Duff & Phelps
Utilities
Tax-Free
Income Inc.
- ------------------------------------------------------------
Annual Report
October 31, 1995
<PAGE>
Letter to Shareholders
December 15, 1995
Dear Shareholder:
We are pleased to present to you the annual report for the Duff & Phelps
Utilities Tax-Free Income Fund, Inc. for the year ended October 31, 1995.
We have had an extremely favorable year in 1995 in the fixed income
markets, reversing the bearish sentiment and negative returns experienced
by market participants in 1994. Interest rates have fallen consistently
during the year, with the yield on the 30-year Treasury having fallen by
over 200 basis points since last November.
The primary catalyst for this rally in the bond market has been the
favorable combination of moderate economic growth and low inflation,
as real Gross Doemstic Product (GDP) growth has slowed from 4% to 2%
over the last 12 months and Consumer Price Index (CPI) rose by less
than 3% for the third consecutive year.
Fund Performance
As you can see below, the Duff and Phelps Utilities Tax-Free Income
Fund continued to outperform its peers in 1995, outperforming the
average fund in its Lipper peer group by almost 130 basis points.
This marks the third consecutive year of outperformance within this
peer group, which we feel is particularly significant given that it
has been achieved in both rising and declining interest rate environments.
Our strong 1995 performance is attributable to an emphasis on call-protected
securities in a declining interest rate environment and avoidance of
significant credit problems. During the year, the Fund managed to
maintain its montly eight cent per share dividend in spite of the
significant decline in interest rates.
1
<PAGE>
<TABLE>
FUND PERFORMANCE
As of October 31, 1995
<CAPTION>
Total Returns
1995 1994 1993
<S> <C> <C> <C>
Duff & Phelps Utilities
Tax-Free Income, Inc.1 20.27% -7.78% 23.47%
Average Lipper General and Insured
Leveraged Municipal Bond Fund Index2 18.90% -10.01% 21.57%
</TABLE>
1 Source: Lipper Analytical Services, Inc. Total return of the Fund as
calculated for the periods ended October 31, 1995 and October 31, 1994,
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 12 months ended October
31, 1995 and 63 closed-end funds for 12 months ended October 31, 1994 in
the General and Insured Leveraged Municipal Bond Fund Index according to
Lipper Analytical Services, Inc.
The Municipal Market and Your Fund
The municipal bond market has also rallied significantly in 1995, although
long municipal rates have declined somewhat less than long Treasury rates.
The primary reason for this lag has been concern about potential tax
reform legislation and its implications for tax-exempt bonds. As a
result of this lag effect, long municipals have risen to almost 93%
long Treasury yields, a level seen only once since April of 1988. Given
the unusually high level for this ratio, municipal bonds offer excellent
relative value when compared with taxable fixed income in the current
market environment. Supply of new issues in the market has continued
to slow this year, as new issuance has fallen by almost 20% year over
year, after falling by over 40% in 1994. Demand for new issues has
been volatile during the year, reflecting the uncertainty of investors
regarding tax reform.
Within the Fund we continue to emphasize higher quality issues with an
average quality rating of AA/Aa and 64.9% of the issues rated AA or higher.
We have continued to increase our holdings outside the utility sector,
increasing our non-utility stake from 18% as of April 30 to 23% as of
November 30. We have reduced our utility stake for three reasons.
First, utility valuations within the municipal market continue to be
very high. Second, the electric utility industry has been under pressure
dealing with the competitive pressures of deregulation. Third, we feel
strongly that diversification is important in any portfolio, and are
therefore using the Fund's flexibility to invest up to 35% of its assets
in non-utility issues.
Outlook
Going forward we expect the significant decline in interest rates
year-to-date to generate increased levels of issuance in the tax-exempt
market, as issuers look to take advantage of low-cost debt to refinance
existing issues or
2
<PAGE>
finance new projects. We will be proactive in this environment, looking for
opportunities to improve the fund's holdings and enhance diversification
outside of the electric utility sector.
It is reasonable to expect that the overriding issue in the municipal
market will continue to be tax reform, and its proposed changes in the
tax base, marginal tax rates, and computation methodology. Our expectation
is that while there will be considerable posturing by both parties during
the presidential campaigns in 1996, very little substantive action is
likely to materialize. This would push the tax reform discussion forward
into 1997, and the "flat tax" proposal would only gain momentum if a
Republican candidate is elected President. Bill Clinton has not been
a "flat tax" supporter and is unlikely to change his position.
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.
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
October 31, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--98.4%
California--16.1%
Foothill / Eastern Trans.
Corridor Agency
California Toll Road
Revenue
Baa $ 10,640 6.00%, 1/1/34, Ser. A.... $ 10,048,416
Fresno Swr. Rev.,
Aaa 3,030 6.00%, 9/1/09,
A.M.B.A.C.............. 3,248,160
Aaa 2,000 6.25%, 9/1/14,
A.M.B.A.C.............. 2,167,000
Pomona California
Singlefamily Mortgage
Revenue
Aaa 2,705 7.375%, 8/1/10........... 3,014,263
San Bernardino County
California Residential
Mtge. Rev.,
Aaa 7,840 9.60%, 9/1/15............ 11,086,465
Santa Monica Waste Wtr.
Enterprise Rev.,
Hyperion Proj.,
A1 2,000(c) 6.70%, 1/1/22, Ser A,
Prerefunded 1/1/02
@$102.................. 2,259,100
------------
31,823,404
------------
Colorado--6.2%
Colorado Hsg. Fin. Auth.,
Sngl. Fam. Prog.
Aa 2,980 8.00%, 6/1/25............ 3,398,869
Colorado Springs Utils.
Rev.,
Aa 2,300 6.50%, 11/15/15, Ser.
A...................... 2,464,634
Colorado St. Hsg. Fin.
Auth.,
Aa 1,945 8.125%, 6/1/25........... 2,225,196
Platte River Pwr. Auth.
Rev.,
Aa 4,000 6.875%, 6/1/16, Ser.
AA..................... 4,228,720
------------
12,317,419
------------
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.............. 3,781,610
------------
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.............. 2,843,577
- ----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
Fourth Crossover Ser.
Proj. One,
Aaa $ 2,750 6.50%, 1/1/20,
M.B.I.A................ $ 3,055,800
Aaa 5,500 6.50%, 1/1/20,
A.M.B.A.C.............. 6,111,600
------------
12,010,977
------------
Idaho--2.4%
Idaho Housing Agency
Single Family Mortgage
Senior
Ser. B,
Aa 4,295 6.65%, 7/1/14............ 4,749,153
------------
Illinois--9.7%
Chicago Gas Supply Rev.,
(People's Gas, Lt. &
Coke Co.),
Aa3 4,600 6.875%, 3/1/15........... 4,955,580
Chicago Waterworks Rev.,
A1 2,500(c) 7.20%, 11/15/16, Ser.
1989,
Prerefunded 11/15/99
@$102.................. 2,810,225
Du Page Wtr. Comm., Wtr.
Rev.,
AAA* 3,500(c) 6.875%, 5/1/14
Prerefunded 5/1/97
@$102.................. 3,713,710
Illinois Dev. Fin. Auth.
Poll. Ctrl. Rev.
Refunding Commonwlth
Edison Co. Proj.
Baa2 7,740 5.30%, 1/15/04........... 7,719,025
------------
19,198,540
------------
Indiana--2.7%
Indiana Mun. Pwr. Agcy.,
Pwr. Supply Sys. Rev.,
Aaa 5,000 6.00%, 1/1/13,
M.B.I.A................ 5,269,300
------------
Louisiana--5.8%
St. Charles Parish, Poll.
Ctrl. Rev.,
(Louisiana Pwr. & Lt.
Co.),
NR 3,500 8.25%, 6/1/14............ 3,919,755
Baa3 5,500 8.00%, 12/1/14, Ser.
1989................... 6,173,915
Aaa 1,250 7.00%, 12/1/22........... 1,385,838
------------
11,479,508
------------
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
<C> <C> <S> <C>
Massachusetts--3.0%
Massachusetts St., Wtr.
Res. Auth.,
Aaa $ 5,330 7.00%, 8/1/13, Ser. A,
M.B.I.A................ $ 5,964,057
------------
Nebraska--2.7%
Omaha Pub. Pwr. Dist.,
Elec. Rev.,
Aa 2,500 6.15%, 2/1/12, Ser. B.... 2,686,825
Aa 2,500 6.20%, 2/1/17, Ser. B.... 2,699,075
------------
5,385,900
------------
New Jersey--4.5%
Union Cnty. Utils. Auth.,
Solid Waste Rev., Ser.
1991 A,
A-* 2,000 7.10%, 6/15/06........... 2,109,080
A-* 5,250 7.15%, 6/15/09........... 5,517,960
A-* 1,250 7.20%, 6/15/14........... 1,313,663
------------
8,940,703
------------
New York--11.3%
New York City Mun. Wtr.
Fin.
Auth., Wtr. & Swr. Sys.
Rev.,
A 3,760 7.10%, 6/15/12........... 4,271,886
New York St. Energy
Research & Dev. Auth.
Fac Rev.
A1 1,600 6.10%, 8/15/20........... 1,614,464
New York St. Local
Government Assistance
Corporation
A 3,575 5.50%, 4/1/22............ 3,407,547
New York St. Energy
Research &
Dev. Auth. Facs. Rev.,
(Con Edison Co. of
N.Y.),
A1 3,000 6.75%, 1/15/27, Ser.
92A.................... 3,114,210
A1 4,000 7.125%, 12/1/29.......... 4,375,800
New York St. Envir. Fac.
Corp. Poll. Ctrl. Rev.,
Aaa 5,000 6.90%, 11/15/15.......... 5,677,350
------------
22,461,257
------------
Pennsylvania--1.6%
Montgomery Cnty. Ind.
Dev. Auth., Poll. Ctrl.
Rev., (Philadelphia
Elec. Co.),
Aaa 3,000 6.70%, 12/1/21,
M.B.I.A................ 3,241,530
------------
Tennessee--1.6%
Tennessee Hsg. Dev. Agcy
Mortgage Finance
Aaa 3,135 6.15%, 7/1/15, Ser. B.... 3,168,482
------------
- ----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
Texas--6.9%
Brazos River Auth., Poll.
Ctrl. Rev., (Texas
Utils. Elec.),
Baa2 $ 8,000 7.875%, 3/1/21........... $ 8,892,560
San Antonio Elec. & Gas
Rev.,
Aa1 4,500 6.50%, 2/1/12, Ser. B.... 4,717,125
------------
13,609,685
------------
Washington--14.0%
Conservation & Renewable
Energy Sys.,
Conservation Proj.
Rev.,
Aa 2,600 6.875%, 10/1/11.......... 2,920,476
Lewis Cnty. Pub. Utils.
Dist. No. 1, Cowlitz
Falls Hydroelectric
Proj. Rev.,
Aaa 5,000 7.00%, 10/1/22........... 5,733,700
Snohomish Cnty. Pub.
Utils. Dist. No. 1
Elec. Rev.,
A1 1,500 6.90%, 1/1/06, Ser. A.... 1,636,395
A1 8,000 5.80%, 1/1/24............ 7,761,840
Washington St. Pub. Pwr.
Supply, Nuclear Proj.
No. 1 Rev.,
Aa 2,500 6.875%, 7/1/17, Ser. A... 2,642,000
Nuclear Proj. No. 2 Rev.,
Aa 2,400 6.00%, 7/1/07............ 2,502,120
Nuclear Proj. No. 3 Rev.,
Aa 2,170 6.75%, 7/1/05, Ser. A.... 2,352,128
Aaa 1,000(c) 7.25%, 7/1/15, Ser. B.... 1,128,930
Prerefunded 1/1/00 @$102
Aa 1,000 6.50%, 7/1/18............ 1,020,420
------------
27,698,009
------------
Wyoming--2.0%
Wyoming St. Farm Loan
Board Capital Fac. Rev.
AA-* 4,000 5.75%, 10/1/20........... 3,916,840
------------
Total long-term
investments
(cost $182,293,528).... 195,016,374
------------
SHORT-TERM INVESTMENTS--0.4%
NR 447 Goldman Sachs Tax Exempt
Money Market Fund...... 447,483
California Poll. Ctrl.
Fin. Auth. Rev., So.
Cal. Ed., F.R.D.D.,
Ser. 86B,
VMIG1 300 3.75%, 11/1/95........... 300,000
------------
Total short-term
investments
(cost $747,483)........ 747,483
------------
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Value
Description (a) (Note 1)
- ----------------------------------------------------------
<C> <C> <S> <C>
Total Investments--98.8%
(cost $183,041,011;
Note 3)................ $195,763,857
Other assets in excess of
liabilities--1.2%...... 2,360,491
------------
Net Assets--100%......... $198,124,348
------------
------------
</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
October 31, 1995
- ----------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at value (cost
$183,041,011)........................ $195,763,857
Cash................................... 28,478
Interest receivable.................... 3,957,076
Deferred expenses and other assets..... 31,481
------------
Total assets......................... 199,780,892
------------
Liabilities
Accrued expenses....................... 172,183
Dividends payable...................... 92,898
Advisory fee payable (Note 2).......... 67,619
Accrued taxes payable.................. 1,300,930
Administration fee payable (Note 2).... 22,914
------------
Total liabilities.................... 1,656,544
------------
Net Assets............................. $198,124,348
------------
------------
Capital
Remarketed preferred stock ($.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.... 2,385,132
Accumulated net realized gain on
investments.......................... 2,457,077
Net unrealized appreciation on
investments.......................... 12,722,846
------------
Net assets applicable to common stock
(equivalent to $15.90 per share
based on 8,371,761 shares
outstanding)....................... 133,124,348
------------
Total capital (Net assets)........... $198,124,348
------------
------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
6
<PAGE>
- ----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Statement of Operations
Year Ended October 31, 1995
- ----------------------------------------------------------
<TABLE>
<S> <C>
Net Investment Income
Income
Interest.............................. $12,102,300
-----------
Expenses
Investment advisory fee............... 966,033
Administration fee.................... 289,810
Remarketing expense................... 152,000
Reports to shareholders............... 72,000
Custodian's fees and expenses......... 68,000
Transfer agent's fees and expenses.... 52,000
Audit fee and expenses................ 44,000
Directors fees and expenses........... 43,000
Legal fees and expenses............... 18,000
Registration expenses................. 17,000
Amortization of deferred organization
expenses............................ 12,600
Miscellaneous......................... 12,354
-----------
Total expenses...................... 1,746,797
-----------
Net investment income................... 10,355,503
-----------
Realized and Unrealized Gain
on Investments
Net realized gain on investment
transactions.......................... 3,973,655
Tax expense on undistributed net
realized capital gains................ (1,300,930)
-----------
2,672,725
-----------
Net change in unrealized
appreciation/depreciation on
investments........................... 11,622,990
-----------
Net realized and unrealized gain on
investments........................... 14,295,715
-----------
Net Increase in Net Assets
Resulting from Operations............... $24,651,218
-----------
-----------
</TABLE>
- ----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Statement of Changes
In Net Assets
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31,
Increase (Decrease) ---------------------------
in Net Assets 1995 1994
------------ ------------
<S> <C> <C>
Operations:
Net investment income...... $ 10,355,503 $ 10,391,394
Net realized gain (loss) on
investment
transactions............. 2,672,725 (215,648)
Net change in unrealized
appreciation/depreciation
of investments........... 11,622,990 (18,690,986)
------------ ------------
Net increase (decrease) in
net assets resulting from
operations............... 24,651,218 (8,515,240)
Dividends:
Dividends to common
shareholders from net
investment income........ (8,068,765) (7,915,088)
Dividends to preferred
shareholders from net
investment income........ (2,547,753) (1,795,638)
Capital share transactions
(Note 4):
Value of Fund shares issued
to shareholders in
reinvestment of
dividends................ -- 211,188
------------ ------------
Total increase (decrease).... 14,034,700 (18,014,778)
Net Assets
Beginning of year............ 184,089,648 202,104,426
------------ ------------
End of year.................. $198,124,348 $184,089,648
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
DUFF & PHELPS UTILITIES TAX-FREE INCOME INC.
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
November 29,
1991(a)
Year
Ended October 31, through
- ------------------------------------ October 31,
PER SHARE OPERATING PERFORMANCE OF COMMON SHAREHOLDERS: 1995
1994 1993 1992
----------
-------- -------- ------------
<S> <C>
<C> <C> <C>
Net asset value, beginning of year............................ $ 14.23
$ 16.41 $ 14.14 $ 14.05
----------
-------- -------- ------------
Net investment income(g).................................... 1.24
1.24 1.24 1.06
Net realized and unrealized gain (loss) on investments(g)... 1.70
(2.25) 2.19 .20
----------
-------- -------- ------------
Net increase (decrease) from investment operations............ 2.94
(1.01) 3.43 1.26
----------
-------- -------- ------------
Dividends from net investment income to:
Preferred shareholders...................................... (.31)
(.21) (.20) (.18)
----------
-------- -------- ------------
Common shareholders......................................... (.96)
(.96) (.96) (.72)
----------
-------- -------- ------------
Capital charge with respect to issuance of common stock....... --
-- -- (.27)
----------
-------- -------- ------------
Net asset value, end of period(b)............................. $ 15.90
$ 14.23 $ 16.41 $ 14.14(c)
----------
-------- -------- ------------
----------
-------- -------- ------------
Per share market value, end of year(b)........................ $ 14.38
$ 13.25 $ 16.63 $ 14.75
----------
-------- -------- ------------
----------
-------- -------- ------------
TOTAL INVESTMENT RETURN OF COMMON SHAREHOLDERS(d)............. 16.03%
(13.93)% 19.88% 10.32%
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:(f)
Operating expenses............................................ 1.37%
1.35% 1.40% 1.35%(e)
Net investment income......................................... 8.15%
8.04% 8.00% 8.23%(e)
SUPPLEMENTAL DATA:
Average net assets of common shareholders (000)............... $ 127,112
$129,300 $129,036 $ 114,518
Portfolio turnover............................................ 66%
37% 1% 35%
Net assets of common shareholders, end of period (000)........ $ 133,124
$119,090 $137,104 $ 117,211
Asset coverage per share of preferred stock, end of period.... $ 152,403
$141,607 $155,465 $ 140,162
Preferred stock outstanding (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>
- ----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Notes to Financial Statements
- ----------------------------------------------------------
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 significant accounting policies
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
<PAGE>
<PAGE>
Note 3. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for the fiscal year ended
October 31, 1995 aggregated $122,051,676 and $121,303,056, respectively.
The Federal income tax basis of the Fund's investments at October 31, 1995
was substantially the same as the basis for financial reporting, and,
accordingly, net unrealized appreciation for federal income tax purposes was
$12,722,846 (gross unrealized appreciation--$12,875,456; gross unrealized
depreciation--$152,610).
The Fund utilized its capital loss carryforward of approximately $215,600 to
offset the Fund's net taxable gains realized and recognized in the fiscal year
ended October 31, 1995.
Note 4. Capital There are 600 million shares
of $.01 par value common
stock authorized.
During the fiscal year ended October 31, 1995 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 6.05% to
3.32% during the fiscal year ended October 31, 1995.
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 October 31,
1995, dividends declared and paid on preferred
shares totalled $206,596. On November 1, December 1, and December 21, 1995, the
Board of Directors of the Fund declared dividends of $.08 per common share
payable on November 30, December 15, 1995 and January 26, 1996, respectively,
to
common shareholders of record on November 15, December 12, and December 29,
1995, respectively. Also on December 21, 1995, the Board of Directors of the
Fund also declared a short-term taxable capital gain distribution of $0.03 per
share, payable on January 26, 1996 to common shareholders of record on December
29, 1995.
The Fund has elected to retain a portion of its realized net capital gains
and, accordingly, has accrued $1,300,930 in Federal and state taxes associated
with these gains.
10
<PAGE>
<PAGE>
Note 6. Quarterly Data
(Unaudited)
<TABLE>
<CAPTION>
Net realized
and Net increase
Net unrealized
(decrease) in net
investment gains (losses)
on assets resulting Dividends
income investments
from operations Common
Per
Per Per
Total common
common common
Quarterly period income Amount share Amount
share Amount share Amount
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
- ------------------ ---------- ---------------------
- ----------------------- ----------------------- -----------
November 1, 1992
to January 31,
1993............. $3,035,140 $2,612,700 $0.32 $ 6,164,303
$0.74 $ 8,777,003 $1.06 $(1,992,200)
February 1, 1993
to April 30,
1993............. 3,040,277 2,605,972 0.31 5,289,578
0.64 7,895,550 0.95 (1,995,643)
May 1, 1993 to
July 31, 1993.... 3,010,867 2,557,710 0.31 2,092,812
0.25 4,650,522 0.56 (1,998,684)
August 1, 1993 to
October 31,
1993............. 3,047,425 2,556,432 0.30 4,628,332
0.56 7,184,764 0.86 (2,005,572)
November 1, 1993
to
January 31,
1994............. 3,049,096 2,600,621 0.31 1,042,497
0.13 3,643,118 0.44 (1,962,399)
February 1, 1994
to
April 30, 1994... 3,040,086 2,619,235 0.31 (13,482,510)
(1.61 ) (10,863,275) (1.30 ) (1,979,484)
May 1, 1994 to
July 31, 1994.... 3,029,354 2,600,777 0.31 1,304,500
0.16 3,905,277 0.47 (2,009,223)
August 1, 1994 to
October 31,
1994............. 3,020,123 2,570,761 0.31 (7,771,121)
(0.93 ) (5,200,360) (0.62 ) (1,963,982)
November 1, 1994
to January 31,
1995............. 2,965,653 2,540,973 0.31 4,243,618
0.51 6,784,591 0.82 (1,953,739)
February 1, 1995
to April 30,
1995............. 3,043,571 2,615,329 0.31 4,944,730
0.59 7,560,059 0.90 (1,999,874)
May 1, 1995 to
July 31, 1995.... 4,040,660 2,582,515 0.31 3,338,635
0.39 5,921,150 0.70 (2,009,222)
August 1, 1995 to
October 31,
1995............. 2,052,416 2,616,686 0.31 1,768,732
0.21 4,385,418 0.52 (2,105,930)
<CAPTION>
Dividends
Preferred
Per Per Common
common common Share price
Quarterly period share Amount share High Low
<S> <C> <C> <C> <C> <C>
- ------------------ ----- -------------------- -----------------
November 1, 1992
to January 31,
1993............. $(0.24) $(467,324) $(0.05) $15.88 $14.75
February 1, 1993
to April 30,
1993............. (0.24 ) (374,686) (0.05 ) 16.25 15.50
May 1, 1993 to
July 31, 1993.... (0.24 ) (401,570) (0.05 ) 16.75 15.75
August 1, 1993 to
October 31,
1993............. (0.24 ) (396,786) (0.05 ) 17.13 16.63
November 1, 1993
to
January 31,
1994............. (0.24 ) (386,347) (0.05 ) 16.75 15.63
February 1, 1994
to
April 30, 1994... (0.24 ) (383,305) (0.04 ) 15.88 14.13
May 1, 1994 to
July 31, 1994.... (0.24 ) (467,467) (0.06 ) 15.13 14.25
August 1, 1994 to
October 31,
1994............. (0.24 ) (558,519) (0.06 ) 14.88 13.13
November 1, 1994
to January 31,
1995............. (0.24 ) (657,137) (0.08 ) 13.75 11.75
February 1, 1995
to April 30,
1995............. (0.24 ) (664,053) (0.08 ) 14.75 13.63
May 1, 1995 to
July 31, 1995.... (0.24 ) (660,114) (0.08 ) 15.25 14.06
August 1, 1995 to
October 31,
1995............. (0.24 ) (566,449) (0.07 ) 14.75 14.00
</TABLE>
11
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
Duff and Phelps Utilities Tax-Free Income Inc.
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Duff & Phelps Utilities Tax-Free
Income Inc. (the ``Fund'') as of October 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1995 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to
above present fairly, in all material respects, the financial position of Duff
and Phelps Utilities Tax-Free Income Inc. at October 31, 1995, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and financial highlights for each of
the indicated periods, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
New York, New York
November 30, 1995
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of
the Fund's fiscal year end (October 31, 1995) as to the federal tax status of
dividends paid by the Fund during such fiscal year. Accordingly, we are advising
you that in the fiscal year ended October 31, 1995, all dividends paid by the
Fund were federally tax-exempt interest dividends.
12
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
Pursuant to certain rules of the Securities and Exchange Commission the
following additional disclosure is required.
Pursuant to the Fund's Dividend Reinvestment Plan (the ``Plan''), common
shareholders may elect to have all distributions of dividends and capital gains
automatically reinvested by State Street Bank & Trust Company (the ``Plan
Agent'') in shares of common stock of the Fund (``Fund Shares'') pursuant to the
Plan; provided that such election is subject to the power of the Board of
Directors to declare capital gains distributions in the form of stock (if such
a
declaration is made by the Board of Directors, all shareholders who do not elect
to receive cash will receive the distribution in the form of stock whether or
not they elect to participate in the Plan). Common shareholders who do not
participate in the Plan will receive all distributions in cash (except as
described above) paid by check in United States dollars mailed directly to the
shareholder of record (or if the shares are held in street or other nominee
name, then to the nominee) by the Custodian, as dividend disbursing agent.
Common shareholders who wish to participate in the Plan should contact the Fund
at P.O. Box 8200, Boston, Massachusetts, 02266 or call toll free (800) 451-6788.
The Plan Agent serves as agent for the common shareholders in administering
the Plan. After the Fund declares a dividend or determines to make a capital
gain distribution, if (1) the market price is lower than net asset value, the
participants in the Plan will receive the equivalent in Fund Shares valued at
the market price determined as of the time of purchase (generally, the payment
date of the dividend or distribution); or if (2) the market price of Fund Shares
on the payment date of the dividend or distribution is equal to or exceeds their
net asset value, participants will be issued Fund Shares at the higher of net
asset value or 95% of the market price. This discount reflects savings in
underwriting and other costs that the Fund otherwise will be required to incur
to raise additional capital. If net asset value exceeds the market price of Fund
Shares on the payment date or the Fund declares a dividend or other distribution
payable only in cash (i.e., if the board of directors precludes reinvestment in
Fund Shares for that purpose), the Plan Agent will, as agent for the
participants, receive the cash payment and use it to buy Fund Shares in the open
market, on the New York Stock Exchange, other national securities exchanges on
which the Fund's common stock is listed or elsewhere, for the participants'
accounts. If, before the Plan Agent has completed its purchases, the market
price exceeds the net asset value of a Fund Share, the average per share
purchase price paid by the Plan Agent may exceed the net asset value of Fund
Shares, resulting in the acquisition of fewer shares than if the dividend or
distribution had been paid in shares issued by the Fund. The Fund will not issue
shares under the Plan below net asset value.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent and will receive certificates for whole Fund Shares and a cash
payment will be made for any fraction of a Fund Share.
There is no charge to participants for reinvesting dividends or capital gain
distributions, except for certain brokerage commissions, as described below. The
Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Fund. There will be no brokerage commissions
charged with respect to shares issued directly by the Fund. However, each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases in connection with the
reinvestment of dividends and distributions. The automatic reinvestment of
dividends and distributions will not relieve participants of any federal income
tax that may be payable on such dividends or distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all shareholders of the Fund at least 90 days before the record
date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent upon at least 90 days written notice to all common
shareholders of the Fund. All correspondence concerning the Plan should be
directed to the Fund at the address on the front of this report.
The Plan has been amended to permit Plan participants periodically to
purchase additional common shares through the Plan by delivering to the Plan
Agent a check for at least $100, but not more than $1,000, in any month. The
Plan Agent will use the funds to purchase shares in the open market or in
private transactions as described above with respect to reinvestment of
dividends and distributions. This amendment to the Plan became effective
September 12, 1995. Thereafter, purchases made pursuant to the Plan will be made
commencing at the time of the first dividend or distribution payment following
the second business day after receipt of the funds for additional purchases, and
may be aggregated with purchases of shares for reinvestment of the dividends and
13
<PAGE>
<PAGE>
distributions. Shares will be allocated to the accounts of participants
purchasing additional shares at the average price per share, plus a service
charge imposed by the Plan Agent and brokerage commissions (or equivalent
purchase costs) paid by the Plan Agent for all shares purchased by it, including
for reinvestment of dividends and distributions. Checks drawn on a foreign bank
are subject to collection and collection fees, and will be invested at the time
of the next distribution after funds are collected by the Plan Agent.
The Plan Agent will make every effort to invest funds promptly, and in no
event more than 30 days after the Plan Agent receives a dividend or
distribution, except where postponement is deemed necessary to comply with
applicable provisions of the federal securities laws.
Funds sent to the Plan Agent for voluntary additional share investment may
be
recalled by the participant by written notice received by the Plan 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
Plan Agent for subsequent investment.
James P. Wehr became primarily responsible for the day-to-day management of
the Fund's portfolio on November 1, 1995. He joined Phoenix Investments in 1981.
He has served in several capacities in his 14-year tenure, including assignments
as a public bond credit analyst and an operations analyst. Currently, Jim is
responsible for managing Phoenix's tax-exempt assets, a market where he has
developed significant expertise. He manages two institutional portfolios, with
combined assets of $130 million. Jim also manages Phoenix's two tax-exempt
mutual funds--the $150 million Tax-Exempt Bond Portfolio and the $120 million
California Tax-Exempt Bonds, Inc. Jim holds an M.B.A. from the University of
Connecticut and received his B.A. from Fairfield University.
There have been no material changes in the Fund's investment objectives or
policies, charter or by-laws and principal risk factors associated with
investment in the Fund.
At annual shareholder meetings held on April 21 and April 25, 1995,
shareholders elected Richard R. Davis, Richard A. Pavia and Calvin J. Pedersen
as directors of the Fund and also approved the selection of Ernst & Young LLP
as
the independent auditors for the Fund for the fiscal year
ending October 31, 1995. Messers. Fran E. Jeffries, Everett L. Morris and
William N. Georgeson were not up for election and their terms accordingly
continued after the date of such meetings. The results of the matters voted upon
were as follows:
<TABLE>
<CAPTION>
Number of Shares
-------------------------------------------------
<S> <C> <C> <C> <C>
Withheld
For Authority Against Abstain
---------- ---------- -------- --------
Election of Richard R.
Davis1 5,643,405 38,927
Election of Calvin J.
Pedersen1 5,644,105 38,227
Selection of Ernst & Young
LLP1 5,610,505 32,805 39,021
Election of Richard A.
Pavia2 585 26 137
1The number of common shares issued outstanding and eligible to vote were
8,371,563. Quorum was 5,682,332 or 67.88% of eligible voting shares.
2The number of remarketed preferred shares outstanding and eligible to vote as
a
separate class were 1,300 of which 748 (57.54%) were voted.
</TABLE>
14
<PAGE>
<PAGE>
At a Joint Meeting of Shareholders held on September 7, 1995, the
shareholders elected to approve a successor investment advisory agreement which
became effective upon the closing of the merger of the Duff & Phelps Corporation
and Phoenix Securities Group, Inc. (``Phoenix''), an indirect, wholly-owned
subsidiary of Phoenix Home Life Mutual Insurance Company. The shareholders also
approved the election of William W. Crawford as a director of the fund. The
results of the matters voted upon were as follows:
<TABLE>
<CAPTION>
Number of Shares
- -------------------------------------------------
<S> <C> <C> <C>
<C>
Withheld
For Authority
Against Abstain
---------- ----------
- -------- --------
Successor Investment Advisory Agreement 6,396,031
97,965 170,919
Election of William W. Crawford 6,517,779 147,136
The number of common and preferred shares outstanding and eligible to vote were
8,373,061 of
which 6,664,915 or 79.60% have been voted at the September 7, 1995 Joint Meeting
of
Shareholders.
</TABLE>
15
<PAGE>
<PAGE>
- ------------------------------------------------------
- -------------------------------------------------------------------
- -------------------------------------------------------------------
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
This report is for stockholder information. This is not a
prospectus intended for use in the purchase or sale of Fund shares.
264325101
<PAGE>
