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PROSPECTUS AND APPENDIX
This document is incorporated by reference to Post-Effective Amendment No. 14,
Registration Number 2-82276 filed on Form N-1A on April 30, 1995.
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STATEMENT OF ADDITIONAL INFORMATION
LINCOLN NATIONAL MANAGED FUND, INC.
This Statement of Additional Information should be read in conjunction with the
Prospectus of Lincoln National Managed 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.
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THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
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The date of this Statement of Additional Information is April 29, 1995.
TABLE OF CONTENTS
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Page
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Investment Objective 2
Investment Policies 2
Investment Restrictions 3
Portfolio Transactions and Brokerage 4
Determination of Net Asset Value 5
Appendix
Investment Advisor and Sub-Advisor A-1
Directors and Officers A-2
Investment Policies and Techniques (continued) A-2
Options, Futures, Securities Lending, Repurchase and
Reverse Repurchase Agreements
Custodian A-6
Independent Auditors A-7
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 long-term total return (capital
gains plus income) consistent with prudent investment strategy. The Fund's
investment objective and policies 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 objective of the Fund will be achieved.
This Fund attempts to minimize the risk associated with different investment
sectors (i.e., money market, bond market and stock market) by maintaining some
balance among these various media. The Fund's investment adviser (the Adviser)
commits the funds to investment-grade securities in
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the various sectors based on periodic reassessment of the opportunities in the
different areas. A principal risk in this kind of investing involves the
allocation of assets among the various sectors. Adverse market fluctuations
could result if the Adviser's decisions with regard to asset allocation are
inappropriately timed.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in money market
instruments, bond and other debt securities, and common stock and other equity
securities. (See Description of the Fund and Investment Policies, in the
Prospectus.)
In addition, the Fund may write (sell) and purchase options and invest in
futures contracts and options thereon. These techniques are briefly explained
below. A more detailed description of put and call options and futures contracts
and options thereon appears in the Appendix.
OPTIONS TRADING
The Fund may write (sell) put and covered call options and purchase covered put
options for stock and stock indices and to write and purchase options to close
out positions previously entered into by the Fund; provided, that the aggregate
cost of all outstanding options would not exceed 30% of the Fund's total assets,
although the ultimate loss to the fund from Options could be substantially
greater than 30%. The Fund will only write and purchase options in standard
contracts which may be quoted on NASDAQ or traded on the national securities
exchanges.
Put and call options are generally short-term contracts with durations of nine
months or less. The Investment Adviser will generally write covered call options
when it anticipates declines in the market value of 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
Adviser;'a 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. See the Appendix for a more complete description of
put and call options and the risks involved.
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
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market value of the loaned securities, and and will be in the actual or
constructive possession of the 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 AGREEMENTS
The Fund 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 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.
FUTURES CONTRACTS AND OPTIONS THEREON
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 Adviser
anticipates declining security prices. Similarly, if security prices are
expected to rise, the Fund may purchase a futures
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contract or a call option thereon. (For certain limited purposes, 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 for 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. See the Appendix for a more
complete discussion of the use of futures contracts and options thereon as well
as the risks related thereto.
INVESTMENT RESTRICTIONS
In addition to the investment restrictions listed in the 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.
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.
2. Invest in the securities of any one issuer unless at least 75% of the
value of the Fund's total assets is represented by: (a) U.S. government
obligations, cash and cash items, (b) securities of other investment
companies, and (c) securities of issuers as to each of which, at the time
the investment was made, the Fund's investment in the issuer did not
exceed 5% of the Fund's total assets.
3. 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.
4. Make loans except that it may lend its portfolio securities if such loans
are fully collateralized and such loans of securities do not exceed 15%
of its total assets at any one time. See "Investment Policies--Lending of
Portfolio Securities," page 4 in the Prospectus. The purchase of debt
securities and the entry into repurchase agreements are not considered
the making of loans.
5. Purchase puts, calls or combinations thereof, except the Fund may write
and purchase put and call options and effect closing transactions as
described under "Investment Policies."
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6. 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.
7. 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.
8. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities.
9. Make short sales of securities.
10. Purchase or sell commodities or commodity futures contracts, except
financial futures contracts and options thereon.
11. Purchase securities of investment companies except in connection with an
acquisition, merger, consolidation or reorganization.
12. Invest in companies for the purpose of, or with the effect of acquiring
control.
13. 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.
14. Invest in securities of any issuer if, to the knowledge of the Fund,
officers or directors of the Fund or its 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.
15. Pledge its assets or assign or otherwise encumber them except to secure
borrowings effected within the limitations set forth in Restriction 2 in
the Prospectus. (For purposes of this restriction, collateral
arrangements with respect to the writing of options and collateral
arrangements with respect to initial margin for futures contracts are not
deemed to be pledges of assets.)
16. 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. (For the purpose of this
restriction, collateral arrangements with respect to the writing of
options and initial margin deposits for futures contracts and the
purchase or sale of futures contracts are not deemed to be the issuance
of a senior security.)
17. Hold more than 10% of the outstanding voting securities of any one
issuer.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. Purchases and sales of securities
on a stock exchange are effected through brokers who charge a
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commission for their services. In the over-the-counter market, securities are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission, although the price of the securities
usually includes a profit to the dealer. In underwritten offerings, securities
are purchased at a fixed price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
On occasion, certain money market instruments may be purchased directly from an
issuer, in which case no commissions or discounts are paid.
The Adviser currently provides investment advice to a number of other clients.
See "Investment Adviser," page A-1. 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. Portfolio securities are not purchased from or sold to
the Adviser or any affiliated person (as defined in the Act) of the Adviser.
In connection with effecting portfolio transactions, primary consideration will
be given to securing the most favorable price and efficient execution. Within
the framework of this policy, the reasonableness of commission or other
transaction costs is a major factor in the selection of brokers and is
considered together with other relevant factors, including financial
responsibility, research and investment information and other services provided
by such brokers. It is expected that, as a result of such factors, transaction
costs charged by some brokers may be greater than the amounts other brokers
might charge. The Adviser may determine in good faith that the amount of such
higher transaction costs is reasonable in relation to the value of the brokerage
and research services provided. The Board of Directors of the Fund will review
regularly the reasonableness of commission and other transaction costs incurred
by the Fund in the light of facts and circumstances deemed relevant from time to
time, and, in that connection, will receive reports from the Adviser and
published data concerning transaction costs incurred by institutional investors
generally. The nature of the research services provided to the Adviser by
brokerage firms varies from time to time but generally includes current and
historical financial data concerning particular companies and their securities;
information and analysis concerning securities markets and economic and industry
matters; and technical and statistical studies and data dealing with various
investment opportunities, risks and trends, all of which the Adviser regards as
a useful supplement to its own internal research capabilities. The Adviser may
from time to time direct trades to brokers which have provided specific
brokerage or research services for the benefit of the Adviser's clients; in
addition the Adviser may
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allocate trades among brokers that generally provide superior brokerage and
research services. Research services furnished by brokers are used for the
benefit of all of the Adviser's clients and not solely or necessarily for the
benefit of the Fund. The Adviser believes that the value of research services
received is not determinable and does not significantly reduce its expenses. The
Fund does not reduce its fee to the Adviser by any amount that might be
attributable to the value of such services.
The aggregate amount of brokerage commissions paid by the Fund during 1994,
1993, and 1992 was $474,000, $256,06l, and $289,319, respectively.
If the Fund effects a closing purchase transaction with respect to an option
written by it, normally such transaction will be executed by the same broker-
dealer who executed the sale of the option. If a call written by the Fund is
exercised, normally the sale of the underlying securities will be executed by
the same broker-dealer who executed the sale of the call.
The writing of options by the Fund will be subject to limitations established by
each of the exchanges governing the maximum number of options in each class
which may be written by a single investor or group of investors acting in
concert, regardless of whether the options are written on the same or different
exchanges or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write may be affected by
options written by other investment advisory clients of its Adviser. An exchange
may order the liquidations of positions found to be in excess of these limits,
and it may impose certain other sanctions. As of the date of this Prospectus,
these limits (which are subject to change) are 2,000 options (200,000 shares) in
each class of puts or calls.
DETERMINATION OF NET ASSET VALUE
A description of the days on which the Fund's net asset value per share will be
determined is given in the Prospectus. The New York Stock Exchange's most recent
announcement (which is subject to change) states that in 1995 it will be closed
on President's Day, February 20; Good Friday, April 14; Memorial Day, May 29;
Independence Day, July 4; Labor Day, September 4; Thanksgiving Day, November 23;
and Christmas Day, December 25. It may also be closed on other days.
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STATEMENT OF ADDITIONAL INFORMATION APPENDIX
This document is incorporated by reference to Post-Effective Amendment No. 14,
Registration Number 2-82276 filed on Form N-1A on April 30, 1995.
