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SUPPLEMENT DATED MAY 22, 1996
TO
PROSPECTUS DATED MARCH 1, 1996
FOR
FLEXIBLE ASSET ALLOCATION PORTFOLIO
AND
PROSPECTUS DATED MARCH 1, 1996
FOR
MONEY MARKET PORTFOLIO
OF
AON ASSET MANAGEMENT FUND, INC.
INTRODUCTION
On April 26, 1996 and May 22, 1996, the Board of Directors of Aon Asset
Management Fund, Inc. (the "Fund") met to consider, and on May 22, 1996
unanimously approved, proposals to restructure the Fund in various respects.
In that regard, the Board of Directors considered and approved a proposal to
reorganize the Fund from a Virginia corporation to a Delaware business trust
(the "Reorganization"), as described below, subject to approval by the
respective shareholders of the Fund's two Portfolios. In addition, the Board
approved new investment advisory agreements between Aon Advisors, Inc. ("AAI")
and the Fund on behalf of the respective Portfolios (the "New Advisory
Agreements") which will result in certain Fund administrative services, which
are now required to be provided by AAI and which AAI has delegated to the
Administrator on essentially a "subcontract" basis, being provided by the
Administrator directly to the Fund (with the aggregate expense for investment
advisory and administrative services remaining exactly the same). The New
Advisory Agreements are also subject to approval by the shareholders of the
respective Portfolios. Proxy materials describing the proposed Reorganization
and New Advisory Agreements and soliciting the necessary shareholder approvals
will be mailed in advance of the shareholder meeting, which is expected to be
held on or about July 10, 1996.
Finally, the Board of Directors approved, subject to the completion of the
Reorganization, (i) the offering of shares of four new Portfolios, as follows:
Government Securities Portfolio, the S&P 500 Index Portfolio, the International
Equity Portfolio and the REIT Index Portfolio, and (ii) the designation of the
currently outstanding shares of the two existing Portfolios as Class Y
(no-load) shares and the establishment of one additional class of
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shares for each Portfolio (including each of the new Portfolios, as described
above) in order to implement a multiple-class distribution program. The
creation of separate classes of shares within each Portfolio 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 shares of that particular class. The Board of
Directors determined that although distribution and shareholder servicing
charges may be imposed on any new class, all outstanding shares of each
existing 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.
If shareholders of the respective Portfolios approve the changes described
herein, the name of the Fund will effectively be changed to Aon Funds. Such
changes, if approved by shareholders, are expected to become effective in early
August 1996.
REORGANIZATION
The impetus for the Reorganization was the sale by Aon Corporation ("Aon")
in April 1996 of its subsidiaries, The Life Insurance Company of Virginia
("Life of Virginia") and Forth Financial Resources Ltd. ("FFRL"), to General
Electric Capital Corporation ("GECC"). In connection with such sale, 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 Aon Securities
Corporation ("ASC"), a wholly-owned subsidiary of Aon. Also as a result of the
sale, 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's headquarters.
At the same time, and in part because of the termination of Aon's
affiliation with Life of Virginia Series Fund, Inc. ("LOVSF"), another
registered investment company of which Life of Virginia is the sponsor, which
resulted from the sale, the Fund desired to add certain new Portfolios,
including Portfolios similar to certain of the four portfolios which are
currently offered by LOVSF but not by the Fund. Finally, the Fund desires the
ability to offer classes of shares within Portfolios to facilitate the Fund
taking advantage of alternative methods of selling shares through a
multiple-class distribution program.
As a result of these recent and impending changes in the Fund's
operations, the Board of Directors considered whether to continue operating the
Fund as a Virginia corporation or whether
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another form of organization would be preferable, and the 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. For instance, the Reorganization will (i)
permit the Fund to offer unlimited Portfolios, classes of shares within
Portfolios and an unlimited number of shares of Portfolios and classes, and (ii)
permit the Fund to consider transferring its operations to Chicago, Illinois,
the site of Aon'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 Reorganization will be effected pursuant to an Agreement and Plan of
Reorganization (the "Plan of Reorganization") which provides that each existing
Portfolio will transfer all of its assets and liabilities to a separate series
of the Aon Funds, a Delaware business trust (the "Trust"), in a tax-free
exchange for all of the Class Y shares of that series of the Trust. Such
shares of each series of the Trust will then be distributed on a tax-free basis
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 the Trust.
In approving the Reorganization, the Board of Directors concluded 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 approval of the New Advisory Agreements which are not directly
related to the Reorganization and subject to the proposed implementation of the
multiple-class distribution program, which will not affect existing
shareholders). Each corresponding series of the Trust will have investment
objectives, policies and restrictions virtually identical to those of its
corresponding Portfolio of the Fund. 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.
The Investment Advisory Agreements between AAI and the Fund on behalf of the
respective Portfolios will be the same in every material respect as the
respective Current Advisory Agreements (as defined below) except that, assuming
the New Advisory Agreements are approved by the shareholders of the respective
Portfolios, the Current Advisory Agreements will be amended to remove from their
scope certain administrative services currently delegated by AAI to the
Administrator.
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NEW ADVISORY AGREEMENTS
Under the current Investment Advisory Agreements between the Fund, on
behalf of the Money Market Portfolio and the Flexible Asset Allocation
Portfolio, respectively, and AAI (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.
Under the Current Advisory Agreements, AAI is also required, at its own
expense, to provide various administrative services, including but not limited
to, (i) supply of internal auditing and internal legal services; (ii) supply of
stationery and office supplies; (iii) preparation of reports to shareholders
and the Board of Directors; (iv) preparation of tax returns; (v) preparation of
reports to and filings with the SEC and State Blue Sky authorities; (vi) at the
Fund's request, furnishing of office space, office facilities; and (vii)
furnishing of persons and equipment satisfactory to the Fund to respond during
normal business hours to in-person, written, and telephone requests for
assistance and information from shareholders. Such administrative services are
hereinafter collectively referred to as the "Administrative Services".
To fulfill its obligation to provide the Administrative Services, AAI has
entered into an Administration Agreement with the Administrator and the Fund
under which the Administrator furnishes 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 Board of Directors, including a majority of Directors who are not
interested persons of the Fund or AAI or any of its affiliates, has approved,
subject to approval by shareholders of the respective Portfolios, a proposal
that the Current Advisory Agreements be amended to remove from their scope the
Administrative Services which AAI has delegated pursuant to the Administration
Agreement. Such Administrative Services are expected to continue to be
provided pursuant to a new Administration Agreement to be entered into directly
by the Fund and the Administrator. The fees for such Administrative Services
are expected to remain approximately the same but to be paid directly to the
Administrator 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 pays to the 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.
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MULTIPLE CLASS DISTRIBUTION PROGRAM
As noted above, the Board of Directors also approved, subject to
completion of the Reorganization, the creation by each of the two existing
Portfolios of a new class of shares in addition to the current class of shares
and by each of the new Portfolios of two classes of shares, one a "no-load"
class (Class Y) comparable to the currently outstanding shares of the two
existing Portfolios and one new class of shares (Class C). The Class C shares
of the new class of each Portfolio will be offered and sold without a front-end
sales charge, but will be subject to a continuing Rule 12b-1 fee at an annual
rate of .25% of the average daily net asset value of the Class C shares of such
Portfolio (.10% in the case of Class C shares of the Money Market Portfolio),
which may be used for payments in respect of distribution or shareholder
servicing related to Class C 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 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 or shareholder
servicing charges. No Rule 12b-1 distribution-related or shareholder servicing
costs or expenses will be imposed on Class Y shares owned or purchased, through
dividend reinvestment, exchange or otherwise, by those holders.
