<PAGE>
As filed with the Securities and Exchange Commission on April 28, 1995
File No. 2-80743
----------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 15
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 19
-------------------------------------
LINCOLN NATIONAL MONEY MARKET FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1300 South Clinton Street, Fort Wayne, Indiana 46802
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (219)455-2000
JACK D. HUNTER, ESQ.
200 East Berry Street
Fort Wayne, Indiana 46802
(Name and Address of Agent for Service)
-------------------------------------
Fiscal year-end: December 31
-------------------------------------
The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 of the Investment Company Act of
1940. Pursuant to Rule 24f-2(b)(2), the Registrant filed a Rule 24f-2 Notice
for the last fiscal year (1994) on February 21, 1995.
-------------------------------------
It is proposed that this filing will become effective:
____ immediately upon filing pursuant to paragraph (b)
_X__ on 4/29/95 pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a) (b)
____ on _________ pursuant to paragraph (a) (1)
____ 75 days after filing pursuant to paragraph (a) (2)
____ on _________ pursuant to paragraph (a) (2) of Rule 485.
<PAGE>
LINCOLN NATIONAL MONEY MARKET FUND, INC.
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 15 AND
AMENDMENT NO. 19
to
Registration on Form N-1A
This amendment consists of the following papers and documents:
Facing Sheet
Contents sheet
Cross-reference sheet
Part A -
Prospectus
Part B -
Statement of Additional Information
Part C -
Items 24 through 32
Signatures
Exhibit Index
<PAGE>
LINCOLN NATIONAL MONEY MARKET FUND, INC.
CROSS REFERENCE SHEET
[as required by Rule 481(a)]
<TABLE>
<CAPTION>
Item Number - Part A Location in Prospectus
- -------------------- ----------------------
<S> <C>
1. Cover Page Preface
2. Synopsis Not Applicable
3. Condensed Financial
Information Preface
4. General Description of Description of the Fund; Investment
Registrant Policies and Techniques; Investment
Restrictions; Strategic Portfolio
Transactions (Prospectus and
Appendix)
5. Management of the Fund Description of the Fund; Investment
Policies and Techniques; Management
of the funds (Appendix)
5A. Management's Discussion Management Discussion of Fund
of Fund Performance Performance (Appendix)
6. Capital Stock and Other Description of Shares; Sales and
Securities Redemption of Shares; General
Securities Information;
Distribution and Federal Income Tax
Considerations (All in Appendix)
7. Purchase of Securities Net Asset Value; Purchase of
Being Offered Securities Being Offered; Sale and
Redemption of Shares (All in Appendix)
8. Redemption or Repurchase Sale and Redemption of Shares
(Appendix)
9. Legal Proceedings Not Applicable
Location in Statement of
Item Number - Part B Additional Information
- -------------------- ------------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Not Applicable
and History
13. Investment Objectives Investment Restrictions; Investment
and Policies Policies and Techniques (continued)
(Appendix); Strategic Portfolio
Transactions (Appendix)
14. Management of the Directors and Officers (Appendix)
Fund
</TABLE>
<PAGE>
LNMM - CROSS REFERENCE SHEET (Continued)
<TABLE>
<S> <C>
15. Control Persons and See "Management of the Funds" and
Principal "Description of Shares" in the
Prospectus Appendix
16. Investment Advisory Investment Advisor and Sub-Advisor;
and Other Services Custodian; Independent Auditors (All in
Appendix)
17. Brokerage Allocation Portfolio Transactions and Brokerage
18. Capital Stock and Not Applicable
Other Securities
19. Purchase, Redemption Purchase of Securities Being Offered;
and Pricing of Sale and Redemption of Shares; and
Securities Being Offered Net Asset Value; all in the Prospectus
Appendix
20. Tax Status Taxes
21. Underwriters Not Applicable
22. Calculation of Not Applicable (See the SAI for the
Performance Data Variable Annuity Account on Form
N-4.)
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
PREFACE TO THE MULTI FUND(R) PROSPECTUSES
THESE PAGES ARE PART OF THE PROSPECTUS FOR EACH OF THE FOLLOWING FUNDS:
Lincoln National Aggressive Growth Fund, Inc.
Lincoln National Bond Fund, Inc.
Lincoln National Capital Appreciation Fund, Inc.
Lincoln National Equity-Income Fund, Inc.
Lincoln National Global Asset Allocation Fund, Inc.
Lincoln National Growth and Income Fund, Inc.
Lincoln National International Fund, Inc.
Lincoln National Managed Fund, Inc.
Lincoln National Money Market Fund, Inc.
Lincoln National Social Awareness Fund, Inc.
Lincoln National Special Opportunities Fund, Inc.
Shares of all the Funds are sold to Lincoln National Life Insurance Company
(Lincoln Life) for allocation to our Variable Annuity Account C (the Variable
Annuity Account [VAA]) to fund Variable Annuity Contracts and for allocation to
our Variable Life Account K to fund Variable Life Insurance Contracts. Shares of
the Bond, Growth and Income, Managed, Money Market, and Special Opportunities
Funds are sold to Lincoln Life for allocation to our Variable Life Account D to
fund Variable Life Insurance Contracts. Shares of the Growth and Income Fund and
Special Opportunities Fund are sold to Lincoln Life for allocation to our
Variable Life Account G to fund Variable Life Insurance Contracts. Each of these
Variable Life and Annuity Accounts may be referred to as a Variable Account. For
each Fund listed above, see Description of the Fund in its Prospectus, for a
statement of that Fund's investment objective. We refer to each of these funds
individually as a Fund; collectively, the Funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (SEC) NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THESE PROSPECTUSES. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
These Prospectuses set forth concisely the information about each Fund that you
ought to know before investing. Please read and keep this Prospectus booklet for
future reference.
A separate Statement of Additional Information (SAI) for each Fund has been
filed with the SEC. By this reference, each SAI, dated April 29, 1995, is
incorporated into the Prospectus of the Fund with which it is registered. A free
copy will be provided upon request. Either write Kim Oakman, Lincoln National
Life Insurance Co., P.O. Box 2340, Fort Wayne, Indiana 46801 or call
1-800-348-1212, Ext. 4912.
The Financial Highlights of each Fund contain per-share data calculated on the
basis of a share outstanding throughout the period, together with financial
ratios and other supplemental data. The highlights are incorporated by reference
to the Fund's 1994 Annual Report (see pages 45-47 of the Report). A copy of the
Annual report will be provided on request and without charge. Please write or
call Eric Jones, Lincoln National Life Insurance Company, P.O. Box 2340, Fort
Wayne, Indiana 46801; telephone: 1-800-348-1212, Ext. 6536.
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THESE
PROSPECTUSES, IN CONNECTION WITH THE OFFERS CONTAINED IN THEM. IF ANY ARE GIVEN
OR MADE, THE INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND(S) IN QUESTION. THESE PROSPECTUSES DO NOT CONSTITUTE
OFFERS BY THE FUNDS TO SELL, OR SOLICITATIONS OF ANY OFFERS TO BUY, ANY OF THE
SECURITIES OFFERED BY THEM IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL FOR THE FUNDS TO MAKE THOSE OFFERS.
Prospectuses dated April 29, 1995
21
<PAGE>
DIRECTORY FOR THE FUND PROSPECTUSES
<TABLE>
<CAPTION>
Subject Page
- ----------------------------------------------------
<S> <C>
PREFACE 21
DESCRIPTION OF THE FUND
Aggressive Growth Fund 23
Bond Fund 29
Capital Appreciation Fund 33
Equity-Income Fund 37
Global Asset Allocation Fund 41
Growth and Income Fund 45
International Fund 47
Managed Fund 51
Money Market Fund 55
Social Awareness Fund 57
Special Opportunities Fund 59
____________________________________________________
INVESTMENT POLICIES TECHNIQUES
<S> <C>
Aggressive Growth Fund 23
Bond Fund 29
Capital Appreciation Fund 33
Equity-Income Fund 37
Global Asset Allocation Fund 41
Growth and Income Fund 45
International Fund 47
Managed Fund 51
Money Market Fund 55
Social Awareness Fund 57
Special Opportunities Fund 59
____________________________________________________
INVESTMENT RESTRICTIONS
<S> <C>
Aggressive Growth Fund 26
Bond Fund 30
Capital Appreciation Fund 35
Equity-Income Fund 39
Global Asset Allocation Fund 43
Growth and Income Fund 45
International Fund 49
Managed Fund 52
Money Market Fund 56
Social Awareness Fund 58
Special Opportunities Fund 60
____________________________________________________
Subject Page
- -----------------------------------------------------
SPECIAL RISK FACTORS
<S> <C>
Aggressive Growth Fund 26
Capital Appreciation Fund 35
Equity-Income Fund 39
______________________________________________________
STRATEGIC PORTFOLIO TRANSACTIONS
<S> <C>
Aggressive Growth Fund 26
Bond Fund 31
Capital Appreciation Fund 36
Equity-Income Fund 40
Global Asset Allocation Fund 43
Growth and Income Fund 46
International Fund 49
Managed Fund 53
Money Market Fund 56
Social Awareness Fund 58
Special Opportunities Fund 60
____________________________________________________
<CAPTION>
APPENDIX - CONTAINS IMPORTANT
INFORMATION FOR ALL FUNDS
<S> <C>
Net asset value 63
Management of the funds 63
Purchase of securities being offered 65
Sale and redemption of shares 66
Distributions and federal income tax
considerations 66
Management discussion of fund performance 66
Description of shares 66
Strategic portfolio transactions-
additional information 67
Foreign investments 69
General information 70
Statement of Additional Information
table of contents - eleven underlying funds 71
</TABLE>
22
<PAGE>
Lincoln National Money Market Fund, Inc.
An investment in this Fund is neither insured nor guaranteed by the U.S.
Government. There can be no assurance that the Fund will be able to maintain a
stable net asset value of $10.00 per share.
Description of the fund
The Money Market Fund (Fund) was incorporated in Maryland in 1981. It is an
open-end diversified management investment company whose investment objective is
maximum current income consistent with the preservation of capital. The Fund
pursues its objective by investing in a portfolio of short-term money market
instruments maturing within one year from date of purchase. The investment
objective and policies of the Fund are fundamental and cannot be changed without
the affirmative vote of a majority of the outstanding securities of the Fund.
See General information in the Appendix. There is no assurance that the
objective of the Fund will be achieved.
The primary risk in the Fund is an interest rate risk. The rate of return in
this Fund will vary with fluctuations in short-term interest rates. Otherwise,
the Fund is considered to be of low relative risk because it has followed a
policy of investing only in short-term instruments of the highest grade by one
or the other of the primary credit rating services, and maintains a cumulative
average portfolio maturity of no greater than 90 days. See Investment policies
and techniques.
Portfolio manager
The portfolio manager for the Fund is Cozey Baker, Investment Officer, Lincoln
National Investment Management Company (LNIMC), the Advisor to the Fund. Baker
has managed the Fund since 1991; prior to that he was involved in the Cash
Investments area for seven years.
Investment policies and techniques
The types of instruments utilized in pursuing the Fund's objective include:
1. Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Some of these obligations are guaranteed by the U.S.
Government and some are not. See Investment Policies-U.S. Government
Obligations in the SAI;
2. Obligations (including certificates of deposit, bankers' acceptances and
time deposits) of any U.S. bank or other U.S. financial institution that is a
member of the Federal Reserve System, the Federal Deposit Insurance
Corporation (FDIC) or the Federal Savings and Loan Insurance Corporation
(FSLIC) [including obligations of foreign branches of such members] and of
any U.S. branch of a foreign bank. These U.S. institutions or foreign banks
with U.S. branches are required to have total assets (as most recently
reported) of not less than $1 billion or the foreign currency equivalent.
Under current FDIC and FSLIC regulations, $100,000 is the maximum insurance
payable as to any one domestic certificate of deposit; therefore,
certificates of deposit purchased by the Fund will not generally be fully
insured; and/or
3. Commercial paper and other corporate obligations of U.S. Corporations,
subject to Rule 2a-7 under the 1940 Act, which generally requires that: (a)
the security be rated in one of the top two rating categories for short-term
debt obligations; (b) it have a remaining maturity, at time of purchase, of
397 days or less; and (c) at least 95% of the Fund's assets be invested in
the highest rated category, as defined by the Rule. (Rule 2a-7 imposes
numerous other requirements on the Fund. See Investment restrictions. Also,
see Net asset value in the Appendix for additional discussion of the Rule.)
More detailed descriptions of these types of instruments are given under
Permitted Investments in the SAI.
When the Fund purchases securities of the types described, it may occasionally
enter into a repurchase agreement with the seller. The seller agrees at the time
of sale to repurchase the security from the Fund at a mutually agreed upon time
and price. See Strategic portfolio transactions in the Appendix.
Although the Fund provides the advantage of diversification, there remains an
inherent risk due to the nature of its investments. As a general matter, the
current value of debt securities varies inversely with changes in prevailing
interest rates. If interest rates increase after a security is purchased, the
value of the security will normally decrease. Conversely, should interest rates
decrease after a security is purchased, its value will normally increase. These
market fluctuations generally will not result in any significant permanent
change in value (or realized gains or losses) because the Fund will invest
primarily in short-term obligations and does not intend to dispose of the
securities it purchases prior to their maturity.
55
<PAGE>
Foreign investments
Investments in securities issued by foreign issuers involve certain risks which
are not associated with investment in U.S. securities. The Fund has the
authority to invest in foreign securities, within the limits described elsewhere
in this Prospectus. Eurodollar deposits in foreign branches of U.S. banks are
similar to domestic deposits, but are not covered by FDIC insurance and may be
influenced by future political and economic developments and governmental
restrictions (for example, restrictions on the flow of capital between Europe
and the United States). Refer to Foreign investments in the Appendix for a
discussion of the various risks inherent in foreign investing.
Portfolio turnover; maturity of instruments
The Fund will attempt to increase yields by varying maturities, taking advantage
of short-term market variations. This policy is expected to result in a
portfolio turnover of 400% to 1000%, consistent with average maturities which
range from 20 to 40 days for the Fund as a whole (although the average maturity
for any given year may be higher). (For example, a rate of portfolio turnover of
100% would occur if all of the Fund's portfolio were replaced in a period of one
year.) The high portfolio turnover is not reflective of higher transaction costs
because the Fund buys and holds securities rather than trading them in the
dealer market. The Fund's portfolio will be managed so that average maturity of
all instruments in the portfolio (on a dollar weighted basis) will be 90 days or
less. Average maturity will vary according to the Advisor's appraisal of money
market conditions.
Investment restrictions
The investment restrictions have been adopted by the Fund as fundamental
policies, except as otherwise indicated. See General information in the
Appendix. For purposes of the following restrictions: (1) all percentage
limitations apply immediately after the making of an investment; and (2) any
subsequent change in any applicable percentage resulting from market
fluctuations does not require elimination of any security from the
portfolio.
The Fund may not:
1. Purchase common stock, preferred stock, warrants or other equity or voting
securities;
2. Invest more than 5% of its total assets in the securities of any one issuer
(excluding the U.S. Government, its agencies and instrumentalities) except to
the extent permitted by Rule 2a-7 under the 1940 Act. [Note: Under a three-
day safe harbor exception to Rule 2a-7, the Fund may invest up to an
additional 25% of its total assets in the securities of a single issuer for a
maximum of three business days, if the highest quality standards of the Rule
are satisfied, and other conditions are met. This exception allows the
portfolio manager to efficiently invest large inflows of cash into the
Fund.];
3. Borrow money, except for temporary or emergency purposes and not exceeding
5% (taken at the lower of cost or current value) of its total assets (not
including the amounts borrowed); and/or
4. Invest more than 5% of its total assets in securities of issuers which,
together with their predecessors, have been in operation for less than
three years. This restriction shall not apply to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
Additional investment restrictions can be found in the SAI.
Strategic portfolio transactions
The portfolio manager (PM) for the Fund has considerable discretion in the
selection of appropriate Fund investments. In the exercise of that discretion,
the PM may, at any given time, invest a portion of the Fund's assets in one or
more strategic portfolio transactions which we define as derivative transactions
and cash enhancement transactions.
For your convenience, in the Appendix, we have included a basic discussion of
these special financial arrangement transactions and some of the risks
associated with them. Note also that the SAI booklet for the 11 Funds contains
definitions of the more commonly used derivative transactions, technical
explanations of how these transactions will be used, and the limits on their
use. You should consult your financial counselor if you have specific questions.
THE MONEY MARKET FUND IS AUTHORIZED: a) for derivative transactions [none
authorized].
b) for cash enhancement transactions, to: lend portfolio securities; engage in
repurchase transactions. Collateral will be continually maintained at no less
than 102% of the value of the loaned securities or of the repurchase price, as
applicable.
Calculation of yield
A yield quotation for the Fund is of limited use for comparative purposes,
because it does not reflect charges imposed on the Variable Account which, if
included, would decrease the yield. A yield quotation for the Money Market Sub-
Account of the Variable Account appears under the heading, Condensed Financial
Information in the Variable Account Prospectus at the front of this booklet.
Also, see Expense tables and Charges and other deductions in that Prospectus.
56
<PAGE>
APPENDIX - CONTAINS
IMPORTANT INFORMATION FOR
ALL FUNDS
This Appendix constitutes part of the Prospectuses of Lincoln National
Aggressive Growth Fund, Inc. (Aggressive Growth Fund), Lincoln National Bond
Fund, Inc. (Bond Fund), Lincoln National Capital Appreciation Fund, Inc.
(Capital Appreciation Fund), Lincoln National Equity-Income Fund, Inc. (Equity-
Income Fund), Lincoln National Global Asset Allocation Fund, Inc. (Global Asset
Allocation Fund), Lincoln National Growth and Income Fund, Inc. (Growth and
Income Fund), Lincoln National International Fund, Inc. (International Fund),
Lincoln National Managed Fund, Inc. (Managed Fund), Lincoln National Money
Market Fund, Inc. (Money Market Fund), Lincoln National Social Awareness Fund,
Inc. (Social Awareness Fund), and Lincoln National Special Opportunities Fund,
Inc. (Special Opportunities Fund). Unless otherwise indicated, the following
information applies to each Fund.
NET ASSET VALUE
Each Fund's net asset value per share is determined as of close of business
(currently 4:00 p.m., New York Time) on the New York Stock Exchange (NYSE) on
each day it is open for trading. The net asset value per share for all Funds
except the Money Market Fund is determined by adding the values of all
securities and other assets, subtracting liabilities (including dividends
payable) and dividing by the number of shares outstanding. Debt securities and
other assets of the Fund, other than equity securities, for which market
quotations are readily available, are valued at their bid quotations.
When market quotations are not readily available, debt securities and other
assets are valued at their fair value as determined in good faith. This
valuation is made by or under the authority of the Fund's Board of Directors
and it may include the use of valuations furnished by outside sources, including
pricing services which utilize electronic data processing techniques for valuing
normal institutional-size trading units of debt securities. The value of equity
securities is based on the last sale prices of those securities on national
securities exchanges or, in the absence of recorded sales, at the average of
readily available closing bid and asked prices on exchanges or over-the-counter.
In the absence of readily available closing bid and asked prices, equity
securities will be valued at fair value.
Short-term investments. For Funds (other than the Money Market Fund) that trade
in short-term investments which mature in less than 60 days, these instruments
are valued at amortized cost; if these securities are acquired with a remaining
maturity of 61 days or more, the cost for purposes of valuation is deemed to be
the value on the sixty-first day prior to maturity.
Options trading. For those Funds engaging in options trading, Fund investments
underlying call options will be valued as described previously. Options are
valued at the last sale price or, if there has been no sale that day, at the
mean of the last bid and asked price on the principal exchange where the option
is traded, as of the close of trading on the NYSE. The Fund's net asset value
will be increased or decreased by the difference between the premiums received
on writing options and the cost of liquidating those positions measured by the
closing price of those options on the exchange where traded.
Foreign securities. For Funds investing in foreign securities, the value of a
foreign portfolio security held by a Fund is determined based upon its closing
price or upon the mean of the closing bid and asked prices on the foreign
exchange or market on which it is traded and in the currency of that market, as
of the close of the appropriate exchange. As of the close of business on the
NYSE, that Fund's portfolio securities which are quoted in foreign currencies
are converted into their U.S. dollar equivalents at the prevailing market rates,
as computed by the Custodian of the Fund's assets.
However, trading on foreign exchanges may take place on dates or at times of day
when the NYSE is not open; conversely, overseas trading may not take place on
dates or at times of day when the NYSE is open. Any of these circumstances could
affect the net asset value of Fund shares on days when the investor has no
access to the Fund. There are more detailed explanations of these circumstances
in the SAI for the various Funds. See the Preface to the Prospectus booklet for
information about how to obtain a copy of the SAI booklet.
Money Market Fund. The net asset value per share of the Money Market Fund is
determined by the amortized cost method of valuation, pursuant to Rule 2a-7 (the
Rule) of the 1940 Act. Under the Rule, the Fund's net asset value under the
amortized cost method must fairly reflect the value calculated under a
market-based valuation method. The Board of Directors of the Fund has put in
force procedures to assist Fund management and the Investment Advisor in
complying with the requirements of the Rule. In 1991, an amendment imposed
specific standards for the maturity, quality, and diversification of portfolio
securities. It also revised and expanded the duties of the Money Market Fund's
management and its Board of Directors. The Fund's procedures have been amended
in accordance with those requirements.
MANAGEMENT OF THE FUNDS
The business and affairs of each Fund are managed under the direction of its
Board of Directors. The Board has the power to amend the Bylaws of each Fund, to
declare and pay dividends, and to exercise all the powers of the Fund except
those granted to the shareholder. Lincoln Life is the sole shareholder of each
Fund.
63
<PAGE>
INVESTMENT ADIVSOR. Lincoln National Investment Management Company (LNIMC) is
the Investment Advisor to the Funds and is headquartered at 200 East Berry
Street, Fort Wayne, Indiana 46802. LNIMC (the Advisor) is registered with the
Securities and Exchange Commission (the Commission) [SEC] as an Investment
Advisor and has acted as an Investment Advisor to mutual funds for over 40
years. The Advisor also acts as Investment Advisor to Lincoln National
Convertible Securities Fund, Inc., and Lincoln National Income Fund, Inc.,
closed-end investment companies as well as Lincoln Advisor Funds, Inc., an open-
end series.
The Advisor is a wholly-owned subsidiary of Lincoln National Corporation (LNC),
a publicly-held insurance holding company organized under Indiana law. Through
its subsidiaries, LNC provides life insurance and annuities, property-casualty
insurance, reinsurance, and financial services.
Under Advisory Agreements described in the Prospectus for the Variable Account,
the Advisor provides portfolio management and investment advice to the Funds and
administers their other affairs, subject to the supervision of each Fund's Board
of Directors.
As compensation for its services to each Fund, the Advisor is paid an Investment
Advisory Fee at an annual rate based on the average daily net asset value of
each Fund, as shown in the following chart:
<TABLE>
<CAPTION>
First Next In excess of
Fund $200 million..... $200 million.... $400 million
...Of average daily net asset value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth .75 of 1% .70 of 1% .65 of 1%
Capital Appreciation .80 of 1 .80 of 1 .80 of 1
Equity-Income .95 of 1 .95 of 1 .95 of 1
Global Asset Allocation .75 of 1 .70 of 1 .68 of 1
International .90 of 1 .75 of 1 .60 of 1
All other Funds .48 of 1 .40 of 1 .30 of 1
</TABLE>
The Advisory fees for the Capital Appreciation, Equity-Income, and International
Funds reflect the more extensive services and increased expense associated with
portfolios of securities issued outside the United States.
- --------------------------------------------------------------------------------
FUND EXPENSES (see accompanying text below)
<TABLE>
<CAPTION>
1994 ration of the Advisor's 1994 ratio of total expenses
compensation to average to average net assets
Fund net assets operational fund
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aggressive Growth* .75% 1.11%
Bond .47 .50
Capital Appreciation* .80 1.18
Equity-Income* .94 1.26
Global Asset Allocation .75 1.06
Growth and Income .35 .37
International .87 1.24
Managed .42 .44
Money Market .48 .52
Social Awareness .48 .53
Special Opportunities .45 .48
</TABLE>
Expenses specifically assumed by each Fund include:
compensation and expenses of Directors of the Fund who are not interested
persons of the Fund as defined in the 1940 Act; registration, filing, and other
fees in connection with filings with regulatory authorities, including the costs
of printing and mailing registration statements and updated prospectuses
provided to current Contract Owners; fees and expenses of independent auditors;
the expenses of printing and mailing proxy statements and shareholders reports;
custodian and transfer agent charges; brokerage commissions and securities and
options transaction costs incurred by the Fund; taxes and corporate fees; legal
fees incurred in connection with the affairs of the Fund (other than legal
services provided by personnel of the Advisor or its affiliated companies); the
fees of any trade association of which the Fund is a member; and expenses of
shareholder and Director meetings. The Aggressive Growth, Capital Appreciation,
and Equity-Income Funds (new in 1994) will bear their full share of Fund
expenses beginning in 1995. For 1994 Lincoln Life paid some of the expenses of
these Funds, as follows: $30,814 for Aggressive Growth; $15,544 for Capital
Appreciation; and $30,814 for Equity-Income.
*These ratios are based on less than a full year's experience.
64
<PAGE>
SUB-ADVISORS. As Advisor, LNIMC is primarily responsible for investment
decisions affecting each of the Funds. However, LNIMC has entered into
Sub-Advisory agreements with several professional investment management firms.
These firms provide some or substantially all of the investment advisory
services required by the Funds, including day-to-day investment management of
those Fund's portfolios. Each Sub-Advisor makes investment decisions for its
respective Fund in accordance with that Fund's investment objectives and places
orders on behalf of that Fund to effect those decisions. See the following
tables for more information about the Sub-Advisors and their fees:
<TABLE>
<CAPTION>
Date of
Fund Sub-advisor agreement Annual fee rate based on average daily net asset value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive 12/20/93 .50 of 1% of the first $150 million
Growth Lynch & Mayer .35 of 1% of the excess over $150 million
Capital
Appreciation Janus 1/1/94 .60 of 1% of the first $100 million
.55 of 1% of the excess over $100 million
Equity-Income Fidelity 12/20/93 .75 of 1%
Global Asset the greater of (a) $40,000; or (b) .47 of 1% of the
Allocation Putnam 6/8/87 first $200 million; .42 of 1% of the next $200 million;
and .40 of 1% of any excess over $400 million
International Clay Finlay 11/19/90 .665 of 1% of the first $50 million; 475 of 1% of the next
$50 million; and .250 of 1% of any excess over $100 million
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annual fee rate based on market value of securities held
Date of in the portfolio of each respective client fund at the close
Fund Sub-advisor agreement of business on the last trading day of each calendar quarter
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth and
Income Vantage 8/21/85 .20 of 1%
Managed Vantage 8/21/85 .20 of 1%
(stock portfolio only)
Social
Awareness Vantage 4/30/88 .20 of 1%
Special
Opportunities Vantage 8/21/85 .20 of 1%
</TABLE>
No additional compensation from the assets of the Funds will be assessed as a
result of the Sub-Advisory agreements; the Sub-Advisors are paid by LNIMC.
(There is no Sub-Advisor for the Bond and Money market Funds.)
SERVICE MARKS. The service mark for the Funds and the name Lincoln National
have been adopted by the Funds with the permission of LNC, and their continued
use is subject to the right of LNC to withdraw this permission in the event the
Advisor should not be the Investment Advisor of the Funds.
In the Prospectus and sales literature, the name Fidelity Investments will be
used with the Equity-Income Fund, Janus with the Capital Appreciation Fund, and
Putnam with the Global Asset Allocation Fund. The continued use of these names
is subject to the right of the respective Sub-Advisor to withdraw its permission
in the event it ceases to be the Sub-Advisor to the particular Fund it advises.
PURCHASE OF SECURITIES BEING OFFERED
Shares of the Funds' common stock ($.01 par value) will be sold to Lincoln Life
for allocation to the Variable Annuity Account (VAA), which has been established
for the purpose of funding Variable Annuity Contracts; shares in the Funds will
also be sold to Lincoln Life for allocation to one or more of the Variable Life
Accounts, which have been established for the purpose of funding variable life
insurance contracts. Shares of each Fund are sold and redeemed at their net
asset value determined daily. See Sale and redemption of shares. Also see Net
asset Value. The Funds' shares are sold to Lincoln Life for the Variable
Accounts on a no-load basis-that is; without the imposition of a sales charge.
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SALES AND REDEMPTION OF SHARES
The shares of each Fund are sold and redeemed by the Fund at their net asset
value next determined after receipt of a purchase or redemption order in
acceptable form. The value of shares redeemed may be more or less than original
cost, depending upon the market value of the portfolio securities at the time of
redemption. Payment for shares redeemed will be made within seven days after the
redemption request is received in proper form by the Fund's. However, the right
to redeem Fund shares may be suspended or payment postponed for any period
during which (1) trading on the NYSE is restricted as determined by the
Commission, or the NYSE is closed for other than weekends and holidays; (2) an
emergency exists, as determined by the Commission, as a result of which (a)
disposal by each Fund of securities owned by it is not reasonably practicable,
or (b) it is not reasonably practicable for Fund to determine fairly the value
of its net assets; or (3) the Commission by order so permits for the position
of shareholders of the Funds.
DISTRIBUTION AND FEDERAL INCOME TAX CONSIDERATIONS
Each Fund's policy is to distribute, at least once a year, substantially all of
its net investment income. Net realized capital gains may only be disturbed
annually, These distributions, when paid to Lincoln Life for the Variable
Accounts, will be reinvested automatically in additional shares of that Fund,
at its net asset value.
Each Fund intends to qualify had has elected to be taxed as a regulated
investment company under the provisions of Subchapter M of the Internal Revenue
Code of 1986, as amended (the Code). If a Fund qualifies as a regulated
investment companies which distribute substantially all of their net income
(both ordinary income and capital gain) from Federal income tax and the four
percent nondeductible Federal Excise tax, the Funds will be relieved of those
taxes on the amounts dis distributed. See the SAI for more complete discussion.
Since the sole shareholder of the Funds is Lincoln Life, there is no discussion
here about the Federal income tax consequences at the shareholder level. For
information concerning the Federal income tax consequences to holders of
annuity or life insurance contracts, see the Prospectus for the Variable Account
at the front of this booklet.
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS
As a condition of maintaining the tax-deferred status of variable contracts,
the Funds intend to comply with the diversification requirements currently
imposed by the IRS on separate accounts of insurance companies. More specific
information is contained in the prospectus for the Variable Account.
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
In the Annual Report for the Funds, the portfolio manager for each Fund's
discusses that Fund's performance for the previous fiscal year and the factors
which affected that performance. We will send you a copy of the Annual Report
free upon request.
DESCRIPTION OF SHARES
The authorized capital stock of each Fund consists of 50 million shares of
common stock (100 million for the Growth and Income Fund), $.01 par value. As
of April 1, 1995, each Fund had the following number of shares issued and
outstanding:
<TABLE>
<CAPTION>
<S> <C>
Aggressive Growth Fund 7,879,088
Bond Fund 19,132,892
Capital Appreciation Fund 6,755,630
Equity-Income Fund 9,950,564
Global Asset Allocation Fund 18,158,185
Growth and Income Fund 55,124,560
International Fund 26,075,406
Managed Fund 35,857,439
Money Market Fund 8,297,560
Social Awareness Fund 10,652,462
Special Opportunities Fund 16,019,752
</TABLE>
Fund Shares will owned by Lincoln Life and will be held by it the Variable
Accounts. As stated in the Prospectuses for the Variable Accounts, Lincoln
Life provides to Contract Owners of the Variable Accounts the right to direct
the voting of Fund shares at shareholder meetings, to the extent provided by
law. However, if the 1940 Act or any regulation under it should change, and
as a result Lincoln Life determines it is permitted to vote Fund shares in its
own right, it may elect to do so.
All the shares of each Fund are of the same class with equal rights and
privileges. Each full share is entitled to one vote and fractional share is
entitled to a proportionate fractional vote, on all matters subjected to a
vote of the shareholder. All shares, full and fractional, participate
proportionately in any dividends and capital gains distributions and, in the
event of liquidation, in that Fund's net assets remaining after satisfaction
of outstanding liabilities.
When issued, each share is fully-paid and non-assessable and shareholders have
no preemptive or conversion
66
<PAGE>
rights. Fund shares have non-cumulative voting rights, which means that holders
of more than 50% of the shares voting for the election of directors can elect
100% of the directors if they choose to do so. In that event the holders of the
remaining shares so voting will not be able to elect any directors. Shares may
be redeemed as set forth under Sale and redemption of shares.
The Bylaws of the Funds allow them, in proper cases, to dispense with their
annual meetings of the shareholder. Generally, this may be done as long as: (1)
a majority of the Directors then in office have at some point been elected by
shareholder and, if any vacancy is filled by vote of the Board of Directors,
then immediately after filling the vacancy at least two thirds of the Directors
shall have been elected by the shareholder; (2) there is no change in the
independent auditor of the Funds; (3) there is no material change to the
investment advisory and/or sub-advisory agreements; and (4) a shareholder vote
is not required with respect to a distribution agreement. In adopting this
procedure for dispensing with annual meetings that are a formality, the
Directors of the Funds have undertaken to comply with the requirement of
Section 16(c)) of the 1940 Act. That Section protects Contract Owners by
providing a procedure by which they may require management to convene a meeting
of the shareholder to vote on removal of one or more Directors. The Directors
also have agreed to facilitate communication among Contract Owners for the
purpose of calling those meetings. Further information about these procedures
is available from Fund management.
STRATEGIC PORTFOLIO TRANSACTIONS-ADDITIONAL INFORMATION
Because of their different investment objective and portfolio management
philosophies many of the Funds engage to varying degrees in strategic portfolio
transactions, in order to preserve or enhance the value of their assets. These
can be generally identified as either derivative transactions or cash
enhancement transactions. Derivative transactions are recognized by the
investment community as an acceptable way to increase a Fund's overall value
(or, depending on the condition of the securities markets, at least to slow its
decrease). Cash enhancement transactions are designed to make some extra money
for the Fund when it has excess cash, or help a Fund obtain some cash for
temporary purposes when needed. SEE THE PROSPECTUS FOR EACH FUND FOR A LISTING
OF THE KINDS OF TRANSACTIONS IN WHICH EACH FUND MAY ENGAGE.
1. DERIVATIVE TRANSACTIONS
A. Introduction
A derivative transaction is a financial agreement the value of which is
dependent upon the values of one or more underlying assets or upon the
values of one more indices of assets values. The following types are
currently in fairly common use in the investmnent community, although
not every Fund will use all of them:
1. Equity contracts: stock options and indexed options; equity swaps;
stock index futures and options on futures; swaptions;
2. Interest rate contracts: interest rate futures and options on them;
forward rate agreements (FRAs): interest rate swaps and their related
transactions (e.g., caps, floors, collars and corridors); and/or
3. Currency derivative contracts: currency forward contracts; currency
options; currency futures; currency swaps; cross-currency interest
rate swaps.
SIMPLIFIED DEFINITIONS FOR THESE TRANSACTIONS ARE PROVIDED IN THE SAI APPENDIX.
Although they may be structured in complex combinations, derivative
transactions in which the Funds engage generally fall into two broad
categories: options contracts or forward contracts. The combined forms are
constantly evolving. In fact, variations on the types listed previously may
come into use after the date of these Prospectuses. Therefore, where the
Prospectus for a particular Fund discloses the intent of that Fund to engage in
any of the types listed, that Fund hereby reserves the right to engage in
related variations on those transactions.
The Funds intend to engage in derivative transactions only defensively.
Examples of this defensive use might be: to hedge against a perceived decrease
in a Fund's asset value; to control transaction costs associated with market
timing (e.g., by using futures on an unleveraged basis); and to lock in
returns, spreads, or currency exchange rates in anticipation of future cash
market transactions.
There is no discussion here of asset-backed or mortgage backed securities
(such as collateralized mortgage obligations, structured notes, inverse
floaters, principal only or interest-only securities, etc.). See the Prospectus
and SAI for the Capital Appreciation and Equity-Income Funds, which are
authorized to engage in this kind of trading.
B. Risk factors commonly associated with derivative transactions.
There are certain risks associated with derivatives, and some
derivatives involve more of these risks than others. We briefly
describe the most common ones here; however, this is not an exhaustive
list. Consult your financial counselor if you have additional
questions.
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CREDIT RISK is the possibility that a counterparty to a transaction will
fail to perform according to the terms and conditions of the transaction,
causing the holder of the claim to suffer a loss.
CROSS-CURRENCY SETTLEMENT RISK (or Herstatt risk) is related to the
settlement of foreign exchange contracts. It arises when one of the
counterparties to a contract pays out one currency prior to receiving
payment of the other. Herstatt risk arises because the hours of operation
of domestic interbank fund transfer systems often do not overlap due to
time zone differences. In the interval between the time one
counterparty(ies) receive payment in the others, those awaiting payment
are exposed to credit risk and market risk.
LEGAL RISK is the chance that a derivative transaction, which involves
highly complex financial arrangements, will be unenforceable in particular
jurisdictions or against a financially troubled entity; or will be subject
to regualtion from unanticipated sources.
MARKET LIQUIDITY RISK is the risk that a fund will unable to control its
losses if a liquid secondary market for a financial instrument does not
exist. It is often considered as the risk that a (negotiable or
assignable) financial instrument cannot be sold quickly and at a price
close to its fundmental value.
MARKET RISK is the risk of a change in the price of a financial
instrument, which may depend on the price of an underlying area asset.
OPERATING RISK is the potential of unexpected loss from inadequate
internal controls or procedures; human error; system (including data
processing system) failure; or employee dishonesty.
SETTLEMENT RISK between two counterparties is the possibility that a
counterparty to whom a firm has made a delivery of assets or money
defaults before the amounts due or assets have been received; or the risk
that technical difficulties interrupt delivery or settlement even if the
counterparties are able to perform. In the latter case, payment is likely
to be delayed but recoverable.
SYSTEMIC RISK is the uncertainty that a disruption (at a firm, in a market
segment, to a settlement system, etc.) might cause widespread difficulties
at other firms, in other market segments, or in the financial system as a
whole.
SPECIAL NOTE FOR OPTIONS AND FUTURES TRANSACTIONS: Gains and losses on
options and futures transactions depend on the portfolio manager's ability
to correctly predict the direction of stock prices and interest rates, and
other economic factors. Options and futures trading may fail as hedging
techniques in cases where the price movement of the securities underlying
the options and futures do not follow the price movements of the portfolio
securities subject to the hedge. The loss from investing in futures
transactions is potentially unlimited.
SOME OF THESE RISKS MAY BE PRESENT IN EACH TYPE OF TRANSACTION, WHILE
OTHERS MAY PERTAIN ONLY TO CERTAIN ONES. These risks are discussed here
only briefly. Before you invest in a particular Fund, please consult your
financial counselor if you have questions about the risks associated with
that Fund's use of derivatives.
C. Varying usage of derivative transactions
Subject to the terms of the Prospectus and SAI for each Fund, that Fund's
portfolio manager decides which types of derivative transactions to
employ, at which times and under what circumstances. For a description of
the limits, risk factors and circumstances under which derivative
transactions will be used by each Fund, refer to the SAI booklet.
D. Increased government scrutiny
Derivative transactions are coming under increased scrutiny by Congress
and industry regulators (such as the SEC and the Office of the Comptroller
of the Currency), and by self-regulatory agencies (such as the NASD).
Should legislation or regulatory initiatives be enacted resulting in
additional restrictive requirements for derivative transactions, we
reserve the right to make all necessary changes in the Contracts and/or
the Registration Statements for the Funds to comply with those
requirements.
2. CASH ENHANCEMENT TRANSACTIONS
Cash enhancement transactions also involve certain risks to the Fund. They
are discused more fully in the SAI.
A. Lending of portfolio securities
Any Fund authorized to do so may make secured loans of its portfolio
securities, in order to realize additional income. The loans are limited
to a maximum of a stipulated amount of the Fund's total assets. As a
matter of policy, securities loans are made to broker/dealers under
agreements requiring that the loans be continuously secured by collateral
in cash or short-term debt obligations at least equal at all times to
102% of the value of the securties lent.
The borrower pays the Fund an amount equal to any dividends or interest
received on securities lent. The Fund retains all or a portion of the
interest received on securities lent. The Fund also retains all or a
portion of the interest received on investment of the cash collateral, or
receives a fee from the borrower.
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<PAGE>
With respect to the loaned securities, voting rights or rights to consent
pass to the borrower. However, the Fund retains the right to call in the
loans and have the loaned securities returned at any time with reasonable
notice. This is important when issuers of the securities ask holders of those
securities-including the Fund-to vote or consent on matters which could
materially affect the holders' investment. The Fund may also call in the
loaned securities in order to sell them. None of the Funds' portfolio
securities will be loaned to LNIMC, to any Sub-Advisor, or to any of their
respective affiliates. The Fund may pay reasonable finder's fees to persons
unaffiliated with it in connection with the arrangement of the loans.
B. Repurchase (Repo) and reverse repurchase (Reverse Repo) transactions
1. Repos. From time to time, the Funds may enter into Repo transactions. In a
typical Repo transaction, the Fund involved buys U.S. Government or other
money market securities from a financial institution (such as a bank,
broker, or savings and loan association). At the same time, as part of the
arrangement, the Fund obtains an agreement from the seller to repurchase
those same securities form the Fund at a specified price on a fixed future
date.
The repurchase date is normally not more than seven days from the date of
purchase. Keeping the term under seven days is significant, because the
SEC considers Repo Agreements with maturities of more than seven days to
be illiquid assets of the Fund, and the Funds have strict limitations on
the percentage of their respective assets which may be illiquid.
2. Reverse repos. A Fund may also be authorized to enter into Reverse Repo
transactions. This simply means the Fund is on the reverse side of a Repo
transaction. That is, the Fund is the Seller of some of its portfolio
securities, subject to buying them back at a set price and date.
Authorized Funds will engage in Reverse Repos for temporary purposes, such
as for obtaining cash to fund redemptions; or for the purpose of
increasing the income of the Fund by investing the cash proceeds at a
higher rate than the cost of the agreement. Entering into a reverse repo
transaction is considered to be the borrowing of money by the Fund. Funds
authorized to engage in Repos as buyers are not necessarily authorized to
do Reverse Repos.
FOREIGN INVESTMENTS
There are certain risks involved in investing in foreign securities, including
those resulting from fluctuations in currency exchange rates; devaluation of
currencies; political or economic developments including the possible imposition
of currency exchange blockages or other foreign governmental laws or
restrictions; reduced availability of public information concerning issuers; and
the fact that foreign companies are not generally subject to uniform accounting,
auditing, and financial reporting standards or to other regulatory practices and
requirements comparable to those applicable to domestic companies. With respect
to certain foreign countries, there is also the possibility of expropriation,
nationalization, confiscatory taxation, and limitations on the use or removal of
cash or other assets of a Fund, including the withholding of interest payments
or dividends.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the NYSE. Accordingly, a Fund's foreign investments may be less
liquid and their prices may be more volatile than comparable investments in
securities of U.S. companies. Moreover, the settlement periods for foreign
securities, which are often longer than those for securities of U.S. issuers,
may affect portfolio liquidity. The Funds will incur costs in converting foreign
currencies into U.S. dollars. Custody charges are generally higher for foreign
securities. In buying and selling securities on foreign exchanges, a Fund
normally pays fixed commissions that are generally higher than the negotiated
commissions charged in the United States. In addition, there is generally less
governmental supervision and regulation of securities exchanges, brokers and
issuers in foreign countries that in the United States. There may be difficulty
in enforcing legal rights outside the United States. For example, in the event
of default on any foreign debt obligations, it may be more difficult or
impossible for the Fund or to enforce a judgment against the issuers of these
securities. The Advisor or Sub-Advisor will take all these factors into
consideration in managing a Fund's foreign investments.
Certain state insurance regulations impose additional restrictions on the extent
to which a Fund may invest in foreign securities. See the SAI.
The share price of a Fund that invests in foreign securities will reflect the
movements of both the prices of the portfolio securities and the currencies in
which those securities are denominated. Depending on the extent of a Fund's
investments abroad, changes in a Fund's share price may have a low correlation
with movements in the U.S. markets. Because most of the foreign securities in
which the Fund invests will be denominated in foreign currencies, or otherwise
will have values that depend on the performance of foreign currencies relative
to the U.S. dollar, the relative strength of the U.S. dollar may be an important
factor in the performance of the Fund.
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FOREIGN CURRENCIES
When an Advisor or Sub-Advisor believes that a currency in which a portfolio
security or securities is denominated may suffer a decline against the U.S.
dollar, it may hedge that risk by entering into a forward contract to sell an
amount of foreign currency approximating the value of some or all of the
portfolio securities denominated in that foreign currency.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and a Fund may hold various foreign currencies,
the value of the net assets of that Fund as measured in U.S. dollars will be
affected favorably or unfavorably by changes in exchange rates. Generally,
currency exchange transactions will be conducted on a spot (i.e., cash) basis at
the spot rate prevailing in the currency exchange market. The cost of currency
exchange transactions will generally be the difference between the bid and offer
spot rate of the currency being purchased or sold.
Investors should be aware that exchange rate movements can be significant and
can endure for long periods of time. In order to protect against uncertainty in
the level of future foreign currency exchange rates, a Fund's Advisor or Sub-
Advisor may attempt to manage exchange rate risk through active currency
management, including the use of certain foreign currency hedging transactions.
For example, it may hedge some or all of its investments denominated in a
foreign currency against a decline in the value of that currency relative to the
U.S. dollar by entering into contracts to exchange that currency for U.S.
dollars (not exceeding the value of the Fund's assets denominated in that
currency), or by participating in options or futures contracts with respect to
that currency. If the Advisor or Sub-Advisor believes that a particular currency
may decline relative to the U.S. dollar, the Fund may also enter into contracts
to sell that currency (up to the value of the Fund's assets denominated in that
currency) in exchange for another currency that the Advisor or Sub-Advisor
expects to remain stable or to appreciate relative to the U.S. dollar. This
technique is known as currency cross-hedging. Refer to the Prospectus for each
Fund to determine which Funds may engage in these transactions.
These strategies minimize the effect of currency appreciation as well as
depreciation, but do not protect against a decline in the underlying value of
the hedged security. In addition, these strategies may reduce or eliminate the
opportunity to profit from increases in the value of the original currency and
may adversely impact the Fund's performance if the Advisor or Sub-Advisor's
projection of future exchange rates is inaccurate. See Strategic portfolio
transactions.
GENERAL INFORMATION
Your inquiries should be directed to Lincoln National Life Insurance Co., at
P.O. Box 2348, Fort Wayne, Indiana 46801; or, you may call 1-800-348-1212.
The Funds will issue unaudited semi-annual reports showing current investments
in each Fund and other information and annual financial statements audited by
their independent auditors.
Under the 1940 Act a fundamental policy of a fund may not be changed without the
affirmative vote of a majority of the fund's outstanding shares.
As used in this Prospectus, the term majority of the Fund's outstanding shares
means the vote of: (1) 67% or more of each Fund's shares present at a meeting,
if the holders of more than 50% of the outstanding shares of each Fund are
present or represented by proxy, or (2) more than 50% of each Fund's outstanding
shares, whichever is less.
These Prospectuses do not contain all the information included in their
Registration Statements filed with the Commission. The Registration Statements,
including the exhibits filed with them, may be examined at the office of the
Commission in Washington, D.C. Statements contained in the Prospectuses about
the contents of any Contract or other document referred to in them are not
necessarily complete. In each instance, reference is made to the copy of that
Contract or other document filed as an exhibit to the Registration Statement of
which the particular Prospectus forms a part, and each statement is qualified in
all respects by that reference.
The use of Funds by both variable annuity and variable life insurance separate
accounts is known as mixed funding. Due to differences in redemption rates, tax
treatment, or other considerations, the interests of Contract Owners under the
Variable Life Accounts may conflict with those of Contract Owners under the
Variable Annuity Account, in those cases where mixed funding occurs. The Board
of Directors of each Fund will monitor for any material conflicts and determine
what action, if any, should be taken.
Should any conflict arise which requires that a substantial amount of assets be
withdrawn from any of the Funds, orderly portfolio management could be
disrupted, to the detriment of those Contract Owners still investing in that
Fund. Also, if that Fund believes that any portfolio has become so large as to
materially impair investment performance, then the Fund will examine other
investment options.
Lincoln Life performs the dividend and transfer functions for the Funds.
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STATEMENT OF ADDITIONAL INFORMATION
LINCOLN NATIONAL MONEY MARKET FUND, INC.
This Statement of Additional Information should be read in conjunction with the
Prospectus of Lincoln National Money Market. Fund, Inc. (the Fund) dated April
29, 1995. You may obtain a copy of the Fund's Prospectus on request and without
charge. Please write Kim Oakman, The Lincoln National Life Insurance Company,
P.O. Box 2340, Fort Wayne, Indiana 46801 or call 1-800-348-1212, Extension 4912.
IN INVESTMENT IN THIS FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF 10.00 PER SHARE.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
The date of this Statement of Additional Information is April 29, 1995.
<PAGE>
TABLE OF CONTENTS
Page
Investment Objective
Investment Policies and Techniques
Calculation of Yield
Investment Restrictions
Portfolio Transactions
Appendix
Investment Advisor and Sub-Advisor
Directors and Officers
Investment Policies and Techniques (Continued)
Custodian
Independent Auditors
Financial Statements
Bond Ratings
Commercial Paper Ratings
U.S. Government Obligations
Taxes
State Requirements
Derivative Transactions - Definitions
<PAGE>
INVESTMENT OBJECTIVE
The investment objective of the Fund is maximum current income consistent with
the preservation of capital. The investment objective and policies of the Fund
are fundamental and cannot be changed without the affirmative vote of a majority
of the outstanding voting securities of the Fund. See General Information, in
the Prospectus. There can be no assurance that the investment objective of the
Fund will be achieved.
The primary risk in the Fund is an interest rate risk. The rate of return in
this Fund will vary with fluctuations in short-term interest rates. Other than
this, the Fund is considered to be of low relative risk as it has followed a
policy of investing only in short-term instruments of the highest grade by one
or the other of the primary credit rating services, and since its inception has
maintained a cumulative average portfolio maturity of 20 to 40 days.
INVESTMENT POLICIES AND TECHNIQUES
The Fund pursues its investment objective by investing primarily in a portfolio
of short-term money market instruments maturing within one year from date of
purchase. (See Description of the Fund and Investment Policies, in the
Prospectus.)
PERMITTED INVESTMENTS
The following is a description of the instruments in which the Fund intends to
invest, as discussed under Investment Policies, in the Prospectus. See Bond
Ratings (top four credit categories by Moody's or by S&P) and Commercial Paper
Ratings (top two credit categories by Moody's or by S&P) in the Appendix for a
description of ratings.
U.S. GOVERNMENT OBLIGATIONS
Securities issued or guaranteed as to principal and interest by the U.S.
government include a variety of Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury bills have a
maturity of one year or less.
Treasury notes have maturities of one to seven years and Treasury bonds
generally have a maturity of greater than five years.
Various agencies of the U.S. government issue obligations. Some of these
securities are supported by the full faith and credit of the U.S. Treasury (for
example, those issued by Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Government National Mortgage
Association,
<PAGE>
Maritime Administration, Small Business Administration and The Tennessee Valley
Authority). Obligations of instrumentalities of the U.S. government are
supported by the right of the issuer to borrow from the Treasury (for example,
those issued by Federal Farm Credit Banks, Federal Home Loan Bank, Federal Home
Loan Mortgage Corporation, and the U.S. Postal Service). Obligations supported
by the credit of the instrumentality include securities issued by government
sponsored corporations whose stock is publicly held (for example, the Federal
National Mortgage Association, and the Student Loan Marketing Association).
CERTIFICATES OF DEPOSIT are certificates issued against funds deposited in a
bank or financial institution, are for a definite period of time, earn a
specified rate of return, and are normally negotiable.
BANKERS' ACCEPTANCES are short-term credit instruments used to finance
commercial transactions. Generally, a bankers' acceptance is a time draft or
bill of exchange drawn on a bank by an exporter or an importer to obtain a
stated amount of funds to
pay for specific merchandise. The draft is then "accepted" by a bank that, in
effect, unconditionally guarantees to pay the face value of the instrument on
its maturity date. Bankers' acceptances may be purchased in the secondary
market at the going rate of discount for a specific maturity. Although
maturities for bankers' acceptances can be as long as 270 days, most acceptances
have maturities of six months or less.
BANK TIME DEPOSITS are funds kept on deposit with a bank for a stated period of
time in an interest-bearing account. At present, bank time deposits are not
considered by the Adviser to be readily marketable.
COMMERCIAL PAPER refers to short-term (from 1 to 270 days) unsecured promissory
notes issued by corporations in order to finance their current operations.
CORPORATE OBLIGATIONS include bonds, debentures, notes, and other evidences of
indebtedness, secured or unsecured, issued by corporations in order to finance
credit needs.
LENDING OF PORTFOLIO SECURITIES
The Fund may from time to time lend securities from its portfolio to brokers,
dealers and financial institutions and receive collateral from the borrower, in
the form of cash (which may be invested in short-term securities), U.S.
government obligations or certificates of deposit. Such collateral will be
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities, and will be in the actual or constructive
possession of the Fund during the term of the loan. The Fund will retain the
incidents of ownership of the loaned securities and will be entitled to the
interest payable on
<PAGE>
the loaned securities. In addition, the Fund will receive interest on the
amount of the loan. The loans will be terminable by the Fund at any time and
will not be made to any affiliates of the Fund or the investment adviser (the
Adviser). The Fund may pay reasonable finder's fees to persons unaffiliated
with it in connection with the arrangement of the loans.
As with any extensions of credit, there are risks of delay in recovery and, in
some cases, even loss of rights in the collateral or the loaned securities
should the borrower of securities fail financially. However, loans of portfolio
securities will be made only to firms deemed by the Adviser to be creditworthy.
REPURCHASE AGREEMENTS
A repurchase agreement typically involves the purchase by the Fund of securities
(U.S. government or other money market securities) from a financial institution
such as a bank, broker
or savings and loan association, coupled with an agreement by the seller to
repurchase the same securities from the Fund at the specified price and at a
fixed time in the future, usually not more than seven days from the date of
purchase. The difference between the purchase price to the Fund and the resale
price to the seller represents the interest earned by the Fund which is
unrelated to the coupon rate or maturity of the purchased security. If the
seller defaults, the Fund may incur a loss if the value of the collateral
securing the repurchase agreement declines, or the Fund may incur disposition
costs in connection with liquidating the collateral. If bankruptcy proceedings
are commenced with respect to the seller, realization upon the collateral by the
Fund may be delayed or limited and a loss may be incurred if the collateral
securing the repurchase agreement declines in value during the bankruptcy
proceedings. The Board of Directors of the Fund will evaluate the
creditworthiness of all entities, including banks and broker-dealers, with which
they propose to enter into repurchase agreements. These transactions will be
fully collateralized; and the collateral for each transaction will be in the
actual or constructive possession of the Fund during the terms of the
transaction, as provided in the agreement.
CALCULATION OF YIELD
As explained in the Prospectus, no yield quotation at the Fund level is
advertised by the Fund. See the SAI for the Variable Annuity Account for more
information about the method of calculating the yield at the Variable Annuity
Account level.
INVESTMENT RESTRICTIONS
In addition to the investment restrictions listed in the
<PAGE>
Prospectus, the following investment restrictions have been adopted by the Fund
as fundamental policies, except as otherwise indicated. Under the Investment
Company Act of 1940, as amended (the Act), a fundamental policy may not be
changed without the affirmative vote of a majority of the outstanding voting
securities of the Fund, as defined in the Act. See General Information, in the
Prospectus. For purposes of the following restrictions: (1) all percentage
limitations apply immediately after the making of an investment; and (2) any
subsequent change in any applicable percentage resulting from market
fluctuations does not require elimination of any security from the portfolio.
The Fund may not:
1. Invest more than 25% of its total assets in the securities of issuers in any
one industry. For purposes of this restriction, gas, electric, water and
telephone utilities are treated as separate industries. This restriction
does not apply to obligations issued by banks (excluding foreign branches of
U.S. banks and U.S. branches of foreign banks) or issued or guaranteed by
the U.S. government, its agencies and instrumentalities.
2. Purchase or sell real estate or interests therein, although it may purchase
securities of issuers which engage in real estate operations or securities
which are secured by interests in real estate.
3. Make loans except that it may lend its portfolio securities if such loans
are fully collateralized and such loans of securities do not exceed one-
third of its total assets at any one time. See Investment Policies--Lending
of Portfolio Securities, in the Prospectus. The purchase of debt securities
and the entry into repurchase agreements are not considered the making of
loans.
4. Purchase or write put or call options.
5. Underwrite the securities of other issuers, except insofar as the Fund may
be deemed an underwriter under the Securities Act of 1933 in disposing of
portfolio securities.
6. Invest more than 10% of its total assets in securities (including repurchase
agreements and non-negotiable time deposits maturing in more than seven
days) which are subject to legal or contractual restrictions upon resale or
are otherwise not readily marketable.
7. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities.
8. Make short sales of securities.
<PAGE>
9. Purchase or sell commodities or commodity futures contracts.
10. Purchase securities of investment companies except in connection with an
acquisition, merger, consolidation or reorganization.
11. Invest in companies for the purpose of, or with the effect of, acquiring
control.
12. Invest in interests in oil, gas and other mineral exploration or development
programs, except that the Fund may invest in the securities of companies
which invest in or sponsor such programs.
13. Invest in securities of any issuer if, to the knowledge of the Fund,
officers or directors of the Fund or its investment adviser, who
individually own beneficially 1/2 of 1% or more of the securities of such
issuer, collectively own beneficially more than 5% of the securities of such
issuer.
14. Pledge its assets or assign or otherwise encumber them except to secure
borrowings effected within the limitations set forth in Restriction 3 in the
Prospectus (see Investment Restrictions in the Prospectus).
15. Issue senior securities as defined in the Act except insofar as the Fund may
be deemed to have issued a senior security by borrowing money in accordance
with restrictions described above.
PORTFOLIO TRANSACTIONS
The Fund's investment adviser (the Adviser) places orders for all purchases and
sales of portfolio securities. The Adviser purchases portfolio securities for
the Fund either directly from the issuer or from dealers who deal in money
market instruments. Although the Fund does not seek profits through short-term
trading, the Adviser may, on behalf of the Fund, dispose of any portfolio
security prior to its maturity if it believes such disposition to be advisable.
The Fund's policy of investing in securities with maturities of generally less
than one year results in a large number of purchases in the portfolio.
However, since brokerage commissions are not normally paid on investments of the
Fund, this does not have a significant adverse effect on the net asset value or
net income of the Fund. In connection with portfolio transactions for the Fund,
the Adviser seeks to obtain the best net price and the most favorable execution
of its orders.
To the extent that the execution and price offered by more than
<PAGE>
one dealer are comparable, the Adviser may, in its discretion, purchase and sell
portfolio securities to and from dealers who provide the Fund with research
advice or other services, which services may be used for the benefit of other
clients for which the Adviser acts as adviser. Portfolio securities are not
purchased from or sold to the Adviser or any affiliated person (as defined in
the Act) of the Adviser. The Adviser currently provides investment advice to a
number of other clients. See Investment Adviser, in the Appendix. It will be the
practice of the Adviser to allocate purchase and sale transactions among the
Fund and others whose assets are managed in such manner as is deemed equitable.
In making such allocations, major factors to be considered are investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held and the opinions of the persons responsible for
managing the portfolios of the Fund and other client accounts.
<PAGE>
APPENDIX
(NOTE: THIS IS UNIFORM INFORMATION FOR THE ELEVEN FUNDS. SEE EACH FUND'S
SAI FOR INFORMATION SPECIFIC TO THAT FUND.)
THIS APPENDIX CONSTITUTES PART OF THE STATEMENTS OF ADDITIONAL INFORMATION OF
LINCOLN NATIONAL AGGRESSIVE GROWTH FUND, INC. (AGGRESSIVE GROWTH FUND), LINCOLN
NATIONAL BOND FUND, INC. (BOND FUND), LINCOLN NATIONAL CAPITAL APPRECIATION
FUND, INC. (CAPITAL APPRECIATION FUND), LINCOLN NATIONAL EQUITY-INCOME FUND,
INC. (EQUITY-INCOME FUND), LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND, INC.
(GLOBAL ASSET ALLOCATION FUND), LINCOLN NATIONAL GROWTH AND INCOME FUND, INC.
(GROWTH AND INCOME FUND), LINCOLN NATIONAL INTERNATIONAL FUND, INC.
(INTERNATIONAL FUND), LINCOLN NATIONAL MANAGED FUND, INC. (MANAGED FUND),
LINCOLN NATIONAL MONEY MARKET FUND, INC. (MONEY MARKET FUND), LINCOLN NATIONAL
SOCIAL AWARENESS FUND, INC. (SOCIAL AWARENESS FUND), AND LINCOLN NATIONAL
SPECIAL OPPORTUNITIES FUND, INC. (SPECIAL OPPORTUNITIES FUND), UNLESS OTHERWISE
INDICATED, THE FOLLOWING INFORMATION APPLIES TO EACH FUND.
INVESTMENT ADVISOR AND SUB-ADVISOR
Lincoln National Investment Management Company (LNIMC) is the investment Advisor
to the funds and is headquartered at 200 E. Berry Street, Fort Wayne, Indiana
46802. LNIMC (the Advisor) is a wholly-owned subsidiary of Lincoln National
Corporation (LNC), a publicly-held insurance holding company organized under
Indiana law. Through its subsidiaries, LNC provides, on a national basis, life
insurance and annuities, property-casualty insurance, reinsurance, and financial
services. LNIMC is registered with the Securities and Exchange Commission (the
Commission) as an investment Advisor and has acted as an investment Advisor to
mutual funds for over 40 years. The Advisor also acts an investment Advisor
to Lincoln National Income Fund, Inc. (a closed-end investment company whose
investment objective is to provide a high level of current income from interest
of fixed-income securities); and Lincoln National Convertible Securities Fund,
Inc. (a closed-end investment company whose investment objective is a high level
of total return on its assets through a combination of capital appreciation and
current income), Lincoln Advisor Funds, Inc. (a retail mutual fund complex) and
to other clients.
Under Advisory Agreements with the Funds, the Advisor provides portfolio
management and investment advice to the Funds and administers its other affairs,
subject to the supervision of the Funds' Board of Directors. The Advisor, at its
expense, will provide office space to the Funds and all necessary office
facilities, equipment and personnel, and will make its officers and employees
available to the Funds as appropriate. In addition, the Advisor will pay all
expenses incurred by it or by the Funds in connection with the management of
each Fund's assets or the administration of its affairs, other than those
assumed by the Funds, as described below. Lincoln Life has paid the
organizational expenses of all the funds. The rates of compensation to the
Advisor and the Sub-Advisor are set forth in the Appendix to the
Prospectus.
During the last three years, the Advisor received the following amounts for
investment Advisor services:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- -----------
<S> <C> <C> <C>
Aggressive Growth Fund $ 232,000 $ N/A $ N/A
Bond Fund 999,397 978,266 754,618
Capital Appreciation Fund 211,773 N/A N/A
Equity-Income Fund 348,255 N/A N/A
Global Asset Allocation Fund 1,381,059 901,004 643,332
Growth and Income Fund 3,896,902 3,293,315 2,537,432
International Fund 2,262,664 759,801 307,100
Managed Fund 1,919,150 1,756,544 1,403,073
Money Market Fund 404,441 449,374 570,352
Social Awareness Fund 736,602 542,142 331,256
Special opportunities Fund 1,351,374 1,052,967 733,475
</TABLE>
Expenses specifically assumed by the Funds include: compensation and expenses
of directors of the Funds who are not "interested persons" of the Funds as
defined in the Investment Company Act of 1940 (the Act);
<PAGE>
registration, filing and other fees in connection with filings with regulatory
authorities, including the costs of printing and mailing registration statements
and updated prospectuses provided to current stockholders; fees and expenses of
independent auditors; the expenses of printing and mailing proxy statement and
stockholder reports; custodian charges; brokerage commissions and securities
transaction costs incurred by the funds; taxes and corporate fees; legal fees
incurred in connection with the affairs of the Funds (other than legal services
provided by personnel of the Advisor or its affiliated companies); the fees of
any trade association of which the Funds are members: and expenses of
stockholder and director meetings.
If total expenses of the Funds (excluding taxes, interest, portfolio brokerage
commissions and fees, and expenses of an extraordinary and non-recurring nature,
but including the investment Advisory fee) exceed 1 1/2% per annum of the
average daily net assets of each Fund (2% for the International Fund), the
Advisor will pay such excess by offsetting it against the Advisory fee. If such
offset is insufficient to cover the excess, any balance remaining will be paid
directly by the Advisor to each Fund.
The current Advisory Agreements between the Advisor and the Funds will remain in
effect from year to year if approved annually by: (1) the Board of Directors of
each Fund or by the vote of a majority of the outstanding voting securities of
each Fund, and (2) a vote of a majority of the directors who are not "interested
persons" of the Funds or the Advisor, cast in person at a meeting called for the
purpose of voting on such approval. The Advisory Agreement may be terminated
without penalty at any time, on 60 days' written notice by: (1) the Board of
Directors of each Fund, (2) vote of majority of the outstanding voting
securities of each Fund or (3) the Advisor. The Advisory Agreement terminates
automatically in the event of assignment.
In like manner, the current Sub-Advisory Agreements will remain in effect from
year to year if approved annually by the Board of Directors of the applicable
Funds or by the vote of a majority of the outstanding voting securities of those
Funds. The Sub-Advisory Agreements may be terminated without penalty at any
time, on 60 days' written notice, by: (1) the Board of Directors of the
applicable fund, (2) vote of the majority of the outstanding voting securities
of the applicable Fund, (3) the Sub-Advisor, or (4) the Advisor. The Sub-
Advisory Agreements terminate automatically in the event of assignment.
DIRECTORS AND OFFICERS
The directors and executive officers of each Fund and their principal
occupations during the past five years are as follows:
<TABLE>
<CAPTION>
NAME AND BUSINESS POSITIONS WITH FUND PRINCIPAL OCCUPATION
ADDRESS DURING PAST FIVE YEARS
- ----------------- ------------------- ----------------------
<S> <C> <C>
*Kelly D. Clevenger Chairman of the Vice President, Lincoln National
1300 S. Clinton Street Board Life Insurance Company
Fort Wayne, Indiana 46802 President and
Director
John B. Borsch, Jr. Director Retired, formerly Associate Vice
1776 Sherwood Road President-Investments, Northwestern
Des Planes, IL 60016 University
Nancy L. Frisby, CPA Director Regional Vice President/Chief
Financial Officer (formerly Vice-President
700 Broadway -Finance; Regional Controller of
Fort Wayne, IN 46802 Finance) , St. Joseph Medical Center,
Fort Wayne, Indiana
*Barbara S. Kowalczyk Director Executive Vice President,, Lincoln
1300 S. Clinton National Investment Management
Street Fort Wayne, Company (formerly, Senior Vice
IN 46802 President, The Lincoln National
Life Insurance Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME AND BUSINESS POSITIONS WITH FUND PRINCIPAL OCCUPATION
ADDRESS DURING PAST FIVE YEARS
- ----------------- ------------------- ----------------------
<S> <C> <C>
Stanley R. Nelson Director Executive in Residence
420 Delaware St., S.E. Program in Health
Minneapolis, MN 55455 Services Administration,
University of Minnesota,
Minneapolis, Minnesota,
(formerly President, Henry
Ford Health Care
Corporation, Detroit,
Michigan)
* Max A. Roesler Vice President and Vice President and
1300 S. Clinton Street Treasurer Treasurer, The Lincoln
Fort Wayne, Indiana 46808 National Life Insurance
Company; Vice President and
Treasurer, Lincoln National
Corporation
* Cynthia A. Rose Assistant Secretary Assistant Secretary,
200 East Berry Street Lincoln National
Fort Wayne, IN 46802 Corporation; Assistant
Secretary, The Lincoln
National Life Insurance
Company
</TABLE>
* "Interested persons" of the Funds, as defined in the Act.
Directors' fees of $250 per meeting are paid by each Fund to each director who
is not an "interested person" of the Fund.
INVESTMENT POLICIES AND TECHNIQUES (CONTINUED)
OPTIONS AND FINANCIAL FUTURES TRADING
This discussion relates to the Bond, Growth, Managed, Social Awareness, and
Special Opportunities Funds. Neither the International Fund nor the Money Market
Fund has sought the authority to engage either in options or in futures trading.
(NOTE: The Aggressive Growth, Capital Appreciation, Equity-Income and Global
Asset Allocation Funds have their own respective discussions of the Strategic
Portfolio Transactions in which they may engage).
OPTIONS TRADING
The Fund may purchase or write (sell) options on financial instruments as a
means of achieving additional return or hedging the value of the Fund's
portfolio. The Fund may not write put or covered call options in an amount
exceeding 30% of the value of its total assets. The Fund would invest in options
in standard contracts which may be quoted on NASDAQ, or on national securities
exchanges. Currently options are traded on numerous securities and indices
including, without limitation, the S & P 100 Index, the S&P 500 Index, and the
NYSE Beta Index.
A) In General. Put and call options are generally short-term contracts with
durations of nine months or less. The Investment Advisor will generally write
covered call options when it anticipates declines in the market value of the
portfolio securities and the premiums received may offset to some extent the
decline in the Fund's net asset value. On the other hand, writing put options is
a useful portfolio investment strategy when the Fund has cash or other reserves
and it intends to purchase securities but expects prices to decline.
Generally, the risk to the Fund in writing options is that the Investment
Advisor's assumption about the price trend of the underlying security may prove
inaccurate. If, as a result, the Fund wrote a put, expecting the price of a
security to increase, and it decreased, or if the Fund wrote a call, expecting
the price to decrease but it increased, the Fund could suffer a loss if the
premium received in each case did not equal the difference between the exercise
price and the market price.
B) Call Options. The Fund may write only call options which are "covered,"
meaning that the Fund either owns the underlying security or has an absolute and
immediate right to acquire that security, without additional cash consideration,
upon conversion or exchange of other securities currently held in its portfolio.
In addition, the Fund will not, prior to the expiration of a call option, permit
the call to become uncovered. If the Fund writes a call option, the purchaser of
the option has the right to buy (and the Fund has the obligation to sell) the
underlying security at the exercise price throughout the term of the option. The
amount paid to the Fund by the purchaser of the option is the "premium." The
Fund's obligation to deliver the
<PAGE>
underlying security against payment of the exercise price would terminate either
upon expiration of the option or earlier if the Fund were to effect a "closing
purchase transaction" through the purchase of an equivalent option on an
exchange. The Fund would not be able to effect a closing purchase transaction
after it had received notice of exercise.
In order to write a call option, the Fund is required to deposit in escrow the
underlying security or other assets in accordance with the rules of The Options
Clearing Corporation and the various exchanges. The Fund may not purchase call
options except in connection with a closing purchase transaction. It is possible
that the cost of effecting a closing purchase transaction may be greater than
the premium received by the Fund for writing the option.
Generally, the investment Advisor (the Advisor) intends to write listed covered
calls during periods when it anticipates declines in the market valued of
portfolio securities and the premiums received (not of transaction costs) may
offset to some extent the decline in the Fund's net asset value occasioned by
such declines in market value. The Advisor will generally not write listed
covered call options when it anticipates that the market value of the Fund's
portfolio securities will increase.
If the Advisor decides that at a price higher than the current value a portfolio
security would be overvalued and should be sold, the Fund may write an option on
the security at that price. Should the security subsequently reach that price
and the option be exercised, the Fund would, in effect, have increased the
selling price of that security, which it would have sold at that price in any
event, by the amount of the premium. In the event the market price of the
security declined and the option were not exercised, the premium would offset
all or some portion of that decline. It is possible, of coarse, that the price
of the security could increase beyond the exercise price; in that event, the
Fund would forego the opportunity to sell the security at that higher price.
In addition, call options may be used as part of a different strategy in
connection with sales of portfolio securities. If, in the judgement of the
Advisor, the market price of a security is overvalued and it should be sold, the
Fund may elect to write a call with an exercise price substantially below the
current market price. So long as the value of the underlying security remains
above the exercise price during the term of the option, the option will be
exercised, and the Fund will be required to sell the security at the exercise
price. If the sum of the premium and the exercise price exceeds the market price
of the security at the time the call is written, the Fund would, in effect, have
increased the selling price of the security. The Fund would not write a call
under these circumstances if the sum of the premium and the exercise price were
less than the current market price of the security.
In summary, a principal reason for writing calls on a securities portfolio is to
attempt to realize, through receipt of premium income, a greater return than
would be earned on the securities alone. A covered call writer, such as the
Fund, which owns the underlying security has, in return for the premium, given
up the opportunity for profit from a price increase in the underlying security
above the exercise price, but has retained the risk of loss should the price of
the security decline. Unlike one who owns securities not subject to a call, the
Fund as a call writer may be required to hold such securities until the
expiration of the call option or until the Fund engages in a closing purchase
transaction at a price that may be below the prevailing market.
C) Put Options. The Fund may also write put options. If the Fund writes a put
option, it is obligated to purchase a given security at a specified price at any
time during the term of the option. The rules regarding the writing of put
options are generally comparable to those described above with respect to call
options.
Writing put options is a useful portfolio investment strategy when the Fund has
cash or other reserves available for investment as a result of sales of Fund
shares or because the Advisor believes a more defensive and less fully invested
position is desirable in light of market conditions. If the Fund wishes to
invest its cash or reserves in a particular security at a price lower than
current market value, it may write a put option on that security at an exercise
price which reflects the lower price it is willing to pay. The buyer of the put
option generally will not exercise the option unless the market price of the
underlying security declines to a price near or below the exercise price. If the
Fund writes a put option, the price of the underlying security declines and the
option is exercised, the premium, net of transaction charges, will reduce the
purchase price paid by the Fund for the security. Of course, the price of the
security may continue to decline after exercise of the put options, in which
event the Fund would have foregone an opportunity to purchase the security at a
lower price, or the option might never be exercised.
If, prior to the exercise of a put, the Advisor determines that it no longer
wishes to invest in the security on
<PAGE>
which the put has been written, the Fund may be able to effect a closing
purchase transaction on an exchange by purchasing a put of the same series as
the one which it has previously written. The cost of effecting a closing
purchase transaction may be greater than the premium received on writing the put
option, and there is no guarantee that a closing purchase transaction can be
effected. The Fund may purchase put options only in connection with a closing
transaction.
As with the writer of a call, a put writer generally hopes to realize premium
income. The risk position of the Fund as a put writer is similar to that of a
covered call writer which owns the underlying securities. Like the covered call
writer (who must bear the risk of his position in the underlying security), the
Fund as a put writer stands to incur a loss if and to the extent the price of
the underlying security falls below the exercise price plus premium.
At the time a put option is written, the Fund will be required to extablish, and
will maintain until the put is exercised or has expired, a segregated account
with its custodian consisting of cash or short-term U.S. government securities
equal in value to the amount which the Fund will be obligated to pay upon
exercise of the put. Principal factors affecting the market value of a put or
call option include supply and demand, interest rates, the current market price
and price volatility of the underlying security and the time remaining until the
expiration date. In addition, there is no assurance that the Fund will be able
to effect a closing transaction at a favorable price. If the Fund cannot enter
into such a transaction, it may be required to hold a security that it might
otherwise have sold, in which case it would continue to be a market risk on the
security. If a substantial number of covered options written by the Fund are
exercised, the Fund's rate or portfolio turnover could exceed historic levels.
This could result in higher transaction costs, including brokerage commissions.
The Fund will pay brokerage commissions in connection with the writing and
purchasing of option to close out previously written options. Such brokerage
commissions are normally higher than those applicable to purchases and sales of
portfolio securities.
FUTURES CONTRACTS AND OPTIONS THEREON
A. In General. Generally, the Fund may buy and sell financial futures
contracts ("futures contracts") and related options thereon solely for hedging
purposes. The Fund may sell a futures contract or purchase a put option on that
futures contract to protect the value of the Fund's portfolio in the event the
Investment Advisor anticipates declining security prices. Similarly, if security
prices are expected to rise, the Fund may purchase a futures contract or a call
option thereon. (For certain limited purposes, as explained below, the Fund is
also authorized to buy futures contracts on an unleveraged basis and not as an
anticipatory hedge.)
The Fund will not invest in futures contracts and options thereon if immediately
thereafter the amount committed to margins plus the amount paid or option
premiums exceeds 5% of the Fund's total assets. In addition the Fund will not
hedge more than one-third of its net assets.
B. Futures Contracts. The Fund may purchase and sell financial futures
contracts ("futures contracts") as a hedge against fluctuations in the value of
securities which are held in the Fund's portfolio or which the Fund intends to
purchase. The Fund will engage in such transactions consistent with the Fund's
investment objective. Currently, futures contracts are available on Treasury
bills, notes, and bonds.
There are a number of reasons why entering into futures contracts for hedging
purposes can be beneficial to the Fund. First, futures markets may be more
liquid than the corresponding cash markets on the underlying securities. Such
enhanced liquidity results from the standardization of the futures contracts and
the large transaction volumes. Greater liquidity permits a portfolio manager to
effect a desired hedge both more quickly and in greater volume than would be
possible in the cash market. Second, a desired sale and subsequent purchase can
generally be accomplished in the futures market for a fraction of the
transaction costs that might be incurred in the cash market.
The purpose of selling a futures contract is to protect the Fund's portfolio
from fluctuation in asset value resulting from stock price changes. Selling a
futures contract has an effect similar to selling a portion of the Fund's
portfolio securities. If stock prices were to decline, the value of the Fund's
futures contracts would increase, thereby keeping the net asset value of the
Fund from declining as much as it otherwise might have. In this way, selling
futures contracts acts as a hedge against the effects of declining stock prices.
However, an increase in the value of portfolio securities tends to be offset by
a decrease in the value of corresponding futures contracts.
Similarly, when stock prices are expected to rise, futures contracts may be
purchased to hedge against anticipated subsequent purchases of portfolio
securities at higher prices. By buying futures, the Fund could
<PAGE>
effectively hedge against an increase in the price of the securities it intends
to purchase at a later date in order to permit the purchase to be effected in an
orderly manner. At the time, the futures contracts could be liquidated at a
profit if stock prices had increased as expected, and the Fund's cash position
could be used to purchase securities.
When a purchase or sale of a futures contract occurs, a deposit of high-quality,
liquid securities called "initial margin" is made by both buyer and seller with
a custodian for the benefit of the broker. Unlike other types of margin, a
futures margin account does not involve any loan or borrowing but is merely a
good faith deposit that must be maintained in a minimum amount of cash or U.S.
Treasury bills. All futures positions, both long and short, are marked-to-market
daily, with cash payments called "variation margin" being made by buyers and
sellers to the custodian, and passed through to the sellers and buyers, to
reflect daily changes in the contract values.
Most futures contracts are typically cancelled or closed out before the
scheduled settlement date. The closing is accomplished by purchasing (or
selling) an identical futures contract to offset a short (or long) position.
Such an offsetting transaction cancels the contractual obligations established
by the original futures transaction. Other financial futures contracts call for
cash settlements rather than delivery of securities.
If the price of an offsetting futures transaction varies from the price of the
original futures transaction, the hedger will realize a gain or loss
corresponding to the difference. That gain or loss will tend to offset the
unrealized loss or gain on the hedged securities position, but may not always or
completely do so.
The Fund will not enter into any futures contract if, immediately thereafter,
the aggregate initial margin for all existing futures contracts and options
thereon and for premiums paid for related options would exceed 5% of the Fund's
total assets. The Fund will not purchase or sell futures contracts or related
options of immediately thereafter more than one-third of its net assets would be
hedged.
C. Risks and Limitations Involved in Futures Hedging. There are a number of
risks associated with futures hedging. Changes in the price of a futures
contract generally parallel but do not necessarily equal changes in the prices
of the securities being hedged. The risk of imperfect correlation increases as
the composition of the Fund's securities portfolio diverges from the securities
that are the subject of the futures contract. Because the change in the price
of the futures contract may be more or less than the change in the prices of the
underlying securities, even a correct forecast of stock price changes may not
result in a successful hedging transaction. Another risk is that the Investment
Advisor could be incorrect in its expectation as to the direction or extent of
various market trends or the time period within which the trends are to take
place.
The Fund intends to purchase and sell futures contracts only on exchanges where
there appears to be a market in such futures sufficiently active to accommodate
the volume of its trading activity. There can be no assurance that a liquid
market will always exist for any particular contract at any particular time.
Accordingly, there can be no assurance that it will always be possible to close
a futures position when such closing is desired, in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been sold to
hedge portfolio securities, such securities will not be sold until the
offsetting futures contracts can be executed. Similarly, in the event futures
have been bought to hedge anticipated securities purchases, such purchases will
not be executed until the offsetting futures contracts can be sold.
Successful use of futures contracts by the Fund is also subject to the ability
of the Investment Advisor to predict correctly movements in the direction of
interest rates and other factors affecting markets for securities. For example,
if the Fund has hedged against the possibility of an increase in interest rates
that would adversely affect the price of securities in its portfolio and prices
of such securities increase instead, the Fund will lose part or all of the
increased value of its securities because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash to meet daily variation margin requirements, it may have to sell securities
to meet such requirements. Such sale of securities may be, but will not
necessarily be, at increased prices that reflect the rising market. The Fund may
have to sell securities at a time when it is disadvantageous to do so. Where
futures are purchased to hedge against a possible increase in the price of
securities before the Fund is able to invest its cash in an orderly fashion, it
is possible that the market may decline instead; if the Fund is able to invest
its cash in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest in securities at that time
because of concern as to possible further market decline or for other reasons,
the Fund will realize a loss on the futures contract that is not offset by a
reduction in the price of the securities purchased.
<PAGE>
The selling of futures contracts by the Fund and use of related transactions in
options on futures contracts (discussed below) are subject to position limits,
which are affected by the activities of the Investment Advisor.
The hours of trading of futures contracts may not conform to the hours during
which the Fund may trade equity securities. To the extent that the futures
markets close before the equity securities markets, significant price and rate
movements can take place in the equity securities markets that cannot be
reflected in the futures markets.
Pursuant to Rule 4.5 under the Commodity Exchange Act, investment companies
registered under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), are exempted from the definition of "commodity pool operator" in
the Commodity Exchange Act, subject to compliance with certain conditions. The
exemption is conditioned upon a requirement that all of the investment company's
commodity futures transactions constitute bona fide hedging transactions (except
on an unleveraged basis, as described in E. below). With respect to long
positions assumed by the Fund, the Fund will segregate with its custodian, an
amount of cash and other assets permitted by Commodity Futures Trading
Commission (CFTC) regulations equal to the market value of the futures contracts
and thereby insure that the use of futures contracts is unleveraged. The Fund
will use futures in a manner consistent with these requirements.
D. Options on Futures Contracts. The Fund only intends to engage in options on
futures contracts for bona fide hedging purposes in compliance with CFTC
regulations. An option on a futures contract gives the purchaser the right, but
not the obligations, to assume a position in a futures contract (which position
may be a long or short position) at a specified exercise price at any time
during the option exercise period. The writer of the option is required upon
exercise to assume an offsetting futures position (which position may be a long
or short position). Upon exercise of the option, the assumption of offsetting
futures positions by the writer and holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin account that
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract.
The holder or writer of an option may terminate its position by selling or
purchasing an option of the same series. There is no guarantee that such closing
transactions can be effected.
The Fund will be required to deposit initial and variation margin with respect
to put and call options on futures contracts written by it pursuant to the
Fund's futures commissions merchants' requirements similar to those applicable
to the futures contracts themselves, described above.
E. Risks of Futures Transactions. The Fund's successful use of futures
contracts and options thereon depends upon the ability of its Investment Advisor
to predict movements in the stock market and other factors affecting markets
for securities and upon the degree of correlation between the prices of the
futures contracts and the prices of the securities being hedged. As a result,
even a correct forecast of stock price changes may not result in a successful
hedging transaction. Although futures contracts and options thereon may limit
the Fund's exposure to loss, they may also limit the Fund's potential for
capital gains. For example, if the Fund has hedged against the possibility of
decrease in stock prices which would adversely affect the price of
securities in its portfolio and prices of such securities increase instead, the
Fund will lose part or all of the benefit of the increased value of its
securities because it will have offsetting losses in its futures positions.
Although the Fund will enter into futures contracts only where there appears to
be a liquid market, there can be no assurance that such liquidity will always
exist.
F. The Fund also is authorized, subject to the limitations set out in the
Prospectus, to purchase futures contracts on an unleveraged basis, when not
intended as an anticipatory hedge. When a contract is purchased on this basis
the investment company establishes a segregated account, composed of cash and/or
cash equivalents, equal to the total value of the contract (less margin on
deposit). As with other futures trading, these purchases must not be for
speculative purposes.
The ability to engage in these purchases on an unleveraged basis can
significantly decrease transaction costs to the Funds in certain instances. For
example, if an inordinately large deposit should occur on a single day, the
sheer volume of securities purchases required for that day may place the Fund at
a market disadvantage by requiring it to purchase particular securities in such
volume that its own buying activity could cause prices to increase. In
addition, if this deposit had involved 'market-timing' and as a result there
subsequently were an oversized withdrawal, the Fund could again suffer market
disadvantage, this time because the volume of sales could, for the same reason,
force prices of particular securities to decrease. The Fund, by buying a
<PAGE>
futures contract (followed by the appropriate closing transaction) instead of
purchasing securities could achieve considerable savings in transaction costs
without departing from Fund objectives. Furthermore, as stated in (B.) above,
price changes in a futures contract generally parallel price changes in the
securities that the Fund might otherwise have purchased. Thus, purchase of a
futures contract on an unleveraged basis allows the Fund to comply with its
objective while at the same time achieving these lower transaction costs.
<PAGE>
LENDING OF PORTFOLIO SECURITIES
As described in the Prospectus, the Funds may from time to time lend securities
from their portfolios to brokers, dealers and financial institutions and receive
collateral from the borrower, in the form of cash (which may be invested in
short-term securities), U.S. government obligations or certificates of deposit.
Such collateral will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities, and and will be in
the actual or constructive possession of the particular Fund during the term of
the loan. The Fund will maintain the incidents of ownership of the loaned
securities and will continue to be entitled to the interest or dividends payable
on the loaned securities. In addition, the Fund will receive interest on the
amount of the loan. The loans will be terminable by the Fund at any time and
will not be made to any affiliates of the Fund or the Adviser. The Fund may pay
reasonable finder's fees to persons unaffiliated with it in connection with the
arrangement of the loans.
As with any extensions of credit, there are risks of delay in recovery and, in
some cases, even loss of rights in the collateral or the loaned securities
should the borrower of securities fail financially. However, loans of portfolio
securities will be made only to firms deemed by the Adviser to be
creditworthy.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Funds may make short-term investments in repurchase agreements. A repurchase
agreement typically involves the purchase by the Fund of securities (U.S.
government or other money market securities) from a financial institution such
as a bank, broker or savings and loan association, coupled with an agreement by
the seller to repurchase the same securities from the Fund at the specified
price and at a fixed time in the future, usually not more than seven days from
the date of purchase. The difference between the purchase price to the Fund and
the resale price to the seller represents the interest earned by the Fund which
is unrelated to the coupon rate or the maturity of the purchased security. If
the seller defaults, the Fund may incur a loss if the value of the collateral
securing the repurchase agreement declines, or the Fund may incur disposition
costs in connection with liquidating the collateral. If bankruptcy proceedings
are commenced with respect to the seller, realization upon the collateral by the
Fund may be delayed or limited and a loss may be incurred if the collateral
securing the repurchase agreement declines in value during the bankruptcy
proceedings. The Board of Directors of the Fund will evaluate the
creditworthiness of all entities, including banks and broker-dealers, with which
they propose to enter into repurchase agreements. These transactions will be
fully collateralized; and the collateral for each transaction will be in the
actual or constructive possession of the particular Fund during the terms of the
transaction, as provided in the agreement.
In a reverse repurchase agreement, the Fund involved sells a portfolio security
to another party, such as a bank or broker-dealer, in return for cash and agrees
to repurchase the instrument at a particular price and time. While a reverse
repurchase agreement is outstanding, the Fund will maintain cash and appropriate
liquid assets in a segregated custodial account to cover its obligation under
the agreement. The Fund will enter into reverse repurchase agreements only with
parties that the Advisor or Sub-Advisor deems creditworthy. Reverse repurchase
agreements are considered to be borrowing transactions, and thus are subject to
the Fund's limitation to borrowing. Not every Fund is authorized to enter into
reverse repurchase agreements.
CUSTODIAN
All securities, cash and other similar assets of the Bond, Growth and Income,
Managed, Money Market, Social Awareness and Special Opportunities Funds are
currently held in custody by Bankers Trust Company, 14 Wall Street, 4th Floor,
New York, New York 10005. Bankers Trust agreed to act as custodian for each Fund
pursuant to a Custodian Agreement dated June 17, 1985 (March 10, 1986 for the
Social Awareness Fund). These six Funds expect to change custodian to Chase
Manhattan Bank, New York, New York, in mid-1995.
All securities, cash and other similar assets of the Aggressive Growth, Capital
Appreciation, Equity-Income, Global Asset Allocation (formerly Putnam Master)
and International Funds are held in custody by State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02110. State Street agreed
to act as custodian for these Funds pursuant to Custodian Contracts effective
July 21, 1987 for the Global Asset Allocation Fund, April 29, 1991 for the
International Fund, and December 6, 1993 for the other three funds.
Under these Agreements, the respective custodians shall (1) receive and disburse
money; (2) receive and hold securities; (3) transfer, exchange, or deliver
securities; (4) present for payment coupons and other income items, collect
interest and cash dividends received, hold stock dividends, etc.; (5) cause
escrow and deposit
<PAGE>
receipts to be executed; (6) register securities; and (7) deliver to the Funds
proxies, proxy statements, etc.
INDEPENDENT AUDITORS
Each Fund's Board of Directors has engaged Ernst & Young LLP, 2300 Fort Wayne
National Bank Building, Fort Wayne, Indiana 46802, to be the independent
auditors for the Fund. In addition to the audit of the 1994 financial statements
of the Funds, other services provided include review and consultation connected
with filings of annual reports and registration statements with the Securities
and Exchange Commission; consultation on financial accounting and reporting
matters; and meetings with the Audit Committee.
FINANCIAL STATEMENTS
The financial statements for the Funds are incorporated by reference to the
Funds' 1994 Annual Report (see Pages 34-47 for all Funds; and Page 10,
Aggressive Growth Fund; Pages 11-12, Bond Fund; Pages 13-14, Capital
Appreciation Fund; Pages 14-16, Equity-Income Fund; Pages 24-30, Global Asset
Allocation Fund; Pages 17-18, Growth and Income Fund; Pages 18-20, International
Fund; Pages 20-23, Managed Fund; Page 23, Money Market Fund; Pages 30-31, Social
Awareness Fund; and Pages 31-33, Special Opportunities Fund). We will provide a
copy of the Annual Report on request and without charge. Please write or call
Eric Jones, The Lincoln National Life Insurance Company, P.O. Box 2340, Fort
Wayne, Indiana 46801; telephone: 1-800-1212, Extension 6536.
BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bonds which are rated Aaa are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments are
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
<PAGE>
STANDARD & POOR'S CORPORATION
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas these bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay principal and interest than
for bonds in the A category and higher.
BB-B-CCC-CC--Bonds rated BB,B,CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.
Moody's Commercial Paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime 1--Highest Quality; Prime 2--Higher Quality; Prime 3--High Quality. (The
Fund will not invest in commercial paper rated Prime 3).
STANDARD & POOR'S CORPORATION
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The Fund will invest in commercial paper rated in the "A" Categories,
as follows:
A Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designation 1, 2, and 3 to indicate the relative degree of safety. (The Fund
will not invest in commercial paper rated A-3).
A--1 This designation indicates that the degree of safety regarding timely
payment is very strong.
A--2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not overwhelming as for issues
designated A-1.
U.S. GOVERNMENT OBLIGATIONS
Securities issued or guaranteed as to principal and interest by the U.S.
government include a variety of Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury bills have a maturity
of one year or less. Treasury notes have maturities of one to seven years and
Treasury bonds generally have a maturity of greater than five years.
Various agencies of the U.S. government issue obligations. Some of these
securities are supported by the full faith and credit of the U.S. Treasury (for
example those issued by Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Government National Mortgage
association, Maritime Administration, Small Business Administration and The
Tennessee Valley Authority). Obligations of instrumentalities of the U.S.
government are supported by the right of the issuer to borrow from the Treasury
(for example, those issued by Federal Farm Credit Banks, Federal Home Loan Bank,
Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks,
Federal Land Bank and the U.S. Postal Service).
<PAGE>
Obligations supported by the credit of the instrumentality include securities
issued by government sponsored corporations whose stock is publicly held (for
example, the Federal National Mortgage Association, and the Student Loan
Marketing Association).
TAXES
Each Fund intends to qualify and has elected to be taxed as a "regulated
investment company" under certain provisions of the Internal Revenue Code of
1986, as amended (the "Code"). If a Fund qualifies as a "regulated investment
company" and complies with the provisions of the Code relieving regulated
investment companies which distribute substantially all of their net income
(both net ordinary income and net capital gain) from Federal income tax, it will
be relieved from such tax on the part of its net ordinary income and net
realized capital gain which it distributes to its shareholders. To qualify for
treatment as a "regulated investment company," each Fund must, among other
things, derive in each taxable year at least 90 percent of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock or securities or foreign currencies
(subject to the authority of the Secretary of the Treasury to exclude foreign
currency gains which are not directly related to the Fund's principal business
of investing in stock or securities or options and futures with respect to such
stock or securities), or other income (including but not limited to gains from
options, futures, or forward contracts) derived with respect to its investing in
such stock, securities, or currencies. In addition to qualify as a "regulated
investment company" each Fund must derive less than 30% of its gross income from
the sale or other disposition of securities held for less than three months. In
order to meet these requirements, a Fund may be required to defer disposing of
certain futures contracts and underlying securities beyond the time when it
might otherwise be advantageous to do so. Specifically, these requirements may
limit a Fund's ability to (a) sell securities held for less than three months;
(b) effect closing transactions on futures contracts entered into less than
three months previously; (c) enter into futures contracts for a period of less
than three months; and (d) enter into futures contracts on securities held for
less than the long-term capital gains holding period. Further, for purposes of
the 30% test, increases (and decreases) in the value of positions that are part
of a "designated hedge" (as defined in the Code) are netted.
The Federal tax laws impose a four percent nondeductible excise tax on each
regulated investment company with respect to an amount, if any, by which such
company does not meet distribution requirements specified in such tax laws,
unless certain exceptions apply. Each Fund intends to comply with such
distribution requirements or qualify under one or more exceptions, and thus does
not except to incur the four percent nondeductible excise tax.
Since the sole shareholder of each Fund will be LNL, no discussion is stated
herein as to Federal income tax consequences at the shareholder level.
The discussion of Federal income tax considerations in the Prospectus, in
conjunction with the foregoing, is a general and abbreviated summary of the
applicable provisions of the Code and Treasury Regulations currently in effect
as interpreted by the Courts and the Internal Revenue Service. These
interpretations can be changed at any time. The above discussion covers only
Federal tax considerations with respect to the Fund. State and local taxes vary.
STATE REQUIREMENTS
The California Department of Insurance has established the following Guidelines
for an underlying portfolio of a Separate Account. The Funds intend to comply
with these Guidelines:
BORROWING
The borrowing limits for any variable contract separate account portfolio are
(1) 10% of net asset value when borrowing for any general purpose and (2) 25% of
net asset value when borrowing as a temporary measure to facilitate redemptions.
Net asset value of a portfolio is the market value of all investments or assets
owned less outstanding liabilities of the portfolio at the time that any new or
additional borrowing is undertaken.
FOREIGN INVESTMENTS--DIVERSIFICATION
The foreign country diversification guidelines to be followed by the Funds are
as follows:
1. A Portfolio will be invested in a minimum of five different foreign
countries at all times. However, this
<PAGE>
minimum is reduced to four when foreign country investments comprise less than
80% of the Portfolio's net asset value; to three when less than 60% of such
value; to two when less than 40%; and to one when less than 20%.
2. Except as set forth in items 3 and 4 below, a Portfolio will have no more
than 20% of its net asset value invested in securities of issuers located in any
one country.
3. A Portfolio may have an additional 15% of its value invested in securities
of issuers located in any one of the following countries: Australia, Canada,
France, Japan, the United Kingdom or West Germany.
4. A Portfolio's investments in United States issuers are not subject to the
foreign country diversification guidelines.
DERIVATIVE TRANSACTIONS - DEFINITIONS
The Prospectus for each Fund and the uniform Appendix for the Prospectus booklet
discuss the type of Derivative Transactions in which the Funds may engage and
the risks typically associated with many Derivative transactions. Here are some
definitions for the derivatives listed in the Appendix:
OPTION: a contract which gives the Fund the right, but not the obligation,
to buy or sell specified securities at a fixed price before or at a designated
future date. If the Contract allows the Fund to buy securities, it is a call
option; if to sell, it is a put option. It is common practice in options
trading to terminate an outstanding option contract by entering into an
offsetting transaction known as a 'closing transaction;, as a result of which
the Fund would either pay out or receive a cash settlement. This is discuss
below.
CURRENCY OPTION: Discussed below.
FIXED INCOME OPTION: one based on a fixed-income security, such as a
corporate or government bond.
INDEXED OPTION: one based on the value of an index which measures the
fluctuating value of a 'basket' of pre-selected securities.
STOCK (EQUITY) OPTION: one based on the shares of stock of a particular
company.
OPTION ON A FUTURES CONTRACT: Discussed below.
SWAP: a financial transaction in which the Fund and another party agree to
exchange streams of payments at periodic intervals under a predetermined set of
occurrences related to the price, level, performance or value of one or more
underlying securities, and pegged to a reference amount known as the 'notional
amount'. A swap is normally used to change the market risk associated with a
loan or bond borrowing from one interest rate base (fixed term or floating rate)
or currency of one denomination to another.
EQUITY SWAP: one which allows the Fund to exchange the rate of return
(or some portion of the rate) on its portfolio stocks (an individual
share, a basket or index) for the rate of return on another equity or
non-equity investment.
INTEREST RATE SWAP: one in which the Fund and another party exchange
different types of interest payment streams, pegged to an underlying
notional principal amount. The three main types of interest rate swaps
are coupon swaps (fixed rate to floating rate in the same currency);
basis swaps (one floating rate index to another floating rate index in
the same currency); and cross-currency interest rate swaps (fixed rate
in one currency to floating rate in another).
RELATED TRANSACTIONS TO INTEREST RATE SWAPS:
a. CAP: A contract for which the buyer pays a fee, or premium, to
obtain protection against a rise in a particular interest rate
above a certain level. For example, an interest rate cap may cover
a specified principal amount of a loan over a designated time
period, such as a calendar quarter. If the covered interest rate
rises above the rate ceiling, the seller of the rate cap pays the
purchaser an amount of money equal to the average rate
differential times the principal amount times one-quarter.
b. FLOOR: a contract in which the seller agrees to pay to the
purchaser, in return for the
<PAGE>
payment of a premium, the difference between current interest rates
and an agreed (strike) rate times the notional amount, should
interest rates fall below the agreed level (the 'floor'). A floor
contract has the effect of a string of interest rate guarantees.
c. COLLAR: an agreement to simultaneously purchase a cap and sell
a floor, in order to maintain interest rates within a defined range.
The premium income from the sale of the floor reduces or offsets the
cost of buying the cap.
d. CORRIDOR: an agreement to buy a cap at one interest rate and
sell a cap at a higher rate.
SWAPTION: an option to enter into, extend, or cancel a swap.
FUTURES CONTRACT: a contract which commits the Fund to buy or sell a specified
amount of a financial instrument at a fixed price on a fixed date in the future.
Futures contracts are normally traded on an exchange and their terms are
standardized, which makes it easier to buy and sell them.
INTEREST RATE FUTURES (AND OPTIONS ON THEM): futures contracts pegged to
U.S. and foreign fixed-income securities, debt indices and reference
rates.
STOCK INDEX FUTURES. futures contracts based on an index of pre-selected
stocks, with prices based on a composite of the changes to the prices of
the individual securities in the index (e.g., S&P 500).
OPTION ON A FUTURES CONTRACT: an option taken on a futures position.
FORWARD CONTRACT: an over-the-counter, individually-tailored futures contract.
FORWARD RATE AGREEMENT (FRA): a contract in which the Fund and another
party agree on the interest rate to be paid on a notional deposit of
specified maturity at a specific future time. Normally, no exchange of
principal is involved; the difference between the contracted rate and the
prevailing rate is settled in cash.
CURRENCY CONTRACT: a contract entered into for the purpose of reducing or
eliminating an anticipated rise or drop in currency exchange rates over time.
CURRENCY FUTURES: futures contracts on foreign currencies. Used to hedge
the purchase or sale of foreign securities.
CURRENCY OPTION: an option taken on foreign currency.
CURRENCY SWAP; a swap involving the exchange of cash flows and principal
in one currency for those in another, with an agreement to reverse the
principal swap at a future date.
CROSS-CURRENCY INTEREST RATE SWAP: a swap involving the exchange of
streams of interest rate payments (but not necessarily principal payments)
in different currencies and often on different interest bases (e.g., fixed
Deutsche Mark against floating dollar, but also fixed Deutsche Mark
against fixed dollar).
CURRENCY FORWARD CONTRACT: a contract to 'lock in' a currency rate at a
future date, to eliminate risk of currency fluctuation when the time comes
to convert from one currency to another.
<PAGE>
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a) Financial Statements:
(1) Part A.
------
The financial highlights of Lincoln National Money Market Fund,
Inc. (the Fund) for the years ended December 31, 1994, 1993,
1992, 1991, 1990, 1989, 1988, 1987, 1986 and 1985 are
incorporated by reference to Pages 45-47 of the Fund's 1994
Annual Report.
Part B.
------
The following financial statements of the Fund are incorporated
by reference to Pages 23, 34-44 and 47 of the Fund's 1994 Annual
Report:
- Statement of Net Assets -- December 31, 1994
- Statement of Operations -- Year Ended December 31,1994
- Statements of Changes in Net Assets -- Years Ended December 31, 1994
and 1993
- Notes to Financial Statements -- December 31, 1994
In total, only pages 23 and 34-47 of the Fund's 1994 Annual Report are
incorporated by reference into this Registration Statement. No other pages
of that Report are incorporated by reference.
(2) Schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions, are inapplicable, or the
required information is included in the financial statements, and
therefore have been omitted.
b) Exhibits:
11 - Consent of Ernst & Young LLP, Independent Auditors
17 - Memorandum Concerning Books and Records
<PAGE>
Item 24. Financial Statements and Exhibits (Continued)
We have no changes to report to Exhibits 1-10 and 12-16. These exhibits are
incorporated by reference to the Registration Statement (File Nos. 2-72957
and 2-80743) including all amendments and/or post-effective amendments.
Item 25. Persons Controlled by or Under Common Control with
Registrant
See "Management of the Fund", "Purchase of Securities Being Offered", and
"Description of Shares" in the Prospectus forming Part A of this
Registration Statement and "Investment Adviser..." in the Statement of
Additional Information forming Part B of this Registration Statement. As of
the date of this Post-Effective Amendment, The Lincoln National Life
Insurance Company (Lincoln Life), for its Variable Annuity Account C and
Variable Life Accounts D and K, is the sole shareholder in the Fund.
Item 26. Number of Holders of Securities
As of April 1, 1995, there was one record holder of common stock, $.01 par
value per share.
Item 27. Indemnification
See prior filings.
Item 28. Business and Other Connections of Investment Adviser
See "Management of the Fund" in the Prospectus and "Investment Adviser..."
in the Statement of Additional Information.
As of April 4, 1995, the officers and/or directors of the Investment
Adviser held the following positions:
<PAGE>
<TABLE>
<CAPTION>
Position, Other Substantial Business
Investment Profession, Vocation or
Name Adviser Employment; Address
---- ---------- --------------------------
<S> <C> <C>
David A. Berry Vice President Vice President, Lincoln Advisor
Funds, Inc., Lincoln National
Income Fund, Inc. and Lincoln
National Convertible Securities
Fund, Inc., 200 East Berry
Street, Fort Wayne, Indiana,
46802
JoAnn E. Becker Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
Dennis A. Blume Senior Vice President Senior Vice President and
(formerly Executive Director, Lincoln National
Vice President) Realty Corporation; Vice
and Director President, Lincoln Advisor
Funds, Inc., 200 East Berry
Street, Fort Wayne, Indiana,
46802
Anne E. Bookwalter Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46805
Philip C. Byrde Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
Steven R. Brody Executive Vice Director, Lincoln National
President (formerly Realty Corporation; Vice
Senior Vice President) President, The Lincoln
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
and Assistant Treasurer National Life Insurance Company,
and Lincoln Advisor Funds, Inc.,
200 East Berry Street, Fort
Wayne, Indiana, 46802
Patrick R. Chasey Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
Garrett W. Cooper Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
David C. Fischer Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
Luc N. Girard Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
Donald P. Groover Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
William N. Holm, Jr. Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
Jennifer C. Hom Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Position, Other Substantial Business
Investment Profession, Vocation or
Name Adviser Employment; Address
---- ---------- --------------------------
<S> <C> <C>
John A. Kellogg Vice President Vice President, Lincoln National
Realty Corporation, 200 East
Berry Street, Fort Wayne,
Indiana, 46802
Timothy H. Kilfoil Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
Lawrence T. Kissko Senior Vice President Vice President and Director,
Lincoln National Realty
Corporation; Vice President, The
Lincoln National Life Insurance
Company, 200 East Berry Street,
Fort Wayne, Indiana, 46802
Walter M. Korinke Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
Lawrence M. Lee Vice President Vice President, Lincoln National
(formerly Second Realty Corporation, 200 East
Vice President) Berry Street, Fort Wayne,
Indiana, 46802
Thomas A. McAvity, Jr. Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
H. Thomas McMeekin President and Senior Vice President, Lincoln
Director (formerly National Corporation, 200 East
Executive Vice Berry Street, Fort Wayne,
President, and Senior Indiana 46802
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Vice President)
John David Moore Vice President 200 East Berry Street, Fort
Wayne, Indiana 46802
Oliver H. G. Nichols Senior Vice President Senior Vice President, Lincoln
National Realty Corporation, 200
East Berry Street, Fort Wayne,
Indiana, 46802
David C. Patch Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
Joseph T. Pusateri Vice President Vice President, Lincoln National
Realty Corporation, 200 East
Berry Street, Fort Wayne,
Indiana, 46802
Gregory E. Reed Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Position, Other Substantial Business
Investment Profession, Vocation or
Name Adviser Employment; Address
---- --------- --------------------------
<S> <C> <C>
Max A. Roesler Executive Vice Vice President and Treasurer,
President and Treasurer Lincoln National Aggressive
Growth Fund, Inc., Lincoln
National Bond Fund, Inc.;
Lincoln National Capital
Appreciation Fund, Inc.; Lincoln
National Corporation; Lincoln
National Equity-Income Fund,
Inc.; Lincoln National Growth
Fund, Inc.; Lincoln National
International Fund, Inc.; The
Lincoln National Life Insurance
Company; Lincoln National
Managed Fund, Inc.; Lincoln
National Money Market
Fund, Inc.; Lincoln National
Special Opportunities Fund,
Inc.; Lincoln National Variable
Annuity Funds A and B; Lincoln
National Putnam Master Fund,
Inc.; and Lincoln National
Social Awareness Fund, Inc.,
1300 South Clinton Street, Fort
Wayne, Indiana 46802
Bill L. Sanders Vice President Vice President, The Lincoln
National Life Insurance Company,
200 East Berry Street, Fort
Wayne, Indiana, 46802
Roy D. Shimer Vice President 200 East Berry Street, Fort
Wayne, Indiana, 46802
Gerald M. Weiss Vice President 200 East Berry Street, Fort
(formerly Second Wayne, Indiana, 46802
Vice President)
C. Suzanne Womack Secretary Vice President and Assistant
Secretary, Lincoln National
Corporation and The Lincoln
National Life Insurance Company;
Secretary, Lincoln Advisor
Funds, Inc.; Lincoln National
Aggressive Growth Fund, Inc.;
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Lincoln National Capital
Appreciation Fund, Inc; Lincoln
National Equity-Income Fund,
Inc.; Lincoln National Growth
Fund, Inc.; Lincoln National
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Position, Other Substantial Business
Investment Profession, Vocation or
Name Adviser Employment; Address
---- --------- -------------------------
<S> <C> <C>
C. Suzanne Womack (Con't) International Fund, Inc.;
Lincoln National Managed Fund,
Inc.; Lincoln National Money
Market Fund, Inc.; Lincoln
National Putnam Master Fund;
Lincoln National Social
Awareness Fund, Inc.; Lincoln
National Special Opportunities
Fund, Inc.; Lincoln National
Variable Annuity Fund A; Lincoln
National Variable Annuity Fund
B, 200 East Berry Street, Fort
Wayne, Indiana, 46802
</TABLE>
<PAGE>
Item 29. Principal Underwriters
Not applicable.
Item 30. Location of Accounts and Records
See Exhibit 17
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a)-(d) See prior filings.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to be signed on its behalf by the undersigned thereunto duly authorized in the
City of Fort Wayne, and State of Indiana, on the 28th day of April, 1995.
LINCOLN NATIONAL MONEY
MARKET FUND, INC.
By: /S/ KELLY D. CLEVENGER
------------------------
Kelly D. Clevenger,
Chairman of the Board and
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/ KELLY D. CLEVENGER Chairman of the Board 4/28/95
- ---------------------------- and President
Kelly D. Clevenger (Principal Executive
Officer)
*/S/ JOHN B. BORSCH, JR. Director 4/28/95
- ----------------------------
John B. Borsch, Jr.
***/S/ BARBARA S. KOWALCZYK Director 4/28/95
- ----------------------------
Barbara S. Kowalczyk
**/S/ NANCY L. FRISBY Director 4/28/95
- ----------------------------
Nancy L. Frisby
*/S/ STANLEY R. NELSON Director 4/28/95
- ----------------------------
Stanley R. Nelson
/S/ LANTZ M. MINTCH Chief Accounting 4/28/95
- ---------------------------- Officer
Lantz M. Mintch
/S/ MAX A. ROESLER Vice President and 4/28/95
- ---------------------------- Treasurer (Principal
Max A. Roesler Financial Officer)
*By /S/ JOHN L. STEINKAMP pursuant to Power of Attorney filed with Post-
------------------------ Effective Amendment No. 2 to the Resistration
John L. Steinkamp Statement on Form N-1A.
**By /S/ JEREMY SACHS pursuant to a Power of Attorney filed with Post
---------------------- Effective Amendment No. 13 to this Registration
Jeremy Sachs Statement.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
***By /S/ JEREMY SACHS pursuant to a Power of Attorney filed with
----------------------- Post-Effective Amendment No. 14 to the
Jeremy Sachs Registration Statement.
</TABLE>
<PAGE>
Exhibit Index to Form N-1A
--------------------------
Exhibit Number Description
- -------------- -----------
11 Consent of Ernst & Young LLP, Independent Auditors
17 Memorandum Concerning
Books and Records
<PAGE>
EXHIBIT 11
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
in the Registration Statement (Form N-1A No. 2-80743) and related Statement of
Additional Information of Lincoln National Money Market Fund, Inc. dated
April 29, 1995 and to the incorporation by reference therein of our report dated
January 24, 1995, with respect to the financial statements of Lincoln National
Money Market Fund, Inc. included in its Annual Report for the year ended
December 31, 1994, included as Item 24(a) to this Registration Statement.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
April 24, 1995
<PAGE>
BOOKS AND RECORDS
LINCOLN NATIONAL MONEY MARKET FUND, INC.
RULES UNDER SECTION 31 OF THE INVESTMENT COMPANY ACT OF 1940
Records to Be Maintained by Registered Investment Companies, Certain
Majority-Owned Subsidiaries Thereof, and Other Persons Having
Transactions with Registered Investment Companies.
Reg. 270.31a-1. (a) Every registered investment company, and every
underwriter, broker, dealer, or investment advisor which is a majority-owned
subsidiary of such a company, shall maintain and keep current the accounts,
books, and other documents relating to its business which constitute the record
forming the basis for financial statements required to be filed pursuant to
Section 30 of the Investment Company Act of 1940 and of the auditor's
certificates relating thereto.
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Annual Reports Controllers Eric Jones Permanently, the first two
To Shareholders years in an easily accessible
place
Semi-Annual Controllers Eric Jones Permanently, the first two
Reports years in an easily accessible
place
Form N-SAR Controllers Eric Jones Permanently, the first two
years in an easily accessible
place
(b) Every registered investment company shall maintain and keep current the
following books, accounts, and other documents:
Type of Record
- --------------
(1) Journals (or other records of original entry) containing an itemized daily
record in detail of all purchases and sales of securities (including sales and
redemptions of its own securities), all receipts and deliveries of securities
(including certificate numbers if such detail is not recorded by custodian or
transfer agent), all receipts and disbursements of cash and all other debits and
credits. Such records shall show for each such transaction the name and quantity
of securities, the unit and aggregate purchase or sale price, commission paid,
the market on which effected, the trade date, the settlement date, and the name
of the person through or from whom purchased or received or to whom sold or
delivered.
Purchases and Sales Journals
- ----------------------------
Daily reports LNIMC Gretchen Zehr Permanently, the first two
of securities years in an easily accessible
transactions place
Portfolio Securities
- --------------------
Not Applicable.
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Receipts and Deliveries of Securities (units)
- ---------------------------------------------
Not Applicable.
Portfolio Securities
- --------------------
Debit and Investment Gretchen Zehr Permanently, the first two
Credit Advices Admin. years in an easily accessible
from Bankers place
Trust Company
Receipts and Disbursements of Cash and other Debits and Credits
- ---------------------------------------------------------------
Daily Journals LNIMC Gretchen Zehr Permanently, the first two
years in an easily accessible
place
(2) General and auxiliary ledgers (or other record) reflecting all asset,
liability, reserve, capital, income and expense accounts, including:
(i) Separate ledger accounts (or other records) reflecting the
following:
(a) Securities in transfer;
(b) Securities in physical possession;
(c) Securities borrowed and securities loaned;
(d) Monies borrowed and monies loaned (together with a
record of the collateral therefore and substitutions in
such collateral);
(e) Dividends and interest received;
(f) Dividends receivable and interest accrued.
Instructions. (a) and (b) shall be stated in terms of securities quantities
only; (c) and (d) shall be stated in dollar amounts and securities quantities as
appropriate; (e) and (f) shall be stated in dollar amounts only.
General Ledger
- --------------
General Ledger Controllers Eric Jones Permanently, the first two
years in an easily accessible
place
Separate Leddger Accounts
-------------------------
Securities in Transfer
- ----------------------
Bank Advices Investment Gretchen Zehr Permanently, the first two
Admin. years in an easily accessible
place
Notification Treasurers- Ken Hobson Permanently, the first two
of Securities Sec. Custody years in an easily accessible
Transactions. place
(Original
records
maintained by
custodian
bank.)
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Securities in Physical Possession
- ---------------------------------
Securities Treasurers- Ken Hobson Permanently, the first two
Ledger Sec. Custody years in an easily accessible
(Portfolio place
report avail-
able on request
from Bankers
Trust Company-
Keeper of
original
records).
Monthly Securities Nate Wagley Permanently, the first two
Portfolio Compliance years in an easily accessible
Listings place
Securities Borrowed and Loaned
- ------------------------------
Not Applicable.
Monies Borrowed and Loaned
- --------------------------
Not Applicable.
Interest Received
- -----------------
Interest File Investment Gretchen Zehr Permanently, the first two
Accrual Admin. years in an easily accessible
Activity place
Journal
Interest Accrued
- ----------------
Investment Investment Gretchen Zehr Permanently, the first two
Journal Admin. years in an easily accessible
place
Interest File Investment Gretchen Zehr Permanently, the first two
Accrual Admin. years in an easily accessible
Activity place
Journal
(ii) Separate ledger accounts (or other records) for each portfolio security,
showing (as of trade dates), (a) the quantity and unit and aggregate price for
each purchase, sale, receipt, and delivery of securities and commodities for
such accounts, and (b) all other debits and credits for such accounts.
Securities positions and money balances in such ledger accounts (or other
records) shall be brought forward periodically but not less frequently than at
the end of fiscal quarters. Any portfolio security, the salability of which is
conditioned, shall be so noted. A memorandum record shall be available setting
forth, with respect to each portfolio security accounts, the amount and
declaration, ex-dividend, and payment dates of each dividend declared thereon.
Ledger Account for each portfolio Security
- ------------------------------------------
Inventory Investment Gretchen Zehr Permanently, the first two
(on line) Admin. years in an easily accessible
place
<PAGE>
(iii) Separate ledger accounts (or other records) for each broker-dealer, bank
or other person with or through which transactions in portfolio securities are
affected, showing each purchase or sale of securities with or through such
persons, including details as to the date of the purchase or sale, the quantity
and unit and aggregate prices of such securities, and the commissions or other
compensation paid to such persons. Purchases or sales effected during the same
day at the same price may be aggregated.
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Not Applicable.
(iv) Separate ledger accounts (or other records), which may be maintained by a
transfer agent or registrar, showing for each shareholder of record of the
investment company the number of shares of capital stock of the company held,
in respect of share accumulation accounts (arising from periodic investment
plans, dividend reinvestment plans, deposit of issued shares by the owner
thereof, etc.), details shall be available as to the dates and number of shares
of each accumulation, and except with respect to already issued shares deposited
by the owner thereof, prices of each such accumulation.
Shareholder Accounts
- --------------------
Maintained by Controllers Eric Jones Permanently, the first two
Annuities years in an easily accessible
Division place
(3) A securities record or ledger reflecting separately for each portfolio
security as of trade date all "long" and "short" positions carried by the
investment company for its own account and showing the location of all
securities long and the off-setting position of all securities short. The record
called for by this paragraph shall not be required in circumstances under which
all portfolio securities are maintained by a bank or banks or a member or
members of a national securities exchange as custodian under a custody agreement
or as agent for such custodian.
Securities Position Record
- --------------------------
Maintained by Bankers William P. Kelly Permanently, the first two
Custodian of Trust years in an easily accessible
Securities Company place
(4) Corporate charters, certificates of incorporation or trust agreements, and
bylaws, and minute books of stockholders' and directors' or trustees' meetings;
and minute books of directors' or trustees' committee and advisory board or
advisory committee meetings.
Corporate Documents
- -------------------
Corporate Executive- Sue Womack Permanently, the first two
charter, cer- Corp. Secy. years in an easily accessible
tificate of place
incorporation.
Bylaws and Corp. Secy. Sue Womack
minute books.
<PAGE>
(5) A record of each brokerage order given by or in behalf of the investment
company for, or in connection with, the purchase or sale of securities, whether
executed or unexecuted. Such record shall include the name of the broker, the
terms and conditions of the order and of any modification or cancellation
thereof, the time of entry or cancellation, the price at which executed, and the
time of receipt of report of execution. The record shall indicate the name of
the person who placed the order in behalf of the investment company.
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Sales Order or LNIMC Pat Roller Six years, the first two
Purchase Order years in an easily accessible
place
(6) A record of all other portfolio purchase or sales showing details comparable
to those prescribed in paragraph 5 above.
Short-Term Investments
- ----------------------
Notification Investment Gretchen Zehr Six years, the first two
Form (From AOS Admin. years in an easily accessible
trading system) place
Bank Advices Investment Gretchen Zehr Six years, the first two
Admin. years in an easily accessible
place
Issuer Investment Gretchen Zehr Six years, the first two
Confirmation Admin. years in an easily accessible
place
(7) A record of all puts, calls, spreads, straddles, and other options in which
the investment company has any direct or indirect interest or which the
investment company has granted or guaranteed; and a record of any contractual
commitments to purchase, sell, receive or deliver securities or other property
(but not including open orders placed with broker-dealers for the purchase or
sale of securities, which may be cancelled by the company on notices without
penalty or cost of any kind); containing at least an identification of the
security, the number of units involved, the option price, the date of maturity,
the date of issuance, and the person to whom issued.
Record of Puts, Calls, Spreads, Etc.
- ------------------------------------
Not Applicable.
(8) A record of the proof of money balances in all ledger accounts (except
shareholder accounts), in the form of trial balances. Such trial balances shall
be prepared currently at least once a month.
Trial Balance
- -------------
General Ledger Controllers Eric Jones Permanently, the first two
years in an easily accessible
place
<PAGE>
(9) A record for each fiscal quarter, which shall be completed within 10 days
after the end of such quarter, showing specifically the basis or bases upon
which the allocation of orders for the purchase and sale of portfolio securities
to named brokers or dealers and the division of brokerage commissions or other
compensation on such purchase and sale orders among named persons were made
during such quarter. The record shall indicate the consideration given to (a)
sales of shares of the investment company by brokers or dealers, (b) the
supplying of services or benefits by brokers or dealers to the investment
company, its investment advisor or principal underwriter or any persons
affiliated therewith, and (c) any other considerations other than the technical
qualifications of the brokers and the dealers as such. The record shall show the
nature of their services or benefits made available, and shall describe in
detail the application of any general or specific formula or other determinant
used in arriving at such allocation of purchase and sales orders and such
division of brokerage commissions or other compensation. The record shall also
include the identity of the person responsible for the determination of such
allocation and such division of brokerage commissions or other compensation.
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Brokerage Securities Nate Wagley Six years, the first two
Allocation Compliance years in an easily accessible
place
(10) A record in the form of an appropriate memorandum identifying the person or
persons, committees, or groups authorizing the purchase or sale of portfolio
securities. Where an authorization is made by a committee or group, a record
shall be kept in the names of its members who participated in the authorization.
There shall be retained a part of the record required by this paragraph any
memorandum, recommendation, or instruction supporting or authorizing the
purchase or sale of portfolio securities. The requirements of this paragraph are
applicable to the extent they are not met by compliance with the requirements of
paragraph 4 of this Rule 31a1(b).
Trading LNIMC Pat Roller Six years, the first two
Authorization years in an easily accessible
place
Advisory Law Division Diane Mierau Six years, the first two
Agreements years in an easily accessible
place
(11) Files of all advisory material received from the investment advisor, any
advisory board or advisory committee, or any other persons from whom the
investment company accepts investment advice publications distributed generally.
Issuer Folders LNIMC Pat Roller Six years, the first two
years in an easily accessible
place
(12) The term "other records" as used in the expressions "journals (or other
records of original entry)" and "ledger accounts (or other records)" shall be
construed to include, where appropriate, copies of voucher checks,
confirmations, or similar documents which reflect the information required by
the applicable rule or rules in appropriate sequence and in permanent form,
including similar records developed by the use of automatic data processing
systems.
Correspondence LNIMC Gretchen Zehr Six years, the first two
years in an easily accessible
place
<PAGE>
LN-Record Location Person to Contact Retention
- --------- -------- ----------------- ---------
Pricing Sheets Controllers Eric Jones Permanently, the first two
years in an easily accessible
place
Bank State- Treasurers- Rusty Summers Six years, the first two
ments, Bank years in an easily accessible
Cancelled Accounts place
Checks and
Cash Recon-
ciliations
February 15, 1995
