UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-CSR
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CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-8747
Chartwell Dividend and Income Fund, Inc.
(Exact name of registrant as specified in charter)
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1235 Westlakes Drive, Suite 400
Berwyn, PA 19312
(Address of principal executive offices) (Zip code)
PNC Bank, National Association
400 Bellevue Parkway
Wilmington, DE 19809
Attn: Closed-End Department
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-610-296-1400
Date of fiscal year end: November 30, 2004
Date of reporting period: May 31, 2004
Item 1. Reports to Stockholders.
[graphic, logo and background omitted]
CHARTWELL
DIVIDEND AND
INCOME FUND, INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS
DATED MAY 31, 2004
CHARTWELL INVESTMENT
PARTNERS
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
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INVESTMENT OBJECTIVES & STRATEGY
The Chartwell Dividend and Income Fund's [the "Fund"] primary investment
objective is to seek high current income. Capital appreciation is a secondary
objective. The Fund will seek to achieve its objectives by investing, under
normal circumstances, at least 50% of its total assets in income generating
equity securities, including dividend paying common stocks, convertible
securities, preferred stocks and other equity-related securities. In addition,
the Fund may invest the balance of its total assets in non-convertible debt
securities, consisting primarily of corporate bonds. The Fund attempts to
minimize individual security risk by diversifying across many industries and
asset classes. The Fund is a closed-end management investment company which
trades on the New York Stock Exchange under the symbol CWF.
HIGH-YIELD CORPORATE BONDS
High-yield bonds are non-investment grade corporate debt obligations rated "Ba1"
or lower by Moody's Investors Service, Inc. or "BB+" or lower by Standard and
Poor's Ratings Group; they typically have a higher risk level than
investment-grade bonds. These securities have historically compensated investors
with higher levels of income for that risk. Prices usually are less sensitive to
interest rate fluctuations than higher rated bonds because of the high income
levels. However, the prices of these bonds are more sensitive to changes in the
economy.
CONVERTIBLE SECURITIES
The Fund can invest in both convertible preferred stock and convertible bonds.
Both pay fixed rates of income, but because they can be converted into common
stock, they are indirectly tied to the common stock's performance. As a result,
convertible securities generally offer higher income than common stocks and an
opportunity for price appreciation when the value of the underlying security
rises. The Fund buys convertibles when the underlying common stock offers strong
growth potential as well.
COMMON STOCK
The Fund invests in the common stocks of utility companies, Real Estate
Investment Trusts (REITs) and other industrial and financial companies as well
as other equity securities. Both utilities and REITs tend to offer a premium
dividend yield with steady growth that can lead to capital appreciation.
Industrial and financial stocks are primarily purchased for capital appreciation
based on the fundamental value of the underlying company.
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
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LETTER TO SHAREHOLDERS
Both the equity and fixed income segments of the Fund gained modestly during the
six month period ending May 31, 2004. The period was characterized by continued
evidence that the U.S. economic recovery is broadening. Sharp gains in corporate
earnings and a pick up in corporate hiring are visible indications of improving
economic conditions. At the same time, these signs of a strengthening economy
spurred forecasts that the Federal Reserve may have to raise interest rates more
aggressively than desired. Investor concern over the potential impact of higher
interest rates contributed to some price weakness in the high-yield bond market.
However, the Fund fared well over the last six months due to the balanced nature
of the Fund assets, which were weighted more heavily in higher-yielding equities
(56% of assets) than high-yield bonds (42% of assets). The combination of
higher-yielding equities and high-yield bonds serves the Fund's primary
investment objective to provide income, and secondarily to provide capital gains
potential to the Fund's investors.
History of Fund Price, NAV and Premium/Discount
(Source:Bloomberg, Six Months Ended May 31, 2004)
[Line Graph Omitted]
Plot points for EDGAR purposes as follows:
CWF NAV Graph data points
Price NAV Premium (Discount)
5/28/04 9.11 8.44 7.94
4/30/04 9.05 8.52 6.22
3/31/04 10.19 9.02 12.97
2/27/04 10.07 9.11 10.54
1/30/04 10.15 9.07 11.91
12/31/03 9.70 8.85 9.60
11/28/03 9.80 8.52 15.02
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
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The Fund ended this period at a market price of $9.11, a 7.9% premium to net
asset value (NAV) of $8.44. Due to the split in assets between dividend-paying
stocks and high-yield bonds, the return of the Fund will be a mixture of those
two asset classes. For the six months ending May 31, 2004, the S&P 500 equity
index had a total return of 6.8%. The Fund's high-yield benchmark, the Merrill
Lynch High-Yield Cash Pay Index, returned 2.2%. The NAV return of the Fund was
4.9%, while the total market returns to shareholders for the six month period
was -2.3%. The Fund's stock was volatile during the six months ranging from a
discount of 3.3% to a premium of 18.0% versus the NAV. We attribute some of the
weakness in the market return to investor concern over the potential impact of
rising interest rates on high-yield bonds going forward. We believe interest
rates will rise at a moderate pace over the next year.
Our stock market outlook for the remainder of 2004 remains guardedly optimistic.
We believe continued improvement in the economy will produce positive corporate
earnings momentum and moderate equity returns. However, international events and
the threat of terrorism remain risks that could lead to substantial market
volatility at any time. Similarly, we remain constructive on the total return
potential of the high-yield bond market. A gradual increase in rates, coupled
with a stronger economy and lower default rates, should deliver high-yield
returns competitive with other domestic fixed income markets.
Over the six month period Doster J. Esh resigned as one of the Fund's Equity
Portfolio Managers. We are pleased to welcome Colleen Smith who will join Bernie
Schaffer in overseeing the equity portion of the Fund. Ms. Smith has worked as
an Equity Analyst/Portfolio Manager with Chartwell Investment Partners over the
last four years. Thank you for your continuing support of the portfolio
management team and of the Chartwell Dividend and Income Fund.
Sincerely,
/s/ Winthrop S. Jessup
Winthrop S. Jessup
CHAIRMAN
CHARTWELL DIVIDEND AND INCOME FUND
/s/ Bernard P. Schaffer /s/ Andrew S. Toburen
Bernard P. Schaffer Andrew S. Toburen
PORTFOLIO MANAGER PORTFOLIO MANAGER
PORTFOLIO MANAGEMENT TEAM
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
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Bernard P. Schaffer Andrew S. Toburen
PORTFOLIO MANAGER PORTFOLIO MANAGER
EQUITY FIXED INCOME
Colleen A. Smith Christine F. Williams
EQUITY ANALYST/PORTFOLIO MANAGER PORTFOLIO MANAGER
EQUITY AND CONVERTIBLE SECURITIES FIXED INCOME
Paul Matlack
PORTFOLIO MANAGER
FIXED INCOME
5
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
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FIXED INCOME RESULTS
High yield corporate bonds returned 2.19% during the six months ended May 31,
2004 (Merrill Lynch High Yield Cash Pay Index). A number of factors weighed on
the market including rising interest rates, weak technicals, and continued
geopolitical concerns. The interest rate headwind materialized as the yield on
the 10-year Treasury increased from 4.33% to 4.65% during the period. In
addition, investors have withdrawn roughly $9 billion from public high yield
mutual funds year to date. As an important offset to these technical factors,
the U.S. economy appeared strong with some evidence that the current recovery is
broadening. The high yield portion of the Fund outperformed the benchmark,
largely due to strong credit selection and overweights in consumer products and
cyclically sensitive issuers.
CWF (as a % of) Total Investments
As of May 31, 2004
Equities 56%
Fixed Income 42%
Cash 2%
Total Return
Six Months Ended May 31, 2004
CWF High Yield 2.75%
Merrill Lynch, High Yield
Cash Pay Index 2.19%
The spread between high yield bonds and the reference 10-year Treasury was
relatively stable over the last six months, narrowing 18 basis points. At 383
basis points, we believe that today's spread (i.e. risk premium) is consistent
with current macro conditions, namely strong economic growth and declining
default rates.
High Yield Premimu Over Treasuries ("Spread")
(Source: Merrill Lynch, Bloomberg, May 31, 1995 - May 31, 2004)
May-95 344%
Jun-95 368.1%
Jul-95 337.6%
Aug-95 354.9%
Sep-95 373.3%
Oct-95 373.7%
Nov-95 386.5%
Dec-95 396.4%
Jan-96 366.1%
Feb-96 320.7%
Mar-96 325.4%
Apr-96 300.4%
May-96 282.4%
Jun-96 305.7%
Jul-96 298.4%
Aug-96 275.2%
Sep-96 269.8%
Oct-96 296.7%
Nov-96 304.8%
Dec-96 265.8%
Jan-97 260.3%
Feb-97 243%
Mar-97 258.1%
Apr-97 270.7%
May-97 243.1%
Jun-97 241.3%
Jul-97 241.9%
Aug-97 230.2%
Sep-97 233.6%
Oct-97 272.1%
Nov-97 265.9%
Dec-97 268.6%
Jan-98 271.3%
Feb-98 260.8%
Mar-98 260.1%
Apr-98 271.3%
May-98 293.4%
Jun-98 350.3%
Jul-98 351.4%
Aug-98 501.9%
Sep-98 573.3%
Oct-98 612.9%
Nov-98 529.8%
Dec-98 554.7%
Jan-99 549.7%
Feb-99 507.4%
Mar-99 509.6%
Apr-99 464.2%
May-99 467.3%
Jun-99 465%
Jul-99 443.6%
Aug-99 464.9%
Sep-99 488.9%
Oct-99 499.4%
Nov-99 469.7%
Dec-99 452.6%
Jan-00 460.6%
Feb-00 495.5%
Mar-00 583.6%
Apr-00 596.1%
May-00 617.8%
Jun-00 614.5%
Jul-00 617%
Aug-00 641%
Sep-00 664.2%
Oct-00 756.7%
Nov-00 873.9%
Dec-00 880.8%
Jan-01 739%
Feb-01 728.8%
Mar-01 760.1%
Apr-01 738.6%
May-01 703.3%
Jun-01 738.8%
Jul-01 744.5%
Aug-01 731.2%
Sep-01 913.6%
Oct-01 865.2%
Nov-01 752.3%
Dec-01 734.4%
Jan-02 696.9%
Feb-02 721.6%
Mar-02 620.6%
Apr-02 600.5%
May-02 642.5%
Jun-02 781.2%
Jul-02 874.4%
Aug-02 882.4%
Sep-02 966.4%
Oct-02 974.1%
Nov-02 799.9%
Dec-02 801.5%
Jan-03 746.5%
Feb-03 757%
Mar-03 696.2%
Apr-03 575.6%
May-03 614.3%
Jun-03 553.7%
Jul-03 488.4%
Aug-03 476.7%
Sep-03 482.6%
Oct-03 415%
Nov-03 401.4%
Dec-03 367.6%
Jan-04 360%
Feb-04 380.8%
Mar-04 391.7%
Apr-04 351%
May-04 383.4%
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
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High Yield Default Rates
(Source:Moody's, 2004* is Six Months Ended May 31, 2004)
.5%
6.1%
9.9%
10.4%
4.9%
3.6%
2%
3.3%
1.7%
2%
3.5%
5.6%
6%
10.6%
8.4
5.3
Recent additions to the fixed income side of the Fund include CHESAPEAKE ENERGY
CORPORATION, FRIENDLY ICE CREAM CORPORATION ("FRIENDLY'S"), and OREGON STEEL
MILLS, INC. Chesapeake Energy Corporation is a core holding that has taken
advantage of high natural gas prices to hedge a significant portion of their
production. Friendly's is a leader in casual dining, generates stable cash flow,
has a manageable balance sheet, and is a good relative value in our view. Oregon
Steel Mills, Inc. is on pace to have record profits this year and should benefit
from a strong economy. Each of these recent buys is consistent with our focus on
B and BB-rated issuers with improving credit profiles. Top performers over the
last six months included BETTER MINERALS & AGGREGATES COMPANY, KNOWLES
ELECTRONICS, INC., MMI PRODUCTS, INC., TOM BROWN INC., and VERTIS INC., while
the Fund lost money in PORTOLA PACKAGING, INC., RHODIA, and SERVICE CORPORATION
INTERNATIONAL. Generally speaking, cyclical sectors outperformed defensive
sectors over the period.
High Yield Sector Performance 11/03 - 5/04
(Source: Merrill Lynch)
Steel 11.3%
Consumer 7.2%
Chemicals 5.5%
Automotive 5.1%
Services 3.5%
Bldg Mat 3.4%
CCC Index 2.8%
Energy 2.6%
Food/Bev 2.6%
B Index 2.4%
Gaming 2.3%
HY Index 2.2%
Cable TV 2.1%
Paper 2.1%
Technology 2.1%
Healthcare 1.6%
BE Index 1.6%
Publishing 1.6%
Utilities 0.8%
Homebuilding 0.3%
Telecom -1%
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
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OUTLOOK:
Our outlook for the high yield bond market remains constructive. Gathering
momentum in the U.S. economy will likely continue to force interest rates
higher. From this point though, we expect the increase in rates to be gradual,
recognizing that rates have already increased significantly with the yield on
the 10-year Treasury roughly 1.6% higher than it was a year ago. Notwithstanding
higher interest rates, a strong economy and lower default rates generally
benefit issuers of high yield bonds. Under this scenario we believe that high
yield bonds should outperform most other domestic fixed income categories while
delivering absolute returns in line with the market coupon. The fixed income
side of the Fund remains overweighted in cyclically sensitive B rated
securities, which should outperform in the current environment due to their
greater sensitivity to an improving economy and reduced sensitivity to interest
rates (relative to BB's). In addition, the portfolio carries a higher average
coupon and a shorter average duration than the benchmark. As always, solid
credit research and bond picking will be the key driver of relative performance
in the high yield bond market.
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
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[PIE CHART GRAPHIC OMITTED]
EQUITY RETURNS
CWF (as a % of) Total Investments
As of May 31, 2004
Equities 56%
Fixed Income 42%
Cash 2%
[LINE CHART GRAPHIC OMITTED]
Total Return
Six Months ended May 31, 2004
S&P 500 6.8%
Dow Jones
Industrial Average 6.3%
CWF Equities 3.7%
During the six months ending May 31, 2004, equity markets as measured by the S&P
500 and the Dow Jones Industrial Average advanced 6.82% and 6.31%, respectively.
The equity portion of the Fund returned 3.7%. This six month period was
characterized by solid, broad-based corporate earnings results. Market returns
slowed to a more gradual pace after a strong 2003 and were tempered by
commentary that an improving economic outlook may encourage the Federal Reserve
to raise short term interest rates very soon. As a result, the large cap equity
market rotated to a more "defensive" posture during the period with the Energy,
Telecommunication and Utility sectors leading, while the Technology and Consumer
Discretionary sectors lagged the market.
[LINE CHART GRAPHIC OMITTED]
S&P 500 Total Return By Sector (6 Month Period Ending May 31, 2004)
Energy 22%
Telecommunication 10%
Utilities 9%
Industrials 9%
Healthcare 8%
Consumer Staples 8%
S&P 500 7%
Financials 7%
Materials 6%
Consumer Discretionary 4%
Technology 0%
CONTRIBUTING PERFORMERS: Among the best performing stocks in the portfolio
during the six month time period were several financial stocks. Our holdings in
WASHINGTON MUTUAL (WM), HARTFORD FINANCIAL SERVICES GROUP, INC. (HIG), LINCOLN
NATIONAL CORPORATION (LNC) and BANK OF AMERICA CORPORATION (BAC) were solid
performers. These stocks benefited from improved earnings revisions tied to the
economic recovery and cheap relative valuations. Additionally, our energy
stocks, including HALLIBURTON COMPANY (HAL), DIAMOND OFFSHORE DRILLING, INC.
(DO) and OCCIDENTAL PETROLEUM (OXY), performed well due to upwardly revised
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
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expectations for oil and natural gas prices. Other stocks that performed well
include SL GREEN REALTY CORPORATION (SLG), ACE LIMITED (ACE) and INTERNATIONAL
BUSINESS MACHINES CORPORATION (IBM).
LAGGING PERFORMERS: Our holdings in the Consumer Staples sector demonstrated the
least favorable performance. Despite improving fundamentals, negative litigation
developments in the tobacco group impacted our holdings in ALTRIA GROUP, INC.
(MO), R.J. REYNOLDS TOBACCO HOLDINGS, INC. (RJR) and CAROLINA GROUP (CG). Some
of our technology stocks also underperformed due to a rotation to a more
conservative position in the large cap equity market which caused many
technology stocks to decline. NOKIA OYJ (NOK), LSI LOGIC CORPORATION (LSI) and
SOLECTRON CORPORATION (SLR) were among the weakest performers of our technology
stocks during the six month period. We continue to believe that many of these
stocks will benefit from an improved capital spending cycle among US businesses,
which appears to have just recently begun.
STOCK MARKET OUTLOOK:
Over the long term, we believe U.S. equities are likely to revert to more
historical total return levels, which have averaged between 8-12%. The primary
foundation for equities is favorable given the combination of good earnings
growth and reasonable valuation. Further, we believe that interest rates are
likely to increase at a relatively modest and measured pace. In addition, the
universe of above average dividend paying stocks has begun to keep pace with the
broad market, a trend which we hope continues during the year. Companies have
increasingly recognized dividend payments as an important aspect of equity
ownership, and more companies are announcing initial dividends or increasing
dividends. We believe the equity portion of the Fund is well positioned to
benefit from this trend. As always, our primary goal is to continue utilizing
our fundamental equity framework to research undervalued, high income-producing
equities of quality companies.
[LINE CHART GRAPHIC OMITTED]
Changes in Dividend Policy by S&P 500 Companies
Following Passage of 2003 Bush Tax Cut
15
0
50
2
14
1
11
1
30
0
20
0
22
0
32
2
43
1
15
0
25
0
22
0
-----------------------------------------------------
[] Initiations / Increases [] Suspensions / Decreases
-----------------------------------------------------
Source: ISI
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
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DEFINITION OF THE COMPARATIVE INDICES
DOW JONES INDUSTRIAL AVERAGE is an unmanaged price-weighted average of 30
blue-chip stocks that are generally the leaders in their industry.
S&P 500 INDEX is an unmanaged capitalization-weighted index of 500 stocks
designed to measure performance of the broad domestic economy through changes in
the aggregate market value of 500 stocks representing all major industries.
MERRILL LYNCH HIGH YIELD CASH PAY INDEX is an unmanaged index of corporate bonds
that pay cash coupons, meet a minimum size threshold, and have a Merrill Lynch
composite rating lower than BBB3.
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
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UTILIZATION OF LEVERAGE
The Chartwell Dividend and Income Fund has utilized leverage through the
issuance of commercial paper. As of May 31, 2004, the Fund had $55 million in
leverage outstanding (out of $60 million available) in the form of commercial
paper rated A1/P1 by Moody's Investors Service, Inc./Standard & Poor's Ratings
Group. These ratings should enhance the marketability and reduce the interest
costs associated with the issuance of the commercial paper. However, it must be
noted that the utilization of leverage involves the risk of lower portfolio
returns if the cost of leverage is higher than the resulting yields on assets or
if the Fund experiences capital losses in excess of the yield spread, if any.
Therefore, the addition of leverage also increases the potential volatility of
the Fund. The Fund has the ability to leverage to a maximum of 33% of the Fund's
gross assets.
The Fund utilizes leveraging to seek to enhance the yield and net asset value of
its common stock. However, these objectives cannot be achieved in all interest
rate environments. To leverage, the Fund issues commercial paper, which is
issued at a discount equivalent to short-term interest rates, and invests the
proceeds in long-term securities. The interest earned on these investments is
paid to common stock shareholders in the form of dividends, and the value of
these portfolio holdings is reflected in the per share net asset value of the
Fund's common stock. However, in order to benefit common stock shareholders, the
yield curve must be positively sloped; that is, short-term interest rates must
be lower than long-term interest rates. At the same time, a period of generally
declining interest rates will benefit common stock shareholders. IF EITHER OF
THESE CONDITIONS CHANGE, THEN THE RISKS OF LEVERAGING WILL BEGIN TO OUTWEIGH THE
BENEFITS.
To illustrate these concepts, assume a fund's common stock capitalization of
$100 million and the issuance of commercial paper for an additional $50 million,
creating a total value of $150 million available for investment in long-term
securities. If prevailing short-term interest rates are approximately 3% and
long-term interest rates are approximately 6%, the yield curve has a strongly
positive slope. The fund pays a discount on the $50 million of commercial paper
based on the lower short-term interest rates. At the same time, the fund's total
portfolio of $150 million earns the income based on long-term interest rates.
In this case, the discount paid to commercial paper holders is significantly
lower than the income earned on the Fund's long-term investments, and therefore
the common stock shareholders are the beneficiaries of the incremental yield.
However, IF SHORT-TERM INTEREST RATES RISE, narrowing the differential between
short-term and long-term interest rates, THE INCREMENTAL YIELD PICK-UP ON THE
COMMON STOCK WILL BE REDUCED OR ELIMINATED COMPLETELY. At the same time, the
market value on the Fund's common stock (that is, its price as listed on the New
York Stock Exchange), may, as a result, decline. Furthermore, IF LONG-TERM
INTEREST RATES RISE, THE COMMON STOCK'S NET ASSET VALUE WILL REFLECT THE FULL
DECLINE IN THE PRICE OF THE PORTFOLIO'S INVESTMENTS, SINCE THE VALUE OF THE
FUND'S COMMERCIAL PAPER DOES NOT FLUCTUATE. In addition to the decline in net
asset value, the market value of the Fund's common stock may also decline.
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
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SCHEDULE OF INVESTMENTS (UNAUDITED)
NUMBER OF MARKET
SHARES VALUE
---------- ------------
COMMON STOCK--76.3%
BANKS--17.6%
AmSouth Bancorporation ............................. 50,760 $ 1,293,365
Bank of America Corporation ........................ 86,000 7,149,180
Bank of New York Company, Inc. ..................... 80,000 2,405,600
Citigroup, Inc. .................................... 104,336 4,844,320
HSBC Holdings PLC - ADR ............................ 13,240 980,157
JP Morgan Chase & Company .......................... 160,000 5,894,400
National City Corporation .......................... 50,000 1,774,500
------------
24,341,522
------------
BASIC INDUSTRY--5.1%
Alcoa, Inc. ........................................ 90,000 2,817,000
Freeport-McMoRan Copper & Gold, Inc., Class B ...... 30,000 1,008,900
K-Sea Transportation Partners LP(a) ................ 10,000 253,300
Weyerhaeuser Company ............................... 50,000 3,024,000
------------
7,103,200
------------
CONSUMER CYCLICAL--0.4%
Masco Corporation .................................. 20,000 579,000
------------
CONSUMER STAPLES--7.3%
Altria Group, Inc. ................................. 109,450 5,250,317
Loews Corporation - Carolina Group(a) .............. 88,725 2,013,170
RJ Reynolds Tobacco Holdings, Inc. ................. 50,000 2,810,000
------------
10,073,487
------------
ENERGY--2.6%
Halliburton Company ................................ 90,000 2,613,600
Marathon Oil Corporation ........................... 28,400 946,856
------------
3,560,456
------------
FINANCIAL--20.2%
ACE Limited ........................................ 41,580 1,712,265
Alliance Capital Management Holdings LP ............ 100,000 3,363,000
Fannie Mae ......................................... 75,300 5,097,810
Hartford Financial Services Group, Inc. ............ 71,500 4,727,580
Lincoln National Corporation ....................... 69,372 3,294,476
MBNA Corporation ................................... 30,000 762,000
Merrill Lynch & Company, Inc. ...................... 50,000 2,840,000
Morgan Stanley ..................................... 80,940 4,331,099
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
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SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
---------- ------------
COMMON STOCK (CONTINUED)
FINANCIAL (CONTINUED)
XL Capital Limited, Class A ........................ 25,000 $ 1,866,250
------------
27,994,480
------------
INDUSTRIAL--1.2%
Cooper Industries Limited, Class A ................. 30,000 1,707,000
------------
REAL ESTATE--8.6%
Boston Properties, Inc. ............................ 30,000 1,480,800
BRE Properties, Class A ............................ 19,500 674,700
CarrAmerica Realty Corporation ..................... 32,600 955,832
Duke Realty Corporation ............................ 80,320 2,599,155
Equity Office Properties Trust ..................... 40,800 1,099,560
iStar Financial, Inc. .............................. 25,000 956,250
Mack-Cali Realty Corporation ....................... 27,682 1,106,173
Reckson Associates Realty Corporation .............. 80,000 2,081,600
SL Green Realty Corporation ........................ 20,000 910,000
------------
11,864,070
------------
TECHNOLOGY--6.3%
Accenture Limited, Class A(a) ...................... 60,000 1,476,600
Flextronics International Limited(a) ............... 30,000 526,800
Hewlett-Packard Company ............................ 120,000 2,548,800
LSI Logic Corporation(a) ........................... 130,000 1,066,000
Nokia OYJ - ADR .................................... 190,000 2,610,600
Solectron Corporation(a) ........................... 100,000 550,000
------------
8,778,800
------------
TELECOMMUNICATIONS--2.4%
SBC Communications, Inc. ........................... 100,000 2,370,000
Verizon Communications, Inc. ....................... 30,000 1,037,400
------------
3,407,400
------------
UTILITIES--4.6%
AmeriGas Partners LP ............................... 15,200 388,968
Cinergy Corporation ................................ 34,800 1,305,348
Duquesne Light Holdings, Inc. ...................... 30,000 576,900
Kinder Morgan Energy Partners LP ................... 45,000 1,843,200
Northern Border Partners LP ........................ 26,600 1,040,060
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
14
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NUMBER OF
SHARES/ MARKET
PRINCIPAL AMOUNT VALUE
---------- ------------
COMMON STOCK (CONTINUED)
UTILITIES (CONTINUED)
TEPPCO Partners LP ................................. 34,800 $ 1,301,520
------------
6,455,996
------------
TOTAL COMMON STOCK (COST $99,663,568) .............. 105,865,411
------------
CORPORATE NOTES/BONDS--56.2%
BASIC INDUSTRY--11.6%
Aearo Company I+
8.250%, 04/15/12 ................................ $ 555,000 563,325
Autocam Corporation+
10.875%, 06/15/14 ............................... 1,535,000 1,515,812
Better Minerals & Aggregates Company
13.000%, 09/15/09 ............................... 1,000,000 805,000
California Steel Industries, Inc.+
6.125%, 03/15/14 ................................ 630,000 585,900
Century Aluminum Company
11.750%, 04/15/08 ............................... 390,000 436,800
Crown Euro Holdings SA
9.500%, 03/01/11 ................................ 1,110,000 1,209,900
Euramax International, Inc.
8.500%, 08/15/11 ................................ 900,000 931,500
Imco Recycling, Inc.
10.375%, 10/15/10 ............................... 465,000 490,575
Koppers Industries+
9.875%, 10/15/13 ................................ 1,230,000 1,328,400
KRATON Polymers LLC+
8.125%, 01/15/14 ................................ 440,000 451,000
Nalco Company+
8.875%, 11/15/13 ................................ 1,090,000 1,144,500
Oregon Steel Mills, Inc.
10.000%, 07/15/09 ............................... 1,020,000 1,060,800
Owens-Brockway Glass Container, Inc.
8.750%, 11/15/12 ................................ 755,000 798,413
Ply Gem Industries, Inc.+
9.000%, 02/15/12 ................................ 635,000 647,700
Sensus Metering Systems, Inc.+
8.625%, 12/15/13 ................................ 700,000 665,000
Solo Cup Company+
8.500%, 02/15/14 ................................ 935,000 939,675
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ------------
CORPORATE NOTES/BONDS (CONTINUED)
BASIC INDUSTRY (CONTINUED)
Tekni-Plex, Inc., Series B
12.750%, 06/15/10 ............................... $ 840,000 $ 835,800
Tenneco Automotive, Inc., Series B
10.250%, 07/15/13 ............................... 1,035,000 1,154,025
Wolverine Tube, Inc.
10.500%, 04/01/09 ............................... 535,000 564,425
------------
16,128,550
------------
CAPITAL GOODS--4.8%
Allied Waste North America, Series B
8.500%, 12/01/08 ................................ 630,000 685,125
GenCorp, Inc.
9.500%, 08/15/13 ................................ 695,000 715,850
H&E Equipment Finance
11.125%, 06/15/12 ............................... 425,000 431,375
Integrated Electrical Services, Inc., Series B
9.375%, 02/01/09 ................................ 91,000 95,323
Integrated Electrical Services, Inc., Series C
9.375%, 02/01/09 ................................ 885,000 927,037
Jacuzzi Brands, Inc.
9.625%, 07/01/10 ................................ 1,135,000 1,220,125
Norcross Safety Products LLC, Series B
9.875%, 08/15/11 ................................ 960,000 1,022,400
Sequa Corporation
9.000%, 08/01/09 ................................ 780,000 846,300
Trinity Industries, Inc.+
6.500%, 03/15/14 ................................ 825,000 783,750
------------
6,727,285
------------
CONSUMER CYCLICAL--6.7%
Cenveo, Inc.
9.625%, 03/15/12 ................................ 1,115,000 1,215,350
Coinmach Corporation
9.000%, 02/01/10 ................................ 790,000 841,350
Friendly Ice Cream Corporation+
8.375%, 06/15/12 ................................ 715,000 711,425
Mothers Work, Inc.
11.250%, 08/01/10 ............................... 1,360,000 1,400,800
Norcraft Companies+
9.000%, 11/01/11 ................................ 570,000 599,925
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ------------
CORPORATE NOTES/BONDS (CONTINUED)
CONSUMER CYCLICAL (CONTINUED)
Phillips - Van Heusen+
7.250%, 02/15/11 ................................ $ 440,000 $ 437,800
Service Corporation International+
6.750%, 04/01/16 ................................ 885,000 814,200
Sonic Automotive, Inc., Series B
8.625%, 08/15/13 ................................ 635,000 654,050
Vertis, Inc., Series B
10.875%, 06/15/09 ............................... 1,210,000 1,294,700
Von Hoffman Corporation
10.250%, 03/15/09 ............................... 1,310,000 1,306,725
------------
9,276,325
------------
CONSUMER STAPLES--6.1%
American Achievement Corporation+
8.250%, 04/01/12 ................................ 625,000 631,250
Amscan Holdings, Inc.+
8.750%, 05/01/14 ................................ 595,000 597,975
Chattem, Inc.
7.000%, 03/01/14 ................................ 640,000 614,400
FTD, Inc.
7.750%, 02/15/14 ................................ 805,000 756,700
General Nutrition Center+
8.500%, 12/01/10 ................................ 800,000 828,000
Georgia-Pacific Corporation
8.875%, 02/01/10 ................................ 1,060,000 1,184,550
Hercules, Inc.+
6.750%, 10/15/29 ................................ 525,000 496,125
Merisant Company+
9.500%, 07/15/13 ................................ 1,060,000 1,123,600
Nova Chemicals Corporation
6.500%, 01/15/12 ................................ 715,000 704,275
Rhodia SA+
8.875%, 06/01/11 ................................ 290,000 223,300
United Agri Products+
8.250%, 12/15/11 ................................ 720,000 812,563
WH Holdings Limited+
9.500%, 04/01/11 ................................ 490,000 507,150
------------
8,479,888
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ------------
CORPORATE NOTES/BONDS (CONTINUED)
ENERGY--3.4%
AmeriGas Partners LP, Series B
8.875%, 05/20/11 ................................ $ 970,000 $ 1,033,050
Bluewater Finance Limited
10.250%, 02/15/12 ............................... 640,000 659,200
Chesapeake Energy Corporation+
7.500%, 06/15/14 ................................ 240,000 249,000
Exco Resources, Inc.+
7.250%, 01/15/11 ................................ 445,000 445,000
NRG Energy, Inc.+
8.000%, 12/15/13 ................................ 680,000 681,700
Western Gas Resources
10.000%, 06/15/09 ............................... 710,000 749,050
Williams Companies, Inc.
8.625%, 06/01/10 ................................ 860,000 941,700
------------
4,758,700
------------
FINANCIAL--3.1%
CB Richard Ellis Service
11.250%, 06/15/11 ............................... 900,000 1,030,500
Ship Finance International Limited+
8.500%, 12/15/13 ................................ 950,000 897,750
United Rentals North America, Inc.
7.750%, 11/15/13 ................................ 1,200,000 1,134,000
Western Financial
9.625%, 05/15/12 ................................ 1,120,000 1,240,400
------------
4,302,650
------------
HEALTHCARE--3.2%
Bio-Rad Laboratories, Inc.
7.500%, 08/15/13 ................................ 755,000 781,425
Fisher Scientific International
8.125%, 05/01/12 ................................ 680,000 722,500
Res-Care, Inc.
10.625%, 11/15/08 ............................... 645,000 674,025
Town Sports International
9.625%, 04/15/11 ................................ 1,200,000 1,200,000
VWR International, Inc.+
8.000%, 04/15/14 ................................ 1,010,000 1,017,575
------------
4,395,525
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ------------
CORPORATE NOTES/BONDS (CONTINUED)
INDUSTRIAL--3.2%
Argosy Gaming Company
9.000%, 09/01/11 ................................ $ 760,000 $ 836,000
General Cable Corporation+
9.500%, 11/15/10 ................................ 420,000 447,300
MediaCom Broadband, LLC
11.000%, 07/15/13 ............................... 1,030,000 1,094,375
Nationsrent, Inc.+
9.500%, 10/15/10 ................................ 1,050,000 1,118,250
Rayovac Corporation
8.500%, 10/01/13 ................................ 395,000 409,813
Superior Essex Communications LLC+
9.000%, 04/15/12 ................................ 560,000 540,400
------------
4,446,138
------------
REAL ESTATE--5.2%
Aztar Corporation
9.000%, 08/15/11 ................................ 780,000 854,100
Courtyard By Marriott II LP, Series B
10.750%, 02/01/08 ............................... 900,000 905,625
Geo Group, Inc.
8.250%, 07/15/13 ................................ 785,000 769,300
Intrawest Corporation
7.500%, 10/15/13 ................................ 890,000 858,850
John Q Hammons Hotels, Series B
8.875%, 05/15/12 ................................ 805,000 873,425
LNR Property Corporation, Series A
7.250%, 10/15/13 ................................ 325,000 316,875
Premier Entertainment Biloxi LLC+
10.750%, 02/01/12 ............................... 760,000 794,200
Tech Olympic USA, Inc.
9.000%, 07/01/10 ................................ 1,010,000 1,052,925
WCI Communities, Inc.
10.625%, 02/15/11 ............................... 700,000 770,000
------------
7,195,300
------------
TECHNOLOGY--2.2%
Juno Lighting, Inc.
11.875%, 07/01/09 ............................... 830,000 888,100
Knowles Electronics, Inc.
13.125%, 10/15/09 ............................... 1,000,000 1,045,000
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ------------
CORPORATE NOTES/BONDS (CONTINUED)
TECHNOLOGY (CONTINUED)
Solectron Corporation
9.625%, 02/15/09 ................................ $1,110,000 $ 1,176,600
------------
3,109,700
------------
TELECOMMUNICATIONS--3.9%
Alliance Atlantis Communications, Inc.
13.000%, 12/15/09 ............................... 830,000 918,187
Centennial Cellular Operating Company
10.125%, 06/15/13 ............................... 640,000 656,000
Charter Communications Holdings, LLC
10.750%, 10/01/09 ............................... 400,000 350,000
Charter Communications Operating, LLC+
8.000%, 04/30/12 ................................ 425,000 416,500
Muzak LLC
10.000%, 02/15/09 ............................... 600,000 579,000
Nextel Communications
7.375%, 08/01/15 ................................ 1,265,000 1,280,813
Time Warner, Inc.
9.750%, 07/15/08 ................................ 1,270,000 1,193,800
------------
5,394,300
------------
TRANSPORTATION--0.2%
HLI Operating Company, Inc.
10.500%, 06/15/10 ............................... 230,000 257,600
------------
UTILITIES--2.6%
AES Corporation
9.500%, 06/01/09 ................................ 1,270,000 1,327,150
CE Generation, LLC
7.416%, 12/15/18 ................................ 714,870 763,606
PSEG Energy Holdings
8.625%, 02/15/08 ................................ 825,000 886,875
TNP Enterprises, Inc., Series B
10.250%, 04/01/10 ............................... 515,000 558,775
------------
3,536,406
------------
TOTAL CORPORATE NOTES/BONDS (COST $76,872,804) ..... 78,008,367
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
---------- ------------
CONVERTIBLE PREFERRED STOCK--2.5%
FINANCIAL--1.1%
ACE Limited ........................................ 26,025 $ 676,911
Chubb Corporation .................................. 10,000 277,900
Hartford Financial Services Group, Inc. ............ 5,000 324,100
XL Capital Limited ................................. 10,000 250,400
------------
1,529,311
------------
REAL ESTATE--1.4%
LTC Properties, Inc. ............................... 25,000 818,750
Ramco-Gershenson Properties(a) ..................... 40,000 1,132,800
------------
1,951,550
------------
TOTAL CONVERTIBLE PREFERRED STOCK
(COST $3,171,097) ............................... 3,480,861
------------
PREFERRED STOCK--0.5%
FINANCIAL--0.3%
TransCanada Corporation ............................ 14,905 379,183
------------
HEALTHCARE--0.2%
Rhone-Poulenc, Series A ............................ 10,620 269,854
------------
TOTAL PREFERRED STOCK
(COST $657,218) ................................. 649,037
------------
PREFERRED TERM SECURITIES--2.8%
I-Preferred Term Securities IV ..................... 1,000,000 1,023,900
Preferred Term Securities IV ....................... 2,000,000 1,824,900
Preferred Term Securities XIII ..................... 1,000,000 1,000,000
------------
TOTAL PREFERRED TERM SECURITIES (COST $3,715,433) .. 3,848,800
------------
CASH EQUIVALENT--2.6%
INVESTMENT COMPANY--2.6%
SEI Daily Income Trust, Prime Obligations Fund,
Class A ......................................... 3,554,034 3,554,034
------------
TOTAL CASH EQUIVALENT (COST $3,554,034) ............ 3,554,034
------------
TOTAL INVESTMENTS--140.9% (COST $187,634,154) ...... 195,406,510
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONCLUDED)
WRITTEN MARKET VALUE
CONTRACTS (NOTE 1)
---------- -------------
COVERED CALL OPTIONS WRITTEN--(0.3)%
Alcoa, Inc. Jun. 35 Call ........................... (300) $ (1,500)
Flextronics International Limited Jun. 17.5 Call ... (300) (19,500)
Halliburton Company Jun. 30 Call ................... (700) (21,000)
Halliburton Company Jun. 35 Call ................... (200) --
Hartford Financial Services Group, Inc. Jun. 65 Call (500) (97,500)
Lincoln National Corporation Jun. 45 Call .......... (400) (104,000)
LSI Logic Corporation Jul. 10 Call ................. (300) (3,000)
LSI Logic Corporation Jun. 7.5 Call ................ (300) (21,000)
Marathon Oil Corporation Jun. 32.5 Call ............ (284) (28,400)
Nokia Corporation Jun. 15 Call ..................... (1,900) (19,000)
RJ Reynolds Tobacco Holdings, Inc. Jun. 60 Call .... (500) (30,000)
SBC Communications, Inc. Jun. 25 Call .............. (1,000) (10,000)
Solectron Corporation Jul. 7.5 Call ................ (1,000) --
Verizon Communications, Inc. Jun. 35 Call .......... (300) (16,500)
Weyerhaeuser Company Jun. 60 Call .................. (500) (80,000)
XL Capital Limited, Class A Jun. 75 Call ........... (250) (26,250)
------------
TOTAL COVERED CALL OPTIONS WRITTEN
(PREMIUM RECEIVED $478,184) ..................... (477,650)
------------
OTHER LIABILITIES IN EXCESS OF OTHER ASSETS--(40.6)% (56,279,007)
------------
NET ASSETS--100% ................................... $138,649,853
------------
+ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration normally to qualified institutions. At May 31, 2004, these
securities amounted to $23,016,050 or 16.6% of net assets.
(a) Non-income producing security
ADR American Depositary Receipt
LLC Limited Liability Company
LP Limited Partnership
PLC Public Limited Company
Amounts designated "--" are either $0 or have been rounded to $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AS OF MAY 31, 2004 (UNAUDITED)
ASSETS:
Investments, at value (cost $187,634,154) (Note 1) .............. $195,406,510
Receivable for securities sold .................................. 1,573,395
Interest receivable ............................................. 1,975,935
Dividends receivable ............................................ 186,783
Prepaid expenses and other assets ............................... 41,221
------------
Total assets ............................................... 199,183,844
------------
LIABILITIES:
Commercial paper (Note 4) ....................................... 54,915,193
Covered call options written, at value
(premiums received--$478,184) (Note 1) ....................... 477,650
Payable for securities purchased ................................ 4,769,235
Payable for investment management fees (Note 2) ................. 138,609
Payable for administration fees (Note 2) ........................ 16,307
Accrued expenses and other liabilities .......................... 216,997
------------
Total liabilities .......................................... 60,533,991
------------
NET ASSETS ...................................................... $138,649,853
============
NET ASSETS CONSIST OF:
Common Stock, $0.01 par value
(authorized 100,000,000 shares) ............................ $ 164,295
Additional paid-in-capital ................................... 205,293,942
Distributions in excess of net investment income ............. (4,317,989)
Accumulated net realized losses on investments and options ... (70,263,285)
Net unrealized appreciation on investments and options ....... 7,772,890
------------
NET ASSETS -- 100% .............................................. $138,649,853
============
NET ASSET VALUE PER SHARE:
$138,649,853 / 16,429,467 shares of Common Stock issued
and outstanding ............................................ $ 8.44
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED
MAY 31, 2004 (UNAUDITED)
INVESTMENT INCOME:
Interest ........................................................ $3,736,891
Dividends (less foreign taxes withheld of $10,210) .............. 1,858,061
----------
Total investment income .................................... $5,594,952
----------
EXPENSES:
Investment management fees (Note 2) ............................. 1,038,432
Commercial paper fees (Note 4) .................................. 133,122
Administration fees (Note 2) .................................... 98,889
Professional fees ............................................... 97,277
Printing and shareholder reports ................................ 47,627
Transfer agent fees ............................................. 18,495
Directors' fees and expenses .................................... 10,548
Custodian fees .................................................. 9,981
Insurance fees .................................................. 7,023
Registration fees ............................................... 4,959
Other operating expenses ........................................ 5,749
----------
Total operating expenses ..................................... 1,472,102
Interest expense ................................................ 299,242
----------
Total expenses ............................................... 1,771,344
----------
Less:
Investment management fees waived (Note 2) ................. (197,873)
----------
Net expenses ............................................... 1,573,471
----------
NET INVESTMENT INCOME ...................................... 4,021,481
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments ................................ 5,517,132
Net realized gain on call options written ....................... 1,495,316
Change in net unrealized depreciation on investments
and options ................................................... (4,297,495)
----------
Net realized and unrealized gain on investments and options ..... 2,714,953
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............ $6,736,434
==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED
MAY 31, 2004 (UNAUDITED)
INCREASE (DECREASE) IN CASH
Cash flows provided from (used for) operating activities:
Interest and dividends received .............................. $ 5,396,473
Operating expenses paid ...................................... (1,246,220)
Interest paid ................................................ (63,988)
Net proceeds from the sale of short-term portfolio investments 3,615,032
Purchase of long-term portfolio investments .................. (162,250,641)
Proceeds from sale of long-term portfolio investments ........ 154,941,254
Premiums received from written options transactions .......... 1,864,075
------------
Net cash provided from operating activities ................ 2,255,985
------------
Cash flows provided from (used for) financing activities:
Net cash provided from commercial paper issuance ............. 4,967,766
Cash dividends paid to shareholders .......................... (7,223,751)
------------
Net cash used for financing activities ..................... (2,255,985)
------------
Net decrease in cash ............................................ --
Cash at beginning of period .................................. --
------------
Cash at end of period ........................................ $ --
============
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations ............ $ 6,736,434
------------
Accretion of market discount ................................. (66,255)
Increase in investments ...................................... (5,710,790)
Net realized gain on investments and options ................. (7,012,448)
Net change in unrealized depreciation
on investments and options ................................ 4,297,495
Decrease in receivable for securities sold ................... 864,957
Decrease in interest and dividend receivable ................. 117,268
Decrease in commercial paper discount ........................ 8,424
Increase in other assets ..................................... (15,456)
Increase in payable for securities purchased ................. 2,992,891
Increase in accrued expenses and other liabilities ........... 43,465
------------
Total adjustments .......................................... (4,480,449)
------------
Net cash provided from operating activities .................. $ 2,255,985
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
MAY 31, 2004 NOVEMBER 30,
(UNAUDITED) 2003
------------ ------------
OPERATIONS:
Net investment income ........................... $ 4,021,481 $ 9,634,996
Net realized gain (loss) on investments ......... 5,517,132 (727,773)
Net realized gain on call options written ....... 1,495,316 1,015,316
Change in net unrealized appreciation
(depreciation) on investments and options ..... (4,297,495) 23,260,934
------------ ------------
Net increase in net assets
resulting from operations ....................... 6,736,434 33,183,473
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income ........................... (8,180,963) (9,929,830)
Tax return of capital ........................... -- (6,254,835)
------------ ------------
Net decrease in net assets resulting from
dividends and distributions ..................... (8,180,963) (16,184,665)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Reinvestment of dividends resulting in the
issuance of Common Stock transactions ........... 957,212 2,052,215
------------ ------------
Net increase in net assets resulting from
Common Stock transactions ....................... 957,212 2,052,215
------------ ------------
Total increase (decrease) in net assets ............ (487,317) 19,051,023
------------ ------------
NET ASSETS:
Beginning of period ............................. 139,137,170 120,086,147
------------ ------------
End of period (including distributions in
excess of net investment income of
$4,317,989 and $158,507, respectively) ........ $138,649,853 $139,137,170
============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR THE
SIX MONTHS FOR THE
ENDED YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MAY 31, 2004 NOVEMBER 30,
BEEN DERIVED FROM INFORMATION PROVIDED IN THE (UNAUDITED) 2003
FINANCIAL STATEMENTS -------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD ............... $ 8.52 $ 7.47
-------- --------
INCOME/GAIN FROM INVESTMENT OPERATIONS: (1)
Net investment income ............................ 0.25 0.60
Net realized and unrealized gain on
investment transactions and options ............ 0.17 1.45
-------- --------
Total from investment operations ............... 0.42 2.05
-------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income ............. (0.50) (0.61)
Tax return of capital ............................ -- (0.39)
-------- --------
Total dividends and distributions .............. (0.50) (1.00)
-------- --------
NET ASSET VALUE, END OF PERIOD ..................... $ 8.44 $ 8.52
======== ========
MARKET VALUE, END OF PERIOD ........................ $ 9.11 $ 9.80
======== ========
TOTAL RETURN BASED ON: (2)
Net asset value .................................. 4.86% 28.96%
======== ========
Market value ..................................... (2.30)% 51.57%
======== ========
RATIOS AND SUPPLEMENTAL DATA: (3)
Net assets, end of period (000 omitted) .......... $138,650 $139,137
======== ========
Total expenses including waiver of fees .......... 2.17% 2.40%
Total expenses excluding waiver of fees .......... 2.45% 2.54%
Total operating expenses including waiver of
fees (4) ....................................... 1.57% 1.57%
Total operating expenses excluding waiver of
fees (4) ....................................... 1.85% 1.86%
Commercial paper fees ............................ 0.60% 0.68%
Net investment income including waiver of fees ... 5.56% 7.58%
Portfolio turnover ............................... 48% 99%
LEVERAGE ANALYSIS:
Aggregate amount outstanding at end of period
(000 omitted) .................................. $ 55,000 $ 50,000
Average daily balance of amortized cost of
commercial paper outstanding (000 omitted) ..... $ 53,204 $ 49,925
Asset coverage per $1,000 at end of period ....... $ 3,491 $ 3,838
----------------
(1) Based on average shares outstanding.
(2) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
each period reported. Total investment return does not reflect brokerage
commissions. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment returns based on market
value, which can be significantly greater or less than the net asset value,
may result in substantially different returns. The total investment returns
calculated based on market value and net asset value for a period of less
than one year have not been annualized. Returns do not reflect the deduction
of taxes that a shareholder would pay on Fund distributions or the
Redemption of Fund's Shares.
(3) Ratios are stated as a percentage of average weekly net assets which
includes any liabilities constituting indebtedness in connection with
financial leverage.
(4) Exclusive of commercial paper fees.
Amounts designated as "--" are $0 or have been rounded to $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE YEAR ENDED
NOVEMBER 30,
----------------------
2002 2001
-------- --------
NET ASSET VALUE, BEGINNING OF YEAR ................. $ 9.76 $ 10.33
-------- --------
INCOME/GAIN (LOSS) FROM INVESTMENT OPERATIONS:(1)
Net investment income ............................ 0.66 0.65
Net realized and unrealized gain (loss) on
investment transactions and options ............ (1.83) 0.02
-------- --------
Total from investment operations ............... (1.17) 0.67
-------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income ............. (0.66) (0.65)
Tax return of capital ............................ (0.46) (0.59)
-------- --------
Total dividends and distributions .............. (1.12) (1.24)
-------- --------
NET ASSET VALUE, BEGINNING OF YEAR ................. $ 7.47 $ 9.76
======== ========
MARKET VALUE, BEGINNING OF YEAR .................... $ 7.27 $ 10.55
======== ========
TOTAL RETURN BASED ON:(2)
Net asset value .................................. (13.50)% 6.15%
======== ========
Market value ..................................... (22.12)% 23.95%
======== ========
RATIOS AND SUPPLEMENTAL DATA:(3)
Net assets, end of period (000 omitted) .......... $120,086 $154,139
======== ========
Total expenses including waiver of fees .......... 2.81% 2.62%
Total expenses excluding waiver of fees .......... 2.86% --
Total operating expenses including waiver of
fees (4) ....................................... 1.81% 1.36%
Total operating expenses excluding waiver of
fees (4) ....................................... 1.86% --
Commercial paper fees ............................ 1.00% 1.26%
Net investment income including waiver of fees ... 7.64% 4.51%
Portfolio turnover ............................... 102% 1.32%
LEVERAGE ANALYSIS:
Aggregate amount outstanding at end of year
(000 omitted) .................................. $ 50,000 $ 60,000
Average daily balance of amortized cost of
commercial paper outstanding (000 omitted) ..... $ 56,250 $ 59,690
Asset coverage per $1,000 at end of year ......... $ 3,445 $ 3,703
----------------
(1) Based on average shares outstanding.
(2) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
each period reported. Total investment return does not reflect brokerage
commissions. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment returns based on market
value, which can be significantly greater or less than the net asset value,
may result in substantially different returns. The total investment returns
calculated based on market value and net asset value for a period of less
than one year have not been annualized. Returns do not reflect the deduction
of taxes that a shareholder would pay on Fund distributions or the
Redemption of Fund's Shares.
(3) Ratios are stated as a percentage of average weekly net assets which
includes any liabilities constituting indebtedness in connection with
financial leverage.
(4) Exclusive of commercial paper fees.
Amounts designated as "--" are $0 or have been rounded to $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONCLUDED)
FOR THE YEAR ENDED
NOVEMBER 30,
----------------------
2000 1999
-------- --------
NET ASSET VALUE, BEGINNING OF PERIOD ............... $ 12.54 $ 14.17
-------- --------
INCOME/GAIN (LOSS) FROM INVESTMENT OPERATIONS:(1)
Net investment income ............................ 0.80 0.88
Net realized and unrealized loss on
investment transactions and options ............ (1.77) (1.27)
-------- --------
Total from investment operations ............... (0.97) (0.39)
-------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income ............. (0.80) (0.86)
Distributions from realized short-term gains ..... -- (0.03)
Tax return of capital ............................ (0.44) (0.35)
-------- --------
Total dividends and distributions .............. (1.24) (1.24)
-------- --------
NET ASSET VALUE, BEGINNING OF PERIOD ............... $ 10.33 $ 12.54
======== ========
MARKET VALUE, BEGINNING OF PERIOD .................. $ 9.56 $ 10.50
======== ========
TOTAL RETURN BASED ON:(2)
Net asset value .................................. (7.72)% (2.47)%
======== ========
Market value ..................................... 2.02% (18.44)%
======== ========
RATIOS AND SUPPLEMENTAL DATA:(3)
Net assets, end of period (000 omitted) .......... $160,469 $194,859
======== ========
Total expenses including waiver of fees .......... 3.76% 2.03%
Total operating expenses including waiver of
fees (4) ....................................... 1.66% 1.35%
Commercial paper fees ............................ 2.10% 0.68%
Net investment incomes ........................... 6.51% 6.51%
Portfolio turnover ............................... 161% 119%
LEVERAGE ANALYSIS:
Aggregate amount outstanding at end of period
(000 omitted) .................................. $ 60,000 $ 60,000
Average daily balance of amortized cost of
commercial paper outstanding (000 omitted) ..... $ 59,579 $ 59,690
Asset coverage per $1,000 at end of period ....... $ 3,743 $ 4,378
----------------
(1) Based on average shares outstanding.
(2) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
each period reported. Total investment return does not reflect brokerage
commissions. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment returns based on market
value, which can be significantly greater or less than the net asset value,
may result in substantially different returns. The total investment returns
calculated based on market value and net asset value for a period of less
than one year have not been annualized. Returns do not reflect the deduction
of taxes that a shareholder would pay on Fund distributions or the
Redemption of Fund's Shares.
(3) Ratios are stated as a percentage of average weekly net assets which
includes any liabilities constituting indebtedness in connection with
financial leverage.
(4) Exclusive of commercial paper fees. (5) Annualized.
Amounts designated as "--" are $0 or have been rounded to $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29
------
CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Chartwell Dividend and Income Fund, Inc. (the "Fund") was incorporated under the
laws of the State of Maryland on April 6, 1998 and is registered under the
Investment Company Act of 1940 as amended, (the "Act"), as a closed-end,
diversified management investment company. The Fund had no operations until June
17, 1998 when it sold 6,667 shares of Common Stock for $100,005 to Chartwell
Investment Partners, L.P. (the "Manager"). Investment operations commenced on
June 29, 1998. The Fund's primary investment objective is to seek high current
income. Capital appreciation is a secondary objective.
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States of America.
USE OF ESTIMATES: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
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.
SECURITY VALUATION: Investment securities of the Fund that are listed on a
securities exchange, except for debt securities, and for which market quotations
are readily available, are valued at the last quoted sales price at the close of
trading on the New York Stock Exchange (normally 4:00 p.m., Eastern Time).
Investment securities of the Fund that are quoted on the NASDAQ market system
are valued at the official closing price, or if there is none, at the last sales
price. If there is no reported sale, these securities and unlisted securities
for which market quotations are not readily available are valued at last bid
price. Debt securities are priced based upon valuations provided by independent,
third-party pricing agents, if available. Such values generally reflect the last
reported sales price if the security is actively traded. The third-party pricing
agents may also value debt securities at an evaluated bid price by employing
methodologies that utilize actual market transactions, broker-supplied
valuations, or other methodologies designed to identify the market value for
such securities. Debt obligations with remaining maturities of sixty days or
less may be valued at their amortized cost, which approximates market value.
Prices for most securities held in the Fund are provided daily by recognized
independent pricing agents. If a security price cannot be obtained from an
independent, third-party pricing agent, the Fund seeks to obtain a bid price
from at least one independent broker. Short-term investments having a maturity
of less than 60 days are valued at amortized
30
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
cost, which approximates market value. All securities and assets for which
quotations are not readily available, of which there were none as of May 31,
2004, are valued in accordance with Fair Value Procedures established by the
Fund's Board of Directors. The Fund's Fair Value Procedures are implemented
through a Fair Value Committee (the "Committee") designated by the Fund's Board
of Trustees. Some of the more common reasons that may necessitate that a
security be valued using Fair Value Procedures include, among other things: the
security's trading has been halted or suspended; the security has been de-listed
from a national exchange; the security's primary trading market is temporarily
closed at a time when under normal conditions it would be open; or the
security's primary pricing source is not able or willing to provide a price.
When a security is valued in accordance with the Fair Value Procedures, the
Committee will determine the value after taking into consideration relevant
information reasonably available to the Committee.
CASH AND CASH EQUIVALENTS: Idle cash is swept into a money market fund at
Wachovia Bank, N.A., (the "Custodian"), and is classified as cash on the
Statement of Assets and Liabilities. Amounts so invested are generally available
on the same business day.
WRITTEN OPTIONS: When the Fund writes a covered call option, an amount equal to
the premium received by the Fund is included in the Fund's Statement of Assets
and Liabilities as a liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option written.
When a covered written call option expires on its stipulated expiration date, or
if the Fund enters into a closing purchase transaction, the Fund will realize a
gain (or loss if the cost of the closing purchase transaction exceeds the
premium received when the call option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option will be extinguished. When a covered written call option is
exercised, the Fund will realize a gain or loss from the sale of the underlying
security and the proceeds of the sale are increased by the premium originally
received. The Fund as writer of an option has no control over whether the
underlying securities may be sold (called) and as a result bears the market risk
of an unfavorable change in the price of the securities underlying the written
option.
DIVIDENDS AND DISTRIBUTIONS: The Fund will declare and pay dividends to
shareholders on a monthly basis. Long-term capital gains, if any, in excess of
loss carryforwards are distributed to shareholders annually. Dividends from net
investment income and capital gain distributions are determined in accordance
with U.S. Federal income tax regulations, which may differ from generally
accepted accounting principles. Dividends and distributions to shareholders are
recorded on the ex-dividend date.
31
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
The Fund currently intends to distribute a monthly fixed amount to shareholders.
The Fund's final distribution for each calendar year may exceed that amount,
however, to the extent necessary for the Fund to have distributed all of its net
investment company taxable income and net capital gains recognized during the
year, if any. If, for any calendar year, the total distributions exceed net
investment company taxable income and net capital gain, the excess, distributed
from the Fund's assets, will generally be treated as a tax-free return of
capital and will result in a reduction in the shareholder's basis. The Board of
Directors reserves the right to change the aforementioned dividend policy from
time to time.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS: Delivery and payment for securities
that have been purchased by the Fund on a forward commitment or when-issued
basis can take place up to a month or more after the transaction date. The
purchase of securities on a when-issued or forward commitment basis may increase
the volatility of the Fund's net asset value if the Fund makes such investments
while remaining substantially fully invested. As of May 31, 2004, there were no
securities purchased on a when-issued basis.
BORROWINGS: The Fund issues short-term commercial paper at a discount from par.
The discount is amortized to interest expense over the life of the commercial
paper using the straight line method.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are recorded
on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis. The Fund accretes original issue discount on securities
using the effective interest method.
NOTE 2. INVESTMENT MANAGEMENT, ADMINISTRATION, CUSTODIAN AGREEMENTS AND
OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into an investment management agreement with the Manager.
The Manager manages the Fund's portfolio and makes investment decisions. For
these services, the Fund pays the Manager a monthly fee at an annual rate of
0.95% of the Fund's Managed Assets. "Managed Assets" are the average weekly
value of the Fund's total assets minus the sum of the Fund's liabilities,
excluding debt related to leveraging, short-term debt and the aggregate
liquidation preference of any outstanding preferred stock. The Manager has
agreed to limit the investment management fee paid to it by the Fund to 0.85% of
the Fund's Managed Assets. This waiver is voluntary and may be changed at any
time.
The Fund has entered into an administration agreement with SEI Investments
Global Funds Services (the "Administrator"). Under such agreement, the
32
------
CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
Administrator performs or arranges for the performance of certain administrative
services necessary for the operation of the Fund. For these services, the Fund
pays a fee to the Administrator based on the Fund's Managed Assets according to
the following rates: 0.10% on the first $250 million of such Managed Assets and
0.09% on such Managed Assets in excess of $250 million, subject to a minimum
annual fee of $180,000, which includes fees under this agreement and fees
received by the Administrator from the Chartwell Large Cap Value and Chartwell
Small Cap Value Funds. The allocation of the minimum will be assessed based upon
Managed Assets of the Fund and net assets of the Chartwell Large Cap Value and
Chartwell Small Cap Value Funds.
Certain officers and/or directors of the Fund are officers and/or directors of
the Manager. The Fund pays to each director who is not an "affiliated person" as
defined in the Act a fee of $6,000 per year, plus $1,000 per year for audit
committee members and an additional fee of $250 per year for the chairman of the
audit committee.
For the six months ended May 31, 2004, the Fund incurred a legal expense of
$64,338 for services provided by Drinker Biddle & Reath LLP, counsel for the
Fund. A partner of the firm is an officer of the Fund.
Wachovia Bank, N.A. serves as the custodian for the Fund. The Custodian plays no
role in determining the investment policies of the Fund or which securities are
to be purchased or sold by the Fund.
NOTE 3. PURCHASE AND SALES OF INVESTMENTS
For the six months ended May 31, 2004, purchases and sales of investments,
excluding short-term investments, totaled $100,433,236 and $94,593,553,
respectively.
The following table summarizes the Fund's call options written for the six
months ended May 31, 2004.
NUMBER OF
CONTRACTS PREMIUMS
-------- ------------
Options outstanding November 30, 2003 ..... 8,240 $ 527,752
Options written ........................... 62,748 4,426,498
Options expired ........................... (36,932) (2,446,837)
Options exercised ......................... (5,672) (418,327)
Options closed ............................ (19,650) (1,610,902)
-------- ------------
Options outstanding May 31, 2004 .......... 8,734 $ 478,184
======== ===========
NOTE 4. COMMERCIAL PAPER
As of May 31, 2004, $55,000,000 of commercial paper was outstanding with an
amortized cost of $54,915,193. The average discount rate of commercial
33
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
paper outstanding at May 31, 2004, was 0.53%. The average daily balance of
commercial paper outstanding for the six months ended May 31, 2004, was
$53,202,584 at a weighted average discount rate of 1.35%. The maximum face
amount of commercial paper outstanding at any time during the six months ended
May 31, 2004 , was $55,000,000. In conjunction with the issuance of the
commercial paper, the Fund has entered into a line of credit arrangement with a
bank for $30,000,000. Interest on borrowing is based on market rates in effect
at the time of borrowing. The commitment fee is computed at the rate of 0.30%
per annum on the unused balance. There were no borrowings under this arrangement
during the six months ended May 31, 2004,
NOTE 5. CAPITAL STOCK
There are 100,000,000 shares of $0.01 par value common stock authorized. Of the
16,429,467 shares of common stock outstanding at May 31, 2004, the Manager owned
12,832 shares.
For the six months ended May 31, 2004, and the year ended November 30, 2003, the
Fund issued 103,952 and 252,752 shares, respectively, in connection with the
Fund's dividend reinvestment plan.
NOTE 6. MARKET AND CREDIT RISKS
The Fund may invest in high-yielding fixed-income securities, which carry
ratings of BB or lower by S&P and/or Ba1 or lower by Moody's. Investments in
these higher-yielding securities may be accompanied by a greater degree of
credit risk than higher rated securities. Additionally, lower-rated securities
may be more susceptible to adverse economic and competitive industry conditions
than investment-grade securities. The Fund may invest up to 15% of its total
assets in illiquid securities and other securities which may not be readily
marketable. In addition, the Fund may purchase securities sold in reliance of
Rule 144A of the Securities Act of 1933. The relative illiquidity of some of the
Fund's portfolio securities may adversely affect the ability of the Fund to
dispose of such securities in a timely manner and at a fair price at times when
it might be necessary or advantageous for the Fund to liquidate portfolio
securities.
NOTE 7. FEDERAL TAX INFORMATION
It is the Fund's intention to continue to meet the requirements under Subchapter
M of the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its taxable income to shareholders.
Therefore, no provision for Federal income tax or excise tax is required.
The tax character of dividends and distributions paid during the last two fiscal
years were as follows:
ORDINARY RETURN OF
INCOME CAPITAL TOTALS
----------- ---------- -----------
2003 $ 9,929,830 $6,254,835 $16,184,665
2002 10,544,215 7,287,730 17,831,945
34
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
As of November 30, 2003, the components of Accumulated Losses were as follows:
Capital loss carryforwards $(75,776,129)
Net unrealized appreciation 10,656,380
Other temporary differences (244,106)
------------
Total accumulated losses $(65,363,855)
============
The following summarizes the capital loss carryforwards as of November 30, 2003.
These capital loss carryforwards are available to offset future gains.
EXPIRING IN FISCAL YEAR AMOUNT
----------------------- ----------
2007 $ 8,880,255
2008 9,509,213
2009 25,913,206
2010 30,533,344
2011 940,111
-----------
Total capital loss carryforwards $75,776,129
===========
The Federal tax cost as well as the aggregate gross unrealized appreciation and
depreciation on investments and options held by the Fund at May 31, 2004 were as
follows:
Federal Tax Cost .......................................... $187,155,970
------------
Aggregate Gross Unrealized Appreciation ................... 13,212,618
Aggregate Gross Unrealized Depreciation ................... (5,439,728)
------------
Net Unrealized Appreciation ............................... $ 7,772,890
============
NOTE 8. SUBSEQUENT EVENTS
The Board of Directors of the Fund declared the following dividends:
DIVIDEND
DECLARATION DATE EX-DATE RECORD DATE PAYABLE DATE RATE
---------------- ------- ------------- -------------- ---------
June 1, 2004 June 15, 2004 June 17, 2004 June 30, 2004 $0.0833
July 1, 2004 July 20, 2004 July 22, 2004 July 30, 2004 $0.0833
August 2, 2004 August 17, 2004 August 19, 2004 August 31, 2004 $0.0833
35
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
AUTOMATIC DIVIDEND REINVESTMENT PLAN (UNAUDITED)
Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the "Plan"), unless
a shareholder otherwise elects, all dividend and capital gains distributions
will be automatically reinvested in additional shares of common stock of the
Fund by PFPC Inc., as agent for shareholders in administering the Plan (the
"Plan Agent"). Shareholders who elect not to participate in the Plan will
receive all dividends and distributions in cash, paid by check mailed directly
to the shareholder of record (or, if the shares are held in street or other
nominee name, then to such nominee) by PFPC Inc., as dividend paying agent. Such
participants may elect not to participate in the Plan and to receive all
distributions of dividends and capital gains in cash by sending written
instructions to PFPC Inc., as dividend paying agent, at the address set forth
below.
Participation in the Plan is completely voluntary and may be terminated or
resumed at any time without penalty by written notice if received by the Plan
Agent not less than ten days prior to any dividend record date. Otherwise such
termination will be effective with respect to any subsequently declared dividend
or distribution.
Whenever the Fund declares a distribution, an ordinary income dividend or a
capital gain dividend (collectively referred to as "dividends") payable either
in shares or in cash, non-participants in the Plan will receive cash, and
participants in the Plan will receive the equivalent in shares of common stock.
The shares will be acquired by the Plan Agent for the participant's account,
depending upon the circumstances described below, either (i) through receipt of
additional unissued but authorized shares of common stock from the Fund or (ii)
by purchase of outstanding shares of common stock on the open market on the NYSE
or elsewhere. If on the payment date of the dividend, the net asset value per
share of the common stock is equal to or less than the market price per share
plus estimated brokerage commissions (such condition being referred to herein as
"market premium"), the Plan Agent will invest the dividend amount in newly
issued shares on behalf of the participant. The number of newly issued shares of
common stock to be credited to the participant's account will be determined by
dividing the dollar amount of the dividend by the net asset value per share on
the date the shares are issued, provided that the maximum discount from the then
current market price per share on the date of issuance may not exceed 5%. If on
the dividend payment date the net asset value per share is greater than the
market value (such condition being referred to herein as "market discount"), the
Plan Agent will invest the dividend amount in shares acquired on behalf of the
participant in open-market purchases.
In the event of a market discount on the dividend payment date, the Plan Agent
will have until the last business day before the next date on which the shares
trade on the "ex-dividend" basis or in no event more than 30 days after the
dividend payment date to invest the dividend amount in shares acquired in
36
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
open-market purchases. If, before the Plan Agent has completed its open-market
purchases, the market price of a share of common stock exceeds the net asset
value per share, the average per share purchase price paid by the Plan Agent may
exceed the net asset value of the Fund's shares, resulting in the acquisition of
fewer shares than if the dividend had been paid in newly issued shares on the
dividend payment date. The Plan provides that if the Plan Agent is unable to
invest the full dividend amount in open-market purchases during the purchase
period or if the market discount shifts to market premium during the purchase
period, the Plan Agent will cease making open-market purchases and will invest
the uninvested portion of the dividend amount in newly issued shares at the
close of business on the last purchase date.
The Plan Agent maintains all shareholders' accounts in the Plan and furnishes
written confirmation of all transactions in the accounts, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Plan Agent on behalf of the Plan participant,
and each shareholder's proxy will include those shares purchased or received
pursuant to the Plan. The Plan Agent will forward all proxy solicitation
materials to participants and vote proxies for shares held pursuant to the Plan
in accordance with the instructions of the participants.
In the case of shareholders such as banks, brokers or nominees which hold shares
for others who are the beneficial owners, the Plan Agent will administer the
Plan on the basis of the number of shares certified from time to time by the
record shareholders as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who are to
participate in the Plan.
There will be no brokerage charges with respect to shares issued directly by the
Fund as a result of dividends or capital gain distributions payable either in
shares or in cash. However, each participant will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open-market
purchases in connection with reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not relieve
participants of any federal, state or local income tax that may be payable (or
required to be withheld) on such dividends.
Shareholders participating in the Plan may receive benefits not available to
shareholders not participating in the Plan. If the market price plus commissions
of the Fund's shares is above the net asset value, participants in the Plan will
receive shares of the Fund at less than they could otherwise purchase them
and will have shares with a cash value greater than the value of any cash
distribution they would have received on their shares. If the market price plus
commissions is below the net asset value, participants will receive
distributions
37
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
in shares with a net asset value greater than the value of any cash distribution
they would have received on their shares. However, there may be insufficient
shares available in the market to make distributions in shares at prices below
the net asset value. Also, since the Fund does not redeem its shares, the price
on resale may be more or less than the net asset value.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants in the Plan; however, the Fund reserves the right
to amend the Plan to include a service charge payable by the participants.
All correspondence concerning the Plan should be directed to the Plan Agent at
PFPC Inc., P.O. Box 43027, Providence, RI 02940-3027, Attn: Closed-End
Department.
FEDERAL TAX INFORMATION (UNAUDITED)
Information for Federal income tax purposes is presented as an aid to
shareholders in reporting the dividend distributions for the six months ended
May 31, 2004.
ADDITIONAL INFORMATION (UNAUDITED)
During the period, there have been no material changes in the Fund's investment
objective or fundamental policies that have not been approved by the
shareholders. There have been no changes in the Fund's charter or By-Laws that
would delay or prevent a change in control of the Fund which have not been
approved by the shareholders. There have been no changes in the principal risk
factors associated with investment in the Fund.
EFFECTS OF LEVERAGE (UNAUDITED)
Leverage of $60 million in commercial paper was initially sold by the Fund on
July 28, 1999. Through May 31, 2004, interest paid on the commercial paper
outstanding ranged from 1.17% to 1.22%. As of May 31, 2004, the Fund had $25
million outstanding at 1.17% per annum maturing on July 6, 2004, and $30 million
at 1.22% per annum maturing on August 3, 2004. All interest rates include fees
due to the broker-dealer. The Fund must experience an annual return of 0.35% to
cover interest payments on the commercial paper.
The following table explains the potential effects of leverage on the equity
returns of common shareholders:
Assumed return on portfolio
(net of expenses) -10.00% -5.00% 0.00% 5.00% 10.00%
Corresponding return to common
stockholder -14.33% -7.40% -0.48% 6.44% 13.37%
38
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
Assumes $130 million assets attributable to common shareholders; $50 million
aggregate leverage with an average interest rate of 1.25%. All figures appearing
above are hypothetical returns generated to assist investors in understanding
the effects of leverage. Actual returns may be greater or less than those
appearing in the table.
HOW TO OBTAIN A COPY OF THE FUND'S PROXY VOTING POLICIES
A description of the policies and procedures that are used by the Fund's
investment adviser to vote proxies relating to the Fund's portfolio securities
is available (i) without charge, upon request, by calling the Fund toll-free at
(866) 585-6552; (ii) on the Fund's website at www.chartwellip.com; and (iii) on
the SEC's website at http://www.sec.gov. In addition, the Fund will be required
to file new Form N-PX, with its complete proxy voting record for the 12 months
ended June 30th, no later than August 31st of each year. The first such filing
is due no later than August 31, 2004, for the twelve months ended June 30, 2004.
Once filed, the Fund's Form N-PX filing will be available (i) without charge,
upon request, by calling the Fund toll-free at (866) 585-6552, (ii) on the
Fund's website at www.chartwellip.com; and (iii) on the SEC's website at
www.sec.gov.
SUPPLEMENTAL PROXY INFORMATION (UNAUDITED)
The Annual Meeting of Shareholders of the Chartwell Dividend and Income Fund,
Inc. was held on April 21, 2004 at the offices of PFPC Inc., 103 Bellevue
Parkway, Wilmington, Delaware. The description of the proposal and number of
shares voted at the meeting are as follows:
--------------------------------------------------------------------------------
VOTES VOTES VOTES
FOR AGAINST WITHHELD
--------------------------------------------------------------------------------
To elect the following
director to serve as a Class II
director for a three-year
term expiring in 2007: Bernard P. Schaffer 12,432,781 -- 132,719
Directors whose term of office continues beyond this meeting are Winthrop S.
Jessup, Kenneth f. herlihy, George W. Grosz and C. Warren Ormerod.
39
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2004
--------------------------------------------------------------------------------
DIRECTORS
Winthrop S. Jessup, Chairman
George W. Grosz
Kenneth F. Herlihy
C. Warren Ormerod
Bernard P. Schaffer
OFFICERS
Winthrop S. Jessup, President
G. Gregory Hagar, Treasurer and Chief Financial Officer
Bernard P. Schaffer, Vice President
Kevin A. Melich, Vice President
Timothy J. Riddle, Vice President
Andrew S. Toburen, Vice President
Michael P. Malloy, Secretary
Maria E. Pollack, Assistant Secretary
INVESTMENT MANAGER
Chartwell Investment Partners, L.P.
1235 Westlakes Drive, Suite 400
Berwyn, PA 19312
ADMINISTRATOR
SEI Investments Global Funds Services
One Freedom Valley Drive
Oaks, PA 19456
CUSTODIAN
Wachovia Bank, N.A.
125 South Broad Street
Philadelphia, PA 19109
TRANSFER AGENT
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
Two Commerce Square, Suite 1700
2001 Market Street
Philadelphia, PA 19103-7042
LEGAL COUNSEL
Drinker Biddle & Reath LLP
One Logan Square
18th & Cherry Streets
Philadelphia, PA 19103
This report, including the financial statements herein, is transmitted to the
shareholders of Chartwell Dividend and Income Fund, Inc. It is not a prospectus,
circular or representation intended for use in the purchase of shares of the
Fund or any securities mentioned in the report. Past performance results should
not be considered a representation of future performance. Statements and other
information contained in this report are as dated and are subject to change.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase, from time to time, shares of its
common stock in the open market.
Item 2. Code of Ethics.
Not applicable for semi-annual report.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual report.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual report.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual report.
Item 6. Schedule of Investments
Form N-CSR disclosure requirement not yet effective with respect to registrant.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semi-annual report
Item 8. Purchasers of Equity Securities by Closed-End Management Company and
Affiliated Purchasers.
Form N-CSR disclosure requirement not yet effective with respect to registrant.
Item 9. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the Fund's Board of Directors since the Fund last provided
disclosure in response to the requirements of Item 7(d)(2)(ii)(G) of Schedule
14A in its proxy statement filed with the Commission on March 22, 2004.
Item 10. Controls and Procedures.
(a) The certifying officers, whose certifications are included herewith, have
evaluated the registrant's disclosure controls and procedures within 90 days of
the filing date of this report. In their opinion, based on their evaluation, the
registrant's disclosure controls and procedures are adequately designed, and are
operating effectively to ensure, that information required to be disclosed by
the registrant in the reports it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
(b) There were no significant changes in the registrant's internal controls or
in other factors that could affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Items 11. Exhibits.
(a)(1) Not applicable for semi-annual report.
(a)(2) A separate certification for the principal executive officer and the
principal financial officer of the registrant as required by Rule 30a-2(a) under
the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(a)), are filed
herewith.
(b) Officer certifications as required by Rule 30a-2(b) under the Investment
Company Act of 1940, as amended (17 CFR 270.30a-2(b)) also accompany this filing
as an Exhibit.
--------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Chartwell Dividend and Income Fund, Inc.
By (Signature and Title)* /s/ Winthrop S. Jessup
----------------------
Winthrop S. Jessup, President
(Principal Executive Officer)
Date: 07/30/04
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Winthrop S. Jessup
----------------------
Winthrop S. Jessup, President
(Principal Executive Officer)
Date: 07/30/04
By (Signature and Title)* /s/ G. Gregory Hagar
---------------------
G. Gregory Hagar, Vice President and CFO
(Principal Financial Officer)
Date: 07/30/04
* Print the name and title of each signing officer under his or her signature.