UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-4656
Exact name of registrant as specified in charter:
Lincoln National Convertible Securities Fund, Inc.
Address of principal executive offices:
2005 Market Street
Philadelphia, PA 19103
Name and address of agent for service:
Richelle S. Maestro, Esq.
2005 Market Street
Philadelphia, PA 19103
Registrant's telephone number, including area code: (800) 523-1918
Date of fiscal year end: 12/31
Date of reporting period: 6/30/03
Item 1. Reports to Stockholders
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
Supplement to 2003 Semiannual Report
The following supplements the information under "Important Fund Information" on
page 8 of the 2003 Semiannual Report:
Appointment of New Independent Auditors
The Audit Committee and the Board of Directors decided not to
retain PricewaterhouseCoopers LLP for the current fiscal year and,
instead, approved the appointment of Ernst & Young LLP as the Fund's
independent auditors on February 25, 2003. The reports of
PricewaterhouseCoopers LLP on the Fund's financial statements for the
last two fiscal years contained no adverse opinions or disclaimers of
opinion, nor were they qualified or modified in any way as to
uncertainty, audit scope, or accounting principles. In addition, during
the last two fiscal years and through February 25, 2003, there were no
disagreements with PricewaterhouseCoopers LLP on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.
The date of this supplement is August 18, 2003.
Delaware
Investments(SM)
--------------------------------------
A member of Lincoln Financial Group(R)
CLOSED-END
Semiannual Report 2003
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LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
[LOGO]
POWERED BY RESEARCH(SM).
Table
OF CONTENTS
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FINANCIAL STATEMENTS:
Statement of Net Assets 1
Statement of Operations 3
Statements of Changes in Net Assets 4
Financial Highlights 5
Notes to Financial Statements 6
Important Fund Information 8
- --------------------------------------------------------------------------------
Funds are not FDIC insured and are not guaranteed. It is possible to lose the
principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a series
of Delaware Management Business Trust, which is a registered investment advisor.
(C) 2003 Delaware Distributors, L.P.
Statement Lincoln National Convertible Securities Fund, Inc.
OF NET ASSETS June 30, 2003 (Unaudited)
Principal Market
Amount Value
Convertible Bonds - 63.25%
Aerospace & Defense - 1.86%
*EDO 144A 5.25% 4/15/07 $ 1,500,000 $ 1,515,000
-----------
1,515,000
-----------
Automobiles & Automotive Parts - 1.76%
Navistar Financial 4.75% 4/1/09 500,000 474,375
Sonic Automotive 5.25% 5/7/09 1,000,000 960,000
-----------
1,434,375
-----------
Banking, Finance & Insurance - 3.57%
PMI Group 2.50% 7/15/21 1,250,000 1,281,250
+XL Capital 2.527% 5/23/21 800,000 510,000
*+XL Capital 144A 2.585% 5/23/21 1,750,000 1,115,625
-----------
2,906,875
-----------
Cable, Media & Publishing - 7.06%
EchoStar Communications
4.875% 1/1/07 500,000 498,750
5.75% 5/15/08 500,000 531,875
*EchoStar Communications 144A
5.75% 5/15/08 500,000 531,875
Liberty Media (Convertible to Motorolla)
3.50% 1/15/31 1,000,000 757,500
Liberty Media (Convertible to Viacom)
3.25% 3/15/31 1,000,000 1,045,000
Mediacom Communications
5.25% 7/1/06 2,500,000 2,375,000
-----------
5,740,000
-----------
Computers & Technology - 3.29%
CNET Networks 5.00% 3/1/06 1,700,000 1,612,875
*Documentum 144A 4.50% 4/1/07 1,000,000 1,066,250
-----------
2,679,125
-----------
Electronics & Electrical Equipment - 5.84%
Agere Systems 6.50% 12/15/09 500,000 575,000
Amkor Technology 5.75% 6/1/06 1,500,000 1,376,250
*Amkor Technology 144A 5.75% 6/1/06 1,000,000 917,500
Benchmark Electronics 6.00% 8/15/06 1,850,000 1,887,000
-----------
4,755,750
-----------
Food, Beverage & Tobacco - 6.43%
+Brinker International 2.273% 10/10/21 2,000,000 1,427,500
*Bunge Limited 144A 3.75% 11/15/22 1,500,000 1,696,875
*+General Mills 144A 1.804% 10/28/22 2,950,000 2,105,563
-----------
5,229,938
-----------
Healthcare & Pharmaceuticals - 14.97%
Alkermes 6.52% 12/31/09 750,000 1,113,750
*AmerisourceBergen 5.00% 12/1/07 900,000 1,293,750
*Cephalon 144A 2.50% 12/15/06 1,000,000 926,250
CV Therapeutics 4.75% 3/7/07 1,000,000 950,000
*CV Therapeutics 144A 4.75% 3/7/07 2,000,000 1,899,999
+Laboratory Corporation of America
1.591% 9/11/21 1,000,000 707,500
*+Laboratory Corporation of America 144A
2.00% 9/11/21 1,550,000 1,096,625
Medarex 4.50% 7/1/06 1,000,000 842,500
Medtronic 1.25% 9/15/21 1,500,000 1,563,750
*OSI Pharmaceuticals 144A 4.00% 2/1/09 500,000 507,500
Province Healthcare 4.25% 10/10/08 1,400,000 1,279,250
-----------
12,180,874
-----------
Principal Market
Amount Value
Convertible Bonds (continued)
Leisure, Lodging & Entertainment - 1.68%
*Regal Entertainment 144A ~3.75% 5/15/08 $ 1,270,000 $ 1,370,013
-----------
1,370,013
-----------
Retail - 10.56%
Barnes & Noble 5.25% 3/15/09 400,000 402,500
*Barnes & Noble 144A 5.25% 3/15/09 1,500,000 1,509,375
+Lowe's 1.892% 2/16/21 2,250,000 1,687,500
School Specialty 6.00% 8/1/08 400,000 472,000
*School Specialty 144A 6.00% 8/1/08 1,500,000 1,769,999
+TJX 1.749% 2/13/21 2,000,000 1,557,500
*Tyco International 144A 2.75% 1/15/18 1,100,000 1,190,750
-----------
8,589,624
-----------
Telecommunications - 1.28%
Nortel Networks 4.25% 9/1/08 700,000 593,250
*+Verizon Global 144A 3.07% 5/15/21 750,000 450,000
-----------
1,043,250
-----------
Utilities - 4.95%
*Centerpoint Energy 144A 3.75% 5/15/23 1,930,000 2,007,200
Duke Energy 1.75% 5/15/23 1,930,000 2,024,088
-----------
4,031,288
-----------
Total Convertible Bonds (cost $47,518,306) 51,476,112
-----------
Number of
Shares
Convertible Preferred Stock - 29.65%
Aerospace & Defense - 1.56%
Northrop Grumman 7.25% 12,500 1,271,875
---------
1,271,875
---------
Automobiles & Automotive Parts - 3.11%
Ford Capital Trust II 6.50% 20,000 869,000
Tower Automotive Capital Trust 6.75% 60,650 1,387,369
*Tower Automotive Capital Trust 144A 6.75% 12,125 277,359
---------
2,533,728
---------
Banking, Finance & Insurance - 10.44%
Chubb 7.00% 119,700 3,088,435
Citigroup 2.00% 30,000 1,020,000
Saint Paul 9.00% 10,000 701,000
Travelers Property Casualty 4.50% 55,000 1,320,000
*Washington Mutual 144A 5.375% 40,000 2,370,000
---------
8,499,435
---------
Cable, Media & Publishing - 1.15%
Equity Securities Trust 6.50% 40,000 934,000
---------
934,000
---------
Consumer Products - 0.88%
Newell Financial Trust I 5.25% 15,000 714,375
---------
714,375
---------
Energy - 6.45%
Centerpoint Energy 2.00% 26,000 832,520
Chesapeake Energy 6.75% 10,000 757,500
*Chesapeake Energy 144A 6.00% 10,000 626,250
El Paso Energy Capital Trust I 4.75% 34,600 999,940
Unocal Capital Trust 6.25% 19,800 950,400
*Williams 144A 5.50% 20,000 1,085,000
---------
5,251,610
---------
1
Statement Lincoln National Convertible Securities Fund, Inc.
OF NET ASSETS (CONTINUED)
Number of Market
Shares Value
Convertible Preferred Stock (continued)
Environmental Services - 0.94%
Allied Waste Industries 6.25% 13,100 $ 768,970
----------
768,970
----------
Healthcare & Pharmaceuticals - 0.49%
Hybridon 6.50% 20,814 395,466
----------
395,466
----------
Paper & Forest Products - 2.93%
International Paper Capital 5.25% 15,000 738,750
Temple-Inland 7.50% 37,000 1,644,650
----------
2,383,400
----------
Transportation - 1.70%
Union Pacific Capital Trust 6.25% 27,423 1,381,434
----------
1,381,434
----------
Total Convertible Preferred Stock
(cost $26,341,051) 24,134,293
----------
Common Stock- 3.66%
Banking & Finance - 2.05%
Sovereign Bancorp 106,710 1,670,012
----------
1,670,012
----------
Computers & Technology - 1.12%
++Easylink 1,300,000 910,000
----------
910,000
----------
Telecommunications - 0.49%
Verizon Communications 10,000 394,500
----------
394,500
----------
Total Common Stock
(cost $1,977,793) 2,974,512
----------
Principal
Amount
Commercial Paper - 7.00%
Eiffel Funding 1.32% 7/1/03 $2,400,000 2,400,000
UBS Finance 1.31% 7/1/03 3,300,000 3,300,000
----------
Total Commercial Paper (cost $5,700,000) 5,700,000
----------
Total Market Value of Securities - 103.56%
(cost $81,537,150) $84,284,917
Liabilities Net of Receivables and
Other Assets - (3.56%) (2,894,527)
-----------
Net Assets Applicable to 5,826,725 Shares
($0.001 Par Value) Outstanding; Equivalent
to $13.97 per share - 100.00% $81,390,390
-----------
Common stock, $0.001 par value, 20,000,000 shares
authorized to the Fund and 5,826,725 shares
issued and outstanding 5,827
Proceeds in excess of par value of shares issued 115,326,124
Distributions in excess of net investment income (1,814,514)
Accumulated net realized loss on investments (34,874,814)
Net unrealized appreciation of investments 2,747,767
-----------
Total net assets $81,390,390
===========
*Security exempt from registration under Rule 144A of the Securities Act of
1933.
+Zero coupon bond. The interest rate shown is the yield at the time of
purchase.
++Non-income producing security for the period ended June 30, 2003.
The accompanying notes are an integral part of the financial statements.
2
Statement Lincoln National Convertible Securities Fund, Inc.
OF OPERATIONS June 30, 2003 (Unaudited)
Investment Income:
Interest $ 1,129,848
Dividends 659,391 $1,789,239
----------- ----------
Expenses:
Management fees 355,679
Legal fees 252,750
Reports to shareholders 53,809
Directors' fees 34,500
Audit fees 16,575
Stock transfer and dividend disbursing fees 15,000
NYSE fees 12,500
Custodian fees 2,437
Other 4,999 748,249
-----------
Less expenses absorbed or waived (56,971)
Less expenses paid indirectly (887)
----------
Total expenses 690,391
----------
Net investment income 1,098,848
----------
Net Realized and Unrealized Gain (Loss) on
Investments:
Net realized loss on investments (9,165,189)
Net change in unrealized appreciation/depreciation
of investments 17,741,849
----------
Net Realized and Unrealized Gain on Investments 8,576,660
----------
Net Increase in Net Assets Resulting from Operations $9,675,508
==========
The accompanying notes are an integral part of the financial statements.
3
Statements Lincoln National Convertible Securities Fund, Inc.
OF CHANGES IN NET ASSETS
Six Months Year
Ended Ended
6/30/03 12/31/02
(Unaudited)
Increase (Decrease) in Net Assets from Operations:
Net investment income $ 1,098,848 $ 3,253,756
Net realized loss on investments (9,165,189) (19,454,474)
Net change in unrealized appreciation/
depreciation of investments 17,741,849 (2,925,482)
----------- -----------
Net increase (decrease) in net assets resulting
from operations 9,675,508 (19,126,200)
----------- -----------
Changes from Capital Share Transactions:
Retirement of shares repurchased through
Buy-Back program-- Note E -- (617,056)
----------- -----------
Net decrease from capital share transactions -- (617,056)
----------- -----------
Dividends and Distributions to Shareholders:
From net investment income (1,456,681) (3,305,081)
In excess of net investment income* -- (1,456,681)
From tax return of capital -- (661,892)
----------- -----------
(1,456,681) (5,423,654)
----------- -----------
Total Increase (Decrease) in Net Assets 8,218,827 (25,166,910)
----------- -----------
Net Assets:
Beginning of period 73,171,563 98,338,473
----------- -----------
End of period $81,390,390 $73,171,563
=========== ===========
*Dividends that were declared in 2002 and payable in 2003.
The accompanying notes are an integral part of the financial statements
4
Financial
HIGHLIGHTS
Selected data for each share of common stock outstanding
throughout each period were as follows:
Lincoln National Convertible Securities Fund, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
6/30/03(2) 12/31/02 12/31/01 12/31/00 12/31/99 12/31/98
(Unaudited)
Net asset value, beginning of period $12.56 $16.76 $17.19 $21.59 $16.36 $18.24
Income from investment operations:
Net investment income1 0.19 0.56 0.83 0.91 0.84 0.97
Anti-dilutive impact due to capital shares repurchased -- 0.01 0.11 0.12 -- --
Net realized and unrealized gain (loss) (net of taxes) 1.47 (3.84) (0.61) (4.55) 5.25 (1.89)
------ ------ ------ ------ ------ ------
Total from investment operations 1.66 (3.27) 0.33 (3.52) 6.09 (0.92)
------ ------ ------ ------ ------ ------
Less dividends and distributions to shareholders:
From net investment income (0.25) (0.57) (0.76) (0.88) (0.86) (0.96)
In excess of net investment income(3) -- (0.25) -- -- -- --
From tax return of capital -- (0.11) -- -- -- --
------ ------ ------ ------ ------ ------
Total dividends and distributions (0.25) (0.93) (0.76) (0.88) (0.86) (0.96)
------ ------ ------ ------ ------ ------
Net asset value, end of period $13.97 $12.56 $16.76 $17.19 $21.59 $16.36
====== ====== ====== ====== ====== ======
Per share market value, end of period $14.08 $12.09 $14.36 $14.75 $16.00 $14.00
Total investment return (based on market value) 18.70% (9.35%) 2.57% (2.62%) 21.57% (16.43%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $81,390 $73,172 $98,338 $106,227 $137,580 $104,227
Ratio of expenses to average net assets 1.80% 1.46% 1.54% 1.23% 1.05% 1.15%
Ratio of expenses to average net assets prior
to expenses waived and expenses paid indirectly 1.95% 1.76% 1.74% 1.28% 1.06% 1.15%
Ratio of net investment income to average net assets 2.86% 3.89% 4.88% 4.10% 4.98% 5.52%
Ratio of net investment income to average net assets
prior to expenses waived and expenses paid indirectly 2.71% 3.59% 4.68% 4.05% 4.97% 5.52%
Portfolio turnover 80.77% 76.88% 123.72% 120.68% 128.32% 151.68%
(1) Per share information was based on the average shares outstanding method.
(2) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(3) Dividends that were declared in 2002 and payable in 2003.
The accompanying notes are an integral part of the financial statements.
5
Notes Lincoln National Convertible Securities Fund, Inc.
TO FINANCIAL STATEMENTS June 30, 2003 (Unaudited)
Lincoln National Convertible Securities Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940, as amended, as a closed-end,
diversified management investment company, incorporated under the laws of
Maryland. Fund shares are listed on the New York Stock Exchange under the symbol
LNV.
Note A -- Summary of Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Investments -- Investments in equity securities traded on a national exchange
are valued at their last sale price at the close of that exchange; if on a
particular day an exchange-listed security does not trade, then the mean between
the bid and asked prices will be used. Equity securities traded in the
over-the-counter market are valued at the last sale price at the close of the
New York Stock Exchange. Securities traded on the NASDAQ Stock Market Inc.
("NASDAQ") are valued in accordance with the NASDAQ official closing price,
which may not be the last sales price. If a non-exchange-listed security does
not trade on a particular day, then the mean between the bid and asked prices
will be used as long as it continues to reflect the value of the security. Debt
securities are valued by using market quotations or a matrix method provided by
a pricing service. If prices are not available from the pricing service then the
securities will be valued at the mean between bid and offer prices. U.S.
government and agency securities are valued at the mean between the bid and
asked prices. Securities for which quotations are not available are priced at
"fair value", as determined by the Fund's securities valuation committee
according to the Fund's pricing procedures as approved by the Fund's Board of
Directors. Money market instruments having less then 60 days to maturity are
valued at amortized cost, which approximates market value.
The Board of Directors of the Fund is composed, in part, of individuals who are
interested persons (as defined in the Investment Company Act of 1940) of the
Advisor or affiliated companies. Valuations are determined according to pricing
procedures approved and reviewed by a majority of the Directors who are not
interested persons.
Income Taxes -- It is the intention of the Fund to distribute substantially all
net investment income and net realized gains. The Fund intends to continue to
qualify for tax treatment accorded to "regulated investment companies" as
defined by the applicable provisions of the Internal Revenue Code. On such
basis, under present law, the Fund will not incur any liability for income taxes
on the portion of its net investment income and net realized gains distributed
to shareholders.
Use of Estimates -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Other -- Security transactions are recorded on the date the securities are
purchased or sold (trade date). Cost of securities sold is determined on a
specific identification method. Dividend income is recorded on the ex-dividend
date. Interest income is recorded on the accrual basis. Discounts and premiums
on all debt securities are amortized to interest income over the lives of the
respective securities. Distributions to common shareholders are recorded on the
ex-dividend date. The Fund receives earnings credits from the custodian when
positive cash balances are maintained, which are used to offset custody fees.
The earnings credits for the six months ended June 30, 2003 were approximately
$887. The expense paid under this agreement is included in its respective
expense caption on the Statement of Operations with the corresponding expense
offset shown as "expenses paid indirectly".
Note B -- Investments
The aggregate cost of investments purchased and the aggregate proceeds from
investments sold (exclusive of U.S. government securities and short-term
investments) amounted to $27,726,088 and $27,913,541, respectively, as of June
30, 2003.
Note C -- Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the six months ended June 30, 2003 and year ended
December 31, 2002 were as follows:
6/30/03* 12/31/02
Ordinary Income $1,456,681 $3,305,081
In Excess of Net Investment Income -- 1,456,681
Tax Return of Capital -- 661,892
---------- ----------
Total $1,456,681 $5,423,654
========== ==========
*Tax information for the six months ended June 30, 2003 is an estimate and a
portion of ordinary income will be redesignated as return of capital at fiscal
year end.
The components of net assets are estimated since final tax characteristics
cannot be determined until fiscal year end. As of June 30, 2003, the estimated
components of net assets on a tax basis were as follows:
Shares of beneficial interest $115,331,951
Distributions in excess of net investment income (1,814,514)
Net realized capital loss on investments (15,894,199)
Capital loss carryforward (18,892,104)
Unrealized appreciation on investments 2,659,256
------------
Net assets $ 81,390,390
============
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Such capital loss
carryforwards expire as follows: $7,044,778 expires in 2009, and $11,847,326
expires in 2010.
The cost of investments for federal income tax purposes has been estimated since
the final tax characteristics cannot be determined until fiscal year end. At
June 30, 2003, the cost of investments was $81,625,661. At June 30, 2003, the
net unrealized appreciation was $2,659,256 of which $7,042,777 related to
unrealized appreciation of investments and $4,383,521 related to unrealized
depreciation of investments.
Note D -- Management Fees and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Fund
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, a management fee of 0.21875% of net assets of
the Fund as of the close of business on the last business day of the quarter
(0.875% on an annual basis). Prior to March 31, 2003, DMC had elected to waive
0.30% of its management fee. At June 30, 2003, the Fund had a liability payable
to DMC of $189,513.
Certain officers and directors of the Fund are also officers or directors of DMC
and receive no compensation from the Fund. The compensation of unaffiliated
directors of the Fund is borne by the Fund. Delaware Service Company, Inc.,
which is an affiliate of DMC, provides accounting services for the Fund.
6
Notes Lincoln National Convertible Securities Fund, Inc.
TO FINANCIAL STATEMENTS (CONTINUED)
Note E -- Share Repurchase Program
On March 22, 2000, the Board of Directors authorized the repurchase by the Fund
of up to 5% of the Fund's outstanding common stock, for the purposes of
enhancing shareholder value. The Fund's Board has authorized management of the
Fund to repurchase such shares in open market transactions at prevailing market
prices from time to time and in a manner consistent with the Fund continuing to
seek to achieve its investment objective. The Board's actions were taken in
light of the significant discounts at which the Fund's shares were trading, in
order to provide additional liquidity to shareholders and to enhance the net
asset value of the shares. On February 2, 2001, the Board of Directors extended
the share repurchase program by authorizing the repurchase of an additional 5%
of the Fund's outstanding common stock upon completion of the initial buyback
program.
Weighted
Period Shares Average Discount
Ended Repurchased Cost Discount Range
----- ----------- ---- -------- -----
12/31/00 192,450 $3,353,064 19.32% 6.97% - 30.28%
12/31/01 311,700 4,800,263 11.85% 6.62% - 20.80%
12/31/02 41,350 617,056 8.45% 5.91% - 12.05%
6/30/03 -- -- -- --
Note F -- Contingencies
In May 2000, a suit was filed against the Lincoln National Convertible
Securities Fund, Inc. (the "Fund") and its Directors in the United States
District Court for the Eastern District of Pennsylvania (the "District Court").
Goldstein v. Lincoln National Convertible Securities Fund, Inc., Case No.
00-CV-2653. The plaintiff was a stockholder of the Fund who, in April 2000,
expressed an intention (a) to nominate candidates for the two director positions
that were to be filled at the Fund's 2000 annual meeting in May, (b) to move
that the shareholders pass a certain resolution at the 2000 annual meeting in
May and (c) to solicit proxies. The Fund informed him that it would not permit
him to raise the matters he wished to raise at the 2000 annual meeting because
he had failed to notify the Fund of his intentions prior to a January 2000
deadline that had been announced in the Fund's proxy statement for the prior
year. 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 the Fund disseminated in connection with
the 2000 annual meeting. The primary relief that the plaintiff sought was an
order compelling the Fund to put up two classes of its staggered board for
election at the 2001 annual meeting--the class that would ordinarily be put up
for election at that meeting but also the class that was elected at the 2000
annual meeting. The Fund asserted counterclaims against the plaintiff,
contending that arrangements he had with various beneficial holders of the
Fund's shares gave rise to violations of the federal securities laws. On April
27, 2001, the District Court found in favor of the plaintiff. This ruling was
based on the District 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 District Court also ruled in favor
of the plaintiff with respect to the Fund's counterclaim. The District Court
issued an order setting aside the election of the Fund's Class 1 Directors at
the 2000 annual meeting and ordered that a new election be conducted with
respect to the Class 1 Director positions. The Board of Directors appealed the
ruling of the District Court in this case. In March 2003, the Fund and its
Directors reached a financial settlement with the plaintiff, the entire cost of
which was borne by the Fund's investment advisor. The District Court's decision
in favor of the plaintiff was subsequently vacated in April 2003.
In addition, in January 2001, an action was filed against the Fund and its
Directors in the Circuit Court for Baltimore City in Baltimore, Maryland.
Daniels v. Lincoln National Convertible Securities Fund, Inc. (Daniels I). This
action purports to have been brought on behalf of a class consisting of all the
Fund's shareholders. The allegations in this action are functionally identical
to those in the action described above.
In September 2001, the plaintiff in Daniels I filed a separate class action
complaint in the District Court for the Southern District of New York. In
addition to the Fund and its Directors, the complaint in Daniels v. Lincoln
National Convertible Securities Fund, Inc. (Daniels II) names Lincoln Investment
Management (the Fund's investment advisor prior to January 1, 2001) and Delaware
Management Company (the Fund's current investment advisor) as defendants. The
complaint alleges that the defendants engaged in a joint transaction in
contravention of Section 17(d) of the Investment Company Act of 1940.
Specifically, the complaint alleges that the Directors and the Fund's investment
advisor improperly used Fund assets to finance a proxy contest against Mr.
Goldstein and related litigation. The plaintiff seeks unspecified damages and
attorney's fees.
Note G -- Proxy Voting
A description of the policies and procedures that the Fund uses to determine how
to vote proxies (if any) relating to portfolio securities is available without
charge (i) upon request, by calling 800 523-1918; (ii) on the Fund's website at
http://www.delawareinvestments.com; and (iii) on the Commission's website at
http://www.sec.gov. Beginning no later than August 31, 2004, information (if
any) regarding how the Fund voted proxies relating to portfolio securities
during the most recent 12-month period ended June 30 is available without charge
(i) through the Fund's website at http://www.delawareinvestments.com; and (ii)
on the Commission's website at http://www.sec.gov.
7
Important Lincoln National Convertible Securities Fund, Inc.
FUND INFORMATION
Your Portfolio Manager
Damon J. Andres became the Fund's portfolio manager on April 1, 2003. Mr. Andres
has been a portfolio manager with Delaware Management Company, the Fund's
investment advisor, since 1994. Mr. Andres earned a BS in business
administration with an emphasis in finance and accounting from the University of
Richmond. Prior to joining Delaware Management Company, Mr. Andres performed
investment consulting services as a Consulting Associate with Cambridge
Associates, Inc. in Arlington, Virginia. Mr. Andres is a CFA charterholder.
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Shareholder Meeting Results
2003 Annual Shareholder Meeting
The Fund held its annual meeting of shareholders on June 12, 2003. At the annual
meeting, the Fund's shareholders elected seven Directors. The result of the
voting at the annual meeting was as follows:
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Nominee Shares Voted For Withheld Authority
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Thomas L. Bindley 5,417,461 73,108
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Richard M. Burridge, Sr. 5,409,566 81,003
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Adela Cepeda 5,415,617 74,953
- --------------------------------------------------------------------------------
Roger J. Deshaies 5,415,961 74,608
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David K. Downes 5,409,354 81,215
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H. Thomas McMeekin 5,410,557 80,012
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Daniel R. Toll 5,411,035 79,534
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8
Delaware
Investments(SM)
- --------------------------------------
A member of Lincoln Financial Group(R)
This semiannual report is for the information of Lincoln National Convertible
Securities Fund, Inc. shareholders. The return and principal value of an
investment in the Fund will fluctuate so that shares, when resold, may be worth
more or less than their original cost.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may, from time to time, purchase shares of its
own common stock on the open market at market prices.
Corporate Information Automatic Dividend Reinvestment Plan Shares will be held by the Plan agent.
Any registered shareholder of Lincoln You will receive a statement each time
Investment Advisor National Convertible Securities Fund, shares are distributed by the Fund or
Delaware Management Company Inc. may participate in the Automatic purchased for you.
2005 Market Street Dividend Reinvestment Plan (the "Plan").
Philadelphia, PA 19103-7094 If you are a beneficial owner whose There is no direct charge for Plan
shares are registered in the name of participation. The administrative costs
Administrator another (e.g., in a broker's "street of the Plan are borne by the Fund.
Delaware Service Company, Inc. name") and desire to participate in the
2005 Market Street Plan, you must become a registered If your dividends and other
Philadelphia, PA 19103-7094 holder by transferring the shares to distributions are reinvested, they will
your name. be subject to capital gains and income
Independent Accountants taxes as if they were paid to you in
PricewaterhouseCoopers LLP To participate in the Plan, you must cash.
2001 Market Street complete and forward an authorization
Philadelphia, PA 19103-7042 card to Mellon Investor Services LLC, You may terminate your participation in
the Plan agent. This card authorizes the the Plan at any time by giving written
Dividend Disbursing Agent, Transfer Plan agent to receive your dividends and notice to the Plan agent.
Agent and Reinvestment Plan Agent other distributions from the Fund in
Mellon Investor Services LLC additional shares of common stock. The For additional information on the Plan,
Overpeck Centre additional shares will be issued by the please write to:
85 Challenger Road Fund, if the net asset value per share Mellon Investor Services LLC
Ridgefield Park, NJ 07666 is equal to or lower than the market Overpeck Centre
800 851-9677 price of the Fund's common stock plus 85 Challenger Road
brokerage commissions. If the net asset Ridgefield Park, NJ 07666
Stock Exchange value per share is higher than the 800 851-9677
The Fund's stock is traded on the New York market price of the Fund's common stock
Stock Exchange (NYSE) under the symbol LNV. plus brokerage commissions, the
additional shares will be purchased in
For Securities Dealers and Financial the open market and the cost of the
Institutions Representatives brokerage commissions will be charged to
800 362-7500 each participant on a pro-rata basis.
The Plan also allows the Plan agent to
accept optional cash contributions. Each
optional cash contribution by a
participant must be not less than $100
and not more than $3,000 per dividend
period and must be received by the Plan
agent not less than five business days
and no more than 30 days prior to the
dividend payment date.
(8040) Printed in the USA
SA-LNCS [6/03] IVES 8/03 J9331
Item 2. Code of Ethics
Not applicable.
Item 3. Audit Committee Financial Expert
Not applicable.
Item 4. Principal Accountant Fees and Services
Not applicable.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable.
Item 8. [Reserved]
Item 9. Controls and Procedures
The registrant's principal executive officer and principal financial
officer have evaluated the registrant's disclosure controls and procedures
within 90 days of the filing of this report and have concluded that they are
effective in providing reasonable assurance that the information required to be
disclosed by the registrant in its reports or statements filed under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission.
There were no significant changes in the registrant's internal control
over financial reporting that occurred during the registrant's last fiscal
half-year that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
Item 10. Exhibits
(a) (1) Code of Ethics
Not applicable.
(2) Certifications of Principal Executive Officer and Principal Financial
Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are
attached hereto as Exhibit 99.CERT.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
are furnished herewith as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf, by the undersigned, thereunto duly authorized.
Name of Registrant:
PATRICK P. COYNE
By: Patrick P. Coyne
-----------------------------
Title: President
Date: 9/3/03
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
PATRICK P. COYNE
By: Patrick P. Coyne
-----------------------------
Title: President
Date: 9/3/03
MICHAEL P. BISHOF
By: Michael P. Bishof
--------------------
Title: Treasurer
Date: 9/3/03