Investment Company Act file number: 811-08747 | |
SEEKING PRIMARILY HIGH CURRENT INCOME
AND SECONDARILY CAPITAL APPRECIATION
DIVIDEND
AND INCOME
FUND
DECEMBER 31, 2016
ANNUAL REPORT
WWW.DIVIDENDANDINCOMEFUND.COM
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PORTFOLIO ANALYSIS
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December 31, 2016
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TOP TEN |
December 31, 2016
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HOLDINGS
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1 Philip Morris International, Inc. | ||
2 Credit Acceptance Corporation | ||
3 Wal-Mart Stores, Inc. | ||
4 Verizon Communications Inc. | ||
5 Alaska Air Group, Inc. | ||
6 First American Financial Corporation | ||
7 Apple Inc. | ||
8 LyondellBasell Industries N.V. Class A | ||
9 Intel Corporation | ||
10 DST Systems, Inc.
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Top ten holdings comprise approximately 13% of total assets.
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TOP TEN |
December 31, 2016
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INDUSTRIES
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1 Investment Advice | ||
2 Air Transportation, Scheduled | ||
3 Semiconductors & Related Devices | ||
4 Motor Vehicle Parts & Accessories | ||
5 Variety Stores | ||
6 Cable & Other Pay Television Services | ||
7 Motor Vehicles & Passenger Car Bodies | ||
8 Personal Credit Institutions | ||
9 Biological Products | ||
10 Commercial Banks | ||
Top ten holdings and industries are shown for informational purposes only and are subject to change. The above portfolio information should not be considered as a recommendation to purchase or sell a particular security and is not indicative of future portfolio characteristics. There is no assurance that any securities will remain in or out of the Fund.
DIVIDEND AND INCOME FUND
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Annual Report 2016
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TO OUR SHAREHOLDERS
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December 31, 2016
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Dear Fellow Shareholders:
It gives us great pleasure to welcome each of our new shareholders to Dividend and Income Fund and to submit this 2016 Annual Report. The Fund seeks to achieve its primary investment objective of high current income and secondary objective of capital appreciation by investing, under normal circumstances, at least 50% of its total assets in income generating equity securities. These securities may include dividend paying common stocks, convertible securities, preferred stocks, securities of registered investment companies, exchange traded funds organized as investment companies or otherwise, real estate investment trusts, depositary receipts, and other equity related securities. Of course, there can be no assurance that the Fund will achieve its objectives.
Economic and Market Report
At the December 2016 meeting of the Federal Open Market Committee (FOMC) of the Federal Reserve Bank (the “Fed”), the Fed staff’s review of the economic situation suggested that real gross domestic product (GDP) was “expanding at a moderate pace over the second half of the year.” The staff viewed labor market conditions as having strengthened in recent months, citing, among other things, an unemployment rate declining to 4.6% in November. Regarding inflation, the staff noted that “consumer price inflation increased further above its pace early in the year but was still running below the Committee’s longer-run objective of 2%, restrained in part by earlier declines in energy prices and in prices of non-energy imports.” In fact, over the 12 months through December 2016, the Consumer Price Index for All Urban Consumers was up 2.1% before seasonal adjustment and, on an unadjusted basis, the Producer Price Index for Final Demand climbed 1.6% for the 12 months ended December 2016, the largest rise since November 2014. Interestingly, it was also noted that starts for both new single-family homes and multifamily units rose substantially in October and consumer sentiment moved higher in November and early December.
In conjunction with the FOMC meeting, the Fed’s board members and bank presidents submitted their projections for future real GDP growth, unemployment, and similar measures. They projected real growth in GDP in a range of 1.7 - 2.4% for 2017, and 1.7 - 2.3% for 2018, and an unemployment rate in a range of 4.4 - 4.7% for 2017 and 4.2 - 4.7% for 2018.
Addressing the financial situation, the Fed staff noted that asset price movements appeared to be driven largely by expectations of more expansionary fiscal policy in the aftermath of U.S. elections. Over the year, nominal Treasury yields increased and broad U.S. equity price indexes rose, particularly after the U.S. elections. Financial stocks outperformed, while beneficiaries of lower interest rates, such as utilities, underperformed. The Fed staff also noted that “available reports suggested that earnings for firms in the S&P 500 index increased in the third quarter on a seasonally adjusted basis, and the improvement in earnings was broad based across sectors.”
In summary, the U.S. economy appears to be strengthening, and consumer sentiment improving, which suggests to us that investors might anticipate both strong markets and heightened market volatility from unanticipated disappointments, warranting caution over the course of 2017.
Investment Strategy and Returns
In view of these economic developments, the Fund’s strategy in 2016 was to emphasize profitable, conservatively valued companies across a broad array of industries. Generally, the Fund purchased and held income generating equity securities in seeking to achieve its primary investment objective of high current income and secondary objective of capital appreciation and sold investments that appeared to have appreciated to levels reflecting full or over-valuation. In 2016, the Fund’s net investment income, net realized gain on investments, and unrealized appreciation on investments were, respectively, $2,619,191, $14,574,874, and $4,954,149, which contributed significantly to the Fund’s net asset value return of 18.13%, including the reinvestment of dividends, as did dilution occurring under the Fund’s dividend reinvestment plan. Profitable sales in the period were made of, among others, shares of Chubb Ltd. in the insurance sector and Johnson & Johnson in the pharmaceutical preparations sector and losses were taken on, among others, The Mosaic Company in the agricultural chemicals sector and Seagate Technology Public Limited Company in the computer storage devices sector which, with other profits and losses realized, resulted in net realized gain on investments. Although no particular investment was responsible for the majority of the unrealized appreciation or depreciation on investments over the period, investments held in the retail sector, including The Buckle, Inc. and Kohl’s Corporation, were significant contributors to unrealized depreciation during the period. At the same time, the Fund benefited from unrealized appreciation from its holdings of Dick’s Sporting Goods, Inc. in the sporting goods stores sector and Cummins Inc. in the engines and turbines sector.
The Fund’s market return for 2016, also including the reinvestment of dividends, was 17.55%. Generally, the Fund’s total return on a market value basis will be lower than total return on a net asset value basis in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. For comparison, in the same period, the S&P 500 Index total return was 11.96% and the BofA Merrill Lynch US High Yield Master II Total Return Index returned 17.49%. These indexes are unmanaged and do not reflect fees and expenses, nor are they available for direct investment. At December 31, 2016, the Fund’s portfolio included over 100 securities of different issuers, with the top ten amounting to approximately 13% of total assets. At
1 Annual Report 2016 |
DIVIDEND AND INCOME FUND
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TO OUR SHAREHOLDERS
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December 31, 2016
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that time, the Fund’s investments totaled approximately $179 million, reflecting the use of about $28 million of leverage on net assets of about $151 million. As the Fund pursues its primary investment objective of seeking high current income, with capital appreciation as a secondary objective, these holdings and allocations are subject to change at any time.
Quarterly Dividends
On December 1, 2016, the Fund declared its fourth quarterly dividend for the year, amounting to $0.25 per share. The quarterly dividend distribution reflects the Fund’s current distribution policy to provide shareholders with a relatively stable cash flow per share.
The dividend amount is expected to be adjusted lower in 2017 to more closely reflect the net income generated by the Fund’s investments, the current market price and net asset value of the Fund’s shares, the total distribution amount relative to the Fund’s net assets, and related matters. There is no guarantee that the Fund’s current distribution policy will reduce or eliminate the Fund’s market price discount to its net asset value per share and the Fund’s trustees have no fiduciary duty to take action, or to consider taking any action, to narrow any such discount. The distribution policy may be changed or discontinued without notice.
As of December 1, 2016 and based on the Fund’s results and estimates for that quarter, the fourth quarter distribution would include approximately 22%, 0%, and 78% from net investment income, capital gains, and return of capital, respectively. If, for any distribution, the sum of previously undistributed net investment income and net realized capital gains is less than the amount of the distribution, the difference is treated as a return of capital (tax-free for a shareholder up to the amount of its tax basis in its shares of the Fund). The amount treated as a tax-free return of capital will reduce a shareholder’s adjusted basis in its shares, thereby increasing the shareholder’s potential gain or reducing its potential loss on the subsequent sale of those shares. The foregoing is for informational purposes only and does not, nor does anything else herein, constitute tax advice. Shareholders should consult with their own tax advisor or attorney with regard to their personal tax situation.
The Fund’s distributions are not tied to its investment income and realized capital gains and do not represent yield or investment return. The amounts and sources of distributions reported above are only estimates and are not being provided for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the Fund’s investment experience during the entirety of its fiscal year and may be subject to changes based on tax regulations. In early 2017, the Fund intends to send a Form 1099-DIV for the calendar year concerning the tax treatment of the dividend distributions that were paid to shareholders of record during the 12 months ended December 31, 2016.
Unclaimed Share Accounts
Please be advised that abandoned or unclaimed property laws for certain states require financial organizations to transfer (escheat) unclaimed property (including Fund shares) to the state. Each state has its own definition of unclaimed property, and Fund shares could be considered “unclaimed property” due to account inactivity (e.g., no owner-generated activity for a certain period), returned mail (e.g., when mail sent to a shareholder is returned to the Fund’s transfer agent as undeliverable), or a combination of both. If your Fund shares are categorized as unclaimed, your financial advisor or the Fund’s transfer agent should follow the applicable state’s statutory requirements to contact you, but if unsuccessful, laws may require that the shares be escheated to the appropriate state. If this happens, you may have to contact the state to recover your property, which may involve time and expense. For more information on unclaimed property and how to maintain an active account, please contact your financial advisor or the Fund’s transfer agent.
Fund Website and Dividend Reinvestment Plan
The Fund’s website, www.DividendandIncomeFund.com, provides investors with investment information, news, and other materials about the Fund. The website also has links to performance, tax, and daily net asset value reporting. You are invited to use this resource to learn more about the Fund. For those shareholders currently receiving the Fund’s quarterly dividends in cash but are interested in adding to their account through the Fund’s Dividend Reinvestment Plan, we encourage you to review the Plan set forth later in this document and contact the Fund’s Transfer Agent, who will be pleased to assist you with no obligation on your part.
Long Term Strategies
We thank you for investing in the Fund and share your enthusiasm for its potential, as evidenced by the fact that affiliates of the Fund’s investment manager own approximately 8% of the Fund’s outstanding shares, pursuant to the Fund’s governing documents that permit ownership of more than 4.99% of the Fund’s outstanding shares only with the prior approval of the Fund’s Board of Trustees. We look forward to serving your investment needs over the years ahead.
Sincerely,
Thomas B. Winmill
President and Portfolio Manager
DIVIDEND AND INCOME FUND
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Annual Report 2016 2
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SCHEDULE OF PORTFOLIO INVESTMENTS
| December 31, 2016
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Financial Statements
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Common Stocks (112.11%)
| Shares
| Value
| Shares
| Value
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Agricultural Chemicals (2.00%) |
| Computer & Office Equipment (0.99%) | ||||||||||||||||||
Monsanto Company | 15,000 | $ 1,578,150 | International Business Machines Corporation | 9,000 | $ 1,493,910 | |||||||||||||||
Potash Corporation of Saskatchewan Inc. | 80,000 | 1,447,200 | ||||||||||||||||||
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3,025,350 | Construction, Mining & Materials Handling Machinery & |
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Agriculture Production - Livestock & Animal Specialties (0.67%) |
| Dover Corp. | 13,500 | 1,011,555 | ||||||||||||||||
Cal-Maine Foods, Inc. (a) | 23,000 | 1,016,025 | ||||||||||||||||||
Deep Sea Foreign Transportation of Freight (0.87%) |
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Aircraft Engines & Engine Parts (0.29%) | Costamare Inc. | 130,000 | 728,000 | |||||||||||||||||
United Technologies Corporation | 3,980 | 436,288 | DHT Holdings, Inc. (a) | 140,000 | 579,600 | |||||||||||||||
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1,307,600 | ||||||||||||||||||||
Air Transportation, Scheduled (4.05%) | ||||||||||||||||||||
Alaska Air Group, Inc. (a) (b) | 27,000 | 2,395,710 | Drilling Oil & Gas Wells (0.98%) | |||||||||||||||||
Allegiant Travel Company (a) (b) | 13,700 | 2,279,680 | Transocean Ltd. (c) | 100,000 | 1,474,000 | |||||||||||||||
Southwest Airlines Co. (a) | 29,000 | 1,445,360 | ||||||||||||||||||
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6,120,750 | Electric Services (1.55%) | |||||||||||||||||||
Southern Company | 47,500 | 2,336,525 | ||||||||||||||||||
Apparel & Other Finished Products of Fabrics & Similar Material (1.39%) |
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Carter’s, Inc. | 24,300 | 2,099,277 | Electronic & Other Electrical Equipment (0.96%) |
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Emerson Electric Co. (a) (b) | 26,000 | 1,449,500 | ||||||||||||||||||
Biological Products (2.63%) | ||||||||||||||||||||
Amgen Inc. (b) | 13,500 | 1,973,835 | Electronic Components, Not Elsewhere Classified (1.47%) |
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Gilead Sciences, Inc. (b) | 28,000 | 2,005,080 | TE Connectivity Ltd. (a) | 32,000 | 2,216,960 | |||||||||||||||
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3,978,915 | ||||||||||||||||||||
Electronic Computers (1.57%) |
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Blankbooks, Looseleaf Binders & Bookbinding & Related Work (1.28%) |
| Apple Inc. (b) | 20,500 | 2,374,310 | ||||||||||||||||
Deluxe Corporation (b) | 27,000 | 1,933,470 | ||||||||||||||||||
Electronic Connectors (0.68%) |
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Cable & Other Pay Television Services (3.42%) |
| Methode Electronics, Inc. | 25,000 | 1,033,750 | ||||||||||||||||
Rogers Communications Inc. | 32,500 | 1,253,850 | ||||||||||||||||||
Scripps Networks Interactive, Inc. | 33,000 | 2,355,210 | Engines & Turbines (0.31%) |
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The Walt Disney Company | 15,000 | 1,563,300 | Cummins Inc. (b) | 3,400 | 464,678 | |||||||||||||||
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5,172,360 | ||||||||||||||||||||
Finance Services (1.18%) |
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Cigarettes (1.70%) | American Express Company (b) | 24,000 | 1,777,920 | |||||||||||||||||
Philip Morris International, Inc. | 28,000 | 2,561,720 | ||||||||||||||||||
Food & Kindred Products (0.70%) |
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Commercial Banks (2.39%) | Nestle S.A. | 14,700 | 1,054,578 | |||||||||||||||||
Australia and New Zealand Banking | 30,000 | 660,816 | Grocery Stores (0.68%) |
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Lloyds Banking Group plc ADR | 243,700 | 755,470 | The Kroger Co. (a) | 30,000 | 1,035,300 | |||||||||||||||
The Royal Bank of Scotland Group | 141,200 | 780,836 | Hotels & Motels (1.52%) |
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Westpac Banking Corporation | 60,000 | 1,408,800 | Wyndham Worldwide Corporation (a) | 30,000 | 2,291,100 | |||||||||||||||
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3,605,922 | ||||||||||||||||||||
Industrial Organic Chemicals (1.56%) |
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Computer and Computer Software Stores (0.67%) |
| LyondellBasell Industries N.V. Class A | 27,500 | 2,358,950 | ||||||||||||||||
GameStop Corp. (b) | 40,000 | 1,010,400 | ||||||||||||||||||
Industrial Trucks, Tractors, Trailers, and Stackers (0.85%) |
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PACCAR Inc. | 20,000 | 1,278,000 |
See notes to financial statements.
3 Annual Report 2016 |
DIVIDEND AND INCOME FUND
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SCHEDULE OF PORTFOLIO INVESTMENTS
| December 31, 2016
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Financial Statements
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Common Stocks (continued)
| Shares
| Value
| Shares
| Value
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Investment Advice (6.11%) | Ordnance & Accessories (1.50%) | |||||||||||||||||||
Ameriprise Financial Inc. | 9,600 | $ 1,065,024 | Sturm, Ruger & Company, Inc. (a) | 43,000 | $ 2,266,100 | |||||||||||||||
Cohen & Steers, Inc. (b) | 65,000 | 2,184,000 | ||||||||||||||||||
Federated Investors, Inc. (a) (b) | 81,000 | 2,290,680 | Other Chemical Products (0.78%) | |||||||||||||||||
Franklin Resources, Inc. (a) (b) | 21,700 | 858,886 | Praxair, Inc. (a) | 10,000 | 1,171,900 | |||||||||||||||
Invesco Ltd. | 37,000 | 1,122,580 | ||||||||||||||||||
Lazard Ltd. | 41,500 | 1,705,235 | Other Educational Services (0.68%) | |||||||||||||||||
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9,226,405 | Grand Canyon Education, Inc. (b) | 17,500 | 1,022,875 | |||||||||||||||||
Jewelry Stores (0.84%) | Paperboard Containers & Boxes (1.46%) | |||||||||||||||||||
Signet Jewelers Limited (a) | 13,400 | 1,263,084 | Packaging Corporation of America (a) | 26,000 | 2,205,320 | |||||||||||||||
Lessors of Real Property, Not Elsewhere Classified (0.61%) |
| Personal Credit Institutions (2.71%) | ||||||||||||||||||
HFF, Inc. | 30,724 | 929,401 | Credit Acceptance Corporation (a) (b) | 11,500 | 2,501,365 | |||||||||||||||
Discover Financial Services (a) (b) | 22,000 | 1,585,980 | ||||||||||||||||||
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Life Insurance (0.91%) | 4,087,345 | |||||||||||||||||||
Prudential Financial, Inc. | 13,200 | 1,373,592 | ||||||||||||||||||
Petroleum Refining (2.18%) | ||||||||||||||||||||
Lumber and Other Building Materials Dealers (1.51%) |
| Phillips 66 | 20,500 | 1,771,405 | ||||||||||||||||
The Home Depot, Inc. (b) | 17,000 | 2,279,360 | Western Refining, Inc. | 40,000 | 1,514,000 | |||||||||||||||
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3,285,405 | ||||||||||||||||||||
Measuring & Controlling Devices (0.92%) | ||||||||||||||||||||
Rockwell Automation, Inc. | 10,300 | 1,384,320 | Pharmaceutical Preparations (0.45%) | |||||||||||||||||
Shire plc | 4,001 | 681,690 | ||||||||||||||||||
Metal Mining (0.89%) | ||||||||||||||||||||
Rio Tinto plc ADR (a) | 35,000 | 1,346,100 | Plastic Materials, Synthetic Resins & Nonvulcan Elastomers (2.32%) |
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The Dow Chemical Company (b) | 40,000 | 2,288,800 | ||||||||||||||||||
Miscellaneous Industrial & Commercial Machinery & Equipment (0.80%) |
| Hexcel Corporation (a) (b) | 23,500 | 1,208,840 | ||||||||||||||||
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Eaton Corporation plc | 18,000 | 1,207,620 | 3,497,640 | |||||||||||||||||
Motor Vehicle Parts & Accessories (3.75%) |
| Potash, Soda, and Borate Minerals (0.62%) | ||||||||||||||||||
BorgWarner Inc. (a) (b) | 22,000 | 867,680 | Ciner Resources LP | 32,238 | 937,481 | |||||||||||||||
Honeywell International Inc. | 13,500 | 1,563,975 | ||||||||||||||||||
Lear Corporation | 7,000 | 926,590 | Radio & TV Broadcasting & Communications Equipment (2.28%) |
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Magna International Inc. | 53,000 | 2,300,200 | QUALCOMM, Incorporated | 20,000 | 1,304,000 | |||||||||||||||
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5,658,445 | Ubiquiti Networks, Inc. (a) (c) | 37,000 | 2,138,600 | |||||||||||||||||
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3,442,600 | ||||||||||||||||||||
Motor Vehicles & Passenger Car Bodies (2.91%) |
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Ford Motor Company (b) | 160,000 | 1,940,800 | Railroads, Line-Haul Operating (1.94%) | |||||||||||||||||
General Motors Company (b) | 41,500 | 1,445,860 | Norfolk Southern Corp. | 15,000 | 1,621,050 | |||||||||||||||
Volkswagen AG | 35,000 | 1,003,975 | Union Pacific Corporation | 12,650 | 1,311,552 | |||||||||||||||
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4,390,635 | 2,932,602 | |||||||||||||||||||
Real Estate Agents & Managers (For Others) (1.49%) |
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ILG, Inc. (a) | 124,000 | 2,253,080 | ||||||||||||||||||
National Commercial Banks (1.79%) |
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Capital One Financial Corporation (a) (b) | 20,200 | 1,762,248 | ||||||||||||||||||
The PNC Financial Services Group, Inc. | 8,000 | 935,680 | Retail - Building Materials, Hardware, Garden Supply (1.51%) |
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2,697,928 | The Sherwin-Williams Company | 8,500 | 2,284,290 | |||||||||||||||||
Retail - Department Stores (1.51%) | ||||||||||||||||||||
Dillard’s, Inc. (a) (b) | 13,800 | 865,122 | ||||||||||||||||||
Kohl’s Corporation (a) | 28,600 | 1,412,268 | ||||||||||||||||||
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2,277,390 |
See notes to financial statements.
DIVIDEND AND INCOME FUND
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Annual Report 2016 4
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SCHEDULE OF PORTFOLIO INVESTMENTS
| December 31, 2016
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Financial Statements
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Common Stocks (concluded)
| Shares
| Value
| Shares
| Value
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Retail - Family Clothing Stores (0.78%) | Services - Prepackaged Software (1.15%) | |||||||||||||||||||
The Buckle, Inc. (a) (b) | 12,650 | $ 288,420 | Oracle Corporation | 45,000 | $ 1,730,250 | |||||||||||||||
The GAP, Inc. (a) (b) | 40,000 | 897,600 | ||||||||||||||||||
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1,186,020 | Ship & Boat Building & Repairing (0.57%) | |||||||||||||||||||
Huntington Ingalls Industries, Inc. (b) | 4,700 | 865,693 | ||||||||||||||||||
Retail - Home Furniture, Furnishings & Equipment Stores (1.31%) |
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Williams-Sonoma, Inc. (a) | 41,000 | 1,983,990 | Special Industry Machinery (0.98%) | |||||||||||||||||
Lam Research Corporation | 14,000 | 1,480,220 | ||||||||||||||||||
Security & Commodity Brokers, Dealers, Exchanges & Services (1.54%) |
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T. Rowe Price Group, Inc. (a) | 30,900 | 2,325,534 | Sporting Goods Stores (0.94%) | |||||||||||||||||
Dick’s Sporting Goods, Inc. (a) | 26,764 | 1,421,168 | ||||||||||||||||||
Security Brokers, Dealers, and Flotation Companies (1.45%) |
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GAMCO Investors, Inc. (b) | 71,000 | 2,193,190 | Surety Insurance (1.25%) | |||||||||||||||||
Assured Guaranty Ltd. (a) | 50,000 | 1,888,500 | ||||||||||||||||||
Semiconductors & Related Devices (3.79%) | ||||||||||||||||||||
Intel Corporation (a) | 65,000 | 2,357,550 | Telephone Communications (1.59%) | |||||||||||||||||
Skyworks Solutions, Inc. (a) | 27,000 | 2,015,820 | Verizon Communications Inc. | 45,000 | 2,402,100 | |||||||||||||||
Texas Instruments Incorporated | 18,500 | 1,349,945 | ||||||||||||||||||
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5,723,315 | Title Insurance (1.58%) | |||||||||||||||||||
First American Financial Corporation (a) (b) | 65,000 | 2,380,950 | ||||||||||||||||||
Services - Advertising Agencies (0.52%) | ||||||||||||||||||||
Omnicom Group Inc. (a) | 9,200 | 783,012 | Transportation Equipment (1.14%) | |||||||||||||||||
Polaris Industries Inc. (a) | 20,900 | 1,721,951 | ||||||||||||||||||
Services - Business Services (1.19%) | ||||||||||||||||||||
The Western Union Company (a) | 83,000 | 1,802,760 | Variety Stores (3.64%) | |||||||||||||||||
Big Lots, Inc. (a) (b) | 30,000 | 1,506,300 | ||||||||||||||||||
Services - Computer Processing & Data Preparation (1.56%) |
| Dollar General Corporation (b) | 20,600 | 1,525,842 | ||||||||||||||||
DST Systems, Inc. (b) | 22,000 | 2,357,300 | Wal-Mart Stores, Inc. (a) | 35,650 | 2,464,128 | |||||||||||||||
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5,496,270 | ||||||||||||||||||||
Services - Computer Programming Services (0.18%) |
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Syntel, Inc. (a) (c) | 13,754 | 272,192 | Wholesale - Drugs, Proprietaries & Druggists’ Sundries (2.18%) |
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AmerisourceBergen Corporation (a) | 13,500 | 1,055,565 | ||||||||||||||||||
Services - Help Supply Services (1.18%) |
| Cardinal Health, Inc. | 31,000 | 2,231,070 | ||||||||||||||||
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Robert Half International Inc. (a) | 36,700 | 1,790,226 | 3,286,635 | |||||||||||||||||
Wholesale - Electronic Parts & Equipment (1.01%) |
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Services - Medical Laboratories (1.19%) | Avnet, Inc. (a) (b) | 32,000 | 1,523,520 | |||||||||||||||||
Laboratory Corporation of America Holdings (a) (c) | 14,000 | 1,797,320 | ||||||||||||||||||
Wholesale - Industrial Machinery & Equipment (1.22%) |
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Services - Miscellaneous Repair Services (0.0%) |
| MSC Industrial Direct Co., Inc. (a) | 20,000 | 1,847,800 | ||||||||||||||||
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| |||||||||||||||||||
Aquilex Holdings LLC Units (c) (d) | 756 | 0 | ||||||||||||||||||
Total common stocks (Cost $162,252,662) | 169,290,898 | |||||||||||||||||||
|
| |||||||||||||||||||
Services - Personal Services (0.67%) |
| |||||||||||||||||||
H&R Block, Inc. (a) | 43,900 | 1,009,261 |
See notes to financial statements.
5 Annual Report 2016 |
DIVIDEND AND INCOME FUND
|
SCHEDULE OF PORTFOLIO INVESTMENTS
| December 31, 2016
| |
Financial Statements
|
Principal
| Value
| Shares
| Value
| |||||||||||||||
Corporate Bonds and Notes (0.77%) | Preferred Stocks (2.66%) |
| ||||||||||||||||
Cogeneration Services & Small Power Producers (0.30%) | Financial (1.76%) |
| ||||||||||||||||
Covanta Holding Corp., 7.25%, 12/1/20 | 450,000 | $ 459,787 | Annaly Capital Management, Inc., 7.625% | 79,469 | $ 1,915,203 | |||||||||||||
Electric Services (0.36%) | Annaly Capital Management, Inc., 7.625% | |||||||||||||||||
Elwood Energy LLC, 8.159%, 7/5/26 | 490,360 | 551,655 | Series E | 30,809 | 742,497 | |||||||||||||
|
| |||||||||||||||||
2,657,700 | ||||||||||||||||||
Oil & Gas Field Exploration Services (0.11%) | ||||||||||||||||||
CGG-Veritas, 7.75%, 5/15/17 | 169,000 | 159,705 | Deep Sea Foreign Transportation of Freight (0.37%) |
| ||||||||||||||
|
| |||||||||||||||||
Costamare Inc., 8 3/4% Series D | 25,000 | 555,000 | ||||||||||||||||
Total corporate bonds and notes (Cost $1,135,210) | 1,171,147 | |||||||||||||||||
|
| |||||||||||||||||
Real Estate Investment Trusts (0.53%) |
| |||||||||||||||||
Public Storage Depositary Shares, 4.95% | ||||||||||||||||||
Shares
| 7,500 | 159,000 | ||||||||||||||||
Closed End Funds (1.07%) |
| Public Storage Depositary Shares, 4.90% | 26,168 | 552,145 | ||||||||||||||
Neuberger Berman Real Estate Securities Income Fund, Inc. |
| Vornado Realty Trust, 5.40% Series L | 4,357 | 97,814 | ||||||||||||||
|
| |||||||||||||||||
(Cost $1,607,429) | 300,000 | 1,611,000 | 808,959 | |||||||||||||||
|
|
|
| |||||||||||||||
Total preferred stocks (Cost $3,804,364) | 4,021,659 | |||||||||||||||||
|
| |||||||||||||||||
Reorganization Interests (0%) |
| |||||||||||||||||
Penson Technologies LLC Units (c) (d) | ||||||||||||||||||
(Cost $ 0) | 813,527 | 0 | Money Market Fund (0.37%) |
| ||||||||||||||
|
| |||||||||||||||||
State Street Institutional U.S. Government Money Market Fund, |
| |||||||||||||||||
Master Limited Partnerships (1.46%) | Administration Class shares 7 day annualized yield 0.17% |
| ||||||||||||||||
Natural Gas Transmission (1.46%) | (Cost $557,838) | 557,838 | 557,838 | |||||||||||||||
|
| |||||||||||||||||
Enterprise Products Partners LP (b) | 40,000 | 1,081,600 | ||||||||||||||||
Spectra Energy Partners, LP | 24,400 | 1,118,496 | Total investments (Cost $170,780,695) (118.44%) |
| 178,852,638 | |||||||||||||
|
|
|
| |||||||||||||||
Total master limited partnerships (Cost $1,423,192) | 2,200,096 | Liabilities in excess of other assets (-18.44%) |
| (27,847,674 | ) | |||||||||||||
|
|
|
| |||||||||||||||
Net assets (100.00%) |
| $151,004,964 | ||||||||||||||||
|
|
(a) | All or a portion of this security is on loan, and is a component of the Fund’s leverage under the Liquidity Agreement. As of December 31, 2016, the value of the securities on loan was $24,963,826. | |
(b) | All or a portion of this security has been pledged as collateral to secure the Fund’s obligations under the Liquidity Agreement. As of December 31, 2016, the value of securities pledged as collateral was $4,333,284. | |
(c) | Non-income producing. | |
(d) | Illiquid and/or restricted security that has been fair valued. |
ADR American Depositary Receipt
LLC Limited Liability Company
LP Limited Partnership
PLC Public Limited Company
See notes to financial statements.
DIVIDEND AND INCOME FUND
|
Annual Report 2016 6
|
STATEMENT OF ASSETS AND LIABILITIES
| ||
Financial Statements
|
December 31, 2016
| ||||||
Assets | ||||||
Investments, at value (cost: $170,780,695) | $178,852,638 | |||||
Receivables: | ||||||
Dividends | 215,909 | |||||
Interest | 24,048 | |||||
Foreign withholding tax reclaims | 11,877 | |||||
Other assets | 28,088 | |||||
| ||||||
Total assets | 179,132,560 | |||||
| ||||||
Liabilities | ||||||
Liquidity agreement borrowing | 27,780,000 | |||||
Payables: | ||||||
Accrued expenses | 174,876 | |||||
Investment management | 146,801 | |||||
Administrative services | 22,233 | |||||
Trustees | 3,686 | |||||
| ||||||
Total liabilities | 28,127,596 | |||||
| ||||||
Net Assets | $151,004,964 | |||||
| ||||||
Net Asset Value Per Share | ||||||
(applicable to 10,649,171 shares issued and outstanding) | $ 14.18 | |||||
| ||||||
Net Assets Consist of | ||||||
Paid in capital | $143,871,823 | |||||
Accumulated net realized loss on investments | (938,111) | |||||
Net unrealized appreciation on investments | 8,071,252 | |||||
| ||||||
$151,004,964 | ||||||
| ||||||
See notes to financial statements. |
7 Annual Report 2016 |
DIVIDEND AND INCOME FUND
|
STATEMENT OF OPERATIONS
| ||
Financial Statements
|
Year Ended
| ||||||
Investment Income | ||||||
Dividends (net of $54,920 foreign tax withholding) | $ 4,752,027 | |||||
Interest | 144,603 | |||||
Securities lending income, net | 22,827 | |||||
| ||||||
Total investment income | 4,919,457 | |||||
| ||||||
Expenses | ||||||
Investment management | 1,410,682 | |||||
Interest and fees on bank borrowings | 222,431 | |||||
Administrative services | 213,445 | |||||
Bookkeeping and pricing | 74,670 | |||||
Legal | 69,427 | |||||
Shareholder communications | 63,323 | |||||
Trustees | 61,213 | |||||
Insurance | 44,250 | |||||
Exchange listing and registration | 43,600 | |||||
Auditing | 42,090 | |||||
Custodian | 32,567 | |||||
Transfer agent | 15,745 | |||||
Other | 7,130 | |||||
| ||||||
Total expenses | 2,300,573 | |||||
Expense reduction | (307) | |||||
| ||||||
Net expenses | 2,300,266 | |||||
| ||||||
Net investment income | 2,619,191 | |||||
| ||||||
Realized and Unrealized Gain (Loss) | ||||||
Net realized gain (loss) on | ||||||
Investments | 14,588,381 | |||||
Foreign currencies | (13,507) | |||||
Unrealized appreciation (depreciation) on | ||||||
Investments | 4,954,563 | |||||
Translation of assets and liabilities in foreign currencies | (414) | |||||
| ||||||
Net realized and unrealized gain | 19,529,023 | |||||
| ||||||
Net increase in net assets resulting from operations | $ 22,148,214 | |||||
| ||||||
See notes to financial statements. |
DIVIDEND AND INCOME FUND
|
Annual Report 2016 8
|
STATEMENTS OF CHANGES IN NET ASSETS
| ||
Financial Statements
|
Year Ended
| Year Ended
| |||||||||||
Operations | ||||||||||||
Net investment income | $ 2,619,191 | $ 2,813,403 | ||||||||||
Net realized gain on investments | 14,574,874 | 4,964,667 | ||||||||||
Unrealized appreciation (depreciation) on investments | 4,954,149 | (20,575,304) | ||||||||||
|
| |||||||||||
Net increase (decrease) in net assets resulting from operations | 22,148,214 | (12,797,234) | ||||||||||
|
| |||||||||||
Distributions to Shareholders | ||||||||||||
Net investment income | (2,423,544) | (2,393,241) | ||||||||||
Return of capital | (8,168,833) | (12,516,950) | ||||||||||
|
| |||||||||||
Total distributions | (10,592,377) | (14,910,191) | ||||||||||
|
| |||||||||||
Capital Share Transactions | ||||||||||||
Reinvestment of distributions to shareholders | 1,031,696 | 958,981 | ||||||||||
Proceeds from shares issued in rights offering | - | 21,162,983 | ||||||||||
Offering costs of rights offering charged to paid in capital | - | (276,827) | ||||||||||
|
| |||||||||||
Increase in net assets from capital share transactions | 1,031,696 | 21,845,137 | ||||||||||
|
| |||||||||||
Total change in net assets | 12,587,533 | (5,862,288) | ||||||||||
Net Assets | ||||||||||||
Beginning of period | 138,417,431 | 144,279,719 | ||||||||||
|
| |||||||||||
End of period | $151,004,964 | $ 138,417,431 | ||||||||||
|
| |||||||||||
End of period net assets include undistributed net investment income | $ - | $ - | ||||||||||
|
| |||||||||||
See notes to financial statements. |
9 Annual Report 2016 |
DIVIDEND AND INCOME FUND
|
STATEMENT OF CASH FLOWS
| ||
Financial Statements
|
Year Ended December 31, 2016
| ||||||||
Cash Flows From Operating Activities | ||||||||
Net increase in net assets resulting from operations | $ 22,148,214 | |||||||
Adjustments to reconcile increase in net assets resulting from operations to net cash provided by (used in) operating activities: | ||||||||
Unrealized appreciation of investments | (4,954,149) | |||||||
Net realized gain on sales of investments | (14,574,874) | |||||||
Purchase of long term investments | (113,795,256) | |||||||
Proceeds from sales of long term investments | 101,092,413 | |||||||
Net purchases of short term investments | (553,038) | |||||||
Amortization of premium net of accretion of discount of investments | 1,448 | |||||||
Decrease in dividends receivable | 30,829 | |||||||
Decrease in interest receivable | 11,258 | |||||||
Increase in foreign withholding tax reclaims | (21,430) | |||||||
Decrease in other assets | 1,593 | |||||||
Increase in accrued expenses | 33,367 | |||||||
Increase in investment management fee payable | 23,047 | |||||||
Increase in administrative services payable | 4,757 | |||||||
Decrease in trustee expenses payable | (5,701) | |||||||
| ||||||||
Net cash used in operating activities | (10,557,522) | |||||||
| ||||||||
Cash Flows from Financing Activities | ||||||||
Bank borrowings, net | 19,713,863 | |||||||
Cash distributions paid | (9,232,574) | |||||||
| ||||||||
Net cash provided by financing activities | 10,481,289 | |||||||
| ||||||||
Net change in cash | (76,233) | |||||||
Cash | ||||||||
Beginning of period | 76,233 | |||||||
| ||||||||
End of period | $ - | |||||||
| ||||||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest on bank borrowings | $ 81,349 | |||||||
Non-cash financing activities not included herein consisted of: | ||||||||
Reinvestment of dividend distributions | $ 1,031,696 | |||||||
See notes to financial statements. |
DIVIDEND AND INCOME FUND
|
Annual Report 2016 10
|
NOTES TO FINANCIAL STATEMENTS
| December 31, 2016
| |
Financial Statements
|
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Dividend and Income Fund (the “Fund”), a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “Act”), is a non-diversified, closed end management investment company whose shares are listed on the New York Stock Exchange under the ticker symbol DNI. The Fund’s primary investment objective is to seek high current income. Capital appreciation is a secondary objective. The Fund retains Bexil Advisers LLC as its Investment Manager.
The Fund is an investment company and accordingly follows the accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard Codification Topic 946 “Financial Services – Investment Companies.” The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. Subsequent events, if any, through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Valuation of Investments – Portfolio securities are valued by various methods depending on the primary market or exchange on which they trade. Most equity securities for which the primary market is in the United States are usually valued at the official closing price, last sale price or, if no sale has occurred, at the closing bid price. Most equity securities for which the primary market is outside the United States are usually valued using the official closing price or the last sale price in the principal market in which they are traded. If the last sale price on the local exchange is unavailable, the last evaluated quote or closing bid price normally is used. In the event of an unexpected close of the primary market or exchange, a security may continue to trade on one or more other markets, and the price as reflected on those other trading venues may be more reflective of the security’s value than an earlier price from the primary market or exchange. Accordingly, the Fund may seek to use these additional sources of pricing data or information when prices from the primary market or exchange are unavailable, or are earlier and less representative of current market value. Certain debt securities may be priced through pricing services that may utilize a matrix pricing system which takes into consideration factors such as yields, prices, maturities, call features, and ratings on comparable securities or according to prices quoted by a securities dealer that offers pricing services. Open end investment companies are valued at their net asset value. Foreign securities markets may be open on days when the U.S. markets are closed. For this reason, the value of any foreign
securities owned by the Fund could change on a day when shareholders cannot buy or sell shares of the Fund. Securities for which market quotations are not readily available or reliable and other assets may be valued as determined in good faith by the Investment Manager under the direction of or pursuant to procedures approved by the Fund’s Board of Trustees. Due to the inherent uncertainty of valuation, such fair value pricing values may differ from the values that would have been used had a readily available market for the assets existed. These differences in valuation could be material. A security’s valuation may differ depending on the method used for determining value. The use of fair value pricing by the Fund may cause the net asset value of its shares to differ from the net asset value that would be calculated using market prices. A fair value price is an estimate and there is no assurance that such price will be at or close to the price at which a security is next quoted or next trades.
Foreign Currency Translation – Securities denominated in foreign currencies are translated into U.S. dollars at prevailing exchange rates. Realized gain or loss on sales of such investments in local currency terms is reported separately from gain or loss attributable to a change in foreign exchange rates for those investments.
Investments in Other Investment Companies – The Fund may invest in shares of other investment companies (the “Acquired Fund”) in accordance with the Act and related rules. Shareholders in the Fund bear the pro rata portion of the fees and expenses of an Acquired Fund in addition to the Fund’s expenses. Expenses incurred by the Fund that are disclosed in the Statement of Operations do not include fees and expenses incurred by an Acquired Fund. The fees and expenses of an Acquired Fund are reflected in such fund’s total return.
Option Transactions – The Fund may write (i.e., sell) covered call options on securities or on indexes. The Fund writes covered call options to attempt to enhance returns through price changes of the option, increase income, hedge to reduce overall portfolio risk, and hedge to reduce individual security risk. When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Fund on the expiration date as realized gains from investments. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain or, if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security or currency in determining whether the Fund has realized a gain or loss. If a put
11 Annual Report 2016 |
DIVIDEND AND INCOME FUND
|
NOTES TO FINANCIAL STATEMENTS
| December 31, 2016 continued
| |
Financial Statements
|
option is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund, as the writer of an option, bears the market risk of an unfavorable change in the price of the option. Writing option contracts results in off-balance sheet risk as the Fund’s ultimate obligation to satisfy terms of the contract may exceed the amount recognized in the statement of assets and liabilities.
Investments in Real Estate Investment Trusts (“REITs”) – Dividend income is recorded based on the income included in distributions received from the REIT investments using published REIT reclassifications including some management estimates when actual amounts are not available. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments or reclassified to capital gains. The actual amounts of income, return of capital, and capital gains are only determined by each REIT after its fiscal year end, and may differ from the estimated amounts.
Short Sales – The Fund may sell a security short it does not own in anticipation of a decline in the market value of the security. When the Fund sells a security short, it must borrow the security sold short and deliver it to the broker/dealer through which it made the short sale. The Fund is liable for any dividends or interest paid on securities sold short. A gain, limited to the price at which the Fund sold the security short, or a loss, unlimited in size, normally is recognized upon the termination of the short sale. Securities sold short result in off balance sheet risk as the Fund’s ultimate obligation to satisfy the terms of a sale of securities sold short may exceed the amount recognized in the Statement of Assets and Liabilities.
Investment Transactions – Investment transactions are accounted for on the trade date (the date the order to buy or sell is executed). Realized gains or losses are determined by specifically identifying the cost basis of the investment sold.
Investment Income – Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Amortization of premium and accretion of discount on corporate bonds and notes are included in interest income.
Expenses – Expenses deemed by the Investment Manager to have been incurred solely by the Fund are charged to the Fund. Expenses deemed by the Investment Manager to have been incurred jointly by the Fund and one or more of the other investment companies for which the Investment Manager or its affiliates serve as investment manager or other related entities are allocated on the basis of relative net assets, except where a more appropriate allocation can be made fairly in the judgment of the Investment Manager.
Expense Reduction Arrangement – Through arrangements with the Fund’s custodian, credits realized as a result of uninvested cash balances are used to reduce custodian
expenses. There were no credits realized from the custodian by the Fund during 2016 or 2015. The Fund was reimbursed by its previous securities lending provider for certain custody transaction costs associated with securities lending. These reimbursements are included in expense reductions in the Statement of Operations.
Distributions to Shareholders – Distributions to shareholders are determined in accordance with the Fund’s distribution policies and income tax regulations and are recorded on the ex-dividend date.
Income Taxes – No provision has been made for U.S. income taxes because the Fund’s current intention is to continue to qualify as a regulated investment company under the Internal Revenue Code (the “IRC”) and to distribute to its shareholders substantially all of its taxable income and net realized gains. Foreign securities held by the Fund may be subject to foreign taxation. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. The Fund has reviewed its tax positions and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on federal, state, and local income tax returns for open tax years (2013-2015) or expected to be taken in the Fund’s 2016 tax returns.
2. FEES AND TRANSACTIONS WITH RELATED PARTIES The Fund has retained the Investment Manager pursuant to an investment management agreement. Under the terms of the investment management agreement, the Investment Manager receives a fee payable monthly for investment advisory services at an annual rate of 0.95% of the Fund’s Managed Assets. “Managed Assets” means the average weekly value of the Fund’s total assets minus the sum of the Fund’s liabilities, which liabilities exclude debt relating to leverage, short term debt, and the aggregate liquidation preference of any outstanding preferred stock.
Pursuant to the investment management agreement, the Fund reimburses the Investment Manager for providing at cost certain administrative services comprised of compliance and accounting services. For the year ended December 31, 2016, the Fund’s reimbursements of such costs were $213,445, of which $130,015 and $83,430 was for compliance and accounting services, respectively.
Certain officers and trustees of the Fund are officers and managers of the Investment Manager. As of December 31, 2016, Bexil Securities LLC (“Bexil Securities”), an affiliate of the Investment Manager, owned approximately 8% of the Fund’s outstanding
DIVIDEND AND INCOME FUND
|
Annual Report 2016 12
|
NOTES TO FINANCIAL STATEMENTS
| December 31, 2016 continued
| |
Financial Statements
|
shares, pursuant to the Fund’s governing documents that permit ownership of more than 4.99% of the Fund’s outstanding shares only with the prior approval of the Fund’s Board of Trustees. For the year ended December 31, 2016 and year ended December 31, 2015, Bexil Securities acquired 72,557 and 304,220 shares of the Fund, respectively, through participation in the Fund’s Dividend Reinvestment Plan and 2015 rights offering.
The Fund compensates each Trustee who is not an employee of the Investment Manager or its affiliates. These Trustees receive fees for service as a Trustee from the Fund and the other investment companies for which the Investment Manager or its affiliates serve as investment manager. In addition, Trustee out-of-pocket expenses are allocated to each Fund for which the Investment Manager or its affiliates serve as investment manager on the basis of relative net assets, except where a more appropriate allocation can be made fairly in the judgment of the Investment Manager.
3. DISTRIBUTIONS TO SHAREHOLDERS AND DISTRIBUTABLE EARNINGS The tax character of distributions paid by the Fund for the years ended December 31, 2016 and 2015 are comprised of the following:
Tax characteristics of distributions:
| 2016
| 2015
| ||||||||||
Ordinary income | $ | 2,423,544 | $ | 2,393,241 | ||||||||
Return of capital |
| 8,168,833
|
|
| 12,516,950
|
| ||||||
|
|
|
| |||||||||
Total distribution
| $
| 10,592,377
|
| $
| 14,910,191
|
| ||||||
| ||||||||||||
|
As of December 31, 2016, the components of distributable earnings on a tax basis were as follows:
| ||||
Accumulated net realized loss on investments | $ | (1,442,265) | ||
Unrealized appreciation |
| 8,575,406
|
| |
|
| |||
$
| 7,133,141
|
| ||
| ||||
|
The difference between book and tax unrealized appreciation is primarily related to partnership income.
Federal income tax regulations permit post-October net capital losses, if any, to be deferred and recognized on the tax return of the next succeeding taxable year.
Capital loss carryover is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryover actually available for the Fund to utilize under the IRC and related regulations based on the results of future transactions.
Under the IRC, capital losses incurred in taxable years beginning after December 22, 2010, are allowed to be carried forward indefinitely and retain the character of the original loss. The Fund has a net capital loss carryover as of December 31, 2016 of $1,442,265 which expires in 2018. As a transition rule, post-enactment net capital losses are required to be utilized before pre-enactment net capital losses.
During the year ended December 31, 2016, $28,003,769 of capital loss carryovers expired.
GAAP requires certain components related to permanent differences of net assets to be classified differently for financial reporting than for tax reporting purposes. These differences have no effect on net assets or net asset value per share. These differences, which may result in distribution reclassifications, are primarily due to differences in partnership income, return of capital dividends, recharacterization of capital gain income, and timing of distributions. As of December 31, 2016, the Fund recorded the following financial reporting reclassifications to the net asset accounts to reflect those differences:
| ||||
Accumulated
| Accumulated Net Realized
| Paid in Capital
| ||
$7,973,186
|
$28,207,520
|
$(36,180,706)
| ||
| ||||
13 Annual Report 2016 |
DIVIDEND AND INCOME FUND
|
NOTES TO FINANCIAL STATEMENTS
| December 31, 2016 continued
| |
Financial Statements
|
4. VALUE MEASUREMENTS GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are:
• Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities including securities actively traded on a securities exchange.
• Level 2 - observable inputs other than quoted prices included in level 1 that are observable for the asset or liability which may include quoted prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates, and similar data.
• Level 3 - unobservable inputs for the asset or liability including the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability.
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for investments categorized in level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those securities.
The following is a description of the valuation techniques applied to the Fund’s major categories of assets and liabilities measured at fair value on a recurring basis:
Equity securities (common and preferred stock) – Most publicly traded equity securities are valued normally at the most recent official closing price, last sale price, evaluated quote, or closing bid price. To the extent these securities are actively traded and valuation adjustments are not applied, they may be categorized in level 1 of the fair value hierarchy. Equities on inactive markets or valued by reference to similar instruments may be categorized in level 2.
Corporate bonds and notes – The fair value of corporate bonds and notes are normally estimated using various techniques which may consider, among other things, recently executed transactions in securities of the issuer or comparable issuers, market price quotations (where observable), bond spreads, and fundamental data relating to the issuer. Although most corporate bonds and notes may be categorized in level 2 of the fair value hierarchy, in instances where lower relative weight is placed on transaction prices, quotations, or similar observable inputs, they may be categorized in level 3.
Restricted and/or illiquid securities – Restricted and/or illiquid securities for which quotations are not readily available or reliable may be valued with fair value pricing as determined in good faith by the Investment Manager under the direction of or pursuant to procedures approved by the Fund’s Board of Trustees. Restricted securities issued by publicly traded companies are generally valued at a discount to similar publicly traded securities. Restricted or illiquid securities issued by nonpublic entities may be valued by reference to comparable public entities or fundamental data relating to the issuer or both or similar inputs. Depending on the relative significance of valuation inputs, these instruments may be categorized in either level 2 or level 3 of the fair value hierarchy.
The following is a summary of the inputs used as of December 31, 2016 in valuing the Fund’s assets. Refer to the Schedule of Portfolio Investments for detailed information on specific investments.
ASSETS
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Investments, at value | ||||||||||||||||
Common stocks | $ 169,290,898 | $ - | $ 0 | $ 169,290,898 | ||||||||||||
Corporate bonds and notes | - | 1,171,147 | - | 1,171,147 | ||||||||||||
Closed end funds | 1,611,000 | - | - | 1,611,000 | ||||||||||||
Reorganization interests | - | - | 0 | 0 | ||||||||||||
Master limited partnerships | 2,200,096 | - | - | 2,200,096 | ||||||||||||
Preferred stocks | 4,021,659 | - | - | 4,021,659 | ||||||||||||
Money market funds |
| 557,838
|
|
| -
|
|
| -
|
|
| 557,838
|
| ||||
Total investments, at value |
| $ 177,681,491
|
|
| $ 1,171,147
|
|
| $ 0
|
|
| $ 178,852,638
|
| ||||
There were no securities transferred from level 1 on December 31, 2015 to level 2 on December 31, 2016.
DIVIDEND AND INCOME FUND
|
Annual Report 2016 14
|
NOTES TO FINANCIAL STATEMENTS
| December 31, 2016 continued
| |
Financial Statements
|
The following is a reconciliation of level 3 assets including securities valued at zero:
Common
| Reorganization
| Preferred
| Total
| |||||||||||||||||||
Balance at December 31, 2015
| $ 37,605 | $ 0 | $ 0 | $ 37,605 | ||||||||||||||||||
Liquidation proceeds
| - | - | (19,200) | (19,200) | ||||||||||||||||||
Realized loss
| - | - | (549,602) | (549,602) | ||||||||||||||||||
Transfers into (out of) level 3
| - | - | - | - | ||||||||||||||||||
Change in unrealized depreciation
|
| (37,605)
|
| - | 568,802 | 531,197 | ||||||||||||||||
Balance at December 31, 2016
|
| $ 0
|
| $ 0 | $ - | $ 0 | ||||||||||||||||
Net change in unrealized appreciation attributable to assets still held as level 3 at December 31, 2016
| $ (37,605) | $ 0 | $ - | $ (37,605) | ||||||||||||||||||
Unrealized gains (losses) are included in the related amounts on investments in the Statement of Operations.
The Investment Manager, under the direction of the Fund’s Board of Trustees, considers various valuation approaches for valuing assets categorized within level 3 of the fair value hierarchy. The factors used in determining the value of such assets may include, but are not limited to: the discount applied due to the private nature of the asset; the type of the security; the size of the asset; the initial cost of the security; the existence of any contractual restrictions on the security’s disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer or analysts; an analysis of the company’s or issuer’s financial statements; or an evaluation of the forces that influence the issuer and the market in which the asset is purchased and sold. Significant changes in any of those inputs in isolation may result in a significantly lower or higher fair value measurement. The pricing of all fair value assets is regularly reported to the Fund’s Board of Trustees.
The following table presents additional information about valuation methodologies and inputs used for assets that are measured at fair value and categorized as level 3 as of December 31, 2016:
Fair Value
| Valuation Technique
| Unobservable Input
| Range
| |||||||||||||||||||||
Common Stocks
| ||||||||||||||||||||||||
Services - Miscellaneous Repair Services | $ 0 |
| Share of taxable income and comparable exchange offer
|
|
|
|
|
| Discount rate for lack of marketability
|
| 100% | |||||||||||||
Reorganization Interests | $ 0 |
| Cost; last known market value for predecessor securities; estimated recovery on liquidation
|
|
| Discount rate for lack of marketability
|
| 100% | ||||||||||||||||
5. INVESTMENT TRANSACTIONS Purchases and proceeds from sales or maturities of investment securities, excluding short term investments, were $113,795,256 and $101,092,413, respectively, for the year ended December 31, 2016. As of December 31, 2016, for federal income tax purposes, the aggregate cost of securities was $170,276,541 and net unrealized appreciation was $8,576,097, comprised of gross unrealized appreciation of $17,593,900 and gross unrealized depreciation of $9,017,803.
15 Annual Report 2016 |
DIVIDEND AND INCOME FUND
|
NOTES TO FINANCIAL STATEMENTS
| December 31, 2016 continued
| |
Financial Statements
|
6. ILLIQUID AND RESTRICTED SECURITIES The Fund owns securities which have a limited trading market and/or certain restrictions on trading and, therefore, may be illiquid and/or restricted. Such securities have been valued using fair value pricing. Due to the inherent uncertainty of valuation, fair value pricing values may differ from the values that would have been used had a readily available market for the securities existed. These differences in valuation could be material. Illiquid and/or restricted securities owned as of December 31, 2016 were as follows:
Acquisition Date
|
|
| Cost
|
|
|
|
|
| Value
|
|
|
|
| |||||||
Aquilex Holdings LLC | 3/08/12 | $ | 496,372 | $ | 0 | |||||||||||||||
Penson Technologies LLC | 4/09/14 |
| 0
|
|
| 0
|
| |||||||||||||
Total
| $
| 496,372
|
| $
| 0
|
| ||||||||||||||
Percent of net assets
|
| 0.33%
|
|
| 0.00%
|
| ||||||||||||||
7. LIQUIDITY AGREEMENT Effective July 28, 2016, the Fund entered into a Liquidity Agreement (“LA”) with State Street Bank and Trust Company (“SSB”), the Fund’s custodian and securities lending agent. The LA allows the Fund to draw up to $35 million (maximum liquidity commitment) and includes a securities lending authorization by the Fund to SSB to engage in agency securities lending and reverse repurchase activity.
Interest is charged on the drawn amount at the rate of one-month LIBOR (London Interbank Offered Rate) plus 1.20% per annum, and is payable monthly. A non-usage fee is charged on the difference between the maximum liquidity commitment and the drawn amount at the rate of one-month LIBOR plus 0.07% per annum, and is payable monthly.
Generally, the Fund pledges its assets as collateral to secure its obligations under the LA and makes these assets available for securities lending and repurchase transactions initiated by SSB, although the Fund retains the risks and rewards of the ownership of assets pledged. Under the terms of the LA, the Fund may enter into securities lending transactions initiated by SSB, acting as the Fund’s authorized securities lending agent. All securities lent through SSB are required to be secured with cash collateral received from the securities lending counterparty in amounts at least equal to 100% of the initial market value of the securities lent. Cash collateral received by SSB, in its role as securities lending agent for the Fund, is credited against the amounts drawn under the LA. Any amounts credited against the LA are considered leverage and would be subject to various limitations in the LA and the Act, or both. Upon return of loaned securities, SSB will return collateral to the securities lending counterparty and may fund the amount of collateral returned through securities lending, repurchase, and/or other lending activities provided under the LA. Amounts paid by securities lending counterparties for loaned securities are retained by SSB.
In the event of a securities lending counterparty default, SSB indemnifies the Fund for certain losses that may arise in connection with the default. SSB uses the collateral received from the securities lending counterparty to purchase replacement securities of the same issue, type, class and series of the loaned securities. If the value of the collateral is less than the purchase cost of the replacement securities, SSB is responsible for satisfying the shortfall but only to the extent that the shortfall is not due to any decrease in the value of the collateral. Although the risk of the loss of the securities lent is mitigated by receiving collateral from the securities lending counterparty and through SSB indemnification, the Fund could experience a delay in recovering securities or could experience a lower than expected return if the securities lending counterparty fails to return the securities on a timely basis.
The Fund or SSB may terminate the LA with 179 days’ prior written notice to the other party absent a default or facility termination event. If certain asset coverage and collateral requirements, minimum net assets or other covenants are not met, the LA could be deemed in default and result in termination.
Prior to July 28, 2016, the Fund had a Committed Facility Agreement (“CFA”) with BNP Paribas Prime Brokerage, Inc. (“BNP”) that allowed it to adjust its credit facility up to $45,000,000 subject to BNP’s approval, and a Lending Agreement, as defined below. The Lending Agreement with BNP allowed BNP to may make loans to the Fund from time to time in its sole discretion and in amounts determined by BNP in its sole discretion. Borrowings under the CFA and the Lending Agreement (collectively, the “Lending Agreements”) were secured by assets of the Fund (the “pledged collateral”) that were held in a segregated account with the Fund’s custodian. Interest was charged at the 1 month LIBOR plus 0.95% on the amount borrowed and 0.50% on the undrawn balance. Because the Fund adjusted the facility amount each day
DIVIDEND AND INCOME FUND
|
Annual Report 2016 16
|
NOTES TO FINANCIAL STATEMENTS
| December 31, 2016 continued
| |
Financial Statements
|
to equal borrowing drawn that day, the annualized rate charge on undrawn facility amounts provided for by the CFA had not been incurred. The Lending Agreements provided for BNP to borrow a portion of the pledged collateral (the “Lent Securities”) in an amount not to exceed the outstanding borrowings owed by the Fund to BNP. The Lending Agreements allowed BNP to re-register the Lent Securities in its own name or in another name other than the Fund’s and pledge, re-pledge, sell, lend, or otherwise transfer or use the Lent Securities with all attendant rights of ownership. The Fund could designate any security within the pledged collateral as ineligible to be a Lent Security, provided there were eligible securities within the pledged collateral in an amount equal to the outstanding borrowing owed by the Fund. BNP remitted payment to the Fund equal to the amount of all dividends, interest, or other distributions earned or made by the Lent Securities. The Fund earned securities lending income of $22,827 for the period ended July 28, 2016, consisting of payments received from BNP for lending certain securities, less any rebates paid to borrowers and lending agent fees associated with the loan.
The outstanding loan balance and the value of assets pledged as collateral as of December 31, 2016 were $27,780,000 and $4,333,284, respectively, and the weighted average interest rate and average daily amount outstanding under the LA and CFA combined for the year ended December 31, 2016 were 1.50% and $7,943,217, respectively. The maximum amount outstanding during the year ended December 31, 2016 was $30,295,000.
8. SHARE TRANSACTIONS The Fund is authorized to issue an unlimited amount of $0.01 par value shares of beneficial interest. As of December 31, 2016, there were 10,649,171 shares outstanding. Share transactions for the following periods were:
Year Ended December 31, 2016 |
Year Ended December 31, 2015 | |||||||||||||||||||
Shares issued in: | Shares | Amount | Shares | Amount | ||||||||||||||||
Reinvestment of distributions | 91,916 | $ 1,031,696 | 77,459 | $ | 958,981 | |||||||||||||||
Rights offering
|
| -
|
|
| -
|
|
| 1,821,255
|
|
| 21,162,983
|
| ||||||||
|
91,916
|
|
| $ 1,031,696
|
|
| 1,898,714
|
| $
| 22,121,964
|
| |||||||||
A registration statement allowing the Fund to offer, from time to time, in one or more offerings, including through rights offerings, up to $150,000,000 shares of beneficial interest (the “shelf offering”) was declared effective by the U.S. Securities and Exchange Commission (the “SEC”) on June 30, 2015. On September 28, 2015, the shareholders of the Fund received one non-transferable right for each share of the Fund held on that date rounded up to the nearest number of rights evenly divisible by three. Three rights were required to purchase one additional share of beneficial interest at the subscription price of $11.62 per share. On November 2, 2015, the Fund issued 1,821,255 shares of beneficial interest and recorded proceeds of $21,162,983, prior to the deduction of shelf and rights offering expenses of $276,827. The NAV per share of the Fund was reduced by approximately $0.53 per share as a result of the issuance of shares below NAV.
9. MARKET AND CREDIT RISKS The Fund may invest in below investment grade fixed income securities (commonly referred to as “junk” bonds), which carry ratings of BB or lower by Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc. (“S&P”) and/or Ba1 or lower by Moody’s Investors Service, Inc. (“Moody’s”). Investments in these below investment grade securities may be accompanied by a greater degree of credit risk than higher rated securities. Additionally, lower rated securities may be more susceptible to adverse economic and competitive industry conditions than investment grade securities. The relative illiquidity of some of these securities may adversely affect the ability of the Fund to dispose of such securities in a timely manner and at a fair price at times when it might be necessary or advantageous for the Fund to liquidate portfolio securities.
10. FOREIGN SECURITIES Investments in the securities of foreign issuers involve special risks which include changes in foreign exchange rates and the possibility of future adverse political and economic developments which could adversely affect the value of such securities. Moreover, securities of foreign issuers and traded in foreign markets may be less liquid and their prices more volatile than those of U.S. issuers and markets. In June 2016, the United Kingdom (UK) voted to leave the European Union (EU) following a referendum referred to as “Brexit.” It is expected that the UK will exit the EU within two years; however, the exact timeframe for the UK’s exit is unknown. There is still considerable uncertainty relating to the potential consequences of the withdrawal, including how the financial markets will react. In light of the uncertainties surrounding the impact of the Brexit on the broader global economy, the negative impact could be significant, potentially resulting in increased volatility and illiquidity and lower economic growth for companies that rely significantly on Europe for their business activities and revenues, which could have an adverse effect on the value of the Fund’s investments.
17 Annual Report 2016 |
DIVIDEND AND INCOME FUND
|
NOTES TO FINANCIAL STATEMENTS
| December 31, 2016 concluded
| |
Financial Statements
|
11. LEVERAGE RISK The Fund utilizes its LA to increase its assets available for investment. When the Fund leverages its assets, shareholders bear the fees associated with the LA and have potential to benefit or be disadvantaged from the use of leverage. The Investment Manager’s fee is also increased in dollar terms from the use of leverage. Consequently, the Fund and the Investment Manager may have differing interests in determining whether to leverage the Fund’s assets. Leverage creates risks that may adversely affect the return for shareholders including: the likelihood of greater volatility of net asset value and market price of Fund shares; fluctuations in the interest rate paid for the use of the LA; increased operating costs, which may reduce the Fund’s total return; the potential for a decline in the value of an investment acquired through leverage, while the Fund’s obligations under such leverage remains fixed; and the Fund is more likely to have to sell securities in a volatile market in order to meet asset coverage or other debt compliance requirements. There can be no assurance that the Fund’s use of leverage will be successful.
To the extent the income or capital appreciation derived from securities purchased with funds received from leverage exceeds the cost of leverage, the Fund’s return will be greater than if leverage had not been used, conversely, returns would be lower if the cost of the leverage exceeds the income or capital appreciation derived.
In addition to the risks created by the Fund’s use of leverage, the Fund is subject to the risk that it would be unable to timely, or at all, obtain replacement financing if the LA is terminated. Were this to happen, the Fund would be required to de-leverage, selling securities at a potentially inopportune time and incurring tax consequences. Further, the Fund’s ability to generate income from the use of leverage would be adversely affected.
12. CONTINGENCIES The Fund indemnifies its officers and trustees from certain liabilities that might arise from their performance of their duties for the Fund. Additionally, in the normal course of business, the Fund enters into contracts that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as it involves future claims that may be made against the Fund under circumstances that have not occurred.
13. SHARE REPURCHASE PROGRAM In accordance with Section 23(c) of the Act, the Fund may from time to time repurchase its shares in the open market at the discretion of and upon such terms as determined by the Board of Trustees. The Fund did not repurchase any of its shares during 2016 or 2015.
DIVIDEND AND INCOME FUND
|
Annual Report 2016 18
|
FINANCIAL HIGHLIGHTS
| December 31, 2016
| |
Financial Statements
|
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $13.11 | $16.66 | $17.20 | $15.53 | $15.48 | |||||||||||||||||||||||||||||||||||||||
Income from investment operations: (1) | ||||||||||||||||||||||||||||||||||||||||||||
Net investment income | 0.25 | 0.31 | 0.34 | 0.40 | 0.56 | |||||||||||||||||||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.84 | (1.68 | ) | 0.76 | 4.12 | 1.13 | ||||||||||||||||||||||||||||||||||||||
Total income from investment operations | 2.09 | (1.37 | ) | 1.10 | 4.52 | 1.69 | ||||||||||||||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||||||||||
Net investment income | (0.23 | ) | (0.26 | ) | (1.63) | (1.16) | (0.56) | |||||||||||||||||||||||||||||||||||||
Return of capital | (0.77 | ) | (1.37 | ) | - | (0.47) | (1.07) | |||||||||||||||||||||||||||||||||||||
Total distributions | (1.00 | ) | (1.63 | ) | (1.63) | (1.63) | (1.63) | |||||||||||||||||||||||||||||||||||||
Fund share transactions | ||||||||||||||||||||||||||||||||||||||||||||
Effect of reinvestment of distributions | (0.02 | ) | (0.02 | ) | (0.01) | (0.01) | (0.01) | |||||||||||||||||||||||||||||||||||||
Decrease in net asset value from rights offering | - | (0.53 | ) | - | (1.21) | - | ||||||||||||||||||||||||||||||||||||||
Total Fund share transactions | (0.02 | ) | (0.55 | ) | (0.01) | (1.22) | (0.01) | |||||||||||||||||||||||||||||||||||||
Net asset value, end of period | $14.18 | $13.11 | $16.66 | $17.20 | $15.53 | |||||||||||||||||||||||||||||||||||||||
Market value, end of period | $11.85 | $11.01 | $15.12 | $15.11 | $13.53 | |||||||||||||||||||||||||||||||||||||||
Total Return (2) | ||||||||||||||||||||||||||||||||||||||||||||
Based on net asset value | 18.13 | % | (10.65 | )% | 7.28 | % | 23.35 | % | 12.67 | % | ||||||||||||||||||||||||||||||||||
Based on market price | 17.55 | % | (17.32 | )% | 10.83 | % | 24.38 | % | 10.75 | % | ||||||||||||||||||||||||||||||||||
Ratios/Supplemental Data (3) | ||||||||||||||||||||||||||||||||||||||||||||
Net assets, end of period (000s omitted) | $151,005 | $138,417 | $144,280 | $148,081 | $93,951 | |||||||||||||||||||||||||||||||||||||||
Ratios to average net assets of: | ||||||||||||||||||||||||||||||||||||||||||||
Total expenses (4) (5) | 1.62 | % | 1.65 | % | 1.55 | % | 1.87 | % | 2.57 | % | ||||||||||||||||||||||||||||||||||
Net expenses (6) | 1.62 | % | 1.65 | % | 1.55 | % | 1.87 | % | 2.57 | % | ||||||||||||||||||||||||||||||||||
Net investment income | 1.85 | % | 2.02 | % | 1.94 | % | 2.38 | % | 3.56 | % | ||||||||||||||||||||||||||||||||||
Portfolio turnover rate | 69 | % | 35 | % | 52 | % | 45 | % | 13 | % | ||||||||||||||||||||||||||||||||||
Leverage analysis (000s omitted): | ||||||||||||||||||||||||||||||||||||||||||||
Outstanding loan balance, end of period | $27,780 | $8,066 | $17,284 | $21,346 | $21,348 | |||||||||||||||||||||||||||||||||||||||
Asset coverage per $1,000, end of period (7) | $6,436 | $18,161 | $9,347 | $7,937 | $5,401 | |||||||||||||||||||||||||||||||||||||||
Average commission rate paid |
| $0.0143
|
|
| $0.0185
|
|
| $0.0131
|
|
| $0.0139
|
|
| $0.0179
|
| |||||||||||||||||||||||||||||
(1) | The per share amounts were calculated using the average number of shares outstanding during the period. |
(2) | Total return on a market value basis is calculated assuming a purchase of shares on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Fund’s Dividend Reinvestment Plan. Generally, total return on a net asset value basis will be higher than total return on a market value basis in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total return on a net asset value basis will be lower than total return on a market value basis in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods. Total return calculated for a period of less than one year is not annualized. The calculation does not reflect brokerage commissions, if any. |
(3) | Expenses and income ratios do not include expenses incurred by the Acquired Funds in which the Fund invests. |
(4) | “Total expenses” are the expenses of the Fund as presented in the Statement of Operations before fee waivers and expense reductions. |
(5) | The ratio of total expenses excluding interest expense and fees incurred from the use of leverage to average net assets was 1.46%, 1.51%, 1.47%, 1.72% and 2.30% for the years ended December 31, 2016, 2015, 2014, 2013 and 2012, respectively. |
(6) | “Net expenses” are the expenses of the Fund presented in the Statement of Operations after fee waivers and expense reductions. |
(7) | Represents the value of total assets less liabilities not represented by senior securities representing indebtedness divided by the total number of senior indebtedness units, where one unit equals $1,000 of senior indebtedness. For purposes of this calculation, the bank credit facility is considered a senior security representing indebtedness. |
See notes to financial statements.
19 Annual Report 2016 |
DIVIDEND AND INCOME FUND
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
| December 31, 2016
| |
Financial Statements
|
To the Board of Trustees and Shareholders of
Dividend and Income Fund
We have audited the accompanying statement of assets and liabilities of Dividend and Income Fund, including the schedule of investments as of December 31, 2016 and the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2016, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Dividend and Income Fund as of December 31, 2016, the results of its operations, the changes in its net assets, its cash flows and the financial highlights for the periods noted above, in conformity with accounting principles generally accepted in the United States of America.
TAIT, WELLER & BAKER LLP |
Philadelphia, Pennsylvania |
February 27, 2017 |
DIVIDEND AND INCOME FUND
|
Annual Report 2016 20
|
POLICIES AND UPDATES
| (Unaudited)
| |
Additional Information
|
Investment Objectives and Policies
The Fund’s primary investment objective is to seek high current income. Capital appreciation is a secondary objective. The investment objectives of the Fund are fundamental policies that may not be changed without a vote of a majority of the Fund’s outstanding voting securities. The Fund is also subject to certain investment policies and restrictions that are fundamental and cannot be changed without such vote. A majority of the outstanding voting securities of the Fund is defined under the Act as the lesser of: (i) 67% or more of the Fund’s shares present at a meeting if more than 50% of the outstanding shares of the Fund are present and represented by proxy; or (ii) more than 50% of the outstanding shares of the Fund. All other investment strategies, policies, and restrictions described are not fundamental and may be changed by the Board of Trustees without shareholder approval except as required by law.
Limitations on Ownership
The Fund’s governing documents contain provisions designed to prevent an ownership change from taking place, which could limit the Fund’s ability to use capital loss carryovers, by limiting the ability of persons to own more than 4.99% of the Fund’s outstanding shares without the Board of Trustees’ prior approval. These provisions may have an anti-takeover effect on the Fund as do certain other provisions the Fund currently takes advantage of under Delaware law.
Shelf Registration Statement
The Fund has filed a shelf registration statement with the SEC allowing it to issue an additional $150 million shares of beneficial interest. Under the shelf registration statement, which was declared effective on June 30, 2015, the Fund, subject to market conditions, may raise additional equity capital from time to time in varying amounts and utilizing various offering methods. While raising additional equity capital by selling new shares may allow the Fund to pursue additional investment opportunities without the need to sell existing portfolio investments, it also entails risks – including that the issuance of additional shares of beneficial interest may reduce the premium or increase the discount at which the Fund’s shares trade to NAV in the secondary market. On September 28, 2015, pursuant to the shelf prospectus and a related prospectus supplement for a rights offering, the shareholders of the Fund received one non-transferable right for each share of the Fund held on that date rounded up to the nearest number of rights evenly divisible by three. On November 2, 2015, the Fund issued 1,821,255 shares of beneficial interest and recorded proceeds of $21,162,983, prior to the deduction of shelf and rights offering expenses of $276,827. This report is not an offer to sell Fund shares and is not a solicitation of an offer to buy Fund shares in any jurisdiction where the offers or sales are not permitted.
The prospectus and related prospectus supplement for any share offering will contain more complete information about the offering and should be read carefully before investing.
Proxy Voting
The Fund’s Proxy Voting Guidelines, which describe the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities, as well as its proxy voting record for the most recent 12 months ended June 30, are available without charge by calling the Fund collect at 1-212-785-0900, on the SEC’s website at www.sec.gov, and on the Fund’s website at www.DividendandIncomeFund.com.
Quarterly Schedule of Portfolio Holdings
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund makes the Forms N-Q available on its website at www.DividendandIncomeFund.com.
Anti-Takeover and Other Changes to the Governing Documents
In January 2017, the Board of Trustees adopted an amendment to the Fund’s Declaration of Trust which eliminates fiduciary duties of the Fund’s Trustees, officers, employees, and agents, except as required by federal law, including applicable provisions of the Act. Further, the amendment specifically states that the Trustees have no fiduciary duty to take action, or to consider taking any action, to narrow any discount by which the Fund’s shares may trade to net asset value. Additionally, the amendment provides that the “fiduciary exception” does not apply to the attorney-client privilege with respect to communications between the Trustees and legal counsel. The “fiduciary exception” is a concept, recognized by some courts, under which such communications are not entitled to the attorney-client privilege, and are thus discoverable in litigation. These changes in the Fund’s Declaration of Trust have not been approved by shareholders. These and other provisions of the Fund’s governing documents may be regarded as “anti takeover” provisions because, either alone or in combination, they could have the effect of, among other things, limiting the ability of other entities or persons to acquire control of the Fund or the ability of the Fund’s shareholders to effect changes in Fund management.
The foregoing summary is subject to the governing documents of the Fund, which are on file or are expected to be filed with the SEC and available on the Fund’s website www.DividendandIncomeFund.com.
21 Annual Report 2016
|
DIVIDEND AND INCOME FUND
|
DIVIDENDS
| (Unaudited)
| |
Additional Information
|
Managed Distributions
The Fund’s current distribution policy is to provide shareholders with a relatively stable cash flow and to attempt to reduce or eliminate the Fund’s market price discount to its net asset value per share. The policy may be changed or discontinued without notice. The distributions are paid from net investment income and any net capital gains, with the balance representing return of capital. The Fund’s distributions are not tied to its net investment income and net realized capital gains and do not represent yield or investment return. The Fund is subject to U.S. corporate, tax, and securities laws. Under U.S. tax accounting rules, the amount of distributable net income is determined on an annual basis and is dependent during the fiscal year on the aggregate gains and losses realized by the Fund and, to a lesser extent,
other factors. Therefore, the exact amount of distributable income can only be determined as of the end of the Fund’s fiscal year. Under the Act, however, the Fund is required to indicate the source of each distribution to shareholders. The Fund estimates that distributions for the period commencing January 1, 2017, including the distributions paid quarterly, will be comprised primarily from paid in capital and the balance from net investment income. This estimated distribution composition may vary from quarter to quarter because it may be materially impacted by future realized gains and losses on securities and other factors. In January, the Fund normally sends shareholders a Form 1099-DIV for the prior calendar year stating the amount and composition of distributions and providing information about their appropriate tax treatment.
2017 Quarterly Distribution Dates
| ||||
Declaration
| Record
| Payment
| ||
March 1 | March 15 | March 31 | ||
June 1 | June 15 | June 30 | ||
September 1 | September 18 | September 29 | ||
December 1 | December 15 | December 28 |
HISTORICAL DISTRIBUTION SUMMARY*
| ||||||||
PERIOD
| Investment Income
| Return of Capital
| Capital Gains
| Total
| ||||
2016 | $ 0.23 | $ 0.77 | $ - | $ 1.00 | ||||
2015 | $ 0.26 | $ 1.37 | $ - | $ 1.63 | ||||
2014** | $ 1.63 | $ - | $ - | $ 1.63 | ||||
2013** | $ 1.16 | $ 0.47 | $ - | $ 1.63 | ||||
2012 | $ 0.56 | $ 1.07 | $ - | $ 1.63 | ||||
2011 | $ 1.00 | $ 0.76 | $ - | $ 1.76 | ||||
2010 | $ 1.40 | $ 0.24 | $ - | $ 1.64 | ||||
2009 | $ 1.56 | $ 0.08 | $ - | $ 1.64 | ||||
2008 | $ 2.36 | $ 1.08 | $ - | $ 3.44 | ||||
2007 | $ 3.36 | $ 0.20 | $ - | $ 3.56 | ||||
2006 | $ 3.72 | $ - | $ - | $ 3.72 | ||||
2005 | $ 2.12 | $ 1.88 | $ - | $ 4.00 | ||||
2004 | $ 2.16 | $ 1.84 | $ - | $ 4.00 | ||||
2003 | $ 2.44 | $ 1.56 | $ - | $ 4.00 | ||||
2002 | $ 2.64 | $ 1.84 | $ - | $ 4.48 | ||||
2001 | $ 2.60 | $ 2.36 | $ - | $ 4.96 | ||||
2000 | $ 3.20 | $ 1.76 | $ - | $ 4.96 | ||||
1999 | $ 3.44 | $ 1.40 | $ 0.12 | $ 4.96 | ||||
From June 29, 1998 to November 30, 1998
| $ 1.64
| $ -
| $ -
| $ 1.64
| ||||
* The Fund implemented a 1-for-4 reverse stock split with an ex-date of December 10, 2012. Prior period distribution amounts have been restated to reflect the impact of the reverse stock split. | ||||||||
** Includes net capital gains recognized in the year and distributable as ordinary income in accordance with tax regulations. |
DIVIDEND AND INCOME FUND
|
Annual Report 2016 22
|
DIVIDENDS
| (Unaudited)
| |
Additional Information
|
Terms and Conditions of the 2015 Amended Dividend Reinvestment Plan
1. Each shareholder (the “Shareholder”) holding shares (the “Shares”) of Dividend and Income Fund (the “Fund”) will automatically be a participant in the Dividend Reinvestment Plan (the “Plan”), unless the Shareholder specifically elects to receive all dividends and capital gains in cash by notice to American Stock Transfer & Trust Company, LLC, 6201 15th Avenue, Brooklyn, New York 11219, 1-800-278-4353, as agent under the Plan (the “Agent”). The Agent will open an account for each Shareholder under the Plan in the same name in which such Shareholder’s Shares are registered.
2. Whenever the Fund declares a capital gain distribution or an income dividend payable in Shares or cash, participating Shareholders will take the distribution or dividend entirely in Shares and the Agent will automatically receive the Shares, including fractions, for the Shareholder’s account in accordance with the following:
Whenever the Market Price (as defined in Section 3 below) per Share is equal to or exceeds the net asset value per Share at the time Shares are valued for the purpose of determining the number of Shares equivalent to the cash dividend or capital gain distribution (the “Valuation Date”), participants will be issued additional Shares equal to the amount of such dividend divided by the lower of the Fund’s net asset value per Share or the Fund’s Market Price per Share. Whenever the Market Price per Share is less than such net asset value on the Valuation Date, participants will be issued additional Shares equal to the amount of such dividend divided by the Market Price. The Valuation Date is the business day before the dividend or distribution payment date. If the Fund should declare a dividend or capital gain distribution payable only in cash, the Agent will, as purchasing agent for the participating Shareholders, buy Shares in the open market or elsewhere, for such Shareholders’ accounts after the payment date, except that the Agent will endeavor to terminate purchases in the open market and cause the Fund to issue the remaining Shares if, following the commencement of the purchases, the Market Price of the Shares exceeds the net asset value. These remaining Shares will be issued by the Fund at a price equal to the lower of the Fund’s net asset value per Share or the Market Price.
In a case where the Agent has terminated open market purchases and caused the issuance of remaining Shares by the Fund, the number of Shares received by the participant in respect of the cash dividend or distribution will be based on the weighted average of prices paid for Shares purchased in the open market and the price at which the Fund issues remaining Shares. To the extent that the Agent is unable to terminate purchases in the open market before the Agent has completed its purchases, or remaining Shares cannot be issued by the Fund because the Fund declared a dividend or distribution payable only in cash, and the Market Price exceeds the net asset value of the Shares, the average Share purchase price paid by the Agent may exceed the net asset value of the Shares, resulting in the acquisition of fewer Shares than if the dividend or capital gain distribution had been paid in Shares issued by the Fund.
The Agent will apply all cash received as a dividend or capital gain distribution to purchase shares on the open market as soon as practicable after the payment date of the dividend or capital gain distribution, but in no event later than 45 days after that date, except when necessary to comply with applicable provisions of the federal securities laws.
3. For all purposes of the Plan: (a) the Market Price of the Shares on a particular date shall be the average of the volume weighted average sale prices or, if no sale occurred, then the mean between the closing bid and asked quotations, for the Shares quoted on the NYSE on each of the five business days the Shares traded ex-dividend on the NYSE immediately prior to such date, and (b) net asset value per share on a particular date shall be as determined by or on behalf of the Fund.
4. The open market purchases provided for herein may be made on any securities exchange on which the Shares are traded, in the over-the-counter market, or in negotiated transactions, and may be on such terms as to price, delivery, and otherwise as the Agent shall determine. Funds held by the Agent uninvested will not bear interest, and it is understood that, in any event, the Agent shall have no liability in connection with any inability to purchase Shares within 45 days after the initial date of such purchase as herein provided, or with the timing of any purchases effected. The Agent shall have no responsibility as to the value of the Shares acquired for the Shareholder’s account.
5. The Agent will hold Shares acquired pursuant to the Plan in non-certificated form in the Agent’s name or that of its nominee. At no additional cost, a Shareholder participating in the Plan may send to the Agent for deposit into its Plan account those certificate shares of the Fund in its possession. These Shares will be combined with those unissued full and fractional Shares acquired under the Plan and held by the Agent. Shortly thereafter, such Shareholder will receive a statement showing its combined holdings. The Agent will forward to the Shareholder any proxy solicitation material and will vote any Shares so held for the Shareholder only in accordance with the proxy returned by the Shareholder to the Fund.
6. The Agent will confirm to the Shareholder each acquisition for the Shareholder’s account as soon as practicable but not later than 60 days after the date thereof. Although the Shareholder may from time to time have an individual fractional interest (computed to three decimal places) in a Share, no certificates for fractional Shares will be issued. However, dividends and distributions on fractional Shares will be credited to Shareholders’ accounts. In the event of a termination of a Shareholder’s account under the Plan, the Agent will adjust for any such undivided fractional interest in cash at the opening market value of the Shares at the time of termination.
7. Any stock dividends or split Shares distributed by the Fund on Shares held by the Agent for the Shareholder will be credited to the Shareholder’s account. In the event that the Fund makes available to
23 Annual Report 2016
|
DIVIDEND AND INCOME FUND
|
DIVIDENDS
| (Unaudited)
| |
Additional Information
|
the Shareholder the right to purchase additional Shares or other securities, the Shares held for a Shareholder under the Plan will be added to other Shares held by the Shareholder in calculating the number of rights to be issued to such Shareholder. Transaction processing may either be curtailed or suspended until the completion of any stock dividend, stock split, or corporate action.
8. The Agent’s service fee for handling capital gain distributions or income dividends will be paid by the Fund. The Shareholder will be charged a pro rata share of brokerage commissions on all open market purchases.
9. The Shareholder may terminate the account under the Plan by notifying the Agent. A termination will be effective immediately if notice is received by the Agent three days prior to any dividend or distribution payment date. If the request is received less than three days prior to the payment date, then that dividend will be invested, and all subsequent dividends will be paid in cash.
10. These terms and conditions may be amended or supplemented by the Fund at any time or times but, except when necessary or appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission or any other regulatory authority, only by mailing to the Shareholder appropriate written notice at least 30 days prior to the effective date thereof. The amendment or supplement shall be deemed to be accepted by the Shareholder unless, prior to the effective date thereof, the Agent receives written notice of the termination of such Shareholder’s account under the Plan. Any such amendment may include an appointment by the Fund of a successor agent in its place and stead under these terms and conditions,
with full power and authority to perform all or any of the acts to be performed by the Agent. Upon any such appointment of an Agent for the purpose of receiving dividends and distributions, the Fund will be authorized to pay to such successor Agent all dividends and distributions payable on Shares held in the Shareholder’s name or under the Plan for retention or application by such successor Agent as provided in these terms and conditions.
11. In the case of Shareholders, such as banks, brokers, or nominees, which hold Shares for others who are the beneficial owners, the Agent will administer the Plan on the basis of the number of Shares certified from time to time by the Shareholders as representing the total amount registered in the Shareholder’s name and held for the account of beneficial owners who are to participate in the Plan.
12. The Agent shall at all times act in good faith and agree to use its best efforts within reasonable limits to insure the accuracy of all services performed under this agreement and to comply with applicable law, but assumes no responsibility and shall not be liable for loss or damage due to errors unless the errors are caused by its negligence, bad faith, or willful misconduct or that of its employees.
13. Neither the Fund nor the Agent will be liable for any act performed in good faith or for any good faith omission to act, including without limitation, any claim of liability arising out of (i) failure to terminate a Shareholder’s account, sell shares, or purchase shares, (ii) the prices at which shares are purchased or sold for the Shareholder’s account, and (iii) the time such purchases or sales are made, including price fluctuation in market value after such purchases or sales.
DIVIDEND AND INCOME FUND
|
Annual Report 2016 24
|
TRUSTEES
| (Unaudited)
| |
Additional Information
|
The following table sets forth certain information concerning the trustees currently serving on the Board of Trustees of the Fund. The trustees of each class shall serve for terms of three years and then carryover until their successors are elected and qualify.
INDEPENDENT TRUSTEES
| ||||||||||||||||||
Name, Address (1), and Date of Birth
| Position(s) Held with the Fund
| Trustee Since
| Principal Occupation(s) for the Past Five Years
|
Number of Portfolios in Fund Complex Overseen by Trustee (2)
| Other Directorships Held by Trustee (3)
| |||||||||||||
BRUCE B. HUBER, CLU, ChFC, MSFS February 7, 1930 |
Class I Trustee |
2011 |
Retired. He is a former Financial Representative with New England Financial, specializing in financial, estate, and insurance matters. He is a member of the Board, emeritus, of the Millbrook School, and a member of the Endowment Board of the Community YMCA of Red Bank, NJ.
|
4
|
|
None
|
| |||||||||||
PETER K. WERNER August 16, 1959 |
Class II Trustee |
2011 |
Since 1996, he has taught, directed, and coached many programs at The Governor’s Academy of Byfield, MA. Currently, he teaches economics and history at the Governor’s Academy. Previously, he held the position of Vice President in the Fixed Income Departments of Lehman Brothers and First Boston. His responsibilities included trading sovereign debt instruments, currency arbitrage, syndication, medium term note trading, and money market trading.
|
4
|
|
None |
| |||||||||||
JAMES E. HUNT December 14, 1930 |
Class III Trustee |
2011 |
Retired. He is a former Limited Partner of Hunt Howe Partners LLC (executive recruiting consultants).
|
4 |
|
None |
| |||||||||||
INTERESTED TRUSTEE
| ||||||||||||||||||
THOMAS B. WINMILL (4) PO Box 4, Walpole, NH 03608 June 25, 1959 |
Class II Trustee |
2011 |
He is President, Chief Executive Officer, Chairman, and a Trustee or Director of the Fund, Foxby Corp., and Midas Series Trust. He is President, Chief Executive Officer, and General Counsel of the Investment Manager and Midas Management Corporation (registered investment advisers, collectively, the “Advisers”), Bexil Securities LLC and Midas Securities Group, Inc. (registered broker-dealers, collectively, the “Broker-Dealers”), Bexil Corporation (a holding company) (“Bexil”) and Winmill & Co. Incorporated (a holding company) (“Winco”). He is a Director and Vice President of Global Self Storage, Inc. (a self storage REIT) (“SELF”). He is a Director of Bexil American Mortgage Inc. He is Vice President of Tuxis Corporation (a real estate company) (“Tuxis”). He is Chairman of the Investment Policy Committee of each of the Advisers (the “IPCs”), and he is a portfolio manager of the Fund, Foxby Corp., Midas Fund, and Midas Magic. He is a member of the New York State Bar and the SEC Rules Committee of the Investment Company Institute. He is the brother of Mark C. Winmill.
|
4 |
|
Global Self |
| |||||||||||
(1) Unless otherwise noted, the address of record of the trustees is 11 Hanover Square, New York, New York, 10005. (2) The “Fund Complex” is comprised of the Fund, Foxby Corp., and Midas Series Trust which are managed by the Investment Manager or its affiliates. (3) Refers to directorships and trusteeships held by a trustee in any company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 or any company registered as an investment company under the Act, excluding those within the Fund Complex. (4) He is an “interested person” of the Fund as defined in the Act due to his affiliation with the Investment Manager.
Messrs. Huber, Hunt, and Werner also serve on the Audit and Nominating Committees of the Board. Mr. Winmill also serves on the Executive Committee of the Board. Each of the trustees serves on the Continuing Trustees Committee of the Board.
|
|
25 Annual Report 2016 |
DIVIDEND AND INCOME FUND
|
OFFICERS
| (Unaudited)
| |
Additional Information
|
The executive officers, other than those who serve as trustees, and their relevant biographical information are set forth below.
EXECUTIVE OFFICERS
| ||||||||
Name, Address (1), and Date of Birth
|
Position(s) Held with the Fund
| Officer Since (2)
| Principal Occupation(s) for the Past Five Years
| |||||
Russell Kamerman, Esq. July 8, 1982 | Chief Compliance Officer, AML Officer, Associate General Counsel, Vice President, and Assistant Secretary
| 2014 | Chief Compliance Officer, Anti-Money Laundering Officer, Associate General Counsel, Vice President and Assistant Secretary of the other investment companies in the Fund Complex, the Advisers, the Broker-Dealers, Bexil, SELF, Tuxis, and Winco. He is a member of the New York State Bar and the Chief Compliance Officer Committee and the Advertising Compliance Advisory Committee of the Investment Company Institute. Previously, he was an attorney in private practice focusing on regulatory, compliance, and other general corporate matters relating to the structure, formation, and operation of investment funds and investment advisers.
| |||||
Heidi Keating March 28, 1959 | Vice President | 2011 | Vice President of the other investment companies in the Fund Complex, the Advisers, Bexil, SELF, Tuxis, and Winco. She is a member of the IPCs.
| |||||
Thomas O’Malley July 22, 1958 | Chief Accounting Officer, Chief Financial Officer, Treasurer, and Vice President
| 2011 | Chief Accounting Officer, Chief Financial Officer, Vice President, and Treasurer of the other investment companies in the Fund Complex, the Advisers, the Broker-Dealers, Bexil, SELF, Tuxis, and Winco. He is a certified public accountant. | |||||
John F. Ramirez, Esq. April 29, 1977 | General Counsel, Chief Legal Officer, Vice President, and Secretary | 2011 | General Counsel, Chief Legal Officer, Vice President, and Secretary of the other investment companies in the Fund Complex, SELF, and Tuxis. He is Vice President, Senior Associate General Counsel, and Secretary of the Advisers, the Broker-Dealers, Bexil, and Winco. He is a member of the IPCs. He also is a member of the New York State Bar and the Investment Advisers Committee, Small Funds Committee, and the Compliance Advisory Committee of the Investment Company Institute.
| |||||
Mark C. Winmill November 26, 1957 | Vice President | 2012 | Vice President of the other investment companies in the Fund Complex and the Advisers. He is a member of the IPCs. He is President, Chief Executive Officer, Chairman, and a Director of SELF and Tuxis. He is Executive Vice President and a Director of Winco, Vice President of Bexil, and a principal of the Broker-Dealers. He is the brother of Thomas B. Winmill.
| |||||
(1) Unless otherwise noted, the address of record of the officers is 11 Hanover Square, New York, New York, 10005. (2) Officers hold their positions with the Fund until a successor has been duly elected and qualifies. Officers are generally elected annually. The officers were last elected on December 14, 2016.
|
DIVIDEND AND INCOME FUND
|
Annual Report 2016 26
|
GENERAL INFORMATION
| (Unaudited)
| |
Additional Information
|
STOCK DATA AT DECEMBER 31, 2016 | ||||
NYSE Market Price per Share | $11.85 | |||
Net Asset Value per Share | $14.18 | |||
Market Price Discount to Net Asset Value | 16.4% | |||
NYSE Ticker Symbol | DNI | |||
Net Asset Value Ticker Symbol | XDNIX | |||
CUSIP Number | 25538A204 |
Investment Manager
Bexil Advisers LLC
11 Hanover Square
New York, NY 10005
1-212-785-0900
Stock Transfer Agent and Registrar
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
www.amstock.com
1-800-278-4353
DividendandIncomeFund.com
Visit us on the web at www.DividendandIncomeFund.com. The site provides information about the Fund, including market performance, net asset value, distributions, press releases, and shareholder reports. For further information, please email us at info@DividendandIncomeFund.com.
Cautionary Note Regarding Forward Looking Statements - Certain information presented in this report may contain “forward looking statements” within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. Forward looking statements include, but are not limited to, statements concerning the Fund’s plans, objectives, goals, strategies, future events, future performance, or intentions, and other information that is not historical information. In some cases, forward looking statements can be identified by terminology such as “believes,” “expects,” “estimates,” “may,” “will,” “should,” “anticipates” or “intends,” or the negative of such terms or other comparable terminology, or by discussions of strategy. All forward looking statements by the Fund involve known and unknown risks, uncertainties, and other factors, many of which are beyond the control of the Fund, which may cause the Fund’s actual results to be materially different from those expressed or implied by such statements. The Fund may also make additional forward looking statements from time to time. All such subsequent forward looking statements, whether written or oral, by the Fund or on its behalf, are also expressly qualified by these cautionary statements. All forward looking statements, including without limitation, the Fund’s examination of historical trends and estimates, are based upon the Fund’s current expectations and various assumptions. The Fund’s expectations, beliefs, and projections are expressed in good faith and it believes there is a reasonable basis for them, but there can be no assurance that the Fund’s expectations, beliefs, and projections will result or be achieved. All forward looking statements apply only as of the date made. The Fund undertakes no obligation to publicly update or revise forward looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events. There is no assurance that the Fund’s investment objectives will be attained.
Closed end funds are traded on the secondary market. The Fund’s investment return and principal value will fluctuate so that an investor’s shares may be worth more or less than the original cost. Shares of the Fund may trade above (a premium) or below (a discount) the net asset value (NAV) of the Fund’s portfolio. The market price for a closed end fund is based on supply and demand which fluctuates daily based on many factors, such as economic conditions and global events, investor sentiment, and security-specific factors. The possibility of a market decline should be considered market risk.
Investment products, including shares of the Fund, are not federally or FDIC insured, are not deposits or obligations of, or guaranteed by, any financial institution and involve investment risk, including possible loss of principal and fluctuation in value. Consult with your tax advisor or attorney regarding specific tax issues.
Past performance is no guarantee of future results. Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. You can obtain more information about the Fund by calling 212-785-0900 and visiting www.DividendandIncomeFund.com.
Fund Information - This report, including the financial statements herein, is provided for informational purposes only. This is not a prospectus, circular, or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report. This report shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state, or an exemption therefrom.
Section 23 Notice - Pursuant to Section 23 of the Investment Company Act of 1940, as amended, notice is hereby given that the Fund may in the future purchase its own shares in the open market. These purchases may be made from time to time, at such times, and in such amounts, as may be deemed advantageous to the Fund, although nothing herein shall be considered a commitment to purchase such shares.
This report is for shareholder information. This is not a prospectus intended for use in the purchase or sale of Fund shares.
NOT FDIC INSURED MAY LOSE VALUE NOT BANK GUARANTEED
27 Annual Report 2016
|
DIVIDEND AND INCOME FUND
|
DIVIDEND
AND INCOME
FUND
DNI TICKER
WWW.DIVIDENDANDINCOMEFUND.COM
|
PRINTED ON RECYCLED PAPER
(a) | The registrant has adopted a code of ethics (the "Code") that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. | |
(b) | No information need be disclosed pursuant to this paragraph. | |
(c) | Not applicable. | |
(d) | Not applicable. | |
(e) | Not applicable. | |
(f) | The text of the Code can be viewed on the registrant's website, www.dividendandincomefund.com, or a copy of the Code may be obtained free of charge by calling Winmill & Co. Incorporated collect at 1-212-785-0900. | |
(a) | The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are as follows: | |
AUDIT FEES | ||
2016 - $32,000 | ||
2015 - $31,000 | ||
(b) | The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item are as follows: | |
AUDIT-RELATED FEES | ||
2016 - $2,000 | ||
2015 - $1,500 | ||
Audit-related fees include amounts reasonably related to the performance of the audit of the registrant's financial statements, including the issuance of a report on internal controls and review of periodic reporting. | ||
(c) | The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. Registrants shall describe the nature of the services comprising the fees disclosed under this category are as follows: | |
TAX FEES | ||
2016 - $5,250 | ||
2015 - $5,250 | ||
Tax fees include amounts related to tax compliance, tax planning, and tax advice. | ||
(d) | The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item. Registrants shall describe the nature of the services comprising the fees disclosed under this category are as follows: | |
ALL OTHER FEES | ||
2016 - N/A | ||
2015 - N/A | ||
(e) | (1) Pursuant to the registrant's Audit Committee Charter, the Audit Committee shall consider for pre-approval any audit and non-audit services proposed to be provided by the auditors to the registrant and any non-audit services proposed to be provided by such auditors to the registrant's Investment Manager, if the engagement relates directly to the registrant's operations or financial reporting. In those situations when it is not convenient to obtain full Audit Committee approval, the Chairman of the Audit Committee is delegated the authority to grant pre-approvals of audit, audit-related, tax, and all other services so long as all such pre-approved decisions are reviewed with the full Audit Committee at its next scheduled meeting. Such pre-approval of non-audit services proposed to be provided by the auditors to the registrant is not necessary, however, under the following circumstances: (1) all such services do not aggregate to more than 5% of total revenues paid by the registrant to the auditor in the fiscal year in which services are provided, (2) such services were not recognized as non-audit services at the time of the engagement, and (3) such services are brought to the attention of the Audit Committee, and approved by the Audit Committee, prior to the completion of the audit. | |
(2) No services included in (b) - (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. | ||
(f) | Not applicable. | |
(g) | The aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant were $52,250 in 2016 and $63,750 in 2015. | |
(h) | The registrant's audit committee has determined that the provision of non-audit services that were rendered by accountant to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. |
1. | Delegation to Proxy Service Provider |
2. | Conflicts of Interest |
3. | Review of and Response to Errors |
4. | Ongoing Due Diligence |
i. | Review the adequacy of these proxy voting policies and procedures; |
ii. | Assess whether the Proxy Firm has properly submitted the voting instructions on behalf of the Funds; |
iii. | Review the Proxy Voting Guidelines of the Proxy Firm; and |
iv. | Request the Proxy Firm to provide information about, among other things, changes to its policies and procedures. |
United States Concise Proxy Voting Guidelines |
2017 Benchmark Policy Recommendations |
Effective for Meetings on or after February 1, 2017 Published January 17, 2017 |
![]() | General Recommendation: Generally vote for director nominees, except under the following circumstances: |
1. | Accountability |
1.1. | The board is classified, and a continuing director responsible for a problematic governance issue at the board/committee level that would warrant a withhold/against vote recommendation is not up for election. All appropriate nominees (except new) may be held accountable. |
1.2. | The board lacks accountability and oversight, coupled with sustained poor performance relative to peers. Sustained poor performance is measured by one- and three-year total shareholder returns in the bottom half of a company's four-digit GICS industry group (Russell 3000 companies only). Take into consideration the company's five-year total shareholder return and operational metrics. Problematic provisions include but are not limited to: |
› | A classified board structure; |
› | A supermajority vote requirement; |
› | Either a plurality vote standard in uncontested director elections or a majority vote standard with no plurality carve-out for contested elections; |
› | The inability of shareholders to call special meetings; |
› | The inability of shareholders to act by written consent; |
› | A dual-class capital structure; and/or |
› | A non-shareholder-approved poison pill. |
1.3. | The company's poison pill has a "dead-hand" or "modified dead-hand" feature. Vote against or withhold from nominees every year until this feature is removed; |
1.4. | The board adopts a poison pill with a term of more than 12 months ("long-term pill"), or renews any existing pill, including any "short-term pill" (12 months or less), without shareholder approval. A commitment or policy that puts a newly adopted pill to a binding shareholder vote may potentially offset an adverse vote recommendation. Review such companies with classified boards every year, and such companies with annually elected boards at least once every three years, and vote against or withhold votes from all nominees if the company still maintains a non-shareholder-approved poison pill; or |
1.5. | The board makes a material adverse change to an existing poison pill without shareholder approval. |
1.6. | The board adopts a poison pill with a term of 12 months or less ("short-term pill") without shareholder approval, taking into account the following factors: |
› | The date of the pill's adoption relative to the date of the next meeting of shareholders—i.e. whether the company had time to put the pill on the ballot for shareholder ratification given the circumstances; |
› | The issuer's rationale; |
› | The issuer's governance structure and practices; and |
› | The issuer's track record of accountability to shareholders. |
1.7. | The company's charter imposes undue restrictions on shareholders' ability to amend the bylaws. Such restrictions include, but are not limited to: outright prohibition on the submission of binding shareholder proposals, or share ownership requirements or time holding requirements in excess of SEC Rule 14a-8. Vote against on an ongoing basis. |
1.8. | The non-audit fees paid to the auditor are excessive (see discussion under "Auditor Ratification"); |
1.9. | The company receives an adverse opinion on the company's financial statements from its auditor; or |
1.10. | There is persuasive evidence that the Audit Committee entered into an inappropriate indemnification agreement with its auditor that limits the ability of the company, or its shareholders, to pursue legitimate legal recourse against the audit firm. |
1.11. | Poor accounting practices are identified that rise to a level of serious concern, such as: fraud; misapplication of GAAP; and material weaknesses identified in Section 404 disclosures. Examine the severity, breadth, chronological sequence, and duration, as well as the company's efforts at remediation or corrective actions, in determining whether withhold/against votes are warranted. |
1.12. | There is a significant misalignment between CEO pay and company performance (pay for performance); |
1.13. | The company maintains significant problematic pay practices; |
1.14. | The board exhibits a significant level of poor communication and responsiveness to shareholders; |
1.15. | The company fails to submit one-time transfers of stock options to a shareholder vote; or |
1.16. | The company fails to fulfill the terms of a burn-rate commitment made to shareholders. |
1.17. | The company's previous say-on-pay received the support of less than 70 percent of votes cast, taking into account: |
› | The company's response, including: |
› | Disclosure of engagement efforts with major institutional investors regarding the issues that contributed to the low level of support; |
› | Specific actions taken to address the issues that contributed to the low level of support; |
› | Other recent compensation actions taken by the company; |
› | Whether the issues raised are recurring or isolated; |
› | The company's ownership structure; and |
› | Whether the support level was less than 50 percent, which would warrant the highest degree of responsiveness. |
1.18. | Generally vote against or withhold from directors individually, committee members, or the entire board (except new nominees, who should be considered case-by-case) if the board amends the company's bylaws or charter without shareholder approval in a manner that materially diminishes shareholders' rights or that could adversely impact shareholders, considering the following factors: |
› | The board's rationale for adopting the bylaw/charter amendment without shareholder ratification; |
› | Disclosure by the company of any significant engagement with shareholders regarding the amendment; |
› | The level of impairment of shareholders' rights caused by the board's unilateral amendment to the bylaws/charter; |
› | The board's track record with regard to unilateral board action on bylaw/charter amendments or other entrenchment provisions; |
› | The company's ownership structure; |
› | The company's existing governance provisions; |
› | The timing of the board's amendment to the bylaws/charter in connection with a significant business development; and |
› | Other factors, as deemed appropriate, that may be relevant to determine the impact of the amendment on shareholders. |
› | Classified the board; |
› | Adopted supermajority vote requirements to amend the bylaws or charter; or |
› | Eliminated shareholders' ability to amend bylaws. |
1.19. | For newly public companies, generally vote against or withhold from directors individually, committee members, or the entire board (except new nominees, who should be considered case-by-case) if, prior to or in connection with the company's public offering, the company or its board adopted bylaw or charter provisions materially adverse to shareholder rights, or implemented a multi-class capital structure in which the classes have unequal voting rights considering the following factors: |
› | The level of impairment of shareholders' rights; |
› | The disclosed rationale; |
› | The ability to change the governance structure (e.g., limitations on shareholders' right to amend the bylaws or charter, or supermajority vote requirements to amend the bylaws or charter); |
› | The ability of shareholders to hold directors accountable through annual director elections, or whether the company has a classified board structure; |
› | Any reasonable sunset provision; and |
› | Other relevant factors. |
1.20. | Material failures of governance, stewardship, risk oversight3, or fiduciary responsibilities at the company; |
1.21. | Failure to replace management as appropriate; or |
1.22. | Egregious actions related to a director's service on other boards that raise substantial doubt about his or her ability to effectively oversee management and serve the best interests of shareholders at any company. |
2. | Responsiveness |
2.1. | The board failed to act on a shareholder proposal that received the support of a majority of the shares cast in the previous year. Factors that will be considered are: |
› | Disclosed outreach efforts by the board to shareholders in the wake of the vote; |
› | Rationale provided in the proxy statement for the level of implementation; |
› | The subject matter of the proposal; |
› | The level of support for and opposition to the resolution in past meetings; |
› | Actions taken by the board in response to the majority vote and its engagement with shareholders; |
› | The continuation of the underlying issue as a voting item on the ballot (as either shareholder or management proposals); and |
› | Other factors as appropriate. |
2.2. | The board failed to act on takeover offers where the majority of shares are tendered; |
2.3. | At the previous board election, any director received more than 50 percent withhold/against votes of the shares cast and the company has failed to address the issue(s) that caused the high withhold/against vote; |
2.4. | The board implements an advisory vote on executive compensation on a less frequent basis than the frequency that received the majority of votes cast at the most recent shareholder meeting at which shareholders voted on the say-on-pay frequency; or |
2.5. | The board implements an advisory vote on executive compensation on a less frequent basis than the frequency that received a plurality, but not a majority, of the votes cast at the most recent shareholder meeting at which shareholders voted on the say-on-pay frequency, taking into account: |
› | The board's rationale for selecting a frequency that is different from the frequency that received a plurality; |
› | The company's ownership structure and vote results; |
› | ISS' analysis of whether there are compensation concerns or a history of problematic compensation practices; and |
› | The previous year's support level on the company's say-on-pay proposal. |
3. | Composition |
3.1. | Generally vote against or withhold from directors (except new nominees, who should be considered case-by-case4) who attend less than 75 percent of the aggregate of their board and committee meetings for the period for which they served, unless an acceptable reason for absences is disclosed in the proxy or another SEC filing. Acceptable reasons for director absences are generally limited to the following: |
› | Medical issues/illness; |
› | Family emergencies; and |
› | Missing only one meeting (when the total of all meetings is three or fewer). |
3.2. | If the proxy disclosure is unclear and insufficient to determine whether a director attended at least 75 percent of the aggregate of his/her board and committee meetings during his/her period of service, vote against or withhold from the director(s) in question. |
3.3. | Sit on more than five public company boards; or |
3.4. | Are CEOs of public companies who sit on the boards of more than two public companies besides their own—withhold only at their outside boards5. |
4. | Independence |
4.1. | The inside or affiliated outside director serves on any of the three key committees: audit, compensation, or nominating; |
4.2. | The company lacks an audit, compensation, or nominating committee so that the full board functions as that committee; |
4.3. | The company lacks a formal nominating committee, even if the board attests that the independent directors fulfill the functions of such a committee; or |
4.4. | Independent directors make up less than a majority of the directors. |
![]() | General Recommendation: Generally vote for shareholder proposals requiring that the chairman's position be filled by an independent director, taking into consideration the following: |
› | The scope of the proposal; |
› | The company's current board leadership structure; |
› | The company's governance structure and practices; |
› | Company performance; and |
› | Any other relevant factors that may be applicable. |
![]() | General Recommendation: Generally vote for management and shareholder proposals for proxy access with the following provisions: |
› | Ownership threshold: maximum requirement not more than three percent (3%) of the voting power; |
› | Ownership duration: maximum requirement not longer than three (3) years of continuous ownership for each member of the nominating group; |
› | Aggregation: minimal or no limits on the number of shareholders permitted to form a nominating group; |
› | Cap: cap on nominees of generally twenty-five percent (25%) of the board. |
![]() | General Recommendation: Vote case-by-case on the election of directors in contested elections, considering the following factors: |
› | Long-term financial performance of the company relative to its industry; |
› | Management's track record; |
› | Background to the contested election; |
› | Nominee qualifications and any compensatory arrangements; |
› | Strategic plan of dissident slate and quality of the critique against management; |
› | Likelihood that the proposed goals and objectives can be achieved (both slates); and |
› | Stock ownership positions. |
![]() | General Recommendation: Vote for proposals to increase the number of authorized common shares where the primary purpose of the increase is to issue shares in connection with a transaction on the same ballot that warrants support. |
› | Past Board Performance: |
› | The company's use of authorized shares during the last three years; |
› | The Current Request: |
› | Disclosure in the proxy statement of the specific purposes of the proposed increase; |
› | Disclosure in the proxy statement of specific and severe risks to shareholders of not approving the request; and |
› | The dilutive impact of the request as determined relative to an allowable increase calculated by ISS (typically 100 percent of existing authorized shares) that reflects the company's need for shares and total shareholder returns. |
A. | Most companies: 100 percent of existing authorized shares. |
B. | Companies with less than 50 percent of existing authorized shares either outstanding or reserved for issuance: 50 percent of existing authorized shares. |
C. | Companies with one- and three-year total shareholder returns (TSRs) in the bottom 10 percent of the U.S. market as of the end of the calendar quarter that is closest to their most recent fiscal year end: 50 percent of existing authorized shares. |
D. | Companies at which both conditions (B and C) above are both present: 25 percent of existing authorized shares. |
![]() | General Recommendation: Vote case-by-case on mergers and acquisitions. Review and evaluate the merits and drawbacks of the proposed transaction, balancing various and sometimes countervailing factors including: |
› | Valuation - Is the value to be received by the target shareholders (or paid by the acquirer) reasonable? While the fairness opinion may provide an initial starting point for assessing valuation reasonableness, emphasis is placed on the offer premium, market reaction, and strategic rationale. |
› | Market reaction - How has the market responded to the proposed deal? A negative market reaction should cause closer scrutiny of a deal. |
› | Strategic rationale - Does the deal make sense strategically? From where is the value derived? Cost and revenue synergies should not be overly aggressive or optimistic, but reasonably achievable. Management should also have a favorable track record of successful integration of historical acquisitions. |
› | Negotiations and process - Were the terms of the transaction negotiated at arm's-length? Was the process fair and equitable? A fair process helps to ensure the best price for shareholders. Significant negotiation "wins" can also signify the deal makers' competency. The comprehensiveness of the sales process (e.g., full auction, partial auction, no auction) can also affect shareholder value. |
› | Conflicts of interest - Are insiders benefiting from the transaction disproportionately and inappropriately as compared to non-insider shareholders? As the result of potential conflicts, the directors and officers of the company may be more likely to vote to approve a merger than if they did not hold these interests. Consider whether these interests may have influenced these directors and officers to support or recommend the merger. The CIC figure presented in the "ISS Transaction Summary" section of this report is an aggregate figure that can in certain cases be a misleading indicator of the true value transfer from shareholders to insiders. Where such figure appears to be excessive, analyze the underlying assumptions to determine whether a potential conflict exists. |
› | Governance - Will the combined company have a better or worse governance profile than the current governance profiles of the respective parties to the transaction? If the governance profile is to change for the worse, the burden is on the company to prove that other issues (such as valuation) outweigh any deterioration in governance. |
1. | Maintain appropriate pay-for-performance alignment, with emphasis on long-term shareholder value: This principle encompasses overall executive pay practices, which must be designed to attract, retain, and appropriately motivate the key employees who drive shareholder value creation over the long term. It will take into consideration, among other factors, the link between pay and performance; the mix between fixed and variable pay; performance goals; and equity-based plan costs; |
2. | Avoid arrangements that risk "pay for failure": This principle addresses the appropriateness of long or indefinite contracts, excessive severance packages, and guaranteed compensation; |
3. | Maintain an independent and effective compensation committee: This principle promotes oversight of executive pay programs by directors with appropriate skills, knowledge, experience, and a sound process for compensation decision-making (e.g., including access to independent expertise and advice when needed); |
4. | Provide shareholders with clear, comprehensive compensation disclosures: This principle underscores the importance of informative and timely disclosures that enable shareholders to evaluate executive pay practices fully and fairly; |
5. | Avoid inappropriate pay to non-executive directors: This principle recognizes the interests of shareholders in ensuring that compensation to outside directors does not compromise their independence and ability to make appropriate judgments in overseeing managers' pay and performance. At the market level, it may incorporate a variety of generally accepted best practices. |
![]() | General Recommendation: Vote case-by-case on ballot items related to executive pay and practices, as well as certain aspects of outside director compensation. |
› | There is a significant misalignment between CEO pay and company performance (pay for performance); |
› | The company maintains significant problematic pay practices; |
› | The board exhibits a significant level of poor communication and responsiveness to shareholders. |
› | There is no MSOP on the ballot, and an against vote on an MSOP is warranted due to pay-for-performance misalignment, problematic pay practices, or the lack of adequate responsiveness on compensation issues raised previously, or a combination thereof; |
› | The board fails to respond adequately to a previous MSOP proposal that received less than 70 percent support of votes cast; |
› | The company has recently practiced or approved problematic pay practices, including option repricing or option backdating; or |
› | The situation is egregious. |
1. | Peer Group7 Alignment: |
› | The degree of alignment between the company's annualized TSR rank and the CEO's annualized total pay rank within a peer group, each measured over a three-year period. |
› | The multiple of the CEO's total pay relative to the peer group median. |
2. | Absolute Alignment8 – the absolute alignment between the trend in CEO pay and company TSR over the prior five fiscal years – i.e., the difference between the trend in annual pay changes and the trend in annualized TSR during the period. |
› | The ratio of performance- to time-based equity awards; |
› | The overall ratio of performance-based compensation; |
› | The completeness of disclosure and rigor of performance goals; |
› | The company's peer group benchmarking practices; |
› | Actual results of financial/operational metrics, such as growth in revenue, profit, cash flow, etc., both absolute and relative to peers; |
› | Special circumstances related to, for example, a new CEO in the prior FY or anomalous equity grant practices (e.g., bi-annual awards); |
› | Realizable pay9 compared to grant pay; and |
› | Any other factors deemed relevant. |
› | Problematic practices related to non-performance-based compensation elements; |
› | Incentives that may motivate excessive risk-taking; and |
› | Options backdating. |
› | Repricing or replacing of underwater stock options/SARS without prior shareholder approval (including cash buyouts and voluntary surrender of underwater options); |
› | Excessive perquisites or tax gross-ups, including any gross-up related to a secular trust or restricted stock vesting; |
› | New or extended agreements that provide for: |
› | CIC payments exceeding 3 times base salary and average/target/most recent bonus; |
› | CIC severance payments without involuntary job loss or substantial diminution of duties ("single" or "modified single" triggers); |
› | CIC payments with excise tax gross-ups (including "modified" gross-ups); |
› | Insufficient executive compensation disclosure by externally-managed issuers (EMIs) such that a reasonable assessment of pay programs and practices applicable to the EMI's executives is not possible. |
› | Multi-year guaranteed bonuses; |
› | A single or common performance metric used for short- and long-term plans; |
› | Lucrative severance packages; |
› | High pay opportunities relative to industry peers; |
› | Disproportionate supplemental pensions; or |
› | Mega annual equity grants that provide unlimited upside with no downside risk. |
› | Reason and motive for the options backdating issue, such as inadvertent vs. deliberate grant date changes; |
› | Duration of options backdating; |
› | Size of restatement due to options backdating; |
› | Corrective actions taken by the board or compensation committee, such as canceling or re-pricing backdated options, the recouping of option gains on backdated grants; and |
› | Adoption of a grant policy that prohibits backdating, and creates a fixed grant schedule or window period for equity grants in the future. |
› | Failure to respond to majority-supported shareholder proposals on executive pay topics; or |
› | Failure to adequately respond to the company's previous say-on-pay proposal that received the support of less than 70 percent of votes cast, taking into account: |
› | The company's response, including: |
› | Disclosure of engagement efforts with major institutional investors regarding the issues that contributed to the low level of support; |
› | Specific actions taken to address the issues that contributed to the low level of support; |
› | Other recent compensation actions taken by the company; |
› | Whether the issues raised are recurring or isolated; |
› | The company's ownership structure; and |
› | Whether the support level was less than 50 percent, which would warrant the highest degree of responsiveness. |
![]() | General Recommendation: Vote for annual advisory votes on compensation, which provide the most consistent and clear communication channel for shareholder concerns about companies' executive pay programs. |
![]() | General Recommendation: Vote case-by-case on certain equity-based compensation plans10 depending on a combination of certain plan features and equity grant practices, where positive factors may counterbalance negative factors, and vice versa, as evaluated using an "equity plan scorecard" (EPSC) approach with three pillars: |
› | Plan Cost: The total estimated cost of the company's equity plans relative to industry/market cap peers, measured by the company's estimated Shareholder Value Transfer (SVT) in relation to peers and considering both: |
› | SVT based on new shares requested plus shares remaining for future grants, plus outstanding unvested/unexercised grants; and |
› | SVT based only on new shares requested plus shares remaining for future grants. |
› | Plan Features: |
› | Automatic single-triggered award vesting upon a change in control (CIC); |
› | Discretionary vesting authority; |
› | Liberal share recycling on various award types; |
› | Lack of minimum vesting period for grants made under the plan; |
› | Dividends payable prior to award vesting. |
› | Grant Practices: |
› | The company's three-year burn rate relative to its industry/market cap peers; |
› | Vesting requirements in most recent CEO equity grants (3-year look-back); |
› | The estimated duration of the plan (based on the sum of shares remaining available and the new shares requested, divided by the average annual shares granted in the prior three years); |
› | The proportion of the CEO's most recent equity grants/awards subject to performance conditions; |
› | Whether the company maintains a claw-back policy; |
› | Whether the company has established post-exercise/vesting share-holding requirements. |
› | Awards may vest in connection with a liberal change-of-control definition; |
› | The plan would permit repricing or cash buyout of underwater options without shareholder approval (either by expressly permitting it – for NYSE and Nasdaq listed companies – or by not prohibiting it when the company has a history of repricing – for non-listed companies); |
› | The plan is a vehicle for problematic pay practices or a significant pay-for-performance disconnect under certain circumstances; or |
› | Any other plan features are determined to have a significant negative impact on shareholder interests. |
![]() | General Recommendation: Generally vote case-by-case, taking into consideration whether implementation of the proposal is likely to enhance or protect shareholder value, and in addition the following will also be considered: |
› | If the issues presented in the proposal are more appropriately or effectively dealt with through legislation or government regulation; |
› | If the company has already responded in an appropriate and sufficient manner to the issue(s) raised in the proposal; |
› | Whether the proposal's request is unduly burdensome (scope or timeframe) or overly prescriptive; |
› | The company's approach compared with any industry standard practices for addressing the issue(s) raised by the proposal; |
› | If the proposal requests increased disclosure or greater transparency, whether or not reasonable and sufficient information is currently available to shareholders from the company or from other publicly available sources; and |
› | If the proposal requests increased disclosure or greater transparency, whether or not implementation would reveal proprietary or confidential information that could place the company at a competitive disadvantage. |
![]() | General Recommendation: Generally vote against proposals requesting that companies implement specific price restraints on pharmaceutical products unless the company fails to adhere to legislative guidelines or industry norms in its product pricing practices. |
› | The potential for reputational, market, and regulatory risk exposure; |
› | Existing disclosure of relevant policies; |
› | Deviation from established industry norms; |
› | Relevant company initiatives to provide research and/or products to disadvantaged consumers; |
› | Whether the proposal focuses on specific products or geographic regions; |
› | The potential burden and scope of the requested report; |
› | Recent significant controversies, litigation, or fines at the company. |
![]() | General Recommendation: Generally vote for resolutions requesting that a company disclose information on the risks related to climate change on its operations and investments, such as financial, physical, or regulatory risks, considering: |
› | Whether the company already provides current, publicly-available information on the impact that climate change may have on the company as well as associated company policies and procedures to address related risks and/or opportunities; |
› | The company's level of disclosure is at least comparable to that of industry peers; and |
› | There are no significant controversies, fines, penalties, or litigation associated with the company's environmental performance. |
› | The company already discloses current, publicly-available information on the impacts that GHG emissions may have on the company as well as associated company policies and procedures to address related risks and/or opportunities; |
› | The company's level of disclosure is comparable to that of industry peers; and |
› | There are no significant, controversies, fines, penalties, or litigation associated with the company's GHG emissions. |
› | Whether the company provides disclosure of year-over-year GHG emissions performance data; |
› | Whether company disclosure lags behind industry peers; |
› | The company's actual GHG emissions performance; |
› | The company's current GHG emission policies, oversight mechanisms, and related initiatives; and |
› | Whether the company has been the subject of recent, significant violations, fines, litigation, or controversy related to GHG emissions. |
![]() | General Recommendation: Generally vote for requests for reports on a company's efforts to diversify the board, unless: |
› | The gender and racial minority representation of the company's board is reasonably inclusive in relation to companies of similar size and business; and |
› | The board already reports on its nominating procedures and gender and racial minority initiatives on the board and within the company. |
› | The degree of existing gender and racial minority diversity on the company's board and among its executive officers; |
› | The level of gender and racial minority representation that exists at the company's industry peers; |
› | The company's established process for addressing gender and racial minority board representation; |
› | Whether the proposal includes an overly prescriptive request to amend nominating committee charter language; |
› | The independence of the company's nominating committee; |
› | Whether the company uses an outside search firm to identify potential director nominees; and |
› | Whether the company has had recent controversies, fines, or litigation regarding equal employment practices. |
![]() |
The Global Leader In Corporate Governance |
Registered Investment Companies | Other Pooled Investment Vehicles | Other Accounts | |
Number: | 3 | N/A | 4 |
Assets (millions): | $46 | N/A | $21 |
(a) | The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the "1940 Act")) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended. |
(b) | There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant's second fiscal quarter of the period covered by the report that have materially affected, or are likely to materially affect the registrant's internal control over financial reporting. |
(a)(1) | Not applicable. |
(a)(2) | Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2) attached hereto as Exhibit 99.CERT. |
(b) | Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto as Exhibit 99.906 CERT. |
Dividend and Income Fund | |
March 10, 2017 | By: /s/ Thomas B. Winmill |
Thomas B. Winmill, President | |
Dividend and Income Fund | |
March 10, 2017 | By: /s/ Thomas O’Malley |
Thomas O’Malley, Chief Financial Officer | |
Dividend and Income Fund | |
March 10, 2017 | By: /s/ Thomas B. Winmill |
Thomas B. Winmill, President | |
Dividend and Income Fund | |
March 10, 2017 | By: /s/ Thomas O’Malley |
Thomas O’Malley, Chief Financial Officer |