<PAGE>
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
2000 Semi-Annual Report
LINCOLN INVESTMENT MANAGEMENT, INC.
<PAGE>
TABLE OF CONTENTS
Page
-------------------------------------------------------------------
Manager Profile
Investment Policies & Objectives
President's Letter 1
Portfolio Performance 2
Annual Performance of the Fund vs. Indices 2
Total Fund Investments 2
Common Stock Market Prices &
Net Asset Value History 3
Dividend History 3
Shareholder Meeting Results 4
FINANCIAL STATEMENTS:
Statement of Net Assets 5
Statements of Operations 10
Statements of Changes in Net Assets 11
Financial Highlights 12
Notes to Financial Statements 13
Directors & Officers of the Fund 15
Corporate Information 16
MANAGER PROFILE
Throughout it's history, your Fund has been managed by investment affiliates
of Lincoln National Corporation (LNC). The Fund's investment advisor is Lincoln
Investment Management, Inc. (LIM), an indirect, wholly owned subsidiary of LNC.
In February of 1988, shareholders approved a sub-advisory contract between LIM
and Lynch & Mayer, Inc. Under the contract, Lynch & Mayer performed the
day-to-day investment advisory services for the Fund, subject to the direction
and supervision of LIM.
On March 1, 2000, Lynch & Mayer was integrated into Delaware Investments, and
Delaware Management Company (DMC), an affiliate of Lynch & Mayer and an
indirect, wholly owned subsidiary of LNC, became the sub-advisor to the Fund.
DMC is a diversified asset management organization which, together with LIM and
its other investment advisory affiliates, managed approximately $80 billion in
assets as of June 30, 2000, including mutual funds, closed-end funds and
institutional accounts.
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. Mr. Schwartz joined Delaware Investments following the
integration of Lynch & Mayer and continues to act as the Fund's portfolio
manager with day-to-day investment responsibility for the Fund.
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 some private placement convertible securities. The Fund also may
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, but, as of June 30, 2000, has chosen not to do so. The
Fund may also invest in non-dollar denominated securities, however, as of June
30, 2000, has chosen not to do so.
SHARE BUY-BACK
The Fund's Board of Directors has authorized the Fund to repurchase up to 5%
of its outstanding shares. Notice is hereby given in accordance with Section
23(c) of the Investment Company Act of 1940, as amended, that the Fund may
purchase at market prices from time to time shares of its common stock on the
open market.
<PAGE>
PRESIDENT'S LETTER
Dear Shareholder:
The first half of the year has been an interesting period in the financial
markets. Although we are in a period of global economic stability, the U.S.
equity and fixed-income markets have been quite volatile. The year began with a
continuation of momentum investing that has been prevalent over the past few
years. In this environment, the fastest growing companies are rewarded with
extraordinary valuations. During the first quarter, the technology, internet and
biotechnology sectors were the primary beneficiaries of this trend. By March,
however, the Federal Reserve's continued interest rate hikes had increased
investors' concerns about equity valuations. The ensuing correction that began
in mid-March removed much of the speculative fever from the market, and some
equities and convertibles had declines of 50% or more. However, the correction
was short lived, and by the end of the second quarter momentum buying had
returned with many of the fastest growing companies doubling from their lows.
The Federal Reserve's inflation fighting posture and 75 basis point increase
in short term rates did not directly hurt the convertible market. Although the
tightening caused an inverted yield curve as short term rates rose, longer term
interest rates declined. This was positive for bonds in general and helped
convertibles outperform their underlying equities. On the negative side, the
increase in corporate credit spreads was exacerbated by the March/April
correction and constrained convertible performance. This increase in credit
spreads caused lower grade fixed-income instruments to significantly
under-perform treasuries.
The Fund's performance mirrored much of what was taking place in the broader
markets. Our focus on fast growing companies made us subject to the market's
volatility. Although the second quarter was difficult for the Fund, the first
half net asset value (NAV) return of 6.1% compares favorably with the Merrill
Lynch Convertible Securities Index return of 1.37% and the Standard & Poor's 500
Index return of -1.00%. In fact, we continue to see benefits from the changes
the Fund's management implemented last year, which were first described in the
1999 Semi-Annual Report. The benefit can be seen clearly in the last
twelve-month's NAV return of 39%.
The Fund's market price discount to NAV has declined from over 26% at the
beginning of the year to 18% at mid-year. In part due to the reduced discount,
the Fund's share price total return for the first six months of the year was
18.3%. As part of a program to help address the discount, late in the first
quarter we began to repurchase shares of the Fund on the open market.
We have an optimistic outlook for the second half of 2000. Pressure from
rising short-term interest rates should diminish as economic growth slows to a
more sustainable pace. With global economic stability, we expect to see
continued strong earnings growth from large areas of the convertible market such
as technology, telecommunications, biotechnology, and energy. Selectivity will
be important, however, as we don't expect the same type of powerful industry
rallies that took place over the past year. Another positive is the recent
broadening of issuance, as demonstrated by the surge in energy related
securities in the second quarter. Furthermore, the record issuance of
convertible securities in the past year is attracting new investors to the
market. All of these factors should allow us to find ample investment
opportunities and continue to increase shareholder value.
Finally, we would like to thank our shareholders for their support during the
Fund's recent proxy contest. We will continue to focus on long-term total return
to shareholders, and will resist short-sighted policies that could impair the
Fund's long-term total return potential.
Sincerely,
/s/ H. Thomas McMeekin
----------------------
H. Thomas McMeekin
President
July 26, 2000
1
<PAGE>
PORTFOLIO PERFORMANCE
As of June 30, 2000
The following graph presents the cumulative market and net asset value total
return for the Fund compared to the First Boston Convertible Securities Index.
The graph below shows the results for each category of what $1,000 invested in
1986 would have grown to by June 30, 2000 assuming reinvestment of dividends.
The Fund's shares were initially offered with a sales charge of 7%. Performance
since inception does not include this or any brokerage commissions for purchases
made since inception. Past performance does not guarantee future results.
Years 1986 to 2000
------------------
Convertible Securities Fund (NAV) $5,824
First Boston Convertible Securities Index $4,978
Convertible Securities Fund (Market) $4,964
ANNUAL PERFORMANCE OF LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC. VS.
INDICES*
<TABLE>
<CAPTION>
YTD
THROUGH AVERAGE 5 YR.
6/30/00 1999 1998 1997 1996 1995 RETURN ANNUALIZED
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
LN Convertible Securities Fund (at NAV) * 6.10% 38.58% (5.09%) 13.17% 20.42% 19.59% 15.49%
First Boston Convertible Securities Index * (4.08%) 42.36% 6.57% 16.90% 13.80% 23.70% 15.68%
Merrill Lynch Convertible Securities Index * 1.37% 39.56% 8.93% 19.57% 15.90% 24.69% 18.12%
Lipper Convertible Securities Closed-End
Fund Average* 8.17% 22.12% 4.41% 16.21% 14.13% 22.69% 13.88%
Standard & Poor's 500 Index* (1.00%) 19.53% 26.67% 33.36% 22.94% 37.53% 21.68%
Russell 2000 Index* 2.47% 19.62% (3.45%) 22.40% 16.50% 28.33% 12.75%
Lehman Gov't/Corporate Bond Index* 2.68% (2.15%) 8.29% 9.80% 2.90% 19.24% 5.98%
</TABLE>
* Dividends Reinvested
TOTAL FUND BREAKOUT
At Market or Fair Values As of June 30,
<TABLE>
<CAPTION>
2000 1999
(000) % OF TOTAL (000) % OF TOTAL
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Convertible & Public Debt Securities $65,451 46% $60,812 56%
Convertible Preferred Stocks 59,500 41% 31,793 29%
Warrants 23 0% 2,487 2%
Common Stocks 11,674 9% 6,791 6%
Short-Term Investments 5,000 3% 1,900 2%
Other Assets Over Liabilities 1,731 1% 4,960 5%
--------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $143,379 100% $108,743 100%
</TABLE>
2
<PAGE>
COMMON STOCK MARKET PRICES AND NET ASSET VALUE HISTORY (Unaudited)
<TABLE>
<CAPTION>
2000
MARKET PRICES AND VOLUMES NET ASSET VALUE
HIGH LOW CLOSE VOLUME HIGH LOW CLOSE
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $21.000 $15.625 $20.313 1,223,400 $26.89 $20.24 $25.10
2nd Quarter 20.063 15.000 18.688 431,300 24.21 20.75 22.70
1999
MARKET PRICES AND VOLUMES NET ASSET VALUE
HIGH LOW CLOSE VOLUME HIGH LOW CLOSE
--------------------------------------------------------------------------------------------------------------------
1st Quarter $15.438 $12.813 $12.813 739,200 $16.96 $15.52 $15.63
2nd Quarter 14.250 13.875 14.000 870,500 17.07 15.65 17.07
3rd Quarter 13.688 13.625 13.875 546,500 17.99 16.73 16.73
4th Quarter 16.063 15.750 16.000 999,400 21.59 16.28 21.59
1998
MARKET PRICES AND VOLUMES NET ASSET VALUE
HIGH LOW CLOSE VOLUME HIGH LOW CLOSE
--------------------------------------------------------------------------------------------------------------------
1st Quarter $18.625 $16.625 $18.500 866,100 $19.75 $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
1997
MARKET PRICES AND VOLUMES NET ASSET VALUE
HIGH LOW CLOSE VOLUME HIGH LOW CLOSE
--------------------------------------------------------------------------------------------------------------------
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
</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.
ANNUAL ANNUAL
YEAR DIVIDEND YEAR DIVIDEND
-----------------------------------------------------------
1989 and Prior $3.85 1995 $1.69
1990 1.02 1996 3.53
1991 1.02 1997 3.11
1992 2.14 1998 0.99
1993 2.92 1999 0.86
1994 1.37 2000 0.20*
* Dividends paid as of June 30, 2000.
3
<PAGE>
SHAREHOLDER MEETING RESULTS
The Fund held its annual shareholders meeting on May 5, 2000, which was
ultimately adjourned to June 16, 2000. Two proposals were presented to
shareholders: Proposal I, "Election of Class 1 Directors," and Proposal II,
"Ratification of the Selection of Auditor." A total of 3,188,665 Common Stock
shares (50.04% of the total outstanding shares) voted or abstained. The
following table highlights the results of the vote.
<TABLE>
<CAPTION>
Number of Number of Number of
Shares Voted Shares Voted Shares
FOR AGAINST WITHHELD/ABSTAINED
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PROPOSAL I
ELECTION OF CLASS 1 DIRECTORS A. CEPEDA 3,056,319 N/A 132,346
R. DESHAIES 3,059,101 N/A 129,564
PROPOSAL II
RATIFICATION OF THE SELECTION OF THE
AUDITOR (PRICEWATERHOUSECOOPERS LLP) 3,109,040 41,468 38,157
</TABLE>
In addition, the terms of office of the following directors continued after
the meeting: Thomas L. Bindley, Richard M. Burridge, Thomas N. Mathers,
H. Thomas McMeekin and Daniel R. Toll.
The Board of Directors of the Fund has implemented a staggered Board
consisting of three Classes of Directors. The seven directors have been divided
into three separate Classes as follows: two directors constituting Class 1
directors were elected at the 2000 Annual Meeting to a three-year term of office
and until their successors are elected and qualified; two directors constituting
Class 2 directors have a term of office until the 2001 annual meeting of
shareholders and until their successors are elected and qualified; and three
directors constituting Class 3 directors have a term of office until the 2002
annual meeting of shareholders and until their successors are elected and
qualified. The directors in each Class are set forth below.
CLASS OF DIRECTORS NAMES OF DIRECTORS
CLASS 1: ADELA CEPEDA AND ROGER J. DESHAIES
CLASS 2: RICHARD M. BURRIDGE AND THOMAS N. MATHERS
CLASS 3: THOMAS L. BINDLEY, H. THOMAS MCMEEKIN
AND DANIEL R. TOLL
At each annual meeting of shareholders, directors will be elected to succeed
the Class of directors whose terms expire at that meeting, and each newly
elected director will serve for a three-year term and until their successors are
elected and qualified. Subject to the limitations imposed by the Investment
Company Act of 1940, as amended, a vacancy which occurs during a term may be
filled by the Board. A replacement selected by the Board will serve the
remainder of the vacated term until the annual meeting of shareholders at which
that Class of directors is up for election and until his or her successor is
elected and qualified.
4
<PAGE>
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
STATEMENT OF NET ASSETS-UNAUDITED
JUNE 30, 2000
PAR MARKET OR
CONVERTIBLE BONDS (45.7%) AMOUNT FAIR VALUE
-------------------------------------------------------------------------------
BANKING, FINANCE & INSURANCE (0.7%)
Telewest Finance
6.00%, 7/7/05 $1,000,000 $ 1,000,000
-----------
BUILDING & MATERIALS (1.5%)
Emcor Group
5.75%, 4/1/05 2,175,000 2,115,188
-----------
CABLE, MEDIA & PUBLISHING (1.8%)
Anixter International
0.00%, 6/28/20 5,000,000 1,296,875
Echostar Communications 144A
4.88%, 1/1/07 500,000 475,000
Getty Images 144A
5.00%, 3/15/07 1,000,000 800,000
-----------
2,571,875
-----------
COMPUTERS & TECHNOLOGY (6.6%)
Activision
6.75%, 1/1/05 1,670,000 1,085,500
Doubleclick
4.75%, 3/15/06 400,000 428,500
Doubleclick 144A
4.75%, 3/15/06 800,000 857,000
HNC Software
4.75%, 3/1/03 750,000 1,076,250
Mail.Com
7.00%, 2/1/05 3,500,000 1,566,250
May & Speh
5.25%, 4/1/03 960,000 1,449,600
Technomatix Technologies
5.25%, 8/15/04 975,000 639,844
Tecnomatix Technologies 144A
5.25%, 8/15/04 3,615,000 2,372,344
-----------
9,475,288
-----------
COMMERCIAL SERVICES (0.5%)
Personnel Group of America
5.75%, 7/1/04 1,080,000 456,300
Personnel Group of America 144A
5.75%, 7/1/04 405,000 171,113
-----------
627,413
-----------
CONSUMER PRODUCTS (0.5%)
Action Performance
4.75%, 4/1/05 700,000 236,250
Action Performance 144A
4.75%, 4/1/05 1,540,000 519,750
-----------
756,000
-----------
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATEMENT OF NET ASSETS (continued)
PAR MARKET OR
CONVERTIBLE BONDS (continued) AMOUNT FAIR VALUE
------------------------------------------------------------------------------
ELECTRONICS & ELECTRICAL EQUIPMENT (13.4%)
Advanced Energy
5.25%, 11/15/06 $1,000,000 $ 1,343,750
Amkor Technologies
5.00%, 3/15/07 4,000,000 3,605,000
Atmel
0.00%, 4/21/18 1,399,000 1,521,413
Cirrus Logic
6.00%, 12/15/03 3,950,000 3,500,688
LSI Logic
4.25%, 3/15/04 500,000 1,756,875
LSI Logic 144A
4.25%, 3/15/04 1,000,000 3,513,750
Sanmina 144A
4.25%, 5/1/04 1,000,000 2,000,000
SCI Systems
3.00%, 3/15/07 2,000,000 1,972,500
-----------
19,213,976
-----------
HEALTHCARE & PHARMACEUTICALS (11.9%)
Alkermes
3.75%, 2/15/07 500,000 412,500
Alkermes 144A
3.75%, 2/15/07 1,500,000 1,237,500
Alpharma
3.00%, 6/1/06 1,000,000 1,922,500
CV Theraputics 144A
4.75%, 3/7/07 3,000,000 3,626,250
Inhale Theraputics 144A
5.00%, 2/8/07 1,500,000 2,090,625
Invitrogen
5.50%, 3/1/07 2,500,000 2,612,500
Protein Design 144A
5.50%, 2/15/07 1,800,000 2,139,750
Res-Care
6.00%, 12/1/04 510,000 262,650
Res-Care 144A
6.00%, 12/1/04 120,000 61,800
Sabratek+
6.00%, 4/15/05 825,000 247,500
Sabratek 144A+
6.00%, 4/15/05 1,355,000 406,500
Sepacor 144A
7.00%, 12/15/05 1,000,000 2,007,500
-----------
17,027,575
-----------
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATEMENT OF NET ASSETS (continued)
PAR MARKET OR
CONVERTIBLE BONDS (continued) AMOUNT FAIR VALUE
-------------------------------------------------------------------------------
TELECOMMUNICATIONS (8.8%)
Antec
4.50%, 5/15/03 $ 90,000 $ 153,900
Antec 144A
4.50%, 5/15/03 1,175,000 2,009,250
Comverse Technology
4.50%, 7/1/05 745,000 3,210,950
Gilat Satellite Networks 144A
4.25%, 3/15/05 6,500,000 4,485,000
Global Telesystems
5.75%, 7/1/10 2,400,000 1,380,000
Oak Industries
4.88%, 3/1/08 240,000 1,368,000
Oak Industries 144A
4.88%, 3/1/08 10,000 57,000
-----------
12,664,100
-----------
Total Convertible Bonds (cost $60,770,175) 65,451,415
-----------
NUMBER OF
COMMON STOCK (8.1%) SHARES
--------------------------------------------------------------------------------
CABLE, MEDIA & PUBLISHING (0.0%)
Pegasus Communications 452 22,176
-----------
COMPUTERS & TECHNOLOGY (0.4%)
S3 40,000 590,000
-----------
ELECTRONICS & ELECTRICAL EQUIPMENT (5.2%)
Credence Systems* 85,000 4,690,938
Flextronics International 40,342 2,770,991
-----------
7,461,929
-----------
RETAIL (1.1%)
Lowe's Companies 40,000 1,642,500
-----------
TELECOMMUNICATIONS (1.4%)
Efficient Networks 25,300 1,861,131
Intermedia Communications 874 26,002
Winstar Communications 2,059 69,749
-----------
1,956,882
-----------
Total Common Stock (cost $6,281,322) 11,673,487
-----------
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATEMENT OF NET ASSETS (continued)
NUMBER OF MARKET OR
SHARES FAIR VALUE
-------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS (41.5%)
-------------------------------------------------------------------------------
AUTOMOBILES & AUTO PARTS (1.8%)
Tower Auto Capital Trust 6.75% 70,650 $ 2,251,969
Tower Auto Capital Trust 144A 6.75% 12,125 386,484
-----------
2,638,453
-----------
BANKING, FINANCE & INSURANCE (3.1%)
Sovereign Capital Trust II 7.50% 90,000 4,410,000
-----------
BUILDING & MATERIALS (2.3%)
DECS Trust V - Crown Castle 7.25% 100,000 3,268,750
-----------
CABLE, MEDIA & PUBLISHING (6.3%)
Adelphia Communications 5.50% 27,800 3,982,350
Houston Industries Convert to Time Warner 7.00% 9,675 1,203,328
Pegasus Communications 6.50% 15,000 1,314,375
United Globalcom 7.00% 15,000 676,875
United Globalcom 144A 7.00% 30,000 1,811,250
-----------
8,988,178
-----------
COMPUTERS & TECHNOLOGY (5.0%)
L&H Capital Trust 4.75% 20,505 1,484,049
Psinet 6.75% 65,000 3,176,875
Royal Group Technology 6.875% 109,682 2,543,251
-----------
7,204,175
-----------
CONSUMER PRODUCTS (0.6%)
Budget Group 6.25% 33,380 817,810
-----------
ENERGY (7.3%)
AES Trust III 6.75% 26,000 1,859,000
El Paso Energy Capital Trust 4.75% 34,600 2,227,375
Kerr-McGee 5.50% 40,000 1,990,000
Pogo Trust I 6.50% 43,400 2,321,900
Tesoro Petroleum 7.25% 70,405 765,653
Unocal Capital Trust 6.25% 29,200 1,368,750
-----------
10,532,678
-----------
HEALTHCARE & PHARMACEUTICALS (3.3%)
Biovail 6.75% 80,000 4,330,000
Hybridon 6.50% 17,738 505,533
-----------
4,835,533
-----------
PAPER & FOREST PRODUCTS (2.0%)
International Paper 5.25% 74,250 2,812,219
-----------
TELECOMMUNICATIONS (8.2%)
Global Crossing 6.75% 10,000 2,226,250
ICG Communications 6.75% 26,965 1,307,802
ICG Communications 144A 6.75% 12,965 628,802
Metromedia Fiber Networks 6.25% 50,000 3,431,250
Omnipoint Communications 7.00% 16,000 2,728,000
Winstar Communications 7.25% Series F 15,000 1,477,500
-----------
11,799,604
-----------
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STATEMENT OF NET ASSETS (continued)
NUMBER OF MARKET OR
CONVERTIBLE PREFERRED STOCKS (continued) SHARES FAIR VALUE
-------------------------------------------------------------------------------
TRANSPORTATION (0.8%)
Union Pacific Capital Trust 6.25% 28,000 $ 1,099,000
-----------
UTILITIES (0.8%)
Intermedia 7.00% 50,000 1,093,750
-----------
Total Convertible Preferred Stocks (cost $56,613,519) 59,500,150
-----------
WARRANTS (0.0%)
-------------------------------------------------------------------------------
Hybridon Warrants 92,359 23,090
-----------
Total Warrants (cost $0) 23,090
-----------
PAR
SHORT-TERM INVESTMENTS (3.5%) AMOUNT
--------------------------------------------------------------------------------
Associates Corp North America
6.85%, 7/3/00 $2,000,000 2,000,000
Gillette
7.03%, 7/5/00 3,000,000 3,000,000
-----------
Total Short-Term Investments (cost $5,000,000) 5,000,000
-----------
Total Market Value of Securities (98.8%)
(cost $128,665,016) $141,648,142
Receivables and Other Assets Net of Liabilities (1.2%) 1,730,896
------------
NET ASSETS APPLICABLE TO 6,315,975 SHARES
($0.001 PAR VALUE) OUTSTANDING - 100.0% $143,379,038
------------
NET ASSET VALUE PER SHARE OF COMMON STOCK OUTSTANDING $ 22.70
============
Common Stock, par value $.001 per share (authorized 20,000,000
shares), issued and outstanding 6,315,975 shares $ 6,316
Proceeds in excess of par value of shares issued 114,463,878
Undistributed net investment income 1,923,058
Undistributed realized gain on investments, net of taxes 14,002,660
Net unrealized appreciation of investments 12,983,126
------------
TOTAL NET ASSETS $143,379,038
============
* Non-Income producing securities.
+ Non-Income producing security. Security is currently in default.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30,
-------------------------
2000 1999
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 1,650,844 $ 1,898,199
Dividends 2,329,756 1,452,967
--------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 3,980,600 3,351,166
EXPENSES:
Management fees 659,446 449,464
Professional fees 39,064 20,899
Directors fees 31,453 29,354
Printing, stationery, and supplies 9,630 14,901
Postage and mailing fees 7,550 10,745
New York Stock Exchange fee 7,000 10,181
Stock transfer & dividend disbursing fees 3,750 14,588
Custodian fees -- 2,436
Other 2,272 8,538
--------------------------------------------------------------------------------
760,165 561,106
--------------------------------------------------------------------------------
Expenses paid indirectly (3,812) --
--------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 756,353 561,106
NET INVESTMENT INCOME 3,224,247 2,790,060
NET REALIZED AND UNREALIZED GAIN (LOSS) on Investments:
Net realized gain (loss) on investment transactions 16,545,485 (6,621,121)
Net change in unrealized appreciation/depreciation
of investments (11,650,018) 9,749,755
Excise tax on undistributed realized gain (63,341) --
--------------------------------------------------------------------------------
NET REALIZED & UNREALIZED GAIN ON INVESTMENTS 4,832,126 3,128,634
--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $8,056,373 $5,918,694
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
2000 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
CHANGES FROM OPERATIONS:
Net investment income $ 3,224,247 $ 2,790,060
Net realized gain (loss) on investments (net of taxes) 16,482,144 (6,621,121)
Net change in unrealized appreciation/depreciation of investments (11,650,018) 9,749,755
-----------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 8,056,373 5,918,694
CHANGES FROM CAPITAL SHARE TRANSACTIONS:
Retirement of shares repurchased through Buy-Back program (988,572) --
-----------------------------------------------------------------------------------------------------
NET DECREASE FROM CAPITAL SHARE TRANSACTIONS (988,572) --
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions to shareholders from net investment income (1,268,486) (1,401,890)
-----------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1,268,486) (1,401,890)
-----------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 5,799,315 4,516,804
-----------------------------------------------------------------------------------------------------
NET ASSETS, AT BEGINNING OF PERIOD 137,579,723 104,226,551
-----------------------------------------------------------------------------------------------------
NET ASSETS, AT END OF PERIOD $143,379,038 $108,743,355
-----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
(SELECTED DATA FOR EACH SHARE (UNAUDITED)
OUTSTANDING THROUGHOUT THE YEAR) 2000 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $21.59 $16.36 $18.24 $18.92 $18.71 $17.10
Income from investment operations:
Net investment income 0.52 0.84 0.97 0.93 0.92 0.91
Net realized and unrealized gain(loss)(net of taxes) 0.79 5.25 (1.89) 1.15 2.62 2.34
------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.31 6.09 (0.92) 2.08 3.54 3.25
Less distributions:
Dividends from net investment income (0.20) (0.86) (0.96) (1.00) (0.98) (0.96)
Dividends from net realized gains -- -- -- (1.76) (2.35) (0.68)
------------------------------------------------------------------------------------------------------------------------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (0.20) (0.86) (0.96) (2.76) (3.33) (1.64)
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $22.70 $21.59 $16.36 $18.24 $18.92 $18.71
------------------------------------------------------------------------------------------------------------------------------------
Per Share Market Value, End of Period $18.69 $16.00 $14.00 $17.81 $17.50 $16.75
Total Investment Return (based on Market Value) 18.28% 21.57% (16.43%) 17.54% 24.36% 19.57%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $143,379 $137,580 $104,227 $116,057 $120,431 $119,087
Ratio of expenses to average net assets 1.03%* 1.05% 1.15% 1.05% 1.05% 1.09%
Ratio of net investment income to average net assets 4.37%* 4.98% 5.52% 4.64% 4.50% 4.91%
Ratio of net investment income to average net assets
prior to expenses paid indirectly 4.36%* 4.97% 5.52% 4.64% 4.50% 4.91%
Portfolio Turnover 73.07% 128.32% 151.68% 141.85% 134.85% 127.24%
</TABLE>
* Annualized
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
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.
NOTE A--SUMMARY OF ACCOUNTING POLICIES
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 sale price at the close of that exchange; if on a particular day an
exchange-listed security does not trade, then the mean between the bid and asked
will be used. Equity securities traded in the over-the-counter market are valued
at the last sale price at the close of the New York Stock Exchange. If a
non-exchange listed security does not trade on a particular day, then the mean
between the bid and asked price will be used as long as it continues to reflect
the value of the security. Debt securities are valued by using market quotations
or a matrix method provided by a pricing service. If prices are not available
from the pricing service then quotations will be obtained from broker/dealers
and the securities will be valued at the mean between bid and offer. Securities
for which quotations are not available are priced at "fair value", as discussed
below. Money market instruments having less then 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 determined by the Fund's
Securities Valuation Committee according to the Fund's pricing procedures, as
approved and reviewed by the Board of Directors. Many factors are considered in
arriving at fair value, including, where applicable: fundamental analytical data
relating to the investment; the nature and duration of restrictions on
disposition of the securities; evaluation of the forces which influence the
market in which these securities are purchased and sold; the type of security;
any available financial statements; cost at date of purchase, plus or minus any
applicable amortization of premiums or discounts; the size of the holding;
discount from market value of unrestricted securities of the same class at the
time of purchase; any special reports prepared by analysts; information as to
any transactions or offers with respect to the security; the existence of merger
proposals or tender offers affecting the security; the price and extent of
trading in similar securities of comparable companies; for foreign securities,
the ability to repatriate currency and/or any restrictions implemented by a
foreign government; foreign ownership and share prices versus local ownership
share prices and/or the volume of securities traded; and price comparisons
(discount/premium of the locally traded shares versus depository receipt).
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
investment advisor, Lincoln Investment Management, Inc. (the "Advisor") or
affiliated companies. Valuations are determined according to pricing procedures
approved and reviewed 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 June 30, 2000, there were no private
placement securities held by the Fund.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
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 accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities 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. 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 booked on the ex-dividend date.
The Fund receives earnings credits from the custodian when positive balances
are maintained, which are used to offset custody fees. These credits were $3,812
for the six months ended June 30, 2000. The expenses paid under this agreement
is included in its respective expense caption on the Statement of Operations
with the corresponding expense offset shown as "Expenses paid indirectly."
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 $104,311,948
and $108,353,941, respectively, as of June 30, 2000.
NOTE C--MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Under an agreement between the Fund and the Advisor, the Advisor manages the
Fund's investment portfolio, maintains its accounts and records, and furnishes
the services of individuals to perform executive and administrative functions of
the Fund. In return for these services, the Advisor receives a management fee of
.21875% of 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, provided sub-advisory services for the Fund until
March 1, 2000. As of this date, Lynch & Mayer was integrated into Delaware
Investments. Delaware Management Company, an affiliate of the advisor, has taken
over the sub-advisory services of the Fund. In addition, Delaware Service
Company, Inc., which is an affiliate of the Advisor, provides accounting
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 Fund. 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 the same as for
book purposes. At June 30, 2000, the aggregate gross unrealized appreciation on
investments was $29,011,540 and the aggregate gross unrealized depreciation was
$16,028,414.
The Fund has a capital loss carry forward available to offset future realized
gains in the amount of $1,808,520, which expires on December 31, 2007.
NOTE E--POTENTIAL LITIGATION
The Fund may become involved in litigation arising out of a proxy contest in
connection with its 2000 annual shareholders meeting.
14
<PAGE>
DIRECTORS & OFFICERS OF THE FUND
DIRECTORS DESCRIPTIONS OF OCCUPATIONS AND RESPONSIBILITIES
Thomas L. Bindley President, Bindley Capital Corporation; Director, Midas,
Inc.; Director, Strategic Equipment and Supply Corporation;
Director, Lincoln National Income Fund, Inc.; Director,
Junior Achievement of Chicago.
Richard M. Burridge Vice President, Paine Webber; Consultant, Cincinnati
Financial Corporation; Director, Lincoln National Income
Fund, Inc; 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;
Trustee, Ravina Festival Association; Trustee, Window to the
World Communications, Inc. (PBS, Channel 11).
Roger J. Deshaies Senior Vice President, Finance, Brigham and Women's
Hospital; Corporate Director, Partners Health System;
Director, 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 President and Director, Lincoln National Income Fund, Inc.;
Managing Partner, Griffin Investments, LLC.
Daniel R. Toll Director, Lincoln National Income Fund, Inc.; Director,
Wiss, Janney, Elstner Associates, Inc.; Trustee, INEX
Insurance Exchange.
Officers
H. Thomas McMeekin President
David A. Berry Vice President
Robert D. Schwartz Vice President
Michael P. Bishof Treasurer
Michael D. Mabry Secretary
15
<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
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103
ADMINISTRATOR
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Two Commerce Square
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 Equiserve, 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 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.
16
<PAGE>
This Page Intentionally Left Blank
<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.
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
2000 Semi-Annual Report
(3605) (J6169)
Form 23296-1 8/00
