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 811-8747
CHARTWELL DIVIDEND AND INCOME FUND, INC.
(Exact name of registrant as specified in charter)
--------
1235 Westlakes Drive, Suite 400
Berwyn, PA 19312
(Address of principal executive offices) (Zip code)
PNC Bank, National Association
400 Bellevue Parkway
Wilmington, DE 19809
Attn: Closed-End Department
(Name and address of agent for service)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 1-610-296-1400
DATE OF FISCAL YEAR END: NOVEMBER 30, 2006
DATE OF REPORTING PERIOD: NOVEMBER 30, 2006
ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMITTED]
CHARTWELL
DIVIDEND AND
INCOME FUND, INC.
ANNUAL REPORT TO SHAREHOLDERS
DATED NOVEMBER 30, 2006
[LOGO OMITTED] CHARTWELL INVESTMENT
PARTNERS
WWW.CHARTWELLIP.COM
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES & STRATEGY (UNAUDITED)
The Chartwell Dividend and Income Fund's (the "Fund") primary investment
objective is to seek high current income. Capital appreciation is a secondary
objective. The Fund will seek to achieve its objectives by investing, under
normal circumstances, at least 50% of its total assets in income generating
equity securities, including dividend paying common stocks, convertible
securities, preferred stocks and other equity-related securities. In addition,
the Fund may invest the balance of its total assets in non-convertible debt
securities, consisting primarily of corporate bonds. The Fund attempts to
minimize individual security risk by diversifying across many industries and
asset classes. The Fund is a closed-end management investment company which
trades on the New York Stock Exchange under the symbol CWF.
COMMON STOCK
The Fund invests in the common stocks of utility companies, Real Estate
Investment Trusts (REITs) and other industrial and financial companies as well
as other equity securities. Both utilities and REITs tend to offer a premium
dividend yield with steady growth that can lead to capital appreciation.
Industrial and financial stocks are primarily purchased for capital appreciation
based on the fundamental value of the underlying company.
HIGH-YIELD CORPORATE BONDS
High-yield bonds are non-investment grade corporate debt obligations rated "Ba1"
or lower by Moody's Investors Service, Inc. or "BB+" or lower by Standard and
Poor's Ratings Group; they typically have a higher risk level than
investment-grade bonds. These securities have historically compensated investors
with higher levels of income for that risk. Prices usually are less sensitive to
interest rate fluctuations than higher rated bonds because of the high income
levels. However, the prices of these bonds are more sensitive to changes in the
economy.
CONVERTIBLE SECURITIES
The Fund can invest in both convertible preferred stock and convertible bonds.
Both pay fixed rates of income, but because they can be converted into common
stock, they are indirectly tied to the common stock's performance. As a result,
convertible securities generally offer higher income than common stocks and an
opportunity for price appreciation when the value of the underlying security
rises. The Fund buys convertibles when the underlying common stock offers strong
growth potential as well.
2
-----
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS (UNAUDITED),
The total market return in the fiscal year ended November 30, 2006 for The
Chartwell Dividend and Income Fund (CWF), including dividends reinvested, was
0.36%. This return was achieved even as the total market return in the last six
months ended November 30, 2006 was 19.12%, reversing a negative market return of
- -15.74% during the first six months of the fiscal year.
The Net Asset Value (NAV) return was strong throughout the entire fiscal year
and advanced 22.51%. These results exceeded the performance of the broad stock
market as the S&P 500 advanced 14.23% and the Merrill Lynch High Yield Cash Pay
Index returned 11.46% for the twelve months ended November 30, 2006.
We remain constructive on the outlook for the stock market and the high yield
bond market. We believe that recent positive trends in both markets are fully
supported by the performance of the U.S. economy. Previous shareholder letters
discussed economic growth as being solid despite a slowing housing market, high
oil prices, and rising short-term interest rates. It may be that the worries
over these issues are yesterday's problems. In our view, the national housing
market appears stable, even as new home construction declines. Despite the best
efforts of OPEC, oil prices are well off their highs. In addition, short-term
interest rates have stopped rising. Speculation is that the Federal Reserve's
(the "Fed") next move may be to lower the Fed Funds Rate. In our opinion, the
central question is whether future inflation will be too high for the Fed to be
overly accommodative. The Consumer Price Index (CPI) is 2.0% above its year
earlier level. The "core" index, which excludes energy and food prices, is 2.5%
above its year-ago level. Some Fed watchers believe the Fed's "core" inflation
target is around 2.0%. If so, the Fed may disappoint those hoping for lower
rates in the near future.
3
-----
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
(UNAUDITED)
Among the pleasant economic surprises was the surge in November retail sales.
Sales rose by a seasonally adjusted 1.0%, much better than anticipated. The woes
of the housing industry and the domestic auto companies do not appear to be
dampening spending levels elsewhere. Sales of electronics, appliances and other
consumer goods appear to be on solid footing. Please read the equity and fixed
income commentary for more information and analysis.
Sincerely,
/s/ Winthrop S. Jessup
Winthrop S. Jessup
CHAIRMAN
CHARTWELL DIVIDEND AND INCOME FUND
/s/ Bernard P. Schaffer /s/ Andrew S. Toburen
Bernard P. Schaffer Andrew S. Toburen
PORTFOLIO MANAGER PORTFOLIO MANAGER
PORTFOLIO MANAGEMENT TEAM
Bernard P. Schaffer Andrew S. Toburen
PORTFOLIO MANAGER PORTFOLIO MANAGER
EQUITY FIXED INCOME
Paul Matlack Christine F. Williams
PORTFOLIO MANAGER PORTFOLIO MANAGER
FIXED INCOME FIXED INCOME
4
-----
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
(UNAUDITED)
HOW DID THE FUND PERFORM DURING THE FISCAL YEAR ENDED NOVEMBER 30, 2006?
For the fiscal year ended November 30, 2006, the Fund's market return was 0.36%
including dividends reinvested. The total return of the net assets of the Fund
including the reinvestment of dividends was 22.51%. Despite a significant
sell-off in May, the equity market (as represented by the S&P 500) returned
14.23% for the fiscal year. The equity market rally in the second half of the
Fund's fiscal year was fueled by the Fed's decision in early August not to raise
the Fed Fund's rate for the first time in seventeen meetings and the decline in
crude oil prices.
The Merrill Lynch High Yield Cash Pay Index returned 11.46% for the fiscal year
ended November 30, 2006. Receding inflation fears, falling interest rates, and
rising equity prices sparked a second half rally that pushed returns solidly
higher. High yield was the best performing domestic fixed income category,
outpacing the 10-year Treasury and investment grade corporate bonds, which
returned 4.18% and 6.37% (Merrill Lynch U.S. Corporate Master Index), by a
- --------------------------------------------------------------------------------
HIGH YIELD PREMIUM OVER TREASURIES
November 30, 1996 - November 30, 2006
(Source: Merrill Lynch, Bloomberg)
[Line Graph Omitted]
Plot points for EDGAR purposes as follows:
(basis points)
Nov-96 305
Dec-96 266
Jan-97 260
Feb-97 243
Mar-97 258
Apr-97 271
May-97 243
Jun-97 241
Jul-97 242
Aug-97 230
Sep-97 234
Oct-97 272
Nov-97 266
Dec-97 269
Jan-98 271
Feb-98 261
Mar-98 260
Apr-98 271
May-98 293
Jun-98 350
Jul-98 351
Aug-98 502
Sep-98 573
Oct-98 613
Nov-98 530
Dec-98 555
Jan-99 550
Feb-99 507
Mar-99 510
Apr-99 464
May-99 467
Jun-99 465
Jul-99 444
Aug-99 465
Sep-99 489
Oct-99 499
Nov-99 470
Dec-99 453
Jan-00 461
Feb-00 496
Mar-00 584
Apr-00 596
May-00 618
Jun-00 615
Jul-00 617
Aug-00 641
Sep-00 664
Oct-00 757
Nov-00 874
Dec-00 881
Jan-01 739
Feb-01 729
Mar-01 760
Apr-01 739
May-01 703
Jun-01 739
Jul-01 745
Aug-01 731
Sep-01 914
Oct-01 865
Nov-01 752
Dec-01 734
Jan-02 697
Feb-02 722
Mar-02 621
Apr-02 601
May-02 643
Jun-02 781
Jul-02 874
Aug-02 882
Sep-02 966
Oct-02 974
Nov-02 800
Dec-02 802
Jan-03 747
Feb-03 757
Mar-03 696
Apr-03 576
May-03 614
Jun-03 554
Jul-03 488
Aug-03 477
Sep-03 483
Oct-03 415
Nov-03 401
Dec-03 368
Jan-04 360
Feb-04 381
Mar-04 392
Apr-04 351
May-04 383
Jun-04 371
Jul-04 369
Aug-04 381
Sep-04 372
Oct-04 355
Nov-04 310
Dec-04 314
Jan-05 341
Feb-05 305
Mar-05 360
Apr-05 423
May-05 423
Jun-05 404
Jul-05 354
Aug-05 390
Sep-05 378
Oct-05 381
Nov-05 394
Dec-05 399
Jan-06 368
Feb-06 369
Mar-06 339
Apr-06 318
May-06 330
Jun-06 351
Jul-06 359
Aug-06 369
Sep-06 365
Oct-06 353
Nov-06 347
- --------------------------------------------------------------------------------
wide margin. Returns were inversely related to credit quality and ranged from
10.1% for BB-rated bonds to 17.1% for CCC-rated bonds. Default rates remained
below their historical average for the period, and the market's spread to the
benchmark Treasury (or "risk premium") declined modestly from 3.8% to 3.5%.
In May 2006, the Fund lowered its monthly distribution from 8.33 cents per share
to 7.33 cents per share. The reduction was in response to lower yields on the
Fund's fixed income investments and higher short term borrowing costs, which
reduced the net investment income available for distributions. While the
reduction of the monthly distribution reflected current financial market
conditions at the time, we remain optimistic about the long term potential of
the investments in the Fund.
5
-----
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
(UNAUDITED)
WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
The equity portion of the Fund returned 26.9% due to strong performance in a
number of stocks, particularly in the financial, telecommunication services and
consumer staples sectors. ALLIANCE BERNSTEIN, AMERICAN CAPITAL STRATEGIES, ISTAR
FINANCIAL, INC., BOSTON PROPERTIES, INC., ALASKA COMMUNICATIONS SYSTEMS GROUP
AND LOEWS CORPORATION--CAROLINA GROUP were significant holdings and all had
returns of between 29% and 62% during the period. In addition, each of these
companies pays substantial dividends to shareholders. The Fund's largest stock
holding was Bank of America (BAC). BAC's stock advanced over 17% while the
dividend return was over 4%.
[BAR GRAPH OMITTED]
Plot Points for EDGAR Purposes are as follows:
- --------------------------------------------------------------------------------
TOTAL RETURN
FISCAL YEAR ENDED NOVEMBER 30, 2006
26.9% 9.3% 14.2% 32.6% 11.5%
CWF CWF S&P 500 Morgan Merrill
Equities High Index Stanley Lynch
Yield REIT Index High Yield
Cash Pay
Index
- --------------------------------------------------------------------------------
The fixed income portion of the Fund returned 9.34% for the period. Our top
contributors to performance were GENERAL MOTORS ACCEPTANCE CORPORATION and FORD
MOTOR CREDIT COMPANY, the financial subsidiaries of General Motors and Ford
Motor Company. Other significant positive contributors included
[BAR GRAPH OMITTED]
Plot Points for EDGAR Purposes are as follows:
- --------------------------------------------------------------------------------
HIGH YIELD INDUSTRY PERFORMANCE
Fiscal Year Ended November 30, 2006 (Source: Merrill Lynch, Bloomberg)
Healthcare 4.8%
Gaming 7.1%
Homebuilding 7.6%
Energy 8.4%
Chemicals 8.8%
Utilities 9.1%
BB INDEX 10.1%
Steel 10.2%
Technology 10.6%
B INDEX 11.1%
HY INDEX 11.5%
Paper 11.7%
Telecom 11.7%
Consumer 12.4%
Cable TV 15.1%
CCC INDEX 17.1%
Automotive 21.5%
- --------------------------------------------------------------------------------
6
-----
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
(UNAUDITED)
CINCINNATI BELL INC., an Ohio-based local phone company, and SUPERIOR ESSEX
COMMUNICATION, LLC, a manufacturer of industrial wire and cable. Every major
industry in the Merrill Lynch High Yield Cash Pay Index posted a positive return
for the period, led by automotive related issuers which returned over 20% on
average.
DID ANY COMMON STOCKS OR FIXED INCOME HOLDINGS WITHIN THE FUND UNDERPERFORM
RELATIVE TO YOUR EXPECTATIONS?
As can be seen in the chart below, every sector in the S&P 500 had positive
performance for the fiscal year. Among our larger stock holdings there were only
a few stocks that underperformed versus our expectations (HOMEBANC CORPORATION,
HARTFORD FINANCIAL SERVICES, NEW YORK COMMUNITY BANCORP, KINDER MORGAN ENERGY
PARTNERS LP). The reasons for the poor performance were generally company
specific. HomeBanc Corp. (HMB) was by far the most disappointing holding we held
during the year. They are a mortgage REIT specializing in residential mortgages,
mostly in the southeastern United States. Growing concerns about a weakening
economy raising mortgage delinquencies and the slowing of the demand for new
mortgages were responsible for a good portion of the share price decline. In
addition, HMB has decided to change away from its current REIT structure which
has caused additional selling pressure. We believe the company is worth more
than it is currently selling for and believe we will be able to realize a better
price for our shares once the selling pressure abates.
On the fixed income side of the Fund, our worst performing position was in HCA
INC., a hospital operator that was the target of a leveraged buyout.
Fortunately, we owned short dated HCA bonds, which experienced less price
[BAR GRAPH OMITTED]
Plot Points for EDGAR Purposes are as follows:
- --------------------------------------------------------------------------------
S&P 500 TOTAL RETURN BY SECTOR
(FISCAL YEAR ENDED NOVEMBER 30, 2006)
Energy 27.16%
Utilities 20.96%
Telecommunication
Services 26.21%
REITS 43.03%
Industrials 12.49%
Basic Materials 21.25%
Consumer
Discretionary 15.44%
Financials 14.33%
Consumer
Staples 11.48%
Technology 6.16%
Health Care 9.76%
- --------------------------------------------------------------------------------
7
-----
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
(UNAUDITED)
deterioration than the longer parts of HCA's capital structure. Other relatively
poor performers included CHESAPEAKE ENERGY and WESTERN FINANCE. While the broad
high yield market was strong, defensive industries comprised of relatively
higher quality issuers such as healthcare, gaming and energy, underperformed
during the year.
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE PERIOD?
In the first portion of the fiscal year we continued to increase our investment
in Preferred Term Securities. These securities exhibit features of both equity
and fixed income instruments and represent pools of bank and insurance company
preferred securities. On the equity side of the portfolio, we became slightly
more defensive by adding to our weight in the consumer staples and
telecommunication services areas. Some new additions during the period were:
GATEHOUSE MEDIA, INC., a publisher of local newspapers and WINDSTREAM
CORPORATION (FORMERLY VALOR COMMUNICATIONS GROUP), a provider of
telecommunications services in rural communities in the southwestern United
States. In addition we added to our position in REDDY ICE HOLDINGS, a
manufacturer of packaged ice. Meanwhile, our weighting in the energy portion of
the portfolio increased in the second half of the year as we added to our
holdings of Master Limited Partnerships. This asset class carries high yields
with exposure to the energy sector through ownership of mid-stream assets such
as pipelines. Lastly, in the financial sector, we reduced our exposure to banks
due to declining net interest margins and increased credit risks while we
increased our exposure to non-bank financial companies such as AMERICAN CAPITAL
STRATEGIES LIMITED and APOLLO INVESTMENT CORPORATION.
The bond side of the Fund continued to focus primarily on B and BB-rated
issuers. Recent purchases include BLOUNT INC., a manufacturer of chainsaw chain,
guide-bars and other outdoor industrial products, and IDEARC INC., the Yellow
Pages directory business that was spun out of Verizon Communications. CHIQUITA
BRANDS, a producer of bananas and other produce, and HOVNANIAN ENTERPRISES, a
large homebuilder, were among the fixed income positions that we exited during
the year.
HOW DID THE FUND TRADE RELATIVE TO ITS NET ASSET VALUE (NAV) DURING THE FISCAL
YEAR?
As of November 30, 2006, the Fund was trading at a closing price of $9.78, which
is a 2.4% premium to its Net Asset Value of $9.55. At the start of the fiscal
year on November 30, 2005, the Fund was trading at a closing price of $10.70, a
premium of 23.7% to its NAV of $8.65. Throughout the period, the Fund traded
between a 4.0% discount to its NAV and a 27.2% premium to its NAV.
8
-----
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
(UNAUDITED)
[LINE GRAPH OMITTED]
Plot Points for EDGAR Purposes are as follows:
- --------------------------------------------------------------------------------
HISTORY OF FUND PRICE, NAV AND PREMIUM
Fiscal Year Ended November 30, 2006
(Source: Bloomberg)
PRICE NAV
12/01/05 10.70 8.65
12/2/05 10.74 8.70
12/9/05 10.66 8.68
12/16/05 10.59 8.78
12/23/05 10.19 8.72
12/30/05 10.20 8.65
1/6/06 10.43 8.82
1/13/06 10.70 8.85
1/20/06 10.49 8.66
1/27/06 10.76 8.77
2/3/06 10.75 8.63
2/10/06 10.88 8.66
2/17/06 10.95 8.84
2/24/06 10.67 8.86
3/3/06 10.80 8.84
3/10/06 10.78 8.86
3/17/06 10.57 9.06
3/24/06 10.59 8.98
3/31/06 10.70 8.96
4/7/06 10.46 8.95
4/14/06 10.52 8.88
4/21/06 10.51 8.95
4/28/06 10.49 9.02
5/5/06 9.99 9.08
5/12/06 9.72 8.93
5/19/06 8.82 8.76
5/26/06 8.47 8.79
6/2/06 8.79 8.86
6/9/06 8.40 8.75
6/16/06 8.36 8.66
6/23/06 8.58 8.56
6/30/06 8.80 8.74
7/7/06 9.03 8.84
7/14/06 9.25 8.75
7/21/06 9.34 8.80
7/28/06 9.55 9.00
8/4/06 9.80 9.07
8/11/06 10.00 8.98
8/18/06 9.94 9.06
8/25/06 10.12 9.03
9/1/06 10.15 9.07
9/8/06 10.11 9.01
9/15/06 9.95 9.12
9/22/06 9.70 9.05
9/29/06 9.76 9.08
10/6/06 9.70 9.20
10/13/06 9.70 9.33
10/20/06 9.71 9.24
10/27/06 9.80 9.34
11/3/06 9.65 9.33
11/10/06 9.70 9.42
11/17/06 9.84 9.58
11/24/06 9.75 9.51
11/30/06 9.78 9.55
PREMIUM/DISCOUNT
12/01/05 16.86
12/30/05 17.92
1/6/06 18.25
1/13/06 20.90
1/20/06 21.13
1/27/06 22.69
2/3/06 24.57
2/10/06 25.64
2/17/06 23.87
2/24/06 20.43
3/3/06 22.17
3/10/06 21.67
3/17/06 16.67
3/24/06 17.93
3/31/06 19.42
4/7/06 16.87
4/14/06 18.47
4/21/06 17.43
4/28/06 16.30
5/5/06 10.02
5/12/06 8.85
5/19/06 0.69
5/26/06 -3.64
6/2/06 -0.79
6/9/06 -4.00
6/16/06 -3.46
6/23/06 0.23
6/30/06 0.69
7/7/06 2.15
7/14/06 5.71
7/21/06 6.14
7/28/06 6.11
8/4/06 8.05
8/11/06 11.36
8/18/06 9.71
8/25/06 12.07
9/1/06 11.91
9/8/06 12.21
9/15/06 9.10
9/22/06 7.18
9/29/06 7.49
10/6/06 5.44
10/13/06 3.97
10/20/06 5.09
10/27/06 4.93
11/3/06 3.43
11/10/06 2.97
11/17/06 2.71
11/30/06 2.52
- --------------------------------------------------------------------------------
WHAT IS YOUR CURRENT OUTLOOK FOR THE EQUITY AND FIXED INCOME MARKETS?
Looking out to the Fund's next fiscal year we are somewhat cautious about the
expected returns for the equity market. While current absolute valuations are
not expensive, corporate profit margins have been at or near peak levels for an
extended period and corporate earnings comparisons will be difficult. There is
currently conflicting evidence on the strength of the economy with job growth
continuing to surprise on the upside, but other measures of economic output have
been slowing of late. In our opinion, there are questions as to the strength of
the consumer and both the housing and automotive markets have cooled
substantially. Lastly, there appears to be significant consternation in the
market regarding the next move by the Federal Reserve. With all of these mixed
signals and the fact that the market has rallied approximately 14% from its June
lows, we believe that the next year should bring good but not spectacular gains
in the stock market with dividends continuing to play a significant role for
investors. Therefore, we will continue to look to make investments in the
equities of companies that appear to have solid business models that generate
significant
9
-----
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
(UNAUDITED)
cash flow which the companies return to their shareholders through stable and
growing dividends.
In the fixed income portion of the Fund, we are optimistic about the outlook for
the high yield bond market. Default rates remain low by historical standards,
and despite five quarter-point increases in the Fed Funds Rate over the last
year, the broad economy and corporate profits have continued to grow. A recent
survey of Fed Senior Loan Officers indicates that most banks are maintaining
stable lending standards, a sanguine environment for companies looking to expand
their business or to refinance their balance sheets. Mergers and acquisitions,
fueled by high stock prices and burgeoning private equity coffers, are expected
to continue at an elevated pace. While not always the case, these transactions
tend to be positive for high yield issuers. Our optimism is tempered
[LINE GRAPH OMITTED]
Plot Points for EDGAR Purposes are as follows:
- --------------------------------------------------------------------------------
HIGH YIELD DEFAULT RATES: TRAILING TWELVE MONTHS
November 1996-November 2006
(Source: Moody's)
Default Rate
Nov-96 1.64
Dec-96 1.64
Jan-97 1.71
Feb-97 1.59
Mar-97 1.58
Apr-97 1.37
May-97 1.60
Jun-97 1.59
Jul-97 1.84
Aug-97 2.00
Sep-97 2.06
Oct-97 2.12
Nov-97 2.27
Dec-97 2.01
Jan-98 2.07
Feb-98 2.37
Mar-98 2.35
Apr-98 2.63
May-98 2.69
Jun-98 2.96
Jul-98 2.80
Aug-98 2.69
Sep-98 2.62
Oct-98 2.66
Nov-98 2.80
Dec-98 3.41
Jan-99 3.49
Feb-99 3.59
Mar-99 3.82
Apr-99 4.20
May-99 4.80
Jun-99 4.85
Jul-99 5.32
Aug-99 5.52
Sep-99 5.84
Oct-99 5.97
Nov-99 5.85
Dec-99 5.56
Jan-00 5.53
Feb-00 5.53
Mar-00 5.67
Apr-00 5.67
May-00 5.40
Jun-00 5.55
Jul-00 4.96
Aug-00 5.21
Sep-00 5.31
Oct-00 4.96
Nov-00 5.44
Dec-00 6.15
Jan-01 6.69
Feb-01 7.09
Mar-01 7.84
Apr-01 8.03
May-01 8.09
Jun-01 8.29
Jul-01 8.90
Aug-01 9.37
Sep-01 9.71
Oct-01 10.19
Nov-01 10.22
Dec-01 10.60
Jan-02 10.89
Feb-02 10.73
Mar-02 10.60
Apr-02 10.57
May-02 10.70
Jun-02 10.54
Jul-02 10.33
Aug-02 10.02
Sep-02 9.78
Oct-02 9.29
Nov-02 8.94
Dec-02 8.43
Jan-03 7.68
Feb-03 7.71
Mar-03 6.98
Apr-03 6.79
May-03 6.63
Jun-03 6.15
Jul-03 5.87
Aug-03 6.19
Sep-03 6.03
Oct-03 6.07
Nov-03 5.50
Dec-03 5.32
Jan-04 5.12
Feb-04 4.51
Mar-04 4.36
Apr-04 4.11
May-04 3.64
Jun-04 3.47
Jul-04 3.00
Aug-04 2.37
Sep-04 2.44
Oct-04 2.48
Nov-04 2.53
Dec-04 2.35
Jan-05 2.26
Feb-05 2.62
Mar-05 2.30
Apr-05 2.16
May-05 2.08
Jun-05 1.95
Jul-05 1.95
Aug-05 2.09
Sep-05 2.09
Oct-05 2.02
Nov-05 1.95
Dec-05 1.91
Jan-06 1.77
Feb-06 1.58
Mar-06 1.64
Apr-06 1.64
May-06 1.84
Jun-06 1.84
Jul-06 1.78
Aug-06 1.65
Sep-06 1.71
Oct-06 1.76
Nov-06 1.82
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
Plot Points for EDGAR Purposes are as follows:
- --------------------------------------------------------------------------------
FED FUNDS RATE
November 30, 1996 - November 30, 2006
(Source: Bloomberg)
Nov-96 5.25
Dec-96 5.25
Jan-97 5.25
Feb-97 5.25
Mar-97 5.50
Apr-97 5.50
May-97 5.50
Jun-97 5.50
Jul-97 5.50
Aug-97 5.50
Sep-97 5.50
Oct-97 5.50
Nov-97 5.50
Dec-97 5.50
Jan-98 5.50
Feb-98 5.50
Mar-98 5.50
Apr-98 5.50
May-98 5.50
Jun-98 5.50
Jul-98 5.50
Aug-98 5.50
Sep-98 5.25
Oct-98 5.00
Nov-98 4.75
Dec-98 4.75
Jan-99 4.75
Feb-99 4.75
Mar-99 4.75
Apr-99 4.75
May-99 4.75
Jun-99 5.00
Jul-99 5.00
Aug-99 5.25
Sep-99 5.25
Oct-99 5.25
Nov-99 5.50
Dec-99 5.50
Jan-00 5.50
Feb-00 5.75
Mar-00 6.00
Apr-00 6.00
May-00 6.50
Jun-00 6.50
Jul-00 6.50
Aug-00 6.50
Sep-00 6.50
Oct-00 6.50
Nov-00 6.50
Dec-00 6.50
Jan-01 5.50
Feb-01 5.50
Mar-01 5.00
Apr-01 4.50
May-01 4.00
Jun-01 3.75
Jul-01 3.75
Aug-01 3.50
Sep-01 3.00
Oct-01 2.50
Nov-01 2.00
Dec-01 1.75
Jan-02 1.75
Feb-02 1.75
Mar-02 1.75
Apr-02 1.75
May-02 1.75
Jun-02 1.75
Jul-02 1.75
Aug-02 1.75
Sep-02 1.75
Oct-02 1.75
Nov-02 1.25
Dec-02 1.25
Jan-03 1.25
Feb-03 1.25
Mar-03 1.25
Apr-03 1.25
May-03 1.25
Jun-03 1.00
Jul-03 1.00
Aug-03 1.00
Sep-03 1.00
Oct-03 1.00
Nov-03 1.00
Dec-03 1.00
Jan-04 1.00
Feb-04 1.00
Mar-04 1.00
Apr-04 1.00
May-04 1.00
Jun-04 1.25
Jul-04 1.25
Aug-04 1.50
Sep-04 1.75
Oct-04 1.75
Nov-04 2.00
Dec-04 2.25
Jan-05 2.25
Feb-05 2.50
Mar-05 2.75
Apr-05 2.75
May-05 3.00
Jun-05 3.25
Jul-05 3.25
Aug-05 3.50
Sep-05 3.75
Oct-05 3.75
Nov-05 4.00
Dec-05 4.25
Jan-06 4.50
Feb-06 4.50
Mar-06 4.75
Apr-06 4.75
May-06 5.00
Jun-06 5.25
Jul-06 5.25
Aug-06 5.25
Sep-06 5.25
Oct-06 5.25
Nov-06 5.25
- --------------------------------------------------------------------------------
10
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
(UNAUDITED)
by the potential for slower economic growth as the economy digests the full
effect of the recent rate increases. Provided a mid-cycle slowdown does not turn
into a full blown recession, we would expect the current credit cycle to extend
through 2007, and that high yield should deliver positive returns in line with
the market's average coupon.
HOW IS THE FUND POSITIONED AT THE CLOSE OF THE PERIOD?
[PIE CHART OMITTED]
Plot Points for EDGAR Purposes are as follows:
- --------------------------------------------------------------------------------
CWF (AS A % OF) TOTAL INVESTMENTS
As of November 30, 2006
Cash 1%
Preferred Term Securities 8%
Fixed Income 30%
Equities 61%
- --------------------------------------------------------------------------------
As of November 30, 2006, the percentage of the Fund's total investments held in
equities and fixed income was 69% and 30%, respectively. The Fund continues to
overweight high quality, higher dividend paying securities. We believe that the
market will continue to reward companies that provide a high dividend. In the
Equity portion of the portfolio financials continue to represent the largest
sector allocation, as favorable valuation, high dividend yield and consistent
growth relative to other sectors provides many attractive investment
opportunities. With the uncertainty around the next move by the Federal Reserve,
questions about the strength of the economy and the likely slowing of corporate
earnings growth, we added to our holdings in the consumer staples sector which
we believe should show steadier earnings characteristics in the event of an
economic slowdown.
11
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
(UNAUDITED)
[PIE CHART OMITTED]
Plot Points for EDGAR Purposes are as follows:
- --------------------------------------------------------------------------------
FUND EQUITY ALLOCATION AS A % OF TOTAL INVESTMENTS
(as of November 30, 2006)
Cash 1%
Preferred Term Securities 8%
Fixed Income 30%
Equities 61%
Basic Materials 0.6%
Consumer Staples 12.4%
Energy 9.5%
Financials 20.7%
Health Care 0.3%
Industrials 1.9%
REITS 6.7%
Telecommunication Services 5.4%
Utilities 3.5%
- --------------------------------------------------------------------------------
[PIE CHART OMITTED]
Plot Points for EDGAR Purposes are as follows:
- --------------------------------------------------------------------------------
FUND FIXED INCOME ALLOCATION AS A % OF TOTAL INVESTMENTS
(as of November 30, 2006)
Basic Industry 4.3%
Capital Goods 1.4%
Consumer Cyclical 3.0%
Consumer Staples 3.7%
Energy 2.0%
Financial 2.9%
Health Care 1.7%
Industrials 4.5%
Real Estate 1.2%
Technology 0.5%
Telecommunications 4.0%
Transportation 0.5%
Utilities 0.3%
Cash 1%
Preferred Term Securities 8%
Fixed Income 30%
Equities 61%
- --------------------------------------------------------------------------------
The fixed income portion of the Fund is positioned primarily in B and BB-rated
issues. With high yield spreads below their long term average, we do not believe
that investors are sufficiently compensated to own most CCC-rated issues given
their higher risk and relative earnings volatility. The goal of the fixed income
portfolio is to provide a consistent level of high income in support of the
Fund's monthly distribution. We continue to employ rigorous credit analysis in
an attempt to identify fixed income positions that we believe have solid
business plans, strong market shares and cash flows sufficient to service their
debt obligations.
12
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
(UNAUDITED)
WHAT ARE THE TOP 10 EQUITY HOLDINGS BY PERCENTAGE OF TOTAL INVESTMENTS?
TOP 10 EQUITIES BY PERCENTAGE OF TOTAL INVESTMENTS
% OF TOTAL
TICKER SECURITY INVESTMENTS YIELD%
- --------------------------------------------------------------------------------
BAC Bank of America Corporation 5.56 4.2
MO Altria Group, Inc. 5.21 4.1
AB AllianceBernstein Holding LP 3.34 4.5
ASH Ashland, Inc. 3.14 1.6
DRY Coinmach Corporation, Class A 2.56 8.1
ACAS American Capital Strategies Limited 2.11 7.8
CG Loews Corporation-Carolina Group 1.74 2.9
NCC National City Corporation 1.68 4.3
WIN Windstream Corporation 1.62 7.2
AINV Apollo Investment Corporation 1.57 8.4
- --------------------------------------------------------------------------------
DEFINITION OF THE COMPARATIVE INDICES
CONSUMER PRICE INDEX is a measure of the average change in prices over time in a
fixed market basket of goods and services.
S&P 500 INDEX is an unmanaged capitalization-weighted index of 500 stocks
designed to measure performance of the broad domestic economy through changes in
the aggregate market value of 500 stocks representing all major industries.
MERRILL LYNCH HIGH YIELD CASH PAY INDEX is an unmanaged index of corporate bonds
that pay cash coupons, meet a minimum size threshold, and have a Merrill Lynch
composite rating lower than BBB3.
MERRILL LYNCH U.S. CORPORATE MASTER INDEX tracks the performance of U.S.
dollar-denominated investment grade corporate public debt issued in the U.S.
domestic bond market.
MORGAN STANLEY REIT INDEX is an unmanaged total-return index comprised of the
most actively traded real estate investment trusts and is designed to be a
measure of real estate equity performance.
- --------------------------------------------------------------------------------
13
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
UTILIZATION OF LEVERAGE (UNAUDITED)
The Chartwell Dividend and Income Fund, Inc. has utilized leverage through the
issuance of commercial paper. As of November 30, 2006, the Fund had
approximately $55 million in leverage outstanding (out of $60 million available)
in the form of commercial paper rated A1/P1 by Moody's Investors Service,
Inc./Standard & Poor's Ratings Group. These ratings should enhance the
marketability and reduce the interest costs associated with the issuance of the
commercial paper. However, it must be noted that the utilization of leverage
involves the risk of lower portfolio returns if the cost of leverage is higher
than the resulting yields on assets or if the Fund experiences capital losses in
excess of the yield spread, if any. Therefore, the addition of leverage also
increases the potential volatility of the Fund. The Fund has the ability to
leverage to a maximum of 33% of the Fund's gross assets.
The Fund utilizes leveraging to seek to enhance the yield and NAV of its common
stock. However, these objectives cannot be achieved in all interest rate
environments. To leverage, the Fund issues commercial paper, which is issued at
a discount equivalent to short-term interest rates, and invests the proceeds in
long-term securities. The interest earned on these investments is paid to common
stock shareholders in the form of dividends, and the value of these portfolio
holdings is reflected in the per share NAV of the Fund's common stock. However,
in order to benefit common stock shareholders, the yield curve must be
positively sloped; that is, short-term interest rates must be lower than
long-term interest rates. At the same time, a period of generally declining
interest rates will benefit common stock shareholders. IF EITHER OF THESE
CONDITIONS CHANGE, THEN THE RISKS OF LEVERAGING WILL BEGIN TO OUTWEIGH THE
BENEFITS.
To illustrate these concepts, assume a fund's common stock capitalization of
$100 million and the issuance of commercial paper for an additional $50 million,
creating a total value of $150 million available for investment in long-term
securities. If prevailing short-term interest rates are approximately 3% and
long-term interest rates are approximately 6%, the yield curve has a strongly
positive slope. The Fund pays a discount on the $50 million of commercial paper
based on the lower short-term interest rates. At the same time, the Fund's total
portfolio of $150 million earns the income based on long-term interest rates.
In this case, the discount paid to commercial paper holders is significantly
lower than the income earned on the Fund's long-term investments, and therefore
the common stock shareholders are the beneficiaries of the incremental yield.
However, IF SHORT-TERM INTEREST RATES RISE, which they have been, narrowing the
differential between short-term and long-term interest rates, THE INCREMENTAL
YIELD PICK-UP ON THE COMMON STOCK WILL BE REDUCED OR ELIMINATED COMPLETELY. At
the same time, the market value on the Fund's common stock (that is, its price
as listed on the New York Stock Exchange), may, as a result, decline.
Furthermore, IF LONG-TERM INTEREST RATES RISE, THE COMMON STOCK'S NAV WILL
REFLECT THE FULL DECLINE IN THE PRICE OF THE PORTFOLIO'S INVESTMENTS, SINCE THE
VALUE OF THE FUND'S COMMERCIAL PAPER DOES NOT FLUCTUATE. In addition to the
decline in net asset value, the market value of the Fund's common stock may also
decline.
14
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
[BAR GRAPH OMITTED]
Plot Points for EDGAR Purposes are as follows:
ASSET CLASS WEIGHTINGS (UNAUDITED)+:
78.4% Common Stock
10.7% Preferred Term Securities
2.5% Convertible Preferred Stock
0.9% Preferred Stock
39.6% Corporate Notes/Bonds
1.8% Cash Equivalent
+Percentages are based on total net assets of $160,612,903.
Total Investments including leverage are $214,998,115.
NUMBER OF MARKET
SHARES VALUE
--------- -------------
COMMON STOCK--78.4%
BANKS--13.7%
Bank of America Corporation.......................... 222,000 $ 11,954,700
National City Corporation............................ 100,000 3,610,000
Old National Bancorp, Inc............................ 50,000 939,000
PNC Financial Services Group, Inc.................... 20,000 1,413,800
Regions Financial Corporation........................ 50,000 1,832,500
Washington Mutual, Inc............................... 53,200 2,323,776
------------
22,073,776
------------
BASIC INDUSTRY--0.8%
Alcoa, Inc........................................... 25,000 779,250
Packaging Corporation of America..................... 20,000 451,000
------------
1,230,250
------------
CONSUMER STAPLES--16.6%
Altria Group, Inc.................................... 132,950 11,195,720
B&G Foods, Inc....................................... 41,000 803,600
Coinmach Corporation, Class A........................ 539,005 5,508,631
Gatehouse Media, Inc................................. 42,395 887,327
Loews Corporation - Carolina Group................... 60,000 3,742,200
Reddy Ice Holdings, Inc.............................. 100,000 2,477,000
Regal Entertainment Group, Class A................... 100,000 2,081,000
------------
26,695,478
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
--------- -------------
COMMON STOCK (CONTINUED)
ENERGY--12.4%
Ashland, Inc......................................... 100,000 $ 6,761,000
Calumet Specialty Products Partners LP (c)........... 5,000 190,400
Chevron Corporation.................................. 30,000 2,169,600
Constellation Energy Partners LLC*................... 5,000 115,700
Energy Transfer Partners LP (c)...................... 50,000 2,730,000
Enterprise Products Partners LP (c).................. 50,000 1,414,000
Halliburton Company.................................. 40,000 1,349,600
Linn Energy LLC (c).................................. 7,000 183,680
Marathon Oil Corporation............................. 20,000 1,887,600
Precision Drilling Trust............................. 50,000 1,245,000
Sunoco Logistics Partners LP (c)..................... 40,000 1,941,600
------------
19,988,180
------------
FINANCIAL--10.9%
AllianceBernstein Holding LP (c)..................... 93,800 7,174,762
American Capital Strategies Limited.................. 100,000 4,528,000
Apollo Investment Corporation........................ 149,800 3,366,006
MCG Capital Corporation.............................. 45,000 879,300
Technology Investment Capital Corporation............ 100,595 1,610,526
------------
17,558,594
------------
HEALTHCARE--0.4%
Bristol-Myers Squibb Company......................... 25,000 620,750
------------
REAL ESTATE INVESTMENT TRUSTS--9.1%
Alesco Financial, Inc................................ 229,000 2,312,900
CapitalSource, Inc................................... 75,000 2,041,500
Deerfield Triarc Capital Corporation................. 70,000 1,083,600
HomeBanc Corporation................................. 350,000 1,473,500
iStar Financial, Inc................................. 65,000 3,041,350
Longview Fibre Company............................... 126,014 2,623,611
LTC Properties, Inc.................................. 50,000 1,381,000
Northstar Realty Finance Corporation................. 36,150 573,701
------------
14,531,162
------------
TELECOMMUNICATIONS--7.2%
Alaska Communications Systems Group, Inc............. 175,000 2,640,750
Citizens Communications Company...................... 200,000 2,834,000
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
--------- -------------
COMMON STOCK (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
Consolidated Communications Holdings, Inc............ 40,000 $ 740,800
Fairpoint Communications, Inc........................ 100,000 1,847,000
Windstream Corporation............................... 250,000 3,485,000
------------
11,547,550
------------
TRANSPORTATION--2.6%
Aries Maritime Transport Limited..................... 50,000 490,500
Arlington Tankers Limited............................ 42,100 964,090
K-Sea Transportation Partners LP (c)................. 10,000 358,000
Nordic American Tanker Shipping...................... 16,440 533,314
Seaspan Corporation.................................. 33,400 737,472
Teekay LNG Partners LP (c)........................... 35,000 1,104,950
------------
4,188,326
------------
UTILITIES--4.7%
AmeriGas Partners LP (c)............................. 15,200 494,608
Kinder Morgan Energy Partners LP (c)................. 45,000 2,182,050
ONEOK Partners LP (c)................................ 50,900 3,076,396
TEPPCO Partners LP (c)............................... 34,800 1,370,076
Transmontaigne Partners LP (c)....................... 15,000 436,350
------------
7,559,480
------------
TOTAL COMMON STOCK (COST $115,456,926)............... 125,993,546
------------
PREFERRED TERM SECURITIES+ (A)--10.7%
Alesco Preferred Funding IX, 6/23/36................. 1,000 900,000
Alesco Preferred Funding X, 3/15/36.................. 1,000 985,000
Alesco Preferred Funding XI, 12/23/36................ 5,000 493,000
Alesco Preferred Funding XII, 7/15/37................ 5,000 500,000
Alesco Preferred Funding XIII, 9/23/37............... 2,500 250,000
I-Preferred Term Securities IV, 6/24/34.............. 10,000 800,000
Preferred Term Securities IV, 12/23/31............... 20,000 818,700
Preferred Term Securities XIII, 3/24/34.............. 10,000 860,100
Preferred Term Securities XIV, 6/24/34............... 20,000 1,692,000
Preferred Term Securities XV, 9/24/34................ 20,000 1,785,000
Preferred Term Securities XVI, 3/23/35............... 10,000 911,500
Preferred Term Securities XVII, 9/23/35.............. 6,000 508,200
Preferred Term Securities XVIII, 6/23/35............. 10,000 850,400
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
--------- -------------
PREFERRED TERM SECURITIES (CONTINUED)
Preferred Term Services XIX, 12/22/35................ 10,000 $ 870,100
Preferred Term Securities XX, 3/22/38................ 10,000 908,300
Preferred Term Securities XXI, 3/22/38............... 10,000 969,200
Preferred Term Services XXII, 3/22/37................ 1,000 968,700
Preferred Term Services XXIII, 12/22/36.............. 5,000 490,000
Taberna Preferred Funding I, 7/5/35.................. 2,500 237,500
Taberna Preferred Funding II, 6/30/35................ 5,000 440,000
Taberna Preferred Funding Limited, 12/6/36........... 5,000 484,100
Taberna Preferred Funding VII, 2/5/37................ 5,000 495,000
------------
TOTAL PREFERRED TERM SECURITIES (COST $17,184,250)... 17,216,800
------------
PREFERRED STOCK--0.9%
ENERGY--0.2%
TransCanada Corporation.............................. 14,905 389,766
FINANCIAL--0.7%
Felcor Lodging Trust, Inc............................ 40,000 1,004,000
------------
TOTAL PREFERRED STOCK (COST $1,381,501).............. 1,393,766
------------
CONVERTIBLE PREFERRED STOCK--2.5%
FINANCIAL--2.5%
ACE Limited, 7.800%.................................. 26,025 677,170
Metlife, Inc., 6.375%................................ 25,000 758,500
Merrill Lynch & Company, RIG CAP APP Notes
Transocean, 11.000% .............................. 27,148 2,032,299
XL Capital Limited, 6.500%........................... 10,000 230,400
XL Capital Limited, 7.000%........................... 13,859 361,166
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $3,884,765). 4,059,535
------------
CORPORATE NOTES/BONDS--39.6% PRINCIPAL
BASIC INDUSTRY--5.8% AMOUNT
----------
Buhrmann US, Inc.
8.250%, 07/01/14 ................................. $ 620,000 617,675
Commercial Vehicle Group, Inc.+
8.000%, 07/01/13 ................................. 855,000 831,488
Koppers, Inc.
9.875%, 10/15/13 ................................. 1,063,000 1,158,670
Nielsen Finance, LLC+
10.000%, 08/01/14 ................................ 1,000,000 1,062,500
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- -------------
CORPORATE NOTES/BONDS (CONTINUED)
BASIC INDUSTRY (CONTINUED)
Ply Gem Industries, Inc.
9.000%, 02/15/12 ................................. $1,000,000 $ 827,500
Quebecor Media, Inc.
7.750%, 03/15/16 ................................. 1,060,000 1,078,550
TRW Automotive, Inc.
9.375%, 02/15/13 ................................. 1,185,000 1,276,837
Williams Scotsman, Inc.
8.500%, 10/01/15 ................................. 1,370,000 1,431,650
WII Components, Inc.
10.000%, 02/15/12 ................................ 1,000,000 985,000
------------
9,269,870
------------
CAPITAL GOODS--1.9%
Clarke American Corporation
11.750%, 12/15/13 ................................ 450,000 470,250
Norcross Safety Products LLC, Series B
9.875%, 08/15/11 ................................. 850,000 909,500
PH Glatfelter+
7.125%, 05/01/16 ................................. 680,000 683,400
Verso Paper Holdings LLC+
11.375%, 08/01/16 ................................ 1,000,000 1,045,000
------------
3,108,150
------------
CONSUMER CYCLICAL--3.8%
Allied Security Escrow Corporation
11.375%, 07/15/11 ................................ 515,000 530,450
H&E Equipment Services, Inc.
8.375%, 07/15/16 ................................. 1,175,000 1,219,062
Rent-A-Center, Inc.
7.500%, 05/01/10 ................................. 1,220,000 1,226,100
Rental Service Corporation+
9.500%, 12/01/14 ................................. 725,000 737,688
Sonic Automotive, Inc., Series B
8.625%, 08/15/13 ................................. 1,390,000 1,424,750
TDS Investor Corporation+
9.875%, 09/01/14 ................................. 1,000,000 992,500
------------
6,130,550
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- -------------
CORPORATE NOTES/BONDS (CONTINUED)
CONSUMER STAPLES--4.9%
AMC Entertainment, Inc.
9.875%, 02/01/12 ................................. $1,000,000 $ 1,045,000
Brown Shoe Company, Inc.
8.750%, 05/01/12 ................................. 800,000 846,000
Buffets, Inc.+
12.500%, 11/01/14 ................................ 750,000 755,625
Idearc, Inc.+
8.000%, 11/15/16 ................................. 1,075,000 1,097,844
MGM Mirage, Inc.
8.500%, 09/15/10 ................................. 1,125,000 1,206,562
MTR Gaming Group, Inc.+
9.000%, 06/01/12 ................................. 700,000 717,500
MTR Gaming Group, Inc., Series B
9.750%, 04/01/10 ................................. 520,000 549,900
Stater Brothers Holdings
8.125%, 06/15/12 ................................. 895,000 908,425
Steinway Musical Instruments+
7.000%, 03/01/14 ................................. 830,000 811,325
------------
7,938,181
------------
ENERGY--2.7%
Bluewater Finance Limited
10.250%, 02/15/12 ................................ 1,000,000 1,055,000
Complete Product Services, Inc.+
8.000%, 12/15/16 ................................. 110,000 111,650
Copano Energy LLC
8.125%, 03/01/16 ................................. 935,000 967,725
Encore Acquisition Company
7.250%, 12/01/17 ................................. 825,000 804,375
Hanover Compress Company
8.625%, 12/15/10 ................................. 1,260,000 1,316,700
------------
4,255,450
------------
FINANCIALS--3.7%
E*Trade Financial Corporation
8.000%, 06/15/11 ................................. 870,000 906,975
Ford Motor Credit Company
7.000%, 10/01/13 ................................. 1,950,000 1,872,831
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- -------------
CORPORATE NOTES/BONDS (CONTINUED)
FINANCIALS (CONTINUED)
General Motors Acceptance Corporation
8.000%, 11/01/31 ................................. $1,590,000 $ 1,787,258
Labranche & Company, Inc.
11.000%, 05/15/12 ................................ 1,260,000 1,367,100
------------
5,934,164
------------
HEALTHCARE--2.3%
Bio-Rad Laboratories, Inc.
7.500%, 08/15/13 ................................. 500,000 516,250
Hanger Orthopedic Group
10.250%, 06/01/14 ................................ 1,000,000 1,032,500
Iasis Healthcare Corporation
8.750%, 06/15/14 ................................. 1,000,000 1,000,000
Universal Hospital Services, Inc.
10.125%, 11/01/11 ................................ 995,000 1,064,650
------------
3,613,400
------------
INDUSTRIALS--6.0%
Allied Waste North America, Inc.
7.250%, 03/15/15 ................................. 1,165,000 1,170,825
Blount, Inc.
8.875%, 08/01/12 ................................. 750,000 768,750
Crown Americas LLC
7.750%, 11/15/15 ................................. 1,020,000 1,053,150
Gibraltar Industries, Inc.+
8.000%, 12/01/15 ................................. 1,340,000 1,319,900
Ineos Group Holdings PLC+
8.500%, 02/15/16 ................................. 520,000 504,400
Nalco Company
7.750%, 11/15/11 ................................. 1,050,000 1,076,250
Quebecor World Capital Corporation+
8.750%, 03/15/16 ................................. 975,000 950,625
Superior Essex Communications, LLC
9.000%, 04/15/12 ................................. 1,450,000 1,515,250
Tronox Worldwide Finance Corporation
9.500%, 12/01/12 ................................. 1,285,000 1,342,825
------------
9,701,975
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- -------------
CORPORATE NOTES/BONDS (CONTINUED)
REAL ESTATE--1.6%
Boyd Gaming Corporation
7.750%, 12/15/12 ................................. $1,090,000 $ 1,129,512
Geo Group, Inc.
8.250%, 07/15/13 ................................. 1,340,000 1,373,500
------------
2,503,012
------------
TECHNOLOGY--0.6%
Freescale Semiconductor, Inc.+
10.125%, 12/15/16 ................................ 975,000 990,844
------------
TELECOMMUNICATIONS--5.3%
Allbritton Communications Company
7.750%, 12/15/12 ................................. 1,315,000 1,338,012
Charter Communications Operating, LLC+
8.000%, 04/30/12 ................................. 900,000 929,250
Cincinnati Bell, Inc.
8.375%, 01/15/14 ................................. 960,000 986,400
CSC Holdings, Inc.
7.875%, 02/15/18 ................................. 785,000 794,813
Hughes Network Systems, LLC+
9.500%, 04/15/14 ................................. 855,000 891,338
Intelsat Holdings Company
8.625%, 01/15/15 ................................. 1,155,000 1,205,531
Mediacom Broadbd, LLC+
8.500%, 10/15/15 ................................. 750,000 754,688
Qwest Corporation
8.875%, 03/15/12 ................................. 1,390,000 1,555,062
------------
8,455,094
------------
TRANSPORTATION--0.6%
Ship Finance International Limited
8.500%, 12/15/13 ................................. 1,000,000 992,500
------------
UTILITIES--0.4%
NRG Energy, Inc.
7.375%, 02/01/16 ................................. 625,000 626,563
------------
TOTAL CORPORATE NOTES/BONDS (COST $62,536,537)....... 63,519,753
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
--------- -------------
CASH EQUIVALENTS (B)--1.8%
SEI Daily Income Trust, Prime Obligations
Fund, Class B Shares, 4.980% ..................... 4,146 $ 4,146
SEI Daily Income Trust, Prime Obligations
Fund, Class A Shares, 5.290% ..................... 205,675 205,675
SEI Daily Income Trust, Treasury Fund,
Class A Shares, 5.250% ........................... 2,604,894 2,604,894
------------
TOTAL CASH EQUIVALENTS (COST $2,814,715)............. 2,814,715
------------
TOTAL INVESTMENTS--133.9%
(COST $203,258,694) .............................. 214,998,115
------------
WRITTEN
CONTRACTS
---------
COVERED CALL OPTIONS WRITTEN--(0.3)%
Alcoa Inc., Expires 1/19/07, Strike Price $30........ (250) (51,500)
AllianceBernstein Holdings, Expires 1/19/07,
Strike Price $80 ................................. (100) (11,500)
Bank Of America Corporation, Expires 12/22/06,
Strike Price $55 ................................. (500) (7,500)
Bristol-Myers Squibb Company, Expires 12/22/06,
Strike Price $25 ................................. (250) (7,500)
Chevron Corporation, Expires 12/22/06,
Strike Price $70 (300) (87,000)
Halliburton Company, Expires 12/22/06,
Strike Price $50 ................................. (400) (66,000)
Marathon Oil Corporation, Expires 12/22/06,
Strike Price $90 ................................. (200) (106,000)
National City Corporation, Expires 4/21/07,
Strike Price $40 ................................. (1,000) (30,000)
PNC Bank Corporation, Expires 12/22/06,
Strike Price $70 ................................. (200) (30,000)
Regions Financial Corporation, Expires 1/19/07,
Strike Price $40 ................................. (500) --
Washington Mutual, Inc., Expires 12/22/06,
Strike Price $45 ................................. (500) (22,500)
------------
TOTAL COVERED CALL OPTIONS WRITTEN
(PREMIUM RECEIVED $299,541) ...................... (419,500)
------------
OTHER LIABILITIES IN EXCESS OF OTHER ASSETS--(33.6)% (53,965,712)
------------
NET ASSETS--100.0%................................... $160,612,903
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
* Non-income producing security.
+ Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration normally to qualified institutions. At November 30, 2006, these
securities amounted to $32,404,365 or 20.2% of net assets.
(a) Securities considered illiquid. The total value of such securities as of
November 30, 2006 was $17,216,800 or 10.7% of net assets.
(b) Rate shown is the 7-day effective yield as of November 30, 2006.
(c) Securities are considered Master Limited Partnerships. At November 30, 2006,
these securities amounted to $22,656,872 or 14.1% of net assets.
LLC Limited Liability Company
LP Limited Partnership
PLC Public Limited Company
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AS OF NOVEMBER 30, 2006
ASSETS:
Investments, at value (cost $203,258,694) (Note 1)............... $214,998,115
Cash............................................................. 10,000
Interest receivable.............................................. 1,470,108
Dividends receivable............................................. 443,474
Receivable for securities sold................................... 335,980
Prepaid expenses and other assets................................ 148,790
------------
Total assets................................................ 217,406,467
------------
LIABILITIES:
Commercial paper (Note 4)........................................ 54,629,153
Covered call options written, at value
(premiums received--$299,541) (Note 1) ....................... 419,500
Payable for securities purchased................................. 1,428,400
Payable for investment management fees (Note 2).................. 149,253
Payable for administration fees (Note 2)......................... 17,559
Payable for directors' fees (Note 2)............................. 48
Accrued expenses and other liabilities........................... 149,651
------------
Total liabilities........................................... 56,793,564
------------
NET ASSETS....................................................... $160,612,903
============
NET ASSETS CONSIST OF:
Common Stock, $0.01 par value
(authorized 100,000,000 shares) $ 168,249
Additional paid-in-capital.................................... 185,740,470
Undistributed net investment income........................... 1,448,432
Accumulated net realized losses on investments and options.... (38,363,710)
Net unrealized appreciation on investments and options........ 11,619,462
------------
NET ASSETS ...................................................... $160,612,903
============
NET ASSET VALUE PER SHARE:
$160,612,903 / 16,824,863 shares of Common Stock issued
and outstanding .............................................. $ 9.55
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
NOVEMBER 30, 2006
INVESTMENT INCOME:
Dividends........................................................ $10,186,828
Interest......................................................... 5,542,803
Foreign tax withholding.......................................... (5,318)
-----------
Total investment income..................................... 15,724,313
-----------
EXPENSES:
Investment management fees (Note 2).............................. 1,941,485
Commercial paper fees............................................ 234,095
Administration fees (Note 2)..................................... 204,359
Professional fees................................................ 195,603
Printing and shareholder reports................................. 63,410
Transfer agent fees.............................................. 38,857
Directors' fees and expenses..................................... 27,048
Insurance fees................................................... 26,719
Registration fees................................................ 25,379
Custodian fees................................................... 14,503
Other operating expenses......................................... 16,054
-----------
Total operating expenses...................................... 2,787,512
Interest expense (Note 4)........................................ 2,726,049
-----------
Total expenses................................................ 5,513,561
-----------
Less:
Investment management fees waived (Note 2).................. (204,436)
-----------
Net expenses................................................ 5,309,125
-----------
NET INVESTMENT INCOME....................................... 10,415,188
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments................................. 24,492,621
Net realized gain on written call options ....................... 1,335,397
Change in net unrealized depreciation on investments
and written call options ..................................... (5,678,545)
-----------
Net realized and unrealized gain on investments
and written call options ..................................... 20,149,473
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............. $30,564,661
===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED
NOVEMBER 30, 2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations.......... $ 30,564,661
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities
Purchase of long-term portfolio investments................. (193,369,399)
Proceeds from sales of long-term portfolio investments...... 195,942,733
Purchase of short-term portfolio investments................ (142,176,022)
Proceeds from sales of short-term portfolio investments..... 139,576,950
Realized gain on written call options....................... (1,335,397)
Premiums received from options written ..................... 3,552,377
Premiums paid to closed options ............................ (1,254,616)
Amortization of premiums on investments..................... 204,840
Realized gains from security transactions................... (24,492,621)
Change in unrealized depreciation from security transactions 5,678,545
Decrease in interest receivable............................. 200,811
Decrease in dividends receivable............................ 310,259
Decrease in receivable for securities sold.................. 399,928
Increase in prepaid expenses and other assets............... (106,632)
Decrease in commercial paper, at value...................... (75,819)
Increase in payable for securities purchased................ 622,135
Increase in payable for investment management fees.......... 11,006
Increase in payable for administration fees................. 1,295
Increase in payable for trustee fees........................ 48
Decrease in accrued expenses and other liabilities.......... (51,985)
-------------
Net cash provided by operating activities............... 14,203,097
-------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid to shareholders........................... (15,574,045)
Reinvestment of dividends resulting in the issuance
of common stock transactions ............................... 1,270,678
-------------
Net cash used in financing activities................... (14,303,367)
-------------
Net decrease in cash.................................... (100,270)
CASH
Cash at beginning of year........................................ 110,270
-------------
Cash at end of year.............................................. $ 10,000
=============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
NOVEMBER 30, NOVEMBER 30,
2006 2005
-------------- --------------
OPERATIONS:
Net investment income........................ $ 10,415,188 $ 10,206,159
Net realized gain (loss) on investments...... 24,492,621 (876,747)
Net realized gain on written call options ... 1,335,397 966,347
Change in net unrealized appreciation
(depreciation) on investments and
written call options ...................... (5,678,545) 885,969
------------ ------------
Net increase in net assets
resulting from operations 30,564,661 11,181,728
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income........................ (15,574,045) (8,850,425)
Distributions in excess...................... -- (166,997)
Tax return of capital........................ -- (7,580,904)
------------ ------------
Net decrease in net assets resulting from
dividends and distributions ................. (15,574,045) (16,598,326)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Reinvestment of dividends resulting in the
issuance of Common Stock transactions ....... 1,270,678 1,624,435
------------ ------------
Total increase (decrease) in net assets......... 16,261,294 (3,792,163)
------------ ------------
NET ASSETS:
Beginning of year............................ 144,351,609 148,143,772
------------ ------------
End of year
(including undistributed net investment
income of $1,448,432 and $827,370,
respectively) ............................. $160,612,903 $144,351,609
============ ============
Amounts designated as "--" are $0 or have been rounded to $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE FOR THE YEARS ENDED
BEEN DERIVED FROM INFORMATION PROVIDED IN THE NOVEMBER 30,
FINANCIAL STATEMENTS ---------------------------
2006 2005
------------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD................ $ 8.65 $ 8.96
-------- --------
INCOME/GAIN FROM INVESTMENT OPERATIONS:
Net investment income (1) ........................ 0.63 0.61
Net realized and unrealized gain on
investment transactions and options 1.20 0.08
-------- --------
Total from investment operations................ 1.83 0.69
-------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income.............. (0.93) (0.53)
Distributions in excess........................... -- (0.01)
Tax return of capital............................. -- (0.46)
-------- --------
Total dividends and distributions............... (0.93) (1.00)
-------- --------
NET ASSET VALUE, END OF YEAR........................ $ 9.55 $ 8.65
======== ========
MARKET VALUE, END OF YEAR........................... $ 9.78 $ 10.70
======== ========
TOTAL RETURN BASED ON: (2)
Net asset value................................... 22.51% 8.19%
======== ========
Market value ..................................... 0.36% 18.14%
======== ========
RATIOS AND SUPPLEMENTAL DATA: (3)
Net assets, end of period (000 omitted)........... $160,613 $144,352
======== ========
Total expenses including waiver of fees .......... 2.59% 2.90%
Total expenses excluding waiver of fees .......... 2.68% 3.04%
Total operating expenses including waiver of
fees (4) ....................................... 1.13% 1.59%
Total operating expenses excluding waiver of
fees (4) ....................................... 1.24% 1.73%
Commercial paper fees and interest expense........ 1.44% 1.31%
Net investment income including waiver of fees ... 5.07% 7.00%
Portfolio turnover ............................... 96% 80%
LEVERAGE ANALYSIS:
Aggregate amount outstanding at end of period
(000 omitted) .................................. $ 55,000 $ 55,000
Average daily balance of amortized cost of
commercial paper outstanding (000 omitted) ..... $ 54,659 $ 54,794
Asset coverage per $1,000 at end of period........ $ 3,980 $ 3,679
- ------------------
(1) Based on average shares outstanding.
(2) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
each year reported. Total investment return does not reflect brokerage
commissions. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment returns based on market
value, which can be significantly greater or less than the net asset value,
may result in substantially different returns. Returns do not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or the
Redemption of Fund shares.
(3) Ratios are stated as a percentage of average weekly net assets which
includes any liabilities constituting indebtedness in connection with
financial leverage.
(4) Exclusive of commercial paper fees and interest expense.
Amounts designated as "--" are $0 or have been rounded to $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE YEARS ENDED
NOVEMBER 30,
---------------------------
2004 2003
------------- ------------
NET ASSET VALUE, BEGINNING OF YEAR.................. $ 8.52 $ 7.47
-------- --------
INCOME/GAIN FROM INVESTMENT OPERATIONS: (1)
Net investment income ............................ 0.55 0.60
Net realized and unrealized gain on
investment transactions and options ........... 0.89 1.45
-------- --------
Total from investment operations ............... 1.44 2.05
-------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income.............. (0.54) (0.61)
Distributions in excess........................... (0.46) --
Tax return of capital............................. -- (0.39)
-------- --------
Total dividends and distributions............... (1.00) (1.00)
-------- --------
NET ASSET VALUE, END OF YEAR........................ $ 8.96 $ 8.52
======== ========
MARKET VALUE, END OF YEAR........................... $ 10.03 $ 9.80
======== ========
TOTAL RETURN BASED ON: (2)
Net asset value................................... 18.01% 28.96%
======== ========
Market value ..................................... 14.02% 51.57%
======== ========
RATIOS AND SUPPLEMENTAL DATA: (3)
Net assets, end of year (000 omitted)............. $148,144 $139,137
======== ========
Total expenses including waiver of fees .......... 2.26% 2.40%
Total expenses excluding waiver of fees .......... 2.40% 2.54%
Total operating expenses including waiver of
fees (4) ....................................... 1.57% 1.57%
Total operating expenses excluding waiver of
fees (4) ....................................... 1.71% 1.86%
Commercial paper fees and interest expense........ 0.69% 0.68%
Net investment income including waiver of fees ... 6.34% 7.58%
Portfolio turnover ............................... 99% 99%
LEVERAGE ANALYSIS:
Aggregate amount outstanding at end of year
(000 omitted) .................................. $ 55,000 $ 50,000
Average daily balance of amortized cost of
commercial paper outstanding (000 omitted) ..... $ 54,052 $ 49,925
Asset coverage per $1,000 at end of year ......... $ 3,680 $ 3,838
- ------------------
(1) Based on average shares outstanding.
(2) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
each year reported. Total investment return does not reflect brokerage
commissions. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment returns based on market
value, which can be significantly greater or less than the net asset value,
may result in substantially different returns. Returns do not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or the
Redemption of Fund shares.
(3) Ratios are stated as a percentage of average weekly net assets which
includes any liabilities constituting indebtedness in connection with
financial leverage.
(4)Exclusive of commercial paper fees and interest expense.
Amounts designated as "--" are $0 or have been rounded to $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
30
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONCLUDED)
FOR THE YEAR ENDED
NOVEMBER 30,
------------------
2002
--------------
NET ASSET VALUE, BEGINNING OF YEAR...................... $ 9.76
--------
INCOME/GAIN (LOSS) FROM INVESTMENT OPERATIONS: (1)
Net investment income ................................ 0.66
Net realized and unrealized gain (loss) on
investment transactions and options ................ (1.83)
--------
Total from investment operations ................... (1.17)
--------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income.................. (0.66)
Tax return of capital................................. (0.46)
--------
Total dividends and distributions................... (1.12)
--------
NET ASSET VALUE, END OF YEAR ........................... $ 7.47
========
MARKET VALUE, END OF YEAR............................... $ 7.27
========
TOTAL RETURN BASED ON: (2)
Net asset value..................................... (13.50)%
========
Market value ....................................... (22.12)%
========
RATIOS AND SUPPLEMENTAL DATA: (3)
Net assets, end of year (000 omitted)................. $120,086
========
Total expenses including waiver of fees .......... 2.81%
Total expenses excluding waiver of fees .......... 2.86%
Total operating expenses including waiver of fees (4). 1.81%
Total operating expenses excluding waiver of fees (4). 1.86%
Commercial paper fees and interest expense............ 1.00%
Net investment income including waiver of fees........ 7.64%
Portfolio turnover ................................... 102%
LEVERAGE ANALYSIS:
Aggregate amount outstanding at end of year
(000 omitted) ...................................... $ 50,000
Average daily balance of amortized cost of commercial
paper outstanding (000 omitted) .................... $ 56,250
Asset coverage per $1,000 at end of year ............. $ 3,445
- ----------------------
(1) Based on average shares outstanding.
(2) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of each
year reported. Total investment return does not reflect brokerage commissions.
Dividends and distributions, if any, are assumed for the purposes of this
calculation, to be reinvested at prices obtained under the Fund's dividend
reinvestment plan. Total investment returns based on market value, which can be
significantly greater or less than the net asset value, may result in
substantially different returns. Returns do not reflect the deduction of taxes
that a shareholder would pay on Fund distributions or the Redemption of Fund
shares.
(3) Ratios are stated as a percentage of average weekly net assets which
includes any liabilities constituting indebtedness in connection with financial
leverage.
(4) Exclusive of commercial paper fees and interest expense.
Amounts designated as "--" are $0 or have been rounded to $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
31
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Chartwell Dividend and Income Fund, Inc. (the "Fund") was incorporated under the
laws of the State of Maryland on April 6, 1998 and is registered under the
Investment Company Act of 1940 as amended, (the "Act"), as a closed-end,
diversified management investment company. Investment operations commenced on
June 29, 1998. The Fund's primary investment objective is to seek high current
income. Capital appreciation is a secondary objective.
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States of America.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
SECURITY VALUATION: Investment securities of the Fund that are listed on a
securities exchange, except for debt securities, and for which market quotations
are readily available, are valued at the last quoted sales price at the close of
trading on the New York Stock Exchange (normally 4:00 p.m., Eastern Time).
Investment securities of the Fund that are quoted on the NASDAQ market system
are valued at the official closing price, or if there is none, at the last sales
price. If there is no reported sale, these securities and unlisted securities
for which market quotations are not readily available are valued at last bid
price. Debt securities are priced based upon valuations provided by independent,
third-party pricing agents, if available. Such values generally reflect the last
reported sales price if the security is actively traded. The third-party pricing
agents may also value debt securities at an evaluated bid price by employing
methodologies that utilize actual market transactions, broker-supplied
valuations, or other methodologies designed to identify the market value for
such securities. Debt obligations with remaining maturities of sixty days or
less may be valued at their amortized cost, which approximates market value.
Prices for most securities held in the Fund are provided daily by recognized
independent pricing agents. If a security price cannot be obtained from an
independent, third-party pricing agent, the Fund seeks to obtain a bid price
from at least one independent broker. All securities and assets for which
quotations are not readily available, of which there were none as of November
30, 2006, are valued in accordance with Fair Value Procedures established by the
Board of Directors (the "Board"). The Fund's Fair Value Procedures are
implemented through a Fair Value Committee (the "Committee")
32
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
designated by the Fund's Board. Some of the more common reasons that may
necessitate that a security be valued using Fair Value Procedures include, among
other things: the security's trading has been halted or suspended; the security
has been de-listed from a national exchange; the security's primary trading
market is temporarily closed at a time when under normal conditions it would be
open; or the security's primary pricing source is not able or willing to provide
a price. When a security is valued in accordance with the Fair Value Procedures,
the Committee will determine the value after taking into consideration relevant
information reasonably available to the Committee.
CASH AND CASH EQUIVALENTS: Idle cash is swept into various money market funds
and is classified as cash equivalents on the Schedule of Investments. Amounts so
invested are generally available on the same business day.
WRITTEN OPTIONS: When the Fund writes a covered call option, an amount equal to
the premium received by the Fund is included in the Fund's Statement of Assets
and Liabilities as a liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option written.
When a covered written call option expires on its stipulated expiration date, or
if the Fund enters into a closing purchase transaction, the Fund will realize a
gain (or loss if the cost of the closing purchase transaction exceeds the
premium received when the call option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option will be extinguished. When a covered written call option is
exercised, the Fund will realize a gain or loss from the sale of the underlying
security and the proceeds of the sale are increased by the premium originally
received. The Fund, as writer of an option, has no control over whether the
underlying securities may be sold (called) and as a result bears the market risk
of an unfavorable change in the price of the securities underlying the written
option.
DIVIDENDS AND DISTRIBUTIONS: The Fund will declare and pay dividends to
shareholders on a monthly basis. Net long-term capital gains, if any, in excess
of capital loss carryforwards are distributed to shareholders annually.
Dividends from net investment income and capital gain distributions, if any, are
determined in accordance with U.S. Federal income tax regulations, which may
differ from generally accepted accounting principles. Dividends and
distributions, if any, to shareholders are recorded on the ex-dividend date.
The Fund currently intends to distribute a monthly fixed amount to shareholders.
The Fund's final distribution for each calendar year may exceed that amount,
however, to the extent necessary for the Fund to have distributed all of its net
investment company taxable income and net capital gains recognized during the
year, if any. If, for any calendar year, the total distributions exceed current
and accumulated earnings and profit, the excess, distributed from the Fund's
assets, will generally be treated as a tax-free return of capital and will
result in a reduction in the shareholder's basis. The Board reserves the right
to change the aforementioned dividend policy from time to time.
33
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
BORROWINGS: The Fund issues short-term commercial paper at a discount from par.
The discount is amortized to interest expense over the life of the commercial
paper using the straight-line method.
ILLIQUID SECURITIES: A security is considered illiquid if it cannot be sold or
disposed of in the ordinary course of business within seven days or less for its
approximate carrying value on the books of the Fund. Valuations of illiquid
securities may differ significantly from the values that would have been used
had an active market value for these securities existed.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are recorded
on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis. The Fund accretes original issue discount on securities
using the effective interest method.
INVESTMENTS IN REAL ESTATE INVESTMENT TRUSTS ("REITS"): With respect to the
Fund, dividend income is recorded based on the income included in distributions
received from the REIT investments using published REIT reclassifications
including some management estimates when actual amounts are not available.
Distributions received in excess of this estimated amount are recorded as a
reduction of the cost of investments or reclassified to capital gains. The
actual amounts of income, return of capital, and capital gains are only
determined by each REIT after its fiscal year-end, and may differ from the
estimated amounts.
INVESTMENTS IN PREFERRED TERM SECURITIES ("PTSS"): The Fund invests in Preferred
Term Securities ("PTSs"), a type of collateralized debt obligation ("CDO"). A
PTS is a trust collateralized by a pool of capital securities of affiliated
holding corps., typically of, but not limited to, smaller to medium sized banks
and insurance companies.
The income tranche of these securities, owned by the Fund, receives residual
cash disbursements after the senior tranches are paid a stated rate of interest.
Dividend income from these securities is recorded based on anticipated cash
flows and the internal rate of return of each PTS. Distributions received in
excess of this estimated amount are recorded as a reduction of the cost of
investments or reclassified to capital gains. The actual amounts of income,
return of capital, and capital gains are only determined by each PTS quarterly,
and may differ from the estimated amounts.
In addition to the normal risks associated with fixed income securities (e.g.,
interest rate risk and default risk), PTSs carry additional risks including, but
are not limited to: (i) the possibility that distributions from collateral
securities will not be adequate to make interest or other payments; (ii) the
quality of the
34
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
collateral may decline in value or default; (iii) the Fund may invest in PTSs
that are subordinate to other classes; and (iv) the complex structure of the
security may produce disputes with the issuer or unexpected investment results.
NOTE 2. INVESTMENT MANAGEMENT, ADMINISTRATION, CUSTODIAN AGREEMENTS AND OTHER
TRANSACTIONS WITH AFFILIATES
The Fund has entered into an investment management agreement with the Manager.
The Manager manages the Fund's portfolio and makes investment decisions. For
these services, the Fund pays the Manager a monthly fee at an annual rate of
0.95% of the Fund's Managed Assets. "Managed Assets" are the average weekly
value of the Fund's total assets minus the sum of the Fund's liabilities,
excluding debt related to leveraging, short-term debt and the aggregate
liquidation preference of any outstanding preferred stock. The Manager has
agreed to limit the investment management fee paid to it by the Fund to 0.85% of
the Fund's Managed Assets. This waiver is voluntary and may be changed at any
time.
The Fund has entered into an administration agreement with SEI Investments
Global Funds Services (the "Administrator"). Under such agreement, the
Administrator performs or arranges for the performance of certain administrative
services necessary for the operation of the Fund. Prior to September 30, 2006,
the Fund paid a fee to the Administrator based on the Fund's Managed Assets
according to the following rates: 0.10% on the first $250 million of such
Managed Assets and 0.09% on such Managed Assets in excess of $250 million,
subject to a minimum annual fee of $180,000, which included fees under this
agreement and fees received by the Administrator from the Chartwell U.S Equity
and Chartwell Small Cap Value Funds. Due to the liquidation of the Chartwell
U.S. Equity and Small Cap Value Funds during the year, effective September 30,
2006, the Fund pays the Administrator according to the same fee structure as
listed above, exclusive of any fees from the other Funds.
Certain officers and/or directors of the Fund are officers and/or directors of
the Manager. The Fund pays each director, who is not an "affiliated person" as
defined in the Act (a "Disinterested Director"), a fee of $2,000 for each
regular Board Meeting attended, $750 for each special Board Meeting attended,
plus $1,000 per year for audit committee members. Prior to January 18, 2006 the
Fund paid each Disinterested Director a fee of $1,500 for each regular Board
Meeting attended, plus $1,000 per year for audit committee members and an
additional fee of $250 per year for the chairman of the audit committee.
For the year ended November 30, 2006, the Fund incurred a legal expense of
$101,019 for services provided by Drinker Biddle & Reath LLP, counsel for the
Fund. A partner of the firm is an officer of the Fund.
U.S. Bank serves as the custodian for the Fund. The Custodian plays no role in
determining the investment policies of the Fund or which securities are to be
purchased or sold by the Fund.
35
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
NOTE 3. PURCHASE AND SALES OF INVESTMENTS
For the year ended November 30, 2006, purchases and sales of investments,
excluding short-term investments, totaled $193,369,399 and $195,942,733,
respectively.
The following table summarizes the Fund's call options written for the year
ended November 30, 2006:
NUMBER OF
CONTRACTS PREMIUMS
--------- ----------
Options outstanding, November 30, 2005 4,729 $ 408,530
Options written........................... 43,065 3,552,377
Options expired........................... (25,014) (1,980,162)
Options exercised......................... (10,896) (1,071,353)
Options closed............................ (7,684) (609,851)
-------- -----------
Options outstanding, November 30, 2006 4,200 $ 299,541
======== ===========
NOTE 4. COMMERCIAL PAPER
As of November 30, 2006, $55,000,000 of commercial paper was outstanding with an
amortized cost of $54,629,153. The average discount rate of commercial paper
outstanding at November 30, 2006, was 5.35%. The average daily balance of
commercial paper outstanding for the year ended November 30, 2006, was
$54,658,945 at a weighted average discount rate of 5.35%. The maximum face
amount of commercial paper outstanding at any time during the year ended
November 30, 2006, was $55,000,000. In conjunction with the issuance of the
commercial paper, the Fund has entered into a line of credit arrangement with a
bank for $30,000,000. Interest on borrowing is based on market rates in effect
at the time of borrowing. The commitment fee is computed at the rate of 0.30%
per annum on the unused balance. There were no borrowings under this arrangement
during the year ended November 30, 2006.
NOTE 5. CAPITAL STOCK
There are 100,000,000 shares of $0.01 par value common stock authorized. Of the
16,824,863 shares of common stock outstanding at November 30, 2006, the Manager
owned 16,527 shares.
For the years ended November 30, 2006 and November 30, 2005, the Fund issued
131,915 and 166,611 shares, respectively, in connection with the Fund's dividend
reinvestment plan.
NOTE 6. MARKET AND CREDIT RISKS
The Fund may invest in high-yielding fixed-income securities, which carry
ratings of BB or lower by S&P and/or Ba1 or lower by Moody's. Investments in
these higher-yielding securities may be accompanied by a greater degree of
credit
36
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
risk than higher rated securities. Additionally, lower-rated securities
may be more susceptible to adverse economic and competitive industry conditions
than investment-grade securities. The Fund may invest up to 15% of its total
assets in illiquid securities and other securities which may not be readily
marketable. In addition, the Fund may purchase securities sold in reliance of
Rule 144A of the Securities Act of 1933. The relative illiquidity of some of the
Fund's portfolio securities may adversely affect the ability of the Fund to
dispose of such securities in a timely manner and at a fair price at times when
it might be necessary or advantageous for the Fund to liquidate portfolio
securities.
NOTE 7. FEDERAL TAX INFORMATION
It is the Fund's intention to continue to meet the requirements under Subchapter
M of the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its taxable income to shareholders.
Therefore, no provision for Federal income or excise tax is required.
In accordance with accounting pronouncements, the Fund has recorded several
reclassifications in the capital accounts. These reclassifications have no
impact on the net asset value of the Fund. These differences, which may result
in distribution reclassifications, are primarily due to distributions in excess
of tax earnings and profits and return of capital from investments in master
limited partnerships. As of November 30, 2006, the Fund recorded the following
reclassifications to increase (decrease) the accounts below:
UNDISTRIBUTED ACCUMULATED ADDITIONAL
NET INVESTMENT REALIZED PAID-IN-
INCOME GAIN CAPITAL
------------ --------------- -------------
$5,779,919 $286,682 $(6,066,601)
The tax character of dividends and distributions paid during the last two fiscal
years were as follows:
ORDINARY RETURN
INCOME OF CAPITAL TOTALS
------------ -------------- ----------
2006 $15,574,045 $ -- $15,574,045
2005 9,017,422 7,580,904 16,598,326
As of November 30, 2006, the components of Distributable Earnings (Accumulated
Losses) were as follows:
Capital loss carryforwards $(39,428,521)
Net unrealized appreciation 12,684,271
Other temporary differences 1,448,434
------------
Total accumulated losses $(25,295,816)
============
37
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
The following summarizes the capital loss carryforwards as of November 30, 2006.
These capital loss carryforwards are available to offset future net capital
gains.
EXPIRING IN FISCAL YEAR AMOUNT
----------------------- ---------
2009 $ 8,123,569
2010 30,533,344
2011 771,608
-----------
Total capital loss carryforwards $39,428,521
===========
During the year ended November 30, 2006, the Fund utilized $25,584,908 of
capital loss carryforwards to offset capital gains.
The Federal tax cost as well as the aggregate gross unrealized appreciation and
depreciation on investments excluding written options held by the Fund at
November 30, 2006, were as follows:
Federal Tax Cost ........................................... $202,193,885
------------
Aggregate Gross Unrealized Appreciation .................... 15,383,909
Aggregate Gross Unrealized Depreciation .................... (2,579,679)
------------
Net Unrealized Appreciation ................................ $ 12,804,230
============
NOTE 8. SUBSEQUENT EVENTS (UNAUDITED)
The Board of the Fund declared the following dividends:
DECLARATION DATE EX-DATE RECORD DATE PAYABLE DATE DIVIDEND RATE
---------------- ------- ----------- ------------ -------------
December 1, 2006 December 19, 2006 December 21, 2006 December 29, 2006 $0.0733
January 2, 2007 January 16, 2007 January 18 2007 January 31, 2007 0.0733
9. NEW ACCOUNTING PRONOUNCEMENTS:
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN
48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Fund's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. The Fund will not be
required to adopt FIN 48 until May 31, 2008. As of November 30, 2006, the Fund
has not completed its evaluation of the impact, if any, that will result from
the adoption of FIN 48.
38
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
In September 2006, FASB issued STATEMENT ON FINANCIAL ACCOUNTING STANDARDS
(SFAS) NO. 157, "FAIR VALUE MEASUREMENTS." This standard establishes a single
authoritative definition of fair value, sets out a framework for measuring fair
value and requires additional disclosures about fair value measurements. SFAS
No. 157 applies to fair value measurements already required or permitted by
existing standards. SFAS No. 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. The changes to current generally accepted accounting
principles from the application of this Statement relate to the definition of
fair value, the methods used to measure fair value, and the expanded disclosures
about fair value measurements. As of November 30, 2006, the Fund does not
believe the adoption of SFAS No. 157 will impact the amounts reported in the
financial statements; however, additional disclosures may be required about the
inputs used to develop the measurements and the effect of certain of the
measurements reported in the financial statements for a fiscal period.
10. INDEMNIFICATIONS
The Fund enters into contracts that contain a variety of indemnifications. The
Fund's maximum exposure under these arrangements is unknown. However, the Fund
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.
39
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Chartwell Dividend & Income Fund, Inc:
We have audited the accompanying statement of assets and liabilities of
Chartwell Dividend & Income Fund, Inc. (the "Fund"), including the schedule of
investments, as of November 30, 2006, and the related statements of operations,
cash flows, changes in net assets, and financial highlights for the year then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The statement of changes in net assets for the year ended November 30,
2005 and the financial highlights for the four years in the period ended
November 30, 2005 were audited by other auditors, whose report dated January 27,
2006 expressed an unqualified opinion on those financial statements and
financial highlights.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of November 30, 2006, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Chartwell Dividend & Income Fund, Inc. at November 30, 2006, the results of its
operations and cash flows, and the changes in its net assets and financial
highlights for the year then ended, in conformity with U.S. generally accepted
accounting principles.
Philadelphia, Pennsylvania /s/ Ernst & Young
January 19, 2007
40
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
AUTOMATIC DIVIDEND REINVESTMENT PLAN (UNAUDITED)
Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the "Plan"), unless
a shareholder otherwise elects, all dividend and capital gains distributions
will be automatically reinvested in additional shares of common stock of the
Fund by PFPC, Inc., as agent for shareholders in administering the Plan (the
"Plan Agent"). Shareholders who elect not to participate in the Plan will
receive all dividends and distributions in cash, paid by check mailed directly
to the shareholder of record (or, if the shares are held in street or other
nominee name, then to such nominee) by PFPC, Inc., as dividend paying agent.
Such participants may elect not to participate in the Plan and to receive all
distributions of dividends and capital gains in cash by sending written
instructions to PFPC, Inc., as dividend paying agent, at the address set forth
below.
Participation in the Plan is completely voluntary and may be terminated or
resumed at any time without penalty by written notice if received by the Plan
Agent not less than ten days prior to any dividend record date. Otherwise such
termination will be effective with respect to any subsequently declared dividend
or distribution.
Whenever the Fund declares a distribution, an ordinary income dividend or a
capital gain dividend (collectively referred to as "dividends") payable either
in shares or in cash, non-participants in the Plan will receive cash, and
participants in the Plan will receive the equivalent in shares of common stock.
The shares will be acquired by the Plan Agent for the participant's account,
depending upon the circumstances described below, either (i) through receipt of
additional unissued but authorized shares of common stock from the Fund or (ii)
by purchase of outstanding shares of common stock on the open market on the NYSE
or elsewhere. If on the payment date of the dividend, the net asset value per
share of the common stock is equal to or less than the market price per share
plus estimated brokerage commissions (such condition being referred to herein as
"market premium"), the Plan Agent will invest the dividend amount in newly
issued shares on behalf of the participant. The number of newly issued shares of
common stock to be credited to the participant's account will be determined by
dividing the dollar amount of the dividend by the net asset value per share on
the date the shares are issued, provided that the maximum discount from the then
current market price per share on the date of issuance may not exceed 5%. If on
the dividend payment date the net asset value per share is greater than the
market value (such condition being referred to herein as "market discount"), the
Plan Agent will invest the dividend amount in shares acquired on behalf of the
participant in open-market purchases.
In the event of a market discount on the dividend payment date, the Plan Agent
will have until the last business day before the next date on which the shares
trade on the "ex-dividend" basis or in no event more than 30 days after the
41
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
dividend payment date to invest the dividend amount in shares acquired in
open-market purchases. If, before the Plan Agent has completed its open-market
purchases, the market price of a share of common stock exceeds the net asset
value per share, the average per share purchase price paid by the Plan Agent may
exceed the net asset value of the Fund's shares, resulting in the acquisition of
fewer shares than if the dividend had been paid in newly issued shares on the
dividend payment date. The Plan provides that if the Plan Agent is unable to
invest the full dividend amount in open-market purchases during the purchase
period or if the market discount shifts to market premium during the purchase
period, the Plan Agent will cease making open-market purchases and will invest
the uninvested portion of the dividend amount in newly issued shares at the
close of business on the last purchase date.
The Plan Agent maintains all shareholders' accounts in the Plan and furnishes
written confirmation of all transactions in the accounts, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Plan Agent on behalf of the Plan participant,
and each shareholder's proxy will include those shares purchased or received
pursuant to the Plan. The Plan Agent will forward all proxy solicitation
materials to participants and vote proxies for shares held pursuant to the Plan
in accordance with the instructions of the participants.
In the case of shareholders such as banks, brokers or nominees which hold shares
for others who are the beneficial owners, the Plan Agent will administer the
Plan on the basis of the number of shares certified from time to time by the
record shareholders as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who are to
participate in the Plan.
There will be no brokerage charges with respect to shares issued directly by the
Fund as a result of dividends or capital gain distributions payable either in
shares or in cash. However, each participant will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open-market
purchases in connection with reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not relieve
participants of any Federal, state or local income tax that may be payable (or
required to be withheld) on such dividends.
Shareholders participating in the Plan may receive benefits not available to
shareholders not participating in the Plan. If the market price plus commissions
of the Fund's shares is above the net asset value, participants in the Plan will
receive shares of the Fund at less than they could otherwise purchase them and
will have shares with a cash value greater than the value of any cash
distribution they would have received on their shares. If the market price plus
42
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
commissions is below the net asset value, participants will receive
distributions in shares with a net asset value greater than the value of any
cash distribution they would have received on their shares. However, there may
be insufficient shares available in the market to make distributions in shares
at prices below the net asset value. Also, since the Fund does not redeem its
shares, the price on resale may be more or less than the net asset value.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants in the Plan; however, the Fund reserves the right
to amend the Plan to include a service charge payable by the participants.
All correspondence concerning the Plan should be directed to the Plan Agent at
PFPC, Inc., P.O. Box 43027, Providence, RI 02940-3027, Attn: Closed-End
Department.
FEDERAL TAX INFORMATION (UNAUDITED)
Information for Federal income tax purposes is presented as an aid to
shareholders in reporting the dividend distributions for the year ended November
30, 2006 (see page 50).
ADDITIONAL INFORMATION (UNAUDITED)
During the period, there have been no material changes in the Fund's investment
objective or fundamental policies that have not been approved by the
shareholders. There have been no changes in the Fund's charter or By-Laws that
would delay or prevent a change in control of the Fund which have not been
approved by the shareholders. There have been no changes in the principal risk
factors associated with investment in the Fund.
EFFECTS OF LEVERAGE (UNAUDITED)
Leverage of $60 million in commercial paper was initially sold by the Fund on
July 28, 1999. As of November 30, 2006, the Fund had $30 million outstanding at
5.35% per annum maturing on January 3, 2007, and $25 million at 5.36% per annum
maturing on February 1, 2007. All interest rates include fees due to the
broker-dealer. The Fund must experience an annual return of 1.28% to cover
interest payments on the commercial paper.
The following table explains the potential effects of leverage on the equity
returns of common shareholders:
Assumed return on portfolio
(net of expenses) ............. -10.00% -5.00% 0.00% 5.00% 10.00%
Corresponding return to common
stockholder ................... -15.16% -8.44% -1.72% 5.00% 11.72%
43
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
Assumes $145 million assets attributable to common shareholders; $55 million
aggregate leverage with an average interest rate of 5.35%. All figures appearing
above are hypothetical returns generated to assist investors in understanding
the effects of leverage. Actual returns may be greater or less than those
appearing in the table.
HOW TO OBTAIN A COPY OF THE FUND'S QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q within sixty days after the end of the period. The Fund's Forms N-Q are
available on the Commission's website at http://www.sec.gov, and may be reviewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
HOW TO OBTAIN A COPY OF THE FUND'S PROXY VOTING POLICIES
A description of the policies and procedures that are used by the Fund's
investment adviser to vote proxies relating to the Fund's portfolio securities
as well as information relating to how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available (i) without charge, upon request, by calling the Fund toll-free at
(866) 585-6552; (ii) on the Fund's website at www.chartwellip.com; and (iii) on
the SEC's website at http://www.sec.gov.
NEW YORK STOCK EXCHANGE CERTIFICATION
The Fund's President has certified to the New York Stock Exchange that, as of
May 12, 2006, he was not aware of any violation by the Fund of the applicable
NYSE Corporate Governance listing standards. In addition, the Fund has filed
certifications of its principal executive officer and principal financial
officer as exhibits to its reports on Form N-CSR filed with the Securities and
Exchange Commission relating to the quality of the disclosures contained in such
reports.
44
------
CHARTWELL
This page intentionally left blank.
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
DIRECTOR AND OFFICER INFORMATION (UNAUDITED)
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Directors and the Fund's officers appointed by the Board of
Directors. The tables below present information about each Director and officer
of the Fund. The Directors of each class serve for terms of three years or, when
filling a vacancy, for the remainder of the full term of the class of Directors
in
DIRECTORS OF THE FUND
TERM OF
POSITION(S) OFFICE AND
NAME, ADDRESS, HELD WITH LENGTH OF
AND AGE THE FUND TIME SERVED
- --------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
- -----------------------
C. Warren Ormerod Director Term Expires 2009
70 yrs. old (Since 2001)
- --------------------------------------------------------------------------------
George W. Grosz Director Term Expires 2008
69 yrs. old (Since 2000)
- --------------------------------------------------------------------------------
Kenneth F. Herlihy Director Term Expires 2009
77 yrs. old (Since 1998)
- --------------------------------------------------------------------------------
INTERESTED DIRECTORS*
- ---------------------
Winthrop S. Jessup Director, Term Expires 2008
61 yrs. old Chairman (Since 1998)
and President
- --------------------------------------------------------------------------------
Bernard P. Schaffer Director and Term Expires 2007
62 yrs. old Vice President (Since 1998)
- --------------------------------------------------------------------------------
*These directors are considered to be "interested persons' of the Fund as
defined in the Investment Company Act of 1940 because they are partners in the
investment adviser (Chartwell Investment Partners, L.P.) and are officers of
the Fund.
46
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
which the vacancy occurred and until their successors have been duly elected and
qualified. Officers of the Fund are elected by the Board of Directors and,
subject to the earlier termination of office, each officer holds office for the
term of one year and until his or her successor is elected and qualified. Unless
otherwise noted, the business address of each Officer and Director is c/o
Chartwell Investment Partners, 1235 Westlakes Drive, Suite 400, Berwyn,
Pennsylvania 19312.
NUMBER OF
PORTFOLIOS
IN THE FUND
PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN OTHER DIRECTORSHIPS
DURING PAST 5 YEARS BY DIRECTOR HELD BY BOARD MEMBER
- -------------------------------------------------------------------------------------
Chairman and Managing Director, 1 None
NorthStar Asset Management (since
2000). Managing Partner, Stratton
Management Company (1992-2000).
- -------------------------------------------------------------------------------------
Consultant (since 1996); President 1 FBR National Bank & Trust
and CEO of Meridian Asset Company (since 2001);
Management Co.(1994-1996); Guardian Trust FSB
Director, FBR Family of (a wholly owned subsidiary
Funds (1998-2001). of Guardian Life Insurance
Company of America)
(since 1999).
- -------------------------------------------------------------------------------------
Sculptor, who has worked 1 None
since his retirement from the
mutual fund industry in 1987.
- -------------------------------------------------------------------------------------
Limited Partner, Chartwell Investment 1 Georgia Banking Company
Partners, L.P. and Chartwell G.P., Inc. (since 1998).
(since 1997); Managing Partner, Chartwell
Investment Partners, L.P. and Chartwell
G.P., Inc. (1997-2005).
- -------------------------------------------------------------------------------------
Managing Partner and Portfolio 1 None
Manager of Chartwell Investment
Partners, L.P. and Partner of Chartwell
G.P., Inc. (since 1997).
- -------------------------------------------------------------------------------------
47
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
DIRECTOR AND OFFICER INFORMATION (UNAUDITED)
(CONTINUED)
TERM OF
POSITION(S) OFFICE AND
NAME, ADDRESS, HELD WITH LENGTH OF
AND AGE THE FUND TIME SERVED
- --------------------------------------------------------------------------------
OFFICERS OF THE FUND
- --------------------
Winthrop S. Jessup Chairman of the Board, (Since 1998)
61 yrs. old President and Director
- --------------------------------------------------------------------------------
Bernard P. Schaffer Vice President and (Since 1998)
62 yrs. old Director
- --------------------------------------------------------------------------------
Kevin A. Melich Vice President (Since 1998)
64 yrs. old
- --------------------------------------------------------------------------------
Timothy J. Riddle Vice President (Since 1998)
51 yrs. old
- --------------------------------------------------------------------------------
G. Gregory Hagar Vice President (Since 1998)
38 yrs. old and Treasurer, (Since 2004)
Chief Financial Officer and
Chief Compliance Officer
- --------------------------------------------------------------------------------
Andrew Toburen Vice President (Since 2003)
35 yrs. old
- --------------------------------------------------------------------------------
Michael P. Malloy Secretary (Since 1998)
47 yrs. old
One Logan Square
18th and Cherry Streets
Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
Maria E. Pollack Assistant (Since 1998)
61 yrs. old Secretary
- --------------------------------------------------------------------------------
48
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
PRINCIPAL OCCUPATION(S)
DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------
Limited Partner, Chartwell Investment Partners, L.P. and Chartwell G.P., Inc. (since 1997);
Managing Partner, Chartwell Investment Partners, L.P. and Chartwell G.P., Inc. (1997-2005).
- ----------------------------------------------------------------------------------------------
Managing Partner and Portfolio Manager of Chartwell Investment Partners, L.P. and
Partner of Chartwell G.P., Inc. (since 1997).
- ----------------------------------------------------------------------------------------------
Managing Partner and Portfolio Manager of Chartwell Investment Partners, L.P. and
Chartwell G.P., Inc. (since 1997).
- ----------------------------------------------------------------------------------------------
Managing Partner of Chartwell Investment Partners L.P. and of Chartwell G.P., Inc.
(since 1997).
- ----------------------------------------------------------------------------------------------
Partner, Chief Financial Officer of Chartwell Investment Partners L.P. (since 1997);
Chief Compliance Officer Chartwell Investment Partners L.P. (since 2004).
- ----------------------------------------------------------------------------------------------
Fixed Income Portfolio Manager for Chartwell Investment Partners L.P. (since 1999).
- ----------------------------------------------------------------------------------------------
Partner in the law firm of Drinker Biddle & Reath LLP (since 1993).
- ----------------------------------------------------------------------------------------------
Director of Client Administration for Chartwell Investment Partners L.P. (since 1997).
- ----------------------------------------------------------------------------------------------
49
------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
NOTES TO SHAREHOLDERS (UNAUDITED)
For shareholders that do not have a November 30, 2006 tax year end, this notice
is for informational purposes only. For shareholders with a November 30, 2006
tax year end, please consult your tax advisor as to the pertinence of this
notice. For the fiscal year ended November 30, 2006, the Fund is designating the
following items with regard to distributions paid during the year.
ORDINARY QUALIFYING QUALIFYING
INCOME TOTAL QUALIFYING DIVIDEND INTEREST
DISTRIBUTIONS DISTRIBUTIONS DIVIDENDS(1) INCOME(2) INCOME(3)
CHARTWELL DIVIDEND AND
INCOME FUND, INC. 100.00% 100.00% 43.63% 41.83% 22.87%
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
(2) The percentage in this column represents the amount of "Qualifying Dividend
Income" as created by the Jobs and Growth Tax Relief Reconciliation Act of 2003
and is reflected as a percentage of "Ordinary Income Distributions." It is the
intention of the Fund to designate the maximum amount permitted by the law.
(3) The percentage in this column represents the amount of "Qualifying Interest
Income" as created by the American Jobs Creaction Act of 2004 and is reflected
as a percentage of Net Investment Income distributions that is exempt from U.S.
withholding tax when paid to foreign investors.
The information reported herein may differ from the information and
distributions taxable to the shareholders for the calendar year ending December
31, 2006. Complete information will be computed and reported in conjunction with
your 2006 Form 1099-DIV.
50
------
CHARTWELL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2006
- --------------------------------------------------------------------------------
DIRECTORS
Winthrop S. Jessup, Chairman
George W. Grosz
Kenneth F. Herlihy
C. Warren Ormerod
Bernard P. Schaffer
OFFICERS
Winthrop S. Jessup, President
G. Gregory Hagar, Vice President, Treasurer, Chief Financial Officer and Chief
Compliance Officer
Bernard P. Schaffer, Vice President
Kevin A. Melich, Vice President
Timothy J. Riddle, Vice President
Andrew S. Toburen, Vice President
Michael P. Malloy, Secretary
Maria E. Pollack, Assistant Secretary
INVESTMENT MANAGER
Chartwell Investment Partners, L.P.
1235 Westlakes Drive, Suite 400
Berwyn, PA 19312
ADMINISTRATOR
SEI Investments Global Funds Services
One Freedom Valley Drive
Oaks, PA 19456
CUSTODIAN
U.S. Bank
Two Liberty Place
Philadelphia, PA 19102
TRANSFER AGENT
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young, LLP
2001 Market Street, Suite 4000
Philadelphia, PA 19103
LEGAL COUNSEL
Drinker Biddle & Reath LLP
One Logan Square
18th & Cherry Streets
Philadelphia, PA 19103
This report, including the financial statements herein, is transmitted to the
shareholders of Chartwell Dividend and Income Fund, Inc. It is not a prospectus,
circular or representation intended for use in the purchase of shares of the
Fund or any securities mentioned in the report. Past performance results should
not be considered a representation of future performance. Statements and other
information contained in this report are as dated and are subject to change.
The investment adviser's commentaries included in this report contain certain
forward-looking statements about the factors that may affect the performance of
the Fund in the future. These statements are based on Fund management's
predictions and expectations concerning certain future events and their expected
impact on the Fund, such as performance of the economy as a whole and of
specific industry sectors, changes in the levels of interest rates, the impact
of developing world events and other factors that may influence the future
performance of the Fund. Management believes these forward-looking statements to
be reasonable, although they are inherently uncertain and difficult to predict.
Actual events may cause adjustments in portfolio management strategies from
those currently expected to be employed.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase, from time to time, shares of its
common stock in the open market.
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a code of ethics that applies to the Registrant's
principal executive officer and principal financial officer. A copy of
Registrant's code is filed herewith.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the Registrant's Board of
Directors has determined that it does not have an audit committee financial
expert serving on its Audit Committee, as defined in Item 3 to Form N-CSR.
However, the Registrant's Board of Directors determined that, although none of
its members meet the technical definition of an audit committee financial
expert, the Audit Committee members have sufficient experience and financial
expertise to carry out their responsibilities and address any issues that are
likely to come before the Audit Committee, including but not limited to the
evaluation of the Registrant's financial statements, supervision of the
Registrant's preparation of its financial statements, and oversight of the work
of the Registrant's independent auditors.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Fees billed by Registrant's principal accountant related to the Registrant.
Registrant's principal accountant billed the Registrant aggregate fees for
professional services rendered to the Registrant for the last two fiscal years
as follows:
- ------------------------------------------------------------------------------------------------------------------------------
2006 2005
- ------------------------------------------------------------------------------------------------------------------------------
All fees and All non-audit Description of All fees and All non-audit Description of
services to the services to the Services services to services to the Services
Registrant . Registrant's the Registrant Registrant's
service affiliates . service
that were pre- affiliates that
approved by the were pre-
Registrant's approved by the
Audit Committee Registrant's
pursuant to Rule Audit
2-01(c)(7)(ii) of Committee
Regulation S-X. pursuant to
Rule 2-
01(c)(7)(ii) of
Regulation S-X.
- ------------------------------------------------------------------------------------------------------------------------------
(a) Audit $37,500 N/A Audit fees $47,150 (3) N/A Audit fees
Fees include include
amounts amounts
related to the related to the
audit of the audit of the
Registrant's Registrant's
annual annual
financial financial
statements and statements and
services services
normally normally
provided by provided by
the accountant the accountant
in connection in connection
with statutory with statutory
and regulatory and regulatory
filings. filings.
- ------------------------------------------------------------------------------------------------------------------------------
(b) Audit- $0 $0 $0 $20,600 (1),(3) $0 $0
Related
Fees
- ------------------------------------------------------------------------------------------------------------------------------
(c) Tax $5,000 (2) $0 $0 $4,700 (2),(3) $0 $0
Fees
- ------------------------------------------------------------------------------------------------------------------------------
(d) All $10,000 (1) $0 $0 $0 $0 $0
Other
Fees
- ------------------------------------------------------------------------------------------------------------------------------
Notes:
(1) Fees for agreed upon procedures performed in relation to the Fund's
commercial paper issuance program.
(2) Fees for review of the Fund's federal, excise and state tax returns.
(3) Fees paid in 2005 were paid by the Fund's prior principal accountant.
(e)(1) Audit Committee Pre-Approval Policies and Procedures: The Registrant's
Audit Committee has not adopted pre-approval policies and procedures. Instead,
the Audit Committee approves an a case-by-case basis each audit or non-audit
service before the engagement.
(e)(2) 0%, 0% and 0%, respectively, of the audit-related fees, tax fees and
other fees listed in the table above were approved by the Registrant's Audit
Committee pursuant to the "de minimis" exception of Rule 2-01(c)(7)(i)(C) of
Regulation S-X. In addition, 0%, 0% and 0%, respectively, of the audit related,
fees, tax fees and other fees to the Registrant's service affiliates listed in
the table above were approved by the Registrant's Audit Committee pursuant to
the "de minimis" exception of Rule 2-01(c)(7)(i)(C) of Regulation S-X.
(f) Not applicable.
(g) The aggregate non-audit fees and services billed by the Registrant's
principal accountant for services rendered to the Registrant and the
Registrant's investment adviser for the Registrant's fiscal year ended November
30, 2006 and the fiscal year ended November 30, 2005 were $114,010 and $0,
respectively.
(h) Not Applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The Registrant has a separately-designated standing Audit Committee
established in accordance with Section 3(a)(58)(A) of the Exchange Act. The
committee members are: Kenneth F. Herlihy, George W. Grosz and C. Warren
Ormerod.
(b) Not applicable
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Registrant has delegated the voting of proxies relating to its voting
securities to its investment adviser, Chartwell Investment Partners, L.P. (the
"Adviser"), subject to the general oversight by the Registrant's Board of
Directors. The Registrant expects the Adviser to vote proxies related to the
Registrant's portfolio securities for which it has voting authority consistent
with the Registrant's best economic interests. The Adviser has adopted its own
Proxy Voting Policies and Procedures which address, among other things,
conflicts of interests that may arise between the interests of the Registrant
and the interests of the Adviser and its affiliates. The Adviser's Proxy Voting
Policies and Procedures is includes as an Exhibit hereto.
CHARTWELL INVESTMENT PARTNERS
PROXY VOTING POLICIES AND PROCEDURES
ADOPTED APRIL 11, 1997
AS AMENDED FEBRUARY 1, 2005
PURPOSE. Chartwell Investment Partners ("Chartwell") has adopted these Proxy
Voting Policies and Procedures ("Policies") to seek to ensure that it exercises
voting authority on behalf of Chartwell clients in a manner consistent with the
best interests of each client and its agreement with the client.
SCOPE. These Policies apply where clients have delegated the authority and
responsibility to Chartwell to decide how to vote proxies. Chartwell does not
accept or retain authority to vote proxies in accordance with individual client
guidelines. Clients that wish to arrange to vote proxies in accordance with
their own guidelines may elect to do so at any time by notifying Chartwell.
Chartwell generally will follow these Policies if asked to make recommendations
about proxy voting to clients who request that advice but have not delegated
proxy voting responsibility to Chartwell.
GUIDING PRINCIPLES. Chartwell believes that voting proxies in the best interests
of each client means making a judgment as to what voting decision is most likely
to maximize total return to the client as an investor in the securities being
voted, and casting the vote accordingly. For this reason, Chartwell's evaluation
of the possible impact of a proxy vote on the economic interests of company
shareholders similarly situated to Chartwell's clients will be the primary
factor governing Chartwell's proxy voting decisions.
USE OF INDEPENDENT PROXY VOTING SERVICE. Chartwell has retained Institutional
Shareholder Services, Inc., ("ISS") an independent proxy voting service, to
assist it in analyzing specific proxy votes with respect to securities held by
Chartwell clients and to handle the mechanical aspects of casting votes.
Historically, Chartwell has placed substantial reliance on ISS' analyses and
recommendations and generally gives instructions to ISS to vote proxies in
accordance with ISS' recommendations, unless Chartwell reaches a different
conclusion than ISS about how a particular matter should be voted. ISS proxy
voting recommendations typically are made available to Chartwell about a week
before the proxy must be voted, and are reviewed and monitored by members of the
Proxy Voting Committee (and, in certain cases, by Chartwell portfolio managers),
with a view to determining whether it is in the best interests of Chartwell's
clients to vote proxies as recommended by ISS, or whether client proxies should
be voted on a particular proposal in another manner.
ADMINISTRATION OF POLICIES. Chartwell has established a Proxy Voting Committee
to oversee and administer the voting of proxies on behalf of clients, comprised
of approximately five representatives of the firm's compliance and operations
departments. The Committee's responsibilities include reviewing and updating
these Policies as may be appropriate from time to time; identifying and
resolving any material conflicts of interest on the part of Chartwell or its
personnel that may affect particular proxy votes; evaluating and monitoring,
on an ongoing basis, the analyses, recommendations and other services provided
by ISS or another third party retained to assist Chartwell in carrying out its
proxy voting responsibilities; when deemed appropriate by the Committee,
consulting with Chartwell portfolio managers and investment professionals on
particular proposals or categories of proposals presented for vote; and
determining when and how client proxies should be voted other than in accordance
with the general rules and criteria set forth in Chartwell's Proxy Voting
Guidelines or with the recommendations of ISS or another independent proxy
voting service retained by Chartwell.
CONFLICTS OF INTEREST. It is Chartwell's policy not to exercise its authority to
decide how to vote a proxy if there is a material conflict of interest between
Chartwell's interests and the interests of the client that owns the shares to be
voted that could affect the vote on that matter. To seek to identify any such
material conflicts, a representative of the Proxy Voting Committee screens all
proxies and presents any potential conflicts identified to the Committee for
determination of whether the conflict exists and if so, whether it is material.
Conflicts of interest could result from a variety of circumstances, including,
but not limited to, significant personal relationships between executive
officers of an issuer and Chartwell personnel, a current or prospective
investment adviser-client relationship between an issuer or a pension plan
sponsored by an issuer and Chartwell, a significant ownership interest by
Chartwell or its personnel in the issuer and various other business, personal or
investment relationships. Generally, a current or prospective adviser-client
relationship will not be considered material for these purposes if the net
advisory revenues to Chartwell have not in the most recent fiscal year and are
not expected in the current fiscal year to exceed 1/2 of 1 percent of
Chartwell's annual advisory revenue.
In the event the Committee determines that there is a material conflict of
interest that may affect a particular proxy vote, Chartwell will NOT make the
decision how to vote the proxy in accordance with these Policies unless the
Policies specify how votes shall be cast on that particular type of matter,
i.e., "for" or "against" the proposal. Where the Policies provide that the
voting decision will be made on a "case-by-case" basis, Chartwell will either
request the client to make the voting decision, or the vote will be cast in
accordance with the recommendations of ISS or another independent proxy voting
service retained by Chartwell for that purpose. Chartwell also will not provide
advice to clients on proxy votes without first disclosing any material conflicts
to the client requesting such advice.
WHEN CHARTWELL DOES NOT VOTE PROXIES. Chartwell may not vote proxies respecting
client securities in certain circumstances, including, but not limited to,
situations where (a) the securities are no longer held in a client's account;
(b) the proxy and other relevant materials are not received in sufficient time
to allow analysis or an informed vote by the voting deadline; (c) Chartwell
concludes that the cost of voting the proxy will exceed the expected potential
benefit to the client; or (d) the securities have been loaned out pursuant to a
client's securities lending program and are unavailable to vote.
2
PROXY VOTING GUIDELINES
Generally, Chartwell votes all proxies in accordance with the following
guidelines. These guidelines may be changed or supplemented from time to time.
Votes on matters not covered by these guidelines will be determined in
accordance with the principles set forth above. Client guidelines may be
inconsistent with these guidelines and may cause Chartwell to vote differently
for different clients on the same matter.
I. THE BOARD OF DIRECTORS
A. DIRECTOR NOMINEES IN UNCONTESTED ELECTIONS
Vote on a CASE-BY-CASE basis for director nominees, examining the following
factors:
o long-term corporate performance record of the company's stock
relative to a market index;
o composition of board and key board committees;
o nominee's attendance at meetings (past two years);
o nominee's investment in the company;
o whether a retired CEO of the company sits on the board; and
o whether the board chairman is also serving as the company's CEO.
In certain cases, and when information is readily available, we also review:
o corporate governance provisions and takeover activity;
o board decisions regarding executive pay;
o board decisions regarding majority-supported shareholder proposals in
back-to-back years;
o director compensation; and
o interlocking directorships.
WITHHOLD votes from directors who are CEOs of publicly traded companies who
serve on more than three public boards, i.e., more than two public boards other
than their own board.
WITHHOLD votes from directors who serve on more than six public company boards.
WITHHOLD votes from all directors (except from new nominees) of companies who
have dead-hand or modified dead-hand features (e.g. slow-hand) in shareholder
rights plan.
WITHHOLD votes from all directors (except from new nominees) if the company has
adopted or renewed a poison pill without shareholder approval since the
company's last annual meeting, does not put the pill to a vote at the current
annual meeting, and there is no requirement to put the pill to shareholder vote
within 12 months of its adoption. (Pills adopted prior to this policy will not
be considered.)
3
WITHHOLD votes from the ENTIRE board (except from new nominees) in cases where
the director(s) receive more than 50% withhold votes out of those cast and the
issue that was the underlying cause of the high level of withholds votes in the
prior election has not been addressed. The adequacy of the company's response,
if any, would be analyzed on a CASEBY-CASE basis to determine if it represents
an acceptable cure for the issue(s) that resulted in such a high level of
withholds.
B. CHAIRMAN AND CEO ARE THE SAME PERSON
Vote FOR shareholder proposals requiring the position of chairman to be filled
by an independent director unless there are compelling reasons to recommend
against the proposal, such as a counterbalancing governance structure including
all of the following:
o Designated lead director, elected by and from the independent board members
with clearly delineated duties. (The role may alternatively reside with a
presiding director, vice chairman or rotating lead director.) At a minimum
these should include:
- Presides at all meetings of the board at which the chairman is not
present, including executive sessions of the independent directors
- Serves as liaison between the chairman and the independent directors
- Approves information sent to the board
- Approves meeting agendas for the board
- Approves meeting schedules to assure that there is sufficient time
for discussion of all agenda items
- Has the authority to call meetings of the independent directors
- If requested by major shareholders, ensures that he is available for
consultation and direct communication
o 2/3 independent board
o All independent key committees
o Established governance guidelines
o The company should not have underperformed its peers and index on a one-year
and three-year basis, unless there has been a change in the Chairman/CEO
position within that time. Performance will be measured according to
shareholder returns against index and peers from the performance summary
table.
C. MAJORITY OF INDEPENDENT DIRECTORS
WITHHOLD votes from insiders and affiliated outsiders on boards that are not at
least majority independent.
Vote FOR proposals that request that the board audit, compensation and/or
nominating committees include independent directors exclusively.
4
CATEGORIZATION OF DIRECTORS
INSIDE DIRECTOR (I)
o Employee of the company or its affiliates(1)
o Nonemployee officer of the company if among the five most highly compensated
individuals o Listed as a Section 16 officer(2)
o Interim CEO
o Beneficial ownership of more than 50 percent of the company's voting power
(this may be aggregated if voting power id distributed among more than one
member of a defined group).
AFFILIATED OUTSIDE DIRECTOR (AO)
o Board attestation that an outside director is not independent o Former CEO of
the company or its affiliate(1)
o Former interim CEO if the service was longer than one year or if the service
was between six months and a year and the compensation was high relative to
that of the other directors (5x their pay) or in line with a CEO's
compensation
o Former executive of the company, an affiliate or an acquired firm within the
past five years
o Executive of a former parent or predecessor firm at the time the company was
sold or split off from the parent/predecessor within the past five years
o Executive, former executive, general or limited partner of a joint venture or
partnership with the company
o Relative(3) of a current employee of company or its affiliates
o Relative(3) of former executive, including CEO, of company or its affiliate
within the last five years
o Currently provides (or a relative provides) professional services directly to
the company, to an affiliate of the company or an individual officer of the
company or one of its affiliates
o Employed by (or a relative is employed by) a significant customer or
supplier(4)
o Has (or a relative has) any transactional relationship with the company or
its affiliates excluding investments in the company through a private
placement(4)
o Has a contractual/guaranteed board seat and is party to a voting agreement to
vote in line with management on proposals being brought to shareholders
1 "Affiliate includes a subsidiary, sibling company or parent company.
2 "Executives" (officers subject to Section 16 of the Securities and Exchange
Act of 1934) include the chief executive, operating, financial, legal,
technology and accounting officers of a company (including the president,
treasurer, secretary, controller or any vice president in charge of a principal
business unit, division or policy function.
3 "Relative" follows the NYSE definition of "immediate family members" which
covers: spouses, parents, children, siblings, in-laws and anyone sharing the
director's home
4 If the company makes or receives annual payments exceeding $200,000 or 5
percent of the recipient's gross revenues. (The recipient is the party receiving
the financial proceeds from the transaction.)
5
o Has (or a relative has) an interlocking relationship as defined by the SEC
involving members of the board of directors or its Compensation and Stock
Option Committee(5)
o Founder of the company but not currently an employee
o Is (or a relative is) a trustee, director or employee of a charitable or
non-profit organization that receives grants or endowments from the company
or its affiliates(4)
INDEPENDENT OUTSIDE DIRECTOR (IO)
o No material(6) connection to the company other than a board seat
D. STOCK OWNERSHIP REQUIREMENTS
Vote AGAINST proposals requiring directors to own a minimum amount of company
stock in order to qualify as a director, or to remain on the board.
E. MANDATORY HOLDING PERIODS
Review on a CASE-BY-CASE basis shareholder proposals asking companies to adopt
holding periods for the executives, taking into account:
o Whether the company has any holding period or officer ownership
requirements in place. These should consist of:
* Rigorous stock ownership guidelines, or
* A short-term holding period requirement (six months to one year)
coupled with a significant long-term ownership requirement, or
* A meaningful retention ratio
Actual officer stock ownership and to what degree it meets or exceeds the
proponent's suggested holding period or the company's own stock ownership or
retention requirements.
F. TERM OF OFFICE
Vote AGAINST proposals to limit the tenure of outside directors.
5 Interlocks include: (a) executive officers serving as directors on each
other's compensation or similar committees (or, in the absence of such a
committee, on the board or (b) executive officers sitting on each other's boards
and at least one serves on the other's compensation or similar committee
committees (or, in the absence of such a committee, on the board).
6 For purposes of ISS' director independence classification, "material" will be
defined as a standard of relationship (financial, personal or otherwise) that a
reasonable person might conclude could potentially influence one's objectivity
in the boardroom in a manner that would have a meaningful impact on an
individual's ability to satisfy requisite fiduciary standards on behalf of
shareholders. See AO materiality standards for guidance.
6
G. DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY PROTECTION
Vote on a CASE-BY-CASE basis proposals concerning director and officer
indemnification and liability protection.
Vote AGAINST proposals to limit or eliminate entirely director and officer
liability for monetary damages for violating the duty of care.
Vote AGAINST indemnification proposals that would expand coverage beyond just
legal expenses to include coverage for acts or omissions, such as gross
negligence or worse, that are more serious violations of fiduciary obligations
than mere carelessness.
Vote FOR only those proposals that provide such expanded coverage in cases when
a director's or officer's legal defense was unsuccessful if: (1) the director or
officer was found to have acted in good faith and in a manner that he reasonably
believed was in the best interests of the company, AND (2) only if the
director's legal expenses would be covered.
H. CHARITABLE CONTRIBUTIONS
Vote AGAINST proposals to eliminate, direct or otherwise restrict charitable
contributions.
I. OPEN ACCESS
Review on a CASE-BY-CASE basis shareholder proposals asking for open access,
taking into account:
o The ownership threshold proposed in the resolution
o The proponent's rationale for the proposal at the targeted company in
terms of board and director conduct.
II. PROXY CONTESTS
A. DIRECTOR NOMINEES IN CONTESTED ELECTIONS
Vote on a CASE-BY-CASE basis when the election of directors is contested,
examining the following factors:
o long-term financial performance of the company relative to its
industry;
o management's track record;
o background to the proxy contest;
o qualifications of director nominees (both slates);
o evaluation of what each side is offering shareholders, as well as the
likelihood that the proposed objectives and goals can be met; and
o stock ownership positions of director nominees.
7
B. REIMBURSE PROXY SOLICITATION EXPENSES
Vote on a CASE-BY-CASE basis proposals to provide full reimbursement of expenses
for dissidents waging a proxy contest.
III. AUDITORS
RATIFYING AUDITORS
Vote FOR proposals to ratify auditors, unless it appears that: an auditor has a
financial interest in or association with the company that impairs the auditor's
independence; or there is reason to believe that the independent auditor has
rendered an opinion which is neither accurate nor indicative of the company's
financial position.
Vote AGAINST auditors and WITHHOLD votes from Audit Committee members if:
Non-audit ("all other") fees > audit and audit-related fees + permissible
tax fees
o AUDIT FEES (includes statutory audits, comfort letters, attest services,
consents, and review of filings with SEC)
o AUDIT-RELATED FEES (includes employee benefit plan audits, due diligence
related to M&A, audits in connection with acquisitions, internal control
reviews, consultation on financial accounting and reporting standards)
o TAX FEES* [includes tax compliance (tax returns, claims for refunds and
tax payment planning) and tax consultation and planning (assistance with
tax audits and appeals, tax advice relating to M&A, employee benefit
plans and requests for rulings or technical advice from taxing
authorities)]
o ALL OTHER FEES
Vote on a CASE-BY-CASE basis proposals asking companies to prohibit their
auditors from engaging in non-audit services (or capping the level of non-audit
services) taking into account
Whether the non-audit fees are excessive (per the formula above) and
Whether the company has policies and procedures in place to limit
non-audit services or otherwise prevent conflicts of interest.
Vote on a CASE-BY-CASE basis on auditor rotation proposals:
o Tenure of Audit Firm
o Establishment and disclosure of a renewal process whereby the auditor is
regularly evaluated for both audit quality and competitive price
o Length of the rotation period advocated in the proposal
o Significant audit-related issues
o Number of annual Audit Committee meetings held and the number of
financial experts that serve on the Audit Committee
8
IV. PROXY CONTEST DEFENSES
A. BOARD STRUCTURE: STAGGERED VS. ANNUAL ELECTIONS
Vote AGAINST proposals to classify the board.
Vote FOR proposals to repeal classified boards and to elect all directors
annually.
B. SHAREHOLDER ABILITY TO REMOVE DIRECTORS
Vote AGAINST proposals that provide that directors may be removed ONLY for
cause.
Vote FOR proposals to restore shareholder ability to remove directors with or
without cause.
Vote AGAINST proposals that provide that only continuing directors may elect
replacements to fill board vacancies.
Vote FOR proposals that permit shareholders to elect directors to fill board
vacancies.
C. CUMULATIVE VOTING
Vote AGAINST proposals to eliminate cumulative voting. Vote FOR proposals to
permit cumulative voting.
D. SHAREHOLDER ABILITY TO CALL SPECIAL MEETINGS
Vote AGAINST proposals to restrict or prohibit shareholder ability to call
special meetings.
Vote FOR proposals that remove restrictions on the right of shareholders to act
independently of management.
9
E. SHAREHOLDER ABILITY TO ACT BY WRITTEN CONSENT
Vote AGAINST proposals to restrict or prohibit shareholder ability to take
action by written consent.
Vote FOR proposals to allow or make easier shareholder action by written
consent.
F. SHAREHOLDER ABILITY TO ALTER THE SIZE OF THE BOARD
Vote FOR proposals that seek to fix the size of the board.
Vote AGAINST proposals that give management the ability to alter the size of the
board without shareholder approval.
V. TENDER OFFER DEFENSES
A. POISON PILLS
Vote FOR proposals that ask a company to submit its poison pill for shareholder
ratification.
Vote on a CASE-BY-CASE basis proposals to redeem a company's poison pill.
Vote on a CASE-BY-CASE basis management proposals to ratify a poison pill.
B. FAIR PRICE PROVISIONS
Vote on a CASE-BY-CASE basis when examining fair price proposals, taking into
consideration whether the shareholder vote requirement embedded in the provision
is no more than a majority of disinterested shares.
Vote FOR proposals to lower the shareholder vote requirement in existing fair
price provisions.
C. GREENMAIL
Vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or
otherwise restrict a company's ability to make greenmail payments.
Vote on a CASE-BY-CASE basis anti-greenmail proposals when they are bundled with
other charter or bylaw amendments.
10
D. PALE GREENMAIL
Vote on a CASE-BY-CASE basis restructuring plans that involve the payment of
pale greenmail.
E. UNEQUAL VOTING RIGHTS
Vote AGAINST dual class exchange offers.
Vote AGAINST dual class recapitalizations.
F. SUPERMAJORITY SHAREHOLDER VOTE REQUIREMENT TO AMEND THE CHARTER OR
BYLAWS
Vote AGAINST management proposals to require a supermajority shareholder vote to
approve charter and bylaw amendments.
Vote FOR proposals to lower supermajority shareholder vote requirements for
charter and bylaw amendments.
G. SUPERMAJORITY SHAREHOLDER VOTE REQUIREMENT TO APPROVE MERGERS
Vote AGAINST management proposals to require a supermajority shareholder vote to
approve mergers and other significant business combinations.
Vote FOR proposals to lower supermajority shareholder vote requirements for
mergers and other significant business combinations.
H. WHITE SQUIRE PLACEMENTS
Vote FOR proposals to require approval of blank check preferred stock issues for
other than general corporate purposes.
VI. MISCELLANEOUS GOVERNANCE PROVISIONS
A. CONFIDENTIAL VOTING
Vote FOR proposals that request corporations to adopt confidential voting, use
independent tabulators and use independent inspectors of election as long as the
proposals include clauses for proxy contests as follows: In the case of a
contested election, management is permitted to request that the dissident group
honor its confidential voting policy. If the dissidents agree, the policy
remains in place. If the dissidents do not agree, the confidential voting policy
is waived.
Vote FOR management proposals to adopt confidential voting.
11
B. EQUAL ACCESS
Vote FOR proposals that would allow significant company shareholders equal
access to management's proxy material in order to evaluate and propose voting
recommendations on proxy proposals and director nominees, and in order to
nominate their own candidates to the board.
C. BUNDLED PROPOSALS
Vote on a CASE-BY-CASE basis bundled or "conditioned" proxy proposals. In the
case of items that are conditioned upon each other, we examine the benefits and
costs of the packaged items. In instances when we believe the joint effect of
the conditioned items is not in shareholders' best interests, we vote against
the proposals. If the combined effect is positive, we support such proposals.
D. SHAREHOLDER ADVISORY COMMITTEES
Vote on a CASE-BY-CASE basis proposals to establish a shareholder advisory
committee.
E. OUTSOURCING
Vote CASE-BY-CASE on proposals asking for companies to report on the risks
associated with outsourcing or offshoring considering:
o Risks associated with certain international markets
o The utility of such a report to shareholders
o The existence of a publicly available code of corporate conduct that applies
to international operations.
VII. CAPITAL STRUCTURE
A. COMMON STOCK AUTHORIZATION
Vote on a CASE-BY-CASE basis proposals to increase the number of shares of
common stock authorized for issue.
Vote AGAINST proposed common stock authorizations that increase the existing
authorization by more than 100% unless a clear need for the excess shares is
presented by the company.
12
B. STOCK DISTRIBUTIONS: SPLITS AND DIVIDENDS
Vote FOR management proposals to increase common share authorization for a stock
split, provided that the split does not result
in an increase of authorized but unissued shares of more than 100% after giving
effect to the shares needed for the split.
C. REVERSE STOCK SPLITS
Vote FOR management proposals to implement a reverse stock split, provided that
the reverse split does not result in an increase of authorized but unissued
shares of more than 100% after giving effect to the shares needed for the
reverse split.
D. BLANK CHECK PREFERRED AUTHORIZATION
Vote FOR proposals to create blank check preferred stock in cases when the
company expressly states that the stock will not be used as a takeover defense
or carry superior voting rights.
Vote on a CASE-BY-CASE basis proposals that would authorize the creation of new
classes of preferred stock with unspecified voting, conversion, dividend and
distribution, and other rights.
Vote on a CASE-BY-CASE basis proposals to increase the number of authorized
blank check preferred shares.
E. PROPOSALS REGARDING BLANK CHECK PREFERRED STOCK
Vote FOR proposals to have blank check preferred stock placements, other than
those shares issued for the purpose of raising capital or making acquisitions in
the normal course of business, submitted for shareholder ratification.
F. ADJUST PAR VALUE OF COMMON STOCK
Vote FOR management proposals to reduce the par value of common stock.
G. PREEMPTIVE RIGHTS
Vote on a CASE-BY-CASE basis proposals to create or abolish preemptive rights.
In evaluating proposals on preemptive rights, we look at the size of a company
and the characteristics of its shareholder base.
13
H. DEBT RESTRUCTURINGS
Vote on a CASE-BY-CASE basis proposals to increase common and/or preferred
shares and to issue shares as part of a debt restructuring plan. We consider the
following issues:
o DILUTION - How much will ownership interest of existing shareholders be
reduced, and how extreme will dilution to any future earnings be?
o CHANGE IN CONTROL - Will the transaction result in a change in control of the
company?
o BANKRUPTCY - Is the threat of bankruptcy, which would result in severe losses
in shareholder value, the main factor driving the debt restructuring?
Generally, we approve proposals that facilitate debt restructurings unless there
are clear signs of self-dealing or other abuses.
I. SHARE REPURCHASE PROGRAMS
Vote FOR management proposals to institute open-market share repurchase plans in
which all shareholders may participate on equal terms.
VIII. EXECUTIVE AND DIRECTOR COMPENSATION
In general, we vote on a CASE-BY-CASE basis on executive and director
compensation plans, with the view that viable compensation programs reward the
creation of stockholder wealth by having a high payout sensitivity to increases
in shareholder value.
In evaluating a pay plan, we measure its dilutive effect both on shareholder
wealth and on voting power. We value equity-based compensation along with cash
components of pay. We estimate the present value of short- and long-term
incentives, derivative awards, and cash/bonus compensation -- which enables us
to assign a dollar value to the amount of potential shareholder wealth transfer.
Our vote is based, in part, on a comparison of company-specific adjusted
allowable dilution cap and a weighted average estimate of shareholder wealth
transfer and voting power dilution. Administrative features are also factored
into our vote. For example, our policy is that the plan should be [administered]
DO YOU MEAN OVERSEEN? WHO WOULD BE DISINTERESTED OTHER THAN THE INDEPENDENT
DIRECTORS, AND THEY SHOULDN'T BE ADMINISTERING. by a committee of [disinterested
persons] independent directors; insiders should not serve on compensation
committees.
Other factors, such as repricing underwater stock options without shareholder
approval, would cause us to vote against a plan. Additionally, in some cases we
would vote against a plan deemed unnecessary.
14
Vote FOR director equity plans that have reasonable costs, as measured by the
binomial compensation model. However, for director equity plans that have
excessive costs based on the binomial compensation model, we will review the
qualitative features of board compensation, taking into account:
o Director stock ownership guidelines
- A minimum of three times the annual cash retainer.
o Vesting schedule or mandatory holding/deferral period
- A minimum vesting of three years for stock options or restricted
stock, or
- Deferred stock payable at the end of a three-year deferral
period.
o Mix between cash and equity
- A balanced mix of cash and equity at the time of grant, for example,
40% cash/60% equity or 50% cash/50% equity.
- If the mix is heavier on the equity component, the vesting schedule or
deferral period should be more stringent, with the lesser of five years
or the term of directorship.
o Retirement/Benefit and Perquisites programs
- No retirement/benefits and perquisites provided to non-employee
directors.
o Quality of disclosure
- Provide detailed disclosure on cash and equity compensation delivered
to each non-employee director for the most recent fiscal year in a
table. The column headers for the table may include the following: name
of each non-employee director, annual retainer, board meeting fees,
committee retainer, committee-meeting fees and equity grants.
To vote FOR director equity plans based on the above qualitative features, a
company needs to demonstrate that it meets all of the above qualitative features
in its proxy statement.
A. OBRA-RELATED COMPENSATION PROPOSALS
o AMENDMENTS THAT PLACE A CAP ON ANNUAL GRANT OR AMEND ADMINISTRATIVE FEATURES
Vote FOR plans that simply amend shareholder-approved plans to include
administrative features or place a cap on the annual grants any one participant
may receive to comply with the provisions of Section 162(m) of OBRA.
15
o AMENDMENTS TO ADDED PERFORMANCE-BASED GOALS
Vote FOR amendments to add performance goals to existing compensation plans to
comply with the provisions of Section 162(m) of OBRA.
o AMENDMENTS TO INCREASE SHARES AND RETAIN TAX DEDUCTIONS UNDER OBRA
Votes on amendments to existing plans to increase shares reserved and to qualify
the plan for favorable tax treatment under the provisions of Section 162(m)
should be evaluated on a CASE-BY-CASE basis.
o APPROVAL OF CASH OR CASH-AND-STOCK BONUS PLANS
Vote FOR cash or cash-and-stock bonus plans to exempt the compensation from
taxes under the provisions of Section 162(m) of OBRA.
B. PROPOSALS TO LIMIT EXECUTIVE AND DIRECTOR PAY
Vote on a CASE-BY-CASE basis all proposals that seek additional disclosure of
executive and director pay information.
Vote on a CASE-BY-CASE basis all other proposals that seek to limit executive
and director pay.
Vote FOR proposals to expense options, unless the company has already publicly
committed to expensing options by a specific date.
C. GOLDEN AND TIN PARACHUTES
Vote FOR proposals to have golden and tin parachutes submitted for shareholder
ratification.
Vote on a CASE-BY-CASE basis all proposals to ratify or cancel golden or tin
parachutes.
D. EMPLOYEE STOCK OWNERSHIP PLANS (ESOPS)
Vote FOR proposals that request shareholder approval in order to implement an
ESOP or to increase authorized shares for existing ESOPs, except in cases when
the number of shares allocated to the ESOP is "excessive" (i.e., generally
greater than 5% of outstanding shares).
16
E. 401(K) EMPLOYEE BENEFIT PLANS
Vote FOR proposals to implement a 401(k) savings plan for employees.
F. SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS (SERPS)
Vote FOR shareholder proposals requesting to put extraordinary benefits
contained in SERP agreements to a shareholder vote unless the company's
executive pension plans do not contain excessive benefits beyond what is offered
under employee-wide plans.
G. PENSION PLAN ACCOUNTING/EXECUTIVE COMPENSATION
Vote FOR shareholder proposals to exclude pension fund income in the calculation
of earnings used in determining executive bonuses/compensation.
H. EQUITY-BASED COMPENSATION PLANS-BURN RATE*
Vote AGAINST equity plans that have high average three-year burn rate
defined as:
o The company's most recent three-year burn rate exceeds one standard
deviation of its GICS** segmented by Russell 3000 index and non-Russell
3000 index and
o The company's most recent three-year burn rate exceeds two percent of
common shares outstanding.
IX. STATE OF INCORPORATION
A. VOTING ON STATE TAKEOVER STATUTES Vote on a CASE-BY-CASE basis
proposals to opt in or out of state takeover statutes (including control share
acquisition statutes, control share cash-out statutes, freezeout provisions,
fair price provisions, stakeholder laws, poison pill endorsements, severance pay
and labor contract provisions, anti-greenmail provisions, and disgorgement
provisions).
B. VOTING ON REINCORPORATION PROPOSALS
Vote on a CASE-BY-CASE basis proposals to change a company's state of
incorporation.
* Burn rate is calculated as the total number of equity awards (in the form of
stock awards and stock options) granted in any given year divided by the number
of common shares outstanding. The gross number of equity awards is considered in
the burn rate calculation and is not discounted by cancelled or forfeited
shares.
** Global Industry Classification Standard (GICS) by Standard & Poor and Morgan
Stanley Capital International.
17
X. MERGERS AND CORPORATE RESTRUCTURINGS
A. MERGERS AND ACQUISITIONS
Vote on a CASE-BY-CASE basis proposals related to mergers and acquisitions,
determining whether the transaction enhances shareholder value by giving
consideration to:
o Prospects of the combined companies
o Anticipated financial and operating benefits
o Offer price (premium or discount)
o Fairness opinion
o How the deal was negotiated
o Changes in corporate governance and their impact on shareholder rights
o Change in the capital structure
o Conflicts of interest
B. CORPORATE RESTRUCTURING
Vote on a CASE-BY-CASE basis proposals related to a corporate restructuring,
including minority squeezeouts, leveraged buyouts, spin-offs, liquidations and
asset sales.
C. SPIN-OFFS
Vote on a CASE-BY-CASE basis proposals related to spin-offs depending on the tax
and regulatory advantages, planned use of sale proceeds, market focus, and
managerial incentives.
D. ASSET SALES
Vote on a CASE-BY-CASE basis proposals related to asset sales after considering
the impact on the balance sheet/working capital, value received for the asset,
and potential elimination of diseconomies.
E. LIQUIDATIONS
Vote on a CASE-BY-CASE basis proposals related to liquidations after reviewing
management's efforts to pursue other alternatives, appraisal value of assets,
and the compensation plan for executives managing the liquidation.
18
F. APPRAISAL RIGHTS
Vote FOR proposals to restore, or provide shareholders with, rights of
appraisal.
G. CHANGING CORPORATE NAME
Vote FOR changing the corporate name.
XI. MUTUAL FUND PROXIES
A. ELECTION OF TRUSTEES
Vote on trustee nominees on a CASE-BY-CASE basis.
B. INVESTMENT ADVISORY AGREEMENT
Vote on investment advisory agreements on a CASE-BY-CASE basis.
C. FUNDAMENTAL INVESTMENT RESTRICTIONS
Vote on amendments to a fund's fundamental investment restrictions on a
CASE-BY-CASE basis.
D. DISTRIBUTION AGREEMENTS
Vote on distribution agreements on a CASE-BY-CASE basis.
XII. SOCIAL AND ENVIRONMENTAL ISSUES
In general we ABSTAIN from voting on shareholder social and environmental
proposals, on the basis that their impact on share value can rarely be
anticipated with any high degree of confidence.
In most cases, however, we vote FOR proposals that seek additional disclosure or
reports, particularly when it appears companies have not adequately addressed
shareholders' social and environmental concerns.
19
In determining our vote on social and environmental proposals, we also analyze
the following factors:
o whether adoption of the proposal would have either a positive or negative
impact on the company's short-term or long-term share value;
o the percentage of sales, assets and earnings affected;
o the degree to which the company's stated position on the issues could
affect its reputation or sales, or leave it vulnerable to boycott or
selective purchasing;
o whether the issues presented should be dealt with through government or
company-specific action;
o whether the company has already responded in some appropriate manner to
the request embodied in a proposal;
o whether the company's analysis and voting recommendation to shareholders
is persuasive;
o what other companies have done in response to the issue;
o whether the proposal itself is well framed and reasonable;
o whether implementation of the proposal would achieve the objectives
sought in the proposal; and
o whether the subject of the proposal is best left to the discretion of the
board.
The following list includes some of the social and environmental issues to which
this analysis is applied:
o energy and environment
o South Africa
o Northern Ireland
o military business
o maquiladora standards and international operations policies
o world debt crisis
o equal employment opportunity and discrimination
o animal rights
o product integrity and marketing
o human resources issues
Vote CASE-BY-CASE on proposals requesting reports assessing economic risks of
environmental pollution or climate change, taking into account whether the
company has clearly disclosed the following in its public documents:
o Approximate costs of complying with current or proposed environmental
laws
o Steps company is taking to reduce greenhouse gasses or other
environmental pollutants
o Measurements of the company's emissions levels
o Reduction targets or goals for environmental pollutants including
greenhouse gasses
Vote AGAINST proposals that require a set reduction in greenhouse gas emissions
by restrictive time frames unless the company significantly lags behind industry
standards or has been the subject of recent, substantial controversy on this
issue.
20
Vote AGAINST proposals asking for investment in or increased investment in
renewable energy sources.
Vote CASE-BY-CASE on proposals asking for the preparation of a report on the
financial, legal and environmental impact of continued use of genetically
engineered (GE) ingredients/seeds, taking into account:
o The relevance of the proposal in terms of the company's business and the
proportion of it affected by the resolution
o The quality of the company's disclosure on risks related to GE product
use and how this disclosure compares with peer company disclosure
The percentage of revenue derived from international operations,
particularly in Europe, where GE products are more regulated and
consumer backlash is more pronounced.
Vote CASE-BY-CASE on proposals asking for a report on the feasibility of
labeling products containing GE ingredients taking into account:
o The relevance of the proposal in terms of the company's business and the
proportion of it affected by the resolution
o The quality of the company's disclosure on GE product labeling and
related voluntary initiatives and how this disclosure compares with peer
company disclosure
o Company's current disclosure on the feasibility of GE product labeling,
including information on the related costs
o Any voluntary labeling initiatives undertaken or considered by the
company
Vote AGAINST resolutions asking for the adopting of voluntary labeling of
ingredients or asking for companies to label until a phase out of such
ingredients has been completed.
Vote AGAINST the adoption of specific charter language regarding board diversity
unless the company fails to publicly disclose existing equal opportunity or
non-discrimination policies.
Vote AGAINST requests for reports outlining potential environmental damage from
drilling in the Arctic national wildlife refuge (ANSR) unless:
o New legislation is adopted allowing development and drilling in the ANWR
region;
o The company intends to pursue operations in the ANWR; and
o The company does not currently disclose an environmental risk report for
their operations in the ANWR.
21
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
(a)(1) Portfolio Manager
As of the filing date of this report, the Chartwell Dividend and Income Fund is
managed by Bernard P. Schaffer of Chartwell Investment Partners, LP. Mr.
Schaffer works with three Senior Portfolio Managers, Andrew S. Toburen, Paul A.
Matlack, and Christine F. Williams. These individuals are responsible for the
fixed income securities in the portfolio, while Mr. Schaffer is responsible for
the equity securities in the portfolio, overall portfolio construction, and has
the ability to override any decision made by the other portfolio managers.
Bernard P. Schaffer, a Managing Partner and Senior Portfolio Manager of
Chartwell Investment Partners since 1997, is the Head Portfolio Manager of
Chartwell Dividend and Income Fund. He earned a Bachelor's degree in Economics
from Villanova University and an MBA from the University of Pennsylvania's
Wharton School. He was employed as a Senior Portfolio Manager at Delaware
Investment Advisers from 1990 to 1997, managing institutional accounts in the
value style. Prior to joining Delaware, he was a Senior Vice President at
Prudential Securities. Mr. Schaffer has 35 years of professional experience.
Andrew S. Toburen, a Principal and Senior Portfolio Manager of Chartwell
Investment Partners since 1999, is a member of the Fixed Income team responsible
for managing Chartwell Dividend and Income Fund. He earned a Bachelor's degree
in Economics from Yale University and an MBA from Cornell University's Johnson
School of Management. He holds the Chartered Financial Analyst designation. From
1994 to 1997 he was part of a team managing high yield corporate bond assets for
Nomura Corporate Research and Asset Management, Inc. Mr. Toburen is a member of
the CFA Institute and the CFA Society of Philadelphia, and has 12 years of
professional experience.
Paul A. Matlack, a Principal and Senior Portfolio Manager of Chartwell
Investment Partners since 2003, is a member of the Fixed Income team responsible
for managing Chartwell Dividend and Income Fund. He earned a Bachelor's degree
in International Relations from the University of Pennsylvania and an MBA in
Finance from George Washington University. He holds the Chartered Financial
Analyst designation. Prior to joining Chartwell, Mr. Matlack was a Senior
Portfolio Manager for Turner Investment Partners. Mr. Matlack is a member of the
CFA Institute and the CFA Society of Philadelphia, and has 21 years of
professional experience.
Christine F. Williams, a Partner and Senior Portfolio Manager of Chartwell
Investment Partners since 1997, is a member of the Fixed Income team responsible
for managing Chartwell Dividend and Income Fund. She earned a Bachelor's degree
in Economics from the University of Delaware and an MBA in Finance from St.
Joseph's University. Prior to joining Chartwell, Ms. Williams was an Assistant
Vice President, Fixed Income at Meridian Investment Company from 1990 to 1997
where she was part of the fixed income team. She began her career as a research
analyst with Merrill Lynch. Ms. Williams is a member of the CFA Institute and
the CFA Society of Philadelphia, and has 18 years of professional experience.
(a)(2) Other Accounts Managed
As of the most recently completed fiscal year end (November 30, 2006), the
following table summarizes the other investment activities of each portfolio
manager.
# of Accounts Total Assets
Managed that where
Total Advisory Fee is Advisory Fee
Name of Portfolio # of Based on is Based on
Manager or Team Accounts Performance Performance
Member Type of Accounts Managed Total Assets of the Account of the Account
----------------- ---------------- ------- ------------ -------------- --------------
1. Bernard P. Schaffer Registered Investment Companies: 0 $0 0 $0
Other Pooled Investment Vehicles: 0 $0 0 $0
Other Accounts: 28 $385 million 0 $0
2. Andrew S. Toburen Registered Investment Companies: 2 $238 million 0 $0
Other Pooled Investment Vehicles: 2 $130 million 2 $130 million
Other Accounts: 51 $817 million 0 $0
3. Paul A. Matlack Registered Investment Companies: 2 $238 million 0 $0
Other Pooled Investment Vehicles: 2 $130 million 2 $130 million
Other Accounts: 51 $817 million 0 $0
4. Christine F. Williams Registered Investment Companies: 2 $238 million 0 $0
Other Pooled Investment Vehicles: 2 $130 million 2 $130 million
Other Accounts: 51 $817 million 0 $0
Chartwell Investment Partners ("Chartwell") acts as an adviser to both
investment companies registered under the Investment Company Act of 1940
("registered funds") and other clients ("investment accounts"). When registered
funds and investment accounts are managed side-by-side, Chartwell personnel are
to strictly follow the policies and procedures outlined in Chartwell's
Compliance Manual and Code of Ethics to ensure that accounts are treated in a
fair and equitable manner, and that no client or account is favored over
another. The policies, procedures, and controls in place are monitored by
Chartwell's Compliance Department to identify any potential conflicts of
interest and to effectively mitigate any such conflicts.
(a)(3) Portfolio Manager Compensation
As of the most recently completed fiscal year end (November 30, 2006), the
compensation paid to Chartwell portfolio managers consists of base salary,
annual bonus, ownership distributions, and an annual profit-sharing contribution
to Chartwell's retirement plan.
A portfolio manager's fixed base salary is determined by Chartwell's
Compensation Committee and is reviewed at least annually. A portfolio manager's
experience, historical performance, and role in firm or product team management
are the primary considerations in determining the base salary.
Annual bonuses are determined by the Compensation Committee based on a number of
factors. The primary factors are investment performance of client portfolios
during the calendar year, product profitability, and firm-wide profitability.
Investment performance is measured based on the gross (pre-tax) composite
performance of all accounts within a particular investment product versus the
appropriate benchmark for both 1 year and 3 year periods. The S&P 500 Index and
Merrill Lynch High Yield Cash Pay Index are used as benchmarks for Chartwell
Dividend and Income Fund. Portfolio construction, sector and security weighting,
and performance are reviewed by the Compliance Committee and Compensation
Committee to prevent a manager from taking undue risks. Additional factors used
to determine the annual bonus include the portfolio manager's contribution as an
analyst, product team management, and contribution to the strategic planning and
development of the investment group as well as the firm.
Ownership distributions are paid to a portfolio manager based on the portfolio
manager's ownership interest, or percentage limited partnership interest in
Chartwell multiplied by total net cash distributions paid during the year.
A profit-sharing contribution is paid to the retirement plan account of all
eligible Chartwell employees based solely on annual profitability of the firm.
(a)(4)Equity Securities in the Registrant
The table below identifies ownership in Chartwell Dividend and Income Fund by
each portfolio manager as of November 30, 2006:
PORTFOLIO MANAGER OWNERSHIP RANGE
Bernard P. Schaffer $10,000-$50,000
Andrew S. Toburen None
Paul A. Matlack None
Christine F. Williams None
(b) Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANY AND
AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the Registrant's Board of Directors since the Registrant
last provided disclosure in response to the requirements of Item 7(d)(2)(ii)(G)
of Schedule 14A in its proxy statement filed with the Commission on March 17,
2006.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The Registrant's principal executive officer and principal financial officer
have concluded that the Registrant's disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended,
(the "1940 Act")) are effective as of a date within 90 days of the filing of
this report that includes the disclosure required by this paragraph, based on
their evaluation of these controls and procedures, required by Rule 30a-3(b)
under the 1940 Act and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended.
(b) There were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during
the second fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
Registrants internal control over financial reporting.
ITEMS 12. EXHIBITS.
(a)(1) Code of Ethics attached hereto.
(a)(2) A separate certification for the principal executive officer and the
principal financial officer of the Registrant as required by Rule 30a-2(a) under
the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(a)), are
attached hereto as EX-99Cert.
(a)(3) Not applicable.
(b) Officer certifications as required by Rule 30a-2(b) under the Investment
Company Act of 1940, as amended (17 CFR 270.30a-2(b)) also accompany this filing
as EX-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.
(Registrant) Chartwell Dividend and Income Fund, Inc.
By (Signature and Title)* /s/ Winthrop S. Jessup
----------------------------------
Winthrop S. Jessup, President
(Principal Executive Officer)
Date: January 30, 2007
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.
By (Signature and Title)* /s/ Winthrop S. Jessup
----------------------------------
Winthrop S. Jessup, President
(Principal Executive Officer)
Date: January 30, 2007
By (Signature and Title)* /s/ G. Gregory Hagar
----------------------------------
G. Gregory Hagar, Vice President and CFO
(Principal Financial Officer)
Date: January 30, 2007
* Print the name and title of each signing officer under his or her signature.