[AETNA Logo]
Shaun P. Mathews
Interoffice Communication President, Aetna Mutual Funds
Phone: 860-275-3209
Fax: 860-275-3197
To Annuity and Pension Producers
Annuity and Pension Field Offices
Date May 10, 1996
Subject Upcoming Variable Annuity Proxy Process
As you know, we are seeking a fee increase for certain of the variable annuity
mutual funds managed by ALIAC.
Attached for your information is a copy of the Aetna Variable Fund (AVF) proxy
that was mailed recently to your customers. Proxies on Aetna Investment
Advisers Fund (AIAF), Aetna Income Shares (AIS) and the variable annuity
Generation Portfolios will be mailed in the next day or so.
I recognize the challenge you face in working through this fee increase with
your sponsors and participants. However, this mutual fund fee increase is a
critical step in repositioning ARS' product pricing to bring it in line with
the competition and achieve profit margins that support continued reinvestment
in the business to the benefit of all stakeholders.
When working with your customers on the proxy recommendations, there are
several important facts (also see attached Exhibit 1):
1. Aetna's variable annuity mutual fund advisory fees are competitively low
by any standard and in the case of AVF and AIS, have not changed in over
15 years.
2. Even when increased, these management fees are below average and compare
favorably to the outside funds incorporated in ARS' product lines. For
example, AVF, which now has the lowest fees of 44 competitive funds, will
still be lower than 34 of these competitors after the fees increase.
<PAGE>
ARS Producers
May 10, 1996
Page 2
3. We have significantly enhanced ALIAC's investment capabilities over the
past two years and recent investment performance has shown the benefit.
The proposed merger with Aeltus will further expand our capabilities. To
assist you in answering customers' questions about performance, I have
attached in Exhibit 2 FUND LEVEL PERFORMANCE DATA on AVF, AIAF and AIS
through 3/31/96. Please note that Morningstar and Lipper rankings are
based upon comparisons of insurance contract sub-account performance
utilizing ALIAC's Separate Account C with a mortality and expense charge
of 125 b.p. Actual performance may differ depending upon the specific
contract of your customer. To the extent you discuss performance with
customers, please remember to provide the appropriate quarterly
performance report which contains required disclosure and disclaimers.
4. While we are seeking an advisory fee increase on the Generation Portfolios
(10 b.p.), we have also established a FIXED CHARGE for fund level
administrative charges. The two in combination will actually result in
lower overall fund expenses vs. total 1995 charges for the Generation
Portfolios.
A successful shareholder vote is fundamental to positioning ARS product
offerings for the future and will facilitate market responsive product pricing
to meet customer needs. Drew Lawton will provide some of his perspectives on
the proposed fee increase on the ALIAC Investment Hot Line next week
(1-800-893-INFO). This hotline is for field office and producer use only.
Your help and support in this proxy process are greatly appreciated. If you
have any questions, please call your field office. If your customers have
questions, you may respond to them directly or refer them to the special
telephone unit established for the proxy (1-800-632-2386).
cc: Mark Hug
Drew Lawton
Jim Lehan
<PAGE>
EXHIBIT 1
AETNA VARIABLE ANNUITY MUTUAL FUNDS
SELECTIVE MARKET & COMPETITIVE INFORMATION
<TABLE>
MUTUAL FUND FEE COMPARISON VS. COMPETITIVE UNIVERSE
(Basis Points)
<CAPTION>
ALIAC Total Fund Lipper New
Charges
Current Proposed* Average ALIAC ALIAC Rank*
Rank**
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund 30 56 77 1 of 44 10 of 44
Aetna Investment Advisers 32 58 68 2 of 54 16 of 54
Fund
Aetna Income Shares 33 48 56 2 of 19 5 of 19
<FN>
* Assumes successful shareholder vote.
** "1" is lowest fee
</FN>
</TABLE>
<TABLE>
FEE COMPARISON TO OTHER VARIABLE FUNDING OPTIONS INCLUDED IN ARS PRODUCTS
(Basis Points)
Bond Fund Growth & Balanced/Flexible
Income
<S> <C> <C> <C>
ALIAC (Current Fees) 33 b.p. 30 b.p. 32 b.p.
Alger N/A 75 108
Fidelity 67 58 80
Franklin 63 N/A N/A
Janus 65 88 157
Neuberger & Berman 73 N/A 97
Twentieth Century N/A N/A 100
</TABLE>
THIS MATERIAL SHOULD NOT BE REPRODUCED AND/OR SHARED WITH CUSTOMERS.
<PAGE>
EXHIBIT 2
<TABLE>
INVESTMENT PERFORMANCE: FUND LEVEL*
(as of 3/31/96)
AETNA VARIABLE FUND
<CAPTION>
YTD 1 Yr. 3 Yr. Annual 5 Yr. Annual 10 Yr. Annual
--- ----- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund 5.92% 32.14% 13.18% 12.18% 13.04%
S&P 500 5.45% 32.14% 15.71% 14.68% 13.89%
Morningstar Rank(1) (2) 19% 16% 89% 91% 49%
Lipper Rank(2) (3) 35% 25% 78% 84% 58%
<FN>
(1) Ranking is based on Morningstar VA/VL Growth & Income Fund Universe which
compares performance at sub-account level. Ranking of 19% means that AVF
sub-account performance (after mortality and expense charges but before
maintenance fees and surrender charges) is in the top 19% of sub-accounts
against which it is compared. Universe consists of 313 sub-accounts.
(2) Performance rankings are based upon comparison of insurance sub-account
performance (after mortality and expense charges, but before maintenance
fees and surrender charges). ALIAC's rank is based upon Separate Account C
performance utilizing a mortality and expense charge of 125 b.p. Actual
performance may differ depending upon the specific contract of your
customer.
(3) Ranking is based on Lipper - VIPPAS Growth & Income Fund Universe which
compares performance at sub-account level. Ranking of 35% means that AVF
is in the top 35% of sub-accounts against which it is compared. Universe
consists of 153 sub-accounts.
</FN>
</TABLE>
<TABLE>
AETNA INVESTMENT ADVISERS FUND
<CAPTION>
YTD 1 Yr. 3 Yr. Annual 5 Yr. Annual 10 Yr. Annual
--- ----- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Aetna Investment Advisers 2.53% 24.34% 11.62% 11.11% n/a
60/40 Index(1) 2.52% 23.23% 11.79% 12.25% n/a
Morningstar Rank(2) (3) 56% 11% 17% 45% n/a
Lipper Rank(3) (4) 65% 14% 21% 58% n/a
<FN>
(1) 60% Standard & Poors 500 and 40% Lehman Brothers Aggregate Bond Index
(2) Morningstar VA/VL Balanced Fund Universe. Universe consists of 367
sub-accounts.
(3) Performance rankings are based upon comparison of insurance sub-account
performance (after mortality and expense charges, but before maintenance
fees and surrender charges). ALIAC's rank is based upon Separate Account C
performance utilizing a mortality and expense charge of 125 b.p. Actual
performance may differ depending upon the specific contract of your
customer.
(4) Lipper - VIPPAS Flexible Portfolio Fund Universe. Universe consists of 191
sub-accounts.
</FN>
</TABLE>
<TABLE>
AETNA INCOME SHARES
<CAPTION>
YTD 1 Yr. 3 Yr. Annual 5 Yr. Annual 10 Yr. Annual
--- ----- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Aetna Income Shares -1.53% 11.71% 5.97% 8.78% 9.04%
Lehman Aggregate -1.77% 10.79% 5.99% 8.49% 8.62%
Morningstar Rank(1) (2) 39% 30% 38% 44% 16%
Lipper Rank(2) (3) 12% 28% 35% 44% 30%
<FN>
(1) Morningstar VA/VL Corporate Bond Fund Universe. Universe consists of 263
sub-accounts.
(2) Performance rankings are based upon comparison of insurance sub-account
performance (after mortality and expense charges, but before maintenance
fees and surrender charges). ALIAC's rank is based upon Separate Account C
performance utilizing a mortality and expense charge of 125 b.p. Actual
performance may differ depending upon the specific contract of your
customer.
(3) Lipper - VIPPAS Corporate Bond "A" Rated Fund Universe. Universe consists
of 73 sub-accounts.
</FN>
</TABLE>
* AETNA MUTUAL FUND LEVEL PERFORMANCE. AETNA FUND PERFORMANCE IS BEFORE
MORTALITY AND EXPENSE CHARGES AND OTHER SEPARATE ACCOUNT FEES. ALSO SEE
FOOTNOTES ABOVE REGARDING RANKINGS WHICH ARE BASED UPON INSURANCE CONTRACT
SUB-ACCOUNT PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS
THIS MATERIAL SHOULD NOT BE REPRODUCED AND/OR SHARED WITH CUSTOMERS.
