<PAGE> 1
File No. 333-49969
Rule 497(h)(1) Prospectus
PROSPECTUS
- ----------------------
13,400,000 SHARES
CHARTWELL DIVIDEND AND INCOME FUND, INC.
[CHARTWELL DIVIDEND LOGO] COMMON STOCK
------------------------
Chartwell Dividend and Income Fund, Inc. (the "Fund") is a newly organized,
diversified, closed-end management investment company. The Fund's 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
(collectively, "Income Generating Equity Securities"). In addition, the Fund may
invest the balance of its total assets in non-convertible debt securities,
consisting primarily of corporate bonds ("Debt Securities"). There is no
assurance that the Fund will achieve its investment objectives. The Fund's
investment manager is Chartwell Investment Partners, L.P. (the "Manager").
BECAUSE THE FUND IS NEWLY ORGANIZED, ITS SHARES HAVE NO HISTORY OF PUBLIC
TRADING. Shares of closed-end investment companies frequently trade at a
discount from their net asset value. This risk may be greater for investors
expecting to sell their shares in a relatively short period after completion of
the public offering.
THE DEBT SECURITIES IN WHICH THE FUND MAY INVEST WILL GENERALLY BE HIGH
YIELD, HIGH RISK SECURITIES WHICH ARE RATED BELOW INVESTMENT GRADE OR ARE
UNRATED. SUCH DEBT SECURITIES ARE CONSIDERED SPECULATIVE AND SUBJECT TO CERTAIN
RISKS THAT GENERALLY WILL BE GREATER THAN THOSE OF HIGHER RATED SECURITIES. IN
ADDITION, CERTAIN INCOME GENERATING EQUITY SECURITIES IN WHICH THE FUND MAY
INVEST MAY BE RATED BELOW INVESTMENT GRADE AND GENERALLY WILL HAVE
CHARACTERISTICS SIMILAR TO THOSE OF LOWER RATED DEBT SECURITIES. SEE "INVESTMENT
OBJECTIVES AND POLICIES" AND "SPECIAL RISK CONSIDERATIONS."
This Prospectus sets forth information about the Fund that a prospective
investor should know before investing in the Fund. Investors should read and
retain this Prospectus for future reference.
(Continued on next page)
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===============================================================================================================
PRICE TO SALES LOAD PROCEEDS TO
PUBLIC (1)(2) FUND(3)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................... $15.00 None $15.00
- ---------------------------------------------------------------------------------------------------------------
Total(4)............................ $201,000,000 None $201,000,000
===============================================================================================================
</TABLE>
(Footnotes on the following page)
------------------------
The shares are offered by the several Underwriters, subject to prior sale,
when, as and if issued by the Fund and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the shares will be made in New York, New York on or about June 29,
1998.
------------------------
<TABLE>
<S> <C> <C>
MERRILL LYNCH & CO. PRUDENTIAL SECURITIES A.G. EDWARDS & SONS, INC.
INCORPORATED
ADVEST, INC. ROBERT W. BAIRD & CO. EVEREN SECURITIES, INC.
INCORPORATED
FAHNESTOCK & CO. INC. GRUNTAL & CO., L.L.C. JANNEY MONTGOMERY SCOTT INC.
LEGG MASON WOOD WALKER
INCORPORATED
</TABLE>
------------------------
The date of this Prospectus is June 23, 1998.
<PAGE> 2
(Continued from page 1)
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY OVER-ALLOT OR ENGAGE IN
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE PRICE OF THE COMMON STOCK AT A LEVEL
ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS
MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER SYNDICATE SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. SUCH TRANSACTIONS MAY BE EFFECTED
ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
The address of the Fund is c/o PFPC Inc., 400 Bellevue Parkway, Wilmington,
Delaware 19809.
At times, the Fund expects to utilize leverage through borrowings, the
issuance of short-term debt securities or the issuance of shares of preferred
stock. Within six months after this offering, the Fund intends to utilize
leverage in an initial amount equal to approximately 20% of its total assets
(including the amount obtained from leverage). The Fund generally will not
utilize leverage if it anticipates that the Fund's leveraged capital structure
would result in a lower return to holders of the Common Stock than that
obtainable if the Common Stock were unleveraged for any significant amount of
time. Use of leverage creates an opportunity for increased income and capital
appreciation, but, at the same time, creates special risks. There can be no
assurance that a leveraging strategy will be successful during any period in
which it is employed. See "SPECIAL LEVERAGE CONSIDERATIONS AND RISKS."
Prior to this offering, there has been no public market for the Fund's
shares of Common Stock. The Common Stock has been approved for listing on the
New York Stock Exchange (the "NYSE"), under the symbol "CWF," subject to
official notice of issuance.
------------------------
(1) The Manager will pay the several Underwriters commissions in the amount of
3% and up to 5% of the Price to Public per share in connection with the sale
of shares of Common Stock offered hereby. See "Underwriting."
(2) The Fund and the Manager have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
See "Underwriting."
(3) Before deducting offering expenses payable by the Fund estimated at
$520,000.
(4) The Fund has granted the several Underwriters an option exercisable for 45
days after the date hereof to purchase up to an additional 2,010,000 shares
to cover over-allotments. If all such shares are purchased, the total Price
to Public and Proceeds to Fund will be $231,150,000. See "Underwriting."
<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Investors should carefully
consider the information set forth under the heading "Special Risk
Considerations."
The Fund................... Chartwell Dividend and Income Fund, Inc. (the
"Fund") is a newly organized, diversified,
closed-end management investment company. See "The
Fund."
The Offering............... The Fund is offering 13,400,000 shares of Common
Stock at an initial offering price of $15.00 per
share (the "Common Stock"), through a group of
underwriters (the "Underwriters") represented by
Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Prudential Securities
Incorporated, Advest, Inc., Robert W. Baird & Co.
Incorporated, A.G. Edwards & Sons, Inc., EVEREN
Securities, Inc., Fahnestock & Co. Inc., Gruntal &
Co., L.L.C., Janney Montgomery Scott Inc. and Legg
Mason Wood Walker, Incorporated. The Underwriters
have been granted an option exercisable for 45 days
from the date of this Prospectus to purchase up to
2,010,000 additional shares of Common Stock to
cover over-allotments, if any. See "Underwriting."
Investment Rationale....... The Fund has been developed for investors who seek
high current income and capital appreciation
potential in their investment portfolios through
Income Generating Equity Securities and Debt
Securities. The Manager believes that a portfolio
of combined investments in such securities could
provide an income return which would exceed that of
investment exclusively in equity securities. By
investing at least 50% of the Fund's total assets
in Income Generating Equity Securities, the Fund's
portfolio will also be structured to seek capital
appreciation. See "Investment Rationale."
No Sales Charge............ The shares of Common Stock will be sold during this
offering without any sales load or underwriting
discounts payable by investors or the Fund. The
Manager will pay commissions to the Underwriters in
connection with the sale of shares of Common Stock
in this offering. See "Underwriting."
Investment Objectives and
Policies................. The Fund's 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
3
<PAGE> 4
dividend paying common stocks, convertible
securities, or preferred stocks and other equity
related securities (collectively, "Income
Generating Equity Securities"). In addition, the
Fund may invest the balance of its total assets in
non-convertible debt securities consisting
primarily of corporate bonds ("Debt Securities").
The Debt Securities in which the Fund may invest
will generally be high yield, high risk securities
which are rated below investment grade or are
unrated, and are considered speculative and subject
to certain risks that may be greater than those of
higher rated securities. The Fund will not invest
more than 50% of its total assets in such
securities, commonly known as junk bonds. In
addition, certain Income Generating Equity
Securities in which the Fund may invest may be
rated below investment grade and generally will
have characteristics similar to those of lower
rated Debt Securities. Such investments are in
addition to investments in high yield, high risk
Debt Securities. See "Investment Objectives and
Policies" and "Special Risk Considerations."
The Fund is not intended to be a complete
investment program and there is no assurance that
the Fund will achieve its investment objectives.
See "Investment Objectives and Policies," "Other
Investment Practices" and "Special Risk
Considerations."
Investment Strategy........ In selecting Income Generating Equity Securities
for the Fund's investment portfolio, the
preponderance of the securities in that portion of
the Fund's portfolio will be selected by the
Manager from among those Income Generating Equity
Securities with a yield greater than that of the
average dividend yield of the Standard & Poor's 500
Composite Index ("S&P 500"). After identifying
qualifying Income Generating Equity Securities, the
Manager will apply fundamental investment analysis
to select the Fund's specific portfolio securities.
With respect to the Debt Securities component of
the Fund's investment portfolio, individual
securities will be screened by the Manager and in-
depth credit research will then be conducted to
arrive at a core group of securities presenting, in
the Manager's opinion, the potential for investment
returns consistent with the Fund's objectives.
The Manager intends to shift investments between
Income Generating Equity Securities and Debt
Securities within the investment policies
established for such securities while analyzing the
yield differential between the two sectors. See
"Investment Objectives and Policies -- Investment
Strategy."
4
<PAGE> 5
Leverage................... At times, the Fund expects to utilize leverage
through borrowings, the issuance of short-term debt
securities or the issuance of shares of preferred
stock (collectively, "Senior Securities"). Within
approximately three to six months after completion
of this offering, the Fund intends to utilize
leverage in an initial amount equal to
approximately 20% of its total assets (including
the amount obtained from leverage). Although the
Fund does not currently intend to utilize leverage
in an amount greater than 20% of its total assets,
the Fund has the authority to leverage in an amount
up to 50% of its total assets (including the amount
obtained from the issuance of certain Senior
Securities). It is anticipated that dividends on
any preferred stock or interest payments on
borrowings or short-term debt securities will
reflect short-term rates, and that the net return
on the Fund's portfolio, including the proceeds
from any offering of Senior Securities, will exceed
the dividend or interest rate on such securities.
Whether to offer Senior Securities and, if offered,
the terms of such Senior Securities and the timing
and other terms of their offering will be
determined by the Fund's Board of Directors.
Through these leveraging techniques, the Fund will
seek to obtain a higher return for holders of
Common Stock than if no Senior Securities were
issued. The proceeds of the offering of any Senior
Securities will be invested in accordance with the
Fund's investment objectives and policies. Issuance
and ongoing expenses of the Senior Securities will
be borne by the Fund and will reduce the net asset
value of the Common Stock. There can be no
assurance that any Senior Securities will be issued
or that a leveraging strategy will be successful
during any period in which it is employed.
Investors should note that there are special risks
and costs associated with the leveraging of the
Common Stock. See "Special Leverage Considerations
and Risks."
Upon issuance of any Senior Securities, holders of
Common Stock will receive all net income of the
Fund remaining after payment of distributions to
the holders of Senior Securities. Upon any
liquidation of the Fund, the holders of shares of
preferred stock, if any preferred stock is issued,
will be entitled to receive liquidating
distributions (expected to equal the original
purchase price per share of preferred stock plus
any accumulated and unpaid dividends thereon) and
principal plus any accrued interest on borrowings
or short-term debt securities will be paid before
any distribution is made to holders of Common
Stock. See "Description of Capital
Stock -- Preferred Stock." Until any Senior
Securities are issued, the Common Stock will not be
leveraged, and the
5
<PAGE> 6
special leverage considerations described herein
will not apply. See "Special Leverage
Considerations and Risks."
Investment Manager......... Chartwell Investment Partners, L.P. (the "Manager")
is the investment manager for the Fund and is
responsible for the management of the Fund's
investment portfolio in accordance with the Fund's
investment objectives and policies. At March 31,
1998, the Manager served as advisor or sub-advisor
with respect to approximately $1.7 billion of
assets for institutional and individual clients,
approximately $725 million of which represented
Income Generating Equity Securities and
approximately $200 million of which represented
Debt Securities; it also served as sub-advisor with
respect to approximately $300 million in assets of
four registered investment companies.
The Manager manages the Fund's portfolio and makes
investment decisions, subject to the oversight of
the Board of Directors of the Fund. Under the terms
of an investment management agreement, the Fund
will pay the Manager a monthly fee at the annual
rate of 0.95% of the Fund's Managed Assets (as
defined herein). This fee is higher than fees paid
by other comparable investment companies. See
"Investment Advisory and Management Arrangements."
During periods in which the Fund is utilizing
leverage, the fees which are payable to the Manager
will be greater, and will be higher as a percentage
of the Fund's net assets, than if the Fund did not
utilize a leveraged capital structure because the
fees are calculated as a percentage of the Fund's
assets, including those purchased with leverage.
Administrator.............. Princeton Administrators, L.P. (the
"Administrator") is the Fund's administrator. The
Administrator is an affiliate of Merrill Lynch, one
of the Underwriters. The Fund will pay the
Administrator a monthly fee computed at the annual
rate of 0.15% of the Fund's Managed Assets, subject
to a monthly minimum fee of $12,500. See
"Investment Advisory and Management
Arrangements -- Administrator." During periods in
which the Fund is utilizing leverage, the fees
which are payable to the Administrator will be
greater, and will be higher as a percentage of the
Fund's net assets, than if the Fund did not utilize
a leveraged capital structure because the fees are
calculated as a percentage of the Fund's assets,
including those purchased with leverage.
Share Repurchases and
Tender Offers............ If, at any time after the second year following
this offering, shares of the Fund's Common Stock
publicly trade for a substantial period of time at
a
6
<PAGE> 7
substantial discount from net asset value, the
Fund's Board of Directors will consider, at its
next regularly scheduled meeting, authorizing
various actions designed to eliminate the discount,
which may include periodic repurchases of or tender
offers for the Fund's shares. No assurance can be
given that the Board of Directors will undertake
any such action or that if repurchases are
undertaken, the Fund's shares will trade at a price
that is close to or equal to net asset value. Under
certain circumstances, a shareholder vote may be
required to authorize periodic repurchases of the
Fund's shares of Common Stock. See "Description of
Capital Stock -- Share Repurchases and Tender
Offers."
Dividends and
Distributions............ The Fund intends to distribute a monthly fixed
amount to shareholders, commencing approximately 60
days from the date of this Prospectus. If, for any
monthly distribution, net investment income (which
term includes net realized short-term capital gain)
is less than the amount of the distribution, the
difference will be distributed from the Fund's
assets. The Fund's final distribution for each
calendar year will include any remaining net
investment income undistributed during the year, as
well as all net capital gain realized during the
year. If, for any calendar year, the total
distributions exceed net investment income and net
realized capital gain, the excess, distributed from
the Fund's assets, will generally be treated as a
tax-free return of capital (up to the amount of the
shareholder's tax basis on his shares). The amount
treated as a tax-free return of capital will reduce
a shareholder's adjusted basis on his shares,
thereby increasing his potential gain or reducing
his potential loss on the sale of his shares. Such
excess, however, will be treated as ordinary
dividend income up to the amount of the Fund's
current and accumulated earnings and profits.
Pursuant to the requirements of the Investment
Company Act of 1940, as amended (the "Investment
Company Act") and other applicable laws, a notice
will accompany each monthly distribution with
respect to the estimated source of the distribution
made. Such distribution policy may, under certain
circumstances, have certain adverse consequences to
the Fund and its shareholders. The distributions to
holders of Common Stock will only be payable after
the payment of any interest payments on debt or
dividends on preferred stock required to be paid by
the Fund. See "Dividends and Distributions,"
"Automatic Dividend Reinvestment Plan" and "Taxes"
for a discussion of the Fund's distribution policy
and the circumstances under which such consequences
may occur.
7
<PAGE> 8
Automatic Dividend
Reinvestment Plan........ The Fund has established an Automatic Dividend
Reinvestment Plan (the "Plan"). Under the Plan, all
dividends and capital gain distributions will be
automatically reinvested in additional shares of
Common Stock of the Fund unless a shareholder
elects to receive cash. Shareholders whose shares
are held in the name of a broker or nominee should
contact such broker or nominee to confirm that they
may participate in the Plan. See "Automatic
Dividend Reinvestment Plan."
Listing.................... Prior to this offering, there has been no market
for the shares of Common Stock. The Common Stock
has been approved for listing on the NYSE, under
the symbol "CWF," subject to official notice of
issuance.
Net Asset Value............ The Fund will determine and make available for
publication the net asset value of its Common Stock
on a weekly basis. Currently, the net asset value
of shares of publicly traded closed-end investment
companies are published in Barron's, the Monday
edition of The Wall Street Journal and the Saturday
edition of The New York Times. See "Calculation of
Net Asset Value Per Share."
Custodian, Transfer Agent,
Dividend Paying Agent
and Registrar............ PNC Bank, National Association will act as
custodian for the Fund's assets. PNC Bank, National
Association will also act as transfer agent,
dividend paying agent and registrar for the Fund's
Common Stock.
RISK FACTORS AND SPECIAL CONSIDERATIONS
General.................... The Fund is a newly organized, diversified,
closed-end management investment company and has no
operating history. The net asset value of the
Fund's Common Stock will fluctuate with interest
rate changes as well as with price changes of the
Fund's portfolio securities, and these fluctuations
are likely to be greater in the case of a fund
having a leveraged capital structure, as
contemplated for the Fund. See "Special Leverage
Considerations and Risks." At any time, the Fund
may invest up to 50% of its total assets in high
yield, high risk Debt Securities that are rated
below investment grade or which are unrated but are
of comparable quality as determined by the Manager.
These securities are commonly known as junk bonds.
Debt Securities rated below investment grade are
those rated "Ba1" or lower by Moody's Investors
Service, Inc.
8
<PAGE> 9
("Moody's") or "BB+" or lower by Standard & Poor's
Corporation ("S&P") or have similar ratings by
other comparable nationally recognized statistical
rating organizations. Such securities are
considered by those organizations to be subject to
greater risk of loss of principal and interest than
higher rated securities and are considered to be
speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance
with the terms of the obligations. In addition,
lower rated securities may be more susceptible to
real or perceived adverse economic and competitive
industry conditions than investment grade
securities. Accordingly, these types of factors
could, in certain instances, reduce the value and
liquidity of securities held by the Fund with a
commensurate negative effect on the value of the
Fund's shares.
The market values of Debt Securities which are
rated below investment grade and comparable unrated
securities tend to be more sensitive to
company-specific developments and changes in
economic conditions than higher rated securities.
Issuers of these securities are often highly
leveraged, so that their ability to service their
debt obligations during an economic downturn or
during sustained periods of rising interest rates
may be impaired. In addition, such issuers may not
have more traditional methods of financing
available to them, and may be unable to repay debt
at maturity by refinancing. The risk of loss due to
default in payment of interest or principal by such
issuers is significantly greater than with
investment grade securities because such Debt
Securities frequently are subordinated to the prior
payment of senior indebtedness. See "Investment
Objectives and Policies" and "Special Risk
Considerations."
Lower Rated Convertible
Securities and Preferred
Stock.................... The Fund may invest in convertible securities rated
below investment grade or which are unrated but are
of comparable quality as determined by the Manager.
The Fund includes these securities in its Income
Generating Equity Securities category and they are
in addition to the high yield, high risk Debt
Securities discussed above. Such securities are
judged to have speculative elements and may be
subject to greater risks with respect to the timely
repayment of principal and timely payment of
interest and dividends. See "Investment Objectives
and Policies" and "Special Risk Considerations."
Other Investment
Practices.................. The Fund may employ various additional investment
strategies, such as writing (i.e., selling) covered
call options on equity securities for hedging
9
<PAGE> 10
and other non-speculative risk management purposes,
entering into repurchase agreements, lending
portfolio securities and purchasing securities on a
when-issued or delayed delivery basis, that entail
certain special considerations. For further
discussion of these practices and the associated
risks and special considerations, see "Other
Investment Practices," "Special Risk
Considerations" and "Taxes."
Discount to Net Asset
Value...................... The Fund is a closed-end investment company, and
its shares are not redeemable at the option of the
shareholders. Shares of closed-end investment
companies have in the past frequently traded at
discounts from their net asset values and initial
offering prices. The Fund cannot predict whether
its shares will trade at, above or below net asset
value. The risk may be greater for investors
expecting to sell their shares in a relatively
short period after completion of the public
offering. The Fund is intended primarily for
long-term investors and should not be considered as
a vehicle for trading purposes. See "Special
Leverage Considerations and Risks."
Anti-Takeover Provisions... The Fund's Articles of Incorporation include
provisions that could have the effect of limiting
the ability of other entities or persons to acquire
control of the Fund or to change the composition of
its Board of Directors and could have the effect of
depriving shareholders of an opportunity to sell
their shares at a premium over prevailing market
prices by discouraging a third party from seeking
to obtain control of the Fund. See "Description of
Capital Stock -- Certain Provisions of the Articles
of Incorporation."
10
<PAGE> 11
FEE TABLE
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load (as a percentage of offering price).... None
Dividend Reinvestment Plan Fees........................... None
ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS ATTRIBUTABLE
TO COMMON STOCK):
Management Fees(a)(b)..................................... .95%
Interest Payments on Borrowed Funds(b).................... 1.15
Other Expenses (estimated)(b)............................. .29
----
Total Annual Expenses(b).......................... 2.39%
====
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The expenses set forth under "Other Expenses" are based on estimated
amounts through the end of the Fund's first fiscal year on an annualized basis.
The Example set forth below assumes reinvestment of all dividends and
distributions and utilizes a 5% annual rate of return as mandated by Securities
and Exchange Commission ("Commission") regulations. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF FUTURE EXPENSES OR ANNUAL RATE OF RETURN, AND
ACTUAL EXPENSES, LEVERAGE AMOUNT OR ANNUAL RATE OF RETURN MAY BE MORE OR LESS
THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE.
<TABLE>
<CAPTION>
1 3 5 10
EXAMPLE: YEAR YEARS YEARS YEARS
-------- ---- ----- ----- -----
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment, assuming (1) total annual expenses of 2.39%
(assuming leverage of 20% of the Fund's total assets) and
(2) a 5% annual return throughout the periods and
reinvestment of all dividends and distributions at net
asset value............................................... $24 $75 $128 $273
--- --- ---- ----
</TABLE>
- ---------------
(a) See "Investment Advisory and Management Arrangements."
(b) Assumes that the Fund utilizes leverage by borrowing in an amount equal to
approximately 20% of the Fund's total assets (including the amount obtained
from leverage). The Fund is authorized to utilize leverage in an amount up
to 50% of the Fund's total assets (including the amount obtained from the
issuance of certain Senior Securities). If the Fund does not utilize
leverage, it is estimated that, as a percentage of net assets attributable
to Common Stock, the Management Fees would be 0.95%, Other Expenses would be
0.29% and Total Annual Expenses would be 1.24%. See "Special Leverage
Considerations and Risks."
11
<PAGE> 12
THE FUND
Chartwell Dividend and Income Fund, Inc. (the "Fund") is a newly organized,
diversified, closed-end management investment company. The Fund was incorporated
under the laws of the State of Maryland on April 6, 1998, and has registered
under the Investment Company Act. See "Description of Capital Stock." The Fund's
principal office is located at 400 Bellevue Parkway, Wilmington, Delaware 19809.
The Fund has been organized as a closed-end investment company. Closed-end
investment companies differ from open-end investment companies (commonly
referred to as mutual funds) in that closed-end investment companies do not
redeem their securities at the option of the shareholder, whereas open-end
investment companies issue securities redeemable at net asset value at any time
at the option of the shareholder and typically engage in a continuous offering
of their shares. Accordingly, open-end investment companies are subject to
continuous asset in-flows and out-flows that can complicate portfolio
management. However, shares of closed-end investment companies frequently trade
at a discount from net asset value.
USE OF PROCEEDS
The net proceeds of this offering will be approximately $200,480,000 (or
approximately $230,630,000 assuming the Underwriters exercise the over-allotment
option in full) after payment of organizational and offering costs.
The net proceeds of the offering are expected to be fully invested in
accordance with the Fund's investment objectives and policies within a period
not expected to exceed three months from the completion of the offering. Pending
such investment, it is anticipated that all or a portion of the offering
proceeds will be invested in U.S. Government securities or high grade,
short-term money market instruments. See "Investment Objectives and Policies."
INVESTMENT RATIONALE
The Manager believes that the Fund may serve as an attractive investment
vehicle for those investors who seek to earn supplemental income in their
investment portfolios through Income Generating Equity Securities and Debt
Securities.
The Manager believes that greater stability in returns from equity
investments can be achieved by investing in Income Generating Equity Securities.
The income component could then be supplemented further through investments in
high-yielding Debt Securities. Consequently, the Manager believes that the
combined investments in Income Generating Equity Securities and Debt Securities
could provide an income return which would exceed that of an investment
exclusively in equity securities. By investing at least 50% of the Fund's total
assets in Income Generating Equity Securities, the Fund's portfolio will also
seek capital appreciation.
12
<PAGE> 13
Total return from an equity investment is derived from two components,
income and capital appreciation. For the period 1926 through 1997, the income
component, with dividends reinvested, has represented 41% of total return of
large capitalization stocks. Within that period, returns from the income
component of total return have tended to be, over the long term, more stable
than returns from capital appreciation. As an example, annual returns from the
income component of securities comprising the Standard & Poor's 500 Composite
Index ("S&P 500") and its predecessor since its inception in 1926 varied from
2.1% to 8.8%. During the same period, annual returns from capital appreciation
varied from (47.1)% to 46.6%.* Additionally, the Manager has observed from the
historical performance of the S&P 500 that, following periods of higher relative
capital appreciation returns, such as occurred in the late 1920s and the 1950s,
returns from income have represented a relatively more significant component of
total return. The 1980s and late 1990s were also periods of higher relative
capital appreciation returns.
The Manager believes that investment opportunities exist in the high yield,
high risk Debt Securities market due to attractive yields and favorable supply
and demand fundamentals. In the current interest rate environment, high yield,
high risk Debt Securities offer attractive yields relative to other investments.
For example, as of March 31, 1998, high yield, high risk Debt Securities were
yielding approximately 324 basis points over duration-equivalent U.S. Treasuries
and approximately 222 basis points over duration-equivalent investment grade
corporate bonds.** Of course, for similar duration instruments, there is greater
volatility in market value with respect to high yield, high risk Debt
Securities, than with respect to investment grade corporate bonds or U.S.
Treasuries. Unlike maturity, which indicates when a security repays principal,
"duration" incorporates the cash flows of all interest and principal payments
and the proceeds from calls and redemptions over the life of a security. These
payments are multiplied by the number of years over which they are received to
produce the "duration" of a security, which is expressed in years. The Manager
also believes that steady demand from current owners of high yield, high risk
Debt Securities, as well as new investors seeking to maximize income, may result
in favorable fundamentals in the high yield, high risk Debt Securities market.
If the economy continues to grow, the Manager believes that corporate earnings
could increase, which would be beneficial to highly leveraged companies. For
example, 1997 default rates have returned to historic lows and the Manager
believes that the overall issue quality is currently satisfactory.
Of course, the S&P 500 is an unmanaged index comprised exclusively of
certain common stocks. Thus, neither the Fund's overall portfolio, which will be
comprised of both equity and debt securities, nor its equity components alone,
which will consist of Income Generating Equity Securities, will duplicate the
composition of the S&P 500. Consequently, there can be no assurance that the
Fund will perform in a manner consistent with the S&P 500 or that the income
component of total return will be as significant and stable a component as it
has been historically. In addition, there is no assurance that the historic
pattern discussed above will be repeated in the future or that the Fund's
investment objectives will be achieved even if this pattern were repeated.
Further, of course, investors should be aware that unlike U.S. Treasuries, high
yield, high risk Debt
- ---------------
* Ibbotson Associates, Stocks, Bonds, Bills, and Inflation 1998 Yearbook.
** Derived from data provided by Merrill Lynch.
13
<PAGE> 14
Securities are not guaranteed as to the payment of interest and principal. Also,
high yield, high risk Debt Securities present investment risks which are greater
than those presented by investment grade corporate debt and U.S. Treasuries. The
Manager believes, however, that the Fund should be well-positioned to provide
for investors favorable results built upon the income component of total return.
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The Fund's 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 (collectively, "Income Generating Equity Securities"). In addition,
the Fund may invest the balance of its total assets in non-convertible debt
securities consisting primarily of corporate bonds ("Debt Securities"). The
investment objectives of the Fund are fundamental policies that may not be
changed without a vote of a majority of the Fund's outstanding voting
securities, as defined below under "Investment Restrictions." There can be no
assurance that the investment objectives of the Fund will be realized. At times
the Fund may seek to hedge its portfolio through the use of futures transactions
and options to reduce volatility in the net asset value of its shares of Common
Stock.
INVESTMENT STRATEGY
The Fund may invest in a variety of Income Generating Equity Securities and
Debt Securities. In selecting Income Generating Equity Securities for the Fund's
investment portfolio, the preponderance of the securities in the Fund's
portfolio will be selected by the Manager from among those Income Generating
Equity Securities with a dividend yield greater than that of the S&P 500. After
identifying qualifying Income Generating Equity Securities, the Manager will
then apply fundamental investment analysis to select the Fund's specific
portfolio securities. The industry sector weightings in the Income Generating
Equity Securities portion of the Fund's portfolio will be determined based on
the Manager's investment research efforts. No more than 25% of the Fund's total
assets will be invested in any one industry sector nor, as to 75% of the Fund's
total assets, will more than 5% be invested in securities of any one issuer.
Preferred stocks or convertible securities in which the Fund may invest may
be rated below investment grade (i.e., "Ba" or lower for convertible securities
or "ba" or lower for preferred stock by Moody's or "BB" or lower for both
convertible securities and preferred stock by S&P or similarly rated by other
comparable rating agencies) or, if unrated, determined to be of comparable
quality by the Manager. The Fund will not acquire convertible debt securities
that are rated below "C" by Moody's or "CC" by S&P. The Fund includes these
assets in its Income Generating Equity Securities category and they are in
addition to the high yield, high risk Debt Securities discussed below. Such
securities are judged to have speculative elements, and pose a greater
14
<PAGE> 15
risk as to the timely repayment of principal and timely payment of interest and
dividends. See "Special Risk Considerations" and Appendix A to this Prospectus.
The Debt Securities component of the Fund's portfolio will be structured to
earn as high a level of current income as is consistent with reasonable risk in
light of the nature of such investments. The Manager will screen individual
securities for such characteristics as minimum yield and issue size, issue
liquidity, and financial and operational strength. In-depth credit research will
then be conducted to arrive at a core group of securities within this universe
from which the portfolio will be constructed. Ongoing credit monitoring and
adherence to sell disciplines associated with both price appreciation and
depreciation will be utilized to pursue the overall yield and price objectives
of the Fund.
The Fund may invest up to 50% of its total assets in high yield, high risk
Debt Securities that are rated below investment grade or which are unrated but
are of comparable quality as determined by the Manager. These securities are
commonly known as junk bonds. Debt Securities rated below investment grade
include those rated "Ba1" or lower by Moody's or "BB+" or lower by S&P and are
considered by those organizations to be subject to greater risk of loss of
principal and interest than higher rated securities. These securities are
considered to be predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal, which may in any case decline during
sustained periods of deteriorating economic conditions or rising interest rates.
Certain of the Debt Securities in which the Fund may invest may be considered
comparable to securities having the lowest ratings for interest paying debt
instruments by Moody's or S&P (i.e., rated "C" by Moody's or "CC" by S&P). See
"Special Risk Considerations" and Appendix A to this Prospectus.
The Manager intends to shift investments between Income Generating Equity
Securities and Debt Securities based upon its analysis of the yield differential
between the two sectors. Under normal circumstances, the Income Generating
Equity Securities portion of the Fund's portfolio will represent at least 50% of
the Fund's total assets and the Debt Securities portion will represent the
balance of the Fund's total assets.
The Manager considers the following factors, among others, in determining
when to sell Income Generating Equity Securities. If the anticipated yield of
any security declines below the prevailing yield on the S&P 500 as a result of
capital appreciation or a reduction in dividends, the Manager, in its
discretion, may sell the security. With respect to Income Generating Equity
Securities and Debt Securities the Manager will monitor the fundamentals
attributable to the issues of securities held by the Fund and sell a security if
those fundamentals begin to deteriorate. The Manager may also sell Income
Generating Equity Securities or Debt Securities if continuing research
identifies securities that the Manager believes to be more attractive than those
held in the Fund's portfolio.
The following is a more detailed description of some of the securities in
which the Fund may invest and some of the investment techniques which may be
utilized by the Fund.
15
<PAGE> 16
COMMON STOCK
Common stock is defined as shares of a corporation that entitle the holder
to a pro rata share of the profits of the corporation, if any, without a
preference over any other shareholder or class of shareholders, including
holders of the corporation's preferred stock and other senior equity. Common
stock usually carries with it the right to vote and frequently an exclusive
right to do so. Holders of common stock also have the right to participate in
the remaining assets of the corporation after all other claims are paid,
including those of debt securities and preferred stock. In selecting common
stocks for investment, the Manager will focus primarily on a security's
dividend-paying capacity rather than on its potential for appreciation.
PREFERRED STOCK
Generally, preferred stock receives dividends prior to distributions on
common stock and usually has a priority of claim over common stockholders if the
issuer of the stock is liquidated. Unlike common stock, preferred stock does not
usually have voting rights absent the occurrence of specified events; preferred
stock, in some instances, is convertible into common stock. In order to be
payable, dividends on preferred stock must be declared by the issuer's board of
directors. There is, however, no assurance that dividends will be declared by
the boards of directors of issuers of the preferred stocks in which the Fund
invests. Preferred stock in which the Fund may invest may be rated below
investment grade (i.e., "ba" or lower by Moody's or "BB" or lower by S&P or
similarly rated by other comparable rating agencies) or, if unrated, determined
to be of comparable quality by the Manager. See "Special Risk Considerations"
and Appendix A to this Prospectus.
CONVERTIBLE SECURITIES
Traditional convertible securities include corporate bonds, notes and
preferred stocks that may be converted into or exchanged for common stock, and
other securities that also provide an opportunity for equity participation.
These securities are generally convertible either at a stated price or a stated
rate (that is, for a specific number of shares of common stock or other
security). As with other fixed income securities, the price of a convertible
security to some extent varies inversely with interest rates. While providing a
fixed income stream (generally higher in yield than the income derivable from a
common stock but lower than that afforded by a non-convertible debt security), a
convertible security also affords the investor an opportunity, through its
conversion feature, to participate in the capital appreciation of the common
stock into which it is convertible. As the market price of the underlying common
stock declines, convertible securities tend to trade increasingly on a yield
basis and so may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common stock
increases, the price of a convertible security tends to rise as a reflection of
the value of the underlying common stock. To obtain such a higher yield, the
Fund may be required to pay for a convertible security an amount in excess of
the value of the underlying common stock. Common stock acquired by the Fund upon
conversion of a convertible security will generally be held for so long as the
Manager anticipates such stock will provide the Fund with opportunities which
are consistent with the Fund's investment objectives and policies. Convertible
securities in which the Fund may invest may be rated below investment grade
(i.e., "Ba" or lower by Moody's or "BB" or lower by
16
<PAGE> 17
S&P or similarly rated by other comparable rating agencies) or, if unrated,
determined to be of comparable quality by the Manager. See "Special Risk
Considerations" and Appendix A to this Prospectus.
AMERICAN DEPOSITORY RECEIPTS
The Fund may make foreign investments through the purchase and sale of
sponsored or unsponsored American Depository Receipts ("ADRs"). ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. "Sponsored"
ADRs are issued jointly by the issuer of the underlying security and a
depository, whereas "unsponsored" ADRs are issued without participation of the
issuer of the deposited security. Holders of unsponsored ADRs generally bear all
the costs of such facilities and the depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
Therefore, there may not be a correlation between information concerning the
issuer of the security and the market value of an unsponsored ADR. Investments
in ADRs involve risks similar to those accompanying direct investments in
foreign securities. Certain of these risks are described below under "Special
Risk Considerations -- Foreign Securities."
DEBT SECURITIES
A debt security represents money borrowed that must be repaid and has a
fixed amount, a specific maturity or maturities and usually a specific rate of
interest or original purchase discount. Debt securities include bills, bonds,
notes, debentures and commercial paper. Unlike common and preferred stock, a
debt security does not represent an equity interest in the issuer. However, a
debt security has a priority of claim over stockholders if the issuer is
liquidated. The Fund may invest in a wide variety of debt securities, although
it is anticipated that under normal market conditions, the Debt Securities
portion of the Fund's portfolio will be invested primarily in corporate bonds.
Such bonds may be rated below investment grade (i.e., "Ba1" or lower by Moody's
or "BB+" or lower by S&P or similarly rated by other comparable rating agencies)
or, if unrated, determined to be of comparable quality by the Manager. See
"Special Risk Considerations" and Appendix A to this Prospectus.
FUTURE DEVELOPMENTS
From time to time, the Fund may also invest in certain Income Generating
Equity Securities or Debt Securities which have features other than those that
are typical for such securities and which have in the past been offered or may
be offered in the future. In the past, for example, such securities have been
issued to replicate the performance of a certain component or components of a
particular security or combination of securities and/or to hedge or reduce the
risks associated with certain securities or market trends. The Fund may invest
in these securities if the Manager believes that doing so would be consistent
with the Fund's investment objectives and policies. Since the market for these
securities may be new, the Fund may have difficulty disposing of them at a
suitable price and time. In addition to limited liquidity, these instruments may
17
<PAGE> 18
present other risks, such as high price volatility. The unavailability of such
innovative securities would not adversely affect the Fund's ability to achieve
its investment objectives.
DEFENSIVE STRATEGIES
For temporary defensive purposes, the Fund may invest without limit a
portion of its assets in (i) debt securities issued by the U.S. Government, its
agencies or instrumentalities, (ii) commercial paper, (iii) certificates of
deposit and bankers' acceptances or (iv) repurchase agreements with respect to
any of the foregoing investments. The Fund will only invest in commercial paper
of companies rated "A-2" or better by S&P or "P-2" or better by Moody's or
similarly rated by another comparable rating agency or, if not so rated, of
comparable investment quality as determined by the Manager. See Appendix A to
this Prospectus for additional ratings information. The Fund may also invest
without limit in such securities pending the investment of the proceeds of
certain sales of portfolio securities and pending the investment of the initial
proceeds of this offering of Common Stock, or at such other times when suitable
Income Generating Equity Securities or Debt Securities are not available. It is
impossible to predict whether, or for how long, the Fund will use any of such
temporary defensive strategies. Further, the Fund is authorized to borrow up to
5% of its total assets for temporary purposes, such as the clearance of
portfolio transactions, the payment of dividends or in connection with tender
offers or share repurchases.
In addition, the yields on short-term high quality obligations may approach
or be less than the then current dividend or interest rate payable to holders of
any Senior Securities issued by the Fund. In such event, the benefit of
financial leverage to the holders of Common Stock will diminish and the Fund's
leveraged capital structure may work to the disadvantage of the holders of
Common Stock. See "Special Risk Considerations" and "Special Leverage
Considerations and Risks."
OTHER INVESTMENT PRACTICES
COVERED CALL OPTIONS
The Fund may write (i.e., sell) call options on equity securities on a
covered basis only, and will not engage in option writing strategies for
speculative purposes. The Fund may write covered call options from time to time
on such portion of its equity portfolio, in an amount not to exceed 10% of its
total assets, as the Manager determines is appropriate for hedging purposes and
in seeking to achieve the Fund's investment objectives. The Fund may write such
call options on securities that are listed on national securities exchanges or
are traded over the counter. For a discussion of the risks associated with
covered call options, see "Special Risk Considerations -- Covered Call Options."
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase securities on a when-issued or delayed delivery
basis. Securities purchased on a when-issued or delayed delivery basis are
purchased for delivery beyond the normal settlement date at a stated
18
<PAGE> 19
price and yield. No income accrues to the purchaser of a security on a
when-issued or delayed delivery basis prior to delivery. Such securities are
recorded as an asset and are subject to changes in value based upon changes in
the general level of interest rates. Purchasing a security on a when-issued or
delayed delivery basis can involve a risk that the market price at the time of
delivery may be lower than the agreed-upon purchase price, in which case there
could be an unrealized loss at the time of delivery. The Fund will only make
commitments to purchase securities on a when-issued or delayed delivery basis
with the intention of actually acquiring the securities but may sell them before
the settlement date if the Manager deems it advisable. The Fund will maintain
cash, U.S. Government securities and other liquid high grade debt securities in
an amount at least equal in value from time to time to the Fund's commitments to
purchase securities on a when-issued or delayed delivery basis.
REPURCHASE AGREEMENTS
A repurchase agreement is a short-term investment by which the purchaser
acquires ownership of a debt security and the seller agrees to repurchase the
obligation at a future time and set price, thereby determining the yield during
the purchaser's holding period. Should an issuer (i.e., the seller) of a
repurchase agreement fail to repurchase the underlying security, the loss to the
Fund, if any, would be the difference between the repurchase price and the
market value of the security. The Fund will limit its investments in repurchase
agreements to those which the Manager, under the guidelines of the Board of
Directors, determines to present minimal credit risks and which are of high
quality. In addition, the Fund must have collateral of at least 100% of the
repurchase price, including the portion representing the Fund's yield under such
agreements which is monitored on a daily basis.
ILLIQUID AND RULE 144A SECURITIES
The Fund may invest up to 15% of its total assets in illiquid securities,
which include securities with contractual restrictions on resale, repurchase
agreements maturing in greater than seven days, and other securities which may
not be readily marketable. In addition, the Fund may purchase securities sold in
reliance on Rule 144A of the Securities Act of 1933, as amended (the "Securities
Act").
While maintaining oversight, the Board of Directors has delegated to the
Manager the day-to-day functions of determining whether or not individual
securities sold to the Fund in reliance on Rule 144A are liquid for purposes of
the Fund's 15% limitation on investments in illiquid assets. The Board has
instructed the Manager to consider the following factors in determining the
liquidity of a security sold to the Fund in reliance on Rule 144A: (i) the
frequency of trades and trading volume for the security; (ii) whether at least
three dealers are willing to purchase or sell the security and the number of
potential purchasers; (iii) whether at least two dealers are making a market in
the security; and (iv) the nature of the security and the nature of the
marketplace trades in the security (e.g., the timing needed to dispose of the
security, the method of soliciting offers and the mechanics of transfer).
If the Manager determines that a security sold to the Fund in reliance on
Rule 144A which was previously determined to be liquid is no longer liquid and,
as a result, the Fund's holdings of illiquid securities
19
<PAGE> 20
exceed the Fund's 15% limit on investment in such securities, the Manager will
determine what action shall be taken to ensure that the Fund continues to adhere
to such limitation. For a discussion of the risks associated with investments in
illiquid securities, see "Special Risk Considerations -- Illiquid Securities."
PORTFOLIO LENDING TRANSACTIONS
The Fund may lend up to 25% of its total assets to qualified broker/dealers
or institutional investors for their use relating to short sales or other
security transactions. By lending its portfolio securities, the Fund attempts to
increase its income through the receipt of interest on the loan.
The Manager understands that the staff of the SEC permits portfolio lending
by registered investment companies if certain conditions are met. These
conditions are as follows: (i) each transaction must have 100% collateral in the
form of cash, short-term U.S. Government securities, or irrevocable letters of
credit payable by banks acceptable to the Fund from the borrower; (ii) this
collateral must be valued daily and should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Fund; (iii) the Fund must be able to terminate the loan after notice, at any
time; (iv) the Fund must receive reasonable interest on any loan, and any
dividends, interest or other distributions on the lent securities, and any
increase in the market value of such securities; (v) the Fund may pay reasonable
custodian fees in connection with the loan; and (vi) the voting rights on the
lent securities may pass to the borrower; however, if the Directors of the Fund
know that a material event will occur affecting an investment loan, they must
either terminate the loan in order to vote the proxy or enter into an
alternative arrangement with the borrower to enable the Directors to vote the
proxy. For a discussion of the risks associated with lending portfolio
securities, see "Special Risk Considerations -- Portfolio Lending Transactions."
20
<PAGE> 21
SPECIAL LEVERAGE CONSIDERATIONS AND RISKS
General Leverage Considerations. At times, the Fund expects to utilize
leverage through borrowings, the issuance of short-term debt securities or the
issuance of shares of preferred stock (collectively, "Senior Securities").
Within approximately three to six months after completion of this offering, the
Fund intends to utilize leverage in an initial amount equal to approximately 20%
of its total assets (including the amount obtained from leverage). Although the
Fund does not currently intend to utilize leverage in an amount greater than 20%
of its total assets, the Fund has the authority to leverage in an amount up to
50% of its total assets (including the amount obtained from the issuance of
certain Senior Securities). There can be no assurance, however, that the Fund
will engage in any leveraging techniques. Although the terms of any Senior
Securities offering will be determined by the Fund's Board of Directors, it is
anticipated that any dividends paid on any preferred stock or interest paid on
any borrowings or short-term debt securities will be based on short-term rates,
and that the net return on the Fund's portfolio, including the proceeds of any
offering of Senior Securities, will exceed the dividend or interest rate
applicable to the Senior Securities. The proceeds of the offering of any Senior
Securities will be invested in accordance with the Fund's investment objectives
and policies.
Utilization of leverage, however, involves certain risks to the holders of
Common Stock. These include a higher volatility of the net asset value of the
Common Stock and potentially more volatility in the market value of the Common
Stock. So long as the Fund is able to realize a higher net return on its
investment portfolio than the then current dividend or interest rate related to
the Senior Securities, the effect of leverage will be to cause holders of Common
Stock to realize a higher current rate of return than if the Fund were not
leveraged. Similarly, if net capital gains are realized by the Fund, the effect
of leverage will be to increase the amount of such gains distributed to holders
of Common Stock. To the extent that the current dividend or interest rate
related to any Senior Securities approaches the net return on the Fund's
investment portfolio, the benefit of leverage to holders of Common Stock will be
reduced. In addition, the costs of borrowing or the issuance of preferred stock
may exceed the income from the portfolio securities purchased with the proceeds
of the borrowing or the issuance of preferred stock. In that event, the Fund's
leveraged capital structure would result in a lower rate of return to holders of
Common Stock than if the Fund were not leveraged. Similarly, since any decline
in the value of the Fund's investments will be borne entirely by holders of
Common Stock, the effect of leverage in a declining market would result in a
greater decrease in net asset value to holders of Common Stock than if the Fund
were not leveraged, which would likely be reflected in a greater decline in the
market price for shares of Common Stock.
If the Fund leverages through issuing Senior Securities, such Senior
Securities will be subject to the provisions of the Investment Company Act
governing their issuance, including asset coverage requirements and restrictions
on the declaration of dividends and distributions to holders of Common Stock or
purchases of Common Stock in the event such asset coverage requirements are not
met.
The Fund intends to apply for a rating from Moody's or S&P on any preferred
stock or short-term debt securities which it issues although obtaining such a
rating will not eliminate the risks associated with the Fund's use of leverage.
The Fund believes that obtaining one or both ratings for any preferred stock or
short-
21
<PAGE> 22
term debt securities would enhance the marketability of such Senior Securities
and thereby reduce the dividend rate on the preferred stock or the interest rate
on the short-term debt securities from that which the Fund would be required to
pay if such Senior Securities were not so rated. The rating agencies for any
preferred stock or short-term debt securities may require asset coverage
maintenance tests that are more stringent than those imposed by the Investment
Company Act. This requirement may also restrict the amount of any preferred
stock or short-term debt securities that may be outstanding from time to time.
It is expected that the terms of any preferred stock or short-term debt
securities will provide for mandatory redemption of such Senior Securities in
the event the Fund fails to meet such asset coverage maintenance ratios. In such
circumstances, the Fund may be required to liquidate portfolio securities in
order to meet redemption requirements. This would have the effect of reducing
the net asset value to holders of the Common Stock.
The ability of the Fund to comply with the asset coverage maintenance
ratios imposed by the Investment Company Act and the rating agencies, may be
subject to circumstances beyond the control of the Fund such as market
conditions for its portfolio securities. The requirements of the Investment
Company Act, any rating agency or the applicable provisions of the documents
establishing the terms of such Senior Securities may limit the Fund's ability to
make dividend or distribution payments to holders of its Common Stock for so
long as any dividend or interest payments on Senior Securities are in arrears or
in default, may limit the Fund's ability to take advantage of certain
investments which might otherwise be available to it, may require the Fund to
invest a greater portion of its assets in more highly rated, potentially lower
yielding securities than it might otherwise do, and may require the Fund to sell
a portion of its assets when it might otherwise be disadvantageous to do so. In
the event that the Fund is required to restructure its portfolio by selling
assets in order to satisfy the requirements set forth above, such sales of
portfolio securities would cause the Fund to incur related transaction costs. In
addition, because of the limitation on payments of dividends or distributions on
Common Stock, as described above, the Fund may be unable to distribute all of
its net investment income to shareholders of Common Stock. To qualify for
federal income taxation as a regulated investment company, the Fund must
distribute in each fiscal year at least 90% of its net investment income. In the
event that the Fund is precluded from making distributions on the Common Stock
because of any applicable asset coverage requirements, the Fund intends to
redeem, repay or call sufficient Senior Securities to enable the Fund to pay
such distributions.
The issuance of any Senior Securities will entail certain initial costs and
expenses such as underwriting discounts or placement fees, fees associated with
any registration of Senior Securities with the Commission, filings under state
securities laws, rating agency fees, legal and accounting fees, printing costs
and certain other ongoing expenses such as administrative and accounting fees.
These costs and expenses will be borne by the Fund and will reduce net assets
available to holders of Common Stock.
Until any Senior Securities are issued, the Fund's Common Stock will not be
leveraged, and the special leverage considerations described in this Prospectus
will not apply. Such leveraging of the Common Stock cannot be fully achieved
until the proceeds of the borrowing or offering of Senior Securities have been
invested in accordance with the Fund's investment objectives and policies. In
addition, the leveraging of the Common Stock would be eliminated during any
period when there are no Senior Securities outstanding.
22
<PAGE> 23
The timing and the terms of any financial leveraging by the Fund will be
determined by the Fund's Board of Directors based upon prevailing market
conditions and a determination that financial leveraging is expected to achieve
the benefits to the holders of Common Stock described in this Prospectus. If, as
a result of intervening changes in market conditions, the Board of Directors
were to determine that the financial leveraging by the Fund at that time would
not increase the potential yield of the Fund to the holders of Common Stock, the
Fund would delay such leveraging until such market conditions changed. There can
be no assurance that the Fund will leverage its Common Stock.
The Fund's willingness to borrow money and issue new securities for
investment purposes, and the amount it will borrow or issue, will depend on many
factors, the most important of which are investment outlook, market conditions
and interest rates. Successful use of a leveraging strategy depends on the
Manager's ability correctly to predict interest rates and market movements, and
there is no assurance that a leveraging strategy will be successful during any
period in which it is employed.
Preferred Stock. If the Fund leverages through the issuance of preferred
stock, under the requirements of the Investment Company Act, the value of the
Fund's total assets, less all liabilities and indebtedness of the Fund not
represented by senior securities, as defined in the Investment Company Act, must
at least be equal, immediately after any issuance of preferred stock, to 200% of
the aggregate amount of senior securities representing indebtedness plus the
aggregate liquidation value of any outstanding preferred stock. The Investment
Company Act requires that such percentage also be met any time the Fund declares
a dividend or distribution on Common Stock (other than a distribution in Common
Stock) or any time the Fund makes tender offers for or repurchases Common Stock,
in each case after giving effect to such dividend, distribution or repurchase.
The liquidation value of preferred stock is expected to equal the aggregate
original purchase price plus any accumulated and unpaid dividends thereon. See
"Description of Capital Stock -- Preferred Stock."
The Fund will have the authority to redeem any preferred stock that is
issued for any reason and may redeem all or part of such preferred stock if it
anticipates that the Fund's leveraged capital structure will result in a lower
rate of return to holders of the Common Stock than that obtainable if the Common
Stock were unleveraged for any significant amount of time.
Under the Investment Company Act, the holders of any preferred stock,
voting as a class, must have the right to elect at least two Directors at all
times, and, subject to the prior rights, if any, of the holders of any other
class of senior securities outstanding, to elect a majority of the Directors if
at any time dividends on such class of securities shall be unpaid in an amount
equal to two full years' dividends on such securities, and to continue to be so
represented until all dividends in arrears shall have been paid or otherwise
provided for. In addition, the vote of a majority of the preferred stock, voting
as a class, is required to approve any plan of reorganization adversely
affecting the preferred stock, or any action requiring a vote of security
holders pursuant to Section 13(a) of the Investment Company Act, including,
among other things, conversion of the Fund to open-end status or changes in its
fundamental policies. The Fund's Articles of Incorporation also require the
approval of at least 75% of all votes entitled to be cast by the holders of the
preferred stock, voting as a separate class, for certain transactions involving
conversion of the Fund to open-end status. See "Description of Capital
Stock -- Certain Provisions of the Articles of Incorporation."
23
<PAGE> 24
It is anticipated that if the Fund issues preferred stock, it may, from
time to time, attempt to reduce the degree to which it is leveraged by redeeming
or otherwise purchasing shares of preferred stock pursuant to applicable
provisions of the corporate documents establishing the rights and preferences of
the preferred stock. Purchases and redemptions of preferred stock, whether on
the open market or in negotiated transactions, are subject to limitations under
the Investment Company Act. If market conditions subsequently change, the Fund
may sell previously unissued shares of preferred stock or shares of preferred
stock that the Fund previously issued but later repurchased or redeemed.
SPECIAL RISK CONSIDERATIONS
The Fund is a newly organized, diversified, closed-end management
investment company and has no operating history. Shares of closed-end investment
companies frequently trade at a discount from their net asset value. This risk
may be greater for investors expecting to sell their shares in a relatively
short period after completion of the public offering. Accordingly, the Common
Stock of the Fund is designed primarily for long-term investors and should not
be considered a vehicle for trading purposes. The net asset value of the Fund's
Common Stock will fluctuate with interest rate changes as well as with price
changes of the Fund's portfolio securities, and these fluctuations are likely to
be greater in the case of a fund having a leveraged capital structure, as
contemplated for the Fund.
High Yield, High Risk Debt Securities. Investing in high yield, high risk
Debt Securities rated "Ba1" or lower by Moody's or "BB+" or lower by S&P entails
certain risks, including the risk of loss of principal, which may be greater
than the risks involved in investing in investment grade bonds, and which should
be considered by investors contemplating an investment in the Fund. The net
asset value of the Fund's shares will change with fluctuations in the value of
its portfolio securities. The high yield, high risk Debt Securities in which the
Fund will invest generally will be rated below investment grade, or if unrated,
will be of comparable quality as determined by the Manager. These lower rated
and comparable unrated securities involve greater risks than higher rated
securities. Under rating agency guidelines, lower rated securities and
comparable unrated securities will likely have some quality and protective
characteristics that are outweighed by large uncertainties or major risk
exposures to adverse conditions. Such securities are considered speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations. Accordingly, it is possible that
these types of factors could, in certain instances, reduce the value and
liquidity of securities held by the Fund with a commensurate effect on the value
of the Fund's shares. See "Special Leverage Considerations and Risks."
The secondary market for high yield, high risk Debt Securities is not as
liquid as the secondary market for higher rated securities. The high yield, high
risk market is characterized by relatively few market makers, participants in
the market being mostly institutional investors including insurance companies,
banks, other financial institutions and mutual funds. In addition, the trading
volume for high yield, high risk Debt Securities is generally lower than that
for higher rated securities and the secondary market could contract under
adverse market or economic conditions independent of any specific adverse
changes in the condition of a particular issuer. These factors may have an
adverse effect on the Fund's ability to dispose of particular
24
<PAGE> 25
portfolio investments and may limit the ability of the Fund to obtain accurate
market quotations for purposes of valuing securities and calculating net asset
value. If the Fund is not able to obtain a precise or accurate market quotation
for a particular security, it will become more difficult for the Board of
Directors to value the Fund's portfolio securities and the Board may have to use
a greater degree of judgment in making such valuations. Less liquid secondary
markets may also affect the Fund's ability to sell securities at their fair
value. The Fund may invest only up to 15% of its total assets in illiquid
securities, which may be more difficult to value and to sell at fair value. If
the secondary market for high yield, high risk Debt Securities contracts due to
adverse economic conditions or for other reasons, certain liquid securities in
the Fund's portfolio may become illiquid and the proportion of the Fund's assets
invested in illiquid securities may increase.
The market values of Debt Securities rated below investment grade and
comparable unrated securities tend to be more sensitive to company-specific
developments and changes in economic conditions than higher rated securities.
Issuers of these securities are often highly leveraged, so that their ability to
service their debt obligations during an economic downturn or during sustained
periods of rising interest rates may be impaired. In addition, such issuers may
not have more traditional methods of financing available to them, and may be
unable to repay debt at maturity by refinancing. The risk of loss due to default
in payment of interest or principal by such issuers is significantly greater
than with investment grade securities because such securities frequently are
subordinated to the prior payment of senior indebtedness.
Certain of the Debt Securities in which the Fund may invest may be
considered comparable to securities having the lowest ratings for interest
paying debt instruments assigned by Moody's or S&P (i.e., rated "C" by Moody's
or "CC" by S&P). These securities are considered to have extremely poor
prospects of ever attaining any real investment standing, to have a current
identifiable vulnerability to default, to be unlikely to have the capacity to
pay interest and repay principal when due in the event of adverse business,
financial or economic conditions, and/or to be in default or not current in the
payment of interest or principal. The Fund will not acquire Debt Securities that
are then in default on their obligations to pay interest. A description of the
bond ratings used by Moody's and S&P is set forth in Appendix A to this
Prospectus.
The Manager will attempt to reduce the risks attendant to investing in high
yield, high risk Debt Securities through portfolio diversification, credit
analysis and attention to trends in the economy, industries and financial
markets.
Lower Rated Convertible Securities and Preferred Stock. The Fund may
invest in lower rated convertible securities and preferred stock (i.e., "Ba" or
lower for convertible securities or "ba" or lower for preferred stock by Moody's
or "BB" or lower for convertible securities or preferred stock by S&P or
similarly rated by other comparable rating agencies) or, if unrated, determined
to be of comparable quality by the Manager. The Fund may have difficulty
disposing of such securities because the trading market for such securities may
be thinner than the market for higher rated convertible securities on preferred
stock. To the extent a secondary trading market for these securities does exist,
it generally is not as liquid as the secondary trading market for higher rated
securities. The lack of a liquid secondary market as well as adverse publicity
with respect to these securities, may have an adverse impact on market price and
the Fund's ability to dispose of particular issues in response to a specific
economic event such as a deterioration in the creditworthiness of
25
<PAGE> 26
the issuer. The lack of a liquid secondary market for certain securities also
may make it more difficult for the Fund to obtain accurate market quotations for
purposes of pricing the Fund's portfolio and calculating its net asset value.
The market behavior of convertible securities and preferred stocks in lower
rating categories is often more volatile than that of higher quality securities.
Lower quality convertible securities and preferred stocks are judged by Moody's
and S&P to have speculative elements or characteristics; their future cannot be
considered as well assured and earnings and asset protection may be moderate or
poor in comparison to investment grade securities. In addition, such lower
quality securities face major ongoing uncertainties or exposure to adverse
business, financial or economic conditions, which could lead to inadequate
capacity to meet timely payments. Certain of the lower rated convertible
securities and preferred stock in which the Fund may invest may be considered
comparable to securities having the lowest ratings for interest paying debt
instruments or dividend paying preferred stock, respectively, assigned by
Moody's or S&P. The lowest ratings for interest paying debt instruments are
stated above. The lowest ratings for preferred stock that is currently paying
dividends are "b" by Moody's (an issue which generally lacks the characteristics
of a desirable investment with small assurance of dividend payments over time)
or "CC" by S&P (an issue in arrears on dividends or sinking fund payments but
that is currently paying). A description of the ratings used by Moody's and S&P
for such securities is set forth in Appendix A to this Prospectus.
Foreign Securities. The Fund may invest in securities of issuers domiciled
outside of the U.S. through the purchase of sponsored or unsponsored ADRs.
Investing in the securities of foreign companies may involve additional risks
and considerations which are not typically associated with investing in the
securities of U.S. companies. Since the securities of foreign companies are
normally denominated in foreign currencies, the Fund may be affected favorably
or unfavorably by changes in currency rates and in exchange control regulations,
and may incur costs in connection with conversions between various currencies.
As foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards and practices comparable to those
applicable to U.S. companies, comparable information may not be readily
available about certain foreign companies. Some securities of foreign companies
may be less liquid and more volatile than securities of comparable U.S.
companies. In addition, in certain foreign countries, there is the possibility
of expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect U.S. investments in the securities of
issuers domiciled in those countries.
Covered Call Options. A covered call option writer, such as the Fund, may,
during the option period, be assigned an exercise notice by the broker/dealer
through whom the call option was sold requiring the writer to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time as
the writer effects a closing purchase transaction. A closing purchase
transaction cannot be effected with respect to an option once the option writer
has received an exercise notice with respect to such option.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to enable the
Fund to write another call option on the underlying security with a different
exercise price and/or expiration date. The Fund may realize a net gain or loss
from a closing purchase transaction depending upon
26
<PAGE> 27
whether the net amount of the original premium received on the call option is
more or less than the cost of effecting the closing purchase transaction.
The market value of a call option generally reflects the market price of
the underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security and the time remaining until the expiration date.
Illiquid 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 on Rule 144A of the
Securities Act. Liquidity relates to the ability of the Fund to sell a security
in a timely manner at a price which reflects the value of that security. 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. Investing in Rule 144A securities could
have the effect of increasing the level of Fund illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
these securities. The risks associated with these investments will be
accentuated in situations in which the Fund's operations require cash, such as
when the Fund tenders for its shares of Common Stock or pays distributions, and
could result in the Fund borrowing to meet short-term cash requirements or
incurring capital losses on the sale of these investments. The market for less
liquid securities tends to be more volatile than the market for more liquid
securities and market values of relatively illiquid securities may be more
susceptible to change as a result of adverse publicity and investor perceptions
than are the market values of more liquid securities. The Manager values the
Fund's investments pursuant to guidelines adopted and periodically reviewed by
the Board of Directors. To the extent that there is no established retail market
for some of the securities in which the Fund may invest, there may be relatively
inactive trading in such securities and the ability of the Manager to accurately
value such securities may be adversely affected. During periods of reduced
market liquidity and in the absence of readily available market quotations for
portfolio securities held in the Fund's portfolio, the responsibility of the
Manager to value the Fund's securities becomes more difficult and the Manager's
judgment may play a greater role in the valuation of the Fund's securities due
to the reduced availability of reliable objective data. To the extent that the
Fund invests in illiquid securities and securities which are restricted as to
resale, the Fund may incur additional risks and costs because such securities
are particularly difficult to dispose of.
Certain securities in which the Fund may invest are subject to legal or
contractual restrictions as to resale ("Restricted Securities") and may
therefore be illiquid by their terms. Restricted Securities may involve added
expense to the Fund should the Fund be required to bear registration costs with
respect to such securities. In the absence of registration, the Fund would be
required to dispose of its Restricted Securities pursuant to an exemption from
registration under the Securities Act, including a transaction in reliance on
Rule 144, which permits only limited sales under specified conditions unless the
Fund has held the securities for at least two years and is unaffiliated with the
issuer. Companies whose securities are not publicly traded are also not subject
to the same disclosure and other legal requirements as are applicable to
companies with publicly traded securities.
27
<PAGE> 28
Portfolio Lending Transactions. The major risk to which the Fund would be
exposed on a portfolio lending transaction is the risk that the borrower would
fail financially at a time when the value of the security increases. In
addition, should the borrower become insolvent, the Fund could be faced with
loss of rights in the collateral. Therefore, the Fund will enter into loan
arrangements only after a review of all pertinent facts by the Manager, subject
to overall supervision by the Board of Directors, including the creditworthiness
of the borrowing broker, dealer or institution and then only if the
consideration to be received from such loans would justify the risk.
Creditworthiness will be monitored on an ongoing basis by the Manager.
Year 2000 Risks. Like other investment companies, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Manager and the Fund's other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This possibility is commonly known as
the "Year 2000 Problem." The Manager is taking steps to address the Year 2000
Problem with respect to the computer systems that it uses and to obtain
assurances that comparable steps are being taken by the Fund's other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Fund.
INVESTMENT RESTRICTIONS
The following are fundamental investment restrictions of the Fund which may
not be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities, voting as a single class, and the approval of the
holders of a majority of the Fund's preferred stock, if any, voting as a
separate class. A "majority of the Fund's outstanding voting securities" for
this purpose and under the Investment Company Act means the lesser of (i) 67% or
more of the shares of Common Stock and preferred stock, if any, represented at a
meeting at which more than 50% of the outstanding shares of Common Stock and
preferred stock, if any, are represented, voting as a single class or as
separate classes, as the case may be, or (ii) more than 50% of the outstanding
shares of Common Stock and preferred stock, if any, voting as a single class or
as separate classes, as the case may be. The Fund may not:
1. As to 75% of its total assets, invest more than 5% of the value of
its total assets in securities of any one issuer (except the U.S.
Government, its agencies or instrumentalities or repurchase agreements
collateralized by any of such obligations) or purchase more than 10% of the
outstanding voting securities of any one issuer.
2. Invest for the purpose of exercising control over any issuer.
3. Purchase or sell real estate except securities secured by real
estate or interests therein.
4. Make short sales of securities or purchase securities on margin
except for delayed delivery or when-issued transactions or such short-term
credits as are necessary for the clearance of transactions and the writing
of call options on securities described above.
5. Purchase or sell commodities, commodity futures contracts or
commodity contracts.
28
<PAGE> 29
6. Borrow money or issue senior securities, as defined in the
Investment Company Act, except as permitted by the Investment Company Act.
7. Make loans except through purchasing fixed income securities,
lending portfolio securities and entering into repurchase agreements
consistent with the Fund's investment objectives and policies.
8. Act as an underwriter of securities of other issuers, except that
the Fund may acquire restricted or not readily marketable securities under
circumstances where, if such securities are sold, the Fund might be deemed
to be an underwriter for purposes of the Securities Act, as amended.
9. Invest 25% or more of its total assets in any one industry, except
that there is no limitation with respect to investment in obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or repurchase agreements collateralized by any of such
obligations.
If a percentage restriction under one of the Fund's investment policies or
restrictions or the use of assets set forth in this Prospectus is adhered to at
the time a transaction is effected, later changes in percentage resulting from
changing values will not be considered a violation (except with respect to any
restrictions that may apply to borrowings or senior securities issued by the
Fund).
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The business and affairs of the Fund are managed under the direction of its
Board of Directors. Each Director will initially serve until the Fund's 1999
Annual Meeting of Shareholders, when Directors will be divided as equally as
possible into three classes. The terms of office of the classes of Directors
elected at the Fund's Annual Meeting of Shareholders shall expire at the times
of the annual meetings of shareholders as follows: class I in 2000, class II in
2001 and class III in 2002. Thereafter, the Directors will serve staggered
three-year terms. Directors and principal officers of the Fund and their
business experience for the past five years follow. Unless otherwise noted, the
address of each officer and Director is c/o Chartwell Investment Partners, L.P.,
1235 Westlakes Drive, Suite 330, Berwyn, Pennsylvania 19312.
The Fund has two directors, Messrs. Herlihy and Kronenberg, who are not
"interested persons," as defined in the Investment Company Act.
WINTHROP S. JESSUP* (52) -- Chairman, President and Director -- Partner of
the Manager and of Chartwell G.P., Inc. since 1997; from 1977 to 1997, Mr.
Jessup held a series of positions with Delaware Management Company, Inc., an
investment management firm, and certain affiliated companies, most recently the
positions of Executive Vice President and Director.
- ---------------
* This director is an "interested person," as defined in the Investment Company
Act, of the Fund.
29
<PAGE> 30
KENNETH F. HERLIHY (69) -- Director -- Sculptor, who has worked
independently since his retirement from mutual fund management approximately ten
years ago. Mr. Herlihy's business address is 504 Woodland Court, Wayne, PA,
19087.
WILLIAM KRONENBERG III (45) -- Director -- President and CEO of ECS, Inc.,
ECS Underwriting, Inc., ECS Risk Control, Inc., and ECS Claims Administrators,
Inc., providers of environmental risk management services since 1985. Mr.
Kronenberg's business address is c/o ECS, Inc., 520 Eagleview Blvd., P.O. Box
636, Exton, PA 19341.
BERNARD P. SCHAFFER* (53) -- Vice President and Director -- Partner of the
Manager and of Chartwell G.P., Inc. since 1997; from 1978 to 1988, Mr. Schaffer
was Associate Managing Director of Wertheim Schroder & Co., a brokerage firm,
from 1988 until 1990, Senior Vice President of Prudential Securities, and from
1990 to 1997, Portfolio Manager of Delaware Investment Advisers, a division of
Delaware Management Company, Inc.
KEVIN A. MELICH* (55) -- Vice President and Director -- Partner of the
Manager and of Chartwell G.P., Inc. since 1997; from 1964 to 1981, Mr. Melich
was Portfolio Manager of Security Trust Co., from 1981 to 1983, Vice President
of A.B. Laffer Associates, an economic consulting firm, and from 1983 to 1997,
Portfolio Manager of Delaware Investment Advisers, a division of Delaware
Management Company, Inc.
TIMOTHY J. RIDDLE (42) -- Vice President and Treasurer -- Partner of the
Manager and of Chartwell G.P., Inc. since 1997; from 1986 to 1997, Mr. Riddle
was a Senior Vice President in Client Services for Delaware Investment Advisers,
a division of Delaware Management Company, Inc.
G. GREGORY HAGAR (29) -- Vice President -- Controller of the Manager since
1997; in 1990, Mr. Hagar was Senior Auditor of Northwest Administrators, Inc.,
an employee benefits administration firm, from 1991 to 1995, Supervisor of the
Financial Services Group of Hemming Morse CPAs and Consultants, and from 1996 to
1997, National Accounting and Systems Adviser of Land Title Insurance Company.
LESLIE M. VARRELMAN (38) -- Vice President -- Director of Fixed Income for
the Manager since 1997; from 1981 to 1994, Ms. Varrelman was Vice President and
Portfolio Manager of CoreStates Investment Advisers and from 1994 to 1997, Vice
President of Meridian Investment Company.
MICHAEL P. MALLOY (38) -- Secretary -- Partner in the law firm of Drinker
Biddle & Reath LLP since 1993.
MARIA E. POLLACK (52) -- Assistant Secretary -- Director of Client
Administration for the Manager since 1997; from 1982 to 1997, Ms. Pollack held a
series of positions with Delaware Investment Advisers, a division of Delaware
Management Company, Inc., most recently the position of Assistant Vice
President.
Under the Investment Company Act, holders of shares of preferred stock
(when and if issued) will be entitled to elect two Directors, and the remaining
Directors, subject to the provisions of the Investment Company Act and the
Fund's Articles of Incorporation, as supplemented or amended, will be elected by
the holders of Common Stock and preferred stock voting together as a single
class. When dividends are in arrears
- ---------------
* This director is an "interested person," as defined in the Investment Company
Act, of the Fund.
30
<PAGE> 31
for two full years, such provisions permit the holders of shares of preferred
stock, if any, to elect the minimum number of additional Directors that when
combined with the two Directors elected by the holders of preferred stock would
allow the holders of such shares to elect a majority of the Directors.
Under the Investment Company Act, the terms of any Senior Securities
consisting of debt which are offered, must provide either that (i) the holders
of Senior Securities consisting of debt, voting as a class, have the right to
elect at least a majority of the members of the Board of Directors if on the
last business day of each of 12 consecutive calendar months such Senior
Securities have an asset coverage of less than 100% and such voting right shall
continue until such Senior Securities have an asset coverage of 110% or more on
the last business day of each of three consecutive calendar months, or (ii) an
event of default shall be deemed to have occurred if such Senior Securities
consisting of debt do not have an asset coverage of 100% on the last business
day of each of 24 consecutive calendar months. If required by an agency rating
any such Senior Securities or if the Board of Directors determines it to be in
the best interest of the holders of Common Stock, more restrictive voting
provisions may be imposed than those required by the Investment Company Act.
COMPENSATION OF DIRECTORS
The Fund pays each Director not affiliated with the Manager an annual fee
of $4,000 per year plus $250 per meeting attended, together with such Director's
actual out-of-pocket expenses relating to attendance at meetings. The Fund also
pays members of the Audit Committee of the Board of Directors, which consists of
all of the Directors not affiliated with the Manager, an annual fee of $250. The
Chairman of the Audit Committee receives an additional fee of $500 per year.
The following table sets forth compensation to be paid by the Fund to the
non-affiliated Directors projected through the end of the Fund's first full
fiscal year.
<TABLE>
<CAPTION>
AGGREGATE
NAME OF DIRECTOR COMPENSATION FROM FUND*
---------------- -----------------------
<S> <C>
Kenneth F. Herlihy..................................... $2,500
William Kronenberg III................................. $3,000
</TABLE>
- ---------------
* As the Fund is not part of a fund complex, the Directors do not receive fees
from any related funds.
INVESTMENT ADVISORY AND MANAGEMENT ARRANGEMENTS
Chartwell Investment Partners, L.P., a Pennsylvania limited partnership
(the "Manager"), furnishes investment management services to the Fund. The
Manager's business address is 1235 Westlakes Drive, Suite 330, Berwyn,
Pennsylvania 19312.
Chartwell G.P., Inc. is the general partner of the Manager, which is the
sole business of Chartwell G.P., Inc. Chartwell G.P., Inc. may be deemed to be a
controlling person of the Manager, and is in turn controlled by the following
persons who are active partners and portfolio managers of the Manager: Edward
Antoian,
31
<PAGE> 32
Terry Bovarnick, David Dalrymple, Winthrop Jessup, Michael McCloskey, Kevin
Melich, Harold Ofstie, Timothy Riddle and Bernard Schaffer.
The Manager manages the Fund's portfolio and makes investment decisions.
For these services, the Fund pays the Manager a monthly fee at the annual rate
of 0.95% of the Fund's Managed Assets. "Managed Assets" means the average weekly
value of the Fund's total assets minus the sum of the Fund's liabilities, which
liabilities exclude debt relating to leverage, short-term debt and the aggregate
liquidation preference of any outstanding preferred stock. The fee is higher
than fees paid by other comparable investment companies. During periods in which
the Fund is utilizing leverage, the fees which are payable to the Manager will
be greater, and will be higher as a percentage of the Fund's net assets, than if
the Fund did not utilize a leveraged capital structure because the fees are
calculated as a percentage of the Fund's assets, including those purchased with
leverage.
The Income Generating Equity Securities portion of the Fund's portfolio
will be managed by Mr. Bernard P. Schaffer, Partner of the Manager and Vice
President of the Fund. Mr. Schaffer is a founding partner of the Manager. Mr.
Schaffer earned a Bachelor's degree in Economics from Villanova University and a
Master's degree in Business Administration from the University of Pennsylvania's
Wharton School. From 1990 to 1997, he was employed as a Senior Portfolio Manager
at Delaware Investment Advisers, an affiliate of Delaware Management Company,
Inc., as senior manager of two closed-end funds, the Delaware Group Dividend and
Income Fund, Inc. and the Delaware Group Global Dividend and Income Fund, Inc.
He was also responsible for managing approximately $1.0 billion in institutional
accounts in the equity income, value style.
The Debt Securities portion of the Fund's portfolio will be managed by
Leslie M. Varrelman, Director of Fixed Income for the Manager and Vice President
of the Fund. Ms. Varrelman earned a Bachelor's degree in Business Administration
from Juniata College. Prior to joining the Manager, Ms. Varrelman was a Vice
President at Meridian Investment Company from 1994 to 1997, where she was a
manager of close to $2.0 billion in institutional fixed income accounts, as well
as the core value fixed income mutual funds. From 1981 to 1994, she was a Vice
President at CoreStates Investment Advisers where she was a manager for all
fixed income mutual funds and developed the limited maturity fixed income
product.
ADMINISTRATOR
Under the terms of an administration agreement between Princeton
Administrators, L.P. (the "Administrator") and the Fund (the "Administration
Agreement"), the Administrator performs or arranges for the performance of
certain administrative services necessary for the operation of the Fund,
including maintaining certain of the books and records of the Fund, preparing
certain reports and other documents required by the U.S. federal securities laws
and regulations, responding to inquiries from Fund shareholders, calculating and
distributing for publication the net asset value of the Fund's shares and
providing the Fund with certain administrative office facilities. For the
services rendered to the Fund and the facilities furnished, the Fund will pay
the Administrator a monthly fee at the annual rate of 0.15% of the Fund's
average weekly Managed Assets, subject to a monthly minimum fee of $12,500. The
Administration Agreement will continue in effect
32
<PAGE> 33
until terminated by either party upon 60 days' prior written notice. During
periods in which the Fund is utilizing leverage, the fees which are payable to
the Administrator will be greater, and will be higher as a percentage of the
Fund's net assets, than if the Fund did not utilize a leveraged capital
structure because the fees are calculated as a percentage of the Fund's assets,
including those purchased with leverage.
The Administration Agreement provides that the Administrator is not liable
for any error of judgment or mistake of law or for any loss arising out of its
performance of its duties under the Administration Agreement, and that the Fund
shall indemnify the Administrator against charges, claims, expenses and
liabilities reasonably incurred by it in the performance of its duties under the
Administration Agreement, except that the Administrator shall not be protected
from liability and shall not be indemnified in the event of its willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
its reckless disregard of its obligations and duties under the Administration
Agreement.
TERMS OF INVESTMENT MANAGEMENT AGREEMENT
Under the terms of an investment management agreement between the Fund and
the Manager (the "Investment Management Agreement"), the Manager will manage the
investment and reinvestment of the assets of the Fund, subject to the direction
of the Board of Directors and officers of the Fund. Directors, officers and
employees of the Manager may be Directors, officers and employees of the Fund.
Those individuals shall not receive any compensation from the Fund for acting in
such dual capacity. In the conduct of the respective business of the Fund and
Manager and in the performance of the Investment Management Agreement, the
parties may share facilities, with appropriate proration of expenses between
them, except that the Manager shall pay all executive salaries and executive
expenses of the Fund. The Fund shall bear all its other expenses. See "Expenses
of the Fund" below. The Investment Management Agreement provides that the
Manager may render similar investment services to others.
Unless earlier terminated as described below, the Investment Management
Agreement will remain in effect until June 29, 2000 and may be renewed
thereafter if such renewal is approved annually by (i) a majority of the
Directors who are not parties to the Investment Management Agreement or
interested persons (as defined in the Investment Company Act) of any such party,
and (ii) the Board of Directors of the Fund or a majority of the outstanding
voting securities of the Fund. The Investment Management Agreement may be
terminated without penalty at any time by the Fund upon the vote of a majority
of the Fund's Board of Directors or a majority of the outstanding voting
securities of the Fund or by the Manager, on 60 days' written notice by either
party to the other. In addition, the Investment Management Agreement will
terminate in the event it is assigned (as defined in the Investment Company
Act). Pursuant to the Investment Management Agreement, the Manager grants the
Fund a license to use the mark "Chartwell" in the name of the Fund. The Manager
owns all rights in and to the mark "Chartwell." In the event that the Manager
ceases to be investment manager of the Fund, the Fund has agreed that it will no
longer use the mark "Chartwell."
The Investment Management Agreement provides that, in the absence of
willful misfeasance, bad faith, gross negligence, or a reckless disregard of the
performance of its duties thereunder, the Manager is not liable to the Fund or
to any stockholder of the Fund for any action or omission in the course of
rendering services
33
<PAGE> 34
under the Investment Management Agreement or for any losses that may be
sustained in the purchase, holding or sale of any security.
EXPENSES OF THE FUND
Except as indicated above, the Fund will pay all of its expenses, including
fees of the Directors not affiliated with the Manager and Board meeting
expenses; fees of the Manager and the Administrator; interest charges; taxes;
organizational expenses; charges and expenses of the Fund's legal counsel and
independent auditors, and of the transfer agent, registrar and dividend
disbursing agent of the Fund; expenses of repurchasing shares; expenses of
issuing any short-term debt securities or preferred stock; expenses of printing
and mailing share certificates, stockholder reports, notices, proxy statements
and reports to governmental offices; brokerage and other expenses connected with
the execution, recording and settlement of portfolio security transactions;
expenses connected with negotiating, effecting purchase or sale, or registering
privately issued portfolio securities; custodial fees and expenses for all
services to the Fund, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of calculating and publishing
the net asset value of the Fund's shares; expenses of membership in investment
company associations; expenses of fidelity bonding and other insurance expenses
including insurance premiums; expenses of stockholders meetings; Commission and
state registration and filing fees; New York Stock Exchange listing fees; fees
payable to the National Association of Securities Dealers, Inc. in connection
with this offering and fees of any rating agencies retained to rate any senior
securities issued by the Fund; and any extraordinary expenses. The Fund also is
obligated to repay any borrowings it may incur.
PORTFOLIO TRANSACTIONS
The Manager is responsible for the execution of the Fund's portfolio
transactions. The primary consideration is prompt execution of orders at the
most favorable net price. The Manager takes into account such factors as the
applicable brokerage commission or dealer spread, size of order and difficulty
of execution, operational facilities of the firm involved, the firm's risk in
positioning a block of securities, whether supplemental research has been
received from the firm, and whether it has sold shares of the Fund's Common
Stock. While the Manager generally seeks reasonably competitive commission
rates, the Fund does not necessarily pay the lowest commission or spread
available.
The Manager allocates brokerage transactions in its best judgment and in a
manner deemed fair and reasonable to shareholders. The Fund may pay a firm which
furnishes supplemental research services a higher brokerage commission than that
which might be charged by another firm for effecting the same transaction,
provided that such commission is deemed reasonable in terms of either that
particular transaction or the overall responsibilities of the Manager to the
Fund. Supplemental research services may include analyses and reports concerning
industries, securities, economic factors and trends, portfolio strategy and the
performance of accounts. Information so received is in addition to and not in
lieu of services performed by the Manager, and its fees are not reduced as a
consequence of the receipt of such supplemental information. Such information
may be useful to the Manager in serving both the Fund and other accounts which
it advises and,
34
<PAGE> 35
conversely, supplemental information obtained by the placement of business of
other clients may be useful to the Manager in carrying out its obligations to
the Fund.
On occasions when the Manager deems the purchase or sale of a security to
be in the best interest of the Fund as well as other clients, the Manager may
aggregate the securities to be sold or purchased for the Fund with those to be
sold or purchased for such other clients in order to obtain the best net price
and most favorable execution under the circumstances. In such event, allocation
of the securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Manager in the manner it considers to be
equitable and consistent with its fiduciary obligations to the Fund and such
other clients. In some instances, this procedure may adversely affect the price
and size of the position obtainable for a Fund.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of a security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount.
The Fund normally will not invest for short-term trading purposes. However,
the Fund may sell portfolio securities without regard to the length of time they
have been held. The degree of portfolio activity will affect brokerage costs of
the Fund. Given the Fund's investment objectives, its annual portfolio turnover
rate is not expected to exceed 100%. A turnover rate of 100% would occur, for
example, if all the investments in the Fund's portfolio at the beginning of the
year were replaced by the end of the year.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute a monthly fixed amount to shareholders,
commencing approximately 60 days from the date of this Prospectus. If, for any
monthly distribution, net investment income (which term includes net realized
short-term capital gain) is less than the amount of the distribution, the
difference will be distributed from the Fund's assets. The Fund's final
distribution for each calendar year will include any remaining net investment
income undistributed during the year, as well as all net capital gain realized
during the year. If, for any calendar year, the total distributions exceed net
investment income and net realized capital gain, the excess, distributed from
the Fund's assets, will generally be treated as a tax-free return of capital (up
to the amount of the shareholder's tax basis on his shares). The amount treated
as a tax-free return of capital will reduce a shareholder's adjusted basis on
his shares, thereby increasing his potential gain or reducing his potential loss
on the sale of his shares. Such excess, however, will be treated as ordinary
dividend income up to the amount of the Fund's current and accumulated earnings
and profits. In calculating the amount of each monthly distribution, the Fund's
net asset value will be measured as of the business day immediately preceding
the declaration date of such distribution. Pursuant to the requirements of the
Investment Company Act and other applicable laws, a notice will accompany each
monthly distribution with respect to the estimated source of the distribution
made. The Board of Directors reserves the right to change the aforementioned
dividend policy from time to time.
35
<PAGE> 36
In the event the Fund distributes amounts in excess of its net investment
income and net capital gain, such distributions will decrease the Fund's total
assets and, therefore, have the likely effect of increasing the Fund's expense
ratio. In addition, in order to make such distributions, the Fund may have to
sell a portion of its investment portfolio at a time when independent investment
judgment might not dictate such action. See "Taxes."
Additionally, under the Investment Company Act, the Fund may not declare
any dividend or other distribution upon any class of its capital stock, or
purchase any such capital stock, unless the aggregate indebtedness of the Fund
has, at the time of the declaration of any such dividend or distribution or at
the time of any such purchase, an asset coverage of at least 300% after
deducting the amount of such dividend, distribution, or purchase price, as the
case may be. While any shares of preferred stock are outstanding, the Fund may
not declare any cash dividend or other distribution on its Common Stock, unless
at the time of such declaration, (1) all accumulated preferred stock dividends
have been paid and (2) the net asset value of the Fund's portfolio (determined
after deducting the amount of such dividend or other distribution) is at least
200% of the liquidation value of the outstanding preferred stock (expected to be
equal to the original purchase price per share plus any accumulated and unpaid
dividends thereon). In addition to the limitations imposed by the Investment
Company Act described in this paragraph, certain lenders may impose additional
restrictions on the payment of dividends or distributions on the Fund's Common
Stock in the event of a default on the Fund's borrowings. Any limitation on the
Fund's ability to make distributions on its Common Stock could under certain
circumstances impair the ability of the Fund to maintain its qualification for
taxation as a regulated investment company. See "Special Leverage Considerations
and Risks" and "Taxes."
See "Automated Dividend Reinvestment Plan" for information concerning the
manner in which dividends and distributions to holders of Common Stock may be
automatically reinvested in shares of Common Stock of the Fund. Dividends and
distributions may be taxable to shareholders whether they are reinvested in
shares of the Fund or received in cash.
The Fund expects that it will commence paying dividends within
approximately 60 days after the completion of this offering.
TAXES
GENERAL
The following summary reflects the existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and other relevant federal income
tax authorities as of the date of this Prospectus. The federal income tax
consequences described below are merely statements of general tax principles.
The discussion does not deal with the federal income tax consequences applicable
to all categories of investors, some of whom may be subject to special rules. A
shareholder in the Fund should consult his or her own tax adviser concerning
these matters.
36
<PAGE> 37
FEDERAL TAX TREATMENT OF THE FUND
The Fund intends to qualify annually to be taxed as a regulated investment
company ("RIC") under Subchapter M of the Code. To so qualify, the Fund must,
among other things: (a) derive at least 90% of its annual gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock or securities, foreign currencies or
other income (including gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies; and (b) diversify its holdings so that, at the end of each fiscal
quarter of the Fund, (i) at least 50% of the market value of the Fund's total
assets is represented by cash, cash items, U.S. Government securities,
securities of other RICs and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and not greater than 10% of the outstanding
voting securities of such issuer; and (ii) not more than 25% of the market value
of the Fund's total assets are invested in the securities of any one issuer
(other than U.S. Government securities or securities of other RICs) or two or
more issuers which are controlled by the Fund and are determined, pursuant to
Department of Treasury regulations, to be in the same, similar or related trades
or businesses. In meeting these requirements, the Fund may be restricted in the
utilization of certain of the investment techniques described under "Other
Investment Practices -- Covered Call Options."
As a RIC, the Fund will not be subject to federal income tax on the part of
its net investment income (i.e., its investment company taxable income, as that
term is defined in the Code, without regard to the deduction for dividends paid)
and net capital gain (i.e., the excess of its net long-term capital gain over
net short-term capital loss), if any, that it distributes to its shareholders,
provided the Fund distributes at least 90% of its net investment income for its
taxable year to Fund shareholders. If in any year the Fund should fail to
qualify under Subchapter M for tax treatment as a RIC, the Fund would incur a
regular federal corporate income tax upon its taxable income for that year and
distributions to its shareholders would not be deductible by the Fund in
computing its taxable income. Furthermore, distributions in such case would be
taxable to such shareholders as ordinary income to the extent of earnings and
profits of the Fund.
The Fund will be subject to a non-deductible 4% excise tax to the extent
that the Fund does not distribute by the end of each calendar year an amount
equal to the sum of (a) 98% of the Fund's ordinary income for such year; (b) 98%
of the capital gain net income for the one-year period ending on October 31 of
such year; and (c) the undistributed income and gain, if any, from the previous
years.
FEDERAL TAX TREATMENT OF SHAREHOLDERS
Distributions. Dividends from net investment income (which term includes
net realized short-term capital gain) will be taxable to shareholders as
ordinary income, whether received in cash or reinvested in additional Fund
shares. Distributions of net capital gain, if any, that the Fund designates as
"capital gain dividends" in a notice to its shareholders will be taxable to
shareholders as long-term capital gain, whether received in cash or reinvested
in additional shares, regardless of the length of time the shareholder has owned
Fund shares. For individuals, long-term capital gain is subject to a maximum tax
rate of 28% (with respect to
37
<PAGE> 38
capital assets held more than 12 months but not more than 18 months) or 20%
(with respect to capital assets held more than 18 months), while ordinary income
is subject to a maximum tax rate of 39.6%.
For a corporate shareholder, dividends from net investment income may
generally qualify in part for the corporate dividends-received deduction. The
portion of dividends paid by the Fund that so qualifies will be designated each
year in a notice from the Fund to its shareholders, and cannot exceed the gross
amount of dividends received by the Fund that would have qualified for the
dividends-received deduction in the hands of the Fund if the Fund were a regular
corporation. A dividend received by the Fund will not be treated as a qualifying
dividend (1) if it has been received with respect to any share of stock that the
Fund has held for less than 46 days (91 days in the case of certain preferred
stock) during the 90-day period beginning on the date which is 45 days before
the date on which such share becomes ex-dividend with respect to such dividend
(during the 180-day period beginning 90 days before such date in the case of
certain preferred stock), excluding for this purpose any period during which the
Fund has an option to sell, is under a contractual obligation to sell, has made
and not closed a short sale of, is the grantor of a deep-in-the-money or
otherwise nonqualified option to buy, or has otherwise diminished its risk of
loss by holding other positions with respect to, such (or substantially
identical) stock; (2) to the extent that the Fund is under an obligation
(pursuant to a short sale or otherwise) to make related payments with respect to
positions in substantially similar or related property; or (3) to the extent the
stock on which the dividend is paid is treated as debt-financed under the rules
of Code Section 246A. Moreover, the dividends-received deduction for a corporate
shareholder may be disallowed or reduced (1) if the corporate shareholder fails
to satisfy the foregoing requirements with respect to its shares of the Fund or
(2) by application of Code Section 246(b) which in general limits the dividends-
received deduction to 70% of the shareholder's taxable income (determined
without regard to the dividends-received deduction and certain other items). For
purposes of the corporate alternative minimum tax, the corporate
dividends-received deduction is not itself an item of tax preference that must
be added back to taxable income or is otherwise disallowed in determining a
corporation's alternative minimum tax. However, corporate shareholders will
generally be required to take the full amount of any dividend received from the
Fund into account (without a dividends-received deduction) in determining its
adjusted current earnings.
Although dividends generally will be treated as distributed when paid,
dividends declared by the Fund in October, November or December payable to
shareholders of record on a specified date in one of those months and paid
during the following January will be treated as having been distributed by the
Fund (and received by the shareholders) on December 31 of the year declared.
Shareholders will be notified not later than 60 days after the close of the
Fund's taxable year as to the federal tax status of dividends and distributions
from the Fund.
Shareholders should consider the tax implications of buying shares of the
Fund just prior to a distribution by the Fund. The price of shares purchased at
that time may reflect the amount of the forthcoming distribution. Such
distribution may have the effect of reducing the net asset value of shares below
a shareholder's cost and thus would be a return on investment in an economic
sense, but would nevertheless be taxable to the shareholder.
38
<PAGE> 39
The Internal Revenue Service has taken the position in a revenue ruling
that a RIC that has two or more classes of shares must designate distributions
made to each class in any year as consisting of no more than such class's
proportionate share of each type of income for each tax year based on the total
dividends distributed to each class for such year, including income qualifying
for the corporate dividends-received deduction and net capital gains.
Consequently, when both Common Stock and preferred stock are outstanding, the
Fund intends to allocate, to the fullest extent practicable, income distributed
to the classes as consisting of particular types of income in accordance with
the class's proportionate shares of such income. Thus, the Fund will designate
dividends qualifying for the corporate dividends-received deduction, income not
qualifying for the dividends-received deduction and net capital gain income in a
manner that allocates such income between the holders of Common Stock and
preferred stock in proportion to the total distributions made to each class
during the taxable year, or otherwise as required by applicable law.
If at any time when any Senior Securities are outstanding the Fund does not
meet the asset coverage requirements of the Investment Company Act or of any
rating agency that has rated such Senior Securities, the Fund will be required
to suspend distributions to holders of Common Stock until the asset coverage is
restored. See "Other Investment Practices -- Leverage." This may prevent the
Fund from distributing at least 90% of its net investment income, and may
therefore jeopardize the Fund's qualification for taxation as a RIC or cause the
Fund to incur a tax liability or a non-deductible 4% excise tax on the
undistributed taxable income (including gain), or both. Upon any failure to meet
the asset coverage requirements of the Investment Company Act, or imposed by a
rating agency, the Fund may, in its sole discretion, purchase or redeem any
Senior Securities in order to maintain or restore the requisite asset coverage
and avoid the adverse consequences to the Fund and its shareholders of failing
to qualify as a RIC. There can be no assurance, however, that any such
redemption would achieve such objectives.
Sale of Shares. A shareholder may realize a taxable gain or loss on the
sale of shares in the Fund depending on the shareholder's basis in the shares
for federal income tax purposes. If the shares are capital assets in the
shareholder's hands the gain or loss will be treated as a capital gain or loss
and will be long-term or short-term, depending on the shareholder's holding
period for the shares. As a general rule, a shareholder's gain or loss will be a
long-term capital gain or loss if the shares have been held for more than one
year and a short-term capital gain or loss if the shares have been held one year
or less. Any loss incurred on sale or exchange of the Fund's shares, held for
six months or less, will be treated as a long-term capital loss to the extent of
any distributions or deemed distributions of net capital gain received by the
shareholder with respect to such shares. Any loss realized on a sale or exchange
will also be disallowed to the extent the shares disposed of are replaced,
including a replacement pursuant to the Fund's Automatic Dividend Reinvestment
Plan, within a period of 61 days beginning 30 days before and ending 30 days
after the disposition of the shares. In such case, the basis of the shares
acquired will be increased to reflect the disallowed loss.
Foreign Shareholders. Taxation of a shareholder who, as to the United
States, is a nonresident alien individual, a foreign trust or estate, a foreign
corporation or a foreign partnership (a "foreign shareholder") depends on
whether the income from a fund is "effectively connected" with a U.S. trade or
business carried on by such shareholder. If the income from a fund is not
effectively connected with a U.S. trade or business
39
<PAGE> 40
carried on by a foreign shareholder, dividends paid from net investment income
will be subject to U.S. withholding tax at a rate of 30% unless a reduced rate
of withholding or a withholding exemption is provided under applicable treaty
law. Such a foreign shareholder would generally be exempt from U.S. federal
income tax on gain realized on the sale of shares of the Fund, capital gain
dividends and amounts retained by the Fund that are designated as undistributed
capital gain.
If the income from a fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gain realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax on a net basis at the rates
applicable to U.S. citizens or domestic corporations. Foreign shareholders are
urged to consult their own tax advisers concerning the applicability of the U.S.
withholding tax and any foreign taxes.
Back-up Withholding. Under certain provisions of the Code, some
shareholders may be subject to a 31% "back-up withholding" on ordinary
dividends, capital gain dividends and redemption payments. Generally,
shareholders subject to back-up withholding will be those for whom a taxpayer
identification number is not on file with the Fund or who, to the Fund's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that he or she is not otherwise subject to back-up withholding. An individual's
taxpayer identification number is his or her Social Security number.
Back-up withholding is not an additional tax and may be credited against a
taxpayer's federal income tax provided the shareholder provides the necessary
information.
Other Taxation. Ordinary dividends and capital gain dividends may also be
subject to state, local and foreign taxes.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations thereunder presently in effect.
These provisions are subject to change by legislative or administrative action,
and any such changes may be effective either prospectively or retroactively.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning federal, state, local or foreign tax matters.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the "Plan"),
unless a shareholder otherwise elects, all dividend and capital gains
distributions will be automatically reinvested in additional shares of Common
Stock of the Fund by PNC Bank, National Association, as agent for shareholders
in administering the Plan (the "Plan Agent"). Shareholders who elect not to
participate in the Plan will receive all dividends and distributions in cash,
paid by check mailed directly to the shareholder of record (or, if the shares
are held in street or other nominee name, then to such nominee) by PNC Bank,
National Association, as dividend paying agent. Such participants may elect not
to participate in the Plan and to receive all distributions of dividends and
capital gains in cash by sending written instructions to PNC Bank, National
40
<PAGE> 41
Association, 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 ("newly
issued shares") or (ii) by purchase of outstanding shares of Common Stock on the
open market ("open-market purchases") on the NYSE or elsewhere. If on the
payment date for the dividend, the net asset value per share of the Common Stock
is equal to or less than the market price per share of the Common Stock 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. Prior to the time the shares of Common
Stock commence trading on the NYSE, participants in the Plan will receive any
dividends in newly issued shares.
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 (the "last purchase date") to invest the dividend
amount in shares acquired in open-market purchases. It is contemplated that the
Fund will pay monthly income dividends. Therefore, the period during which
open-market purchases can be made will exist only from the payment date on the
dividend through the date before the next "ex-dividend" date which typically
will be approximately ten days. If, before the Plan Agent has completed its
open-market purchases, the market price of a share of Common Stock exceeds the
net asset value per share, the average per share purchase price paid by the Plan
Agent may exceed the net asset value of the Fund's shares, resulting in the
acquisition of fewer shares than if the dividend had been paid in newly issued
shares on the dividend payment date. Because of the foregoing difficulty with
respect to open-market purchases, 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 a 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.
41
<PAGE> 42
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 gains 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 the 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. See "Taxes."
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 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. See
"Taxes" for a discussion of tax consequences of the Plan.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan. There
is no direct service charge to participants in the Plan; however, the Fund
reserves the right to amend the Plan to include a service charge payable by the
participants.
All correspondence concerning the Plan should be directed to the Plan Agent
at PNC Bank, National Association, c/o PFPC Inc., 400 Bellevue Parkway,
Wilmington, Delaware 19809, Attn: Closed-End Department.
CALCULATION OF NET ASSET VALUE PER SHARE
The net asset value per share of the Fund is computed as of the close of
regular trading on the New York Stock Exchange (ordinarily 4:00 p.m., Eastern
time), once a week on the last business day of each week on which the Exchange
is open and on the last business day of each month on which the Exchange is
open. The
42
<PAGE> 43
New York Stock Exchange is scheduled to be open Monday through Friday throughout
the year except for New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. When the New York Stock Exchange is closed, the Fund will generally
be closed and net asset value calculations will not be made.
The Fund's net asset value per share of Common Stock is computed by adding
the value of all securities and other assets in the Fund's portfolio, deducting
any liabilities (including accrued expenses, dividends payable on Common Stock
and any borrowings of the Fund) and the liquidation value of any outstanding
shares of preferred stock (which is expected to equal the original purchase
price per share plus any accumulated and unpaid dividends thereon, whether or
not earned or declared), and dividing the result by the number of shares of
Common Stock outstanding. In determining the Fund's total net assets, portfolio
securities listed or traded on a national securities exchange, except for debt
securities, are valued at the last sale price prior to the time of determination
if there was a sale price on the date of determination on the exchange upon
which such securities are primarily traded. Securities not traded on a
particular day, over-the-counter securities and government and agency securities
are valued at the mean value between bid and asked prices. Short-term
investments having a maturity of less than 60 days are valued at amortized cost.
Debt Securities (other than short-term obligations) are valued on the basis of
valuations provided by a pricing service when such prices are believed to
reflect the fair value of such securities. Use of a pricing service has been
approved by the Board of Directors. Prices provided by a pricing service take
into account appropriate factors such as institutional trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. If no quotations are available, all other
securities and assets are valued at fair value as determined in good faith and
pursuant to a method approved by the Board of Directors.
Currently, the net asset values of publicly traded closed-end investment
companies are published in Barron's, the Monday edition of The Wall Street
Journal and the Saturday edition of The New York Times.
DESCRIPTION OF CAPITAL STOCK
The Fund is authorized to issue 100,000,000 shares of capital stock, par
value $0.01 per share, all of which shares initially are classified as Common
Stock. The Board of Directors is authorized, however, to classify and reclassify
any unissued shares of capital stock into one or more additional or other
classes or series as may be established from time to time by setting or changing
in any one or more respects the designations, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of such shares of stock and pursuant to
such classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series. In the event that the Board
of Directors determines to leverage the Fund's Common Stock through the issuance
of preferred stock, the Fund would reclassify an amount of unissued capital
stock as preferred stock and at that time offer shares of preferred stock
representing up to approximately 50% of the Fund's total assets immediately
after the issuance of such preferred stock. Within approximately three to six
months after completion of this offering, the Fund intends to utilize leverage
in an initial amount equal to approximately 20% of its total assets
43
<PAGE> 44
(including the amount obtained from leverage). Although the Fund does not
currently intend to utilize leverage in an amount greater than 20% of its total
assets, the Fund has the authority to leverage in an amount up to 50% of its
total assets (including the amount obtained from the issuance of certain Senior
Securities).
COMMON STOCK
Shares of Common Stock, when issued and outstanding, will be fully paid and
non-assessable. All shares of Common Stock are equal as to dividends,
distributions and voting privileges and the Fund's Common Stock has no
preemptive, conversion, exchange or redemption rights. Shareholders are entitled
to share pro rata in the net assets of the Fund available for distribution to
shareholders upon liquidation of the Fund. Shareholders are entitled to one vote
for each share held.
In the event that the Fund issues preferred stock and so long as any shares
of the Fund's preferred stock are outstanding, holders of Common Stock will not
be entitled to receive any net income of or other distributions from the Fund
unless all accumulated dividends on preferred stock have been paid, and unless
asset coverage (as defined in the Investment Company Act) with respect to the
preferred stock would be at least 200% after giving effect to such
distributions. See "Special Leverage Considerations and Risks."
The Fund will send unaudited reports at least semi-annually and audited
annual financial statements to all of its shareholders of record.
The Manager provided the initial capital for the Fund by purchasing 6,667
shares of Common Stock of the Fund for $100,005. As of the date of this
Prospectus, the Manager owned 100% of the outstanding shares of Common Stock of
the Fund. The Manager may be deemed to control the Fund until such time as it
owns less than 25% of the outstanding shares of the Fund.
SHARE REPURCHASES AND TENDER OFFERS
Shares of closed-end investment companies frequently trade at discounts
from net asset value, especially shortly after the completion of the initial
public offering. The Fund cannot predict whether its shares of Common Stock will
trade above, at or below net asset value. The market price of the Fund's shares
of Common Stock will be determined by, among other things, the supply and demand
for the Fund's shares, the Fund's investment performance and investor perception
of the Fund's overall attractiveness as an investment as compared with
alternative investments. If, at any time after the second year following this
offering, shares of the Fund's Common Stock publicly trade for a substantial
period of time at a substantial discount from the Fund's then current net asset
value per share, the Fund's Board of Directors will consider, at its next
regularly scheduled meeting, authorizing various actions designed to eliminate
the discount. The actions considered by the Board of Directors may include
periodic repurchases of or tender offers for the Fund's shares. The Board of
Directors would consider all relevant factors in determining whether to take any
such actions, including the effect of such actions on the Fund's status as a
regulated investment company under the Code and the availability of cash to
finance these repurchases in view of the restrictions on the Fund's ability to
borrow. No assurance can be given that share repurchases will be made or that,
if made, they will reduce or eliminate market discount. Should any such
repurchases be made in the future, it is expected that they would be made
44
<PAGE> 45
at prices at or below the current net asset value per share. Any such
repurchases would cause the Fund's net assets to decrease, which may have the
effect of increasing the Fund's expense ratio.
Under certain circumstances, a shareholder vote may be required to
authorize periodic repurchases of the Fund's shares of Common Stock. In
considering whether to recommend to shareholders such authorization, the Board
of Directors similarly would consider a number of factors including limitations
that may be placed on the Fund's investment policies as a consequence of such
repurchase policy.
PREFERRED STOCK
It is anticipated that if the Fund's Board of Directors determines to issue
preferred stock, the Fund's shares of preferred stock will be issued in one or
more series, with rights as determined by the Board of Directors, by action of
the Board of Directors without the approval of the holders of Common Stock.
Under the Investment Company Act, the Fund is permitted to have outstanding more
than one series of preferred stock so long as no single series has a priority
over another series as to the distribution of assets of the Fund or the payment
of dividends. Holders of Common Stock have no preemptive right to purchase any
shares of preferred stock that might be issued. It is anticipated that the net
asset value per share of the preferred stock, if issued, will equal its original
purchase price per share plus accumulated dividends per share.
Although the terms of any preferred stock that may be issued, including its
dividend rate, voting rights, liquidation preference and redemption provisions,
would be determined by the Board of Directors (subject to applicable law and the
Fund's Articles of Incorporation), it is likely that any preferred stock that is
issued would be structured to carry a relatively short-term dividend rate
reflecting interest rates on short-term debt securities, by providing for the
periodic redetermination of the dividend rate at relatively short intervals
through an auction, remarketing or other procedure. Auction or remarketing
procedures are mechanisms by which dividend payments on the subject securities
are redetermined on a periodic basis. The Board of Directors also has indicated
that it is likely that the liquidation preference, voting rights and redemption
provisions of any preferred stock that is issued will be as stated below.
Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Fund, the holders of shares of
preferred stock will be entitled to receive a preferential liquidating
distribution (expected to equal the original purchase price per share plus an
amount equal to accumulated and unpaid dividends, whether or not earned or
declared) before any distribution of assets is made to holders of Common Stock.
After payment of the full amount of the liquidating distribution to which they
are entitled, the holders of preferred stock will not be entitled to any further
participation in any distribution of assets by the Fund. A consolidation or
merger of the Fund with or into any other corporation or corporations or a sale
of all or substantially all of the assets of the Fund will not be deemed to be a
liquidation, dissolution or winding up of the Fund.
Voting Rights. The Investment Company Act requires that the holders of any
preferred stock, voting separately as a single class, have the right to elect at
least two Directors at all times and, subject to the prior rights, if any, of
holders of any other class of senior securities outstanding, to elect a majority
of the Directors at any time that two full years' dividends on any preferred
stock are unpaid. In addition to any approval by stockholders that might
otherwise be required, the Investment Company Act also requires the approval of
the
45
<PAGE> 46
holders of a majority of any outstanding preferred stock, voting separately as a
class, to (a) adopt any plan of reorganization that would adversely affect the
preferred stock and (b) take any action requiring a vote of security holders
pursuant to Section 13(a) of the Investment Company Act, including, among other
things, changes in the Fund's subclassification as a closed-end investment
company or changes in its fundamental investment restrictions. See "Certain
Provisions of the Articles of Incorporation" below concerning voting
requirements for conversion of the Fund to an open-end investment company. In
addition, the Board of Directors presently intends that, except as otherwise
indicated in this Prospectus and except as otherwise required by applicable law,
holders of shares of any preferred stock that is issued will have equal voting
rights with holders of Common Stock (one vote per share, unless otherwise
required by the Investment Company Act), and will vote together with holders of
Common Stock as a single class.
The affirmative vote of the holders of a majority of the outstanding shares
of preferred stock. voting as a separate class, will be required to amend, alter
or repeal any of the preferences, rights or powers of holders of shares of
preferred stock so as to affect materially and adversely such preferences,
rights, or powers, or increase or decrease the number of shares of preferred
stock. The class vote of holders of preferred stock described above will in each
case be in addition to any other vote required to authorize the action in
question.
Redemption, Purchase and Sale of Preferred Stock by the Fund. The terms of
any preferred stock that is issued are expected to provide that such preferred
stock is redeemable by the Fund in whole or in part at the original purchase
price per share plus accumulated dividends per share, that the Fund may tender
for or purchase shares of preferred stock and that the Fund may subsequently
resell any shares so tendered for or purchased. Any redemption or purchase of
shares of preferred stock by the Fund will reduce the leverage applicable to
shares of Common Stock, while any resale of shares by the Fund will increase
such leverage. See "Special Leverage Considerations and Risks."
The discussion above describes the present intention of the Board of
Directors with respect to an offering of preferred stock if the Board elects to
utilize preferred stock in order to leverage the Fund's Common Stock. If the
Board of Directors determines to proceed with such an offering, the terms of the
preferred stock may be the same as, or different from, the terms described
above, subject to applicable law and the Fund's Articles of Incorporation, as
amended or supplemented. The Board of Directors, without the approval of the
holders of Common Stock, may authorize an offering of preferred stock or may
determine not to authorize such an offering, and may fix the terms of the
preferred stock to be offered.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION
The Fund's Articles of Incorporation include provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board of Directors and could
have the effect of depriving shareholders of an opportunity to sell their shares
at a premium over prevailing market prices by discouraging a third party from
seeking to obtain control of the Fund. A Director may be removed from office
only for cause, and only by action of shareholders taken by the holders of
shares with at least 75% of the votes then entitled to be cast in an election of
directors or, in the case of directors elected by the holders of preferred
stock, only by action of 75% of such holders.
46
<PAGE> 47
In addition, the Articles of Incorporation require the favorable vote of
the holders of at least 75% of the Fund's shares to approve, adopt or authorize
the following:
(i) a merger or consolidation or statutory share exchange of the Fund
with any other corporations;
(ii) a sale of all or substantially all of the Fund's assets (other
than in the regular course of the Fund's investment activities); or
(iii) a liquidation or dissolution of the Fund,
unless such action has been approved, adopted or authorized by the affirmative
vote of at least 75% of the total number of Directors fixed in accordance with
the By-Laws, in which case the affirmative vote of a majority of the Fund's
shares of capital stock is required. Following any issuance of preferred stock
by the Fund, it is anticipated that the approval, adoption or authorization of
the foregoing also would require the favorable vote of a majority of the Fund's
shares of preferred stock then entitled to be voted, voting as a separate class.
In addition, conversion of the Fund to an open-end investment company would
require an amendment to the Fund's Articles of Incorporation. The amendment
would have to be declared advisable by the Board of Directors by the affirmative
vote of at least 75% of the total number of Directors fixed in accordance with
the By-Laws, including a majority of disinterested directors, prior to its
submission to shareholders. Such an amendment would require the favorable vote
of the holders of at least 75% of the Fund's outstanding shares (including any
preferred stock) entitled to be voted on the matter, voting as a single class,
and, if preferred stock is issued, the affirmative vote of at least 75% of
outstanding shares of preferred stock of the Fund, voting as a separate class.
There is no assurance that a favorable shareholder vote could be achieved. Such
a vote also would satisfy a separate requirement in the Investment Company Act
that the change be approved by the shareholders. Conversion of the Fund to an
open-end investment company would require the redemption of any outstanding
preferred shares and any indebtedness not constituting bank loans, which could
eliminate or alter the leveraged capital structure of the Fund with respect to
the shares of Common Stock. Following any such conversion, it is also possible
that certain of the Fund's investment policies and strategies would have to be
modified to assure sufficient portfolio liquidity. Such requirement could cause
the Fund to dispose of portfolio securities or other assets at a time when it is
not advantageous to do so, and could adversely affect the ability of the Fund to
meet its investment objectives. In the event of conversion, the shares of Common
Stock would cease to be listed on the NYSE or other national securities exchange
or market system. Shareholders of an open-end investment company may require the
company to redeem their shares at any time (except in certain circumstances as
authorized by or under the Investment Company Act) at their net asset value,
less such redemption charge, if any, as might be in effect at the time of a
redemption. The Fund expects to pay all such redemption requests in cash, but
intends to reserve the right to pay redemption requests in a combination of cash
or securities. If a payment in securities were made, investors may incur
brokerage costs in converting such securities to cash. If the Fund were
converted to an open-end fund, it is likely that new shares of common stock
would be sold at net asset value plus a sales load.
47
<PAGE> 48
The Board of Directors has determined that the 75% voting requirements
described above, which are greater than the minimum requirements under Maryland
law or the Investment Company Act, are in the best interests of shareholders.
PRINCIPAL SHAREHOLDER
As of the date of this Prospectus, the Manager was the record and
beneficial owner of all of the outstanding shares of Common Stock and thus it
may be deemed to control the Fund until the public offering of the Fund's shares
is completed. These shares were issued in respect of the Manager's contribution
of the Fund's initial capital. These shares were acquired for investment
purposes only and the Manager has no present intention of selling such shares.
LISTING
The Common Stock has been approved for listing on the NYSE under the symbol
"CWF," subject to official notice of issuance. It is expected that a liquid
trading market for the Fund's shares will exist on the NYSE and on other markets
where shares are traded. Shares of closed-end investment companies frequently
trade at a discount to net asset value, but in some cases trade at net asset
value or a premium. Because the market price of the Fund's shares will be
determined by factors including trading volume, general market and economic
conditions, and other factors beyond the control of the Fund, the Fund cannot
predict whether its shares will trade at, below or above their net asset value.
The Fund's shares do not have any right of redemption.
48
<PAGE> 49
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), the Fund has agreed to sell to each of the Underwriters
named below, and each of the Underwriters, for whom Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Prudential Securities Incorporated, Advest, Inc.,
Robert W. Baird & Co. Incorporated, A.G. Edwards & Sons, Inc., EVEREN
Securities, Inc., Fahnestock & Co. Inc., Gruntal & Co., L.L.C., Janney
Montgomery Scott Inc. and Legg Mason Wood Walker, Incorporated are acting as
representatives (the "Representatives"), has severally agreed to purchase from
the Fund the number of shares of Common Stock set forth opposite its name below.
The several Underwriters are committed to purchase all of such shares of Common
Stock if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 1,225,000
Prudential Securities Incorporated.......................... 1,225,000
A.G. Edwards & Sons, Inc. .................................. 1,225,000
Advest, Inc................................................. 1,225,000
Robert W. Baird & Co. Incorporated.......................... 1,225,000
EVEREN Securities, Inc. .................................... 1,225,000
Fahnestock & Co. Inc. ...................................... 1,225,000
Gruntal & Co., L.L.C. ...................................... 1,225,000
Janney Montgomery Scott Inc. ............................... 1,225,000
Legg Mason Wood Walker, Incorporated........................ 1,225,000
BT Alex. Brown Incorporated................................. 100,000
CIBC Oppenheimer Corp. ..................................... 100,000
Lehman Brothers Inc. ....................................... 100,000
Branch, Cabell & Co. ....................................... 50,000
Cowen & Company............................................. 50,000
Crowell, Weedon & Co. ...................................... 50,000
Dain Rauscher Wessels....................................... 50,000
Interstate/Johnson Lane Corporation......................... 50,000
McDonald & Company Securities, Inc. ........................ 50,000
Mesirow Financial, Inc. .................................... 50,000
Morgan Keegan & Company, Inc. .............................. 50,000
Parker/Hunter Incorporated.................................. 50,000
Piper Jaffray Inc. ......................................... 50,000
The Robinson-Humphrey Company, LLC.......................... 50,000
Scott & Stringfellow, Inc. ................................. 50,000
Stephens Inc. .............................................. 50,000
Sutro & Co. Incorporated.................................... 50,000
Tucker Anthony Incorporated................................. 50,000
Utendahl Capital Partners, L.P. ............................ 50,000
Wheat First Securities, Inc. ............................... 50,000
----------
Total............................................. 13,400,000
==========
</TABLE>
49
<PAGE> 50
The Representatives have advised the Fund that they propose initially to
offer the shares of Common Stock to the public at the public offering price set
forth on the cover page of this Prospectus. There is no sales charge or
underwriting discount charged to investors on purchases of shares of Common
Stock in the offering. The Manager has agreed to pay the Underwriters from its
own assets a commission in connection with the sale of shares of Common Stock in
the offering in the amount of $.45 per share. Such payment is equal to 3% of the
initial public offering price per share. The Representatives also have advised
the Fund that from this amount the Underwriters may pay a concession to certain
dealers not in excess of $.30 per share on sales by such dealers, and such
dealers may reallow a discount not in excess of $.10 per share to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed. Investors must pay for shares of Common
Stock purchased in the offering on or before June 29, 1998.
The Manager has also agreed to pay from its own assets an additional
commission to Underwriters selling 1,000,000 shares or more of Common Stock.
This additional commission will be payable quarterly at the annual rate of 0.25%
of the Fund's Managed Assets during the continuance of the Investment Management
Agreement or other advisory agreement between the Manager and the Fund. Each
qualifying Underwriter will be entitled to receive its pro rata portion of the
additional commission payments; provided, that, Merrill Lynch shall also receive
the entire pro rata portion of the additional commission for shares sold by any
Underwriter selling less than 1,000,000 shares. The total amount of these
additional commission payments will not exceed 5% of the total Price to Public
of the shares of Common Stock offered hereby; provided, that in determining when
the maximum additional commission amount has been paid, the value of each of the
quarterly payments shall be discounted at the annual rate of 10% to the closing
date of this offering. The Underwriters that will receive these payments have
agreed to provide certain after-market support services designed to maintain the
visibility of the Fund on an ongoing basis, and Merrill Lynch has additionally
agreed to (i) provide to the Manager relevant information, studies or reports
regarding general trends in the closed-end investment company and asset
management industries and (ii) at the request of the Manager, provide
information to and consult with representatives of the Manager with respect to
issues regarding utilizing leverage in the Fund and applicable strategies
designed to address market value discounts.
The Fund has granted the Underwriters a 45-day option, exercisable at one
or more times after the date hereof, to purchase up to 2,010,000 additional
shares of Common Stock to cover over-allotments, if any, at the initial offering
price. To the extent that the Underwriters exercise this option, each of the
Underwriters will be obligated, subject to certain conditions, to purchase a
number of additional shares of Common Stock proportionate to such Underwriter's
number of shares reflected in the foregoing table.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the
50
<PAGE> 51
Underwriters may reduce that short position by purchasing Common Stock in the
open market. The Underwriters may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
The Underwriters may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Underwriters purchase shares of
Common Stock in the open market to reduce the Underwriters' short position or to
stabilize the price of the Common Stock, they may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the Common Stock to the extent that it
discourages resales of the Common Stock.
Neither the Fund nor any of the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the shares of Common Stock. In
addition, neither the Fund nor any of the Underwriters make any representation
that the Underwriters will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
Prior to this offering, there has been no public market for the shares of
Common Stock. The Fund's Common Stock has been approved for listing on the NYSE
under the symbol "CWF," subject to official notice of issuance. In order to meet
the requirements for listing, the Underwriters have undertaken to sell lots of
100 or more shares to a minimum of 2,000 beneficial owners.
The Fund and the Manager have agreed to indemnify the Underwriters against
certain liabilities, including certain liabilities under the Securities Act or
to contribute to payments the Underwriters may be required to make in respect
thereof.
The Fund has agreed not to offer or sell any additional shares of Common
Stock for a period of 180 days after the date of the Purchase Agreement without
the prior written consent of the Underwriters, except for the sale of shares of
Common Stock to the Underwriters pursuant to the Purchase Agreement and the
issuance of shares of Common Stock pursuant to the Automatic Dividend
Reinvestment Plan.
The Fund anticipates that the Representatives and certain other
Underwriters may from time to time act as brokers or dealers in connection with
the execution of the Fund's portfolio transactions. See "Portfolio
Transactions."
Princeton Administrators, L.P., an affiliate of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, expects to enter into an Administration Agreement
with the Fund. See "Investment Advisory and Management
Arrangements -- Administrator."
51
<PAGE> 52
CUSTODIAN
The Fund's securities and cash are held under a custodial agreement with
PNC Bank, National Association. Its address is PNC Bank, National Association,
c/o PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809, Attn:
Closed-End Department.
TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
The transfer agent, dividend paying agent and registrar for the shares of
Common Stock of the Fund will be PNC Bank, National Association. Its address is
PNC Bank, National Association, c/o PFPC Inc., 400 Bellevue Parkway, Wilmington,
Delaware 19809, Attn: Closed-End Department.
LEGAL OPINIONS
Certain legal matters with respect to the Fund's shares offered hereby will
be passed on for the Fund by Drinker Biddle & Reath LLP, Philadelphia,
Pennsylvania. Certain legal matters in connection with the offering of the
shares will be passed on for the Underwriters by Simpson Thacher & Bartlett, New
York, New York. Counsel for the Fund and the Underwriters will rely, as to
matters of Maryland law, on Venable, Baetjer and Howard, LLP, Baltimore,
Maryland.
EXPERTS
The statement of assets and liabilities of the Fund included in this
Prospectus has been audited and so included in reliance on the report of Coopers
& Lybrand L.L.P., independent auditors, and on their authority as experts in
auditing and accounting.
52
<PAGE> 53
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Chartwell Dividend and Income Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Chartwell Dividend and Income Fund, Inc. (the "Fund") as of June 17, 1998. This
financial statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the Fund,
as of June 17, 1998 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
June 18, 1998
53
<PAGE> 54
CHARTWELL DIVIDEND AND INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 17, 1998
<TABLE>
<S> <C>
ASSETS:
Cash...................................................... $100,005
--------
Deferred offering costs................................... 514,154
--------
Total assets...................................... 614,159
--------
LIABILITIES:
Offering costs payable.................................... 514,154
--------
Net assets equivalent to $15.00 per share (applicable to
6,667 outstanding shares of Common Stock, $0.01 par
value; 100 million shares of capital stock authorized,
of which 100 million shares are authorized as Common
Stock)................................................. $100,005
========
</TABLE>
NOTE 1. ORGANIZATION:
Chartwell Dividend and Income Fund, Inc. (the "Fund") is a diversified,
closed-end management investment company incorporated on April 6, 1998, which
has had no operations through June 17, 1998 other than those relating to
organizational matters and the sale and issuance of shares of Common Stock to
Chartwell Investment Partners, L.P. (the "Manager").
The Manager has advanced certain offering costs of the Fund and is to be
reimbursed by the Fund. Offering costs will be charged to capital upon
completion of the initial public offering of the Common Stock.
NOTE 2. AGREEMENTS:
The Fund has entered into an Investment Management Agreement with the
Manager which provides for payment of a monthly fee computed at the annual rate
of 0.95% of the Fund's Managed Assets. The Fund also has entered into an
Administration Agreement with Princeton Administrators, L.P. which provides for
payment, subject to a monthly minimum fee of $12,500, of a monthly fee computed
at the annual rate of 0.15% per annum of the Fund's Managed Assets. "Managed
Assets" means the average weekly value of the Fund's total assets minus the sum
of the Fund's liabilities, which liabilities exclude debt relating to leverage,
short-term debt and the aggregate liquidation preference of any outstanding
preferred stock.
NOTE 3. FEDERAL INCOME TAXES:
Normally, no provision for federal income taxes will be made since it is
the intention of the Fund to comply with the provisions of the Internal Revenue
Code available to regulated investment companies and to make requisite
distributions to shareholders.
54
<PAGE> 55
APPENDIX A -- DESCRIPTION OF RATINGS
A rating by a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are general and
are not absolute standards of quality or guarantees as to the creditworthiness
of an issuer. Consequently, the Manager believes that the quality of securities
in which the Fund invests should be continuously reviewed and that individual
analysts give different weightings to the various factors involved in credit
analysis. A rating is not a recommendation to purchase, sell or hold a security,
because it does not take into account market value or suitability for a
particular investor. When a security has received a rating from more than one
service, each rating is evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources that they consider reliable. Ratings may be changed, suspended or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons. The following is a description of the ratings used by Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P")
with respect to bonds, commercial paper, preferred stocks and convertible
securities.
BONDS AND CONVERTIBLE SECURITIES
The following excerpts are from Moody's description of its bond ratings
(also used for convertible securities): Aaa -- judged to be of the best quality.
They carry the smallest degree of investment risk; Aa -- judged to be of high
quality by all standards; A -- possess many favorable investment attributes and
are to be considered as upper medium grade obligations; Baa -- considered as
medium grade obligations. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time; Ba -- judged to
have speculative elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B -- generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small; Caa -- are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest, Ca -- represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings; C -- the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
The following excerpts are from S&P's description of its bond ratings:
AAA -- the highest rating assigned by S&P. The obligor's capacity to meet its
financial commitment on the obligation is extremely strong; AA -- differs from
the higher rated issues only in small degree; the obligor's capacity to meet its
financial commitment on the obligation is very strong; A -- somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories, however, the obligor's capacity
to meet its financial commitment on the obligation is still strong;
BBB -- exhibits adequate protection parameters; BB, B, CCC, CC, C -- regarded as
having significant speculative characteristics. "BB" indicates the lowest degree
of speculation and "C" the highest degree of speculation. While such debt will
A-1
<PAGE> 56
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions. C1 -- reserved
for income bonds on which no income is being paid; D -- Debt rated "D" is in
payment default.
COMMERCIAL PAPER
The following are excerpts from Moody's description of its two highest
commercial paper ratings: PRIME-1 -- have a superior capacity for repayment of
short-term promissory obligations; PRIME-2 -- have a strong capacity for
repayment of short-term promissory obligations.
The following are excerpts from S&P's description of its two highest
commercial paper ratings: A-1 -- This highest category indicates that the
obligor's capacity to meet its financial commitment is strong. Within this
category, certain obligations are denoted with a plus (+) designation. This
indicates that the obligor's capacity to meet its financial commitment on these
obligations is extremely strong; A-2 -- Obligations are somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations rated A-1. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory for issues designated
"A-1".
PREFERRED STOCK
The following are excerpts from S&P's description of its preferred stock
ratings:
An S&P preferred stock rating is an assessment of the capacity and
willingness of an issuer to pay preferred stock dividends and any applicable
sinking fund obligations. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which issue is intrinsically
different from, and subordinated to, a debt issue. Therefore, to reflect this
difference, the preferred stock rating symbol will normally not be higher than
the debt rating symbol assigned to, or that would be assigned to, the senior
debt of the same issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment -- capacity and willingness of the issuer to
meet the timely payment of preferred stock dividends and any applicable
sinking fund requirements in accordance with terms of the obligation.
2. Nature of, and provisions of, the issue.
3. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors' rights.
A-2
<PAGE> 57
<TABLE>
<S> <C>
AAA This is the highest rating that may be assigned by S&P to a
preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
AA A preferred stock issue rated "AA" also qualifies as a
high-quality fixed income security. The capacity to pay
preferred stock obligations is very strong, although not as
overwhelming as for issues rated "AAA."
A An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a
preferred stock in this category than for issues in the "A"
category.
BB, B, Preferred stocks rated "BB," "B," and "CCC" are regarded, on
CCC balance, as predominately speculative with respect to the
issuer's capacity to pay preferred stock obligations. "BB"
indicates the lowest degree of speculation. While such
issues will likely have some quality and protective
characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in
arrears on dividends or sinking fund payments but that is
currently paying.
C A preferred stock rated "C" is a non-paying issue.
D A preferred stock rated "D" is a non-paying issue with the
issuer in default on debt instruments.
</TABLE>
NR indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
PLUS (+) OR MINUS (-) To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition of
a plus or minus sign to show relative standing within the major rating
categories.
A-3
<PAGE> 58
The following are excerpts from Moody's description of its preferred stock
ratings:
<TABLE>
<S> <C>
"aaa" An issue which is rated "aaa" is considered to be a
top-quality preferred stock. This rating indicates good
asset protection and the least risk of dividend impairment
within the universe of preferred stocks.
"aa" An issue which is rated "aa" is considered a high-grade
preferred stock. This rating indicates that there is a
reasonable assurance the earnings and asset protection will
remain relatively well-maintained in the foreseeable future.
"a" An issue which is rated "a" is considered to be an
upper-medium grade preferred stock. While risks are judged
to be somewhat greater than in the "aaa" and "aa"
classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
"baa" An issue which is rated "baa" is considered to be a
medium-grade preferred stock, neither highly protected nor
poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great
length of time.
"ba" An issue which is rated "ba" is considered to have
speculative elements and its future cannot be considered
well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in
this class.
"b" An issue which is rated "b" generally lacks the
characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
"caa" An issue which is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport
to indicate the future status of payments.
"ca" An issue which is rated "ca" is speculative in a high degree
and is likely to be in arrears on dividends with little
likelihood of eventual payments.
"c" This is the lowest rated class of preferred or preference
stock. Issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment
standing.
</TABLE>
Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification; the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
A-4
<PAGE> 59
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING OF ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY STATE OR JURISDICTION OF THE UNITED STATES OR ANY COUNTRY WHERE
SUCH OFFER WOULD BE UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 3
Fee Table................................ 11
The Fund................................. 12
Use of Proceeds.......................... 12
Investment Rationale..................... 12
Investment Objectives and Policies....... 14
Other Investment Practices............... 18
Special Leverage Considerations and
Risks.................................. 21
Special Risk Considerations.............. 24
Investment Restrictions.................. 28
Management of the Fund................... 29
Investment Advisory and Management
Arrangements........................... 31
Portfolio Transactions................... 34
Dividends and Distributions.............. 35
Taxes.................................... 36
Automatic Dividend Reinvestment Plan..... 40
Calculation of Net Asset Value Per
Share.................................. 42
Description of Capital Stock............. 43
Underwriting............................. 49
Custodian................................ 52
Transfer Agent, Dividend Paying Agent and
Registrar.............................. 52
Legal Opinions........................... 52
Experts.................................. 52
Report of Independent Accountants........ 53
Statement of Assets and Liabilities...... 54
Appendix A -- Description of Ratings..... A-1
</TABLE>
UNTIL JULY 18, 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
13,400,000 SHARES
[CHARTWELL DIVIDEND LOGO]
CHARTWELL DIVIDEND
AND INCOME FUND, INC.
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
MERRILL LYNCH & CO.
PRUDENTIAL SECURITIES INCORPORATED
A.G. EDWARDS & SONS, INC.
ADVEST, INC.
ROBERT W. BAIRD & CO.
INCORPORATED
EVEREN SECURITIES, INC.
FAHNESTOCK & CO. INC.
GRUNTAL & CO., L.L.C.
JANNEY MONTGOMERY SCOTT INC.
LEGG MASON WOOD WALKER
INCORPORATED
JUNE 23, 1998
======================================================
