<PAGE>
LINCOLN NATIONAL INCOME FUND, INC.
- --------------------------------------------------------------------------------
[ART]
- --------------------------------------------------------------------------------
1995
Annual Report
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Manager Profile.....................................................1
Investment Policies & Objectives....................................1
President's Letter..................................................2
Portfolio Manager's Commentary......................................3
Total Fund Investments..............................................4
Portfolio Performance...............................................4
Annual Performance of the Fund......................................5
Dividend History....................................................5
Asset Classification................................................6
Distribution by Quality.............................................6
Common Stock Market Prices & Net Asset Value History................7
Tax Information.....................................................7
Shareholder Meeting Results.........................................8
Financial Highlights................................................9
Statement of Net Assets............................................11
Statements of Operations...........................................19
Statements of Changes in Net Assets................................20
Statement of Cash Flows............................................21
Portfolio of Investments by Industry Classification................22
Notes to Financial Statements......................................25
Report of Independent Accountants..................................29
Directors & Officers of the Fund...................................30
Corporate Information..............................................31
</TABLE>
<PAGE>
Manager Profile
Throughout its history, your Fund has been managed by investment affiliates of
Lincoln National Corporation. Today, Lincoln Investment Management Inc. (LIM)
brings to the Fund the skills and expertise that it has developed through
management of the assets of Lincoln National Corporation, as well as pension
plans, foundations, endowments, and other asset groupings.
LIM invests in nearly all domestic capital markets and has developed an
increasing international investment presence. LIM currently has over $35 billion
in assets under management, and over the past year, total investment
transactions exceeded $100 billion. The amount and breadth of this investment
expertise and activity allows LIM to deliver substantial value to the investment
process.
LIM also believes in the need for consistency in investment strategy and the
personnel involved in implementing those strategies. We are pleased to say that
the individuals involved with your Fund over the past 15 years are still with
Lincoln today and have senior positions affecting the investment results of the
Fund.
David A. Berry, who had been the Fund's portfolio manager since 1992, was
promoted to oversee several areas within the investment management company. In
February of 1995, David C. Fischer assumed the portfolio management role for the
Lincoln National Income Fund, Inc. Mr. Fischer, who joined LIM in 1988, has
extensive experience in the investment industry and has worked closely with Mr.
Berry to continue the investment strategies the Fund already had in place.
Investment Policies & Objectives
The Fund's primary investment objective is to provide a high level of current
income from interest on fixed-income securities. A secondary objective is to
obtain long-term capital appreciation. Substantially all of the Fund's net
investment income will be distributed through regular dividends to shareholders.
Net realized gains, if any, will be distributed annually in cash, provided the
Fund does not have a capital loss carryforward.
The investment portfolio will have a significant component of direct placement
investments in fixed-income securities. Some of these may have equity
participation rights either through warrants or convertible features. The Fund
also will invest in publicly traded fixed-income securities and high-yield
common stocks.
The Fund may borrow to purchase securities in an amount not exceeding 20 percent
of net assets. The Fund also may invest in non-dollar denominated securities,
however, as of December 31, 1995, has chosen not to do so.
1995 Annual Report Lincoln National Income Fund, Inc.
1
<PAGE>
President's Letter
January 26, 1996
Dear Shareholders,
Nineteen ninety-five was a welcome change from the tumultuous financial markets
of 1994. Following one of the worst bear markets for bonds in history, 1995 was
one of the best. Bonds, as measured by the Lehman Corporate Bond Index, returned
22.3 percent for the year. This compares to the S&P stock index return of 37.5
percent.
The Lincoln National Income Fund, Inc. (LND) was clearly one of the best
performing bond funds of 1995. The Fund's market return was 39.1 percent and the
net asset value (NAV) return was 27.4 percent. The market return, which
incorporates the narrowing of the Fund's discount to NAV, gave our shareholders
returns better than the equity market. The Fund placed second of 32 in NAV
return for its Morningstar peer group in 1995. The Fund's long-term performance
is also exceptional, meriting an upgrade in our Morningstar rating during the
year from 3-star to 4-star.
A variety of factors helped drive the bull run in the bond and equity markets in
1995. The Federal Reserve Bank tightenings embarked upon in 1994 began to impact
the economy in 1995. The result was slowing growth coupled with benign
inflation. This "soft landing" combined with record corporate profits and robust
merger activity were all fuel for rallying financial markets.
We are pleased about LND's comparatively low discount to NAV of 4.3 percent, as
most other closed-end bond funds have larger discounts. A low discount to NAV is
a statement by the market of its confidence in the Fund going forward. We
appreciate the confidence and will continue to work hard to further reduce the
discount and meet investor expectations in 1996 and beyond.
With interest rates at their current low levels, maintaining the Fund's dividend
will continue to be a challenge. However, we will continue to emphasize diligent
credit selection, call-protection, and the utilization of private placements in
the Fund in an attempt to maintain our attractive dividend.
Net investment income for the Fund totaled $9.95 million in 1995 versus $8.66
million for the prior year. On December 18, 1995, the Board of Directors
declared a dividend of $0.43 per share and a capital gains distribution of $0.05
per share. This brought total 1995 payouts to $1.32 per share a 3.1 percent
increase over 1994. The fourth quarter dividend was payable January 17, 1996 to
shareholders of record as of December 29, 1995.
Economic growth has slowed recently, and we see this slow growth continuing into
1996. However, we do not believe an outright recession will occur in the next
twelve months. We see little in the way of inflationary pressures "in the
pipeline," and anticipate CPI inflation falling into the 2 to 2.5 percent range
in the first half of the year. Thus, we see modestly lower interest rates and
maintain a positive outlook on the bond market for 1996. The bond market should
be less volatile -- perhaps taking a breather from the roller coaster movements
of the last two years.
Sincerely,
/S/ H. Thomas McMeekin
- ----------------------
H. Thomas McMeekin
President
1995 Annual Report Lincoln National Income Fund, Inc.
2
<PAGE>
Portfoio Manager's Commentary
In 1995, ten-year Treasury interest rates declined by 225 basis points, more
than offsetting the significant rise in interest rates and resultant bond market
debacle of 1994. To say that we've had a lot of interest rate volatility in the
last two years is quite an understatement.
As noted in the President's letter, the Fund was an exceptional performer in
1995. All of the financial markets enjoyed a very big up year--both stocks and
bonds. This performance was most directly a result of the Federal Reserve-
engineered economic slowdown, the elusive "soft landing." This time however, it
certainly looks like the Fed has succeeded in pushing a recession off into the
future. Record corporate profits also were a major factor in the performance of
the equity markets and the corporate bond market.
Bonds returns come primarily from taking a combination of interest rate risk and
credit risk. Positioning of the Fund in both these risk categories throughout
the year gave rise to above-market returns. The performance of the Fund can be
attributed to the decline in interest rates and the excellent performance of
corporate bonds relative to Treasury bonds. LND benefited from good performances
in several sectors of the bond market in which the Fund had significant
positions. These sectors were: airlines, media and cable, and high-yield or
"junk" bonds.
The leverage of the Fund via the Variable Term Preferred (VTP) continues to
magnify the net asset value (NAV) change in the Fund due to interest rate
changes. This effect is seen by looking at the NAV performance of the Fund over
the last two years. The leverage benefited the Fund's total return in 1995 by
approximately 500 basis points. To a similar degree, the leverage had negative
effect in 1994. We have been making adjustments in the average maturity of the
portfolio and other changes to reduce the interest sensitivity of the NAV.
Although the VTP does add some risk, this instrument is issued at a cost
competitive with the highest-quality corporate commercial paper, and is a very
cheap cost of funds over time. The VTP auctions in the institutional money
market every 28 days. Borrowing in this manner allows the Fund to take advantage
of the historical steepness in the "yield curve"-meaning that the Fund will be
investing in intermediate securities that on average have better yields than the
VTP's short term interest rate borrowing cost. Our plan is to continue borrowing
for the Fund with the VTP, while taking other steps to reduce the Fund's NAV
sensitivity.
For 1996, we still like the airline industry and maintain a significant exposure
to bonds of the companies in this industry (6.2% of the Fund's assets). High-
yield bonds, defined as those rated below BBB, have been reduced from 21% of
assets to 16% of assets during the year. The reduction in the high yield sector
has been made to position the Fund a little more defensively should a recession
crop up unexpectedly in the next 12-18 months. We are comfortable with our
continued healthy exposure to the bonds of this economically sensitive sector,
as our view is that the Fed has averted a near-term recession with the beginning
of an easing in monetary policy in late 1995.
We are watching the budget showdown in Washington closely. The financial markets
in 1995 built in significant optimism for long-term budget deficit reduction. If
the end result dashes these hopes, the financial markets could be in for a
correction.
The Fund has been emphasizing the acquisition of private placement securities in
an attempt to maintain a high level of income. Private placements during the
year grew from 9% of assets to 16% of assets. We plan to continue to grow
private placements in 1996, especially looking for those that have convertible
or other equity-type features.
1995 Annual Report Lincoln National Income Fund, Inc.
3
<PAGE>
Total Fund Investments
At Market or Fair Values as of December 31
<TABLE>
<CAPTION>
1995 1994 1993
$ (000) % of Total $ (000) % of Total $ (000) % of Total
------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Public Debt Securities $109,552 80% $103,297 84% $102,541 91%
Direct Placement Securities 22,301 16 11,686 9 7,190 6
Common Stocks 1,279 1 1,771 1 1,939 2
Preferred Stocks 1,870 1 1,980 2 --- ---
Short-Term Investments 1,998 2 2,756 2 5,701 5
Partnerships 50 0 --- --- --- ---
Other Assets over Liabilities 113 0 2,193 2 (4,189) (4)
-------- --- -------- --- -------- ---
Net Assets $137,163 100% $123,683 100% $113,182 100%
======== === ======== === ======== ===
</TABLE>
Portfolio Performance
As of December 31, 1995
The following graph presents the cumulative net asset value total return for the
Fund compared to the Lehman Corporate Bond Index and the Standard & Poor's 500
Index of common stocks (with dividends reinvested).
The graph below shows each category's results of what $1,000 invested in 1973
would have grown to by the end of 1995 assuming reinvestment of dividends.
[GRAPH APPEARS HERE]
[PLOT POINTS TO COME]
The table below displays the net asset value total return for the Fund on a
cumulative basis compared to the Lehman Corporate Bond Index and Standard &
Poor's 500 Index of common stocks (with dividends reinvested).
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years 15 Years 23 Years
<S> <C> <C> <C> <C> <C> <C>
Lincoln National Income Fund, Inc. 27.35% 36.49% 77.14% 200.00% 523.61% 1,023.20%
Lehman Corporate Bond Index 22.25 30.40 62.91 156.38 443.17 693.64
Standard & Poor's 500 Index 37.53 53.35 115.18 299.54 692.22 1,214.18
</TABLE>
1995 Annual Report Lincoln National Income Fund, Inc.
4
<PAGE>
Annual Performance of
Lincoln National Income Fund, Inc. vs. Indices
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Year Income Fund Lehman Corporate S&P 500 Index Year Income Fund Lehman Corporate S&P 500 Index
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1973 3.20% 2.28% (14.69%) 1985 17.30% 21.30% 31.73%
1974 (12.60%) 0.17% (26.47%) 1986 17.55% 15.62% 18.67%
1975 13.03% 12.30% 37.23% 1987 5.04% 2.29% 5.25%
1976 17.24% 15.59% 23.93% 1988 15.35% 7.58% 16.56%
1977 7.82% 2.99% (7.13%) 1989 17.38% 14.23% 31.63%
1978 7.28% 1.18% 6.58% 1990 1.31% 8.28% (3.11%)
1979 12.92% 2.30% 18.60% 1991 21.34% 16.13% 30.40%
1980 15.37% 3.06% 32.46% 1992 6.96% 7.58% 7.61%
1981 4.73% 7.26% (4.92%) 1993 15.89% 11.03% 10.06%
1982 26.24% 31.10% 21.55% 1994 (7.52%) (3.93%) 1.31%
1983 14.67% 7.99% 22.56% 1995 27.35% 22.25% 37.53%
1984 16.88% 15.02% 6.27%
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</TABLE>
Lincoln National Income Fund, Inc. has provided a superior long-term performance
record. The data in the table above indicates that the fund has provided a
positive total return in 21 of its 23 years of existence.
Dividend History
The Fund in its lifetime has distributed common dividends of $26.08 which
represents 208.6 percent of its offering price of $12.50 as adjusted for the
1993 common stock split. On February 27, 1992, the Fund changed its policy of
retaining long-term capital gains to one of distributing them. Long-term capital
gains paid in 1995 totaled $0.05 per share on a common stock equivalent basis.
Previous year retention's allowed the Fund to grow its assets by $6,490,689
which is net of capital gains tax. The table below shows the 23-year common
dividend per share history as adjusted for the two-for-one stock split.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Year Annual Dividend Year Annual Dividend Year Annual Dividend
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1973 $0.69 1981 $1.04 1989 $1.17
1974 0.86 1982 1.12 1990 1.18
1975 0.73 1983 1.14 1991 1.15
1976 0.87 1984 1.20 1992 1.68
1977 0.90 1985 1.27 1993 1.77
1978 0.90 1986 1.17 1994 1.28
1979 0.92 1987 1.52 1995 1.32
1980 0.97 1988 1.23
- ------------------------------------------------------------------------------------
</TABLE>
1995 Annual Report Lincoln National Income Fund, Inc.
5
<PAGE>
Asset Classification
As of December 31, 1995
Direct Placement 16.3% Other Assets 1.5%
Equities 2.3%
Public Debt 79.9%
[PIE CHART APPEARS HERE]
Note: "Other Assets" includes Short-Term Investments.
Distribution by Quality
As of December 31, 1995
AAA..............................9.65%
AA...............................3.36%
A...............................23.98%
BBB.............................26.60%
BB..............................14.86%
B................................1.29%
Direct Placements...............16.38%
Equities.........................2.34%
Short-Term Investments...........1.46%
Other Assets.....................0.08%
[GRAPH APPEARS HERE]
1995 Annual Report Lincoln National Income Fund, Inc.
6
<PAGE>
Common Stock Market Prices & Net Asset Value History *
<TABLE>
<CAPTION>
Market Price Market Price Market Price Net Asset Net Asset Net Asset
High Low Close Volume Value High Value Low Value Close
<S> <C> <C> <C> <C> <C> <C> <C>
1995
1st Quarter $12.25 $10.63 $12.00 229,000 $13.25 $12.25 $13.19
2nd Quarter 13.00 11.75 12.88 328,000 14.25 13.19 14.14
3rd Quarter 13.00 12.25 12.75 218,100 14.30 13.82 14.22
4th Quarter 14.25 12.50 13.63 277,500 14.54 14.17 14.22
1994
1st Quarter $16.25 $14.75 $15.50 141,500 $14.90 $13.91 $13.91
2nd Quarter 16.00 13.25 13.37 328,900 13.80 13.27 13.27
3rd Quarter 13.38 11.38 12.25 323,400 13.35 12.75 12.75
4th Quarter 12.25 10.75 10.75 214,600 12.76 12.25 12.25
1993
1st Quarter $15.13 $13.44 $14.81 188,200 $15.27 $14.24 $15.26
2nd Quarter 15.44 14.38 15.38 145,800 15.46 15.04 15.44
3rd Quarter 16.81 14.94 16.31 217,800 15.73 15.46 15.68
4th Quarter 17.38 15.00 15.00 164,900 15.92 14.63 14.63
</TABLE>
Market prices, volume and net asset values have been restated to reflect a two-
for-one stock split effective October 15, 1993. Shares are listed on the New
York Stock Exchange under the trading symbol LND.
Tax Information
Income dividends received by a shareholder must be reported for federal income
tax purposes as ordinary income. The Fund distributed $1.32 per share to common
holders for the tax year 1995. Common dividend payments made in June, September
and December 1995 and mid-January 1996 are taxable in the 1995 tax year.
In accordance with the Tax Reform Act of 1986, regulated investment companies
are required to distribute at least 98 percent of their net investment income
earned in the calendar year to avoid a 4 percent federal excise tax on
undistributed net investment income. Under the act, dividends declared in
December, payable to shareholders of record on a date in December and paid
before the following February 1, are treated as paid by the Fund and received by
the shareholders in December.
The extent to which the following dividend payments qualify (as provided by the
Internal Revenue Code and subject to certain limitations set forth therein) for
the dividend received deduction for corporations, is shown in the table below.
<TABLE>
<CAPTION>
Common Preferred
Shareholders Shareholders
<S> <C> <C>
Ordinary Income Dividend Amount $ 1.27 $ 55.94**
Long-Term Capital Gains $ 0.05 $ 2.53**
Corporation's Dividend Received Deduction - Percent 1.78106% 1.78106%
Corporation's Dividend Received Deduction - Amount Per Share $0.0235 $ 1.0414
</TABLE>
* Unaudited
** Based on 40,000 shares of preferred stock outstanding.
1995 Annual Report Lincoln National Income Fund, Inc.
7
<PAGE>
Shareholder Meeting Results
The Fund had their annual Shareholder meeting on May 19, 1995. Two proposals
were presented to shareholders for vote. Proposal I - "Election of Directors"
and Proposal II - "Ratification of the Selection of Auditors." A total of
5,253,128 of Common Stock shares (76.89% of the total outstanding common shares)
and 28,200 of Variable Term Preferred (VTP) stock shares (70.50% of the total
outstanding VTP shares) were voted. The following table highlights the results
of the vote.
<TABLE>
<CAPTION>
Number of Number of Number of
Shares Voted Shares Voted Shares
FOR AGAINST ABSTAINED
--- ------- ---------
<S> <C> <C> <C> <C>
PROPOSAL I
Election of Directors - Common A. Cepeda 5,121,702 131,426 ---
R. Deshaies 5,121,458 131,670 ---
C. Freund 5,117,561 135,567 ---
T. McMeekin 5,117,770 135,358 ---
D. Toll 5,118,343 134,785 ---
A. Warner 5,090,315 162,813 ---
F. Young 5,104,828 148,300 ---
Election of Directors - VTP R. Burridge 28,200 0 ---
A. Cepeda 28,200 0 ---
R. Deshaies 28,200 0 ---
C. Freund 28,200 0 ---
T. Mathers 28,200 0 ---
T. McMeekin 28,200 0 ---
D. Toll 28,200 0 ---
A. Warner 28,200 0 ---
F. Young 28,200 0 ---
PROPOSAL II
Ratification of the Selection of Auditor
(Coopers & Lybrand L.L.P.) 5,078,919 108,903 65,306
</TABLE>
1995 Annual Report Lincoln National Income Fund, Inc.
8
<PAGE>
Financial Highlights
Year Ended December 31
(For each share of common stock outstanding throughout the year)
<TABLE>
<CAPTION>
1995 1994 1993 1992
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ($) $12.25 $14.63 $14.18 $14.85
Net Investment Income 1.46 1.47 1.56 1.36
Net Realized and Unrealized Gain\(Losses)
on Investments 2.17 (2.18) 0.92 (0.01)
------ ------ ------ ------
Total from Investment Operations 3.63 (0.71) 2.48 1.35
Reduction due to Stock Rights Offering --- (0.10) --- ---
Preferred Stock Underwriting Discounts
and Offering Costs --- --- --- (0.23)
Less Distributions
Dividends from Net Investment Income:
To Preferred Shareholders (0.29) (0.27) (0.19) (0.08)
To Common Shareholders (1.16) (1.20) (1.31) (1.31)
Distributions from Net Realized Gains
To Preferred Shareholders (0.05) (0.02) (0.07) (0.03)
To Common Shareholders (0.16) (0.08) (0.46) (0.37)
------ ------ ------ ------
Total Distributions (1.66) (1.57) (2.03) (1.79)
------ ------ ------ ------
Net Asset Value, End of Period ($) $14.22 $12.25 $14.63 $14.18
====== ====== ====== ======
Per Share Market Value, End of Period ($) $13.63 $10.75 $15.00 $14.31
Total Investment Return (based on Market Value) 39.07% (19.80%) 17.17% 15.78%
Ratios/Supplemental Data
Net Assets, End of Period (000) $137,163 $123,683 $113,181 $109,466
Ratio of Expenses to Average Net Assets 1.14% 1.19% 1.17% 1.00%
Ratio of Net Income to Average Net Assets 7.44% 7.31% 6.76% 7.56%
Portfolio Turnover Rate 26.98% 33.64% 43.72% 97.63%
</TABLE>
(_) Denotes deduction.
Shares outstanding and per share amounts for 1993 and prior are restated for
two-for-one stock split effective October 15, 1993.
The accompanying notes are an integral part of the financial statements.
1995 Annual Report 9 Lincoln National Income Fund, Inc.
<PAGE>
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C>
$13.40 $14.44 $13.35 $12.83 $13.68 $12.88
1.15 1.17 1.15 1.16 1.21 1.21
1.45 (1.03) 1.11 0.59 (0.54) 0.76
------ ------ ------ ------ ------ ------
2.60 0.14 2.26 1.75 0.67 1.97
--- --- --- --- --- ---
--- --- --- --- --- ---
--- --- --- --- --- ---
(1.15) (1.18) (1.16) (1.16) (1.52) (1.17)
--- --- --- --- --- ---
--- --- (0.01) (0.07) --- ---
------ ------ ------ ------ ------ ------
(1.15) (1.18) (1.17) (1.23) (1.52) (1.17)
------ ------ ------ ------ ------ ------
$14.85 $13.40 $14.44 $13.35 $12.83 $13.68
====== ====== ====== ====== ====== ======
$13.81 $11.88 $12.94 $11.88 $11.50 $12.88
25.96% 0.87% 18.80% 13.96% 1.13% 15.84%
$72,752 $65,652 $70,740 $65,383 $62,870 $67,030
0.97% 0.97% 0.96% 0.97% 0.93% 0.91%
8.05% 8.49% 8.04% 8.43% 8.93% 8.90%
15.07% 28.85% 44.46% 63.39% 46.71% 29.68%
</TABLE>
1995 Annual Report 10 Lincoln National Income Fund, Inc.
<PAGE>
Statement of Net Assets
As of December 31, 1995
<TABLE>
<CAPTION>
Investments - Notes A & B
Public Debt Securities (79.9%) Par Market or
Amount Cost Fair Value
------ ---- -----------
<S> <C> <C> <C>
ADT Operations Inc.
8.25% Senior Notes, 8/1/00 $250,000 $250,000 $264,375
AK Steel Corporation
10.75% Guaranteed Senior Note, 4/1/04 250,000 251,250 276,875
Alcan Aluminum LTD
9.70% Debenture, 10/15/96 1,000,000 998,200 1,031,820
AllState Corporation
7.50% Bond, 6/15/13 1,000,000 911,180 1,067,530
American Airlines 1988-A Grantor Trusts
9.83% Equipment Note Pass Through
Certificates Series 1988-A3, 1/1/02 1,311,066 1,311,066 1,438,003
AMR Corporation
10.00% Bond, 4/15/21 1,000,000 1,028,860 1,241,190
Arkla Inc.
10.00% Debenture, 11/15/19 1,000,000 1,117,400 1,141,890
Atlantic Richfield Company
9.00% Debenture, 4/1/21 1,000,000 1,103,470 1,272,790
Bally Park Place Funding
9.25% First Mortgage Bonds, 3/15/04 250,000 214,375 252,500
Banc One Corporation
9.875% Subordinated Notes, 3/1/09 1,000,000 1,152,890 1,295,930
BankAmerica Corporation
10.00% Bond, 2/1/03 1,000,000 1,183,100 1,217,610
Browning-Ferris Industries Inc.
6.75% Convertible Eurobond, 7/18/05 500,000 507,500 501,250
(convertible into 9,524 common shares)
BVPS II Funding Corporation
8.33% Collateralized Lease Bond, 12/1/07 1,495,000 1,541,435 1,444,544
Capital Cities/ABC Inc.
8.875% Senior Notes, 12/15/00 1,000,000 1,006,630 1,129,220
Caterpillar Inc.
6.00% Debenture, 5/1/07 1,000,000 882,159 985,760
Cemex SA+
10.00% Eurobond Medium-Term Note, 11/5/99 250,000 222,500 237,812
Chrysler Financial Corporation
9.50% Senior Notes, 12/15/99 1,000,000 1,120,000 1,123,290
Cleveland Electric Illuminating Company
7.625% First Mortgage Bonds, 8/1/02 1,000,000 961,790 967,090
Coastal Corporation
9.75% Debenture, 8/1/03 1,000,000 1,150,890 1,193,090
Coca-Cola Enterprises Inc.
8.00% Note, 1/4/05 1,000,000 1,130,150 1,139,770
</TABLE>
The accompanying notes are an integral part of the financial statements.
1995 Annual Report 11 Lincoln National Income Fund, Inc.
<PAGE>
Statement of Net Assets (continued)
<TABLE>
<CAPTION>
Public Debt Securities (continued) Par Market or
Amount Cost Fair Value
------ ---- -----------
<S> <C> <C> <C>
Commonwealth Edison Inc.
8.625% First Mortgage Bond, 2/1/22 $1,000,000 $939,620 $1,099,690
ConAgra Inc.
7.40% Subordinated Debt Securities, 9/15/04 1,500,000 1,495,140 1,584,045
Container Corporation of America
11.25% Senior Note Series A, 5/1/04 250,000 258,750 255,000
Cyprus Amax Minerals Company
7.375% Note, 5/15/07 500,000 517,255 534,065
Delta Air Lines Inc.
9.90% Equipment & Trust Certificates 1,473,000 1,564,297 1,716,502
Series 1988 C, 6/16/02
Discover Credit Corporation
8.73% Medium Term Notes Series II, 8/15/96 1,000,000 1,015,180 1,019,610
Domtar Inc.
11.25% Debenture, 9/15/17 250,000 267,250 265,000
Donaldson Lufkin & Jenrette Inc.
6.875% Senior Notes, 11/1/05 500,000 496,755 512,340
Dow Capital B.V.
9.00% Guaranteed Debenture, 5/15/10 1,000,000 1,186,170 1,212,010
Duquesne II Funding Corporation
8.70% Collateralized Lease Bonds, 6/1/16 990,000 990,000 1,109,236
EI Dupont Nemour
8.25% Debenture, 1/15/22 1,000,000 1,097,680 1,124,350
Enron Corporation
9.50% Credit Sensitive Notes, 6/15/01 1,000,000 1,141,040 1,160,760
Essex Group Inc.
10.00% Senior Note, 5/1/03 250,000 243,125 245,000
Federal Express Corporation - Global
9.875% Note, 4/1/02 1,250,000 1,400,000 1,480,387
Federal Home Loan Mortgage Corp. (FHLMC)
7.80% REMIC Series 46 Class B, 9/15/20 1,289,728 1,140,238 1,331,760
7.00% Pass-through - Series 7 Class A, 9/17/31 997,980 970,848 1,005,465
Federal National Mortgage Association (FNMA)
9.20% Guaranteed REMIC Pass-Through 1,316,935 1,289,414 1,361,355
Certificates 88-14 Class F, 12/25/17
Federated Department Stores
10.00% Senior Note, 2/15/01 250,000 250,000 270,625
First Interstate Bancorp
8.15% Subordinated Notes, 3/15/02 1,000,000 1,000,000 1,045,680
First USA Bank
7.65% Subordinated Notes, 8/1/03 1,000,000 1,000,000 1,037,030
Fleet/Norstar Group
8.625% Subordinated Note, 1/15/07 1,000,000 1,044,630 1,172,350
</TABLE>
The accompanying notes are an integral part of the financial statements.
1995 Annual Report 12 Lincoln National Income Fund, Inc.
<PAGE>
Statement of Net Assets (continued)
<TABLE>
<CAPTION>
Public Debt Securities (continued) Par Market or
Amount Cost Fair Value
------ ---- -----------
<S> <C> <C> <C>
Fleming Companies Inc.
8.74% Medium-Term Notes Series B, 9/19/02 $1,000,000 $997,540 $843,230
Ford Holdings Inc.
9.25% Guaranteed Notes, 7/15/97 1,000,000 998,710 1,053,910
General Electric Capital Corporation
8.75% Notes, 5/21/07 1,000,000 1,108,350 1,214,130
General Motors Acceptance Corporation
8.875% Notes, 6/1/10 1,500,000 1,656,000 1,826,670
Georgia Pacific Corporation
9.50% Debentures, 5/15/22 1,500,000 1,551,450 1,756,515
Government National Mortgage Assoc. (GNMA)
9.00% Pass-Through Certificate POOL #
309771, 8/15/21 1,357,748 1,463,847 1,441,046
9.00% Pass-Through Certificate POOL #
349329, 3/15/23 3,158,527 3,405,306 3,348,291
Greentree Financial Corporation
8.65% Subordinated Note, Class B1, Series
94-6, 1/15/20 1,000,000 988,594 1,079,687
Gulf States Utilities Company
6.41% First Mortgage Bonds, 8/1/01 500,000 489,615 502,760
Hilton Hotel Corporation
7.70% Senior Note, 7/15/02 500,000 508,915 524,670
Houston Lighting & Power Company
9.80% Collateralized Medium Term Notes,
Series B, 2/15/99 1,500,000 1,467,165 1,667,040
Huntsman Corporation
10.625% First Mortgage Bonds, 4/15/01 250,000 254,687 280,000
INCO LTD
9.60% Debenture, 6/15/22 1,000,000 1,084,580 1,153,700
Keystone Group
9.75% Senior Secured Note, 9/1/03 200,000 192,000 193,000
Kinder Care Learning Centers
10.375% Senior Note, 6/1/01 250,000 251,250 263,125
Kmart Corporation
8.125% Note, 12/1/06 250,000 210,470 188,053
Lehman Brothers Holding Company
8.875% Senior Note, 3/1/02 500,000 533,875 558,500
Long Island Lighting Company
7.05% Debenture, 3/15/03 1,000,000 969,060 979,120
9.75% General Refunding Mortgage, 5/1/21 1,000,000 988,290 1,059,690
Louisiana Power & Light Company
10.67% Waterford 3 Secured Lease Obligation
Bonds, 1/2/17 1,000,000 996,250 1,084,810
Mark IV Industries Inc.
8.75% Senior Subordinated Notes, 4/1/03 250,000 250,000 261,875
</TABLE>
The accompanying notes are an integral part of the financial statements.
1995 Annual Report 13 Lincoln National Income Fund, Inc.
<PAGE>
Statement of Net Assets (continued)
<TABLE>
<CAPTION>
Par Market or
Public Debt Securities (continued) Amount Cost Fair Value
------ ---- ----------
<S> <C> <C> <C>
McDonnell Douglas Corporation
9.25% Notes, 4/1/02 $1,000,000 $1,142,300 $1,157,300
MCI Communications Corporation
7.50% Senior Notes, 8/20/04 1,000,000 1,013,020 1,096,660
Merrill Lynch Mortgage Investors Inc.
10.00% Manufactured Housing Contract
Pass-Through Certificates Series 1990-A1,
3/15/10 828,968 824,326 940,464
Mid-State Homes
8.33% Class A, Series 1, 4/1/30 969,545 969,395 1,046,048
National Rural Utilities Cooperative Finance Corp.
9.80% Medium Term Notes Series B, 5/6/96 1,000,000 1,037,760 1,013,150
Nationsbank Corporation
8.125% Subordinated Notes, 6/15/02 2,000,000 1,995,000 2,207,200
Nationwide +
9.875% Contingent Surplus Notes, 2/15/25 1,000,000 1,092,350 1,168,060
New England Telephone & Telegraph
9.00% Debentures, 8/1/31 1,000,000 1,007,300 1,219,100
Niagara Mohawk Power Corporation
9.25% First Mortgage Bonds, 10/1/01 500,000 503,490 511,455
Noranda Inc.
8.00% Yankee Bond, 6/1/03 1,500,000 1,500,000 1,644,330
Nynex Corporation
9.55% Debenture, 5/1/10 1,819,766 2,189,288 2,164,940
Occidental Petroleum Corporation
11.75% Senior Debentures, 3/15/11 1,700,000 1,755,250 1,796,356
Olympic Financial LTD
13.00% Senior Note, 5/1/00 250,000 253,437 272,500
Oryx Energy Company
10.00% Debenture, 4/1/01 1,000,000 1,036,380 1,122,100
PacifiCorp
8.29% Secured Medium Term Note, Series C,
12/30/11 1,000,000 1,000,000 1,153,460
Peco Energy Company
7.125% 1st Refunding Mortgage Bond, 9/1/02 1,500,000 1,500,375 1,578,840
Pennsylvania Power & Light Corporation
8.50% First Mortgage Bonds, 5/1/22 500,000 534,295 566,825
Pennzoil Company
10.125% Debenture, 11/15/09 1,000,000 1,134,440 1,277,490
Playtex Family Products Corporation
9.00% Senior Subordinated Note, 12/15/03 250,000 225,625 220,000
Province de Quebec
11.00% Yankee Bond, 6/15/15 1,000,000 1,072,720 1,204,840
</TABLE>
The accompanying notes are an integral part of the financial statements.
1995 Annual Report Lincoln National Income Fund, Inc.
14
<PAGE>
Statement of Net Assets (continued)
<TABLE>
<CAPTION>
Par Market or
Public Debt Securities (continued) Amount Cost Fair Value
------ ---- ----------
<S> <C> <C> <C>
Prudential Home Mortgage Securities Co. Inc.
6.70% Mortgage Pass-Through Certificates $1,000,000 $965,469 $1,011,440
Series 1992-39 Class A-5, 12/25/07
Resolution Trust Corporation
8.80% Mortgage Pass-Through Certificates, 530,576 529,093 538,535
Series 1992-C1, Class A1, 8/25/23
Riverwood International Corporation
10.375% Senior Subordinated Note, 6/30/04 250,000 247,500 278,125
RJR Nabisco Inc.
9.25% Debenture, 8/15/13 2,000,000 1,830,060 2,092,260
Safeway Inc.
9.875% Senior Subordinated Debentures, 3/15/07 250,000 274,375 287,500
Salomon Inc.
5.26% Step-up Medium Term Note, 2/10/99 1,079,000 985,871 1,080,629
Scotsman Group
9.50% Senior Secured Note, 12/15/00 250,000 232,812 250,000
Sears Roebuck & Company
10.00% Medium Term Note, 2/3/12 1,000,000 1,156,840 1,306,500
9.05% Medium Term Note, 2/6/12 1,000,000 1,059,380 1,215,780
Sequa Corporation
8.75% Senior Notes, 12/15/01 250,000 250,937 236,250
Showboat Inc.
9.25% First Mortgage Bonds, 5/1/08 250,000 212,500 249,375
Sweetheart Cup Company
9.625% Senior Note, 9/1/00 250,000 241,563 252,500
Tele-Communications Inc.
9.25% Debenture, 1/15/23 2,000,000 1,993,580 2,188,200
Tenneco Inc.
10.00% Notes, 8/1/98 1,000,000 1,136,560 1,100,370
Texas Instruments Inc.
8.75% Note, 4/1/07 1,000,000 1,067,180 1,197,940
Texas Utilities Electric Company
7.375% First Mortgage and Collateral 1,000,000 999,375 1,059,180
Trust Bonds, 8/1/01
The Van Kampen Merritt Companies, Inc.
9.75% Senior Secured Notes, 2/15/03 250,000 260,000 258,750
Time Warner Inc.
9.125% Debentures, 1/15/13 1,500,000 1,592,520 1,687,710
Travelers Inc.
8.625% Notes, 2/1/07 1,500,000 1,582,140 1,767,045
Turner Broadcasting Inc.
7.40% Senior Notes, 2/1/04 250,000 249,612 251,250
UNC Inc.
9.125% Senior Notes, 7/15/03 250,000 250,000 242,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
1995 Annual Report Lincoln National Income Fund, Inc.
15
<PAGE>
Statement of Net Assets (continued)
<TABLE>
<CAPTION>
Par Market or
Public Debt Securities (continued) Amount Cost Fair Value
------ ---- ----------
<C> <C> <C>
Union Oil Company of California
9.75% Guaranteed Note, 12/1/00 $1,000,000 $1,119,400 $1,160,430
Uniroyal Chemical Co. Inc.
9.00% Senior Note, 9/1/00 250,000 236,875 250,000
United Airlines Inc.
8.70% Pass-Through Trust, Series 92-A1,10/7/08 975,329 971,730 1,053,355
11.21% Debenture, 5/1/14 1,000,000 1,258,300 1,329,310
9.35% Pass-Through, Series 1992A, 4/7/16 1,500,000 1,516,845 1,718,145
Virginia Electric & Power Company
9.35% Medium Term Notes, Series A, 6/22/98 1,000,000 991,640 1,083,570
-----------------------------
Total Public Debt Securities 102,717,099 109,552,188
Direct Placement Securities (16.3%) - Notes A & B
Date of Initial
Debt Acquisition
- ---- -----------
Anglo Irish Bank Corporation PLC
9.10% Notes Series A, 9/30/06 09/30/94 1,000,000 1,000,000 1,157,893
Champion Healthcare Corporation
11.00% Senior Subordinated Note, 12/31/03 06/12/95 500,000 490,452 490,455
Coca-Cola Femsa SA DE
9.40% Convertible Senior Note, 8/15/04 08/05/94 1,000,000 1,000,000 1,052,951
Concordia Maritime
9.29% 1st Preferred Ship Mortgage Note, 6/30/99 04/15/94 1,000,000 1,000,000 1,046,329
Crown Pacific Limited Partnership
9.78% Senior Notes, 12/1/09 08/22/95 1,000,000 1,100,310 1,146,939
Del Monte Corporation
18.00% Senior Secured Note, 12/1/01 06/22/95 508,000 508,000 550,332
Desert Eagle Distributing of El Paso Inc.
13.00% Senior Subordinated Note, 11/1/99 05/07/92 1,750,000 1,529,500 1,750,000
Dow Chemical Company
17.25% Certificate of Interest, 1/2/03 03/25/92 1,891,396 1,891,396 2,612,396
Huron Technologies Corporation
14.00% Subordinated Note, 5/15/05 02/20/95 550,000 421,667 421,668
Louis Dreyfus Corporation
8.43% Senior Note, 7/15/01 07/20/94 1,000,000 1,000,000 1,076,537
Murray's Discount Auto Stores, Inc.
11.00% Senior Subordinated Notes, 9/30/03 10/02/95 500,000 478,000 478,000
Nebraska Book Company, Inc.
12.00% Senior Subordinated Notes, 8/31/05 08/31/95 500,000 500,000 500,000
New Boston Garden Corporation
8.45% Senior Secured Notes, 9/22/15 09/22/95 995,115 995,115 1,046,506
</TABLE>
The accompanying notes are an integral part of the financial statements.
1995 Annual Report Lincoln National Income Fund, Inc.
16
<PAGE>
Statement of Net Assets (continued)
<TABLE>
<CAPTION>
Date of
Initial Par Market or
Direct Placement Securities (continued) Acquisition Amount Cost Fair Value
----------- ------ ---- ----------
<S> <C> <C> <C> <C>
Penn Fuel Gas Inc.
7.51% Note, 4/15/14 05/25/94 $1,000,000 $1,000,000 $1,070,835
Planet Hollywood International, Inc.
10.00% Senior Subordinated Debenture, 8/15/00 08/22/95 750,000 562,500 562,500
Refco Group, LTD
8.21% Senior Note, 5/16/02 05/08/95 1,000,000 1,000,000 1,054,623
Stackpole Magnetic Systems Inc.
13.50% Senior Subordinated Notes, 10/15/05 09/01/95 380,000 351,500 351,500
Steel Dynamics Inc.
11.00% Senior Subordinated Promissory Note, 12/23/94 1,000,000 882,750 875,236
9/30/02
Steel Technologies Inc.
8.52% Senior Notes, 3/1/05 02/06/95 500,000 500,000 551,726
The Money Store Inc.
9.00% Senior Notes, 3/31/02 02/22/95 1,000,000 1,000,000 1,098,043
United States Playing Card Company
12.00% Subordinated Note, 11/18/04 11/18/94 500,000 470,000 500,000
West Fraser Mills LTD
8.44% Guaranteed Senior Notes, 6/30/04 04/15/94 1,000,000 1,000,000 1,103,649
----------------------------
Total Direct Placement Debt 18,681,190 20,498,118
Equities Quantity
- -------- --------
Bicycle Holding Inc. *
Common Stock 11/18/94 8 30,000 62,842
Champion Healthcare Corporation *
Stock Warrants (entitled to purchase 7,500 shares of
common stock for $9.00 per share. Expires 12/31/03) 04/17/95 1 9,548 9,548
Desert Eagle Distributing of El Paso Inc. *
Equity Appreciation Rights Certificate (entitled
to receive the equivalent of the purchase price of 88,325
shares of common stock on or after 5/1/97).
05/07/92 1 220,500 1,082,053
Huron Technologies Corporation *
Stock Warrants (entitled to purchase 59 shares of
common stock for $.06 per share. Expires 2/20/05). 02/20/95 1 128,333 128,319
Murray's Discount Auto Stores, Inc. *
Stock Warrants (entitled to purchase 25 shares of
common stock for $.01 per share. Expires 8/31/03). 10/02/95 1 22,000 22,000
Nebraska Book Company, Inc. *
Common Stock 08/31/95 3,704 37,040 37,040
Nebraska Book Company, Inc. *
Stock Warrants (entitled to purchase 7,071 shares of
common stock for $10 per share. Expires 8/31/05) 08/31/95 1 1 1
Planet Hollywood International, Inc. *
Stock Warrant (entitled to purchase 47,932 shares of
common stock for $.01 per share. Expires 7/31/00). 08/22/95 1 187,500 187,510
</TABLE>
The accompanying notes are an integral part of the financial statements.
1995 Annual Report Lincoln National Income Fund, Inc.
17
<PAGE>
Statement of Net Assets (continued)
<TABLE>
<CAPTION>
Date of Initial Market or
Direct Placement Securities (continued) Acquisition Quantity Cost Fair Value
----------- -------- ---- ----------
<S> <C> <C> <C> <C>
Stackpole Magnetic Systems *
Stock Warrants (entitled to purchase 54,582 shares of 09/01/95 1 $28,500 $28,492
common stock for $.01 per share. Expires 9/1/05).
Stackpole Magnetic Systems *
8.00% Cumulative Convertible Preferred Stock 09/01/95 120,000 120,000 120,000
Steel Dynamics Holdings Inc. *
Stock Warrants (entitled to purchase 1,064 shares of Class 12/23/94 1 117,249 124,839
A Common Shares for $.01 per share. Expires 12/23/04)
----------------------------
Total Direct Placement Equities 900,671 1,802,644
----------------------------
Total Direct Placement Securities 19,581,861 22,300,762
Preferred Stocks (1.4%)
Loewen Group Inc.
Capital Series A 80,000 2,000,000 1,870,000
Common Stocks (0.9%)
Authorized Distribution Network Inc. * 9,816 1,227 153
Century Telephone Enterprise Inc. 40,268 90,284 1,278,513
----------------------------
Total Common Stocks 91,511 1,278,666
Partnerships (0.0%)
MDAS Investors, L.P. 50,000 50,000
----------------------------
Total Long-Term Investments 124,440,471 135,051,616
Short-Term Investments (1.5%) Par Amount
----------
UBS Finance Inc. $2,000,000 1,997,667 1,997,667
6.00%, 1/02/96
Total Investments $126,438,138 $137,049,283
============
Excess of Other Assets over Liabilities (0.0%) - Note D 114,175
------------
Net Assets (100%) - Note E $137,163,458
============
Net asset value per share + $14.22
============
</TABLE>
* Non-Income Producing.
+ Net asset value per share of common stock outstanding ($137,163,458 less
Variable Term Preferred stock at liquidation value of $40,000,000 divided by
6,832,195 shares of common stock outstanding) - Note E
++ Indicates restricted securities.
The accompanying notes are an integral part of the financial statements.
1995 Annual Report 18 Lincoln National Income Fund, Inc.
<PAGE>
Statements of Operations
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1995 1994
---- ----
<S> <C> <C>
Investment Income:
Income:
Interest $11,264,854 $9,980,439
Dividends 202,283 92,684
------------ ------------
Total Income 11,467,137 10,073,123
Expenses:
Management Fees - Note C 1,152,920 1,000,974
Variable Term Preferred Stock - Auction Fees 110,088 110,088
Director Fees 76,000 80,500
Professional Fees 47,696 51,770
Printing, Stationery, and Supplies 35,923 29,044
Stock Transfer and Dividend Disbursing Fees 27,838 40,087
Postage and Mailing Fees 24,529 32,229
New York Stock Exchange Fee 16,630 16,410
Custodian and Registrar Fees 8,130 6,456
Other 20,345 44,319
------------ ------------
Total Operating Expenses 1,520,099 1,411,877
------------ ------------
Net Investment Income 9,947,038 8,661,246
Net Realized and Unrealized Gain(Loss) on Investments:
Net Realized Gain on Investments 1,454,490 620,574
Increase(Decrease) in Net Unrealized Appreciation of Investments 13,361,992 (12,579,875)
------------ ------------
Net Realized and Unrealized Gain (Loss) on Investments 14,816,482 (11,959,301)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations $24,763,520 ($3,298,055)
============ ============
</TABLE>
(_) Denotes deduction.
The accompanying notes are an integral part of the financial statements.
1995 Annual Report 19 Lincoln National Income Fund, Inc.
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Changes from Operations:
Net Investment Income $9,947,038 $8,661,246
Net Realized Gain on Investments 1,454,490 620,574
Increase (Decrease) in Net Unrealized Appreciation of
Investments 13,361,992 (12,579,875)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations 24,763,520 (3,298,055)
Distributions to Shareholders from Net Investment Income:
Common Shareholders (7,910,319) (7,100,134)
Preferred Shareholders (1,998,934) (1,568,058)
------------ ------------
Total Distributions to Shareholders from Net Investment Income (9,909,253) (8,668,192)
Distributions to Shareholders from Net Realized Gain:
Common Shareholders (1,108,178) (545,420)
Preferred Shareholders (340,009) (133,114)
------------ ------------
Total Distributions to Shareholders from Net Realized Gain (1,448,187) (678,534)
Changes from Capital Shares Transactions:
Net Proceeds from Shares Issued Under Dividend
Reinvestment Program --- 1,895,514
Proceeds from Stock Rights Offering - Note H 74,348 21,250,343
------------ ------------
Total Changes from Capital Shares 74,348 23,145,857
------------ ------------
Total Increase in Net Assets 13,480,428 10,501,076
Net Assets at Beginning of Year 123,683,030 113,181,954
------------ ------------
Net Assets at End of Year * $137,163,458 $123,683,030
============ ============
</TABLE>
*Includes undistributed net investment income: 1995 - $128,250; 1994 - $84,814.
The accompanying notes are an integral part of the financial statements.
1995 Annual Report 20 Lincoln National Income Fund, Inc.
<PAGE>
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Operating Activities:
Interest Received $11,260,282 $9,316,434
Dividends Received 202,283 76,934
Operating Expenses Paid (1,574,681) (1,313,170)
------------ ------------
Net Cash Provided by Operating Activities 9,887,884 8,080,198
Investing Activities:
Purchase of Investment Securities (37,765,009) (60,740,749)
Proceeds from Sale of Investment Securities 37,645,687 38,330,361
Net Proceeds of Short-Term Investments 757,426 2,944,942
------------ ------------
Net Cash Provided by (Used In) Investing Activities 638,204 (19,465,446)
Financing Activities:
Issuance of Common shares from Stock Rights Offering --- 21,250,343
Distributions paid to Common and Preferred Shareholders (10,531,834) (10,927,417)
Issuance of Common Shares from Dividend Reinvestment Plan --- 1,895,514
------------ ------------
Net Cash Provided by (Used In) Financing Activities (10,531,834) 12,218,440
------------ ------------
Increase (Decrease) in Cash (5,846) 833,192
Cash at Beginning of Year 984,596 151,404
------------ ------------
Cash at End of Year $978,750 $984,596
============ ============
Reconciliation of Increase in Net Assets Resulting from
Operations to Net Cash Provided by Operating Activities
Net Increase (Decrease) in Net Assets Resulting from Operations $24,763,520 ($3,298,055)
Reconciling Adjustments:
Net Realized and Unrealized (Gain) Loss on Investments (14,816,482) 11,959,301
Discount Accretion on Investment Securities (6,386) (36,188)
Decrease (Increase) in Accrued Investment Income Receivable 1,815 (643,566)
Increase (Decrease) in Accrued Expenses (54,583) 98,706
------------ ------------
Net Cash Provided by Operating Activities $9,887,884 $8,080,198
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
1995 Annual Report 21 Lincoln National Income Fund, Inc.
<PAGE>
Portfolio of Investments by Industry Classification
(Unaudited)
<TABLE>
<CAPTION>
Market or Percent of Market or Percent of
Fair Value Net Assets Fair Value Net Assets
---------- ---------- ---------- ----------
<S> <C> <C> <S> <C> <C>
Aerospace Chemicals
McDonnell Douglas Corp. $1,157,300 Dow Chemical Co. $2,612,396
Sequa Corporation 236,250 EI Dupont Nemour 1,124,350
UNC Inc. 242,500 Huntsman Corporation 280,000
---------- Uniroyal Chemical Co. 250,000
1,636,050 1.2% ----------
4,266,746 3.1%
Airline
AMR Corporation 2,679,193 Child Care Facilities
Delta Air Lines Inc. 1,716,502 Kinder Care Learning Ctr. 263,125 0.2%
United Airlines Inc. 4,100,810
----------
8,496,505 6.2% Electrical and Electronics
Aluminum ADT Operations Inc. 264,375
Alcan Aluminum LTD 1,031,820 0.7% Mark IV Industries Inc. 261,875
Texas Instruments Inc. 1,197,940
----------
Bank 1,724,190 1.3%
Anglo Irish Bank Corp. 1,157,893
Banc One Corporation 1,295,930 Energy
BankAmerica Corporation 1,217,610 Enron Corporation 1,160,760
First Interstate Bancorp 1,045,680 Peco Energy Company 1,578,840
First USA Bank 1,037,030 Tenneco Inc. 1,100,370
Fleet/Norstar Group 1,172,350 ----------
Nationsbank Corporation 2,207,200 3,839,970 2.8%
Olympic Financial LTD 272,500
----------
9,406,193 6.9% Entertainment
Bicycle Holding Inc. 62,842
New Boston Garden Corp. 1,046,506
Broadcasting Showboat Inc. 249,375
Capital Cities/ABC Inc. 1,129,220 Time Warner Inc. 1,687,710
Turner Broadcasting Inc. 251,250 United States Playing Card 500,000
---------- ----------
1,380,470 1.0% 3,546,433 2.6%
Finance
Brokerage Firms Bally Park Place Funding 252,500
Donaldson Lufkin Jenrette 512,340 BVPS II Funding Corp. 1,444,544
Lehman Brothers Holding 558,500 Chrysler Financial Corp. 1,123,290
Refco Group, LTD 1,054,623 Discover Credit Corp. 1,019,610
---------- Dow Capital B.V. 1,212,010
2,125,463 1.5% Duquesne II Funding Corp. 1,109,236
Ford Holdings Inc. 1,053,910
</TABLE>
1995 Annual Report 22 Lincoln National Income Fund, Inc.
<PAGE>
Portfolio of Investments by Industry Classification (continued)
(Unaudited)
<TABLE>
<CAPTION>
Market or Percent of Market or Percent of
Fair Value Net Assets Fair Value Net Assets
---------- ---------- ---------- ----------
<S> <C> <C> <S> <C> <C>
Finance (continued) Heavy Machinery
General Electric Capital $1,214,130 Caterpillar Inc. $985,760 0.7%
GM Acceptance Corp. 1,826,670
Greentree Financial Corp. 1,079,687 Hospital Management
Merrill Lynch Mortgage 940,464 Champion Healthcare Co. 500,003 0.4%
Mid-State Homes 1,046,048
NRUC Finance Corporation 1,013,150 Hotels
Pru-Home Mortgage Sec. 1,011,440 Hilton Hotel Corporation 524,670 0.4%
Resolution Trust Corp. 538,535
Salomon Inc. 1,080,629 Household Products
The Money Store 1,098,043 Playtex Family Products 220,000
Van Kampen Merritt Comp. 258,750 Scotsman Group 250,000
---------- ----------
18,322,646 13.4% 470,000 0.3%
Industrial
Food and Beverage Essex Group Inc. 245,000 0.2%
Coca-Cola Enterprises Inc. 1,139,770
Coca-Cola Femsa SA DE 1,052,951 Insurance
ConAgra Inc. 1,584,045 AllState Corporation 1,067,530
Del Monte Corporation 550,332 Nationwide 1,168,060
Desert Eagle Distributing 2,832,053 Travelers Inc. 1,767,045
Fleming Companies Inc. 843,230 ----------
Riverwood International 278,125 4,002,635 2.9%
Safeway Inc. 287,500
---------- Metals and Mining
8,568,006 6.2% Cyprus Amax Minerals 534,065
INCO LTD 1,153,700
Foreign and Foreign Gov't ----------
Cemex SA 237,812 1,687,765 1.2%
Noranda Inc. 1,644,330
Province de Quebec 1,204,840
----------
3,086,982 2.3% Miscellaneous
Authorized Dist.Network 153
Forest Products Huron Technologies Inc. 549,987
Crown Pacific Limited 1,146,939 Keystone Group 193,000
MDAS Investors Ltd Partners 50,000 Louis Dreyfus Corporation 1,076,537
West Fraser Mills LTD 1,103,649 Nebraska Book Company 537,041
---------- Stackpole Magnetic Sys. 499,992
2,300,588 1.7% ----------
2,856,710 2.1%
Funeral Homes
Loewen Group Inc. 1,870,000 1.4%
</TABLE>
1995 Annual Report 23 Lincoln National Income Fund, Inc.
<PAGE>
Portfolio of Investments by Industry Classification (continued)
(Unaudited)
<TABLE>
<CAPTION>
Market or Percent of Market or Percent of
Fair Value Net Assets Fair Value Net Assets
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Government/Gov't Agency Restaurant
FHLMC $2,337,225 Planet Hollywood Inter'l $750,010 0.5%
FNMA 1,361,355
GNMA 4,789,337 Retail
-----------
8,487,917 6.2% Federated Department Stores 270,625
Kmart Corporation 188,053
Natural Gas Murray's Discount Auto Stores 500,000
Arkla Inc. 1,141,890 Sears Roebuck & Company 2,522,280
Coastal Corporation 1,193,090 -------------
Penn Fuel Gas Inc. 1,070,835 3,480,958 2.5%
-----------
3,405,815 2.5% Steel
AK Steel Corporation 276,875
Paper and Paper Products Steel Dynamics Holdings Inc. 124,839
Container Corp. of America 255,000 Steel Dynamics Inc. 875,237
Domtar Inc. 265,000 Steel Technologies 551,726
Sweetheart Cup Company 252,500 -------------
----------- 1,828,676 1.3%
772,500 0.6%
Telecommunications
Petroleum Century Telephone Enterprise 1,278,513
Atlantic Richfield Company 1,272,790 MCI Communications Corp. 1,096,660
Occidental Petroleum Corp. 1,796,356 New England Telephone 1,219,100
Oryx Energy Company 1,122,100 Nynex Corporation 2,164,940
Pennzoil Company 1,277,490 Tele-Communications Inc. 2,188,200
Union Oil Co. of California 1,160,430 -------------
----------- 7,947,413 5.8%
6,629,166 4.8%
Public Utility Tobacco
Cleveland Electric Illum. Co. 967,090 RJR Nabisco Inc. 2,092,260 1.5%
Commonwealth Edison Inc. 1,099,690
Gulf States Utilities Company 502,760 Transportation
Houston Lighting & Power 1,667,040 Concordia Maritime 1,046,329
Long Island Lighting Co. 2,038,810 Federal Express Corp.- Global 1,480,387
Louisiana Power & Light Co. 1,084,810 Georgia Pacific Corporation 1,756,515
Niagara Mohawk Power 511,455 ------------
PacifiCorp 1,153,460 4,283,231 3.1%
Pennsylvania Power & Light 566,825 Waste Management
Texas Utilities Electric Co. 1,059,180 Browning-Ferris Industries 501,250 0.4%
Virginia Electric & Power 1,083,570 ------------
-----------
11,734,690 8.6% Total Long-Term Investments $135,051,616 98.5%
============
</TABLE>
1995 Annual Report Lincoln National Income Fund, Inc.
24
<PAGE>
Notes to Financial Statements
Note A - Summary of Accounting Policies
Lincoln National Income Fund, Inc. (the Fund), is registered under the
Investment Company Act of 1940, as amended, as a closed-end, diversified
management investment company, incorporated under the laws of Maryland. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
Investments
Cost represents original cost except in those cases where there is "original-
issue discount" as defined by the Internal Revenue Service, and in those cases
the cost figure shown is amortized cost. "Original-issue discount" is being
amortized over the period to the next expected call date.
Investments in equity securities traded on a national exchange are valued at
their last reported sale price on the date of valuation; equity securities
traded in the over-the-counter market and listed securities for which no sale
was reported on that date are valued at the last reported bid price. Public debt
securities and certain direct placement securities, which are traded in a
secondary market system for trading restricted securities in reliance upon SEC
Rule 144A, are valued at the composite price as determined by a pricing service
which uses market transactions as inputs. Short-term investments are stated at
cost which approximates market.
Direct placement securities are restricted as to resale. Except for certain
direct placement securities traded in a secondary market system for trading
restricted securities, direct placement securities have no quoted market values.
The amounts shown as fair values for direct placement securities with no
available quoted market values represent values approved by the Board of
Directors. Many factors are considered in arriving at fair value, including,
where applicable, yields available on comparable securities of other issuers;
changes in financial condition of the issuer; price at which the security was
initially acquired; extent of a private market for the security; period of time
before the security becomes freely marketable or becomes convertible;
anticipated expense to the Fund of registration or otherwise qualifying the
security for public sale; potential underwriting commissions if an underwriting
would be required for sale; size of the issue and the proportion held by the
Fund; if a convertible security, whether or not it would trade on the basis of
its stock equivalent; and existence of merger proposals or tender offers
involving the issuer.
The Board of Directors of the Fund is composed, in part, of individuals who are
interested persons (as defined in the Investment Company Act of 1940) of the
Advisor or affiliated companies. Since the fee paid to the Advisor is affected
by the valuation placed on securities held in the Fund's portfolio, valuations
are approved by a majority of the Directors who are not interested persons. For
1995, all direct placement securities, which totaled $22,300,762 and represents
16.3% of total net assets, were valued by directors who are not interested
persons. Because of the inherent uncertainty of valuation, those estimated
values may differ significantly from the values that would have been used had a
ready market for the securities existed, and the differences could be material.
Income Taxes
It is the intention of the Fund to distribute substantially all net investment
income and net realized gains. The Fund therefore qualifies for tax treatment
accorded to "regulated investment companies" as defined by the applicable
provisions of the Internal Revenue Code. On such basis, under present law, the
Fund will not incur any liability for income taxes on the portion of its net
investment income and net realized gains distributed to shareholders.
Other
Security transactions are accounted for on the day after the trade date for
equity securities and debt securities. Cost of securities sold is determined on
a specific identification method. Dividend income is recorded on the ex-dividend
date. Interest income is recorded on the accrual basis except for interest in
default, or interest deferred by a change in the terms of the loan agreement,
which is recorded when received. Distributions to common shareholders are
recorded on the ex-dividend date and distributions to preferred shareholders are
accrued daily and paid every 28 days. In addition, in the preparation of
financial statements management relies on the use of estimates where necessary.
1995 Annual Report Lincoln National Income Fund, Inc.
25
<PAGE>
Notes to Financial Statements
Note B - Investments
Direct placement securities are restricted as to resale because these securities
have not been registered with the Securities and Exchange Commission (SEC). The
terms under which direct placement securities are acquired, however, sometimes
provide for limited registration rights if requested by the security owner.
These registration rights usually relate to common stock issued or issuable upon
conversion of convertible securities or the exercise of warrants.
The following is a summary of registration rights pertaining to direct placement
securities held by the Fund:
1) Common shares issuable upon conversion of convertible securities or exercise
of warrants are entitled to at least one free registration and to certain free
"piggyback" registration rights.
2) Warrants owned by the Fund do not carry registration rights.
3) All debt and preferred securities have no registration rights, but can be
sold to other institutional investors after a minimum holding period, subject to
certain requirements.
The SEC requires that, as of the date a direct placement security is acquired,
the market value of an equivalent unrestricted security of the same company be
provided. Since there are no comparable publicly traded securities of any of
these companies outstanding, no such comparative values have been provided.
The aggregate cost of investments purchased and the aggregate proceeds from
investments sold (exclusive of short-term investments) amounted to $37,538,341
and $36,093,716, respectively, in 1995; and $58,862,311 and $39,848,966,
respectively in 1994.
Note C - Management Fees and Other Transactions with Affiliates
Under an agreement between the Fund and Lincoln Investment Management, Inc. (the
Advisor), the Advisor manages the Fund's investment portfolio, maintains its
accounts and records, and furnishes the services of individuals to
perform executive and administrative functions of the Fund. In return for these
services, the Advisor receives a management fee of .1875% of net assets of the
Fund as of the close of business on the last business day of the quarter (.75%
on an annual basis) and 1.5% of the net cash dividends and interest earned and
actually received in cash less interest on borrowed funds and dividends paid on
the Variable Term Preferred stock.
Prior to May 21, 1993, the Fund paid a Management fee of .125% (.5% on an annual
basis) of net asset value of the Fund as of the close of business on the last
business day of the quarter. Securities regulations of various states in which
the Fund has shareholders provide that, if expenses borne by the Fund in any
year (including the advisory fee but excluding interest, taxes, brokerage fees
and where permitted, extraordinary expenses) exceed certain limitations, the
Advisor must reimburse the Fund for any such excess at least annually and prior
to the publication of the Fund's annual report. These expense limitations may be
raised or lowered from time to time. The Fund believes the most restrictive
expense limitation of state securities commissioners is 2.5% of the Fund's
average daily net assets up to $30,000,000; 2% of the next $70,000,000 and 1.5%
of average daily net assets in excess of $100,000,000 during the applicable
year. During any year, the Advisor will be bound by the most stringent
applicable requirements of any state in which the Fund has shareholders. No
reimbursement was due for 1995 or 1994.
Certain officers and directors of the Fund are also officers or directors of the
Advisor. The compensation of unaffiliated directors of the Fund is borne by the
Fund.
1995 Annual Report Lincoln National Income Fund, Inc.
26
<PAGE>
Notes to Financial Statements (continued)
Note D - Excess of Other Assets over Liabilities
The net asset caption "excess of other assets over liabilities" consisted of
the following:
Accrued investment income receivable $ 2,558,667
Accrued dividends payable (3,304,825)
Management fees payable (295,457)
Other - Net 177,040
Cash 978,750
-----------
$ 114,175
===========
Note E - Net Assets
Net assets at December 31, 1995, consisted of the following:
Preferred Stock, par value $1.00 per share (authorized
1,000,000 shares)
Variable Term Preferred Stock, issued and outstanding $ 40,000,000
40,000 shares, liquidation preference $1,000 per share:
Common Stock, par value $1.00 per share (authorized 6,832,195
10,000,000 shares), issued and outstanding 6,832,195 shares
Proceeds in excess of par value of shares issued 73,101,180
Undistributed realized gain on investments, net of taxes paid 6,490,689
Undistributed net investment income 128,250
Net unrealized appreciation of investments 10,611,144
------------
Total Net Assets $137,163,458
============
Note F - Income Taxes
The cost of investments for federal income tax purposes is the same as for book
purposes. At December 31, 1995, the aggregate gross unrealized appreciation of
investments was $11,229,650 and the aggregate gross unrealized depreciation was
$618,506.
Note G - Variable Term Preferred Stock
During August 1992, the Fund issued 40,000 shares of Variable Term Preferred
stock (VTP) at an offering price of $1,000 per share. During 1992 the
underwriting discount and other expenses incurred in the issuance of the
preferred stock aggregated $1,120,016 and were recorded as a reduction of net
assets applicable to common shares. Dividends are cumulative from the date of
the original issue and reset every 28 days through an auction process. The
Articles Supplementary, which establish and fix the rights and preferences of
the VTP, places restrictions on the payments of dividends on the Fund's common
stock upon noncompliance with certain provisions of the Articles Supplementary,
purchase of futures or options, issuance of debt, short sale of securities,
mergers, changing the Fund's pricing service and investing in reverse repurchase
agreements, and requires the Fund to meet certain asset maintenance tests. The
shares of the VTP may be redeemed at the option of the Fund in accordance with
the terms of the Articles Supplementary. The mandatory redemption provisions of
the Articles Supplementary require the Fund under certain conditions to redeem
shares of the VTP if certain asset maintenance tests are not maintained or if
credit rating provisions are not met.
During the year ended December 31, 1995, dividend rates have ranged from 5.50%
to 5.95% and the average dividend rate was 5.75%.
Note H - Rights Offering
On July 28, 1994, the Fund received proceeds from a three-for-one rights
offering. The shares were issued at a price of $12.61 per common share which
represented 95% of the June 30, 1994, net asset value. The offering was fully
subscribed and an additional 1,697,886 common shares were issued on July 28,
1994. The proceeds of $21,410,343 were reduced by approximately $160,000 of
anticipated expenses associated with the rights offering. Through September
1995, all expenses associated with this rights offering were paid ($85,652).
Therefore, the remaining $74,348 was added back into the Fund's net assets.
1995 Annual Report Lincoln National Income Fund, Inc.
27
<PAGE>
Notes to Financial Statements (continued)
Note I - Unaudited Quarterly Results of Operations
The following is a tabulation of the unaudited quarterly results of operations.
Per share data is based on shares outstanding at the end of each quarter:
<TABLE>
<CAPTION>
March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
1995
Investment Income (000) $2,822 $2,909 $2,865 $2,871
Net Investment Income (000) 2,463 2,504 2,491 2,489
Net Realized and Unrealized Gain on Investments (000) 4,547 6,510 482 3,277
Per Share Amounts:
Net Investment Income 0.36 0.37 0.36 0.37
Net Realized and Unrealized Gain on Investments 0.67 0.95 0.07 0.48
1994
Investment Income (000) $2,249 $2,365 $2,546 $2,913
Net Investment Income (000) 1,921 2,010 2,179 2,551
Net Realized and Unrealized Loss on Investments (000) (5,285) (3,231) (2,369) (1,074)
Per Share Amounts:
Net Investment Income 0.38 0.39 0.33 0.37
Net Realized and Unrealized Gain on Investments (1.04) (.63) (.35) (.16)
</TABLE>
1995 Annual Report 28 Lincoln National Income Fund, Inc.
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors of
Lincoln National Income Fund, Inc.:
We have audited the accompanying statement of net assets of Lincoln National
Income Fund, Inc., including the portfolio of investments in securities as of
December 31, 1995, and the related statements of operations, cash flows and
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the ten years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. 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 Income Fund, Inc. as of December 31, 1995, the results of its
operations, cash flows and changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the ten years
in the period then ended, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Fort Wayne, Indiana
January 26, 1996
1995 Annual Report 29 Lincoln National Income Fund, Inc.
<PAGE>
Directors & Officers of the Fund
Directors Descriptions of Occupations and Responsibilities
Richard M. Burridge President, The Burridge Group, Inc.; Director,
Cincinnati Financial Corporation, Computer Access
International, Lincoln National Convertible Securities
Fund, Inc., Lincoln Advisor Funds, Inc., and St. Joseph
Light and Power Company; Chairman of the Board, Fort
Dearborn Income Securities, Inc.
Adela Cepeda Vice President of Smith Barney, Harris Upham & Co.;
Commissioner, Chicago Public Building Commission;
Director, National Association of Securities
Professionals, Lincoln National Convertible Securities
Fund, Inc., Chicago Chapter of National Society of
Hispanic MBAs, and Lincoln Advisor Funds, Inc.; Trustee
and Treasurer, The Latino Institute; Director and Vice
President, Harvard Club of Chicago.
Roger J. Deshaies Senior Vice President, Finance, Parkview Memorial
Hospital; Director, Lincoln National Convertible
Securities Fund, Inc., Lincoln Advisor Funds, Inc. and
Signature Care, Inc.; Director, Hospital Laundry
Services, Inc.; Director and Treasurer, Pine Valley
Country Club; Member, Chamber of Commerce Finance
Committee.
Charles G. Freund Chairman Emeritus of the Board of Directors, Success
National Bank at Lincolnshire; Director, Mathers Fund,
Inc., Lincoln National Convertible Securities Fund, Inc.
and Lincoln Advisor Funds, Inc.; Chairman of the Board,
First National Bank of Lincolnshire.
Thomas N. Mathers Director, Lincoln National Convertible Securities Fund,
Inc.; Vice President and Director, OFC Meadowood
Retirement Community.
H. Thomas McMeekin Executive Vice President and Chief Investment Officer,
Lincoln National Corporation; President and Director
Lincoln National Investment Companies, Inc.; President
and Director, Lincoln Investment Management Inc. and
Lincoln National Convertible Securities Fund, Inc.;
Director, Lincoln Advisor Funds, Inc., The Lincoln
National Life Insurance Company, Lynch & Mayer Inc., and
Vantage Global Advisors, Inc.; President, Chief
Executive Officer and Director, Lincoln National
Mezzanine Corporation.
Daniel R. Toll Director, Brown Group, Inc., A.P. Green Industries,
Inc., Kemper Corporation, Kemper National Insurance
Company, Lincoln National Convertible Securities Fund,
Inc., NICOR, Inc., and Mallinckrodt Group, Inc.
Ann L. Warner Senior Vice President and Director Portfolio Management,
Lincoln Investment Management, Inc.; Director, Lincoln
National Convertible Securities Fund, Inc.; Vice
President Lincoln Advisor Funds, Inc.
Fred J. Young President, United Wealth Watchers of America; Director,
Lincoln National Convertible Securities Fund, Inc.
Officers
H. Thomas McMeekin President
David A. Berry Vice President
Steven R. Brody Treasurer
David C. Fischer Vice President
David G. Humes Vice President, Controller
Ann L. Warner Vice President
C. Suzanne Womack Secretary
1995 Annual Report 30 Lincoln National Income Fund, Inc.
<PAGE>
<TABLE>
<CAPTION>
Corporate Information
<C> <S>
Dividend Disbursing Agent, Transfer Agent, and Automatic Dividend Reinvestment Plan
Plan Agent Any registered shareholder of Lincoln National Income Fund, Inc.
Boston EquiServe* may participate in the Automatic Dividend Reinvestment Plan (the
Investor Relations "Plan"). If you are a beneficial owner, whose shares are
P.O. Box 644 registered in the name of another (e.g., in a broker's "street
Boston, MA 02102-0644 name") and desires to participate in the Plan you must become a
(800) 730-6001 registered holder by having the shares transferred to your name.
Investment Advisor To participate in the Plan, you must complete and forward an
Lincoln Investment Management Inc. authorization card to the Plan agent. This card authorizes the
200 East Berry Street Plan agent to receive your dividends and other distributions
Fort Wayne, IN 46802 from the Fund in additional shares of common stock. The
(219) 455-2210 additional shares will be issued by the Fund, if the net asset
value per share is equal to or lower than the market price of
Independent Accountants the Fund's Common Stock plus brokerage commissions. If the net
Coopers & Lybrand L.L.P. asset value per share is higher than the market price of the
490 Lincoln Tower Fund's Common Stock plus brokerage commissions, the additional
Fort Wayne, IN 46802 shares will be purchased in the open market and the cost of the
brokerage commissions will be charged to each participant on a
Stock Exchange pro-rata basis. The Plan also allows the Plan agent to accept
This stock is traded on the New York Stock Exchange optional cash contributions. Each optional cash contribution by
and the trading symbol is LND. a participant must be not less than $100, and not more than
$3,000 per dividend period and must be received by the Plan
agent not less than five business days and no more than thirty
days prior to the dividend payment date.
Shares will be held by Boston EquiServe, the Plan agent. You
will receive a statement each time shares are distributed by the
Fund or purchased for you.
There is no direct charge for Plan participation. The
administrative costs of the Plan are borne by the Fund.
If your dividends and other distributions are reinvested, they
will be subject to capital gains and income taxes as if they
were paid to you in cash.
You may terminate your participation in the Plan at any time by
giving written notice to the Plan agent.
For additional information on the Plan, please write Boston
EquiServe, P.O. Box 1865, Boston, MA 02105 or call
1-800-730-6001.
</TABLE>
*Formerly named "The First National Bank of Boston"
1995 Annual Report 31 Lincoln National Income Fund, Inc.
<PAGE>
Lincoln Investment Management, Inc.
200 East Berry Street . Fort Wayne, Indiana 46802
Lincoln Investment Management, Inc. is the investment manager for the
Lincoln National Income Fund, Inc.
Form 12728A 95
