<PAGE>
Lincoln National Convertible Securities Fund, Inc. 1995 Semi-Annual Report
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Manager Profile.............................................................2
Investment Policies & Objectives............................................2
Shareholder Meeting Results.................................................2
President's Letter..........................................................3
Portfolio Performance.......................................................4
Total Fund Investments......................................................4
Dividend History............................................................4
Common Stock Market Prices & Net Asset Value History........................5
Financial Highlights........................................................6
Statement of Net Assets.....................................................8
Statements of Operations...................................................13
Statements of Changes in Net Assets........................................14
Portfolio of Investments in Securities by Industry Classification..........15
Notes to Financial Statements..............................................16
Directors & Officers of the Fund...........................................19
Corporate Information......................................................20
</TABLE>
<PAGE>
Manager Profile
Throughout its history your Fund has been managed by the investment affiliates
of Lincoln National Corporation. The Fund's investment advisor is Lincoln
Investment Management, Inc. a wholly owned subsidiary of Lincoln National
Investment Companies, Inc. (LNIC). LNIC was formed in 1995 and is wholly owned
by Lincoln National Corporation. In February of 1988, shareholders approved a
subadvisory contract between Lincoln Investments and Lynch & Mayer, Inc. Under
the contract, Lynch & Mayer may perform some or substantially all of the
investment advisory services subject to the direction and supervision of Lincoln
Investments.
Lynch and Mayer is a New York-based investment manager of equities and
convertible securities. Founded in 1976 by Eldon Mayer and Dennis Lynch, the
firm currently has over $5 billion under management. Lynch & Mayer manages both
large-and mid-capitalization equity portfolios in addition to convertible
portfolios. Since 1985, the firm has been a wholly owned subsidiary of Lincoln
National Corporation.
Robert Schwartz is the current portfolio manager for the Fund at Lynch & Mayer.
Mr. Schwartz took over the helm of the Fund from Brad Roberts in early 1993. Mr.
Roberts and the previous manager, Ed Petner, are still with the firm, and all
three consult regularly. Mr. Schwartz previously managed convertible security
portfolios for Salomon Brothers Asset Management and First Boston Asset
Management. Mr. Schwartz also worked for four years as a Senior Research
Associate at Morgan Stanley, specializing in quantitative analysis. Mr.
Schwartz received an MBA from New York University in 1987, and was awarded the
Chartered Financial Analyst designation in 1991.
Investment Policies & Objectives
The Fund's primary investment objective is to provide a high level of total
return through a combination of capital appreciation and current income.
Substantially all of the Fund's net investment income will be distributed
through regular dividends to shareholders. Net short-term capital gains, if any,
will be distributed annually in cash, provided the Fund does not have a capital
loss carryforward. Net realized long-term capital gains will be retained to
increase the size of the Fund's asset base.
The investment portfolio will contain primarily convertible securities,
including direct placement convertible securities. The Fund will also invest in
publicly traded fixed-income securities and preferred and common stocks.
The Fund may borrow to purchase securities in an amount not exceeding 33-1/3
percent of net assets.
Shareholder Meeting Results
The Fund had their annual Shareholder meeting on May 19, 1995. Two proposals
were presented to shareholders for vote. Proposal I was "Election of Directors"
and Proposal II was "Selection of Auditors." A total of 5,571,736 of Common
Stock shares (87.55% of the total outstanding shares) were voted. The following
table highlights the results of the vote.
<TABLE>
<CAPTION>
Number of shares Number of shares Number of shares
voted FOR voted AGAINST ABSTAINED
<S> <C> <C> <C> <C>
Proposal I
Election of R. Burridge 5,520,902 50,834 --
Directors A. Cepeda 5,509,630 62,106 --
R. Deshaies 5,514,527 57,209 --
C. Freund 5,517,091 54,645 --
T. Mathers 5,504,183 67,553 --
T. McMeekin 5,503,812 67,924 --
D. Toll 5,518,445 53,291 --
A. Warner 5,498,203 75,533 --
F. Young 5,502,673 69,063 --
Proposal II
Ratification of 5,507,311 19,742 44,683
the Selection of
Auditors (Coopers & Lybrand L.L.P.)
</TABLE>
2 Lincoln National Convertible Securities Fund, Inc.
<PAGE>
President's Letter July 21, 1995
Dear Shareholders:
Your Funds' performance has been steady through 1995, with first and second
quarter returns of 5.3 percent and 5.6 percent, respectively. Our underweighting
in convertible technology issues has caused the fund to underperform our peer
group. For example, we have shied away from those technology issues that had low
yields and premiums and offered little downside protection. However, in 1995 the
technology sector has been the clear performance leader.
The technology sector was led by semiconductors and included most computer
related industries. The explosive performance is illustrated by the Philadelphia
Stock Exchange Semiconductor Index's whopping 74 percent first half return, and
by the NASDAQ composites 24 percent return (35 percent technology weight). In
contrast, the convertible universe has less than a 10 percent weighting in
technology, based on Salomon Brothers Convertible Securities Index data.
Overall, the first half of 1995 has been an excellent period for the financial
markets. In contrast to record bond market losses and hedge fund liquidations in
1994, the fixed-income and equity markets have posted double digit positive
returns in 1995. In the second quarter, we witnessed a continuation of the
positive environment seen in the first quarter as interest rates continued to
decline, and corporate earnings reports remained positive. The ten-year treasury
yield declined 1.62 percent during the first half, including a 99 basis point
decrease in the second quarter.
Reports that the economy was weakening faster than previously expected fueled
the rally in bonds. Yet, this slowdown impacted earnings of only a few sectors
allowing equities to continue their upward move.
Although it is uncertain whether the economy is going to continue to slow or
increase at a moderate pace, the relative pace of earnings gains for cyclical
companies will continue to diminish. Significant price appreciation will be
difficult for these companies unless economic activity accelerates beyond
expectations. Indeed, for the first six months, economically sensitive
industries were well represented on the lists of the worst performing
industries. Your Fund should continue to benefit from its repositioning out of
cyclical securities into growth-oriented companies.
During the second quarter, positions were started or increased significantly in
Altera, Coleman, General Instrument, PMI group, and U.S. Cellular. All of these
companies should show substantial growth, regardless of the economic outlook.
At mid-year the convertible market continues to offer attractive terms, but
valuations are somewhat less attractive than at year-end 1994. During the first
half, current yields declined by .55 percent, and conversion premiums widened by
1.6 percent. However, this increase in pricing is only one-quarter of the
decrease that took place in 1994 when yields were 6.3 percent and conversion
premiums were 20.2 percent.
Convertibles remain slightly undervalued on average, with a wide range of
valuation levels depending on the attractiveness of the underlying common
stocks. The number of attractive new issues has increased after a slow start in
1995. We see new issuance as a positive factor as we will have new investment
opportunities with reasonable yields, premiums, and call protection. Due to the
uncertain economic climate we will continue to focus on moderately priced
securities with reasonable yields. We believe this investment profile should
serve you well as the year moves forward.
Sincerely,
/s/ H. Thomas McMeekin
H. Thomas McMeekin
President
1995 Semi-Annual Report 3
<PAGE>
Portfolio Performance
As of June 30, 1995
<TABLE>
<CAPTION>
YTD 1 Year 3 Years 5 Years
------ ------- ------ -------
<S> <C> <C> <C> <C>
Lincoln National Convertible Securities Fund, Inc. 10.91% 17.92% 48.13% 103.21%
First Boston Convertible Securities Index 15.60% 16.59% 43.01% 83.16%
Merrill Lynch Convertible Index 15.90% 15.22% 41.31% 85.96%
S & P 500 Index (with dividends reinvested) 20.25% 25.50% 45.13% 76.84%
Russell 2000 11.80% 20.06% 57.87% 83.05%
Lehman Corp. Bond Index 13.80% 15.12% 26.66% 64.16%
Total Fund Investments
At market or fair values as of June 30
1995 1994
----------------------- ----------------------
(000) % of Total (000) % of Total
-------- ---------- -------- ----------
Public Debt Securities................. $77,260 65% $ 61,184 56%
Direct Placement Securities............ 2,925 2 3,750 3
Convertible Preferred Stocks........... 31,626 27 39,278 36
Common Stocks.......................... 532 0 1,071 1
Short-Term Investments................. 9,124 8 2,248 2
Other Asset/(Liabilities).............. (2,352) (2) 1,613 2
-------- --- -------- ----
Net Assets $119,115 100% $109,144 100%
======== === ======== ====
</TABLE>
Dividend History
The table below shows the 9-year common dividend per share history.
<TABLE>
<CAPTION>
Annual Annual
Year Dividend Year Dividend
---- -------- ---- --------
<S> <C> <C> <C>
1987 $1.13 1992 $2.14
1988 0.95 1993 2.92
1989 1.57 1994 1.08
1990 1.02 1995 *0.24
1991 1.02
</TABLE>
* Dividends paid as of June 30
4 Lincoln National Convertible Securities Fund, Inc.
<PAGE>
Common Stock Market Prices &
Net Asset Value History+
1995
<TABLE>
<CAPTION>
Market Prices & Volume Net Asset Values
High Low Close Volumes High Low Close
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $17 $15 $16 330,000 $17.98 $17.06 $17.98
2nd Quarter 17 5/8 15 7/8 16 5/8 303,900 18.92 18.03 18.72
1994
Market Prices & Volume Net Asset Values
High Low Close Volumes High Low Close
-----------------------------------------------------------------------------------------------------
1st Quarter $20 3/4 $17 3/4 $17 7/8 502,200 $19.70 $18.27 $18.27
2nd Quarter 18 1/2 16 1/2 16 7/8 309,300 18.45 17.15 17.15
3rd Quarter 18 16 16 1/8 277,100 18.51 17.27 18.46
4th Quarter 17 1/4 15 1/8 15 3/8 406,900 18.45 17.10 17.10
1993
Market Prices & Volume Net Asset Values
High Low Close Volumes High Low Close
-----------------------------------------------------------------------------------------------------
1st Quarter $18 1/4 $16 3/8 $18 445,600 $18.74 $17.55 $18.74
2nd Quarter 19 3/8 17 7/8 18 3/4 329,100 19.92 18.61 19.92
3rd Quarter 20 1/8 18 5/8 19 1/2 306,700 21.01 19.80 21.01
4th Quarter 21 1/8 18 1/4 19 1/4 469,800 21.75 18.84 18.84
</TABLE>
Shares are listed on the New York Stock Exchange under the trading symbol LNV.
+Unaudited
1995 Semi-Annual Report 5
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
Six Months Ended June 30 ----------------------------------
1995 1994
(Unaudited) (Unaudited) 1994 1993
----------- ---------- ---- ----
<S> <C> <C> <C> <C>
Selected data for each share of common stock
outstanding throughout the period is as follows:
Investment income............................... $ 0.58 $0.53 $ 1.14 $ 1.10
Expenses........................................ (.10) (.10) (.20) (.20)
------ ------ ------ ------
Net investment income........................... 0.48 0.43 .94 .90
Dividends declared:
Net investment income......................... (0.24) (0.24) (.95) (1.05)
Net realized gains on investments............. -- -- (.13) (1.87)
------ ------ ------ ------
Total dividends
declared to shareholders.................. (0.24) (0.24) (1.08) (2.92)
Net realized and unrealized gain (loss)
on investments................................ 1.38 (1.88) (1.60) 3.24
------ ------ ------ ------
Total increase (decrease) in net asset value.... 1.62 (1.69) (1.74) 1.22
Net asset value:
Beginning of period........................... 17.10 18.84 18.84 17.62
------ ------ ------ ------
End of period................................. $18.72 $17.15 $17.10 $18.84
====== ====== ======= ======
Ratio of operating expenses to
average net assets................................ .58% .56% 1.09% 1.02%
Ratio of net investment income to
average net assets................................ 2.67% 2.33% 5.18% 4.58%
Portfolio turnover.................................. 66.18% 69.08% 127.32% 222.00%
Total investment return............................. 9.71% (11.10)% (14.49)% 34.36%
End of year market value............................ $16.63 $16.88 $15.38 $19.25
Number of shares outstanding at end of year......... 6,363,695 6,363,695 6,363,695 6,292,442
</TABLE>
6 Lincoln National Convertible Securities Fund, Inc.
<PAGE>
<TABLE>
<CAPTION>
---------Year Ending ---------------------------------------------
Period from
June 26, 1986 to
1992 1991 1990 1989 1988 1987 December 31, 1986*
------ ------ ------ ------ ------ ------ ------------------
<C> <C> <C> <C> <C> <C> <C>
$ 1.16 $ 1.11 $ 1.17 $ 1.74 $ 1.08 $ 1.05 $ .48
(.15) (.14) (.14) (.21) (.13) (.13) (.05)
------ ------ ------ ------ ------ ------ ------
1.01 .97 1.03 1.53 .95 .92 .43
(.97) (1.02) (1.02) (1.07) (.95) (1.13) (.20)
(1.17) -- -- (.50) -- -- --
------ ------ ------ ------ ------ ------ ------
(2.14) (1.02) (1.02) (1.57) (.95) (1.13) (.20)
.71 4.50 (1.63) 1.84 .79 (1.55) .20
------ ------ ------ ------ ------ ------ ------
(.42) 4.45 (1.62) 1.80 .79 (1.76) .43
18.04 13.59 15.21 13.41 12.62 14.38 13.95
------ ------ ------ ------ ------ ------ ------
$17.62 $18.04 $13.59 $15.21 $13.41 $12.62 $14.38
====== ====== ====== ====== ====== ====== ======
.83% .89% .97% .94% .96% .88% .38%
5.49% 5.96% 7.21% 6.64% 6.90% 6.43% 3.08%
166.26% 132.99% 134.64% 147.31% 110.70% 73.41% 34.00%
20.26% 43.65% (6.43)% 27.23% 8.09% (18.22% 6.33%
$16.50 $15.50 $11.50 $13.38 $11.75 $11.75 $15.75
6,286,361 6,286,361 6,286,361 6,287,361 6,832,661 6,915,661 6,915,661
</TABLE>
*Although the Fund was registered on June 19, 1986, the per share data, ratios,
and portfolio turnover are calculated for the period from commencement of
investment activity (June 26, 1986), when the proceeds from the Fund's initial
public offering were received, through December 31, 1986; accordingly, the
ratios and portfolio turnover have not been calculated on an annualized basis.
The accompanying notes are an integral part of the financial statements.
1995 Semi-Annual Report 7
<PAGE>
Statement of Net Assets As of June 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Par Market or
Investments--Notes, A & B Amount Cost Fair Value
---------- ---------- ----------
<S> <C> <C> <C>
Public Debt Securities (64.9%)
AES Corporation
9.75% Senior Subordinated Note, 6/15/00............................... $1,050,000 $1,050,562 $1,065,750
AGCO Corporation
6.50% Convertible Subordinated Debenture, 6/1/08
(convertible into 67,793 common shares............................... 861,000 860,838 2,552,865
Air Express International Corporation
6.00% Convertible Subordinated Debentures, 1/15/03
(convertible into 95,780 common shares)............................... 1,375,000 1,194,725 1,540,000
Altera Corporation
5.75% Convertible Bond, 6/15/02
(convertible into 50,225 common shares).............................. 2,570,000 2,572,000 2,698,500
AMR Corporation
6.125% Convertible Subordinated Debentures, 11/1/24
(convertible into 36,202 common shares)............................. 2,010,000 2,079,006 2,090,400
Argosy Gaming Company
12.00% Convertible Subordinated Notes, 6/1/01
(convertible into 36,202 common shares).............................. 1,900,000 1,868,500 1,909,500
Aspect Telecommunications Corporation+
5.00% Convertible Subordinated Debentures, 10/15/03
(convertible into 39,485 common shares).............................. 1,535,000 1,415,025 1,834,325
California Energy
5.00% Convertible Subordinated Debenture, 7/31/00
(convertible into 84,444 common shares).............................. 1,900,000 1,666,275 1,717,125
Capstone Capital Trust Inc.
10.50% Convertible Subordinated Debenture, 4/1/02
(convertible into 93,024 common shares).............................. 1,500,000 1,500,000 1,640,625
Cemex SA de CV
4.25% Convertible Subordinated Debenture. 11/1/94
(convertible into 45,092 common shares).............................. 1,000,000 753,750 760,000
Coleman Worldwide Corporation*
Liquid Yield Option (Subordinated Zero Coupon), 5/27/13
(convertible into 43,192 common shares).............................. 7,050,000 2,025,671 2,044,500
Danka Business Systems PLC
6.75% Convertible Subordinated Note, 4/1/02
(convertible into 53,563 common shares).............................. 1,560,000 1,575,000 1,634,100
EMC Corporation
4.25% Convertible Subordinated Notes, 1/1/01
(convertible into 84,425 common shares).............................. 2,075,000 2,340,375 2,790,875
Elan International Finance*
Convertible Zero Coupon, 10/16/12
(convertible into 40,823 common shares).............................. 3,750,000 1,537,091 1,757,812
General Instrument Corporation
5.00% Convertible Junior Subordinated Debenture, 6/15/00
(convertible into 82,105 common shares).............................. 1,950,000 2,817236 3,207,750
Genesis Health Ventures
6.00% Convertible Note, 1/31/00
(convertible into 45,021 common shares)............................... 910,000 960,500 1,179,587
Grand Metropolitan PLC
6.50% Convertible Note,1/31/00
(convertible into 88,556 common shares)............................... 2,430,000 2,430,000 2,594,025
</TABLE>
8 Lincoln National Convertible Securities Fund, Inc.
<PAGE>
Statement of Net Assets
continued (Unaudited)
<TABLE>
<CAPTION>
Par Market or
Public Debt Securities (cont'd.) Amount Cost Fair Value
---------- ---------- -----------
<S> <C> <C> <C>
Healthsouth rehabilitation Corporation
9.50% Senior Debentures, 4/1/01............................ $2,000,000 $1,984,375 $2,055,000
5.00% Convertible Subordinated Debenture, 4/1/01
(convertible into 53,156 common shares)................... 1,000,000 1,062,500 1,111,250
Hysan Development Finance
6.75% convertible Company Guaranteed Note, 6/1/00
(convertible into 342,279 common shares................... 1,000,000 1,000,000 995,000
Integrated Device Technology, Inc.
5.50% Convertible Subordinated Note, 6/1/02
(convertible into 29,170 common shares)................... 1,670,000 1,670,000 1,766,025
Integrated Health Services
5.75% Convertible Senior Subordinated Debenture, 11/15/01
(convertible into 58,283 common shares)................... 2,575,000 2,724,490 2,768,125
Ivax Corporation
6.50% Convertible Subordinated Debenture, 11/15/01
(convertible into 15,748 common shares)................... 500,000 485,000 487,500
LDDS Communications Inc.
5.00% Convertible Subordinated Note, 8/15/03
(convertible into 35,724 common shares)................... 1,360,000 1,039,650 1,292,000
Lowe's Companies
3.00% Convertible Subordinated Note, 7/22/03
(convertible into 72,719 common shares)................... 1,900,000 2,441,993 2,182,625
Medusa Corporation
6.00% Convertible Subordinated Notes, 11/15/03
(convertible into 60,831 common shares)................... 1,715,000 1,722,350 1,642,112
Motorola Inc.*
Liquid Yield Option (Subordinated Zero Coupon), 9/27/13
(convertible into 34,093 common shares)................... 3,050,000 2,100,243 2,497,188
Physicians Clinical Laboratories Inc.+
7.50% Convertible Subordinated Debentures, 8/15/00
(convertible into 138,524 common shares).................. 1,690,000 1,690,000 1,396,363
Prime Hospitality Corporation
7.00% Convertible Subordinated Note, 4/15/02
(convertible into 155,416 common shares).................. 1,865,000 1,865,000 1,932,606
Quantum Health Resources
4.75% Convertible Debenture, 10/1/00
(convertible into 42,890 common shares)................... 1,300,000 1,092,250 1,093,625
Renong Berhad
2.00% Convertible Eurobond, 7/15/05
(convertible into 475,283 common shares).................. 1,000,000 1,000,000 997,500
Riverwood International Corporation
6.75% Convertible Subordinated Note, 9/15/03
(convertible into 142,525 common shares).................. 1,600,000 1,600,000 2,194,000
10.375% Senior Subordinated Note, 6/30/04................. 1,000,000 992,500 1,095,000
Seacor Holdings Inc.+
6.00% Convertible Subordinated Note, 7/1/03
(convertible into 97,950 common shares)................... 2,510,000 2,515,400 2,569,613
Sholodge Inc.
7.50% Convertible Subordinated Debenture, 5/1/04
(convertible into 102,960 common shares).................. 2,400,000 2,406,000 2,154,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
1995 Semi-Annual Report 9
<PAGE>
Statement of Net Assets
continued (Unaudited)
<TABLE>
<CAPTION>
Par Market or
Public Debt Securities (cont'd.) Amount Cost Fair Value
---------- ---------- ----------
<S> <C> <C> <C>
Sterling Software Inc.
5.75% Convertible Subordinated Debentures, 2/1/03
(convertible into 58,553 common shares)...................... $1,910,000 $ 1,985,275 $ 2,688,325
Storage Technology Corporation
8.00% Convertible Debenture, 5/31/15
(convertible into 52,483 common shares)...................... 1,850,000 1,638,875 1,808,375
Summit Health Ltd.
7.50% Convertible Subordinated Note, 4/1/03
(convertible into 100,694 common shares)..................... 600,000 600,000 738,000
Sun Healthcare Group Inc.
6.00% Convertible Eurobond, 3/1/04
(convertible into 91,576 common shares)...................... 2,020,000 2,344,865 1,898,800
Synoptics Communication Inc.
5.25% Convertible Subordinated Debenture, 5/15/03
(convertible into 25,035 common shares)...................... 1,600,000 1,342,000 1,514,000
United Gaming Inc.+
7.50% Convertible Subordinated Debentures, 9/15/03
(convertible into 223,000 common shares)..................... 2,230,000 2,140,750 1,471,800
United States Cellular Corporation*
Liquid Yield Option (Subordinated Zero Coupon), 6/15/15
(convertible into 39,227 common shares)...................... 7,140,000 2,219,016 2,195,550
USX Corporation
7.00% Convertible Subordinated Debenture, 6/15/17
(convertible into 48,526 common shares)...................... 1,850,000 1,565,000 1,697,375
----------- -----------
Total Public Debt Securities 71,874,086 77,259,496
</TABLE>
<TABLE>
<CAPTION>
Date of Initial
Direct Placements (2.4%), Notes A & B Acquisition
---------------
<S> <C> <C> <C> <C>
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
Desert Eagle Distributing of El Paso Inc.*
Equity Appreciation Rights Certificate
(entitled to receive the equivalent of the
purchase price of 88,235 shares of common stock
on or after 5/1/97)............................... 05/07/92 1 220,500 1,175,179
------------------------
Total Direct Placements 1,750,000 2,925,179
</TABLE>
<TABLE>
<CAPTION>
Number
Common Stock (0.4%) of Shares
---------
<S> <C> <C> <C>
ITI Technologies Inc.*............................................... 28,020 163,450 532,380
</TABLE>
10 Lincoln National Convertible Securities Fund, Inc.
<PAGE>
Statement of Net Assets
continued (Unaudited)
<TABLE>
<CAPTION>
Number of
Shares or Market or
Convertible Preferred Stock (26.6%) Warrants Cost Fair Value
--------- ----------- -----------
<S> <C> <C> <C>
AMC Entertainment Inc.
Convertible Preferred Stock
(convertible into 90,510 common shares)........................... 77,500 $ 2,001,575 $ 2,150,625
Allstate Corporation
Convertible Preferred Stock
(convertible into 41,650 common shares)........................... 41,650 1,470,725 1,697,238
American Express Company
6.25% Depository Equity Certificates Cumulative Preferred Stock
(convertible into 66,994 common shares)........................... 71,800 2,691,750 3,482,300
American General Delaware L.L.C.
6.00% Convertible Monthly Income Preferred Securities, Series A
(convertible into 20,876 common shares)........................... 17,000 857,395 881,875
Browning Ferris Inc.*
7.25% Automatic Common Exchange Securities
(convertible into 40,573 common shares)........................... 41,000 1,464,188 1,500,150
Corning Delaware
6.00% Convertible Monthly Preferred Stock
(convertible into 69,618 common shares)........................... 26,900 1,345,000 1,375,262
FREEPORT-McMoran Copper & Gold Inc. $1.25
Depository Shares, Representing 1/20 of a Share of Cumulative
Preferred Stock
(convertible into 53,419 common shares)........................... 91,750 2,220,245 1,984,094
General Motors Corporation, $3.25
Convertible Preferred Stock, Series E
(convertible into 60,544 common shares)........................... 43,000 2,449,705 2,709,000
International Technology Corp., $1.75
Representing 1/100 of a Share of Cumulative Convertible
Exchangeable Preferred Stock
(convertible into 332,634 common shares).......................... 83,700 1,839,302 1,517,062
J Ray McDermott Inc., $2.25
Convertible Preferred Stock, Series B
(convertible into 131,580 common shares).......................... 60,000 2,236,100 2,970,000
Kenetech Corporation
Depository Shares, Representing 1/50 of 8.25% PRIDES
Convertible Preferred Stock
(convertible into 81,472 common shares)........................... 76,105 1,360,373 1,065,470
Occidental Petroleum Corporation, $3.88+
Convertible Preferred Stock
(convertible into 98,775 common shares)........................... 23,000 1,210,125 1,331,125
Occidental Petroleum Corporation, $3.00
Convertible Preferred Stock
(convertible into 105,077 common shares).......................... 49,900 2,387,010 2,956,575
Philippine Long Distance Telephone Service
Series III, Convertible Preferred Stock
(convertible into 21,146 common shares)........................... 24,675 1,233,750 1,579,200
SCI Finance, Series A
6.25% Term Convertible Shares
(convertible into 54,448 common shares)........................... 45,600 2,420,753 2,770,200
United Companies Financial Corporation
Convertible Prides
(convertible into 37,000 common shares)........................... 37,000 1,631,188 1,655,750
----------- ----------
Total Convertible Preferred Stocks 28,819,184 31,625,926
</TABLE>
The accompanying notes are an integral part of the financial statements.
1995 Semi-Annual Report
11
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets
continued (Unaudited)
Par Market or
Short-Term Investments (7.7%) Amount Cost Fair Value
---------- ---- ------------
<S> <C> <C> <C>
Melville Corporation, 6.20%, 7/3/95.............................. $1,800,000 $ 1,799,070 $ 1,799,070
Prudential Funding Inc., 5.94%, 7/5/95........................... 2,800,000 2,795,842 2,795,842
Credit Suisse Financial, 6.00%, 7/6/95........................... 3,300,000 3,295,050 3,295,050
El DuPont De Nemours & Co., 5.98%, 7/13/95....................... 1,237,000 1,234,329 1,234,329
------------ ------------
Total Short-Term Investments 9,124,291 9,124,291
------------ ------------
Total Investments (102.0%) $111,731,011 121,467,272
============
Excess of Liabilities over other assets (2.0%) -- Note D (2,351,870)
------------
Net Assets (equivalent to $18.72 per share based on
6,363,695 shares outstanding -- Note E $119,115,402
============
</TABLE>
*Non-Income producing.
+Indicates that securities are eligible for sale under S.E.C. Rule 144A.
12 Lincoln National Convertible Securities Fund, Inc.
<PAGE>
Statements of Operations
Unaudited
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30,
1995 1994 1995 1994
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment income:
Income:
Interest.............................................. $1,225,297 $ 1,072,710 $ 2,344,585 $ 2,147,966
Dividends............................................. 614,324 694,017 1,344,281 1,229,667
---------- ----------- ----------- -----------
Total Income 1,839,621 1,766,727 3,688,866 3,377,633
Expenses:
Management fees -- Note C............................. 261,137 239,276 511,961 493,818
Stock transfer and dividend disbursing fees........... 5,003 9,585 11,944 15,268
Printing, stationery, and supplies.................... 17,112 23,723 17,133 25,716
Director fees......................................... 31,500 19,250 47,250 38,500
Custodian and registrar fees.......................... 3,048 2,181 6,096 3,635
New York Stock Exchange fee........................... 4,410 3,925 7,350 6,542
Postage and mailing fees.............................. 21,555 25,563 23,294 38,100
Accountant fees....................................... 1,400 0 17,900 18,000
Other................................................. 7,167 9,915 13,711 14,769
---------- ----------- ----------- -----------
Total Operating Expenses 352,332 333,418 656,639 654,348
---------- ----------- ----------- -----------
Net Investment Income 1,487,289 1,433,309 3,032,227 2,723,285
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) on investments............... 1,757,081 (2,854,894) 22,229 5,074,308
Increase (decrease) in net unrealized
appreciation of investments.......................... 2,986,522 (4,170,708) 8,778,714 (17,050,729)
---------- ----------- ----------- -----------
Net Realized and Unrealized Gain (Loss) On Investments.. 4,743,603 (7,025,602) 8,800,943 (11,976,421)
Net Increase (Decrease) In Net Assets
Resulting From Operations $6,230,892 $(5,592,293) $11,833,170 $(9,253,136)
========== =========== =========== ===========
</TABLE>
() denotes deduction.
The accompanying notes are an integral part of the financial statements.
1995 Semi-Annual Report 13
<PAGE>
Statements of Changes in Net Assets
Unaudited
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Changes from operations:
Net investment income.......................... $ 1,487,289 $ 1,433,309 $ 3,032,227 $ 2,723,285
Net realized gain (loss) on investments........ 1,757,081 (2,854,894) 22,229 5,074,308
Increase (decrease) in net unrealized
appreciation of investments................... 2,986,522 (4,170,708) 8,778,714 (17,050,729)
------------ ------------ ------------ ------------
Net Increase (Decrease) In Net Assets
Resulting From Operations 6,230,892 (5,592,293) 11,833,170 (9,253,136)
Distributions to shareholders
from net investment income:
Common shareholders............................. (1,527,287) (1,525,169) (1,527,287) (1,525,169)
Changes from capital shares transactions:
Net proceeds from shares issued under
dividend reinvestment program.................. 0 153,714 0 1,347,357
------------ ------------ ------------ ------------
Total Increase (Decrease) In Net Assets 4,703,605 (6,963,748) 10,305,883 (9,430,948)
Net assets at beginning of period............... 114,411,797 116,107,760 108,809,519 118,574,960
------------ ------------ ------------ ------------
Net Assets At End Of Period+ $119,115,402 $109,144,012 $119,115,402 $109,144,012
============ ============ ============ ============
</TABLE>
+ Including undistributed net investment income as of June 30: 1995--$881,587;
1994--$1,382,468
() denotes deduction.
The accompanying notes are an integral part of the financial statements.
14 Lincoln National Convertible Securities Fund, Inc.
<PAGE>
Portfolio of Investments by Industry Classification+
As of June 30, 1995
<TABLE>
<CAPTION>
Market Percent
or Fair of Net
Value Assets
------------ -------
<S> <C> <C>
Airline
AMR Corporation....................................$ 2,090,400 1.75%
Cement
Cemex SA de CV..................................... 760,000
Medusa Corporation................................. 1,642,113
------------
2,402,113 2.02%
Computer Software
Sterling Software Inc. ............................ 2,688,325 2.26%
Computer Storage
EMC Corporation.................................... 2,790,875 2.34%
Computers
General Motors Corporation - Class E............... 2,709,000
Storage Technology Corp. .......................... 1,808,375
Synoptics Communications Inc. ..................... 1,514,000
------------
6,031,375 5.06%
Electronics
AES Corporation.................................... 1,065,750
Altera Corporation................................. 2,698,500
General Instrument Corp. .......................... 3,207,750
Integrated Device Technology....................... 1,766,024
ITI Technologies Inc. ............................. 532,380
Motorola Inc. ..................................... 2,497,188
------------
11,767,592 9.89%
Energy
Kenetech Corporation............................... 1,065,470
Occidental Petroleum Corporation................... 4,287,700
------------
5,353,170 4.49%
Entertainment
AMC Entertainment Inc. ............................ 2,150,625
Argosy Gaming Company.............................. 1,909,500
Coleman Worldwide.................................. 2,044,500
United Gaming Inc. ................................ 1,471,800
------------
7,576,425 6.36%
Finance
American Express................................... 3,482,300
American General................................... 881,875
Capstone Capital Inc. ............................. 1,640,625
Elan International Finance......................... 1,757,812
United Companies Financial Corporation............. 1,655,750
------------
9,418,362 7.91%
Food and Beverage
Desert Eagle Distributing of El Paso Inc. ......... 2,925,179
Grand Metropolitan PLC............................. 2,594,025
------------
5,519,204 4.63%
Funeral Homes
SIC Finance LLC.................................... 2,770,200 2.33%
Health Service
Genesis Health Ventures Inc. ...................... 1,179,587
Healthsouth Rehabilitation Corporation............. 3,166,250
Integrated Health Services......................... 2,768,125
Physicians Clinical Lab Inc. ...................... 1,396,363
Quantum Health Resources........................... 1,093,625
Summit Health LTD.................................. 738,000
Sun Healthcare Group Inc. ......................... 1,898,800
------------
12,240,750 10.29%
Insurance
Allstate Corporation............................... 1,697,238 1.42%
Lodging and Hotels
Prime Hospitality Corp. ........................... 1,932,606
Sholodge Inc. ..................................... 2,154,000
------------
4,086,606 3.43%
Machinery & Equipment
AGCO Corporation................................... 2,552,865
California Energy Company Inc. .................... 1,717,125
Seacor Holdings Inc. .............................. 2,569,613
------------
6,839,603 5.74%
Mining
Freeport-McMoran Copper & Gold Inc. ............... 1,984,094 1.67%
Miscellaneous
Corning Delaware................................... 1,375,263
Renong Berhad...................................... 997,500
------------
2,372,763 1.99%
Office Equipment
Danka Business Systems PLC......................... 1,634,100 1.37%
Offshore Pipelines
J Ray McDermott Inc. .............................. 2,970,000 2.49%
Paper and Paper Products
Riverwood International Corporation................ 3,289,000 2.76%
Pharmaceutical
Ivax Corporation................................... 487,500 0.41%
Real Estate
Hysan Development Finance.......................... 995,000 0.84%
Retail
Lowe's Companies................................... 2,182,625 1.83%
Steel
USX Corporation.................................... 1,697,375 1.42%
Telecommunications
Aspect Telecommunications.......................... 1,834,324
LDDS Communications Inc. .......................... 1,292,000
Philippine Long Distance Telephone Service......... 1,579,200
United States Cellular Corporation................. 2,195,550
------------
6,901,074 5.79%
Transportation
Air Express International Corporation.............. 1,540,000 1.29%
Waste Management
Browning-Ferris Industries Inc. ................... 1,500,150
International Technology........................... 1,517,062
------------
3,017,212 2.53%
Total Investments $112,342,981 94.31%
============
(Excluding Short Term Investments)
</TABLE>
+Unaudited
1995 Semi-Annual Report 15
<PAGE>
Notes to Financial Statements
Note A -- Summary of Accounting Policies
Lincoln National Convertible Securities 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. One of the policies of the Fund is that the investment portfolio will
have a significant component of convertible securities, which may include direct
placement convertible securities. 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
S.E.C. 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.
Income taxes
It is the intention of the Fund to distribute substantially all net income and
net short-term 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.
The Fund does not intend to distribute net realized long-term capital gains. The
Fund intends to retain and reinvest such gains and, accordingly, to pay
applicable income taxes on the excess of such gains over net realized short-term
capital losses, if any.
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 and interest income is recorded on the accrual basis. Distributions to
shareholders are recorded on the ex-dividend date.
Note B -- Investments
Direct placement securities are restricted as to resale because these securities
have not been registered with
16 Lincoln National Convertible Securities Fund, Inc.
<PAGE>
Notes to Financial Statements
continued
the Securities and Exchange Commission. 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:
. Common shares issuable upon exercise of warrants are entitled to at least one
free registration and also to certain free "piggyback" registration rights.
. Warrants owned by the Fund do not carry registration rights.
. Debt securities have no registration rights, but can be sold to other
institutional investors after a minimum holding period, subject to certain
requirements.
The Securities and Exchange Commission 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 $75,103,345
and $78,029,666, respectively, as of June 30, 1995; and $81,246,456 and
$90,172,991, respectively as of June 30, 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 .21875% of the net assets of
the Fund as of the close of business on the last business day of the quarter
(.875% on an annual basis). Prior to May 21, 1993 the Fund paid a management fee
of .15% of the net assets of the Fund as of the close of business on the last
business day of the quarter (.6% on an annual basis). 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 as of June 30, 1995.
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.
Note D -- Excess of Liabilities over Other Assets
The net asset caption "excess of liabilities over other assets" consisted of the
following:
<TABLE>
<S> <C>
Receivable for
investment securities sold $ 2,487,083
Accrued investment
income receivable 1,052,813
Dividend receivable 335,224
Payable for investment
securities purchased (5,978,121)
Management fees payable (261,136)
Other-net 13,727
Cash (1,460)
-----------
$(2,351,870)
===========
</TABLE>
1995 Semi-Annual Report 17
<PAGE>
Notes to Financial Statements
CONTINUED
Note E -- Net Assets
Net assets at June 30, 1995 consisted of the following:
Common stock,
par value $.001 per share:
Authorized-20,000,000 shares;
Issued and outstanding-
6,363,695 shares $ 6,364
Proceeds in excess of par value
of shares issued 90,138,154
Undistributed net
investment income 881,587
Undistributed realized gain
on investments, net of taxes 18,353,036
Net unrealized appreciation
of investments 9,736,261
------------
$119,115,402
============
Note F -- Income Taxes
The cost of investments for federal income tax purposes is the same as for book
purposes. At June 30, 1995 the aggregate gross unrealized appreciation on
investments was $12,620,780 and the aggregate gross unrealized depreciation was
$2,884,519.
Note G -- Subsequent Event
On July 21, 1995, the Board of Directors declared a $.24 per share distribution.
The dividend is payable September 7, 1995 to shareholders of record as of
August 22, 1995.
18 Lincoln National Convertible Securities 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 Income Fund, Inc., Lincoln Advisor Funds,
Inc. and St. Joseph Light and Power Company; Chairman of
the Board, Fort Dearborn Income Securities, Inc.
Adela Cepeda Managing Director, Abacus Financial Group, Inc.; Vice
President of Smith Barney and Harris Upham & Co.;
Commissioner, Chicago Public Building Commission;
Director, National Association of Securities
Professionals, Lincoln National Income Fund, Inc.,
National Society of Hispanic MBAs, Chicago Chapter 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 Income Fund, Inc.,
Lincoln Advisor Funds, Inc. and Signature Care, Inc.;
President and Chairman, Hospital Laundry Services, Inc.;
Director and Treasurer, Pine Valley Country Club.
Charles G. Freund Chairman Emeritus of the Board of Directors, Success
National Bank at Lincolnshire; Director, Mathers Fund,
Inc., Lincoln National Income Fund, Inc. and Lincoln
Advisor Funds, Inc.; Chairman of the Board, First National
Bank of Lincolnshire.
Thomas N. Mathers Director, Lincoln National Income Fund, Inc.; Vice
President and Director, OFC Meadowood Retirement
Community.
H. Thomas McMeekin Executive Vice President, Lincoln National Corporation;
President, Lincoln National Investment Companies, Inc.;
President and Director, Lincoln Investment Management Inc.
and Lincoln National Income Fund, Inc.; Director, EMPHESYS
Financial Group, Inc., Frontenac Capital Corporation,
Lincoln Advisor Funds, Inc., The Lincoln National Life
Insurance Company, Lynch & Mayer and Vantage Global
Advisors, Inc.; President, Chief Executive Officer and
Director, Lincoln National Mezzanine Finance Corporation.
Daniel R. Toll Director, Brown Group, Inc., A. P. Green Industries, Inc.,
Kemper Corporation, Kemper National Insurance Company,
Lincoln National Income Fund, Inc., NICOR, Inc. and
Mallinckrodt Group, Inc.
Ann L. Warner Senior Vice President, Director Portfolio Management,
Lincoln Investment Management, Inc.; and Director, Lincoln
National Income Fund, Inc.
Fred J. Young President, United Wealth Watchers of America; former trust
investment officer, Harris Trust and Savings Bank;
Director, Lincoln National Convertible Securities Fund,
Inc.
Officers
--------------------------------------------------------------------------------
H. Thomas McMeekin President
Edward J. Petner Vice President
Bradley A. Roberts Vice President
Robert D. Schwartz Vice President
David A. Berry Vice President
David G. Humes Vice President, Controller
C. Suzanne Womack Secretary
1995 Semi-Annual Report 19
<PAGE>
Corporate Information
Dividend Disbursing Agent, Transfer Agent and Registrar
The First National Bank of Boston
Investor Relations
Mail Stop 45-02-09
P.O. Box 644
Boston, MA 02102-0644
(800) 730-6001
Investment Advisor
Lincoln Investment Management Inc.
200 E. Berry Street
Fort Wayne, IN 46802
(219) 455-2210
Investment Subadvisor
Lynch & Mayer, Inc.
520 Madison Avenue
New York, NY 10022
(212) 758-1717
Independent Accountants
Coopers & Lybrand L.L.P.
490 Lincoln Tower
Fort Wayne, IN 46802
Dividend Reinvestment Program
Lincoln National Convertible Securities Fund's dividend reinvestment plan
provides shareholders a convenient and economical method for investing in our
Fund. Holders of common stock may participate and invest quarterly cash
dividends. Shareholders may also send cash (with certain limitations) to
purchase common stock. For further information, write The First National Bank of
Boston, P.O. Box 1865, Boston, MA 02105.
Stock Exchange
This stock is traded on the New York Stock Exchange and the trading symbol is
LNV.
Special Notice
On June 1, 1995 the fund's investment advisor, Lincoln National Investment
Management Company, legally changed its name to Lincoln Investment Management,
Inc.
20 Lincoln National Convertible Securities Fund, Inc.
<PAGE>
[LOGO OF LINCOLN NATIONAL INVESTMENT MANAGEMENT CO.]
Lincoln National Investment Management Co. is the investment manager for the
Lincoln National Convertible Securities Fund, Inc.
Form 23296SA 8/95
