UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-7460
Exact name of registrant as specified in charter: Delaware Investments Dividend and Income
Fund, Inc.
Address of principal executive offices: 2005 Market Street
Philadelphia, PA 19103
Name and address of agent for service: Richelle S. Maestro, Esq.
2005 Market Street
Philadelphia, PA 19103
Registrant's telephone number, including area code: (800) 523-1918
Date of fiscal year end: November 30
Date of reporting period: May 31, 2005
Item 1. Reports to Stockholders
Delaware
Investments(R)
-----------------------------------
A member of Lincoln Financial Group
CLOSED END
SEMIANNUAL REPORT MAY 31, 2005
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DELAWARE INVESTMENTS
DIVIDEND AND INCOME FUND, INC.
[LOGO] POWERED BY RESEARCH.(SM)
TABLE
OF CONTENTS
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SECTOR ALLOCATION 1
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FINANCIAL STATEMENTS:
Statement of Net Assets 2
Statement of Operations 7
Statements of Changes in Net Assets 8
Statement of Cash Flows 9
Financial Highlights 10
Notes to Financial Statements 11
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OTHER FUND INFORMATION 14
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Funds are not FDIC insured and are not guaranteed. It is possible to lose
the principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a
series of Delaware Management Business Trust, which is a registered
investment advisor.
(C) 2005 Delaware Distributors, L.P.
SECTOR ALLOCATION As of May 31, 2005
DELAWARE INVESTMENTS DIVIDEND AND INCOME FUND, INC.
The SEC adopted a requirement that all funds present their categories of
portfolio holdings in a table, chart, or graph format in their annual and
semiannual shareholder reports. The following chart lists the Fund's categories
of portfolio holdings as a percentage of total net assets and is provided in
compliance with such requirement.
PERCENTAGE
SECTOR OF NET ASSETS
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COMMON STOCK 79.75%
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Consumer Discretionary 4.16%
Consumer Staples 5.78%
Energy 4.49%
Financials 12.44%
Health Care 9.50%
Healthcare REITs 0.21%
Industrials 3.26%
Industrial REITs 1.56%
Information Technology 4.52%
Mall REITs 5.10%
Manufactured Housing REITs 0.35%
Materials 1.35%
Mortgage REITs 8.83%
Multifamily REITs 0.53%
Office/Industrial REITs 3.10%
Office REITs 5.01%
Retail Strip Centers REITs 1.63%
Telecommunication Services 4.81%
Utilities 3.12%
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CONVERTIBLE PREFERRED STOCK 4.89%
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Consumer Products 1.39%
Diversified REITs 0.81%
Environmental Services 0.45%
Financial 1.49%
Telecommunications 0.75%
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PREFERRED STOCK 6.46%
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Leisure, Lodging & Entertainment 0.94%
Lodging/Resort REITs 2.45%
Office REITs 1.26%
Retail Strip Centers REITs 0.65%
Utilities 1.16%
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COMMERCIAL MORTGAGE-BACKED SECURITIES 0.27%
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PERCENTAGE
SECTOR OF NET ASSETS
-------------------------------------------------------------------------
CONVERTIBLE BONDS 3.47%
-------------------------------------------------------------------------
Capital Goods - Manufacturing 0.20%
Consumer Cyclical 1.90%
Technology 0.63%
Transportation 0.09%
Utilities 0.65%
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CORPORATE BONDS 35.44%
-------------------------------------------------------------------------
Capital Goods - Manufacturing 3.37%
Chemicals 1.37%
Consumer Cyclical 2.81%
Consumer Non-Cyclical 2.49%
Energy 2.98%
Finance 1.33%
Forest/Paper Products 3.92%
Gaming 2.21%
Health Care 1.33%
Media 4.21%
Metals/Mining 0.24%
Retail 0.15%
Technology 0.74%
Telecommunications 3.45%
Textile & Apparel 0.33%
Transportation 1.71%
Utilities 2.80%
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U.S. TREASURY OBLIGATIONS 3.14%
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WARRANTS 0.00%
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SECURITIES LENDING COLLATERAL 16.87%
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TOTAL MARKET VALUE OF SECURITIES 150.29%
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OBLIGATIONS TO RETURN SECURITIES LENDING COLLATERAL (16.87%)
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COMMERCIAL PAPER PAYABLE (33.43%)
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RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.01%
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TOTAL NET ASSETS 100.00%
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1
DELAWARE INVESTMENTS DIVIDEND AND INCOME FUND, INC.
STATEMENT May 31, 2005 (Unaudited)
OF NET ASSETS
Number of Market
Shares Value
COMMON STOCK - 79.75%
Consumer Discretionary - 4.16%
Gap 113,213 $ 2,377,473
Limited Brands 102,900 2,116,653
Mattel 124,000 2,254,320
*+XM Satellite Radio Holdings Class A 2,000 64,220
-----------
6,812,666
-----------
Consumer Staples - 5.78%
Archer-Daniels-Midland 105,000 2,084,250
ConAgra Foods 92,400 2,416,260
Kimberly-Clark 39,100 2,515,303
Safeway 111,300 2,449,713
-----------
9,465,526
-----------
Energy - 4.49%
Chevron 44,100 2,371,698
ConocoPhillips 22,800 2,458,752
Exxon Mobil 42,500 2,388,500
*+Petroleum Geo-Services ADR 1,989 134,755
-----------
7,353,705
-----------
Financials - 12.44%
Allstate 46,800 2,723,760
Aon 107,000 2,667,510
Chubb 32,000 2,695,360
Hartford Financial Services 36,000 2,692,440
Huntington Bancshares 103,400 2,411,288
Morgan Stanley 43,500 2,129,760
Wachovia 49,100 2,491,825
Washington Mutual 61,900 2,556,470
-----------
20,368,413
-----------
Health Care - 9.50%
Abbott Laboratories 53,100 2,561,544
Baxter International 66,100 2,439,090
Bristol-Myers Squibb 104,700 2,655,192
Merck 80,100 2,598,444
Pfizer 97,500 2,720,250
Wyeth 59,500 2,580,515
-----------
15,555,035
-----------
Healthcare REITs - 0.21%
#Medical Properties Trust 144A 35,000 351,750
-----------
351,750
-----------
Industrials - 3.26%
Boeing 43,800 2,798,820
*+Foster Wheeler 8,434 124,821
Union Pacific 36,000 2,410,560
-----------
5,334,201
-----------
Industrial REITs - 1.56%
AMB Property 63,300 2,551,623
-----------
2,551,623
-----------
Information Technology - 4.52%
Hewlett-Packard 116,200 2,615,662
International Business Machines 32,800 2,478,040
+Xerox 170,000 2,306,900
-----------
7,400,602
-----------
Mall REITs - 5.10%
*General Growth Properties 113,538 4,420,034
*Simon Property Group 57,300 3,937,656
-----------
8,357,690
-----------
Number of Market
Shares Value
COMMON STOCK (continued)
Manufactured Housing REITs - 0.35%
*Sun Communities 16,000 $ 576,000
-----------
576,000
-----------
Materials - 1.35%
Weyerhaeuser 34,600 2,219,590
-----------
2,219,590
-----------
Mortgage REITs - 8.83%
*American Home Mortgage Investment 98,400 3,203,904
Fieldstone Investment 84,800 1,132,928
*Friedman Billings Ramsey Group Class A 95,495 1,246,210
+#KKR Financial 144A 182,600 1,871,650
*MortgageIT Holdings 187,000 3,169,650
+#Peoples Choice 144A 176,700 1,767,000
*Saxon Capital 122,400 2,072,232
-----------
14,463,574
-----------
Multifamily REITs - 0.53%
*Education Realty Trust 50,900 873,953
-----------
873,953
-----------
Office/Industrial REITs - 3.10%
*Duke Realty 83,900 2,589,993
Liberty Property Trust 60,270 2,488,548
-----------
5,078,541
-----------
Office REITs - 5.01%
Equity Office Properties Trust 89,400 2,904,606
*Prentiss Properties Trust 73,572 2,538,234
*Reckson Associates Realty 87,420 2,761,598
-----------
8,204,438
-----------
Retail Strip Centers REITs - 1.63%
*Ramco-Gershenson Properties Trust 96,400 2,675,100
-----------
2,675,100
-----------
Telecommunication Services - 4.81%
*+Fairpoint Communications 180,000 2,802,600
SBC Communications 108,300 2,532,054
Verizon Communications 71,800 2,540,284
-----------
7,874,938
-----------
Utilities - 3.12%
Energy East 90,300 2,528,400
FPL Group 63,500 2,581,275
-----------
5,109,675
-----------
TOTAL COMMON STOCK (cost $113,800,365) 130,627,020
-----------
CONVERTIBLE PREFERRED STOCK - 4.89%
Consumer Products - 1.39%
Newell Financial Trust I 5.25% 52,600 2,274,950
-----------
2,274,950
-----------
Diversified REITs - 0.81%
Crescent Real Estate 6.75% 62,600 1,320,860
-----------
1,320,860
-----------
Environmental Services - 0.45%
Allied Waste Industries 6.25% 16,200 734,022
-----------
734,022
-----------
Financial - 1.49%
*Chubb 7.00% 15,000 465,450
Lehman Brothers Holdings 6.25% 16,000 424,000
2
STATEMENT DELAWARE INVESTMENTS DIVIDEND AND INCOME FUND, INC.
OF NET ASSETS (CONTINUED)
Number of Market
Shares Value
CONVERTIBLE PREFERRED STOCK (continued)
Financial (continued)
National Australia Bank Units 7.875% 40,000 $ 1,568,000
-----------
2,457,450
-----------
Telecommunications - 0.75%
Lucent Technologies Capital Trust I 7.75% 1,300 1,227,200
-----------
1,227,200
-----------
TOTAL CONVERTIBLE PREFERRED STOCK
(cost $8,895,050) 8,014,482
-----------
PREFERRED STOCK - 6.46%
Leisure, Lodging & Entertainment - 0.94%
WestCoast Hospitality Capital Trust 9.50% 58,000 1,532,360
-----------
1,532,360
-----------
Lodging/Resort REITs - 2.45%
Equity Inns Series B 8.75% 35,700 946,050
LaSalle Hotel Properties 10.25% 113,200 3,072,814
-----------
4,018,864
-----------
Office REITs - 1.26%
SL Green Realty 7.625% 80,000 2,065,000
-----------
2,065,000
-----------
Retail Strip Centers REITs - 0.65%
Ramco-Gershenson Properties 9.50% 40,000 1,061,200
-----------
1,061,200
-----------
Utilities - 1.16%
Public Service Enterprise Group 10.25% 27,200 1,894,480
-----------
1,894,480
-----------
TOTAL PREFERRED STOCK (cost $9,564,868) 10,571,904
-----------
Principal
Amount
COMMERCIAL MORTGAGE-BACKED SECURITIES - 0.27%
#Meristar Commercial Mortgage Trust
Series 1999-C1 C 144A 8.29% 3/3/16 $ 400,000 439,477
-----------
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES
(cost $445,969) 439,477
-----------
CONVERTIBLE BONDS - 3.47%
Capital Goods - Manufacturing - 0.20%
#Tyco International Group
144A 2.75% 1/15/18 250,000 321,875
-----------
321,875
-----------
Consumer Cyclical - 1.90%
Meristar Hospitality 9.50% 4/1/10 1,100,000 1,395,624
#Playboy Enterprises 144A 3.00% 3/15/25 600,000 549,000
#Regal Entertainment Group
144A 3.75% 5/15/08 550,000 732,875
#Saks 144A 2.00% 3/15/24 425,000 432,969
-----------
3,110,468
-----------
Technology - 0.63%
#Mercury Interactive 144A 4.75% 7/1/07 550,000 536,938
#Sybase Convertible 144A 1.75% 2/22/25 500,000 501,875
-----------
1,038,813
-----------
Transportation - 0.09%
*#ExpressJet Holdings 144A 4.25% 8/1/23 200,000 148,000
-----------
148,000
-----------
Principal Market
Amount Value
CONVERTIBLE BONDS (continued)
Utilities - 0.65%
*#CenterPoint Energy 144A 3.75% 5/15/23 $ 800,000 $ 913,000
*++Mirant 2.50% 6/15/21 200,000 154,000
----------
1,067,000
----------
TOTAL CONVERTIBLE BONDS (cost $5,129,838) 5,686,156
----------
CORPORATE BONDS - 35.44%
Capital Goods - Manufacturing - 3.37%
*Allied Waste North America 9.25% 9/1/12 575,000 621,000
Anchor Glass 11.00% 2/15/13 425,000 344,250
*Armor Holdings 8.25% 8/15/13 475,000 511,756
Casella Waste Systems 9.75% 2/1/13 400,000 430,000
*Cenveo 9.625% 3/15/12 200,000 215,500
Foster Wheeler 10.359% 9/15/11 206,250 212,953
Geo Subordinate 11.00% 5/15/12 470,000 474,700
#Graham Packaging 144A 9.875% 10/15/14 500,000 498,750
#IMCO Recycling 144A 9.00% 11/15/14 295,000 309,750
Interline Brands 11.50% 5/15/11 576,000 636,480
?Mueller Holdings 14.75% 4/15/14 550,000 400,125
*#Park-Ohio Industries 144A 8.375% 11/15/14 225,000 186,750
Radnor Holdings
o9.891% 4/15/09 235,000 236,175
11.00% 3/15/10 175,000 129,063
Trimas 9.875% 6/15/12 375,000 305,625
----------
5,512,877
----------
Chemicals - 1.37%
*#Huntsman International
144A 7.375% 1/1/15 425,000 423,938
*Lyondell Chemical 9.875% 5/1/07 250,000 257,500
*Nalco 8.875% 11/15/13 275,000 288,750
Rhodia
*8.875% 6/1/11 250,000 241,250
10.25% 6/1/10 235,000 251,450
++Solutia 6.72% 10/15/37 700,000 539,000
Witco 6.875% 2/1/26 250,000 241,250
----------
2,243,138
----------
Consumer Cyclical - 2.81%
#Accuride 144A 8.50% 2/1/15 450,000 416,250
*Advanced Accessory Systems
10.75% 6/15/11 245,000 184,975
++Avado Brands 9.75% 6/1/06 230,000 33,350
*#Carrols 144A 9.00% 1/15/13 385,000 392,700
#Dana 144A 5.85% 1/15/15 100,000 85,500
Denny's 10.00% 10/1/12 430,000 435,375
#Gaylord Entertainment
144A 6.75% 11/15/14 325,000 313,625
Interface 10.375% 2/1/10 350,000 376,250
#Landry's Restaurant 144A 7.50% 12/15/14 605,000 565,675
#Lone Star Industries 144A 8.85% 6/15/05 300,000 300,000
Nortek 8.50% 9/1/14 150,000 135,000
O'Charleys 9.00% 11/1/13 445,000 471,700
Perkins Family Restaurants
10.125% 12/15/07 20,000 20,300
*Royal Caribbean Cruises 7.25% 3/15/18 400,000 418,000
?Town Sports International 11.00% 2/1/14 275,000 159,500
#Uno Restaurant 144A 10.00% 2/15/11 300,000 295,500
++Venture Holdings 12.00% 6/1/09 425,000 531
----------
4,604,231
----------
3
STATEMENT DELAWARE INVESTMENTS DIVIDEND AND INCOME FUND, INC.
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
CORPORATE BONDS (continued)
Consumer Non-Cyclical - 2.49%
#Commonwealth Brands
144A 10.625% 9/1/08 $ 460,000 $ 484,150
Corrections Corporation of America
7.50% 5/1/11 475,000 489,844
Cott Beverages 8.00% 12/15/11 375,000 399,375
*Great Atlantic & Pacific Tea 7.75% 4/15/07 300,000 308,250
#Knowledge Learning 144A 7.75% 2/1/15 315,000 297,675
#Le-Natures 144A 10.00% 6/15/13 550,000 569,250
*National Beef Packing 10.50% 8/1/11 330,000 318,450
Pilgrim's Pride 9.625% 9/15/11 410,000 451,000
*Pinnacle Foods 8.25% 12/1/13 200,000 172,000
#Rite Aid 144A 7.50% 1/15/15 250,000 231,250
True Temper Sports 8.375% 9/15/11 395,000 359,450
----------
4,080,694
----------
Energy - 2.98%
Bluewater Finance 10.25% 2/15/12 390,000 409,500
#Chesapeake Energy 144A 6.625% 1/15/16 200,000 207,750
CMS Energy 9.875% 10/15/07 250,000 272,500
#Dynegy Holdings 144A 10.125% 7/15/13 700,000 780,499
El Paso Natural Gas 7.625% 8/1/10 200,000 212,021
El Paso Production Holding 7.75% 6/1/13 545,000 568,163
=#Geophysique 144A 7.50% 5/15/15 150,000 150,750
#Hilcorp Energy I 144A 10.50% 9/1/10 410,000 453,050
#Inergy Finance 144A 6.875% 12/15/14 250,000 235,000
Midland Funding II 11.75% 7/23/05 60,226 61,081
Petroleum Geo-Services
*8.00% 11/5/06 59,202 60,608
10.00% 11/5/10 524,909 585,274
oSecunda International 11.141% 9/1/12 260,000 247,000
*Tennessee Gas Pipeline 8.375% 6/15/32 350,000 407,548
Whiting Petroleum 7.25% 5/1/13 235,000 235,000
----------
4,885,744
----------
Finance - 1.33%
#America Real Estate 144A 7.125% 2/15/13 350,000 344,750
BF Saul REIT 7.50% 3/1/14 125,000 130,000
*E Trade Financial 8.00% 6/15/11 555,000 582,750
#Farmers Exchange Capital
144A 7.20% 7/15/48 250,000 268,484
LaBranche & Company 11.00% 5/15/12 365,000 394,200
*Tanger Properties 9.125% 2/15/08 425,000 460,063
----------
2,180,247
----------
Forest/Paper Products - 3.92%
Abitibi-Consolidated 6.95% 12/15/06 350,000 353,500
#Boise Cascade 144A 7.125% 10/15/14 505,000 483,538
Bowater 9.50% 10/15/12 585,000 631,799
Fort James 7.75% 11/15/23 925,000 1,061,437
MDP Acquisitions 9.625% 10/1/12 555,000 545,288
#NewPage 144A 10.00% 5/1/12 250,000 245,625
Norske Skog 8.625% 6/15/11 570,000 584,250
#Port Townsend Paper 144A 12.00% 4/15/11 450,000 438,750
Potlatch 12.50% 12/1/09 475,000 594,343
Smurfit Capital Funding 7.50% 11/20/25 500,000 452,500
Stone Container 9.75% 2/1/11 525,000 557,813
Tembec Industries 8.625% 6/30/09 575,000 468,625
----------
6,417,468
----------
Gaming - 2.21%
Ameristar Casinos 10.75% 2/15/09 675,000 740,813
Boyd Gaming 9.25% 8/1/09 761,000 803,806
Principal Market
Amount Value
CORPORATE BONDS (continued)
Gaming (continued)
Caesars Entertainment 9.375% 2/15/07 $ 175,000 $ 187,688
*Mandalay Resort Group 10.25% 8/1/07 35,000 38,588
MGM MIRAGE 9.75% 6/1/07 275,000 298,719
Penn National Gaming 8.875% 3/15/10 900,000 969,749
Wheeling Island Gaming 10.125% 12/15/09 550,000 585,750
----------
3,625,113
----------
Health Care - 1.33%
NDCHealth 10.50% 12/1/12 340,000 362,950
Universal Hospital Services 10.125% 11/1/11 190,000 192,850
US Oncology 10.75% 8/15/14 500,000 547,500
Vangaurd Health 9.00% 10/1/14 475,000 515,375
#Ventas Realty 144A 7.125% 6/1/15 200,000 205,000
*#Warner Chilcott 144A 8.75% 2/1/15 365,000 354,050
----------
2,177,725
----------
Media - 4.21%
*JAdelphia Communications 8.125% 7/15/06 525,000 454,125
American Media Operation 10.25% 5/1/09 200,000 206,500
#Charter Communications
144A 5.875% 11/16/09 165,000 102,300
Charter Communications Holdings
10.75% 10/1/09 1,435,000 1,119,299
*CSC Holdings 10.50% 5/15/16 695,000 764,500
Dex Media West 9.875% 8/15/13 100,000 114,750
Insight Midwest 10.50% 11/1/10 800,000 856,000
*Lodgenet Entertainment 9.50% 6/15/13 550,000 594,000
Mediacom Broadband 11.00% 7/15/13 600,000 652,500
*Nextmedia Operating 10.75% 7/1/11 580,000 635,100
Sheridan Acquisition 10.25% 8/15/11 225,000 231,750
Warner Music Group 7.375% 4/15/14 575,000 575,000
XM Satellite Radio 12.00% 6/15/10 525,000 589,313
----------
6,895,137
----------
Metals/Mining - 0.24%
#Novelis 144A 7.25% 2/15/15 400,000 394,000
----------
394,000
----------
Retail - 0.15%
*Adesa 7.625% 6/15/12 250,000 250,000
----------
250,000
----------
Technology - 0.74%
#Magnachip Semiconductor
144A 8.00% 12/15/14 410,000 358,750
Sanmina-SCI 10.375% 1/15/10 325,000 360,750
#Telcordia Technologies
144A 10.00% 3/15/13 550,000 484,000
----------
1,203,500
----------
Telecommunications - 3.45%
Alaska Communications Systems Holdings
9.875% 8/15/11 375,000 396,563
American Cellular 10.00% 8/1/11 240,000 235,200
*American Tower 7.125% 10/15/12 50,000 52,063
*Centennial Cellular Operating
10.125% 6/15/13 315,000 353,194
*Cincinnati Bell 8.375% 1/15/14 625,000 621,874
*?Inmarsat Finance 10.375% 11/15/12 575,000 428,375
iPCS 11.50% 5/1/12 200,000 220,000
#Iwo Escrow 144A
o6.891% 1/15/12 75,000 75,000
?10.75% 1/15/15 75,000 48,000
4
STATEMENT DELAWARE INVESTMENTS DIVIDEND AND INCOME FUND, INC.
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
CORPORATE BONDS (CONTINUED)
Telecommunications (continued)
MCI
6.908% 5/1/07 $ 250,000 $ 254,688
7.688% 5/1/09 535,000 561,749
MetroPCS 10.75% 10/1/11 225,000 269,487
#New Skies Satellite 144A 9.125% 11/1/12 180,000 179,100
PanAmSat 9.00% 8/15/14 275,000 300,438
#Qwest 144A 7.875% 9/1/11 115,000 119,888
#Qwest Services 144A 13.50% 12/15/10 525,000 601,124
Rural Cellular
*9.625% 5/15/08 250,000 231,250
9.875% 2/1/10 100,000 99,250
*oUS LEC 11.89% 10/1/09 225,000 231,750
US Unwired 10.00% 6/15/12 10,000 11,000
#Valor Telecom 144A 7.75% 2/15/15 375,000 366,563
-----------
5,656,556
-----------
Textile & Apparel - 0.33%
Warnaco 8.875% 6/15/13 500,000 547,500
-----------
547,500
-----------
Transportation - 1.71%
?#H-Lines Finance Holding
144A 11.00% 4/1/13 555,000 432,900
#Horizon Lines 144A 9.00% 11/1/12 275,000 290,469
Kansas City Southern Railway
9.50% 10/1/08 400,000 438,500
OMI 7.625% 12/1/13 435,000 432,825
Seabulk International 9.50% 8/15/13 500,000 568,749
Stena 9.625% 12/1/12 375,000 411,563
Ultrapetrol 9.00% 11/24/14 250,000 226,250
-----------
2,801,256
-----------
Utilities - 2.80%
Avista 9.75% 6/1/08 500,000 569,309
Calpine
8.25% 8/15/05 225,000 217,125
10.50% 5/15/06 155,000 130,975
o#Calpine 144A 8.891% 7/15/07 338,963 262,696
Elwood Energy 8.159% 7/5/26 219,203 248,247
Midwest Generation
8.30% 7/2/09 500,000 520,000
8.75% 5/1/34 425,000 476,000
*++Mirant Americas Generation 7.625% 5/1/06 400,000 463,000
#NRG Energy 144A 8.00% 12/15/13 290,000 307,400
Orion Power Holdings 12.00% 5/1/10 250,000 300,000
PSE&G Energy Holdings 7.75% 4/16/07 250,000 258,750
*Reliant Energy 9.50% 7/15/13 250,000 273,750
#Texas Genco 144A 6.875% 12/15/14 300,000 309,750
#USGen New England 144A 7.459% 1/2/15 250,000 241,250
-----------
4,578,252
-----------
TOTAL CORPORATE BONDS (cost $58,278,053) 58,053,438
-----------
U.S. Treasury Obligations - 3.14%
*^Treasury Bill 2.677% 7/7/05 5,150,000 5,136,265
TOTAL U.S. TREASURY OBLIGATIONS
(cost $5,136,265) 5,136,265
-----------
Number of Market
Shares Value
WARRANTS - 0.00%
+#Solutia 144A, exercise price $7.59,
expiration date 7/15/09 650 $ 0
-----------
TOTAL WARRANTS (cost $55,294) 0
-----------
TOTAL MARKET VALUE OF SECURITIES BEFORE
SECURITIES LENDING COLLATERAL - 133.42 %
(cost $201,305,702) 218,528,742
-----------
Principal
Amount
SECURITIES LENDING COLLATERAL** - 16.87%
Short-Term Investments
Abbey National 3.13% 1/13/06 $ 586,793 586,793
Australia New Zealand 3.08% 6/23/06 792,637 792,637
Bank of New York 3.06% 4/4/06 634,109 634,109
Bank of the West 3.06% 3/2/06 792,794 792,637
Barclays London 3.10% 7/21/05 792,660 792,647
Barclays New York 3.12% 6/1/05 79,251 79,251
Bayerische Landesbank 3.08% 6/30/06 792,465 792,637
Bear Stearns
3.14% 1/17/06 158,523 158,608
3.15% 11/30/05 792,237 792,637
Beta Finance 3.08% 4/18/06 792,704 792,557
Citigroup Global Markets
3.10% 6/1/05 6,349,879 6,349,879
3.13% 6/7/05 856,048 856,048
Credit Suisse First Boston New York
3.07% 4/18/06 856,048 856,048
3.10% 12/29/05 166,417 166,463
Deutsche Bank London 3.10% 7/11/05 634,116 634,109
Goldman Sachs 3.20% 5/31/06 871,813 871,900
Lehman Holdings 3.14% 12/23/05 792,774 793,350
Marshall & Ilsley Bank 3.05% 12/29/05 792,697 792,673
Merrill Lynch Mortgage Capital
3.16% 7/12/05 792,637 792,637
Morgan Stanley
3.21% 6/30/06 158,373 158,527
3.24% 5/31/06 79,216 79,264
National City Bank Cleveland 3.06% 1/23/06 903,717 903,655
Pfizer 3.05% 6/30/06 760,931 760,931
Proctor & Gamble 2.93% 6/30/06 792,637 792,637
Royal Bank of Canada 3.05% 6/27/05 792,615 792,615
Royal Bank of Scotland 3.06% 6/30/06 792,551 792,637
Sigma Finance 3.06% 9/30/05 745,086 745,002
Societe Generale New York 3.06% 6/14/05 715,975 715,946
Sun Trust Bank 3.08% 8/5/05 396,297 396,297
Wal Mart Stores 3.03% 6/21/05 947,817 946,233
Washington Mutual Bank 3.10% 7/8/05 792,622 792,637
Wells Fargo 3.06% 6/30/06 792,637 792,637
Wilmington Trust Company 2.96% 6/3/05 634,332 634,331
-----------
TOTAL SECURITIES LENDING COLLATERAL
(cost $27,630,969) 27,630,969
-----------
5
STATEMENT DELAWARE INVESTMENTS DIVIDEND AND INCOME FUND, INC.
OF NET ASSETS (CONTINUED)
TOTAL MARKET VALUE OF SECURITIES - 150.29%
(cost $228,936,671) $246,159,711
OBLIGATION TO RETURN SECURITIES LENDING
COLLATERAL - (16.87%)** (27,630,969)
COMMERCIAL PAPER PAYABLE
(PAR $55,000,000) - (33.43%) (54,749,369)
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 0.01% 15,252
------------
NET ASSETS APPLICABLE TO 12,876,300 SHARES OUTSTANDING;
EQUIVALENT TO $12.72 PER SHARE - 100.00% $163,794,625
============
COMPONENTS OF NET ASSETS AT MAY 31, 2005:
Common stock, $0.01 par value, 500,000,000
shares authorized to the Fund $149,351,344
Accumulated net realized loss on investments (2,779,759)
Net unrealized appreciation of investments 17,223,040
------------
Total net assets $163,794,625
============
?Step Coupon Bond. Indicates security that has a zero coupon that remains in
effect until a predetermined date at which time the stated interest rate
becomes effective.
#Security exempt from registration under Rule 144A of the Securities Act of
1933. See Note 8 in "Notes to Financial Statements."
^U.S. Treasury bills are traded on a discount basis; the interest rate shown
is the yield at the time of purchase.
*Fully or partially on loan.
**See Note 7 in "Notes to Financial Statements."
***Includes $27,419,854 of securities loaned.
++Non-income producing security. Security is currently in default.
JSecurity is currently in default. The issue has missed the maturity date.
Bankruptcy proceedings are in the process to determine distribution of
assets. The date listed is the estimated of when the proceedings will be
finalized.
oVariable rate notes. The interest rate shown is the rate as of May 31, 2005.
=Security is being fair valued in accordance with the Fund's fair valuation
policy. See Note 1 in "Notes to Financial Statements." At May 31, 2005, one
security was fair valued that represented 0.09% of the Fund's net assets.
+Non-income producing security for the period ending May 31, 2005.
SUMMARY OF ABBREVIATIONS:
ADR - American Depositary Receipts
REIT - Real Estate Investment Trust
See accompanying notes
6
STATEMENT DELAWARE INVESTMENTS DIVIDEND AND INCOME FUND, INC.
OF OPERATIONS Six Months Ended May 31, 2005 (Unaudited)
INVESTMENT INCOME:
Dividends $2,651,434
Interest 2,714,259
Foreign tax withheld (11,583)
Securities lending income 35,147 $ 5,389,257
---------- -----------
EXPENSES:
Management fees 609,133
Commercial paper fees 72,322
Reports to shareholders 66,630
Accounting and administration expenses 55,328
Transfer agent fees 32,050
Legal and professional fees 31,568
NYSE fees 12,499
Taxes (other than taxes on income) 7,540
Directors' fees 4,616
Pricing fees 2,981
Custodian fees 1,936
Registration fees 202
Other 3,221
----------
Total operating expenses (before interest expense) 900,026
Interest expense 741,470
-----------
Total operating expenses (after interest expense) 1,641,496
-----------
Total expenses 1,641,496
-----------
NET INVESTMENT INCOME 3,747,761
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investments 12,690,198
Foreign currencies (1,103)
-----------
Net realized gain 12,689,095
Net change in unrealized appreciation/depreciation of investments and foreign currencies (13,390,484)
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCIES (701,389)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,046,372
===========
See accompanying notes
7
STATEMENTS DELAWARE INVESTMENTS DIVIDEND AND INCOME FUND, INC.
OF CHANGES IN NET ASSETS
Six Months Year
Ended Ended
5/31/05 11/30/04
(Unaudited)
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 3,747,761 $ 8,051,445
Net realized gain on investments and foreign currencies 12,689,095 9,067,747
Net change in unrealized appreciation/depreciation of investments and foreign currencies (13,390,484) 11,577,007
------------ ------------
Net increase in net assets resulting from operations 3,046,372 28,696,199
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM (SEE NOTE 4):
Net investment income (3,912,778) (8,531,887)
Net realized gains -- (3,830,110)
Return of capital (2,268,088) --
------------ ------------
(6,180,866) (12,361,997)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS (3,134,494) 16,334,202
NET ASSETS:
Beginning of period 166,929,119 150,594,917
------------ ------------
End of period (there was no undistributed net investment income at either period end) $163,794,625 $166,929,119
============ ============
See accompanying notes
8
STATEMENT DELAWARE INVESTMENTS DIVIDEND AND INCOME FUND, INC.
OF CASH FLOWS Six Months Ended May 31, 2005 (Unaudited)
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 3,046,372
-----------
Adjustments to reconcile net increase in net assets from operations to cash provided by operating activities:
Amortization of premium and discount on securities purchased (107,990)
Net proceeds from investment transactions 1,643,889
Net realized gain from investment transactions (12,690,198)
Net realized loss on foreign currencies 1,103
Change in net unrealized appreciation/depreciation 13,390,484
Decrease in receivable for investments sold 651,209
Increase in interest and dividends receivable (30,000)
Decrease in payable for investments purchased (739,360)
Increase in interest payable 65,355
Increase in accrued expenses and other liabilities 74,055
-----------
Total adjustments 2,258,547
-----------
Net cash provided by operating activities 5,304,919
-----------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Cash provided by issuance of commercial paper 137,168,243
Repayment of commercial paper upon maturity (137,323,885)
Cash dividends and distributions paid (6,180,866)
-----------
Net cash used for financing activities (6,336,508)
-----------
Effect of exchange rates on cash (1,103)
-----------
Net decrease in cash (1,032,692)
Cash at beginning of period 17,543
-----------
Cash (overdraft) at end of period $(1,015,149)
===========
Cash paid for interest $ 676,115
===========
See accompanying notes
9
FINANCIAL
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Investments Dividend and Income Fund, Inc.
-----------------------------------------------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
5/31/05(5) 11/30/04 11/30/03 11/30/02(4) 11/30/01 11/30/00
(Unaudited)
NET ASSET VALUE, BEGINNING OF PERIOD $12.960 $11.700 $10.140 $11.630 $11.590 $13.000
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income(3) 0.291 0.625 0.711 0.635 0.617 0.803
Net realized and unrealized gain (loss) on investments
and foreign currencies (0.051) 1.595 1.989 (0.650) 0.923 (0.713)
------- ------- ------- ------- ------- -------
Total from investment operations 0.240 2.220 2.700 (0.015) 1.540 0.090
------- ------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.304) (0.663) (0.714) (0.660) (0.617) (0.803)
Net realized gain on investments -- (0.297) -- -- (0.080) (0.560)
Return of capital (0.176)(6) -- (0.426) (0.815) (0.803) (0.137)
------- ------- ------- ------- ------- -------
Total dividends and distributions (0.480) (0.960) (1.140) (1.475) (1.500) (1.500)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $12.720 $12.960 $11.700 $10.140 $11.630 $11.590
======= ======= ======= ======= ======= =======
MARKET VALUE, END OF PERIOD $11.990 $11.760 $11.840 $10.020 $13.850 $11.875
======= ======= ======= ======= ======= =======
TOTAL RETURN BASED ON:(1)
Market value 6.11% 7.78% 30.20% (18.98%) 30.20% 19.78%
Net asset value 2.06% 20.29% 27.13% (2.36%) 12.02% 1.17%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $163,795 $166,929 $150,595 $130,560 $149,718 $149,292
Ratio of expenses to average net assets 1.98% 1.51% 1.63% 1.86% 2.77% 3.02%
Ratio of expenses to adjusted average net assets
(before interest expense)(2) 0.81% 0.76% 0.79% 0.80% 0.83% 0.71%
Ratio of interest expense to adjusted average net assets(2) 0.67% 0.36% 0.37% 0.54% 1.22% 1.58%
Ratio of net investment income to average net assets 4.50% 5.10% 6.70% 5.69% 5.07% 6.45%
Ratio of net investment income to adjusted average net
assets(2) 3.40% 3.78% 4.78% 4.12% 3.75% 4.88%
Portfolio turnover 124% 89% 175% 107% 61% 47%
LEVERAGE ANALYSIS:
Debt outstanding at end of period at par (000 omitted) $55,000 $55,000 $55,000 $55,000 $55,000 $55,000
Average daily balance of debt outstanding (000 omitted) $54,810 $54,893 $54,882 $54,857 $54,724 $54,463
Average daily balance of shares outstanding (000 omitted) 12,876 12,876 12,876 12,876 12,876 13,744
Average debt per share $4.260 $4.260 $4.262 $4.260 $4.250 $3.963
Asset coverage per $1,000 of debt outstanding at end
of period $3,992 $4,044 $3,743 $3,379 $3,730 $3,738
(1) 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. Dividends and distributions, if any, are assumed for
the purpose of this calculation, to be reinvested at prices obtained under
the Fund's dividend reinvestment plan. Generally, total investment return
based on net asset value will be higher than total investment return based
on market value in periods where there is an increase in the discount or
decrease in the premium of the market value to the net asset value from the
beginning to the end of such periods. Conversely, total investment return
based on net asset value will be lower than total investment return based on
market value in periods where there is a decrease in the discount or an
increase in the premium of the market value to the net asset value from the
beginning to the end of such periods.
(2) Adjusted average net assets excludes debt outstanding.
(3) The average shares outstanding method has been applied for per share
information.
(4) As required, effective December 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that requires
amortization of all premiums and discounts on debt securities. The effect of
this change for the year ended November 30, 2002 was a decrease in net
investment income per share of $0.025, an increase in net realized and
unrealized gain (loss) per share of $0.025, a decrease in the ratio of net
investment income to average net assets of 0.22%, and a decrease in the
ratio of net investment income to adjusted net assets of 0.16%. Per share
data and ratios for the periods prior to December 1, 2001 have not been
restated to reflect this change in accounting.
(5) Ratios and portfolio turnover have been annualized and total return has not
been annualized.
(6) The amount is an estimated return of capital as of May 31, 2005. The actual
determination of the return of capital, if any, can be made only at fiscal
year end. For more information on dividends and distributions, see Note 4 in
"Notes to Financial Statements."
See accompanying notes
10
NOTES DELAWARE INVESTMENTS DIVIDEND AND INCOME FUND, INC.
TO FINANCIAL STATEMENTS May 31, 2005 (Unaudited)
Delaware Investments Dividend and Income Fund, Inc. (the "Fund") is organized as
a Maryland corporation and is a diversified closed-end management investment
company under the Investment Company Act of 1940, as amended. The Fund's shares
trade on the New York Stock Exchange under the symbol DDF.
The investment objective of the Fund is to seek high current income. Capital
appreciation is a secondary objective.
1. SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies are in accordance with U.S generally accepted
accounting principles and are consistently followed by the Fund:
Security Valuation - Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (NASDAQ), are valued at the last quoted sales price as of the time
of the regular close of the New York Stock Exchange (NYSE) on the valuation
date. Securities traded on the NASDAQ are valued in accordance with the NASDAQ
Official Closing Price, which may not be the last sales price. If on a
particular day an equity security does not trade, then the mean between the bid
and the asked prices will be used. U.S. Government and agency securities are
valued at the mean between the bid and asked prices. Long-term debt securities
are valued by an independent pricing service and such prices are believed to
reflect the fair value of such securities. Short-term debt securities having
less than 60 days to maturity are valued at amortized cost, which approximates
market value. Other securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith under the
direction of the Fund's Board of Directors. In determining whether market
quotations are readily available or fair valuation will be used, various factors
will be taken into consideration, such as market closures, or with respect to
foreign securities, aftermarket trading or significant events after local market
trading (e.g., government actions or pronouncements, trading volume or
volatility on markets, exchanges among dealers, or news events).
Federal Income Taxes - The Fund intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
Distributions - The Fund has a managed distribution policy. Under the policy,
the Fund declares and pays monthly distributions and is managed with a goal of
generating as much of the distribution as possible from ordinary income (net
investment income and short-term capital gains). The balance of the distribution
then comes from long-term capital gains and if necessary, a return of capital.
The current annualized rate is $0.96 per share. The Fund continues to evaluate
its monthly distribution in light of ongoing economic and market conditions and
may change the amount of the monthly distributions in the future.
Borrowings - The Fund issues short-term commercial paper at a discount from par.
The discount is amortized as interest expense over the life of the commercial
paper using the straight-line method (See Note 6).
Use of Estimates - The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other - Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date).
Costs used in calculating realized gains and losses on the sale of investment
securities are those of the specific securities sold. Dividend income is
recorded on the ex-dividend date and interest income is recorded on the accrual
basis. Discounts and premiums are amortized to interest income over the lives of
the respective securities. Premiums and discounts on non-convertible debt
securities are amortized to interest income over the lives of the respective
securities. Distributions received from investments in Real Estate Investment
Trusts are recorded as dividend income on ex-dividend date, subject to
reclassification upon notice of the character of such distribution by the
issuer.
The Fund receives earning credits from its custodian when positive cash balances
are maintained, which are used to offset custody fees. There were no earnings
credits for the six months ended May 31, 2005.
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES:
In accordance with the terms of its investment management agreement, the Fund
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee of 0.55%, which is calculated
daily based on the adjusted average weekly net assets.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to provide accounting and administration services. The Fund pays DSC a monthly
fee computed at the annual rate of 0.05% of the Fund's adjusted average weekly
net assets, subject to an annual minimum of $85,000. Effective June 1, 2005, the
Fund will pay DSC a monthly fee computed at the annual rate of 0.04% of the
Fund's adjusted average weekly net assets, without an annual minimum.
For purposes of the calculation of investment management fees and administration
fees, adjusted average weekly net assets does not include the commercial paper
liability.
At May 31, 2005, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $ 99,430
Accounting and administration fees and
other expenses payable to DSC 121,353
Other expenses payable to DMC and affiliates* 74,812
*DMC, as part of its administration services, pays operating expenses on behalf
of the Fund and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax
services, stock exchange fees, custodian fees and directors fees.
As provided in the investment management agreement, the Fund bears the cost of
certain legal services expenses, including internal legal services, provided to
the Fund by DMC employees. For the six months ended May 31, 2005, the Fund was
charged $4,511 for internal legal services provided by DMC.
Certain officers of DMC and DSC are officers and/or directors the Fund. These
officers and directors are paid no compensation by the Fund.
During the six months ended May 31, 2005, D. Tysen Nutt, Jr., Jordan L. Irving,
Anthony A. Lombardi and Robert A. Vogel, Jr. (the "New Equity Team") were
appointed co-portfolio managers of the Fund. The New Equity Team replaced Nancy
M. Crouse, and will work with Damon Andres with respect to managing the equity
portion of the Fund. The members of the New Team will work with Damon Andres and
Timothy L. Rabe in making day-to-day decisions for the Fund.
11
NOTES DELAWARE INVESTMENTS DIVIDEND AND INCOME FUND, INC.
TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
For the six months ended May 31, 2005, the Fund made purchases of $134,369,440
and sales of $135,288,889 of long-term investment securities other than
long-term U.S. government securities and short-term investments. For the six
months ended May 31, 2005, the Fund made purchases of $49,107,664 and sales of
$49,287,304 of long-term U.S. government securities.
At May 31, 2005, the cost of investments for federal income tax purposes has
been estimated since the final tax characteristics cannot be determined until
fiscal year end. At May 31, 2005, the cost of investments was $228,985,847. At
May 31, 2005, the net unrealized appreciation was $17,173,864 of which
$24,383,999 related to unrealized appreciation of investments and $7,210,135
related to unrealized depreciation of investments.
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, gains (losses) on net short-term
gains on sales of investment securities are treated as ordinary income for
federal income tax purposes. The distributions made by the Fund during the
fiscal year ended November 30, 2004 were in excess of the net investment income
earned by the Fund for financial reporting purposes. This was offset by realized
gains and therefore, there was not a return of capital for federal income tax
purposes. The tax character of dividends and distributions paid during the six
months ended May 31, 2005 and the year ended November 30, 2004 was as follows:
Six Months Year
Ended Ended
5/31/05* 11/30/04
Ordinary income $3,912,778 $12,361,997
Return of capital 2,268,088 --
*Tax information for the six months ended May 31, 2005 is an estimate and the
tax character of dividends and distributions may be redesignated at fiscal year
end.
The components of net assets are estimated since final tax characteristics
cannot be determined until fiscal year end. As of May 31, 2005, the estimated
components of net assets on a tax basis were as follows:
Shares of beneficial interest $149,351,344
Capital loss carryforwards (2,730,583)
Unrealized appreciation of investments 17,173,864
------------
Net assets $163,794,625
============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales and tax treatment
of market discount and premium on debt instruments.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. For the six months ended May
31, 2005, the Fund recorded an estimate of these differences since the final tax
characteristics cannot be determined until fiscal year end. Reclassifications
are primarily due to tax treatment of net operating losses, gain (loss) on
foreign currency transactions and market discounts and premiums on certain debt
instruments. Results of operations and net assets were not affected by these
reclassifications.
Undistributed net investment income $2,433,105
Accumulated realized gain (loss) (165,017)
Paid-in capital (2,268,088)
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Capital loss carryforwards
remaining at November 30, 2004 will expire as follows: $13,424,663 expires in
2010 and $1,789,901 expires in 2011.
For the six months ended May 31, 2005, the Fund had capital gains of
$12,483,981, which may be offset by the capital loss carryforwards.
5. CAPITAL STOCK
The Fund did not repurchase any shares under the Share Repurchase Program or
have any transactions in common shares during the six months ended May 31, 2005.
Shares issuable under the Fund's dividend investment plan are purchased by the
Fund's transfer agent, Mellon Investor Services, LLC, in the open market.
On May 19, 2005, the Fund's Board of Directors approved a tender offer for
shares of the Fund's common stock. The tender offer authorized the Fund to
purchase up to 10% of its issued and outstanding shares at a price equal to the
Fund's net asset value at 4:00 p.m. New York City time on July 1, 2005, the
first business day following expiration of the offer. The tender offer commenced
on June 3, 2005 and expired on June 30, 2005. In connection with the tender
offer, the Fund purchased 1,287,630 shares of capital stock at a total cost of
$16,855,077.
6. COMMERCIAL PAPER
As of May 31, 2005, $55,000,000 (par value) of commercial paper was outstanding
with an amortized cost of $54,749,369. The weighted average discount rate of
commercial paper outstanding at May 31, 2005 was 3.17%. The average daily
balance of commercial paper outstanding during the six months ended May 31, 2005
was $54,810,353 at a weighted discount rate of 2.70%. The maximum amount of
commercial paper outstanding at any time during the period was $55,000,000. On
June 24, 2005, the Fund reduced the commercial paper outstanding to $48 million
in conjunction with the tender offer. In conjunction with the issuance of the
commercial paper, the Fund entered into a line of credit arrangement with J.P.
Morgan Chase for $30,000,000. Interest on borrowings 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. For the six months ended May 31, 2005,
the Fund was charged fees of $15,083 which are included in "commercial paper
fees" on the Statement of Operations. During the six months ended May 31, 2005,
there were no borrowings under this arrangement.
7. SECURITIES LENDING
The Fund, along with other funds in the Delaware Investments Family of Funds,
may lend its securities pursuant to a security lending agreement (Lending
Agreement) with J.P. Morgan Chase. Initial security loans made pursuant to the
Lending Agreement are required to be secured by U.S. Treasury obligations and/or
cash collateral not less than 102% of the market value of the securities issued
in the United States. With respect to each loan, if the aggregate market value
of the collateral held on any business day is less than the aggregate market
value of the securities which are the subject of such loan, the borrower will be
notified to provide additional collateral not less than the applicable
collateral requirements. Cash collateral received is invested in fixed-income
securities, with a weighted average maturity not to exceed 90 days, rated in one
of the top two tiers by Standard & Poor's Ratings Group or Moody's Investors
Service, Inc. or repurchase agreements collateralized by such securities.
However, in the event of default or bankruptcy by the lending agent, realization
and/or retention of the collateral may be subject to legal proceedings. In the
event the borrower fails to return loaned securities and the collateral received
is insufficient to cover the value of the loaned securities and provided such
collateral shortfall is not the result of investment losses, the lending agent
has agreed to pay the amount of the shortfall to the Fund, or at the
12
NOTES DELAWARE INVESTMENTS DIVIDEND AND INCOME FUND, INC.
TO FINANCIAL STATEMENTS (CONTINUED)
7. SECURITIES LENDING (CONTINUED)
discretion of the lending agent, replace the loaned securities. The Fund
continues to record dividends on the securities loaned and is subject to change
in value of the securities loaned that may occur during the term of the loan.
The Fund has the right under the Lending Agreement to recover the securities
from the borrower on demand. The security lending agent and the borrower retain
a portion of the earnings from the collateral investments. The Fund records
security lending income net of such allocation.
At May 31, 2005, the market value of securities on loan was $27,419,854, for
which cash collateral was received and invested in accordance with the Lending
Agreement. Such investments are presented on the Statement of Net Assets under
the caption "Securities Lending Collateral."
8. CREDIT AND MARKET RISKS
The Fund invests in high-yield fixed income securities, which carry ratings of
BB or lower by Standard & Poor's Rating Group and/or Ba or lower by Moody's
Investors Services, Inc. Investments in these higher yielding securities are
generally 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 10% of its total assets in illiquid securities, which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Fund from disposing of them in a
timely manner and at a fair price when it is necessary or desirable to do so. At
May 31, 2005, 144A securities represented approximately 13.85% of total assets.
None of these securities have been determined to be illiquid securities under
the Fund's Liquidity Procedures. While maintaining oversight, the Board of
Directors has delegated to the investment adviser the day-to-day functions of
determining whether individual Rule 144A securities are liquid for purposes of a
fund's limitation on investments in illiquid assets. Illiquid securities, if
any, have been denoted on the Statement of Net Assets.
The Fund invests in real estate investment trusts (REITs) and is subject to some
of the risks associated with that industry. If the Fund holds real estate
directly as a result of defaults or receives rental income directly from real
estate holdings, its tax status as a regulated investment company may be
jeopardized. There were no direct holdings during the six months ended May 31,
2005. The Fund's REIT holdings are also affected by interest rate changes,
particularly if the REITs it holds use floating rate debt to finance their
ongoing operations.
9. CONTRACTUAL OBLIGATIONS
The Fund enters into contracts in the normal course of business that contain a
variety of indemnifications. The Fund's maximum exposure under these
arrangements is unknown. However, the Fund has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Fund's existing
contracts and expects the risk of loss to be remote.
13
OTHER DELAWARE INVESTMENTS DIVIDEND AND INCOME FUND, INC.
FUND INFORMATION
BOARD CONSIDERATION OF DELAWARE INVESTMENTS DIVIDEND AND INCOME FUND, INC.
INVESTMENT ADVISORY AGREEMENT
At a meeting held on May 18-19, 2005 (the "Annual Meeting"), the Board of
Directors, including a majority of disinterested or independent Directors,
approved the renewal of the Investment Advisory Agreement for the Delaware
Investments(R) Dividend and Income Fund, Inc. (the "Fund"). In making its
decision, the Board considered information furnished throughout the year at
regular Board meetings, as well as information prepared specifically in
connection with the Annual Meeting. Information furnished and discussed
throughout the year included reports detailing Fund performance, investment
strategies, expenses, compliance matters and other services provided by Delaware
Management Company ("DMC"), the investment adviser. Information furnished
specifically in connection with the Annual Meeting included materials provided
by DMC and its affiliates ("Delaware Investments") concerning, among other
things, the level of services provided to the Fund, the costs of such services
to the Fund, economies of scale and the financial condition and profitability of
Delaware Investments. In addition, in connection with the Annual Meeting, the
Board separately received and reviewed independent historical and comparative
reports prepared by Lipper Inc. ("Lipper"), an independent statistical
compilation organization. The Lipper reports compared the Fund's investment
performance and expenses with those of other comparable mutual funds. The Board
also requested and received certain supplemental information regarding
management's policy with respect to advisory fee levels and its philosophy with
respect to breakpoints; the structure of portfolio manager compensation; the
investment manager's profitability organized by client type, including the Fund;
and any constraints or limitations on the availability of securities in certain
investment styles which might inhibit the adviser's ability to fully invest in
accordance with the Fund's policies.
In considering such materials, the independent Directors received assistance and
advice from and met separately with independent counsel and representatives from
Lipper. At the meeting with representatives from Lipper, Jude Driscoll, Chairman
of the Delaware Investments Family of Funds, and Chairman and Chief Executive
Officer of the investment adviser, was present to respond to questions raised by
Lipper and the independent Directors. While the Board considered the Investment
Advisory Agreements for all of the funds in the Delaware Investments Family of
Funds at the same Board meeting, information was provided and considered by the
Board for each fund individually. In approving the continuance of the Investment
Advisory Agreement for the Fund, the Board, including a majority of independent
Directors, determined that the existing advisory fee structure was fair and
reasonable and that the continuance of the Investment Advisory Agreement was in
the best interests of the Fund and its shareholders. While attention was given
to all information furnished, the following discusses the primary factors
relevant to the Board's deliberations and determination, including those
relating to the selection of the investment adviser and the approval of the
advisory fee.
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services
provided by Delaware Investments to the Fund and its shareholders. In reviewing
the nature, extent and quality of services, the Board emphasized reports
furnished to it throughout the year at regular Board meetings covering matters
such as the compliance of portfolio managers with the investment policies,
strategies and restrictions for the Fund, the compliance of management personnel
with the Code of Ethics adopted throughout the Delaware Investments Family of
Funds complex, the adherence to fair value pricing procedures as established by
the Board, and the accuracy of net asset value calculations. The Board noted
that it was pleased with the current staffing of the Fund's investment adviser
during the past year, the emphasis on research and the compensation system for
advisory personnel. Favorable consideration was given to DMC's efforts to
maintain, and in some instances increase, financial and human resources
committed to fund matters. Other factors taken into account by the Board were
Delaware Investments' preparedness for, and response to, legal and regulatory
matters. The Board was satisfied with the nature, extent and quality of the
overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC
and the Fund. The Board was pleased by DMC's investment performance, noting
Barron's ranking of the Delaware Investments Family of Funds in the top quartile
of mutual fund families for 2002 -- 2004. The Board placed significant emphasis
on the investment performance of the Fund in view of its importance to
shareholders. While consideration was given to performance reports and
discussions with portfolio managers at Board meetings throughout the year,
particular attention in assessing performance was given to the Lipper reports
furnished for the Annual Meeting. The Lipper reports prepared for the Fund
showed the investment performance of its shares in comparison to a group of
similar funds as selected by Lipper (the "Performance Universe"). A fund with
the highest performance is ranked first, and a fund with the lowest is ranked
last. The highest/best performing 25% of funds in the Performance Universe make
up the first quartile; the next 25% -- the second quartile; the next 25% -- the
third quartile; and the lowest/worst performing 25% of funds in the Performance
Universe make up the fourth quartile. Comparative annualized performance for the
Fund was shown for the past one, three, five and 10 year periods ended February
28, 2005. The Board noted its objective that the Fund's performance be at or
above the median of its Performance Universe. The following summarizes the
performance results for the Fund and the Board's view of such performance.
The Performance Universe for this Fund consisted of the Fund and all leveraged
closed-end income and preferred stock funds as selected by Lipper. The Lipper
report comparison showed that the Fund's total return for the one, three, five
and 10 year periods was in the first quartile of such Performance Universe. The
Board was satisfied with such performance.
14
OTHER DELAWARE INVESTMENTS DIVIDEND AND INCOME FUND, INC.
FUND INFORMATION (CONTINUED)
COMPARATIVE EXPENSES. The Board considered expense comparison data for the
Delaware Investments Family of Funds, Delaware Investments' institutional
separate account business and other lines of business at Delaware Investments.
The Board stated its belief that, given the differing level of service provided
to Delaware Investments' various clients and other factors that related to the
establishment of fee levels, variations in the levels of fees and expenses were
justified. The Board placed significant emphasis on the comparative analysis of
the management fees and total expense ratios of the Fund compared with those of
a group of similar leveraged closed-end funds as selected by Lipper (the
"Expense Group") and among the other Delaware Investments funds. In reviewing
comparative costs, the Fund's contractual management fee and the actual
management fee incurred by the Fund were compared with the contractual
management fees (assuming all funds in the Expense Group were similar in size to
the Fund) and actual management fees (as reported by each fund) of other funds
within the Expense Group, taking into effect any applicable breakpoints and fee
waivers. The Fund's total expenses were also compared with those of its Expense
Group. The Board noted its objective to limit the Fund's total expense ratio to
an acceptable range as compared to the median of the Expense Group. The
following paragraph summarizes the expense results for the Fund and the Board's
view of such expenses.
Such expense comparisons for the Fund showed that its management fee and total
expenses were in the quartile with the lowest expenses of its Expense Group. The
Board was satisfied with the management fees and total expenses of the Fund in
comparison to its Expense Group as shown in the Lipper report.
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any,
realized by Delaware Investments in connection with the operation of the Fund.
In this respect, the Board reviewed the Investment Management Profitability
Analysis that addressed the overall profitability of Delaware Investments'
business in providing management and other services to each of the individual
funds and the Delaware Investments Family of Funds as a whole. Specific
attention was given to the methodology followed in allocating costs for the
purpose of determining profitability. Management stated that the level of
profits of Delaware Investments, to a certain extent, reflected operational cost
savings and efficiencies initiated by Delaware Investments. The Board considered
Delaware Investments' expenditures to improve services provided to fund
shareholders and to meet additional regulatory and compliance requirements
resulting from the Sarbanes-Oxley Act and recent SEC initiatives. The Board also
considered the extent to which Delaware Investments might derive ancillary
benefits from fund operations, including the potential for procuring additional
business as a result of the prestige and visibility associated with its role as
service provider to the Delaware Investments Family of Funds, the benefits from
allocation of fund brokerage to improve trading efficiencies and the use of
"soft" commission dollars to pay for proprietary and non-proprietary research.
At the Board's request, management also provided information relating to
Delaware Investments' profitability by client type. The information provided set
forth the revenue, expenses and pre-tax income/loss attributable to the Delaware
Investments Family of Funds, Delaware Investments' separate account business and
other lines of business at Delaware Investments. Emphasis was given to the level
and type of service provided to the various clients. The Board was satisfied
with the level of profits realized by Delaware Investments from the
relationships with the Fund and the Delaware Investments Family of Funds.
ECONOMIES OF SCALE. As a closed-end fund, the Fund does not issue shares on a
continuous basis. Fund assets increase only to the extent that the value of the
underlying securities in the Fund increase. Accordingly, the Board determined
that the Fund was not likely to experience significant economies of scale due to
asset growth and, therefore, a fee schedule with breakpoints to pass the benefit
of such economies of scale on to shareholders was not likely to provide the
intended effect.
15
Delaware
Investments(R) [LOGO]
-----------------------------------
A member of Lincoln Financial Group
This semiannual report is for the information of Delaware Investments Dividend
and Income Fund, Inc. shareholders. The figures in this report represent past
results which are not a guarantee of future results. The return and principal
value of an investment in the Fund will fluctuate so that shares, when sold, may
be worth more or less than their original cost. Notice is hereby given in
accordance with Section 23 (c) of the Investment Company Act of 1940 that the
Fund may, from time to time, purchase shares of its Common Stock on the open
market at market prices.
BOARD OF DIRECTORS AFFILIATED OFFICERS CONTACT INFORMATION
JUDE T. DRISCOLL MICHAEL P. BISHOF INVESTMENT MANAGER
Chairman Senior Vice President and Delaware Management Company,
Delaware Investments Family of Funds Chief Investment Officer a Series of Delaware Management Business Trust
Philadelphia, PA Delaware Investments Family of Funds Philadelphia, PA
Philadelphia, PA
THOMAS L. BENNETT+ PRINCIPAL OFFICE OF THE FUND
Private Investor RICHELLE S. MAESTRO 2005 Market Street
Rosemont, PA Executive Vice President, Philadelphia, PA 19103
Chief Legal Officer and Secretary
JOHN A. FRY Delaware Investments Family of Funds INDEPENDENT REGISTERED PUBLIC
President Philadelphia, PA ACCOUNTING FIRM
Franklin & Marshall College Ernst & Young LLP
Lancaster, PA JOHN J. O'CONNOR 2001 Market Street
Senior Vice President and Treasurer Philadelphia, PA 19103
ANTHONY D. KNERR Delaware Investments Family of Funds
Managing Director Philadelphia, PA REGISTRANT AND STOCK TRANSFER AGENT
Anthony Knerr & Associates Mellon Investor Services, LLC
New York, NY Overpeck Centre
85 Challenger Road
LUCINDA S. LANDRETH Ridgefield, NJ 07660
Former Chief Investment Officer 800 851-9677
Assurant, Inc.
Philadelphia, PA FOR SECURITIES DEALERS AND FINANCIAL
INSTITUTIONS REPRESENTATIVES ONLY
ANN R. LEVEN 800 362-7500
Former Treasurer/Chief Fiscal Officer
National Gallery of Art WEB SITE
Washington, DC www.delawareinvestments.com
THOMAS F. MADISON+
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
JANET L. YEOMANS+
Vice President/Mergers & Acquisitions
3M Corporation
St. Paul, MN J.
RICHARD ZECHER+
Founder
Investor Analytics
Scottsdale, AZ
--------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
800 523-1918; (ii) on the Fund's Web site at http://www.delawareinvestments.com;
and (iii) on the Commission's Web site at http://www.sec.gov. The Fund's Forms
N-Q may be reviewed and copied at the Commission's Public Reference Room in
Washington, DC; information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-month period ended June 30 is
available without charge (i) through the Fund's Web site at
http://www.delawareinvestments.com; and (ii) on the Commission's Web site at
http://www.sec.gov.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Your Reinvestment Options
Delaware Investments Dividend and Income Fund, Inc. offers an automatic dividend
reinvestment program. If you would like to reinvest dividends, and shares are
registered in your name, contact Mellon Investor Services, LLC at 800 851-9677.
You will be asked to put your request in writing. If you have shares registered
in "street" name, contact the broker/dealer holding the shares or your financial
advisor.
--------------------------------------------------------------------------------
+Audit Committee Member
(9486) Printed in the USA
SA-DDF [5/05] IVES 7/05 J05-06-089 PO10229
Item 2. Code of Ethics
Not applicable.
Item 3. Audit Committee Financial Expert
Not applicable.
Item 4. Principal Accountant Fees and Services
Not applicable.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. Schedule of Investments
Included as part of report to shareholders filed under Item 1 of this
Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable to Form N-CSRs filed after fiscal years ending on or after
December 31, 2005.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Companies and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
The registrant's principal executive officer and principal financial
officer have evaluated the registrant's disclosure controls and procedures
within 90 days of the filing of this report and have concluded that they are
effective in providing reasonable assurance that the information required to be
disclosed by the registrant in its reports or statements filed under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission.
There were no significant changes in the registrant's internal control
over financial reporting that occurred during the second fiscal quarter of the
period covered by the report to stockholders included herein (i.e., the
registrant's second fiscal quarter) that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
Item 12. Exhibits
(a) (1) Code of Ethics
Not applicable.
(2) Certifications of Principal Executive Officer and Principal Financial
Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are
attached hereto as Exhibit 99.CERT.
(3) Written solicitations to purchase securities pursuant to Rule 23c-1
under the Securities Exchange Act of 1934.
Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are
furnished herewith as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf, by the undersigned, thereunto duly authorized.
DELAWARE INVESTMENTS DIVIDEND AND INCOME FUND, INC.
/s/ Jude T. Driscoll
--------------------------------
By: Jude T. Driscoll
Title: Chief Executive Officer
Date: July 22, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Jude T. Driscoll
---------------------------------
By: Jude T. Driscoll
Title: Chief Executive Officer
Date: July 22, 2005
/s/ Michael P. Bishof
---------------------------------
By: Michael P. Bishof
Title: Chief Financial Officer
Date: July 22, 2005