[LOGO OF LINCOLN FINANCIAL GROUP]
Lincoln National
Bond Fund, Inc.
Semi-Annual Report
June 30, 2000
<PAGE>
Lincoln National Bond Fund, Inc.
Index
Commentary
Statement of Net Assets
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
<PAGE>
Lincoln National Bond Fund, Inc.
Managed by: [LOGO OF LINCOLN FINANCIAL GROUP]
The Fund had a return of 2.9% (net of fees) for the first six months ended June
30, 2000 while its benchmark, the Lehman Brothers Government/ Corporate Bond
Index*, returned 4.2% for the same period.
The market is hopeful of a soft landing - a Federal Reserve Board (Fed)
engineered economic slowdown without recession. With this optimism, market
performance improved with interest rates, stock prices and credit spreads all
rallying since mid-May. Notwithstanding the good month of June, corporate bonds
had their worst first half of the year versus Treasury bonds since 1989.
Corporate bonds have lagged Treasury bonds by 2.7% in total return for the first
six months of 2000.
Our long-time strategy of over-weighting corporate bonds versus the index has
not worked this year, especially in April and May. Treasury bonds have been the
place to be so far this year as the Treasury buyback announcements and credit
concerns have propelled good relative performance of Treasuries versus all other
"spread product."
Our outlook is that the Fed will need to tighten only 25-50 basis points more
this year and will achieve their desired economic slowdown. We think corporate
bonds have been beaten up too much for an economic environment that remains
strong but not overheating. Corporate bonds will remain over-weighted in the
Fund's portfolio, and we feel good about their prospects over the next twelve
months.
David C. Fischer
*Lehman Brothers Gov't/Corp Bond Index @ Measures performance of diversified,
investment grade, bond issues. An investor cannot invest directly in the above
index/indexes, which is/are unmanaged.
Bond Fund 1
<PAGE>
Lincoln National Bond Fund, Inc.
Statement of Net Assets - Unaudited
June 30, 2000
Investments:
Par Market
Long-Term Debt Investments: Amount Value
-------------------------------------------------------------------------
U.S. Government & Agency Obligations: 33.2%
-------------------------------------------------------------------------
Federal Home Loan Bank
6.75%, 2/1/02 $21,500,000 $ 21,456,011
7.00%, 7/15/05 11,500,000 11,483,900
6.00%, 6/11/08 8,700,000 8,103,232
Federal Home Loan Mortgage Corporation
7.30%, 12/1/12 2,882,234 2,859,717
Federal National Mortgage Association
6.50%, 8/15/04 8,340,000 8,185,518
6.80%, 8/1/05 887,577 867,544
7.18%, 10/1/05 2,485,878 2,468,228
6.66%, 11/1/05 953,405 925,747
6.66%, 12/1/05 1,905,181 1,842,081
7.04%, 7/1/06 2,378,714 2,346,750
0.00%, 7/24/06 9,500,000 6,317,871
7.15%, 10/1/15 2,638,854 2,593,070
8.00%, 4/1/17 75,441 76,431
7.00%, 10/1/25 1,455,466 1,413,167
6.50%, 12/1/27 13,193,303 12,492,408
Government National Mortgage Association
9.00%, 5/15/17 58,605 61,187
9.00%, 9/15/19 269,279 281,565
6.50%, 11/15/23 593,988 570,229
U.S.Treasury Bond
6.63%, 2/15/27 3,100,000 3,287,938
U.S.Treasury Note
6.50%, 8/31/01 6,275,000 5,700,448
U.S. Treasury Strip
0.00%, 11/15/09 13,000,000 7,186,023
-------------------------------------------------------------------------
100,519,065
Collateralized Mortgage Obligations: 5.3%
-------------------------------------------------------------------------
CMAT 1999-C1 A1
6.25%, 8/17/06 2,330,578 2,231,893
Federal Home Loan Mortgage Association
Ser 1629 HA
3.50%, 12/15/21 2,000,000 1,729,920
Federal Home Loan Mortgage Association
Ser 1799 A
6.39%, 10/15/06 1,539,250 1,485,376
Federal National Mortgage Association
Ser 252981
7.50%, 11/16/29 1,958,598 1,929,831
Federal National Mortgage Association
CMO Ser 1996-23
6.50%, 9/25/21 3,183,658 3,131,318
Norwest Asset Sec Ser 1999-5
6.25%, 3/25/14 4,449,831 4,300,344
Vanderbilt Mortgage Ser 1999-A CL 1A2 144A
5.97%, 3/7/12 1,300,000 1,267,500
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16,076,182
Automobile & Auto Parts: 0.7%
-------------------------------------------------------------------------
Daimler-Chrysler
7.45%, 2/1/97 1,000,000 921,585
Goodyear Tire & Rubber
6.63%, 12/1/06 1,250,000 1,175,689
-------------------------------------------------------------------------
2,097,274
Banking, Finance & Insurance: 28.8%
-------------------------------------------------------------------------
Ahmanson, H. F.
8.25%, 10/1/02 2,000,000 2,021,630
Associates Corporation
6.25%, 11/1/08 5,000,000 4,489,350
Banc One
9.88%, 3/1/09 500,000 559,029
Bank One Texas
6.25%, 2/15/08 1,750,000 1,574,972
Banque Paribas-NY
8.35%, 6/15/07 1,400,000 1,425,822
Par Market
Banking, Finance & Insurance (con't) Amount Value
-------------------------------------------------------------------------
Barnett Bank
6.90%, 9/1/05 $ 1,500,000 $ 1,459,199
Barnett Capital Trust I
8.06%, 12/1/26 1,900,000 1,717,906
Bear Stearns
7.00%, 3/1/07 1,000,000 935,739
7.63%, 12/7/09 3,000,000 2,872,557
Beaver Valley Funding
9.00%, 6/1/17 300,000 300,000
Citicorp
6.33%, 1/5/06 1,600,000 1,510,848
Comerica Bank
7.88%, 9/15/26 1,500,000 1,438,952
Dow Capital
9.00%, 5/15/10 3,000,000 3,166,767
Fannie Mae- When Issued
0.00%, 6/1/17 52,040,000 15,684,179
Finova Capital
6.12%, 5/28/02 1,000,000 887,918
First Bank System
6.88%, 9/15/07 1,000,000 952,424
First Chicago
7.00%, 10/16/06 3,300,000 3,192,331
First Security
7.00%, 7/15/05 1,000,000 970,497
First Union
8.00%, 8/15/09 2,000,000 1,958,352
First of America Capital Trust I
8.12%, 1/31/27 2,000,000 1,739,762
General Motors Acceptance
8.88%, 6/1/10 1,500,000 1,599,293
Harris Bankcorp
9.38%, 6/1/01 250,000 254,412
Household Finance
9.63%, 7/15/00 875,000 875,463
Hydro-Quebec
7.20% 10/5/09 3,000,000 3,311,286
John Deere Capital
8.63%, 8/1/19 2,000,000 2,071,828
Lehman Bros
7.38%, 1/15/07 4,000,000 3,835,732
Mellon Capital I Notes
7.72%, 12/1/26 1,500,000 1,332,441
Mercantile Bancorp
7.30%, 6/15/07 1,325,000 1,273,471
Midland Bank
6.25%, 9/29/49 1,400,000 1,107,680
Morgan Stanley Group
6.88%, 3/1/07 2,250,000 2,123,314
National Westminister Bank
9.45%, 5/1/01 500,000 508,608
Nynex Capital Funding
7.63%, 10/15/09 3,000,000 3,128,268
Paine Weber
6.38%, 5/15/04 3,300,000 3,117,787
PNC Funding
6.88%, 7/15/07 1,187,000 1,126,654
PSE&G 144A
6.25%, 5/15/03 2,500,000 2,403,558
Simon DeBartolo Group
7.13%, 6/24/05 520,000 494,153
SouthTrust Bank of Birmingham
7.69%, 5/15/25 2,750,000 2,840,635
Standard Chartered Notes
6.28%, 12/29/49 2,500,000 1,685,000
State Street Capital-B
8.04%, 3/15/27 1,400,000 1,264,432
Union Bank Switzerland
7.25%, 7/15/06 2,250,000 2,185,445
Wachovia Capital Trust I
7.64%, 1/15/27 1,900,000 1,646,365
-------------------------------------------------------------------------
87,044,059
Building & Materials: 0.4%
-------------------------------------------------------------------------
Georgia-Pacific
9.95%, 6/15/02 1,000,000 1,039,016
Toll Brothers
8.13%, 2/1/09 300,000 271,500
-------------------------------------------------------------------------
1,310,516
Bond Fund 2
<PAGE>
Par Market
Amount Value
-------------------------------------------------------------------------
Cable, Media & Publishing: 1.3%
-------------------------------------------------------------------------
Century Communications
0.00%, 1/15/08 $ 300,000 $ 124,500
Charter Communications
8.63%, 4/1/09 300,000 265,125
News America Holdings
8.45%, 8/1/34 1,500,000 1,517,357
Time Warner
9.13%, 1/15/13 2,000,000 2,174,634
-------------------------------------------------------------------------
4,081,616
Chemicals: 0.2%
-------------------------------------------------------------------------
ISP Holdings
9.00%, 10/15/03 300,000 280,875
Polymer Group
9.00%, 7/1/07 300,000 256,500
-------------------------------------------------------------------------
537,375
Electronics & Electrical Equipment: 0.2%
-------------------------------------------------------------------------
Flextronics International 144A
9.88%, 7/1/10 300,000 303,750
Kansas Gas & Electricity
7.60%, 12/15/03 300,000 287,621
-------------------------------------------------------------------------
591,371
Energy: 2.1%
-------------------------------------------------------------------------
Central Power & Light
6.63%, 7/1/05 3,000,000 2,882,721
Consumers Energy
6.20%, 5/1/08 1,000,000 952,669
Enron
9.50%, 6/15/01 1,000,000 1,017,584
Petro-Canada
8.60%, 10/15/01 1,500,000 1,519,799
-------------------------------------------------------------------------
6,372,773
Environmental Services: 0.3%
-------------------------------------------------------------------------
Waste Management
6.63%, 7/15/02 875,000 834,137
-------------------------------------------------------------------------
Food, Beverage & Tobacco: 0.2%
-------------------------------------------------------------------------
Nabisco
7.55%, 6/15/15 750,000 657,189
-------------------------------------------------------------------------
Healthcare & Pharmaceuticals: 0.4%
-------------------------------------------------------------------------
Allegiance
7.30%, 10/15/06 750,000 749,826
Columbia HCA
8.85%, 1/1/97 300,000 290,627
Lilly(Eli)
8.38%, 2/7/05 2,250,000 2,347,223
Tenet Healthcare
8.00%, 1/15/05 300,000 289,500
-------------------------------------------------------------------------
3,677,176
Industrial Machinery: 0.6%
-------------------------------------------------------------------------
Norfolk Southern
6.20%, 4/15/09 2,000,000 1,795,926
-------------------------------------------------------------------------
Leisure, Lodging & Entertainment: 0.5%
-------------------------------------------------------------------------
Darden Restaurants
6.38%, 2/1/06 1,500,000 1,417,773
-------------------------------------------------------------------------
Metals & Mining: 2.2%
-------------------------------------------------------------------------
AK Steel
7.88%, 2/15/09 300,000 267,750
Alcan Aluminum
8.88%, 1/15/22 500,000 524,228
Cyprus Amax Minerals
7.38%, 5/15/07 2,500,000 2,399,253
Inco
9.60%, 6/15/22 1,000,000 982,542
Par Market
Metals & Mining (Cont.) Amount Value
-------------------------------------------------------------------------
Newmont Gold
8.91%, 1/5/09 $ 642,312 $ 654,536
Placer Dome
7.37%, 6/3/26 1,000,000 961,192
Placer Dome-Series A
7.31%, 1/26/21 1,000,000 835,263
-------------------------------------------------------------------------
6,624,764
Miscellaneous: 3.8%
-------------------------------------------------------------------------
Corp Andina
7.75%, 3/1/04 2,000,000 1,981,626
Enserch
6.25%, 1/1/03 2,500,000 2,442,790
ESI Tractebel
7.99%, 12/30/11 300,000 266,250
Manitoba
7.75%, 7/17/16 1,500,000 1,532,328
Ryder System
6.27%, 7/29/02 300,000 2,850,789
-------------------------------------------------------------------------
9,073,783
Paper & Forest Products: 0.1%
-------------------------------------------------------------------------
Buckeye Cellulose
8.50%, 12/15/05 150,000 145,125
-------------------------------------------------------------------------
Retail: 0.7%
-------------------------------------------------------------------------
Sears Roebuck
9.05%, 2/6/12 2,000,000 2,177,004
-------------------------------------------------------------------------
Telecommunications: 3.9%
-------------------------------------------------------------------------
AT&T Capital
7.47%, 5/11/05 2,750,000 2,754,331
Global Crossing 144A
9.13%, 11/15/06 300,000 288,750
Level 3 Communications
11.00%, 3/15/08 300,000 298,500
Litton Industries
6.98%, 3/15/36 1,000,000 950,343
Mcleodusa
8.13%, 2/15/09 300,000 271,500
Nynex
9.55%, 5/1/10 1,139,820 1,207,232
Pacificorp
9.15%, 8/9/11 2,000,000 2,166,464
Qwest Communications International
0.00%, 2/1/08 300,000 237,000
Rochester Telephone
9.00%, 7/19/00 2,000,000 2,000,576
U.S. Cellular
7.25%, 8/15/07 1,500,000 1,427,981
Williams Communications Group
10.88%, 10/1/09 300,000 294,750
-------------------------------------------------------------------------
11,897,427
Transportation & Shipping: 4.0%
-------------------------------------------------------------------------
American Airline
10.18%, 1/2/13 1,500,000 1,705,470
Bombardier 144A
6.00%, 1/15/02 3,000,000 2,929,917
Burlington Northern Railroad
6.94%, 1/2/14 437,708 414,921
Chicago & Northwestern Transportation
6.25%, 7/30/12 1,271,483 1,162,848
CSX
7.25%, 5/1/27 1,000,000 977,195
Federal Express
7.96%, 3/28/17 1,129,243 1,079,556
United Airlines
9.35%, 4/7/16 1,500,000 1,572,645
US Freightways
6.50%, 5/1/09 2,500,000 2,275,663
-------------------------------------------------------------------------
12,118,215
Bond Fund 3
<PAGE>
Par Market
Amount Value
-------------------------------------------------------------------------
Utilities: 7.8%
-------------------------------------------------------------------------
AES
9.50%, 6/1/09 $ 300,000 $ 295,500
Calpine
7.75%, 4/15/09 300,000 284,250
Colonial Gas-Series A
6.81%, 5/19/27 1,500,000 1,470,381
Consumers Energy
6.50%, 6/15/05 500,000 466,643
Detroit Edison
6.56%, 5/1/01 2,000,000 1,984,742
Great Lakes Power
9.00%, 8/1/04 1,500,000 1,523,093
Houston Light & Power Capital Trust II
8.26%, 2/1/37 1,900,000 1,700,426
MidAmerican Energy
6.50%, 12/15/01 1,250,000 1,232,951
National Rural Utility
7.20%, 10/1/15 1,000,000 954,481
New Jersey Bell
7.85%, 11/15/29 1,950,000 1,924,166
Noble Affiliates
7.25%, 10/15/23 600,000 536,886
Old Dominion Electric
8.76%, 12/1/22 1,600,000 1,664,224
PSI Energy
8.85%, 1/15/22 1,980,000 2,084,653
Public Service
6.38%, 11/1/05 1,500,000 1,437,023
SCANA
7.44%, 10/19/04 3,000,000 3,000,723
Texas Gas Transmissions
8.63%, 4/1/04 1,000,000 1,045,012
Washington Water Public
8.01%, 12/17/01 2,000,000 2,010,789
-------------------------------------------------------------------------
23,615,943
Total Long Term Debt Investments: 96.7%
(Cost $302,528,328) 292,664,693
-------------------------------------------------------------------------
Money Market Instruments:
-------------------------------------------------------------------------
Associates Corp North America
6.85%, 7/3/00 2,000,000 2,000,000
Gillette
7.03%, 7/5/00 2,400,000 2,400,000
-------------------------------------------------------------------------
Total Money Market Instruments: 1 5%
(Cost $4,400,000) 4,400,000
-------------------------------------------------------------------------
Total Investments: 98.2%
(Cost $306,928,328) 297,064,693
-------------------------------------------------------------------------
Other Assets Over Liabilities: 1.8% 5,526,426
-------------------------------------------------------------------------
Net Assets: 100.0%
-------------------------------------------------------------------------
(Equivalent to $11.718 per share
based on 25,823,184 shares
issued and outstanding) $302,591,119
-------------------------------------------------------------------------
Components of Net Assets at June 30, 2000:
-------------------------------------------------------------------------
Common Stock, par value $.01 per share,
50,000,000 authorized shares $ 258,232
Paid in capital in excess of par value of shares issued 312,130,072
Undistributed net investment income 10,157,557
Accumulated net realized loss on investments (10,091,107)
Net unrealized depreciation of investments (9,863,635)
-------------------------------------------------------------------------
Total Net Assets $302,591,119
-------------------------------------------------------------------------
See accompanying notes to financial statements.
Bond Fund 4
<PAGE>
Lincoln National Bond Fund, Inc.
Statement of Operations - Unaudited
Six months ended June 30, 2000
<TABLE>
<CAPTION>
<S> <C>
Investment income:
Interest $ 10,999,590
---------------------------------------------------------------------------------------------------------
Total investment income 10,999,590
---------------------------------------------------------------------------------------------------------
Expenses:
Management fees 691,578
---------------------------------------------------------------------------------------------------------
Accounting fees 74,182
---------------------------------------------------------------------------------------------------------
Printing and postage 39,820
---------------------------------------------------------------------------------------------------------
Legal fees 12,431
---------------------------------------------------------------------------------------------------------
Custodial fees 10,629
---------------------------------------------------------------------------------------------------------
Directors fees 2,100
---------------------------------------------------------------------------------------------------------
Other 17,723
---------------------------------------------------------------------------------------------------------
848,463
---------------------------------------------------------------------------------------------------------
Less expenses paid indirectly (6,431)
---------------------------------------------------------------------------------------------------------
Total expenses 842,032
---------------------------------------------------------------------------------------------------------
Net investment income 10,157,558
---------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments:
Net realized loss on investment transactions (3,774,560)
---------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation of investments 2,313,478
---------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments (1,461,082)
---------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $8,696,476
---------------------------------------------------------------------------------------------------------
</TABLE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended
6/30/00 Year ended
(Unaudited) 12/31/99
----------------------------------
<S> <C> <C>
Changes from operations:
Net investment income $ 10,157,558 $ 20,955,258
---------------------------------------------------------------------------------------------------------
Net realized loss on investment transactions (3,774,560) (3,138,359)
---------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation of investments 2,313,478 (29,520,039)
---------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 8,696,476 (11,703,140)
---------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (1,328,799) (23,020,367)
---------------------------------------------------------------------------------------------------------
Total distributions to shareholders (1,328,799) (23,020,367)
---------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from capital share transactions (35,699,308) 1,838,441
---------------------------------------------------------------------------------------------------------
Total decrease in net assets (28,331,631) (32,885,066)
---------------------------------------------------------------------------------------------------------
Net Assets, beginning of period 330,922,750 363,807,816
---------------------------------------------------------------------------------------------------------
Net Assets, end of period $302,591,119 $330,922,750
---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
Bond Fund 5
<PAGE>
Lincoln National Bond Fund, Inc.
Financial Highlights
(Selected data for each capital share outstanding throughout each period)
<TABLE>
<CAPTION>
Six months
ended
6/30/00 Year ended December 31,
(Unaudited) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.436 $ 12.689 $ 12.861 $ 11.766 $ 12.247 $ 10.941
Income (loss) from investment operations:
Net investment income 0.381 0.772 0.662 0.785 0.767 0.803
Net realized and unrealized gain (loss)
on investments (0.048) (1.180) 0.494 0.310 (0.481) 1.306
-----------------------------------------------------------------------
Total from investment operations 0.333 (0.408) 1.156 1.095 0.286 2.109
-----------------------------------------------------------------------
Less dividends:
Dividends from net investment income (0.051) (0.845) (1.328) - (0.767) (0.803)
-----------------------------------------------------------------------
Total dividends (0.051) (0.845) (1.328) - (0.767) (0.803)
-----------------------------------------------------------------------
Net asset value, end of period $ 11.718 $ 11.436 $ 12.689 $ 12.861 $ 11.766 $ 12.247
-----------------------------------------------------------------------
Total Return (1) 2.92% (3.27%) 9.56% 9.30% 2.31% 18.95%
Ratios and supplemental data:
Ratio of expenses to average net assets 0.55%(2) 0.53% 0.52% 0.53% 0.51% 0.49%
Ratio of net investment income
to average net assets 6.62%(2) 6.02% 5.90% 6.45% 6.56% 6.90%
Portfolio Turnover 18.77% 39.11% 51.33% 56.16% 142.19% 139.61%
Net assets, end of period (000 omitted) $302,591 $330,923 $363,808 $280,383 $253,328 $250,816
</TABLE>
(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).
(2) Annualized
See accompanying notes to financial statements.
Bond Fund 6
<PAGE>
Lincoln National Bond Fund, Inc.
Notes to Financial Statements - Unaudited
June 30, 2000
The Fund: Lincoln National Bond Fund, Inc. (the "Fund") is registered as an
open-end, diversified management investment 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 the Lincoln Life & Annuity Company of New York (the
"Companies") for allocation to their variable annuity products and variable
universal life products.
The Fund's investment objective is to maximize current income consistent with a
prudent investment strategy. The Fund invests primarily in medium and long-term
corporate and government bonds.
1. Significant Accounting Policies
Security Valuation: Long-term debt securities are valued by an independent
pricing service and such prices are believed to reflect the fair value of such
securities. Money market instruments having less than 60 days to maturity are
valued at amortized cost, which approximates market value. Other securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Fund's Board
of Directors.
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
accounting principles generally accepted in the United States 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 six months ended June 30, 2000, the
custodial fees offset agreement amounted to $6,431.
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. Management Fees and Other Transactions With Affiliates
Lincoln Investment Management Company (the "Advisor") and its affiliates manage
the Fund's investment portfolios 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 six
months ended June 30, 2000.
Certain officers and directors of the Fund are also officers or directors of the
Company and receive no compensation from the Fund. The compensation of
unaffiliated directors is borne by the Fund.
Bond Fund 7
<PAGE>
Notes to Financial Statements - Unaudited - (Continued)
3. Investments
The cost of investments for federal income tax purposes approximates cost for
book purposes. The aggregate cost of investments purchased and the aggregate
proceeds from investments sold for the six months ended June 30, 2000 and the
aggregate gross unrealized appreciation, the aggregate gross unrealized
depreciation and the net unrealized depreciation at June 30, 2000 are as
follows:
<TABLE>
<CAPTION>
Aggregate Aggregate Gross Gross Net
Cost of Proceeds Unrealized Unrealized Unrealized
Purchases From Sales Appreciation Depreciation Depreciation
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$56,174,824 $82,530,489 $1,823,779 $(11,687,414) $(9,863,635)
</TABLE>
4. Summary of Changes From Capital Share Transactions
<TABLE>
<CAPTION>
Shares Issued Upon Net Increase (Decrease)
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>
Six months ended
June 30, 2000
(Unaudited): 1,592,790 $18,406,484 114,217 $ 1,328,799 (4,821,766) $(55,434,591) (3,114,759) $(35,699,308)
Year ended
December 31, 1999: 3,927,624 47,592,208 1,980,915 23,020,366 (5,641,533) (68,774,133) 267,006 1,838,441
</TABLE>
5. Distributions to Shareholders
The Fund declares and distributes dividends on net investment income, if any,
semi-annually. Distributions of net realized gains, if any, are declared and
distributed annually.
6. Capital Loss Carryforward
As of June 30, 2000, the Fund had $5,578,457 of unused capital loss carryforward
for federal tax purposes. The loss carry forward expires in the years 2002 to
2007.
Bond Fund 8
