Investment Company Act file number: 811-08747 | |
DIVIDEND AND INCOME |
FUND
SEEKING PRIMARILY HIGH CURRENT INCOME AND SECONDARILY CAPITAL APPRECIATION
DECEMBER 31, 2017
ANNUAL REPORT
WWW.DIVIDENDANDINCOMEFUND.COM
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PORTFOLIO ANALYSIS
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December 31, 2017
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TOP TEN |
December 31, 2017
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HOLDINGS
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1 Credit Acceptance Corporation | ||
2 Wyndham Worldwide Corporation | ||
3 Apple Inc. | ||
4 Copart, Inc. | ||
5 T. Rowe Price Group, Inc. | ||
6 The Home Depot, Inc. | ||
7 Tractor Supply Company | ||
8 First American Financial Corporation | ||
9 Cohen & Steers, Inc. | ||
10 Accenture plc Class A
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Top ten holdings comprise approximately 15% of total assets.
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TOP TEN |
December 31, 2017
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INDUSTRIES
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1 Security and Commodity Brokers, Dealers, Exchanges and Services | ||
2 Business Services | ||
3 Transportation Equipment | ||
4 Electronic and Other Electrical Equipment and Components, except Computer Equipment | ||
5 Chemical and Allied Products | ||
6 Non-Depository Credit Institutions | ||
7 Industrial and Commercial Machinery and Computer Equipment | ||
8 Transportation by Air | ||
9 Food and Kindred Products | ||
10 Communications | ||
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 2017
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TO OUR SHAREHOLDERS
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December 31, 2017
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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 2017 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 2017 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 “rising at a solid pace in the second half of 2017.” The staff viewed labor market conditions as reflecting in part a rebound from the negative effects of the hurricanes in September, as the national unemployment rate declined to 4.1% through November 2017. Regarding inflation, the staff noted that “total consumer price inflation, as measured by the 12-month percentage change in the price index for personal consumption expenditures (PCE), remained below 2 percent in October and was lower than early in the year.” In fact, over the 12 months through October 2017, total U.S. consumer prices, as measured by the PCE price index, increased slightly more than 1.5%.
Addressing the financial situation, the Fed staff noted that asset price movements appeared to be “reflecting slightly stronger-than-expected economic data releases, announcements related to Treasury debt issuance, and an increase in the perceived probability that the Congress would enact tax legislation. On net, the Treasury yield curve flattened, U.S. equity prices moved up, and the foreign exchange value of the dollar was little changed. Financing conditions for businesses and households remained broadly supportive of continued growth in household spending and business investment.”
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 2.2 - 2.6% for 2018, and 1.9 - 2.3% for 2019, and an unemployment rate in a range of 3.7 - 4.0% for 2018 and 3.6 - 4.0% for 2019.
In summary, the U.S. economy appears to be growing sluggishly during a period of strengthening employment and mild inflation, which suggests to us that investors might anticipate favorable markets ahead, although certain signs of speculative excess, such as cryptocurrencies and growing systemic leverage, indicate a cautious approach might be in order for 2018.
Investment Strategy and Returns
In view of these economic developments, the Fund’s strategy in 2017 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 2017, the Fund’s net investment income, net realized gain on investments, and unrealized appreciation on investments were, respectively, $1,680,452, $5,222,643, and $27,388,457, which contributed significantly to the Fund’s net asset value return of 24.09%, 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 ILG, Inc. in the real estate sector and Norfolk Southern Corp. in the railroads, line-haul operating sector and losses were taken on, among others, Potash Corporation of Saskatchewan Inc. in the agricultural chemicals sector and Rio Tinto plc ADRs in the metal mining sector. Although no particular investment was responsible for the majority of the unrealized appreciation or depreciation on investments over the period, retailers Dick’s Sporting Goods, Inc. and Signet Jewelers Limited were significant contributors to unrealized depreciation during the period. At the same time, the Fund benefited from unrealized appreciation from its holdings of Lam Research Corporation in the industrial and commercial machinery and computer equipment sector and HFF, Inc. in the real estate sector.
The Fund’s market return for 2017, also including the reinvestment of dividends, was 18.84%. 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 21.83%. This index is unmanaged and does not reflect fees and expenses, nor is it available for direct investment. At December 31, 2017, the Fund’s portfolio included over 100 securities of different issuers, with the top ten amounting to approximately 15% of total assets. At that time,
1 Annual Report 2017 |
DIVIDEND AND INCOME FUND
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TO OUR SHAREHOLDERS
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December 31, 2017
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the Fund’s investments totaled approximately $214 million, reflecting the use of about $35 million of leverage on net assets of about $179 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 Distributions
On December 1, 2017, the Fund declared its fourth quarterly distribution for the year of $0.15, amounting to $0.60 per share for the full year. The quarterly distribution reflects the Fund’s current distribution policy to provide shareholders with a relatively stable cash flow per share. 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, 2017 and based on the Fund’s results and estimates for that quarter, the fourth quarter distribution would include approximately 20%, 79%, and 1% 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 2018, the Fund intends to send a Form 1099-DIV for the calendar year concerning the tax treatment of the distributions that were paid to shareholders of record during the 12 months ended December 31, 2017.
Results of Share Offering
On November 2, 2017, the Fund announced that it had filed a post-effective amendment to its shelf registration statement with the U.S. Securities and Exchange Commission. The shelf registration is intended to allow the Fund flexible access to capital and to offer, from time to time, in one or more offerings, including through rights offerings, its shares of beneficial interest if and when the Fund’s Board of Trustees believes it to be in the best interests of the Fund and its shareholders. On December 13, 2017, the Fund announced that the Board had approved the terms of a non-transferable rights offering which would allow the Fund’s December 26, 2017 record date shareholders to purchase up to 3,600,000 additional shares of beneficial interest. The Fund distributed one right for each share held on the record date, rounded up to the nearest number of rights evenly divisible by three. For every three rights received, shareholders were entitled to buy one new share of the Fund, plus in certain circumstances, additional new shares pursuant to an over-subscription privilege.
On January 29, 2018, the Fund announced the completion of the non-transferable rights offering, in which approximately 1.66 million shares were issued for total gross proceeds of approximately $23.5 million. Affiliates of the Fund’s investment manager purchased shares through the rights offering on the same terms as other shareholders. The subscription price was determined to be 79% of the NAV per share on January 26, 2018, or $14.20. Offering expenses were estimated to be approximately $220,000, including expenses of the post-effective amendment to the shelf registration statement. The NAV per share of the Fund was reduced by approximately $0.52 per share as a result of the issuance of shares below NAV, resulting in dilution of about 2.9%. The Fund may, in the future and in its discretion, choose to make additional rights or other offerings from time to time for a number of shares and on terms which may or may not be similar to this rights offering. Updated information about the Fund will be contained in the Fund’s prospectus and any related prospectus supplement, a copy of which may be obtained from the Fund, should the Fund undertake to sell additional shares under the shelf registration statement.
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 distributions in cash but are interested in adding to
DIVIDEND AND INCOME FUND
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Annual Report 2017 2
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TO OUR SHAREHOLDERS
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December 31, 2017
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their account through the Fund’s Dividend Reinvestment Plan (the “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 8.8% 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.
Board of Trustees
Bruce B. Huber announced his retirement and resigned from the Board of the Fund effective January 29, 2018. Bruce agreed to join the Fund complex as an independent director on October 30, 1981 and over the years, he has given so much of his time, wisdom, and
perspective we shall remain deeply in his debt. We wish him the very best as he pursues his many, varied interests outside of the investment company world. Effective upon Bruce’s retirement, the Board appointed Roger A. Atkinson to fill the vacancy on the Board. With his educational background and expertise, Roger is expected to add greatly to the Board’s existing mix of skills and qualifications.
Sincerely,
Thomas B. Winmill
President and Co-Portfolio Manager
William Winmill
Vice President and Co-Portfolio Manager
3 Annual Report 2017 |
DIVIDEND AND INCOME FUND
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SCHEDULE OF PORTFOLIO INVESTMENTS
| December 31, 2017
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Financial Statements
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Common Stocks (113.84%)
| Shares
| Value
| ||||||
Apparel and Accessory Stores (2.27%) |
| |||||||
The GAP, Inc. | 40,000 | $ | 1,362,400 | |||||
Hanesbrands Inc. (a) | 130,000 | 2,718,300 | ||||||
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4,080,700 | ||||||||
Apparel and Other Finished Products Made from Fabrics and Similar Materials (1.59%) |
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Carter‘s, Inc. | 24,300 | 2,855,007 | ||||||
Automotive Dealers and Gasoline Service Stations (3.59%) |
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AutoZone, Inc. (b) | 4,200 | 2,987,754 | ||||||
Copart, Inc. (b) | 80,000 | 3,455,200 | ||||||
|
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6,442,954 | ||||||||
Building Materials, Hardware, Garden Supply, and Mobile Home Dealers (3.57%) |
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The Home Depot, Inc. | 17,000 | 3,222,010 | ||||||
Tractor Supply Company | 42,500 | 3,176,875 | ||||||
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6,398,885 | ||||||||
Business Services (9.76%) |
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Accenture plc Class A | 20,000 | 3,061,800 | ||||||
DST Systems, Inc. | 44,000 | 2,731,080 | ||||||
eBay Inc. (b) | 70,000 | 2,641,800 | ||||||
MAXIMUS, Inc. | 31,000 | 2,218,980 | ||||||
Omnicom Group Inc. (a) (c) | 37,000 | 2,694,710 | ||||||
Oracle Corporation (c) | 45,000 | 2,127,600 | ||||||
Robert Half International Inc. | 36,700 | 2,038,318 | ||||||
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17,514,288 | ||||||||
Chemical and Allied Products (6.43%) |
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Amgen Inc. | 13,500 | 2,347,650 | ||||||
Gilead Sciences, Inc. | 28,000 | 2,005,920 | ||||||
Hexcel Corporation | 23,500 | 1,453,475 | ||||||
LyondellBasell Industries N.V. Class A | 27,500 | 3,033,800 | ||||||
Monsanto Company | 15,000 | 1,751,700 | ||||||
Roche Holding Ltd. ADR | 30,000 | 947,400 | ||||||
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11,539,945 | ||||||||
Communications (3.94%) |
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AT&T Inc. (c) | 50,000 | 1,944,000 | ||||||
The Walt Disney Company | 25,500 | 2,741,505 | ||||||
Verizon Communications Inc. (c) | 45,000 | 2,381,850 | ||||||
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7,067,355 | ||||||||
Depository Institutions (2.40%) |
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Capital One Financial Corporation | 20,200 | 2,011,516 | ||||||
Signature Bank Corp. (b) | 6,000 | 823,560 | ||||||
Westpac Banking Corporation (a) | 60,000 | 1,462,800 | ||||||
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4,297,876 |
See notes to financial statements.
| Shares
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| Value
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Eating and Drinking Places (1.46%) |
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Cracker Barrel Old Country Store, Inc. (a) | 16,500 | $ | 2,621,685 | |||||
Educational Services (0.87%) |
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Grand Canyon Education, Inc. (b) | 17,500 | 1,566,775 | ||||||
Electric, Gas, and Sanitary Services (1.27%) |
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SCANA Corporation | 57,000 | 2,267,460 | ||||||
Electronic and Other Electrical Equipment and Components, except Computer Equipment (7.61%) |
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Cirrus Logic, Inc. (b) | 44,000 | 2,281,840 | ||||||
Intel Corporation (c) | 65,000 | 3,000,400 | ||||||
Methode Electronics, Inc. | 25,000 | 1,002,500 | ||||||
QUALCOMM, Incorporated (c) | 20,000 | 1,280,400 | ||||||
Skyworks Solutions, Inc. | 27,000 | 2,563,650 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd. | 40,000 | 1,586,000 | ||||||
Texas Instruments Incorporated | 18,500 | 1,932,140 | ||||||
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13,646,930 | ||||||||
Fabricated Metal Products, except Machinery and Transportation Equipment (2.89%) |
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Snap-on Incorporated (a) | 16,000 | 2,788,800 | ||||||
Sturm, Ruger & Company, Inc. (a) | 43,000 | 2,401,550 | ||||||
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5,190,350 | ||||||||
Food and Kindred Products (4.06%) |
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Campbell Soup Company (a) | 55,000 | 2,646,050 | ||||||
Hormel Foods Corporation (a) | 80,000 | 2,911,200 | ||||||
Molson Coors Brewing Company | 21,000 | 1,723,470 | ||||||
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7,280,720 | ||||||||
Food Stores (1.22%) |
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The Kroger Co. | 80,000 | 2,196,000 | ||||||
General Merchandise Stores (2.56%) |
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Dollar General Corporation | 20,600 | 1,916,006 | ||||||
Wal-Mart Stores, Inc. (c) | 27,150 | 2,681,063 | ||||||
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4,597,069 | ||||||||
Health Services (1.25%) |
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Laboratory Corporation of America Holdings | 14,000 | 2,233,140 | ||||||
Holding and Other Investment Offices (1.77%) |
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InterDigital, Inc. | 22,000 | 1,675,300 | ||||||
Tanger Factory Outlet Centers, Inc. (a) | 56,250 | 1,491,188 | ||||||
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3,166,488 |
DIVIDEND AND INCOME FUND
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Annual Report 2017 4
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SCHEDULE OF PORTFOLIO INVESTMENTS
| December 31, 2017
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Financial Statements
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Common Stocks (concluded)
| Shares
| Value
| ||||||
Home Furniture, Furnishings, and Equipment Stores (1.18%) |
| |||||||
Williams-Sonoma, Inc. (a) | 41,000 | $ | 2,119,700 | |||||
Hotels, Rooming Houses, Camps, and Other Lodging Places (1.94%) |
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Wyndham Worldwide Corporation | 30,000 | 3,476,100 | ||||||
Industrial and Commercial Machinery and Computer Equipment (5.23%) |
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Apple Inc. (c) | 20,500 | 3,469,215 | ||||||
Cisco Systems, Inc. (c) | 50,000 | 1,915,000 | ||||||
Eaton Corporation plc | 18,000 | 1,422,180 | ||||||
Lam Research Corporation | 14,000 | 2,576,980 | ||||||
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9,383,375 | ||||||||
Insurance Carriers (2.66%) |
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Assured Guaranty Ltd. | 50,000 | 1,693,500 | ||||||
First American Financial Corporation | 55,000 | 3,082,200 | ||||||
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4,775,700 | ||||||||
Measuring, Analyzing, and Controlling Instruments; Photographic, Medical and Optical Goods; Watches and Clocks (1.46%) |
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KLA-Tencor Corporation | 25,000 | 2,626,750 | ||||||
Miscellaneous Repair Services (0%) |
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Aquilex Holdings LLC Units (b) (d) | 756 | 0 | ||||||
Miscellaneous Retail (3.81%) |
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CVS Health Corporation | 37,000 | 2,682,500 | ||||||
Dick’s Sporting Goods, Inc. | 26,764 | 769,197 | ||||||
Signet Jewelers Limited (a) (c) | 12,400 | 701,220 | ||||||
Walgreens Boots Alliance, Inc. | 37,000 | 2,686,940 | ||||||
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6,839,857 | ||||||||
Non-Depository Credit Institutions (5.74%) |
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American Express Company | 24,000 | 2,383,440 | ||||||
Credit Acceptance Corporation (a) (b) | 11,500 | 3,720,020 | ||||||
Discover Financial Services | 22,000 | 1,692,240 | ||||||
Synchrony Financial | 65,000 | 2,509,650 | ||||||
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10,305,350 | ||||||||
Paper and Allied Products (0.80%) |
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Schweitzer-Mauduit International, Inc. | 31,755 | 1,440,407 | ||||||
Petroleum Refining and Related Industries (0.89%) |
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Andeavor | 13,998 | 1,600,531 | ||||||
Printing, Publishing, and Allied Industries (1.16%) |
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Deluxe Corporation | 27,000 | 2,074,680 |
See notes to financial statements.
| Shares
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| Value
|
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Real Estate (0.83%) |
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HFF, Inc. | 30,724 | $ | 1,494,415 | |||||
Security and Commodity Brokers, Dealers, Exchanges, and Services (10.58%) |
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Ameriprise Financial Inc. | 9,600 | 1,626,912 | ||||||
Cohen & Steers, Inc. (a) | 65,000 | 3,073,850 | ||||||
Diamond Hill Investment Group, Inc. | 12,000 | 2,479,920 | ||||||
Federated Investors, Inc. (a) | 81,000 | 2,922,480 | ||||||
GAMCO Investors, Inc. | 71,000 | 2,105,150 | ||||||
Invesco Ltd. | 37,000 | 1,351,980 | ||||||
Lazard Ltd. | 41,500 | 2,178,750 | ||||||
T. Rowe Price Group, Inc. | 30,900 | 3,242,337 | ||||||
|
| |||||||
18,981,379 | ||||||||
Tobacco Products (3.24%) |
| |||||||
Altria Group, Inc. | 40,000 | 2,856,400 | ||||||
Philip Morris International, Inc. | 28,000 | 2,958,200 | ||||||
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5,814,600 | ||||||||
Transportation by Air (4.19%) |
| |||||||
Alaska Air Group, Inc. | 35,000 | 2,572,850 | ||||||
Allegiant Travel Company (a) | 19,700 | 3,048,575 | ||||||
Southwest Airlines Co. | 29,000 | 1,898,050 | ||||||
|
| |||||||
7,519,475 | ||||||||
Transportation Equipment (7.64%) |
| |||||||
Ford Motor Company | 160,000 | 1,998,400 | ||||||
General Motors Company | 41,500 | 1,701,085 | ||||||
Honeywell International Inc. | 13,500 | 2,070,360 | ||||||
Huntington Ingalls Industries, Inc. | 4,700 | 1,107,790 | ||||||
Lear Corporation | 7,000 | 1,236,620 | ||||||
Magna International Inc. | 53,000 | 3,003,510 | ||||||
Polaris Industries Inc. | 20,900 | 2,591,391 | ||||||
|
| |||||||
13,709,156 | ||||||||
Wholesale Trade - Durable Goods (1.70%) |
| |||||||
TE Connectivity Ltd. | 32,000 | 3,041,280 | ||||||
Wholesale Trade - Nondurable Goods (2.27%) |
| |||||||
AmerisourceBergen Corporation | 13,500 | 1,239,570 | ||||||
Cardinal Health, Inc. | 31,000 | 1,899,370 | ||||||
McKesson Corporation | 6,000 | 935,700 | ||||||
|
| |||||||
4,074,640 | ||||||||
|
| |||||||
Total common stocks (Cost $169,579,544) |
| 204,241,022 | ||||||
|
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5 Annual Report 2017 |
DIVIDEND AND INCOME FUND
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SCHEDULE OF PORTFOLIO INVESTMENTS
| December 31, 2017
| |
Financial Statements
|
Corporate Bonds and Notes (0.29%)
| Principal Amount
| Value
| ||||||
Electric Services (0.29%) |
| |||||||
Elwood Energy LLC, 8.159%, 7/5/26 (Cost $477,289) | 470,886 | $ | 527,392 | |||||
|
| |||||||
Reorganization Interests (0%)
| Shares
| Value
| ||||||
Penson Technologies LLC Units (b) (d) (Cost $0) | 813,527 | 0 | ||||||
|
| |||||||
Master Limited Partnerships (2.19%)
| Units
| Value
| ||||||
Electric, Gas, and Sanitary Services (1.13%) | ||||||||
Enterprise Products Partners LP | 40,000 | 1,060,400 | ||||||
Spectra Energy Partners, LP | 24,400 | 964,776 | ||||||
|
| |||||||
2,025,176 | ||||||||
Mining and Quarrying of Nonmetallic Minerals, Except Fuels (1.06%) | ||||||||
Ciner Resources LP | 75,268 | 1,898,259 | ||||||
|
| |||||||
Total master limited partnerships (Cost $3,547,416) | 3,923,435 | |||||||
|
| |||||||
Preferred Stocks (3.01%)
| Shares
| Value
| ||||||
Communications (0.11%) | ||||||||
Frontier Communications Corp., | 17,500 | 189,350 |
| Value
| |||||||
Holding and other Investment Offices (2.37%) |
| |||||||
Annaly Capital Management, Inc., | 78,865 | $ | 2,010,269 | |||||
Annaly Capital Management, Inc., | 30,809 | 777,927 | ||||||
Armour Residential REIT, Inc., | 25,000 | 625,500 | ||||||
Public Storage, | 7,500 | 187,650 | ||||||
Public Storage, | 26,168 | 651,321 | ||||||
|
| |||||||
4,252,667 | ||||||||
Water Transportation (0.53%) |
| |||||||
Seaspan Corporation 8.20% Series G | 39,152 | 951,394 | ||||||
|
| |||||||
Total preferred stocks (Cost $5,021,302) | 5,393,411 | |||||||
|
| |||||||
Money Market Fund (0.24%)
| Shares
| Value
| ||||||
State Street Institutional U.S. Government Money Market Fund, Administration Class, 7 day annualized yield 0.95% | 433,077 | 433,077 | ||||||
|
| |||||||
Total investments |
| 214,518,337 | ||||||
Liabilities in excess of other assets (-19.57%) |
| (35,116,980 | ) | |||||
|
| |||||||
Net assets (100.00%) | $179,401,357 | |||||||
|
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(a) | All or a portion of this security was on loan pursuant to the Liquidity Agreement. As of December 31, 2017, the value of securities on loan was $27,260,633. |
(b) | Non-income producing. |
(c) | All or a portion of this security has been pledged as collateral pursuant to the Liquidity Agreement. As of December 31, 2017, the value of securities pledged was $13,803,062. |
(d) | Illiquid and/or restricted security that has been fair valued. |
ADR American Depositary Receipt
See notes to financial statements.
DIVIDEND AND INCOME FUND
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Annual Report 2017 6
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STATEMENT OF ASSETS AND LIABILITIES
| ||
Financial Statements
|
December 31, 2017
| ||||||
Assets | ||||||
Investments, at value (cost: $179,058,628) | $ 214,518,337 | |||||
Receivables: | ||||||
Dividends | 225,274 | |||||
Due from transfer agent | 25,178 | |||||
Interest | 18,792 | |||||
Foreign withholding tax reclaims | 4,078 | |||||
Deferred rights offering expenses | 42,489 | |||||
Other assets | 36,838 | |||||
| ||||||
Total assets | 214,870,986 | |||||
| ||||||
Liabilities | ||||||
Liquidity agreement borrowing | 35,000,000 | |||||
Payables: | ||||||
Accrued expenses | 238,754 | |||||
Investment management | 172,232 | |||||
Administrative services | 53,870 | |||||
Trustees | 4,773 | |||||
| ||||||
Total liabilities | 35,469,629 | |||||
| ||||||
Net Assets | $179,401,357 | |||||
| ||||||
Net Asset Value Per Share | ||||||
(applicable to 10,690,122 shares issued and outstanding) | $ 16.78 | |||||
| ||||||
Net Assets Consist of | ||||||
Paid in capital | $ 143,112,297 | |||||
Accumulated net realized gains on investments | 829,351 | |||||
Net unrealized appreciation on investments | 35,459,709 | |||||
| ||||||
$ 179,401,357 | ||||||
| ||||||
See notes to financial statements. |
7 Annual Report 2017 |
DIVIDEND AND INCOME FUND
|
STATEMENT OF OPERATIONS
| ||
Financial Statements
|
Year Ended
| ||||||
Investment Income | ||||||
Dividends (net of $20,016 foreign tax withholding) | $ 4,492,111 | |||||
Interest | 55,327 | |||||
| ||||||
Total investment income | 4,547,438 | |||||
| ||||||
Expenses | ||||||
Investment management | 1,633,060 | |||||
Interest and fees on liquidity agreement | 535,239 | |||||
Administrative services | 261,690 | |||||
Bookkeeping and pricing | 83,955 | |||||
Trustees | 79,351 | |||||
Legal | 67,545 | |||||
Shareholder communications | 58,256 | |||||
Insurance | 40,301 | |||||
Auditing | 36,395 | |||||
Exchange listing and registration | 34,675 | |||||
Transfer agent | 19,930 | |||||
Other | 9,878 | |||||
Custodian | 6,711 | |||||
| ||||||
Total expenses | 2,866,986 | |||||
| ||||||
Net investment income | 1,680,452 | |||||
| ||||||
Realized and Unrealized Gain (Loss) | ||||||
Net realized gain (loss) on | ||||||
Investments | 5,223,192 | |||||
Foreign currencies | (549) | |||||
Unrealized appreciation on | ||||||
Investments | 27,387,764 | |||||
Translation of assets and liabilities in foreign currencies | 693 | |||||
| ||||||
Net realized and unrealized gain | 32,611,100 | |||||
| ||||||
Net increase in net assets resulting from operations | $ 34,291,552 | |||||
| ||||||
See notes to financial statements. |
DIVIDEND AND INCOME FUND
|
Annual Report 2017 8
|
STATEMENTS OF CHANGES IN NET ASSETS
| ||
Financial Statements
|
Year Ended
| Year Ended
| |||||||||||
Operations | ||||||||||||
Net investment income | $ 1,680,452 | $ 2,619,191 | ||||||||||
Net realized gain on investments | 5,222,643 | 14,574,874 | ||||||||||
Unrealized appreciation on investments | 27,388,457 | 4,954,149 | ||||||||||
|
| |||||||||||
Net increase in net assets resulting from operations | 34,291,552 | 22,148,214 | ||||||||||
|
| |||||||||||
Distributions to Shareholders | ||||||||||||
Net investment income | (4,127,125) | (2,423,544) | ||||||||||
Capital gains | (942,627) | - | ||||||||||
Return of capital | (1,331,440) | (8,168,833) | ||||||||||
|
| |||||||||||
Total distributions | (6,401,192) | (10,592,377) | ||||||||||
|
| |||||||||||
Capital Share Transactions | ||||||||||||
Reinvestment of distributions to shareholders | 506,033 | 1,031,696 | ||||||||||
|
| |||||||||||
Increase in net assets from capital share transactions | 506,033 | 1,031,696 | ||||||||||
|
| |||||||||||
Total change in net assets | 28,396,393 | 12,587,533 | ||||||||||
Net Assets | ||||||||||||
Beginning of period | 151,004,964 | 138,417,431 | ||||||||||
|
| |||||||||||
End of period | $ 179,401,357 | $ 151,004,964 | ||||||||||
|
| |||||||||||
End of period net assets include undistributed net investment income | $ - | $ - | ||||||||||
|
| |||||||||||
See notes to financial statements. |
9 Annual Report 2017 |
DIVIDEND AND INCOME FUND
|
STATEMENT OF CASH FLOWS
| ||
Financial Statements
|
Year Ended
| ||||||
Cash Flows From Operating Activities | ||||||
Net increase in net assets resulting from operations | $ 34,291,552 | |||||
Adjustments to reconcile increase in net assets resulting from operations | ||||||
Unrealized appreciation of investments | (27,388,457) | |||||
Net realized gain on sales of investments | (5,222,643) | |||||
Purchase of long term investments | (71,732,618) | |||||
Proceeds from sales of long term investments | 68,557,020 | |||||
Net sales of short term investments | 125,598 | |||||
Accretion of discount net of amortization of premium of investments | (3,906) | |||||
Increase in dividends receivable | (9,529) | |||||
Increase in due from transfer agent | (25,178) | |||||
Decrease in interest receivable | 5,256 | |||||
Decrease in foreign withholding tax reclaims | 7,270 | |||||
Increase in deferred rights offering expenses | (42,489) | |||||
Increase in other assets | (8,750) | |||||
Increase in accrued expenses | 63,878 | |||||
Increase in investment management fee payable | 25,431 | |||||
Increase in administrative services payable | 31,637 | |||||
Increase in trustee expenses payable | 1,087 | |||||
| ||||||
Net cash used in operating activities | (1,324,841) | |||||
| ||||||
Cash Flows from Financing Activities | ||||||
Liquidity agreement borrowing, net | 7,220,000 | |||||
Cash distributions paid | (5,895,159) | |||||
| ||||||
Net cash provided by financing activities | 1,324,841 | |||||
| ||||||
Net change in cash | - | |||||
Cash | ||||||
Beginning of period | - | |||||
| ||||||
End of period | $ - | |||||
| ||||||
Supplemental disclosure of cash flow information: | ||||||
Cash paid for interest on liquidity agreement | $ 205,458 | |||||
Non-cash financing activities not included herein consisted of: | ||||||
Reinvestment of dividend distributions | $ 506,033 | |||||
See notes to financial statements. |
DIVIDEND AND INCOME FUND
|
Annual Report 2017 10
|
NOTES TO FINANCIAL STATEMENTS
| December 31, 2017
| |
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 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 “Investment Manager”). During the period covered by this report, the Fund’s subclassification changed from “non-diversified” to “diversified,” as such terms are defined in the Act.
As an investment company, the Fund 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 closing 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’s Valuation Committee under the direction of or pursuant to procedures approved by the Fund’s Board of Trustees, called “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 or reliable market quotation for the securities 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 such as closed end funds, exchange traded funds, and mutual funds (each, an “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 Acquired 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
11 Annual Report 2017 |
DIVIDEND AND INCOME FUND
|
NOTES TO FINANCIAL STATEMENTS
| ||
Financial Statements
|
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 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 or in the case of certain foreign securities, as soon as
practicable after the Fund is notified. 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. Taxes withheld on foreign dividends have been provided for in accordance with the Fund’s understanding of the applicable country’s tax rules and rates.
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 the years ended December 31, 2017 and 2016.
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 (2014-2016) or expected to be taken in the Fund’s 2017 tax returns.
The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities, and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and
DIVIDEND AND INCOME FUND
|
Annual Report 2017 12
|
NOTES TO FINANCIAL STATEMENTS
| ||
Financial Statements
|
rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply, the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.
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, 2017, the Fund’s reimbursements of such costs were $261,690, of which $169,770 and $91,920 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, 2017, Bexil Securities LLC (“Bexil Securities”), an affiliate of the Investment Manager, owned 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. For the years ended December 31, 2017 and 2016, Bexil Securities acquired 31,860 and 72,557 shares of the Fund, respectively, through participation in the Fund’s Dividend Reinvestment Plan.
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, 2017 and 2016 are comprised of the following:
Tax characteristics of distributions: | 2017 | 2016 | ||||||||||
Ordinary income | $ | 4,127,125 | $ | 2,423,544 | ||||||||
Capital gains | 942,627 | - | ||||||||||
Return of capital | 1,331,440 | 8,168,833 | ||||||||||
|
|
|
| |||||||||
Total distribution | $
| 6,401,192
|
| $
| 10,592,377
|
| ||||||
|
|
As of December 31, 2017, the components of distributable earnings on a tax basis were as follows:
Unrealized appreciation
| $
| 36,289,060
|
| |
|
|
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. The Fund utilized $1,442,265 of capital loss carryover during the year ended December 31, 2017.
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. As a transition rule, post-enactment net capital losses are required to be utilized before pre-enactment net capital losses.
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
13 Annual Report 2017 |
DIVIDEND AND INCOME FUND
|
NOTES TO FINANCIAL STATEMENTS
| ||
Financial Statements
|
to differences in partnership income, return of capital dividends, recharacterization of capital gain income, and timing of distributions. As of December 31, 2017, the Fund recorded the following financial reporting reclassifications to the net asset accounts to reflect those differences:
Accumulated
| Accumulated Net Realized
| Paid
| ||
$879,197
| $386,362
| $(1,265,559)
| ||
| ||||
|
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 is 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.
DIVIDEND AND INCOME FUND
|
Annual Report 2017 14
|
NOTES TO FINANCIAL STATEMENTS
| ||
Financial Statements
|
The following is a summary of the inputs used as of December 31, 2017 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 | $ 204,241,022 | $ - | $ 0 | $ 204,241,022 | ||||||||||||
Corporate bonds and notes | - | 527,392 | - | 527,392 | ||||||||||||
Reorganization interests | - | - | 0 | 0 | ||||||||||||
Master limited partnerships | 3,923,435 | - | - | 3,923,435 | ||||||||||||
Preferred stocks | 5,393,411 | - | - | 5,393,411 | ||||||||||||
Money market funds
|
| 33,077
|
|
| -
|
|
| -
|
|
| 433,077
|
| ||||
Total investments, at value |
| $ 213,990,945
|
|
| $ 527,392
|
|
| $ 0
|
|
| $ 214,518,337
|
| ||||
There were no securities transferred from level 1 on December 31, 2016 to level 2 on December 31, 2017.
The following is a reconciliation of level 3 assets including securities valued at zero:
| Common
|
Reorganization
| Total
| |||||||||
Balance at December 31, 2016 | $ | 0 | $ | 0 | $ | 0 | ||||||
Liquidation proceeds | (188,480) | (56,947) | (245,427) | |||||||||
Realized gain | - | 56,947 | 56,947 | |||||||||
Transfers into (out of) level 3 | - | - | - | |||||||||
Change in unrealized depreciation | 188,480 | - | 188,480 | |||||||||
Balance at December 31, 2017 | $ | 0 | $ | 0 | $ | 0 | ||||||
Net change in unrealized appreciation attributable to assets still held as level 3 at December 31, 2017 | $ | - | $ | - | $ | - | ||||||
Unrealized gains (losses) are included in the related amounts on investments in the Statement of Operations.
The Investment Manager, under the direction of or pursuant to procedures approved by the Fund’s Board of Trustees, considers various valuation techniques and inputs for valuing assets categorized within level 3 of the fair value hierarchy. These include, but are not limited to: 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; prices of 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; an evaluation of the forces that influence the issuer and the market in which the asset is purchased and sold; multiples of earnings, cash flow, enterprise value, and similar measures; and the discount rate for lack of marketability. Significant changes in any of those techniques or 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.
15 Annual Report 2017 |
DIVIDEND AND INCOME FUND
|
NOTES TO FINANCIAL STATEMENTS
| ||
Financial Statements
|
The following table presents additional information about valuation techniques and inputs used for assets that are measured at fair value and categorized as level 3 as of December 31, 2017:
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 $71,732,618 and $68,557,020, respectively, for the year ended December 31, 2017. As of December 31, 2017, for federal income tax purposes, the aggregate cost of securities was $178,229,277 and net unrealized appreciation was $36,289,060, comprised of gross unrealized appreciation of $40,641,393 and gross unrealized depreciation of $4,352,333.
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 or reliable market quotation for the securities existed. These differences in valuation could be material. Illiquid and/or restricted securities owned as of December 31, 2017 were as follows:
|
Acquisition
|
| Cost | Value | ||||||||
Aquilex Holdings LLC | 3/08/12 | $ | 307,892 | $ | 0 | |||||||
Penson Technologies LLC
|
| 4/09/14
|
|
| 0
|
|
| 0
|
| |||
Total | $ | 307,892 | $ | 0 | ||||||||
Percent of net assets | 0.17 | % | 0.00 | % | ||||||||
|
|
7. LIQUIDITY AGREEMENT The Fund has 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 is obligated to indemnify the Fund for certain losses that may arise in connection with the default and SSB may use 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 can be mitigated by receiving collateral from
DIVIDEND AND INCOME FUND
|
Annual Report 2017 16
|
NOTES TO FINANCIAL STATEMENTS
| ||
Financial Statements
|
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 be terminated.
The outstanding loan balance and the value of assets pledged as collateral as of December 31, 2017 were $35,000,000 and $13,803,062, respectively, and the weighted average interest rate and average daily amount outstanding under the LA for the year ended December 31, 2017 were 2.38% and $9,994,186, respectively. The maximum amount outstanding during the year ended December 31, 2017 was $35,000,000.
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, 2017, there were 10,690,122 shares outstanding. Share transactions for the following periods were:
Year Ended December 31, 2017
| Year Ended December 31, 2016
| |||||||||||
Shares issued in: | Shares
| Amount
| Shares
| Amount
| ||||||||
Reinvestment of distributions | 40,951
| $ 506,033
|
| 91,916
|
| $
| 1,031,696
|
| ||||
On December 13, 2017, the Board of Trustees approved the terms of a non-transferable rights offering to Fund shareholders of record as of December 26, 2017 (the “Record Date”) to purchase up to 3,600,000 additional shares of beneficial interest (the “Primary Subscription”). Record Date Shareholders received one right for each share of the Fund held on the Record Date. For every three rights held, a holder was entitled to buy one new share of the Fund. Shareholders who fully exercised all of their primary subscription rights were eligible for an over-subscription privilege entitling those shareholders to subscribe, subject to certain limitations and subject to allotment, for additional shares covered by any unexercised rights. In addition, the Fund could increase the number of shares subject to subscription through the exercise of the over-allotment option by up to 25%. (see Note 17).
Offering costs incurred as a result of the rights offering, through December 31, 2017, were approximately $42,489. Management estimates an additional $177,511 of costs expected to be incurred, resulting in total offering costs of approximately $220,000. The Statement of Assets and Liabilities reflects the current offering costs of $42,489 as deferred rights offering expenses, which are primarily legal costs. These offering costs, as well as offering costs incurred subsequent to December 31, 2017, will be charged to paid in capital upon the exercise of the rights.
9. MARKET AND CREDIT RISKS The Fund may invest in below investment grade securities (commonly referred to as “junk” bonds). Below investment grade securities are regarded as being predominantly speculative as to the issuer’s ability to make payments of principal and interest. The risks associated with acquiring the securities of such issuers generally are greater than is the case with higher rated securities. For example, during an economic downturn or a sustained period of rising interest rates, issuers of below investment grade securities may be more likely to experience financial stress, especially if such issuers are highly leveraged. During periods of economic downturn, such issuers may not have sufficient revenues to meet their interest payment obligations. The issuer’s ability to service its debt obligations also may be adversely affected by specific issuer developments, the issuer’s inability to meet specific projected business forecasts, or the unavailability of additional financing. Therefore, there can be no assurance that in the future there will not exist a higher default rate relative to the rates currently existing in the market for below investment grade securities. The risk of loss due to default by the issuer is significantly greater for the holders of below investment grade securities because such securities may be unsecured and may be subordinate to other creditors of the issuer. 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.
17 Annual Report 2017 |
DIVIDEND AND INCOME FUND
|
NOTES TO FINANCIAL STATEMENTS
| ||
Financial Statements
|
10. FOREIGN SECURITIES RISK Investments in the securities of foreign issuers involve special risks which include changes in foreign exchange rates and the possibility of future adverse political, tax, and economic developments which could adversely affect the value of such securities. Moreover, securities of foreign issuers and securities traded in foreign markets may be less liquid and their prices more volatile than those of U.S. issuers and markets. In addition, in certain foreign countries, there is the possibility of expropriation or confiscatory taxation, political, or social instability, or diplomatic developments that could affect U.S. investments in the securities of issuers domiciled in those countries.
11. LEVERAGE RISK The Fund from time to time may borrow under its LA to increase the assets in its investment portfolio over its net assets, a practice called leverage. Leverage borrowing creates an opportunity for increased return but, at the same time, involves special risk considerations. Leverage increases the likelihood of greater volatility of net asset value and market price of the Fund’s shares. If the return that the Fund earns on the additional securities purchased fails to cover the interest and fees incurred on the monies borrowed, the net asset value of the Fund (and the return of the Fund) would be lower than if borrowing had not been incurred. In addition, when the Fund borrows at a variable interest rate, there is a risk that fluctuations in the interest rate may adversely affect the return to the Fund’s shareholders. Interest payments and fees incurred in connection with such borrowings will reduce the amount of net income available for distribution to shareholders. There is no assurance that a borrowing strategy will be successful during any period in which it is employed. Borrowing on a secured basis results in certain additional risks. Should securities that are pledged as collateral to secure its obligations under the LA decline in value, the Fund may be required to pledge additional assets in the form of cash or securities to the lender to avoid liquidation of the pledged assets. In the event of a steep drop in the value of pledged securities, it might not be possible to liquidate assets quickly enough and this could result in mandatory liquidation of the pledged assets in a declining market at relatively low prices. Furthermore, the Investment Manager’s ability to sell the pledged securities is limited by the terms of the LA, which may reduce the Fund’s investment flexibility over the pledged securities. Because the fee paid to the Investment Manager is calculated on the basis of 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, the dollar amount of the management fee paid by the Fund to the Investment Manager will be higher (and the Investment Manager will benefit to that extent) when leverage is utilized.
12. CYBERSECURITY RISK With the increased use of technologies such as the Internet to conduct business, the Fund is susceptible to operational, information security, and related risks. Cyber incidents affecting the Fund or its service providers may cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Fund’s ability to calculate its net asset value, impediments to trading, the inability of shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional related costs.
13. 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.
14. 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 the years ended December 31, 2017 and 2016.
15. OTHER INFORMATION The Fund may at times raise cash for investment by issuing shares through one or more offerings, including rights offerings. Proceeds from any such offerings will be invested in accordance with the investment objectives and policies of the Fund.
16. ACCOUNTING PRONOUNCEMENTS In October 2016, the Securities and Exchange Commission (“SEC”) adopted investment company reporting modernization reforms which, among other things, amend Regulation S-X (“Regulation S-X Amendments”) to require standardized, enhanced disclosures, particularly related to derivatives, in investment company financial statements. The compliance date for the Regulation S-X Amendments is for reporting period end dates on or after August 1, 2017. The Investment Manager determined that the impact of the Regulation S-X Amendments had no effect on the Fund’s net assets or results of operations including financial statement disclosures for the year ended December 31, 2017.
DIVIDEND AND INCOME FUND
|
Annual Report 2017 18
|
NOTES TO FINANCIAL STATEMENTS
| ||
Financial Statements
|
17. SUBSEQUENT EVENT On January 29, 2018, the Fund announced the completion and results of its non-transferable rights offering (the “Offer”) to shareholders of record on December 26, 2017.
The Offer commenced on December 27, 2017 and expired on January 26, 2018 (the “Expiration Date”). The subscription price per share was $14.20, determined based upon a formula equal to 95% of the market price or 79% of the net asset value (“NAV“) per share, whichever is greater, on the Expiration Date. Market price
per share was determined based on the average of the last reported sales prices of a share on the New York Stock Exchange for the five trading days preceding the Expiration Date (not including the Expiration Date). For this purpose, the market price per share, using the formula described above, was $14.07 and the NAV per share on the Expiration Date was $17.98. The Offer resulted in total gross proceeds of $23,497,606 and the issuance of 1,654,761 shares. The new shares were issued on February 2, 2018.
19 Annual Report 2017 |
DIVIDEND AND INCOME FUND
|
FINANCIAL HIGHLIGHTS
| December 31, 2017
| |
Financial Statements
|
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||
Per Share Operating Performance | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 14.18 | $ | 13.11 | $ | 16.66 | $ | 17.20 | $ | 15.53 | ||||||||||||||||||||||||||||||||||
Income from investment operations: (1) | ||||||||||||||||||||||||||||||||||||||||||||
Net investment income | 0.16 | 0.25 | 0.31 | 0.34 | 0.40 | |||||||||||||||||||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 3.05 | 1.84 | (1.68 | ) | 0.76 | 4.12 | ||||||||||||||||||||||||||||||||||||||
Total income from investment operations | 3.21 | 2.09 | (1.37 | ) | 1.10 | 4.52 | ||||||||||||||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||||||||||
Net investment income | (0.39 | ) | (0.23 | ) | (0.26 | ) | (1.63 | ) | (1.16 | ) | ||||||||||||||||||||||||||||||||||
Capital gains | (0.09 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
Return of capital | (0.12 | ) | (0.77 | ) | (1.37 | ) | - | (0.47 | ) | |||||||||||||||||||||||||||||||||||
Total distributions | (0.60 | ) | (1.00 | ) | (1.63 | ) | (1.63 | ) | (1.63 | ) | ||||||||||||||||||||||||||||||||||
Fund share transactions | ||||||||||||||||||||||||||||||||||||||||||||
Effect of reinvestment of distributions | (0.01 | ) | (0.02 | ) | (0.02 | ) | (0.01 | ) | (0.01 | ) | ||||||||||||||||||||||||||||||||||
Decrease in net asset value from rights offering | - | - | (0.53 | ) | - | (1.21 | ) | |||||||||||||||||||||||||||||||||||||
Total Fund share transactions | (0.01 | ) | (0.02 | ) | (0.55 | ) | (0.01 | ) | (1.22 | ) | ||||||||||||||||||||||||||||||||||
Net asset value, end of period | $ | 16.78 | $ | 14.18 | $ | 13.11 | $ | 16.66 | $ | 17.20 | ||||||||||||||||||||||||||||||||||
Market value, end of period | $ | 13.43 | $ | 11.85 | $ | 11.01 | $ | 15.12 | $ | 15.11 | ||||||||||||||||||||||||||||||||||
Total Return (2) | ||||||||||||||||||||||||||||||||||||||||||||
Based on net asset value | 24.09 | % | 18.13 | % | (10.65 | )% | 7.28 | % | 23.35 | % | ||||||||||||||||||||||||||||||||||
Based on market price | 18.84 | % | 17.55 | % | (17.32 | )% | 10.83 | % | 24.38 | % | ||||||||||||||||||||||||||||||||||
Ratios/Supplemental Data (3) | ||||||||||||||||||||||||||||||||||||||||||||
Net assets, end of period (000s omitted) | $ | 179,401 | $ | 151,005 | $ | 138,417 | $ | 144,280 | $ | 148,081 | ||||||||||||||||||||||||||||||||||
Ratios to average net assets of: | ||||||||||||||||||||||||||||||||||||||||||||
Total expenses (4) (5) | 1.77 | % | 1.62 | % | 1.65 | % | 1.55 | % | 1.87 | % | ||||||||||||||||||||||||||||||||||
Net expenses (6) | 1.77 | % | 1.62 | % | 1.65 | % | 1.55 | % | 1.87 | % | ||||||||||||||||||||||||||||||||||
Net investment income | 1.04 | % | 1.85 | % | 2.02 | % | 1.94 | % | 2.38 | % | ||||||||||||||||||||||||||||||||||
Portfolio turnover rate | 40 | % | 69 | % | 35 | % | 52 | % | 45 | % | ||||||||||||||||||||||||||||||||||
Leverage analysis, end of period: | ||||||||||||||||||||||||||||||||||||||||||||
Outstanding loan balance (000s omitted) | $ | 35,000 | $ | 27,780 | $ | 8,066 | $ | 17,284 | $ | 21,346 | ||||||||||||||||||||||||||||||||||
Asset coverage per $1,000 (7) | $ | 6,126 | $ | 6,436 | $ | 18,161 | $ | 9,347 | $ | 7,937 | ||||||||||||||||||||||||||||||||||
Average commission rate paid | $ | 0.0174 | $ | 0.0143 | $ | 0.0185 | $ | 0.0131 | $ | 0.0139 | ||||||||||||||||||||||||||||||||||
(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 1.44%, 1.46%, 1.51%, 1.47% and 1.72% for the years ended December 31, 2017, 2016, 2015, 2014, and 2013, 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 LA is considered a senior security representing indebtedness. |
See notes to financial statements.
DIVIDEND AND INCOME FUND
|
Annual Report 2017 20
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
| ||
Financial Statements
|
To the Shareholders and Board of Trustees of
Dividend and Income Fund
New York, New York
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of Dividend and Income Fund (the “Fund”), including the schedule of investments, as of December 31, 2017, the related statement 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, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, the results of its operations and cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We have served as the Fund’s auditor since 2011.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017 by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
February 26, 2018
21 Annual Report 2017 |
DIVIDEND AND INCOME FUND
|
The additional information below and on the following pages is supplemental and not part of the financial statements of the Fund.
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 or 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, and will terminate three years later, 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 net asset value in the secondary market. On September 28, 2015, pursuant to the first take-down under the shelf registration statement involving a rights offering, 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. On December 26, 2017, pursuant to the second takedown under the shelf registration statement involving a rights offering, shareholders of the Fund received one nontransferable right for each share of the Fund held on that date rounded up to the nearest number of rights evenly divisible by three. On February 2, 2018, the Fund issued 1,654,761 shares of beneficial interest and recorded proceeds of $23,497,606, prior to the deduction of shelf and rights offering expenses estimated to be approximately $220,000. Future offerings under the shelf registration statement, if any, will be made pursuant to a prospectus supplement, which will contain detailed information regarding the offering and should be reviewed carefully before investing. 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.
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.
DIVIDEND AND INCOME FUND
|
Annual Report 2017 22
|
POLICIES AND UPDATES
|
(Unaudited) | |
Additional Information
|
Exclusive Forum
In October 2017, the Fund’s bylaws (“Bylaws”) were amended to provide that, unless the Fund consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, in the event that the Court of Chancery does not have jurisdiction, the Superior Court of the State of Delaware or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Fund, (ii) any action asserting a claim of breach of any duty owed by any trustee or officer or other employee of the Fund to the Fund or to the shareholders of the Fund, including record and beneficial owners, (iii) any action asserting a claim against the Fund or any trustee or officer or other employee of the Fund arising pursuant to any provision of the Delaware Statutory Trust Act, the Fund’s Amended and Restated Agreement and Declaration of Trust (the “Declaration of Trust”), or the Bylaws, (iv) any action to interpret, apply, enforce or determine the validity of the Declaration of Trust or the Bylaws (collectively, the “Governing Documents”), or (v) any action asserting a claim against the Fund or any trustee or officer or other employee of the Fund that is governed by the internal affairs doctrine. The Governing Documents further provide that, if any such action is filed in a court other than the Court of Chancery of the State of Delaware, the Superior Court of the State of Delaware, or the federal
district court for the District of Delaware (a “Foreign Action”) in the name of any shareholder, such shareholder shall be deemed to have consented to (i) the personal jurisdiction of the Court of Chancery of the State of Delaware, the Superior Court of the State of Delaware, and the federal district court for the District of Delaware in connection with any action brought in any such court to enforce this provision, and (ii) having service of process made upon such shareholder in any such action by service upon such shareholder’s counsel in the Foreign Action as agent for such shareholder.
The provisions of the Governing Documents described above could have the effect of depriving the owners of shares in the Fund of opportunities to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund in a tender offer or similar transaction or bringing litigation against the Fund and/or any trustee, officer, employee or affiliate thereof. The overall effect of these provisions is to render more difficult the accomplishment of a merger or the assumption of control by a principal shareholder.
The foregoing summary is subject to the Governing Documents of the Fund, which are on file with the SEC and available on the Fund’s website http://www.DividendandIncomeFund.com.
23 Annual Report 2017 |
DIVIDEND AND INCOME FUND
|
DIVIDENDS
| (Unaudited)
| |
Additional Information
|
Distributions
The Fund’s current distribution policy is to provide shareholders with a relatively stable cash flow per share. 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 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
2018 Quarterly Distribution Dates
| ||||
Declaration
| Record
| Payment
| ||
March 1 | March 15 | March 29 | ||
June 1 | June 15 | June 29 | ||
September 4 | September 18 | September 28 | ||
December 3 | December 17 | December 28 |
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. 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. After year end, 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.
HISTORICAL DISTRIBUTION SUMMARY*
PERIOD | Investment Income | Return of Capital | Capital Gains | Total | ||||
2017 | $ 0.39 | $ 0.12 | $ 0.09 | $ 0.60 | ||||
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 2017 24
|
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.
25 Annual Report 2017 |
DIVIDEND AND INCOME FUND
|
DIVIDENDS
| (Unaudited)
| |
Additional Information
|
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 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 2017 26
|
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 (1)
| ||||||||||||
Name, Address (2), 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 (3)
| Other Directorships Held by Trustee (4) During the Past Five Years
| |||||||
ROGER ATKINSON (5) January 25,1961 | Class I Trustee | 2018 | Since 2007, Mr. Atkinson has served as a manager with CellMark Inc., a pulp and paper trading company. His responsibilities include directing trading activity, acquisitions, and risk management.
| 1 | None | |||||||
PETER K. WERNER August 16, 1959 | Class II Trustee | 2011 | Since 1996, Mr. Werner 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 | |||||||
JON TÓMASSON September 20,1958 | Class III Trustee | 2017 | Since 2002, Mr. Tómasson has served as the Chief Executive Officer of Vinland Capital Investments, LLC, a real estate investment company that he founded. Prior to starting Vinland, Mr. Tómasson was a principal with Cardinal Capital Partners, a leading investor in single-tenant net-leased property, and served as a Vice President at Citigroup in the Global Real Estate Equity and Structured Finance group, part of the Real Estate Investment Bank, with both transactional and various management responsibilities.
| 4 | Eagle Bulk Shipping Inc.(8) | |||||||
INTERESTED TRUSTEE
| ||||||||||||
THOMAS B. WINMILL(6) (7) PO Box 4, Walpole, NH 03608 June 25, 1959 | Class II Trustee; Chairman, President, Chief Executive Officer, Chief Legal Officer | 2011 | Mr. Winmill is Chairman, President, Chief Executive Officer, Chief and Legal Officer of the Fund, Foxby Corp., and Midas Series Trust. He is a Director or Manager, President, Chief Executive Officer, and Chief Legal Officer 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 of Global Self Storage, Inc. (a self storage REIT) (“SELF”) and Bexil American Mortgage Inc. 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.
| 4 | Global Self Storage, Inc.
Eagle Bulk Shipping Inc.(8) | |||||||
(1) Refers to trustees who are not “interested persons” of the Fund as defined under the Act. Mr. Bruce B. Huber resigned as a trustee from the Board of Trustees of the Fund effective as of January 29, 2018. (2) Unless otherwise noted, the address of record of the trustees is 11 Hanover Square, New York, New York, 10005. (3) The “Fund Complex” is comprised of the Fund, Foxby Corp., and Midas Series Trust (with two series) which are managed by the Investment Manager or its affiliates. (4) Refers to directorships and trusteeships held by a trustee during the past five years 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. (5) Mr. Atkinson was elected by the Board of Trustees to serve as a trustee of the Fund effective as of January 29, 2018. (6) Thomas B. Winmill is an “interested person” (as defined in the Act) of the Fund due to his affiliation with the Investment Manager. (7) Thomas B. Winmill and Mark C. Winmill are brothers; Thomas B. Winmill and William M. Winmill are father and son, respectively; William M. Winmill is the nephew of Mark C. Winmill. (8) Thomas B. Winmill and Jon Tomasson ceased serving as directors of Eagle Bulk Shipping Inc. in 2014.
Messrs. Tómasson, Atkinson, 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. |
27 Annual Report 2017 |
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) the Fund | Officer Since (2) | Principal Occupation(s) for the Past Five Years | |||||
Russell Kamerman, Esq. July 8, 1982 | Chief Compliance Officer, Secretary, and General Counsel | 2014 | Chief Compliance Officer (since 2014), Secretary (since 2017), and General Counsel (since 2017) of the other investment companies in the Fund Complex, the Advisers, the Broker-Dealers, and Bexil. He is Assistant Chief Compliance Officer, Assistant Secretary, and Assistant General Counsel of SELF, Winco, and Tuxis Corporation (a real estate company) (“Tuxis”). From December 2014 to June 2017, Mr. Kamerman served as Anti-Money Laundering Officer of the other investment companies in the Fund Complex, the Advisers, Bexil, SELF, Winco and Tuxis. 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 | Fund: 2012 Predecessor Fund: 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. | |||||
Donald Klimoski II, Esq. September 24, 1980 | Assistant Secretary, Assistant General Counsel, and Assistant Chief Compliance Officer | 2017 | Assistant Secretary, Assistant General Counsel, and Assistant Chief Compliance Officer of the other investment companies in the Fund Complex, the Advisers, and Bexil. He is Chief Compliance Officer, Secretary, and General Counsel of SELF, Winco, and Tuxis. He is a member of the New York, New Jersey and Patent Bars and the Compliance Advisory Committee of the Investment Company Institute. Previously, he served as Associate General Counsel of Commvault Systems, Inc. Prior to that, he was an associate at Sullivan & Cromwell LLP, where his practice focused on mergers and acquisitions, securities law, corporate governance, intellectual property and related matters.
| |||||
Thomas O’Malley July 22, 1958 | Chief Accounting Officer, Chief Financial Officer, Treasurer, and Vice President
| Fund: 2012 Predecessor Fund: 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. | |||||
Mark C. Winmill (3) November 26, 1957 | Vice President | 2012 | Vice President of the other investment companies in the Fund Complex and Midas Management Corporation. 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, and a principal of the Broker-Dealers.
| |||||
William M. Winmill (3) December 29, 1991 | Vice President | 2017 | Vice President or Assistant Vice President of the other investment companies in the Fund Complex, the Advisers, Bexil, SELF, Tuxis, and Winco. From 2014 to 2016, he served these companies as Compliance Assistant and Accounting Assistant, after graduating from Bowdoin College in 2014. He is a member of the IPCs, and he is a portfolio manager of Dividend and Income Fund and Foxby Corp.
| |||||
(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 13, 2017. (3) Thomas B. Winmill and Mark C. Winmill are brothers; Thomas B. Winmill and William M. Winmill are father and son, respectively; William M. Winmill is the nephew of Mark C. Winmill.
|
DIVIDEND AND INCOME FUND
|
Annual Report 2017 28
|
Rev. 7/2017
PRIVACY POLICY
FACTS |
WHAT DOES DIVIDEND AND INCOME FUND DO WITH YOUR PERSONAL INFORMATION?
| |||
Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.
| |||
What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: | |||
◾ Social Security number ◾ Account balances ◾ Transaction history |
◾ Transaction or loss history ◾ Account transactions ◾ Retirement assets | |||
When you are no longer our customer, we continue to share your information as described in this notice.
| ||||
. | ||||
How? | All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons Dividend and Income Fund chooses to share; and whether you can limit this sharing. |
Reasons we can share your personal information | Does Dividend and Income Fund share?
| Can you limit this sharing?
| ||
For our everyday business purposes – such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus
| Yes | No | ||
For our marketing purposes – to offer our products and services to you
| Yes | No | ||
For joint marketing with other nonaffiliated financial companies
| No | We don’t share | ||
For our affiliates’ everyday business purposes – Information about your transactions and experiences
| No | We don’t share | ||
For our affiliates’ everyday business purposes – Information about your creditworthiness
| No | We don’t share | ||
For our affiliates to market to you
| Yes | Yes | ||
For nonaffiliates to market to you
| No | We don’t share |
To Limit Sharing | ◾ Call Dividend and Income Fund at 212-785-0900 – our menu will prompt you through your choices; or ◾ Mail the form below
Please note:
If you are a new customer, we can begin sharing your information 30 days from the date we sent this notice. When you are no longer our customer, we continue to share your information as described in this notice.
However, you can contact us at any time to limit our sharing.
|
Questions? | Call Dividend and Income Fund at 1-212-785-0900 or go to www.dividendandincomefund.com
|
✂........................................................................................................................................................
Mail-in Form
| ||||||||
Leave Blank or | Mark if you want to limit: | |||||||
[If you have a joint | ☐ Do not allow your affiliates to use my personal information to market to me. | |||||||
account, your choice will | ||||||||
apply to everyone on | Name
| Mail to: | ||||||
your account unless you | Address
| Dividend and Income Fund | ||||||
☐ Apply my choice only to me] | 11 Hanover Square, 12th | |||||||
City, State, Zip
| Floor | |||||||
Account #
| New York, NY 10005 | |||||||
29 Annual Report 2017 |
DIVIDEND AND INCOME FUND
|
Page 2
|
Who we are
| ||
Who is providing this notice?
| Dividend and Income Fund |
What we do
| ||
How does Dividend and Income Fund protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.
| |
How does Dividend and Income Fund collect my personal information? | We collect your personal information, for example, when you
◾ Open an account ◾ Buy securities from us ◾ Provide account information ◾ Give us your contact information ◾ Tell us where to send the money
| |
Why can’t I limit all sharing? | Federal law gives you the right to limit only
◾ Sharing for affiliates’ everyday business purposes – information about your creditworthiness ◾ Affiliates from using your information to market to you ◾ Sharing for nonaffiliates to market to you
State laws and individual companies may give you additional rights to limit sharing. | |
What happens when I limit sharing for an account I hold jointly with someone else?
| Your choices will apply to everyone on your account – unless you tell us otherwise. |
Definitions
| ||
Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies.
◾ Dividend and Income Fund shares with our affiliates.
| |
Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies.
◾ Dividend and Income Fund does not share with nonaffiliates so they can market their financial products or services to you.
| |
Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you.
◾ Dividend and Income Fund does not jointly market.
|
DIVIDEND AND INCOME FUND
|
Annual Report 2017 30
|
GENERAL INFORMATION
| (Unaudited)
| |
Additional Information
|
STOCK DATA AT DECEMBER 31, 2017 | ||||
NYSE Market Price per Share | $16.78 | |||
Net Asset Value per Share | $13.43 | |||
Market Price Discount to Net Asset Value | 20.0% | |||
NYSE Ticker Symbol | DNI | |||
Net Asset Value Ticker Symbol | XDNIX | |||
CUSIP Number | 25538A204 | |||
DividendandIncomeFund.com | ||||
Visit us on the web at www.DividendandIncomeFund.com. The site provides information about the Fund, including distributions, press releases, and shareholder reports. For further information, please email us at info@DividendandIncomeFund.com. |
Stock Transfer Agent and Registrar | ||
American Stock Transfer & Trust Company, LLC | ||
6201 15th Avenue | ||
Brooklyn, NY 11219 | ||
www.amstock.com 1-800-278-4353 | ||
Investment Manager | ||
Bexil Advisers LLC | ||
11 Hanover Square | ||
New York, NY 10005 | ||
1-212-785-0900 |
Dividend and Income Fund is a part of a fund complex which includes Midas Fund, Midas Magic, and Foxby Corp.
Please note - There is no assurance that the Fund’s investment objectives will be attained. Past performance is no guarantee of future results. Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. The Fund’s investment policies, management fees, and other matters of interest to investors may be found in its filings with the SEC, including its annual and semi-annual reports. To obtain a copy of the reports, please call 212-785-0900 or visit www.DividendandIncomeFund.com.
Shares of closed end funds frequently trade at a discount from their Net Asset Value (“NAV”). This characteristic is a risk separate and distinct from the risk that the Fund’s NAV could decrease as a result of its investment activities. Neither the Fund nor its Investment Manager can predict whether shares of the Fund will trade at, below, or above NAV. The risk of holding shares of the Fund that might trade at a discount is more pronounced for investors expecting to sell their shares in a relatively short period of time after acquiring them because, for those investors, realization of a gain or loss on their investments is likely to be more dependent upon the existence of a premium or discount than upon portfolio performance. The shares of the Fund are designed primarily for long term investors and should not be considered a vehicle for trading purposes. The NAV of the Fund shares typically will fluctuate with price changes of the Fund’s portfolio securities, and these fluctuations are likely to be greater in the case of a fund which uses leverage, as the Fund may from time to time. In the event that shares of the Fund trade at a premium to NAV, there is no assurance that any such premium will be sustained for any period of time and will not decrease, or that the shares of the Fund will not trade at a discount to NAV thereafter. The market price for the 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.
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.
The Fund does not make available copies of its Statement of Additional Information because the Fund’s shares are not continuously offered, which means that the Fund’s Statement of Additional Information has not been updated since completion of the Fund’s most recent offering and the information contained in the Fund’s Statement of Additional may have become outdated.
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.
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, 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. You should carefully consider the risks, uncertainties, and other factors, together with all of the other information included in the Fund’s filings with the SEC, and similar information. 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.
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 |
31 Annual Report 2017 |
DIVIDEND AND INCOME FUND
|
(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 the registrant 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 | ||
2017 - $32,000 | ||
2016 - $31,500 | ||
(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 | ||
2017 - $2,000 | ||
2016 - $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 are as follows: | |
TAX FEES | ||
2017 - $5,250 | ||
2016 - $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 are as follows: | |
ALL OTHER FEES | ||
2017 - $0 | ||
2016 - $0 | ||
All other fees consist of the aggregate fees billed for products and services provided by the principal accountant other than audit, audit-related, and tax services. | ||
(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 $54,250 in 2017 and $53,750 in 2016. | |
(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 |
Benchmark Policy Recommendations |
Effective for Meetings on or after February 1, 2018 Published January 9, 2018 |
General Recommendation: Generally vote for director nominees, except under the following circumstances: |
› | Independent directors comprise 50 percent or less of the board; |
› | The non-independent director serves on the audit, compensation, or nominating committee; |
› | The company lacks an audit, compensation, or nominating committee so that the full board functions as that committee; or |
› | The company lacks a formal nominating committee, even if the board attests that the independent directors fulfill the functions of such a committee. |
› | Medical issues/illness; |
› | Family emergencies; and |
› | Missing only one meeting (when the total of all meetings is three or fewer). |
› | Sit on more than five public company boards; or |
› | Are CEOs of public companies who sit on the boards of more than two public companies besides their own—withhold only at their outside boards3. |
› | 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. |
› | The board failed to act on takeover offers where the majority of shares are tendered; |
› | 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. |
› | The company's previous say-on-pay received the support of less than 70 percent of votes cast. Factors that will be considered are: |
› | The company's response, including: |
› | Disclosure of engagement efforts with major institutional investors, including the frequency and timing of engagements and the company participants (including whether independent directors participated); |
› | Disclosure of the specific concerns voiced by dissenting shareholders that led to the say-on-pay opposition; |
› | Disclosure of specific and meaningful actions taken to address shareholders' concerns; |
› | 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. |
› | The board implements an advisory vote on executive compensation on a less frequent basis than the frequency that received the plurality of votes cast. |
› | The company has a poison pill that was not approved by shareholders5. However, vote case-by-case on nominees if the board adopts an initial pill with a term of one year or less, depending on the disclosed rationale for the adoption, and other factors as relevant (such as a commitment to put any renewal to a shareholder vote). |
› | The board makes a material adverse modification to an existing pill, including, but not limited to, extension, renewal, or lowering the trigger, without shareholder approval. |
› | A classified board structure; |
› | A supermajority vote requirement; |
› | Either a plurality vote standard in uncontested director elections, or a majority vote standard in contested elections; |
› | The inability of shareholders to call special meetings; |
› | The inability of shareholders to act by written consent; |
› | A multi-class capital structure; and/or |
› | A non-shareholder-approved poison pill. |
› | 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. |
› | 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. |
› | The company's governing documents impose 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. |
› | The non-audit fees paid to the auditor are excessive; |
› | The company receives an adverse opinion on the company's financial statements from its auditor; or |
› | 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. |
› | 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. |
› | There is a significant misalignment between CEO pay and company performance (pay for performance); |
› | The company maintains significant problematic pay practices; or |
› | The board exhibits a significant level of poor communication and responsiveness to shareholders. |
› | The company fails to include a Say on Pay ballot item when required under SEC provisions, or under the company's declared frequency of say on pay; or |
› | The company fails to include a Frequency of Say on Pay ballot item when required under SEC provisions. |
› | The presence of an anti-pledging policy, disclosed in the proxy statement, that prohibits future pledging activity; |
› | The magnitude of aggregate pledged shares in terms of total common shares outstanding, market value, and trading volume; |
› | Disclosure of progress or lack thereof in reducing the magnitude of aggregate pledged shares over time; |
› | Disclosure in the proxy statement that shares subject to stock ownership and holding requirements do not include pledged company stock; and |
› | Any other relevant factors. |
› | Material failures of governance, stewardship, risk oversight6, or fiduciary responsibilities at the company; |
› | Failure to replace management as appropriate; or |
› | 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. |
General Recommendation: In cases where companies are targeted in connection with public "vote-no" campaigns, evaluate director nominees under the existing governance policies for voting on director nominees in uncontested elections. Take into consideration the arguments submitted by shareholders and other publicly available information. |
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: 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 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 is reasonable and 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 SOP on the ballot, and an against vote on an SOP would otherwise be 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 SOP 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 Group8 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 rankings of CEO total pay and company financial performance 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 in the most recent fiscal year. |
2. | Absolute Alignment9 – 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 pay10 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); |
› | Extraordinary perquisites or tax gross-ups, including any gross-up related to a secular trust or restricted stock vesting, or lifetime perquisites; |
› | New or extended agreements that provide for: |
› | Excessive CIC payments (generally 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); |
› | Multi-year guaranteed awards that are not at risk due to rigorous performance conditions; |
› | Liberal CIC definition combined with any single-trigger CIC benefits; |
› | 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; |
› | Any other provision or practice deemed to be egregious and present a significant risk to investors. |
› | Multi-year guaranteed awards; |
› | A single or common performance metric used for short- and long-term incentives; |
› | Lucrative severance packages; |
› | High pay opportunities relative to industry peers; |
› | Disproportionate supplemental pensions; or |
› | Mega equity grants that provide overly large upside opportunity. |
› | 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, including the frequency and timing of engagements and the company participants (including whether independent directors participated); |
› | Disclosure of the specific concerns voiced by dissenting shareholders that led to the say-on-pay opposition; |
› | Disclosure of specific and meaningful actions taken to address shareholders' concerns; |
› | 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 case-by-case on certain equity-based compensation plans11 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: |
› | Discretionary or 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 for resolutions requesting that a company disclose information on the financial, physical, or regulatory risks it faces related to climate change on its operations and investments or on how the company identifies, measures, and manages such 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 compared to industry peers; and |
› | Whether there are significant controversies, fines, penalties, or litigation associated with the company's climate change-related 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. |
General Recommendation: Generally vote case-by-case on requests for reports on a company's pay data by gender, or a report on a company's policies and goals to reduce any gender pay gap, taking into account: |
› | The company's current policies and disclosure related to both its diversity and inclusion policies and practices and its compensation philosophy and fair and equitable compensation practices; |
› | Whether the company has been the subject of recent controversy, litigation, or regulatory actions related to gender pay gap issues; and |
› | Whether the company's reporting regarding gender pay gap policies or initiatives is lagging its peers. |
General Recommendation: Vote case-by-case on proposals requesting the disclosure or implementation of data security, privacy, or information access and management policies and procedures, considering: |
› | The level of disclosure of company policies and procedures relating to data security, privacy, freedom of speech, information access and management, and Internet censorship; |
› | Engagement in dialogue with governments or relevant groups with respect to data security, privacy, or the free flow of information on the Internet; |
› | The scope of business involvement and of investment in countries whose governments censor or monitor the Internet and other telecommunications; |
› | Applicable market-specific laws or regulations that may be imposed on the company; and |
› | Controversies, fines, or litigation related to data security, privacy, freedom of speech, or Internet censorship. |
General Recommendation: Vote case-by-case on proposals requesting information on a company's lobbying (including direct, indirect, and grassroots lobbying) activities, policies, or procedures, considering: |
› | The company's current disclosure of relevant lobbying policies, and management and board oversight; |
› | The company's disclosure regarding trade associations or other groups that it supports, or is a member of, that engage in lobbying activities; and |
› | Recent significant controversies, fines, or litigation regarding the company's lobbying-related activities. |
General Recommendation: Generally vote for proposals requesting greater disclosure of a company's political contributions and trade association spending policies and activities, considering: |
› | The company's policies, and management and board oversight related to its direct political contributions and payments to trade associations or other groups that may be used for political purposes; |
› | The company's disclosure regarding its support of, and participation in, trade associations or other groups that may make political contributions; and |
› | Recent significant controversies, fines, or litigation related to the company's political contributions or political activities. |
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The Global Leader In Corporate Governance |
Portfolio Managers | Registered Investment Companies | Other Pooled Investment Vehicles | Other Accounts | |
Thomas B. Winmill | Number: | 3 | N/A | 7 |
Total Assets (millions): | $48 | N/A | $26 | |
William M. Winmill | Number: | 1 | N/A | 7 |
Total Assets (millions): | $10 | N/A | $26 |
(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 reasonably likely to materially affect, the registrant's internal control over financial reporting. |
(a) | No income was received by the registrant from securities lending activities in the period covered by this report. Amounts paid by securities lending counterparties for loaned securities are retained by State Street Bank and Trust Company ("SSB"), the registrant's securities lending agent. |
(b) | The registrant has entered into a Liquidity Agreement with SSB that allows the registrant to draw up to the maximum liquidity commitment as specified therein. The Liquidity Agreement includes a securities lending authorization by the Fund to SSB to engage in agency securities lending and reverse repurchase activity. SSB also serves as the registrant's custodian. |
(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 8, 2018 | By: /s/ Thomas B. Winmill |
Thomas B. Winmill, President | |
Dividend and Income Fund | |
March 8, 2018 | By: /s/ Thomas O’Malley |
Thomas O’Malley, Chief Financial Officer | |
Dividend and Income Fund | |
March 8, 2018 | By: /s/ Thomas B. Winmill |
Thomas B. Winmill, President | |
Dividend and Income Fund | |
March 8, 2018 | By: /s/ Thomas O’Malley |
Thomas O’Malley, Chief Financial Officer |