036,553) (6,260,575) -- (40,385) ------------------------------------------------------- --------- ------------ ------------ -------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 498,477 (1,361,156) 54,143 204,070 114,334 ------------------------------------------------------- --------- ------------ ------------ -------- -------- TOTAL INCREASE (DECREASE) IN NET ASSETS 547,145 (8,774,704) (12,015,655) 203,201 113,903 ------------------------------------------------------- --------- ------------ ------------ -------- -------- NET ASSETS AT DECEMBER 31, 2001 986,677 21,033,541 41,263,014 205,283 145,044 CHANGES FROM OPERATIONS: o Net investment income (loss) 34,688 (169,939) (27,269) 5,114 895 o Net realized gain (loss) on investments 11,166 (9,896,639) (7,237,585) 210 461 o Net change in unrealized appreciation or depreciation on investments 41,578 4,340,701 (2,632,872) 14,358 (14,928) ------------------------------------------------------- --------- ------------ ------------ -------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 87,432 (5,725,877) (9,897,726) 19,682 (13,572) CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 43,348 2,681,863 3,740,564 118,875 113,541 o Participant withdrawals (125,303) (4,029,217) (7,796,516) (11,221) (9,071) ------------------------------------------------------- --------- ------------ ------------ -------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (81,955) (1,347,354) (4,055,952) 107,654 104,470 ------------------------------------------------------- --------- ------------ ------------ -------- -------- TOTAL INCREASE (DECREASE) IN NET ASSETS 5,477 (7,073,231) (13,953,678) 127,336 90,898 ------------------------------------------------------- --------- ------------ ------------ -------- -------- NET ASSETS AT DECEMBER 31, 2002 $ 992,154 $ 13,960,310 $ 27,309,336 $332,619 $235,942 ======================================================= ========= ============ ============ ======== ========
See accompanying notes.
Oppenheimer Oppenheimer Oppenheimer Main Street Oppenheimer Aggressive Global Growth & Strategic Growth Securities Income Bond Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------------------------------------------------------------------------ NET ASSETS AT JANUARY 1, 2000 $ 738,203 $ 645,319 $ 312,661 $1,313,094 CHANGES FROM OPERATIONS: o Net investment income (loss) (9,415) (10,686) (1,831) 99,729 o Net realized gain (loss) on investments 40,628 156,084 20,672 (4,978) o Net change in unrealized appreciation or depreciation on investments (165,890) (188,420) (54,859) (69,989) ------------------------------------------------------- --------- ---------- --------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (134,677) (43,022) (36,018) 24,762 CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 189,076 1,672,560 158,716 445,872 o Participant withdrawals (19,850) (293,153) (44,666) (216,514) ------------------------------------------------------- --------- ---------- --------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 169,226 1,379,407 114,050 229,358 ------------------------------------------------------- --------- ---------- --------- ---------- TOTAL INCREASE (DECREASE) IN NET ASSETS 34,549 1,336,385 78,032 254,120 ------------------------------------------------------- --------- ---------- --------- ---------- NET ASSETS AT DECEMBER 31, 2000 772,752 1,981,704 390,693 1,567,214 CHANGES FROM OPERATIONS: o Net investment income (loss) 124 (7,591) 69 26,278 o Net realized gain (loss) on investments (7,756) (376,671) (68,866) 29,908 o Net change in unrealized appreciation or depreciation on investments (253,531) 117,147 47,590 11,542 ------------------------------------------------------- --------- ---------- --------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (261,163) (267,115) (21,207) 67,728 CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 85,080 641,009 2,031 331,271 o Participant withdrawals (167,410) (333,534) (369,690) (163,294) ------------------------------------------------------- --------- ---------- --------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (82,330) 307,475 (367,659) 167,977 ------------------------------------------------------- --------- ---------- --------- ---------- TOTAL INCREASE (DECREASE) IN NET ASSETS (343,493) 40,360 (388,866) 235,705 ------------------------------------------------------- --------- ---------- --------- ---------- NET ASSETS AT DECEMBER 31, 2001 429,259 2,022,064 1,827 1,802,919 CHANGES FROM OPERATIONS: o Net investment income (loss) (2,063) (11,472) (1) 120,276 o Net realized gain (loss) on investments (155,918) (295,368) 1,539 (54,296) o Net change in unrealized appreciation or depreciation on investments (5,546) (359,229) (1,855) 54,287 ------------------------------------------------------- --------- ---------- --------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (163,527) (666,069) (317) 120,267 CHANGE FROM UNIT TRANSACTIONS: o Participant purchases 200,631 1,243,008 (5) 375,031 o Participant withdrawals (13,501) (278,666) (1,505) (188,965) ------------------------------------------------------- --------- ---------- --------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 187,130 964,342 (1,510) 186,066 ------------------------------------------------------- --------- ---------- --------- ---------- TOTAL INCREASE (DECREASE) IN NET ASSETS 23,603 298,273 (1,827) 306,333 ------------------------------------------------------- --------- ---------- --------- ---------- NET ASSETS AT DECEMBER 31, 2002 $ 452,862 $2,320,337 $ -- $2,109,252 ======================================================= ========= ========== ========= ==========
See accompanying notes. B-12 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNT INFORMATION Variable Life B of ING Life Insurance and Annuity Company (the "Account"), formerly known as Variable Life B of Aetna Life Insurance and Annuity Company, is a separate account established by ING Life Insurance and Annuity Company (the "Company"), formerly known as Aetna Life Insurance and Annuity Company, and is registered under the Investment Company Act of 1940 as a unit investment trust. The Account is sold exclusively for use with variable life insurance product contracts as defined under the Internal Revenue Code of 1986, as amended. The Account consists of seven products which are listed below. o Aetna Vest o Aetna Vest II o Aetna Vest Plus o Aetna Vest Estate Protector o Aetna Vest Estate Protector II o Corporate Specialty Market o Corporate Specialty Market II Effective October 1, 1998, the Company contracted the administrative servicing obligations of its individual variable life business to The Lincoln National Life Insurance Company (Lincoln Life) and Lincoln Life & Annuity Company of New York (LNY). Although the Company is responsible for all policy terms and conditions, Lincoln Life and LNY are responsible for servicing the individual life contracts, including the payment of benefits, oversight of investment management and contract administration. The assets of the Account are owned by the Company. The portion of the Account's assets supporting the variable life policies may not be used to satisfy liabilities arising out of any other business of the Company. During 2000, the Company moved the NYSUT Individual Life block of business from the Account at a market value of $253,767. The NYSUT Individual Life block of business is not a part of the business administered by Lincoln Life and LNY and is no longer part of the Account. 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. Although actual results could differ from these estimates, any such differences are expected to be immaterial to the net assets of the Account. 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, 2002:
Fidelity Variable Insurance Products Fund (Fidelity VIP): Janus Aspen Series: Fidelity VIP Asset Manager Portfolio Janus Aspen Series Aggressive Growth Portfolio Fidelity VIP Contrafund Portfolio Janus Aspen Series Balanced Portfolio Fidelity VIP Equity-Income Portfolio Janus Aspen Series Flexible Income Portfolio Fidelity VIP Growth Portfolio Janus Aspen Series Growth Portfolio Fidelity VIP High Income Portfolio Janus Aspen Series Worldwide Growth Portfolio Fidelity VIP Overseas Portfolio ING Partners Inc. (ING Partners)*: MFS Variable Insurance Trust (MFS VIT): ING Partners JPMorgan Fleming International Portfolio MFS VIT Strategic Income Series ING Partners MFS Capital Opportunities Portfolio MFS VIT Total Return Series ING Partners MFS Research Portfolio ING Partners Salomon Brothers Aggressive Growth Portfolio ING Partners T. Rowe Price Growth Equity Portfolio ING Funds (ING VP)*: Oppenheimer Funds (Oppenheimer): ING VP Balanced Portfolio Oppenheimer Aggressive Growth Fund ING VP Bond Portfolio Oppenheimer Global Securities Fund ING VP Growth and Income Portfolio Oppenheimer Main Street Growth & Income Fund ING VP Growth Portfolio Oppenheimer Strategic Bond Fund ING VP Index Plus Large Cap Portfolio ING VP Money Market Portfolio ING VP Small Company Portfolio ING VP Strategic Allocation Balanced Portfolio ING VP Strategic Allocation Growth Portfolio ING VP Strategic Allocation Income Portfolio ING VP Value Opportunity Portfolio * -- Denotes an affiliate of ING Life Insurance and Annuity Company.
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 operation 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. The Account will not be taxed as a regulated investment company under Subchapter M of the Internal Revenue Code, as amended. Under current federal income tax law, no federal income taxes are payable with respect to the Account's net investment income and the net realized gain on investments. B-13 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. MORTALITY AND EXPENSE GUARANTEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company charges each variable sub-account for mortality and expense risk. The amount charged is deducted daily at rates per year specified in each policy. The Company deducts a premium load from each premium payment to cover administration expenses, state taxes, and federal income tax liabilities. The percentage deducted from each premium payment is specified in each policy. The Company charges monthly administrative fees for items such as underwriting and issuance, premium billing and collection, policy value calculation, confirmations and periodic reports. The amount of the monthly administrative fees are specified in each policy. The Company charges a monthly deduction for the cost of insurance and any charges for supplemental riders. The cost of insurance charge is equal to the amount at risk multiplied by a monthly cost of insurance rate. The cost of insurance rate is variable and is based on the insured's issue age, sex (where permitted by law), number of policy years elapsed and premium class. Under certain circumstances, the Company reserves the right to charge a transfer fee between sub-accounts. The amount of the transfer fee is specified in each policy. The Company, upon full surrender of a policy, may charge a surrender charge. This charge is in part a deferred sales charge and in part a recovery of certain first year administrative costs. The amount of the surrender charge, if any, will depend on the specified amount, insured's age, risk class and sex (where permitted by law). The maximum surrender charges are included in each policy and are in compliance with each state's nonforfeiture law. DIVIDEND INCOME On an annual basis, the underlying mutual funds in which the Account invests distribute substantially all of their taxable income and realized capital gains to their shareholders. Distributions paid to the Account are automatically reinvested in shares of the underlying mutual funds. The Account's proportionate share of each underlying mutual fund's undistributed net investment income and accumulated net realized gain (loss) on investments is included in net change in unrealized appreciation or depreciation on investments in the Statements of Operations and Changes in Net Assets of the Account. 3. CONDENSED FINANCIAL INFORMATION A summary of the unit values, units outstanding, net assets and total return and investment income ratios for variable life contracts as of and for the year or period ended December 31, 2002 follows. The fee rates below represent annualized contract expenses of the separate account, consisting primarily of mortality and expense charges.
Unit Unit Value Value Beginning End of Units Total Investment Subaccount of Period Period Outstanding Net Assets Return (1) Income Ratio (2) ---------------------------------------------------------------------------------------------------------------------------------- FIDELITY VIP ASSET MANAGER PORTFOLIO: 2.32% Corporate Specialty Market (1.00% Fee Rate) $ 16.25 $14.68 61,346 $ 900,577 -9.64% FIDELITY VIP CONTRAFUND PORTFOLIO: 0.81% Aetna Vest (1.00% Fee Rate) 18.01 16.17 71,961 1,163,261 -10.25% Aetna Vest II (1.00% Fee Rate) 18.01 16.17 30,527 493,466 -10.25% Aetna Vest Plus (1.00% Fee Rate) 18.01 16.17 639,653 10,340,018 -10.25% Aetna Vest Estate Protector (.85% Fee Rate) 18.17 16.33 81,452 1,330,082 -10.12% Aetna Vest Estate Protector II (.65% Fee Rate) 12.40 11.17 192,518 2,149,781 -9.94% Corporate Specialty Market (1.00% Fee Rate) 19.37 17.39 107,136 1,862,950 -10.25% Corporate Specialty Market II (.70% Fee Rate) 12.37 11.14 22,232 247,650 -9.98% FIDELITY VIP EQUITY-INCOME PORTFOLIO: 1.70% Aetna Vest (1.00% Fee Rate) 16.20 13.32 36,210 482,412 -17.77% Aetna Vest II (1.00% Fee Rate) 16.20 13.32 11,920 158,810 -17.77% Aetna Vest Plus (1.00% Fee Rate) 16.20 13.32 763,665 10,173,922 -17.77% Aetna Vest Estate Protector (.85% Fee Rate) 16.34 13.46 149,694 2,014,622 -17.65% Aetna Vest Estate Protector II (.65% Fee Rate) 11.53 9.52 199,081 1,894,449 -17.49% Corporate Specialty Market (1.00% Fee Rate) 18.65 15.33 533,489 8,179,431 -17.77% FIDELITY VIP GROWTH PORTFOLIO: 0.25% Corporate Specialty Market (1.00% Fee Rate) 18.58 12.86 628,147 8,076,288 -30.80% FIDELITY VIP HIGH INCOME PORTFOLIO: 11.16% Corporate Specialty Market (1.00% Fee Rate) 6.88 7.05 46,981 331,263 2.41% FIDELITY VIP OVERSEAS PORTFOLIO: 0.84% Corporate Specialty Market (1.00% Fee Rate) 12.23 9.65 141,412 1,365,110 -21.07% ING PARTNERS JPMORGAN FLEMING INTERNATIONAL PORTFOLIO: 0.69% Aetna Vest (1.00% Fee Rate) 16.71 13.59 85,008 1,155,674 -18.65% Aetna Vest II (1.00% Fee Rate) 16.61 13.51 27,849 376,270 -18.65% Aetna Vest Plus (1.00% Fee Rate) 16.52 13.44 899,848 12,090,262 -18.65% Aetna Vest Estate Protector (.85% Fee Rate) 12.62 10.28 47,541 488,707 -18.53% Aetna Vest Estate Protector II (.65% Fee Rate) 10.22 8.34 71,933 600,204 -18.37% Corporate Specialty Market (1.00% Fee Rate) 13.84 11.26 96,598 1,087,862 -18.65%
B-14 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. CONDENSED FINANCIAL INFORMATION (CONTINUED)
Unit Unit Value Value Beginning End of Units Total Investment Subaccount of Period Period Outstanding Net Assets Return (1) Income Ratio (2) ---------------------------------------------------------------------------------------------------------------------------------- ING PARTNERS MFS CAPITAL OPPORTUNITIES PORTFOLIO: -- Aetna Vest (1.00% Fee Rate) $11.69 $ 8.08 12,750 $ 103,016 -30.86% Aetna Vest II (1.00% Fee Rate) 11.69 8.08 2,471 19,964 -30.86% Aetna Vest Plus (1.00% Fee Rate) 11.69 8.08 126,954 1,025,738 -30.86% Aetna Vest Estate Protector (.85% Fee Rate) 11.75 8.14 8,768 71,357 -30.75% Aetna Vest Estate Protector II (.65% Fee Rate) 12.11 8.40 39,028 327,943 -30.62% ING PARTNERS MFS RESEARCH PORTFOLIO: 0.18% Aetna Vest (1.00% Fee Rate) 13.34 9.92 42,922 425,760 -25.64% Aetna Vest II(1.00% Fee Rate) 13.40 9.96 21,820 217,407 -25.64% Aetna Vest Plus (1.00% Fee Rate) 13.22 9.83 458,771 4,508,733 -25.64% Aetna Vest Estate Protector (.85% Fee Rate) 10.20 7.60 34,161 259,456 -25.53% Aetna Vest Estate Protector II (.65% Fee Rate) 10.59 7.90 54,381 429,658 -25.38% Corporate Specialty Market (1.00% Fee Rate) 12.09 8.99 106,526 957,594 -25.64% ING PARTNERS SALOMON BROTHERS AGGRESSIVE GROWTH PORTFOLIO: -- Aetna Vest (1.00% Fee Rate) 17.38 11.13 45,585 507,377 -35.95% Aetna Vest II (1.00% Fee Rate) 17.38 11.13 19,616 218,347 -35.95% Aetna Vest Plus (1.00% Fee Rate) 17.37 11.13 557,435 6,201,632 -35.95% Aetna Vest Estate Protector (.85% Fee Rate) 10.89 6.98 88,567 618,585 -35.85% Aetna Vest Estate Protector II (.65% Fee Rate) 9.12 5.86 42,046 246,554 -35.73% Corporate Specialty Market (1.00% Fee Rate) 14.29 9.16 227,090 2,079,072 -35.95% ING PARTNERS T. ROWE PRICE GROWTH EQUITY PORTFOLIO: 0.20% Aetna Vest (1.00% Fee Rate) 12.29 9.34 16,456 153,635 -24.06% Aetna Vest II (1.00% Fee Rate) 12.29 9.34 6,044 56,420 -24.06% Aetna Vest Plus (1.00% Fee Rate) 12.29 9.34 145,319 1,356,748 -24.06% Aetna Vest Estate Protector (.85% Fee Rate) 12.37 9.40 5,398 50,762 -23.94% Aetna Vest Estate Protector II (.65% Fee Rate) 12.75 9.71 82,270 799,172 -23.79% Corporate Specialty Market (1.00% Fee Rate) 13.37 10.16 3,820 38,796 -24.05% ING VP BALANCED PORTFOLIO: 1.02% Aetna Vest (.95% Fee Rate) 25.93 23.04 65,146 1,500,793 -11.16% Aetna Vest II(1.00% Fee Rate) 26.16 23.23 145,006 3,368,190 -11.20% Aetna Vest Plus (1.00% Fee Rate) 21.94 19.48 481,733 9,384,085 -11.20% Aetna Vest Estate Protector (.85% Fee Rate) 16.58 14.74 30,906 455,652 -11.07% Aetna Vest Estate Protector II (.65% Fee Rate) 11.92 10.62 68,692 729,677 -10.89% Corporate Specialty Market (1.00% Fee Rate) 19.10 16.96 164,019 2,781,715 -11.20% ING VP BOND PORTFOLIO: 2.88% Aetna Vest (1.00% Fee Rate) 28.81 30.90 167,523 5,176,171 7.26% Aetna Vest II (1.00% Fee Rate) 19.37 20.77 49,677 1,031,998 7.26% Aetna Vest Plus (1.00% Fee Rate) 15.51 16.64 362,536 6,030,847 7.26% Aetna Vest Estate Protector (.85% Fee Rate) 13.88 14.91 78,572 1,171,840 7.42% Aetna Vest Estate Protector II (.65% Fee Rate) 12.32 13.26 71,785 952,007 7.63% Corporate Specialty Market (1.00% Fee Rate) 14.97 16.06 170,813 2,742,617 7.26% ING VP GROWTH AND INCOME PORTFOLIO: 0.89% Aetna Vest (.95% Fee Rate) 42.25 31.39 857,237 26,909,665 -25.70% Aetna Vest II (1.00% Fee Rate) 23.54 17.48 598,039 10,453,505 -25.74% Aetna Vest Plus (1.00% Fee Rate) 19.78 14.69 1,869,907 27,461,230 -25.74% Aetna Vest Estate Protector (.85% Fee Rate) 14.19 10.56 131,229 1,385,353 -25.63% Aetna Vest Estate Protector II (.65% Fee Rate) 9.17 6.84 211,888 1,448,548 -25.48% Corporate Specialty Market (1.00% Fee Rate) 17.87 13.27 565,910 7,508,456 -25.74% Corporate Specialty Market II (.70% Fee Rate) 9.16 6.82 7,622 51,980 -25.52% ING VP GROWTH PORTFOLIO: -- Corporate Specialty Market (1.00% Fee Rate) 11.08 7.81 925 7,238 -29.50% ING VP INDEX PLUS LARGE CAP PORTFOLIO: 0.23% Aetna Vest (1.00% Fee Rate) 16.09 12.50 83,083 1,038,442 -22.31% Aetna Vest II (1.00% Fee Rate) 16.09 12.50 24,584 307,276 -22.31% Aetna Vest Plus (1.00% Fee Rate) 16.09 12.50 469,735 5,871,200 -22.31% Aetna Vest Estate Protector (.85% Fee Rate) 16.21 12.61 84,399 1,064,535 -22.19% Aetna Vest Estate Protector II (.65% Fee Rate) 11.83 9.22 242,237 2,233,326 -22.04% Corporate Specialty Market (1.00% Fee Rate) 16.09 12.50 116,948 1,461,580 -22.31% Corporate Specialty Market II (.70% Fee Rate) 11.80 9.20 20,261 186,341 -22.08% ING VP MONEY MARKET PORTFOLIO: 3.49% Aetna Vest (1.00% Fee Rate) 20.38 20.50 123,268 2,527,247 0.61% Aetna Vest II (1.00% Fee Rate) 14.90 14.99 37,221 557,794 0.61% Aetna Vest Plus (1.00% Fee Rate) 14.00 14.08 884,270 12,454,224 0.61% Aetna Vest Estate Protector (.85% Fee Rate) 12.80 12.90 123,367 1,590,946 0.76% Aetna Vest Estate Protector II (.65% Fee Rate) 11.86 11.98 208,055 2,492,195 0.96% Corporate Specialty Market (1.00% Fee Rate) 13.39 13.47 1,726,586 23,264,751 0.61% Corporate Specialty Market II (.70% Fee Rate) 11.84 11.95 16,984 202,949 0.91% ING VP SMALL COMPANY PORTFOLIO: 0.46% Corporate Specialty Market (1.00% Fee Rate) 14.21 10.80 40,240 434,728 -23.99%
B-15 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. CONDENSED FINANCIAL INFORMATION (CONTINUED)
Unit Unit Value Value Beginning End of Units Total Investment Subaccount of Period Period Outstanding Net Assets Return (1) Income Ratio (2) ---------------------------------------------------------------------------------------------------------------------------------- ING VP STRATEGIC ALLOCATION BALANCED PORTFOLIO: 2.47% Aetna Vest (.85% Fee Rate) $14.09 $12.64 2,302 $ 29,087 -10.30% Aetna Vest II (1.00% Fee Rate) 13.99 12.53 4,931 61,775 -10.44% Aetna Vest Plus (1.00% Fee Rate) 13.99 12.53 65,802 824,465 -10.44% Aetna Vest Estate Protector (.85% Fee Rate) 14.11 12.66 785 9,940 -10.30% Aetna Vest Estate Protector II (.65% Fee Rate) 10.34 9.29 17,036 158,324 -10.12% ING VP STRATEGIC ALLOCATION GROWTH PORTFOLIO: 1.78% Aetna Vest (.85% Fee Rate) 14.24 12.17 5,532 67,350 -14.49% Aetna Vest II (1.00% Fee Rate) 14.14 12.07 3,468 41,859 -14.62% Aetna Vest Plus (1.00% Fee Rate) 14.14 12.07 175,845 2,122,660 -14.62% Aetna Vest Estate Protector (.85% Fee Rate) 14.26 12.19 25,554 311,609 -14.49% Aetna Vest Estate Protector II (.65% Fee Rate) 9.89 8.47 19,081 161,706 -14.32% ING VP STRATEGIC ALLOCATION INCOME PORTFOLIO: 3.23% Aetna Vest (.85% Fee Rate) 14.29 13.55 1,383 18,737 -5.16% Aetna Vest II (1.00% Fee Rate) 14.19 13.44 309 4,153 -5.30% Aetna Vest Plus (1.00% Fee Rate) 14.19 13.44 71,448 960,253 -5.30% Aetna Vest Estate Protector (.85% Fee Rate) 14.31 13.58 5,866 79,634 -5.16% Aetna Vest Estate Protector II (.65% Fee Rate) 11.15 10.60 29,513 312,846 -4.97% ING VP VALUE OPPORTUNITY PORTFOLIO: 0.44% Corporate Specialty Market (1.00% Fee Rate) 14.18 10.39 41,966 436,036 -26.70% JANUS ASPEN SERIES AGGRESSIVE GROWTH PORTFOLIO: -- Aetna Vest (1.00% Fee Rate) 21.63 15.43 69,763 1,076,791 -28.65% Aetna Vest II (1.00% Fee Rate) 21.63 15.43 31,759 490,192 -28.65% Aetna Vest Plus (1.00% Fee Rate) 21.63 15.43 508,824 7,853,630 -28.65% Aetna Vest Estate Protector (.85% Fee Rate) 13.22 9.45 78,949 745,749 -28.55% Aetna Vest Estate Protector II (.65% Fee Rate) 11.73 8.40 115,326 968,964 -28.40% Corporate Specialty Market (1.00% Fee Rate) 16.24 11.59 227,333 2,634,133 -28.65% Corporate Specialty Market II (.70% Fee Rate) 11.71 8.38 13,763 115,363 -28.44% JANUS ASPEN SERIES BALANCED PORTFOLIO: 2.37% Aetna Vest (1.00% Fee Rate) 25.72 23.83 27,785 662,020 -7.38% Aetna Vest II (1.00% Fee Rate) 25.92 24.01 30,642 735,792 -7.38% Aetna Vest Plus (1.00% Fee Rate) 25.71 23.82 502,014 11,955,953 -7.38% Aetna Vest Estate Protector (.85% Fee Rate) 20.60 19.11 49,963 954,800 -7.24% Aetna Vest Estate Protector II (.65% Fee Rate) 14.62 13.59 157,260 2,136,826 -7.05% Corporate Specialty Market (1.00% Fee Rate) 22.54 20.88 13,201 275,637 -7.38% Corporate Specialty Market II (.70% Fee Rate) 14.59 13.55 44,700 605,893 -7.10% JANUS ASPEN SERIES FLEXIBLE INCOME PORTFOLIO: 4.60% Corporate Specialty Market (1.00% Fee Rate) 12.36 13.52 73,366 992,154 9.38% JANUS ASPEN SERIES GROWTH PORTFOLIO: -- Aetna Vest (1.00% Fee Rate) 21.85 15.90 46,376 737,306 -27.24% Aetna Vest II (1.00% Fee Rate) 21.83 15.88 50,210 797,534 -27.24% Aetna Vest Plus (1.00% Fee Rate) 21.80 15.86 620,715 9,845,577 -27.24% Aetna Vest Estate Protector (.85% Fee Rate) 16.04 11.69 81,350 951,098 -27.13% Aetna Vest Estate Protector II (.65% Fee Rate) 11.41 8.33 169,653 1,413,301 -26.99% Corporate Specialty Market (1.00% Fee Rate) 17.94 13.05 16,508 215,494 -27.24% JANUS ASPEN SERIES WORLDWIDE GROWTH PORTFOLIO: 0.89% Aetna Vest (1.00% Fee Rate) 26.37 19.45 84,723 1,647,694 -26.24% Aetna Vest II (1.00% Fee Rate) 26.37 19.45 43,043 837,313 -26.24% Aetna Vest Plus (1.00% Fee Rate) 26.34 19.43 838,232 16,285,905 -26.24% Aetna Vest Estate Protector (.85% Fee Rate) 19.17 14.16 83,398 1,181,207 -26.13% Aetna Vest Estate Protector II (.65% Fee Rate) 12.68 9.38 208,999 1,960,990 -25.98% Corporate Specialty Market (1.00% Fee Rate) 21.69 16.00 321,623 5,144,827 -26.24% Corporate Specialty Market II(.70% Fee Rate) 12.65 9.36 26,859 251,400 -26.02% MFS VIT STRATEGIC INCOME SERIES: 3.02% Corporate Specialty Market (1.00% Fee Rate) 10.98 11.78 28,225 332,619 7.33% MFS VIT TOTAL RETURN SERIES: 1.46% Corporate Specialty Market (1.00% Fee Rate) 13.13 12.33 19,137 235,942 -6.11% OPPENHEIMER AGGRESSIVE GROWTH FUND: 0.56% Corporate Specialty Market (1.00% Fee Rate) 11.71 8.37 54,102 452,862 -28.51% OPPENHEIMER GLOBAL SECURITIES FUND: 0.47% Aetna Vest (1.00% Fee Rate) 15.39 11.87 23,715 281,446 -22.91% Aetna Vest II (1.00% Fee Rate) 15.39 11.87 13,028 154,610 -22.91% Aetna Vest Plus (1.00% Fee Rate) 15.39 11.87 116,952 1,387,961 -22.91% Aetna Vest Estate Protector (.85% Fee Rate) 15.48 11.95 6,965 83,264 -22.79% Aetna Vest Estate Protector II (.65% Fee Rate) 15.92 12.32 20,255 249,481 -22.64% Corporate Specialty Market (1.00% Fee Rate) 16.29 12.56 13,028 163,575 -22.91%
B-16 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. CONDENSED FINANCIAL INFORMATION (CONTINUED)
Unit Unit Value Value Beginning End of Units Total Investment Subaccount of Period Period Outstanding Net Assets Return (2) Income Ratio (3) ---------------------------------------------------------------------------------------------------------------------------------- OPPENHEIMER MAIN STREET GROWTH & INCOME FUND: 0.75% OPPENHEIMER STRATEGIC BOND FUND: 7.50% Aetna Vest (1.00% Fee Rate) $ 10.77 $ 11.45 1,353 $ 15,500 6.37% Aetna Vest II (1.00% Fee Rate) 10.77 11.45 1,865 21,363 6.37% Aetna Vest Plus (1.00% Fee Rate) 10.77 11.45 93,342 1,069,109 6.37% Aetna Vest Estate Protector (.85% Fee Rate) 10.83 11.54 20,946 241,647 6.53% Aetna Vest Estate Protector II (.65% Fee Rate) 10.89 11.62 34,707 403,464 6.75% Corporate Specialty Market (1.00% Fee Rate) 11.05 11.76 3,729 43,840 6.35% Corporate Specialty Market II (.70% Fee Rate) 10.89 11.62 27,056 314,329 6.69%
(1) These amounts represent the total return, including changes in the value of the underlying subaccount, and reflect deductions for all items included in the fee rate. The total return does not include contract charges deducted directly from policy account values. (2) These amounts represent the dividends, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense charges, that result in direct reductions in the unit values. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccounts invest. 3. CONDENSED FINANCIAL INFORMATION A summary of the unit values, units outstanding, net assets and total return and investment income ratios for variable life contracts as of and for the year or period ended December 31, 2001 follows. The fee rates below represent annualized contract expenses of the separate account, consisting primarily of mortality and expense charges.
Unit Unit Value Value Beginning End of Units Total Investment Subaccount of Period Period Outstanding Net Assets Return (2) Income Ratio (3) ---------------------------------------------------------------------------------------------------------------------------------- FIDELITY VIP ASSET MANAGER PORTFOLIO: 3.56% Corporate Specialty Market (1.00% Fee Rate) $ 17.11 $ 16.25 32,034 $ 520,443 (5.06%) Corporate Specialty Market II (.70% Fee Rate) (1) 11.66 11.10 84 932 (4.78%) FIDELITY VIP CONTRAFUND PORTFOLIO: 0.81% Aetna Vest (1.00% Fee Rate) 20.73 18.01 67,091 1,208,419 (13.12%) Aetna Vest II (1.00% Fee Rate) 20.73 18.01 28,511 513,528 (13.12%) Aetna Vest Plus (1.00% Fee Rate) 20.73 18.01 639,016 11,509,624 (13.12%) Aetna Vest Estate Protector (.85% Fee Rate) 20.88 18.17 75,485 1,371,373 (12.99%) Aetna Vest Estate Protector II (.65% Fee Rate) 14.22 12.40 162,350 2,012,912 (12.81%) Corporate Specialty Market (1.00% Fee Rate) 22.30 19.37 179,451 3,476,859 (13.11%) Corporate Specialty Market II (.70% Fee Rate) 14.20 12.37 19,577 242,263 (12.86%) FIDELITY VIP EQUITY-INCOME PORTFOLIO: 1.70% Aetna Vest (1.00% Fee Rate) 17.22 16.20 30,681 497,101 (5.90%) Aetna Vest II (1.00% Fee Rate) 17.22 16.20 9,698 157,130 (5.90%) Aetna Vest Plus (1.00% Fee Rate) 17.22 16.20 1,029,327 16,677,431 (5.90%) Aetna Vest Estate Protector (.85% Fee Rate) 17.34 16.34 151,319 2,472,977 (5.76%) Aetna Vest Estate Protector II (.65% Fee Rate) 12.21 11.53 161,019 1,856,945 (5.57%) Corporate Specialty Market (1.00% Fee Rate) 19.82 18.65 546,650 10,192,896 (5.91%) Corporate Specialty Market II (.70% Fee Rate) (1) 12.20 11.51 84 966 (5.62%) FIDELITY VIP GROWTH PORTFOLIO: 0.08% Corporate Specialty Market (1.00% Fee Rate) 22.79 18.58 610,227 11,338,260 (18.47%) Corporate Specialty Market II (.70% Fee Rate) (1) 15.85 12.96 59 768 (18.23%) FIDELITY VIP HIGH INCOME PORTFOLIO: 12.73% Corporate Specialty Market (1.00% Fee Rate) 7.88 6.88 53,789 370,335 (12.66%) Corporate Specialty Market II (.70% Fee Rate) (1) 7.62 6.68 102 683 (12.31%) FIDELITY VIP OVERSEAS PORTFOLIO: 5.43% Corporate Specialty Market (1.00% Fee Rate) 15.67 12.23 168,983 2,066,823 (21.95%) Corporate Specialty Market II (.70% Fee Rate) (1) 12.13 9.50 72 682 (21.70%) ING PARTNERS JPMORGAN FLEMING INTERNATIONAL PORTFOLIO 0.32% Aetna Vest (1.00% Fee Rate) 23.10 16.71 87,754 1,466,520 (27.66%) Aetna Vest II (1.00% Fee Rate) 22.96 16.61 27,723 460,435 (27.66%) Aetna Vest Plus (1.00% Fee Rate) 22.83 16.52 441,851 7,297,737 (27.66%) Aetna Vest Estate Protector (.85% Fee Rate) 17.42 12.62 39,701 500,928 (27.55%) Aetna Vest Estate Protector II (.65% Fee Rate) 14.08 10.22 47,149 481,908 (27.40%) Corporate Specialty Market (1.00% Fee Rate) 19.13 13.84 138,142 1,912,400 (27.63%) Corporate Specialty Market II (.70% Fee Rate) (1) 14.06 10.20 88 900 (27.43%) ING PARTNERS MFS CAPITAL OPPORTUNITIES PORTFOLIO: -- Aetna Vest (1.00% Fee Rate) 15.69 11.69 13,743 160,598 (25.50%) Aetna Vest II (1.00% Fee Rate) 15.69 11.69 3,395 39,673 (25.50%) Aetna Vest Plus (1.00% Fee Rate) 15.69 11.69 137,268 1,604,084 (25.50%) Aetna Vest Estate Protector (.85% Fee Rate) 15.75 11.75 17,894 210,316 (25.39%) Aetna Vest Estate Protector II (.65% Fee Rate) 16.20 12.11 64,978 786,914 (25.24%) Corporate Specialty Market (1.00% Fee Rate) 17.14 12.77 60 761 (25.47%) Corporate Specialty Market II (.70% Fee Rate) (1) 16.38 12.24 63 766 (25.28%)
B-17 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. CONDENSED FINANCIAL INFORMATION (CONTINUED)
Unit Unit Value Value Beginning End of Units Total Investment Subaccount of Period Period Outstanding Net Assets Return (2) Income Ratio (3) ---------------------------------------------------------------------------------------------------------------------------------- ING PARTNERS MFS RESEARCH PORTFOLIO: -- Aetna Vest (1.00% Fee Rate) $ 17.03 $ 13.34 44,756 $ 597,023 (21.67%) Aetna Vest II (1.00% Fee Rate) 17.11 13.40 23,703 317,594 (21.67%) Aetna Vest Plus (1.00% Fee Rate) 16.87 13.22 462,561 6,113,361 (21.67%) Aetna Vest Estate Protector (.85% Fee Rate) 13.00 10.20 30,439 310,437 (21.55%) Aetna Vest Estate Protector II (.65% Fee Rate) 13.47 10.59 58,802 622,574 (21.40%) Corporate Specialty Market (1.00% Fee Rate) 15.43 12.09 392,730 4,747,552 (21.66%) Corporate Specialty Market II (.70% Fee Rate) (1) 13.45 10.57 75 790 (21.44%) ING PARTNERS SALOMON BROTHERS AGGRESSIVE GROWTH PORTFOLIO: Aetna Vest (1.00% Fee Rate) 23.47 17.38 48,145 836,649 (25.95%) Aetna Vest II (1.00% Fee Rate) 23.47 17.38 21,984 382,062 (25.95%) Aetna Vest Plus (1.00% Fee Rate) 23.46 17.37 579,578 10,067,265 (25.95%) Aetna Vest Estate Protector (.85% Fee Rate) 14.68 10.89 85,688 933,005 (25.84%) Aetna Vest Estate Protector II (.65% Fee Rate) 12.28 9.12 45,731 417,212 (25.69%) Corporate Specialty Market (1.00% Fee Rate) 19.30 14.29 442,701 6,328,043 (25.94%) Corporate Specialty Market II (.70% Fee Rate) (1) 12.26 9.11 66 605 (25.70%) ING PARTNER T. ROWE PRICE GROWTH EQUITY PORTFOLIO: 0.14% Aetna Vest (1.00% Fee Rate) 13.83 12.29 9,874 121,395 (11.11%) Aetna Vest II (1.00% Fee Rate) 13.83 12.29 6,260 76,950 (11.11%) Aetna Vest Plus (1.00% Fee Rate) 13.83 12.29 144,123 1,771,874 (11.11%) Aetna Vest Estate Protector (.85% Fee Rate) 13.89 12.37 9,525 117,778 (10.98%) Aetna Vest Estate Protector II (.65% Fee Rate) 14.29 12.75 65,738 837,928 (10.80%) Corporate Specialty Market (1.00% Fee Rate) (1) 15.05 13.37 63 844 (11.12%) Corporate Specialty Market II (.70% Fee Rate) (1) 14.43 12.86 72 930 (10.89%) ING VP BALANCED PORTFOLIO: 2.16% Aetna Vest (.95% Fee Rate) 27.33 25.93 73,969 1,918,019 (5.12%) Aetna Vest II (1.00% Fee Rate) 27.58 26.16 158,228 4,138,890 (5.16%) Aetna Vest Plus (1.00% Fee Rate) 23.13 21.94 494,455 10,846,852 (5.16%) Aetna Vest Estate Protector (.85% Fee Rate) 17.45 16.58 30,378 503,597 (5.02%) Aetna Vest Estate Protector II (.65% Fee Rate) 12.53 11.92 68,825 820,428 (4.83%) Corporate Specialty Market (1.00% Fee Rate) 20.14 19.10 200,384 3,827,106 (5.16%) Corporate Specialty Market II (.70% Fee Rate) (1) 12.51 11.89 81 966 (4.91%) ING VP BOND PORTFOLIO: 4.92% Aetna Vest (1.00% Fee Rate) 26.76 28.81 209,699 6,040,967 7.66% Aetna Vest II (1.00% Fee Rate) 17.99 19.37 43,197 836,656 7.66% Aetna Vest Plus (1.00% Fee Rate) 14.41 15.51 345,381 5,356,747 7.66% Aetna Vest Estate Protector (.85% Fee Rate) 12.88 13.88 66,365 921,437 7.82% Aetna Vest Estate Protector II (.65% Fee Rate) 11.41 12.32 81,797 1,007,868 8.04% Corporate Specialty Market (1.00% Fee Rate) 13.90 14.97 500,136 7,487,019 7.66% Corporate Specialty Market II (.70% Fee Rate) (1) 11.39 12.25 87 1,068 7.56% ING VP GROWTH AND INCOME PORTFOLIO: 0.65% Aetna Vest (.95% Fee Rate) 52.27 42.25 955,000 40,349,341 (19.17%) Aetna Vest II (1.00% Fee Rate) 29.14 23.54 620,714 14,610,550 (19.21%) Aetna Vest Plus (1.00% Fee Rate) 24.48 19.78 1,950,315 38,569,814 (19.21%) Aetna Vest Estate Protector (.85% Fee Rate) 17.54 14.19 127,634 1,811,707 (19.09%) Aetna Vest Estate Protector II (.65% Fee Rate) 11.32 9.17 190,137 1,744,272 (18.93%) Corporate Specialty Market (1.00% Fee Rate) 22.12 17.87 777,927 13,899,049 (19.21%) Corporate Specialty Market II (.70% Fee Rate) 11.30 9.16 6,872 62,917 (18.97%) ING VP GROWTH PORTFOLIO: 0.07% Corporate Specialty Market (1.00% Fee Rate) 15.35 11.08 948 10,544 (27.80%) Corporate Specialty Market II (.70% Fee Rate) (1) 15.06 10.91 63 686 (27.59%) ING VP INDEX PLUS LARGE CAP PORTFOLIO: 0.91% Aetna Vest (1.00% Fee Rate) 18.81 16.09 88,236 1,419,557 (14.48%) Aetna Vest II (1.00% Fee Rate) 18.81 16.09 28,450 457,710 (14.48%) Aetna Vest Plus (1.00% Fee Rate) 18.81 16.09 443,738 7,138,938 (14.48%) Aetna Vest Estate Protector (.85% Fee Rate) 18.93 16.21 79,109 1,282,408 (14.35%) Aetna Vest Estate Protector II (.65% Fee Rate) 13.78 11.83 222,600 2,632,372 (14.18%) Corporate Specialty Market (1.00% Fee Rate) 18.81 16.09 95,041 1,528,882 (14.49%) Corporate Specialty Market II (.70% Fee Rate) 13.76 11.80 18,139 214,086 (14.22%) ING VP MONEY MARKET PORTFOLIO: 5.48% Aetna Vest (1.00% Fee Rate) 19.80 20.38 124,544 2,537,919 2.90% Aetna Vest II (1.00% Fee Rate) 14.48 14.90 45,544 678,392 2.90% Aetna Vest Plus (1.00% Fee Rate) 13.60 14.00 1,239,985 17,358,195 2.90% Aetna Vest Estate Protector (.85% Fee Rate) 12.42 12.80 56,149 718,619 3.06% Aetna Vest Estate Protector II (.65% Fee Rate) 11.49 11.86 217,990 2,586,281 3.26% Corporate Specialty Market (1.00% Fee Rate) 13.02 13.39 1,509,812 20,220,377 2.90% Corporate Specialty Market II (.70% Fee Rate) 11.47 11.84 15,604 184,776 3.21% ING VP Small Company Portfolio: 0.65% Corporate Specialty Market (1.00% Fee Rate) 13.81 14.21 38,701 550,101 2.96% Corporate Specialty Market II (.70% Fee Rate) (1) 13.17 13.60 88 1,195 3.30%
B-18 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. CONDENSED FINANCIAL INFORMATION (CONTINUED)
Unit Unit Value Value Beginning End of Units Total Investment Subaccount of Period Period Outstanding Net Assets Return (2) Income Ratio (3) ---------------------------------------------------------------------------------------------------------------------------------- ING VP STRATEGIC ALLOCATION BALANCED PORTFOLIO: 2.65% Aetna Vest (.85% Fee Rate) $ 15.28 $ 14.09 2,426 $ 34,179 (7.78%) Aetna Vest II (1.00% Fee Rate) 15.19 13.99 4,659 65,176 (7.92%) Aetna Vest Plus (1.00% Fee Rate) 15.19 13.99 75,629 1,058,029 (7.92%) Aetna Vest Estate Protector (.85% Fee Rate) 15.30 14.11 657 9,264 (7.78%) Aetna Vest Estate Protector II (.65% Fee Rate) 11.19 10.34 14,305 147,913 (7.60%) ING VP STRATEGIC ALLOCATION GROWTH PORTFOLIO: 1.68% Aetna Vest (.85% Fee Rate) 16.23 14.24 6,039 85,980 (12.29%) Aetna Vest II (1.00% Fee Rate) 16.14 14.14 3,735 52,809 (12.42%) Aetna Vest Plus (1.00% Fee Rate) 16.14 14.14 161,940 2,289,435 (12.42%) Aetna Vest Estate Protector (.85% Fee Rate) 16.26 14.26 23,843 340,000 (12.29%) Aetna Vest Estate Protector II (.65% Fee Rate) 11.25 9.89 12,219 120,858 (12.12%) ING VP STRATEGIC ALLOCATION INCOME PORTFOLIO: 3.87% Aetna Vest (.85% Fee Rate) 14.76 14.29 954 13,626 (3.21%) Aetna Vest II (1.00% Fee Rate) 14.68 14.19 973 13,811 (3.34%) Aetna Vest Plus (1.00% Fee Rate) 14.68 14.19 81,404 1,155,290 (3.34%) Aetna Vest Estate Protector (.85% Fee Rate) 14.79 14.31 4,346 62,210 (3.20%) Aetna Vest Estate Protector II (.65% Fee Rate) 11.50 11.15 27,592 307,770 (3.00%) ING VP VALUE OPPORTUNITY PORTFOLIO: 0.40% Corporate Specialty Market (1.00% Fee Rate) 15.84 14.18 38,615 547,388 (10.52%) Corporate Specialty Market II (.70% Fee Rate) (1) 14.95 13.41 73 977 (10.25%) JANUS ASPEN SERIES AGGRESSIVE GROWTH PORTFOLIO: -- Aetna Vest (1.00% Fee Rate) 36.09 21.63 87,698 1,897,225 (40.05%) Aetna Vest II (1.00% Fee Rate) 36.09 21.63 38,471 832,257 (40.05%) Aetna Vest Plus (1.00% Fee Rate) 36.09 21.63 555,480 12,016,992 (40.05%) Aetna Vest Estate Protector (.85% Fee Rate) 22.02 13.22 94,946 1,255,146 (39.96%) Aetna Vest Estate Protector II (.65% Fee Rate) 19.51 11.73 106,344 1,247,933 (39.84%) Corporate Specialty Market (1.00% Fee Rate) 27.08 16.24 218,248 3,544,448 (40.03%) Corporate Specialty Market II (.70% Fee Rate) 19.48 11.71 11,381 133,308 (39.87%) JANUS ASPEN SERIES BALANCED PORTFOLIO: 2.65% Aetna Vest (1.00% Fee Rate) 27.25 25.72 28,382 730,103 (5.61%) Aetna Vest II (1.00% Fee Rate) 27.47 25.92 25,457 659,962 (5.61%) Aetna Vest Plus (1.00% Fee Rate) 27.24 25.71 510,123 13,116,561 (5.61%) Aetna Vest Estate Protector (.85% Fee Rate) 21.79 20.60 48,619 1,001,607 (5.47%) Aetna Vest Estate Protector II (.65% Fee Rate) 15.43 14.62 149,526 2,185,875 (5.28%) Corporate Specialty Market (1.00% Fee Rate) 23.89 22.54 96,407 2,173,336 (5.64%) Corporate Specialty Market II (.70% Fee Rate) 15.41 14.59 39,767 580,212 (5.33%) JANUS ASPEN SERIES FLEXIBLE INCOME PORTFOLIO: 6.43% Corporate Specialty Market (1.00% Fee Rate) 11.59 12.36 79,710 985,546 6.67% Corporate Specialty Market II (.70% Fee Rate) (1) 11.27 12.05 94 1,131 6.99% JANUS ASPEN SERIES GROWTH PORTFOLIO: 0.07% Aetna Vest (1.00% Fee Rate) 29.32 21.85 50,329 1,099,750 (25.48%) Aetna Vest II (1.00% Fee Rate) 29.30 21.83 60,631 1,323,662 (25.48%) Aetna Vest Plus (1.00% Fee Rate) 29.26 21.80 641,173 13,977,881 (25.48%) Aetna Vest Estate Protector (.85% Fee Rate) 21.50 16.04 92,797 1,488,914 (25.37%) Aetna Vest Estate Protector II (.65% Fee Rate) 15.26 11.41 169,316 1,931,819 (25.22%) Corporate Specialty Market (1.00% Fee Rate) 24.08 17.94 67,484 1,210,763 (25.48%) Corporate Specialty Market II (.70% Fee Rate) (1) 15.24 11.81 64 752 (22.48%) JANUS ASPEN SERIES WORLDWIDE GROWTH PORTFOLIO: 0.49% Aetna Vest (1.00% Fee Rate) 34.34 26.37 110,944 2,925,377 (23.21%) Aetna Vest II (1.00% Fee Rate) 34.35 26.37 47,372 1,249,421 (23.21%) Aetna Vest Plus (1.00% Fee Rate) 34.30 26.34 879,764 23,174,798 (23.21%) Aetna Vest Estate Protector (.85% Fee Rate) 24.93 19.17 120,125 2,303,329 (23.09%) Aetna Vest Estate Protector II (.65% Fee Rate) 16.45 12.68 216,951 2,750,256 (22.94%) Corporate Specialty Market (1.00% Fee Rate) 28.24 21.69 395,234 8,571,957 (23.21%) Corporate Specialty Market II (.70% Fee Rate) 16.43 12.65 22,753 287,876 (22.98%) MFS VIT STRATEGIC INCOME SERIES: -- Corporate Specialty Market (1.00% Fee Rate) (1) 10.58 10.98 18,595 204,208 3.76% Corporate Specialty Market II (.70% Fee Rate) (1) 10.70 11.14 97 1,075 4.10% MFS VIT TOTAL RETURN SERIES: 1.75% Corporate Specialty Market (1.00% Fee Rate) 13.23 13.13 10,958 143,895 (0.75%) Corporate Specialty Market II (.70% Fee Rate) (1) 12.87 12.81 90 1,149 (0.43%) OPPENHEIMER AGGRESSIVE GROWTH FUND: 1.02% Corporate Specialty Market (1.00% Fee Rate) 17.21 11.71 36,602 428,576 (31.95%) Corporate Specialty Market II (.70% Fee Rate) (1) 17.15 11.71 58 683 (31.71%)
B-19 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. CONDENSED FINANCIAL INFORMATION (CONTINUED)
Unit Unit Value Value Beginning End of Units Total Investment Subaccount of Period Period Outstanding Net Assets Return (2) Income Ratio (3) ---------------------------------------------------------------------------------------------------------------------------------- OPPENHEIMER GLOBAL SECURITIES FUND: 0.62% Aetna Vest (1.00% Fee Rate) $ 17.68 $ 15.39 11,724 $ 180,487 (12.91%) Aetna Vest II (1.00% Fee Rate) 17.68 15.39 8,315 128,005 (12.91%) Aetna Vest Plus (1.00% Fee Rate) 17.68 15.39 73,350 1,129,259 (12.91%) Aetna Vest Estate Protector (.85% Fee Rate) 17.75 15.48 9,459 146,463 (12.78%) Aetna Vest Estate Protector II (.65% Fee Rate) 18.22 15.92 14,568 231,954 (12.61%) Corporate Specialty Market (1.00% Fee Rate) 18.70 16.29 12,581 204,901 (12.89%) Corporate Specialty Market II (.70% Fee Rate) (1) 18.30 15.98 62 995 (12.67%) OPPENHEIMER MAIN STREET GROWTH & Income Fund: 1.08% Corporate Specialty Market (1.00% Fee Rate) (1) 11.48 10.22 89 921 (11.02%) Corporate Specialty Market II (.70% Fee Rate) (1) 10.90 9.73 93 906 (10.76%) OPPENHEIMER STRATEGIC BOND FUND: 2.45% Aetna Vest (1.00% Fee Rate) 10.37 10.77 4,401 47,384 3.80% Aetna Vest II (1.00% Fee Rate) 10.37 10.77 526 5,665 3.81% Aetna Vest Plus (1.00% Fee Rate) 10.37 10.77 73,889 795,558 3.80% Aetna Vest Estate Protector (.85% Fee Rate) 10.42 10.83 21,064 228,103 3.96% Aetna Vest Estate Protector II (.65% Fee Rate) 10.45 10.89 42,689 464,887 4.17% Corporate Specialty Market (1.00% Fee Rate) (1) 10.65 11.05 96 1,056 3.81% Corporate Specialty Market II (.70% Fee Rate) 10.46 10.89 23,902 260,266 4.12%
(1) Reflects seed money. No funds have been received for this option. (2) These amounts represent the total return, including changes in the value of the underlying subaccount, and reflect deductions for all items included in the fee rate. The total return does not include contract charges deducted directly from policy account values. (3) These amounts represent the dividends, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense charges, that result in direct reductions in the unit values. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccounts invest. 4. PURCHASES AND SALES OF INVESTMENTS The aggregate cost of investments purchased and the aggregate proceeds from investments sold were as follows for 2002.
Aggregate Aggregate Cost of Proceeds Purchases from Sales ----------------------------------------------------------------------------------------------------------------------- Fidelity VIP Asset Manager Portfolio $ 622,312 $ 381,592 -------------------------------------------------------------------------------------- Fidelity VIP Contrafund Portfolio 80,027,865 80,688,664 -------------------------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio 64,532,435 64,014,210 -------------------------------------------------------------------------------------- Fidelity VIP Growth Portfolio 681,923 669,255 -------------------------------------------------------------------------------------- Fidelity VIP High Income Portfolio 37,844 89,551 -------------------------------------------------------------------------------------- Fidelity VIP Overseas Portfolio 14,754 399,497 -------------------------------------------------------------------------------------- ING Partners JPMorgan Fleming International Portfolio 324,830,828 321,698,943 -------------------------------------------------------------------------------------- ING Partners MFS Capital Opportunities Portfolio 557,579 1,145,972 -------------------------------------------------------------------------------------- ING Partners MFS Research Portfolio 5,684,851 9,176,269 -------------------------------------------------------------------------------------- ING Partners Salomon Brothers Aggressive Growth Portfolio 26,937,621 30,437,959 -------------------------------------------------------------------------------------- ING Partners T. Rowe Price Growth Equity Portfolio 1,564,834 1,351,381 -------------------------------------------------------------------------------------- ING VP Balanced Portfolio 2,496,633 4,030,418 -------------------------------------------------------------------------------------- ING VP Bond Portfolio 4,070,914 9,478,715 -------------------------------------------------------------------------------------- ING VP Growth and Income Portfolio 3,776,155 12,962,629 -------------------------------------------------------------------------------------- ING VP Growth Portfolio -- 1,535 -------------------------------------------------------------------------------------- ING VP Index Plus Large Cap Portfolio 32,581,681 32,149,302 -------------------------------------------------------------------------------------- ING VP Money Market Portfolio 489,491,071 483,925,026 -------------------------------------------------------------------------------------- ING VP Small Company Portfolio 61,200 42,919 -------------------------------------------------------------------------------------- ING VP Strategic Allocation Balanced Portfolio 194,070 283,772 -------------------------------------------------------------------------------------- ING VP Strategic Allocation Growth Portfolio 708,800 410,922 -------------------------------------------------------------------------------------- ING VP Strategic Allocation Income Portfolio 231,530 299,948 -------------------------------------------------------------------------------------- ING VP Value Opportunity Portfolio 81,985 78,666 -------------------------------------------------------------------------------------- Janus Aspen Series Aggressive Growth Portfolio 104,015,823 113,084,137 -------------------------------------------------------------------------------------- Janus Aspen Series Balanced Portfolio 3,278,511 4,833,401 -------------------------------------------------------------------------------------- Janus Aspen Series Flexible Income Portfolio 520,038 567,584 -------------------------------------------------------------------------------------- Janus Aspen Series Growth Portfolio 45,886,761 47,722,517 -------------------------------------------------------------------------------------- Janus Aspen Series Worldwide Growth Portfolio 143,437,482 149,813,019 -------------------------------------------------------------------------------------- MFS VIT Strategic Income Series 136,991 24,214 -------------------------------------------------------------------------------------- MFS VIT Total Return Series 126,799 58,445 -------------------------------------------------------------------------------------- Oppenheimer Aggressive Growth Fund 207,780 143,909 -------------------------------------------------------------------------------------- Oppenheimer Global Securities Fund 3,068,631 2,194,532 -------------------------------------------------------------------------------------- Oppenheimer Main Street Growth & Income Fund 12 41,164 -------------------------------------------------------------------------------------- Oppenheimer Strategic Bond Fund 1,089,481 740,420 --------------------------------------------------------------------------------------
B-20 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. INVESTMENTS The following is a summary of investments owned at December 31, 2002.
Net Value Shares Asset Value of Cost of Outstanding Value Shares Shares ------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Asset Manager Portfolio 70,635 $ 12.75 $ 900,602 $ 981,621 -------------------------------------------------------------------- Fidelity VIP Contrafund Portfolio 971,916 18.10 17,591,675 17,555,172 -------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio 1,258,146 18.16 22,847,931 25,397,689 -------------------------------------------------------------------- Fidelity VIP Growth Portfolio 344,561 23.44 8,076,509 16,053,498 -------------------------------------------------------------------- Fidelity VIP High Income Portfolio 55,864 5.93 331,272 478,981 -------------------------------------------------------------------- Fidelity VIP Overseas Portfolio 124,330 10.98 1,365,147 2,658,902 -------------------------------------------------------------------- ING Partners JPMorgan Fleming International Portfolio 1,933,517 8.17 15,796,836 15,680,455 -------------------------------------------------------------------- ING Partners MFS Capital Opportunities Portfolio 80,145 18.94 1,517,952 2,301,823 -------------------------------------------------------------------- ING Partners MFS Research Portfolio 1,120,103 6.07 6,799,025 8,593,365 -------------------------------------------------------------------- ING Partners Salomon Brothers Aggressive Growth Portfolio 374,561 26.35 9,869,689 12,033,283 -------------------------------------------------------------------- ING Partners T. Rowe Price Growth Equity Portfolio 70,787 34.69 2,455,592 2,979,522 -------------------------------------------------------------------- ING VP Balanced Portfolio 1,698,058 10.73 18,220,166 24,160,967 -------------------------------------------------------------------- ING VP Bond Portfolio 1,259,067 13.53 17,035,173 16,190,871 -------------------------------------------------------------------- ING VP Growth and Income Portfolio 5,183,399 14.50 75,159,289 153,116,662 -------------------------------------------------------------------- ING VP Growth Portfolio 1,057 6.85 7,238 10,714 -------------------------------------------------------------------- ING VP Index Plus Large Cap Portfolio 1,121,270 10.85 12,165,779 12,329,428 -------------------------------------------------------------------- ING VP Money Market Portfolio 3,424,581 13.03 44,606,536 44,573,117 -------------------------------------------------------------------- ING VP Small Company Portfolio 34,097 12.75 434,740 572,662 -------------------------------------------------------------------- ING VP Strategic Allocation Balanced Portfolio 99,781 10.86 1,083,619 1,327,033 -------------------------------------------------------------------- ING VP Strategic Allocation Growth Portfolio 250,236 10.81 2,705,050 3,407,403 -------------------------------------------------------------------- ING VP Strategic Allocation Income Portfolio 124,045 11.09 1,375,657 1,528,351 -------------------------------------------------------------------- ING VP Value Opportunity Portfolio 44,631 9.77 436,048 654,954 -------------------------------------------------------------------- Janus Aspen Series Aggressive Growth Portfolio 877,408 15.84 13,898,140 14,016,547 -------------------------------------------------------------------- Janus Aspen Series Balanced Portfolio 842,111 20.59 17,339,072 20,690,075 -------------------------------------------------------------------- Janus Aspen Series Flexible Income Portfolio 80,665 12.30 992,181 949,867 -------------------------------------------------------------------- Janus Aspen Series Growth Portfolio 955,535 14.61 13,960,371 15,972,444 -------------------------------------------------------------------- Janus Aspen Series Worldwide Growth Portfolio 1,238,653 21.05 26,073,642 26,614,102 -------------------------------------------------------------------- MFS VIT Strategic Income Series 31,589 10.53 332,628 319,070 -------------------------------------------------------------------- MFS VIT Total Return Series 13,766 17.14 235,948 251,243 -------------------------------------------------------------------- Oppenheimer Aggressive Growth Fund 15,493 29.23 452,874 868,034 -------------------------------------------------------------------- Oppenheimer Global Securities Fund 131,424 17.70 2,326,207 2,628,321 -------------------------------------------------------------------- Oppenheimer Strategic Bond Fund 448,651 4.57 2,050,337 2,016,097 --------------------------------------------------------------------
B-21 VARIABLE LIFE B OF ING LIFE INSURANCE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. NEW INVESTMENT FUNDS AND FUND NAME CHANGES During 2002, Aetna Life insurance and Annuity Company family of funds changed its name to ING Life Insurance and Annuity Company (ING VP) and Fidelity Variable Insurance Products Fund II (Fidelity VIP II) family of funds changed its name to Fidelity Variable Insurance Products Fund (Fidelity VIP). Also during 2002, the ING Partners MFS Emerging Equities Portfolio changed its name to the ING Partners Salomon Brothers Aggressive Growth Portfolio, the ING Partners Scudder International Growth Portfolio changed its name to the ING Partners JPMorgan Fleming International Portfolio, the ING VP Ascent Fund changed its name to the ING VP Strategic Allocation Growth Fund, the ING VP Crossroads Fund changed its name to the ING VP Strategic Allocation Balanced Fund, the ING VP Legacy Fund changed its name to the ING VP Strategic Allocation Income, MFS World Government Series changed its name to MFS VIT Strategic Income Series, Oppenheimer Growth & Income Fund changed its name to Oppenheimer Main Street Growth & Income Fund, PPI MFS Research Growth Portfolio changed its name to ING Partners MFS Research Portfolio, PPI MFS Capital Opportunities Portfolio changed its name to ING Partners MFS Capital Opportunities Portfolio, and PPI T. Rowe Price Growth Equity Portfolio changed its name to ING Partners T. Rowe Price Growth Equity Portfolio. B-22 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors of The Lincoln National Life Insurance Company and Contract Owners of Variable Life B of ING Life Insurance and Annuity Company We have audited the accompanying statement of assets and liabilities of Variable Life B of ING Life Insurance and Annuity Company ("Variable Account") (comprised of the following subaccounts: Fidelity Variable Insurance Products Fund ("Fidelity VIP") Asset Manager, Fidelity VIP Contrafund, Fidelity VIP Equity-Income, Fidelity VIP Growth, Fidelity VIP High Income, Fidelity VIP Overseas, ING Partners Inc. ("ING Partners") JPMorgan Fleming International, ING Partners MFS Capital Opportunities, ING Partners MFS Research, ING Partners Salomon Brothers Aggressive Growth, ING Partners T. Rowe Price Growth Equity, ING Funds ("ING VP") Balanced, ING VP Bond, ING VP Growth and Income, ING VP Growth, ING VP Index Plus Large Cap, ING VP Money Market, ING VP Small Company, ING VP Strategic Allocation Balanced, ING VP Strategic Allocation Growth, ING VP Strategic Allocation Income, ING VP Value Opportunity, Janus Aspen Series Aggressive Growth, Janus Aspen Series Balanced, Janus Aspen Series Flexible Income, Janus Aspen Series Growth, Janus Aspen Series Worldwide Growth, MFS Variable Insurance Trust ("MFS VIT") Strategic Income, MFS VIT Total Return, Oppenheimer Funds ("Oppenheimer") Aggressive Growth, Oppenheimer Global Securities, Oppenheimer Main Street Growth & Income, and Oppenheimer Strategic Bond) as of December 31, 2002 and the related statements of operations and changes in net assets for each of the three years in the period then ended. These financial statements are the responsibility of the Variable Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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. Our procedures included confirmation of investments owned as of December 31, 2002, by correspondence with the custodian. 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 financial statements referred to above present fairly, in all material respects, the financial position of each of the respective subaccounts constituting the Variable Life B of ING Life Insurance and Annuity Company as of December 31, 2002 and the results of their operations and changes in their net assets for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States. /s/Ernst & Young LLP Fort Wayne, Indiana March 3, 2003 B-23 ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF ING RETIREMENT HOLDINGS, INC.) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Reports of Independent Auditors................... F-2 Consolidated Financial Statements: Consolidated Income Statements for the years ended December 31, 2002 and 2001, one month ended December 31, 2000 and eleven months ended November 30, 2000.................... F-4 Consolidated Balance Sheets as of December 31, 2002 and 2001................. F-5 Consolidated Statements of Changes in Shareholder's Equity for the years ended December 31, 2002 and 2001, one month ended December 31, 2000 and eleven months ended November 30, 2000.......................... F-6 Consolidated Statements of Cash Flows for the years ended December 31, 2002 and 2001, one month ended December 31, 2000 and eleven months ended November 30, 2000............. 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 sheets of ING Life Insurance and Annuity Company as of December 31, 2002 and 2001, and the related income statements, statements of changes in shareholder's equity, and statements of cash flows for each of the years then 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 audits. We conducted our audits 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 audits provide 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 at December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States. As discussed in Note 1 to the financial statements, the Company changed the accounting principle for goodwill and other intangible assets effective January 1, 2002. /s/ Ernst & Young LLP Atlanta, Georgia March 25, 2003 F-2 INDEPENDENT AUDITORS' REPORT The Shareholders and Board of Directors ING Life Insurance and Annuity Company We have audited the accompanying consolidated statements of income, changes in shareholder's equity and cash flows of ING Life Insurance and Annuity Company and Subsidiaries, formerly known as Aetna Life Insurance and Annuity Company and Subsidiaries, 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 ("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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 results of operations and cash flows of ING Life Insurance and Annuity Company and Subsidiaries 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, 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 ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly-owned subsidiary of ING Retirement Holdings, Inc.) CONSOLIDATED INCOME STATEMENTS (Millions)
Preacquisition One month Eleven months Year ended Year ended ended ended December 31, December 31, December 31, November 30, 2002 2001 2000 2000 ------------- ------------- ------------- -------------- Revenues: Premiums $ 98.7 $ 114.2 $ 16.5 $ 137.7 Fee income 418.2 553.4 49.8 573.3 Net investment income 959.5 888.4 78.6 833.8 Net realized capital gains (losses) (101.0) (21.0) 1.8 (37.2) --------- -------- ------ -------- Total revenue 1,375.4 1,535.0 146.7 1,507.6 --------- -------- ------ -------- Benefits, losses and expenses: Benefits: Interest credited and other benefits to policyholders 746.4 729.6 68.9 726.7 Underwriting, acquisition, and insurance expenses: Operating expenses 361.4 444.2 49.1 414.6 Amortization: Deferred policy acquisition costs and value of business acquired 181.5 112.0 10.2 116.7 Goodwill -- 61.9 -- -- --------- -------- ------ -------- Total benefits, losses and expenses 1,289.3 1,347.7 128.2 1,258.0 --------- -------- ------ -------- Income before income taxes, discontinued operations and cumulative effect of change in accounting principle 86.1 187.3 18.5 249.6 Income tax expense 18.6 87.4 5.9 78.1 --------- -------- ------ -------- Income before discontinued operations and cumulative effect of change in accounting principle 67.5 99.9 12.6 171.5 Discontinued operations, net of tax -- -- -- 5.7 Cumulative effect of change in accounting principle (2,412.1) -- -- -- --------- -------- ------ -------- Net income (loss) $(2,344.6) $ 99.9 $ 12.6 $ 177.2 ========= ======== ====== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-4 ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly-owned subsidiary of ING Retirement Holdings, Inc.) CONSOLIDATED BALANCE SHEETS (Millions, except share data)
As of December 31, -------------------- 2002 2001 --------- --------- ASSETS Investments: Fixed maturities, available for sale, at fair value (amortized cost of $15,041.2 at 2002 and $13,249.2 at 2001) $15,767.0 $13,539.9 Equity securities at fair value: Nonredeemable preferred stock (cost of $34.2 at 2002 and $27.0 at 2001) 34.2 24.6 Investment in affiliated mutual funds (cost of $203.9 at 2002 and $22.9 at 2001) 201.0 25.0 Common stock (cost of $0.2 at 2002 and $2.3 at 2001) 0.2 0.7 Mortgage loans on real estate 576.6 241.3 Policy loans 296.3 329.0 Short-term investments 6.2 31.7 Other investments 52.2 18.2 Securities pledged to creditors (amortized cost of $154.9 at 2002 and $466.9 at 2001) 155.0 467.2 --------- --------- Total investments 17,088.7 14,677.6 Cash and cash equivalents 65.4 82.0 Short term investments under securities loan agreement 164.3 488.8 Accrued investment income 170.9 160.9 Reciprocal loan with affiliate -- 191.1 Reinsurance recoverable 2,986.5 2,990.7 Deferred policy acquisition costs 229.8 121.3 Value of business acquired 1,438.4 1,601.8 Goodwill (net of accumulated amortization of $61.9 at 2001) -- 2,412.1 Property, plant and equipment (net of accumulated depreciation of $56.0 at 2002 and $33.9 at 2001) 49.8 66.1 Other assets 145.8 149.7 Assets held in separate accounts 28,071.1 32,663.1 --------- --------- Total assets $50,410.7 $55,605.2 ========= ========= LIABILITIES AND SHAREHOLDER'S EQUITY Policy liabilities and accruals: Future policy benefits and claims' reserves $ 3,305.2 $ 3,996.8 Unpaid claims and claim expenses 30.0 28.8 Other policyholder's funds 14,756.0 12,135.8 --------- --------- Total policy liabilities and accruals 18,091.2 16,161.4 Payables under securities loan agreement 164.3 488.8 Current income taxes 84.5 59.2 Deferred income taxes 163.1 153.7 Other liabilities 1,573.7 1,624.7 Liabilities related to separate accounts 28,071.1 32,663.1 --------- --------- Total liabilities 48,147.9 51,150.9 --------- --------- Shareholder's equity: Common stock (100,000 shares authorized; 55,000 shares issued and outstanding, $50.00 per share par value) 2.8 2.8 Additional paid-in capital 4,416.5 4,292.4 Accumulated other comprehensive income 108.3 46.6 Retained earnings (deficit) (2,264.8) 112.5 --------- --------- Total shareholder's equity 2,262.8 4,454.3 --------- --------- Total liabilities and shareholder's equity $50,410.7 $55,605.2 ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-5 ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly-owned subsidiary of ING Retirement Holdings, Inc.) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (Millions)
Accumulated Other Additional Comprehensive Retained Total Common Paid-in- Income Earnings Shareholder's Stock Capital (Loss) (Deficit) Equity ------ ---------- ------------- --------- ------------- Balance at December 31, 1999 $2.8 $ 431.9 $(44.8) $ 995.8 $ 1,385.7 Comprehensive income: Net income -- -- -- 177.2 177.2 Other comprehensive income net of tax: Unrealized gain on securities ($79.4 pretax) -- -- 51.6 -- 51.6 --------- Comprehensive income 228.8 Adjustment for purchase accounting -- 3,751.7 -- (1,173.0) 2,578.7 Capital contributions -- 129.5 -- -- 129.5 Common stock dividends -- (10.1) -- -- (10.1) Other changes -- 0.8 -- -- 0.8 ---- -------- ------ --------- --------- Balance at November 30, 2000 2.8 4,303.8 6.8 -- 4,313.4 Comprehensive income: Net income -- -- -- 12.6 12.6 Other comprehensive income net of tax: Unrealized gain on securities ($28.7 pretax) -- -- 18.6 -- 18.6 --------- Comprehensive income 31.2 ---- -------- ------ --------- --------- Balance at December 31, 2000 2.8 4,303.8 25.4 12.6 4,344.6 Comprehensive income: Net income -- -- -- 99.9 99.9 Other comprehensive income net of tax: Unrealized gain on securities ($32.5 pretax) -- -- 21.2 -- 21.2 --------- Comprehensive income 121.1 Return of capital -- (11.3) -- -- (11.3) Other changes -- (0.1) -- -- (0.1) ---- -------- ------ --------- --------- Balance at December 31, 2001 2.8 4,292.4 46.6 112.5 4,454.3 Comprehensive income: Net (loss) -- -- -- (2,344.6) (2,344.6) Other comprehensive income net of tax: Unrealized gain on securities ($94.9 pretax) -- -- 61.7 -- 61.7 --------- Comprehensive (loss) (2,282.9) Distribution of IA Holdco -- (27.4) -- (32.7) (60.1) Capital contributions -- 164.3 -- -- 164.3 SERP -- transfer -- (15.1) -- -- (15.1) Other changes -- 2.3 -- -- 2.3 ---- -------- ------ --------- --------- Balance at December 31, 2002 $2.8 $4,416.5 $108.3 $(2,264.8) $ 2,262.8 ---- -------- ------ --------- ---------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly-owned subsidiary of ING Retirement Holdings, Inc.) CONSOLIDATED STATEMENTS OF CASH FLOWS (Millions)
Preacquisition -------------- One month Eleven months Year ended Year ended ended ended December 31, December 31, December 31, November 30, 2002 2001 2000 2000 ----------------------- --------------- --------------- -------------- Cash Flows from Operating Activities: Net income (loss) $ (2,344.6) $ 99.9 $ 12.6 $ 177.2 Adjustments to reconcile net income to net cash provided by operating activities: Net amortization or (accretion) of discount on investments 115.5 (1.2) (2.7) (32.6) Amortization of deferred gain on sale -- -- -- (5.7) Net realized capital (gains) losses 101.0 21.0 (1.8) 37.2 (Increase) decrease in accrued investment income (10.0) (13.7) 6.6 (3.1) (Increase) decrease in premiums due and other receivables 172.7 (95.6) 31.1 (23.7) (Increase) decrease in policy loans -- 10.3 0.1 (25.4) (Increase) decrease in deferred policy acquisition costs (108.5) (121.3) (12.2) (136.6) (Increase) decrease in value of business acquired 139.4 13.9 -- -- Amortization of goodwill -- 61.9 -- -- Impairment of goodwill 2,412.1 -- -- -- Increase (decrease) in universal life account balances -- 17.6 (3.8) 23.8 Change in other insurance reserve liabilities 953.7 (136.3) (5.3) 85.6 Change in other assets and liabilities 72.8 (68.0) 103.9 (75.2) Provision for deferred income taxes 23.6 89.5 (14.3) 23.1 ---------- ---------- ------- ---------- Net cash provided by (used for) operating activities 1,527.7 (122.0) 114.2 44.6 ---------- ---------- ------- ---------- Cash Flows from Investing Activities: Proceeds from the sale of: Fixed maturities available for sale 24,980.4 14,216.7 233.0 10,083.2 Equity securities 57.2 4.4 1.5 118.4 Mortgages 2.0 5.2 0.1 2.1 Investment maturities and collections of: Fixed maturities available for sale 1,334.9 1,121.8 53.7 573.1 Short-term investments 11,796.7 7,087.3 0.4 59.9 Acquisition of investments: Fixed maturities available for sale (28,105.5) (16,489.8) (230.7) (10,505.5) Equity securities (81.8) (50.0) (27.8) (17.6) Short-term investments (11,771.3) (6,991.1) (10.0) (113.1) Mortgages (343.7) (242.0) -- -- (Increase) decrease in policy loans 32.7 -- -- -- (Increase) decrease in property and equipment (5.8) 7.4 1.9 5.4 Other, net (47.8) (4.7) 0.3 (4.0) ---------- ---------- ------- ---------- Net cash provided by (used for) investing activities (2,152.0) (1,334.8) 22.4 201.9 ---------- ---------- ------- ---------- Cash Flows from Financing Activities: Deposits and interest credited for investment contracts 1,332.5 1,941.5 164.2 1,529.7 Maturities and withdrawals from insurance contracts (741.4) (1,082.7) (156.3) (1,832.6) Capital contribution from HOLDCO -- -- -- 73.5 Return of capital -- (11.3) -- -- Dividends paid to shareholder -- -- -- (10.1) Other, net 16.6 (105.0) (73.6) 22.0 ---------- ---------- ------- ---------- Net cash provided by (used for) financing activities 607.7 742.5 (65.7) (217.5) ---------- ---------- ------- ---------- Net increase (decrease) in cash and cash equivalents (16.6) (714.3) 70.9 29.0 Effect of exchange rate changes on cash and cash equivalents -- -- -- 2.0 Cash and cash equivalents, beginning of period 82.0 796.3 725.4 694.4 ---------- ---------- ------- ---------- Cash and cash equivalents, end of period $ 65.4 $ 82.0 $ 796.3 $ 725.4 ========== ========== ======= ========== Supplemental cash flow information: Income taxes (received) paid, net $ 6.7 $ (12.3) $ 20.3 $ 39.9 ========== ========== ======= ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include ING Life Insurance and Annuity Company ("ILAIC" or the "Company") and its wholly-owned subsidiaries, ING Insurance Company of America ("IICA"), ING Financial Advisors, LLC ("IFA"), and through February 28, 2002, Aetna Investment Adviser Holding Company, Inc. ("IA Holdco"). The Company is a wholly-owned subsidiary of ING Retirement Holdings, Inc. ("HOLDCO"), which is a wholly-owned subsidiary of ING Retirement Services, Inc. ("IRSI"). IRSI is ultimately owned by ING Groep N.V. ("ING"), a financial services company based in the Netherlands. HOLDCO contributed IFA to the Company on June 30, 2000 and contributed IA Holdco to the Company on July 1, 1999. On February 28, 2002, ILIAC distributed 100% of the stock of IA Holdco to HOLDCO in the form of a $60.1 million dividend distribution. The primary operating subsidiary of IA Holdco is Aeltus Investment Management, Inc. ("Aeltus"). Accordingly, fees earned by Aeltus were not included in Company results subsequent to the dividend date. As a result of this transaction, the Investment Management Services is no longer reflected as an operating segment of the Company. 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 Aetna International businesses, for approximately $7,700.0 million. The purchase price was comprised of approximately $5,000.0 million in cash and the assumption of $2,700.0 million 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 IRSI (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 were excluded from the pre-acquisition Consolidated Statement of Cash Flows 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 $2,297.4 million. Goodwill was amortized over a period of 40 years prior to January 1, 2002. The allocation of the purchase price to assets and liabilities was subjected to further refinement throughout 2001 as additional information became available to more precisely estimate the fair F-8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (continued) values of the Company's respective assets and liabilities at the purchase date. The refinements to the Company's purchase price allocations were 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; 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 other policyholders' funds 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 were 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, assuming that the acquisition of the Company occurred at the beginning of each period, would have been approximately $118.1 million. The pro forma adjustments, which did 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. In the fourth quarter of 2001, ING announced its decision to pursue a move to a fully integrated U.S. structure that would separate manufacturing from distribution in its retail and worksite operations to support a more customer-focused business strategy. As a result of the integration, the Company's Worksite Products and Individual Products operating segments were realigned into one reporting segment, U.S. Financial Services ("USFS"). F-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (continued) USFS offers qualified and nonqualified annuity contracts that include a variety of funding and payout options for individuals and employer sponsored retirement plans qualified under Internal Revenue Code Sections 401, 403 and 457, as well as nonqualified deferred compensation plans. Annuity contracts may be deferred or immediate (payout annuities). These products also include programs offered to qualified plans and nonqualified deferred compensation plans that package administrative and record-keeping services along with a menu of investment options, including affiliated and nonaffiliated mutual funds and variable and fixed investment options. In addition, USFS offers wrapper agreements entered into with retirement plans which contain certain benefit responsive guarantees (i.e. liquidity guarantees of principal and previously accrued interest for benefits paid under the terms of the plan) with respect to portfolios of plan-owned assets not invested with the Company. USFS also offers investment advisory services and pension plan administrative services. Investment Management Services, through February 28, 2002, provided: investment advisory services to affiliated and unaffiliated institutional and retail clients on a fee-for-service basis; underwriting services to the ING Series Fund, Inc. (formerly known as the Aetna Series Fund, Inc.), and the ING Variable Portfolios, Inc. (formerly known as the Aetna Variable Portfolios, Inc.); distribution services for other company products; and trustee, administrative, and other fiduciary services to retirement plans requiring or otherwise utilizing a trustee or custodian. Discontinued Operations included universal life, variable universal life, traditional whole life and term insurance. DESCRIPTION OF BUSINESS The Company offers annuity contracts that include a variety of funding and payout options for employer-sponsored retirement plans qualified under Internal Revenue Code Sections 401, 403, 408 and 457, as well as nonqualified deferred. The Company's products are offered primarily to individuals, pension plans, small businesses and employer-sponsored groups in the health care, government, educations (collectively "not-for-profit" organizations) and corporate markets. The Company's products generally are sold through pension professionals, independent agents and brokers, third party administrators, banks, dedicated career agents and financial planners. NEW ACCOUNTING STANDARDS ACCOUNTING FOR GOODWILL AND INTANGIBLE ASSETS In June 2001, the Financial Accounting Standards Board ("FASB") issued FAS No. 142, "Goodwill and Other Intangible Assets," ("FAS No.142"), effective for fiscal years beginning after December 15, 2001. Under FAS No. 142, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. Other intangible assets are still amortized over their estimated useful lives. The Company adopted the new standard effective January 1, 2002. F-10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (continued) As required under FAS No. 142, the Company completed the first of the required impairment tests as of January 1, 2002. Step one of the impairment test was a screen for potential impairment, while step two measured the amount of the impairment. All of the Company's operations fall under one reporting unit, USFS, due to the consolidated nature of the Company's operations. Step one of the impairment test required the Company to estimate the fair value of the reporting unit and compare the estimated fair value to its carrying value. The Company determined the estimated fair value utilizing a discounted cash flow approach and applying a discount rate equivalent to the Company's weighted average cost of capital. Fair value was determined to be less than carrying value which required the Company to complete step two of the test. In step two, the Company allocated the fair value of the reporting unit determined in step one to the assets and liabilities of the reporting unit resulting in an implied fair value of goodwill of zero. The comparison of the fair value amount allocated to goodwill and the carrying value of goodwill resulted in an impairment loss of $2,412.1 million, which represents the entire carrying amount of goodwill, net of accumulated amortization. This impairment charge is shown as a change in accounting principle on the Consolidated Income Statement. Application of the nonamortization provision (net of tax) of the new standard resulted in an increase in net income of $61.9 million for the twelve months ended December 31, 2002. Had the Company been accounting for goodwill under FAS No. 142 for all periods presented, the Company's net income would have been as follows:
Preacquisition -------------- One month Eleven months Year ended ended ended December 31, December 31, November 30, (Millions) 2001 2000 2000 Reported net income after tax $ 99.9 $12.6 $177.2 Add back goodwill amortization, net of tax 61.9 -- -- ------------------------------------------------------------------------------------- Adjusted net income after tax $161.8 $12.6 $177.2 =====================================================================================
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the FASB issued FAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted by FAS No. 137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement 133, FAS No.138, Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an Amendment of FAS 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 No. 133 was effective for the Company's financial statements beginning January 1, 2001. F-11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Adoption of FAS No.133 did not have a material effect on the Company's financial position or results of operations given the Company's limited derivative and embedded derivative holdings. The Company utilizes, interest rate swaps, caps and floors, foreign exchange swaps 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 overall risk management program. 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 that underlie the warrants are non-public companies. At December 31, 2002 and 2001, the estimated value of these warrants, including the value of their effectiveness, in managing market risk, 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 not clearly and closely related to the economic characteristics of the host contract and that a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract and carried at fair value. However, in cases where the host contract is measured at fair value, with changes in fair value reported in current period earnings or the Company is unable to reliably identify and measure the embedded derivative for separation from its host contracts, the entire contract is carried on the balance sheet at fair value and is not designated as a hedging instrument. F-12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (continued) GUARANTEES In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," to clarify accounting and disclosure requirements relating to a guarantor's issuance of certain types of guarantees. FIN 45 requires entities to disclose additional information of certain guarantees, or groups of similar guarantees, even if the likelihood of the guarantor's having to make any payments under the guarantee is remote. The disclosure provisions are effective for financial statements for fiscal years ended after December 15, 2002. For certain guarantees, the interpretation also requires that guarantors recognize a liability equal to the fair value of the guarantee upon its issuance. This initial recognition and measurement provision is to be applied only on a prospective basis to guarantees issued or modified after December 31, 2002. The Company has performed an assessment of its guarantees and believes that all of its guarantees are excluded from the scope of this interpretation. FUTURE ACCOUNTING STANDARDS EMBEDDED DERIVATIVES The FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS No.133") in 1998 and continues to issue guidance for implementation through its Derivative Implementation Group ("DIG"). DIG recently released a draft of FASB Statement 133 Implementation Issue B36, "Embedded Derivatives: Bifurcation of a Debt Instrument That Incorporates Both Interest Rate Risk and Credit Risk Exposures That are Unrelated or Only Partially Related to the Creditworthiness of the Issuer of That Instrument" ("DIG B36"). Under this interpretation, modified coinsurance and coinsurance with funds withheld reinsurance agreements as well as other types of receivables and payables where interest is determined by reference to a pool of fixed maturity assets or total return debt index may be determined to contain bifurcatable embedded derivatives. The required date of adoption of DIG B36 has not been determined. If the guidance is finalized in its current form, the Company has determined that certain of its existing reinsurance receivables (payables), investments or insurance products contain embedded derivatives that may require bifurcation. The Company has not yet completed its evaluation of the potential impact, if any, on its consolidated financial positions, results of operations, or cash flows. FASB INTERPRETATION NO. 46 CONSOLIDATION OF VARIABLE INTEREST ENTITIES In January 2003, FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities" ("VIE"), an interpretation of Accounting Research Bulletin ("ARB") No. 51. This Interpretation addresses consolidation by business enterprises of variable interest entities, which have one or both of the following characteristics: a) insufficient equity investment at risk, or b) insufficient control by equity investors. This guidance is effective for VIEs created after January 31, 2003 and for existing VIEs as of July 1, 2003. An entity with variable interest in VIEs created before February 1, 2003 shall apply the guidance no later than the beginning of the first interim or annual reporting period beginning after June 15, 2003. F-13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (continued) In conjunction with the issuance of this guidance, the Company conducted a review of its involvement with the VIEs and does not believe it has any significant investments or ownership in VIEs. 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. RECLASSIFICATIONS Certain reclassifications have been made to prior year financial information to conform to the current year classifications. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand, money market instruments and other debt issues with a maturity of 90 days or less when purchased. INVESTMENTS All of the Company's fixed maturity and equity securities are currently designated as available-for-sale. Available-for-sale securities are reported at fair value and unrealized gains and losses on these securities are included directly in shareholder's equity, after adjustment for related charges in deferred policy acquisition costs, value of business acquired, and deferred income taxes. The Company analyzes the general account investments to determine whether there has been an other than temporary decline in fair value below the amortized cost basis in accordance with FAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Management considers the length of time and the extent to which the fair value has been less than amortized cost; the financial condition and near-term prospects of the issuer; future economic conditions and market forecasts; and the Company's intent and ability to retain the investment in the issuer for a period of time sufficient to allow for recovery in fair value. If it is probable that all amounts due according to the contractual terms of a debt security will not be collected, an other than temporary impairment is considered to have occurred. In addition, the Company invests in structured securities that meet the criteria of Emerging Issues Task Force ("EITF") Issue No. 99-20 "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets." Under Issue No. EITF 99-20, a determination of the required impairment is based on credit risk and the possibility of significant prepayment risk that restricts the Company's ability to recover the investment. An impairment is recognized if the fair value of the security is less than amortized cost and there has been an adverse change in cash flow since the last remeasurement date. F-14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (continued) When a decline in fair value is determined to be other than temporary, the individual security is written down to fair value and the loss is accounted for as a realized loss. Included in available-for-sale securities are investments that support experience-rated products. Experience-rated products are products where the customer, not the Company, assumes investment (including realized capital gains and losses) and other risks, subject to, among other things, minimum guarantees. Realized gains and losses on the sale of, as well as unrealized capital gains and losses on, investments supporting these products are reflected in other policyholders' funds. 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. Purchases and sales of fixed maturities and equity securities (excluding private placements) are recorded on the trade date. Purchases and sales of private placements and mortgage loans are recorded on the closing date. Fair values for fixed 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, F-15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (continued) 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, 2002 Amortized Unrealized Unrealized Fair (Millions) Cost Gains Losses Value Total securities pledged to creditors $154.9 $0.1 $ -- $155.0 ===========================================================================
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 ===========================================================================
Total securities pledged to creditors at December 31, 2002 and 2001 consisted entirely of fixed maturity securities. The investment in affiliated mutual funds represents an investment in mutual funds managed by the Company and its affiliates, and is carried at fair value. Mortgage loans on real estate are reported at amortized cost less impairment writedowns. If the value of any mortgage loan is determined to be impaired (i.e., when it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement), the carrying value of the mortgage loan is reduced to the present value of expected cash flows from the loan, discounted at the loan's effective interest rate, or to the loan's observable market price, or the fair value of the underlying collateral. The carrying value of the impaired loans is reduced by establishing a permanent writedown charged to realized loss. Policy loans are carried at unpaid principal balances, net of impairment reserves. Short-term investments, consisting primarily of money market instruments and other fixed maturity securities 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. Reverse dollar repurchase agreement and reverse repurchase agreement transactions are accounted for as collateralized borrowings, where the amount borrowed is equal to the sales price of the underlying securities. These transactions are reported in "Other Liabilities." The Company's use of derivatives is limited to economic 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. F-16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (continued) On occasion, the Company sells call options written on underlying securities that are carried at fair value. Changes in the fair value of these options are recorded in net realized capital gains or losses. DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED Deferred Policy Acquisition Costs ("DAC") is an asset, which represents certain costs of acquiring certain insurance business, which are deferred and amortized. These costs, all of which vary with and are primarily related to the production of new and renewal business, consist principally of commissions, certain underwriting and contract issuance expenses, and certain agency expenses. VOBA is an asset, which represents the present value of estimated net cash flows embedded in the Company's contracts, which existed at the time the Company was acquired by ING. DAC and VOBA are evaluated for recoverability at each balance sheet date and these assets would be reduced to the extent that gross profits are inadequate to recover the asset. The amortization methodology varies by product type based upon two accounting standards: FAS No. 60, "Accounting and Reporting by Insurance Enterprises" ("FAS No. 60") and FAS No. 97, "Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and Realized Gains and Losses from the Sale of Investments" ("FAS No. 97"). Under FAS No. 60, acquisition costs for traditional life insurance products, which primarily include whole life and term life insurance contracts, are amortized over the premium payment period in proportion to the premium revenue recognition. Under FAS No. 97, acquisition costs for universal life and investment-type products, which include universal life policies and fixed and variable deferred annuities, are amortized over the life of the blocks of policies (usually 25 years) in relation to the emergence of estimated gross profits from surrender charges, investment margins, mortality and expense margins, asset-based fee income, and actual realized gains (losses) on investments. Amortization is adjusted retrospectively when estimates of current or future gross profits to be realized from a group of products are revised. DAC and VOBA are written off to the extent that it is determined that future policy premiums and investment income or gross profits are not adequate to cover related expenses. Activity for the year-ended December 31, 2002 within VOBA was as follows:
(Millions) Balance at December 31, 2001 $1,601.8 Adjustment for unrealized gain (loss) (21.9) Additions 25.0 Interest accrued at 7% 86.8 Amortization (253.3) ------------------------------------------------------------ Balance at December 31, 2002 $1,438.4 ============================================================
F-17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (continued) The estimated amount of VOBA to be amortized, net of interest, over the next five years is $105.6 million, $102.1 million, $101.9 million, $91.5 million and $88.3 million for the years 2003, 2004, 2005, 2006 and 2007, respectively. Actual amortization incurred during these years may vary as assumptions are modified to incorporate actual results. As part of the regular analysis of DAC/VOBA, at the end of third quarter 2002, the Company unlocked its assumptions by resetting its near-term and long-term assumptions for the separate account returns to 9% (gross before fund management fees and mortality and expense and other policy charges), reflecting a blended return of equity and other sub-accounts. This unlocking adjustment was primarily driven by the sustained downturn in the equity markets and revised expectations for future returns. In 2002, the Company recorded an acceleration of DAC/VOBA amortization totaling $45.6 million before tax, or $29.7 million, net $15.9 million of federal income tax benefit. POLICY LIABILITIES AND ACCRUALS Future policy benefits and claims reserves 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 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. Other policyholders' funds 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 12.3% 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. F-18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Unpaid claims and claim expenses 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, fee income for the cost of insurance, expenses, and other fees are recorded as revenue in and are included in the fee income line on the Income Statements assessed against policyholders. Other amounts received for these contracts are reflected as deposits and are not recorded as revenue but are included in the other policyholders' funds line on the Balance Sheets. 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 Income Statements. SEPARATE ACCOUNTS Separate Account assets and liabilities generally represent funds maintained to meet specific investment objectives of contractholders who bear the investment risk, subject, in some cases, to minimum guaranteed rates. Investment income and investment gains and losses generally accrue directly to such contractholders. The assets of each account are legally segregated and are not subject to claims that arise out of any other business of the Company. Separate Account assets supporting variable options under universal life and annuity contracts are invested, as designated by the contractholder or participant under a contract (who bears the investment risk subject, in limited cases, to minimum guaranteed rates) in shares of mutual funds which are managed by the Company, or other selected mutual funds not managed by the Company. Separate Account assets are carried at fair value. At December 31, 2002 and 2001, unrealized gains of $29.7 million and of $10.8 million, respectively, after taxes, on assets supporting a guaranteed interest option are reflected in shareholder's equity. Separate Account 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 10.0% in 2002 and 3.0% to 14.0% in 2001. Separate Account 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 F-19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (continued) 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 Balance Sheets. Of the reinsurance recoverable on the Balance Sheets, $3.0 billion at both December 31, 2002 and 2001 is related to the reinsurance recoverable from Lincoln arising from the sale of the Company's domestic life insurance business. 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-20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. INVESTMENTS Fixed maturities available for sale as of December 31 were as follows:
Gross Gross Amortized Unrealized Unrealized Fair 2002 (Millions) Cost Gains Losses Value U.S. government and government agencies and authorities $ 74.2 $ 2.9 $ -- $ 77.1 States, municipalities and political subdivisions 10.2 2.5 -- 12.7 U.S. corporate securities: Public utilities 627.6 28.1 6.4 649.3 Other corporate securities 7,742.6 543.5 33.1 8,253.0 ------------------------------------------------------------------------------ Total U.S. corporate securities 8,370.2 571.6 39.5 8,902.3 ------------------------------------------------------------------------------ Foreign securities: Government 336.9 18.2 6.6 348.5 Other 148.0 8.4 1.2 155.2 ------------------------------------------------------------------------------ Total foreign securities 484.9 26.6 7.8 503.7 ------------------------------------------------------------------------------ Mortgage-backed securities 5,374.2 167.1 34.0 5,507.3 Other asset-backed securities 882.4 47.0 10.5 918.9 ------------------------------------------------------------------------------ Total fixed maturities, including fixed maturities pledged to creditors 15,196.1 817.7 91.8 15,922.0 Less: Fixed maturities pledged to creditors 154.9 0.1 -- 155.0 ------------------------------------------------------------------------------ Fixed maturities $15,041.2 $817.6 $91.8 $15,767.0 ==============================================================================
F-21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. INVESTMENTS (continued)
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 fixed maturities, including fixed maturities pledged to creditors 13,716.1 390.6 99.6 14,007.1 Less: Fixed maturities pledged to creditors 466.9 1.1 0.8 467.2 ------------------------------------------------------------------------------ Fixed maturities $13,249.2 $389.5 $98.8 $13,539.9 ==============================================================================
At December 31, 2002 and 2001, net unrealized appreciation of $725.9 million and $291.0 million, respectively, on available-for-sale fixed maturities including fixed maturities pledged to creditors included $563.1 million and $233.0 million, respectively, related to experience-rated contracts, which were not reflected in shareholder's equity but in other policyholders' funds. F-22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. INVESTMENTS (continued) The amortized cost and fair value of total fixed maturities for the year-ended December 31, 2002 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 $ -- $ -- After one year through five years 1,826.6 1,907.8 After five years through ten years 3,455.2 3,673.3 After ten years 3,657.7 3,914.7 Mortgage-backed securities 5,374.2 5,507.3 Other asset-backed securities 882.4 918.9 Less: Fixed maturities securities pledged to creditor 154.9 155.0 -------------------------------------------------------------- Fixed maturities $15,041.2 $15,767.0 ==============================================================
At December 31, 2002 and 2001, fixed maturities with carrying values of $10.5 million and $9.0 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, 2002 or 2001. The Company has various categories of CMOs that 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, 2002 and 2001, approximately 5.5% and 3.0%, respectively, of the Company's CMO holdings were invested in types of CMOs which are subject to more prepayment and extension risk than traditional CMOs (such as interest-only or principal-only strips). Investments in equity securities as of December 31 were as follows:
(Millions) 2002 2001 Amortized Cost $238.3 $52.2 Gross unrealized gains -- 4.5 Gross unrealized losses 2.9 6.4 ------------------------------------------------------- Fair Value $235.4 $50.3 =======================================================
Beginning in April 2001, the Company entered into reverse dollar repurchase agreement and reverse repurchase agreement transactions to increase its return on investments and improve liquidity. These transactions involve a sale of securities and an agreement to repurchase F-23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. INVESTMENTS (continued) substantially the same securities as those sold. The dollar rolls and reverse repurchase agreements are accounted for as short-term collateralized financings and the repurchase obligation is reported as borrowed money in "Other Liabilities" on the Consolidated Balance Sheets. The repurchase obligation totaled $1.3 billion at December 31, 2002. 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, 2002. The Company believes the counterparties to the dollar roll and reverse repurchase agreements are financially responsible and that the counterparty risk is immaterial. IMPAIRMENTS During 2002, the Company determined that fifty-six fixed maturity securities had other than temporary impairments. As a result, at December 31, 2002, the Company recognized a pre-tax loss of $106.4 million to reduce the carrying value of the fixed maturity securities to their combined fair value of $124.7 million. During 2001, the Company determined that fourteen fixed maturity securities had other than temporary impairments. As a result, at December 31, 2001, the Company recognized a pre-tax loss of $51.8 million to reduce the carrying value of the fixed maturities to their value of $10.5 million. 3. FINANCIAL INSTRUMENTS ESTIMATED FAIR VALUE The following disclosures are made in accordance with the requirements of FAS No. 107, "Disclosures about Fair Value of Financial Instruments." FAS No. 107 requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates, in many cases, could not be realized in immediate settlement of the instrument. FAS No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The following valuation methods and assumptions were used by the Company in estimating the fair value of the above financial instruments: FIXED MATURITIES: The fair values for the actively traded marketable bonds are determined based upon the quoted market prices. The fair values for marketable bonds without an active market are obtained through several commercial pricing services which provide the estimated fair values. Fair values of privately placed bonds are determined using a matrix-based pricing model. The model considers the current level of risk-free interest rates, current corporate spreads, the credit F-24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 3. FINANCIAL INSTRUMENTS (continued) quality of the issuer and cash flow characteristics of the security. Using this data, the model generates estimated market values which the Company considers reflective of the fair value of each privately placed bond. Fair values for privately placed bonds are determined through consideration of factors such as the net worth of the borrower, the value of collateral, the capital structure of the borrower, the presence of guarantees and the Company's evaluation of the borrower's ability to compete in their relevant market. EQUITY SECURITIES: Fair values of these securities are based upon quoted market value. MORTGAGE LOANS ON REAL ESTATE: The fair values for mortgage loans on real estate are estimated using discounted cash flow analyses and rates currently being offered in the marketplace for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. CASH, SHORT-TERM INVESTMENTS AND POLICY LOANS: The carrying amounts for these assets approximate the assets' fair values. OTHER FINANCIAL INSTRUMENTS REPORTED AS ASSETS: The carrying amounts for these financial instruments (primarily premiums and other accounts receivable and accrued investment income) approximate those assets' fair values. INVESTMENT CONTRACT LIABILITIES (INCLUDED IN OTHER POLICYHOLDERS' FUNDS): 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. F-25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 3. FINANCIAL INSTRUMENTS (continued) The carrying values and estimated fair values of certain of the Company's financial instruments at December 31, 2002 and 2001 were as follows:
2002 2001 ---------------------- ---------------------- Carrying Fair Carrying Fair (Millions) Value Value Value Value Assets: Fixed maturity securities $ 15,767.0 $ 15,767.0 $ 13,539.9 $ 13,539.9 Equity securities 235.4 235.4 50.3 50.3 Mortgage loans 576.6 632.6 241.3 247.7 Policy loans 296.3 296.3 329.0 329.0 Short term investments 6.2 6.2 31.7 31.7 Cash and cash equivalents 65.4 65.4 82.0 82.0 Liabilities: Investment contract liabilities: With a fixed maturity (1,129.8) (1,121.4) (1,021.7) (846.5) Without a fixed maturity (10,783.6) (10,733.8) (11,114.1) (10,624.3) ------------------------------------------------------------------------------
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. 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, 2002 or 2001. INTEREST RATE CAPS Interest rate caps are used to manage the interest rate risk in the Company's bond portfolio. Interest rate caps are purchased contracts that provide the Company with an annuity in an increasing interest rate environment. The notional amount, carrying value and estimated fair value of the Company's open interest rate caps as of December 31, 2002 were $256.4 million, $0.7 million and $0.7 million, respectively. The Company did not have interest rate caps at December 31, 2001. F-26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 3. FINANCIAL INSTRUMENTS (continued) INTEREST RATE SWAPS Interest rate swaps are used to manage the interest rate risk in the Company's bond portfolio and well as the Company's liabilities. Interest rate swaps represent contracts that require the exchange of cash flows at regular interim periods, typically monthly or quarterly. The notional amount, carrying value and estimated fair value of the Company's open interest rate swaps as of December 31, 2002 were $400.0 million, $(6.8) million and $(6.8) million, respectively. The Company did not have interest rate swaps at December 31, 2001. FOREIGN EXCHANGE SWAPS Foreign exchange swaps are used to reduce the risk of a change in the value, yield or cash flow with respect to invested assets. Foreign exchange swaps represent contracts that require the exchange of foreign currency cash flows for US dollar cash flows at regular interim periods, typically quarterly or semi-annually. The notional amount, carrying value and estimated fair value of the Company's open foreign exchange rate swaps as of December 31, 2002 were $49.4 million, $(0.5) million and $(0.5) million, respectively. The notional amount, carrying value and estimated fair value of the Company's open foreign exchange rate swaps as of December 31, 2001 were 25.0 million, $0.7 million and $0.7 million, respectively. EMBEDDED DERIVATIVES The Company also had investments in certain fixed maturity 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, 2002 and 2001 was $(1.4) and $(15.5) million, respectively. F-27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. NET INVESTMENT INCOME Sources of net investment income were as follows:
Preacquisition -------------- One Eleven Year ended Year ended month ended months ended December 31, December 31, December 31, November 30, (Millions) 2002 2001 2000 2000 Fixed maturities $ 964.1 $887.2 $70.3 $768.9 Nonredeemable preferred stock 3.9 1.5 1.8 9.5 Investment in affiliated mutual funds -- 7.2 0.5 2.1 Mortgage loans 23.3 5.9 0.1 0.5 Policy loans 8.7 8.9 0.7 7.9 Cash equivalents 1.7 18.2 4.4 50.3 Other 23.4 15.9 2.6 13.1 ------------------------------------------------------------------------------------------------- Gross investment income 1,025.1 944.8 80.4 852.3 Less: investment expenses 65.6 56.4 1.8 18.5 ------------------------------------------------------------------------------------------------- Net investment income $ 959.5 $888.4 $78.6 $833.8 =================================================================================================
Net investment income includes amounts allocable to experience rated contractholders of $766.9 million for the year-ended December 31, 2002, $704.2 million for the year-ended December 31, 2001, and $55.9 million and $622.2 million for the one and eleven month periods ended December 31, 2000 and November 30, 2000, respectively. Interest credited to contractholders is included in future policy benefits and claims reserves. 5. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY In conjunction with the sale of Aetna, Inc. to ING AIH, the Company was restricted from paying any dividends to its parent for a two year period from the date of sale without prior approval by the Insurance Commissioner of the State of Connecticut. This restriction expired on December 13, 2002. The Company did not pay dividends to its parent in 2002 or 2001. The Insurance Department of the State of Connecticut (the "Department") recognizes as net income and capital and surplus those amounts determined in conformity with statutory accounting practices prescribed or permitted by the Department, which differ in certain respects from accounting principles generally accepted in the United States of America. Statutory net income (loss) was $148.8 million, $(92.3) million and $100.6 million for the years-ended December 31, 2002, 2001, and 2000, respectively. Statutory capital and surplus was $1,006.0 million and $826.2 million as of December 31, 2002 and 2001, respectively. F-28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY (continued) As of December 31, 2002, 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 ("NAIC") and state insurance departments. The cumulative effect of Codification to the Company's statutory surplus as of January 1, 2001 was a decrease of $12.5 million. 6. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS Realized capital gains or losses are the difference between the carrying value and sale proceeds of specific investments sold. Net realized capital gains (losses) on investments were as follows:
Preacquisition -------------- One Eleven Year ended Year ended month ended months ended December 31, December 31, December 31, November 30, (Millions) 2002 2001 2000 2000 Fixed maturities $ (97.5) $(20.6) $1.2 $(36.3) Equity securities (3.5) (0.4) 0.6 (0.9) ------------------------------------------------------------------------------------------------- Pretax realized capital gains (losses) $(101.0) $(21.0) $1.8 $(37.2) ================================================================================================= After-tax realized capital gains (losses) $ (58.3) $(13.7) $1.3 $(24.3) =================================================================================================
Net realized capital gains (losses) of $63.6 million, $117.0 million, $0.9 million and $(17.7) million for the years ended December 31, 2002 and 2001, the one month period ended December 31, 2000 and the eleven month period ended November 30, 2000, respectively, allocable to experience rated contracts, were deducted from net realized capital gains and an offsetting amount was reflected in other policyholders' funds. Net unamortized gains (losses) allocable to experienced-rated contractholders were $199.3 million, $172.7 million, $(2.5) million and $47.6 million at December 31, 2002 and 2001, the one month ended December 31, 2000 and the eleven months ended November 30, 2000, respectively. F-29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (continued) Proceeds from the sale of total fixed maturities and the related gross gains and losses (excluding those related to experience-related contractholders) were as follows:
Preacquisition -------------- One Eleven Year ended Year ended month ended months ended December 31, December 31, December 31, November 30, (Millions) 2002 2001 2000 2000 Proceeds on sales $24,980.4 $14,216.7 $233.0 $10,083.2 Gross gains 276.7 57.0 1.2 2.5 Gross losses 374.2 77.6 -- 38.8 -------------------------------------------------------------------------------------------------
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:
Preacquisition -------------- One Eleven Year ended Year ended month ended months ended December 31, December 31, December 31, November 30, (Millions) 2002 2001 2000 2000 Fixed maturities $104.8 $24.0 $24.5 $ 67.6 Equity securities (1.6) 2.0 (1.5) (4.0) Other investments (8.3) 6.5 5.7 (15.8) ------------------------------------------------------------------------------------------------- Subtotal 94.9 32.5 28.7 79.4 Increase in deferred income taxes 33.2 11.3 10.1 27.8 ------------------------------------------------------------------------------------------------- Net changes in accumulated other comprehensive income (loss) $ 61.7 $21.2 $18.6 $ 51.6 =================================================================================================
Net unrealized capital gains (losses) allocable to experience-rated contracts of $563.1 million and $233.0 million at December 31, 2002 and 2001, respectively, are reflected on the Consolidated Balance Sheets in other policyholders' funds and are not included in shareholder's equity. F-30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (continued) Shareholder's equity included the following accumulated other comprehensive income (loss), which is net of amounts allocable to experience-rated contractholders:
Preacquisition -------------- As of As of As of As of December 31, December 31, December 31, November 30, (Millions) 2002 2001 2000 2000 Net unrealized capital gains (losses): Fixed maturities $162.8 $58.0 $34.0 $ 9.5 Equity securities (3.5) (1.9) (3.9) (2.4) Other investments 7.3 15.6 9.1 3.4 ------------------------------------------------------------------------------------------------- 166.6 71.7 39.2 10.5 Deferred income taxes 58.3 25.1 13.8 3.7 ------------------------------------------------------------------------------------------------- Net accumulated other comprehensive income $108.3 $46.6 $25.4 $ 6.8 =================================================================================================
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:
Preacquisition -------------- One Eleven Year ended Year ended month ended months ended December 31, December 31, December 31, November 30, (Millions) 2002 2001 2000 2000 Unrealized holding gains (losses) arising the year (1) $(127.4) $ 8.3 $18.6 $51.4 Less: reclassification adjustment for gains (losses) and other items included in net income (2) 65.7 (12.9) -- (0.2) ------------------------------------------------------------------------------------------------- Net unrealized gains (losses) on securities $ 61.7 $ 21.2 $18.6 $51.6 =================================================================================================
(1) Pretax unrealized holding gains (losses) arising during the year were $196.0 million, $12.7 million, $28.6 million and $79.4 million for the years ended December 31, 2002 and 2001, the one month ended December 31, 2000 and the eleven months ended November 31, 2000, respectively. (2) Pretax reclassification adjustments for gains (losses) and other items included in net income were $101.0 million, $(19.8) million and $(0.1) million for the years ended December 31, 2002 and 2001, and the eleven months ended November 30, 2000, respectively. There were no pretax reclassification adjustments for gains (losses) and other items included in net income for the one month ended December 31, 2000. F-31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 7. SEVERANCE In December 2001, ING announced its intentions to further integrate and streamline the U.S.-based operations of ING Americas (a business division of ING which includes the Company) 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 ($0.8 million pretax) of the charge represents the amount to be incurred by the Company to terminate a contractual lease obligation. Activity for the year ended December 31, 2002 within the severance liability and positions eliminated related to such actions were as follows:
(Millions) Severance Liability Positions Balance at December 31, 2001 $ 28.4 580 Actions taken (19.2) (440) ------------------------------------------------------------------------ Balance at December 31, 2002 $ 9.2 140 ========================================================================
8. 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 Year ended ended ended December 31, December 31, December 31, November 30, (Millions) 2002 2001 2000 2000 Current taxes (benefits): Federal $ 28.9 $ 3.2 $ 9.4 $ 5.3 State 1.8 2.2 0.2 2.6 Net realized capital gains (losses) 11.5 16.1 0.3 (11.5) ------------------------------------------------------------------------------------------------- Total current taxes (benefits) 42.2 21.5 9.9 (3.6) ------------------------------------------------------------------------------------------------- Deferred taxes (benefits): Federal 30.6 89.3 (4.3) 83.2 Net realized capital gains (losses) (54.2) (23.4) 0.3 (1.5) ------------------------------------------------------------------------------------------------- Total deferred taxes (benefits) (23.6) 65.9 (4.0) 81.7 ------------------------------------------------------------------------------------------------- Total income tax expense $ 18.6 $ 87.4 $ 5.9 $ 78.1 =================================================================================================
F-32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. 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 Year ended ended ended December 31, December 31, December 31, November 30, (Millions) 2002 2001 2000 2000 Income from continuing operations before income taxes and cumulative effect of change in accounting principle $86.1 $187.3 $18.5 $249.6 Tax rate 35% 35% 35% 35% ------------------------------------------------------------------------------------------------- Application of the tax rate 30.1 65.6 6.4 87.4 Tax effect of: State income tax, net of federal benefit 1.2 1.4 0.1 1.7 Excludable dividends (5.3) (1.8) (0.9) (12.6) Goodwill amortization -- 21.6 -- -- Transfer of mutual fund shares (6.7) -- -- -- Other, net (0.7) 0.6 0.3 1.6 ------------------------------------------------------------------------------------------------- Income taxes $18.6 $ 87.4 $ 5.9 $ 78.1 =================================================================================================
F-33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. 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) 2002 2001 Deferred tax assets: Deferred policy acquisition costs $ -- $ 11.7 Insurance reserves 269.8 286.9 Unrealized gains allocable to experience rated contracts 197.1 81.5 Investment losses 69.7 36.7 Postretirement benefits 29.5 26.3 Deferred compensation 58.6 52.0 Other 19.5 27.7 ---------------------------------------------------------- Total gross assets 644.2 522.8 ---------------------------------------------------------- Deferred tax liabilities: Value of business acquired 509.7 558.5 Market discount 4.1 4.6 Net unrealized capital gains 255.4 106.6 Depreciation 3.8 5.1 Deferred policy acquisition costs 29.2 -- Other 5.1 1.7 ---------------------------------------------------------- Total gross liabilities 807.3 676.5 ---------------------------------------------------------- Net deferred tax liability $(163.1) $(153.7) ==========================================================
Net unrealized capital gains and losses are presented in shareholder's equity net of deferred taxes. 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, 2002. 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-34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. 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 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. The costs allocated to the Company for its members' participation in the ING Pension Plan were $6.0 million for 2002. The benefit obligations and the funded status for the Company's qualified pension plan over the period ended December 31 are presented below:
(Millions) 2001 Change in benefit obligation: Benefit obligation at January 1 $ 135.1 Service cost 9.4 Interest cost 10.3 Actuarial loss (0.7) Plan amendments 4.0 Curtailments/settlements 0.4 Benefits paid (3.0) Effect of transfer of assets (155.5) ----------------------------------------------------------- Benefit obligation at December 31 $ -- =========================================================== Funded status: Funded status at December 31 $ (4.3) Unrecognized past service cost 3.4 Unrecognized net loss 20.4 Transfer of funded status to the parent (19.5) ----------------------------------------------------------- Net amount recognized $ -- ===========================================================
F-35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. BENEFIT PLANS (continued) The reconciliation of the plan assets for the year ended December 31 is presented below:
(Millions) 2001 Fair value of plan assets at January 1 $ 160.7 Actual return on plan assets (6.4) Benefits paid (3.0) Effect of transfer of assets (151.3) ----------------------------------------------------------- Fair value of plan assets at December 31 $ -- ===========================================================
The net periodic benefit cost for the year ended December 31 is presented below:
(Millions) 2001 Service cost $ 9.4 Interest cost 10.2 Expected return on assets (14.6) ---------------------------------------------------------- Net periodic benefit cost $ 5.0 ==========================================================
The weighted average discount rate, expected rate of return on plan assets, and rate of compensation increase was 7.5%, 9.3%, and 4.5% for 2001. POSTRETIREMENT BENEFIT PLANS In addition to providing pension benefits, ILIAC, in conjunction with ING, provides certain health care and life insurance benefits for retired employees and certain agents. Retired employees are generally required to contribute to the plans based on their years of service with the Company. The following tables summarize the benefit obligations and the funded status for F-36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. BENEFIT PLANS (continued) retired agents' and retired employees' postretirement benefits over the periods ended December 31:
(Millions) 2002 2001 Change in benefit obligation: Benefit obligation at January 1 $ 25.4 $ 19.1 Service cost 0.5 0.7 Interest cost 1.5 1.7 Actuarial (gain) loss 4.0 1.4 Acquisitions -- 3.7 Plan amendments (6.5) -- Benefits paid (1.2) (1.2) -------------------------------------------------------- Benefit obligation at December 31 $ 23.7 $ 25.4 ======================================================== Funded status: Funded status at December 31 $(23.7) $(25.4) Unrecognized past service cost (3.6) -- Unrecognized net loss 5.4 1.4 -------------------------------------------------------- Net amount recognized $(21.9) $(24.0) ========================================================
The weighted-average discount rate assumption for retired agents' and retired employees postretirement benefits was 6.8% for 2002 and 7.5% for 2001. The medical health care cost trend rates were 10.0%, decreasing to 5.0% by 2008 for 2002; and 8.5%, gradually decreasing to 5.5% by 2007 for 2001. Increasing the health care trend rate by 1% would increase the benefit obligation by $1.6 million. Decreasing the health care trend rate by 1% would decrease the benefit obligation by $1.4 million as of December 31, 2002. Net periodic benefit costs were as follows:
Preacquisition -------------- One month Eleven months Year ended Year ended ended ended December 31, December 31, December 31, November 30, (Millions) 2002 2001 2000 2000 Service cost $ 0.5 $0.7 $ -- $0.2 Interest cost 1.5 1.7 0.1 1.2 Actuarial (gain) loss -- -- -- 0.2 Unrecognized past service cost (2.9) -- -- -- ------------------------------------------------------------------------------------------------- Net periodic benefit cost $(0.9) $2.4 $0.1 $1.2 =================================================================================================
F-37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. BENEFIT PLANS (continued) There were no gains or losses resulting from curtailments or settlements of the postretirement benefit plans during 2002, 2001 or 2000. NON-QUALIFIED DEFINED BENEFIT PENSION PLANS 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, has 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, which was assumed at December 31, 2002 to increase at an annual rate of 3.8%. Contributions are determined using the Projected Unit Credit Method. 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. During 2002, liabilities, net of tax, totaling $15.1 million were allocated to the Company related to a Supplemental Excess Retirement Plan ("SERP") that covers certain employees of ING Life Insurance Company of America and Aeltus, affiliates of the Company. The following tables summarize the benefit obligations and the funded status for the Company's non-qualified pension plans for the periods ended December 31, 2002 and 2001. These tables have been presented, for comparison purposes, as though the SERP transfer had occurred as of January 1, 2001. The accompanying consolidated balance sheet and income statement do not reflect the SERP transfer until 12/31/02:
(Millions) 2002 2001 Change in benefit obligation: Benefit obligation at January 1 $ 95.3 $ 88.7 Service cost -- 4.4 Interest cost 6.8 7.1 Actuarial (gain) loss 5.7 0.7 Plan amendments 4.5 (4.1) Benefits paid (5.5) (1.5) ---------------------------------------------------------- Benefit obligation at December 31 $ 106.8 $ 95.3 ========================================================== Funded status: Funded status at December 31 $(106.8) $ (95.3) Unrecognized past service cost 0.8 1.2 Unrecognized net loss (gain) 6.4 (7.1) ---------------------------------------------------------- Net amount recognized $ (99.6) $(101.2) ==========================================================
At December 31, 2002 and 2001, the accumulated benefit obligation was $43.8 million and $27.3 million, respectively. F-38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. BENEFIT PLANS (continued) The weighted-average discount rate assumption for Agents' and employees' non-qualified pension plans was 6.8%, and 3.8% for 2002 and 7.5% and 5.3% for 2001. Net periodic benefit costs were as follows:
Preacquisition -------------- One month Eleven months Year ended Year ended ended ended December 31, December 31, December 31, November 30, (Millions) 2002 2001 2000 2000 Service cost $ 6.8 $ 4.4 $ 0.3 $ 2.1 Interest cost -- 7.1 0.3 3.8 Actuarial (gain) loss -- -- -- 0.2 Return on plan assets -- -- (0.3) (3.2) Unrecognized past service cost (0.3) -- -- (0.1) ------------------------------------------------------------------------------------------------- Net periodic benefit cost $ 6.5 $11.5 $ 0.3 $ 2.8 =================================================================================================
There was a curtailment of $2.6 million in 2002. There were no gains or losses resulting from curtailments or settlements of the non-qualified pension plans during 2000. ING SAVINGS AND INVESTMENT PLANS ILIAC, in conjunction with ING, also has a Savings Plan. Substantially all employees are eligible to participate in a savings plan under which designated contributions, which may be invested in a variety of financial instruments, are matched up to 6.0% of compensation by ING. Pretax charges to operations for the incentive savings plan were $6.8 million, $11.0 million, and $9.0 million in 2002, 2001, and 2000, 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 and 2000 were $1.8 million and $2.7 million, respectively. F-39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 10. 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 0.1% to 0.5% 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 3.4% of their average daily net assets. The amount of compensation and fees received from the Company mutual funds and separate accounts, included in fee income amounted to $391.8 million, $421.7 million and $506.3 million in 2002, 2001 and 2000, 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 on April 1, 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 for the years ended December 31, 2002 and 2001, and earned interest income of $2.1 million and $3.3 million for the years ended December 31, 2002 and 2001, respectively. At December 31, 2002, ILIAC had no receivables and no outstanding borrowings from ING AIH under this agreement. CAPITAL TRANSACTIONS In 2002, the company received capital contributions in the form of investments in affiliated mutual funds of $164.3 million from HOLDCO. The Company did not receive capital contributions in 2001. OTHER Premiums due and other receivables include $0.1 million and $1.0 million due from affiliates at December 31, 2002 and 2001, respectively. Other liabilities include $1.3 million and $0.6 million due to affiliates for the years ended December 31, 2002 and 2001, respectively. F-40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 11. REINSURANCE At December 31, 2002, the Company had reinsurance treaties with six unaffiliated reinsurers and one affiliated reinsurer covering a significant portion of the mortality risks and guaranteed death and living benefits under its variable contracts. The Company remains liable to the extent its reinsurers do not meet their obligations under the reinsurance agreements. 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. 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 $66.2 million and $69.9 million as of December 31, 2002 and 2001, respectively, was sold to Lincoln. On December 16, 1988, the Company assumed $25.0 million of premium revenue from Aetna Life, 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 $19.6 million and $24.1 million were maintained for this contract as of December 31, 2002 and 2001, respectively. F-41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 11. REINSURANCE (continued) The effect of reinsurance on premiums and recoveries was as follows:
Preacquisition -------------- One month Eleven months Year ended Year ended ended ended December 31, December 31, December 31, November 30, (Millions) 2002 2001 2000 2000 Direct Premiums Federal $ 97.3 $112.3 $17.2 $143.2 Reinsurance assumed 9.7 0.6 0.1 0.8 Reinsurance ceded 8.3 (1.3) 0.8 6.3 ------------------------------------------------------------------------------------------------- Net Premiums 98.7 114.2 16.5 137.7 ------------------------------------------------------------------------------------------------- Reinsurance Recoveries $317.6 $363.7 $44.5 $371.6 =================================================================================================
12. COMMITMENTS AND CONTINGENT LIABILITIES LEASES For the year ended December 31, 2002 rent expense for leases was $18.1 million. The future net minimum payments under noncancelable leases for the years ended December 31, 2003 through 2007 are estimated to be $17.5 million, $15.7 million, $14.9 million, $13.6 million and $12.1 million, respectively, and $0.2 million, thereafter. The Company pays substantially all expenses associated with its leased and subleased office properties. Expenses not paid directly by the Company are paid for by an affiliate and allocated back to the Company. COMMITMENTS Through the normal course of investment operations, the Company commits to either purchase or sell securities, commercial mortgage loans or money market instruments at a specified future date and at a specified price or yield. The inability of counterparties to honor these commitments may result in either higher or lower replacement cost. Also, there is likely to be a change in the value of the securities underlying the commitments. At December 31, 2002 and 2001, the Company had off-balance sheet commitments to purchase investments of $236.7 million with an estimated fair value of $236.7 million and $92.7 million with an estimated fair value of $92.7 million, respectively. LITIGATION The Company is a party to threatened or pending lawsuits arising, from the normal conduct of business. Due to the climate in insurance and business litigation, suits against the Company sometimes include claims for substantial compensatory, consequential or punitive damages and other types of relief. Moreover, certain claims are asserted as class actions, purporting to represent a group of similarly situated individuals. While it is not possible to forecast the outcome of such lawsuits, in light of existing insurance, reinsurance and established reserves, it is F-42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 12. COMMITMENTS AND CONTINGENT LIABILITIES (continued) the opinion of management that the disposition of such lawsuits will not have materially adverse effect on the Company's operations or financial position. 13. SEGMENT INFORMATION The Company's realignment of Worksite Products and Individual Products operating segments into one reporting segment (USFS) is reflected in the restated summarized financial information for December 31, 2001 and 2000 in the table below. Effective with the third quarter of 2002, items that were previously not allocated back to USFS but reported in Other are now allocated to USFS and reported in the restated financial information for the period ending December 31, 2001 and 2000. Summarized financial information for the Company's principal operations for December 31, were as follows:
Non-Operating Segments ----------------------- Investment Management (Millions) USFS (1) Services (2) Other (3) Total 2002 ------------------------------ Revenues from external customers $ 507.2 $ 19.2 $ (9.5) $ 516.9 Net investment income 959.2 0.2 0.1 959.5 ------------------------------------------------------------------------------ Total revenue excluding net realized capital gains (losses) $1,466.4 $ 19.4 $ (9.4) $ 1,476.4 ============================================================================== Operating earnings (4) $ 121.1 $ 4.7 $ -- $ 125.8 Cumulative effect of accounting change (2,412.1) -- -- (2,412.1) Net realized capital losses, net of tax (58.3) -- -- (58.3) ------------------------------------------------------------------------------ Net income (loss) $(2,349.3) $ 4.7 -- $(2,344.6) ============================================================================== 2001 ------------------------------ Revenues from external customers $ 585.0 $119.6 $(37.0) $ 667.6 Net investment income 885.5 1.7 1.2 888.4 ------------------------------------------------------------------------------ Total revenue excluding net realized capital gains (losses) $1,470.5 $121.3 $(35.8) $ 1,556.0 ============================================================================== Operating earnings (4) $ 86.2 $ 27.4 $ -- $ 113.6 Net realized capital gains, net of tax (13.8) 0.1 -- (13.7) ------------------------------------------------------------------------------ Net income $ 72.4 $ 27.5 $ -- $ 99.9 ==============================================================================
F-43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 13. SEGMENT INFORMATION (continued)
Non-Operating Segments ----------------------- Investment Management (Millions) USFS (1) Services (2) Other (3) Total 2000 ------------------------------ Revenues from external customers $ 692.1 $138.2 $(53.0) $ 777.3 Net investment income 905.8 2.8 3.8 912.4 ------------------------------------------------------------------------------ Total revenue excluding net realized capital gains (losses) $1,597.9 $141.0 $(49.2) $ 1,689.7 ============================================================================== Operating earnings (4) $ 197.4 $ 9.7 $ -- $ 207.1 Net realized capital gains, net of tax (23.1) 0.1 -- (23.0) ------------------------------------------------------------------------------ Net income from continuing operations $ 174.3 $ 9.8 $ -- $ 184.1 ==============================================================================
(1) USFS includes 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 qualified plans and nonqualified deferred compensation plans that package administrative and record- keeping services along with a menu of investment options; wrapper agreements containing certain benefit responsive guarantees that are entered into with retirement plans, whose assets are not invested with the Company; investment advisory services and pension plan administrative services. USFS also includes 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. (2) 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 ccounts; and trustee, administrative and other services to retirement plans. On February 28, 2002, IA Holdco and its subsidiaries, which comprised this segment, were distributed to HOLDCO (refer to Note 1). (3) Other includes consolidating adjustments between USFS and Investment Management Services. (4) Operating earnings is comprised of net income (loss) excluding net realized capital gains and losses. While operating earnings is the measure of profit or loss used by the Company's management when assessing performance or making operating decisions, it does not replace net income as a measure of profitability. 14. DISCONTINUED OPERATIONS--INDIVIDUAL LIFE INSURANCE On October 1, 1998, the Company sold its domestic individual life insurance business to Lincoln for $1,000.0 million 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 $117.0 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 F-44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 14. DISCONTINUED OPERATIONS--INDIVIDUAL LIFE INSURANCE (continued) 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). QUARTERLY DATA (UNAUDITED)
2002 (Millions) First Second Third Fourth Total Revenue $363.5 $351.3 $349.8 $ 310.8 ----------------------------------------------------------------- Income (loss) from continuing operations before income taxes 44.1 39.3 (23.1) 25.8 Income tax expense (benefit) 15.2 12.9 (9.9) 0.4 Income (loss) from continuing operations 28.9 26.4 (13.2) 25.4 ----------------------------------------------------------------- Cumulative effect of change in accounting principle -- -- -- (2,412.1) ----------------------------------------------------------------- Net income (loss) $ 28.9 $26.4 $(13.2) $(2,386.7) ----------------------------------------------------------------- 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 tax expense (benefit) 28.2 39.1 27.1 (7.0) ----------------------------------------------------------------- Income from continuing operations 36.1 55.9 41.8 (33.9) ----------------------------------------------------------------- Net (loss) $ 36.1 $55.9 $ 41.8 $ (33.9) -----------------------------------------------------------------
F-45 PART II INFORMATION NOT REQUIRED IN PROSPECTUS UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section. UNDERTAKING PURSUANT TO RULE 484 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. INDEMNIFICATION Section 33-779 of the Connecticut General Statutes (the "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 with Section 33-776 provide 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 is or was a director, officer, employee, or agent 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, ING Groep N.V. maintains an umbrella insurance policy with an international insurer. The policy covers ING Groep N.V. and any company in which ING Groep N.V. has an ownership control of over 50%. This would encompass the principal underwriter as well as the depositor. The policy provides for the following types of coverage: errors and omissions, directors and officers, employment practices, fiduciary and fidelity. Section 20 of the ING Financial Advisers, LLC Limited Liability Company Agreement provides that ING Financial Advisers, LLC 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 ING Financial Advisers, LLC, as long as he acted in good faith on behalf of ING Financial Advisers, LLC 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 indemnify 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. REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A) OF THE INVESTMENT COMPANY ACT OF 1940 ING Life Insurance and Annuity Company represents that the fees and charges deducted under the policies 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. CONTENTS OF POST-EFFECTIVE AMENDMENT NO. 16 TO THE REGISTRATION STATEMENT This Post-Effective Amendment No. 16 to Registration Statement No. 33-76018 is comprised of the following papers and documents: o The facing sheet. o One Prospectus for the AetnaVest Plus Variable Life Insurance Policy consisting of 115 pages o The undertaking to file reports o The undertaking pursuant to Rule 484 o Indemnification o Representation pursuant to Section 26(e)(2)(A) of the Investment Company Act of 1940 o The signatures o Written consents of the following persons: A. Consent of Counsel (included as part of Exhibit No. 2 below) B. Actuarial Consent (included as part of Exhibit No. 6 below) C. Consent of Independent Auditors (included as Exhibit No. 7 below) The following Exhibits: 1. Exhibits required by paragraph A of instructions to exhibits for Form N-8B-2: (1) Resolution establishing Variable Life Account B(1) (2) Not applicable (3)(i) Master General Agent Agreement(1) (3)(ii) Life Insurance General Agent Agreement(1) (3)(iii) Broker Agreement(1) (3)(iv) Life Insurance Broker-Dealer Agreement(1) (3)(v) Principal Underwriter Agreement effective as of November 17, 2000 between Aetna Life Insurance and Annuity Company and Aetna Investment Services, LLC(2) (4) Not applicable (5)(i) AetnaVest Plus Policy (38899-93)(3) (5)(ii) Disability Benefit Rider (70174-93) to AetnaVest Plus Policy 38899- 93(3) (5)(iii) Unisex Amendment rider (70211-95US) for use with AetnaVest Plus Policy 38899-93(3) (5)(iv) Endorsements L-ENMCHGI-02 and L-ENCMCHGG-02 (name change) (4) (6)(i) 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)(5) (6)(ii) By-Laws restated as of January 1, 2002 of ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company)(5) (7) Not applicable (8)(i) 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.(6) (8)(ii) 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.(7) (8)(iii) 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.(8) (8)(iv) 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.(9) (8)(v) 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.(9) (8)(vi) 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.(10) (8)(vii) 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(6) (8)(viii) 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(7) (8)(ix) 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(9) (8)(x) 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(9) (8)(xi) 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(11) (8)(xii) 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(12) (8)(xiii) 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(13) (8)(xiv) 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(6) (8)(xv) Eighth Amendment dated December 1, 1999 to 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, November 6, 1997 and May 1, 1998 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund and Fidelity Distributors Corporation(9) (8)(xvi) 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(11) (8)(xvii) 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(12) (8)(xviii) 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(14) (8)(xix) 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(6) (8)(xx) Eighth Amendment dated December 1, 1999 to Fund Participation Agreement dated February 1, 1999 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996, March 1, 1996, May 1, 1997, January 20, 1998 and May 1, 1998 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distributors Corporation(8) (8)(xxi) Service Agreement dated as of November 1, 1995 between Aetna Life Insurance and Annuity Company and Fidelity Investments Institutional Operations Company(15) (8)(xxii) 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(12) (8)(xxiii) Service Contract dated May 2, 1997 between Fidelity Distributors Corporation and Aetna Life Insurance and Annuity Company(7) (8)(xxiv) Fund Participation Agreement dated December 8, 1997 among Janus Aspen Series and Aetna Life Insurance and Annuity Company and Janus Capital Corporation(16) (8)(xxv) 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(7) (8)(xxvi) 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(8) (8)(xxvii) Amendment dated 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(17) (8)(xxviii) 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(18) (8)(xxix) Service Agreement dated December 8, 1997 between Janus Capital Corporation and Aetna Life Insurance and Annuity Company(16) (8)(xxx) 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(17) (8)(xxxi) 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(17) (8)(xxxii) 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(18) (8)(xxxiii) Fund Participation Agreement dated March 11, 1997 between Aetna Life Insurance and Annuity Company and Oppenheimer Variable Annuity Account Funds and Oppenheimer Funds, Inc.(19) (8)(xxxiv) 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.(7) (8)(xxxv) Service Agreement effective as of March 11, 1997 between Oppenheimer Funds, Inc. and Aetna Life Insurance and Annuity Company(19) (8)(xxxvi) Participation Agreement dated as of November 28, 2001 among Portfolio Partners, Inc., Aetna Life Insurance and Annuity Company and Aetna Investment Services, LLC(18) (8)(xxxvii) 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(18) (8)(xxxviii) Amendment dated May 1, 2003 between ING Partners, INC., ING Life Insurance and Annuity Company and ING Financial Advisers, LLC to the Participation Agreement dated as of November 28, 2001 and subsequently amended on March 5, 2002.(21) (8)(xxxix) Shareholder Servicing Agreement (Service Class Shares) dated as of November 27, 2001 between Portfolio Partners, Inc. and Aetna Life Insurance and Annuity Company(18) (8)(xxxx) 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(18) (8)(xxxxi) Amendment dated May 1, 2003 by and between ING Partners, Inc. and ING Life Insurance and Annuity Company to the Shareholder Servicing Agreement (Service Class Shares) dated November 27, 2001, as amended on March 5, 2002.(21) (9) Not applicable (10)(i) Application (70059-96)(20) (10)(ii) Application (70059-96ZNY)(20) (10)(iii) Application Supplement (70268-97(3/98))(20) 2. Opinion and Consent of Counsel 3. Not Applicable 4. Not Applicable 5. Not Applicable 6. Actuarial Opinion and Consent 7. (a) Consent of Independent Auditors - KPMG LLP (b) Consent of Independent Auditors - Ernst & Young LLP (Atlanta) (c) Consent of Independent Auditors - Ernst & Young LLP (Fort Wayne) 8. (a) Copy of Power of Attorney(21) (b) Certificate of Resolution Authorizing Signature by Power of Attorney(22) 1. Incorporated by reference to Post-Effective Amendment No. 2 to Registration Statement on Form S-6 (File No. 33-76004), as filed on February 16, 1996. 2. 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. 3. Incorporated by reference to Post-Effective Amendment No. 7 to Registration Statement on Form S-6 (File No. 33-76018), as filed on April 22, 1997. 4. Incorporated by reference to Post-Effective Amendment No. 15 to Registration Statement on Form S-6 (File No. 33-75248), as filed on April 26, 2002. 5. 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. 6. Incorporated by reference to Registration Statement on Form N-4 (File No. 333-56297), as filed on June 8, 1998. 7. Incorporated by reference to Post-Effective Amendment No. 2 to Registration Statement on Form N-4 (File No. 333-56297), as filed electronically on December 14, 1998. 8. Incorporated by reference to Post-Effective Amendment No. 19 to Registration Statement on Form N-4 (File No. 333-01107), as filed electronically on February 16, 2000. 9. Incorporated by reference to Post-Effective Amendment No. 20 to Registration Statement on Form N-4 (File No. 333-01107), as filed electronically on April 4, 2000. 10. Incorporated by reference to Post-Effective Amendment No. 24 to Registration Statement on Form N-4 (File No. 333-01107), as filed electronically on April 13, 2001. 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. 30 to Registration Statement on Form N-4 (File No. 33-34370), as filed on September 29, 1997. 13. 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. 14. 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. 15. 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. 16. 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. 17. 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. 18. 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. 19. 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. 20. Incorporated by reference to Post-Effective Amendment No. 3 to Registration Statement on Form S-6 (File No. 33-64277), as filed on February 25, 1998. 21. Incorporated by reference to Post-Effective Amendment No. 1 to Registration Statement on Form S-2 (File No. 33-75988), as filed on April 10, 2003. 22. 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. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, Variable Life 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 S-6 (File No.33-76018) and has duly caused this Post-Effective Amendment No. 16 to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, and the seal of the Depositor to be hereunto affixed and attested, all in the City of Hartford, and State of Connecticut, on this 29th day of April, 2003. VARIABLE LIFE ACCOUNT B OF ING LIFE INSURANCE AND ANNUITY COMPANY (Registrant) By: ING LIFE INSURANCE AND ANNUITY COMPANY (Depositor) By: Keith Gubbay* ------------------------------------ Keith Gubbay President (principal executive officer) Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 16 to the Registration Statement has been signed below by the following persons in the capacities indicated and on the dates indicated.
Signature Title Date Keith Gubbay* Director and President ) --------------------------- (principal executive officer) ) Keith Gubbay ) ) Randy Lowery* Director ) April --------------------------- ) 29, 2003 P. Randall Lowery ) ) Thomas J. McInerney* Director ) --------------------------- ) Thomas J. McInerney )
Mark A. Tullis* Director ) --------------------------- ) Mark A. Tullis ) ) ---- Director ) --------------------------- ) David Wheat ) ) Cheryl L. Price* Chief Financial Officer and Chief Accounting Officer ) --------------------------- (principal accounting officer) ) Cheryl L. Price )
By: /s/ J. Neil McMurdie ----------------------- J. Neil McMurdie *Attorney-in-Fact VARIABLE LIFE ACCOUNT B EXHIBIT INDEX
Exhibit No. Exhibit ----------- ------- 2 Opinion and Consent of Counsel _______________ 6 Actuarial Opinion and Consent _______________ 7(a) Consent of Independent Auditors - KPMG LLP _______________ 7(b) Consent of Independent Auditors - Ernst & Young LLP (Atlanta) _______________ 7(c) Consent of Independent Auditors - Ernst & Young LLP (Fort Wayne) _______________