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: 811-4659
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: December 31, 2004
Date of reporting period: June 30, 2004
Item 1. Reports to Stockholders
Delaware
Investments(SM)
--------------------------------------
A member of Lincoln Financial Group(R)
SEMIANNUAL REPORT JUNE 30, 2004
- --------------------------------------------------------------------------------
LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
[LOGO] POWERED BY RESEARCH.(SM)
TABLE
OF CONTENTS
- ------------------------------------------------------
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) 2004 Delaware Distributors, L.P.
STATEMENT LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
OF NET ASSETS June 30, 2004 (Unaudited)
Principal Market
Amount Value
CONVERTIBLE BONDS - 47.91%
Aerospace & Defense - 1.83%
EDO 5.25% 4/15/07 $1,500,000 $1,576,875
----------
1,576,875
----------
Automobiles & Automotive Parts - 1.13%
Sonic Automotive 5.25% 5/7/09 1,000,000 973,750
----------
973,750
----------
Banking, Finance & Insurance - 2.33%
PMI Group 2.50% 7/15/21 1,750,000 2,010,313
----------
2,010,313
----------
Cable, Media & Publishing - 6.07%
EchoStar Communications
5.75% 5/15/08 1,000,000 1,033,750
Liberty Media (Convertible to Motorola)
3.50% 1/15/31 1,000,000 907,500
Liberty Media (Convertible to Viacom)
3.25% 3/15/31 1,000,000 900,000
Mediacom Communications
5.25% 7/1/06 2,500,000 2,390,625
----------
5,231,875
----------
Computers & Technology - 1.28%
EMC 4.50% 4/1/07 1,000,000 1,101,250
----------
1,101,250
----------
Diversified Manufacturing - 1.92%
Tyco International 2.75% 1/15/18 1,100,000 1,658,250
----------
1,658,250
----------
Electronics & Electrical Equipment - 6.15%
Amkor Technology 5.75% 6/1/06 2,500,000 2,450,000
+ON Semiconductor 144A
0.00% 4/15/24 2,000,000 1,587,500
++Saks 144A 2.00% 3/15/24 1,275,000 1,265,438
----------
5,302,938
----------
Energy - 3.35%
Centerpoint Energy 3.75% 5/15/23 2,530,000 2,884,200
----------
2,884,200
----------
Engineering - 1.81%
Fluor 1.50% 2/15/24 1,500,000 1,558,125
----------
1,558,125
----------
Food, Beverage & Tobacco - 3.84%
*Brinker International 2.27% 10/10/21 2,000,000 1,327,500
++Bunge Limited 144A 3.75% 11/15/22 1,500,000 1,978,125
----------
3,305,625
----------
Healthcare & Pharmaceuticals - 11.51%
AmerisourceBergen 5.00% 12/1/07 900,000 1,064,250
Cephalon 2.50% 12/15/06 1,000,000 966,250
CV Therapeutics 4.75% 3/7/07 2,000,000 2,035,000
Fisher Scientific 3.25% 3/1/24 1,500,000 1,563,750
*Laboratory Corporation of America
1.519% 9/11/21 2,550,000 1,848,750
Medarex 4.50% 7/1/06 1,000,000 1,018,000
Province Healthcare 4.25% 10/10/08 1,400,000 1,431,500
----------
9,927,500
----------
Industrial Machinery - 0.89%
++Solectron 144A 0.50% 2/15/34 825,000 764,156
----------
764,156
----------
Principal Market
Amount Value
CONVERTIBLE BONDS (continued)
Leisure, Lodging & Entertainment - 1.78%
++Regal Entertainment 144A
3.75% 5/15/08 $1,270,000 $ 1,533,525
-----------
1,533,525
-----------
Retail - 2.00%
*TJX 1.75% 2/13/21 2,000,000 1,720,000
-----------
1,720,000
-----------
Transportation & Shipping - 2.02%
++ExpressJet 144A 4.25% 8/1/23 750,000 734,063
++Northwest Airlines Convertible 144A
7.625% 11/15/23 1,250,000 1,007,812
-----------
1,741,875
-----------
TOTAL CONVERTIBLE BONDS
(cost $37,529,222) 41,290,257
-----------
Number of
Shares
CONVERTIBLE PREFERRED STOCK - 31.35%
Aerospace & Defense - 1.54%
Northrop Grumman 7.25% 12,500 1,329,000
-----------
1,329,000
-----------
Automobiles & Automotive Parts - 5.29%
Ford Capital Trust II 6.50% 20,000 1,095,200
General Motors 5.25% 70,000 1,729,700
Tower Automotive Capital Trust 6.75% 60,650 1,448,019
Tower Automotive Capital Trust 6.75% 12,125 289,484
-----------
4,562,403
-----------
Banking, Finance & Insurance - 6.63%
Chubb 7.00% 85,000 2,374,900
Citigroup 2.00% 30,000 1,180,320
Washington Mutual 5.375% 40,000 2,154,800
-----------
5,710,020
-----------
Cable, Media & Publishing - 2.03%
Equity Securities Trust I 6.50% 40,000 831,200
Interpublic Group 5.375% 18,000 918,540
-----------
1,749,740
-----------
Consumer Products - 0.79%
Newell Financial Trust I 5.25% 15,000 678,750
-----------
678,750
-----------
Energy - 6.27%
Amerada Hess 7.00% 5,000 362,250
Centerpoint Energy 2.00% 26,000 855,218
++Chesapeake Energy 144A 6.00% 10,000 776,250
El Paso Energy Capital Trust I 4.75% 34,600 967,070
Unocal Capital Trust 6.25% 19,800 1,029,600
++Williams 5.50% 20,000 1,412,500
-----------
5,402,888
-----------
Environmental Services - 1.08%
Allied Waste Industries 6.25% 13,100 933,768
-----------
933,768
-----------
Food, Beverage & Tobacco - 1.38%
Constellation 5.75% 36,000 1,185,480
-----------
1,185,480
-----------
1
STATEMENT LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
OF NET ASSETS (CONTINUED)
Number of Market
Shares Value
CONVERTIBLE PREFERRED STOCK (continued)
Paper & Forest Products - 6.34%
International Paper Capital 5.25% 65,000 $ 3,290,625
Temple-Inland 7.50% 37,000 2,176,340
------------
5,466,965
------------
TOTAL CONVERTIBLE PREFERRED STOCK
(cost $26,717,280) 27,019,014
------------
COMMON STOCK - 6.38%
Electronics & Electrical Equipment - 2.19%
+Benchmark Electronics 47,878 1,393,250
+Solectron 76,452 494,644
------------
1,887,894
------------
REITs - 4.19%
American Home Mortgage Investment 94,500 2,450,385
+Sunset Financial 113,100 1,157,013
------------
3,607,398
------------
TOTAL COMMON STOCK (cost $5,655,324) 5,495,292
------------
PREFERRED STOCK - 3.64%
Energy - 1.30%
Chesapeake Energy 5.00% 10,000 1,116,250
------------
1,116,250
------------
REITs - 2.34%
SL Green Realty 7.625% 80,000 2,017,504
------------
2,017,504
------------
TOTAL PREFERRED STOCK (cost $3,000,000) 3,133,754
------------
Principal
Amount
COMMERCIAL PAPER - 6.38%
Aquinas Funding 1.43% 7/1/04 $2,000,000 2,000,000
Eiffel Funding 1.28% 7/6/04 1,500,000 1,499,733
Surrey Funding 1.50% 7/1/04 2,000,000 2,000,000
------------
TOTAL COMMERCIAL PAPER
(cost $5,499,733) 5,499,733
------------
TOTAL MARKET VALUE OF SECURITIES - 95.66%
(cost $78,401,559) $ 82,438,050
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 4.34% 3,743,897
------------
NET ASSETS APPLICABLE TO 5,832,823 COMMON
SHARES ($0.001 PAR VALUE) OUTSTANDING;
EQUIVALENT TO $14.78 PER SHARE - 100.00% $ 86,181,947
============
COMPONENTS OF NET ASSETS AT JUNE 30, 2004:+++
Paid in capital $112,252,659
Accumulated net realized loss on investments (30,107,203)
Net unrealized appreciation of investments 4,036,491
-----------
Total net assets $ 86,181,947
============
*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, 2004.
++Security exempt from registration under Rule 144A of the Securities Act
of 1933.
See Note G in "Notes to Financial Statements."
+++See Note C in "Notes to Financial Statements."
SUMMARY OF ABBREVIATIONS
REIT - Real Estate Investment Trust
See accompanying notes.
2
STATEMENT LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
OF OPERATIONS Six Months Ended June 30, 2004 (Unaudited)
INVESTMENT INCOME:
Dividends $1,198,278
Interest 933,790 $2,132,068
---------- ----------
EXPENSES:
Management fees 381,889
Directors' fees 42,750
Stock transfer & dividend disbursing fees 20,250
Reports to shareholders 19,500
Legal fees 14,739
Audit and related fees 14,250
NYSE fees 12,499
Custodian fees 2,071
Other 5,000 512,948
---------
Less expenses absorbed or waived (1,784)
Less expenses paid indirectly (365)
----------
Total expenses 510,799
----------
NET INVESTMENT INCOME 1,621,269
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on investments 1,972,840
Net change in unrealized appreciation/depreciation
of investments (3,483,221)
----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (1,510,381)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $110,888
==========
See accompanying notes
3
STATEMENTS LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
OF CHANGES IN NET ASSETS
Six Months Year
Ended Ended
6/30/04 12/31/03
(Unaudited)
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 1,621,269 $ 2,558,728
Net realized gain (loss) on investments 1,972,840 (6,370,418)
Net change in unrealized appreciation/depreciation
of investments (3,483,221) 22,513,794
------------ -----------
Net increase in net assets resulting from operations 110,888 18,702,104
------------ -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (991,580) (2,093,627)
Return of capital -- (2,802,895)
------------ -----------
(991,580) (4,896,522)
------------ -----------
CAPITAL STOCK TRANSACTIONS:
Proceeds for shares issued under dividend reinvestment plan -- 85,494
------------ -----------
Increase in net assets resulting from capital share
transactions -- 85,494
------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS (880,692) 13,891,076
------------ -----------
NET ASSETS:
Beginning of period 87,062,639 73,171,563
------------ -----------
End of period $86,181,947 $87,062,639
============ ===========
Distributions in excess of net investment income $ (361,891) $(991,580)
============ ===========
See accompanying notes
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
6/30/04(1) 12/31/03 12/31/02 12/31/01 12/31/00(2) 12/31/99
(Unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD $14.930 $12.560 $16.760 $17.190 $21.590 $16.360
INCOME (LOSS) FROM INVESTMENT OPERATIONS:(3)
Net investment income 0.278 0.439 0.560 0.830 0.910 0.840
Anti-dilutive impact due to capital shares repurchased -- -- 0.010 0.110 0.120 --
Net realized and unrealized gain (loss) on investments
(net of taxes) (0.258) 2.771 (3.840) (0.610) (4.550) 5.250
------- ------- ------- ------- ------- -------
Total from investment operations 0.020 3.210 (3.270) 0.330 (3.520) 6.090
------- ------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS TO COMMON
SHAREHOLDERS FROM:
Net investment income (0.170) (0.359) (0.570) (0.760) (0.880) (0.860)
In excess of net investment income(4) -- -- (0.250) -- -- --
Return of capital -- (0.481) (0.110) -- -- --
------- ------- ------- ------- ------- -------
Total dividends and distributions (0.170) (0.840) (0.930) (0.760) (0.880) (0.860)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $14.780 $14.930 $12.560 $16.760 $17.190 $21.590
======= ======= ======= ======= ======= =======
Per Share Market Value, End of Period $12.690 $13.500 $12.090 $14.360 $14.750 $16.000
Total Investment Return Based on Market Value (4.82%) 18.87% (9.35%) 2.57% (2.62%) 21.57%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $86,182 $87,063 $73,172 $98,338 $106,227 $137,580
Ratio of expenses to average net assets 1.18% 1.46% 1.46% 1.54% 1.23% 1.05%
Ratio of expenses to average net assets prior to expenses
waived and expenses paid indirectly 1.18% 1.53% 1.76% 1.74% 1.28% 1.06%
Ratio of net investment income to average net assets 3.73% 3.18% 3.89% 4.88% 4.10% 4.98%
Ratio of net investment income to average net assets prior
to expenses waived and expenses paid indirectly 3.73% 3.11% 3.59% 4.68% 4.05% 4.97%
Portfolio turnover 53% 56% 77% 124% 121% 128%
(1) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(2) Total investment return based on market value does not include the impact of
the capital gains tax credit of $0.816 per share.
(3) The average shares outstanding method has been applied for per share
information.
(4) Dividends that were declared in 2002 and payable in 2003.
See accompanying notes
5
NOTES LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
TO FINANCIAL STATEMENTS June 30, 2004 (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 accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Fund.
Investments -- Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (NASDAQ), are valued at the last quoted sales price as of the
regular close of the New York Stock Exchange (NYSE) on the valuation date.
Securities traded on the NASDAQ are valued in accordance with the NASDAQ
Official Closing Price, which may not be the last sales price. If on a
particular day an equity security does not trade, then the mean between the bid
and asked prices will be used. Long-term debt securities are valued by an
independent pricing service and such prices are believed to reflect the fair
value of such securities. Short-term debt securities having less than 60 days to
maturity are valued at amortized cost, which approximates market value. Other
securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Fund's Board of Directors. In determining whether market quotations are
readily available or fair valuation will be used, various factors will be taken
into consideration, such as market closures, or with respect to foreign
securities, aftermarket trading or significant events after local market trading
(e.g., government actions or pronouncements, trading volume or volatility on
markets, exchanges among dealers, or news events).
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.
Distributions -- The Fund has a managed distribution policy. Under the policy,
the Fund declares and pays quarterly distributions and is managed with a goal of
generating as much of the distribution as possible from ordinary income (net
investment income and short-term capital gains). The balance of the distribution
then comes from long-term capital gains, and, if necessary, a return of capital.
As of June 30 2004, the current annualized rate is $0.68 per share. The Fund
continues to evaluate its quarterly distribution in light of ongoing economic
and market conditions and may change the amount of the quarterly distributions
in the future.
Use of Estimates -- The preparation of financial statements in conformity with
U.S. generally accepted accounting principles 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 non-convertible 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 balances are
maintained, which are used to offset custody fees. The earnings credits for the
period ended June 30, 2004 were $365. 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
For the six months ended June 30, 2004, the Fund made purchases of $22,492,019
and sales of $31,481,424 of investment securities other than U.S. government
securities and short-term investments.
At June 30, 2004, 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, 2004, the cost of investments was $78,401,559. At
June 30, 2004, net unrealized appreciation was $4,036,491, of which $7,879,417
related to unrealized appreciation of investments and $3,842,946 related to
unrealized depreciation of investments.
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 U.S. generally
accepted accounting principles. Ordinary income includes dividends from net
investment income and distributions from short-term capital gains. The tax
character of dividends and distributions paid during the six months ended June
30, 2004 and the year ended December 31, 2003 were as follows:
Six Months Year
Ended Ended
6/30/04* 12/31/03
---------- --------
Ordinary income $991,580 $2,093,627
In excess of net investment income 361,891 --
Return of capital -- 2,802,895
---------- ----------
Total $1,353,471 $4,896,522
---------- ----------
*Tax information for the period ended June 30, 2004 is an estimate and the tax
character of dividends and distributions may be redesignated at fiscal year
end. Due to the timing of payment of dividends, some of the ordinary income
will be reclassed to return of capital.
For financial reporting purposes, capital accounts and distributions to
shareholders are adjusted to reflect the tax character of book/tax differences.
For the six months ended June 30, 2004, the Funds recorded an estimate of these
differences since the final tax characteristics cannot be determined until
fiscal year end. Reclassifications are primarily due to tax treatment of excess
distributions from the prior year. Results of operations and net assets were not
affected by these reclassifications.
Undistributed Accumulated
Net Investment Realized Paid-in
Income Gain (Loss) Capital
-------------- ------------ --------
$361,891 -- $(361,891)
The components of net assets are estimated since final tax characteristics
cannot be determined until fiscal year end.
As of June 30, 2004, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest $112,252,659
Capital loss carryforwards (30,107,203)
Unrealized appreciation on investments 4,036,491
------------
Net assets $ 86,181,947
------------
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, $11,847,326 expires
in 2010, and $13,187,939 expires in 2011.
For the six months ended June 30, 2004, the Fund had capital gains of
$1,972,840, which may be offset by the capital loss carry forwards.
6
NOTES LINCOLN NATIONAL CONVERTIBLE SECURITIES FUND, INC.
TO FINANCIAL STATEMENTS (CONTINUED)
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 each quarter
(0.875% on an annual basis). Effective June 1, 2004, DMC has elected to waive
0.025% of its management fee through May 31, 2005.
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.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to provide accounting and administration services which are paid for by DMC out
of its investment advisory fees.
At June 30, 2004, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $173,030
Other expenses payable to DMC and affiliates* 221,865
*DMC, as part of its administrative services, pays Fund operating expenses on
behalf of the Fund and is reimbursed on a periodic basis. Such expenses
include items such as printing of shareholder reports, fees for audit, legal
and tax services, stock exchange fees, custodian fees and directors' fees.
NOTE E -- CAPITAL SHARES
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%
There were no shares repurchased during the year ended December 31, 2003 or the
six months ended June 30, 2004.
Shares issued under the dividend reinvestment plan were as follows:
Shares
------
Year ended December 31, 2003 6,098
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 claimed 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 - MARKET AND CREDIT RISKS
The Fund may invest up to 15% of its total assets in illiquid securities, which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Fund from disposing of them in a
timely manner and at a fair price when it is necessary or desirable to do so.
7
IMPORTANT
FUND INFORMATION
APPOINTMENT OF NEW INDEPENDENT AUDITORS
The Audit Committee and the Board of Directors decided not to retain
PricewaterhouseCoopers LLP for the 2003 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 fiscal years 2001 and 2002 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 fiscal years 2001 and 2002 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.
SHAREHOLDER MEETING RESULTS
2004 Annual Shareholder Meeting
The Fund held its annual meeting of shareholders on June 10, 2004. At the annual
meeting, the Fund's shareholders elected seven Directors. The result of the
voting at the annual meeting was as follows:
- --------------------------------------------------------------------------------
FORWITHHELD A
NOMINEE SHARES VOTED UTHORITY
- --------------------------------------------------------------------------------
Thomas L. Bindley 5,589,702 83,736
- --------------------------------------------------------------------------------
Richard M. Burridge, Sr. 5,578,543 94,896
- --------------------------------------------------------------------------------
Adela Cepeda 5,588,217 85,221
- --------------------------------------------------------------------------------
Patrick P. Coyne 5,587,007 86,431
- --------------------------------------------------------------------------------
Roger J. Deshaies 5,588,439 84,999
- --------------------------------------------------------------------------------
H. Thomas McMeekin 5,584,563 88,876
- --------------------------------------------------------------------------------
Daniel R. Toll 5,582,264 91,174
- --------------------------------------------------------------------------------
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
INVESTMENT ADVISOR
Delaware Management Company
2005 Market Street
Philadelphia, PA 19103-7094
ADMINISTRATOR
Delaware Service Company, Inc.
2005 Market Street
Philadelphia, PA 19103-7094
INDEPENDENT AUDITORS
Ernst & Young LLP
2001 Market Street
Philadelphia, PA 19103-7042
DIVIDEND DISBURSING AGENT, TRANSFER
AGENT AND REINVESTMENT PLAN AGENT
Mellon Investor Services LLC
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07666
800 851-9677
STOCK EXCHANGE
The Fund's stock is traded on the New York
Stock Exchange (NYSE) under the symbol LNV.
FOR SECURITIES DEALERS AND FINANCIAL
INSTITUTIONS REPRESENTATIVES
800 362-7500
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Any registered shareholder of Lincoln National Convertible Securities Fund, Inc.
may participate in the Automatic Dividend Reinvestment Plan (the "Plan"). If you
are a beneficial owner whose shares are registered in the name of another (e.g.,
in a broker's "street name") and desire to participate in the Plan, you must
become a registered holder by transferring the shares to your name.
To participate in the Plan, you must complete and forward an authorization card
to Mellon Investor Services LLC, the Plan agent. This card authorizes the Plan
agent to receive your dividends and other distributions from the Fund in
additional shares of common stock. The additional shares will be issued by the
Fund, if the net asset value per share is equal to or lower than the market
price of the Fund's common stock plus brokerage commissions. If the net asset
value per share is higher than the market price of the Fund's common stock plus
brokerage commissions, the additional shares will be purchased in the open
market and the cost of the brokerage commissions will be charged to each
participant on a pro-rata basis. The Plan also allows the Plan agent to accept
optional cash contributions. Each optional cash contribution by a participant
must be not less than $100 and not more than $3,000 per dividend period and must
be received by the Plan agent not less than five business days and no more than
30 days prior to the dividend payment date.
Shares will be held by the Plan agent. You will receive a statement each time
shares are distributed by the Fund or purchased for you.
There is no direct charge for Plan participation. The administrative costs of
the Plan are borne by the Fund.
If your dividends and other distributions are reinvested, they will be subject
to capital gains and income taxes as if they were paid to you in cash.
You may terminate your participation in the Plan at any time by giving written
notice to the Plan agent.
For additional information on the Plan, please write to:
Mellon Investor Services LLC
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07666
or call 800 851-9677.
- --------------------------------------------------------------------------------
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; and 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.
- --------------------------------------------------------------------------------
(8845) Printed in the USA
SA-LNCS [6/04] IVES 8/04 J9758
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. Schedule of Investments
Included as part of report to shareholders filed under Item 1 of this
Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Companies and Affiliated Purchasers
Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 10. 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 11. 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.
(3) Written solicitations to purchase securities pursuant to Rule 23c-1
under the Securities Exchange Act of 1934.
Not applicable.
(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: Lincoln National Convertible Securities Fund, Inc.
DAMON J. ANDRES
- ---------------------------
By: Damon J. Andres
Title: Vice President
Date: August 24, 2004
---------------
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.
DAMON J. ANDRES
- --------------------------------
By: Damon J. Andres
Title: Vice President
Date: August 24, 2004
---------------
JOHN J. O'CONNOR
- --------------------------------
By: John J. O'Connor
Title: Assistant Treasurer
Date: August 24, 2004
---------------