[FIDELITY INVESTMENTS LOGO]
Lincoln National
Equity-Income Fund, Inc.
Annual Report
December 31, 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
Report of Ernst & Young LLP, Independent Auditors
<PAGE>
Lincoln National Equity-Income Fund, Inc.
Managed by: [FIDELITY INVESTMENTS LOGO]
The Fund returned 6.3% for the year ended December 31, 1999 compared to its
benchmark, the S&P 500 Index,* which returned 21.1%.
In 1999, most major U.S. equity market indices finished with positive
double-digit returns amid increased volatility. This was the fifth consecutive
year of 20%-plus gains for the S&P 500. Market breadth, however, was generally
poor as relatively few stocks did well even though underlying fundamentals for
most companies were reasonably good because of an upswing in global growth and
improved overall profit growth. Although economically sensitive cyclicals had a
period of resurgence in the second quarter, technology stocks with exceptional
fundamentals drove returns as investors anticipated dramatically superior
relative earnings gains amid the rapid growth of Internet and wireless
technologies. Illustrating the impact of technology on full year 1999 returns,
this sector had an average S&P 500 weight of 22%, but produced 69% of the
index's return.
Our equity-income style of investment management did not keep pace with the
strong returns of most major equity market indices, but we performed more in
line with our style benchmark (the Russell 3000 Value Index) which had a return
of 6.7% for the year. In a volatile market environment, investors favored growth
stocks early in the year then shifted toward value stocks and then shifted back
toward growth again in the third and fourth quarters. The performance of the
growth-oriented technology group, including Internet-related stocks, accelerated
in the second half of the year, driving market gains. While certain groups, such
as energy, were helpful to the portfolio, it was difficult for our style of
investing to keep pace, owing mainly to relatively low exposure to technology.
We continued to focus on positions in which we had investment conviction, and we
looked for opportunities to add stocks with growth potential and reasonable
valuations.
Stephen DuFour
Growth of $10,000 invested 1/3/94 through 12/31/99
1/3/94 12/31/98
Equity-Income Fund $10,000 $26,698
S&P 500 Index $10,000 $35,545
This chart illustrates, hypothetically, that $10,000 was invested in the
Equity-Income Fund on 1/3/94. As the chart shows, by December 31, 1999, the
value of the investment at net asset value, with any dividends and capital gains
reinvested, would have grown to $26,698. For comparison, look at how the S&P 500
Index did over the same period. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $35,545. Past
performance is not indicative of future performance. Remember, an investor
cannot invest directly in an index.
Average annual return Ended
on investments 12/31/99
- ---------------------------------------------
One Year + 6.27%
- ---------------------------------------------
Five Years +20.37%
- ---------------------------------------------
Lifetime
(since 1/3/94) +17.78%
- ---------------------------------------------
* Standard & Poor's 500 Index - Broad based measurement of changes in stock
market conditions based on average performance of 500 widely held common
stocks. An investor cannot invest directly in the above index/indexes, which
is/are unmanaged.
Equity-Income Fund 1
<PAGE>
Lincoln National
Equity-Income Fund, Inc.
Statement of Net Assets
December 31, 1999
Investments:
Number Market
Common Stock: of Shares Value
- ------------------------------------------------------------------------------
Aerospace & Defense : 1.3%
- ------------------------------------------------------------------------------
Boeing 320,900 $ 13,337,406
- ------------------------------------------------------------------------------
Automobiles & Auto Parts: 4.6%
Danaher 17,900 863,675
Ford Motor 80,700 4,312,406
Navistar International * 853,900 40,453,513
- ------------------------------------------------------------------------------
45,629,594
Banking, Finance & Insurance: 20.5%
- ------------------------------------------------------------------------------
Ambac Financial Group 48,500 2,531,094
American General 95,700 7,261,238
American International Group 164,337 17,768,938
Axa Financial 157,300 5,328,538
Bank of America 56,140 2,817,527
Block (H&R) 118,900 5,201,875
Chase Manhattan 309,700 24,059,818
Cigna 26,300 2,118,794
Citigroup 230,550 12,809,934
Federal Home Loan 323,500 15,224,718
Federal National Mortgage 507,600 31,693,275
Franklin Resources 69,800 2,237,963
Golden West Financial 65,500 2,194,250
Lehman Brothers Holdings 55,300 4,683,218
Marhall & Ilsley 6,600 414,563
MBNA 33,700 918,325
Marsh & McLennan 41,500 3,971,031
Mellon Financial 396,400 13,502,375
Morgan Stanley Dean Witter 91,400 13,047,350
Northern Trust 66,500 3,551,515
PNC Financial Group 63,100 2,807,950
SLM Holding 87,500 3,696,875
Schwab (Charles) 491,600 18,865,150
Suntrust Banks 52,900 3,640,181
Wells Fargo 76,400 3,089,425
- ------------------------------------------------------------------------------
203,435,920
Buildings & Materials: 0.1%
- ------------------------------------------------------------------------------
Centex 53,000 1,308,438
- ------------------------------------------------------------------------------
Business Services: 0.1%
- ------------------------------------------------------------------------------
Cendant * 26,700 709,219
- ------------------------------------------------------------------------------
Cable, Media & Publishing: 9.3%
- ------------------------------------------------------------------------------
AT&T - Liberty Media Class A * 189,200 10,737,100
Belo A. H. 265,800 5,066,813
Clear Channel Communications * 59,400 5,301,450
Gannett 85,300 6,957,281
InterPublic Group 62,900 3,628,544
Knight-Ridder 79,500 4,730,250
McGraw-Hill 70,500 4,344,563
Meredith 335,100 13,969,481
New York Times 89,900 4,416,338
The News Corporation 181,600 6,946,200
Time Warner 359,666 26,053,306
- ------------------------------------------------------------------------------
92,151,326
Chemicals: 1.8%
- ------------------------------------------------------------------------------
Avery Dennison 18,300 1,333,613
DuPont (E.I.) deNemours 51,461 3,389,993
PPG Industries 115,500 7,225,969
Rohm & Haas 150,300 6,115,331
- ------------------------------------------------------------------------------
18,064,906
Number Market
of Shares Value
- ------------------------------------------------------------------------------
Computers & Technology: 12.0%
- ------------------------------------------------------------------------------
Adobe Systems 400 $ 26,900
Affiliated Computer Services * 9,200 423,200
Apple Computer * 61,100 6,279,934
Automatic Data Processing 128,300 6,912,163
Cabletron Systems * 91,700 2,384,200
Cadence Design Systems * 158,700 3,808,800
Computer Associates International 49,500 3,461,906
Computer Sciences * 50,300 4,759,638
Covad Communications Group * 81,100 4,523,859
Dell Computer * 188,900 9,627,997
Filenet * 58,400 1,503,800
Hewlett-Packard 13,100 1,492,581
Metalink * 400 8,000
Microsoft * 205,400 23,974,031
Psinet * 151,300 9,356,959
Sterling Commerce * 35,600 1,212,625
Syke Enterprises * 2,300 100,913
Unisys * 1,213,018 38,740,762
VA Linux Systems * 400 82,775
- ------------------------------------------------------------------------------
118,681,043
Consumer Products: 1.0%
- ------------------------------------------------------------------------------
CDnow * 11,700 116,086
Gillete 40,100 1,651,619
Minnesota Mining & Manufacturing 86,600 8,475,975
- ------------------------------------------------------------------------------
10,243,680
Electronics & Electrical Equipment - 6.4%
- ------------------------------------------------------------------------------
Advanced Micro Devices * 156,500 4,528,719
Agilent Technologies * 56,200 4,344,963
Analog Devices * 10,600 985,800
Cirrus Logic * 48,300 641,484
Emerson Electric 22,200 1,273,725
Flextronics International * 52,800 2,430,450
General Electric 171,700 26,570,575
Motorola 146,100 21,513,225
Symbol Technologies 17,800 1,131,413
- ------------------------------------------------------------------------------
63,420,354
Energy: 11.1%
- ------------------------------------------------------------------------------
Chevron 34,500 2,988,563
Dynegy 168,800 4,103,950
Enron 108,000 4,792,500
Exxon Mobil 613,600 49,433,150
Kerr-McGee 34,100 2,114,200
Noble Drilling * 325,300 10,653,575
Weatherford Interntional * 888,400 35,480,475
- ------------------------------------------------------------------------------
109,566,413
Farming & Agriculture: 0.2%
- ------------------------------------------------------------------------------
CNH Global 117,700 1,566,881
- ------------------------------------------------------------------------------
Food, Beverage & Tobacco: 2.0%
- ------------------------------------------------------------------------------
Anheuser Busch 120,700 8,554,613
Coca Cola 12,000 699,000
Coca-Cola Enterprises 158,100 3,181,763
Fleming Companies 31,900 326,975
Quaker Oats 103,700 6,805,313
- ------------------------------------------------------------------------------
19,567,664
Healthcare & Pharmaceuticals: 4.2%
- ------------------------------------------------------------------------------
Abbott Laboratories 23,900 867,869
American Home Products 75,200 2,965,700
Baxter International 25,600 1,608,000
Johnson & Johnson 27,000 2,514,375
Lilly (Eli) 348,400 23,168,600
Merck & Company 57,200 3,835,975
Pfizer 71,100 2,306,306
Pharmacia & Upjohn 27,000 1,215,000
Warner-Lambert 36,900 3,023,494
- ------------------------------------------------------------------------------
41,505,319
Equity-Income Fund 2
<PAGE>
Number Market
of Shares Value
- ------------------------------------------------------------------------------
Industrial Machinery: 0.4%
- ------------------------------------------------------------------------------
Caterpillar 70,800 $ 3,332,025
Roper Industries 25,500 964,219
- ------------------------------------------------------------------------------
4,296,244
Leisure, Lodging & Entertainment: 1.5%
- ------------------------------------------------------------------------------
McDonald's 102,700 4,140,094
Walt Disney 382,200 11,179,350
- ------------------------------------------------------------------------------
15,319,444
Metals & Mining: 2.7%
- ------------------------------------------------------------------------------
AK Steel Holding 43,600 822,950
ALCOA 218,082 18,100,806
Newmont Mining 139,100 3,407,950
Phelps Dodge 26,900 1,805,663
USX-U.S. Steel Group 84,400 2,785,200
- ------------------------------------------------------------------------------
26,922,569
Office/Industrial Reits: 0.3%
- ------------------------------------------------------------------------------
Equity Office Properties Trust 130,700 3,218,488
- ------------------------------------------------------------------------------
Retail: 1.2%
- ------------------------------------------------------------------------------
Ames Department Stores * 59,200 1,703,850
CVS 35,500 1,417,781
Gap 121,900 5,607,400
Safeway * 84,200 2,994,363
- ------------------------------------------------------------------------------
11,723,394
Telecommunications: 13.9%
- ------------------------------------------------------------------------------
A T & T 642,850 32,624,638
ADC Telecommunications * 122,700 8,899,580
Bell Atlantic 116,800 7,190,500
BellSouth 524,800 24,567,200
Exodus Communications * 39,400 3,500,444
Go.com * 19,400 461,967
Infonet Services * 3,100 81,376
Lucent Technologies 71,900 5,379,019
MCI Worldcom * 187,733 9,955,689
Qwest Communications International * 225,700 9,698,049
SBC Communications 521,900 25,442,625
Time Warner Telecommunications Class A * 49,200 2,449,238
Tritel * 600 19,018
True North Communications 96,200 4,298,938
Vodafone Air Touch PLC ADR 60,400 2,989,800
- ------------------------------------------------------------------------------
137,558,081
Textiles, Apparel & Furniture: 0.9%
- ------------------------------------------------------------------------------
Nike 172,400 8,544,575
- ------------------------------------------------------------------------------
Transportation & Shipping: 0.4%
- ------------------------------------------------------------------------------
Burlington Northern Santa Fe 49,400 1,197,950
Continental Airlines Class B * 13,800 612,375
Northwest Airlines Class A * 17,900 397,159
Southwest Airlines 48,800 789,950
United Parcel Service Class B 10,800 745,200
- ------------------------------------------------------------------------------
3,742,634
Utilities: 0.4%
- ------------------------------------------------------------------------------
Ipalco Enterprises 201,300 3,434,685
PG&E 8,045 164,928
- ------------------------------------------------------------------------------
3,599,613
Total Common Stock: 96.3%
(Cost $847,228,311) 954,113,205
- ------------------------------------------------------------------------------
Par
Repurchase Agreement: Amount
- ------------------------------------------------------------------------------
State Street Bank and Trust Co.
Repurchase Agreement,
dated 12/31/99, 2.50%, maturing 01/03/00,
collaterized by $28,345,000 U.S. Treasury
Bonds 11.25%, 2/15/15,
market value $41,348,269 $40,532,000 40,532,000
- ------------------------------------------------------------------------------
Market
Value
- ------------------------------------------------------------------------------
Total Repurchase Agreement: 4.1%
(Cost $40,532,000) $ 40,532,000
- ------------------------------------------------------------------------------
Total Investments: 100.4%
(Cost $887,760,311) 994,645,205
- ------------------------------------------------------------------------------
Other Assets Under Liabilities: (0.4%) (3,886,850)
- ------------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $22.047 per share based
on 44,939,395 shares issued
and outstanding) $990,758,355
- ------------------------------------------------------------------------------
Components of Net Assets at December 31, 1999:
- ------------------------------------------------------------------------------
Common Stock, par value $.01 per share,
100,000,000 authorized shares $ 449,394
Paid in capital in excess of par value of shares issued 665,491,794
Undistributed net investment income** 929,784
Accumulated net realized gain on
investments 217,006,214
Net unrealized appreciation of investments and foreign
currencies 106,881,169
- ------------------------------------------------------------------------------
Total Net Assets $990,758,355
- ------------------------------------------------------------------------------
* Non income producing security.
** Undistributed net investment income includes net realized gain on foreign
currencies. Net realized gains on foreign currencies are treated as net
invest- ment income in accordance with provisions of the Internal Revenue
Code.
ADR - American Depository Receipt
See accompanying notes to financial statements.
Equity-Income Fund 3
<PAGE>
Lincoln National Equity-Income Fund, Inc.
Statement of Operations
Year ended December 31, 1999
Investment income:
Dividends $15,298,285
- -------------------------------------------------------------------------------
Interest 1,595,694
- -------------------------------------------------------------------------------
Less: Foreign withholding tax (50,433)
- -------------------------------------------------------------------------------
Total investment income 16,843,546
- -------------------------------------------------------------------------------
Expenses:
Management fees 7,394,087
- -------------------------------------------------------------------------------
Accounting fees 408,203
- -------------------------------------------------------------------------------
Printing and postage 96,465
- -------------------------------------------------------------------------------
Custody fees 72,548
- -------------------------------------------------------------------------------
Professional fees 34,959
- -------------------------------------------------------------------------------
Directors fees 4,200
- -------------------------------------------------------------------------------
Other 55,069
- -------------------------------------------------------------------------------
Total expenses 8,065,531
- -------------------------------------------------------------------------------
Net investment income 8,778,015
- -------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency:
Net realized gain (loss) on:
Investment transactions 217,438,243
- -------------------------------------------------------------------------------
Foreign currency transactions 35,719
- -------------------------------------------------------------------------------
Net realized gain on investment and
foreign currency transactions 217,473,962
- -------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation of:
Investments (167,829,809)
- -------------------------------------------------------------------------------
Foreign currency (12,197)
- -------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation
of investments and foreign currency (167,842,006)
- -------------------------------------------------------------------------------
Net realized and unrealized gain on investments
and foreign currency 49,631,956
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $58,409,971
- -------------------------------------------------------------------------------
Statements of Changes in Net Assets
Year ended Year ended
12/31/99 12/31/98
---------------------------
Changes from operations:
Net investment income $ 8,778,015 $ 12,877,400
- ------------------------------------------------------------------------------
Net realized gain on investment
and foreign currency transactions 217,473,962 39,832,035
- ------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation
on investments and foreign currency (167,842,006) 52,376,328)
- ------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 58,409,971 105,085,763
- ------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (7,883,950) (19,770,253)
- ------------------------------------------------------------------------------
Net realized gain on investment transactions (40,297,143) (17,621,623)
- ------------------------------------------------------------------------------
Total distributions to shareholders (48,181,093) (37,391,876)
- ------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from capital share transactions (11,447,219) 113,212,973
- ------------------------------------------------------------------------------
Total increase (decrease) in net assets (1,218,341) 180,906,860
- ------------------------------------------------------------------------------
Net Assets, beginning of year 991,976,696 811,069,836
- ------------------------------------------------------------------------------
Net Assets, end of year $990,758,355 $991,976,696
- ------------------------------------------------------------------------------
See accompanying notes to financial statements.
Equity-Income Fund 4
<PAGE>
Lincoln National Equity-Income Fund, Inc.
Financial Highlights
(Selected data for each capital share outstanding throughout the year)
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 21.715 $ 20.118 $ 15.780 $ 13.507 $ 10.335
Income from investment operations:
Net investment income(2) 0.189 0.282 0.229 0.288 0.275
Net realized and unrealized gain
on investments and foreign currency 1.204 2.204 4.511 2.451 3.218
-------------------------------------------------
Total from investment operations 1.393 2.486 4.740 2.739 3.493
-------------------------------------------------
Less dividends and distributions:
Dividends from net investment income (0.171) (0.460) - (0.288) (0.275)
Distributions from net realized gain on
investment transactions (0.890) (0.429) (0.402) (0.178) (0.046)
-------------------------------------------------
Total dividends and distributions (1.061) (0.889) (0.402) (0.466) (0.321)
-------------------------------------------------
Net asset value, end of year $ 22.047 $ 21.715 $ 20.118 $ 15.780 $ 13.507
-------------------------------------------------
Total Return(1) 6.27% 12.73% 30.67% 19.81% 34.74%
Ratios and supplemental data:
Ratio of expenses to average net assets 0.79% 0.79% 1.02% 1.08% 1.15%
Ratio of net investment income
to average net assets 0.86% 1.40% 1.46% 1.99% 2.27%
Portfolio Turnover 191.21% 29.04% 17.81% 22.17% 27.81%
Net assets, end of year (000 omitted) $990,758 $991,977 $811,070 $457,153 $238,771
</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) Per share information for the years ended December 31, 1999 and 1998 were
based on the average shares outstanding method.
See accompanying notes to financial statements.
Equity-Income Fund 5
<PAGE>
Lincoln National Equity-Income Fund, Inc.
Notes to Financial Statements
December 31, 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
Security Valuation: All equity securities are valued at the last quoted sales
price as of the close of the New York Stock Exchange (NYSE) on the valuation
date. If on a particular day an equity security does not trade, then the mean
between the bid and asked prices will be used. 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. Foreign dividends are also recorded on
the ex-dividend date or as soon after the ex-dividend date that the Fund is
aware of such dividends, net of all non-rebatable tax withholdings. Withholding
taxes on foreign interest and dividends have been provided for in accordance
with the applicable country's tax rules and rates. 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.
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 denominated in foreign
currencies arise from changes in the value of such assets and liabilities at the
end of the period resulting from changes in 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.
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 6
<PAGE>
Notes to Financial Statements - (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 year
ended December 31, 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 year ended December 31, 1999 and the
aggregate gross unrealized appreciation, the aggregate gross unrealized
depreciation and the net unrealized appreciation at December 31, 1999 are as
follows:
Aggregate Aggregate Gross Gross Net
Cost of Proceeds Unrealized Unrealized Unrealized
purchases From Sales Appreciation Depreciation Appreciation
- --------------------------------------------------------------------------------
$1,884,154,844 $1,930,121,542 $125,549,447 $(18,664,553) $106,884,894
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
December 31, 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 144A of the Securities Act of 1933, as amended, and other securities which
may not 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(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>
Year ended
December 31, 1999: 1,809,799 $ 40,435,319 2,108,094 $48,181,093 (4,659,377) $(100,063,631) (741,484) $ (11,447,219)
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 from net investment income, if any,
semi-annually. Distributions of net realized gains, if any, are declared and
distributed annually.
Equity-Income Fund 7
<PAGE>
Lincoln National Equity-Income Fund, Inc.
Report of Ernst & Young LLP, Independent Auditors
To the Shareholders and Board of Directors
Lincoln National Equity-Income Fund, Inc.
We have audited the accompanying statement of net assets of Lincoln National
Equity-Income Fund, Inc. (the "Fund") as of December 31, 1999, 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 auditing standards generally accepted
in the United States. 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, 1999, 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 Equity-Income Fund, Inc. at December 31, 1999, 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 accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 4, 2000
Equity-Income Fund 8
