<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
AON ASSET MANAGEMENT FUND, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
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(4) Date filed:
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(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE> 2
AON ASSET MANAGEMENT FUND, INC.
6610 WEST BROAD STREET
RICHMOND, VIRGINIA 23230
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 10, 1996
Notice is hereby given that a special meeting of the shareholders (the
"Meeting") of the Money Market Portfolio and the Flexible Asset Allocation
Portfolio (individually, a "Portfolio" and collectively, the "Portfolios"),
each a separate investment portfolio of Aon Asset Management Fund, Inc., a
Virginia corporation (the "Fund"), will be held at 10:00 am, local time, on
July 10, 1996 at the offices of Aon Corporation, 123 North Wacker Drive,
Chicago, IL 60606, __ Floor for the following purposes:
FOR SHAREHOLDERS OF EACH PORTFOLIO, VOTING SEPARATELY BY PORTFOLIO:
(1) To approve or disapprove a reorganization (the "Reorganization") in which
each of the two Portfolios would become a separate series of the Aon
Funds, a business trust organized under the laws of the State of Delaware
(the "Trust"), pursuant to an Agreement and Plan of Reorganization whereby
(i) all of the assets and liabilities of each Portfolio will be
transferred to a corresponding series of the Trust; (ii) shareholders of
each Portfolio will receive an equal number of shares in the corresponding
series of the Trust in exchange for their shares of such Portfolio; and
(iii) the Fund subsequently will take all actions necessary to effect its
dissolution and to have its corporate existence terminated.
FOR SHAREHOLDERS OF BOTH PORTFOLIOS, VOTING TOGETHER:
(2) To elect a Board of Directors consisting of five Directors and to
authorize the Fund, prior to the effective time of the Reorganization, to
vote its beneficial interest in the Trust for the election of the same
five individuals to serve as Trustees of the Trust.
FOR SHAREHOLDERS OF EACH PORTFOLIO, VOTING SEPARATELY BY PORTFOLIO:
(3) To approve or disapprove new investment advisory agreements between the
Fund on behalf of each of the Portfolios and Aon Advisors, Inc. ("AAI"),
the current investment adviser of each of the Portfolios.
<PAGE> 3
FOR SHAREHOLDERS OF BOTH PORTFOLIOS:
(4) To transact such other business as may properly come before the Meeting
and any adjournment thereof.
Each proposal is discussed more fully in the accompanying Proxy Statement.
All shareholders are invited to attend the Meeting. Shareholders of record at
the close of business on May 31, 1996, the record date fixed by the Board of
Directors, are entitled to notice of and to vote at the Meeting.
By Order of the
Board of Directors
of the Fund
May __, 1996 ________________________,
Karl W. Krause
Secretary
<PAGE> 4
____________________
YOUR VOTE IS IMPORTANT
PLEASE RETURN YOUR PROXY CARD(S)
____________________
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, PLEASE SIGN AND DATE
EACH ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. A SHAREHOLDER WHO
COMPLETES AND RETURNS A PROXY AND SUBSEQUENTLY ATTENDS THE MEETING MAY ELECT TO
VOTE IN PERSON, SINCE A PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED.
<PAGE> 5
AON ASSET MANAGEMENT FUND, INC.
6610 West Broad Street
Richmond, Virginia 23230
June __, 1996
PROXY STATEMENT
General Information
The enclosed proxy is solicited by the Board of Directors of Aon Asset
Management Fund, Inc., a Virginia corporation (the "Fund"), for use at the
special meeting of shareholders (the "Meeting") of the Money Market Portfolio
and the Flexible Asset Allocation Portfolio (individually, a "Portfolio" and
collectively, the "Portfolios"), each a separate investment portfolio of the
Fund, to be held at the offices of Aon Corporation, 123 North Wacker Drive,
Chicago, IL 60606, __ Floor at 10:00 a.m., local time, on July 10, 1996, and at
any adjournment thereof. The Fund expects to mail this Proxy Statement and
each proxy to shareholders on or about June __, 1996.
The Fund's investment adviser is Aon Advisors, Inc. ("AAI"), with offices at
123 North Wacker Drive, Chicago, Illinois 60606. AAI, which is registered as
an investment adviser under the Investment Advisers Act of 1940, as amended, is
a wholly-owned subsidiary of Aon Corporation, 123 North Wacker Drive, Chicago,
Illinois 60606, a publicly held insurance holding company whose common stock is
listed on the New York Stock Exchange and which, through subsidiaries, is a
major provider of insurance, insurance brokerage and related services. AAI
serves as investment adviser of the two Portfolios, under the oversight and
supervision of the Board of Directors of the Fund and pursuant to respective
investment advisory agreements dated January 27, 1994 and April 26, 1995
between AAI and the Fund (collectively, the "Current Advisory Agreements").
The Fund's shares are distributed by Aon Securities Corporation ("ASC"), 123
North Wacker Drive, Chicago, Illinois 60606, a wholly-owned subsidiary of Aon
Corporation. Effective July 1, 1996, ASC will also provide administrative
services to the Fund pursuant to an Administration Agreement among the Fund,
AAI and ASC (the "Current Administration Agreement").
The solicitation of proxies will be primarily by mail but also may include
telephone or oral communications by officers of the Fund or by regular
employees of AAI, the Fund's investment adviser, which persons will not receive
any compensation therefor from the Fund. The cost of preparing and mailing the
notice of meeting, the proxy card, this Proxy Statement and any additional
proxy material has been or is to be borne by AAI, the investment adviser of the
Fund.
<PAGE> 6
Voting Information
Shareholders of record at the close of business on May 31, 1996 will be
entitled to vote in person or by proxy at the Meeting. As of such date, with
respect to each Portfolio, the number of shares of capital stock outstanding
and entitled to vote is as set forth opposite such Portfolio's name below:
Money Market Portfolio (Class A) [381,235,109.37]
Flexible Asset Allocation Portfolio [ 7,167,724.00]
(Class B)
The table below summarizes the proposals on which shareholders are being asked
to vote (individually, a "Proposal" and collectively, the "Proposals") and
indicates which shareholders are entitled to vote on each. Proposal 1 relates
to each of the Portfolios separately; shareholders of each Portfolio will vote
separately on this Proposal. If Proposal 1 is approved by shareholders of one
Portfolio and disapproved by shareholders of the other Portfolio, the Proposal
will not be implemented. Proposal 2 relates generally to both Portfolios;
shareholders of both Portfolios will vote together on this Proposal. Proposal
3 relates to each of the Portfolios separately; shareholders of each Portfolio
will vote separately on this Proposal. If Proposal 3 is approved by
shareholders of one Portfolio and disapproved by shareholders of the other
Portfolio, the Proposal will implemented for the Portfolio whose shareholders
approve the Proposal and will not be implemented for the Portfolio whose
shareholders do not approve the Proposal.
Brief Description Shareholders Who Will
Proposal of the Proposal Vote On the Proposal
- ---------- -------------------------- ---------------------
Proposal 1 To approve an Agreement Shareholders of each
and Plan of Reorganization Portfolio, voting
pursuant to which the Fund separately
would reorganize from a
Virginia corporation into
a Delaware business trust
under the name Aon Funds.
Proposal 2 To elect Directors of Shareholders of both
the Fund. Portfolios, voting
together
Proposal 3 To approve new investment Shareholders of each
advisory agreements between Portfolio, voting
AAI and the Fund on behalf separately
of the respective
Portfolios.
- 2 -
<PAGE> 7
Shares may be voted in person or by proxy. Each whole share is entitled to one
vote and each fractional share is entitled to a proportionate fractional vote.
All properly executed proxies received prior to the Meeting will be voted at
the Meeting, and any adjournment thereof, in accordance with the instructions
marked thereon or as otherwise as provided thereon.
The persons designated on the enclosed proxy card will vote in accordance with
your direction as indicated thereon if your proxy card is received properly
executed. Unless instructions to the contrary are marked, properly executed
proxies will be voted FOR the approval of the Proposals described herein. A
shareholder may revoke his or her proxy at any time prior to exercise thereof
by giving written notice to the Secretary of the Fund or by signing and mailing
another proxy of a later date. To be effective, such revocation must be
received by the Fund prior to the Meeting. In addition, if you attend the
Meeting in person you may, if you wish, vote by ballot at the Meeting thereby
canceling any proxy previously given.
Abstentions and broker non-votes will be counted as shares present for purposes
of determining whether a quorum is present but will not be voted for or against
any adjournment or Proposal. Accordingly, abstentions and broker non-votes
will have no effect on Proposal 2, for which the required vote is a plurality
of the votes cast, but effectively will be a vote against adjournment and
against Proposals 1 and 3, for which the required vote is a percentage of the
shares present or outstanding. Broker non-votes are shares held in the name of
a broker or nominee as to which instructions have not been received from the
beneficial owners or other persons entitled to vote and the broker or nominee
does not have discretionary voting authority.
Under the Amended and Restated Articles of Incorporation (the "Articles of
Incorporation") and By-Laws of the Fund, the holders of not less than one-third
of the Fund's shares issued and outstanding and entitled to vote, represented
in person or by proxy, constitutes a quorum at all shareholder meetings.
However, with respect to certain Proposals, the Investment Company Act of 1940
(the "1940 Act") may require the holders of a greater proportion of shares of
the Fund or a Portfolio issued and outstanding and entitled to vote be
represented in person or by proxy for action to be validly taken. If less than
a quorum is present at the Meeting or if a quorum is present but sufficient
votes to approve any of the Proposals are not received, the persons named as
proxies may propose one or more adjournments of the Meeting to permit further
solicitation of proxies. Any adjournment will require the affirmative vote of
a majority of shares represented in person or by proxy at the Meeting. The
persons named as proxies will vote all proxies that they are entitled to vote
FOR approval of any Proposal in favor of adjournment and will vote all proxies
required to be voted AGAINST the Proposal against
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<PAGE> 8
adjournment. A shareholder vote may be taken on one or more of the Proposals
in this Proxy Statement prior to any such adjournment if sufficient votes
have been received and it is otherwise appropriate. No business shall be
transacted at an adjourned meeting except as might have been lawfully
transacted had the Meeting not been adjourned.
Approval of Proposal 1 requires the affirmative vote of not less than
two-thirds of the shares of the Fund outstanding and entitled to vote at the
Meeting. If Proposal 1 is not approved, the Fund will continue to operate as a
Virginia corporation. Election of Directors pursuant to Proposal 2 requires a
plurality vote of the shares of the Fund voting in person or by proxy at the
Meeting, provided a quorum is present. This means that the five nominees
receiving the largest number of votes will be elected. Accordingly, a
plurality of all votes cast by shareholders of the Money Market Portfolio and
the Flexible Asset Allocation Portfolio, regardless of class, shall be required
to elect each Director. Approval of Proposal 3 by each Portfolio voting on the
Proposal requires the affirmative vote of "a majority of the outstanding voting
securities" of that Portfolio as defined in the 1940 Act. Under the 1940 Act,
this means the affirmative vote of the lesser of (i) 67% or more of the
Portfolio's shares present at the meeting in person or by proxy, if the holders
of more than 50% of the outstanding shares of such Portfolio are present at the
meeting or represented by proxy or (ii) more than 50% of the Portfolio's
outstanding shares. If Proposal 3 is not approved by a Portfolio voting on
that Proposal, that Portfolio will continue to operate under its Current
Advisory Agreement.
If you are a shareholder of more than one Portfolio, you will receive this
Proxy Statement and a separate proxy for each Portfolio of which you are a
shareholder. PLEASE VOTE, SIGN AND RETURN EACH PROXY YOU RECEIVE TO ENSURE
THAT ALL YOUR VOTES ARE COUNTED.
The table below sets forth certain information as to all persons known to the
Fund who, as of May 31, 1996, owned of record or beneficially 5% or more of
either Portfolio's outstanding shares.
Money Market Portfolio:
________________________________________________________________________________
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Amount and Percent
Name and Address Nature of of
Title of Class of Beneficial Owner Beneficial Ownership Class
(%)
________________________________________________________________________________
<S> <C> <C> <C>
Class A Aon Risk Services [152,035,000.00] [39.88]
(Money Market Controller, 7th Floor directly owned shares
Portfolio) 123 N. Wacker Dr.
Chicago, IL 60606
</TABLE>
- 4 -
<PAGE> 9
<TABLE>
<S> <C> <C> <C>
Class A Rollins Hudig Hall Co. [91,925,000.00] [24.11]
(Money Market Controller, 22nd Floor directly owned shares
Portfolio) 123 N. Wacker Dr.
Chicago, IL 60606
Class A Combined Insurance Company [51,127,072.28] [13.41]
(Money Market of America directly owned shares
Portfolio) Investment Accounting Mgr.
27th Floor
123 N. Wacker Dr.
Chicago, IL 60606
Class A Union Fidelity Life [19,990,953.86] [5.24]
(Money Market Insurance Co. directly owned shares
Portfolio) Attn: Investment Account
27th Floor
123 N. Wacker Dr.
Chicago, IL 60606
Class A Rollins Hudig Hall-NY [19,479,000.00] [5.11]
(Money Market Suite 22 directly owned shares
Portfolio) 123 N. Wacker Dr.
Chicago, IL 60606
Class B Combined Insurance Company [5,404,961.523] [75.41]
(Flexible Asset of America directly owned shares
Allocation Portfolio) Investment Accounting Mgr.
27th Floor
123 N. Wacker Dr.
Chicago, IL 60606
Class B Virginia Surety Company Inc. [1,680,140.999] [23.44]
(Flexible Asset Investment Accounting Mgr. directly owned shares
Allocation Portfolio) 123 N. Wacker Dr.
Chicago, IL 60606
</TABLE>
THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS MOST RECENT ANNUAL REPORT
AND SEMI-ANNUAL REPORT SUCCEEDING SUCH ANNUAL REPORT, IF ANY, TO SHAREHOLDERS
UPON REQUEST. A SHAREHOLDER WHO WISHES TO RECEIVE A COPY OF THE FUND'S ANNUAL
REPORT OR SEMI-ANNUAL REPORT MAY WRITE THE FUND'S ADMINISTRATOR AT 123 NORTH
WACKER DRIVE, CHICAGO, ILLINOIS 60606, OR CALL (800) 266-3637.
<PAGE> 10
____________________
Proposal 1
APPROVAL OF REORGANIZATION
____________________
SHAREHOLDERS OF EACH PORTFOLIO, VOTING SEPARATELY, ARE ENTITLED TO VOTE ON THIS
PROPOSAL.
INTRODUCTION
At meetings held on April 26, 1996 and May 22, 1996, the Board of Directors of
the Fund considered, and at the meeting held on May 22, 1992 unanimously
approved, an Agreement and Plan of Reorganization (the "Plan of
Reorganization"). A copy of the Plan of Reorganization is attached hereto as
Exhibit A. The Plan of Reorganization provides that each Portfolio will
transfer all of its assets and liabilities to a separate series of the Aon
Funds, a Delaware business trust (the "Trust"), in exchange for all of the
beneficial interests in that series of the Trust. The beneficial interests in
each series of the Trust will then be distributed to each of the current
shareholders of the corresponding Portfolio, and thereafter the Fund will take
all actions necessary to effect its dissolution and to have its corporate
existence terminated. The business of the Fund -- of being an open-end
management investment company -- will thereafter be carried on by the Trust
(the entire transaction shall hereinafter be referred to as the
"Reorganization").
Each shareholder of a Portfolio will have the same investment in the
corresponding series of the Trust as such shareholder had in the Portfolio
prior to the Reorganization. For a further discussion of the steps to be taken
to consummate the Reorganization, see "Summary of the Plan of Reorganization"
in this Proposal 1.
Each initial series of the Trust will have investment objectives, policies and
restrictions identical to those of its corresponding Portfolio.
AAI, the investment adviser of each Portfolio, will continue to be responsible
for the investment management of each series of the Trust, subject to the
supervision of the Trustees of the Trust under respective new investment
advisory agreements (collectively, the "New Advisory Agreements") with the
Trust. The New Advisory Agreements will be the same in every material respect
as the respective Current Advisory Agreements except that, if Proposal 3 is
approved by the shareholders of the respective Portfolios, the Current Advisory
Agreements will be amended to remove from their scope the Administrative
Services (as defined in Proposal 3) which, effective as of July 1, 1995, AAI
will delegate to ASC (the
- 6 -
<PAGE> 11
"Administrator") pursuant to the Current Administration Agreement. (Prior to
July 1, 1995, FFSC (as herein after defined) will serve as Administrator
pursuant to an administration agreement which is substantially identical to the
Current Administration Agreement.) Such Administrative Services are expected to
continue to be provided by ASC pursuant to a new administration agreement (the
"New Administration Agreement") to be entered into directly by the Fund and
ASC. The fees for such Administrative Services are expected to remain
substantially the same but to be paid directly by the Fund (rather than by
AAI) to ASC, and the fees to be paid to AAI pursuant to the New Advisory
Agreements will be reduced by the approximate amount that AAI is currently
paying to ASC as Administrator pursuant to the Current Administration
Agreement. Accordingly, the aggregate fees paid by the Fund for investment
advisory and Administration Services pursuant to the New Advisory Agreements and
the New Administration Agreement respectively, are expected to remain exactly
the same.
Immediately upon completion of the Reorganization, ASC will continue to act as
distributor (the "Distributor") for each series of the Trust pursuant to a
distribution agreement (the "New Distribution Agreement") with the Trust that
will be the same in every material respect as the distribution agreement
currently in effect between ASC and the Fund with respect to the Portfolios
(the "Current Distribution Agreement"), except that, if this Proposal 1 is
approved and the Fund implements a multiple class distribution system, ASC may
receive distribution fees relating to Class C shares as described below. ASC
will also continue to act as Administrator for each series of the Trust
pursuant to the New Administration Agreement with the Trust which will be the
same in every material respect as the Current Administration Agreement, except
that, as noted above, if Proposal 3 is approved by the respective Portfolios,
ASC will provide services directly to, and will receive payment for
Administrative Services directly from, the Trust.
Firstar Trust Company ("Firstar") currently acts as transfer agent (the
"Transfer Agent"), fund accounting services agent and custodian (the
"Custodian"), respectively, for the Fund and immediately upon completion of the
Reorganization is expected to continue to act in like capacities with respect
to the Trust pursuant to transfer agency, fund accounting services and custody
agreements with the Trust that will be the same in every material respect as
the transfer agency agreement and custodian agreement currently in effect
between Firstar and the Fund.
REASONS FOR PROPOSED REORGANIZATION
On April 1, 1996, Aon Corporation completed the sale of all of the outstanding
capital stock of its subsidiaries, The Life Insurance Company of Virginia
("Life of Virginia") and Forth Financial
- 7 -
<PAGE> 12
Resources, Ltd. ("FFRL"), to General Electric Capital Corporation ("GECC").
Prior to this transaction, the Board of Directors of the Fund was comprised
primarily of persons who were either affiliated persons of Life of Virginia or
FFRL or were also serving as directors of Life of Virginia Series Fund, Inc.
("LOVSF"), another registered investment company of which Life of Virginia is
the sponsor. However, a substantial majority of the shares of each of the
Portfolios is currently owned in the aggregate by Aon Corporation or its
subsidiaries or their respective employees, and Aon Corporation and such
subsidiaries determined that as a result of the sale of Life of Virginia and
FFRL to GECC, they desired certain changes in the operation of the Fund. To
this end, Aon Corporation and certain of its subsidiaries, which as of March 13,
1996 collectively beneficially owned approximately 99% of the outstanding shares
of capital stock of the Fund, requested the Fund to call a special meeting of
shareholders of the Fund. Such meeting was held on April 24, 1996, and at such
meeting five nominees proposed by Aon Corporation and such subsidiaries were
elected as new Directors of the Fund (hereinafter sometimes referred to as the
"New Board").
In connection with the sale of Life of Virginia and FFRL to GECC, Forth
Financial Securities Corporation ("FFSC"), which is a subsidiary of FFRL and
which had served as the Fund's Distributor and Administrator, has been, or is
in the process of being replaced in such capacities by ASC, a wholly-owned
subsidiary of Aon Corporation. Also as a result of the sale of Life of
Virginia and FFRL, AAI no longer maintains an office in Virginia. As a result
of these changes, it is expected that within a relatively short time the Fund
will no longer have any nexus to Virginia and its operations will be
transferred elsewhere, most likely to Chicago, Illinois, the site of Aon
Corporation's headquarters.
At the same time, and in part because of the termination of Aon Corporation's
affiliation with LOVSF which resulted from the sale of Life of Virginia and
FFRL, the Fund is currently considering the addition of up to six new
portfolios, including certain portfolios similar to certain of the four
portfolios which are currently offered by LOVSF but not by the Fund. These are
the Common Stock Index, Government Securities, Real Estate Securities and
International Equity portfolios. The Fund is also considering adding an Equity
Active and a Diversified Bond portfolio in the near future.
As a result of these recent and impending changes in the Fund's operations, the
New Board considered whether to continue operating the Fund as a Virginia
corporation or whether another form of organization would be preferable, and
the New Board concluded that operating the Fund as a Delaware business trust is
preferable to operating the Fund as a Virginia corporation. In general,
Delaware business trust law will provide greater flexibility to the Fund than
Virginia corporation law in structuring the Fund's operations
- 8 -
<PAGE> 13
and will eliminate both the need to obtain shareholder approval for certain
routine or non-material actions and the expense and delays involved in doing
so. For example, under Virginia corporation law, routine or non-material
changes to the charter of the Fund, such as those in response to regulatory
developments, generally require shareholder approval; Delaware law permits such
changes to the Declaration of Trust of a Delaware business trust to be made
without first obtaining shareholder approval. In addition, unlike Virginia
corporation law, which restricts the delegation of a board of directors'
functions, Delaware law permits the board of trustees of a Delaware business
trust to delegate certain of its responsibilities, such as those pertaining to
the declaration of dividends, to duly empowered committees of the board of
trustees or to appropriate officers. Finally, Delaware law permits the trustees
of a Delaware business trust to adapt the trust to future contingencies; for
example, without a shareholder vote the trustees may incorporate the trust,
merge or consolidate the trust with another entity, cause each series to become
a separate trust or change the trust's domicile. Any exercise of this authority
by the Trustees of the Trust may, however, be subject to applicable provisions
of the 1940 Act.
Further, the Reorganization will (i) permit the Fund to offer unlimited series,
classes of shares within series and an unlimited number of shares of beneficial
interest in series and classes, (ii) effect a change in the Fund's name to Aon
Funds, and (iii) permit the Fund to consider transferring its operations to
Chicago, Illinois, the site of Aon Corporation's headquarters, without
incurring significant franchise taxes and license fees which would apply if the
Fund were to remain a Virginia corporation upon such transfer.
The Fund also believes that the ability to offer classes of shares within
series will facilitate the Fund taking advantage of alternative methods of
selling shares through a multiple-class distribution program. At present, each
Portfolio is a "no-load" fund and its shares are sold to investors at a public
offering price of its net asset value per share without the imposition of any
sales charges, whether front-end sales charges or deferred ("back-end") sales
charges (also frequently referred to as "contingent deferred sales charges" or
"CDSCs"). In addition, neither Portfolio currently uses its assets to pay for
expenses and costs related to distribution of its shares (also frequently
referred to as "Rule 12b-1 fees"). All costs of distribution are currently
paid by AAI or the Distributor.
Subject to approval of this Proposal 1, it is the current intention of the Fund
to designate the existing shares of the Portfolios as Class Y (no-load) shares
and establish at least one additional class of shares for each Portfolio (as
well as each of the New Series, as described below) in order to implement a
multiple-class distribution program. The creation of one or more separate
classes
- 9 -
<PAGE> 14
of shares will permit the Fund to allocate costs associated with the
distribution of shares of a class and distribution-related servicing of
shareholders of the class to the investors who elect to purchase that
particular class of shares. The Directors have determined that although
distribution-related and shareholder servicing-related charges may be imposed
on any new class, the outstanding shares of each Portfolio as of the business
day immediately prior to the commencement of distribution under the
multiple-class program (the proposed Class Y (no-load) shares) will not bear
any portion of such costs, and will not be subject to sales charges or Rule
12b-1 fees, whether for distribution or shareholder servicing. In addition,
the holders of such shares will not bear any of the costs and expenses (such as
legal and accountants' fees) of establishing the multiple-class distribution
program and will not be subject to any costs or expenses in connection with the
reclassification of outstanding shares to Class Y shares.
In connection with the implementation of the multiple-class distribution
program, the Fund currently intends to limit the general availability of Class
Y shares of the Portfolios to (i) the shareholders of record of outstanding
shares as of the business day immediately prior to the commencement of
distribution under the multiple-class program, including additional investments
by such holders, (ii) investment advisory clients of AAI and (iii) affiliates
of Aon Corporation or AAI. Holders of outstanding Class Y shares of each
Portfolio will be entitled to purchase, and to exchange their shares for, Class
Y shares of the other Portfolios without payment of any sales,
distribution-related or shareholder servicing-related charges. No Rule 12b-1
distribution-related or shareholder servicing-related costs or expenses will be
imposed on Class Y shares owned or purchased, through dividend reinvestment,
exchange or otherwise, by those holders.
As mentioned above, it is currently contemplated that each Portfolio will
create at least one new class of shares in addition to the Class Y shares.
This class would be designated Class C shares, and is currently proposed to be
offered with the following characteristics:
Class C shares will be offered for all of the Portfolios, and will be
sold without a front-end sales charge, but will be subject to a
continuing Rule 12b-1 fee at an annual rate of up to .25% of the average
daily net asset value of the Class C shares (.10% in the case of Class C
shares of the Money Market Portfolio), which may be used for payments in
respect of distribution services rendered ("distribution fees") or
shareholder servicing related to distribution of shares of the class
("service fees").
In general, shares of each class will be eligible to be exchanged for shares of
the same class of any other Portfolio offering that
- 10 -
<PAGE> 15
class, without payment of any sales or distribution-related charges in
connection with the exchange. While the final characteristics of the classes,
including the distribution-related and shareholder servicing-related charges for
the Class C shares, may change prior to implementation, regardless of the final
characteristics of each class, no class will bear the distribution-related or
shareholder servicing-related costs and expenses of any other class, and no
series will bear the distribution-related or shareholder servicing-related costs
and expenses of any other series.
Other than with respect to distribution-related and shareholder
servicing-related matters, all classes of shares of a series would generally
participate in all respects on a proportionate basis with all other classes of
shares of a series, including with respect to investment income, realized
and unrealized gains and losses on series investments and all other operating
expenses of the series (except for certain expenses relating solely to a
particular class, including but not limited to any incremental shareholder
servicing fees and the printing of proxy statements for meetings of shareholders
of a particular class). All classes of shares of a series will vote together as
a single class at meetings of shareholders, except that shares of a class which
are affected by any matter in a materially different manner from shares of other
classes will vote as a separate class and that holders of shares of a class not
affected by a matter will not vote on that matter.
In connection with approving the submission of this Proposal 1 to shareholders
of the Fund and approving in principle the multiple-class distribution program,
the Directors considered that the implementation of such program would provide
investors with additional methods of purchasing the Fund's shares, which could
lead to increased sales of shares and a larger asset base. This in turn
could enable the Fund to achieve savings where certain costs (such as legal and
audit expenses and Directors' fees) generally unrelated to the size of a series
are spread over a larger asset base. Increasing the size of the series could
also improve their ability to deal in larger blocks of securities and obtain
more favorable pricing on portfolio transactions. (However, larger blocks may
in some circumstances be more difficult to sell at favorable prices.) In
addition, the Directors considered the fact that the multiple-class distribution
program is likely to result in a more constant cash flow to the series, which
could (i) minimize or prevent any adverse effects of redemptions requiring
inopportune liquidation of portfolio securities and the foregoing of favorable
investment opportunities and (ii) in periods of market decline enhance the
ability of the series to acquire undervalued securities and securities at a
better average cost. Finally, the Directors considered that no
distribution-related or shareholder servicing-related costs or expenses will be
imposed on existing holders of shares in connection with implementation of the
multiple-class distribution program.
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<PAGE> 16
In conclusion, the New Board believes that reorganizing the Fund into the Trust
will better serve and protect the investment needs and goals of the
shareholders. The Reorganization will have no material impact on the economic
interests of the shareholders of the Fund: the economic interest of a
shareholder in each series of the Trust will be virtually identical to that
shareholder's interest in the corresponding Portfolio of the Fund (subject to
Proposal 3 set forth in this Proxy Statement which is not directly related to
the Reorganization and subject to the proposed implementation of the
multiple-class distribution program, which will not affect existing
shareholders). The investment objectives and policies of the Portfolios that
are fundamental will remain fundamental upon the reorganization of such
Portfolios into the corresponding series of the Trust and will not be subject to
change except by shareholder vote. In the event the Reorganization is approved
by shareholders, the adoption of the New Advisory Agreements with respect to
each Portfolio by that Portfolio's shareholders under Proposal 3 will apply to
the corresponding series of the Trust. See Proposal 3.
SHAREHOLDER APPROVAL
The New Board recommends that the shareholders of the Fund vote FOR the approval
of the Reorganization provided for in the Plan of Reorganization, as described
below. A vote of approval encompasses approval of (i) the reorganization of the
Fund from a Virginia corporation with two separate, active Portfolios to a
Delaware business trust under the name Aon Funds with two separate, active
series (excluding the New Series referred to below) pursuant to the Plan of
Reorganization, (ii) the temporary waiver of certain investment restrictions of
the Portfolios to permit the Reorganization (see "Temporary Waiver of Investment
Restrictions"), and (iii) certain other actions, including authorization of the
Fund, as the initial shareholder of the Trust, to elect as Trustees of the Trust
the persons who at such time serve as Directors of the Fund; to ratify the
appointment of Ernst & Young LLP, currently the independent accountants of the
Fund for the fiscal year ending October 31, 1996, to continue their current
engagement with respect to the Trust; and to approve the New Advisory Agreements
between AAI and the Trust with respect to the corresponding series of the Trust,
subject to shareholder approval of Proposal 3 (or, in the absence of such
shareholder approval, to approve the Current Advisory Agreements between AAI and
the Trust with respect to the corresponding series of the Trust).
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<PAGE> 17
Summary of the Plan of Reorganization
The following discussion summarizes the important terms of the Plan of
Reorganization. This summary is qualified in its entirety by reference to the
Plan of Reorganization itself, which is attached as Exhibit A to this Proxy
Statement.
In order to accomplish the Reorganization, the Trust has been formed as a
Delaware business trust under the name Aon Funds pursuant to an Agreement and
Declaration of Trust dated May __, 1996 (the "Declaration of Trust"). Shares
of the Trust will be divided into separate series, two of which will correspond
to each of the Portfolios. On the closing date of the Reorganization (the
"Closing Date"), each of the Portfolios will transfer all of its assets and
liabilities to the corresponding series of the Trust in exchange for the
assumption by such series of the Trust of all the liabilities of such Portfolio
and the issuance of full and fractional shares of beneficial interest of that
corresponding series of the Trust ("Trust Shares") to such Portfolio. The
Trust Shares issued to such Portfolio will have an aggregate net asset value
(as determined by using the procedures set forth in such Portfolio's
Prospectus) equal to the aggregate net asset value of such Portfolio's capital
stock as of the time as of which such Trust Shares are issued.
Immediately thereafter, each Portfolio will distribute the Trust Shares
received by it to its shareholders pro rata, in proportion to each
shareholder's respective interest in such Portfolio (as represented by shares
of capital stock of such Portfolio) in liquidation of that interest. Following
distribution of Trust Shares to the shareholders of the Portfolios, and as soon
as practicable thereafter, the Fund will take all actions necessary to effect
its dissolution and to have its corporate existence terminated. Upon
completion of the Reorganization, each shareholder will be the owner of full
and fractional Trust Shares equal in number, denomination and aggregate net
asset value to the shareholder's Portfolio shares immediately prior to the
Reorganization. Certificates representing shares of capital stock of a
Portfolio outstanding at the Closing Date will not represent Trust Shares
distributed to the record holder thereof as a result of the liquidation of the
Portfolio. All certificates representing shares of capital stock shall
automatically be cancelled upon the Reorganization. Trust Shares shall be
issued in uncertificated form except as the Trustees may otherwise determine
from time to time. Any certificate representing Trust Shares to be issued in
replacement of a certificate representing shares of a Portfolio will be issued
only upon the surrender of the latter certificate.
The Plan of Reorganization authorizes the Fund, as the then initial shareholder
of the Trust: (i) to elect as Trustees of the Trust the persons who at that
time serve as Directors of the Fund (see "Certain Comparative Information About
the Fund and the Trust --
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<PAGE> 18
Trustees and Officers of the Delaware Trust" below), (ii) to ratify the
appointment of Ernst & Young LLP, currently the independent accountants of the
Fund for the fiscal year ending October 31, 1996, to continue their current
engagement with respect to the Trust, and (iii) to approve the New Advisory
Agreements between the Trust and AAI with respect to each series of the Trust,
subject to shareholder approval of Proposal 3. The Plan of Reorganization also
authorizes the transfer of substantially all of the assets of each Portfolio to
the corresponding series of the Trust and the subsequent dissolution and
termination of the corporate existence of the Fund after the Reorganization has
been completed.
The obligations of the Fund and the Trust under the Plan of Reorganization are
subject to various conditions as stated therein. In order to protect against
unforeseen events, the Plan of Reorganization may be terminated or amended at
any time prior to the Reorganization by action of the New Board notwithstanding
the approval of the Plan of Reorganization by the shareholders of the Fund.
The Fund and the Trust may at any time waive compliance with any of the
covenants and conditions contained in, or may amend, the Plan of
Reorganization, provided that such waiver or amendment does not materially
adversely affect the interests of Fund shareholders.
Assuming the Plan of Reorganization is approved, it is currently contemplated
that the Reorganization will become effective as of the last daily
determination of each Portfolio's net asset value sometime in late July or
early August, 1996. However, the Reorganization will become effective on a
later time if circumstances warrant.
FUND AGREEMENTS
Each of the New Advisory Agreements (subject to approval of Proposal 3) and the
New Administration Agreement and the Agreement will continue in force for two
years from its date and thereafter from year to year so long as its continuance
is approved at least annually by (i) the vote of a majority of the outstanding
voting securities of the Trust or the appropriate series thereof or by the
Trust's Board of Trustees and (ii) the vote of a majority of the Trustees who
are not parties to such agreement or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such agreement.
With respect to the New Distribution Agreement, it will continue in force for
two years from its date and thereafter from year to year with respect to any
series so long as its continuance is approved at least annually by (i) the vote
of a majority of the outstanding voting securities of the appropriate class of
such series or by the vote of the Trust's Board of Trustees and (ii) the vote
of a majority of the Trustees who are not parties to such agreement or
interested persons of any such party and have no direct or indirect financial
interest in such agreement, cast in person at a meeting called for the purpose
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<PAGE> 19
of voting on such agreement. Each of the New Advisory Agreements, the New
Administration Agreement, the New Distribution Agreement will be terminable
without penalty on sixty days' written notice by either party to such agreement
or by the vote of a majority of the outstanding voting securities of the
relevant series or class, and each such agreement will terminate automatically
in the event of its assignment.
SHAREHOLDER ACCOUNTS AND PLANS
In connection with the Reorganization, the Transfer Agent will establish an
account for each shareholder reflecting the appropriate number and
denominations of Trust Shares to be received by that shareholder under the Plan
of Reorganization. These accounts will be the same in all material respects as
the accounts currently maintained by the Transfer Agent with respect to the
Portfolios.
TEMPORARY WAIVER OF INVESTMENT RESTRICTIONS
Certain fundamental investment restrictions of the Portfolios might be
construed as restricting the ability of the Portfolios to carry out the
Reorganization. By approving Proposal 1, shareholders will be deemed to waive,
for the limited purpose of the Reorganization, any fundamental investment
restriction that might be construed to prohibit either Portfolio from
completing the Reorganization, including but not limited to restrictions
prohibiting either Portfolio from (i) acquiring more than a stated percentage
of ownership of another company, (ii) investing for the purpose of exercising
control over or management of any company, (iii) investing in issuers having a
record of less than three years of continuous operations, (iv) investing in
issuers of a single industry, (v) investing in equity securities, (vi)
investing in illiquid securities, or (vii) investing in other investment
companies.
TAX CONSEQUENCES OF THE REORGANIZATION; EXPENSES
The Fund and the Trust will receive an opinion from their counsel, Sidley &
Austin, based on certain facts, assumptions and representations made by the
Fund and AAI, to the effect that, on the basis of existing provisions of the
Internal Revenue Code of 1986, as amended, current administrative rules and
court decisions, for Federal income tax purposes:
(i) each transfer by a current Portfolio of all of its assets to
the corresponding series of the Trust solely in exchange for the
assumption by the corresponding series of the Trust of all of the
liabilities of such current Portfolio and
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<PAGE> 20
the issuance to such current Portfolio of Trust Shares of the corresponding
series of the Trust, followed by the distribution on the Closing Date of
such Trust Shares to the shareholders of the Portfolio in liquidation and
redemption of such shareholders' current Portfolio shares, and the
dissolution of the Fund will constitute a "reorganization" within the
meaning of Section 368(a) of the Code;
(ii) no gain or loss will be recognized by the Fund (or either
current Portfolio) or the Trust (or either of the corresponding series of
the Trust) as a result thereof;
(iii) no gain or loss will be recognized by shareholders of either
Portfolio upon the exchange of their shares of the Portfolio in exchange
for Trust Shares in connection therewith;
(iv) the aggregate tax basis of the Trust Shares received by a
current shareholder of either Portfolio in such exchange will be the same
as the aggregate tax basis of the current shares of the Portfolio given
up in such exchange; and
(v) the holding period for Trust Shares received by a current
shareholder of either Portfolio in such exchange will include the
shareholder's holding period for current Portfolio shares given up in
such exchange, provided such current Portfolio shares were held as
capital assets by such shareholder at the time of the exchange.
CERTAIN COMPARATIVE INFORMATION ABOUT THE FUND AND THE TRUST
As a Delaware business trust, the Trust's operations will be governed by its
Declaration of Trust and By-Laws and applicable Delaware law rather than by the
Fund's Articles of Incorporation and By-Laws and the Virginia Stock Corporation
Act (the "Corporation Act"), which currently govern the Fund's operations The
operations of the Trust, like those of the Fund, will be subject to the
provisions of the 1940 Act and the rules and regulations of the Securities and
Exchange Commission (the "SEC") thereunder and applicable state securities
laws.
Trustees and Officers of the Delaware Trust. Subject only to such restrictions
as may be set forth in the Declaration of Trust, the 1940 Act and other
applicable law, the Trustees will have exclusive control over the assets of the
Trust and over the management of the business and affairs of the Trust, but
will have extensive authority to delegate their powers, authority, functions
and duties to other parties. The powers, authority, functions and duties
(including fiduciary duties) of the Trustees of the Trust are substantially
similar to those of the Directors of the Fund.
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<PAGE> 21
The Trustees will be the current Directors of the Fund. For further
information about these individuals, including biographical and compensation
information, see Proposal 2. The Trustees will serve indefinite terms, but may
be removed (i) at any time with or without cause by a written instrument signed
by at least two-thirds of the Trustees then in office (including, for purposes
of such two-thirds requirement, the Trustee sought to be removed and (ii) at
any time with or without cause at any meeting of the shareholders of the Trust
called for that purpose by a vote of shareholders owning of record at least
66-2/3% of the outstanding shares of the Trust. In addition, a Trustee may
resign at any time, and the death or physical or mental incapacity of a Trustee
will effect his or her resignation.
In the case of a vacancy in the authorized number of Trustees resulting from
the death, physical or mental incapacity, resignation or removal of a Trustee,
or an increase in the authorized number of Trustees, a majority of the Trustees
then in office may fill such vacancy in a manner consistent with the
requirements of the 1940 Act including, without limitation, requirements (i)
relating to the number of interested persons who may serve as Trustees; (ii)
that, immediately after filling any such vacancy, at least two-thirds of the
Trustees then holding office shall have been elected to such office by the
holders of the outstanding voting securities of the Trust; and (iii) that, in
the event that at any time less than a majority of the Trustees of the Trust
holding office at that time were so elected by the holders of the outstanding
voting securities of the Trust, the Trustees or a proper officer of the Trust
shall forthwith cause to be held as promptly as possible and in any event
within sixty days a meeting of such holders for the purpose of electing
directors to fill any existing vacancies in the authorized number of Trustees
(unless the SEC shall by order extend such period).
In light of the foregoing, it is not expected that there will be regular or
periodic meetings of shareholders for the purpose of electing Trustees.
It is anticipated that the Trustees of the Trust will continue the appointment
of the present officers of the Fund to serve as officers of the Trust and that
those persons will continue to perform the same functions on behalf of the
Trust that they now perform on behalf of the Fund. Officers and Trustees who
are interested persons of the Trust will receive no salary, fees or
compensation from the Trust.
Capital Shares. The Declaration of Trust will permit the Trustees to establish
and designate one or more additional series or portfolios of the Trust and to
divide the shares of a series into two or more separate and distinct classes
and, with respect to each series or class, to issue an unlimited number of full
or fractional shares of that series or class. Under Virginia law, the Articles
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<PAGE> 22
of Incorporation of the Fund must specify the number of shares authorized to be
issued. The Articles of Incorporation currently authorize eight classes of
shares. The Fund is currently authorized to issue the following number of
shares: Money Market Portfolio - 750,000,000; Flexible Asset Allocation
Portfolio - 450,000,000; Capital Stock, Class C - 400,000,000; Capital Stock,
Class D - 400,000,000; Capital Stock, Class E - 250,000,000; Capital Stock,
Class F - 250,000,000; Capital Stock, Class G - 250,000,000; and Capital Stock,
Class H - 250,000,000. The Board of Directors of the Fund may, without
shareholder approval, amend the Articles of Incorporation of the Fund to
designate investment portfolios for the Class C, D, E, F, G and H Capital
Stock. The Trust initially will have up to eight series -- corresponding to
the two current Portfolios of the Fund, plus up to six additional series
(collectively, the "New Series") as described below, none of which has yet
commenced operations or has any shareholders. Additional series may be
established and designated by the Trustees at any time. Each share of a
particular series (or class thereof) of the Trust will represent an equal
undivided beneficial interest in the assets associated with that series
(subject to the liabilities associated with that series and, in the case of a
class within that series, subject also to the liabilities associated with that
class), and, subject to the relative rights, powers, privileges and preferences
as among classes within a series (with each share within a particular class
being identical in every respect to each other share within that class), each
share of a particular series of the Trust, like each share of a particular
Portfolio, will be equal in every respect to each other share of that series.
Accordingly, subject to the relative rights, powers, privileges and preferences
as among classes within a series, no share of a particular series will have any
priority or preference over any other share of that series with respect to
dividends or other distributions, and all dividends and distributions shall be
made ratably among all shareholders of a particular series from the assets
associated with that series according to the number of shares of that series
held of record by such shareholders at the record date for such dividend or
distribution.
Shareholder Liability. Under Delaware law, the Trust's shareholders will not
be personally liable for the obligations of the Trust. The Delaware Business
Trust Act provides that a shareholder of a Delaware business trust is entitled
to the same limitation of personal liability as is extended to stockholders of
private, for-profit Delaware corporations. Stockholders of a for-profit
Delaware corporation -- like those of a Virginia corporation, such as the Fund,
under the Corporation Act -- may not be held personally liable under Delaware
law for the obligations of the corporation. It is possible that in some
states, courts may decline to apply Delaware law on this point. As a result,
to the extent that the Trust or a shareholder will be subject to the
jurisdiction of courts in those states, there is a risk that such courts might
not apply Delaware law, and could thereby subject
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<PAGE> 23
Trust shareholders to personal liability. To guard against this risk, the
Declaration of Trust (i) contains an express disclaimer of shareholder liability
for the debts, liabilities and obligations of the Trust, (ii) provides for
indemnification, out of the assets associated with the relevant series, of any
shareholder held personally liable for the debts, liabilities or obligations of
the Trust and (iii) permits the Trust to include a disclaimer of shareholder
liability in its contractual commitments. Thus, the risk of a Trust shareholder
incurring financial loss beyond his or her investment because of shareholder
liability would be limited to circumstances in which (i) a court refused to
apply Delaware law or otherwise failed to give full effect to Declaration of
Trust or contractual provisions limiting shareholder liability, (ii) no
contractual limitation of liability was in effect, and (iii) the Trust itself
was unable to meet its obligations. In light of Delaware law, the nature of the
Trust's business, and the nature of its assets, the New Board believes that the
risk of personal liability to a Trust shareholder is remote.
Shareholders of a Virginia corporation such as the Fund may not be held
personally liable under Virginia law for the obligations of the corporation,
except in limited circumstances generally not applicable to investment
companies.
Shareholder Voting Rights. The Fund does not and the Trust will not hold
annual meetings. The Declaration of Trust provides that the Trustees shall
promptly call and give notice of a meeting of the shareholders of the Trust for
the purpose of voting upon the question of removal of any Trustee or Trustees
when requested to do so in writing by shareholders holding of record at least
10% of the shares outstanding. The Declaration of Trust also provides, in
substance, that whenever ten or more shareholders of record who have been such
for at least six months, and who hold in the aggregate either shares having a
net asset value of at least $25,000 or at least 1% of the outstanding shares,
whichever is less, apply to the Trustees in writing, stating that they wish to
communicate with other shareholders with a view to calling a meeting of
shareholders for the purpose of removing one or more Trustees, the Trustees
shall cooperate with those shareholders to the extent and in the manner
provided in Section 16(c) of the 1940 Act (as though Section 16(c) applied to
the Trust). The By-Laws of the Fund provide that a special meeting of
shareholders will be called upon written request of shareholders representing
not less than 10% of the outstanding shares of the Fund.
The Trust, like the Fund, will operate as an open-end management investment
company registered with the SEC under the 1940 Act. Shareholders of the
respective series of the Trust will therefore have the power to vote at special
meetings with respect to, among other things, changes in fundamental investment
policies and restrictions of such series, approval of changes to investment
advisory agreements and such additional matters relating to the
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<PAGE> 24
Trust as might be required by the 1940 Act. Upon approval of this Proposal 1,
the Fund will notify the SEC that the Trust will adopt the Fund's existing
registration statement under the Securities Act of 1933 with respect to each
Portfolio (the "Registration Statement"). Pursuant to the Registration
Statement, it is expected that the Trust will also offer shares of several New
Series, which may include: Common Stock Index Series, Government Securities
Series, Real Estate Securities Series and International Equity Series. It is
anticipated that this Registration Statement will become effective sometime in
late July or early August, 1996. If the Reorganization is approved by the
shareholders of each Portfolio and is completed, the Trust will have, in
addition to the New Series, the Aon Money Market Series ("Money Market Series")
and the Aon Flexible Asset Allocation Series ("Flexible Asset Allocation
Series"). Each of these series will hold assets and liabilities corresponding
to the Portfolio from which they were transferred.
The Declaration of Trust provides that shareholders of the Trust shall have the
power to vote only with respect to the election of Trustees, the removal of
Trustees, the approval of investment advisory or similar agreements, and such
additional matters as may be required by law or as the Trustees may deem
appropriate. The Declaration of Trust also permits the Trustees to amend the
Declaration of Trust provided that (a) the Trustees must obtain the
authorization or approval of holders of not less than 75% of the outstanding
shares to adopt any amendment to the provisions of the Declaration of Trust
governing amendments to the Declaration of Trust; (b) the Trustees must obtain
the authorization or approval of shareholders of a particular series (or class)
to adopt any amendment which would adversely affect to a material degree the
rights, powers, privileges, preferences or duties of the shares of such series
(or class); and (c) to the extent voting rights are accorded to shareholders
under the Declaration of Trust to authorize or approve a particular matter, the
Trustees may not adopt any amendment to any such voting right, or any amendment
which would have the effect of altering or nullifying such voting right, unless
they first obtain the same authorization or approval of such shareholders as
would be required to be obtained from such shareholders if they were voting on
such matter. The Fund's Articles of Incorporation, on the other hand,
generally give shareholders, except with respect to minor amendments, exclusive
power to amend the Articles of Incorporation.
Shareholders of the Trust are entitled to one vote for each full share and to a
proportionate fractional vote for each fractional share. In the case of (a)
the election or removal of Trustees and (b) an amendment to the provisions of
the Trust Instrument governing the amendment of the Trust Instrument, and where
required by the 1940 Act, all shares entitled to be voted are to be voted in
the aggregate, without differentiation among the separate series or classes.
In all other cases, (a) where Rule 18f-3 under the 1940 Act does not apply in
connection with the matter to be voted on and such matter does not involve an
amendment to the Trust Instrument that would adversely affect to a material
degree the rights, powers, privileges, preferences or duties of shares of a
particular class in a manner different from the shares of any other class
within the same series, all shares entitled to be voted with respect to the
matter shall be voted separately by individual series and (b) where Rule 18f-3
under the 1940
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<PAGE> 25
Act applies in connection with the matter to be voted on, or where such matter
involves an amendment to the Trust Instrument that would adversely affect to a
material degree the rights, powers, privileges, preferences or duties of shares
of a particular class in a manner different from the shares of any other class
within the same series, all shares entitled to be voted with respect to the
matter shall be voted separately by individual class. Notwithstanding the
foregoing, the Trustees may determine that, in situations where the shares of
more than one series (or class) are entitled to be voted with respect to a
matter, such shares shall be voted as a single class with respect to such matter
if and to the extent permitted under the 1940 Act.
Shareholders of the Fund are entitled to one vote for each full share and to a
proportionate fractional vote for each fractional share, irrespective of class,
standing in the shareholder's name on the books of the Fund. On any matter
submitted to a vote of shareholders of the Fund, all shares then issued and
outstanding and entitled to vote shall be voted in the aggregate and not by
series or class except (i) when otherwise expressly required by law, shares
shall be voted by individual series or class; or (ii) if the Board of Directors
determines that any matter concerns only one or more particular series or
class, it may direct that only holders of that series or class or those series
or classes may vote on the matter.
Liability of Trustees. The Declaration of Trust provides that no Trustee
shall be liable for any act or omission or any conduct whatsoever in his or her
capacity as Trustee (including, without limitation, errors of judgment or
mistakes of fact or law), provided that a Trustee shall not be protected
against any liabilities to the Trust or its shareholders to which he or she
otherwise would be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee. Furthermore, the Declaration of Trust entitles the Trustees
to indemnification against all liability (and expenses associated therewith) in
respect of which he or she is protected, as provided in the preceding sentence.
The Trust may also advance money for these expenses, provided that the Trustee
undertakes to repay the Trust if his or her conduct is later adjudicated to
preclude indemnification and certain other conditions are met. The Declaration
of Trust also provides that the Trust may purchase and maintain insurance
policies against such liabilities.
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<PAGE> 26
Under the Corporation Act, in addition to any other liability imposed by law, a
Director may be liable to the Fund: (i) for voting for or assenting to the
declaration of any dividend or other distribution of assets to shareholders
which is contrary to the Corporation Act or the Articles of Incorporation, or
(ii) for failing to discharge his or her duties in accordance with his or her
good faith business judgment of the best interests of the corporation. Under
the Corporation Act and the Fund's Articles of Incorporation and By-laws, the
Fund shall indemnify a Director who was or is a party or is threatened to be
made a party to any proceeding by reason of the fact that such individual is or
was a Director against expenses, judgments, fines and amounts paid in
settlement, provided the Director acted in good faith and in a manner he or she
reasonably believed to be in the best interests of the Fund. The Fund may also
reimburse a Director's expenses in advance of final disposition of any such
proceeding if (i) it is determined that the Director met the applicable
standard of conduct by the vote of a majority of a quorum of Directors who are
neither interested persons nor parties to the proceeding or by independent
legal counsel in a written opinion, and (ii) the Director provides an
undertaking to repay the advances unless it is ultimately determined that the
Director is entitled to be indemnified by the Fund.
Record Date. The Declaration of Trust allows the Trustees to fix a record date
not more than 90 days prior to the date of any meeting. The By-Laws of the
Fund and the Corporation Act provide that the record date may not be more than
70 days prior to the meeting.
________________
The foregoing is only a summary of certain of the differences between the Fund,
its Articles of Incorporation and Bylaws and Virginia law and the Trust's
Declaration of Trust and By-Laws and Delaware law. It is not a complete list
of differences. Shareholders should refer to the provisions of the Articles of
Incorporation and Bylaws of the Fund, Virginia law, the Declaration of Trust
and By-Laws of the Trust and Delaware law directly for a more thorough
comparison. A shareholder who wishes to receive a copy of these documents may
write to the Fund's Administrator at 123 North Wacker Drive, Chicago, Illinois
60606, or call (800) 266-3637.
DISSENTERS' RIGHTS
The staff of the SEC has taken the position in Investment Company Act Release
8752 (April 10, 1975) that adherence to appraisal rights statutes such as that
of Virginia by registered investment companies issuing redeemable securities
would constitute a
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<PAGE> 27
violation of Rule 22c-1 under the 1940 Act. Rule 22c-1 precludes open-end
investment companies from redeeming securities otherwise than at a price based
upon the net asset value next computed after receipt of a tender of such
security for redemption. In this connection, the SEC staff has also taken the
position in Release No. 8752 that pursuant to Section 50 of the 1940 Act, Rule
22c-1 supersedes appraisal rights statutes. While the Fund is not aware of any
judicial decision which has dealt with this issue, the Fund intends to adhere to
the position of the staff of the SEC and will not honor any shareholder's
request for appraisal rights. (The Declaration of Trust provides that
shareholders of the Trust will have no appraisal rights with respect to their
shares in the Trust.)
The Declaration of Trust provides that shareholders of the Trust will have no
appraisal rights.
RECOMMENDATION
THE BOARD OF DIRECTORS OF THE FUND RECOMMEND THAT SHAREHOLDERS VOTE FOR
PROPOSAL 1.
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<PAGE> 28
____________________
Proposal 2
ELECTION OF DIRECTORS AND
APPROVAL OF ELECTION OF TRUSTEES
____________________
SHAREHOLDERS OF BOTH PORTFOLIOS, VOTING TOGETHER, ARE ENTITLED TO VOTE ON THIS
PROPOSAL.
INTRODUCTION
The management of the Fund has nominated the five nominees named below (the
"Nominees") as directors of the Fund ("Directors"), to hold office until their
successors are elected and qualified and until the Reorganization is completed.
All five Nominees currently serve as Directors of the Fund, each having been
initially elected a Director by shareholders at a special meeting of
shareholders of the Fund held on April 24, 1996. If elected, the five Nominees
will constitute all of the Directors, to hold office until their respective
successors are elected and qualified. Under the Articles of Incorporation and
By-Laws of the Fund, the Board, by a vote of a majority of the entire Board,
may increase or decrease the number of Directors of the Fund. The number of
Directors which currently constitutes the entire Board of Directors is five.
The Nominees are currently the Trustees of the Trust, having been appointed as
the initial trustees of the Trust. If the shareholders of the Fund approve the
Reorganization, the Board of Directors of the Fund intends to vote the Fund's
beneficial interest in the Trust to ratify the election of the Nominees as
Trustees of the Trust. Each Trustee generally will serve as a Trustee of the
Trust during the lifetime of the Trust, unless such Trustee sooner dies,
becomes physically or mentally incompetent, resigns, or is removed as provided
in the Declaration of Trust.
All Nominees have consented to being named in this Proxy Statement and have
agreed to serve if elected. In case any of the Nominees should become unable
to serve, the proxies may vote for a substitute to be recommended by the Board
of Directors.
INFORMATION CONCERNING NOMINEES
The following table shows the Nominees who are standing for election as
Director and their principal occupations which, unless
- 24 -
<PAGE> 29
specific dates are shown, are of more than five years' duration, although the
titles may not have been the same throughout.
<TABLE>
<CAPTION>
Share
Name Position Age Business Experience Ownership (1)
- ----- -------- --- ------------------- -------------
<S> <C> <C> <C> <C>
Michael A. Cavataio Director 52 Director and Vice- [81,093.9] (2)
3125 Ramsgate Road Chairman and Advisor, Flexible Asset
Rockford, IL 61114 Pioneer Financial Allocation
Services, President, Portfolio
Rockford Lillian's shares
Inc., 1984 to 1995.
Real estate developer.
Director, Today's
Bancorp. Director,
Today's Bank East
Michael A. Conway* Director 49 President, Aon [14,370] (3)
123 North Wacker Dr. Advisors, Inc., Money Market
29th Floor Senior Vice President Portfolio
Chicago, IL 60606 and Senior Investment shares
Officer, Aon Corporation
Carleton D. Pearl Director 52 Senior Vice President - 0 -
McDonald's and Treasurer,
Corporation McDonald's Corporation
McDonald's Plaza
Oak Brook, IL 60521
Richard J. Peters Director 48 Vice President, Treasurer - 0 -
13400 W. Outer Drive and Director, Penske
Detroit, MI 48239 Corporation. President
and Director, Penske
Motorsports, Inc.
Donald W. Phillips Director 47 Chairman, Equity - 0 -
2 N. Riverside Plaza Institutional
Chicago, IL 60606 Investors, Inc. and
Executive Vice
President, Equity
Group Investments,
Inc. Director, Capsure,
Inc. Director, Sit
Mutual Funds Group
</TABLE>
* Nominee is an "interested person" of the Fund, as defined in the 1940
Act.
(1) Full shares of the Fund owned beneficially as of May 31, 1996, based on
information furnished by each Nominee. On that date, the Directors and
officers of the Fund, as a group, beneficially owned less than 1% of the
outstanding shares of each of the Money Market Portfolio and the Flexible
Asset Allocation Portfolio of the Fund.
- 25 -
<PAGE> 30
(2) Beneficial ownership by Pioneer Financial Services, of which Mr. Cavataio
is chairman of the investment committee and a director.
(3) Excludes ___ shares of the Money Market Portfolio, representing ___% of
the outstanding shares of such Portfolio, and ____ shares of the Flexible
Asset Allocation Portfolio, representing ___% of the outstanding shares of
such Portfolio, which as of May 31, 1996 were owned by subsidiaries of
Aon Corporation for which Mr. Conway serves as [chief] investment officer.
Accordingly, Mr. Conway may be deemed to have sole and/or shared voting
and/or investment power with respect thereto. Mr. Conway disclaims
beneficial ownership of such shares.
Since the beginning of the Fund's fiscal year ended October 31, 1995, no
transactions involving purchases or sales of securities of AAI or Aon
Corporation or any of their affiliates by any Director or Nominee were made in
an amount exceeding 1% of the outstanding securities of any class of AAI, Aon
Corporation or any of their affiliates.
The Board of Directors and Board of Trustees, respectively, are responsible for
the overall management of the Fund and the Trust and each series thereof,
including general supervision and review of their investment policies and
activities. The Board of Directors and Board of Trustees, respectively, elect
the officers of the Fund and the Trust. The officers are responsible for
supervising and administering the Fund's or the Trust's (as applicable)
day-to-day operations.
EXECUTIVE OFFICERS OF THE FUND
The following table sets forth certain information furnished by each of the
principal executive officers of the Fund. Each such executive officer has held
his or her current position since being appointed thereto by the Board of
Directors on April 26, 1996 and will hold such position until the
Reorganization or until his or her successor is duly elected or appointed or
until he or she is removed by the Board of Directors, whichever shall occur
first. Each executive officer currently holds the identical position with the
Trust and has held such position since May 22, 1996. The business address of
each individual listed below is 123 North Wacker Drive, Chicago, Illinois
60606.
- 26 -
<PAGE> 31
<TABLE>
<CAPTION>
Name Position Age Business Experience
- ---- -------- --- -------------------
<S> <C> <C> <C>
Michael A. Conway President 49 President, Aon
Advisors, Inc.,
Senior Vice President
and Senior Investment
Officer, Aon
Corporation
Paul Rabin Treasurer 57 Counsel, Aon
Corporation, Secretary
Aon Securities
Corporation and Aon
Asset Management
Funds, Inc.
Karl W. Krause Secretary 45 Treasurer, Aon
Advisors,Inc.,
Combined Insurance of
Company of America,
and Assistant
Treasurer of Aon
Corporation
Andrew Kubeck Controller 43 Assistant Vice
President-Finance,
Controller, Aon Asset
Management Funds,
Project Manager, Aon
Corporation in 1987
and 1995, Manager,
Investment Accounting
Department, Aon
Corporation since 1992
</TABLE>
MEETINGS AND COMMITTEES
The Fund does not have an active nominating, standing or compensation
committee. The Fund has an active audit committee currently consisting of
Messrs. Cavataio, Pearl, Peters and Phillips. It is anticipated that the Trust
will have an audit committee consisting of the same individuals. The audit
committee meets periodically with the Fund's independent accountants and the
executive officers of the Fund. This committee reviews the accounting
principles being applied by the Fund in financial reporting, the scope and
adequacy of internal controls, the scope of the audit and non-audit assignments
of the independent accountants, and the related fees. During the year ended
October 31, 1995, the Board of Directors of the Fund met five times and the
audit committee met one time. Each person who then served as a director
attended seventy-five percent or more of the total
- 27 -
<PAGE> 32
meetings of the directors and the committees of the directors on which
he or she served which were held during the year.
COMPENSATION OF DIRECTORS AND OFFICERS
Directors or officers of the Fund who are interested persons of AAI or any of
its affiliates do not receive any compensation from the Fund for their services
to the Fund. Effective as of April 26, 1996, Directors who are not interested
persons of the Fund are compensated by the Fund at a rate of $10,000 annually,
plus $500 per Board or committee meeting attended. Prior to such date,
Directors who were not interested persons of the Fund received a fee of $4,000
annually plus $250 per Board or committee meeting attended. In addition,
Directors who are compensated by the Fund are also reimbursed for any
out-of-pocket expenses incurred in connection with affairs of the Fund.
Set forth below is a compensation table listing, for each person who then
served as a Director of the Fund entitled to receive compensation, the
aggregate compensation received from the Fund for the fiscal year ended October
31, 1995, and the total compensation received from the Fund and its Fund
complex.
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Fund and
Director from Fund Fund Complex (1)
- ------------------- ---------------------- ------------------
<S> <C> <C>
Wallace L. Chandler $4,700 $7,500
John E. Leard $5,000 $8,000
Robert P. Martin $5,000 $8,000
J. Clifford Miller $5,000 $8,000
Lee A. Putney $5,000 $8,000
</TABLE>
(1) In addition to the Fund, "Fund Complex" includes LOVSF, an open-end
investment company for which AAI serves as investment adviser.
Directors and officers of the Fund do not receive any benefits from the Fund
upon retirement nor does the Fund accrue any expenses for pension or retirement
benefits.
- 28 -
<PAGE> 33
RECOMMENDATION
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
ELECTION OF MESSRS. CAVATAIO, CONWAY, PEARL, PETERS AND PHILLIPS AS MEMBERS OF
THE BOARD OF DIRECTORS OF THE FUND.
- 29 -
<PAGE> 34
____________________
Proposal 3
APPROVAL OF NEW INVESTMENT ADVISORY
AGREEMENTS BETWEEN THE FUND AND AON ADVISORS, INC.
____________________
SHAREHOLDERS OF EACH PORTFOLIO, VOTING SEPARATELY,
ARE ENTITLED TO THIS PROPOSAL
INTRODUCTION
It is proposed that the Fund enter into new investment advisory agreements, on
behalf of each Portfolio, with AAI (the "New Advisory Agreements"). If
approved, the New Advisory Agreements would result in certain Administrative
Services (as defined below), which are now required to be provided to the Fund
by AAI, and which AAI has engaged ASC to provide on essentially a "subcontract"
basis, being provided directly to the Fund by ASC. The rate at which fees are
to be paid by the Fund for investment advisory services and Administrative
Services in the aggregate is expected to remain exactly the same. The Board
has approved, and recommends that the shareholders of each Portfolio approve,
the New Advisory Agreements for such Portfolios.
While the New Advisory Agreements are described below, the discussion is
qualified by the provisions of the complete agreements, copies of which are
attached as Exhibits B and C, respectively. Certain provisions set forth in
Exhibit B and C reflect the assumption that shareholders of the Fund will
approve Proposal 1 and the Fund will be converted into a Delaware business
trust. However, since approval of this Proposal 3 is not dependent upon the
approval of Proposal 1 or the Reorganization of the Fund to a Delaware business
trust as described in Proposal 1, and since the terms of this Proposal 3 (if
approved) may be implemented prior to the Reorganization, the Fund may enter
into the New Advisory Agreements (in which case the New Advisory Agreements
will be between the Fund and AAI and their provisions will reflect certain
information about the Fund and the Portfolios rather than the Trust and the
corresponding series). If the shareholders of either Portfolio do not approve
this Proposal 3, then AAI will continue to act as the investment adviser to
such Portfolio (or, if Proposal 1 is approved, its corresponding series of the
Trust), pursuant to such Portfolio's Current Advisory Agreement with AAI.
Under the Current Advisory Agreement between the Fund, on behalf of the Money
Market Portfolio, and AAI (the "Current Money Market Portfolio Advisory
Agreement"), AAI provides investment advice and related services to such
Portfolio. The Current Money Market Portfolio Advisory Agreement is dated
January 27, 1994 and was last
- 30 -
<PAGE> 35
approved by the Fund's Board of Directors, including approval by a
majority of Directors who are not interested persons of the Fund, on October
24, 1995. The Current Money Market Portfolio Advisory Agreement was last
submitted to a vote of shareholders of the Fund on December 29, 1993 in
connection with the conversion of the Fund to a series fund.
Under the Current Advisory Agreement between the Fund, on behalf of the
Flexible Asset Allocation Portfolio, and AAI (the "Current Flexible Asset
Allocation Portfolio Advisory Agreement"), AAI provides investment advice and
related services to such Portfolio. The Current Flexible Asset Allocation
Portfolio Advisory Agreement is dated April 26, 1995 and was last approved by
the Fund's Board of Directors, including approval by a majority of Directors
who are not interested persons of the Fund, on April 26, 1996. The Current
Flexible Asset Allocation Portfolio Advisory Agreement was approved by
stockholders of the Fund pursuant to action dated April 26,1995 in connection
with the stockholders' initial approval of the Current Flexible Asset
Allocation Advisory Agreement.
Pursuant to the Current Advisory Agreements, AAI manages the investment and
reinvestment of the assets of the respective Portfolios in accordance with
their respective investment objectives and management policies. Each Portfolio
pays AAI monthly compensation in the form of an investment advisory fee as set
forth below under "Description of Current Advisory Agreements" in this Proposal
3. This fee is accrued daily.
Under the Current Advisory Agreements, AAI is also required, at its own
expense, to (i) supply internal auditing and internal legal services; (ii)
supply stationery and office supplies; (iii) prepare reports to shareholders
and the Board of Directors; (iv) prepare tax returns; (v) prepare reports to
and filings with the SEC and State Blue Sky authorities; (vi) at the Fund's
request, furnish office space, in such place as may be agreed upon from time to
time, and all necessary office facilities; (vii) supply clerical, accounting,
bookkeeping, administrative and other similar services (exclusive of those
services relating to and to be performed under any contract for custodial,
transfer, dividend and accounting services entered into by the Fund with a
third party); and (viii) furnish persons satisfactory to the Fund to respond
during normal business hours to in-person, written, and telephone requests for
assistance and information from shareholders of the respective Portfolios, and
provide such facilities and equipment as may be necessary for such persons to
carry out their duties, including, without limitation, office space and
facilities, telephones and CRT terminals and equipment (including telephone
lines) necessary for access to the shareholder records. The services described
in this paragraph are hereinafter collectively referred to as the
"Administrative Services".
- 31 -
<PAGE> 36
The Current Advisory Agreements provide that AAI may from time to time employ
or associate with any person or persons it may believe to be particularly
fitted to assist it in the performance of such Agreements. The compensation of
any such persons will be paid by AAI. Pursuant to such authority, and in order
to fulfill its obligation to provide the Administrative Services, effective
July 1, 1996 AAI will have entered into the Current Administration Agreement
with ASC and the Fund under which ASC will furnish substantially all such
services for an annual fee of $25,000 plus .05% of the Fund's average daily net
assets. This fee is borne by AAI out of its advisory fee and not by either
Portfolio or the Fund.
The Fund proposes that the Current Advisory Agreements be amended to remove
from their scope the Administrative Services which AAI will have delegated to
ASC pursuant to the Current Administration Agreement. Such Administrative
Services are expected to continue to be provided by ASC pursuant to the New
Administration Agreement to be entered into directly by the Fund and ASC. The
fees for such Administrative Services are expected to remain approximately the
same but to be paid directly to ASC by the Fund (rather than by AAI), and the
fees to be paid to AAI pursuant to the New Advisory Agreements will be reduced
by approximately the amount that AAI will pay to ASC as Administrator pursuant
to the Current Administration Agreement. The aggregate fees paid by the Fund
for investment advisory services and Administrative Services pursuant to the
New Advisory Agreements and the New Administration Agreement, respectively, are
expected to remain exactly the same.
INFORMATION ABOUT AAI
AAI was organized as a Virginia corporation on September 2, 1987 and is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended. It is a wholly-owned subsidiary of Aon Corporation. The total
staff of AAI as of May 1, 1996 consisted of approximately 40 individuals,
including five executive directors and fourteen portfolio managers. Assets
under management include equity securities, fixed income securities and real
estate. As of May 1, 1996, the aggregate assets under AAI's management totaled
approximately $15 billion.
Aon Corporation, 123 North Wacker Drive, Chicago, Illinois 60606, is a publicly
held insurance holding company the common stock of which is listed on the New
York Stock Exchange and which, through subsidiaries, is a major provider of
insurance, insurance brokerage and related services. As of [October 31, 1995],
Mr. Patrick G. Ryan, President and Chief Executive Officer of Aon Corporation
owned directly and beneficially 13,500,000 shares (12.5%) of the outstanding
common stock of Aon Corporation. No other stockholder owned 10% or more of Aon
Corporation's outstanding stock as of such date.
- 32 -
<PAGE> 37
The following table sets forth the name, business address, title and principal
occupation of the principal executive officer and each director of AAI:
<TABLE>
<CAPTION>
Name and Business
Address Title Principal Occupation
- ----------------- ------ --------------------
<S> <C> <C>
Michael A. Conway Director and Director and President,
123 North Wacker Drive President AAI, since 1990; Director
Chicago, IL 60606 and Senior Vice President-
Investments, Combined
Insurance Company
of America, since 1990;
Senior Vice President and
Senior Investment Officer,
Aon Corporation, since
1990.
Lawrence R. Miller Senior Execu- Executive Director, AAI,
123 North Wacker Drive tive Director since 1987; Vice President-
Chicago, IL 60606 and Director Investments, Combined Insurance
Company of America, since 1978.
Mark Burka Director Executive Director, AAI,
123 North Wacker Drive Vice President-Investments
Chicago, IL 60606 of Combined Insurance Company of
America.
Ivan Berk Director Executive Director, AAI.
123 North Wacker Drive
Chicago, IL 60606
James White Director Executive Director, AAI,
123 North Wacker Drive Vice President and
Chicago, IL 60606 Controller, Aon Corporation, since
1985, Director and Vice President Finance,
Combined Insurance Company of America.
</TABLE>
DESCRIPTION OF CURRENT ADVISORY AGREEMENTS
Under the Current Advisory Agreements between the Fund on behalf of each
Portfolio and AAI, AAI provides investment advice and management services to
respective Portfolios. AAI agrees to continuously furnish an investment
program for the respective Portfolios, to be responsible for the actual
managing of the investments of the Portfolios and to be responsible for making
decisions governing whether to buy, sell or hold any particular security. AAI
considers analyses from various sources, makes necessary investment decisions
and effects transactions accordingly.
In addition to performing management duties and providing the investment advice
described above, AAI also is obligated to perform, or supervise the performance
of, the Administrative Services as described above. AAI is also responsible
for
- 33-
<PAGE> 38
providing, at the Fund's request, persons to serve as officers and
directors of the Fund.
In performing services under the Current Advisory Agreements, AAI is subject to
the supervision and review of the Board of Directors of the Fund and is
obligated to perform in a manner consistent with the investment objective,
policies and restrictions of the applicable Portfolio, the Articles of
Incorporation and Bylaws of the Fund and the provisions of the 1940 Act.
AAI bears all expenses in connection with the performance of the its services
under the Current Advisory Agreements.
The Fund is responsible for all other expenses incurred in its operation,
including: (i) taxes and fees payable by the Fund to federal, state, or other
governmental agencies; (ii) brokerage fees and commissions, and issue and
transfer taxes; (iii) interest; (iv) Board of Directors meeting attendance fees
and expenses of Directors of the Fund who are not directors, officers or
employees of AAI or of any affiliated person (other than a registered
investment company) of AAI; (v) registration, qualification, filing and other
fees in connection with securities registration requirements of federal and
state regulatory authorities; (vi) the charges and expenses for custodial,
paying agent, transfer agent, dividend agent and accounting agent services;
(vii) outside legal fees and expenses in connection with the affairs of the
Fund including, but not limited to, registering and qualifying its shares with
federal and state regulatory authorities; (viii) charges and expenses of
independent auditors; (ix) costs of meetings of shareholders and Directors of
the Fund; (x) costs of maintenance of corporate existence; (xi) insurance
premiums; (xii) investment advisory fees; (xiii) costs and fees associated with
printing and delivering registration statements, shareholders' reports and
proxy statements; (xiv) costs and fees associated with delivering reports to
and filings with the SEC and state Blue Sky authorities; (xv) costs relating to
administration of the Fund's general operations; (xvi) costs relating to the
Fund's own employees, if any, and (xvii) costs of preparing, printing, and
delivering the Fund's prospectus to existing shareholders. Any expenses that
are common to both Portfolios are allocated based on each Portfolio's
respective net assets.
If in any fiscal year the aggregate expenses of the Money Market Portfolio or
the Flexible Asset Allocation Portfolio (including the investment advisory fee,
but excluding interest, taxes, brokerage commissions, and extraordinary
expenses), exceeds 1.00% or 1.25%, respectively, of the Portfolio's average
daily net assets, AAI has agreed to reimburse the Portfolio for such excess.
The Current Advisory Agreements are not assignable and may be terminated
without penalty upon 60 days' written notice at the option of either the Fund
or AAI or by the vote of a majority of
- 34 -
<PAGE> 39
the outstanding voting securities of the relevant Portfolio. Each
provides that it can be continued from year to year so long as such continuance
is specifically approved annually (i) by the Board of Directors of the Fund or
by the vote of a majority of the outstanding voting securities of the relevant
Portfolio and (ii) by a majority vote of the Directors who are not parties to
the Agreement or interested persons of any such party cast in person at a
meeting.
The Current Advisory Agreements also provide that AAI shall not be liable to
the Fund or to any shareholder for any error of judgment or mistake of law or
for any loss suffered by the Fund or by any shareholder in connection with
matters to which the Current Advisory Agreements relate, except for a breach of
fiduciary duty imposed by law or a loss resulting from willful misfeasance, bad
faith, gross negligence, or reckless disregard on the part of AAI in the
performance of its duties thereunder.
FEES AND FEE WAIVERS
Under the Current Advisory Agreements, each Portfolio currently pays AAI, as
compensation for AAI's services, a fee determined and accrued daily and paid
monthly, based on a stated percentage of the average daily net assets of such
Portfolio at an annual rate as set forth below:
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
Net Asset Value Annual Rate
------------------------------ -----------
<S> <C>
All Amounts................... 0.35%
</TABLE>
FLEXIBLE ASSET ALLOCATION PORTFOLIO
<TABLE>
<CAPTION>
Net Asset Value Annual Rate
------------------------------ -------------------
<S> <C>
First $250 Million............ 0.70%
Next $250 Million............. 0.60%
Amounts Over $500 Million..... 0.50%
</TABLE>
Pursuant to AAI's agreements to waive or reimburse fees, AAI waived, reimbursed
and received the following amounts during the fiscal year ended October 31,
1995, resulting in total Portfolio expenses for advisory fees for that year as
follows:
<TABLE>
<CAPTION>
Fund
Fee Expenses Fee
Waived Reimbursed Paid
------ ---------- ----
<S> <C> <C> <C>
</TABLE>
- 35 -
<PAGE> 40
[S] [C] [C] [C]
Money Market Portfolio....... $1,218,882 $ 0 $487,553
Flexible Asset
Allocation Portfolio....... $ 0 $ 0 $218,580
AAI's agreement to waive fees with respect to the Money Market Portfolio is
cancelable by AAI at any time. The New Advisory Agreements provide that AAI
will continue to waive a portion of its fees with respect to the Money Market
Portfolio for at least one year. The initial annual rate at which AAI assesses
fees to such Portfolio (after giving effect to the fee waiver) will thus
increase from .10% to .20% of the average daily net assets of such Portfolio.
Other than the payments received by AAI pursuant to the Current Advisory
Agreements, the Portfolios did not make any payments to affiliates of AAI
during the fiscal year ended October 31, 1995.
In addition to the Portfolios, AAI provides investment advice and management to
Aon Corporation and its subsidiaries and affiliates and to LOVSF, a registered
investment company sponsored by Life of Virginia. Under the terms of its
investment advisory agreement with AAI, LOVSF has agreed to pay AAI monthly
compensation at the following rates, based on the average daily net assets of
the applicable LOVSF Portfolio:
- 36 -
<PAGE> 41
Common Stock Index Portfolio: .35%;
Government Securities Portfolio, Money Market Portfolio and Total
Return Portfolio: .50% of the first $100,000,000; .45% of the
next $100,000,000; .40% of the next $100,000,000; .35% of the next
$100,000,000 and .30% of amounts in excess of $400,000,000;
International Equity Portfolio: 1.00% of the first $100,000,000;
95% of the next $100,000,000; and .90% of amounts in excess of
$200,000,000; and
Real Estate Securities Portfolio: .85% of the first $100,000,000;
.80% of the next $100,000,000; and .75% of amounts in excess of
$200,000,000.
LOVSF's Money Market Portfolio and Total Return Portfolio have investment
objectives similar to those of the Fund's Money Market Portfolio and Flexible
Asset Allocation Portfolio, respectively. LOVSF's Money Market Portfolio and
Total Return Portfolio had net assets of $111 million and $83 million,
respectively, as of May 9, 1996.
NEW ADVISORY AGREEMENTS
The material terms and conditions of the New Advisory Agreements between AAI
and the Trust on behalf of the two series thereof into which the Portfolios
will be reorganized are substantially the same in all material respects as the
respective Current Advisory Agreements relating to such Portfolios, subject to
the exceptions noted below. The investment advisory fee rates provided for in
the respective New Advisory Agreements for each series are equal to the rates
currently being paid by the Portfolios less the amount of fees payable by AAI
under the Current Administration Agreement, with the exception that such
investment advisory fee rates have not been reduced by the $25,000 annual fee
payable under the Current Administration Agreement. The amount of fees payable
by AAI under the Current Administration Agreement is at an annual rate of 0.05%
of the average daily net assets of the respective Portfolios plus $25,000
annually.
Accordingly, under the New Advisory Agreements, each Portfolio would pay AAI,
as compensation for its services, a monthly fee based on the stated percentage
of the average daily net assets of such Portfolio at an annual rate as set
forth below:
- 37 -
<PAGE> 42
MONEY MARKET PORTFOLIO
Net Asset Value Annual Rate
------------------------------ ------------
All Amounts................... 0.30%
FLEXIBLE ASSET ALLOCATION PORTFOLIO
Net Asset Value Annual Rate
------------------------------ ------------
First $250 Million............ 0.65%
Next $250 Million............. 0.55%
Amounts Over $500 Million..... 0.45%
In addition, the New Advisory Agreements provide that AAI is not responsible
for providing the Administrative Services to the Fund to the extent provided by
ASC or another administrator engaged by the Fund. Thus, Administrative
Services will not be provided pursuant to the terms of the New Advisory
Agreements but will be provided pursuant to the separate, New Administration
Agreement between the Fund and ASC or such other administrator. The amount of
fees payable by the Fund to ASC under such New Administration Agreement is
expected to be at an annual rate of .05% of the average daily net assets of the
respective Portfolios. The $25,000 additional annual fee would be eliminated.
Accordingly, the rate at which fees are to be paid by the Fund for investment
advisory services and Administrative Services in the aggregate is expected to
remain exactly the same. However, any future fee increases, if any, required
to be paid for the Fund to obtain Administrative Services would be borne by the
Fund, not by AAI.
If in any fiscal year the aggregate expenses of the Money Market Portfolio or
the Flexible Asset Allocation Portfolio (including the investment advisory fee,
but excluding interest, taxes, brokerage commissions, and extraordinary
expenses), exceeds 1.00% or 1.25%, respectively (1.10% or 1.50%, respectively,
in the case of Class C shares) of the Portfolio's average daily net assets, AAI
has agreed to reimburse the Portfolio for such excess.
The following table shows the amounts that the Money Market Portfolio would
have paid during the its last fiscal year ended October 31, 1995 for advisory
fees and administration fees (without giving effect to fee waivers), as well as
the amounts it would have paid (without giving effect to fee waivers) if the
proposed new arrangements had been in effect throughout the entire last fiscal
year.
- 38 -
<PAGE> 43
<TABLE>
<CAPTION>
Amount that Difference
would have been between the
paid if proposed proposed and
arrangements had actual ar-
Amount payable been in effect rangements as
(without giving without giving a percentage
Type of payment by effect to effect to of the actual
Money Market Portfolio fee waivers) fee waivers arrangements
- ---------------------- --------------- --------------- ------------
<S> <C> <C> <C>
Advisory fee................. $1,706,435 $1,452,658 -14.3%
Administration fee........... $ 0 $ 243,777 *
Total Payments............... $1,706,435 $1,706,435 0%
</TABLE>
* Not meaningful
Note: The above amounts for the advisory fee and administration fee represent
the amounts that the Portfolio would have paid if AAI had not waived
$1,218,882 of such fees.
The following table shows the amounts that the Flexible Asset Allocation
Portfolio paid during its last fiscal year ended October 31, 1995 for advisory
fees and administration fees, as well as the amounts it would have paid if the
proposed new arrangements had been in effect throughout the entire last fiscal
year.
<TABLE>
<CAPTION>
Amount that Difference
would have been between the
paid if proposed proposed and
arrangements had actual ar-
Amount payable been in effect rangements as
(without giving without giving a percentage
Type of payment by effect to effect to of the actual
Money Market Portfolio fee waivers) fee waivers arrangements
- ---------------------- --------------- --------------- ------------
<S> <C> <C> <C>
Advisory fee................. $218,580 $202,967 -7.1%
Administration fee........... $ 0 $ 15,613 *
Total Payments............... $218,580 $218,580 0%
</TABLE>
* Not meaningful
BOARD CONSIDERATION
In considering whether to recommend that the New Advisory Agreements be
approved by shareholders of the respective Portfolios, the Board considered the
nature and quality of services to be provided by AAI and ASC and comparative
data as to advisory fees and expenses, and the Board requested and evaluated
such other information from AAI which the Board deemed relevant, including, but
not limited to, information indicating that the Portfolios would continue to be
managed by their current portfolio managers for the foreseeable future, thereby
ensuring continuity in management; and that the aggregate rate at which
advisory fees will
- 39 -
<PAGE> 44
be paid to AAI and administration fees will be paid to ASC in the aggregate
would be exactly the same as the aggregate rate at which fees are now paid to
AAI for such services.
The Board, including a majority of the Directors who are not interested persons
of the Fund or AAI, unanimously approved the New Advisory Agreements at a
meeting held on May 22, 1996.
RECOMMENDATION
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT SHAREHOLDERS OF EACH
PORTFOLIO VOTE FOR THE APPROVAL OF THE NEW ADVISORY AGREEMENT RELATING TO SUCH
PORTFOLIO.
ADDITIONAL INFORMATION
The Fund is not required to hold annual meetings of shareholders and the Fund
currently does not intend to hold such meetings unless shareholder action is
required in accordance with the 1940 Act or the Fund's By-Laws. By observing
this policy, the Fund seeks to avoid the expenses customarily incurred in the
preparation of proxy material and the holding of shareholder meetings, as well
as the related expenditure of corporate staff time.
A shareholder proposal intended to be presented at any meeting of shareholders
of the Fund hereafter called must be received by the Fund a reasonable time
before the Board of Directors' solicitation relating thereto is made in order
to be included in the Fund's proxy statement and form of proxy relating to that
meeting and presented at the meeting. The mere submission of a proposal by a
shareholder does not guarantee that such proposal will be included in the proxy
statement because certain rules under the Federal securities laws must be
complied with before inclusion of the proposal is required. A shareholder
desiring to submit a proposal for presentation at a meeting of shareholders
should send the proposal to the offices of the Fund's Administrator at 123
North Wacker Drive, Chicago, Illinois 60606
The Fund knows of no other matters that may come before the Meeting. If any
other matters should properly come before the meeting, the proxies intend to
vote shares of the Fund upon such matters at their discretion.
Ernst & Young LLP, independent accountants of the Fund for its most recently
completed fiscal year ended October 31, 1995 and current fiscal year ending
October 31, 1996, has been given the opportunity to make a statement if it so
desires at the Meeting. Ernst & Young LLP is not expected to be present at the
Meeting but will be available should any matter arise requiring its presence.
- 40 -
<PAGE> 45
By order of the Board of Directors
__________________________________
Karl W. Krause
Secretary
May ___, 1996
- 41 -
<PAGE> 46
AON ASSET MANAGEMENT FUND, INC.
PROXY FOR SHAREHOLDERS MEETING
JULY 10, 1996
PROXY ON BEHALF OF BOARD OF DIRECTORS
The undersigned shareholder of the Money Market Portfolio of Aon Asset
Management Fund, Inc. (the "Fund") hereby appoints Michael A. Conway and Paul
Rabin, and each of them, the attorneys and proxies of the undersigned, with
full power of substitution, for and in the name, place and stead of the
undersigned, to vote and act with respect to all of the shares of Capital Stock
of the Money Market Portfolio of the Fund standing in the name of the
undersigned or with respect to which the undersigned is entitled to vote and
act, at the Shareholders Meeting to be held at the offices of Aon Corporation,
123 North Wacker Drive, Chicago, IL 60606, ___ Floor, 10:00 a.m. Wednesday,
July 10, 1996, or at any adjournment thereof and to vote:
(1) FOR / / AGAINST / / ABSTAIN FROM / /
Approval of an Agreement and Plan of Reorganization providing for
the acquisition of all of the assets of the Money Market Portfolio
of the Fund by a corresponding series of Aon Funds, a Delaware
business trust (the "Trust") in exchange for shares of beneficial
interest in such series of the Trust, the distribution of such
shares of such series of the Trust to shareholders of the Money
Market Portfolio of the Fund, and the subsequent dissolution of
the Fund.
(2) Election of Directors
FOR all nominees listed WITHHOLD AUTHORITY
below (except as marked to vote for all nominees
to the contrary below) listed below
/ / / /
INSTRUCTION: To withhold authority to vote FOR any individual nominee,
strike a line through the nominee's name in the list below.
Michael A. Cavataio, Michael A. Conway, Carleton D. Pearl, Richard J.
Peters and Donald W. Phillips
(3) FOR / / AGAINST / / ABSTAIN FROM / /
- 42 -
<PAGE> 47
Approval of the proposed amended Investment Advisory Agreement with Aon
Advisors, Inc. for the Money Market Portfolio.
(4) In their discretion, upon such other matters as may properly come before
the meeting.
The shares represented by this proxy will be voted as directed. UNLESS A
CONTRARY DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR AGENDA ITEMS (1), (2)
AND (3) ABOVE AND IN THE DISCRETION OF THE PROXIES UPON ANY OTHER MATTERS THAT
MAY PROPERLY COME BEFORE THE MEETING.
Dated: ________________, 1996 Signed _______________________
_______________________
If shares are held in the name of more than one person, all holders should
sign. When signing as an agent, attorney, administrator, executor, guardian or
trustee, please add your title as such. If executed by a corporation, the
proxy should be signed by a duly authorized officer who should indicate his or
her title. Please mail this proxy card in the enclosed envelope.
Please date this proxy
and sign your name exactly
as it appears above.
- 43 -
<PAGE> 48
AON ASSET MANAGEMENT FUND, INC.
PROXY FOR SHAREHOLDERS MEETING
JULY 10, 1996
PROXY ON BEHALF OF BOARD OF DIRECTORS
The undersigned shareholder of the Flexible Asset Allocation Portfolio of
Aon Asset Management Fund, Inc. (the "Fund") hereby appoints Michael A. Conway
and Paul Rabin, and each of them, the attorneys and proxies of the undersigned,
with full power of substitution, for and in the name, place and stead of the
undersigned, to vote and act with respect to all of the shares of Capital Stock
of the Flexible Asset Allocation Portfolio of the Fund standing in the name of
the undersigned or with respect to which the undersigned is entitled to vote
and act, at the Shareholders Meeting to be held at the offices of Aon
Corporation, 123 North Wacker Drive, Chicago, IL 60606, ___ Floor, 10:00 a.m.
Wednesday, July 10, 1996, or at any adjournment thereof and to vote:
(1) FOR / / AGAINST / / ABSTAIN FROM / /
Approval of an Agreement and Plan of Reorganization providing for
the acquisition of all of the assets of the Flexible Asset
Allocation Portfolio of the Fund by a corresponding series of Aon
Funds, a Delaware business trust (the "Trust") in exchange for
shares of beneficial interest in such series of the Trust, the
distribution of such shares of such series of the Trust to
shareholders of the Flexible Asset Allocation Portfolio of the
Fund, and the subsequent dissolution of the Fund.
(2) Election of Directors
FOR all nominees listed WITHHOLD AUTHORITY
below (except as marked to vote for all nominees
to the contrary below) listed below
/ / / /
INSTRUCTION: To withhold authority to vote FOR any individual nominee,
strike a line through the nominee's name in the list below.
Michael A. Cavataio, Michael A. Conway, Carleton D. Pearl, Richard J.
Peters and Donald W. Phillips
(3) FOR / / AGAINST / / ABSTAIN FROM / /
- 44 -
<PAGE> 49
Approval of the proposed amended Investment Advisory Agreement with Aon
Advisors, Inc. for the Flexible Asset Allocation Portfolio.
(4) In their discretion, upon such other matters as may properly come before
the meeting.
The shares represented by this proxy will be voted as directed. UNLESS A
CONTRARY DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR AGENDA ITEMS (1), (2)
AND (3) ABOVE AND IN THE DISCRETION OF THE PROXIES UPON ANY OTHER MATTERS THAT
MAY PROPERLY COME BEFORE THE MEETING.
Dated: ________________, 1996 Signed _______________________
_______________________
If shares are held in the name of more than one person, all holders should
sign. When signing as an agent, attorney, administrator, executor, guardian or
trustee, please add your title as such. If executed by a corporation, the
proxy should be signed by a duly authorized officer who should indicate his or
her title. Please mail this proxy card in the enclosed envelope.
Please date this proxy
and sign your name exactly
as it appears above.
- 45 -
<PAGE> 50
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of
___________, 1996 by and between AON ASSET MANAGEMENT FUND, INC., a corporation
formed under the laws of the Commonwealth of Virginia (the "Company"), and AON
FUNDS, a business trust formed under the laws of the State of Delaware (the
"Trust").
WHEREAS, this Agreement is intended to effect the reorganization of the
Company into a Delaware business trust by the transfer of all of the assets of
each of the Company's Money Market Portfolio and the Flexible Asset Allocation
Portfolio (individually, a "current Fund" and together, the "current Funds") to
a corresponding portfolio of the Trust with the same name (individually, a
"successor Fund" and together, the "successor Funds") solely in exchange for
assumption by each successor Fund of all of the liabilities of the
corresponding current Fund and issuance to the corresponding current Fund of
Class Y shares of beneficial interest of such successor Fund (the "Trust
Shares") followed by the distribution, on the Closing Date, as hereinafter
defined, of the Trust Shares of each successor Fund to the holders of shares of
the corresponding current Fund (the "Fund Shareholders") and by the dissolution
and termination of the Company as provided herein, all upon the terms and
conditions hereinafter set forth and in accordance with the applicable laws of
the Commonwealth of Virginia and the State of Delaware;
NOW THEREFORE, in consideration of the premises and the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. SHAREHOLDER APPROVAL.
A special meeting (the "Special Meeting") of the respective Fund
Shareholders shall be called and held for the purpose of approving this
Agreement and the transactions contemplated herein.
2. REORGANIZATION.
The transactions described in this section are hereinafter referred to as
the "Reorganization." The Reorganization shall occur with respect to each
current Fund and its corresponding successor Fund and, unless the context
otherwise requires, all transactions contemplated hereby are to be entered into
by each current Fund with its corresponding successor Fund and no other
successor Fund.
<PAGE> 51
2.1 Subject to the terms and conditions set forth herein and on the basis
of the representations and warranties contained herein, each current Fund
agrees to assign, transfer and convey all of its assets as set forth in
paragraph 2.2 to its corresponding
successor Fund. The Trust, on behalf of each successor Fund, agrees in
exchange therefor (1) that each successor Fund shall assume all of the
corresponding current Fund's liabilities, whether contingent or otherwise,
existing as of the Closing Date, and further (2) that on the Closing Date each
successor Fund shall deliver to the Company the number of full and fractional
Trust Shares equal to the value and number of full and fractional shares of the
corresponding current Fund outstanding on the Closing Date, such Trust Shares
to be denominated in the same series, and to have relative rights, powers,
privileges, preferences and duties identical to, the shares of the
corresponding current Fund, except as otherwise provided for herein or in or
under the Trust's Agreement and Declaration of Trust (the "Declaration of
Trust").
2.2 The assets of the current Funds transferred to the corresponding
successor Funds shall include, without limitation, all cash, cash equivalents,
securities, receivables (including interest and dividend receivables), claims
or rights of action or rights to register shares under applicable securities
laws, books and records of the current Funds, all other property owned by the
current Funds and all deferred or prepaid expenses shown as assets on the books
of the current Funds on the Closing Date.
2.3 Immediately upon delivery of the one share of each successor fund to
the Company pursuant to paragraph 8.1 of this Agreement, and subject to
respective approvals of the current Fund's Shareholders at the Special Meeting,
the Company is authorized, as the then initial shareholder of the Trust and
each of the successor Funds, (1) to elect as trustees of the Trust ("Trustees")
the persons who currently serve as directors of the Company and (2) to approve
(i) the investment advisory agreements between Aon Advisors, Inc., the
investment adviser of the current Funds (the "Adviser"), and the Trust with
respect to the successor Funds (the "Advisory Agreements"), which shall be
identical in every material respect to the investment advisory agreements
between the Adviser and the Company with respect to the corresponding current
Funds then in effect or previously approved by the respective Fund
Shareholders, and (ii) to approve the continuation for the Trust's fiscal year
ended October 31, 1996 of the engagement of the independent accountants who
currently serve in that capacity for the Company.
2.4 Upon consummation of the transactions described in paragraph 2.3 of
this Agreement, and immediately prior to or contemporaneously with consummation
of the transactions described in paragraph 2.1 of this Agreement, the share of
each successor Fund acquired by the corresponding current Fund pursuant to
paragraph 8.1 hereof shall be redeemed by the successor Fund for
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<PAGE> 52
$1.00 and the Company will distribute to each Fund Shareholder of record of a
current Fund, Trust Shares of the corresponding successor Fund pro rata in
proportion to the Fund Shareholder's interest in the current Fund in
liquidation and redemption of the Fund Shareholder's current Fund shares.
Simultaneously with such crediting of Trust Shares of the corresponding
successor Fund to Fund Shareholders, their current Fund shares shall be
canceled. The Trust will not issue certificates evidencing Trust Shares in
connection with such distribution except as the Trustees of the Trust may
determine from time to time in their sole discretion.
2.5 As soon as practicable after the distribution pursuant to paragraph
2.4 of Trust Shares with respect to both of the current Funds, the Company
shall take all actions necessary to effect its dissolution and to have its
corporate existence terminated in accordance with Virginia law.
2.6 Ownership of Trust Shares by the former Fund shareholders will be
reflected on the books of the applicable transfer agent of the Trust.
2.7 Any transfer taxes payable upon issuance of Trust Shares in a name
other than the name of the registered owner of the corresponding current Fund
shares on the books of the current Fund as of the Closing Date shall be paid by
the person to whom such Trust Shares are to be distributed as a condition of
such transfer.
2.8 Any reporting responsibility of a current Fund is and shall remain its
responsibility up to and including the later of the Closing Date and any date
on which the Company may have its corporate existence terminated.
3. CLOSING AND CLOSING DATE.
3.1 The closing shall occur at the later of (i) the date of final
adjournment of the Special Meeting and (ii) such later time as the parties may
mutually agree (the "Closing Date"). The transfer of all of the current Funds'
assets in exchange for the assumption by the successor Funds of the liabilities
of the current Funds and the issuance of Trust Shares, as described above,
together with all acts necessary to consummate such acts (the "Closing") shall
occur on the Closing Date at the offices of Aon Advisors, Inc., 123 North
Wacker Drive, Chicago, Illinois 60606 or at such other place as the parties
may agree. All acts taking place at the Closing shall be deemed to take place
simultaneously as of the last daily determination of each current Fund's net
asset value or at such other time and place as the parties may agree.
3.2 In the event that on the Closing Date, (a) the New York Stock Exchange
is closed to trading, or trading thereon is restricted, or (b) trading or
reporting of trading on said Exchange or in any market in which portfolio
securities of a current Fund
-3-
<PAGE> 53
are traded is disrupted so that accurate appraisal of the value of the total
net assets of a current Fund is impracticable, the Closing shall be postponed
until the first business day upon which trading shall have been fully resumed
and reporting shall have been restored.
3.3 The Company shall deliver at the Closing a certificate of an
authorized officer of the Company stating that it has notified the custodian of
the Company of the transfer of the assets of each current Fund to its
corresponding successor Fund.
3.4 The transfer agent for each of the current Funds shall deliver at the
Closing a certificate as to the transfer on its books and records of each
current Fund Shareholder's account to an account of a holder of Trust Shares of
the corresponding successor Fund. The Trust shall issue and deliver a
confirmation to the Company of the number of Trust Shares to be credited to the
Company with respect to each successor Fund on the Closing Date or provide
evidence satisfactory to the Company that such Trust Shares have been credited
to the Company's account on the books of the Trust.
3.5 At the Closing, each party shall deliver to the other such bills of
sale, checks, assignments, stock certificates, receipts and other documents as
the other party may reasonably request.
4. VALUATION.
4.1 The value of each current Fund's net assets to be acquired by the
Trust on behalf of each successor Fund hereunder shall be the net asset value
computed as of the last daily determination of each current Fund's net asset
value on the last business day preceding the Closing Date, using the valuation
procedures set forth in such current Fund's then current prospectus or
statement of additional information that forms a part of the Company's
Registration Statement (the "Registration Statement") under the Securities Act
of 1933 ("Securities Act"). For purposes of this Agreement, a "business day"
shall mean each day that the New York Stock Exchange is open for trading (which
excludes the following national business holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day).
4.2 The number, value and denominations of full and fractional Trust
Shares to be issued in exchange for a current Fund's net assets shall be equal
to the number, value and denominations of full and fractional shares
outstanding as of the last daily determination of each current Fund's net asset
value on the last business day preceding the Closing Date (after giving effect
to any issuances or redemptions of shares of that current Fund prior to or as
of such time). The Company shall not issue any
-4-
<PAGE> 54
shares after the last daily determination of each current Fund's net asset
value on the last business day preceding the Closing Date.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
The Company represents and warrants as follows:
5.1 Organization, Existence, etc. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia and has the power to carry on its business as it is
now being conducted. The Company has all necessary Federal, state and local
authorizations to own all of its properties and assets and to conduct its
business as it is now being conducted.
5.2 Registration as an Investment Company. The Company is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end management investment company; such registration has not been revoked
or rescinded and is in full force and effect.
5.3 Capitalization. The authorized capital stock of the Company consists
of three billion shares of Common Stock, with a par value of $.001 per share.
Currently all the authorized capital stock of the Company is divided into the
following eight separate classes of shares: Money Market Portfolio -
750,000,000 shares; Flexible Asset Allocation Portfolio - 450,000,000 shares;
Class C - 400,000,000 shares; Class D - 400,000,000 shares; Class E -
250,000,000 shares; Class F - 250,000,000 shares; Class G - 250,000,000 shares;
and Class H - 250,000,000 shares. No shares are held in the treasury of the
Company. Because the Company is an open-end investment company engaged in the
continuous offering and redemption of its shares, the number of outstanding
shares may change prior to the Closing Date.
5.4 Financial Statements. The audited financial statements of the Company
for the fiscal year ended October 31, 1995 (the "Company Financial Statements")
fairly present the financial position of each current Fund as of the date
thereof and the results of its operations and changes in its net assets for the
periods indicated.
5.5 Current Fund Shares. The outstanding shares of the current Funds are
duly and validly issued and outstanding, fully paid and nonassessable.
5.6 Authority Relative to this Agreement. The Company has the power to
enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the Company's
Board of
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<PAGE> 55
Directors and no other corporate proceedings by the Company, other than the
approval of this Agreement by the respective Fund Shareholders at the Special
Meeting, are necessary to authorize its officers to effectuate this Agreement
and the transactions contemplated hereby. The Company is not a party to or
obligated under any charter, by-law, indenture or contract provision or any
other commitment or obligation, or subject to any order or decree, which would
be violated by its executing and carrying out this Agreement.
5.7 Liabilities. There are no liabilities of the current Funds, whether
or not determined or determinable, other than liabilities disclosed or provided
for in the Company Financial Statements and liabilities incurred in the
ordinary course of business subsequent to October 31, 1995, none of which has
been materially adverse to the business, assets or results of operations of any
of the current Funds. All liabilities of the current Funds to be assumed by
the successor Funds were incurred by the current Funds in the ordinary course
of business.
5.8 Litigation. There are no claims, actions, suits or proceedings
pending or, to the knowledge of the Company, threatened which would adversely
affect the current Funds or their respective assets or business or which would
prevent or hinder consummation of the transactions contemplated hereby.
Neither the Company nor any of the current Funds is under the jurisdiction of a
court in a proceeding under Title 11 of the United States Code or similar case
within the meaning of section 368(a)(3)(A) of the Internal Revenue Code of
1986, as amended (the "Code").
5.9 Contracts. Except for contracts and agreements described in the
current prospectus and statement of additional information of the current
Funds, under which no default exists, the Company is not a party to or subject
to any material contract, debt instrument, plan, lease, franchise, license or
permit of any kind or nature whatsoever with respect to the current Funds.
5.10 Taxes. The Federal income tax returns of each current Fund have been
filed for all taxable years to and including the taxable year ended October 31,
1995, and all taxes payable pursuant to such returns have been paid. Each
current Fund has qualified as a regulated investment company ("RIC") under
Subchapter M of the Code, for each taxable year since it commenced operations
and will continue to meet all the requirements for such qualification for its
current taxable year.
5.11 Registration Statement. The Company has filed or will file a
post-effective amendment to the Registration Statement (the "Post-Effective
Amendment") to become effective on or about the Closing Date. The Company will
notify the Securities and Exchange Commission (the "Commission") that the Trust
will adopt the Company's existing Registration Statement with respect to the
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<PAGE> 56
shares of the current Funds. At the time the Post-Effective Amendment becomes
effective, the Registration Statement, insofar as it relates to the Company,
(i) will comply in all material respects with the provisions of the Securities
Act and the rules and regulations of the Commission thereunder (the
"Regulations") and (ii) will not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and at the time Post-Effective
Amendment becomes effective, at the time of the Special Meeting and at the
Closing Date, the prospectus and statement of additional information, as
amended or supplemented by any amendments or supplements filed by the Company,
insofar as it relates to the Company, will not contain an untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
5.12 Dissolution and Termination. The Company will take all actions
necessary to effect its dissolution and to have its corporate existence
terminated in accordance with Virginia law as soon as practicable after
completion of the Reorganization.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE TRUST.
The Trust represents and warrants to the Company as follows:
6.1 Organization, Existence, etc. The Trust is a Delaware business trust
duly organized, validly existing and in good standing under the laws of the
State of Delaware; the Trust has filed a Certificate of Trust with the
Secretary of State of Delaware pursuant to the Delaware Business Trust Act; and
each successor Fund and its Class Y shares have been duly authorized,
established and designated as a series and a class within a series,
respectively, of the Trust in accordance with the Trust's Agreement and
Declaration of Trust.
6.2 Registration as an Investment Company. On the Closing Date and upon
the adoption of the Registration Statement, the Trust will be registered under
the 1940 Act as an open-end management investment company.
6.3 Capitalization. Except as described in Section 8.1 hereto, prior to
the Closing Date, there shall be no issued and outstanding Trust Shares. Trust
Shares issued on the Closing Date in connection with the transactions
contemplated herein will be duly and validly issued and outstanding, fully paid
and non-assessable under Delaware law.
6.4 Commencement of Operations. The Trust has not commenced operations
and will not commence operations until after the Closing.
-7-
<PAGE> 57
6.5 Authority Relative to this Agreement. The Trust has the power to
enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the trustees of
the Trust, and no other proceedings are necessary to authorize its officers to
effectuate this Agreement and the transactions contemplated hereby. The Trust
is not a party to or obligated under any charter, by-law, indenture or contract
provision or any other commitment or obligation, or subject to any order or
decree, which would be violated by its executing and carrying out this
Agreement.
6.6 Liabilities. There are no liabilities of the Trust, whether or not
determined or determinable, other than liabilities otherwise previously
disclosed to the Company, none of which has been materially adverse to the
business, assets or results of operations of the Trust.
6.7 Litigation. There are no claims, actions, suits or proceedings
pending or, to the knowledge of the Trust, threatened which would adversely
affect the Trust or its assets or business or which would prevent or hinder
consummation of the transactions contemplated hereby.
6.8 Contracts. Except for contracts and agreements disclosed to the
Company, under which no default exists, the Trust is not a party to or subject
to any material contract, debt instrument, plan, lease, franchise, license or
permit of any kind or nature whatsoever.
6.9 Taxes. The Trust intends that each successor Fund will be a "fund" as
defined in section 851(h)(2) of the Code and will meet all the requirements to
qualify as a RIC under Subchapter M of the Code for each of the taxable years
following the Reorganization.
6.10 Registration Statement. In connection with the Reorganization, the
Trust will adopt the Registration Statement. At the time the Post-Effective
Amendment as adopted by the Trust becomes effective, the Registration Statement
insofar as it relates to the Trust (i) will comply in all material respects
with the provisions of the Securities Act and the Regulations and (ii) will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
6.11 Continuation of the Company's Business. The Trust has no plan or
intention to issue additional Trust Shares following the Reorganization except
for shares issued in the ordinary course of the Trust's business as an open-end
investment company; nor does the Trust have any plan or intention to redeem or
otherwise reacquire any Trust Shares issued to Fund Shareholders pursuant to
-8-
<PAGE> 58
the Reorganization, other than through redemptions arising in the ordinary
course of that business. The Trust will actively conduct the Company's
business in the same manner that the Company conducted it immediately before
the Reorganization and has no plan or intention to sell or otherwise dispose of
any of the assets to be acquired by the Trust in the Reorganization, except for
dispositions made in the ordinary course of its business and dispositions
necessary to maintain the Trust's status as a RIC under Subchapter M of the
Code.
7. CONDITIONS TO OBLIGATIONS OF THE TRUST.
The obligations of the Trust hereunder with respect to the consummation of
the Reorganization as it relates to each successor Fund are subject to the
satisfaction of the following conditions:
7.1 Approval by Shareholders. This Agreement and the transactions
contemplated hereby, including, as necessary, any temporary amendment of any
investment restrictions of a current Fund that might otherwise preclude the
consummation of the Reorganization, shall have been approved by the affirmative
vote of at least two-thirds of the outstanding shares of each of the current
Funds entitled to vote on the matter.
7.2 Covenants, Warranties and Representations. The Company shall have
complied with each of its covenants contained herein, each of the
representations and warranties of the Company contained herein shall be true in
all material respects as of the Closing Date, there shall have been no material
adverse change in the financial condition, results of operations, business,
properties or assets of either of the current Funds since October 31, 1995, and
the Trust shall have received a certificate of the President of the Company
satisfactory in form and substance to the Trust so stating.
7.3 Regulatory Approval. The Post-Effective Amendment under the 1940 Act
and the Securities Act relating to the Trust and the current Funds shall have
been declared effective by the Commission and no stop orders under the
Securities Act pertaining thereto shall have been issued; all necessary orders
of exemption under the 1940 Act with respect to the transactions contemplated
hereby shall have been granted by the Commission; and all approvals,
registrations, and exemptions under Federal and state laws considered to be
necessary shall have been obtained.
7.4 Tax Opinion. The Trust shall have received an opinion of its tax
counsel, dated the Closing Date, to the effect that, on the basis of existing
provisions of the Code, current administrative rules and court decisions, for
Federal income tax purposes: (i) each transfer by a current Fund of all of its
assets to its corresponding successor Fund solely in exchange for the
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<PAGE> 59
assumption by such successor Fund of all of the liabilities of such current
Fund and the issuance to such current Fund of Trust Shares of such successor
Fund, followed by the distribution on the Closing Date of such Trust Shares to
Fund Shareholders in liquidation and redemption of the Fund Shareholders'
current Fund shares, and the dissolution of the Company will constitute a
"reorganization" within the meaning of Section 368(a) of the Code; (ii) no gain
or loss will be recognized by the Company (or either current Fund) or the Trust
(or either successor Fund) as a result thereof; (iii) no gain or loss will be
recognized by the Fund Shareholders upon the exchange of their current Fund
shares in exchange for Trust Shares in connection therewith; (iv) the aggregate
tax basis of the Trust Shares received by a current Fund shareholder in such
exchange will be the same as the aggregate tax basis of the current Fund shares
given up in such exchange, and (v) the holding period for Trust Shares received
by a current Fund shareholder in such exchange will include the shareholder's
holding period for current Fund shares given up in such exchange, provided such
current Fund shares were held as capital assets by such shareholder at the time
of the exchange. In rendering such opinion, tax counsel may rely, without
independent verification, upon the statements made in this Agreement, upon the
proxy statement which will be distributed to the Fund Shareholders in
connection with the Reorganization, and upon written representations by the
Trust, the Company and current Fund shareholders.
7.5 Opinion of Counsel. The Company and the Trust shall have received the
opinion or opinions of its counsel, dated as of the Closing Date, to the effect
that: (i) the Company is a corporation duly organized and existing under the
laws of the Commonwealth of Virginia and the Trust is a Delaware business trust
duly organized and validly existing under the laws of the State of Delaware;
(ii) each of the Company and the Trust is an open-end management investment
company registered under the Act; (iii) this Agreement and the Reorganization
provided for herein and the execution of this Agreement have been duly
authorized and approved by all requisite action of the Company and the Trust,
and this Agreement has been duly executed and delivered by the Company and the
Trust, and is a valid and binding obligation of each of the Company and the
Trust, subject to applicable bankruptcy, insolvency, fraudulent conveyance and
similar laws or court decisions regarding enforcement of creditors' rights
generally and to general equitable principles; (iv) the Post-Effective
Amendment has been declared effective under the Securities Act and to the best
of counsel's knowledge no stop order has been issued or threatened suspending
its effectiveness; (v) to the best of such counsel's knowledge, no consent,
approval, order or other authorization of any federal or state court or
administrative or regulatory agency is required for the Company or the Trust to
enter into this Agreement or to carry out its terms that has not already been
obtained, other than where the failure to obtain any such consent, approval,
order or authorization would not have a material
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<PAGE> 60
adverse effect on the operations of the Company or the Trust; and (vi) the
Trust Shares of the successor Fund to be issued in the Reorganization have been
duly authorized and upon issuance thereof in accordance with this Agreement
will be validly issued, fully paid and nonassessable.
8. CONDITIONS TO OBLIGATIONS OF THE COMPANY.
The obligations of the Company hereunder with respect to the consummation
of the Reorganization as it relates to each current Fund are subject to the
satisfaction of the following conditions:
8.1 Issuance of Initial Share. Prior to Closing, the trustees of the
Trust shall have authorized the issuance of, and the Trust shall have issued,
one share of each successor Fund to each corresponding current Fund in
consideration of the payment of $1.00 and the Company shall have elected the
initial trustees of the Trust and voted on the matters referred to in paragraph
2.3 of this Agreement.
8.2 Covenants, Warranties and Representations. The Trust shall have
complied with each of its covenants contained herein, and each of the
representations and warranties of the Trust contained herein shall be true in
all material respects as of the Closing Date.
8.3 Regulatory Approval. All necessary orders of exemption under the 1940
Act with respect to the transactions contemplated hereby shall have been
granted by the Commission; and all approvals, registrations, and exemptions
under Federal and state laws considered to be necessary shall have been
obtained.
8.4 Legal Opinions. The Company and the Trust shall have received, and
shall have been duly authorized to rely on, the opinions referred to in
paragraphs 7.4 and 7.5 of this Agreement.
9. AMENDMENTS; WAIVERS; TERMINATION; NON-SURVIVAL OF COVENANTS, WARRANTIES
AND REPRESENTATIONS, GOVERNING LAW.
9.1 Amendments. This Agreement may be amended at any time by action of
the directors or trustees, as the case may be, of either party hereto
notwithstanding approval thereof by the shareholders of the Company, provided
that no amendment shall have a material adverse effect on the interests of such
shareholders.
9.2 Waivers. At any time prior to the Closing Date either of the parties
may waive compliance with any of the covenants or conditions made for its
benefit contained herein.
9.3 Termination by Either Party. This Agreement may be terminated at any
time prior to the Closing Date without liability
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on the part of either party hereto or its respective trustees, directors,
officers or shareholders by either party on notice to the other.
9.4 Survival. No representations, warranties or covenants made in or
pursuant to this Agreement (including certifications of officers) shall survive
the Reorganization, except to the extent provided in connection with the
issuance of the opinion referred to in paragraph 7.4 of this Agreement.
9.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of Delaware, without giving effect to principles of
conflicts of laws; provided, however, that the due authorization, execution and
delivery of this Agreement, in the case of the Company, shall be governed by
and construed in accordance with the laws of the Commonwealth of Virginia,
without giving effect to principles of conflict of laws.
10. EXPENSES LIABILITIES.
The current Funds and the successor Funds shall be responsible for all of
their respective expenses in connection with the Reorganization.
11. GENERAL.
This Agreement supersedes all prior agreements between the parties
(written or oral), is intended as a complete and exclusive statement of the
terms of the agreement between the parties and may not be changed or terminated
orally. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been executed by the Trust and the
Company and delivered to each of the parties hereto. The heading contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Nothing in this Agreement,
expressed or implied, is intended to confer upon any person not a party to this
Agreement any rights or remedies under or by reason of this Agreement.
* * * * * * * *
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
Attest: AON ASSET MANAGEMENT FUND, INC.
By_______________________ By________________________
Secretary President
Attest: AON FUNDS
By_______________________ By________________________
Secretary President
Copies of the Certificate of Trust , as amended, creating the Trust are on file
with the Secretary of the Trust, and notice is hereby given that this Agreement
and Plan of Reorganization is executed on behalf of the Trust by officers of
the Trust as officers and not individually and that the obligations of or
arising out of this Agreement are not binding upon any of the trustees,
officers, shareholders, employees or agents of the Trust personally but are
binding only upon the assets and property of the Trust.
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EXHIBIT B
INVESTMENT ADVISORY AGREEMENT
This Agreement (hereinafter the "Agreement") made this ______ day of
__________, 1996 by and between Aon Funds, a Delaware business trust
(hereinafter the "Fund"), an open-ended management company registered under the
Investment Company Act of 1940, as amended (hereinafter the "1940 Act"), and
Aon Advisors, Inc., a Virginia corporation (hereinafter the "Advisor"), an
investment advisor registered under the Investment Advisers Act of 1940.
1. FURNISHING OF DOCUMENTS.
1.1 The Fund has furnished the Advisor with copies of each of
the following documents:
(a) Agreement and Declaration of Trust of the Fund;
(b) Bylaws of the Fund as in effect on the date hereof;
(c) The Fund's effective registration statement on Form N-lA as
filed with the Securities and Exchange Commission ("SEC"),
which includes all statements of the investment objective,
policies and restrictions of the Portfolio of the Fund
referred to below.
1.2 The Fund will furnish the Advisor, from time to time, with copies of
all amendments of or supplements to the foregoing, if any.
1.3 The Advisor will be entitled to rely on all documents so furnished by
the Fund.
2. INVESTMENT ADVISORY SERVICES
2.1 Subject to the supervision and approval of the Fund's trustees (the
"Trustees"), the Fund hereby employs the Advisor to act as the investment
advisor to, and manager of, the Fund's Money Market Series (hereinafter the
"Portfolio").
2.2 The Advisor hereby agrees to manage the investment and reinvestment of
the assets of the Portfolio, at its own expense in accordance with the
Portfolio's investment objective, policies and restrictions as stated in the
documents referred to in Sections l(a), (b) and (c).
<PAGE> 64
2.3 The Advisor agrees, for the term of this Agreement, to assume the
obligations set forth in this Agreement for the compensation provided and on
the other terms and conditions set forth in this Agreement.
2.4 The Advisor shall:
(a) provide, or obtain, and evaluate such economic, statistical and
financial data and information and undertake such additional
investment research as it shall believe necessary or advisable;
(b) conduct a continuous program of investment and reinvestment with
respect to the Portfolio's assets and, with respect thereto, the
Advisor is hereby granted full authority by the Fund to place
orders for purchases, sales, exchanges or other dispositions of
securities and other instruments for the Portfolio's account and
to manage the investments and any other property of the
Portfolio, and to provide or obtain such services as may be
necessary in managing, acquiring or disposing of investments;
(c) consult with and report to the Trustees, or any committees or
officers acting pursuant to authority of the Trustees, at such
times and in such manner as the Trustees may deem appropriate,
with respect to the implementation of the investment objective,
policies and restrictions of the Portfolio; and
(d) at the Fund's request, provide persons to serve as trustees and
officers of the Fund.
3. INVESTMENT ADVISORY FEE.
3.1 In consideration of all services rendered pursuant to Section 2 of
this Agreement, the Portfolio shall pay to the Advisor, after the end of each
calendar month, a fee, accrued daily and based upon the average daily net asset
value of the Portfolio for the month (or portion thereof during which this
Agreement is in effect), at an annual rate of 0.30% (30/100ths of 1%). For the
first full twelve (12) calendar months after the effective date of this
Agreement, and for such additional periods as the Advisor may, in its sole
discretion, from time to time determine, the Advisor will waive collection of
0.10% (10/100ths of 1%) of the 0.30% (30/100ths of 1%) investment advisory fee,
resulting in an advisory fee of 0.20% (20/100ths of 1%) on an annual basis.
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<PAGE> 65
3.2 If on any day there is no determination of the net asset value of the
Portfolio as a result of a suspension of the right of redemption of Portfolio
shares or for any other reason, then for the purpose of this Section 3, the net
asset value of the Portfolio as last determined will be deemed to be the net
asset value for such day.
4. EXPENSES.
4.1 The Advisor will bear all expenses in connection with the performance
of its services under this Agreement.
4.2 The Fund or the Portfolio will assume and pay, or enter into
arrangements providing for the direct payment subject to
reimbursement of, all other expenses incurred in the operation of the Portfolio
or the Fund that are incurred by or allocated to the Portfolio, including:
(a) taxes and fees payable by the Portfolio or the Fund to federal,
state or other government agencies;
(b) brokerage fees and commissions, and issue and transfer taxes;
(c) interest;
(d) Trustees' annual retainer and meeting attendance fees and
expenses of Trustees who are not directors, officers or
employees of the Advisor or of any affiliated person, other
than a registered investment company, of the Advisor;
(e) registration, qualification, filing and other fees in connection
with securities registration requirements of federal and state
regulatory authorities;
(f) the charges and expenses for custodial, paying agent, transfer
agent, administration, dividend agent and accounting agent
services,
(g) outside legal fees and expenses in connection with the affairs
of the Fund, including, but not limited to, registering and
qualifying its shares with federal and state regulatory
authorities;
(h) charges and expenses of outside auditors;
(i) costs of meetings of shareholders and Trustees of the Fund;
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<PAGE> 66
(j) costs of maintenance of the Fund's existence as a Delaware
business trust;
(k) insurance premiums;
(l) investment advisory fees;
(m) costs and fees associated with printing and delivering
registration statements, shareholders' reports and proxy
statements;
(n) costs and fees associated with delivering reports to and making
filings with the SEC and State Blue Sky authorities;
(o) costs relating to administration of the Fund's general operations;
(p) costs relating to the Fund's own employees, if any; and
(q) costs of preparing, printing and delivering the Fund's
prospectuses and statements of additional information to existing
shareholders of the Portfolio.
5. REIMBURSEMENT.
5.1 If in any fiscal year, the aggregate expense of the Class Y shares
or the Class C shares of the Portfolio, including fees pursuant to this
Agreement, but excluding interest, taxes, brokerage commissions and
extraordinary expenses, exceeds 1% or 1.10%, respectively, of the value of the
Portfolio's average daily net assets, the Advisor will reimburse the Portfolio
for such excess. This expense reimbursement obligation is not limited to the
amount of the fees received hereunder and will be estimated, reconciled and
paid on a monthly basis.
6. PORTFOLIO TRANSACTIONS AND BROKERAGE.
6.1 The Portfolio's transactions in portfolio securities shall usually be
effected with the issuer or with a dealer in money market instruments acting as
principal on a net basis. The Portfolio also may purchase underwritten issues,
which involve an underwriting discount or commission. Decisions with respect
to the purchase and sale of portfolio securities, including allocation of
portfolio business and the negotiation of the price of the securities and
commissions, if any, are to be made by the Advisor.
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6.2 Neither the Advisor nor any company affiliated with it shall act as a
broker or dealer for the purpose of executing portfolio transactions for the
Portfolio.
6.3 The primary consideration in allocating transactions to dealers and
brokers shall be prompt and effective execution of orders at the most favorable
security prices obtainable ("best execution"). Consideration also may be given
to additional factors, such as furnishing of supplemental research and other
services deemed to be of value to the Fund, the Portfolio or the Advisor. The
Advisor is authorized to execute orders with dealers or brokers that provide
research and security and economic analysis that supplements the research and
analysis of the Advisor, even though the spread or commission at which an order
is executed may be higher than that which another dealer or broker might
charge, provided that the Advisor determines in good faith that the amount of
the spread or commission is reasonable in relation to the value of the services
provided. Such research and services include advice as to the value of
securities, the advisability of investment in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and performance of
accounts; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). The research may be
useful to the Advisor in serving other portfolios of the Fund, the Portfolio
and other accounts managed by the Advisor.
7. SIMILAR ACTIVITIES FOR OTHERS.
7.1 The services of the Advisor to the Portfolio under this Agreement are
not to be deemed exclusive and the Advisor will be free to render similar
services to others so long as its services under this Agreement are not
impaired. Investment decisions for the Portfolio will be made independently
from those of other accounts that may be managed by the Advisor. If, however,
accounts managed by the Advisor are simultaneously engaged in purchases of the
same securities, then, pursuant to the authorization of the Trustees, available
securities may be allocated to each account and may be averaged as to price in
whatever manner the Advisor deems to be fair.
7.2 The parties to this Agreement understand that this system might
adversely affect the price paid by the Portfolio, or limit the size of the
position obtainable for the Portfolio. To the extent that transactions on
behalf of more than one client of the Advisor during the same period may
increase the demand for securities being purchased or the supply of securities
being sold, the Fund and the Portfolio recognize that there may be an adverse
effect on price.
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8. RULE 2a-7 COMPLIANCE AND MAINTENANCE OF RECORDS.
8.1 The Advisor agrees to manage the investment and reinvestment of the
Portfolio's assets in compliance with Rule 2a-7, as it may from time to time be
amended, under the 1940 Act, and to maintain all records required by Rule 2a-7.
The Advisor also agrees to maintain and preserve, in accordance with the 1940
Act and rules thereunder, and for the periods prescribed by Rule 3la-2 under
the 1940 Act, books and records with respect to the Portfolio's securities
transactions required to be maintained by Rule 3la-1 under the 1940 Act.
8.2 The Advisor further agrees that all records which it maintains for the
Portfolio are the Fund's property and that the Advisor will surrender them to
the Fund, its independent auditors, the Trustees, or as may be required by any
government agency having jurisdiction over the Fund, promptly upon written
request. The provisions of this Section 8 shall survive any termination of
this Agreement.
9. DUAL INTERESTS.
9.1 It is understood by both parties that any of the shareholders,
trustees, officers, employees and agents of the Fund may be a director,
officer, employee or agent of, or be otherwise interested in, the Advisor, any
affiliated person of the Advisor, or any organization in which the Advisor or
any affiliated person of the Advisor may have an interest; and that the
Advisor, and any such affiliated person or any such organization may have an
interest in the Fund or the Portfolio.
9.2 It is also understood by both parties that the existence of any such
dual interest shall not affect the validity of any transactions hereunder,
except as otherwise provided by specific provisions of applicable law,
including the 1940 Act.
10. DURATION, TERMINATION AND AMENDMENT OF THIS AGREEMENT.
10.1 This Agreement shall not become effective, and the Advisor shall not
serve or act as the Portfolio's investment advisor, unless and until this
Agreement is approved by the Fund's Board of Trustees, including a majority of
the Trustees who are not parties to this Agreement or interested persons of any
such party to this Agreement, cast in person at a meeting called for the
purpose of voting on such approval, and by a vote of a majority of the
outstanding voting securities of the Portfolio.
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10.2 If approved as provided above, this Agreement shall continue in
effect for two years and from year to year thereafter, but only so long as such
continuance is specifically approved at least annually either:
(i) by the Board of Trustees; or
(ii) by a vote of a majority of the outstanding voting securities of the
Portfolio. In either event such continuance also must be approved
by the vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of the Fund or of the Advisor, cast in
person at a meeting called for the purpose of voting on such approval.
10.3 This Agreement may, on sixty days' written notice, be terminated at
any time, without the payment of any penalty, by the Board of Trustees, by a
vote of a majority of the Portfolio's outstanding voting securities of the
Portfolio or by the Advisor.
10.4 This Agreement shall automatically terminate in the event of its
assignment.
10.5 In interpreting the provisions of this Section 10, the definitions
contained in Section 2(a) of the 1940 Act, particularly the definitions of
"interested person" and "assignment" and a "majority of the outstanding voting
securities", shall be applied.
10.6 This Agreement shall not be amended without specific approval of such
amendment by (i) the vote of a majority of the outstanding voting securities of
the Portfolio (or, to the extent required by Rule 18f-3 under the 1940 Act, of
the class(es) of the Portfolio affected thereby), and (ii) the vote of a
majority of the Trustees, including a majority of the Trustees who are not
parties to this Agreement and who are not interested persons of the Fund or of
the Advisor, cast in person at a meeting called for the purpose of voting on
such amendment.
11. LIABILITY OF THE ADVISOR.
11.1 In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties on the part of the Advisor, or of
its officers, directors, agents, employees, controlling persons, shareholders,
or any other person or entity affiliated with the Advisor or retained by it to
perform or assist in the performance of its obligations under this Agreement
(each of the foregoing, an "Advisory Affiliate"), neither the Advisor nor any
Advisory Affiliate shall be subject to liability to the Fund or the Portfolio
or to any shareholder of the Portfolio or to any other person with a beneficial
interest in the Portfolio or the Fund for any act or omission in the course of,
or
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<PAGE> 70
connected with, rendering services hereunder, including without limitation any
error of judgment or mistake of law or for any loss suffered by the Fund or
the Portfolio or any shareholder or other person in connection with the matters
to which this Agreement relates, except to the extent specified in Section
36(b) of the 1940 Act concerning loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services.
12. USE OF NAME "AON" MARKS OR SYMBOLS.
12.1 If the Advisor ceases to act as the investment advisor, or, in any
event, if the Advisor so requests in writing, the Fund agrees it will take all
necessary action to change the name of the Fund and/or the Portfolio to a name
not including the word "Aon".
13. MISCELLANEOUS.
13.1 The Advisor may from time to time employ or associate with any person
or persons it may believe to be particularly fitted to assist it in the
performance of this Agreement. The compensation of any such persons will be
paid by the Advisor, and no obligation will be incurred by, or on behalf of,
the Fund with respect to them. In addition, the Fund understands that the
persons employed by the Advisor to assist in the performance of its duties
hereunder will not devote their full time to those duties, and that nothing
contained herein will be deemed to limit or restrict the Advisor's right or the
right of any of the Advisor's affiliates to engage in and devote time and
attention to other businesses or to render other services of whatever kind or
nature.
13.2 The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
13.3 This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and same instrument.
13.4 It is intended by the parties that this Agreement be governed by the
law of the State of Illinois; however, this Agreement is also governed by, and
subject to, the 1940 Act, and rules thereunder, including such exemptions
therefrom as the SEC may grant.
13.5 The Advisor agrees to report to the Fund and its Trustees any
conflicts or potential conflicts of interest between classes of shares of the
Portfolio of which the Advisor may become aware.
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<PAGE> 71
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized.
Attest: Aon Funds
__________________________ ______________________________
Secretary President
Attest: Aon Advisors, Inc.
__________________________ ______________________________
Secretary President
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EXHIBIT C
INVESTMENT ADVISORY AGREEMENT
This Agreement (hereinafter the "Agreement") made this ______ day of
_______, 1996 by and between Aon Funds, a Delaware business trust (hereinafter
the "Fund"), an open-ended management company registered under the Investment
Company Act of 1940, as amended (hereinafter the "1940 Act"), and Aon Advisors,
Inc., a Virginia corporation (hereinafter the "Advisor"), an investment advisor
registered under the Investment Advisers Act of 1940.
1. FURNISHING OF DOCUMENTS.
1.1 The Fund has furnished the Advisor with copies of each of the
following documents:
(a) Agreement and Declaration of Trust of the Fund;
(b) Bylaws of the Fund as in effect on the date hereof;
(c) The Fund's effective registration statement on Form N-lA as filed
with the Securities and Exchange Commission ("SEC"), which shall
include all statements of the investment objectives, policies
and restrictions of the Portfolio of the Fund referred to below.
1.2 The Fund will furnish the Advisor, from time to time, with copies of
all amendments of or supplements to the foregoing, if any.
1.3 The Advisor will be entitled to rely on all documents so furnished by
the Fund.
2. INVESTMENT ADVISORY SERVICES.
2.1 Subject to the supervision and approval of the Fund's trustees (the
"Trustees"), the Fund hereby employs the Advisor to act as the investment
advisor to, and manager of, the Fund's Flexible Asset Allocation Series
(hereinafter the "Portfolio").
2.2 The Advisor hereby agrees to manage the investment and reinvestment of
the assets of the Portfolio, at its own expense in accordance with the
Portfolio's investment objective, policies and restrictions as stated in
documents referred to in Sections l(a), (b) and (c) hereof.
2.3 The Advisor agrees, for the term of this Agreement, to assume the
obligations set forth in this Agreement for the compensation provided and on
the terms and conditions set forth in this Agreement.
<PAGE> 73
2.4 The Advisor shall:
(a) provide, or obtain, and evaluate such economic, statistical and
financial data and information and undertake such additional
investment research as it shall believe necessary or advisable;
(b) conduct a continuous program of investment and reinvestment with
respect to the Portfolio's assets and, with respect thereto, the
Advisor is hereby granted full authority by the Fund to place
orders for purchases, sales, exchanges or other dispositions of
securities and other instruments for the Portfolio's account and
to manage the investments and any other property of the
Portfolio, and to provide or obtain such services as may be
necessary in managing, acquiring or disposing of investments;
(c) consult with and report to the Trustees, or any committees or
officers acting pursuant to authority of the Trustees, at such
times and in such manner as the Trustees may deem appropriate,
with respect to the implementation of the investment objective,
policies and restrictions of the Portfolio; and
(d) at the Fund's request, provide persons to serve as trustees and
officers of the Fund.
3. INVESTMENT ADVISORY FEE.
3.1 In consideration of all services rendered pursuant to Section 2 of
this Agreement, the Portfolio shall pay to the Advisor, after the end of each
calendar month, a fee, accrued daily and based upon the average daily net asset
value of the Portfolio for the month (or portion thereof during which this
Agreement is in effect) at the following annual rates: 0.65% of the first $250
million, .55% of the next $250 million and .45% of the amount in excess of $500
million.
3.2 If on any day there is no determination of the net asset value of the
Portfolio as a result of a suspension of the right of redemption of Portfolio
shares or for any other reason, then for the purpose of this Section 3, the
net asset value of the Portfolio as last determined will be deemed to be the
net asset value for such day.
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4. EXPENSES.
4.1 The Advisor will bear all expenses in connection with the performance
of its services under this Agreement.
4.2 The Fund or the Portfolio will assume and pay, or enter into
arrangements providing for the direct payment subject to reimbursement of, all
other expenses incurred in the operation of the Portfolio or the Fund that are
incurred by or allocated to the Portfolio, including:
(a) taxes and fees payable by the Portfolio or the Fund to federal,
state or other government agencies;
(b) brokerage fees and commissions, and issue and transfer taxes;
(c) interest;
(d) Trustees' annual retainer and meeting attendance fees and expenses
of Trustees who are not directors, officers or employees of the
Advisor or of any affiliated person, other than a registered
investment company, of the Advisor;
(e) registration, qualification, filing and other fees in connection
with securities registration requirements of federal and state
regulatory authorities;
(f) the charges and expenses for custodial, paying agent, transfer
agent, administration, dividend agent and accounting agent services;
(g) outside legal fees and expenses in connection with the affairs of
the Fund, including, but not limited to, registering and qualifying
its shares with federal and state regulatory authorities;
(h) charges and expenses of outside auditors;
(i) costs of meetings of shareholders and Trustees of the Fund;
(j) costs of maintenance of the Fund's existence as a Delaware business
trust;
(k) insurance premiums;
(l) investment advisory fees;
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<PAGE> 75
(m) costs and fees associated with printing and delivering registration
statements, shareholders' reports and proxy statements;
(n) costs and fees associated with delivering reports to and filings
with the SEC and State Blue Sky authorities;
(o) costs relating to administration of the Fund's general operations;
(p) costs relating to the Fund's own employees, if any;
(q) costs of preparing, printing and delivering the Fund's prospectuses
and statements of additional information to existing shareholders
of the Portfolio.
5. REIMBURSEMENT.
5.1 If in any fiscal year, the aggregate expense of the Class Y shares or
the Class C shares of the Portfolio, including fees pursuant to this Agreement,
but excluding interest, taxes, brokerage commissions and extraordinary
expenses, exceeds 1.25% or 1.50%, respectively, of the value of the Portfolio's
average daily net assets, the Advisor will reimburse the Portfolio for such
excess. This expense reimbursement obligation is not limited to the amount of
the fees received hereunder and will be estimated, reconciled and paid on a
monthly basis.
6. PORTFOLIO TRANSACTIONS AND BROKERAGE.
6.1 The Portfolio's transactions in equity securities will usually be
executed through brokers that will receive a commission paid by the Portfolio.
The Portfolio's transactions in fixed income and money market securities shall
usually be effected with the issuer or with a dealer in such instruments acting
as principal on a net basis. The Portfolio may also purchase underwritten
issues, which involve an underwriting discount or commission. Decisions with
respect to the purchase and sale of portfolio securities, including allocation
of portfolio business and the negotiation of the price of the securities and
commissions, if any, are to be made by the Advisor.
6.2 Neither the Advisor nor any company affiliated with it shall act as a
broker or dealer for the purpose of executing portfolio transactions for the
Portfolio.
6.3 The primary consideration in allocating transactions to dealers and
brokers shall be prompt and effective execution of orders at the most favorable
security prices obtainable ("best execution"). Consideration also may be given
to additional factors,
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<PAGE> 76
such as furnishing of supplemental research and other services deemed to be
of value to the Fund, the Portfolio or to the Advisor. The Advisor is
authorized to execute orders with dealers or brokers that provide research and
security and economic analysis that supplements the research and analysis of
the Advisor, even though the spread or commission at which an order is executed
may be higher than that which another dealer or broker might charge, provided
that the Advisor determines in good faith that the amount of the spread or
commission is reasonable in relation to the value of the services provided.
Such research and services include advice as to the value of securities, the
advisability of investment in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; furnishing
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy and performance of accounts; and
effecting securities transactions and performing functions incidental thereto,
such as clearance and settlement. The research may be useful to the Advisor in
serving other portfolios of the Fund, the Portfolio and other accounts managed
by the Advisor.
7. SIMILAR ACTIVITIES FOR OTHERS.
7.1 The services of the Advisor to the Portfolio under this Agreement are
not to be deemed exclusive and the Advisor will be free to render similar
services to others so long as its services under this Agreement are not
impaired. Investment decisions for the Portfolio will be made independently
from those of other accounts that may be managed by the Advisor. If, however,
accounts managed by the Advisor are simultaneously engaged in purchases of the
same securities, then, pursuant to the authorization of the Trustees, available
securities may be allocated to each account and may be averaged as to price in
whatever manner the Advisor deems to be fair.
7.2 The parties to this Agreement understand that this system might
adversely affect the price paid by the Portfolio, or limit the size of the
position obtainable for the Portfolio. To the extent that transactions on
behalf of more than one client of the Advisor during the same period may
increase the demand for securities being purchased or the supply of securities
being sold, the Fund and the Portfolio recognize that there may be an adverse
effect on price.
8. COMPLIANCE AND MAINTENANCE OF RECORDS.
8.1 The Advisor agrees to manage the investment and reinvestment of the
Portfolio's assets in compliance with the 1940 Act and rules and regulations
thereunder. The Advisor agrees to maintain and preserve, in accordance with
the 1940 Act and rules
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thereunder, and for the periods prescribed by Rule 3la-2 under the 1940 Act,
books and records with respect to the Portfolio's securities transactions
required to be maintained by Rule 3la-1 under the 1940 Act.
8.2 The Advisor further agrees that all records which it maintains for the
Portfolio are the Fund's property and that the Advisor will surrender them to
the Fund, its independent auditors, the Trustees, or as may be required by any
government agency having jurisdiction over the Fund, promptly upon written
request. The provisions of this Section 8 shall survive any termination of
this Agreement.
9. DUAL INTERESTS.
9.1 It is understood by both parties that any of the shareholders,
trustees, officers, employees and agents of the Fund may be a director,
officer, employee or agent of, or be otherwise interested in, the Advisor, any
affiliated person of the Advisor, or any organization in which the Advisor may
have an interest; and that the Advisor, and any such affiliated person or any
such organization may have an interest in the Fund or the Portfolio.
9.2 It is also understood by both parties that the existence of any such
dual interest shall not affect the validity of any transactions hereunder,
except as otherwise provided in the Agreement and Declaration of Trust of the
Fund or the Articles of Incorporation of the Advisor, or by specific provisions
of applicable law, including the 1940 Act.
10. DURATION, TERMINATION AND AMENDMENT OF THIS AGREEMENT.
10.1 This Agreement shall not become effective, and the Advisor shall not
serve or act as the Portfolio's investment advisor, unless and until this
Agreement is approved by the Fund's Board of Trustees, including a majority of
the Trustees who are not parties to this Agreement or interested persons of any
such party to this Agreement, and by the shareholders of the Portfolio.
11.2 If approved by the vote of a majority of the outstanding voting
securities of the Portfolio, this Agreement shall continue in effect for two
years and from year to year thereafter, but only so long as such continuance is
specifically approved at least annually either:
(i) by the Trustees; or
(ii) by a vote of a majority of the outstanding voting
securities of the Portfolio.
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In either event such continuance also must be approved by the vote of a
majority of the Trustees who are not parties to this Agreement or interested
persons of the Fund or of the Advisor, cast in person at a meeting called for
the purpose of voting on such approval.
10.3 This Agreement may, on sixty days' written notice, be terminated at
any time, without the payment of any penalty, by the Trustees, by a vote of a
majority of the Portfolio's outstanding voting securities or by the Advisor.
10.4 This Agreement shall automatically terminate in the event of its
assignment.
10.5 In interpreting the provisions of this Section 10, the definitions
contained in Section 2 (a) of the 1940 Act, particularly the definitions of
"interested person" and "assignment" and a "majority of outstanding voting
securities", shall be applied.
10.6 This Agreement shall not be amended without specific approval of such
amendment by:
(i) the vote of a majority of the outstanding voting securities
of the Portfolio (or, to the extent permitted or required by
Rule 18f-3 under the 1940 Act, of the class(es) of the
Portfolio affected thereby), and
(ii) the vote of a majority of the Trustees, including a majority
of the Trustees who are not parties to this Agreement and who
are not parties to this Agreement and who are not interested
persons of the Fund or of the Advisor, cast in person at a
meeting called for the purpose of voting on such approval.
11. LIABILITY OF THE ADVISOR.
11.1 In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties on the part of the Advisor, or its
officers, directors, agents, employees, controlling persons, shareholders, and
any other person or entity affiliated with the Advisor or retained by it to
perform or assist in the performance of its obligations under this Agreement,
neither the Advisor nor any of its officers, directors, employees or agents
shall be subject to liability to the Fund or the Portfolio or to any
shareholder of the Portfolio or to any other person with a beneficial interest
in the Portfolio or the Fund for any act or omission in the course of, or
connected with, rendering services hereunder, including without limitation any
error of judgment or mistake of law or for any loss suffered by the Fund or the
Portfolio or any shareholder or other person in connection with the
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matters to which this Agreement relates, except to the extent specified in
Section 36(b) of the 1940 Act concerning loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services.
12. USE OF NAME "AON"; MARKS OR SYMBOLS.
12.1 If the Advisor ceases to act as the investment advisor, or, in any
event, if the Advisor so requests in writing, the Fund agrees it will take all
necessary action to change the name of the Fund and/or the Portfolio to a name
not including the word "Aon".
13. MISCELLANEOUS.
13.1 Persons employed by the Advisor. The Advisor may from time to time
employ or associate with any person or persons it may believe to be
particularly fitted to assist it in the performance of this Agreement. The
compensation of any such persons will be paid by the Advisor, and no obligation
will be incurred by, or on behalf of, the Fund with respect to them. In
addition, the Fund understands that the persons employed by the Advisor to
assist in the performance of its duties hereunder will not devote their full
time to those duties, and that nothing contained herein will be deemed to limit
or restrict the Advisor's right or the right of any of the Advisor's affiliates
to engage in and devote time and attention to other businesses or to render
other services of whatever kind or nature.
13.2 Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
13.3 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which will be deemed an original, but all of
which together will constitute one and same instrument.
13.4 Governing Law. It is intended by the parties that this Agreement be
governed by the law of the State of Illinois; however, this Agreement is also
governed by, and subject to, the 1940 Act, and rules thereunder, including such
exemptions therefrom as the SEC may grant.
13.5 Plan Pursuant to Rule 18f-3. The Advisor agrees to report to the
Fund and its Trustees any conflicts or potential conflicts of interest between
classes of shares of the Portfolio of which the Advisor may become aware.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized.
Attest: Aon Funds
____________________________ _______________________________
Secretary President
Attest: Aon Advisors, Inc.
____________________________ ______________________________
Secretary President
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