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:
David F. Connor, 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: November 30, 2006
Item 1. Reports to Stockholders
Annual Report Delaware
Investments
Dividend and
Income Fund, Inc.
November 30, 2006
[DELAWARE INVESTMENTS LOGO] Closed-end
Table of contents
> Portfolio management review ............................................1
> Performance summary. ...................................................6
> Sector allocation and top 10 holdings ..................................8
> Statement of net assets ...............................................10
> Statement of operations ...............................................18
> Statements of changes in net assets ...................................19
> Statement of cash flows ...............................................20
> Financial highlights ..................................................21
> Notes to financial statements .........................................22
> Report of independent registered public accounting firm ...............26
> Other Fund information ................................................27
> Board of directors/trustees and officers addendum .....................29
> About the organization ................................................31
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) 2007 Delaware Distributors, L.P.
Portfolio management review
Delaware Investments Dividend and Income Fund, Inc.
November 30, 2006
The managers of Delaware Investments Dividend and Income Fund, Inc. provided the
answers to the questions below as a review of the Fund's activities for the
fiscal year ended November 30, 2006. Please see pages 3 and 4 to learn more
about the Fund managers.
Q: Can you please discuss the investment environment during the year ended
November 30, 2006?
A: On the whole, the U.S. stock market performed well and turned in higher
returns than we anticipated at the outset of the year.
Investors largely saw two different sets of conditions during the year. Roughly
through June 2006, U.S. stocks faced headwinds. Energy costs continued to rise,
which put downward pressure on corporate earnings and consumer spending.
Interest rates rose as well. Stronger-than-expected inflation reports in the
spring made it more likely that the Federal Reserve Board (Fed) would continue
to raise short-term rates. The threat of a weakening economy coupled with
uncertainty about the inflation picture was a negative influence on equity
prices, and market performance was particularly weak in May and June 2006.
By July, conditions had improved noticeably. Corporate earnings, though slowing,
remained relatively solid, as did consumer spending in the face of a weakening
housing market. In addition, oil prices began declining sharply from their
historic highs and the Fed finally decided not to raise interest rates in August
and beyond, boosting performance in both the stock and bond markets through the
end of the year.
Q: How did the Fund perform during the year ended November 30, 2006?
A: Delaware Investments Dividend and Income Fund, Inc. returned +22.41% at net
asset value and +16.96% at market price (both figures reflect all distributions
reinvested). For complete annualized performance for Delaware Investments
Dividend and Income Fund, Inc., please see the table on page 6. By comparison,
the Fund's benchmark - the Standard and Poor's 500 Index - returned +14.23%,
and the Fund's peer group, as measured by the Lipper Closed-end Income and
Preferred Stock Funds Average, gained 14.60% (source: Lipper).
Delaware Investments Dividend and Income Fund, Inc. is invested primarily in
four types of assets: large-cap value equities, real estate investment trusts
(REITs), high-yield bonds, and convertible securities, the last of which have
some features of both equity and fixed income securities. Each security type in
the Fund produces a measure of income for investors, and each may perform
differently from the others in different types of market environments.
During the year, dividend-oriented equity investors generally fared well, and as
the year progressed investors appeared to become increasingly risk averse. Also
of note, REITs strongly outperformed the broad U.S. stock market during the
year. For instance, the NAREIT Equity REIT Index, which tracks the performance
of U.S. REITs, gained 36.93%.
Q: What factors influenced performance in the Fund?
A: Expecting a slowdown in the economy and a reduced rate of corporate earnings
growth, we believed it was prudent to position the equity portion of the
investment portfolio even more defensively than might be typical. As a result,
we held overweightings compared to the index in less economically sensitive
sectors, such as healthcare and consumer staples. The Fund was also underweight
in more economically sensitive areas, such as consumer discretionary.
We regularly look to invest in undervalued companies with good businesses that
we believe are priced well below their intrinsic value. During the most recent
period, we focused on companies that we believed to have particularly sound
balance sheets, strong dividend yields, and the potential to continue generating
relatively stable earnings, even in a weaker economy.
This approach led us to hold relatively small positions in the energy and
industrial sectors, both of which tend to be relatively sensitive to economic
changes. As the fiscal
The views expressed are current as of the date of this report and are subject to
change.
(continues) 1
Portfolio management review
year progressed, however, we found an increasing number of opportunities among
stocks in the technology industry that we believed to be attractively valued,
adding a new position in Intel. More technology stocks were passing our strict
screening process, as a number of companies established shareholder-friendly
policies in the midst of successful turnarounds.
After several years of robust REIT performance, we continued to exercise caution
in this portion of the Fund, emphasizing companies with strong or improving
fundamentals and attractive valuations. We concentrated on several key areas of
the REIT market, beginning with economically sensitive holdings such as
industrial REITs. These cyclical companies generally benefit from steady gross
domestic product growth during the year.
We also were more heavily weighted than the NAREIT Equity REIT Index in REITs
with exposure to office property markets. We felt higher construction costs
would limit development in this category. In urban markets, certain office
stocks benefited during the year as increased demand drove rental rates higher.
Rising real estate prices in recent years forced many would-be homebuyers to
rent, creating what we believed were attractive prospects for apartment REITs.
We generally tried to capitalize on these and other trends.
REIT valuations have been propelled to all-time highs. Although we remained
optimistic at fiscal year end about the general long-term prospects for REITs,
we also remained skeptical about whether valuations can be sustained. By fiscal
year end, we had begun planning to focus on new opportunities only very
selectively, especially in the apartment and office sectors.
The Fund's various fixed income investments continued to provide another source
of income for shareholders as well as a measure of diversification for the Fund.
While stocks generally outperformed bonds for the year, total return performance
from high yield bonds was competitive. High yield bonds are noninvestment grade
securities issued by organizations with noninvestment grade credit ratings; as
such, they offer investors higher yields but an increased risk of default by the
issuer.
Especially during the late-year rally, lower-rated bonds outperformed other
types of fixed income investments, as a general search for yield could be
detected in the marketplace. As always, our approach to high yield investing
remained based on the selection of individual securities, analyzing the credits
available to us in the marketplace one bond issue at a time. Although the
economic climate and other big-picture factors were influential in the market
this year, we believe that company-specific characteristics generally played a
larger role in performance. We avoided making significant sector bets,
preferring to focus our research efforts on uncovering securities that we
thought offered value and yield advantages.
Q: Could you provide an example of a high yield bond that influenced
performance?
A: Charter Communications is a major company in the telecommunications industry
that provides broadband services to its customers. The company's bonds traded
lower early in the fiscal year on concerns about its subscriber base that
stemmed from Adelphia's bankruptcy proceedings. Later, the company posted
stabilized earnings and the bonds bounced back. Charter Communications remained
in the Fund at year end and represented one of the larger fixed income
positions.
Q: Could you please name specific equity securities that influenced performance?
A: Among large-cap value stocks, several consumer discretionary stocks were
noteworthy for generating strong gains during the fiscal year. Toy manufacturer
Mattel benefited from the success of key brands and better supply chain
management, as well as from lower energy prices, which served to reduce
production costs for the company. Limited Brands performed well, in part on a
turnaround in its apparel businesses, as well as from its personal care segment,
Bath and Body Works. In healthcare, the Fund gained from its holdings in Merck.
The pharmaceutical company's stock recovered off a low, as investors' concerns
about legal liability surrounding its Vioxx pain medication abated.
2
Our holdings in the financial category were often among our weakest equity
performers. For example, one stock that trailed the performance of the broad
equity market was bank company Huntington Bancshares. As with other banks,
Huntington Bancshares encountered difficulty as the company's earnings suffered
from less profitable lending activities, caused by a challenging interest rate
environment. Insurance company Hartford Financial Services also underperformed
relative to the overall stock market, hindered by increased competition and a
slowdown in the growth of auto insurance premiums, among other factors.
Fund managers
D. Tysen Nutt Jr.
Senior Vice President, Senior Portfolio Manager,
Team Leader - Large-Cap Value Focus Equity
Mr. Nutt joined Delaware Investments in 2004 as senior vice president and senior
portfolio manager for the firm's Large-Cap Value Focus strategy. Before joining
the firm, Mr. Nutt led the U.S. Active Large-Cap Value team within Merrill Lynch
Investment Managers (MLIM), where he managed mutual funds and separate accounts
for institutions and private clients. Mr. Nutt departed MLIM as a managing
director. Prior to joining MLIM in 1994, Mr. Nutt was with Van Deventer & Hoch
(V&H) where he managed large-cap value portfolios for institutions and private
clients. He began his investment career at Dean Witter Reynolds, where he
eventually became vice president, investments. Mr. Nutt earned his bachelor's
degree from Dartmouth College, and he is a member of the New York Society of
Security Analysts and the CFA Institute.
Timothy L. Rabe, CFA
Senior Vice President, Head of High Yield Investments,
Senior Portfolio Manager
Mr. Rabe joined Delaware Investments in 2000. He is head of the High Yield team,
responsible for investing strategy for all high yield fixed income funds and
strategies at the firm. Prior to joining Delaware Investments, Mr. Rabe was a
high yield portfolio manager for Conseco Capital Management for five years.
Prior to that, he worked as a tax analyst for the Northern Trust Company. Mr.
Rabe received a bachelor's degree in finance from the University of Illinois.
Babak (Bob) Zenouzi
Senior Vice President, Senior Portfolio Manager
Mr. Zenouzi rejoined Delaware Investments in May 2006. He left the firm in 1999
after seven years as an analyst and portfolio manager. Currently, he leads the
firm's REIT group, including the team, its process, and its institutional and
retail products, which he created during his prior time with the firm. He also
serves as lead portfolio manager for the firm's Dividend and Income products,
which he helped create in the 1990s. Most recently, Mr. Zenouzi worked at
Chartwell Investment Partners from 1999 to 2006, where he was a partner and
senior portfolio manager on Chartwell's Small-Cap Value portfolio. He began his
career with The Boston Company, where he held several positions in accounting
and financial analysis. Mr. Zenouzi earned a master's degree in finance from
Boston College and a bachelor's degree from Babson College. He is a member of
the National Association of Real Estate Investment Trusts.
Damon J. Andres, CFA
Vice President, Senior Portfolio Manager
Mr. Andres, who joined Delaware Investments in 1994, currently serves as a
portfolio manager for REIT investments and convertibles. From 1991 to 1994, he
performed investment-consulting services as a consulting associate with
Cambridge Associates. Mr. Andres earned a bachelor's degree in business
administration with an emphasis in finance and accounting from the University of
Richmond.
Todd A. Bassion, CFA
Vice President, Portfolio Manager, Senior Equity Analyst
Mr. Bassion joined Delaware Investments in June 2005 as a senior analyst on the
firm's International Value Equity team. He takes a lead role in generating and
researching new companies for the portfolios as well as providing input on
ongoing portfolio management. Mr. Bassion previously worked at Arborway Capital,
where he was a key part of the team that started at ValueQuest/TA and moved to
Thomas Weisel Asset Management with its acquisition of ValueQuest/TA in 2002.
Mr. Bassion, who joined ValueQuest/TA in 2000, served as a research associate
there. Mr. Bassion earned a bachelor's degree in economics from Colorado
College.
(continues) 3
Portfolio management review
Fund managers (continued)
Jordan L. Irving
Vice President, Senior Portfolio Manager
Mr. Irving joined Delaware Investments in 2004 as a vice president, senior
portfolio manager for the firm's Large-Cap Value Focus strategy. Previously, he
worked for the U.S. Active Large-Cap Value team within Merrill Lynch Investment
Managers for six years, where he managed mutual funds and separate accounts for
institutions and private clients. Mr. Irving graduated from Yale University with
a bachelor's degree in American studies and earned a special diploma in social
studies at Oxford University. He competed for the United States National Rowing
Team, winning a gold medal at the 1997 World Rowing Championships in
Aiguebelette, France.
Anthony A. Lombardi, CFA
Vice President, Senior Portfolio Manager
Mr. Lombardi joined Delaware Investments in 2004 as a vice president and senior
portfolio manager for the firm's Large-Cap Value Focus strategy. Previously, Mr.
Lombardi worked at Merrill Lynch Investment Managers from 1998 to 2004, where he
rose to the position of director and portfolio manager for the U.S. Active
Large-Cap Value team, managing mutual funds and separate accounts for
institutions and private clients. Prior to that he worked at Dean Witter
Reynolds for seven years as a sell-side equity research analyst, and he began
his career as an investment analyst with Crossland Savings in 1989. Mr. Lombardi
graduated from Hofstra University, receiving a bachelor's degree in finance and
an MBA with a concentration in finance. He is a member of the New York Society
of Security Analysts and the CFA Institute.
Robert A. Vogel Jr., CFA
Vice President, Senior Portfolio Manager
Mr. Vogel joined Delaware Investments in 2004 as a vice president, senior
portfolio manager for the firm's Large-Cap Value Focus strategy. He previously
worked at Merrill Lynch Investment Managers for more than seven years, where he
rose to the position of director and portfolio manager within the U.S. Active
Large-Cap Value team. He began his career in 1992 as a financial consultant at
Merrill Lynch. Mr. Vogel graduated from Loyola College in Maryland, earning both
bachelor's and master's degrees in finance. He also earned an MBA with a
concentration in finance from The Wharton School of the University of
Pennsylvania, and he is a member of the New York Society of Security Analysts
and the CFA Society of Philadelphia.
Nikhil G. Lalvani, CFA
Vice President, Portfolio Manager
Mr. Lalvani is a portfolio manager with the firm's Large-Cap Value Focus team.
At Delaware Investments, Mr. Lalvani has served as both a fundamental and
quantitative analyst. Prior to joining the firm in 1997, he was a research
associate with Bloomberg. Mr. Lalvani holds a bachelor's degree in finance from
Penn State University and is a member of the CFA Society of Philadelphia.
Nashira S. Wynn
Vice President, Portfolio Manager
Ms. Wynn is a portfolio manager with the firm's Large-Cap Value Focus team.
Prior to joining Delaware Investments in 2004, she was an equity research
analyst for Merrill Lynch Investment Managers. Ms. Wynn earned a bachelor's
degree in finance, with a minor in economics, from The College of New Jersey,
and she attended Oxford University as a presidential scholar. Ms. Wynn is also a
CFA Level I candidate.
4
Performance summary
Delaware Investments Dividend and Income Fund, Inc.
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when sold, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. A rise/fall in interest rates can have a significant impact on bond
prices and the net asset value (NAV) of the Fund. Funds that invest in bonds can
lose their value as interest rates rise and an investor can lose principal.
Please obtain the performance data for the most recent month end by calling 800
523-1918.
Instances of high double-digit returns are unusual, cannot be sustained, and
were achieved primarily during favorable market conditions.
Fund performance
Average annual total returns
Through November 30, 2006 1 year 5 years 10 years Lifetime
________________________________________________________________________________
At Market Price +16.96% +8.94% +8.45% +9.61%
At Net Asset Value +22.41% +14.02% +9.86% +10.57%
________________________________________________________________________________
High yielding noninvestment grade bonds involve higher risk than investment
grade bonds. Adverse conditions may affect the issuer's ability to pay interest
and principal on these securities.
Funds that invest in REITs are subject to many of the risks associated with
direct real estate ownership and, as such, may be adversely affected by declines
in real-estate values and general and local economic conditions.
Diversification does not assure a profit or protect against loss in a declining
market.
Returns reflect reinvestment of all distributions. 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 policy. Shares of the
Fund were initially offered with a sales charge of 6%. Performance since
inception does not include the sales charge or any brokerage commissions for
purchases made since inception. Past performance is not a guarantee of future
results.
The performance table and graphs on the following page do not reflect the
deduction of taxes the shareholder would pay on Fund distributions or sale of
Fund shares.
Fund basics
As of November 30, 2006
________________________________________________________________________________
Fund objective
________________________________________________________________________________
The Fund seeks to achieve high current income. Capital
appreciation is a secondary objective.
________________________________________________________________________________
Total Fund net assets
________________________________________________________________________________
$156 million
________________________________________________________________________________
Number of holdings
________________________________________________________________________________
303
________________________________________________________________________________
Fund start date
________________________________________________________________________________
March 26, 1993
________________________________________________________________________________
NYSE symbol
________________________________________________________________________________
DDF
6
Market Price vs. Net Asset Value
November 30, 2005 through November 30, 2006
[MARKET PRICE VS. NET ASSET VALUE LINE GRAPH]
Past performance is not a guarantee of future results.
Performance of a $10,000 Investment
November 30, 1996 through November 30, 2006
[PERFORMANCE OF A $10,000 INVESTMENT LINE GRAPH]
Chart assumes $10,000 invested in the Fund on November 30, 1996, and reflects
the reinvestment of all distributions at market value. The chart assumes $10,000
invested in the Lipper Closed-End Income and Preferred Stock Funds Average at
Market Price and at Net Asset Value. Performance of the Fund and the Lipper
class at market value is based on market performance during the period.
Performance of the Fund and the Lipper class at net asset value is based on the
fluctuations in net asset value during the period. Delaware Investments Dividend
and Income Fund, Inc. was initially offered with a sales charge of 6%.
Performance does not include fees, the initial sales charge, or any brokerage
commissions for purchases. Investments in the Fund are not available at net
asset value.
The Lipper Closed-End Income and Preferred Stock Funds Average represents the
average return of closed-end income and preferred stock mutual funds tracked by
Lipper (source: Lipper). You cannot invest directly in an index.
Past performance is not a guarantee of future results.
7
Sector allocation and top 10 holdings
Delaware Investments Dividend and Income Fund, Inc.
As of November 30, 2006
Sector designations may be different than the sector designations presented in
other Fund materials.
Percentage
Sector of Net Assets
________________________________________________________________________________
Common Stock 76.26%
Consumer Discretionary 5.37%
Consumer Staples 5.25%
Diversified REITs 3.38%
Energy 3.32%
Financials 12.55%
Health Care 9.09%
Health Care REITs 2.05%
Hotel REITs 0.86%
Industrial REITs 2.78%
Industrials 4.66%
Information Technology 6.87%
Mall REITs 3.73%
Manufactured Housing REITs 0.39%
Materials 1.64%
Mortgage REITs 0.87%
Multifamily REITs 1.25%
Office REITs 2.82%
Office/Industrial REITs 1.46%
Self-Storage REITs 0.93%
Shopping Center REITs 1.17%
Specialty REITs 0.82%
Telecommunications 3.25%
Utilities 1.75%
________________________________________________________________________________
Convertible Preferred Stock 3.30%
Banking, Finance & Insurance 1.54%
Basic Materials 0.35%
Cable, Media & Publishing 0.25%
Energy 0.47%
Telecommunications 0.13%
Utilities 0.56%
________________________________________________________________________________
Preferred Stock 4.07%
Leisure, Lodging & Entertainment 0.65%
Real Estate 3.42%
________________________________________________________________________________
Commercial Mortgage-Backed Securities 0.20%
________________________________________________________________________________
Convertible Bonds 8.56%
Aerospace & Defense 0.52%
Cable, Media & Publishing 0.37%
Computers & Technology 1.72%
Energy 0.90%
Health Care & Pharmaceuticals 1.47%
Leisure, Lodging & Entertainment 0.50%
Real Estate 0.72%
Retail 1.01%
Telecommunications 0.17%
Transportation 0.44%
Utilities 0.74%
________________________________________________________________________________
Corporate Bonds 29.35%
Basic Industry 3.55%
Brokerage 0.62%
Capital Goods 2.07%
Consumer Cyclical 2.52%
Consumer Non-Cyclical 2.10%
Energy 2.09%
Media 2.68%
Real Estate 0.37%
Services Cyclical 5.58%
Services Non-Cyclical 2.16%
Technology & Electronics 1.21%
Telecommunications 3.17%
Utilities 1.23%
________________________________________________________________________________
Senior Secured Loan 0.10%
________________________________________________________________________________
Warrant 0.00%
________________________________________________________________________________
Repurchase Agreements 6.08%
________________________________________________________________________________
Securities Lending Collateral 13.29%
Fixed Rate Notes 1.38%
Variable Rate Notes 11.91%
________________________________________________________________________________
Total Market Value of Securities 141.21%
________________________________________________________________________________
Obligation to Return Securities Lending Collateral (13.29%)
________________________________________________________________________________
Commercial Paper Payable (27.96%)
________________________________________________________________________________
Receivables and Other Assets Net of Liabilities 0.04%
________________________________________________________________________________
Total Net Assets 100.00%
________________________________________________________________________________
8
Holdings are for informational purposes only and are subject to change at any
time. They are not a recommendation to buy, sell, or hold any security.
Percentage
Top 10 Holdings of Net Assets
________________________________________________________________________________
Merck & Co. 1.83%
Simon Property Group 1.82%
Hewlett-Packard 1.80%
Limited Brands 1.78%
Allstate 1.75%
Intel 1.71%
Chevron 1.71%
International Business Machines 1.69%
Donnelley (R.R.) & Sons 1.69%
Xerox 1.68%
________________________________________________________________________________
9
Statement of net assets
Delaware Investments Dividend and Income Fund, Inc.
November 30, 2006
Number of Market
Shares Value
________________________________________________________________________________
Common Stock - 76.26%
________________________________________________________________________________
Consumer Discretionary - 5.37%
=+@II Avado Brands 1,390 $ -
*+ Charter Communications Class A 9,000 26,550
Gap 132,200 2,474,784
+ Idearc 3,570 98,318
Limited Brands 87,800 2,782,382
Mattel 110,000 2,414,500
Starwood Hotels & Resorts
Worldwide 9,200 590,364
__________
8,386,898
__________
Consumer Staples - 5.25%
ConAgra Foods 25,200 647,640
Heinz (H.J.) 56,500 2,511,425
Kimberly-Clark 38,500 2,559,095
Safeway 80,600 2,483,286
__________
8,201,446
__________
Diversified REITs - 3.38%
* CentraCore Properties Trust 37,400 1,201,288
Liberty Property Trust 17,100 875,691
iStar Financial 40,400 1,890,316
Spirit Finance 35,900 438,339
* Washington Real Estate
Investment Trust 20,600 883,122
__________
5,288,756
__________
Energy - 3.32%
Chevron 36,900 2,668,608
ConocoPhillips 34,900 2,348,770
*+ Petroleum Geo-Services ADR 2,667 179,862
__________
5,197,240
__________
Financials - 12.55%
Allstate 43,000 2,729,640
Aon 72,500 2,586,800
Chubb 47,600 2,463,776
Hartford Financial Services Group 27,100 2,324,096
Huntington Bancshares 97,900 2,379,949
Morgan Stanley 33,200 2,528,512
Wachovia 43,700 2,368,103
Washington Mutual 51,200 2,236,416
__________
19,617,292
__________
Health Care - 9.09%
Abbott Laboratories 53,900 2,514,974
Baxter International 53,900 2,411,486
Bristol-Myers Squibb 102,800 2,552,524
Merck & Co. 64,300 2,861,993
Pfizer 52,300 1,437,727
Wyeth 50,500 2,438,140
__________
14,216,844
__________
Health Care REITs - 2.05%
Health Care Property Investors 28,400 1,030,068
* Medical Properties Trust 35,000 519,750
* Nationwide Health Properties 28,900 855,151
Ventas 20,700 806,265
__________
3,211,234
__________
Hotel REITs - 0.86%
* Hersha Hospitality Trust 97,800 1,128,612
* Highland Hospitality 14,700 208,446
__________
1,337,058
__________
Industrial REITs - 2.78%
AMB Property 22,700 1,390,829
First Potomac Realty Trust 21,700 666,407
ProLogis 35,100 2,287,467
__________
4,344,703
__________
Industrials - 4.66%
Donnelley (R.R.) & Sons 74,700 2,634,681
*+ Foster Wheeler 4,760 257,033
+ Grupo Aeroportuario del Centro
Norte Sab ADR 10,000 215,500
* Macquarie Infrastructure 52,400 1,697,760
*+ Petrojarl ADR 2,667 30,529
Waste Management 66,800 2,445,548
__________
7,281,051
__________
Information Technology - 6.87%
Hewlett-Packard 71,300 2,813,498
Intel 125,100 2,670,885
International Business Machines 28,700 2,638,104
+ Xerox 158,700 2,618,550
__________
10,741,037
__________
Mall REITs - 3.73%
General Growth Properties 26,706 1,467,228
Macerich 17,700 1,512,819
Simon Property Group 27,900 2,845,242
__________
5,825,289
__________
Manufactured Housing REITs - 0.39%
Equity Lifestyle Properties 11,600 602,852
__________
602,852
__________
Materials - 1.64%
duPont (E.I.) deNemours 54,700 2,567,071
__________
2,567,071
__________
Mortgage REITs - 0.87%
* Gramercy Capital 31,000 868,310
JER Investors Trust 24,800 490,792
__________
1,359,102
__________
Multifamily REITs - 1.25%
American Campus Communities 15,000 445,500
Equity Residential 28,400 1,512,584
__________
1,958,084
__________
Office REITs - 2.82%
Alexandria Real Estate Equities 9,200 948,336
Brandywine Realty Trust 37,848 1,330,357
Highwoods Properties 11,300 461,040
Mack-Cali Realty 10,200 557,328
* Parkway Properties 15,600 809,328
Reckson Associates Realty 6,320 305,762
__________
4,412,151
__________
10
Number of Market
Shares Value
________________________________________________________________________________
Common Stock (continued)
________________________________________________________________________________
Office/Industrial REITs - 1.46%
* Duke Realty 38,000 $ 1,653,760
* PS Business Parks 8,800 627,000
____________
2,280,760
____________
Self-Storage REITs - 0.93%
Public Storage 12,200 1,174,616
* U-Store-It Trust 13,000 284,440
____________
1,459,056
____________
Shopping Center REITs - 1.17%
Cedar Shopping Centers 46,200 842,688
* New Plan Excel Realty Trust 26,100 743,589
* Ramco-Gershenson Properties 6,600 244,068
____________
1,830,345
____________
Specialty REITs - 0.82%
* Entertainment Properties Trust 21,200 1,286,840
____________
1,286,840
____________
Telecommunications - 3.25%
AT&T 76,100 2,580,551
Verizon Communications 71,400 2,494,716
____________
5,075,267
____________
Utilities - 1.75%
+ Mirant 7,023 213,640
Progress Energy 52,900 2,527,033
____________
2,740,673
____________
Total Common Stock
(cost $96,030,782) 119,221,049
____________
________________________________________________________________________________
Convertible Preferred Stock - 3.30%
________________________________________________________________________________
Banking, Finance & Insurance - 1.54%
Aspen Insurance 5.625%,
exercise price $29.28,
expiration date 12/31/49 8,800 485,100
~ Citigroup Funding 5.02%,
exercise price $29.50,
expiration date 9/27/08 17,000 535,499
E Trade Financial 6.125%,
exercise price $21.82,
expiration date 11/18/08 9,000 279,000
* Lehman Brothers Holdings
6.25%, exercise price $54.24,
expiration date 10/15/07 16,000 440,000
* Marshall & Ilsley 6.50%, exercise
price $46.28, expiration date
8/15/07 12,500 329,750
Sovereign Capital Trust 4.375%,
exercise price $29.05,
expiration date 3/1/34 6,800 337,450
__________
2,406,799
__________
Basic Materials - 0.35%
* Freeport-McMoRan Copper &
Gold 5.50%, exercise price
$48.65, expiration date
12/31/49 115 160,713
Huntsman 5.00%, exercise
price $28.29, expiration date
2/16/08 9,900 391,050
____________
551,763
____________
Cable, Media & Publishing - 0.25%
# Interpublic 5.25% 144A, exercise
price $13.66, expiration date
12/31/49 360 397,350
____________
397,350
____________
Energy - 0.47%
Chesapeake Energy 4.50%,
exercise price $44.17,
expiration date 12/31/49 3,650 372,300
El Paso Energy Capital Trust I
4.75%, exercise price $41.59,
expiration date 3/31/28 9,250 357,513
____________
729,813
____________
Telecommunications - 0.13%
Lucent Technologies Capital Trust I
7.75%, exercise price $24.80,
expiration date 3/15/17
205 210,433
____________
210,433
____________
Utilities - 0.56%
Entergy 7.625%, exercise price
$87.64, expiration date 2/17/09 9,000 534,375
NRG Energy 5.75%, exercise price
$60.45, expiration date 3/16/09 1,225 334,731
____________
869,106
____________
Total Convertible Preferred Stock
(cost $4,830,521) 5,165,264
____________
________________________________________________________________________________
Preferred Stock - 4.07%
________________________________________________________________________________
Leisure, Lodging & Entertainment - 0.65%
Red Lion Hotels 9.50% 37,649 1,017,652
____________
1,017,652
____________
Real Estate - 3.42%
* Equity Inns Series B 8.75% 35,700 933,555
LaSalle Hotel Properties 10.25% 49,200 1,266,408
Ramco-Gershenson Properties 9.50% 40,000 1,076,200
SL Green Realty 7.625% 80,000 2,071,200
____________
5,347,363
____________
Total Preferred Stock
(cost $6,063,725) 6,365,015
____________
(continues) 11
Statement of net assets
Delaware Investments Dividend and Income Fund, Inc.
Principal Market
Amount Value
________________________________________________________________________________
Commercial Mortgage-Backed Securities - 0.20%
________________________________________________________________________________
# First Union National Bank
Commercial Mortgage Trust
Series 2001-C2 L 144A
6.46% 1/12/43 $300,000 $ 306,209
__________
Total Commercial Mortgage-Backed
Securities (cost $304,488) 306,209
__________
________________________________________________________________________________
Convertible Bonds - 8.56%
________________________________________________________________________________
Aerospace & Defense - 0.52%
# AAR 144A 1.75%, 2/1/26
exercise price $29.43,
expiration date 2/1/26 260,000 285,025
EDO 4.00%, 11/15/25 exercise price
$34.19, expiration date 11/15/25 235,000 222,956
# L-3 Communications 144A
3.00%, 8/1/35 exercise price
$102.16, expiration date 8/1/35 290,000 302,688
__________
810,669
__________
Cable, Media & Publishing - 0.37%
# Playboy Enterprises 144A
3.00%, 3/15/25 exercise
price $17.02, expiration date
3/15/25 600,000 570,750
__________
570,750
__________
Computers & Technology - 1.72%
Fairchild Semiconductor
5.00%, 11/1/08 exercise
price $30.00, expiration date
11/1/08 410,000 408,463
Hutchinson Technology
3.25%, 1/15/26 exercise
price $36.43, expiration date
1/15/26 340,000 318,325
# Informatica 144A 3.00%, 3/15/26
exercise price $20.00, expiration
date 3/15/26 510,000 505,537
# Intel 144A 2.95%, 12/15/35
exercise price $31.53,
expiration date 12/15/35 255,000 237,469
^ ON Semiconductor Series B
1.142%, 4/15/24 exercise price
$9.82, expiration date 4/15/24 575,000 521,093
SanDisk 1.00%, 5/15/13 exercise
price $82.36, expiration date
5/15/13 165,000 147,263
# Sybase 144A 1.75%, 2/22/25
exercise price $25.22,
expiration date 2/22/25 500,000 552,499
__________
2,690,649
__________
Energy - 0.90%
Halliburton 3.125%, 7/15/23
exercise price $18.81,
expiration date 7/15/23 250,000 462,500
Pride International 3.25%, 5/1/33
exercise price $25.70, expiration
date 5/1/33 230,000 308,488
Schlumberger 2.125%, 6/1/23
exercise price $40.00,
expiration date 6/1/23 360,000 640,350
__________
1,411,338
__________
Health Care & Pharmaceuticals - 1.47%
# Allergan 144A 1.50%, 4/1/26
exercise price $126.66,
expiration date 4/1/26 415,000 447,162
# Amgen 144A 0.375%, 2/1/13
exercise price $79.48,
expiration date 2/1/13 165,000 165,825
~ Bristol-Myers Squibb
4.87%, 9/15/23 exercise
price $41.28, expiration date
9/15/23 300,000 301,500
CV Therapeutics 3.25%, 8/16/13
exercise price $27.00, expiration
date 8/16/13 125,000 105,469
# Nektar Therapeutics 144A
3.25%, 9/28/12 exercise
price $21.52, expiration date
9/28/12 350,000 364,437
* Teva Pharmaceutical Finance
0.25%, 2/1/26 exercise price
$47.16, expiration date 2/1/26 345,000 332,063
~ Wyeth 5.109%, 1/15/24 exercise
price $60.39, expiration date
1/15/24 550,000 585,199
__________
2,301,655
__________
Leisure, Lodging & Entertainment - 0.50%
# Regal Entertainment Group
144A 3.75%, 5/15/08 exercise
price $14.65, expiration date
5/15/08 550,000 783,063
__________
783,063
__________
Real Estate - 0.72%
MeriStar Hospitality 9.50%, 4/1/10
exercise price $10.18, expiration
date 4/1/10 1,100,000 1,129,150
__________
1,129,150
__________
Retail - 1.01%
*; Dick's Sporting Goods
1.606%, 2/18/24 exercise
price $58.132, expiration date
2/18/24 380,000 372,400
^ Lowe's Companies 0.00%, 10/19/21
exercise price $29.05, expiration
date 10/19/21 280,000 296,450
# Saks 144A 2.00%, 3/15/24
exercise price $11.97,
expiration date 3/15/24 425,000 600,313
# United Auto Group 144A
3.50%, 4/1/26 exercise price
$23.69, expiration date 4/1/26 260,000 301,600
__________
1,570,763
__________
12
Principal Market
Amount Value
________________________________________________________________________________
Convertible Bonds (continued)
________________________________________________________________________________
Telecommunications - 0.17%
Qwest Communications
International 3.50%, 11/15/25
exercise price $5.90, expiration
date 11/15/25 $180,000 $ 266,400
__________
266,400
__________
Transportation - 0.44%
*# ExpressJet Holdings 144A
4.25%, 8/1/23 exercise price
$18.20, expiration date 8/1/23 200,000 188,250
JetBlue Airways
3.50%, 7/15/33 exercise price
$28.33, expiration date 7/15/33 275,000 264,000
* 3.75%, 3/15/35 exercise price
$17.10, expiration date 3/15/35 225,000 237,375
__________
689,625
__________
Utilities - 0.74%
# CenterPoint Energy 144A
3.75%, 5/15/23 exercise price
$11.31, expiration date 5/15/23 800,000 1,155,000
Mirant (Escrow) 2.50%, 6/15/21
exercise price $67.95,
expiration date 6/15/21 180,000 -
__________
1,155,000
__________
Total Convertible Bonds
(cost $12,076,762) 13,379,062
__________
________________________________________________________________________________
Corporate Bonds - 29.35%
________________________________________________________________________________
Basic Industry - 3.55%
Abitibi-Consolidated
6.95% 12/15/06 20,000 20,000
* 7.875% 8/1/09 150,000 147,000
* AK Steel 7.875% 2/15/09 345,000 346,725
Bowater
9.00% 8/1/09 150,000 156,938
9.50% 10/15/12 300,000 305,250
Georgia-Pacific 9.50% 12/1/11 165,000 182,325
Gold Kist 10.25% 3/15/14 250,000 288,125
# Hexion 144A 9.75% 11/15/14 290,000 295,800
Lyondell Chemical
8.00% 9/15/14 235,000 243,519
8.25% 9/15/16 250,000 261,250
10.50% 6/1/13 45,000 49,725
*# Nell AF Sarl 144A 8.375% 8/15/15 325,000 334,344
NewPage
10.00% 5/1/12 335,000 354,263
* 12.00% 5/1/13 80,000 84,800
Norske Skog Canada
8.625% 6/15/11 475,000 482,124
# Port Townsend Paper 144A
11.00% 4/15/11 350,000 308,000
Potlatch 13.00% 12/1/09 250,000 292,274
# Sappi Papier Holding 144A
7.50% 6/15/32 375,000 349,499
++ Solutia 6.72% 10/15/37 375,000 333,750
Tembec Industries 8.625% 6/30/09 750,000 485,624
Witco 6.875% 2/1/26 250,000 223,750
__________
5,545,085
__________
Brokerage - 0.62%
E Trade Financial 8.00% 6/15/11 250,000 260,625
LaBranche & Co.
9.50% 5/15/09 265,000 280,238
11.00% 5/15/12 400,000 434,000
__________
974,863
__________
Capital Goods - 2.07%
Armor Holdings 8.25% 8/15/13 250,000 260,625
# Berry Plastics 144A 8.875% 9/15/14 220,000 223,025
*# Bombardier 144A 8.00% 11/15/14 200,000 202,000
CPG International I 10.50% 7/1/13 125,000 127,813
* Graham Packaging 9.875% 10/15/14 475,000 472,625
Interface 10.375% 2/1/10 350,000 384,125
Intertape Polymer 8.50% 8/1/14 405,000 374,625
{ Mueller Holdings 14.75% 4/15/14 185,000 163,725
# Momentive Performance
Materials 144A 9.75% 12/1/14 400,000 403,000
*{ NTK Holdings 10.75% 3/1/14 275,000 191,125
*# RBS Global/Rexnord 144A
11.75% 8/1/16 190,000 200,925
* Trimas 9.875% 6/15/12 250,000 241,250
__________
3,244,863
__________
Consumer Cyclical - 2.52%
Accuride 8.50% 2/1/15 250,000 240,625
# Baker & Taylor 144A 11.50% 7/1/13 225,000 226,406
Carrols 9.00% 1/15/13 225,000 228,375
* Denny's 10.00% 10/1/12 175,000 184,406
Ford Motor Credit
7.375% 10/28/09 300,000 299,690
9.875% 8/10/11 260,000 278,423
* General Motors 8.375% 7/15/33 250,000 229,063
General Motors Acceptance
Corporation
6.875% 9/15/11 385,000 396,783
* 8.00% 11/1/31 250,000 281,016
Landry's Restaurant 7.50% 12/15/14 175,000 171,063
*# Michaels Stores 144A 11.375% 11/1/16 175,000 180,250
Neiman Marcus
9.00% 10/15/15 230,000 250,413
* 10.375% 10/15/15 75,000 83,344
*# NPC International 144A
9.50% 5/1/14 250,000 252,500
* O'Charleys 9.00% 11/1/13 200,000 211,000
# United Auto Group 144A
7.75% 12/15/16 275,000 275,000
* Visteon 8.25% 8/1/10 150,000 146,625
__________
3,934,982
__________
(continues) 13
Statement of net assets
Delaware Investments Dividend and Income Fund, Inc.
Principal Market
Amount Value
________________________________________________________________________________
Corporate Bonds (continued)
________________________________________________________________________________
Consumer Non-Cyclical - 2.10%
Biovail 7.875% 4/1/10 $615,000 $ 622,688
Constellation Brands
8.125% 1/15/12 300,000 314,250
Cott Beverages 8.00% 12/15/11 300,000 307,500
Ingles Markets 8.875% 12/1/11 350,000 366,625
National Beef Packing
10.50% 8/1/11 400,000 420,000
Pilgrim's Pride 9.625% 9/15/11 250,000 263,750
Playtex Products 9.375% 6/1/11 350,000 366,625
* Swift & Co. 12.50% 1/1/10 225,000 231,750
True Temper Sports
8.375% 9/15/11 150,000 134,625
Warner Chilcott 8.75% 2/1/15 250,000 257,500
__________
3,285,313
__________
Energy - 2.09%
Bluewater Finance 10.25% 2/15/12 200,000 211,000
Chesapeake Energy
6.625% 1/15/16 70,000 69,475
# Complete Production Services
144A 8.00% 12/15/16 200,000 203,000
Compton Petroleum Finance
7.625% 12/1/13 360,000 343,800
El Paso Natural Gas
7.625% 8/1/10 200,000 208,000
# El Paso Performance-Linked Trust
144A 7.75% 7/15/11 175,000 182,000
El Paso Production 7.75% 6/1/13 100,000 104,125
# Hilcorp Energy I 144A
7.75% 11/1/15 75,000 74,250
* 9.00% 6/1/16 275,000 290,813
Inergy Finance
6.875% 12/15/14 150,000 146,250
8.25% 3/1/16 75,000 78,563
Mariner Energy 7.50% 4/15/13 200,000 195,000
# MarkWest Energy 144A
8.50% 7/15/16 150,000 152,250
PetroHawk Energy
9.125% 7/15/13 475,000 496,968
~ Secunda International
13.374% 9/1/12 260,000 269,750
Whiting Petroleum 7.25% 5/1/13 235,000 236,175
__________
3,261,419
__________
Media - 2.68%
} Adelphia Communications
8.125% 2/1/07 325,000 279,500
* CCH I Holdings 13.50% 1/15/14 335,000 316,575
*} Century Communications
9.50% 2/1/07 500,000 600,000
Charter Communication Holdings
13.50% 1/15/11 835,000 809,949
~# Cleveland Unlimited 144A
13.64% 12/15/10 75,000 81,000
# CMP Susquehanna 144A
9.875% 5/15/14 100,000 98,750
Dex Media East 12.125% 11/15/12 205,000 227,550
# Idearc 144A 8.00% 11/15/16 155,000 158,294
Insight Communications
12.25% 2/15/11 25,000 26,344
Lodgenet Entertainment
9.50% 6/15/13 425,000 456,875
Mediacom Broadband
8.50% 10/15/15 180,000 181,125
* Mediacom Capital 9.50% 1/15/13 575,000 593,688
* Vertis 10.875% 6/15/09 140,000 140,000
Warner Music Group
7.375% 4/15/14 225,000 223,875
__________
4,193,525
__________
Real Estate - 0.37%
American Real Estate Partners
8.125% 6/1/12 240,000 248,700
BF Saul REIT 7.50% 3/1/14 250,000 255,000
Rouse 7.20% 9/15/12 75,000 78,038
__________
581,738
__________
Services Cyclical - 5.58%
Adesa 7.625% 6/15/12 385,000 384,038
American Airlines 7.377% 5/23/19 128,358 125,309
Boyd Gaming 8.75% 4/15/12 285,000 299,963
Brickman Group 11.75% 12/15/09 120,000 128,100
* Continental Airlines 8.75% 12/1/11 165,000 166,856
Corrections Corporation of
America 7.50% 5/1/11 45,000 46,463
FTI Consulting 7.625% 6/15/13 350,000 363,125
*# Galaxy Entertainment Finance
144A 9.875% 12/15/12 550,000 589,874
Gaylord Entertainment
8.00% 11/15/13 260,000 267,150
{ H-Lines Finance Holdings
11.00% 4/1/13 491,000 456,015
Harrah's Operating 6.50% 6/1/16 350,000 313,085
# Hertz 144A 8.875% 1/1/14 225,000 234,563
Horizon Lines 9.00% 11/1/12 176,000 185,240
Kansas City Southern de Mexico
# 144A 7.625% 12/1/13 275,000 275,688
9.375% 5/1/12 300,000 322,500
Kansas City Southern Railway
9.50% 10/1/08 175,000 183,969
# Knowledge Learning 144A
7.75% 2/1/15 315,000 299,250
Majestic Star Casino
9.50% 10/15/10 260,000 269,750
Mandalay Resort Group
9.375% 2/15/10 390,000 416,324
9.50% 8/1/08 400,000 424,499
# Mobile Services Group 144A
9.75% 8/1/14 235,000 245,575
OMI 7.625% 12/1/13 175,000 179,594
# Penhall International 144A
12.00% 8/1/14 175,000 189,875
14
Principal Market
Amount Value
________________________________________________________________________________
Corporate Bonds (continued)
________________________________________________________________________________
Services Cyclical (continued)
# Pokagon Gaming Authority 144A
10.375% 6/15/14 $400,000 $ 435,999
# Rental Services 144A
9.50% 12/1/14 365,000 371,388
Seabulk International
9.50% 8/15/13 250,000 272,188
* Stena 9.625% 12/1/12 325,000 348,969
{ Town Sports International
11.00% 2/1/14 250,000 209,375
# Turning Stone Resort Casino
144A 9.125% 9/15/14 195,000 200,363
Wheeling Island Gaming
10.125% 12/15/09 505,000 516,362
__________
8,721,449
__________
Services Non-Cyclical - 2.16%
Casella Waste Systems
9.75% 2/1/13 600,000 629,999
* CRC Health 10.75% 2/1/16 355,000 380,738
Geo Subordinate 11.00% 5/15/12 250,000 242,500
* HCA
6.50% 2/15/16 250,000 208,125
# 144A 9.625% 11/15/16 275,000 289,438
*# HealthSouth 144A 10.75% 6/15/16 500,000 535,000
US Oncology 10.75% 8/15/14 300,000 333,000
{ Vanguard Health 11.25% 10/1/15 575,000 439,875
# WCA Waste 144A 9.25% 6/15/14 300,000 313,500
__________
3,372,175
__________
Technology & Electronics - 1.21%
# Freescale Semiconductor 144A
PIK 9.125% 12/15/14 200,000 201,000
10.125% 12/15/16 750,000 762,187
# Mercury Interactive 144A
4.75%% 7/1/07 550,000 557,563
# NXP Funding 144A 9.50% 10/15/15 125,000 128,906
Sungard Data Systems
10.25% 8/15/15 105,000 111,825
~# UGS Capital II PIK 144A
10.38% 6/1/11 131,307 132,949
__________
1,894,430
__________
Telecommunications - 3.17%
* American Tower 7.125% 10/15/12 300,000 308,250
American Towers 7.25% 12/1/11 100,000 104,000
# Broadview Networks 144A
11.375% 9/1/12 200,000 209,000
* Cincinnati Bell 8.375% 1/15/14 150,000 154,125
*# Cricket Communications 144A
9.375% 11/1/14 265,000 272,288
# Digicel Limited 144A 9.25% 9/1/12 275,000 292,875
*# Hughes Network Systems 144A
9.50% 4/15/14 580,000 604,649
{ Inmarsat Finance 10.375% 11/15/12 500,000 459,374
~ IWO Holdings 9.124% 1/15/12 75,000 76,875
*# Level 3 Financing 144A
9.25% 11/1/14 250,000 254,063
# MetroPCS Wireless 144A
9.25% 11/1/14 135,000 137,869
Qwest
# 144A 7.50% 10/1/14 375,000 400,313
~ 8.64% 6/15/13 200,000 217,750
* Rural Cellular
9.875% 2/1/10 275,000 292,188
~ 11.121% 11/1/12 170,000 177,650
Triton Communications
* 8.50% 6/1/13 150,000 145,500
9.375% 2/1/11 275,000 248,875
~ US LEC 13.87% 10/1/09 150,000 159,938
# Wind Acquisition 144A
10.75% 12/1/15 385,000 436,012
__________
4,951,594
__________
Utilities - 1.23%
++# Calpine 144A 8.496% 7/15/07 337,238 370,118
Elwood Energy 8.159% 7/5/26 287,438 303,860
Midwest Generation
8.30% 7/2/09 247,939 252,277
8.75% 5/1/34 200,000 218,000
Mirant Americas 8.30% 5/1/11 375,000 382,501
Mirant North America
7.375% 12/31/13 100,000 101,750
Orion Power 12.00% 5/1/10 250,000 284,375
=++# USGen New England 144A
7.459% 1/2/15 5,630 3,800
__________
1,916,681
__________
Total Corporate Bonds
(cost $44,643,956) 45,878,117
__________
________________________________________________________________________________
<< Senior Secured Loan - 0.10%
________________________________________________________________________________
HCA 8.086% 11/18/13 150,000 151,078
__________
Total Senior Secured Loan
(cost $150,000) 151,078
__________
Number of
Shares
________________________________________________________________________________
Warrant - 0.00%
________________________________________________________________________________
+# Solutia 144A, exercise price
$7.59, expiration date 7/15/09 650 -
__________
Total Warrant (cost $55,294) -
__________
Principal
Amount
________________________________________________________________________________
Repurchase Agreements - 6.08%
________________________________________________________________________________
With BNP Paribas 5.26% 12/1/06
(dated 11/30/06, to be
repurchased at $4,189,612,
collateralized by $4,305,000
U.S. Treasury Notes 2.75% due
8/15/07, market value $4,275,518) 4,189,000 4,189,000
(continues) 15
Statement of net assets
Delaware Investments Dividend and Income Fund, Inc.
Principal Market
Amount Value
________________________________________________________________________________
Repurchase Agreements (continued)
________________________________________________________________________________
With Cantor Fitzgerald 5.26%
12/1/06 (dated 11/30/06, to
be repurchased at $2,554,373,
collateralized by $2,071,000
U.S. Treasury Bills due 12/28/06,
market value $2,063,833 and
$532,000 U.S. Treasury Notes
6.25% due 2/15/07, market
value $542,553) $2,554,000 $ 2,554,000
With UBS Warburg 5.26%
12/1/06 (dated 11/30/06, to
be repurchased at $2,762,404,
collateralized by $2,886,000
U.S. Treasury Bills due 5/24/07,
market value $2,818,755) 2,762,000 2,762,000
____________
Total Repurchase Agreements
(cost $9,505,000) 9,505,000
____________
Total Market Value of Securities Before
Securities Lending Collateral - 127.92%
(cost $173,660,528) 199,970,794
____________
________________________________________________________________________________
Securities Lending Collateral ** - 13.29%
________________________________________________________________________________
Short-Term Investments -13.29%
Fixed Rate Notes - 1.38%
Citigroup Global Markets
5.32% 12/1/06 1,267,318 1,267,318
Credit Suisse First Boston
5.29% 12/13/06 880,181 880,181
____________
2,147,499
____________
~ Variable Rate Notes - 11.91%
American Honda Finance
5.32% 2/21/07 565,830 565,830
ANZ National 5.32% 12/31/07 125,740 125,740
Australia New Zealand
5.32% 12/31/07 628,700 628,700
Bank of America 5.32% 2/23/07 817,311 817,311
Bank of New York 5.31% 12/31/07 502,960 502,960
Barclays New York 5.31% 5/18/07 817,311 817,311
Bayerische Landesbank
5.37% 12/31/07 628,700 628,700
Bear Stearns 5.38% 5/31/07 754,441 754,441
BNP Paribas 5.35% 12/31/07 628,700 628,700
Canadian Imperial Bank
5.30% 12/31/07 314,350 314,350
CDC Financial 5.36% 1/2/07 817,311 817,311
Citigroup Global Markets
5.38% 12/7/06 817,311 817,311
Commonwealth Bank
5.32% 12/31/07 628,700 628,700
Deutsche Bank 5.34% 2/23/07 754,441 754,441
Dexia Bank 5.33% 9/28/07 880,150 880,008
Goldman Sachs 5.45% 11/30/07 817,311 817,311
Marshall & Ilsley Bank
5.30% 12/31/07 691,571 691,571
Merrill Lynch Mortgage Capital
5.41% 1/8/07 817,311 817,311
Morgan Stanley 5.49% 12/31/07 817,311 817,311
National Australia Bank
5.29% 3/7/07 779,589 779,589
National City Bank 5.32% 3/2/07 754,508 754,578
National Rural Utilities
5.31% 12/31/07 993,347 993,347
Nordea Bank New York
5.31% 5/16/07 314,350 314,342
Nordea Bank Norge
5.33% 12/31/07 628,700 628,700
Royal Bank of Scotland
5.31% 12/31/07 628,700 628,700
Societe Generale 5.29% 12/31/07 314,350 314,350
Toronto Dominion 5.32% 5/29/07 754,441 754,441
Wells Fargo 5.33% 12/31/07 628,700 628,700
____________
18,622,065
____________
Total Securities Lending Collateral
(cost $20,769,564) 20,769,564
____________
Total Market Value of Securities - 141.21%
(cost $194,430,092) 220,740,358 !
Obligation to Return Securities Lending
Collateral ** - (13.29%) (20,769,564)
Commercial Paper Payable - (27.96%)
(par $44,000,000) (43,706,134)
Receivables and Other Assets Net
of Liabilities - 0.04% 59,614
____________
Net Assets Applicable to 11,009,236
Shares Outstanding; Equivalent to $14.20
per Share - 100.00% $156,324,274
____________
Components of Net Assets at November 30, 2006:
Common stock, $0.01 par value, 500,000,000
shares authorized to the Fund $127,301,245
Distribution in excess of net investment income (110,456)
Accumulated net realized gain on investments 2,823,219
Net unrealized appreciation of investments 26,310,266
____________
Total net assets $156,324,274
____________
+ Non-income producing security for the year ended November 30, 2006.
++ Non-income producing security. Security is currently in default.
} Security is currently in default. The issue has missed the maturity date.
Bankruptcy proceedings are in process to determine distribution of assets.
The date listed is the estimate of when proceedings will be finalized.
{ 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.
; Step coupon bond. Coupon increases/decreases periodically based on a
predetermined schedule. Stated interest rate in effect at November 30, 2006.
^ Zero coupon security. The interest rate shown is the yield at the time of
purchase.
16
________________________________________________________________________________
________________________________________________________________________________
= Security is being fair valued in accordance with the Fund's fair valuation
policy. At November 30, 2006, the aggregate amount of fair valued
securities equaled $3,800, which represented 0.00% of the Fund's net
assets. See Note 1 in "Notes to Financial Statements."
<< Senior Secured Loans generally pay interest at rates which are periodically
redetermined by reference to a base lending rate plus a premium. These base
lending rates are generally (i) the prime rate offered by one or more
United States banks, (ii) the lending rate offered by one or more European
banks such as the London Inter-Bank Offered Rate ('LIBOR') and (iii) the
certificate of deposit rate. Senior Secured Loans may be subject to
restrictions on resale.
~ Variable rate security. The rate shown is the rate as of November 30, 2006.
II Restricted Security. Investment in a security not registered under the
Securities Act of 1933, as amended. This security has certain restrictions
on resale which may limit its liquidity. At November 30, 2006, the
aggregate amount of the restricted security equaled $0, or 0.00% of the
Fund's net assets See Note 9 in "Notes to Financial Statements."
@ Illiquid security. At November 30, 2006, the aggregate amount of illiquid
securities equaled $0, which represented 0.00% of the Fund's net assets.
See Note 9 in "Notes to Financial Statements."
# Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. At November 30, 2006, the aggregate amount of Rule 144A
securities equaled $20,398,388, which represented 13.05% of the Fund's net
assets. See Note 9 in "Notes to Financial Statements."
* Fully or partially on loan.
** See Note 8 in "Notes to Financial Statements."
! Includes $20,544,004 of securities loaned.
Summary of Abbreviations
ADR - American Depositary Receipts
REIT - Real Estate Investment Trust
PIK - Pay-in-kind
See accompanying notes
17
Statement of operations
Delaware Investments Dividend and Income Fund, Inc.
Year Ended November 30, 2006
Investment Income:
Dividends $4,453,064
Interest 4,818,912
Securities lending income 71,072 $ 9,343,048
__________ ____________
Expenses:
Management fees 1,067,464
Reports to shareholders 151,291
Commercial paper fees 127,571
Dividend disbursing and transfer agent fees and expenses 113,099
Accounting and administration expenses 77,622
Legal fees 54,760
Directors' fees and benefits 26,154
NYSE fees 25,000
Audit and tax fees 16,633
Taxes (other than taxes on income) 13,179
Dues and services 7,407
Pricing fees 6,511
Custodian fees 6,232
Consulting fees 4,759
Insurance fees 2,488
Registration fees 813
Directors' expenses 495
__________
Total operating expenses (before interest expense) 1,701,478
Interest expense 2,313,681
____________
Total operating expenses (after interest expense) 4,015,159
____________
Net Investment Income 5,327,889
____________
Net Realized and Unrealized Gain on Investments:
Net realized gain on Investments 8,223,470
Net change in unrealized appreciation/depreciation of investments 15,765,996
____________
Net Realized and Unrealized Gain on Investments 23,989,466
____________
Net Increase in Net Assets Resulting from Operations $29,317,355
____________
See accompanying notes
18
Statements of changes in net assets
Delaware Investments Dividend and Income Fund, Inc.
Year Ended
11/30/06 11/30/05
Increase (Decrease) in Net Assets from Operations:
Net investment income $ 5,327,889 $ 7,696,248
Net realized gain on investments and foreign currencies 8,223,470 20,783,293
Net change in unrealized appreciation/depreciation of investments and foreign currencies 15,765,996 (20,069,254)
____________ ____________
Net increase in net assets resulting from operations 29,317,355 8,410,287
____________ ____________
Dividends and Distributions to Shareholders from: (1)
Net investment income (5,523,748) (8,898,947)
Net realized gains (6,644,356) (2,947,249)
____________ ____________
(12,168,104) (11,846,196)
____________ ____________
Capital Share Transactions:
Cost of shares repurchased (2) (7,463,110) (16,855,077)
____________ ____________
Decrease in net assets derived from capital stock transactions (7,463,110) (16,855,077)
____________ ____________
Net Increase (Decrease) in Net Assets 9,686,141 (20,290,986)
Net Assets:
Beginning of year 146,638,133 166,929,119
____________ ____________
End of year (including distributions in excess of net investment income
of $110,456 and $59,410, respectively) $156,324,274 $146,638,133
____________ ____________
(1) See Note 4 in "Notes to Financial Statements."
(2) See Note 6 in "Notes to Financial Statements."
See accompanying notes
19
Statement of cash flows
Delaware Investments Dividend and Income Fund, Inc.
Year Ended November 30, 2006
Net Cash Provided by Operating Activities:
Net increse in net assets resulting from operations $ 29,317,355
_____________
Adustments to reconcile net increase in net assets from
operations to cash provided by operating activities:
Amortization of premium and discount on investments purchased (162,365)
Net proceeds from investment transactions 17,179,058
Net realized gain from investment transactions (8,223,470)
Net change in net unrealized appreciation/depreciation of investments (15,765,996)
Decrease in receivable for investments sold 2,288,478
Decrease in interest and dividends receivable and other assets 171,190
Decrease in payable for investments purchased (1,228,453)
Increase in interest payable 47,040
Increase in accrued expenses and other liabilities 73,311
_____________
Total adjustments (5,621,207)
_____________
Net cash provided by operating activities 23,696,148
_____________
Cash Flows Used for Financing Activities:
Cash provided by issuance of commerical paper 225,667,336
Repayment of commercial paper upon maturity (229,733,359)
Cash dividends and distributions paid (12,168,104)
Tender offer (7,463,110)
_____________
Net cash used for financing activities (23,697,237)
_____________
Net decrease in cash (1,089)
Cash at beginning of year 71,468
_____________
Cash at end of year $ 70,379
_____________
Cash paid for interest expense for leverage $ 2,266,641
_____________
See accompanying notes
20
Financial highlights
Delaware Investments Dividend and Income Fund, Inc.
Selected data for each share of the Fund outstanding throughout each period were
as follows:
Year Ended
______________________________________________________________
11/30/06 11/30/05 11/30/04 11/30/03 11/30/02
___________________________________________________________________________________________________________________________________
Net asset value, beginning of period $ 12.650 $ 12.960 $ 11.700 $ 10.140 $ 11.630
Income (loss) from investment operations:
Net investment income (1) 0.470 0.623 0.625 0.711 0.635
Net realized and unrealized gain (loss) on investments and foreign
currencies 2.150 0.027 1.595 1.989 (0.650)
________ ________ ________ ________ ________
Total from investment operations 2.620 0.650 2.220 2.700 (0.015)
________ ________ ________ ________ ________
Less dividends and distributions from:
Net investment income (0.486) (0.722) (0.663) (0.714) (0.660)
Net realized gain on investments (0.584) (0.238) (0.297) - -
Return of capital - - - (0.426) (0.815)
________ ________ ________ ________ ________
Total dividends and distributions (1.070) (0.960) (0.960) (1.140) (1.475)
________ ________ ________ ________ ________
Net asset value, end of period $ 14.200 $ 12.650 $ 12.960 $ 11.700 $ 10.140
________ ________ ________ ________ ________
Market value, end of period $ 13.460 $ 12.550 $ 11.760 $ 11.840 $ 10.020
________ ________ ________ ________ ________
Total return based on: (2)
Market value 16.96% 15.38% 7.78% 30.20% (18.98%)
Net asset value 22.41% 5.44% 20.29% 27.13% (2.36%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $156,324 $146,638 $166,929 $150,595 $130,560
Ratio of expenses to average net assets 2.71% 2.20% 1.51% 1.63% 1.86%
Ratio of expenses to adjusted average net assets
(before interest expense) (3) 0.88% 0.91% 0.76% 0.79% 0.80%
Ratio of interest expense to adjusted average net assets (3) 1.19% 0.78% 0.36% 0.37% 0.54%
Ratio of net investment income to average net assets 3.59% 4.81% 5.10% 6.70% 5.69%
Ratio of net investment income to adjusted average net assets (3) 2.74% 3.70% 3.78% 4.78% 4.12%
Portfolio turnover 63% 94% 89% 175% 107%
Leverage Analysis:
Debt outstanding at end of period at par (000 omitted) $44,000 $48,000 $55,000 $55,000 $55,000
Average daily balance of debt outstanding (000 omitted) $45,947 $51,697 $54,893 $54,882 $54,857
Average daily balance of shares outstanding (000 omitted) 11,355 12,361 12,876 12,876 12,876
Average debt per share $4.046 $4.180 $4.260 $4.262 $4.260
Asset coverage per $1,000 of debt outstanding at end of period $4,577 $4,073 $4,044 $3,743 $3,379
___________________________________________________________________________________________________________________________________
(1) The average shares outstanding method has been applied for per share information.
(2) Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the
closing of the last day of each period reported. 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.
(3) Adjusted average net assets excludes debt outstanding.
See accompanying notes
21
Notes to financial statements
Delaware Investments Dividend and Income Fund, Inc.
November 30, 2006
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. Securities lending collateral is 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).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 157, Fair Value Measurements, (Statement 157). Statement 157
establishes a framework for measuring fair value in generally accepted
accounting principles, clarifies the definition of fair value within that
framework, and expands disclosures about the use of fair value measurements.
Statement 157 is intended to increase consistency and comparability among fair
value estimates used in financial reporting. Statement 157 is effective for
fiscal years beginning after November 15, 2007. Management does not expect the
adoption of Statement 157 to have an impact on the amounts reported in the
financial statements.
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.
On July 13, 2006, FASB released FASB Interpretation No. 48 "Accounting for
Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how
uncertain tax positions should be recognized, measured, presented, and disclosed
in the financial statements. FIN 48 requires the evaluation of tax positions
taken or expected to be taken in the course of preparing the Fund's tax returns
to determine whether the tax positions are "more-likely-than-not" of being
sustained by the applicable tax authority. Tax positions not deemed to meet the
more-likely-than-not threshold would be recorded as a tax benefit or expense in
the current year. Adoption of FIN 48 is required for fiscal years beginning
after December 15, 2006 and is to be applied to all open tax years as of the
effective date. Although the Fund's tax positions are currently being evaluated,
management does not expect the adoption of FIN 48 to have a material impact on
the Fund's 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 to the extent permitted 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.
Repurchase Agreements - The Fund may invest in a pooled cash account along with
other members of the Delaware Investments(R) Family of Funds pursuant to an
exemptive order issued by the Securities and Exchange Commission. The aggregate
daily balance of the pooled cash account is invested in repurchase agreements
secured by obligations of the U.S government. The respective collateral is held
by the Fund's custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is at least 102% collateralized. However,
in the event of default or bankruptcy by the counterparty to the agreement,
realization of the collateral may be subject to legal proceedings.
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 7).
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 directly attributable to the Fund are charged directly to the
Fund. Other expenses common to various funds within the Delaware Investments
Family of Funds are generally allocated amongst such 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) for financial reporting purposes. 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 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 (REITs) are recorded as dividend income on the
ex-dividend date, subject to reclassification upon notice of the character of
such distribution by the issuer.
22
1. Significant Accounting Policies (continued)
Subject to seeking best execution, the Fund may direct certain security trades
to brokers who have agreed to rebate a portion of the related brokerage
commission to the Fund in cash. Such commission rebates are included in realized
gain on investments in the accompanying financial statements and totaled $1,218
for the year ended November 30, 2006. In general, best execution refers to many
factors, including the price paid or received for a security, the commission
charged, the promptness and reliability of execution, the confidentiality and
placement accorded the order, and other factors affecting the overall benefit
obtained by the Fund on the transaction. DMC, as defined below, and its
affiliates have previously and may in the future act as an investment advisor to
mutual funds or separate accounts affiliated with the administrator of the
commission recapture program described above. In addition, affiliates of the
administrator act as consultants in helping institutional clients choose
investment advisors and may also participate in other types of businesses and
provide other services in the investment management industry.
The Fund may receive earnings credits from its custodian when positive cash
balances are maintained, which are used to offset custody fees. There were no
earnings credits for the year ended November 30, 2006.
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.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting
and administration services. The Fund pays DSC a monthly fee computed at the
annual rate of 0.04% of the Fund's adjusted average weekly net assets for
accounting and administration services.
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 November 30, 2006, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $90,548
Accounting and administration fees and other
expenses payable to DSC 8,577
Other expenses payable to DMC and affiliates * 63,865
* DMC, as part of its administrative 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 and tax services, including internal legal and tax services
provided to the Fund by DMC and/or its affiliates' employees. For the year ended
November 30, 2006, the Fund was charged $6,949 for internal legal and tax
services provided by DMC and/or its' affiliates employees.
Directors' Fees and Benefits include expenses accrued by the Fund for each
Director's retainer, per meeting fees and retirement benefits. Independent
Directors with over five years of uninterrupted service are eligible to
participate in a retirement plan that provides for the payment of benefits upon
retirement. The amount of the retirement benefit is determined based on factors
set forth in the plan, including the number of years of service. On November 16,
2006, the Board of Directors of the Fund unanimously voted to terminate the
retirement plan. Payments equal to the net present value of the earned benefits
will be made in 2007 to those independent directors and retired directors so
entitled. The retirement benefit payout for the Fund is $18,481. Certain
officers of DMC, DSC and DDLP are officers and/or directors of the Fund. These
officers and directors are paid no compensation by the Fund.
3. Investments
For the year ended November 30, 2006, the Fund made purchases of $116,591,415
and sales of $136,497,001 of investment securities other than short-term
investments.
At November 30, 2006, the cost of investments for federal income tax purposes
was $194,887,269. At November 30, 2006, the net unrealized appreciation was
$25,853,089, of which $26,878,559 related to unrealized appreciation of
investments and $1,025,470 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, net short-term gains on sales of
investment securities are treated as ordinary income for federal income tax
purposes. The tax character of dividends and distributions paid during the years
ended November 30, 2006 and 2005 was as follows:
Year Ended
2006 2005
Ordinary income $ 6,915,192 $ 8,898,947
Long-term capital gains 5,252,912 2,947,249
___________ ___________
Total $12,168,104 $11,846,196
___________ ___________
5. Components of Net Assets on a Tax Basis
As of November 30, 2006, the components of net assets on a tax basis were
follows:
Shares of beneficial interest $127,301,245
Undistributed long-term capital gains 3,169,940
Unrealized appreciation of investments 25,853,089
____________
Net assets $156,324,274
____________
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales, treatment of
contingent payment debt instruments 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. Reclassifications are primarily
due to tax treatment of market discounts and premiums on certain debt
instruments and tax treatment of contingent payment debt
(continues) 23
Notes to financial statements
Delaware Investments Dividend and Income Fund, Inc.
5. Components of Net Assets on a Tax Basis (continued)
instruments. Results of operations and net assets were not affected by these
reclassifications. For the year ended November 30, 2006, the Fund recorded the
following reclassifications.
Undistributed net investment income $ 144,814
Accumulated net realized gain (loss) (144,814)
6. Capital Stock
Shares obtained under the Fund's dividend reinvestment plan are purchased by the
Fund's transfer agent, Mellon Investor Services, LLC, in the open market. There
were no shares issued under the Fund's dividend reinvestment plan for the years
ended November 30, 2006 and 2005.
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 4:00pm New York City time on July 1, 2005, the first
business day following the 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.
On May 18, 2006, 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 5% of its issued and outstanding shares at a price equal to the
Fund's net asset value at the close of business on the New York Stock Exchange
on July 3, 2006, the first business day following the expiration of the offer.
The tender offer commenced on June 2, 2006 and expired on June 30, 2006. In
connection with the tender offer, the Fund purchased 579,434 shares of capital
stock at a total cost of $7,463,110. The tender offer was oversubscribed, and
all tenders of the shares were subject to proration (at a ratio of approximately
0.775731221) in accordance with the terms of the tender offer.
The Fund did not purchase any shares under the Share Repurchase Program during
the years ended November 30, 2006 and 2005.
7. Commercial Paper
As of November 30, 2006, $44,000,000 (par value) of commercial paper was
outstanding with an amortized cost of $43,706,134. The weighted average discount
rate of commercial paper outstanding at November 30, 2006 was 5.32%. The average
daily balance of commercial paper outstanding during the year ended November 30,
2006 was $45,947,392 at a weighted discount rate of 4.19%. The maximum amount of
commercial paper outstanding at any time during the year was $48,000,000. On
June 22, 2006, the Fund reduced the commercial paper outstanding to $44 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. As of
November 17, 2006, the commitment fee is computed at the rate of 0.10% per annum
on the unused balance. Prior to November 17, 2006, the rate was 0.12%. For the
year ended November 30, 2006, the Fund was charged fees of $35,792 which is
included in "commercial paper fees" on the Statement of Operations. During the
year ended November 30, 2006, there were no borrowings under this arrangement.
8. Securities Lending
The Fund, along with other funds in the Delaware Investments(R) 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. government 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 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 November 30, 2006, the market value of securities on loan was $20,544,004,
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."
9. 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 Service, 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.
While maintaining oversight, the Board of Directors has delegated to DMC the
day-to-day functions of determining whether individual securities are liquid for
purposes of the Fund's limitation on investments in illiquid assets. Rule 144A
and illiquid securities have been identified on the Statement of Net Assets.
24
9. Credit and Market Risks (continued)
The Fund invests in 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 year ended November 30, 2006. 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.
10. 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.
11. Tax Information (Unaudited)
The information set forth below is for the Fund's fiscal year as required by
federal laws. Shareholders, however, must report distributions on a calendar
year basis for income tax purposes, which may include distributions for portions
of two fiscal years of a fund. Accordingly, the information needed by
shareholders for income tax purposes will be sent to them in January of each
year. Please consult your tax advisor for proper treatment of this information.
For the fiscal year ended November 30, 2006, the Fund designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary
Capital Gain Income Total (C)
Distributions Distributions * Distributions Qualifying
(Tax Basis) (Tax Basis) (Tax Basis) Dividends (1)
_____________ _______________ _____________ _____________
43% 57% 100% 32%
(A) and (B) are based on a percentage of the Fund's total distributions.
(C) is based on a percentage of ordinary income distributions of the Fund.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
* For the fiscal year ended November 30, 2006, certain dividends paid by the
Fund may be subject to a maximum tax rate of 15%, as provided by the Jobs and
Growth Tax Relief Reconciliation Act of 2003. The Fund intends to designate up
to a maximum amount of $2,205,255 to be taxed at a maximum rate of 15%.
Complete information will be computed and reported in conjunction with your
2006 Form 1099-DIV.
25
Report of independent
registered public accounting firm
To the Shareholders and Board of Directors
Delaware Investments Dividend and Income Fund, Inc.
We have audited the accompanying statement of net assets of Delaware Investments
Dividend and Income Fund, Inc. (the "Fund") as of November 30, 2006, 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 five years in the period
then ended. These financial statements and financial 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 the standards of the Public Company
Accounting Oversight Board (United States). 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. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of November 30, 2006, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. 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 the
Delaware Investments Dividend and Income Fund, Inc. at November 30, 2006, the
results of its operations and 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 its
financial highlights for each of the five years in the period then ended, in
conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 18, 2007
26
Other Fund information
Delaware Investments Dividend and Income Fund, Inc.
Proxy Results (Unaudited)
The Fund held its Annual Meeting of Shareholders on August 16, 2006. At the
Annual Meeting, the Fund's shareholders elected nine Directors. The results of
the voting at the meeting were as follows:
Shares Voted No Ballot
Nominee Shares Voted For Against or Withheld Received
___________________ ________________ ___________________ _____________
Jude T. Driscoll* 11,080,200.944 180,850.642 327,618.273
Thomas L. Bennett 11,061,907.807 199,143.779 327,618.273
John A. Fry 11,072,797.453 188,254.133 327,618.273
Anthony D. Knerr 11,076,291.453 184,760.133 327,618.273
Lucinda S. Landreth 11,081,095.453 179,956.133 327,618.273
Ann R. Leven 11,076,388.453 184,663.133 327,618.273
Thomas F. Madison 11,075,291.520 185,760.066 327,618.273
Janet L. Yeomans 11,080,287.011 180,764.575 327,618.273
J. Richard Zecher 11,073,906.453 187,145.133 327,618.273
*Mr. Driscoll withdrew from election. The persons named as proxies used the
power given to them by shareholders to vote for a substitute nominee (in the
case of the withdrawal of the nominee for election) as recommended by the
existing Board. The Fund's Board approved Patrick P. Coyne as the substitute
nominee. Accordingly, the named proxies used their discretion to vote for
Patrick P. Coyne, the substitute nominee.
Corporate Governance (Unaudited)
The Fund's audit committee charter is available on its web site at
http://www.delawareinvestments.com, and the charter is also available in print
to any shareholder who requests it. The Fund submitted its Annual CEO
certification for 2006 to the NYSE on September 15, 2006 stating that the CEO
was not aware of any violation by the Fund of the NYSE's corporate governance
listing standards. In addition, the Fund had filed the required CEO/CFO
certifications regarding the quality of the Fund's public disclosure as exhibits
to the Forms N-CSR and Forms N-Q filed by the Fund over the past fiscal year.
The Fund's Form N-CSR and Form N-Q filings are available on the Commission's web
site at http://www.sec.gov.
Tender Offer (Unaudited)
As described in Note 6 to the Financial Statements, the Fund conducted a tender
offer in 2006. There can be no assurance that a tender offer will reduce or
eliminate any spread between market price and the net asset value of the Fund's
shares. The market price of the shares will, among other things, be determined
by the relative demand for and supply of shares in the market, the Fund's
investment performance, the Fund's dividends and yields, and investor perception
of the Fund's overall attractiveness as an investment as compared with other
investment alternatives. Nevertheless, the fact that a tender offer may be
conducted may result in more of a reduction in the spread between market price
and net asset value than might otherwise be the case. The Fund's Board of
Directors, consistent with its fiduciary obligations, may explore alternatives
to a tender offer to reduce or eliminate the Fund's potential market value
discount from net asset value. Therefore, the Fund cannot provide assurance that
it will make tender offers in the future.
The tender offer plan described in the Fund's prospectus contemplates that a
shareholder wishing to accept a tender offer must tender all (but not less than
all) of the Fund shares owned by the shareholder or attributed to it under
Section 318 of the Internal Revenue Code, unless the Fund has received a private
letter ruling the Internal Revenue Service ("IRS") that a tender of less than
all of a shareholder's shares will not cause non-tendering shareholders to
realize constructive distributions on their shares under Section 305 of the
Internal Revenue Code. In connection with the 2005 tender offer and the
favorable private letter ruling received by the Fund on May 5, 2005, the Fund,
through its counsel, was informed by the Office of Associate Chief Counsel
(Corporate) that the IRS would not issue to the Fund a similar ruling in future
years. The IRS's informal policy is to issue no more than two such rulings to
any one taxpayer on the premise that multiple tender offers may constitute such
a "plan" that has the result of increasing the proprietary interests of some
shareholders in the assets and income of the funds and the receipt of money by
other shareholders. Since the Fund's organization in 1993, the Fund has
consummated three tender offers, one in 2000, one in 2005, and one in 2006.
In light of this communication from the IRS, it was determined that the Fund had
no affirmative obligation to obtain a ruling from the IRS as a pre-condition to
accepting partial tenders. The Fund has previously stated that it would not seek
a private letter ruling from the IRS in connection with accepting partial
tenders for any future Fund tender offers.
Rescission of Exemptive Order (Unaudited)
In 1995, the Fund implemented a managed distribution policy. Under the policy,
the Fund 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 to
the extent permitted and, if necessary, a return of capital. In 2002, the
Securities and Exchange Commission (the "SEC") granted the Fund an exemption
from Section 19(b) of the Investment Company Act of 1940 (the "1940 Act") to
allow the Fund to distribute long-term capital gains up to 12
(continues) 27
Other Fund information
Delaware Investments Dividend and Income Fund, Inc.
times per year (the "Order"). The Order gave the Fund the ability to
characterize a portion of each monthly distribution made pursuant to the Fund's
managed distribution policy as long-term capital gain. On the basis of a
separate matter, the SEC has recently rescinded the Fund's Order. The Fund has
applied for a new Section 19(b) exemptive order ("New Order"). While the
application is pending, the Fund's ability to characterize any portion of
distributions made pursuant to the Fund's managed distribution policy as
long-term capital gains will be limited to the instances permitted by Section
19(b) of the 1940 Act. Additionally, the rescission of the Fund's Order may (but
not necessarily will) lead to one or more of the following: (i) a lower monthly
distribution amount made pursuant to the Fund's managed distribution policy;
(ii) the Fund's share price trading at a discount (if the Fund is trading at a
premium) or the Fund's share price trading at a greater discount from its net
asset value than would otherwise have been the case if the Order were in effect
(if the Fund is trading at a discount); or (iii) the amount of distributions
paid in a given year may be higher than would have been paid when the Order was
in effect if some part of the monthly distributions paid by the Fund are
classified as returns of capital rather than from long-term capital gains and,
in addition to such distributions, the Fund separately pays out its long-term
capital gains as permitted by Section 19(b) of the 1940 Act. The preceding
issues may be mitigated or eliminated if the Fund receives the New Order in a
timely manner, but there is no guarantee of such result.
Additions to Portfolio Management Team
During the year ended November 30, 2006, Babak Zenouzi, Nikhil G. Lalvani, and
Nashira S. Wynn were each appointed co-portfolio managers of the Fund. Mr.
Zenouzi assumed primary responsibility for managing the REIT and convertible
securities holdings for the Fund, and consults regularly Damon J. Andres in this
capacity. Mr. Lalvani and Ms. Wynn focus on the large-cap value equity portion
of the Fund. Mr. Zenouzi, Mr. Lalvani, and Ms. Wynn work with Mr. Andres, D.
Tysen Nutt, Jr., Jordan L. Irving, Anthony A. Lombardi, Robert A. Vogel, Jr.,
and Timothy L. Rabe in making day-to-day decisions for the Fund.
Distribution Information (Unaudited)
Shareholders were sent monthly notices from the Fund that set forth estimates,
on a book basis, of the source or sources from which monthly distributions were
paid. Subsequently, these estimates may have been corrected in part. Listed
below is a written statement of the sources of these monthly distributions, as
corrected, on a book basis.
Net Investment Return of Capital Long Term Capital Total Distribution
Income per share per share Gain per share Amount
________________ _________________ _________________ __________________
12/05 $0.053 $- $0.137 $0.190
1/06 0.050 - 0.030 0.080
2/06 0.028 - 0.052 0.080
3/06 0.059 - 0.021 0.080
4/06 0.039 - 0.041 0.080
5/06 0.032 - 0.048 0.080
6/06 0.049 - 0.031 0.080
7/06 0.035 - 0.045 0.080
8/06 0.034 - 0.046 0.080
9/06 0.041 - 0.039 0.080
10/06 0.030 - 0.050 0.080
11/06 0.031 - 0.049 0.080
______ __ ______ ______
$0.481 $- $0.589 $1.070
______ __ ______ ______
Please note that the information in the preceding chart is for book purposes
only. Shareholders should be aware that the tax treatment of distributions may
differ from their book treatment. The tax treatment of distributions will be set
forth in a Form 1099-DIV.
28
Board of directors/trustees
and officers addendum
Delaware Investments(R) Family of Funds
A mutual fund is governed by a Board of Directors/Trustees, which has oversight
responsibility for the management of a fund's business affairs.
Directors/Trustees establish procedures and oversee and review the performance
of the investment manager, the distributor, and others who perform services for
the fund. The independent fund directors/trustees, in particular, are advocates
for shareholder interests. Each director/trustee has served in that capacity
since he or she was elected to or appointed to the Board of Directors, and will
continue to serve until his or her retirement or the election of a new
director/trustee in his or her place. The following is a list of the Directors
and Officers with certain background and related information.
Number of
Portfolios in Fund Other
Name, Complex Overseen Directorships
Address, Position(s) Length of Principal Occupation(s) by Director Held by
and Birth Date Held with Fund(s) Time Served During Past 5 Years or Officer Director or Officer
____________________________________________________________________________________________________________________________________
Interested Trustees
____________________________________________________________________________________________________________________________________
Patrick P. Coyne (1) Chairman, Chairman and Director Patrick P. Coyne has served in 83 None
2005 Market Street President, since August 16, 2006 various executive capacities
Philadelphia, PA Chief Executive at different times at
19103 Officer, and President and Delaware Investments. (2)
Director Chief Executive Officer
April 14, 1963 since August 1, 2006
____________________________________________________________________________________________________________________________________
Independent Trustees
____________________________________________________________________________________________________________________________________
Thomas L. Bennett Director Since Private Investor - 83 None
2005 Market Street March 2005 (March 2004-Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984-March 2004)
____________________________________________________________________________________________________________________________________
John A. Fry Director Since President - 83 Director -
2005 Market Street January 2001 Franklin & Marshall College Community Health
Philadelphia, PA (June 2002-Present) Systems
19103
Executive Vice President - Director -
May 28, 1960 University of Pennsylvania Allied Barton
(April 1995-June 2002) Security Holdings
____________________________________________________________________________________________________________________________________
Anthony D. Knerr Director Since Founder and Managing Director - 83 None
2005 Market Street April 1990 Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990-Present)
December 7, 1938
____________________________________________________________________________________________________________________________________
Lucinda S. Landreth Director Since Chief Investment Officer - 83 None
2005 Market Street March 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002-2004)
June 24, 1947
____________________________________________________________________________________________________________________________________
Ann R. Leven Director Since Consultant - 83 Director and
2005 Market Street September 1989 ARL Associates, Audit Committee
Philadelphia, PA (Financial Planning) Chairperson - Andy
19103 (1983-Present) Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax, Inc.
____________________________________________________________________________________________________________________________________
29
Number of
Portfolios in Fund Other
Name, Complex Overseen Directorships
Address, Position(s) Length of Principal Occupation(s) by Director Held by
and Birth Date Held with Fund(s) Time Served During Past 5 Years or Officer Director or Officer
____________________________________________________________________________________________________________________________________
Independent Trustees (continued)
____________________________________________________________________________________________________________________________________
Thomas F. Madison Director Since President and Chief 83 Director -
2005 Market Street May 1997 Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
February 25, 1936 (January 1993-Present)
Director and Audit
Committee Member -
Digital River, Inc.
Director and Audit
Committee Member -
Rimage
Corporation
Director - Valmont
Industries, Inc.
____________________________________________________________________________________________________________________________________
Janet L. Yeomans Director Since Vice President 83 None
2005 Market Street April 1999 (January 2003-Present)
Philadelphia, PA and Treasurer
19103 (January 2006-Present)
3M Corporation
July 31, 1948
Ms. Yeomans has held
various management positions
at 3M Corporation since 1983.
____________________________________________________________________________________________________________________________________
J. Richard Zecher Director Since Founder - 83 Director and Audit
2005 Market Street March 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999-Present)
Director and Audit
July 3, 1940 Founder - Committee Member -
Sutton Asset Management Oxigene, Inc.
(Hedge Fund)
(September 1998-Present)
____________________________________________________________________________________________________________________________________
Officers
____________________________________________________________________________________________________________________________________
David F. Connor Vice President, Vice President since David F. Connor has served as 83 None (3)
2005 Market Street Deputy General September 21, 2000 Vice President and Deputy
Philadelphia, PA Counsel, and Secretary and Secretary General Counsel of
19103 since Delaware Investments
October 2005 since 2000.
December 2, 1963
____________________________________________________________________________________________________________________________________
David P. O'Connor Senior Vice Senior Vice President, David P. O'Connor has served in 83 None (3)
2005 Market Street President, General Counsel, and various executive and legal
Philadelphia, PA General Counsel, Chief Legal Officer capacities at different times
19103 and Chief since at Delaware Investments.
Legal Officer October 2005
February 21, 1966
____________________________________________________________________________________________________________________________________
John J. O'Connor Senior Vice President Treasurer John J. O'Connor has served in 83 None (3)
2005 Market Street and Treasurer since various executive capacities
Philadelphia, PA February 2005 at different times at
19103 Delaware Investments.
June 16, 1957
____________________________________________________________________________________________________________________________________
Richard Salus Senior Chief Financial Richard Salus has served in 83 None (3)
2005 Market Street Vice President Officer since various executive capacities
Philadelphia, PA and November 1, 2006 at different times at
19103 Chief Financial Delaware Investments.
Officer
October 4, 1963
____________________________________________________________________________________________________________________________________
(1) Patrick P. Coyne is considered to be an "Interested Director" because he is an executive officer of the Fund's investment
advisor.
(2) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund's
investment advisor and its administrator.
(3) David F. Connor, David P. O'Connor, John J. O'Connor, and Richard Salus serve in similar capacities for the six portfolios of
the Optimum Fund Trust, which have the same investment advisor as the registrant. John J. O'Connor also serves in a similar
capacity for Lincoln Variable Insurance Products Trust, which has the same investment advisor as the registrant.
30
About the organization
This annual report is for the information of Delaware Investments Dividend and
Income Fund, Inc. shareholders. The figures in this report represent past
results that 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
Patrick P. Coyne
Chairman, President, and
Chief Executive Officer
Delaware Investments(R) Family of Funds
Philadelphia, PA
Thomas L. Bennett
Private Investor
Rosemont, PA
John A. Fry
President
Franklin & Marshall College
Lancaster, PA
Anthony D. Knerr
Founder and Managing Director
Anthony Knerr & Associates
New York, NY
Lucinda S. Landreth
Former Chief Investment Officer
Assurant Inc.
Philadelphia, PA
Ann R. Leven
Consultant
ARL Associates
New York, NY
Thomas F. Madison
President and Chief Executive Officer
MLM Partners Inc.
Minneapolis, MN
Janet L. Yeomans
Vice President and Treasurer
3M Corporation
St. Paul, MN
J. Richard Zecher
Founder
Investor Analytics
Scottsdale, AZ
Affiliated Officers
David F. Connor
Vice President, Deputy General Counsel,
and Secretary
Delaware Investments Family of Funds
Philadelphia, PA
David P. O'Connor
Senior Vice President, General Counsel,
and Chief Legal Officer
Delaware Investments Family of Funds
Philadelphia, PA
John J. O'Connor
Senior Vice President and Treasurer
Delaware Investments Family of Funds
Philadelphia, PA
Richard Salus
Senior Vice President and
Chief Financial Officer
Delaware Investments Family of Funds
Philadelphia, PA
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 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.
Contact Information
Investment Manager
Delaware Management Company
a Series of Delaware Management
Business Trust
Philadelphia, PA
Principal Office of the Fund
2005 Market Street
Philadelphia, PA 19103-7057
Independent Registered Public
Accounting Firm
Ernst & Young LLP
2001 Market Street
Philadelphia, PA 19103
Registrar and Stock Transfer
Agent
Mellon Investor Services
480 Washington Blvd.
Jersey City, NJ 07310
800 851-9677
For Securities Dealers
and Financial Institutions
Representatives
800 362-7500
Web Site
www.delawareinvestments.com
Delaware Investments is the marketing name of Delaware Management Holdings, Inc.
and its subsidiaries.
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.
31
[DELAWARE INVESTMENTS LOGO] [THE NEW YORK STOCK EXCHANGE LOGO]
(1215) Printed in the USA
AR-DDF [11/06] CGI 1/07 MF-06-12-017 PO11495
Item 2. Code of Ethics
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or a
third party. A copy of the registrant's Code of Business Ethics has been posted
on Delaware Investments' internet website at www.delawareinvestments.com. Any
amendments to the Code of Business Ethics, and information on any waiver from
its provisions granted by the registrant, will also be posted on this website
within five business days of such amendment or waiver and will remain on the
website for at least 12 months.
Item 3. Audit Committee Financial Expert
The registrant's Board of Trustees/Directors has determined that each
member of the registrant's Audit Committee is an audit committee financial
expert, as defined below. For purposes of this item, an "audit committee
financial expert" is a person who has the following attributes:
a. An understanding of generally accepted accounting principles and
financial statements;
b. The ability to assess the general application of such principles in
connection with the accounting for estimates, accruals, and reserves;
c. Experience preparing, auditing, analyzing, or evaluating financial
statements that present a breadth and level of complexity of accounting issues
that are generally comparable to the breadth and complexity of issues that can
reasonably be expected to be raised by the registrant's financial statements, or
experience actively supervising one or more persons engaged in such activities;
d. An understanding of internal controls and procedures for financial
reporting; and
e. An understanding of audit committee functions.
An "audit committee financial expert" shall have acquired such attributes
through:
a. Education and experience as a principal financial officer, principal
accounting officer, controller, public accountant, or auditor or experience in
one or more positions that involve the performance of similar functions;
b. Experience actively supervising a principal financial officer, principal
accounting officer, controller, public accountant, auditor, or person performing
similar functions;
c. Experience overseeing or assessing the performance of companies or
public accountants with respect to the preparation, auditing, or evaluation of
financial statements; or
d. Other relevant experience.
The registrant's Board of Trustees/Directors has also determined that each
member of the registrant's Audit Committee is independent. In order to be
"independent" for purposes of this item, the Audit Committee member may not: (i)
other than in his or her capacity as a member of the Board of Trustees/Directors
or any committee thereof, accept directly or indirectly any consulting, advisory
or other compensatory fee from the issuer; or (ii) be an "interested person" of
the registrant as defined in Section 2(a)(19) of the Investment Company Act of
1940.
The names of the audit committee financial experts on the registrant's
Audit Committee are set forth below:
Thomas L. Bennett (1)
Thomas F. Madison
Janet L. Yeomans (1)
J. Richard Zecher
Item 4. Principal Accountant Fees and Services
(a) Audit fees.
__________
The aggregate fees billed for services provided to the registrant by its
independent auditors for the audit of the registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $13,700 for
the fiscal year ended November 30, 2006.
____________________
(1) The instructions to Form N-CSR require disclosure on the relevant experience
of persons who qualify as audit committee financial experts based on "other
relevant experience." The Board of Trustees/Directors has determined that Mr.
Bennett qualifies as an audit committee financial expert by virtue of his
education, Chartered Financial Analyst designation, and his experience as a
credit analyst, portfolio manager and the manager of other credit analysts and
portfolio managers. The Board of Trustees/Directors has determined that Ms.
Yeomans qualifies as an audit committee financial expert by virtue of her
education and experience as the Treasurer of a large global corporation.
The aggregate fees billed for services provided to the registrant by its
independent auditors for the audit of the registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $14,800 for
the fiscal year ended November 30, 2005.
(b) Audit-related fees.
__________________
The aggregate fees billed by the registrant's independent auditors for
services relating to the performance of the audit of the registrant's financial
statements and not reported under paragraph (a) of this Item were $6,868 for the
fiscal year ended November 30, 2006. The percentage of these fees relating to
services approved by the registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These audit-related services were as follows: issuance of
agreed upon procedures report with respect to the Fund's commercial paper
program as required by the applicable rating agencies.
The aggregate fees billed by the registrant's independent auditors for
services relating to the performance of the audit of the financial statements of
the registrant's investment adviser and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $15,000 for the registrant's fiscal year ended
November 30, 2006. The percentage of these fees relating to services approved by
the registrant's Audit Committee pursuant to the de minimis exception from the
pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
These audit-related services were as follows: issuance of agreed upon procedures
report to the registrant's Board in connection with the pass-through of internal
legal cost relating to the operations of the registrant.
The aggregate fees billed by the registrant's independent auditors for
services relating to the performance of the audit of the registrant's financial
statements and not reported under paragraph (a) of this Item were $5,905 for the
fiscal year ended November 30, 2005. The percentage of these fees relating to
services approved by the registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These audit-related services were as follows: issuance of
agreed upon procedures report with respect to the Fund's commercial paper
program as required by the applicable rating agencies.
The aggregate fees billed by the registrant's independent auditors for
services relating to the performance of the audit of the financial statements of
the registrant's investment adviser and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $16,350 for the registrant's fiscal year ended
November 30, 2005. The percentage of these fees relating to services approved by
the registrant's Audit Committee pursuant to the de minimis exception from the
pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
These audit-related services were as follows: issuance of agreed upon procedures
reports to the registrant's Board in connection with the annual fund accounting
service agent contract renewal and the pass-through of internal legal cost
relating to the operations of the registrant.
(c) Tax fees.
________
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant were $2,500 for the fiscal year
ended November 30, 2006. The percentage of these fees relating to services
approved by the registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These tax-related services were as follows: review of
income tax return and review of annual excise distribution calculation.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant's investment adviser and other
service providers under common control with the adviser and that relate directly
to the operations or financial reporting of the registrant were $0 for the
registrant's fiscal year ended November 30, 2006.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant were $2,800 for the fiscal year
ended November 30, 2005. The percentage of these fees relating to services
approved by the registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These tax-related services were as follows: review of
income tax return and review of annual excise distribution calculation.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant's adviser and other service
providers under common control with the adviser and that relate directly to the
operations or financial reporting of the registrant were $0 for the registrant's
fiscal year ended November 30, 2005.
(d) All other fees.
______________
The aggregate fees billed for all services provided by the independent
auditors to the registrant other than those set forth in paragraphs (a), (b) and
(c) of this Item were $0 for the fiscal year ended November 30, 2006.
The aggregate fees billed for all services other than those set forth in
paragraphs (b) and (c) of this Item provided by the registrant's independent
auditors to the registrant's adviser and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $0 for the registrant's fiscal year ended
November 30, 2006.
The aggregate fees billed for all services provided by the independent
auditors to the registrant other than those set forth in paragraphs (a), (b) and
(c) of this Item were $0 for the fiscal year ended November 30, 2005.
The aggregate fees billed for all services other than those set forth in
paragraphs (b) and (c) of this Item provided by the registrant's independent
auditors to the registrant's adviser and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $0 for the registrant's fiscal year ended
November 30, 2005.
(e) The registrant's Audit Committee has established pre-approval policies
and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X (the
"Pre-Approval Policy") with respect to services provided by the registrant's
independent auditors. Pursuant to the Pre-Approval Policy, the Audit Committee
has pre-approved the services set forth in the table below with respect to the
registrant up to the specified fee limits. Certain fee limits are based on
aggregate fees to the registrant and other registrants within the Delaware
Investments Family of Funds.
______________________________________________________________________________________________________________________
Service Range of Fees
______________________________________________________________________________________________________________________
Audit Services
______________________________________________________________________________________________________________________
Statutory audits or financial audits for new Funds up to $25,000 per Fund
______________________________________________________________________________________________________________________
Services associated with SEC registration statements (e.g., Form N-1A, Form
N-14, etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings (e.g., comfort letters up to $10,000 per Fund
for closed-end Fund offerings, consents), and assistance in responding to SEC
comment letters
______________________________________________________________________________________________________________________
Consultations by Fund management as to the accounting or disclosure treatment of
transactions or events and/or the actual or potential impact of final or
proposed rules, standards or interpretations by the SEC, FASB, or other up to $25,000 in the aggregate
regulatory or standard-setting bodies (Note: Under SEC rules, some consultations
may be considered "audit-related services" rather than "audit services")
______________________________________________________________________________________________________________________
Audit-Related Services
______________________________________________________________________________________________________________________
Consultations by Fund management as to the accounting or disclosure treatment of
transactions or events and /or the actual or potential impact of final or
proposed rules, standards or interpretations by the SEC, FASB, or other up to $25,000 in the aggregate
regulatory or standard-setting bodies (Note: Under SEC rules, some consultations
may be considered "audit services" rather than "audit-related services")
______________________________________________________________________________________________________________________
Tax Services
______________________________________________________________________________________________________________________
U.S. federal, state and local and international tax planning and advice (e.g.,
consulting on statutory, regulatory or administrative developments, evaluation up to $25,000 in the aggregate
of Funds' tax compliance function, etc.)
______________________________________________________________________________________________________________________
U.S. federal, state and local tax compliance (e.g., excise distribution reviews, up to $5,000 per Fund
etc.)
______________________________________________________________________________________________________________________
Review of federal, state, local and international income, franchise and other up to $5,000 per Fund
tax returns
______________________________________________________________________________________________________________________
Under the Pre-Approval Policy, the Audit Committee has also pre-approved
the services set forth in the table below with respect to the registrant's
investment adviser and other entities controlling, controlled by or under common
control with the investment adviser that provide ongoing services to the
registrant (the "Control Affiliates") up to the specified fee limit. This fee
limit is based on aggregate fees to the investment adviser and its Control
Affiliates.
______________________________________________________________________________________________________________________
Service Range of Fees
______________________________________________________________________________________________________________________
Non-Audit Services
______________________________________________________________________________________________________________________
Services associated with periodic reports and other documents filed with the SEC up to $10,000 in the aggregate
and assistance in responding to SEC comment letters
______________________________________________________________________________________________________________________
The Pre-Approval Policy requires the registrant's independent auditors to
report to the Audit Committee at each of its regular meetings regarding all
services initiated since the last such report was rendered, including those
services authorized by the Pre-Approval Policy.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the registrant's independent
auditors for services rendered to the registrant and to its investment adviser
and other service providers under common control with the adviser were $263,188
and $213,940 for the registrant's fiscal years ended November 30, 2006 and
November 30, 2005, respectively.
(h) In connection with its selection of the independent auditors, the
registrant's Audit Committee has considered the independent auditors' provision
of non-audit services to the registrant's investment adviser and other service
providers under common control with the adviser that were not required to be
pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit
Committee has determined that the independent auditors' provision of these
services is compatible with maintaining the auditors' independence.
Item 5. Audit Committee of Listed Registrants
The registrant has a separately-designated standing Audit Committee
established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934. The members of the registrant's Audit Committee are Thomas L.
Bennett, Thomas F. Madison, Janet L. Yeomans and J. Richard Zecher.
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
The registrant has formally delegated to its investment adviser (the
"Adviser") the ability to make all proxy voting decisions in relation to
portfolio securities held by the registrant. If and when proxies need to be
voted on behalf of the registrant, the Adviser will vote such proxies pursuant
to its Proxy Voting Policies and Procedures (the "Procedures"). The Adviser has
established a Proxy Voting Committee (the "Committee") which is responsible for
overseeing the Adviser's proxy voting process for the registrant. One of the
main responsibilities of the Committee is to review and approve the Procedures
to ensure that the Procedures are designed to allow the Adviser to vote proxies
in a manner consistent with the goal of voting in the best interests of the
registrant.
In order to facilitate the actual process of voting proxies, the Adviser
has contracted with Institutional Shareholder Services ("ISS") to analyze proxy
statements on behalf of the registrant and other Adviser clients and vote
proxies generally in accordance with the Procedures. The Committee is
responsible for overseeing ISS's proxy voting activities. If a proxy has been
voted for the registrant, ISS will create a record of the vote. By no later than
August 31 of each year, information (if any) regarding how the registrant voted
proxies relating to portfolio securities during the most recently disclosed
12-month period ended June 30 is available without charge (i) through the
registrant's website at http://www.delawareinvestments.com; and (ii) on the
Commission's website at http://www.sec.gov.
The Procedures contain a general guideline that recommendations of company
management on an issue (particularly routine issues) should be given a fair
amount of weight in determining how proxy issues should be voted. However, the
Adviser will normally vote against management's position when it runs counter to
its specific Proxy Voting Guidelines (the "Guidelines"), and the Adviser will
also vote against management's recommendation when it believes that such
position is not in the best interests of the registrant.
As stated above, the Procedures also list specific Guidelines on how to
vote proxies on behalf of the registrant. Some examples of the Guidelines are as
follows: (i) generally vote for shareholder proposals asking that a majority or
more of directors be independent; (ii) generally vote against proposals to
require a supermajority shareholder vote; (iii) votes on mergers and
acquisitions should be considered on a case-by-case basis, determining whether
the transaction enhances shareholder value; (iv) generally vote against
proposals to create a new class of common stock with superior voting rights; (v)
generally vote re-incorporation proposals on a case-by-case basis; (vi) votes
with respect to equity-based compensation plans are generally determined on a
case-by-case basis; and (vii) generally vote for proposals requesting reports on
the level of greenhouse gas emissions from a company's operations and products.
Because the registrant has delegated proxy voting to the Adviser, the
registrant is not expected to encounter any conflict of interest issues
regarding proxy voting and therefore does not have procedures regarding this
matter. However, the Adviser does have a section in its Procedures that
addresses the possibility of conflicts of interest. Most proxies which the
Adviser receives on behalf of the registrant are voted by ISS in accordance with
the Procedures. Because almost all registrant proxies are voted by ISS pursuant
to the pre-determined Procedures, it normally will not be necessary for the
Adviser to make an actual determination of how to vote a particular proxy,
thereby largely eliminating conflicts of interest for the Adviser during the
proxy voting process. In the very limited instances where the Adviser is
considering voting a proxy contrary to ISS's recommendation, the Committee will
first assess the issue to see if there is any possible conflict of interest
involving the Adviser or affiliated persons of the Adviser. If a member of the
Committee has actual knowledge of a conflict of interest, the Committee will
normally use another independent third party to do additional research on the
particular proxy issue in order to make a recommendation to the Committee on how
to vote the proxy in the best interests of the registrant. The Committee will
then review the proxy voting materials and recommendation provided by ISS and
the independent third party to determine how to vote the issue in a manner which
the Committee believes is consistent with the Procedures and in the best
interests of the registrant.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
_____________________________________________________________________________________________________________
DELAWARE INVESTMENTS DIVIDEND AND INCOME FUND, INC.
PORTFOLIO MANAGERS
_____________________________________________________________________________________________________________
Other Accounts Managed
The following chart lists certain information about types of other accounts for which the portfolio
managers are primarily responsible as of November 30, 2006.
_____________________________________________________________________________________________________________
Total Assets
in Accounts with
No. of Accounts with Performance-
No. of Total Assets Performance-Based Based
____________ _____
Accounts in Accounts Fee Fees Fee
________ _______________ ____ ____
_____________________________________________________________________________________________________________
Damon J. Andres
_____________________________________________________________________________________________________________
Registered Investment 6 $2.5 billion 0 $0
Companies
_____________________________________________________________________________________________________________
Other pooled Investment 0 $0 0 $0
Vehicles
_____________________________________________________________________________________________________________
Other Accounts 5 $109.6 million 0 $0
_____________________________________________________________________________________________________________
Jordan L. Irving
_____________________________________________________________________________________________________________
Registered Investment 10 $4.0 billion 0 $0
Companies
_____________________________________________________________________________________________________________
Other pooled Investment 0 $0 0 $0
Vehicles
_____________________________________________________________________________________________________________
Other Accounts 32 $3.6 billion 1 $796.0 million
_____________________________________________________________________________________________________________
Nikhil G. Lalvani
_____________________________________________________________________________________________________________
Registered Investment 10 $4.0 billion 0 $0
Companies
_____________________________________________________________________________________________________________
Other pooled Investment 0 $0 0 $0
Vehicles
_____________________________________________________________________________________________________________
Other Accounts 28 $3.6 billion 1 $796.0 million
_____________________________________________________________________________________________________________
Anthony A. Lombardi
_____________________________________________________________________________________________________________
Registered Investment 10 $4.0 billion 0 $0
Companies
_____________________________________________________________________________________________________________
Other pooled Investment 0 $0 0 $0
Vehicles
_____________________________________________________________________________________________________________
Other Accounts 34 $3.6 billion 1 $796.0 million
_____________________________________________________________________________________________________________
Ty Nutt
_____________________________________________________________________________________________________________
Registered Investment 10 $4.0 billion 0 $0
Companies
_____________________________________________________________________________________________________________
Other pooled Investment 0 $0 0 $0
Vehicles
_____________________________________________________________________________________________________________
Other Accounts 34 $3.6 billion 1 $796.0 million
_____________________________________________________________________________________________________________
Timothy L. Rabe
_____________________________________________________________________________________________________________
Registered Investment 12 $4.7 billion 0 $0
Companies
_____________________________________________________________________________________________________________
Other pooled Investment 0 $0 0 $0
Vehicles
_____________________________________________________________________________________________________________
Other Accounts 16 $1.0 billion 0 $0
_____________________________________________________________________________________________________________
Robert A. Vogel, Jr.
_____________________________________________________________________________________________________________
Registered Investment 10 $4.0 billion 0 $0
Companies
_____________________________________________________________________________________________________________
Other pooled Investment 0 $0 0 $0
Vehicles
_____________________________________________________________________________________________________________
Other Accounts 36 $3.6 billion 1 $796.0 million
_____________________________________________________________________________________________________________
Nashira S. Wynn
_____________________________________________________________________________________________________________
Registered Investment 10 $4.0 billion 0 $0
Companies
_____________________________________________________________________________________________________________
Other pooled Investment 0 $0 0 $0
Vehicles
_____________________________________________________________________________________________________________
Other Accounts 27 $3.6 billion 1 $796.0 million
_____________________________________________________________________________________________________________
Babak Zenouzi
_____________________________________________________________________________________________________________
Registered Investment 6 $2.5 billion 0 $0
Companies
_____________________________________________________________________________________________________________
Other pooled Investment 0 $0 0 $0
Vehicles
_____________________________________________________________________________________________________________
Other Accounts 5 $110.6 million 0 $0
_____________________________________________________________________________________________________________
Description of Material Conflicts of Interest
Individual portfolio managers may perform investment management services
for other accounts similar to those provided to the Funds and the investment
action for each account and Fund may differ. For example, an account or Fund may
be selling a security, while another account or Fund may be purchasing or
holding the same security. As a result, transactions executed for one account
may adversely affect the value of securities held by another account.
Additionally, the management of multiple accounts and Funds may give rise to
potential conflicts of interest, as a portfolio manager must allocate time and
effort to multiple accounts and Funds. A portfolio manager may discover an
investment opportunity that may be suitable for more than one account or Fund.
The investment opportunity may be limited, however, so that all accounts for
which the investment would be suitable may not be able to participate. The
Manager has adopted procedures designed to allocate investments fairly across
multiple accounts.
A portfolio manager's management of personal accounts also may present
certain conflicts of interest. While the Manager's Code of Ethics is designed to
address these potential conflicts, there is no guarantee that it will do so.
Compensation Structure
Each portfolio manager's compensation consists of the following:
Base Salary. Each named portfolio manager receives a fixed base salary.
Salaries are determined by a comparison to industry data prepared by third
parties to ensure that portfolio manager salaries are in line with salaries paid
at peer investment advisory firms.
Bonus. Each portfolio manager is eligible to receive an annual cash bonus
which is based on quantitative and qualitative factors. The amount of the pool
for bonus payments is first determined by mathematical equation based on assets,
management fees and expenses, including fund waiver expenses, for registered
investment companies, pooled vehicles, and managed separate accounts. Generally,
approximately 80% of the bonus is quantitatively determined. For investment
companies, each manager is compensated according the Fund's Lipper peer group
percentile ranking on a one-year and three-year basis. For managed separate
accounts the portfolio managers are compensated according to the composite
percentile ranking in consultant databases. There is no objective award for a
fund that falls below the 50th percentile for a given time period. There is a
sliding scale for investment companies that are ranked above the 50th
percentile. The managed separate accounts are compared to Callan and other
databases. The remaining 20% portion of the bonus is discretionary as determined
by Delaware and takes into account subjective factors.
Deferred Compensation. Each named portfolio manager is eligible to
participate in the Lincoln National Corporation Executive Deferred Compensation
Plan, which is available to all employees whose income exceeds a designated
threshold. The Plan is a non-qualified unfunded deferred compensation plan that
permits participating employees to defer the receipt of a portion of their cash
compensation.
Stock Option Incentive Plan/Equity Compensation Plan: Portfolio managers
may be awarded options to purchase common shares of Delaware Investments U.S.,
Inc. pursuant to the terms the Delaware Investments U.S., Inc. Stock Option Plan
(non-statutory or "non-qualified" stock options). In addition, certain managers
may be awarded restricted stock units, or "performance shares", in Lincoln.
Delaware Investments U.S., Inc., is an indirect subsidiary of DMH and,
therefore, of Lincoln.
The Delaware Investments U.S., Inc. Stock Option Plan was established in
2001 in order to provide certain investment personnel of the Manager with a more
direct means of participating in the growth of the investment manager. Under the
terms of the plan, stock options typically vest in 25% increments on a four-year
schedule and expire ten years after issuance. Options are awarded from time to
time by the investment manager in its full discretion. Option awards may be
based in part on seniority.
Portfolio managers who do not participate in the Delaware Investments U.S.,
Inc. Stock Option Plan are eligible to participate in Lincoln's Long-Term
Incentive Plan, which is designed to provide a long-term incentive to officers
of Lincoln. Under the plan, a specified number of performance shares are
allocated to each unit and are awarded to participants in the discretion of
their managers in accordance with recommended targets related to the number of
employees in a unit that may receive an award and the number of shares to be
awarded. The performance shares have a three year vesting schedule and, at the
end of the three years, the actual number of shares distributed to those who
received awards may be equal to, greater than or less than the amount of the
award based on Lincoln's achievement of certain performance goals relative to a
pre-determined peer group.
Other Compensation: Portfolio managers may also participate in benefit
plans and programs available generally to all employees.
Ownership of Securities
As of November 30, 2006, the Funds' portfolio managers owned the following
amounts of Fund shares:
Dollar Range Of Fund
Portfolio Manager Shares Owned (1)
_________________ _______________
Damon J. Andres none
Jordan L. Irving none
Nikhil G. Lalvani none
Anthony A. Lombardi none
Ty Nutt none
Timothy L. Rabe none
Robert A. Vogel, Jr. none
Nashira S. Wynn none
Babak Zenouzi none
(1) Includes Fund shares beneficially owned by portfolio manager and
immediate family members sharing the same household.
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
(a) 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.
(b) Management has made changes that have materially affected, or are
reasonably likely to materially affect, registrant's internal controls over
financial reporting. To seek to increase the controls' effectiveness, these
changes provide for enhanced review of contracts relating to complex
transactions and the applicability of generally accepted accounting principles
to such transactions, including enhanced consultation with registrant's
independent public accountants in connection with such reviews.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate. 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.
Name of Registrant:
PATRICK P. COYNE
_________________________________
By: Patrick P. Coyne
Title: Chief Executive Officer
Date: February 6, 2007
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.
PATRICK P. COYNE
_________________________________
By: Patrick P. Coyne
Title: Chief Executive Officer
Date: February 6, 2007
RICHARD SALUS
_________________________________
By: Richard Salus
Title: Chief Financial Officer
Date: February 6, 2007