UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-CSR
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CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANY ACT FILE NUMBER 811-8747
CHARTWELL DIVIDEND AND INCOME FUND, INC.
(Exact name of registrant as specified in charter)
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1235 Westlakes Drive, Suite 400
Berwyn, PA 19312
(Address of principal executive offices) (Zip code)
PNC Bank, National Association
400 Bellevue Parkway
Wilmington, DE 19809
Attn: Closed-End Department
(Name and address of agent for service)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 1-610-296-1400
DATE OF FISCAL YEAR END: NOVEMBER 30, 2007
DATE OF REPORTING PERIOD: MAY 31, 2007
ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMITTED]
CHARTWELL
DIVIDEND AND
INCOME FUND, INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS
DATED MAY 31, 2007
[LOGO OMITTED] CHARTWELL INVESTMENT
PARTNERS
WWW.CHARTWELLIP.COM
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
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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.
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
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(UNAUDITED)
CHANGE TO INVESTMENT STRATEGY REGARDING COVERED CALL OPTIONS
The Board of Directors recently approved a change in the Fund's investment
strategy regarding writing (i.e., selling) covered call options. Previously, the
Fund was permitted to write covered call options only on equity securities it
held in an amount not to exceed 10% of its total assets. On July 25, 2007, the
Board revised this investment strategy to permit the Fund to write covered call
options on equity securities (including Exchange Traded Funds) or on stock
indexes, to provide additional ways to cover these options, and to eliminate the
percentage limitation. The Fund will 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
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
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DEAR SHAREHOLDERS (UNAUDITED),
The Chartwell Dividend and Income Fund's (CWF) total market return for the six
months ended May 31, 2007, including reinvested dividends, was 9.73% as compared
to the S&P 500 Index return of 10.29% and the Merrill Lynch High Yield Cash Pay
Index return of 5.91%. The Net Asset Value (NAV) return exceeded the S&P 500
Index return, rising 10.49% including the reinvestment of dividends.
We maintain our constructive outlook for the stock market and the high yield
bond market for the remainder of the year - while recognizing there are numerous
issues that may present headwinds to the economy and markets. On the positive
side, in our view, job creation has continued at a solid pace in the first half
of the year and corporate profits are growing at a good rate for this stage of
the economic cycle. We believe valuations for the stock market as a whole are
quite reasonable. International economies appear to be strong and with many
currencies appreciating versus the US Dollar, US exports are expected to stay
strong. In addition, there appears to be ample liquidity in the markets and on
companies' balance sheets to continue the rapid pace of equity reduction through
both corporate repurchases and private equity buyouts. Lastly, the Federal
Reserve (Fed) appears to be satisfied with the balance they have found between
economic expansion and the inflation outlook. We expect the Fed to continue to
keep the Federal Funds rate unchanged for the foreseeable future.
The issues we will be watching during the remainder of the year include (but are
not limited to) the following: long-term interest rates have risen from the
start of the year, which could negatively impact the economy and may be having a
dampening effect on private equity; oil prices have climbed from $55 a barrel to
$70 a barrel over the last few months which could slow consumer spending; the
housing market has been weaker since we last wrote due to a combination of
stagnant house prices, higher rates and tighter lending standards brought on by
the well publicized sub-prime mortgage market issues; the amount of debt issued
which is necessary to complete all of the announced buyouts may act as a
constraint on the future quantity of deals that may be done and could possibly
put a strain on the high yield bond market itself; and corporate profit growth,
while strong, appears to be slowing from previous quarters' growth rates and
this could have a negative impact on the stock market.
4
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
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(UNAUDITED)
Weighing all of the positives and possible negatives, we think the economy may
grow at a reasonable pace for the remainder of the year while inflation may
remain subdued allowing the Federal Reserve to keep monetary policy essentially
unchanged. We believe that this should provide a relatively steady backdrop for
the markets, allowing them to continue to advance at a reasonable pace. However,
we do expect volatility to continue to increase from recent lows due to the
level of uncertainty surrounding the resolution of the issues mentioned above.
We will continue to be diligent in watching the economy and the markets and will
endeavor to make appropriate adjustments 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
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
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(UNAUDITED)
HOW DID THE FUND PERFORM DURING THE SIX MONTH PERIOD ENDED MAY 31, 2007?
For the six month period ended May 31, 2007, the Fund's market return was 9.73%
including dividends reinvested. The Fund's net asset value (NAV) return
including dividends reinvested was 10.49%. Despite a significant sell-off in
late winter, the equity market (as represented by the S&P 500 Index) returned
10.29% for the same six month period.
The Merrill Lynch High Yield Cash Pay Index returned 5.91% for the six month
period ended May 31, 2007. High yield returns outpaced both the 10-year Treasury
and investment grade corporate bonds (Merrill Lynch U.S. Corporate Master
Index), which returned -1.27% and 0.39% respectively. Macro economic indicators
point towards a modestly expanding U.S. economy, default rates remain low, and
credit is readily available for most corporate borrowers. Each of these factors
helped underpin a positive environment for high yield bonds over the last six
months. Investors' appetite for yield drove performance in the lowest quality
portion of the market, with CCC-rated issuers returning 10.11% versus 4.00% for
BB-rated issuers. The yield on the 10-year Treasury increased 43 basis points to
4.86% during the first half of the fiscal year, while the yield on the overall
high yield market fell 27 basis points to finish at 7.66%, resulting in a 70
basis point reduction of the high yield market's risk premium (or "spread").
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HIGH YIELD SPREAD OVER TREASURIES: LAST 3 YEARS
May 31, 2004 - May 31, 2007
(Source: Merrill Lynch, Bloomberg)
[LINE GRAPH OMITTED]
EDGAR REPRESENTATION OF DATA TO FOLLOW:
(basis points)
May-04 383
Jun-04 371
Jul-04 369
Aug-04 381
Sep-04 372
Oct-04 355
Nov-04 310
Dec-04 314
Jan-05 341
Feb-05 305
Mar-05 360
Apr-05 423
May-05 423
Jun-05 404
Jul-05 354
Aug-05 390
Sep-05 378
Oct-05 381
Nov-05 394
Dec-05 399
Jan-06 368
Feb-06 369
Mar-06 339
Apr-06 318
May-06 330
Jun-06 351
Jul-06 359
Aug-06 369
Sep-06 365
Oct-06 353
Nov-06 347
Dec-06 318
Jan-07 300
Feb-07 311
Mar-07 312
Apr-07 303
May-07 276
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WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
The equity portion of the Fund returned 11.43% due to several factors. A large
position in the Energy sector was very beneficial; a number of our names in the
Oil & Gas Exploration and Production industry showed returns of over 20%. Strong
performance in a number of stocks, particularly in the Telecommunication
6
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
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(UNAUDITED)
Services and Consumer Staples sectors were also positive contributors.
ALLIANCEBERNSTEIN, COINMACH CORPORATION, ALTRIA GROUP, INC., REDDY ICE HOLDINGS,
INC., and LOEWS CORPORATION - CAROLINA GROUP were significant holdings and all
had solid returns during the period.
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TOTAL RETURN
Six Months Ended May 31, 2007
[BAR CHART OMITTED]
EDGAR REPRESENTATION OF DATA TO FOLLOW:
CWF Equities 11.43%
CWF High Yield 7.11%
S&P 500 Index 10.29%
Morgan Stanley REIT Index 1.45%
Merrill Lynch High Yield Cash Pay Index 5.91%
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The fixed income portion of the Fund returned 7.11% for the period. The Fund's
best performing bonds were PLY GEM INDUSTRIES and WII COMPONENTS, two building
products companies whose bond prices recovered after trading lower in late 2006.
Other positive contributors to performance included FREEPORT-MCMORAN COPPER &
GOLD, an international mining company, and HANGER ORTHOPEDIC GROUP, a leading
manufacturer of prosthetics. Every major industry in the Merrill Lynch High
Yield Cash Pay Index posted a positive return for the period, led by cable
television operators which returned over 8% on average. The Fund did not own any
homebuilding bonds which helped relative performance, as homebuilders were the
weakest performing sector in high yield during the first half of the year.
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HIGH YIELD INDUSTRY PERFORMANCE
Six Months Ended 5/31/07 (Source: Merrill Lynch, Bloomberg)
[BAR CHART OMITTED]
EDGAR REPRESENTATION OF DATA TO FOLLOW:
BB INDEX 4.0%
Homebuilding 4.1%
Utilities 4.3%
Gaming 4.5%
Automotive 4.7%
Technology 5.3%
Energy 5.7%
HY INDEX 5.9%
Paper 5.9%
Steel 6.0%
Telecom 6.1%
B INDEX 6.2%
Consumer 6.2%
Chemicals 6.3%
Healthcare 7.7%
Cable TV 8.3%
CCC INDEX 10.1%
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7
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
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(UNAUDITED)
DID ANY COMMON STOCKS OR FIXED INCOME HOLDINGS WITHIN THE FUND UNDERPERFORM
RELATIVE TO YOUR EXPECTATIONS?
As can be seen in the chart below, every sector in the S&P 500 Index had a
positive performance for the six months ended May 31, 2007. Our holdings in the
Financials sector which consisted mostly of bank stocks (of which WACHOVIA
CORPORATION, BANK OF AMERICA CORPORATION and WASHINGTON MUTUAL, INC. were among
our larger holdings), did not perform as well as we expected due to several
factors, increasing concern about the direction of the economy led to concerns
about credit quality while net interest margins were being squeezed as
short-term interest rates rose faster than long-term rates. BANK OF AMERICA
CORPORATION, the largest holding in the portfolio, was down 3.7% in the period
mainly due to the issues mentioned above. We continue to believe that this well
run company is undervalued and we are receiving a dividend of $2.24 per year
(which we expect will continue to grow) for a 4.4% yield (at May 31), while we
wait for the market to realize the value in Bank of America's franchise.
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S&P 500 TOTAL RETURN BY SECTOR
(SIX MONTHS ENDED MAY 31, 2007)
[BAR CHART OMITTED]
EDGAR REPRESENTATION OF DATA TO FOLLOW:
Energy 13.10%
Utilities 16.09%
Telecommunication Services 23.22%
REITS 2.58%
Industrials 12.13%
Basic Materials 17.97%
Consumer Discretionary 6.95%
Financials 7.81%
Consumer Staples 9.46%
Technology 7.20%
Health Care 11.33%
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The Fund's worst performing bond during the first half of the fiscal year was
LEAR CORPORATION, a supplier of automotive interior products. Other
underperforming bond positions included BUFFETS, INC., an operator of buffet
restaurants, and STEEL DYNAMICS, INC., a mini-mill steel producer.
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE PERIOD?
In the equity portion of the portfolio the largest change during the period was
a reduction in our exposure to the Energy sector. The largest change in this
sector was the selling of our position in ASHLAND OIL. We purchased shares in
this diversified specialty chemicals company after the announcement of a $10.20
per
8
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
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(UNAUDITED)
share special dividend in the latter part of last fiscal year. We collected this
special dividend and sold the shares at a price higher than the purchase price.
Additional purchases were made in the Transportation sector as we initiated
positions in GENERAL MARITIME CORPORATION and TAL INTERNATIONAL GROUP, INC.
Recent purchases in the bond portion of the Fund include BALDOR ELECTRIC
COMPANY, a manufacturer of electric motors, and HANESBRANDS, INC., a clothing
manufacturer. To fund the new purchases we sold a number of positions that had
reached our relative value price targets, including ALLIED WASTE NORTH AMERICA,
CROWN AMERICAS LLC and E-TRADE.
HOW DID THE FUND TRADE RELATIVE TO ITS NET ASSET VALUE (NAV) DURING THE SIX
MONTH PERIOD?
As of May 31, 2007, the Fund was trading at a closing price of $10.27, which is
a slight 1.8% premium to its NAV of $10.09. At November 30, 2006, the Fund was
trading at a closing price of $9.78, a premium of 2.4% to its NAV of $9.55.
Throughout the six month period ended May 31, 2007, the Fund traded between a
0.72% discount to its NAV and a 4.51% premium to its NAV.
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HISTORY OF FUND PRICE, NAV AND PREMIUM
Six Months Ended May 31, 2007
(Source: Bloomberg)
[LINE CHART OMITTED]
EDGAR REPRESENTATION OF DATA TO FOLLOW:
Price NAV
11/30/06 $9.78 $9.55
12/1/06 9.72 9.55
12/4/06 9.73 9.61
12/5/06 9.70 9.64
12/6/06 9.73 9.65
12/7/06 9.76 9.65
12/8/06 9.75 9.64
12/11/06 9.70 9.68
12/12/06 9.77 9.69
12/13/06 9.86 9.70
12/14/06 10.05 9.73
12/15/06 10.03 9.76
12/18/06 9.95 9.75
12/19/06 9.91 9.68
12/20/06 9.94 9.69
12/21/06 9.82 9.67
12/22/06 9.76 9.66
12/26/06 9.88 9.72
12/27/06 9.85 9.78
12/28/06 9.83 9.78
12/29/06 9.78 9.73
1/3/07 9.77 9.73
1/4/07 9.76 9.72
1/5/07 9.81 9.65
1/8/07 9.87 9.68
1/9/07 9.94 9.69
1/10/07 9.96 9.71
1/11/07 9.98 9.74
1/12/07 9.96 9.77
1/16/07 9.95 9.72
1/17/07 9.88 9.71
1/18/07 9.95 9.68
1/19/07 9.87 9.72
1/22/07 9.88 9.70
1/23/07 9.87 9.75
1/24/07 10.10 9.80
1/25/07 10.04 9.74
1/26/07 9.94 9.76
1/29/07 9.95 9.76
1/30/07 9.95 9.80
1/31/07 9.96 9.84
2/1/07 9.85 9.90
2/2/07 9.95 9.92
2/5/07 9.97 9.93
2/6/07 10.07 9.93
2/7/07 10.12 9.95
2/8/07 10.13 9.96
2/9/07 10.13 9.91
2/12/07 10.17 9.87
2/13/07 10.04 9.94
2/14/07 10.05 9.98
2/15/07 10.08 9.99
2/16/07 10.16 10.00
2/20/07 10.09 9.95
2/21/07 10.03 9.95
2/22/07 9.98 9.95
2/23/07 10.01 9.89
2/26/07 9.95 9.87
2/27/07 9.90 9.64
2/28/07 9.84 9.72
3/1/07 9.61 9.68
3/2/07 9.74 9.59
3/5/07 9.61 9.40
3/6/07 9.60 9.58
3/7/07 9.70 9.58
3/8/07 9.75 9.67
3/9/07 9.85 9.71
3/12/07 10.04 9.71
3/13/07 9.96 9.53
3/14/07 9.86 9.60
3/15/07 9.87 9.68
3/16/07 9.88 9.66
3/19/07 9.96 9.73
3/20/07 9.99 9.70
3/21/07 9.99 9.79
3/22/07 10.02 9.81
3/23/07 9.97 9.83
3/26/07 10.01 9.81
3/27/07 10.04 9.80
3/28/07 9.96 9.78
3/29/07 10.03 9.86
3/31/07 10.03 9.87
4/2/07 10.02 9.88
4/3/07 9.99 9.95
4/4/07 10.00 9.97
4/5/07 10.02 9.96
4/9/07 10.03 9.95
4/10/07 10.17 9.98
4/11/07 10.10 9.95
4/12/07 10.05 9.97
4/13/07 10.03 9.99
4/16/07 10.01 10.07
4/17/07 9.98 10.01
4/18/07 9.98 10.04
4/19/07 9.94 9.99
4/20/07 9.97 10.06
4/23/07 10.01 10.04
4/24/07 10.10 10.04
4/25/07 10.12 10.11
4/26/07 10.13 10.10
4/27/07 10.16 10.11
4/30/07 10.16 10.03
5/1/07 10.14 10.03
5/2/07 10.23 10.08
5/3/07 10.26 10.09
5/4/07 10.30 10.09
5/7/07 10.29 10.09
5/8/07 10.18 10.07
5/9/07 10.19 10.10
5/10/07 10.17 10.01
5/11/07 10.21 10.07
5/14/07 10.26 10.05
5/15/07 10.17 9.92
5/16/07 10.18 9.94
5/17/07 10.15 9.93
5/18/07 10.05 9.95
5/21/07 10.12 10.01
5/22/07 10.12 10.07
5/23/07 10.20 10.04
5/24/07 10.09 9.94
5/25/07 10.16 9.97
5/29/07 10.14 10.03
5/30/07 10.22 10.08
5/31/07 10.27 10.09
Premium/Discount
11/30/06 2.408%
12/1/06 1.780%
12/4/06 1.249%
12/5/06 0.622%
12/6/06 0.829%
12/7/06 1.140%
12/8/06 1.141%
12/11/06 0.207%
12/12/06 0.826%
12/13/06 1.649%
12/14/06 3.289%
12/15/06 2.766%
12/18/06 2.051%
12/19/06 2.376%
12/20/06 2.580%
12/21/06 1.551%
12/22/06 1.035%
12/26/06 1.646%
12/27/06 0.716%
12/28/06 0.511%
12/29/06 0.514%
1/3/07 0.411%
1/4/07 0.412%
1/5/07 1.658%
1/8/07 1.963%
1/9/07 2.580%
1/10/07 2.575%
1/11/07 2.464%
1/12/07 1.945%
1/16/07 2.366%
1/17/07 1.751%
1/18/07 2.789%
1/19/07 1.543%
1/22/07 1.856%
1/23/07 1.231%
1/24/07 3.061%
1/25/07 3.080%
1/26/07 1.844%
1/29/07 1.947%
1/30/07 1.531%
1/31/07 1.220%
2/1/07 -0.505%
2/2/07 0.302%
2/5/07 0.403%
2/6/07 1.410%
2/7/07 1.709%
2/8/07 1.707%
2/9/07 2.220%
2/12/07 3.040%
2/13/07 1.006%
2/14/07 0.701%
2/15/07 0.901%
2/16/07 1.600%
2/20/07 1.407%
2/21/07 0.804%
2/22/07 0.302%
2/23/07 1.213%
2/26/07 0.811%
2/27/07 2.697%
2/28/07 1.235%
3/1/07 -0.723%
3/2/07 1.564%
3/5/07 2.234%
3/6/07 0.209%
3/7/07 1.253%
3/8/07 0.827%
3/9/07 1.442%
3/12/07 3.399%
3/13/07 4.512%
3/14/07 2.708%
3/15/07 1.963%
3/16/07 2.277%
3/19/07 2.364%
3/20/07 2.990%
3/21/07 2.043%
3/22/07 2.141%
3/23/07 1.424%
3/26/07 2.039%
3/27/07 2.449%
3/28/07 1.840%
3/29/07 1.724%
3/31/07 1.621%
4/2/07 1.417%
4/3/07 0.402%
4/4/07 0.301%
4/5/07 0.602%
4/9/07 0.804%
4/10/07 1.904%
4/11/07 1.508%
4/12/07 0.802%
4/13/07 0.400%
4/16/07 -0.596%
4/17/07 -0.300%
4/18/07 -0.598%
4/19/07 -0.501%
4/20/07 -0.895%
4/23/07 -0.299%
4/24/07 0.598%
4/25/07 0.099%
4/26/07 0.297%
4/27/07 0.495%
4/30/07 1.296%
5/1/07 1.097%
5/2/07 1.488%
5/3/07 1.685%
5/4/07 2.081%
5/7/07 1.982%
5/8/07 1.092%
5/9/07 0.891%
5/10/07 1.598%
5/11/07 1.390%
5/14/07 2.090%
5/15/07 2.520%
5/16/07 2.414%
5/17/07 2.216%
5/18/07 1.005%
5/21/07 1.099%
5/22/07 0.497%
5/23/07 1.594%
5/24/07 1.509%
5/25/07 1.906%
5/29/07 1.097%
5/30/07 1.389%
5/31/07 1.784%
9
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
(UNAUDITED)
WHAT IS YOUR CURRENT OUTLOOK FOR THE EQUITY AND FIXED INCOME MARKETS?
Looking out to the remainder of the Fund's fiscal year, we are somewhat cautious
about the expected returns for the equity market. It appears that, while current
absolute valuations are not expensive, earnings growth is slowing from its rapid
pace over the last few years. Currently, there is uncertainty regarding the path
of the economy. Job growth--while solid--has been slowing, industrial production
figures have been erratic and official gross domestic product numbers have
slowed significantly. There are continued questions as to the strength of the
consumer due to the significant slowdown in housing--both in price appreciation
and purchase activity. Long-term interest rates have risen significantly since
the Fund's fiscal year end and there is some question in the market as to the
how much higher rates may go. With these apparent headwinds and the fact that
the market is up 23% from the end of May 2006, we believe that the next six
months should bring good but not spectacular gains in the stock market with
dividend yield continuing to play a significant role. Therefore, we will
continue to look to make investments in the equities of companies that have
solid business models that generate significant cash flow which the companies
return to their shareholders through stable and growing dividends.
We remain constructive in our outlook for the fixed income portion of the Fund.
Credit spreads are tight by historical standards, but reflect a modestly growing
domestic economy; low default rates and strong demand for yield products. Thus
far, the `sub-prime / housing' weakness has been contained to companies that are
directly associated with those sectors, namely residential mortgage lenders and
homebuilders. In our opinion, the housing market warrants careful scrutiny, as
the yet unknown length and magnitude of the current downturn could have a
meaningful effect on the overall health of the economy, the credit markets and
Fed policy for the rest of the year.
--------------------------------------------------------------------------------
HIGH YIELD DEFAULT RATES: LATEST TWELVE MONTHS
May 31, 1997 - May 31, 2007
(Source: Moody's Investors Service)
[LINE GRAPH OMITTED]
EDGAR REPRESENTATION OF DATA TO FOLLOW:
Default Rate
May-97 1.60%
Jun-97 1.59%
Jul-97 1.84%
Aug-97 2.00%
Sep-97 2.06%
Oct-97 2.12%
Nov-97 2.27%
Dec-97 2.01%
Jan-98 2.07%
Feb-98 2.37%
Mar-98 2.35%
Apr-98 2.63%
May-98 2.69%
Jun-98 2.96%
Jul-98 2.80%
Aug-98 2.69%
Sep-98 2.62%
Oct-98 2.66%
Nov-98 2.80%
Dec-98 3.41%
Jan-99 3.49%
Feb-99 3.59%
Mar-99 3.82%
Apr-99 4.20%
May-99 4.80%
Jun-99 4.85%
Jul-99 5.32%
Aug-99 5.52%
Sep-99 5.84%
Oct-99 5.97%
Nov-99 5.85%
Dec-99 5.56%
Jan-00 5.53%
Feb-00 5.53%
Mar-00 5.67%
Apr-00 5.67%
May-00 5.40%
Jun-00 5.55%
Jul-00 4.96%
Aug-00 5.21%
Sep-00 5.31%
Oct-00 4.96%
Nov-00 5.44%
Dec-00 6.15%
Jan-01 6.69%
Feb-01 7.09%
Mar-01 7.84%
Apr-01 8.03%
May-01 8.09%
Jun-01 8.29%
Jul-01 8.90%
Aug-01 9.37%
Sep-01 9.71%
Oct-01 10.19%
Nov-01 10.22%
Dec-01 10.60%
Jan-02 10.89%
Feb-02 10.73%
Mar-02 10.60%
Apr-02 10.57%
May-02 10.70%
Jun-02 10.54%
Jul-02 10.33%
Aug-02 10.02%
Sep-02 9.78%
Oct-02 9.29%
Nov-02 8.94%
Dec-02 8.43%
Jan-03 7.68%
Feb-03 7.71%
Mar-03 6.98%
Apr-03 6.79%
May-03 6.63%
Jun-03 6.15%
Jul-03 5.87%
Aug-03 6.19%
Sep-03 6.03%
Oct-03 6.07%
Nov-03 5.50%
Dec-03 5.32%
Jan-04 5.12%
Feb-04 4.51%
Mar-04 4.36%
Apr-04 4.11%
May-04 3.64%
Jun-04 3.47%
Jul-04 3.00%
Aug-04 2.37%
Sep-04 2.44%
Oct-04 2.48%
Nov-04 2.53%
Dec-04 2.35%
Jan-05 2.26%
Feb-05 2.62%
Mar-05 2.30%
Apr-05 2.16%
May-05 2.08%
Jun-05 1.95%
Jul-05 1.95%
Aug-05 2.09%
Sep-05 2.09%
Oct-05 2.02%
Nov-05 1.95%
Dec-05 1.91%
Jan-06 1.77%
Feb-06 1.58%
Mar-06 1.64%
Apr-06 1.64%
May-06 1.84%
Jun-06 1.84%
Jul-06 1.78%
Aug-06 1.65%
Sep-06 1.71%
Oct-06 1.76%
Nov-06 1.82%
Dec-06 1.70%
Jan-07 1.75%
Feb-07 1.68%
Mar-07 1.51%
Apr-07 1.56%
May-07 1.44%
--------------------------------------------------------------------------------
10
---------
CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
(UNAUDITED)
--------------------------------------------------------------------------------
FED FUNDS RATE
May 31, 1997 - May 31, 2007
(Source: Bloomberg)
[LINE CHART OMITTED]
EDGAR REPRESENTATION OF DATA TO FOLLOW:
05/31/97 5.50%
06/30/97 5.50%
07/31/97 5.50%
08/31/97 5.50%
09/30/97 5.50%
10/31/97 5.50%
11/30/97 5.50%
12/31/97 5.50%
01/31/98 5.50%
02/28/98 5.50%
03/31/98 5.50%
04/30/98 5.50%
05/31/98 5.50%
06/30/98 5.50%
07/31/98 5.50%
08/31/98 5.50%
09/30/98 5.25%
10/31/98 5.00%
11/30/98 4.75%
12/31/98 4.75%
01/31/99 4.75%
02/28/99 4.75%
03/31/99 4.75%
04/30/99 4.75%
05/31/99 4.75%
06/30/99 5.00%
07/31/99 5.00%
08/31/99 5.25%
09/30/99 5.25%
10/31/99 5.25%
11/30/99 5.50%
12/31/99 5.50%
01/31/00 5.50%
02/29/00 5.75%
03/31/00 6.00%
04/30/00 6.00%
05/31/00 6.50%
06/30/00 6.50%
07/31/00 6.50%
08/31/00 6.50%
09/30/00 6.50%
10/31/00 6.50%
11/30/00 6.50%
12/31/00 6.50%
01/31/01 5.50%
02/28/01 5.50%
03/31/01 5.00%
04/30/01 4.50%
05/31/01 4.00%
06/30/01 3.75%
07/31/01 3.75%
08/31/01 3.50%
09/30/01 3.00%
10/31/01 2.50%
11/30/01 2.00%
12/31/01 1.75%
01/31/02 1.75%
02/28/02 1.75%
03/31/02 1.75%
04/30/02 1.75%
05/31/02 1.75%
06/30/02 1.75%
07/31/02 1.75%
08/31/02 1.75%
09/30/02 1.75%
10/31/02 1.75%
11/30/02 1.25%
12/31/02 1.25%
01/31/03 1.25%
02/28/03 1.25%
03/31/03 1.25%
04/30/03 1.25%
05/31/03 1.25%
06/30/03 1.00%
07/31/03 1.00%
08/31/03 1.00%
09/30/03 1.00%
10/31/03 1.00%
11/30/03 1.00%
12/31/03 1.00%
01/31/04 1.00%
02/29/04 1.00%
03/31/04 1.00%
04/30/04 1.00%
05/31/04 1.00%
06/30/04 1.25%
07/31/04 1.25%
08/31/04 1.50%
09/30/04 1.75%
10/31/04 1.75%
11/30/04 2.00%
12/31/04 2.25%
01/31/05 2.25%
02/28/05 2.50%
03/31/05 2.75%
04/30/05 2.75%
05/31/05 3.00%
06/30/05 3.25%
07/31/05 3.25%
08/31/05 3.50%
09/30/05 3.75%
10/31/05 3.75%
11/30/05 4.00%
12/31/05 4.25%
01/31/06 4.50%
02/28/06 4.50%
03/31/06 4.75%
04/30/06 4.75%
05/31/06 5.00%
06/30/06 5.25%
07/31/06 5.25%
08/31/06 5.25%
09/30/06 5.25%
10/31/06 5.25%
11/30/06 5.25%
12/31/06 5.25%
01/31/07 5.25%
02/28/07 5.25%
03/31/07 5.25%
04/30/07 5.25%
05/31/07 5.25%
--------------------------------------------------------------------------------
HOW IS THE FUND POSITIONED AT THE CLOSE OF THE PERIOD?
--------------------------------------------------------------------------------
CWF (AS A % OF) TOTAL INVESTMENTS
AS OF MAY 31, 2007
[PIE CHART OMITTED]
EDGAR REPRESENTATION OF DATA TO FOLLOW:
Equities 63%
Fixed Income 28%
Cash 1%
Preferred Term Securities 8%
--------------------------------------------------------------------------------
11
---------
CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
(UNAUDITED)
--------------------------------------------------------------------------------
FUND EQUITY ALLOCATION AS A % OF TOTAL INVESTMENTS
(as of May 31, 2007)
[CHART OMITTED]
EDGAR REPRESENTATION OF DATA TO FOLLOW:
Equities 63% Basic Materials 0.5%
Preferred Term Securities 8% Consumer Staples 13.2%
Fixed Income 28% Energy 5.6%
Cash 1% Financials 20.0%
Health Care 0.9%
Industrials 4.1%
REITS 8.6%
Telecommunications 6.3%
Utilities 3.8%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FUND FIXED INCOME ALLOCATION AS A % OF TOTAL INVESTMENTS
(as of May 31, 2007)
[CHART OMITTED]
EDGAR REPRESENTATION OF DATA TO FOLLOW:
Basic Industry 3.5% Equities 63%
Capital Goods 7.8% Preferred Term Securities 8%
Consumer Cyclical 3.0% Fixed Income 28%
Consumer Staples 1.3% Cash 1%
Energy 2.5%
Financial 3.3%
Health Care 1.0%
Real Estate 0.6%
Telecommunications 3.2%
Transportation 0.5%
Utilities 1.3%
--------------------------------------------------------------------------------
As of May 31, 2007, the percentage of the Fund's total investments held in
equities and fixed income was 71% and 28%, respectively. The Fund continues to
be overweight high quality, higher dividend paying securities. The market
continues to reward companies that provide a high total return, particularly as
the equity market returns remain muted relative to earlier periods. In the
Equity portion of the portfolio, securities related to the Financial sector
continue to represent the largest sector allocation, as favorable valuation,
high dividend yield and consistent growth relative to other sectors provide many
attractive investment opportunities. Due to the uncertainty around the next move
by the Federal Reserve, questions about the strength of the economy and the
likely slowing of corporate earnings growth, the Consumer Staples sector is the
second largest exposure in the portfolio. We believe that consumer staples
should show steadier earnings characteristics in the event of an economic
slowdown.
The fixed income portion of the Fund is positioned primarily in B and BB-rated
issues. In the current spread environment, we favor higher quality credits in
industries that we believe exhibit relatively stable cash flows. Spreads on
CCC-rated issuers were at a historical low at the end of May, and we do not
believe investors are sufficiently compensated to own most CCC-rated issues
currently given their higher risk and relative earnings volatility. The primary
goal of the fixed income portion of the portfolio is to provide a consistent
level of income in support of the Fund's monthly distribution.
12
---------
CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
(UNAUDITED)
WHAT ARE THE TOP 10 EQUITY HOLDINGS BY PERCENTAGE OF TOTAL INVESTMENTS?
TOP 10 EQUITIES BY PERCENTAGE OF TOTAL INVESTMENTS
% OF TOTAL
TICKER SECURITY INVESTMENTS YIELD%
--------------------------------------------------------------------------------
BAC Bank of America Corporation 5.01 4.4
MO Altria Group, Inc. 3.89 3.9
AB AllianceBernstein Holding LP 3.41 4.0
DRA Coinmach Corporation, Class A 2.64 7.5
SFI iStar Financial, Inc. 2.46 6.9
ACAS American Capital Strategies Limited 2.15 7.5
WIN Windstream Corporation 2.00 6.7
CG Loews Corporation-Carolina Group 2.00 8.7
AINV Apollo Investment Corporation 1.57 2.3
OKS ONEOK Partners LP 1.56 5.8
--------------------------------------------------------------------------------
DEFINITION OF THE COMPARATIVE INDICES
CONSUMER PRICE INDEX is a measure of the average change in prices over
time in a fixed market basket of goods and services.
S&P 500 INDEX is an unmanaged capitalization-weighted index of 500
stocks designed to measure performance of the broad domestic economy
through changes in the aggregate market value of 500 stocks
representing all major industries.
MERRILL LYNCH HIGH YIELD CASH PAY INDEX is an unmanaged index of
corporate bonds that pay cash coupons, meet a minimum size threshold,
and have a Merrill Lynch composite rating lower than BBB3.
MERRILL LYNCH U.S. CORPORATE MASTER INDEX tracks the performance of
U.S. dollar-denominated investment grade corporate public debt issued
in the U.S. domestic bond market.
MORGAN STANLEY REIT INDEX is an unmanaged total-return index
comprised of the most actively traded real estate investment trusts and is
designed to be a measure of real estate equity performance.
--------------------------------------------------------------------------------
13
---------
CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
UTILIZATION OF LEVERAGE (UNAUDITED)
The Chartwell Dividend and Income Fund, Inc. has utilized leverage through the
issuance of commercial paper. As of May 31, 2007, the Fund had approximately $55
million in leverage outstanding (out of $60 million available) in the form of
commercial paper rated A1/P1 by Moody's Investors Service, Inc./Standard &
Poor's Ratings Group. These ratings should enhance the marketability and reduce
the interest costs associated with the issuance of the commercial paper.
However, it must be noted that the utilization of leverage involves the risk of
lower portfolio returns if the cost of leverage is higher than the resulting
yields on assets or if the Fund experiences capital losses in excess of the
yield spread, if any. Therefore, the addition of leverage also increases the
potential volatility of the Fund. The Fund has the ability to leverage to a
maximum of 33% of the Fund's gross assets.
The Fund utilizes leveraging to seek to enhance the yield and NAV of its common
stock. However, these objectives cannot be achieved in all interest rate
environments. To leverage, the Fund issues commercial paper, which is issued at
a discount equivalent to short-term interest rates, and invests the proceeds in
long-term securities. The interest earned on these investments is paid to common
stock shareholders in the form of dividends, and the value of these portfolio
holdings is reflected in the per share NAV of the Fund's common stock. However,
in order to benefit common stock shareholders, the yield curve must be
positively sloped; that is, short-term interest rates must be lower than
long-term interest rates. At the same time, a period of generally declining
interest rates will benefit common stock shareholders. IF EITHER OF THESE
CONDITIONS CHANGE, THEN THE RISKS OF LEVERAGING WILL BEGIN TO OUTWEIGH THE
BENEFITS.
To illustrate these concepts, assume a fund's common stock capitalization of
$100 million and the issuance of commercial paper for an additional $50 million,
creating a total value of $150 million available for investment in long-term
securities. If prevailing short-term interest rates are approximately 3% and
long-term interest rates are approximately 6%, the yield curve has a strongly
positive slope.
14
---------
CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
UTILIZATION OF LEVERAGE (UNAUDITED) (CONCLUDED)
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.
15
---------
CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED)
ASSET CLASS WEIGHTINGS+:
[BAR CHART OMITTED]
EDGAR REPRESENTATION OF DATA TO FOLLOW:
79.1% Common Stock
10.5% Preferred Term Securities
2.4% Convertible Preferred Stock
1.5% Preferred Stock
37.2% Corporate Notes/Bonds
1.6% Cash Equivalents
+Percentages are based on total net assets of $170,387,290.
Total Investments including leverage are $225,345,175.
NUMBER OF MARKET
SHARES VALUE
--------- ------------
COMMON STOCK--79.1%
BANKS--11.0%
Bank of America Corporation.......................... 222,000 $ 11,257,620
National City Corporation............................ 25,000 864,750
Old National Bankcorp, Inc........................... 50,000 892,500
PNC Financial Services Group, Inc.................... 20,000 1,476,000
Wachovia Corporation................................. 40,000 2,167,600
Washington Mutual, Inc............................... 50,000 2,186,000
------------
18,844,470
------------
BASIC INDUSTRY--0.7%
Dow Chemical Company................................. 25,000 1,134,500
------------
CONSUMER STAPLES--17.5%
Altria Group, Inc.................................... 122,950 8,741,745
B&G Foods, Inc., Class A............................. 65,000 887,250
B&G Foods, Inc....................................... 41,000 895,440
Coinmach Corporation, Class A........................ 539,005 5,929,055
Dean Foods Company................................... 20,000 655,200
Loews Corporation - Carolina Group................... 57,800 4,493,950
Reddy Ice Holdings, Inc.............................. 100,000 3,052,000
Regal Entertainment Group, Class A................... 140,000 3,203,200
Reynolds American, Inc............................... 30,000 1,951,200
------------
29,809,040
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
---------
CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
--------- ------------
COMMON STOCK (CONTINUED)
ENERGY--7.1%
Atlas Energy Resource LLC*........................... 20,000 $ 716,000
Baker Hughes, Inc.................................... 20,000 1,649,600
Calumet Specialty Products Partners LP (c)........... 5,000 256,750
ConocoPhillips....................................... 20,000 1,548,600
Constellation Energy Partners LLC*................... 5,000 177,500
Duncan Energy Partners LP (c)........................ 15,000 408,750
Energy Transfer Partners LP (c)...................... 50,000 3,060,000
Enterprise Products Partners LP (c).................. 50,000 1,566,000
Linn Energy LLC (c).................................. 7,000 251,720
Sunoco Logistics Partners LP (c)..................... 40,000 2,440,000
------------
12,074,920
------------
FINANCIAL--12.9%
AllianceBernstein Holding LP (c)..................... 83,800 7,660,158
American Capital Strategies Limited.................. 100,000 4,843,000
Apollo Investment Corporation........................ 149,800 3,524,794
MCG Capital Corporation.............................. 145,000 2,557,800
Newcastle Investment Corporation..................... 15,000 444,900
Quadra Realty Trust, Inc.*........................... 35,000 472,150
Star Asia Financial Limited*......................... 50,000 500,000
Technology Investment Capital Corporation............ 100,595 1,732,246
XL Capital Limited, Class A.......................... 3,272 266,864
------------
22,001,912
------------
HEALTHCARE--1.1%
Johnson & Johnson.................................... 30,000 1,898,100
------------
INDUSTRIAL--0.7%
General Electric Company............................. 30,000 1,127,400
------------
REAL ESTATE INVESTMENT TRUSTS--10.0%
Alesco Financial, Inc................................ 279,000 2,778,840
CapitalSource, Inc................................... 75,000 1,972,500
Deerfield Triarc Capital Corporation................. 70,000 1,134,000
HomeBanc Corporation................................. 450,000 918,000
iStar Financial, Inc................................. 115,000 5,523,450
LTC Properties, Inc.................................. 50,000 1,199,000
Northstar Realty Finance Corporation*................ 36,150 520,922
RAIT Financial Trust................................. 100,000 2,946,000
------------
16,992,712
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17
---------
CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
--------- ------------
COMMON STOCK (CONTINUED)
TELECOMMUNICATIONS--8.3%
Alaska Communications Systems Group, Inc............. 175,000 $ 2,761,500
BCE, Inc............................................. 30,000 1,107,000
Citizens Communications Company...................... 200,000 3,170,000
Consolidated Communications Holdings, Inc............ 40,000 850,400
Fairpoint Communications, Inc........................ 100,000 1,800,000
Windstream Corporation............................... 300,000 4,506,000
------------
14,194,900
------------
TRANSPORTATION--4.7%
Aries Maritime Transport Limited..................... 50,000 450,000
Arlington Tankers Limited............................ 42,100 1,131,648
General Maritime Corporation......................... 75,000 2,274,000
K-Sea Transportation Partners LP (c)................. 10,000 441,800
Nordic American Tanker Shipping...................... 16,440 648,394
Tal International Group, Inc......................... 70,000 1,821,400
Teekay LNG Partners LP* (c).......................... 35,000 1,263,850
------------
8,031,092
------------
UTILITIES--5.1%
AmeriGas Partners LP (c)............................. 15,200 576,232
Kinder Morgan Energy Partners LP (c)................. 45,000 2,484,000
ONEOK Partners LP (c)................................ 50,900 3,499,884
TEPPCO Partners LP (c)............................... 34,800 1,529,460
Transmontaigne Partners LP (c)....................... 15,000 539,400
------------
8,628,976
------------
TOTAL COMMON STOCK (COST $119,841,704)............... 134,738,022
------------
PREFERRED TERM SECURITIES+ (A)--10.5%
Alesco Preferred Funding II, 3/15/37................. 5,000 500,000
Alesco Preferred Funding IX, 6/23/36................. 1,000 731,250
Alesco Preferred Funding X, 9/23/36.................. 1,000 985,000
Alesco Preferred Funding XI, 12/23/36................ 5,000 495,500
Alesco Preferred Funding XII, 12/23/36............... 5,000 500,000
Alesco Preferred Funding XIII, 9/23/37............... 2,500 250,000
Alesco Preferred Funding XV, 12/23/37................ 2,500 250,000
I-Preferred Term Securities IV, 6/24/34.............. 10,000 820,000
Preferred Term Securities IV, 12/23/31............... 20,000 634,500
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
---------
CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
--------- ------------
PREFERRED TERM SECURITIES+ (A) (CONTINUED)
Preferred Term Securities XIII, 3/24/34.............. 10,000 $ 787,800
Preferred Term Securities XIV, 6/24/34............... 20,000 1,565,000
Preferred Term Securities XV, 9/24/34................ 20,000 1,684,400
Preferred Term Securities XVI, 3/23/35............... 10,000 869,700
Preferred Term Securities XVII, 9/23/35.............. 6,000 477,060
Preferred Term Securities XVIII, 6/23/35............. 10,000 803,400
Preferred Term Services XIX, 12/22/35................ 10,000 821,700
Preferred Term Securities XX, 3/22/38................ 10,000 858,300
Preferred Term Securities XXI, 3/22/38............... 10,000 917,700
Preferred Term Services XXII, 3/22/37................ 10,000 920,100
Preferred Term Services XXIII, 12/22/36.............. 5,000 469,100
Preferred Term Services XXIV, 3/22/37................ 5,000 482,000
Preferred Term Services XXV, 6/22/37................. 5,000 496,250
Taberna Preferred Funding I, 7/15/35................. 2,500 216,400
Taberna Preferred Funding II, 11/5/35................ 5,000 376,000
Taberna Preferred Funding Limited, 12/5/36........... 5,000 484,375
Taberna Preferred Funding VII, 2/5/37................ 5,000 442,500
------------
TOTAL PREFERRED TERM SECURITIES (COST $18,062,231)... 17,838,035
------------
CONVERTIBLE PREFERRED STOCK--2.4%
FINANCIAL--2.4%
ACE Limited, 7.800%.................................. 26,025 666,760
Merrill Lynch & Company, RIG CAP APP Notes,
Transocean, 11.000%............................... 27,148 2,173,740
Metlife, Inc., 6.375%................................ 25,000 846,000
XL Capital Limited, 7.000%........................... 13,859 395,813
------------
TOTAL CONVERTIBLE PREFERRED STOCK (COST $3,634,765) . 4,082,313
------------
PREFERRED STOCK--1.5%
ENERGY--0.2%
TransCanada Corporation.............................. 14,905 389,170
------------
REAL ESTATE INVESTMENT TRUST--1.3%
Felcor Lodging Trust, Inc............................ 40,000 1,008,400
Solar Cayman Limited+................................ 80,000 1,200,000
------------
2,208,400
------------
TOTAL PREFERRED STOCK (COST $2,581,501).............. 2,597,570
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ------------
CORPORATE NOTES/BONDS--37.2%
BASIC INDUSTRY--4.6%
Baldor Electric Company
8.625%, 02/15/17.................................. $1,050,000 $ 1,134,000
Buhrmann US, Inc.
8.250%, 07/01/14.................................. 620,000 632,400
H&E Equipment Services, Inc.
8.375%, 07/15/16.................................. 1,175,000 1,274,875
Ply Gem Industries, Inc.
9.000%, 02/15/12.................................. 1,000,000 932,500
Quebecor Media
7.750%, 03/15/16.................................. 520,000 548,600
Rental Service Corporation+
9.500%, 12/01/14.................................. 725,000 783,000
WII Components, Inc.
10.000%, 02/15/12................................. 1,000,000 1,065,000
Williams Scotsman, Inc.
8.500%, 10/01/15.................................. 1,370,000 1,462,475
------------
7,832,850
------------
CAPITAL GOODS--10.4%
Aramark Corporation+
8.500%, 02/01/15.................................. 1,000,000 1,056,250
Blount, Inc.
8.875%, 08/01/12.................................. 750,000 783,750
Freeport-McMorgan Copper & Gold
8.375%, 04/01/17.................................. 1,000,000 1,095,000
Georgia-Pacific Corporation+
7.125%, 01/15/17.................................. 100,000 100,250
Gibraltar Industries, Inc., Series B
8.000%, 12/01/15.................................. 1,340,000 1,360,100
Ineos Group Holdings+
8.500%, 02/15/16.................................. 1,020,000 1,031,475
Lear Corporation, Series B
8.750%, 12/01/16.................................. 585,000 564,525
Momentive Performance+
9.750%, 12/01/14.................................. 1,000,000 1,050,000
Nalco Company
7.750%, 11/15/11.................................. 1,050,000 1,092,000
P H Glatfelter+
7.125%, 05/01/16.................................. 680,000 697,000
Quebecor World Capital Corporation+
8.750%, 03/15/16.................................. 975,000 1,011,562
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ------------
CORPORATE NOTES/BONDS (CONTINUED)
CAPITAL GOODS (CONTINUED)
Steel Dynamics, Inc.+
6.750%, 04/01/15.................................. $ 945,000 $ 945,000
Superior Essex Communications LLC
9.000%, 04/15/12.................................. 1,450,000 1,515,250
Trimas Corporation
9.875%, 06/15/12.................................. 1,000,000 1,051,250
Tronox Worldwide Finance Corporation
9.500%, 12/01/12.................................. 1,285,000 1,368,525
TRW Automotive, Inc.
7.250%, 03/15/17.................................. 1,050,000 1,057,875
US Corrugated
10.000%, 06/01/13................................. 1,000,000 1,000,000
Verso Paper Holdings LLC+
11.375%, 08/01/16................................. 1,000,000 1,075,000
------------
17,854,812
------------
CONSUMER CYCLICAL--4.0%
Allied Security Escrow
11.375%, 07/15/11................................. 1,015,000 1,035,300
Boyd Gaming Corporation
7.125%, 02/01/16.................................. 1,100,000 1,105,500
Buffets, Inc.
12.500%, 11/01/14................................. 750,000 768,750
MTR Gaming Group, Inc., Series B
9.750%, 04/01/10.................................. 520,000 546,650
MTR Gaming Group, Inc., Series B
9.000%, 06/01/12.................................. 700,000 743,750
Sonic Automotive, Inc., Series B
8.625%, 08/15/13.................................. 1,390,000 1,464,713
Wimar Opco LLC+
9.625%, 012/15/14................................. 1,150,000 1,167,250
------------
6,831,913
------------
CONSUMER STAPLES--1.8%
Brown Shoe Company, Inc.
8.750%, 05/01/12.................................. 800,000 852,000
Hanesbrand, Inc.+(b)
8.735%, 12/15/14.................................. 1,025,000 1,068,562
Idearc, Inc.+
8.000%, 11/15/16.................................. 1,075,000 1,119,344
------------
3,039,906
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ------------
CORPORATE NOTES/BONDS (CONTINUED)
ENERGY--3.3%
Bluewater Finance Limited
10.250%, 02/15/12................................. $1,000,000 $ 1,050,000
Cie Generale Geophysique
7.750%, 05/15/17.................................. 1,000,000 1,060,000
Cimarex Energy Company
7.125%, 05/01/17.................................. 650,000 661,375
Complete Product Services, Inc.+
8.000%, 12/15/16.................................. 780,000 815,100
Copano Energy LLC
8.125%, 03/01/16.................................. 935,000 979,412
Encore Acquisition Company
7.250%, 12/01/17.................................. 1,100,000 1,067,000
------------
5,632,887
------------
FINANCIAL--4.4%
Ford Motor Credit Company
7.000%, 10/01/13.................................. 1,950,000 1,868,472
General Motors Acceptance Corporation
8.000%, 11/01/31.................................. 1,590,000 1,751,700
KAR Holdings, Inc.+
8.750%, 05/01/14.................................. 1,270,000 1,301,750
Labranche & Company, Inc.
11.000%, 05/15/12................................. 1,260,000 1,365,525
Rent-A-Center, Inc., Series B
7.500%, 05/01/10.................................. 1,220,000 1,238,300
------------
7,525,747
------------
HEALTHCARE--1.3%
Hanger Orthopedic Group
10.250%, 06/01/14................................. 1,000,000 1,090,000
Iasis Healthcare Corporation
8.750%, 06/15/14.................................. 1,000,000 1,055,000
------------
2,145,000
------------
REAL ESTATE--0.8%
Geo Group, Inc.
8.250%, 07/15/13.................................. 1,340,000 1,407,000
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ------------
CORPORATE NOTES/BONDS (CONTINUED)
TELECOMMUNICATIONS--4.2%
Allbritton Communications Company
7.750%, 12/15/12.................................. $1,315,000 $ 1,362,669
Cincinnati Bell, Inc.
8.375%, 01/15/14.................................. 960,000 988,800
CSC Holdings, Inc.
7.875%, 02/15/18.................................. 1,285,000 1,313,912
Hughes Network Systems
9.500%, 04/15/14.................................. 855,000 908,438
Intelsat Holdings Company
8.625%, 01/15/15.................................. 1,155,000 1,243,069
Mediacom Broadband LLC+
8.500%, 10/15/15.................................. 750,000 781,875
Mediacom Broadband LLC
8.500%, 10/15/15.................................. 500,000 521,250
------------
7,120,013
------------
TRANSPORTATION--0.6%
Ship Finance International Limited
8.500%, 12/15/13.................................. 1,000,000 1,038,750
------------
UTILITIES--1.8%
Edison Mission Energy+
7.000%, 05/15/17.................................. 650,000 650,813
Elwood Energy LLC
8.159%, 07/05/26.................................. 1,022,645 1,080,686
NSG Holdings LLC+
7.750%, 12/15/25.................................. 1,200,000 1,269,000
------------
3,000,499
------------
TOTAL CORPORATE NOTES/BONDS (COST $61,366,286)....... 63,429,377
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
---------
CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
---------- -------------
CASH EQUIVALENTS (A)--1.6%
SEI Daily Income Trust, Prime Obligations Fund,
Class A Shares, 5.320%............................ 2,491,884 $ 2,491,884
SEI Daily Income Trust, Treasury Fund,
Class A Shares, 5.230%............................ 167,974 167,974
------------
TOTAL CASH EQUIVALENTS (COST $2,659,858)............. 2,659,858
------------
TOTAL INVESTMENTS--132.3%
(COST $208,146,345)............................... 225,345,175
------------
WRITTEN
CONTRACTS
-----------
COVERED CALL OPTIONS WRITTEN--(0.3)%
Baker Hughes, Inc., Expires 6/16/07, Strike Price $85 (200) (19,000)
Bank of America Corporation, Expires 6/16/07,
Strike Price $53.................................. (220) (1,100)
Bank of America Corporation, Expires 7/21/07,
Strike Price $53.................................. (700) (35,000)
BCE, Inc., Expires 6/16/07, Strike Price $35......... (300) (64,500)
ConocoPhillips, Expires 6/16/07, Strike Price $75.... (200) (64,000)
Dow Chemical Company, Expires 7/21/07,
Strike Price $45.................................. (250) (42,500)
General Electric Company, Expires 6/16/07,
Strike Price: $38................................. (300) (14,400)
Johnson & Johnson, Expires 7/21/07, Strike Price $65. (300) (19,500)
Loews Corporation-Carolina Group, Expires 6/16/07,
Strike Price $80.................................. (400) (18,000)
Loews Corporation-Carolina Group, Expires 6/16/07,
Strike Price: $75................................. (100) (32,500)
National City Corporation, Expires 7/21/07,
Strike Price $35.................................. (250) (25,625)
PNC Financial Services Group, Inc., Expires 7/21/07,
Strike Price: $75................................. (200) (32,000)
Reynolds American, Inc., Expires 8/18/07,
Strike Price $70.................................. (300) (19,500)
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
---------
CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONCLUDED)
WRITTEN MARKET
CONTRACTS VALUE
----------- ------------
COVERED CALL OPTIONS WRITTEN (CONTINUED)
Wachovia Corporation, Expires 6/16/07,
Strike Price $58.................................. (400) $ (2,000)
Washington Mutual, Inc., Expires 6/16/07,
Strike Price $43.................................. (250) (38,750)
Washington Mutual, Inc., Expires 7/21/07,
Strike Price $45.................................. (250) (21,250)
------------
TOTAL COVERED CALL OPTIONS WRITTEN
(PREMIUMS RECEIVED $412,600)...................... (449,625)
------------
OTHER LIABILITIES IN EXCESS OF OTHER ASSETS--(32.0)% (54,508,260)
------------
NET ASSETS--100.0%................................... $170,387,290
============
* Non Income Producing Security.
+ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration normally to qualified institutions. At May 31, 2007, these
securities amounted to $34,961,266 or 20.5% of net assets.
(a) Rate shown is the 7-day yield as of May 31, 2007.
(b) Variable Rate Security -- The rate reported on the Schedule of Investments
is the rate in effect as of May 31, 2007.
(c) Securities are considered Master Limited Partnerships. At May 31, 2007,
these securities amounted to $25,978,004 or 15.2% 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, 2007
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AS OF MAY 31, 2007 (UNAUDITED)
ASSETS:
Investments, at value (cost $208,146,345) (Note 1)............... $225,345,175
Cash............................................................. 77,097
Interest receivable.............................................. 1,603,889
Dividends receivable............................................. 433,779
Receivable for securities sold................................... 1,685,258
Prepaid expenses and other assets................................ 88,956
------------
Total assets................................................ 229,234,154
------------
LIABILITIES:
Commercial paper (Note 4)........................................ 54,625,208
Covered call options written, at value
(premiums received--$412,600) (Note 1)........................ 449,625
Payable for securities purchased................................. 3,502,553
Payable for investment management fees (Note 2).................. 161,724
Payable for administration fees (Note 2)......................... 19,026
Accrued expenses and other liabilities........................... 88,728
------------
Total liabilities........................................... 58,846,864
------------
NET ASSETS....................................................... $170,387,290
============
NET ASSETS CONSIST OF:
Common Stock, $0.01 par value
(authorized 100,000,000 shares)............................. $ 168,852
Additional paid-in capital.................................... 186,335,535
Undistributed net investment income........................... 2,662,907
Accumulated net realized losses on investments and options.... (35,941,809)
Net unrealized appreciation on investments and options........ 17,161,805
-------------
NET ASSETS ...................................................... $170,387,290
============
NET ASSET VALUE PER SHARE:
$170,387,290 / 16,885,172 shares of Common Stock issued
and outstanding............................................. $ 10.09
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED
MAY 31, 2007 (UNAUDITED)
INVESTMENT INCOME:
Dividends........................................................ $ 8,643,442
Interest......................................................... 2,889,948
Foreign tax withholding.......................................... (9,122)
-----------
Total investment income..................................... 11,524,268
-----------
EXPENSES:
Investment management fees (Note 2).............................. 1,044,169
Commercial paper fees............................................ 134,638
Administration fees (Note 2)..................................... 109,919
Professional fees................................................ 95,861
Printing and shareholder reports................................. 44,940
Insurance fees.................................................... 22,080
Transfer agent fees.............................................. 21,626
Registration fees................................................ 13,877
Directors' fees and expenses..................................... 13,464
Custodian fees................................................... 7,867
Other operating expenses......................................... 9,368
-----------
Total operating expenses...................................... 1,517,809
-----------
Interest Expense (Note 4)................................... 1,462,347
-----------
Total expenses................................................ 2,980,156
-----------
Less:
Investment management fees waived (Note 2).................. 109,859
-----------
Net expenses................................................ 2,870,297
-----------
NET INVESTMENT INCOME....................................... 8,653,971
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments................................. 2,154,344
Net realized gain on written call options ........................ 267,557
Change in net unrealized appreciation on investments
and written call options...................................... 5,542,343
-----------
Net realized and unrealized gain on investments
and written call options...................................... 7,964,244
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............. $16,618,215
===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27
---------
CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED
MAY 31, 2007 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations.......... $16,618,215
Adjustments to reconcile net increase in net assets resulting
from operations to net cast provided by operating activities:
Purchase of long-term portfolio investments.................. (84,838,836)
Proceeds from sales of long-term portfolio investments....... 81,618,480
Purchase of short-term portfolio investments................. (66,396,482)
Proceeds from sales of short-term portfolio investments...... 66,551,339
Realized gain on written call options........................ (267,557)
Premiums received from options written ...................... 1,796,356
Premiums paid to closed options ............................. (1,118,351)
Amortization of premiums on investments...................... 34,803
Realized gains from security transactions.................... (2,154,344)
Change in unrealized appreciation from security transactions. (5,542,343)
Increase in interest receivable.............................. (133,781)
Decrease in dividends receivable............................. 9,695
Increase in receivable for securities sold................... (1,349,278)
Decrease in prepaid expenses and other assets................ 59,834
Decrease in commercial paper, at value....................... (3,945)
Increase in payable for securities purchased................. 2,074,153
Increase in payable for investment management fees........... 12,471
Increase in payable for administration fees.................. 1,467
Decrease in payable for directors' fees...................... (48)
Decrease in accrued expenses and other liabilities........... (60,923)
-----------
Net cash provided by operating activities................ 6,910,925
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid to shareholders............................ (7,439,496)
Reinvestment of dividends resulting in the issuance
of common stock transactions................................. 595,668
-----------
Net cash used in financing activities.................... (6,843,828)
-----------
Net increase in cash..................................... 67,097
CASH
Cash at beginning of period....................................... 10,000
-----------
Cash at end of period............................................ $ 77,097
===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
MAY 31, 2007 NOVEMBER 30,
(UNAUDITED) 2006
-------------- --------------
OPERATIONS:
Net investment income........................ $ 8,653,971 $ 10,415,188
Net realized gain on investments............. 2,154,344 24,492,621
Net realized gain on written call options ... 267,557 1,335,397
Change in net unrealized appreciation
(depreciation) on investments and
written call options....................... 5,542,343 (5,678,545)
------------ ------------
Net increase in net assets
resulting from operations.................... 16,618,215 30,564,661
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income........................ (7,439,496) (15,574,045)
------------ ------------
Net decrease in net assets resulting from
dividends and distributions.................. (7,439,496) (15,574,045)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Reinvestment of dividends resulting in the
issuance of Common Stock transactions........ 595,668 1,270,678
------------ ------------
Total increase in net assets.................... 9,774,387 16,261,294
------------ ------------
NET ASSETS:
Beginning of period.......................... 160,612,903 144,351,609
------------ ------------
End of period
(including undistributed net investment
income of $2,662,907 and $1,448,432,
respectively).............................. $170,387,290 $160,612,903
============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR THE
SIX MONTHS FOR THE
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE ENDED YEAR ENDED
BEEN DERIVED FROM INFORMATION PROVIDED IN THE MAY 31, 2007 NOVEMBER 30,
FINANCIAL STATEMENTS (UNAUDITED) 2006
------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD......................... $ 9.55 $ 8.65
-------- --------
INCOME/GAIN FROM INVESTMENT OPERATIONS:
Net investment income (1) ................................. 0.52 0.63
Net realized and unrealized gain on
investment transactions and options ..................... 0.46 1.20
-------- --------
Total from investment operations......................... 0.98 1.83
-------- --------
LESS DIVIDENDS
Dividends from net investment income....................... (0.44) (0.93)
-------- --------
Total dividends.......................................... (0.44) (0.93)
-------- --------
NET ASSET VALUE, END OF PERIOD............................... $ 10.09 $ 9.55
======== ========
MARKET VALUE, END OF PERIOD.................................. $ 10.27 $ 9.78
======== ========
TOTAL RETURN BASED ON: (2)
Net asset value............................................ 10.49% 22.51%
======== ========
Market value .............................................. 9.73% 0.36%
======== ========
RATIOS AND SUPPLEMENTAL DATA: (3)
Net assets, end of period (000 omitted).................... $170,387 $160,613
======== ========
Total expenses including waiver of fees ................... 3.84% 2.59%
Total expenses excluding waiver of fees ................... 3.99% 2.68%
Total operating expenses including waiver of fees (4) ..... 1.70% 1.13%
Total operating expenses excluding waiver of fees (4) ..... 1.85% 1.24%
Commercial paper fees and interest expense................. 2.14% 1.44%
Net investment income including waiver of fees ............ 11.59% 5.07%
Portfolio turnover ........................................ 38% 96%
LEVERAGE ANALYSIS:
Aggregate amount outstanding at end of period
(000 omitted) ........................................... $ 55,000 $ 55,000
Average daily balance of amortized cost of commercial
paper outstanding (000 omitted).......................... $ 54,635 $ 54,659
Asset coverage per $1,000 at end of period................. $ 3,684 $ 3,980
-----------------
(1) Based on average shares outstanding.
(2) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
each year reported. Total investment return does not reflect brokerage
commissions. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment returns based on market
value, which can be significantly greater or less than the net asset value,
may result in substantially different returns. Returns do not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or the
Redemption of Fund shares.
(3) Ratios are stated as a percentage of average weekly net assets which
includes any liabilities constituting indebtedness in connection with
financial leverage.
(4) Exclusive of commercial paper fees and interest expense.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
30
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE YEARS ENDED
NOVEMBER 30,
---------------------------
2005 2004
----------------------------
NET ASSET VALUE, BEGINNING OF YEAR........................... $ 8.96 $ 8.52
-------- --------
INCOME/GAIN FROM INVESTMENT OPERATIONS: (1)
Net investment income ..................................... 0.61 0.55
Net realized and unrealized gain on
investment transactions and options ..................... 0.08 0.89
-------- --------
Total from investment operations ........................ 0.69 1.44
-------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income....................... (0.53) (0.54)
Distributions in excess.................................... (0.01) (0.46)
Tax return of capital...................................... (0.46) --
-------- --------
Total dividends and distributions........................ (1.00) (1.00)
-------- --------
NET ASSET VALUE, END OF YEAR................................. $ 8.65 $ 8.96
======== ========
MARKET VALUE, END OF YEAR.................................... $ 10.70 $ 10.03
======== ========
TOTAL RETURN BASED ON: (2)
Net asset value............................................ 8.19% 18.01%
======== ========
Market value .............................................. 18.14% 14.02%
======== ========
RATIOS AND SUPPLEMENTAL DATA: (3)
Net assets, end of year (000 omitted)...................... $144,352 $148,144
======== ========
Total expenses including waiver of fees ................... 2.90% 2.26%
Total expenses excluding waiver of fees ................... 3.04% 2.40%
Total operating expenses including waiver of fees(4) ...... 1.59% 1.57%
Total operating expenses excluding waiver of fees(4) ...... 1.73% 1.71%
Commercial paper fees and interest expense................. 1.31% 0.69%
Net investment income including waiver of fees ............ 7.00% 6.34%
Portfolio turnover ........................................ 80% 99%
LEVERAGE ANALYSIS:
Aggregate amount outstanding at end of year
(000 omitted) ........................................... $ 55,000 $ 50,000
Average daily balance of amortized cost of commercial
paper outstanding (000 omitted) ......................... $ 54,794 $ 54,052
Asset coverage per $1,000 at end of year .................. $ 3,679 $ 3,680
-----------------
(1) Based on average shares outstanding.
(2) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
each year reported. Total investment return does not reflect brokerage
commissions. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment returns based on market
value, which can be significantly greater or less than the net asset value,
may result in substantially different returns. Returns do not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or the
Redemption 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, 2007
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONCLUDED)
FOR THE YEARS ENDED
NOVEMBER 30,
---------------------------
2003 2002
---------------------------
NET ASSET VALUE, BEGINNING OF YEAR............................ $ 7.47 $ 9.76
-------- --------
INCOME/GAIN (LOSS) FROM INVESTMENT OPERATIONS: (1)
Net investment income ...................................... 0.60 0.66
Net realized and unrealized gain (loss) on
investment transactions and options ...................... 1.45 (1.83)
-------- --------
Total from investment operations ......................... 2.05 (1.17)
-------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income........................ (0.61) (0.66)
Tax return of capital....................................... (0.39) (0.46)
-------- --------
Total dividends and distributions......................... (1.00) (1.12)
-------- --------
NET ASSET VALUE, END OF YEAR ................................. $ 8.52 $ 7.47
======== ========
MARKET VALUE, END OF YEAR..................................... $ 9.80 $ 7.27
======== ========
TOTAL RETURN BASED ON: (2)
Net asset value............................................. 28.96% (13.50)%
======== ========
Market value ............................................... 51.57% (22.12)%
======== ========
RATIOS AND SUPPLEMENTAL DATA: (3)
Net assets, end of year (000 omitted)....................... $139,137 $120,086
======== ========
Total expenses including waiver of fees .................... 2.40% 2.81%
Total expenses excluding waiver of fees .................... 2.54% 2.86%
Total operating expenses including waiver of fees (4) ...... 1.57% 1.81%
Total operating expenses excluding waiver of fees (4) ...... 1.86% 1.86%
Commercial paper fees and interest expense.................. 0.68% 1.00%
Net investment income including waiver of fees.............. 7.58% 7.64%
Portfolio turnover ......................................... 99% 102%
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) .......................... $ 49,925 $ 56,250
Asset coverage per $1,000 at end of year ................... $ 3,838 $ 3,445
-----------------
(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
Redemption of Fund shares.
(3) Ratios are stated as a percentage of average weekly net assets which
includes any liabilities constituting indebtedness in connection with
financial leverage.
(4) Exclusive of commercial paper fees and interest expense.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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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,
2007, are valued in accordance with Fair Value Procedures established by the
Board of Directors (the "Board"). The Fund's Fair Value Procedures are
implemented through a Fair Value Committee (the "Committee") designated by
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the Fund's Board. Some of the more common reasons that may necessitate that a
security be valued using Fair Value Procedures include, among other things: the
security's trading has been halted or suspended; the security has been de-listed
from a national exchange; the security's primary trading market is temporarily
closed at a time when under normal conditions it would be open; or the
security's primary pricing source is not able or willing to provide a price.
When a security is valued in accordance with the Fair Value Procedures, the
Committee will determine the value after taking into consideration relevant
information reasonably available to the Committee.
CASH AND CASH EQUIVALENTS: Idle cash is swept into various money market funds
and is classified as cash equivalents on the Schedule of Investments. Amounts so
invested are generally available on the same business day.
WRITTEN OPTIONS: When the Fund writes a covered call option, an amount equal to
the premium received by the Fund is included in the Fund's Statement of Assets
and Liabilities as a liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option written.
When a covered written call option expires on its stipulated expiration date, or
if the Fund enters into a closing purchase transaction, the Fund will realize a
gain (or loss if the cost of the closing purchase transaction exceeds the
premium received when the call option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option will be extinguished. When a covered written call option is
exercised, the Fund will realize a gain or loss from the sale of the underlying
security and the proceeds of the sale are increased by the premium originally
received. The Fund, as writer of an option, has no control over whether the
underlying securities may be sold (called) and as a result bears the market risk
of an unfavorable change in the price of the securities underlying the written
option.
DIVIDENDS AND DISTRIBUTIONS: The Fund will declare and pay dividends to
shareholders on a monthly basis. 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.
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BORROWINGS: The Fund issues short-term commercial paper at a discount from par.
The discount is amortized to interest expense over the life of the commercial
paper using the straight-line method.
ILLIQUID SECURITIES: A security is considered illiquid if it cannot be sold or
disposed of in the ordinary course of business within seven days or less for its
approximate carrying value on the books of the Fund. Valuations of illiquid
securities may differ significantly from the values that would have been used
had an active market value for these securities existed.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are recorded
on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis. The Fund accretes original issue discount on securities
using the effective interest method.
INVESTMENTS IN REAL ESTATE INVESTMENT TRUSTS ("REITS"): With respect to the
Fund, dividend income is recorded based on the income included in distributions
received from the REIT investments using published REIT reclassifications
including some management estimates when actual amounts are not available.
Distributions received in excess of this estimated amount are recorded as a
reduction of the cost of investments or reclassified to capital gains. The
actual amounts of income, return of capital, and capital gains are only
determined by each REIT after its fiscal year-end, and may differ from the
estimated amounts.
INVESTMENTS IN PREFERRED TERM SECURITIES ("PTSS"): The Fund invests in Preferred
Term Securities ("PTSs"), a type of collateralized debt obligation ("CDO"). A
PTS is a trust collateralized by a pool of capital securities of affiliated
holding corps., 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
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not limited to: (i) the possibility that distributions from collateral
securities will not be adequate to make interest or other payments; (ii) the
quality of the collateral may decline in value or default; (iii) the Fund may
invest in PTSs that are subordinate to other classes; and (iv) the complex
structure of the security may produce disputes with the issuer or unexpected
investment results.
NOTE 2. INVESTMENT MANAGEMENT, ADMINISTRATION, CUSTODIAN AGREEMENTS AND OTHER
TRANSACTIONS WITH AFFILIATES
The Fund has entered into an investment management agreement with the Manager.
The Manager manages the Fund's portfolio and makes investment decisions. For
these services, the Fund pays the Manager a monthly fee at an annual rate of
0.95% of the Fund's Managed Assets. "Managed Assets" are the average weekly
value of the Fund's total assets minus the sum of the Fund's liabilities,
excluding debt related to leveraging, short-term debt and the aggregate
liquidation preference of any outstanding preferred stock. The Manager has
agreed to limit the investment management fee paid to it by the Fund to 0.85% of
the Fund's Managed Assets. This waiver is voluntary and may be changed at any
time.
The Fund has entered into an administration agreement with SEI Investments
Global Funds Services (the "Administrator"). Under such agreement, the
Administrator performs or arranges for the performance of certain administrative
services necessary for the operation of the Fund. The Fund pays a fee to the
Administrator based on the Fund's Managed Assets according to the following
rates: 0.10% on the first $250 million of such Managed Assets and 0.09% on such
Managed Assets in excess of $250 million, subject to a minimum annual fee of
$180,000.
Certain officers and/or directors of the Fund are officers and/or directors of
the Manager. The Fund pays each director, who is not an "affiliated person" as
defined in the Act (a "Disinterested Director"), a fee of $2,000 for each
regular Board Meeting attended, $750 for each special Board Meeting attended,
plus $1,000 per year for audit committee members.
For the six months ended May 31, 2007, the Fund incurred a legal expense of
$64,558 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.
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NOTE 3. PURCHASE AND SALES OF INVESTMENTS
For the six months ended May 31, 2007, purchases and sales of investments,
excluding short-term investments, totaled $84,838,836 and $81,618,480,
respectively.
The following table summarizes the Fund's call options written for the six
months ended May 31, 2007:
NUMBER OF
CONTRACTS PREMIUMS
--------- ----------
Options outstanding, November 30, 2006 ... 4,200 $ 299,541
Options written .......................... 22,257 1,796,356
Options expired .......................... (9,039) (661,986)
Options exercised ........................ (2,900) (297,389)
Options closed ........................... (9,898) (723,922)
------- ----------
Options outstanding, May 31, 2007 ........ 4,620 $ 412,600
======= ==========
NOTE 4. COMMERCIAL PAPER
As of May 31, 2007, $55,000,000 of commercial paper was outstanding with an
amortized cost of $54,625,208. The average discount rate of commercial
paper outstanding at May 31, 2007, was 5.35%. The average daily balance of
commercial paper outstanding for the six months ended May 31, 2007, was
$54,651,475 at a weighted average discount rate of 5.35%. The maximum face
amount of commercial paper outstanding at any time during the six months ended
May 31, 2007, was $55,000,000. In conjunction with the issuance of the
commercial paper, the Fund has entered into a line of credit arrangement with a
bank for $30,000,000. Interest on borrowing is based on market rates in effect
at the time of borrowing. The commitment fee is computed at the rate of 0.30%
per annum on the unused balance. There were no borrowings under this arrangement
during the six months ended May 31, 2007.
NOTE 5. CAPITAL STOCK
There are 100,000,000 shares of $0.01 par value common stock authorized. Of the
16,885,172 shares of common stock outstanding at May 31, 2007, the Manager owned
17,280 shares.
For the six months ended May 31, 2007 and the year ended November 30, 2006, the
Fund issued 60,309 and 131,915 shares, respectively, in connection with the
Fund's dividend reinvestment plan.
NOTE 6. MARKET AND CREDIT RISKS
The Fund may invest in high-yielding fixed-income securities, which carry
ratings of BB or lower by S&P and/or Ba1 or lower by Moody's. Investments in
these higher-yielding securities may be accompanied by a greater degree of
credit
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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
----------- ------------ ------------
2006 $15,574,045 $ -- $15,574,045
2005 9,017,422 7,580,904 16,598,326
As of November 30, 2006, the components of Distributable Earnings (Accumulated
Losses) were as follows:
Capital loss carryforwards $(39,428,521)
Net unrealized appreciation 12,684,271
Other temporary differences 1,448,434
------------
Total accumulated losses $(25,295,816)
============
The following summarizes the capital loss carryforwards as of November 30, 2006.
These capital loss carryforwards are available to offset future net capital
gains.
EXPIRING IN FISCAL YEAR AMOUNT
----------------------- -----------
2009 $ 8,123,569
2010 30,533,344
2011 771,608
-----------
Total capital loss carryforwards $39,428,521
===========
During the year ended November 30, 2006, the Fund utilized $25,584,908 of
capital loss carryforwards to offset capital gains.
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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, 2007, were as follows:
Federal Tax Cost ........................................... $208,146,345
------------
Aggregate Gross Unrealized Appreciation .................... 21,952,006
Aggregate Gross Unrealized Depreciation .................... (4,753,176)
------------
Net Unrealized Appreciation ................................ $ 17,198,830
============
NOTE 8. NEW ACCOUNTING PRONOUNCEMENTS:
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
INTERPRETATION NO. 48, "ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES" (FIN 48).
FIN 48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Fund's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. The Fund will not be
required to adopt FIN 48 until May 31, 2008. As of May 31, 2007, the Fund has
not completed its evaluation of the impact, if any, that will result from the
adoption of FIN 48.
In September 2006, FASB issued STATEMENT ON FINANCIAL ACCOUNTING STANDARDS
(SFAS) NO. 157, "FAIR VALUE MEASUREMENTS." This standard establishes a single
authoritative definition of fair value, sets out a framework for measuring fair
value and requires additional disclosures about fair value measurements. SFAS
No. 157 applies to fair value measurements already required or permitted by
existing standards. SFAS No. 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. The changes to current generally accepted accounting
principles from the application of this Statement relate to the definition of
fair value, the methods used to measure fair value, and the expanded disclosures
about fair value measurements. As of May 31, 2007, the Fund does not believe the
adoption of SFAS No. 157 will impact the amounts reported in the financial
statements; however, additional disclosures may be required about the inputs
used to develop the measurements and the effect of certain of the measurements
reported in the financial statements for a fiscal period.
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
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NOTE 9. SUBSEQUENT EVENTS
The Board of the Fund declared the following dividends:
DECLARATION DATE EX-DATE RECORD DATE PAYABLE DATE DIVIDEND RATE
---------------- ------- ----------- ------------ -------------
June 1, 2007 June 19, 2007 June 21, 2007 June 29, 2007 $0.0750
July 2, 2007 July 17, 2007 July 19, 2007 July 31, 2007 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.
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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
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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
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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, 2007.
ADDITIONAL INFORMATION (UNAUDITED)
During the period, there have been no material changes in the Fund's investment
objective or fundamental policies that have not been approved by the
shareholders. There have been no changes in the Fund's charter or By-Laws that
would delay or prevent a change in control of the Fund which have not been
approved by the shareholders. There have been no changes in the principal risk
factors associated with investment in the Fund.
EFFECTS OF LEVERAGE (UNAUDITED)
Leverage of $60 million in commercial paper was initially sold by the Fund on
July 28, 1999. As of May 31, 2007, the Fund had $30 million outstanding at 5.35%
per annum maturing on July 5, 2007, and $25 million at 5.35% per annum maturing
on August 2, 2007. All interest rates include fees due to the broker-dealer. The
Fund must experience an annual return of 1.37% 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................... (15.28)% (8.56)% (1.84)% 4.88% 11.60%
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Assumes $160 million assets attributable to common shareholders; $55 million
aggregate leverage with an average interest rate of 5.35%. All figures appearing
above are hypothetical returns generated to assist investors in understanding
the effects of leverage. Actual returns may be greater or less than those
appearing in the table.
HOW TO OBTAIN A COPY OF THE FUND'S QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q within sixty days after the end of the period. The Fund's Forms N-Q are
available on the Commission's website at http://www.sec.gov, and may be reviewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
HOW TO OBTAIN A COPY OF THE FUND'S PROXY VOTING POLICIES
A description of the policies and procedures that are used by the Fund's
investment adviser to vote proxies relating to the Fund's portfolio securities
as well as information relating to how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available (i) without charge, upon request, by calling the Fund toll-free at
(866) 585-6552; (ii) on the Fund's website at www.chartwellip.com; and (iii) on
the SEC's website at http://www.sec.gov.
NEW YORK STOCK EXCHANGE CERTIFICATION
The Fund's President has certified to the New York Stock Exchange that, as of
May 10, 2007, he was not aware of any violation by the Fund of the applicable
NYSE Corporate Governance listing standards. In addition, the Fund has filed
certifications of its principal executive officer and principal financial
officer as exhibits to its reports on Form N-CSR filed with the Securities and
Exchange Commission relating to the quality of the disclosures contained in such
reports.
CHARTWELL BOARD CONSIDERATIONS RELATING TO THE ADVISORY CONTRACT RENEWAL
(UNAUDITED)
The Board of Directors of the Fund determined on April 18, 2007 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, 2007 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
44
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
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,
Chartwell Partners' efforts to reduce expenses over the past few years by
waiving fees and renegotiating contracts with service providers.
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 reflective of the bifurcated investment style of the Fund; the Fund's
performance is competitive 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.
45
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
SHAREHOLDER VOTING RESULTS (UNAUDITED)
The Annual Meeting of shareholders of the Chartwell Dividend and Income Fund,
Inc. was held on April 18, 2007 at the offices of PFPC, Inc., 103 Bellevue
Parkway, Wilmington, Delaware. The description of the proposal and number of
shares voted at the meeting are as follows:
--------------------------------------------------------------------------------
VOTES VOTES VOTES
FOR AGAINST WITHHELD
--------------------------------------------------------------------------------
To elect the following
director to serve as the Class II
director for a three-year
term expiring in 2010: Bernard P. Schaffer 12,294,601 0 117,645
Directors whose terms of office continue beyond this meeting are George W.
Grosz, Kenneth F. Herlihy, Winthrop S. Jessup and C. Warren Ormerod.
46
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CHARTWELL
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOTES
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2007
--------------------------------------------------------------------------------
DIRECTORS
Winthrop S. Jessup, Chairman
George W. Grosz
Kenneth F. Herlihy
C. Warren Ormerod
Bernard P. Schaffer
OFFICERS
Winthrop S. Jessup, President
G. Gregory Hagar, Vice President, Treasurer, Chief Financial Officer and Chief
Compliance Officer
Bernard P. Schaffer, Vice President
Kevin A. Melich, Vice President
Timothy J. Riddle, Vice President
Andrew S. Toburen, Vice President
Michael P. Malloy, Secretary
Maria E. Pollack, Assistant Secretary
INVESTMENT MANAGER
Chartwell Investment Partners, L.P.
1235 Westlakes Drive, Suite 400
Berwyn, PA 19312
ADMINISTRATOR
SEI Investments Global Funds Services
One Freedom Valley Drive
Oaks, PA 19456
CUSTODIAN
U.S. Bank
Two Liberty Place
Philadelphia, PA 19102
TRANSFER AGENT
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young, LLP
2001 Market Street, Suite 4000
Philadelphia, PA 19103
LEGAL COUNSEL
Drinker Biddle & Reath LLP
One Logan Square
18th & Cherry Streets
Philadelphia, PA 19103
This report, including the financial statements herein, is transmitted to the
shareholders of Chartwell Dividend and Income Fund, Inc. It is not a prospectus,
circular or representation intended for use in the purchase of shares of the
Fund or any securities mentioned in the report. Past performance results should
not be considered a representation of future performance. Statements and other
information contained in this report are as dated and are subject to change.
Past performance is no guarantee of future results. Share prices will fluctuate,
so that a share may be worth more or less than its original cost when sold. The
investment adviser's commentaries included in this report contain certain
forward-looking statements about the factors that may affect the performance of
the Fund in the future. These statements are based on Fund management's
predictions and expectations concerning certain future events and their expected
impact on the Fund, such as performance of the economy as a whole and of
specific industry sectors, changes in the levels of interest rates, the impact
of developing world events and other factors that may influence the future
performance of the Fund. Management believes these forward-looking statements to
be reasonable, although they are inherently uncertain and difficult to predict.
Actual events may cause adjustments in portfolio management strategies from
those currently expected to be employed.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase, from time to time, shares of its
common stock in the open market.
ITEM 2. CODE OF ETHICS.
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 March 19,
2007.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The Registrant's principal executive officer and principal financial officer
have concluded that the Registrant's disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended,
(the "1940 Act")) are effective as of a date within 90 days of the filing of
this report that includes the disclosure required by this paragraph, based on
their evaluation of these controls and procedures, required by Rule 30a-3(b)
under the 1940 Act and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended.
(b) There were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during
the second fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
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.
/s/ Winthrop S. Jessup
By (Signature and Title)* -----------------------------
Winthrop S. Jessup, President
(Principal Executive Officer)
Date: August 1, 2007
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.
/s/ Winthrop S. Jessup
By (Signature and Title)* -----------------------------
Winthrop S. Jessup, President
(Principal Executive Officer)
Date: August 1, 2007
/s/ G. Gregory Hagar
By (Signature and Title)* ------------------------------
G. Gregory Hagar, Vice President and CFO
(Principal Financial Officer)
Date: August 1, 2007
* Print the name and title of each signing officer under his or her signature.