As filed with the Securities and Exchange Commission on April 30, 2002
Investment Company Act file no. 811-4915
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
FORM N-2
-------
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 44 [X]
-------
DNP SELECT INCOME FUND INC.
(Exact name of registrant as specified in charter)
-------
55 East Monroe Street
Chicago, Illinois 60603
(Address of principal executive offices)
Registrant's telephone number: 312/368-5510
Nathan I. Partain John R. Sagan
DNP Select Income Fund Inc. Mayer, Brown, Rowe & Maw
55 East Monroe Street 190 South LaSalle Street
Chicago, Illinois 60603 Chicago, Illinois 60603
(Names and addresses of agents for service)
It is proposed that this filing will become effective:
[X] immediately upon filing.
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
-1-
================================================================================
PART A: INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Outside Front Cover
Not applicable.
Item 2. Cover Pages; Other Offering Information
Not applicable.
Item 3. Fee Table and Synopsis
1.
Shareholder Transaction Expenses
Sales Load (as a percentage of offering price)........................N/A
Dividend Reinvestment and Cash Purchase Plan Fees.....................(1)
Annual Expenses (as a percentage of net assets attributable to common shares)
Management Fees.................................................... 0.74%
Interest Payments on Borrowed Funds................................ 0.46%
Other Expenses..................................................... 0.37%
Total Annual Expenses.......................................1.57%
Example (2) 1 year 2 years 5 years 10 years
You would pay the following expenses on a $1,000 investment,
assuming a 5% annual return $16 $32 $86 $187
(1) Shareholders that reinvest dividends and/or capital gains distributions
will be charged only brokerage fees in the event that shares are
purchased in the open market. Investors investing cash in addition to
any cash dividends reinvested will be charged brokerage commissions
plus a service fee of $2.50 per transaction. See Item 10.1(c).
(2) This Example should not be considered a representation of future
expenses, and actual expenses may be greater or lesser than those
shown.
The purpose of the foregoing table is to assist an investor in understanding the
costs and expenses that an investor will bear directly or indirectly, and the
information contained therein is not necessarily indicative of future
performance. See Item 9.
2. Not applicable.
3. Not applicable.
1
Item 4. Financial Highlights
Not applicable.
Item 5. Plan of Distribution
Not applicable.
Item 6. Selling Shareholders
Not applicable.
Item 7. Use of Proceeds
Not applicable.
Item 8. General Description of the Registrant
1. General
(a) The Registrant, DNP Select Income Fund Inc. (the "Fund"),
is a corporation organized under the laws of the State of
Maryland on November 26, 1986.
(b) The Fund is a diversified closed-end investment company.
2. Investment Objectives and Policies
Investment objectives
The Fund's primary investment objectives are current income and
long-term growth of income. Capital appreciation is a secondary objective.
Principal investment strategies
The Fund seeks to achieve its investment objectives by investing
primarily in a diversified portfolio of equity and fixed income securities of
companies in the public utilities industry. Under normal conditions, more than
65% of the Fund's total assets will be invested in securities of public
utility companies engaged in the production, transmission or distribution of
electric energy, gas or telephone services. The Fund's investment objectives
stated in the preceding paragraph and its policy of concentrating its
investments in the utilities industry are fundamental policies and may not be
changed without the approval of the holders of a "majority" (as defined in the
Investment Company Act of 1940, as amended (the "1940 Act")) of the
outstanding shares of the common stock and the preferred stock voting together
as one class, which means the lesser of (i) 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are represented or
(ii) more than 50% of the outstanding shares.
2
Fundamental investment restrictions
The following are fundamental investment restrictions of the Fund that
may be changed only with approval of the holders of a "majority" (as defined in
the 1940 Act) of the outstanding shares of the common stock and the preferred
stock voting together as one class:
1. The Fund may not invest more than 25% of its total assets
(valued at the time of investment) in securities of companies
engaged principally in any one industry other than the utilities
industry, which includes companies engaged in the production,
transmission or distribution of electric energy or gas or in
telephone services, except that this restriction does not apply to
securities issued or guaranteed by the United States Government or
its agencies or instrumentalities.
2. The Fund may not:
(a) invest more than 5% of its total assets (valued at the
time of the investment) in the securities of any one issuer,
except that this restriction does not apply to United States
Government securities; or
(b) acquire more than 10% of the outstanding voting
securities of any one issuer (at the time of acquisition);
except that up to 25% of the Fund's total assets (at the time of
investment) may be invested without regard to the limitations set
forth in this restriction.
3. The Fund may borrow money on a secured or unsecured basis
for any purpose of the Fund in an aggregate amount not exceeding 15%
of the value of the Fund's total assets at the time of any such
borrowing (exclusive of all obligations on amounts held as
collateral for securities loaned to other persons to the extent that
such obligations are secured by assets of at least equivalent
value).
4. The Fund may not pledge, mortgage or hypothecate its
assets, except to secure indebtedness permitted by restriction 3 above.
(The deposit in escrow of securities in connection with the writing of
put and call options, collateralized loans of securities and collateral
arrangements with respect to margin requirements for futures
transactions and with respect to segregation of securities in
connection with forward contracts are not deemed to be pledges or
hypothecations for this purpose.)
5. The Fund may make loans of securities to other persons to
the extent of not more than 33 1/3% of its total assets (valued at the
time of the making of loans), and may invest without limitation in
short-term obligations and publicly distributed obligations.
6. The Fund may not underwrite the distribution of securities
of other issuers, although it may acquire securities that, in the event
of a resale, might be required to be registered under the Securities
Act of 1933, as amended, because the Fund could be regarded as an
underwriter as defined in that act with respect to the resale.
7. The Fund may not purchase or sell real estate or any
interest therein, except that the Fund may invest in securities secured
by real estate or interests therein, such as mortgage pass-throughs,
pay-throughs, collateralized mortgage obligations, and securities
issued by companies (including partnerships and real estate investment
trusts) that invest in real estate or interests therein.
8. The Fund may acquire securities of other investment
companies to the extent (at the acquisition) of (i) not more than 3% of
the outstanding voting stock of any one investment company, (ii) not
more than 5% of the assets of the Fund in any one investment company
and (iii) not more than 10% of the assets of the Fund in all investment
companies (exclusive in each case of securities received as a dividend
or as a result of a merger, consolidation or other plan of
reorganization).
9. The Fund may not invest for the purpose of exercising
control over or management of any company.
10. The Fund may not purchase securities on margin, or make
short sales of securities, except the use of short-term credit
necessary for the clearance of purchases and sales of portfolio
securities, but it may make margin deposits in connection with
transactions in options, futures and options on futures.
3
11. The Fund may not purchase or sell commodities or commodity
contracts, except that it may enter into (i) stock index futures
transactions, interest rate futures transactions and options on such
future transactions and (ii) forward contracts on foreign currencies to
the extent permitted by applicable law.
12. The Fund may not issue any security senior to its common
stock, except that the Fund may borrow money subject to investment
restriction 3 and except as permitted by the Fund's charter.
If a percentage restriction set forth above is adhered to at the time a
transaction is effected, later changes in percentages resulting from changes in
value or in the number of outstanding securities of an issuer will not be
considered a violation.
Other Significant Investment Policies
Fixed Income Securities. The Fund purchases a fixed income security
only if, at the time of purchase, it is (i) rated investment grade by at least
two of the following three nationally recognized statistical rating
organizations: Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc. ("S&P"), and
Fitch IBCA, Inc. ("Fitch") or (ii) determined by the Fund's investment adviser
to be of investment grade and not rated below investment grade by any of the
aforementioned rating services. A fixed income security rated investment grade
has a rating of BBB- or better by Fitch, Baa3 or better by Moody's, or BBB- or
better by S&P. In making its determination that a fixed income security is
investment grade, the Fund's investment adviser will use the standards used by a
nationally recognized statistical rating organization.
Leverage. The Fund is authorized to borrow money in amounts of up to
15% of the value of its total assets at the time of such borrowings. However,
for so long as the Fund's preferred stock is rated by S&P, the Fund will limit
the aggregate amount of its borrowings to 10% of the value of its total assets
and will not incur any borrowings, unless advised by S&P that such borrowings
would not adversely affect S&P's then-current rating of the preferred stock.
Lending of Portfolio Securities. In order to generate additional
income, the Fund may from time to time lend securities from its portfolio, with
a value not in excess of 33 1/3% of its total assets, to brokers, dealers and
financial institutions such as banks and trust companies for which it will
receive collateral in cash, United States Government securities or an
irrevocable letter of credit that will be maintained in an amount equal to at
least 100% of the current market value of the loaned securities.
Rating Agency Guidelines. The Fund's preferred stock is currently rated
by Moody's, S&P and Fitch, nationally recognized statistical rating
organizations, which issue ratings for various securities reflecting the
perceived creditworthiness of those securities. The Fund intends that, so long
as shares of its preferred stock are outstanding, the composition of its
portfolio will reflect guidelines established by the foregoing rating
organizations in connection with the Fund's receipt of the highest rating for
its preferred stock from at least two of such rating organizations.
Options and Futures Transactions. The Fund may seek to increase its
current return by writing covered options. In addition, through the writing and
purchase of options and the purchase and sale of futures contracts and related
options, the Fund may at times seek to hedge against a decline in the value of
securities owned by it or an increase in the price of securities which it plans
to purchase. However, for so long as shares of the Fund's preferred stock are
rated either by Moody's or S&P, the Fund will not purchase or sell futures
contracts or related options or engage in other hedging transactions unless
Moody's or S&P, as the case may be, advises the Fund that such action or actions
will not adversely affect its then-current rating of the Fund's preferred stock.
Temporary Investments. For temporary defensive purposes, the Fund may
be invested primarily in money market securities. These securities include
securities issued or guaranteed by the United States Government and its agencies
and instrumentalities, commercial paper and certificates of deposit. To the
extent that the Fund engages in such defensive investments, it may not achieve
its investment objectives.
4
Nonfundamental Restrictions. The Fund may not (i) invest in securities
subject to legal or contractual restrictions on resale, if, as a result of such
investment, more than 10% of the Fund's total assets would be invested in such
securities, or (ii) acquire 5% or more of the outstanding voting securities of a
public utility company.
Each of the policies and restrictions described above may be changed by
the board of directors without the approval of the Fund's shareholders. If a
percentage restriction set forth above is adhered to at the time a transaction
is effected, later changes in percentages resulting from changes in value or in
the number of outstanding securities of an issuer will not be considered a
violation.
3. Risk Factors
Leverage. As of December 31, 2001, the Fund had outstanding
indebtedness of $197,397,331 and five series of preferred stock with an
aggregate liquidation preference of $500 million. The dividend rate on
each series of preferred stock is reset every 49 days through a
remarketing procedure. As of April 6, 2002, the dividend rate on the
five series of preferred stock averaged 1.56% and the interest rate on
the Fund's outstanding indebtedness averaged 2.06%. The Fund must
experience an annual return of 0.46% on its portfolio in order to cover
annual interest and dividend payments on the Fund's outstanding
indebtedness and preferred stock.
Leverage creates certain risks for holders of common stock, including
higher volatility of both the net asset value and market value of the
common stock. Fluctuations in dividend rates on the preferred stock and
interest rates on the Fund's indebtedness will affect the dividend to
holders of common stock. Holders of the common stock receive all net
income from the Fund remaining after payment of dividends on the
preferred stock and interest on the Fund's indebtedness, and generally
are entitled to a pro rata share of net realized capital gains, if any.
Upon any liquidation of the Fund, the holders of shares of preferred
stock will be entitled to liquidating distributions (equal to $100,000
per share of preferred stock plus any accumulated and unpaid dividends
thereon) and the holders of the Fund's indebtedness will be entitled to
receive repayment of outstanding principal plus accumulated and unpaid
interest thereon before any distribution is made to holders of common
stock.
The leverage obtained through the issuance of the preferred stock and
from the Fund's presently outstanding indebtedness has provided holders
of common stock with a higher dividend than such holders would have
otherwise received. However, there can be no assurance that the Fund
will be able to continue to realize such a higher net return on its
investment portfolio. Changes in certain factors could cause the
relationship between the dividends paid on the preferred stock and
interest paid on the Fund's indebtedness to increase relative to the
dividend and interest rates on the portfolio securities in which the
Fund may be invested. Under such conditions the benefit of leverage to
holders of common stock will be reduced and the Fund's leveraged
capital structure could result in a lower rate of return to holders of
common stock than if the Fund were not leveraged. The Fund is required
by the 1940 Act to maintain an asset coverage of 200% on outstanding
preferred stock and 300% on outstanding indebtedness. If the asset
coverage declines below those levels (as a result of market
fluctuations or otherwise), the Fund may be required to sell a portion
of its investments at a time when it may be disadvantageous to do so.
The following table illustrates the effects of leverage on a return to
common stockholders. The figures appearing in the table are
hypothetical and actual returns may be greater or less than those
appearing in the table.
--------------------------------------------------------------------------------
Assumed annual return on -10.00% -5.00% 0.00% 5.00% 10.00%
portfolio (net of expenses)
--------------------------------------------------------------------------------
Corresponding annual return -14.81% -8.05% -1.29% 5.46% 12.22%
to common stockholder
--------------------------------------------------------------------------------
Investments in Securities of Foreign Issuers. While the Fund is
prohibited from investing 15% or more of its assets in securities of
foreign issuers, the Fund may be exposed to certain risks as a result
of foreign investments. Investing in securities of foreign issuers
5
involves certain considerations not typically associated with investing
in securities of U.S. companies, including (a) controls on foreign
investment and limitations on repatriation of invested capital and on
the Fund's ability to exchange local currencies for U.S. dollars, (b)
greater price volatility, substantially less liquidity and
significantly smaller market capitalization of securities markets, (c)
currency devaluations and other currency exchange rate fluctuations,
(d) more substantial government involvement in the economy, (e) higher
rates of inflation, (f) less government supervision and regulation of
the securities markets and participants in those markets and (g)
political uncertainty and other considerations. The Fund will treat
investments in countries with repatriation restrictions as illiquid for
purposes of any applicable limitations under the 1940 Act; however, as
a closed-end fund, the Fund is not currently limited under that Act in
the amount of illiquid securities it may acquire. Because of the
limited forward market for the purchase of U.S. dollars in most foreign
countries and the limited circumstances in which the Fund expects to
hedge against declines in the value of foreign country currencies
generally, the Fund will be adversely affected by devaluations of
foreign country currencies against the U.S. dollar to the extent the
Fund is invested in securities denominated in currencies experiencing a
devaluation. The Fund's fundamental investment policies permit the Fund
to enter into currency hedging transactions.
In addition, accounting, auditing and financial reporting standards in
foreign countries are different from U.S. standards. As a result,
certain material disclosures may not be made and less information may
be available to the Fund and other investors than would be the case if
the Fund's investments were restricted to securities of U.S. issuers.
Moreover, it may be more difficult to obtain a judgment in a court
outside the United States. Interest and dividends paid on securities
held by the Fund and gains from the disposition of such securities may
be subject to withholding taxes imposed by foreign countries.
Anti-takeover Provisions. Certain provisions of the Fund's charter
may be regarded as "anti-takeover" provisions because they could
have the effect of limiting the ability of other entities or persons
to acquire control of the Fund. See Item 10.l(e).
Premium/Discount From Net Asset Value. Shares of closed-end investment
companies trade in the market above, at and below net asset value. This
characteristic of shares of closed-end investment companies is a risk
separate and distinct from the risk that the Fund's net asset value may
decline. Since inception, the Fund's common stock has generally traded
at a premium to net asset value. For example, in the two-year period
ended December 31, 2001, as of the close of business of the New York
Stock Exchange on the last day in each week on which the New York Stock
Exchange was open (the date the Fund calculates its net asset value per
share), the Fund's shares were trading at a premium to net asset value
87% of the time. The Fund usually does not calculate its net asset
value per share on any other day and does not know whether the Fund's
shares were trading at a premium to net asset value on such days. The
Fund is not able to predict whether its shares will trade above, at or
below net asset value in the future.
Dividend Captures. The Fund acts to increase its dividend income using
a strategy called "dividend capture." Under this strategy, the Fund
purchases shares of stock of a particular issuer immediately prior to
the market close on the stock's ex-dividend date and then writes a
covered call option on the same number of shares of that issuer. The
call option expires at 10:00 a.m. on the immediately following trading
day. Because the Fund is the holder of the stock at the market close on
the ex-dividend date, it is entitled to receive the dividend on the
stock. If, as expected, the holder of the call option elects to
exercise the option, the Fund will no longer hold the stock after 10:00
a.m. on the trading day immediately following the ex-dividend date.
However, because of the possibility that the call option will not be
exercised, the Fund utilizes this dividend capture strategy only in
connection with equity securities that the Adviser has determined to be
suitable for inclusion in the Fund's portfolio for a more extended
period. During 2001, dividend captures accounted for approximately 35%
of the Fund's investment income. The use of dividend captures entails
certain costs and risks. Because the market price of the stock
generally declines by the amount of the dividend immediately after the
ex-dividend date, the Fund experiences a capital loss on the stock
approximating the amount of the captured dividend. In addition, the
6
Fund incurs transaction costs in connection with the purchase of the
stock and the sale of the option. In 2001 such transaction costs
equaled approximately 0.1% of the value of the stock. It is also
possible that the issuer of the stock could experience a material
adverse event during the period between the time of purchase of the
stock and the time of expiration of the option that would cause a
decline in the market value of the stock significantly in excess of the
expected decline that reflects the amount of the dividend. If this
occurred, the option holder would likely decline to exercise the
option, and the Fund would continue to hold the stock.
4. Other Policies
None.
5. Share Price Data
The Fund's common stock has been listed on the New York Stock Exchange
since January 21, 1987 (trading symbol DNP). Since the commencement of trading,
the Fund's common stock has most frequently traded at a premium to net asset
value, but has periodically traded at a slight discount. The following table
shows the range of the market prices of the Fund's common stock, net asset value
of the Fund's shares corresponding to such high and low prices and the premium
to net asset value presented by such high and low prices:
Market Premium (Discount)
Market Price Net Asset Value at to Net Asset Value at
Quarter Ended
Market Market Market Market
High Low High Low High Low
2002 March 31 $ 11.3700 $10.9000 $ 9.32 $ 9.13 22.00% 19.39%
2001 December 31 11.2500 10.7000 9.56 9.26 17.68% 15.55%
September 30 11.2000 10.2000 9.77 9.13 14.64% 11.72%
June 30 11.2000 10.4300 10.23 9.96 9.48% 4.72%
March 31 10.9800 9.5625 9.88 9.80 11.13% (2.42%)
2000 December 31 10.8125 9.5000 10.28 9.90 5.18% (4.04%)
September 30 10.0625 9.5000 9.87 8.95 1.95% 6.15%
June 30 9.6875 8.6875 9.16 8.96 5.76% (3.04%)
March 31 9.3125 8.3125 8.85 8.77 5.23% (5.22%)
On April 5, 2002, the net asset value was $9.30, trading prices ranged between
$11.29 and $11.34 (representing a premium to net asset value of 21.40% and
21.94%, respectively) and the closing price was $11.32 (representing a premium
to net asset value of 21.70%).
6. Business Development Companies
Not applicable.
Item 9. Management
1. General
(a) Board of Directors
The business and affairs of the Fund are managed
under the direction of the board of directors.
(b) Investment Adviser
7
The Fund's investment adviser (the "Adviser") is Duff
& Phelps Investment Management Co., 55 East Monroe Street,
Chicago, Illinois 60603. The Adviser (together with its
predecessor) has been in the investment advisory business for
more than 60 years and, excluding the Fund, currently has more
than $4.3 billion in client accounts under discretionary
management. The Adviser acts as adviser to two other
closed-end investment companies registered under the 1940 Act
and as sub-adviser to six open-end investment companies
registered under the 1940 Act. The Adviser is a wholly-owned
subsidiary of Phoenix Investment Partners, Ltd. ("Phoenix
Investment Partners"), which is an indirect, wholly-owned
subsidiary of The Phoenix Companies, Inc. Prior to May 11,
1998, Phoenix Investment Partners was known as Phoenix Duff &
Phelps Corporation. Phoenix Investment Partners, through its
subsidiaries, provides investment management, investment
research, financial consulting and investment banking
services.
The Adviser is responsible for the management of the
Fund's investment portfolio, subject to the overall control of
the board of directors of the Fund.
Under the terms of an investment advisory agreement
between the Fund and the Adviser (the "Advisory Agreement"),
the Adviser receives from the Fund a quarterly fee at an
annual rate of .60% of the average weekly net asset value of
the Fund up to $1.5 billion and .50% of average weekly net
assets in excess of $1.5 billion. The net assets for each
weekly period are determined by averaging the net assets at
the end of a week with the net assets at the end of the prior
week. For purposes of the foregoing calculation, "net assets"
are defined as the sum of (i) the aggregate net asset value of
the Fund's common stock, (ii) the aggregate liquidation
preference of the Fund's preferred stock and (iii) the
aggregate proceeds to the Fund of commercial paper issued by
the Fund.
Under the terms of a service agreement among the
Adviser, Phoenix Investment Partners, and the Fund (the
"Service Agreement"), Phoenix Investment Partners makes
available to the Adviser the services, on a part-time basis,
of its employees and various facilities to enable the Adviser
to perform certain of its obligations to the Fund. However,
the obligation of performance under the Advisory Agreement is
solely that of the Adviser, for which Phoenix Investment
Partners assumes no responsibility, except as described in the
preceding sentence. The Adviser reimburses Phoenix Investment
Partners for any costs, direct or indirect, fairly
attributable to the services performed and the facilities
provided by Phoenix Investment Partners under the Service
Agreement. The Fund does not pay any fees pursuant to the
Service Agreement.
(c) Portfolio Management
The Fund's portfolio is managed by Nathan I. Partain
and T. Brooks Beittel. Mr. Partain has been responsible for
the management of the equity investments in the Fund's
portfolio since January 1998. He has been President and Chief
Executive Officer of the Fund since February 2001 (Executive
Vice President April 1998-February 2001, Chief Investment
Officer January 1998-February 2001, Senior Vice President
January 1997-April 1998, Assistant Secretary January
1997-February 2001); Executive Vice President, Duff & Phelps
Investment Management Co. since January 1997; and Director of
Utility Research, Phoenix Investment Partners, Ltd., 1989-1996
(Director of Equity Research, 1993-1996 and Director of Fixed
Income Research, 1993). Mr. Beittel has been responsible for
the management of the fixed income investments in the Fund's
portfolio since April 1994. He has been Secretary, Treasurer
and Senior Vice President of the Fund since January 1995; and
Senior Vice President, Duff & Phelps Investment Management Co.
since 1993 (Vice President 1987-1993).
(d) Administrator
The Fund's administrator (the "Administrator") is
J.J.B. Hilliard, W.L. Lyons, Inc., Hilliard Lyons Center,
Louisville, Kentucky 40202. The Administrator is a
wholly-owned subsidiary of The PNC Financial Services Group,
Inc. Under the terms of an administration agreement (the
"Administration Agreement"), the Administrator provides all
management and administrative services required in connection
8
with the operation of the Fund not required to be provided by
the Adviser pursuant to the Advisory Agreement, as well as the
necessary office facilities, equipment and personnel to
perform such services. For its services, the Administrator
receives from the Fund a quarterly fee at annual rates of .25%
of the Fund's average weekly net assets up to $100 million,
.20% of the Fund's average weekly net assets from $100 million
to $1.0 billion and .10% of average weekly net assets over
$1.0 billion. The net assets for each weekly period are
determined by averaging the net assets at the end of a week
with the net assets at the end of the prior week. For purposes
of the foregoing calculation, "net assets" are defined as the
sum of (i) the aggregate net asset value of the Fund's common
stock, (ii) the aggregate liquidation preference of the Fund's
preferred stock and (iii) the aggregate proceeds to the Fund
of commercial paper issued by the Fund.
(e) Custodian
The Fund's custodian is The Bank of New York, Church
Street Station, Post Office Box 11258, New York, New York
10286. The transfer agent and dividend disbursing agent for
the Fund's common and preferred stock is The Bank of New York,
Church Street Station, P.O. Box 11258, New York, New York
10286.
(f) Expenses
The Fund is responsible for all expenses not paid by
the Adviser or the Administrator, including brokerage fees.
(g) Affiliated Brokerage
The Fund has paid, and in the future may pay, broker
commissions to the Administrator. See Item 21.2.
2. Non-resident Managers.
Not applicable.
3. Control Persons.
The Fund does not consider that any person "controls"
the Fund within the meaning of this item. For information
concerning the Fund's officers and directors, see Item 18. No
person is known by the Fund to own of record or beneficially
five percent or more of any class of the Fund's outstanding
equity securities.
Item 10. Capital Stock, Long-Term Debt, and Other Securities
1. Capital Stock.
(a) Common Stock. Holders of common stock, $.001 par value
per share, of the Fund are entitled to dividends when and as
declared by the board of directors, to one vote per share in
the election of directors (with no right of cumulation), and
to equal rights per share in the event of liquidation. They
have no preemptive rights. There are no redemption, conversion
or sinking fund provisions. The shares are not liable to
further calls or to assessment by the Fund.
(b) Preferred Stock. Holders of preferred stock, $.001 par
value per share, of the Fund are entitled to receive dividends
before the holders of the common stock and are entitled to
receive the liquidation value of their shares ($100,000 per
share) before any distributions are made to the holders of the
common stock, in the event the Fund is ever liquidated. Each
9
share of preferred stock is entitled to one vote per share.
The holders of the preferred stock have the right to elect two
directors of the Fund at all times and to elect a majority of
the directors if at any time dividends on the preferred stock
are unpaid for two years. In addition to any approval by the
holders of the shares of the Fund that might otherwise be
required, the approval of the holders of a majority of the
outstanding shares of the preferred stock, voting separately
as a class, will be required under the 1940 Act to adopt any
plan of reorganization that would adversely affect the holders
of preferred stock and to approve, among other things, changes
in the Fund's sub-classification as a closed-end investment
company, changes in its investment objectives or changes in
its fundamental investment restrictions.
Subject to certain restrictions, the Fund may, and under
certain circumstances is required to, redeem shares of its
preferred stock at a price of $100,000 per share, plus
accumulated but unpaid dividends. The shares of preferred
stock are not liable to further calls or to assessment by the
Fund. There are no preemptive rights or sinking fund or
conversion provisions. The Fund, may, however, upon the
occurrence of certain events, authorize the exchange of its
current preferred stock on a share-for-share basis for a
separate series of authorized but unissued preferred stock
having different dividend privileges.
(c) Dividend Reinvestment Plan. Under the Fund's dividend
reinvestment plan shareholders may elect to have all dividends
and capital gains distributions paid on their common stock
automatically reinvested by The Bank of New York, as agent for
shareholders, in additional shares of common stock of the
Fund. Registered shareholders may participate in the plan. The
plan permits a nominee, other than a depository, to
participate on behalf of those beneficial owners for whom it
is holding shares who elect to participate. However, some
nominees may not permit a beneficial owner to participate
without transferring the shares into the owner's name.
Shareholders who do not elect to participate in the plan will
receive all distributions in cash paid by check mailed
directly to the shareholder (or, if the shareholder's shares
are held in street or other nominee name, then to such
shareholder's nominee) by The Bank of New York as dividend
disbursing agent. Registered shareholders may also elect to
have cash dividends deposited directly into their bank
accounts.
When a dividend or distribution is reinvested under the plan,
the number of shares of common stock equivalent to the cash
dividend or distribution is determined as follows:
(i) If shares of the common stock are
trading at net asset value or at a premium above net
asset value at the valuation date, the Fund issues
new shares of common stock at the greater of net
asset value or 95% of the then current market price.
(ii) If shares of the common stock are
trading at a discount from net asset value at the
valuation date, The Bank of New York receives the
dividend or distribution in cash and uses it to
purchase shares of common stock in the open market,
on the New York Stock Exchange or elsewhere, for the
participants' accounts. Shares are allocated to
participants' accounts at the average price per
share, plus commissions, paid by The Bank of New York
for all shares purchased by it. If, before The Bank
of New York has completed its purchases, the market
price exceeds the net asset value of a share, the
average purchase price per share paid by The Bank of
New York may exceed the net asset value of the Fund's
shares, resulting in the acquisition of fewer shares
than if the dividend or distribution had been paid in
shares issued by the Fund.
The valuation date is the business day immediately preceding
the date of payment of the dividend or distribution. On that
date, the Administrator compares that day's net asset value
per share and the closing price per share on the New York
Stock Exchange and determines which of the two alternative
procedures described above will be followed.
10
The reinvestment shares are credited to the participant's plan
account in the Fund's stock records maintained by The Bank of
New York, including a fractional share to four decimal places.
The Bank of New York will send participants written
confirmation of all transactions in the participant's plan
account, including information participants will need for tax
records. Shares held in the participant's plan account have
full dividend and voting rights. Dividends and distributions
paid on shares held in the participant's plan account will
also be reinvested.
The cost of administering the plan is borne by the Fund. There
is no brokerage commission on shares issued directly by the
Fund. However, participants do pay a pro rata share of
brokerage commissions incurred on any open market purchases of
shares by The Bank of New York.
The automatic reinvestment of dividends and distributions does
not relieve participants of any income taxes that may be
payable (or required to be withheld) on dividends or
distributions.
If the closing market price of shares of the Fund's common
stock should be equal to or greater than their net asset value
on the valuation date, the participants in the plan would
receive shares priced at the higher of net asset value or 95%
of the market price. Consequently they would receive more
shares at a lower per share price than if they had used the
cash distribution to purchase Fund shares on the payment date
in the market at the market price plus commission.
If the market price should be less than net asset value on the
valuation date, the cash distribution for the plan
participants would be used by The Bank of New York to purchase
the shares to be received by the participants, which would be
at a discount from net asset value unless the market price
should rise during the purchase period so that the average
price and commission exceeded net asset value as of the
payment date. Also, since the Fund does not redeem its shares,
the price on resale may be less or more than the net asset
value.
Plan participants may purchase additional shares of common
stock through the plan by delivering to The Bank of New York a
check for at least $100, but not more than $5,000, in any
month. The Bank of New York will use such funds to purchase
shares in the open market or in private transactions. The
purchase price of such shares may be more than or less than
net asset value per share. The Fund will not issue new shares
or supply treasury shares for such voluntary additional share
investment. Purchases will be made commencing with the time of
the first distribution payment following the second business
day after receipt of the funds for additional purchases, and
may be aggregated with purchases of shares for reinvestment of
the distribution. Shares will be allocated to the accounts of
participants purchasing additional shares at the average price
per share, plus a service charge of $2.50 imposed by The Bank
of New York and a pro rata share of any brokerage commission
(or equivalent purchase costs) paid by The Bank of New York in
connection with such purchases. Funds sent to the bank for
voluntary additional share reinvestment may be recalled by the
participant by written notice received by The Bank of New York
not later than two business days before the next dividend
payment date. If for any reason a regular monthly dividend is
not paid by the Fund, funds for voluntary additional share
investment will be returned to the participant, unless the
participant specifically directs that such funds continue to
be held by The Bank of New York for subsequent investment.
Participants will not receive interest on voluntary additional
funds held by The Bank of New York pending investment.
11
A shareholder may leave the plan at any time by written notice
to The Bank of New York. To be effective for any given
distribution, notice must be received by the Bank at least
seven business days before the record date for that
distribution. When a shareholder leaves the plan: (i) such
shareholder may request that The Bank of New York sell such
shareholder's shares held in such shareholder's plan account
and send such shareholder a check for the net proceeds
(including payment of the value of a fractional share, valued
at the closing price of the Fund's common stock on the New
York Stock Exchange on the date discontinuance is effective)
after deducting The Bank of New York's $5.00 charge and any
brokerage commission (or equivalent sale cost) or (ii) if no
request is made, such shareholder will receive a certificate
for the number of full shares held in such shareholder's plan
account, along with a check for any fractional share interest,
valued at the closing price of the Fund's common stock on the
New York Stock Exchange on the date discontinuance is
effective. If and when it is determined that the only balance
remaining in a shareholder's plan account is a fraction of a
single share, such shareholder's participation will be deemed
to have terminated, and The Bank of New York will send to such
shareholder a check for the value of such fractional share,
valued at the closing price of the Fund's common stock on the
New York Stock Exchange on the date discontinuance is
effective.
The Fund may change, suspend or terminate the plan at any
time upon mailing a notice to participants.
For more information regarding, and an authorization form for,
the dividend reinvestment plan, please contact The Bank of New
York at 1-877-381-2537 or on the World Wide Web at
http://stock.bankofny.com.
(d) Capital Gains Distribution Reinvestment Plan. Unless
otherwise indicated by a holder of shares of common stock of
the Fund that does not participate in the Fund's dividend
reinvestment plan, all distributions in respect of capital
gains distributions on shares of common stock held by such
holder will be automatically invested by The Bank of New York,
as agent of the common shareholders participating in the plan,
in additional shares of common stock of the Fund.
Distributions in respect of capital gains distributions on
shares of common stock that participate in the Fund's dividend
reinvestment plan will be reinvested in accordance with the
terms of such plan.
In any year in which the Fund declares a capital gains
distribution, the Fund after the declaration of such dividend
and prior to its payment, will provide to each registered
holder of Fund common stock that does not participate in the
Fund's dividend reinvestment plan a cash election card. A
registered shareholder may elect to receive cash in lieu of
shares in respect of a capital gains distribution by signing
the cash election card in the name(s) of the registered
shareholder(s), and mailing the card to The Bank of New York.
If a holder's shares of common stock, or some of them, are
registered in the name of a broker or other nominee, and the
holder wishes to receive a capital gains distribution in cash
in lieu of shares of common stock, such shareholder must
exercise that election through its nominee (including any
depositor of shares held in a securities depository).
12
When a distribution is reinvested under the plan, the number
of reinvestment shares is determined as follows:
(i) If, at the time of valuation, the shares
are being traded in the securities markets at net
asset value or at a premium over net asset value, the
reinvestment shares are obtained by The Bank of New
York directly from the Fund, at a price equal to the
greater of net asset value or 95% of the then current
market price, without any brokerage commissions (or
equivalent purchase costs).
(ii) If, at the time of valuation, the
shares are being traded in the securities markets at
a discount from net asset value, The Bank of New York
receives the distribution in cash, and uses it to
purchase shares in the open market, including on the
New York Stock Exchange, or in private purchases.
Shares of common stock are allocated to participants
at the average price per share, plus any brokerage
commissions (or equivalent transaction costs), paid
by The Bank of New York for all shares purchased by
it in reinvestment of the distribution(s) paid on a
particular day.
The time of valuation is the close of trading on the New York
Stock Exchange on the most recent day preceding the date of
payment of the dividend or distribution on which that exchange
is open for trading. As of that time, the Administrator
compares the net asset value per share as of the time of the
close of trading on the New York Stock Exchange on that day
and the last reported sale price per share on the New York
Stock Exchange, and determines which of the alternative
procedures described above are to be followed.
If as of any day on which the last reported sale price of the
Fund's shares on the New York Stock Exchange is required to be
determined pursuant to this plan, no sales of the shares are
reported on that exchange, the mean of the bid prices and of
the asked prices on that exchange as of the time of the close
of trading on the exchange will be substituted.
No certificates will be issued representing fractional shares,
nor will The Bank of New York purchase fractional shares in
the market. The Bank of New York will send to all registered
holders of common stock that do not participate in the Fund's
dividend reinvestment plan certificates for all shares of
common stock purchased or issued pursuant to the capital gains
distribution plan and cash in lieu of fractional shares of
common stock.
The Fund may change, suspend or terminate the plan at any time
upon mailing a notice to participants.
(e) Anti-takeover provisions of charter and bylaws. The
Fund's charter includes provisions that could have the effect
of limiting the ability of other entities or persons to
acquire control of the Fund or to change the composition of
its board of directors and could have the effect of depriving
shareholders of an opportunity to sell their shares at a
premium over prevailing market prices by discouraging a third
party from seeking to obtain control of the Fund. The board of
directors is divided into three classes, each having a term of
three years. At each annual meeting of shareholders, the term
of one class will expire. This provision could delay for up to
two years the replacement of a majority of the board of
directors. A director may be removed from office only by vote
of the holders of at least 75% of the shares of preferred
stock or of common stock, as the case may be, entitled to be
voted on the matter.
The Fund's charter requires the favorable vote of the holders
of at least 75% of the shares of preferred stock and common
stock of the Fund entitled to be voted on the matter, voting
together as a single class, to approve, adopt or authorize the
following:
(i) a merger or consolidation of the Fund
with another corporation,
13
(ii) a sale of all or substantially all of
the Fund's assets (other than in the regular course
of the Fund's investment activities), or
(iii) a liquidation or dissolution of the
Fund, unless such action has been approved, adopted
or authorized by the affirmative vote of two-thirds
of the total number of directors fixed in accordance
with the bylaws, in which case the affirmative vote
of the holders of a majority of the outstanding
shares of preferred stock and common stock entitled
to be voted on the matter, voting together as a
single class, is required.
In addition, the holders of a majority of the outstanding
shares of the preferred stock, voting separately as a class,
would be required under the 1940 Act to adopt any plan of
reorganization that would adversely affect the holders of the
preferred stock.
Finally, conversion of the Fund to an open-end investment
company would require an amendment to the charter. Such an
amendment would require the favorable vote of the holders of a
majority of the shares of preferred stock and common stock
entitled to be voted on the matter voting separately by class.
At any time, the amendment would have to be declared advisable
by the board of directors prior to its submission to
shareholders. Shareholders of an open-end investment company
may require the company to redeem their shares of common stock
at any time (except in certain circumstances as authorized by
or under the 1940 Act) at their net asset value, less such
redemption charge, if any, as might be in effect at the time
of a redemption. In addition, conversion to an open-end
investment company would require redemption of all outstanding
shares of the preferred stock.
The board of directors has determined that the 75% voting
requirements described above, which are greater than the
minimum requirements under Maryland law or the 1940 Act, are
in the best interests of shareholders generally. Reference
should be made to the charter on file with the Securities and
Exchange Commission (the "SEC") for the full text of these
provisions.
2. Long-Term Debt.
Not applicable.
3. General
Not applicable.
4. Taxes. The Fund intends to continue to qualify as a
regulated investment company under the Internal Revenue Code
of 1986, as it has in each year since the inception of its
operations, so as to be relieved of Federal income tax on
net investment income and net capital gains distributed to
shareholders.
Dividends paid by the Fund from its ordinary income and
distributions of the Fund's net realized short-term capital
gains are taxable to shareholders as ordinary income.
Shareholders may be proportionately liable for taxes on income
and gains of the Fund but shareholders not subject to tax on
their income will not be required to pay tax on amounts
distributed to them. The Fund will inform shareholders of the
amount and nature of the income or gains. Dividends from
ordinary income may be eligible for the dividends-received
deduction available to corporate shareholders. Under its
14
charter, the Fund is required to designate dividends paid on
its preferred stock as qualifying for the dividends-received
deduction to the extent such dividends do not exceed the
Fund's qualifying income. In the event the Fund is required to
allocate all of its qualifying income to dividends on the
preferred stock, dividends payable on the common stock will
not be eligible for the dividends-received deduction. Any
distributions attributable to the Fund's net realized
long-term capital gains are taxable to shareholders as
long-term capital gains, regardless of the holding period of
shares of the Fund.
The Fund intends to distribute substantially all its net
investment income and net realized capital gains in the year
earned or realized. A dividend reinvestment plan is available
to all holders of common stock of the Fund. Under the dividend
reinvestment plan, all cash distributions to participating
shareholders are reinvested in additional shares of common
stock. See Item 10.1(c).
5. Outstanding Securities
(4)
(3) Amount Outstanding
Amount Held by at 3/31/2002 Exclusive
(1) (2) the Fund or for of Amount Shown
Title of Class Amount Authorized its Account Under (3)
-------------- ------------------ ---------------- ---------------------
Common, $.001
par value 250,000,000 -0- 214,184,640
Preferred, $.001
par value 100,000,000 -0- 5,000
6. Securities Ratings.
------------------
Not applicable.
Item 11. Defaults and Arrears on Senior Securities
Not applicable.
Item 12. Legal Proceedings
There are no pending legal proceedings to which the Fund, any
subsidiary of the Fund, or the Adviser is a party.
Item 13. Table of Contents of the Statement of Additional Information
Not applicable.
PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 14. Cover Page
Not applicable.
Item 15. Table of Contents
Not applicable.
Item 16. General Information and History
During the past five years, the Fund has not engaged in any business
other than that of an investment company and has not been the subject of any
bankruptcy, receivership or similar proceedings, or any other material
reorganization, readjustment or succession. The Fund's name was changed from
Duff & Phelps Utilities Income Inc. on April 23, 2002.
15
Item 17. Investment Objective and Policies
1. See Item 8.2.
2. See Item 8.2.
3. See Item 8.2.
4. The Fund's portfolio turnover rate was 213.48% in 2001, 229.70% in
2000 and 223.78% in 1999. During the last two fiscal years, the Fund's portfolio
turnover rate has been influenced by a number of factors: (i) the Fund's
proactive response to changes in the telecommunications, gas and electric
industries, which response includes the use of dividend captures (see Item 8.3
for an explanation of dividend captures); and (ii) changes in the Fund's
international portfolio designed to benefit from capital gain opportunities that
were able to be offset by available loss carryovers.
Item 18. Management
1. Set forth below are the names and certain biographical information
about the directors and officers of the Fund. Except as indicated in the table,
directors are elected by the holders of the Fund's common stock. The officers
are elected at the annual meeting of the board of directors of the Fund.
Name, Position(s) Held With the Fund, Principal Occupation(s)
Address Length of Time Served During Past 5 Years
and Age and Term of Office and Other Affiliations
Interested Director
Claire V. Hansen (1)(2) Chairman and director Senior Advisor to the Board of Directors, Phoenix
55 East Monroe Street since January 1987. Investment Partners, Ltd. since November 1995;
Chicago, Illinois 60603 Term expires in 2005. President and Chief Executive Officer of the Fund,
Age: 76 January 2000-February 2001; Senior Advisor to the
Board of Directors, Duff & Phelps Corporation,
1988-November 1995 (Chairman of the Board,
1987-1988; Chairman of the Board and Chief Executive
Officer prior thereto); Chairman of the Board, Duff
Research Inc. and Duff & Phelps Investment
Management Co., 1985-1987.
Independent Directors
Wallace B. Behnke(3) Director since January 1987. Consulting engineer since July 1989; prior thereto,
323 Glen Eagle Term expires in 2003. Vice Chairman, Commonwealth Edison Company (public
Kiawah Island, utility).
South Carolina 29455
Age: 76
Harry J. Bruce(3) Director since January 1989. Private investor; former Chairman and Chief
1630 Sheridan Road Term expires in 2003. Executive Officer, Illinois Central Railroad Co.
Wilmette, Illinois 60091.
Age: 70
Franklin A. Cole(2)(5) Director since January 1989. Chairman, Croesus Corporation (private management
54 West Hubbard Street Term expires in 2004. and investment company); former Chairman and Chief
Chicago, Illinois 60610. Executive Officer, Amerifin Corporation (formerly
Age: 75 named Walter E. Heller International Corporation);
director, Aon Corporation.
Gordon B. Davidson(4) Director since January 1989. Of Counsel, Wyatt, Tarrant & Combs (law firm) since
PNC Plaza Term expires in 2004. September 1995 (Chairman of the Executive Committee
Louisville, Kentucky 40202 prior thereto); retired director, BellSouth Corp.;
Age: 75 former Chairman of the Board and director, Trans
Financial Advisers, Inc.
Connie K. Duckworth (3)(5) Director since April 2002. Partner, Eight Wings Enterprises (investor in
77 Stone Gate Lane Term expires in 2005. early-stage businesses) since December 2001;
Lake Forest, Illinois 60045 Advisory Director, Goldman, Sachs & Company,
Age 47 December 2000-December 2001 (Managing Director,
December 1996-December 2000, Partner
1990-1996, Chief Operating Officer of Firmwide
Diversity Committee 1990-1995); Chair, The
Committee of 200 (organization of women business
leaders)
16
Name, Position(s) Held With the Fund, Principal Occupation(s)
Address Length of Time Served During Past 5 Years
and Age and Term of Office and Other Affiliations
Robert J. Genetski (4)(5)(6) Director since April 2001. President, Robert J. Genetski & Associates, Inc.
195 North Harbor Drive Term expires in 2004. (economic and financial consulting firm) since 1991;
Chicago, Illinois 60601 Senior Managing Director, Chicago Capital, Inc.
Age: 59 (financial services firm) 1995-2001; former Senior
Vice President and Chief Economist, Harris Trust &
Savings Bank; author of several books; regular
contributor to the Nikkei Financial Daily
Francis E. Jeffries (2)(4)(7) Director since January 1987. Retired Chairman, Phoenix Investment Partners, Ltd.
8477 Bay Colony Drive Term expires in 2004. since May 1997 (Chairman, November 1995-May 1997);
Naples, Florida 34108 Chairman and Chief Executive Officer, Duff & Phelps
Age: 71 Corporation, June 1993-November 1995 (President and
Chief Executive Officer, January 1992-June 1993);
President and Chief Executive Officer, Duff & Phelps
Illinois Inc. since 1987 (President and Chief
Operating Officer, 1984-1987) and Chairman of the
Board, Duff & Phelps Investment Management Co.
(1988-1993); director, The Empire District Electric
Company.
Nancy Lampton (4)(5)(6) Director since October 1994. Chairman and Chief Executive Officer, Hardscuffle
3 Riverfront Plaza Term expires in 2003. Inc. (insurance holding company) and Chairman and
Louisville, Kentucky 40202 Chief Executive Officer, American Life and Accident
Age: 59 Insurance Company of Kentucky; director,
Constellation Energy Group, Inc.
Carl F. Pollard (3) Director since April 2002. Owner, Hermitage Farm L.L.C. (Thoroughbred breeding)
10500 W. U.S. Hwy 42 Term expires in 2005. since January 1995; Chairman, Columbia Healthcare
Goshen, Kentucky 40026 Corporation 1993-1994; Chairman and Chief Executive
Age 63 Officer, Galen Health Care, Inc. March-August 1993;
President and Chief Operating Officer, Humana Inc.
1991-1993 (previously Senior Executive Vice
President, Executive Vice President and Chief
Financial Officer); Chairman and Director, Churchill
Downs Incorporated; Director, National City Bank,
Kentucky (Executive Committee), Breeders' Cup
Limited, Kentucky Derby Museum Corporation; Trustee,
Thoroughbred Owners and Breeders Association
David J. Vitale (3)(5) Director since April 2000. President and Chief Executive Officer, Board of
141 West Jackson Boulevard Term expires in 2003. Trade of the City of Chicago, Inc. since March 2001;
Chicago, Illinois 60604 Retired bank executive 1999-2001; Vice Chairman and
Age: 55 Director, Bank One Corporation 1998-1999; Vice
Chairman and Director, First Chicago NBD
Corporation, and President, The First National
Bank of Chicago, 1995-1998; Vice Chairman, First
Chicago Corporation and The First National Bank
of Chicago 1993-1998 (Director 1992-1998,
Executive Vice President 1986-1993); Director,
Ariel Capital Management, Inc.; Ark Investment
Management, Wheels Inc.
17
Name, Position(s) Held With the Fund, Principal Occupation(s)
Address Length of Time Served During Past 5 Years
and Age and Term of Office and Other Affiliations
Officers of the Fund (other than the Chairman, for whom see above)
Nathan I. Partain President and Chief Executive Executive Vice President, Duff & Phelps Investment
55 East Monroe Street Officer since February 2001 Management Co. since January 1997; Director of
Chicago, Illinois 60603 (Executive Vice President April Utility Research, Phoenix Investment Partners, Ltd.,
Age: 45 1998-February 2001, Chief 1989-1996 (Director of Equity Research, 1993-1996
Investment Officer January and Director of Fixed Income Research, 1993);
1998-February 2001, Senior Vice director, Otter Tail Corporation.
President January 1997-April 1998,
Assistant Secretary January
1997-February 2001).
T. Brooks Beittel Secretary, Treasurer and Senior Senior Vice President, Duff & Phelps Investment
55 East Monroe Street Vice President since January 1995. Management Co. since 1993 (Vice President 1987-1993).
Chicago, Illinois 60603
Age: 52
Michael Schatt Senior Vice President Fund since Senior Vice President, Duff & Phelps Investment
55 East Monroe Street April 1998 (Vice President January Management Co. since January 1997; Managing
Chicago, Illinois 60603 1997-April 1998. Director, Phoenix Investment Partners, Ltd.,
Age: 55 1994-1996; Self-employed consultant, 1994; Director
of Real Estate Advisory Practice, Coopers & Lybrand,
1990-1994.
Joseph C. Curry, Jr. Vice President since April 1988. Senior Vice President, J.J.B. Hilliard, W.L. Lyons,
Hilliard Lyons Center Inc. since 1994 (Vice President 1982-1994); Vice
Louisville, Kentucky 40202 President, Hilliard Lyons Trust Company; President,
Age: 57 Hilliard-Lyons Government Fund, Inc.; Treasurer and
Secretary, Hilliard Lyons Growth Fund, Inc.;
Treasurer, Senbanc Fund.
Dianna P. Wengler Assistant Secretary since April Vice President, J.J.B. Hilliard, W.L. Lyons, Inc.
Hilliard Lyons Center 1988. since 1990; Vice President, Hilliard-Lyons
Louisville, Kentucky 40202 Government Fund, Inc.; Assistant Secretary, Hilliard
Age: 41 Lyons Growth Fund, Inc.
--------------------------------------------------------------------------------
(1) Mr. Hansen is deemed to be an "interested person" of the Fund (as
defined in the 1940 Act) because of his positions with the
Fund and with Phoenix Investment Partners (parent company of the
Adviser).
(2) Member of the executive committee of the board of directors, which has
authority, with certain exceptions, to exercise the powers of the board
of directors between board meetings. The executive committee acted once
during 2001 by unanimous written consent in lieu of a meeting.
(3) Member of the audit committee of the board of directors, which makes
recommendations regarding the selection of the Fund's independent
public accountants and meets with representatives of the accountants to
determine the scope of and review the results of each audit. The audit
committee met twice during 2001.
18
(4) Member of the nominating committee of the board of directors, which
selects nominees for election as directors and officers. The nominating
committee met four times during 2001. The nominating committee does not
consider nominees recommended by shareholders.
(5) Member of the contracts committee of the board of directors, which
makes recommendations regarding the Fund's contractual arrangements for
investment management and administrative services, including the terms
and conditions of such contracts. The contracts committee met twice
during 2001.
(6) Director elected by holders of preferred stock.
(7) Mr. Jeffries oversees 34 portfolios in the Fund Complex to which the
Fund belongs.
2. Included in Item 18.1.
3. Not applicable.
4. Not applicable.
5. Included in Item 18.1.
6. Included in Item 18.1.
7. The following table provides certain information relating to
the equity securities beneficially owned, as of December 31,
2001, by each director (i) in the Fund and (ii) on an
aggregate basis, in any registered investment companies
overseen by the director within the same family of investment
companies as the Fund.
Aggregate Dollar Range of Equity
Dollar Range Securities in All Funds Overseen
of Equity or to be Overseen by Director or
Name of Securities Nominee in Family of Investment
Director in the Fund Companies
Interested Director
Claire V. Hansen over $100,000 over $100,000
Independent Directors
Wallace B. Behnke $10,001-$50,000 $10,001-$50,000
Harry J. Bruce over $100,000 over $100,000
Franklin A. Cole $10,001-$50,000 $10,001-$50,000
Gordon B. Davidson over $100,000 over $100,000
Connie K. Duckworth none none
Robert J. Genetski $10,001-$50,000 $10,001-$50,000
Francis E. Jeffries over $100,000 over $100,000
Nancy Lampton over $100,000 over $100,000
Carl F. Pollard none none
David J. Vitale $10,001-$50,000 $10,001-$50,000
8. As of December 31, 2001, none of the foregoing directors, or
their immediate family members, owned any securities of the
Adviser or any person (other than a registered investment
company) directly or indirectly controlling, controlled by or
under common control with the Adviser.
9. Mr. Jeffries was formerly a shareholder and member of senior
management of Duff & Phelps Corporation, predecessor to
Phoenix Investment Partners. Under the terms of his employment
contract, Phoenix Investment Partners continued to pay through
2001 the annual premium on life insurance policies owned by
Mr. Jeffries. The amount of such premiums in 2000 and 2001 was
$62,682 and $22,989, respectively. In 2000, Mr. Jeffries
received $283,554 for the repurchase of his common shares in
Phoenix Investment Partners and $228,850 for the purchase of
outstanding unexercised options, which transactions were
effected at the then market value for such shares and options.
19
10. Included in Item 18.9.
11. Included in Item 18.9.
12. Not applicable.
13. Approval of Advisory Agreement. Each year, the board of
directors of the Fund, including a majority of the directors
who are not interested persons of the Fund or the Adviser
voting separately as a class, is required to approve the
renewal of the Advisory Agreement. The board of directors
requests and evaluates, and the Adviser furnishes, such
information as the board determines to be reasonably necessary
to evaluate the terms of the Advisory Agreement. The board of
directors also retains an independent consultant on an annual
basis to provide detailed comparative data regarding the
Adviser's fees, expense ratios and investment performance.
In arriving at their decision to renew the current Advisory
Agreement, the directors reviewed the foregoing information
and took into account all factors that they deemed relevant to
the best interests of the shareholders of the Fund. Such
factors included the following: (i) the nature, quality and
extent of the services furnished to the Fund by the Adviser;
(ii) fees paid by other mutual funds for similar services;
(iii) the profitability to the Adviser of its relationship
with the Fund; (iv) the continuation of appropriate incentives
to assure that the Adviser will be able to continue to furnish
high-quality services to the Fund; (v) the capabilities of the
team of investment professionals employed by the Adviser who
perform services for the Fund; (vi) the necessity of the
Adviser maintaining and enhancing its ability to attract and
retain capable personnel to serve the Fund; (vii) the
investment performance over time of the Fund compared to
various market indices and other mutual funds; (viii) the
extent to which the Fund's stock trades at a premium or a
discount to net asset value; (ix) the benefits of any
economies of scale that may be available to the Adviser; and
(x) the direct and indirect benefits the Adviser receives from
its relationship with the Fund, including brokerage and soft
dollar arrangements (see description in Item 21.3 below).
In comparing the Fund's expenses and investment performance to
those of other mutual funds, the directors took note of the
fact that there are no other closed-end income-oriented funds
that have a utilities and REIT investment focus, an equity and
fixed-income asset mix and an asset level and leverage policy
comparable to the Fund. While expressly declining to use
investment performance as the sole, or even the primary,
measure of the quality of the Adviser's services, the
directors noted that the Fund's investment performance in 2001
had enabled the Fund to pay all of its regular monthly
dividends plus an enhanced dividend in the final month of the
year. The directors also viewed the fact that the Fund's stock
traded at an average premium of 11.8% to net asset value
during 2001 as evidence that investors take a favorable view
of the extent to which the Fund has been meeting its primary
objective of providing current income for shareholders. With
respect to investment personnel, the directors considered the
fact that the specific individuals who manage the Fund's
portfolio bring a significant depth of experience to their
jobs, have worked together for many years and are well
respected in the industry. With respect to expenses, the
directors noted that the management fees paid by the Fund were
at or below the median levels paid by other leveraged
closed-end domestic equity funds. It should be emphasized
that, in arriving at their decision, the directors did not
single out any one factor or group of factors as being more
important than other factors. Rather, the directors considered
all factors together in light of the totality of circumstances
presently facing the Fund, recognizing that different
circumstances might lead them to weigh the various factors
differently when considering the best interests of the Fund
and its shareholders.
20
Based on the foregoing considerations, the board of directors
of the Fund, including a majority of the directors who are not
interested persons of the Fund or the Adviser voting
separately as a class, determined that the fees payable to the
Adviser under the Advisory Agreement were fair and reasonable
to the Fund and that the renewal of the Advisory Agreement for
a one-year period ending on April 30, 2003 was in the best
interests of the Fund and its shareholders.
14. The following table shows the compensation paid by the Fund
to the Fund's current directors during 2001:
COMPENSATION TABLE (1)(2)
Aggregate
Compensation
from the
Name of Director Fund
Interested Director
Claire V. Hansen....................................... $ 0
Independent Directors
Wallace B. Behnke...................................... $ 39,429
Harry J. Bruce......................................... 33,500
Franklin A. Cole....................................... 44,500
Gordon B. Davidson..................................... 40,500
Connie K. Duckworth (3)................................ 0
Robert J. Genetski..................................... 22,453
Francis E. Jeffries (2)................................ 34,500
Nancy Lampton.......................................... 37,500
Carl F. Pollard (3).................................... 0
David J. Vitale........................................ 42,571
------------------------------------
(1) Each director not affiliated with the Adviser receives an annual fee of
$22,500 (and an additional $3,000 if the director serves as chairman of
a committee of the board of directors) plus an attendance fee of $1,500
for each meeting of the board of directors and $1,000 for each meeting
of a committee of the board of directors attended in person or by
telephone. Directors and officers affiliated with the Adviser or the
Administrator receive no compensation from the Fund for their services
as such. In addition to the amounts shown in the table above, all
directors and officers who are not affiliated with the Adviser or the
Administrator are reimbursed for the expenses incurred by them in
connection with their attendance at a meeting of the board of directors
or a committee of the board of directors. The Fund does not have a
pension or retirement plan applicable to directors or officers of the
Fund.
(2) During 2001, Mr. Jeffries received aggregate compensation of $135,000
for service as a director of the Fund and as a director or trustee of
33 other investment companies in the same fund complex as the Fund. No
other director received compensation for service as a director of any
other investment company in the same fund complex as the Fund.
(3) Ms. Duckworth and Mr. Pollard were elected as directors of the Fund on
April 23, 2002 and consequently received no compensation from the Fund
during 2001.
15. Codes of Ethics. Each of the Fund and the Adviser has adopted an
Amended and Restated Code of Ethics (collectively, the "Codes")
under Rule 17j-1 of the 1940 Act. The Codes impose significant
restrictions on the ability of personnel subject to the Codes to
engage in personal securities transactions. Among other things, the
Codes generally prohibit covered personnel from knowingly buying or
selling securities (except for mutual funds, U.S. government
securities and money market instruments) that are being purchased,
sold or considered for purchase or sale by the Fund unless the
proposed purchases are approved in advance by the Adviser's
compliance officer. The Codes also contain certain reporting
requirements and compliance procedures. The Codes can be reviewed
and copied at the Public Reference Room of the SEC in Washington,
D.C. Information on the operation of the Public Reference Room may
be obtained by calling the SEC at 1-202-942-8090. The Codes are
also available at the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. Copies of the Codes may also be obtained, after
paying a duplicating fee, by electronic request at the following
E-mail address: publicinfo@sec.gov, or by writing the SEC's Public
Reference Section, Washington, D.C. 20549-0102. The SEC file number
for documents filed by the Fund under the 1940 Act is 811-4915.
21
Item 19. Control Persons and Principal Holders of Securities
1. The Fund does not consider that any person "controls" the Fund
within the meaning of this item. For information concerning
the Fund's officers and directors, see Item 18.
2. No person is known by the Fund to own of record or beneficially
five percent or more of any class of the Fund's
outstanding equity securities.
3. As of December 31, 2001, the officers and directors of the
Fund owned in the aggregate 229,862 shares of Common Stock,
representing less than 1% of the Fund's outstanding Common
Stock.
Item 20. Investment Advisory and Other Services
1. The Adviser is a wholly-owned subsidiary of Phoenix Investment
Partners, which is an indirect, wholly-owned subsidiary of
The Phoenix Companies, Inc. Phoenix Investment Partners and its
subsidiaries provide investment management services to
institutional and private clients and to the life insurance
subsidiaries of The Phoenix Companies, Inc.
See Item 18 for the names and capacities of affiliated persons of
the Fund who are also affiliated persons of the Adviser.
For a discussion of the method of calculating the advisory fee
under the Advisory Agreement, see Item 9.1(b). The investment
advisory fees paid by the Fund totaled $15,284,267 in 2001,
$14,719,244 in 2000 and $14,839,366 in 1999.
2. See Item 9.1(b) for a discussion of the Service Agreement.
3. No fees, expenses or costs of the Fund were paid by persons other
than the Adviser or the Fund.
4. See Item 9.1 (d) for a discussion of the Administration Agreement.
The administrative fees paid by the Fund totaled
$3,806,813 in 2001, $3,693,849 in 2000 and $3,717,873 in 1999.
5. Not applicable.
6. See Item 9.1 (e).
7. The Fund's independent public accountant is Arthur Andersen LLP.
8. Not applicable.
Item 21. Brokerage Allocation and Other Practices
1. The Adviser has discretion to select brokers and dealers to execute
portfolio transactions initiated by the Adviser. The Fund paid
brokerage commissions in the aggregate amount of $9,015,619, $7,158,821
and $8,510,655 during 2001, 2000 and 1999, respectively, not including
the gross underwriting spread on securities purchased in underwritten
public offerings.
2. The Fund did not pay any brokerage commissions during 2001, 2000 or
1999 to any broker that (1) is an affiliated person of the Fund, (2) is
an affiliated person of an affiliated person of the Fund or (3) has an
affiliated person that is an affiliated person of the Fund or the
Adviser.
3. In selecting brokers or dealers to execute portfolio transactions
and in evaluating the best net price and execution available, the
Adviser is authorized to consider "brokerage and research services" (as
those terms are defined in Section 28(e) of the Securities Exchange Act
of 1934), statistical quotations, specifically the quotations necessary
to determine the Fund's net asset value, and other information provided
to the Fund and/or to the Adviser (or their affiliates). The Adviser is
also authorized to cause the Fund to pay to a broker or dealer who
provides such brokerage and research services a commission for
22
executing a portfolio transaction which is in excess of the amount of
commission another broker or dealer would have charged for effecting
that transaction. The Adviser must determine in good faith, however,
that such commission was reasonable in relation to the value of the
brokerage and research services provided, viewed in terms of that
particular transaction or in terms of all the accounts over which the
Adviser exercises investment discretion. It is possible that certain of
the services received by the Adviser attributable to a particular
transaction will benefit one or more other accounts for which
investment discretion is exercised by the Adviser.
4. Neither the Fund nor the Adviser, during the last fiscal year,
pursuant to an agreement or understanding with a broker or otherwise
through an internal allocation procedure, directed the Fund's brokerage
transactions to a broker or brokers because of research services.
5. The Fund has not acquired during its most recent fiscal year
securities of its regular brokers or dealers as defined in Rule 10b-1
under the 1940 Act, or their parents.
Item 22. Tax Status
The Fund intends to continue to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as it has in each year since
the inception of its operations, so as to be relieved of Federal income tax on
net investment income and net capital gains distributed to shareholders.
Dividends paid by the Fund from its ordinary income and distributions
of the Fund's net realized short-term capital gains are taxable to shareholders
as ordinary income. Dividends from ordinary income may be eligible for the
dividends-received deduction available to corporate shareholders. Under its
charter, the Fund is required to designate dividends paid on its preferred stock
as qualifying for the dividends-received deduction to the extent such dividends
do not exceed the Fund's qualifying income. In the event the Fund is required to
allocate all of its qualifying income to dividends on the preferred stock,
dividends payable on the common stock will not be eligible for the
dividends-received deduction. Any distributions attributable to the Fund's net
realized long-term capital gains are taxable to shareholders as long-term
capital gains, regardless of the holding period of shares of the Fund.
The Fund intends to distribute substantially all its net investment
income and net realized capital gains in the year earned or realized. A dividend
reinvestment plan is available to all holders of common stock of the Fund. Under
the dividend reinvestment plan, all cash distributions to participating
shareholders are reinvested in additional shares of common stock. See Item
10.1(c).
As of December 31, 2001, the Fund had tax capital loss carryforwards of
$72,506,566 which expire beginning on December 31,
2003.
Item 23. Financial Statements
The financial statements listed below are incorporated herein by
reference from the Fund's Annual Report to Shareholders for the year ended
December 31, 2001 as filed on Form N-30D with the Securities and Exchange
Commission on February 27, 2002 (no. 811-4915). All other portions of the Annual
Report to Shareholders are not incorporated herein by reference and are not part
of the Registration Statement. A copy of the Annual Report to Shareholders may
be obtained without charge by writing to the Fund at its address at 55 East
Monroe Street, Chicago, Illinois 60603 or by calling the Administrator toll-free
at 888-878-7845.
- Report of independent public accountants
- Schedule of Investments at December 31, 2001
- Balance Sheet at December 31, 2001
- Statement of Operations for the year ended December 31, 2001
- Statement of Changes in Net Assets for the years ended
December 31, 2001 and 2000
- Statement of Cash Flows for the year ended December 31, 2001
- Notes to Financial Statements
- Financial Highlights - Selected Per Share Data and Ratios
23
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
1. Financial Statements
In Part B:
Report of independent public accountants
Schedule of Investments at December 31, 2001
Balance Sheet at December 31, 2001
Statement of Operations for the year ended
December 31, 2001
Statement of Changes in Net Assets for the years
ended December 31, 2001 and 2000
Statement of Cash Flows for the year ended
December 31, 2001
Notes to Financial Statements
Financial Highlights - Selected Per Share Data
and Ratios
In Part C:
None
2. Exhibits
a.1 Articles of Incorporation
a.2 Amendment to Articles of Incorporation
a.3 Second Amendment to Articles of Incorporation
a.4 Form of Articles Supplementary creating Remarketed
Preferred Stock, Series A, B, C, D and E
a.5 Form of Articles Supplementary creating Remarketed
Preferred Stock, Series I
a.6 Third Amendment to Articles of Incorporation
a.7 Fourth Amendment to Articles of Incorporation
a.8 Fifth Amendment to Articles of Incorporation
a.9 Sixth Amendment to Articles of Incorporation
b. Bylaws (as amended through October 18, 2001)
c. None
24
d.1 Specimen common stock certificate (Incorporated by
reference from Registrant's registration statement on
Form N-2, no. 33-10421)
d.2 Form of certificate of Remarketed Preferred Stock,
Series A (Incorporated by reference from
pre-effective amendment no. 2 to Registrant's
registration statement on Form N-2, no. 33-22933)
d.3 Form of certificate of Remarketed Preferred Stock,
Series B (Incorporated by reference from
pre-effective amendment no. 1 to Registrant's
registration statement on Form N-2, no. 33-24101)
d.4 Form of certificate of Remarketed Preferred Stock,
Series C (Incorporated by reference from
pre-effective amendment no. 1 to Registrant's
registration statement on Form N-2, no. 33-24100)
d.5 Form of certificate of Remarketed Preferred Stock,
Series D (Incorporated by reference from
pre-effective amendment no. 1 to Registrant's
registration statement on Form N-2, no. 33-24102)
d.6 Form of certificate of Remarketed Preferred Stock,
Series E (Incorporated by reference from
pre-effective amendment no. 1 to Registrant's
registration statement on Form N-2, no. 33-24099)
d.7 Form of certificate of Remarketed Preferred Stock,
Series I (Incorporated by reference from
pre-effective amendment no. 2 to Registrant's
registration statement on Form N-2, no. 33-22933)
e. None
f. None
g.1 Investment Advisory Agreement (Incorporated by
reference from post-effective amendment no. 39 to
Registrant's registration statement under the
Investment Company Act of 1940 on Form N-2,
no. 811-4915)
g.2 Service Agreement (Incorporated by reference from
post-effective amendment no. 39 to Registrant's
registration statement under the Investment Company
Act of 1940 on Form N-2, no. 811-4915)
g.3 Administration Agreement (Incorporated by reference
from post-effective amendment no. 39 to Registrant's
registration statement under the Investment Company
Act of 1940 on Form N-2, no. 811-4915)
h. Not applicable
i. Not applicable
j. Custodian agreement (Incorporated by reference from
Registrant's registration statement on Form N-2,
no. 33-10421)
25
k.1 Loan agreement (Incorporated by reference from
Registrant's registration statement on Form N-2,
no. 33-10421)
k.2 Amendment dated November 15, 1988 to Loan Agreement
(Incorporated by reference from post-effective
amendment no. 1 to Registrant's registration
statement on Form N-2, no. 33-20433)
k.3 Form of Remarketing Agreement (Incorporated by
reference from pre-effective amendment no. 3 to
Registrant's registration statement on Form N-2,
no. 33-22933)
k.4 Form of Paying Agent Agreement (Incorporated by
reference from pre-effective amendment no. 3 to
Registrant's registration statement on Form N-2,
no. 33-22933)
l. Not applicable
m. Not applicable
n. Not applicable
o. Not applicable
p. Subscription Agreement for initial capital
(Incorporated by reference from Registrant's
registration statement on Form N-2, no. 33-10421)
q. Not applicable
r.1 Amended and Restated Code of Ethics of Registrant
(Incorporated by reference from post-effective
amendment no. 41 to Registrant's registration
statement on Form N-2, no. 811-4915)
r.2 Amended and Restated Code of Ethics of Duff & Phelps
Investment Management Co. (investment adviser to
Registrant) (Incorporated by reference from
post-effective amendment no. 41 to Registrant's
registration statement on Form N-2, no. 811-4915)
Item 25. Marketing Arrangements
Not applicable.
Item 26. Other Expenses of Issuance and Distribution
Not applicable.
Item 27. Persons Controlled by or Under Common Control
The Fund does not consider that it is controlled, directly or
indirectly, by any person. The information on Item 20 is incorporated by
reference.
Item 28. Number of Holders of Securities
26
Number of
Record Holders
Title of Class March 31, 2002
Common Stock, $.001 par value 28,540
Preferred Stock, $.001 par value 1
Item 29. Indemnification
Section 2-418 of the General Corporation Law of Maryland authorizes the
indemnification of directors and officers of Maryland corporations under
specified circumstances.
Article Ninth of the Registrant's Articles of Incorporation (Exhibit
a.1 to this registration statement) provides that the Registrant shall
indemnify its directors and officers under specified circumstances; the
provision contains the exclusion required by section 17(h) of the Investment
Company Act of 1940.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "1933 Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person in connection with the securities being registered), the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
The Registrant, its directors and officers, the Adviser and persons
affiliated with them are insured under a policy of insurance maintained by the
Registrant and the Adviser, within the limits and subject to the limitations of
the policy, against certain expenses in connection with the defense of actions,
suits or proceedings and certain liabilities that might be imposed as a result
of such actions, suits or proceedings, to which they are parties by reason of
being or having been such directors or officers. The policy expressly excludes
coverage for any director or officer whose personal dishonesty, fraudulent
breach of trust, lack of good faith, or intention to deceive or defraud has been
finally adjudicated or may be established or who willfully fails to act
prudently.
Item 30. Business and Other Connections of Investment Adviser
Neither Duff & Phelps Investment Management Co., nor any of its
directors or executive officers, has at any time during the past two years been
engaged in any other business, profession, vocation or employment of a
substantial nature either for its or his own account or in the capacity of
director, officer, employee, partner or trustee, except as indicated in this
Registration Statement.
Item 31. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31 (a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained at the offices of the Fund (55 East Monroe Street,
Chicago, Illinois 60603), the Adviser, the Administrator and the Fund's
custodian and transfer agents. See Items 9.1(b), 9.1(d) and 9.1(e) for the
addresses of the Adviser, the Administrator and the Fund's custodian and
transfer agents.
Item 32. Management Services
Not applicable.
Item 33. Undertakings
Not applicable.
27
SIGNATURE
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this amendment to its registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Chicago, and State of Illinois, on April 30, 2002.
DNP SELECT INCOME FUND INC.
By: /s/ Nathan I Partain
--------------------------------------
Nathan I Partain
President and Chief Executive Officer
EXHIBIT INDEX
Sequential
Exhibit No. Description Page No.
a.1 Articles of Incorporation
a.2 Amendment to Articles of Incorporation
a.3 Second Amendment to Articles of Incorporation
a.4 Form of Articles Supplementary creating Remarketed
Preferred Stock,
Series A, B, C, D and E
a.5 Form of Articles Supplementary creating Remarketed
Preferred Stock,
Series I
a.6 Third Amendment to Articles of Incorporation
a.7 Fourth Amendment to Articles of Incorporation
a.8 Fifth Amendment to Articles of Incorporation
a.9 Sixth Amendment to Articles of Incorporation
b Bylaws (as amended through October 18, 2001)