<PAGE>
LINCOLN CONVERTIBLE SECURITIES FUND, INC.
1998 Annual Report
LINCOLN INVESTMENT MANAGEMENT, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
- -----------------------------------------------------------
<S> <C>
Manager Profile 1
Investment Policies & Objectives 1
President's Letter 2
Portfolio Manager's Discussion 4
Portfolio Performance 7
Annual Performance of Fund vs. Indices 7
Total Fund Investments 7
Common Stock Market Prices & Net Asset Value History 8
Dividend History 8
Tax Information 9
Shareholder Meeting Results 10
Financial Statements:
Statement of Net Assets 11
Statement of Operations 16
Statements of Changes in Net Assets 17
Financial Highlights 18
Notes to Financial Statements 20
Report of Independent Accountants 22
Directors & Officers of the Fund 23
Corporate Information 24
</TABLE>
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 Investments, Inc. (LNI). LNI was formed in 1997 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 $4 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 Lincoln
National Investment Companies, Inc. (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 private 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 December 31, 1998, has chosen not to do so.
1
<PAGE>
President's Letter 1998 Annual Report
Dear Shareholder:
This past year was one of the most turbulent years in recent history for the
financial markets. Although most segments of the market ended the year on a
positive note, the year included tremendous volatility. Throughout all of the
markets swings, one trend dominated the market place. Investors favored large,
safe investments over securities of smaller capitalization companies. This
trend has been apparent in the equity market for four years but accelerated
and spread to the fixed-income markets this past year. The poor relative
performance of smaller stocks reached levels not seen since 1929, and credit
spreads widened to historical highs. These two factors created significant
pressure on the prices of smaller company securities. Since much of the
convertible market, and your Fund in particular, consists of securities issued
by small and mid-sized companies, we were significantly affected by these
trends.
The year began positive enough, with most equity indices up over 10% in the
first quarter. Equity markets initially shrugged off concerns that Asian
economic troubles would significantly affect U.S. corporate earnings. During
the second quarter however, global problems began to increase as the Asian
crisis deteriorated and spread to other regions. Export oriented companies
began to report earnings disappointments, and investors began to favor only
the safest of investments. By the third quarter dislocations in the financial
markets had forced some emerging market countries to default on their debt and
even U.S. brokerages were rumored to be on the verge of collapse. Corporate
bond markets were effectively closed to all but the highest rated companies,
and stocks were being sold across the board. The market outlook was so dire by
October that economists began forecasting a recession due to the inability of
companies to raise capital. However, just as the outlook was at its bleakest,
the Fed eased interest rates and started an October rally that continued
through year-end.
Your Fund was not immune to these market problems. The Fund's philosophy of
investing in companies that are undergoing positive fundamental change
typically leads us to focus the Fund's holdings on small and mid-sized growth
companies. The drastic flight to quality during the third quarter and the
corresponding small company sell-off created the worst quarterly performance
in the Fund's history. Liquidity became non-existent, and many of our
convertibles were being priced at absurdly low levels. Even though the poor
third quarter was followed by one of the best quarters the Fund has ever had,
we still finished with a loss for the entire year.
The Fund continued with its regular $.96 annual dividend in 1998, but did not
make any additional short- term gain distributions this past year. With the
reduction in the long-term capital gains rate that took place in early 1998,
we are intentionally reducing our short-term capital gains payout when
possible.
Although performance has suffered over the past 15 months, we firmly believe
the Fund can rebound in the future. It is no coincidence this period of sub-
par performance coincides with the record setting trends against small company
stock and bonds mentioned above. These are not trends that can continue
indefinitely. Small-cap cycles have historically lasted approximately 5 years,
and 1999 would be the sixth year if this trend continues. This lagging
performance has created small company valuations that are at record lows
relative to large stock valuations. On the bond side of the equation, credit
spreads have already begun to recover in early 1999, and should continue to
trend towards historical norms.
We have an optimistic outlook for the Fund as we start 1999. In addition to
possible reversals of the negative capitalization and credit spread trends,
there are a number of reasons to be positive for the future. First, the year
begins with a favorable supply and demand environment for convertibles. The
lack of new issues in the second half of 1998, combined with the steady
redemptions of existing issues is creating a steady demand for new
convertibles. We also foresee a stable interest rate environment for the
intermediate term future. The
2
<PAGE>
wildcard in our outlook concerns global market volatility. If problems in
emerging markets create another flight to quality, a significant performance
recovery may be delayed. However, the attractive valuations on our convertible
securities and their underlying equities at year-end should position us for a
positive year. At year-end 1998 the Fund's holdings yielded over 6%, and had a
median conversion premium of only 22%. Our underlying equities are trading at
19 times their expected 1999 earnings yet have a 25% expected growth rate over
the next 3 to 5 years. These factors all contribute to our view that this
coming year can be fruitful to the Fund and its shareholders. We appreciate our
shareholders' patience through a difficult year, and are working to create move
favorable results in 1999.
Sincerely,
H. Thomas McKeekin
H. Thomas McMeekin
President
January 29, 1999
3
<PAGE>
Portfolio Manager's Discussion:
Describe Your Investment Philosophy?
Our convertible strategy consists of both equity and bond analysis. We focus
on the underlying equity first, since movement in the underlying equity is
what determines most of the variability in the price of a convertible
security. We search for companies that are undergoing significant positive
fundamental changes that will result in increased earnings and the company's
stock price. Examples are usually found in companies with new products or in
companies in improving industries with changing dynamics, such as the
telecommunications industry. Our analysis further focuses on finding
convertible securities that provide significant sensitivity to a rising stock
price, but also have bond characteristics that will protect our investment if
the underlying stock price falls. The combination of these two factors gives
us a positive return profile that should provide unlimited return potential,
but with limited downside risk.
Give A Sample Holding And Explain Why You Own It?
An investment we have held for a while is Comverse Technology. Comverse
Technology manufactures hardware and software that allows phone companies
around the world to provide enhanced services such as voice mail and call
forwarding. We first purchased a Comverse convertible in 1995 when Comverse
was just beginning to penetrate the market for enhanced services in the
exploding wireless marketplace. As new wireless entrants were entering the
communications market, they required new services to attract and retain
customers. Comverse successfully provide these services and now dominates this
market. We have owned three different convertibles issued by Comverse,
swapping to newer issues with superior convertible characteristics when
available.
This investment provided excellent upside participation but also provided a
high yield and short maturity to protect us if the company stumbled.
Could You Describe The Overall Level Of Attractiveness Of The Convertible
Market Today?
The attractiveness of the convertible market is determined by examining the
factors that draw investors to the convertible market in the first place.
Investors purchase convertibles for a number of reasons, including high
current yields, superior downside protection, and high upside equity
sensitivity. During 1998 the average current yield in the convertible market
actually increased even though government bond yields declined substantially
during the year. Due to the increase in spreads in the corporate bond market
the average convertible now has its largest current yield spread over treasury
bonds since the beginning of 1991. Downside protection characteristics are
also positive for the market. As interest rates dropped during 1998 and
convertible prices remained relatively static, the fixed income floors should
have increased. This benefit was delayed due to the increase in credit
spreads. The expected increase in pricing should be realized during 1999 as
credit spreads decline back to historical norms. Convertibles also have a high
degree of equity sensitivity as illustrated by the Fund's moderate 22% average
conversion premium at year-end. With our average security price very close to
par, and limited call risk, our holdings have unlimited upside potential.
Overall, the market is very attractive and is an excellent alternative to
either direct equity investments or non-convertible, fixed-income instruments.
4
<PAGE>
Portfolio Manager's Discussion (continued)
How Does 1998's Performance Compare With The Historic Performance Of The Fund?
The performance in 1998 was clearly disappointing, and was an exception in the
history of the Fund.
Although our bias towards small growth companies depressed our performance in
the recent past, this bias has helped us in other periods and should help again
in the future. This same strategy was used when we were one of the top
performing funds in 1991, 1993, and 1996. In 1994, which was another negative
absolute performance year for the Fund (-1.96%), we outperformed the
convertible indices and the average convertible fund. The 12-month period from
the 3rd quarter of 1997 through the 3rd quarter of 1998 is truly an outlier to
the typical relative returns the Fund has produced. This is the time when the
Asian Crisis was at its peak and caused the global flight to quality. This
period is one of the worst relative performance periods on record for small-cap
stocks and coincides with the record increase in credit spreads in the
corporate bond market. Since we begin 1999 with relative valuations low, and
credit spreads still high, we don't think a similar period should occur anytime
soon.
Do You Plan On Making Any Changes To Your Strategy To Prevent Another Period
Like The Third Quarter Of 1998?
We don't think our basic strategy needs to be altered since it is unlikely for
the same combination of record setting circumstances to happen again. However,
our overall bond quality levels in 1998 strayed below the average level of past
years. Therefore, we are making an effort to increase our quality level at the
margin to give the portfolio a little more quality balance. This translates
into holding a few less non-rated issues, and a few more BB or better issues.
We are still searching for the same type of underlying equities, but when
possible focusing our research more on the higher rated issues. This is not a
change in strategy, but a slight adjustment that should remove a little bit of
the volatility from the portfolio.
Why Do You Believe That Today Is A Good Time To Invest In Small And Mid-Sized
Companies?
One of the first reasons investors focus on possible opportunities in small
company equities is that they have underperformed for the past five years.
Throughout this century there have been a number of periods of such
underperformance, and these periods have usually been followed by extended
periods of outperformance. This latest lagging period came after the small-cap
high performance period of late 1990 through early 1994. The striking feature
of this past 5 years was that the divergence in returns was significantly
greater than the second greatest period on record--the 5 years ending in 1930.
Secondly, this lagging appreciation of small stocks has caused the group to
become very cheap on any number of valuation measures, and at record low
relative valuation levels versus large capitalization equities. At the end of
1998 small-cap relative valuation levels were at or below their previous
records for price/earnings, price/sales, price/book, and P/E to growth ratios.
This is quite a difference from the large-cap stocks that as a group are at all
time high valuation levels on almost all measures.
It is difficult to pinpoint a specific catalyst that will change the
capitalization trends of the past five years, but we doubt the trend can
continue forever. One of the features of this market has been that the high
performance of the major averages has been driven by a smaller and smaller
group of companies. The top performers have earned higher and higher
valuations. At some point investors will decide that these valuations cannot go
any higher, and will look towards other investments.
5
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Portfolio Manager's Discussion (continued)
Why Are Convertibles A Good Way To Take Advantage Of Future Outperformance By
Small And Mid-Capitalization Equities?
We believe convertibles are an excellent means of investing in the future
rally of smaller company securities for a number of reasons. First, in case we
are early in predicting a change in this trend the convertibles pay us an
attractive yield while we wait. Secondly, the bond features of the convertible
will help protect investors if the record high valuations of the large-cap
stocks are corrected via a broad market downturn. Third, the type of company
that typically issues convertibles--fast growing dynamic companies, are
typically the leaders in a smaller cap rally. Additionally, the depressed
valuations on convertibles issued by smaller companies should also increase
during such a small-cap rally and give an additional boost to performance.
Could You Summarize Your Outlook For The Fund In 1999?
We are cautiously optimistic for performance in 1999. Many of the factors that
will determine the performance of the Fund are pointing to a positive year.
The underlying equities are attractive, and our yields are at good absolute
and relative levels. The overall convertible characteristics of the Fund are
attractive. However, the one worry we have is the performance of the equity
markets. The major equity averages are at all-time highs, and many segments of
the equity market are at record valuation levels. Additionally, it is not
clear that the troubles in the emerging markets are over. Although
convertibles should be able to turn in positive relative performance, a bear
market in equities would make it difficult to have significant positive
returns. On the positive side, the worries about the equity market should
bring a continued flow of new investors into the convertible market. Overall,
with a portfolio of attractive convertible securities and companies poised for
continued growth, we feel our holdings should be able to provide positive
performance in the year ahead.
6
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Portfolio Performance
As of December 31, 1998
The accompanying graph presents the
cumulative net asset value total
return for the Fund compared to the
First Boston Convertible Securities
Index. This shows the results for
each category of what $ 1,000
invested in 1986 would have grown to
by the end of 1998 assuming
reinvestment of dividends.
[Graph of Portfolio Performance appears here]
1986 1989 1992 1994
---- ---- ---- ----
Convertible Securities
Fund $1,000 $1,419 $2,138 $2,686
First Boston
Convertible
Securities Index $1,000 $1,301 $1,840 $2,079
- -
1997 1998
---- ----
Convertible Securities
Fund $4,379 $4,164
First Boston
Convertible
Securities Index $3,421 $3,646
Annual Performance of Fund vs. Indices
<TABLE>
<CAPTION>
Cumulative 5 Yr.
1994 1995 1996 1997 1998 Return Annualized
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LN Convertible Securities Fund (1.96%) 19.59% 20.42% 13.17% (5.09%) 8.70%
First Boston Convertible Sec. Index (4.70%) 23.70% 13.80% 16.90% 6.57% 10.83%
Merrill Lynch Convertible Index (7.07%) 24.69% 15.90% 19.57% 8.93% 12.09%
Lipper Convertible Mutual Fund Index (3.90%) 20.60% 14.40% 17.80% 4.40% 10.68%
Standard & Poor's 500* 1.31% 37.53% 22.94% 33.36% 26.67% 21.37%
Russell 2000 (1.82%) 28.33% 16.50% 22.40% (3.45%) 10.28%
Lehman Gov't/Corporate Bond Index (3.50%) 19.24% 2.90% 9.80% 8.29% 7.16%
</TABLE>
* Dividends Reinvested
Total Fund Investments
At Market or Fair Values As of December 31
<TABLE>
<CAPTION>
1998 1997
(000) % of Total (000) % of Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Convertible & Public Debt Securities $67,054 64% $85,651 74%
Private Placement Securities - - - -
Convertible Preferred Stocks 27,490 26% 35,952 31%
Common Stocks 4,206 4% 1,610 1%
Short-Term Investments 5,799 6% 5,189 5%
Other Assets Under Liabilities (322) 0% (12,345) (11%)
- --------------------------------------------------------------------------------
Total Net Assets $104,227 100% $116,057 100%
</TABLE>
7
<PAGE>
Common Stock Market Prices and Net Asset Value History (Unaudited)
<TABLE>
<CAPTION>
1998
Market Prices and Volumes Net Asset Value
High Low Close Volume High Low Close
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $18.625 $16.625 $18.500 866,100 $19.73 $17.76 $19.78
2nd Quarter 19.063 16.750 16.813 536,700 19.88 18.64 19.18
3rd Quarter 17.375 13.500 14.625 529,300 19.39 15.04 15.04
4th Quarter 16.125 13.125 14.000 645,300 16.36 13.70 16.36
<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
3rd Quarter 20.000 18.250 19.500 358,000 22.50 20.16 22.50
4th Quarter 20.438 17.625 17.813 333,200 23.13 18.24 18.24
<CAPTION>
1996
Market Prices and Volumes Net Asset Value
High Low Close Volume High Low Close
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
Shares are listed on the New York Stock Exchange under the trading symbol LNV.
Dividend History
The table below shows the common
dividend per share history.
<TABLE>
<CAPTION>
Annual Annual
Year Dividend Year Dividend
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1987 and Prior $1.33 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 2.76
1992 2.14 1998 0.96
</TABLE>
8
<PAGE>
Tax Information (Unaudited)
Income dividends received by a shareholder must be reported for federal income
tax purposes as ordinary income. The Fund distributed $ 0.96 per share of
ordinary income for the tax year 1998. Dividend payments made in April, July,
October and mid-January 1999 are taxable in the 1998 tax year.
In accordance with the Tax Reform Act of 1986, regulated investment companies
are required to distribute at least 98 percent of their net investment income
earned in the calendar year to avoid a 4 percent federal excise tax on
undistributed net investment income. Under the act, dividends declared in
December, payable to shareholders of record on a date in December and paid
before the following February 1, are treated as paid by the Fund and received
by the shareholders in December.
The extent to which the following dividend payments qualify (as provided by
the Internal Revenue Code and subject to certain limitations set forth therein)
for the dividend received deduction for corporations, is shown in the table
below:
<TABLE>
<S> <C>
Corporation's Dividend Received Deduction--Percent 38.50%
Corporation's Dividend Received Deduction--$ Per Share $0.3696
</TABLE>
For the year ended December 31, 1998, the Fund realized long-term capital
gains. As set forth in the prospectus of the Fund, it is the intention to
retain these gains as a means of increasing the asset base of the Fund. These
gains, even though not distributed to the shareholder, are taxable; however,
the tax has been paid by the Fund. In February 1999, the Fund will distribute
IRS Form 2439 to shareholders of record as of December 31, 1998. IRS Form 2439
indicates each shareholder's pro-rata portion of the undistributed long-term
capital gains on Line 1 of the form ($0.08282 per share). Your long-term
capital gains portion must be reported on Schedule D of your income tax return
as long-term capital gains. Your share of the tax paid by the Fund is shown on
Line 2 ($0.02899 per share) of IRS Form 2439. Your share of the tax paid by the
Fund should be reflected on your tax return as a tax credit (which will reduce
your Federal income tax liability and may result in a tax refund).
Organizations exempt from tax under section 501(a) (and to which section 511
does not apply) and trustees for Individual Retirement Accounts described in
section 408 (including a custodian described in section 408(h)) can claim a
refund by filing Form 990-T Exempt Organization Business Income Tax Return, as
follows: (1) complete the heading and signature area, (2) enter the refund or
credit on the appropriate lines, and (3) indicate at the top of the return
"Claim for Refund Shown on Form 2439".
In addition, shareholders of record as of December 31, 1998, are entitled to
increase, for federal income tax purposes, the basis of their shares by the
excess of Line 1 over Line 2. This amounts to $0.05383 per share.
9
<PAGE>
Shareholder Meeting Results (Unaudited)
The Fund had its annual Shareholder meeting on April 24, 1998. 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 5,086,843 of
Common Stock shares (79.94% 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
FOR AGAINST ABSTAINED
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Proposal I
Election of Directors
T. Bindley 5,002,779 84,064 -
R. Burridge 5,032,395 54,448 -
A. Cepeda 5,028,210 58,633 -
R. Deshaies 5,035,265 51,578 -
C. Freund 5,023,628 63,215 -
T. Mathers 5,014,308 72,535 -
T. McMeekin 5,026,927 59,916 -
D. Toll 5,025,737 61,106 -
A. Warner 5,016,359 70,484 -
Proposal II
Ratification of the Selection of Auditor
(PricewaterhouseCoopers LLP) 5,039,407 15,416 32,020
</TABLE>
Year 2000 (Unaudited)
Like other investment companies, financial and business organizations and
individuals around the world, the Fund could be adversely affected if computer
systems used by the Investment Manager and other service providers do not
properly process and calculate date-related information and data on and after
January 1, 2000. The Fund is taking steps to obtain satisfactory assurances
that the Investment Manager and other major service providers are taking steps
reasonably designed to address the Year 2000 issue with respect to the computer
systems that such service providers use. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact to
the Fund.
10
<PAGE>
Lincoln National Convertibles Securities Fund, Inc.
Statement of Net Assets
As of December 31, 1998
<TABLE>
<CAPTION>
Investments--Notes A & B Par Market or
Convertible Bonds (64.3%) Amount Fair Value
- -------------------------------------------------------------
<S> <C> <C>
Banking, Finance & Insurance (0.9%)
Elan Finance
3.25%, 12/14/18 $1,585,000 $ 897,506
------------
Building & Materials (2.2%)
Emcor Group
5.75%, 4/1/05 2,675,000 2,287,125
------------
Cable, Media & Publishing (4.0%)
Getty Images 144A
4.75%, 6/1/03 3,395,000 2,843,312
Jacor Communications
4.75%, 2/9/18 2,780,000 1,320,500
------------
4,163,812
------------
Computers & Technology (14.6%)
Activision
6.75%, 1/1/05 2,170,000 1,906,887
Arbor Software
4.50%, 3/15/05 1,990,000 1,400,462
Bea Systems 144A
4.00%, 6/15/05 2,035,000 1,330,381
Cirrus Logic
6.00%, 12/15/03 2,000,000 1,512,500
HNC Software
4.75%, 3/1/03 1,000,000 1,046,250
May & Speh
5.25%, 4/1/03 1,495,000 2,322,856
Network Associates
4.08%, 2/13/18 2,610,000 1,614,937
Platinum Technology
6.25%, 12/15/02 1,715,000 1,567,081
Tecnomatix Technologies 144A
5.25%, 8/15/04 3,615,000 2,575,688
------------
15,277,042
------------
Consumer Products (3.7%)
Data Processing Resource 144A
5.25%, 4/1/05 1,700,000 1,717,000
Personnel Group of America
5.75%, 7/1/04 1,480,000 1,707,550
Personnel Group of America 144A
5.75%, 7/1/04 405,000 467,269
------------
3,891,819
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Statement of Net Assets (continued)
<TABLE>
<CAPTION>
Par Market or
Convertible Bonds (continued) Amount Fair Value
- -------------------------------------------------------------------
<S> <C> <C>
Electronics & Electrical Equipment (3.5%)
Advanced Micro Devices
6.00%, 5/15/05 $1,500,000 $ 1,550,625
Dovatron International 144A
6.00%, 10/15/02 1,694,000 2,083,620
------------
3,634,245
------------
Environmental Services (1.7%)
Waste Management
4.00%, 2/1/02 1,470,000 1,806,263
------------
Healthcare & Pharmaceuticals (16.0%)
Alpharma 144A
5.75%, 4/1/05 1,485,000 2,012,175
Aviron 144A
5.75%, 4/1/05 1,145,000 1,087,750
ESC Medical Systems
6.00%, 9/1/02 500,000 361,875
ESC Medical Systems 144A
6.00%, 9/1/02 1,675,000 1,212,281
Fuisz Technologies
7.00%, 10/15/04 410,000 440,750
Fuisz Technologies 144A
7.00%, 10/15/04 2,270,000 2,440,250
North American Vaccine
6.50%, 5/1/03 2,460,000 1,211,550
Quadramed 144A
5.25%, 5/1/05 2,460,000 2,137,125
Res-Care
6.00%, 12/1/04 510,000 714,000
Res-care 144A
6.00%, 12/1/04 620,000 868,000
Sabratek
6.00%, 4/15/05 1,325,000 886,094
Sabratek 144A
6.00%, 4/15/05 1,355,000 906,156
Total Renal Care 144A
7.00%, 5/15/09 2,205,000 2,356,594
------------
16,634,600
------------
Industrial Machinery (1.8%)
Action Performance 144A
4.75%, 4/1/05 2,040,000 1,922,700
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Statement of Net Assets (continued)
<TABLE>
<CAPTION>
Par Market or
Convertible Bonds (continued) Amount Fair Value
- --------------------------------------------------------------------------
<S> <C> <C>
Leisure, Lodging & Entertainment (3.7%)
Family Golf Centers 144A
5.75%, 10/15/04 $1,390,000 $ 1,282,275
Imax 144A
5.75%, 4/1/03 340,000 514,250
Signature Resorts
5.75%, 1/15/07 3,190,000 2,093,438
------------
3,889,963
------------
Retail (0.9%)
CKE Restaurants
4.25%, 3/15/04 1,110,000 979,575
------------
Telecommunications (11.3%)
Antec 144A
4.50%, 5/15/03 2,315,000 2,294,744
CellStar
5.00%, 10/15/02 1,195,000 766,294
Comverse Technology 144A
4.50%, 7/1/05 1,345,000 1,686,294
Gilat Satellite Networks 144A
6.50%, 6/3/04 1,935,000 2,527,594
Oak Industries
4.88%, 3/1/08 10,000 10,362
Oak Industries 144A
4.88%, 3/1/08 2,040,000 2,113,950
P-COM 144A
4.25%, 11/1/02 2,345,000 932,137
Premier Technologies
5.75%, 7/1/04 1,435,000 724,675
Smartalk Teleservices
5.75%, 9/15/04 1,695,000 413,156
Smartalk Teleservices 144A
5.75%, 9/15/04 820,000 199,875
------------
11,669,081
------------
Total Convertible Bonds (cost of $72,332,421) 67,053,731
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
Statement of Net Assets (continued)
<TABLE>
<CAPTION>
Number of Market or
Common Stock (4.0%) Shares Fair Value
- ----------------------------------------------------------------
<S> <C> <C>
Automobiles & Auto Parts (0.3%)
Republic Industries 17,100 $ 260,775
-----------
Banking, Finance & Insurance (0.9%)
National Australia Bank--Units 25,000 696,875
Peak Trends Trust 28,685 276,093
-----------
972,968
-----------
Energy (2.6%)
Tesoro Petroleum 203,305 2,744,618
-----------
Telecommunications (0.2%)
Winstar Communications 5,851 228,006
-----------
Total Common Stock (cost of $4,589,268) 4,206,367
-----------
Convertible Preferred Stock (26.3%)
- ----------------------------------------------------------------
Automobiles & Auto Parts (2.4%)
Tower Auto Capital Trust 6.75% 35,000 1,833,125
Tower Auto Capital Trust 144A 6.75% 12,125 635,047
-----------
2,468,172
-----------
Banking, Finance & Insurance (3.7%)
Insignia Financial 6.50% 75,000 3,075,000
Sun Financing 144A 7.00% 74,000 841,750
-----------
3,916,790
-----------
Building & Materials (2.1%)
Royal Group Technologies 6.875% 99,682 2,193,004
-----------
Computers & Technology (6.0%)
Cellnet Funding 5.00% 125,360 1,621,845
Hybridon 6.50% 16,115 805,750
L&H Capital Trust 144A 4.75% 40,505 1,336,665
Wang Laboratories Series B 6.50% 41,480 2,457,690
-----------
6,221,950
-----------
Energy (1.7%)
AES Trust II 144A 5.50% 36,105 1,796,224
-----------
Food, Beverage & Tobacco (3.5%)
Suiza Capital Trust 5.50% 25,000 1,071,875
Suiza Capital Trust II 144A 5.50% 60,675 2,601,441
-----------
3,673,316
-----------
Telecommunications (4.1%)
ICG Communications 6.75% 26,965 1,419,033
ICG Communications 144A 6.75% 12,965 682,283
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
Statement of Net Assets (continued)
<TABLE>
<CAPTION>
Number of Market or
Convertible Preferred Stock (continued) Shares Fair Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Telecommunications (continued)
Omnipoint 7.00% 20,000 $ 500,000
Omnipoint 144A 7.00% 35,705 892,625
Winstar Communications 7.00% 9,485 431,568
Winstar Communications 144A 7.00% 8,900 404,950
------------
4,330,459
------------
Transportation (2.8%)
Union Pacific Capital Trust 6.25% 63,000 2,890,125
------------
Total Convertible Preferred Stock (cost of
$32,712,795) 27,490,000
------------
Warrants (0.0%)
- ------------------------------------------------------------------------------
Hybridon Warrants* 92,359 23,090
------------
Total Warrants (cost $0) 23,090
------------
Par
Short-Term Investments (5.6%) Amount
- ------------------------------------------------------------------------------
American Honda Finance
5.06%, 1/11/99 $3,800,000 3,800,000
International Lease Finance
5.23%, 1/4/99 2,000,000 1,999,063
------------
Total Short-Term Investments (cost of $5,799,063) 5,799,063
------------
Total Market Value of Securities (100.2%) (cost of
$115,433,547) 104,572,251
Liabilities Net of Receivables and Other Assets (-
0.2%) (345,700)
------------
Net Assets Applicable to 6,372,225 Shares ($0.001
Par Value) Outstanding--100.0% $104,226,551
------------
Net Asset Value Per Share of Common Stock
Outstanding $ 16.36
============
Common Stock, par value $.001 per share (authorized
20,000,000 shares),
issued and outstanding 6,372,225 shares 6,372
Proceeds in excess of par value of shares issued 115,499,834
Undistributed net investment income 47,120
Undistributed realized loss on investments, net of
taxes (465,479)
Net unrealized depreciation of investments (10,861,296)
------------
Total Net Assets $104,226,551
============
</TABLE>
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
Lincoln National Convertible Securities Fund, Inc.
Statement of Operations
Year Ended December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Interest $ 4,577,917
Dividends 2,867,927
- ------------------------------------------------------------------------
Total Investment Income 7,445,844
Expenses:
Management fees--Note C 990,931
Directors fees 76,500
Printing, stationery, & supplies 65,619
Professional fees 49,314
Postage & mailing fees 48,294
Stock transfer & dividend disbursing fees 15,180
New York Stock Exchange fee 16,170
Custodian and registrar fees 7,569
Other 17,953
- ------------------------------------------------------------------------
Total Operating Expenses 1,287,530
Net Investment Income 6,158,314
Net Realized and Unrealized Gain (Loss) on Investments
Transactions:
Net realized gain on investment transactions 62,276
Net change in unrealized depreciation of investments (11,884,687)
Federal income tax on undistributed realized gain--Note D (184,715)
- ------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on Investments (12,007,126)
- ------------------------------------------------------------------------
Net Decrease In Net Assets Resulting from Operations $ (5,848,812)
- ------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
Lincoln National Convertible Securities Fund, Inc.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Changes from Operations:
Net investment income $6,158,314 $5,891,418
Net realized gain (loss) on investments (net of
taxes) (122,439) 15,981,399
Net change in unrealized depreciation of
investments (11,884,687) (8,683,838)
- ------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (5,848,812) 13,188,979
Changes from Capital Share Transactions:
Par value of shares issued under dividend
reinvestment plan 9 -
Proceeds in excess of par value for shares issued
under dividend reinvestment plan 129,946 -
- ------------------------------------------------------------------------------
Net Increase from Capital Share Transactions 129,955 -
Distributions to Shareholders:
Distributions to shareholders from net investment
income (6,111,194) (6,363,695)
Distributions to shareholders from net realized
gain on investments - (11,200,103)
- ------------------------------------------------------------------------------
Total Distributions to Shareholders (6,111,194) (17,563,798)
- ------------------------------------------------------------------------------
Total Decrease in Net Assets (11,830,051) (4,374,819)
- ------------------------------------------------------------------------------
Net assets, beginning of year 116,056,602 120,431,421
- ------------------------------------------------------------------------------
Net Assets, End of Year $104,226,551 $116,056,602
- ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
Lincoln National Convertible Securities Fund, Inc.
Financial Highlights
<TABLE>
<CAPTION>
(Selected data for each share of Year Ended December 31,
common stock -------------------------------------------
outstanding throughout the year) 1998 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $18.24 $18.92 $18.71 $17.10
Income from Investment Operations:
Net investment income 0.97 0.93 0.92 0.91
Net realized and unrealized gain
(loss) (net of taxes) (1.89) 1.15 2.62 2.34
- -------------------------------------------------------------------------------
Total from Investment Operations (0.92) 2.08 3.54 3.25
Less distributions:
Dividends from net investment
income (0.96) (1.00) (0.98) (0.96)
Distributions from net realized
gains - (1.76) (2.35) (0.68)
- -------------------------------------------------------------------------------
Total Distributions (0.96) (2.76) (3.33) (1.64)
- -------------------------------------------------------------------------------
Net Asset Value, End of Year 16.36 18.24 18.92 $18.71
- -------------------------------------------------------------------------------
Per Share Market Value, End of
Year $14.00 $17.81 $17.50 $16.75
Total Investment Return
(based on Market Value) (16.43%) 17.54% 24.36% 19.57%
Ratios and Supplemental Data:
Net assets, end of period (000
omitted) $104,227 $116,057 $120,431 $119,087
Ratio of expenses to average net
assets 1.15% 1.05% 1.05% 1.09%
Ratio of net investment income to
average net assets 5.52% 4.64% 4.50% 4.91%
Portfolio Turnover 151.68% 141.85% 134.85% 127.24%
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
Lincoln National Convertible Securities Fund, Inc.
Financial Highlights
<TABLE>
<CAPTION>
(Selected data for each Year Ended December 31,
share of common stock --------------------------------------------------------
outstanding throughout
the year) 1994 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $18.84 $17.62 $18.04 $13.59 $15.21 $13.41
Income from Investment
Operations:
Net investment income 0.94 0.90 1.01 0.97 1.03 1.53
Net realized and
unrealized gain (loss)
(net of taxes) (1.60) 3.24 0.71 4.50 (1.63) 1.84
- ----------------------------------------------------------------------------------
Total from Investment
Operations (0.66) 4.14 1.72 5.47 (0.60) 3.37
Less distributions:
Dividends from net
investment income (0.95) (1.05) (0.97) (1.02) (1.02) (1.07)
Distributions from net
realized gains (0.13) (1.87) (1.17) -- -- (0.50)
- ----------------------------------------------------------------------------------
Total Distributions (1.08) (2.92) (2.14) (1.02) (1.02) (1.57)
- ----------------------------------------------------------------------------------
Net Asset Value, End of
Year $17.10 $18.84 $17.62 $18.04 $13.59 $15.21
- ----------------------------------------------------------------------------------
Per Share Market Value,
End of Year $15.38 $19.25 $16.50 $15.50 $11.50 $13.38
Total Investment Return
(based on Market Value) (14.49%) 34.36% 20.26% 43.65% (6.43%) 27.23%
Ratios and Supplemental
Data:
Net assets, end of
period (000 omitted) $108,810 $118,575 $110,743 $113,398 $85,434 $95,655
Ratio of expenses to
average net assets 1.09% 1.02% 0.83% 0.89% 0.97% 0.94%
Ratio of net investment
income to average net
assets 5.18% 4.58% 5.49% 5.96% 7.21% 6.64%
Portfolio Turnover 127.32% 222.00% 166.26% 132.99% 134.64% 147.31%
</TABLE>
The accompanying notes are an integral part of the financial statements.
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. 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 securities traded on a national exchange are valued at their
last reported sale price on the date of valuation. 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 mean 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 mean price on the date of
valuation from the issuance's underwriter or independent broker. Money market
instruments having less than 60 days to maturity are valued at amortized cost,
which approximates market value.
Private placement securities are restricted as to resale. Except for certain
private placement securities traded in a secondary market system for trading
restricted securities, private placement securities have no quoted market
values. The amounts shown as fair values for private 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.
Because of the inherent uncertainty of valuation, those estimated values might
differ significantly from the values that would have been used had a ready
market for the securities existed. As of December 31, 1998, there were no
private placement securities held by the Fund.
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.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities
20
<PAGE>
Notes to Financial Statements (continued)
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could differ
from those estimates.
Other
Security transactions are accounted for on 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.
Distributions to common shareholders are recorded on the ex-dividend date.
Note B--Investments
Private 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 private 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 aggregate cost of investments purchased and the aggregate proceeds from
investments sold (exclusive of short-term investments) amounted to $171,112,487
and $183,856,553, for the year ended December 31, 1998.
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). Lynch & Mayer, which is an affiliate of the Advisor,
provide the sub-advisory service for the fund. In addition, Delaware Service
Company, which is an affiliate of the Advisor, provides accounting and
administrative services for the fund. Both parties are paid directly by the
Advisor.
Certain officers and directors of the Fund are also officers or directors of
the Advisor and receive no compensation from the Funds. The compensation of
unaffiliated directors of the Fund is borne by the Fund.
Note D--Income Taxes
The cost of investments for federal income tax purposes is $123,594,321. At
December 31, 1998, the aggregate gross unrealized appreciation of investments
was $5,794,979 and the aggregate gross unrealized depreciation was $17,121,754.
21
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors
of Lincoln National Convertible Securities Fund, Inc.
In our opinion, the accompanying statement of net assets of Lincoln National
Convertible Securities Fund, Inc. (the "Fund"), and the related statements of
operations and changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Lincoln National
Convertible Securities Fund, Inc. at December 31, 1998, the results of its
operations for the year then ended, and changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 19, 1999
22
<PAGE>
Directors & Officers of the Fund
<TABLE>
<CAPTION>
Directors Descriptions of Occupations and Responsibilities
<C> <S>
Thomas L. Bindley President, Bindley Capital Corporation; Director, Midas, Inc.; Director, Lincoln National Income
Fund, Inc., and Junior Achievement of Chicago member, Board of Vistors, McDonough School of Business
at Georgetown University
Richard M. Burridge Chairman, The Burridge Group, Inc.; Director, Cincinnati Financial Corporation; Lincoln National
Income Fund Inc., Health Services Corporation of Illinois (Blue Cross of Illinois), 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, Bingham and Women's Hospital (Harvard Medical School teaching
affiliate); Corporate Director of Partners Health System; Director, Lincoln National Income Fund,
Inc.
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 Investment Advisors, Inc.
Daniel R. Toll Director, Kemper National Insurance Company, Lincoln National Income Fund, Inc., & Mallinckrodt,
Inc.
<CAPTION>
Officers
<C> <S>
H. Thomas McMeekin President
David A. Berry Vice President
David G. Humes Vice President, Treasurer & Controller
Edward J. Petner Vice President
Robert D. Schwartz Vice President
Cynthia A. Rose Secretary
</TABLE>
23
<PAGE>
Corporate Information
Dividend Disbursing Agent, Transfer Agent and Reinvestment Plan Agent
Equiserve - First Chicago Division P.O. Box 2500 Jersey City NJ 07303-2500 1-
800-317-4445
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
Administrator
Delaware Service Company 1818 Market Street Philadelphia, PA 19103
Independent Accountants
PricewaterhouseCoopers LLP 2400 Eleven Penn Center Philadelphia, PA 19103
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 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 Equiserve, P.O. Box
2500, Jersey City, NJ 07303-2500, or call 1-800-317-4445.
24
<PAGE>
Lincoln Investment Management, Inc.
200 east Berry Street
Fort Wayne, Indiana 46802
Lincoln Investment Management, Inc. is the
investment manager for the Lincoln National
Convertible Securities Fund, Inc.
Form 23296-1 2/99
Lincoln National Convertible Securities Fund, Inc.
1998 Annual Report
