-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WATAbaSFXzsujak2dXbSdUrV0kMdVwwRnVem+BcIOV0KJ8o2GE27yuDqG564XBnr Fn8Ss7T11knPjCUR3A//sw== 0000950116-98-000241.txt : 19980209 0000950116-98-000241.hdr.sgml : 19980209 ACCESSION NUMBER: 0000950116-98-000241 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980206 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELAWARE GROUP DIVIDEND & INCOME FUND INC CENTRAL INDEX KEY: 0000896923 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 232713064 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-07460 FILM NUMBER: 98524558 BUSINESS ADDRESS: STREET 1: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2157512926 MAIL ADDRESS: STREET 1: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 N-30D 1 DELAWARE GROUP Dividend and Income Fund (various photos demonstrating service and guidance, professional management and goals) service and guidance professional management goals 1997 Annual Report DELAWARE GROUP ======== A TRADITION OF SOUND INVESTING commitment Investment Objectives and Strategies (photo of keyboard) DELAWARE GROUP DIVIDEND AND INCOME FUND'S OBJECTIVE is to provide high current income, and secondarily, capital appreciation from U.S. stocks and high-yield bonds. Asset class concentration depends on the manager's assessment of each market's relative risks and rewards. U.S. COMMON STOCKS WITH ABOVE-AVERAGE YIELDS The Fund's management focuses on stocks that pay high dividends relative to their share price at the time of purchase. Such high-yield stocks can point the Fund to strong companies whose stocks have capital appreciation potential. The dividend income from these stocks has the potential to add to total return. CONVERTIBLE PREFERRED STOCKS AND BONDS The Fund invests 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. 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 may buy convertibles when the underlying common stock offers strong growth potential but a low yield. LEVERAGING Approximately $55 million of your Fund's net assets were leveraged as of Novem ber 30, 1997. Leveraging is a tool that is not usually used by open-end mutual funds and one that can be an important contributor to your Fund's income and capital appreciation potential. Of course, there is no guarantee that leveraging will be successful. Leveraging could result in a higher degree of volatility because the Fund's net asset value could be more sensitive to fluctuations in short-term interest rates and equity prices. We believe this risk is reasonable given the potential benefits of higher income. (photo of family on beach) HIGH-YIELD CORPORATE BONDS High-yield, higher risk bonds, those rated BB or lower, have greater default risk than bonds with higher quality ratings. However, they historically have provided a greater level of income that has compensated investors for the additional risks. Prices of high-yield bonds may also be less sensitive to changes in interest rates than higher rated bonds. closed-end income THIS ANNUAL REPORT IS FOR THE INFORMATION OF DIVIDEND AND INCOME FUND SHAREHOLDERS. It sets forth details about charges, expenses, investment objectives and operating policies of the Fund. You should read it carefully before you invest. The return and principal value of an investment in the Fund will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Notice is hereby given in accordance with Section 23(c) of the Investment Act of 1940 that the Fund may purchase at market prices from time to time shares of its Common Stock on the open market.
Board of Directors Executive Officers WAYNE A. STORK WAYNE A. STORK Chairman Chairman Delaware Group of Funds Delaware Group of Funds Philadelphia, PA Philadelphia, PA JEFFREY J. NICK JEFFREY J. NICK President and Chief Executive Officer President and Chief Executive Officer Delaware Group of Funds Delaware Group of Funds Philadelphia, PA Philadelphia, PA WALTER P. BABICH+ RICHARD G. UNRUH, JR. Board Chairman, Citadel Constructors, Inc. Executive Vice President King of Prussia, PA Philadelphia, PA ANTHONY D. KNERR+ PAUL E. SUCKOW Consultant, Anthony Knerr & Associates Senior Vice President/Chief Investment New York, NY Officer, Fixed-Income Philadelphia, PA ANN R. LEVEN+ Treasurer, National Gallery of Art DAVID K. DOWNES Washington, DC Executive Vice President/Chief Administrative Officer/ Chief Financial Officer W. THACHER LONGSTRETH Philadelphia, PA City Councilman Philadelphia, PA GEORGE M. CHAMBERLAIN, JR. Senior Vice President/Secretary/General Counsel THOMAS F. MADISON Philadelphia, PA President and Chief Executive Officer MLM Partners, Inc. JOSEPH H. HASTINGS Minneapolis, MN Senior Vice President/ Corporate Controller CHARLES E. PECK Philadelphia, PA Secretary/Treasurer, Enterprise Homes, Inc. Fredericksburg, VA MICHAEL P. BISHOF Senior Vice President/Treasurer +Audit Committee Member Philadelphia, PA directors & officers - --------------------------------------------------------------------------------------------------------------------- INVESTMENT MANAGER PRINCIPAL OFFICE OF THE FUND Delaware Management Company, Inc. 1818 Market Street Philadelphia, Pennsylvania Philadelphia, PA 19103-3682 INTERNATIONAL AFFILIATE INDEPENDENT AUDITORS Delaware International Advisers Ltd. Ernst & Young LLP London, England 2001 Market Street (Photo of globe) Philadelphia, PA
December 8, 1997 closed-end income 1 Dear Shareholder: DIVIDEND AND INCOME FUND WAS WELL positioned to take advantage of the U.S. stock market's robust capital appreciation potential in fiscal 1997 while still providing a steady stream of monthly income. Your Fund had a total return of +27.22%, based on net asset value with dividends reinvested, for the 12 months ended November 30, 1997. Through a diversification strategy in five distinct asset classes, we achieved 96% of the total return of the unmanaged S&P 500 Index, as shown below, even though less than two-thirds of the Fund's portfolio was invested in common stocks. We are delighted to report that, as of November 30, Dividend and Income Fund ranked #1 in total return among closed-end income funds for both the 1997 fiscal year and its lifetime, as tracked by Lipper Analytical Services and shown on page 2. We are equally pleased to report that Dividend and Income Fund provided an attractive level of monthly income while the Fund's share price fluctuated much less than the S&P 500 in 1997, a year when market volatility increased substantially. The Fund's yield, based on market price, stood at 8.30%, as of November 30, 1997. Dividend and Income Fund's three-year beta, or volatility measured against the S&P 500, stood at just 0.58 as of November 30, 1997.* In selecting securities for Dividend and Income Fund, the portfolio manager emphasizes large cap dividend-paying stocks, high-yield corporate bonds and convertible stocks and bonds. The Fund's average cost of borrowing was 5.60%. The U.S. stock market suffered two brief corrections in 1997 - one as a result of the Federal Reserve Board modestly raising short-term interest rates in the spring, and the other as a result of financial uncertainty in several Asian countries. However, low inflation and the fundamental strength of the U.S. economy allowed the market to generally shrug off these temporary setbacks.
TOTAL RETURN - ------------------------------------------------------------------------------------------------------------- DECEMBER 1, 1996 TO NOVEMBER 30, 1997 Based On Premium/Discount Net Asset Value as of November 30, 1997 - ------------------------------------------------------------------------------------------------------------- Dividend and Income Fund (NYSE Symbol: DDF) +27.22% +0.29% Standard & Poor's 500 Index +28.51% Merrill Lynch High-Yield Bond Index +12.62% Merrill Lynch Convertibles Index +17.89% Lipper Closed-End Income Fund Average +15.91% (11 funds) -4.92% - -------------------------------------------------------------------------------------------------------------
The Fund's total return and the returns of unmanaged indexes shown above assume reinvestment of dividends and distributions. Past performance does not guarantee future results. *A beta of less than 1.00 means a security has fluctuated less in price than the S&P 500 Index. A number greater than 1.00 means the security has fluctuated more than the Index. closed-end income closed-end income 2 Opportunity is often found in moments of crisis, and we believe that currency devaluation and recession along the Pacific Rim presents a financial yin and yang for investors in large multinational companies and U.S. fixed-income securities. On the one hand, some large cap U.S. companies may derive lower profits from the region, resulting in a more moderate U.S. growth rate in 1998, according to economists at the Federal Reserve. However, these same analysts also believe that domestic inflation is likely to remain benign because the costs of imports to the U.S. from Asia is expected to drop. Continued low inflation would be encouraging news for bond investors, and higher bond values have historically helped support equity prices. During the 12 months ended November 30, 1997, the yield on 30-year U.S. Treasury bonds dropped 32 basis points (0.32%) to 6.04%. This bullish bond environment, coupled with a growing economy, helped both stocks and bonds, particularly those of financial firms and real estate investment trusts. On the pages that follow, Babak Zenouzi, your Fund's senior portfolio manager since March, and Paul A. Matlack, who manages the high-yield bond component of the Fund, review fiscal 1997's performance and provide an outlook for 1998. At Delaware, Mr. Zenouzi and Mr. Matlack manage a combined total of more than $2.5 billion in real estate investment trusts (REIT), high-yield bonds and equity assets for mutual fund investors and institutional clients. Together, they have more than two decades of investment experience. While we can't guarantee the future, your Fund's management team plans to continue using the same disciplined investment strategy that has helped Dividend and Income Fund consistently outpace its peers. On behalf of Delaware, we wish you a joyous and prosperous New Year. Sincerely, /s/ Wayne A. Stork - ----------------------------- WAYNE A. STORK Chairman /s/ Jeffrey J. Nick - ----------------------------- JEFFREY J. NICK President and Chief Executive Officer discipline
AVERAGE ANNUAL TOTAL RETURN - ------------------------------------------------------------------------------------------------------ Based On Net Asset Value For Periods Ended November 30,1997 One Year Lifetime* - ------------------------------------------------------------------------------------------------------ Dividend and Income Fund (DDF) +27.22% +15.51% Lipper Closed-End Income Fund Average +15.91% +10.15% DDF Rank 1 1 Number of funds in category 11 11 - ------------------------------------------------------------------------------------------------------
* Fund's inception date was March 26, 1993. Past performance does not guarantee future results. All performance assumes dividends and distributions reinvested. closed-end income 3 Portfolio Managers' Review DURING FISCAL 1997, DIVIDEND AND Income Fund's positioning in common stocks, high-yield corporate bonds, and convertible stocks and bonds was an attractive asset mix that helped us attain our goal of providing high current income with capital appreciation. Approximately 61% of your Fund's net assets were allocated to common stocks as of November 30, 1997, a seven percentage point increase from a year earlier. The increase is primarily due to capital appreciation in the price of stocks in the Fund's portfolio during a phenomenal year for the U.S. equity market. The balance of your Fund's portfolio was allocated to preferred stocks and fixed-income securities. Fiscal 1997 was a rewarding year for income-oriented investors. The Federal Reserve Board's modest interest rate increase in March was the medicine the U.S. economy needed to keep inflation from reaching a feverish pace. Bond prices subsequently rose while the yield on 30-year Treasury Bonds stood at just above 6% as of year's end. Your Fund is managed with a goal of generating as much of its $0.125 monthly dividend as possible from ordinary income. The balance of the dividend would come from short-term and long-term capital gains and, if necessary, a return of capital. We are pleased to report that since its inception, the Fund has not had to provide a return of capital to meet its dividend. BANKS AND REITS PERFORMED WELL The largest contributors to your Fund's total return in fiscal 1997 were our bank and real estate investment trust (REIT) holdings. These two sectors, which represented a combined 40% of your Fund's net assets as of November 30, benefited from internal expansion, restructuring and merger activity. The Fund's largest equity holding as of November 30 was KeyCorp, a regional banking company based in Cleveland. Investors recognized the value of the company's 1996 restructuring, an effort that reduced operating costs. Other regional banking companies such as Mellon Bank and Summit Bancorp also performed exceptionally well this past year and we believe offer further capital appreciation potential as the banking industry continues to consolidate. We are attracted to the real estate sector because the industry is undergoing a positive fundamental transformation that we believe makes certain stocks attractive for both their income and total return potential. In our opinion, many REITs are strategy New President and CEO On October 13, 1997, Jeffrey J. Nick was named President and Chief Executive Officer of the Delaware Group Of Funds. Mr. Nick has been CEO of Lincoln National Investment Companies, Delaware's indirect parent, since October 1996. He joined Lincoln National in April 1990, and from 1992 to 1996 he managed Lincoln's operations in the United Kingdom. Mr. Nick holds an MBA from the University of Chicago and a bachelor's degree from Princeton University. closed-end income 4 PORTFOLIO HIGHLIGHTS AND ASSET ALLOCATION - -------------------------------------------------------------------------------- NOVEMBER 30, 1997 Beta* 0.58 Portfolio Turnover Rate 74% Current Monthly Dividend Rate $0.125 per share - -------------------------------------------------------------------------------- * A measure of market price volatility relative to the S&P 500 Index. A number less than 1.00 means a security has fluctuated less in price than the Index. A number more than 1.00 means the security has fluctuated more than the Index. Cash Equivalents 0.6% Preferred Stocks 1.9% Convertible Preferred Stocks 9.2% Convertible Bonds 9.1% Non-Convertible Corporate Bonds 37.4% Common Stocks 61.0% The chart above adds up to more than 100% because the portfolio is leveraged. undervalued compared to the overall U.S. stock market. The industry is benefiting from an increasing level of public ownership and from stronger and more sophisticated management. The REIT portion of your Fund's portfolio has two characteristics: 1) Management teams with a record of improving their REITs' operating cash flow and increasing dividends to shareholders; and, 2) Broad diversification. As of November 30, 1997, the Fund owns 42 stocks representing nine property types. One example of the type of company we seek is the Simon DeBartolo Group of Indianapolis. This REIT owns, develops and manages regional malls and shopping centers across the U.S. We believed this company is poised to benefit from rising retail sales and rents paid by department stores, specialty shops and other tenants. Our analysis also shows that profits at many REITs may accelerate in the year ahead. In our opinion, the earnings growth rate of REITs in 1998 may outpace what a consensus of analysts expect will be a 7% to 10% earnings growth rate for S&P 500 stocks.+ During 1997, we reduced our weighting in telephone stocks in the U.S. We sold some of our NYNEX Corp. position after the stock reached our price target following regulatory approval of its merger with Bell Atlantic Corp. In our opinion, increasing industry competition in the U.S. has made the industry's prospects less than clear. A POSITIVE ENVIRONMENT FOR HIGH-YIELD BONDS Fiscal 1997 was an exceptional year for the high-yield bond market. Default rates by corporate issuers fell to historic lows, while both the supply and demand for high-yield bonds from investors increased. Dividend and Income Fund's approach to high-yield bond investing emphasizes income and stresses capital preservation over appreciation. We strive to achieve this +Source: First Call (photo of keyboard) closed-end income 5 by investing in bonds issued exclusively by U.S. based corporations, which are rated either B or BB, the two highest non-investment grade ratings. During the past year, the Fund's high-yield bond component focused on bonds rated B with a relatively high average coupon (interest rate at the time the bond was issued), an approach we plan to continue to follow in the year ahead. This reflects our belief that the current healthy U.S. economic expansion is likely to reduce credit risks for many high-yield bond issuers in 1998. One high-yield sector that performed well beyond our expectations in 1997 was media bonds. Many of our selections exceeded our price targets during the second half amid industry merger activity, credit quality upgrades and a rise in advertising revenue. For example, our Cablevision Systems bonds doubled in value - a highly unusual occurrence for any type of domestic fixed-income security. As of November 30, your Fund's high-yield bond component had an average effective maturity of 8.7 years and an effective duration of 3.7 years. Duration indicates the approximate percentage change in a bond's price given a 1% change in interest rates, although high-yield bonds tend to be less affected by interest rates than high quality, investment grade bonds. WE REDUCED OUR WEIGHTING IN CONVERTIBLE STOCKS AND BONDS Dividend and Income Fund significantly reduced its position in convertible securities during fiscal 1997, from 24.1% of net assets a year ago to 18.2% as of November 30, 1997. We concluded that common stocks offered somewhat greater total return potential, and reallocated the Fund's assets accordingly. Convertible securities tend to provide a better dividend or bond yield than common FISCAL 1997 WAS AN EXCEPTIONAL YEAR FOR THE HIGH-YIELD BOND MARKET AS DEFAULT RATES BY CORPORATE ISSUERS FELL TO HISTORIC LOWS, WHILE BOTH THE SUPPLY AND DEMAND FOR HIGH-YIELD BONDS FROM INVESTORS INCREASED. DIVIDEND AND INCOME FUND MARKET PRICE VS. NET ASSET VALUE DECEMBER 1, 1996, TO NOVEMBER 30, 1997 Market Market Price NAV Price NAV Nov. 30 '96 $16.625 $15.410 Jun. 6 '97 $17.250 $16.440 Dec. 6 '96 $16.750 $15.460 Jun.13 '97 $17.375 $16.670 Dec. 13 '96 $16.000 $15.400 Jun. 20 '97 $17.750 $16.740 Dec. 20 '96 $16.125 $15.670 Jun. 27 '97 $17.688 $16.700 Dec. 27 '96 $16.500 $15.720 Jul. 4 '97 $18.250 $16.920 Jan. 3 '97 $16.625 $15.660 Jul. 11 '97 $18.313 $16.850 Jan. 10 '97 $16.750 $15.850 Jul. 18 '97 $18.250 $16.900 Jan. 17 '97 $17.000 $16.140 Jul. 25 '97 $18.438 $17.200 Jan. 24 '97 $16.750 $16.170 Aug. 1 '97 $18.563 $17.400 Jan. 31 '97 $16.750 $16.150 Aug. 8 '97 $18.000 $17.370 Feb. 7 '97 $17.000 $16.240 Aug. 15 '97 $17.875 $17.080 Feb. 14 '97 $17.000 $16.360 Aug. 22 '97 $17.563 $17.180 Feb. 21 '97 $17.000 $16.480 Aug. 29 '97 $17.125 $17.160 Feb. 28 '97 $17.125 $16.400 Sep. 5 '97 $18.625 $17.410 Mar. 7 '97 $17.750 $16.660 Sep. 12 '97 $18.625 $17.480 Mar. 14 '97 $17.250 $16.380 Sep. 19 '97 $18.375 $17.780 Mar. 21 '97 $16.375 $16.150 Sep. 26 '97 $18.500 $17.900 Mar. 28 '97 $16.000 $16.030 Oct. 3 '97 $18.875 $18.280 Apr. 4 '97 $16.250 $15.600 Oct. 10 '97 $18.375 $18.150 Apr. 11 '97 $16.375 $15.390 Oct. 17 '97 $18.375 $18.020 Apr. 18 '97 $16.750 $15.470 Oct. 24 '97 $18.500 $18.080 Apr. 25 '97 $17.000 $15.330 Oct. 31 '97 $17.750 $17.730 May 2 '97 $17.000 $15.840 Nov. 7 '97 $18.750 $17.780 May 9 '97 $17.000 $16.080 Nov. 14 '97 $18.563 $17.520 May 16 '97 $17.000 $16.040 Nov. 21 '97 $18.250 $17.950 May 23 '97 $17.000 $16.220 Nov. 30 '97 $18.063 $18.010 May 30 '97 $17.000 $16.270 Source: Bloomberg Business News. Past performance does not guarantee future results. closed-end income 6 stocks while offering somewhat less capital appreciation potential. We typically buy convertibles to participate in the capital appreciation of growth-oriented stocks that either do not pay a dividend or have a dividend yield lower than the S&P 500 Index. Two examples of convertible preferred stocks we held in fiscal 1997 were 1) Tosco Financing Trust, an oil refining company whose shares offered above-average yield and growth prospects and which benefited from higher U.S. energy consumption and 2) SunAmerica, an insurance company that provides retirement products such as life insurance, annuities and trust services. Overall, the convertibles market significantly underperformed the S&P 500 Index during fiscal 1997. The total return of the Merrill Lynch Convertibles Index was +17.89% for the 12 months ended November 30, 1997, more than 900 basis points (9%) less than the S&P 500. As with other asset classes the Fund invests in, we take a diversified approach to convertibles and are not heavily weighted in any one industry. OUTLOOK In the coming months, we expect to look carefully at utility stocks in states such as California and Massachusetts, where regulators are making changes likely to increase industry competition. Although we believe competition could increase utility stock price volatility in the coming years, we believe this sector offers attractive dividend yields. Stocks of companies that can effectively compete may also offer capital appreciation potential. We expect financial stocks such as banks and REITs to continue to play an important role in your Fund's portfolio in 1998. Banks have begun to offer more innovative products and services and at the same time are increasing profit margins through increased economies of scale. In addition, more banks are deriving a greater percentage of revenue from services, which tend to be more profitable than loans. Since technology stocks typically do not meet our income requirements, we anticipate that we generally will remain underweighted in this volatile sector. Overall, many economic indicators remain positive. Despite the lowest unemployment rate in 24 years, U.S. inflation was just 1.8% for the 12 months ended November 30, 1997 providing a healthy climate for financial assets, especially interest-rate sensitive companies. In addition, many industrial companies are finding new ways to boost profits through new technology, mergers and restructuring. Any portfolio of stocks and bonds is subject to market fluctuations. We believe investors can more effectively prepare for inevitable market volatility by utilizing a consistent investment discipline. We believe Dividend and Income Fund can offer an element of diversification and potential risk reduction for investors' portfolios by providing income from several asset classes. BABAK ZENOUZI Vice President and Senior Portfolio Manager - U.S. Equities PAUL A. MATLACK Vice President and Senior Portfolio Manager - U.S. Fixed-Income December 8, 1997 outlook closed-end income 7 Fund Performance A $10,0000 INVESTMENT IN Dividend and Income Fund when the Fund began operating on March 26, 1993, would have grown to $19,650 as of November 30, 1997, based on net asset value with dividends and distributions reinvested. That's more than 35% higher than the average of the Fund's peers during the same period, according to Lipper Analytical Services. DIVIDEND AND INCOME FUND - GROWTH OF A $10,000.00 INVESTMENT - -------------------------------------------------------------------------------- MARCH 26, 1993, TO NOVEMBER 30, 1997 Dividend and Income Fund - $19,650 Lipper Closed-End Income Fund Average (9 Funds) $15,847 Above performance assumes reinvestment of dividends and distributions. Past performance does not guarantee future results. DDF shares were initially offered with a sales charge of 6%. Performance since inception does not include this or any brokerage commissions for purchases made since inception. ABOUT OUR SHARE BUYBACK PROGRAM In 1994, Dividend and Income Fund's board of directors authorized a share repurchase program that authorizes the Fund's lead manager to purchase up to 10% of the Fund's outstanding shares on the floor of the New York Stock Exchange. During fiscal 1997, the Fund did not utilize this option. Given the Fund's market price, we believed there were more effective ways of enhancing shareholder value. Your Reinvestment Options If your shares are not held in "street" name and you are not already reinvesting dividends, Dividend and Income Fund offers an automatic dividend reinvestment program. If you would like to reinvest dividends and shares are registered in your name, contact ChaseMellon Shareholder Services at 1.800.851.9677. 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 adviser. closed-end income 8 FINANCIAL STATEMENTS DELAWARE GROUP DIVIDEND AND INCOME FUND, INC. STATEMENT OF NET ASSETS NOVEMBER 30, 1997 - -------------------------------------------------------------------------------- Number Market of Shares Value - -------------------------------------------------------------------------------- COMMON STOCK - 61.04% AUTOMOBILES & AUTO EQUIPMENT - 1.70% Chrysler ................................... 65,000 $ 2,230,312 General Motors ............................. 35,000 2,135,000 ----------- 4,365,312 ----------- BANKING, FINANCE & INSURANCE - 9.89% Chase Manhattan ............................ 25,000 2,715,625 CoreStates Financial ....................... 34,000 2,628,625 First Chicago NBD .......................... 7,000 547,750 Fleet Financial Group ...................... 24,600 1,625,137 J.P. Morgan & Company ...................... 20,200 2,306,588 KeyCorp .................................... 70,000 4,720,625 Mellon Bank ................................ 46,000 2,607,625 Summit Bancorp ............................. 90,000 4,196,250 Washington Mutual .......................... 60,030 4,149,574 ----------- 25,497,799 ----------- CHEMICALS - 0.49% Lyondell Petrochemical ..................... 49,520 1,259,665 ----------- 1,259,665 ----------- ELECTRONICS - 0.88% AMP ........................................ 29,400 1,277,062 MascoTech .................................. 56,631 980,424 ----------- 2,257,486 ----------- ENERGY - 4.40% Duke Energy ................................ 35,000 1,820,000 El Paso Natural Gas ........................ 30,000 1,841,250 Occidental Petroleum ....................... 100,000 2,968,750 PacifiCorp ................................. 100,000 2,331,250 Texaco ..................................... 42,200 2,384,300 ----------- 11,345,550 ----------- FOOD, BEVERAGE & TOBACCO - 2.25% Fortune Brands ............................. 31,900 1,154,381 Philip Morris Companies .................... 40,000 1,740,000 RJR Nabisco Holdings ....................... 80,000 2,915,000 ----------- 5,809,381 ----------- PAPER & FOREST PRODUCTS - 0.62% Georgia-Pacific ............................ 18,700 1,596,513 ----------- 1,596,513 ----------- REAL ESTATE - 30.05% Alexandria Real Estate Equities ............ 53,900 1,677,637 American Health Properties ................. 50,000 1,300,000 Apartment Investment & Management .......... 63,300 2,239,237 Bay Apartment Communities .................. 37,500 1,497,656 Brandywine Realty Trust .................... 90,600 2,191,387 Camden Property Trust ...................... 75,000 2,451,563 CarrAmerica Realty ......................... 40,000 1,205,000 Chateau Communities ........................ 67,730 2,065,765 - -------------------------------------------------------------------------------- Number Market of Shares Value - -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) REAL ESTATE (CONTINUED) Crescent Real Estate Equities .................. 56,000 $ 2,156,000 Duke Realty Investments ........................ 96,000 2,208,000 Equity Residential Properties Trust ............ 30,000 1,500,000 Essex Property Trust ........................... 48,000 1,734,000 Excel Realty Trust ............................. 54,500 1,662,250 FelCor Suite Hotels ............................ 39,000 1,416,188 First Industrial Realty Trust .................. 55,000 1,942,188 Glenborough Realty Trust ....................... 83,150 2,245,050 Golf Trust of America .......................... 66,600 1,798,200 Grove Property Trust ........................... 99,549 1,082,595 Health Care REIT ............................... 50,250 1,284,516 Highwoods Properties ........................... 29,500 1,060,156 Innkeepers USA Trust ........................... 41,100 660,169 Kilroy Realty .................................. 50,000 1,312,500 Kimco Realty ................................... 37,000 1,271,875 Lexington Corporate Properties ................. 79,300 1,154,806 Liberty Property Trust ......................... 127,470 3,561,193 Macerich Company (The) ........................ 91,000 2,468,375 National Golf Properties ....................... 60,000 1,905,000 Pacific Gulf Properties ........................ 80,000 1,790,000 Pan Pacific Retail Properties .................. 66,800 1,369,400 Parkway Properties ............................. 50,500 1,663,344 Patriot American Hospitality ................... 106,000 3,312,500 Prentiss Properties Trust ...................... 117,672 3,044,763 Public Storage ................................. 74,000 2,044,250 Reckson Associates Realty ...................... 106,000 2,815,625 SL Green Realty ................................ 20,600 535,600 Simon DeBartolo Group .......................... 79,000 2,582,313 Sovran Self Storage ............................ 50,000 1,525,000 Spieker Properties ............................. 50,000 2,031,250 Starwood Lodging Trust ......................... 51,500 2,761,688 Storage Trust Realty ........................... 70,000 1,741,250 Sun Communities ................................ 50,000 1,821,875 Vornado Realty Trust ........................... 30,000 1,344,375 ----------- 77,434,539 ----------- TELECOMMUNICATIONS - 1.36% Bell Atlantic .................................. 39,120 3,491,460 ----------- 3,491,460 ----------- TRANSPORTATION & SHIPPING - 0.93% Union Pacific .................................. 40,000 2,400,000 ----------- 2,400,000 ----------- UTILITIES - 7.49% American Electric Power ........................ 50,000 2,478,125 Boston Edison .................................. 70,000 2,450,000 GPU ............................................ 60,000 2,370,000 Houston Industries ............................. 100,000 2,368,750 Peco Energy .................................... 30,000 729,375 - ----------- Top 10 common stock holdings, representing 14.03% of net assets, are in bold face. closed-end income 9 STATEMENT OF NET ASSETS (CONTINUED) - -------------------------------------------------------------------------------- Number Market of Shares Value - -------------------------------------------------------------------------------- COMMON STOCK (CONTINUED) UTILITIES (CONTINUED) Rochester Gas & Electric ..................... 135,000 $ 3,712,500 Texas Utilities .............................. 75,000 3,000,000 Unicom ....................................... 75,000 2,184,375 ----------- 19,293,125 ----------- MISCELLANEOUS - 0.98% Pitney Bowes ................................. 30,000 2,521,875 ----------- 2,521,875 ----------- Total Common Stock (cost $119,556,747) ....... 157,272,705 ----------- CONVERTIBLE PREFERRED STOCK - 9.16% Automobiles & Auto Equipment - 0.51% +BTI Cap Trust 6.50% ........................ 25,500 1,316,438 ----------- 1,316,438 ----------- BANKING, FINANCE & INSURANCE - 2.67% National Australia Bank 7.875% ............... 40,000 1,125,000 Salomon 7.625% Series FSA "DECS" ............. 70,000 2,738,750 Salomon 6.25% Series CSN "DECS" .............. 16,500 940,500 SunAmerica $3.188 "PERCS" .................... 45,000 2,092,500 ----------- 6,896,750 ----------- CABLE, MEDIA AND PUBLISHING - 2.54% Cablevision Systems Series I 8.50% ........... 67,000 2,353,375 Chancellor Media 7.00% ...................... 26,000 2,304,250 Metromedia Intl Group 7.25% .................. 40,900 1,881,400 ----------- 6,539,025 ----------- ENERGY - 1.05% +CalEnergy Capital Trust 3 6.50% ............. 31,600 1,516,800 +Tosco Financing Trust 5.75% ................ 20,000 1,185,000 ----------- 2,701,800 ----------- HEALTHCARE & PHARMACEUTICALS - 0.38% Medpartners 6.50% "TAPS" ..................... 40,500 972,000 ----------- 972,000 ----------- METALS & MINING - 0.28% Worthington Industries 7.25% "DECS" .......... 46,900 726,950 ----------- 726,950 ----------- TELECOMMUNICATIONS - 0.67% +Loral Space & Communication 6.00% ........... 27,000 1,721,250 ----------- 1,721,250 ----------- TRANSPORTATION & SHIPPING - 0.58% +Greyhound Lines 8.50% ...................... 53,500 1,498,000 ----------- 1,498,000 ----------- UTILITIES - 0.48% Houston Industries 7.00% "ACES" .............. 22,300 1,237,650 ----------- 1,237,650 ----------- Total Convertible Preferred Stock (cost $19,605,870) ......................... 23,609,863 ----------- - -------------------------------------------------------------------------------- Number Market of Shares Value - -------------------------------------------------------------------------------- PREFERRED STOCK - 1.93% Banking, Finance & Insurance - 1.02% +Credit Lyonnais Capital SCA 9.50% ............... 100,000 $2,625,000 ---------- 2,625,000 ---------- Cable, Media & Publishing - 0.91% American Radio Systems Series B 11.375% .......... 243 28,674 Granite Broadcasting 12.75% ...................... 2,173 2,314,245 ---------- 2,342,919 ---------- Total Preferred Stock (cost $4,525,172) .......... 4,967,919 ---------- Principal Amount NON-CONVERTIBLE BONDS - 37.38% Aerospace & Defense - 1.33% +Atlas Air Inc sr unsec notes 10.75% 2005 ........ $2,000,000 2,110,000 Derlan Manufacturing sr notes 10.00% 2007 ........ 1,250,000 1,312,500 ---------- 3,422,500 ---------- AUTOMOBILES & AUTO EQUIPMENT - 2.71% Chief Auto Parts sr unsec notes 10.50% 2005 ...... 750,000 746,250 Collins & Aikman Series B sr sub notes 10.00% 2007 ............... 1,250,000 1,312,500 Exide sr notes 10.75% 2002 ....................... 2,000,000 2,110,000 Motors and Gears Series B sr notes 10.75% 2006 ................... 1,000,000 1,062,500 Venture Holdings Trust sr sub notes 9.75% 2004 ... 1,800,000 1,739,250 ---------- 6,970,500 ---------- BANKING, FINANCE & INSURANCE - 1.17% Chevy Chase Savings Bank sub deb 9.25% 2005 ...... 1,000,000 1,015,000 DVI unsec sr notes 9.875% 2004 ................... 425,000 442,000 First Nationwide Holdings sr sub notes 9.125% 2003 ........................ 1,500,000 1,567,500 ---------- 3,024,500 ---------- BUILDINGS & MATERIALS - 1.46% Atrium Companies sr sub notes 10.50% 2006 ........ 600,000 630,000 +Maxim Group sr notes 9.25% 2007 ................. 1,000,000 982,500 +Safelite Glass sr sub notes 9.875% 2006 ......... 2,000,000 2,155,000 ---------- 3,767,500 ---------- CABLE, MEDIA & PUBLISHING - 1.87% +Dialog sr sub notes 11.00% 2007 ................. 2,000,000 2,030,000 Granite Broadcasting sr sub notes 9.375% 2005 .... 2,000,000 1,995,000 Muzak LP/Capital sr unsec notes 10.00% 2003 ...... 220,000 229,900 Rogers Cablesystems sr unsec sub deb 11.00% 2015 .................... 500,000 570,000 ---------- 4,824,900 ---------- CHEMICALS - 1.53% BPC Holding Series B sr sec notes 12.50% 2006 .... 1,150,000 1,266,438 Sterling Chemicals Series A sr sub notes 11.25% 2007 ............... 1,000,000 1,070,000 UCC Investors sr sub notes 11.00% 2003 ........... 1,500,000 1,597,500 ---------- 3,933,938 ---------- COMPUTERS & TECHNOLOGY - 0.44% Unisys sr unsec notes 11.75% 2004 ................ 1,000,000 1,140,000 ---------- 1,140,000 ---------- closed-end income 9 STATEMENT OF NET ASSETS (CONTINUED) - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- NON-CONVERTIBLE BONDS (Continued) CONSUMER PRODUCTS - 1.54% American Safety Razor Series B sr notes 9.875% 2005 ................. $1,875,000 $2,006,250 +Fedders North America sr sub notes 9.375% 2007 ...................... 1,000,000 1,022,500 Pen-Tab Industries Series B sr unsec sub notes 10.875% 2007 ...... 1,000,000 947,500 ---------- 3,976,250 ---------- ELECTRONICS - 0.69% +HCC Industries sr sub notes 10.75% 2007 ......... 1,000,000 1,047,500 +Insilco Corp sr sub notes 10.25% 2007 ........... 700,000 726,250 ---------- 1,773,750 ---------- ENERGY - 2.32% Costilla Energy sr unsec notes 10.25% 2006 ...... 875,000 918,750 Falcon Drilling Series B sr notes 8.875% 2003 ... 1,000,000 1,055,000 Pride Petroleum Services sr unsec notes 9.375% 2007 .................... 800,000 862,000 +Transamerican Energy sr notes 11.50% 2002 ....... 1,000,000 1,002,500 Trizec Hahn Series B sr notes 10.875% 2005 ...... 1,000,000 1,085,000 +United Refining sr unsec notes 10.75% 2007 ...... 1,000,000 1,050,000 ---------- 5,973,250 ---------- FOOD, BEVERAGE & TOBACCO - 1.80% Aurora Foods sr sub notes 9.875% 200 ............ 1,000,000 1,035,000 Big V Supermarkets Series B sr sub notes 11.00% 2004 ............. 450,000 472,500 Core Mark International sr sub notes 11.375% 2003 ..................... 400,000 422,000 Delta Beverage sr notes 9.75% 2003 .............. 1,250,000 1,321,875 DiGiorgio Corp Series B sr notes 10.00% 2007 .... 1,000,000 992,500 PMI Acquisition sr sub notes 10.25% 2003 ........ 375,000 397,500 ---------- 4,641,375 ---------- HEALTHCARE & PHARMACEUTICALS - 0.71% Healthsouth sr sub notes 9.50% 2001 ............. 750,000 789,375 Paracelsus Healthcare sr unsec sub notes 10.00% 2006 ................ 1,000,000 1,042,500 ---------- 1,831,875 ---------- INDUSTRIALS - 0.80% American Builders and Contractors Series B sr unsec sub notes 10.625% 2007 ...... 1,175,000 1,224,937 Interlake sr sub deb 12.125% 2002 ............... 800,000 833,000 ---------- 2,057,937 ---------- LEISURE, LODGING & ENTERTAINMENT - 2.67% AFC Enterprises sr sub notes 10.25% 2007 ........ 1,000,000 1,050,000 +Alliance Gaming sr sub notes 10.00% 2007 ........ 1,300,000 1,309,750 +Bally Total Fitness sr sub notes 9.875% 2007 .... 2,000,000 2,000,000 Cinemark USA Series B sr sub notes 9.625% 2008 ............. 1,000,000 1,035,000 Trump Atlantic City Associates Funding sec 1st mtg notes 11.25% 2006 ................. 1,500,000 1,488,750 ---------- 6,883,500 ---------- - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- NON-CONVERTIBLE BONDS (Continued) METALS & MINING - 1.49% Commonwealth Aluminum sr sub notes 10.75% 2006 ....................... $ 750,000 $ 806,250 +Keystone Consolidated Industries sr sec notes 9.625% 2007 ....................... 1,900,000 1,952,250 Oregon Steel Mills sec 1st mtg notes 11.00% 2003 .................. 1,000,000 1,085,000 ---------- 3,843,500 ---------- PACKAGING & CONTAINERS - 1.01% Container Corporation of America Series A sr notes 11.25% 2004 .................. 1,000,000 1,092,500 Pierce Leahy sr sub notes 9.125% 2007 ........... 800,000 840,000 Pierce Leahy sr sub notes 11.125% 2006 .......... 584,000 661,380 ---------- 2,593,880 ---------- PAPER & FOREST PRODUCTS - 0.74% Drypers Series B sr notes 10.25% 2007 ........... 1,000,000 1,012,500 Four M Series B sr sec notes 12.00% 2006 ........ 450,000 482,625 Pacific Lumber sr unsec notes 10.50% 2003 ....... 400,000 415,500 ---------- 1,910,625 ---------- Retail - 3.36% Central Tractor sr notes 10.625% 2007 ........... 325,000 343,281 Cole National Group sr sub notes 9.875% 2006 .... 2,000,000 2,135,000 Cort Furniture Rental sr notes 12.00% 2000 ...... 1,221,000 1,346,153 Fleming Companies sr notes 10.625% 2001 ......... 1,820,000 1,929,200 +Fleming Companies sr sub notes 10.50% 2004 ...... 750,000 785,625 Ralph's Grocery sr notes 10.45% 2004 ............ 1,000,000 1,125,000 +Wilsons Leather sr notes 11.25% 2004 ............ 1,000,000 997,500 ---------- 8,661,759 ---------- TELECOMMUNICATIONS - 3.09% Galaxy Telecom sr sub notes 12.375% 2005 ........ 2,000,000 2,180,000 Jacor Communications sr unsec sub notes 9.75% 2006 .................. 750,000 798,750 Outdoor Communications sr sub notes 9.25% 2007 ........................ 575,000 577,875 Pronet sr sub notes 11.875% 2005 ................ 350,000 373,625 Rogers Communications sr unsec notes 8.875% 2007 ..................... 1,950,000 1,954,875 STC Broadcasting sr unsec sub notes 11.00% 2007 ................. 1,000,000 1,077,500 Telex Communications sr sub notes 10.50% 2007 ... 1,000,000 1,000,000 ---------- 7,962,625 ---------- TEXTILES - 1.10% Anvil Knitwear Series B sr notes 10.875% 2007 ... 1,000,000 1,032,500 Brazos Sportswear sr unsec sub notes 10.50% 2007 ................. 750,000 753,750 Synthetic Industries Series B sr sub notes 9.25% 2007 ............... 1,000,000 1,047,500 ---------- 2,833,750 ---------- TRANSPORTATION & SHIPPING - 1.81% +Atlantic Express sr sec notes 10.75% 2004 ....... 675,000 708,750 +Chemical Leaman sr notes 10.375% 2005 ........... 1,000,000 1,040,000 +Navigator Gas Transport 12.00% 2007 ............. 1,000,000 1,100,000 closed-end income 11 STATEMENT OF NET ASSETS (CONTINUED) - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- NON-CONVERTIBLE BONDS (Continued) Transportation & Shipping (Continued) Teekay Shipping 1st pfd ship mtg notes 9.625% 2003 ........... $ 1,736,000 $ 1,820,630 ----------- 4,669,380 ----------- UTILITIES - 1.47% Calpine sr notes 10.50% 2006 .................. 2,000,000 2,160,000 Midland Funding II Series A deb 11.75% 2005 ... 1,400,000 1,610,000 ----------- 3,770,000 ----------- MISCELLANEOUS - 2.27% Graphic Controls Series A sr sub notes 12.00% 2005 ............ 2,000,000 2,235,000 +Huntsman sr sub notes 9.50% 2007 .............. 2,000,000 2,100,000 Loomis Fargo & Co unsec sr sub notes 10.00% 2004 ............... 750,000 755,625 Riverwood International sr unsec notes 10.25% 2006 ................... 750,000 765,000 ----------- 5,855,625 ----------- Total Non-Convertible Bonds (cost $92,321,125) ........................... 96,322,919 ----------- CONVERTIBLE BONDS - 9.08% AEROSPACE & DEFENSE - 0.76% +Kellstrom Industries sub notes 5.75% 2002 ..... 1,735,000 1,973,563 ----------- 1,973,563 ----------- AUTOMOBILES & AUTO EQUIPMENT - 0.16% +Tower Automotive sub notes 5.00% 2004 ......... 400,000 402,000 ----------- 402,000 ----------- BUSINESS SERVICES - 0.21% +Personnel Group of America sub notes 5.75% 2004 ......................... 450,000 542,250 ----------- 542,250 ----------- ELECTRONICS - 0.38% +Atmel SA 3.25% 2002 (a) ....................... 600,000 579,000 Kent Electronics sub notes 4.50% 2004 ......... 418,000 389,262 ----------- 968,262 ----------- HEALTHCARE & PHARMACEUTICALS - 0.81% +Sunrise Assisted Living sub notes 5.50% 2002 .. 1,800,000 2,097,000 ----------- 2,097,000 ----------- INDUSTRIALS - 0.62% +Thermo Fibertek sub notes 4.50% 2004 .......... 1,530,000 1,591,200 ----------- 1,591,200 ----------- LEISURE, LODGING & ENTERTAINMENT - 0.51% Capstar Hotel sub notes 4.75% 2004 ............ 1,260,000 1,307,250 ----------- 1,307,250 ----------- REAL ESTATE - 5.11% Alexander Haagen Properties Series A sub deb 7.50% 2001 .................. 2,270,000 2,281,350 +Atria Communities sub notes 5.00% 2002 ........ 940,000 952,925 IRT Property sub deb 7.30% 2003 ............... 2,000,000 2,205,000 LTC Properties sub deb 8.50% 2000 ............. 1,000,000 1,362,500 - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- CONVERTIBLE BONDS (Continued) REAL ESTATE (CONTINUED) LTC Properties sub deb 8.50% 2001 .............. $ 450,000 $ 592,875 Malan Realty Investors unsec sub deb 9.50% 2004 ...................... 2,300,000 2,392,000 Mid-Atlantic Realty Trust sub deb 7.625% 2003 .. 1,500,000 1,948,125 Sizeler Property Investors sub deb 8.00% 2003 .. 1,500,000 1,451,250 ----------- 13,186,025 ----------- TELECOMMUNICATIONS - 0.52% +Tel Save Holdings sub notes 4.50% 2002 ......... 1,230,000 1,329,937 ----------- 1,329,937 ----------- Total Convertible Bonds (cost $21,357,493) ..... 23,397,487 ----------- SHORT-TERM SECURITIES - 0.62% *U.S. Treasury Bills 5.155% due 1/22/98 ......... 110,000 109,181 *U.S. Treasury Bills 5.185% due 1/22/98 ......... 1,487,000 1,475,863 ----------- Total Short Term Securities (cost $1,585,044) .. 1,585,044 ----------- TOTAL MARKET VALUE OF SECURITIES OWNED - 119.21% (cost $258,951,451) ....................................... $ 307,155,937 LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS - (19.21%) .. (49,504,531) ------------- NET ASSETS APPLICABLE TO 14,307,000 SHARES ($0.01 par value) OUTSTANDING; EQUIVALENT TO $18.01 PER SHARE - 100.00% ....................................... $ 257,651,406 ============= - ---------- DECS - Dividend Enhanced Convertible Stock PERCS - Preferred Equity Redemption Cumulative Stock TAPS - Threshold Appreciation Price Security ACES - Automatic Common Exchange Security + 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, 1997, these securities amounted to 43,450,488 or 16.86% of net assets. * US Treasury Bills are traded on a discount basis; the interest rates shown are the discount rates paid at the time of purchase by the Fund. (a) Coupon will increase periodically based upon a predetermined schedule. Stated interest rate in effect at November 30, 1997. - -------------------- COMPONENTS OF NET ASSETS AT NOVEMBER 30, 1997: Common Stock, $0.01 par value, 500,000,000 shares authorized to the Fund ..................................... $200,958,246 Accumulated net realized gain on investments ............... 8,488,674 Net unrealized appreciation of investments ................. 48,204,486 ------------ Total net assets ............................................ $257,651,406 ============ See accompanying notes closed-end income 12 DELAWARE GROUP DIVIDEND AND INCOME FUND, INC. STATEMENT OF OPERATIONS FOR THE YEAR ENDED NOVEMBER 30, 1997 - -------------------------------------------------------------------------------- INVESTMENT INCOME: Interest ..................................... $12,222,885 Dividends .................................... 7,762,573 $19,985,458 ----------- ----------- EXPENSES: Management fees .............................. 1,612,896 Administrative fees .......................... 446,809 Commercial paper fees ........................ 109,862 Reports to shareholders ...................... 58,674 Shareholders' meeting ........................ 40,000 NYSE fees .................................... 30,187 Amortization of organizational expenses ...... 28,809 Transfer agent fees .......................... 21,602 Professional fees ............................ 17,659 Directors' fees .............................. 9,608 Other ........................................ 15,954 ----------- Total operating expenses (before interest expense) .................. 2,392,060 Interest expense ............................ 3,120,012 ----------- Total expenses .............................. 5,512,072 ----------- NET INVESTMENT INCOME ........................ 14,473,386 ----------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investment transactions . 13,863,649 Net change in unrealized appreciation on investments ............................... 30,208,891 ----------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS ......................... 44,072,540 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................... $58,545,926 =========== DELAWARE GROUP DIVIDEND AND INCOME FUND, INC. STATEMENTS OF CHANGES IN NET ASSETS Year Ended Year Ended 11/30/97 11/30/96 OPERATIONS: Net investment income ...................... $ 14,473,386 $ 15,233,859 Net realized gain on investment transactions 13,863,649 7,639,969 Net change in unrealized appreciation on investments ............................ 30,208,891 18,652,232 ------------- ------------- Net increase in net assets resulting from operations ................. 58,545,926 41,526,060 ------------- ------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ...................... (14,473,386) (15,641,809) Net realized gains on investment transactions ................... (6,987,136) (5,818,691) ------------- ------------- (21,460,522) (21,460,500) ------------- ------------- NET INCREASE IN NET ASSETS ................. 37,085,404 20,065,560 NET ASSETS: Beginning of year .......................... 220,566,002 200,500,442 ------------- ------------- End of year ................................ $ 257,651,406 $ 220,566,002 ============= ============= See accompanying notes DELAWARE GROUP DIVIDEND AND INCOME FUND, INC. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED NOVEMBER 30, 1997 - -------------------------------------------------------------------------------- Increase (Decrease) in Cash: Cash flows provided by operating activities: Interest and dividends received (excluding amortization of $266,706) ...................... $ 19,658,735 Operating expenses paid .................................... (2,471,492) Interest expenses paid ..................................... (3,460,608) Sale of short-term portfolio investments, net .............. 2,608,390 Purchase of long-term portfolio investments ................ (212,018,439) Proceeds from disposition of long-term portfolio investments 214,758,433 ------------- Net cash provided by operating activities .................. 19,075,019 ------------- Cash flows used for financing activities: Cash provided by issuance of commercial paper .............. 226,922,964 Cash used to liquidate commercial paper .................... (226,539,392) Cash dividends paid ........................................ (21,460,522) ------------- Net cash used for financing activities ..................... (21,076,950) ------------- Net decrease in cash ........................................ (2,001,931) Cash at beginning of year ................................... 2,006,222 ------------- Cash at end of year ......................................... $ 4,291 ============= Reconciliation of Net Increase in Net Assets Resulting from Operations to Net Cash Provided by Operating Activities: Net increase in net assets resulting from operations ........ $ 58,545,926 ------------- Decrease in investments .................................... 6,908,252 Net realized gain from investment transactions ............. (13,863,649) Net change in unrealized appreciation on investments ....... (30,208,891) Increase in prepaid assets ................................. (136) Decrease in receivable for investments sold ................ 536,626 Increase in interest and dividends receivable .............. (60,017) Decrease in deferred organizational expenses ............... 39,667 Decrease in payable for investments purchased .............. (2,363,200) Decrease in interest payable ............................... (396,361) Decrease in accrued expenses and other liabilities ......... (63,198) ------------- Total adjustments ......................................... (39,470,907) ------------- Net cash provided by operating activities ................... $ 19,075,019 ============= See accompanying notes closed-end income 13 DELAWARE GROUP DIVIDEND AND INCOME FUND, INC. FINANCIAL HIGHLIGHTS NOVEMBER 30, 1997 - -------------------------------------------------------------------------------- Selected data for each share of the Fund outstanding throughout each period were as follows:
For the Period Year Ended Year Ended Year Ended Year Ended 3/26/93* to 11/30/97 11/30/96++ 11/30/95 11/30/94 11/30/93 ------------------------------------------------------------------- Net asset value, beginning of period........................... $15.42 $14.01 $12.69 $14.91 $14.04+ Income (loss) from investment operations: Net investment income...................................... 1.01 1.07 1.13 1.10 0.68 Net realized and unrealized gain (loss) on investments .... 3.08 1.84 1.34 (1.73) 0.81 ---- ------ ------ ----- ------ Total from investment operations........................... 4.09 2.91 2.47 (0.63) 1.49 ---- ---- ---- ----- ----- Less dividends and distributions: Dividends from net investment income....................... (1.01) (1.09) (1.15) (1.12) (0.62) Distributions from net realized gains on investment transactions .................................. (0.49) (0.41) - (0.47) - ---- ---- ------ ----- ---- Total dividends and distributions.......................... (1.50) (1.50) (1.15) (1.59) (0.62) ---- ---- ------ ----- ------ Net asset value, end of period................................. $18.01 $15.42 $14.01 $12.69 $14.91 ====== ====== ====== ====== ====== Market value, end of period.................................... $18.06 $16.63 $14.00 $12.00 $14.50 ====== ====== ====== ====== ====== Total investment return based on:(1) Market value............................................... 18.34% 30.67% 28.71% (7.23)% 0.82% ===== ===== ===== ===== ==== Net asset value............................................ 27.22% 21.11% 20.72% (4.60)% 10.76% ===== ===== ===== ===== ===== Ratios and supplemental data: Net assets, end of period (000 omitted).................... $257,651 $220,566 $200,500 $181,510 $213,292 ======== ======== ======== ======== ======== Ratio of total operating expenses to adjusted average weekly net assets (before interest expense) ............. 0.82% 0.87% 0.89% 1.01% 0.94%** Ratio of interest expense to adjusted average weekly net assets ........................................ 1.06% 1.17% 1.32% 0.76%* * N/A Ratio of net investment income to adjusted average weekly net assets .............................................. 4.93% 5.80% 6.68% 6.80% 6.88%** Portfolio turnover......................................... 74% 69% 118% 73% 113% Average commission rate paid............................... $0.0584 $0.0532 N/A N/A N/A Leverage analysis: Debt outstanding at end of period (000 omitted) ........... $55,000 $55,000 $55,000 $48,000 N/A Average daily balance of debt outstanding (000 omitted).... $54,631 $54,641 $52,488 $40,803 N/A Average daily balance of shares outstanding (000 omitted).. 14,307 14,307 14,307 14,307 N/A Average debt per share..................................... $3.82 $3.82 $3.67 $2.85 N/A
- -------------------- * Commencement of operations ** Annualized--Commercial paper was initially issued on January 25, 1994 + Net of underwriter's discount of $0.90 and offering costs of $0.06 charged to paid-in capital with respect to issuance of common shares. ++ Certain prior year information has been reclassified to conform with current year presentation. (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 purposes 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 a 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. 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. See accompanying notes closed-end income 13 DELAWARE GROUP DIVIDEND AND INCOME FUND, INC. NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1997 - -------------------------------------------------------------------------------- Delaware Group Dividend and Income Fund, Inc. (the "Fund") is registered as a diversified closed-end management investment company under the Investment Company Act of 1940, as amended. The Fund is organized as a Maryland corporation. The primary investment objective is to seek high current income. Capital appreciation is a secondary objective. 1. Significant Accounting Policies The following accounting policies are in accordance with generally accepted accounting principles and are consistently followed by the Fund: Security Valuation - Securities listed on an exchange are valued at the last quoted sale price as of the close of the NYSE on the valuation date. Securities not traded or securities not listed on an exchange are valued at the mean of the last quoted 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. Exchange-traded options are valued at the last reported sales price or, if no sales are reported, at the mean between the last reported bid and asked prices. Short-term instruments 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 by or under the direction of the Fund's Board of Directors. Federal Income Taxes - The Fund intends to continue to qualify 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. Income and capital gain distributions are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. Distributions - In December 1995, the Fund implemented a managed distribution policy. Under the policy, the Fund declares and pays monthly dividends at an annual rate of not less than $1.50 per share and is managed with a goal of generating as much of the dividend as possible from ordinary income (net investment income and short-term capital gains). The balance of the dividend then comes from long-term capital gains (once a year) and if necessary, a return of capital. No dividends were designated as return of capital for the year ended November 30, 1997. 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. In addition, a total of $199,000 was incurred in connection with the start-up of the short-term commercial paper program. These costs were deferred and amortized ratably over a period of three years from the date of the first short-term commercial paper issuance (See Note 5). Other - 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. Original issue discounts are accreted to interest income over the lives of the respective securities. Certain Fund expenses are paid through "soft dollar" arrangements with brokers. The amount of these expenses is less than 0.01% of the Fund's average weekly net assets. Certain prior year information has been reclassified to conform with current year presentation. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities 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. 2. Investment Management, Administration Agreements and Other Transactions with Affiliates In accordance with the terms of the Investment Management Agreement, the Fund pays Delaware Management Company, Inc. (DMC), the Investment Manager of the Fund, an annual fee equal to 0.55% of the Fund's adjusted average weekly net assets. At November 30, 1997, the Fund had a liability for Investment Management fees of $141,785. The Fund has also entered into an Administration Agreement with Princeton Administrators L.P., the administrator of the Fund, which provides for payment, subject to an annual minimum fee of $150,000, of a monthly fee computed at the annual rate of 0.15% of the Fund's adjusted average weekly net assets. For purposes of the calculation of investment management fees and administration fees, adjusted average weekly net assets do not include the commercial paper liability. Officers, directors and employees of DMC, who are also officers, directors and employees of the Fund, do not receive any compensation from the Fund. 3. Investments During the year ended November 30, 1997, the Fund made purchases of $209,655,239 and sales of $214,221,348 of investment securities other than U.S. government securities and temporary cash investments. At November 30, 1997, the aggregate cost of securities and unrealized appreciation (depreciation) for federal income tax purposes was as follows: Cost of Investments ........................................ $258,951,451 ============ Aggregated unrealized appreciation ......................... $ 49,314,809 Aggregated unrealized depreciation ......................... 1,110,323 ------------ Net unrealized appreciation ................................ $ 48,204,486 ============ 4. Capital Stock There are 500,000,000 shares of $0.01 par value capital stock authorized. The Fund did not repurchase any shares under The Share Repurchase Program during the year ended November 30, 1997. Shares issuable under the Fund's dividend reinvestment plan are purchased by the Fund's transfer agent, ChaseMellon Shareholder Services, L.L.C., in the open market. closed-end income 15 NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- 5. Commercial Paper As of November 30, 1997, $55,000,000 of commercial paper was outstanding with an amortized cost of $54,865,041. The weighted average discount rate of commercial paper outstanding at November 30, 1997, was 5.63%. The average daily balance of commercial paper outstanding during the year ended November 30, 1997, was $54,631,278 at a weighted average discount rate of 5.60%. The maximum amount of commercial paper outstanding at any time during the year was $55,000,000. 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 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. During the year ended November 30, 1997, there were no borrowings under this arrangement. 6. Market and Credit Risks The Fund may invest in high-yield fixed-income securities which carry ratings of BB or lower by S&P and/or Ba 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 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 some of these securities may adversely affect the Fund's ability to dispose of such securities in a timely manner and at a fair price when it is necessary to liquidate such securities. 7. Written Options When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from writing options that expire unexercised are treated by the Fund on the expiration date as realized gains from investments. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Fund has realized a gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund as writer of an option bears the market risk of an unfavorable change in the price of the security underlying the written option. Transactions in options written during the year ended November 30, 1997, were as follows: Number of Premiums Contracts Received -------- -------- Options outstanding at November 30, 1996 ......... 1,458 $259,555 Options exercised ................................ 1,458 259,555 -------- -------- Options outstanding at November 30, 1997 ......... -- $ -- -------- -------- - -------------------------------------------------------------------------------- DELAWARE GROUP DIVIDEND AND INCOME FUND, INC. REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- TO THE SHAREHOLDERS AND BOARD OF DIRECTORS DELAWARE GROUP DIVIDEND AND INCOME FUND, INC. We have audited the accompanying statement of net assets of Delaware Group Dividend and Income Fund, Inc. as of November 30, 1997, and the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended and for the period March 26, 1993, (commencement of operations) to November 30, 1993. These financial statements and financia l highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of November 30, 1997, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Delaware Group Dividend and Income Fund, Inc. at November 30, 1997, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended and for the period March 26, 1993, (commencement of operations) to November 30, 1993, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Philadelphia, Pennsylvania January 13, 1998 closed-end income 16 PROXY RESULTS (UNAUDITED) - -------------------------------------------------------------------------------- During the year ended November 30, 1997, The Delaware Group Dividend and Income Fund shareholders voted on the following proposals at the annual meeting of shareholders on July 15, 1997. The description of each proposal and number of shares voted are as follows: Shares Shares Voted Voted Withheld For Authority ------------ ------------ 1 To elect the Fund's Board of Directors: Wayne A. Stork ....................... 9,514,273 110,691 Walter P. Babich ..................... 9,513,112 111,852 Anthony D. Knerr ..................... 9,522,897 102,067 Ann R. Leven ......................... 9,518,757 106,207 W. Thacher Longstreth ................ 9,507,122 117,842 Charles E. Peck ...................... 9,510,419 114,545 Thomas F. Madison .................... 9,519,597 105,367 Jeffrey J. Nick ...................... 9,517,824 107,140 Shares Shares Shares Voted Voted Voted For Against Abstain --------- -------- ------- 2. To ratify the appointment of Ernst & Young LLP as the Fund's independent auditors .... 9,425,366 68,186 131,412 TAX INFORMATION (UNAUDITED) - -------------------------------------------------------------------------------- Of the ordinary income distributions paid by the Fund during its taxable year ended November 30, 1997, 28.04% qualifies for the dividends received deduction for corporations. Additionally, the Fund distributed long-term capital gains of $0.087 per share and $0.000397 per share to shareholders of record on December 31, 1996, and February 14, 1997, respectively. Registrar and Stock Transfer Agent ChaseMellon Shareholder Services, L.L.C. P.O. Box 590 Ridgefield Park, NJ 1.800.851.9677 For Securities Dealers 1.800.362.7500 Financial Institutions Representatives Only 1.800.659.2265 Recordholders as of November 30, 1997: 618 Copy Rights Delaware Distributors, L.P. DDF Listed NYSR The New York Stock Exchange DELAWARE GROUP ===================== Philadelphia o London Printed in the USA on recycled paper (409) AR-DDF[11/97]TKO1/98 Closed-end Income -----END PRIVACY-ENHANCED MESSAGE-----