Lincoln National Convertible Securities Fund, Inc.
1997 Semi-Annual Report
<TABLE>
<CAPTION>
Table of Contents Page
<S> <C>
Manager Profile ................................................. 2
Investment Policies & Objectives ................................ 2
President's Letter .............................................. 3
Portfolio Performance ........................................... 4
Total Fund Investments .......................................... 4
Dividend History ................................................ 4
Common Stock Market Prices & Net Asset Value History ............ 5
Shareholder Meeting Results ..................................... 6
FINANCIAL STATEMENTS:
Financial Highlights ....................................... 8
Statement of Net Assets .................................... 15
Statements of Operations ................................... 16
Statements of Changes in Net Assets ........................ 17
Portfolio of Investments by Industry Classification ........ 19
Notes to Financial Statements .............................. 22
Directors & Officers of the Fund ................................ 23
Corporate Information ........................................... 24
</TABLE>
<PAGE>
Manager Profile
Throughout it's 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, 1997, has chosen not to do so.
<PAGE>
President's Letter
July 18, 1997
Dear Shareholders:
Your Fund had a positive first half of 1997. After a tough February through
April period, the Fund's holdings rebounded and the Fund finished the second
quarter and first half with returns of 8.9% and 7.9% respectively. Although
pleased with the positive returns, we are disappointed with the relative
underperformance versus the popular equity indices such as the S&P 500. The
Fund's returns are, however, in line with other convertible managers and
smaller capitalization equity managers. The Fund, and convertibles in general,
have always been much more closely correlated to smaller stock indices than
that of the largest stocks which led the major indices higher. Convertibles
did keep pace with their underlying equities, however, as seen by the 87%
participation in the performance of the underlying equities (based on the
First Boston Convertible Securities Index).
The Fund's focus on medium size growth companies hurt performance in the first
quarter, as this segment was all but ignored by investors. This performance
dispersion is shown by a comparison of the Russell 2000 Growth Index (a small
company growth index) return of 5.2% and the Russell 2000 Value Index ( a
small value index) of 14.8%. This growth versus value difference was not
apparent in larger stocks as the Russell 200 Growth Index (the largest 200
growth stocks) was up 23%.
Large company stocks have appreciated at a record absolute pace in 1997, and
at a record relative pace over the past 3 1/2 years. We do not foresee this
outperformance continuing for ever. Smaller company equities began to match
performance at the end of the second quarter and we expect the relative
performance to improve going forward. Relative valuation measures indicate
that smaller growth company equities are much more attractive than large
capitalization stocks. With the overall level of the equity market at high
levels, convertibles appear to be the most attractive means of investing in
this sector. We continue to find attractive convertible securities in the
smaller company universe that provide the fund with attractive yields and the
potential to share in the significant upside potential of these companies.
These companies have dynamic underlying fundamentals that will help their
earnings and value appreciate over time, and will translate into higher equity
and convertible securities prices.
Examples of companies that the Fund purchased during the second quarter
include: CNF Transportation, Gilat Satellite, Occusystems, Premiere Technology
and Signature Resorts. These are all companies that have specific underlying
changes taking place that should significantly accelerate their earnings
growth.
No one industry impacted the Fund's performance significantly. Most of the
major contributors to performance were small company convertibles that had
strong underlying equity fundamentals. Examples were DIIG Group, Imax
Corporation and Key Energy. Our holdings do not currently reflect any specific
macro-economic view. We expect the economy will continue to show the same
moderate growth we have seen over the past couple of years. We therefore are
focusing our efforts on finding focused growth oriented companies with
attractive convertible securities.
The convertible market remains an attractive place to invest the Fund's
capital. Although theoretical valuations have increased to slightly above
historical averages, there are many positives in the market. The
attractiveness of the underlying companies, increased demand in the market due
to the high levels of the equity market, and a stable interest rate
environment are all positive for convertible securities. In this environment
we plan on continuing to implement our existing philosophy. Our holdings are
expected to show over 40% earnings growth in 1997, and trade at a
price/earnings ratio of approximately 20 times. Although these are fast
growing companies, our convertible securities gave the portfolio an average
current yield of 6%, with a 25% conversion premium. We feel the combination of
our equity and convertible characteristics have positioned the Fund well for
the future.
Respectfully,
/S/ H. Thomas McMeekin
H. Thomas McMeekin
President
<PAGE>
Portfolio Performance
As of June 30, 1997
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 7.94% 14.40% 165.28% 210.81% 378.39%
1st Boston Convertible Sec. Index 9.30% 15.10% 114.05% 146.40% 290.60%
Merrill Lynch Convertible Index 9.70% 16.40% 58.39% 96.60% 233.98%
Lipper Convertible Fund Index 10.10% 17.70% 52.62% 84.65% 193.50%
Standard & Poor's 500* 20.60% 34.67% 113.76% 146.29% 292.22%
Russell 2000 10.21% 16.34% 73.13% 127.65% 187.62%
Lehman Gov't/Corporate Bond Index 2.74% 7.75% 27.16% 41.81% 130.72%
</TABLE>
* Dividends Reinvested
Total Fund Investments
At Market or Fair Values As of June 30
<TABLE>
<CAPTION>
1997 1996
(000) % of Total (000) % of Total
<S> <C> <C> <C> <C>
Convertible & Public
Debt Securities $85,583 67% $90,187 67%
Direct Placement Securities 2,892 2% 3,162 2%
Convertible Preferred Stocks 32,065 25% 37,685 28%
Common Stocks 3,834 3% 382 ----
Short-Term Investments 1,298 1% 2,698 2%
Other Assets Over Liabilities 2,619 2% 1,671 1%
Total Net Assets $128,291 100% $135,785 100%
</TABLE>
<PAGE>
Dividend History
The table below shows the 10 year common dividend per share history.
<TABLE>
<CAPTION>
Annual Annual
Year Dividend Year Dividend
<S> <C> <C> <C>
1987 $1.13 1993 2.92
1988 0.95 1994 1.08
1989 1.57 1995 1.64
1990 1.02 1996 3.33
1991 1.02 1997 * 0.24
1992 2.14
</TABLE>
* Dividends paid as of June 30th.
Common Stock Market Prices and Net Asset Value History
(Unaudited)
<TABLE>
<CAPTION>
1997
Market Prices and Volumes Net Asset Value
High Low Close Volume High Low Close
<S> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $19.750 $17.250 $17.375 598,200 $20.20 $18.76 $18.76
2nd Quarter 19.000 16.750 18.875 377,400 20.16 18.15 20.16
1996
Market Prices and Volumes Net Asset Value
High Low Close Volume High Low Close
1st Quarter $17.875 $16.125 $17.125 412,400 $20.42 $18.48 $20.42
2nd Quarter 19.000 16.750 18.250 601,200 22.07 20.24 21.34
3rd Quarter 19.125 16.625 18.750 404,000 21.42 19.60 21.42
4th Quarter 20.375 17.375 17.500 416,300 22.09 18.92 18.92
1995
Market Prices and Volumes Net Asset Value
High Low Close Volume High Low Close
1st Quarter $17.000 $15.000 $16.000 330,000 $17.98 $17.06 $17.98
2nd Quarter 17.625 15.875 16.625 303,900 18.92 18.03 18.72
3rd Quarter 18.250 16.500 18.000 385,400 19.90 18.72 19.75
4th Quarter 18.375 16.750 16.750 304,300 19.75 18.68 18.71
1994
Market Prices and Volumes Net Asset Value
High Low Close Volume High Low Close
1st Quarter $20.750 $17.750 $17.875 502,200 $19.70 $18.27 $18.27
2nd Quarter 18.500 16.500 16.875 309,300 18.45 17.15 17.15
3rd Quarter 18.000 16.000 16.125 277,100 18.51 17.27 18.46
4th Quarter 17.250 15.125 15.375 406,900 18.45 17.10 17.10
</TABLE>
Shares are listed on the New York Stock Exchange under the trading symbol LNV.
<PAGE>
SHAREHOLDER MEETING RESULTS
The Fund had their annual Shareholder meeting on April 22, 1997. Two proposals
were presented to shareholders for vote. Proposal I "Election of Directors"
and Proposal II "Ratification of the Selection of Auditor". A total of
5,829,216 of Common Stock shares (91.60% of the total outstanding shares) were
voted. The following table highlights the results of the vote.
<TABLE>
<CAPTION>
Number of Number of Number of
Shares Voted Shares Voted Shares Voted
FOR AGAINST ABSTAINED
<S> <C> <C> <C>
Proposal I
Election of Directors
R. Burridge 5,595,930 233,286 ----
A. Cepeda 5,591,817 237,399 ----
R. Deshaies 5,595,932 233,284 ----
C. Freund 5,592,898 236,318 ----
T. Mathers 5,577,592 251,624 ----
T. McMeekin 5,586,364 242,852 ----
D. Toll 5,591,808 237,408 ----
A. Warner 5,581,059 248,157 ----
F. Young 5,584,490 244,726 ----
Proposal II
Ratification of the Selection of
Auditor (Coopers & Lybrand LLP) 5,760,742 21,714 46,760
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(Selected data for each share of common stock
outstanding throughout the period)
<TABLE>
<CAPTION>
Six Months Ended June 30th
1997 1996
(Unaudited) (Unaudited) 1996 1995
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $18.92 $18.71 $18.71 $17.10
Net Investment Income 0.48 0.43 0.92 0.91
Net Realized & Unrealized Gain\(Loss) 1.00 2.44 2.62 2.34
Total From Investment Operations 1.48 2.87 3.54 3.25
Less Distributions:
Dividends from Net Investment Income: (0.24) (0.24) (0.98) (0.96)
Dividends from Net Realized Gains: ---- ---- (2.35) (0.68)
Total Distributions (0.24) (0.24) (3.33) (1.64)
Net Asset Value, End of Period $20.16 $21.34 $18.92 $18.71
Per Share Market Value, End of Period $18.88 $18.25 $17.50 $16.75
Total Investment Return (based on
Market Value) 9.34% 10.50% 24.36% 19.57%
Ratios/Supplemental Data
Net Assets, End of Period (000) $128,291 $135,785 $120,431 $119,087
Ratio - Expenses to Average Net Asset 0.58% 0.53% 1.05% 1.09%
Ratio-Net Income to Average Net Asset 2.46% 2.10% 4.50% 4.91%
Portfolio Turnover Rate 55.16% 72.76% 134.85% 127.24%
Average Commission Rate Paid Per Share $0.0912 $0.0613 $0.0602 $0.0579
</TABLE>
( ) Denotes deduction
The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
(Selected data for each share of common stock
outstanding throughout the period)
<TABLE>
<CAPTION>
1994 1993 1992 1991
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $18.84 $17.62 $18.04 $13.59
Net Investment Income 0.94 0.90 1.01 0.97
Realized & Unrealized Gain\(Loss) (1.60) 3.24 0.71 4.50
Total From Investment Operations (0.66) 4.14 1.72 5.47
Less Distributions:
Dividends from Net Investment Income: (0.95) (1.05) (0.97) (1.02)
Dividends from Net Realized Gains: (0.13) (1.87) (1.17) ----
Total Distributions (1.08) (2.92) (2.14) (1.02)
Net Asset Value, End of Period $17.10 $18.84 $17.62 $18.04
Per Share Market Value, End of Period $15.38 $19.25 $16.50 $15.50
Total Investment Return (based on
Market Value) (14.49%) 34.36% 20.26% 43.65%
Ratios/Supplemental Data
Net Assets, End of Period (000) $108,810 $118,575 $110,743 $113,398
Ratio - Expenses to Average Net Asset 1.09% 1.02% 0.83% 0.89%
Ratio-Net Income to Average Net Asset 5.18% 4.58% 5.49% 5.96%
Portfolio Turnover Rate 127.32% 222.00% 166.26% 132.99%
</TABLE>
( ) Denotes deduction
The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
(Selected data for each share of common stock
outstanding throughout the period)
<TABLE>
<CAPTION>
1990 1989 1988 1987
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $15.21 $13.41 $12.62 $14.38
Net Investment Income 1.03 1.53 0.95 0.92
Realized & Unrealized Gain\(Loss) (1.63) 1.84 0.79 (1.55)
Total From Investment Operations (0.60) 3.37 1.74 (0.63)
Less Distributions:
Dividends from Net Investment Income: (1.02) (1.07) (0.95) (1.13)
Dividends from Net Realized Gains: ---- (0.50) ----- ----
Total Distributions (1.02) (1.57) (0.95) (1.13)
Net Asset Value, End of Period $13.59 $15.21 $13.41 $12.62
Per Share Market Value, End of Period $11.50 $13.38 $11.75 $11.75
Total Investment Return (based on
Market Value) (6.43%) 27.23% 8.09% (18.22%)
Ratios/Supplemental Data
Net Assets, End of Period (000) $85,434 $95,655 $91,607 $87,304
Ratio - Expenses to Average Net Asset 0.97% 0.94% 0.96% 0.88%
Ratio-Net Income to Average Net Asset 7.21% 6.64% 6.90% 6.43%
Portfolio Turnover Rate 134.64% 147.31% 110.70% 73.41%
</TABLE>
( ) Denotes deduction
The accompanying notes are an integral part of the financial statements.
<PAGE>
Statement of Net Assets (Unaudited)
As of June 30, 1997
<TABLE>
<CAPTION>
Investments - Notes A & B
Par Market or
Amount Cost Fair Value
<S> <C> <C> <C>
Convertible & Public Debt Securities (66.7%)
Applied Magnetics Corporation
7.00% Convertible Subordinated
Debenture, 3/15/06 $760,000 $882,690 $1,056,400
(convertible into 40,860 common shares)
ARV Assisted Living Inc.
6.75% Convertible Subordinated
Note, 4/01/01 1,450,000 1,408,375 1,239,750
(convertible into 78,083 common shares)
BEC Group Inc.
8.00% Convertible Subordinated
Note, 5/03/02 973,440 1,069,440 924,768
(Convertible into 169,291 common shares)
Cityscape Financial Corporation
6.00% Convertible Subordinated
Debenture, 5/01/06 1,810,000 1,846,975 1,610,900
(convertible into 68,952 common shares)
Comverse Technology Inc.
5.75% Convertible Subordinated
Debenture, 10/01/06 1,885,000 1,892,481 2,469,350
(convertible into 41,202 common shares)
Converse Inc.
7.00% Convertible Subordinated
Debenture, 6/01/04 875,000 875,000 993,125
(convertible into 40,082 common shares)
Diamond Offshore Drilling Inc.
3.75% Convertible Subordinated
Debenture, 2/15/07 495,000 513,563 570,487
(convertible into 6,111 common shares)
DIIG Group (formally Dovatron International)
6.00% Convertible Subordinated
Note, 10/15/02 1,549,000 1,452,964 2,075,660
(Convertible into 41,307 common shares)
Eagle Hardware & Garden Inc.
6.25% Convertible Subordinated
Debenture, 3/15/01 660,000 826,975 893,475
(convertible into 36,666 common shares)
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Statement of Net Assets (Cont'd)
(Unaudited)
<TABLE>
<CAPTION>
Par Market or
Amount Cost Fair Value
<S> <C> <C> <C>
Convertible & Public Debt Securities (cont'd)
EMC Corporation
3.25% Convertible Subordinated
Debenture, 3/15/02 2,960,000 2,960,000 3,226,400
(convertible into 65,328 common shares)
FPA Medical Management Inc.
6.50% Convertible Subordinated
Debenture, 12/15/01 2,400,000 2,400,000 2,781,000
(convertible into 92,486 common shares)
Gilat Satellite Networks LTD
6.50% Convertible Subordinated
Debenture, 6/03/04 2,215,000 2,202,605 2,231,612
(convertible into 52,738 common shares)
HMT Technology Corporation
5.75% Convertible Subordinated
Debenture, 1/15/04 2,695,000 2,712,863 2,290,750
(convertible into 113,474 common shares)
Huaneng Power International PLC
1.75% Convertible Subordinated
Debenture, 5/21/04 1,190,000 1,190,000 1,222,725
(convertible into 40,753 common shares)
Hybridon Inc.
9.00% Convertible Subordinated
Debenture, 4/01/04 1,490,000 1,490,000 1,475,100
(convertible into 212,477 common shares)
IMAX Corporation
5.75% Convertible Debenture, 4/01/03 2,030,000 1,882,500 2,552,725
(convertible into 94,815 common shares)
Intevac Inc.
6.50% Convertible Subordinated
Debenture, 3/01/04 1,270,000 1,262,188 1,054,100
(convertible into 61,576 common shares)
Key Energy Group Inc.
7.00% Convertible Debenture, 7/01/03 995,000 995,000 1,885,525
(convertible into 102,051 common shares)
Lernout and Hauspie Speech
8.00% Convertible Subordinated
Note,11/15/01 1,275,000 1,275,000 1,729,219
(Convertible into 62,187 common shares)
Lomak Petroleum Inc.
6.00% Convertible Subordinated
Debenture, 2/01/07 1,055,000 $1,071,881 $1,186,875
(convertible into 54,805 common shares)
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Statement of Net Assets (Cont'd)
(Unaudited)
<TABLE>
<CAPTION>
Par Market or
Amount Cost Fair Value
<S> <C> <C> <C>
Convertible & Public Debt Securities (cont'd)
Midcom Communications Inc.
8.25% Convertible Subordinated
Debenture, 8/15/03 825,000 797,250 544,500
(convertible into 58,563 common shares)
NABI Inc.
6.50% Convertible Subordinated
Note, 2/01/03 1,900,000 1,846,100 1,593,625
(convertible into 135,714 common shares)
Nine West Group Inc.
5.50% Convertible Subordinated
Note, 7/15/03 3,000,000 2,985,750 2,673,750
(convertible into 49,375 common shares)
North American Vaccine Inc.
6.50% Convertible Subordinated
Note, 5/01/03 2,460,000 2,433,235 2,232,450
(convertible into 98,964 common shares)
Occusystems Inc.
6.00% Convertible Subordinated
Note, 12/15/01 2,160,000 2,142,956 2,559,600
(convertible into 72,727 common shares)
Offshore Logistics Inc.
6.00% Convertible Subordinated
Note, 12/15/03 1,775,000 1,772,100 1,917,000
(convertible into 77,639 common shares)
Personnel Group of Americia
5.75% Convertible Subordinated
Note, 7/1/04 1,225,000 1,225,000 1,295,437
(convertible into 34,386 common shares)
Phymatrix Corporation
6.75% Convertible Subordinated
Debenture, 6/15/03 200,000 168,000 180,000
(convertible into 7,092 common shares)
6.75% Convertible Subordinated
Debenture, 6/15/03 2,050,000 2,050,000 1,845,000
(convertible into 72,695 common shares)
Plasma and Materials Technology Inc.
7.125% Convertible Subordinated
Note, 10/15/01 2,245,000 2,256,237 1,571,500
(convertible into 143,588 common shares)
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Statement of Net Assets (Cont'd)
(Unaudited)
<TABLE>
<CAPTION>
Par Market or
Amount Cost Fair Value
<S> <C> <C> <C>
Convertible & Public Debt Securities (cont'd)
Platinum Technology Inc.
6.75% Convertible Subordinated
Note, 11/15/01 600,000 600,000 726,000
(convertible into 43,011 common shares)
Premiere Technologies Inc.
5.75% Convertible Subordinated
Note, 7/1/04 1,345,000 1,345,000 1,395,437
(convertible into 40,758 common shares)
Prime Hospitality Corp.
7.00% Convertible Subordinated
Note, 4/15/02 1,890,000 1,991,504 3,281,513
(convertible into 157,500 common shares)
Quantum Corporation
5.00% Convertible Subordinated
Note, 3/01/03 690,000 766,213 1,331,700
(convertible into 61,828 common shares)
Rotech Medical Corporation
5.25% Convertible Subordinated
Debenture, 6/01/03 2,520,000 2,478,075 2,431,800
(convertible into 95,999 common shares)
Seacor Holdings Inc.
5.375% Convertible Subordinated
Note, 11/15/06 2,090,000 2,043,019 2,181,438
(convertible into 31,668 common shares)
Sholodge Inc.
7.50% Convertible Subordinated
Debenture, 5/01/04 2,400,000 2,406,000 2,262,000
convertible into 102,960 common shares)
Signature Resorts Inc.
5.75% Convertible Subordinated
Debenture, 1/15/07 3,150,000 2,961,713 3,067,313
(convertible into 69,041 common shares)
Stillwater Mining Company
7.00% Convertible Subordinated
Note, 5/01/03 2,325,000 2,316,750 2,394,750
(convertible into 86,754 common shares)
Tele-Communications International Inc.
4.50% Convertible Subordinated
Debenture, 2/15/06 $650,000 $488,313 $510,250
(convertible into 23,810 common shares)
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Statement of Net Assets (Cont'd)
(Unaudited)
<TABLE>
<CAPTION>
Par Market or
Amount Cost Fair Value
<S> <C> <C> <C>
Thermo Ecotek Corporation
4.875% Convertible Subordinated
Debenture, 4/15/04 500,000 517,500 522,500
(convertible into 30,303 common shares)
Thermo Electron Corporation
4.25% Convertible Eurobond, 1/01/03 1,720,000 1,981,500 1,866,200
(convertible into 45,503 common shares)
Time Warner Inc. *
Zero Coupon Senior Note, 6/22/13 2,455,000 1,140,219 1,126,231
(convertible into 19,048 common shares)
Uromed Corporation
6.00% Convertible Subordinated
Note, 10/15/03 1,380,000 1,390,762 767,625
(convertible into 103,906 common shares)
US Diagnostic Labs Inc.
9.00% Convertible Subordinated
Debenture, 3/31/03 1,730,000 1,906,862 1,730,000
(convertible into 192,222 common shares)
United States Filter Corporation
4.50% Convertible Subordinated
Note, 12/15/01 2,740,000 2,852,425 2,661,225
(convertible into 69,367 common shares)
U.S. Office Products Company
5.50% Convertible Subordinated
Note, 2/01/01 2,850,000 3,371,870 3,494,813
(convertible into 100,000 common shares)
USA Waste Services Inc.
4.00% Convertible Subordinated
Note, 2/01/02 2,255,000 2,246,750 2,426,944
(convertible into 51,773 common shares)
Xilinx Inc.
5.25% Convertible Subordinated
Note, 11/01/02 1,325,000 1,437,131 1,522,094
(convertible into 25,981 common shares)
Total Convertible and Public Debt Securities 82,128,734 85,582,641
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Statement of Net Assets (Cont'd)
(Unaudited)
<TABLE>
<CAPTION>
Par Market or
Amount Cost Fair Value
<S> <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 1,750,000 1,529,500 1,750,000
Desert Eagle Distributing of El Paso, Inc. *
Equity Appreciation Rights Certificate 2 204,739 1,142,402
(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 1 1,074 1
(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 1,735,313 2,892,403
Number of
Shares
Common Stocks (3.0%)
BEC Group Inc. * 31,645 182,285 142,402
ICG Communications Inc. * 75,166 1,192,036 1,446,945
Qualcomm Financial Trust * 34,450 1,725,858 1,632,069
Spectrum Holobyte Inc. 125,700 691,350 612,787
Total Common Stocks 3,791,529 3,834,203
Number of Market or
Shares Cost Fair Value
Convertible Preferred Stocks (25.0%)
Allstate Corporation
Convertible Preferred Stock 49,150 $1,758,050 $2,555,800
(convertible into PMI Group 40,269 common shares)
AMC Entertainment Inc.
Convertible Preferred Stock 24,305 617,310 771,684
(convertible into 41,904 common shares)
Amway Japan LTD $1.44
Premium Exchangeable Participating Shares 108,800 2,112,558 1,897,146
(convertible into 92,208 common shares)
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Statement of Net Assets (Cont'd)
(Unaudited)
<TABLE>
<CAPTION>
Par Market or
Amount Cost Fair Value
<S> <C> <C> <C>
Convertible Preferred Stocks (cont'd)
Apple South Inc.
Convertible Preferred Stock 32,555 1,627,750 2,014,341
(convertible into 110,039 common shares)
CNF Transportation *
Convertible Preferred Stock 11,045 552,250 618,520
(convertible into 13,806 common shares)
Evergreen Media Corporation *
Convertible Preferred Stock 24,545 1,227,250 1,325,430
(convertible into 24,545 common shares)
Freeport-McMoran Copper & Gold, Inc., $1.25
Depository Shares, Representing 1/20 of a share
of Cumulative Preferred Stock 79,850 1,922,745 2,185,894
(convertible into 66,675 common shares)
Globalstar Telecomm
Convertible Preferred Stock 11,125 616,642 634,125
(convertible into 18,056 common shares)
Convertible Preferred Stock 17,830 955,230 1,016,310
(convertible into 28,935 common shares)
Hvide Capital Trust *
Convertible Preferred Stock 11,015 559,019 575,534
(convertible into 19,320 common shares)
Insignia Financial
Convertible Preferred Stock 43,050 2,152,500 1,964,156
(convertible into 81,227 common shares)
Loral Space and Communications
Convertible Preferred Stock 28,500 1,425,000 1,414,312
(convertible into 71,250 common shares)
Nuevo Energy Trust *
Convertible Preferred Stock - Series A 9,790 457,046 469,920
convertible into 8,423 common shares)
Republic Industries *
Trust Automatic Common Exchangeable Security 49,065 1,126,914 1,202,092
(convertible into 40,886 common shares)
Salomon Inc.
Debt Exchangeable for Common Stock 20,745 552,336 705,330
(convertible into 17,011 of FSA Holdings common shares)
SFX Broadcasting Inc.
Convertible Preferred Stock 22,160 1,169,170 1,218,800
(convertible into 24,347 common shares)
Convertible Preferred Stock 15,215 682,117 836,825
(convertible into 16,717 common shares)
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Statement of Net Assets (Cont'd)
(Unaudited)
<TABLE>
<CAPTION>
Par Market or
Amount Cost Fair Value
<S> <C> <C> <C>
Convertible Preferred Stocks (cont'd)
Timet Capital Trust
Convertible Preferred Stock 42,680 2,122,713 2,219,360
(convertible into 57,149 common shares)
Trans World Air Inc.
Convertible Preferred Stock 61,800 2,794,500 1,560,450
(convertible into 152,448 common shares)
USX Corporation
Debt Exchangeable for Common Stock 108,760 2,322,995 2,719,000
(convertible into 92,141 of RMI Titanium common shares)
Walbro Capital Trust
Convertible Preferred Stock 23,430 585,750 670,684
(convertible into 27,500 common shares)
Wang Laboratories Inc. *
Depository Shares, Representing 1/20 Convertible
Preferred B Shares 48,305 2,495,818 2,469,593
(convertible into 90,929 common shares)
Worthington Industries Inc. *
Convertible Preferred Stock 65,780 1,019,590 1,019,590
(convertible into 55,749 common shares)
Total Convertible Preferred Stock 30,855,253 32,064,896
Total Long-Term Investments (97.0%) 118,510,829 124,374,143
Par
Amount
Short-Term Investments (1.0%)
Mitsubishi International Corporation
5.75%, 7/08/97 1,300,000 1,298,339 1,298,339
Total Investments (98.0%) 119,809,168 125,672,482
Excess of Other Assets Over Liabilities (2.0%) - Note D 2,618,933
Net Assets (100%) - Note E 128,291,415
(Equivalent to $20.16 Per Share Based on 6,363,695
Shares Outstanding)
</TABLE>
* Non-Income Producing
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
3 Months Ended June 30 6 Months Ended June 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Investment Income:
Income:
Interest $1,353,314 $1,326,225 $2,657,578 $2,649,473
Dividends 470,796 434,067 1,087,942 759,936
Total Income 1,824,110 1,760,292 3,745,520 3,409,409
Expenses:
Management Fees-Note C 281,253 297,680 542,373 582,611
Director Fees 15,750 15,750 31,500 31,500
Professional fees 5,633 1,400 19,001 21,282
Printing, stationery,
and supplies 31,218 2,746 32,192 2,959
Stock Transfer fees 12,895 (2,252) 27,741 (630)
Postage and mailing fees 22,505 2,603 23,317 4,546
NYSE fee 0 4,410 16,170 7,350
Custodian fees 1,551 7,055 3,119 3,633
Other 8,576 19,836 17,737 35,643
Total Operating Expenses 379,381 349,228 713,150 688,894
Net Investment Income 1,444,729 1,411,064 3,032,370 2,720,515
Net realized and unrealized gain(loss)
on investments:
Net realized gain
on investments 1,207,119 10,142,261 10,198,826 14,058,091
Increase(decrease)
in net unrealized appreciation
of investments 7,816,304 (4,210,799) (3,843,915) 1,445,811
Net Realized & Unrealized
Gain on Investments 9,023,423 5,931,462 6,354,911 15,503,902
Net Increase in
Net Assets Resulting
from Operations $10,468,152 $7,342,526 $9,387,281 $18,224,417
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)
<TABLE>
<CAPTION>
3 Months Ended June 30 6 Months Ended June 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Changes from operations:
Net Investment Income $1,444,729 $1,411,064 $3,032,370 $2,720,515
Net realized gain
on investments 1,207,119 10,142,261 10,198,826 14,058,091
Increase(Decrease)in Net
Unrealized appreciation
of investments 7,816,304 (4,210,799) (3,843,915) 1,445,811
Net Increase in Net
Assets Resulting
from Operation 10,468,152 7,342,526 9,387,281 18,224,417
Distributions to
shareholders from net
investment income (1,527,287) (1,527,287) (1,527,287) (1,527,287)
Total Increase
in Net Assets 8,940,865 5,815,239 7,859,994 16,697,130
Net assets at
beginning of period 119,350,550 129,969,280 120,431,421 119,087,389
Net Assets at End
of Period * $128,291,415 $135,784,519 $128,291,415 $135,784,519
</TABLE>
* Includes undistributed net investment income as of June 30: 1997 - $
1,467,781; 1996 - $ 1,295,754.
The accompanying notes are an integral part of the financial statements
<PAGE>
PORTFOLIO of INVESTMENTS BY INDUSTRY CLASSIFICATION
As of June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Market or Percent of
Fair Value Net Assets
<S> <C> <C>
Airline
Trans World Air Inc. $1,560,450 1.2%
Auto Parts
Walbro Capital Trust 670,684 0.5%
Biotechnology
Hybridon Inc. 1,475,100 1.1%
Broadcasting/Publishing
Evergreen Media Corporation 1,325,430
Gilat Satellite Networks 2,231,612
SFX Broadcasting 2,055,625
Tele-Communications International 510,250
Time Warner Inc. 1,126,231
7,249,148 5.7%
Computers
Comverse Technology Inc. 2,469,350 1.9%
Computer Peripherals
Applied Magnetics Corporation 1,056,400
EMC Corporation 3,226,400
HMT Technology Corporation 2,290,750
Intevac Inc. 1,054,100
Quantum Corporation 1,331,700
8,959,350 7.0%
Computer Services/Software/Systems
Platinum Technology Inc. 726,000
Spectrum Holybyte Inc. 612,787
Wang Laboratories Inc. 2,469,593
3,808,380 3.0%
Consumer Goods/Services
Amway Japan LTD 1,897,146
BEC Group Inc. 1,067,170
Republic Industries 1,202,092
4,166,408 3.2%
Electronics
DIIG Group 2,075,660
Lernout and Hauspie Speech 1,729,219
Salomon Inc. (FSA Holdings) 705,330
Xlink Inc. 1,522,094
6,032,303 4.7%
</TABLE>
<PAGE>
PORTFOLIO of INVESTMENTS BY INDUSTRY CLASSIFICATION (CONT'D)
As of June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Market or Percent of
Fair Value Net Assets
<S> <C> <C>
Energy
Diamond Offshore Drilling Inc. 570,487
Huaneng Power International 1,222,725
Key Energy Group Inc. 1,885,525
Lomak Petroleum Inc. 1,186,875
Nuevo Energy Trust 469,920
5,335,532 4.2%
Entertainment
AMC Entertainment Inc. 771,684
IMAX Corporation 2,552,725
3,324,409 2.6%
Environmental Services
United States Filter Corporation 2,661,225
USA Waste Services Inc. 2,426,944
5,088,169 4.0%
Finance
Cityscape Financial Corporation 1,610,900
Insignia Financial 1,964,156
3,575,056 2.8%
Food Products
Desert Eagle Distributing 2,892,403 2.3%
Health Services/Supplies
NABI Inc. 1,593,625
North American Vaccine Inc. 2,232,450
Phymatrix Corporation 2,025,000
Plasma and Materials Technology Inc. 1,571,500
Uromed Corporation 767,625
8,190,200 6.4%
Hotels/Lodging
Prime Hospitality Corp. 3,281,513
Sholodge Inc. 2,262,000
Signature Resorts Inc. 3,067,313
8,610,826 6.7%
Insurance
Allstate Corporation (PMI Group) 2,555,800 2.0%
</TABLE>
<PAGE>
PORTFOLIO of INVESTMENTS BY INDUSTRY CLASSIFICATION (CONT'D)
As of June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Market or Percent of
Fair Value Net Assets
<S> <C> <C>
Machinery & Equipment
Thermo Ecotek Corporation 522,500
Thermo Electron Corporation 1,866,200
2,388,700 1.9%
Medical Care Provider
ARV Assisted Living 1,239,750
FPA Medical Management 2,781,000
Occusystems Inc. 2,559,600
Rotech Medical Corporation 2,431,800
US Diagnostic Labs Inc. 1,730,000
10,742,150 8.4%
Metals and Minings
Freeport-McMoran Copper & Gold Inc. 2,185,894
Stillwater Mining Company 2,394,750
Timet Capital Trust 2,219,360
USX Corporation (RMI Titanium) 2,719,000
Worthington Industries Inc. 1,019,590
10,538,594 8.2%
Office Equipment and Services
Personnel Group of America 1,295,437
U.S. Office Products Company 3,494,813
4,790,250 3.7%
Oil Equipment/Services
Offshore Logistics Inc. 1,917,000
Seacor Holdings 2,181,438
4,098,438 3.2%
Retail
Converse Inc. 993,125
Eagle Hardware & Garden 893,475
Nine West Group Inc. 2,673,750
4,560,350 3.6%
Restaurants
Apple South Inc. 2,014,341 1.6%
</TABLE>
<PAGE>
PORTFOLIO of INVESTMENTS BY INDUSTRY CLASSIFICATION (CONT'D)
As of June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Market or Percent of
Fair Value Net Assets
<S> <C> <C>
Telecommunication
Globalstar Telecomm 1,650,435
ICG Communications Inc. 1,446,945
Loral Space and Communications 1,414,312
Midcom Communications Inc. 544,500
Premiere Technologies Inc. 1,395,437
Qualcomm Financial Trust 1,632,069
8,083,698 6.3%
Transportation
CNF Transportation 618,520
Hvide Capital Trust 575,534
1,194,054 0.9%
Total Investments $124,374,143 97.0%
</TABLE>
<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. Fund shares are listed on the New York Stock Exchange under the
symbol LNV.
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.
Securities which are restricted in reliance with SEC Rule 144A, are valued at
a composite price as determined by a pricing source. If a composite price
from a pricing source is not available, values are based on the last reported
bid price on the date of valuation from the issuance's underwriter.
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, 1997, the value of all direct placement securities,
which totaled $2,892,403 and represents 2.3% of total net assets were approved
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.
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.
As set forth in the prospectus, the Fund does not intend to distribute net
realized long-term capital gains. The Fund intends to retain and reinvest such
gains and accordingly, 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
<PAGE>
Notes to Financial Statements
(continued)
Other (cont'd)
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.
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:
1) Common shares issuable upon conversion of convertible
securities or exercise of warrants are entitled to at
least one free registration and to certain free "piggyback"
registration rights.
2) Warrants owned by the Fund do not carry registration rights.
3) All debt and preferred securities have no registration
rights, but can be sold to other institutional investors
after a minimum holding period, subject to certain
requirements.
The SEC requires that, as of the date a direct placement security is acquired,
the market value of an equivalent unrestricted security of the same company be
provided. Since there are no comparable publicly traded securities of any of
these companies outstanding, no such comparative values have been provided.
The aggregate cost of investments purchased and the aggregate proceeds from
investments sold (exclusive of short-term investments) amounted to $67,823,832
and $86,150,802, respectively, as of June 30, 1997; and $94,349,038 and
$97,889,110, respectively as of June 30, 1996.
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, 1997.
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.
<PAGE>
Notes to Financial Statements
(continued)
Note D - Excess of Other Assets over Liabilities
The net asset caption "excess of other assets over liabilities" consisted of
the following:
Cash $5,402
Accrued investment income receivable 1,135,655
Accrued dividend income receivable 63,239
Receivable for investments securities sold 1,965,178
Payable for investments securities purchased (258,639)
Management fee payable (281,253)
Other - net (10,649)
$2,618,933
Note E - Net Assets
Net assets at June 30, 1997, 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 31,223,387
Undistributed net investment income 1,467,781
Net unrealized appreciation of investments 5,863,314
Total Net Assets $128,291,415
Note F - Income Taxes
The cost of investments for federal income tax purposes is the same as for
book purposes. At June 30, 1997, the aggregate gross unrealized appreciation
on investments was $12,164,323 and the aggregate gross unrealized depreciation
was $6,301,009.
Note G - Subsequent Event
On July 7, 1997, the Board of Directors declared a $ 0.24 per share
distribution. The dividend is payable July 31, 1997 to shareholders of record
as of July 18, 1997.
<PAGE>
Directors & Officers of the Fund
Directors Descriptions of Occupations and Responsibilities
Richard M. Burridge Chairman, The Burridge Group, Inc.; Director, Cincinnati
Financial Corporation, 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 Health System;
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.;
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 Investment Management Inc. and Lincoln National
Income Fund, Inc.; Director, The Lincoln National Life
Insurance Company, Lincoln National Investment Companies,
Inc., 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 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 and Treasurer
Edward J. Petner Vice President
Robert D. Schwartz Vice President
Ann L. Warner Vice President
Cindy Rose Secretary
<PAGE>
Corporate Information
Dividend Disbursing Agent, Transfer Agent
and Reinvestment Plan Agent
Boston EquiServe L.P.
Investor Relations
P.O. Box 8200
Boston, MA 02266-8200
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 transferring the shares 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 8200 Boston, MA 02266-8200 or call 1-800-730-6001.
