[LOGO OF FIDELITY INVESTMENTS]
Lincoln National
Equity-Income Fund, Inc.
Semi-Annual Report
June 30, 1999
<PAGE>
Lincoln National Equity-Income 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 Equity-Income Fund, Inc.
Managed by: [LOGO OF FIDELITY INVESTMENTS]
The Fund returned 9.0% for the six months ended June 30, 1999, while its
benchmark, the S&P 500 Index, returned 12.2% for the same period.
A narrow group of large growth-oriented stocks, including technology companies,
turned in strong gains, but there was also a pickup in out of favor,
value-oriented stocks, particularly economically sensitive cyclicals which
benefited from better global business trends relative to prior expectations, and
prospects for improvement in overall corporate profits. We continued to seek
undervalued, large- and mid-cap stocks. A variety of smaller positions were
eliminated or reduced while other larger positions were increased, and this led
to a greater concentration of asset by midyear in top names where we had
conviction.
Compared with the benchmark, the largest contributor to the Fund's return was
underexposure to weak-performing consumer non-durables, such as drug stocks
where investors were concerned about company fundamentals. Certain cyclicals,
including energy and intermediate stocks, also were helpful, owing to supply
cuts, ongoing cost cutting and restructuring activity, and signs of global
economic improvement, particularly in Asia. More than offsetting these
positives, however, were underexposure to rising technology stocks with low
dividend yields which is typical of funds with our style of investment
management and the lagging performance of selected utilities amid a backup in
interest rates.
Stephen DuFour
Equity-Income Fund 1
<PAGE>
Lincoln National
Equity-Income Fund, Inc.
Statement of Net Assets - Unaudited
June 30, 1999
Investments:
Par Market
Convertible Bonds: Amount Value
- ----------------------------------------------------------------------------
Cable, Media & Publishing: 0.3%
- ----------------------------------------------------------------------------
News America Holdings
0.00%, 3/11/13 $4,070,000 $ 2,945,663
- ----------------------------------------------------------------------------
Computers & Technology: 0.1%
- ----------------------------------------------------------------------------
Micron Technology
7.00%, 7/1/04 1,430,000 1,449,663
- ----------------------------------------------------------------------------
Total Convertible Bonds: 0.4%
(Cost $3,486,400) 4,395,326
- ----------------------------------------------------------------------------
Number
Common Stock: of Shares
- ----------------------------------------------------------------------------
Aerospace & Defense: 1.3%
- ----------------------------------------------------------------------------
Boeing 84,400 3,729,425
Textron 121,100 9,968,044
- ----------------------------------------------------------------------------
13,697,469
Automobiles & Auto Parts: 5.1%
- ----------------------------------------------------------------------------
Delphi Automotive Systems 130,491 2,422,239
Ford Motor 264,300 14,916,431
General Motors 45,200 2,983,200
Harsco 68,400 2,188,800
Modine Manufacturing 38,800 1,262,213
Navistar International 619,100 30,955,000
- ----------------------------------------------------------------------------
54,727,883
Banking, Finance & Insurance: 19.0%
- ----------------------------------------------------------------------------
Ambac Financial Group 59,500 3,398,938
American International Group 157,350 18,419,784
Associates First Capital Class A 76,108 3,372,536
Bank of Amercia 448,740 32,898,251
Chase Manhattan 570,300 49,402,238
Cigna 62,100 5,526,900
Citigroup 659,950 31,347,625
Federal Home Loan 18,700 1,084,600
Federal National Mortgage 365,500 24,991,063
Financial Security Assurance Holdings Limited 22,688 1,179,776
Fremont General 21,000 396,375
Hartford Financial Services 137,000 7,988,813
Lehman Brothers Holdings 109,480 6,815,130
MBIA 42,300 2,738,925
Mellon Bank 158,500 5,765,438
Morgan Stanley Dean Witter 60,000 6,150,000
Schwab (Charles) 28,500 3,131,438
Unionbancal Corporation 13,200 476,850
Union Planters 5,000 223,438
- ----------------------------------------------------------------------------
205,308,118
Buildings & Materials: 0.4%
- ----------------------------------------------------------------------------
Fluor 55,700 2,255,850
Quanex 23,700 675,450
York International 23,800 1,018,938
- ----------------------------------------------------------------------------
3,950,238
Cable, Media & Publishing: 5.6%
- ----------------------------------------------------------------------------
Belo A. H. 261,200 5,142,375
CBS 106,785 4,638,473
Gannett 54,500 3,889,938
Knight-Ridder 131,500 7,224,281
Meredith 147,600 5,110,650
The News Corporation 179,900 6,352,719
Time Warner 351,166 25,283,952
Washington Post - Class B 5,900 3,183,050
- ----------------------------------------------------------------------------
60,825,438
Number Market
of Shares Value
- ----------------------------------------------------------------------------
Chemicals: 6.6%
- ----------------------------------------------------------------------------
Arch Chemicals 26,850 $ ,652,791
Crompton & Knowles 314,700 6,156,319
Dexter 42,200 1,722,288
Dow Chemical 10,200 1,294,125
DuPont(E.I.)deNemours 185,900 12,699,294
Englehard 159,600 3,610,950
Flowserve 100,300 1,899,431
Georgia Gulf 111,700 1,884,938
Great Lakes Chemical 74,900 3,450,081
Hanna (M.A.) 74,000 1,216,375
Hercules 76,600 3,011,338
Lyondell Petrochemicals 210,800 4,347,750
Millenium Chemicals 76,142 1,794,096
Nalco Chemical 33,300 1,727,438
Olin 155,600 2,051,975
OM Group 19,300 665,850
PPG Industries 57,400 3,390,188
Praxair 25,600 1,252,800
Rohm & Haas Company 229,500 9,839,813
Schulman (A) 38,000 649,563
Solutia 97,500 2,077,969
Unova 63,300 1,004,888
Witco 170,600 3,412,000
W.R. Grace & Company* 90,400 1,661,100
- ----------------------------------------------------------------------------
71,473,360
Computers & Technology: 8.1%
- ----------------------------------------------------------------------------
Ask Jeeves* 200 2,800
At Home-Series A* 38,100 2,055,019
Cadence Design Systems 26,400 336,600
Clarent* 700 10,500
Compaq Computer 90,800 2,150,825
Concord EFS* 103,600 4,386,813
Deluxe Check Printers 75,100 2,924,206
EG&G 51,500 1,834,688
Electronic Data Systems 67,200 3,801,000
Hewlett-Packard 246,300 24,753,150
Microsoft* 167,400 15,086,925
National Instruments* 62,400 2,511,600
NCR* 20,800 1,015,300
Network Associates* 181,200 2,661,375
Unisys 629,918 24,527,432
- ----------------------------------------------------------------------------
88,058,233
Consumer Products: 1.6%
- ----------------------------------------------------------------------------
Gillete 22,200 910,200
Minnesota Mining & Manufacturing 193,600 16,831,100
- ----------------------------------------------------------------------------
17,741,300
Electronics & Electrical Equipment: 2.1%
- ----------------------------------------------------------------------------
Eaton 130,100 11,969,200
Emerson Electric 69,800 4,388,675
Florida Progress 56,200 2,321,763
Raytheon-Class A 4,648 320,131
Raytheon-Class B 35,700 2,512,388
Rogers 42,200 1,244,900
- ----------------------------------------------------------------------------
22,757,057
Energy: 15.9%
- ----------------------------------------------------------------------------
Anadarko Petroleum 89,300 3,287,356
BJ Services 188,200 5,540,138
Coastal 59,500 2,380,000
Dynegy 118,600 2,416,475
Exxon 816,500 62,972,563
Hanover Compressor Company* 5,000 160,625
Kerr-McGee 61,400 3,081,513
Mobil 222,800 22,057,200
Nabors Industries* 181,800 4,442,738
Newpark Resources* 124,700 1,106,713
Noble Drilling* 457,300 9,003,094
Pogo Producing Company 12,100 225,363
Royal Dutch Petroleum 194,600 11,724,650
Schlumberger Limited 165,200 10,521,175
Teco Energy 52,100 1,185,275
Weatherford International* 878,900 32,189,713
- ----------------------------------------------------------------------------
172,294,591
Equity-Income Fund 2
<PAGE>
Number Market
of Shares Value
- ----------------------------------------------------------------------------
Environmental Services: 0.6%
- ----------------------------------------------------------------------------
Waste Management 118,760 $ 6,383,350
- ----------------------------------------------------------------------------
Farming & Agriculture: 0.2%
- ----------------------------------------------------------------------------
New Holland NV 96,800 1,657,700
- ----------------------------------------------------------------------------
Food, Beverage & Tobacco: 1.3%
- ----------------------------------------------------------------------------
Archer-Daniels-Midland 124,700 1,925,056
Ball 11,100 468,975
Earthgrains 5,900 152,294
Fleming Companies 212,100 2,465,663
Fortune Brands 56,700 2,345,963
Nabisco Holdings Class A 68,600 2,966,950
Quaker Oats 63,600 4,221,450
- ----------------------------------------------------------------------------
14,546,351
Healthcare & Pharmaceuticals: 3.0%
- ----------------------------------------------------------------------------
Abbott Laboratories 5,900 268,450
IMS Health 186,300 5,821,875
Lilly (Eli) 166,900 11,954,213
Mallinckrodt 11,100 403,763
Pharmacia & Upjohn 99,400 5,647,163
Schering-Plough 104,370 5,531,610
UICI* 22,400 618,800
Vornado Realty Trust 82,400 2,909,750
- ----------------------------------------------------------------------------
33,155,624
Industrial Machinery: 4.0%
- ----------------------------------------------------------------------------
American Standard* 47,200 2,236,100
Applied Industrial Technology 15,100 286,900
Baker Hughes 29,700 994,950
Caterpillar 6,500 390,000
Chart Industries 61,400 475,850
Deere & Co. 73,500 2,912,438
Donaldson Company 34,800 852,600
Harris Corp Delaware 276,100 10,819,669
IDEX 52,200 1,716,075
Ingersoll-Rand* 133,850 8,650,056
JLG Industries 34,700 707,013
Kennametal 90,200 2,796,200
Milacron 28,200 521,700
Parker Hannifin 61,350 2,806,763
Regal-Beloit 36,700 867,038
Robbins & Meyers 7,600 169,575
Roper Industries 27,100 867,200
Timken 170,900 3,332,550
Trinity Industries 28,100 941,350
Watts Industries 60,300 1,157,006
- ----------------------------------------------------------------------------
43,501,033
Leisure, Lodging & Entertainment: 0.6%
- ----------------------------------------------------------------------------
Promus Hotel * 91,000 2,821,000
Walt Disney 129,900 4,002,544
- ----------------------------------------------------------------------------
6,823,544
Metals & Mining: 1.8%
- ----------------------------------------------------------------------------
ALCOA 185,482 11,476,699
Case 44,900 2,160,813
Franco Nevada Mining (Canada) 27,000 421,904
Homestake Mining 37,800 309,488
Ispat International NV 22,900 253,331
Kaydon 49,000 1,647,625
Newmont Mining 174,200 3,462,225
- ----------------------------------------------------------------------------
19,732,085
Packaging & Containers: 0.4%
- ----------------------------------------------------------------------------
Bemis 37,600 1,494,600
Crown Cork & Seal 96,500 2,750,250
- ----------------------------------------------------------------------------
4,244,850
Paper & Forest Products: 0.2%
- ----------------------------------------------------------------------------
Fort James 46,200 1,749,825
- ----------------------------------------------------------------------------
Real Estate: 1.0%
- ----------------------------------------------------------------------------
Apartment Investment & Management 67,400 2,881,350
Equity Residential Properties 105,000 4,731,563
Number Market
Real Estate (Cont.) of Shares Value
- ----------------------------------------------------------------------------
Equity Office Properties Trust 124,800 $ 3,198,000
Weeks 20,400 622,200
- ----------------------------------------------------------------------------
11,433,113
Retail: 1.7%
- ----------------------------------------------------------------------------
Albertson's 47,000 2,423,438
Consolidated Stores* 326,100 8,804,700
Dollar General 199,750 5,792,750
Petsmart* 46,600 476,194
Venator Group 44,400 463,425
- ----------------------------------------------------------------------------
17,960,507
Telecommunications: 10.2%
- ----------------------------------------------------------------------------
ADC Telecommunications* 192,400 8,760,213
A T & T 509,750 28,450,422
BellSouth 245,500 11,507,813
Lucent Technologies 38,100 2,569,369
MCI Worldcom* 361,355 31,087,822
PairGain Technologies 37,900 437,034
SBC Communications 480,400 27,863,200
Time Warner Telecommunications Class A* 700 20,278
- ----------------------------------------------------------------------------
110,696,151
Transportation & Shipping: 3.8%
- ----------------------------------------------------------------------------
Burlington Northern Santa Fe 675,400 20,937,400
Kirby 1,500 31,781
Tidewater 53,000 1,616,500
Union Pacific 313,100 18,257,644
- ----------------------------------------------------------------------------
40,843,325
Utilites: 3.6%
- ----------------------------------------------------------------------------
Dominion Resources/Virginia 49,200 2,130,975
Edison International 109,400 2,926,450
Entergy 209,500 6,546,875
Illinova 17,600 479,600
Ipalco Enterprises 345,200 7,313,925
PG&E 278,745 9,059,213
Southern 137,400 3,641,100
Sprint 128,400 6,781,125
- ----------------------------------------------------------------------------
38,879,263
Total Common Stock: 98.1%
(Cost $961,539,160) 1,062,440,408
- ----------------------------------------------------------------------------
Preferred Stocks:
Graco 22,800 669,750
Ingersoll-Rand 49,600 1,385,700
Union Pacific Capital Trust 34,500 1,794,000
- ----------------------------------------------------------------------------
Total Preferred Stock: 0.4%
(Cost $3,469,914) 3,849,450
- ----------------------------------------------------------------------------
Par
Repurchase Agreement: Amount
- ----------------------------------------------------------------------------
State Street Bank and Trust Co.
Repurchase Agreement,
dated 6/30/99, 4.40%, maturing 7/1/99
collateralized by $28,755,000 U.S. Treasury
Bonds 8.50%, 2/15/20,
market value $36,910,496 $35,867,000 35,867,000
- ----------------------------------------------------------------------------
Total Repurchase Agreement: 3.3%
(Cost $35,867,000) 35,867,000
- ----------------------------------------------------------------------------
Total Investments: 102.2%
(Cost $1,004,362,474) 1,106,552,184
- ----------------------------------------------------------------------------
Other Liabilities over Assets: (2.2%) (24,057,129)
- ----------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $22.741 per share based
on 47,601,130 shares issued
and outstanding) $1,082,495,055
- ----------------------------------------------------------------------------
Equity-Income Fund 3
<PAGE>
Components of Net Assets at June 30, 1999:
- ----------------------------------------------------------------------------
Common Stock, $.01 par value
100,000,000 authorized shares $ 476,011
Paid in capital in excess of par value of shares issued 719,534,106
Undistributed net investment income 5,667,426
Accumulated net realized gain on investments 254,636,578
Net unrealized appreciation of investments
and foreign currencies 102,180,934
- ----------------------------------------------------------------------------
Total Net Assets $1,082,495,055
- ----------------------------------------------------------------------------
* Non-income producing security
See accompanying notes to financial statements.
Equity-Income Fund 4
<PAGE>
Lincoln National Equity-Income Fund, Inc.
Statement of Operations - Unaudited
Six months ended June 30, 1999
Investment income:
Dividends $ 8,830,979
- --------------------------------------------------------------------------
Interest 919,553
- --------------------------------------------------------------------------
Less: Foreign withholding tax (50,201)
- --------------------------------------------------------------------------
Total investment income 9,700,331
- --------------------------------------------------------------------------
Expenses:
Management fees 3,719,999
- --------------------------------------------------------------------------
Accounting fees 199,500
- --------------------------------------------------------------------------
Printing and postage 69,700
- --------------------------------------------------------------------------
Custody fees 43,800
- --------------------------------------------------------------------------
Legal fees 17,500
- --------------------------------------------------------------------------
Directors fees 2,100
- --------------------------------------------------------------------------
Other 17,540
- --------------------------------------------------------------------------
Total expenses 4,070,139
- --------------------------------------------------------------------------
Net investment income 5,630,192
- --------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency related transactions:
Net realized gain (loss) on:
Investment transactions 255,012,386
- --------------------------------------------------------------------------
Foreign currency transactions 37,234
- --------------------------------------------------------------------------
Net realized gain on investment and
foreign currency related transactions 255,049,620
- --------------------------------------------------------------------------
Net change in unrealized depreciation of:
Investments (172,524,991)
- --------------------------------------------------------------------------
Foreign currency (17,250)
- --------------------------------------------------------------------------
Net change in unrealized depreciation of investments
and foreign currency related transactions (172,542,241)
- --------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency related transactions 82,507,379
- --------------------------------------------------------------------------
Net increase in net assets
resulting from operations $88,137,571
- --------------------------------------------------------------------------
Statements of Changes in Net Assets
Six months
ended
6/30/99 Year ended
(Unaudited) 12/31/98
----------------------------
Changes from operations:
Net investment income $ 5,630,192 $ 12,877,400
- -------------------------------------------------------------------------------
Net realized gain on investment
and foreign currency related transactions 255,049,620 39,832,035
- -------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation
on investments and foreign currency (172,542,241) 52,376,328
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 88,137,571 105,085,763
- -------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (2,250,168) (19,770,253)
- -------------------------------------------------------------------------------
Net realized gain on investments (40,297,143) (17,621,623)
- -------------------------------------------------------------------------------
Total distributions to shareholders (42,547,311) (37,391,876)
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from capital share transactions 44,928,099 113,212,973
- -------------------------------------------------------------------------------
Total increase in net assets 90,518,359 180,906,860
- -------------------------------------------------------------------------------
Net Assets, beginning of period 991,976,696 811,069,836
- -------------------------------------------------------------------------------
Net Assets, end of period $1,082,495,055 $991,976,696
- -------------------------------------------------------------------------------
See accompanying notes to financial statements.
Equity-Income Fund 5
<PAGE>
Lincoln National Equity-Income Fund, Inc.
Financial Highlights
(Selected data for each capital share outstanding throughout each period)
<TABLE>
<CAPTION>
Six months
ended
6/30/99 Period ended December 31,
(Unaudited) 1998 1997 1996 1995 1994(3)
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 21.715 $ 20.118 $ 15.780 $ 13.507 $210.335 $10.000
Income from investment operations:
Net investment income 0.124 0.282 0.229 0.288 0.275 0.258
Net realized and unrealized gain
on investments and foreign currency 1.842 2.204 4.511 2.451 3.218 0.335
--------------------------------------------------------------------
Total from investment operations 1.966 2.486 4.740 2.739 3.493 0.593
--------------------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income (0.050) (0.460) - (0.288) (0.275) (0.258)
Distributions from net realized gain on
investment transactions (0.890) (0.429) (0.402) (0.178) (0.046) -
--------------------------------------------------------------------
Total dividends and distributions (0.940) (0.889) (0.402) (0.466) (0.321) (0.258)
--------------------------------------------------------------------
Net asset value, end of period $ 22.741 $ 21.715 $ 20.118 $ 15.780 $ 13.507 $10.335
--------------------------------------------------------------------
Total Return(1) 8.97% 12.73% 30.67% 19.81% 34.74% 5.65%
Ratios and supplemental data:
Ratio of expenses to average net assets 0.80%(2) 0.79% 1.02% 1.08% 1.15% 1.26%
Ratio of net investment income
to average net assets 1.10%(2) 1.40% 1.46% 1.99% 2.27% 2.48%
Portfolio Turnover 93.48% 29.04% 17.81% 22.17% 27.81% 33.40%
Net assets, end of period (000 omitted) $1,082,495 $991,977 $811,070 $457,153 $238,771 $78,861
</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
(3) The per share data, total return, ratios and portfolio turnover are
calculated for the period from commencement of investment activity on May 1,
1994 through December 31, 1994. Accordingly, the total return and portfolio
turnover have NOT been calculated on an annualized basis.
See accompanying notes to financial statements.
Equity-Income Fund 6
<PAGE>
Lincoln National Equity-Income Fund, Inc.
Notes to Financial Statements - Unaudited
June 30, 1999
The Fund: Lincoln National Equity-Income 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 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 achieve reasonable income by investing
primarily in income-producing equity securities. The Fund invests mostly in
high-income stocks and some high-yielding bonds.
1. Significant Accounting Policies
Investment Valuation: Portfolio securities which are traded on an exchange are
valued at the last reported sale price on the exchange or market where primarily
traded or listed or, in the absence of recent sales, at the mean between the
last reported bid and asked prices. Long-term debt investments are valued at
their mean quotations. 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. Money market
instruments having less than 60 days to maturity are stated at amortized cost,
which approximates market value.
Investment Transactions and Investment Income: Investment transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date and 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.
Foreign Currency Transactions: The books and records of the Fund are maintained
in U.S. dollars. All assets and liabilities denominated in a foreign currency
are translated into U.S. dollars based upon foreign exchange rates prevailing at
the end of the period. Income and expenses and purchases and sales of
investments are translated into U.S. dollars at the rate of exchange prevailing
on the respective dates of such transactions. It is not practical to isolate
that portion of both realized and unrealized gains and losses on investments in
equity securities that result from fluctuations in foreign currency exchange
rates in the statement of operations. The Fund does isolate that portion of
gains and losses on investments in debt securities which are due to changes in
the foreign exchange rate from that which are due to changes in market prices of
debt securities.
Reported net realized gains and losses on foreign currency transactions arise
from sales and maturities of forward foreign currency contracts, currency gains
and losses between the trade and settlement dates on securities transactions,
and the differences between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of
the amounts actually received or paid. Net change in unrealized appreciation or
depreciation on translation of assets and liabilities in foreign currencies
arise from changes in the value of other assets and liabilities at the end of
the period resulting from changes in the exchange rates.
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.
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. Withholding taxes on foreign interest and dividends
have been provided for in accordance with the applicable country's tax rates.
2. 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 .75% of the
first $500 million on the average daily net assets of the Fund and .70% of the
excess over $500 million. The sub-advisor, Fidelity Investments, is paid
directly by the Advisor.
Delaware Service Company ("Delaware"), an affiliate of the Advisor, provides
accounting services and other administration support to the Fund. In return for
these services, the Fund pays Delaware a monthly fee based on average net
assets, subject to certain minimums.
Equity-Income Fund 7
<PAGE>
Notes to Financial Statements - Unaudited - (Continued)
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, 1999.
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 of the Fund is borne by the Fund.
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, 1999 and the
aggregate gross unrealized appreciation, the aggregate gross unrealized
depreciation and the net unrealized appreciation at June 30, 1999 are as
follows:
<TABLE>
<CAPTION>
Aggregate Aggregate Gross Gross Net
Cost of Proceeds Unrealized Unrealized Unrealized
purchases From Sales Appreciation Depreciation Appreciation
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$927,401,121 $920,904,802 $130,667,777 $(28,478,067) $102,189,710
</TABLE>
4. Supplemental Financial Instrument Information
Repurchase Agreements: The Fund, through its custodian, receives delivery of the
underlying securities, whose market value is required to be at least 102% of the
repurchase price. The Advisor is responsible for determining that the value of
the collateral is at least equal to the repurchase price. However, in the event
of default or bankruptcy by the counterparty to the agreement, realization of
the collateral may be subject to legal proceedings.
5. Credit and Market Risks
The Fund invests in foreign securities. As a result, there may be additional
risks, such as the investments being subject to restrictions as to repatriation
of cash back to the United States and to political or economic uncertainties. At
June 30, 1999, the Fund did not have investments in excess of 5% of net assets
in any individual foreign country.
The Fund may invest in illiquid securities which may include securities with
contractual restrictions on resale, securities exempt from registration under
Rule 44A of the Securities Act of 1933, as amended, and other securities which
may be readily marketable. The relative illiquidity of some of these securities
may adversely affect the Fund's ability to dispose of such securities in a
timely manner and at a fair price when it is necessary to liquidate such
securities.
6. Summary of Changes From Capital Share Transactions
<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>
Six months ended
June 30, 1999 (unaudited): 1,226,810 $27,771,507 1,838,483 $42,547,311 (1,145,042) $(25,390,719) 1,920,251 $ 44,928,099
Year ended
December 31, 1998: 5,350,747 111,802,363 1,852,270 37,391,876 (1,837,911) (35,981,266) 5,365,106 113,212,973
</TABLE>
7. 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.
Equity-Income Fund 8
