Limits on Share Ownership >4.99%
Dividend and Income Fund has substantial capital loss carryovers under Section 1212 of the Internal Revenue Code of 1986, as amended (the “Code”), from previous taxable years and unrealized capital losses in its current portfolio (collectively, “CLCOs”) that could translate into significant future tax savings for the Fund and its shareholders, although under Sections 382 and 383 of the Code (collectively, “Section 382”) certain “ownership changes” could limit the Fund’s ability to use these CLCOs. In seeking to prevent such ownership changes, Article II of the Fund’s Amended and Restated Agreement and Declaration of Trust
(the “Declaration”) currently limits the ability of persons to own more than 4.99% of the Fund’s outstanding shares without the Trustees’ prior approval (“4.99% Share Limitations”). Moreover, the 4.99% Share Limitations may assist the Board to better defend against takeover activities, such as to defend against arbitrageurs attempting to make a short term profit in Fund shares while trading at a discount to net asset value potentially at the expense of long term investors. While the 4.99% Share Limitations are primarily intended as a measure to preserve and protect the Fund’s CLCOs, the 4.99% Share Limitations are also intended to have the effect of impeding or discouraging a merger, tender offer, or proxy contest.
The Declaration generally restricts any person from attempting to purchase or otherwise acquire (an “Acquisition”), without the Trustees’ prior approval, any direct or indirect interest in the Fund’s shares (or, if issued in the future, options, warrants, or other rights to acquire Fund shares or securities convertible or exchangeable into them), if the Acquisition would either (1) cause such person to become either an owner (within the meaning of Section 382 of the Code) or a beneficial owner (within the meaning of Section 13 of the Securities Exchange Act of 1934, and the rules and regulations promulgated thereunder and exemptions granted therefrom, both as amended from time to time (the “Exchange Act”)) of greater than 4.99% of the Shares, (a “Five Percent Shareholder”) or (2) increase the percentage of Shares owned by a Five Percent Shareholder. Rule 13d-3 under the Exchange Act provides that “[f]or the purposes of sections 13(d) and 13(g) of the [Exchange] Act, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (1) Voting power which includes the power to vote, or to direct the voting of, such security; and/or, (2) Investment power which includes the power to dispose, or to direct the disposition of, such security.”
The Declaration provides that any Acquisition attempted to be made in violation of the 4.99% Share Limitations will be null and void ab initio to the fullest extent permitted by law and contains detailed terms that seek to achieve that result. It also provides that any person who knowingly violates the 4.99% Share Limitations, or any persons in the same control group with such a person, shall be liable to the Fund for, and shall indemnify and hold it harmless against, any and all damages suffered as a result of the violation, including damages resulting from a reduction in or elimination of the Fund’s ability to use its CLCOs and attorneys’ and auditors’ fees incurred in connection with such violation.