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 Global Investment Servicing
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, 2009
DATE OF REPORTING PERIOD: MAY 31, 2009
ITEM 1. REPORTS TO STOCKHOLDERS.
(GRAPHIC)
CHARTWELL DIVIDEND AND INCOME FUND, INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS DATED MAY 31, 2009
(CHARTWELL INVESTMENT PARTNERS LOGO)
www.chartwellip.com
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
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.
COVERED CALL OPTIONS
The Fund is permitted to write (i.e., sell) covered call options on equity
securities (including Exchange Traded Funds) or on stock indexes. The Fund may
cover call options by: (i) owning the same security or, in the case of options
on a stock index, a portfolio of stock substantially replicating the movement of
the index underlying
2
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
(UNAUDITED)
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.
INVESTMENT IN SECURITIES ISSUED BY OTHER INVESTMENT COMPANIES
The Board of Directors recently approved a clarification of the Fund's
investment policies to permit the Fund to invest in shares of other investment
companies, including exchange traded funds ("ETFs"), to the extent permitted by
the Investment Company Act of 1940 (the "1940 Act"). ETFs are open-end
investment companies or unit investment trusts that are registered under the
1940 Act. ETF shares are listed and traded on stock exchanges at market prices.
An investment in other investment companies involves the risk in that the price
of the shares can fluctuate up or down. Consequently, the Fund could lose money
investing in another investment company if the prices of the securities owned by
the investment company decline in value. In addition, ETFs are subject to the
following risks that do not apply to conventional open-end funds: (i) market
price of an ETF's shares may trade above or below their net asset value; (ii) an
active trading market for an ETF's shares may not develop or be maintained; and
(iii) trading of an ETF's shares may be halted if the listing exchange's
officials deem such action appropriate, the shares are delisted from the
exchange, or the activation of market-wide "circuit breakers" (which are tied to
large decreases in stock prices) halts stock trading generally.
The Fund will bear its proportionate share of any management fees and other
expenses paid by such other investment companies, which will increase the Fund's
expenses and decrease returns.
3
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
(UNAUDITED)
TEMPORARY INVESTMENTS
The Board of Directors recently approved the addition of money market mutual
funds and cash to the list of the Fund's temporary investments. Temporary
investments can be made for defensive purposes in response to adverse market,
economic, political or other conditions, pending investment of the proceeds of
sales of portfolio securities, or at other times when suitable investments are
not available. In addition to money market mutual funds and cash, the Fund is
permitted to temporarily invest without limit in: debt securities issued by the
U.S. Government, its agencies or instrumentalities; commercial paper (rated
"A-2" or better by S&P or "P-2" or better by Moody's, similarly rated by another
comparable rating agency or, if not so rated, of comparable quality as
determined by the Fund's Manager); certificates of deposit or bankers'
acceptances; or repurchase agreements with respect to any of the foregoing
investments. The Fund is also permitted to borrow up to 5% of its total assets
for temporary purposes.
4
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
DEAR SHAREHOLDERS (UNAUDITED),
Stock market performance for the six months ended May 31, 2009 was the tale of
two markets. From the start of the period through March 9, 2009, the market
continued its significant decline from previous highs. After March 9th, the S&P
500 sharply reversed course and rebounded through May 31st. Overall, for the
period, the market was up 4.05%. Meanwhile, over the entire period, the
Chartwell Dividend and Income Fund's ("CWF") total market return was 26.52%. The
net asset value (NAV) total return (including dividends) was 8.90% during the
period. These results are discussed in greater detail later in this report.
A solid contributor to CWF's positive performance was the robust options writing
strategy used on the common stock portfolio. Our ability to sell options on the
portfolio's stock positions enabled CWF to take advantage of continued high
options premiums. Through various portfolio transactions made during the period,
we believe we continued to strengthen the portfolio during these uncertain and
tumultuous times. Some of these changes are discussed in the fixed income and
equity sections of this report.
The first portion of this semi-annual period saw a continuation of the economic
and financial crises that we wrote about in the November 30, 2008 Annual Report
to Shareholders. Home prices continued to decline and unemployment increased.
This combination continued to exacerbate the challenging financial position of
the banking system as banks had to absorb significant losses on mortgage and
construction loans. Additionally, the economic decline continued to affect
bank's credit card and commercial real estate portfolios. All of this
uncertainty drove the S&P 500 Index down to its intra-day low of 667. On March
10th, it appears as if the all clear bell was rung and market participants found
"green shoots" of nascent economic improvement. Around that time some of the
financial institutions that were viewed to be in the most trouble let it be
known that they had made significant profits in the first two months of the
year. The rates of decline of many economic indicators began to ebb. Job losses
slowed, China appeared to begin to feel the benefits of their substantial
economic stimulus package, and the Baltic Dry Index began to increase indicating
that demand for seaborne shipping was on the rise. These and other "green
shoots" incited the market to rally almost 37% from its lows through the end of
May.
As the stock market is a forward looking indicator, it appears to be discounting
an economic recovery beginning sometime later this year. In general, we are in
agreement with this notion. We believe that the economy will be on better
footing in either late 2009 or early 2010. In our opinion, this improvement will
come as a result of inventory restocking, the impact of the domestic stimulus
package, continued low interest rates, global economic improvement and a steep
yield curve helping the banking industry. The main question for investors is
will an economic recovery be sustainable or will the economy slip back into
another slowdown? We will continue to closely monitor the economy and markets
and will endeavor to make appropriate adjustments in CWF's portfolio.
5
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
(UNAUDITED)
Please read the accompanying 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
6
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
(UNAUDITED)
HOW DID THE FUND PERFORM DURING THE SIX MONTH PERIOD ENDED MAY 31, 2009?
For the six month period ended May 31, 2009, the Fund's market return was 26.52%
including dividends reinvested. The Fund's net asset value (NAV) return
including dividends reinvested was 8.90%. The market, as measured by the S&P
500, was up 4.05% (including dividends) for the period having recovered nearly
37% from its lows on March 9, 2009.
The Merrill Lynch High Yield Cash Pay Index returned 34.78% for the six month
period ended May 31, 2009, reversing a substantial portion of the high yield
bond market's decline experienced in the last half of calendar 2008. The yield
market's spread to Treasury (or risk premium) reached all-time highs in
December, as uncertainty about the viability of the domestic banking system
appeared to reach an apex. By late spring, the historic government actions in
response to the credit collapse, along with evidence that the rate of economic
deterioration may be slowing, contributed to a sharp reduction in the high yield
market's risk premium (i.e. the yield spread over Treasury bonds fell as seen in
the graph below). The yield on the Merrill Lynch High Yield Cash Pay Index
declined from 21.69% at the start of the period to 13.84% by the end of May.
Expressed differently, the average price of a high yield bond in the index rose
from $56.74 to $76.41 over the six month the period.
HIGH YIELD SPREAD VS. DEFAULT RATES
(Source: Merill Lynch, Bloomberg)
(PERFORMANCE GRAPH)
HY INDEX
------------------------------------------------
SPREAD DEFAULT
DATE (BPS) RATE (BPS)
------ ------ ----------
May-85 323 340
Jun-85 373 415
Jul-85 366 462
Aug-85 347 505
Sep-85 345 479
Oct-85 365 395
Nov-85 396 444
Dec-85 409 391
Jan-86 418 434
Feb-86 408 407
Mar-86 487 414
Apr-86 521 584
May-86 473 640
Jun-86 445 635
Jul-86 510 619
Aug-86 505 613
Sep-86 481 602
Oct-86 467 588
Nov-86 486 575
Dec-86 502 569
Jan-87 471 561
Feb-87 436 568
Mar-87 434 583
Apr-87 412 596
May-87 373 382
Jun-87 389 386
Jul-87 394 359
Aug-87 366 366
Sep-87 357 389
Oct-87 423 428
Nov-87 458 427
Dec-87 455 426
Jan-88 483 476
Feb-88 458 506
Mar-88 436 476
Apr-88 418 459
May-88 402 512
Jun-88 401 460
Jul-88 379 439
Aug-88 378 451
Sep-88 408 413
Oct-88 429 425
Nov-88 402 391
Dec-88 406 348
Jan-89 425 361
Feb-89 408 314
Mar-89 426 300
Apr-89 451 262
May-89 482 224
Jun-89 530 286
Jul-89 573 335
Aug-89 527 385
Sep-89 558 440
Oct-89 630 437
Nov-89 646 482
Dec-89 645 606
Jan-90 627 628
Feb-90 663 681
Mar-90 655 689
Apr-90 631 791
May-90 651 823
Jun-90 635 817
Jul-90 660 845
Aug-90 711 889
Sep-90 825 943
Oct-90 904 970
Nov-90 932 977
Dec-90 934 985
Jan-91 975 1,124
Feb-91 811 1,139
Mar-91 720 1,220
Apr-91 648 1,178
May-91 644 1,231
Jun-91 600 1,279
Jul-91 567 1,271
Aug-91 578 1,215
Sep-91 623 1,191
Oct-91 557 1,108
Nov-91 567 1,094
Dec-91 641 1,043
Jan-92 489 920
Feb-92 467 890
Mar-92 429 801
Apr-92 407 733
May-92 417 698
Jun-92 418 644
Jul-92 431 608
Aug-92 436 613
Sep-92 449 570
Oct-92 457 619
Nov-92 443 575
Dec-92 457 494
Jan-93 453 388
Feb-93 452 405
Mar-93 446 466
Apr-93 433 491
May-93 410 459
Jun-93 409 428
Jul-93 404 442
Aug-93 434 395
Sep-93 443 393
Oct-93 432 329
Nov-93 395 322
Dec-93 383 359
Jan-94 322 362
Feb-94 296 361
Mar-94 310 299
Apr-94 316 247
May-94 326 212
Jun-94 331 194
Jul-94 356 203
Aug-94 348 196
Sep-94 322 219
Oct-94 315 224
Nov-94 337 208
Dec-94 344 191
Jan-95 342 186
Feb-95 336 134
Mar-95 332 119
Apr-95 318 163
May-95 344 185
Jun-95 368 213
Jul-95 338 221
Aug-95 355 217
Sep-95 373 227
Oct-95 374 266
Nov-95 387 317
Dec-95 396 326
Jan-96 366 326
Feb-96 321 337
Mar-96 325 343
Apr-96 300 321
May-96 282 285
Jun-96 306 284
Jul-96 298 263
Aug-96 275 221
Sep-96 270 217
Oct-96 297 195
Nov-96 305 164
Dec-96 266 164
Jan-97 260 171
Feb-97 243 159
Mar-97 258 158
Apr-97 271 137
May-97 243 160
Jun-97 241 159
Jul-97 242 184
Aug-97 230 200
Sep-97 234 206
Oct-97 272 212
Nov-97 266 227
Dec-97 269 201
Jan-98 271 207
Feb-98 261 237
Mar-98 260 235
Apr-98 271 263
May-98 293 269
Jun-98 350 296
Jul-98 351 280
Aug-98 502 269
Sep-98 573 262
Oct-98 613 266
Nov-98 530 280
Dec-98 555 341
Jan-99 550 349
Feb-99 507 359
Mar-99 510 382
Apr-99 464 420
May-99 467 480
Jun-99 465 485
Jul-99 444 532
Aug-99 465 552
Sep-99 489 584
Oct-99 499 597
Nov-99 470 585
Dec-99 453 556
Jan-00 461 553
Feb-00 496 553
Mar-00 584 567
Apr-00 596 567
May-00 618 540
Jun-00 615 555
Jul-00 617 496
Aug-00 641 521
Sep-00 664 531
Oct-00 757 496
Nov-00 874 544
Dec-00 881 615
Jan-01 739 669
Feb-01 729 709
Mar-01 760 784
Apr-01 739 803
May-01 703 809
Jun-01 739 829
Jul-01 745 890
Aug-01 731 937
Sep-01 914 971
Oct-01 865 1,019
Nov-01 752 1,022
Dec-01 734 1,060
Jan-02 697 1,089
Feb-02 722 1,073
Mar-02 621 1,060
Apr-02 601 1,057
May-02 643 1,070
Jun-02 781 1,054
Jul-02 874 1,033
Aug-02 882 1,002
Sep-02 966 978
Oct-02 974 929
Nov-02 800 894
Dec-02 802 843
Jan-03 747 768
Feb-03 757 771
Mar-03 696 698
Apr-03 576 679
May-03 614 663
Jun-03 554 614
Jul-03 488 587
Aug-03 477 619
Sep-03 483 603
Oct-03 415 607
Nov-03 401 550
Dec-03 368 531
Jan-04 360 517
Feb-04 381 442
Mar-04 392 427
Apr-04 351 403
May-04 383 365
Jun-04 371 349
Jul-04 369 293
Aug-04 381 234
Sep-04 372 234
Oct-04 355 242
Nov-04 310 247
Dec-04 314 241
Jan-05 341 219
Feb-05 305 249
Mar-05 360 229
Apr-05 423 220
May-05 423 218
Jun-05 404 192
Jul-05 354 191
Aug-05 390 203
Sep-05 378 197
Oct-05 381 195
Nov-05 394 178
Dec-05 399 167
Jan-06 368 171
Feb-06 369 159
Mar-06 339 158
Apr-06 318 151
May-06 330 173
Jun-06 351 179
Jul-06 359 172
Aug-06 369 166
Sep-06 365 171
Oct-06 353 181
Nov-06 347 190
Dec-06 318 174
Jan-07 300 177
Feb-07 311 175
Mar-07 312 158
Apr-07 303 162
May-07 276 151
Jun-07 312 144
Jul-07 422 153
Aug-07 451 144
Sep-07 410 129
Oct-07 429 107
Nov-07 548 91
Dec-07 561 91
Jan-08 640 110
Feb-08 697 124
Mar-08 745 148
Apr-08 635 171
May-08 607 188
Jun-08 686 200
Jul-08 741 234
Aug-08 772 250
Sep-08 1007 274
Oct-08 1496 301
Nov-08 1873 322
Dec-08 1724 422
Jan-09 1513 511
Feb-09 1623 556
Mar-09 1577 740
Apr-09 1232 830
May-09 1037 923
(SEE DESCRIPTION OF BENCHMARK INDICES ON PAGE 13.)
WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
The equity portion of the Fund returned -2.35% due to several factors. As can be
seen on the next page, only three sectors of the S&P 500 had significant
positive returns during the period and all three are cyclical in nature. CWF was
underweight relative to the Index in all three sectors. During the strong rally
that occurred subsequent to March 9, 2009, S&P 500 performance significantly
benefited from the performance of lower quality and smaller capitalization
stocks. The Fund typically owns higher quality, larger capitalization stocks
which underperformed in the rally. The Fund was overweighted in Financials
versus the Index for the period, and the timing of our weighting was beneficial
to performance. However, stock selection within the group more than offset the
7
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
(UNAUDITED)
positive sector allocation impact. In addition, negative stock selection in the
Materials, Telecommunications, and Capital Goods groups detracted from relative
performance. Positive contributions to relative performance came from; strong
stock selection in the Energy sector and an underweight position in Consumer
Staples and Utilities - both underperforming sectors. In addition, a robust
options overwriting strategy was solidly beneficial to the Fund's performance.
The fixed income portion of the Fund returned 26.44% for the six month period
ending May 31, 2009. The Fund's strategy of owning predominately higher quality
BB and B-rated bonds accounted for much of our underperformance versus the
index. For example, CCC-rated issues, where the Fund has little exposure though
they comprise approximately 23% of the broad high yield market, returned a
staggering 51.21% for the period. Industry weightings were a secondary
contributor to the fixed income portion of the Fund's relative
TOTAL RETURN
(Six Months Ended May 31, 2009)
(BAR CHART)
CWF (NAV) 8.9%
CWF Equities (2.4)%
CWF High Yield 26.4%
S&P 500 Index 4.1%
Morgan Stanley REIT Index 6.4%
Merrill Lynch High Yield Cash Pay Index 34.8%
S&P 500 TOTAL RETURN BY SECTOR
(Six Months Ended May 31, 2009)
(BAR CHART)
FACTSET
SP 500 SECTOR PERFORMANCE ATTRIBUTION
------------------------- -----------
Energy -1.44%
Utilities -8.85%
Tel. Services -4.11%
REITS 2.88%
Industrials -2.98%
Basic Materials 19.20%
Consumer Discretionary 13.90%
Fin. (ex-REIT) -0.88%
Consumer Staples -2.69%
Technology 22.18%
Health Care 4.25%
S&P 500 4.05%
(SEE DESCRIPTION OF BENCHMARK INDICES ON PAGE 13.)
8
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
(UNAUDITED)
performance, as the bond portfolio held under-weights in Financials, Autos, and
Banking. After a weak showing in 2008, performance in these industries snapped
back strongly as seen in the graph below. Notably, a wave of fallen angels
entered the high yield index in the Banking and Financials industries during the
period. Banking and Financials, which on a combined basis comprised less than
three percent of the index six months ago, now make up more than ten percent of
the Merrill Lynch High Yield Cash Pay Index. BANK OF AMERICA, CITIGROUP, ROYAL
BANK OF SCOTLAND, AIG, CIT, and JANUS CAPITAL now have part or all of their
public debt rated below investment grade.
HIGH YIELD PERFORMANCE BY INDUSTRY
(Six Months Ended May 31, 2009)
(Source: Bloomberg)
(BAR CHART)
6 MTHS END
INDUSTRY 5/31/09
-------- ----------
Financials 90.6%
Auto 87.2%
Banking 49.9%
Steel 45.1%
Homebuilding 44.8%
Gaming 40.7%
Telecom 39.8%
HY INDEX 34.8%
Technology 30.9%
Energy 27.8%
Healthcare 27.5%
Cable TV 22.0%
Building Materials 20.5%
Consumer 19.5%
Utilities 16.5%
Paper 14.4%
Chemicals 14.3%
DID ANY COMMON STOCKS OR FIXED INCOME HOLDINGS WITHIN THE FUND UNDERPERFORM
RELATIVE TO YOUR EXPECTATIONS?
As mentioned above, the stocks of large cap, high quality companies did not
perform as well as the market during the large and rapid market rally that
started on March 10th. Our holdings in AT&T INC., VERIZON COMMUNICATIONS INC.,
EXXON MOBIL CORPORATION and 3M COMPANY all underperformed the S&P 500. In
addition, PPG INDUSTRIES was sold off by the marketplace despite relatively
strong fundamentals throughout the slowdown.
The Fund's worst performing bond position over the last six months was
ALLBRITTON COMMUNICATIONS, a television broadcaster. Other bond positions that
underperformed the market over the last six months included gaming companies
BOYD GAMING and MGM, a specialty chemical producer, CHEMTURA, and an auto parts
supplier, LEAR CORPORATION.
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE PERIOD?
The equity portion of the portfolio made some sizeable changes during the
period. Reductions were made in the Materials sector while the significant
overweighting in the Telecommunications sector was reduced. Cyclicality in the
equity portfolio was raised by increases in both the Energy and Consumer
Discretionary sectors. This was achieved through increases in allocations to
Master Limited Partnerships
9
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
(UNAUDITED)
and higher quality retail companies, respectively. In addition, the Financials
weighting was increased during the latter portion of the quarter by purchasing
shares of higher quality financial institutions.
Turnover was low in the fixed income portion of the fund for the six months
ending May 31, 2009. New bond positions included ANIXTER INTERNATIONAL, a
distributor of wire and wiring systems for voice and data networks, and IPALCO
ENTERPRISES, an Indiana based utility. Sales of fixed income positions during
the period included ALLBRITTON COMMUNICATIONS, BOYD GAMING, CHEMTURA, LEAR
CORPORATION and MGM, among others.
HOW DID THE FUND TRADE RELATIVE TO ITS NET ASSET VALUE (NAV) DURING THE SIX
MONTH PERIOD?
As shown by the chart below, as of May 31, 2009 the Fund was trading at a
closing price of $3.07, which is a 17.7% discount to its NAV of $3.73. At
November 30, 2008, the Fund was trading at a closing price of $2.60, which was a
large 29.2% discount to its NAV of $3.67. Throughout the six month period ended
May 31, 2009 the Fund traded between a 13.6% to 33.7% discount to its NAV.
HISTORY OF FUND PRICE, NAV AND PREMIUM
(Six Months Ended May 31, 2009)
(Source: Bloomberg)
(PERFORMANCE GRAPH)
DATE PRICE NAV %PREMIUM
---------- ------ ------ --------
12/1/2008 2.4777 3.4827 -28.857
12/2/2008 2.4379 3.5623 -31.564
12/3/2008 2.5175 3.622 -30.495
12/4/2008 2.428 3.5126 -30.878
12/5/2008 2.3981 3.5225 -31.921
12/8/2008 2.5175 3.622 -30.495
12/9/2008 2.4379 3.5822 -31.944
12/10/2008 2.4479 3.622 -32.418
12/11/2008 2.3682 3.5723 -33.705
12/12/2008 2.4021 3.5922 -33.13
12/15/2008 2.3981 3.5723 -32.8969
12/16/2008 2.4924 3.64 -31.528
12/17/2008 2.62 3.66 -28.415
12/18/2008 2.6 3.64 -28.571
12/19/2008 2.79 2.66 -23.77
12/22/2008 2.86 3.64 -21.429
12/23/2008 2.9 3.63 -20.11
12/24/2008 2.95 3.65 -19.178
12/26/2008 2.94 3.67 -19.891
12/29/2008 2.85 3.65 -21.918
12/30/2008 2.9525 3.72 -20.632
12/31/2008 3.02 3.78 -20.106
1/2/2009 3.16 3.82 -17.277
1/5/2009 3.12 3.82 -18.325
1/6/2009 3.15 3.88 -18.814
1/7/2009 3.16 3.83 -17.493
1/8/2009 3.13 3.85 -18.701
1/9/2009 3.15 3.83 -17.755
1/12/2009 3.1 3.77 -17.772
1/13/2009 3.09 3.78 -18.519
1/14/2009 2.996 3.71 -19.245
1/15/2009 3 3.69 -18.699
1/16/2009 3.1 3.71 -16.442
1/20/2009 2.95 3.57 -17.367
1/21/2009 3.001 3.65 -17.781
1/22/2009 3.024 3.6 -16
1/23/2009 3.05 3.61 -15.512
1/26/2009 3.02 3.61 -16.343
1/27/2009 3.07 3.63 -15.427
1/28/2009 3.17 3.67 -13.624
1/29/2009 3.05 3.62 -15.746
1/30/2009 2.98 3.59 -16.992
2/2/2009 3.09 3.6 -14.167
2/3/2009 3.12 3.62 -13.812
2/4/2009 3.05 3.6 -15.278
2/5/2009 3.1 3.62 -14.365
2/6/2009 3.13 3.67 -14.714
2/9/2009 3.17 3.7 -14.324
2/10/2009 3.02 3.62 -16.575
2/11/2009 3.02 3.63 -16.804
2/12/2009 3.01 3.64 -17.308
2/13/2009 3.04 3.62 -16.022
2/17/2009 2.8 3.51 -20.228
2/18/2009 2.78 3.48 -20.115
2/19/2009 2.7 3.46 -21.965
2/20/2009 2.61 3.44 -24.128
2/23/2009 2.47 3.4 -27.353
2/24/2009 2.75 3.43 -19.825
2/25/2009 2.65 3.43 -22.741
2/26/2009 2.63 3.42 -23.099
2/27/2009 2.61 3.4 -23.235
3/2/2009 2.38 3.32 -28.313
3/3/2009 2.42 3.29 -26.444
3/4/2009 2.5 3.31 -24.471
3/5/2009 2.35 3.24 -27.469
3/6/2009 2.29 3.24 -29.321
3/9/2009 2.26 3.08 -26.623
3/10/2009 2.43 3.14 -22.611
3/11/2009 2.4 3.15 -23.81
3/12/2009 2.5 3.22 -22.36
3/13/2009 2.51 3.25 -22.769
3/16/2009 2.55 3.26 -21.779
3/17/2009 2.55 3.27 -22.018
3/18/2009 2.5996 3.3 -21.223
3/19/2009 2.54 3.28 -22.561
3/20/2009 2.5673 3.25 -21.006
3/23/2009 2.72 3.36 -19.048
3/24/2009 2.62 3.33 -21.321
3/25/2009 2.67 3.37 -20.772
3/26/2009 2.76 3.39 -18.584
3/27/2009 2.7 3.37 -19.881
3/30/2009 2.6 3.32 -21.687
3/31/2009 2.67 3.36 -20.536
4/1/2009 2.77 3.39 -18.289
4/2/2009 2.8 3.42 -18.129
4/3/2009 2.78 3.45 -19.42
4/6/2009 2.72 3.44 -20.93
4/7/2009 2.72 3.41 -20.235
4/8/2009 2.73 3.43 -20.408
4/9/2009 2.84 3.49 -18.625
4/13/2009 2.85 3.51 -18.803
4/14/2009 2.8 3.47 -19.308
4/15/2009 2.86 3.51 -18.519
4/16/2009 2.94 3.53 -16.714
4/17/2009 2.99 3.54 -15.537
4/20/2009 2.9 3.46 -16.185
4/21/2009 2.88 3.46 -16.763
4/22/2009 2.89 3.44 -15.988
4/23/2009 2.8999 3.47 -16.43
4/24/2009 2.86 3.49 -18.052
4/27/2009 2.82 3.48 -18.966
4/28/2009 2.84 3.5 -18.857
4/29/2009 2.9 3.56 -18.539
4/30/2009 2.94 3.57 -17.647
5/1/2009 2.95 3.59 -17.827
5/4/2009 3.03 3.66 -17.213
5/5/2009 3.02 3.65 -17.26
5/6/2009 3.07 3.7 -17.027
5/7/2009 3.06 3.67 -16.621
5/8/2009 3.16 3.73 -15.282
5/11/2009 3.098 3.69 -16.043
5/12/2009 3.1082 3.7 -15.995
5/13/2009 3.0301 3.64 -16.755
5/14/2009 3.275 3.66 -17.281
5/15/2009 3.01 3.64 -17.308
5/18/2009 3.07 3.71 -17.251
5/19/2009 3.06 3.66 -16.393
5/20/2009 3.04 3.66 -16.94
5/21/2009 2.9201 3.64 -19.777
5/22/2009 2.95 3.63 -18.733
5/26/2009 3.01 3.68 -18.207
5/27/2009 3.0199 3.65 -17.264
5/28/2009 3.04 3.69 -17.615
5/29/2009 3.07 3.73 -17.473
10
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
(UNAUDITED)
CWF (AS A % OF) TOTAL INVESTMENTS
(As of May 31, 2009)
(PIE CHART)
Equities 54.2%
Fixed Income 44.8%
Cash 0.8%
Preferred Term Securities 0.2%
HOW IS THE FUND POSITIONED AT THE CLOSE OF THE PERIOD?
As of May 31, 2009, the percentage of the Fund's total investments held in
equities and fixed income was 54% and 45%, respectively. The Fund continues to
be overweight high quality, higher dividend paying securities. As shown below,
in the Equity portion of the portfolio, securities related to the Energy sector
represent the largest sector allocation from both an absolute and relative
perspective. In addition, the Financials weighting has been increased as the
financial markets have recovered and stands at an overweight to the Index.
Technology and Consumer Staples are the largest underweights within the
portfolio at May 31, 2009.
We intend to remain conservatively positioned in the fixed income portion of the
Fund relative to the overall high yield market. While economic deterioration
FUND EQUITY ALLOCATION AS A % OF TOTAL INVESTMENTS
(As of May 31, 2009)
(PIE CHART)
Equities 54.2%
Preferred Term Securities 0.2%
Cash 0.8%
Fixed Income 44.8%
Banks 5.4%
Consumer Discretionary 3.2%
Consumer Staples 1.0%
Energy 12.8%
Financials 6.7%
Healthcare 4.9%
Industrials 5.5%
REITs 4.6%
Technology 2.0%
Telecommunications Services 6.3%
Transportation 1.8%
11
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
(UNAUDITED)
FUND FIXED INCOME ALLOCATION AS A % OF TOTAL INVESTMENTS
(As of May 31, 2009)
(PIE CHART)
Equities 54.2%
Fixed Income 44.8%
Cash 0.8%
Preferred Term Securities 0.2%
Basic Industry 4.3%
Cable Television 3.5%
Energy 7.0%
Gaming 3.0%
Healthcare 3.5%
Metals & Mining 4.2%
Paper & Forest Products 1.5%
Real Estate 2.9%
Retail 4.0%
Services 3.5%
Telecommunications 2.3%
Transportation 1.0%
Utilities 4.1%
appears to have slowed, we see few signs to suggest that we should begin to take
more risk in the bond portfolio. Default rates are high and may trend higher if
smaller companies with leveraged balance sheets continue to have difficulty
accessing capital. Continuing jobless claims are high, senior lenders are still
tightening lending standards as seen in the graph below. As shown above, the
fixed-income portion of the Fund was well-diversified as of May 31, 2009, and we
currently intend that it will remain well diversified with the primary goal of
contributing a stable income stream to help support the Fund's monthly
distribution.
NET % OF CREDITORS TIGHTENING STANDARDS FOR C&I LOANS
(source: Federal Reserve)
(PERFORMANCE GRAPH)
Apr-90 56.90
Jul-90 39.45
Oct-90 48.90
Jan-91 36.00
Apr-91 15.50
Jul-91 12.25
Oct-91 9.00
Jan-92 5.25
Apr-92 0.90
Jul-92 -1.70
Oct-92 4.35
Jan-93 2.65
Apr-93 -7.85
Jul-93 -19.45
Oct-93 -17.75
Jan-94 -12.95
Apr-94 -12.20
Jul-94 -6.95
Oct-94 -17.40
Jan-95 -6.85
Apr-95 -5.90
Jul-95 -6.05
Oct-95 -3.45
Jan-96 6.95
Apr-96 -0.90
Jul-96 -3.70
Oct-96 -7.80
Jan-97 -5.45
Apr-97 -6.95
Jul-97 -5.70
Oct-97 -7.00
Jan-98 1.80
Apr-98 -7.10
Jul-98 0.00
Oct-98 36.40
Jan-99 7.40
Apr-99 10.00
Jul-99 5.40
Oct-99 9.10
Jan-00 10.90
Apr-00 24.60
Jul-00 33.90
Oct-00 43.80
Jan-01 59.70
Apr-01 50.90
Jul-01 40.40
Oct-01 50.90
Jan-02 45.40
Apr-02 25.00
Jul-02 23.20
Oct-02 20.00
Jan-03 22.00
Apr-03 8.90
Jul-03 3.50
Oct-03 0.00
Jan-04 -17.90
Apr-04 -23.20
Jul-04 -20.00
Oct-04 -21.10
Jan-05 -23.60
Apr-05 -24.10
Jul-05 -16.70
Oct-05 -8.80
Jan-06 -10.70
Apr-06 -12.30
Jul-06 -8.90
Oct-06 0.00
Jan-07 0.00
Apr-07 -3.70
Jul-07 7.50
Oct-07 19.20
Jan-08 32.20
Apr-08 55.40
Jul-08 57.60
Oct-08 83.60
Jan-09 64.20
Apr-09 39.60
12
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
(UNAUDITED)
WHAT ARE THE TOP 10 EQUITY HOLDINGS BY PERCENTAGE OF TOTAL INVESTMENTS?
TOP 10 EQUITIES BY PERCENTAGE OF TOTAL INVESTMENTS
(AS OF MAY 31, 2009)
% OF TOTAL
TICKER SECURITY INVESTMENTS
------ -------------------------------- -----------
ETP Energy Transfer Partners LP 4.8%
XOM Exxon Mobil Corporation 3.9%
T AT&T, Inc. 3.5%
JPM JPMorgan Chase & Company 3.1%
PFE Pfizer, Inc. 3.0%
OXY Occidental Petroleum Corporation 2.8%
MET Metlife, Inc. 2.7%
NLY Annaly Capital Management, Inc. 2.4%
CAT Caterpillar, Inc. 2.0%
ACE Ace Ltd. 1.9%
DEFINITION OF THE COMPARATIVE INDICES
S&P 500 INDEX is an unmanaged capitalization-weighted index of 500 stocks
designed to measure performance of the broad domestic economy through changes in
the aggregate market value of 500 stocks representing all major industries.
MERRILL LYNCH HIGH YIELD CASH PAY INDEX is an unmanaged index of corporate bonds
that pay cash coupons, meet a minimum size threshold, and have a Merrill Lynch
composite rating lower than BBB3.
MORGAN STANLEY REIT INDEX is an unmanaged total-return index comprised of the
most actively traded real estate investment trusts and is designed to be a
measure of real estate equity performance.
13
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
UTILIZATION OF LEVERAGE (UNAUDITED)
The Chartwell Dividend and Income Fund, Inc. has utilized leverage through the
issuance of commercial paper. As of May 31, 2009, the Fund had approximately $10
million in leverage outstanding (out of $60 million available) in the form of
commercial paper rated A1/P1 by Moody's Investors Service, Inc./Standard &
Poor's Ratings Group. These ratings should enhance the marketability and reduce
the interest costs associated with the issuance of the commercial paper.
However, it must be noted that the utilization of leverage involves the risk of
lower portfolio returns if the cost of leverage is higher than the resulting
yields on assets or if the Fund experiences capital losses in excess of the
yield spread, if any. Therefore, the addition of leverage also increases the
potential volatility of the Fund. The Fund has the ability to leverage to a
maximum of 33% of the Fund's gross assets.
The Fund utilizes leveraging to seek to enhance the yield and NAV of its common
stock. However, these objectives cannot be achieved in all interest rate
environments. To leverage, the Fund issues commercial paper, which is issued at
a discount equivalent to short-term interest rates, and invests the proceeds in
long-term securities. The interest earned on these investments is paid to common
stock shareholders in the form of dividends, and the value of these portfolio
holdings is reflected in the per share NAV of the Fund's common stock. However,
in order to benefit common stock shareholders, the yield curve must be
positively sloped; that is, short-term interest rates must be lower than
long-term interest rates. At the same time, a period of generally declining
interest rates will benefit common stock shareholders. IF EITHER OF THESE
CONDITIONS CHANGE, THEN THE RISKS OF LEVERAGING WILL BEGIN TO OUTWEIGH THE
BENEFITS.
To illustrate these concepts, assume a fund's common stock capitalization of
$100 million and the issuance of commercial paper for an additional $50 million,
creating a total value of $150 million available for investment in long-term
securities. If prevailing short-term interest rates are approximately 3% and
long-term interest rates are approximately 6%, the yield curve has a strongly
positive slope. In this example, the Fund pays a discount on the $50 million of
commercial paper based on the lower short-term interest rates. At the same time,
the Fund's total portfolio of $150 million earns the income based on long-term
interest rates.
IN THIS CASE, THE DISCOUNT PAID TO COMMERCIAL PAPER HOLDERS IS SIGNIFICANTLY
LOWER THAN THE INCOME EARNED ON THE FUND'S LONG-TERM INVESTMENTS, AND THEREFORE
THE COMMON STOCK SHAREHOLDERS ARE THE BENEFICIARIES OF THE INCREMENTAL YIELD.
HOWEVER, IF SHORT-TERM INTEREST RATES RISE, NARROWING THE DIFFERENTIAL BETWEEN
SHORT-TERM AND LONG-TERM INTEREST RATES, THE INCREMENTAL YIELD PICK-UP ON THE
COMMON STOCK WILL BE REDUCED OR ELIMINATED COMPLETELY. AT THE SAME TIME, THE
MARKET VALUE ON THE FUND'S COMMON STOCK (THAT IS, ITS PRICE AS LISTED ON THE NEW
YORK STOCK EXCHANGE), MAY, AS A RESULT, DECLINE. FURTHERMORE, IF LONG-TERM
INTEREST RATES RISE, THE COMMON STOCK'S NAV WILL REFLECT THE FULL DECLINE IN THE
PRICE OF THE PORTFOLIO'S INVESTMENTS, SINCE THE VALUE OF THE FUND'S COMMERCIAL
PAPER DOES NOT FLUCTUATE. IN ADDITION TO THE DECLINE IN NET ASSET VALUE, THE
MARKET VALUE OF THE FUND'S COMMON STOCK MAY ALSO DECLINE.
14
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
SCHEDULE OF INVESTMENTS (UNAUDITED)
ASSET CLASS WEIGHTINGS+:
(BAR CHART)
Common Stock 59.2%
Exchange Traded Fund 1.9%
Preferred Term Securities 0.2%
Preferred Stock 1.5%
Corporate Notes/Bonds 51.7%
Cash Equivalent 0.9%
+ Percentages are based on total net assets of $62,999,359.
Total Investments including leverage are $72,724,700.
NUMBER OF MARKET
SHARES VALUE
---------- -----------
COMMON STOCK--59.2%
AEROSPACE & DEFENSE--1.3%
Honeywell International, Inc. .............................................. 25,000 $ 829,000
-----------
BANKS--4.3%
JPMorgan Chase & Company ................................................... 60,000 2,214,000
Wells Fargo & Company ...................................................... 20,000 510,000
-----------
2,724,000
-----------
BEVERAGES--0.8%
PepsiCo, Inc. .............................................................. 10,000 520,500
-----------
COMPUTERS & PERIPHERALS--1.1%
Hewlett Packard Company .................................................... 20,000 687,000
-----------
CONSUMER STAPLES--0.4%
B&G Foods, Inc., Class A ................................................... 30,000 217,500
-----------
ELECTRICAL EQUIPMENT--1.0%
Emerson Electric Company ................................................... 20,000 641,800
-----------
ENERGY--14.8%
Copano Energy LLC .......................................................... 25,000 395,250
Energy Transfer Partners LP (a) ............................................ 80,000 3,384,800
Enterprise Products Partners LP (a) ........................................ 30,000 780,000
Exxon Mobil Corporation .................................................... 40,000 2,774,000
Occidental Petroleum Corporation ........................................... 30,000 2,013,300
-----------
9,347,350
-----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
---------- -----------
COMMON STOCK (CONTINUED)
FINANCIAL--6.6%
ACE Limited ................................................................ 30,000 $ 1,319,700
Bank of New York Mellon Corporation ........................................ 10,000 277,800
MCG Capital Corporation .................................................... 100,000 216,000
MetLife, Inc. .............................................................. 60,000 1,890,000
Star Asia Financial Limited+ (b) (c) ....................................... 15,000 449,850
-----------
4,153,350
-----------
HEALTHCARE--5.7%
Abbott Laboratories ........................................................ 10,000 450,600
Pfizer, Inc. ............................................................... 140,000 2,126,600
Schering-Plough Corporation ................................................ 40,000 976,000
-----------
3,553,200
-----------
INDUSTRIAL CONGLOMERATES--1.8%
3M Company ................................................................. 20,000 1,142,000
-----------
MACHINERY--2.3%
Caterpillar, Inc. .......................................................... 40,000 1,418,400
-----------
MULTILINE RETAIL--2.3%
JC Penney Company, Inc. .................................................... 10,000 260,900
Target Corporation ......................................................... 30,000 1,179,000
-----------
1,439,900
-----------
REAL ESTATE INVESTMENT TRUSTS--4.9%
Annaly Capital Management, Inc. ............................................ 120,000 1,672,800
Hatteras Financial Corporation ............................................. 30,000 747,600
MFA Mortgage Investments, Inc. ............................................. 106,700 667,942
-----------
3,088,342
-----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--1.2%
Microchip Technology, Inc. ................................................. 35,000 754,950
-----------
SPECIALTY RETAIL--1.4%
Limited Brands, Inc. ....................................................... 70,000 875,700
-----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
---------- -----------
COMMON STOCK (CONTINUED)
TELECOMMUNICATIONS--7.2%
AT&T, Inc. ................................................................. 100,000 $ 2,479,000
Frontier Communications Corporation ........................................ 125,000 910,000
Verizon Communications, Inc. ............................................... 40,000 1,170,400
-----------
4,559,400
-----------
TRANSPORTATION--2.1%
General Maritime Corporation ............................................... 100,500 962,790
Seaspan Corporation ........................................................ 50,000 362,500
-----------
1,325,290
-----------
TOTAL COMMON STOCK (COST $44,540,388) ...................................... 37,277,682
-----------
EXCHANGE TRADED FUNDS 1.9%
SPDR KBW Bank .............................................................. 65,000 1,225,900
-----------
TOTAL EXCHANGE TRADED FUNDS (COST $871,731) ................................ 1,225,900
-----------
PREFERRED TERM SECURITIES--0.2%+ (b) (c)
Alesco Preferred Funding IX, 06/23/36 ...................................... 10,000 30,000
Alesco Preferred Funding X, 09/23/36 ....................................... 10,000 30,000
Alesco Preferred Funding XI, 12/23/36 ...................................... 5,000 15,000
Alesco Preferred Funding XII, 07/15/37 ..................................... 5,000 15,000
Alesco Preferred Funding XIII, 09/23/37 .................................... 2,500 7,500
Alesco Preferred Funding XIV, 03/15/37 ..................................... 5,000 15,000
Alesco Preferred Funding XV, 12/23/37 ...................................... 2,500 7,500
Alesco Preferred Funding XVI, 03/23/38 ..................................... 5,000 15,000
I-Preferred Term Securities IV, 06/24/34 ................................... 10,000 100
Preferred Term Securities IV, 12/23/31 ..................................... 20,000 200
Preferred Term Securities XIV, 06/24/34 .................................... 20,000 200
Preferred Term Securities XVIII, 06/23/35 .................................. 10,000 100
Preferred Term Securities XIX, 12/22/35 .................................... 10,000 100
Preferred Term Securities XX, 03/22/38 ..................................... 10,000 100
Preferred Term Securities XXIII, 12/22/36 .................................. 5,000 50
Preferred Term Securities XXIV, 03/22/37 ................................... 5,000 50
Taberna Preferred Funding II Limited, 06/30/35 ............................. 5,000 5,000
-----------
TOTAL PREFERRED TERM SECURITIES (COST $10,674,175) ......................... 140,900
-----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
---------- -----------
PREFERRED STOCK--1.5%
FINANCIAL--1.1%
Solar Cayman Limited*+ (b) (c) ............................................. 80,000 $ 701,600
-----------
REAL ESTATE INVESTMENT TRUSTS--0.4%
FelCor Lodging Trust, Inc. ................................................. 40,000 231,200
-----------
TOTAL PREFERRED STOCK (COST $2,200,000) .................................... 932,800
-----------
PRINCIPAL
AMOUNT
----------
CORPORATE NOTES/BONDS--51.7%
BASIC INDUSTRY--3.5%
Blount, Inc.
8.875%, 08/01/12 ........................................................ $ 750,000 750,000
H&E Equipment Services, Inc.
8.375%, 07/15/16 ........................................................ 1,175,000 928,250
Trimas Corporation
9.875%, 06/15/12 ........................................................ 772,000 538,470
-----------
2,216,720
-----------
BUILDING MATERIALS--0.9%
Gibraltar Industries, Inc.
8.000%, 12/01/15 ........................................................ 840,000 558,600
-----------
CABLE TELEVISION--4.2%
CSC Holdings, Inc.
7.875%, 02/15/18 ........................................................ 750,000 710,625
DIRECTV Holdings LLC
6.375%, 06/15/15 ........................................................ 750,000 686,250
Echostar DBS Corporation
6.625%, 10/01/14 ........................................................ 500,000 455,000
Mediacom Broadband LLC
8.500%, 10/15/15 ........................................................ 750,000 686,250
Virgin Media Finance PLC
9.500%, 08/15/16 ........................................................ 100,000 95,574
-----------
2,633,699
-----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
CORPORATE NOTES/BONDS (CONTINUED)
ENERGY--6.9%
Cie Generale de Geophysique
7.750%, 05/15/17 ........................................................ $ 500,000 $ 442,500
Cimarex Energy Company
7.125%, 05/01/17 ........................................................ 650,000 567,125
Complete Production Services, Inc.
8.000%, 12/15/16 ........................................................ 780,000 635,700
Copano Energy LLC
8.125%, 03/01/16 ........................................................ 935,000 874,225
Newfield Exploration Company
6.625%, 04/15/16 ........................................................ 750,000 682,500
Plains Exploration & Production Company
7.625%, 06/01/18 ........................................................ 500,000 443,750
Range Resources Corporation
7.500%, 05/15/16 ........................................................ 750,000 723,750
-----------
4,369,550
-----------
GAMING--3.5%
MTR Gaming Group, Inc., Series B
9.750%, 04/01/10 ........................................................ 520,000 470,600
MTR Gaming Group, Inc.
9.000%, 06/01/12 ........................................................ 700,000 437,500
Scientific Games Corporation
6.250%, 12/15/12 ........................................................ 500,000 462,500
Seneca Gaming Corporation
7.250%, 05/01/12 ........................................................ 1,000,000 815,000
-----------
2,185,600
-----------
HEALTHCARE--4.0%
Bio-Rad Laboratories, Inc.
7.500%, 08/15/13 ........................................................ 1,000,000 992,500
DaVita, Inc.
6.625%, 03/15/13 ........................................................ 500,000 471,250
HCA Inc.
9.125%, 11/15/14 ........................................................ 500,000 492,500
Omnicare, Inc.
6.875%, 12/15/15 ........................................................ 650,000 588,250
-----------
2,544,500
-----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
CORPORATE NOTES/BONDS (CONTINUED)
INDUSTRIAL--1.6%
Anixter, Inc.
10.000%, 03/15/14 ....................................................... $1,000,000 $ 995,000
-----------
METALS & MINING--3.9%
Arch Western Finance LLC
6.750%, 07/01/13 ........................................................ 500,000 457,500
Freeport-McMoRan Copper & Gold Inc.
8.375%, 04/01/17 ........................................................ 1,000,000 993,904
Steel Dynamics, Inc.
7.375%, 11/01/12 ........................................................ 750,000 693,750
Teck Resources Limited+
9.750%, 05/15/14 ........................................................ 300,000 298,787
-----------
2,443,941
-----------
PAPER & FOREST PRODUCTS--2.6%
P H Glatfelter
7.125%, 05/01/16 ........................................................ 1,190,000 1,094,800
U.S. Corrugated (c)
10.000%, 06/01/13 ....................................................... 1,000,000 550,000
-----------
1,644,800
-----------
REAL ESTATE--0.3%
Host Hotels & Resorts LP (a)
7.000%, 08/15/12 ........................................................ 200,000 193,000
-----------
REAL ESTATE MANAGEMENT--3.1%
Corrections Corp of America
7.500%, 05/01/11 ........................................................ 830,000 825,850
Corrections Corp of America
7.750%, 06/01/17 ........................................................ 300,000 295,500
Geo Group, Inc.
8.250%, 07/15/13 ........................................................ 840,000 823,200
-----------
1,944,550
-----------
RETAIL--4.6%
Autonation, Inc.
7.000%, 04/15/14 ........................................................ 500,000 483,750
Brown Shoe Company, Inc.
8.750%, 05/01/12 ........................................................ 1,200,000 1,029,000
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
CORPORATE NOTES/BONDS (CONTINUED)
RETAIL (CONTINUED)
Couche-Tard US LP
7.500%, 12/15/13 ........................................................ $ 500,000 $ 496,250
Sonic Automotive, Inc., Series B
8.625%, 08/15/13 ........................................................ 1,390,000 875,700
-----------
2,884,700
-----------
SERVICES--2.6%
ARAMARK Corporation
8.500%, 02/01/15 ........................................................ 500,000 479,375
KAR Holdings, Inc.
8.750%, 05/01/14 ........................................................ 1,270,000 1,092,200
Mobile Mini, Inc.
9.750%, 08/01/14 ........................................................ 100,000 93,750
-----------
1,665,325
-----------
TELECOMMUNICATIONS--3.0%
Cincinnati Bell, Inc.
8.375%, 01/15/14 ........................................................ 750,000 713,437
Frontier Communications Corporation
8.250%, 05/01/14 ........................................................ 150,000 147,375
Hughes Network Systems LLC
9.500%, 04/15/14 ........................................................ 855,000 829,350
L-3 Communications Corporation
6.125%, 07/15/13 ........................................................ 250,000 233,125
-----------
1,923,287
-----------
TRANSPORTATION--1.2%
Stena AB
7.500%, 11/01/13 ........................................................ 950,000 745,750
-----------
UTILITIES--5.8%
AES Corporation+
9.750%, 04/15/16 ........................................................ 500,000 505,000
Amerigas Partners LP
7.250%, 05/20/15 ........................................................ 750,000 708,750
Edison Mission Energy
7.000%, 05/15/17 ........................................................ 650,000 474,500
Elwood Energy LLC
8.159%, 07/05/26 ........................................................ 892,840 729,763
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
CORPORATE NOTES/BONDS (CONTINUED)
UTILITIES (CONTINUED)
Ipalco Enterprises, Inc.+
7.250%, 04/01/16 ........................................................ $ 500,000 $ 482,500
Sierra Pacific Resources
8.625%, 03/15/14 ........................................................ 750,000 742,500
-----------
3,643,013
-----------
TOTAL CORPORATE NOTES/BONDS (COST $36,666,331) ............................. 32,592,035
-----------
CASH EQUIVALENTS--0.9%
SEI Daily Income Trust, Prime Obligations Fund,
Class A shares, 0.260% (d) .............................................. 555,383 555,383
-----------
TOTAL CASH EQUIVALENTS (COST $555,383) ..................................... 555,383
-----------
TOTAL INVESTMENTS--115.4% (COST $95,508,008) ............................... 72,724,700
-----------
WRITTEN
CONTRACTS
----------
COVERED CALL OPTIONS WRITTEN--(0.9)%
3M Company, Expires: 06/20/09, Strike Price: $60 ........................... (200) (7,200)
ACE Limited, Expires: 06/20/09, Strike Price: $45 .......................... (300) (30,750)
Annaly Capital Management, Inc., Expires: 06/20/09, Strike Price: $15 ...... (1,200) (12,000)
AT&T, Inc., Expires: 06/20/09, Strike Price: $26 ........................... (500) (9,000)
Bank of New York Mellon Corporation, Expires: 06/20/09,
Strike Price: $32.50 .................................................... (100) (500)
Caterpillar, Inc., Expires: 06/20/09, Strike Price: $40 .................... (200) (5,000)
Caterpillar, Inc., Expires: 06/20/09, Strike Price: $38 .................... (200) (11,200)
Emerson Electric Company, Expires: 06/20/09, Strike Price: $35 ............. (200) (4,000)
Exxon Mobil Corporation, Expires: 06/20/09, Strike Price: $75 .............. (400) (9,200)
Hewlett-Packard Company, Expires: 06/20/09, Strike Price: $37.50 ........... (200) (3,000)
Honeywell International, Inc., Expires: 06/20/09, Strike Price: $35 ........ (100) (3,500)
Honeywell International, Inc., Expires: 06/20/09, Strike Price: $34 ........ (150) (9,000)
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
WRITTEN MARKET
CONTRACTS VALUE
---------- -----------
COVERED CALL OPTIONS WRITTEN (CONTINUED)
JPMorgan Chase & Company, Expires: 06/20/09, Strike Price: $40 ............. (300) $ (21,000)
JPMorgan Chase & Company, Expires: 06/20/09, Strike Price: $37.50 .......... (300) (48,600)
Limited Brands, Inc., Expires: 06/20/09, Strike Price: $12.50 .............. (700) (38,500)
MetLife, Inc., Expires: 06/20/09, Strike Price: $31 ........................ (200) (47,000)
MetLife, Inc., Expires: 06/20/09, Strike Price: $34 ........................ (400) (42,000)
Microchip Technology, Inc., Expires: 06/20/09, Strike Price: $20 ........... (250) (38,750)
Microchip Technology, Inc., Expires: 06/20/09, Strike Price: $25 ........... (100) (500)
Occidental Petroleum Corporation, Expires: 06/20/09, Strike Price: $65 ..... (300) (105,000)
PepsiCo, Inc., Expires: 06/20/09, Strike Price: $52.50 ..................... (100) (5,500)
Pfizer, Inc., Expires: 06/20/09, Strike Price: $15 ......................... (600) (31,200)
Pfizer, Inc., Expires: 06/20/09, Strike Price: $16 ......................... (800) (9,600)
Schering-Plough Corporation, Expires: 06/20/09, Strike Price: $25 .......... (400) (10,800)
Seaspan Corporation, Expires: 06/20/09, Strike Price: $7.50 ................ (500) (17,500)
SPDR KBW Bank ETF, Expires: 06/20/09, Strike Price: $19 .................... (650) (48,750)
Target Corporation, Expires: 06/20/09, Strike Price: $43 ................... (200) (7,200)
Target Corporation, Expires: 06/20/09, Strike Price: $46 ................... (100) (500)
Verizon Communications, Inc., Expires: 06/20/09, Strike Price: $32 ......... (400) (1,600)
Wells Fargo & Company, Expires: 06/20/09, Strike Price: $28 ................ (200) (9,000)
-----------
TOTAL COVERED CALL OPTIONS WRITTEN (PREMIUMS RECEIVED $811,353) ............ (587,350)
-----------
OTHER LIABILITIES IN EXCESS OF ASSETS--(14.5)% ............................. (9,137,991)
-----------
NET ASSETS 100.0% .......................................................... $62,999,359
===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONCLUDED)
* Non income producing security.
+ Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration normally to qualified institutions. At May 31, 2009, these
securities amounted to $2,578,637 or 4.1% of net assets.
(a) Securities considered Master Limited Partnership. At May 31, 2009, these
securities amounted to $4,357,800 or 6.9% of net assets.
(b) Securities are considered illiquid. The total value of such securities as
of May 31, 2009 was $1,292,350 or 2.1% of net assets.
(c) Securities fair valued in accordance with Fair Value Procedures (See Note
1).
(d) The rate reported is the 7-day effective yield as of May 31, 2009.
LLC Limited Liability Company
LP Limited Partnership
PLC Public Limited Company
SPDR Standard & Poor's Depository Receipts
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
STATEMENT OF ASSETS AND LIABILITIES
AS OF MAY 31, 2009 (UNAUDITED)
ASSETS:
Investments, at value (cost $95,508,008) (Note 1) .............. $ 72,724,700
Receivable for investment securities sold ...................... 794,313
Interest receivable ............................................ 704,224
Dividends receivable ........................................... 81,975
Prepaid expenses and other assets .............................. 128,210
------------
Total assets ............................................. 74,433,422
------------
LIABILITIES:
Commercial paper (Note 4) ...................................... 9,949,333
Covered call options written, at value
(premiums received--$811,353) (Note 1) ...................... 587,350
Payable for investment securities purchased .................... 481,806
Payable for investment management fees (Note 2) ................ 51,752
Payable to custodian ........................................... 26,391
Payable for administration fees (Note 2) ....................... 12,740
Accrued expenses and other liabilities ......................... 324,691
------------
Total liabilities ........................................ 11,434,063
------------
NET ASSETS ..................................................... $ 62,999,359
============
NET ASSETS CONSIST OF:
Common Stock, $0.01 par value
(authorized 100,000,000 shares) .......................... $ 169,060
Additional paid-in capital .................................. 181,044,215
Distributions in excess of net investment income ............ (902,562)
Accumulated net realized losses on investments and
written call options ..................................... (94,752,049)
Net unrealized depreciation on investments and
written call options ..................................... (22,559,305)
------------
NET ASSETS ..................................................... $ 62,999,359
============
NET ASSET VALUE PER SHARE:
$62,999,359 / 16,905,967 shares of Common Stock issued
and outstanding .......................................... $ 3.73
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED
MAY 31, 2009 (UNAUDITED)
INVESTMENT INCOME:
Interest ....................................................... $ 1,883,508
Dividends ...................................................... 919,065
------------
Total investment income .................................. 2,802,573
------------
EXPENSES:
Investment management fees (Note 2) ............................ 331,712
Commercial paper fees .......................................... 198,569
Administration fees (Note 2) ................................... 74,795
Legal fees ..................................................... 71,989
Printing and shareholder reports ............................... 44,812
Audit fees ..................................................... 32,885
Transfer agent fees ............................................ 21,277
Directors' fees and expenses ................................... 13,141
Registration fees .............................................. 11,413
Custodian fees ................................................. 8,881
Insurance fees ................................................. 1,417
Other operating expenses ....................................... 16,638
------------
Total operating expenses .................................... 827,529
------------
Interest expense (Note 4) ...................................... 166,764
------------
Total expenses .............................................. 994,293
Less: Investment management fees waived (Note 2) ......... (34,928)
------------
Net expenses ............................................. 959,365
------------
NET INVESTMENT INCOME .................................... 1,843,208
------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized loss on investments ............................... (30,606,981)
Net realized gain on written call options ...................... 1,531,122
Change in net unrealized appreciation
on investments and written call options ..................... 31,659,270
------------
Net realized and unrealized gain on investments
and written call options .................................... 2,583,411
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........... $ 4,426,619
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED
MAY 31, 2009 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations ........ $ 4,426,619
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating
activities:
Purchase of long-term portfolio investments .............. (26,695,103)
Proceeds from sales of long-term portfolio investments ... 25,811,139
Net purchase of short-term portfolio investments ......... (25,834,915)
Net proceeds from sales of short-term portfolio
investments ........................................... 25,279,533
Realized gain on written call options .................... (1,531,122)
Premiums received from options written ................... 5,431,067
Premiums paid to closed options .......................... (3,482,376)
Amortization of premiums on investments .................. (28,268)
Realized losses from security transactions ............... 30,606,981
Change in unrealized appreciation from security
transactions and written call options ................. (31,659,270)
Decrease in interest receivable .......................... 165,134
Decrease in dividends receivable ......................... 55,250
Increase in receivable for securities sold ............... (794,313)
Increase in prepaid expenses and other assets ............ (70,646)
Decrease in payable for securities purchased ............. (970,600)
Decrease in payable for investment management fees ....... (7,833)
Increase in payable for administration fees .............. 5,730
Increase in payable to custodian ......................... 26,391
Increase in accrued expenses and other liabilities ....... 93,119
------------
Net cash provided by operating activities .......... 826,517
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid to shareholders ......................... (3,448,816)
Decrease in commercial paper, at value ...................... 7,513
------------
Net cash used in financing activities .............. (3,441,303)
------------
Net decrease in cash ............................... (2,614,786)
CASH
Cash at beginning of period ........................ 2,614,786
------------
Cash at end of period .............................. $ --
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
MAY 31, 2009 NOVEMBER 30,
(UNAUDITED) 2008
------------ ------------
OPERATIONS:
Net investment income ................................... $ 1,843,208 $ 9,420,942
Net realized loss on investments ........................ (30,606,981) (37,833,912)
Net realized gain on written call options ............... 1,531,122 8,825,538
Change in net unrealized appreciation
(depreciation) on investments and written
call options ......................................... 31,659,270 (41,822,635)
------------ ------------
Net increase (decrease) in net assets resulting
from operations ......................................... 4,426,619 (61,410,067)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income ................................... (3,448,816) (9,913,146)
Tax return of capital ................................... -- (4,609,079)
------------ ------------
Net decrease in net assets resulting from
dividends and distributions ............................. (3,448,816) (14,522,225)
------------ ------------
Total increase (decrease) in net assets .................... 977,803 (75,932,292)
------------ ------------
NET ASSETS:
Beginning of period ..................................... 62,021,556 137,953,848
------------ ------------
End of period
(including distributions in excess of net
investment income $(902,562) and
undistributed net investment income of
$703,046, respectively) .............................. $ 62,999,359 $ 62,021,556
============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
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, 2009 NOVEMBER 30,
FINANCIAL STATEMENTS (UNAUDITED) 2008
------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD ....................... $ 3.67 $ 8.16
------- -------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS: (1)
Net investment income ................................... 0.11 0.56
Net realized and unrealized gain (loss) on investment
transactions and written call options ................ 0.15 (4.19)
------- -------
Total from investment operations ..................... 0.26 (3.63)
------- -------
LESS DIVIDENDS:
Dividends from net investment income .................... (0.20) (0.59)
Tax return of capital ................................... -- (0.27)
------- -------
Total dividends ...................................... (0.20) (0.86)
------- -------
NET ASSET VALUE, END OF PERIOD ............................. $ 3.73 $ 3.67
======= =======
MARKET VALUE, END OF PERIOD ................................ $ 3.07 $ 2.60
======= =======
TOTAL RETURN BASED ON: (2)
Net asset value ......................................... 8.90% (47.75)%
======= =======
Market value ............................................ 26.52% (58.90)%
======= =======
RATIOS AND SUPPLEMENTAL DATA: (3)
Net assets, end of period (000 omitted) ................. $62,999 $62,022
======= =======
Total expenses including waiver of fees ................. 2.75%(5) 2.41%
Total expenses excluding waiver of fees ................. 2.85%(5) 2.51%
Total operating expenses including waiver of fees (4) ... 1.70%(5) 1.22%
Total operating expenses excluding waiver of fees (4) ... 1.80%(5) 1.32%
Commercial paper fees and interest expense .............. 0.26%(5) 1.19%
Net investment income including waiver of fees .......... 5.28%(5) 5.97%
Portfolio turnover ...................................... 36% 54%
LEVERAGE ANALYSIS:
Aggregate amount outstanding at end of period
(000 omitted) ........................................ $10,000 $10,000
Average daily balance of amortized cost of commercial
paper outstanding (000 omitted) ...................... $ 9,960 $47,921
Asset coverage per $1,000 at end of period .............. $ 7,040 $15,880
----------
(1) Based on average shares outstanding.
(2) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day
of each period reported. Total investment return does not reflect brokerage
commissions. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment returns based on market
value, which can be significantly greater or less than the net asset value,
may result in substantially different returns. Returns do not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or
the sale of Fund shares.
(3) Ratios are stated as a percentage of managed net assets which includes any
liabilities constituting indebtedness in connection with financial
leverage.
(4) Exclusive of commercial paper fees and interest expense.
(5) Annualized.
Amounts designated as "--" are $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE YEARS ENDED
NOVEMBER 30,
-------------------
2007 2006
-------- --------
NET ASSET VALUE, BEGINNING OF YEAR ......................... $ 9.55 $ 8.65
-------- --------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS: (1)
Net investment income ................................... 0.80 0.63
Net realized and unrealized gain (loss) on investment
transactions and written call options ................ (1.30) 1.20
-------- --------
Total from investment operations ..................... (0.50) 1.83
-------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income .................... (0.84) (0.93)
Tax return of capital ................................... (0.05) --
-------- --------
Total dividends ...................................... (0.89) (0.93)
-------- --------
NET ASSET VALUE, END OF YEAR ............................... $ 8.16 $ 9.55
======== ========
MARKET VALUE, END OF YEAR .................................. $ 7.35 $ 9.78
======== ========
TOTAL RETURN BASED ON: (2)
Net asset value ......................................... (6.05)% 22.51%
======== ========
Market value ............................................ (17.19)% 0.36%
======== ========
RATIOS AND SUPPLEMENTAL DATA: (3)
Net assets, end of year (000 omitted) ................... $137,953 $160,613
======== ========
Total expenses including waiver of fees ................. 2.69% 2.59%
Total expenses excluding waiver of fees ................. 2.79% 2.68%
Total operating expenses including waiver of fees (4) ... 1.15% 1.13%
Total operating expenses excluding waiver of fees (4) ... 1.26% 1.24%
Commercial paper fees and interest expense .............. 1.53% 1.44%
Net investment income including waiver of fees .......... 6.33% 5.07%
Portfolio turnover ...................................... 74% 96%
LEVERAGE ANALYSIS:
Aggregate amount outstanding at end of year
(000 omitted) ........................................ $ 55,000 $ 55,000
Average daily balance of amortized cost of commercial
paper outstanding (000 omitted) ...................... $ 54,790 $ 54,659
Asset coverage per $1,000 at end of year ................ $ 3,903 $ 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 sale of Fund shares.
(3) Ratios are stated as a percentage of average weekly net assets which
includes any liabilities constituting indebtedness in connection with
financial leverage.
(4) Exclusive of commercial paper fees and interest expense.
Amounts designated as "--" are $0 or have been rounded to $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
30
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
FINANCIAL HIGHLIGHTS (CONCLUDED)
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 written call 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 sale of Fund shares.
(3) Ratios are stated as a percentage of average weekly net assets which
includes any liabilities constituting indebtedness in connection with
financial leverage.
(4) Exclusive of commercial paper fees and interest expense.
Amounts designated as "--" are $0 or have been rounded to $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
31
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
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 U.S. generally accepted accounting principles.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
SECURITY VALUATION: Investment securities of the Fund that are listed on a
securities exchange, except for debt securities, and for which market quotations
are readily available, are valued at the last quoted sales price at the close of
trading on the New York Stock Exchange (normally 4:00 p.m., Eastern Time).
Investment securities of the Fund that are quoted on the NASDAQ market system
are valued at the official closing price, or if there is none, at the last sales
price. If there is no reported sale, these securities and unlisted securities
for which market quotations are not readily available are valued at last bid
price. Debt securities are priced based upon valuations provided by independent,
third-party pricing agents, if available. Such values generally reflect the last
reported sales price if the security is actively traded. The third-party pricing
agents may also value debt securities at an evaluated bid price by employing
methodologies that utilize actual market transactions, broker-supplied
valuations, or other methodologies designed to identify the market value for
such securities. Debt obligations with remaining maturities of sixty days or
less may be valued at their amortized cost, which approximates market value.
Prices for most securities held in the Fund are provided daily by recognized
independent pricing agents. If a security price cannot be obtained from an
independent, third-party pricing agent, the Fund seeks to obtain a bid price
from at least one independent broker. All securities and assets for which
quotations are not readily available, of which there were $1,842,350 as of May
31, 2009, 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 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;
32
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
the security has been de-listed from a national exchange; the security's primary
trading market is temporarily closed at a time when under normal conditions it
would be open; or the security's primary pricing source is not able or willing
to provide a price. When a security is valued in accordance with the Fair Value
Procedures, the Committee will determine the value after taking into
consideration relevant information reasonably available to the Committee.
Financial Accounting Standards Board (FASB) STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS (SFAS) No. 157 is effective for the Fund's financial statements issued
after December 1, 2007. SFAS No. 157 defines fair value, establishes a fair
value hierarchy and specifies that a valuation technique used to measure fair
value shall maximize the use of observable inputs and minimize the use of
unobservable inputs. The objective of a fair value measurement is to determine
the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (an exit price). Accordingly, the fair value hierarchy gives
the highest priority to quoted prices (unadjusted) in active markets for
identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). The three levels of the fair value hierarchy
under SFAS No. 157 are described below:
- Level 1 -- Unadjusted quoted prices in active markets for identical,
unrestricted assets or liabilities that the Fund has the ability to access
at the measurement date;
- Level 2 -- Quoted prices which are not active, quoted prices for similar
assets or liabilities in active markets or inputs other than quoted prices
that are observable (either directly or indirectly) for substantially the
full term of the asset or liability; and
- Level 3 -- Significant unobservable prices or inputs (including the
Fund's own assumptions in determining the fair value of investments) where
there is little or no market activity for the asset or liability at the
measurement date.
As required by SFAS No.157, investments are classified within the level of the
lowest significant input considered in determining fair value. Investments
classified within Level 3 whose fair value measurement considers several inputs
may include Level 1 or Level 2 inputs as components of the overall fair value
measurement. The following table sets forth information about the level within
the fair value hierarchy at which the Fund's investments are measured at May 31,
2009:
INVESTMENTS IN OTHER FINANCIAL
VALUATION INPUTS SECURITIES INSTRUMENTS*
---------------- -------------- ---------------
Level 1 $38,840,314 $(587,350)
Level 2 32,042,036 --
Level 3 1,842,350 --
----------- ---------
TOTAL $72,724,700 $(587,350)
=========== =========
* OTHER FINANCIAL INSTRUMENTS ARE WRITTEN COVERED CALL OPTIONS.
33
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
The following is a reconciliation of the investments in which significant
unobservable inputs (Level 3) were used in determining value:
INVESTMENTS IN
SECURITIES
--------------
BALANCE AS OF 11/30/08 $ 5,791,150
Realized gain/(loss) (5,652,009)
Change in unrealized appreciation/(depreciation) 1,744,668
Net purchase/(sales) (41,459)
Net transfers in and/or out of Level 3 --
-----------
BALANCE AS OF 5/31/09 $ 1,842,350
===========
The inputs or methodology used for valuing securities are not necessarily an
indication of the risks associated with investing in those securities.
CASH AND CASH EQUIVALENTS: Idle cash may be swept into various money market
funds and is classified as cash equivalents on the Schedule of Investments.
Amounts invested are generally available on the same business day.
WRITTEN OPTIONS: When the Fund writes a covered call option, an amount equal to
the premium received by the Fund is included in the Fund's Statement of Assets
and Liabilities as a liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option written.
When a covered written call option expires on its stipulated expiration date, or
if the Fund enters into a closing purchase transaction, the Fund will realize a
gain (or loss if the cost of the closing purchase transaction exceeds the
premium received when the call option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option will be extinguished. When a covered written call option is
exercised, the Fund will realize a gain or loss from the sale of the underlying
security and the proceeds of the sale are increased by the premium originally
received. The Fund, as writer of an option, has no control over whether the
underlying securities may be sold (called) and as a result bears the market risk
of an unfavorable change in the price of the securities underlying the written
option.
FASB Statement of SFAS No. 161, "Disclosures about Derivative Instruments and
Hedging Activities", is effective for the Fund's financial statements issued
after November 15, 2008. The new standard requires all companies including
funds, to disclose information intended to enable financial statements users to
understand how and why the company uses derivative instruments, how derivative
instruments are accounted for under FAS 133 and how derivative instruments
affect the Fund's financial position, result of operations and cash flows.
The Fund is permitted to write covered call options on equity securities or
stock indexes. The Fund writes covered call options 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. As of May 31,
2009, the Fund had $587,350 in covered call options written representing 0.9% of
the Fund's net assets.
34
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
DIVIDENDS AND DISTRIBUTIONS: The Fund will declare and pay dividends to
shareholders on a monthly basis. Net long-term capital gains, if any, in excess
of capital loss carryforwards are distributed to shareholders annually.
Dividends from net investment income and capital gain distributions, if any, are
determined in accordance with U.S. Federal income tax regulations, which may
differ from generally accepted accounting principles. Dividends and
distributions, if any, to shareholders are recorded on the ex-dividend date.
The Fund currently intends to distribute a monthly fixed amount to shareholders.
The Fund's final distribution for each calendar year may exceed that amount,
however, to the extent necessary for the Fund to have distributed all of its net
investment company taxable income and net capital gains recognized during the
year, if any. If, for any calendar year, the total distributions exceed current
and accumulated earnings and profit, the excess, distributed from the Fund's
assets, will generally be treated as a tax-free return of capital and will
result in a reduction in the shareholder's basis. The Board reserves the right
to change the aforementioned dividend policy from time to time.
BORROWINGS: The Fund issues short-term commercial paper at a discount from par.
The discount is amortized to interest expense over the life of the commercial
paper using the straight-line method. In conjunction with the issuance of the
commercial paper, the Fund entered into a line of credit arrangement with a bank
for $15,000,000. Effective February 28, 2009, the borrowings under the line of
credit are secured by a perfected security interest on all of the Fund's assets,
and the bank has imposed a 1.00% per annum commitment fee on the unused balance.
There were no borrowings under this arrangement during the six months ended May
31, 2009.
ILLIQUID SECURITIES: A security is considered illiquid if it cannot be sold or
disposed of in the ordinary course of business within seven days or less for its
approximate carrying value on the books of the Fund. Valuations of illiquid
securities may differ significantly from the values that would have been used
had an active market for these securities existed.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are recorded
on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis. The Fund accretes original issue discount on securities
using the effective interest method.
FEDERAL INCOME TAXES: It is the Fund's intention to continue to meet the
requirements under Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to distribute substantially all of its
taxable income to shareholders. Therefore, no provision for Federal income or
excise tax is required.
On May 30, 2008, the Fund adopted Financial Accounting Standards Board ("FASB")
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48").
FIN 48 defines the threshold for recognizing the benefits of tax-return
35
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
positions in the financial statements as "more-likely-than-not" to be sustained
by the applicable taxing authority and requires measurement of a tax position
meeting the "more-likely-than-not" threshold, based on the largest benefit that
is more than 50 percent likely to be realized.
The adoption of FIN 48 did not result in the recording of any tax expense in the
current period. However, management's conclusions regarding FIN 48 may be
subject to review and adjustment at a later date based on factors including, but
not limited to, on-going analyses of and changes to tax laws, regulations and
interpretations thereof.
INVESTMENTS IN REAL ESTATE INVESTMENT TRUSTS ("REITS"): With respect to the
Fund, dividend income is recorded based on the income included in distributions
received from the REIT investments using published REIT reclassifications
including some management estimates when actual amounts are not available.
Distributions received in excess of this estimated amount are recorded as a
reduction of the cost of investments or reclassified to capital gains. The
actual amounts of income, return of capital, and capital gains are only
determined by each REIT after its fiscal year-end, and may differ from the
estimated amounts.
INVESTMENTS IN PREFERRED TERM SECURITIES ("PTSS"): The Fund invests in Preferred
Term Securities, a type of collateralized debt obligation ("CDO"). A PTS is a
trust collateralized by a pool of capital securities of affiliated holding
corporations, typically of, but not limited to, smaller to medium sized banks
and insurance companies.
The income tranche of these securities, owned by the Fund, receives residual
cash disbursements after the senior tranches are paid a stated rate of interest.
Dividend income from these securities is recorded based on anticipated cash
flows and the internal rate of return of each PTS. Distributions received in
excess of this estimated amount are recorded as a reduction of the cost of
investments or reclassified to capital gains. The actual amounts of income,
return of capital, and capital gains are only determined by each PTS quarterly,
and may differ from the estimated amounts.
In addition to the normal risks associated with fixed income securities (e.g.,
interest rate risk and default risk), PTSs carry additional risks including, but
are not limited to: (i) the possibility that distributions from collateral
securities will not be adequate to make interest or other payments; (ii) the
quality of the collateral may decline in value or default; (iii) the Fund may
invest in PTSs that are subordinate to other classes; and (iv) the complex
structure of the security may produce disputes with the issuer or unexpected
investment results.
NOTE 2. INVESTMENT MANAGEMENT, ADMINISTRATION, CUSTODIAN AGREEMENTS AND OTHER
TRANSACTIONS WITH AFFILIATES
The Fund has entered into an investment management agreement with Chartwell
Investment Partners, (the "Manager"). The Manager manages the Fund's portfolio
and makes investment decisions. For these services, the Fund
36
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
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
$150,000.
Certain officers and/or directors of the Fund are officers and/or directors of
the Manager. The Fund pays each director, who is not an "affiliated person" as
defined in the Act (a "Disinterested Director"), a fee of $2,000 for each
regular Board Meeting attended, $750 for each special Board Meeting attended,
plus $1,000 per year for audit committee members. Each Disinterested Director is
reimbursed for reasonable out-of-pocket expenses associated with attending Board
and Committee Meetings.
For the six months ended May 31, 2009, the Fund incurred a legal expense of
$71,989 for services provided by Drinker Biddle & Reath LLP, counsel for the
Fund. A partner of the firm is an officer of the Fund.
U.S. Bank serves as the custodian for the Fund. The Custodian plays no role in
determining the investment policies of the Fund or which securities are to be
purchased or sold by the Fund.
NOTE 3. PURCHASE AND SALES OF INVESTMENTS
For the six months ended May 31, 2009, purchases and sales of investments,
excluding short-term investments, totaled $26,695,103 and $25,811,139,
respectively.
The following table summarizes the Fund's call options written for the six
months ended May 31, 2009:
NUMBER OF
CONTRACTS PREMIUMS
--------- -----------
Options outstanding, November 30, 2008 .............. 8,500 $ 784,470
Options written ..................................... 67,550 5,431,067
Options expired ..................................... (30,300) (1,908,371)
Options exercised ................................... (850) (91,209)
Options closed ...................................... (34,650) (3,404,604)
------- -----------
Options outstanding, May 31, 2009 ................... 10,250 $ 811,353
======= ===========
37
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
NOTE 4. COMMERCIAL PAPER
As of May 31, 2009, $10,000,000 of commercial paper was outstanding with an
amortized cost of $9,918,750. The average discount rate of commercial paper
outstanding at May 31, 2009 was 3.25%. The average daily balance of commercial
paper outstanding for the six months ended May 31, 2009, was $9,959,590 at a
weighted average discount rate of 3.39%. The maximum face amount of commercial
paper outstanding at any time during the six months ended May 31, 2009, was
$10,000,000. In conjunction with the issuance of the commercial paper, the Fund
entered into a line of credit arrangement with a bank for $15,000,000. Interest
on borrowings is based on market rates in effect at the time of borrowing.
Effective February 28, 2009, the borrowings under the line of credit are secured
by a perfected security interest on all of the Fund's assets. The commitment fee
is computed at the rate of 1.00% per annum on the unused balance. There were no
borrowings under this arrangement during the six months ended May 31, 2009.
NOTE 5. CAPITAL STOCK
There are 100,000,000 shares of $0.01 par value common stock authorized. Of the
16,905,967 shares of common stock outstanding at May 31, 2009, the Manager owned
22,671 shares.
For the six months ended May 31, 2009 and the year ended November 30, 2008, the
Fund issued no shares in connection with the Fund's dividend reinvestment plan.
NOTE 6. MARKET AND CREDIT RISKS
The Fund may invest in high yielding fixed-income securities, which carry
ratings of BB or lower by S&P and/or Ba1 or lower by Moody's. Investments in
these higher yielding securities may be accompanied by a greater degree of
credit risk than higher rated securities. Additionally, lower rated securities
may be more susceptible to adverse economic and competitive industry conditions
than investment grade securities. The Fund may invest up to 15% of its total
assets in illiquid securities and other securities which may not be readily
marketable. In addition, the Fund may purchase securities sold in reliance of
Rule 144A of the Securities Act of 1933. The relative illiquidity of some of the
Fund's portfolio securities may adversely affect the ability of the Fund to
dispose of such securities in a timely manner and at a fair price at times when
it might be necessary or advantageous for the Fund to liquidate portfolio
securities.
NOTE 7. FEDERAL TAX INFORMATION
It is the Fund's intention to continue to meet the requirements under Subchapter
M of the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its taxable income to shareholders.
Therefore, no provision for Federal income or excise tax is required.
38
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
The tax character of dividends and distributions paid during the last two fiscal
years were as follows:
ORDINARY RETURN
INCOME OF CAPITAL TOTALS
----------- ---------- -----------
2008 $ 9,913,146 $4,609,079 $14,522,225
2007 14,219,577 825,229 15,044,806
As of November 30, 2008, the components of Distributable Earnings (Accumulated
Losses) were as follows:
Capital loss carryforwards $ (56,121,066)
Post-October losses (9,449,141)
Net unrealized depreciation (54,324,559)
Other temporary differences 703,047
-------------
Total accumulated losses $(119,191,719)
=============
Post-October losses represent losses realized on investment transactions from
November 1, 2008 through November 30, 2008, that in accordance with federal
income tax regulations the Fund may elect to defer or treat as having arisen in
the following fiscal year.
The following summarizes the capital loss carryforwards as of November 30, 2008.
These capital loss carryforwards are available to offset future net capital
gains.
EXPIRING IN FISCAL YEAR AMOUNT
----------------------- -----------
2009 $ 7,900,696
2010 30,533,344
2011 771,608
2014 103,382
2016 16,812,036
-----------
Total capital loss carryforwards $56,121,066
===========
During the year ended November 30, 2008, the Fund utilized none of the capital
loss carryforwards to offset capital gains.
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, 2009, were as follows:
Federal Tax Cost .............................................. $ 95,508,008
------------
Aggregate Gross Unrealized Appreciation ....................... 3,489,890
Aggregate Gross Unrealized Depreciation ....................... (26,273,198)
------------
Net Unrealized Depreciation ................................... $(22,783,308)
============
39
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
NOTE 8. SUBSEQUENT EVENTS
The Board of the Fund declared the following dividends:
DECLARATION DATE EX-DATE RECORD DATE PAYABLE DATE DIVIDEND RATE
---------------- ------------- ------------- ------------- -------------
June 1, 2009 June 16, 2009 June 18, 2009 June 30, 2009 $0.034
July 1, 2009 July 21, 2009 July 23, 2009 July 31, 2009 0.034
NOTE 9. 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.
NOTE 10. ACCOUNTING PRONOUNCEMENTS
In April 2009, the FASB issued Staff Position No. 157-4 -- Determining Fair
Value when the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly ("FSP
157-4") was issued. FSP 157-4 clarifies the process for measuring the fair value
of financial instruments when the markets become inactive and quoted prices may
reflect distressed transactions. FSP 157-4 provides additional guidance for
estimating fair value in accordance with FASB statement No. 157, "Fair Value
Measurements", when the volume and level of activity for the asset or liability
have significantly decreased as well as guidance on identifying circumstances
that indicate a transaction is not orderly. FSP 157-4 is effective for interim
and annual reporting periods ending after June 15, 2009, and shall be applied
prospectively. At this time, management is evaluating the impact of FSP 157-4 on
the Fund's financial statements.
40
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
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 PNC Global Investment Servicing ("PNC Global") formerly known as 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 PNC Global, 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 PNC Global, as dividend
paying agent, at the address set forth below.
Participation in the Plan is completely voluntary and may be terminated or
resumed at any time without penalty by written notice if received by the Plan
Agent not less than ten days prior to any dividend record date. Otherwise such
termination will be effective with respect to any subsequently declared dividend
or distribution.
Whenever the Fund declares a distribution, an ordinary income dividend or a
capital gain dividend (collectively referred to as "dividends") payable either
in shares or in cash, non-participants in the Plan will receive cash, and
participants in the Plan will receive the equivalent in shares of common stock.
The shares will be acquired by the Plan Agent for the participant's account,
depending upon the circumstances described below, either (i) through receipt of
additional unissued but authorized shares of common stock from the Fund or (ii)
by purchase of outstanding shares of common stock on the open market on the NYSE
or elsewhere. If on the payment date of the dividend, the net asset value per
share of the common stock is equal to or less than the market price per share
plus estimated brokerage commissions (such condition being referred to herein as
"market premium"), the Plan Agent will invest the dividend amount in newly
issued shares on behalf of the participant. The number of newly issued shares of
common stock to be credited to the participant's account will be determined by
dividing the dollar amount of the dividend by the net asset value per share on
the date the shares are issued, provided that the maximum discount from the then
current market price per share on the date of issuance may not exceed 5%. If on
the dividend payment date the net asset value per share is greater than the
market value (such condition being referred to herein as "market discount"), the
Plan Agent will invest the dividend amount in shares acquired on behalf of the
participant in open-market purchases.
In the event of a market discount on the dividend payment date, the Plan Agent
will have until the last business day before the next date on which the shares
trade on the "ex-dividend" basis or in no event more than 30 days after the
dividend payment date to invest the dividend amount in shares acquired in
41
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
(UNAUDITED)
open-market purchases. If, before the Plan Agent has completed its open-market
purchases, the market price of a share of common stock exceeds the net asset
value per share, the average per share purchase price paid by the Plan Agent may
exceed the net asset value of the Fund's shares, resulting in the acquisition of
fewer shares than if the dividend had been paid in newly issued shares on the
dividend payment date. The Plan provides that if the Plan Agent is unable to
invest the full dividend amount in open-market purchases during the purchase
period or if the market discount shifts to market premium during the purchase
period, the Plan Agent will cease making open-market purchases and will invest
the uninvested portion of the dividend amount in newly issued shares at the
close of business on the last purchase date.
The Plan Agent maintains all shareholders' accounts in the Plan and furnishes
written confirmation of all transactions in the accounts, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Plan Agent on behalf of the Plan participant,
and each shareholder's proxy will include those shares purchased or received
pursuant to the Plan. The Plan Agent will forward all proxy solicitation
materials to participants and vote proxies for shares held pursuant to the Plan
in accordance with the instructions of the participants.
In the case of shareholders such as banks, brokers or nominees which hold shares
for others who are the beneficial owners, the Plan Agent will administer the
Plan on the basis of the number of shares certified from time to time by the
record shareholders as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who are to
participate in the Plan.
There will be no brokerage charges with respect to shares issued directly by the
Fund as a result of dividends or capital gain distributions payable either in
shares or in cash. However, each participant will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open-market
purchases in connection with reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not relieve
participants of any Federal, state or local income tax that may be payable (or
required to be withheld) on such dividends.
Shareholders participating in the Plan may receive benefits not available to
shareholders not participating in the Plan. If the market price plus commissions
of the Fund's shares is above the net asset value, participants in the Plan will
receive shares of the Fund at less than they could otherwise purchase them and
will have shares with a cash value greater than the value of any cash
distribution they would have received on their shares. If the market price plus
commissions is below the net asset value, participants will receive
distributions
42
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
(UNAUDITED)
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
PNC Global Investment Servicing, P.O. Box 43027, Providence, RI 02940-3027,
Attn: Closed-End Department.
FEDERAL TAX INFORMATION (UNAUDITED)
Information for Federal income tax purposes is presented as an aid to
shareholders in reporting the dividend distributions for the year ended November
30, 2008.
ADDITIONAL INFORMATION (UNAUDITED)
During the period, there have been no material changes in the Fund's investment
objective or fundamental policies that have not been approved by the
shareholders, other than the changes to the investment policies regarding
investments in securities issued by other investment companies and temporary
investments described on pages 3 and 4. There have been no changes in the Fund's
charter or By-Laws that would delay or prevent a change in control of the Fund
which have not been approved by the shareholders. There have been no material
changes in the principal risk factors associated with investment in the Fund.
EFFECTS OF LEVERAGE (UNAUDITED)
Leverage of $60 million in commercial paper was initially sold by the Fund on
July 28, 1999. As of May 31, 2009, the Fund had $10 million outstanding at 3.25%
per annum maturing on July 28, 2009. All interest rates include fees due to the
broker-dealer. The Fund must experience an annual return of 0.43% to cover
interest payments on the commercial paper.
The following table explains the potential effects of leverage on the equity
returns of common shareholders:
Assumed return on portfolio
(net of expenses) ............... (10.00)% (5.00)% 0.00% 5.00% 10.00%
Corresponding return to common
stockholder ..................... (12.04)% (6.27)% (0.50)% 5.27% 11.04%
43
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
(UNAUDITED)
Assumes $65 million assets attributable to common shareholders; $10 million
aggregate leverage with an average interest rate of 3.25%. All figures appearing
above are hypothetical returns generated to assist investors in understanding
the effects of leverage. Actual returns may be greater or less than those
appearing in the table.
HOW TO OBTAIN A COPY OF THE FUND'S 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 18, 2009, 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.
44
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
CHARTWELL BOARD CONSIDERATIONS RELATING TO THE ADVISORY CONTRACT RENEWAL
(UNAUDITED)
The Board of Directors of the Fund determined on April 22, 2009 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, 2009 to the performance of an income and preferred stock
universe selected by Lipper and a leveraged high yield universe selected by
Lipper at the request of Chartwell Partners; advisory fee and other expense
information for the Fund as compared to these peer groups; and information
provided by Chartwell Partners responsive to requests by the Fund's independent
counsel for certain information to assist the Board in its considerations. In
addition, the Board reviewed a memorandum from its independent counsel detailing
the Board's duties and responsibilities in considering renewal of the Agreement.
In reaching its decision to renew the Agreement, the Board, including a majority
of the Directors who are not interested persons under the Investment Company Act
of 1940 (the "Independent Directors"), considered, among other things: (i) the
nature, extent and quality of Chartwell Partners' services provided to the Fund;
(ii) the experience and qualifications of the portfolio management team; (iii)
its investment philosophy and process; (iv) Chartwell Partners' assets under
management, client descriptions and performance record for each of its
investment strategies; (v) its annual compliance summary; (vi) its soft dollar
commission, broker selection, best execution and trade allocation policies;
(vii) current advisory fee arrangements with the Fund and its other clients;
(viii) Lipper information comparing the Fund's performance, advisory fee and
expense ratio to that of its peer groups; (ix) Chartwell Partners' financial
information and profitability analysis related to providing advisory services to
the Fund, including the commission arrangement with Merrill Lynch; (x) any
compensation and other possible benefits to Chartwell Partners arising from its
advisory and other relationships with the Fund; and (xi) the extent to which
economies of scale are relevant to the Fund. The Board noted, in particular the
Fund's expenses relative to its peers and the impact of the unique investment
strategy of the Fund and the commission arrangement with Merrill Lynch whereby
Chartwell Partners has been paying the underwriter's commission in connection
with the Fund's initial public offering.
45
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
(UNAUDITED)
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 advisory fee and
expense ratio are above average in comparison to those of its comparable Lipper
peer groups and both are reflective of the unique and bifurcated investment
style of the Fund; Chartwell Partners' fees for managing the Fund are reasonable
as compared to fees it charges for managing assets for other clients and
considering the unique investment strategy of the Fund; the Fund's performance
is generally competitive (performance for certain periods was higher and for
other periods was lower) with that of the comparable Lipper peer groups; the
nature, extent and quality of services provided by Chartwell Partners in
advising the Fund was satisfactory; the profits earned by Chartwell Partners
seemed reasonable; and the benefits derived by Chartwell Partners from managing
the Fund, including its use of soft dollars and the way it selects brokers,
seemed reasonable. The Independent Directors discussed economies-of-scale, but
noted that asset growth to achieve such economies was unlikely for a closed-end
fund such as the Fund.
Based on the factors considered, the Board, including a majority of the
Independent Directors, concluded that it was appropriate to renew the Agreement.
46
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
SHAREHOLDER VOTING RESULTS (UNAUDITED)
The Annual Meeting of shareholders of the Chartwell Dividend and Income Fund,
Inc. was held on April 22, 2009 at the offices of PNC Global Investment
Servicing, 103 Bellevue Parkway, Wilmington, Delaware. The description of the
proposal and number of shares voted at the meeting are as follows:
VOTES VOTES VOTES
FOR AGAINST WITHHELD
---------- ------- --------
To elect the following
directors to serve as the
Class I directors for a
three-year term expiring Kenneth F. Herlihy 14,448,619 0 869,909
in 2012: C. Warren Ormerod 14,463,422 0 855,106
Directors whose terms of office continue beyond this meeting are Winthrop S.
Jessup, Marie D. Fairchild and Bernard P. Schaffer.
47
CHARTWELL
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2009
DIRECTORS
Winthrop S. Jessup, Chairman
Marie D. Fairchild
Kenneth F. Herlihy
C. Warren Ormerod
Bernard P. Schaffer
OFFICERS
Winthrop S. Jessup, President
G. Gregory Hagar, Vice President, Treasurer, Chief Financial Officer and Chief
Compliance Officer
Bernard P. Schaffer, Vice President
Kevin A. Melich, Vice President
Timothy J. Riddle, Vice President
Andrew S. Toburen, Vice President
Michael P. Malloy, Secretary
Maria E. Pollack, Assistant Secretary
INVESTMENT MANAGER
Chartwell Investment Partners, L.P.
1235 Westlakes Drive, Suite
400 Berwyn, PA 19312
ADMINISTRATOR
SEI Investments Global Funds Services
One Freedom Valley Drive
Oaks, PA 19456
CUSTODIAN
U.S. Bank
Two Liberty Place
Philadelphia, PA 19102
TRANSFER AGENT
PNC Global Investment Servicing
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.
(a) The schedule of investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to shareholders
filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
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 407(c)(2)(iv)
of Regulation S-K in its proxy statement filed with the Commission on March
13,2009.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The Registrant's principal executive officer and principal financial officer
have concluded that the Registrant's disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended,
(the "1940 Act")) are effective as of a date within 90 days of the filing of
this report that includes the disclosure required by this paragraph, based on
their evaluation of these
controls and procedures, required by Rule 30a-3(b) under the 1940 Act and Rules
13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended.
(b) There were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during
the second fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEMS 12. EXHIBITS.
(a)(1) Not applicable for semi-annual report.
(a)(2) A separate certification for the principal executive officer and the
principal financial officer of the Registrant as required by Rule 30a-2(a) under
the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(a)), are
attached hereto as EX-99Cert.
(a)(3) Not applicable.
(b) Officer certifications as required by Rule 30a-2(b) under the Investment
Company Act of 1940, as amended (17 CFR 270.30a-2(b)) also accompany this filing
as EX-99.906Cert.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Chartwell Dividend and Income Fund, Inc.
By (Signature and Title)* /s/ Winthrop S. Jessup
----------------------------------------
Winthrop S. Jessup, President
(Principal Executive Officer)
Date: August 1, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Winthrop S. Jessup
----------------------------------------
Winthrop S. Jessup, President
(Principal Executive Officer)
Date: August 1, 2009
By (Signature and Title)* /s/ G. Gregory Hagar
----------------------------------------
G. Gregory Hagar, Vice President and CFO
(Principal Financial Officer)
Date: August 1, 2009
* Print the name and title of each signing officer under his or her
signature.