Washington, D.C. 20549
ITEM 1. REPORTS TO STOCKHOLDERS
The Annual Report to Stockholders follows.
DNP Select
Income Fund Inc.
Fund Distributions and Managed
Distribution Plan: DNP Select Income Fund Inc. (the Fund) has been paying a regular 6.5 cent per share monthly distribution on its
common stock since July 1997. In February 2007, the Board of Directors adopted a Managed Distribution Plan, which provides for the Fund to continue to
make a monthly distribution on its common stock of 6.5 cents per share. Under the Managed Distribution Plan, the Fund will distribute all available
investment income to shareholders, consistent with the Funds primary investment objective. If and when sufficient investment income is not
available on a monthly basis, the Fund will distribute long-term capital gains and/or return capital to its shareholders in order to maintain the
steady distribution level that has been approved by the Board. If the Fund estimates that it has distributed more than its income and capital gains in
a particular period, a portion of your distribution may be a return of capital. A return of capital may occur, for example, when some or all of the
money that you invested in the Fund is paid back to you. A return of capital distribution does not necessarily reflect the Funds investment
performance and should not be confused with yield or income.
To the extent that the Fund uses
capital gains and/or return of capital to supplement its investment income, you should not draw any conclusions about the Funds investment
performance from the amount of the Funds distributions or from the terms of the Funds Managed Distribution Plan.
Whenever a monthly distribution
includes a capital gain or return of capital component, the Fund provides you with a written statement indicating the sources of the distribution and
the amount derived from each source. As the most recent monthly statement from the Fund indicated, the cumulative distributions paid this fiscal year
to date through November 12 were estimated to be composed of net investment income, capital gains and return of capital.
The amounts and sources of
distributions reported monthly in statements from the Fund are only estimates and are not provided for tax reporting purposes. The actual amounts and
sources of the amounts for tax reporting purposes will depend upon the Funds investment experience during the remainder of its fiscal year and
may be subject to changes based on tax regulations. The Fund will send you a Form 1099-DIV for the calendar year that will tell you how to report these
distributions for federal income tax purposes.
The Board reviews the operation of
the Managed Distribution Plan on a quarterly basis, with the most recent review having been conducted in December 2019, and the Adviser uses data
provided by an independent consultant to review for the Board the Managed Distribution Plan annually. The Board may amend, suspend or terminate the
Managed Distribution Plan without prior notice to shareholders if it deems such action to be in the best interests of the Fund and its shareholders.
For example, the Board might take such action if the Managed Distribution Plan had the effect of shrinking the Funds assets to a level that was
determined to be detrimental to Fund shareholders. The suspension or termination of the Managed Distribution Plan could have the effect of creating a
trading discount (if the Funds stock is trading at or above net asset value), widening an existing trading discount, or decreasing an existing
premium.
The Managed Distribution Plan is
described in a Question and Answer format on your Funds website, www.dpimc.com/dnp, and discussed in the section of managements letter
captioned About Your Fund. The tax characterization of the Funds distributions for the last 5 years can also be found on the website
under the Tax Information tab.
December 19,
2019
Dear Fellow Shareholders:
Performance Review:
Consistent with its primary objective of current income and long-term growth of income, and its Managed Distribution Plan, the Fund declared twelve
monthly distributions of 6.5 cents per share of common stock during the 2019 fiscal year. The 6.5 cent per share monthly rate, without compounding,
would be 78 cents annualized, which is equal to 6.1% of the October 31, 2019, closing price of $12.77 per share. Please refer to the inside front cover
of this report and the portion of this letter captioned About Your Fund for important information about the Fund and its Managed
Distribution Plan.
Your Fund had a total return
(income plus change in market price) of 25.3% for the year ended October 31, 2019, which was higher than the 22.8% total return of the composite of the
S&P 500® Utilities Index and the Bloomberg Barclays U.S. Utility Bond Index, weighted to reflect the stock and bond ratio of the
Fund. In comparison, the S&P 500® Utilities Indexa stock-only indexhad a total return of 23.7% over that same
period.
On a longer-term basis, as of
October 31, 2019, your Fund had a five-year annualized total return of 12.3% on a market value basis, which is higher than the 10.2% return of the
composite of the S&P 500® Utilities Index and the Bloomberg Barclays U.S. Utility Bond Index, weighted to reflect the stock and
bond ratio of the Fund. In comparison, the S&P 500® Utilities Index had an annualized total return during that period of
11.0%.
The table below compares the
performance of your Fund to various market benchmarks. It is important to note that the composite and index returns referred to in this letter do not
include fees or expenses, whereas the Funds returns are net of expenses.
Total
Return1
For the period indicated through October 31, 2019
|
|
|
|
|
One Year
|
Three Years
(annualized)
|
Five Years
(annualized)
|
DNP Select Income Fund Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Value2
|
|
|
|
|
25.3
|
%
|
|
|
16.4
|
%
|
|
|
12.3
|
%
|
Net Asset Value3
|
|
|
|
|
25.3
|
%
|
|
|
12.5
|
%
|
|
|
9.2
|
%
|
Composite Index4
|
|
|
|
|
22.8
|
%
|
|
|
12.0
|
%
|
|
|
10.2
|
%
|
S&P 500® Utilities Index4
|
|
|
|
|
23.7
|
%
|
|
|
13.0
|
%
|
|
|
11.0
|
%
|
Bloomberg Barclays U.S. Utility Bond Index4
|
|
|
|
|
17.1
|
%
|
|
|
4.9
|
%
|
|
|
4.8
|
%
|
1
|
|
Past
performance is not indicative of future results. Current performance may be lower or higher than performance in historical
periods.
|
2
|
|
Total
return on market value assumes a purchase of common stock at the opening market price on the first business day and a sale
at the closing market price on the last business day of the period shown in the table and assumes reinvestment of dividends
at the actual reinvestment prices obtained under the terms of the Funds dividend reinvestment plan. In addition, when
buying or selling stock, you would ordinarily pay brokerage expenses. Because brokerage expenses are not reflected in the
above calculations, your total return net of brokerage expenses would be lower than the total return on market value shown
in the table. Source: Administrator of the Fund.
|
3
|
|
Total
return on NAV uses the same methodology as is described in note 2, but with use of NAV for beginning, ending and reinvestment
values. Because the Funds expenses (ratios detailed on page 14 of this report) reduce the Funds NAV, they are
already reflected in the Funds total return on NAV shown in the table. NAV represents the underlying value of the Funds
net assets, but the market price per share may be higher or lower than NAV. Source: Administrator of the Fund.
|
4
|
|
The
Composite Index is a composite of the returns of the S&P 500® Utilities Index and the Bloomberg Barclays
U.S. Utility Bond Index (formerly known as the Barclays U.S. Utility Bond Index), weighted to reflect the stock and bond
ratio of the Fund. The indices are calculated on a total return basis with dividends reinvested. Indices are unmanaged; their
returns do not reflect any fees, expenses or sales charges; and they are not available for direct investment. Performance
returns for the S&P 500® Utilities Index and Bloomberg Barclays U.S. Utility Bond Index were obtained
from Bloomberg LP.
|
1
The
Growth of Renewable Energy Generation in the Utility Industry: Renewable energy has become a significant component of Americas generation and
an even more significant component of future growth in generation. In 2000, wind and solar represented a negligible portion of generation capacity.
Today, those sources account for approximately 14% of U.S. installed megawatts according to the Energy Information Administration. It is estimated that
over 80% of future net power generation growth will come from wind and solar.
Multiple factors have contributed
to this growth. While renewables started off as an environmentally conscious decision with political and regulatory backing, this electric generation
source now has strong economic appeal. Because the cost of electricity generation from renewables has declined precipitously over the past few years,
there has been an increasingly strong economic case to deploy these assets. New onshore wind and some solar generation are now more cost effective to
build when compared to the cost to operate existing fossil fuel and thermal plants. Coupled with state-level support mechanisms and incentives, we
expect the move toward renewables will continue.
Many utilities in the Funds
portfolio can take advantage of this trend through both their regulated and unregulated operations. One of our utility holdings, Xcel Energy Inc.,
coined the phrase steel for fuel, which involves swapping out fossil fuel-based generation for fuel-free wind and solar. This provides
benefits to all stakeholders in addition to attractive economic ramifications. Wind and solar generation avoids the energy input cost (and associated
volatility of those fuel costs); the various transportation costs of those fuels are eliminated; and renewable power facilities require far less
staffing. For regulated utilities, as those costs are avoided, more headroom is provided to spend on electric transmission and distribution
infrastructure, including modernization of the grid to incorporate even more renewables in the future.
Unregulated renewable generation
is highly lucrative as well. NextEra Energy Inc., the countrys largest provider of unregulated wind power generation and a large Fund holding,
earns attractive returns from that business. Demand for renewable power comes from utilities and corporate entities, both of which are incentivized to
enhance their green procurement. There are 29 states and the District of Columbia that have adopted renewable portfolio standards, of which
7 states require 100% clean energy by 2050. All 50 states have some form of policy and/or incentives relating to renewable power. As a result, the
demand for renewable generation is plentiful. Many of the utility holdings in the Fund are participating in this shift, either through transforming
their own generation fleet or through unregulated renewable investments, including Alliant Energy Corp., Ameren Corp., American Electric Power Company
Inc., CMS Energy Corporation, Dominion Energy Inc., DTE Energy Co., and WEC Energy Group Inc.
While renewables will continue to
gain momentum, challenges still exist. Costs have come down rapidly, but they are still an impediment when unsubsidized, particularly for solar. Even
though the lifetime costs are cheaper, initial installation costs for most solar facilities are not yet on-par with natural gas on a per kilowatt basis
(although this is expected to change within the next five years). In addition, as production tax credits expire, new wind builds are likely to slow
starting in 2021. Grid modernization is another challenge. During the past century, transmission infrastructure was built with large fossil-fuel (coal,
natural gas) and nuclear plants in mind. But today, some geographic areas with the best renewable resources are largely lacking the necessary
transmission and distribution infrastructure to take advantage of those resources. In addition to those challenges, the industry will also need to
reckon with issues related to the siting of wind and solar generation (e.g., NIMBYism), local political concerns and resource
availability.
Despite these challenges, the
runway for renewables growth continues to grow. New renewable technologies and processes are gaining momentum. For example, offshore wind, which has
been a part of the generation mix for a number of European countries for decades, was recently embraced by a majority of the states on the northeastern
U.S. coast. More than 20 gigawatts of offshore wind are targeted so far in the U.S., roughly equal to the entire current installed capacity of offshore
wind in Europe. Eversource Energy, Public Service Enterprise Group Inc., Dominion Energy Inc. (all Fund holdings) and others are partnering with a
number of European companies to deliver this nascent power resource. Battery storage is another generation
technology that a number of utilities (globally) are pursuing. Storage has multiple benefits primarily around enhanced efficiencies and reliability to
balance the system for both generation and the evolving grid. Other renewable sources such as green hydrogen, marine power and bioenergy, to name just
a few, could be commercially
2
viable in the coming years. It is clear that the renewable energy trend is no longer a fad, and that it will exert
influence on the utility industry and the Funds holdings for the foreseeable future.
Board of Directors Meeting:
At the regular September and December 2019 Board of Directors meetings, the Board declared the following monthly dividends:
|
Cents
Per
Share
|
|
Record
Date
|
|
Payable
Date
|
|
|
Cents
Per
Share
|
|
Record
Date
|
|
Payable
Date
|
|
|
6.5
|
|
October 31
|
|
November 12
|
|
|
6.5
|
|
January 31
|
|
February 10
|
|
|
6.5
|
|
November 29
|
|
December 10
|
|
|
6.5
|
|
February 28
|
|
March 10
|
|
|
6.5
|
|
December 31
|
|
January 10
|
|
|
6.5
|
|
March 31
|
|
April 10
|
|
About Your
Fund: The Fund seeks to achieve its investment objectives by investing primarily in the public utility industry. Under normal market conditions,
more than 65% of the Funds total assets are invested in a diversified portfolio of equity and fixed income securities of public utility companies
engaged in the production, transmission or distribution of electric energy, gas or telecommunications services. The Fund does not currently use
derivatives and has no investments in complex or structured investment vehicles.
The Fund seeks to provide
investors with a stable monthly dividend that is primarily derived from current fiscal year earnings and profits. The Investment Company Act of 1940
and related SEC rules generally prohibit investment companies from distributing long-term capital gains more often than once in a twelvemonth
period. However, in 2008, the SEC granted the Funds request for exemptive relief from that prohibition, and the Fund is now permitted, subject to
certain conditions, to make periodic distributions of long-term capital gains as frequently as twelve times a year. In connection with the exemptive
relief, in February 2008 the Board of Directors reaffirmed the current 6.5 cent per share monthly distribution rate and formalized the monthly
distribution process by adopting a Managed Distribution Plan (MDP). The Board reviews the operation of the MDP on a quarterly basis, with the most
recent review having been conducted in December 2019, and the Adviser uses data provided by an independent consultant to review for the Board the MDP
annually. The MDP is described on the inside front cover of this report and in a Question and Answer format on the Funds website,
www.dpimc.com/dnp.
The use of leverage enables the
Fund to borrow at short-term rates and invest in higher yielding securities. As of October 31, 2019, the Fund had $1 billion of total leverage
outstanding which consisted of: 1) $168 million of floating rate preferred stock, 2) $132 million of fixed rate preferred stock, 3) $300 million of
fixed rate secured notes and 4) $400 million of floating rate secured debt outstanding under a committed loan facility. On that date the total amount
of leverage represented approximately 25% of the Funds total assets. The amount and type of leverage used is reviewed by the Board of Directors
based on the Funds expected earnings relative to the anticipated costs (including fees and expenses) associated with the leverage. In addition,
the long-term expected benefits of leverage are weighed against the potential effect of increasing the volatility of both the Funds net asset
value and the market value of its common stock.
Historically, the tendency of the
U.S. yield curve to exhibit a positive slope (i.e., long-term rates higher than short-term rates) has fostered an environment in which leverage used to
purchase fixed income securities can make a positive contribution to the earnings of the Fund. There is no assurance that this will continue to be the
case in the future. A decline in the difference between short-term and long-term rates could have an adverse effect on the income provided from
leverage. Also, the amount of leverage used to purchase equity securities will have a direct effect on the Funds net asset value and may increase
the volatility of the Funds net asset value and market price. The use of leverage increases the benefits to the Fund when equity valuations are
rising and conversely, exacerbates the negative impact to the Fund when equity valuations are falling. If the Fund were to conclude that the use of
leverage was likely to cease being beneficial, it could modify the amount and type of leverage it uses or eliminate the use of leverage
entirely.
Along with the influence on the
income provided from leverage, the level of interest rates can be a primary driver of bond returns, including the return on your Funds fixed
income investments. For example, an extended environment of historically low interest rates adds an element of reinvestment risk, since the proceeds of
maturing bonds may be
3
reinvested in lower yielding securities. Alternatively, a sudden or unexpected rise in interest rates would likely reduce the
total return of fixed income investments, since higher interest rates could be expected to depress the valuations of fixed rate bonds held in a
portfolio.
Maturity and duration are measures
of the sensitivity of a funds fixed income investments to changes in interest rates. More specifically, duration refers to the percentage change
in a bonds price for a given change in rates (typically +/- 100 basis points). In general, the greater the average maturity and duration of a
portfolio, the greater is the potential percentage price volatility for a given change in interest rates. As of October 31, 2019, your Funds
fixed income investments had an average maturity of 6.9 years and duration of 5.4 years, while the Bloomberg Barclays U.S. Utility Bond Index had an
average maturity of 11.4 years and duration of 7.9 years.
In addition to your Funds
fixed income investments, the income-oriented equity investments held in your Fund can be adversely affected by a rise in interest rates. However,
while rising interest rates generally have a negative impact on income-oriented investments, if improved growth accompanies the rising rates, the
impact may be mitigated.
As a practical matter, it is not
possible for your Funds portfolio of investments to be completely insulated from unexpected moves in interest rates. Management believes that
over the long term, the conservative distribution of fixed income investments along the yield curve and the growth potential of income-oriented equity
holdings positions your Fund to take advantage of future opportunities while limiting volatility to some degree. However, a sustained and meaningful
rise in interest rates from current levels would have the potential to significantly reduce the total return of leveraged funds holding income-oriented
equities and fixed income investments, including DNP. A significant rise in interest rates would likely put downward pressure on both the net asset
value and market price of such funds.
Visit us on the Web: You
can obtain the most recent shareholder financial reports and distribution information at our website, www.dpimc.com/dnp.
We appreciate your interest in DNP
Select Income Fund Inc., and we will continue to do our best to be of service to you.
Connie M. Luecke, CFA
|
|
|
|
Nathan I. Partain, CFA
|
Vice President, Chief Investment Officer
|
|
|
|
Director, President, and Chief Executive Officer
|
Certain statements in this
report are forward-looking statements. Discussions of specific investments are for illustration only and are not intended as recommendations of
individual investments. The forward-looking statements and other views expressed herein, are those of the portfolio managers as of the date of this
report. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and the views expressed
herein are subject to change at any time, due to numerous market and other factors. The Fund disclaims any obligation to update publicly or revise any
forward-looking statements or views expressed herein.
4
DNP SELECT INCOME FUND INC.
SCHEDULE OF
INVESTMENTS
October 31, 2019
Shares
|
|
Description
|
|
Value
|
COMMON STOCKS & MLP INTERESTS113.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n ELECTRIC, GAS AND WATER82.6%
|
|
|
|
|
|
2,055,240
|
|
Alliant Energy Corp.(a)
|
|
$
|
109,626,502
|
|
|
1,338,300
|
|
Ameren Corp.(a)
|
|
|
103,985,910
|
|
|
1,106,000
|
|
American Electric Power Co., Inc.(a)
|
|
|
104,395,340
|
|
|
878,900
|
|
American Water Works Co.(a)
|
|
|
108,342,003
|
|
|
842,110
|
|
Aqua America, Inc.
|
|
|
38,172,846
|
|
|
732,000
|
|
Atmos Energy Corp.(a)(b)
|
|
|
82,335,360
|
|
|
327,600
|
|
Black Hills Corp.
|
|
|
25,824,708
|
|
|
3,071,300
|
|
CenterPoint Energy, Inc.(a)(b)
|
|
|
89,282,691
|
|
|
1,751,200
|
|
CMS Energy Corp.(a)
|
|
|
111,936,704
|
|
|
1,147,000
|
|
Dominion Energy, Inc.(a)(b)
|
|
|
94,684,850
|
|
|
795,550
|
|
DTE Energy Co.(a)
|
|
|
101,289,426
|
|
|
1,000,000
|
|
Edison International(a)(b)
|
|
|
62,900,000
|
|
|
1,296,855
|
|
Emera Inc. (Canada)
|
|
|
53,804,164
|
|
|
1,592,441
|
|
Evergy, Inc.(a)
|
|
|
101,772,904
|
|
|
1,346,700
|
|
Eversource Energy(a)
|
|
|
112,772,658
|
|
|
690,000
|
|
FirstEnergy Corp.
|
|
|
33,340,800
|
|
|
1,079,800
|
|
Fortis Inc. (Canada)
|
|
|
44,955,039
|
|
|
275,000
|
|
Keyera Corp. (Canada)
|
|
|
6,387,758
|
|
|
484,100
|
|
NextEra Energy, Inc.(a)(b)
|
|
|
115,380,394
|
|
|
1,010,250
|
|
Nextera Energy Partners, LP
|
|
|
53,240,175
|
|
|
2,655,000
|
|
NiSource Inc.(a)
|
|
|
74,446,200
|
|
|
800,000
|
|
Northwest Natural Holding Co.
|
|
|
55,488,000
|
|
|
2,300,000
|
|
OGE Energy Corp.(a)
|
|
|
99,038,000
|
|
|
576,000
|
|
ONE Gas, Inc.
|
|
|
53,475,840
|
|
|
1,000,000
|
|
Pinnacle West Capital Corp.(a)
|
|
|
94,120,000
|
|
|
1,716,600
|
|
Public Service Enterprise Group Inc.(a)(b)
|
|
|
108,677,946
|
|
|
768,800
|
|
Sempra Energy(a)(b)
|
|
|
111,099,288
|
|
|
1,500,000
|
|
South Jersey Industries, Inc.
|
|
|
48,240,000
|
|
|
1,830,000
|
|
Southern Co.(a)
|
|
|
114,667,800
|
|
|
903,000
|
|
Spire Inc.
|
|
|
75,906,180
|
|
|
1,163,700
|
|
WEC Energy Group, Inc.(a)
|
|
|
109,853,280
|
|
|
1,710,800
|
|
Xcel Energy Inc.(a)
|
|
|
108,652,908
|
|
|
|
|
|
|
|
2,608,095,674
|
|
|
|
|
|
|
|
|
|
|
|
|
n OIL & GAS STORAGE, TRANSPORTATION AND PRODUCTION16.8%
|
|
|
|
|
|
1,161,419
|
|
Antero Midstream Corp.
|
|
|
7,479,538
|
|
|
160,000
|
|
Cheniere Energy, Inc.*
|
|
|
9,848,000
|
|
|
170,941
|
|
Cheniere Energy Partners, LP
|
|
|
7,680,379
|
|
|
381,000
|
|
DCP Midstream LP
|
|
|
8,721,090
|
|
|
1,286,845
|
|
Enbridge Inc. (Canada)
|
|
|
46,854,026
|
|
|
3,054,062
|
|
Energy Transfer Equity LP
|
|
|
38,450,641
|
|
|
600,000
|
|
EnLink Midstream, LLC
|
|
|
3,750,000
|
|
|
1,516,000
|
|
Enterprise Products Partners LP
|
|
|
39,461,480
|
|
|
505,000
|
|
GasLog Partners LP (Marshall Islands)
|
|
|
10,004,050
|
|
|
350,000
|
|
Genesis Energy LP
|
|
|
7,059,500
|
|
|
310,000
|
|
Golar LNG Limited* (Bermuda)
|
|
|
4,268,700
|
|
|
1,835,026
|
|
Kinder Morgan, Inc.(a)
|
|
|
36,663,820
|
|
|
427,090
|
|
Magellan Midstream Partners LP
|
|
|
26,616,249
|
|
|
145,000
|
|
Marathon Petroleum Corp.
|
|
|
9,272,750
|
|
|
1,061,852
|
|
MPLX LP
|
|
|
28,001,037
|
|
|
108,403
|
|
Noble Midstream Partners LP
|
|
|
2,614,680
|
|
|
312,150
|
|
ONEOK, Inc.
|
|
|
21,797,435
|
|
|
986,600
|
|
Pembina Pipeline Corp. (Canada)
|
|
|
34,807,047
|
|
The accompanying notes are an integral part of these
financial statements.
5
DNP SELECT INCOME FUND INC.
SCHEDULE OF
INVESTMENTS(Continued)
October 31, 2019
Shares
|
|
Description
|
|
Value
|
|
178,419
|
|
Phillips 66 Partners LP
|
|
$
|
9,971,838
|
|
|
1,338,900
|
|
Plains All American Pipeline, LP
|
|
|
24,274,257
|
|
|
553,305
|
|
Tallgrass Energy, LP
|
|
|
10,324,671
|
|
|
615,120
|
|
Targa Resources Corp.
|
|
|
23,915,866
|
|
|
1,375,500
|
|
TC Energy Corp. (Canada)(a)
|
|
|
69,228,915
|
|
|
452,020
|
|
Westlake Chemical Partners LP
|
|
|
10,369,339
|
|
|
331,300
|
|
Western Midstream Partners, LP
|
|
|
7,043,438
|
|
|
1,503,500
|
|
The Williams Companies, Inc.
|
|
|
33,543,085
|
|
|
|
|
|
|
|
532,021,831
|
|
|
|
|
|
|
|
|
|
|
|
|
n TELECOMMUNICATIONS14.4%
|
|
|
|
|
|
289,000
|
|
American Tower Corp.
|
|
|
63,025,120
|
|
|
2,129,000
|
|
AT&T Inc.(a)
|
|
|
81,945,210
|
|
|
951,515
|
|
BCE Inc. (Canada)(a)(b)
|
|
|
45,149,387
|
|
|
690,400
|
|
Crown Castle International Corp.(a)
|
|
|
95,820,616
|
|
|
1,000,000
|
|
Orange SA (France)
|
|
|
16,109,994
|
|
|
1,280,300
|
|
Telus Corp. (Canada)
|
|
|
45,636,288
|
|
|
1,502,089
|
|
Verizon Communications Inc.(a)
|
|
|
90,831,322
|
|
|
782,200
|
|
Vodafone Group Plc ADR (United Kingdom)
|
|
|
15,972,524
|
|
|
|
|
|
|
|
454,490,461
|
|
|
|
|
Total Common Stocks & MLP Interests (Cost $2,459,087,679)
|
|
|
3,594,607,966
|
|
|
|
|
|
|
|
|
|
Par Value
|
|
Description
|
|
Value
|
BONDS15.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n ELECTRIC, GAS AND WATER8.1%
|
|
|
|
|
|
$11,000,000
|
|
American Water Capital Corp.
3.40%, 3/01/25(a)
|
|
$
|
11,648,390
|
|
|
22,000,000
|
|
Arizona Public Service Co.
67/8%, 8/01/36(a)(b)
|
|
|
30,904,253
|
|
|
9,000,000
|
|
CMS Energy Corp.
5.05%, 3/15/22(a)
|
|
|
9,548,082
|
|
|
6,000,000
|
|
CMS Energy Corp.
3.45%,
8/15/27
|
|
|
6,357,930
|
|
|
5,000,000
|
|
Connecticut Light & Power Co.
3.20%, 3/15/27
|
|
|
5,317,230
|
|
|
10,000,000
|
|
DPL Capital Trust II
81/8%, 9/01/31
|
|
|
10,149,941
|
|
|
6,400,000
|
|
DTE Electric Co.
3.65%, 3/15/24
|
|
|
6,805,718
|
|
|
4,875,000
|
|
DTE Electric Co.
3.45%, 10/01/20
|
|
|
4,927,733
|
|
|
10,000,000
|
|
Duke Energy Corp.
3.15%, 8/15/2027
|
|
|
10,423,788
|
|
|
5,600,000
|
|
Edison International
41/8%, 3/15/28
|
|
|
5,575,987
|
|
|
9,500,000
|
|
Entergy Louisiana, LLC
5.40%, 11/01/24
|
|
|
10,975,102
|
|
|
5,000,000
|
|
Entergy Louisiana, LLC
4.44%, 1/15/26
|
|
|
5,492,239
|
|
|
4,000,000
|
|
Entergy Texas, Inc.
4.00%, 3/30/29
|
|
|
4,441,889
|
|
|
7,000,000
|
|
Eversource Energy
41/4%, 4/01/29
|
|
|
7,872,682
|
|
|
10,000,000
|
|
Florida Power & Light Co.
31/4%, 6/01/24
|
|
|
10,504,226
|
|
|
7,000,000
|
|
Indiana Michigan Power Co.
3.20%, 3/15/23
|
|
|
7,253,564
|
|
|
11,000,000
|
|
Interstate Power & Light
31/4%, 12/01/24
|
|
|
11,556,478
|
|
|
14,000,000
|
|
NiSource Finance Corp.
3.49%, 5/15/27
|
|
|
14,735,992
|
|
|
5,000,000
|
|
Ohio Power Co.
6.60%, 2/15/33
|
|
|
6,969,904
|
|
|
10,345,000
|
|
Oncor Electric Delivery Co. LLC
7.00%, 9/01/22(a)(b)
|
|
|
11,748,526
|
|
|
5,000,000
|
|
Public Service Electric
3.00%, 5/15/25
|
|
|
5,227,333
|
|
|
10,000,000
|
|
Public Service Electric
3.00%, 5/15/27
|
|
|
10,445,765
|
|
|
5,000,000
|
|
Public Service New Mexico
3.85%, 8/01/25
|
|
|
5,228,071
|
|
The accompanying notes are an integral part of these
financial statements.
6
DNP SELECT INCOME FUND INC.
SCHEDULE OF
INVESTMENTS(Continued)
October 31, 2019
Par Value
|
|
Description
|
|
Value
|
|
$9,000,000
|
|
Sempra Energy
3.55%, 6/15/24
|
|
$
|
9,338,221
|
|
|
11,300,000
|
|
Southern Power Co.
4.15%, 12/01/25
|
|
|
12,371,839
|
|
|
10,000,000
|
|
Virginia Electric & Power Co.
3.15%, 1/15/26
|
|
|
10,495,363
|
|
|
8,000,000
|
|
Wisconsin Energy Corp.
3.55%, 6/15/25
|
|
|
8,553,884
|
|
|
|
|
|
|
|
254,870,130
|
|
|
|
|
|
|
|
|
|
|
|
|
n OIL & GAS STORAGE, TRANSPORTATION AND PRODUCTION3.8%
|
|
|
|
|
|
11,000,000
|
|
Enbridge Inc. (Canada)
41/4%, 12/01/26
|
|
|
12,056,649
|
|
|
6,488,000
|
|
Energy Transfer Partners
7.60%, 2/01/24
|
|
|
7,546,892
|
|
|
8,850,000
|
|
Energy Transfer Partners
81/4%, 11/15/29
|
|
|
11,405,274
|
|
|
6,000,000
|
|
Enterprise Products Operating LP
5.20%, 9/01/20
|
|
|
6,157,143
|
|
|
6,000,000
|
|
Enterprise Products Operating LP
3.35%, 3/15/23
|
|
|
6,218,560
|
|
|
8,030,000
|
|
Kinder Morgan, Inc.
6.85%, 2/15/20
|
|
|
8,135,426
|
|
|
9,000,000
|
|
Magellan Midstream Partners, LP
5.00%, 3/1/26
|
|
|
10,175,295
|
|
|
11,000,000
|
|
ONEOK, Inc.
6.00%, 6/15/35
|
|
|
12,824,124
|
|
|
10,000,000
|
|
Phillips 66
3.90%, 3/15/28
|
|
|
10,845,108
|
|
|
5,000,000
|
|
Plains All American Pipeline, LP
4.65%, 10/15/25
|
|
|
5,347,667
|
|
|
12,210,000
|
|
TransCanada PipeLines Ltd. (Canada)
33/4%, 10/16/23
|
|
|
12,918,814
|
|
|
10,000,000
|
|
Williams Partners LP
3.60%, 3/15/22
|
|
|
10,293,539
|
|
|
5,000,000
|
|
Williams Partners LP
4.55%, 6/24/24
|
|
|
5,397,922
|
|
|
|
|
|
|
|
119,322,413
|
|
|
|
|
|
|
|
|
|
|
|
|
n TELECOMMUNICATIONS3.8%
|
|
|
|
|
|
4,500,000
|
|
American Tower Corp.
5.00%, 2/15/24
|
|
|
4,983,847
|
|
|
5,500,000
|
|
American Tower Corp.
3.00%, 6/15/23
|
|
|
5,654,285
|
|
|
5,000,000
|
|
AT&T Inc.
4.45%, 4/01/24
|
|
|
5,423,189
|
|
|
10,000,000
|
|
BellSouth Capital Funding Corp.
77/8%, 2/15/30(a)
|
|
|
13,022,349
|
|
|
15,000,000
|
|
CenturyLink Inc.
67/8%, 1/15/28
|
|
|
15,975,000
|
|
|
5,900,000
|
|
Comcast Corp.
7.05%, 3/15/33
|
|
|
8,479,456
|
|
|
9,385,000
|
|
Crown Castle International Corp.
4.45%, 2/15/26
|
|
|
10,322,562
|
|
|
15,000,000
|
|
Koninklijke KPN NV (Netherlands)
83/8%, 10/01/30(a)(b)
|
|
|
20,312,475
|
|
|
5,000,000
|
|
TCI Communications Inc.
71/8%, 2/15/28
|
|
|
6,636,736
|
|
|
15,500,000
|
|
Verizon Global Funding Corp.
73/4%, 12/01/30
|
|
|
22,469,151
|
|
|
5,000,000
|
|
Vodafone Group Plc (United Kingdom)
77/8%, 2/15/30
|
|
|
6,961,453
|
|
|
|
|
|
|
|
120,240,503
|
|
|
|
|
|
|
|
|
|
|
|
|
n NON-UTILITY0.2%
|
|
|
|
|
|
8,000,000
|
|
Target Corporation
97/8%, 7/01/20(a)(b)
|
|
|
8,380,514
|
|
|
|
|
|
|
|
8,380,514
|
|
|
|
|
Total Bonds (Cost $453,867,481)
|
|
|
502,813,560
|
|
The accompanying notes are an integral part of these
financial statements.
7
DNP SELECT INCOME FUND INC.
SCHEDULE OF
INVESTMENTS(Continued)
October 31, 2019
Par Value
|
|
Description
|
|
Value
|
|
|
|
|
|
SHORT-TERM INVESTMENTS1.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n U.S. TREASURY BILLS1.2%
|
|
|
|
|
|
$19,000,000
|
|
1.72%, 11/12/19(c)
|
|
$
|
18,991,233
|
|
|
19,000,000
|
|
1.71%, 12/10/19(c)
|
|
|
18,969,396
|
|
|
|
|
Total Short-Term Investments (Cost
$37,955,712)
|
|
|
37,960,629
|
|
|
|
|
TOTAL INVESTMENTS—130.9% (Cost $2,950,910,872)
|
|
|
4,135,382,155
|
|
|
|
|
Secured borrowings—(12.7)%
|
|
|
(400,000,000
|
)
|
|
|
|
Secured notes—(9.5)%
|
|
|
(300,000,000
|
)
|
|
|
|
Mandatory Redeemable Preferred Shares at liquidation value—(9.5)%
|
|
|
(300,000,000
|
)
|
|
|
|
Other assets less other liabilities—0.8%
|
|
|
23,551,957
|
|
|
|
|
NET ASSETS APPLICABLE TO COMMON STOCK—100.0%
|
|
$
|
3,158,934,112
|
|
(a)
|
|
All or a portion of this security has been pledged as
collateral for borrowings and made available for loan.
|
(b)
|
|
All or a portion of this security has been
loaned.
|
(c)
|
|
Rate shown represents yield-to-maturity.
|
The percentage shown for each investment category is the
total value of that category as a percentage of the net assets applicable to common stock of the Fund.
The accompanying notes are an integral part of these
financial statements.
8
DNP SELECT INCOME FUND INC.
SCHEDULE OF
INVESTMENTS(Continued)
October 31, 2019
The Funds investments are carried at fair value which is
defined as the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most
advantageous market of the investment. The three-tier hierarchy of inputs established to classify fair value measurements for disclosure purposes is
summarized in the three broad levels listed below.
Level 1quoted prices in active markets for identical
securities
Level 2other significant observable inputs (including
quoted prices for similar securities, interest rates, prepayment speeds, credit risks, etc.)
Level 3significant unobservable inputs (including the
Funds own assumptions in determining fair value of investments)
The inputs or methodology used for valuing securities are not
necessarily an indication of the risk associated with investing in these securities. The following is a summary of the inputs used to value each of the
Funds investments at October 31, 2019:
|
|
Level 1
|
|
Level 2
|
Common stocks & MLP interests
|
|
$3,594,607,966
|
|
|
—
|
|
Bonds
|
|
—
|
|
|
$502,813,560
|
|
Short-Term Investments
|
|
—
|
|
|
37,960,629
|
|
Total
|
|
$3,594,607,966
|
|
|
$540,774,189
|
|
There were no Level 3 priced securities held and there
were no transfers into or out of Level 3.
Other information regarding the Fund is available on the
Funds website at www.dpimc.com/dnp or the Securities and Exchange Commissions website at www.sec.gov.
*
|
|
Percentages are based on total investments rather than total net
assets applicable to common stock and include securities pledged as collateral for the Funds credit
facility.
|
The accompanying notes are an integral part of these
financial statements.
9
DNP SELECT INCOME FUND INC.
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 2019
ASSETS:
|
|
|
|
|
|
|
Investments at value (cost $2,950,910,872) including $311,574,592 of securities loaned
|
|
|
|
$
|
4,135,382,155
|
|
Cash
|
|
|
|
|
29,923,893
|
|
Receivables:
|
|
|
|
|
|
|
Interest
|
|
|
|
|
5,862,420
|
|
Dividends
|
|
|
|
|
9,080,157
|
|
Shares sold (Note 10)
|
|
|
|
|
829,447
|
|
Securities lending income
|
|
|
|
|
834
|
|
Prepaid expenses
|
|
|
|
|
573,054
|
|
Total assets
|
|
|
|
|
4,181,651,960
|
|
LIABILITIES:
|
|
|
|
|
|
|
Secured borrowings (Note 7)
|
|
|
|
|
400,000,000
|
|
Secured notes (net of deferred offering costs of $2,267,862) (Note 7)
|
|
|
|
|
297,732,138
|
|
Dividends payable on common stock
|
|
|
|
|
19,557,178
|
|
Interest payable on secured notes (Note 7)
|
|
|
|
|
2,428,044
|
|
Investment advisory fee (Note 3)
|
|
|
|
|
1,914,222
|
|
Administrative fee (Note 3)
|
|
|
|
|
442,296
|
|
Interest payable on mandatory redeemable preferred shares (Note 8)
|
|
|
|
|
1,118,621
|
|
Interest payable on secured borrowings (Note 7)
|
|
|
|
|
940,471
|
|
Accrued expenses
|
|
|
|
|
111,724
|
|
Mandatory redeemable preferred shares (liquidation preference $300,000,000, net of deferred offering costs of $1,526,846) (Note 8)
|
|
|
|
|
298,473,154
|
|
Total liabilities
|
|
|
|
|
1,022,717,848
|
|
NET ASSETS APPLICABLE TO COMMON STOCK
|
|
|
|
$
|
3,158,934,112
|
|
CAPITAL:
|
|
|
|
|
|
|
Common stock ($0.001 par value per share; 350,000,000 shares authorized and 300,945,538 shares issued and outstanding)
|
|
|
|
$
|
300,946
|
|
Additional paid-in capital
|
|
|
|
|
2,008,266,515
|
|
Total distributable earnings
|
|
|
|
|
1,150,366,651
|
|
Net assets applicable to common stock
|
|
|
|
$
|
3,158,934,112
|
|
NET ASSET VALUE PER SHARE OF COMMON STOCK
|
|
|
|
$
|
10.50
|
|
The accompanying notes are an integral part of these
financial statements.
10
DNP SELECT INCOME FUND INC.
STATEMENT OF
OPERATIONS
For the year ended
October 31, 2019
INVESTMENT INCOME:
|
|
|
|
Interest
|
$
|
23,225,735
|
|
Dividends (less foreign withholding tax of $2,356,970)
|
|
135,856,369
|
|
Less return of capital distributions (Note 2)
|
|
(32,458,487
|
)
|
Securities lending income, net
|
|
300,561
|
|
Total investment income
|
|
126,924,178
|
|
EXPENSES:
|
|
|
|
Investment advisory fees (Note 3)
|
|
21,186,061
|
|
Interest expense and amortization of deferred offering costs on preferred shares (Note 8)
|
|
14,974,555
|
|
Interest expense and fees on secured borrowings (Note 7)
|
|
13,518,271
|
|
Interest expense and amortization of deferred offering costs on secured notes (Note 7)
|
|
9,174,289
|
|
Administrative fees (Note 3)
|
|
4,937,211
|
|
Reports to shareholders
|
|
1,298,000
|
|
Custodian fees
|
|
469,700
|
|
Professional fees
|
|
447,400
|
|
Transfer agent fees
|
|
280,200
|
|
Directors fees (Note 3)
|
|
267,996
|
|
Other expenses
|
|
643,775
|
|
Total expenses
|
|
67,197,458
|
|
Net investment income
|
|
59,726,720
|
|
REALIZED AND UNREALIZED GAIN:
|
|
|
|
Net realized gain on investments
|
|
146,260,538
|
|
Net change in unrealized appreciation (depreciation) on investments and foreign currency translation
|
|
440,177,266
|
|
Net realized and unrealized gain
|
|
586,437,804
|
|
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON STOCK RESULTING FROM
OPERATIONS
|
$
|
646,164,524
|
|
The accompanying notes are an integral part of these
financial statements.
11
DNP SELECT INCOME FUND INC.
STATEMENTS OF
CHANGES IN NET ASSETS
|
|
|
|
For
the year
ended
October 31, 2019
|
|
For
the year
ended
October 31, 2018
|
OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
$
|
59,726,720
|
|
|
$
|
57,791,463
|
|
Net realized gain
|
|
|
|
|
146,260,538
|
|
|
|
135,884,929
|
|
Net change in unrealized appreciation (depreciation)
|
|
|
|
|
440,177,266
|
|
|
|
(240,852,245
|
)
|
Net increase (decrease) in net assets applicable to common stock resulting from operations
|
|
|
|
|
646,164,524
|
|
|
|
(47,175,853
|
)
|
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
|
|
|
|
|
|
|
|
|
|
|
Net investment income and capital gains
|
|
|
|
|
(196,107,547
|
)
|
|
|
(188,582,095
|
)
|
Return of capital
|
|
|
|
|
(35,740,339
|
)
|
|
|
(37,627,599
|
)
|
Decrease in net assets from distributions to common stockholders (Note 5)
|
|
|
|
|
(231,847,886
|
)
|
|
|
(226,209,694
|
)
|
CAPITAL STOCK TRANSACTIONS:
|
|
|
|
|
|
|
|
|
|
|
Shares issued to common stockholders from dividend reinvestment of 3,986,366 and 4,008,568 shares, respectively
|
|
|
|
|
44,222,896
|
|
|
|
41,114,504
|
|
Net proceeds from shares issued through at-the-market offering of 3,761,534 and 1,695,121 shares, respectively (Note 9)
|
|
|
|
|
43,813,824
|
|
|
|
18,311,035
|
|
Net increase in net assets derived from capital share transactions
|
|
|
|
|
88,036,720
|
|
|
|
59,425,539
|
|
Total increase (decrease) in net assets
|
|
|
|
|
502,353,358
|
|
|
|
(213,960,008
|
)
|
TOTAL NET ASSETS APPLICABLE TO COMMON STOCK:
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
|
|
2,656,580,754
|
|
|
|
2,870,540,762
|
|
End of year
|
|
|
|
$
|
3,158,934,112
|
|
|
$
|
2,656,580,754
|
|
The accompanying notes are an integral part of these
financial statements.
12
DNP SELECT INCOME FUND INC.
STATEMENT OF CASH
FLOWS
For the year ended
October 31, 2019
INCREASE (DECREASE)
IN CASH
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
Interest received
|
|
|
|
$
|
25,747,728
|
|
|
|
|
|
Income dividends received
|
|
|
|
|
103,316,679
|
|
|
|
|
|
Return of capital distributions on investments
|
|
|
|
|
32,400,828
|
|
|
|
|
|
Securities lending income, net
|
|
|
|
|
300,572
|
|
|
|
|
|
Interest paid on secured borrowings
|
|
|
|
|
(12,654,461
|
)
|
|
|
|
|
Interest paid on secured notes
|
|
|
|
|
(8,760,000
|
)
|
|
|
|
|
Interest paid on mandatory redeemable preferred shares
|
|
|
|
|
(14,463,063
|
)
|
|
|
|
|
Expenses paid
|
|
|
|
|
(29,347,119
|
)
|
|
|
|
|
Purchase of investment securities
|
|
|
|
|
(452,120,558
|
)
|
|
|
|
|
Proceeds from sales and maturities of investment securities
|
|
|
|
|
550,880,192
|
|
|
|
|
|
Net change in short-term investments
|
|
|
|
|
(37,920,160
|
)
|
|
|
|
|
Net cash provided by operating activities
|
$
|
157,380,638
|
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
Distributions paid
|
|
|
|
|
(231,345,053
|
)
|
|
|
|
|
Proceeds from issuance of common stock under dividend reinvestment plan
|
|
|
|
|
44,222,896
|
|
|
|
|
|
Proceeds from issuance of mandatory redeemable preferred shares
|
|
|
|
|
131,151,015
|
|
|
|
|
|
Payout for redemption of mandatory redeemable preferred shares
|
|
|
|
|
(132,000,000
|
)
|
|
|
|
|
Net proceeds from issuance of common stock though at-the-market offering
|
|
|
|
|
43,646,692
|
|
|
|
|
|
Offering costs in connection with issuance of common shares
|
|
|
|
|
(82,833
|
)
|
|
|
|
|
Net cash used in financing activities
|
|
(144,407,283
|
)
|
Net increase in cash and cash equivalents
|
|
12,973,355
|
|
Cash and cash equivalentsbeginning of year
|
|
16,950,538
|
|
Cash and cash equivalentsend of year
|
$
|
29,923,893
|
|
Reconciliation of net increase in net assets resulting from operations to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
646,164,524
|
|
Purchase of investment securities
|
|
|
|
|
(452,120,558
|
)
|
|
|
|
|
Proceeds from sales and maturities of investment securities
|
|
|
|
|
550,880,192
|
|
|
|
|
|
Net change in short-term investments
|
|
|
|
|
(37,920,160
|
)
|
|
|
|
|
Net realized gain on investments
|
|
|
|
|
(146,260,538
|
)
|
|
|
|
|
Net change in unrealized (appreciation) depreciation on investments
|
|
|
|
|
(440,177,266
|
)
|
|
|
|
|
Net amortization and accretion of premiums and discounts on debt securities
|
|
|
|
|
1,498,184
|
|
|
|
|
|
Return of capital distributions on investments
|
|
|
|
|
32,400,828
|
|
|
|
|
|
Amortization of deferred offering costs
|
|
|
|
|
954,038
|
|
|
|
|
|
Decrease in interest receivable
|
|
|
|
|
1,023,809
|
|
|
|
|
|
Increase in dividends receivable
|
|
|
|
|
(81,202
|
)
|
|
|
|
|
Decrease in interest payable on mandatory redeemable preferred shares
|
|
|
|
|
(27,862
|
)
|
|
|
|
|
Decrease in interest payable on secured notes
|
|
|
|
|
(395
|
)
|
|
|
|
|
Increase in interest payable on secured borrowings
|
|
|
|
|
863,810
|
|
|
|
|
|
Increase in accrued expenses
|
|
|
|
|
183,224
|
|
|
|
|
|
Decrease in other receivable
|
|
|
|
|
10
|
|
|
|
|
|
Total adjustments
|
|
(488,783,886
|
)
|
Net cash provided by operating activities
|
$
|
157,380,638
|
|
The accompanying notes are an integral part of these
financial statements.
13
DNP SELECT INCOME FUND INC.
FINANCIAL
HIGHLIGHTSSELECTED PER SHARE DATA AND RATIOS
The table below provides
information about income and capital changes for a share of common stock outstanding throughout the periods indicated (excluding supplemental
data provided below):
|
|
For the year ended October 31,
|
PER SHARE DATA:
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
2015
|
Net asset value:
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$
|
9.06
|
|
|
$
|
9.98
|
|
|
$
|
9.40
|
|
|
$
|
8.72
|
|
|
$
|
10.21
|
|
Net investment income
|
|
|
0.20
|
|
|
|
0.20
|
|
|
|
0.22
|
|
|
|
0.27
|
|
|
|
0.29
|
|
Net realized and unrealized gain (loss)
|
|
|
2.02
|
|
|
|
(0.34
|
)
|
|
|
1.14
|
|
|
|
1.19
|
|
|
|
(1.00
|
)
|
Net increase (decrease) from investment operations applicable to common stock
|
|
|
2.22
|
|
|
|
(0.14
|
)
|
|
|
1.36
|
|
|
|
1.46
|
|
|
|
(0.71
|
)
|
Distributions on common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.20
|
)
|
|
|
(0.26
|
)
|
|
|
(0.26
|
)
|
|
|
(0.31
|
)
|
|
|
(0.36
|
)
|
Net realized gain
|
|
|
(0.46
|
)
|
|
|
(0.39
|
)
|
|
|
(0.41
|
)
|
|
|
(0.34
|
)
|
|
|
(0.34
|
)
|
Return of capital
|
|
|
(0.12
|
)
|
|
|
(0.13
|
)
|
|
|
(0.11
|
)
|
|
|
(0.13
|
)
|
|
|
(0.08
|
)
|
Total distributions
|
|
|
(0.78
|
)
|
|
|
(0.78
|
)
|
|
|
(0.78
|
)
|
|
|
(0.78
|
)
|
|
|
(0.78
|
)
|
Net asset value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
10.50
|
|
|
$
|
9.06
|
|
|
$
|
9.98
|
|
|
$
|
9.40
|
|
|
$
|
8.72
|
|
Per share market value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
12.77
|
|
|
$
|
10.93
|
|
|
$
|
11.25
|
|
|
$
|
10.09
|
|
|
$
|
9.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RATIOS TO AVERAGE NET ASSETS APPLICABLE TO COMMON STOCK:
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
2.29
|
%
|
|
|
2.31
|
%
|
|
|
2.04
|
%
|
|
|
1.86
|
%
|
|
|
1.64
|
%
|
Operating expenses, without leverage
|
|
|
1.00
|
%
|
|
|
1.01
|
%
|
|
|
1.02
|
%
|
|
|
1.04
|
%
|
|
|
1.03
|
%
|
Net investment income
|
|
|
2.04
|
%
|
|
|
2.19
|
%
|
|
|
2.23
|
%
|
|
|
2.98
|
%
|
|
|
3.05
|
%
|
SUPPLEMENTAL DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total return on market value(1)
|
|
|
25.28
|
%
|
|
|
4.80
|
%
|
|
|
20.17
|
%
|
|
|
12.08
|
%
|
|
|
1.08
|
%
|
Total return on net asset value(1)
|
|
|
25.27
|
%
|
|
|
(1.26
|
%)
|
|
|
15.04
|
%
|
|
|
17.34
|
%
|
|
|
(7.09
|
%)
|
Portfolio turnover rate
|
|
|
11
|
%
|
|
|
13
|
%
|
|
|
11
|
%
|
|
|
16
|
%
|
|
|
15
|
%
|
Net assets applicable to common stock, end of year (000’s omitted)
|
|
$
|
3,158,934
|
|
|
$
|
2,656,581
|
|
|
$
|
2,870,541
|
|
|
$
|
2,664,973
|
|
|
$
|
2,440,250
|
|
Borrowings outstanding, end of year (000’s omitted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured borrowings(2)
|
|
$
|
400,000
|
|
|
$
|
400,000
|
|
|
$
|
400,000
|
|
|
$
|
400,000
|
|
|
$
|
700,000
|
|
Secured notes(2)
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
—
|
|
Total borrowings
|
|
$
|
700,000
|
|
|
$
|
700,000
|
|
|
$
|
700,000
|
|
|
$
|
700,000
|
|
|
$
|
700,000
|
|
Asset coverage on borrowings(3)
|
|
$
|
5,941
|
|
|
$
|
5,224
|
|
|
$
|
5,529
|
|
|
$
|
5,236
|
|
|
$
|
4,915
|
|
Preferred stock outstanding, end of year
(000s) omitted(2)
|
|
$
|
300,000
|
|
|
$
|
300,000
|
|
|
$
|
300,000
|
|
|
$
|
300,000
|
|
|
$
|
300,000
|
|
Asset coverage on preferred stock(4)
|
|
$
|
415,893
|
|
|
$
|
365,658
|
|
|
$
|
387,054
|
|
|
$
|
366,497
|
|
|
$
|
344,025
|
|
Asset coverage ratio on total leverage (borrowings and preferred stock)(5)
|
|
|
416
|
%
|
|
|
366
|
%
|
|
|
387
|
%
|
|
|
367
|
%
|
|
|
344
|
%
|
(1)
|
|
Total return on market value assumes a purchase
of common stock at the opening market price on the first day and a sale at the closing market price on the last day of each year shown in the table and
assumes reinvestment of dividends at the actual reinvestment prices obtained under the terms of the Funds dividend reinvestment plan. Total
return on net asset value uses the same methodology, but with use of net asset value for beginning, ending and reinvestment values.
|
(2)
|
|
The Funds secured borrowings, secured notes
and preferred stock are not publicly traded.
|
(3)
|
|
Represents value of net assets applicable to
common stock plus the borrowings and preferred stock outstanding at year end divided by the borrowings outstanding at year end, calculated per $1,000
principal amount of borrowing. The secured borrowings and secured notes have equal claims to the assets of the Fund. The rights of debt holders are
senior to the rights of the holders of the Funds common and preferred stock. The asset coverage disclosed represents the asset coverage for the
total debt of the Fund including both the secured borrowings and secured notes.
|
(4)
|
|
Represents value of net assets applicable to
common stock plus the borrowings and preferred stock outstanding at year end divided by the borrowings and preferred stock outstanding at year end,
calculated per $100,000 liquidation preference per share of preferred stock.
|
(5)
|
|
Represents value of net assets applicable to
common stock plus the borrowings and preferred stock outstanding at year end divided by the borrowings and preferred stock outstanding at year
end.
|
The accompanying notes are an integral part of these
financial statements.
14
DNP SELECT INCOME FUND INC.
NOTES TO
FINANCIAL STATEMENTS
October 31, 2019
Note 1. Organization:
DNP Select Income Fund
Inc. (the Fund) was incorporated under the laws of the State of Maryland on November 26, 1986. The Fund commenced operations on January 21,
1987, as a closed-end diversified management investment company registered under the Investment Company Act of 1940 (the 1940 Act). The
primary investment objectives of the Fund are current income and long-term growth of income. Capital appreciation is a secondary
objective.
Note 2. Significant Accounting
Policies:
The following are the significant accounting
policies of the Fund:
A. Investment
Valuation: Equity securities traded on a national or foreign securities exchange or traded over-the counter and quoted on the NASDAQ Stock Market
are valued at the last reported sale price or, if there was no sale on the valuation date, then the security is valued at the mean of the bid and ask
prices, in each case using valuation data provided by an independent pricing service, and are generally classified as Level 1. Equity securities traded
on more than one securities exchange shall be valued at the last sale price on the business day as of which such value is being determined at the close
of the exchange representing the principal market for such securities and are classified as Level 1. If there was no sale on the valuation date, then
the security is valued at the mean of the closing bid and ask prices of the exchange representing the principal market for such securities. Debt
securities are valued at the mean of the bid and ask prices provided by an independent pricing service when such prices are believed to reflect the
fair value of such securities and are generally classified as Level 2. Any 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 and are classified as Level 2 or 3 based
on the valuation inputs.
B. Investment
Transactions and Investment Income: Security transactions are recorded on the trade date. Realized gains or losses from sales of securities are
determined on the identified cost basis. Dividend income is recognized on the ex-dividend date. Interest income and expense are recognized on the
accrual basis. Discounts and premiums on securities are amortized or accreted over the lives of the respective securities for financial reporting
purposes. Discounts and premiums are not amortized or accreted for tax purposes.
The Fund invests in
master limited partnerships (MLPs) which make distributions that are primarily attributable to return of capital. Dividend income is
recorded using managements estimate of the percentage of income included in the distributions received from the MLP investments based on their
historical dividend results. Distributions received in excess of this estimated amount are recorded as a reduction of cost of investments (i.e., a
return of capital). The actual amounts of income and return of capital are only determined by each MLP after its fiscal year-end and may differ from
the estimated amounts. For the year ended October 31, 2019, 100% of the MLP distributions were treated as a return of capital.
C. Federal Income
Taxes: It is the Funds intention to comply with requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income and capital gains to its shareholders. Therefore, no provision for Federal income
or excise taxes is required. Management of the Fund has concluded that there are no significant uncertain tax positions that would require
recognition in the financial statements. Since tax authorities can examine previously filed tax returns, the Funds tax returns filed for the
tax years 2016 to 2019 are subject to review.
15
DNP SELECT INCOME FUND INC.
NOTES TO
FINANCIAL STATEMENTS(Continued)
October 31, 2019
D. Foreign Currency
Translation: Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at
the date of valuation at the mean of the quoted bid and asked prices of such currencies. Purchases and sales of investment securities and income and
expense items denominated in foreign currencies are translated into U.S. dollar amounts at the rate of exchange prevailing on the respective dates of
such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments
from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized
gain or loss on investments.
E. Accounting Standards:
In 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-08, which shortens
the premium amortization period for callable debt. For public companies, the amendments are effective for financial statements issued for fiscal years
beginning after December 15, 2018. At this time, management is evaluating the provisions of ASU No. 2017-08 and its impact on the financial statements
and accompanying notes.
F. Use of Estimates: The
preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those
estimates.
Note 3. Agreements and Management
Arrangements:
A. Adviser and
Administrator: The Fund has an Advisory Agreement with Duff & Phelps Investment Management Co. (the Adviser) an indirect,
wholly owned subsidiary of Virtus Investment Partners, Inc. (Virtus), to provide professional investment management services for the Fund
and has an Administration Agreement with Robert W. Baird & Co. Incorporated (the Administrator or Baird) to
provide administrative and management services for the Fund. In October 2019, Baird became the successor by merger to J.J.B. Hilliard, W.L. Lyons, LLC,
which it acquired in April 2019. The Adviser receives a quarterly fee at an annual rate of 0.60% of the Average Weekly Managed Assets of the Fund up to
$1.5 billion and 0.50% of Average Weekly Managed Assets in excess thereof. The Administrator receives a quarterly fee at annual rates of 0.20% of
Average Weekly Managed Assets up to $1 billion, and 0.10% of Average Weekly Managed Assets over $1 billion. For purposes of the foregoing calculations,
Average Weekly Managed Assets is defined as the average weekly value of the total assets of the Fund minus the sum of all accrued
liabilities of the Fund (other than the aggregate amount of any outstanding borrowings or other indebtedness constituting financial
leverage).
B. Directors: The Fund
pays each director not affiliated with the Adviser an annual fee. Total fees paid to directors for the year ended October 31, 2019 were
$267,996.
C. Affiliated
Shareholder: At October 31, 2019, Virtus Partners, Inc. (a wholly owned subsidiary of Virtus) held 229,206 shares of the Fund, which represent
0.08% of the shares of common stock outstanding. These shares may be sold at any time.
Note 4. Investment
Transactions:
Purchases and sales of
investment securities (excluding short-term investments) for the year ended October 31, 2019 were $447,399,859 and $550,880,192,
respectively.
16
DNP SELECT INCOME FUND INC.
NOTES TO
FINANCIAL STATEMENTS(Continued)
October 31, 2019
Note 5. Distributions and Tax
Information:
At October 31, 2019, the
federal tax cost and aggregate gross unrealized appreciation (depreciation) were as follows:
Federal
Tax Cost
|
|
|
|
Unrealized
Appreciation
|
|
Unrealized
Depreciation
|
|
Net
Unrealized
Appreciation
|
$2,964,316,390
|
|
|
|
$
|
1,290,523,225
|
|
|
$
|
(119,457,461
|
)
|
|
$
|
1,171,065,764
|
|
The difference between the book
basis and tax basis of unrealized appreciation (depreciation) and cost of investments is primarily attributable to MLP earnings and basis adjustments,
the tax deferral of wash sales losses, the accretion of market discount and amortization of premiums.
The Fund declares and pays
monthly dividends on its common shares of a stated amount per share. Subject to approval and oversight by the Funds Board of Directors, the Fund
seeks to maintain a stable distribution level (a Managed Distribution Plan) consistent with the Funds primary investment objective of current
income. If and when sufficient investment income is not available on a monthly basis, the Fund will distribute long-term capital gains and/or return
capital in order to maintain the $0.065 per common share distribution level. The character of distributions is
determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting
principles.
The tax character of
distributions paid to common shareholders during the years ended October 31, 2019 and 2018 was as follows:
|
|
10/31/19
|
|
10/31/18
|
Distributions paid from:
|
|
|
|
|
|
|
|
|
Ordinary income
|
|
$
|
68,095,542
|
|
|
$
|
80,941,350
|
|
Long-term capital gains
|
|
|
127,509,172
|
|
|
|
107,273,507
|
|
Return of capital
|
|
|
35,740,339
|
|
|
|
37,627,599
|
|
Total distributions
|
|
$
|
231,345,053
|
|
|
$
|
225,842,456
|
|
At October 31, 2019, the
components of distributable earnings on a tax basis were as follows:
Undistributed net ordinary income
|
|
$
|
0
|
|
|
|
|
|
Undistributed long-term capital gains
|
|
|
0
|
|
|
|
|
|
Net unrealized appreciation
|
|
|
1,171,042,450
|
|
|
|
|
|
Other ordinary timing differences
|
|
|
(20,675,799
|
)
|
|
|
|
|
|
|
$
|
1,150,366,651
|
|
|
|
|
|
17
DNP SELECT INCOME FUND INC.
NOTES TO
FINANCIAL STATEMENTS(Continued)
October 31, 2019
Note 6. Reclassification of Capital
Accounts:
Due to inherent differences in
the recognition and distribution of income and realized gains/losses under U.S. generally accepted accounting principles and for federal income tax
purposes, permanent differences between book and tax basis reporting have been identified and appropriately reclassified on the Statement of Assets and
Liabilities. At October 31, 2019, the following reclassifications were recorded:
Paid-in capital
|
|
|
|
Total
distributable
earnings
|
$(1,270,827)
|
|
|
|
$1,270,827
|
The reclassifications primarily
relate to premium amortization, MLP recharacterization of gains and recharacterization of distributions. These reclassifications have no impact on the
net asset value of the Fund.
Note 7. Debt Financing:
The Fund has a Committed
Facility Agreement (the Facility) with a commercial bank (the Bank) that allows the Fund to borrow cash up to a limit of
$400,000,000. The Fund has also issued Secured Notes (the Notes). The Facility and Notes rank pari passu and are senior, with priority in
all respects to the outstanding common and preferred stock as to the payment of dividends and with respect to the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Fund. Key information regarding the Facility and Notes is detailed
below.
A. Borrowings Under the
Facility: Borrowings under the Facility are collateralized by certain assets of the Fund (the Hypothecated Securities). The Fund
expressly grants the Bank the right to re-register the Hypothecated Securities in its own name or in another name other than the Funds and to
pledge, repledge, hypothecate, rehypothecate, sell, lend or otherwise transfer or use the Hypothecated Securities. Effective June 17, 2019
interest is charged at 1 month LIBOR (London Inter-bank Offered Rate) plus an additional percentage rate of
0.85% on the amount borrowed. Interest was charged at 3 month LIBOR plus an additional percentage rate of 0.90% for the period from
November 1, 2018 to June 16, 2019. The Bank has the ability to require repayment of the Facility upon 179 days notice or following an event of
default. For the year ended October 31, 2019, the average daily borrowings under the Facility and the weighted daily average interest rate were
$400,000,000 and 3.33%, respectively. As of October 31, 2019, the amount of such outstanding borrowings was $400,000,000 and the applicable interest
rate was 2.63%.
The Bank has the ability
to borrow the Hypothecated Securities (Rehypothecated Securities). The Fund is entitled to receive a fee from the Bank in connection with
any borrowing of Rehypothecated Securities. The fee is computed daily based on a percentage of the difference between the fair market rate as
determined by the Bank and the Fed Funds Open and is paid monthly. The Fund can designate any Hypothecated Security as ineligible for rehypothecation
and can recall any Rehypothecated Security at any time and if the Bank fails to return it (or an equivalent security) in a timely fashion, the Bank
will be liable to the Fund for the ultimate delivery of such security and certain costs associated with delayed delivery. In the event the Bank does
not return the security or an equivalent security, the Fund will have the
18
DNP SELECT INCOME FUND INC.
NOTES TO
FINANCIAL STATEMENTS(Continued)
October 31, 2019
right to, among other
things, apply and set off an amount equal to 100% of the then-current fair market value of such Rehypothecated Securities against any amounts owed to
the Bank under the Facility. The Fund is entitled to receive an amount equal to any and all interest, dividends or distributions paid or distributed
with respect to any Hypothecated Security on the payment date. At October 31, 2019, Hypothecated Securities under the Facility had a market value of
$2,174,451,177 and Rehypothecated Securities had a market value of $311,574,592. If at the close of any business day, the value of all
outstanding Rehypothecated Securities exceeds the value of the Funds borrowings, the Bank shall promptly, at its option, either reduce the amount
of the outstanding Rehypothecated Securities or deliver an amount of cash at least equal to the excess amount.
B. Notes: In 2016, the
Fund completed a private placement of $300,000,000 of Notes in two fixed-rate series. Net proceeds from the issuances were used to reduce the amount of
the Funds borrowing under its Facility. The Notes are secured by a lien on all assets of the Fund of every kind, including all securities and all
other investment property, equal and ratable with the liens securing the Facility. The Notes are not listed on any exchange or automated quotation
system.
Key terms of each series of
secured notes are as follows:
Series
|
|
|
|
Amount
|
|
Rate
|
|
Maturity
|
|
Estimated
Fair
Value
|
|
A
|
|
|
|
$
|
100,000,000
|
|
|
|
2.76
|
%
|
|
|
7/22/23
|
|
|
$
|
100,340,000
|
|
|
B
|
|
|
|
|
200,000,000
|
|
|
|
3.00
|
%
|
|
|
7/22/26
|
|
|
|
202,600,000
|
|
|
|
|
|
|
$
|
300,000,000
|
|
|
|
|
|
|
|
|
|
|
$
|
302,940,000
|
|
|
The Fund incurred costs in
connection with the issuance of the Notes. These costs were recorded as a deferred charge and are being amortized over the respective life of each
series of Notes. Amortization of these offering costs of $414,684 is included under the caption Interest expense and amortization of deferred
offering costs on secured notes on the Statement of Operations and the unamortized balance is deducted from the carrying amount of the Notes
under the caption Secured notes on the Statement of Assets and Liabilities.
Holders of the Notes are
entitled to receive semi-annual interest payments until maturity. The Notes accrue interest at the annual fixed rate indicated above. The Notes are
subject to optional and mandatory redemption in certain circumstances and subject to certain prepayment penalties and premiums.
The estimated fair value of the
Notes was calculated, for disclosure purposes, based on estimated market yields and credit spreads for comparable instruments or representative indices
with similar maturity, terms and structure. The Notes are categorized as Level 2 within the fair value hierarchy.
Note 8. Mandatory Redeemable Preferred
Shares:
The Fund has issued and
outstanding Mandatory Redeemable Preferred Shares (MRP Shares) with a liquidation preference of $100,000 per
share.
19
DNP SELECT INCOME FUND INC.
NOTES TO
FINANCIAL STATEMENTS(Continued)
October 31, 2019
In 2014, the Fund issued 3,000
Floating Rate Mandatory Redeemable Preferred Shares and on January 29, 2019 issued 1,320 Fixed Rate Mandatory Redeemable Preferred Shares. On March 1,
2019 the proceeds of the issuance of 1,320 MRP Shares Series E were used to redeem all 1,320 issued and outstanding shares of MRP Shares Series A in
advance of their stated maturity date of April 1, 2019.
Key terms of each series of MRP
Shares at October 31, 2019 are as follows:
Series
|
|
Shares
Outstanding
|
|
Liquidation
Preference
|
|
Quarterly
Rate Reset
|
|
Rate
|
|
Weighted
Daily
Average Rate
|
|
Mandatory
Redemption
Date
|
|
Estimated
Fair Value
|
B
|
|
600
|
|
|
$ 60,000,000
|
|
|
3M LIBOR + 2.05%
|
|
4.15%
|
|
4.55%
|
|
4/1/2021
|
|
$ 60,000,000
|
|
C
|
|
750
|
|
|
75,000,000
|
|
|
3M LIBOR + 2.15%
|
|
4.25%
|
|
4.65%
|
|
4/1/2024
|
|
75,000,000
|
|
D
|
|
330
|
|
|
33,000,000
|
|
|
3M LIBOR + 1.95%
|
|
4.05%
|
|
4.45%
|
|
4/1/2021
|
|
33,000,000
|
|
E
|
|
1,320
|
|
|
132,000,000
|
|
|
Fixed Rate
|
|
4.63%
|
|
4.63%
|
|
4/1/2027
|
|
141,358,800
|
|
|
|
3,000
|
|
|
$300,000,000
|
|
|
|
|
|
|
|
|
|
|
$309,358,800
|
|
The Fund incurred costs in
connection with the issuance of the MRP Shares. These cost were recorded as a deferred charge and are being amortized over the respective life of each
series of MRP Shares. Amortization of these deferred offering costs of $539,354 is included under the caption Interest expense and amortization
of deferred offering costs on preferred shares on the Statement of Operations and the unamortized balance is deducted from the carrying amount of
the MRP Shares under the caption Mandatory redeemable preferred shares on the Statement of Assets and Liabilities. The unamortized costs
incurred in connection with the issuance of MRP Shares Series A were fully expensed when the shares were redeemed.
Holders of the MRP Shares are
entitled to receive quarterly cumulative cash dividend payments on the first business day following each quarterly dividend date which is the last day
of each of March, June, September and December.
MRP Shares are subject to
optional and mandatory redemption in certain circumstances. The redemption price per share is equal to the sum of the liquidation preference per share
plus any accumulated but unpaid dividends plus, in some cases, an early redemption premium (which varies based on the date of redemption). The MRP
Shares are not listed on any exchange or automated quotation system. The MRP Shares are categorized as Level 2 within the fair value
hierarchy. The Fund is subject to certain restrictions relating to the MRP Shares such as maintaining certain asset coverage, effective leverage ratio
and overcollateralization ratio requirements. Failure to comply with these restrictions could preclude the Fund from declaring any distributions to
common shareholders and could trigger the mandatory redemption of the MRP Shares at liquidation value.
In general, the holders of the
MRP Shares and of the Common Stock have equal voting rights of one vote per share. The holders of the MRP Shares are entitled to elect two members of
the Board of Directors, and separate class votes are required on certain matters that affect the respective interests of the MRP Shares and the Common
Stock.
20
DNP SELECT INCOME FUND INC.
NOTES TO
FINANCIAL STATEMENTS(Continued)
October 31, 2019
Note 9. Offering of Shares of Common
Stock:
In 2018, the Funds shelf
registration statement allowing for an offering of up to $250,000,000 of shares of common stock became effective. These shares may be offered and sold
directly to purchasers, through at-the-market offering using an equity distribution agent, or through a combination of these methods. The
Fund entered into an agreement with Wells Fargo Securities, LLC (Wells) to act as the Funds equity distribution agent.
The Fund incurred costs in connection with this offering of shares of common stock. These costs were recorded as a deferred charge and are being
amortized as shares of common stock are sold. Amortization of these offering costs of $82,833 are recorded as a reduction in paid-in surplus on common
stock.
Note 10. Indemnifications:
Under the Funds
organizational documents, its Officers and Directors are indemnified against certain liabilities arising out of the performance of their duties to the
Fund. In addition, in the normal course of business, the Fund enters into contracts that provide general indemnifications to other parties. The
Funds maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not
occurred. However, the Fund has not had prior claims or losses pursuant to these arrangements and expects the risk of loss to be
remote.
Note 11. Subsequent Events:
Management has evaluated the
impact of all subsequent events on the Fund through the date the financial statements were issued, and has determined that there were no subsequent
events requiring recognition or disclosure in these financial statements.
21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Board of Directors and Shareholders of DNP Select Income
Fund Inc.
Opinion on the Financial Statements
We have audited the
accompanying statement of assets and liabilities of DNP Select Income Fund Inc. (the Fund), including the schedule of investments, as of
October 31, 2019, and the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of
the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes
(collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects,
the financial position of the Fund at October 31, 2019, the results of its operations and its cash flows for the year then ended, the changes in its
net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in
conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are
the responsibility of the Funds management. Our responsibility is to express an opinion on the Funds financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in
accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to
perform, an audit of the Funds internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds internal control
over financial reporting. Accordingly, we express no such opinion.
Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of October 31, 2019, by correspondence with the custodian. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor
of one or more Duff & Phelps Investment Management Co. investment companies since 1991.
Chicago, Illinois
December 18, 2019
22
TAX INFORMATION
(Unaudited)
For the year ended October 31,
2019, the Fund makes the following disclosures for federal income tax purposes. The percentage, or the maximum amount allowable, of its ordinary income
dividends to qualify for the lower tax rates (QDI) applicable to individual shareholders, the percentage of ordinary income dividends
earned by the Fund which qualifies for the dividends received deduction (DRD) for corporate shareholders, and the long-term capital gains
dividends (LTCG) taxable at a 20% rate, or lower depending on the shareholders income ($ reported in thousands) are listed below. The
actual percentage of QDI, DRD and LTCG for the calendar year will be designated in year-end tax statements.
QDI
|
|
|
|
DRD
|
|
LTCG
|
100%
|
|
|
|
|
100%
|
|
|
$
|
136,937
|
|
INFORMATION ABOUT
PROXY VOTING BY THE FUND (Unaudited)
The Funds Board of
Directors has adopted proxy voting policies and procedures. These proxy voting policies and procedures may be changed at any time by the Funds
Board of Directors.
A description of the policies
and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by
calling the Administrator toll-free at (833) 604-3163 or is available on the Funds website www.dpimc.com/dnp or on the
SECs website www.sec.gov.
Information regarding how the
Fund voted proxies relating to portfolio securities during the most recent 12 month period ended June 30 is available without charge, upon request, by
calling the Administrator toll-free at (833) 604-3163 or is available on the Funds website at www.dpimc.com/dnp or on the
SECs website at www.sec.gov.
INFORMATION ABOUT
THE FUNDS PORTFOLIO HOLDINGS (Unaudited)
The Fund filed
its complete schedule of portfolio holdings with the SEC for its first fiscal quarter (January 31) on Form N-Q and its third fiscal quarter on Form
NPORT-EX. For each subsequent first and third fiscal quarter thereafter, the Fund will file a complete schedule of portfolio holdings with the SEC as
an exhibit to its reports on Form NPORT-P. The Funds Forms N-Q, NPORT-EX and NPORT-P are available on the SECs website at www.sec.gov.
In addition, the Funds schedule of portfolio holdings is available without charge, upon request, by calling the Administrator
toll-free at (833) 604-3163 or is available on the Funds website at www.dpimc.com/dnp.
ADDITIONAL
INFORMATION (Unaudited)
Since October 31, 2018: (i)
there have been no material changes in the Funds investment objectives or policies that have not been approved by the shareholders; (ii) there
have been no changes in the Funds charter or by-laws that would delay or prevent a change in control of the Fund which have not been approved by
the shareholders; (iii) there have been no material changes in the principal risk factors associated with an investment in the fund; and (iv) there
have been no changes in the persons who are primarily responsible for the day-to-day management of the Funds portfolio.
Additional information, if any
relating to the Funds directors and officers, in addition to such information as is found elsewhere in this Annual Report, may be requested by
contacting the Fund at the address provided in this report.
23
Information about
Directors and Officers of the Fund (Unaudited)
Set forth below are the names
and certain biographical information about the directors of the Fund. Directors are divided into three classes and are elected to serve staggered
three-year terms. All of the directors are elected by the holders of the Funds common stock, except for Mr. Genetski and Ms. McNamara, who are
elected by the holders of the Funds preferred stock. All of the current directors of the Fund, with the exception of Mr. Partain, are classified
as independent directors because none of them are interested persons of the Fund, as defined in the 1940 Act. Mr. Partain is an
interested person of the Fund by reason of his position as President and Chief Executive Officer of the Fund and President, Chief
Investment Officer and employee of the Adviser. The term Fund Complex refers to the Fund and all the other investment companies advised by
affiliates of Virtus.
The address for all directors
is c/o Duff & Phelps Investment Management Co., 200 South Wacker Drive, Suite 500, Chicago, Illinois 60606. All of the Funds directors
currently serve on the Board of Directors of three other registered closed-end investment companies that are advised by Duff & Phelps Investment
Management Co.: Duff & Phelps Global Utility Income Fund Inc. (DPG), Duff & Phelps Utility and Corporate Bond Trust Inc.
(DUC) and DTF Tax-Free Income Inc. (DTF).
DIRECTORS OF THE
FUND (Unaudited)
Name
and Age
|
|
Positions
Held with
Fund
|
|
Term
of
Office and
Length of
Time Served
|
|
Principal
Occupation(s)
During Past 5 Years
|
|
Number
of
Portfolios
in Fund
Complex
Overseen
by Director
|
|
Other
Directorships
Held by the Director
|
Independent Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald C. Burke
Age: 59
|
|
Director
|
|
Term expires
2021;
Director
since 2014
|
|
Retired since 2009; President and Chief Executive Officer, Blackrock U.S. Funds 2007-2009; Managing Director, Blackrock, Inc.
2006-2009; Managing Director, Merrill Lynch Investment Managers 1990-2006
|
|
71
|
|
Director, Avista Corp. (energy company); Trustee, Goldman Sachs Fund Complex 2010-2014; Director, BlackRock Luxembourg and Cayman
Funds 2006-2010
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Genetski
Age: 77
|
|
Director
|
|
Term expires
2022;
Director
since
2001
|
|
Co-owner, Good Industries, Inc. (branding company) since 2014; President, Robert Genetski & Associates, Inc. (economic and
financial consulting firm) since 1991; Senior Managing Director, Chicago Capital Inc. (financial services firm) 1995-2001; former Senior Vice President
and Chief Economist, Harris Trust & Savings Bank, author of several books
|
|
4
|
|
|
24
Name
and Age
|
|
Positions
Held with
Fund
|
|
Term
of
Office and
Length of
Time Served
|
|
Principal
Occupation(s)
During Past 5 Years
|
|
Number
of Portfolios
in Fund
Complex Overseen
by Director
|
|
Other
Directorships
Held by the Director
|
Philip R. McLoughlin
Age: 73
|
|
Director
|
|
Term expires
2022;
Director
since 2009
|
|
Private investor since 2010; Partner, CrossPond Partners, LLC (investment management consultant) 2006-2010; Managing Director, SeaCap
Partners LLC (strategic advisory firm) 2009-2010
|
|
74
|
|
Chairman of the Board, Lazard World Trust Fund (closed-end fund; f/k/a The World Trust Fund) 2010-March 2019 (Director since
1991)
|
|
|
|
|
|
|
|
|
|
|
|
Geraldine M. McNamara
Age: 68
|
|
Director
|
|
Term expires
2020;
Director
since 2009
|
|
Private investor since 2006; Managing Director, U.S. Trust Company of New York 1982-2006
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eileen A. Moran
Age: 65
|
|
Director and Vice Chairperson of the Board
|
|
Term expires
2021;
Director
since 2008
|
|
Private investor since 2011; President and Chief Executive Officer, PSEG Resources L.L.C. (investment
company)1990-2011
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David J. Vitale
Age: 73
|
|
Director and Chairman of the Board
|
|
Term expires
2020;
Director
since 2000
|
|
Advisor, Ariel Investments, LLC since October 2019; Chairman, Urban Partnership Bank 2010-January 2019;
President, Chicago Board of Education 2011-2015; Senior Advisor to the CEO, Chicago Public Schools 2007-2008 (Chief Administrative Officer 2003-2007);
President and Chief Executive Officer, Board of Trade of the City of Chicago, Inc. 2001-2002; Vice Chairman and 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)
|
|
4
|
|
Director, United Continental Holdings, Inc. (airline holding company); Ariel Investments, LLC; Wheels,
Inc. (automobile fleet management) and Chairman, Urban Partnership Bank 2010-January 2019
|
25
Name
and Age
|
|
Positions
Held with
Fund
|
|
Term
of
Office and
Length of
Time Served
|
|
Principal
Occupation(s)
During Past 5 Years
|
|
Number
of Portfolios
in Fund
Complex Overseen
by Director
|
|
Other
Directorships
Held by the Director
|
Interested Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nathan I. Partain, CFA
Age: 63
|
|
Director, President and Chief Executive Officer
|
|
Term expires
2022;
Director
since 2007
|
|
President and Chief Investment Officer of the Adviser since 2005 (Executive Vice President 1997-2005); Director of Utility Research,
Duff & Phelps Investment Research Co. 1989-1996 (Director of Equity Research 1993-1996 and Director of Fixed Income Research 1993); President and
Chief Executive Officer of the Fund since 2001 (Chief Investment Officer 1998-2017; Executive Vice President 1998-2001; Senior Vice President
1997-1998); President and Chief Executive Officer of DUC and DTF since 2004 and of DPG since 2011
|
|
4
|
|
Chairman of the Board and Director, Otter Tail Corporation (manages diversified operations in the electric, plastics, manufacturing
and other business operations sectors)
|
26
OFFICERS OF THE
FUND (Unaudited)
The officers of the Fund are
elected at the annual meeting of the board of directors of the Fund and serve until their respective successors are chosen and qualified. The officers
receive no compensation from the Fund, but are also officers of the Funds investment adviser or the Funds administrator and receive
compensation in such capacities. Information about Nathan I. Partain, the President and Chief Executive Officer of the Fund, is provided above under
the caption Interested Director. The address for all officers listed below is c/o Duff & Phelps Investment Management Co., 200 South
Wacker Drive, Suite 500, Chicago, Illinois 60606, except as noted.
Name,
Address and Age
|
|
Position(s)
Held with Fund
and Length of Time Served
|
|
Principal
Occupation(s) During Past 5 Years
|
Connie M. Luecke, CFA
Age: 61
|
|
Vice President and Chief Investment
Officer since 2018
|
|
Senior Managing Director of the Adviser since 2015 (Senior Vice President 1998-2014; Managing Director 1996-1998; various positions with an
Adviser affiliate 1992-1995); Portfolio Manager, Virtus Total Return Fund Inc. since 2011; Portfolio Manager, Virtus Duff & Phelps Global
Infrastructure Fund since 2004
|
|
|
|
|
|
Alan M. Meder, CFA, CPA
Age: 60
|
|
Treasurer, Principal Financial and Accounting Officer and Assistant Secretary since 2011 (Assistant Treasurer 2010-2011)
|
|
Chief Risk Officer of the Adviser since 2001 and Senior Managing Director since 2014 (Senior Vice President 1994-2014); Member, Board of Governors
of CFA Institute 2008-2014 (Chair of the Board of Governors of CFA Institute 2012-2013; Vice Chairman of the Board 2011-2012); Financial Accounting
Standards Advisory Council Member 2011-2014
|
|
|
|
|
|
Daniel J. Petrisko, CFA
Age: 59
|
|
Senior Vice President since 2017 and Assistant Secretary since 2015 (Vice President 2015-2016)
|
|
Executive Managing Director of the Adviser since 2017 (Senior Managing Director 2014-2017; Senior Vice President 1997-2014; Vice President
1995-1997)
|
|
|
|
|
|
William J. Renahan
Age: 50
|
|
Vice President and Secretary since 2015
|
|
Secretary of the Adviser since 2014, Senior Counsel since 2015 and Chief Compliance Officer since March 2019; Senior Legal Counsel and Vice
President, Virtus Investment Partners, Inc. since 2012; Vice President and Secretary, Virtus closed-end funds (3 portfolios) since 2012;
Managing Director, Legg Mason, Inc. (and predecessor firms) 1999-2012
|
|
|
|
|
|
Joyce B. Riegel
Age: 65
|
|
Chief Compliance Officer since 2004
|
|
Senior Managing Director since 2014 (Chief Compliance Officer of the Adviser 2002-March 2019; Senior Vice President 2004-2014; Vice President
2002-2004)
|
|
|
|
|
|
Dianna P. Wengler
Robert W. Baird & Co. Inc.
500 West Jefferson Street
Louisville, KY 40202
Age: 59
|
|
Vice President since 2006 and Assistant Secretary since 1988 (Assistant Vice President 2004-2006)
|
|
Senior Vice President and Director-Fund Administration, Robert W. Baird & Co. Inc. since October 2019; Senior Vice President, J.J.B. Hilliard,
W.L. Lyons, LLC 2016-October 2019 (Vice President 1990-2015); Senior Vice President, Hilliard-Lyons Government Fund, Inc. 2006-2010 (Vice President
1998-2006; Treasurer 1988-2010)
|
27
DISTRIBUTION
REINVESTMENT AND CASH PURCHASE PLAN (Unaudited)
DNP Select Income Fund Inc.
(the Fund) maintains a Distribution Reinvestment and Cash Purchase Plan (the plan). Under the plan, shareholders may elect to
have all distributions paid on their common stock automatically reinvested by Computershare Inc. (the Agent) as plan agent for
shareholders, in additional shares of common stock of the Fund. Only 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 owners 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 shareholders shares
are held in street or other nominee name, then to such shareholders nominee) by the Agent as dividend disbursing agent. Registered shareholders
may also elect to have cash dividends deposited directly into their bank accounts.
When a 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 the
current market price of the shares equals or exceeds their net asset value, the Fund will issue new shares to the plan at the greater of current net
asset value or 95% of the then current market price, without any per share fees (or equivalent purchase costs).
(ii) If the
current market price of the shares is less than their net asset value, the Agent will receive the distributions in cash and will purchase the
reinvestment shares in the open market or in private purchases for the participants accounts. Each participant will pay a per share fee, (or
equivalent purchase costs) incurred in connection with such purchases. Purchases are made through a broker selected by the Agent that may be an
affiliate of the Agent. Shares are allocated to the accounts of the respective participants at the average price per share, plus per share fees paid by
the Agent for all shares purchased by it in reinvestment of the distribution(s) paid on a particular day and in concurrent purchases of shares for
voluntary additional share investment.
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 distribution on which that exchange is open
for trading. As of that time, the Funds administrator compares the net asset value per share as of the time of the close of trading on the New
York Stock Exchange, and determines which of the alternative procedures described above are to be followed.
The reinvestment shares are
credited to the participants plan account in the Funds stock records maintained by the Agent, including a fractional share to six decimal
places. The Agent sends to each participant a written statement of all transactions in the participants share account, including information that
the participant will need for income tax records. Shares held in the participants plan account have full distribution and voting rights.
Distributions paid on shares held in the participants 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 per share fee
incurred in connection with purchases by the Agent for reinvestment of distributions and voluntary cash payments.
The automatic reinvestment of
distributions does not relieve participants of any income taxes that may be payable (or required to be withheld) on distributions.
28
Plan participants may purchase
additional shares of common stock through the plan by delivering to the Agent a check (or authorizing an electronic fund transfer) for at least $100,
but not more than $5,000, in any month. The Agent 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 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 weighted average price per share, plus a service charge imposed by the Agent and a per share fee paid
by the Agent for all shares purchased by it, including for reinvestment of distributions. Funds sent to the Agent for voluntary additional share
investment may be recalled by the participant by telephone, internet or written notice received by the Agent not later than two business days before
the next distribution payment date. If for any reason a regular monthly distribution is not paid by the Fund, funds for voluntary additional share
investment will be returned to the participant, unless the participant specifically directs that they continue to be held by the Agent for subsequent
investment. Participants will not receive interest on voluntary additional funds held by the Agent pending investment.
A shareholder may leave the
plan at any time by telephone, Internet or written notice to the Agent. If your letter of termination is received by the Agent after the record date
for a distribution, it may not be effective until the next distribution. Upon discontinuing your participation, you will have two choices (i) if you so
request by telephone, through the Internet or in writing, the Agent will sell your shares and send you a check for the net proceeds after deducting the
Agents sales fees (currently $5.00) and any per share fee (currently $0.04) or (ii) if you so request by telephone, through the Internet or in
writing, you will receive from the Agent a certificate for the number of whole non-certificated shares in your share account, and a check in payment of
the value of a fractional share, less applicable fees. If and when it should be determined that the only balance remaining in your plan account is a
fraction of a single share, your participation may be deemed to have terminated, and the Agent will mail you a check for the value of your fractional
share less applicable fees, determined as in the case of other terminations.
The Fund may change, suspend or
terminate the plan at any time, and will promptly mail a notice of such action to the participants at their last address of record with the
Agent.
For more information regarding,
and an authorization form for, the plan, please contact the Agent at 1-877-381-2537 or on the Agents website,
www.computershare.com/investor.
Information on the plan is also
available on the Funds website at www.dpimc.com/dnp.
29
Board
of Directors
DAVID J. VITALE
Chairman
EILEEN A. MORAN
Vice Chairperson
DONALD C. BURKE
ROBERT J. GENETSKI
PHILIP R. MCLOUGHLIN
GERALDINE M. MCNAMARA
NATHAN I. PARTAIN, CFA
Officers
NATHAN I. PARTAIN, CFA
President and Chief Executive
Officer
DANIEL J. PETRISKO, CFA
Senior Vice President and
Assistant Secretary
CONNIE M. LUECKE, CFA
Vice President and Chief Investment
Officer
WILLIAM J. RENAHAN
Vice President and
Secretary
DIANNA P. WENGLER
Vice President and Assistant
Secretary
ALAN M. MEDER, CFA, CPA
Treasurer and Assistant
Secretary
JOYCE B. RIEGEL
Chief Compliance
Officer
DNP
Select
Income Fund Inc.
Common stock listed on the New York
Stock Exchange under
the symbol DNP
Shareholder inquiries please
contact:
Transfer Agent and
Dividend Disbursing
Agent
Computershare
P.O. Box
505005
Louisville, KY 40233-5005
(877) 381-2537
Investment Adviser
Duff & Phelps Investment
Management Co.
200
South Wacker Drive, Suite 500
Chicago, IL 60606
(312) 368-5510
Administrator
Robert W. Baird & Co. Incorporated
500
West Jefferson Street
Louisville, KY 40202
(833) 604-3163
Custodian
The Bank of New York Mellon
Legal Counsel
Mayer Brown LLP
Independent Registered Public Accounting
Firm
Ernst & Young LLP
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate audit and non-audit
fees billed to the registrant for each of the last two fiscal years for professional services rendered by the registrant’s
principal accountant, Ernst & Young LLP, an independent registered public accounting firm (the “Independent Auditor”).
.
|
|
Fiscal year ended
October 31, 2019
|
Fiscal
year ended
October 31, 2018
|
(a) Audit Fees (1)
|
|
$64,500
|
$64,500
|
(b) Audit-Related Fees (2)(6)
|
|
60,000
|
44,500
|
(c) Tax Fees (3)(6)
|
|
19,800
|
19,800
|
(d) All Other Fees (4)(6)
|
|
0
|
0
|
(e) Aggregate Non-Audit Fees (5)(6)
|
|
79,800
|
64,300
|
|
|
|
|
|
(1)
|
Audit Fees are fees billed for professional services rendered by the Independent Auditor for
the audit of the registrant’s annual financial statements and for the services that are normally provided by the Independent
Auditor in connection with the statutory and regulatory filings or engagements.
|
|
(2)
|
Audit-Related Fees are billed for assurance and related services by the Independent Auditor that
are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under
the caption “Audit Fees”.
|
|
(3)
|
Tax Fees are fees billed for professional services rendered by the Independent Auditor for tax
compliance, tax advice and tax planning. In both periods shown in the table, such services consisted of preparation of the registrant’s
annual federal and state income tax returns and excise tax returns.
|
|
(4)
|
All Other Fees are fees billed for products and services provided by the Independent Auditor,
other than the services reported under the captions “Audit Fees”, “Audit-Related Fees” and “Tax Fees”.
|
|
(5)
|
Aggregate Non-Audit Fees are non-audit fees billed by the Independent Auditor for services rendered
to the registrant, the registrant’s investment adviser (the “Adviser”) and any entity controlling, controlled
by or under common control with the Adviser that provides ongoing services to the registrant (collectively, the “Covered
Entities”). During both periods shown in
|
the table, no portion of such fees related to services
rendered by the Independent Auditor to the Adviser or any other Covered Entity.
|
(6)
|
No portion of these fees was approved by the registrant’s audit committee after the beginning
of the engagement pursuant to the waiver of the pre-approval requirement for certain de minimis non-audit services described
in Section 10A of the Securities Exchange Act of 1934 (the ‘Exchange Act”) and applicable regulations.
|
The audit committee of the board of directors of the
registrant (the “Audit Committee”) jointly with the audit committee of the board of directors of Duff &
Phelps Utility and Infrastructure Fund Inc. (“DPG”), Duff & Phelps Utility and Corporate Bond Trust Inc.
(“DUC”) and DTF Tax-Free Income Inc. (“DTF”), has adopted a Joint Audit Committee Pre-Approval Policy
to govern the provision by the Independent Auditor of the following services: (i) all engagements for audit and non-audit
services to be provided by the Independent Auditor to the registrant and (ii) all engagements for non-audit services to be
provided by the Independent Auditor to the Adviser or any other Covered Entity, if the engagement relates directly to the
operations and financial reporting of the registrant. With respect to non-audit services rendered by the Independent Auditor
to the Adviser or any other Covered Entity that were not required to be pre-approved by the Audit Committee because they do
not relate directly to the operations and financial reporting of the registrant, the Audit Committee has nonetheless
considered whether the provision of such services is compatible with maintaining the independence of the Independent
Auditor.
Set forth below is a copy of the Joint Audit Committee Pre-Approval
Policy (omitting data in the appendices relating to DPG, DUC and DTF).
DNP SELECT INCOME FUND INC. (“DNP”)
DUFF & PHELPS UTILITY AND
INFRASTRUCTURE FUND INC. (“DPG”)
DUFF & PHELPS UTILITY AND CORPORATE BOND
TRUST INC. (“DUC”)
DTF TAX-FREE INCOME INC. (“DTF”)
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL
POLICY
(adopted on December 18, 2019)
I.
Statement of Principles
Under the Sarbanes-Oxley Act of 2002 (the “Act”),
the Audit Committee of the Board of Directors of each of DNP Select Income Fund Inc., Duff & Phelps Utility and Infrastructure
Fund Inc., Duff & Phelps Utility and Corporate Bond Trust Inc. and DTF Tax-Free Income Inc. (each a “Fund” and,
collectively, the “Funds”)(1)
is responsible for the appointment, compensation and oversight of the work of the independent auditor. As part of this responsibility,
the Audit Committee is required to pre-approve the audit and non-audit services performed by the independent auditor in order
to assure that they do not impair the auditor’s independence from the Fund. To implement these provisions
|
(1)
|
This Joint Audit Committee Pre-Approval Policy has been
adopted by the Audit Committee of each Fund. Solely for the sake of clarity and simplicity, this Joint Audit Committee Pre-Approval
Policy has been drafted as if there is a single Fund, a single Audit Committee and a single Board. The terms “Audit Committee”
and “Board” mean the Audit Committee and Board of each Fund, respectively, unless the context otherwise requires.
The Audit Committee and the Board of each Fund, however, shall act separately and in the best interests of its respective Fund.
|
of the Act, the
Securities and Exchange Commission (the “SEC”) has issued rules specifying the types of services that an independent
auditor may not provide to its audit client, as well as the Audit Committee’s administration of the engagement of the independent
auditor. Accordingly, the Audit Committee has adopted this Audit and Non-Audit Services Pre-Approval Policy (this “Policy”),
which sets forth the procedures and the conditions pursuant to which services proposed to be performed by the independent auditor
may be pre-approved.
The SEC’s rules establish two different approaches
to pre-approving services, which the SEC considers to be equally valid. Proposed services either: may be pre-approved without consideration
of specific case-by-case services by the Audit Committee (“general pre-approval”); or require the specific pre-approval
of the Audit Committee (“specific pre-approval”). The Audit Committee believes that the combination of these two approaches
in this Policy will result in an effective and efficient procedure to pre-approve services performed by the independent auditor.
As set forth in this Policy, unless a type of service has received general pre-approval, it will require specific pre-approval
by the Audit Committee if it is to be provided by the independent auditor. Any proposed services exceeding pre-approved cost levels
or budgeted amounts will also require specific pre-approval by the Audit Committee.
For both types of pre-approval, the Audit Committee will
consider whether such services are consistent with the SEC’s rules on auditor independence. The Audit Committee will also
consider whether the independent auditor is best positioned to provide the most effective and efficient service, for reasons such
as its familiarity with the Fund’s business, people, culture, accounting systems, risk profile and other factors, and whether
the service might enhance the Fund’s ability to manage or control risk or improve audit quality. All such factors will be
considered as a whole, and no one factor should necessarily be determinative.
Under the SEC’s rules, the Audit Committee must pre-approve
non-audit services provided not only to the Fund but also to the Fund’s investment adviser and other affiliated entities
that provide ongoing services to the Fund if the independent accountant’s services to those affiliated entities have a direct
impact on the Fund’s operations or financial reporting.
The Audit Committee is also mindful of the relationship between
fees for audit and non-audit services in deciding whether to pre-approve any such services and may determine, for each fiscal year,
the appropriate ratio between the total amount of fees for audit, audit-related and tax services (including any audit-related or
tax service fees for affiliates that are subject to pre-approval) and the total amount of fees for certain permissible non-audit
services classified as “all other” services (including any such services for affiliates that are subject to pre-approval).
The appendices to this Policy describe the audit, audit-related,
tax and “all other” services that have the general pre-approval of the Audit Committee. The term of any general pre-approval
is 12 months from the date of pre-approval, unless the Audit Committee considers a different period and states otherwise. The Audit
Committee will annually
review and pre-approve the services that may be provided
by the independent auditor without obtaining specific pre-approval from the Audit Committee. The Audit Committee will add to or
subtract from the list of general pre-approved services from time to time, based on subsequent determinations.
The purpose of this Policy is to set forth the procedures
by which the Audit Committee intends to fulfill its responsibilities. It does not delegate the Audit Committee’s responsibilities
to pre-approve services performed by the independent auditor to management.
The independent auditor has reviewed this Policy and believes
that implementation of this Policy will not adversely affect the auditor’s independence.
II.
Delegation
As provided in the Act and the SEC’s rules, the Audit
Committee may delegate either type of pre-approval authority to one or more of its members who are independent directors. Any member
to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee
at its next scheduled meeting. In accordance with the foregoing provisions, the Audit Committee has delegated pre-approval authority
to its chairman, since under the Audit Committee’s charter each member of the Audit Committee, including the chairman, is
required to be an independent director.
III.
Audit Services
The annual audit services engagement terms and fees will
be subject to the specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and
other procedures required to be performed by the independent auditor to be able to form an opinion on the Fund’s financial
statements. These other procedures include information systems and procedural reviews and testing performed in order to understand
and place reliance on the systems of internal control, the issuance of an internal control letter for the Fund’s Form N-CEN
and consultations relating to the audit. The Audit Committee will monitor the audit services engagement as necessary, but no less
than on a semiannual basis, and will also approve, if necessary, any changes in terms, conditions and fees resulting from changes
in audit scope, Fund structure or other items.
In addition to the annual audit services engagement approved
by the Audit Committee, the Audit Committee may grant general pre-approval to other audit services, which are those services that
only the independent auditor reasonably can provide. Other audit services may include statutory audits and services associated
with SEC registration statements (on Forms N-1A, N-2, N-3, N-4, etc.), periodic reports and other documents filed with the SEC
or other documents issued in connection with securities offerings.
The Audit Committee has pre-approved the audit services in
Appendix A. All other audit services not listed in Appendix A must be specifically pre-approved by the Audit Committee.
IV.
Audit-Related Services
Audit-related services are assurance and related services
that are reasonably related to the performance of the audit or review of the Fund’s financial statements or that are traditionally
performed by the independent auditor. Because the Audit Committee believes that the provision of audit-related services does not
impair the independence of the auditor and is consistent with the SEC’s rules on auditor independence, the Audit Committee
may grant general pre-approval to audit-related services. Audit-related services include, among others, accounting consultations
related to accounting, financial reporting or disclosure matters not classified as “audit services”; assistance with
understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded
audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory
reporting matters; and assistance with internal control reporting requirements (other than the issuance of the internal control
letter to be filed with the Fund’s Form N-CEN, which is included in the audit services listed above).
The Audit Committee has pre-approved the audit-related services
in Appendix B. All other audit-related services not listed in Appendix B must be specifically pre-approved by the Audit Committee.
V.
Tax Services
The Audit Committee believes that the independent auditor
can provide tax services to the Fund such as tax compliance, tax planning and tax advice without impairing the auditor’s
independence, and the SEC has stated that the independent auditor may provide such services. Hence, the Audit Committee believes
it may grant general pre-approval to those tax services that have historically been provided by the auditor, that the Audit Committee
has reviewed and believes would not impair the independence of the auditor, and that are consistent with the SEC’s rules
on auditor independence. The Audit Committee will not permit the retention of the independent auditor in connection with a transaction
initially recommended by the independent auditor, the sole business purpose of which may be tax avoidance and the tax treatment
of which may not be supported in the Internal Revenue Code and related regulations. The Audit Committee will consult with the Fund’s
Administrator or outside counsel to determine that the tax planning and reporting positions are consistent with this Policy.
Pursuant to the preceding paragraph, the Audit Committee
has pre-approved the tax services in Appendix C. All tax services involving large and complex transactions not listed in Appendix
C must be specifically pre-approved by the Audit Committee, including: tax services proposed to be provided by the independent
auditor to any executive officer or director of the Fund, in his or her individual capacity, where such services are paid for by
the Fund.
VI.
All Other Services
The Audit Committee believes, based on the SEC’s rules
prohibiting the independent auditor from providing specific non-audit services, that other types of non-audit services are permitted.
Accordingly, the Audit Committee believes it may grant general pre-approval to those permissible non-audit services classified
as all other services that it
believes are routine and recurring services, would not impair
the independence of the auditor and are consistent with the SEC’s rules on auditor independence.
The Audit Committee has pre-approved the “all other”
services in Appendix D. Permissible “all other” services not listed in Appendix D must be specifically pre-approved
by the Audit Committee.
A list of the SEC’s prohibited non-audit services is
attached to this Policy as Appendix E. The SEC’s rules and relevant guidance should be consulted to determine the precise
definitions of these services and the applicability of exceptions to certain of the prohibitions.
VII.
Pre-Approval Fee Levels or Budgeted Amounts
Pre-approval fee levels or budgeted amounts for all services
to be provided by the independent auditor will be established annually by the Audit Committee. (Note that separate amounts may
be specified for services to the Fund and for services to other affiliated entities that are subject to pre-approval.) Any proposed
services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee is mindful
of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services. For
each fiscal year, the Audit Committee may determine the appropriate ratio between the total amount of fees for audit, audit-related
and tax services for the Fund (including any audit-related or tax services fees for affiliates that are subject to pre-approval),
and the total amount of fees for services classified as “all other” services (including any such services for affiliates
that are subject to pre-approval).
VIII.
Procedures
All requests or applications for services to be provided
by the independent auditor that do not require specific approval by the Audit Committee will be submitted to the Fund’s Administrator
and must include a detailed description of the services to be rendered. The Administrator will determine whether such services
are included within the list of services that have received the general pre-approval of the Audit Committee. The Audit Committee
will be informed on a timely basis of any such services rendered by the independent auditor.
Requests or applications to provide services that require
specific approval by the Audit Committee will be submitted to the Audit Committee by both the independent auditor and the Fund’s
Administrator, and must include a joint statement as to whether, in their view, the request or application is consistent with the
SEC’s rules on auditor independence.
The Audit Committee has designated the Fund’s Administrator
to monitor the performance of all services provided by the independent auditor and to determine whether such services are in compliance
with this Policy. The Administrator will report to the Audit Committee on a periodic basis on the results of its monitoring. Both
the
Administrator and any member of management will immediately
report to the Chairman of the Audit Committee any breach of this Policy that comes to their attention.
IX.
Additional Requirements
The Audit Committee has determined to take additional measures
on an annual basis to meet its responsibility to oversee the work of the independent auditor and to assure the auditor’s
independence from the Fund, such as reviewing a formal written statement from the independent auditor delineating all relationships
between the independent auditor and the Fund, consistent with applicable requirements of the Public Company Accounting Oversight
Board regarding the independent accountant's communications with the Audit Committee concerning independence, and discussing with
the independent auditor its methods and procedures for ensuring independence.
Appendix A
Pre-Approved Audit Services for Fiscal Year Ending in
2020
Dated: December 18, 2019
Service
|
|
1. Services required under generally accepted auditing standards to perform the audit of the annual financial statements of the Fund, including performance of tax qualification tests relating to the Fund’s regulated investment company status and issuance of an internal control letter for the Fund’s Form N-CEN
|
2. Services associated with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings (e.g. comfort letters for closed-end fund offerings, consents), and assistance in responding to SEC comment letters.
|
3. Consultations by the Fund’s management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard setting bodies (Note: Under SEC rules, some consultations may be “audit-related” services rather than “audit” services)
|
Appendix B
Pre-Approved Audit-Related Services for Fiscal Year Ending
in 2020
Dated: December 18, 2019
Service
|
|
|
|
1. Agreed-upon or expanded audit procedures related to accounting records required to respond to or comply with financial, accounting or regulatory reporting matters
|
2. Consultations by the Fund’s management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard-setting bodies (Note: Under SEC rules, some consultations may be “audit” services rather than “audit-related” services)
|
3. General assistance with implementation of the requirements of SEC rules or listing standards promulgated pursuant to the Sarbanes-Oxley Act
|
Appendix
C
Pre-Approved Tax Services for Fiscal
Year Ending in 2020
Dated: December 18, 2019
Service
|
|
1. Preparation of federal and state tax returns, including excise tax returns, and review of required distributions to avoid excise tax
|
2. Preparation of state tax returns
|
3. Consultations with the Fund’s management as to the tax treatment of transactions or events
|
4. Tax advice and assistance regarding statutory, regulatory or administrative developments
|
Appendix D
Pre-Approved “All Other” Services for Fiscal
Year Ending in 2020
Dated: December 18, 2019
Appendix E
Prohibited Non-Audit Services
|
■
|
Bookkeeping or other services related to the accounting records or financial statements of the audit client
|
|
■
|
Financial information systems design and implementation
|
|
■
|
Appraisal or valvuation services, fairness opinions or
contribution-in-kind reports
|
|
■
|
Internal audit outsourcing services
|
|
■
|
Broker-dealer, investment adviser or investment banking
services
|
|
■
|
Expert services unrelated to the audit
|