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, 2007
DATE OF REPORTING PERIOD: NOVEMBER 30, 2007
ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMITTED]
CHARTWELL
DIVIDEND AND
INCOME FUND, INC.
ANNUAL REPORT TO SHAREHOLDERS
DATED NOVEMBER 30, 2007
CHARTWELL INVESTMENT
[LOGO] PARTNERS
WWW.CHARTWELLIP.COM
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
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, 2007
- --------------------------------------------------------------------------------
(UNAUDITED)
CHANGE TO INVESTMENT STRATEGY REGARDING COVERED CALL OPTIONS
The Board of Directors has approved a change in the Fund's investment strategy
regarding writing (i.e., selling) covered call options. Previously, the Fund was
permitted to write covered call options only on equity securities it held in an
amount not to exceed 10% of its total assets. On July 25, 2007, the Board
revised this investment strategy to permit the Fund to write covered call
options on equity securities (including Exchange Traded Funds) or on stock
indexes, to provide additional ways to cover these options, and to eliminate the
percentage limitation. The Fund may cover call options by: (i) owning the same
security or, in the case of options on a stock index, a portfolio of stock
substantially replicating the movement of the index, underlying the call option
until the option is exercised or expires; (ii) segregating cash or other liquid
assets with the Fund's Custodian in an amount equal to the current market value
of the call option; or (iii) other methods consistent with applicable laws,
rules and regulations.
The writing of call options involves some investment analysis and risks that are
different from those associated with securities transactions in common stocks.
Options can seek to enhance return through price appreciation of the option,
increase income, hedge to reduce overall portfolio risk, and/or hedge to reduce
individual security risk. Writing options to seek to increase income in the Fund
involves the risk of net loss (after receiving the option premium) if the
investment adviser is incorrect in its expectation of the direction or magnitude
of the change in securities prices. The successful use of options for hedging
purposes also depends in part on the degree of correlation between the option
and a security or index of securities. If the investment adviser is incorrect in
its expectation of changes in securities prices or its estimation of the
correlation between the option and a security index, the investment performance
of the Fund will be less favorable than it would have been in the absence of
such options transactions. The use of options may increase the Fund's portfolio
turnover rate and, therefore, associated brokerage commissions.
3
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS (UNAUDITED),
After a promising start to fiscal year 2007, the Chartwell Dividend and Income
Fund's (CWF) NAV and stock price came under considerable pressure in the last
six months of the 2007 fiscal year.
The commentary on the stock portion of the Fund will show both the problems and
bright spots encountered in recent months. The same holds true for the bond
portion of the Fund. Please read the individual sections for a more complete
analysis.
Despite the recent economic and market turmoil, we believe the long-term
strategy employed by CWF is on solid footing. The portfolio emphasizes stocks
with above average dividend yields and writes (sells) options against some of
them with the goal of increasing the return of the portfolio. Similarly, the
portfolio owns numerous corporate bonds that also offer high income levels.
The fiscal year 2007 started with housing activity in the midst of a steep
decline and home prices falling. The housing price decline, combined with lax
mortgage underwriting, led to the meltdown of the subprime mortgage market.
This contributed to tightness in the overall credit markets, yet there was no
recession due to the rise in net exports which offset the gross domestic product
("GDP") impact of falling residential investment. The consumer sector was also
buoyant as consumer spending adjusted for inflation rose 3%, exceeding the 2.1%
increase in real after-tax incomes.
We anticipate economic sluggishness in 2008. Housing should remain soft even if
it bottoms in 2008. We expect net exports will continue to increase while also
expecting that consumer spending will likely slow despite employment growth that
averaged over 90,000 per month in 2007. The outlook for resolving the current
credit crisis is uncertain, as is the outlook for financial stocks. We also
believe that the Federal Reserve will use a variety of tools to effectively deal
with the credit crisis. The current consensus estimate of published economists
is for real GDP growth of 2.1% in 2008.
4
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
(UNAUDITED)
Please read the equity and fixed income commentary for more information and
analysis.
THE ABOVE COMMENTARY REPRESENTS MANAGEMENT'S ASSESSMENT OF THE FUND AND MARKET
ENVIRONMENT AT A SPECIFIC POINT IN TIME AND SHOULD NOT BE RELIED UPON BY THE
READER AS RESEARCH OR INVESTMENT ADVICE.
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
5
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
(UNAUDITED)
HOW DID THE FUND PERFORM DURING THE FISCAL YEAR ENDED NOVEMBER 30, 2007?
For the fiscal year ended November 30, 2007, the Fund's market return was -17.2%
including dividends reinvested. The Fund's net asset value (NAV) return
including dividends reinvested was -6.1%. The equity market (as represented by
the S&P 500 Index) saw quite a bit of volatility during the fiscal year as the
S&P 500 had three separate peak to trough declines measuring from 5% to 10%,
before closing with a total return of 7.7% for the period. This volatility was
fueled by many issues. These included, but were not limited to: the beginning of
the end of the private equity buyout frenzy, the freezing of the credit markets,
the debate over the size and impact of subprime mortgage losses, and the debate
over the direction and strength of both the economy and corporate profits.
The Merrill Lynch High Yield Cash Pay Index returned 2.98% for the fiscal year
ended November 30, 2007. High yield returns trailed both investment grade
corporate bonds and the 10-year Treasury bond, which returned 3.76% and
HIGH YIELD PREMIUM OVER TREASURIES
November 30, 2003 - November 30, 2007
(Source: Merrill Lynch, Bloomberg)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
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
Dec-06 318
Jan-07 300
Feb-07 311
Mar-07 312
Apr-07 303
May-07 276
Jun-07 312
Jul-07 422
Aug-07 451
Sep-07 410
Oct-07 420
Nov-07 548
HIGH YIELD DEFAULT RATES: TRAILING TWELVE MONTH
November 30, 1997 - November 30, 2007
(Source: Moodys Investors Service)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
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 10.6
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
Dec-06 1.70
Jan-07 1.75
Feb-07 1.68
Mar-07 1.51
Apr-07 1.56
May-07 1.44
Jun-07 1.37
Jul-07 1.50
Aug-07 1.41
Sep-07 1.25
Oct-07 1.13
Nov-07 0.96
6
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
(UNAUDITED)
8.25%, respectively. As subprime mortgage related losses started to emerge in
August, broad portions of the global credit markets began to seize up. It
appears that investors sought the safety of Treasury securities, shunning
riskier asset classes, and causing corporate credit spreads (or "risk premiums")
to increase sharply. The yield on the 10-year Treasury fell 49 basis points to
3.97%, while the yield on the overall high yield market increased 152 basis
points to finish at 9.45%, resulting in a 201 basis point increase in high yield
market's spread over the 10-year Treasury. High yield default rates have
remained relatively low, though it should be noted that Moody's Investors
Service currently forecasts the default rate to exceed 4.0% by the end of 2008.
WHAT COMMON STOCKS OR FIXED INCOME HOLDINGS CONTRIBUTED POSITIVELY TO THE FUND'S
PERFORMANCE?
The equity portion of the Fund returned -4.35% due to several factors. On the
positive side, our positioning in the Consumer Staples sector contributed
favorably to the Fund's performance as stock prices in this sector rose as it
appears investors became more concerned about the growth prospects of the
economy and searched out investments with no exposure to the subprime market.
Our investments in Tobacco stocks performed quite well, returning on average
just under 20%. In addition, our significant exposure to the Energy sector was a
positive contributor to performance as energy prices remained high, albeit
somewhat volatile. The Fund benefited from two takeovers during the year as both
COINMACH SERVICES and REDDY ICE HOLDINGS received tender offers from private
equity buyers. Continued strong performance from a long-time fund holding,
ALLIANCEBERNSTEIN, also added positively to Fund performance.
TOTAL RETURN
FISCAL YEAR ENDED NOVEMBER 30, 2007
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Merrill
Lynch
CWF Morgan High Yield
CWF High S&P 500 Stanley Cash Pay
Equities Yield Index REIT Index Index
- --------------------------------------------------------------------------------
(4.35%) 3.84% 7.72% (13.69%) 2.98%
7
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
(UNAUDITED)
The fixed income portion of the fund returned 3.84% for the fiscal year ended
November 30, 2007. The Fund's best performing bond investments were in WILLIAMS
SCOTSMAN, who was bought out by a large European suitor, and TRAVELPORT, who
filed for an initial public offering of equity in 2007 after being taken private
in 2006. The bond portfolio benefited from strong credit selection and
overweight positions in the Chemical, Healthcare and Energy industries for much
of the year. Industry returns across the high yield index were broadly positive,
with the exceptions of Financials, Homebuilding and Automotive.
HIGH YIELD INDUSTRY PERFORMANCE
Fiscal Year Ended November 30, 2007 (Source: Merrill Lynch, Bloomberg)
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Financials -12.2%
Homebuilding -11.6%
Automotive -1.3%
Building Materials 0.8%
Paper 2.0%
Gaming 2.3%
Consumer 2.4%
CCC INDEX 2.5%
BB INDEX 2.6%
HY INDEX 3.0%
Cable TV 3.1%
Technology 3.3%
B INDEX 3.7%
Utilities 3.9%
Steel 4.3%
Telecom 4.4%
Energy 6.1%
Healthcare 6.7%
Chemicals 7.3%
WHAT COMMON STOCKS OR FIXED INCOME HOLDINGS CONTRIBUTED NEGATIVELY TO THE FUND'S
PERFORMANCE?
As can be seen in the chart on the next page, almost every sector in the S&P 500
Index had a positive performance for the 12 months ended November 30, 2007,
except for Financials, REITs and Consumer Discretionary. Our most disappointing
stocks came from these areas and were focused in the REITs and Financials
sectors. These sectors were affected by the subprime mortgage issue and the
resultant credit "meltdown" that occurred during the late summer and early fall.
Some of our stocks such as WASHINGTON MUTUAL were directly involved, others had
some involvement but not as significant (BANK OF AMERICA, WACHOVIA CORP.), still
others were hurt by the market believing their industry was the next "shoe to
drop" (ISTAR FINANCIAL, CAPITAL SOURCE, INC.) while others were hurt by the
tightness in liquidity that has accompanied this credit crunch (TICC CAPITAL,
APOLLO INVESTMENT CORP). Outside of the Financials area, GATEHOUSE MEDIA INC.
had disappointing returns as it appears investors became more skeptical about
the prospects for smaller, rural newspapers in the face of declining large
newspaper circulation and competition from the internet.
8
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
(UNAUDITED)
S&P 500 TOTAL RETURN BY SECTOR
(FISCAL YEAR ENDED NOVEMBER 30, 2007)
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Energy 23.35%
Utilities 20.50%
Telecommunication Services 12.78%
REITS -13.07%
Industrials 13.92%
Basic Materials 21.78%
Consumer Discretionary -6.90%
Financials -10.38%
Consumer Staples 18.01%
Technology 13.35%
Health Care 11.92%
The Fund's worst performing bonds during the year included GMAC, TROPICANA
ENTERTAINMENT, FORD MOTOR CREDIT, and BUFFETS. Our Tropicana and Buffets
positions were sold to avoid further losses, while we continue to hold GMAC and
Ford Motor Credit in the bond portion of the portfolio.
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE PERIOD?
In the equity portion we continued to de-emphasize sectors that are more
strongly tied to the economy. We reduced our holdings in both the Consumer
Discretionary and Materials sectors as we believed companies within these
sectors would be harder hit by any economic slowdown. We also added to our
Healthcare and Telecommunications holdings as we believed companies in these
areas would be better positioned in an economic slowdown. Some new additions to
the portfolio included: PFIZER, INC., a large pharmaceutical company, AIRCASTLE
LTD., an owner and lessor of airplanes, and BROOKDALE SENIOR LIVING INC., an
owner and operator of senior living facilities. Some of the larger dispositions
for the period were: CAROLINA GROUP, a tobacco company, NATIONAL CITY CORP., a
regional bank, and REDDY ICE HOLDINGS, a manufacturer of packaged ice.
Recent fixed income purchases include AES CORPORATION, a diversified utility,
BRISTOW GROUP, a provider of helicopter transportation services to the energy
industry, and NOVA CHEMICALS, a commodity chemical manufacturer. In our opinion,
these purchases are consistent with our tendency to invest in relatively higher
quality companies that possess sound balance sheets. Among the positions exited
in the bond portfolio over the past year were TROPICANA ENTERTAINMENT, BUFFETS,
LABRANCHE and QUEBECOR WORLD. Each of these names was facing fundamental
operating challenges unique to their business.
9
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
(UNAUDITED)
HOW DID THE FUND TRADE RELATIVE TO ITS NET ASSET VALUE (NAV) DURING THE FISCAL
YEAR?
As of November 30, 2007, the Fund was trading at a closing price of $7.35,
which is a 9.9% discount to its NAV of $8.16. At November 30, 2006, the Fund
was trading at a closing price of $9.78, a premium of 2.4% to its NAV of $9.55.
Throughout the year ended November 30, 2007, the Fund traded between a
11.88% discount to its NAV and a 4.51% premium to its NAV.
HISTORY OF FUND PRICE, NAV AND PREMIUM
Fiscal Year Ended November 30, 2007
(Source: Bloomberg)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Date Price NAV
11/30/06 9.78 9.55
12/1/06 9.72 9.55
12/4/06 9.73 9.61
12/5/06 9.69 9.64
12/6/06 9.73 9.65
12/7/06 9.76 9.65
12/8/06 9.75 9.64
12/11/06 9.70 9.68
12/12/06 9.77 9.69
12/13/06 9.86 9.70
12/14/06 10.05 9.73
12/15/06 10.03 9.76
12/18/06 9.95 9.75
12/19/06 9.91 9.68
12/20/06 9.89 9.69
12/21/06 9.81 9.67
12/22/06 9.76 9.66
12/25/06 9.76 9.66
12/26/06 9.88 9.72
12/27/06 9.85 9.78
12/28/06 9.83 9.78
12/29/06 9.78 9.73
1/1/07 9.78 9.73
1/2/07 9.78 9.73
1/3/07 9.77 9.73
1/4/07 9.76 9.72
1/5/07 9.81 9.65
1/8/07 9.87 9.68
1/9/07 9.90 9.69
1/10/07 9.96 9.71
1/11/07 9.97 9.74
1/12/07 9.96 9.77
1/15/07 9.96 9.77
1/16/07 9.95 9.72
1/17/07 9.88 9.71
1/18/07 9.95 9.68
1/19/07 9.87 9.72
1/22/07 9.88 9.70
1/23/07 9.87 9.75
1/24/07 10.10 9.80
1/25/07 10.04 9.74
1/26/07 9.95 9.76
1/29/07 9.95 9.76
1/30/07 9.95 9.80
1/31/07 9.96 9.84
2/1/07 9.85 9.90
2/2/07 9.95 9.92
2/5/07 9.97 9.93
2/6/07 10.04 9.93
2/7/07 10.12 9.95
2/8/07 10.13 9.96
2/9/07 10.13 9.91
2/12/07 10.13 9.87
2/13/07 10.04 9.94
2/14/07 10.04 9.98
2/15/07 10.08 9.99
2/16/07 10.16 10.00
2/19/07 10.16 10.00
2/20/07 10.09 9.95
2/21/07 10.03 9.95
2/22/07 9.98 9.95
2/23/07 10.01 9.89
2/26/07 9.95 9.87
2/27/07 9.90 9.64
2/28/07 9.84 9.71
3/1/07 9.61 9.68
3/2/07 9.74 9.59
3/5/07 9.61 9.40
3/6/07 9.60 9.58
3/7/07 9.70 9.58
3/8/07 9.75 9.67
3/9/07 9.85 9.71
3/12/07 10.01 9.71
3/13/07 9.96 9.53
3/14/07 9.86 9.60
3/15/07 9.87 9.68
3/16/07 9.88 9.66
3/19/07 9.96 9.73
3/20/07 9.99 9.70
3/21/07 9.99 9.79
3/22/07 10.02 9.81
3/23/07 10.01 9.83
3/26/07 10.01 9.81
3/27/07 10.01 9.80
3/28/07 9.96 9.78
3/29/07 10.03 9.86
3/31/07 10.03 9.87
4/2/07 10.02 9.88
4/3/07 10.02 9.95
4/4/07 10.01 9.97
4/5/07 10.02 9.96
4/6/07 10.02 9.97
4/9/07 10.03 9.95
4/10/07 10.10 9.98
4/11/07 10.10 9.95
4/12/07 10.05 9.97
4/13/07 10.03 9.99
4/16/07 10.01 10.07
4/17/07 9.98 10.01
4/18/07 9.98 10.04
4/19/07 9.94 9.99
4/20/07 10.00 10.06
4/23/07 10.01 10.04
4/24/07 10.10 10.04
4/25/07 10.12 10.11
4/26/07 10.11 10.10
4/27/07 10.16 10.11
4/30/07 10.14 10.03
5/1/07 10.14 10.03
5/2/07 10.23 10.08
5/3/07 10.26 10.09
5/4/07 10.30 10.09
5/7/07 10.27 10.09
5/8/07 10.18 10.07
5/9/07 10.19 10.10
5/10/07 10.17 10.01
5/11/07 10.21 10.07
5/14/07 10.26 10.05
5/15/07 10.17 9.92
5/16/07 10.18 9.94
5/17/07 10.13 9.93
5/18/07 10.05 9.95
5/21/07 10.12 10.01
5/22/07 10.12 10.07
5/23/07 10.20 10.04
5/24/07 10.09 9.94
5/25/07 10.16 9.97
5/28/07 10.16 9.97
5/29/07 10.14 10.03
5/30/07 10.19 10.08
5/31/07 10.27 10.09
6/1/07 10.25 10.14
6/4/07 10.32 10.17
6/5/07 10.30 10.13
6/6/07 10.12 10.09
6/7/07 10.14 9.95
6/8/07 10.21 9.98
6/11/07 10.14 9.99
6/12/07 10.10 9.89
6/13/07 10.07 9.98
6/14/07 10.11 9.98
6/15/07 10.20 10.07
6/18/07 10.18 10.07
6/19/07 10.08 10.03
6/20/07 10.08 9.94
6/21/07 10.13 9.92
6/22/07 10.04 9.84
6/25/07 9.96 9.81
6/26/07 9.93 9.79
6/27/07 9.89 9.84
6/28/07 9.84 9.85
6/29/07 9.80 9.81
7/2/07 9.89 9.89
7/3/07 9.96 9.92
7/4/07 9.96 9.92
7/5/07 9.90 9.93
7/6/07 9.89 9.95
7/9/07 9.90 9.92
7/10/07 9.92 9.81
7/11/07 9.79 9.79
7/12/07 9.85 9.87
7/13/07 9.89 9.88
7/16/07 9.83 9.85
7/17/07 9.61 9.76
7/18/07 9.41 9.70
7/19/07 9.44 9.71
7/20/07 9.44 9.60
7/23/07 9.47 9.56
7/24/07 9.23 9.35
7/25/07 9.00 9.34
7/26/07 8.67 9.13
7/27/07 8.64 9.05
7/30/07 8.82 9.05
7/31/07 8.98 9.00
8/1/07 8.86 8.92
8/2/07 8.81 8.95
8/3/07 8.63 8.77
8/6/07 8.47 8.83
8/7/07 8.53 8.91
8/8/07 8.60 9.11
8/9/07 8.52 8.91
8/10/07 8.47 8.89
8/13/07 8.50 8.91
8/14/07 8.21 8.67
8/15/07 7.86 8.53
8/16/07 7.49 8.50
8/17/07 8.23 8.69
8/20/07 8.33 8.68
8/21/07 8.28 8.65
8/22/07 8.38 8.74
8/23/07 8.36 8.78
8/24/07 8.45 8.82
8/27/07 8.42 8.77
8/28/07 8.28 8.63
8/29/07 8.43 8.72
8/30/07 8.33 8.69
8/31/07 8.45 8.76
9/3/07 8.45 8.76
9/4/07 8.50 8.80
9/5/07 8.46 8.72
9/6/07 8.50 8.70
9/7/07 8.33 8.61
9/10/07 8.27 8.55
9/11/07 8.39 8.61
9/12/07 8.40 8.63
9/13/07 8.45 8.66
9/14/07 8.55 8.70
9/17/07 8.50 8.71
9/18/07 8.50 8.81
9/19/07 8.43 8.92
9/20/07 8.50 8.86
9/21/07 8.51 8.89
9/24/07 8.62 8.86
9/25/07 8.70 8.81
9/26/07 8.75 8.79
9/27/07 8.66 8.83
9/28/07 8.51 8.79
10/1/07 8.64 8.81
10/2/07 8.56 8.87
10/3/07 8.52 8.86
10/4/07 8.49 8.92
10/5/07 8.59 9.00
10/8/07 8.62 8.99
10/9/07 8.59 9.02
10/10/07 8.65 9.01
10/11/07 8.55 8.99
10/12/07 8.63 8.99
10/15/07 8.61 8.95
10/16/07 8.47 8.79
10/17/07 8.43 8.79
10/18/07 8.32 8.76
10/19/07 8.21 8.61
10/22/07 8.23 8.68
10/23/07 8.18 8.71
10/24/07 8.16 8.68
10/25/07 8.20 8.61
10/26/07 8.23 8.70
10/29/07 8.29 8.71
10/30/07 8.22 8.69
10/31/07 8.29 8.79
11/1/07 8.16 8.61
11/2/07 8.13 8.54
11/5/07 8.09 8.45
11/6/07 8.00 8.54
11/7/07 7.70 8.31
11/8/07 7.65 8.33
11/9/07 7.49 8.28
11/12/07 7.49 8.29
11/13/07 7.65 8.44
11/14/07 7.64 8.36
11/15/07 7.52 8.24
11/16/07 7.52 8.20
11/19/07 7.37 7.96
11/20/07 7.23 7.92
11/21/07 7.05 7.82
11/22/07 7.05 7.82
11/23/07 7.11 7.96
11/26/07 7.04 7.79
11/27/07 7.06 7.85
11/28/07 7.10 8.00
11/29/07 7.13 8.03
11/30/07 7.35 8.16
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Date Premium/Discount
11/30/06 2.408
12/1/06 1.78
12/4/06 1.249
12/5/06 0.519
12/6/06 0.819
12/7/06 1.14
12/8/06 1.141
12/11/06 0.207
12/12/06 0.826
12/13/06 1.649
12/14/06 3.289
12/15/06 2.766
12/18/06 2.051
12/19/06 2.376
12/20/06 2.065
12/21/06 1.448
12/22/06 1.035
12/25/06 1.035
12/26/06 1.646
12/27/06 0.716
12/28/06 0.511
12/29/06 0.514
1/1/07 0.514
1/2/07 0.514
1/3/07 0.411
1/4/07 0.412
1/5/07 1.658
1/8/07 1.963
1/9/07 2.167
1/10/07 2.575
1/11/07 2.361
1/12/07 1.945
1/15/07 1.945
1/16/07 2.366
1/17/07 1.751
1/18/07 2.789
1/19/07 1.543
1/22/07 1.856
1/23/07 1.231
1/24/07 3.061
1/25/07 3.08
1/26/07 1.947
1/29/07 1.947
1/30/07 1.531
1/31/07 1.22
2/1/07 -0.505
2/2/07 0.302
2/5/07 0.403
2/6/07 1.109
2/7/07 1.709
2/8/07 1.707
2/9/07 2.22
2/12/07 2.634
2/13/07 1.006
2/14/07 0.601
2/15/07 0.901
2/16/07 1.6
2/19/07 1.6
2/20/07 1.407
2/21/07 0.804
2/22/07 0.302
2/23/07 1.213
2/26/07 0.811
2/27/07 2.697
2/28/07 1.235
3/1/07 -0.723
3/2/07 1.567
3/5/07 2.234
3/6/07 0.209
3/7/07 1.253
3/8/07 0.827
3/9/07 1.442
3/12/07 3.09
3/13/07 4.512
3/14/07 2.708
3/15/07 1.963
3/16/07 2.277
3/19/07 2.364
3/20/07 2.99
3/21/07 2.043
3/22/07 2.141
3/23/07 1.831
3/26/07 2.039
3/27/07 2.143
3/28/07 1.84
3/29/07 1.724
3/31/07 1.621
4/2/07 1.417
4/3/07 0.704
4/4/07 0.401
4/5/07 0.602
4/6/07 0.602
4/9/07 0.804
4/10/07 1.202
4/11/07 1.508
4/12/07 0.802
4/13/07 0.4
4/16/07 -0.596
4/17/07 -0.3
4/18/07 -0.598
4/19/07 -0.501
4/20/07 -0.596
4/23/07 -0.299
4/24/07 0.598
4/25/07 0.099
4/26/07 0.099
4/27/07 0.495
4/30/07 1.097
5/1/07 1.097
5/2/07 1.488
5/3/07 1.685
5/4/07 2.081
5/7/07 1.784
5/8/07 1.092
5/9/07 0.891
5/10/07 1.598
5/11/07 1.39
5/14/07 2.09
5/15/07 2.52
5/16/07 2.414
5/17/07 2.015
5/18/07 1.005
5/21/07 1.198
5/22/07 0.497
5/23/07 1.594
5/24/07 1.509
5/25/07 1.906
5/28/07 1.906
5/29/07 1.097
5/30/07 1.091
5/31/07 1.784
6/1/07 1.09
6/4/07 1.48
6/5/07 1.68
6/6/07 0.3
6/7/07 1.9
6/8/07 2.3
6/11/07 1.6
6/12/07 2.1
6/13/07 0.9
6/14/07 1.3
6/15/07 1.3
6/18/07 1.09
6/19/07 0.5
6/20/07 1.4
6/21/07 2.11
6/22/07 2.03
6/25/07 1.52
6/26/07 1.43
6/27/07 0.5
6/28/07 -0.1
6/29/07 -0.1
7/2/07 0
7/3/07 0.413
7/4/07 0.413
7/5/07 -0.302
7/6/07 -0.603
7/9/07 -0.2
7/10/07 1.121
7/11/07 0
7/12/07 -0.203
7/13/07 0.101
7/16/07 -0.203
7/17/07 -1.537
7/18/07 -2.99
7/19/07 -2.78
7/20/07 -1.667
7/23/07 -0.941
7/24/07 -1.283
7/25/07 -3.64
7/26/07 -5.038
7/27/07 -4.53
7/30/07 -2.541
7/31/07 -0.222
8/1/07 -0.673
8/2/07 -1.564
8/3/07 -1.596
8/6/07 -4.122
8/7/07 -4.265
8/8/07 -5.598
8/9/07 -4.377
8/10/07 -4.724
8/13/07 -4.602
8/14/07 -5.307
8/15/07 -7.855
8/16/07 -11.882
8/17/07 -5.293
8/20/07 -4.032
8/21/07 -4.277
8/22/07 -4.119
8/23/07 -4.784
8/24/07 -4.195
8/27/07 -3.991
8/28/07 -4.056
8/29/07 -3.326
8/30/07 -4.143
8/31/07 -3.539
9/3/07 -3.539
9/4/07 -3.409
9/5/07 -2.983
9/6/07 -2.299
9/7/07 -3.252
9/10/07 -3.275
9/11/07 -2.555
9/12/07 -2.665
9/13/07 -2.425
9/14/07 -1.724
9/17/07 -2.411
9/18/07 -3.519
9/19/07 -5.493
9/20/07 -4.063
9/21/07 -4.274
9/24/07 -2.709
9/25/07 -1.249
9/26/07 -0.455
9/27/07 -1.925
9/28/07 -3.185
10/1/07 -1.93
10/2/07 -3.495
10/3/07 -3.837
10/4/07 -4.821
10/5/07 -4.556
10/8/07 -4.116
10/9/07 -4.767
10/10/07 -3.996
10/11/07 -4.894
10/12/07 -4.004
10/15/07 -3.799
10/16/07 -3.641
10/17/07 -4.096
10/18/07 -5.023
10/19/07 -4.646
10/22/07 -5.184
10/23/07 -6.085
10/24/07 -5.991
10/25/07 -4.762
10/26/07 -5.402
10/29/07 -4.822
10/30/07 -5.409
10/31/07 -5.688
11/1/07 -5.226
11/2/07 -4.801
11/5/07 -4.26
11/6/07 -6.323
11/7/07 -7.341
11/8/07 -8.163
11/9/07 -9.541
11/12/07 -9.65
11/13/07 -9.36
11/14/07 -8.612
11/15/07 -8.738
11/16/07 -8.293
11/19/07 -7.412
11/20/07 -8.712
11/21/07 -9.847
11/22/07 -9.847
11/23/07 -10.678
11/26/07 -9.628
11/27/07 -10.064
11/28/07 -11.25
11/29/07 -11.208
11/30/07 -9.816
10
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
(UNAUDITED)
HOW IS THE FUND POSITIONED AT THE CLOSE OF THE PERIOD?
CWF (AS A % OF) TOTAL INVESTMENTS
As of November 30, 2007
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Equities 61%
Fixed Income 30%
Cash 1%
Preferred Term Securities 8%
As of November 30, 2007, the percentage of the Fund's total investments held in
equities and fixed income was 61% and 30%, respectively. The Fund continues to
be overweight high quality, higher dividend paying securities. While the market
has not been good to these types of securities lately, particularly since the
subprime and credit market issues came to light, we believe that once the credit
market tightness passes, such securities will once again be looked upon
favorably by the market. In the Equity portion of the portfolio, securities
related to the Financial sector continue to represent the largest sector
allocation, as favorable valuation, high dividend yield and consistent growth
relative to other sectors provide many attractive investment opportunities. Due
to the uncertainty around the economy and the likely slowing of corporate
earnings growth, the Consumer Staples sector is also a large exposure in the
portfolio. We believe that Consumer Staples should show steadier earnings
characteristics in the event of an economic slowdown.
11
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
(UNAUDITED)
- --------------------------------------------------------------------------------
FUND EQUITY ALLOCATION AS A % OF TOTAL INVESTMENTS
(as of November 30, 2007)
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Equities 61%
Preferred Term Securities 8%
Fixed Income 30%
Cash 1%
Banks 10.1%
Consumer Staples 9.6%
Energy 5.3%
Financials 9.1%
Healthcare 2.9%
Industrials 1.6%
REITs 8.2%
Telecommunications Services 6.4%
Transportation 3.8%
Utilities 4.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND FIXED INCOME ALLOCATION AS A % OF TOTAL INVESTMENTS
(as of November 30, 2007)
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Automotive 0.9%
Basic Industry 2.0%
Broadcasting 0.7%
Building Materials 1.2%
Cable Television 2.4%
Chemicals 2.6%
Consumer Products 0.8%
Electronic Equip. & Instruments 1.2%
Energy 2.9%
Financial 1.5%
Gaming 1.2%
Healthcare 1.8%
Metals & Mining 1.1%
Paper & Forest Products 1.7%
Publishing 0.5%
Real Estate 0.7%
Retail 1.4%
Services 2.0%
Telecommunications 1.5%
Transportation 0.3%
Utilities 1.7%
Fixed Income 30%
Equities 61%
Preferred Term Securities 8%
Cash 1%
- --------------------------------------------------------------------------------
The fixed income portion of the Fund is currently overweight BB-rated and
B-rated issues and underweight the more speculative CCC-rated portion of the
market. As a result, the portfolio has a higher average credit quality than the
overall high yield market. The tradeoff is that the bond portfolio yields less
than the Merrill Lynch High Yield Cash Pay Index. We believe that the benefits
of having a higher quality bias in the current economic environment will
outweigh the yield disadvantage versus the index over the coming year. The fixed
income portion of the Fund is highly diversified, and its primary goal remains
unchanged, namely to provide a consistent level of income to support the Fund's
monthly distribution.
12
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
(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%
- --------------------------------------------------------------------------------
MO Altria Group, Inc. 4.96 3.90
BAC Bank of America Corporation 4.80 5.50
AB AllianceBernstein Holding LP 3.57 5.90
ETP Energy Transfer Partners LP 2.68 6.60
WB Wachovia Corporation 2.35 6.00
CSE CapitalSource, Inc. 1.92 14.30
PFE Pfizer Inc. 1.85 5.40
SFI iStar Financial, Inc. 1.83 11.90
WIN Windstream Corporation 1.82 7.70
USB US Bancorp 1.72 5.10
- --------------------------------------------------------------------------------
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, 2007
- --------------------------------------------------------------------------------
UTILIZATION OF LEVERAGE (UNAUDITED)
The Chartwell Dividend and Income Fund, Inc. has utilized leverage through the
issuance of commercial paper. As of November 30, 2007, 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, 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, 2007
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
ASSET CLASS WEIGHTINGS (UNAUDITED)+:
[THE FOLLOWING TABLE WAS REPRESENTED BY BAR CHART IN THE PRINTED MATERIAL.]
Common Stock 82.3%
Preferred Term Securities 10.6%
Convertible Preferred Stock 0.5%
Preferred Stock 2.3%
Corporate Notes/Bonds 42.4%
Cash Equivalents 1.3%
+ Percentages are based on total net assets of $137,953,848.
Total Investments including leverage are $192,264,050.
NUMBER OF MARKET
SHARES VALUE
------------- --------------
COMMON STOCK--82.3%
BANKS--14.0%
Bank of America Corporation ......................... 200,000 $ 9,226,000
JPMorgan Chase & Company ............................ 50,000 2,281,000
US Bancorp .......................................... 100,000 3,309,000
Wachovia Corporation ................................ 105,000 4,515,000
--------------
19,331,000
--------------
BASIC INDUSTRY--2.3%
Dow Chemical Company ................................ 75,000 3,145,500
--------------
CONSUMER STAPLES--13.4%
Altria Group, Inc. .................................. 122,950 9,536,002
B&G Foods, Inc., Class A ............................ 100,000 1,069,000
B&G Foods, Inc. ..................................... 41,000 738,000
Entercom Communications Corporation, Class A ........ 100,000 1,629,000
Gatehouse Media, Inc. ............................... 145,000 1,189,000
Regal Entertainment Group, Class A .................. 110,000 2,176,900
Reynolds American, Inc. ............................. 30,000 2,100,600
--------------
18,438,502
--------------
ENERGY--7.4%
Baker Hughes, Inc. .................................. 10,000 802,700
Calumet Specialty Products Partners LP (a) .......... 5,000 184,850
Duncan Energy Partners LP (a) ....................... 15,000 341,700
Energy Transfer Partners LP (a) ..................... 100,000 5,150,000
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
------------- --------------
COMMON STOCK (CONTINUED)
ENERGY (CONTINUED)
Enterprise Products Partners LP (a) ................. 50,000 $ 1,563,000
Linn Energy LLC (a) ................................. 7,000 188,020
Sunoco Logistics Partners LP (a) .................... 40,000 2,004,400
--------------
10,234,670
--------------
FINANCIAL--10.5%
AllianceBernstein Holding LP (a) .................... 83,800 6,867,410
American Capital Strategies Limited ................. 48,200 1,812,802
Apollo Investment Corporation ....................... 100,000 1,771,000
MCG Capital Corporation ............................. 125,000 1,412,500
Newcastle Investment Corporation .................... 30,000 390,300
Och-Ziff Capital Management Group LLC, Class A* ..... 36,095 889,742
Star Asia Financial Limited+ ........................ 50,000 500,000
Technology Investment Capital Corporation ........... 80,595 842,217
--------------
14,485,971
--------------
HEALTH CARE PROVIDERS & SERVICES--1.4%
Brookdale Senior Living Inc. ........................ 60,000 1,986,000
--------------
HEALTHCARE--2.6%
Pfizer Inc. ......................................... 150,000 3,564,000
--------------
REAL ESTATE INVESTMENT TRUSTS--10.8%
Alesco Financial, Inc. .............................. 300,000 1,116,000
Annaly Capital Management Inc. ...................... 100,000 1,721,000
CapitalSource, Inc. ................................. 220,000 3,687,200
Care Investment Trust, Inc. ......................... 41,800 415,910
Deerfield Triarc Capital Corporation ................ 125,000 938,750
iStar Financial, Inc. ............................... 120,000 3,512,400
Liberty Property Trust .............................. 60,000 1,878,600
LTC Properties, Inc. ................................ 50,000 1,177,000
NorthStar Realty Finance Corporation ................ 50,000 458,500
--------------
14,905,360
--------------
TELECOMMUNICATIONS--9.0%
Alaska Communications Systems Group, Inc. ........... 150,000 2,250,000
Citizens Communications Company ..................... 200,000 2,596,000
Consolidated Communications Holdings, Inc. .......... 110,824 1,782,050
Fairpoint Communications, Inc. ...................... 150,000 2,238,000
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
------------- --------------
COMMON STOCK (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
Windstream Corporation .............................. 270,000 $ 3,496,500
--------------
12,362,550
--------------
TRADING COMPANIES & DISTRIBUTORS--1.5%
Aircastle Limited ................................... 77,780 2,054,948
--------------
TRANSPORTATION--3.8%
FreeSeas Inc.* ...................................... 126,949 831,516
General Maritime Corporation ........................ 75,000 2,002,500
K-Sea Transportation Partners LP (a) ................ 10,000 369,500
Paragon Shipping, Inc., Class A ..................... 50,000 1,020,000
Teekay LNG Partners LP (a) .......................... 35,000 1,037,750
--------------
5,261,266
--------------
UTILITIES--5.6%
AmeriGas Partners LP (a) ............................ 15,200 535,800
Kinder Morgan Energy Partners LP (a) ................ 45,000 2,276,550
ONEOK Partners LP (a) ............................... 50,900 3,062,653
TEPPCO Partners LP (a) .............................. 34,800 1,382,256
Transmontaigne Partners LP (a) ...................... 15,000 465,000
--------------
7,722,259
--------------
TOTAL COMMON STOCK (COST $119,742,152) .............. 113,492,026
--------------
PREFERRED TERM SECURITIES+ (d)--10.6%
Alesco Preferred Funding IX, 06/23/36 ............... 1,000 690,000
Alesco Preferred Funding X, 09/23/36 ................ 1,000 820,000
Alesco Preferred Funding XI, 12/23/36 ............... 5,000 400,000
Alesco Preferred Funding XII, 07/15/37 .............. 5,000 405,000
Alesco Preferred Funding XIII, 09/23/37 ............. 2,500 205,000
Alesco Preferred Funding XIV, 03/15/37 .............. 5,000 445,000
Alesco Preferred Funding XV, 12/23/37 ............... 2,500 225,000
Alesco Preferred Funding XVI, 03/23/38 .............. 5,000 450,000
I-Preferred Term Securities IV, 06/24/34 ............ 10,000 772,500
Preferred Term Securities IV, 12/23/31 .............. 20,000 660,000
Preferred Term Securities XIII, 09/23/37 ............ 10,000 699,200
Preferred Term Securities XIV, 06/24/34 ............. 20,000 1,395,600
Preferred Term Securities XV, 09/24/34 .............. 20,000 1,549,200
Preferred Term Securities XVI, 03/23/35 ............. 10,000 776,100
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
------------- --------------
PREFERRED TERM SECURITIES+ (d) (CONTINUED)
Preferred Term Securities XVII, 09/23/35 ............ 6,000 $ 438,180
Preferred Term Securities XVIII, 06/23/35 ........... 10,000 704,800
Preferred Term Securities XIX, 12/22/35 ............. 10,000 674,600
Preferred Term Securities XX, 03/22/38 .............. 10,000 737,500
Preferred Term Securities XXI, 03/22/38 ............. 10,000 715,000
Preferred Term Securities XXII, 03/22/37 ............ 10,000 378,500
Preferred Term Securities XXIII, 12/22/36 ........... 5,000 228,250
Preferred Term Securities XXIV, 03/22/37 ............ 5,000 428,650
Preferred Term Securities XXV, 06/22/37 ............. 5,000 437,500
Taberna Preferred Funding I Limited, 07/05/35 ....... 2,500 87,500
Taberna Preferred Funding II, 06/30/35 .............. 5,000 25,000
Taberna Preferred Funding VI Limited, 12/05/36 ...... 5,000 75,000
Taberna Preferred Funding VII, 02/05/37 ............. 5,000 75,000
U.S. Capital Funding VI Limited Corporation ......... 5,000 175,000
--------------
TOTAL PREFERRED TERM SECURITIES (COST $18,639,529) .. 14,673,080
--------------
CONVERTIBLE PREFERRED STOCK--0.5%
FINANCIAL--0.5%
ACE Limited, 7.800% ................................. 26,025 639,174
--------------
TOTAL CONVERTIBLE PREFERRED STOCK (COST $663,297) ... 639,174
--------------
PREFERRED STOCK--2.3%
FINANCIAL--1.7%
Aspen Insurance Holdings Limited .................... 20,000 1,115,000
Solar Cayman Limited* ............................... 80,000 1,217,600
--------------
2,332,600
--------------
REAL ESTATE INVESTMENT TRUSTS--0.6%
FelCor Lodging Trust, Inc. .......................... 40,000 847,200
--------------
TOTAL PREFERRED STOCK (COST $3,346,490) ............. 3,179,800
--------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------- --------------
CORPORATE NOTES/BONDS--42.4%
AUTOMOTIVE--1.3%
Lear Corporation, Series B
8.750%, 12/01/16 ................................. $ 885,000 $ 818,625
TRW Automotive, Inc.
7.250%, 03/15/17 ................................. 1,000,000 932,500
--------------
1,751,125
--------------
BASIC INDUSTRY--2.8%
Actuant Corporation+
6.875%, 06/15/17 ................................. 1,265,000 1,239,700
Blount, Inc.
8.875%, 08/01/12 ................................. 750,000 753,750
H&E Equipment Services, Inc.
8.375%, 07/15/16 ................................. 1,175,000 1,092,750
Trimas Corporation
9.875%, 06/15/12 ................................. 772,000 764,280
--------------
3,850,480
--------------
BROADCASTING--0.9%
Allbritton Communications Company
7.750%, 12/15/12 ................................. 1,315,000 1,308,425
--------------
BUILDING MATERIALS--1.6%
Gibraltar Industries, Inc.
8.000%, 12/01/15 ................................. 1,340,000 1,226,100
WII Components, Inc.
10.000%, 02/15/12 ................................ 1,000,000 1,030,000
--------------
2,256,100
--------------
CHEMICALS--3.8%
Chemtura Corporation
6.875%, 06/01/16 ................................. 1,000,000 925,000
Ineos Group Holdings+
8.500%, 02/15/16 ................................. 1,020,000 923,100
Nova Chemicals Corporation (b)
7.863%, 11/15/13 ................................. 1,300,000 1,254,500
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------- --------------
CORPORATE NOTES/BONDS (CONTINUED)
CHEMICALS (CONTINUED)
Momentive Performance Materials Inc.+
9.750%, 12/01/14 ................................. $ 1,000,000 $ 932,500
Tronox Worldwide LLC
9.500%, 12/01/12 ................................. 1,285,000 1,233,600
--------------
5,268,700
--------------
CONSUMER PRODUCTS--1.1%
Hanesbrands, Inc. (b)
8.784%, 12/15/14 ................................. 1,025,000 1,014,750
Rent-A-Center, Inc.
7.500%, 05/01/10 ................................. 570,000 544,350
--------------
1,559,100
--------------
CABLE TELEVISION--3.3%
CSC Holdings, Inc.
7.875%, 02/15/18 ................................. 1,285,000 1,195,050
DIRECTV Holdings LLC
6.375%, 06/15/15 ................................. 750,000 729,375
Echostar DBS
6.625%, 10/01/14 ................................. 1,000,000 1,015,000
Mediacom Broadband LLC
8.500%, 10/15/15 ................................. 1,250,000 1,118,750
Quebecor Media, Inc.
7.750%, 03/15/16 ................................. 520,000 487,500
--------------
4,545,675
--------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--1.6%
Flextronics International Limited
6.500%, 05/15/13 ................................. 885,000 865,088
Superior Essex Communications LLC
9.000%, 04/15/12 ................................. 1,450,000 1,410,125
--------------
2,275,213
--------------
ENERGY--4.1%
Bristow Group Inc.+
7.500%, 09/15/17 ................................. 1,030,000 1,039,013
Cie Generale Geophysique
7.750%, 05/15/17 ................................. 1,000,000 1,010,000
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------- --------------
CORPORATE NOTES/BONDS (CONTINUED)
ENERGY (CONTINUED)
Cimarex Energy Company
7.125%, 05/01/17 ................................. $ 650,000 $ 640,250
Complete Production Services, Inc.
8.000%, 12/15/16 ................................. 780,000 744,900
Copano Energy LLC
8.125%, 03/01/16 ................................. 935,000 939,675
Pioneer Natural Resources Company
6.650%, 03/15/17 ................................. 1,000,000 962,371
Range Resources Corporation
7.500%, 05/15/16 ................................. 250,000 254,375
--------------
5,590,584
--------------
FINANCIAL--2.2%
Ford Motor Credit Company LLC
7.000%, 10/01/13 ................................. 1,950,000 1,705,054
GMAC LLC
7.000%, 02/01/12 ................................. 1,470,000 1,284,886
--------------
2,989,940
--------------
GAMING--1.6%
Boyd Gaming Corporation
7.125%, 02/01/16 ................................. 1,100,000 1,053,250
MTR Gaming Group, Inc.
9.000%, 06/01/12 ................................. 700,000 668,500
MTR Gaming Group, Inc., Series B
9.750%, 04/01/10 ................................. 520,000 522,600
--------------
2,244,350
--------------
HEALTHCARE--2.6%
Hanger Orthopedic Group, Inc.
10.250%, 06/01/14 ................................ 1,000,000 1,030,000
HCA Inc.
9.125%, 11/15/14 ................................. 1,000,000 1,025,000
Iasis Healthcare Corporation
8.750%, 06/15/14 ................................. 1,000,000 975,000
Omnicare, Inc.
6.875%, 12/15/15 ................................. 650,000 601,250
--------------
3,631,250
--------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------- --------------
CORPORATE NOTES/BONDS (CONTINUED)
METALS & MINING--1.6%
Freeport-McMoRan Copper & Gold, Inc.
8.375%, 04/01/17 .................................... $ 1,000,000 $ 1,082,500
Steel Dynamics, Inc.+
7.375%, 11/01/12 .................................... 200,000 199,500
6.750%, 04/01/15 .................................... 945,000 907,200
--------------
2,189,200
--------------
PAPER AND FOREST PRODUCTS--2.3%
Georgia-Pacific Corporation+
7.125%, 01/15/17 .................................... 100,000 96,250
P H Glatfelter+
7.125%, 05/01/16 .................................... 1,190,000 1,172,150
U.S. Corrugated
10.000%, 06/01/13 ................................... 1,000,000 930,000
Verso Paper Holdings LLC
11.375%, 08/01/16 ................................... 1,000,000 1,020,000
--------------
3,218,400
--------------
PUBLISHING--0.7%
Idearc, Inc.
8.000%, 11/15/16 .................................... 1,075,000 1,010,500
--------------
REAL ESTATE--1.0%
Corrections Corp of America
7.500%, 05/01/11 .................................... 90,000 91,575
Geo Group, Inc.
8.250%, 07/15/13 1,340,000 1,346,700
--------------
1,438,275
--------------
RETAIL--1.9%
Brown Shoe Company, Inc.
8.750%, 05/01/12 .................................... 800,000 820,000
Couche-Tard US LP
7.500%, 12/15/13 .................................... 400,000 398,000
Sonic Automotive, Inc., Series B
8.625%, 08/15/13 .................................... 1,390,000 1,381,313
--------------
2,599,313
--------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------- --------------
CORPORATE NOTES/BONDS (CONTINUED)
SERVICES--2.8%
Allied Security Escrow Corporation
11.375%, 07/15/11 ................................... $ 1,015,000 $ 969,325
ARAMARK Corporation
8.500%, 02/01/15 .................................... 1,000,000 1,008,750
Buhrmann US, Inc.
8.250%, 07/01/14 .................................... 620,000 595,200
KAR Holdings, Inc.+
8.750%, 05/01/14 .................................... 1,270,000 1,181,100
--------------
3,754,375
--------------
TELECOMMUNICATIONS--2.2%
Cincinnati Bell, Inc.
8.375%, 01/15/14 .................................... 960,000 933,600
Hughes Network Systems
9.500%, 04/15/14 .................................... 855,000 865,687
Intelsat Subsidiary Holding Company
8.625%, 01/15/15 .................................... 1,155,000 1,169,437
--------------
2,968,724
--------------
TRANSPORTATION--0.4%
Stena AB
7.500%, 11/01/13 .................................... 550,000 543,125
--------------
UTILITIES--2.6%
AES Corporation+
8.750%, 05/15/13 .................................... 623,000 651,035
Edison Mission Energy
7.000%, 05/15/17 .................................... 650,000 625,625
Elwood Energy LLC
8.159%, 07/05/26 .................................... 1,007,318 1,065,667
NSG Holdings LLC+
7.750%, 12/15/25 .................................... 1,200,000 1,191,000
--------------
3,533,327
--------------
TOTAL CORPORATE NOTES/BONDS (COST $60,041,778) ......... 58,526,181
--------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
------------- --------------
CASH EQUIVALENT--1.3%
SEI Daily Income Trust, Prime Obligations Fund,
Class A shares, 5.010% (c) .......................... 1,753,789 $ 1,753,789
--------------
TOTAL CASH EQUIVALENT (COST $1,753,789) ................ 1,753,789
--------------
TOTAL INVESTMENTS--139.4%
(COST $204,187,035) ................................. 192,264,050
--------------
WRITTEN
CONTRACTS
-------------
COVERED CALL OPTIONS WRITTEN--(1.0)%
Altria Group, Inc., Expires: 12/22/07,
Strike Price: $75 ................................... (200) (41,400)
American Capital Strategies Limited,
Expires: 12/22/07, Strike Price: $40 ................ (200) (5,000)
Annaly Capital Management Inc., Expires: 12/22/07,
Strike Price: $17.50 ................................ (1,000) (50,000)
Baker Hughes, Inc., Expires: 12/22/07,
Strike Price: $90 ................................... (100) (3,000)
Consolidated Communications Holdings, Inc.,
Expires: 12/22/07, Strike Price: $20 ................ (500) (5,000)
Dow Chemical Company, Expires: 01/19/08,
Strike Price: $45 ................................... (750) (37,500)
Energy Transfer Partners LP, Expires: 03/22/08,
Strike Price: $60 ................................... (610) (21,350)
Entercom Communications Corporation,
Expires: 12/22/07, Strike Price: $17.50 ............. (700) (19,250)
Fairpoint Communications Inc., Expires: 01/19/08,
Strike Strike Price: $17.50 ......................... (500) (7,500)
GateHouse Media Inc., Expires: 12/22/07,
Strike Price: $12.50 ................................ (450) (2,250)
JPMorgan Chase & Company, Expires: 12/22/07,
Strike Price: $45 ................................... (500) (50,000)
Liberty Property Trust, Expires: 12/22/07,
Strike Price: $35 ................................... (300) (9,000)
Pfizer Inc., Expires: 01/19/08, Strike Price: $25 ...... (1,500) (60,000)
PHLX Bank Index, Expires: 12/22/07,
Strike Price: $100 .................................. (200) (49,500)
PHLX Bank Index, Expires: 12/22/07,
Strike Price: $90 ................................... (100) (80,500)
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONCLUDED)
WRITTEN MARKET
CONTRACTS VALUE
------------- --------------
COVERED CALL OPTIONS WRITTEN (CONTINUED)
PHLX Bank Index, Expires: 12/22/07,
Strike Price: $95 ................................... (200) $ (94,000)
Regal Entertainment Group, Expires: 01/19/08,
Strike Price: $22.50 ................................ (1,100) (11,000)
Reynolds American, Inc., Expires: 12/22/07,
Strike Price: $65 ................................... (300) (115,800)
S&P 500 Index, Expires: 12/22/07,
Strike Price: $1,520 ................................ (200) (240,000)
S&P 500 Index, Expires: 12/22/07,
Strike Price: $1,495 ................................ (100) (235,000)
US Bancorp, Expires: 12/22/07, Strike Price: $33 ....... (1,000) (125,000)
Wachovia Corporation, Expires: 12/22/07,
Strike Price: $40 ................................... (250) (92,500)
Wachovia Corporation, Expires: 12/22/07,
Strike Price: $45 ................................... (250) (7,500)
--------------
TOTAL COVERED CALL OPTIONS WRITTEN
(PREMIUMS RECEIVED $889,095) ........................ (1,362,050)
--------------
OTHER LIABILITIES IN EXCESS OF OTHER ASSETS--(38.4)% ... (52,948,152)
--------------
NET ASSETS--100.0% ..................................... $ 137,953,848
==============
* 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, 2007,
these securities amounted to $24,705,628 or 17.9% of net assets.
(a) Securities considered Master Limited Partnerships. At November 30, 2007,
these securities amounted to $25,428,889 or 18.4% of net assets.
(b) Variable rate security -- The rate reported on the Schedule of Investments
is the rate in effect at November 30, 2007.
(c) The rate shown is the 7-day effective yield as of November 30, 2007.
(d) Securities considered illiquid. The total value of such securities as of
November 30, 2007 was $14,673,080 or 10.6% of net assets.
LLC Limited Liability Company
LP Limited Partnership
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AS OF NOVEMBER 30, 2007
ASSETS:
Investments, at value (cost $204,187,035) (Note 1) .................. $ 192,264,050
Interest receivable ................................................. 1,503,622
Receivable for securities sold ...................................... 401,750
Dividends receivable ................................................ 201,887
Prepaid expenses and other assets ................................... 105,596
--------------
Total assets .................................................. 194,476,905
--------------
LIABILITIES:
Commercial paper (Note 4) ........................................... 54,790,118
Covered call options written, at value
(premiums received--$889,095) (Note 1) ........................... 1,362,050
Payable for investment management fees (Note 2) ..................... 135,208
Payable for administration fees (Note 2) ............................ 15,907
Payable to Custodian ................................................ 1,268
Accrued expenses and other liabilities .............................. 218,506
--------------
Total liabilities ............................................. 56,523,057
--------------
NET ASSETS .......................................................... $ 137,953,848
==============
NET ASSETS CONSIST OF:
Common Stock, $0.01 par value
(authorized 100,000,000 shares) ............................... $ 169,060
Additional paid-in capital ....................................... 185,703,705
Undistributed net investment income .............................. 1,881,138
Accumulated net realized losses on investments and options ....... (37,404,115)
Net unrealized depreciation on investments and options ........... (12,395,940)
--------------
NET ASSETS .......................................................... $ 137,953,848
==============
NET ASSET VALUE PER SHARE:
$137,953,848 / 16,905,967 shares of Common Stock issued
and outstanding ............................................... $ 8.16
==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
NOVEMBER 30, 2007
INVESTMENT INCOME:
Dividends ........................................................... $ 13,701,199
Interest ............................................................ 5,586,965
Foreign tax withholding ............................................. (12,068)
--------------
Total investment income ....................................... 19,276,096
--------------
EXPENSES:
Investment management fees (Note 2) ................................. 2,032,314
Commercial paper fees ............................................... 344,096
Administration fees (Note 2) ........................................ 213,936
Professional fees ................................................... 194,419
Printing and shareholder reports .................................... 82,172
Transfer agent fees ................................................. 38,765
Insurance fees ...................................................... 36,889
Registration fees ................................................... 27,872
Directors' fees and expenses ........................................ 26,952
Custodian fees ...................................................... 17,270
Other operating expenses ............................................ 22,215
--------------
Total operating expenses ......................................... 3,036,900
--------------
Interest Expense (Note 4) ........................................... 2,921,244
--------------
Total expenses ................................................... 5,958,144
Less: Investment management fees waived (Note 2) .............. (213,859)
--------------
Net expenses .................................................. 5,744,285
--------------
NET INVESTMENT INCOME ......................................... 13,531,811
--------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized loss on investments .................................... (92,556)
Net realized gain on written call options ........................... 2,171,032
Change in net unrealized appreciation (depreciation)
on investments and written call options .......................... (24,015,402)
--------------
Net realized and unrealized loss on investments
and written call options ......................................... (21,936,926)
--------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ................ $ (8,405,115)
==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED
NOVEMBER 30, 2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net decrease in net assets resulting from operations ............. $ (8,405,115)
Adjustments to reconcile net decrease in net assets resulting
from operations to net cash provided by operating activities:
Purchase of long-term portfolio investments ................... (156,863,217)
Proceeds from sales of long-term portfolio investments ........ 154,174,423
Purchase of short-term portfolio investments .................. (126,044,448)
Proceeds from sales of short-term portfolio investments ....... 127,105,374
Realized gain on written call options ......................... (2,171,032)
Premiums received from options written ........................ 5,241,869
Premiums paid to closed options ............................... (1,911,541)
Amortization of premiums on investments ....................... 37,229
Realized losses from security transactions .................... 92,556
Change in unrealized depreciation from security transactions .. 24,015,402
Increase in interest receivable ............................... (33,514)
Decrease in dividends receivable .............................. 241,587
Decrease in receivable for securities sold .................... (65,770)
Decrease in prepaid expenses and other assets ................. 43,194
Decrease in payable for securities purchased .................. (1,428,400)
Decrease in payable for investment management fees ............ (14,045)
Decrease in payable for administration fees ................... (1,652)
Decrease in payable for director fees ......................... (48)
Increase in payable to custodian .............................. 1,268
Increase in accrued expenses and other liabilities ............ 68,855
--------------
Net cash provided by operating activities .................. 14,082,975
--------------
CASH FLOWS FROM FINANCING ACTIVITIES
Reinvestment of dividends resulting in the issuance
of common stock transactions .................................. (15,044,806)
Cash dividends paid to shareholders .............................. 790,866
Increase in commercial paper, at value ........................... 160,965
--------------
Net cash used in financing activities ...................... (14,092,975)
--------------
Net decrease in cash ....................................... (10,000)
CASH
Cash at beginning of year ........................................... 10,000
--------------
Cash at end of year ................................................. $ --
==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
NOVEMBER 30, NOVEMBER 30,
2007 2006
------------- -------------
OPERATIONS:
Net investment income ...................... $ 13,531,811 $ 10,415,188
Net realized gain (loss) on investments .... (92,556) 24,492,621
Net realized gain on written call options .. 2,171,032 1,335,397
Change in net unrealized depreciation
on investments and written call options .. (24,015,402) (5,678,545)
------------- -------------
Net increase (decrease) in net assets
resulting from operations .................. (8,405,115) 30,564,661
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income ...................... (14,219,577) (15,574,045)
Tax return of capital ...................... (825,229) --
------------- -------------
Net decrease in net assets resulting from
dividends and distributions ................ (15,044,806) (15,574,045)
------------- -------------
CAPITAL STOCK TRANSACTIONS:
Reinvestment of dividends resulting in the
issuance of Common Stock transactions ...... 790,866 1,270,678
------------- -------------
Total increase (decrease) in net assets ....... (22,659,055) 16,261,294
------------- -------------
NET ASSETS:
Beginning of year .......................... 160,612,903 144,351,609
------------- -------------
End of year
(including undistributed net investment
income of $1,881,138 and $1,448,432,
respectively) ............................ $ 137,953,848 $ 160,612,903
============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE
BEEN DERIVED FROM INFORMATION PROVIDED IN THE
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
NOVEMBER 30,
---------------------
2007 2006
--------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD ...................... $ 9.55 $ 8.65
--------- ---------
INCOME/GAIN FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (1) .............................. 0.80 0.63
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT TRANSACTIONS AND OPTIONS .................. (1.30) 1.20
--------- ---------
TOTAL FROM INVESTMENT OPERATIONS ..................... (0.50) 1.83
--------- ---------
LESS DIVIDENDS:
DIVIDENDS FROM NET INVESTMENT INCOME ................... (0.84) (0.93)
TAX RETURN OF CAPITAL................................... (0.05) --
--------- ---------
TOTAL DIVIDENDS ...................................... (0.89) (0.93)
--------- ---------
NET ASSET VALUE, END OF YEAR .............................. $ 8.16 $ 9.55
========= =========
MARKET VALUE, END OF YEAR ................................. $ 7.35 $ 9.78
========= =========
TOTAL RETURN BASED ON: (2)
NET ASSET VALUE ........................................ (6.05)% 22.51%
========= =========
MARKET VALUE ........................................... (17.19)% 0.36%
========= =========
RATIOS AND SUPPLEMENTAL DATA: (3)
NET ASSETS, END OF PERIOD (000 OMITTED) ................ $ 137,953 $ 160,613
========= =========
TOTAL EXPENSES INCLUDING WAIVER OF FEES ................ 2.69% 2.59%
TOTAL EXPENSES EXCLUDING WAIVER OF FEES ................ 2.79% 2.68%
TOTAL OPERATING EXPENSES INCLUDING WAIVER OF FEES (4) .. 1.15% 1.13%
TOTAL OPERATING EXPENSES EXCLUDING WAIVER OF FEES (4) .. 1.26% 1.24%
COMMERCIAL PAPER FEES AND INTEREST EXPENSE ............. 1.53% 1.44%
NET INVESTMENT INCOME INCLUDING WAIVER OF FEES ......... 6.33% 5.07%
PORTFOLIO TURNOVER ..................................... 74% 96%
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) ...................... $ 54,790 $ 54,659
ASSET COVERAGE PER $1,000 AT END OF PERIOD ............. $ 3,903 $ 3,980
- ----------
(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 sale of Fund shares.
(3) Ratios are stated as a percentage of managed net assets which includes any
liabilities constituting indebtedness in connection with financial
leverage.
(4) Exclusive of commercial paper fees and interest expense.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
30
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE YEARS ENDED
NOVEMBER 30,
---------------------
2005 2004
--------- ---------
NET ASSET VALUE, BEGINNING OF YEAR ........................ $ 8.96 $ 8.52
--------- ---------
INCOME/GAIN FROM INVESTMENT OPERATIONS: (1)
NET INVESTMENT INCOME .................................. 0.61 0.55
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENT TRANSACTIONS AND OPTIONS .................. 0.08 0.89
--------- ---------
TOTAL FROM INVESTMENT OPERATIONS ..................... 0.69 1.44
--------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS:
DIVIDENDS FROM NET INVESTMENT INCOME ................... (0.53) (0.54)
DISTRIBUTIONS IN EXCESS ................................ (0.01) (0.46)
TAX RETURN OF CAPITAL .................................. (0.46) --
--------- ---------
TOTAL DIVIDENDS AND DISTRIBUTIONS .................... (1.00) (1.00)
--------- ---------
NET ASSET VALUE, END OF YEAR .............................. $ 8.65 $ 8.96
========= =========
MARKET VALUE, END OF YEAR ................................. $ 10.70 $ 10.03
========= =========
TOTAL RETURN BASED ON: (2)
NET ASSET VALUE ........................................ 8.19% 18.01%
========= =========
MARKET VALUE ........................................... 18.14% 14.02%
========= =========
RATIOS AND SUPPLEMENTAL DATA: (3)
NET ASSETS, END OF YEAR (000 OMITTED) .................. $ 144,352 $ 148,144
========= =========
TOTAL EXPENSES INCLUDING WAIVER OF FEES ................ 2.90% 2.26%
TOTAL EXPENSES EXCLUDING WAIVER OF FEES ................ 3.04% 2.40%
TOTAL OPERATING EXPENSES INCLUDING WAIVER OF FEES (4) .. 1.59% 1.57%
TOTAL OPERATING EXPENSES EXCLUDING WAIVER OF FEES (4) .. 1.73% 1.71%
COMMERCIAL PAPER FEES AND INTEREST EXPENSE ............. 1.31% 0.69%
NET INVESTMENT INCOME INCLUDING WAIVER OF FEES ......... 7.00% 6.34%
PORTFOLIO TURNOVER ..................................... 80% 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) ...................... $ 54,794 $ 54,052
ASSET COVERAGE PER $1,000 AT END OF YEAR ............... $ 3,679 $ 3,680
- ----------
(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 sale 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, 2007
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONCLUDED)
FOR THE YEAR ENDED
NOVEMBER 30,
------------------
2003
------------------
NET ASSET VALUE, BEGINNING OF YEAR ........................ $ 7.47
---------
INCOME/GAIN FROM INVESTMENT OPERATIONS: (1)
NET INVESTMENT INCOME .................................. 0.60
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENT TRANSACTIONS AND OPTIONS .................. 1.45
---------
TOTAL FROM INVESTMENT OPERATIONS ..................... 2.05
---------
LESS DIVIDENDS AND DISTRIBUTIONS:
DIVIDENDS FROM NET INVESTMENT INCOME ................... (0.61)
TAX RETURN OF CAPITAL .................................. (0.39)
---------
TOTAL DIVIDENDS AND DISTRIBUTIONS .................... (1.00)
---------
NET ASSET VALUE, END OF YEAR .............................. $ 8.52
=========
MARKET VALUE, END OF YEAR ................................. $ 9.80
=========
TOTAL RETURN BASED ON: (2)
NET ASSET VALUE ...................................... 28.96%
=========
MARKET VALUE ......................................... 51.57%
=========
RATIOS AND SUPPLEMENTAL DATA: (3)
NET ASSETS, END OF YEAR (000 OMITTED) .................. $ 139,137
=========
TOTAL EXPENSES INCLUDING WAIVER OF FEES ................ 2.40%
TOTAL EXPENSES EXCLUDING WAIVER OF FEES ................ 2.54%
TOTAL OPERATING EXPENSES INCLUDING WAIVER OF FEES (4) .. 1.57%
TOTAL OPERATING EXPENSES EXCLUDING WAIVER OF FEES (4) .. 1.86%
COMMERCIAL PAPER FEES AND INTEREST EXPENSE ............. 0.68%
NET INVESTMENT INCOME INCLUDING WAIVER OF FEES ......... 7.58%
PORTFOLIO TURNOVER ..................................... 99%
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) ...................... $ 49,925
ASSET COVERAGE PER $1,000 AT END OF YEAR ............... $ 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 sale 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.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
32
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
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, 2007, 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")
33
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
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
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.
34
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
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, a type of collateralized debt obligation ("CDO"). A PTS is a
trust collateralized by a pool of capital securities of affiliated holding
corporations, 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
35
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
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 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. The Fund pays 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.
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. Each Disinterested Director is
reimbursed for reasonable out-of-pocket expenses associated with attending Board
and Committee Meetings.
For the year ended November 30, 2007, the Fund incurred a legal expense of
$131,775 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.
36
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
NOTE 3. PURCHASE AND SALES OF INVESTMENTS
For the year ended November 30, 2007, purchases and sales of investments,
excluding short-term investments, totaled $156,863,217 and $154,174,423,
respectively.
The following table summarizes the Fund's call options written for the year
ended November 30, 2007:
NUMBER OF
CONTRACTS PREMIUMS
--------- ------------
Options outstanding, November 30, 2006 ....... 4,200 $ 299,541
Options written .............................. 49,963 5,241,869
Options expired .............................. (23,660) (2,255,635)
Options exercised ............................ (5,668) (569,742)
Options closed ............................... (13,825) (1,826,938)
--------- ------------
Options outstanding, November 30, 2007 ....... 11,010 $ 889,095
========= ============
NOTE 4. COMMERCIAL PAPER
As of November 30, 2007, $55,000,000 of commercial paper was outstanding with an
amortized cost of $54,790,118. The average discount rate of commercial paper
outstanding at November 30, 2007, was 5.10%. The average daily balance of
commercial paper outstanding for the year ended November 30, 2007, was
$54,661,447 at a weighted average discount rate of 5.30%. The maximum face
amount of commercial paper outstanding at any time during the year ended
November 30, 2007, 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, 2007.
NOTE 5. CAPITAL STOCK
There are 100,000,000 shares of $0.01 par value common stock authorized. Of the
16,905,967 shares of common stock outstanding at November 30, 2007, the Manager
owned 18,029 shares.
For the years ended November 30, 2007 and November 30, 2006, the Fund issued
81,104 and 131,915 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 risk than higher-rated securities. Additionally, lower-rated securities
may be more susceptible to adverse economic and competitive industry conditions
than
37
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
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, ordinary gain from the sale of master limited
partnerships, and return of capital from investments in master limited
partnerships. As of November 30, 2007, the Fund recorded the following
reclassifications to increase (decrease) the accounts below:
UNDISTRIBUTED ACCUMULATED ADDITIONAL
NET INVESTMENT REALIZED PAID-IN
INCOME LOSS CAPITAL
-------------- ----------- ----------
$1,120,472 $(1,118,881) $(1,591)
The tax character of dividends and distributions paid during the last two fiscal
years were as follows:
ORDINARY RETURN
INCOME OF CAPITAL TOTALS
----------- ---------- -----------
2007 $14,219,577 $825,229 $15,044,806
2006 15,574,045 -- 15,574,045
As of November 30, 2007, the components of Distributable Earnings (Accumulated
Losses) were as follows:
Capital loss carryforwards $(39,309,030)
Post-October losses (97,806)
Net unrealized depreciation (10,393,220)
Other temporary differences 1,881,138
------------
Total accumulated losses $(47,918,918)
============
Post-October losses represent losses realized on investment transactions from
November 1, 2007 through November 30, 2007, that in accordance with federal
income tax regulations the Fund may elect to defer or treat as having arisen in
the following fiscal year.
38
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
The following summarizes the capital loss carryforwards as of November 30, 2007.
These capital loss carryforwards are available to offset future net capital
gains.
EXPIRING IN FISCAL YEAR AMOUNT
----------------------- -----------
2009 $ 8,004,078
2010 30,533,344
2011 771,608
-----------
Total capital loss carryforwards $39,309,030
===========
During the year ended November 30, 2007, the Fund utilized $222,873 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, 2007, were as follows:
Federal Tax Cost .................................... $202,280,947
------------
Aggregate Gross Unrealized Appreciation ............. 8,702,645
Aggregate Gross Unrealized Depreciation ............. (18,719,542)
------------
Net Unrealized Depreciation ......................... $(10,016,897)
============
NOTE 8. 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. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006 and is to be applied
to all open tax years as of the effective date. SEC guidance allows implementing
FIN 48 as late as the Fund's last net asset value calculation in the first
required financial statement reporting period. As a result, the Fund will adopt
FIN 48 in its semi-annual report on May 31, 2008. As of November 30, 2007, the
Fund does not anticipate a material impact to the financial statements.
39
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
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, 2007, 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.
NOTE 9. SUBSEQUENT EVENTS
The Board of the Fund declared the following dividends:
DECLARATION DATE EX-DATE RECORD DATE PAYABLE DATE DIVIDEND RATE
- ---------------- ----------------- ----------------- ----------------- -------------
December 3, 2007 December 18, 2007 December 20, 2007 December 31, 2007 $0.0750
January 2, 2008 January 15, 2008 January 17, 2008 January 31, 2008 0.0750
NOTE 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.
40
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Chartwell Dividend and 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, 2007, and the related statements of operations
and cash flows for the year then ended, the statements of changes in net assets
and financial highlights for each of the two years in the period 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 audits. The financial
highlights for each of the three 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 highlights.
We conducted our audits 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 audits 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, 2007, by correspondence with the custodian
and brokers. We believe that our audits provide 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, 2007, the results of its
operations and cash flows for the year then ended, and the changes in its net
assets and financial highlights for each of the two years in the period then
ended, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 28, 2008
41
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
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
42
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
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
43
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
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, 2007.
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 other than the change to investment strategy regarding covered call
options described on page 3. 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 material 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, 2007, the Fund had $30 million outstanding at
5.30% per annum maturing on December 3, 2007, and $25 million at 4.85% per annum
maturing on January 31, 2008. All interest rates include fees due to the
broker-dealer. The Fund must experience an annual return of 1.41% 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 ................. (15.89)% (8.93)% (1.96)% 5.00% 11.96%
44
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
Assumes $140 million assets attributable to common shareholders; $55 million
aggregate leverage with an average interest rate of 5.00%. 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 10, 2007, 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.
45
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
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
71 yrs. old (Since 2001)
- -------------------------------------------------------------------------------
George W. Grosz* Director Term Expires 2008
70 yrs. old (Since 2000)
- --------------------------------------------------------------------------------
Kenneth F. Herlihy Director Term Expires 2009
78 yrs. old (Since 1998)
- --------------------------------------------------------------------------------
INTERESTED DIRECTORS**
- ----------------------
Winthrop S. Jessup Director, Term Expires 2008
62 yrs. old Chairman (Since 1998)
and President
- --------------------------------------------------------------------------------
Bernard P. Schaffer Director and Term Expires 2010
63 yrs. old Vice President (Since 1998)
- --------------------------------------------------------------------------------
* Mr. Grosz resigned from the Board effective January 10, 2008.
** 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, 2007
- --------------------------------------------------------------------------------
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
NAME, ADDRESS, PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN OTHER DIRECTORSHIPS
AND AGE DURING PAST 5 YEARS BY DIRECTOR HELD BY BOARD MEMBER
- ----------------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
- -----------------------
C. Warren Ormerod Chairman and Managing Director, NorthStar Asset 1 None
71 yrs. old Management (since 2000). Managing Partner,
Stratton Management Company (1992-2000).
- ----------------------------------------------------------------------------------------------------------------------------
George W. Grosz* Consultant (since 1996); President and CEO of 1 FBR National Bank &
70 yrs. old Meridian Asset Management Co. (1994-1996); Trust Company
Director, FBR Family of Funds (1998-2001). (2001-2006); Guardian
Trust FSB (a wholly
owned subsidiary of
Guardian Life Insurance
Company of America)
(since 1999).
- ----------------------------------------------------------------------------------------------------------------------------
Kenneth F. Herlihy Sculptor, who has worked since his retirement 1 None
78 yrs. old from the mutual fund industry in 1987.
- ----------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS**
- ----------------------
Winthrop S. Jessup Limited Partner, Chartwell Investment Partners, 1 Georgia Banking Company
62 yrs. old L.P. and Chartwell G.P., Inc. (since 1997); (since 1998).
Managing Partner, Chartwell Investment
Partners, L.P. and Chartwell G.P., Inc.
(1997-2005).
- ----------------------------------------------------------------------------------------------------------------------------
Bernard P. Schaffer Managing Partner and Portfolio Manager of 1 None
63 yrs. old Chartwell Investment Partners, L.P. and Partner
of Chartwell G.P., Inc. (since 1997).
- ----------------------------------------------------------------------------------------------------------------------------
47
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
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)
62 yrs. old President and Director
- --------------------------------------------------------------------------------
Bernard P. Schaffer Vice President and (Since 1998)
63 yrs. old Director
- --------------------------------------------------------------------------------
Kevin A. Melich Vice President (Since 1998)
65 yrs. old
- --------------------------------------------------------------------------------
Timothy J. Riddle Vice President (Since 1998)
52 yrs. old
- --------------------------------------------------------------------------------
G. Gregory Hagar Vice President (Since 1998)
39 yrs. old and Treasurer, (Since 2004)
Chief Financial Officer and
Chief Compliance Officer
- --------------------------------------------------------------------------------
Andrew S. Toburen Vice President (Since 2003)
36 yrs. old
- --------------------------------------------------------------------------------
Michael P. Malloy Secretary (Since 1998)
48 yrs. old
One Logan Square
18th and Cherry Streets
Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
Maria E. Pollack Assistant (Since 1998)
62 yrs. old Secretary
- --------------------------------------------------------------------------------
48
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
NAME, ADDRESS, PRINCIPAL OCCUPATION(S)
AND AGE DURING PAST 5 YEARS
- ------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUND
- --------------------
Winthrop S. Jessup Limited Partner, Chartwell Investment Partners, L.P. and Chartwell G.P.,
62 yrs. old Inc. (since 1997); Managing Partner, Chartwell Investment Partners, L.P.
and Chartwell G.P., Inc. (1997-2005).
- ------------------------------------------------------------------------------------------------------------
Bernard P. Schaffer Managing Partner and Portfolio Manager of Chartwell Investment Partners,
63 yrs. old L.P. and Partner of Chartwell G.P., Inc. (since 1997).
- ------------------------------------------------------------------------------------------------------------
Kevin A. Melich Managing Partner and Portfolio Manager of Chartwell Investment Partners,
65 yrs. old L.P. and Chartwell G.P., Inc. (since 1997).
- ------------------------------------------------------------------------------------------------------------
Timothy J. Riddle Managing Partner of Chartwell Investment Partners, L.P. and of Chartwell
52 yrs. old G.P., Inc. (since 1997).
- ------------------------------------------------------------------------------------------------------------
G. Gregory Hagar Managing Partner (since 2007), Chief Financial Officer (since 1997) and
39 yrs. old Chief Compliance Officer (since 2004) of Chartwell Investment Partners,
L.P.
- ------------------------------------------------------------------------------------------------------------
Andrew S. Toburen Fixed Income Portfolio Manager for Chartwell Investment Partners, L.P.
36 yrs. old (since 1999).
- ------------------------------------------------------------------------------------------------------------
Michael P. Malloy Partner (since 2007) in the law firm of Drinker Biddle & Reath LLP (since
48 yrs. old 1993).
One Logan Square
18th and Cherry Streets
Philadelphia, Pennsylvania 19103
- ------------------------------------------------------------------------------------------------------------
Maria E. Pollack Director of Client Administration for Chartwell Investment Partners, L.P.
62 yrs. old (since 1997).
- ------------------------------------------------------------------------------------------------------------
49
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
NOTES TO SHAREHOLDERS (UNAUDITED)
For shareholders that do not have a November 30, 2007 tax year end, this notice
is for informational purposes only. For shareholders with a November 30, 2007
tax year end, please consult your tax advisor as to the pertinence of this
notice. For the fiscal year ended November 30, 2007, the Fund is designating the
following items with regard to distributions paid during the year.
ORDINARY QUALIFYING QUALIFYING
INCOME RETURN TOTAL QUALIFYING DIVIDEND INTEREST
DISTRIBUTIONS OF CAPITAL DISTRIBUTIONS DIVIDENDS(1) INCOME(2) INCOME(3)
CHARTWELL DIVIDEND AND
INCOME FUND, INC. 94.51% 5.49% 100.00% 45.10% 44.43% 27.91%
(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 Creation 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, 2007. Complete information will be computed and reported in conjunction with
your 2007 Form 1099-DIV.
50
---------
CHARTWELL
- --------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2007
- --------------------------------------------------------------------------------
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.
Past performance is no guarantee of future results. Share prices will fluctuate,
so that a share may be worth more or less than its original cost when sold. 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:
- ------------------ ------------------------------------------------------ ----------------------------------------------------
2007 2006
- ------- ---------- ----------------- ------------------ ----------------- ---------------- ----------------- -----------------
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 $42,500 N/A Audit fees $37,500 N/A Audit fees
Fees include amounts include 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 the provided by the
accountant in accountant in
connection with connection with
statutory and statutory and
regulatory regulatory
filings. filings.
- ------- ---------- ----------------- ------------------ ----------------- ---------------- ----------------- -----------------
(b) Audit- $0 $0 $0 $0 $0 $0
Related
Fees
- ------- ---------- ----------------- ------------------ ----------------- ---------------- ----------------- -----------------
(c) Tax $6,000 (1) $0 $0 $ 5,000 (1) $0 $0
Fees
- ------- ---------- ----------------- ------------------ ----------------- ---------------- ----------------- -----------------
(d) All $20,500 (2) $0 $0 $10,000 (2) $0 $0
Other
Fees
- ------- ---------- ----------------- ------------------ ----------------- ---------------- ----------------- -----------------
Notes:
(1) Fees for review of the Fund's federal, excise and state tax returns.
(2) Fees for agreed upon procedures performed in relation to the Fund's
commercial paper issuance program.
(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, 2007 and the fiscal year ended November 30, 2006 were $146,500 and $114,010,
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, 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, 2007
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's analyses and
recommendations and generally gives instructions to ISS to vote proxies in
accordance with ISS's 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.
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.
1. OPERATIONAL ITEMS
ADJOURN MEETING
Generally vote AGAINST proposals to provide management with the authority to
adjourn an annual or special meeting absent compelling reasons to support the
proposal.
Vote FOR proposals that relate specifically to soliciting votes for a merger or
transaction if supporting that merger or transaction. Vote AGAINST proposals if
the wording is too vague or if the proposal includes "other business."
AMEND QUORUM REQUIREMENTS
Vote AGAINST proposals to reduce quorum requirements for shareholder meetings
below a majority of the shares outstanding unless there are compelling reasons
to support the proposal.
AMEND MINOR BYLAWS
Vote FOR bylaw or charter changes that are of a housekeeping nature (updates or
corrections).
AUDITOR INDEMNIFICATION AND LIMITATION OF LIABILITY
Consider the issue of auditor indemnification and limitation of liability on a
CASE-BY-CASE BASIS. Factors to be assessed include, but are not limited to:
o The terms of the auditor agreement - the degree to which these agreements
impact shareholders' rights;
o Motivation and rationale for establishing the agreements;
o Quality of disclosure; and
o Historical practices in the audit area.
WITHHOLD against members of an audit committee in situations where there is
persuasive evidence that the audit committee entered into an in appropriate
indemnification agreement with its auditor that limits the ability of the
company, or its shareholders, to pursue legitimate legal recourse against the
audit firm.
AUDITOR RATIFICATION
Vote FOR proposals to ratify auditors, unless any of the following apply:
o An auditor has a financial interest in or association with the company
and is therefore not independent;
o 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, or
o Fees for non-audit services ("Other" fees) are excessive.
Non-audit fees are excessive if:
Non-audit ("other") fees >audit fees + audit-related fees + tax compliance/
preparation fees
Tax compliance and preparation include the preparation of original and amended
tax returns, refund claims and tax payment planning. All other services in the
tax category, such as tax advice, planning or consulting should be added to
"Other" fees. If the breakout of tax fees cannot be determined, add all tax fees
to "Other" fees.
Vote CASE-BY-CASE on shareholder proposals asking companies to prohibit or limit
their auditors from engaging in non-audit services.
Vote CASE-BY-CASE on shareholder proposals asking for audit firm rotation,
taking into account
o The tenure of the audit firm; o The length of rotation specified in
the proposal;
o Any significant audit-related issues at the company;
o The number of Audit Committee meetings held each year;
o The number of financial experts serving on the committee; and
o Whether the company has a periodic renewal process where the auditor is
evaluated for both audit quality and competitive price.
CHANGE COMPANY NAME
Vote FOR proposals to change the corporate name.
CHANGE DATE, TIME, OR LOCATION OF ANNUAL MEETING
Vote FOR management proposals to change the date, time, and/or location of the
annual meeting unless the proposed change is unreasonable.
Vote AGAINST shareholder proposals to change the date, time, and/or location of
the annual meeting unless the current scheduling or location is unreasonable.
TRANSACT OTHER BUSINESS
Vote AGAINST proposals to approve other business when it appears as voting item.
2. BOARD OF DIRECTORS
VOTING ON DIRECTOR NOMINEES IN UNCONTESTED ELECTIONS
Vote CASE-BY-CASE on director nominees, examining, but not limited to, the
following factors:
o Composition of the board and key board committees;
o Attendance at board and committee meetings;
o Corporate governance provisions and takeover activity;
o Disclosure under Section 404 of Sarbanes-Oxley Act;
o Long-term company performance relative to a market and peer index;
o Extent of the director's investment in the company;
o Existence of related party transactions;
o Whether the chairman is also serving as CEO;
o Whether a retired CEO sits on the board;
o Number of outside boards at which a director serves;
o Majority vote standard for director elections without a provision to
allow for plurality voting when there are more nominees than seats.
WITHHOLD from individual directors who:
o Attend less than 75 percent of the board and committee meetings without
a valid excuse (such as illness, service to the nation, work on behalf
of the company);
o Sit on more than six public company boards;
o Are CEOs of public companies who sit on the boards of more than two
public companies besides their own--withhold only at their outside
boards.
WITHHOLD from the entire board of directors (except from new nominees, who
should be considered on a CASE-BY-CASE basis) if:
o The company's proxy indicates that not all directors attended 75 percent
of the aggregate of their board and committee meetings, but fails to
provide the required disclosure of the names of the directors involved.
If this information cannot be obtained, withhold from all incumbent
directors;
o The company's poison pill has a dead-hand or modified dead-hand feature.
Withhold every year until this feature is removed;
o The board adopts or renews a poison pill without shareholder approval
since the beginning of 2005, does not commit to putting it to
shareholder vote within 12 months of adoption, or reneges on a
commitment to put the pill to a vote, and then has not yet received a
withhold recommendation for this issue;
o The board failed to act on a shareholder proposal that received
approval by a majority of the shares outstanding the previous year;
o The board failed to act on a shareholder proposal that received
approval of the majority of shares cast for the previous two
consecutive years;
o The board failed to act on takeover offers where the majority of the
shareholders tendered their shares;
o At the previous board election, any director received more than 50
percent withhold votes of the shares cast and the company has failed to
address the issue(s) that caused the high withhold rate;
o The company is a Russell 3000 company that underperformed its industry
group (GICS group) under the criteria discussed in the section
"Performance Test for Directors."
WITHHOLD from Inside Directors and Affiliated Outside Directors (per the
Classification of Directors below) when:
o The inside or affiliated outside director serves on any of the three key
committees: audit, compensation, or nominating;
o The company lacks an audit, compensation, or nominating committee
so that the full board functions as that committee;
o The company lacks a formal nominating committee, even if board attests
that the independent directors fulfill the functions of such a committee;
o The full board is less than majority independent.
WITHHOLD from the members of the Audit Committee if:
o The non-audit fees paid to the auditor are excessive (see discussion
under Auditor Ratification);
o A material weakness identified in the Section 404 Sarbanes-Oxley Act
disclosures rises to a level of serious concern; there are chronic
internal control issues and an absence of established effective control
mechanisms;
o There is persuasive evidence that the audit committee entered into an
inappropriate indemnification agreement with its auditor that limits
the ability of the company, or its shareholders, to pursue legitimate
legal recourse against the audit firm.
WITHHOLD from the members of the Compensation Committee if:
o There is a negative correlation between the chief executive's pay and
company performance (see discussion under Equity Compensation Plans);
o The company reprices underwater options for stock, cash or other
consideration without prior shareholder approval, even if allowed in
their equity plan;
o The company fails to submit one-time transfers of stock options to a
shareholder vote;
o The company fails to fulfill the terms of a burn rate commitment they
made to shareholders;
o The company has backdated options (see "Options Backdating" policy);
o The company has poor compensation practices (see "Poor Pay Practices"
policy). Poor pay practices may warrant withholding votes from the CEO
and potentially the entire board as well.
WITHHOLD from directors, individually or the entire board, for egregious actions
or failure to replace management as appropriate.
2007 CLASSIFICATION OF DIRECTORS
INSIDE DIRECTOR (I)
o Employee of the company or one of its affiliates;(1)
o Non-employee officer of the company if among the five most highly paid
individuals (excluding interim CEO);
o Listed as a Section 16 officer;(2)
o Current interim CEO;
o Beneficial owner of more than 50 percent of the company's voting power
(this may be aggregated if voting power is 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;
o Former CEO of an acquired company within the past five years;
o Former interim CEO if the service was longer than 18 months. If the
service was between 12 and 18 months, an assessment of the interim CEO's
employment agreement will be made;(3)
o Former executive (see footnote 2) of the company, an affiliate or an
acquired firm within the past five years;
o Executive (see footnote 2) 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(4) of a current Section 16 officer of company or its affiliates;
o Relative (see footnote 4) of a current employee of company or its
affiliates where additional factors raise concern (which may include, but
are not limited to, the following: a director related to numerous
employees; the company or its affiliates employ relatives of numerous
board members; or a non-Section 16 officer in a key strategic role);
o Relative (see footnote 4) of former Section 16 officer, of company or its
affiliate within the last five years;
- --------------------------
(1) "Affiliate" includes a subsidiary, sibling company, or parent company. The
50 percent control ownership by the parent company is the standard used for
applying the affiliate designation.
(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) The terms of the interim CEO's employment contract will be reviewed to
determine if they include severance pay, long-term health and pension benefits
or other such standard provisions typically contained in contracts of permanent,
non-temporary CEOs. Also considered will be whether or not a formal search
process was underway for a full-time CEO at the time.
(4) "Relative" follows the SEC's new definition of "immediate family members"
which covers spouses, parents, children, step-parents, step-children, siblings,
in-laws, and any person (other than a tenant or employee) sharing the household
of any director, nominee for director, executive officer, or significant
shareholder of the company.
o Currently provides (or a relative provides) professional services(5) to
the company, to an affiliate of the company or an individual officer of
the company or one of its affiliates in excess of $10,000 per year;
o Employed by (or a relative (see footnote 4) is employed by) a significant
customer or supplier;(6)
o Has (or a relative (see footnote 4) has) any transactional relationship
with the company or its affiliates excluding investments in the company
through a private placement (see footnote 6);
o Any material financial tie or other related party transactional
relationship to the company;
o Party to a voting agreement to vote in line with management on proposals
being brought to shareholder vote;
o Has (or a relative (see footnote 4) has) an interlocking relationship as
defined by the SEC involving members of the board of directors or its
Compensation and Stock Option Committee;(7)
o Founder(8) of the company but not currently an employee;
o Is (or a relative (see footnote 4) is) a trustee, director or employee
of a charitable or non-profit organization that receives grants or
endowments (see footnote 6) from the company or its affiliates (see
footnote 1).
INDEPENDENT OUTSIDE DIRECTOR (IO)
o No material(9) connection to the company other than a board seat.
AGE LIMITS
Vote AGAINST shareholder or management proposals to limit the tenure of outside
directors through mandatory retirement ages.
BOARD SIZE
Vote FOR proposals seeking to fix the board size or designate a range for the
board size.
Vote AGAINST proposals that give management the ability to alter the size of the
board outside of a specified range without shareholder approval.
CLASSIFICATION/DECLASSIFICATION OF THE BOARD
Vote AGAINST proposals to classify the board.
Vote FOR proposals to repeal classified boards and to elect all directors
annually.
CUMULATIVE VOTING
- ----------------------------
(5) Professional services can be characterized as advisory in nature and
generally include the following: investment banking/financial advisory services;
commercial banking (beyond deposit services); investment services; insurance
services; accounting/audit services; consulting services; marketing services;
and legal services. The case of participation in a banking syndicate by a
non-lead bank should be considered a transaction (and hence subject to the
associated materiality test) rather than a professional relationship.
(6) If the company makes or receives annual payments exceeding the greater of
$200,000 or five percent of the recipient's gross revenues. (The recipient is
the party receiving the financial proceeds from the transaction.)
(7) 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 committees
(or, in the absence of such a committee, on the board).
(8) The operating involvement of the Founder with the company will be
considered. If there is little to no operating involvement, the Founder may be
deemed as an independent outsider.
(9) For purposes of 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.
Generally vote AGAINST proposals to eliminate cumulative voting.
Generally vote FOR proposals to restore or provide for cumulative voting unless
the company meets ALL of the following criteria:
o Majority vote standard in director elections, including a carve-out for
plurality voting in contested elections;
o Annually elected board;
o Two-thirds of the board composed of independent directors;
o Nominating committee composed solely of independent directors;
o Confidential voting; however, there may be a provision for suspending
confidential voting during proxy contests;
o Ability of shareholders to call special meetings or act by written
consent with 90 days' notice;
o Absence of superior voting rights for one or more classes of stock;
o Board does not have the right to change the size of the board beyond a
stated range that has been approved by shareholders;
o The company has not under-performed its both industry peers and index on
both a one-year and three-year total shareholder returns basis*, unless
there has been a change in the CEO position within the last three years;
and
o No director received a WITHHOLD vote level of 35 percent or more of the
votes cast in the previous election.
*Starting in 2007, the industry peer group used for this evaluation will change
from the 4-digit GICS group to the average of the 12 companies in the same
6-digit GICS group that are closest to revenue to the company. To fail, the
company must under-perform its index and industry group on all 4 measures (1 and
3 year on industry peers and index).
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY PROTECTION
Vote CASE-BY-CASE on proposals on director and officer indemnification and
liability protection using Delaware law as the standard.
Vote AGAINST proposals to eliminate entirely directors' and officers' liability
for monetary damages for violating the duty of care.
Vote AGAINST indemnification proposals that would expand coverage beyond just
legal expenses to liability for acts, such as negligence, that are more serious
violations of fiduciary obligation than mere carelessness.
Vote AGAINST proposals that would expand the scope of indemnification to provide
for mandatory indemnification of company officials in connection with acts that
previously the company was permitted to provide indemnification for at the
discretion of the company's board (i.e. "permissive indemnification") but that
previously the company was not required to indemnify.
Vote FOR only those proposals providing such expanded coverage in cases when a
director's or officer's legal defense was unsuccessful if both of the following
apply:
o If the director 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
o If only the director's legal expenses would be covered.
ESTABLISH/AMEND NOMINEE QUALIFICATIONS
Vote CASE-BY-CASE on proposals that establish or amend director qualifications.
Votes should be based on how reasonable the criteria are and to what degree they
may preclude dissident nominees from joining the board.
Vote AGAINST shareholder proposals requiring two candidates per board seat.
FILLING VACANCIES/REMOVAL OF DIRECTORS
Vote AGAINST proposals that provide that directors may be removed only for
cause.
Vote FOR proposals to restore shareholders' 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.
INDEPENDENT CHAIR (SEPARATE CHAIR/CEO)
Generally vote FOR shareholder proposals requiring the position of chair be
filled by an independent director unless there are compelling reasons to
recommend against the proposal, such as a counterbalancing governance structure.
This should include all of the following:
o Designated lead director, elected by and from the independent board
members with clearly delineated and comprehensive duties. (The role may
alternatively reside with a presiding director, vice chairman, or
rotating lead director; however, the director must serve a minimum of
one year in order to qualify as a 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 meetings 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 Two-thirds independent board;
o All independent key committees;
o Established governance guidelines;
o The company should not have underperformed both its industry peers and
index on both a one-year and three-year total shareholder returns basis*,
unless there has been a change in the Chairman/CEO position within that
time;
o The company does not have any problematic governance issues.
*Starting in 2007, the industry peer group used for this evaluation will change
from the 4-digit GICS group to the average of the 12 companies in the same
6-digit GICS group that are closest to revenue to the company. To fail, the
company must under-perform its index and industry group on all 4 measures (1 and
3 year on industry peers and index).
MAJORITY OF INDEPENDENT DIRECTORS/ESTABLISHMENT OF COMMITTEES
Vote FOR shareholder proposals asking that a majority or more of directors be
independent unless the board composition already meets the proposed threshold of
independent outsider (See Classification of Directors).
Vote FOR shareholder proposals asking that board audit, compensation, and/or
nominating committees be composed exclusively of independent directors if they
currently do not meet that standard.
MAJORITY VOTE SHAREHOLDER PROPOSALS
Generally vote FOR precatory and binding resolutions requesting that the board
change the company's bylaws to stipulate that directors need to be elected with
an affirmative majority of votes cast, provided it does not conflict with the
state laws where the company is incorporated. Binding resolutions need to allow
for a carve-out for a plurality vote standard when there are more nominees than
board seats.
Companies are strongly encouraged to also adopt a post-election policy (also
known as a director resignation policy) that will provide guidelines so that the
company will promptly address the situation of a holdover director.
OFFICE OF THE BOARD
Generally vote FOR shareholder proposals requesting that the board establish an
Office of the Board of Directors in order to facilitate direct communications
between shareholders and non-management directors, unless the company has all of
the following:
o Established a communication structure that goes beyond the exchange
requirements to facilitate the exchange of information between
shareholders and members of the board;
o Effectively disclosed information with respect to this structure to the
shareholders;
o Company has not ignored majority-supported shareholder proposals or a
majority withhold vote on a director nominee; and
o The company has an independent chairman or a lead/presiding director,
according to the independent definition. This individual must be made
available for periodic consultation and direct communication with major
shareholders.
OPEN ACCESS
Generally vote FOR reasonably crafted shareholder proposals providing
shareholders with the ability to nominate director candidates to be included on
management's proxy card, provided the proposal substantially mirrors the SEC's
proposed two-trigger formulation (see the proposed "Security Holder Director
Nominations" rule (HTTP://WWW.SEC.GOV/RULES/PROPOSED/34-48626.HTM) or ISS's
comment letter to the SEC dated 6/13/2003, available on ISS website under
Governance Center-ISS Position Papers).
PERFORMANCE TEST FOR DIRECTORS
WITHHOLD
From directors of Russell 3000 companies that underperformed relative to their
industry peers. The criterion used to evaluate such underperformance is a
combination of four performance measures:
One measurement will be a market-based performance metric and three measurements
will be tied to the company's operational performance. The market performance
metric in the methodology is five-year Total Shareholder Return (TSR) on a
relative basis within each four-digit GICS group. The three operational
performance metrics are sales growth, EBITDA growth, and pre-tax operating
Return on Invested Capital (ROIC) on a relative basis within each four-digit
GICS group. All four metrics will be time-weighted as follows: 40 percent on the
trailing 12 month period and 60 percent on the 48 month period prior to the
trailing 12 months. This methodology emphasizes the company's historical
performance over a five-year period, yet also accounts for near-term changes in
a company's performance.
The table below summarizes the new framework.
- ----------------------------- -------------------------- -------------------------- -------------------------
Metrics Basis of Evaluation Weighting 2nd Weighting
- ----------------------------- -------------------------- -------------------------- -------------------------
OPERATIONAL 50%
PERFORMANCE
- ----------------------------- -------------------------- -------------------------- -------------------------
5-year Average Management 33.3%
pre-tax efficiency in
operating ROIC deploying assets
- ----------------------------- -------------------------- -------------------------- -------------------------
5-year Sales Top-Line 33.3%
Growth
- ----------------------------- -------------------------- -------------------------- -------------------------
5-year EBITDA Core-earnings 33.3%
Growth
- ----------------------------- -------------------------- -------------------------- -------------------------
Sub Total 100%
- ----------------------------- -------------------------- -------------------------- -------------------------
STOCK 50%
PERFORMANCE
- ----------------------------- -------------------------- -------------------------- -------------------------
5-year TSR Market
- ----------------------------- -------------------------- -------------------------- -------------------------
Total 100%
- ----------------------------- -------------------------- -------------------------- -------------------------
Adopt a two-phased approach. In 2007 (Year 1), the worst performers (bottom 5
percent) within each of the 24 GICS groups will automatically receive CAUTIONARY
LANGUAGE, except for companies that have already received cautionary language or
withhold votes in 2006 under the current policy. The latter may be subject to
withhold votes in 2007. For 2008 (Year 2), WITHHOLD votes from director nominees
if a company continues to be in the bottom 5 percent within the GICS group for
that respective year and/or shows no improvement in its most recent trailing 12
months operating and market performance relative to its peers in its GICS group.
This policy would be applied on a rolling basis going forward.
STOCK OWNERSHIP REQUIREMENTS
Generally vote AGAINST shareholder proposals that mandate a minimum amount of
stock that directors must own in order to qualify as a director or to remain on
the board. While stock ownership on the part of directors is desired, the
company should determine the appropriate ownership requirement.
Vote CASE-BY-CASE on shareholder proposals asking that the company adopt a
holding or retention period for its executives (for holding stock after the
vesting or exercise of equity awards), taking into account any stock ownership
requirements or holding period/retention ratio already in place and the actual
ownership level of executives.
TERM LIMITS
Vote AGAINST shareholder or management proposals to limit the tenure of outside
directors through term limits. However, scrutinize boards where the average
tenure of all directors exceeds 15 years for independence from management and
for sufficient turnover to ensure that new perspectives are being added to the
board.
3. PROXY CONTESTS
VOTING FOR DIRECTOR NOMINEES IN CONTESTED ELECTIONS
Vote CASE-BY-CASE on the election of directors in contested elections,
considering the following factors:
o Long-term financial performance of the target company relative to its
industry;
o Management's track record;
o Background to the proxy contest;
o Qualifications of director nominees (both slates);
o Strategic plan of dissident slate and quality of critique against
management;
o Likelihood that the proposed goals and objectives can be achieved
(both slates);
o Stock ownership positions.
REIMBURSING PROXY SOLICITATION EXPENSES
Vote CASE-BY-CASE on proposals to reimburse proxy solicitation expenses. When
voting in conjunction with support of a dissident slate, vote FOR the
reimbursement of all appropriate proxy solicitation expenses associated with the
election.
CONFIDENTIAL VOTING
Vote FOR shareholder proposals requesting that corporations adopt confidential
voting, use independent vote tabulators, and use independent inspectors of
election, as long as the proposal includes a provision for proxy contests as
follows: In the case of a contested election, management should be permitted to
request that the dissident group honor its confidential voting policy. If the
dissidents agree, the policy remains in place. If the dissidents will not agree,
the confidential voting policy is waived.
4. ANTITAKEOVER DEFENSES AND VOTING RELATED ISSUES
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS/NOMINATIONS
Vote CASE-BY-CASE on advance notice proposals, supporting those proposals which
allow shareholders to submit proposals as close to the meeting date as
reasonably possible and within the broadest window possible.
AMEND BYLAWS WITHOUT SHAREHOLDER CONSENT
Vote AGAINST proposals giving the board exclusive authority to amend the bylaws.
Vote FOR proposals giving the board the ability to amend the bylaws, in addition
to shareholders.
POISON PILLS
Vote FOR shareholder proposals requesting that the company submit its poison
pill to a shareholder vote or redeem it UNLESS the company has (1) A shareholder
approved poison pill in place; or (2) The company has adopted a policy
concerning the adoption of a pill in the future specifying that the board will
only adopt a shareholder rights plan if either:
o Shareholders have approved the adoption of the plan; or
o The board, in its exercise of its fiduciary responsibilities, determines
that it is in the best interest of shareholders under the circumstances
to adopt a pill without the delay in adoption that would result from
seeking shareholder approval (i.e. the "fiduciary out" provision). A
poison pill adopted under this fiduciary out will be put to a
shareholder ratification vote within 12 months of adoption or expire. If
the pill is not approved by a majority of the votes cast on this issue,
the plan will immediately terminate.
Vote FOR shareholder proposals calling for poison pills to be put to a vote
within a time period of less than one year after adoption. If the company has no
non-shareholder-approved poison pill in place and has adopted a policy with the
provisions outlined above, vote AGAINST the proposal. If these conditions are
not met, vote FOR the proposal, but with the caveat that a vote within 12 months
would be considered sufficient.
Vote CASE-BY-CASE on management proposals on poison pill ratification, focusing
on the features of the shareholder rights plan. Rights plans should contain the
following attributes:
o No lower than a 20% trigger, flip-in or flip-over;
o A term of no more than three years;
o No dead-hand, slow-hand, no-hand or similar feature that limits the
ability of a future board to redeem the pill;
o Shareholder redemption feature (qualifying offer clause); if the board
refuses to redeem the pill 90 days after a qualifying offer is announced,
10 percent of the shares may call a special meeting or seek a written
consent to vote on rescinding the pill.
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.
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.
SUPERMAJORITY VOTE REQUIREMENTS
Vote AGAINST proposals to require a supermajority shareholder vote.
Vote FOR proposals to lower supermajority vote requirements.
5. MERGERS AND CORPORATE RESTRUCTURINGS
OVERALL APPROACH
For mergers and acquisitions, review and evaluate the merits and drawbacks of
the proposed transaction, balancing various and sometimes countervailing factors
including:
o VALUATION - Is the value to be received by the largest shareholders (or
paid by the acquirer) reasonable? While the fairness opinion may provide
an initial starting point for assessing valuation reasonableness,
emphasis is placed on the offer premium, market reaction and strategic
rationale.
o MARKET REACTION - How has the market responded to the proposed deal? A
negative market reaction should cause closer scrutiny of a deal.
o STRATEGIC RATIONALE - Does the deal make sense strategically? From where
is the value derived? Cost and revenue synergies should not be overly
aggressive or optimistic, but reasonable achievable. Management should
also have a favorable track record of successful integration of
historical acquisitions.
o NEGOTIATIONS AND PROCESS - Were the terms of the transaction negotiated
at arm's-length? Was the process fair and equitable? A fair process
helps to ensure the best price for shareholders. Significant
negotiation "wins" can also signify the deal makers' competency. The
comprehensiveness of the sales process (e.g., full auction, partial
auction, no auction) can also affect shareholder value.
o CONFLICTS OF INTEREST - Are insiders benefiting from the transaction
disproportionately and inappropriately as compared to non-insider
shareholders? As the result of potential conflicts, the directors and
officers of the company may be more likely to vote to approve a merger
than if they did not hold these interests. Consider whether these
interests may have influenced these directors and officers to support or
recommend the merger. The CIC figure presented in the "ISS Transaction
Summary" section of this report is an aggregate figure that can in
certain cases be a misleading indicator of the true value transfer from
shareholders to insiders. Where such figure appears to be excessive,
analyze the underlying assumptions to determine whether a potential
conflict exists.
o GOVERNANCE - Will the combined company have a better or worse governance
profile than the current governance profiles of the respective parties
to the transaction? If the governance profile is to change for the
worse, the burden is on the company to prove that other issues (such as
valuation) outweigh any deterioration in governance.
APPRAISAL RIGHTS
Vote FOR proposals to restore, or provide shareholders with, rights of
appraisal.
ASSET PURCHASES
Vote CASE-BY-CASE on asset purchase proposals, considering the following
factors:
o Purchase price;
o Fairness opinion;
o Financial and strategic benefits;
o How the deal was negotiated;
o Conflicts of interest;
o Other alternatives for the business;
o Non-completion risk.
ASSET SALES
Vote CASE-BY-CASE on asset sales, considering the following factors:
o Impact on the balance sheet/working capital;
o Potential elimination of diseconomies;
o Anticipated financial and operating benefits;
o Anticipated use of funds;
o Value received for the asset;
o Fairness opinion;
o How the deal was negotiated;
o Conflicts of interest.
BUNDLED PROPOSALS
Vote CASE-BY-CASE on bundled or "conditional" proxy proposals. In the case of
items that are conditioned upon each other, examine the benefits and costs of
the packaged items. In instances when the joint effect of the conditioned items
is not in shareholders' best interests, vote AGAINST the proposals. If the
combined effect is positive, support such proposals.
CONVERSION OF SECURITIES
Vote CASE-BY-CASE on proposals regarding conversion of securities. When
evaluating these proposals, the investor should review the dilution to existing
shareholders, the conversion price relative to market value, financial issues,
termination penalties, and conflicts of interest.
Vote FOR the conversion if it is expected that the company will be subject to
onerous penalties or will be forced to file for bankruptcy if the transaction is
not approved.
CORPORATE REORGANIZATION/DEBT RESTRUCTURING/PREPACKAGED BANKRUPTCY PLANS/REVERSE
LEVERAGED BUYOUTS/WRAP PLANS
Vote CASE-BY-CASE on proposals to increase common and/or preferred shares and to
issue shares as part of a debt restructuring plan, taking into consideration the
following:
o Dilution to existing shareholders' position;
o Terms of the offer;
o Financial issues;
o Management's efforts to pursue other alternatives;
o Control issues;
o Conflicts of interest.
Vote FOR the debt restructuring if it is expected that the company will file for
bankruptcy if the transaction is not approved.
FORMATION OF HOLDING COMPANY
Vote CASE-BY-CASE on proposals regarding the formation of a holding company,
taking into consideration the following:
o The reasons for the change;
o Any financial or tax benefits;
o Regulatory benefits;
o Increases in capital structure;
o Changes to the articles of incorporation or bylaws of the company.
Absent compelling financial reasons to recommend the transaction, vote AGAINST
the Formation of a holding company if the transaction would include either of
the following:
o Increases in common or preferred stock in excess of the allowable maximum
(see discussion under "Capital Structure");
o Adverse changes in shareholder rights.
GOING PRIVATE TRANSACTIONS (LBOS, MINORITY SQUEEZEOUTS, AND GOING DARK)
Vote CASE-BY-CASE on going private transactions, taking into account the
following:
o Offer price/premium;
o Fairness opinion;
o How the deal was negotiated;
o Conflicts of interest;
o Other alternatives/offers considered; and
o Non-completion risk.
Vote CASE-BY-CASE on "going dark" transactions, determining whether the
transaction enhances shareholder value by taking into consideration:
o Whether the company has attained benefits from being publicly-traded
(examination of trading volume, liquidity and market research of the
stock);
o Cash-out value;
o Whether the interests of continuing and cashed-out shareholders are
balanced; and
o The market reaction to public announcement of transaction.
JOINT VENTURES
Vote CASE-BY-CASE on proposals to form joint ventures, taking into account
the following:
o Percentage of assets/business contributed;
o Percentage ownership;
o Financial and strategic benefits;
o Governance structure;
o Conflicts of interest;
o Other alternatives;
o Noncompletion risk.
LIQUIDATIONS
Vote CASE-BY-CASE on liquidations, taking into account the following:
o Management's efforts to pursue other alternatives;
o Appraisal value of assets; and
o The compensation plan for executives managing the liquidation.
Vote FOR the liquidation if the company will file for bankruptcy if the proposal
is not approved.
MERGERS AND ACQUISITIONS/ISSUANCE OF SHARES TO FACILITATE MERGER OR ACQUISITION
Vote CASE-BY-CASE on mergers and acquisitions, determining whether the
transaction enhances shareholder value by giving consideration to items listed
under "Mergers and Corporate Restructurings: Overall Approach."
PRIVATE PLACEMENTS/WARRANTS/CONVERTIBLE DEBENTURES
Vote CASE-BY-CASE on proposals regarding private placements, taking into
consideration:
o Dilution to existing shareholders' position;
o Terms of the offer;
o Financial issues;
o Management's efforts to pursue other alternatives;
o Control issues;
o Conflicts of interest.
Vote FOR the private placement if it is expected that the company will file for
bankruptcy if the transaction is not approved.
SPIN-OFFS
Vote CASE-BY-CASE on spin-offs, considering:
o Tax and regulatory advantages;
o Planned use of the sale proceeds;
o Valuation of spin-off;
o Fairness opinion;
o Benefits to the parent company;
o Conflicts of interest;
o Management incentives;
o Corporate governance changes;
o Changes in the capital structure.
VALUE MAXIMIZATION PROPOSALS
Vote CASE-BY-CASE on shareholder proposals seeking to maximize shareholder value
by hiring a financial advisor to explore strategic alternatives, selling the
company or liquidating the company and distributing the proceeds to
shareholders. These proposals should be evaluated based on the following
factors:
o Prolonged poor performance with no turnaround in sight;
o Signs of entrenched board and management;
o Strategic plan in place for improving value;
o Likelihood of receiving reasonable value in a sale or dissolution; and
o Whether company is actively exploring its strategic options, including
retaining a financial advisor.
6. STATE OF INCORPORATION
CONTROL SHARE ACQUISITION PROVISIONS
Control share acquisition statutes function by denying shares their voting
rights when they contribute to ownership in excess of certain thresholds. Voting
rights for those shares exceeding ownership limits may only be restored by
approval of either a majority or supermajority of disinterested shares. Thus,
control share acquisition statutes effectively require a hostile bidder to put
its offer to a shareholder vote or risk voting disenfranchisement if the bidder
continues buying up a large block of shares.
Vote FOR proposals to opt out of control share acquisition statutes unless doing
so would enable the completion of a takeover that would be detrimental to
shareholders.
Vote AGAINST proposals to amend the charter to include control share acquisition
provisions.
Vote FOR proposals to restore voting rights to the control shares.
CONTROL SHARE CASH-OUT PROVISIONS
Control share cash-out statutes give dissident shareholders the right to
"cash-out" of their position in a company at the expense of the shareholder who
has taken a control position. In other words, when an investor crosses a preset
threshold level, remaining shareholders are given the right to sell their shares
to the acquirer, who must buy them at the highest acquiring price.
Vote FOR proposals to opt out of control share cash-out statutes.
DISGORGEMENT PROVISIONS
Disgorgement provisions require an acquirer or potential acquirer of more than a
certain percentage of a company's stock to disgorge, or pay back, to the company
any profits realized from the sale of that company's stock purchased 24 months
before achieving control status. All sales of company stock by the acquirer
occurring within a certain period of time (between 18 months and 24 months)
prior to the investor's gaining control status are subject to these
recapture-of-profits provisions.
Vote FOR proposals to opt out of state disgorgement provisions.
FAIR PRICE PROVISIONS
Vote CASE-BY-CASE on proposals to adopt fair price provisions (provisions that
stipulate that an acquirer must pay the same price to acquire all shares as it
paid to acquire the control shares), evaluating factors such as the vote
required to approve the proposed acquisition, the vote required to repeal the
fair price provision, and the mechanism for determining the fair price.
Generally vote AGAINST fair price provisions with shareholder vote requirements
greater than a majority of disinterested shares.
FREEZE-OUT PROVISIONS
Vote FOR proposals to opt out of state freeze-out provisions. Freeze-out
provisions force an investor who surpasses a certain ownership threshold in a
company to wait a specified period of time before gaining control of the
company.
GREENMAIL
Greenmail payments are targeted share repurchases by management of company stock
from individuals or groups seeking control of the company. Since only the
hostile party receives payment, usually at a substantial premium over the market
value of its shares, the practice discriminates against all other shareholders.
Vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or
otherwise restrict a company's ability to make greenmail payments.
Vote CASE-BY-CASE on anti-greenmail proposals when they are bundled with other
charter or bylaw amendments.
REINCORPORATION PROPOSALS
Vote CASE-BY-CASE on proposals to change a company's state of incorporation,
taking into consideration both financial and corporate governance concerns,
including:
o The reasons for reincorporating;
o A comparison of the governance provisions;
o Comparative economic benefits; and
o A comparison of the jurisdictional laws.
Vote FOR reincorporation when the economic factors outweigh any neutral or
negative governance changes.
STAKEHOLDER PROVISIONS
Vote AGAINST proposals that ask the board to consider non-shareholder
constituencies or other non-financial effects when evaluating a merger or
business combination.
STATE ANTITAKEOVER STATUTES
Vote CASE-BY-CASE on proposals to opt in or out of state takeover statutes
(including control share acquisition statutes, control share cash-out statutes,
freeze-out provisions, fair price provisions, stakeholder laws, poison pill
endorsements, severance pay and labor contract provisions, anti-greenmail
provisions, and disgorgement provisions).
7. CAPITAL STRUCTURE
ADJUSTMENTS TO PAR VALUE OF COMMON STOCK
Vote FOR management proposals to reduce the par value of common stock.
COMMON STOCK AUTHORIZATION
Vote FOR proposals to approve increases beyond the allowable increase when a
company's shares are in danger of being delisted or if a company's ability to
continue to operate as a going concern is uncertain.
In addition, for capital requests less than or equal to 300 percent of the
current authorized shares that marginally fail the calculated allowable cap
(i.e., exceed the allowable cap by no more than 5 percent), on a CASE-BY-CASE
basis, vote FOR the increase based on the company's performance and whether the
company's ongoing use of shares has shown prudence. Factors should include, at a
minimum, the following:
o Rationale;
o Good performance with respect to peers and index on a five-year total
shareholder return basis;
o Absence of non-shareholder approved poison pill;
o Reasonable equity compensation burn rate;
o No non-shareholder approved pay plans; and
o Absence of egregious equity compensation practices.
DUAL-CLASS STOCK
Vote AGAINST proposals at companies with dual-class capital structures to
increase the number of authorized shares of the class of stock that has superior
voting rights.
Vote FOR proposals to create a new class of nonvoting or sub-voting common stock
if:
o It is intended for financing purposes with minimal or no dilution to
current shareholders;
o It is not designed to preserve the voting power of an insider or
significant shareholder.
ISSUE STOCK FOR USE WITH RIGHTS PLAN
Vote AGAINST proposals that increase authorized common stock for the explicit
purpose of implementing a non-shareholder approved shareholder rights plan
(poison pill).
PREEMPTIVE RIGHTS
Vote CASE-BY-CASE on shareholder proposals that seek preemptive rights, taking
into consideration: the size of a company, the characteristics of its
shareholder base, and the liquidity of the stock.
PREFERRED STOCK
Vote AGAINST proposals authorizing the creation of new classes of preferred
stock with unspecified voting, conversion, dividend distribution, and other
rights ("blank check" preferred stock).
Vote FOR proposals to create "declawed" blank check preferred stock (stock that
cannot be used as a takeover defense).
Vote FOR proposals to authorize preferred stock in cases where the company
specifies the voting, dividend, conversion, and other rights of such stock and
the terms of the preferred stock appear reasonable.
Vote AGAINST proposals to increase the number of blank check preferred stock
authorized for issuance when no shares have been issued or reserved for a
specific purpose.
Vote CASE-BY-CASE on proposals to increase the number of blank check preferred
shares after analyzing the number of preferred shares available for issue given
a company's industry and performance in terms of shareholder returns.
RECAPITALIZATION
Vote CASE-BY-CASE on recapitalizations (reclassifications of securities) taking
into account the following:
o More simplified capital structure;
o Enhanced liquidity;
o Fairness of conversion terms;
o Impact on voting power and dividends;
o Reasons for the reclassification;
o Conflicts of interest; and
o Other alternatives considered.
REVERSE STOCK SPLITS
Vote FOR management proposals to implement a reverse stock split when the number
of authorized shares will be proportionately reduced.
Vote FOR management proposals to implement a reverse stock split to avoid
delisting.
Vote CASE-BY-CASE on proposals to implement a reverse stock split that do not
proportionately reduce the number of shares authorized for issue based on the
allowable increase calculated using the Capital Structure model.
SHARE REPURCHASE PROGRAMS
Vote FOR management proposals to institute open-market share repurchase plans in
which all shareholders may participate on equal terms.
STOCK DISTRIBUTIONS: SPLITS AND DIVIDENDS
Vote FOR management proposals to increase the common share authorization for a
stock split or share dividend, provided that the increase in authorized shares
would not result in an excessive number of shares available for issuance as
determined using a model developed by ISS.
TRACKING STOCK
Vote CASE-BY-CASE on the creation of tracking stock, weighing the strategic
value of the transaction against such factors as:
o Adverse governance changes;
o Excessive increases in authorized capital stock;
o Unfair method of distribution;
o Diminution of voting rights;
o Adverse conversion features;
o Negative impact on stock option plans; and
o Alternatives such as spin-offs.
8. EXECUTIVE AND DIRECTOR COMPENSATION
EQUITY COMPENSATION PLANS
Vote CASE-BY-CASE on equity-based compensation plans. Vote AGAINST the equity
plan if any of the following factors apply:
o The total cost of the company's equity plans is unreasonable;
o The plan expressly permits the repricing of stock options without prior
shareholder approval;
o There is a disconnect between CEO pay and the company's performance;
o The company's three-year burn rate exceeds the greater of 2% and the mean
plus 1 standard deviation of its industry group; or
o The plan is a vehicle for poor pay practices.
Each of these factors is further described below:
COST OF EQUITY PLANS
Generally vote AGAINST equity plans if the cost is unreasonable. For
non-employee director plans, vote FOR the plan if certain factors are met (see
Director Compensation section).
The cost of the equity plans is expressed as Shareholder Value Transfer (SVG),
which is measured using a binomial option pricing model that assesses the amount
of shareholders' equity flowing out of the company to employees and directors.
SVT is expressed as both a dollar amount and as a percentage of market value and
includes the new shares proposed, shares available under existing plans and
shares granted but unexercised. All award types are valued. For omnibus plans,
unless limitations are placed on the most expensive types of awards (for
example, full value awards), the assumption is made that all awards to be
granted will be the most expensive types. See discussion of specific types of
awards.
The Shareholder Value Transfer is reasonable if it falls below the
company-specific allowable cap. The allowable cap is determined as follows: The
top quartile performers in each industry group (using the Global Industry
Classification Standard GICS) are identified. Benchmark SVT levels for each
industry are established based on these top performers' historic SVT. Regression
analyses are run on each industry group to identify the variables most strongly
correlated to SVT. The benchmark industry SVT level is then adjusted upwards or
downwards for the specific company by plugging the company-specific performance
measures, size and cash compensation into the industry cap equations to arrive
at the company's allowable cap.
REPRICING PROVISIONS
Vote AGAINST plans that expressly permit the repricing of underwater stock
options without prior shareholder approval, even if the cost of the plan is
reasonable. Also, WITHHOLD from members of the Compensation Committee who
approved and/or implemented an option exchange program by repricing and buying
out underwater options for stock, cash or other consideration or canceling
underwater options and regranting options with a lower exercise price without
prior shareholder approval, even if such repricings are allowed in their equity
plan.
Vote AGAINST plans if the company has a history of repricing options without
shareholder approval, and the applicable listing standards would not preclude
them from doing so.
PAY-FOR PERFORMANCE DISCONNECT
Generally vote AGAINST plans in which:
o There is a disconnect between the CEO's pay and company performance (an
increase in pay and a decrease in performance);
o The main source of the pay increase (over half) is equity based; and
o The CEO is a participant of the equity proposal.
Performance decreases are based on negative one- and three-year total
shareholder returns. CEO pay increases are based on the CEO's total direct
compensation (salary, cash bonus, present value of stock options, face value of
restricted stock, value of non-equity incentive payouts, change in pension value
and nonqualified deferred compensation earnings, and all other compensation)
increasing over the previous year.
WITHHOLD votes from the Compensation Committee members when the company has a
pay for performance disconnect.
On a CASE-BY-CASE basis, vote for equity plans and FOR compensation committee
members with a pay-for-performance disconnect if compensation committee members
can present strong and compelling evidence of improved committee performance.
This evidence must go beyond the usual compensation committee report disclosure.
This additional evidence necessary includes all of the following:
o The compensation committee has reviewed all components of the CEO's
compensation, including the following:
- Base salary, bonus, long-term incentives;
- Accumulative realized and unrealized stock option and restricted
stock gains;
- Dollar value of perquisites and other personal benefits to the
CEO and the total cost to the company;
- Earnings and accumulated payment obligations under the company's
nonqualified deferred compensation program;
- Actual projected payment obligations under the company's supplemental
executive retirement plan (SERPs).
o A tally sheet with all the above components should be disclosed for the
following termination scenarios:
- Payment if termination occurs within 12 months: $_____;
- Payment if "not for cause" termination occurs within 12 months:
$_____;
- Payment if "change of control" termination occurs within 12 months:
$_____.
o The compensation committee is committed to providing additional
information on the named executives' annual cash bonus program and/or
long-term incentive cash plan for the current fiscal year. The
compensation committee will provide full disclosure of the qualitative
and quantitative performance criteria and hurdle rates used to determine
the payouts of the cash program. From this disclosure, shareholders will
know the minimum level of performance required for any cash bonus to be
delivered, as well as the maximum cash bonus payable for superior
performance.
The repetition of the compensation committee report does not ISS' requirement of
compelling and strong evidence of improved disclosure. The level of transparency
and disclosure is at the highest level where shareholders can understand the
mechanics of the annual cash bonus and/or long-term incentive cash plan based on
the additional disclosure.
o The compensation committee is committed to granting a substantial
portion of performance-based equity awards to the named executive
officers. A substantial portion of performance-based awards would be at
least 50 percent of the shares awarded to each of the named executive
officers. Performance-based equity awards are earned or paid out based
on the achievement of company performance targets. The company will
disclose the details of the performance criteria (e.g., return on
equity) and the hurdle rates (e.g., 15 percent) associated with the
performance targets. From this disclosure, shareholders will know the
minimum level of performance required for any equity grants to be made.
The performance-based equity awards to not refer to non-qualified stock
options(10) or performance-accelerated grants.(11) Instead,
performance-based equity awards are performance-contingent grants where
the individual will not receive the equity grant by not meeting the
target performance and vice versa.
The level of transparency and disclosure is at the highest level where
shareholders can understand the mechanics of the performance-based equity awards
based on the additional disclosure.
o The compensation committee has the sole authority to hire and fire
outside compensation consultants. The role of the outside compensation
consultant is to assist the compensation committee to analyze executive
pay packages or contracts and understand the company's financial
measures.
THREE-YEAR BURN RATE/BURN RATE COMMITMENT
Generally vote AGAINST plans if the company's most recent three-year burn rate
exceeds one standard deviation in excess of the industry mean (per the following
Burn Rate Table) and is over two percent of common shares outstanding. The
three-year burn rate policy does not apply to non-employee director plans unless
outside directors receive a significant portion of shares each year.
- -------------------------
(10) Non-qualified stock options are not performance-based awards unless the
grant or the vesting of the stock options is tied to the achievement of a
pre-determined and disclosed performance measure. A rising stock market will
generally increase share prices of all companies, despite the company's
underlying performance.
(11) Performance-accelerated grants are awards that vest earlier based on the
achievement of a specified measure. However, these grants will ultimately vest
over time even without the attainment of the goal(s).
However, vote FOR equity plans if the company fails this burn rate test but the
company commits in a public filing to a three-year average burn rate equal to
its GICS group burn rate mean plus one standard deviation (or 2%, whichever is
greater), assuming all other conditions for voting FOR the plan have been met.
If a company fails to full its burn-rate commitment, vote to WITHHOLD from the
compensation committee.
2007 BURN RATE TABLE
NON-RUSSELL 3000 RUSSELL 3000
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
STANDARD MEAN + STANDARD MEAN+
GICS DESCRIPTION MEAN DEVIATION STDEV MEAN DEVIATION STDEV
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
1010 Energy 1.37% 0.92% 2.29% 1.76% 2.01% 3.77%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
1510 Materials 1.23% 0.62% 1.85% 2.21% 2.15% 4.36%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
2010 Capital Goods 1.60% 0.96% 2.57% 2.34% 1.98% 4.32%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
2020 Commercial Services & Supplies 2.39% 1.42% 3.81% 2.25% 1.93% 4.18%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
2030 Transportation 1.30% 1.01% 2.31% 1.92% 1.95% 3.86%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
2510 Automobiles & Components 1.93% 0.98% 2.90% 2.37% 2.32% 4.69%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
2520 Consumer Durables & Apparel 1.97% 1.12% 3.09% 2.02% 1.68% 3.70%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
2530 Hotels Restaurants & Leisure 2.22% 1.19% 3.41% 2.29% 1.88% 4.17%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
2540 Media 1.78% 0.92% 2.70% 3.26% 2.36% 5.62%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
2550 Retailing 1.95% 1.10% 3.05% 2.92% 2.21% 5.14%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
3010,
3020,3030 Food & Staples Retailing 1.66% 1.25% 2.91% 1.90% 2.00% 3.90%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
3510 Health Care Equipment & Services 2.87% 1.32% 4.19% 3.51% 2.31% 5.81%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
3520 Pharmaceuticals & Biotechnology 3.12% 1.38% 4.50% 3.96% 2.89% 6.85%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
4010 Banks 1.31% 0.89% 2.20% 1.15% 1.10% 2.25%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
4020 Diversified Financials 2.13% 1.64% 3.76% 4.84% 5.03% 9.87%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
4030 Insurance 1.34% 0.88% 2.22% 1.60% 1.96% 3.56%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
4040 Real Estate 1.21% 1.02% 2.23% 1.21% 1.02% 2.23%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
4510 Software & Services 3.77% 2.05% 5.82% 6.33% 3.13% 8.46%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
4520 Technology Hardware & Equipment 3.05% 1.65% 4.70% 3.58% 2.34% 5.92%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
4530 Semiconductors & Semiconductor Equipment 3.76% 1.64% 5.40% 4.48% 2.46% 6.94%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
5010 Telecommunications Services 1.71% 0.99% 2.70% 2.98% 2.94% 5.92%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
5510 Utilities 0.84% 0.51% 1.35% 0.84% 0.51% 1.35%
- -------------- ----------------------------------------- -------- ------------ ----------- --- ------- ------------ ----------
For companies that grant both full value awards and stock options to their
employees, ISS shall apply a premium on full value awards for the past three
fiscal years. The guideline for applying the premium is as follows:
- ------------------------- ------------------------------------- ---------------------------------------------
CHARACTERISTICS ANNUAL STOCK PRICE VOLATILITY PREMIUM
- ------------------------- ------------------------------------- ---------------------------------------------
High annual 53% and higher 1 full-value award will count as 1.5 option
volatility shares
- ------------------------- ------------------------------------- ---------------------------------------------
Moderate annual 25% - 52% 1 full-value award will count as 2.0 option
volatility shares
- ------------------------- ------------------------------------- ---------------------------------------------
Low annual volatility Less than 25% 1 full-value award will count as 4.0 option
shares
- ------------------------- ------------------------------------- ---------------------------------------------
POOR PAY PRACTICES
Vote AGAINST equity plans if the plan is a vehicle for poor compensation
practices.
WITHHOLD from compensation committee members, CEO, and potentially the entire
board, if the company has poor compensation practices. The following practices,
while not exhaustive, are examples of poor compensation practices that may
warrant withholding votes:
o Egregious employment contracts (e.g., those containing multi-year
guarantees for bonuses and grants);
o Excessive perks that dominate compensation (e.g., tax gross-ups for
personal use of corporate aircraft);
o Huge bonus payouts without justifiable performance linkage or proper
disclosure;
o Performance metrics that are changed (e.g., canceled or replaced during
the performance period without adequate explanation of the action and the
link to performance);
o Egregious pension/SERP (supplemental executive retirement plan) payouts
(e.g., the inclusion of additional years of service not worked or
inclusion of performance-based equity awards in the pension
calculation);
o New CEO awarded an overly generous new hire package (e.g., including
excessive "make whole" provisions or any of the poor pay practices
listed in this policy);
o Excessive severance provision s(e.g., including excessive changes in
control payments);
o Change in control payouts without loss of job or substantial diminution
of job duties;
o Internal pay disparity;
o Options backdating (covered in a separate policy); and
o Other excessive compensation payouts or poor pay practices at the
company.
SPECIFIC TREATMENT OF CERTAIN AWARD TYPES IN EQUITY PLAN EVALUATIONS:
DIVIDEND EQUIVALENT RIGHTS
Options that have Dividend Equivalent Rights (DERs) associated with them will
have a higher calculated award value than those without DERs under the binomial
model based on the value of these dividend streams. The higher value will be
applied to new shares, shares available under existing plans, and shares awarded
but not exercised per the plan specifications. DERS transfer more shareholder
equity to employees and non-employee directors, and this cost should be
captured.
LIBERAL SHARE RECYCLING PROVISIONS
Under net share counting provisions, shares tendered by an option holder to pay
for the exercise of an option, shares withheld for taxes or shares repurchased
by the company on the open market can be recycled back into the equity plan for
awarding again. All awards with such provisions should be valued as full-value
awards. Stock-settled stock appreciation rights (SSARs) will also be considered
as full-value awards if a company counts only the net shares issued to employees
towards their plan reserve.
OTHER COMPENSATION PROPOSALS AND POLICIES
401(K) EMPLOYEE BENEFIT PLANS
Vote FOR proposals to implement a 401(k) savings plan for employees.
DIRECTOR COMPENSATION
Vote CASE-BY-CASE on compensation plans for non-employee directors, based on the
cost of the plans against the company's allowable cap.
On occasion, director stock plans that set aside a relatively small number of
shares when combined with employee or executive stock compensation plans exceed
the allowable cap. Vote for the plan if ALL of the following qualitative factors
in the board's compensation are met and disclosed in the proxy statement:
o Director stock ownership guidelines with 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, for example 40% cash/60% equity or
50% cash/50% equity; or
- 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 No retirement/benefits and perquisites provided to non-employee
directors; and
o Detailed disclosure provided 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.
DIRECTOR RETIREMENT PLANS
Vote AGAINST retirement plans for non-employee directors.
Vote FOR shareholder proposals to eliminate retirement plans for non-employee
directors.
EMPLOYEE STOCK OWNERSHIP PLANS (ESOPS)
Vote FOR proposals to implement an ESOP or increase authorized shares for
existing ESOPs, unless the number of shares allocated to the ESOP is excessive
(more than five percent of outstanding shares).
EMPLOYEE STOCK PURCHASE PLANS--QUALIFIED PLANS
Vote CASE-BY-CASE on qualified employee stock purchase plans. Vote FOR employee
stock purchase plans where all of the following apply:
o Purchase price is at least 85 percent of fair market value;
o Offering period is 27 months or less; and
o The number of shares allocated to the plan is ten percent or less of the
outstanding shares.
Vote AGAINST qualified employee stock purchase plans where any of the following
apply:
o Purchase price is less than 85 percent of fair market value; or
o Offering period is greater than 27 months; or
o The number of shares allocated to the plan is more than ten percent of
the outstanding shares.
EMPLOYEE STOCK PURCHASE PLANS--NON-QUALIFIED PLANS
Vote CASE-BY-CASE on nonqualified employee stock purchase plans. Vote FOR
nonqualified employee stock purchase plans with all of the following features:
o Broad-based participation (i.e., all employees of the company with the
exclusion of individuals with 5 percent or more of beneficial ownership
of the company);
o Limits on employee contribution, which may be a fixed dollar amount or
expressed as a percent of base salary;
o Company matching contribution up to 25 percent of employer's
contribution, which is effectively a discount of 20 percent from market
value;
o No discount on the stock price on the date of purchase since there is a
company matching contribution.
Vote AGAINST nonqualified employee stock purchase plans when any of the plan
features do not meet the above criteria. If the company matching contribution
exceeds 25 percent of employee's contribution, evaluate the cost of the plan
against its allowable cap.
INCENTIVE BONUS PLANS AND TAX DEDUCTIBILITY PROPOSALS (OBRA-RELATED COMPENSATION
PROPOSALS)
Vote FOR proposals that simply amend shareholder-approved compensation 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).
Vote FOR proposals to add performance goals to existing compensation plans to
comply with the provisions of Section 162(m) unless they are clearly
inappropriate.
Vote CASE-BY-CASE on amendments to existing plans to increase shares reserved
and to qualify for favorable tax treatment under the provisions of Section
162(m) as long as the plan does not exceed the allowable cap and the plan does
not violate any of the supplemental policies.
Generally vote FOR cash or cash and stock bonus plans that are submitted to
shareholders for the purpose of exempting compensation from taxes under the
provisions of Section 162(m) if no increase in shares is requested.
OPTIONS BACKDATING
In cases where a company has practiced options backdating, WITHHOLD on a
CASE-BY-CASE basis from the members of the compensation committee, depending on
the severity of the practices and the subsequent corrective actions on the part
of the board. WITHHOLD from the compensation committee members who oversaw the
questionable options grant practices or from current compensation committee
members who fail to respond to the issue proactively, depending on several
factors, including, but not limited to:
o Reason and motive for the options backdating issue, such as inadvertent
vs. deliberate grant date changes;
o Length of time of options backdating;
o Size of restatement due to options backdating;
o Corrective actions taken by the board or compensation committee, such
as canceling or repricing backdated options, or recoupment of option
gains on backdated grants;
o Adoption of a grant policy that prohibits backdating and creation of a
fixed grant schedule or window period for equity grants going forward.
OPTION EXCHANGE PROGRAMS/REPRICING OPTIONS
Vote CASE-BY-CASE on management proposals seeking approval to exchange/reprice
options taking into consideration:
o Historic trading patterns--the stock price should not be so volatile that
the options are likely to be back "in the money" over the near term;
o Rationale for the repricing--was the stock price decline beyond
management's control?
o Is this a value-for-value exchange?
o Are surrendered stock options added back to the plan reserve?
o Options vesting--does the new option vest immediately, or is there a
black-out period?
o Term of the option--the term should remain the same as that of the
replaced option;
o Exercise price--should be set at fair market or a premium to market;
o Participants--executive officers and directors should be excluded.
If the surrendered options are added back to the equity plans for re-issuance,
then take into consideration the company's three-year average burn rate. In
addition to the above considerations, evaluate the intent, rationale and timing
of the repricing proposal. The proposal should clearly articulate why the board
is choosing to conduct an exchange program at this point in time. Repricing
underwater options after a recent precipitous drop in the company's stock price
demonstrates poor timing. Repricing after a recent decline in stock price
triggers additional scrutiny and a potential AGAINST vote on the proposal. At a
minimum, the decline should not have happened within the past year. Also,
consider the terms of the surrendered options, such as the grant date, exercise
price and vesting schedule. Grant dates of surrendered options should be far
enough back (two to three years) so as not to suggest that repricings are being
done to take advantage of short-term downward price movements. Similarly, the
exercise price of surrendered options should be above the 52-week high for the
stock price.
Vote FOR shareholder proposals to put option repricings to a shareholder vote.
STOCK PLANS IN LIEU OF CASH
Vote CASE-BY-CASE on plans which provide participants with the 9option of taking
all or a portion of their cash compensation in the form of stock.
Vote FOR non-employee director only equity plans which provide a
dollar-for-dollar cash for stock exchange.
Vote CASE-BY-CASE on plans which do not provide a dollar-for-dollar cash for
stock exchange. In cases where the exchange is not dollar-for-dollar, the
request for new or additional shares for such equity program will be considered
using the binomial option pricing model. In an effort to capture the total cost
of total compensation, ISS will not make any adjustments to carve out the
in-lieu-of-cash compensation.
TRANSFER PROGRAMS OF STOCK OPTIONS
One-time Transfers: WITHHOLD votes from compensation committee members if they
fail to submit one-time transfers to shareholders for approval.
Vote CASE-BY-CASE on one-time transfers. Vote FOR if:
o Executive officers and non-employee directors are excluded from
participating;
o Stock options are purchased by third-party financial institutions at a
discount to their fair value using option pricing models such as
Black-Scholes or a Binomial Option Valuation or other appropriate
financial models;
o There is a two-year minimum holding period for sale proceeds (cash or
stock) for all participants.
Additionally, management should provide a clear explanation of why options are
being transferred and whether the events leading up to the decline in stock
price were beyond management's control. A review of the company's historic stock
price volatility should indicate if the options are likely to be back
"in-the-money" over the near term.
SHAREHOLDER PROPOSALS ON COMPENSATION
ADVISORY VOTE ON EXECUTIVE COMPENSATION (SAY-ON PAY)
Generally vote FOR shareholder proposals that call for non-binding shareholder
ratification of the compensation of the named Executive Officers and the
accompanying narrative disclosure of material factors provided to understand the
Summary Compensation Table.
COMPENSATION CONSULTANTS--DISCLOSURE OF BOARD OR COMPANY'S UTILIZATION
Generally vote FOR shareholder proposals seeking disclosure regarding the
Company, Board, or Board committee's use of compensation consultants, such as
company name, business relationship(s) and fees paid.
DISCLOSURE/SETTING LEVELS OR TYPES OF COMPENSATION FOR EXECUTIVES AND DIRECTORS
Generally vote FOR shareholder proposals seeking additional disclosure of
executive and director pay information, provided the information requested is
relevant to shareholders' needs, would not put the company at a competitive
disadvantage relative to its industry, and is not unduly burdensome to the
company.
Vote AGAINST shareholder proposals seeking to set absolute levels on
compensation or otherwise dictate the amount or form of compensation.
Vote AGAINST shareholder proposals requiring director fees be paid in stock
only.
Vote CASE-BY-CASE on all other shareholder proposals regarding executive and
director pay, taking into account company performance, pay level versus peers,
pay level versus industry, and long-term corporate outlook.
OPTION REPRICING
Vote FOR shareholder proposals to put option repricings to a shareholder vote.
PAY FOR SUPERIOR PERFORMANCE
Generally vote FOR shareholder proposals based on a case-by-case analysis that
requests the board establish a pay-for-superior-performance standard in the
company's executive compensation plan for senior executives. The proposals
call for:
o The annual incentive component of the plan should utilize financial
performance criteria that can be benchmarked against peer group
performance, and provide that no annual bonus be awarded based on
financial performance criteria unless the company exceeds the median or
mean performance of a disclosed group of peer companies on the selected
financial criteria.
o The long-term equity compensation component of the plan should utilize
financial and/or stock price performance criteria that can be benchmarked
against peer group performance, and any options, restricted shares, or
other equity compensation used should be structured so that compensation
is received only when company performance exceeds the median or mean
performance of the peer group companies on the selected financial and
stock price performance criteria; and
o The plan disclosure should allow shareholders to monitor the correlation
between pay and performance.
Consider the following factors in evaluating this proposal:
o What aspects of the company's annual and long-term equity incentive
programs are performance driven?
o If the annual and long-term equity incentive programs are performance
driven, are the performance criteria and hurdle rates disclosed to
shareholders or are they benchmarked against a disclosed peer group?
o Can shareholders assess the correlation between pay and performance based
on the current disclosure? o What type of industry and stage of business
cycle does the company belong to?
PENSION PLAN INCOME ACCOUNTING
Generally vote FOR shareholder proposals to exclude pension plan income in the
calculation of earnings used in determining executive bonuses/compensation.
PERFORMANCE-BASED AWARDS
Vote CASE-BY-CASE on shareholder proposal requesting that a significant amount
of future long-term incentive compensation awarded to senior executives shall be
performance-based and requesting that the board adopt and disclose challenging
performance metrics to shareholders, based on the following analytical steps.
o First, vote FOR shareholder proposals advocating the use of
performance-based equity awards, such as performance contingent options
or restricted stock, indexed options or premium-priced options, unless
the proposal is overly restrictive or if the company has demonstrated
that it is using a "substantial" portion of performance-based awards
for its top executives. Standard stock options and
performance-accelerated awards do not meet the criteria to be
considered as performance-based awards. Further, premium-priced options
should have a premium of at least 25 percent and higher to be
considered performance-based awards.
o Second, assess the rigor of the company's performance-based equity
program. If the bar set for the performance-based program is too low
based on the company's historical or peer group comparison, generally
vote FOR the proposal. Furthermore, if target performance results in an
above target payout, vote FOR the shareholder proposal due to program's
poor design. If the company does not disclose the performance metric of
the performance-based equity program, vote FOR the shareholder proposal
regardless of the outcome of the first step to the test.
In general, vote FOR the shareholder proposal if the company does not meet both
of the above two steps.
SEVERANCE AGREEMENTS FOR EXECUTIVES/GOLDEN PARACHUTES
Vote FOR shareholder proposals to require golden parachutes or executive
severance agreements to be submitted for shareholder ratification, unless the
proposal requires shareholder approval prior to entering into employment
contracts.
Vote on a CASE-BY-CASE basis on proposals to ratify or cancel golden parachutes.
An acceptable parachute should include, but is not limited to, the following:
o The triggering mechanism should be beyond the control of management;
o The amount should not exceed three times base amount (defined as the
average annual taxable W-2 compensation during the five years prior to
the year in which the change of control occurs);
o Change-in-control payments should be double-triggered, i.e., (1) after a
change in control has taken place, and (2) termination of the executive
as a result of the change in control. Change in control is defined as a
change in the company ownership structure.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS (SERPS)
Generally 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.
Generally vote FOR shareholder proposals requesting to limit the executive
benefits provided under the company's supplemental executive retirement plan
(SERP) by limiting covered compensation to a senior executive's annual salary
and excluding of all incentive or bonus pay from the plan's definition of
covered compensation used to establish such benefits.
9. CORPORATE RESPONSIBILITY
CONSUMER ISSUES AND PUBLIC SAFETY
ANIMAL RIGHTS
Generally vote AGAINST proposals to phase out the use of animals in product
testing unless:
o The company is conducting animal testing programs that are unnecessary or
not required by regulation;
o The company is conducting animal testing when suitable alternatives are
accepted and used at peer firms;
o The company has been the subject of recent, significant controversy
related to its testing programs.
Generally vote FOR proposals seeking a report on the company's animal welfare
standards unless:
o The company has already published a set of animal welfare standards and
monitors compliance;
o The company's standards are comparable to or better than those of peer
firms; and
o There are no serious controversies surrounding the company's treatment of
animals.
DRUG PRICING
Generally vote AGAINST proposals requesting that companies implement specific
price restraints on pharmaceutical products unless the company fails to adhere
to legislative guidelines or industry norms in its product pricing.
Vote CASE-BY-CASE on proposals requesting that the company evaluate their
product pricing considering:
o The existing level of disclosure on pricing policies;
o Deviation from established industry pricing norms;
o The company's existing initiatives to provide its products to needy
consumers;
o Whether the proposal focuses on specific products or geographic regions.
DRUG REIMPORTATION
Generally vote FOR proposals requesting that companies report on the financial
and legal impact of their policies regarding prescription drug reimportation
unless such information is already publicly disclosed.
Generally vote AGAINST proposals requesting that companies adopt specific
policies to encourage or constrain prescription drug reimportation.
GENETICALLY MODIFIED FOODS
Vote AGAINST proposals asking companies to voluntarily label genetically
engineered (GE) ingredients in their products or alternatively to provide
interim labeling and eventually eliminate GE ingredients due to the costs and
feasibility of labeling and/or phasing out the use of GE ingredients.
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 products 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 CASE-BY-CASE on proposals asking for the preparation of a report on the
financial, legal and environmental impact of continued use of GE
ingredients/seeds. Evaluate the following:
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;
o The percentage of revenue derived from international operations,
particularly in Europe where GE products are more regulated and consumer
backlash is more pronounced.
Vote AGAINST proposals seeking a report on the health and environmental effects
of genetically modified organisms (GMOs). Health studies of this sort are better
undertaken by regulators and the scientific community.
Vote AGAINST proposals to completely phase out GE ingredients from the company's
products or proposals asking for reports outlining the steps necessary to
eliminate GE ingredients from the company's products. Such resolutions
presuppose that there are proven health risks to GE ingredients (an issue better
left to federal regulators) that outweigh the economic benefits derived from
biotechnology.
HANDGUNS
Generally vote AGAINST requests for reports on a company's policies aimed at
curtailing gun violence in the United States unless the report is confined to
product safety information. Criminal misuse of firearms is beyond company
control and instead falls within the purview of law enforcement agencies.
HIV/AIDS
Vote CASE-BY-CASE on requests for reports outlining the impact of the health
pandemic (HIV/AIDS, malaria and tuberculosis) on the company's Sub-Saharan
operations and how the company is responding to it, taking into account:
o The nature and size of the company's operations in Sub-Saharan Africa and
the number of local employees;
o The company's existing healthcare policies, including benefits and
healthcare access for local workers;
o Company donations to healthcare providers operating in the region.
Vote AGAINST proposals asking companies to establish, implement and report on a
standard of response to the HIV/AIDS, TB and malaria health pandemic in Africa
and other developing countries, unless the company has significant operations in
these markets and has failed to adopt policies and/or procedures to address
these issues comparable to those of industry peers.
PREDATORY LENDING
Vote CASE-BY-CASE on requests for reports on the company's procedures for
preventing predatory lending, including the establishment of a board committee
for oversight, taking into account:
o Whether the company has adequately disclosed mechanisms in place to
prevent abusive lending practices;
o Whether the company has adequately disclosed the financial risks of its
subprime business;
o Whether the company has been subject to violations of lending laws or
serious lending controversies;
o Peer companies' policies to prevent abusive lending practices.
TOBACCO
Most tobacco-related proposals should be evaluated on a CASE-BY-CASE basis,
taking into account the following factors:
Second-hand smoke:
o Whether the company complies with all local ordinances and regulations;
o The degree that voluntary restrictions beyond those mandated by law might
hurt the company's competitiveness;
o The risk of any health-related liabilities.
Advertising to youth:
o Whether the company complies with federal, state and local laws on the
marketing of tobacco or if it has been fined for violations;
o Whether the company has gone as far as peers in restricting advertising;
o Whether the company entered into the Master Settlement Agreement which
restricts marketing of tobacco to youth;
o Whether restrictions on marketing to youth extend to foreign countries.
Cease production of tobacco-related products or avoid selling products to
tobacco companies:
o The percentage of the company's business affected;
o The economic loss of eliminating the business versus any potential
tobacco-related liabilities.
Spin-off tobacco-related businesses:
o The percentage of the company's business affected;
o The feasibility of a spin-off;
o Potential future liabilities related to the company's tobacco business.
Stronger product warnings:
Vote AGAINST proposals seeking stronger product warnings. Such decisions are
better left to public health authorities.
Investment in tobacco stocks:
Vote AGAINST proposals prohibiting investment in tobacco equities. Such
decisions are better left to portfolio managers.
TOXIC CHEMICALS
Generally vote FOR resolutions requesting that a company discloses its policies
related to toxic chemicals.
Vote CASE-BY-CASE on resolutions requesting that companies evaluate and disclose
the potential financial and legal risks associated with utilizing certain
chemicals, considering:
o Current regulations in the markets in which the company operates;
o Recent significant controversy, litigation or fines stemming from toxic
chemicals or ingredients at the company; and
o The current level of disclosure on this topic.
Generally vote AGAINST resolutions requiring that a company reformulate its
products within a certain timeframe unless such actions are required by law in
specific markets.
ENVIRONMENT AND ENERGY
ARCTIC NATIONAL WILDLIFE REFUGE
Generally vote AGAINST requests for reports outlining potential environmental
damage from drilling in the Arctic National Wildlife Refuge (ANWR) 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
its operations in the ANWR.
CERES PRINCIPLES
Vote CASE-BY-CASE on proposals to adopt the CERES Principles, taking into
account:
o The company's current environmental disclosure beyond legal requirements,
including environmental health and safety (EHS) audits and reports that
may duplicate CERES;
o The company's environmental performance record, including violations of
federal and state regulations, level of toxic emissions and accidental
spills;
o Environmentally conscious practices of peer companies, including
endorsement of CERES;
o Costs of membership and implementation.
CLIMATE CHANGE
In general, vote FOR resolutions requesting that a company disclose information
on the impact of climate change on the company's operations unless:
o The company already provides current, publicly-available information on
the perceived impact that climate change may have on the company, as well
as associated policies and procedures to address such risks and/or
opportunities;
o The company's level of disclosure is comparable to or better than
information provided by industry peers; and
o There are no significant fines, penalties or litigation associated with
the company's environmental performance.
CONCENTRATED AREA FEEDING OPERATIONS (CAFOS)
Vote FOR resolutions requesting that companies report to shareholders on the
risks and liabilities associated with CAFOs unless:
o The company has publicly disclosed guidelines for its corporate and
contract farming operations, including compliance
monitoring; or
o The company does not directly source from CAFOs.
ENVIRONMENTAL ECONOMIC RISK REPORT
Vote CASE-BY-CASE on proposals requesting an economic risk assessment of
environmental performance consideration:
o The feasibility of financially quantifying environmental risk factors;
o The company's compliance with applicable legislation and/or regulations
regarding environmental performance;
o The costs associated with implementing improved standards;
o The potential costs associated with remediation resulting from poor
environmental performance; and
o The current level of disclosure on environmental policies and
initiatives.
ENVIRONMENTAL REPORTS
Generally vote FOR requests for reports disclosing the company's environmental
policies unless it already has well-documented environmental management systems
that are available to the public.
GLOBAL WARMING Generally vote FOR proposals requesting a report on greenhouse
gas emissions from company operations and/or products unless this information is
already publicly disclosed or such factors are not integral to the company's
line of business.
Generally vote AGAINST proposals that call for reduction in greenhouse gas
emissions by specified amounts or within a restrictive timeframe unless the
company lags industry standards and has been the subject of recent, significant
fines or litigation resulting from greenhouse gas emissions.
KYOTO PROTOCOL COMPLIANCE
Generally vote FOR resolutions requesting that companies outline their
preparations to comply with standards established by Kyoto Protocol signatory
markets unless:
o The company does not maintain operations in Kyoto signatory markets;
o The company already evaluates and substantially discloses such
information; or
o Greenhouse gas emissions do not significantly impact the company's core
businesses.
LAND USE
Generally vote AGAINST resolutions that request the disclosure of detailed
information on a company's policies related to land use or development unless
the company has been the subject of recent, significant fines or litigation
stemming from its land use.
NUCLEAR SAFETY
Generally vote AGAINST resolutions requesting that companies report on risks
associated with their nuclear reactor designs and/or the production and interim
storage of irradiated fuel rods unless:
o The company does not have publicly disclosed guidelines describing its
policies and procedures for addressing risks associated with its
operations;
o The company is non-compliant with Nuclear Regulatory Commission (NRC)
requirements; or
o The company stands out amongst its peers or competitors as having
significant problems with safety or environmental performance related
to its nuclear operations.
OPERATIONS IN PROTECTED AREAS
Generally vote FOR requests for reports outlining potential environmental damage
from operations in protected regions, including wildlife refuges unless:
o The company does not currently have operations or plans to develop
operations in these protected regions; or
o The company provides disclosure on its operations and environmental
policies in these regions comparable to industry peers.
RECYCLING
Vote CASE-BY-CASE on proposals to adopt a comprehensive recycling strategy,
taking into account:
o The nature of the company's business and the percentage affected;
o The extent that peer companies are recycling;
o The timetable prescribed by the proposal;
o The costs and methods of implementation;
o Whether the company has a poor environmental track record, such as
violations of federal and state regulations.
RENEWABLE ENERGY
In general, vote FOR requests for reports on the feasibility of developing
renewable energy sources unless the report is duplicative of existing disclosure
or irrelevant to the company's line of business.
Generally, vote AGAINST proposals requesting that the company invest in
renewable energy sources. Such decisions are best left to management's
evaluation of the feasibility and financial impact that such programs may have
on the company.
SUSTAINABILITY REPORT
Generally, vote FOR proposals requesting the company to report on policies and
initiatives related to social, economic and environmental sustainability,
unless:
o The company already discloses similar information through existing
reports or policies such as an Environment, Health and Safety (EHS)
report, a comprehensive Code of Corporate Conduct and/or a Diversity
Report; or
o The company has formally committed to the implementation of a reporting
program based on Global Reporting Initiative (GRI) guidelines or a
similar standard within a specified timeframe.
GENERAL CORPORATE ISSUES
CHARITABLE/POLITICAL CONTRIBUTIONS
Generally vote AGAINST proposals asking the company to affirm political
nonpartisanship in the workplace so long as:
o The company is in compliance with laws governing corporate political
activities; and
o The company has procedures in place to ensure that employee
contributions to company-sponsored political action committees (PACs) are
strictly voluntary and not coercive.
Vote AGAINST proposals to publish in newspapers and public media the company's
political contributions, as such publications could present significant cost to
the company without providing commensurate value to shareholders.
Vote CASE-BY-CASE on proposals to improve the disclosure of a company's
political contributions considering:
o Recent significant controversy or litigation related to the company's
political contributions or governmental affairs; and
o The public availability of a policy on political contributions.
Vote AGAINST proposals barring the company from making political
contributions. Businesses are affected by legislation at the federal, state
and local level, and barring contributions can put the company at a
competitive disadvantage.
Vote AGAINST proposals restricting the company from making charitable
contributions. Charitable contributions are generally useful for assisting
worthwhile causes and for creating good will in the community. In the
absence of bad faith, self-dealing or gross negligence, management should
determine which contributions are in the best interests of the company.
Vote AGAINST proposals asking for a list of company executives, directors,
consultants, legal counsels, lobbyists or investment bankers who have prior
government service and whether such service had a bearing on the business
of the company. Such a list would be burdensome to prepare without
providing any meaningful information to shareholders.
DISCLOSURE OF LOBBYING EXPENDITURES/INITIATIVES
Vote CASE-BY-CASE on proposals requesting information on a company's
lobbying initiatives, considering any significant controversy or litigation
surrounding a company's public policy activities, the current level of
disclosure on lobbying strategy and the impact that the policy issue may
have on the company's business operations.
LINK EXECUTIVE COMPENSATION TO SOCIAL PERFORMANCE
Vote CASE-BY-CASE on proposals to review ways of linking executive
compensation to social factors, such as corporate downsizings, customer or
employee satisfaction, community involvement, human rights, environmental
performance, predatory lending and executive/employee pay disparities. Such
resolutions should be evaluated in the contest of:
o The relevance of the issue to be linked to pay;
o The degree that social performance is already included in the
company's pay structure and disclosed;
o The degree that social performance is used by peer companies in
setting pay;
o Violations or complaints filed against the company relating to the
particular social performance measure;
o Artificial limits sought by the proposal, such as freezing or capping
executive pay;
o Independence of the compensation committee;
o Current company pay levels.
OUTSOURCING/OFFSHORING
Vote CASE-BY-CASE on proposals calling for companies to report on the risks
associated with outsourcing, 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.
LABOR STANDARDS AND HUMAN RIGHTS
CHINA PRINCIPLES
Vote AGAINST proposals to implement the China Principles unless
o There are serious controversies surrounding the company's China
operations; and
o The company does not have a code of conduct with standards similar to
those promulgated by the International Labor Organization (ILO).
COUNTRY-SPECIFIC HUMAN RIGHTS REPORTS
Vote CASE-BY-CASE on requests for reports detailing the company's operations in
a particular country and steps to protect human rights, based on:
o The nature and amount of company business in that country;
o The company's workplace code of conduct;
o Proprietary and confidential information involved;
o Company compliance with U.S. regulations on investing in the country;
o Level of peer company involvement in the country.
INTERNATIONAL CODES OF CONDUCT/VENDOR STANDARDS
Vote CASE-BY-CASE on proposals to implement certain human rights standards at
company facilities or those of its suppliers and to commit to outside
independent monitoring. In evaluating these proposals, the following should be
considered:
o The company's current workplace code of conduct or adherence to other
global standards and the degree they meet the standards promulgated by
the proponent;
o Agreements with foreign suppliers to meet certain workplace standards;
o Whether company and vendor facilities are monitored and how;
o Company participation in fair labor organizations;
o Type of business;
o Proportion of business conducted overseas;
o Countries of operation with known human rights abuses;
o Whether the company has been recently involved in significant labor and
human rights controversies or violations;
o Peer company standards and practices;
o Union presence in company's international factories.
Generally vote FOR reports outlining vendor standards compliance unless any of
the following apply:
o The company does not operate in countries with significant human rights
violations;
o The company has no recent human rights controversies or violations; or
o The company already publicly discloses information on its vendor
standards compliance.
MACBRIDE PRINCIPLES
Vote CASE-BY-CASE on proposals to endorse or increase activity on the MacBride
Principles, taking into account:
o Company compliance with or violations of the Fair Employment Act of 1989;
o Company antidiscrimination policies that already exceed the legal
requirements;
o The cost and feasibility of adopting all nine Principles;
o The cost of duplicating efforts to follow two sets of standards (Fair
Employment and the MacBride Principles);
o The potential for charges of reverse discrimination;
o The potential that any company sales or contracts in the rest of the
United Kingdom could be negatively impacted;
o The level of the company's investment in Northern Ireland;
o The number of company employees in Northern Ireland;
o The degree that industry peers have adopted the MacBride Principles;
o Applicable state and municipal laws that limit contracts with companies
that have not adopted the MacBride Principles.
MILITARY BUSINESS
FOREIGN MILITARY SALES/OFFSETS
Vote AGAINST reports on foreign military sales or offsets. Such disclosures may
involve sensitive and confidential information. Moreover, companies must comply
with government controls and reporting on foreign military sales.
LANDMINES AND CLUSTER BOMBS
Vote CASE-BY-CASE on proposals asking a company to renounce future involvement
in antipersonnel landmine production, taking into account:
o Whether the company has in the past manufactured landmine components;
o Whether the company's peers have renounced future production.
Vote CASE-BY-CASE on proposals asking a company to renounce future involvement
in cluster bomb production, taking into account:
o What weapons classifications the proponent views as cluster bombs;
o Whether the company currently or in the past has manufactured cluster
bombs or their components;
o The percentage of revenue derived from cluster bomb manufacture;
o Whether the company's peers have renounced future production.
NUCLEAR WEAPONS
Vote AGAINST proposals asking a company to cease production of nuclear weapons
components and delivery systems, including disengaging from current and proposed
contracts. Components and delivery systems serve multiple military and
non-military uses, and withdrawal from these contracts could have a negative
impact on the company's business.
OPERATIONS IN NATIONS SPONSORING TERRORISM (E.G., IRAN)
Vote CASE-BY-CASE on requests for a board committee review and report outlining
the company's financial and reputational risks from its operations in a
terrorism-sponsoring state, taking into account current disclosure on:
o The nature and purpose of the operations and the amount of business
involved (direct and indirect revenues and expenses) that could be
affected by political disruption;
o Compliance with U.S. sanctions and laws.
SPACED-BASED WEAPONIZATION
Generally vote FOR reports on a company's involvement in spaced-based
weaponization unless:
o The information is already publicly available; or
o The disclosures sought could compromise proprietary information.
WORKPLACE DIVERSITY
BOARD DIVERSITY
Generally vote FOR reports on the company's efforts to diversify the board,
unless:
o The board composition is reasonably inclusive in relation to companies of
similar size and business; or
o The board already reports on its nominating procedures and diversity
initiatives.
Generally vote AGAINST proposals that would call for the adoption of specific
committee charter language regarding diversity initiatives unless the company
fails to publicly disclose existing equal opportunity or non-discrimination
policies.
Vote CASE-BY-CASE on proposals asking the company to increase the representation
of women and minorities on the board, taking into account:
o The degree of board diversity;
o Comparison with peer companies;
o Established process for improving board diversity;
o Existence of independent nominating committee;
o Use of outside search firm;
o History of EEO violations.
EQUAL EMPLOYMENT OPPORTUNITY (EEO)
Generally vote FOR reports outlining the company's affirmative action
initiatives unless all of the following apply:
o The company has well-documented equal opportunity programs;
o The company already publicly reports on its company-wide affirmative
initiatives and provides data on its workforce diversity; and
o The company has no recent EEO-related violations or litigation.
Vote AGAINST proposals seeking information on the diversity efforts of suppliers
and service providers, which can pose a significant cost and administration
burden on the company.
GLASS CEILING
Generally vote FOR reports outlining the company's progress towards the Glass
Ceiling Commission's business recommendations, unless:
o The composition of senior management and the board is fairly inclusive;
o The company has well-documented programs addressing diversity initiatives
and leadership development;
o The company already issues public reports on its company-wide affirmative
initiatives and provides data on its workforce diversity; and
o The company has had no recent, significant EEO-related violations or
litigation.
10. MUTUAL FUND PROXIES
ELECTION OF DIRECTORS
Vote CASE-BY-CASE on the election of directors and trustees, following the same
guidelines for uncontested directors for public company shareholder meetings.
However, mutual fund boards do not usually have compensation committees, so do
not withhold for the lack of this committee.
CONVERTING CLOSED-END FUND TO OPEN-END FUND
Vote CASE-BY-CASE on conversion proposals, considering the following factors:
o Past performance as a closed-end fund;
o Market in which the fund invests;
o Measures taken by the board to address the discount; and
o Past shareholder activism, board activity, and votes on related
proposals.
PROXY CONTESTS
Vote CASE-BY-CASE on proxy contests, considering the following factors:
o Past performance relative to its peers;
o Market in which fund invests;
o Measures taken by the board to address the issues;
o Past shareholder activism, board activity, and votes on related
proposals;
o Strategy of the incumbents versus the dissidents;
o Independence of directors;
o Experience and skills of director candidates;
o Governance profile of the company;
o Evidence of management entrenchment.
INVESTMENT ADVISORY AGREEMENTS
Vote CASE-BY-CASE on investment advisory agreements, considering the following
factors:
o Proposed and current fee schedules;
o Fund category/investment objective;
o Performance benchmarks;
o Share price performance as compared with peers;
o Resulting fees relative to peers;
o Assignments (where the advisor undergoes a change of control).
APPROVING NEW CLASSES OR SERIES OF SHARES
Vote FOR the establishment of new classes or series of shares.
PREFERRED STOCK PROPOSALS
Vote CASE-BY-CASE on the authorization for or increase in preferred shares,
considering the following factors:
o Stated specific financing purpose;
o Possible dilution for common shares;
o Whether the shares can be used for antitakeover purposes;
1940 ACT POLICIES
Vote CASE-BY-CASE on policies under the Investment Advisor Act of 1940,
considering the following factors:
o Potential competitiveness;
o Regulatory developments;
o Current and potential returns; and
o Current and potential risk.
Generally vote FOR these amendments as long as the proposed changes to not
fundamentally alter the investment focus of the fund and do comply with the
current SEC interpretation.
CHANGING A FUNDAMENTAL RESTRICTION TO A NONFUNDAMENTAL RESTRICTION
Vote CASE-BY-CASE on proposals to change a fundamental restriction to a
non-fundamental restriction, considering the following factors:
o The fund's target investments;
o The reasons given by the fund for the change; and
o The projected impact of the change on the portfolio.
CHANGING FUNDAMENTAL INVESTMENT OBJECTIVE TO NONFUNDAMENTAL
Vote AGAINST proposals to change a fund's fundamental investment objective to
non-fundamental.
NAME CHANGE PROPOSALS
Vote CASE-BY-CASE on name change proposals, considering the following factors:
o Political/economic changes in the target market;
o Consolidation in the target market; and
o Current asset composition.
CHANGE IN FUND'S SUBCLASSIFICATION
Vote CASE-BY-CASE on changes in a fund's sub-classification, considering the
following factors:
o Potential competitiveness;
o Current and potential returns;
o Risk of concentration;
o Consolidation in target industry.
DISPOSITION OF ASSETS/TERMINATION/LIQUIDATION
Vote CASE-BY-CASE on proposals to dispose of assets, to terminate or liquidate,
considering the following factors:
o Strategies employed to salvage the company;
o The fund's past performance;
o The terms of the liquidation.
CHANGE TO THE CHARTER DOCUMENT
Vote CASE-BY-CASE on changes to the charter document, considering the following
factors:
o The degree of change implied by the proposal;
o The efficiencies that could result;
o The state of incorporation;
o Regulatory standards and implications.
Vote AGAINST any of the following changes:
o Removal of shareholder approval requirement to reorganize or terminate
the trust or any of its series;
o Removal of shareholder approval requirement for amendments to the new
declaration of trust;
o Removal of shareholder approval requirement to amend the fund's
management contract, allowing the contract to be modified by the
investment manager and the trust management, as permitted by the 1940
Act;
o Allow the trustees to impose other fees in addition to sales charges on
investment in a fund, such as deferred sales charges and redemption fees
that may be imposed upon redemption of a fund's shares;
o Removal of shareholder approval requirement to engage in and terminate
subadvisory arrangements.
o Removal of shareholder approval requirement to change the domicile of the
fund.
CHANGING THE DOMICILE OF A FUND
Vote CASE-BY-CASE on re-incorporations, considering the following factors:
o Regulations of both states;
o Required fundamental policies of both states;
o The increased flexibility available.
AUTHORIZING THE BOARD TO HIRE AND TERMINATE SUBADVISORS WITHOUT SHAREHOLDER
APPROVAL
Vote AGAINST proposals authorizing the board to hire/terminate subadvisors
without shareholder approval.
DISTRIBUTION AGREEMENTS
Vote CASE-BY-CASE on distribution agreement proposals, considering the following
factors:
o Fees charged to comparably-sized funds with similar objectives;
o The proposed distributor's reputation and past performance;
o The competitiveness of the fund in the industry;
o The terms of the agreement.
MASTER-FEEDER STRUCTURE
Vote FOR the establishment of a master-feeder structure.
MERGERS
Vote CASE-BY-CASE on merger proposals, considering the following factors:
o Resulting fee structure;
o Performance of both funds;
o Continuity of management personnel;
o Changes in corporate governance and their impact on shareholder rights.
SHAREHOLDER PROPOSALS FOR MUTUAL FUNDS
ESTABLISH DIRECTOR OWNERSHIP REQUIREMENT
Generally vote AGAINST shareholder proposals that mandate a specific minimum
amount of stock that directors must own in order to qualify as a director or to
remain on the board.
REIMBURSE SHAREHOLDER FOR EXPENSES INCURRED
Vote CASE-BY-CASE on shareholder proposals to reimburse proxy solicitation
expenses. When supporting the dissidents, vote FOR the reimbursement of the
proxy solicitation expenses.
TERMINATE THE INVESTMENT ADVISOR
Vote CASE-BY-CASE on proposals to terminate the investment advisor, considering
the following factors:
o Performance of the fund's Net Asset Value (NAV);
o The fund's history of shareholder relations;
o The performance of other funds under the advisor's management.
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 36 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 13 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 22 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 19 years of professional experience.
(a)(2) Other Accounts Managed
As of the most recently completed fiscal year end (November 30, 2007), the
following table summarizes the other investment activities of each portfolio
manager.
# of Accounts Total Assets
Managed that where
Total Advisory Fee Advisory Fee
Name of # of is Based on is Based on
Portfolio Manager Accounts Performance Performance
or Team Member Type of Accounts Managed Total Assets of the Account of the Account
-------------- ---------------- ------- ------------ -------------- ---------------
1. Bernard P. Schaffer Registered Investment Companies: 1 $373 million 0 $0
Other Pooled Investment Vehicles: 0 $0 0 $0
Other Accounts: 28 $245 million 0 $0
2. Andrew S. Toburen Registered Investment Companies: 2 $207 million 0 $0
Other Pooled Investment Vehicles: 1 $92 million 1 $92 million
Other Accounts: 52 $1017 million 0 $0
3. Paul A. Matlack Registered Investment Companies: 2 $207 million 0 $0
Other Pooled Investment Vehicles: 1 $92 million 1 $92 million
Other Accounts: 52 $1017 million 0 $0
4. Christine F. Williams Registered Investment Companies: 2 $207 million 0 $0
Other Pooled Investment Vehicles: 1 $92 million 1 $92 million
Other Accounts: 52 $1017 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, 2007), 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, 2007:
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 19, 2007.
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 31, 2008
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 31, 2008
By (Signature and Title)* /s/ G. Gregory Hagar
----------------------------------------
G. Gregory Hagar, Vice President and CFO
(Principal Financial Officer)
Date: January 31, 2008
* Print the name and title of each signing officer under his or her signature.