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PROSPECTUS AND APPENDIX
This document is incorporated by reference to Post-Effective Amendment No. 15,
Registration Number 2-80743 filed on Form N-1A on April 30, 1995.
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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.
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TABLE OF CONTENTS
Page
Investment Objective 2
Investment Policies and Techniques 2
Calculation of Yield 3
Investment Restrictions 3
Portfolio Transactions 3
Appendix
Investment Advisor A-1
Directors and Officers A-2
Investment Policies and Techniques (Continued)
Options, Futures, Securities Lending, Repurchase and
Reverse Repurchase Agreements A-2
Custodian A-2
Independent Auditors A-6
Financial Statements A-7
Bond Ratings A-7
Commercial Paper Ratings A-8
U.S. Government Obligations A-8
Taxes A-8
State Requirements A-9
Derivative Transactions - Definitions A-9
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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,
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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
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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
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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.
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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 advisor (the Advisor) places orders for all purchases and
sales of portfolio securities. The Advisor 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 Advisor 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 Advisor 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
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one dealer are comparable, the Advisor 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 Advisor acts as adviser. Portfolio securities are not
purchased from or sold to the Advisor or any affiliated person (as defined in
the Act) of the Advisor. The Advisor currently provides investment advice to a
number of other clients. See Investment Advisor, in the Appendix. It will be the
practice of the Advisor 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.
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STATEMENT OF ADDITIONAL INFORMATION APPENDIX
This document is incorporated by reference to Post-Effective Amendment No. 15,
Registration Number 2-80743 filed on Form N-1A on April 30, 1995.
