deldividendincome_ncsr.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
FORM N-CSR
 
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
 
Investment Company Act file number: 811-07460
 
Exact name of registrant as specified in charter:
Delaware Investments® Dividend and Income Fund, Inc.
 
Address of principal executive offices:
2005 Market Street
Philadelphia, PA 19103
 
Name and address of agent for service:
David F. Connor, Esq.
2005 Market Street
Philadelphia, PA 19103
 
Registrant’s telephone number, including area code: (800) 523-1918
 
Date of fiscal year end: November 30
 
Date of reporting period: November 30, 2009
 


Item 1. Reports to Stockholders
 

 
 
 
Annual Report Delaware
Investments®
Dividend and
Income Fund, Inc.
 
  November 30, 2009 
   
 
 
 
 
 
 
 
 
 
The figures in the annual report for Delaware Investments Dividend and Income Fund, Inc. represent past results, which are not a guarantee of future results. A rise or fall in interest rates can have a significant impact on bond prices. Funds that invest in bonds can lose their value as interest rates rise.
 
 
 
 
  Closed-end fund
 
 



Table of contents
 
 
 
     > Portfolio management review      1
 
> Performance summary 4
 
> Security type and top 10 equity holdings 6
 
> Statement of net assets 8
 
  > Statement of operations 17
 
> Statements of changes in net assets   18
 
> Statement of cash flows 19
 
> Financial highlights 20
 
> Notes to financial statements 21
 
> Report of independent registered public accounting firm 27
 
> Other Fund information 28
 
> Board of trustees/directors and officers addendum 36
 
> About the organization 39

 
  
 
  
 
On January 4, 2010, Delaware Management Holdings, Inc. and its subsidiaries (collectively known by the marketing name of Delaware Investments) were sold by a subsidiary of Lincoln National Corporation to Macquarie Group Limited, a global provider of banking, financial, advisory, investment and funds management services. Please see recent press releases for more complete information.
 
Investments in Delaware Investments® Dividend and Income Fund, Inc. are not and will not be deposits with or liabilities of Macquarie Bank Limited ABN 46 008 583 542 and its holding companies, including subsidiaries or related companies, and are subject to investment risk, including possible delays in repayment and loss of income and capital invested. No Macquarie Group company guarantees or will guarantee the performance of the Fund, the repayment of capital from the Fund, or any particular rate of return.
 
Views expressed herein are current as of Dec. 8, 2009, and are subject to change.
 
Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested.
 
Mutual fund advisory services are provided by Delaware Management Company, a series of Delaware Management Business Trust, which is a registered investment advisor. Delaware Investments is the marketing name of Delaware Management Holdings, Inc. and its subsidiaries. Macquarie Group refers to Macquarie Group Limited and its subsidiaries and affiliates worldwide.
 
© 2010 Delaware Management Holdings, Inc.
 
All third-party trademarks cited are the property of their respective owners.
 


Portfolio management review
 
Delaware Investments® Dividend and Income Fund, Inc.
 
Dec. 8, 2009
 
Performance preview (for the period ended Nov. 30, 2009)          
Delaware Investments Dividend and Income Fund, Inc. @ market price   1-year return +86.93%
Delaware Investments Dividend and Income Fund, Inc. @ NAV 1-year return +53.26%
Lipper Closed-end Income and Preferred Stock Funds Average @ market price 1-year return +72.45%
Lipper Closed-end Income and Preferred Stock Funds Average @ NAV 1-year return +54.38%
Past performance does not guarantee future results.
 
For complete, annualized performance for Delaware Investments Dividend and Income Fund, Inc., please see the table on page 4.
 
Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.
 
Delaware Investments Dividend and Income Fund, Inc. returned + 53.26% at net asset value and +86.93% at market price (both figures reflect all distributions reinvested) for the fiscal year ended Nov. 30, 2009. Complete, annualized performance information for Delaware Investments Dividend and Income Fund, Inc. is shown in the table on page 4.
 
Prices of risky assets fell steeply before recovery
 
The fiscal year was largely a story in two parts. The period began amid the worst economic and financial markets that the portfolio management team has ever witnessed. The latter part of the period, however, featured a considerable recovery, with what the team viewed as attractive opportunities within both the fixed income and equity markets.
 
At the start of the fiscal period, financial markets were still reacting to the jolt received when storied Wall Street investment bank Lehman Brothers declared bankruptcy in September 2008. The bankruptcy, followed soon after by the federal bailout of insurance giant American International Group (AIG), sent the financial markets into a near panic. Risk aversion had become extreme by late 2008 and investors generally fled “risk” assets for the relative safety of securities issued by the U.S. government and other sovereign entities. Signs of the fallout from the financial crisis were abundant, both in the economy and in the securities markets.
 
The S&P 500 Index, a measure of the broad stock market in the United States, dropped by March 2009 to its lowest level since September 1996. Meanwhile, high yield bond spreads (which are used to measure a bond’s perceived level of risk) in the U.S. peaked in December 2008 at 21.0% as measured by J.P. Morgan, a level not seen since January 1995. (Source: Bloomberg.)
 
The prices of energy and commodities also fell sharply during the first half of the year, before starting to recover during the latter half. In early March 2009, the broad-based Thomson Reuters/Jefferies CRB Commodity Index dropped to its lowest level since January 2002 (source: Bloomberg). The price of crude oil also sank, with the West Texas Intermediate (a type of crude oil used as a benchmark in oil pricing) hitting a low of $31 a barrel in late December 2008, a full 78% below its all-time peak price of $145 in early July 2008 (source: Bloomberg).
 
Global equity and fixed income markets touched lows in March, and then began to recover vigorously for much of the rest of the period. Governments and central banks around the world stressed their intentions of continuing to provide support for economic recovery for as long as necessary, which helped investors become more willing to accept risk. At first, many investors began to reach for risk at the expense of quality, within both the equity and fixed income markets. Lower-rated bonds, for example, significantly outperformed their higher-rated peers during the spring and summer months, while stocks of many companies with questionable fundamentals outpaced those of fundamentally solid companies. As the market recovery matured, however, it broadened to include almost every corner of the market, including higher-quality securities.
 
Importantly, economies around the world began to show early signs of stabilization and cyclical recovery. During the third calendar quarter of 2009, in fact, the
 
The views expressed are current as of the date of this report and are subject to change.
 
(continues)     1
 
 


Portfolio management review
 
Delaware Investments® Dividend and Income Fund, Inc.
 
U.S. economy expanded by an estimated 2.8%, according to the U.S. Commerce Department’s reading of GDP released in November. It was the fastest growth in the past two years.
 
Fund positioning
 
The Fund’s primary objective is to seek high current income, with a secondary objective of capital appreciation. In managing the Fund, we pursue these goals by investing broadly in a range of income-generating securities. These include core fixed income holdings (such as Treasury and agency securities) as well as investment grade and high yield corporate bonds, convertible bonds, real estate investment trusts (REITs), and large-cap value stocks.
 
Broadly speaking, we positioned the Fund defensively as the period began. When determining the Fund’s asset allocation at a portfolio level, for instance, we placed an emphasis on fixed income securities and convertible bonds over equities and REITs. From a risk-reward perspective, we tended to find fixed income asset classes as more appropriate for the Fund.
 
Among corporate bonds, for example, yields rose to historically high levels during the opening months of the period. Because prices decline as yields rise, the high yields on corporate bonds reflected the extreme risk aversion by investors at that time, and also highlighted some extraordinary value opportunities in our opinion. Although corporate bonds were affected by the difficult investment climate early in the period, both high yield and investment grade corporate bond positions within the Fund ultimately contributed performance for the fiscal year. Both asset classes performed well during the market’s recovery, and high yield bonds’ rebound was particularly notable.
 
Within high yield, the Fund generally carried a heavy position in speculative B-rated securities because we believed that the most favorable risk and reward opportunities existed there. Conversely, we maintained less exposure to bonds with a higher BB rating, which is just below investment grade.
 
Our limited exposure to BB-rated bonds moderated Fund returns, however, because these bonds were among the better-performing bonds within the high yield asset class. (Credit ratings based on Standard & Poor’s opinion.)
 
The Fund’s increased exposure to convertible bonds also added to its overall performance. We added to convertible bond exposure because we believed the combination of yield, capital structure positioning, and potential upside made them attractive.
 
Among our REIT holdings, we continued to employ our “bottom up” security selection strategy, in which we evaluate potential investments one by one, based on our assessment of each company’s growth prospects, relative valuation, and balance-sheet quality (among other factors). Given the highly volatile conditions of the fiscal year, however, our approach was more opportunistic than usual, as we sought to take advantage of shifting opportunities in the marketplace.
 
Early on, as the investment environment deteriorated, we made our REIT holdings more defensive by focusing on companies with longer lease terms, including healthcare and “triple net” REITs. Triple-net leases, in which tenants pay all property maintenance costs in addition to rent, tend to be relatively defensive because they provide a greater income stream to landlords. Simultaneously, we limited our exposure to companies with shorter-duration leases, such as hotel companies, which tend to have uncertain cash flows relative to other sectors. We also looked to avoid stocks of companies with what we believed were significant balance-sheet problems.
 
This defensive stance was generally beneficial to Fund performance during the downturn. Nonetheless, we calculated that the recovery would be much shorter than it turned out to be when credit markets loosened and the REIT market advanced. In actuality, credit conditions continued to improve, and by summer it was evident that a longer-lived improvement was taking place. Our maintenance of cautious positioning for a time caused the Fund’s REIT positions to trail the broader market gains during some of the rally.
 
2
 


The gains made during the fiscal year by the Fund’s large-cap value equity holdings were more subdued than those of its high yield fixed income or REIT holdings. Much of the performance gains (versus the broader equity markets) from this equity allocation relative to the S&P 500 Index came in periods of market decline, such as the first several months of the period and again in October 2009.
 
This trend has been consistent with the aim of our management approach; through our value-oriented, defensive style, we seek to do well in relative terms in down markets by minimizing losses. The biggest positive for the Fund’s large-cap value holdings came from de-emphasizing the financial sector, the hardest-hit group in the marketplace during the downturn. Fund returns were negatively affected by our holdings in both the materials and industrials sectors, two groups in which our security selection proved disappointing.
 
We recognize that the recent environment, one in which investors could be rewarded for simply increasing the amount of risk within their portfolios, cannot last forever. With this in mind, the Fund continued at the portfolio level to be positioned generally defensively at fiscal year end, based on our opinion of relative value opportunities among asset classes.
 
3
 


Performance summary
 
Delaware Investments® Dividend and Income Fund, Inc.
 
The performance data quoted represent past performance; past performance does not guarantee future results. Investment return and principal value will fluctuate so your shares, when sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Funds that invest in bonds can lose their value as interest rates rise, and an investor can lose principal. Please obtain the performance data for the most recent month end by calling 800 523-1918.
 
A rise or fall in interest rates can have a significant impact on bond prices and the net asset value (NAV) of the Fund.
 
Fund performance
Average annual total returns
Through Nov. 30, 2009 1 year            5 years            10 years            Lifetime
At market price 86.93% 0.13% 5.96%   5.94%
At net asset value 53.26% -0.53% 5.14% 3.80%

Instances of high double-digit returns are unusual, cannot be sustained, and were primarily achieved during favorable market conditions.
 
Diversification may not protect against market risk.
 
Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt. The Fund may also be subject to prepayment risk, the risk that the principal of a fixed income security that is held by the Fund may be prepaid prior to maturity, potentially forcing the Fund to reinvest that money at a lower interest rate. High yielding, noninvestment grade bonds (junk bonds) involve higher risk than investment grade bonds.
 
Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors. REIT investments are subject to many of the risks associated with direct real estate ownership, including changes in economic conditions, credit risk, and interest rate fluctuations.
 
The Fund may invest in derivatives, which may involve additional expenses and are subject to risk, including the risk that an underlying security or securities index moves in the opposite direction from what the portfolio manager anticipated. A derivative transaction depends upon the counterparties’ ability to fulfill their contractual obligations.
 
The “Fund performance” table and the “Performance of a $10,000 investment” graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
 
Returns reflect the reinvestment of all distributions. Dividends and distributions, if any, are assumed, for the purpose of this calculation to be reinvested at prices obtained under the Fund’s dividend reinvestment policy. Shares of the Fund were initially offered with a sales charge of 6%. Performance since inception does not include the sales charge or any other brokerage commission for purchases made since inception. Past performance is not a guarantee of future results.
 
Fund basics
As of Nov. 30, 2009
 
Fund objectives
The Fund seeks to achieve high current income. Capital appreciation is a secondary objective.
 
Total Fund net assets
$66 million
 
Number of holdings
427

Fund start date
March 26, 1993
 
NYSE symbol
DDF

4
 


Market price versus net asset value (see notes below)
Nov. 30, 2008, through Nov. 30, 2009
 
 
Starting value Ending value
(Nov. 30, 2008)      (Nov. 30, 2009)

    Delaware Investments® Dividend and Income Fund, Inc. @ NAV $5.22   $7.04

Delaware Investments Dividend and Income Fund, Inc. @ Market price $4.02   $6.60
 
Past performance is not a guarantee of future results.
 
Performance of a $10,000 Investment
Average annual total returns from Nov. 30, 1999, through Nov. 30, 2009
 
 
Starting value Ending value
     (Nov. 30, 1999)      (Nov. 30, 2009)

Delaware Investments Dividend and Income Fund, Inc. @ Market price $10,000   $17,867


Delaware Investments Dividend and Income Fund, Inc. @ NAV $10,000   $16,463

Lipper Closed-end Income and Preferred Stock Funds Average @ Market price $10,000   $15,411


Lipper Closed-end Income and Preferred Stock Funds Average @ NAV $10,000   $13,327
 
The chart assumes $10,000 invested in the Fund on Nov. 30, 1999, and includes the reinvestment of all distributions at market value. The chart assumes $10,000 invested in the Lipper Closed-end Income and Preferred Stock Funds Average at market price and at NAV. Performance of the Fund and the Lipper class at market value is based on market performance during the period. Performance of the Fund and Lipper class at NAV is based on the fluctuations in NAV during the period. Delaware Investments Dividend and Income Fund, Inc. was initially offered with a sales charge of 6%. Performance shown in both charts above does not include fees, the initial sales charge, or any brokerage commissions for purchases. Investments in the Fund are not available at NAV.
 
The Lipper Closed-end Income and Preferred Stock Funds Average represents the average return of closed-end income and preferred stock mutual funds tracked by Lipper (source: Lipper).
 
Market price is the price an investor would pay for shares of the Fund on the secondary market. NAV is the total value of one fund share, generally equal to a fund’s net assets divided by the number of shares outstanding.
 
Past performance is not a guarantee of future results.
 
5
 


Security type and top 10 equity holdings
 
Delaware Investments® Dividend and Income Fund, Inc.
 
As of November 30, 2009
 
Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment manager’s internal sector classifications, which may result in the sector designations for one fund being different than another fund’s sector designations.
 
Percentage
Security Type of Net Assets
Common Stock 66.34 %
Consumer Discretionary 3.42 %
Consumer Staples 10.08 %
Diversified REITs 0.75 %
Energy 6.16 %
Financials 5.18 %
Health Care 10.84 %
Health Care REITs 2.76 %
Hotel REITs 0.37 %
Industrial REITs 0.34 %
Industrials 3.50 %
Information Technology 6.86 %
Mall REITs 1.60 %
Materials 1.67 %
Mortgage REITs 0.50 %
Multifamily REITs 1.39 %
Office REITs 1.37 %
Office/Industrial REITs 0.53 %
Real Estate Operating REITs 0.47 %
Self-Storage REITs 0.62 %
Shopping Center REITs 0.59 %
Specialty REITs 0.87 %
Telecommunications 3.12 %
Utilities 3.35 %
Convertible Preferred Stock 2.64 %
Preferred Stock 0.25 %
Convertible Bonds 14.05 %
Aerospace & Defense 0.77 %
Automobiles 0.26 %
Banking, Finance & Insurance 0.16 %
Basic Materials 1.01 %
Building & Materials 0.15 %
Cable, Media & Publishing 0.24 %
Computers & Technology 2.31 %
Electronics & Electrical Equipment 0.13 %
Energy 0.39 %
Health Care & Pharmaceuticals 2.59 %
Leisure, Lodging & Entertainment 0.61 %
Real Estate 1.74 %
Retail 0.23 %
Telecommunications 2.57 %
Transportation 0.39 %
Utilities 0.50 %
Corporate Bonds 43.08 %
Banking 2.11 %
Basic Industry 4.76 %
Brokerage 0.56 %
Capital Goods 3.29 %
Consumer Cyclical 5.34 %
Consumer Non-Cyclical 3.03 %
Energy 3.99 %
Finance & Investments 1.26 %
Media 3.09 %
Real Estate 0.23 %
Services Cyclical 4.24 %
Services Non-Cyclical 1.70 %
Technology & Electronics 1.34 %
Telecommunications 6.27 %
Utilities 1.87 %
Senior Secured Loans 0.57 %
Exchange Traded Fund 0.03 %
Limited Partnerships 0.24 %
Warrant 0.00 %
Discount Note 2.39 %
Securities Lending Collateral 6.11 %
Total Value of Securities 135.70 %
Obligation to Return Securities Lending Collateral (6.39 %)
Borrowing Under Line of Credit (30.45 %)
Receivables and Other Assets Net of Liabilities 1.14 %
Total Net Assets 100.00 %

6
 


Holdings are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold any security.
 
Percentage
Top 10 Equity Holdings of Net Assets
Pfizer 2.10 %
Merck 2.09 %
Travelers 2.00 %
International Business Machines 1.98 %
Cardinal Health 1.93 %
Kimberly-Clark 1.92 %
Intel 1.82 %
Heinz (H.J.) 1.75 %
Edison International 1.74 %
Archer-Daniels-Midland 1.72 %

7
 


Statement of net assets
 
Delaware Investments® Dividend and Income Fund, Inc.
 
November 30, 2009
 
Number of
                Shares       Value
Common Stock – 66.34%
Consumer Discretionary – 3.42%
=∏ Avado Brands   1,390 $ 0
*† DIRECTV Class A 1,550   49,027
Lowe’s 51,200   1,116,672
Mattel 56,800 1,105,328
2,271,027
Consumer Staples – 10.08%
Archer-Daniels-Midland 37,100 1,143,051
CVS Caremark 35,900 1,113,259
Heinz (H.J.) 27,400 1,163,130
Kimberly-Clark 19,300 1,273,221
Kraft Foods Class A 37,000 983,460
Safeway 45,400 1,021,500
6,697,621
Diversified REITs – 0.75%
Vornado Realty Trust 7,638 499,983
499,983
Energy – 6.16%
Chevron 12,600 983,304
ConocoPhillips 19,500 1,009,515
Marathon Oil 32,500 1,060,150
National Oilwell Varco 24,200 1,041,084
4,094,053
Financials – 5.18%
Allstate 36,600 1,039,806
Bank of New York Mellon 36,700 977,688
Global Brands Acquisition 9,100 89,271
Travelers 25,400 1,330,706
3,437,471
Health Care – 10.84%
Alliance HealthCare Services 5,127 30,352
Bristol-Myers Squibb 42,200 1,068,082
Cardinal Health 39,800 1,282,754
Johnson & Johnson 17,000 1,068,280
Merck 38,384 1,389,890
Pfizer 76,789 1,395,255
Quest Diagnostics 16,700 967,598
7,202,211
Health Care REITs – 2.76%
HCP 15,650 489,845
Health Care REIT 9,060 403,623
LTC Properties 3,800 97,698
Nationwide Health Properties 8,800 299,288
* Omega Healthcare Investors 7,900 142,911
Ventas 9,375 402,469
1,835,834
Hotel REITs – 0.37%
Host Hotels & Resorts 23,100 243,012
243,012
Industrial REITs – 0.34%
AMB Property 1,280 30,144
ProLogis 15,000 196,200
226,344
Industrials – 3.50%
Delta Air Lines 4 33
Flextronics International 4,400 31,108
Foster Wheeler 2 60
* Grupo Aeroportuario del Centro
          Norte ADR 5,800 70,818
*† Mobile Mini 1,651 25,112
Northrop Grumman 19,900 1,090,520
∏=† PT Holdings 350 4
Waste Management 33,700 1,106,707
2,324,362
Information Technology – 6.86%
Intel 63,100 1,211,520
International Business Machines 10,400 1,314,040
Motorola 124,800 999,648
Xerox 134,200 1,033,340
4,558,548
Mall REITs – 1.60%
General Growth Properties 6 39
* Macerich 8,265 245,966
Simon Property Group 11,278 819,460
1,065,465
Materials – 1.67%
duPont (E.I.) deNemours 32,100 1,110,018
1,110,018
Mortgage REITs – 0.50%
Annaly Capital Management 2,300 42,343
Chimera Investment 23,800 95,914
Cypress Sharpridge Investments 14,800 193,880
332,137
Multifamily REITs – 1.39%
Apartment Investment &
          Management 7,968 107,648
BRE Properties 4,600 144,118
Camden Property Trust 3,450 133,688
Equity Residential 16,600 534,685
920,139
Office REITs – 1.37%
* Alexandria Real Estate Equities 3,090 174,183
* Boston Properties 3,000 200,940
Brandywine Realty Trust 11,500 112,930
Government Properties Income Trust 4,800 119,856
Highwoods Properties 5,700 174,477
Mack-Cali Realty 4,250 130,433
912,819
Office/Industrial REITs – 0.53%
* Digital Realty Trust 5,550 270,063
Liberty Property Trust 2,700 80,028
350,091
Real Estate Operating REITs – 0.47%
Starwood Property Trust 16,000 310,400
310,400

8
 


          Number of
Shares       Value
Common Stock (continued)
Self-Storage REITs – 0.62%
Public Storage 5,150 $ 409,837
409,837
Shopping Center REITs – 0.59%
Cedar Shopping Centers 5,700 34,428
* Federal Realty Investment Trust 300 19,296
Kimco Realty   20,430 251,698
Ramco-Gershenson Properties Trust 9,200 83,720
389,142
Specialty REITs – 0.87%
Entertainment Properties Trust 6,320 199,649
* Plum Creek Timber 6,885 237,463
* Potlatch 4,825 142,048
579,160
Telecommunications – 3.12%
AT&T 33,200 894,408
=† Century Communications 500,000 0
Frontier Communications 24,400 192,760
GeoEye 550 17,144
Verizon Communications 30,700 965,822
2,070,134
Utilities – 3.35%
Edison International 33,900 1,154,295
Mirant 189 2,691
NorthWestern 3,300 85,107
Progress Energy 25,100 981,159
2,223,252
Total Common Stock (cost $47,571,627)   44,063,060
 
Convertible Preferred Stock – 2.64%
Banking, Finance & Insurance – 0.71%
Aspen Insurance 5.625%
          exercise price $29.28,
          expiration date 12/31/49 8,800 470,800
@ Fannie Mae 8.75% exercise price
          $32.45, expiration date 5/13/11 3,500 4,900
475,700
Cable, Media & Publishing – 0.37%
# Interpublic Group 144A 5.25%
          exercise price $13.66,
          expiration date 12/31/49 360 246,690
246,690
Energy – 0.46%
El Paso Energy Capital Trust I
          4.75% exercise price $41.59,
          expiration date 3/31/28 5,250 176,715
Whiting Petroleum 6.25%
          exercise price $43.42,
          expiration date 12/31/49 800 128,768
305,483
Health Care & Pharmaceuticals – 0.37%
Mylan 6.50% exercise price $17.08,
          expiration date 11/15/10 220 245,630
245,630
Telecommunications – 0.73%
Crown Castle International
          6.50% exercise price $36.88,
          expiration date 8/15/12 4,450   256,988
Lucent Technologies Capital Trust I
          7.75% exercise price $24.80,
          expiration date 3/15/17 305 225,776
482,764
Total Convertible Preferred Stock
(cost $1,963,794) 1,756,267
 
Preferred Stock – 0.25%
Banking, Finance & Insurance – 0.22%
Bank of America
          8.00% 150,000 130,834
        ·8.125% 15,000 13,084
143,918
Industrials – 0.00%
= Port Townsend 70 0
0
Real Estate – 0.03%
W2007 Grace Acquisitions I 8.75% 34,400 20,640
20,640
Total Preferred Stock (cost $1,079,051) 164,558
 
  Principal
Amount
Convertible Bonds – 14.05%
Aerospace & Defense – 0.77%
# AAR 144A 1.75% exercise price
            $29.43, expiration date 1/1/26 $ 260,000 240,825
# L-3 Communications Holdings 144A
          3.00% exercise price $100.14,
          expiration date 8/1/35 265,000 272,288
513,113
Automobiles – 0.26%
Ford Motor 4.25% exercise price
            $9.30, expiration date 11/15/16 150,000 171,563
171,563
Banking, Finance & Insurance – 0.16%
Jefferies Group 3.875% exercise
          price $39.20, expiration
          date 11/1/29 115,000 107,238
107,238
Basic Materials – 1.01%
Century Aluminum 1.75% exercise
          price $30.54, expiration
          date 8/1/24 20,000 18,575
Rayonier TRS Holdings 3.75% exercise
          price $54.82, expiration
          date 10/15/12 345,000 361,387
# Sino-Forest 144A 5.00% exercise price
            $20.29, expiration date 8/1/13 255,000 290,063
670,025

(continues)     9
 


Statement of net assets
 
Delaware Investments® Dividend and Income Fund, Inc.
 
          Principal      
Amount Value
Convertible Bonds (continued)
Building & Materials – 0.15%
Beazer Homes USA 4.625%
          exercise price $49.64,
          expiration date 6/15/24 $ 110,000 $ 100,925
100,925
Cable, Media & Publishing – 0.24%
Interpublic Group 4.25%
            exercise price $12.42,
          expiration date 3/15/23 75,000 73,313
VeriSign 3.25% exercise price  
          $34.37, expiration date 8/15/37 105,000 87,937
161,250
Computers & Technology – 2.31%
Advanced Micro Devices
          6.00% exercise price $28.08,
          expiration date 5/1/15 70,000 61,775
        #144A 6.00% exercise price  
          $28.08, expiration date 5/1/15 450,000 397,125
Euronet Worldwide 3.50%
          exercise price $40.48,
          expiration date 10/15/25 435,000 402,918
Hutchinson Technology 3.25%
          exercise price $36.43,
          expiration date 1/14/26 340,000 257,975
# Intel 144A 3.25% exercise price
          $22.68, expiration date 8/1/39 70,000 77,788
Linear Technology 3.125%
          exercise price $47.33,
          expiration date 5/1/27 120,000 117,150
SanDisk 1.00% exercise price
          $82.35, expiration date 5/15/13 280,000 220,500
1,535,231
Electronics & Electrical Equipment – 0.13%
Flextronics International 1.00%
          exercise price $15.53,
          expiration date 8/1/10 85,000 83,831
83,831
Energy – 0.39%
Chesapeake Energy 2.25%
          exercise price $85.89,
          expiration date 12/15/38 220,000 164,175
Peabody Energy 4.75% exercise price
          $58.44, expiration date 12/15/41 100,000 98,500
262,675
Health Care & Pharmaceuticals – 2.59%
# Allergan 144A 1.50% exercise price
          $63.33, expiration date 4/1/26 415,000 466,874
Amgen
          0.375% exercise price $79.48,
          expiration date 2/1/13 235,000 235,000
        #144A 0.375% exercise price
          $79.48, expiration date 2/1/13 165,000 165,000
Φ Hologic 2.00% exercise price
          $38.59, expiration date 12/15/37 280,000 228,200
Inverness Medical Innovations 9.00%
          Series B exercise price $43.98,
          expiration date 5/15/16 215,000 246,981
LifePoint Hospitals 3.50%
          exercise price $51.79,
          expiration date 5/14/14   110,000   98,863
Medtronic 1.65% exercise price
          $55.41, expiration date 4/15/13 275,000 280,844
1,721,762
Leisure, Lodging & Entertainment – 0.61%
# Gaylord Entertainment 144A 3.75%
          exercise price $27.25, expiration
          date 9/29/14 220,000 208,450
# International Game Technology 144A
          3.25% exercise price $19.97,
          expiration date 5/1/14 160,000 196,400
  404,850
Real Estate – 1.74%
# Corporate Office Properties 144A
          3.50% exercise price $53.12,
          expiration date 9/15/26 195,000 184,763
Developers Diversified Realty
          3.00% exercise price $74.75,
          expiration date 3/15/12 65,000 59,719
*# Digital Realty Trust 144A 5.50%
          exercise price $43.00, expiration
          date 4/15/29 220,000 282,974
@ MeriStar Hospitality 9.50%
          exercise price $10.18,
          expiration date 4/1/10 230,000 236,095
National Retail Properties
          5.125% exercise price $25.42,
          expiration date 6/15/28 210,000 216,038
  Vornado Realty Trust 2.85%
          exercise price $159.04,
          expiration date 3/15/27 175,000 175,875
1,155,464
Retail – 0.23%
Pantry 3.00% exercise price $50.09,
          expiration date 11/15/12 180,000 151,425
  151,425
Telecommunications – 2.57%
Alaska Communications System
          Group 5.75% exercise price
          $12.90, expiration date 3/1/13 260,000 235,300
Leap Wireless International 4.50%
          exercise price $93.21, expiration
          date 7/15/14 120,000 94,800
Level 3 Communications 5.25%
          exercise price $3.98, expiration
          date 12/15/11 180,000 164,250
NII Holdings 3.125% exercise price
          $118.32, expiration date 6/15/12 410,000 372,587
Qwest Communications International
          3.50% exercise price $5.01,
          expiration date 11/15/25 400,000 401,499
# SBA Communications 144A 4.00%
          exercise price $30.38, expiration
          date 10/1/14 165,000 207,488

10
 


          Principal     
Amount Value
Convertible Bonds (continued)
Telecommunications (continued)
# Virgin Media 144A 6.50% exercise
          price $19.22, expiration
            date 11/15/16 $ 198,000 $ 231,165
1,707,089
Transportation – 0.39%
Bristow Group 3.00% exercise price
            $77.34, expiration date 6/14/38 300,000 259,500
259,500
Utilities – 0.50%
Dominion Resources 2.125%
          exercise price $36.14, expiration
          date 12/15/23 290,000 329,150
329,150
Total Convertible Bonds
(cost $9,073,391) 9,335,091
 
Corporate Bonds – 43.08%
Banking – 2.11%
· BAC Capital Trust XIV 5.63% 12/31/49 215,000 143,513
Capital One Capital V 10.25% 8/15/39 135,000 148,870
· Citigroup Capital XXI 8.30% 12/21/57 65,000 58,175
# GMAC 144A
          6.00% 12/15/11 71,000 67,539
          6.625% 5/15/12 85,000 81,281
          6.875% 9/15/11   174,000   169,215
          6.875% 8/28/12 196,000 187,670
JPMorgan Chase Capital XXV
          6.80% 10/1/37 20,000 19,788
@ Popular North America Capital Trust I
          6.564% 9/15/34 70,000 51,479
·# Rabobank 144A 11.00% 12/29/49 150,000 185,984
USB Capital IX 6.189% 10/29/49 115,000 90,850
Zions Bancorporation
          5.50% 11/16/15 57,000 39,661
          6.00% 9/15/15 141,000 98,232
          7.75% 9/23/14 65,000 57,906
1,400,163
Basic Industry – 4.76%
# Algoma Acquisition 144A
          9.875% 6/15/15 115,000 98,325
California Steel Industries
          6.125% 3/15/14 113,000 105,655
Century Aluminum 7.50% 8/15/14 115,000 106,375
·# Cognis GmbH 144A 2.299% 9/15/13 75,000 69,000
# Drummond 144A 9.00% 10/15/14 145,000 148,625
# Evraz Group 144A 9.50% 4/24/18 195,000 196,462
# FMG Finance 144A 10.625% 9/1/16 90,000 98,550
Freeport McMoRan Copper & Gold
          8.25% 4/1/15 120,000 128,839
          8.375% 4/1/17 10,000 10,802
* Hexion US Finance 9.75% 11/15/14 121,000 116,765
# Innophos Holdings 144A
          9.50% 4/15/12 115,000 115,575
International Coal Group
          10.25% 7/15/14   163,000   158,925
# MacDermid 144A 9.50% 4/15/17 188,000 187,059
# Momentive Performance Material
          144A 12.50% 6/15/14 70,000 77,000
# Murray Energy 144A 10.25% 10/15/15 115,000 113,275
# NewPage144A 11.375% 12/31/14 145,000 143,550
· Noranda Aluminum Acquisition
          PIK 5.274 % 5/15/15 151,023 110,247
Norske Skog Canada 8.625% 6/15/11 61,000 45,598
Novelis
          7.25% 2/15/15 50,000 45,375
           #144A 11.50% 2/15/15 72,000 75,240
=@ Port Townsend 7.32% 8/27/12 102,592 74,379
Potlatch 12.50% 12/1/09 250,000 249,999
Ryerson
        ·7.656% 11/1/14 99,000 87,863
          12.25% 11/1/15 40,000 40,900
# Sappi Papier Holding 144A
          6.75% 6/15/12 101,000 94,036
# Steel Capital 144A 9.75% 7/29/13 100,000 101,125
# Steel Dynamics 144A 8.25% 4/15/16 127,000 128,905
# Teck Resources 144A
          10.25% 5/15/16 38,000 43,130
          10.75% 5/15/19 75,000 87,938
# Vedanta Resources 144A
          9.50% 7/18/18 100,000 99,750
3,159,267
Brokerage – 0.56%
E Trade Financial PIK
          12.50% 11/30/17 116,875 132,069
LaBranche 11.00% 5/15/12 252,000 243,180
375,249
Capital Goods – 3.29%
AMH Holdings 11.25% 3/1/14 60,000 56,550
Associated Materials
          9.75% 4/15/12 42,000 42,683
          #144A 9.875% 11/15/16 15,000 15,750
Building Materials Corporation of
          America 7.75% 8/1/14 104,000 103,480
# BWAY 144A 10.00% 4/15/14 123,000 129,458
·# C8 Capital 144A 6.64% 12/31/49 100,000 70,715
# CPM Holdings 144A 10.625% 9/1/14 28,000 29,400
Eastman Kodak 7.25% 11/15/13 99,000 79,200
* Graham Packaging Capital I
          9.875% 10/15/14 123,000 125,460
# Graphic Packaging International
          144A 9.50% 6/15/17 126,000 133,560
Intertape Polymer 8.50% 8/1/14 100,000 78,500
JSG Funding 7.75% 4/1/15 210,000 201,599
# Plastipak Holdings 144A
          8.50% 12/15/15 66,000 66,248
          10.625% 8/15/19 71,000 78,455

(continues)     11
 


Statement of net assets
 
Delaware Investments® Dividend and Income Fund, Inc.
 
          Principal     
Amount Value
Corporate Bonds (continued)
Capital Goods (continued)
Pregis 13.375% 10/15/13 $ 222,000 $ 212,009
* RBS Global/Rexnord 11.75% 8/1/16 183,000 180,254
# Reynolds Group Issuer 144A
          7.75% 10/15/16 100,000 101,500
* Sally Holdings Capital
          10.50% 11/15/16 75,000 80,625
* Solo Cup 8.50% 2/15/14 134,000 129,645
Thermadyne Holdings 10.50% 2/1/14 137,000 119,875
USG
          6.30% 11/15/16 127,000 110,808
          #144A 9.75% 8/1/14 35,000 36,838
2,182,612
Consumer Cyclical – 5.34%
# Allison Transmission 144A  
          11.00% 11/1/15 220,000 228,799
* ArvinMeritor 8.125% 9/15/15 165,000 150,975
Beazer Homes USA 8.625% 5/15/11 138,000 134,550
Burlington Coat Factory Investment
          Holdings 14.50% 10/15/14   225,000 226,687
* Burlington Coat Factory Warehouse  
          11.125% 4/15/14 70,000 72,800
Carrols 9.00% 1/15/13 33,000 33,330
Denny’s Holdings 10.00% 10/1/12 57,000 58,425
Ford Motor 7.45% 7/16/31 174,000 148,988
Ford Motor Credit 12.00% 5/15/15 260,000 299,935
Goodyear Tire & Rubber
          10.50% 5/15/16 2,000 2,160
Interface
          9.50% 2/1/14 19,000 18,929
          #144A 11.375% 11/1/13 50,000 54,938
# Invista 144A 9.25% 5/1/12 118,000 120,360
K Hovnanian Enterprises
          6.25% 1/15/15 40,000 29,000
          7.50% 5/15/16 70,000 50,750
          #144A 10.625% 10/15/16 70,000 71,750
# Landry’s Restaurants 144A
          11.625% 12/1/15 220,000 224,399
M/I Homes 6.875% 4/1/12 75,000 70,125
Macy’s Retail Holdings
          6.375% 3/15/37 110,000 93,500
          6.70% 7/15/34 15,000 12,750
          7.875% 8/15/36 50,000 44,000
Meritage Homes
          6.25% 3/15/15 24,000 21,960
          7.00% 5/1/14 108,000 103,140
Mobile Mini 6.875% 5/1/15 119,000 111,860
Navistar International 8.25% 11/1/21 145,000 143,188
Norcraft Holdings Capital 9.75% 9/1/12 150,000 143,250
OSI Restaurant Partners
          10.00% 6/15/15 83,000 72,210
Quiksilver 6.875% 4/15/15 200,000 154,000
Rite Aid 9.375% 12/15/15 190,000 160,075
# Standard Pacific Escrow
          144A 10.75% 9/15/16 75,000 74,625
* Tenneco Automotive 8.625% 11/15/14   146,000 143,810
# Toys R Us Property 144A
          10.75% 7/15/17 66,000 70,785
*# TRW Automotive 144A
          7.00% 3/15/14 210,000 199,763
3,545,816
Consumer Non-Cyclical – 3.03%
Accellent 10.50% 12/1/13 105,000 101,588
# Alliance One International 144A
          10.00% 7/15/16 133,000 140,315
Bausch & Lomb 9.875% 11/1/15 137,000 141,453
# Cott Beverages 144A
          8.375% 11/15/17 90,000 90,225
DJO Finance 10.875% 11/15/14 80,000 84,600
# Dole Food 144A
          8.00% 10/1/16 30,000 30,450
          13.875% 3/15/14 62,000 73,160
# Ingles Markets 144A 8.875% 5/15/17 75,000 77,438
Inverness Medical Innovations
          9.00% 5/15/16 104,000 105,820
# JBS USA Finance 144A
          11.625% 5/1/14 113,000 126,136
# JohnsonDiversey Holdings 144A
          10.50% 5/15/20 305,000 301,187
LVB Acquisition
          PIK 10.375% 10/15/17 57,000 61,418
          11.625% 10/15/17 75,000 81,938
# M-Foods Holdings 144A
          9.75% 10/1/13 42,000 43,890
Smithfield Foods
          7.75% 5/15/13 155,000 144,537
          #144A 10.00% 7/15/14 38,000 39,995
# Tops Markets 144A 10.125% 10/15/15 140,000 144,200
Universal Hospital Services PIK
          8.50% 6/1/15 80,000 79,200
Yankee Acquisition 9.75% 2/15/17 150,000 144,000
2,011,550
Energy – 3.99%
# Antero Resources Finance 144A
          9.375% 12/1/17 115,000 115,863
Chesapeake Energy 9.50% 2/15/15 24,000 25,260
Complete Production Service
          8.00% 12/15/16 77,000 75,845
Copano Energy Finance 7.75% 6/1/18 94,000 94,000
Denbury Resources
          7.50% 4/1/13 15,000 15,075
          9.75% 3/1/16 66,000 70,125
Dynegy Holdings 7.75% 6/1/19 162,000 133,245
El Paso
          6.875% 6/15/14 47,000 46,530
          7.00% 6/15/17 52,000 51,220
# El Paso Performance-Linked Trust 144A
          7.75% 7/15/11 33,000 33,700

12
 


          Principal     
Amount Value
Corporate Bonds (continued)
Energy (continued)
· Enterprise Products Operating
          8.375% 8/1/66 $ 30,000 $ 29,249
Forest Oil 7.25% 6/15/19 94,000 89,535
*# Headwaters 144A 11.375% 11/1/14 145,000 148,987
# Helix Energy Solutions Group 144A
          9.50% 1/15/16 156,000 158,729
# Hercules Offshore 144A
          10.50% 10/15/17 145,000 147,175
# Hilcorp Energy I 144A
          7.75% 11/1/15 47,000 45,473
          9.00% 6/1/16 94,000 94,705
# Holly 144A 9.875% 6/15/17 121,000   126,143
* Key Energy Services 8.375% 12/1/14 141,000 138,356
Mariner Energy 8.00% 5/15/17 118,000 112,100
MarkWest Energy Partners/Finance
          8.75% 4/15/18 130,000 131,625
OPTI Canada  
          7.875% 12/15/14 116,000 92,800
          8.25% 12/15/14 67,000 53,935
PetroHawk Energy
          7.875% 6/1/15 80,000 80,200
          9.125% 7/15/13 52,000 54,210
Petroleum Development
          12.00% 2/15/18 118,000 119,770
Plains Exploration & Production
          8.625% 10/15/19 40,000 40,300
Quicksilver Resources
          7.125% 4/1/16 115,000 104,363
          11.75% 1/1/16 33,000 36,836
Regency Energy Partners
          8.375% 12/15/13 57,000 58,853
# SandRidge Energy 144A
          9.875% 5/15/16 123,000 126,690
2,650,897
Finance & Investments – 1.26%
·# C5 Capital 144A 6.196% 12/31/49 100,000 69,663
Cardtronics 9.25% 8/15/13 130,000 132,926
International Lease Finance
          5.25% 1/10/13 85,000 68,553
          5.35% 3/1/12 15,000 12,801
          5.55% 9/5/12 50,000 40,295
          5.625% 9/20/13 120,000 94,515
          6.375% 3/25/13 25,000 20,139
          6.625% 11/15/13 70,000 56,547
·# MetLife Capital Trust X 144A
            9.25% 4/8/38 100,000 105,000
@# Nuveen Investments 144A
          10.50% 11/15/15 269,000 238,064
838,503
Media – 3.09%
Affinion Group I 11.50% 10/15/15 70,000 73,150
# Cablevision Systems 144A
          8.625% 9/15/17 80,000 82,400
# Cengage Learning Acquisitions 144A
          10.50% 1/15/15   85,000 79,263
# Charter Communications
          Operating 144A
          10.00% 4/30/12 33,000 33,743
          10.375% 4/30/14 66,000 67,485
          12.875% 9/15/14 273,000 305,418
# Columbus International 144A
          11.50% 11/20/14 135,000 138,888
# DISH DBS 144A 7.875% 9/1/19 150,000 151,874
# MDC Partners 144A 11.00% 11/1/16 70,000 70,350
# Mediacom Capital 144A
          9.125% 8/15/19 95,000 96,900
Nielsen Finance
         W12.50% 8/1/16 66,000 58,080
          10.00% 8/1/14 75,000 77,813
          11.50% 5/1/16 35,000 37,800
          11.625% 2/1/14 2,000 2,160
          #144A 11.625% 2/1/14 40,000 43,200
*# Sinclair Television Group 144A
          9.25% 11/1/17 110,000 112,063
# Terremark Worldwide 144A
          12.00% 6/15/17 66,000 72,353
# Univision Communications 144A
          12.00% 7/1/14 103,000 112,528
# UPC Holding 144A 9.875% 4/15/18 100,000 104,500
# XM Satellite Radio 144A
          13.00% 8/1/13 130,000 135,525
XM Satellite Radio Holdings PIK
          10.00% 6/1/11 203,000 194,879
2,050,372
Real Estate – 0.23%
Developers Diversified Realty
          9.625% 3/15/16 25,000 26,062
# Felcor Lodging 144A
          10.00% 10/1/14 130,000 127,400
153,462
Services Cyclical – 4.24%
* ARAMARK 8.50% 2/1/15 87,000 87,653
# Ashtead Capital 144A 9.00% 8/15/16 100,000 98,500
Avis Budget Car Rental
          7.625% 5/15/14 190,000 175,750
          7.75% 5/15/16 80,000 72,000
Delta Air Lines
          7.92% 11/18/10 61,000 61,000
          #144A 9.50% 9/15/14 65,000 66,300
# Galaxy Entertainment Finance 144A
          9.875% 12/15/12 240,000 242,399
Gaylord Entertainment
          6.75% 11/15/14 66,000 60,060
# General Maritime 144A
          12.00% 11/15/17 85,000 88,613
Global Cash Access 8.75% 3/15/12 41,000 40,334

(continues)     13
 


Statement of net assets
 
Delaware Investments® Dividend and Income Fund, Inc.
 
          Principal     
Amount Value
Corporate Bonds (continued)
Services Cyclical (continued)
# Harrah’s Operating 144A
          10.00% 12/15/18 $ 289,000 $ 221,084
* Hertz 10.50% 1/1/16 91,000   95,095
# Kansas City Southern de Mexico 144A  
          12.50% 4/1/16 100,000 114,500
MGM MIRAGE
          *6.625% 7/15/15 42,000 31,500
          7.50% 6/1/16 42,000 32,025
          *7.625% 1/15/17 145,000 110,925
          13.00% 11/15/13 101,000 115,014
          #144A 11.375% 3/1/18 75,000 65,063
Mohegan Tribal Gaming Authority
          7.125% 8/15/14 100,000 63,500
*# NCL 144A 11.75% 11/15/16 75,000 74,344
@‡ Northwest Airlines 10.00% 2/1/10 55,000 413
PHH 7.125% 3/1/13   140,000 131,250
Pinnacle Entertainment 7.50% 6/15/15 226,000 202,269
Royal Caribbean Cruises  
          6.875% 12/1/13 80,000 75,600
RSC Equipment Rental
          9.50% 12/1/14 202,000 198,718
          #144A 10.25% 11/15/19 15,000 14,625
# ServiceMaster PIK 144A
          10.75% 7/15/15 155,000 157,324
# Shingle Springs Tribal Gaming
          Authority 144A 9.375% 6/15/15 171,000 124,830
2,820,688
Services Non-Cyclical – 1.70%
# Alliance HealthCare Services 144A
          8.00% 12/1/16 70,000 69,300
Casella Waste Systems 9.75% 2/1/13 137,000 134,260
Community Health Systems
          8.875% 7/15/15 62,000 63,395
Cornell 10.75% 7/1/12 52,000 53,300
HCA PIK 9.625% 11/15/16 255,000 272,531
Psychiatric Solutions
          7.75% 7/15/15 94,000 91,180
          #144A 7.75% 7/15/15 42,000 39,690
Select Medical 7.625% 2/1/15 179,000 172,288
Tenet Healthcare 7.375% 2/1/13 70,000 69,300
· US Oncology Holdings PIK
          6.428% 3/15/12 180,000 162,900
1,128,144
Technology & Electronics – 1.34%
# Advanced Micro Devices 144A
          8.125% 12/15/17 30,000 28,463
Avago Technologies Finance
          10.125% 12/1/13 75,000 79,031
First Data 9.875% 9/24/15 295,000 264,025
* Freescale Semiconductor
          8.875% 12/15/14 173,000 147,915
Sanmina-SCI 8.125% 3/1/16 154,000 150,535
* SunGard Data Systems 10.25% 8/15/15 138,000 142,140
# Unisys 144A 12.75% 10/15/14 71,000 79,520
891,629
Telecommunications – 6.27%
Cincinnati Bell 8.25% 10/15/17   105,000   104,738
# Clearwire Communications 144A
          12.00% 12/1/15 295,000 290,788
* Cricket Communications
          9.375% 11/1/14 222,000 214,785
# Digicel Group 144A
          8.25% 9/1/17 110,000 108,075
          *8.875% 1/15/15 100,000 97,500
# DigitalGlobe 144A 10.50% 5/1/14 61,000 65,575
# GCI 144A 8.625% 11/15/19 145,000 145,725
# GeoEye 144A 9.625% 10/1/15 65,000 67,763
# Global Crossing 144A 12.00% 9/15/15 135,000 144,450
Hughes Network Systems
          9.50% 4/15/14 127,000 128,905
# Intelsat Bermuda 144A
          11.25% 2/4/17 283,000 281,584
Intelsat Jackson Holdings
          11.25% 6/15/16 236,000 253,109
Level 3 Financing
          9.25% 11/1/14 66,000 58,575
          12.25% 3/15/13 66,000 69,218
Lucent Technologies 6.45% 3/15/29 156,000 120,900
* MetroPCS Wireless 9.25% 11/1/14 214,000 215,605
# NII Capital 144A 10.00% 8/15/16 138,000 146,970
# Nordic Telephone Holdings 144A
          8.875% 5/1/16 75,000 79,125
PAETEC Holding 8.875% 6/30/17 71,000 70,823
# Qwest 144A 8.375% 5/1/16 5,000 5,250
Qwest Communications International
          7.50% 2/15/14 61,000 60,695
Sprint Capital
          6.00% 12/1/16 94,000 81,545
          6.875% 11/15/28 65,000 49,075
          8.75% 3/15/32 305,000 262,680
# Telcordia Technologies 144A
          10.00% 3/15/13 85,000 70,975
Telesat Canada
          11.00% 11/1/15 80,000 85,000
          12.50% 11/1/17 94,000 101,520
US West Capital Funding
          7.75% 2/15/31 80,000 65,200
US West Communications
          7.25% 9/15/25 90,000 79,650
# Viasat 144A 8.875% 9/15/16 75,000 76,031
# VimpelCom 144A 9.125% 4/30/18 150,000 158,250
Virgin Media Finance 8.375% 10/15/19 100,000 100,500
West 11.00% 10/15/16 110,000 111,375
# Wind Acquisition Finance 144A
          10.75% 12/1/15 75,000 80,625
          11.75% 7/15/17 100,000 111,500
4,164,084

14
 


          Principal     
Amount Value
Corporate Bonds (continued)
Utilities – 1.87%
AES
          7.75% 3/1/14 $ 83,000 $ 83,623
          8.00% 10/15/17 47,000 47,118
* Edison Mission Energy 7.00% 5/15/17 125,000 91,875
Elwood Energy 8.159% 7/5/26 167,845 151,422
Energy Future Holdings
          10.875% 11/1/17 66,000 46,695
* Mirant Americas Generation
          8.50% 10/1/21 200,000 181,999
w
Mirant Mid Atlantic Pass Through
          Trust Series A 8.625% 6/30/12 59,067 60,027
NRG Energy
          7.375% 2/1/16 144,000 143,640
          7.375% 1/15/17 45,000 44,775
Orion Power Holdings 12.00% 5/1/10 116,000 119,770
· Puget Sound Energy 6.974% 6/1/67 110,000 97,200
* Texas Competitive Electric Holdings
          10.50% 11/1/15 141,000 100,815
TXU 5.55% 11/15/14   105,000 72,975
  1,241,934
Total Corporate Bonds
(cost $26,905,306) 28,614,370
 
«Senior Secured Loans – 0.57%
Chester Downs & Marina Term
          Tranche Loan 12.375% 12/31/16 72,000 72,180
PQ Term Tranche Loan 6.79% 7/30/15 170,000 142,658
Texas Competitive Electric Holdings
          Term Tranche Loan B2
          3.742% 10/10/14 115,414 86,550
Univision Communications Term
          Tranche Loan B 2.533% 9/29/14 90,000 74,318
Total Senior Secured Loans
(cost $341,745) 375,706
 
Number of
Shares
Exchange Traded Fund – 0.03%
Equity Fund – 0.03%
*ProShares UltraShort Real Estate 2,400 20,904
Total Exchange Traded Fund
(cost $59,893) 20,904
 
Limited Partnerships – 0.24%
Blackstone Group 3,000 41,520
Brookfield Infrastructure Partners 7,600 117,040
Total Limited Partnerships
(cost $184,721) 158,560
 
Warrant – 0.00%
=† Port Townsend 70 1
Total Warrant (cost $1,680) 1
   
Principal
Amount  
¹Discount Note – 2.39%
Federal Home Loan Bank
          0.02% 12/1/09 $ 1,587,002 $ 1,587,002
Total Discount Note (cost $1,587,002) 1,587,002
 
Total Value of Securities Before
Securities Lending Collateral – 129.59%
(cost $88,768,210) 86,075,519
 
  Number of
Shares
Securities Lending Collateral** – 6.11%
Investment Companies
          Mellon GSL DBT II Collateral Fund  1,228,217 1,228,217
          BNY Mellon SL DBT II
          Liquidating Fund  2,855,882 2,824,753
      @†Mellon GSL Reinvestment Trust II 163,237 6,938
Total Securities Lending Collateral
(cost $4,247,336) 4,059,908
 
Total Value of Securities – 135.70%
(cost $93,015,546) 90,135,427 ©
Obligation to Return Securities
Lending Collateral** – (6.39%) (4,247,336 )
Borrowing Under Line of Credit – (30.45%) (20,225,000 )
Receivables and Other Assets
Net of Liabilities – 1.14% 757,501
Net Assets Applicable to 9,439,043
Shares Outstanding; Equivalent to
  $7.04 Per Share – 100.00% $ 66,420,592
 
Components of Net Assets at November 30, 2009:
Common stock, $0.01 par value,
500,000,000 shares authorized to the Fund $ 97,186,304
Distributions in excess of net investment income (66,931 )
Accumulated net realized loss on investments (27,818,662 )
Net unrealized depreciation of investments
and foreign currencies (2,880,119 )
Total net assets $ 66,420,592  

Non income producing security.
Non income producing security. Security is currently in default.
·
Variable rate security. The rate shown is the rate as of November 30, 2009.
¹
The rate shown is the effective yield at the time of purchase.
@
Illiquid security. At November 30, 2009, the aggregate amount of illiquid securities was $612,268, which represented 0.92% of the Fund’s net assets. See Note 10 in “Notes to financial statements.”
Restricted Security. These investments are in securities not registered under the Securities Act of 1933, as amended, and have certain restrictions on resale which may limit their liquidity. At November 30, 2009, the aggregate amount of the restricted securities was $4 or 0.00% of the Fund’s net assets. See Note 10 in “Notes to financial statements.”
 
(continues)     15
 


Statement of net assets
 
Delaware Investments® Dividend and Income Fund, Inc.
 
    
=
Security is being fair valued in accordance with the Fund’s fair valuation policy. At November 30, 2009, the aggregate amount of fair valued securities was $74,384, which represented 0.11% of the Fund’s net assets. See Note 1 in “Notes to financial statements.” 
# Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At November 30, 2009, the aggregate amount of Rule 144A securities was $15,370,289, which represented 23.14% of the Fund’s net assets. See Note 10 in “Notes to financial statements.”
« Senior Secured Loans generally pay interest at rates which are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates are generally: (i) the prime rate offered by one or more United States banks, (ii) the lending rate offered by one or more European banks such as the London Inter-Bank Offered Rate (LIBOR), and (iii) the certificate of deposit rate. Senior Secured Loans may be subject to restrictions on resale. Stated rate in effect at November 30, 2009.
W
Step coupon bond. Indicates security that has a zero coupon that remains in effect until a predetermined date at which time the stated interest rate becomes effective.
Φ
Step coupon bond. Coupon increases/decreases periodically based on a predetermined schedule. Stated rate in effect at November 30, 2009.
w
Pass Through Agreement. Security represents the contractual right to receive a proportionate amount of underlying payments due to the counterparty pursuant to various agreements related to the rescheduling of obligations and the exchange of certain notes.
*
Fully or partially on loan.
**
See Note 9 in “Notes to financial statements.”
© Includes $4,253,690 of securities loaned.
 
Summary of Abbreviations:
ADR — American Depositary Receipts
PIK — Pay-in-kind
REIT — Real Estate Investment Trust
 
See accompanying notes
 
16
 


Statement of operations
 
Delaware Investments® Dividend and Income Fund, Inc.
 
Year Ended November 30, 2009
 
Investment Income:       
       Dividends $ 1,756,045
       Interest 3,270,000
       Securities lending income 36,455 $ 5,062,500
 
Expenses:
       Management fees 424,571
       Reports to shareholders 122,610
       Dividend disbursing and transfer agent fees and expenses 94,780
       Legal fees 45,510
       Accounting and administration expenses   30,879
       NYSE fees 23,750
       Leverage expenses 18,958
       Audit and tax 16,363
       Pricing fees 15,128
       Dues and services 6,895
       Directors’ fees 4,004
       Custodian fees 3,931
       Insurance fees 1,668
       Consulting fees 783
       Registration fees 643
       Directors’ expenses 277   810,750
       Less expense paid indirectly (274 )
       Total operating expenses (before interest expense) 810,476
       Interest expense 230,345
       Total operating expenses (after interest expense) 1,040,821
Net Investment Income 4,021,679
 
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies:
       Net realized loss on:
              Investments (10,717,121 )
              Swap contracts (5,260 )
              Foreign currencies (249 )
       Net realized loss (10,722,630 )
       Net change in unrealized appreciation/depreciation of investments and foreign currencies 31,142,775
Net Realized and Unrealized Gain on Investments and Foreign Currencies 20,420,145
 
Net Increase in Net Assets Resulting from Operations $ 24,441,824

See accompanying notes
 
17
 


Statements of changes in net assets
 
Delaware Investments® Dividend and Income Fund, Inc.
 
Year Ended
11/30/09       11/30/08
Increase (Decrease) in Net Assets from Operations:
       Net investment income $ 4,021,679 $ 5,021,360
       Net realized loss on investments (10,722,630 ) (16,172,098 )
       Net change in unrealized appreciation/depreciation of investments 31,142,775 (46,110,238 )
       Net increase (decrease) in net assets resulting from operations 24,441,824 (57,260,976 )
 
Dividends and Distributions to Shareholders from:1
       Net investment income (3,988,862 ) (5,710,800 )
       Tax return of capital   (2,947,565 ) (4,120,447 )
  (6,936,427 ) (9,831,247 )
Capital Share Transactions:
       Cost of shares repurchased2 (2,916,169 ) (5,004,526 )
       Decrease in net assets derived from capital share transactions (2,916,169 )   (5,004,526 )
Net Increase (Decrease) in Net Assets 14,589,228 (72,096,749 )
 
Net Assets:
       Beginning of year 51,831,364 123,928,113
       End of year (including distributions in excess of
              net investment income of $66,931 and $156,700, respectively) $ 66,420,592 $ 51,831,364

1See Note 4 in “Notes to financial statements.”
2See Note 6 in “Notes to financial statements.”
 
See accompanying notes
 
18
 


Statement of cash flows
 
Delaware Investments® Dividend and Income Fund, Inc.
 
Year Ended November 30, 2009
 
Net Cash Provided by Operating Activities:
Net increase in net assets resulting from operations $ 24,441,824
 
       Adjustments to reconcile net decrease in net assets from
              operations to cash provided by operating activities:
              Amortization of premium and discount on investments purchased (392,275 )
              Purchase of investment securities (48,237,972 )
              Proceeds from disposition of investment securities 51,950,262
              Proceeds from disposition of short-term investment securities, net 2,652,908
              Net realized loss from investment transactions   10,948,938
              Net change in net unrealized appreciation/depreciation of investments and foreign currencies (31,142,775 )
              Decrease in receivable for investments sold 121,116
              Decrease in interest and dividends receivable and other assets 107,091
              Increase in payable for investments purchased 254,540  
              Decrease in interest payable (11,965 )
              Decrease in accrued expenses (47,269 )
       Total adjustments (13,797,401 )
Net cash provided by operating activities 10,644,423
 
Cash Flows Used for Financing Activities:
       Cash dividends and distributions paid (6,936,427 )
       Purchase of fund shares (tender offer) (2,916,169 )
Net cash used for financing activities (9,852,596 )
Net increase in cash 791,827
Cash (overdraft) at beginning of year (774,889 )
Cash at end of year $ 16,938
 
Cash paid for interest expense for leverage $ 242,310

See accompanying notes
 
19
 


Financial highlights
 
Delaware Investments® Dividend and Income Fund, Inc. 
 
 
 
Selected data for each share of the Fund outstanding throughout each period were as follows:
 
  Year Ended
     11/30/09      11/30/08      11/30/07      11/30/06      11/30/05    
Net asset value, beginning of period   $5.220   $11.850   $14.200   $12.650   $12.960
 
Income (loss) from investment operations:
Net investment income1   0.413 0.490 0.408 0.470   0.623  
Net realized and unrealized gain (loss) on investments                
       and foreign currencies 2.120   (6.160 ) (0.640 ) 2.150   0.027
Total from investment operations 2.533 (5.670 ) (0.232 ) 2.620 0.650
 
Less dividends and distributions from:
Net investment income (0.410 ) (0.558 ) (0.553 ) (0.486 ) (0.722 )
Net realized gain on investments (0.912 ) (0.584 ) (0.238 )
Return of capital (0.303 ) (0.402 ) (0.653 )
Total dividends and distributions (0.713 ) (0.960 ) (2.118 ) (1.070 ) (0.960 )
 
Net asset value, end of period   $7.040   $5.220   $11.850   $14.200   $12.650
 
Market value, end of period   $6.600   $4.020   $10.660   $13.460   $12.550
 
Total return based on:2
Net asset value 53.26%   (50.35% ) (0.94% ) 22.41%   5.44%  
Market value 86.93%   (57.51% ) (5.99% ) 16.96%   15.38%  
 
Ratios and supplemental data:
Net assets, end of period (000 omitted)   $66,421   $51,831   $123,928   $156,324   $146,638
Ratio of expenses to average net assets 1.83%   2.39%   2.71%   2.71%   2.20%  
Ratio of expenses to adjusted average net assets
       (before interest expense)3 1.05%   0.88%   0.84%   0.88%   0.91%  
Ratio of interest expense to adjusted average net assets3 0.30%   0.80%   1.25%   1.19%   0.78%  
Ratio of net investment income to average net assets 7.06%   5.12%   2.92%   3.59%   4.81%  
Ratio of net investment income to adjusted average net assets3 5.21%   3.59%   2.27%   2.74%   3.70%  
Portfolio turnover 65%   64%   49%   63%   94%  
 
Leverage Analysis:
Debt outstanding at end of period at par (000 omitted)   $20,225   $20,225   $44,000   $44,000   $48,000
Asset coverage per $1,000 of debt outstanding at end of period   $4,284   $3,563   $3,820   $4,577   $4,073
 

1 The average shares outstanding method has been applied for per share information.
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 period reported. 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. Generally, total investment return based on net asset value will be higher than total investment return based on market value in periods where there is an increase in the discount or decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods.
3 Adjusted average net assets excludes debt outstanding.
 
See accompanying notes
 
20
 


Notes to financial statements
 
Delaware Investments® Dividend and Income Fund, Inc.
 
November 30, 2009
 
Delaware Investments Dividend and Income Fund, Inc. (Fund) is organized as a Maryland corporation and is a diversified closed-end management investment company under the Investment Company Act of 1940, as amended. The Fund’s shares trade on the New York Stock Exchange (NYSE) under the symbol DDF.
 
The investment objective of the Fund is to seek high current income. Capital appreciation is a secondary objective.
 
1. Significant Accounting Policies
 
The following accounting policies are in accordance with U.S. generally accepted accounting principles (GAAP) and are consistently followed by the Fund.
 
Security Valuation — Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the NYSE on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and ask prices will be used. Securities listed on a foreign exchange are valued at the last quoted sales price on the valuation date. U.S. government and agency securities are valued at the mean between the bid and ask prices. Other debt securities, credit default swap (CDS) contracts and interest rate swap contracts are valued by an independent pricing service or broker. To the extent current market prices are not available, the pricing service may take into account developments related to the specific security, as well as transactions in comparable securities. Investment companies are valued at net asset value per share. Foreign currency exchange contracts are valued at the mean between the bid and ask prices. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available. Generally, other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Fund’s Board of Directors (Board). In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures or suspension of trading in a security. The Fund may use fair value pricing more frequently for securities traded primarily in non-U.S. markets because, among other things, most foreign markets close well before the Fund values its securities at 4:00 p.m. Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, government actions or pronouncements, aftermarket trading, or news events may have occurred in the interim. To account for this, the Fund may frequently value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing).
 
Federal Income Taxes — No provision for federal income taxes has been made as the Fund intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Fund evaluates tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (tax years ended November 30, 2006 – November 30, 2009), and has concluded that no provision for federal income tax is required in the Fund’s financial statements.
 
Distributions — The Fund has a managed distribution policy. Under the policy, the Fund declares and pays monthly distributions and is managed with a goal of generating as much of the distribution as possible from ordinary income (net investment income and short-term capital gains). The balance of the distribution then comes from long-term capital gains to the extent permitted and, if necessary, a return of capital.
 
Repurchase Agreements — The Fund may invest in a pooled cash account along with members of the Delaware Investments Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Fund’s custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is at least 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings. At November 30, 2009, the Fund held no investments in repurchase agreements.
 
Foreign Currency Transactions — Transactions denominated in foreign currencies are recorded at the prevailing exchange rates on the valuation date. The value of all assets and liabilities denominated in foreign currencies is translated into U.S. dollars at the exchange rate of such currencies against the U.S. dollar daily. Transaction gains or losses resulting from changes in exchange rates during the reporting period or upon settlement of the foreign currency transaction are reported in operations for the current period. The Fund isolates that portion of realized gains and losses on investments in debt securities, which is due to changes in foreign exchange rates from that which is due to changes in market prices of debt securities. For foreign equity securities, these changes are included in realized gains (losses) on investments. The Fund reports certain foreign currency related transactions as components of realized gains (losses) for financial reporting purposes, whereas such components are treated as ordinary income (loss) for federal income tax purposes.
 
Use of Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
Other — Expenses directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware Investments Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Discounts and premiums on non-convertible bonds are amortized to interest income over the lives of the respective securities. Distributions received from investments in
 
(continues)     21
 


Notes to financial statements
 
Delaware Investments® Dividend and Income Fund, Inc.
 
 
 
1. Significant Accounting Policies (continued)
 
Real Estate Investment Trusts (REITs) are recorded as dividend income on the ex-dividend date, subject to reclassification upon notice of the character of such distributions by the issuer.
 
Subject to seeking best execution, the Fund may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the Fund in cash. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Fund on the transaction. DMC, as defined below, and its affiliates have previously and may in the future act as an investment advisor to mutual funds or separate accounts affiliated with the administrator of the commission recapture program described above. In addition, affiliates of the administrator act as consultants in helping institutional clients choose investment advisors and may also participate in other types of business and provide other services in the investment management industry. There were no commission rebates the year ended November 30, 2009.
 
The Fund receives earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under this arrangement is included in custodian fees on the Statement of operations with the corresponding expense offset shown as “expense paid indirectly.”
 
On July 1, 2009, the Financial Accounting Standards Board (FASB) issued the FASB Accounting Standards Codification (Codification). The Codification became the single source of authoritative nongovernmental U.S. GAAP, superseding existing literature of the FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other sources. The Codification is effective for interim and annual periods ending after September 15, 2009. The Fund adopted the codification for the year ended November 30, 2009. There was no impact to financial statements as the Codification requirements are disclosure-only in nature.
 
Management has evaluated whether any events or transactions occurred subsequent to November 30, 2009 through January 21, 2010, the date of issuance of the Fund’s financial statements, and determined that there were no material events or transactions that would require recognition or disclosure in the Fund’s financial statements.
 
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
 
In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee of 0.55% (calculated daily) of the adjusted average weekly net assets of the Fund. For purposes of the calculation of investment management fees, adjusted average weekly net assets excludes the line of credit liability.
 
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Fund. For these services, the Fund pays DSC fees based on the aggregate daily net assets of the Delaware Investments Family of Funds at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DSC under the service agreement described above are allocated among all Funds in the Delaware Investments Family of Funds on a relative net asset value basis. For the year ended November 30, 2009 the Fund was charged $3,860 for these services.
 
At November 30, 2009, the Fund had liabilities payable to affiliates as follows:
 
Investment management fee payable to DMC $ 39,437
Fees and expenses payable to DSC   354
Other expenses payable to DMC and affiliates* 2,720

*DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, stock exchange fees, custodian fees and Directors’ fees.
 
As provided in the investment management agreement, the Fund bears the cost of certain legal and tax services, including internal legal and tax services provided to the Fund by DMC and/or its affiliates’ employees. For the year ended November 30, 2009, the Fund was charged 4,876 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
 
Directors’ fees include expenses accrued by the Fund for each Directors’ retainer and per meeting fees. Certain officers of DMC and DSC are officers and/or directors of the Fund. These officers and directors are paid no compensation by the Fund.
 
3. Investments
 
For the year ended November 30, 2009, the Fund made purchases of $48,237,972 and sales of $51,950,262 of investment securities other than short-term investments.
 
At November 30, 2009, the cost of investments for federal income tax purposes was $93,395,806. At November 30, 2009, net unrealized depreciation was $3,260,379, of which $6,026,772 related to unrealized appreciation of investments and $9,287,151 related to unrealized depreciation of investments.
 
The Fund applies the provisions, as amended to date, of Accounting Standards Codification 820 (ASC 820), Fair Value Measurements and Disclosures. ASC 820 defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. ASC 820 also establishes a framework for measuring fair value, and a three level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the
 
22
 


circumstances. The Fund’s investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
 
Level 1 – inputs are quoted prices in active markets
 
Level 2 – inputs are observable, directly or indirectly
 
Level 3 – inputs are unobservable and reflect assumptions on the part of the reporting entity
 
The following table summarizes the valuation of the Fund’s investments by ASC 820 fair value hierarchy levels as of November 30, 2009:
 
Level 1       Level 2       Level 3       Total
Common Stock $ 44,063,017 $ $ 43 $ 44,063,060
Corporate Debt   40,007,055 74,379   40,081,434
Investment  
       Companies   20,904 20,904
Short-Term 1,587,002   1,587,002
Securities Lending
       Collateral 1,228,217 2,824,753 6,938 4,059,908
Other 158,560 143,918   20,641 323,119
Total $ 45,470,698 $ 44,562,728 $ 102,001 $ 90,135,427

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
 
Securities
Corporate   Common Lending
Debt       Stock       Collateral       Other       Total Fund
Balance as of
       11/30/08 $ 362,100 $ 4 $ 13,385 $ 525,893 $ 901,382
Net purchases,
       sales, and      
       settlements   (498,263 )     (533,793 ) (1,032,056 )
Net realized loss   (427,726 ) (427,726 )
Net change in      
       unrealized    
       appreciation/
       depreciation 210,542 39 (6,447 ) 456,267 660,401
Balance as of
       11/30/09 $ 74,379 $ 43 $ 6,938 $ 20,641 $ 102,001
 
Net change in
       unrealized
       appreciation/
       depreciation
       from
       investments
       still held as
       of 11/30/09 $ (25,970 ) $ 39 $ (6,447 ) $ (82,407 ) $ (114,785 )

4. Dividend and Distribution Information
 
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Additionally, distributions from net gains on foreign currency transactions and net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended November 30, 2009 and 2008 was as follows:
 
Year Ended
2009       2008
Ordinary income $ 3,988,862 $ 5,710,800
Return of capital 2,947,565   4,120,447
Total $ 6,936,427 $ 9,831,247

5. Components of Net Assets on a Tax Basis
 
As of November 30, 2009, the components of net assets on a tax basis were as follows:
 
Shares of beneficial interest $ 97,186,304
Capital loss carryforwards (27,438,402 )
Unrealized depreciation of investments
       and foreign currencies (3,260,379 )
Other temporary differences   (66,931 )
Net assets $ 66,420,592

The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales, contingent payment debt instruments, tax treatment of partnership income and market discount and premium on debt instruments.
 
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of dividends and distributions, partnership income, gain (loss) on foreign currency transactions, market discount and premium on certain debt instruments, REITs and CDS contracts. Results of operations and net assets were not affected by these classifications. For the year ended November 30, 2009, the Fund recorded the following reclassifications.
 
Distributions in excess of net investment income $ 56,952
Accumulated net realized loss   120,223  
Paid-in capital (177,175 )

For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. Capital loss carryforwards remaining at November 30, 2009 will expire as follows: $16,115,503 expires in 2016 and $11,322,899 expires in 2017.
 
6. Capital Stock
 
Shares obtained under the Fund’s dividend reinvestment plan are purchased by the Fund’s transfer agent, The Bank of New York Mellon (BNY Mellon) Shareowner Services, in the open market. There were no shares issued under the Fund’s dividend reinvestment plan for the years ended November 30, 2009 and 2008.
 
(continues)     23
 


Notes to financial statements
 
Delaware Investments® Dividend and Income Fund, Inc.
 
 
 
6. Capital Stock (continued)
 
On May 21, 2009, the Fund’s Board approved a tender offer for shares of the Fund’s common stock. The tender offer authorized the Fund to purchase up to 5% of its issued and outstanding shares at a price equal to the Fund’s net asset value at the close of business on the NYSE on June 29, 2009, the first business day following the expiration of the offer. The tender offer commenced on June 1, 2009 and expired on June 26, 2009.
 
In connection with the tender offer, the Fund purchased 496,792 shares of capital stock at a total cost of approximately $2,916,169. The tender offer was oversubscribed, and all tenders of shares were subject to proration (at a ratio of approximately 0.879434237) in accordance with the terms of the tender offer.
 
On May 22, 2008, the Fund’s Board approved a tender offer for shares of the Fund’s common stock. The tender offer authorized the Fund to purchase up to 5% of its issued and outstanding shares at a price equal to the Fund’s net asset value at the close of business on the NYSE on June 30, 2008, the first business day following the expiration of the offer. The tender offer commenced on May 30, 2008 and expired on June 27, 2008. In connection with the tender offer, the Fund purchased 522,939 shares of capital stock at a total cost of $5,004,526.
 
The Fund did not repurchase any shares under the Share Repurchase Program during the years ended November 30, 2009 and 2008.
 
7. Line of Credit
 
Effective November 17, 2009, the Fund borrowed money pursuant to a $ 30,000,000 Credit Agreement with BNY Mellon that expires on November 15, 2010. Prior to November 17, 2009, the Credit Agreement was $44,000,000. Depending on market conditions, the amount borrowed by the Fund pursuant to the Credit Agreement may be reduced or possibly increased in the future.
 
At November 30, 2009, the par value of loans outstanding was $20,225,000 at a variable interest rate of 1.38%. During the year ended November 30, 2009, the average daily balance of loans outstanding was $20,225,000 at a weighted average interest rate of approximately 1.14%. Interest on borrowings is based on a variable short-term rate plus an applicable margin. The commitment fee is computed at a rate of 0.25% per annum on the unused balance. The loan is collateralized by the Fund’s portfolio.
 
8. Swap Contracts
 
The Fund may enter into interest rate swap contracts, index swap contracts and CDS contracts in accordance with its investment objectives. The Fund may use interest rate swaps to adjust the Fund’s sensitivity to interest rates or to hedge against changes in interest rates. Index swaps may be used to gain exposure to markets that the Fund invests in, such as the corporate bond market. The Fund may also use index swaps as a substitute for futures or options contracts if such contracts are not directly available to the Fund on favorable terms. The Fund may enter into CDS contracts in order to hedge against a credit event, to enhance total return or to gain exposure to certain securities or markets.
 
Interest rate swaps. An interest rate swap is an exchange of interest rates between counterparties. In one instance, an interest rate swap involves payments received by the Fund from another party based on a variable or floating interest rate, in return for making payments based on a fixed interest rate. An interest rate swap can also work in reverse with the Fund receiving payments based on a fixed interest rate and making payments based on a variable or floating interest rate. Interest rate swaps may be used to adjust the Fund’s sensitivity to interest rates or to hedge against changes in interest rates. Periodic payments on such contracts are accrued daily and recorded as unrealized appreciation/depreciation on swap contracts. Upon periodic payment/receipt or termination of the contract, such amounts are recorded as realized gains or losses on swap contracts. A Fund’s maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from/paid to the counterparty over the interest rate swap contract’s remaining life, to the extent that the amount is positive. This risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty.
 
Index swaps. Index swaps involve commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent the total return of the security, instrument or basket of instruments underlying the transaction exceeds the offsetting interest obligation, the Fund will receive a payment from the counterparty. To the extent the total return of the security, instrument or basket of instruments underlying the transaction falls short of the offsetting interest obligation, the Fund will make a payment to the counterparty. The change in value of swap contracts outstanding, if any, is recorded as unrealized appreciation or depreciation daily. A realized gain or loss is recorded on maturity or termination of the swap contract. A Fund’s maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from/paid to the counterparty over the index swap contract’s remaining life, to the extent that the amount is positive. This risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty.
 
Credit default swaps. A CDS contract is a risk-transfer instrument through which one party (purchaser of protection) transfers to another party (seller of protection) the financial risk of a credit event (as defined in the CDS agreement), as it relates to a particular reference security or basket of securities (such as an index). In exchange for the protection offered by the seller of protection, the purchaser of protection agrees to pay the seller of protection a periodic amount at a stated rate that is applied to the notional amount of the CDS contract. In addition, an upfront payment may be made or received by the Fund in connection with an unwinding or assignment of a CDS contract. Upon the occurrence of a credit event, the seller of protection would pay the par (or other agreed-upon) value of the referenced security (or basket of securities) to the counterparty.
 
During the year ended November 30, 2009, the Fund did not enter into CDS contracts as a purchaser or seller of protection. Periodic payments on such contracts are accrued daily and recorded as unrealized losses on swap contracts. Upon payment, such amounts are recorded as realized losses on swap contracts. Upfront payments made or received in connection with CDS contracts are amortized over the expected life of the CDS contracts as unrealized losses on swap contracts. The change in value of CDS contracts is recorded as unrealized appreciation or depreciation daily. A realized gain or loss is recorded upon a credit event (as defined in the CDS agreement) or the maturity or termination of the agreement. There were no outstanding credit default swap contracts at November 30, 2009.
 
24
 


Credit default swaps may involve greater risks than if the Fund had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. The Fund’s maximum risk of loss from counterparty is mitigated by having a netting arrangement between the Fund and the counterparty and by posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty. If the Fund enters into a CDS contract as a purchaser of protection and no credit event occurs, its exposure is limited to the periodic payments previously made to the counterparty.
 
Swaps generally. Because there is no organized market for swap contracts, the value of open swaps may differ from that which would be realized in the event the Fund terminated its position in the agreement. Risks of entering into these contracts include the potential inability of the counterparty to meet the terms of the contracts. This type of risk is generally limited to the amount of favorable movement in the value of the underlying security, instrument or basket of instruments, if any, at the day of default. Risks also arise from potential losses from adverse market movements and such losses could exceed the unrealized amounts shown on the statement of net assets.
 
9. Securities Lending
 
The Fund, along with other funds in the Delaware Investments® Family of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with BNY Mellon. With respect to each loan, if the aggregate market value of securities collateral held plus cash collateral received on any business day is less than the aggregate market value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral not less than the applicable collateral requirements. Cash collateral received is generally invested in the Mellon GSL DBT II Collateral Fund (Collective Trust) established by BNY Mellon for the purpose of investment on behalf of clients participating in its securities lending programs. The Collective Trust may invest in fixed income securities, with a weighted average maturity not to exceed 90 days, rated in one of the top three tiers by Standard & Poor’s Ratings Group (S&P) or Moody’s Investors Service, Inc. (Moody’s) or repurchase agreements collateralized by such securities. The Collective Trust seeks to maintain a net asset value per unit of $1.00, but there can be no assurance that it will always be able to do so. At November 30, 2009, the Collective Trust held only cash and assets with a maturity of one business day or less (Cash/Overnight Assets). The Fund may incur investment losses as a result of investing securities lending collateral in the Collective Trust. This could occur if an investment in the Collective Trust defaulted or if it were necessary to liquidate assets in the Collective Trust to meet returns on outstanding security loans at a time when the Collective Trust’s net asset value per unit was less than $1.00. Under those circumstances, the Fund may not receive an amount from the Collective Trust that is equal in amount to the collateral the Fund would be required to return to the borrower of the securities and the Fund would be required to make up for this shortfall. Effective April 20, 2009, BNY Mellon transferred the assets of the Collective Trust other than the Cash/Overnight Assets to the BNY Mellon SL DBT II Liquidating Fund (Liquidating Fund), effectively bifurcating the collateral investment pool. The Fund’s exposure to the Liquidating Fund is expected to decrease as the Liquidating Fund’s assets mature or are sold. In October 2008, BNY Mellon transferred certain distressed securities from the Collective Trust into the Mellon GSL Reinvestment Trust II.
 
The Fund can also accept U.S. government securities and letters of credit (non-cash collateral) in connection with securities loans. In the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Fund, or at the discretion of the lending agent, replace the loaned securities. The Fund continues to record dividends or interest, as applicable, on the securities loaned and is subject to change in value of the securities loaned that may occur during the term of the loan. The Fund has the right under the Lending Agreement to recover the securities from the borrower on demand. With respect to security loans collateralized by non-cash collateral, the Fund receives loan premiums paid by the borrower. With respect to security loans collateralized by cash collateral, the earnings from the collateral investments are shared among the Fund, the security lending agent and the borrower. The Fund records security lending income net of allocations to the security lending agent and the borrower.
 
At November 30, 2009, the value of the securities on loan was $4,253,690, for which the Fund received collateral, comprised of securities collateral valued at $113,400, and cash collateral of $4,247,336. At November 30, 2009, the value of invested collateral was $4,059,908. Investments purchased with cash collateral are presented on the statement of net assets under the caption “Securities Lending Collateral.”
 
10. Credit and Market Risks
 
The Fund borrows through its line of credit for purposes of leveraging. Leveraging may result in higher degrees of volatility because the Fund’s net asset value could be subject to fluctuations in short-term interest rates and changes in market value of portfolio securities attributable to the leverage.
 
The Fund invests a portion of its assets in high yield fixed income securities, which carry ratings of BB or lower by S&P and/or Ba or lower by Moody’s. Investments in these higher yielding securities are generally 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 invests in REITs and is subject to some of the risks associated with that industry. If the Fund holds real estate directly as a result of defaults or receives rental income directly from real estate holdings, its tax status as a regulated investment company may be jeopardized. There were no direct real estate holdings during the year ended November 30, 2009. The Fund’s REIT holdings are also affected by interest rate changes, particularly if the REITs it holds use floating rate debt to finance their ongoing operations.
 
The Fund may invest up to 10% of its net assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Fund’s Board has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the
 
(continues)     25
 


Notes to financial statements
 
Delaware Investments® Dividend and Income Fund, Inc.
 
 
 
10. Credit and Market Risks (continued)
 
Fund’s limitation on investments in illiquid assets. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the 10% limit on investments in illiquid securities. Rule 144A and illiquid securities have been identified on the statement of net assets.
 
11. Contractual Obligations
 
The Fund enters into contracts in the normal course of business 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. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.
 
12. Sale of Delaware Investments to Macquarie Group
 
On August 18, 2009, Lincoln National Corporation (parent company of Delaware Investments) and Macquarie Group (Macquarie) entered into an agreement pursuant to which Delaware Investments, including DMC and DSC, would be acquired by Macquarie, an Australia-based global provider of banking, financial, advisory, investment and funds management services (Transaction). The Transaction was completed on January 4, 2010. DMC and DSC are now wholly owned subsidiaries of Macquarie.
 
The Transaction resulted in a change of control of DMC which, in turn, caused the termination of the investment advisory agreement between DMC and the Fund. On January 4, 2010, the new investment advisory agreement between DMC and the Fund that was approved by the shareholders became effective.
 
13. Tax Information (Unaudited)
 
The information set forth below is for the Fund’s fiscal year as required by federal income tax laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information.
 
For the fiscal year ended November 30, 2009, the Fund designates distributions paid during the year as follows:
 
(A) (B)
Long-Term   Ordinary (C)
Capital Gain   Income   Return Total (D)
Distributions Distributions*   of Capital   Distributions   Qualifying
(Tax Basis)       (Tax Basis)       (Tax Basis)       (Tax Basis)       Dividends1
57.51%   42.49%   100.00%   23.87%
 
(A), (B) and (C) are based on a percentage of the Fund’s total distributions.
(D) is based on percentage of ordinary income distributions of the Fund.
1 Qualifying dividends represent dividends, which qualify for the corporate dividends received deduction.
* For the fiscal year ended November 30, 2009, certain dividends paid by the Fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund intends to designate up to a maximum amount of $ 954,309 to be taxed at maximum rate of 15%. Complete information will be computed and reported in conjunction with your 2009 Form 1099-DIV.
 
26
 


Report of independent
registered public accounting firm
 
 
 
To the Shareholders and Board of Directors
Delaware Investments® Dividend and Income Fund, Inc.
 
We have audited the accompanying statement of net assets of Delaware Investments Dividend and Income Fund, Inc. (the “Fund”) as of November 30, 2009, 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 five 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.
 
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, 2009 by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 the Delaware Investments Dividend and Income Fund, Inc. at November 30, 2009, 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 five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
 
 
Philadelphia, Pennsylvania
January 21, 2010
 
27
 


Other Fund information
(Unaudited)
 
Delaware Investments® Dividend and Income Fund, Inc.
 
Proxy Results

Annual Meeting
 
The Fund held its Annual Meeting of Shareholders on August 19, 2009. At the Annual Meeting, the Fund’s shareholders elected nine Directors. The results of the voting at the meeting were as follows:
 
No Ballot
Nominee   Shares Voted For Shares Withheld Received
Patrick P. Coyne 9,021,001.85 295,749.00 619,083.15
Thomas L. Bennett 9,046,287.40 270,463.45 619,083.15
John A. Fry   9,018,095.95 298,654.90   619,083.15
Anthony D. Knerr 8,992,984.26 323,766.59 619,083.15
Lucinda S. Landreth 9,039,017.00   277,733.85 619,083.15
Ann R. Leven 9,013,650.87 303,099.98 619,083.15
Thomas F. Madison 8,991,631.65 325,119.20 619,083.15
Janet L. Yeomans 9,024,478.77 292,272.08 619,083.15
J. Richard Zecher 9,045,289.36 271,461.49 619,083.15

Investment Management Agreement
 
The Fund held a Special Meeting of Shareholders on November 12, 2009. At the meeting, the Fund’s shareholders approved a new investment advisory agreement between the Fund and Delaware Management Company, a series of Delaware Management Business Trust. The results of the meeting were as follows:
 
Shares Voted For 4,425,276.247
Shares Voted Against or Withheld 329,615.530
No Vote 4,684,150.223

The meeting was held in connection with the Transaction described in Note 12 above.
 
Corporate Governance
 
The Fund’s audit committee charter is available on its web site at www.delawareinvestments.com, and the charter is also available in print to any shareholder who requests it. The Fund submitted its Annual CEO certification for 2009 to the New York Stock Exchange (“NYSE”) on September 16, 2009 stating that the CEO was not aware of any violation by the Fund of the NYSE’s corporate governance listing standards. In addition, the Fund had filed the required CEO/CFO certifications regarding the quality of the Fund’s public disclosure as exhibits to the Forms N-CSR and Forms N-Q filed by the Fund over the past fiscal year. The Fund’s Form N-CSR and Form N-Q filings are available on the Commission’s web site at www.sec.gov.
 
Changes to Portfolio Management Team
 
Kristen E. Bartholdson was appointed co-portfolio manager of the Fund on Dec. 8, 2008. Ms. Bartholdson joined Babak Zenouzi, Damon J. Andres, D. Tysen Nutt Jr., Anthony A. Lombardi, Robert Vogel Jr., Nikhil G. Lalvani, Nashira S. Wynn, Thomas H. Chow, Roger A. Early, and Kevin P. Loome in making day-to-day decisions for the Fund.
 
Fund management
 
Babak “Bob” Zenouzi
Senior Vice President, Senior Portfolio Manager
 
Bob Zenouzi is the lead manager for the domestic and global REIT effort at Delaware Investments, which includes the team, its process, and its institutional and retail products, which he created during his prior time with the firm. He also focuses on opportunities in Japan, Singapore, and Malaysia for the firm’s global REIT product. Additionally, he serves as lead portfolio manager for the firm’s Dividend Income products, which he helped to create in the 1990s. He is also a member of the firm’s asset allocation committee, which is responsible for building and managing multi-asset class portfolios. He rejoined Delaware Investments in May 2006 as senior portfolio manager and head of real estate securities. In his first term with the firm, he spent seven years as an analyst and portfolio manager, leaving in 1999 to work at Chartwell Investment Partners, where from 1999 to 2006 he was a partner and senior portfolio manager on Chartwell’s Small-Cap Value portfolio. He began his career with The Boston Company, where he held several positions in accounting and financial analysis. Zenouzi earned a master’s degree in finance from Boston College and a bachelor’s degree from Babson College. He is a member of the National Association of Real Estate Investment Trusts and the Urban Land Institute.
 
28
 


Damon J. Andres, CFA
Vice President, Senior Portfolio Manager
 
Damon J. Andres, who joined Delaware Investments in 1994 as an analyst, currently serves as a portfolio manager for REIT investments and convertibles. He also serves as a portfolio manager for the firm’s Dividend Income products. From 1991 to 1994, he performed investment-consulting services as a consulting associate with Cambridge Associates. Andres earned a bachelor’s degree in business administration with an emphasis in finance and accounting from the University of Richmond.
 
Kristen E. Bartholdson
Vice President, Portfolio Manager
 
Kristen E. Bartholdson is a portfolio manager with the firm’s Large-Cap Value Focus team. Prior to joining the firm in 2006 as an associate portfolio manager, she worked at Susquehanna International Group from 2004 to 2006, where she was an equity research salesperson. From 2000 to 2004 she worked in equity research at Credit Suisse, most recently as an associate analyst in investment strategy. Bartholdson earned her bachelor’s degree in economics from Princeton University.
 
Thomas H. Chow, CFA
Senior Vice President, Senior Portfolio Manager
 
Thomas H. Chow is a member of the firm’s taxable fixed income portfolio management team, with primary responsibility for portfolio construction and strategic asset allocation in investment grade credit exposures. He is the lead portfolio manager for Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund, as well as several institutional mandates. His experience includes significant exposure to asset liability management strategies and credit risk opportunities. Prior to joining Delaware Investments in 2001 as a portfolio manager working on the Lincoln General Account, he was a trader of high grade and high yield securities, and was involved in the portfolio management of collateralized bond obligations (CBOs) and insurance portfolios at SunAmerica/AIG from 1997 to 2001. Before that, he was an analyst, trader, and portfolio manager at Conseco Capital Management from 1989 to 1997. Chow received a bachelor’s degree in business analysis from Indiana University, and he is a Fellow of Life Management Institute.
 
Roger A. Early, CPA, CFA, CFP
Senior Vice President, Co-Chief Investment Officer – Total Return Fixed Income Strategy
 
Roger A. Early rejoined Delaware Investments in March 2007 as a member of the firm’s taxable fixed income portfolio management team, with primary responsibility for portfolio construction and strategic asset allocation. During his previous time at the firm, from 1994 to 2001, he was a senior portfolio manager in the same area, and he left Delaware Investments as head of its U.S. investment grade fixed income group. In recent years, Early was a senior portfolio manager at Chartwell Investment Partners and Rittenhouse Financial and served as the chief investment officer for fixed income at Turner Investments. Prior to joining Delaware Investments in 1994, he worked for more than 10 years at Federated Investors where he managed more than $25 billion in mutual fund and institutional portfolios in the short-term and investment grade markets. He left the firm as head of institutional fixed income management. Earlier in his career, he held management positions with the Federal Reserve Bank, PNC Financial, Touche Ross, and Rockwell International. Early earned his bachelor’s degree in economics from The Wharton School of the University of Pennsylvania and an MBA with concentrations in finance and accounting from the University of Pittsburgh. He is a member of the CFA Society of Philadelphia.
 
Nikhil G. Lalvani, CFA
Vice President, Portfolio Manager
 
Nikhil G. Lalvani is a portfolio manager with the firm’s Large-Cap Value Focus team. At Delaware Investments, Lalvani has served as both a fundamental and quantitative analyst. Prior to joining the firm in 1997 as an account analyst, he was a research associate with Bloomberg. Lalvani holds a bachelor’s degree in finance from The Pennsylvania State University. He is a member of the CFA Institute and the CFA Society of Philadelphia.
 
Anthony A. Lombardi, CFA
Vice President, Senior Portfolio Manager
 
Anthony A. Lombardi is a senior portfolio manager for the firm’s Large-Cap Value Focus strategy. Prior to joining the firm in 2004 in his current role, Lombardi was a director at Merrill Lynch Investment Managers. He joined Merrill Lynch Investment Managers’ Capital Management Group in 1998 and last served as a portfolio manager for the U.S. Active Large-Cap Value team, managing mutual funds and separate accounts for institutions and private clients. From 1990 to 1997, he worked at Dean Witter Reynolds as a sell-side equity research analyst. He began his career as an investment analyst with Crossland Savings. Lombardi graduated from Hofstra University, receiving a bachelor’s degree in finance and an MBA with a concentration in finance. He is a member of the New York Society of Security Analysts and the CFA Institute.
 
(continues)     29
 


Other Fund information
(Unaudited)
 
Delaware Investments® Dividend and Income Fund, Inc.
 
Fund management (continued)
 
Kevin P. Loome, CFA
Senior Vice President, Senior Portfolio Manager, Head of High Yield Investments
 
Kevin P. Loome is head of the High Yield fixed income team, responsible for portfolio construction and strategic asset allocation of all high yield fixed income assets. Prior to joining Delaware Investments in August 2007 in his current position, Loome spent 11 years at T. Rowe Price, starting as an analyst and leaving the firm as a portfolio manager. He began his career with Morgan Stanley as a corporate finance analyst in the New York and London offices. Loome received his bachelor’s degree in commerce from the University of Virginia and earned an MBA from the Tuck School of Business at Dartmouth.
 
D. Tysen Nutt Jr.
Senior Vice President, Senior Portfolio Manager, Team Leader – Large-Cap Value Focus Equity
 
D. Tysen Nutt Jr. joined Delaware Investments in 2004 as senior vice president and senior portfolio manager for the firm’s Large-Cap Value Focus strategy. Before joining the firm, Nutt led the U.S. Active Large-Cap Value team within Merrill Lynch Investment Managers, where he managed mutual funds and separate accounts for institutions and private clients. He departed Merrill Lynch Investment Managers as a managing director. Prior to joining Merrill Lynch Investment Managers in 1994, Nutt was with Van Deventer & Hoch (V&H) where he managed large-cap value portfolios for institutions and private clients. He began his investment career at Dean Witter Reynolds, where he eventually became vice president, investments. Nutt earned his bachelor’s degree from Dartmouth College, and he is a member of the New York Society of Security Analysts and the CFA Institute.
 
Robert A. Vogel Jr., CFA
Vice President, Senior Portfolio Manager
 
Robert A. Vogel Jr. joined Delaware Investments in 2004 as a vice president, senior portfolio manager for the firm’s Large-Cap Value Focus strategy. He previously worked at Merrill Lynch Investment Managers for more than seven years, where he rose to the position of director and portfolio manager within the U.S. Active Large-Cap Value team. He began his career in 1992 as a financial consultant at Merrill Lynch Investment Managers. Vogel graduated from Loyola College in Maryland, earning both bachelor’s and master’s degrees in finance. He also earned an MBA with a concentration in finance from The Wharton School of the University of Pennsylvania. Vogel is a member of the New York Society of Security Analysts, the CFA Institute, and the CFA Society of Philadelphia.
 
Nashira S. Wynn
Vice President, Portfolio Manager
 
Nashira S. Wynn is a portfolio manager with the firm’s Large-Cap Value Focus team. Prior to joining Delaware Investments in 2004 as a senior equity analyst, she was an equity research analyst for Merrill Lynch Investment Managers, starting there in July 2001. Wynn earned a bachelor’s degree in finance, with a minor in economics, from The College of New Jersey, and she attended England’s Oxford University as a Presidential Scholar.
 
30
 


Distribution Information
 
Shareholders were sent monthly notices from the Fund that set forth estimates, on a book basis, of the source or sources from which monthly distributions were paid. Subsequently, certain of these estimates have been corrected in part. Listed below is a written statement of the sources of these monthly distributions on a book basis.
 
                        Long Term         Total
Investment Return of Capital Distribution
Income Capital Gain(Loss) Amount
Month   per Share per Share per Share per Share
December 2008 $ 0.0480 $ 0.0320    $         $ 0.0800      
January 2009 $ 0.0295 $ 0.0280 $ 0.0575
February 2009 $ 0.0299 $ 0.0276 $ 0.0575  
March 2009 $ 0.0334   $ 0.0241 $ 0.0575
April 2009 $ 0.0222 $ 0.0353 $ 0.0575
May 2009 $ 0.0348 $ 0.0227   $ 0.0575
June 2009 $ 0.0259 $ 0.0316 $ 0.0575
July 2009 $ 0.0314 $ 0.0261 $ 0.0575
August 2009   $ 0.0355 $ 0.0220       $ 0.0575
September 2009 $ 0.0370     $ 0.0205 $ 0.0575
October 2009 $ 0.0285 $ 0.0290 $ 0.0575
November 2009 $ 0.0446 $ 0.0129   $ 0.0575
$ 0.4007 $ 0.3118 $ 0.0000 $ 0.7125

Please note that the information in the preceding chart is for book purposes only. Shareholders should be aware the tax treatment of distributions may differ from their book treatment. The tax treatment of distributions will be set forth in a Form 1099-DIV.
 
In January 2009, the Fund reduced the monthly distribution amount from $0.08 per share to $0.0575 per share. The Fund continues to evaluate its monthly distribution in light of ongoing economic and market conditions and may change the amount of the monthly distributions in the future.
 
Tender Offer
 
As described in Note 6 to the Financial Statements, the Fund conducted a tender offer in 2009. There can be no assurance that a tender offer will reduce or eliminate any spread between market price and the net asset value of the Fund’s shares. The market price of the shares will, among other things, be determined by the relative demand for and supply of shares in the market, the Fund’s investment performance, the Fund’s dividends and yields, and investor perception of the Fund’s overall attractiveness as an investment as compared with other investment alternatives. Nevertheless, the fact that a tender offer may be conducted may result in more of a reduction in the spread between market price and net asset value than might otherwise be the case. The Fund’s Board of Directors, consistent with its fiduciary obligations, may explore alternatives to a tender offer to reduce or eliminate the Fund’s potential market value discount from net asset value. Therefore, the Fund cannot provide assurance that it will make tender offers in the future.
 
Since the Fund’s organization in 1993, the Fund has consummated six tender offers, including tender offers in 2000, 2005, 2006, 2007, 2008, and 2009.
 
Dividend Reinvestment Plan
 
The Fund offers an automatic dividend reinvestment program (“Plan”). Shareholders who have shares registered in their own names are automatically considered participants in the Plan, unless they elect to withdraw from the Plan. Shareholders who hold their shares through a bank, broker, or other nominee should request the bank, broker, or nominee to participate in the Plan on their behalf. This can be done as long as the bank, broker, or nominee provides a dividend reinvestment service for the Fund. If the bank, broker, or nominee does not provide this service, such shareholders must have their shares taken out of “street” or nominee name and re-registered in their own name in order to participate in the Plan.
 
BNY Mellon Shareowner Services will apply all cash dividends, capital gains and other distributions (collectively, “Distributions”) on the Fund’s shares of common stock which become payable to each Plan participant to the purchase of outstanding shares of the Fund’s common stock for such participant. These purchases may be made on a securities exchange or in the over-the-counter market, and may be subject to such terms of price, delivery, and related matters to which BNY Mellon Shareowner Services may agree. The Fund will not issue new shares in connection with the Plan.
 
Distributions reinvested for participants are subject to income taxes just as if they had been paid directly to the shareholder in cash. Participants will receive a year-end statement showing distributions reinvested, and any brokerage commissions paid on such participant’s behalf.
 
Shareholders holding shares of the Fund in their own names who wish to terminate their participation in the Plan may do so by sending written instruction to BNY Mellon Shareowner Services so that BNY Mellon Shareowner Services receives such instructions at least 10 days prior to the Distribution record date. Shareholders with shares held in account by a bank, broker, or other nominee should contact such bank, broker, or other nominee to determine the procedure for withdrawal from the Plan.
 
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Other Fund information
(Unaudited)
 
Delaware Investments® Dividend and Income Fund, Inc.
 
Dividend Reinvestment Plan (continued)
 
If written instructions are not received by BNY Mellon Shareowner Services at least 10 days prior to the record date for a particular Distribution, that Distribution may be reinvested at the sole discretion of BNY Mellon Shareowner Services. After a shareholder’s instructions to terminate participation in the Plan become effective, Distributions will be paid to shareholders in cash. Upon termination, a shareholder may elect to receive either stock or cash for all the full shares in the account. If cash is elected, BNY Mellon Shareowner Services will sell such shares at the then current market value and then send the net proceeds to the shareholder, after deducting brokerage commissions and related expenses. Any fractional shares at the time of termination will be paid in cash at the current market price, less brokerage commissions and related expenses, if any. Shareholders may at any time request a full or partial withdrawal of shares from the Plan, without terminating participation in the Plan. When shares outside of the Plan are liquidated, Distributions on shares held under the Plan will continue to be reinvested unless BNY Mellon Shareowner Services is notified of the shareholder’s withdrawal from the Plan.
 
An investor holding shares that participate in the Plan in a brokerage account may not be able to transfer the shares to another broker and continue to participate in the Plan. Please contact your broker/dealer for additional details.
 
BNY Mellon Shareowner Services will charge participants their proportional share of brokerage commissions on market purchases. Participants may obtain a certificate or certificates for all or part of the full shares credited to their accounts at any time by making a request in writing to BNY Mellon Shareowner Services. A fee may be charged to the participant for each certificate issuance.
 
If you have any questions and shares are registered in your name, contact BNY Mellon Shareowner Services at 800 851-9677. If you have any questions and shares are registered in “street” name, contact the broker/dealer holding the shares or your financial advisor.
 
Effective August 1, 2008, the Dividend Reinvestment Plan may be amended by the Fund upon twenty days written notice to the Plan’s participants.
 
Board Consideration of New Investment Advisory Agreement
 
At a meeting held on September 3, 2009 (the “Meeting”), the Board of Directors of the Delaware Investments Family of Funds (the “Board”), including the independent Directors, unanimously approved a new investment advisory agreement between each registrant on behalf of each series (each, a “Fund” and together, the “Funds”) and Delaware Management Company (“DMC”) in connection with the sale of Delaware Investments’ advisory business to Macquarie Bank Limited (the “Macquarie Group”) (the “Transaction”). In making its decision, the Board considered information furnished specifically in connection with the approval of the new investment advisory agreements with DMC (the “New Investment Advisory Agreements”), which included extensive materials about the Transaction and matters related to the proposed approvals. To assist the Board in considering the New Investment Advisory Agreements, Macquarie Group provided materials and information about Macquarie Group, including detailed written responses to the questions posed by the independent Directors. DMC also provided materials and information about the Transaction, including detailed written responses to the questions posed by the independent Directors.
 
At the Meeting, the Directors discussed the Transaction with DMC management and with key Macquarie Group representatives. The Meeting included discussions of the strategic rationale for the Transaction and Macquarie Group’s general plans and intentions regarding the Funds and DMC. The Board members also inquired about the plans for, and anticipated roles and responsibilities of, key employees and officers of Delaware Management Holdings Inc. and DMC in connection with the Transaction.
 
In connection with the Directors’ review of the New Investment Advisory Agreements for the Funds, DMC and/or Macquarie Group emphasized that:
In addition to the information provided by DMC and Macquarie Group as described above, the Directors also considered all other factors they believed to be relevant to evaluating the New Investment Advisory Agreements, including the specific matters discussed below. In their deliberations, the Directors did not identify any particular information that was controlling, and different Directors may have attributed different weights to the various factors. However, for each Fund, the Directors determined that the overall arrangements between the Fund and DMC, as provided in the respective
 
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New Investment Advisory Agreement, including the proposed advisory fee and the related administration arrangements between the Fund and DMC, were fair and reasonable in light of the services to be performed, expenses incurred, and such other matters as the Directors considered relevant. Factors evaluated included: