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 | |
| Date of reporting period: | February 29, 2012 |
Item 1. Schedule of Investments.
Schedule of Investments (Unaudited)
February 29, 2012
| Number of | ||||
| Shares | Value | |||
| Common Stock – 65.91% | ||||
| Consumer Discretionary – 3.83% | ||||
| =∏†Avado Brands | 1,390 | $ | 0 | |
| Comcast Class A | 45,700 | 1,342,666 | ||
| †DIRECTV Class A | 1,550 | 71,796 | ||
| Lowe's | 57,000 | 1,617,660 | ||
| 3,032,122 | ||||
| Consumer Staples – 8.02% | ||||
| Archer-Daniels-Midland | 39,600 | 1,235,520 | ||
| CVS Caremark | 29,200 | 1,316,920 | ||
| Kimberly-Clark | 17,000 | 1,238,960 | ||
| Kraft Foods Class A | 32,300 | 1,229,661 | ||
| *Safeway | 61,700 | 1,323,464 | ||
| 6,344,525 | ||||
| Diversified REITs – 0.55% | ||||
| *Fifth Street Finance | 28,741 | 284,536 | ||
| Lexington Reality Trust | 12,500 | 108,125 | ||
| Nieuwe Steen Investments | 269 | 3,179 | ||
| Vornado Realty Trust | 465 | 38,004 | ||
| 433,844 | ||||
| Energy – 6.59% | ||||
| Chevron | 11,800 | 1,287,616 | ||
| ConocoPhillips | 15,700 | 1,201,835 | ||
| Marathon Oil | 38,600 | 1,308,154 | ||
| Williams | 39,500 | 1,180,260 | ||
| †WPX Energy | 13,166 | 239,095 | ||
| 5,216,960 | ||||
| Financials – 6.74% | ||||
| Allstate | 43,100 | 1,354,632 | ||
| Bank of New York Mellon | 53,700 | 1,187,307 | ||
| †Home Loan Servicing Solution | 26,900 | 364,764 | ||
| Marsh & McLennan | 38,800 | 1,210,560 | ||
| Travelers | 21,000 | 1,217,370 | ||
| 5,334,633 | ||||
| Healthcare – 9.64% | ||||
| †Alliance HealthCare Services | 7,323 | 9,959 | ||
| Baxter International | 20,700 | 1,203,291 | ||
| Cardinal Health | 27,000 | 1,121,850 | ||
| Johnson & Johnson | 19,400 | 1,262,552 | ||
| Merck | 36,900 | 1,408,472 | ||
| Pfizer | 61,189 | 1,291,088 | ||
| Quest Diagnostics | 22,900 | 1,329,345 | ||
| 7,626,557 | ||||
| Healthcare REITs – 2.09% | ||||
| Cogdell Spencer | 14,200 | 60,066 | ||
| HCP | 3,850 | 152,075 | ||
| Health Care REIT | 7,660 | 417,010 | ||
| LTC Properties | 2,800 | 86,408 | ||
| Omega Healthcare Investors | 8,000 | 162,960 | ||
| Ventas | 13,797 | 771,529 | ||
| 1,650,048 | ||||
| Hotel REITs – 0.79% | |||
| Ashford Hospitality Trust | 9,000 | 75,960 | |
| DiamondRock Hospitality | 12,300 | 122,508 | |
| LaSalle Hotel Properties | 3,100 | 82,708 | |
| Summit Hotel Properties | 37,600 | 346,296 | |
| 627,472 | |||
| Industrial REITs – 0.78% | |||
| †First Industrial Realty Trust | 26,400 | 312,048 | |
| ProLogis | 1,080 | 36,353 | |
| STAG Industrial | 21,700 | 266,693 | |
| 615,094 | |||
| Industrials – 4.67% | |||
| †Delta Air Lines | 24 | 235 | |
| †Flextronics International | 4,400 | 31,020 | |
| Northrop Grumman | 20,600 | 1,232,086 | |
| Raytheon | 26,000 | 1,313,520 | |
| Waste Management | 31,900 | 1,115,862 | |
| 3,692,723 | |||
| Information Technology – 6.44% | |||
| Cisco Systems | 64,900 | 1,290,212 | |
| Intel | 53,700 | 1,443,456 | |
| Motorola Solutions | 26,642 | 1,326,772 | |
| Xerox | 126,200 | 1,038,626 | |
| 5,099,066 | |||
| Mall REITs – 2.27% | |||
| General Growth Properties | 4,429 | 72,060 | |
| Macerich | 1,326 | 71,591 | |
| Pennsylvania Real Estate Investment Trust | 24,600 | 330,132 | |
| †Rouse Properties | 166 | 2,429 | |
| Simon Property Group | 9,747 | 1,320,523 | |
| 1,796,735 | |||
| Materials – 1.48% | |||
| duPont (E.I.) deNemours | 23,000 | 1,169,550 | |
| =∏†PT Holdings | 350 | 4 | |
| 1,169,554 | |||
| Mixed REITs – 1.04% | |||
| *Digital Realty Trust | 7,550 | 547,375 | |
| *DuPont Fabros Technology | 4,100 | 93,890 | |
| Liberty Property Trust | 2,300 | 78,016 | |
| PS Business Parks | 1,600 | 99,872 | |
| 819,153 | |||
| Mortgage REITs – 0.41% | |||
| Chimera Investment | 20,100 | 61,707 | |
| Starwood Property Trust | 13,500 | 266,490 | |
| 328,197 | |||
| Multifamily REITs – 1.22% | |||
| Apartment Investment & Management | 6,768 | 168,117 | |
| Associated Estates Realty | 6,100 | 91,012 | |
| BRE Properties | 4,200 | 203,406 | |
| Camden Property Trust | 2,950 | 182,900 | |
| Equity Residential | 5,600 | 318,584 | |
| 964,019 | |||
| Office REITs – 0.64% | |||
| Alstria Office REIT | 23,400 | 262,451 | |
| Boston Properties | 400 | 40,620 | |
| Brandywine Realty Trust | 9,700 | 104,857 | |
| Government Properties Income Trust | 4,100 | 95,653 | |
| 503,581 | |||
| Real Estate Management & Development – 0.00% | |||
| †Howard Hughes | 1 | 56 | |
| 56 | |||
| Self-Storage REITs – 0.83% | |||
| Extra Space Storage | 2,800 | 73,836 | |
| Public Storage | 4,350 | 583,205 | |
| 657,041 |
| Shopping Center REITs – 1.04% | ||||
| Equity One | 6,800 | 129,336 | ||
| Federal Realty Investment Trust | 300 | 28,605 | ||
| First Capital Realty | 11,881 | 214,971 | ||
| Kimco Realty | 17,230 | 316,687 | ||
| Ramco-Gershenson Properties Trust | 5,200 | 57,564 | ||
| *Weingarten Realty Investors | 3,000 | 74,700 | ||
| 821,863 | ||||
| Single Tenant REIT – 0.19% | ||||
| *National Retail Properties | 5,700 | 151,905 | ||
| 151,905 | ||||
| Specialty REITs – 1.48% | ||||
| *Entertainment Properties Trust | 2,420 | 110,110 | ||
| Plum Creek Timber | 5,785 | 226,541 | ||
| Potlatch | 4,125 | 127,133 | ||
| Rayonier | 2,500 | 111,300 | ||
| Solar Capital | 25,861 | 594,802 | ||
| 1,169,886 | ||||
| Telecommunications – 3.38% | ||||
| AT&T | 39,600 | 1,211,364 | ||
| =†Century Communications | 500,000 | 0 | ||
| France Telecom ADR | 5,100 | 78,132 | ||
| *Frontier Communications | 33,800 | 155,142 | ||
| †GeoEye | 550 | 11,149 | ||
| Verizon Communications | 32,000 | 1,219,520 | ||
| 2,675,307 | ||||
| Utilities – 1.79% | ||||
| American Water Works | 3,600 | 123,408 | ||
| =†Calpine Tracking | 345,000 | 0 | ||
| Edison International | 30,900 | 1,293,783 | ||
| †GenOn Energy | 535 | 1,316 | ||
| †Mirant (Escrow) | 180,000 | 0 | ||
| 1,418,507 | ||||
| Total Common Stock (cost $45,191,346) | 52,148,848 | |||
| Convertible Preferred Stock – 2.13% | ||||
| *Apache 6.00% exercise price $109.12, expiration date 8/1/13 | 1,700 | 103,173 | ||
| Aspen Insurance Holdings 5.625% exercise price $29.28, expiration date 12/31/49 | 6,522 | 347,704 | ||
| #Chesapeake Energy 144A 5.75% exercise price $27.94, expiration date 12/31/49 | 91 | 97,598 | ||
| El Paso Energy Capital Trust I 4.75% exercise price $41.59, expiration date 3/31/28 | 5,250 | 241,080 | ||
| HealthSouth 6.50% exercise price $30.50, expiration date 12/31/49 | 288 | 286,272 | ||
| Lucent Technologies Capital Trust I 7.75% exercise price $24.80, expiration date 3/15/17 | 305 | 247,355 | ||
| PPL 9.50% exercise price $28.80, expiration date 7/1/13 | 3,800 | 210,558 | ||
| SandRidge Energy 8.50% exercise price $8.01, expiration date 12/31/49 | 1,180 | 150,671 | ||
| Total Convertible Preferred Stock (cost $1,620,628) | 1,684,411 | |||
| Principal | ||||
| Amount | ||||
| Convertible Bonds – 10.14% | ||||
| Capital Goods – 1.18% | ||||
| #AAR 144A 1.75% exercise price $29.04, expiration date 1/1/26 | $ | 260,000 | 268,775 | |
| L-3 Communications Holdings 3.00% exercise price $96.48, expiration date 8/1/35 | 301,000 | 296,861 | ||
| #Owens-Brockway Glass Container 144A 3.00% exercise price $47.47, expiration date 5/28/15 | 375,000 | 372,188 | ||
| 937,824 | ||||
| Communications – 1.25% | ||||
| #Alaska Communications Systems Group 144A 6.25% exercise price $10.28, expiration date 4/27/18 | 189,000 | 139,388 | ||
| #Clearwire Communications 144A 8.25% exercise price $7.08, expiration date 11/30/40 | 131,000 | 96,613 | ||
| *Leap Wireless International 4.50% exercise price $93.21, expiration date 7/15/14 | 282,000 | 269,310 | ||
| Rovi 2.625% exercise price $47.36, expiration date 2/10/40 | 133,000 | 145,136 | ||
| SBA Communications 4.00% exercise price $30.38, expiration date 10/1/14 | 208,000 | 342,939 | ||
| 993,386 | ||||
| Consumer Cyclical – 0.88% | |||
| ϕArvinMeritor 4.00% exercise price $26.73, expiration date 2/15/27 | 295,000 | 236,369 | |
| MGM Resorts International 4.25% exercise price $18.58, expiration date 4/10/15 | 160,000 | 172,000 | |
| Pantry 3.00% exercise price $50.09, expiration date 11/15/12 | 290,000 | 289,275 | |
| 697,644 | |||
| Consumer Non-Cyclical – 1.44% | |||
| *Alere 3.00% exercise price $43.98, expiration date 5/15/16 | 228,000 | 226,005 | |
| Dendreon 2.875% exercise price $51.24, expiration date 1/13/16 | 67,000 | 56,196 | |
| #Illumina 144A 0.25% exercise price $83.55, expiration date 3/11/16 | 63,000 | 60,086 | |
| LifePoint Hospitals 3.50% exercise price $51.79, expiration date 5/14/14 | 300,000 | 316,875 | |
| Medtronic 1.625% exercise price $54.00, expiration date 4/15/13 | 159,000 | 160,789 | |
| Mylan 3.75% exercise price $13.32, expiration date 9/10/15 | 91,000 | 171,649 | |
| NuVasive | |||
| 2.25% exercise price $44.74, expiration date 3/15/13 | 33,000 | 32,505 | |
| 2.75% exercise price $42.13, expiration date 6/30/17 | 130,000 | 112,613 | |
| 1,136,718 | |||
| Energy – 0.35% | |||
| James River Coal 4.50% exercise price $25.78, expiration date 12/1/15 | 89,000 | 53,845 | |
| Transocean 1.50% exercise price $158.97, expiration date 12/15/37 | 224,000 | 223,720 | |
| 277,565 | |||
| Financials – 1.34% | |||
| #Ares Capital 144A 5.75% exercise price $19.13, expiration date 2/1/16 | 189,000 | 201,285 | |
| #BGC Partners 144A 4.50% exercise price $9.84, expiration date 7/13/16 | 122,000 | 118,798 | |
| Euronet Worldwide 3.50% exercise price $40.48, expiration date 10/15/25 | 334,000 | 333,999 | |
| MGIC Investment 5.00% exercise price $13.44, expiration date 4/27/17 | 96,000 | 72,720 | |
| PHH | |||
| 4.00% exercise price $20.50, expiration date 4/15/12 | 160,000 | 160,800 | |
| 4.00% exercise price $25.80, expiration date 9/1/14 | 182,000 | 170,398 | |
| 1,058,000 | |||
| Healthcare – 0.45% | |||
| ϕ*Hologic 2.00% exercise price $38.59, expiration date 12/15/37 | 358,000 | 357,105 | |
| 357,105 | |||
| Industrials – 0.19% | |||
| ϕGeneral Cable 4.50% exercise price $36.75, expiration date 11/15/29 | 134,000 | 147,400 | |
| 147,400 | |||
| Real Estate – 0.22% | |||
| #Lexington Realty Trust 144A 6.00% exercise price $7.01, expiration date 1/11/30 | 129,000 | 172,860 | |
| 172,860 | |||
| Services – 0.56% | |||
| Live Nation Entertainment 2.875% exercise price $27.14, expiration date 7/14/27 | 466,000 | 440,953 | |
| 440,953 | |||
| Technology – 2.28% | |||
| Advanced Micro Devices | |||
| 5.75% exercise price $20.13, expiration date 8/15/12 | 82,000 | 83,948 | |
| 6.00% exercise price $28.08, expiration date 4/30/15 | 217,000 | 226,222 | |
| #144A 6.00% exercise price $28.08, expiration date 4/30/15 | 83,000 | 86,528 | |
| Alcatel-Lucent USA 2.875% exercise price $15.35, expiration date 6/15/25 | 82,000 | 79,028 | |
| #Ciena 144A 3.75% exercise price $20.17, expiration date 10/15/18 | 137,000 | 148,474 | |
| Equinix 4.75% exercise price $84.32, expiration date 6/15/16 | 88,000 | 160,380 | |
| Intel 3.25% exercise price $22.45, expiration date 8/1/39 | 124,000 | 170,345 | |
| Linear Technology 3.00% exercise price $43.39, expiration date 5/1/27 | 312,000 | 334,619 | |
| SanDisk 1.50% exercise price $52.37, expiration date 8/11/17 | 186,000 | 223,665 | |
| VeriSign 3.25% exercise price $34.37, expiration date 8/15/37 | 235,000 | 293,749 | |
| 1,806,958 | |||
| Total Convertible Bonds (cost $7,599,579) | 8,026,413 | ||
| Corporate Bonds – 41.67% | |||
| Automobiles – 1.72% | |||
| American Axle & Manufacturing | |||
| *7.75%11/15/19 | 120,000 | 128,550 | |
| 7.875% 3/1/17 | 40,000 | 41,600 |
| ArvinMeritor | |||
| 8.125% 9/15/15 | 147,000 | 151,410 | |
| 10.625% 3/15/18 | 60,000 | 63,300 | |
| Chrysler Group 8.25% 6/15/21 | 430,000 | 436,450 | |
| Ford Motor Credit 12.00% 5/15/15 | 147,000 | 185,947 | |
| Goodyear Tire & Rubber 7.00% 5/15/22 | 30,000 | 30,525 | |
| #International Automotive Components Group 144A 9.125% 6/1/18 | 165,000 | 147,675 | |
| *#Jaguar Land Rover 144A 8.125% 5/15/21 | 170,000 | 176,375 | |
| 1,361,832 | |||
| Banking – 1.46% | |||
| BAC Capital Trust VI 5.625% 3/8/35 | 290,000 | 267,438 | |
| •Fifth Third Capital Trust IV 6.50% 4/15/37 | 245,000 | 244,388 | |
| •#HBOS Capital Funding 144A 6.071% 6/29/49 | 375,000 | 270,000 | |
| •Regions Financing Trust II 6.625% 5/15/47 | 405,000 | 372,599 | |
| 1,154,425 | |||
| Basic Industry – 5.80% | |||
| *AK Steel 7.625% 5/15/20 | 169,000 | 170,901 | |
| #Algoma Acquisition 144A 9.875% 6/15/15 | 196,000 | 178,850 | |
| #APERAM 144A 7.75% 4/1/18 | 150,000 | 143,250 | |
| #Cemex Espana Luxembourg 144A 9.25% 5/12/20 | 186,000 | 171,120 | |
| #FMG Resources August 2006 144A | |||
| 6.875% 2/1/18 | 82,000 | 86,920 | |
| 7.00% 11/1/15 | 119,000 | 126,438 | |
| Headwaters 7.625% 4/1/19 | 170,000 | 164,050 | |
| Hexion US Finance 9.00% 11/15/20 | 100,000 | 98,500 | |
| Immucor 11.125% 8/15/19 | 155,000 | 171,663 | |
| *#Ineos Group Holdings 144A 8.50% 2/15/16 | 540,000 | 495,449 | |
| Interface 7.625% 12/1/18 | 116,000 | 127,455 | |
| #International Wire Group Holdings 144A 9.75% 4/15/15 | 129,000 | 135,211 | |
| #JMC Steel Group 144A 8.25% 3/15/18 | 170,000 | 178,288 | |
| #Kinove German Bondco 144A 9.625% 6/15/18 | 200,000 | 205,500 | |
| #Longview Fibre Paper & Packaging 144A 8.00% 6/1/16 | 170,000 | 175,525 | |
| #LyondellBasell Industries 144A 6.00% 11/15/21 | 90,000 | 99,225 | |
| #MacDermid 144A 9.50% 4/15/17 | 204,000 | 214,709 | |
| #Masonite International 144A 8.25% 4/15/21 | 165,000 | 177,788 | |
| *#Millar Western Forest Products 144A 8.50% 4/1/21 | 125,000 | 94,688 | |
| Momentive Performance Materials 9.00% 1/15/21 | 330,000 | 306,074 | |
| #Murray Energy 144A 10.25% 10/15/15 | 148,000 | 151,700 | |
| Norcraft 10.50% 12/15/15 | 186,000 | 165,075 | |
| Nortek 8.50% 4/15/21 | 180,000 | 175,050 | |
| Ply Gem Industries 13.125% 7/15/14 | 152,000 | 151,240 | |
| =@Port Townsend 12.431% 8/27/12 | 109,512 | 49,828 | |
| Ryerson | |||
| •7.922% 11/1/14 | 92,000 | 86,940 | |
| 12.00% 11/1/15 | 116,000 | 120,060 | |
| #Taminco Global Chemical 144A 9.75% 3/31/20 | 160,000 | 168,000 | |
| 4,589,497 | |||
| Capital Goods – 2.51% | |||
| Berry Plastics | |||
| 9.75% 1/15/21 | 219,000 | 235,425 | |
| 10.25% 3/1/16 | 110,000 | 114,400 | |
| #DAE Aviation Holdings 144A 11.25% 8/1/15 | 164,000 | 171,380 | |
| Kratos Defense & Security Solutions 10.00% 6/1/17 | 155,000 | 167,788 | |
| *Manitowoc 9.50% 2/15/18 | 143,000 | 160,875 | |
| Mueller Water Products 7.375% 6/1/17 | 169,000 | 167,310 | |
| Pregis 12.375% 10/15/13 | 173,000 | 169,108 | |
| #Reynolds Group Issuer 144A | |||
| 9.00% 4/15/19 | 284,000 | 285,419 | |
| 9.875% 8/15/19 | 270,000 | 279,450 | |
| #Sealed Air 144A | |||
| 8.125% 9/15/19 | 40,000 | 45,400 | |
| 8.375% 9/15/21 | 55,000 | 63,250 | |
| TriMas 9.75% 12/15/17 | 111,000 | 123,488 | |
| 1,983,293 |
| Consumer Cyclical – 2.51% | |||
| Brown Shoe 7.125% 5/15/19 | 135,000 | 132,975 | |
| Burlington Coat Factory Warehouse 10.00% 2/15/19 | 265,000 | 273,280 | |
| CKE Restaurants 11.375% 7/15/18 | 143,000 | 163,735 | |
| Dave & Buster's 11.00% 6/1/18 | 177,000 | 189,390 | |
| DineEquity 9.50% 10/30/18 | 229,000 | 253,618 | |
| Express 8.75% 3/1/18 | 92,000 | 102,350 | |
| Michaels Stores | |||
| 11.375% 11/1/16 | 55,000 | 58,570 | |
| 13.00% 11/1/16 | 105,000 | 111,952 | |
| *OSI Restaurant Partners 10.00% 6/15/15 | 165,000 | 171,806 | |
| Quiksilver 6.875% 4/15/15 | 185,000 | 186,388 | |
| #Rite Aid 144A 9.25% 3/15/20 | 170,000 | 172,550 | |
| Tops Holding 10.125% 10/15/15 | 156,000 | 169,065 | |
| 1,985,679 | |||
| Consumer Non-Cyclical – 1.53% | |||
| #Armored Autogroup 144A 9.25% 11/1/18 | 64,000 | 54,080 | |
| *Dean Foods 7.00% 6/1/16 | 124,000 | 128,030 | |
| Del Monte 7.625% 2/15/19 | 169,000 | 170,268 | |
| #JBS USA 144A 8.25% 2/1/20 | 165,000 | 170,775 | |
| NBTY 9.00% 10/1/18 | 207,000 | 228,217 | |
| Pinnacle Foods Finance 10.625% 4/1/17 | 202,000 | 214,499 | |
| Visant 10.00% 10/1/17 | 92,000 | 85,100 | |
| #Viskase 144A 9.875% 1/15/18 | 152,000 | 160,360 | |
| 1,211,329 | |||
| Energy – 5.15% | |||
| American Petroleum Tankers Parent 10.25% 5/1/15 | 134,000 | 140,700 | |
| Antero Resources Finance 9.375% 12/1/17 | 151,000 | 166,855 | |
| Calumet Specialty Products Partners 9.375% 5/1/19 | 260,000 | 272,350 | |
| Chaparral Energy 8.25% 9/1/21 | 250,000 | 278,749 | |
| Chesapeake Energy | |||
| 6.625% 8/15/20 | 144,000 | 151,200 | |
| 6.875% 11/15/20 | 19,000 | 20,045 | |
| Comstock Resources 7.75% 4/1/19 | 230,000 | 213,900 | |
| Copano Energy | |||
| 7.125% 4/1/21 | 55,000 | 58,575 | |
| 7.75% 6/1/18 | 96,000 | 102,240 | |
| Crosstex Energy 8.875% 2/15/18 | 119,000 | 129,710 | |
| #Helix Energy Solutions Group 144A 9.50% 1/15/16 | 76,000 | 79,895 | |
| #Hercules Offshore 144A 10.50% 10/15/17 | 143,000 | 148,363 | |
| #Hilcorp Energy I 144A 8.00% 2/15/20 | 152,000 | 167,960 | |
| Holly 9.875% 6/15/17 | 112,000 | 125,720 | |
| #Holly Energy Partners 144A 6.50% 3/1/20 | 50,000 | 51,188 | |
| #Kodiak Oil & Gas 144A 8.125% 12/1/19 | 155,000 | 166,044 | |
| Laredo Petroleum 9.50% 2/15/19 | 178,000 | 197,135 | |
| Linn Energy | |||
| #144A 6.50% 5/15/19 | 20,000 | 20,500 | |
| 8.625% 4/15/20 | 147,000 | 163,905 | |
| #NFR Energy 144A 9.75% 2/15/17 | 294,000 | 235,200 | |
| Oasis Petroleum 7.25% 2/1/19 | 130,000 | 138,450 | |
| Offshore Group Investments 11.50% 8/1/15 | 136,000 | 152,320 | |
| Petroleum Development 12.00% 2/15/18 | 152,000 | 166,440 | |
| Pioneer Drilling | |||
| 9.875% 3/15/18 | 154,000 | 165,550 | |
| #144A 9.875% 3/15/18 | 50,000 | 53,750 | |
| *Quicksilver Resources 9.125% 8/15/19 | 150,000 | 151,875 | |
| #Samson Investment 144A 9.75% 2/15/20 | 165,000 | 173,869 | |
| SandRidge Energy | |||
| 7.50% 3/15/21 | 150,000 | 152,250 | |
| 8.75% 1/15/20 | 29,000 | 31,030 | |
| 4,075,768 |
| Finance & Investments – 1.04% | |||
| E Trade Financial PIK 12.50% 11/30/17 | 147,000 | 171,990 | |
| •#ILFC E-Capital Trust I 144A 4.34% 12/21/65 | 100,000 | 69,686 | |
| •#ILFC E-Capital Trust II 144A 6.25% 12/21/65 | 325,000 | 237,250 | |
| Nuveen Investments | |||
| 10.50% 11/15/15 | 260,000 | 273,000 | |
| #144A 10.50% 11/15/15 | 72,000 | 75,240 | |
| 827,166 | |||
| Healthcare – 2.09% | |||
| Accellent 10.00% 11/1/17 | 92,000 | 77,740 | |
| Alere 9.00% 5/15/16 | 145,000 | 153,700 | |
| #AMGH Merger Sub 144A 9.25% 11/1/18 | 160,000 | 173,799 | |
| Community Health Systems | |||
| #144A 8.00% 11/15/19 | 80,000 | 85,200 | |
| 8.875% 7/15/15 | 94,000 | 98,700 | |
| HealthSouth 7.75% 9/15/22 | 35,000 | 38,238 | |
| #inVentiv Health 144A 10.00% 8/15/18 | 139,000 | 126,490 | |
| #Kinetic Concepts 144A | |||
| 10.50% 11/1/18 | 50,000 | 52,500 | |
| 12.50% 11/1/19 | 120,000 | 117,000 | |
| LVB Acquisition 11.625% 10/15/17 | 158,000 | 173,208 | |
| #Multiplan 144A 9.875% 9/1/18 | 178,000 | 194,353 | |
| #PSS World Medical 144A 6.375% 3/1/22 | 65,000 | 67,925 | |
| Radnet Management 10.375% 4/1/18 | 138,000 | 132,653 | |
| #STHI Holding 144A 8.00% 3/15/18 | 150,000 | 160,500 | |
| 1,652,006 | |||
| Insurance – 1.47% | |||
| •American International Group 8.175% 5/15/58 | 275,000 | 292,531 | |
| •ING Groep 5.775% 12/29/49 | 445,000 | 384,925 | |
| •#Liberty Mutual Group 144A 7.00% 3/15/37 | 265,000 | 234,525 | |
| •XL Group 6.50% 12/31/49 | 290,000 | 248,675 | |
| 1,160,656 | |||
| Media – 3.85% | |||
| Affinion Group 7.875% 12/15/18 | 202,000 | 181,800 | |
| #AMC Networks 144A 7.75% 7/15/21 | 170,000 | 190,400 | |
| #AMO Escrow 144A 11.50% 12/15/17 | 63,000 | 57,645 | |
| Cablevision Systems 8.00% 4/15/20 | 151,000 | 170,253 | |
| CCO Holdings | |||
| 7.00% 1/15/19 | 14,000 | 15,190 | |
| 8.125% 4/30/20 | 205,000 | 230,625 | |
| Clear Channel Communications 9.00% 3/1/21 | 369,000 | 341,324 | |
| #Clear Channel Worldwide Holdings 144A 7.625% 3/15/20 | 140,000 | 140,000 | |
| DISH DBS | |||
| 6.75% 6/1/21 | 40,000 | 44,600 | |
| 7.875% 9/1/19 | 110,000 | 129,800 | |
| Entravision Communications 8.75% 8/1/17 | 95,000 | 100,938 | |
| MDC Partners | |||
| 11.00% 11/1/16 | 146,000 | 159,870 | |
| #144A 11.00% 11/1/16 | 70,000 | 75,950 | |
| #Nara Cable Funding 144A 8.875% 12/1/18 | 200,000 | 196,000 | |
| Nexstar Broadcasting 8.875% 4/15/17 | 139,000 | 149,425 | |
| #Ono Finance II 144A 10.875% 7/15/19 | 234,000 | 212,355 | |
| #Univision Communications 144A 8.50% 5/15/21 | 255,000 | 254,363 | |
| #UPC Holding 144A 9.875% 4/15/18 | 189,000 | 210,735 | |
| #Videotron 144A 5.00% 7/15/22 | 80,000 | 80,000 | |
| Virgin Media Finance 8.375% 10/15/19 | 92,000 | 104,880 | |
| 3,046,153 | |||
| Services – 4.68% | |||
| Beazer Homes USA | |||
| 9.125% 6/15/18 | |||
| 9.125% 5/15/19 | 244,000 | 209,690 |
| #Caesars Operating Escrow 144A 8.50% 2/15/20 | 70,000 | 71,575 | |
| Cardtronics 8.25% 9/1/18 | 72,000 | 79,740 | |
| Casella Waste Systems | |||
| 7.75% 2/15/19 | 173,000 | 173,000 | |
| 11.00% 7/15/14 | 83,000 | 90,366 | |
| #Chester Downs & Marina 144A 9.25% 2/1/20 | 85,000 | 89,250 | |
| *#Delta Air Lines 144A 12.25% 3/15/15 | 129,000 | 139,643 | |
| #Equinox Holdings 144A 9.50% 2/1/16 | 143,000 | 153,010 | |
| *Harrah's Operating 10.00% 12/15/18 | 140,000 | 108,850 | |
| Kansas City Southern de Mexico | |||
| 6.125% 6/15/21 | 140,000 | 152,600 | |
| 8.00% 2/1/18 | 32,000 | 35,760 | |
| M/I Homes 8.625% 11/15/18 | 246,000 | 238,620 | |
| *Marina District Finance 9.875% 8/15/18 | 52,000 | 49,660 | |
| MGM Resorts International 11.375% 3/1/18 | 363,000 | 430,154 | |
| #NCL 144A 9.50% 11/15/18 | 30,000 | 31,706 | |
| Peninsula Gaming 10.75% 8/15/17 | 165,000 | 182,119 | |
| PHH 9.25% 3/1/16 | 145,000 | 146,450 | |
| *Pinnacle Entertainment 8.75% 5/15/20 | 155,000 | 164,688 | |
| RSC Equipment Rental | |||
| 8.25% 2/1/21 | 147,000 | 156,555 | |
| 10.25% 11/15/19 | 13,000 | 14,625 | |
| #ServiceMaster 144A 8.00% 2/15/20 | 45,000 | 47,700 | |
| #Seven Seas Cruises 144A 9.125% 5/15/19 | 235,000 | 243,225 | |
| Standard Pacific 10.75% 9/15/16 | 69,000 | 79,609 | |
| *Swift Services Holdings 10.00% 11/15/18 | 60,000 | 65,925 | |
| *#Swift Transportation 144A 12.50% 5/15/17 | 66,000 | 70,895 | |
| #United Air Lines 144A 12.00% 11/1/13 | 203,000 | 216,195 | |
| #UR Financing Escrow 144A | |||
| 5.75% 7/15/18 | 30,000 | 30,900 | |
| 7.625% 4/15/22 | 50,000 | 51,875 | |
| West 7.875% 1/15/19 | 165,000 | 179,231 | |
| 3,703,616 | |||
| Technology – 2.59% | |||
| Advanced Micro Devices 7.75% 8/1/20 | 245,000 | 272,868 | |
| Aspect Software 10.625% 5/15/17 | 143,000 | 154,798 | |
| Avaya | |||
| 9.75% 11/1/15 | 25,000 | 25,125 | |
| PIK 10.125% 11/1/15 | 210,000 | 211,575 | |
| CDW 12.535% 10/12/17 | 240,000 | 262,800 | |
| First Data 11.25% 3/31/16 | 501,000 | 477,202 | |
| GXS Worldwide 9.75% 6/15/15 | 173,000 | 173,433 | |
| iGate 9.00% 5/1/16 | 160,000 | 174,800 | |
| *MagnaChip Semiconductor 10.50% 4/15/18 | 101,000 | 111,984 | |
| Seagate HDD Cayman 7.75% 12/15/18 | 164,000 | 185,320 | |
| 2,049,905 | |||
| Telecommunications – 4.37% | |||
| #Clearwire Communications 144A 12.00% 12/1/15 | 297,000 | 290,318 | |
| #Columbus International 144A 11.50% 11/20/14 | 130,000 | 141,700 | |
| Cricket Communications 7.75% 10/15/20 | 172,000 | 171,785 | |
| #Digicel Group 144A | |||
| 9.125% 1/15/15 | 100,000 | 102,500 | |
| 10.50% 4/15/18 | 221,000 | 243,099 | |
| Hughes Satellite Systems 7.625% 6/15/21 | 135,000 | 147,150 | |
| #Integra Telecom Holdings 144A 10.75% 4/15/16 | 125,000 | 109,063 | |
| Intelsat Bermuda | |||
| 11.25% 2/4/17 | 401,000 | 414,533 | |
| PIK 11.50% 2/4/17 | 176,092 | 181,815 | |
| Level 3 Communications 11.875% 2/1/19 | 95,000 | 108,538 | |
| Level 3 Financing 10.00% 2/1/18 | 162,000 | 179,415 | |
| MetroPCS Wireless 6.625% 11/15/20 | 85,000 | 87,763 | |
| NII Capital 7.625% 4/1/21 | 85,000 | 87,338 |
| PAETEC Holding 9.875% 12/1/18 | 106,000 | 119,250 | ||
| Qwest 8.375% 5/1/16 | 4,000 | 4,704 | ||
| Qwest Communications International 7.50% 2/15/14 | 58,000 | 58,348 | ||
| Satmex Escrow 9.50% 5/15/17 | 85,000 | 88,825 | ||
| Sprint Capital 8.75% 3/15/32 | 99,000 | 88,605 | ||
| Sprint Nextel | ||||
| 8.375% 8/15/17 | 145,000 | 142,825 | ||
| #144A 9.125% 3/1/17 | 195,000 | 196,463 | ||
| Telesat Canada 12.50% 11/1/17 | 131,000 | 146,720 | ||
| #Wind Acquisition Finance 144A 11.75% 7/15/17 | 335,000 | 345,049 | ||
| 3,455,806 | ||||
| Utilities – 0.90% | ||||
| AES 8.00% 6/1/20 | 50,000 | 58,875 | ||
| #Calpine 144A | ||||
| 7.50% 2/15/21 | 100,000 | 109,000 | ||
| 7.875% 1/15/23 | 65,000 | 71,175 | ||
| Elwood Energy 8.159% 7/5/26 | 121,563 | 120,803 | ||
| *GenOn Americas Generation 8.50% 10/1/21 | 185,000 | 169,275 | ||
| GenOn Energy 9.875% 10/15/20 | 75,000 | 70,688 | ||
| •Puget Sound Energy 6.974% 6/1/67 | 110,000 | 110,159 | ||
| 709,975 | ||||
| Total Corporate Bonds (cost $31,710,135) | 32,967,106 | |||
| «Senior Secured Loans – 0.69% | ||||
| Brock Holdings III 10.00% 2/15/18 | 55,000 | 53,167 | ||
| Dynegy Power Tranche 1st Lien 9.25% 7/11/16 | 79,800 | 82,613 | ||
| PQ 6.74% 7/30/15 | 170,000 | 160,183 | ||
| @SandRidge Energy 5.00% 2/2/17 | 75,000 | 75,000 | ||
| Texas Competitive Electric Holdings 3.76% 10/10/14 | 280,000 | 171,558 | ||
| Total Senior Secured Loans (cost $581,439) | 542,521 | |||
| Number of | ||||
| Shares | ||||
| Limited Partnership – 0.24% | ||||
| Brookfield Infrastructure Partners | 6,400 | 190,144 | ||
| Total Limited Partnership (cost $121,629) | 190,144 | |||
| Preferred Stock – 1.25% | ||||
| #Ally Financial 144A 7.00% | 200 | 173,550 | ||
| *@Cogdell Spencer 8.50% | 25,000 | 631,250 | ||
| •GMAC Capital Trust I 8.125% | 8,000 | 187,840 | ||
| =†PT Holdings | 70 | 0 | ||
| Total Preferred Stock (cost $1,010,666) | 992,640 | |||
| Right – 0.00% | ||||
| *†Rouse Properties | 166 | 0 | ||
| Total Right (cost $0) | 0 | |||
| Warrants – 0.00% | ||||
| =Nieuwe Steen Investments | 300 | 0 | ||
| =@∏PT Holdings | 70 | 1 | ||
| Total Warrants (cost $1,680) | 1 | |||
| Principal | ||||
| Amount | ||||
| Short-Term Investments – 3.45% | ||||
| Repurchase Agreements – 2.90% | ||||
| Bank of America 0.14%, dated 2/29/12, to be | ||||
| repurchased on 3/1/12, repurchase price $362,396 | ||||
| (collateralized by U.S. government obligations 2.375%-4.50% | ||||
| 2/28/15-8/15/39; market value $369,642) | $ | 362,395 | 362,395 | |
| BNP Paribas 0.14%, dated 2/29/12, to be | ||||
| repurchased on 3/1/12, repurchase price $1,932,613 | ||||
| (collateralized by U.S. government obligations 0.75%-4.00% | ||||
| 3/31/13-2/15/22; market value $1,971,258) | 1,932,605 | 1,932,605 | ||
| 2,295,000 | ||||
| ≠U.S. Treasury Obligation – 0.55% | |||||
| U.S. Treasury Bill 0.016% 3/1/12 | 431,348 | 431,348 | |||
| Total Short-Term Investments (cost $2,726,348) | 2,726,348 | ||||
| Total Value of Securities Before Securities Lending Collateral – 125.48% | |||||
| (cost $90,563,450) | 99,278,432 | ||||
| Number of | |||||
| Shares | |||||
| **Securities Lending Collateral – 6.82% | |||||
| Investment Companies | |||||
| BNY Mellon SL DBT II Liquidating Fund | 83,504 | 81,132 | |||
| Delaware Investments Collateral Fund No. 1 | 5,314,592 | 5,314,592 | |||
| @†Mellon GSL Reinvestment Trust II | 154,977 | 0 | |||
| Total Securities Lending Collateral (cost $5,553,073) | 5,395,724 | ||||
| Total Value of Securities – 132.30% | |||||
| (cost $96,116,523) | 104,674,156 | © | |||
| **Obligation to Return Securities Lending Collateral – (7.02%) | (5,553,073 | ) | |||
| Borrowing Under Line of Credit – (25.56%) | (20,225,000 | ) | |||
| Receivables and Other Assets Net of Other Liabilities – 0.28% | 224,424 | « | |||
| Net Assets Applicable to 9,439,043 Shares Outstanding – 100.00% | $ | 79,120,507 | |||
=Security is being fair valued in
accordance with the Fund’s fair valuation policy. At February 29, 2012, the
aggregate value of fair valued securities was $49,833, which represented 0.06%
of the Fund’s net assets. See Note 1 in "Notes."
∏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 February 29, 2012, the aggregate
value of the restricted securities was $5 or 0.00% of the Fund's net assets. See
Note 6 in "Notes."
†Non income producing security.
*Fully or partially on loan.
#Security
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended. At February 29, 2012, the aggregate value of Rule 144A securities was
$13,598,544, which represented 17.19% 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 February 29, 2012.
•Variable rate security. The
rate shown is the rate as of February 29, 2012. Interest rates reset
periodically.
@Illiquid security. At February
29, 2012, the aggregate value of illiquid securities was $756,079, which
represented 0.96% 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 February 29, 2012.
≠The rate shown is the effective yield at the time of
purchase.
**See Note 5 in "Notes" for
additional information on securities lending collateral.
©Includes $5,400,017
of securities loaned.
«Includes foreign currency valued at $10,443 with a cost
of $10,427.
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, which approximates fair value. Securities listed on a foreign exchange are normally 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, which approximates fair value. 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. Valuations for fixed income securities utilize matrix systems, which reflect such factors as security prices, yields, maturities, and ratings, and are supplemented by dealer and exchange quotations. Investment company securities are valued at net asset value per share. Foreign currency exchange contracts are valued at the mean between the bid and ask prices, which approximates fair value. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available. 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, 2008 – November 30, 2011), 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 as of the date of this report were entered into on February 29, 2012.
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.
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 is due to changes in foreign exchange rates from that which is due to changes in market prices of debt securities. For foreign equity securities, these changes are included in net realized and unrealized gain or loss 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 fair value of investments, 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 February 29, 2012, the cost of investments for federal
income tax purposes has been estimated since final tax characteristics cannot be
determined until fiscal year end. At February 29, 2012, the cost of investments
and unrealized appreciation (depreciation) for the Fund was as follows:
| Cost of investments | $ | 96,450,565 | |
| Aggregate unrealized appreciation | $ | 12,626,345 | |
| Aggregate unrealized depreciation | (4,402,754 | ) | |
| Net unrealized appreciation | $ | 8,223,591 |
For federal income tax purposes, at November 30, 2011, capital loss carryforwards of $20,645,167 may be carried forward and applied against future capital gains. Capital loss carryforwards will expire as follows: $9,429,531 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)
Level 3 investments are valued using significant unobservable inputs, including related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Valuations may also be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry. The derived value of a Level 3 investment may not represent the value which is received upon disposition and this could impact the results of operations.
The following table summarizes the valuation of the Fund’s investments by fair value hierarchy levels as of February 29, 2012:
| Level 1 | Level 2 | Level 3 | Total | |||||||||
| Common Stock | $ | 52,148,844 | $ | - | $ | 4 | $ | 52,148,848 | ||||
| Corporate Debt | 344,253 | 42,751,370 | 124,828 | 43,220,451 | ||||||||
| Short-Term Investments | - | 2,726,348 | - | 2,726,348 | ||||||||
| Other | 1,009,234 | 173,550 | 1 | 1,182,785 | ||||||||
| Securities Lending Collateral | - | 5,395,724 | - | 5,395,724 | ||||||||
| Total | $ | 53,502,331 | $ | 51,046,992 | $ | 124,833 | $ | 104,674,156 | ||||
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 11/30/11 | $ | 4 | $ | 48,758 | $ | 1 | $ | 48,763 | ||||
| Purchases | - | 76,070 | - | 76,070 | ||||||||
| Balance as of 2/29/12 | $ | 4 | $ | 124,828 | $ | 1 | $ | 124,833 | ||||
| Net change in unrealized | ||||||||||||
| appreciation (depreciation) from | ||||||||||||
| investments still held as of 2/29/12 | $ | - | $ | - | $ | - | $ | - | ||||
During the period ended February 29, 2012, 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. International Fair Value pricing uses other observable market-based inputs in place of the closing exchange price due to the events occurring after the close of the exchange or market on which the investment is principally traded in accordance with the Fair Valuation Procedures described in Note 1, causing a change in classification between levels. The Fund’s policy is to recognize transfers between levels at the end of the reporting period.
3. Line of Credit
For the period ended February 29, 2012,
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 12, 2012. 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 February 29, 2012, the par value of loans outstanding was $20,225,000 at a variable interest rate of 1.35%. During the period February 29, 2012, the average daily balance of loans outstanding was $20,225,000 at a weighted average interest rate of approximately 1.48%. 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 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 February 29, 2012.
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 DMC 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. 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 changes 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.
The Collective Trust used for the investment of cash collateral received from borrowers of securities 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.
At February 29, 2012, the value of securities on loan was $5,400,017, for which cash collateral was received and invested in accordance with the Lending Agreement. At February 29, 2012, the value of invested collateral was $5,395,724. 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 are securities rated BB or lower by Standard & Poor’s Rating and Ba or lower by Moody’s Investors Services, or similarly rated by another nationally recognized statistical rating organization. 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 February 29, 2012. 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 February 29, 2012 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: