didiincomefund_nq.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM N-Q
 
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF
REGISTERED MANAGEMENT INVESTMENT COMPANY
 
Investment Company Act file number: 811-07460
   
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, 2011
   
Date of reporting period: August 31, 2011

 

Item 1. Schedule of Investments.
 
Schedule of Investments (Unaudited)
 
Delaware Investments® Dividend and Income Fund, Inc.
 
August 31, 2011
 
    Number of      
               Shares              Value
Common Stock – 68.15%          
Consumer Discretionary – 3.23%          
†∏=Avado Brands   1,390   $ 0
Comcast Class A   52,600     1,131,426
†DIRECTV Class A   1,550     68,154
Lowe's   57,000     1,136,010
          2,335,590
Consumer Staples – 7.94%          
Archer-Daniels-Midland   39,600     1,127,808
CVS Caremark   32,600     1,170,666
Kimberly-Clark   17,000     1,175,719
Kraft Foods Class A   32,300     1,131,146
*Safeway   61,700     1,130,961
          5,736,300
Diversified REITs – 0.22%          
Lexington Reality Trust   14,800     109,224
Vastned Offices   300     4,569
Vornado Realty Trust   565     48,539
          162,332
Energy – 6.01%          
Chevron   11,800     1,167,138
ConocoPhillips   15,700     1,068,699
Marathon Oil   38,600     1,039,112
Williams   39,500     1,066,105
          4,341,054
Financials – 7.77%          
Allstate   43,100     1,130,944
Bank of New York Mellon   53,700     1,109,979
*Fifth Street Finance   34,041     337,346
Marsh & McLennan   42,700     1,269,044
Solar Capital   30,561     706,570
Travelers   21,000     1,059,660
          5,613,543
Healthcare – 9.67%          
*†Alliance HealthCare Services   7,323     11,644
Baxter International   20,700     1,158,786
Cardinal Health   27,000     1,147,500
Johnson & Johnson   17,400     1,144,920
Merck   36,900     1,222,127
Pfizer   61,189     1,161,367
Quest Diagnostics   22,900     1,146,603
          6,992,947
Healthcare REITs – 2.54%          
Cogdell Spencer   16,800     71,736
*HCP   4,550     169,624
*Health Care REIT   9,060     461,698
*LTC Properties   3,300     89,067
*Omega Healthcare Investors   9,500     172,425
Ventas   16,297     871,563
          1,836,113
Hotel REITs – 0.88%          
Ashford Hospitality Trust   10,700     86,670
*DiamondRock Hospitality   14,500     112,230
LaSalle Hotel Properties   3,700     69,560
Summit Hotel Properties   44,500     368,460
          636,920
Industrial REITs – 0.84%          
†First Industrial Realty Trust   31,200     294,528
ProLogis   1,280     34,854
*STAG Industrial   25,700     276,532
          605,914
Industrials – 4.65%          
†Delta Air Lines   24     181
†Flextronics International   4,400     25,300
*†Mobile Mini   1,651     31,452
Northrop Grumman   20,600     1,125,171
†∏=PT Holdings   350     4
Raytheon   26,000     1,123,980
*Waste Management   31,900     1,053,976
          3,360,064
Information Technology – 6.27%          
Cisco Systems   81,600     1,279,488
Intel   53,700     1,080,981
†Motorola Solutions   26,642     1,121,362
Xerox   126,200     1,047,460
          4,529,291

 

Mall REITs – 2.20%        
General Growth Properties              5,229              71,324
Macerich   1,526   74,835
*Pennsylvania Real Estate Investment Trust   29,100   300,021
Simon Property Group   9,747   1,145,272
        1,591,452
Materials – 1.54%        
duPont (E.I.) deNemours   23,000   1,110,210
        1,110,210
Mixed REITs – 1.17%        
*Digital Realty Trust   8,950   534,763
*Dupont Fabros Technology   4,900   113,435
Liberty Property Trust   2,700   91,638
PS Business Parks   1,900   103,873
        843,709
Mortgage REITs – 0.51%        
*Chimera Investment   23,800   72,114
Starwood Property Trust   16,000   296,000
        368,114
Multifamily REITs – 1.69%        
Apartment Investment & Management   7,968   211,710
*Associated Estates Realty   7,200   127,440
BRE Properties   5,000   251,300
Camden Property Trust   3,450   230,529
Equity Residential   6,600   403,788
        1,224,767
Office REITs – 0.39%        
*Boston Properties   500   52,145
Brandywine Realty Trust   11,500   114,310
Government Properties Income Trust   4,800   112,416
        278,871
Real Estate Management & Development – 0.05%        
†Howard Hughes   1   54
Mitsubishi Estate   2,000   32,748
        32,802
Self-Storage REITs – 0.98%        
*Extra Space Storage   3,300   70,950
Public Storage   5,150   637,210
        708,160
Shopping Center REITs – 1.28%        
*Equity One   8,000   144,080
Federal Realty Investment Trust   300   27,165
First Capital Realty   14,058   240,367
Kimco Realty   20,430   361,611
*Ramco-Gershenson Properties Trust   6,200   64,170
*Weingarten Realty Investors   3,600   87,732
        925,125
Single Tenant REIT – 0.25%        
*National Retail Properties   6,700   182,642
        182,642
Specialty REITs – 0.93%        
*Entertainment Properties Trust   2,920   123,020
*Plum Creek Timber   6,885   261,423
*Potlatch   4,825   161,927
Rayonier   3,000   125,820
        672,190
Telecommunications – 3.76%        
AT&T   39,600   1,127,808
=†Century Communications   500,000   0
*France Telecom ADR   6,000   109,740
*Frontier Communications   40,000   299,600
†GeoEye   550   19,894
Verizon Communications   32,000   1,157,440
        2,714,482
Utilities – 3.38%        
American Water Works   4,300   128,054
Edison International   30,900   1,149,171
†GenOn Energy   535   1,626
Progress Energy   23,900   1,166,320
        2,445,171
Total Common Stock (cost $47,676,256)       49,247,763
         
Convertible Preferred Stock – 3.04%        
Consumer Cyclical – 0.10%        
Goodyear Tire & Rubber 5.875% exercise price $18.21, expiration date 3/31/14   1,600   72,200
        72,200
Electric – 0.30%        
PPL 9.50% exercise price $28.80, expiration date 7/1/13   3,800   218,842
        218,842
Consumer Non-Cyclical – 0.41%        
HealthSouth 6.50% exercise price $30.50, expiration date 12/31/49   288   293,832
        293,832

 

Energy – 1.03%          
*Apache 6.00% exercise price $109.12, expiration date 8/1/13     1,700   98,787
#Chesapeake Energy 144A 5.75% exercise price $27.94, expiration date 12/31/49     185   244,663
*El Paso Energy Capital Trust I 4.75% exercise price $41.59, expiration date 3/31/28     5,250   232,785
SandRidge Energy 8.50% exercise price $8.01, expiration date 12/31/49     1,440   169,560
          745,795
Insurance – 0.81%                                
Aspen Insurance Holdings 5.625% exercise price $29.28, expiration date 12/31/49     8,800   448,800
†MetLife 5.00% exercise price $44.27, expiration date 9/11/13     2,120   138,754
          587,554
Technology – 0.39%          
*Lucent Technologies Capital Trust I 7.75% exercise price $24.80, expiration date 3/15/17     305   279,075
          279,075
Total Convertible Preferred Stock (cost $2,143,854)         2,197,298
           
    Principal    
    Amount    
Convertible Bonds – 10.37%          
Brokerage – 0.32%          
Jefferies Group 3.875% exercise price $38.35, expiration date 11/1/29   $ 245,000   233,975
          233,975
Capital Goods – 1.15%          
AAR          
       1.75% exercise price $29.27, expiration date 1/1/26     136,000   140,930
       #144A 1.75% exercise price $29.27, expiration date 1/1/26     260,000   269,425
L-3 Communications Holdings 3.00% exercise price $97.79, expiration date 8/1/35     121,000   117,370
#Owens-Brockway Glass Container 144A 3.00% exercise price $47.47, expiration date 5/28/15     335,000   301,081
          828,806
Communications – 2.39%          
#Alaska Communications Systems Group 144A 6.25% exercise price $10.28, expiration date 4/27/18     189,000   172,226
*#Clearwire Communications 144A 8.25% exercise price $7.08, expiration date 11/30/40     131,000   92,683
*Leap Wireless International 4.50% exercise price $93.21, expiration date 7/15/14     282,000   250,628
Level 3 Communications 3.50% exercise price $5.46, expiration date 6/15/12     341,000   337,590
*NII Holdings 3.125% exercise price $118.32, expiration date 6/15/12     410,000   416,149
Rovi 2.625% exercise price $47.36, expiration date 2/10/40     137,000   169,880
SBA Communications 4.00% exercise price $30.38, expiration date 10/1/14     208,000   289,640
          1,728,796
Consumer Cyclical – 0.55%          
ϕArvinMeritor 4.00% exercise price $26.73, expiration date 2/15/27     295,000   217,931
Pantry 3.00% exercise price $50.09, expiration date 11/15/12     180,000   180,450
          398,381
Consumer Non-Cyclical – 0.96%          
*Alere 3.00% exercise price $43.98, expiration date 5/15/16     228,000   203,205
Dendreon 2.875% exercise price $51.24, expiration date 1/13/16     67,000   51,255
Medtronic 1.625% exercise price $54.00, expiration date 4/15/13     159,000   159,795
Mylan 3.75% exercise price $13.32, expiration date 9/10/15     91,000   155,610
NuVasive 2.75% exercise price $42.13, expiration date 6/30/17     130,000   122,200
          692,065
Energy – 0.08%          
James River Coal 4.50% exercise price $25.78, expiration date 12/1/15     65,000   58,175
          58,175
Finance-Banks – 0.87%          
#Ares Capital 144A 5.75% exercise price $19.13, expiration date 2/1/16     124,000   123,225
#BGC Partners 144A 4.50% exercise price $9.84, expiration date 7/13/16     73,000   67,160
Euronet Worldwide 3.50% exercise price $40.48, expiration date 10/15/25     435,000   435,544
          625,929
Healthcare – 0.47%          
ϕHologic 2.00% exercise price $38.59, expiration date 12/15/37     358,000   340,995
          340,995
Industrials – 0.11%          
#Altra Holdings 144A 2.75% exercise price $27.70, expiration date 2/27/31     91,000   78,943
          78,943
Real Estate – 0.57%          
*Health Care REIT 3.00% exercise price $51.16, expiration date 11/30/29     237,000   258,922
#Lexington Realty Trust 144A 6.00% exercise price $7.09, expiration date 1/11/30     129,000   155,768
          414,690
Services – 0.59%          
Live Nation Entertainment 2.875% exercise price $27.14, expiration date 7/14/27     466,000   427,554
          427,554
Technology – 2.31%          
Advanced Micro Devices          
       6.00% exercise price $28.08, expiration date 4/30/15     217,000   219,441
       #144A 6.00% exercise price $28.08, expiration date 4/30/15     83,000   83,934
Alcatel-Lucent USA 2.875% exercise price $15.35, expiration date 6/15/25     82,000   78,413
#Ciena 144A 3.75% exercise price $20.17, expiration date 10/15/18     137,000   127,753
Equinix 4.75% exercise price $84.32, expiration date 6/15/16     101,000   135,593
Intel 3.25% exercise price $22.45, expiration date 8/1/39     124,000   143,065
Linear Technology 3.00% exercise price $44.11, expiration date 5/1/27     425,000   435,093
SanDisk 1.50% exercise price $52.37, expiration date 8/11/17     186,000   186,930
VeriSign 3.25% exercise price $34.37, expiration date 8/15/37     235,000   255,268
          1,665,490
Total Convertible Bonds (cost $7,099,210)         7,493,799

 

Corporate Bonds – 41.53%        
Automotive – 1.93%                              
*American Axle & Manufacturing 7.875% 3/1/17   160,000   156,000
ArvinMeritor 8.125% 9/15/15   147,000   139,283
#Chrysler Group 144A 8.25% 6/15/21   200,000   174,000
*Dana Holding 6.75% 2/15/21   140,000   137,900
Ford Motor 7.45% 7/16/31   145,000   159,699
Ford Motor Credit 12.00% 5/15/15   147,000   177,573
#International Automotive Components Group 144A 9.125% 6/1/18   115,000   113,563
*#Jaguar Land Rover 144A 8.125% 5/15/21   170,000   160,225
#Pinafore 144A 9.00% 10/1/18   169,000   179,984
        1,398,227
Banking – 1.46%        
BAC Capital Trust VI 5.625% 3/8/35   290,000   230,263
•Fifth Third Capital Trust IV 6.50% 4/15/37   210,000   195,825
•#HBOS Capital Funding 144A 6.071% 6/29/49   205,000   140,425
•Regions Financing Trust II 6.625% 5/15/47   275,000   233,063
•SunTrust Capital VIII 6.10% 12/15/36   265,000   257,862
        1,057,438
Basic Industry – 5.99%        
*AK Steel 7.625% 5/15/20   224,000   207,200
#Algoma Acquisition 144A 9.875% 6/15/15   196,000   167,580
#APERAM 144A 7.75% 4/1/18   150,000   139,500
#Appleton Papers 144A 10.50% 6/15/15   119,000   119,893
*Associated Materials 9.125% 11/1/17   120,000   106,200
#Building Materials Corporation of America 144A 6.75% 5/1/21   172,000   165,120
#Cemex Espana Luxembourg 144A 9.25% 5/12/20   331,000   271,419
#Cemex Finance 144A 9.50% 12/14/16   150,000   133,125
#FMG Resources August 2006 144A        
       6.875% 2/1/18   82,000   81,590
       7.00% 11/1/15   119,000   119,298
Headwaters 7.625% 4/1/19   170,000   146,200
Hexion US Finance 9.00% 11/15/20   100,000   87,750
Interface 7.625% 12/1/18   116,000   119,335
#International Wire Group Holdings 144A 9.75% 4/15/15   129,000   132,225
*#James River Escrow 144A 7.875% 4/1/19   150,000   136,500
#JMC Steel Group 144A 8.25% 3/15/18   170,000   167,025
#Longview Fibre Paper & Packaging 144A 8.00% 6/1/16   170,000   169,150
*Lyondell Chemical 11.00% 5/1/18   139,000   155,854
#MacDermid 144A 9.50% 4/15/17   159,000   158,205
*#Masonite International 144A 8.25% 4/15/21   165,000   152,625
#Millar Western Forest Products 144A 8.50% 4/1/21   90,000   69,750
Momentive Performance Materials 9.00% 1/15/21   330,000   283,799
#Murray Energy 144A 10.25% 10/15/15   148,000   146,520
Norcraft 10.50% 12/15/15   186,000   178,560
#Nortek 144A 8.50% 4/15/21   180,000   154,800
*Ply Gem Industries 13.125% 7/15/14   152,000   152,760
Polypore International 7.50% 11/15/17   159,000   158,205
@=Port Townsend 12.431% 8/27/12   104,824   47,695
Ryerson        
       •7.629% 11/1/14   92,000   87,515
       12.00% 11/1/15   116,000   119,625
        4,335,023
Capital Goods – 2.28%        
Berry Plastics        
       9.75% 1/15/21   154,000   143,605
       *10.25% 3/1/16   110,000   100,925
#DAE Aviation Holdings 144A 11.25% 8/1/15   164,000   168,510
Kratos Defense & Security Solutions 10.00% 6/1/17   150,000   154,875
*Manitowoc 9.50% 2/15/18   143,000   149,078
Mueller Water Products 7.375% 6/1/17   169,000   149,565
Pregis 12.375% 10/15/13   163,000   150,775
#Reynolds Group Issuer 144A        
       *9.00% 4/15/19   284,000   257,020
       9.875% 8/15/19   270,000   255,150
TriMas 9.75% 12/15/17   111,000   119,880
        1,649,383
Consumer Cyclical – 2.20%        
#Brown Shoe 144A 7.125% 5/15/19   135,000   115,425
#Burlington Coat Factory Warehouse 144A 10.00% 2/15/19   265,000   248,437
CKE Restaurants 11.375% 7/15/18   143,000   152,831
Dave & Buster's 11.00% 6/1/18   177,000   184,965
DineEquity 9.50% 10/30/18   149,000   155,333
Express 8.75% 3/1/18   92,000   97,520
#Icon Health & Fitness 144A 11.875% 10/15/16   87,000   83,085
*#Needle Merger Sub 144A 8.125% 3/15/19   140,000   130,900
OSI Restaurant Partners 10.00% 6/15/15   165,000   169,950
Quiksilver 6.875% 4/15/15   185,000   174,363
Tops Holding 10.125% 10/15/15   76,000   76,950
        1,589,759

 

Consumer Non-Cyclical – 1.63%        
#Armored Autogroup 144A 9.25% 11/1/18   169,000   149,565
#Blue Merger Sub 144A 7.625% 2/15/19   169,000   168,578
#Bumble Bee Acquisition 144A 9.00% 12/15/17              106,000              103,350
Cott Beverages 8.375% 11/15/17   53,000   55,253
*Dean Foods 7.00% 6/1/16   174,000   166,170
NBTY 9.00% 10/1/18   207,000   218,384
Pinnacle Foods Finance 10.625% 4/1/17   67,000   69,680
*Visant 10.00% 10/1/17   92,000   90,160
#Viskase 144A 9.875% 1/15/18   152,000   154,280
        1,175,420
Energy – 5.02%        
American Petroleum Tankers Parent 10.25% 5/1/15   134,000   134,168
Antero Resources Finance 9.375% 12/1/17   151,000   160,815
Aquilex Holdings 11.125% 12/15/16   134,000   78,390
#Calumet Specialty Products Partners 144A 9.375% 5/1/19   165,000   160,050
Chaparral Energy 8.25% 9/1/21   250,000   239,999
Chesapeake Energy        
       6.625% 8/15/20   134,000   140,700
       *6.875% 11/15/20   19,000   20,140
Comstock Resources 7.75% 4/1/19   170,000   170,213
Copano Energy 7.75% 6/1/18   96,000   98,160
Crosstex Energy 8.875% 2/15/18   119,000   123,760
#Helix Energy Solutions 144A 9.50% 1/15/16   191,000   195,774
#Hercules Offshore 144A 10.50% 10/15/17   143,000   141,570
#Hilcorp Energy I 144A 8.00% 2/15/20   152,000   158,840
Holly 9.875% 6/15/17   112,000   123,200
#Laredo Petroleum 144A 9.50% 2/15/19   178,000   189,125
Linn Energy        
       8.625% 4/15/20   147,000   158,025
       #144A 6.50% 5/15/19   20,000   19,150
#NFR Energy 144A        
       *9.75% 2/15/17   214,000   191,530
       9.75% 2/15/17   80,000   71,600
#Oasis Petroleum 144A 7.25% 2/1/19   130,000   127,725
Offshore Group Investments        
       11.50% 8/1/15   121,000   129,470
       #144A 11.50% 8/1/15   15,000   16,050
PetroHawk Energy 7.25% 8/15/18   164,000   192,085
Petroleum Development 12.00% 2/15/18   137,000   147,275
Pioneer Drilling 9.875% 3/15/18   154,000   161,700
Quicksilver Resources 7.125% 4/1/16   105,000   99,750
SandRidge Energy        
       8.75% 1/15/20   29,000   29,290
       #144A 7.50% 3/15/21   150,000   146,438
        3,624,992
Financials – 1.12%        
E Trade Financial PIK 12.50% 11/30/17   147,000   169,785
•#ILFC E-Capital Trust I 144A 5.74% 12/21/65   100,000   72,780
•#ILFC E-Capital Trust II 144A 6.25% 12/21/65   325,000   255,125
Nuveen Investments        
       10.50% 11/15/15   250,000   242,500
       #144A 10.50% 11/15/15   72,000   69,120
        809,310
Healthcare – 2.45%        
Accellent 10.00% 11/1/17   92,000   87,400
#AMGH Merger Sub 144A 9.25% 11/1/18   160,000   162,800
Community Health Systems 8.875% 7/15/15   155,000   157,519
#DJO Finance 144A 9.75% 10/15/17   246,000   228,164
*HealthSouth 7.75% 9/15/22   35,000   35,175
#inVentiv Health 144A 10.00% 8/15/18   139,000   126,143
Lantheus Medical Imaging 9.75% 5/15/17   209,000   199,073
LVB Acquisition 11.625% 10/15/17   158,000   169,850
#Multiplan 144A 9.875% 9/1/18   178,000   181,560
*Radiation Therapy Services 9.875% 4/15/17   157,000   146,010
Radnet Management 10.375% 4/1/18   138,000   136,965
#STHI Holding 144A 8.00% 3/15/18   150,000   143,250
        1,773,909
Insurance – 1.23%        
•American International Group 8.175% 5/15/58   220,000   219,241
•Genworth Financial 6.15% 11/15/66   96,000   58,080
•ING Groep 5.775% 12/29/49   220,000   185,900
•#Liberty Mutual Group 144A 7.00% 3/15/37   195,000   179,329
•XL Group 6.50% 12/31/49   275,000   245,437
        887,987
Media – 3.17%        
Affinion Group 7.875% 12/15/18   202,000   179,780
#AMC Networks 144A 7.75% 7/15/21   170,000   176,375
*#AMO Escrow 144A 11.50% 12/15/17   78,000   75,465
*Cablevision Systems 8.00% 4/15/20   71,000   74,728
CCO Holdings        
       *8.125% 4/30/20   205,000   217,812
       #144A 7.00% 1/15/19   14,000   14,105
Clear Channel Communications 9.00% 3/1/21   164,000   132,840
Entravision Communications 8.75% 8/1/17   95,000   93,100
#Kabel BW Erste Beteiligungs 144A 7.50% 3/15/19   150,000   148,500

 

MDC Partners                              
       11.00% 11/1/16   146,000   157,863
       #144A 11.00% 11/1/16   70,000   74,988
Nexstar Broadcasting 8.875% 4/15/17   139,000   143,170
#Ono Finance II 144A 10.875% 7/15/19   159,000   142,305
#Sinclair Television Group 144A 9.25% 11/1/17   101,000   108,070
#UPC Holding 144A 9.875% 4/15/18   189,000   198,449
Virgin Media Finance 8.375% 10/15/19   92,000   99,590
WMG Acquisition 9.50% 6/15/16   100,000   102,500
#XM Satellite Radio 144A 7.625% 11/1/18   145,000   148,988
        2,288,628
Services – 4.65%        
*#ARAMARK Holdings PIK 144A 8.625% 5/1/16   250,000   251,875
Beazer Homes USA        
       9.125% 6/15/18   46,000   32,143
       9.125% 5/15/19   198,000   137,115
Cardtronics 8.25% 9/1/18   72,000   75,960
Casella Waste Systems        
       11.00% 7/15/14   83,000   89,329
       #144A 7.75% 2/15/19   173,000   167,377
*#Delta Air Lines 144A 12.25% 3/15/15   129,000   137,063
#Equinox Holdings 144A 9.50% 2/1/16   143,000   151,938
Harrah's Operating 10.00% 12/15/18   398,000   314,419
Kansas City Southern de Mexico        
       8.00% 2/1/18   32,000   34,560
       #144A 6.125% 6/15/21   140,000   140,350
M/I Homes 8.625% 11/15/18   246,000   228,165
*Marina District Finance 9.875% 8/15/18   87,000   83,955
MGM Resorts International 11.375% 3/1/18   463,000   503,512
PHH 9.25% 3/1/16   145,000   151,163
*Pinnacle Entertainment 8.75% 5/15/20   155,000   156,550
RSC Equipment Rental        
       8.25% 2/1/21   87,000   81,563
       10.25% 11/15/19   13,000   13,423
*#Seven Seas Cruises 144A 9.125% 5/15/19   165,000   164,175
Standard Pacific 10.75% 9/15/16   69,000   68,655
*Swift Services Holdings 10.00% 11/15/18   60,000   60,900
*#Swift Transportation 144A 12.50% 5/15/17   101,000   102,010
#United Air Lines 144A 12.00% 11/1/13   203,000   211,120
        3,357,320
Technology – 3.07%        
*Advanced Micro Devices 7.75% 8/1/20   245,000   249,900
Aspect Software 10.625% 5/15/17   143,000   148,005
Avaya        
       9.75% 11/1/15   25,000   21,375
       PIK 10.125% 11/1/15   105,000   91,219
       #144A 7.00% 4/1/19   169,000   152,945
#Buccaneer Merger Sub 144A 9.125% 1/15/19   155,000   155,775
First Data        
       9.875% 9/24/15   217,000   199,640
       *11.25% 3/31/16   166,000   140,270
*GXS Worldwide 9.75% 6/15/15   163,000   160,555
#iGate 144A 9.00% 5/1/16   160,000   152,000
MagnaChip Semiconductor 10.50% 4/15/18   101,000   105,545
#MedAssets 144A 8.00% 11/15/18   82,000   79,540
#Seagate HDD Cayman 144A 7.75% 12/15/18   164,000   163,590
SunGard Data Systems 10.25% 8/15/15   83,000   84,868
#Telcordia Technologies 144A 11.00% 5/1/18   253,000   311,822
        2,217,049
Telecommunications – 4.07%        
#Clearwire Communications 144A        
       12.00% 12/1/15   40,000   38,000
       *12.00% 12/1/15   202,000   190,889
       *12.00% 12/1/17   185,000   154,013
#Columbus International 144A 11.50% 11/20/14   130,000   139,100
*Cricket Communications 7.75% 10/15/20   172,000   153,510
#Digicel Group 144A        
       9.125% 1/15/15   100,000   100,500
       10.50% 4/15/18   96,000   102,240
#EH Holding 144A 7.625% 6/15/21   135,000   135,000
#Integra Telecom Holdings 144A 10.75% 4/15/16   125,000   125,313
Intelsat Bermuda        
       11.25% 2/4/17   401,000   389,972
       PIK 11.50% 2/4/17   176,092   171,470
#Level 3 Communications 144A 11.875% 2/1/19   95,000   98,800
Level 3 Financing 10.00% 2/1/18   162,000   164,025
NII Capital 7.625% 4/1/21   85,000   87,125
PAETEC Holding 9.875% 12/1/18   106,000   113,420
Qwest 8.375% 5/1/16   4,000   4,580
Qwest Communications International 7.50% 2/15/14   58,000   58,870
*#Satmex Escrow 144A 9.50% 5/15/17   85,000   83,831
Sprint Capital 8.75% 3/15/32   159,000   163,770
Telesat Canada 12.50% 11/1/17   131,000   149,995
West 7.875% 1/15/19   165,000   158,400
#Wind Acquisition Finance 144A 11.75% 7/15/17   150,000   156,375
        2,939,198

 

Utilities – 1.26%              
AES 8.00% 6/1/20                50,000                52,750  
#Calpine 144A              
       7.50% 2/15/21     100,000     101,500  
       7.875% 1/15/23     65,000     66,381  
Elwood Energy 8.159% 7/5/26     132,138     130,981  
*GenOn Energy 9.50% 10/15/18     101,000     101,505  
*Mirant Americas 8.50% 10/1/21     185,000     176,676  
#NRG Energy 144A 7.875% 5/15/21     170,000     167,875  
•Puget Sound Energy 6.974% 6/1/67     110,000     111,335  
            909,003  
Total Corporate Bonds (cost $30,952,881)           30,012,646  
               
«Senior Secured Loans – 0.50%              
Brock Holdings III 10.00% 2/15/18     55,000     50,600  
PQ 6.69% 7/30/15     170,000     155,550  
Texas Competitive Electric Holdings 3.686% 10/10/14     205,000     156,825  
Total Senior Secured Loans (cost $376,550)           362,975  
               
    Number of        
    Shares        
Limited Partnership – 0.28%              
Brookfield Infrastructure Partners     7,600     201,476  
Total Limited Partnership (cost $144,435)           201,476  
Preferred Stock – 1.76%              
#Ally Financial 144A 7.00%     200     152,194  
@*Cogdell Spencer 8.50%     29,600     730,824  
•GMAC Capital Trust I 8.125%     15,000     320,250  
=Port Townsend     70     0  
†W2007 Grace Acquisitions 8.75%     34,400     69,230  
Total Preferred Stock (cost $2,224,200)           1,272,498  
Warrant – 0.00%              
∏@=Port Townsend     70     1  
Total Warrant (cost $1,680)           1  
             
    Principal        
    Amount        
Short-Term Investments – 1.08%              
≠Discount Notes – 0.07%              
Federal Home Loan Bank              
       0.001% 9/1/11   $ 41,048     41,048  
       0.015% 9/1/11     574     574  
       0.02% 9/20/11     1,149     1,149  
       0.04%11/2/11     1,149     1,149  
Freddie Mac 0.05% 11/2/11     3,805     3,805  
            47,725  
Repurchase Agreements – 1.01%              
BNP Paribas 0.05%, dated 8/31/11, to be              
repurchased on 9/1/11, repurchase price $732,951              
(collateralized by U.S. government obligations 0.50%-6.125%              
5/31/13-8/15/29, market value $747,611)     732,950     732,952  
            732,952  
Total Short-Term Investments (cost $780,677)           780,677  
               
Total Value of Securities Before Securities Lending Collateral – 126.71%              
(cost $91,399,743)           91,569,133  
               
    Number of        
    Shares        
Securities Lending Collateral** – 15.19%              
Investment Companies              
       BNY Mellon SL DBT II Liquidating Fund     104,054     99,944  
       Delaware Investments Collateral Fund No.1     10,874,968     10,874,968  
       @†Mellon GSL Reinvestment Trust II     154,977     0  
Total Securities Lending Collateral (cost $11,133,999)           10,974,912  
               
Total Value of Securities – 141.90%              
(cost $102,533,742)           102,544,045 ©
               
Obligation to Return Securities Lending Collateral** – (15.40%)           (11,133,999 )
               
Borrowing Under Line of Credit – (27.99%)           (20,225,000 )
               
Receivables and Other Assets Net of Other Liabilities – 1.49%           1,078,480  
               
Net Assets Applicable to 9,439,043 Shares Outstanding – 100.00%         $ 72,263,526  

†Non income producing security.
∏Restricted Security. These investments are in securities not registered under the Securities Act of 1933, as amended, and have certain restrictions on resale which may limit their liquidity. At August 31, 2011, the aggregate amount of the restricted securities was $5 or 0.00% of the Fund's net assets. See Note 6 in "Notes."
=Security is being fair valued in accordance with the Fund’s fair valuation policy. At August 31, 2011, the aggregate amount of fair valued securities was $47,700, which represented 0.07% of the Fund’s net assets. See Note 1 in "Notes."
 
 

*Fully or partially on loan.
#Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At August 31, 2011, the aggregate amount of Rule 144A securities was $14,880,642, which represented 20.59% of the Fund’s net assets. See Note 6 in "Notes."
ϕStep coupon bond. Coupon increases or decreases periodically based on a predetermined schedule. Stated rate in effect at August 31, 2011.
•Variable rate security. The rate shown is the rate as of August 31, 2011. Interest rates reset periodically.
@Illiquid security. At August 31, 2011, the aggregate amount of illiquid securities was $778,520, which represented 1.08% of the Fund’s net assets. See Note 6 in “Notes."
«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. Stated rate in effect at August 31, 2011.
≠The rate shown is the effective yield at the time of purchase.
**See Note 5 in "Notes."
©Includes $10,701,030 of securities loaned.
 
Summary of Abbreviations:
ADR – American Depositary Receipt
PIK – Pay-in-kind
REIT – Real Estate Investment Trust
 
 
Notes
 
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and are consistently followed by Delaware Investments® Dividend and Income Fund, Inc. (Fund). This report covers the period of time since the Fund’s last fiscal year end.
 
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 ask prices will be used. Securities listed on a foreign exchange are valued at the last quoted sales price on the valuation date. Short-term debt securities are valued at market value. U.S. government and agency securities are valued at the mean between the bid and ask prices. Other debt securities are valued based upon valuations provided by an independent pricing service or broker and reviewed by management. To the extent current market prices are not available, the pricing service may take into account developments related to the specific security, as well as transactions in comparable securities. Investment company securities are valued at net asset value per share. Generally, 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 (Board). 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 suspension of trading in a security. The Fund may use fair value pricing more frequently for securities traded primarily in non-U.S. markets because, among other things, most foreign markets close well before the Fund values its securities generally as of 4:00 p.m. Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, government actions or pronouncements, aftermarket trading, or news events may have occurred in the interim. To account for this, the Fund may frequently value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing).
 
Federal Income Taxes – No provision for federal income taxes has been made as the Fund intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Fund evaluates 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 are recorded as a tax benefit or expense in the current year. Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (November 30, 2007 – November 30, 2010), and has concluded that no provision for federal income tax is required in the Fund’s financial statements.
 
Repurchase Agreements – The Fund may purchase certain U.S. government securities subject to the counterparty's agreement to repurchase them at an agreed upon date and price. The counterparty will be required on a daily basis to maintain the value of the collateral subject to the agreement at not less than the repurchase price (including accrued interest). The agreements are conditioned upon the collateral being deposited under the Federal Reserve book-entry system with the Fund's custodian or a third party sub-custodian. In the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. All open repurchase agreements were entered into on August 31, 2011.
 
Distributions – The Fund has implemented a managed distribution policy. Under the policy, the Fund is managed with a goal of generating as much of the distribution as possible from net investment income and short-term capital gains. The balance of the distribution will then come from long-term capital gains to the extent permitted, and if necessary, a return of capital. Even though the Fund may realize current year capital gains, such gains may be offset, in whole or in part, by the Fund’s capital loss carryovers from prior years. For federal income tax purposes, the effect of such capital loss carryovers may be to convert (to the extent of such current year gains) what would otherwise be returns of capital into distributions taxable as ordinary income. This tax effect can occur during times of extended market volatility. Under the Regulated Investment Company Modernization Act of 2010, this tax effect attributable to the Fund’s capital loss carryovers (the conversion of returns of capital into distributions taxable as ordinary income) will no longer apply to net capital losses of the Fund arising in Fund tax years beginning after November 30, 2011. The actual determination of the source of the Fund’s distributions can be made only at year-end. Shareholders should receive written notification regarding the actual components and tax treatments of all Fund distributions for the calendar year 2011 in early 2012.
 
Foreign Currency Transactions – Transactions denominated in foreign currencies are recorded at the prevailing exchange rates on the valuation date in accordance with the Fund's prospectus. The value of all assets and liabilities denominated in foreign currencies is translated into U.S. dollars at the exchange rate of such currencies against the U.S. dollar daily. Transaction gains or losses resulting from changes in exchange rates during the reporting period or upon settlement of the foreign currency transaction are reported in operations for the current period. The Fund generally isolates that portion of realized gains and losses on investments in debt securities which are due to changes in foreign exchange rates from that which are due to changes in market prices of debt securities. For foreign equity securities, these changes are included in realized gains (losses) on investments. The Fund reports certain foreign currency related transactions as components of realized gains (losses) for financial reporting purposes, whereas such components are treated as ordinary income (loss) for federal income tax purposes.
 
Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 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 and the differences could be material.
 
 

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 bonds 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 distributions by the issuer. Foreign dividends are also recorded on the ex-dividend date or as soon after the ex-dividend date that the Fund is aware of such dividends, net of all non-rebatable tax withholdings. Withholding taxes on foreign dividends have been recorded in accordance with the Fund’s understanding of the applicable country’s tax rules and rates.
 
2. Investments
At August 31, 2011, the cost of investments for federal income tax purposes has been estimated since final tax characteristics cannot be determined until fiscal year end. At August 31, 2011, the cost of investments and unrealized appreciation (depreciation) for the Fund was as follows:
 
Cost of investments $ 102,879,940  
Aggregate unrealized appreciation $ 7,485,086  
Aggregate unrealized depreciation   (7,820,981 )
Net unrealized depreciation $ (335,895 )
       
For federal income tax purposes, at November 30, 2010, capital loss carryforwards of $24,101,298 may be carried forward and applied against future capital gains. Such capital loss carryforwards will expire as follows: $12,885,662 expires in 2016 and $11,215,636 expires in 2017.
 
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the Act) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under previous regulation.
 
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. A three level hierarchy for fair value measurements has been established based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The Fund’s investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three level hierarchy of inputs is summarized below.
 
Level 1 - inputs are quoted prices in active markets for identical investments (e.g., equity securities, open-end investment companies, futures contracts, options contracts)
Level 2 - other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs) (e.g., debt securities, government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing)
Level 3 - inputs are significant unobservable inputs (including the Fund's own assumptions used to determine the fair value of investments) (e.g., broker-quoted securities, fair valued securities)
 
The following table summarizes the valuation of the Fund’s investments by fair value hierarchy levels as of August 31, 2011:
 
    Level 1   Level 2   Level 3   Total
Common Stock       $ 49,247,759       $ -       $ 4       $ 49,247,763
Corporate Debt     -     40,019,023     47,695     40,066,718
Short-Term Investment     732,952     47,725     -     780,677
Other     1,252,550     221,424     1     1,473,975
Securities Lending Collateral     -     10,974,912     -     10,974,912
Total   $ 51,233,261   $ 51,263,084   $ 47,700   $ 102,544,045
                         
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
 
    Common   Corporate                
        Stock       Debt       Other       Total
Balance as of 11/30/10   $ 4     $ 313,397     $ 24,082     $ 337,483  
Purchases     -       1,016       -       1,016  
Sales     (2,363 )     (240,465 )     (1 )     (242,829 )
Net realized gain     -       1,465       1       1,466  
Net change in unrealized                                
       appreciation/depreciation     2,363       (27,718 )     (24,081 )     (49,436 )
Balance as of 8/31/11   $ 4     $ 47,695     $ 1     $ 47,700  
                                 
Net change in unrealized                                
       appreciation/depreciation from                                
       investments still held as of 8/31/11   $ 2,363     $ (27,700 )   $ (24,080 )   $ (49,417 )
                                 
During the period ended August 31, 2011, there were no transfers between Level 1 investments, Level 2 investments or Level 3 investments that had a material impact to the Fund. This does not include transfers between Level 1 investments and Level 2 investments due to the Fund utilizing international fair value pricing during the period.
 
 

3. Line of Credit
For the period ended August 31, 2011, the Fund borrowed money pursuant to a $30,000,000 Credit Agreement with The Bank of New York Mellon (BNY Mellon) that expires on November 14, 2011. Depending on market conditions, the amount borrowed by the Fund pursuant to the Credit Agreement may be reduced or possibly increased in the future.
 
At August 31, 2011, the par value of loans outstanding was $20,225,000 at a variable interest rate of 1.33%. During the period August 31, 2011, the average daily balance of loans outstanding was $20,225,000 at a weighted average interest rate of approximately 1.40%. Interest on borrowing is based on a variable short-term rate plus an applicable margin. The commitment fee is computed at a rate of 0.25% per annum on the unused balance. The loan is collateralized by the Fund’s portfolio.
 
4. Derivatives
U.S. GAAP requires enhanced disclosures that enable investors to understand: 1) how and why an entity uses derivatives; 2) how they are accounted for; and 3) how they affect an entity's results of operations and financial position.
 
Foreign Currency Exchange Contracts – The Fund may enter into foreign currency exchange contracts as a way of managing foreign exchange rate risk. The Fund may enter into these contracts to fix the U.S. dollar value of a security that it has agreed to buy or sell for the period between the date the trade was entered into and the date the security is delivered and paid for. The Fund may also use these contracts to hedge the U.S. dollar value of securities it already owns that are denominated in foreign currencies.The change in value is recorded as an unrealized gain or loss. When the contract is closed, a realized gain or loss is recorded equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
 
The use of foreign currency exchange contracts does not eliminate fluctuations in the underlying prices of the securities, but does establish a rate of exchange that can be achieved in the future. Although foreign currency exchange contracts limit the risk of loss due to an unfavorable change in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency change favorably. In addition, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts. The Fund's maximum risk of loss from counterparty credit risk is the value of its currency exchanged with the counterparty. The risk is generally mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund's exposure to the counterparty. No foreign currency exchange contracts were outstanding at August 31, 2011.
 
The volume of derivative transactions varies throughout the period. Information about derivative transactions reflected is as of the date of this report and generally similar to the volume of derivative activity during the period ended August 31, 2011.
 
5. Securities Lending
The Fund, along with other funds in the Delaware Investments® Family of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with BNY Mellon. At the time a security is loaned, the borrower must post collateral equal to the required percentage of the market value of the loaned security, including any accrued interest. The required percentage is: (i) 102% with respect to U.S. securities and foreign securities that are denominated and payable in U.S. dollars; and (ii) 105% with respect to foreign securities. With respect to each loan, if on any business day the aggregate market value of securities collateral plus cash collateral held 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 by the end of the following business day which, together with the collateral already held, will be not less than the applicable initial collateral requirements for such security loan. If the aggregate market value of securities collateral and cash collateral held with respect to a security loan exceeds the applicable initial collateral requirement, upon the request of the borrower BNY Mellon must return enough collateral to the borrower by the end of the following business day to reduce the value of the remaining collateral to the applicable initial collateral requirement for such security loan. As a result of the foregoing, the value of the collateral held with respect to a loaned security may be temporarily more or less than the value of the security on loan.
 
Cash collateral received is generally invested in the Delaware Investments Collateral Fund No. 1 (Collective Trust) established by BNY Mellon for the purpose of investment on behalf of funds managed by Delaware Management Company (DMC), a series of Delaware Management Business Trust, that participate in BNY Mellon’s securities lending program. The Collective Trust may invest in U.S. government securities and high quality corporate debt, asset-backed and other money market securities and in repurchase agreements collateralized by such securities, provided that the Collective Trust will generally have a dollar-weighted average portfolio maturity of 60 days or less. The Collective Trust seeks to maintain a net asset value per unit of $1.00, but there can be no assurance that it will always be able to do so. The Fund may incur investment losses as a result of investing securities lending collateral in the Collective Trust or another collateral investment pool. This could occur if an investment in a collateral investment pool defaulted or if it were necessary to liquidate assets in the collateral investment pool to meet returns on outstanding security loans at a time when the collateral investment pool’s net asset value per unit was less than $1.00. Under those circumstances, the Fund may not receive an amount from the collateral investment pool that is equal in amount to the collateral the Fund would be required to return to the borrower of the securities and the Fund would be required to make up this shortfall. Effective April 20, 2009, BNY Mellon transferred the assets of the Fund’s previous collateral investment pool other than cash and assets with a maturity of one business day or less to the BNY Mellon SL DBT II Liquidating Fund (Liquidating Fund), effectively bifurcating the previous collateral investment pool. The Fund’s exposure to the Liquidating Fund is expected to decrease as the Liquidating Fund’s assets mature or are sold. In October 2008, BNY Mellon transferred certain distressed securities from the previous collateral investment pool into the Mellon GSL Reinvestment Trust II. The Fund can also accept U.S. government securities and letters of credit (non-cash collateral) in connection with securities loans. 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 or interest, as applicable, 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. With respect to security loans collateralized by non-cash collateral, the Fund receives loan premiums paid by the borrower. With respect to security loans collateralized by cash collateral, the earnings from the collateral investments are shared among the Fund, the security lending agent and the borrower. The Fund records security lending income net of allocations to the security lending agent and the borrower.
 
At August 31, 2011 the value of securities on loan was $10,701,030, for which cash collateral was received and invested in accordance with the Lending Agreement. At August 31, 2011 the value of invested collateral was $10,974,912. These investments are presented on the schedule of investments under the caption "Securities Lending Collateral".
 
6. Credit and Market Risk
The Fund borrows through its line of credit for purposes of leveraging. Leveraging may result in higher degrees of volatility because the Fund’s net asset value could be subject to fluctuations in short-term interest rates and changes in market value of portfolio securities attributable to the leverage.
 
The Fund invests a portion of its assets in high yield fixed income securities, which carry ratings of BB or lower by Standard & Poor’s Rating and/or Ba or lower by Moody’s Investors Services. 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 invests in REITs and is subject to 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 real estate holdings during the period ended August 31, 2011. 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.
 
The Fund may invest up to 10% of its net 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 Fund’s Board 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 securities. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Fund’s 10% limit on investments in illiquid securities. Rule 144A and illiquid securities have been identified on the schedule of investments.
 
7. Subsequent Events
Management has determined that no material events or transactions occurred subsequent to August 31, 2011 that would require recognition or disclosure in the Fund’s schedule of investments.
 
 

Item 2. Controls and Procedures.
 
     The registrant’s principal executive officer and principal financial officer have evaluated the registrant’s disclosure controls and procedures within 90 days of the filing of this report and have concluded that they are effective in providing reasonable assurance that the information required to be disclosed by the registrant in its reports or statements filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
 
     There were no significant changes in the registrant’s internal control over financial reporting that occurred during the registrant’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
 
Item 3. Exhibits.
 
     File as exhibits as part of this Form a separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2(a)), exactly as set forth below: