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:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
/ / 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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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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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:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
One Commerce Square
2005 Market Street
Philadelphia, PA 19103
IMPORTANT ANNUAL MEETING
June __, 2002
DEAR FELLOW 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 Thursday, August 15, 2002 at the offices of Delaware
Investments, Two Commerce Square, 2001 Market Street, 2nd Floor, Philadelphia,
Pennsylvania at 10:00 a.m. (EDT). 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 for the
third consecutive year. This is the same Mr. Goldstein who solicited your votes
last year and then refused to submit the proxies entrusted to him. 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 and save your Fund the expense of further
solicitation.
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 1-800-659-5550.
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 offices of Delaware Investments, Two
Commerce Square, 2001 Market Street, 2nd Floor, Philadelphia, Pennsylvania, on
Thursday, August 15, 2002 at 10:00 a.m. (EDT), for the following purposes.
1. To elect seven Directors for the Fund to hold office until their
successors are elected and qualified.
2. To act upon two shareholder proposals submitted by Phillip Goldstein if
properly presented at the Annual Meeting.
3. 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 May 1, 2002 are entitled
to notice of and to vote at the Annual Meeting.
By order of the Board of Directors.
/s/ David F. Connor
David F. Connor
Secretary
June __, 2002
YOUR VOTE IS IMPORTANT
WE NEED YOUR VOTE TO SEND MR. GOLDSTEIN A MESSAGE THAT YOU HAVE HAD
ENOUGH OF HIS DISRUPTIVE AND COSTLY PROXY CONTESTS. 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
2005 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103
PROXY STATEMENT
Annual Meeting of Stockholders to be held August 15, 2002
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 August 15, 2002 at 10:00 a.m. (EDT) at the
offices of Delaware Investments, Two Commerce Square, 2001 Market Street, 2nd
Floor, Philadelphia, Pennsylvania, 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, One Commerce Square, 2005 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" Proposal No. 1 (Election of Directors) and "AGAINST" Proposal No. 2 and
Proposal No. 3. (Mr. Goldstein's shareholder proposals). 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. In addition, the bylaws of the Fund permit the Board to postpone
any previously scheduled annual meeting if the Board determines that such action
is appropriate under the circumstances.
2
Stockholders of record at the close of business on May 1, 2002 will be
entitled to notice of and 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.
This Proxy Statement and accompanying Proxy Card are being mailed on or about
June __, 2002. 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, Mellon Investor Services
LLC. 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, 2005 Market Street, Philadelphia, PA 19103.
PHILLIP GOLDSTEIN COMMENCES PROXY CONTEST
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. Though he threatened to commence a proxy contest
earlier this year, Mr. Goldstein filed his opposition proxy soliciting materials
only 11 days prior to our regularly scheduled annual meeting, causing the Board
to reschedule the Annual Meeting to permit shareholders sufficient time to
consider the issues and cast informed votes. It is expected that Mr. Goldstein
will attempt to solicit your vote for the purpose, among other things, of
electing his dissident nominees to the Board and taking control over your Fund.
As described more fully below, the Directors believe that Mr. Goldstein's
solicitation is designed to further Mr. Goldstein's own personal agenda, which
is reflected in his other proposal addressed below. The Directors' reasons for
strongly opposing Mr. Goldstein's proposals are set forth in the Opposition
Statements included in this Proxy Statement. Please give this material your
careful attention.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
On December 19, 2001, the Board of Directors unanimously approved a change to
the Fund's Articles of Incorporation declassifying the Board of Directors.
Articles Supplementary were subsequently filed in the State of Maryland to
effectuate the decision of the Board. As a result, all seven Directors will be
elected at the Annual Meeting to hold office until the 2003 annual meeting and
their successors are 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.
INFORMATION ON THE BOARD OF DIRECTORS
Principal Number of Other
Name, Position(s) Occupation(s) Portfolios in Fund Directorships
Address Held with Length of Time During Complex* Overseen Held by
and Birthdate Registrant Served Past 5 Years by Director Director
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Interested Directors
David K. Downes(1) President 1 Year Executive Vice President, Chief 2 President and
2005 Market Street and Director Operating Officer and Director/Trustee of
Philadelphia, PA 19103 Chief Financial Officer, 33 investment
Delaware Management Company; companies in
January 8, 1940 Chairman, President and the Delaware
Chief Executive Officer, Investments family
Delaware Service Company, Inc.; of funds
Mr. Downes has served in
various executive capacities Director/President,
at different times at Lincoln National
Delaware Investments. Income Fund, Inc.
Richard M. Burridge, Sr.(2) Director 17 Years Vice President, 2 Director, Lincoln
125 S. Wacker Drive UBS/PaineWebber National Income
Suite 2600 (since 2000); Fund, Inc.
Chicago, IL 60606 Chairman,
The Burridge Group, Inc.
March 19, 1929 (1996-2000).
H. Thomas McMeekin(3) Director 12 Years Managing Director, 2 Director, Lincoln
100 Mulberry Street Prudential Investment Management National Income
Gateway Center Four (since 2001); Managing Partner, Fund, Inc.
7th Floor Griffin Investments (since 2000);
Newark, NJ 07102 Executive Vice President and
Chief Investment Officer -
June 17, 1953 Fixed Income,
Delaware Investments (1999-2000);
President and Director, Lincoln
Investment Management, Inc.,
Executive Vice President and
Chief Investment Officer,
Lincoln National Corporation
(until 2000).
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* The Fund Complex is comprised of the Fund and Lincoln National Income Fund,
Inc.
(1) Mr. Downes is considered to be an "interested director" because he is an
executive officer of the Fund's Adviser and accounting service provider.
Mr. Downes acquired shares of common stock of Lincoln National Corporation
(LNC), of which the Adviser is a wholly-owned subsidiary, in the ordinary
course of business during 2001, but those transactions involved
substantially less than 1% of the outstanding shares of common stock of
LNC.
(2) Mr. Burridge is considered to be an "interested director" by virtue of his
affiliation with a registered broker-dealer.
(3) Mr. McMeekin is considered to be an "interested director" because prior to
July 2000 he was an executive officer of Delaware Investments and Lincoln
National Corporation (LNC), of which the Fund's Adviser is a wholly-owned
subsidary. In addition, Mr. McMeekin currently owns shares of LNC and is
affiliated with a registered broker-dealer.
4
INFORMATION ON THE BOARD OF DIRECTORS
Principal Number of Other
Name, Position(s) Occupation(s) Portfolios in Fund Directorships
Address Held with Length of Time During Complex* Overseen Held by
and Birthdate Registrant Served Past 5 Years by Director Director
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Independent Directors
Thomas L. Bindley Director 4 Years President, Bindley 2 Director, Midas, Inc.
707 Skokie Boulevard Capital Corporation and Lincoln National
Suite 600 (since 1998); Income Fund, Inc.
Northbrook, IL 60062 Executive Vice President
and Chief Financial Officer,
November 8, 1943 Whitman Corporation
(until 1998).
Adela Cepeda Director 10 Years President, 2 Commissioner,
Suite 1515 A.C. Advisory, Inc. Chicago Public
70 W. Madison Street (since 1995). Building
Chicago, IL 60602 Commission;
Club of Chicago,
April 30, 1958 Fort Dearborn
Income Securities,
Inc. and Lincoln
National Income
Fund, Inc.
Roger J. Deshaies Director 10 Years Senior Vice President - 2 Director, Partners
Executive Offices Finance, Brigham & Health System and
PBB-Admin. 4 Women's Hospital Lincoln National
c/o Receiving (since 1998); Income Fund, Inc.
29 Shattuck Street Senior Vice President -
Boston, MA 02115 Finance, Parkview Health
System (until 1998).
August 5, 1949
Daniel R. Toll Director 17 Years President, Heller 2 Director, Lincoln
560 Green Bay Road International National Income
Suite 300 Corporation Fund, Inc.
Winnetka, IL 60093 (until 1984).
December 3, 1927
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* The Fund Complex is comprised of the Fund and Lincoln National Income Fund,
Inc.
5
As of May 1, 2002, the Directors and officers of the Fund as a group
beneficially owned 20,373 shares of the Fund, representing less than 1% of the
shares of Common Stock outstanding of the Fund. The table below sets forth
information on each Director's ownership of shares in the Fund and in the Fund
Complex.
Common Stock Aggregate Dollar Range of Equity
Beneficially Owned Dollar Range of Equity Securities in All Funds Overseen by
Name of Director At May 1, 2002* Securities in the Fund Director in Fund Complex**
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Interested Directors
Richard M. Burridge 5,923 $50,001 - $100,000 over $100,000
David K. Downes 1,000 $10,001 - $50,000 $10,001 - $50,000
H. Thomas McMeekin 1,338 $10,001 - $50,000 $50,001 - $100,000
Independent Directors
Thomas L. Bindley 5,000 $50,001 - $100,000 over $100,000
Adela Cepeda 3,795 $50,001 - $100,000 over $100,000
Roger J. Deshaies 2,317 $10,001 - $50,000 $50,001 - $100,000
Daniel R. Toll 1,000 $10,001 - $50,000 $50,001 - $100,000
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* 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.
** The Fund Complex is comprised of the Fund and Lincoln National Income Fund,
Inc.
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 will consider suggestions for
nominees for the Board of Directors of the Fund, if suggestions are accompanied
by detailed biographical data and sent to the Secretary of the Fund by the date
set forth under "Date for Stockholder Proposals" below, though the Nominating
Committee is not currently soliciting such suggestions. 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 nine times during the year ended December 31, 2001. In
addition, the Audit and Nominating Committees of the Fund met three times and
twice, respectively.
During the year ended December 31, 2001, all of the current Directors 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 (38), Secretary since October 2000; and Michael P. Bishof (39),
Treasurer since January 2000. In addition, Robert D. Schwartz (43) 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. 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"
EACH INCUMBENT DIRECTOR.
6
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.
The following table shows compensation for the Directors of the Fund for the
year ended December 31, 2001:
YEAR ENDED DECEMBER 31, 2001
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TOTAL TOTAL
AGGREGATE COMPENSATION
COMPENSATION FROM FUND
NAME FROM THE FUND(1) COMPLEX(2)
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Thomas L. Bindley $12,000 $23,000
Richard M. Burridge $11,500 $22,000
Adela Cepeda $12,000 $23,000
Roger J. Deshaies $12,000 $23,000
H. Thomas McMeekin $11,500 $22,000
Daniel R. Toll $10,000 $21,000
(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
Directors by the Fund and Lincoln National Income Fund, Inc.
COMMITMENT TO GOOD CORPORATE GOVERNANCE
The Board of Directors believes strongly that its commitment to good
corporate governance greatly aids the long-term success of the Fund in
delivering value to its shareholders. The Board of Directors has developed and
followed a program of corporate governance, the highlights of which are
described below.
The Role of Independent Directors
The Fund's Directors acknowledge the important oversight role played by the
Directors who are independent of Fund management. Independent Directors
constitute a majority of the Fund's Board of Directors. In addition, the Fund's
Audit Committee and Nominating Committee are comprised entirely of independent
Directors.
Qualifications of the Directors
The qualifications and experience of the individual Directors has greatly
enhanced the effectiveness of the Fund's Board. When there are vacancies on the
Board, the Nominating Committee seeks out new Board members whose business and
educational background will make a significant contribution to the deliberations
of the Board. This is reflected in the current Directors, all of whom have
impressive credentials and significant expertise in investments, business or
finance. Your Fund's Directors have 71 years of combined experience successfully
managing the Fund on behalf of shareholders.
7
Audit Committee Independence and Financial Literacy
All members of the Audit Committee are independent Directors, and the Board,
in its business judgment, has determined that they meet the independence and
financial literacy requirements of the New York Stock Exchange.
Directors are Shareholders
The Board has adopted a policy that requires each Director to own shares of
the Fund. This policy serves to ensure that the interests of the Board will
always be aligned with those of the Fund's shareholders.
Responsiveness to Shareholders
The Board recognizes that its most important function is to serve the best
interests of the Fund's shareholders. The Board endeavors to be responsive to
the concerns of the Fund's shareholders. Consider the following actions taken by
your Board of Directors:
o The Directors recently destaggered the Board after a number of shareholders
expressed a preference for a declassified Board structure.
o In response to shareholder concern about the discount at which the Fund's
shares were trading, the Board implemented a share repurchase program that
has contributed to a greatly reduced discount since the program's
implementation.
o The Board recently adopted a managed distribution policy to further support
the market price at which the Fund's shares trade.
o The Board discontinued the Fund's practice of retaining long-term capital
gains last year in response to shareholder requests.
The Board believes that its actions are concrete evidence of its
responsiveness to the interests of all Fund shareholders.
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, 2001. 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
Independence Standards Board Standard 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, 2001.
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.
A representative of PricewaterhouseCoopers LLP will attend the Annual
Meeting, will be given an opportunity to make a statement, and will be available
to answer appropriate questions.
8
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, 2001 were $33,000.
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, 2001.
All other fees. The aggregate fees billed for other non-audit services
rendered by PricewaterhouseCoopers LLP to the Adviser and DSC and their
affiliates during the fiscal year ended December 31, 2001 were $480,000.
LEGAL PROCEEDINGS
Goldstein v. Lincoln National Convertible Securities Fund, Inc. In May 2000,
Mr. Goldstein filed a suit against the Fund and its Directors then in office
(including each current Director of the Fund except for Mr. Downes) in the U.S.
District Court for the Eastern District of Pennsylvania. The plaintiff is a
stockholder of LNV who, in April 2000, expressed an intention to nominate
candidates for the two director positions that were to be filled at the Fund's
2000 annual shareholder meeting, to move that the shareholders of the Fund pass
a certain resolution at that meeting, and to solicit proxies. The Fund informed
him that it would not permit him to raise the matters he wished to raise at the
2000 shareholder meeting because he had failed to notify the Fund of his
intentions prior to a published January 2000 deadline. In the action, the
plaintiff claims that it was illegal for the Fund to enforce this deadline and
that the defendants made false and misleading statements in the proxy materials
that they disseminated in connection with the Fund's 2000 annual meeting. In
April 2001, the District Court found in favor of the plaintiff, finding that
under Maryland law the Fund's Directors, by precluding the plaintiff from
nominating his candidates for election to the Board of the Fund and submitting
his other proposal at the meeting, breached their fiduciary duty. This ruling
was based on the court's conclusion that the published deadline for submitting
shareholder proposals was invalid and unenforceable because it was not also
reflected in the Fund's bylaws. The court also found that the Fund's Directors
had omitted material facts in connection with the solicitation of proxies for
the 2000 annual meeting. Although the Fund's proxy materials disclosed that the
Board had implemented a classified structure as permitted by Maryland law (which
structure has now been eliminated by Board action), the court ruled that the
Fund's proxy materials should have stated that this was accomplished by way of
an amendment to the Fund's charter documents. The Board of the Fund has appealed
the decision of the District Court in this case.
PROPOSAL NO. 2: PHILLIP GOLDSTEIN'S SHAREHOLDER PROPOSAL
THE APPROVAL OR REJECTION OF A SHAREHOLDER PROPOSAL TO REQUEST THAT THE
FUND BE CONVERTED TO AN OPEN-END FUND
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. 2.
9
Mr. Goldstein has informed the Fund that he intends to present a proposal
that shareholders consider converting the Fund from a closed-end fund to an
open-end fund. You may recall that Mr. Goldstein presented the identical
proposal in connection with last year's annual meeting. Last year, Mr. Goldstein
offered Fund shareholders 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."
Mr. Goldstein failed to mention the potential negative effects of his
proposal on your investment in the Fund. By ignoring the potential negative
consequences to the Fund of open-ending, Mr. Goldstein appears to be motivated
by personal gain, at the expense of the Fund's long-term shareholders. The Board
hopes that Mr. Goldstein will include a more meaningful and complete discussion
of this proposal in his proxy materials this year. But in case he does not, the
Board urges you to consider the factors discussed in details below.
The Board of Directors unanimously opposes 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. However, Mr. Goldstein's approach would
constrain the Fund's investment process and impose considerable costs on the
Fund and its shareholders.
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.
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
10
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.
Conversion to an open-end fund would negatively 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 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 superior long-term 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 May
31, 2002, the Fund's market performance of a ____% average annual return is
almost identical to its NAV performance of ____% average annual return (assuming
reinvestment of dividends and distributions and adjusted to reflect the
long-term capital gains paid by the Fund, a tax credit for which was passed
along to Fund shareholders). 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.
11
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.
Negative 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 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
12
a greater extent than those who do redeem shares. 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 to investment companies for tax purposes.
Loss of 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.
The Board has already taken decisive action to address the discount.
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 and the managed distribution policy
discussed below.
Share Repurchase Program. The Board has adopted an open-market share
repurchase program to help reduce the Fund's discount, which the Board believes
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, the Board believes that it has also increased the NAV of the portfolio
for those who have wished to remain. From March 22, 2000 through May 31, 2002
the Fund repurchased ________ shares at a cost of $____________. This represents
approximately _____% of the shares originally issued and has increased the
portfolio's NAV by $_____ per share. The Board believes that the share
repurchase program has contributed to a significant reduction in the Fund's
discount. At the time the Board implemented the share repurchase program on
March 22, 2000, the Fund's shares were trading at a 23.8% discount. For the year
ended May 31, 2002, the Fund has traded at an average discount of _____%. On a
year-to-date basis through May 31, 2002, the Fund's average discount narrowed to
_____%. As of June __, 2002, the discount had been reduced to ____%. The Board
believes that the dramatic reduction in the discount demonstrates 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.
Managed Distribution Policy. The Board recently adopted a managed
distribution policy in its continuing effort to address the discount. Under the
new managed distribution policy, the Fund intends to pay a fixed quarterly
dividend primarily from ordinary income, with the balance coming from capital
gains or return of capital. The Board believes that the resulting increase in
the Fund's current yield may further support the market price at which the
Fund's shares trade.
13
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 May 31, 2002, the average annual
total return for the Fund at NAV was _____% (assumes reinvestment of dividends
and distributions and adjusted to reflect the long-term capital gains paid by
the Fund, a tax credit for which was passed along to Fund shareholders). 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.
Approval of this Proposal will not automatically cause the Fund to become an
open-end fund.
This Proposal No. 2, if approved, will not have the effect of automatically
converting the Fund from a closed-end fund to an open-end fund. 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. 2, 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.
Required Vote. The affirmative vote of a majority of votes cast at the Annual
Meeting would be required to approve this Proposal.
14
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "AGAINST"
PROPOSAL NO. 2.
PROPOSAL NO. 3: PHILLIP GOLDSTEIN'S SHAREHOLDER PROPOSAL
THE APPROVAL OR REJECTION OF A SHAREHOLDER PROPOSAL TO AMEND THE
FUND'S BYLAWS TO PRECLUDE THE NOMINATION FOR ELECTION TO THE BOARD OF
PERSONS WHOM A COURT HAS FOUND TO HAVE BREACHED THEIR FIDUCIARY DUTIES
TO SHAREHOLDERS
OPPOSITION STATEMENT OF THE DIRECTORS
YOUR BOARD OF DIRECTORS UNANIMOUSLY OPPOSES MR. GOLDSTEIN'S PROPOSAL.
THE DIRECTORS BELIEVE THAT THIS PROPOSAL IS SIMPLY A BACKDOOR ATTEMPT BY
MR. GOLDSTEIN TO FURTHER HIS SELF-SERVING AGENDA OF SEIZING CONTROL OF
YOUR FUND. WE RECOMMEND STRONGLY THAT SHAREHOLDERS
VOTE "AGAINST" PROPOSAL NO. 3.
The Board believes that Mr. Goldstein's bylaw proposal is nothing more than a
ploy to seize control of your Fund by attacking the Directors' integrity. Before
casting your vote, the Board urges shareholders to consider this proposal in the
broader context of Mr. Goldstein's self-serving agenda.
Mr. Goldstein has designed his bylaw proposal to cleverly preclude the
reelection of a number of your Directors based on a holding in a case that is
still under review and the final outcome of which is far from certain.
Furthermore, Mr. Goldstein seeks to replace your Directors with a group of
thus-far unidentified dissidents without giving shareholders a meaningful
opportunity to vote on their election. ACT WITH CAUTION: While Mr. Goldstein's
proposal may seem reasonable on its face, its true purpose is to turn over
control of your Fund to Mr. Goldstein.
Mr. Goldstein wants you to believe that the actions taken by the Board more
than 2 years ago in opposition to his proposals are equivalent to the misconduct
of corporate directors in a number of recent high profile scandals. Nothing
could be further from the truth and we urge you not to be misled. The Board
believes that Mr. Goldstein's message is defamatory and misleading, and is
designed to mask his true objectives. As noted above, the lower court in the
Goldstein case held that by enforcing an advance notice provision later
determined to be invalid and precluding Mr. Goldstein's proposals at the 2000
annual meeting, the Directors breached their fiduciary duty to shareholders. The
court's finding was based largely on its interpretation of a then recently
enacted Maryland statute that was inherently ambiguous. The court held that the
Fund's advance notice provision was invalid because it was not reflected in the
Fund's bylaws, notwithstanding the fact that the deadline for submitting
shareholder proposals for the 2000 annual meeting had been published more than a
year before that meeting. This was a novel issue of Maryland corporate law that
had not been previously considered by any court. When the Board enforced the
advance notice provision after Mr. Goldstein presented his proposals more than
two months after the published deadline, the Board did so in good faith based on
its interpretation of the Maryland statute, an interpretation that the Board
continues to believe was correct. Do not be misled by Mr. Goldstein's populist
rhetoric: the actions of your Board are clearly distinguishable from the highly
publicized scandals involving corporate directors that Mr. Goldstein makes
reference to in his proxy materials.
This bylaw proposal is simply another means by which Mr. Goldstein is
attempting to exert control over your Fund to advance his narrow, personal
agenda of open-ending the Fund in order to reap a quick profit at the expense of
long-term shareholders. The Board believes that you should be particularly
concerned about Mr. Goldstein's intent to elect a group of his
15
hand-picked nominees to the Board without giving all Fund shareholders a
meaningful opportunity to evaluate their qualifications and fitness to serve on
the Board. It is inappropriate for Mr. Goldstein to attempt to bypass the normal
electoral process to elect his nominees to the Board and take control of your
Fund.
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
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 $_______ and
that the total cash expenditure to date relating to the solicitation has been
under $_______. 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 $_______,
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 May 1, 2002.
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.
16
Richard M. Burridge, Sr. is a Director of the Fund. Since 2000, he has been
Vice President of UBS/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.
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). Mr. Downes is the beneficial owner of
1,000 shares of Common Stock of the Fund which he acquired on April 9, 2002.
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 2001, Mr. McMeekin has
been a Managing Director of Prudential Investment Management, located at Gateway
Center Four, 100 Mulberry Street, 7th Floor, Newark, New Jersey 07102. Mr.
McMeekin is the beneficial owner of 1,338 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 2001 the filing requirements applicable to
the above-mentioned persons were met.
SHAREHOLDERS OWNING 5% OR MORE OF A FUND
As of the record date, May 1, 2002, Cede & Co., P.O. Box 20, Bowling Green
Station, New York, NY 10004, was the owner of record of 5,294,731 shares (91%)
of the outstanding Common Stock of the Fund. Such shares are believed to be held
on behalf of the beneficial owners of the shares. Other than as reported herein,
the Fund has no knowledge of beneficial ownership of its shares.
17
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 17, 2002.] 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 [March 3, 2003.] All such proposals should be
sent to the Secretary of the Fund, One Commerce Square, 2005 Market Street,
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.
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 June ___, 2002
YOUR VOTE IS IMPORTANT! YOU ARE URGED TO SIGN, DATE AND MAIL YOUR EXECUTED
PROXY PROMPTLY.
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| PROXY STATEMENT
| Notice of Annual Meeting
| of Shareholders
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| August 15, 2002
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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
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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
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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
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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 1-800-659-5550.
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC. (the "Fund")
ANNUAL MEETING OF STOCKHOLDERS - AUGUST 15, 2002
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 offices of Delaware
Investments, Two Commerce Square, 2001 Market Street, 2nd Floor, Philadelphia, Pennsylvania 19103 on Thursday August 15, 2002 at
10:00 A.M. (EDT), 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" PROPOSAL NO. 1, AND "AGAINST" PROPOSALS NO. 2 AND NO.3. 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.
Date________________________________________ , 2002
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Signature(s) (Joint Owners) (PLEASE SIGN WITHIN BOX)
PLEASE DATE AND SIGN NAME OR NAMES ABOVE 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.
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.
FOR WITHHOLD FOR ALL
1. To elect the following nominees as Directors of the Fund. ALL ALL EXCEPT
1) Thomas L. Bindley 5) David K. Downes [ ] [ ] [ ]
2) Richard M. Burridge 6) H. Thomas McMeekin
3) Adela Cepeda 7) Daniel R. Toll
4) Roger J. Deshaies
__________________________________________________________________
If you checked "For All Except," write the withheld nominees's name above.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "AGAINST"
PROPOSALS NO. 2 AND NO.3.
FOR AGAINST ABSTAIN
2. To vote on Phillip Goldstein's proposal to request that the Fund be
converted to an open-end fund. [ ] [ ] [ ]
3. To vote on Phillip Goldstein's proposal to amend the Fund's by-laws [ ] [ ] [ ]
to preclude the nomination for election to the Board of persons whom
a court has found to have breached their fiduciary duties to
shareholders.