<PAGE>
TABLE OF CONTENTS
Page
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 ....................................................16
Statements of Changes in Net Assets .........................................17
Portfolio of Investments by Industry Classification .........................18
Notes to Financial Statements ...............................................20
Directors & Officers of the Fund ............................................23
Corporate Information .......................................................24
- --------------------------------------------------------------------------------
Lincoln National Convertible Securities Fund
- --------------------------------------------------------------------------------
1996 Semi-Annual Report 1
<PAGE>
MANAGER PROFILE
Throughout its history, your Fund has been managed by investment affiliates
of Lincoln National Corporation. The Fund's investment advisor is Lincoln
Investment Management Inc. (LIM), 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 LIM 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 LIM.
Lynch & 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 $6 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. In 1995, it became a wholly owned subsidiary of LNIC.
In 1993, Robert Schwartz became the portfolio manager for the Fund at Lynch
& Mayer. Mr. Schwartz previously managed convertible security portfolios for
Salomon Brothers Asset Management and First Boston Asset Management. Mr.
Schwartz also spent 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 (CFA) 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. Nearly
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
carry forward. Net realized long-term 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 also will 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. The Fund also may invest in non-dollar
denominated securities, however, as of June 30, 1996, has chosen not to do so.
SHAREHOLDER MEETING RESULTS
The Fund had their annual Shareholder meeting on April 19, 1996. 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 5,228,274 of Common Stock shares (82.16% 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>
Proposal I
Election of R. Burridge 5,162,231 66,043 --
Directors -- A. Cepeda 5,155,590 72,684 --
Common Stock R. Deshaies 5,164,390 63,884 --
C. Freund 5,152,857 75,417 --
T. Mathers 5,153,289 74,985 --
T. McMeekin 5,152,207 76,067 --
D. Toll 5,160,801 67,473 --
A. Warner 5,153,046 75,228 --
F. Young 5,155,908 72,366 --
Proposal II
Ratification of the Selection of Auditor
(Coopers & Lybrand LLP.) 5,154,798 22,560 50,916
</TABLE>
2 Lincoln National Convertible Securities Fund, Inc.
<PAGE>
Page 1
LN CONVERTIBLE SECURITIES FUND
DEAR SHAREHOLDER:
The Lincoln National Convertible Securities Fund had strong performance during
the first half of 1996. For the year-to-date period ending June 30, 1996 the
Fund's Net Asset Value (NAV) and market price increased 14.1 percent and 8.1
percent respectively. The Fund's total return compared favorably to other funds
and most major equity and fixed income indices, including the First Boston
Convertible Securities Index (8.1 percent) and the Russell 2000 (10.4 percent).
Including dividend reinvestments, the Fund led its ten Morningstar peers with a
total NAV return of 15.4 percent. Over the past six months, the return of the
Fund and convertible securities in general is even more favorable when compared
to other bond related indices. For example, the Lehman Government Index had a
negative return of -1.9 percent.
Many factors contributed to this outstanding first half performance. The
primary factor was the strong performance of small and medium capitalization
equities. The Fund's strategy of looking for companies with accelerating
earnings growth often leads us to smaller size companies. Although the
small-cap sector underwent a correction in June and July, we still expect these
companies to show superior growth in the future which would benefit the Fund's
holdings.
Strong performance in the telecommunications sector also contributed to the
Fund's superior performance. Many of the Fund's holdings are beneficiaries of
continued deregulation. As a result of holdings such as LDDS Communications
(Worldcom), Intelcom Group and Aspect Telecommunication the Fund's holdings saw
significant price appreciation. The Fund also benefited from our first quarter
reductions in the technology sector, which had disappointing returns in the
second quarter. However, we anticipate increasing the Fund's technology
weighting before year-end, but not until we feel growth has resumed
for this sector.
Our outlook for interest rates continues to be for stable to slowly increasing
rates. We expect the economy to continue to increase at a moderate pace.
Although inflation is under control, increases in basic wages and food prices
will create enough fear of inflation to keep the bond market subdued. We also
continue to favor smaller company equities as relative valuations are
attractive, and strong year-over-year currency comparisons continue to favor
domestic oriented companies. Although there are now more redemptions than new
issuances on the market, the new issue volume appears to have caught up with
demand. We like many of the new companies, even though many of them have not
traded well to date.
We expect the correction in convertibles that began in June to end during the
third quarter, as rates stabilize and our companies release more positive
earnings reports. We will continue to use the same approach that has served the
Fund well over the years and expect many of the underlying equities to rebound
later in the year. The Fund's on-going strategy is to use sound convertible
security analysis to focus on companies under going positive fundamental change.
This consistent philosophy has allowed the Lincoln National Convertible
Securities Fund to perform well through changing economic and market cycles and
will continue to in the future.
<PAGE>
Portfolio Performance
As of June 30, 1996
The following table displays the net asset value total return for the Fund
on a cumulative basis compared to various applicable indices.
<TABLE>
<CAPTION>
YTD 1 Year 3 Years 5 Years 10 Years+
________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
LN Convertible Securities Fund 15.39% 24.42% 51.47% 127.26% 270.69%
1st Boston Convertible Sec. Index 8.10% 15.78% 37.09% 100.70% 178.98%
Merrill Lynch Convertible Index 9.30% 17.70% 36.89% 104.58% 186.88%
Lipper Convertible Mutual Fund Index 5.26% 15.63% 32.70% 82.18% 150.33%
Standard & Poor's 500* 10.10% 25.96% 60.97% 107.36% 264.59%
Russell 2000 10.40% 23.94% 55.36% 124.12% 169.44%
Lehman Gov't/Corporate Bond Index -1.88% 4.66% 16.29% 50.22% 124.14%
* Dividends Reinvested
+ Merrill Lynch Convertible Index and Lipper Convertible Mutual Fund Index -
Start Date 12/31/87
</TABLE>
Total Fund Investments
At Market or Fair Values As of June 30
<TABLE>
<CAPTION>
1996 1995
------------------ ---------------------
(000) % of Total (000) % of Total
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Convertible & Public Debt Securities $ 90,187 67% $ 77,260 65%
Direct Placement Securities 3,162 2% 2,925 2%
Convertible Preferred Stocks 37,685 28% 31,626 27%
Common Stocks 382 -- 532 --
Short-Term Investments 2,698 2% 9,124 8%
Other Assets Over Liabilities 1,671 1% (2,352) (2%)
- ----------------------------------------------------------------------------------
Total Net Assets $135,785 100% $119,115 100%
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Dividend History
The table below shows the 10 year common dividend per share history.
Annual Annual
Year Dividend Year Dividend
- ------------------------------------------------------------------
<S> <C> <C> <C>
1987 $1.13 1992 $ 2.14
1988 .95 1993 2.92
1989 1.57 1994 1.08
1990 1.02 1995 1.64
1991 1.02 1996* 0.24
</TABLE>
* Dividends paid as of June 30th.
4 Lincoln National Convertible Securities Fund, Inc.
<PAGE>
Common Stock Market Prices &
Net Asset Value History+
<TABLE>
<CAPTION>
1996
Market Prices & Volumes Net Asset Values
High Low Close Volumes High Low Close
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $17.88 $16.13 $17.13 427,800 $20.42 $18.48 $20.42
2nd Quarter 19.00 16.75 18.25 603,400 22.07 20.24 21.34
1995
Market Prices & Volumes Net Asset Values
High Low Close Volumes High Low Close
- ------------------------------------------------------------------------
1st Quarter $17.00 $15.00 $16.00 330,000 $17.98 $17.06 $17.98
2nd Quarter 17.63 15.88 16.63 303,900 18.92 18.03 18.72
3rd Quarter 18.25 16.50 18.00 385,400 19.90 18.72 19.75
4th Quarter 18.38 16.75 16.75 304,300 19.75 18.68 18.71
1994
Market Prices & Volumes Net Asset Values
High Low Close Volumes High Low Close
- ------------------------------------------------------------------------
1st Quarter $20.75 $17.75 $17.88 502,200 $19.70 $18.27 $18.27
2nd Quarter 18.50 16.50 16.88 309,300 18.45 17.15 17.15
3rd Quarter 18.00 16.00 16.13 277,100 18.51 17.27 18.46
4th Quarter 17.25 15.13 15.38 406,900 18.45 17.10 17.10
1993
Market Prices & Volumes Net Asset Values
High Low Close Volumes High Low Close
- ------------------------------------------------------------------------
1st Quarter $18.25 $16.38 $18.00 445,600 $18.74 $17.55 $18.74
2nd Quarter 19.38 17.88 18.75 329,100 19.92 18.61 19.92
3rd Quarter 20.13 18.63 19.50 306,700 21.01 19.80 21.01
4th Quarter 21.13 18.25 19.25 469,800 21.75 18.84 18.84
</TABLE>
Shares are listed on the New York Stock Exchange under the trading symbol LNV.
+Unaudited
1996 Semi-Annual Report 5
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Six Months Ended June 30 ---------Year Ending-------
(SELECTED DATA FOR EACH SHARE OF COMMON STOCK 1996 1995
OUTSTANDING THROUGHOUT THE PERIOD) (UNAUDITED) (UNAUDITED) 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 18.71 $ 17.10 $ 17.10 $ 18.84
Net Investment Income .43 .48 .91 .94
Net Realized & Unrealized Gain\(Loss) 2.44 1.38 2.34 (1.60)
- -------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.87 1.86 3.25 (.66)
- -------------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends from Net Investment Income:
To Common Shareholders (.24) (.24) (.96) (.95)
Dividends from Net Realized Gains:
To Common Shareholders -- -- (.68) (.13)
- -------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.24) (.24) (1.64) (1.08)
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 21.34 $ 18.72 $ 18.71 $ 17.10
- -------------------------------------------------------------------------------------------------------------
Per Share Market Value, End of Period $ 18.25 $ 16.63 $ 16.75 $ 15.38
Total Investment Return (based on Market Value) 10.50% 9.71% 19.57% (14.49%)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $135,785 $119,115 $119,087 $108,810
Ratio -- Expenses to Average Net Assets .53% 58% 1.09% 1.09%
Ratio -- Net Income to Average Net Assets 2.10% 2.67% 4.91% 5.18%
Portfolio Turnover Rate 72.76% 66.18% 127.24% 127.32%
Average Commission Rate Paid Per Share $ .0613 $ .0579
</TABLE>
( ) Denotes deduction
* Covers the period of June 26, 1986 (commencement of investment activity)
to 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.
6 Lincoln National Convertible Securities Fund, Inc.
<PAGE>
<TABLE>
<CAPTION>
------------------------------------ Year Ending ----------------------------------
(SELECTED DATA FOR EACH SHARE OF COMMON STOCK
OUTSTANDING THROUGHOUT THE PERIOD) 1993 1992 1991 1990 1989 1988 1987 1986*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 17.62 $ 18.04 $ 13.59 $ 15.21 $ 13.41 $ 12.62 $ 14.38 $ 13.95
Net Investment Income .90 1.01 .97 1.03 1.53 .95 .92 .43
Net Realized & Unrealized Gain\(Loss) 3.24 .71 4.50 (1.63) 1.84 .79 (1.55) .20
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 4.14 1.72 5.47 (.60) 3.37 1.74 (.63) .63
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distribution:
Dividends from Net Investment Income:
To Common Shareholders (1.05) (.97) (1.02) (1.02) (1.07) (.95) (1.13) (.20)
Dividends from Net Realized Gains:
To Common Shareholders (1.87) (1.17) -- -- (0.50) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (2.92) (2.14) (1.02) (1.02) (1.57) (.95) (1.13) (.20)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 18.84 $ 17.62 $ 18.04 $ 13.59 $ 15.21 $ 13.41 $ 12.62 $ 14.38
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Market Value, End of Period $ 19.25 $ 16.50 $ 15.50 $ 11.50 $ 13.38 $ 11.75 $ 11.75 $ 15.75
Total Investment Return (based on Market Value) 34.36% 20.26% 43.65% (6.43%) 27.23% 8.09% (18.22%) 6.33%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (00) $118,575 $110,743 $113,398 $ 85,434 $ 95,655 $ 91,607 $87,304 $99,460
Ratio -- Expenses to Average Net Assets 1.02% .83% .89% .97% .94% .96% .88% .38%
Ratio -- Net Income to Average Net Assets 4.58% 5.49% 5.96% 7.21% 6.64% 6.90% 6.43% 3.08%
Portfolio Turnover Rate 222.00% 166.26% 132.99% $134.64% $147.31% $110.70% 73.41% 34.00%
</TABLE>
( ) Denotes deduction
* Covers the period of June 26, 1986 (commencement of investment activity)
to 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 thefinancial statements.
1996 Semi-Annual Report 7
<PAGE>
Statement of Net Assets
As of June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Par Market or
Amount Cost Fair Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments - Notes A & B
Convertible & Public Debt Securities (66.4%)
Advance Agro Public Company
3.50% Convertible Subordinated Debenture, 6/14/01
(convertible into 713,281 common shares) $2,050,000 $2,050,000 $2,019,250
Alfa S.A. DE C.V.
8.00% Convertible Subordinated Note, 9/15/00
(convertible into 136,988 common shares) 650,000 650,000 692,250
American Medical Response Inc.
5.25% Convertible Subordinated Note, 2/12/01
(convertible into 53,642 common shares) 2,025,000 2,057,906 2,212,312
Applied Magnetics Corporation
7.00% Convertible Subordinated Debenture, 3/15/06
(convertible into 118,547 common shares) 2,205,000 2,205,000 1,918,350
Argosy Gaming Company
12.00% Convertible Subordinated Note, 6/01/01
(convertible into 93,220 common shares) 1,650,000 1,611,625 1,524,188
ARV Assisted Living
6.75% Convertible Subordinated Note, 6/01/01
(convertible into 65,966 common shares) 1,225,000 1,225,000 1,225,000
Aspect Telecommunications
5.00% Convertible Subordinated Debenture, 10/15/03
(convertible into 25,724 common shares) 500,000 450,000 1,300,625
BEC Group Inc.
8.00% Convertible Subordinated Note, 5/03/02
(convertible into 156,519 common shares) 900,000 996,000 819,000
Broadband Technologies Inc.
5.00% Convertible Subordinated Note, 5/15/01
(convertible into 17,599 common shares) 730,000 730,000 723,613
Capstone Capital Inc.
10.50% Convertible Subordinated Debenture, 4/01/02
(convertible into 93,024 common shares) 1,500,000 1,500,000 1,905,000
Career Horizons Inc.
7.00% Convertible Bond, 11/01/02
(convertible into 42,339 common shares) 735,000 735,000 1,550,850
Cityscape Financial Corporation
6.00% Convertible Subordinated Debenture, 5/01/06
(convertible into 27,620 common shares) 1,450,000 1,445,575 1,558,750
Coleman Worldwide*
Subordinated Liquid Yield Option, 5/27/13
(convertible into 15,549 common shares) 1,980,000 606,152 663,300
</TABLE>
*Non-income producing
The accompanying notes are an integral part of the financial statements.
8 Lincoln National Convertible Securities Fund, Inc.
<PAGE>
Statement of Net Assets
Continued (Unaudited)
<TABLE>
<CAPTION>
Par Market or
Amount Cost Fair Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Convertible & Public Debt Securities (continued)
Comverse Technology Inc.
5.25% Convertible Subordinated Note, 12/01/03
(convertible into 73,807 common shares) $1,430,000 $1,494,441 $2,284,425
Continental Homes Holding Corp.
6.875% Convertible Subordinated Note, 11/01/02
(convertible into 65,263 common shares) 1,550,000 1,550,000 1,712,750
Cross Timbers Oil Company
5.25% Convertible Subordinated Note, 11/01/03
(convertible into 54,054 common shares) 1,250,000 1,180,750 1,392,188
Danka Business Systems PLC
6.75% Convertible Subordinated Note, 4/01/02
(convertible into 30,558 common shares) 890,000 986,273 1,052,425
Dovatron International
6.00% Convertible Subordinated Note, 10/15/02
(convertible into 63,332 common shares) 2,375,000 2,375,594 2,285,938
Eagle Hardware & Garden Inc.
6.25% Convertible Subordinated Debenture, 3/15/01
(convertible into 58,333 common shares) 1,050,000 966,375 1,038,188
Grancare Inc.
6.50% Convertible Subordinated Debenture, 1/15/03
(convertible into 43,838 common shares) 1,190,000 1,110,600 1,124,550
Healthsouth Rehabilitation Corporation
5.00% Convertible Subordinated Debenture, 4/01/01
(convertible into 49,701 common shares) 935,000 993,438 1,783,513
9.50% Senior Debenture, 4/01/01 2,000,000 1,984,375 2,062,500
Hometown Buffet Inc.
7.00% Convertible Subordinated Note, 12/01/02
(convertible into 120,146 common shares) 1,640,000 1,640,000 1,992,600
Integrated Health Services
5.75% Convertible Subordinated Debenture, 1/01/01
(convertible into 75,154 common shares) 2,450,000 2,531,815 2,388,750
Intelcom Group Inc.
7.00% Convertible Subordinated Note, 10/30/98
(convertible into 89,268 common shares) 1,606,838 1,415,988 2,229,487
LDDS Communications Inc.
5.00% Convertible Subordinated Note, 8/15/03
(convertible into 42,566 common shares) 1,620,000 1,304,850 2,328,750
Lowe's Companies
3.00% Convertible Subordinated Note, 7/22/03
(convertible into 55,494 common shares) 1,450,000 1,844,056 2,030,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
1996 Semi-Annual Report 9
<PAGE>
Statement of Net Assets
Continued (Unaudited)
<TABLE>
<CAPTION>
Par Market or
Amount Cost Fair Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Convertible & Public Debt Securities (continued)
Magna International
5.00% Convertible Subordinated Note, 10/15/02
(convertible into 32,904 common shares) $1,790,000 $1,845,100 $1,866,075
Mascotech Inc.
4.50% Convertible Subordinated Debenture, 12/15/03
(convertible into 16,129 common shares) 500,000 400,000 395,000
Medusa Corporation
6.00% Convertible Subordinated Note, 11/15/03
(convertible into 51,774 common shares) 1,715,000 1,722,350 1,796,463
NABI Inc.
6.50% Convertible Subordinated Note, 2/01/03
(convertible into 92,858 common shares) 1,300,000 1,309,100 1,179,750
Nine West Group Inc.
5.50% Convertible Subordinated Note, 7/15/03
(convertible into 46,082 common shares) 2,800,000 2,800,000 2,821,000
Noble Affiliates Inc.
4.25% Convertible Subordinated Note, 11/01/03
(convertible into 35,471 common shares) 1,300,000 1,354,250 1,426,750
North American Vaccine Inc.
6.50% Convertible Subordinated Note, 5/01/03
(convertible into 64,360 common shares) 1,600,000 1,649,750 1,516,000
Orbital Sciences Corporation
6.75% Convertible Subordinated Debenture, 3/01/03
(convertible into 76,522 common shares) 1,100,000 1,205,750 1,298,000
PHP Healthcare Inc.
6.50% Convertible Bond, 12/13/02
(convertible into 51,009 common shares) 1,390,000 1,390,000 1,793,100
Phymatrix Corporation
6.75% Convertible Subordinated Debenture, 6/15/03
(convertible into 72,695 common shares) 2,050,000 2,050,000 2,009,000
Physicians Clinical Laboratories Inc. - Note A "Other"*
7.50% Convertible Subordinated Debenture, 8/15/00
(convertible into 138,524 common shares) 1,690,000 1,690,000 422,500
Pogo Producing Company
5.00% Convertible Subordinated Note, 6/15/06
(convertible into 24,416 common shares) 1,030,000 1,030,000 1,107,250
Prime Hospitality Corp.
7.00% Convertible Subordinated Note, 4/15/02
(convertible into 151,249 common shares) 1,815,000 1,815,000 2,672,588
</TABLE>
*Non-income producing
The accompanying notes are an integral part of the financial statements.
10 Lincoln National Convertible Securities Fund, Inc.
<PAGE>
STATEMENT OF NET ASSETS
Continued (Unaudited)
<TABLE>
<CAPTION>
Par Market or
Amount Cost Fair value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Convertible & Public Debt Securities (continued)
Reno Air Inc.
9.00% Senior Note, 9/30/02
convertible into 170,000 common shares) $1,700,000 $1,706,750 $2,142,000
Richey Electronics Inc
7.00% Convertible Subordinated Note, 3/01/06
(convertible into 87,433 common shares) 1,235,000 1,235,000 1,295,206
Rotech Medical Corporation
5.25% Convertible Subordinated Debenture, 6/01/03
(convertible into 84,571 common shares) 2,220,000 2,220,075 2,131,200
Sholodge Inc.
7.50% Convertible Subordinated Debenture, 5/01/04
(convertible into 102,960 common shares) 2,400,000 2,406,000 2,106,000
Staples Inc.
4.50% Convertible Subordinated Debenture, 10/01/00
(convertible into 22,728 common shares) 500,000 515,000 540,625
Stillwater Mining Company
7.00% Convertible Subordinated Note, 5/01/03
(convertible into 70,895 common shares) 1,900,000 1,900,000 1,976,000
Sunglass Hut International Inc.
5.25% Convertible Subordinated Note, 6/15/03
(convertible into 28,760 common shares) 870,000 870,000 883,050
Tele-Communications International
4.50% Convertible Subordinated Note, 2/15/06
(convertible into 109,890 common shares) 3,000,000 2,871,750 2,565,000
Telxon Corporation
5.75% Convertible Debenture, 1/01/03
(convertible into 14,546 common shares) 400,000 400,000 306,000
Titan Wheel International Inc.
4.75% Convertible Subordinated Debenture, 12/01/00
(convertible into 92,000 common shares) 1,150,000 1,421,000 1,469,125
United States Cellular Corporation*
Subordinated Liquid Yield Option, 6/15/15
(convertible into 67,652 common shares) 7,140,000 2,352,084 2,356,200
United Waste Systems, Inc.
4.50% Convertible Subordinated Note, 6/01/01
(convertible into 16,308 common shares) 530,000 530,000 596,250
US Diagnostic Labs Inc.
9.00% Convertible Subordinated Debenture, 3/31/03
(convertible into 131,111 common shares) 1,180,000 1,191,800 1,781,800
</TABLE>
*Non-income producing
The accompanying notes are an integral part of the financial statements.
1996 Semi-Annual Report 11
<PAGE>
Statement of Net Assets
Continued (Unaudited)
<TABLE>
<CAPTION>
Par Market or
Amount Cost Fair Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Convertible & Public Debt Securities (continued)
United States Filter Corporation
6.00% Convertible Subordinated Note, 9/15/05
(convertible into 41,455 common shares) $1,140,000 $ 1,143,500 $ 1,536,150
U.S. Office Products Company
5.50% Convertible Subordinated Debenture, 5/15/03
(convertible into 70,896 common shares) 3,360,000 3,603,600 3,343,200
Veterinary Centers of America Inc.
5.25% Convertible Subordinated Debenture, 5/01/06
(convertible into 34,498 common shares) 1,185,000 1,098,738 1,036,875
- ------------------------------------------------------------------------------------------------------------------------
Total Convertible and Public Debt Securities 83,367,410 90,186,709
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Date of Initial Par Market or
Acquisition Amount Cost Fair Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Direct Placement Securities (2.3%)
Note A & B
Desert Eagle Distributing of El Paso, Inc.*
13.00% Senior Subordinated Note, 11/01/99 5/7/92 1,750,000 1,529,500 1,750,000
Desert Eagle Distributing of El Paso, Inc.*
Equity Appreciation Rights Certificate 5/7/92 1 219,426 1,410,978
(entitled to receive the equivalent of the
purchase price of 87,895 shares of
common stock on or after 5/1/97)
Desert Eagle Distributing of New Mexico, Inc.*
Equity Appreciation Rights Certificate 5/7/92 1 1,074 1,074
(entitled to receive the equivalent of the
purchase price of 430 shares of
common stock on or after 5/1/97)
- ------------------------------------------------------------------------------------------------------------------------
Total Direct Placement Securities 1,750,000 3,162,052
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Number Market or
of Shares Cost Fair Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks (0.3%)
BEC Group Inc.* 31,645 182,285 138,447
Genzyme Corporation - General Division* 4,249 249,500 213,512
MFS Communications Company Inc.* 788 25,545 29,649
- ------------------------------------------------------------------------------------------------------------------------
Total Common Stocks 457,330 381,608
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Non-income producing
The accompanying notes are an integral part of the financial statements.
12 Lincoln National Covertible Securities Fund, Inc.
<PAGE>
Statement of Net Assets
Continued (Unaudited)
<TABLE>
<CAPTION>
Number of Market or
Shares Cost Fair Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Convertible Preferred Stocks (continued)
Alco Standard Corporation
Convertible Preferred Stock 20,060 $1,554,049 $1,664,980
(convertible into 32,898 common shares)
Allstate Corporation
Convertible Preferred Stock 64,150 2,349,700 2,533,925
(convertible into 52,539 common shares)
AMC Entertainment Inc.
Convertible Preferred Stock 77,500 2,001,575 3,690,937
(convertible into 133,610 common shares)
Amway Japan LTD $1.44
Premium Exchangeable Participating Shares 108,800 2,112,558 2,298,400
(convertible into 92,154 common shares)
Freeport-McMoran Copper & Gold, Inc., $1.25
Depository Shares, Representing 1/20 of a share
of Cumulative Preferred Stock 91,750 2,220,245 2,500,187
(convertible into 76,611 common shares)
Greenfield Capital Trust
Convertible Preferred Stock 27,520 1,391,000 1,403,520
(convertible into 33,354 common shares)
International Technology Corporation, $1.75
Representing 1/100 of a share of Cumulative
Convertible Exchangeable Preferred Stock 83,700 1,839,302 1,569,375
(convertible into 358,320 common shares)
Kmart Financing I
Convertible Trust Preferred Securities 30,850 1,542,500 1,673,612
(convertible into 102,731 common shares)
Liposome Company, Inc.
Depository Shares, Representing 1/10 Convertible
Preferred Series A Shares 13,050 391,763 486,112
(convertible into 25,395 common shares)
MFS Communications Company Inc.
Depository Shares, Representing 1 Share Dividend
Enhanced Convertible Securities 5,700 297,113 361,950
(convertible into 9,348 common shares)
Nortel Inversora SA CV*
Mandatory Exchangeable Debt Securities 49,150 $2,064,300 $2,260,900
(convertible into 42,761 common shares)
Occidental Petroleum Corporation, $3.00
Convertible Preferred Stock 49,900 2,387,010 3,100,037
(convertible into 176,247 Canadian Occidental
common shares)
</TABLE>
*Non-income producting
The accompanying notes are an integral part of the financial statements.
1996 Semi-Annual Report 13
<PAGE>
Statement of Net Assets
Continued (Unaudited)
<TABLE>
<CAPTION>
Number of Market or
Shares Cost Fair Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Convertible Preferred Stocks (continued)
Parker & Parsley Petroleum Company
Monthly Income Preferred Securities
(convertible into 51,562 common shares) 29,000 $ 1,503,161 $ 1,587,750
Salomon Inc.
Debt Exchangeable for Common Stock
(convertible into 56,371 of FSA Holdings
common shares) 68,745 1,831,148 1,873,301
Spectrum Holybyte Inc.*
Convertible Preferred Stock
(convertible into 244,500 common shares) 244,500 1,344,750 1,344,750
Station Casinos Inc.
Convertible Preferred Stock
(convertible into 76,865 common shares) 23,600 1,180,000 1,357,000
TCI Communications Inc., Series A
Convertible Preferred Stock
(convertible into 339,079 common shares) 12,905 608,148 569,433
Times Mirror Company
Convertible Preferred Stock
(convertible into 14,790 common shares) 17,000 667,250 824,500
Trans World Air
Convertible Preferred Stock
(convertible into 103,121 common shares) 41,800 2,132,000 1,995,950
Tyco Toys Inc.
Depository Shares, Representing 1/20 Share
Preferred Stock
(convertible into 164,000 common shares) 200,000 1,000,000 1,125,000
United Companies Financial Corporation
Preferred Redeemable Increased Dividend
Equity Securities
(convertible into 42,152 common shares) 25,500 1,122,000 1,517,250
Wang Laboratories Inc.
Depository Shares, Representing 1/20
Convertible Preferred B Shares
(convertible into 77,915 common shares) 41,400 2,194,587 1,945,800
- ---------------------------------------------------------------------------------
Total Convertible Preferred Stock 33,734,159 37,684,669
- ---------------------------------------------------------------------------------
Total Long-Term Investments (96.8%) 119,308,899 131,415,038
- ---------------------------------------------------------------------------------
</TABLE>
*Non-income producing
The accompanying notes are integral part of the financial statements.
14 Lincoln National Convertible Secutities Fund, Inc.
<PAGE>
STATEMENT OF NET ASSETS
CONTINUED (UNAUDITED)
Par Market or
Amount Cost Fair Value
- --------------------------------------------------------------------------------
Short-Term Investments (2.0%)
G.E. Capital Corporation,
5.37%, 7/1/96 $1,000,000 $ 999,254 $ 999,254
Suntrust Banks Inc.,
5.58%, 7/1/96 1,700,000 1,699,209 1,699,209
- --------------------------------------------------------------------------------
Total Short-Term Investments 2,698,463 2,698,463
- --------------------------------------------------------------------------------
Total Investments (98.8%) $122,007,362 134,113,501
- --------------------------------------------------------------------------------
Excess of Other Assets Over Liabilities (1.2%) -
Note D 1,671,018
- --------------------------------------------------------------------------------
Net Assets (100%) (Equivalent to $21.34 Per Share
Based on 6,363,695 Shares Outstanding) - Note E $135,784,519
- --------------------------------------------------------------------------------
* Non-income producing
The accompanying notes are an integral part of the financial statements.
1996 Semi-Annual Report 15
<PAGE>
Statements of Operations+
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Income:
Interest $1,326,225 $1,225,297 $ 2,649,473 $ 2,344,585
Dividends 434,067 614,324 759,936 1,344,281
- -------------------------------------------------------------------------------------------------------------
TOTAL INCOME 1,760,292 1,839,621 3,409,409 3,688,866
Expenses:
Management Fees - Note C 297,680 261,137 582,611 511,961
Director Fees 15,750 31,500 31,500 47,250
Professional fees 1,400 1,400 21,282 17,900
Printing, stationery, and supplies 2,746 17,112 2,959 17,133
Stock Transfer & dividend disbursing (2,252) 5,003 (630) 11,944
Postage and mailing fees 2,603 21,555 4,546 23,294
New York Stock Exchange fee 4,410 4,410 7,350 7,350
Custodian and registrar fees 7,055 3,048 3,633 6,096
Other 19,836 7,167 35,643 13,711
- -------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 349,228 352,332 688,894 656,639
NET INVESTMENT INCOME 1,411,064 1,487,289 2,720,515 3,032,227
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 10,142,261 1,757,081 14,058,091 22,229
Increase (decrease) in net unrealized
appreciation of investments (4,210,799) 2,986,522 1,445,811 8,778,714
- -------------------------------------------------------------------------------------------------------------
NET REALIZED & UNREALIZED GAIN
ON INVESTMENTS 5,931,462 4,743,603 15,503,902 8,800,943
- -------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $7,342,526 $6,230,892 $18,224,417 $11,833,170
=============================================================================================================
</TABLE>
+Unaudited
The accompanying notes are an integral part of the financial statements.
16 Lincoln National Convertible Securities Fund, Inc.
<PAGE>
Statements of Changes in Net Assets+
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Changes from operations:
Net Investment Income $ 1,411,064 $ 1,487,289 $ 2,720,515 $ 3,032,227
Net realized gain on investments 10,142,261 1,757,081 14,058,091 22,229
Increase (Decrease) in Net Unrealized
appreciation of investments (4,210,799) 2,986,522 1,445,811 8,778,714
- -------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 7,342,526 6,230,892 18,224,417 11,833,170
Distributions to shareholders from
net investment income:
Common Shareholders (1,527,287) (1,527,287) (1,527,287) (1,527,287)
- -------------------------------------------------------------------------------------------------------------
Total Distributions to Shareholders
from Net Investment Income (1,527,287) (1,527,287) (1,527,287) (1,527,287)
Total Increase in Net Assets 5,815,239 4,703,605 16,697,130 10,305,883
Net assets at beginning of period 129,969,280 114,411,797 119,087,389 108,809,519
- -------------------------------------------------------------------------------------------------------------
Net Assets at End of Period* $135,784,519 $119,115,402 $135,784,519 $119,115,402
=============================================================================================================
</TABLE>
*Includes undistributed net investment income as of June 30: 1996 - $1,295,754;
1995 - $881,587
+Unaudited
The accompanying notes are an integral part of the financial statements
1996 Semi-Annual Report 17
<PAGE>
Portfolio of Investments by
Industry Classification+
<TABLE>
<CAPTION>
As of June 30, 1995 Market Percent
or Fair of Net
Value Assets
- --------------------------------------------------------------------------------
<S> <C> <C>
Airline
Reno Air Inc. $2,142,000
Trans World Air 1,995,950
- --------------------------------------------------------------------------------
4,137,950 3.0%
Automobile Components
Magna International 1,866,075 1.4%
Broadcasting/Publishing
Times Mirror Company 824,500 0.6%
Building Construction
Continental Homes Holding Corp. 1,712,750
Medusa Corporation 1,796,462
- --------------------------------------------------------------------------------
3,509,212 2.6%
Communication Equipment
Aspect Telecommunications 1,300,625
Comverse Technology Inc. 2,284,425
- --------------------------------------------------------------------------------
3,585,050 2.6%
Computer Software
Spectrum Holybyte Inc. 1,344,750 1.0%
Consumer Goods/Services
Amway Japan LTD 2,298,400
BEC Group Inc. 957,447
Coleman Worldwide 663,300
Tyco Toys Inc. 1,125,000
- --------------------------------------------------------------------------------
5,044,147 3.7%
Electronics
Dovatron International 2,285,937
Richey Electronics Inc. 1,295,206
Wang Laboratories Inc. 1,945,800
- --------------------------------------------------------------------------------
5,526,943 4.1%
Energy
Cross Timbers Oil Company 1,392,188
Occidental Petroleum Corporation 3,100,038
- --------------------------------------------------------------------------------
4,492,226 3.3%
Entertainment
AMC Entertainment Inc. 3,690,938
Argosy Gaming Company 1,524,188
Station Casinos Inc. 1,357,000
- --------------------------------------------------------------------------------
6,572,126 4.8%
Finance
Capstone Capital Inc. 1,905,000
Cityscape Financial Corporation 1,558,750
Kmart Financing 1,673,613
United Companies Financial Corp. 1,517,250
- --------------------------------------------------------------------------------
6,654,61 4.9%
Food Products
Desert Eagle Distributing - El Paso 3,160,978
Desert Eagle Distributing - New Mexico 1,074
- --------------------------------------------------------------------------------
3,162,05 2.3%
Health Services
American Medical Response Inc. 2,212,313
ARV Assisted Living 1,225,000
Grancare Inc. 1,124,550
Healthsouth Rehabilitation Corp. 3,846,012
Integrated Health Services 2,388,750
NABI Inc. 1,179,750
North American Vaccine Inc. 1,516,000
PHP Healthcare Inc. 1,793,100
Phymatrix Corporation 2,009,000
Physicians Clinical Lab Inc. 422,500
Rotech Medical Corporation 2,131,200
US Diagnostic Labs Inc. 1,781,800
- --------------------------------------------------------------------------------
21,629,975 15.9%
Hotels/Lodging
Prime Hospitality Corp. 2,672,587
Sholodge Inc. 2,106,000
- --------------------------------------------------------------------------------
4,778,587 3.5%
Insurance
Allstate Corporation 2,533,925 1.9%
Machinery & Equipment
Alfa S.A. DE C.V 692,250
Greenfield Capital Trust 1,403,520
Titan Wheel International Inc. 1,469,125
- --------------------------------------------------------------------------------
3,564,895 2.6%
Mining
Freeport-McMoran Copper & Gold Inc. 2,500,188
Stillwater Mining Company 1,976,000
- --------------------------------------------------------------------------------
4,476,188 3.3%
Office and Office Equipment
Career Horizons Inc. 1,550,850
Danka Business Systems 1,052,425
U.S. Office Products Company 3,343,200
- --------------------------------------------------------------------------------
5,946,475 4.4%
Oil Exploration
Noble Affiliates Inc. 1,426,750
Parker & Parsley Petroleum Co. 1,587,750
Pogo Producing Company 1,107,250
- --------------------------------------------------------------------------------
4,121,750 3.0%
Paper and Paper Products
Advance Agro Public Company 2,019,250
Alco Standard Corporation 1,664,980
- --------------------------------------------------------------------------------
3,684,230 2.7%
Pharmaceuticals
Genzyme Corporation - Gen'l Div 213,512
The Liposome Company, Inc. 486,112
- --------------------------------------------------------------------------------
2,692,224 2.0%
</TABLE>
18 Lincoln National Convertible Securities Fund, Inc.
<PAGE>
Portfolio of Investments by
Industry Classification+ continued
<TABLE>
<CAPTION>
Market or Percent of
Fair Value Net Assets
- ---------------------------------------------------------------------------
<S> <C> <C>
Retail
Eagle Hardware & Garden Inc. $1,038,188
Lowe's Companies 2,030,000
Nine West Group Inc. 2,821,000
Sunglass Hut International Inc. 883,050
Staples Inc. 540,625
- ---------------------------------------------------------------------------
7,312,863 5.4%
Restaurants
Hometown Buffet Inc. 1,992,600 1.5%
Securities Brokers
Salomon Inc. $1,873,301 1.4%
Technology
Applied Magnetics Corporation 1,918,350
Orbital Sciences Corp. 1,298,000
Telxon Corporation 306,000
- ---------------------------------------------------------------------------
3,522,350 2.6%
Telecommunication
Broadband Technologies Inc. 723,612
Intelcom Group 2,229,487
LDDS Communications Inc. 2,328,750
MFS Communications Inc. 391,599
Nortel Inversora SA 2,260,900
TCI Communications Inc. 569,433
Tele-Communications International 2,565,000
United States Cellular Corporation 2,356,200
- ---------------------------------------------------------------------------
13,424,981 9.9%
Transportation
Mascotech Inc. 395,000 .3%
Veterinary Services
Veterinary Centers of America Inc. 1,036,875 .8%
Waste Management
International Technology 1,569,375
United States Filter Corporation 1,536,150
United Waste Systems, Inc. 596,250
- ---------------------------------------------------------------------------
3,701,775 2.7%
Total Long-Term Investments $131,415,038 96.8%
- ---------------------------------------------------------------------------
</TABLE>
+Unaudited
1996 Semi-Annual Report 19
<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. The following is a summary of significant accounting policies
followed by the Fund in the preparation of its financial statements.
Investments
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. As of June 30, 1996, all direct placement securities, which totaled
$3,162,052 and represents 2.3% 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 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 short-term 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 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. In addition, in the preparation of financial
statements management relies on the use of estimates where necessary.
20 Lincoln National Convertible Securities Fund, Inc.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
CONTINUED
For the period ending June 30, 1996, only one security, Physicians Clinical
Laboratories, Inc. is in default. The company has missed its last three
interest payments. No reorganization plan has been announced as of yet.
Distributions to common 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 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:
. 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.
. Warrants owned by the Fund do not carry registration rights.
. 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 $94,349,038
and $97,889,110, respectively, as of June 30, 1996; and $75,103,345 and
$78,029,666, respectively as of June 30, 1995.
NOTE C -- MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Under an agreement between the Fund and Lincoln Investment Management, Inc.
(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 net assets of the
Fund as of the close of business on the last business day of the quarter (.875%
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 June 30,
1996.
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 OTHER ASSETS OVER LIABILITIES
The net asset caption "excess of other assets over liabilities" consisted of
the following:
Cash $ 26,723
Accrued investment
income receivable 1,074,510
Receivable for investments
securities sold 3,620,151
Management fee payable (297,680)
Payable for investment
securities purchase (2,952,878)
Other -- net 200,192
------------
$ 1,671,018
============
1996 Semi-Annual Report 21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
CONTINUED
NOTE E -- NET ASSETS
Net assets at June 30, 1996, 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 89,730,569
Undistributed realized gain
on investments,
net of taxes paid 32,645,693
Undistributed net
investment income 1,295,754
Net unrealized appreciation
of investments 12,106,139
------------
Total Net Assets $135,784,519
============
NOTE F -- INCOME TAXES
The cost of investments for federal income tax purposes is the same as for book
purposes. At June 30, 1996, the aggregate gross unrealized appreciation on
investments was $16,388,879 and the aggregate gross unrealized depreciation was
$4,282,740.
NOTE G -- SUBSEQUENT EVENT
On July 12, 1996, the Board of Directors declared a $.24 per share
distribution. The dividend is payable July 31, 1996 to shareholders of record
as of July 22, 1996.
22 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. and St.
Joseph Light and Power Company; Chairman of the Board
Fort Dearborn Income Securities, Inc.
Adela Cepeda President, A.C. Advisory, Inc.; Commissioner, Chicago
Public Building Commission; Director, Lincoln National
Income Fund, Inc.; Director and Vice President, Harvard
Club of Chicago.
Roger J. Deshaies Senior Vice President, Finance, Parkview Memorial
Hospital; Director Lincoln National Income Fund, Inc.,
Hospital Laundry Services, Inc., and Signature Care,
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 Income Fund, 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 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 Income Fund, Inc.; Director, The
Lincoln National Life Insurance Company, Delaware
Management Holdings, Inc., Lynch & Mayer, Inc. and
Vantage Global Advisors, Inc.
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 and Director Portfolio Management,
Lincoln Investment Management, Inc; Director, Lincoln
National Income Fund, Inc.
Fred J. Young President, United Wealth Watchers of America; Director,
Lincoln National Income Fund, Inc.
OFFICERS
- --------------------------------------------------------------------------------
H. Thomas McMeekin President
David A. Berry Vice President
David G. Humes Vice President, Controller
Harold McElraft Vice President, Treasurer
Edward J. Petner Vice President
Bradley A. Roberts Vice President
Robert D. Schwartz Vice President
Ann L. Warner Vice President
C. Suzanne Womack Secretary
1996 Semi-Annual Report 23
<PAGE>
CORPORATE INFORMATION
DIVIDEND DISBURSING AGENT, TRANSFER AGENT AND PLAN AGENT
Boston EquiServe
Investor Relations
P.O. Box 644
Boston, MA 02102-0644
1-800-730-6001
INVESTMENT ADVISOR
Lincoln Investment Management, Inc.
200 East 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
STOCK EXCHANGE
The Fund's stock is traded on the New York Stock Exchange (NYSE) under the
symbol of LNV.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Any registered shareholder of Lincoln National Convertible Securities Fund,
Inc. may participate in the Automatic Dividend Reinvestment Plan (the Plan). If
you are a beneficial owner whose shares are registered in the name of another
(e.g., in a broker's "street name") and desires to participate in the Plan, you
must become a registered holder by having the shares transferred to your name.
To participate in the Plan, you must complete and forward an authorization
card to the Plan agent. This card authorizes the Plan agent to receive your
dividends and other distributions from the Fund in additional shares of common
stock. The 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 the Fund's Common Stock
plus brokerage commissions. If the net asset value per share is higher than the
market price of the Fund's Common Stock plus brokerage commissions, the
additional shares will be purchased in the open market and the cost of the
brokerage commissions will be charged to each participant on a pro-rata basis.
The Plan also allows the Plan agent to accept optional cash contributions. Each
optional cash contribution by 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 644 Boston, MA 02102-0644 or call 1-800-730-6001.
24 Lincoln National Convertible Securities Fund, Inc.
