[LOGO OF LINCOLN FINANCIAL GROUP]
Lincoln National
Money Market Fund, Inc.
Annual Report
December 31, 1998
<PAGE>
Lincoln National Money Market Fund, Inc.
Index
Commentary
Statement of Net Assets
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Ernst & Young LLP, Independent Auditors
<PAGE>
Lincoln National Money Market Fund, Inc.
Managed by: [LOGO OF LINCOLN FINANCIAL GROUP]
The Fund's average gross yield for the year was 5.60%, .68% higher than the
average 3-month T-Bill yield.
With the continued instability in overseas markets, the Federal Reserve ("Fed")
pushed U.S. short-term interest rates lower during the 4th quarter of 1998. The
Federal Reserve moved to an easing mode on September 29 when it reduced the Fed
Funds rate by .25% to help shore up ailing foreign markets. Continued low U.S.
inflation enabled the Fed to reduce rates two more times during the year without
concern of creating an overheated economy. The Fed Funds target was reduced to
5.00% on October 15, and to 4.75% on November 17 where it remained for the rest
of the year. Inflation has stayed benign as weakening economies in Asia
depressed commodity prices and the cost of imported goods.
The Fund's yield came down during the quarter as the short-term curve shifted
lower in response to the Fed's actions. The gross yield earned by the fund was
5.46% on October 31, and 5.33% on November 30 and December 31.
Given the Fed's 3/4 percent rate reduction over the past several months and the
fact that monetary policy changes take as long as 18 months to fully take
effect, the Federal Reserve will most likely stay on the sidelines in the near
term. However, if foreign economies continue to have problems or if the U.S.
economy begins to deteriorate, the Federal Reserve has room to move short-term
rates even lower. Although the Fed Funds rate has been lowered, it still looks
high relative to the U.S. Treasury curve and to European short-term rates where
a recent coordinated easing took place leaving most countries' overnight
interbank rates near 3.00%.
The Fund's average days to maturity will be maintained in the 45-55 day area
and the Fund will continue to be positioned to take advantage of attractive
trading opportunities as they arise.
Jil Schoeff Lindholm
<PAGE>
Lincoln National
Money Market Fund, Inc.
Statement of Net Assets
December 31, 1998
Investments:
Par Market
Money Market Instruments: Amount Value
- ---------------------------------------------------------------------------
Automobiles & Auto Parts: 9.4%
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Daimler Chrysler
5.12%, 1/28/99 $3,500,000 $3,486,744
5.21%, 3/17/99 2,000,000 1,978,542
5.11%, 3/23/99 1,000,000 988,660
General Motors Acceptance Corporation
4.92%, 1/29/99 3,000,000 2,988,567
5.12%, 2/10/99 3,400,000 3,380,922
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12,823,435
Banking, Finance & Insurance: 71.3%
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American Express Centurion Bank
5.49%, 5/11/99 4,500,000 4,500,000
American Honda Finance
5.29%, 10/27/99 6,000,000 6,000,000
Bank of Scotland
5.65%, 8/18/99 4,000,000 4,000,000
BFO Holdings BV
5.60%, 3/23/99 5,000,000 5,000,000
Corporate Asset Funding
5.40%, 2/16/99 4,500,000 4,469,351
5.28%, 2/17/99 1,400,000 1,390,459
First Bank NA, Minnesota
5.56%, 5/19/99 4,000,000 4,001,425
GTE Funding
5.26%, 2/22/99 6,000,000 5,954,847
Key Bank NA
5.53%, 9/23/99 5,000,000 4,999,103
Lasalle Bank NA
5.19%, 2/9/99 6,000,000 6,000,000
Marsh and McLennan
5.30%, 5/24/99 5,000,000 5,000,000
Merrill Lynch
5.21%, 1/19/99 4,000,000 4,000,000
5.12%, 2/12/99 1,500,000 1,491,180
Metlife Funding
5.29%, 1/20/99 4,300,000 4,288,085
Nationsbank NA
5.18%, 4/21/99 4,000,000 4,000,668
Paccar Financial Group
5.14%, 3/18/99 4,600,000 4,550,765
PNC Bank
5.50%, 8/3/99 5,000,000 4,998,046
Private Export Funding
5.09%, 5/6/99 5,000,000 4,913,194
Salomon Smith Barney
5.19%, 2/2/99 1,000,000 995,422
5.37%, 2/12/99 2,000,000 1,987,633
5.77%, 2/15/99 3,000,000 3,002,029
Suntrust Banks
5.07%, 3/16/99 6,000,000 5,938,210
UBS Finance (DE)
5.30%, 1/5/99 6,200,000 6,196,397
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97,676,814
Building & Materials: 4.4%
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Fluor Corporation
5.50%, 1/8/99 6,000,000 6,000,000
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Cable, Media & Publications: 5.3%
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Donnelly RR Sons
5.00%, 1/4/99 1,000,000 999,583
Times Mirror
5.13%, 2/8/99 6,300,000 6,265,886
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7,265,469
Par Market
Amount Value
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Chemicals: 4.4%
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Dupont EI De Nemours
5.22%, 1/21/99 $6,000,000 $ 5,982,667
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Farming & Agriculture: 3.9%
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Cargill
5.08%, 4/1/99 5,500,000 5,431,250
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Health Care & Pharmaceuticals: 0.8%
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Clorox
5.15%, 2/19/99 1,200,000 1,191,670
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Total Money Market Instruments: 99.5%
(Cost $136,371,305) 136,371,305
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Other Assets Over Liabilities: 0.5% 690,500
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Net Assets: 100.0%
(Equivalent to $10.000 per share
based on 13,706,180 shares issued
and outstanding) $137,061,805
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See accompanying notes to financial statements.
<PAGE>
Lincoln National Money Market Fund, Inc.
Statement of Operations
Year ended December 31, 1998
Investment income:
Interest $ 5,979,031
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Total investment income 5,979,031
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Expenses:
Management fees 517,294
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Accounting fees 68,833
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Printing and postage 26,378
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Directors fees 4,200
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Other 12,130
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Total expenses 628,835
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Net investment income 5,350,196
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Net realized gain on investment transactions:
Net realized gain on:
Investment transactions 2,902
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Net realized gain on investment transactions 2,902
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Net increase in net assets
resulting from operations $5,353,098
=======================================================================
Statements of Changes in Net Assets
Years ended December 31, 1998 and 1997
Year ended Year ended
12/31/98 12/31/97
----------------------------
Changes from operations:
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Net investment income $ 5,350,196 $ 4,709,338
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Net realized gain (loss) on investment
transactions 2,902 (105)
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Net increase in net assets
resulting from operations 5,353,098 4,709,233
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Distributions to shareholders from:
Net investment income (5,353,098) (4,709,233)
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Total distributions to shareholders (5,353,098) (4,709,233)
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Net increase (decrease) in net assets
resulting from capital share transactions 47,835,173 (1,130,976)
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Total increase (decrease) in net assets 47,835,173 (1,130,976)
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Net Assets, beginning of year 89,226,632 90,357,608
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Net Assets, end of year $137,061,805 $89,226,632
=============================================================================
See accompanying notes to financial statements.
<PAGE>
Lincoln National Money Market Fund, Inc.
Financial Highlights
(Selected data for each capital share outstanding throughout the year)
<TABLE>
<CAPTION>
Period ended December 31,
1998 1997 1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.000 $10.000 $10.000 $10.000 $10.000
Income from investment operations:
Net investment income 0.497 0.501 0.505 0.570 0.381
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Total from investment operations 0.497 0.501 0.505 0.570 0.381
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Less dividends and distributions:
Dividends from net investment income (0.497) (0.501) (0.505) (0.570) (0.381)
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Total dividends and distributions (0.497) (0.501) (0.505) (0.570) (0.381)
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Net asset value, end of year $10.000 $10.000 $10.000 $10.000 $10.000
=======================================================
Total Return(1) 5.10% 5.13% 5.07% 5.67% 3.82%
Ratios and supplemental data:
Ratio of expenses to average net assets 0.58% 0.59% 0.57% 0.52% 0.52%
Ratio of net investment income
to average net assets 4.97% 5.01% 5.07% 5.67% 3.82%
Net assets, end of year (000 omitted) $137,062 $89,227 $90,358 $75,319 $77,177
(1) Total return percentages in this table are calculated on the basis
prescribed by the Securities and Exchange Commission. These percentages are
based on the underlying mutual fund shares. The total return percentages in
the table are NOT calculated on the same basis as the performance
percentages in the letter at the front of this booklet (those percentages
are based upon the change in unit value).
See accompanying notes to financial statements.
<PAGE>
Lincoln National Money Market Fund, Inc.
Notes to Financial Statements
December 31, 1998
The Fund: Lincoln National Money Market Fund, Inc. (the "Fund") is registered as
an open-end, diversified management company under the Investment Company Act of
1940, as amended. The Fund's shares are sold only to The Lincoln National Life
Insurance Company and Lincoln Life & Annuity Company of New York (the
"Companies") for allocation to their variable annuity products.
The Fund's investment objective is to maximize current income consistent with
the preservation of capital. The Fund invests in short-term obligations issued
by U.S. corporations, the U.S. Government, and federally chartered banks and
U.S. branches of foreign banks.
1. Significant Accounting Policies
Investment Valuation: Portfolio securities are stated at amortized cost, which
approximates market value.
Investment Transactions and Investment Income: Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis and includes amortization of any premium and discount. Realized gains or
losses from investment transactions are reported on an identified cost basis.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
Expenses: The custodian bank of the Fund has agreed to waive its custodial fees
when the Fund maintains a prescribed amount of cash on deposit in certain
non-interest bearing accounts. For the year ended December 31, 1998, the
custodial fees offset arrangements amounted to $13,862.
Taxes: The Fund has complied with the special provisions of the Internal Revenue
Code for regulated investment companies. As such, the Fund is not subject to
U.S. federal income taxes to the extent that it distributes all of its taxable
income for its fiscal year.
2. Other Assets Over Liabilities
The statement of net assets account "Other Assets Over Liabilities" at December
31, 1998 consisted of the following assets (liabilities):
Cash $194,040
- -------------------------------------------------
Receivable for interest earned 380,920
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Receivable for capital shares sold 299,458
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Payable for capital shares redeemed (93,228)
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Management fees payable (53,663)
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Other, net (37,027)
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$690,500
=========
3. Management Fees and Other Transactions With Affiliates
Lincoln Investment Management Company (the "Advisor") and its affiliates manage
the Fund's investment portfolio and maintain its accounts and records. For
these services, the Advisor receives a management fee at an annual rate of .48%
of the first $200,000,000 of the average daily net assets of the Fund, .40% of
the next $200,000,000, and .30% of the average daily net assets of the Fund in
excess of $400,000,000.
Delaware Service Company ("Delaware"), an affiliate of the Advisor, provides
accounting services and other administration support to the Fund. For these
services, the Fund pays Delaware a monthly fee based on average net assets,
subject to certain minimums.
If the aggregate annual expenses of the Fund, including the management fee, but
excluding taxes, interest, brokerage commissions relating to the purchase or
sale of portfolio securities and extraordinary non-recurring expenses, exceed
1.50% of the average daily net assets of the Fund, the Advisor will reimburse
the Fund in the amount of such excess. No reimbursement was due for the year
ended December 31, 1998.
<PAGE>
Notes to Financial Statements - (Continued)
Certain officers and directors of the Fund are also officers or directors of the
Companies and receive no compensation from the Fund. The compensation of
unaffiliated directors is borne by the Fund.
4. Analysis of Net Assets
Net Assets at December 31, 1998 consisted of the following:
Common Stock, par value $.01 per share** $ 137,062
- -------------------------------------------------------------------------
Paid in capital in excess of par value of shares issued 136,924,743
- -------------------------------------------------------------------------
$137,061,805
=============
** The Fund has 50,000,000 authorized shares.
5. Investments
The cost of investments for federal income tax purposes approximates cost for
book purposes.
6. Credit and Market Risks
The Fund had investments in securities issued by banks, including foreign banks,
foreign branches of domestic banks, and other financial institutions
representing 71.3% of net assets at December 31, 1998. The ability of these
entities to meet their obligations may be affected by economic conditions
related to the industry.
7. Summary of Changes From Capital Share Transactions
</TABLE>
<TABLE>
<CAPTION>
Shares Issued Upon Net Increase
Capital Reinvestment of Capital Shares Resulting From Capital
Shares Sold Dividends Redeemed Share Transactions
---------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended
December 31, 1998: 11,286,351 $112,863,514 535,310 $5,353,098 (7,038,144) $(70,381,439) 4,783,517) $47,835,173)
Year ended
December 31, 1997: 7,205,818 72,058,181 909,052 9,090,525 (8,227,968) (82,279,682) (113,098) (1,130,976)
</TABLE>
8. Distributions to Shareholders
The Fund declares and distributes dividends on net investment income daily.
Distributions of net realized gains, if any, are declared and distributed
annually.
<PAGE>
Lincoln National Money Market Fund, Inc.
Report of Ernst & Young LLP, Independent Auditors
To the Shareholders and Board of Directors
Lincoln National Money Market Fund, Inc.
We have audited the accompanying statement of net assets of Lincoln National
Money Market Fund, Inc. (the "Fund") as of December 31, 1998, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Lincoln National Money Market Fund, Inc. at December 31, 1998, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and its financial highlights for each
of the five years in the period then ended, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 5, 1999
