UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-CSR
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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)
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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, 2008
DATE OF REPORTING PERIOD: NOVEMBER 30, 2008
ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMITTED]
CHARTWELL
DIVIDEND AND
INCOME FUND, INC.
ANNUAL REPORT TO SHAREHOLDERS
DATED NOVEMBER 30, 2008
CHARTWELL INVESTMENT
[LOGO] PARTNERS
WWW.CHARTWELLIP.COM
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
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, 2008
(UNAUDITED)
COVERED CALL OPTIONS
The Fund is permitted to write (i.e., sell) covered call options on equity
securities (including Exchange Traded Funds) or on stock indexes. 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, 2008
DEAR SHAREHOLDERS (UNAUDITED),
Stock market performance for the year ended November 30, 2008 was disappointing.
The S&P 500 Index returned -38.09% and the Merrill Lynch High Yield Cash Pay
Index returned -31.21% while for the same period the Chartwell Dividend and
Income Fund's ("Fund") total market return, including reinvested dividends, was
- -58.90% and the Net Asset Value (NAV) return was -47.75%, also including the
reinvestment of dividends. These results are discussed in greater detail later
in this report.
While we were disappointed with the performance of the Fund during this period,
a robust options overwrite strategy on the common stock portfolio has been a
positive contributor to the Fund. Our ability to sell options on shares that
were held by the Fund enabled us to take advantage of options premiums that are
historically high due to the volatility in the market. In addition, through
various transactions made during the period, we believe we strengthened the
overall portfolio given the level of uncertainty in the markets. Some of these
changes are discussed in the equity and fixed income sections, which appear
later in this report.
The Fund's fiscal year saw substantial turmoil in both the economy and the
markets. What began as a domestic-centered slowdown in the economy became a
worldwide economic slowdown as the stunning increase in the price of fuel and
the significant tightening of credit availability combined to slow even the
fastest growing emerging markets. The price of oil rose from $90 a barrel to a
peak of $147 per barrel in early July and then fell to about $55 per barrel at
the end of November as demand fell and the slowing global economy took hold. As
the year progressed, job losses mounted, housing activity and house prices
continued to fall, banks and brokerages continued to take large charges on
various investments and loans, lenders continued to tighten lending standards,
large financial institutions either failed outright, were supported directly by
the government or were forced to merge into healthier institutions. In an
attempt to support the economy and the markets, the U.S. government took
unprecedented steps in an attempt to keep the financial markets from failing
completely. These actions included guaranteeing various debt instruments,
lowering the federal funds rate from 4.5% to 1.0% and making substantial direct
investments in financial institutions through the Troubled Asset Relief Program.
We expect continued volatility in stock and bond prices as market participants
continue to evaluate the myriad issues facing the US economy -- bidding the
markets higher as they perceive an end to the crises and bidding the markets
lower as they perceive increasing risks.
4
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
(UNAUDITED)
We will continue to closely watch the economy and the markets and will endeavor
to make appropriate adjustments in the Fund's portfolio as we believe
circumstances warrant.
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, 2008
(UNAUDITED)
HOW DID THE FUND PERFORM DURING THE FISCAL YEAR ENDED NOVEMBER 30, 2008?
For the fiscal year ended November 30, 2008, the Fund's market return was
- -58.90% including dividends reinvested. The Fund's net asset value (NAV) return
including dividends reinvested was -47.75%. The market, as measured by the S&P
500, was down 38.09% (including dividends) for the period.
The Merrill Lynch High Yield Cash Pay Index returned -31.21% for the fiscal year
ended November 30, 2008. By late summer, the markets were coming to grips with
the depth and breadth of the current credit crisis. As investment banks, hedge
funds and structured product managers began the task of deleveraging, intense
selling pressure emerged across many asset classes, including high yield bonds.
September, October and November were each, on an individual basis, the three
worst performing months in the history of the high yield bond market, returning
in aggregate -29.67% over the three month span. It appears that investors
flocked to the safety of U.S. Treasury securities driving interest rates lower.
The yield on the 10-year Treasury declined 1.01% during the fiscal year to
finish at 2.96%, while the yield on the overall high yield market increased
12.24% to finish at 21.69%, a historical high. As shown in the graphic below,
the high yield market's spread to Treasury (or risk premium) also ended the
fiscal year at a historical high of 18.73%. In addition, as shown below, the net
percentage of creditors tightening standards for commercial and industrial loans
reached the highest level since October 1990.
High Spread vs Default Rates
(Source: Merrill Lynch, Bloomberg)
(PERFORMANCE GRAPH)
Spread Default Rates
------ -------------
Nov-98 530 280
Dec-98 555 341
Jan-99 550 349
Feb-99 507 359
Mar-99 510 382
Apr-99 464 420
May-99 467 480
Jun-99 465 485
Jul-99 444 532
Aug-99 465 552
Sep-99 489 584
Oct-99 499 597
Nov-99 470 585
Dec-99 453 556
Jan-00 461 553
Feb-00 496 553
Mar-00 584 567
Apr-00 596 567
May-00 618 540
Jun-00 615 555
Jul-00 617 496
Aug-00 641 521
Sep-00 664 531
Oct-00 757 496
Nov-00 874 544
Dec-00 881 615
Jan-01 739 669
Feb-01 729 709
Mar-01 760 784
Apr-01 739 803
May-01 703 809
Jun-01 739 829
Jul-01 745 890
Aug-01 731 937
Sep-01 914 971
Oct-01 865 1019
Nov-01 752 1022
Dec-01 734 1060
Jan-02 697 1089
Feb-02 722 1073
Mar-02 621 1060
Apr-02 601 1057
May-02 643 1070
Jun-02 781 1054
Jul-02 874 1033
Aug-02 882 1002
Sep-02 966 978
Oct-02 974 929
Nov-02 800 894
Dec-02 802 843
Jan-03 747 768
Feb-03 757 771
Mar-03 696 698
Apr-03 576 679
May-03 614 663
Jun-03 554 614
Jul-03 488 587
Aug-03 477 619
Sep-03 483 603
Oct-03 415 607
Nov-03 401 550
Dec-03 368 531
Jan-04 360 517
Feb-04 381 442
Mar-04 392 427
Apr-04 351 403
May-04 383 365
Jun-04 371 349
Jul-04 369 293
Aug-04 381 234
Sep-04 372 234
Oct-04 355 242
Nov-04 310 247
Dec-04 314 241
Jan-05 341 219
Feb-05 305 249
Mar-05 360 229
Apr-05 423 220
May-05 423 218
Jun-05 404 192
Jul-05 354 191
Aug-05 390 203
Sep-05 378 197
Oct-05 381 195
Nov-05 394 178
Dec-05 399 167
Jan-06 368 171
Feb-06 369 159
Mar-06 339 158
Apr-06 318 151
May-06 330 173
Jun-06 351 179
Jul-06 359 172
Aug-06 369 166
Sep-06 365 171
Oct-06 353 181
Nov-06 347 190
Dec-06 318 174
Jan-07 300 177
Feb-07 311 175
Mar-07 312 158
Apr-07 303 162
May-07 276 151
Jun-07 312 145
Jul-07 422 154
Aug-07 451 144
Sep-07 410 129
Oct-07 429 107
Nov-07 548 91
Dec-07 561 91
Jan-08 640 109
Feb-08 697 123
Mar-08 745 146
Apr-08 635 169
May-08 607 186
Jun-08 686 197
Jul-08 741 231
Aug-08 772 247
Sep-08 1007 266
Oct-08 1496 287
Nov-08 1873 307
Net % of Creditors Tightening Standards for C&I Loans
(source: Federal Reserve)
(PERFORMANCE GRAPH)
04/30/90 56.9
07/31/90 39.45
10/31/90 48.9
01/31/91 36.0
04/30/91 15.5
07/31/91 12.25
10/31/91 9.0
01/31/92 5.25
04/30/92 0.9
07/31/92 -1.7
10/31/92 4.35
01/31/93 2.65
04/30/93 -7.85
07/31/93 -19.45
10/31/93 -17.75
01/31/94 -12.95
04/30/94 -12.2
07/31/94 -6.95
10/31/94 -17.4
01/31/95 -6.85
04/30/95 -5.9
07/31/95 -6.05
10/31/95 -3.45
01/31/96 6.95
04/30/96 -0.9
07/31/96 -3.7
10/31/96 -7.8
01/31/97 -5.45
04/30/97 -6.95
07/31/97 -5.7
10/31/97 -7.0
01/31/98 1.8
04/30/98 -7.1
07/31/98 0.0
10/31/98 36.4
01/31/99 7.4
04/30/99 10.0
07/31/99 5.4
10/31/99 9.1
01/31/00 10.9
04/30/00 24.6
07/31/00 33.9
10/31/00 43.8
01/31/01 59.7
04/30/01 50.9
07/31/01 40.4
10/31/01 50.9
01/31/02 45.4
04/30/02 25.0
07/31/02 23.2
10/31/02 20.0
01/31/03 22.0
04/30/03 8.9
07/31/03 3.5
10/31/03 0.0
01/31/04 -17.9
04/30/04 -23.2
07/31/04 -20.0
10/31/04 -21.1
01/31/05 -23.6
04/30/05 -24.1
07/31/05 -16.7
10/31/05 -8.8
01/31/06 -10.7
04/30/06 -12.3
07/31/06 -8.9
10/31/06 0.0
01/31/07 0.0
04/30/07 -3.7
07/31/07 7.5
10/31/07 19.2
01/31/08 32.2
04/30/08 55.4
07/31/08 57.6
10/31/08 83.6
(See description of Benchmark indices on page 13.)
6
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
(UNAUDITED)
WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
The Fund returned -47.75% overall for the fiscal year ended November 30, 2008.
For the same period, the equity portion of the Fund returned -35.93%. This
return was comprised of a -41.60% return for the stocks invested in by the Fund
and approximately 5.67% from gains from writing call options. As can be seen
below, no single sector of the S&P 500 had positive returns during the period
and all sectors but Consumer Staples had negative returns exceeding 25%. While
stock selection in both the Bank and Real Estate groups was positive, it was not
enough to offset the overweight versus the S&P 500 and poor stock selection
among other Financials. In addition, negative stock selection in the Industrials
sector detracted from relative performance. Positive contributions to relative
performance came from a higher than normal cash position maintained as a
defensive position throughout the year, an underweight in the Technology sector,
solid stock selection combined with an overweight in the Telecommunications
sector, and an overweight in the Energy sector.
Total Return
Year Ended November 30, 2008
(PERFORMANCE GRAPH)
CWF (NAV) -47.8%
CWF Equities -35.9%
CWF High Yield -23.8%
S&P 500 Index -38.1%
Morgan Stanley REIT Index -49.9%
Merrill Lynch High Yield Cash Bond Index -31.2%
S&P 500 Total Return by Sector
(Year Ended November 30, 2008)
(PERFORMANCE GRAPH)
Energy -27.12%
Utilities -27.27%
Telcommunication Services -29.02%
REITs -52.41%
Industrials -40.79%
Basic Materials -44.86%
Consumer Discretionary -40.25%
Financials -57.93%
Consumer Staples -15.84%
Technology -43.15%
Healthcare -29.92%
(SEE DESCRIPTION OF BENCHMARK INDICES ON PAGE 13.)
7
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
(UNAUDITED)
The fixed income portion of the Fund returned -23.75% for the fiscal year ended
November 30, 2008. Tightening credit conditions and reduced liquidity affected
performance across the broad market, as every industry posted strongly negative
returns as shown below, the Fund's strategy of owning predominately BB and
B-rated bonds and limiting exposure to the most speculative, CCC-rated bonds
provided a partial buffer from the broad market's decline. From an industry
perspective, the fixed income portion of the Fund benefited from underweighted
exposure to the Autos, Homebuilding and Financials as well as an overweight
position in Cable TV. The benefit from these industry weightings was partially
offset by an overweight position in Gaming which hurt performance.
The Fund was leveraged during the period and this magnified the negative returns
of the portfolio.
High Yield Performance by Industry
Year Ended November, 30, 2008 (Source: Merrill Lynch, Bloomberg)
(PERFORMANCE GRAPH)
Financials -60%
Auto -50%
CCC INDEX -45%
Gaming -44%
Technology -37%
Paper -35%
Steel -33%
Homebuilding -32%
B INDEX -32%
HY INDEX -31%
Chemicals -29%
Cable TV -26%
Energy -26%
Building Materials -24%
BB INDEX -24%
Consumer -23%
Telecom -21%
Utilities -18%
Healthcare -15%
DID ANY COMMON STOCKS OR FIXED INCOME HOLDINGS WITHIN THE FUND UNDER-PERFORM
RELATIVE TO YOUR EXPECTATIONS?
A number of our holdings were affected by the liquidity squeeze spawned by the
Bear Stearns collapse and the sub-prime mortgage debacle. ENTERCOM
COMMUNICATIONS, ISTAR FINANCIAL, AND BROOKDALE SENIOR LIVING were all holdings
that suffered from perceived funding issues during the period. ALLIANCEBERNSTEIN
HOLDING LP was down 76.8% in the period apparently due to the general market
disdain of financial stocks. While we are certainly not pleased with the
performance of this stock, we continue to believe that this well run company is
undervalued.
8
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
(UNAUDITED)
The Fund's worst performing bond position during the fiscal year was SONIC
AUTOMOTIVE, INC., an automotive retailer. Other bond positions that contributed
significantly to the negative return from the fixed income portion of the Fund
included GMAC, the financing arm of General Motors Corporation, and IDEARC INC.,
publisher of telephone directories.
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE FISCAL YEAR?
The equity portion of the portfolio made some sizeable changes during the fiscal
year ended November 30, 2008. We reduced the significant overweight in the
Financials sector while increasing the relative exposure of the portfolio to
both Energy and Health Care. This was done through the selling of positions in
the Financials sector that had increasing risks associated with write-offs and
funding (e.g. WACHOVIA, ISTAR FINANCIAL). In addition, we added positions in
what we consider to be high quality franchises (e.g. AT&T, EXXON MOBIL and
VERIZON) in sectors which we believe are more defensive in nature. We believe
these changes may strengthen the portfolio's position going forward as the
market continues to move through uncertain times.
Turnover was low in the fixed income portion of the Fund during the fiscal year.
New bond positions included BIO-RAD LABORATORIES, a manufacturer of healthcare
diagnostic equipment, CORRECTIONS CORPORATION OF AMERICA, an owner and manager
of prisons, and PLAINS EXPLORATION & PRODUCTION, an oil and gas company. Sales
of fixed income positions included BRISTOW GROUP, a helicopter transportation
services company to the oil and gas industry, RENT-A-CENTER, an operator of rent
to own stores, and WII COMPONENTS, a manufacturer of wood cabinet doors.
WHY DID THE FUND REDUCE ITS MONTHLY DISTRIBUTION AND LEVERAGE DURING THE YEAR?
The reduction in the monthly distribution from 7.5 cents per share to the
current rate of 3.4 cents per share was attributable to the de-leveraging of the
Fund that occurred during the year and the NAV reduction caused by poor
investment returns. A reduction in leverage was necessary to ensure that the
Fund remained in compliance with the rules of the Investment Company Act of 1940
involving leverage. The Fund's leverage was also reduced during the year due to
the freezing of the commercial paper market which is the Fund's source of
borrowing. The Board of Directors of the Fund attempts to maintain a monthly
distribution that approximates the Fund's earnings power given the prospects for
the Fund's investment and leverage ratios.
9
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
(UNAUDITED)
HOW DID THE FUND TRADE RELATIVE TO ITS NET ASSET VALUE (NAV) DURING THE FISCAL
YEAR?
As of November 30, 2008, the Fund was trading at a closing price of $2.60, which
is a 29% discount to its NAV of $3.67. In comparison, at November 30, 2007, the
Fund was trading at a closing price of $7.35, a discount of 9.9% to its NAV of
$8.16. As shown below, throughout the year ended November 30, 2008, the Fund
traded between a 1.0% to 37.3% discount to its NAV.
History of Fund Price, NAV and Premium
Fiscal Year Ended Ended November 30, 2008
(Source: Bloomberg)
(PERFORMANCE GRAPH)
Date Price NAV
- ---------- ------ ------
11/30/07 $7.3137 $8.1098
12/3/07 7.4132 8.0899
12/4/07 7.3635 8.0103
12/5/07 7.453 8.0799
12/6/07 7.5724 8.1695
12/7/07 7.5426 8.1695
12/10/07 7.5724 8.2491
12/11/07 7.4331 8.1098
12/12/07 7.3934 8.1098
12/13/07 7.4233 8.07
12/14/07 7.3734 7.9804
12/17/07 7.2739 7.9505
12/18/07 7.1943 7.9605
12/19/07 7.1445 7.9804
12/20/07 7.0571 7.9505
12/21/07 7.1246 8.0401
12/24/07 7.1943 8.1197
12/25/07 7.3038 8.0998
12/26/07 7.3038 8.0998
12/27/07 7.2142 8.0103
12/28/07 7.2142 8.0003
12/31/07 7.2441 7.9406
1/1/08 7.2341 7.8809
1/2/08 7.2341 7.8809
1/3/08 7.254 7.8809
1/4/08 7.1545 7.7316
1/7/08 7.1445 7.7814
1/8/08 7.1843 7.652
1/9/08 7.1843 7.6719
1/10/08 7.264 7.7316
1/11/08 7.2142 7.6421
1/14/08 7.2441 7.662
1/15/08 7.1246 7.463
1/16/08 7.0649 7.463
1/17/08 6.9057 7.3237
1/18/08 6.7963 7.2043
1/21/08 6.6769 7.1843
1/22/08 6.6769 7.1843
1/23/08 6.7664 7.3635
1/24/08 7.0649 7.3933
1/25/08 6.9744 7.4033
1/28/08 7.045 7.5227
1/29/08 7.1644 7.6222
1/30/08 7.1843 7.5824
1/31/08 7.2441 7.7018
2/1/08 7.3436 7.7615
2/4/08 7.3436 7.662
2/5/08 7.2441 7.5227
2/6/08 7.254 7.463
2/7/08 7.2839 7.5227
2/8/08 7.3734 7.463
2/11/08 7.3237 7.463
2/12/08 7.3734 7.4729
2/13/08 7.3137 7.5227
2/14/08 7.1346 7.4431
2/15/08 7.0649 7.4431
2/18/08 7.0112 7.3834
2/19/08 7.0112 7.3834
2/20/08 7.045 7.3933
2/21/08 6.9356 7.3336
2/22/08 7.0719 7.3535
2/25/08 7.1644 7.4232
2/26/08 7.2439 7.4729
2/27/08 7.1346 7.4729
2/28/08 7.254 7.3933
2/29/08 7.0847 7.254
3/3/08 6.9654 7.1644
3/4/08 6.8759 7.1147
3/5/08 6.8261 7.1147
3/6/08 6.7167 6.9455
3/7/08 6.6669 6.9356
3/10/08 6.5774 6.8361
3/11/08 6.5774 7.0351
3/12/08 6.5973 6.9455
3/13/08 6.5077 6.9256
3/14/08 6.4979 6.8162
3/17/08 6.2689 6.7465
3/18/08 6.1893 6.9157
3/19/08 6.1793 6.8361
3/20/08 6.4281 6.9356
3/24/08 6.5276 7.045
3/25/08 6.6669 7.0848
3/26/08 6.7266 7.0351
3/27/08 6.7266 6.9953
3/28/08 6.5873 6.9356
3/31/08 6.5475 6.9356
4/1/08 6.647 7.0351
4/2/08 6.6271 7.0649
4/3/08 6.6172 7.0848
4/4/08 6.5774 7.0749
4/7/08 6.6172 7.0948
4/8/08 6.6172 7.0848
4/9/08 6.5973 7.0052
4/10/08 6.5774 7.0152
4/11/08 6.6172 6.9356
4/14/08 6.6072 6.9157
4/15/08 6.3684 6.856
4/16/08 6.458 6.9853
4/17/08 6.4679 7.0152
4/18/08 6.5774 7.0948
4/21/08 6.627 7.0749
4/22/08 6.5376 7.0351
4/23/08 6.6072 7.045
4/24/08 6.657 7.1047
4/25/08 6.7565 7.1545
4/28/08 6.7565 7.1843
4/29/08 6.7863 7.1843
4/30/08 6.8958 7.1744
5/1/08 7.0152 7.254
5/2/08 7.055 7.3137
5/5/08 7.0649 7.3038
5/6/08 7.0749 7.3336
5/7/08 7.0948 7.264
5/8/08 7.045 7.254
5/9/08 7.0152 7.2441
5/12/08 6.9953 7.3237
5/13/08 7.045 7.3038
5/14/08 7.0649 7.3237
5/15/08 7.0649 7.3734
5/16/08 7.1147 7.3635
5/19/08 7.1445 7.3834
5/20/08 7.0848 7.2739
5/21/08 7.0152 7.2142
5/22/08 6.9754 7.2142
5/23/08 6.9853 7.1246
5/26/08 6.9654 7.1445
5/27/08 6.9654 7.1445
5/28/08 7.0052 7.1445
5/29/08 7.0251 7.1943
5/30/08 7.0948 7.1644
6/2/08 7.0351 7.0948
6/3/08 6.9853 7.0649
6/4/08 6.8858 7.0351
6/5/08 6.9157 7.1246
6/6/08 6.8341 6.9953
6/9/08 6.7664 6.9256
6/10/08 6.647 6.8958
6/11/08 6.6571 6.7963
6/12/08 6.5674 6.7764
6/13/08 6.5475 6.846
6/16/08 6.5973 6.8858
6/17/08 6.4978 6.7764
6/18/08 6.4281 6.7067
6/19/08 6.4878 6.7167
6/20/08 6.4878 6.6172
6/23/08 6.4281 6.5376
6/24/08 6.2689 6.5276
6/25/08 6.3385 6.5575
6/26/08 6.2888 6.3883
6/27/08 6.1495 6.3485
6/30/08 6.0599 6.3286
7/1/08 5.9505 6.2191
7/2/08 5.8211 6.1495
7/3/08 5.7216 6.1196
7/4/08 5.4529 6.05
7/7/08 5.4529 6.05
7/8/08 5.5823 6.1793
7/9/08 5.5922 6.0798
7/10/08 5.6321 6.0699
7/11/08 5.5823 6.0201
7/14/08 5.4529 5.9206
7/15/08 5.0748 5.7515
7/16/08 5.1644 5.9107
7/17/08 5.433 6.0201
7/18/08 5.4529 6.04
7/21/08 5.4828 6.0699
7/22/08 5.5624 6.1793
7/23/08 5.6818 6.2291
7/24/08 5.5922 6.0699
7/25/08 5.5823 6.0898
7/28/08 5.5027 5.9903
7/29/08 5.6022 6.0997
7/30/08 5.6619 6.1694
7/31/08 5.6495 6.1495
8/1/08 5.646 6.0997
8/11/08 5.7714 6.2589
8/12/08 5.7017 6.1992
8/13/08 5.841 6.1594
8/14/08 5.7913 6.2291
8/15/08 5.851 6.2589
8/18/08 5.7714 6.1992
8/19/08 5.642 6.05
8/20/08 5.642 6.0997
8/21/08 5.642 6.0798
8/22/08 5.7216 6.1594
8/25/08 5.6719 6.0898
8/26/08 5.6321 6.1097
8/27/08 5.6818 6.1594
8/28/08 5.7415 6.2589
8/29/08 5.7314 6.2191
9/1/08 5.7515 6.1893
9/2/08 5.7515 6.1893
9/3/08 5.7515 6.1893
9/4/08 5.6918 6.0699
9/5/08 5.6521 6.0798
9/8/08 5.7614 6.1893
9/9/08 5.642 6.0301
9/10/08 5.5922 6.04
9/11/08 5.642 6.04
9/12/08 5.5723 6.0798
9/15/08 5.244 5.7813
9/16/08 4.6768 5.7714
9/17/08 4.1275 5.5126
9/18/08 4.5275 5.7216
9/19/08 5.1544 5.9405
9/22/08 4.9654 5.7813
9/23/08 4.8261 5.7316
9/24/08 4.8161 5.6719
9/25/08 4.9256 5.7316
9/26/08 4.7464 5.6918
9/29/08 4.1494 5.3236
9/30/08 4.3325 5.4927
10/1/08 4.5673 5.3534
10/2/08 4.3783 5.1544
10/3/08 4.4381 5.045
10/6/08 3.8011 4.846
10/7/08 3.6917 4.6171
10/8/08 3.3832 4.4977
10/9/08 3.0349 4.1892
10/10/08 2.9653 4.1295
10/13/08 4.0738 4.4081
10/14/08 3.7613 4.5076
10/15/08 3.2041 4.2191
10/16/08 3.5424 4.2191
10/17/08 3.7713 4.1892
10/20/08 4.0771 4.2987
10/21/08 3.9305 4.1594
10/22/08 3.6427 4.0101
10/23/08 3.4529 4.0002
10/24/08 3.3932 3.9106
10/27/08 3.1444 3.8509
10/28/08 3.2837 4.0101
10/29/08 3.4429 4.03
10/30/08 3.4728 4.0997
10/31/08 3.6618 4.1295
11/3/08 3.8011 4.1295
11/4/08 3.7126 4.239
11/5/08 3.5026 4.1196
11/6/08 3.3136 3.9703
11/7/08 3.3335 4.0201
11/10/08 3.2837 3.9802
11/11/08 3.2041 3.9404
11/12/08 2.9852 3.8111
11/13/08 3.0945 3.9106
11/14/08 3.0747 3.831
11/17/08 2.9255 3.7713
11/18/08 2.6867 3.7315
11/19/08 2.5374 3.5623
11/20/08 2.219 3.3832
11/21/08 2.1593 3.4429
11/24/08 2.3384 3.5623
11/25/08 2.3483 3.6021
11/26/08 2.4678 3.6618
11/27/08 2.5892 3.7016
11/28/08 2.6 3.67
Premium/
Discount
11/30/07 -9.816%
12/3/07 -8.364
12/4/07 -8.075
12/5/07 -7.759
12/6/07 -7.308
12/7/07 -7.674
12/10/07 -8.203
12/11/07 -8.344
12/12/07 -8.833
12/13/07 -8.013
12/14/07 -7.606
12/17/07 -8.511
12/18/07 -9.625
12/19/07 -10.474
12/20/07 -11.237
12/21/07 -11.386
12/24/07 -11.397
12/25/07 -9.828
12/26/07 -9.828
12/27/07 -9.938
12/28/07 -9.826
12/31/07 -8.772
1/1/08 -8.207
1/2/08 -8.207
1/3/08 -7.955
1/4/08 -7.465
1/7/08 -8.184
1/8/08 -6.112
1/9/08 -6.355
1/10/08 -6.049
1/11/08 -5.599
1/14/08 -5.455
1/15/08 -4.533
1/16/08 -5.333
1/17/08 -5.707
1/18/08 -5.663
1/21/08 -7.064
1/22/08 -7.064
1/23/08 -8.108
1/24/08 -4.441
1/25/08 -5.793
1/28/08 -6.349
1/29/08 -6.005
1/30/08 -5.249
1/31/08 -5.943
2/1/08 -5.385
2/4/08 -4.156
2/5/08 -3.704
2/6/08 -2.8
2/7/08 -3.175
2/8/08 -1.2
2/11/08 -1.867
2/12/08 -1.332
2/13/08 -2.778
2/14/08 -4.144
2/15/08 -5.08
2/18/08 -5.04
2/19/08 -5.04
2/20/08 -4.711
2/21/08 -5.427
2/22/08 -3.829
2/25/08 -3.485
2/26/08 -3.064
2/27/08 -4.527
2/28/08 -1.884
2/29/08 -2.334
3/3/08 -2.778
3/4/08 -3.357
3/5/08 -4.056
3/6/08 -3.295
3/7/08 -3.874
3/10/08 -3.785
3/11/08 -6.506
3/12/08 -5.014
3/13/08 -6.034
3/14/08 -4.67
3/17/08 -7.08
3/18/08 -10.504
3/19/08 -9.607
3/20/08 -7.317
3/24/08 -7.345
3/25/08 -5.899
3/26/08 -4.385
3/27/08 -3.841
3/28/08 -5.022
3/31/08 -5.595
4/1/08 -5.516
4/2/08 -6.197
4/3/08 -6.601
4/4/08 -7.032
4/7/08 -6.732
4/8/08 -6.601
4/9/08 -5.824
4/10/08 -6.241
4/11/08 -4.591
4/14/08 -4.46
4/15/08 -7.112
4/16/08 -7.55
4/17/08 -7.801
4/18/08 -7.293
4/21/08 -6.331
4/22/08 -7.072
4/23/08 -6.215
4/24/08 -6.303
4/25/08 -5.563
4/28/08 -5.956
4/29/08 -5.54
4/30/08 -3.883
5/1/08 -3.292
5/2/08 -3.537
5/5/08 -3.27
5/6/08 -3.528
5/7/08 -2.329
5/8/08 -2.881
5/9/08 -3.159
5/12/08 -4.484
5/13/08 -3.542
5/14/08 -3.533
5/15/08 -4.184
5/16/08 -3.378
5/19/08 -3.235
5/20/08 -2.599
5/21/08 -2.759
5/22/08 -3.31
5/23/08 -1.955
5/26/08 -2.507
5/27/08 -2.507
5/28/08 -1.95
5/29/08 -2.351
5/30/08 -0.972
6/2/08 -0.842
6/3/08 -1.127
6/4/08 -2.122
6/5/08 -2.933
6/6/08 -2.304
6/9/08 -2.299
6/10/08 -3.608
6/11/08 -2.048
6/12/08 -3.084
6/13/08 -4.36
6/16/08 -4.191
6/17/08 -4.112
6/18/08 -4.154
6/19/08 -3.407
6/20/08 -1.955
6/23/08 -1.674
6/24/08 -3.963
6/25/08 -3.338
6/26/08 -1.558
6/27/08 -3.135
6/30/08 -4.245
7/1/08 -4.32
7/2/08 -5.34
7/3/08 -6.504
7/4/08 -9.868
7/7/08 -9.868
7/8/08 -9.662
7/9/08 -8.02
7/10/08 -7.213
7/11/08 -7.273
7/14/08 -7.899
7/15/08 -11.765
7/16/08 -12.626
7/17/08 -9.752
7/18/08 -9.72
7/21/08 -9.672
7/22/08 -9.984
7/23/08 -8.786
7/24/08 -7.869
7/25/08 -8.333
7/28/08 -8.14
7/29/08 -8.157
7/30/08 -8.226
7/31/08 -8.131
8/1/08 -7.439
8/11/08 -7.79
8/12/08 -8.026
8/13/08 -5.17
8/14/08 -7.029
8/15/08 -6.518
8/18/08 -6.902
8/19/08 -6.743
8/20/08 -7.504
8/21/08 -7.201
8/22/08 -7.108
8/25/08 -6.863
8/26/08 -7.818
8/27/08 -7.754
8/28/08 -8.267
8/29/08 -7.842
9/1/08 -7.074
9/2/08 -7.074
9/3/08 -7.074
9/4/08 -6.23
9/5/08 -7.036
9/8/08 -6.913
9/9/08 -6.436
9/10/08 -7.414
9/11/08 -6.59
9/12/08 -8.347
9/15/08 -9.294
9/16/08 -18.966
9/17/08 -25.126
9/18/08 -20.87
9/19/08 -13.233
9/22/08 -14.114
9/23/08 -15.799
9/24/08 -15.088
9/25/08 -14.063
9/26/08 -16.608
9/29/08 -22.056
9/30/08 -21.123
10/1/08 -14.684
10/2/08 -15.058
10/3/08 -12.029
10/6/08 -21.561
10/7/08 -20.043
10/8/08 -24.779
10/9/08 -27.553
10/10/08 -28.193
10/13/08 -7.585
10/14/08 -16.556
10/15/08 -24.057
10/16/08 -16.038
10/17/08 -9.976
10/20/08 -5.155
10/21/08 -5.502
10/22/08 -9.161
10/23/08 -13.682
10/24/08 -13.232
10/27/08 -18.346
10/28/08 -18.114
10/29/08 -14.568
10/30/08 -15.291
10/31/08 -11.325
11/3/08 -7.952
11/4/08 -12.418
11/5/08 -14.976
11/6/08 -16.541
11/7/08 -17.079
11/10/08 -17.5
11/11/08 -18.687
11/12/08 -21.671
11/13/08 -20.868
11/14/08 -19.74
11/17/08 -22.427
11/18/08 -28
11/19/08 -28.771
11/20/08 -34.412
11/21/08 -37.283
11/24/08 -34.358
11/25/08 -34.807
11/26/08 -32.609
11/27/08 -30.054
11/28/08 -29
10
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
(UNAUDITED)
CWF (AS A % OF) TOTAL INVESTMENTS
As of November 30, 2008
(PIE CHART)
Equities 52.4%
Fixed Income 42.3%
Preferred Term Securities 5.3%
HOW IS THE FUND POSITIONED AT THE CLOSE OF THE FISCAL YEAR?
As of November 30, 2008, the percentage of the Fund's total investments held in
equities and fixed income was 52.4% and 42.3%, respectively. The Fund continues
to be overweight high quality, higher dividend paying securities although with a
more conservative weighting than in the past. As shown below, in the Equity
portion of the portfolio, securities related to the Energy sector represent the
largest sector allocation from both an absolute and relative perspective while
the Financials weighting has been reduced and was equally weighted when compared
to the Index at the Fund's fiscal year end. Healthcare has been increasing in
weighting during the year and the sector is now the fifth largest sector by
weight within the portfolio.
FUND EQUITY ALLOCATION AS A % OF TOTAL INVESTMENTS
(as of November 30, 2008)
(PIE CHART)
Equities 52.4%
Fixed Income 42.3%
Preferred Term Securities 5.3%
Basic Material 3.3%
Consumer Staples 3.1%
Energy 10.5%
Financials 9.5%
Healthcare 4.7%
Industrials 6.4%
REITs 3.7%
Technology 1.7%
Telecom 9.5%
11
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
(UNAUDITED)
FUND FIXED INCOME ALLOCATION AS A % OF TOTAL INVESTMENTS
(as of November 30, 2008)
(PIE CHART)
Equities 52.4%
Fixed Income 42.3%
Preferred Term Securities 5.3%
Automotive 1.0%
Basic Industry 2.3%
Broadcasting 0.7%
Building Materials 0.7%
Cable Television 3.5%
Chemicals 1.4%
Consumer Products 1.0%
Electronic Equip. & Instruments 1.8%
Energy 5.4%
Financial 0.3%
Gaming 3.6%
Healthcare 3.1%
Metals & Mining 1.7%
Paper & Forest Products 2.3%
Real Estate 2.3%
Retail 2.9%
Services 1.4%
Telecommunications 2.5%
Transportation 1.0%
Utilities 3.4%
The fixed income portion of the Fund continues to be overweighed BB and B-rated
issues and underweighted CCC-rated issues. We believe a higher quality bias
relative to the overall high yield market is prudent given the weak near term
outlook for the general economy. It appears that banks are continuing to tighten
their lending standards and corporate default rates are projected to increase
meaningfully. As shown above, the fixed-income portion of the Fund was well
diversified at year-end.
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
- ------ ------------------------------------ -----------
T AT&T, Inc. 5.2
XOM Exxon Mobil Corp. 4.5
ETP Energy Transfer Partners LP 4.2
PFE Pfizer, Inc. 3.7
BAC Bank of America Corporation 3.7
CAT Caterpillar, Inc. 2.9
FTR Frontier Communications Corporations 2.5
NLY Annaly Capital Management, Inc. 2.4
AB AllianceBernstein Holding LP 2.1
PPG PPG Industries, Inc. 1.9
12
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
(UNAUDITED)
DEFINITION OF THE COMPARATIVE INDICES
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.
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, 2008
UTILIZATION OF LEVERAGE (UNAUDITED)
The Chartwell Dividend and Income Fund, Inc. has utilized leverage through the
issuance of commercial paper. As of November 30, 2008, the Fund had
approximately $10 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. In this example, 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, 2008
SCHEDULE OF INVESTMENTS
(BAR CHART)
ASSET CLASS WEIGHTINGS (UNAUDITED)+:
Common Stock 58.0%
Preferred Term Securities 6.0%
Preferred Stock 1.9%
Corporate Notes/Bonds 48.3%
+ Percentages are based on total net assets of $62,021,556
Total Investments including leverage are $70,842,416.
NUMBER OF MARKET
SHARES VALUE
--------- ----------
COMMON STOCK --58.0%
AEROSPACE & DEFENSE--0.7%
Honeywell International, Inc. ........................... 15,000 $ 417,900
----------
BANKS--4.2%
Bank of America Corporation ............................. 160,000 2,600,000
----------
BASIC INDUSTRY--3.6%
Dow Chemical Company .................................... 50,000 927,500
PPG Industries, Inc. .................................... 30,000 1,317,600
----------
2,245,100
----------
BEVERAGES--0.9%
PepsiCo, Inc. ........................................... 10,000 567,000
----------
COMPUTERS & PERIPHERALS--0.7%
International Business Machines Corporation ............. 5,000 408,000
----------
CONSUMER STAPLES--2.6%
B&G Foods, Inc., Class A ................................ 75,000 403,500
Reynolds American, Inc. ................................. 30,000 1,232,400
----------
1,635,900
----------
ENERGY--12.0%
Copano Energy LLC (A) ................................... 15,000 180,150
Energy Transfer Partners LP (A) ......................... 90,000 2,981,700
Exxon Mobil Corporation ................................. 40,000 3,206,000
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
SCHEDULE OF INVESTMENTS (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
--------- ----------
COMMON STOCK (CONTINUED)
ENERGY (CONTINUED)
Occidental Petroleum Corporation ........................ 20,000 $1,082,800
----------
7,450,650
----------
FINANCIAL--5.1%
ACE Limited ............................................. 20,000 1,045,000
AllianceBernstein Holding LP (A) ........................ 83,800 1,475,718
MCG Capital Corporation ................................. 100,000 74,000
Star Asia Financial Limited*+ (C) (D) ................... 15,000 594,000
----------
3,188,718
----------
HEALTH CARE PROVIDERS & SERVICES--0.3%
Brookdale Senior Living, Inc. ........................... 40,000 162,800
----------
HEALTHCARE--5.1%
Abbott Laboratories ..................................... 10,000 523,900
Pfizer, Inc. ............................................ 160,000 2,628,800
----------
3,152,700
----------
INDUSTRIAL CONGLOMERATES--1.8%
3M Company .............................................. 10,000 669,300
General Electric Company ................................ 25,000 429,250
----------
1,098,550
----------
IT SERVICES--0.7%
Paychex, Inc. ........................................... 15,000 423,900
----------
MACHINERY--3.3%
Caterpillar, Inc. ....................................... 50,000 2,049,500
----------
REAL ESTATE INVESTMENT TRUSTS--3.8%
Annaly Capital Management, Inc. ......................... 120,000 1,724,400
MFA Mortgage Investments, Inc. .......................... 106,700 660,473
----------
2,384,873
----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--0.7%
Microchip Technology, Inc. .............................. 25,000 462,500
----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
16
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
SCHEDULE OF INVESTMENTS (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
---------- ----------
COMMON STOCK (CONTINUED)
TELECOMMUNICATIONS--10.9%
AT&T, Inc. ........................................... 130,000 $3,712,800
Frontier Communications Corporation .................. 200,000 1,744,000
Verizon Communications, Inc. ......................... 40,000 1,306,000
----------
6,762,800
----------
TRANSPORTATION--1.6%
General Maritime Corporation ......................... 75,000 972,000
----------
TOTAL COMMON STOCK (COST $62,982,234) ................ 35,982,891
----------
PREFERRED TERM SECURITIES+ (C) (D)--6.0%
Alesco Preferred Funding IX, 06/23/36 ................ 10,000 50,000
Alesco Preferred Funding X, 09/23/36 ................. 10,000 50,000
Alesco Preferred Funding XI, 12/23/36 ................ 5,000 25,000
Alesco Preferred Funding XII, 07/15/37 ............... 5,000 25,000
Alesco Preferred Funding XIII, 09/23/37 .............. 2,500 12,500
Alesco Preferred Funding XIV, 03/15/37 ............... 5,000 25,000
Alesco Preferred Funding XV, 12/23/37 ................ 2,500 7,500
Alesco Preferred Funding XVI, 03/23/38 ............... 5,000 25,000
I-Preferred Term Securities IV, 06/24/34 ............. 10,000 653,800
Preferred Term Securities IV, 12/23/31 ............... 20,000 440,000
Preferred Term Securities XIII, 03/24/34 ............. 10,000 520,000
Preferred Term Securities XIV, 06/24/34 .............. 20,000 600,000
Preferred Term Securities XV, 09/24/34 ............... 20,000 60,000
Preferred Term Securities XVI, 03/23/35 .............. 10,000 250,000
Preferred Term Securities XVII, 06/23/35 ............. 6,000 36,000
Preferred Term Securities XVIII, 09/23/35 ............ 10,000 242,500
Preferred Term Securities XIX, 12/22/35 .............. 10,000 175,000
Preferred Term Securities XX, 03/22/38 ............... 10,000 50,000
Preferred Term Securities XXI, 03/22/38 .............. 10,000 55,000
Preferred Term Securities XXII, 09/22/36 ............. 10,000 25,000
Preferred Term Securities XXIII, 12/22/36 ............ 5,000 123,500
Preferred Term Securities XXIV, 03/22/37 ............. 5,000 145,000
Preferred Term Securities XXV, 06/22/37 .............. 5,000 158,750
Taberna Preferred Funding II Limited, 06/30/35 ....... 5,000 5,000
----------
TOTAL PREFERRED TERM SECURITIES (COST $16,367,643) ... 3,759,550
----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
SCHEDULE OF INVESTMENTS (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
---------- ----------
PREFERRED STOCK--1.9%
FINANCIAL--1.5%
Solar Cayman Limited*+ (C) (D) ....................... 80,000 $ 937,600
----------
REAL ESTATE INVESTMENT TRUSTS--0.4%
FelCor Lodging Trust, Inc. ........................... 40,000 218,000
----------
TOTAL PREFERRED STOCK (COST $2,200,000) .............. 1,155,600
----------
PRINCIPAL
AMOUNT
----------
CORPORATE NOTES/BONDS --48.3%
AUTOMOTIVE--1.1%
Lear Corporation, Series B
8.750%, 12/01/16 .................................. $ 885,000 194,700
TRW Automotive, Inc.+
7.250%, 03/15/17 .................................. 1,000,000 465,000
----------
659,700
----------
BASIC INDUSTRY--2.7%
Blount, Inc. .........................................
8.875%, 08/01/12 .................................. 750,000 675,937
H&E Equipment Services, Inc. .........................
8.375%, 07/15/16 .................................. 1,175,000 616,875
Trimas Corporation
9.875%, 06/15/12 .................................. 772,000 414,950
----------
1,707,762
----------
BROADCASTING--0.8%
Allbritton Communications Company
7.750%, 12/15/12 .................................. 815,000 476,775
----------
BUILDING MATERIALS--0.8%
Gibraltar Industries, Inc. ...........................
8.000%, 12/01/15 .................................. 840,000 529,200
----------
CABLE TELEVISION--4.0%
CSC Holdings, Inc. ...................................
7.875%, 02/15/18 .................................. 535,000 379,850
DIRECTV Holdings LLC
6.375%, 06/15/15 .................................. 750,000 613,125
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
SCHEDULE OF INVESTMENTS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ----------
CORPORATE NOTES/BONDS (CONTINUED)
CABLE TELEVISION (CONTINUED)
Echostar DBS Corporation
6.625%, 10/01/14................................ $ 500,000 $ 358,750
Mediacom Broadband LLC
8.500%, 10/15/15................................ 750,000 536,250
Quebecor Media, Inc.
7.750%, 03/15/16................................ 895,000 604,125
----------
2,492,100
----------
CHEMICALS--1.6%
Chemtura Corporation
6.875%, 06/01/16................................ 1,000,000 555,000
Nova Chemicals Corporation (B)
5.720%, 11/15/13................................ 800,000 432,000
----------
987,000
----------
COMPUTERS-MEMORY DEVICES--0.8%
Seagate Technology HDD Holdings
6.800%, 10/01/16................................ 750,000 472,500
----------
CONSUMER PRODUCTS--1.2%
Hanesbrands, Inc. (B)
6.508%, 12/15/14................................ 525,000 341,250
Levi Strauss & Company
9.750%, 01/15/15................................ 675,000 408,375
----------
749,625
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS--1.1%
Flextronics International Limited
6.500%, 05/15/13................................ 885,000 694,725
----------
ENERGY--6.2%
Cie Generale de Geophysique
7.750%, 05/15/17................................ 500,000 309,375
Cimarex Energy Company
7.125%, 05/01/17................................ 650,000 510,250
Complete Production Services, Inc.
8.000%, 12/15/16................................ 780,000 495,300
Copano Energy LLC
8.125%, 03/01/16................................ 935,000 668,525
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
SCHEDULE OF INVESTMENTS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ----------
CORPORATE NOTES/BONDS (CONTINUED)
ENERGY (CONTINUED)
Newfield Exploration Company
6.625%, 04/15/16.............................. $ 750,000 $ 551,250
Pioneer Natural Resources Company
6.650%, 03/15/17.............................. 500,000 350,798
Plains Exploration & Production Company
7.625%, 06/01/18.............................. 500,000 335,000
Range Resources Corporation
7.500%, 05/15/16.............................. 750,000 626,250
----------
3,846,748
----------
FINANCIAL--0.3%
Ford Motor Credit Company LLC
7.000%, 10/01/13.............................. 450,000 189,518
----------
GAMING--4.0%
Boyd Gaming Corporation
7.125%, 02/01/16.............................. 600,000 342,000
MGM Mirage
6.750%, 09/01/12.............................. 500,000 272,500
MTR Gaming Group, Inc., Series B
9.750%, 04/01/10.............................. 520,000 390,000
MTR Gaming Group, Inc.
9.000%, 06/01/12.............................. 700,000 388,500
Scientific Games Corporation
6.250%, 12/15/12.............................. 500,000 385,000
Seneca Gaming Corporation
7.250%, 05/01/12.............................. 1,000,000 675,000
----------
2,453,000
----------
HEALTH CARE PROVIDERS & SERVICES--0.7%
DaVita, Inc.
6.625%, 03/15/13.............................. 500,000 445,000
----------
HEALTHCARE--2.9%
Bio-Rad Laboratories, Inc.
7.500%, 08/15/13.............................. 1,000,000 865,000
HCA, Inc.
9.125%, 11/15/14.............................. 500,000 407,500
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
SCHEDULE OF INVESTMENTS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ----------
CORPORATE NOTES/BONDS (CONTINUED)
HEALTHCARE (CONTINUED)
Omnicare, Inc.
6.875%, 12/15/15................................ $ 650,000 $ 529,750
----------
1,802,250
----------
METALS & MINING--2.0%
Freeport-McMoRan Copper & Gold, Inc.
8.375%, 04/01/17................................ 1,000,000 710,944
Steel Dynamics, Inc
7.375%, 11/01/12................................ 750,000 558,750
----------
1,269,694
----------
PAPER & FOREST PRODUCTS--2.5%
P H Glatfelter
7.125%, 05/01/16................................ 1,190,000 1,041,250
U.S. Corrugated (D)
10.000%, 06/01/13 .............................. 1,000,000 500,000
----------
1,541,250
----------
REAL ESTATE--0.2%
Host Hotels & Resorts LP
7.000%, 08/15/12................................ 200,000 151,000
----------
REAL ESTATE MANAGEMENT--2.5%
Corrections Corp of America
7.500%, 05/01/11................................ 830,000 792,650
Geo Group, Inc.
8.250%, 07/15/13................................ 840,000 730,800
----------
1,523,450
----------
RETAIL--3.3%
Autonation, Inc.
7.000%, 04/15/14................................ 500,000 327,500
Brown Shoe Company, Inc.
8.750%, 05/01/12................................ 1,200,000 906,000
Couche-Tard US LP
7.500%, 12/15/13................................ 400,000 305,000
Sonic Automotive, Inc., Series B
8.625%, 08/15/13................................ 1,390,000 507,350
----------
2,045,850
----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
SCHEDULE OF INVESTMENTS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
CORPORATE NOTES/BONDS (CONTINUED)
SERVICES--1.6%
ARAMARK Corporation
8.500%, 02/01/15................................. $ 500,000 $ 417,500
KAR Holdings, Inc.
8.750%, 05/01/14................................. 1,270,000 546,100
-----------
963,600
-----------
TELECOMMUNICATIONS--2.9%
Cincinnati Bell, Inc.
8.375%, 01/15/14................................. 460,000 342,125
Hughes Network Systems LLC
9.500%, 04/15/14................................. 855,000 709,650
L-3 Communications Corporation
6.125%, 07/15/13................................. 250,000 213,750
Windstream Corporation
8.125%, 08/01/13................................. 625,000 518,750
-----------
1,784,275
-----------
TRANSPORTATION--1.2%
Stena AB
7.500%, 11/01/13................................. 950,000 731,500
-----------
UTILITIES--3.9%
Amerigas Partners LP
7.250%, 05/20/15................................. 750,000 543,750
Edison Mission Energy
7.000%, 05/15/17................................. 650,000 490,750
Elwood Energy LLC
8.159%, 07/05/26................................. 942,253 694,374
Sierra Pacific Resources
8.625%, 03/15/14................................. 750,000 698,979
-----------
2,427,853
-----------
TOTAL CORPORATE NOTES/BONDS (COST $43,488,184)...... 29,944,375
-----------
TOTAL INVESTMENTS--114.2% (COST $125,038,061)....... 70,842,416
-----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
SCHEDULE OF INVESTMENTS (CONTINUED)
WRITTEN MARKET
CONTRACTS VALUE
---------- -----------
COVERED CALL OPTIONS WRITTEN --(1.3)%
Abbott Laboratories,
Expires: 12/20/08, Strike Price: $55............. (100) $ (9,500)
Annaly Capital Management, Inc.,
Expires: 12/20/08, Strike Price: $15............. (1,000) (95,000)
AT&T, Inc., Expires: 12/20/08, Strike Price: $27.... (600) (138,000)
AT&T, Inc., Expires: 12/20/08, Strike Price: $28.... (700) (119,700)
Bank of America Corporation,
Expires: 12/20/08, Strike Price: $25............. (1,600) (8,000)
Caterpillar, Inc.,
Expires: 12/20/08, Strike Price: $47.50.......... (500) (15,000)
Dow Chemical Company,
Expires: 12/20/08, Strike Price: $40............. (500) (2,500)
Exxon Mobil Corporation,
Expires: 12/20/08, Strike Price: $80............. (400) (154,000)
General Electric Company,
Expires: 12/20/08, Strike Price: $17.50.......... (250) (21,250)
Honeywell International, Inc.,
Expires: 12/20/08, Strike Price: $27.50.......... (150) (28,500)
International Business Machines Corporation,
Expires: 12/20/08, Strike Price: $95............. (50) (1,300)
Occidental Petroleum Corporation,
Expires: 12/20/08, Strike Price: $55............. (200) (68,000)
Paychex, Inc.,
Expires: 12/20/08, Strike Price: $27.50.......... (150) (30,750)
PepsiCo, Inc.,
Expires: 12/20/08, Strike Price: $57.50.......... (100) (15,500)
Pfizer, Inc.,
Expires: 12/20/08, Strike Price: $17.50.......... (1,600) (51,200)
PPG Industries, Inc.,
Expires: 12/20/08, Strike Price: $45............. (200) (40,000)
PPG Industries, Inc.,
Expires: 12/20/08, Strike Price: $50............. (100) (5,000)
Reynolds American, Inc.,
Expires: 12/20/08, Strike Price: $45............. (300) (4,200)
-----------
TOTAL COVERED CALL OPTIONS WRITTEN
(PREMIUMS RECEIVED $ 784,470).................... (807,400)
-----------
OTHER LIABILITIES IN EXCESS OF OTHER ASSETS--(12.9)% (8,013,460)
-----------
NET ASSETS--100.0%.................................. $62,021,556
===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
SCHEDULE OF INVESTMENTS (CONCLUDED)
* 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, 2008,
these securities amounted to $5,756,150 or 9.3% of net assets.
(A) Securities considered Master Limited Partnership. At November 30, 2008,
these securities amounted to $4,637,568 or 7.5% of net assets.
(B) Variable rate security -- The rate reported on the Schedule of Investments
is the rate in effect at November 30, 2008.
(C) Securities are considered illiquid. The total value of such securities as
of November 30, 2008 was $5,291,150 or 8.5% of net assets.
(D) Securities fair valued in accordance with Fair Value Procedures (see Note
1).
LLC Limited Liability Company
LP Limited Partnership
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
STATEMENT OF ASSETS AND LIABILITIES
AS OF NOVEMBER 30, 2008
ASSETS:
Investments, at value (cost $125,038,061) (Note 1) ........ $ 70,842,416
Cash ...................................................... 2,614,786
Interest receivable ....................................... 869,358
Dividends receivable ...................................... 137,225
Prepaid expenses and other assets ......................... 57,564
------------
Total assets ........................................... 74,521,349
------------
LIABILITIES:
Commercial paper (Note 4) ................................. 9,941,820
Payable for securities purchased .......................... 1,452,406
Covered call options written, at value
(premiums received--$784,470) (Note 1) ................. 807,400
Payable for investment management fees (Note 2) ........... 59,585
Payable for administration fees (Note 2) .................. 7,010
Accrued expenses and other liabilities .................... 231,572
------------
Total liabilities ...................................... 12,499,793
------------
NET ASSETS ................................................ $ 62,021,556
============
NET ASSETS CONSIST OF:
Common Stock, $0.01 par value
(authorized 100,000,000 shares) ..................... $ 169,060
Additional paid-in capital ............................. 181,044,215
Undistributed net investment income .................... 703,046
Accumulated net realized losses on investments and
written call options ................................ (65,676,190)
Net unrealized depreciation on investments and
written call options ................................ (54,218,575)
------------
NET ASSETS ................................................ $ 62,021,556
============
NET ASSET VALUE PER SHARE:
$62,021,556 / 16,905,967 shares of Common Stock issued
and outstanding ..................................... $ 3.67
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
NOVEMBER 30, 2008
INVESTMENT INCOME:
Dividends .............................................. $ 8,142,534
Interest ............................................... 5,078,178
------------
Total investment income ............................. 13,220,712
------------
EXPENSES:
Investment management fees (Note 2) .................... 1,505,457
Commercial paper fees .................................. 291,910
Administration fees (Note 2) ........................... 158,538
Legal fees ............................................. 115,568
Printing and shareholder reports ....................... 89,731
Audit fees ............................................. 45,000
Transfer agent fees .................................... 41,336
Registration fees ...................................... 26,019
Directors' fees and expenses ........................... 24,750
Custodian fees ......................................... 18,823
Insurance fees ......................................... 16,751
Other operating expenses ............................... 42,829
------------
Total operating expenses ............................ 2,376,712
------------
Interest expense (Note 4) .............................. 1,580,939
------------
Total expenses ...................................... 3,957,651
Less: Investment management fees waived
(Note 2) ...................................... (157,881)
------------
Net expenses ..................................... 3,799,770
------------
NET INVESTMENT INCOME ............................ 9,420,942
------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized loss on investments ....................... (37,833,912)
Net realized gain on written call options .............. 8,825,538
Change in net unrealized depreciation
on investments and written call options ............. (41,822,635)
------------
Net realized and unrealized loss on investments
and written call options ............................ (70,831,009)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ... $(61,410,067)
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED
NOVEMBER 30, 2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net decrease in net assets resulting from operations ............ $(61,410,067)
Adjustments to reconcile net decrease in net assets resulting
from operations to net cash provided by operating activities:
Purchase of long-term portfolio investments .................. (82,198,308)
Proceeds from sales of long-term portfolio investments ....... 121,284,257
Net purchase of short-term portfolio investments ............. (94,991,830)
Net proceeds from sales of short-term portfolio investments .. 96,745,620
Realized gain on written call options ........................ (8,825,538)
Premiums received from options written ....................... 19,962,494
Premiums paid to closed options .............................. (10,620,770)
Amortization of premiums on investments ...................... (145,488)
Realized losses from security transactions ................... 37,833,912
Change in unrealized depreciation from security
transactions and written call options ..................... 41,822,635
Decrease in interest receivable .............................. 634,264
Decrease in dividends receivable ............................. 64,662
Decrease in receivable for securities sold ................... 401,750
Decrease in prepaid expenses and other assets ................ 48,032
Increase in payable for securities purchased ................. 1,452,406
Decrease in payable for investment management fees ........... (75,623)
Decrease in payable for administration fees .................. (8,897)
Decrease in payable to custodian ............................. (1,268)
Increase in accrued expenses and other liabilities ........... 13,066
------------
Net cash provided by operating activities ................. 61,985,309
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid to shareholders ............................. (14,522,225)
Decrease in commercial paper, at value .......................... (44,848,298)
------------
Net cash used in financing activities ..................... (59,370,523)
------------
Net increase in cash ...................................... 2,614,786
CASH
Cash at beginning of year ................................. --
------------
Cash at end of year ....................................... $ 2,614,786
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
STATEMENT OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
NOVEMBER 30, NOVEMBER 30,
2008 2007
------------ ------------
OPERATIONS:
Net investment income ...................... $ 9,420,942 $ 13,531,811
Net realized loss on investments ........... (37,833,912) (92,556)
Net realized gain on written call options .. 8,825,538 2,171,032
Change in net unrealized depreciation on
investments and written call options .... (41,822,635) (24,015,402)
------------ ------------
Net decrease in net assets resulting from
operations ................................. (61,410,067) (8,405,115)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income ...................... (9,913,146) (14,219,577)
Tax return of capital ...................... (4,609,079) (825,229)
------------ ------------
Net decrease in net assets resulting from
dividends and distributions ................ (14,522,225) (15,044,806)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Reinvestment of dividends resulting in the
issuance of Common Stock transactions ...... -- 790,866
------------ ------------
Total decrease in net assets .................. (75,932,292) (22,659,055)
------------ ------------
NET ASSETS:
Beginning of year .......................... 137,953,848 160,612,903
------------ ------------
End of year
(including undistributed net investment
income of $703,046 and $1,881,138,
respectively) ........................... $ 62,021,556 $137,953,848
============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
FINANCIAL HIGHLIGHTS
FOR THE YEARS ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE NOVEMBER 30,
BEEN DERIVED FROM INFORMATION PROVIDED IN THE -------------------
FINANCIAL STATEMENTS 2008 2007
- -------------------------------------------------------- -------- --------
NET ASSET VALUE, BEGINNING OF YEAR ..................... $ 8.16 $ 9.55
------- --------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS: (1)
Net investment income ............................... 0.56 0.80
Net realized and unrealized loss on investment
transactions and written call options ............ (4.19) (1.30)
------- --------
Total from investment operations ................. (3.63) (0.50)
------- --------
LESS DIVIDENDS:
Dividends from net investment income ................ (0.59) (0.84)
Tax return of capital ............................... (0.27) (0.05)
------- --------
Total dividends .................................. (0.86) (0.89)
------- --------
NET ASSET VALUE, END OF YEAR ........................... $ 3.67 $ 8.16
======= ========
MARKET VALUE, END OF YEAR .............................. $ 2.60 $ 7.35
======= ========
TOTAL RETURN BASED ON: (2)
Net asset value ..................................... (47.75)% (6.05)%
======= ========
Market value ........................................ (58.90)% (17.19)%
======= ========
RATIOS AND SUPPLEMENTAL DATA: (3)
Net assets, end of year (000 omitted) ............... $62,022 $137,953
======= ========
Total expenses including waiver of fees ............. 2.41% 2.69%
Total expenses excluding waiver of fees ............. 2.51% 2.79%
Total operating expenses including waiver of fees (4) 1.22% 1.15%
Total operating expenses excluding waiver of fees (4) 1.32% 1.26%
Commercial paper fees and interest expense .......... 1.19% 1.53%
Net investment income including waiver of fees ...... 5.97% 6.33%
Portfolio turnover .................................. 54% 74%
LEVERAGE ANALYSIS:
Aggregate amount outstanding at end of year
(000 omitted) .................................... $10,000 $ 55,000
Average daily balance of amortized cost of commercial
paper outstanding (000 omitted) .................. $47,921 $ 54,790
Asset coverage per $1,000 at end of year ............ $15,880 $ 3,903
- ----------
(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.
Amounts designated as "--" are $0 or have been rounded to $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE YEARS ENDED
NOVEMBER 30,
-------------------
2006 2005
-------- --------
NET ASSET VALUE, BEGINNING OF YEAR ....................... $ 8.65 $ 8.96
-------- --------
INCOME/GAIN FROM INVESTMENT OPERATIONS: (1)
Net investment income ................................. 0.63 0.61
Net realized and unrealized gain on investment
transactions and written call options .............. 1.20 0.08
-------- --------
Total from investment operations ................... 1.83 0.69
-------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income .................. (0.93) (0.53)
Distributions in excess ............................... -- (0.01)
Tax return of capital ................................. -- (0.46)
-------- --------
Total dividends and distributions .................. (0.93) (1.00)
-------- --------
NET ASSET VALUE, END OF YEAR ............................. $ 9.55 $ 8.65
======== ========
MARKET VALUE, END OF YEAR ................................ $ 9.78 $ 10.70
======== ========
TOTAL RETURN BASED ON: (2)
Net asset value ....................................... 22.51% 8.19%
======== ========
Market value .......................................... 0.36% 18.14%
======== ========
RATIOS AND SUPPLEMENTAL DATA: (3)
Net assets, end of year (000 omitted) ................. $160,613 $144,352
======== ========
Total expenses including waiver of fees ............... 2.59% 2.90%
Total expenses excluding waiver of fees ............... 2.68% 3.04%
Total operating expenses including waiver of
fees (4) ........................................... 1.13% 1.59%
Total operating expenses excluding waiver of
fees (4) ........................................... 1.24% 1.73%
Commercial paper fees and interest expense ............ 1.44% 1.31%
Net investment income including waiver of fees ........ 5.07% 7.00%
Portfolio turnover .................................... 96% 80%
LEVERAGE ANALYSIS:
Aggregate amount outstanding at end of year
(000 omitted) ...................................... $ 55,000 $ 55,000
Average daily balance of amortized cost of commercial
paper outstanding (000 omitted) .................... $ 54,659 $ 54,794
Asset coverage per $1,000 at end of year .............. $ 3,980 3,679
- ----------
(1) Based on average shares outstanding.
(2) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day
of each year reported. Total investment return does not reflect brokerage
commissions. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment returns based on market
value, which can be significantly greater or less than the net asset value,
may result in substantially different returns. Returns do not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or
the 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.
30
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
FINANCIAL HIGHLIGHTS (CONCLUDED)
FOR THE YEAR
ENDED
NOVEMBER 30,
2004
-------------
NET ASSET VALUE,BEGINNING OF YEAR .............................. $ 8.52
--------
INCOME/GAIN FROM INVESTMENT OPERATIONS:(1)
Net investment income ....................................... 0.55
Net realized and unrealized gain on investment
transactions and written call options .................... 0.89
--------
Total from investment operations ......................... 1.44
--------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income ........................ (0.54)
Distributions in excess ..................................... (0.46)
Tax return of capital ....................................... --
--------
Total dividends and distributions ........................ (1.00)
--------
NET ASSET VALUE, END OF YEAR ................................... $ 8.96
========
MARKET VALUE, END OF YEAR ...................................... $ 10.03
========
TOTAL RETURN BASED ON:(2)
Net asset value ............................................. 18.01%
========
Market value ................................................ 14.02%
========
RATIOS AND SUPPLEMENTAL DATA:(3)
Net assets, end of year(000 omitted) ........................ $148,144
========
Total expenses including waiver of fees ..................... 2.26%
Total expenses excluding waiver of fees ..................... 2.40%
Total operating expenses including waiver of fees(4) ........ 1.57%
Total operating expenses excluding waiver of fees(4) ........ 1.71%
Commercial paper fees and interest expense .................. 0.69%
Net investment income including waiver of fees .............. 6.34%
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) .......................... $ 54,052
Asset coverage per $1,000 at end of year .................... $ 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, 2008
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 U.S. generally accepted accounting principles.
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 $5,791,150 as of
November 30, 2008, are valued in accordance with Fair Value
32
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
Procedures established by the Board of Directors (the "Board"). The Fund's Fair
Value Procedures are implemented through a Fair Value Committee (the
"Committee") 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.
Financial Accounting Standards Board (FASB) STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS (SFAS) No. 157 is effective for the Fund's financial statements issued
after December 1, 2007. SFAS No. 157 defines fair value, establishes a fair
value hierarchy and specifies that a valuation technique used to measure fair
value shall maximize the use of observable inputs and minimize the use of
unobservable inputs. The objective of a fair value measurement is to determine
the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (an exit price). Accordingly, the fair value hierarchy gives
the highest priority to quoted prices (unadjusted) in active markets for
identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). The three levels of the fair value hierarchy
under SFAS No. 157 are described below:
- Level 1 -- Unadjusted quoted prices in active markets for identical,
unrestricted assets or liabilities that the Fund has the ability to access
at the measurement date;
- Level 2 -- Quoted prices which are not active, quoted prices for
similar assets or liabilities in active markets or inputs other than quoted
prices that are observable (either directly or indirectly) for
substantially the full term of the asset or liability; and
- Level 3 -- Significant unobservable prices or inputs (including the
Fund's own assumptions in determining the fair value of investments) where
there is little or no market activity for the asset or liability at the
measurement date.
As required by SFAS No.157, investments are classified within the level of the
lowest significant input considered in determining fair value. Investments
classified within Level 3 whose fair value measurement considers several inputs
and may include Level 1 or Level 2 inputs as components of the overall fair
33
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
value measurement. The following table sets forth information about the level
within the fair value hierarchy at which the Fund's investments are measured at
November 30, 2008:
INVESTMENTS IN OTHER FINANCIAL
VALUATION INPUTS SECURITIES INSTRUMENTS*
---------------- -------------- ---------------
Level 1 $35,606,891 $(807,400)
Level 2 29,444,375 --
Level 3 5,791,150 --
----------- ---------
TOTAL $70,842,416 $(807,400)
=========== =========
* OTHER FINANCIAL INSTRUMENTS ARE WRITTEN COVERED CALL OPTIONS.
The following is a reconciliation of the investments in which significant
unobservable inputs (Level 3) were used in determining value:
INVESTMENTS IN
SECURITIES
--------------
BALANCE AS OF 11/30/07 $17,320,680
Realized gain/(loss) (1,682,938)
Change in unrealized appreciation/(depreciation) (8,757,645)
Net purchase/(sales) (1,088,947)
Net transfers in and/or out of Level 3 --
-----------
BALANCE AS OF 11/30/08 $ 5,791,150
===========
The inputs or methodology used for valuing securities are not necessarily an
indication of the risks associated with investing in those securities.
CASH AND CASH EQUIVALENTS: Idle cash may be 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.
34
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
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.
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. In conjunction with the issuance of the
commercial paper, the Fund entered into a line of credit arrangement with a bank
for $20,000,000.
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 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.
FEDERAL INCOME TAXES: 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.
On May 30, 2008, the Fund adopted Financial Accounting Standards Board ("FASB")
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48").
FIN 48 defines the threshold for recognizing the benefits of tax-return
positions in the financial statements as "more-likely-than-not" to be sustained
by the applicable taxing authority and requires measurement of a tax
35
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
position meeting the "more-likely-than-not" threshold, based on the largest
benefit that is more than 50 percent likely to be realized.
The adoption of FIN 48 did not result in the recording of any tax expense in the
current period. However, management's conclusions regarding FIN 48 may be
subject to review and adjustment at a later date based on factors including, but
not limited to, on-going analyses of and changes to tax laws, regulations and
interpretations thereof.
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 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 Chartwell
Investment Partners, (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
36
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
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
$150,000.
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, 2008, the Fund incurred a legal expense of
$115,568 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.
NOTE 3. PURCHASE AND SALES OF INVESTMENTS
For the year ended November 30, 2008, purchases and sales of investments,
excluding short-term investments, totaled $82,198,308 and $121,284,257,
respectively.
The following table summarizes the Fund's call options written for the year
ended November 30, 2008:
NUMBER OF
CONTRACTS PREMIUMS
--------- ------------
Options outstanding, November 30, 2007... 11,010 $ 889,095
Options written.......................... 177,761 19,962,494
Options expired.......................... (72,263) (5,366,217)
Options exercised........................ (7,314) (620,810)
Options closed........................... (100,694) (14,080,092)
------- ------------
Options outstanding, November 30, 2008... 8,500 $ 784,470
======= ============
37
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
NOTE 4. COMMERCIAL PAPER
As of November 30, 2008, $10,000,000 of commercial paper was outstanding with an
amortized cost of $9,941,819. The average discount rate of commercial paper
outstanding at November 30, 2008, was 3.65%. The average daily balance of
commercial paper outstanding for the year ended November 30, 2008, was
$47,920,712 at a weighted average discount rate of 3.01%. The maximum face
amount of commercial paper outstanding at any time during the year ended
November 30, 2008, was $55,000,000. In conjunction with the issuance of the
commercial paper, the Fund entered into a line of credit arrangement with a bank
for $20,000,000.
As of November 30, 2008, the Fund had no borrowings outstanding. For the year
ended November 30, 2008, the Fund had average borrowings of $20,000,000 over a
period of 56 days at a weighted average interest rate of 2.45%. Interest accrued
on the borrowings during the year were $96,597.
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, 2008, the Manager
owned 21,158 shares.
For the year ended November 30, 2008 and the year ended November 30, 2007, the
Fund issued 0 and 81,104 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 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.
38
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
NOTE 7. FEDERAL TAX INFORMATION
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. As of November 30, 2008, the Fund recorded
the following reclassifications to increase (decrease) the accounts below:
UNDISTRIBUTED ACCUMULATED ADDITIONAL
NET INVESTMENT REALIZED PAID-IN
INCOME GAIN CAPITAL
-------------- ----------- ----------
$(685,888) $736,299 $(50,411)
The tax character of dividends and distributions paid during the last two fiscal
years were as follows:
ORDINARY RETURN
INCOME OF CAPITAL TOTALS
----------- ---------- -----------
2008 $ 9,913,146 $4,609,079 $14,522,225
2007 14,219,577 825,229 15,044,806
As of November 30, 2008, the components of Distributable Earnings (Accumulated
Losses) were as follows:
Capital loss carryforwards $ (56,121,066)
Post-October losses (9,449,141)
Net unrealized depreciation (54,324,559)
Other temporary differences 703,047
-------------
Total accumulated losses $(119,191,719)
=============
Post-October losses represent losses realized on investment transactions from
November 1, 2008 through November 30, 2008, that in accordance with federal
income tax regulations the Fund may elect to defer or treat as having arisen in
the following fiscal year.
The following summarizes the capital loss carryforwards as of November 30, 2008.
These capital loss carryforwards are available to offset future net capital
gains.
EXPIRING IN FISCAL YEAR AMOUNT
----------------------- -----------
2009 $ 7,900,696
2010 30,533,344
2011 771,608
2014 103,382
2016 16,812,036
-----------
Total capital loss carryforwards $56,121,066
===========
During the year ended November 30, 2008, the Fund utilized none of the capital
loss carryforwards to offset capital gains.
39
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
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, 2008, were as follows:
Federal Tax Cost.............................. $125,144,046
------------
Aggregate Gross Unrealized Appreciation....... 528,819
Aggregate Gross Unrealized Depreciation....... (54,830,449)
------------
Net Unrealized Depreciation................... $(54,301,630)
============
NOTE 8. ACCOUNTING PRONOUNCEMENT
In March 2008, FASB issued SFAS No. 161, DISCLOSURES ABOUT DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 161 is effective for fiscal years
and interim periods beginning after November 15, 2008. SFAS No. 161 requires
enhanced disclosures about the Fund's derivative and hedging activities,
including how such activities are accounted for and their effect on the Fund's
financial position, performance, and cash flows. Management is currently
evaluating the impact the adoption of SFAS No. 161 will have on the Fund's
financial statements and related disclosures.
NOTE 9. SUBSEQUENT EVENTS
The Board of the Fund declared the following dividends:
DECLARATION DATE EX-DATE RECORD DATE PAYABLE DATE DIVIDEND RATE
- ---------------- ----------------- ----------------- ----------------- -------------
December 1, 2008 December 16, 2008 December 18, 2008 December 31, 2008 $0.0340
January 2, 2009 January 20, 2009 January 22, 2009 January 30, 2009 0.0340
In conjunction with the issuance of commercial paper, the Fund has renewed its
line of credit arrangement with a bank for borrowings of up to $15,000,000. The
line of credit is collateralized by a portion of the Fund's investment
securities. As of the date of this report, there were no borrowings outstanding.
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, 2008
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, including
the schedule of investments, of Chartwell Dividend and Income Fund, Inc. (the
Fund) as of November 30, 2008, and the related statements of operations and cash
flows for the year then ended, the statements of changes in net assets for each
of the two years in the period then ended, and the financial highlights for each
of the three 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 two 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, 2008, 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 and Income Fund, Inc. at November 30, 2008, the results of
its operations and cash flows for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and its financial
highlights for each of the three years in the period then ended, in conformity
with U.S. generally accepted accounting principles.
(ERNST & YOUNG LLP)
Philadelphia, Pennsylvania
January 28, 2009
41
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
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, 2008
(UNAUDITED)
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, 2008
(UNAUDITED)
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, 2008.
ADDITIONAL INFORMATION (UNAUDITED)
During the period, there have been no material changes in the Fund's investment
objective or fundamental policies that have not been approved by the
shareholders. There have been no changes in the Fund's charter or By-Laws that
would delay or prevent a change in control of the Fund which have not been
approved by the shareholders. There have been no 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, 2008, the Fund had $10 million outstanding at
3.65% per annum maturing on January 29, 2009. All interest rates include fees
due to the broker-dealer. The Fund must experience an annual return of 0.52% 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 ............... (12.28)% (6.44)% (0.61)% 5.23% 11.06%
44
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
(UNAUDITED)
Assumes $60 million assets attributable to common shareholders; $10 million
aggregate leverage with an average interest rate of 3.65%. 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 21, 2008, 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, 2008
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
72 yrs. old (Since 2001)
Marie D. Fairchild, CPA/ABV Director Term Expires 2011
55 yrs. old (Since 2008)
Kenneth F. Herlihy Director Term Expires 2009
79 yrs. old (Since 1998)
INTERESTED DIRECTORS*
Winthrop S. Jessup Director, Term Expires 2011
63 yrs. old Chairman (Since 1998)
and President
Bernard P. Schaffer Director and Term Expires 2010
64 yrs. old Vice President (Since 1998)
* These directors are considered to be "interested persons" of the Fund as
defined in the Investment Company Act of 1940 because they are partners in
the investment adviser (Chartwell Investment Partners, L.P.) and are
officers of the Fund.
46
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
which the vacancy occurred and until their successors have been duly elected and
qualified. Officers of the Fund are elected by the Board of Directors and,
subject to the earlier termination of office, each officer holds office for the
term of one year and until his or her successor is elected and qualified. Unless
otherwise noted, the business address of each Officer and Director is c/o
Chartwell Investment Partners, 1235 Westlakes Drive, Suite 400, Berwyn,
Pennsylvania 19312.
NUMBER OF
PORTFOLIOS
IN THE FUND
PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN OTHER DIRECTORSHIPS
DURING PAST 5 YEARS BY DIRECTOR HELD BY BOARD MEMBER
- ----------------------------------------- ---------------- -----------------------
Chairman and Managing Director, NorthStar 1 None
Asset Management (since 2000). Managing
Partner, Stratton Management Company
(1992-2000).
Shareholder, Ragone, Lacatena Fairchild & 1 None
Beppel, P.C. (Certified Public Accounting
Firm).
Sculptor, who has worked independently 1 None
since his retirement from the mutual
fund industry in 1987.
Limited Partner, Chartwell Investment 1 Georgia Banking Company
Partners, L.P. and Chartwell G.P., Inc. (since 1998).
(since 1997); Managing Partner, Chartwell
Investment Partners, L.P. and Chartwell
G.P., Inc. (1997-2005).
Managing Partner and Portfolio 1 None
Manager of Chartwell Investment
Partners, L.P. and Partner of Chartwell
G.P., Inc. (since 1997).
47
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
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)
63 yrs. old President and Director
Bernard P. Schaffer Vice President and (Since 1998)
64 yrs. old Director
Kevin A. Melich Vice President (Since 1998)
66 yrs. old
Timothy J. Riddle Vice President (Since 1998)
53 yrs. old
G. Gregory Hagar Vice President (Since 1998)
40 yrs. old and Treasurer, (Since 2004)
Chief Financial Officer and
Chief Compliance Officer
Andrew S. Toburen Vice President (Since 2003)
37 yrs. old
Michael P. Malloy Secretary (Since 1998)
49 yrs. old
One Logan Square
18th and Cherry Streets
Philadelphia, Pennsylvania 19103
Maria E. Pollack Assistant (Since 1998)
63 yrs. old Secretary
48
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
PRINCIPAL OCCUPATION(S)
DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------
Limited Partner, Chartwell Investment Partners, L.P. and Chartwell G.P., Inc. (since 1997);
Managing Partner, Chartwell Investment Partners, L.P. and Chartwell G.P., Inc. (1997-2005).
Managing Partner and Portfolio Manager of Chartwell Investment Partners, L.P. and Partner
of Chartwell G.P., Inc. (since 1997).
Managing Partner and Portfolio Manager of Chartwell Investment Partners, L.P. and Chartwell
G.P., Inc. (since 1997).
Managing Partner of Chartwell Investment Partners, L.P. and of Chartwell G.P., Inc. (since
1997).
Managing Partner (since 2007), Chief Financial Officer (since 1997) and Chief Compliance
Officer (since 2004) of Chartwell Investment Partners, L.P.
Fixed Income Portfolio Manager for Chartwell Investment Partners, L.P. (since 1999).
Partner in the law firm of Drinker Biddle & Reath LLP (since 1993).
Director of Client Administration for Chartwell Investment Partners, L.P. (since 1997).
49
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
NOTES TO SHAREHOLDERS (UNAUDITED)
For shareholders that do not have a November 30, 2008 tax year end, this notice
is for informational purposes only. For shareholders with a November 30, 2008
tax year end, please consult your tax advisor as to the pertinence of this
notice. For the fiscal year ended November 30, 2008, 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. 68.26% 31.74% 100.00% 40.02% 38.69% 36.25%
(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, 2008. Complete information will be computed and reported in conjunction with
your 2008 Form 1099-DIV.
50
CHARTWELL
NOTES
CHARTWELL DIVIDEND AND INCOME FUND, INC. NOVEMBER 30, 2008
DIRECTORS
Winthrop S. Jessup, Chairman
Marie D. Fairchild
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.
The Registrant's Board of Directors has determined that Registrant has an audit
committee financial expert serving on its Audit Committee. The audit committee
financial expert serving the Registrant's Audit Committee is Marie D. Fairchild,
CPA/ABV, who is "independent" as defined in Item 3(a)(2) of this form.
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:
- ------------------ ------------------------------------------------------ ----------------------------------------------------
2008 2007
- ------------------ ------------------------------------------------------ ----------------------------------------------------
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 service
affiliates that affiliates that
were were
pre-approved by pre-approved by
the Registrant's the
Audit Committee Registrant's
pursuant to Rule Audit Committee
2-01(c)(7)(ii) pursuant to
of Regulation Rule
S-X. 2-01(c)(7)(ii)
of Regulation
S-X.
- ------- ---------- ----------------- ------------------ ----------------- ---------------- ----------------- -----------------
(a) Audit $45,000 N/A Audit fees $42,500 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 $6,600(1) $0 $0 $6,000(1) $0 $0
Fees
- ------- ---------- ----------------- ------------------ ----------------- ---------------- ----------------- -----------------
(d) All $21,500(2) $0 $0 $20,500(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 or its Chairman 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, 2008 and the fiscal year ended November 30, 2007 were $151,600 and $146,500,
respectively.
(h) The Registrant's Audit Committee has considered whether the provision
of non-audit services that were rendered to the Registrant's investment adviser
and any entity controlling, controlled by, or under common control with
Registrant'sinvestment adviser that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the
principal accountant's independence.
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, C. Warren Ormerod and Marie D.
Fairchild.
(b) Not applicable
ITEM 6. SCHEDULE OF INVESTMENTS
(a) Schedules of Investment in securities of unaffiliated issuers as of the
close of the reporting period are included as part of the report to shareholders
filed under Item 1 of this form.
(b) 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, 2008
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 RiskMetrics
Group, 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 RiskMetrics Group's (RMG - formerly ISS) analyses and
recommendations and generally gives instructions to RMG/ISS to vote proxies in
accordance with RMG/ISS' recommendations, unless Chartwell reaches a different
conclusion than RMG/ISS about how a particular matter should be voted. RMG/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 RMG/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
RMG/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 RMG 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 RMG/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. AUDITORS
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;
o Poor accounting practices are identified that rise to a serious
level of concern, such as: fraud; misapplication of GAAP; and
material weaknesses identified in Section 404 disclosures; or
o Fees for non-audit services ("Other" fees) are excessive.
Vote CASE BY CASE on shareholder proposals asking for audit firm rotation,
taking into account
o The tenure of the audit firm;
o The tenure 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.
2. BOARD OF DIRECTORS
Vote AGAINST or 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.
Vote AGAINST or WITHHOLD from all nominees of the 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. Vote against/ withhold every year until this feature
is removed;
o The board adopts or renews a poison pill without shareholder
approval, does not commit to putting it to shareholder vote
within 12 months of adoption (or in the case of a newly public
company, does not commit to put the pill to a shareholder vote
within 12 months following the IPO), or reneges on a commitment
to put the pill to a vote, and has not yet received a withhold/
against 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 (a management proposal with other than a FOR recommendation
by management will not be considered as sufficient action
taken);
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 (a management proposal with other than a FOR
recommendation by management will not be considered as
sufficient action taken);
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/against votes of the shares cast and the
company has failed to address the issue(s) that caused the high
withhold/against vote;
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";
o The board is classified, and a continuing director responsible
for a problematic governance issue at the board/committee level
that would warrant a withhold/against vote recommendation is not
up for election - any or all appropriate nominees (except new)
may be held accountable.
Vote AGAINST or WITHHOLD from Inside Directors and Affiliated Outside Directors
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.
Vote AGAINST or 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 Poor accounting practices are identified which rise to a level
of serious concern, such as: fraud; misapplication of GAAP; and
material weaknesses identified in Section 404 disclosures; or
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.
Vote AGAINST or 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.
Vote AGAINST or WITHHOLD from directors, individually or the entire board, for
egregious actions or failure to replace management as appropriate.
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
Generally vote AGAINST proposals to eliminate cumulative voting. Generally vote
FOR proposals to restore or provide for cumulative voting unless:
o The company has proxy access or a similar structure(2) to allow
shareholders to nominate directors to the company's ballot; and
o The company has adopted a majority vote standard, with a
carve-out for plurality voting in situations where there are
more nominees than seats, and a director resignation policy to
address failed elections.
Vote FOR proposals for cumulative voting at controlled companies (insider voting
power > 50%).
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.) :
- 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 The company publicly discloses a comparison of the duties of its
independent lead director and its chairman;
o The company publicly discloses a sufficient explanation of why
it chooses not to give the position of chairman to the
independent lead director, and instead combine the chairman and
CEO positions;
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 the basis both one-year and three-year total
shareholder returns*, unless there has been a change in the
Chairman/CEO position within that time; and
o The company does not have any problematic governance issues.
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.
OPEN ACCESS
Vote shareholder proposals asking for open or proxy access on a CASE-BY-CASE
basis, taking into account:
o The ownership threshold proposed in the resolution;
o The proponent's rationale for the proposal at the targeted
company in terms of board and director conduct.
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.
Generally vote FOR shareholder proposals calling for the reimbursement of
reasonable costs incurred in connection with nominating one or more candidates
in a contested election where the following apply:
o The election of fewer than 50% of the directors to be elected is
contested in the election;
o One or more of the dissident's candidates is elected;
o Shareholders are not permitted to cumulate their votes for
directors; and
o The election occurred, and the expenses were incurred after the
adoption of this bylaw.
- ------------------------
*The industry peer group used for this evaluation is the average of the 12
companies in the same 6-digit GICS group that are closest in 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).
4. TAKEOVER DEFENSES
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 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
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 reasonably
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 "RMG/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.
6. STATE OF INCORPORATION
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.
7. CAPITAL STRUCTURE
COMMON STOCK AUTHORIZATION
Vote CASE-BY-CASE on proposals to increase the number of shares of common stock
authorized for issuance using a model developed by RMG/ISS. 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 to create a new class of common stock with superior
voting rights. 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).
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), and 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 FOR proposals to
create "declawed" blank check preferred stock (stock that cannot be used as a
takeover defense), and 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 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.
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.
POOR PAY PRACTICES
Vote AGAINST or WITHHOLD from compensation committee members, CEO, and
potentially the entire board, if the company has poor compensation practices.
Vote AGAINST equity plans if the plan is a vehicle for poor compensation
practices.
The following practices, while not exhaustive, are examples of poor compensation
practices that may warrant voting against or withholding votes:
o Egregious employment contracts (e.g., multi-year guarantees for
salary increases, bonuses and equity compensation);
o Excessive perks (overly generous cost and/or reimbursement of
taxes for personal use of corporate aircraft, personal security
systems maintenance and/or installation, car allowances and/or
other excessive arrangements relative to base salary);
o Abnormally large bonus payouts without justifiable performance
linkage or proper disclosure (e.g., performance metrics that are
changed, 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 (inclusion of additional years of service not worked
that result in significant payouts or inclusion of
performance-based equity awards in the pension calculation);
o New CEO with overly generous new hire package (e.g., excessive
"make whole" provisions);
o Excessive severance and/or change-in-control provisions:
Inclusion of excessive change-in-control or severance payments,
especially those with a multiple in excess of 3X cash pay;
- Severance paid for a "performance termination", (i.e., due to
the executive's failure to perform job functions at the
appropriate level);
- Change-in-control payouts without loss of job or substantial
diminution of job duties (single-triggered);
- Perquisites for former executives such as car allowances,
personal use of corporate aircraft, or other inappropriate
arrangements;
o Poor disclosure practices: (unclear explanation of how the CEO
is involved in the pay setting process, retrospective
performance target and methodology not discussed or methodology
for benchmarking practices and/or peer group not disclosed and
explained);
o Internal Pay Disparity (e.g., excessive differential between CEO
total pay and that of next highest-paid named executive
officer);
o Other excessive compensation payouts or poor pay practices at
the company.
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 will
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.
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.
OPTIONS BACKDATING
In cases where a company has practiced options backdating, vote AGAINST or
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. Vote AGAINST or 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 option of taking
all or a portion of their cash compensation in the form of stock, and on plans
that 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 repricing
model. In an effort to capture the total cost of total compensation, RMG/ISS
will not make any adjustments to carve out the in-lieu-of cash compensation.
Vote FOR non-employee director only equity plans which provide a
dollar-for-dollar cash for stock exchange.
TRANSFER PROGRAMS OF STOCK OPTIONS
Vote AGAINST or 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.
Vote AGAINST equity plan proposals if the details of ongoing Transfer of Stock
Options programs are not provided to shareholders. Since TSOs will be one of the
award types under a stock plan, the ongoing TSO
program, structure and mechanics must be disclosed to shareholders. The specific
criteria to be considered in evaluating these proposals include, but are not
limited, to the following:
o Eligibility;
o Vesting;
o Bid-price;
o Term of options;
o Transfer value to third-party financial institution, employees
and the company.
Amendments to existing plans that allow for introduction of transferability of
stock options should make clear that only options granted post-amendment shall
be transferable.
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 Compensation 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.
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 proposal has
the following principles:
o Sets compensation targets for the Plan's annual and long-term
incentive pay components at or below the peer group median;
o Delivers a majority of the Plan's target long-term compensation
through performance-vested, not simply time-vested, equity
awards;
o Provides the strategic rationale and relative weightings of the
financial and non-financial performance metrics or criteria used
in the annual and performance-vested long-term incentive
components of the plan;
o Establishes performance targets for each plan financial metric
relative to the performance of the company's peer companies;
o Limits payment under the annual and performance-vested long-term
incentive components of the plan to when the company's
performance on its selected financial performance metrics
exceeds peer group median 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?
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.
PRE-ARRANGED TRADING PLANS (10B5-1 PLANS)
Generally vote FOR shareholder proposals calling for certain principles
regarding the use of prearranged trading plans (10b5-1 plans) for executives.
These principles include:
o Adoption, amendment or termination of a 10b5-1 Plan must be
disclosed within two business days in a Form 8-K;
o Amendment or early termination of a 10b5-1 Plan is allowed only
under extraordinary circumstances, as determined by the board;
o Ninety days must elapse between adoption or amendment of a
10b5-1 Plan and initial trading under the plan;
o Reports on Form 4 must identify transactions made pursuant to a
10b5-1 Plan;
o An executive may not trade in company stock outside the 10b5-1
Plan;
o Trades under a 10b5-1 Plan must be handled by a broker who does
not handle other securities transactions for the executive.
RECOUP BONUSES
Vote on a CASE-BY-CASE basis on proposals to recoup unearned incentive bonuses
or other incentive payments made to senior executives if it is later determined
that fraud, misconduct or negligence significantly contributed to a restatement
of financial results that led to the awarding of unearned incentive
compensation, taking into consideration:
o If the company has adopted a formal recoupment bonus policy; or
o If the company has chronic restatement history or material
financial problems.
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 SOCIAL RESPONSIBILITY (CSR) ISSUES
CONSUMER LENDING
Vote CASE-BY-CASE on requests for reports on the company's lending guidelines
and procedures, 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 the lending products in question;
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.
PHARMACEUTICAL 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 its 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.
PRODUCT SAFETY AND TOXIC MATERIALS
Generally vote FOR proposals requesting the company to report on its policies,
initiatives/procedures and oversight mechanisms related to toxic materials
and/or product safety in its supply chain, unless:
o The company already discloses similar information through
existing reports or policies such as a Supplier Code of Conduct
and/or a sustainability report;
o The company has formally committed to the implementation of a
toxic materials and/or product safety and supply chain reporting
and monitoring program based on industry norms or similar
standards within a specified time frame; and
o The company has not been recently involved in relevant
significant controversies or violations.
Vote CASE-BY-CASE on resolutions requesting that companies develop a feasibility
assessment to phase-out of certain toxic chemicals and/or 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.
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.
GREENHOUSE GAS EMISSIONS
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.
POLITICAL CONTRIBUTIONS AND TRADE ASSOCIATIONS SPENDING
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 and trade association spending considering:
o Recent significant controversy or litigation related to the
company's political contributions or governmental affairs; and
o The public availability of a company policy on political
contributions and trade association spending including
information on the types of organizations supported, the
business rationale for supporting these organizations, and the
oversight and compliance procedures related to such expenditures
of corporate assets.
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 asking for a list of company executives, directors,
consultants, legal counsels, lobbyists or investment bankers that 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.
SUSTAINABILITY REPORTING
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.
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 37 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 14 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 23 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 20 years of professional experience.
(a)(2) Other Accounts Managed
As of the most recently completed fiscal year end (November 30, 2008), 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 Portfolio # of is Based on is Based on
Manager or Team Accounts Performance Performance
Member Type of Accounts Managed Total Assets of the Account of the Account
----------------- ---------------- ------- ------------ -------------- --------------
1. Bernard P. Schaffer Registered Investment Companies: 1 $220 million 0 $0
Other Pooled Investment Vehicles: 0 $0 0 $0
Other Accounts: 20 $140 million 0 $0
2. Andrew S. Toburen Registered Investment Companies: 0 $0 0 $0
Other Pooled Investment Vehicles: 1 $61 million 1 $61 million
Other Accounts: 60 $1,016 million 0 $0
3. Paul A. Matlack Registered Investment Companies: 0 $0 0 $0
Other Pooled Investment Vehicles: 1 $61 million 1 $61 million
Other Accounts: 60 $1,016 million 0 $0
4. Christine F. Williams Registered Investment Companies: 0 $0 0 $0
Other Pooled Investment Vehicles: 1 $61 million 1 $61 million
Other Accounts: 60 $1,016 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, 2008), 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, 2008:
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 407(c)(2)(iv)
of Regulation S-K 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: February 3, 2009
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: February 3, 2009
By (Signature and Title)* /s/ G. Gregory Hagar
--------------------
G. Gregory Hagar, Vice President and CFO
(Principal Financial Officer)
Date: February 3, 2009
* Print the name and title of each signing officer under his or her signature.