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)
--------
1235 Westlakes Drive, Suite 400
Berwyn, PA 19312
(Address of principal executive offices) (Zip code)
PNC Bank, National Association
400 Bellevue Parkway
Wilmington, DE 19809
Attn: Closed-End Department
(Name and address of agent for service)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 1-610-296-1400
DATE OF FISCAL YEAR END: NOVEMBER 30, 2008
DATE OF REPORTING PERIOD: MAY 31, 2008
ITEM 1. REPORTS TO STOCKHOLDERS.
(GRAPHIC)
CHARTWELL DIVIDEND AND INCOME FUND, INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS
DATED MAY 31, 2008
(CHARTWELL INVESTMENT PARTNERS LOGO)
WWW.CHARTWELLIP.COM
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
INVESTMENT OBJECTIVES & STRATEGY (UNAUDITED)
The Chartwell Dividend and Income Fund's (the "Fund") primary investment
objective is to seek high current income. Capital appreciation is a secondary
objective. The Fund will seek to achieve its objectives by investing, under
normal circumstances, at least 50% of its total assets in income generating
equity securities, including dividend paying common stocks, convertible
securities, preferred stocks and other equity-related securities. In addition,
the Fund may invest the balance of its total assets in non-convertible debt
securities, consisting primarily of corporate bonds. The Fund attempts to
minimize individual security risk by diversifying across many industries and
asset classes. The Fund is a closed-end management investment company which
trades on the New York Stock Exchange under the symbol CWF.
COMMON STOCK
The Fund invests in the common stocks of utility companies, Real Estate
Investment Trusts (REITs) and other industrial and financial companies as well
as other equity securities. Both utilities and REITs tend to offer a premium
dividend yield with steady growth that can lead to capital appreciation.
Industrial and financial stocks are primarily purchased for capital appreciation
based on the fundamental value of the underlying company.
HIGH-YIELD CORPORATE BONDS
High-yield bonds are non-investment grade corporate debt obligations rated "Ba1"
or lower by Moody's Investors Service, Inc. or "BB+" or lower by Standard and
Poor's Ratings Group; they typically have a higher risk level than
investment-grade bonds. These securities have historically compensated investors
with higher levels of income for that risk. Prices usually are less sensitive to
interest rate fluctuations than higher rated bonds because of the high income
levels. However, the prices of these bonds are more sensitive to changes in the
economy.
CONVERTIBLE SECURITIES
The Fund can invest in both convertible preferred stock and convertible bonds.
Both pay fixed rates of income, but because they can be converted into common
stock, they are indirectly tied to the common stock's performance. As a result,
convertible securities generally offer higher income than common stocks and an
opportunity for price appreciation when the value of the underlying security
rises. The Fund buys convertibles when the underlying common stock offers strong
growth potential as well.
2
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
(UNAUDITED)
COVERED CALL OPTIONS
The Fund is permitted to write (i.e., sell) covered call options on equity
securities (including Exchange Traded Funds) or on stock indexes. The Fund may
cover call options by: (i) owning the same security or, in the case of options
on a stock index, a portfolio of stock substantially replicating the movement of
the index underlying the call option until the option is exercised or expires;
(ii) segregating cash or other liquid assets with the Fund's Custodian in an
amount equal to the current market value of the call option; or (iii) other
methods consistent with applicable laws, rules and regulations.
The writing of call options involves some investment analysis and risks that are
different from those associated with securities transactions in common stocks.
Options can seek to enhance return through price appreciation of the option,
increase income, hedge to reduce overall portfolio risk, and/or hedge to reduce
individual security risk. Writing options to seek to increase income in the Fund
involves the risk of net loss (after receiving the option premium) if the
investment adviser is incorrect in its expectation of the direction or magnitude
of the change in securities prices. The successful use of options for hedging
purposes also depends in part on the degree of correlation between the option
and a security or index of securities. If the investment adviser is incorrect in
its expectation of changes in securities prices or its estimation of the
correlation between the option and a security index, the investment performance
of the Fund will be less favorable than it would have been in the absence of
such options transactions. The use of options may increase the Fund's portfolio
turnover rate and, therefore, associated brokerage commissions.
3
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
DEAR SHAREHOLDERS (UNAUDITED),
Stock and bond market performance for the six months ended May 31, 2008 was
disappointing. The S&P 500 Index returned -4.47% and the Merrill Lynch High
Yield Cash Pay Index returned 1.77%, while for the same period, the Chartwell
Dividend and Income Fund's (CWF) total market return, including reinvested
dividends, was 3.57% and the Net Asset Value (NAV) return was -6.47%, also
including the reinvestment of dividends. These results are discussed in greater
detail later in this report.
While we were disappointed with the performance of the Fund during this period,
the options writing strategy on the common stock portfolio has been a positive
contributor to the Fund. Our ability to sell options on shares that were held by
the Fund enabled us to take advantage of options premiums that are historically
high due to the volatility in the market. In addition, through various
transactions made during the period, we believe we strengthened the overall
portfolio given the level of uncertainty in the markets and the economy. Some of
these changes are discussed in the Equity and Fixed Income sections which appear
later in this report.
The first six months of the Fund's fiscal year saw continued turmoil in both the
economy and the markets. Housing activity and house prices continued to fall,
banks and brokerages took billions more in charges on various investments and
loans, lenders continued to tighten lending standards, the price of oil and many
commodities rose sharply from already high levels and the unemployment rate
increased. Towards the end of the six month period, several members of the Fed
commented about the risk of higher inflation. This in turn pushed up long term
interest rates. All of this occurred in the first six months of this fiscal
year, as well as the "failure" of an 80 year old major brokerage house.
Supporting the market and the economy were the lowering of the federal funds
target rate from 4.5% to 2.0%, the extra liquidity the Fed provided to various
institutions, profit growth in several non-financial sectors, rising export
growth due to the falling dollar and stock valuations that, when viewed against
the benchmark Treasuries appeared to be reasonable. We expect continued
volatility in stock and bond prices as market participants continuously evaluate
the myriad issues facing the US economy -- bidding the markets higher as they
perceive an end to the crises and bidding the markets lower as they perceive
increasing risks of recession or inflation.
4
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
(UNAUDITED)
We will continue to closely watch the economy and the markets and will endeavor
to adjust in the Fund's portfolio as circumstances warrant.
Please read the equity and fixed income commentary for more information and
analysis.
THE ABOVE COMMENTARY REPRESENTS MANAGEMENT'S ASSESSMENT OF THE FUND AND MARKET
ENVIRONMENT AT A SPECIFIC POINT IN TIME AND SHOULD NOT BE RELIED UPON BY THE
READER AS RESEARCH OR INVESTMENT ADVICE.
Sincerely,
/s/ Winthrop S. Jessup
Winthrop S. Jessup
CHAIRMAN
CHARTWELL DIVIDEND AND INCOME FUND
/s/ Bernard P. Schaffer /s/ Andrew S. Toburen
Bernard P. Schaffer Andrew S. Toburen
PORTFOLIO MANAGER PORTFOLIO MANAGER
PORTFOLIO MANAGEMENT TEAM
Bernard P. Schaffer Andrew S. Toburen
PORTFOLIO MANAGER PORTFOLIO MANAGER
EQUITY FIXED INCOME
Paul Matlack Christine F. Williams
PORTFOLIO MANAGER PORTFOLIO MANAGER
FIXED INCOME FIXED INCOME
5
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
(UNAUDITED)
HOW DID THE FUND PERFORM DURING THE SIX MONTH PERIOD ENDED MAY 31, 2008?
For the six month period ended May 31, 2008, the Fund's market return was 3.57%
including dividends reinvested. The Fund's net asset value (NAV) return
including dividends reinvested was -6.47%. The market, as measured by the S&P
500 Index, declined 4.47% (including dividends) for the period after recovering
from its lows in mid-March when it was down 14.1% on a price only basis.
The Merrill Lynch High Yield Cash Pay Index returned 1.77% for the six month
period ended May 31, 2008. High yield returns outpaced both the 10-year Treasury
and investment grade corporate bonds, which returned 0.96% and -0.49%,
respectively. As mortgage related losses mounted, many broker-dealers and
commercial banks raised equity capital and crimped incremental lending capacity
to de-leverage their balance sheets. Economic growth slowed, and the elevated
levels of volatility experienced in late 2007 persisted in the first part of
2008. The yield on the 10-year Treasury increased 0.08% to 4.05% during the
first half of the fiscal year, while the yield on the overall high yield market
increased 0.67% to finish at 10.12%. After peaking at 7.81% on March 17th, the
high yield market's spread to Treasury (or risk premium) ended the period at
6.07%.
HIGH YIELD SPREAD VS. DEFAULT RATES
(Source: Merill Lynch, Bloomberg)
(PERFORMANCE GRAPH)
Basis Points
----------------
Spread Default
------ -------
May-98 293 269
Jun-98 350 296
Jul-98 351 280
Aug-98 502 269
Sep-98 573 262
Oct-98 613 266
Nov-98 530 280
Dec-98 555 341
Jan-99 550 349
Feb-99 507 359
Mar-99 510 382
Apr-99 464 420
May-99 467 480
Jun-99 465 485
Jul-99 444 532
Aug-99 465 552
Sep-99 489 584
Oct-99 499 597
Nov-99 470 585
Dec-99 453 556
Jan-00 461 553
Feb-00 496 553
Mar-00 584 567
Apr-00 596 567
May-00 618 540
Jun-00 615 555
Jul-00 617 496
Aug-00 641 521
Sep-00 664 531
Oct-00 757 496
Nov-00 874 544
Dec-00 881 615
Jan-01 739 669
Feb-01 729 709
Mar-01 760 784
Apr-01 739 803
May-01 703 809
Jun-01 739 829
Jul-01 745 890
Aug-01 731 937
Sep-01 914 971
Oct-01 865 1019
Nov-01 752 1022
Dec-01 734 1060
Jan-02 697 1089
Feb-02 722 1073
Mar-02 621 1060
Apr-02 601 1057
May-02 643 1070
Jun-02 781 1054
Jul-02 874 1033
Aug-02 882 1002
Sep-02 966 978
Oct-02 974 929
Nov-02 800 894
Dec-02 802 843
Jan-03 747 768
Feb-03 757 771
Mar-03 696 698
Apr-03 576 679
May-03 614 663
Jun-03 554 614
Jul-03 488 587
Aug-03 477 619
Sep-03 483 603
Oct-03 415 607
Nov-03 401 550
Dec-03 368 531
Jan-04 360 517
Feb-04 381 442
Mar-04 392 427
Apr-04 351 403
May-04 383 365
Jun-04 371 349
Jul-04 369 293
Aug-04 381 234
Sep-04 372 234
Oct-04 355 242
Nov-04 310 247
Dec-04 314 241
Jan-05 341 219
Feb-05 305 249
Mar-05 360 229
Apr-05 423 220
May-05 423 218
Jun-05 404 192
Jul-05 354 191
Aug-05 390 203
Sep-05 378 197
Oct-05 381 195
Nov-05 394 178
Dec-05 399 167
Jan-06 368 171
Feb-06 369 159
Mar-06 339 158
Apr-06 318 151
May-06 330 173
Jun-06 351 179
Jul-06 359 172
Aug-06 369 166
Sep-06 365 171
Oct-06 353 181
Nov-06 347 190
Dec-06 318 174
Jan-07 300 177
Feb-07 311 176
Mar-07 312 159
Apr-07 303 162
May-07 276 151
Jun-07 312 145
Jul-07 422 154
Aug-07 451 144
Sep-07 410 129
Oct-07 429 107
Nov-07 548 92
Dec-07 561 96
Jan-08 640 115
Feb-08 697 128
Mar-08 745 146
Apr-08 635 174
May-08 607 196
NET % OF CREDITORS TIGHTENING STANDARDS FOR C&I LOANS
(source: Federal Reserve)
(PERFORMANCE GRAPH)
Apr-90 Apr-92 Apr-94 Apr-96 Apr-98 Apr-00 Apr-02 Apr-04 Apr-06 Apr-08
------ ------- ------- ------ ------ ------ ------ ------- ------- ------
56.90% 5.25% -12.95% -3.45% -7% 5.40% 40.40% 8.90% -23.60% 0%
39.45% 0.90% -12.20% 6.95% 1.80% 9.10% 50.90% 3.50% -24.10% 0%
48.90% -1.70% -6.95% -0.90% -7.10% 10.90% 45.40% 0% -16.70% -3.70%
36% 4.35% -17.40% -3.70% 0% 24.60% 25% -17.90% -8.80% 7.50%
15.50% 2.65% -6.85% -7.80% 36.40% 33.90% 23.20% -23.20% -10.70% 19.20%
12.25% -7.85% -5.90% -5.45% 7.40% 43.80% 20% -20% -12.30% 32.20%
9% -19.45% -6.05% -6.95% 10% 59.70% 22% -21.10% -8.90% 55.40%
-17.75% -5.70% 50.90%
6
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
(UNAUDITED)
WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
The equity portion of the Fund returned a -8.80% due to several factors. As can
be seen below, only three sectors of the S&P 500 had positive returns during the
period - two of them were in the commodity groups - Energy and Basic Materials.
The Fund held a large position in the Energy sector during the period which was
beneficial, however, the stocks held in the portfolio did not perform as well as
the sector, which had strong performance from the lower-yielding equities in the
group. Relative performance was helped by our underweight in the Healthcare
sector, which underperformed the S&P 500. In addition, our stock selection in
the Financials sector was strong as the holdings in the portfolio performed
significantly better than those in the Index. Negative relative contributions
came mostly from the overweight in the Financials sector, as well as stock
selection in the Industrials and Consumer Discretionary sectors.
TOTAL RETURN
Six Months Ended May 31, 2008
(PERFORMANCE GRAPH)
Morgan Merrill Lynch
CWF CWF S&P 500 Stanley High Yield
Equities High Yield Index REIT Index Cash Pay Index
-------- ---------- ------- ---------- --------------
(8.80%) 1.81% (4.47%) 2.78% 1.77%
S&P 500 TOTAL RETURN BY SECTOR
(Six Months Ended May 31, 2008)
(PERFORMANCE GRAPH)
Energy 14.31%
Utilities -1.74%
Telcommunication Services -3.60%
REITS 2.65%
Industrials -2.19%
Basic Materials 8.41%
Consumer Discretionary -6.21%
Financials -19.85%
Consumer Staples -1.92%
Technology -2.77%
Health Care -11.14%
7
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
(UNAUDITED)
The fixed income portion of the Fund returned 1.81% for the period, in line with
the broad high yield market. The Fund's best performing bond positions were in
LEVI STRAUSS, a marketer of branded apparel, and IASIS HEALTHCARE CORPORATION,
an owner of acute-care hospitals. Other positive contributors to performance
included COMPLETE PRODUCTION SERVICES, an oil services company, and GEO GROUP,
an operator of correctional facilities. Financials were the worst performing
industry group in the high yield market, while industries favored for their
relative stability, such as Cable TV and Utilities, outperformed.
HIGH YIELD PERFORMANCE BY INDUSTRY
Six Months Ended May 31, 2008 (Source: Bloomberg)
(PERFORMANCE GRAPH)
Financials -5.70%
Gaming -4.40%
Paper -3.10%
Building Materials -1.00%
CCC INDEX 0.40%
Auto 0.60%
Chemicals 0.60%
BB INDEX 1.50%
HY INDEX 1.80%
B INDEX 2.70%
Telecom 2.90%
Consumer 2.90%
Technology 3.30%
Energy 3.30%
Homebuilding 3.80%
Cable TV 4.00%
Utilities 5.70%
Healthcare 6.30%
Steel 6.40%
DID ANY COMMON STOCKS OR FIXED INCOME HOLDINGS WITHIN THE FUND UNDER-PERFORM
RELATIVE TO YOUR EXPECTATIONS?
A number of our holdings appear to have been affected by the liquidity squeeze
spawned by the Bear Stearns collapse and the sub-prime mortgage debacle. MCG
CAPITAL CORPORATION, ISTAR FINANCIAL, and AIRCASTLE LIMITED were all holdings
which suffered from perceived funding issues during the period. BANK OF AMERICA
CORPORATION, the largest holding in the portfolio, was down sharply in the
period due to the general market disdain of financial stocks and some concerns
on the sustainability of its dividend. We continue to believe that this well run
company is undervalued and that the stock will recover.
The Fund's worst performing bond position during the first half of the fiscal
year was IDEARC, a publisher of telephone directories. Other underperforming
bond positions included BOYD GAMING CORPORATION, a casino operator, and TRONOX
WORLDWIDE, a chemical manufacturer.
8
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
(UNAUDITED)
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE PERIOD?
The equity portion of the portfolio made some sizeable changes during the
period. We reduced the significant overweight in the Financials sector while
increasing the relative exposure of the portfolio to both Energy and
Telecommunications. This was done through the selling of positions in the
Financials sector that we perceived had increasing risks associated with
write-offs and funding (e.g. Wachovia). In addition, we added positions in high
quality franchises (e.g. Bristol-Meyers Squibb Co., AT&T, and Waste Management)
in sectors which we believe are more defensive in nature. We believe these
changes strengthen the portfolio's position as the market continues to move
through uncertain times.
Turnover was low in the fixed income portion of the Fund. Recent bond purchases
included BIO-RAD LABORATORIES, a manufacturer of healthcare diagnostic
equipment, PLAINS EXPLORATION & PRODUCTION, an oil and gas company, and TRIMAS
CORPORATION, a conglomerate manufacturer of industrial and consumer products.
Recent bond sales included BRISTOW GROUP, a helicopter transportation services
company to the oil and gas industry, and RENT-A-CENTER, an operator of
rent-to-own stores.
9
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
(UNAUDITED)
HOW DID THE FUND TRADE RELATIVE TO ITS NET ASSET VALUE (NAV) DURING THE FISCAL
YEAR?
As of May 31, 2008, the Fund was trading at a closing price of $7.13, which is a
slight 1.0% discount to its NAV of $7.18. At November 30, 2007, the Fund was
trading at a closing price of $7.35, a discount of 9.8% to its NAV of $8.16.
Throughout the six month period ended May 31, 2008, the Fund traded between a
1.0% to 11.4% discount to its NAV.
HISTORY OF FUND PRICE, NAV AND PREMIUM
Six Months Ended May 31, 2008
(Source: Bloomberg)
(PERFORMANCE GRAPH)
Date Price NAV
---------- ----- -----
11/30/07 $7.35 $8.15
12/3/07 7.45 8.13
12/4/07 7.40 8.05
12/5/07 7.49 8.12
12/6/07 7.61 8.21
12/7/07 7.58 8.21
12/10/07 7.61 8.29
12/11/07 7.47 8.15
12/12/07 7.43 8.15
12/13/07 7.46 8.11
12/14/07 7.41 8.02
12/17/07 7.31 7.99
12/18/07 7.23 8.00
12/19/07 7.18 8.02
12/20/07 7.09 7.99
12/21/07 7.16 8.08
12/24/07 7.23 8.16
12/25/07 7.23 8.16
12/26/07 7.34 8.14
12/27/07 7.25 8.05
12/28/07 7.25 8.04
12/31/07 7.28 7.98
1/1/08 7.28 7.98
1/2/08 7.27 7.92
1/3/08 7.29 7.92
1/4/08 7.19 7.77
1/7/08 7.18 7.82
1/8/08 7.22 7.69
1/9/08 7.22 7.71
1/10/08 7.30 7.77
1/11/08 7.25 7.68
1/14/08 7.28 7.70
1/15/08 7.16 7.50
1/16/08 7.10 7.50
1/17/08 6.94 7.36
1/18/08 6.83 7.24
1/21/08 6.67 7.24
1/22/08 6.67 7.22
1/23/08 6.80 7.40
1/24/08 7.10 7.43
1/25/08 7.01 7.44
1/28/08 7.11 7.56
1/29/08 7.20 7.66
1/30/08 7.22 7.62
1/31/08 7.28 7.74
2/1/08 7.38 7.80
2/4/08 7.38 7.70
2/5/08 7.28 7.56
2/6/08 7.29 7.50
2/7/08 7.32 7.56
2/8/08 7.41 7.50
2/11/08 7.36 7.50
2/12/08 7.41 7.51
2/13/08 7.35 7.56
2/14/08 7.17 7.48
2/15/08 7.10 7.48
2/18/08 7.10 7.48
2/19/08 7.05 7.42
2/20/08 7.08 7.43
2/21/08 6.97 7.37
2/22/08 7.11 7.39
2/25/08 7.20 7.46
2/26/08 7.28 7.51
2/27/08 7.17 7.51
2/28/08 7.29 7.43
2/29/08 7.12 7.29
3/3/08 7.00 7.20
3/4/08 6.91 7.15
3/5/08 6.86 7.15
3/6/08 6.75 6.98
3/7/08 6.70 6.97
3/10/08 6.61 6.87
3/11/08 6.61 7.07
3/12/08 6.63 6.98
3/13/08 6.54 6.96
3/14/08 6.53 6.85
3/17/08 6.30 6.78
3/18/08 6.22 6.95
3/19/08 6.21 6.87
3/20/08 6.46 6.97
3/21/08 6.46 6.97
3/24/08 6.56 7.08
3/25/08 6.70 7.12
3/26/08 6.76 7.07
3/27/08 6.76 7.03
3/28/08 6.62 6.97
3/31/08 6.58 6.97
4/1/08 6.68 7.07
4/2/08 6.66 7.10
4/3/08 6.65 7.12
4/4/08 6.61 7.11
4/7/08 6.65 7.13
4/8/08 6.65 7.12
4/9/08 6.63 7.04
4/10/08 6.61 7.05
4/11/08 6.65 6.97
4/14/08 6.64 6.95
4/15/08 6.40 6.89
4/16/08 6.49 7.02
4/17/08 6.50 7.05
4/18/08 6.61 7.13
4/21/08 6.66 7.11
4/22/08 6.57 7.07
4/23/08 6.64 7.08
4/24/08 6.69 7.14
4/25/08 6.79 7.19
4/28/08 6.79 7.22
4/29/08 6.82 7.22
4/30/08 6.93 7.21
5/1/08 7.05 7.29
5/2/08 7.09 7.35
5/5/08 7.10 7.34
5/6/08 7.11 7.37
5/7/08 7.13 7.30
5/8/08 7.08 7.29
5/9/08 7.05 7.28
5/12/08 7.03 7.36
5/13/08 7.08 7.34
5/14/08 7.10 7.36
5/15/08 7.10 7.41
5/16/08 7.15 7.40
5/19/08 7.18 7.42
5/20/08 7.12 7.31
5/21/08 7.05 7.25
5/22/08 7.01 7.25
5/23/08 7.02 7.16
5/26/08 7.02 7.16
5/27/08 7.00 7.18
5/28/08 7.04 7.18
5/29/08 7.06 7.23
5/30/08 7.13 7.20
(PERFORMANCE GRAPH)
Date Premium/Discount
---------- ----------------
11/30/07 -9.82%
12/3/07 -8.36%
12/4/07 -8.07%
12/5/07 -7.76%
12/6/07 -7.31%
12/7/07 -7.67%
12/10/07 -8.20%
12/11/07 -8.34%
12/12/07 -8.47%
12/13/07 -7.89%
12/14/07 -7.61%
12/17/07 -8.51%
12/18/07 -9.63%
12/19/07 -10.47%
12/20/07 -11.51%
12/21/07 -11.39%
12/24/07 -11.77%
12/25/07 -11.77%
12/26/07 -9.83%
12/27/07 -9.94%
12/28/07 -9.83%
12/31/07 -8.77%
1/1/08 -8.77%
1/2/08 -8.21%
1/3/08 -7.95%
1/4/08 -7.46%
1/7/08 -8.18%
1/8/08 -6.11%
1/9/08 -6.36%
1/10/08 -6.05%
1/11/08 -5.60%
1/14/08 -5.58%
1/15/08 -4.53%
1/16/08 -5.33%
1/17/08 -5.71%
1/18/08 -5.80%
1/21/08 -5.80%
1/22/08 -7.62%
1/23/08 -7.84%
1/24/08 -4.44%
1/25/08 -5.91%
1/28/08 -5.95%
1/29/08 -6.01%
1/30/08 -5.25%
1/31/08 -5.94%
2/1/08 -5.38%
2/4/08 -4.16%
2/5/08 -3.70%
2/6/08 -2.80%
2/7/08 -3.17%
2/8/08 -1.20%
2/11/08 -1.73%
2/12/08 -1.33%
2/13/08 -2.78%
2/14/08 -4.01%
2/15/08 -5.21%
2/18/08 -5.21%
2/19/08 -4.85%
2/20/08 -4.71%
2/21/08 -5.43%
2/22/08 -3.83%
2/25/08 -3.49%
2/26/08 -3.20%
2/27/08 -4.53%
2/28/08 -1.88%
2/29/08 -2.33%
3/3/08 -2.78%
3/4/08 -3.36%
3/5/08 -4.06%
3/6/08 -3.30%
3/7/08 -3.87%
3/10/08 -3.64%
3/11/08 -6.51%
3/12/08 -5.01%
3/13/08 -6.03%
3/14/08 -4.23%
3/17/08 -7.08%
3/18/08 -10.50%
3/19/08 -9.61%
3/20/08 -7.32%
3/21/08 -7.32%
3/24/08 -7.34%
3/25/08 -5.90%
3/26/08 -4.38%
3/27/08 -3.84%
3/28/08 -5.02%
3/31/08 -5.60%
4/1/08 -5.52%
4/2/08 -6.20%
4/3/08 -6.88%
4/4/08 -6.89%
4/7/08 -6.59%
4/8/08 -6.60%
4/9/08 -5.82%
4/10/08 -6.24%
4/11/08 -4.59%
4/14/08 -4.46%
4/15/08 -7.11%
4/16/08 -7.55%
4/17/08 -7.80%
4/18/08 -7.29%
4/21/08 -6.33%
4/22/08 -7.07%
4/23/08 -6.21%
4/24/08 -6.30%
4/25/08 -5.56%
4/28/08 -5.96%
4/29/08 -5.54%
4/30/08 -3.88%
5/1/08 -3.29%
5/2/08 -3.54%
5/5/08 -3.27%
5/6/08 -3.53%
5/7/08 -2.33%
5/8/08 -2.88%
5/9/08 -3.16%
5/12/08 -4.48%
5/13/08 -3.54%
5/14/08 -3.53%
5/15/08 -4.18%
5/16/08 -3.38%
5/19/08 -3.23%
5/20/08 -2.60%
5/21/08 -2.76%
5/22/08 -3.31%
5/23/08 -1.82%
5/26/08 -1.82%
5/27/08 -2.51%
5/28/08 -1.95%
5/29/08 -2.35%
5/30/08 -1.11%
10
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
(UNAUDITED)
HOW IS THE FUND POSITIONED AT THE CLOSE OF THE PERIOD?
CWF (AS A % OF) TOTAL INVESTMENTS
As of May 31, 2008
(PIE CHART)
Equities 58.4%
Fixed Income 32.9%
Cash 2.8%
Preferred Term Securities 5.9%
As of May 31, 2008, the percentage of the Fund's total investments held in
equities and fixed income was 64% and 33%, respectively. The Fund continues to
be overweight high quality, higher dividend paying securities although with a
more conservative weighting than in the past. In the Equity portion of the
portfolio, securities related to the Financials sector continue to represent the
largest sector allocation, however, we have reduced the Fund's overweight
against the benchmark due to the ongoing issues in the Financials sector. Given
the continued strength in oil and economic headwinds facing the market, the Fund
has large relative weightings when compared to the benchmark in both the Energy
and Telecommunications sectors.
FUND EQUITY ALLOCATION AS A % OF TOTAL INVESTMENTS
(as of May 31, 2008)
(PIE GRAPH)
Equities 58.4%
Preferred Term Securities 5.9%
Fixed Income 32.9%
Cash 2.8%
Consumer Discretionary 1.1%
Consumer Staples 6.8%
Energy 8.0%
Financials 14.9%
Healthcare 3.0%
Industrials 5.8%
REITs 6.0%
Telecom 8.6%
Utilities 4.2%
The fixed income portion of the Fund is overweighted B and BB-rated issues and
underweighted CCC-rated issues. With banks generally tightening their lending
standards and corporate default rates expected to rise, we believe that rigorous
11
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
(UNAUDITED)
FUND FIXED INCOME ALLOCATION AS A % OF TOTAL INVESTMENTS
(as of May 31, 2008)
(PIE CHART)
Automotive 1.0%
Basic Industry 1.6%
Broadcasting 0.8%
Building Materials 0.5%
Cable Television 3.4%
Consumer Products 1.0%
Chemicals 2.7%
Electronic Equip. & Instruments 0.5%
Energy 3.2%
Financial 1.6%
Gaming 1.7%
Healthcare 2.7%
Metals & Mining 1.7%
Paper & Forest Products 1.7%
Publishing 0.4%
Real Estate 0.8%
Retail 2.6%
Services 2.5%
Telecommunications 1.1%
Transportation 0.5%
Utilities 0.9%
Equities 58.4%
Preferred Term Securities 5.9%
Fixed Income 32.9%
Cash 2.8%
company analysis and good credit selection will likely be the primary
determinants of relative performance for the bonds in the Fund over the balance
of the year. The primary goal of the fixed income portion of the Fund is to
contribute a stable stream of income towards the monthly distribution from a
diversified portfolio of high yield bonds.
WHAT ARE THE TOP 10 EQUITY HOLDINGS BY PERCENTAGE OF TOTAL INVESTMENTS?
TOP 10 EQUITIES BY PERCENTAGE OF TOTAL INVESTMENTS
% OF TOTAL
TICKER SECURITY INVESTMENTS YIELD%
------ -------------------------------- ----------- ------
BAC Bank of America Corporation 3.88 7.5
AB AllianceBernstein Holding L.P. 3.07 5.2
PM Philip Morris International Inc. 3.00 3.5
T AT&T Inc. 2.96 4.0
ETP Energy Transfer Partners L.P. 2.76 7.2
USB U.S. Bancorp 2.08 5.1
XOM Exxon Mobil Corp. 2.02 1.8
CSE CapitalSource Inc. 1.93 15.6
OKS ONEOK Partners L.P. 1.78 6.8
PFE Pfizer Inc. 1.77 6.6
12
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
(UNAUDITED)
DEFINITION OF THE COMPARATIVE INDICES
CONSUMER PRICE INDEX is a measure of the average change in prices over time in a
fixed market basket of goods and services.
S&P 500 INDEX is an unmanaged capitalization-weighted index of 500 stocks
designed to measure performance of the broad domestic economy through changes in
the aggregate market value of 500 stocks representing all major industries.
MERRILL LYNCH HIGH YIELD CASH PAY INDEX is an unmanaged index of corporate bonds
that pay cash coupons, meet a minimum size threshold, and have a Merrill Lynch
composite rating lower than BBB3.
MORGAN STANLEY REIT INDEX is an unmanaged total-return index comprised of the
most actively traded real estate investment trusts and is designed to be a
measure of real estate equity performance.
CORRECTION REGARDING ESTIMATED CHARACTER OF DISTRIBUTIONS
Currently, Chartwell Dividend & Income Fund, pays a monthly distribution of
$0.0750 per share pursuant to a fixed managed distribution policy. The Fund is
required to notify its shareholders when a distribution is in excess of net
income determined in accordance with generally accepted accounting principles
(GAAP). Each month the Fund estimates the character of the distribution in a
press release and a notice that is mailed to direct shareholders of record.
The amount of the distribution that is in excess of net income for each of the
monthly distributions paid during the period of December 2007 through June 2008
is currently ESTIMATED TO BE A RETURN OF CAPITAL, and not from net undistributed
profits as previously announced. This revision to the estimated character of
distributions applies to all distributions paid from the beginning of the fiscal
year through June 2008. In total, the Fund paid distributions of $0.5250 (or
$0.0750 per month) from December 2007 through June 2008. During that period, it
is estimated that those distributions are in excess of net income determined in
accordance with GAAP by an ESTIMATED $0.0742 per share.
If it is determined that the distributions in excess are from a source other
than return of capital, a correction shall be made in a later notice or the next
shareholder report after the need for correction is identified. Please do not
use this information to complete your income tax return. Information regarding
the tax treatment of this distribution will be mailed to you in JANUARY 2009.
13
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
UTILIZATION OF LEVERAGE (UNAUDITED)
The Chartwell Dividend and Income Fund, Inc. has utilized leverage through the
issuance of commercial paper. As of May 31, 2008, the Fund had approximately $55
million in leverage outstanding (out of $60 million available) in the form of
commercial paper rated A1/P1 by Moody's Investors Service, Inc./Standard &
Poor's Ratings Group. These ratings should enhance the marketability and reduce
the interest costs associated with the issuance of the commercial paper.
However, it must be noted that the utilization of leverage involves the risk of
lower portfolio returns if the cost of leverage is higher than the resulting
yields on assets or if the Fund experiences capital losses in excess of the
yield spread, if any. Therefore, the addition of leverage also increases the
potential volatility of the Fund. The Fund has the ability to leverage to a
maximum of 33% of the Fund's gross assets.
The Fund utilizes leveraging to seek to enhance the yield and NAV of its common
stock. However, these objectives cannot be achieved in all interest rate
environments. To leverage, the Fund issues commercial paper, which is issued at
a discount equivalent to short-term interest rates, and invests the proceeds in
long-term securities. The interest earned on these investments is paid to common
stock shareholders in the form of dividends, and the value of these portfolio
holdings is reflected in the per share NAV of the Fund's common stock. However,
in order to benefit common stock shareholders, the yield curve must be
positively sloped; that is, short-term interest rates must be lower than
long-term interest rates. At the same time, a period of generally declining
interest rates will benefit common stock shareholders. IF EITHER OF THESE
CONDITIONS CHANGE, THEN THE RISKS OF LEVERAGING WILL BEGIN TO OUTWEIGH THE
BENEFITS.
To illustrate these concepts, assume a fund's common stock capitalization of
$100 million and the issuance of commercial paper for an additional $50 million,
creating a total value of $150 million available for investment in long-term
securities. If prevailing short-term interest rates are approximately 3% and
long-term interest rates are approximately 6%, the yield curve has a strongly
positive slope.
The Fund pays a discount on the $50 million of commercial paper based on the
lower short-term interest rates. At the same time, the Fund's total portfolio of
$150 million earns the income based on long-term interest rates.
In this case, the discount paid to commercial paper holders is significantly
lower than the income earned on the Fund's long-term investments, and therefore
the common stock shareholders are the beneficiaries of the incremental yield.
However, IF SHORT-TERM INTEREST RATES RISE, narrowing the differential between
short-term and long-term interest rates, THE INCREMENTAL YIELD PICK-UP ON THE
COMMON STOCK WILL BE REDUCED OR ELIMINATED COMPLETELY. At the same time, the
market value on the Fund's common stock (that is, its price as listed on the New
York Stock Exchange), may, as a result, decline. Furthermore, IF LONG-TERM
INTEREST RATES RISE, THE COMMON STOCK'S NAV WILL REFLECT THE FULL DECLINE IN THE
PRICE OF THE PORTFOLIO'S INVESTMENTS, SINCE THE VALUE OF THE FUND'S COMMERCIAL
PAPER DOES NOT FLUCTUATE. In addition to the decline in net asset value, the
market value of the Fund's common stock may also decline.
14
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
SCHEDULE OF INVESTMENTS (UNAUDITED)
ASSET CLASS WEIGHTINGS+:
(PERFORMANCE GRAPH)
81.7% Common Stock
8.5% Preferred Term Securities
0.5% Convertible Preferred Stock
2.5% Preferred Stock
47.3% Corporate Notes/Bonds
4.1% Cash Equivalents
+ Percentages are based on total net assets of $121,323,375.
Total Investments including leverage are $175,491,597.
NUMBER OF MARKET
SHARES VALUE
------------ -------------
COMMON STOCK--81.7%
BANKS--10.4%
Bank of America Corporation...................... 200,000 $ 6,802,000
JPMorgan Chase & Company......................... 50,000 2,150,000
US Bancorp....................................... 110,000 3,650,900
-----------
12,602,900
-----------
BASIC INDUSTRY--3.1%
Dow Chemical Company............................. 75,000 3,030,000
Packaging Corp of America........................ 30,000 781,200
-----------
3,811,200
-----------
COMMERCIAL SERVICES & SUPPLIES--0.9%
Waste Management, Inc............................ 30,000 1,137,900
-----------
CONSUMER STAPLES--9.8%
B&G Foods, Inc................................... 41,000 721,600
B&G Foods, Inc., Class A......................... 100,000 972,000
Entercom Communications Corporation, Class A..... 100,000 968,000
Gatehouse Media, Inc............................. 100,000 419,000
Philip Morris International, Inc.*............... 100,000 5,266,000
Regal Entertainment Group, Class A............... 110,000 1,932,700
Reynolds American, Inc........................... 30,000 1,647,600
-----------
11,926,900
-----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
------------ -------------
COMMON STOCK (CONTINUED)
ENERGY--11.6%
Calumet Specialty Products Partners LP (a) ...... 5,000 $ 79,250
Duncan Energy Partners LP (a) ................... 15,000 301,500
Energy Transfer Partners LP (a) ................. 100,000 4,835,000
Enterprise Products Partners LP (a) ............. 40,000 1,210,800
Exxon Mobil Corporation ......................... 40,000 3,550,400
Linn Energy LLC (a) ............................. 7,000 158,690
Occidental Petroleum Corporation ................ 20,000 1,838,600
Sunoco Logistics Partners LP (a) ................ 40,000 2,090,000
-------------
14,064,240
-------------
FINANCIAL--8.8%
AllianceBernstein Holding LP (a) ................ 83,800 5,389,178
American Capital Strategies Limited ............. 47,200 1,510,400
Apollo Investment Corporation ................... 100,000 1,805,000
MCG Capital Corporation ......................... 100,000 573,000
Och-Ziff Capital Management Group LLC, Class A .. 36,095 745,001
Star Asia Financial Limited+ .................... 150,000 663,000
-------------
10,685,579
-------------
HEALTH CARE PROVIDERS & SERVICES--0.9%
Brookdale Senior Living, Inc .................... 40,000 1,055,200
-------------
HEALTHCARE--3.5%
Bristol-Myers Squibb Company .................... 50,000 1,139,500
Pfizer, Inc. .................................... 160,000 3,097,600
-------------
4,237,100
-------------
HOTELS, RESTAURANTS & LEISURE--1.6%
Carnival Corporation ............................ 50,000 2,003,000
-------------
REAL ESTATE INVESTMENT TRUSTS--8.1%
Annaly Capital Management, Inc. ................. 110,000 1,959,100
CapitalSource, Inc. ............................. 220,000 3,379,200
iStar Financial, Inc. ........................... 80,000 1,529,600
Liberty Property Trust .......................... 60,000 2,130,000
MFA Mortgage Investments, Inc. .................. 106,700 775,709
-------------
9,773,609
-------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
------------ -------------
COMMON STOCK (CONTINUED)
TELECOMMUNICATIONS--12.5%
AT&T, Inc. ...................................... 130,000 $ 5,187,000
Citizens Communications Company ................. 200,000 2,332,000
Consolidated Communications Holdings, Inc........ 110,824 1,662,360
Fairpoint Communications, Inc. .................. 200,000 1,800,000
Verizon Communications, Inc. .................... 40,000 1,538,800
Windstream Corporation .......................... 200,000 2,668,000
-------------
15,188,160
-------------
TRADING COMPANIES & DISTRIBUTORS--1.6%
Aircastle Limited ............................... 150,000 1,924,500
-------------
TRANSPORTATION--2.8%
FreeSeas Inc. ................................... 126,949 889,912
General Maritime Corporation .................... 75,000 2,117,250
K-Sea Transportation Partners LP (a) ............ 10,000 348,100
-------------
3,355,262
-------------
UTILITIES--6.1%
Kinder Morgan Energy Partners LP (a) ............ 45,000 2,617,650
ONEOK Partners LP (a) ........................... 50,900 3,122,206
Southern Company ................................ 10,000 362,000
TEPPCO Partners LP (a) .......................... 34,800 1,239,924
-------------
7,341,780
-------------
TOTAL COMMON STOCK (COST $114,221,672) .......... 99,107,330
-------------
PREFERRED TERM SECURITIES+ (d)--8.5%
Alesco Preferred Funding IX, 06/23/36 ........... 10,000 50,000
Alesco Preferred Funding X, 09/23/36 ............ 10,000 50,000
Alesco Preferred Funding XI, 12/23/36 ........... 5,000 175,000
Alesco Preferred Funding XII, 07/15/37 .......... 5,000 150,000
Alesco Preferred Funding XIII, 09/23/37 ......... 2,500 75,000
Alesco Preferred Funding XIV, 03/15/37 .......... 5,000 25,000
Alesco Preferred Funding XV, 12/23/37 ........... 2,500 155,000
Alesco Preferred Funding XVI, 03/23/38 .......... 5,000 200,000
I-Preferred Term Securities IV, 06/24/34 ........ 10,000 790,000
Preferred Term Securities IV, 12/23/31 .......... 20,000 599,800
Preferred Term Securities XIII, 09/23/37 ........ 10,000 740,000
Preferred Term Securities XIV, 06/24/34 ......... 20,000 1,405,000
Preferred Term Securities XV, 09/24/34 .......... 20,000 1,547,600
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
------------ -------------
PREFERRED TERM SECURITIES+ (d) (CONTINUED)
Preferred Term Securities XVI, 03/23/35 ......... 10,000 $ 724,500
Preferred Term Securities XVII, 09/23/35 ........ 6,000 231,540
Preferred Term Securities XVIII, 06/23/35 ....... 10,000 576,700
Preferred Term Securities XIX, 12/22/35 ......... 10,000 595,000
Preferred Term Securities XX, 03/22/38 .......... 10,000 605,000
Preferred Term Securities XXI, 03/22/38 ......... 10,000 577,500
Preferred Term Securities XXII, 03/22/37 ........ 10,000 200,000
Preferred Term Securities XXIII, 12/22/36 ....... 5,000 216,250
Preferred Term Securities XXIV, 03/22/37 ........ 5,000 300,650
Preferred Term Securities XXV, 06/22/37 ......... 5,000 378,750
Taberna Preferred Funding II Limited, 06/30/35 .. 5,000 5,000
-------------
TOTAL PREFERRED TERM SECURITIES
(COST $16,495,651) ........................... 10,373,290
-------------
CONVERTIBLE PREFERRED STOCK--0.5%
FINANCIAL--0.5%
ACE Limited, 7.800% ............................. 26,025 650,625
-------------
TOTAL CONVERTIBLE PREFERRED STOCK
(COST $663,297) .............................. 650,625
-------------
PREFERRED STOCK--2.5%
FINANCIAL--1.8%
Aspen Insurance Holdings Limited ................ 20,000 970,000
Solar Cayman Limited*+ .......................... 80,000 1,208,000
-------------
2,178,000
-------------
REAL ESTATE INVESTMENT TRUSTS--0.7%
FelCor Lodging Trust, Inc ....................... 40,000 815,600
-------------
TOTAL PREFERRED STOCK (COST $3,346,490) ......... 2,993,600
-------------
PRINCIPAL
AMOUNT
------------
CORPORATE NOTES/BONDS--47.3%
AUTOMOTIVE--1.4%
Lear Corporation, Series B
8.750%, 12/01/16 ............................. $ 885,000 807,563
TRW Automotive, Inc.+
7.250%, 03/15/17 ............................. 1,000,000 940,000
-------------
1,747,563
-------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------ -------------
CORPORATE NOTES/BONDS (CONTINUED)
BASIC INDUSTRY--3.2%
Blount, Inc.
8.875%, 08/01/12 ............................. $ 750,000 $ 765,000
H&E Equipment Services, Inc.
8.375%, 07/15/16 ............................. 1,175,000 1,028,125
Lamar Media Corporation
6.625%, 08/15/15 ............................. 1,000,000 947,500
Trimas Corporation
9.875%, 06/15/12 ............................. 1,272,000 1,189,320
-------------
3,929,945
-------------
BROADCASTING--1.1%
Allbritton Communications Company
7.750%, 12/15/12 ............................. 1,315,000 1,324,863
-------------
BUILDING MATERIALS--1.6%
Gibraltar Industries, Inc.
8.000%, 12/01/15 ............................. 1,340,000 1,132,300
WII Components, Inc.
10.000%, 02/15/12 ............................ 1,000,000 855,000
-------------
1,987,300
-------------
CABLE TELEVISION--4.1%
CSC Holdings, Inc.
7.875%, 02/15/18 ............................. 1,285,000 1,233,600
DIRECTV Holdings LLC
6.375%, 06/15/15 ............................. 750,000 715,312
Echostar DBS Corporation
6.625%, 10/01/14 ............................. 1,000,000 945,000
Mediacom Broadband LLC
8.500%, 10/15/15 ............................. 1,250,000 1,140,625
Quebecor Media, Inc.
7.750%, 03/15/16 ............................. 895,000 881,575
-------------
4,916,112
-------------
CHEMICALS--3.9%
Chemtura Corporation
6.875%, 06/01/16 ............................. 1,000,000 935,000
Ineos Group Holdings+
8.500%, 02/15/16 ............................. 820,000 641,650
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------ -------------
CORPORATE NOTES/BONDS (CONTINUED)
CHEMICALS (CONTINUED)
Momentive Performance Materials, Inc.
9.750%, 12/01/14 ............................. $ 1,000,000 $ 932,500
Nova Chemicals Corporation (b)
5.953%, 11/15/13 ............................. 1,300,000 1,124,500
Tronox Worldwide LLC
9.500%, 12/01/12 ............................. 1,285,000 1,047,275
-------------
4,680,925
-------------
CONSUMER PRODUCTS--1.4%
Hanesbrands, Inc. (b)
8.204%, 12/15/14 ............................. 1,025,000 958,375
Levi Strauss & Company
9.750%, 01/15/15 ............................. 675,000 710,438
-------------
1,668,813
-------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.7%
Flextronics International Limited
6.500%, 05/15/13 ............................. 885,000 876,150
-------------
ENERGY--4.7%
Cie Generale de Geophysique
7.750%, 05/15/17 ............................. 1,000,000 1,025,000
Cimarex Energy Company
7.125%, 05/01/17 ............................. 650,000 650,000
Complete Production Services, Inc.
8.000%, 12/15/16 ............................. 780,000 793,650
Copano Energy LLC
8.125%, 03/01/16 ............................. 935,000 965,387
Pioneer Natural Resources Company
6.650%, 03/15/17 ............................. 1,000,000 965,316
Plains Exploration & Production Company
7.625%, 06/01/18 ............................. 1,000,000 1,010,000
Range Resources Corporation
7.500%, 05/15/16 ............................. 250,000 256,250
-------------
5,665,603
-------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------ -------------
CORPORATE NOTES/BONDS (CONTINUED)
FINANCIAL--2.3%
Ford Motor Credit Company LLC
7.000%, 10/01/13 ............................. $ 1,950,000 $ 1,641,588
GMAC LLC
7.000%, 02/01/12 ............................. 1,470,000 1,200,969
-------------
2,842,557
-------------
GAMING--2.4%
Boyd Gaming Corporation
7.125%, 02/01/16 ............................. 1,100,000 866,250
MTR Gaming Group, Inc., Series B
9.750%, 04/01/10 ............................. 520,000 526,500
MTR Gaming Group, Inc.
9.000%, 06/01/12 ............................. 700,000 604,625
Seneca Gaming Corporation
7.250%, 05/01/12 ............................. 1,000,000 970,000
-------------
2,967,375
-------------
HEALTHCARE--3.9%
Bio-Rad Laboratories, Inc.
7.500%, 08/15/13 ............................. 1,000,000 1,015,000
Hanger Orthopedic Group, Inc.
10.250%, 06/01/14 ............................ 1,000,000 1,035,000
HCA Inc.
9.125%, 11/15/14 ............................. 1,000,000 1,047,500
Iasis Healthcare Corporation
8.750%, 06/15/14 ............................. 1,000,000 1,032,500
Omnicare, Inc.
6.875%, 12/15/15 ............................. 650,000 606,125
-------------
4,736,125
-------------
METALS & MINING--1.7%
Freeport-McMoRan Copper & Gold Inc.
8.375%, 04/01/17 ............................. 1,000,000 1,076,690
Steel Dynamics, Inc.
6.750%, 04/01/15 ............................. 945,000 928,463
-------------
2,005,153
-------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------ -------------
CORPORATE NOTES/BONDS (CONTINUED)
PAPER & FOREST PRODUCTS--3.1%
Abitibi-Consolidated, Inc.
8.550%, 08/01/10 ............................. $ 615,000 $ 341,325
Bowater Canada Finance Corporation
7.950%, 11/15/11 ............................. 615,000 433,575
P H Glatfelter
7.125%, 05/01/16 ............................. 1,190,000 1,173,638
U.S. Corrugated
10.000%, 06/01/13 ............................ 1,000,000 750,000
Verso Paper Holdings LLC
11.375%, 08/01/16 ............................ 1,000,000 1,017,500
-------------
3,716,038
-------------
PUBLISHING--0.6%
Idearc, Inc.
8.000%, 11/15/16 ................................ 1,075,000 774,000
-------------
REAL ESTATE MANAGEMENT--1.4%
Corrections Corp of America
7.500%, 05/01/11 ............................. 275,000 278,437
Geo Group, Inc.
8.250%, 07/15/13 ............................. 1,340,000 1,380,200
-------------
1,658,637
-------------
RETAIL--3.2%
Autonation, Inc.
7.000%, 04/15/14 ............................. 1,000,000 951,250
Brown Shoe Company, Inc.
8.750%, 05/01/12 ............................. 1,200,000 1,194,000
Couche-Tard US LP
7.500%, 12/15/13 ............................. 400,000 407,000
Sonic Automotive, Inc., Series B
8.625%, 08/15/13 ............................. 1,390,000 1,355,250
-------------
3,907,500
-------------
SERVICES--3.0%
Allied Security Escrow Corporation
11.375%, 07/15/11 ............................ 1,015,000 867,825
ARAMARK Corporation
8.500%, 02/01/15 ............................. 1,000,000 1,028,750
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
------------ -------------
CORPORATE NOTES/BONDS (CONTINUED)
SERVICES (CONTINUED)
Buhrmann US, Inc.
8.250%, 07/01/14 ............................. $ 620,000 $ 591,325
KAR Holdings, Inc.
8.750%, 05/01/14 ............................. 1,270,000 1,187,450
-------------
3,675,350
-------------
TELECOMMUNICATIONS--1.5%
Cincinnati Bell, Inc.
8.375%, 01/15/14 ............................. 960,000 960,000
Hughes Network Systems LLC
9.500%, 04/15/14 ............................. 855,000 867,825
-------------
1,827,825
-------------
TRANSPORTATION--0.8%
Stena AB
7.500%, 11/01/13 ............................. 950,000 954,750
-------------
UTILITIES--1.3%
Edison Mission Energy
7.000%, 05/15/17 ............................. 650,000 638,625
Elwood Energy LLC
8.159%, 07/05/26 ............................. 959,946 922,412
-------------
1,561,037
-------------
TOTAL CORPORATE NOTES/BONDS (COST $60,318,107) .. 57,423,621
-------------
NUMBER OF
SHARES
------------
CASH EQUIVALENT--4.1%
SEI Daily Income Trust, Prime Obligations Fund,
C1 A shares, 2.460% (c) ...................... 4,943,131 4,943,131
-------------
TOTAL CASH EQUIVALENT (COST $4,943,131) ......... 4,943,131
-------------
TOTAL INVESTMENTS--144.6% (COST $199,988,348) ... 175,491,597
-------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
WRITTEN MARKET
CONTRACTS VALUE
------------ ------------
COVERED CALL OPTIONS WRITTEN--(0.5)%
American Capital Strategies Limited,
Expires: 06/21/08, Strike Price: $35.......... (472) $ (7,080)
Annaly Capital Management, Inc., Expires:
06/21/08, Strike Price: $17.50 ............... (500) (35,000)
AT&T, Inc., Expires: 06/21/08, Strike Price:
$40........................................... (513) (38,475)
AT&T, Inc., Expires: 06/21/08, Strike Price:
$42.50........................................ (787) (7,870)
Bank of America Corporation, Expires: 06/21/08,
Strike Price: $35............................. (2,000) (96,000)
Bristol-Myers Squibb Company, Expires: 06/21/08,
Strike Price: $25............................. (500) (3,500)
Brookdale Senior Living, Inc., Expires: 07/19/08,
Strike Price: $30............................. (400) (11,000)
CapitalSource, Inc., Expires: 06/21/08,
Strike Price: $15............................. (1,100) (60,500)
CapitalSource, Inc., Expires: 07/19/08,
Strike Price: $17.50.......................... (1,100) (27,500)
Consolidated Communications Holdings, Inc.,
Expires: 07/19/08, Strike Price: $17.50....... (1,108) (11,080)
Dow Chemical Company, Expires: 07/19/08,
Strike Price: $45............................. (750) (11,250)
Exxon Mobil Corporation, Expires: 06/21/08,
Strike Price: $95............................. (400) (11,200)
JPMorgan Chase & Company, Expires: 06/21/08,
Strike Price: $47.50.......................... (500) (9,000)
Kinder Morgan Energy Partners LP,
Expires: 07/19/08, Strike Price: $62.50....... (450) (15,750)
Liberty Property Trust, Expires: 07/19/08,
Strike Price: $40............................. (600) (13,500)
Occidental Petroleum Corporation, Expires:
06/21/08, Strike Price: $100.................. (200) (15,000)
Och-Ziff Capital Management Group LLC,
Expires: 06/21/08, Strike Price: $25.......... (360) (4,500)
Packaging Corp of America, Expires: 06/21/08,
Strike Price: $25............................. (300) (37,500)
PHLX Bank Index, Expires: 06/21/08,
Strike Price: $85............................. (1,000) (10,000)
Phillip Morris, Expires: 06/21/08,
Strike Price: $55............................. (1,000) (10,000)
S&P 500 Index, Expires: 06/21/08,
Strike Price: $1,445.......................... (200) (93,800)
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONCLUDED)
WRITTEN MARKET
CONTRACTS VALUE
------------ ------------
COVERED CALL OPTIONS WRITTEN (CONTINUED)
US Bancorp, Expires: 06/21/08,
Strike Price: $35............................. (1,100) $ (14,300)
Verizon Communications, Inc., Expires: 06/21/08,
Strike Price: $40............................. (400) (11,200)
Waste Management, Inc., Expires: 06/21/08,
Strike Price: $37.50.......................... (300) (30,000)
------------
TOTAL COVERED CALL OPTIONS WRITTEN
(PREMIUMS RECEIVED $1,779,739)................ (585,005)
------------
OTHER LIABILITIES IN EXCESS OF OTHER ASSETS--
(44.1)%....................................... (53,583,217)
------------
NET ASSETS--100.0%............................... $121,323,375
============
* Non-income producing security.
+ Securities are exempt from registration under Rule 144A of the Securities
Act normally to qualified institutions. At May 31, 2008, these securities
amounted to $13,825,940 or 11.4% of net assets.
(a) Securities considered Master Limited Partnerships. At May 31, 2008, these
securities amounted to $21,392,298 or 17.6% of net assets.
(b) Variable rate security -- The rate reported on the Schedule of Investments
is the rate in effect at May 31, 2008.
(c) The rate shown is the 7-day effective yield as of May 31, 2008.
(d) Securities are considered illiquid. The total value of such securities as
of May 31, 2008 was $10,373,290 or 8.5% of net assets.
LLC Limited Liability Company
LP Limited Partnership
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
STATEMENT OF ASSETS AND LIABILITIES
AS OF MAY 31, 2008 (UNAUDITED)
ASSETS:
Investments, at value (cost $199,988,348) (Note 1) ................... $ 175,491,597
Cash ................................................................. 17,574
Interest receivable .................................................. 1,402,474
Receivable for securities sold ....................................... 155,500
Dividends receivable ................................................. 112,187
Prepaid expenses and other assets .................................... 60,075
-------------
Total assets ................................................... 177,239,407
-------------
LIABILITIES:
Commercial paper (Note 4) ............................................ 54,943,090
Covered call options written, at value
(premiums received--$1,779,739) (Note 1) .......................... 585,005
Payable for investment management fees (Note 2) ...................... 128,397
Payable for securities purchased ..................................... 46,565
Payable for administration fees (Note 2) ............................. 15,106
Accrued expenses and other liabilities ............................... 197,869
-------------
Total liabilities .............................................. 55,916,032
-------------
NET ASSETS ........................................................... $ 121,323,375
=============
NET ASSETS CONSIST OF:
Common Stock, $0.01 par value (authorized 100,000,000 shares) ..... $ 169,060
Additional paid-in capital ........................................ 185,703,705
Distributions in excess of net investment income .................. (182,349)
Accumulated net realized losses on investments and options ........ (41,065,024)
Net unrealized depreciation on investments and options ............ (23,302,017)
-------------
NET ASSETS ........................................................... $ 121,323,375
=============
NET ASSET VALUE PER SHARE:
$121,323,375 / 16,905,967 shares of Common Stock issued
outstanding .................................................... $ 7.18
=============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED
MAY 31, 2008 (UNAUDITED)
INVESTMENT INCOME:
Dividends ...................................................... $ 5,201,126
Interest ....................................................... 2,572,574
------------
Total investment income .................................. 7,773,700
------------
EXPENSES:
Investment management fees (Note 2) ............................ 859,954
Commercial paper fees .......................................... 137,413
Administration fees (Note 2) ................................... 90,524
Professional fees .............................................. 88,079
Printing and shareholder reports ............................... 45,000
Transfer agent fees ............................................ 20,170
Registration fees .............................................. 13,365
Directors' fees and Custodian fees ............................. 9,692
Insurance fees ................................................. 8,808
Other operating expenses ....................................... 11,845
------------
Total operating expenses .................................... 1,297,631
------------
Interest Expense (Note 4) ...................................... 1,022,368
------------
Total expenses .............................................. 2,319,999
Less: Investment management fees waived (Note 2) ......... (90,497)
------------
Net expenses ............................................. 2,229,502
------------
NET INVESTMENT INCOME .................................... 5,544,198
------------
REALIZED AND UNREALIZED LOSSES ON INVESTMENTS:
Net realized loss on investments ............................... (7,643,142)
Net realized gain on written call options ...................... 3,982,233
Change in net unrealized depreciation
on investments and written call options ..................... (10,906,077)
------------
Net realized and unrealized loss on investments
and written call options .................................... (14,566,986)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ........... $ (9,022,788)
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED
MAY 31, 2008 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net decrease in net assets resulting from operations ........... $ (9,022,788)
Adjustments to reconcile net decrease in net assets resulting
from operations to net cash provided by operating activities:
Purchase of long-term portfolio investments ................. (45,912,225)
Proceeds from sales of long-term portfolio investments ...... 44,942,741
Purchase of short-term portfolio investments ................ (39,682,946)
Proceeds from sales of short-term portfolio investments ..... 36,493,605
Realized gain on written call options ....................... (3,982,233)
Premiums received from options written ...................... 10,652,876
Premiums paid to closed options ............................. (5,342,424)
Amortization of premiums on investments ..................... (381)
Realized losses from security transactions .................. 7,920,318
Change in unrealized depreciation from security
transactions ............................................ 10,906,077
Decrease in interest receivable ............................. 101,148
Decrease in dividends receivable ............................ 89,700
Decrease in receivable for securities sold .................. 246,250
Decrease in prepaid expenses and other assets ............... 45,521
Decrease in payable for securities purchased ................ 46,565
Decrease in payable for investment management fees .......... (6,811)
Decrease in payable for administration fees ................. (801)
Decrease in payable to custodian ............................ (1,268)
Decrease in accrued expenses and other liabilities .......... (20,637)
------------
Net cash provided by operating activities ................ 7,472,287
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Reinvestment of dividends resulting in the issuance
of common stock transactions ................................ (7,607,685)
Increase in commercial paper, at value ......................... 152,972
------------
Net cash used in financing activities .................... (7,454,713)
------------
Net increase in cash ..................................... 17,574
CASH
Cash at beginning of period ....................................... --
------------
Cash at end of period ............................................. $ 17,574
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
MAY 31, 2008 NOVEMBER 30,
(UNAUDITED) 2007
------------ ------------
OPERATIONS:
Net investment income ........................ $ 5,544,198 $ 13,531,811
Net realized loss on investments ............. (7,643,142) (92,556)
Net realized gain on written call options .... 3,982,233 2,171,032
Change in net unrealized depreciation
on investments and written call options ... (10,906,077) (24,015,402)
------------ ------------
Net decrease in net assets resulting
from operations .............................. (9,022,788) (8,405,115)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ........................ (7,607,685) (14,219,577)
Tax return of capital ........................ -- (825,229)
------------ ------------
Net decrease in net assets resulting from
dividends and distributions .................. (7,607,685) (15,044,806)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Reinvestment of dividends resulting in the
issuance of Common Stock transactions ........ -- 790,866
------------ ------------
Total decrease in net assets .................... (16,630,473) (22,659,055)
------------ ------------
NET ASSETS:
Beginning of period .......................... 137,953,848 160,612,903
------------ ------------
End of period
(including distributions in excess of
net investment income $(182,349) and
undistributed net investment
income of $1,881,138, respectively) ....... $121,323,375 $137,953,848
============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
FINANCIAL HIGHLIGHTS
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS
FOR THE
SIX MONTHS FOR THE
ENDED YEAR ENDED
MAY 31, 2008 NOVEMBER 30,
(UNAUDITED) 2007
------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD ........................... $ 8.16 $ 9.55
-------- --------
INCOME/GAIN FROM INVESTMENT OPERATIONS: (1)
Net investment income ....................................... 0.33 0.80
Net realized and unrealized loss on
investment transactions and options ...................... (0.86) (1.30)
-------- --------
Total from investment operations ......................... (0.53) (0.50)
-------- --------
LESS DIVIDENDS:
Dividends from net investment income ........................ (0.45) (0.84)
Tax return of capital ....................................... -- (0.05)
-------- --------
Total dividends .......................................... (0.45) (0.89)
-------- --------
NET ASSET VALUE, END OF PERIOD ................................. $ 7.18 $ 8.16
======== ========
MARKET VALUE, END OF PERIOD .................................... $ 7.13 $ 7.35
======== ========
TOTAL RETURN BASED ON: (2)
Net asset value ............................................. (6.47)% (6.05)%
======== ========
Market value ................................................ 3.57% (17.19)%
======== ========
RATIOS AND SUPPLEMENTAL DATA: (3)
Net assets, end of period (000 omitted) ..................... $121,323 $137,953
======== ========
Total expenses including waiver of fees (5) ................. 2.47% 2.69%
Total expenses excluding waiver of fees (5) ................. 2.57% 2.79%
Total operating expenses including waiver of fees (4) (5) ... 1.19% 1.15%
Total operating expenses excluding waiver of fees (4) (5) ... 1.29% 1.26%
Commercial paper fees and interest expense (5) .............. 1.29% 1.53%
Net investment income including waiver of fees (5) .......... 6.14% 6.33%
Portfolio turnover .......................................... 25% 74%
LEVERAGE ANALYSIS:
Aggregate amount outstanding at end of period
(000 omitted) ............................................ $ 55,000 $ 55,000
Average daily balance of amortized cost of commercial
paper outstanding (000 omitted) .......................... $ 54,791 $ 54,790
Asset coverage per $1,000 at end of period .................. $ 3,892 $ 3,903
----------
(1) Based on average shares outstanding.
(2) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day
of each year reported. Total investment return does not reflect brokerage
commissions. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment returns based on market
value, which can be significantly greater or less than the net asset value,
may result in substantially different returns. Returns do not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or
the sale of Fund shares.
(3) Ratios are stated as a percentage of managed net assets which includes any
liabilities constituting indebtedness in connection with financial
leverage.
(4) Exclusive of commercial paper fees and interest expense.
(5) Annualized.
Amounts designated as "--" are $0 or have been rounded to $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
30
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE YEARS ENDED
NOVEMBER 30,
-------------------
2006 2005
-------- --------
NET ASSET VALUE, BEGINNING OF YEAR ............................. $ 8.65 $ 8.96
-------- --------
INCOME/GAIN FROM INVESTMENT OPERATIONS: (1)
Net investment income ....................................... 0.63 0.61
Net realized and unrealized gain on
investment transactions and options ...................... 1.20 0.08
-------- --------
Total from investment operations ......................... 1.83 0.69
-------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income ........................ (0.93) (0.53)
Distributions in excess ..................................... -- (0.01)
Tax return of capital ....................................... -- (0.46)
-------- --------
Total dividends and distributions ........................ (0.93) (1.00)
-------- --------
NET ASSET VALUE, END OF YEAR ................................... $ 9.55 $ 8.65
======== ========
MARKET VALUE, END OF YEAR ...................................... $ 9.78 $ 10.70
======== ========
TOTAL RETURN BASED ON: (2)
Net asset value ............................................. 22.51% 8.19%
======== ========
Market value ................................................ 0.36% 18.14%
======== ========
RATIOS AND SUPPLEMENTAL DATA: (3)
Net assets, end of year (000 omitted) ....................... $160,613 $144,352
======== ========
Total expenses including waiver of fees ..................... 2.59% 2.90%
Total expenses excluding waiver of fees ..................... 2.68% 3.04%
Total operating expenses including waiver of fees (4) ....... 1.13% 1.59%
Total operating expenses excluding waiver of fees (4) ....... 1.24% 1.73%
Commercial paper fees and interest expense .................. 1.44% 1.31%
Net investment income including waiver of fees .............. 5.07% 7.00%
Portfolio turnover .......................................... 96% 80%
LEVERAGE ANALYSIS:
Aggregate amount outstanding at end of year
(000 omitted) ............................................ $ 55,000 $ 55,000
Average daily balance of amortized cost of commercial
paper outstanding (000 omitted) .......................... $ 54,659 $ 54,794
Asset coverage per $1,000 at end of year .................... $ 3,980 $ 3,679
----------
(1) Based on average shares outstanding.
(2) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day
of each year reported. Total investment return does not reflect brokerage
commissions. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment returns based on market
value, which can be significantly greater or less than the net asset value,
may result in substantially different returns. Returns do not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or
the sale of Fund shares.
(3) Ratios are stated as a percentage of average weekly net assets which
includes any liabilities constituting indebtedness in connection with
financial leverage.
(4) Exclusive of commercial paper fees and interest expense.
Amounts designated as "--" are $0 or have been rounded to $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
31
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
FINANCIAL HIGHLIGHTS (CONCLUDED)
FOR THE YEARS ENDED
NOVEMBER 30,
-------------------
2004 2003
-------- --------
NET ASSET VALUE, BEGINNING OF YEAR ............................. $ 8.52 $ 7.47
-------- --------
INCOME/GAIN FROM INVESTMENT OPERATIONS: (1)
Net investment income ....................................... 0.55 0.60
Net realized and unrealized gain on
investment transactions and options ...................... 0.89 1.45
-------- --------
Total from investment operations ......................... 1.44 2.05
-------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income ........................ (0.54) (0.61)
Distributions in excess ..................................... (0.46) --
Tax return of capital ....................................... -- (0.39)
-------- --------
Total dividends and distributions ........................ (1.00) (1.00)
-------- --------
NET ASSET VALUE, END OF YEAR ................................... $ 8.96 $ 8.52
======== ========
MARKET VALUE, END OF YEAR ...................................... $ 10.03 $ 9.80
======== ========
TOTAL RETURN BASED ON: (2)
Net asset value ............................................. 18.01% 28.96%
======== ========
Market value ................................................ 14.02% 51.57%
======== ========
RATIOS AND SUPPLEMENTAL DATA: (3)
Net assets, end of year (000 omitted) ....................... $148,144 $139,137
======== ========
Total expenses including waiver of fees ..................... 2.26% 2.40%
Total expenses excluding waiver of fees ..................... 2.40% 2.54%
Total operating expenses including waiver of fees (4) ....... 1.57% 1.57%
Total operating expenses excluding waiver of fees (4) ....... 1.71% 1.86%
Commercial paper fees and interest expense .................. 0.69% 0.68%
Net investment income including waiver of fees .............. 6.34% 7.58%
Portfolio turnover .......................................... 99% 99%
LEVERAGE ANALYSIS:
Aggregate amount outstanding at end of year
(000 omitted) ............................................ $ 50,000 $ 50,000
Average daily balance of amortized cost of commercial
paper outstanding (000 omitted) .......................... $ 54,052 $ 49,925
Asset coverage per $1,000 at end of year .................... $ 3,680 $ 3,838
----------
(1) Based on average shares outstanding.
(2) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day
of each year reported. Total investment return does not reflect brokerage
commissions. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment returns based on market
value, which can be significantly greater or less than the net asset value,
may result in substantially different returns. Returns do not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or
the sale of Fund shares.
(3) Ratios are stated as a percentage of average weekly net assets which
includes any liabilities constituting indebtedness in connection with
financial leverage.
(4) Exclusive of commercial paper fees and interest expense.
Amounts designated as "--" are $0 or have been rounded to $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
32
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
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. Investment operations commenced on
June 29, 1998. The Fund's primary investment objective is to seek high current
income. Capital appreciation is a secondary objective.
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States of America.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
SECURITY VALUATION: Investment securities of the Fund that are listed on a
securities exchange, except for debt securities, and for which market quotations
are readily available, are valued at the last quoted sales price at the close of
trading on the New York Stock Exchange (normally 4:00 p.m., Eastern Time).
Investment securities of the Fund that are quoted on the NASDAQ market system
are valued at the official closing price, or if there is none, at the last sales
price. If there is no reported sale, these securities and unlisted securities
for which market quotations are not readily available are valued at last bid
price. Debt securities are priced based upon valuations provided by independent,
third-party pricing agents, if available. Such values generally reflect the last
reported sales price if the security is actively traded. The third-party pricing
agents may also value debt securities at an evaluated bid price by employing
methodologies that utilize actual market transactions, broker-supplied
valuations, or other methodologies designed to identify the market value for
such securities. Debt obligations with remaining maturities of sixty days or
less may be valued at their amortized cost, which approximates market value.
Prices for most securities held in the Fund are provided daily by recognized
independent pricing agents. If a security price cannot be obtained from an
independent, third-party pricing agent, the Fund seeks to obtain a bid price
from at least one independent broker. All securities and assets for which
quotations are not readily available, of which there were none as of May 31,
2008, are valued in accordance with Fair Value Procedures established by the
Board of Directors (the "Board"). The Fund's Fair Value Procedures are
implemented through a Fair Value Committee (the "Committee") designated by
33
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
the Fund's Board. Some of the more common reasons that may necessitate that a
security be valued using Fair Value Procedures include, among other things: the
security's trading has been halted or suspended; the security has been de-listed
from a national exchange; the security's primary trading market is temporarily
closed at a time when under normal conditions it would be open; or the
security's primary pricing source is not able or willing to provide a price.
When a security is valued in accordance with the Fair Value Procedures, the
Committee will determine the value after taking into consideration relevant
information reasonably available to the Committee.
Financial Accounting Standards Board (FASB) STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS (SFAS) No. 157 is effective for the Fund's financial statements issued
after December 1, 2007. SFAS No. 157 defines fair value, establishes a fair
value hierarchy and specifies that a valuation technique used to measure fair
value shall maximize the use of observable inputs and minimize the use of
unobservable inputs. The objective of a fair value measurement is to determine
the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (an exit price). Accordingly, the fair value hierarchy gives
the highest priority to quoted prices (unadjusted) in active markets for
identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). The three levels of the fair value hierarchy
under SFAS No. 157 are described below:
- Level 1 -- Unadjusted quoted prices in active markets for identical,
unrestricted assets or liabilities that the Fund has the ability to
access at the measurement date;
- Level 2 -- Quoted prices which are not active, quoted prices for
similar assets or liabilities in active markets or inputs other than
quoted prices that are observable (either directly or indirectly) for
substantially the full term of the asset or liability; and
- Level 3 -- Significant unobservable prices or inputs (including the
Fund's own assumptions in determining the fair value of investments)
where there is little or no market activity for the asset or liability
at the measurement date.
As required by SFAS No.157, investments are classified within the level of the
lowest significant input considered in determining fair value. Investments
classified within Level 3 whose fair value measurement considers several inputs
and may include Level 1 or Level 2 inputs as components of the overall fair
value measurement. The following table sets forth information about the level
34
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
within the fair value hierarchy at which the Fund's investments are measured at
May 31, 2008:
INVESTMENTS IN OTHER FINANCIAL
VALUATION INPUTS SECURITIES INSTRUMENTS*
---------------- -------------- ---------------
Level 1 $107,558,187 $(585,005)
Level 2 55,663,620 --
Level 3 12,269,790 --
------------ ---------
TOTAL $175,491,597 $(585,005)
============ =========
* OTHER FINANCIAL INSTRUMENTS ARE WRITTEN COVERED CALL OPTIONS.
The following is a reconciliation of the investments in which significant
unobservable inputs (Level 3) were used in determining value:
INVESTMENTS IN
SECURITIES
--------------
BALANCE AS OF 11/30/07 $17,320,680
Realized gain/(loss) (1,676,077)
Change in unrealized appreciation/(depreciation) (2,330,913)
Net purchase/(sales) (267,800)
Net transfers in and/or out of Level 3 (776,100)
-----------
BALANCE AS OF 5/31/08 $12,269,790
===========
The inputs or methodology used for valuing securities are not necessarily an
indication of the risks associated with investing in those securities.
CASH AND CASH EQUIVALENTS: Idle cash is swept into various money market funds
and is classified as cash equivalents on the Schedule of Investments. Amounts
invested are generally available on the same business day.
WRITTEN OPTIONS: When the Fund writes a covered call option, an amount equal to
the premium received by the Fund is included in the Fund's Statement of Assets
and Liabilities as a liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option written.
When a covered written call option expires on its stipulated expiration date, or
if the Fund enters into a closing purchase transaction, the Fund will realize a
gain (or loss if the cost of the closing purchase transaction exceeds the
premium received when the call option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option will be extinguished. When a covered written call option is
exercised, the Fund will realize a gain or loss from the sale of the underlying
security and the proceeds of the sale are increased by the premium originally
received. The Fund, as writer of an option, has no control over whether the
underlying securities may be sold (called) and as a result bears the market risk
of an unfavorable change in the price of the securities underlying the written
option.
35
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
DIVIDENDS AND DISTRIBUTIONS: The Fund will declare and pay dividends to
shareholders on a monthly basis. Net long-term capital gains, if any, in excess
of capital loss carryforwards are distributed to shareholders annually.
Dividends from net investment income and capital gain distributions, if any, are
determined in accordance with U.S. Federal income tax regulations, which may
differ from generally accepted accounting principles. Dividends and
distributions, if any, to shareholders are recorded on the ex-dividend date.
The Fund currently intends to distribute a monthly fixed amount to shareholders.
The Fund's final distribution for each calendar year may exceed that amount,
however, to the extent necessary for the Fund to have distributed all of its net
investment company taxable income and net capital gains recognized during the
year, if any. If, for any calendar year, the total distributions exceed current
and accumulated earnings and profit, the excess, distributed from the Fund's
assets, will generally be treated as a tax-free return of capital and will
result in a reduction in the shareholder's basis. The Board reserves the right
to change the aforementioned dividend policy from time to time.
BORROWINGS: The Fund issues short-term commercial paper at a discount from par.
The discount is amortized to interest expense over the life of the commercial
paper using the straight-line method.
ILLIQUID SECURITIES: A security is considered illiquid if it cannot be sold or
disposed of in the ordinary course of business within seven days or less for its
approximate carrying value on the books of the Fund. Valuations of illiquid
securities may differ significantly from the values that would have been used
had an active market value for these securities existed.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are recorded
on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis. The Fund accretes original issue discount on securities
using the effective interest method.
INVESTMENTS IN REAL ESTATE INVESTMENT TRUSTS ("REITS"): With respect to the
Fund, dividend income is recorded based on the income included in distributions
received from the REIT investments using published REIT reclassifications
including some management estimates when actual amounts are not available.
Distributions received in excess of this estimated amount are recorded as a
reduction of the cost of investments or reclassified to capital gains. The
actual amounts of income, return of capital, and capital gains are only
determined by each REIT after its fiscal year-end, and may differ from the
estimated amounts.
36
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
INVESTMENTS IN PREFERRED TERM SECURITIES ("PTSS"): The Fund invests in Preferred
Term Securities, a type of collateralized debt obligation ("CDO"). A PTS is a
trust collateralized by a pool of capital securities of affiliated holding
corporations, typically of, but not limited to, smaller to medium sized banks
and insurance companies.
The income tranche of these securities, owned by the Fund, receives residual
cash disbursements after the senior tranches are paid a stated rate of interest.
Dividend income from these securities is recorded based on anticipated cash
flows and the internal rate of return of each PTS. Distributions received in
excess of this estimated amount are recorded as a reduction of the cost of
investments or reclassified to capital gains. The actual amounts of income,
return of capital, and capital gains are only determined by each PTS quarterly,
and may differ from the estimated amounts.
In addition to the normal risks associated with fixed income securities (e.g.,
interest rate risk and default risk), PTSs carry additional risks including, but
are not limited to: (i) the possibility that distributions from collateral
securities will not be adequate to make interest or other payments; (ii) the
quality of the collateral may decline in value or default; (iii) the Fund may
invest in PTSs that are subordinate to other classes; and (iv) the complex
structure of the security may produce disputes with the issuer or unexpected
investment results.
NOTE 2. INVESTMENT MANAGEMENT, ADMINISTRATION, CUSTODIAN AGREEMENTS AND OTHER
TRANSACTIONS WITH AFFILIATES
The Fund has entered into an investment management agreement with the Manager.
The Manager manages the Fund's portfolio and makes investment decisions. For
these services, the Fund pays the Manager a monthly fee at an annual rate of
0.95% of the Fund's Managed Assets. "Managed Assets" are the average weekly
value of the Fund's total assets minus the sum of the Fund's liabilities,
excluding debt related to leveraging, short-term debt and the aggregate
liquidation preference of any outstanding preferred stock. The Manager has
agreed to limit the investment management fee paid to it by the Fund to 0.85% of
the Fund's Managed Assets. This waiver is voluntary and may be changed at any
time.
The Fund has entered into an administration agreement with SEI Investments
Global Funds Services (the "Administrator"). Under such agreement, the
Administrator performs or arranges for the performance of certain administrative
services necessary for the operation of the Fund. The Fund pays a fee to the
Administrator based on the Fund's Managed Assets according to the following
rates: 0.10% on the first $250 million of such Managed Assets and 0.09% on such
Managed Assets in excess of $250 million, subject to a minimum annual fee of
$180,000.
37
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
Certain officers and/or directors of the Fund are officers and/or directors of
the Manager. The Fund pays each director, who is not an "affiliated person" as
defined in the Act (a "Disinterested Director"), a fee of $2,000 for each
regular Board Meeting attended, $750 for each special Board Meeting attended,
plus $1,000 per year for audit committee members. Each Disinterested Director is
reimbursed for reasonable out-of-pocket expenses associated with attending Board
and Committee Meetings.
For the six months ended May 31, 2008, the Fund incurred a legal expense of
$56,829 for services provided by Drinker Biddle & Reath LLP, counsel for the
Fund. A partner of the firm is an officer of the Fund.
U.S. Bank serves as the custodian for the Fund. The Custodian plays no role in
determining the investment policies of the Fund or which securities are to be
purchased or sold by the Fund.
NOTE 3. PURCHASE AND SALES OF INVESTMENTS
For the six months ended May 31, 2008, purchases and sales of investments,
excluding short-term investments, totaled $45,912,225 and $45,173,920,
respectively.
The following table summarizes the Fund's call options written for the six
months ended May 31, 2008:
NUMBER OF
CONTRACTS PREMIUMS
--------- -----------
Options outstanding, November 30, 2007 ... 11,010 $ 889,095
Options written .......................... 87,210 10,652,876
Options expired .......................... (39,273) (3,285,762)
Options exercised ........................ (4,794) (437,575)
Options closed ........................... (37,613) (6,038,895)
------- -----------
Options outstanding, May 31, 2008 ........ 16,540 $ 1,779,739
======= ===========
NOTE 4. COMMERCIAL PAPER
As of May 31, 2008, $55,000,000 of commercial paper was outstanding with an
amortized cost of $54,945,410. The average discount rate of commercial paper
outstanding at May 31, 2008, was 2.48%. The average daily balance of commercial
paper outstanding for the six months ended May 31, 2008, was $54,790,972 at a
weighted average discount rate of 2.48%. The maximum face amount of commercial
paper outstanding at any time during the six months ended May 31, 2008, 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, 2008.
38
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
NOTE 5. CAPITAL STOCK
There are 100,000,000 shares of $0.01 par value common stock authorized. Of the
16,905,967 shares of common stock outstanding at May 31, 2008, the Manager owned
19,190 shares.
For the six months ended May 31, 2008 and the year ended November 30, 2007, the
Fund issued 0 and 81,104 shares, respectively, in connection with the Fund's
dividend reinvestment plan.
NOTE 6. MARKET AND CREDIT RISKS
The Fund may invest in high-yielding fixed-income securities, which carry
ratings of BB or lower by S&P and/or Ba1 or lower by Moody's. Investments in
these higher-yielding securities may be accompanied by a greater degree of
credit risk than higher-rated securities. Additionally, lower-rated securities
may be more susceptible to adverse economic and competitive industry conditions
than investment-grade securities. The Fund may invest up to 15% of its total
assets in illiquid securities and other securities which may not be readily
marketable. In addition, the Fund may purchase securities sold in reliance of
Rule 144A of the Securities Act of 1933. The relative illiquidity of some of the
Fund's portfolio securities may adversely affect the ability of the Fund to
dispose of such securities in a timely manner and at a fair price at times when
it might be necessary or advantageous for the Fund to liquidate portfolio
securities.
NOTE 7. FEDERAL TAX INFORMATION
It is the Fund's intention to continue to meet the requirements under Subchapter
M of the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its taxable income to shareholders.
Therefore, no provision for Federal income or excise tax is required.
The tax character of dividends and distributions paid during the last two fiscal
years were as follows:
ORDINARY RETURN
INCOME OF CAPITAL TOTALS
----------- ---------- -----------
2007 $14,219,577 $825,229 $15,044,806
2006 15,574,045 -- 15,574,045
As of November 30, 2007, the components of Distributable Earnings (Accumulated
Losses) were as follows:
Capital loss carryforwards $(39,309,030)
Post-October losses (97,806)
Net unrealized depreciation (10,393,220)
Other temporary differences 1,881,138
------------
Total accumulated losses $(47,918,918)
============
39
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
Post-October losses represent losses realized on investment transactions from
November 1, 2007 through November 30, 2007, that in accordance with federal
income tax regulations the Fund may elect to defer or treat as having arisen in
the following fiscal year.
The following summarizes the capital loss carryforwards as of November 30, 2007.
These capital loss carryforwards are available to offset future net capital
gains.
EXPIRING IN FISCAL YEAR AMOUNT
----------------------- -----------
2009 $ 8,004,078
2010 30,533,344
2011 771,608
-----------
Total capital loss carryforwards $39,309,030
===========
During the year ended November 30, 2007, the Fund utilized $222,873 of capital
loss carryforwards to offset capital gains.
The Federal tax cost as well as the aggregate gross unrealized appreciation and
depreciation on investments excluding written options held by the Fund at May
31, 2008, were as follows:
Federal Tax Cost .......................... $199,988,348
------------
Aggregate Gross Unrealized Appreciation ... 4,957,774
Aggregate Gross Unrealized Depreciation ... (29,454,525)
------------
Net Unrealized Depreciation ............... $(24,496,751)
============
NOTE 8. NEW ACCOUNTING PRONOUNCEMENTS
On July 13, 2006, the FASB released FASB INTERPRETATION NO. 48, "ACCOUNTING FOR
UNCERTAINTY IN INCOME TAXES" ("FIN 48"). FIN 48 provides guidance for how
uncertain tax positions should be recognized, measured, presented and disclosed
in the financial statements. FIN 48 requires the evaluation of tax positions
taken or expected to be taken in the course of preparing the Fund's tax returns
to determine whether the tax positions are "more-likely-than-not" of being
sustained by the applicable tax authority. Tax positions not deemed to meet the
more-likely-than-not threshold would be recorded as a tax benefit or expense in
the current year. Adoption of FIN 48 is required for fiscal years beginning
after December 15, 2006 and is to be applied to all open tax years as of the
effective date. Based on its analysis, management has determined that the
adoption of FIN 48 did not have a material impact to the Fund's financial
statements upon adoption. However, management's conclusions regarding FIN 48 may
be subject to review and adjustment at a later date based on factors including,
but not limited to, further implementation guidance expected from the FASB, and
on-going analyses of and changes to tax laws, regulations and interpretations
thereof.
40
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
In March 2008, FASB issued SFAS No. 161, DISCLOSURES ABOUT DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 161 is effective for fiscal years
and interim periods beginning after November 15, 2008. SFAS No. 161 requires
enhanced disclosures about the Fund's derivative and hedging activities,
including how such activities are accounted for and their effect on the Fund's
financial position, performance, and cash flows. Management is currently
evaluating the impact the adoption of SFAS No. 161 will have on the Fund's
financial statements and related disclosures.
NOTE 9. SUBSEQUENT EVENTS
The Board of the Fund declared the following dividends:
DECLARATION DATE EX-DATE RECORD DATE PAYABLE DATE DIVIDEND RATE
---------------- ------------- ------------- ------------- -------------
June 2, 2008 June 17, 2008 June 19, 2008 June 30, 2008 $0.0750
July 1, 2008 July 15, 2008 July 17, 2008 July 31, 2008 0.0750
NOTE 10. INDEMNIFICATIONS
The Fund enters into contracts that contain a variety of indemnifications. The
Fund's maximum exposure under these arrangements is unknown. However, the Fund
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.
41
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
AUTOMATIC DIVIDEND REINVESTMENT PLAN (UNAUDITED)
Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the "Plan"), unless
a shareholder otherwise elects, all dividend and capital gains distributions
will be automatically reinvested in additional shares of common stock of the
Fund by PFPC, Inc., as agent for shareholders in administering the Plan (the
"Plan Agent"). Shareholders who elect not to participate in the Plan will
receive all dividends and distributions in cash, paid by check mailed directly
to the shareholder of record (or, if the shares are held in street or other
nominee name, then to such nominee) by PFPC, Inc., as dividend paying agent.
Such participants may elect not to participate in the Plan and to receive all
distributions of dividends and capital gains in cash by sending written
instructions to PFPC, Inc., as dividend paying agent, at the address set forth
below.
Participation in the Plan is completely voluntary and may be terminated or
resumed at any time without penalty by written notice if received by the Plan
Agent not less than ten days prior to any dividend record date. Otherwise such
termination will be effective with respect to any subsequently declared dividend
or distribution.
Whenever the Fund declares a distribution, an ordinary income dividend or a
capital gain dividend (collectively referred to as "dividends") payable either
in shares or in cash, non-participants in the Plan will receive cash, and
participants in the Plan will receive the equivalent in shares of common stock.
The shares will be acquired by the Plan Agent for the participant's account,
depending upon the circumstances described below, either (i) through receipt of
additional unissued but authorized shares of common stock from the Fund or (ii)
by purchase of outstanding shares of common stock on the open market on the NYSE
or elsewhere. If on the payment date of the dividend, the net asset value per
share of the common stock is equal to or less than the market price per share
plus estimated brokerage commissions (such condition being referred to herein as
"market premium"), the Plan Agent will invest the dividend amount in newly
issued shares on behalf of the participant. The number of newly issued shares of
common stock to be credited to the participant's account will be determined by
dividing the dollar amount of the dividend by the net asset value per share on
the date the shares are issued, provided that the maximum discount from the then
current market price per share on the date of issuance may not exceed 5%. If on
the dividend payment date the net asset value per share is greater than the
market value (such condition being referred to herein as "market discount"), the
Plan Agent will invest the dividend amount in shares acquired on behalf of the
participant in open-market purchases.
In the event of a market discount on the dividend payment date, the Plan Agent
will have until the last business day before the next date on which the shares
trade on the "ex-dividend" basis or in no event more than 30 days after the
42
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
dividend payment date to invest the dividend amount in shares acquired in
open-market purchases. If, before the Plan Agent has completed its open-market
purchases, the market price of a share of common stock exceeds the net asset
value per share, the average per share purchase price paid by the Plan Agent may
exceed the net asset value of the Fund's shares, resulting in the acquisition of
fewer shares than if the dividend had been paid in newly issued shares on the
dividend payment date. The Plan provides that if the Plan Agent is unable to
invest the full dividend amount in open-market purchases during the purchase
period or if the market discount shifts to market premium during the purchase
period, the Plan Agent will cease making open-market purchases and will invest
the uninvested portion of the dividend amount in newly issued shares at the
close of business on the last purchase date.
The Plan Agent maintains all shareholders' accounts in the Plan and furnishes
written confirmation of all transactions in the accounts, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Plan Agent on behalf of the Plan participant,
and each shareholder's proxy will include those shares purchased or received
pursuant to the Plan. The Plan Agent will forward all proxy solicitation
materials to participants and vote proxies for shares held pursuant to the Plan
in accordance with the instructions of the participants.
In the case of shareholders such as banks, brokers or nominees which hold shares
for others who are the beneficial owners, the Plan Agent will administer the
Plan on the basis of the number of shares certified from time to time by the
record shareholders as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who are to
participate in the Plan.
There will be no brokerage charges with respect to shares issued directly by the
Fund as a result of dividends or capital gain distributions payable either in
shares or in cash. However, each participant will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open-market
purchases in connection with reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not relieve
participants of any Federal, state or local income tax that may be payable (or
required to be withheld) on such dividends.
Shareholders participating in the Plan may receive benefits not available to
shareholders not participating in the Plan. If the market price plus commissions
of the Fund's shares is above the net asset value, participants in the Plan will
receive shares of the Fund at less than they could otherwise purchase them and
will have shares with a cash value greater than the value of any cash
distribution they would have received on their shares. If the market price plus
43
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
commissions is below the net asset value, participants will receive
distributions in shares with a net asset value greater than the value of any
cash distribution they would have received on their shares. However, there may
be insufficient shares available in the market to make distributions in shares
at prices below the net asset value. Also, since the Fund does not redeem its
shares, the price on resale may be more or less than the net asset value.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants in the Plan; however, the Fund reserves the right
to amend the Plan to include a service charge payable by the participants.
All correspondence concerning the Plan should be directed to the Plan Agent at
PFPC, Inc., P.O. Box 43027, Providence, RI 02940-3027, Attn: Closed-End
Department.
FEDERAL TAX INFORMATION (UNAUDITED)
Information for Federal income tax purposes is presented as an aid to
shareholders in reporting the dividend distributions for the six months ended
May 31, 2008.
ADDITIONAL INFORMATION (UNAUDITED)
During the period, there have been no material changes in the Fund's investment
objective or fundamental policies that have not been approved by the
shareholders. There have been no changes in the Fund's charter or By-Laws that
would delay or prevent a change in control of the Fund which have not been
approved by the shareholders. There have been no material changes in the
principal risk factors associated with investment in the Fund.
EFFECTS OF LEVERAGE (UNAUDITED)
Leverage of $60 million in commercial paper was initially sold by the Fund on
July 28, 1999. As of May 31, 2008, the Fund had $30 million outstanding at 2.60%
per annum maturing on June 3, 2008, and $25 million at 2.55% per annum maturing
on July 2, 2008. All interest rates include fees due to the broker-dealer. The
Fund must experience an annual return of 0.81% to cover interest payments on the
commercial paper.
The following table explains the potential effects of leverage on the equity
returns of common shareholders:
Assumed return on portfolio
(net of expenses) ......... (10.00)% (5.00)% 0.00% 5.00% 10.00%
Corresponding return to common
stockholder ............... (15.77)% (8.47)% (1.18)% 6.11% 13.40%
44
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
Assumes $120 million assets attributable to common shareholders; $55 million
aggregate leverage with an average interest rate of 2.58%. All figures appearing
above are hypothetical returns generated to assist investors in understanding
the effects of leverage. Actual returns may be greater or less than those
appearing in the table.
HOW TO OBTAIN A COPY OF THE FUND'S QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q within sixty days after the end of the period. The Fund's Forms N-Q are
available on the Commission's website at http://www.sec.gov, and may be reviewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
HOW TO OBTAIN A COPY OF THE FUND'S PROXY VOTING POLICIES
A description of the policies and procedures that are used by the Fund's
investment adviser to vote proxies relating to the Fund's portfolio securities
as well as information relating to how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available (i) without charge, upon request, by calling the Fund toll-free at
(866) 585-6552; (ii) on the Fund's website at www.chartwellip.com; and (iii) on
the SEC's website at http://www.sec.gov.
NEW YORK STOCK EXCHANGE CERTIFICATION
The Fund's President has certified to the New York Stock Exchange that, as of
May 21, 2008, he was not aware of any violation by the Fund of the applicable
NYSE Corporate Governance listing standards. In addition, the Fund has filed
certifications of its principal executive officer and principal financial
officer as exhibits to its reports on Form N-CSR filed with the Securities and
Exchange Commission relating to the quality of the disclosures contained in such
reports.
45
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
CHARTWELL BOARD CONSIDERATIONS RELATING TO THE ADVISORY CONTRACT RENEWAL
(UNAUDITED)
The Board of Directors of the Fund determined on April 30, 2008 whether to renew
the Advisory Agreement with Chartwell Investment Partners, LP ("Chartwell
Partners") (the "Agreement"). Prior to making its determination, the Board
received detailed information from Chartwell Partners, including, among other
things, information provided by Lipper, Inc. ("Lipper") comparing the
performance of the Fund for the one, two, three, four and five year periods
ended February 28, 2008 to the performance of an income and preferred stock
universe selected by Lipper and a leveraged high yield universe selected by
Lipper at the request of Chartwell Partners; advisory fee and other expense
information for the Fund as compared to these peer groups; and information
provided by Chartwell Partners responsive to requests by the Fund's independent
counsel for certain information to assist the Board in its considerations. In
addition, the Board reviewed a memorandum from its independent counsel detailing
the Board's duties and responsibilities in considering renewal of the Agreement.
In reaching its decision to renew the Agreement, the Board, including a majority
of the Directors who are not interested persons under the Investment Company Act
of 1940 (the "Independent Directors"), considered, among other things: (i) the
nature, extent and quality of Chartwell Partners' services provided to the Fund;
(ii) the experience and qualifications of the portfolio management team; (iii)
its investment philosophy and process; (iv) Chartwell Partners' assets under
management, client descriptions and performance record for each of its
investment strategies; (v) its annual compliance summary; (vi) its soft dollar
commission, broker selection, best execution and trade allocation policies;
(vii) current advisory fee arrangements with the Fund and its other clients;
(viii) Lipper information comparing the Fund's performance, advisory fee and
expense ratio to that of its peer groups; (ix) Chartwell Partners' financial
information and profitability analysis related to providing advisory services to
the Fund, including the commission arrangement with Merrill Lynch; (x) any
compensation and other possible benefits to Chartwell Partners arising from its
advisory and other relationships with the Fund; and (xi) the extent to which
economies of scale are relevant to the Fund. The Board noted, in particular the
Fund's expenses relative to its peers and the impact of the commission
arrangement with Merrill Lynch whereby Chartwell Partners has been paying the
underwriter's commission in connection with the Fund's initial public offering
on Chartwell Partners' profitability.
46
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
During the course of its deliberations, the Board, including a majority of
Independent Directors, reached the following conclusions, among others,
regarding Chartwell Partners and the Agreement: the Fund's actual advisory fee
and expense ratio are above average in comparison to those of its comparable
Lipper peer groups and both are reflective of the unique and bifurcated
investment style of the Fund; Chartwell Partners' fees for managing the Fund are
reasonable as compared to fees it charges for managing assets for other clients
and considering the unique investment strategy of the Fund; the Fund's
performance is generally competitive (performance for certain periods was higher
and for other periods was lower) with that of the comparable Lipper peer groups;
the nature, extent and quality of services provided by Chartwell Partners in
advising the Fund was satisfactory; the profits earned by Chartwell Partners
seemed reasonable; and the benefits derived by Chartwell Partners from managing
the Fund, including its use of soft dollars and the way it selects brokers,
seemed reasonable. The Independent Directors discussed economies-of-scale, but
noted that asset growth to achieve such economies was unlikely for a closed-end
fund such as the Fund.
Based on the factors considered, the Board, including a majority of the
Independent Directors, concluded that it was appropriate to renew the Agreement.
47
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
SHAREHOLDER VOTING RESULTS (UNAUDITED)
The Annual Meeting of shareholders of the Chartwell Dividend and Income Fund,
Inc. was held on April 30, 2008 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
directors to serve as the
Class III directors for a
three-year term expiring
in 2011: Winthrop S. Jessup 15,015,016 0 480,898
Marie D. Fairchild 14,992,731 0 503,183
Directors whose terms of office continue beyond this meeting are Kenneth F.
Herlihy, Warren Ormerod and Bernard P. Schaffer.
48
CHARTWELL
NOTES
NOTES
NOTES
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2008
DIRECTORS
Winthrop S. Jessup, Chairman
Marie D. Fairchild
Kenneth F. Herlihy
C. Warren Ormerod
Bernard P. Schaffer
OFFICERS
Winthrop S. Jessup, President
G. Gregory Hagar, Vice President, Treasurer, Chief Financial Officer and
Chief Compliance Officer
Bernard P. Schaffer, Vice President
Kevin A. Melich, Vice President
Timothy J. Riddle, Vice President
Andrew S. Toburen, Vice President
Michael P. Malloy, Secretary
Maria E. Pollack, Assistant Secretary
INVESTMENT MANAGER
Chartwell Investment Partners, L.P.
1235 Westlakes Drive, Suite 400
Berwyn, PA 19312
ADMINISTRATOR
SEI Investments Global Funds Services
One Freedom Valley Drive
Oaks, PA 19456
CUSTODIAN
U.S. Bank
Two Liberty Place
Philadelphia, PA 19102
TRANSFER AGENT
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young, LLP
2001 Market Street, Suite 4000
Philadelphia, PA 19103
LEGAL COUNSEL
Drinker Biddle & Reath LLP
One Logan Square
18th & Cherry Streets
Philadelphia, PA 19103
This report, including the financial statements herein, is transmitted to the
shareholders of Chartwell Dividend and Income Fund, Inc. It is not a prospectus,
circular or representation intended for use in the purchase of shares of the
Fund or any securities mentioned in the report. Past performance results should
not be considered a representation of future performance. Statements and other
information contained in this report are as dated and are subject to change.
Past performance is no guarantee of future results. Share prices will fluctuate,
so that a share may be worth more or less than its original cost when sold. The
investment adviser's commentaries included in this report contain certain
forward-looking statements about the factors that may affect the performance of
the Fund in the future. These statements are based on Fund management's
predictions and expectations concerning certain future events and their expected
impact on the Fund, such as performance of the economy as a whole and of
specific industry sectors, changes in the levels of interest rates, the impact
of developing world events and other factors that may influence the future
performance of the Fund. Management believes these forward-looking statements to
be reasonable, although they are inherently uncertain and difficult to predict.
Actual events may cause adjustments in portfolio management strategies from
those currently expected to be employed.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase, from time to time, shares of its
common stock in the open market.
ITEM 2. CODE OF ETHICS.
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.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable for semi-annual report.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable for semi-annual report.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANY AND
AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the Registrant's Board of Directors since the Registrant
last provided disclosure in response to the requirements of Item 7(d)(2)(ii)(G)
of Schedule 14A in its proxy statement filed with the Commission on April 2,
2008.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The Registrant's principal executive officer and principal financial officer
have concluded that the Registrant's disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended,
(the "1940 Act")) are effective as of a date within 90 days of the filing of
this report that includes the disclosure required by this paragraph, based on
their evaluation of these controls and procedures, required by Rule 30a-3(b)
under the 1940 Act and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended.
(b) There were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during
the second fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEMS 12. 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
attached hereto as EX-99Cert.
(a)(3) Not applicable.
(b) Officer certifications as required by Rule 30a-2(b) under the Investment
Company Act of 1940, as amended (17 CFR 270.30a-2(b)) also accompany this filing
as EX-99.906Cert.
--------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Chartwell Dividend and Income Fund, Inc.
By (Signature and Title)* /s/ Winthrop S. Jessup
Winthrop S. Jessup, President
(Principal Executive Officer)
Date: August 1, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
(Registrant) Chartwell Dividend and Income Fund, Inc.
By (Signature and Title)* /s/ Winthrop S. Jessup
Winthrop S. Jessup, President
(Principal Executive Officer)
Date: August 1, 2008
By (Signature and Title)* /s/ G. Gregory Hagar
G. Gregory Hagar, Vice President and CFO
(Principal Financial Officer)
Date: August 1, 2008
* Print the name and title of each signing officer under his or her signature.