Dear Fellow Shareholders:
Performance Review: Your Fund had a total return (market price change plus income) of 2.1% for the quarter ended September 30, 2005. In comparison, the S&P Utilities Index had a total return of 7.3%. 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 5.4%.
During the third 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 6.73% common stock dividend yield based on the September 30, 2005 closing price of $11.59 per share. That yield compares favorably with the quarter-end yields of 3.09% on the Dow Jones Utility Index and 3.32% on the S&P Utilities Index. Please refer to the portion of this letter captioned “Board of Directors Meeting” for more information about the Fund’s dividends.
On a longer-term basis, as of September 30, 2005, your Fund had a three-year cumulative total return of 44.9%. In comparison, the S&P Utilities Index had a total return during that period of 103.3%, 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 79.4%.
Your Fund’s total return has lagged the S&P Utilities Index over recent periods and we would like to explain why. The utility indexes have been supported by higher commodity prices, which have caused electricity prices to increase. Higher electricity prices benefit those utilities that have excess and low-cost coal and nuclear capacity, or own uncommitted generating capacity, which can be sold in the current high-priced wholesale market. Most utilities with high exposure to high commodity prices pay lower than average or no dividends. Your Fund managers view these stocks as a very cyclical component of the utility sector, that in the current environment are enjoying peak earnings that may not be sustainable and do not represent high-quality earnings available for dividends. Your Fund managers apply consistent disciplines to investment selection, and will continue to focus on those companies that are able to pay and grow their dividends.
Force Majeure: In our letters to shareholders over the last several years, we have periodically commented about volatile energy prices. We have discussed many factors contributing to price uncertainty, including increasingly energy-hungry developing countries in an already tight global demand and supply balance, the declining productivity of existing sources, and the higher costs of production from alternative sources. Force majeure, a “greater force” in the form of hurricanes, has contributed a new factor—critical energy infrastructure is heavily concentrated in Louisiana and Texas, so dislocations in that region have national energy price implications.
Three hurricanes within a brief period have turned the energy markets upside down. How does this impact the investment and energy environment, as well as your Fund, going into the winter? The Gulf Coast continues to be seriously affected, with much of the Gulf of Mexico oil and gas production remaining shut in. Many of the Gulf Coast refineries are in the process of restarting, while others in the area remain closed due to lack of electrical power, storm damage or both. The integrity of gas pipelines is still being assessed, contributing to uncertainty about energy pricing.
Your Fund managers expect energy prices to remain high and extremely volatile for the near future, due to the lack of concrete information, and we do not expect a rapid return of production to pre-hurricane levels. Late summer and fall is the time when natural gas is put in storage for the winter heating season. Gas storage
appears to be at normal seasonal levels due to a storm-related drop in industrial demand along the Gulf Coast. However, if the Gulf Coast industrial demand returns in November at about the same time heating demand kicks in, storage could be drawn down faster than normal. A more rapid draw down would keep prices higher for longer and could even create a deliverability problem late in the winter. This environment is of concern to investors, industrial customers and those that heat with gas.
With regard to your Fund, only two of the four companies most directly impacted by the Katrina and Rita hurricanes were held in the portfolio. The companies, one electric and one telephone company, are large and well capitalized. The damage incurred was small relative to their size and will not have a material impact on their operations. We expect a similar result when the damage from Wilma is tabulated, although at least one Florida utility exhausted its storm reserves in a prior storm and will have to seek regulatory approval to recover current restoration costs.
Another of the four companies, Entergy New Orleans Inc. (which is not in your Fund’s portfolio) incurred storm damages estimated to be from $1.0 billion to $1.7 billion. Entergy New Orleans filed for bankruptcy protection when restoration costs of $325-475 million matched net utility assets. Its parent company is seeking Federal legislative help to fund initial restoration costs and will eventually seek recovery of those costs in its Louisiana and Texas regulatory jurisdictions. However, neither jurisdiction has ever been extremely supportive of the company.
High natural gas prices, both currently and in the coming winter, will be a concern for many electric and gas companies. Your Fund managers continue to review all our investments to determine the regulatory recoverability of higher energy costs, the likelihood of being allowed recovery of these costs, and the timing of recovery. High consumer energy bills will also lead to higher bad debt expenses for most companies. We continually assess the likely impact of industry developments on the earnings, balance sheets, and cash flows of companies in our portfolio.
Force Politic: The United States utility sector continues to move towards a more competitive environment. The 1992 National Energy Policy Act and subsequent amendments laid the groundwork for the deregulation of electricity generation in order to stimulate the build-out of domestic energy production and promote efficiency. The process of transforming regulated, vertically-integrated, and sometimes rigid and slow moving companies into more innovative ones able to meet the demands of the future, driven by market forces, has not tracked a straight path.
A key component of the electric industry’s transformation has been reevaluation of corporate structure. Company managements and state and federal regulators have been struggling for more than a decade with the implications and results of the decision to either remain vertically integrated—maintaining the traditional utility functions of generation, transmission of high voltages over long distances, and distribution into homes and businesses—or becoming disaggregated into separate businesses.
Some states’ regulators have required the legal separation of generating assets from distribution and transmission assets in order to address regional asset concentration and perceived market power issues. Some companies have decided to functionally separate generation from their “wires businesses” in order to better understand and control their businesses. In addition to the business and political considerations driving the decisions regarding corporate structure, some utility managements believe that the value of their businesses, as reflected
2
in their common stock price, are greater as separate components than a combined whole. Whatever the motivation, utilities and their regulators in many states have held a joint philosophy of disaggregating the traditional utility functions.
In order to separate business lines, some utilities sold their generation assets. If the book value of generating assets was greater than the market value, regulators often chose to grant utilities recovery of these “stranded costs” over up to 10 years through special charges to customers. As a quid pro quo, regulators often required utilities to reduce, and then not raise, electric rates over a comparable time period. Utilities typically retained the obligation of buying power for their customers in the unregulated competitive electricity market.
Some utilities, and their customers, are approaching the end of the fixed rate period, and the timing could hardly be worse. In addition to utility personnel and other operational costs rising over the last decade, many companies need to invest in, and therefore recover the cost of, new generating facilities. In addition, the coal and natural gas raw material costs for most electricity generation are at record highs. These three factors are causing some politicians and regulators to worry about the economic and popular opinion implications of potentially significantly higher consumer energy prices in the near future. The situation in Illinois is a good case in point.
Electric generation in Illinois was deregulated and moved under the jurisdiction of the Federal Energy Regulatory Commission (FERC) as part of the Illinois deregulation law enacted in the mid-1990’s. As a result, the state’s utility regulator, the Illinois Commerce Commission (ICC), lost its ability to regulate and influence the cost of the power that the utilities buy and seek to recover from customers. The state’s utilities as well as the ICC staff have worked to devise a mechanism for market-based rates that would begin in January 2007, subsequent to a lengthy period of frozen rates. As part of the new system, the state’s largest utilities proposed a competitive auction process similar to what has been done successfully in other parts of the country. It was estimated that, based on current competitive market prices, customer rates may have to rise between twenty and forty percent to cover the costs of power purchased.
The Governor of Illinois opposes the power auction proposed by the state’s public utilities. After writing a pointed letter to the ICC in late August, which noted that he “appointed members of the Commission to protect the consumer” and considered the auction process “either a serious neglect of duty or gross incompetence by the ICC,” the Governor took action in September, removing the Chairman and replacing him with a former professional consumer advocate. If the ICC refuses to let the state’s utilities recover the cost of procuring electricity, the companies’ financial condition would deteriorate, and in the long run, the total cost to consumers could be even higher. We expect a politically acceptable settlement prior to 2007, but it may be slow in coming since the Governor is up for reelection late in 2006.
Your managers believe that utility companies’ expertise in both operational and regulatory relations matters are key factors when evaluating potential investments. The coming period of elevated energy prices and political concerns and surprises will help determine investment winners and losers.
Board of Directors Meeting: At the previous regular Board of Directors’ meeting in August 2005, the Board declared the September, October, and November dividends.
As is customary, the Board will declare the December, January and February dividends in mid-December.
3
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 are expected to 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.
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 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.
 Francis E. Jeffries, CFA Chairman of the Board |
 Nathan I. Partain, CFA President and Chief Executive Officer |
4
STATEMENT OF NET ASSETS
(UNAUDITED)
September 30, 2005
COMMON STOCKS—96.6%
|
|
|||||
|
|
|||||
|
Shares
|
Company |
|
|||
|
|
|
|
|
||
| • ELECTRIC—62.7% | |||||
| 982,300 | Ameren Corp. | $ | 52,543,227 | ||
| 860,245 | Cinergy Corp. | 38,203,480 | |||
| 872,000 | Consolidated Edison Inc. | 42,335,600 | |||
| 1,013,650 | Dominion Resources Inc. | 87,315,811 | |||
| 977,193 | DTE Energy Co. | 44,814,071 | |||
| 1,100,000 | Energy East Corp. | 27,709,000 | |||
| 1,464,000 | Exelon Corp. | 78,236,160 | |||
| 1,535,000 | FirstEnergy Corp. | 80,004,200 | |||
| 1,735,000 | FPL Group Inc. | 82,586,000 | |||
| 800,000 | Great Plains Energy Inc. | 23,928,000 | |||
| 1,080,000 | Iberdrola S.A. (Spain) | 30,273,876 | |||
| 188,673 | National Grid PLC ADR | 8,858,197 | |||
| 675,714 | National Grid PLC (United Kingdom) | 6,353,583 | |||
| 2,000,000 | NiSource Inc. | 48,500,000 | |||
| 2,237,200 | NSTAR | 64,699,824 | |||
| 1,000,000 | OGE Energy Corp. | 28,100,000 | |||
| 1,250,000 | PG&E Corp. | 49,062,500 | |||
| 1,200,000 | PPL Corp. | 38,796,000 | |||
| 1,500,000 | Pinnacle West Capital Corp. | 66,120,000 | |||
| 1,375,000 | Progress Energy Inc. | 61,531,250 | |||
| 1,000,000 | Puget Energy, Inc. | 23,480,000 | |||
| 600,000 | SCANA Corp. | 25,344,000 | |||
| 1,000,000 | Scottish & Southern Energy ADR | 18,204,000 | |||
| 850,000 | Scottish & Southern Energy PLC (United Kingdom) | 15,473,438 | |||
| 409,500 | Sempra Energy | 19,271,070 | |||
| 2,000,000 | Southern Co. | 71,520,000 | |||
| 1,500,000 | Vectren Corp. | 42,525,000 | |||
| 581,000 | WPS Resources Corp. | 33,581,800 | |||
| 3,499,304 | Xcel Energy Inc. | 68,621,352 | |||
|
|
|
||||
| 1,277,991,439 | |||||
The accompanying notes are an integral part of the financial statement.
5
STATEMENT OF NET ASSETS—(Continued)
(UNAUDITED)
September 30, 2005
|
|
|||||
|
|
|||||
|
Shares
|
Company |
|
|||
|
|
|
|
|
||
| • GAS—7.7% | |||||
| 1,076,000 | AGL Resources Inc. |
$
|
39,930,360 | ||
| 1,000,000 | Atmos Energy Corp. | 28,250,000 | |||
| 1,043,055 | Keyspan Corp. | 38,363,563 | |||
| 471,000 | Peoples Energy Corp. | 18,547,980 | |||
| 1,000,000 | WGL Holdings Inc. | 32,130,000 | |||
|
|
|
||||
| 157,221,903 | |||||
| • TELECOMMUNICATION—15.3% | |||||
| 177,100 | Alltel Corp. | 11,530,981 | |||
| 1,600,000 | BCE Inc. | 43,904,000 | |||
| 565,000 | BT Group PLC ADR | 22,396,600 | |||
| 475,000 | Belgacom S.A. | 16,155,411 | |||
| 1,529,200 | BellSouth Corp. | 40,217,960 | |||
| 1,350,000 | Chunghwa Telecom Co. Ltd. | 24,988,500 | |||
| 2,500,000 | Citizens Communications Co. | 33,875,000 | |||
| 1,392,230 | SBC Communications, Inc. | 33,371,753 | |||
| 856,250 | Telecom Corp of New Zealand Ltd. ADR | 28,770,000 | |||
| 1,068,400 | Telstra Corp. Ltd. ADR | 16,634,988 | |||
| 1,223,492 | Verizon Communications Inc. | 39,995,953 | |||
|
|
|
||||
| 311,841,146 | |||||
| • NON-UTILITY—10.9% | |||||
| 82,938 | AMB Property Corp. | 3,723,916 | |||
| 54,096 | Alexandria Real Estate Equities Inc. | 4,473,198 | |||
| 193,367 | Archstone Smith Trust | 7,709,542 | |||
| 29,861 | AvalonBay Communities Inc. | 2,559,088 | |||
| 147,218 | Boston Properties Inc. | 10,437,756 | |||
| 67,586 | CBL & Associates Properties Inc. | 2,770,350 | |||
| 60,363 | Camden Property Trust | 3,365,237 | |||
| 253,470 | CenterPoint Properties Trust | 11,355,456 | |||
| 213,251 | Corporate Office Properties Trust | 7,453,122 | |||
| 227,689 | Developers Diversified Realty Corp. | 10,633,076 | |||
The accompanying notes are an integral part of the financial statement.
6
DNP SELECT INCOME FUND INC.
STATEMENT OF NET ASSETS—(Continued)
(UNAUDITED)
September 30, 2005
|
|
|||||
|
|
|||||
|
Shares
|
Company |
|
|||
|
|
|
|
|
||
| 89,481 | Digital Realty Trust Inc. | $ | 1,610,658 | ||
| 153,154 | Equity Office Properties Trust | 5,009,667 | |||
| 220,180 | Equity Residential | 8,333,813 | |||
| 47,604 | Essex Property Trust Inc. | 4,284,360 | |||
| 83,441 | Extra Space Storage Inc. | 1,283,323 | |||
| 275,942 | General Growth Properties Inc. | 12,398,074 | |||
| 8,423 | Health Care REIT Inc. | 312,409 | |||
| 23,013 | Home Properties Inc. | 903,260 | |||
| 61,318 | Hospitality Properties Trust | 2,628,090 | |||
| 153,440 | Host Marriott Corp. | 2,593,136 | |||
| 149,583 | Innkeepers USA Trust | 2,311,057 | |||
| 70,004 | Kilroy Realty Corp. | 3,922,324 | |||
| 195,886 | Kimco Realty Corp. | 6,154,738 | |||
| 99,965 | LaSalle Hotel Properties | 3,443,794 | |||
| 137,026 | The Macerich Co. | 8,898,469 | |||
| 38,500 | The Mills Corp. | 2,120,580 | |||
| 100,637 | Pan Pacific Retail Properties Inc. | 6,631,978 | |||
| 262,382 | ProLogis | 11,626,147 | |||
| 91,078 | Public Storage, Inc. | 6,102,226 | |||
| 23,321 | Realty Income Corp. | 557,605 | |||
| 186,480 | Reckson Associates Realty Corp. | 6,442,884 | |||
| 98,061 | Regency Centers Corp. | 5,633,604 | |||
| 224,131 | Simon Property Group Inc. | 16,612,590 | |||
| 138,611 | SL Green Realty Corp. | 9,450,498 | |||
| 69,485 | Starwood Hotels & Resorts Worldwide, Inc. | 3,972,458 | |||
| 199,537 | Sunstone Hotel Investors Inc. | 4,866,707 | |||
| 99,225 | United Dominion Realty Trust Inc. | 2,351,633 | |||
| 68,000 | U-Store-It Trust | 1,378,360 | |||
| 91,780 | Ventas Inc. | 2,955,316 | |||
| 133,459 | Vornado Realty Trust | 11,560,219 | |||
| 54,927 | Weingarten Realty Investors | 2,078,987 | |||
|
|
|
||||
| 222,909,705 | |||||
|
|
|
||||
| Total Common Stocks (Cost—$1,636,463,526) | 1,969,964,193 | ||||
|
|
|||||
The accompanying notes are an integral part of the financial statement.
7
DNP SELECT INCOME FUND INC.
STATEMENT OF NET ASSETS—(Continued)
(UNAUDITED)
September 30, 2005
| PREFERRED STOCKS—9.3% | |||||
|
|
|||||
| |
|||||
|
Shares
|
Company |
|
|||
|
|
|
|
|
||
| • UTILITY—8.2% | |||||
| 1,200,000 | Great Plains Energy Inc. 8% due 2/16/07 |
$
|
33,396,000
|
||
| 775,000 | Oneok Inc. 81/2% due 2/16/06 | 32,147,000
|
|||
| 220,000 | Southern California Edison 61/8% Perpetual | 22,123,750
|
|||
| 172,700 | Southern Union Co. 53/4% due 8/16/06 |
13,592,354
|
|||
| 400,000 | TXU Corp. 83/4% due 11/16/05 |
20,384,000
|
|||
| 500,000 | TXU Corp. 81/8% due 5/16/06 |
45,475,000
|
|||
|
|
|
||||
|
167,118,104
|
|||||
| • NON-UTILITY—1.1% | |||||
| 400,000 | Federal National Mortgage Association 7% Perpetual | 22,025,000
|
|||
|
|
|
||||
| Total Preferred Stocks (Cost—$137,717,503) |
189,143,104
|
||||
|
|
|
||||
BONDS—29.5%
| Ratings | |||||||||
|
|
|||||||||
|
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||||||
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|
|
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||||||
|
Par Value
|
|
|
|
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|||||
|
|
|
|
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||||||
| • ELECTRIC—10.4% | |||||||||
| $18,050,000 | Comed Financing II | ||||||||
| 81/2%, due 1/15/27 | Baa2 | BBB |
$18,840,680
|
||||||
| 9,304,000 | Commonwealth Edison Co. | ||||||||
| 8%, due 5/15/08 | A3 | A– |
9,989,407
|
||||||
| 24,000,000 | Dominion Resources Capital Trust I | ||||||||
| 7.83%, due 12/01/27 | Baa2 | BBB– |
26,010,936
|
||||||
| 9,431,000 | FPL Group Capital Inc. | ||||||||
| 75/8%, due 9/15/06 | A2 | A– |
9,699,285
|
||||||
| 22,500,000 | Illinois Power Co. | ||||||||
| 71/2%, due 6/15/09 | Baa1 | A– |
24,398,190
|
||||||
| 6,314,929 | Niagara Mohawk Power Corp. | ||||||||
| 75/8%, due 10/01/05 | Baa1 | A– |
6,314,929
|
||||||
The accompanying notes are an integral part of the financial statement.
8
STATEMENT OF NET ASSETS—(Continued)
(UNAUDITED)
September 30, 2005
| Ratings | |||||||||
|
|
|||||||||
|
|
|
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|
||||||
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|
|
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|
||||||
|
Par Value
|
|
|
|
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|||||
|
|
|
|
|
||||||
| $15,825,000 | Niagara Mohawk Power Corp. | ||||||||
| 87/8%, due 5/15/07 | Baa1 | A– |
$
|
16,850,207
|
|||||
| 5,000,000 | NSTAR | ||||||||
| 8.00% due 2/15/10 | A2 | A– |
5,608,010
|
||||||
| 9,000,000 | PSEG Power LLC | ||||||||
| 85/8%, due 4/15/31 | Baa1 | BBB |
11,717,325
|
||||||
| 22,750,000 | Puget Capital Trust | ||||||||
| 8.231%, due 6/01/27 | Ba1 | BB |
22,693,534
|
||||||
| 12,915,000 | Sempra Energy | ||||||||
| 7.95%, due 3/1/10 | Baa1 | BBB+ |
14,355,991
|
||||||
| 13,000,000 | Southern Co. Capital Trust II | ||||||||
| 8.14%, due 2/15/27 | Baa1 | BBB+ |
13,965,419
|
||||||
| 11,750,000 | Virginia Electric & Power Co. | ||||||||
| 85/8%, due 10/01/24 | A2 | A– |
12,189,285
|
||||||
| 17,700,000 | Virginia Electric & Power Co. | ||||||||
| 81/4%, due 3/01/25 | A2 | A– |
18,356,847
|
||||||
|
|
|
||||||||
|
210,990,045
|
|||||||||
| • GAS—3.4% | |||||||||
| 5,000,000 | KN Energy Inc. | ||||||||
| 71/4%, due 3/01/28 | Baa2 | BBB |
5,721,040
|
||||||
| 7,000,000 | Keyspan Corp. | ||||||||
| 75/8%, due 11/15/10 | A3 | A |
7,903,616
|
||||||
| 10,000,000 | Northern Border Partners LP | ||||||||
| 87/8%, due 6/15/10 | Baa2 | BBB |
11,545,860
|
||||||
| 6,488,000 | Southern Union Co. | ||||||||
| 7.60%, due 2/01/24 | Baa3 | BBB |
7,676,705
|
||||||
| 8,850,000 | Southern Union Co. | ||||||||
| 81/4%, due 11/15/29 | Baa3 | BBB |
11,243,730
|
||||||
| 10,000,000 | TE Products Pipeline Co. | ||||||||
| 7.51%, due 1/15/28 | Baa3 | BBB– |
10,511,180
|
||||||
The accompanying notes are an integral part of the financial statement.
9
DNP SELECT INCOME FUND INC.
STATEMENT OF NET ASSETS—(Continued)
(UNAUDITED)
September 30, 2005
| Ratings | ||||||||||
|
|
||||||||||
|
|
|
|
|
|||||||
|
|
|
|
|
|||||||
|
Par Value
|
|
|
|
|
||||||
|
|
|
|
|
|||||||
| $15,500,000 | Trans-Canada Pipeline | |||||||||
| 91/8%, due | 4/20/06 | A3 | BBB+ |
$
|
15,874,775
|
|||||
|
|
|
|||||||||
|
70,476,906
|
||||||||||
| • TELECOMMUNICATION—12.0% | ||||||||||
| 8,301,000 | AT&T Wireless Services Inc. | |||||||||
| 7.35%, due 3/01/06 | Baa2 | A |
8,398,238
|
|||||||
| 15,200,000 | AT&T Wireless Services Inc. | |||||||||
| 71/2%, due 5/01/07 | Baa2 | A |
15,869,864
|
|||||||
| 5,098,000 | BellSouth Capital Funding Corp. | |||||||||
| 73/4%, due 2/15/10 | A2 | A |
5,685,345
|
|||||||
| 22,000,000 | British Telecom PLC | |||||||||
| 83/8%, due 12/15/10 | Baa1 | A– |
25,500,090
|
|||||||
| 15,000,000 | Centurytel Inc. | |||||||||
| 83/8%, due 10/15/10 | Baa2 | BBB+ |
16,963,515
|
|||||||
| 10,000,000 | Centurytel Inc. | |||||||||
| 67/8%, due 1/15/28 | Baa2 | BBB+ |
10,383,940
|
|||||||
| 5,645,000 | Comcast Cable Communications Inc. | |||||||||
| 83/8%, due 5/01/07 | Baa2 | BBB+ |
5,958,190
|
|||||||
| 10,000,000 | France Telecom SA | |||||||||
| 7.20%, due 3/01/06 | A3 | A– |
10,117,030
|
|||||||
| 10,000,000 | France Telecom SA | |||||||||
| 73/4%, due 3/01/11 | A3 | A– |
11,367,400
|
|||||||
| 17,625,000 | GTE Corp. | |||||||||
| 7.90%, due 2/01/27 | A3 | A+ |
18,809,347
|
|||||||
| 5,000,000 | GTE North Inc., Series C | |||||||||
| 75/8%, due 5/15/26 | A1 | A+ |
5,219,805
|
|||||||
| 17,000,000 | Koninklijke KPN NV | |||||||||
| 8%, due 10/01/10 | Baa1 | A– |
19,300,185
|
|||||||
| 10,000,000 | Sprint Capital Corp. | |||||||||
| 83/8%, due 3/15/12 | Baa2 | A– |
11,783,390
|
|||||||
| 10,000,000 | TCI Communications Inc. | |||||||||
| 83/4%, due 8/01/15 | Baa2 | BBB+ |
12,438,320
|
|||||||
The accompanying notes are an integral part of the financial statement.
10
STATEMENT OF NET ASSETS—(Continued)
(UNAUDITED)
September 30, 2005
| Ratings | |||||||||
|
|
|||||||||
|
|
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||||||||
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Par Value
|
|
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||||||
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|
|
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||||||
| $11,500,000 | Telefonica Europe BV | ||||||||
| 73/4%, due 9/15/10 | A3 | A |
$
|
12,977,578
|
|||||
| 12,295,000 | 360 Communications Co. | ||||||||
| 7.60%, due 4/01/09 | A2 | A |
13,360,411
|
||||||
| 10,500,000 | Verizon Global Funding Corp. | ||||||||
| 73/4%, due 12/01/30 | A2 | A+ |
12,831,168
|
||||||
| 20,000,000 | Vodaphone Group PLC | ||||||||
| 73/4%, due 2/15/10 | A2 | A |
22,329,200
|
||||||
| 5,000,000 | Vodaphone Group PLC | ||||||||
| 77/8%, due 2/15/30 | A2 | A |
6,387,555
|
||||||
|
|
|
||||||||
|
245,680,571
|
|||||||||
| • NON-UTILITY—3.7% | |||||||||
| #16,000,000 | CIT Group Inc. | ||||||||
| 4.07%, due 6/07/06 | A2 | A |
16,024,208
|
||||||
| 8,000,000 | Dayton Hudson Corp. | ||||||||
| 97/8%, due 7/01/20 | A2 | A+ |
11,491,752
|
||||||
| 10,000,000 | EOP Operating LP | ||||||||
| 73/4%, due 11/15/07 | Baa2 | BBB+ |
10,591,570
|
||||||
| #15,000,000 | Sigma Finance Inc. | ||||||||
| 3.81%, due 12/16/05 | Aaa | AAA |
15,000,706
|
||||||
| #22,000,000 | Whistlejacket Capital LLC | ||||||||
| 3.965%, due 3/03/06 | Aaa | AAA |
22,005,566
|
||||||
|
|
|
||||||||
|
75,113,802
|
|||||||||
|
|
|
||||||||
| Total Bonds (Amortized Cost—$603,627,934) |
602,261,324
|
||||||||
|
|
|
||||||||
The accompanying notes are an integral part of the financial statement.
11
STATEMENT OF NET ASSETS—(Continued)
(UNAUDITED)
September 30, 2005
|
|
|||||||
| Par Value/ |
|
||||||
| Shares |
|
||||||
|
|
|
|
|||||
| MONEY MARKET INSTRUMENTS—26.2% | |||||||
| # | $ | 3,514 | AIM STIC Liquid Assets Portfolio |
$
|
3,514 | ||
| # | 50,000,000 | Banc of America Securities LLC Repurchase Agreement, | |||||
| 3.988%, dated 9/30/05, due 10/03/05, with a repurchase price of | |||||||
| $50,016,617 and collateralized by $51,000,427 market value of | |||||||
| corporate bonds and medium term notes having an average coupon | |||||||
| rate of 6.68% and an original weighted average maturity of 7/27/21 | 50,000,000 | ||||||
| # |
100,000,000
|
Bear Stearns Inc. Master Note | |||||
| 4.058%, due 10/03/05 | 100,000,000 | ||||||
| # | 75,000,000 | Dresdner Kleinwort Wasserstein Securities LLC Repurchase Agreement, | |||||
| 3.988%, dated 9/30/05, due 10/03/05, with a repurchase price of | |||||||
| $75,024,925 and collateralized by $76,504,891 market value of | |||||||
| collateralized mortgage obligations (CMOs) and corporate bonds | |||||||
| having an average coupon rate of 1.77% and an original weighted | |||||||
| average maturity of 6/09/19 | 75,000,000 | ||||||
| 10,000,000 | GE Capital Corp. | ||||||
| 3.70%, due 10/03/05 | 9,997,944 | ||||||
| # | 48,900,000 | Goldman Sachs & Co. Repurchase Agreement, | |||||
| 4.008%, dated 9/30/05, due 10/03/05, with a repurchase price of | |||||||
| $48,016,032 and collateralized by $51,000,000 market value of asset | |||||||
| backed securities (ABS) having an average coupon rate of 3.96% | |||||||
| and an original weighted average maturity of 4/17/32 | 48,900,000 | ||||||
| # | 50,000,000 | Greenwich Capital Markets Inc. Repurchase Agreement, | |||||
| 4.018%, dated 9/30/05, due 10/03/05, with a repurchase price of | |||||||
| $50,016,742 and collateralized by $51,001,101 market value of | |||||||
| CMOs having an average coupon rate of 5.01% and an original | |||||||
| weighted average maturity of 9/12/34 | 50,000,000 | ||||||
| # | 50,000,000 | Lehman Brothers Inc. Repurchase Agreement, | |||||
| 3.988%, dated 9/30/05, due 10/03/05, with a repurchase price of | |||||||
| $50,016,617 and collateralized by $50,998,920 market value of ABS | |||||||
| having an average coupon rate of 5.07% and an original weighted | |||||||
| average maturity of 11/28/34 | 50,000,000 | ||||||
The accompanying notes are an integral part of the financial statement.
12
DNP SELECT INCOME FUND INC.
STATEMENT OF NET ASSETS—(Continued)
(UNAUDITED)
September 30, 2005
|
|
|||||
| Par Value/ |
|
||||
| Shares |
|
||||
|
|
|
||||
| #$ |
50,000,000
|
Merrill Lynch Government Securities Inc. Repurchase Agreement, | |||
| 4.008%, dated 9/30/05, due 10/03/05, with a repurchase price of | |||||
| $50,016,700 and collateralized by $52,503,572 market value of | |||||
| CMOs having an average coupon rate of 5.39% and an original | |||||
| weighted average maturity of 5/21/33 | $ | 50,000,000 | |||
| # |
50,000,000
|
Morgan Stanley & Co., Inc. Repurchase Agreement, | |||
| 3.988%, dated 9/30/05, due 10/03/05, with a repurchase price of | |||||
| $50,016,617 and collateralized by $51,055,123 market value of ABS | |||||
| having an average coupon rate of 6.25% and an original weighted | |||||
| average maturity of 4/11/28 | 50,000,000 | ||||
| # |
50,000,000
|
Nomura Securities International Inc. Repurchase Agreement, | |||
| 3.988%, dated 9/30/05, due 10/03/05, with a repurchase price of | |||||
| $50,016,617 and collateralized by $51,000,001 market value of | |||||
| CMOs having an average coupon rate of 5.63% and an original | |||||
| weighted average maturity of 9/25/45 | 50,000,000 | ||||
|
|
|||||
| Total Money Market Instruments (Amortized Cost—$533,901,458) | 533,901,458 | ||||
|
|
|||||
| Total Investments—161.6% (Cost—$2,911,710,421) | $ | 3,295,270,079 | |||
|
|
|||||
| CASH AND OTHER ASSETS LESS LIABILITIES—(37.1%) | (756,592,063) | ||||
|
|
|||||
| REMARKETED PREFERRED STOCK—(24.5%) | |||||
| ($.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—100.0% | |||||
| (equivalent to $9.13 per share of common stock based on 223,181,435 shares | |||||
| of common stock outstanding; authorized 250,000,000 shares) | $ | 2,038,678,016 | |||
|
|
|||||
| # 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. | |||||
The accompanying notes are an integral part of the financial statement.
13
STATEMENT OF NET ASSETS—(Continued)
(UNAUDITED)
September 30, 2005
| (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 gross unrealized depreciation of $32,560,868. |
14
Board of Directors STEWART E. CONNER CONNIE K. DUCKWORTH ROBERT J. GENETSKI FRANCIS E. JEFFRIES NANCY LAMPTON CHRISTIAN H. POINDEXTER CARL F. POLLARD DAVID J. VITALE
Officers |
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 1258 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 71 South Wacker Drive Chicago, Illinois 60606 Independent Registered Public Accounting Firm Ernst & Young LLP 233 South Wacker Drive Chicago, Illinois 60606 |
DNP Select Income Fund Inc. |
|
 |
Third Quarter |