SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Under Rule 14a-12
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
One Commerce Square
Philadelphia, PA 19103
IMPORTANT ANNUAL MEETING
April 10, 2001
DEAR SHAREHOLDER:
You are cordially invited to attend the Annual Meeting of Shareholders (the
"Annual Meeting") of Lincoln National Convertible Securities Fund, Inc. (the
"Fund") to be held on Friday, May 18, 2001, at The Chicago Club, 81 East Van
Buren Street, Chicago, Illinois at 10:30 a.m. (CDT). Your Board of Directors and
management look forward to greeting personally those shareholders able to
attend.
The attached Notice of Annual Meeting and Proxy Statement describe the formal
business to be transacted at the Annual Meeting. During the meeting, we will
also report on the operations of your Fund and directors and officers will be
present to respond to any questions you may have.
CAUTION
A dissident shareholder, Mr. Phillip Goldstein, has announced his intention
to commence a proxy contest in opposition to your Board of Directors. Mr.
Goldstein will be seeking your support to, among other things, elect himself and
another dissident in place of the two highly qualified and experienced nominees
proposed for election by your Board. WE URGE YOU TO REJECT MR. GOLDSTEIN'S
SOLICITATION -- DO NOT SIGN ANY PROXY CARD HE MAY SEND YOU. PLEASE BE ASSURED
THAT YOUR BOARD OF DIRECTORS WILL CONTINUE TO ACT IN THE BEST INTEREST OF ALL
FUND SHAREHOLDERS.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WE URGE
YOU TO SIGN, DATE AND MAIL THE ENCLOSED WHITE PROXY CARD AS SOON AS POSSIBLE
EVEN IF YOU CURRENTLY PLAN TO ATTEND THE ANNUAL MEETING. This will not prevent
you from voting in person but will assure that your vote is counted if you are
unable to attend the meeting.
On behalf of your Board of Directors, thank you for your continued interest
and support.
Sincerely,
/s/ David K. Downes
David K. Downes
President
IMPORTANT
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. AS SUCH,
PLEASE SIGN, DATE AND MAIL YOUR WHITE PROXY CARD AT YOUR EARLIEST
CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
SHAREHOLDERS WITH QUESTIONS OR REQUIRING ASSISTANCE MAY CALL D. F. KING & CO.,
INC., WHICH IS ASSISTING US, TOLL-FREE AT 1-800-628-8536.
This Page Intentionally Left Blank
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of LINCOLN NATIONAL CONVERTIBLE SECURITIES
FUND, INC. (the "Fund") will be held at The Chicago Club, 81 East Van Buren
Street, Chicago, Illinois, on Friday, May 18, 2001 at 10:30 a.m. (CDT), for the
following purposes.
1. To elect two Directors for the Fund to hold office until their successors
are elected and qualified.
2. To ratify the selection of PricewaterhouseCoopers LLP as independent
auditors of the Fund for the fiscal year ending December 31, 2001.
3. To act upon three shareholder proposals if properly presented at the
Annual Meeting.
4. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
Stockholders of record at the close of business on March 26, 2001 are
entitled to vote at the Annual Meeting.
By order of the Board of Directors.
/s/ David F. Connor
David F. Connor
Secretary
April 10, 2001
YOUR VOTE IS IMPORTANT
YOUR VOTE IS IMPORTANT TO SECURE THE LARGEST POSSIBLE REPRESENTATION AND AVOID
THE ADDITIONAL EXPENSE TO THE FUND OF FURTHER SOLICITATION, PLEASE MARK
PREFERENCES, SIGN, DATE AND PROMPTLY MAIL YOUR WHITE PROXY CARD IN THE
ENCLOSED POSTAGE PAID ENVELOPE. PLEASE ACT TODAY!
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
ONE COMMERCE SQUARE
PHILADELPHIA, PENNSYLVANIA 19103
PROXY STATEMENT
Annual Meeting of Stockholders to be held May 18, 2001
The Board of Directors of Lincoln National Convertible Securities Fund, Inc.
(the "Fund") is soliciting proxies for use at the Annual Meeting of Stockholders
(the "Annual Meeting") to be held on May 18, 2001, at 10:30 a.m. (CDT) at The
Chicago Club, 81 East Van Buren Street, Chicago, Illinois, or at any adjournment
of that meeting.
The Fund's most recent annual report was previously mailed to shareholders.
The Fund will furnish, without charge, a copy of its annual report to a
stockholder upon request made to Delaware Service Company, Inc. ("DSC"), the
Fund's administrator, 1818 Market Street, Philadelphia, Pennsylvania 19103, or
by calling 1-800-523-1918.
The purpose of the Annual Meeting is to consider the Proposals listed on the
accompanying Notice. The Board of Directors of the Fund urges you to complete,
sign, date and mail promptly the Proxy Card (or Cards) included with the Proxy
Statement, whether or not you intend to be present at the Annual Meeting. It is
important that you provide voting instructions promptly to help ensure a quorum
for the Annual Meeting. A proxy may be revoked at any time before it is voted by
submission to the Fund of a later dated proxy, by notice in writing to the Fund,
or by the stockholder's attendance and vote at the Annual Meeting. If your
shares are held in the name of your broker, you will have to make arrangements
with your broker to revoke any previously executed proxy. If the proxy is not
revoked, the shares represented by such proxy will be voted according to the
instructions on the Proxy Card or, if not marked, the proxies will vote on each
Proposal in accordance with the recommendation of Fund management as indicated
on the Proxy Card. The Board of Directors recommends strongly that you vote
"FOR" Proposals No. 1 and No. 2 and "AGAINST" Proposals No. 3, No. 4 and No. 5.
The proxies will also be authorized to vote in their discretion on any other
matter which may properly come before the Annual Meeting. If you sign and return
a Proxy Card, you may still attend the Annual Meeting and vote your shares in
person. If your shares are held of record by a broker and you wish to vote in
person at the Annual Meeting, you should obtain a Legal Proxy from your broker
of record and present it at the Annual Meeting.
The number of votes needed to approve the Proposals varies. The voting
requirements are described within each Proposal. Broker non-votes and
abstentions will be included for purposes of determining whether a quorum is
present for the Fund at the Annual Meeting. Broker non-votes are shares held in
street name for which the broker indicates that instructions have not been
received from the beneficial owners entitled to vote and the broker does not
have discretionary voting authority. Broker non-votes and abstentions will be
treated as votes present at the Annual Meeting, but will not be treated as votes
cast. They therefore would have no effect on Proposals which require a plurality
or a majority of votes cast for approval.
In the event that a quorum is not present, or if sufficient votes are not
received for the adoption of any Proposal, management may determine to propose
an adjournment or adjournments of the Annual Meeting. Any adjournment would
require a vote in favor of the adjournment by the holders of a majority of the
shares present at the Annual Meeting in person or by proxy. In such
circumstances, the persons named as proxies will vote in favor of any proposed
adjournment.
Stockholders of record at the close of business on March 26, 2001 will be
entitled to vote at the Annual Meeting or any adjournment thereof. On that date,
the Fund had 6,087,075 shares of Common Stock outstanding and entitled to vote.
Each share of Common Stock will be entitled to one vote at the Annual Meeting.
2
This Proxy Statement and accompanying Proxy Card are being mailed on or about
April 12, 2001. The solicitation of proxies will be largely by mail but may
include telephonic, telegraphic or other electronic means, or by personal
contacts by Directors and officers of the Fund or regular employees of the
Fund's investment adviser (the "Adviser") and its affiliates, and/or employees
of DSC or employees of the Fund's stock transfer agent, EquiServe L.P. As noted
below under "Solicitation of Proxies," the Fund has also engaged the services of
a proxy solicitor to assist in the solicitation of proxies. The Fund's Adviser
is Delaware Management Company, a series of Delaware Management Business Trust,
One Commerce Square, Philadelphia, PA 19103.
As you may be aware, Mr. Phillip Goldstein of Opportunity Partners, L.P. has
announced his intention to commence a hostile proxy contest, and fund management
believes that he will mail his own proxy solicitation materials (the "Dissident
Proxy") to our shareholders. Mr. Goldstein will attempt to solicit your vote for
the purpose, among other things, of electing himself and his colleagues as
Directors of your Fund. As described more fully below, the Directors believe
that Mr. Goldstein, Mr. Ralph Bradshaw, Mr. Andrew Dakos and Mr. Gary Bentz (the
"Dissident Nominees"), seek positions on the Board of Directors to further Mr.
Goldstein's own personal agenda, which is reflected in his other proposals
addressed below. The Directors' reasons for strongly opposing the Dissident
Nominees and Mr. Goldstein's various proposals are set forth in the Opposition
Statements included as part of each Proposal in this Proxy Statement. Please
give this material your careful attention.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The Board of Directors of the Fund is comprised of three Classes of
Directors. The seven Directors of the Fund are divided into three separate
Classes as follows: two Directors constituting Class 1 Directors have a term of
office until the 2003 Annual Meeting and until their successors are elected and
qualified; two Directors constituting Class 2 Directors have a term of office
until this 2001 Annual Meeting 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 stockholders and until their successors
are elected and qualified. The Directors in each Class are set forth below.
CLASS OF DIRECTORS NAMES OF DIRECTORS
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Class 1: Adela Cepeda and Roger J. Deshaies
Class 2: David K. Downes and Richard M. Burridge
Class 3: Thomas L. Bindley, Daniel R. Toll and
H. Thomas McMeekin
At each annual meeting of stockholders, 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 his or her successor
is elected and qualified. Subject to the limitations imposed by the Investment
Company Act of 1940, as amended ("1940 Act"), a vacancy that 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 stockholders at
which that Class of Directors is up for election and until his or her successor
is elected and qualified.
Except as otherwise directed on the Proxy Card, the persons named as proxies
will vote "FOR" the election of the nominees for Directors listed below. Each of
the nominees has consented to be a nominee and to serve as a Director if
elected. In the event that any of the nominees should become unavailable for
election as a Director, the persons named in the accompanying proxy intend to
vote for such substitute as the Board of Directors of the Fund may select.
3
Required Vote. Under Maryland law, the nominees receiving a plurality of the
votes cast at the Annual Meeting will be elected.
CLASS 2 DIRECTORS
(TO BE ELECTED AT THIS ANNUAL MEETING)
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COMMON STOCK
BENEFICIALLY
NAME, AGE, POSITION WITH THE FUND, BUSINESS EXPERIENCE OWNED AT
DURING THE PAST FIVE YEARS AND DIRECTORSHIPS FEBRUARY 28, 2001***
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RICHARD M. BURRIDGE* (72), Director of the Fund (since 1986); Director of Lincoln National Income Fund, Inc. 5,923
(since 1986); Vice President, PaineWebber (since 2000); Chairman (1996 - 2000), prior thereto President (1986
- - 1996), The Burridge Group, Inc. (investment management); Consultant, Cincinnati Financial Corporation;
Chairman of the Board, Fort Dearborn Income Securities, Inc.
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DAVID K. DOWNES **(61), President and Director of the Fund and President and Director of Lincoln National 0
Income Fund, Inc. (since February 2001); President, Chief Executive Officer, Chief Financial Officer and
Trustee/Director of 33 investment companies in the Delaware Investments family of funds; President and
Director of Delaware Management Company, Inc.; President of Delaware Management Company (a series of Delaware
Management Business Trust); President, Chief Executive Officer and Director of Delaware Capital Management,
Inc.; Chairman, President, Chief Executive Officer and Director of Delaware Service Company, Inc.; President,
Chief Operating Officer, Chief Financial Officer and Director of Delaware International Holdings Ltd.;
President, Chief Operating Officer and Director of Delaware General Management, Inc.; Chairman, President,
Chief Executive Officer and Director of Delaware Management Trust Company and Retirement Financial Services,
Inc.; Executive Vice President, Chief Operating Officer and Chief Financial Officer of Delaware Management
Holdings, Inc., Founders CBO Corporation, Delaware Distributors, L.P. and Delaware Investment Advisers (a
series of Delaware Management Business Trust); Executive Vice President, Chief Financial Officer, Chief
Operating Officer and Trustee of Delaware Management Business Trust; Executive Vice President, Chief
Operating Officer, Chief Financial Officer and Director of DMH Corp., Delaware Distributors, Inc., Founders
Holdings, Inc. and Delvoy, Inc.; and Director of Delaware International Advisers Ltd. During the past five
years, Mr. Downes has served in various executive capacities at different times within Delaware Investments.
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4
CLASS 1 DIRECTORS
(Term Expires at 2003 Annual Meeting)
(These Directors are NOT being elected at this Annual Meeting)
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COMMON STOCK
BENEFICIALLY
NAME, AGE, POSITION WITH THE FUND, BUSINESS EXPERIENCE OWNED AT
DURING THE PAST FIVE YEARS AND DIRECTORSHIPS FEBRUARY 28, 2001***
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ADELA CEPEDA (42), Director of the Fund (since 1992); Director of Lincoln National Income Fund, Inc. (since 3,795
1992); President, A. C. Advisory, Inc. (since 1995); Commissioner, Chicago Public Building Commission (since
1992); Director and Vice President, Harvard Club of Chicago (since 1986).
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ROGER J. DESHAIES (51), Director of the Fund (since 1992); Director of Lincoln National Income Fund, Inc. 2,317
(since 1992); Senior Vice President, Finance, Brigham and Women's Hospital (Harvard Medical School teaching
affiliate) (1998 - Present); Corporate Director, Partners Health System (since 1998); Senior Vice President,
Finance, Parkview HealthSystem (1990 - 1998); Director (1995 - 1998) and prior thereto President and
Chairman (1993 - 1995), Hospital Laundry Services, Inc.; Director, Signature Care, Inc. (1992 - 1998);
Director and Treasurer, Pine Valley Country Club (1993 - 1998).
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5
CLASS 1 DIRECTORS
(Term Expires at 2003 Annual Meeting)
(These Directors are NOT being elected at this Annual Meeting)
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COMMON STOCK
BENEFICIALLY
NAME, AGE, POSITION WITH THE FUND, BUSINESS EXPERIENCE OWNED AT
DURING THE PAST FIVE YEARS AND DIRECTORSHIPS FEBRUARY 28, 2001***
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THOMAS L. BINDLEY (57), Director of the Fund (since 1998); President, Bindley Capital Corporation (since 5,000
1998); Executive Vice President and Chief Financial Officer, Whitman Corporation (1992 - 1998); Director,
Midas, Inc. (since 1998); Director, Strategic Equipment and Supply Corporation (since 2000).
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H. THOMAS McMEEKIN**** (48), Managing Partner, Griffin Investments, LLC (since 2000); President (1994 - 1,251
2001) and Director (since 1990) of the Fund; President (1994 - 2001) and Director (since 1990), Lincoln
National Income Fund, Inc.; Executive Vice President and Chief Investment Officer - Fixed Income, Delaware
Investments (1999 - 2000); President (1994 - 2000), and Director (1991 - 2000), Lincoln Investment
Management Inc.; Executive Vice President and Chief Investment Officer (1994 - 2000) of Lincoln National
Corporation; Director, The Lincoln National Life Insurance Company (1994 - 2000), Delaware Management
Holdings, Inc. (1995 - 2000), Lincoln National Investment Companies, Inc. (1995 - 2000), and Vantage Global
Advisors, Inc. (1994 - 2000).
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DANIEL R. TOLL (74), Director of the Fund (since 1986); Director of Lincoln National Income Fund, Inc. 1,000
(since 1986); retired President and Director, Heller International Corporation; Director, Wiss, Janney,
Elstner Associates, Inc.; Trustee, INEX Insurance Exchange (until 2001); Director, Kemper Insurance
Companies (until 2000), Mallinckrodt, Inc. (until 1999), NICOR, Inc. (until 1998) and A. P. Green
Industries, Inc. (until 1998).
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* Mr. Burridge is an "interested person" of the Fund (as defined in the 1940
Act) by virtue of his affiliation with a registered broker-dealer.
** Mr. Downes is considered to be an "interested person" of the Fund (as
defined in the 1940 Act) by virtue of his affiliation with the Fund's
Adviser. Mr. Downes acquired shares of common stock of Lincoln National
Corporation, of which the Adviser is a wholly-owned subsidiary, in the
ordinary course of business during 2000, but those transactions involved
substantially less than 1% of the outstanding shares of Common Stock of
Lincoln National Corporation.
*** The shares beneficially owned by each of the Directors do not exceed 1.0%
of the outstanding shares of Common Stock of the Fund. Each Director has
sole voting and investment authority over the shares shown, except as
follows. The Fund shares listed for Mr. Deshaies include 1,530 shares held
in trust.
**** Mr. McMeekin is an "interested person" of the Fund (as defined in the 1940
Act). Until June 30, 2000, Mr. McMeekin was President of the Fund's
previous investment adviser, and was also an executive officer of Lincoln
National Corporation, of which the Fund's previous investment adviser and
the Fund's current Adviser are wholly-owned subsidiaries. Mr. McMeekin
acquired shares of Common Stock of Lincoln National Corporation in the
ordinary course of business during 2000, but those transactions involved
substantially less than 1% of the outstanding shares of the Common Stock of
Lincoln National Corporation.
6
As of February 28, 2001, the Directors and officers of the Fund as a group
beneficially owned 19,286 shares of the Fund, representing less than 1% of the
shares of Common Stock outstanding of the Fund.
The members of the Nominating, Audit and Joint Transaction Committees consist
of all of the Directors except Messrs. Burridge, Downes and McMeekin who, as
noted above, are "interested persons" of the Fund. The Nominating Committee
recommends nominees for Directors and officers for consideration by the full
Board of the Fund. The Nominating Committee does not solicit suggestions for
nominees for the Board of Directors of the Fund, but suggestions accompanied by
detailed biographical data will be considered if sent to the Secretary of the
Fund by the date set forth under "Date for Stockholder Proposals" below. The
Audit Committee makes recommendations to the full Board of the Fund with respect
to the engagement of independent auditors and reviews with the independent
auditors the plan and results of the audit engagement and matters having a
material effect upon the Fund's financial operations. Pursuant to an exemptive
order granted by the Securities and Exchange Commission, the Joint Transaction
Committee is responsible for reviewing any investments in private placement
securities by the Fund in which affiliates of the Adviser are also investing.
The Board of Directors of the Fund met ten times during the year ended December
31, 2000. In addition, the Audit and Nominating Committee of the Fund met two
times.
During the year ended December 31, 2000, all of the current Directors who
were on the Board during 2000 attended 75% or more of the aggregate meetings of
the Board of Directors and the Board committees of which such Directors were
members and were eligible to attend.
The executive officers of the Fund, other than those shown above, are: David
F. Connor (37), Secretary since October 2000; and Michael P. Bishof (38),
Treasurer since January 2000. In addition, Robert D. Schwartz (42) has been a
Senior Vice President of the Fund since 1993. Mr. Schwartz has been Portfolio
Manager and Vice President of the Fund's Adviser since March 2000, and of the
Fund's former sub-advisers since 1993. Mr. Bishof is a Senior Vice President /
Investment Accounting of Delaware Service Company, Inc., the Fund's
administrator. The executive officers of the Fund are elected annually by the
Fund's Board of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
MESSRS. BURRIDGE AND DOWNES.
COMPENSATION OF DIRECTORS AND OFFICERS
The Fund pays directors' fees to those Directors who are not affiliated with
the Adviser at the rate of $7,000 per year. The Fund pays a $500 fee for
attendance at each Board meeting and at each Audit Committee or Nominating
Committee meeting which occurs separately from a Board meeting, a $250 fee for
attendance at each Joint Transaction Committee meeting and reimburses Directors
for any reasonable travel expenses incurred to attend each meeting. The Fund
pays no other remuneration to its Directors and officers. In addition, the Fund
provides no pension or retirement benefits to its Directors and officers.
7
The following table shows compensation for the independent Directors of the
Fund for the year ended December 31, 2000:
YEAR ENDED DECEMBER 31, 2000
----------------------------------
TOTAL TOTAL
AGGREGATE COMPENSATION
COMPENSATION FROM FUND
NAME FROM THE FUND(1) COMPLEX(2)
- ---- ---------------- ------------
Thomas L. Bindley $13,000 $25,250
Richard M. Burridge $12,000 $24,250
Adela Cepeda $11,500 $23,000
Roger J. Deshaies $12,000 $24,250
Thomas N. Mathers3 $10,500 $21,500
Daniel R. Toll $12,500 $24,250
(1) Includes a director's fee of $7,000 per year, a $500 fee for attendance at
each Board meeting and at each Audit Committee or Nominating Committee
meeting which occurs separately from a Board Meeting and a $250 fee for
attendance at each Joint Transaction Committee meeting.
(2) This information represents the aggregate directors' fees paid to the
independent Directors by the Fund and one other investment company, Lincoln
National Income Fund, Inc.
(3) Mr. Mathers retired from the Fund's Board on January 19, 2001.
OPPOSITION STATEMENT OF THE DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY OPPOSES MR. GOLDSTEIN'S ATTEMPT TO ELECT
HIMSELF AND THE OTHER DISSIDENTS TO YOUR FUND'S BOARD OF DIRECTORS. WE
RECOMMEND THAT SHAREHOLDERS SUPPORT THEIR BOARD OF DIRECTORS BY VOTING
FOR MESSRS. BURRIDGE AND DOWNES.
Why do Mr. Goldstein and the other Dissident Nominees seek a position as
Fund Director?
If you are not already familiar with Mr. Goldstein, we would like to take
this opportunity to provide you with information about him and explain what he
is trying to accomplish by putting himself and his colleagues on the Board. Mr.
Goldstein runs a private investment partnership and is known throughout the
closed-end fund industry as someone who regularly targets closed-end funds whose
stock trades in the secondary market (typically, the American or New York Stock
Exchange) at a discount to net asset value. Mr. Goldstein then tries to force
those funds to convert to an open-end fund structure to enable Mr. Goldstein to
profit at the expense of their long-term shareholders. (For more detail on Mr.
Goldstein's specific activities to open-end the Fund, please refer to the
Opposition Statement of the Directors in Proposal 4 below). Although he claims
to be an "advocate for shareholder rights," management believes nothing could be
farther from the truth, and that, in fact, Mr. Goldstein's interests are not
aligned with the long-term interests of the Fund's shareholders. Rather,
management believes Mr. Goldstein wants to become a Board member primarily in
order to advance his narrow, private agenda designed for personal profit,
irrespective of whether his actions are detrimental to long-term shareholders
who have invested in the Fund for the high level of total return that the Fund
seeks to provide.
8
How do the Dissident Nominees' qualifications and experience compare with
Messrs. Burridge and Downes?
The Dissident Nominees. Mr. Goldstein wants you to believe that the current
Directors are not adequately safeguarding shareholder interests, and urges you
to turn over leadership to him and his colleagues. The Board has serious
concerns about the qualifications of Mr. Goldstein and his nominees, given their
very limited experience1 in serving on boards of directors and protecting the
interests of shareholders investing in a closed-end fund. Mr. Goldstein's own
limited experience in serving as a closed-end fund director has been achieved
mainly as a result of waging expensive and disruptive proxy contests against
incumbent boards, often combined with his signature proposal to open-end the
fund on whose Board he seeks a directorship.
In our opinion, one of the crucial duties of an effectively functioning Board
is the commitment of all Board members to work together to oversee the Fund's
complex operations. Mr. Goldstein has failed to evidence any willingness to work
with the current Board. Indeed, notwithstanding the fact that Ms. Adela Cepeda
and Mr. Roger J. Deshaies, the Fund's current Class 1 Directors, were duly
elected at a validly convened meeting of the shareholders, Mr. Goldstein has
filed a lawsuit against your Fund and the Directors requesting a court to
overturn that shareholder vote to permit him to nominate his colleagues to the
Board. In true form, in the Dissident Proxy, Mr. Goldstein accuses the Board of
"stealing the election." If Mr. Goldstein is successful in so nullifying the
valid vote of the Fund's shareholders, he intends to add Mr. Dakos and Mr.
Bentz, in addition to himself and Mr. Bradshaw, as nominees. The current Board
of Directors is very troubled by Mr. Goldstein's failure to respect the vote
registered by his fellow shareholders, as well as the obvious animosity he has
displayed towards the Board, evidenced in both his lawsuit and his Dissident
Proxy.
In management's opinion, board membership carries with it certain fiduciary
responsibilities including the legal and ethical duty to protect the interests
of all shareholders, regardless of any opportunities for personal profit that
may arise for a select few. Given Mr. Goldstein's proposal to open-end the Fund
in conjunction with his attempt to become a Fund Director, the Board believes
that Mr. Goldstein seeks Board membership purely for personal financial motives,
and that he would place his own interests above the best interests of all
shareholders.
Messrs. Burridge and Downes. In contrast to the Dissident Nominees, Mr.
Richard M. Burridge and Mr. David K. Downes have extensive investment management
expertise and, together, have over eighteen years of active experience serving
as directors of mutual funds. Mr. Downes has over 25 years of experience in the
mutual fund and financial services industries, and is presently serving as the
President, Chief Executive Officer, Chief Financial Officer and Trustee or
Director of each of the investment management companies (including other
closed-end and open-end mutual funds) in the Delaware Investments family of
funds. In addition to his significant industry experience, including a position
as chairman and/or consultant to investment management companies, Mr. Burridge
has served as a Fund Director since the Fund's inception, a period in excess of
14 years. As a current Board member, Mr. Burridge has participated in previous
Board action that has been responsive to many of the issues about which Mr.
Goldstein expresses concern.
Significantly, Mr. Burridge has served as a Fund Director for longer than the
total experience on all boards of all of the Dissident Nominees combined.
Moreover, Messrs. Burridge's and Downes' years of experience have afforded them
the required leadership skills that best serve the needs of all shareholders,
not just a few seeking short-term profits from short-sighted strategies. We
believe that such experience and strong leadership are invaluable commodities
(1) According to Mr. Goldstein's Dissident Proxy: Mr. Dakos has served as a
director of a closed-end fund for less than six months; Mr. Bentz has served
as a director of closed-end funds for less than three years; and neither Mr.
Bradshaw nor Mr. Goldstein himself has more than four years of experience
serving on a board of directors of closed-end funds.
9
essential to the effective operation of the Board, especially given the
complexities inherent in a rapidly changing investment company environment. We
believe that the actions the Board has taken in the past demonstrates their
commitment to serving the best interests of all the Fund's shareholders. The
actions taken by the Board have contributed to a significant reduc tion in the
discount. (For a detailed discussion of these actions, please refer to the
Opposition Statement of the Directors in Proposal 4 below.) We believe that a
vote in favor of the Dissident Nominees would NOT be in the best interests of
all shareholders, and would instead be a vote to disregard the considerable
success achieved by the present Board of Directors.
RATIFICATION OF INDEPENDENT AUDITORS
(PROPOSAL NO. 2)
The Board of Directors of the Fund by the unanimous vote of the Directors
(including those Directors who are not "interested persons") have selected
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") as auditors for the Fund
for the fiscal year ending December 31, 2001, and the stockholders are asked to
ratify this selection. PricewaterhouseCoopers or its predecessors have served as
independent auditors of the Fund since 1993.
A representative of PricewaterhouseCoopers will attend the Annual Meeting,
will be given an opportunity to make a statement, and will be available to
answer appropriate questions.
OPPOSITION STATEMENT OF THE DIRECTORS
In his Dissident Proxy, Mr. Goldstein recommends that shareholders vote to
abstain on this Proposal.
What is the effect of an abstention vote on this Proposal, as recommended by
the Dissident Proxy?
You may wonder, as does the Board, why Mr. Goldstein would even consider such
a suggestion, unless his goal is to needlessly disrupt the operation of the Fund
to serve his own private, self-serving agenda -- an agenda which we believe is
both disrespectful and disdainful of the interests of the Fund's other
shareholders. Indeed, Mr. Goldstein offers no rationale for his recommendation,
nor does he present any alternative that might benefit shareholders. If Mr.
Goldstein had any legitimate concerns about the quality of the services provided
to the Fund by PricewaterhouseCoopers since 1993, why has he not voiced them?
Instead, with a total absence of explanation or rationale, Mr. Goldstein
requests that shareholders not ratify the selection of PricewaterhouseCoopers --
one of the nation's most trusted and well respected accounting firms -- as the
Fund's auditors.
Required Vote. The affirmative vote of a majority of votes cast at the
meeting is required for ratification.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS
THAT YOU VOTE "FOR" THIS PROPOSAL NO. 2
AUDIT COMMITTEE REPORT
As required by its charter, the Fund's Audit Committee has reviewed and
discussed with Fund management and representatives from PricewaterhouseCoopers
LLP, the Fund's independent auditors, the audited financial statements for the
Fund's fiscal year ended December 31, 2000. The Audit Committee has discussed
with the independent auditors the matters required to be discussed by Statement
of Auditing Standards 61. The Audit Committee also received the written
disclosures and the letter from its independent auditors required by
10
Independence Standards Board No. 1, and discussed with a representative of
PricewaterhouseCoopers LLP the independent auditor's independence. Based on the
foregoing discussions with management and the Fund's independent auditors, the
Audit Committee unanimously recommended to the Fund's Board of Directors that
the aforementioned audited financial statements be included in the Fund's annual
report to shareholders for the fiscal year ended December 31, 2000.
As noted above, the members of the Fund's Audit Committee are: Thomas L.
Bindley, Adela Cepeda, Roger J. Deshaies and Daniel R. Toll. All members of the
Audit Committee meet the standard of independence set forth in the listing
standards of the New York Stock Exchange. The Fund's Board of Directors has
adopted a formal charter for the Audit Committee setting forth its
responsibilities. A copy of the Audit Committee's charter is included in
Attachment A to this proxy statement.
Audit Fees. The aggregate fees paid to PricewaterhouseCoopers in connection
with the annual audit of the Fund's financial statements for the fiscal year
ended December 31, 2000 were $32,400.
Financial information systems design and implementation fees. There were no
financial information systems design and implementation services rendered by
PricewaterhouseCoopers to the Fund, its Adviser, and entities controlling,
controlled by or under common control with the Adviser for the fiscal year ended
December 31, 2000.
THE APPROVAL OR REJECTION OF A SHAREHOLDER PROPOSAL TO REQUEST THAT THE
FUND BE CONVERTED TO AN OPEN-END FUND
(PROPOSAL NO. 3)
OPPOSITION STATEMENT OF THE DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY OPPOSES MR. GOLDSTEIN'S SELF-SERVING
ATTEMPT TO OPEN-END YOUR FUND. THE DIRECTORS STRONGLY BELIEVE THIS WILL HAVE
SIGNIFICANT ADVERSE CONSEQUENCES TO THE SHAREHOLDERS OF THE FUND. WE
RECOMMEND THAT SHAREHOLDERS VOTE "AGAINST"
PROPOSAL NO. 3.
In his preliminary Dissident Proxy, Mr. Goldstein proposes that shareholders
consider converting the Fund from a closed-end fund to an open-end fund. He
offers only the following two sentences in support of this extremely important
proposal:
"This proposal, while not binding on the Fund, enables shareholders to vote
on whether the Fund should be converted to an open-end fund. Upon conversion,
there would be no discount and shareholders could redeem their shares at NAV at
any time."
The Board is deeply concerned by Mr. Goldstein's complete silence as to the
potential negative effects of his proposal to your investment in the Fund. The
Board believes that his brief and vague supporting statements dramatically, and
significantly, misrepresent the consequences to the Fund of open-ending. The
Board believes Mr. Goldstein's failure to include in his preliminary Dissident
Proxy a meaningful discussion supporting this Proposal is not only materially
misleading to shareholders, but demonstrates that his desire to open-end the
Fund is motivated by personal gain, at the expense of the Fund's long-term
shareholders. We urge you to carefully consider the other factors discussed in
detail below.
11
Will approval of this Proposal automatically cause the Fund to become an
open-end fund?
No, this Proposal No. 3, if approved, will not have the effect of
automatically converting the Fund from a closed-end fund to an open-end fund. In
his Dissident Proxy, Mr. Goldstein fails to explain that, under Maryland law,
shareholders may only request that the Board consider whether the Fund should be
converted to an open-end fund. If, after further evaluation, the Board were to
determine that such a conversion would be in the best interests of the Fund and
its shareholders, the Board would then conduct another proxy solicitation to
recommend that shareholders vote to approve an amendment to the Fund's Articles
of Incorporation, as well as the other various measures that would need to be
implemented if the Fund were to operate as an open-end investment company. For
example, the Directors also would need to consider the adoption of a
distribution agreement to provide for the continuous offering of Fund shares, as
well as other distribution related actions. In addition, if the Directors
believe that immediately following a conversion to open-end status there would
likely be significant redemptions of shares that would disrupt long-term
portfolio management of the Fund and harm the interests of the remaining
shareholders, the Directors may determine to impose a temporary redemption fee
as a protective measure for the remaining shareholders. However, even after
consideration of all relevant circumstances, the Board may continue to maintain
its current view that the Fund's best interests are served by the Fund
continuing as a closed-end fund, and may therefore determine to take no further
action to convert the Fund to an open-end structure. At this time, for the
reasons set forth below in this Proposal No. 3, the Directors strongly believe
that the continued operation of the Fund as a closed-end fund is in the best
long-term interests of the Fund and its shareholders.
Why is the Board of Directors unanimously opposing this Proposal?
The Board of Directors unanimously recommends that shareholders vote AGAINST
this Proposal because the Directors believe strongly that the Fund's investment
objective can best be achieved in a closed-end structure. The Adviser's
investment philosophy caused management to originally organize the Fund as a
closed-end fund. The Fund's Board and management continue to believe that the
closed-end structure best suits the Fund for the following reasons, each of
which is discussed in more detail below: (i) changing the Fund's structure would
require a major change in the Fund's investment strategy that would not be in
the best interests of either the Fund or its shareholders; (ii) the Fund's
expenses are likely to increase if the Fund is converted to an open-end fund;
(iii) potentially adverse tax consequences for the Fund and its shareholders
likely would result from conversion to an open-end fund; (iv) Fund shareholders
would lose their current ability to reinvest dividends and distributions at
favorable rates under certain circumstances; and (v) the Board has already taken
appropriate action to address the discounting of Fund shares.
Mr. Goldstein's Proposal offers you nothing else to enhance shareholder value
other than his standard approach, which is to eliminate the discount to NAV by
converting to an open-end fund. Mr. Goldstein omits any meaningful discussion of
how open-ending the Fund would constrain the Fund's investment process, not to
mention the considerable costs to the Fund and its shareholders.
What are the differences between a closed-end fund and an open-end fund?
Closed-end funds operate with a relatively fixed capitalization, keeping
assets fully invested in pursuit of their investment goals. By their very
nature, closed-end funds are not obligated to redeem their shares and,
typically, do not engage in the continuous sale of new shares. The shares of
closed-end funds ordinarily are traded on a securities exchange. In fact, the
Fund's shares have been traded on the New York Stock Exchange ("NYSE") since the
Fund's inception.
12
In contrast, open-end funds issue redeemable shares. The holders of the
redeemable shares have the right to surrender their shares to the fund at any
time and obtain in return the NAV of the shares (less any redemption fee charged
by the fund or any contingent deferred sales charge imposed by the fund's
distributor). Since an open-end fund generally is required to redeem its shares
at any time, it must keep on hand cash or securities that can be readily sold to
raise cash to meet such redemptions. Because cash outflows from redemptions
eventually could drain the investment capital from a fund, most open-end funds
seek to offset this by raising new capital from the sale of new shares to
investors on a continuous basis. However, given the uncertainties arising out of
the continuous offering of shares, the size of the asset base of an open-end
fund is likely to be much more volatile than is normally the case for closed-end
funds.
How would conversion to an open-end fund affect the Fund and its
shareholders?
The effects on your Fund's portfolio. The Fund's investment objective is a
high level of total return on its assets through a combination of capital
appreciation and current income. The Fund's Adviser, the Fund's management and
the Directors strongly believe that the best way for the Fund to pursue its
objective is to be fully invested in convertible securities, holding those
securities for a sufficiently long period of time to allow them to appreciate in
value. The Fund's closed-end structure provides the manager with increased
investment flexibility to acquire less liquid securities, which can offer
potentially greater returns, and allows the Fund to maintain a longer investment
horizon. In fact, the closed-end structure is especially appropriate for the
Fund because it is so heavily invested in convertible securities, many of which
are issued by small and mid-cap companies and which are less liquid than other
types of investments. Management and the Board believe that the closed-end fund
structure is the best means to pursue this long-term investment philosophy.
Based on the experiences of other closed-end funds that have converted to
open-end funds, converting the Fund to an open-end format likely would cause a
substantial decline in the Fund's asset size because of redemptions. A loss of
economies of scale may result, with a corresponding increase in the Fund's
expense ratio, because fixed expenses would be spread across a smaller asset
base. Substantial redemptions also might require your Fund to sell portfolio
securities at inopportune times and incur increased transaction costs in order
to raise the cash necessary to accommodate such redemptions. Going forward, the
cash reserves required to meet anticipated redemptions in an open-end format
typically will be invested in lower-yielding assets, thus negatively impacting
the Fund's performance and the return on your investment. The need to maintain
such reserves also could reduce the Fund's investment flexibility and prevent
the Fund from taking advantage of attractive investment opportunities when they
occur, thus adversely affecting long-term performance. Moreover, conversion to
an open-end format would require the Fund to focus more on short-term
considerations, which would disrupt the Fund's investment program and would not,
in management's judgment, be in the best interests of either the Fund or all of
its shareholders.
The effects on the Fund's shareholders. Mr. Goldstein is known throughout the
closed-end fund industry as a predatory shareholder who targets closed-end funds
trading at discounts and tries to force them to open-end. It appears that his
primary objective is to reap a quick short-term profit when a fund's discount
narrows. The goal of Mr. Goldstein's arbitrage strategy is very different from
the goals of long-term shareholders who seek the high returns the Fund endeavors
to provide.
Closed-end mutual funds often trade at a discount to net asset value. No one
has been able to explain why this occurs or how it can be prevented on a
long-term basis. The facts are that over a long-term investment horizon, the
fluctuations in the Fund's discount to NAV have had very little impact on the
Fund's total return performance for shareholders. For the ten years ended
February 28, 2001, the Fund's market performance of a 11.98% average annual
13
return is almost identical to its NAV performance of 12.15% average annual
return (assuming rein vestment of dividends and distributions). What does matter
is that the closed-end structure of the Fund allows its investment manager to
follow an investment strategy using convertible securities of small and mid-cap
issuers which produces competitive long-term returns for our shareholders.
As noted above, the Fund was originally organized as a closed-end fund
because of the long-term nature of its investment program as described in the
Fund's prospectus dated June 19, 1986. Many shareholders invested in Fund shares
in reliance upon the terms of the prospectus and the investment program it
details. The fact that closed-end funds often trade at a discount to NAV is well
understood throughout the industry and, in fact, the Fund's prospectus
specifically warns shareholders that the Fund cannot predict whether its shares
will trade at, below, or above NAV. Following Mr. Goldstein's logic would lead
one to conclude that the vast majority of closed-end mutual funds should be
open-ended or liquidated, solely because they trade at a discount to NAV,
irrespective of their long-term total return performance for their shareholders.
Furthermore, since this marketplace fact of life is so well known, and
apparently of such concern to Mr. Goldstein, one can reasonably question why an
investment professional such as he would invest in a fund with a discount,
unless his real motive is to reap a short-term profit at the expense of those
long-term shareholders who acquired Fund shares because of the special long-term
investment opportunities presented by the Fund's investment program, which is
optimized by the Fund's closed-end structure.
Although it is true that open-ending the Fund will result in the elimination
of the Fund's discount, we believe that even though the discount would
disappear, the value of the investment to shareholders wishing to remain
invested in the Fund would be significantly impaired. Those shareholders that
remain in the Fund after Mr. Goldstein's desired conversion potentially would
suffer from both lower returns and higher expense ratios.
Increased Operating Expenses. The Directors believe that preserving the
closed-end format of the Fund is likely to result in a lower operating expense
ratio than would be the case with an open-end fund. You should be aware that
open-end funds have a number of additional expenses inherent in the management
of their operations that closed-end funds do not incur. If the Fund were to
convert to an open-end fund, your Fund, as noted above, would likely experience
substantial redemptions. In order to protect against the possibility that it
might have a higher expense ratio as a much smaller fund, the Fund would be
required to engage in a continuous public offering intended, at a minimum, to
offset redemptions. A continuous public offering of Fund shares would require
the Fund to maintain current registrations under federal and state securities
laws and regulations, which would involve certain costs. Many open-end funds
charge either front-end or back-end sales loads on their shares to compensate
dealers for their sales efforts in connection with increasing the shareholder
and asset base of the fund to offset redemptions. These charges would increase
an investor's costs of either buying, or redeeming, fund shares. In addition,
funds that offer shares continuously typically charge distribution fees, called
Rule 12b-1 fees, to help defray the associated distribution costs that are
incurred in the marketing and selling of fund shares. Moreover, the Fund would
incur extra printing costs and the many other expenses associated with
maintaining a current prospectus. Finally, significant additional legal and
accounting expenses also would be incurred. As an open-end fund, the Fund likely
would incur these various charges, and if the Fund were unable to raise
significant new assets, and there were more redemptions than sales, the Fund's
expense ratio likely would increase from its current level.
Tax Ramifications. If your Fund converts to an open-end structure, it may be
required to sell appreciated securities in order to meet redemption requests. As
a result, short-term and long-term capital gains might be generated, which would
increase the amount of taxable distributions to shareholders. Net realized
capital gains would be allocated to a smaller base of remaining shareholders,
and those remaining shareholders would recognize and pay taxes on that greater
amount of capital gain than would otherwise be the case. On the other hand, the
14
Fund might be required to sell securities at a loss, which might otherwise have
been avoided had the Fund been able to retain those securities rather than being
forced to sell in order to meet requests for redemptions. Losses realized by the
Fund resulting from the forced sales of depreciated securities could potentially
reduce amounts distributable to shareholders. Accordingly, those shareholders
who do not redeem shares will be impacted to a greater extent than those who
choose to remain invested. In either case, the Fund may be required to dispose
of a significant amount of its assets to satisfy potentially large redemption
requests after the proposed conversion, and might find it more difficult to
satisfy certain diversification requirements applicable for tax purposes.
NYSE Listing. Conversion to an open-end fund would result in the loss of the
Fund's current listing on the NYSE which could be disadvantageous to the Fund,
since some investors, particularly foreign and certain institutional investors
subject to restrictions with respect to their portfolios, are believed to
consider listing on the NYSE an important factor in their decision to invest in
the Fund. Accordingly, the Fund could experience redemptions from these
shareholders, decreasing Fund assets and increasing potential cash flow
concerns. Although delisting would save the Fund the expense of annual NYSE
fees, as an open-end fund, as mentioned above, the Fund would be required to pay
state and federal securities registration fees, which could offset, or even
exceed, that savings.
Reinvestment of Dividends and Distributions. Shareholders of the Fund
currently may participate in the Fund's Automatic Dividend Reinvestment Plan
under which cash distributions may be reinvested through the purchase of
additional shares at market prices (which are currently reflecting a discount
from NAV). If the Fund remains a closed-end fund, shareholders would continue to
be able to take advantage of this plan and reinvest dividends in this manner. In
contrast, as an open-end fund, all dividends and distributions would be
reinvested at NAV.
What action has the Board taken to address some of the concerns regarding
discounts?
Although the Board believes that your Fund benefits from its structure as a
closed-end fund, the Directors understand that many shareholders are concerned
about the trading of Fund shares at a discount to NAV. In response to these
concerns, the Board has taken action to address the Fund's discount to NAV
through the share repurchase program discussed below. Furthermore, the Directors
regularly review whether the Fund is managed and operated in a manner consistent
with the best interests of the Fund and its shareholders. This review includes
periodic consideration of measures to reduce the discount such as: the
initiation of tender offers, institution of a managed distribution policy,
conversion to an interval fund (whereby the Fund would offer periodic
redemptions at NAV), merger with another closed or open-end fund, liquidation,
and even possible conversion to an open-end fund. The Board, to date, has not
adopted any of these alternative measures because it believes that such
measures, unlike the share repurchase program, would not be in the best
interests of shareholders.
Share Repurchase Program. The Board has adopted an open-market share
repurchase program to help reduce the Fund's discount, which has resulted in a
measurable benefit to shareholders. Under the share repurchase program the Fund
is authorized, from time to time, to repurchase shares of the Fund in
open-market transactions, at the discretion of management. Not only has the
repurchase program provided liquidity to those who wish to sell their shares, it
has also increased the NAV of the portfolio for those who have wished to remain.
From March 22, 2000 through March 16, 2001 the Fund repurchased 279,750 shares
at a cost of $4,721,149. This represents approximately 4.39% of the shares
originally issued and has increased the portfolio's NAV by $0.158 per share. The
share repurchase program has contributed to a significant reduction in the
Fund's discount. For the year ended February 29, 2000, the Fund traded at an
average discount of -20.42%. From the commencement of the share repurchase
program on March 22, 2000 through March 31, 2001, the Fund has traded at an
average discount of -17.51%. On a year-to-date basis through March 31, 2001, the
15
Fund's average discount narrowed to -11.97%, demonstrating the effectiveness of
the share repurchase program implemented by the Board. At its February 2001
meeting, the Board reviewed the share repurchase program, its impact on the
Fund's discount to NAV, and the resulting benefits to shareholders, and
determined to expand its share repurchase program.
Competitive Historical Fund Performance.The Board of Directors has
successfully worked with the Fund's Adviser to help achieve competitive results
on your behalf. For the 10 year period ended on February 28, 2001, the average
annual total return for the Fund at NAV was 12.15% (assumes reinvestment of
dividends and distributions). Part of the reason that the Fund has been able to
provide these returns is that, as a closed-end fund, it invests in relatively
less liquid securities with high growth potential, and also stays more fully
invested while maintaining generally smaller cash positions. The Fund would lose
its ability to maintain this investment program if it were required to make
provisions for redemptions as a result of conversion to an open-end fund.
The Directors recognize that the Fund's performance will not be determined
entirely by the closed-end structure of the Fund, and that other key factors
include the quality of Fund management and the timeliness of the Fund's
investment strategy. The Directors do, however, believe that the closed-end
structure is important to enable the Fund to pursue investment strategies that
best position the Fund to achieve its investment objective. The Directors
believe that the costs and disadvantages of open-ending, including the
fundamental changes to the Fund's portfolio management and operation, and the
increased expenses that would necessarily be borne by the Fund and its
shareholders, cannot be justified.
While the Directors continue to seek appropriate methods to reduce the
discount and to maximize investor returns, they remain committed to the
closed-end structure that has helped the Fund achieve its competitive long-term
results. As stated previously, the Board has determined the Fund's current
closed-end structure allows for greater investment flexibility while maintaining
a longer investment horizon.
The Board strongly believes that there are significant adverse consequences
attendant to the Fund's conversion to an open-end fund, and, thus, emphatically
urges shareholders to vote against Mr. Goldstein's proposal.
Required Vote. The affirmative vote of a majority of votes cast at the Annual
Meeting would be required to approve this Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "AGAINST"
PROPOSAL NO. 3.
THE APPROVAL OR REJECTION OF A SHAREHOLDER PROPOSAL TO AMEND THE FUND'S
BY-LAWS TO REQUIRE THE FUND TO SUBMIT THE INVESTMENT ADVISORY AGREEMENT TO
SHAREHOLDERS FOR APPROVAL EACH YEAR (PROPOSAL NO. 4)
Mr. Goldstein has requested that the shareholders of the Fund vote on a
proposal to amend the by-laws to require the Fund to submit the Fund's
investment advisory agreement to shareholders for approval each year. The Fund
will provide Mr. Goldstein's address and information on the number of shares
owned by Mr. Goldstein to shareholders promptly upon receiving an oral or
written request. The Fund is not responsible for the contents of Mr. Goldstein's
proposal or supporting statement. Mr. Goldstein's proposed shareholder
resolution and supporting statement are set forth below:
RESOLVED: The following by-law shall be adopted: "The investment advisory
agreement shall be submitted to shareholders for a vote in 2002 and every year
thereafter. If the shareholders do not approve continuance of the advisory
contract, the board of directors may subsequently approve its continuance if not
inconsistent with state or federal law. The provisions of this by-law may only
be amended, added to, rescinded or repealed by the shareholders."
16
Supporting Statement of Phillip Goldstein
"Section 15a-2 of The Investment Company Act of 1940 requires the investment
advisory agreement for every mutual fund to be `approved at least annually by
the board of directors or by vote of a majority of the outstanding voting
securities.' Thus, under the law, the Board does not have an exclusive right to
approve the advisory agreement. Yet, our Board of Directors has acted as if it
alone had the power to approve the renewal of the investment advisory agreement
because it has never once permitted the shareholders to vote on it.
Shareholders pay the advisor around $1 million a year to manage the Fund. So,
it is only fair that shareholders like you be able to vote "yea or nay" on the
advisory contract each year. The law specifically permits shareholders to vote
on the re-approval of the advisory contract for a very good reason. It makes the
investment advisor accountable to the people who pay the advisor's fees and not
just to a friendly board of directors. The shareholders lose this critical
protection if the Board continually denies them an opportunity to vote on the
advisory contract.
This proposal is designed to allow you to decide for yourself whether or not
you want to renew the Fund's lucrative advisory agreement with the advisor.
Unless you don't think that you are intelligent enough to decide if you want the
advisor to continue to manage the Fund and therefore want the board of directors
to make this decision for you, you should vote FOR this proposal."
OPPOSITION STATEMENT OF THE DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY OPPOSES MR. GOLDSTEIN'S ATTEMPT TO
AMEND YOUR FUND'S BY-LAWS. THE DIRECTORS STRONGLY BELIEVE THIS WOULD IMPOSE
SIGNIFICANT COSTS ON BOTH THE FUND AND ITS SHAREHOLDERS. WE RECOMMEND THAT
SHAREHOLDERS VOTE "AGAINST" PROPOSAL NO. 4.
Why is the Board of Directors unanimously opposing this Proposal?
The Board of Directors unanimously believes that Mr. Goldstein's Proposal is
contrary to the best interests of shareholders. The federal securities laws do
not require that an advisory agreement be submitted to shareholders annually,
thereby acknowledging that shareholders often are best served by relying on the
expertise and business judgement of the Directors who are charged with the
statutory obligation to represent all shareholders in discharging their
fiduciary duties -- not just a select few with their own narrow, personal
agendas. Additionally, such a requirement would unreasonably and unnecessarily
impose significant burdens on the Fund and its shareholders, something Mr.
Goldstein conveniently fails to address.
The Board of Directors is primarily charged with the responsibility to assess
the advisability to continue the investment advisory agreement. It has long been
one of the most important aspects of the Board of Directors' fiduciary duty to
the Fund and its shareholders to review and approve the advisory agreement with
the Fund's Adviser. Under applicable provisions of the federal securities laws,
the Board of Directors is obligated every year to obtain and evaluate from the
Fund's Adviser certain information which may be reasonably necessary to evaluate
the terms of the advisory agreement. This comprehensive review must be conducted
at an in-person meeting expressly called for the purpose of the review.
In the absence of a proposed increase in management fees or other material
amendment to the investment advisory agreement, the federal securities laws do
not require submission of the agreement to shareholders. This statutory
framework reflects Congress' determination, more than fifty years ago, that the
Board of Directors of an investment company is in the best position to make the
assessment on behalf of all shareholders as part of its obligation to a fund and
to protect the interests of the fund's shareholders. When considering the
17
approval or renewal of an investment advisory agreement, a tremendous amount of
technical infor mation must be reviewed and analyzed. This information typically
includes details concerning the structure and personnel of the investment
adviser, expense information as compared to other similarly situated funds,
performance information, and financial statistics. Throughout the year, leading
up to the annual review, the Fund's Board meets on a quarterly basis. Much of
the information supplied to the Board in connection with the renewal of the
investment advisory agreement is directly related to information reviewed by the
Board throughout the year. The Board regularly reviews performance, monitors
expenses and meets with management concerning various corporate and personnel
issues. In addition, the Board keeps informed about industry trends and issues
that affect the Fund and its management. The Fund's Directors have the requisite
sophistication and industry experience to analyze the information with which
they have been supplied in order to determine whether the Adviser is providing
the nature and quality of services that are in the best interests of the Fund
and its shareholders.
In recognition of the statutory framework Congress enacted, the entire fund
industry relies on the Board of Directors to review the investment advisory
agreement. As a consequence, the submission of the advisory agreement for yearly
approval by the shareholders, as proposed by Mr. Goldstein, would be
inconsistent with common industry practice. In fact, the Board is not aware of a
single case in which an investment advisory agreement is presented to
shareholders on a yearly basis. This practice is not the result of any
calculated determination to disenfranchise shareholders, but rather reflects the
recognition by the fund industry that directors are in the best position to make
an informed determination with respect to the advisory agreement, and also the
recognition that submitting investment advisory agreements for yearly
shareholder approval would needlessly impose significant costs on a fund and its
shareholders.
Mr. Goldstein wants you to believe that the Board of Directors, in approving
the continuation of the advisory agreement without separately soliciting
shareholder approval, has acted improperly. Nothing could be further from the
truth. The Board has ably and responsibly discharged its fiduciary duty to act
in accordance with the best interests of the Fund and all of its shareholders in
a manner that is wholly consonant with industry practice. This duty derives from
state law as well as the federal securities laws, and were the Directors to act
improperly, they would be subject to potential liability.
Although certain institutional and sophisticated investors are in a position
to meaningfully evaluate the wisdom of continuing the services of the Fund's
investment adviser, the Board is charged with representing impartially the
interests of all shareholders, not just a select few who may have narrow,
self-interested motives when making an assessment. For that reason, the federal
securities laws have been structured to allow for a Board to approve an advisory
agreement without separate shareholder approval. The Board strongly believes
that it would be contrary to the best interests of the Fund's shareholders to
disrupt the statutory balance of interests that Congress sought to draw by
lodging the primary responsibility for evaluation and approval of the investment
advisory agreement with the Board.
The practical costs of this Proposal to the Fund and its shareholders. There
are a number of practical considerations attendant to Mr. Goldstein's proposal,
which he conveniently fails to address. If the advisory agreement is presented
for shareholder approval in the Fund's proxy statement each year, substantial
information must be compiled and included in order for the shareholders to
thoroughly review the nature and quality of the services being provided by the
Adviser. If the Fund's proxy materials include all of the requisite information,
the attendant legal, accounting, printing, mailing and solicitation costs will
increase significantly. These costs are paid from Fund assets and are ultimately
borne by you, the shareholders.
In addition, Mr. Goldstein fails to point out that if his Proposal No. 3 to
open-end the Fund is approved by shareholders and implemented, and shareholders
also approve this Proposal No. 4, the new by-law would require the Fund to
conduct a shareholder meeting on a yearly basis when it otherwise would not be
18
required to do so. Under Maryland law, as well as most other state corporate or
business trust statutes under which open-end mutual funds are established, the
requirement for yearly shareholder meetings has been eliminated, except in very
limited, non-recurring circumstances, such as where there is an insufficient
number of shareholder-elected directors. If the Fund were to become an open-end
mutual fund, and shareholders were required to consider the renewal of the
investment advisory agreement on a yearly basis, the Fund would have to conduct
a shareholder meeting every year and incur the expenses associated with that
action. The Fund's assets would, as a result, be depleted even further.
Required Vote. The affirmative vote of a majority of votes cast at the Annual
Meeting would be required to approve this Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "AGAINST"
PROPOSAL NO. 4.
THE APPROVAL OR REJECTION OF A SHAREHOLDER PROPOSAL TO AMEND THE BY-LAWS
TO REQUIRE APPROVAL BY THE SHAREHOLDERS OF ANY LAWSUIT AGAINST A SHAREHOLDER
(PROPOSAL NO. 5)
In his Dissident Proxy, Mr. Goldstein is requesting that shareholders approve
a by-law regarding lawsuits instituted by the Fund's Board against a
shareholder. Following is his proposal.
RESOLVED: The following by-law shall be adopted: "No lawsuit against any
stockholder of the Company shall be pursued unless ratified by the stockholders
no later than (i) 120 days after such lawsuit is filed or (ii) 120 days after
adoption of this bylaw. This bylaw may only be altered, amended or repealed by
the stockholders."
OPPOSITION STATEMENT OF THE DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY OPPOSES MR. GOLDSTEIN'S ATTEMPT TO
AMEND YOUR FUND'S BY-LAWS. THE DIRECTORS STRONGLY BELIEVE THIS WOULD IMPOSE
SIGNIFICANT COSTS ON BOTH THE FUND AND ITS SHAREHOLDERS. WE RECOMMEND THAT
SHAREHOLDERS VOTE "AGAINST" PROPOSAL NO. 5.
Why is the Board of Directors unanimously opposing this Proposal?
The Board of Directors unanimously recommends that shareholders vote AGAINST
this Proposal because the Board believes that it is in response to, and in
retaliation for, a legitimate claim made by the Board of Directors against Mr.
Goldstein in litigation initiated by Mr. Goldstein. In the lawsuit, the Board
has asserted that Mr. Goldstein has engaged in practices which violate certain
federal securities laws.
Mr. Goldstein's Proposal is blatantly self-serving, as he clearly has the
most to gain from the approval of this by-law. If approved, this Proposal would
permit Mr. Goldstein, using your Fund's assets, to attempt to force the Board to
drop its lawsuit against him, regardless of the merits of the Board's claim. If
this Proposal is approved, shareholders would be asked to ratify the legal
action brought by the Board on behalf of the Fund against Mr. Goldstein.
Obviously, Mr. Goldstein would prefer to spend valuable Fund resources in a
petty and self-serving attempt to persuade shareholders to relieve him from
accepting responsibility for his actions, rather than face the legitimate legal
concerns of the Board in a court of law.
The responsibility of the Board is to protect the interests of the Fund and
ALL of its shareholders. Among the most fundamental duties that the Board has in
overseeing the management and operations of the Fund is to assess the merits of
19
any claim that the Fund may have against any party, consistent with the Board's
fiduciary duties. Given the delicate nature of those particular claims, such
decisions are, and should be, primarily left to the discretion of the Board of
Directors. Virtually every state corporate law, including the Maryland General
Corporation Law, recognizes this duty. Since the Board also has immediate and
full access to all pertinent information relating to the Fund's business,
including proprietary and material, non-public information, the Board is in the
best position to make the determination about whether a suit is appropriate and
in the best interests of all of the shareholders. The Board does not serve at
the pleasure of only a select few shareholders, and is not accountable to the
desires of individual shareholders like Mr. Goldstein. Rather, the Board is
accountable and committed to safeguarding the interests of all shareholders.
This Proposal potentially provides shareholders with large shareholdings
total immunity from any liability to the Fund, regardless of their actions. One
of the most significant results of approval of this Proposal is that all
shareholders, even those against whom legal action had been brought, would be
able to vote on whether the Fund should be forced to cease pursuing any pending
legal action. Therefore, depending upon the circumstances, a shareholder with
large shareholdings could essentially become immune from legal action by the
Fund. If the shareholder acted to the serious detriment of the Fund, the Board
ultimately might be unable to bring a suit on behalf of the Fund, since any suit
would have to be approved by shareholders, and a powerful shareholder could
potentially have the requisite votes to reject any legal action brought against
him, regardless of the merits of the case. Such a shareholder could hold both
the Fund, and its shareholders, hostage to his whims. The Fund's Board believes
that this outcome is wholly outrageous and likely violates state law.
There are potentially significant costs to the Fund associated with
compliance with this Proposal. As a practical matter, Mr. Goldstein's proposal
represents potentially significant costs to the Fund. If the Board is required
to submit a proposal to shareholders seeking ratification of any lawsuit brought
against a shareholder, it would be required to be done through the mechanism of
a proxy statement. The attendant legal, printing, mailing, and solicitation
costs that would be incurred by the Fund, and paid out of Fund assets, could be
substantial. It is not at all certain that the requisite time period within
which the shareholders would be required to ratify the lawsuit, as described in
the proposed by-law, would coincide with the Fund's annual proxy statement.
Thus, the Fund would be required to seek ratification at a special meeting of
shareholders called specifically for this purpose. Further, in the event that
shareholders did ratify the judgment of the Board, no purpose would have been
served by either delaying the legal action involved, or depleting Fund assets in
seeking the ratification.
Significantly, Mr. Goldstein fails to point out that if his Proposal to
require shareholders to ratify any lawsuit against a shareholder is successful,
the new by-law would require the Fund to conduct a shareholder meeting when it
otherwise would not be required to do so. As has been discussed in Proposal No.
4, there is no requirement that an open-end fund hold yearly shareholder
meetings. If the Fund were to become an open-end mutual fund, as recommended by
Mr. Goldstein in Proposal No. 3, and shareholders were required to ratify any
lawsuit brought on behalf of the Fund against a shareholder, the Fund may be
required to hold shareholder meetings on a more frequent basis than it otherwise
would, which would yet again unnecessarily deplete the Fund's assets.
Required Vote. The affirmative vote of a majority of votes cast at the Annual
Meeting would be required to approve this Proposal.
20
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "AGAINST"
PROPOSAL NO. 5.
SOLICITATION OF PROXIES
This proxy solicitation is being made by the Board of Directors of the Fund
for use at the Annual Meeting. The cost of this proxy solicitation will be borne
by the Fund. In addition to solicitation by mail, solicitations also may be made
by advertisement, telephone, telegram, facsimile transmission or other
electronic media, or personal contacts. In addition to solicitation services to
be provided by D.F. King & Co., Inc. ("D.F. King"), as described below, proxies
may be solicited by the Fund and its Directors, officers and employees (who will
receive no compensation therefor in addition to their regular salaries) and/or
regular employees of the Fund's Adviser, administrator, stock transfer agent, or
any of their affiliates. Arrangements will also be made with brokerage houses
and other custodians, nominees and fiduciaries to forward solicitation materials
to the beneficial owners of the Common Stock of the Fund, and such persons will
be reimbursed for their expenses. Although no precise estimate can be made at
the present time, it is currently estimated that the aggregate amount to be
spent in connection with the solicitation of proxies by the Fund (excluding the
salaries and fees of officers and employees) will be approximately $190,000 and
that the total cash expenditure to date relating to the solicitation has been
under $40,000. These estimates include fees for attorneys, accountants,
advisers, proxy solicitors, advertising, printing, distribution and other costs
incidental to the solicitation.
The Fund has retained D.F. King at a fee estimated not to exceed $70,000,
plus reimbursement of reasonable out-of-pocket expenses, to assist in the
solicitation of proxies (which amount is included in the estimate of total
expenses above). The Fund has also agreed to indemnify D.F. King against certain
liabilities and expenses, including liabilities under the federal securities
laws. D.F. King anticipates that approximately 50 of its employees may solicit
proxies. D.F. King is located at 77 Water Street, New York, New York 10005.
PARTICIPANTS
Because Mr. Goldstein has filed a Dissident Proxy and, thus, has announced
his intent to commence a proxy contest, the SEC requires the Fund to provide
stockholders with certain additional information relating to "participants" as
defined in the SEC's proxy rules. Pursuant to those rules, the Fund's Directors
are, and certain employees and agents of the Fund may be, deemed to be
"participants." Unless otherwise indicated below, the address of the
participants described below is the address of the Fund's principal executive
offices. Except as indicated below, no participant has purchased or sold or
otherwise acquired or disposed of any shares of Common Stock of the Fund in the
last two years. Information with respect to the participants' beneficial
ownership of Common Stock of the Fund is as of March 1, 2001.
Thomas L. Bindley is a Director of the Fund. Since 1998, Mr. Bindley has been
President of Bindley Capital Corporation, a consulting and financial advisory
firm located at 707 Skokie Blvd, Suite 600, Northbrook, Illinois 60062. Mr.
Bindley is the beneficial owner of 5,000 shares of Common Stock of the Fund,
which he acquired between December 1 and December 15, 1998.
Richard M. Burridge, Sr. is a Director of the Fund. Since 2000, he has been
Vice President of PaineWebber, and investment firm with offices at 125 South
Wacker Drive, Suite 2600, Chicago, Illinois 60606. Mr. Burridge is the
beneficial owner of 5,923 shares of Common Stock of the Fund.
Adela Cepeda is a Director of the Fund. Since 1995, Ms. Cepeda has been the
President of A.C. Advisory, Inc., a financial advisory firm located at 70 W.
Madison Street, Suite 2100, Chicago, Illinois 60602. Ms. Cepeda is the
beneficial owner of 3,795 shares of Common Stock of the Fund, which includes
2,000 shares of Common Stock she acquired on November 1, 1999.
21
David F. Connor is the Secretary of the Fund. Since July 2000, Mr. Connor has
been Vice President and Deputy General Counsel of Delaware Management Company.
Roger J. Deshaies is a Director of the Fund. Since 1998, Mr. Deshaies has
been Senior Vice President, Finance of Brigham and Women's Hospital, located at
Executive Offices PBB-Admin. 4, 4020 Shattuck Street Receiving, Boston,
Massachusetts 02115. Mr. Deshaies is the beneficial owner of 2,317 shares of
Common Stock of the Fund.
David K. Downes is a Director of the Fund and has been President of the Fund
since February 2001. Mr. Downes is Executive Vice President, Chief Financial
Officer, Chief Operating Officer and Trustee of Delaware Management Business
Trust (of which the Adviser is a series).
Barbara S. Kowalczyk is a Senior Vice President and Director, Corporate
Planning & Development of Lincoln National Corporation, the parent corporation
of the Fund's Adviser, located at 1500 Market Street, Philadelphia, Pennsylvania
19102.
H. Thomas McMeekin is a Director of the Fund. Since 2000, Mr. McMeekin has
been a Managing Partner of Griffin Investments, LLC, located at 320 West Laurier
Place, Bryn Mawr, Pennsylvania 19101. Mr. McMeekin is the beneficial owner of
1,251 shares of Common Stock of the Fund.
Daniel R. Toll is a Director of the Fund. Mr. Toll is a corporate and civic
director, and his business address is 560 Green Bay Road, Suite 300, Winnetka,
IL 60093. He is the beneficial owner of 1,000 shares of Common Stock of the
Fund.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Fund's executive officers, Directors and 10% stockholders and certain
persons who are directors, officers or affiliated persons of the Adviser are
required under the Securities Exchange Act of 1934 to file reports of ownership
and changes in ownership with the Securities and Exchange Commission and the New
York Stock Exchange. Copies of these reports must also be furnished to the Fund.
Based solely on a review of copies of such reports furnished to the Fund through
the date hereof, or written representations that no reports were required, the
Fund believes that during fiscal year 2000 the filing requirements applicable to
the above-mentioned persons were met.
SHAREHOLDERS OWNING 5% OR MORE OF A FUND
As of the record date, March 26, 2001, Cede & Co., P.O. Box 20, Bowling Green
Station, New York, NY 10004, was the owner of record of 5,431,101 shares
(89.22%) of the outstanding Common Stock of the Fund. Other than as reported
herein, the Fund has no knowledge of beneficial ownership of its shares.
DATE FOR STOCKHOLDER PROPOSALS
Any stockholder proposals intended to be presented at the next Annual Meeting
and be included in the proxy statement and proxy of the Fund must be in proper
form and must be received on or before December 5, 2001. Any stockholder
proposals intended to be presented at the next Annual Meeting, but not to be
included in the proxy statement and proxy of the Fund, must be in proper form
and must be received on or before January 14, 2002. All such proposals should be
sent to the Secretary of the Fund, One Commerce Square, Philadelphia,
Pennsylvania 19103. The inclusion and/or presentation of any such proposal is
subject to the applicable requirements of the proxy rules under the Securities
Exchange Act of 1934.
22
OTHER MATTERS
The Board of Directors of the Fund does not know of any other matter or
business that may be brought before the Annual Meeting. However, if any such
matter or business properly comes before the Annual Meeting, it is intended that
the persons named as proxies in the enclosed Proxy Card will vote in accordance
with their best judgment.
/s/ David F. Connor
David F. Connor
Secretary
Dated April 10, 2001
YOUR VOTE IS IMPORTANT! YOU ARE URGED TO SIGN, DATE AND MAIL YOUR EXECUTED
PROXY PROMPTLY.
23
This Page Intentionally Left Blank
ATTACHMENT A
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
LINCOLN NATIONAL INCOME FUND, INC.
AUDIT COMMITTEE CHARTER
Statement of Policy
Each Audit Committee shall oversee the audit process and provide assistance
to the Fund's Directors in fulfilling their responsibilities to the Fund
relating to the fund accounting and reporting practices of the Fund, and the
quality and integrity of the financial reports of the Fund. The Audit
Committee's role is clearly one of overview and review and not of direct
management of the fund accounting, reporting or audit processes. It is the
responsibility of the Audit Committee to maintain a free and open means of
communication among the Directors, the independent accountants and the Fund's
officers.
The outside auditor for the Fund shall be ultimately accountable to the Board
of Directors and this Committee. This Committee and the Board of Directors shall
have the ultimate authority and responsibility to select, evaluate and, where
appropriate, replace the outside auditor (or, alternatively, to nominate the
outside auditor to be proposed for shareholder approval in any proxy
statements).
Membership
The Audit Committee shall consist of a Chairman and at least two other Board
members, all of whom shall have no relationship to the Fund that may interfere
with the exercise of their independence from management and the Fund. The
independence of the members of this Committee shall be interpreted in accordance
with the Rules of the New York Stock Exchange regarding Audit Committee as
promulgated from time to time. Each member of the Audit Committee shall be
financially literate in the reasonable business judgement of the Board of
Directors, or become financially literate within a reasonable period of time
after appointment to the Committee. At least one member of the Audit Committee
shall have accounting or related financial management expertise in the
reasonable business judgement of the Board of Directors.
Principal Functions
The Audit Committee Shall:
1. Review and reassess the adequacy of this charter on an annual basis. The
Committee Chairman shall insure that the Fund provides the New York Stock
Exchange written confirmation regarding: (1) any determination that the
Board of Directors has made regarding the independence of Directors; (2) the
financial literacy of the Audit Committee members; (3) the determination
that at least one of the Audit Committee members has accounting or related
financial management expertise; and (4) the annual review and reassessment
of the adequacy of this Charter.
2. Review the audit reports of the Fund prepared by its designated certified
public accounting firm outside auditor, recommend the selection of an
outside auditor for the ensuing year, review the audit and non-audit fees
paid to the Fund's certified public accountants, and review in draft form
the Annual Report, SEC 10-K, and Annual Proxy Statements for recommendation
to the full Board.
A-1
3. Ensure that the outside auditor submits on a periodic basis to this
Committee a formal written statement delineating all relationships between
the auditor and the Fund. This Committee shall also actively engage in a
dialogue with the outside auditor with respect to any disclosed
relationships or services that may impact the objectively and independence
of the outside auditor and shall make recommendations to the Board of
Directors to take appropriate action in response to the outside auditors
report to satisfy itself of the outside auditors' independence.
4. Review, in consultation with the independent accountants, the conduct and
results of each external audit of the financial statements of the Fund, each
certification, report or opinion rendered by the independent accountants in
connection with each audit, each related management letter, and management's
responses to any recommendations made by the independent accountants in
connection with each audit.
5. Review, in consultation, as appropriate, with the independent accountants,
the Fund's officers and the service contractors;
a) Any disputes between the service contractors and the independent
accountants that arise in connection with the audits and/or preparation
of the financial statements;
b) The independent accountant's review of each Fund's accounting and
internal control procedures to check compliance with the rules and
regulations of the SEC and other applicable requirements; and
c) The review by the independent accountants (or other independent
accountants) of the accounting and internal control procedures of the
Fund's custodians and transfer agent to check compliance with the rules
and regulations of the SEC and other applicable requirements.
d) Consider, in consultation with the independent accountants and the Fund's
officers, the scope and plan of forthcoming external audits and the
review of the Fund's accounting and internal control procedures.
6. Consider, when presented by the Fund's officers, the service contractors or
the independent accountants, material questions of choice with respect to
appropriate accounting principles and practices to be used in the
preparation of the Fund's financial statements.
7. Have the power to inquire into any financial matters in addition to those
set forth above.
8. Review, in consultation with the Fund's officers and/or service contractors,
any proposal to employ the independent accountants to render consulting or
other non-audit services.
9. Report to the entire Fund's Board periodically and as requested on the
performance of its responsibilities and its findings.
10. Perform such other functions as may be assigned to it by law, the Fund's
charter, declaration of trust or by-laws, or by the Board.
Resource and Staff Assistance
The appropriate officers of the Fund shall provide or arrange to provide such
information, data and services as the Audit Committee may request. The Audit
Committee shall consult as they deem appropriate with personnel of the Fund,
and/or others whose views would be considered helpful to the Audit Committee.
Meetings
The Audit Committee shall meet at least twice each year, to determine the firm
to be recommended to be employed as the Fund's independent accountants and the
proposed terms of such engagements, to discuss and approve the scope of the next
year's audit of the financial statements, and to review the results of the audit
for the prior year. The Audit Committee shall meet with the Fund's independent
accountants at least once annually outside the presence of the Fund's officers
and management representatives.
A-2
I M P O R T A N T
Your vote is important. Regardless of the number of shares of the Fund's
common stock you own, please vote as recommended by your Board of Directors by
taking these two simple steps:
1. PLEASE SIGN, DATE AND PROMPTLY MAIL the enclosed WHITE proxy card in the
postage-paid envelope provided.
2. DO NOT RETURN ANY GREEN PROXY CARD sent to you by Mr. Goldstein, not even
as a vote of protest.
IF YOU VOTED MR. GOLDSTEIN'S GREEN PROXY CARD BEFORE RECEIVING YOUR WHITE
PROXY CARD, YOU HAVE EVERY RIGHT TO CHANGE YOUR VOTE SIMPLY BY SIGNING, DATING
AND MAILING THE ENCLOSED WHITE PROXY CARD. THIS WILL CANCEL YOUR EARLIER VOTE.
REMEMBER, ONLY YOUR LATEST DATE PROXY CARD WILL COUNT AT THE ANNUAL MEETING.
Instructions for "Street Name" Shareholders
If you own your shares in the name of a brokerage firm (or other nominee),
only your broker can vote your shares on your behalf and only after receiving
your specific instructions. Please call your broker and instruct him/her to
execute a WHITE card (or voting instruction form) on your behalf. You should
also promptly sign, date and mail your WHITE card (or voting instruction form)
when you receive it from your broker. Please do so for each separate account you
maintain.
You should return your WHITE proxy card at once to ensure that your vote is
counted.
If you have any questions or need assistance in voting your shares,
please call D.F. King & Co., Inc. which is assisting us,
toll-free at 1-800-628-8536.
- -------------------------------------------
Lincoln National Convertible
Securities Fund, Inc.
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
PROXY STATEMENT
Notice of Annual Meeting
of Shareholders
- -------------------------------------------
May 18, 2001
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC. (the "Fund")
ANNUAL MEETING OF STOCKHOLDERS - MAY 18, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints David K. Downes and David F. Connor, or either
of them, with the right of substitution, proxies of the undersigned at the
Annual Meeting of Stockholders of the Fund indicated on this form to be held at
The Chicago Club, 81 East Van Buren Street, Chicago, Illinois, on Friday, May
18, 2001 at 10:30 A.M. (CDT), or at any postponement or adjournments thereof,
with all the powers which the undersigned would possess if personally present,
and instructs them to vote all of the shares of common stock of the Fund held by
the undersigned, thereby revoking all previous proxies, upon any matters which
may properly be acted upon at this meeting. Please refer to the proxy statement
for a discussion of each of these matters.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" PROPOSALS NO. 1 AND NO.
2, AND "AGAINST" PROPOSALS NO. 3, NO. 4 AND NO.5. THE PERSONS NAMED ON THE PROXY
CARD WILL USE THEIR DISCRETION TO VOTE ON ANY OTHER MATTER THAT MAY PROPERLY
COME BEFORE THE MEETING, OR AT ANY POSTPONEMENT OR ADJOURNMENT THEREOF. PLEASE
COMPLETE AND MAIL THIS CARD AT ONCE IN THE ENCLOSED ENVELOPE.
PLEASE DATE AND SIGN NAME OR NAMES BELOW AS PRINTED
ON THIS CARD TO AUTHORIZE THE VOTING OF YOUR SHARES
AS INDICATED. WHERE SHARES ARE REGISTERED WITH JOINT
OWNERS, ALL JOINT OWNERS SHOULD SIGN. PERSONS SIGNING
AS EXECUTOR, ADMINISTRATOR, TRUSTEE OR OTHER
REPRESENTATIVE SHOULD GIVE FULL TITLE AS SUCH.
Date___________________________________________, 2001
Signature(s) (Joint Owners) (PLEASE SIGN WITHIN BOX)
533
Please fill in box(es) as shown using black or blue ink. X
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL NO. 1 AND A
VOTE "FOR" PROPOSAL NO. 2.
FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
1. To elect the following nominees as Class 2 Directors of the Fund.
1) Richard M. Burridge 2) David K. DownesI
If you checked "For All Except," write the withheld nominee's name above.
FOR AGAINST ABSTAIN
2. To ratify the selection of PricewaterhouseCoopers L.L.P. as independent
auditors for the Fund for the fiscal year ending December 31, 2001.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "AGAINST" PROPOSALS NO. 3,
NO. 4 AND NO. 5.
FOR AGAINST ABSTAIN
3. To vote on a shareholder proposal to request that the Fund be converted to an
open-end fund.
4. To vote on a shareholder proposal to amend the Fund's by-laws to require
the Fund to submit the investment advisory agreement to shareholders for
approval each year.
5. To vote on a shareholder proposal to amend the Fund's by-laws to require
approval by the shareholders of any lawsuit against a shareholder.
533