<PAGE>
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
1999 Annual Report
LINCOLN INVESTMENT MANAGEMENT, INC.
<PAGE>
TABLE OF CONTENTS
Page
- -----------------------------------------------------------
Manager Profile
Investment Policies & Objectives
Share Buy-back
President's Letter 1
Portfolio Manager's Discussion 3
Portfolio Performance 5
Annual Performance of the Fund vs. Indices 5
Total Fund Investments 5
Common Stock Market Prices
& Net Asset Value History 6
Dividend History 6
Tax Information 7
FINANCIAL STATEMENTS:
Statement of Net Assets 8
Statement of Operations 13
Statements of Changes in Net Assets 14
Financial Highlights 15
Notes to Financial Statements 16
Report of Independent Accountants 18
Directors & Officers of the Fund 19
Corporate Information 20
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 may perform some or
substantially all of the investment advisory services subject to the direction
and supervision of LIM.
It is expected that on March 1, 2000, Lynch & Mayer will be integrated into
Delaware Investments, and Delaware Management Company, an affiliate of Lynch &
Mayer and an indirect, wholly owned subsidiary of LNC, will become sub-advisor
to the Fund. Delaware Management Company is a Philadelphia-based investment
advisor which, together with its affiliates, manages approximately $47 billion
in assets as of December 31, 1999, including mutual funds, closed-end funds and
institutional accounts.
<PAGE>
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.
Following the integration with Delaware Investments, Mr. Schwartz will
continue as portfolio manager and there will not otherwise be a change in the
actual management of 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 private placement convertible securities. The Fund may also invest in
publicly traded fixed income securities and preferred and common stocks.
The Fund may borrow to purchase securities in an amount not exceeding 33 1/3
percent of net assets, but, as of December 31, 1999, has chosen not to do so.
The Fund may also invest in non-dollar denominated securities, but, as of
December 31, 1999, 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>
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
PRESIDENT'S LETTER TO SHAREHOLDERS FOR THE YEAR ENDED 1999
Dear Shareholder:
This past year was a positive period for domestic and international equity
markets. As memories of the global financial turmoil in 1997 and 1998 receded,
equity markets worldwide showed considerable appreciation. Global economies
began to show growth once again and corporate profits rose accordingly. The
primary concern for investors was how high the Federal Reserve would raise rates
to control growth and inflation. Interest rates rose steadily during the year,
with the 10-year treasury yield increasing 1.78%. Investors chose to focus on
the positives of economic growth, however, rather than the negative consequences
of rising rates. The strong economic backdrop, in contrast to 1998, led to an
increased willingness by investors to broaden their focus to include less known
and smaller capitalization stocks. Although many of the market leading companies
remained the same, smaller companies in fast growth sectors also showed
significant appreciation. Throughout the year, equity investors primarily
focused on the fast growing technology and communications sectors, especially
semiconductor, wireless, and internet companies.
In this investment environment, the convertible securities market and your
Fund did quite well. The convertible benchmarks set historical performance
records, and the Fund had its highest return in years. The Fund's net asset
value ended the year at $21.59, a 38.6% increase over the previous year,
including aggregate dividends of $.86 per share. The Fund's performance
surpassed the return of the S&P 500 and Russell 2000 equity indices, as well as
the major fixed income indices. The share price did not appreciate as much as
the net asset value, due to the widening discount at year-end. The discount of
many similar Funds also widened during the year. We hope the improved
performance of the convertible sector, and of your Fund specifically, will
increase investors' appreciation of the value available in the Fund's shares. In
an effort to further enhance value for current shareholders and to help reduce
the discount, the Fund's Board of Directors has authorized a share buy-back of
up to 5% of the Fund's outstanding common stock.
The improved market breadth and high concentration of technology and
telecommunication issues in the convertible marketplace were important factors
behind the strong performance of convertibles in 1999. Another important factor
was the high degree of equity sensitivity that many convertibles had to their
underlying equities. Your Fund also benefited from these trends as many of our
largest positions during the year were in the technology and telecommunications
sectors. Positions contributing significant portions of the Fund's performance
included Comverse Technology, DII Group, Gilat Satellite Networks and Omnipoint
Communications.
The Fund's performance in 1999 was helped by a decision to renew our focus on
the capital appreciation component of total return. Throughout the history of
the Fund, the underlying equity fundamentals have been our primary investment
criteria. We have also invested with a goal of providing a steady current yield.
Earning this yield, however, became increasingly difficult in the 1990's as
interest rates declined significantly. In addition, achieving performance in the
narrow stock market that has existed in recent years required holding on to
successful positions after the convertible's yield had declined considerably.
At the end of the first quarter, we decided that maintaining a constant
dividend had constrained the Fund's ability to achieve top performance. During
the year, we increased our emphasis on capital appreciation and, consequently,
had to reduce the dividend from $.24 to $.20 per quarter. We feel this strategy
has been quite successful. After having a negative 4.5% return in the first
quarter, we significantly outperformed the equity and convertible benchmarks for
the remainder of the year. Market conditions will determine the dividend yield
of the Fund in the future.
1
<PAGE>
We have an optimistic outlook for 2000. We believe that many of the growth
trends that existed in 1999 will continue throughout the coming year. The
convertible marketplace continues to supply attractive new issues from many of
the world's fastest growing companies. Still, we are cognizant of the increased
risk in the convertible marketplace as the new year begins. The dramatic run up
in equity prices in 1999 has increased the risk level of investing in the
leading market sectors. Furthermore, the high degree of equity sensitivity of
many convertible securities will make convertibles more susceptible to equity
market risk than usual. Individual security selection will be key to performance
in 2000. Successful convertible investing will therefore require a balancing of
equity selection and convertible security selection to control portfolio risk.
Fortunately, we are confident that new issuance in the convertible market will
provide ample opportunity to select securities with both growth potential and
defensive characteristics. Although we don't expect the same level of
exceptional return we had in 1999, we are hopeful that 2000 can be a profitable
start to the 21st century for the Fund and our shareholders.
We are saddened to note the passing of longtime Fund director Charles "Chic"
Freund in late 1999. Chic's guidance and service contributed significantly to
the Fund's success over the years. Chic will be sincerely missed by all of us
who had the pleasure to be associated with him.
Sincerely,
/s/ H. Thomas McMeekin
H. Thomas McMeekin
President
January 7, 2000
2
<PAGE>
PORTFOLIO MANAGER'S DISCUSSION:
ROBERT D. SCHWARTZ
VICE PRESIDENT/PORTFOLIO MANAGER
LYNCH & MAYER, INC.
WHAT IS A CONVERTIBLE SECURITY AND WHY ARE THEY ATTRACTIVE INVESTMENT VEHICLES?
Eighty-five percent of the convertible securities that we invest in are either
convertible bonds or convertible preferreds. These securities are similar to
regular fixed income securities in that they often have preset coupon or
dividend rates, and most convertible bonds have a fixed maturity or redemption
date. What makes a convertible different is that convertible securities also
give the holder an option to convert into a fixed number of shares of an
underlying common stock. This conversion option makes the value of the
convertible increase as the underlying equity increases. Importantly however, if
the value of the equity decreases, the convertible still has its fixed payment
characteristics to support its price. Therefore convertibles have the upside
potential of common stocks, but also have extra protection if the underlying
equity falls.
CAN YOU DESCRIBE YOUR APPROACH TO INVESTING IN CONVERTIBLE SECURITIES?
Our strategy first focuses on equity selection, since movement in the underlying
equity determines most of the variability in the price of a convertible
security. We search for companies that are undergoing significant positive
fundamental change that will result in increased earnings or cashflow, and
therefore have an increasing stock price. Positive change is typically found in
companies that have new product cycles, have made a recent acquisition or
undergone a restructuring, or whose industry is facing improved fundamentals.
These companies have tremendous potential, but also have increased investment
risk. Convertible securities can be an excellent investment vehicle in these
dynamic situations. We look for a security that will allow us to capture the
upside of an equity investment but provide additional protection and income
should the expected equity potential not be realized. The combination of these
factors gives us a return profile that has produced positive results over the
years.
CAN YOU GIVE AN EXAMPLE OF ONE OF YOUR HOLDINGS AND EXPLAIN HOW IT FITS YOUR
INVESTMENT PHILOSOPHY AND OUTLOOK?
One of our current and longtime holdings is Comverse Technology. Comverse
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 provided these services and now dominates this market. Comverse's
growth has continued to accelerate as wireless penetration continues to expand
throughout the world. We have owned three different convertibles issued by
Comverse, choosing the security with the most attractive risk profile when
appropriate.
WHAT FACTORS LED TO THE IMPROVEMENT IN PERFORMANCE IN 1999 WHEN COMPARED TO
1998?
The first factor helping performance was the broadening of the market
performance to include a wider selection of companies. We have historically had
medium sized growth companies as a core part of our investments. During 1998
investors bid up securities of the largest companies, while selling most medium
and small company securities. This changed in 1999 as mid-sized companies with
good growth prospects also showed significant appreciation. Although most small
non-technology stocks continued to lag in 1999, we were less susceptible to this
problem than in 1998 as we intentionally more than doubled the market
capitalization of our typical holding to $2 billion.
3
<PAGE>
PORTFOLIO MANAGER'S DISCUSSION (continued)
A second factor was the stability of credit spreads during 1999 even as
interest rates rose. This was in stark contrast to the record widening of
spreads that took place in 1998. A more stable credit market encouraged
investors to halt the "flight to quality" that took place in 1998, and consider
investments in lower rated issues that are typical in the convertible market. A
third factor was our willingness to hold on to our positions that had excellent
equity fundamentals regardless of the convertible security's yield. In 1998, we
often replaced our portfolio securities with higher yielding issues as our
holdings rose in price in order to maintain our dividend. In the relatively
narrow momentum driven market of the past few years, this strategy adversely
affected our performance. At the end of the first quarter of 1999, we increased
our emphasis on the capital appreciation component of total return, which
allowed us to retain these faster growing, lower yielding securities and to
boost the Fund's performance.
WHAT IS YOUR OUTLOOK FOR INTEREST RATES AND THE YIELD ON THE FUND'S SHARES?
After the rise in rates at the end of 1999 and the beginning of 2000, we believe
global growth will continue to place modest pressure on interest rates during
the year. Most likely there will be a wide trading range for thirty-year
treasuries in the 6.0% to 7.0% range. However, the outlook for the current yield
on convertible securities is only partially determined by interest rates. The
yield available on convertible investments depends on a number of variables. The
performance of convertibles, the credit of issuers, the upside potential of the
underlying equities, and the strength of the new issue market all are factors in
determining the yield on the Fund. Our investments yielded approximately 4.6% at
year-end. The convertible indices are yielding approximately 4.0%. With a strong
new issue calendar expected in 2000 and the recent increase in rates, we feel
comfortable with the current dividend level as we enter the new year, although
market conditions will determine the dividend yield of the Fund in the future.
We should also note that the Fund is attempting to minimize short-term gain
payouts when possible.
CAN YOU DESCRIBE THE PORTFOLIO CHARACTERISTICS OF THE FUND'S INVESTMENTS?
At year-end the Fund's investments had a current yield of 4.6% versus a 0.1%
yield on the underlying common stocks. The median price as a percent of par was
100%. However, many of our larger issues were well above par, bringing our
weighted average price to 150% of par. This statistic demonstrates the high
degree of equity sensitivity for the portfolio at year-end. The average
conversion premium was 20%. In terms of the underlying equities, the median
market capitalization was $2.1 billion, up from $800 million the year before.
The increase is a combination of our decreased reliance on small issues during
the year and price appreciation. Our largest industry weightings were in
technology, consumer cyclicals, and communication services.
WHAT IS YOUR OUTLOOK AND STRATEGY FOR THE FUND IN 2000?
We are optimistic for the coming year. The market will continue to be volatile
as investors worry about increased inflation. With market participants already
expecting increased interest rates in the first half of the year, we do not
expect a major negative shock on this front. As long as interest rates continue
to behave in an orderly manner, security selection should determine performance.
Of course, the key to having strong convertible performance is holding
securities whose underlying equities perform well. We believe that growth
companies will continue to lead the market higher, at least for the first half
of 2000. As the majority of current convertible issuers are high growth
companies in the technology and telecommunications industries, we should have an
ample supply of potential investment candidates. New issue pricing is also a
positive, as yields and premiums have been quite reasonable. One negative of
today's issues is that the issuing companies are growing so rapidly that their
credit profiles are not
4
<PAGE>
PORTFOLIO MANAGER'S DISCUSSION (continued)
very stable. The convertible issues may not provide the desired amount of
protection if the underlying equities head significantly lower. Another negative
is that many existing issues in these sectors have risen to levels that lack
defensive bond characteristics and are pure equity substitutes. We owned a
number of these types of securities at year-end. We expect to replace some of
these holdings with newer issues as the year progresses, as we move into later
stages of the profit cycle for some of these companies. Overall, with a
portfolio of companies poised for continued growth, we believe our holdings
should be able to provide positive performance in the year ahead.
PORTFOLIO PERFORMANCE
As of December 31, 1999
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 the end of 1999 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.
<TABLE>
<CAPTION>
1986 1989 1992 1994 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C>
Convertible Securities Fund(NAV) $1,000 $1,358 $2,032 $2,560 $4,173 $3,961 $5,489
First Boston Convertible Securities Index $1,000 $1,301 $1,840 $2,079 $3,421 $3,646 $5,190
Convertible Securities Fund(Market) $1,000 $1,132 $1,875 $2,261 $4,131 $3,452 $4,197
</TABLE>
ANNUAL PERFORMANCE OF LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC. VS.
INDICES*
<TABLE>
<CAPTION>
5 YR. AVERAGE
1999 1998 1997 1996 1995 ANNUALIZED RETURN
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LN Convertible Securities Fund (at NAV) 38.58% (5.09%) 13.17% 20.42% 19.59% 16.52%
First Boston Convertible Sec. Index 42.36% 6.57% 16.90% 13.80% 23.70% 20.10%
Merrill Lynch Convertible Index 39.56% 8.93% 19.57% 15.90% 24.69% 21.30%
Lipper Convertible Mutual Fund Index 22.33% 4.40% 17.80% 14.40% 20.60% 15.77%
Standard & Poor's 500 Index 19.53% 26.67% 33.36% 22.94% 37.53% 26.15%
Russell 2000 Index 19.62% (3.45%) 22.40% 16.50% 28.33% 15.04%
Lehman Gov't/Corporate Bond Index (2.15%) 8.29% 9.80% 2.90% 19.24% 7.61%
</TABLE>
* Dividends Reinvested
TOTAL FUND BREAKOUT
At Market or Fair Values As of December 31,
<TABLE>
<CAPTION>
1999 1998
(000) % OF TOTAL (000) % OF TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Convertible & Public Debt Securities $65,314 47% $67,054 64%
Convertible Preferred Stocks 57,104 42% 27,490 26%
Common Stocks 12,963 9% 4,206 4%
Short-Term Investments 2,500 2% 5,799 6%
Other Assets Under Liabilities (301) 0% (322) 0%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $137,580 100% $104,227 100%
</TABLE>
5
<PAGE>
COMMON STOCK MARKET PRICES AND NET ASSET VALUE HISTORY (Unaudited)
1999
<TABLE>
<CAPTION>
MARKET PRICES AND VOLUMES NET ASSET VALUE
HIGH LOW CLOSE VOLUME HIGH LOW CLOSE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
1998
<TABLE>
<CAPTION>
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 $19.75 $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
</TABLE>
1997
<TABLE>
<CAPTION>
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
</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
- ----------------------------------------------------------------------------
1988 and Prior $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
1993 2.92 1999 0.86
6
<PAGE>
TAX INFORMATION (Unaudited)
Income dividends received by a shareholder must be reported for federal income
tax purposes as ordinary income. The Fund distributed $ 0.86 per share of
ordinary income for the tax year 1999. Dividend payments made in April, July,
October and mid-January 2000 are taxable in the 1999 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 and undistributed capital gains for the
twelve months ended October 31. 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:
Corporation's Dividend Received Deduction--Percent 59.25%
Corporation's Dividend Received Deduction--$ Per Share $0.5038
7
<PAGE>
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
INVESTMENTS-NOTES A & B PAR MARKET OR
CONVERTIBLE BONDS (47.5%) AMOUNT FAIR VALUE
- --------------------------------------------------------------------------------
BUILDING & MATERIALS (1.4%)
Emcor Group
5.75%, 4/1/05 $2,175,000 $1,933,031
----------
CABLE, MEDIA & PUBLISHING (5.2%)
Clear Channel Communications
1.50%, 12/1/02 2,000,000 2,055,000
Echostar Communications 144A
4.88%, 1/1/07 2,500,000 3,078,125
Getty Images
4.75%, 6/1/03 1,195,000 2,067,350
----------
7,200,475
----------
COMPUTERS & TECHNOLOGY (9.9%)
Activision
6.75%, 1/1/05 1,670,000 1,674,175
Checkfree Holdings 144A
6.50%, 12/1/06 500,000 796,250
Doubleclick
4.75%, 3/15/06 1,000,000 3,107,500
HNC Software
4.75%, 3/1/03 750,000 1,824,375
Internet Capital Group
5.50%, 12/21/04 300,000 439,125
May & Speh
5.25%, 4/1/03 1,345,000 1,765,313
Technomatix Technologies
5.25%, 8/15/04 975,000 842,155
Tecnomatix Technologies 144A
5.25%, 8/15/04 3,615,000 3,122,456
----------
13,571,349
----------
COMMERCIAL SERVICES (0.9%)
Personnel Group of America
5.75%, 7/1/04 1,080,000 881,550
Personnel Group of America 144A
5.75%, 7/1/04 405,000 330,581
----------
1,212,131
----------
CONSUMER PRODUCTS (1.0%)
Action Performance
4.75%, 4/1/05 1,000,000 537,500
Action Performance 144A
4.75%, 4/1/05 1,540,000 827,750
----------
1,365,250
----------
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STATEMENT OF NET ASSETS (continued)
PAR MARKET OR
CONVERTIBLE BONDS (CONTINUED) AMOUNT FAIR VALUE
- --------------------------------------------------------------------------------
ELECTRONICS & ELECTRICAL EQUIPMENT (9.1%)
Advanced Energy
5.25%, 11/15/06 $1,000,000 $ 1,195,000
Amkor Technologies
5.75%, 5/1/03 1,615,000 3,472,250
Atmel
0.00%, 4/21/18 1,000,000 851,250
Cirrus Logic
6.00%, 12/15/03 2,450,000 2,061,063
LSI Logic
4.25%, 3/15/04 1,000,000 2,271,250
Sanmina 144A
4.25%, 5/1/04 1,000,000 1,322,500
STmicroelectron
0.00%, 9/22/09 1,000,000 1,372,500
-----------
12,545,813
-----------
HEALTHCARE & PHARMACEUTICALS (5.3%)
Alpharma
3.00%, 6/1/06 1,000,000 1,077,500
Alpharma 144A
5.75%, 4/1/05 835,000 964,425
North American Vaccine
6.50%, 5/1/03 2,460,000 1,808,100
Quadramed
5.25%, 5/1/05 385,000 177,581
Quadramed 144A
5.25%, 5/1/05 1,460,000 700,800
Res-Care
6.00%, 12/1/04 510,000 410,550
Res-care 144A
6.00%, 12/1/04 120,000 96,600
Sabratek +
6.00%, 4/15/05 1,325,000 496,875
Sabratek 144A +
6.00%, 4/15/05 1,355,000 508,124
Sepacor 144A
7.00%, 12/15/05 1,000,000 1,057,500
-----------
7,298,055
-----------
LEISURE, LODGING & ENTERTAINMENT (2.3%)
Imax
5.75%, 4/1/03 840,000 1,137,150
Signature Resorts
5.75%, 1/15/07 3,190,000 1,965,838
-----------
3,102,988
-----------
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
STATEMENT OF NET ASSETS (continued)
PAR MARKET OR
CONVERTIBLE BONDS (CONTINUED) AMOUNT FAIR VALUE
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS (12.4%)
Antec
4.50%, 5/15/03 $ 90,000 $ 144,788
Antec 144A
4.50%, 5/15/03 1,175,000 1,890,281
CellStar
5.00%, 10/15/02 1,195,000 923,138
Commscope
4.00%, 12/15/06 500,000 543,125
Comverse Technology
4.50%, 7/1/05 1,095,000 3,735,319
Gilat Satellite Networks
6.50%, 6/3/04 450,000 1,283,625
Gilat Satellite Networks 144A
6.50%, 6/3/04 1,935,000 5,519,588
Oak Industries
4.88%, 3/1/08 10,000 27,675
Oak Industries 144A
4.88%, 3/1/08 1,090,000 3,016,574
-----------
17,084,113
-----------
TOTAL CONVERTIBLE BONDS (COST OF $50,237,629) 65,313,205
-----------
NUMBER OF
COMMON STOCK (9.4%) SHARES
- --------------------------------------------------------------------------------
ELECTRONICS & ELECTRICAL EQUIPMENT (6.9%)
Credence Systems 40,000 3,451,250
DII Group 84,480 5,995,440
-----------
9,446,690
-----------
HEALTHCARE & PHARMACEUTICALS (0.7%)
Aetna 17,459 974,430
-----------
RETAIL (1.7%)
Lowe's 40,000 2,390,000
-----------
TELECOMMUNICATIONS (0.1%)
Winstar Communications 2,016 151,578
-----------
TOTAL COMMON STOCK (COST OF $7,327,142) 12,962,698
-----------
CONVERTIBLE PREFERRED STOCKS (41.5%)
- --------------------------------------------------------------------------------
AUTOMOBILES & AUTO PARTS (1.6%)
Tower Auto Capital Trust 6.75% 45,650 1,723,288
Tower Auto Capital Trust 144A 6.75% 12,125 457,719
-----------
2,181,007
-----------
BANKING, FINANCE & INSURANCE (1.1%)
Sovereign Capital Trust II 7.50% 30,000 1,462,500
-----------
1,462,500
-----------
BUILDING & MATERIALS (2.2%)
DECS Trust V - Crown Castle 7.25% 100,000 2,987,500
-----------
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
STATEMENT OF NET ASSETS (continued)
NUMBER OF MARKET OR
CONVERTIBLE PREFERRED STOCKS (CONTINUED) SHARES FAIR VALUE
- --------------------------------------------------------------------------------
CABLE, MEDIA & PUBLISHING (6.4%)
Adelphia Communications 5.50% 12,800 $ 2,451,400
Emmis 6.30% 10,000 848,750
Houston Industries Convert to Time Warner 7.00% 14,675 1,768,338
United Globalcom 7.00% 15,000 973,125
United Globalcom 7.00% 144A 30,000 2,730,000
-----------
8,771,613
-----------
COMPUTERS & TECHNOLOGY (6.6%)
Cellnet Funding 7.00% 125,360 299,689
L&H Capital Trust 4.75% 40,505 1,650,579
Psinet 6.75% 35,000 2,047,500
Royal Group Technology 6.875% 109,682 2,344,453
Verio 6.75% 50,000 2,825,000
-----------
9,167,221
-----------
CONSUMER PRODUCTS (0.7%)
Budget Group 6.25% 33,380 1,001,400
-----------
ENERGY (6.9%)
AES Trust II 5.50% 26,105 1,794,719
El Paso Energy Capital Trust 4.75% 34,600 1,742,975
Kerr-McGee 5.50% 60,000 1,950,000
Pogo Trust I 6.50% 35,000 1,723,750
Tesoro Petroleum 7.25% 70,405 844,860
Unocal Capital Trust 6.25% 29,200 1,423,500
-----------
9,479,804
-----------
HEALTHCARE & PHARMACEUTICALS (0.1%)
Hybridon 6.50% 17,180 171,800
-----------
PAPER & FOREST PRODUCTS (0.9%)
International Paper 5.25% 24,250 1,321,625
-----------
TELECOMMUNICATIONS (12.6%)
Global Telesystems 7.25% 35,000 1,995,000
Global Crossing 144A 7.00% 8,000 2,252,000
ICG Communications 6.75% 26,965 1,223,537
ICG Communications 144A 6.75% 12,965 588,287
Metromedia Fiber Networks 6.25% 65,000 3,014,375
Omnipoint Communications 7.00% 24,705 4,866,885
Winstar Communications 7.30% Series F 2,500 3,390,625
-----------
17,330,709
-----------
TRANSPORTATION (1.4%)
CNF Trust I Series A 5.00% 15,000 720,000
Union Pacific Capital Trust 6.25% 28,000 1,165,500
-----------
1,885,500
-----------
UTILITIES (1.0%)
Intermedia 7.00% 50,000 1,343,750
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (cost of $53,184,726) 57,104,429
-----------
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
STATEMENT OF NET ASSETS (continued)
NUMBER OF MARKET OR
SHARES FAIR VALUE
- --------------------------------------------------------------------------------
WARRANTS (0.00%)
- --------------------------------------------------------------------------------
Hybridon Warrants* 92,359 $ 2,309
-------------
TOTAL WARRANTS (cost $0) 2,309
-------------
PAR
SHORT-TERM INVESTMENTS (1.8%) AMOUNT
- --------------------------------------------------------------------------------
Associates Corp North America
4.00%, 1/3/00 $2,500,000 2,500,000
-------------
TOTAL SHORT-TERM INVESTMENTS (cost $2,500,000) 2,500,000
-------------
TOTAL MARKET VALUE OF SECURITIES (100.2%)
(cost $113,249,497) $137,882,641
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS (-0.2%) (302,918)
-------------
NET ASSETS APPLICABLE TO 6,372,225 SHARES
($0.001 Par Value) OUTSTANDING - 100.0% 137,579,723
-------------
NET ASSET VALUE PER SHARE OF COMMON STOCK OUTSTANDING $ 21.59
=============
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 115,452,394
Distribution in excess of net investment income (32,703)
Accumulated net realized loss on investments (2,479,484)
Net unrealized appreciation of investments 24,633,144
-------------
TOTAL NET ASSETS $137,579,723
=============
* Non-Income producing securities.
+ Non-Income producing security. Security is currently in default.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME:
Interest $3,347,255
Dividends 3,210,496
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 6,557,751
EXPENSES:
Management fees--Note C 985,156
Directors fees 69,154
Professional fees 49,372
New York Stock Exchange fee 19,390
Stock transfer & dividend disbursing fees 19,170
Custodian fees 4,136
Other 8,097
- --------------------------------------------------------------------------------
1,154,475
- --------------------------------------------------------------------------------
Expenses paid indirectly--Note A (15,655)
- --------------------------------------------------------------------------------
Total Operating Expenses 1,138,820
NET INVESTMENT INCOME 5,418,931
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (2,014,005)
Net change in unrealized appreciation/depreciation of investments 35,494,440
Excise tax on undistributed realized gain--Note A (66,080)
- --------------------------------------------------------------------------------
NET REALIZED & UNREALIZED GAIN ON INVESTMENTS 33,414,355
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $38,833,286
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
- --------------------------------------------------------------------------------
CHANGES FROM OPERATIONS:
Net investment income $5,418,931 $6,158,314
Net realized loss on investments (net of taxes) (2,080,085) (122,439)
Net change in unrealized
appreciation/depreciation of investments 35,494,440 (11,884,687)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 38,833,286 (5,848,812)
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 (5,480,114) (6,111,194)
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (5,480,114) (6,111,194)
- --------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 33,353,172 (11,830,051)
- --------------------------------------------------------------------------------
NET ASSETS, BEGINNING OF YEAR 104,226,551 116,056,602
- --------------------------------------------------------------------------------
NET ASSETS, END OF YEAR $137,579,723 $104,226,551
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(SELECTED DATA FOR EACH COMMON STOCK ------------------------------------------------------
OUTSTANDING THROUGHOUT THE YEAR) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $16.36 $18.24 $18.92 $18.71 $17.10
Income (loss) from investment operations:
Net investment income 0.84 0.97 0.93 0.92 0.91
Net realized and unrealized gain (loss) on investments (net of taxes) 5.25 (1.89) 1.15 2.62 2.34
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 6.09 (0.92) 2.08 3.54 3.25
Less distributions:
Dividends from net investment income (0.86) (0.96) (1.00) (0.98) (0.96)
Distributions from net realized gains - - (1.76) (2.35) (0.68)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (0.86) (0.96) (2.76) (3.33) (1.64)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $21.59 $16.36 $18.24 $18.92 $18.71
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Market Value, End of Year $16.00 $14.00 $17.81 $17.50 $16.75
Total Investment Return
(based on Market Value) 21.57% (16.43%) 17.54% 24.36% 19.57%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (000 omitted) $137,580 $104,227 $116,057 $120,431 $119,087
Ratio of expenses to average net assets 1.05% 1.15% 1.05% 1.05% 1.09%
Ratio of expenses to average net assets prior
to expenses paid indirectly 1.06% 1.15% 1.05% 1.05% 1.09%
Ratio of net investment income to average net assets 4.98% 5.52% 4.64% 4.50% 4.91%
Ratio of net investment income to average net assets
prior to expenses paid indirectly 4.97% 5.52% 4.64% 4.50% 4.91%
Portfolio Turnover 128.32% 151.68% 141.85% 134.85% 127.24%
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 than 60 days to maturity at purchase
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:
<PAGE>
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 depositary
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
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 December 31, 1999, 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.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
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 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. In
addition, in the preparation of financial statements, management relies on the
use of estimates where necessary.
Distributions to common shareholders are recorded on the ex-dividend date.
The Fund receives earnings credits from the custodian when positive balances
are maintained, which are used to offset custody fees. These credits were
$15,655 for the year ended December 31, 1999. 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.
<PAGE>
The aggregate cost of investments purchased and the aggregate proceeds from
investments sold (exclusive of short-term investments) amounted to $136,545,278
and $133,414,266, respectively, for the year ended December 31, 1999.
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,
provides sub-advisory services for 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 $113,920,461. At
December 31, 1999, the aggregate gross unrealized appreciation on investments
was $37,249,198 and the aggregate gross unrealized depreciation was $13,287,018.
The Fund has a capital loss carryforward available
to offset future realized gains in the amount of $1,808,520, which expires on
December 31, 2007.
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of The Lincoln Convertible Securities Fund:
In our opinion, the accompanying statement of net assets, and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The Lincoln Convertible Securities Fund (the "Fund") at December 31, 1999, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and the financial highlights
for each of the five years in the period then ended, in conformity with
accounting principles generally accepted in the United States. 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 auditing
standards generally accepted in the United States, 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, 1999 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, PA
February 22, 2000
18
<PAGE>
DIRECTORS & OFFICERS OF THE FUND
DIRECTORS DESCRIPTIONS OF OCCUPATIONS AND RESPONSIBILITIES
Thomas L. Bindley President, Bindley Capital Corporation; Director, Midas,
Inc., Strategic Equipment and Supply Corporation, Lincoln
National Income Fund, Inc., and Junior Achievement of
Chicago
Richard M. Burridge Chairman, The Burridge Group, Inc.; 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.
Roger J. Deshaies Senior Vice President, Finance, Brigham and Women's
Hospital (Harvard Medical School teaching affiliate);
Corporate Director of 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 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., and Vantage Investment
Advisors, Inc.; Executive Vice President and Chief
Investment Officer, Lincoln National Corporation;
Executive Vice President and Chief Investment Officer--
Fixed Income, Delaware Investments
Daniel R. Toll Director, Kemper Insurance Companies, Lincoln National
Income Fund, Inc., and 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
Eric E. Miller Secretary
19
<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, Inc.
1818 Market Street
Philadelpia, 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.
<PAGE>
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.
20
<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.
1999 Annual Report
Form 23296-1 2/00
