Dear Fellow Shareholders:
Performance Review: On a long-term basis, as of March 31, 2005, your Fund
had a three-year cumulative total return of 20.3%. In comparison, the S&P
Utilities Index had a total return during that period of 12.1%, while a
composite of the S&P Utilities Index and the Lehman Utility Bond Index,
reflecting the stock and bond ratio of the Fund, had a total return of 13.9%.
Your Fund had a total return (market price change plus income) of -8.4% for
the quarter ended March 31, 2005. In comparison, the S&P Utilities Index had a
total return of 5.4%. A composite of the S&P Utilities Index and the Lehman
Utility Bond Index, reflecting the stock and bond ratio of the Fund, had a
total return of 4.1%.
During the first quarter of 2005, your Fund paid three monthly 6.5 cent
dividends. The 6.5 cent per share monthly rate, without compounding, would be
78 cents annualized, or a 7.27% common stock dividend yield based on the March
31, 2005 closing price of $10.73 per share. That yield compares favorably with
the quarter-end yields of 3.13% on the Dow Jones Utility Index and 3.38% on the
S&P Utilities Index. Please see the Board of Directors meeting section below
for more information.
There are a number of reasons why your Fund was unable to produce a positive
total return during the first quarter of 2005. As you know, the primary
objective of your Fund is current income. For this reason, your Fund managers
seek to invest in companies that have the ability to consistently pay and grow
their dividends. During the month of March, the utility stocks that performed
best were companies that are recovering from previous strategic or financial
missteps and currently pay smaller or no dividends, and companies that are
benefiting from temporary, volatile commodity price increases, which alone does
not increase their prospect for consistently paying and growing dividends in
the future. Your Fund was not invested in those companies and, as a result,
underperformed the utilities sector indexes.
A further reason for your Fund's lower returns during March was the result
of selling pressure on Fund shares over a two day period. Three close but
different levels of stop loss orders created the pressure. A stop loss order is
an instruction by an investor to a broker to sell a stock when a certain price
is reached. Sequential stop loss orders can be triggered in a short time on a
relatively small initial decline in price. The small steps of repeated orders
resulted in a significant decline in the Fund's stock price unrelated to the
price of the utility indexes or their component companies.
As part of the review of our investment process, each year Fund analysts
prepare industry reviews and outlooks for presentation to the Board of
Directors. These reviews bring into focus certain factors affecting the utility
and REIT industries' operating and financial performance. Following are
highlights from those reviews.
Telecommunications--Adapting to Changing Industry Conditions: Two key growth
areas for the telecommunications industry, wireless telephony and broadband
services, have been and will continue to be important to telecom companies
around the world. Wireless penetration rates are high in many developed
countries, but the United States lags, indicating there is still plenty of room
for growth in the domestic wireless sector. Outside the U.S., the growth story
is less about increasing subscribers and more about increasing usage, which is
significantly less than in the U.S. Further, wireless data use is in its
infancy in the U.S. and should add a second leg to the growth story.
Broadband is also a major focus of telecom companies globally. In the U.S.,
telecom company digital subscriber lines (DSL) have more than doubled in two
years. Bundling (the attractive pricing of several services
to a single customer) broadband together with local telephone service is
helping to drive this growth. Bundling is also important because it helps
retain customers and increases the average revenue per customer. Longer term,
retaining broadband customers is key because they are the ones most likely to
take new services, such as video, from telecom companies when such services are
offered in the next year or two.
Globally, the traditional consumer wireline telephone business remains under
competitive pressure. The pressure began a few years ago with a Federal
Communications Commission (FCC) ruling that allowed competitors to resell the
incumbent Bell companies' own lines at big discounts. Recent court rulings and
regulatory changes have reduced that threat. However, substitution of wirelines
with wireless and voice over Internet protocol (VoIP) is emerging as important
competition for the Bells. At present, there are fewer than one million VoIP
customers in the U.S., but cable companies are beginning to offer VoIP products
and will no doubt take customers from the Bells in the coming years. However,
the fact that the Bells are in most cases the leading wireless providers and
are rapidly growing their broadband base will partly offset the impact of
pressure from cable companies.
While all had been quiet on the communications mergers and acquisition front
for a few years, consolidation definitely has made a comeback. We believe
consolidation is good for the wireless industry, as it should lead to more
stable pricing, better margins, and less capital spending on what would
otherwise be duplicate networks. Likewise, consolidation is needed in the long
distance business. We have questioned for some time the viability of the long
distance companies on a stand-alone basis. The primary reasons for the mergers
and acquisitions include network synergies, significant cost savings, migration
of voice to an Internet data network, and increased wireless spending by
business enterprises. Hopefully, consolidation will also result in less price
pressure and more stability in what has been a very volatile market.
Despite the competitive challenges to the traditional telecommunication
service providers, cash generation remains robust. Shareholders have benefited
in the form of increasing dividends, a trend we expect to continue. For DNP
shareholders, investment in these companies provides value through dividend
income and the growth of that income. Therefore, we anticipate continued
participation in incumbent telecom companies around the world.
Electric Utilities--Dividend Growth is Back: During 2004 and into 2005, the
electric utility industry has been dominated by news of rising interest rates
and increasing commodity prices. On the surface, rising rates and high
commodity prices might give utility investors reason for caution. However, the
"measured pace" of interest rate increases by the Federal Reserve, and
favorable business positions of many companies have provided comfort to utility
investors and shifted their focus to the improving industry fundamentals.
Many electric companies have not been materially impacted by higher
commodity prices. Long-term contracts, hedging activities, and state regulated
cost recovery programs have enabled some companies to neutralize the impact of
higher coal and gas costs. Companies affected the most by high commodity prices
have been those with newly constructed non-regulated gas-fired plants. These
plants have been uneconomic because high gas costs offset the potential
financial benefits of higher electricity prices. However, several companies
with uncommitted output from low cost nuclear and coal plants have been able to
benefit financially from the higher level of electricity prices. We expect the
high commodity price environment to persist in 2005.
Congress failed to pass comprehensive energy legislation in 2004. But the
electric component of the energy bill is still alive and there is some
possibility for legislation in 2005. We believe that the bill would spur much
needed investment in the electric transmission system and lead to improved
system reliability.
2
Important for investors, 2004 was the year that utility managements' "back
to basics" strategies literally began to pay dividends. In general, management
focus was, and continues to be, on core-regulated operations. With non-core and
frequently less profitable activities minimized, only modest ongoing levels of
construction spending planned, and generally positive regulatory decisions for
rate increases received, many companies chose to return excess cash to
investors. During 2004, common stock dividend rates were significantly
increased. In fact, more than ten companies implemented double digit dividend
increases, and three companies actually increased their dividends twice during
the year. We will continue to position our electric holdings to take advantage
of the improved dividend environment.
Natural Gas Utilities--Price and Supply Remain Issues: The price of natural
gas and concerns about the ability of natural gas supply to meet increasing
demand dominated industry headlines in 2004. For the near- to medium-term, we
believe natural gas prices are likely to remain high, and could be quite
volatile, as production from existing wells wanes and additional supply is more
difficult (and expensive) to come by. Over the long-term, new supply sources
will develop, such as expanded and new liquefied natural gas (LNG) facilities.
By first converting natural gas to a liquid for transportation, and then
converting the liquid back to a gas, LNG plants make the importation of natural
gas from other countries economic. Expansions of existing facilities will start
to come on line in the next year or two, but new LNG facilities will take much
longer to become operational. In the meantime, technological changes may allow
more gas to be recovered from existing sources, unconventional supplies may be
developed, and new geographic areas may be opened for exploration.
Over the past several years, local gas distribution companies have faced
many of the same challenges as companies in other industries - higher expenses
from pensions, health-related benefits, insurance, and security. Managements
have done a good job of controlling the costs that they are able to control.
Still, there has been pressure on margins because of the overhead that
managements could not influence. Consequently, we expect to see more regulatory
rate cases filed this year as companies seek recovery of the higher expenses
they have been absorbing. We believe state regulators are well aware of the
issues facing local gas utilities and will be fair in allowing rates to reflect
the additional cost burdens.
The stock performance of local gas distribution utilities was not uniform in
2004. In general, the stock prices of the lowest yielding companies did better
than higher yielding companies. Relative performance can be a cyclical
phenomenon, and in this case the companies with lower yields tended to have
greater commodity price exposure and, in a rising and volatile price
environment, benefited the most. Given the Fund's income objective, we believe
that it is appropriate to maintain our emphasis on low-risk companies with
steady growth rates that can sustain or grow their dividends annually.
REITs--Diversification and Yield: 2004 was the eleventh year REITs have been
in your Fund. REITs are used to complement Fund utility equities because REIT
yields are among the highest in the equity market and historically have been
secure. The National Association of Real Estate Investment Trusts (NAREIT)
Equity Index finished last year with a yield of 4.7%. Over the long-term, the
majority of the return from the NAREIT Equity Index has been generated from
income. We believe this trend will continue in the future.
REITs provide an opportunity to diversify the Fund's portfolio and reduce
risk. Studies reported by Ibbotson Associates indicate that REITs provide
meaningful diversification benefits to portfolios. Because REIT total returns
have historically behaved differently than the returns of large stocks, small
stocks, international stocks, and long-term government bonds, total portfolio
return is smoothed and risk reduced with the inclusion of REITs.
3
Your Fund's REIT holdings are diversified among the 13 different property
sectors that make up the REIT sector. At any given time some property types may
demonstrate absolute or relative operating strength while others demonstrate
absolute or relative weakness. In 2005 we are seeing a continued strengthening
of fundamentals in more cyclical property sectors such as lodging, industrial,
office, apartments, and self-storage. While these sectors typically benefit
from an improving economy, some sectors, such as lodging and industrial, can
benefit from increased business activity without significant job growth. In
addition to the improvement we are seeing in the more cyclical property
sectors, the strength in regional malls and shopping centers continues. Your
Fund managers anticipate that REITs will continue to add value to the portfolio
over the long-term.
Annual Meeting of Shareholders: Claire V. Hansen retired as a director and
chairman of your Fund at the annual meeting of shareholders on May 23, 2005.
Mr. Hansen, who first began work with the former Duff & Phelps Corporation in
1959, is the Fund's founding chairman and has served as chairman and director
of the Fund since it was first organized in 1986. The Fund expresses its
deepest appreciation for Mr. Hansen's dedicated service and distinguished
leadership over the past decades and wishes him well in his retirement.
Also at that meeting Connie K. Duckworth and Carl F. Pollard were reelected
as directors of the Fund. The retirement of Chairman Hansen and the
renomination of only two directors reflect the Board's decision to reduce the
size of the Board from nine to eight directors.
Board of Directors Meeting: At the regular May 2005 Board of Directors'
meeting, the Board elected Vice Chairman Francis E. Jeffries to be the new
Board Chairman. Mr. Jeffries has been a director of the Fund since its
inception in 1987. The Board also declared the following monthly dividends:
Cents Per Share Record Date Payable Date
--------------- ----------- ------------
6.5 June 30 July 11
6.5 July 29 August 10
6.5 August 31 September 12
The determination of the character of all Fund distributions (specifying
which portion is ordinary income, qualifying dividend income, short or long
term capital gains, or return of capital) is made each year-end and is reported
to shareholders on Form 1099-DIV, which is mailed every year in late January.
At the February 2005 meeting, the Board reviewed the Fund's dividend policy
and reaffirmed the current 6.5 cents per share per month dividend rate.
Interest rates remain near 40-year lows despite recent Federal Reserve actions
and utility common stock dividends are well below their long-term average.
Since 2004, the Fund has made increased use of realized gains to supplement its
investment income and has reduced its use of short-term trading strategies
designed to capture dividend income. Until the Fund utilizes all of its tax
loss carryforwards, distributions to shareholders derived from realized gains
will be treated as ordinary income for tax purposes. In addition, the reduced
use of short-term trading strategies by the Fund has lowered the Fund's
portfolio turnover rate and transaction costs. Once the Fund utilizes all of
its tax loss carryforwards and, in the absence of an increase in the yields
available on Fund investments and/or realizable gains on Fund investments, the
Fund's dividend distributions may include a portion of non-taxable return of
capital in order to maintain the dividend rate.
Automatic Dividend Reinvestment Plan and Direct Deposit Service--The Fund
has a dividend reinvestment plan available as a benefit to all registered
shareholders and also offers direct deposit service
4
through electronic funds transfer to all registered shareholders currently
receiving a monthly dividend check. These services are offered through The Bank
of New York. For more information and/or an authorization form on automatic
dividend reinvestment or direct deposit, please contact The Bank of New York
(1-877-381-2537 or http://stock.bankofny.com). Information on these services is
also available on the Fund's web site at the address noted below.
Visit us on the Web--You can obtain the most recent shareholder financial
reports and dividend information at our web site,
http://www.dnpselectincome.com.
We appreciate your interest in DNP Select Income Fund Inc., and we will
continue to do our best to be of service to you.
/s/ Francis E. Jefferies /s/ Nathan I. Partain
Francis E. Jeffries, CFA Nathan I. Partain, CFA
Chairman President and Chief
Executive Officer
5
DNP SELECT INCOME FUND INC.
STATEMENT OF NET ASSETS
(UNAUDITED)
March 31, 2005
COMMON STOCKS--92.8%
Market
Value
Shares Company (Note 1)
--------- ------- ---------------
[_] ELECTRIC--56.7%
1,201,000 Ameren Corp.................................... $ 58,861,010
1,710,244 Cinergy Corp................................... 69,299,087
800,000 Consolidated Edison Inc........................ 33,744,000
1,163,650 Dominion Resources Inc......................... 86,610,470
1,000,000 DTE Energy Co.................................. 45,480,000
1,100,000 Energy East Corp............................... 28,842,000
1,750,000 Exelon Corp.................................... 80,307,500
1,700,000 FirstEnergy Corp............................... 71,315,000
1,965,000 FPL Group Inc.................................. 78,894,750
1,080,000 Iberdrola S.A. (Spain)......................... 28,325,089
215,000 National Grid Transco PLC ADR.................. 10,051,250
770,000 National Grid Transco PLC (United Kingdom)..... 7,133,092
1,200,000 NiSource Inc................................... 27,348,000
1,118,600 NSTAR.......................................... 60,739,980
1,000,000 OGE Energy Corp................................ 26,950,000
990,000 Pinnacle West Capital Corp..................... 42,084,900
600,000 PPL Corp....................................... 32,394,000
1,375,000 Progress Energy Inc............................ 57,681,250
1,000,000 Scottish & Southern Energy ADR................. 16,656,900
850,000 Scottish & Southern Energy PLC (United Kingdom) 14,174,349
368,700 Scottish Power PLC ADR......................... 11,503,440
2,000,000 Southern Co.................................... 63,660,000
1,500,000 Vectren Corp................................... 39,960,000
581,000 WPS Resources Corp............................. 30,746,520
2,999,304 Xcel Energy Inc................................ 51,528,043
---------------
1,074,290,630
[_] GAS--9.1%
1,076,000 AGL Resources Inc.............................. 37,584,680
1,000,000 Atmos Energy Corp.............................. 27,000,000
1,000,000 Keyspan Corp................................... 38,970,000
The accompanying notes are an integral part of the financial statement.
6
DNP SELECT INCOME FUND INC.
STATEMENT OF NET ASSETS--(Continued)
(UNAUDITED)
March 31, 2005
Market
Value
Shares Company (Note 1)
--------- ------- ---------------
900,000 Peoples Energy Corp................. $ 37,728,000
1,000,000 WGL Holdings Inc.................... 30,960,000
---------------
172,242,680
[_] TELECOMMUNICATION--16.7%
1,600,000 BCE Inc............................. 39,984,000
246,114 Belgacom S.A........................ 10,203,599
565,000 BT Group PLC ADR.................... 22,001,100
1,529,200 BellSouth Corp...................... 40,202,668
1,250,000 Chunghwa Telecom Co. Ltd............ 26,487,500
2,000,000 Citizens Communications Co.......... 25,880,000
1,392,230 SBC Communications, Inc............. 32,981,929
700,000 TDC A/S............................. 14,693,000
856,250 Telecom Corp of New Zealand Ltd. ADR 29,686,187
1,068,400 Telstra Corp. Ltd. ADR.............. 21,026,112
1,519,000 Verizon Communications Inc.......... 53,924,500
---------------
317,070,595
[_] NON-UTILITY--10.3%
48,704 Alexandria Real Estate Equities Inc. 3,135,564
60,158 AMB Property Corp................... 2,273,972
242,322 Archstone Smith Trust............... 8,265,604
63,414 Arden Realty Inc.................... 2,146,564
15,111 AvalonBay Communities Inc........... 1,010,775
158,338 Boston Properties Inc............... 9,536,698
64,913 Camden Property Trust............... 3,052,858
71,743 CBL & Associates Properties Inc..... 5,130,342
272,600 CenterPoint Properties Trust........ 11,176,600
249,869 Corporate Office Properties Trust... 6,616,531
217,639 Developers Diversified Realty Corp.. 8,651,150
69,404 Equity Office Properties Trust...... 2,091,143
236,780 Equity Residential.................. 7,626,684
51,194 Essex Property Trust Inc............ 3,537,505
42,800 Extra Space Storage Inc............. 577,800
290,312 General Growth Properties Inc....... 9,899,639
The accompanying notes are an integral part of the financial statement.
7
DNP SELECT INCOME FUND INC.
STATEMENT OF NET ASSETS--(Continued)
(UNAUDITED)
March 31, 2005
Market
Value
Shares Company (Note 1)
--------- ------- ---------------
5,320 Health Care Property Investors Inc........ $ 124,860
61,220 Health Care REIT Inc...................... 1,959,040
51,016 Healthcare Realty Trust Inc............... 1,859,023
49,493 Home Properties Inc....................... 1,920,328
66,018 Hospitality Properties Trust.............. 2,665,807
165,000 Host Marriott Corp........................ 2,732,400
75,274 Kilroy Realty Corp........................ 3,079,459
88,518 Kimco Realty Corp......................... 4,771,120
91,260 LaSalle Hotel Properties.................. 2,651,103
147,356 The Macerich Co........................... 7,851,128
40,000 Maguire Properties Inc.................... 955,200
108,227 Pan Pacific Retail Properties Inc......... 6,141,882
237,632 ProLogis.................................. 8,816,147
74,128 Public Storage, Inc....................... 4,220,848
88,302 Realty Income Corp........................ 2,020,350
141,335 Reckson Associates Realty Corp............ 4,338,985
99,011 Regency Centers Corp...................... 4,715,894
52,600 Shurgard Storage Centers Inc. Class A..... 2,155,548
241,021 Simon Property Group Inc.................. 14,601,052
149,051 SL Green Realty Corp...................... 8,379,647
112,720 Starwood Hotels & Resorts Worldwide, Inc.. 6,766,582
152,033 Sunstone Hotel Investors Inc.............. 3,261,108
106,715 United Dominion Realty Trust Inc.......... 2,227,142
143,599 Vornado Realty Trust...................... 9,947,103
102,077 Weingarten Realty Investors............... 3,522,677
---------------
196,413,862
---------------
Total Common Stocks (Cost--$1,530,159,902) 1,760,017,767
---------------
PREFERRED STOCKS--12.9%
[_] UTILITY--12.9%
200,000 Alltel Corp. 7 3/4% due 5/17/05........... 10,098,000
750,000 Ameren Corp. 9 3/4% due 5/15/05........... 20,115,000
1,200,000 Centurytel Inc. 6 7/8% due 5/15/05........ 30,180,000
The accompanying notes are an integral part of the financial statement.
8
DNP SELECT INCOME FUND INC.
STATEMENT OF NET ASSETS--(Continued)
(UNAUDITED)
March 31, 2005
Market
Value
Shares Company (Note 1)
--------- ------- ---------------
986,700 DTE Energy Co. 8 3/4% due 8/16/05.......... $ 25,062,180
1,200,000 Great Plains Energy Inc. 8% due 2/16/07.... 32,616,000
412,000 Keyspan Corp. 8 3/4% due 5/16/05........... 20,843,080
775,000 Oneok Inc. 8 1/2% due 2/16/06.............. 29,225,250
500,000 Sempra Energy 8 1/2% due 5/17/05........... 16,530,000
172,700 Southern Union Co. 5 3/4% due 8/16/06...... 12,879,966
400,000 TXU Corp. 8 3/4% due 11/16/05.............. 14,752,000
500,000 TXU Corp. 8 1/8% due 5/16/06............... 32,800,000
---------------
Total Preferred Stocks (Cost--$211,563,249) 245,101,476
---------------
BONDS--33.8%
Ratings
--------------------------
Standard Market
and Value
Par Value Fitch Moody's Poor's (Note 1)
----------- - --------- ------- -------- -----------
[_] ELECTRIC--11.8%
$18,050,000 Comed Financing II
8 1/2%, due 1/15/27............. Not Rated Baa2 BBB $19,781,248
7,500,000 Commonwealth Edison Co.
9 7/8%, due 6/15/20............. A- A3 A- 7,758,330
24,000,000 Dominion Resources Capital Trust
7.83%, due 12/01/27............. BBB Baa2 BBB- 26,211,672
14,900,000 El Paso Electric Co.
8.90%, due 2/01/06.............. Not Rated Baa2 BBB 15,479,476
5,000,000 El Paso Electric Co., Series E
9.40%, due 5/01/11.............. Not Rated Baa2 BBB 5,440,230
9,431,000 FPL Group Capital Inc.
7 5/8%, due 9/15/06............. A- A2 A- 9,902,069
17,500,000 Illinois Power Co.
7 1/2%, due 8/15/09............. BBB Baa1 A- 19,378,380
15,825,000 Niagara Mohawk Power Corp.
8 7/8%, due 5/15/07............. Not Rated Baa1 A- 17,256,925
The accompanying notes are an integral part of the financial statement.
9
DNP SELECT INCOME FUND INC.
STATEMENT OF NET ASSETS--(Continued)
(UNAUDITED)
March 31, 2005
Ratings
--------------------------
Standard
and Market Value
Par Value Fitch Moody's Poor's (Note 1)
----------- - --------- ------- -------- ---------------
$ 9,000,000 PSEG Power LLC
8 5/8%, due 4/15/31........... BBB Baa1 BBB $ 11,987,595
22,750,000 Puget Capital Trust
8.231%, due 6/01/27........... Not Rated Ba1 BB 22,248,226
12,915,000 Sempra Energy
7.95%, due 3/1/10............. A Baa1 BBB+ 14,552,841
9,353,000 Southern California Edison Co.
8%, due 2/15/07............... BBB+ A3 BBB 9,963,480
13,000,000 Southern Co. Capital Trust II
8.14%, due 2/15/27............ Not Rated Baa1 BBB+ 13,825,942
11,750,000 Virginia Electric & Power Co.
8 5/8%, due 10/01/24.......... A- A2 A- 12,240,128
17,700,000 Virginia Electric & Power Co.
8 1/4%, due 3/01/25........... A- A2 A- 18,366,440
---------------
224,392,982
[_] GAS--3.8%
5,000,000 KN Energy Inc.
7 1/4%, due 3/01/28........... BBB Baa2 BBB 5,676,605
7,000,000 Keyspan Corp.
7 5/8%, due 11/15/10.......... A- A3 A 7,998,732
10,000,000 Northern Border Partners LP
8 7/8%, due 6/15/10........... BBB+ Baa2 BBB 11,707,650
6,488,000 Southern Union Co.
7.60%, due 2/01/24............ BBB Baa3 BBB 7,656,015
8,850,000 Southern Union Co.
8 1/4%, due 11/15/29.......... BBB Baa3 BBB 11,269,546
10,000,000 TE Products Pipeline Co.
7.51%, due 1/15/28............ Not Rated Baa3 BBB 10,604,110
15,500,000 Trans-Canada Pipeline
9 1/8%, due 4/20/06........... Not Rated A3 BBB+ 16,287,291
---------------
71,199,949
The accompanying notes are an integral part of the financial statement.
10
DNP SELECT INCOME FUND INC.
STATEMENT OF NET ASSETS--(Continued)
(UNAUDITED)
March 31, 2005
Ratings
----------------------
Standard
and Market Value
Par Value Fitch Moody's Poor's (Note 1)
----------- - ----- ------- -------- ---------------
[_] TELECOMMUNICATION--12.3%
$ 6,724,000 Alltel Corp.
7 1/2% due 3/01/06............... A A2 A $ 6,948,111
15,200,000 AT&T Wireless Services Inc.
7 1/2%, due 5/01/07.............. A Baa2 A 16,169,942
5,098,000 BellSouth Corp.
7 3/4%, due 2/15/10.............. A A2 A 5,744,839
22,000,000 British Telecom PLC
8 3/8%, due 12/15/10............. A Baa1 A- 25,589,102
15,000,000 Centurytel Inc.
8 3/8%, due 10/15/10............. BBB+ Baa2 BBB+ 17,030,565
10,000,000 Centurytel Inc.
6 7/8%, due 1/15/28.............. BBB+ Baa2 BBB+ 10,343,150
5,645,000 Comcast Cable Communications Inc.
8 3/8%, due 5/01/07.............. BBB Baa3 BBB 6,083,566
7,361,000 Continental Cablevision Inc.
9.50%, due 8/01/13............... BBB Baa3 BBB 7,840,253
10,000,000 France Telecom SA
7.20%, due 3/01/06............... A- Baa1 A- 10,311,690
10,000,000 France Telecom SA
7 3/4%, due 3/01/11.............. A- Baa1 A- 11,456,040
17,625,000 GTE Corp.
7.90%, due 2/01/27............... A+ A3 A+ 18,979,622
5,000,000 GTE North Inc., Series C
7 5/8%, due 5/15/26.............. A+ A1 A+ 5,296,825
10,000,000 Koninklijke KPN NV
8.00%, due 10/01/10.............. BBB+ Baa1 A- 11,434,300
10,000,000 Sprint Capital Corp.
8 3/8%, due 3/05/12.............. BBB Baa3 BBB- 11,702,750
10,000,000 TCI Communications Inc.
8 3/4%, due 8/01/15.............. BBB Baa3 BBB 12,528,090
11,500,000 Telefonica Europe BV
7 3/4%, due 9/15/10.............. A A3 A 13,060,355
The accompanying notes are an integral part of the financial statement.
11
DNP SELECT INCOME FUND INC.
STATEMENT OF NET ASSETS--(Continued)
(UNAUDITED)
March 31, 2005
Ratings
--------------------------
Standard
and Market Value
Par Value Fitch Moody's Poor's (Note 1)
------------ - --------- ------- -------- ---------------
$ 10,500,000 Verizon Global Funding Corp.
7 3/4%, due 12/01/30.......... A+ A2 A+ $ 12,729,381
20,000,000 Vodaphone Group PLC
7 3/4%, due 2/15/10........... A A2 A 22,611,600
5,000,000 Vodaphone Group PLC
7 7/8%, due 2/15/30........... A A2 A 6,402,965
---------------
232,263,146
[_] NON-UTILITY--3.6%
#25,000,000 Countrywide Home Loans Inc.
3.133%, Series M, due 6/23/05. A A3 A 25,002,350
8,000,000 Dayton Hudson Corp.
9 7/8%, due 7/01/20........... A+ A2 A+ 11,743,200
10,000,000 EOP Operating LP
7 3/4%, due 11/15/07.......... BBB+ Baa2 BBB+ 10,767,290
#20,000,000 Stanfield Victoria Funding LLC
2.955%, due 6/01/05........... Not Rated Aaa AAA 20,002,340
---------------
67,515,180
---------------
Total Bonds (Cost--$593,683,542)......................... 595,371,257
---------------
The accompanying notes are an integral part of the financial statement.
12
DNP SELECT INCOME FUND INC.
STATEMENT OF NET ASSETS--(Continued)
(UNAUDITED)
March 31, 2005
Market
Par Value/ Value
Shares (Note 1)
------------ ----------------
U.S. TREASURY OBLIGATION--0.1%
$ 2,000,000 U.S. Treasury Bond
10 3/4%, due 8/15/05.................................................... $ 2,058,752
----------------
Total U.S. Treasury Obligation (Cost--$2,394,375)....................... 2,058,752
----------------
MONEY MARKET INSTRUMENTS--25.0%
# 39,103 AIM STIC Liquid Assets Portfolio........................................ 39,103
#50,000,000 Bear Stearns Inc. Master Note
3.025%, due 4/01/05..................................................... 50,000,000
#15,000,000 Chesham Finance LLC
2.90%, due 4/01/05...................................................... 15,000,000
#25,000,000 Chesham Finance LLC
2.805%, due 8/31/05..................................................... 25,000,000
#10,000,000 Credit Suisse First Boston LLC Repurchase Agreement
2.925%, dated 3/31/05, due 4/01/05, with a repurchase price of
$10,000,813 and collateralized by
$3,097,439 Continental Airlines Inc. 7 7/8% ABS due 7/02/18;
$160,075 Continental Airlines Inc. 6.795% ABS due 8/02/18;
$1,237,697 Continental Airlines Inc. 8.307% ABS due 4/02/18;
$3,448,323 RAMP 2002-RS1 MII3 5.05% ABS due 1/25/32;
$1,178,017 RASC 2001-KS2 MI3 7.798% ABS due 6/25/31;
and $1,081,257 RASC 2001-KS3 MI3 7.01% ABS due 9/25/31.................. 10,000,000
#50,000,000 Dresdner Kleinwort Wasserstein Securities LLC Repurchase Agreement
2.925%, dated 3/31/05, due 4/01/05, with a repurchase price of
$50,004,063 and collateralized by
$24,613,865 Bank One Capital IV 4.41% Floating Rate Note due 9/01/30 and
$26,386,305 Credit Suisse First Boston Inc. 5 3/4% Fixed Rate Note due
4/15/07................................................................. 50,000,000
#50,000,000 Goldman Sachs & Co. Repurchase Agreement,
2.945%, dated 3/31/05, due 4/01/05, with a repurchase price of
$50,004,090 and collateralized by
$51,000,001 MLMT 2004-KEY2 A4 4.864% CMO due 8/12/39.................... 50,000,000
The accompanying notes are an integral part of the financial statement.
13
DNP SELECT INCOME FUND INC.
STATEMENT OF NET ASSETS--(Continued)
(UNAUDITED)
March 31, 2005
Market
Par Value/ Value
Shares (Note 1)
------------- ----------------
#$ 50,000,000 Greenwich Capital Markets Inc. Repurchase Agreement,
2.955%, dated 3/31/05, due 4/01/05, with a repurchase price of
$50,004,104 and collateralized by
$24,346,351 ARSI 2004-W11 M4 3.70% ABS due 11/25/34;
$6,020,459 FFML 2005-FF1 M1 3.34% ABS due 12/25/34;
$4,633,069 MARM 2005-1 B1 5.206% CMO due 3/25/35;
$5,032,626 SAIL 2003-BC2 M1 3.77% ABS due 4/25/33;
$7,981,291 SAIL 2004-7 M2 3.60% CMO due 8/25/34;
$2,965,274 TMST 2003-4 M1 3 1/2% CMO due 9/25/43;
and $24,305 WAMU 2004-AR3 B1 4.191% CMO due 6/25/34........... $ 50,000,000
#18,481,701 Janus Institutional Cash Reserves Fund........................ 18,481,701
#10,000,000 Lehman Brothers Inc. Repurchase Agreement,
2.925%, dated 3/31/05, due 4/01/05, with a repurchase price of
$10,00,813 and collateralized by
$567,641 Continental Airlines Inc. 7.707% ABS due 4/02/21;
$784,205 Continental Airlines Inc. 6.703% ABS due 6/15/21;
$5,787 LBUBS 2002-C4 A1 3.268% CMO due 9/15/26;
$3,861,536 LABMH 2001-B M1 6.63% ABS due 3/15/28;
$4,080,969 MSAC 2004-HE2 B3 6.35% ABS due 3/25/34;
and $898,856 PHMS 1993-23 A9 6 1/2% CMO due 7/25/08........... 10,000,000
The accompanying notes are an integral part of the financial statement.
14
DNP SELECT INCOME FUND INC.
STATEMENT OF NET ASSETS--(Continued)
(UNAUDITED)
March 31, 2005
Market
Par Value/ Value
Shares (Note 1)
------------- ----------------
#$ 50,000,000 Merrill Lynch Government Securities Inc. Repurchase Agreement,
2.955%, dated 3/31/05, due 4/01/05, with a repurchase price of
$50,004,104 and collateralized by
$2,149,576 ARMT 2004-5 CB4 5.063% CMO due 4/25/35;
$1,927,937 BSCMS 2004-PWR6 G 5.476% 144A CMO due 11/11/41;
$5,016,514 CWL 2005-1 MV7 4.10% ABS due 7/25/35;
$2,903,783 CGCMT 2004-C2 F 5.211% 144A CMO due 10/15/41;
$2,500,989 FMIC 2005-1 M7 4.10% ABS due 3/25/35;
$2,537,902 HEAT 2004-8 B3 5.95% ABS due 3/25/35;
$3,010,695 HEAT 2005-1 B2 5.10% ABS due 5/25/35;
$3,985,597 IXIS 2005-HE1 B2 4.18% ABS due due 6/25/35;
$687,586 IMM 2004-4 2B 5.35% CMO due 9/25/34;
$4,173,007 INDX 2005-AR4 B3 4.55% CMO due 3/25/35;
$5,007,311 JPMCC 2004-CB9 F 5.473% 144A CMO due 6/12/41;
$2,044,478 LBMLT 2004-4 M11 5.85% ABS due 10/25/34;
$80,785 MSC 1998-HF1 E 7.025% CMO due 3/15/30;
$3,339,986 MSC 2004-IQ7 E 5.434% 144A CMO due 6/15/38;
$4,431,377 MSM 2004-11AR 1B3 4.75% CMO due 1/25/35;
$500,313 RAMP 2004-RZ3 MII4 4.70% ABS due 9/25/34;
$1,171,230 SARM 2004-18 B7 5.60% CMO due 12/25/34;
$2,196,689 SASC 2005-S1 M8 4.80% CMO due 3/25/35; and
$4,836,301 SAMI 2004-AR6 B3 4.35% CMO due 2/19/35............. $ 50,000,000
#46,000,000 Morgan Stanley & Co., Inc. Repurchase Agreement,
2.925%, dated 3/31/05, due 4/01/05, with a repurchase price of
$46,003,738 and collateralized by
$5,224,589 AQNIM 2003-N9A NOTE 7.385% 144A ABS due 10/25/33;
$1,319,766 ARNIM 2003-N5 A 6.65% 144A ABS due 2/25/34;
$2,399,292 ARNIM 2004-WN8 B 6.00% 144A ABS due 7/25/34;
$88,004 BSCMS 2004-BA5A A1 2.94% 144A CMO due 9/15/19;
$28,404,840 COMT 2000-3 C 7.90% 144A ABS due 10/15/10;
$1,319,971 ABSN 2004-HE2 A1 6.75% 144A ABS due 4/25/34;
$4,368,908 LBMLT 2002-2 M4A 5.10% CMO due 7/25/32;
$896,427 MSAC 2001-WF1 B1 5.20% ABS due 9/25/31;
and $2,898,204 SHARP 2003-6HEN N 7.25% 144A ABS due 11/25/33.. 46,000,000
The accompanying notes are an integral part of the financial statement.
15
DNP SELECT INCOME FUND INC.
STATEMENT OF NET ASSETS--(Continued)
(UNAUDITED)
March 31, 2005
Market
Par Value/ Value
Shares (Note 1)
------------------ ----------------
#$ 50,000,000 Nomura Securities International Inc. Repurchase Agreement,
2.925%, dated 3/31/05, due 4/01/05, with a repurchase price of
$50,004,063 and collateralized by
$2,463,018 CWHL 2003-J3 1A2 4.60% CMO due 5/25/33;
$2,114,146 CCMSC 1997-1 C 7.37% CMO due 6/19/29;
$4,117,158 CMAT 1999-C1 B 7.23% CMO due 1/17/32;
$4,237,988 GSMPS 2004-4 1AS 3.484% 144A CMO due 6/25/34;
$4,047,703 RAST 2003-A7 A3 0.65% CMO due 7/25/33;
$1,932,911 LBUBS 2000-C5 A1 6.41% CMO due 12/15/19;
$1,314,997 MASTR 2003-7 4A36 4.25% CMO due 9/25/33;
$2,755,785 MASTR 2003-7 4A46 4.70% CMO due 9/25/33;
$2,286,860 MSSTR 2003-1 3A3 5.25% CMO due 2/25/33;
$3,095,843 RALI 2002-QS19 A3 5.15% CMO due 12/25/32;
$2,236,555 RALI 2003-QS15 A5 5 1/2% CMO due 8/25/33;
$4,292,423 RFMSI 2003-S12 1A2 6.00% CMO due 12/25/32;
$4,524,289 RFMSI 2003-S19 A11 4.15% CMO due 10/25/33;
$2,597,419 RFMSI 2004-S9 1A2 4.35% CMO due 12/25/34;
$2,627,848 SBM7 2003-UP2 PO2 0.00% CMO due 6/25/33;
$2,555,919 SASC 2003-8 2A13 4.65% CMO due 4/25/33;
and $3,699,138 WAMU 2003-S4 2A4 5 1/2% CMO due 6/25/33............ $ 50,000,000
#5,000,000 Pitney Bowes Inc.
2.85%, due 4/01/05................................................ 5,000,000
#25,000,000 Sigma Finance Inc.
2.88%, due 5/03/05................................................ 25,000,000
#20,000,000 Tango Finance Corp.
2.805%, due 5/06/05............................................... 20,000,000
----------------
Total Money Market Instruments (Amortized Cost--$474,520,804)..... 474,520,804
----------------
Total Investments (Cost--$2,812,321,872).......................... $ 3,077,070,056
----------------
CASH AND OTHER ASSETS LESS LIABILITIES (36.0%)......................................... (681,468,862)
----------------
REMARKETED PREFERRED STOCK
($.001 par value per share; 100,000,000 shares authorized and 5,000 shares issued and
outstanding; liquidation preference $100,000 per share).............................. (500,000,000)
----------------
NET ASSETS APPLICABLE TO COMMON STOCK
(equivalent to $8.54 per share of common stock based on 221,966,221 shares of common
stock outstanding; authorized 250,000,000 shares).................................... $ 1,895,601,194
================
The accompanying notes are an integral part of the financial statement.
16
DNP SELECT INCOME FUND INC.
STATEMENT OF NET ASSETS--(Continued)
(UNAUDITED)
March 31, 2005
# This security was purchased with the cash proceeds from securities loans.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets applicable to common shares of the
Fund.
--------
(1)The market values for securities are determined as follows: Equity
securities traded on a national securities exchange or traded
over-the-counter and quoted on the NASDAQ System are valued at last sales
prices. Fixed income securities and any other securities for which it is
determined that market prices are unavailable or inappropriate are valued at
a fair value using a procedure determined in good faith by the Board of
Directors which includes the use of a pricing service. Each money market
instrument having a maturity of 60 days or less is valued on an amortized
cost basis, which approximates market value.
(2)At December 31, 2004, the Fund's most recent fiscal tax year end, based on a
tax cost of investments of $2,776,340,015, the Fund had gross unrealized
appreciation of $365,962,302 and unrealized depreciation of $32,560,868.
17
[THIS PAGE INTENTIONALLY LEFT BLANK]
Board of Directors
STEWART E. CONNER
CONNIE K. DUCKWORTH
ROBERT J. GENETSKI
FRANCIS E. JEFFRIES, CFA
NANCY LAMPTON
CHRISTIAN H. POINDEXTER
CARL F. POLLARD
DAVID J. VITALE
Officers
FRANCIS E. JEFFRIES, CFA
Chairman
NATHAN I. PARTAIN, CFA
President, Chief Executive Officer and Chief Investment Officer
JOYCE B. RIEGEL
Chief Compliance Officer
T. BROOKS BEITTEL, CFA
Senior Vice President
and Secretary
MICHAEL SCHATT
Senior Vice President
JOSEPH C. CURRY, JR.
Vice President and Treasurer
DIANNA P. WENGLER
Assistant Vice President and Assistant Secretary
DNP Select
Income Fund Inc.
Common stock listed on the New York Stock Exchange under the symbol DNP
55 East Monroe Street
Chicago, Illinois 60603
(312) 368-5510
Shareholder inquiries please contact
Transfer Agent
Dividend Disbursing
Agent and Custodian
The Bank of New York
Shareholder Relations
Church Street Station
P.O. Box 11258
New York, New York 10286-1258
(877) 381-2537
Investment Adviser
Duff & Phelps
Investment Management Co.
55 East Monroe Street
Chicago, Illinois 60603
Administrator
J.J.B. Hilliard, W.L. Lyons, Inc.
Hilliard Lyons Center
Louisville, Kentucky 40202
(888) 878-7845
Legal Counsel
Mayer, Brown, Rowe & Maw LLP
190 South LaSalle Street
Chicago, Illinois 60603
Independent Registered Public Accounting Firm
Ernst & Young LLP
233 South Wacker Drive
Chicago, Illinois 60606
DNP Select
Income Fund Inc.
First Quarter Report
March 31, 2005
[Artwork]