<PAGE>
[LOGO] Chartwell Investment Partners
CHARTWELL
Dividend and Income Fund, Inc.
1999 Annual Report
<PAGE>
Chartwell Dividend and Income Fund, Inc. November 30, 1999
INVESTMENT OBJECTIVES & STRATEGY
The Chartwell Dividend and Income Fund's [the "Fund"] primary investment
objective is to seek high current income. Capital appreciation is a secondary
objective. The Fund will seek to achieve its objectives by investing, under
normal circumstances, at least 50% of its total assets in income generating
equity securities, including dividend paying common stocks, convertible
securities, preferred stocks and other equity-related securities. In addition,
the Fund may invest the balance of its total assets in non-convertible debt
securities, consisting primarily of corporate bonds. The Fund attempts to
minimize individual security risk by diversifying the portfolio with
approximately 150 securities, which is subject to change. The Chartwell Dividend
and Income Fund is a closed-end mutual fund which trades on the New York Stock
Exchange under the symbol CWF.
HIGH-YIELD CORPORATE BONDS
High-yield bonds are non-investment grade corporate debt obligations rated "Ba1"
or lower by Moody's Investors Service, Inc. or "BB+" or lower by Standard &
Poor's Ratings Group; they typically have a higher risk level than
investment-grade bonds. These securities have historically compensated investors
with higher levels of income for that risk. Prices usually are less sensitive to
interest rate fluctuations than higher rated bonds because of the high income
levels. However, the prices of these bonds are more sensitive to changes in the
economy.
CONVERTIBLE SECURITIES
The Fund can invest in both convertible preferred stock and convertible bonds.
Both pay fixed rates of income, but because they can be converted into common
stock, they are indirectly tied to the common stock's performance. As a result,
convertible securities generally offer higher income than common stocks and an
opportunity for price appreciation when the value of the underlying security
rises. The Fund buys convertibles when the underlying common stock offers strong
growth potential as well.
COMMON STOCK
The Fund invests in the common stocks of utility companies, Real Estate
Investment Trusts (REITs) and other industrial and financial companies as well
as other equity securities. Both utilities and REITs tend to offer a premium
dividend yield with steady growth that can lead to capital appreciation.
Industrial and financial stocks are primarily purchased for capital appreciation
based on the fundamental value of the underlying company.
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LETTER TO SHAREHOLDERS
DEAR SHAREHOLDERS,
The recently completed fiscal year was a challenging one that did not meet our
long term expectations for the Chartwell Dividend and Income Fund. While we
continue to meet our primary objective to seek high current income, the stock
price and net asset value (NAV) decline resulted in a disappointing total return
profile. We believe that over the long term, the strategy of investing for high
current income and capital appreciation is a sound one. Please take the time to
read through the portfolio managers' discussion of each segment of the Fund's
investment portfolio. Our seasoned investment team is dedicated to meeting
shareholder goals.
The market value of the Fund had a total return of (16.55)% over the past six
months and (18.44)% over the past fiscal year. During the same period, the NAV
returned (4.38)% and (2.47)%, respectively. As of November 30, 1999, the Fund's
market price closed at $10.50, which was a 16.27% discount to NAV.
On a positive note, a number of the portfolio securities had excellent returns
in the fourth quarter. The NAV bottomed in the middle of October at $12.15 and
had rebounded to $12.54 by the fiscal year end, an increase of almost 5%. We
have taken important steps to increase the flexibility of our asset allocation
process, steps which we feel will increase long term returns. We have increased
the Fund's exposure to common stock such as BCE Inc., Kimberly-Clark
Corporation, Wells Fargo & Company and AT&T Corp. Correspondingly, we have
reduced our substantial exposure to REITs and electric utilities, which have
suffered over the past year. As you will read, we instituted a limited option-
writing program to augment the Fund's income. In this market, we believe success
will come from flexible management of a variety of attractive asset classes and
continued dedication to the generation of income.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CWF STOCK PERFORMANCE VS. NAV
<S> <C> <C>
Price NAV
5/28/99 13.25 13.80
6/5/99 13.63 13.80
6/11/99 13.63 13.75
6/19/99 13.38 13.73
6/25/99 13.19 13.59
7/3/99 13.50 13.73
7/9/99 13.56 13.83
7/17/99 13.13 13.84
7/23/99 13.31 13.75
7/31/99 12.81 13.53
8/6/99 12.81 13.21
8/14/99 12.38 13.17
8/20/99 12.56 13.15
8/28/99 12.81 13.17
9/3/99 12.63 13.08
9/11/99 12.38 13.05
9/17/99 11.56 12.80
9/25/99 11.13 12.44
10/1/99 11.13 12.43
10/9/99 11.19 12.61
10/15/99 10.38 12.19
10/23/99 10.50 12.25
10/29/99 10.94 12.47
11/6/99 11.25 12.6
11/12/99 10.813 12.59
11/20/99 10.75 12.73
11/26/99 10.375 12.59
12/4/99 10.50 12.67
</TABLE>
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The primary negative factor weighing on the portfolio during 1999 was the
significant increase in interest rates. The 30-year U.S. Treasury yield
increased from 5.06% to 6.29% during the Fund's fiscal year. Consequently, as
you will read, the Fund's high yield bond portfolio suffered price declines last
year even as it generated substantial income. The rise in rates also negatively
affected many of the Fund's equity securities, including those invested in REITs
and electric utilities.
Bright spots did emerge among individual stocks such as Illinova Corporation,
U S West, Inc. and BCE Inc., contributing substantial returns to the portfolio.
Convertible securities that performed well included Global Crossing Ltd., PSINet
Inc., and Cendant Corporation. In addition, a limited option writing effort
initiated late in the year bolstered income and had a positive impact.
We continue to believe in the ability of the Fund's investment strategy to
generate income. We also believe that many of the portfolio securities have
excellent appreciation potential. These issues are discussed in more depth later
in this report. The management team will work diligently in its efforts to try
to increase shareholder returns and generate income over the long term.
Thank you for your continued support.
<TABLE>
<S> <C> <C>
[SIG TO COME]
Leslie M. Varrelman
[SIG TO COME] [SIG TO COME] Portfolio Manager
Winthrop S. Jessup Bernard P. Schaffer
Chairman and President Portfolio Manager
</TABLE>
PORTFOLIO MANAGEMENT TEAM
<TABLE>
<S> <C>
Leslie M. Varrelman
PORTFOLIO MANAGER
Bernard P. Schaffer FIXED INCOME
PORTFOLIO MANAGER
EQUITIES
Christine F. Williams
PORTFOLIO MANAGER
FIXED INCOME
Andrew L. Newcomb
PORTFOLIO MANAGER
REITS AND UTILITY COMMON STOCK
Andrew S. Toburon
PORTFOLIO MANAGER
FIXED INCOME
Doster J. Esh
PORTFOLIO ANALYST
CONVERTIBLE DEBT AND PREFERRED
STOCK
</TABLE>
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FIXED INCOME RESULTS
CWF (AS A % OF TOTAL INVESTMENTS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BONDS 47%
<S> <C>
Converts 16%
REITs 8%
Utilities 13%
Equities 16%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HIGH YIELD INDEX SPREAD OVER TREASURIES
<S> <C>
(MERRILL LYNCH HIGH YIELD US Corporates Cash Pay INDEX, NOV
98-NOV 99)
Nov-98 511
Dec-98 537
Jan-99 528
Feb-99 485
Mar-99 487
Apr-99 440
May-99 449
Jun-99 450
Jul-99 452
Aug-99 458
Sep-99 479
Oct-99 492
Nov-99 461
</TABLE>
HIGH YIELD MARKET HIGHLIGHTS 1999
The last year was another challenging one for high yield investors as the market
delivered sub-coupon returns for the second year in a row. Rising interest rates
and default rate uncertainty resulted in an investor preference for more liquid,
higher-quality credits. Despite weak performance for the year, the high yield
market provided the best return of all the fixed income sectors, outperforming
Treasuries, Agencies, mortgaged-backed, asset-backed, as well as the entire high
grade corporate sector. The yield spread premium on the Merrill Lynch High Yield
US Corporates Cash Pay Index (the "Index") tightened to 461 basis points over
the ten year Treasury, narrowing by 50 basis points over the year to yield
10.79% on November 30, 1999.
For the twelve-month period ended November 30, 1999, the Index returned 1.08%.
On average, higher-quality credit ratings outperformed lower-quality credit
ratings over this time period (BB's returned 2.14%, B's returned 1.06%, and
CCC's returned -3.91%). The strongest performing sectors were those that
performed poorly last year but have shown improving fundamentals this year.
Paper, Broadcasting, Media, Gaming, Steel, Energy, Chemicals, and Utilities were
among the above market performers while Shipping, Healthcare, Food, Beverage,
and Supermarkets experienced below-market returns. Throughout the year, new
issues of PCS/cellular, international wireless and cable, data and internet,
were well received by investors.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HIGH YIELD SECTOR PERFORMANCE*
<S> <C>
(11/30/98 - 11/30/99)
Paper 12.34%
Broadcasting 6.78%
Media 5.39%
Gaming 5.38%
Steel 4.89%
Publishing/Printing 4.77%
Energy 4.76%
Cable TV 4.60%
Utilities 4.22%
Homebuilders 3.70%
Chemicals 3.62%
Containers 2.72%
Automotive 2.14%
Average 1.08%
Building Materials 0.88%
Telecommunications -0.28%
Specialty Retail -1.29%
Restaurants -1.61%
Consumer Products -2.75%
Supermarkets -3.28%
Services -6.40%
Food/Beverage -6.46%
Healthcare -11.41%
Entertainment/Film -13.15%
Shipping -13.19%
*Merrill Lynch High Yield US Corporates Cash Pay Index
</TABLE>
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EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
QUARTERLY HIGH YIELD DEFAULT RATES, ANNUALIZED
<S> <C>
(*THROUGH NOV 30TH, SOURCE: DLJ)
1Q97 1.93%
2Q97 0.56%
3Q97 1.03%
4Q97 0.56%
1Q98 1.01%
2Q98 1.46%
3Q98 1.10%
4Q98 1.09%
1Q99 2.93%
2Q99 5.02%
3Q99 3.76%
4Q99* 2.77%
DEFAULT RATE
</TABLE>
Rising default rates seemed to dominate headlines in the high yield market in
1999. Default rates as measured by Altman/New York University increased to 3.26%
for the first nine months of the year from 1.32% for all of 1998. Moody's
trailing-twelve-month default rate at November 30, 1999 was higher at 5.74%
(percentage of issuers) as compared to 2.70% the prior year (Moody's includes
emerging-market debt). It is noteworthy that defaults peaked in the June quarter
and have since declined somewhat. Moreover, defaults concentrated in two
specific industries. The energy sector alone comprised 20% of the total defaults
as smaller companies were unprepared for the steep oil price decline to $10 per
barrel earlier in the year. Healthcare companies, specifically in the Long-Term
Care sector, represented 13.5% of total defaults as a result of the reduction to
revenue that occurred through Medicare reimbursement under the balanced Budget
Act of 1997. Most companies, however, have had one full year under the new
prospective payment system and are now fundamentally stronger.
New issuance of $99 billion through November 1999 lagged behind 1998's full year
total of $151 billion. The Telecommunications sector dominated the calendar and
now represents over one-third of the Index. Larger, higher quality issues were
well received by the market while smaller, lesser known credits were forced to
price their deals cheaply and in some cases, add equity stakes and tighten debt
covenants, in an effort to get the deal completed. Collateralized Bond
Obligations, now a $100 billion market, were the primary source of demand for
high yield in 1999. High yield mutual fund flows were positive year-to-date
through November 1999, but were significantly lower than the strong fund flows
experienced in 1998.
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EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HIGH YIELD NEW ISSUE VOLUME
<S> <C>
(INCLUDES PUBLIC AND 144A, SOURCE: CHASE SECURITIES)
$BILLIONS
1980 1
1981 2
1982 3
1983 8
1984 15
1985 16
1986 33
1987 31
1988 31
1989 29
1990 1
1991 10
1992 46
1993 69
1994 43
1995 47
1996 74
1997 126
1998 151
1999 99
</TABLE>
CWF HIGH YIELD
For the year ended November 30, 1999, the high yield portfolio within CWF
outperformed the Merrill Lynch High Yield Cash Pay Index (JOAO) by 50 basis
points (1.58% versus 1.08%). The portfolio continued to be well diversified with
53 individual credits within 19 industry groups. The average portfolio quality
remained B2, with an average yield to maturity of 11.20%.
Top performing credits for the year included Comcast Cellular Holdings, Inc.,
Fox/Liberty Networks LLC, RJR Nabisco, Inc., ASAT Finance LLC, PSINet Inc., NTL
Incorporated, Rogers Cantel Inc., Williams Communications, and Chesapeake Energy
Corporation. Certain credits proved to be a challenge, particularly in the first
half of the year. Both Sun Healthcare Group and Integrated Health Services, Inc.
were impacted by the negative legislation, while other credits such as
Enterprises Shipholding Corporation, Eye Care Centers of America, Inc., Regal
Cinemas, Inc., and Specialty Retailers, Inc. experienced deteriorating credit
fundamentals.
We continue to look for opportunities to upgrade the credit quality of the
portfolio and concentrate on finding companies with strong management teams and
improving credit statistics within stable or growing industries.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FIXED INCOME RETURNS:*
<S> <C>
MAY 31, 1999 - NOVEMBER 30, 1999
CWF -0.40%
ML High Yield Cash Pay Index -0.89%
</TABLE>
* Total return figures represent past performance and do not indicate future
results, which will vary.
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CONVERTIBLE SECURITIES RESULTS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BONDS 47%
<S> <C>
Converts 16%
REITs 8%
Utilities 13%
Equities 16%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CONVERTIBLE RETURNS:
<S> <C>
MAY 31, 1999 - NOVEMBER 30, 1999
CWF -1.50%
Merrill Lynch Convertible Yield Alternative Index -8.50%
Merrill Lynch Convertible Total Return Index 3.10%
Merrill Lynch All Convertible Index 12.60%
</TABLE>
We continue to invest in a diversified array of convertible securities with a
focus on generating income. The convertible portion of the portfolio currently
yields approximately 7.5%, and represented 16% of the portfolio as of
November 30, 1999.
We have shifted much of the sector focus within convertibles to Telecom and
Technology such as Global Crossing Ltd., NTL Incorporated, Qwest "TrENDS" Trust,
and Activison, Inc. This was done largely because of the success of these
companies in generating return as well as the fact that new issues have been
concentrated in these sectors. To compensate for higher volatility in the price
of the stocks of these companies, we have required more conservative structures
such as bonds or senior perpetual preferred stock. This has reduced our exposure
to wide price swings while allowing us to participate in the income generation
and upside of growing companies. Our performance has improved because of this
change in focus.
Within the convertible universe at large, equity sensitive convertibles have
continued to soundly outperform those convertibles purchased as yield
alternatives. The difference in performance is dramatic: Merrill Lynch Equity
Sensitive Convertible Index was up 30% over the past six months, while the
Merrill Lynch Convertible Yield Alternative Index was down 8%. Largely this is a
result of just a few securities within Telecom and Technology that have been
explosive, while more traditional companies that are paying out higher dividends
and interest, are languishing. We expect to focus on quality companies and
conservative security structures to give us the opportunity to create positive
returns, even in a challenging environment.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CWF CONVERTIBLES
<S> <C>
Cap Goods 7%
Healthcare 10%
Basics 6%
Cons Cyclical 7%
Staples 4%
Technology 15%
Telecom 26%
Energy 4%
Finance 21%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
INDEX*
<S> <C>
Cap Goods 3%
Healthcare 8%
Basics 5%
Cons Cyclical 7%
Staples 12%
Technology 25%
Telecom 23%
Energy 6%
Utility 4%
Finance 7%
*Merrill Lynch All Convertible Index.
</TABLE>
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REAL ESTATE INVESTMENT TRUST (REIT) RESULTS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BONDS 47%
<S> <C>
Converts 16%
REITs 8%
Utilities 13%
Equities 16%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
REIT RETURNS:
<S> <C>
MAY 31, 1999 - NOVEMBER 30, 1999
CWF -9.20%
MS REIT Index* -13.17%
*Morgan Stanley REIT Index
</TABLE>
REITs experienced another difficult period in the 6 months since our last
report. We finished the year with 8% in REITs, and returned (9.2)% over the six
months ended November 30, 1999.
We maintained a diversified portfolio, incorporating all major sectors of the
REIT market. Relative to the National Association of REITs (NAREIT) index, we
were overweight in the Office/Industrial REITs. We continue to be overweight in
this sector because we believe Office/Industrial REITs have exposure to a stable
portion of the economy and will experience strong cash flows and moderate
growth. Office REITs have been among the better performers this year as
occupancy levels have remained near all-time high levels. REITs with retail
exposure experienced difficulties as their tenant base was submerged with
worries over a consumer spending slowdown. Healthcare REITs are still near lows,
although they recently received some reprieve from the Legislature's rollback of
Prospective Payment System rules.
From a valuation perspective, REITs are as cheap as they have been since
statistics have been kept. The average adjusted funds from operation yield,
which is the inverse of the cash flow multiple, relative to the 10-year Treasury
yield is at an all time high. The markets are currently assuming the worst of
these investments, reflecting six months of increasing interest rates and a
growing investor base dissatisfied with anything but the most high-flying tech
and telecom stocks. We continue to collect dividends from REITs and believe the
drastic reduction in share prices will create a powerful opportunity for market
appreciation at some point in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CWF REITS
<S> <C>
Apartments 6%
Self-Storage 4%
Office/Industrial 57%
Shopping Centers 5%
Lodging 10%
Mortgage/Misc 10%
Healthcare 8%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NAREIT INDEX
<S> <C>
Apartments 19%
Self-Storage 4%
Office/Industrial 28%
Shopping Centers 20%
Lodging 5%
Mortgage/Misc 18%
Healthcare 6%
</TABLE>
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UTILITY RESULTS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BONDS 47%
<S> <C>
Converts 16%
REITs 8%
Utilities 13%
Equities 16%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
UTILITY RETURNS:
<S> <C>
MAY 31, 1999 - NOVEMBER 30, 1999
CWF -1.76%
S&P Electric Utility* -16.23%
S&P Natural Gas** -6.50%
*S&P Utility Sector
**S&P Natural Gas Sector
</TABLE>
Natural gas utilities performed very well during the past six months, increasing
13%. Gas companies benefited from strong energy markets and consolidation within
the industry. Both MCN Energy Group Inc. and Sonat Inc. were acquired during
this period, adding significantly to our overall performance. Across the board,
the natural gas transport distribution industry is becoming a deregulated
utility. We believe this provides many companies with an opportunity for greater
growth and higher returns on investments--an opportunity that these managements
simply did not have prior to deregulation. This has led to consolidation in the
industry, which we think will only continue. On the negative side, the
opportunity for higher returns has led to greater earnings volatility as a
result of the variation of gas prices and variation in general economic
activity. We continue to see value in select gas utility stocks based on both
high historic yields, price-to-earnings ratios, and newer market opportunities.
In this environment, company selection based on strong managements, strategic
planning, and execution will make up a larger and larger portion of our job.
Electric utilities were a disappointment, down 18% during the past six months.
Electric utilities have traditionally had very little overall growth but very
high dividend yields. As a result, they tend to be valued based on their yield
relative to other opportunities in the market. With higher Treasury, bond, and
REIT yields, electric utility prices fell. In addition some utilities fell prey
to very high electricity prices during the hottest days of the past summer. Much
like the natural gas utilities have already undergone, electric utilities are
just beginning the deregulation process. This means that electric companies will
face competition within their own traditional geographic markets, and will have
the opportunity to compete in other areas. It also means that companies can
choose to concentrate only on the production, transportation, or distribution of
electricity, whereas before they were bound to do all three. While this process
is only beginning, it is already important to focus on companies that have clear
advantages and recognize their competitive position.
As an example, our best performer was Illinova Corporation, which is benefiting
from the deregulation of the Illinois power market, the divestiture of an
old-line nuclear power plant, and a merger with Dynegy Corp. We believe this
model will provide excess returns above the sector competitors as more companies
begin to compete for business.
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GENERAL COMMON STOCK RESULTS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BONDS 47%
<S> <C>
Converts 16%
REITs 8%
Utilities 13%
Equities 16%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CWF
<S> <C>
Communications 24%
Healthcare 10%
Finance 32%
Energy 6%
Consumer Staples 10%
Consumer Cyclicals 5%
Capital Goods 13%
</TABLE>
Common stocks other than utilities and REITs comprised 16% of the portfolio as
of November 30, 1999. We have purposely increased our exposure to general
equities as REITs and electric utilities have continued to produce substandard
returns. Like the broad markets, our value/income style of equity investing has
been maligned by a narrowly focused group of stocks that have dominated the
equity markets (with names like Cisco, Qualcomm and Commerce One). While these
pure growth technology stocks are producing very alluring returns, this is not
our mandate. The market leadership has produced unprecedented capital
appreciation, it has lacked an income component that historically has been an
important contributor to the total return of the market.
Within equities, telecom utilities continue to be a heavy weighting within the
portfolio, which has been a very strong contributor to our total return. BCE
Inc., KPN NV, and U S West, Inc. were all strong performers. We do not include
them within our utility analysis for comparison reasons: S&P does not maintain
them within their utility sector. We have also maintained a heavy weight within
financials, which has not fared well during the past six months. While Wells
Fargo & Company has stood out as an excellent performer, the rest of the sector
has been weak year to date.
As part of our equity portfolio, we have introduced a limited option-writing
program which has augmented our income level. We will try to generate moderate
income from this program in the future as a supplement to our equity portfolio.
This program, called a "buy-write" program, entails selling call options on
existing positions, which limits our upside on that stock, but generates excess
income beyond the stock's dividend yield.
While the past year was disappointing and difficult for value/income equities,
we continue to believe that the risk adjusted returns that can be generated from
this style are above average.
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UTILIZATION OF LEVERAGE
The Chartwell Dividend and Income Fund has utilized leverage through the
issuance of commercial paper. As of November 30, 1999, the Fund had $60 million
in leverage in the form of commercial paper rated A1/P1 by Moody's Investors
Service, Inc./Standard & Poor's Ratings Group. These ratings should enhance the
marketability and reduce the interest costs associated with the issuance of the
commercial paper. However, it must be noted that the utilization of leverage
involves the risk of lower portfolio returns if the cost of leverage is higher
than the resulting yields on assets or if the Fund experiences capital losses in
excess of the yield spread, if any. Therefore, the addition of leverage also
increases the potential volatility of the Fund. The Fund has the ability to
leverage to a maximum of 33% of the Fund's net assets.
The Fund utilizes leveraging to seek to enhance the yield and net asset value of
its Common Stock. However, these objectives cannot be achieved in all interest
rate environments. To leverage, the Fund issues Commercial Paper, which is
issued at a discount equivalent to short-term interest rates, and invests the
proceeds in long-term securities. The interest earned on these investments is
paid to Common Stock shareholders in the form of dividends, and the value of
these portfolio holdings is reflected in the per share net asset value of the
Fund's Common Stock. However, in order to benefit Common Stock shareholders, the
yield curve must be positively sloped; that is, short-term interest rates must
be lower than long-term interest rates. At the same time, a period of generally
declining interest rates will benefit Common Stock shareholders. IF EITHER OF
THESE CONDITIONS CHANGE, THEN THE RISKS OF LEVERAGING WILL BEGIN TO OUTWEIGH THE
BENEFITS.
To illustrate these concepts, assume a Fund's Common Stock capitalization of
$100 million and the issuance of Commercial Paper for an additional $50 million,
creating a total value of $150 million available for investment in long-term
securities. If prevailing short-term interest rates are approximately 3% and
long-term interest rates are approximately 6%, the yield curve has a strongly
positive slope. The Fund pays a discount on the $50 million of Commercial Paper
based on the lower short-term interest rates. At the same time, the Fund's total
portfolio of $150 million earns the income based on long-term interest rates.
In this case, the discount paid to Commercial Paper holders is significantly
lower than the income earned on the fund's long-term investments, and therefore
the Common Stock shareholders are the beneficiaries of the incremental yield.
However, IF SHORT-TERM INTEREST RATES RISE, narrowing the differential between
short-term and long-term interest rates, THE INCREMENTAL YIELD PICK-UP ON THE
COMMON STOCK WILL BE REDUCED OR ELIMINATED COMPLETELY. At the same time, the
market value on the Fund's Common Stock (that is, its price as listed on the New
York Stock Exchange), may, as a result, decline. Furthermore, IF LONG-TERM
INTEREST RATES RISE, THE COMMON STOCK'S NET ASSET VALUE WILL REFLECT THE FULL
DECLINE IN THE PRICE OF THE PORTFOLIO'S INVESTMENTS, SINCE THE VALUE OF THE
FUND'S COMMERCIAL PAPER DOES NOT FLUCTUATE. In addition to the decline in net
asset value, the market value of the Fund's Common Stock may also decline.
DIVIDENDS & DISTRIBUTIONS
The Fund currently intends to distribute a monthly fixed amount to shareholders
in the amount of $0.1033 per share. The Fund's final distribution for each
calendar year will exceed that amount, however, to
12
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C H A R T W E L L
<PAGE>
the extent necessary for the Fund to have distributed all of its net investment
company taxable income and net capital gains recognized during the year, if any.
If, for any calendar year, the total distributions exceed net investment company
taxable income and net capital gain, the excess, distributed from the Fund's
assets, will generally be treated as a tax-free return of capital and will
result in a reduction in the shareholder's basis. The Board of Directors
reserves the right to change the aforementioned dividend policy from
time-to-time. For the fiscal year ended 1999, the Fund returned capital in the
amount of $5,459,620 representing 29% of the total distribution, which will be
treated in the manner indicated above.
DISCUSSION OF Y2K ISSUES
Like other financial and business organizations, the Fund and its portfolio
could be adversely affected if the computer systems they rely on do not properly
process date-related information and data involving the years 2000 and after. We
at Chartwell Investment Partners have taken steps that we believe are reasonable
to address this problem in our own computer system and have sought assurances
that comparable steps are being taken by the Fund's other major service
providers. Each service provider had informed the Fund that it had taken steps
to prepare for Year 2000 compliance. Chartwell Investment Partners is also
attempting to evaluate the potential impact of this problem on the issues of
investment securities that the portfolio purchases. There can be no assurance
that these steps have been sufficient to avoid any adverse impact on the Fund
and portfolio.
13
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C H A R T W E L L
<PAGE>
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
COMMON STOCK--44.8% --------- --------
<S> <C> <C>
BANKING & FINANCE--3.3%
Bank of America Corporation................ 1,916 $ 112,086
Bank One Corporation....................... 32,400 1,142,100
Fannie Mae................................. 20,300 1,352,488
Household International, Inc. ............. 10,000 395,625
Union Planters Corporation................. 50,000 2,131,250
Wells Fargo & Company...................... 25,900 1,204,350
------------
6,337,899
------------
BASIC INDUSTRIES--1.6%
E. I. du Pont De Nemours and Company....... 7,996 475,262
Rohm and Haas Company...................... 35,200 1,289,200
Temple-Inland Inc. ........................ 24,000 1,374,000
------------
3,138,462
------------
CAPITAL GOODS--2.7%
Masco Corporation.......................... 41,700 1,052,925
Pitney Bowes Inc. ......................... 42,100 2,018,169
Xerox Corporation(a)....................... 80,400 2,175,825
------------
5,246,919
------------
CONSUMER CYCLICAL--1.7%
Intimate Brands, Inc. ..................... 25,000 1,071,875
The Limited, Inc. ......................... 51,700 2,194,019
------------
3,265,894
------------
CONSUMER NON-DURABLE--1.1%
Flowers Industries, Inc. .................. 40,000 655,000
Kimberly-Clark Corporation................. 16,200 1,034,775
Philip Morris Companies Inc. .............. 20,000 526,250
------------
2,216,025
------------
ENERGY--2.1%
Conoco Inc. ............................... 16,826 440,631
Kerr-McGee Corporation..................... 3,650 208,963
Occidental Petroleum Corporation........... 38,900 853,369
The Williams Companies, Inc. .............. 53,900 1,819,125
USX-Marathon Group......................... 32,900 869,794
------------
4,191,882
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
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<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
COMMON STOCK (CONTINUED) --------- --------
<S> <C> <C>
HEALTHCARE--1.5%
American Home Products Corporation....... 16,700 $ 868,400
Baxter International Inc. ............... 30,000 2,026,875
------------
2,895,275
------------
HOME FURNISHINGS--0.0%
Pillowtex Corporation.................... 12,158 48,632
------------
HOTELS--1.0%
Starwood Hotels & Resorts................ 75,000 1,673,438
Wyndham International, Inc.(b)........... 107,333 301,874
------------
1,975,312
------------
INSURANCE--0.9%
American General Corporation............. 13,100 960,394
Hartford Life, Inc. ..................... 17,000 760,750
------------
1,721,144
------------
REAL ESTATE*--10.1%
Alexandria Real Estate Equities, Inc. ... 26,000 762,125
AMRESCO Capital Trust.................... 100,000 881,250
Avalon Bay Communities, Inc. ............ 31,500 1,019,813
Boston Properties, Inc. ................. 30,700 869,194
Cabot Industrial Trust................... 49,900 916,912
Crescent Real Estate Equities Company.... 70,000 1,185,625
Duke-Weeks Realty Corporation............ 53,820 995,670
FelCor Lodging Trust Incorporated........ 38,000 646,000
First Washington Realty Trust, Inc....... 29,200 521,950
Healthcare Realty Trust, Inc. ........... 62,587 1,036,597
Highwoods Properties, Inc. .............. 46,000 1,012,000
Kimco Realty Corporation................. 30,000 997,500
LTC Properties, Inc. .................... 25,000 242,187
Meditrust Companies...................... 46,000 301,875
National Golf Properties, Inc. .......... 45,000 942,188
Prison Realty Trust, Inc. ............... 31,000 251,875
ProLogis Trust........................... 91,400 1,662,337
Reckson Associates Realty Corporation.... 51,000 1,029,563
RFS Hotel Investors, Inc. ............... 78,000 867,750
Shurgard Storage Centers, Inc. .......... 42,200 941,588
SL Green Realty Corp. ................... 33,000 666,187
Tanger Factory Outlet Centers, Inc. ..... 26,000 562,250
Vornado Realty Trust..................... 42,000 1,325,625
------------
19,638,061
------------
TELECOMMUNICATIONS--3.9%
AT&T Corp ............................... 19,400 1,083,975
BCE Inc. ................................ 22,900 1,548,612
KPN NV. ADR.............................. 11,491 638,469
Swisscom AG, ADR......................... 33,000 1,117,875
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
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<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
COMMON STOCK (CONCLUDED) --------- --------
<S> <C> <C>
TELECOMMUNICATIONS (CONCLUDED)
Telecom Corporation of New Zealand
Limited, ADR........................... 28,300 $ 948,050
U S West, Inc. .......................... 37,800 2,345,962
------------
7,682,943
------------
UTILITIES--14.9%
Avista Corporation....................... 35,000 568,750
Carolina Power & Light Company........... 14,300 430,788
Columbia Energy Group.................... 12,800 803,200
Consolidated Edison Company of
New York, Inc. ........................ 13,700 472,650
Consolidated Natural Gas Company......... 52,500 3,366,563
Duke Energy Corporation.................. 22,000 1,115,125
Illinova Corporation..................... 113,100 3,633,337
Kinder Morgan, Inc. ..................... 48,600 987,187
Kinder Morgan Energy Partners L.P. ...... 30,000 1,213,125
Leviathan Gas Pipeline Partners, L.P. ... 7,000 141,312
MCN Energy Group Inc. ................... 143,700 3,583,519
MDU Resources Group, Inc. ............... 44,000 962,500
New Century Energies, Inc. .............. 25,600 804,800
NICOR Inc. .............................. 16,600 575,812
NiSource Inc. ........................... 42,700 803,293
NSTAR ................................... 39,200 1,626,800
PECO Energy Company...................... 22,600 744,387
SCANA Corporation........................ 24,000 651,000
TECO Energy, Inc......................... 44,000 880,000
The Montana Power Company................ 76,200 2,352,675
USEC Inc. ............................... 150,000 1,237,500
Western Resources, Inc. ................. 113,300 2,117,294
------------
29,071,617
------------
TOTAL COMMON STOCK (COST $101,795,827)... 87,430,065
------------
<CAPTION>
CONVERTIBLE PREFERRED STOCK--14.4%
AGRICULTURAL PHARMACEUTICALS--0.3%
<S> <C> <C>
Monsanto Company "ACES" 6.500%........... 16,500 651,750
------------
BANKING & FINANCE--2.6%
Bank United Corp. "PIES" 8.000%.......... 30,000 1,417,500
Sovereign Capital Trust II 7.500%........ 20,000 1,127,500
WBK "STRYPES" Trust 10.000%.............. 80,000 2,520,000
------------
5,065,000
------------
BASIC INDUSTRIES--0.4%
United Rentals Trust I "QUIPS" 6.500%.... 22,000 709,500
------------
BROADCASTING AND PUBLISHING--0.5%
Emmis Communications Corporation
6.250%................................... 15,000 930,000
------------
BUILDING PRODUCTS--0.7%
Georgia-Pacific Group "PEPS" 7.500%...... 30,000 1,284,375
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
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<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
CONVERTIBLE PREFERRED STOCK (CONCLUDED) --------- --------
<S> <C> <C>
COMMUNICATIONS--1.2%
"DECS" Trust VI 6.250%(c)................ 40,000 $ 1,512,500
MediaOne Group, Inc. "PIES" 7.000%(d).... 20,000 900,000
------------
2,412,500
------------
CONSUMER CYCLICAL--0.7%
Cendant Corporation "PRIDES" 7.500%...... 50,000 1,337,500
------------
1,337,500
------------
ENERGY--0.3%
AES Trust III 6.750%..................... 10,500 542,719
------------
542,719
------------
HOME BUILDERS--0.6%
TXI Capital Trust I "SPuRS" 5.500%....... 29,600 1,073,000
------------
INSURANCE--1.4%
Conseco Financing Trust IV
"PRIDES" 7.000%........................ 55,600 1,462,975
Lincoln National Corporation
"PRIDES" 7.750%........................ 55,000 1,271,875
------------
2,734,850
------------
REAL ESTATE--0.3%
Host Marriott Financial Trust
"QUIPS" 6.750%......................... 17,500 590,625
------------
RETAIL--0.8%
CVS "TRACES" 6.000%...................... 22,500 1,614,375
------------
SUPPLIERS EQUIPMENT--0.5%
Peak "TrENDS" Trust 9.000%............... 101,500 919,843
------------
TECHNOLOGY--0.6%
PSINet Inc. 6.750%....................... 25,000 1,231,250
------------
TELECOMMUNICATIONS--3.5%
Global Crossing Ltd. 6.375%+............. 20,000 2,332,500
Qwest "TrENDS" Trust 5.750%+............. 20,000 1,150,000
Verio Inc. 6.750%........................ 30,800 1,443,750
WinStar Communications, Inc. 7.250%+..... 20,000 2,007,500
------------
6,933,750
------------
TOTAL CONVERTIBLE PREFERRED STOCK
(COST $31,654,972)..................... 28,031,037
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
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<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
AMOUNT (NOTE 1)
NON-CONVERTIBLE BONDS--60.5% --------- --------
<S> <C> <C>
BROADCASTING--1.0%
Echostar DBS Corp. 9.250% 2/01/06........ $ 2,000,000 $ 2,015,000
------------
CABLE, MEDIA & PUBLISHING--4.3%
Alliance Atlantis Communications
Corporation 13.000%, 12/15/09.......... 3,000,000 3,000,000
Fox Family Worldwide, Inc.
9.250%, 11/01/07....................... 2,500,000 2,300,000
United Pan-Europe Communications N. V.
11.250%, 11/01/09...................... 3,000,000 3,127,500
------------
8,427,500
------------
CHEMICALS--1.1%
Huntsman ICI Chemicals
10.125%, 7/01/09+...................... 2,000,000 2,080,000
------------
CONSUMER PRODUCTS--0.3%
Revlon Consumer Products Corporation
8.625%, 2/01/08........................ 1,000,000 570,000
------------
ENERGY--4.3%
Chesapeake Energy Corporation
9.625%, 5/01/05........................ 3,000,000 2,887,500
Frontier Oil Corporation
11.750%, 11/15/09...................... 2,000,000 1,990,000
HS Resources, Inc. 9.250%, 11/15/06...... 2,500,000 2,500,000
Ocean Energy, Inc. 8.875%, 7/15/07....... 500,000 506,250
Triton Energy Limited 8.750%, 4/15/02.... 500,000 504,375
------------
8,388,125
------------
ENVIRONMENTAL--3.0%
Allied Waste North American Industries
Inc. 10.000%, 8/01/09+................. 3,000,000 2,741,250
Stericycle, Inc. 12.375%, 11/15/09+...... 3,000,000 3,048,750
------------
5,790,000
------------
FINANCIAL SERVICES--4.1%
CB Richard Ellis Services, Inc.
8.875%, 6/01/06........................ 2,000,000 1,790,000
DVI, Inc. 9.875%, 2/01/04................ 1,370,000 1,342,600
Lodgian Financing Corp.
12.250%, 7/15/09....................... 3,000,000 2,895,000
United Rentals (North America), Inc.
9.500%, 6/01/08........................ 2,000,000 1,900,000
------------
7,927,600
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
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<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
AMOUNT (NOTE 1)
NON-CONVERTIBLE BONDS (CONTINUED) --------- --------
<S> <C> <C>
FOOD, BEVERAGE & TOBACCO--2.5%
International Home Food, Inc.
10.375%, 11/01/06...................... $2,000,000 $ 2,085,000
Triarc Consumer Products Group LLC
10.750%, 2/15/09+...................... 3,000,000 2,850,000
------------
4,935,000
------------
GAMING--2.8%
Aztar Corporation 8.875%, 5/15/07........ 3,000,000 2,910,000
Venetian Casino Resort, LLC
12.250%, 11/15/04...................... 3,000,000 2,520,000
------------
5,430,000
------------
HOME BUILDERS--1.5%
Standard Pacific Corp. 8.000%, 2/15/08... 2,000,000 1,840,000
The Ryland Group, Inc.
10.500%, 7/01/06....................... 1,000,000 1,032,500
------------
2,872,500
------------
HOTELS--1.9%
Extended Stay America, Inc.
9.150%, 3/15/08........................ 3,850,000 3,676,750
------------
INDUSTRIALS--4.8%
Euramax International plc
11.250%, 10/01/06...................... 3,000,000 3,045,000
Gentek, Inc. 11.000%, 8/01/09+........... 3,000,000 3,097,500
Juno Lighting, Inc. 11.875%, 7/01/09+.... 1,500,000 1,365,000
Knowles Electronics, Inc.
13.125%, 10/15/09...................... 2,000,000 1,930,000
------------
9,437,500
------------
LEISURE & ENTERTAINMENT--1.8%
Bally Total Fitness Holding Corporation
9.875%, 10/15/07....................... 1,700,000 1,657,500
Marvel Enterprises, Inc. 12.000%,
6/15/09.................................. 2,000,000 1,880,000
------------
3,537,500
------------
RETAIL--2.3%
Mothers Work Inc. 12.625%, 8/01/05....... 2,000,000 2,010,000
Musicland Group 9.000%, 6/15/03.......... 2,550,000 2,409,750
------------
4,419,750
------------
STEEL--2.4%
Metals USA Inc. 8.625%, 2/15/08+......... 3,000,000 2,745,000
WCI Steel Inc. 10.000%, 12/01/04......... 2,000,000 2,020,000
------------
4,765,000
------------
TECHNOLOGY--2.6%
Amkor Technology, Inc. 10.500%,
5/01/09+................................. 2,000,000 1,960,000
PSINet Inc. 10.500%, 12/01/06+........... 3,000,000 3,018,750
------------
4,978,750
------------
TELECOMMUNICATIONS--16.6%
Alestra S.A. 12.125%, 5/15/06............ 3,250,000 3,234,400
Allegiance Telecom Inc. 12.875%,
5/15/08.................................. 2,000,000 2,232,500
ASAT Finance LLC 12.500%, 11/01/06+...... 3,000,000 3,150,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
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<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
AMOUNT (NOTE 1)
NON-CONVERTIBLE BONDS (CONCLUDED) --------- --------
<S> <C> <C>
TELECOMMUNICATIONS (CONCLUDED)
Intermedia Communications Inc.
9.500%, 3/01/09.......................... $3,000,000 $ 2,857,500
ITC/DeltaCom 9.750%, 11/15/08.............. 1,000,000 1,012,500
Nextel Communications, Inc.
9.375%, 11/15/09+........................ 3,000,000 2,992,500
NEXTLINK Communications, Inc.
10.500%, 12/01/09+....................... 1,000,000 1,015,000
Primus Telecommunications Group,
Incorporated 12.750%, 10/15/09+.......... 3,000,000 3,045,000
RCN Corporation 10.000%, 10/15/07.......... 3,000,000 3,000,000
Rhythms NetConnections, Inc.
12.750%, 4/15/09......................... 3,000,000 2,865,000
RSL Communications plc
10.500%, 11/15/08........................ 2,500,000 2,334,375
Viatel Inc. 11.250%, 4/15/08............... 3,000,000 2,977,500
VoiceStream Wireless Corporation
10.375%, 11/15/09+....................... 1,500,000 1,571,250
------------
32,287,525
------------
TRANSPORTATION & SHIPPING--1.8%
Enterprises Shipholding Corporation
8.875%, 5/01/08.......................... 2,000,000 1,190,000
North American Van Lines, Inc.
13.375%, 12/01/09+....................... 2,000,000 2,010,000
Preston Corporation 7.000%, 5/01/11........ 500,000 377,500
------------
3,577,500
------------
UTILITIES--1.4%
The AES Corporation 8.375%, 8/15/07........ 3,000,000 2,793,750
------------
TOTAL NON-CONVERTIBLE BONDS
(COST $120,849,041)...................... 117,909,750
------------
CONVERTIBLE BONDS--6.7%
HEALTHCARE--1.1%
Athena Neurosciences Inc.
4.750%, 11/15/04......................... 1,000,000 1,011,250
Sunrise Assisted Living, Inc.
5.500%, 6/15/02.......................... 1,500,000 1,181,250
------------
2,192,500
------------
LEISURE & ENTERTAINMENT--1.1%
Activision, Inc. 6.750%, 1/01/05........... 2,140,000 2,150,700
------------
TECHNOLOGY--1.8%
Arbor Software Corp.
4.500%, 3/15/05+......................... 1,750,000 1,415,312
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
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<PAGE>
SCHEDULE OF INVESTMENTS (CONCLUDED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT/ MARKET
# OF VALUE
CONTRACTS (NOTE 1)
CONVERTIBLE BONDS (CONCLUDED) --------- --------
<S> <C> <C>
TECHNOLOGY (CONCLUDED)
National Data Corporation
5.000%, 11/01/03......................... $1,500,000 $ 1,355,625
Sanmina Corp. 4.250%, 5/01/04+............. 500,000 649,375
------------
3,420,312
------------
TELECOMMUNICATIONS--2.1%
ITC/DeltaCom, Inc. 4.500%, 5/15/06+........ 1,500,000 1,777,500
Global Telesystems Group, Inc.
5.750%, 7/01/10.......................... 850,000 1,074,188
Level 3 Communications, Inc.
6.000%, 9/15/09.......................... 1,000,000 1,256,250
------------
4,107,938
------------
UTILITIES--0.6%
The AES Corporation 4.500%, 8/15/05........ 1,000,000 1,200,000
------------
TOTAL CONVERTIBLE BONDS (COST
$13,122,062)............................... 13,071,450
------------
</TABLE>
<TABLE>
<CAPTION>
OPTIONS WRITTEN--0.0%
<S> <C> <C>
Xerox Corporation Dec. 25 Call............. (300) (75,000)
------------
TOTAL OPTIONS (PREMIUM RECEIVED $48,473)... (75,000)
------------
TOTAL INVESTMENTS--126.4%
(COST $267,373,430)...................... 246,367,302
OTHER LIABILITIES IN EXCESS OF
ASSETS--(26.4%)............................ (51,508,614)
------------
NET ASSETS--100%........................... $194,858,688
------------
</TABLE>
- ----------------
ACES--Adjustable Conversion-rate Equity Security
ADR--American Depository Receipts
DECS--Dividend Enhanced Convertible Stock
PEPS--Premium Equity Participating Security
PIES--Premium Income Equity Security
PRIDES--Preferred Redeemable Increased Dividend Security
QUIPS--Quarterly Income Preferred Security
SPuRS--Shared Preference Redeemable Security
STRYPES--Structured Yield Product Exchangeable For Stock
TRACES--Trust Automatic Common Exchange Security
TrENDS--Trust Enhanced Dividend Security
* Real Estate Investment Trust.
+ Securities exempt from registration under Rule 144A of the Securities Act of
1933, as amended. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At November 30,
1999, these securities amounted to $49,639,087 or 25.4% of net assets.
(a) Partially held by the custodian as coverage for open call options.
(b) Non-income producing.
(c) Convertible into common stock of Metromedia Fiber Network, Inc.
(d) Convertible into common stock of Vodafone Airtouch Public Limited Company
(ADR).
SEE NOTES TO FINANCIAL STATEMENTS.
21
------
C H A R T W E L L
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
AS OF NOVEMBER 30, 1999
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $267,421,903) (Note 1).... $246,442,302
Cash.................................................. 9,494,802
Interest receivable................................... 2,463,525
Receivable for securities sold........................ 1,596,978
Dividends receivable.................................. 153,114
Prepaid expenses and other assets..................... 85,210
------------
Total assets...................................... 260,235,931
------------
LIABILITIES:
Commercial paper (Note 4)............................. 59,440,442
Payable for securities purchased...................... 5,115,047
Dividends to shareholders............................. 401,466
Payable for investment management fees (Note 2)....... 202,800
Call option written, at value (premium $48,473) (Note
1).................................................... 75,000
Payable for administration fees (Note 2).............. 32,021
Accrued expenses and other liabilities................ 110,467
------------
Total liabilities................................. 65,377,243
------------
NET ASSETS............................................ $194,858,688
============
NET ASSETS CONSIST OF:
Common Stock, $0.01 par value
(authorized 100,000,000 shares)................... $ 155,371
Paid-in surplus..................................... 226,532,849
Undistributed net investment income................. 389,851
Accumulated net realized loss on investments
and options....................................... (11,213,255)
Net unrealized depreciation on investments
and options....................................... (21,006,128)
------------
NET ASSETS............................................ $194,858,688
============
NET ASSET VALUE PER SHARE:
$194,858,688 DIVIDED BY 15,537,071 shares of Common
Stock issued and outstanding...................... $ 12.54
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
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C H A R T W E L L
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
NOVEMBER 30, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME: (NOTE 1)
Interest and discount earned........................... $10,921,307
Dividends (net of $11,768 foreign withholding tax)..... 6,918,319
-----------
Total investment income............................ 17,839,626
-----------
EXPENSES:
Investment management fees (Note 2).................... 2,178,610
Administration fees (Note 2)........................... 343,991
Commercial paper fees.................................. 297,734
Professional fees...................................... 110,279
Transfer agent fees.................................... 44,225
Printing and shareholder reports....................... 36,539
Custodian fees......................................... 31,903
Registration fees...................................... 29,407
Directors' fees and expenses........................... 10,750
Pricing fees........................................... 10,536
Other operating expenses............................... 27,351
-----------
Total operating expenses............................. 3,121,325
Interest expense..................................... 1,111,558
-----------
Total expenses..................................... 4,232,883
-----------
NET INVESTMENT INCOME.............................. 13,606,743
-----------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS: (NOTE 1)
Net realized loss on investments....................... (11,350,524)
Net realized gain on options written................... 153,174
-----------
(11,197,350)
Change in net unrealized
depreciation on investments and options.............. (8,464,314)
-----------
Net realized and unrealized loss on investments
and options...................................... (19,661,664)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS... $(6,054,921)
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
------
C H A R T W E L L
<PAGE>
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED
NOVEMBER 30, 1999
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH
Cash flows provided from (used for) operating
activities:
Interest and dividends received....................... $ 18,338,260
Operating expenses paid............................... (3,108,675)
Interest expense paid................................. (931,733)
Purchase of long-term portfolio investments........... (316,452,910)
Proceeds from sale of long-term portfolio
investments............................................. 269,345,505
Premium received on options written................... 224,520
Other................................................. (66,650)
------------
Net cash used for operating activities.............. (32,651,683)
------------
Cash flows provided from (used for) financing
activities:
Net cash provided from commercial paper issuance...... 59,260,617
Cash dividends paid to shareholders................... (17,837,101)
------------
Net cash provided from financing activities......... 41,423,516
------------
Net increase in cash.................................... 8,771,833
Cash at beginning of year............................. 722,969
------------
Cash at end of year................................... $ 9,494,802
============
RECONCILIATION OF NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS TO NET CASH USED FOR OPERATING
ACTIVITIES
Net decrease in net assets resulting from operations.... $(6,054,921)
------------
Increase in investments............................... (53,200,135)
Net realized loss on investments transactions......... 11,197,350
Net change in unrealized depreciation on
investments............................................. 8,464,314
Decrease in receivable for securities sold............ 2,235,348
Decrease in interest and dividend receivable.......... 94,800
Increase in other assets.............................. (66,650)
Increase in payable for securities purchased.......... 4,485,736
Increase in accrued expenses and other liabilities.... 192,475
------------
Total adjustments................................... (26,596,762)
------------
Net cash used for operating activities.................. $(32,651,683)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
------
C H A R T W E L L
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED FOR THE PERIOD FROM
NOVEMBER 30, JUNE 29, 1998* TO
1999 NOVEMBER 30, 1998
------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income............ $13,606,743 $ 6,292,619
Net realized gain (loss) on
investments.................... (11,350,524) 597,600
Net realized gain on options
written........................ 153,174 --
Change in net unrealized
depreciation on investments
and options.................... (8,464,314) (12,541,814)
------------ ---------------
Net decrease in net assets
resulting from operations........ (6,054,921) (5,651,595)
------------ ---------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income............ (13,296,008) (6,292,619)
Distributions in excess of
net investment income.......... -- (56,887)
Distributions from realized
short-term capital gains....... (477,502) --
Tax return of capital............ (5,459,620) --
------------ ---------------
Net decrease in net assets
resulting
from dividends and
distributions...................... (19,233,130) (6,349,506)
------------ ---------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from initial public
offering....................... -- 229,500,000
Offering costs charged to paid in
capital........................ -- (660,580)
Reinvestment of dividends
resulting in the issuance
of Common Stock................ 994,563 2,213,852
------------ ---------------
Net increase in net assets
resulting
from Common Stock transactions... 994,563 231,053,272
------------ ---------------
Total increase (decrease) in net
assets............................. (24,293,488) 219,052,171
------------ ---------------
NET ASSETS:
Beginning of period.............. 219,152,176 100,005
------------ ---------------
End of period (including
undistributed (distributions in
excess of) net investment
income of $389,851 and
($56,887), respectively)....... $194,858,688 $ 219,152,176
============ ===============
</TABLE>
- ----------------
*Commencement of investment operations.
SEE NOTES TO FINANCIAL STATEMENTS.
25
------
C H A R T W E L L
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
YEAR ENDED FROM JUNE 29, 1998*
THE FOLLOWING PER SHARE DATA AND RATIOS NOVEMBER 30, TO NOVEMBER 30,
HAVE BEEN DERIVED FROM INFORMATION PROVIDED 1999 1998
IN THE FINANCIAL STATEMENTS. ---------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $ 14.17 $ 14.96+
-------- --------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income (1).............. 0.88 0.40
Net realized and unrealized loss
on investment transactions........... (1.27) (0.78)
-------- --------
Total from investment operations..... (0.39) (0.38)
-------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income... (0.86) (0.41)
Distributions from realized short-term
gains................................ (0.03) --
Tax return of capital.................. (0.35) --
-------- --------
Total dividends and distributions.... (1.24) (0.41)
-------- --------
NET ASSET VALUE, END OF PERIOD........... $ 12.54 $ 14.17
======== ========
MARKET VALUE, END OF PERIOD.............. $ 10.50 $ 14.19
======== ========
TOTAL RETURN BASED ON: (2)
Net asset value........................ (2.47)% (2.48)%
======== ========
Market value........................... (18.44)% (2.62)%
======== ========
RATIOS AND SUPPLEMENTAL DATA (3):
Net assets, end of period (000
omitted)................................. $194,859 $219,152
======== ========
Total expenses......................... 2.03% 1.32%(5)
Total operating expenses (4)........... 1.35% 1.32%(5)
Commercial paper expenses.............. 0.68% N/A
Net investment income.................. 6.51% 6.99%(5)
Portfolio turnover..................... 119% 27%
LEVERAGE ANALYSIS:
Aggregate amount outstanding at end of
year(000 omitted).................... $ 60,000 N/A
Average daily balance of amortized cost
of commercial paper outstanding
(000 omitted)........................ $ 59,689 N/A
Asset coverage per $1,000 at end of
year................................. $ 4,378 N/A
</TABLE>
- ----------------
* Commencement of operations.
+ Net of offering costs of $0.04 charged to paid-in capital with respect to
issuance of common shares.
(1) Based on average shares outstanding.
(2) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
each period reported. Total investment return does not reflect brokerage
commissions. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment returns based on market
value, which can be significantly greater or lesser than the net asset
value, may result in substantially different returns. The total investment
returns calculated based on market value and net asset value for a period of
less than one year have not been annualized.
(3) Ratios are stated as a percentage of average weekly net assets which
includes any liabilities constituting indebtednes in connection with
financial leverage.
(4) Exclusive of commercial paper expenses.
(5) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
26
------
C H A R T W E L L
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Chartwell Dividend and Income Fund, Inc. (the "Fund") was incorporated under the
laws of the State of Maryland on April 6, 1998 and is registered under the
Investment Company Act of 1940 (the "Act"), as amended, as a closed-end,
diversified management investment company. The Fund had no operations until June
17, 1998 when it sold 6,667 shares of common stock for $100,005 to Chartwell
Investment Partners, L.P. (the "Manager"). Investment operations commenced on
June 29, 1998. The Fund's primary investment objective is to seek high current
income. Capital appreciation is a secondary objective.
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
PORTFOLIO VALUATION: Portfolio securities listed or traded on a national
securities exchange, except for debt securities, are valued at the last sale
price as of the close of regular trading on the New York Stock Exchange.
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. Long-term debt securities 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. All securities and assets for which quotations are not
readily available are valued at fair value as determined in good faith and
pursuant to a method approved by the Board of Directors. Short-term investments
having a maturity of less than 60 days are valued at amortized cost.
CASH AND CASH EQUIVALENTS: Idle cash is swept into a money market fund at PNC
Bank, N.A., the Fund's custodian, and is classified as a cash equivalent.
Amounts so invested are generally available on the same business day.
WRITTEN OPTIONS: When the Fund writes a covered call option, an amount equal to
the premium received by the portfolio is included in the Fund's statement of
assets and liabilities as a liability. The amount of the liability will be
subsequently marked-to-market to reflect the current market value of the option
written.
When a covered written call expires on its stipulated expiration date, or if the
portfolio enters into a closing purchase transaction, the Fund will realize a
gain (or loss if the cost of the closing purchase transaction exceeds the
premium received when the call option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option will be extinguished. When a covered written call option is
exercised, the Fund will realize a gain or loss from the sale of the underlying
security and the proceeds of the sale are increased by the premium originally
received.
27
------
C H A R T W E L L
<PAGE>
FEDERAL INCOME TAXES: It is the Fund's intention to meet the requirements under
Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to
shareholders. Therefore, no provision for Federal income tax or excise tax is
required.
DIVIDENDS AND DISTRIBUTIONS: The Fund will declare and pay dividends to
shareholders monthly from net investment income and short-term gains. Long-term
capital gains, if any, in excess of loss carryforwards are distributed to
shareholders annually. Dividends and distributions to shareholders are recorded
on the ex-dividend date.
Dividends from net investment income and capital gain distributions are
determined in accordance with U.S. Federal income tax regulations, which may
differ from generally accepted accounting principles. For the year ended
November 30, 1999, the Fund's fixed dividend policy resulted in a tax return of
capital.
BORROWINGS: The Fund issues short-term commercial paper at a discount from par.
The discount is amortized over the life of the commercial paper using the
straight line method.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are recorded
on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis. The Fund accretes original issue discount on securities
using the effective interest method.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in the financial statements.
Actual results could differ from those estimates.
NOTE 2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS
WITH AFFILIATES
The Fund has entered into an investment management agreement with the Manager.
The Manager manages the Fund's portfolio and makes investment decisions. For
these services, the Fund pays the Manager a monthly fee at an annual rate of
0.95% of the Fund's Managed Assets. "Managed Assets" means the average weekly
value of the Fund's total assets minus the sum of the Fund's liabilities, which
liabilities exclude debt related to leverage, short-term debt and the aggregate
liquidation preference of any outstanding preferred stock.
28
------
C H A R T W E L L
<PAGE>
The Fund has entered into an administration agreement with Princeton
Administrators, L.P. (the "Administrator"). Under such agreement, the
Administrator performs or arranges for the performance of certain administrative
services necessary for the operation of the Fund. For these services, the Fund
pays the Administrator a monthly fee at an annual rate of 0.15% of the Fund's
average weekly Managed Assets, subject to a monthly minimum fee of $12,500.
Certain officers and/or directors of the Fund are officers and/or directors of
the Manager. The Fund pays each director who is not an "affiliated person" as
defined in the Act a fee of $4,000 per year plus $250 for each meeting attended.
For the year ended November 30, 1999, the Fund incurred fees of $124,168 to
Drinker Biddle & Reath LLP, counsel for the Fund. A partner of the firm is an
officer of the Fund.
NOTE 3. PURCHASE AND SALES OF INVESTMENTS
For the year ended November 30, 1999, purchases and sales of investments,
excluding short-term investments, totaled $320,938,646 and $267,080,629,
respectively.
At November 30, 1999, the cost and unrealized appreciation/depreciation of
investments for federal income tax purposes was as follows:
<TABLE>
<S> <C>
Cost of investments $267,512,155
============
Gross unrealized appreciation $ 6,415,282
Gross unrealized depreciation (27,560,135)
------------
Net unrealized depreciation $(21,144,853)
============
</TABLE>
The following table summarizes the Fund's call options written for the year
ended November 30, 1999.
<TABLE>
<S> <C> <C>
Number of
Contracts Premiums
---------- ------------
Options outstanding November 30, 1998....... -- --
Options written............................. 1,895 $224,520
Options expired............................. 1,476 (153,174)
Options exercised........................... 119 (22,873)
---------- ------------
Options outstanding November 30, 1999....... 300 $48,473
========== ============
</TABLE>
29
------
C H A R T W E L L
<PAGE>
NOTE 4. COMMERCIAL PAPER
As of November 30, 1999, $60,000,000 of commercial paper was outstanding with an
amortized cost of $59,440,442. The average discount rate of commercial paper
outstanding at November 30, 1999 was 5.49%. The average daily balance of
commercial paper outstanding from July 28, 1999 (date of issuance) through
November 30, 1999 was $59,688,983 at a weighted average discount rate of 5.78%.
The maximum amount of commercial paper outstanding at any time during the year
was $60,000,000. In conjunction with the issuance of the commercial paper, the
Fund entered into a line of credit arrangement with a bank for $30,000,000.
Interest on borrowing is based on market rates in effect at the time of
borrowing. The commitment fee is computed at the rate of 0.15% per annum on the
unused balance. During the year ended November 30, 1999, there were no
borrowings under this arrangement.
NOTE 5. CAPITAL STOCK
There are 100,000,000 shares of $0.01 par value common stock authorized. Of the
15,537,071 shares of common stock outstanding at November 30, 1999, the Manager
owned 7,565 shares.
Offering costs were charged to capital upon completion of the initial public
offering of the common stock.
For the year ended November 30, 1999 and for the period from June 29, 1998
(commencement of investment operations) to November 30, 1998, the Fund issued
73,622 and 156,782 shares respectively, in connection with the Fund's dividend
reinvestment plan.
NOTE 6. MARKET AND CREDIT RISKS
The Fund may invest in high-yielding fixed-income securities, which carry
ratings of BB or lower by S&P and/or Ba1 or lower by Moody's. Investments in
these higher-yielding securities may be accompanied by a greater degree of
credit risk than higher-rated securities. Additionally, lower-rated securities
may be more susceptible to adverse economic and competitive industry conditions
than investment-grade securities.
The Fund may invest up to 15% of its total assets in illiquid securities and
other securities which may not be readily marketable. In addition, the Fund may
purchase securities sold in reliance of Rule 144A of the Securities Act of 1933.
The relative illiquidity of some of the Fund's portfolio securities may
adversely affect the ability of the Fund to dispose of such securities in a
timely manner and at a fair price at times when it might be necessary or
advantageous for the Fund to liquidate portfolio securities.
30
------
C H A R T W E L L
<PAGE>
NOTE 7. SUBSEQUENT EVENT
The Board of Directors of the Fund declared the following dividends:
<TABLE>
<CAPTION>
DECLARATION RECORD PAYABLE DIVIDEND
DATE DATE DATE RATE
- --------------------- ----------------- ----------------- ----------
<S> <C> <C> <C>
December 1, 1999 December 15, 1999 December 30, 1999 $0.1033
January 3, 2000 January 18, 2000 January 31, 2000 $0.1033
</TABLE>
NOTE 8. CAPITAL LOSS CARRYFORWARDS
The following summarizes the capital loss carryforwards as of November 30, 1999.
This capital loss carryforward is available to offset future gains.
<TABLE>
<CAPTION>
EXPIRING IN FISCAL YEAR AMOUNT
- ------------------------ ----------
<S> <C>
2007 $8,880,257
</TABLE>
NOTE 9. RECLASS OF CAPITAL ACCOUNTS
In accordance with accounting pronouncements, the Fund has recorded several
reclassifications in the capital accounts. These reclassifications have no
impact on the net asset value of the Fund and are designed generally to present
undistributed income and realized gains on a tax basis which is considered to be
more informative to the shareholder. As of November 30, 1999, the Fund recorded
the following reclassifications to increase (decrease) the accounts listed
below:
<TABLE>
<CAPTION>
ACCUMULATED
UNDISTRIBUTED NET NET REALIZED
INVESTMENT INCOME (LOSS) GAIN (LOSS)
- -------------------------- ----------------
<S> <C>
$136,003 $(136,003)
</TABLE>
NOTE 10. POST OCTOBER LOSS
Under the current tax law, capital and currency losses realized after
October 31, 1999 may be deferred and treated as occurring on the first day of
the following fiscal year. For fiscal year ended November 30, 1999, the Fund
elected to defer capital losses occurring between November 1, 1999 and
November 30, 1999 in the amount of $2,194,275.
31
------
C H A R T W E L L
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Chartwell Dividend and Income Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, of cash
flows and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of the Chartwell Dividend and
Income Fund, Inc. (the "Fund") at November 30, 1999, the results of its
operations and cash flows for the year then ended, and the changes in its net
assets and the financial highlights for the year then ended and for the period
June 29, 1998 (commencement of operations) through November 30, 1998, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at November 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 12, 2000
AUTOMATIC DIVIDEND REINVESTMENT PLAN (unaudited)
Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the "Plan"), unless
a shareholder otherwise elects, all dividend and capital gains distributions
will be automatically reinvested in additional shares of common stock of the
Fund by PNC Bank, N.A., 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, N.A., as dividend paying agent.
Such participants may elect not to participate in the Plan and to receive all
distributions of dividends
32
------
C H A R T W E L L
<PAGE>
and capital gains in cash by sending written instructions to PNC Bank, N.A., as
dividend paying agent, at the address set forth below.
Participation in the Plan is completely voluntary and may be terminated or
resumed at any time without penalty by written notice if received by the Plan
Agent not less than ten days prior to any dividend record date. Otherwise such
termination will be effective with respect to any subsequently declared dividend
or distribution.
Whenever the Fund declares a distribution, an ordinary income dividend or a
capital gain dividend (collectively referred to as "dividends") payable either
in shares or in cash, non-participants in the Plan will receive cash, and
participants in the Plan will receive the equivalent in shares of common stock.
The shares will be acquired by the Plan Agent for the participant's account,
depending upon the circumstances described below, either (i) through receipt of
additional unissued but authorized shares of common stock from the Fund or
(ii) by purchase of outstanding shares of common stock on the open market on the
NYSE or elsewhere. If on the payment date of the dividend, the net asset value
per share of the common stock is equal to or less than the market price per
share plus estimated brokerage commissions (such condition being referred to
herein as "market premium"), the Plan Agent will invest the dividend amount in
newly issued shares on behalf of the participant. The number of newly issued
shares of common stock to be credited to the participant's account will be
determined by dividing the dollar amount of the dividend by the net asset value
per share on the date the shares are issued, provided that the maximum discount
from the then current market price per share on the date of issuance may not
exceed 5%. If on the dividend payment date the net asset value per share is
greater than the market value (such condition being referred to herein as
"market discount"), the Plan Agent will invest the dividend amount in shares
acquired on behalf of the participant in open-market purchases.
In the event of a market discount on the dividend payment date, the Plan Agent
will have until the last business day before the next date on which the shares
trade on the "ex-dividend" basis or in no event more than 30 days after the
dividend payment date to invest the dividend amount in shares acquired in
open-market purchases. If, before the Plan Agent has completed its open-market
purchases, the market price of a share of common stock exceeds the net asset
value per share, the average per share purchase price paid by the Plan Agent may
exceed the net asset value of the Fund's shares, resulting in the acquisition of
fewer shares than if the dividend had been paid in newly issued shares on the
dividend payment date. The Plan provides that if the Plan Agent is unable to
invest the full dividend amount in open-market purchases during the purchase
period or if the market discount shifts to market premium during the purchase
period, the Plan Agent will cease making open-market purchases and will invest
the uninvested portion of the dividend amount in newly issued shares at the
close of business on the last purchase date.
33
------
C H A R T W E L L
<PAGE>
The Plan Agent maintains all shareholders' accounts in the Plan and furnishes
written confirmation of all transactions in the accounts, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Plan Agent on behalf of the Plan participant,
and each shareholder's proxy will include those shares purchased or received
pursuant to the Plan. The Plan Agent will forward all proxy solicitation
materials to participants and vote proxies for shares held pursuant to the Plan
in accordance with the instructions of the participants.
In the case of shareholders such as banks, brokers or nominees which hold shares
for others who are the beneficial owners, the Plan Agent will administer the
Plan on the basis of the number of shares certified from time to time by the
record shareholders as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who are to
participate in the Plan.
There will be no brokerage charges with respect to shares issued directly by the
Fund as a result of dividends or capital gain distributions payable either in
shares or in cash. However, each participant will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open-market
purchases in connection with reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not relieve
participants of any federal, state or local income tax that may be payable (or
required to be withheld) on such dividends.
Shareholders participating in the Plan may receive benefits not available to
shareholders not participating in the Plan. If the market price plus commissions
of the Fund's shares is above the net asset value, participants in the Plan will
receive shares of the Fund at less than they could otherwise purchase them and
will have shares with a cash value greater than the value of any cash
distribution they would have received on their shares. If the market price plus
commissions is below the net asset value, participants will receive
distributions in shares with a net asset value greater than the value of any
cash distribution they would have received on their shares. However, there may
be insufficient shares available in the market to make distributions in shares
at prices below the net asset value. Also, since the Fund does not redeem its
shares, the price on resale may be more or less than the net asset value.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants in the Plan; however, the Fund reserves the right
to amend the Plan to include a service charge payable by the participants.
All correspondence concerning the Plan should be directed to the Plan Agent at
PNC Bank, N.A., c/o PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809,
Attn: Closed-End Department.
34
------
C H A R T W E L L
<PAGE>
FEDERAL TAX INFORMATION (UNAUDITED)
Information for federal income tax purposes is presented as an aid to
shareholders in reporting the dividend distributions for the year ended
November 30, 1999.
14.88% of the ordinary income distributions paid by the Fund during the year
ended November 30, 1999 qualifies for the dividends received deduction for
corporations.
ADDITIONAL INFORMATION (UNAUDITED)
During the period, there have been no material changes in the Fund's investment
objective or fundamental policies that have not been approved by the
shareholders. The By-Laws have been amended to give the Board of Directors
exclusive power to amend the By-Laws. There have been no changes in the
principal risk factors associated with investment in the Fund. There have been
no changes in the persons who are primarily responsible for the day-to-day
management of the Fund's portfolio.
EFFECTS OF LEVERAGE (UNAUDITED)
Leverage of $60 million in commercial paper was initially sold by the Fund on
July 28, 1999. During the fiscal year ended November 30, 1999, interest paid on
the commercial paper ranged from 5.23% to 6.07%. As of November 30, 1999, the
Fund had $30 million outstanding at 5.49% per annum maturing on December 27,
1999, and $30 million at 6.07% per annum maturing on February 28, 2000. All
interest rates include fees due to the broker-dealer. The Fund must experience
an annual return of 1.40% to cover interest payments on the commercial paper.
The following table explains the potential effects of leverage on the equity
returns of common shareholders:
<TABLE>
<S> <C> <C> <C> <C> <C>
Assumed return on -10.00% -5.00% 0.00% 5.00% 10.00%
portfolio (net of
expenses)
Corresponding return -14.80% -8.30% -1.80% 4.70% 11.20%
to common stockholder
</TABLE>
Assumes $200 million assets attributable to common shareholders; $60 million
aggregate leverage with an average interest rate of 6.0%. All figures appearing
above are hypothetical returns generated to assist investors in understanding
the effects of leverage. Actual returns may be greater or less than those
appearing in the table.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase, from time to time, shares of its
common stock in the open market.
35
------
C H A R T W E L L
<PAGE>
DIRECTORS
Winthrop S. Jessup, Chairman
Kenneth F. Herlihy
William Kronenberg III
Kevin A. Melich
Bernard P. Schaffer
OFFICERS
Winthrop S. Jessup, President
Bernard P. Schaffer, Vice President
Kevin A. Melich, Vice President
Timothy J. Riddle, Vice President and Treasurer
G. Gregory Hagar, Vice President
Leslie M. Varrelman, Vice President
Michael P. Malloy, Secretary
Maria E. Pollack, Assistant Secretary
INVESTMENT MANAGER
Chartwell Investment Partners, L.P.
1235 Westlakes Drive, Suite 330
Berwyn, PA 19312
ADMINISTRATOR
Princeton Administrators, L.P.
P.O. Box 9095
Princeton, NJ 08543
CUSTODIAN AND TRANSFER AGENT
PNC Bank, N.A.
400 Bellevue Parkway
Wilmington, DE 19809
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, PA 19103
LEGAL COUNSEL
Drinker Biddle & Reath LLP
One Logan Square
18th & Cherry Streets
Philadelphia, PA 19103
FOR MORE INFORMATION
Doster Esh
1235 Westlakes Drive, Suite 330
Berwyn, PA 19312
[email protected]
610-296-1400
This report, including the financial statements herein, is transmitted to the
shareholders of Chartwell Dividend and Income Fund, Inc. It is not a prospectus,
circular or representation intended for use in the purchase of shares of the
Fund or any securities mentioned in the report. Past performance results should
not be considered a representation of future performance.
Chrtw-11/99
