dninqsept2012.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM N-Q
 
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
 
Investment Company Act File Number:  811-08747
 
DIVIDEND AND INCOME FUND
(Exact name of registrant as specified in charter)
 
11 Hanover Square, 12th Floor
New York, NY
10005
(Address of principal executive offices)
(Zip Code)


John F. Ramírez, Esq.
Dividend and Income Fund
11 Hanover Square
New York, NY 10005
(Name and address of agent for service)

Registrant's telephone number, including area code: 1-212-785-0400

 
Date of Fiscal Year End:   12/31
 
Date of Reporting Period:  9/30/2012
 
Item 1. Schedule of Investments
 
 
DIVIDEND AND INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
September 30, 2012
(Unaudited)
Shares
      
Cost
    
Value
  
   
COMMON STOCKS (88.34%) (a)
            
   
 Aircraft Engines & Engine Parts (0.81%)
            
  10,000  
United Technologies Corp.
   $ 727,426     $ 782,900  
                       
     
Beverages (1.92%)
                
  30,000  
Coca-Cola Company (e)
     835,675       1,137,900  
  10,000  
PepsiCo, Inc.
     529,400       707,700  
            1,365,075       1,845,600  
                       
     
Biological Products (1.06%)
                
  12,100  
Amgen Inc.
     783,805       1,020,272  
                       
     
Cable & Other Pay Television Services (1.01%)
                
  21,400  
Time Warner Inc.
     781,678       970,062  
                       
     
Canned, Frozen & Preserved Fruit, Vegetable & Food Specialties (0.99%)
                
  17,100  
H.J. Heinz Company
     885,684       956,745  
                       
     
Cigarettes (1.98%)
                
  30,000  
Altria Group, Inc.
     634,550       1,001,700  
  10,000  
Philip Morris International, Inc.
     485,376       899,400  
            1,119,926       1,901,100  
                       
     
Computer & Office Equipment (0.88%)
                
  25,000  
Hewlett-Packard Company
     1,088,505       426,500  
  2,000  
International Business Machines Corporation
     258,964       414,900  
            1,347,469       841,400  
                       
     
Computer Communications Equipment (0.82%)
                
  41,300  
Cisco Systems, Inc.
     783,771       788,417  
                       
     
Construction, Mining & Materials Handling Machinery & Equipment (0.84%)
                
  13,500  
Dover Corp.
     781,673       803,115  
                       
     
Converted Paper & Paperboard Products (1.12%)
                
  12,500  
Kimberly-Clark Corp.
     890,751       1,072,250  
                       
     
Crude Petroleum & Natural Gas (0.73%)
                
  8,160  
Occidental Petroleum Corporation
     527,752       702,250  
                       
     
Deep Sea Foreign Transportation of Freight (0.82%)
                
  50,000  
Seaspan Corp.
     347,030       789,000  
                       
     
Dolls & Stuffed Toys (0.92%)
                
  25,000  
Mattel, Inc.
     610,742       887,000  
                       
     
Electric Services (4.76%)
                
  11,000  
Entergy Corp.
     693,431       762,300  
  18,600  
First Energy Corp.
     785,714       820,260  
  65,000  
Southern Company
     2,326,432       2,995,850  
            3,805,577       4,578,410  
                       
     
Electromedical & Electrotherapeutic Apparatus (0.91%)
                
  20,200  
Medtronic, Inc.
     788,000       871,024  
                       
     
Electronic & Other Electrical Equipment (4.66%)
                
  20,000  
Emerson Electric Company
     747,590       965,400  
  111,900  
General Electric Company
     1,949,675       2,541,249  
  41,400  
Koninklijke Philips Electronics N.V.
     783,100       970,830  
            3,480,365       4,477,479  
                       
     
Electronic & Other Services Combined (1.48%)
                
  17,000  
Exelon Corp.
     715,134       604,860  
  19,100  
PG&E Corp.
     784,489       814,997  
            1,499,623       1,419,857  
                       
     
Fire, Marine & Casualty Insurance (1.57%)
                
  20,000  
Ace Ltd.
     829,324       1,512,000  
                       
     
Food & Kindred Products (1.34%)
                
  25,000  
Campbell Soup Co.
     783,645       870,500  
  10,000  
Mondelez International, Inc.
     258,704       413,500  
            1,042,349       1,284,000  
                       
     
Gold & Silver Ores (2.48%)
                
  17,900  
Barrick Gold Corp.
     889,694       747,504  
  18,000  
Goldcorp Inc.
     888,318       825,300  
  14,500  
Newmont Mining Corp.
     891,740       812,145  
            2,669,752       2,384,949  
     
Grain Mill Products (0.84%)
                
  15,600  
Kellogg Company
     790,809       805,896  
                       
     
Investment Advice (0.52%)
                
  20,000  
Invesco Ltd.
     437,950       499,800  
                       
     
Life Insurance (1.43%)
                
  40,000  
MetLife, Inc.
     699,693       1,378,400  
                       
     
Malt Beverages (0.75%)
                
  16,000  
Molson Coors Brewing Company
     707,427       720,800  
                       
     
Measuring & Controlling Devices, NEC (0.77%)
                
  10,700  
Rockwell Automation, Inc.
     780,522       744,185  
                       
     
Miscellaneous Business Credit Institution (0.11%)
                
  46,169  
Star Asia Financial Ltd. (b) (c)
     686,145       106,650  
                       
                       
     
Miscellaneous Fabricated Metal Products (0.88%)
                
  10,100  
Parker-Hannifin Corp.
     787,011       844,158  
                       
     
Mortgage Investment (1.57%)
                
  200,000  
Newcastle Investment Corp. *
     1,453,200       1,506,000  
                       
     
Motor Vehicle Parts & Accessories (1.55%)
                
  25,000  
Honeywell International, Inc.
     889,529       1,493,750  
                       
     
Motor Vehicles & Passenger Car Bodies (0.82%)
                
  19,600  
PACCAR Inc.
     788,028       784,490  
                       
     
National Commercial Banks (1.55%)
                
  36,800  
JPMorgan Chase & Co.
     774,303       1,489,664  
                       
     
Paints, Varnishes, Lacquers, Enamels & Allied Products (1.19%)
                
  10,000  
PPG Industries, Inc.
     657,378       1,148,400  
                       
     
Perfumes, Cosmetics & Other Preparations (0.83%)
                
  50,000  
Avon Products, Inc.
     1,596,424       797,500  
                       
     
Petroleum Refining (2.74%)
                
  7,200  
Chevron Corp.
     782,448       839,232  
  11,000  
ConocoPhillips
     557,868       628,980  
  10,000  
Exxon Mobil Corp.
     738,274       914,500  
  5,500  
Phillips 66
     173,935       255,035  
            2,252,525       2,637,747  
                       
     
Pharmaceutical Preparations (11.61%)
                
  30,000  
Abbott Laboratories
     1,522,047       2,056,800  
  55,000  
Bristol-Myers Squibb Company
     1,241,872       1,856,250  
  23,100  
Johnson & Johnson
     1,492,730       1,591,821  
  40,300  
Merck & Company, Inc.
     1,463,305       1,817,530  
  116,200  
Pfizer Inc.
     1,997,252       2,887,570  
  21,900  
Sanofi
     787,206       943,014  
            8,504,412       11,152,985  
                       
     
Plastic Materials, Resins & Nonvulcanelastomers (1.65%)
                
  20,000  
E.I. du Pont de Nemours and Company
     751,716       1,005,400  
  20,000  
Dow Chemical Company
     580,754       579,200  
            1,332,470       1,584,600  
                       
     
Pumps & Pumping Equipment (0.81%)
                
  38,600  
ITT Corp.
     785,425       777,790  
                       
     
Radio & TV Broadcasting & Communications Equipment (0.65%)
                
  10,000  
QUALCOMM, Inc.
     383,189       624,900  
                       
     
Radio Telephone Communications (0.59%)
                
  20,000  
Vodafone Group PLC ADR
     453,234       569,900  
                       
     
Railroads, Line-Haul Operating (0.74%)
                
  34,100  
CSX Corp.
     785,517       707,575  
                       
     
Refuse Systems (0.50%)
                
  15,000  
Waste Management, Inc.
     532,822       481,200  
                       
     
Retail - Eating Places (0.86%)
                
  9,000  
McDonald's Corp.
     888,124       825,750  
                       
     
Retail - Grocery Stores (0.79%)
                
  32,300  
The Kroger Co.
     782,471       760,342  
                       
     
Retail - Miscellaneous Shopping Goods Stores (0.64%)
                
  53,200  
Staples, Inc.
     783,945       612,864  
                       
     
Retail - Variety Stores (1.06%)
                
  16,000  
Target Corp.
     660,150       1,015,520  
                       
     
Retail - Women's Clothing Stores (2.77%)
                
  54,000  
Limited Brands, Inc.
     475,950       2,660,040  
                       
     
Savings Institution, Federally Chartered (0.76%)
                
  60,000  
People's United Financial, Inc.
     826,108       728,400  
                       
     
Security & Commodity Brokers, Dealers, Exchanges & Services (0.38%)
                
  15,000  
NYSE Euronext
     372,671       369,750  
                       
     
Semiconductors & Related Devices (4.52%)
                
  23,000  
Analog Devices, Inc.
     726,743       901,370  
  71,100  
Intel Corp.
     1,584,801       1,612,548  
  35,000  
Microchip Technology, Inc.
     998,144       1,145,900  
  127,300  
STMicroelectronics N.V.
     786,574       687,420  
            4,096,262       4,347,238  
                       
     
Services - Business Services (1.97%)
                
  40,000  
Lender Processing Services, Inc.
     733,684       1,115,600  
  42,900  
The Western Union Company
     785,465       781,638  
            1,519,149       1,897,238  
                       
     
Services - Engineering, Accounting, Research, Management (0.35%)
                
  10,000  
Paychex, Inc.
     309,491       332,900  
                       
     
Services - Miscellaneous Repair Services (0.10%)
                
  756  
Aquilex Holdings LLC Units * (b) (c)
     496,372       93,000  
                       
     
Services - Prepackaged Software (0.93%)
                
  30,000  
Microsoft Corp.
     900,672       893,400  
                       
     
Soap, Detergent, Cleaning Preparations, Perfumes, Cosmetics (0.87%)
                
  12,000  
The Procter & Gamble Company
     739,290       832,320  
                       
     
Specialty Cleaning, Polishing and Sanitation Preparations (0.88%)
                
  11,700  
Clorox Co.
     788,186       842,985  
                       
     
Surgical & Medical Instruments & Apparatus (3.78%)
                
  20,000  
3M Company
     1,133,436       1,848,400  
  15,700  
Baxter International Inc.
     785,058       946,082  
  10,700  
Becton, Dickinson and Company
     782,308       840,592  
            2,700,802       3,635,074  
                       
     
Telephone Communications (3.42%)
                
  45,000  
AT&T, Inc.
     1,672,513       1,696,500  
  35,000  
Verizon Communications, Inc.
     1,206,032       1,594,950  
            2,878,545       3,291,450  
                       
     
Water Transportation (1.06%)
                
  23,800  
Carnival Corp.
     785,476       867,272  
  15,000  
Nordic American Tankers Limited
     448,114       151,200  
            1,233,590       1,018,472  
                       
     
Total common stocks
     71,597,563       84,900,963  
                       
Principal
                    
Amount
                    
     
Corporate Bonds and Notes (27.77%) (a)
                
     
Accident & Health Insurance (0.61%)
                
$ 500,000  
CNO Financial Group, Inc. 9%, 1/15/18
     506,054       586,250  
                       
     
Auto/Truck Parts & Equipment - Orig (0.52%)
                
  460,000  
Tower Automotive Holdings USA LLC, 10.625%, 9/1/17 (d)
     465,673       497,950  
                       
     
Cable & Other Pay Television Services (0.57%)
                
  500,000  
CCO Holdings LLC, 7%, 1/15/19
     499,620       543,750  
                       
     
Cable/Satellite TV (1.12%)
                
  1,000,000  
Cequel Communications Holdings I LLC and Cequel Capital Corp., 8.625%, 11/15/17 (d)
     1,009,904       1,072,500  
                       
     
Cogeneration Services & Small Power Producers (0.52%)
                
  450,000  
Covanta Holding Corp., 7.25%, 12/1/20
     457,118       501,236  
                       
     
Converted Paper & Paperboard Products (1.11%)
                
  1,000,000  
Appleton Papers, Inc., 10.50%, 6/15/15 (d)
     997,233       1,067,500  
                       
     
Crude Petroleum & Natural Gas (0.28%)
                
  250,000  
Plains Exploration & Productions Company, 7.625%, 6/1/18
     250,579       267,500  
                       
     
Drilling Oil & Gas Wells (0.58%)
                
  500,000  
Offshore Group Investments Ltd., 11.50%, 8/1/15 (d)
     500,635       555,000  
                       
     
Electric Services (1.02%)
                
  650,000  
Edison Mission Energy, 7.00%, 5/15/17
     650,711       339,625  
  633,932  
Elwood Energy LLC, 8.159%, 7/5/26
     669,294       640,271  
            1,320,005       979,896  
                       
     
Fats & Oils (0.60%)
                
  500,000  
Darling International Inc., 8.50%, 12/15/18
     518,243       571,875  
                       
     
Hospital & Medical Service Plans (0.27%)
                
  250,000  
Health Net, Inc., 6.375%, 6/1/17
     237,675       262,500  
                       
     
Ice Cream & Frozen Desserts (0.60%)
                
  500,000  
Dean Foods Company, 9.75%, 12/15/18
     504,788       572,500  
                       
     
Machine Tools, Metal Cutting Types (0.47%)
                
  425,000  
Thermadyne Holdings Corp., 9%, 12/15/17 (d)
     427,413       454,750  
                       
     
Metal Forgings & Stampings (0.16%)
                
  136,000  
Trimas Corp., 9.75%, 12/15/17 (d)
     133,936       157,760  
                       
     
Miscellaneous Business Credit Institution (0.60%)
                
  500,000  
PHH Corp., 9.25%, 3/1/16 (d)
     505,077       576,250  
                       
     
Miscellaneous Electrical Machinery, Equipment & Supplies (0.33%)
                
  55,000  
Exide Technologies, 8.625%, 2/1/18
     55,000       47,919  
  240,000  
Spectrum Brands Holdings, Inc., 9.50%, 6/15/18 (d)
     244,443       271,800  
            299,443       319,719  
                       
     
Miscellaneous Fabricated Metal Products (1.12%)
                
  1,000,000  
WireCo WorldGroup, 9.50%, 5/15/17 (d)
     978,736       1,075,000  
                       
     
Mortgage Banks (0.56%)
                
  500,000  
Provident Funding Associates, 10.25%, 4/15/17 (d)
     500,000       540,000  
                       
     
Natural Gas Transmission (1.50%)
                
  500,000  
Energy Transfer Equity LP, 7.50%, 10/15/20
     512,969       570,000  
  500,000  
Niska Gas Storage US LLC, 8.875%, 3/15/18 (d)
     509,276       518,750  
  350,000  
Southern Star Central Corp., 6.75%, 3/1/16
     330,250       357,437  
            1,352,495       1,446,187  
                       
     
Oil & Gas Field Exploration Services (0.54%)
                
  500,000  
CGG-Veritas, 7.75%, 5/15/17
     509,368       520,312  
                       
     
Papers & Allied Products (0.55%)
                
  500,000  
Cascades, Inc., 7.75%, 12/15/17
     492,363       526,250  
                       
     
Paper & Related Products (0.61%)
                
  517,000  
Resolute Forest Products Inc., 10.25%, 10/15/18 (d)
     523,525       590,672  
                       
     
 Personal Credit Institutions (0.85%)
                
  740,000  
Credit Acceptance Corp., 9.125%, 2/1/17 (d)
     755,484       819,550  
                       
     
Petroleum Refining (0.54%)
                
  272,000  
Coffeyville Resources LLC, 9%, 4/1/15 (d)
     274,631       291,720  
  200,000  
Coffeyville Resources LLC, 10.875%, 4/1/17 (d)
     199,426       225,000  
            474,057       516,720  
                       
     
Pharmaceutical Preparations (1.07%)
                
  1,000,000  
Patheon, Inc., 8.625%, 4/15/17 (d)
     1,019,861       1,025,000  
                       
     
Racetracks (0.41%)
                
  360,000  
Yonkers Racing Corp., 11.375%, 7/15/16 (d)
     358,882       390,600  
                       
     
Radio & TV Broadcasting & Communications Equipment (0.56%)
                
  500,000  
CommScope, Inc., 8.25%, 1/15/19
     509,636       542,500  
                       
     
 Retail - Convenience Stores (0.56%)
                
  500,000  
Susser Holdings L.L.C., 8.50%, 5/15/16
     505,907       540,625  
                       
     
 Retail - Miscellaneous Retail (0.25%)
                
  250,000  
Ferrellgas Partners, L.P., 6.50%, 5/1/21
     245,484       243,125  
                       
     
Security Brokers, Dealers & Flotation Companies (0.18%)
                
  750,000  
Penson Worldwide, Inc., 12.50%, 5/15/17 (d)
     757,319       176,250  
                       
     
Semiconductors & Related Devices (0.27%)
                
  250,000  
Advanced Micro Devices, 7.75%, 8/1/20
     257,583       255,000  
                       
     
Services - Business Services, NEC (0.45%)
                
  500,000  
DynCorp International, Inc. 10.375%, 7/1/17 (d)
     501,694       433,750  
                       
     
 Services - Equipment Rental & Leasing, NEC (0.60%)
                
  500,000  
Aircastle Ltd., 9.75%, 8/1/18
     502,687       572,500  
                       
     
 Services - Miscellaneous Amusement & Recreation (0.89%)
                
  750,000  
Cedar Fair LP, 9.125%, 8/1/18 (d)
     753,279       855,938  
                       
     
Services - Motion Picture Theaters (0.11%)
                
  95,000  
Regal Entertainment Group, 9.125%, 8/15/18
     96,032       106,638  
                       
     
Services - Prepackaged Software (0.46%)
                
  400,000  
Scientific Games International, Inc., 9.25%, 6/15/19
     427,075       446,000  
                       
     
Special Industry Machinery (0.57%)
                
  500,000  
Novelis, Inc., 8.375%, 12/15/17
     505,078       548,750  
                       
     
Steel Pipes & Tubes (0.31%)
                
  300,000  
Atkore International Inc., 9.875%, 1/1/18
     305,663       293,250  
                       
     
Steel Works, Blast Furnaces & Rolling & Finishing Mills (0.90%)
                
  840,000  
Gibraltar Industries, Inc., 8%, 12/1/15
     840,592       862,575  
                       
     
Telephone Communications (1.64%)
                
  1,000,000  
Cincinnati Bell, Inc., 8.75%, 3/15/18
     1,007,652       1,020,000  
  500,000  
Equinix, Inc., 8.125%, 3/1/18
     508,218       557,500  
            1,515,870       1,577,500  
                       
     
Textile - Home Furnishings (0.06%)
                
  50,000  
Empire Today LLC, 11.375%, 2/1/17
     49,566       53,125  
                       
     
Transportation - Marine (0.44%)
                
  400,000  
Marquette Transportation Company, 10.875%, 1/15/17 (d)
     401,285       423,000  
                       
     
Water Transportation (1.76%)
                
  679,000  
American Petroleum Tankers LLC, 10.25%, 5/1/15 (d)
     670,955       716,345  
  900,000  
Hornbeck Offshore Services, Inc., 8%, 9/1/17
     905,918       973,125  
            1,576,873       1,689,470  
                       
     
Wholesale - Electronic Parts & Equipment, NEC (0.34%)
                
  300,000  
Brightstar Corp., 9.50%, 12/1/16 (d)
     300,000       323,625  
                       
     
Wholesale - Petroleum & Petroleum Products (0.31%)
                
  275,000  
Crosstex Energy LP, 8.875%, 2/15/18
     275,490       294,766  
                       
     
Total corporate bonds and notes
     25,925,280       26,675,614  
                       
     
INVESTEMENT COMPANIES (2.49%) (a)
                
     
Exchange Traded Funds (2.49%)
                
  15,000  
iShares Dow Jones Select Dividend Index
     699,713       865,200  
  65,000  
SPDR S&P 500 ETF Trust
     871,731       1,526,200  
            1,571,444       2,391,400  
                       
     
MASTER LIMITED PARTNERSHIPS (2.84%) (a)
                
     
Natural Gas Transmission (2.84%)
                
  39,000  
Energy Transfer Partners LP
     1,979,798       1,660,230  
  20,000  
Enterprise Products Partners LP
     374,214       1,072,000  
            2,354,012       2,732,230  
                       
     
PREFERRED STOCK (0%) (a)
                
     
Financial (0%)
                
  80,000  
Solar Cayman Ltd. (a) (b) (c)
     568,802       2,000  
                       
     
MONEY MARKET FUND (0.02%)
                
  22,477  
SSgA Money Market Fund, 7 day annualized yield 0.01%
     22,477       22,477  
                       
     
Total investments (121.46%)
   $ 102,039,578       116,724,684  
                       
     
Liabilities in excess of other assets (-21.46%)
             (20,621,588 )
                       
     
Net assets (100.00%)
           $ 96,103,096  
                       
                       
(a) All or a portion of these securities have been segregated as collateral pursuant to the bank credit facility, except for those denoted by a * symbol. As of September 30, 2012, the value of securities pledged as collateral was $116,609,207.
  
(b) Illiquid and/or restricted security that has been fair valued.
                
(c) Non-income producing.
                
(d) These securities are exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
  
                       
ADR
  
American Depositary Receipt
                
LLC
  
Limited Liability Company
                
LP
  
Limited Partnership
                
PLC
  
Public Limited Company
                
SPDR
  
Standard & Poor’s Depositary Receipt
                


Notes to Schedule of Portfolio Investments (Unaudited)

Security Valuation
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 the United States are 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 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. Debt obligations with remaining maturities of 60 days or less are valued at cost adjusted for amortization of premiums and accretion of discounts. Certain of the securities in which the Fund may invest are 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.  Bonds may be valued according to prices quoted by a bond dealer that offers pricing services.  Open end investment companies are valued at their net asset value.  Securities for which quotations are not readily available or reliable and other assets may be valued as determined in good faith by the Fund’s Investment Manager under the direction of or pursuant to procedures established by the Fund’s Board of Trustees, called fair value pricing. Due to the inherent uncertainty of valuation, these values may differ from the value that would have been used had a readily available market 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.

Value Measurements
Inputs to valuation methods are prioritized by a three level hierarchy as follows:

·  
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 an indication of the risk associated with investing in those securities.

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 follows:

Equity securities (common and preferred stock) – Equity securities traded on a national securities exchange or market are stated at the official closing price, last sale price or, if no sale has occurred, at the most recent last sale or closing bid price on the day of valuation. 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. Preferred stock and other equities on inactive markets or valued by reference to similar instruments may be categorized in level 2.

Corporate bonds and notes - The fair value of corporate bonds and notes are 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 place 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 as determined in good faith by the Investment Manager under the direction of or pursuant to procedures established 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 classified in either level 2 or level 3 of the fair value hierarchy.

Derivative instruments – Exchange traded derivatives, such as equity option contracts, may be valued based on quoted prices from the exchange and are categorized in level 1 of the fair value hierarchy.

The following is a summary of the inputs used as of September 30, 2012 in valuing the Fund’s assets carried at fair value. Refer to the Schedule of Portfolio Investments for detailed information on specific investments.
 
   
Level 1
    
Level 2
    
Level 3
    
Total
  
Assets
                        
Investments at value
                        
Common stock
   $ 84,701,313     $ -     $ 199,650     $ 84,900,963  
Corporate bonds and notes
     -       26,675,614       -       26,675,614  
Investment companies
     2,391,400       -       -       2,391,400  
Master limited partnerships
     2,732,230       -       -       2,732,230  
Preferred stock
     -       -       2,000       2,000  
Money market fund
     22,477       -       -       22,477  
                                 
Total investments, at value
   $ 89,847,420     $ 26,675,614     $ 201,650     $ 116,724,684  
                                 
 
There were no securities transferred from level 1 on December 31, 2011 to level 2 on September 30, 2012. Transfers from level 1 to level 2, or from level 2 to level 1 are valued utilizing values at the beginning of the period.
 
   
Common Stocks
    
Preferred Stocks
    
Total
  
Balance at December 31, 2011
   $ 116,808     $ 2,000     $ 118,808  
                         
Transfers into (out of) level 3 (a) (b)
     124,000       -       124,000  
Change in unrealized depreciation
     (41,158 )     -       (41,158 )
                         
Balance at September 30, 2012
   $ 199,650     $ 2,000     $ 201,650  
                         
Net change in unrealized depreciation attributable to assets still held as level 3 at September 30, 2012
   $ (41,158 )   $ -     $ (41,158 )
                         
(a) Transferred from level 2 to level 3 because of lack of observable market data due to an exchange of debt securities for illiquid common units.
  
(b) Transfers in and transfers out are recognized on the actual date of the event or change that caused the transfer.
  

The Investment Manager under the direction of the Fund’s Board of Trustees considers various valuation approaches for valuing securities categorized within level 3 of the fair value hierarchy. The factors used in determining  the value of the Fund’s private investments may include, but are not limited to, the discounts applied to the selection of comparable investments due to the private nature of the investment; the type of the security; the size of the holding; the initial cost of the security; the existence of any contractual restrictions on the security's disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer or analysts; an analysis of the company's or issuer's financial statements; an evaluation of the forces that influence the issuer and the market in which the security is purchased and sold. Significant changes in any of those inputs in isolation would result in a significantly lower or higher fair value measurement. The pricing of all fair value holdings is subsequently reported to the Fund’s Board of Trustees.

The following table presents additional information about valuation methodologies and inputs used for investments that are measured at fair value and categorized with level 3 as of September 30, 2012:
 
   
Fair Value
September 30, 2012
  
Valuation Technique
Unobservable
Input
  
Amount
  
Common stocks
                
Miscellaneous Business Credit Institution
   $ 106,650  
Assessment of net asset value
Discount rate due to lack of marketability
     75 %
Services - Miscellaneous Repair Services
   $ 93,000  
Share of taxable income and comparable exchange offer
Discount rate due to lack of marketability
     75 %
Preferred stock
                    
Financial
   $ 2,000  
Assessment of available reserve for distribution in connection with the company's liquidation and final dissolution
Discount rate due to lack of marketability and predictability
     75 %
 
Cost for Federal Income Tax Purposes
At September 30, 2012, for federal income tax purposes the aggregate cost of securities was $102,039,578 and net unrealized appreciation was $14,685,106, comprised of gross unrealized appreciation of $20,365,915 and gross unrealized depreciation of $5,680,809.

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, these values may differ from the values that would have been used had a readily available market for the securities existed. These differences in valuation could be material. Illiquid and/or restricted securities owned at September 30, 2012, were as follows:
 
 
Acquisition
            
 
Date
  
Cost
    
Value
  
Acquilex Holdings LLC Units
12/23/09
   $ 496,372     $ 93,000  
Star Asia Financial Ltd.
2/22/07
     686,145       106,650  
Solar Cayman Ltd.
3/7/07
     568,802       2,000  
      $ 1,751,319     $ 201,650  
Percent of net assets
       1.82 %     0.21 %
 
Item 2.  Controls and Procedures

(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 15d-15(b) under the Securities Exchange Act of 1934.

(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 last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.

Item 3. Exhibits

(a)  
Certifications of the registrant's principal executive officer and principal financial officer as required by Rule 30a-2(a) under the 1940 Act.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dividend and Income Fund

By: /s/ Thomas B. Winmill
Thomas B. Winmill, President

Date: Novmeber 29, 2012
 
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By: /s/ Thomas B. Winmill
Thomas B. Winmill, President

Date: November 29, 2012
 
By: /s/ Thomas O'Malley
Thomas O'Malley, Chief Financial Officer

Date: November 29, 2012

 
 
EXHIBIT INDEX
 
(a) Certifications of the registrant's principal executive and principal financial officer as required by Rule 30a-2(a) under the 1940 Act. (EX-99.CERT)