Duff & Phelps
Utilities
Tax-Free
Income Inc.
- ------------------------------------------------------------
Semi-Annual Report
April 30, 1996
Letter to Shareholders May 31, 1996
Dear Shareholder:
The volatility in the fixed income markets has made for a very challenging
environment for fixed income investors over the most recent six months. As we
have moved forward into 1996, the tone of the bond market has turned negative,
as many fixed income investors have become concerned that the recent signs of
growth in the domestic economy, will ultimately cause the Federal Reserve to
adopt a more restrictive monetary policy which will lead to an increase in U.S.
interest rates.
Fund Performance
As you can see below, the Duff and Phelps Utilities Tax-Free Income Fund
underperformed its peers in the first six months of 1996. The primary reason
for its recent underperformance has been the emphasis on higher-quality
electric utility bonds which have one of the poorest performing sectors in the
municipal bond market year-to-date. Over longer time periods, the Fund
continues to provide solid returns both on an absolute basis and relative to
the average fund in its Lipper peer group.
FUND PERFORMANCE
<TABLE>
<CAPTION>
Total Returns
Six months ended October 31,
April 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Duff & Phelps Utilities
Tax-Free Income, Inc.1 .36% 20.27% -7.78% 23.47%
Average Lipper General and Insured
Leveraged Municipal Bond Fund Index2 .66% 18.90% -10.01% 21.57%
</TABLE>
1 Source: Lipper Analytical Services, Inc. Total return of the Fund as
calculated for the periods ended April 30, 1996, October 31, 1995, October 31,
1994 and October 31, 1993, are based on net asset value and assumes the
reinvestment of dividends and distributions. Shares of the Fund are traded on
the NYSE. Past performance is no guarantee of future results.
2 This is the average of 64 closed-end funds for 6 months ended April 30,
1996, 64 closed-end funds for 12 months ended October 31, 1995, 63 closed-end
funds for 12 months ended October 31, 1994, and 42 closed-end funds for 12
months ended October 31, 1993 in the General and Insured Leveraged Municipal
Bond Fund Index according to Lipper Analytical Services, Inc.
-1-
<PAGE>
The Municipal Market and Your Fund
The municipal market has followed the Treasury Market's lead thus far in
1996. Long municipal yields have risen about 65 basis points year-to-date, as
investor sentiment has changed dramatically from the positive tone of 1995.
Signs of economic growth and inflation which were discounted away in 1995, are
presenting problems for the market thus far in 1996. On a more positive note,
concerns over significant tax reform have subsided in 1996, allowing long
municipal bonds to outperform long Treasury bonds by over 500 basis points thus
far in 1996.
Within the Fund we continue to emphasize higher quality issues, with an
average quality rating of AA/Aa and 71% of the issues rated AA or higher. The
emphasis on higher quality bonds within the Fund is driven by the fact that
credit quality spreads, or the yield premium which investors receive for taking
credit risk, are extremely narrow by historical standards. We have continued to
reduce our holdings within the electric utility sector, lowering our holdings
from 34% in April 1995, to 27% currently. The reduction of our electric
utilities holdings has been driven by concern regarding the negative impact of
deregulation on the creditworthiness of certain electric utilities.
Outlook
At current interest rate levels, it appears that the municipal market may have
over reacted to the threat of inflation, and consequently we are not
anticipating a continued rise in interest rates from these levels. The rise in
municipal interest rates has begun to generate increased interest from
individual investors, and should provide a strong source of demand for
municipal bonds going forward. On the supply side, issuance has been curtailed
by higher financing rates, providing a very favorable supply/demand
relationship.
The concern over tax reform has waned considerably, as Steve Forbes, the main
proponent of the "flat tax" proposal, has dropped out of the presidential race.
Of the remaining two candidates, Bob Dole is more of a moderate on tax reform,
while Bill Clinton, who continues to lead by a wide margin in the polls, is an
opponent of the flat tax. Consequently, significant tax reform is looking
highly unlikely at this time.
We continue to appreciate your interest in the Duff and Phelps Tax-Free
Income Fund and look forward to being of continued service in the future.
-2-
Sincerely,
Francis E. Jefferies, CFA
Chairman of the Board
Richard R. Davis, CFA
President and Chief Executive Officer
-3-
<PAGE>
- ----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Portfolio of Investments
April 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- --------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS--98.3%
California--17.7%
Foothill / Eastern Trans.
Corridor Agency
California
Toll Road Revenue
Baa $ 10,640 6.00%, 1/1/34, Ser. A.... $ 9,893,923
Fresno Swr. Rev.,
Aaa 3,030 6.00%, 9/1/09,
A.M.B.A.C.............. 3,206,891
Aaa 2,000 6.25%, 9/1/14,
A.M.B.A.C.............. 2,140,480
Pomona California Sngl.
Fam. Mortgage Rev.,
Aaa 2,705 7.375%, 8/1/10........... 2,995,761
Riverside County
California
Sngl. Fam. Rev.,
Mortgage Backed
Aaa 2,500 7.80%, 5/1/21, Ser. A.... 2,999,175
San Bernardino County
California Residential
Mtge. Rev.,
Aaa 7,840 9.60%, 9/1/15............ 10,891,406
Santa Monica Waste Wtr.
Enterprise Rev.,
Hyperion Proj.,
A1 2,000(c) 6.70%, 1/1/22, Ser. A,
Prerefunded 1/1/02
@$102.................. 2,226,140
------------
34,353,776
------------
Colorado--6.1%
Colorado Hsg. Fin. Auth.,
Sngl. Fam. Prog.
Aa 2,935 8.00%, 6/1/25............ 3,278,836
Aa 1,785 8.125%, 6/1/25........... 2,003,216
Colorado Springs Utils.
Rev.,
Aa 2,300 6.50%, 11/15/15, Ser. A.. 2,421,509
Platte River Pwr. Auth.
Rev.,
Aa 4,000 6.875%, 6/1/16, Ser. AA.. 4,163,440
------------
11,867,001
------------
Delaware--1.9%
Delaware St., Econ. Dev.
Auth. Rev., Delmarva
Pwr. Ser. B
Aaa 3,500 6.75%, 5/1/19,
A.M.B.A.C.............. 3,766,070
------------
- --------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- --------------------------------------------------------------
Florida--5.4%
Florida St. Bd. Ed. Cap.
Outlay,
Pub. Ed.
Aa $ 5,000 5.25%, 6/1/23, Ser. D.... $ 4,482,350
Martin Cnty. Ind. Dev.
Auth. Rev., Indiantown
Cogen Proj.
Baa3 1,000 7.875%, 12/15/25......... 1,119,660
Reedy Creek Impvt. Dist.
Utils. Rev., Ser. 1,
Aaa 5,500 5.00%, 10/1/19,
M.B.I.A................ 4,869,370
------------
10,471,380
------------
Georgia--6.0%
Mun. Elec. Auth., Special
Oblig., Fifth Crossover
Ser. Proj. One,
Aaa 2,615 6.40%, 1/1/13,
A.M.B.A.C.............. 2,807,098
Fourth Crossover Ser.
Proj. One,
Aaa 2,750 6.50%, 1/1/20,
M.B.I.A................ 2,977,205
Aaa 5,500 6.50%, 1/1/20,
A.M.B.A.C.............. 5,954,410
------------
11,738,713
------------
Idaho--2.3%
Idaho Housing Agency
Sngl. Fam. Mortgage
Senior
Aa 4,275 6.65%, 7/1/14, Ser. B.... 4,376,745
------------
Illinois--5.8%
Chicago Gas Supply Rev.,
(People's Gas, Lt. &
Coke Co.),
Aa3 4,600 6.875%, 3/1/15........... 4,863,166
Chicago Waterworks Rev.,
A1 2,500(c) 7.20%, 11/15/16, Ser.
1989
Prerefunded 11/15/99
@$102.................. 2,759,975
Du Page Wtr. Comm. Wtr.
Rev.,
AAA* 3,500(c) 6.875%, 5/1/14
Prerefunded 5/1/97
@$102.................. 3,677,030
------------
11,300,171
------------
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- --------------------------------------------------------------
<S> <C> <C> <C>
Indiana--2.7%
Indiana Mun. Pwr. Agcy.,
Pwr. Supply Sys. Rev.,
Aaa $ 5,000 6.00%, 1/1/13,
M.B.I.A................ $ 5,186,900
------------
Louisiana--5.8%
St. Charles Parish, Poll.
Ctrl. Rev.,
(Louisiana Pwr. & Lt. Co.),
Baa3 3,500 8.25%, 6/1/14............ 3,833,655
Baa3 5,500 8.00%, 12/1/14, Ser.
1989................... 6,052,420
Aaa 1,250 7.00%, 12/1/22........... 1,346,788
------------
11,232,863
------------
Massachusetts--3.0%
Massachusetts St., Wtr.
Res. Auth., Ser. A,
Aaa 5,330 7.00%, 8/1/13,
M.B.I.A................ 5,856,657
------------
Nebraska--2.7%
Omaha Pub. Pwr. Dist.,
Elec. Rev.,
Aa 2,500 6.15%, 2/1/12, Ser. B.... 2,642,400
Aa 2,500 6.20%, 2/1/17, Ser. B.... 2,657,025
------------
5,299,425
------------
New Jersey--2.2%
Union Cnty. Utils. Auth.,
Solid Waste Rev., Ser.
1991 A,
A-* 2,000 7.10%, 6/15/06........... 2,034,640
A-* 2,250 7.15%, 6/15/09........... 2,288,205
------------
4,322,845
------------
New York--10.5%
New York City Mun.
Assist. Corp.,
Aa 1,500 5.20%, 7/1/08, Ser. E.... 1,477,575
New York City Mun. Wtr.
Fin. Auth., Wtr. & Swr.
Sys. Rev.,
A 3,760 7.10%, 6/15/12........... 4,194,656
New York St. Energy
Research & Dev. Auth.
Facs. Rev.,
A1 1,600 6.10%, 8/15/20........... 1,599,824
(Con Edison Co. of N.Y.),
A1 3,000 6.75%, 1/15/27, Ser.
92A.................... 3,105,720
A1 4,000 7.125%, 12/1/29.......... 4,405,440
New York St. Envir. Fac.
Corp.
Poll. Ctrl. Rev.,
Aaa 5,000 6.90%, 11/15/15.......... 5,603,300
------------
20,386,515
------------
- --------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- --------------------------------------------------------------
Pennsylvania--1.7%
Montgomery Cnty. Ind.
Dev. Auth., Poll. Ctrl.
Rev., (Philadelphia
Elec. Co.),
Aaa $ 3,000 6.70%, 12/1/21,
M.B.I.A................ $ 3,195,780
------------
Tennessee--1.6%
Tennessee Hsg. Dev.
Agcy.,
Mortgage Finance
Aaa 3,135 6.15%, 7/1/15, Ser. B.... 3,152,274
------------
Texas--6.9%
Brazos River Auth., Poll.
Ctrl. Rev., (Texas
Utils. Elec.),
Baa2 8,000 7.875%, 3/1/21........... 8,773,760
San Antonio Elec. & Gas
Rev.,
Aa1 4,500 6.50%, 2/1/12, Ser. B.... 4,712,310
------------
13,486,070
------------
Washington--14.0%
Conservation & Renewable
Energy Sys.
Conservation Proj.
Rev.,
Aa 2,600 6.875%, 10/1/11.......... 2,884,154
Lewis Cnty. Pub. Utils.
Dist. No. 1, Cowlitz
Falls Hydroelectric
Proj. Rev.,
Aaa 5,000(c) 7.00%, 10/1/22
Prerefunded 10/1/01
@$102.................. 5,622,050
Snohomish Cnty., Pub.
Utils.
Dist. No. 1 Elec. Rev.,
A1 1,500 6.90%, 1/1/06, Ser. A.... 1,612,440
A1 8,000 5.80%, 1/1/24............ 7,498,240
Washington St. Pub. Pwr.
Supply, Nuclear Proj.
No. 1 Rev.,
Aa 2,500 6.875%, 7/1/17, Ser. A... 2,640,550
Nuclear Proj. No. 2 Rev.,
Aa 2,400 6.00%, 7/1/07............ 2,466,648
Nuclear Proj. No. 3 Rev.,
Aa 2,170 6.75%, 7/1/05, Ser. A.... 2,329,278
Aaa 1,000(c) 7.25%, 7/1/15, Ser. B
Prerefunded 1/1/00
@$102.................. 1,106,450
Aa 1,000 6.50%, 7/1/18............ 1,021,680
------------
27,181,490
------------
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
<S> <C> <C> <C>
Wyoming--2.0%
Wyoming St. Farm Loan
Board Capital Fac.
Rev.,
AA-* $ 4,000 5.75%, 10/1/20........... $ 3,818,280
------------
Total long-term
investments
(cost $182,140,335).... 190,992,955
------------
SHORT-TERM INVESTMENTS--0.7%
Goldman Sachs Tax Exempt
Money Market Fund,
NR 1,129 3.44%.................... 1,129,177
California Poll. Ctrl.
Fin. Auth. Rev., So.
Cal. Ed.,
Ser. 86B
A2 300 3.65%, 2/28/08,
F.R.D.D................ 300,000
------------
Total short-term
investments
(cost $1,429,177)...... 1,429,177
------------
Total Investments--99.0%
(cost $183,569,512;
Note 3)................ 192,422,132
Other assets in excess of
liabilities--1.0%...... 1,848,028
------------
Net Assets--100%......... $194,270,160
------------
------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
M.B.I.A.--Municipal Bond Insurance Association.
F.R.D.D.--Floating Rate Daily Demand Note(b).
(b) For purposes of amortized cost valuation, the maturity date of Floating
Rate Demand Notes is considered to be the later of the next date on which
the security can be redeemed at par or the next date on which the rate of
interest is adjusted.
(c) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
* Standard & Poor's rating.
NR--Not Rated by Moody's or Standard & Poor's.
- ----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Statement of Assets and Liabilities
April 30, 1996
(Unaudited)
- ----------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at value (cost
$183,569,512)........................ $192,422,132
Cash................................... 25,615
Interest receivable.................... 3,772,656
Receivable for investments sold........ 15,505
Deferred expenses and other assets..... 9,996
------------
Total assets......................... 196,245,904
------------
Liabilities
Payable for investments purchased...... 1,494,375
Accrued expenses....................... 182,404
Accrued taxes payable.................. 113,931
Dividends payable...................... 87,552
Advisory fee payable (Note 2).......... 74,986
Administration fee payable (Note 2).... 22,496
------------
Total liabilities.................... 1,975,744
------------
Net Assets............................. $194,270,160
------------
------------
Capital
Remarketed preferred stock ($.01 par
value; 1,300 preferred shares, issued
and outstanding, liquidation
preference $50,000 per share;
Note 4).............................. $ 65,000,000
------------
Common stock at par ($.01 par value;
600,000,000 shares authorized and
8,371,761 issued and outstanding).... 83,718
Paid-in capital........................ 115,475,575
Undistributed net investment income.... 2,287,593
Accumulated net realized gain on
investments.......................... 2,570,654
Net unrealized appreciation on
investments.......................... 8,852,620
------------
Net assets applicable to common stock
(equivalent to $15.44 per share
based on 8,371,761 shares
outstanding)....................... 129,270,160
------------
Total capital (Net assets)........... $194,270,160
------------
------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
6
<PAGE>
<PAGE>
- ----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Statement of Operations
Six Months Ended April 30, 1996
(Unaudited)
- ----------------------------------------------------------
<TABLE>
<S> <C>
Net Investment Income
Income
Interest.............................. $ 5,998,973
-----------
Expenses
Investment advisory fee............... 499,091
Administration fee.................... 149,727
Remarketing expense................... 75,585
Custodian's fees and expenses......... 28,000
Reports to shareholders............... 25,000
Transfer agent's fees and expenses.... 22,000
Audit fee and expenses................ 21,000
Directors fees and expenses........... 20,000
Registration expenses................. 8,500
Amortization of deferred organization
expenses............................ 6,000
Legal fees and expenses............... 5,000
Miscellaneous......................... 5,732
-----------
Total expenses...................... 865,635
-----------
Net investment income................... 5,133,338
-----------
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain on investment
transactions.......................... 364,730
Net change in unrealized
appreciation/depreciation on
investments........................... (3,870,226)
-----------
Net realized and unrealized loss on
investments........................... (3,505,496)
-----------
Net Increase in Net Assets
Resulting from Operations............... $ 1,627,842
-----------
-----------
</TABLE>
- ----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Statement of Changes
In Net Assets
(Unaudited)
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) April 30, October 31,
in Net Assets 1996 1995
------------ ------------
<S> <C> <C>
Operations:
Net investment income...... $ 5,133,338 $ 10,355,503
Net realized gain on
investment
transactions............. 364,730 2,672,725
Net change in unrealized
appreciation/depreciation
of investments........... (3,870,226) 11,622,990
------------ ------------
Net increase in net assets
resulting from
operations............... 1,627,842 24,651,218
Dividends and distributions:
Dividends to common
shareholders from net
investment income........ (4,018,445) (8,068,765)
Dividends to preferred
shareholders from net
investment income........ (1,130,459) (2,547,753)
Distributions to
shareholders from net
realized gains
Common................... (251,153) --
Preferred................ (81,973) --
------------ ------------
Total increase (decrease).... (3,854,188) 14,034,700
Net Assets
Beginning of period.......... 198,124,348 184,089,648
------------ ------------
End of period................ $194,270,160 $198,124,348
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
7
<PAGE>
<PAGE>
- -------------------------------------------------------------------------------
DUFF & PHELPS UTILITIES TAX-FREE INCOME INC.
Financial Highlights
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
November 29,
Six Months
1991(a)
Ended
Year Ended October 31, through
PER SHARE OPERATING PERFORMANCE OF COMMON April 30,
- ------------------------------------ October 31,
SHAREHOLDERS: 1996 1995
1994 1993 1992
-----------
- ---------- -------- -------- ------------
<S> <C> <C>
<C> <C> <C>
Net asset value, beginning of period............... $ 15.90 $
14.23 $ 16.41 $ 14.14 $ 14.05
-----------
- ---------- -------- -------- ------------
Net investment income(g)......................... .61
1.24 1.24 1.24 1.06
Net realized and unrealized gain (loss) on
investments(g)................................... (.42)
1.70 (2.25) 2.19 .20
-----------
- ---------- -------- -------- ------------
Net increase (decrease) from investment
operations....................................... .19
2.94 (1.01) 3.43 1.26
-----------
- ---------- -------- -------- ------------
Dividends from net investment income to:
Preferred shareholders........................... (.14)
(.31) (.21) (.20) (.18)
-----------
- ---------- -------- -------- ------------
Common shareholders.............................. (.48)
(.96) (.96) (.96) (.72)
-----------
- ---------- -------- -------- ------------
Distributions from net realized gains to:
Common shareholders.............................. (0.03)
- -- -- -- --
-----------
- ---------- -------- -------- ------------
Capital charge with respect to issuance of common
stock............................................ --
- -- -- -- (.27)
-----------
- ---------- -------- -------- ------------
Net asset value, end of period(b).................. $ 15.44 $
15.90 $ 14.23 $ 16.41 $ 14.14(c)
-----------
- ---------- -------- -------- ------------
-----------
- ---------- -------- -------- ------------
Per share market value, end of period(b)........... $ 15.00 $
14.38 $ 13.25 $ 16.63 $ 14.75
-----------
- ---------- -------- -------- ------------
-----------
- ---------- -------- -------- ------------
TOTAL INVESTMENT RETURN OF COMMON SHAREHOLDERS(d).. 7.81%
16.03% (13.93)% 19.88% 10.32%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS:(f)
Operating expenses................................. 1.29%(e)
1.37% 1.35% 1.40% 1.35%(e)
Net investment income.............................. 7.66%(e)
8.15% 8.04% 8.00% 8.23%(e)
SUPPLEMENTAL DATA:
Average net assets of common shareholders (000).... $ 134,724 $
127,112 $129,300 $129,036 $ 114,518
Portfolio turnover................................. 8%
66% 37% 1% 35%
Net assets of common shareholders, end of period
(000)............................................ $ 129,270 $
133,124 $119,090 $137,104 $ 117,211
Asset coverage per share of preferred stock, end of
period........................................... $ 149,439 $
152,403 $141,607 $155,465 $ 140,162
Preferred stock outstanding (000).................. $ 65,000 $
65,000 $ 65,000 $ 65,000 $ 65,000
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) NAV and market value are published in The Wall Street Journal each Monday.
(c) Net asset value immediately after the closing of the first public offering
was $14.05.
(d) Total investment return is calculated assuming a purchase of common stock
at the current market value on the first day and a sale at the current
market value on the last day of each period reported. Dividends are
assumed, for purposes of this calculation, to be reinvested at prices
obtained under the Fund's dividend reinvestment plan. Brokerage commissions
are not reflected. Total return for periods of less than a full year are
not annualized.
(e) Annualized.
(f) Ratios calculated on the basis of income and expenses applicable to both
the common and preferred shares relative to the average net assets of
common shareholders. Ratios do not reflect the effect of dividend payments
to preferred shareholders.
(g) Calculated based upon weighted average shares outstanding during the
period.
See Notes to Financial Statements.
8
<PAGE>
<PAGE>
- ----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Notes to Financial Statements
(Unaudited)
- ----------------------------------------------------------
Duff & Phelps Utilities Tax-Free Income Inc. (the ``Fund'') was organized in
Maryland on September 24, 1991 as a diversified, closed-end management
investment company. The Fund had no operations until November 20, 1991 when it
sold 8,000 shares of common stock for $112,400 to Duff & Phelps Corporation.
Investment operations commenced on November 29, 1991.
The Fund's investment objective is current income exempt from regular federal
income tax consistent with preservation of capital. The Fund will seek to
achieve its investment objective by investing primarily in a diversified
portfolio of investment grade tax-exempt utility obligations. The ability of the
issuers of the securities held by the Fund to meet their obligations may be
affected by economic developments in a specific state, industry or region.
Note 1. Significant The following is a summary of
Accounting Policies significant accounting policies
followed by the Fund in the preparation of its
financial statements.
Securities Valuation: The Fund values its fixed income securities by using
market quotations, prices provided by market makers or estimates of market
values obtained from yield data relating to instruments or securities with
similar characteristics in accordance with procedures established by the Board
of Directors of the Fund. The relative liquidity of some securities in the
Fund's portfolio may adversely affect the ability of the Fund to accurately
value such securities. Any securities or other assets for which such current
market quotations are not readily available are valued at fair value as
determined in good faith under procedures established by and under the general
supervision and responsibility of the Fund's Board of Directors.
Debt securities having a remaining maturity of 60 days or less when purchased
and debt securities originally purchased with maturities in excess of sixty days
but which currently have maturities of 60 days or less are valued at cost
adjusted for amortization of premiums and accretion of discounts.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Fund amortizes premiums and accretes original issue discount
on securities using the effective interest method.
Federal Income Taxes: It is the Fund's intention to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute sufficient net income to shareholders to qualify as a regulated
investment company. For this reason, no federal income tax provision is
required.
Dividends and Distributions: The Fund will declare and pay dividends to common
shareholders monthly from net investment income. Long-term capital gains, if
any, in excess of loss carryforwards are expected to be distributed annually.
The Fund will make a determination at the end of its fiscal year as to whether
to retain or distribute such gains. Dividends and distributions are recorded on
the ex-dividend date. Dividends to preferred shareholders are accrued on a
weekly basis and are determined as described in Note 4.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from investment income
and capital gains recorded in accordance with generally accepted accounting
principles.
Deferred Organization Costs: A total of $63,000 was incurred in connection with
the organization of the Fund. These costs have been deferred and are being
amortized ratably over a period of sixty months from the date the Fund commenced
investment operations.
Note 2. Agreements The Fund has an Advisory
Agreement with Duff & Phelps Investment Management
Co. (the ``Adviser''), a subsidiary of Duff & Phelps Corporation, and an
Administration Agreement with Prudential Mutual Fund Management, Inc. (``PMF''),
an indirect, wholly-owned subsidiary of The Prudential Insurance Company of
America.
The investment fee paid to the Adviser is computed weekly and payable monthly
at an annual rate of .50% of the Fund's average weekly managed assets. The
administration fee paid to PMF is also computed weekly and payable monthly at
an
annual rate of .15% of the Fund's average weekly managed assets.
Pursuant to the agreements, the Adviser provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Fund who
are affiliated persons of the Adviser. PMF pays occupancy and certain clerical
and accounting costs of the Fund. The Fund bears all other costs and expenses.
9
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Note 3. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for the six months ended
April 30, 1996 aggregated $15,292,900 and $15,707,431, respectively.
The Federal income tax basis of the Fund's investments at April 30, 1996 was
substantially the same as the basis for financial reporting, and, accordingly,
net unrealized appreciation for federal income tax purposes was $8,852,620
(gross unrealized appreciation--$9,535,821; gross unrealized
depreciation--$683,201).
Note 4. Capital There are 600 million shares
of $.01 par value common
stock authorized.
During the six months ended April 30, 1996 the Fund did not issue any common
shares in connection with the reinvestment of dividends. For the year ended
October 31, 1994 the Fund issued 17,269 common shares in connection with the
reinvestment of dividends.
The Fund's Articles of Incorporation authorize the issuance of Remarketed
Preferred Stock (``RP''). Accordingly, the Fund issued 1,300 shares of RP on
February 4, 1992. The RP has a liquidation value of $50,000 per share plus any
accumulated but unpaid dividends.
Dividends on shares of RP are cumulative from their date of original issue
and payable on each dividend payment date. Dividend rates ranged from 6.10% to
3.36% during the six months ended April 30, 1996.
Under the Investment Company Act of 1940, the Fund may not declare dividends
or make other distributions on shares of common stock or purchase any such
shares if, at the time of the declaration, distribution or purchase, asset
coverage with respect to the outstanding preferred stock would be less than
200%.
The RP is redeemable at the option of the Fund, in whole or in part, on any
dividend payment date at $50,000 per share plus any accumulated or unpaid
dividends whether or not declared. The RP is also subject to a mandatory
redemption at $50,000 per share plus any accumulated or unpaid dividends,
whether or not declared, if certain requirements relating to the composition of
the assets and liabilities of the Fund as set forth in the Articles of
Incorporation are not satisfied.
The holders of RP have voting rights equal to the holders of common stock
(one vote per share) and will vote together with holders of shares of common
stock as a single class. However, holders of RP are also entitled to elect two
of the Fund's directors. In addition, the Investment Company Act of 1940
requires that along with approval by shareholders that might otherwise be
required, the approval of the holders of a majority of any outstanding preferred
shares, voting separately as a class would be required to (a) adopt any plan of
reorganization that would adversely affect the preferred shares, and (b) take
any action requiring a vote of security holders, including, among other things,
changes in the Fund's subclassification as a closed-end investment company or
changes in its fundamental investment restrictions.
Note 5. Dividends Subsequent to April 30, 1996,
dividends declared and paid on preferred shares
totalled $229,632. On May 1, and June 3, 1996, the Board of Directors of the
Fund declared dividends of $.08 per common share payable on May 31, and June 28,
1996, respectively, to common shareholders of record on May 13, and June 13,
1996, respectively.
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Directors
Francis E. Jeffries, Chairman
E. Virgil Conway
William W. Crawford
William N. Georgeson
Everett L. Morris
Richard A. Pavia
Officers
Calvin J. Pedersen, President & Chief Executive
Officer
Robert J. Moore, Executive Vice President
James P. Wehr, Vice President & Chief Investment
Officer
Thomas N. Steenburg, Secretary
Mary J. Metz, Treasurer & Assistant Secretary
Investment Adviser
Duff & Phelps Investment Management Co.
55 East Monroe Street
Suite 3800
Chicago, IL 60603
(312) 368-5500
Administrator
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
(212) 214-5572
Custodian and Transfer Agent
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Call toll free (800) 451-6788
Independent Auditors
Ernst & Young LLP
787 Seventh Avenue
New York, NY 10019
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive
Chicago, IL 60606
The accompanying financial statements as of April 30, 1996 were
not audited and, accordingly, no opinion is expressed on them.
This report is for stockholder information. This is not a
prospectus intended for use in the purchase or sale of Fund shares.
264325101