Duff & Phelps
Utilities
Tax-Free
Income Inc.
- ------------------------------------------------------------
Semi-Annual Report
April 30, 1997
<PAGE>
Letter to
Shareholders
June 13, 1997
Dear Shareholder:
The bond market was relatively calm for the six month period ended
April 30, 1997, as interest rates rose slightly during the period.
The primary catalyst for this moderate uptick in rates was the Federal
Reserve Board's 25 basis point increase in rates on March 25. The
Fed's tightening of monetary policy was precipitated by the concern
that the strength of the U.S. economy might begin to generate some
upward inflationary pressures.
Fund Performance
As you can see on the following page, the Duff and Phelps
Utilities Tax-Free Income Fund underperformed its peers for the
first six months of 1997. The primary reason for the Fund's recent
underperformance has been its emphasis on high-quality utility bonds
which have been among the worst performing sectors of the bond market.
On a more positive note, long-term performance continues to be good
as the Fund was an above average performer in its peer group for
the period ended April 30, 1997. Additionally, the Fund continues
to pay its eight cent per share dividend, maintaining this level
of payment since the Fund's inception in November 1991.
1
<PAGE>
<TABLE>
FUND PERFORMANCE
As of April 30, 1997
<CAPTION>
Six Months Three Years Five Years
Ended Ended Ended
4/30/97 4/30/97 4/30/97
<S> <C> <C> <C>
Duff & Phelps Utilities
Tax-Free Income, Inc.1 1.15% 7.84% 8.77%
Average Lipper General and Insured
Leveraged Municipal Bond Fund Index2 1.91% 7.92% 8.24%
</TABLE>
1 Source: Lipper Analytical Services, Inc. Total return of the
Fund as calculated for the period ended April 30, 1997 is 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 63 closed-end funds for the six
months ended April 30, 1997, 62 closed-end funds for the three
years ended April 30, 1997 and 34 closed-end funds for the five
years ended April 30, 1997 in the General and Insured Leveraged
Municipal Bond Fund Index according to Lipper Analytical Services, Inc.
FUND DIVERSIFICATION
Quality(D) Market Sectors
- ------------------------------------------------------
AAA 48% Electric Utilities 29%
AA 27 Non-Utilities 26
A 11 Pollution Control 21
BBB 14 Water/Sewer Revenue 11
Prerefunded Utilites 8
Cash 5
- ------------------------------------------------------
(D) Duff & Phelp's ratings.
The Municipal Market and Your Fund
While U.S. Treasury rates have risen slightly over the last
six months, tax-exempt interest rates have remained virtually
unchanged. There have been two major factors driving the strong
relative performance of the municipal market over this period.
First, issuance of municipal bonds has declined somewhat on a
year over year basis, driven primarily by the increase in
tax-exempt financing rates. Second, demand for tax-exempt
income has increased as concerns over a "flat tax" have, for
the most part, evaporated from the municipal market.
Within the Fund, we continue to emphasize higher quality
issues, with an average quality rating of AA/Aa and 75% of the
issues rated AA or higher. We have maintained a very high
quality emphasis, in response to an environment of heightened
municipal credit risk, particularly in the electric
2
<PAGE>
utility sector which continues to be plagued by the
rising threat of deregulation. Additionally, we have
employed diversification as an effective tool to mitigate
the level of exposure to the sector in the portfolio.
Consequently, electric utility exposure has been limited
to an historically low level of 29% of the portfolio, and
is offset by an historically high level in the non-utility
sector of 26%.
Outlook
Going forward, we believe the outlook for the municipal bond market
and our Fund remains favorable. The favorable combination of light
municipal supply and strong demand from individuals should continue
to provide a strong backdrop for the tax-exempt bond market. In
spite of growing credit concerns in the electric utility sector
of the municipal market, we continue to mitigate this risk through
an effective combination of strong credit quality and
diversification. Finally, we feel that at current levels, the
dividend yield of 6.24% provides an extremely attractive level
of tax-exempt income.
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. Jeffries, CFA
Chairman of the Board
Calvin J. Pedersen
President and Chief Executive Officer
3
<PAGE>
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DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Portfolio of Investments
April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
- ----------------------------------------------------------
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--93.8%
California--15.4%
Foothill / Eastern Trans.
Corridor Agency
California Toll Road
Revenue
Baa $ 5,640 6.00%, 1/1/34, Ser. A.... $ 5,484,844
Fresno Swr. Rev.,
Aaa 3,030 6.00%, 9/1/09,
A.M.B.A.C.............. 3,248,433
Aaa 2,000 6.25%, 9/1/14,
A.M.B.A.C.............. 2,161,400
Pomona California Sngl.
Fam. Mortgage Rev.,
Aaa 2,705 7.375%, 8/1/10........... 3,005,904
Riverside County
California Sngl. Fam.
Rev., Mortgage Backed
Aaa 2,500 7.80%, 5/1/21, Ser. A.... 3,087,025
San Bernardino County California
Residential Mtge. Rev.,
Aaa 7,840(c) 9.60%, 9/1/15
Prerefunded 9/1/96
@$100.................. 10,879,411
Santa Monica Waste Wtr.
Enterprise Rev., Hyperion Proj.,
A1 2,000(c) 6.70%, 1/1/22, Ser. A,
Prerefunded 1/1/02
@$102.................. 2,188,280
------------
30,055,297
------------
Colorado--5.8%
Colorado Hsg. Fin. Auth.,
Sngl. Fam. Prog.,
Aa2 2,670 8.00%, 6/1/25............ 2,938,175
Aa2 1,570 8.125%, 6/1/25........... 1,764,083
Colorado Springs Utils.
Rev.,
Aa 2,300 6.50%, 11/15/15, Ser.
A...................... 2,458,838
Platte River Pwr. Auth.
Rev.,
Aa3 4,000 6.875%, 6/1/16, Ser.
AA..................... 4,090,160
------------
11,251,256
------------
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.............. 3,758,370
------------
Florida--5.5%
Florida St. Bd. Ed. Cap.
Outlay, Pub. Ed.
Aa2 $ 5,000 5.25%, 6/1/23, Ser. D.... $ 4,600,850
Martin Cnty. Ind. Dev.
Auth. Rev., Indiantown
Cogen Proj.
Baa3 1,000 7.875%, 12/15/25......... 1,127,870
Reedy Creek Impvt. Dist.
Utils. Rev., Ser. 1,
Aaa 5,500 5.00%, 10/1/19,
M.B.I.A................ 4,977,225
------------
10,705,945
------------
Georgia--6.1%
Mun. Elec. Auth. Rev.,
Ser. X,
Aaa 2,750 6.50%, 1/1/20,
M.B.I.A................ 3,042,682
Aaa 5,500 6.50%, 1/1/20,
A.M.B.A.C.............. 6,085,365
Mun. Elec. Auth., Special Oblig.,
Fifth Crossover Ser. Proj. One,
Aaa 2,615 6.40%, 1/1/13,
A.M.B.A.C.............. 2,851,135
------------
11,979,182
------------
Idaho--4.1%
Idaho Housing Agency,
Sngl. Fam. Mortgage
Senior
Aa 4,275 6.65%, 7/1/14, Ser. B.... 4,480,670
Aaa 3,365 6.60%, 7/1/27, Ser. B.... 3,471,301
------------
7,951,971
------------
Illinois--3.9%
Chicago Gas Supply Rev.,
(People's Gas, Lt. &
Coke Co.),
Aa3 4,600 6.875%, 3/1/15........... 4,930,648
Chicago Waterworks Rev.,
A1 2,500(c) 7.20%, 11/15/16, Ser.
1989
Prerefunded 11/15/99
@$102.................. 2,705,000
------------
7,635,648
------------
Indiana--2.7%
Indiana Mun. Pwr. Agcy.,
Pwr. Supply Sys. Rev.,
Aaa 5,000 6.00%, 1/1/13,
M.B.I.A................ 5,227,650
------------
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
<C> <C> <S> <C>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
- ----------------------------------------------------------
Louisiana--5.7%
St. Charles Parish, Poll. Ctrl. Rev.,
(Louisiana Pwr. & Lt. Co.),
Baa3 $ 3,500 8.25%, 6/1/14............ $ 3,793,300
Baa3 5,500 8.00%, 12/1/14, Ser.
1989................... 5,997,255
Aaa 1,250 7.00%, 12/1/22........... 1,365,100
------------
11,155,655
------------
Massachusetts--3.0%
Massachusetts St., Wtr.
Res. Auth., Ser. A,
Aaa 5,330 7.00%, 8/1/13,
M.B.I.A................ 5,889,916
------------
Nebraska--2.7%
Omaha Pub. Pwr. Dist.,
Elec. Rev.,
Aa2 2,500 6.15%, 2/1/12, Ser. B.... 2,695,925
Aa2 2,500 6.20%, 2/1/17, Ser. B.... 2,627,575
------------
5,323,500
------------
New York--10.9%
New York City Mun.
Assist. Corp.,
Aa2 1,000 5.20%, 7/1/08, Ser. E.... 994,900
New York City Mun. Wtr.
Fin. Auth., Wtr. & Swr.
Sys. Rev.,
A2 3,760(c) 7.10%, 6/15/12
Prerefunded 6/15/01
@$101.................. 4,115,207
New York St. Dorm. Auth.
Rev., Comsewogue Pub.
Lib. Insd.
Aaa 2,855 6.00%, 7/1/15,
M.B.I.A................ 2,929,002
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.................... 3,149,790
A1 4,000 7.125%, 12/1/29.......... 4,415,480
New York St. Envir. Fac.
Corp. Poll. Ctrl. Rev.,
Aaa 5,000 6.90%, 11/15/15.......... 5,618,500
------------
21,222,879
------------
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................ 3,226,200
------------
Tennessee--1.6%
Tennessee Hsg. Dev.
Agcy., Mortgage Finance
Aaa 3,135 6.15%, 7/1/15, Ser. B.... 3,196,383
------------
Texas--6.9%
Brazos River Auth., Poll.
Ctrl. Rev., (Texas
Utils. Elec.),
Baa1 $ 8,000 7.875%, 3/1/21........... $ 8,722,320
San Antonio Elec. & Gas
Rev.,
Aa1 4,500 6.50%, 2/1/12, Ser. B.... 4,688,055
------------
13,410,375
------------
Washington--14.0%
Conservation & Renewable
Energy Sys.
Conservation Proj.
Rev.,
Aa1 2,600 6.875%, 10/1/11.......... 2,914,340
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.................. 5,524,750
Snohomish Cnty., Pub.
Utils. Dist. No. 1
Elec. Rev.,
A1 1,500 6.90%, 1/1/06, Ser. A.... 1,602,195
A1 8,000 5.80%, 1/1/24............ 7,644,480
Washington St. Pub. Pwr. Supply,
Nuclear Proj. No. 1 Rev.,
Aaa 2,500 6.875%, 7/1/17, Ser. A... 2,739,700
Nuclear Proj. No. 2 Rev.,
Aa1 2,400 6.00%, 7/1/07............ 2,497,992
Nuclear Proj. No. 3 Rev.,
Aa1 2,170 6.75%, 7/1/05, Ser. A.... 2,321,857
Aaa 1,000(c) 7.25%, 7/1/15, Ser. B
Prerefunded 1/1/00
@$102.................. 1,083,740
Aa1 1,000 6.50%, 7/1/18............ 1,036,290
------------
27,365,344
------------
Wyoming--2.0%
Wyoming St. Farm Loan
Board Capital Fac.
Rev.,
AA 4,000 5.75%, 10/1/20........... 3,984,480
------------
Total long-term
investments
(cost $173,504,092).... 183,340,051
------------
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
<C> <C> <S> <C>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
- ----------------------------------------------------------
SHORT-TERM INVESTMENTS--2.7%
Goldman Sachs Tax Exempt
Money Market Fund,
NR $ 4,948 3.76%.................... $ 4,947,790
California Poll. Ctrl.
Fin. Auth. Rev., So.
Cal. Ed., Ser. 86B
VMIG1 300 3.85%, 5/1/97,
F.R.D.D................ 300,000
------------
Total short-term
investments
(cost $5,247,790)...... 5,247,790
------------
Total Investments--96.5%
(cost $178,751,882).... 188,587,841
Other assets in excess of
liabilities--3.5%...... 6,861,662
------------
Net Assets--100%......... $195,449,503
------------
------------
</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
Daily 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, 1997
(Unaudited)
- ----------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at value (cost
$178,751,882)......................... $188,587,841
Cash.................................... 38,802
Interest receivable..................... 3,664,517
Receivable for investments sold......... 3,601,016
Deferred expenses and other assets...... 3,034
------------
Total assets.......................... 195,895,210
------------
Liabilities
Accrued expenses........................ 260,999
Dividends payable....................... 87,586
Advisory fee payable (Note 2)........... 74,709
Administration fee payable (Note 2)..... 22,413
------------
Total liabilities..................... 445,707
------------
Net Assets.............................. $195,449,503
------------
------------
Capital
Remarketed preferred stock ($.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
8,388,723 issued and outstanding)..... 83,887
Paid-in capital......................... 115,737,441
Undistributed net investment income..... 2,023,446
Accumulated net realized gain on
investments........................... 2,768,770
Net unrealized appreciation on
investments........................... 9,835,959
------------
Net assets applicable to common stock
(equivalent to $15.55 per share
based on 8,388,723 shares
outstanding)........................ 130,449,503
------------
Total capital (Net assets)............ $195,449,503
------------
------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
6
<PAGE>
- ----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Statement of Operations
Six Months Ended April 30, 1997
(Unaudited)
- ----------------------------------------------------------
<TABLE>
<S> <C>
Net Investment Income
Income
Interest............................... $ 5,914,333
-----------
Expenses
Investment advisory fee................ 490,235
Administration fee..................... 147,070
Remarketing expense.................... 83,000
Directors' fees and expenses........... 49,000
Reports to shareholders................ 32,000
Transfer agent's fees and expenses..... 32,000
Custodian's fees and expenses.......... 30,000
Audit fee and expenses................. 21,000
Registration expenses.................. 8,000
Legal fees and expenses................ 5,000
Amortization of deferred organization
expense................................ 900
Miscellaneous.......................... 5,316
-----------
Total expenses....................... 903,521
-----------
Net investment income.................... 5,010,812
-----------
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain on investment
transactions........................... 106,498
Net change in unrealized
appreciation/depreciation on
investments............................ (2,321,104)
-----------
Net realized and unrealized loss on
investments............................ (2,214,606)
-----------
Net Increase in Net Assets
Resulting from Operations................ $ 2,796,206
-----------
-----------
</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 1997 1996
------------ ------------
<S> <C> <C>
Operations:
Net investment income....... $ 5,010,812 $ 10,178,624
Net realized gain on
investment transactions... 106,498 538,321
Net change in unrealized
appreciation/depreciation
of investments............ (2,321,104) (565,783)
------------ ------------
Net increase in net assets
resulting from
operations................ 2,796,206 10,151,162
Dividends and distributions:
Dividends to common
shareholders from net
investment income......... (4,065,804) (8,081,172)
Dividends to preferred
shareholders from net
investment income......... (1,133,080) (2,271,066)
Distributions to
shareholders from net
realized gains
Common.................... -- (251,153)
Preferred................. -- (81,973)
------------ ------------
Capital share transactions
(Note 4):
Value of Fund shares issued
to shareholders in
reinvestment of
dividends................. 173,484 88,551
------------ ------------
Total (decrease).............. (2,229,194) (445,651)
Net Assets
Beginning of period........... 197,678,697 198,124,348
------------ ------------
End of period................. $195,449,503 $197,678,697
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
7
<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: 1997 1996 1995 1994 1993 1992
----------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period....... $ 15.84 $ 15.90 $ 14.23 $ 16.41 $ 14.14 $ 14.05
----------- -------- -------- -------- -------- ------------
Net investment income(g)................. .60 1.21 1.24 1.24 1.24 1.06
Net realized and unrealized gain (loss)
on investments(g)........................ (.27) -- 1.70 (2.25) 2.19 .20
----------- -------- -------- -------- -------- ------------
Net increase (decrease) from investment
operations............................... .33 1.21 2.94 (1.01) 3.43 1.26
----------- -------- -------- -------- -------- ------------
Dividends from net investment income to:
Preferred shareholders................... (.14) (.27) (.31) (.21) (.20) (.18)
----------- -------- -------- -------- -------- ------------
Common shareholders...................... (.48) (.96) (.96) (.96) (.96) (.72)
----------- -------- -------- -------- -------- ------------
Distributions from net realized gains to:
Preferred shareholders................... -- (.01) -- -- -- --
----------- -------- -------- -------- -------- ------------
Common shareholders...................... -- (.03) -- -- -- --
----------- -------- -------- -------- -------- ------------
Capital charge with respect to issuance of
common stock............................. -- -- -- -- -- (.27)
----------- -------- -------- -------- -------- ------------
Net asset value, end of period(b).......... $ 15.55 $ 15.84 $ 15.90 $ 14.23 $ 16.41 $ 14.14(c)
----------- -------- -------- -------- -------- ------------
----------- -------- -------- -------- -------- ------------
Per share market value, end of period(b)... $ 15.38 $ 15.13 $ 14.38 $ 13.25 $ 16.63 $ 14.75
----------- -------- -------- -------- -------- ------------
----------- -------- -------- -------- -------- ------------
TOTAL INVESTMENT RETURN OF COMMON
SHAREHOLDERS(d)............................ 4.84% 12.19% 16.03% (13.93)% 19.88% 10.32%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS:(f)
Operating expenses......................... 1.38%(e) 1.35% 1.37% 1.35% 1.40% 1.35%(e)
Net investment income...................... 7.66%(e) 7.69% 8.15% 8.04% 8.00% 8.23%(e)
SUPPLEMENTAL DATA:
Average net assets of common shareholders
(000).................................... $ 131,995 $132,361 $127,112 $129,300 $129,036 $ 114,518
Portfolio turnover......................... 2% 10% 66% 37% 1% 35%
Net assets of common shareholders, end of
period (000)............................. $ 130,450 $132,678 $133,124 $119,090 $137,104 $ 117,211
Asset coverage per share of preferred
stock, end of period..................... $ 150,346 $152,126 $152,403 $141,607 $155,465 $ 140,162
Preferred stock outstanding (000).......... $ 65,000 $ 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>
- ----------------------------------------------------------
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. Net 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. For the current fiscal year end the Fund has
retained net realized capital gains. Proper accrual for the tax liability has
been made with respect to these undistributed 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.
Use of Estimates: The preparation of financial statements in conformity with
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.
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 Phoenix Duff & Phelps Corporation, and an
Administration Agreement with Prudential Mutual Fund Management LLC. ('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
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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.
Note 3. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for the six months ended
April 30, 1997 aggregated $3,007,742 and $3,820,000, respectively.
The Federal income tax basis of the Fund's investments at April 30, 1997 was
substantially the same as the basis for financial reporting, and, accordingly,
net unrealized appreciation for federal income tax purposes was $9,835,959
(gross unrealized appreciation--$10,080,884; gross unrealized
depreciation--$244,925).
Note 4. Capital There are 600 million shares of
$.01 par value common
stock authorized.
During the six months ended April 30, 1997 the Fund issued 11,253 common
shares in connection with the reinvestment of dividends. For the year ended
October 31, 1996 the Fund did issue 5,709 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 4.50% to
3.15% during the six months ended April 30, 1997.
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, 1997,
dividends declared and paid on preferred shares
totalled $199,264. On May 1, and June 2, 1997, the Board of Directors of the
Fund declared dividends of $.08 per common share payable on May 30, and June 30,
1997, respectively, to common shareholders of record on May 15, and June 15,
1997, respectively.
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Directors
Francis E. Jeffries, Chairman
E. Virgil Conway
William W. Crawford
William N. Georgeson
Philip R. McLoughlin
Everett L. Morris
Eileen A. Moran
Richard A. Pavia
Harry Dalzell-Payne
Officers
Calvin J. Pedersen, President & Chief Executive
Officer
James P. Wehr, Vice President & Chief Investment
Officer
Thomas N. Steenburg, Secretary
Forest D. Richardson, 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 LLC.
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Call toll free (800) 225-1852
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
233 South Wacker Drive
Chicago, IL 60606
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom (Chicago)
333 West Wacker Drive
Chicago, IL 60606
The accompanying financial statements as of April 30, 1997 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.
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