UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-CSR
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CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANY ACT FILE NUMBER 811-8747
CHARTWELL DIVIDEND AND INCOME FUND, INC.
(Exact name of registrant as specified in charter)
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1235 Westlakes Drive, Suite 400
Berwyn, PA 19312
(Address of principal executive offices) (Zip code)
PNC Bank, National Association
400 Bellevue Parkway
Wilmington, DE 19809
Attn: Closed-End Department
(Name and address of agent for service)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 1-610-296-1400
DATE OF FISCAL YEAR END: NOVEMBER 30, 2005
DATE OF REPORTING PERIOD: MAY 31, 2005
ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC, LOGO AND BACKGROUND OMITTED]
CHARTWELL
DIVIDEND AND
INCOME FUND, INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS
DATED MAY 31, 2005
CHARTWELL INVESTMENT
PARTNERS
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
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INVESTMENT OBJECTIVES & STRATEGY
The Chartwell Dividend and Income Fund's (the "Fund") primary investment
objective is to seek high current income. Capital appreciation is a secondary
objective. The Fund will seek to achieve its objectives by investing, under
normal circumstances, at least 50% of its total assets in income generating
equity securities, including dividend paying common stocks, convertible
securities, preferred stocks and other equity-related securities. In addition,
the Fund may invest the balance of its total assets in non-convertible debt
securities, consisting primarily of corporate bonds. The Fund attempts to
minimize individual security risk by diversifying across many industries and
asset classes. The Fund is a closed-end management investment company which
trades on the New York Stock Exchange under the symbol CWF.
COMMON STOCK
The Fund invests in the common stocks of utility companies, Real Estate
Investment Trusts (REITs) and other industrial and financial companies as well
as other equity securities. Both utilities and REITs tend to offer a premium
dividend yield with steady growth that can lead to capital appreciation.
Industrial and financial stocks are primarily purchased for capital appreciation
based on the fundamental value of the underlying company.
HIGH-YIELD CORPORATE BONDS
High-yield bonds are non-investment grade corporate debt obligations rated "Ba1"
or lower by Moody's Investors Service, Inc. or "BB+" or lower by Standard and
Poor's Ratings Group; they typically have a higher risk level than
investment-grade bonds. These securities have historically compensated investors
with higher levels of income for that risk. Prices usually are less sensitive to
interest rate fluctuations than higher rated bonds because of the high income
levels. However, the prices of these bonds are more sensitive to changes in the
economy.
CONVERTIBLE SECURITIES
The Fund can invest in both convertible preferred stock and convertible bonds.
Both pay fixed rates of income, but because they can be converted into common
stock, they are indirectly tied to the common stock's performance. As a result,
convertible securities generally offer higher income than common stocks and an
opportunity for price appreciation when the value of the underlying security
rises. The Fund buys convertibles when the underlying common stock offers strong
growth potential as well.
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
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LETTER TO SHAREHOLDERS
During the six months ending May 31, 2005, the total market return of the Fund
was 6.40% with dividends reinvested and the Net Asset Value (NAV) of the Fund
advanced 1.90%. The equity and fixed income markets advanced moderately over
these six months with the S&P 500 equity index and high yield corporate bonds
(Merrill Lynch High Yield Cash Pay Index) returning 2.42% and 0.81%,
respectively. Despite continued favorable economic growth, solid earnings, and
reasonable valuations, the markets were stalled as worries about the direction
of interest rates, oil prices, inflation, and a feared housing bubble weighed on
investors' sentiment.
EQUITIES (60% of the portfolio)
Our current view of the equities market still leans to the positive. While
economic growth has moderated somewhat, solid corporate earnings growth,
reasonable equity valuations, low interest rates, and improved hiring activity
suggest the economy is far from the cusp of experiencing a material slowdown.
The Fed Chairman Alan Greenspan seems to back this view having noted in
testimony before the Joint Economic Committee in June that the economy seems to
be on "reasonably firm footing, and underlying inflation remains contained." At
the same time, a moderate slowing in earnings growth combined with rising rates
does not provide the basis for an overly bullish outlook. Based on such an
outlook, we continue to believe the most likely path for the equity markets is
for a total return that is close to the long-term annual average of mid to high
single digits. As always, the outlook is not without risks. One of the biggest
risks is that oil prices continue to rise and undermine economic growth.
However, expectations for sustained high oil prices have, at least in part, been
factored into the outlook.
HIGH YIELD BONDS (40% of the portfolio)
[Line Graph Omitted]
Plot points follow:
HIGH YIELD DEFAULT RATES: TRAILING TWELVE MONTHS
(Source: Moody's, 2005 is Six Months Ended May 31, 2005)
Date Global Percentage of Issuers Default Rate
May-95 1.85
June-95 2.13
Jul-95 2.21
Aug-95 2.17
Sep-95 2.27
Oct-95 2.66
Nov-95 3.17
Dec-95 3.26
Jan-96 3.26
Feb-96 3.37
Mar-96 3.43
Apr-96 3.21
May-96 2.85
Jun-96 2.84
Jul-96 2.63
Aug-96 2.21
Sep-96 2.17
Oct-96 1.95
Nov-96 1.64
Dec-96 1.64
Jan-97 1.71
Feb-97 1.59
Mar-97 1.58
Apr-97 1.37
May-97 1.60
Jun-97 1.59
Jul-97 1.84
Aug-97 2.00
Sep-97 2.06
Oct-97 2.12
Nov-97 2.27
Dec-97 2.01
Jan-98 2.07
Feb-98 2.37
Mar-98 2.35
Apr-98 2.63
May-98 2.69
Jun-98 2.96
Jul-98 2.80
Aug-98 2.69
Sep-98 2.62
Oct-98 2.66
Nov-98 2.80
Dec-98 3.41
Jan-99 3.49
Feb-99 3.59
Mar-99 3.82
Apr-99 4.20
May-99 4.80
Jun-99 4.85
Jul-99 5.32
Aug-99 5.52
Sep-99 5.84
Oct-99 5.97
Nov-99 5.85
Dec-99 5.56
Jan-00 5.53
Feb-00 5.53
Mar-00 5.67
Apr-00 5.67
May-00 5.40
Jun-00 5.55
Jul-00 4.96
Aug-00 5.21
Sep-00 5.31
Oct-00 4.96
Nov-00 5.44
Dec-00 6.15
Jan-01 6.69
Feb-01 7.09
Mar-01 7.84
Apr-01 8.03
May-01 8.09
Jun-01 8.29
Jul-01 8.90
Aug-01 9.37
Sep-01 9.71
Oct-01 10.19
Nov-01 10.22
Dec-01 10.60
Jan-02 10.89
Feb-02 10.73
Mar-02 10.60
Apr-02 10.57
May-02 10.70
Jun-02 10.54
Jul-02 10.33
Aug-02 10.02
Sep-02 9.78
Oct-02 9.29
Nov-02 8.94
Dec-02 8.43
Jan-03 7.69
Feb-03 7.70
Mar-03 6.99
Apr-03 6.79
May-03 6.62
Jun-03 6.14
Jul-03 5.87
Aug-03 6.19
Sep-03 6.03
Oct-03 6.06
Nov-03 5.50
Dec-03 5.31
Jan-04 5.12
Feb-04 4.51
Mar-04 4.37
Apr-04 4.12
May-04 3.65
Jun-04 3.55
Jul-04 3.08
Aug-04 2.45
Sep-04 2.45
Oct-04 2.49
Nov-04 2.54
Dec-04 2.29
Jan-05 2.20
Feb-05 2.45
Mar-05 2.12
Apr-05 1.98
May-05 1.91
Strong credit quality trends were overwhelmed by negative technicals, as high
profile downgrades (i.e. Ford and General Motors) and mutual fund outflows
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
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combined to push prices lower. The price decline drove the yield on the market
up 77 basis points from 7.46% to 8.23%. Conversely, after peaking in late March,
the yield on the 10-year Treasury bond fell sharply to 4.01% at May 31st. These
factors combined to cause the high yield market's spread over 10-year Treasury
(i.e. risk premium) to widen 113 basis points (1.13%) to a new spread of 423
basis points (4.23%).
[Line Graph Omitted]
Plot points follow:
HIGH YIELD PREMIUM OVER TREASURIES ("SPREAD")
(Source: Merrill Lynch, Bloomberg: May 31, 1995-May 31, 2005)
Date HY Index Spread (bps)
May-97 243
Jun-97 241
Jul-97 242
Aug-97 230
Sep-97 234
Oct-97 272
Nov-97 266
Dec-97 269
Jan-98 271
Feb-98 261
Mar-98 260
Apr-98 271
May-98 293
Jun-98 350
Jul-98 351
Aug-98 502
Sep-98 573
Oct-98 613
Nov-98 530
Dec-98 555
Jan-99 550
Feb-99 507
Mar-99 510
Apr-99 464
May-99 467
Jun-99 465
Jul-99 444
Aug-99 465
Sep-99 489
Oct-99 499
Nov-99 470
Dec-99 453
Jan-00 461
Feb-00 496
Mar-00 584
Apr-00 596
May-00 618
Jun-00 615
Jul-00 617
Aug-00 641
Sep-00 664
Oct-00 757
Nov-00 874
Dec-00 881
Jan-01 739
Feb-01 729
Mar-01 760
Apr-01 739
May-01 703
Jun-01 739
Jul-01 745
Aug-01 731
Sep-01 914
Oct-01 865
Nov-01 752
Dec-01 734
Jan-02 697
Feb-02 722
Mar-02 621
Apr-02 601
May-02 643
Jun-02 781
Jul-02 874
Aug-02 882
Sep-02 966
Oct-02 974
Nov-02 800
Dec-02 802
Jan-03 747
Feb-03 757
Mar-03 696
Apr-03 576
May-03 614
Jun-03 554
Jul-03 488
Aug-03 477
Sep-03 483
Oct-03 415
Nov-03 401
Dec-03 368
Jan-04 360
Feb-04 381
Mar-04 392
Apr-04 351
May-04 383
Jun-04 371
Jul-04 369
Aug-04 381
Sep-04 372
Oct-04 355
Nov-04 310
Dec-04 314
Jan-05 341
Feb-05 305
Mar-05 360
Apr-05 423
May-05 423
Thank you for your continued support of the portfolio management team and of the
Chartwell Dividend and Income Fund.
Sincerely,
/s/ Winthrop S. Jessup
Winthrop S. Jessup
CHAIRMAN
CHARTWELL DIVIDEND AND INCOME FUND
/s/ Bernard P. Schaffer /s/ Andrew S. Toburen
Bernard P. Schaffer Andrew S. Toburen
PORTFOLIO MANAGER PORTFOLIO MANAGER
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
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PORTFOLIO MANAGEMENT TEAM
Bernard P. Schaffer Andrew S. Toburen
PORTFOLIO MANAGER PORTFOLIO MANAGER
EQUITY FIXED INCOME
Matthew H. Taylor Christine F. Williams
PORTFOLIO MANAGER PORTFOLIO MANAGER
EQUITY FIXED INCOME
Paul Matlack
PORTFOLIO MANAGER
FIXED INCOME
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
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HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDING MAY 31, 2005?
[Bar Chart Omitted]
Plot points follow:
TOTAL RETURN
SIX MONTHS ENDED MAY 31, 2005
Merill Lynch
High Yield
CWF Stock CWF NAV S&P 500 Cash Bond Index
6.4% 1.9% 2.4% 0.8%
During the six months ending May 31, 2005, the Chartwell Dividend and Income
Fund advanced 1.90% on a Net Asset Value basis (NAV) and 6.40% on a market
basis, assuming reinvestment of dividends for both return calculations. In
comparison, the S&P 500 Index advanced 2.42%, also including reinvested
dividends, and the Merrill Lynch High Yield Cash Pay Index returned 0.81%.
WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
[Bar Chart Omitted]
Plot points follow:
TOTAL RETURN
SIX MONTHS ENDED MAY 31, 2005
Merrill Lynch
Morgan High Yield
CWF CWF High Stanley REIT Cash Bond
Equities Yield S&P 500 Index Index
1.9% -0.9% 2.4% 6.2% 0.8%
The equity portion of the Fund advanced 1.90% due to strong performance by
several stocks, particularly in the Consumer Staples, Energy and Health Care
sectors. Some of the best performing stocks in the Fund included ALTRIA GROUP
(MO), ALLIANCE CAPITAL MANAGEMENT HOLDINGS (AC), HARTFORD FINANCIAL SERVICES
GROUP (HIG), KERR-MCGEE (KMG) and CITIGROUP (C).
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
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The high yield portion of the Fund underperformed the benchmark over the last
six months largely due to overweights in Building Materials and Consumer
Products and an underweight in interest rate sensitive BB-rated issues.
DID ANY COMMON STOCKS OR FIXED INCOME HOLDINGS WITHIN THE FUND UNDERPERFORM
RELATIVE TO YOUR EXPECTATIONS?
Some of our Financial stocks underperformed during the period, including
FRIEDMAN, BILLINGS RAMSEY GROUP (FBR), NEW CENTURY FINANCIAL (NEW), and BANK OF
NEW YORK (BK). Shares in FRIEDMAN BILLINGS RAMSEY came under pressure when
management announced a tempered earnings outlook for 2005 due to lower banking
revenues. The stock was sold prior to the end of the current period. NEW CENTURY
FINANCIAL shares also experienced softness due to weakness in earnings related
to margin compression. Higher than expected expenses and a higher loan loss
provision outlook contributed to the weakness in BANK OF NEW YORK'S shares
during the period.
[Bar Chart Omitted]
Plot points follow:
S&P 500 TOTAL RETURN BY SECTOR
(SIX MONTHS ENDED MAY 31, 2005)
Utilities 11.8
Energy 11.1
Health Care 9.6
Consumer
Staples 5.9
Industrials 0.5
Financials 0.4
Information
Technology -1.3
Consumer
Discretionary -2.0
Telecommunication
Services -3.4
Materials -4.8
Regarding the bond portfolio, the top performing industries for the first half
of the year included Telecommunications and Energy, while the bonds of Paper and
Automotive companies performed poorly on average. AUTOCAM, INTEGRATED ELECTRICAL
SERVICES, and PLY GEM INDUSTRIES were some of the bonds that underperformed
during the period.
In April/May, the rating agencies downgraded the debt of both FORD and GENERAL
MOTORS (GM), two of the largest issuers of U.S. corporate debt. Moody's
Investors Service currently has weak investment grade ratings on both FORD and
GM, while Standard & Poor's rates FORD at BB+ and GM at BB. As a result of the
downgrades, GM became the largest single issuer in the high yield benchmark
7
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
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(approximately 6% of the market) on May 31st, while FORD remains in the
investment grade index. The overhang from these downgrades weighed heavily on
the credit markets, and put significant pressure on the bonds of automotive
suppliers. We have conducted extensive credit analysis on FORD and GM, and at
this point we have chosen not to invest in their capital structures. We continue
to closely monitor credit developments at these two issuers, recognizing that
changes in their credit outlooks, actual or perceived, will likely have an
impact on the overall market if for no other reason than their sheer size.
[Bar Chart Omitted]
Plot points follow:
HIGH YIELD INDUSTRY PERFORMANCE
Six Months Ended May 31, 2005 (Source: Merrill Lynch)
Telecom 3.6
Energy 2.4
Food/Bev 2.1
Healthcare 2.0
Technology 1.9
BB INDEX 1.8
Publishing 1.5
Services 1.4
Homebuilding 1.3
Gaming 1.3
Chemicals 1.0
HY INDEX 0.8
B INDEX 0.6
Utilities 0.6
Cable TV 0.5
Steel -0.4
CCC INDEX -1.5
Consumer -1.5
Bldg Mat -2.7
Paper -2.8
Automotive -9.5
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE PERIOD?
During the period, we added more higher-yielding, high-quality stocks to the
portfolio, thereby raising the overall yield on our equity portfolio slightly.
Some of the stocks we added include REGAL ENTERTAINMENT GROUP (RGC), ALASKA
COMMUNICATIONS SYSTEMS GROUP (ALSK), and PACKAGING CORPORATION OF AMERICA (PKG).
To fund these purchases, we sold some of our lower-yielding Technology stocks
such as FLEXTRONICS INTERNATIONAL LIMITED (FLEX), LSI LOGIC (LSI), and MICROSOFT
(MSFT).
Bond trading activity was relatively light during the period, though the fixed
portion of the Fund did initiate new positions in Aztar and RELIANT ENERGY.
AZTAR is a diversified operator of hotels and gaming facilities and RELIANt is a
Houston-based utility. These purchases are consistent with our focus on B and
BB-rated issuers with strong, stable cashflows and improving credit profiles.
Top performers over the last six months included EURAMAX INTERNATIONAL,
INTEGRATED ELECTRICAL SERVICES, MEDIACOM BROADBAND and CELANESE. Offsetting
these winners, the Fund lost money in AUTOCAM, GENERAL NUTRITION and PLY GEM
INDUSTRIES.
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
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HOW DID THE FUND TRADE RELATIVE TO ITS NET ASSET VALUE (NAV) DURING THE 6-MONTH
PERIOD?
As of May 31, 2005, the Fund was trading at a closing price of $10.16, a premium
of 17.7% to its Net Asset Value of $8.63. At the start of the period on November
30, 2004, the Fund was trading at a closing price of $10.03, a premium of 11.9%
to its NAV of $8.96. Throughout the period, the Fund traded between $8.25 and
$10.68 and between a 6.8% premium and a 20.6% premium.
WHAT IS YOUR CURRENT OUTLOOK FOR THE EQUITY AND FIXED INCOME MARKETS?
We believe the most likely intermediate outlook for the equity market resembles
the long-term annual average of 8-10% total return. Current expectations seem to
factor in rising interest rates, combined with a slowing rate of growth for both
the economy and corporate earnings. While this combination does not imply the
market has significant downside risk, at this time it may suggest a modest
opportunity for near-term capital appreciation. However, an outlook that
emphasizes only interest rates and slower growth ignores current stock market
valuation. The underlying constructive case for equities reflects stock
valuations that are not stretched. Thus, the combination of 5-10% corporate
earnings growth for the remainder of 2005, low (albeit rising) interest rates
and
[Line Graph Omitted]
Plot points follow:
HISTORY OF FUND PRICE, NAV AND PREMIUM
(SOURCE: BLOOMBERG, SIX MONTHS ENDED MAY 31, 2005)
PRICE NAV
12/1/04 10.03 9.04
12/8/04 10.10 9.00
12/15/04 10.16 9.12
12/22/04 10.19 9.11
12/29/04 10.09 9.13
1/5/05 10.23 8.91
1/12/05 10.50 8.97
1/19/05 10.44 8.94
1/26/05 10.32 8.87
2/2/05 10.22 9.01
2/9/05 10.24 9.05
2/16/05 10.31 9.09
2/23/05 10.23 8.99
3/2/05 10.27 9.09
3/9/05 10.28 9.06
3/16/05 10.22 8.88
3/23/05 9.43 8.66
3/30/05 9.39 8.72
4/6/05 9.61 8.74
4/13/05 9.82 8.67
4/20/05 9.77 8.40
4/27/05 9.65 8.51
5/4/05 9.84 8.60
5/11/05 9.96 8.59
5/18/05 10.12 8.47
5/25/05 10.11 8.56
5/31/05 10.16 8.63
PREMIUM DISCOUNT
12/1/04 10.95
12/8/04 12.24
12/15/04 11.45
12/22/04 11.89
12/29/04 10.56
1/5/05 14.77
1/12/05 17.11
1/19/05 16.79
1/26/05 16.30
2/2/05 13.47
2/9/05 13.13
2/16/05 13.40
2/23/05 13.82
3/2/05 12.93
3/9/05 13.45
3/16/05 15.15
3/23/05 8.94
3/30/05 7.71
4/6/05 9.93
4/13/05 13.26
4/20/05 16.25
4/27/05 13.38
5/4/05 14.44
5/11/05 15.91
5/18/05 19.45
5/25/05 18.18
5/31/05 17.78
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
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reasonable valuation provides the foundation for further advances in equity
prices. One of the biggest single risks to this outlook is the market's changing
expectations for inflation and subsequent further unanticipated Federal Reserve
policy initiatives.
In spite of difficult technical conditions recently, our outlook for the high
yield market is constructive. Default rates are expected to remain low by
historical standards as bank lending, the principal source of operating
liquidity for most high yield issuers, remains widely available and relatively
cheap. Generally speaking, high yield credit trends have been improving.
Financial leverage (defined as debt divided by cash flow) has declined and the
ratio of rating agency upgrades to downgrades has improved and remains above
one-to-one. With the economy continuing to experience modest growth, we expect
the high yield bond market to deliver absolute returns in line with the market
coupon over the next six months. As always, our mission for the fixed income
portion of the fund is to provide a consistent level of high income. To this
end, Chartwell continues to employ a bottom up approach, where rigorous
fundamental credit research drives the investment process.
[Line Graph Omitted]
Plot points follow:
HIGH YIELD PREMIUM UPGRADE/DOWNGRADE RATIO
(Source: Moody's Investores Service)
1995 Q1 1.4
1995 Q2 0.8
1995 Q3 0.7
1995 Q4 0.7
1996 Q1 2.1
1996 Q2 1.3
1996 Q3 1.8
1996 Q4 1.8
1997 Q1 1.3
1997 Q2 1.4
1997 Q3 1.6
1997 Q4 1.6
1998 Q1 1.2
1998 Q2 0.9
1998 Q3 0.7
1998 Q4 0.3
1999 Q1 0.3
1999 Q2 0.5
1999 Q3 0.5
1999 Q4 0.4
2000 Q1 0.3
2000 Q2 0.3
2000 Q3 0.4
2000 Q4 0.2
2001 Q1 0.4
2001 Q2 0.3
2001 Q3 0.2
2001 Q4 0.3
2002 Q1 0.3
2002 Q2 0.2
2002 Q3 0.3
2002 Q4 0.2
2003 Q1 0.7
2003 Q2 0.5
2003 Q3 0.5
2003 Q4 0.6
2004 Q1 0.7
2004 Q2 1.3
2004 Q3 1.4
2004 Q4 0.9
2005 Q1 1.1
HOW IS THE FUND POSITIONED AT THE CLOSE OF THE PERIOD?
[Pie Chart Omitted]
Plot points follow:
CWF (AS A % OF) TOTAL INVESTMENTS
As of May 31, 2005
Cash 1.0%
Fixed Income 40%
Equities 59%
10
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
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As of May 31, 2005, the percentage of the Fund's total investments held in
equities and fixed income was 59% and 40%, respectively.
Regarding the equity outlook, the market may continue to favor high-yielding
equities given the low level of interest rates. In addition to a favorable tax
treatment for qualified dividends, slower earnings growth relative to last year
should focus investor attention on total return investing. In this environment,
the dividend return becomes more important to many investors. The largest sector
position in the Fund is in financial stocks given their high yields and
attractive valuations. The Fund also has a large position in the Energy sector
given the continued favorable worldwide supply and demand outlook. The Fund has
little or no weight in the Technology, Industrials and Consumer Discretionary
sectors, as these are areas with less attractive valuations and lower dividend
yields.
[Pie Chart Omitted]
Plot points follow:
FUND EQUITY ALLOCATION
(as of May 31, 2005)
Cash 1.0%
Fixed Income 40%
Equities 59%
Basic Materials 2.7%
Consumer
Discretionary 1.6%
Consumer Staples 7.8%
Energy 7.9%
Financials 20.3%
Industrials 0.9%
Health Care 0.0%
REITS 8.9%
Technology 0.0%
Telecommunications
Services 5.8%
Utilities 3.2%
The bond side of the Fund is currently overweighted in cyclically sensitive B
rated securities, which we believe will benefit from continued economic growth
and are generally less sensitive to interest rates (relative to BB's). Our team
continues to employ bottom up, fundamental research in our investment decisions,
recognizing that solid credit analysis is the key driver of relative performance
in high yield.
[Pie Chart Omitted]
Plot points follow:
FUND FIXED INCOME ALLOCATION
(as of May 31, 2005)
Cash 1.0%
Fixed Income 40%
Equities 59%
Basic Industry 6.3%
Capital Goods 2.2%
Consumer Cyclical 3.7%
Consumer Staples 4.2%
Energy 2.2%
Financial 2.3%
Health Care 1.1%
Industrial 3.5%
Real Estate 2.8%
Telecommunications 4.7%
Transportation 0.9%
Utilities 0.9%
Preferred Term Securities 4.8%
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
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WHAT ARE THE TOP 10 EQUITY HOLDINGS BY PERCENTAGE OF TOTAL INVESTMENTS AND THE
10 HIGHEST-YIELDING STOCKS IN THE FUND?
TOP 10 EQUITIES BY PERCENTAGE OF TOTAL INVESTMENTS
% OF TOTAL
TICKER SECURITY INVESTMENTS YIELD%
--------------------------------------------------------------------------------
BAC Bank of America Corporation 5.00 3.9
MO Altria Group, Inc. 4.54 4.3
OXY Occidental Petroleum Corporation 2.98 1.7
CZN Citizens Communications Company 2.43 7.3
AC Alliance Capital Management Holdings LP 2.31 4.9
CG Loews Corporation - Carolina Group 1.95 6.1
C Citigroup, Inc. 1.92 3.7
WM Washington Mutual, Inc. 1.84 4.6
HAL Halliburton Company 1.65 1.2
DRY Coinmach Corporation 1.62 11.5
TOP 10 HIGHEST-YIELDING EQUITIES
% OF TOTAL
TICKER SECURITY INVESTMENTS YIELD%
--------------------------------------------------------------------------------
NEW New Century Financial Corporation 1.03 12.6
BGF B&G Foods, Inc. 0.25 11.8
DRY Coinmach Corporation 1.61 11.5
BMM Bimini Mortgage Management, Inc. 0.06 11.4
ATB Arlington Tankers Limited 0.42 9.6
ALSK Alaska Communications Systems Group, Inc. 0.84 8.4
HMB HomeBanc Corporation 1.07 8.1
CZN Citizens Communications Company 2.41 7.3
APU AmeriGas Partners LP 0.24 7.1
SFI iStar Financial, Inc. 1.06 7.0
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
12
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
UTILIZATION OF LEVERAGE
The Chartwell Dividend and Income Fund has utilized leverage through the
issuance of commercial paper. As of May 31, 2005, the Fund had $55 million in
leverage outstanding (out of $60 million available) in the form of commercial
paper rated A1/P1 by Moody's Investors Service, Inc./Standard & Poor's Ratings
Group. These ratings should enhance the marketability and reduce the interest
costs associated with the issuance of the commercial paper. However, it must be
noted that the utilization of leverage involves the risk of lower portfolio
returns if the cost of leverage is higher than the resulting yields on assets or
if the Fund experiences capital losses in excess of the yield spread, if any.
Therefore, the addition of leverage also increases the potential volatility of
the Fund. The Fund has the ability to leverage to a maximum of 33% of the Fund's
gross assets.
The Fund utilizes leveraging to seek to enhance the yield and NAV of its common
stock. However, these objectives cannot be achieved in all interest rate
environments. To leverage, the Fund issues commercial paper, which is issued at
a discount equivalent to short-term interest rates, and invests the proceeds in
long-term securities. The interest earned on these investments is paid to common
stock shareholders in the form of dividends, and the value of these portfolio
holdings is reflected in the per share NAV of the Fund's common stock. However,
in order to benefit common stock shareholders, the yield curve must be
positively sloped; that is, short-term interest rates must be lower than
long-term interest rates. At the same time, a period of generally declining
interest rates will benefit common stock shareholders. IF EITHER OF THESE
CONDITIONS CHANGE, THEN THE RISKS OF LEVERAGING WILL BEGIN TO OUTWEIGH THE
BENEFITS.
To illustrate these concepts, assume a fund's common stock capitalization of
$100 million and the issuance of commercial paper for an additional $50 million,
creating a total value of $150 million available for investment in long-term
securities. If prevailing short-term interest rates are approximately 3% and
long-term interest rates are approximately 6%, the yield curve has a strongly
positive slope. The fund pays a discount on the $50 million of commercial paper
based on the lower short-term interest rates. At the same time, the fund's total
portfolio of $150 million earns the income based on long-term interest rates.
In this case, the discount paid to commercial paper holders is significantly
lower than the income earned on the fund's long-term investments, and therefore
the common stock shareholders are the beneficiaries of the incremental yield.
However, IF SHORT-TERM INTEREST RATES RISE, narrowing the differential between
short-term and long-term interest rates, THE INCREMENTAL YIELD PICK-UP ON THE
COMMON STOCK WILL BE REDUCED OR ELIMINATED COMPLETELY. At the same time, the
market value on the fund's common stock (that is, its price as listed on the New
York Stock Exchange), may, as a result, decline. Furthermore, IF LONG-TERM
INTEREST RATES RISE, THE COMMON STOCK'S NAV WILL REFLECT THE FULL DECLINE IN THE
PRICE OF THE PORTFOLIO'S INVESTMENTS, SINCE THE VALUE OF THE FUND'S COMMERCIAL
PAPER DOES NOT FLUCTUATE. In addition to the decline in net asset value, the
market value of the fund's common stock may also decline.
13
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED)
SECTOR WEIGHTINGS+:
56.6% Common Stock
35.0% Corporate Notes/Bonds
4.8% Preferred Term Securities
2.4% Convertible Preferred Stock
1.0% Cash Equivalent
0.2% Preferred Stock
+Percentages are based on total investments.
NUMBER OF MARKET
SHARES VALUE
--------- ------------
COMMON STOCK--77.6%
BANKS--13.1%
AmSouth Bancorporation ............................... 50,760 $ 1,353,262
Bank of America Corporation .......................... 212,000 9,819,840
Citigroup, Inc. ...................................... 80,000 3,768,800
New York Community Bancorp, Inc. ..................... 50,000 911,000
U.S. Bancorp ......................................... 100,000 2,933,000
------------
18,785,902
------------
BASIC INDUSTRY--3.5%
Dow Chemical Company ................................. 30,000 1,358,700
Packaging Corporation of America ..................... 50,000 1,092,000
Weyerhaeuser Company ................................. 40,000 2,566,000
------------
5,016,700
------------
CONSUMER CYCLICAL--2.2%
Coinmach Corporation ................................. 245,000 3,185,000
------------
CONSUMER STAPLES--10.7%
Altria Group, Inc. ................................... 132,950 8,926,263
B&G Foods, Inc. ...................................... 34,300 498,036
ConAgra Foods, Inc. .................................. 50,000 1,307,500
Loews Corporation - Carolina Group ................... 128,225 3,831,363
Regal Entertainment Group, Class A ................... 40,000 795,600
------------
15,358,762
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
14
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
--------- ------------
COMMON STOCK (CONTINUED)
ENERGY--10.9%
Exxon Mobil Corporation .............................. 20,000 $ 1,124,000
Halliburton Company .................................. 75,800 3,239,692
Kerr-McGee Corporation ............................... 24,800 1,831,728
Occidental Petroleum Corporation ..................... 80,000 5,848,800
Schlumberger Limited ................................. 30,000 2,051,100
Sunoco Logistics Partners LP ......................... 40,000 1,486,000
------------
15,581,320
------------
FINANCIAL--11.9%
Alliance Capital Management Holdings LP .............. 100,000 4,540,000
Fidelity National Financial, Inc. .................... 49,000 1,763,510
Hartford Financial Services Group, Inc. .............. 39,200 2,931,768
MBNA Corporation ..................................... 50,000 1,054,500
Montpelier Re Holdings Limited ....................... 80,000 2,748,000
People's Choice Europe Limited ....................... 35,000 350,000
Washington Mutual, Inc. .............................. 87,700 3,622,010
------------
17,009,788
------------
INDUSTRIAL--1.2%
Arlington Tankers Limited ............................ 42,100 828,107
Teekay LNG Partners LP ............................... 35,000 922,950
------------
1,751,057
------------
REAL ESTATE--11.5%
Bimini Mortgage Management, Inc. ..................... 8,000 111,840
Boston Properties, Inc. .............................. 30,000 2,004,000
BRE Properties, Class A .............................. 19,500 751,530
CarrAmerica Realty Corporation ....................... 32,600 1,126,982
Duke Realty Corporation .............................. 80,320 2,479,479
HomeBanc Corporation ................................. 225,000 2,124,000
iStar Financial, Inc. ................................ 50,000 2,095,000
Mack-Cali Realty Corporation ......................... 27,682 1,220,499
New Century Financial Corporation .................... 40,000 2,038,000
Reckson Associates Realty Corporation ................ 80,000 2,527,200
------------
16,478,530
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NUMBER OF
SHARES/ MARKET
PRINCIPAL AMOUNT VALUE
---------------- ------------
COMMON STOCK (CONTINUED)
TELECOMMUNICATIONS--8.0%
Alaska Communications Systems Group, Inc. ............ 175,000 $ 1,657,250
BellSouth Corporation ................................ 100,000 2,676,000
Citizens Communications Company ...................... 350,000 4,774,000
Fairpoint Communications, Inc. ....................... 75,000 1,167,750
SBC Communications, Inc. ............................. 50,000 1,169,000
------------
11,444,000
------------
TRANSPORTATION--0.5%
K-Sea Transportation Partners LP ..................... 10,000 333,000
Transmontaigne Partners LP ........................... 15,000 368,250
------------
701,250
------------
UTILITIES--4.1%
AmeriGas Partners LP ................................. 15,200 478,344
Duquesne Light Holdings, Inc. ........................ 30,000 570,900
Kinder Morgan Energy Partners LP ..................... 45,000 2,149,200
Northern Border Partners LP .......................... 26,600 1,266,160
TEPPCO Partners LP ................................... 34,800 1,438,980
------------
5,903,584
------------
TOTAL COMMON STOCK (COST $99,435,157) ................ 111,215,893
------------
CORPORATE NOTES/BONDS--47.9%
BASIC INDUSTRY--8.6%
Aearo Company I
8.250%, 04/15/12 .................................. $ 755,000 736,125
Buhrmann US, Inc.
8.250%, 07/01/14 .................................. 850,000 833,000
Euramax International, Inc.
8.500%, 08/15/11 .................................. 1,645,000 1,850,625
Goodman Global Holdings Company, Inc.+
7.875%, 12/15/12 .................................. 1,100,000 995,500
Imco Recycling, Inc.
10.375%, 10/15/10 ................................. 855,000 953,325
Koppers Industries
9.875%, 10/15/13 .................................. 1,230,000 1,316,100
Nortek, Inc.
8.500%, 09/01/14 .................................. 1,085,000 976,500
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------------
CORPORATE NOTES/BONDS (CONTINUED)
BASIC INDUSTRY (CONTINUED)
Ply Gem Industries, Inc.
9.000%, 02/15/12 .................................. $ 855,000 $ 679,725
Sensus Metering Systems, Inc.
8.625%, 12/15/13 .................................. 700,000 654,500
Tenneco Automotive, Inc.
8.625%, 11/15/14 .................................. 800,000 776,000
United Agri Products
8.250%, 12/15/11 .................................. 651,000 670,530
Vertis, Inc., Series B
10.875%, 06/15/09 ................................. 500,000 490,000
Williams Scotsman, Inc.
9.875%, 06/01/07 .................................. 875,000 866,250
Wolverine Tube, Inc.
10.500%, 04/01/09 ................................. 500,000 487,500
------------
12,285,680
------------
CAPITAL GOODS--3.0%
Allied Waste North America, Series B
8.500%, 12/01/08 .................................. 935,000 979,412
GenCorp, Inc.
9.500%, 08/15/13 .................................. 451,000 504,195
H&E Equipment Finance
11.125%, 06/15/12 ................................. 970,000 1,064,575
Norcross Safety Products LLC, Series B
9.875%, 08/15/11 .................................. 1,070,000 1,144,900
Propex Fabrics, Inc.
10.000%, 12/01/12 ................................. 600,000 567,000
------------
4,260,082
------------
CONSUMER CYCLICAL--5.1%
Allied Security Escrow
11.375%, 07/15/11 ................................. 1,020,000 974,100
Cenveo, Inc.
9.625%, 03/15/12 .................................. 850,000 915,875
Coinmach Corporation
9.000%, 02/01/10 .................................. 1,110,000 1,143,300
LCE Acquisition Corporation+
9.000%, 08/01/14 .................................. 1,255,000 1,223,625
Mothers Work, Inc.
11.250%, 08/01/10 ................................. 1,000,000 1,005,000
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------------
CORPORATE NOTES/BONDS (CONTINUED)
CONSUMER CYCLICAL (CONTINUED)
Norcraft Companies
9.000%, 11/01/11 .................................. $ 570,000 $ 575,700
Sonic Automotive, Inc., Series B
8.625%, 08/15/13 .................................. 635,000 626,269
Universal City Florida
8.375%, 05/01/10 .................................. 755,000 781,425
------------
7,245,294
------------
CONSUMER STAPLES--5.8%
American Seafood Group LLC
10.125%, 04/15/10 ................................. 1,005,000 1,077,862
Amscan Holdings, Inc.
8.750%, 05/01/14 .................................. 595,000 556,325
Brown Shoe Company, Inc.+
8.750%, 05/01/12 .................................. 800,000 820,000
Chiquita Brands International, Inc.
7.500%, 11/01/14 .................................. 950,000 907,250
FTD, Inc.
7.750%, 02/15/14 .................................. 385,000 371,525
General Nutrition Centers, Inc.
8.500%, 12/01/10 .................................. 945,000 725,287
Jean Countu Group (PJC), Inc.
8.500%, 08/01/14 .................................. 1,225,000 1,197,438
MTR Gaming Group, Inc., Series B
9.750%, 04/01/10 .................................. 520,000 566,800
Solo Cup Company
8.500%, 02/15/14 .................................. 1,100,000 1,061,500
Stater Brothers Holdings
8.125%, 06/15/12 .................................. 715,000 698,913
WH Holdings Limited
9.500%, 04/01/11 .................................. 294,000 314,580
------------
8,297,480
------------
ENERGY--3.0%
Belden & Blake Corporation
8.750%, 07/15/12 .................................. 1,300,000 1,183,000
Bluewater Finance Limited
10.250%, 02/15/12 ................................. 1,000,000 1,050,000
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------------
CORPORATE NOTES/BONDS (CONTINUED)
ENERGY (CONTINUED)
Kerr-McGee Corporation
7.000%, 11/01/11 .................................. $1,010,000 $ 1,012,525
Reliant Energy, Inc.
6.750%, 12/15/14 .................................. 500,000 478,750
Whiting Petroleum Corporation
7.250%, 05/01/13 .................................. 600,000 600,000
------------
4,324,275
------------
FINANCIAL--3.2%
E*Trade Financial Corporation
8.000%, 06/15/11 .................................. 870,000 913,500
Labranche & Company, Inc.
11.000%, 05/15/12 ................................. 1,160,000 1,252,800
United Rentals North America, Inc.
7.750%, 11/15/13 .................................. 1,200,000 1,194,000
Western Financial
9.625%, 05/15/12 .................................. 1,120,000 1,220,800
------------
4,581,100
------------
HEALTHCARE--1.5%
Iasis Healthcare Corporation
8.750%, 06/15/14 .................................. 1,005,000 1,080,375
Town Sports International
9.625%, 04/15/11 .................................. 1,100,000 1,133,000
------------
2,213,375
------------
INDUSTRIAL--4.8%
Ainsworth Lumber
7.250%, 10/01/12 .................................. 775,000 732,375
Douglas Dynamics, LLC+
7.750%, 01/15/12 .................................. 610,000 588,650
Freeport-McMoRan Copper & Gold, Inc.
10.125%, 02/01/10 ................................. 1,010,000 1,121,100
General Cable Corporation
9.500%, 11/15/10 .................................. 420,000 449,400
INVISTA+
9.250%, 05/01/12 .................................. 1,690,000 1,844,212
Noble Group Limited+
6.625%, 03/17/15 .................................. 900,000 826,889
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------------
CORPORATE NOTES/BONDS (CONTINUED)
INDUSTRIAL (CONTINUED)
Rayovac Corporation
8.500%, 10/01/13 .................................. $ 395,000 $ 413,763
Superior Essex Communications, LLC
9.000%, 04/15/12 .................................. 900,000 909,000
------------
6,885,389
------------
REAL ESTATE--3.8%
Aztar Corporation
7.875%, 06/15/14 .................................. 880,000 930,600
Geo Group, Inc.
8.250%, 07/15/13 .................................. 1,120,000 1,083,600
Intrawest Corporation
7.500%, 10/15/13 .................................. 890,000 903,350
La Quinta Properties
8.875%, 03/15/11 .................................. 1,130,000 1,226,050
Tech Olympic USA, Inc.
9.000%, 07/01/10 .................................. 1,320,000 1,366,200
------------
5,509,800
------------
TELECOMMUNICATIONS--6.5%
Albritton Communications Company
7.750%, 12/15/12 .................................. 990,000 975,150
Cablevision Systems Corporation+
8.000%, 04/15/12 .................................. 670,000 707,687
Centennial Cellular Operating Company
10.125%, 06/15/13 ................................. 1,110,000 1,244,587
Charter Communications Holdings, LLC
10.750%, 10/01/09 ................................. 400,000 312,000
Charter Communications Operating, LLC+
8.000%, 04/30/12 .................................. 425,000 427,125
Cincinnati Bell, Inc.
8.375%, 01/15/14 .................................. 875,000 870,625
Cincinnati Bell, Inc.+
8.375%, 01/15/14 .................................. 515,000 512,425
Intelsat Bermuda Limited+
7.805%, 01/15/12 .................................. 630,000 642,600
MediaCom Broadband, LLC
11.000%, 07/15/13 ................................. 1,775,000 1,930,313
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NUMBER OF
SHARES/ MARKET
PRINCIPAL AMOUNT VALUE
---------------- ------------
CORPORATE NOTES/BONDS (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
Time Warner, Inc.
9.750%, 07/15/08 .................................. $ 785,000 $ 790,888
UbiquiTel Operating Company
9.875%, 03/01/11 .................................. 860,000 933,100
------------
9,346,500
------------
TRANSPORTATION--1.3%
Continental Airlines, Inc.
8.000%, 12/15/05 .................................. 470,000 462,362
Ship Finance International Limited
8.500%, 12/15/13 .................................. 1,525,000 1,471,625
------------
1,933,987
------------
UTILITIES--1.3%
AES Corporation
9.500%, 06/01/09 .................................. 900,000 1,003,500
CE Generation, LLC
7.416%, 12/15/18 .................................. 684,028 719,687
MSW Energy Holdings
7.375%, 09/01/10 .................................. 130,000 131,300
------------
1,854,487
------------
TOTAL CORPORATE NOTES/BONDS (COST $69,751,137) ....... 68,737,449
------------
CONVERTIBLE PREFERRED STOCK--3.3%
CONSUMER STAPLES--0.8%
Albertson's, Inc. .................................... 54,400 1,215,296
------------
FINANCIAL--1.8%
ACE Limited .......................................... 26,025 690,703
Chubb Corporation .................................... 10,000 310,300
Felcor Lodging Trust, Inc. ........................... 40,000 976,000
Hartford Financial Services Group, Inc. .............. 5,000 343,050
XL Capital Limited ................................... 10,000 240,200
------------
2,560,253
------------
REAL ESTATE--0.7%
LTC Properties, Inc. ................................. 25,000 975,000
------------
TOTAL CONVERTIBLE PREFERRED STOCK (COST $4,269,583) .. 4,750,549
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
-----
CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
--------- ------------
PREFERRED STOCK--0.3%
FINANCIAL--0.3%
TransCanada Corporation .............................. 14,905 $ 383,804
------------
TOTAL PREFERRED STOCK (COST $381,501) ................ 383,804
------------
PREFERRED TERM SECURITIES (A) --6.6%
I-Preferred Term Securities IV ....................... 10,000 1,080,000
Preferred Term Securities IV ......................... 20,000 1,320,500
Preferred Term Securities XIII ....................... 10,000 1,010,000
Preferred Term Securities XIV ........................ 20,000 2,008,000
Preferred Term Securities XV ......................... 20,000 2,120,000
Preferred Term Securities XVI ........................ 10,000 1,065,000
Preferred Term Securities XVII ....................... 6,000 609,000
Taberna Preferred Funding I+ ......................... 2,500 250,000
------------
TOTAL PREFERRED TERM SECURITIES (COST $8,873,652) .... 9,462,500
------------
CASH EQUIVALENT--1.4%
SEI Daily Income Trust, Prime Obligation Fund,
Class A ........................................... 1,983,584 1,983,584
------------
TOTAL CASH EQUIVALENT (COST $1,983,584) .............. 1,983,584
------------
TOTAL INVESTMENTS--137.1% (COST $184,694,614) ........ 196,533,779
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
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--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONCLUDED)
MARKET
WRITTEN VALUE
CONTRACTS (NOTE 1)
--------- -------------
COVERED CALL OPTIONS WRITTEN--(0.6)%
Altria Group, Inc. July 75 Call ..................... (400) $ (10,000)
Altria Group, Inc. June 70 Call ...................... (200) (14,000)
BellSouth Corporation July 27.5 Call ................. (1,000) (25,000)
Citigroup, Inc. June 47.5 Call ....................... (400) (16,000)
Dow Chemical Company June 50 Call .................... (300) (1,500)
Exxon Mobil Corporation July 60 Call ................. (200) (10,000)
Fidelity National Financial, Inc. June 35 Call ....... (490) (51,450)
Halliburton Company June 42.5 Call ................... (400) (8,000)
Halliburton Company June 45 Call ..................... (350) (43,750)
MBNA Corporation June 20 Call ........................ (500) (75,000)
New Century Financial Corporation June 45 Call ....... (400) (252,000)
Occidental Petroleum Corporation June 70 Call ........ (800) (304,000)
Packaging Corporation of America June 22.5 Call ...... (100) (2,500)
Schlumberger Limited June 70 Call .................... (300) (24,000)
Washington Mutual, Inc. June 42.5 Call ............... (450) (9,000)
Weyerhaeuser Company June 65 Call .................... (400) (36,000)
------------
TOTAL COVERED CALL OPTIONS WRITTEN
(PREMIUM RECEIVED $712,290) ....................... (882,200)
------------
OTHER LIABILITIES IN EXCESS OF OTHER ASSETS--(36.5)% (52,319,012)
------------
NET ASSETS -- 100.0% ................................. $143,332,567
============
+ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration normally to qualified institutions. At May 31, 2005, these
securities amounted to $8,838,713 or 6.2% of net assets.
(a) Security is illiquid. See Note 1 in Notes to Financial Statements.
LLC Limited Liability Company
LP Limited Partnership
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
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--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AS OF MAY 31, 2005 (UNAUDITED)
ASSETS:
Investments, at value (cost $184,694,614) (Note 1) .............. $196,533,779
Receivable for securities sold .................................. 947,649
Interest receivable ............................................. 1,861,189
Dividends receivable ............................................ 203,173
Prepaid expenses and other assets ............................... 81,735
------------
Total assets ............................................... 199,627,525
------------
LIABILITIES:
Commercial paper (Note 4) ....................................... 54,859,796
Covered call options written, at value
(premiums received--$712,290) (Note 1) ....................... 882,200
Payable for securities purchased ................................ 218,495
Payable for investment management fees (Note 2) ................. 142,097
Payable for administration fees (Note 2) ........................ 16,717
Accrued expenses and other liabilities .......................... 175,653
------------
Total liabilities .......................................... 56,294,958
------------
NET ASSETS ...................................................... $143,332,567
============
NET ASSETS CONSIST OF:
Common Stock, $0.01 par value
(authorized 100,000,000 shares) ............................ $ 166,137
Additional paid-in-capital ................................... 199,185,832
Distributions in excess of net investment income ............. (2,749,232)
Accumulated net realized losses on investments and options ... (64,939,425)
Net unrealized appreciation on investments and options ....... 11,669,255
------------
NET ASSETS -- 100% .............................................. $143,332,567
============
NET ASSET VALUE PER SHARE:
$143,332,567 / 16,613,668 shares of Common Stock issued
and outstanding ............................................ $8.63
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED
MAY 31, 2005 (UNAUDITED)
INVESTMENT INCOME:
Interest ........................................................ $ 3,155,044
Dividends ....................................................... 4,228,002
-----------
Total investment income .................................... 7,383,046
-----------
EXPENSES:
Investment management fees (Note 2) ............................. 953,989
Administration fees (Note 2) .................................... 100,415
Professional fees ............................................... 94,332
Commercial paper fees ........................................... 65,305
Printing and shareholder reports ................................ 39,533
Transfer agent fees ............................................. 17,295
Directors' fees and expenses .................................... 12,861
Registration fees ............................................... 12,753
Custodian fees .................................................. 11,143
Insurance fees .................................................. 1,922
Other operating expenses ........................................ 7,926
-----------
Total operating expenses ..................................... 1,317,474
Interest expense (Note 4) ....................................... 727,940
-----------
Total expenses ............................................... 2,045,414
-----------
Less:
Investment management fees waived (Note 2) ................. (100,464)
-----------
Net expenses ............................................... 1,944,950
-----------
NET INVESTMENT INCOME ...................................... 5,438,096
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments ................................ 719,219
Net realized gain on call options written ....................... 1,222,887
Change in net unrealized depreciation on investments
and options ................................................... (4,742,783)
-----------
Net realized and unrealized loss on investments and options ..... (2,800,677)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............ $ 2,637,419
===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED
MAY 31, 2005 (UNAUDITED)
INCREASE (DECREASE) IN CASH
Cash flows provided from (used for) operating activities:
Interest and dividends received .............................. $ 7,778,003
Operating expenses paid ...................................... (1,273,473)
Interest paid ................................................ (727,940)
Net proceeds from the sale of short-term portfolio investments 760,755
Purchase of long-term portfolio investments .................. (92,702,945)
Proceeds from sale of long-term portfolio investments ........ 91,931,812
Premiums received from written options transactions .......... 1,585,784
------------
Net cash provided from operating activities ................ 7,351,996
------------
Cash flows provided from (used for) financing activities:
Net cash provided from commercial paper issuance ............. (301,069)
Cash dividends paid to shareholders .......................... (7,448,624)
------------
Net cash used for financing activities ..................... (7,749,693)
------------
Net decrease in cash ............................................ (397,697)
Cash at beginning of period .................................. 397,697
------------
Cash at end of period ........................................ $ --
============
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations ............ $ 2,637,419
------------
Accretion of market discount ................................. (16,459)
Decrease in investments ...................................... 6,579,155
Net realized gain on investments and options ................. (1,942,106)
Net change in unrealized depreciation
on investments and options ................................ 4,742,783
Increase in receivable for securities sold ................... (947,649)
Decrease in interest and dividend receivable ................. 47,704
Decrease in commercial paper discount ........................ 209,476
Increase in prepaid expenses and other assets ................ (58,458)
Decrease in payable for securities purchased ................. (3,901,864)
Increase in accrued expenses and other liabilities ........... 1,995
------------
Total adjustments .......................................... 4,714,577
------------
Net cash provided from operating activities .................. $ 7,351,996
============
Amounts designated as "--" are $0 or have been rounded to $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
MAY 31, 2005 NOVEMBER 30,
(UNAUDITED) 2004
--------------- --------------
OPERATIONS:
Net investment income ........................ $ 5,438,096 $ 9,059,958
Net realized gain on investments ............. 719,219 9,062,528
Net realized gain on call options written .... 1,222,887 1,106,146
Change in net unrealized appreciation
(depreciation) on investments and options .. (4,742,783) 4,341,653
------------ ------------
Net increase in net assets
resulting from operations .................... 2,637,419 23,570,285
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income ........................ (8,278,064) (8,750,759)
Distribution in excess ....................... -- (7,662,737)
------------ ------------
Net decrease in net assets resulting from
dividends and distributions .................. (8,278,064) (16,413,496)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Reinvestment of dividends resulting in the
issuance of Common Stock transactions ........ 829,440 1,849,813
------------ ------------
Net increase in net assets resulting from
Common Stock transactions .................... 829,440 1,849,813
------------ ------------
Total increase (decrease) in net assets ......... (4,811,205) 9,006,602
------------ ------------
NET ASSETS:
Beginning of period .......................... 148,143,772 139,137,170
------------ ------------
End of period (including (distributions in
excess of) net investment income of
$(2,749,232) and $90,736, respectively) .... $143,332,567 $148,143,772
============ ============
Amounts designated as "--" are $0 or have been rounded to $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
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, 2005 NOVEMBER 30,
FINANCIAL STATEMENTS (UNAUDITED) 2004
-------------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.96 $ 8.52
-------- --------
INCOME/GAIN (LOSS) FROM INVESTMENT OPERATIONS:(1)
Net investment income .......................... 0.33 0.55
Net realized and unrealized gain (loss) on
investment transactions and options .......... (0.16) 0.89
-------- --------
Total from investment operations ............. 0.17 1.44
-------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income ........... (0.50) (0.54)
Distributions in excess ........................ -- (0.46)
-------- --------
Total dividends and distributions ............ (0.50) (1.00)
-------- --------
NET ASSET VALUE, END OF PERIOD ................... $ 8.63 $ 8.96
======== ========
MARKET VALUE, END OF PERIOD ...................... $ 10.16 $ 10.03
======== ========
TOTAL RETURN BASED ON: (2)
Net asset value ................................ 1.90% 18.01%
======== ========
Market value ................................... 6.40% 14.02%
======== ========
RATIOS AND SUPPLEMENTAL DATA: (3)
Net assets, end of period (000 omitted) ........ $143,333 $148,144
======== ========
Total expenses including waiver of fees ........ 2.66% 2.26%
Total expenses excluding waiver of fees ........ 2.80% 2.40%
Total operating expenses including
waiver of fees (4) ........................... 1.58% 1.57%
Total operating expenses excluding
waiver of fees (4) ........................... 1.72% 1.71%
Commercial paper fees and interest expense ..... 1.08% 0.69%
Net investment income including waiver of fees . 7.44% 6.34%
Portfolio turnover ............................. 44% 99%
LEVERAGE ANALYSIS:
Aggregate amount outstanding at end of period
(000 omitted) ................................ $ 55,000 $ 55,000
Average daily balance of amortized cost of
commercial paper outstanding (000 omitted) ... $ 54,836 $ 54,052
Asset coverage per $1,000 at end of period ..... $ 3,586 $ 3,680
----------------------
(1) Based on average shares outstanding.
(2) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
each year reported. Total investment return does not reflect brokerage
commissions. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment returns based on market
value, which can be significantly greater or less than the net asset value,
may result in substantially different returns. Returns do not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or the
Redemption of Fund shares.
(3) Ratios are stated as a percentage of average weekly net assets which
includes any liabilities constituting indebtedness in connection with
financial leverage.
(4) Exclusive of commercial paper fees.
Amounts designated as "--" are $0 or have been rounded to $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE YEARS ENDED
NOVEMBER 30,
---------------------------
2003 2002
------------- ------------
NET ASSET VALUE, BEGINNING OF YEAR ............... $ 7.47 $ 9.76
-------- --------
INCOME/GAIN (LOSS) FROM INVESTMENT OPERATIONS: (1)
Net investment income .......................... 0.60 0.66
Net realized and unrealized gain (loss) on
investment transactions and options .......... 1.45 (1.83)
-------- --------
Total from investment operations ............. 2.05 (1.17)
-------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income ........... (0.61) (0.66)
Tax return of capital .......................... (0.39) (0.46)
-------- --------
Total dividends and distributions ............ (1.00) (1.12)
-------- --------
NET ASSET VALUE, END OF YEAR ..................... $ 8.52 $ 7.47
======== ========
MARKET VALUE, END OF YEAR ........................ $ 9.80 $ 7.27
======== ========
TOTAL RETURN BASED ON: (2)
Net asset value ................................ 28.96% (13.50)%
======== ========
Market value ................................... 51.57% (22.12)%
======== ========
RATIOS AND SUPPLEMENTAL DATA: (3)
Net assets, end of year (000 omitted) .......... $139,137 $120,086
======== ========
Total expenses including waiver of fees ........ 2.40% 2.81%
Total expenses excluding waiver of fees ........ 2.54% 2.86%
Total operating expenses including
waiver of fees (4) ........................... 1.57% 1.81%
Total operating expenses excluding
waiver of fees (4) ........................... 1.86% 1.86%
Commercial paper fees and interest expense ..... 0.68% 1.00%
Net investment income including waiver of fees . 7.58% 7.64%
Portfolio turnover ............................. 99% 102%
LEVERAGE ANALYSIS:
Aggregate amount outstanding at end of year
(000 omitted) ................................ $ 50,000 $ 50,000
Average daily balance of amortized cost of
commercial paper outstanding (000 omitted) ... $ 49,925 $ 56,250
Asset coverage per $1,000 at end of year ....... $ 3,838 $ 3,445
----------------------
(1) Based on average shares outstanding.
(2) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
each year reported. Total investment return does not reflect brokerage
commissions. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment returns based on market
value, which can be significantly greater or less than the net asset value,
may result in substantially different returns. Returns do not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or the
Redemption of Fund shares.
(3) Ratios are stated as a percentage of average weekly net assets which
includes any liabilities constituting indebtedness in connection with
financial leverage.
(4) Exclusive of commercial paper fees.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONCLUDED)
FOR THE YEARS ENDED
NOVEMBER 30,
---------------------------
2001 2000
------------- ------------
NET ASSET VALUE, BEGINNING OF YEAR $ 10.33 $ 12.54
-------- --------
INCOME/GAIN (LOSS) FROM INVESTMENT OPERATIONS: (1)
Net investment income .......................... 0.65 0.80
Net realized and unrealized gain (loss) on
investment transactions and options .......... 0.02 (1.77)
-------- --------
Total from investment operations ............. 0.67 (0.97)
-------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income ........... (0.65) (0.80)
Tax return of capital .......................... (0.59) (0.44)
-------- --------
Total dividends and distributions ............ (1.24) (1.24)
-------- --------
NET ASSET VALUE, END OF YEAR ..................... $ 9.76 $ 10.33
======== ========
MARKET VALUE, END OF YEAR ........................ $ 10.55 $ 9.56
======== ========
TOTAL RETURN BASED ON: (2)
Net asset value .............................. 6.15% (7.72)%
======== ========
Market value ................................. 23.95% 2.02%
======== ========
RATIOS AND SUPPLEMENTAL DATA: (3)
Net assets, end of year (000 omitted) .......... $154,139 $160,469
======== ========
Total expenses including waiver of fees ........ 2.62% 3.76%
Total operating expenses including
waiver of fees (4) ........................... 1.36% 1.66%
Commercial paper fees and interest expense ..... 1.26% 2.10%
Net investment income including waiver of fees . 4.51% 6.51%
Portfolio turnover ............................. 132% 161%
LEVERAGE ANALYSIS:
Aggregate amount outstanding at end of year
(000 omitted) ................................ $ 60,000 $ 60,000
Average daily balance of amortized cost of
commercial paper outstanding (000 omitted) ... $ 59,690 $ 59,579
Asset coverage per $1,000 at end of year ....... $ 3,703 $ 3,743
----------------------
(1) Based on average shares outstanding.
(2) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
each year reported. Total investment return does not reflect brokerage
commissions. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment returns based on market
value, which can be significantly greater or less than the net asset value,
may result in substantially different returns. Returns do not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or the
Redemption of Fund shares.
(3) Ratios are stated as a percentage of average weekly net assets which
includes any liabilities constituting indebtedness in connection with
financial leverage.
(4) Exclusive of commercial paper fees.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
30
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Chartwell Dividend and Income Fund, Inc. (the "Fund") was incorporated under the
laws of the State of Maryland on April 6, 1998 and is registered under the
Investment Company Act of 1940 as amended, (the "Act"), as a closed-end,
diversified management investment company. The Fund had no operations until June
17, 1998 when it sold 6,667 shares of Common Stock for $100,005 to Chartwell
Investment Partners, L.P. (the "Manager"). Investment operations commenced on
June 29, 1998. The Fund's primary investment objective is to seek high current
income. Capital appreciation is a secondary objective.
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States of America.
USE OF ESTIMATES: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
SECURITY VALUATION: Investment securities of the Fund that are listed on a
securities exchange, except for debt securities, and for which market quotations
are readily available, are valued at the last quoted sales price at the close of
trading on the New York Stock Exchange (normally 4:00 p.m., Eastern Time).
Investment securities of the Fund that are quoted on the NASDAQ market system
are valued at the official closing price, or if there is none, at the last sales
price. If there is no reported sale, these securities and unlisted securities
for which market quotations are not readily available are valued at last bid
price. Debt securities are priced based upon valuations provided by independent,
third-party pricing agents, if available. Such values generally reflect the last
reported sales price if the security is actively traded. The third-party pricing
agents may also value debt securities at an evaluated bid price by employing
methodologies that utilize actual market transactions, broker-supplied
valuations, or other methodologies designed to identify the market value for
such securities. Debt obligations with remaining maturities of sixty days or
less may be valued at their amortized cost, which approximates market value.
Prices for most securities held in the Fund are provided daily by recognized
independent pricing agents. If a security price cannot be obtained from an
independent, third-party pricing agent, the Fund seeks to obtain a bid price
from at least one independent broker. Short-term investments having a maturity
of less than sixty days are valued at amortized
31
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
cost, which approximates market value. All securities and assets for which
quotations are not readily available, of which there were none as of May 31,
2005, 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; the security has been de-listed
from a national exchange; the security's primary trading market is temporarily
closed at a time when under normal conditions it would be open; or the
security's primary pricing source is not able or willing to provide a price.
When a security is valued in accordance with the Fair Value Procedures, the
Committee will determine the value after taking into consideration relevant
information reasonably available to the Committee.
CASH AND CASH EQUIVALENTS: Idle cash is swept into a money market fund at
Wachovia Bank, N.A., (the "Custodian"), and is classified as cash on the
Statement of Assets and Liabilities. Amounts so invested are generally available
on the same business day.
WRITTEN OPTIONS: When the Fund writes a covered call option, an amount equal to
the premium received by the Fund is included in the Fund's Statement of Assets
and Liabilities as a liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option written.
When a covered written call option expires on its stipulated expiration date, or
if the Fund enters into a closing purchase transaction, the Fund will realize a
gain (or loss if the cost of the closing purchase transaction exceeds the
premium received when the call option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option will be extinguished. When a covered written call option is
exercised, the Fund will realize a gain or loss from the sale of the underlying
security and the proceeds of the sale are increased by the premium originally
received. The Fund, as writer of an option, has no control over whether the
underlying securities may be sold (called) and as a result bears the market risk
of an unfavorable change in the price of the securities underlying the written
option.
DIVIDENDS AND DISTRIBUTIONS: The Fund will declare and pay dividends to
shareholders on a monthly basis. 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.
32
-----
CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
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.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS: Delivery and payment for securities
that have been purchased by the Fund on a forward commitment or when-issued
basis can take place up to a month or more after the transaction date. The
purchase of securities on a when-issued or forward commitment basis may increase
the volatility of the Fund's net asset value if the Fund makes such investments
while remaining substantially fully invested.
BORROWINGS: The Fund issues short-term commercial paper at a discount from par.
The discount is amortized to interest expense over the life of the commercial
paper using the straight-line method.
ILLIQUID SECURITIES: A security is considered illiquid if it cannot be sold or
disposed of in the ordinary course of business within seven days or less for its
approximate carrying value on the books of the Fund. Valuations of illiquid
securities may differ significantly from the values that would have been used
had an active market value for these securities existed.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are recorded
on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis. The Fund accretes original issue discount on securities
using the effective interest method.
NOTE 2. INVESTMENT MANAGEMENT, ADMINISTRATION, CUSTODIAN AGREEMENTS AND
OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into an investment management agreement with the Manager.
The Manager manages the Fund's portfolio and makes investment decisions. For
these services, the Fund pays the Manager a monthly fee at an annual rate of
0.95% of the Fund's Managed Assets. "Managed Assets" are the average weekly
value of the Fund's total assets minus the sum of the Fund's liabilities,
excluding debt related to leveraging, short-term debt and the aggregate
liquidation preference of any outstanding preferred stock. The
33
-----
CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
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. For these services, the Fund
pays a fee to the Administrator based on the Fund's Managed Assets according to
the following rates: 0.10% on the first $250 million of such Managed Assets and
0.09% on such Managed Assets in excess of $250 million, subject to a minimum
annual fee of $180,000, which includes fees under this agreement and fees
received by the Administrator from the Chartwell U.S. Equity and Chartwell Small
Cap Value Funds. The allocation of the minimum will be assessed based upon
Managed Assets of the Fund and net assets of the Chartwell U.S. Equity and
Chartwell Small Cap Value Funds.
Certain officers and/or directors of the Fund are officers and/or directors of
the Manager. The Fund pays each director, who is not an "affiliated person" as
defined in the Act, a fee of $6,000 per year, plus $1,000 per year for audit
committee members and an additional fee of $250 per year for the chairman of the
audit committee.
For the six months ended May 31, 2005, the Fund incurred a legal expense of
$62,069 for services provided by Drinker Biddle & Reath LLP, counsel for the
Fund. A partner of the firm is an officer of the Fund.
Wachovia Bank, N.A. serves as the custodian for the Fund. The Custodian plays no
role in determining the investment policies of the Fund or which securities are
to be purchased or sold by the Fund.
NOTE 3. PURCHASE AND SALES OF INVESTMENTS
For the six months ended May 31, 2005, purchases and sales of investments,
excluding short-term investments, totaled $88,097,577 and $92,973,372,
respectively.
The following table summarizes the Fund's call options written for the six
months ended May 31, 2005.
NUMBER OF
CONTRACTS PREMIUMS
---------- ------------
Options outstanding, November 30, 2004 9,094 $ 675,382
Options written ...................... 43,660 3,804,592
Options expired ...................... (23,318) (1,659,133)
Options exercised .................... (6,031) (325,987)
Options closed ....................... (16,715) (1,782,564)
-------- -----------
Options outstanding, May 31, 2005 .... 6,690 $ 712,290
======== ===========
34
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
NOTE 4. COMMERCIAL PAPER
As of May 31, 2005, $55,000,000 of commercial paper was outstanding with an
amortized cost of $54,859,796. The average discount rate of commercial
paper outstanding at May 31, 2005, was 3.10%. The average daily balance of
commercial paper outstanding for the six months ended May 31, 2005, was
$54,835,884 at a weighted average discount rate of 1.73%. The maximum face
amount of commercial paper outstanding at any time during the six months ended
May 31, 2005, was $55,000,000. In conjunction with the issuance of the
commercial paper, the Fund has entered into a line of credit arrangement with a
bank for $30,000,000. Interest on borrowing is based on market rates in effect
at the time of borrowing. The commitment fee is computed at the rate of 0.30%
per annum on the unused balance. There were no borrowings under this arrangement
during the six months ended May 31, 2005.
NOTE 5. CAPITAL STOCK
There are 100,000,000 shares of $0.01 par value common stock authorized. Of the
16,613,668 shares of common stock outstanding at May 31, 2005, the Manager owned
14,267 shares.
For the six months ended May 31, 2005, and the year ended November 30, 2004, the
Fund issued 87,331 and 200,822 shares, respectively, in connection with the
Fund's dividend reinvestment plan.
NOTE 6. MARKET AND CREDIT RISKS
The Fund may invest in high-yielding fixed-income securities, which carry
ratings of BB or lower by S&P and/or Ba1 or lower by Moody's. Investments in
these higher-yielding securities may be accompanied by a greater degree of
credit risk than higher rated securities. Additionally, lower-rated securities
may be more susceptible to adverse economic and competitive industry conditions
than investment-grade securities. The Fund may invest up to 15% of its total
assets in illiquid securities and other securities which may not be readily
marketable. In addition, the Fund may purchase securities sold in reliance of
Rule 144A of the Securities Act of 1933. The relative illiquidity of some of the
Fund's portfolio securities may adversely affect the ability of the Fund to
dispose of such securities in a timely manner and at a fair price at times when
it might be necessary or advantageous for the Fund to liquidate portfolio
securities.
NOTE 7. FEDERAL TAX INFORMATION
It is the Fund's intention to continue to meet the requirements under Subchapter
M of the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its taxable income to shareholders.
Therefore, no provision for Federal income tax or excise tax is required.
35
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CHARTWELL
--------------------------------------------------------------------------------
CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
The tax character of dividends and distributions paid during the last two fiscal
years were as follows:
ORDINARY RETURN OF
INCOME CAPITAL TOTALS
------------ ----------- -------------
2004 $16,413,496 $ -- $16,413,496
2003 9,929,830 6,254,835 16,184,665
As of November 30, 2004, the components of Accumulated Losses were as follows:
Capital loss carryforwards $(65,180,426)
Net unrealized appreciation 15,053,830
Other temporary differences (252,161)
------------
Total accumulated losses $(50,378,757)
============
The following summarizes the capital loss carryforwards as of November 30, 2004.
These capital loss carryforwards are available to offset future net capital
gains.
EXPIRING IN FISCAL YEAR AMOUNT
----------------------- ----------
2008 $ 7,962,268
2009 25,913,206
2010 30,533,344
2011 771,608
-----------
Total capital loss carryforwards $65,180,426
===========
The Federal tax cost as well as the aggregate gross unrealized appreciation and
depreciation on investments held by the Fund at May 31, 2005, were as follows:
Federal Tax Cost .......................................... $184,694,614
------------
Aggregate Gross Unrealized Appreciation ................... 17,078,804
Aggregate Gross Unrealized Depreciation ................... (5,409,549)
------------
Net Unrealized Appreciation ............................... $ 11,669,255
============
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, 2005 June 21, 2005 June 23, 2005 June 30, 2005 $0.0833
36
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
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AUTOMATIC DIVIDEND REINVESTMENT PLAN (UNAUDITED)
Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the "Plan"), unless
a shareholder otherwise elects, all dividend and capital gains distributions
will be automatically reinvested in additional shares of common stock of the
Fund by PFPC, Inc., as agent for shareholders in administering the Plan (the
"Plan Agent"). Shareholders who elect not to participate in the Plan will
receive all dividends and distributions in cash, paid by check mailed directly
to the shareholder of record (or, if the shares are held in street or other
nominee name, then to such nominee) by PFPC, Inc., as dividend paying agent.
Such participants may elect not to participate in the Plan and to receive all
distributions of dividends and capital gains in cash by sending written
instructions to PFPC, Inc., as dividend paying agent, at the address set forth
below.
Participation in the Plan is completely voluntary and may be terminated or
resumed at any time without penalty by written notice if received by the Plan
Agent not less than ten days prior to any dividend record date. Otherwise such
termination will be effective with respect to any subsequently declared dividend
or distribution.
Whenever the Fund declares a distribution, an ordinary income dividend or a
capital gain dividend (collectively referred to as "dividends") payable either
in shares or in cash, non-participants in the Plan will receive cash, and
participants in the Plan will receive the equivalent in shares of common stock.
The shares will be acquired by the Plan Agent for the participant's account,
depending upon the circumstances described below, either (i) through receipt of
additional unissued but authorized shares of common stock from the Fund or (ii)
by purchase of outstanding shares of common stock on the open market on the NYSE
or elsewhere. If on the payment date of the dividend, the net asset value per
share of the common stock is equal to or less than the market price per share
plus estimated brokerage commissions (such condition being referred to herein as
"market premium"), the Plan Agent will invest the dividend amount in newly
issued shares on behalf of the participant. The number of newly issued shares of
common stock to be credited to the participant's account will be determined by
dividing the dollar amount of the dividend by the net asset value per share on
the date the shares are issued, provided that the maximum discount from the then
current market price per share on the date of issuance may not exceed 5%. If on
the dividend payment date the net asset value per share is greater than the
market value (such condition being referred to herein as "market discount"), the
Plan Agent will invest the dividend amount in shares acquired on behalf of the
participant in open-market purchases.
In the event of a market discount on the dividend payment date, the Plan Agent
will have until the last business day before the next date on which the shares
trade on the "ex-dividend" basis or in no event more than 30 days after the
dividend payment date to invest the dividend amount in shares acquired in
open-market purchases. If, before the Plan Agent has completed its open-market
37
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
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 in shares with a net asset value greater than the value of any
cash distribution
38
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
they would have received on their shares. However, there may be insufficient
shares available in the market to make distributions in shares at prices below
the net asset value. Also, since the Fund does not redeem its shares, the price
on resale may be more or less than the net asset value.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants in the Plan; however, the Fund reserves the right
to amend the Plan to include a service charge payable by the participants.
All correspondence concerning the Plan should be directed to the Plan Agent at
PFPC, Inc., P.O. Box 43027, Providence, RI 02940-3027, Attn: Closed-End
Department.
FEDERAL TAX INFORMATION (UNAUDITED)
Information for Federal income tax purposes is presented as an aid to
shareholders in reporting the dividend distributions for the six months ended
May 31, 2004.
ADDITIONAL INFORMATION (UNAUDITED)
During the period, there have been no material changes in the Fund's investment
objective or fundamental policies that have not been approved by the
shareholders. There have been no changes in the Fund's charter or By-Laws that
would delay or prevent a change in control of the Fund which have not been
approved by the shareholders. There have been no changes in the principal risk
factors associated with investment in the Fund.
EFFECTS OF LEVERAGE (UNAUDITED)
Leverage of $60 million in commercial paper was initially sold by the Fund
on July 28, 1999. Through May 31, 2005, interest paid on the commercial paper
ranged from 2.50% to 3.25%. As of May 31, 2005, the Fund had $30 million
outstanding at 2.97% per annum maturing on June 2, 2005, and $25 million at
3.25% per annum maturing on August 3, 2005. All interest rates include fees due
to the broker-dealer. The Fund must experience an annual return of 0.83% to
cover interest payments on the commercial paper.
The following table explains the potential effects of leverage on the equity
returns of common shareholders:
Assumed return on portfolio
(net of expenses) ............. -10.00% -5.00% 0.00% 5.00% 10.00%
Corresponding return to common
stockholder ................... -14.93% -8.03% -1.14% 5.76% 12.76%
39
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
Assumes $145 million assets attributable to common shareholders; $55 million
aggregate leverage with an average interest rate of 3.00%. 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 19, 2004 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.
40
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
CHARTWELL BOARD CONSIDERATIONS RELATING TO THE ADVISORY CONTRACT RENEWAL
(UNAUDITED)
The Board of Directors (the "Board") of the Fund determined on April 20, 2005
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, 2005 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 soft dollar commission, broker selection, best
execution and trade allocation policies; (vi) current advisory fee arrangements
with the Fund and its other clients; (vii) Lipper information comparing the
Fund's performance, advisory fee and expense ratio to that of its peer groups;
(viii) Chartwell Partners' financial information and profitability analysis
related to providing advisory services to the Fund, including the commission
arrangement with Merrill Lynch; (ix) any compensation and other possible
benefits to Chartwell Partners arising from its advisory and other relationships
with the Fund; and (x) the extent to which economies of scale are relevant to
the Fund. The Board noted, in particular, Chartwell Partners' recent efforts to
reduce expenses by waiving fees and renegotiating contracts with service
providers.
During the course of its deliberations, the Board, including a majority of
Independent Directors, reached the following conclusions, among others,
regarding Chartwell Partners and the Agreement: the Fund's actual advisory fee
is above average in comparison to that of the more comparable Lipper peer group
provided to the Board and reflective of the bifurcated investment style of the
Fund; Chartwell Partners' fees for managing the Fund are reasonable as compared
to fees it charges for managing assets for other clients and reflective of the
bifurcated investment style of the Fund; the Fund's expense ratio is generally
competitive with that of the more comparable Lipper expense group provided to
41
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
the Board; the Fund's performance is generally competitive with that of the more
comparable Lipper performance universe provided to the Board; 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.
42
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
SHAREHOLDER VOTING RESULTS (UNAUDITED)
The Annual Meeting of shareholders of the Chartwell Dividend and Income Fund,
Inc. was held on April 20, 2005 at the offices of PFPC, Inc., 103 Bellevue
Parkway, Wilmington, Delaware. The description of the proposal and number of
shares voted at the meeting are as follows:
--------------------------------------------------------------------------------
VOTES VOTES VOTES
FOR AGAINST WITHHELD
--------------------------------------------------------------------------------
To elect the following
directors to serve as Class III
directors for three-year
terms expiring in 2008: George W. Grosz 13,069,412 -- 129,438
Winthrop S. Jessup 13,068,625 -- 130,224
Directors whose term of office continues beyond this meeting are Kenneth F.
Herlihy, C. Warren Ormerod and Bernard P. Schaffer.
43
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CHARTWELL
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CHARTWELL DIVIDEND AND INCOME FUND, INC. MAY 31, 2005
--------------------------------------------------------------------------------
DIRECTORS
Winthrop S. Jessup, Chairman
George W. Grosz
Kenneth F. Herlihy
C. Warren Ormerod
Bernard P. Schaffer
OFFICERS
Winthrop S. Jessup, President
G. Gregory Hagar, Treasurer and Chief Financial Officer
Bernard P. Schaffer, Vice President
Kevin A. Melich, Vice President
Timothy J. Riddle, Vice President
Andrew S. Toburen, Vice President
Michael P. Malloy, Secretary
Maria E. Pollack, Assistant Secretary
INVESTMENT MANAGER
Chartwell Investment Partners, L.P.
1235 Westlakes Drive, Suite 400
Berwyn, PA 19312
ADMINISTRATOR
SEI Investments Global Funds Services
One Freedom Valley Drive
Oaks, PA 19456
CUSTODIAN
Wachovia Bank, N.A.
125 South Broad Street
Philadelphia, PA 19109
TRANSFER AGENT
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
Two Commerce Square, Suite 1700
2001 Market Street
Philadelphia, PA 19103-7042
LEGAL COUNSEL
Drinker Biddle & Reath LLP
One Logan Square
18th & Cherry Streets
Philadelphia, PA 19103
This report, including the financial statements herein, is transmitted to the
shareholders of Chartwell Dividend and Income Fund, Inc. It is not a prospectus,
circular or representation intended for use in the purchase of shares of the
Fund or any securities mentioned in the report. Past performance results should
not be considered a representation of future performance. Statements and other
information contained in this report are as dated and are subject to change.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase, from time to time, shares of its
common stock in the open market.
ITEM 2. CODE OF ETHICS.
Not applicable for semi-annual report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semi-annual report.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semi-annual report.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable for semi-annual report.
ITEM 6. SCHEDULE OF INVESTMENTS.
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. Effective for closed-end management investment companies for
fiscal years ending on or after December 31, 2005
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANY AND
AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the Registrant's Board of Directors since the Registrant
last provided disclosure in response to the requirements of Item 7(d)(2)(ii)(G)
of Schedule 14A in its proxy statement filed with the Commission on March 22,
2004.
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
Registrants 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 July 28, 2005
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 July 28, 2005
By (Signature and Title)* /s/ G. Gregory Hagar
---------------------------------------
G. Gregory Hagar, Vice President and CFO
(Principal Financial Officer)
Date July 28, 2005
* Print the name and title of each signing officer under his or her signature.