<PAGE>
Duff & Phelps
Utilities
Tax-Free
Income Inc.
- ------------------------------------------------------------
Semi-Annual Report
April 30, 1998
<PAGE>
- ----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Portfolio of Investments
April 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
- ----------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS--96.9%
California--15.9%
Foothill/Eastern Trans.
Corridor Agency
California Toll Road
Revenue
Baa $ 5,640 6.00%, 1/1/34, Ser. A.... $ 5,827,925
Fresno Swr. Rev.,
Aaa 3,030 6.00%, 9/1/09,
A.M.B.A.C.............. 3,367,239
Aaa 2,000 6.25%, 9/1/14,
A.M.B.A.C.............. 2,271,860
Pomona California Sngl.
Fam. Mortgage Rev.,
Aaa 2,705 7.375%, 8/1/10........... 3,195,416
Riverside County
California Sngl. Fam.
Rev., Mortgage Backed
Aaa 2,500 7.80%, 5/1/21, Ser. A.... 3,322,775
San Bernardino County California
Residential Mtge. Rev.,
Aaa 7,840(c) 9.60%, 9/1/15
Prerefunded 9/1/96
@$100.................. 11,867,330
Santa Monica Waste Wtr.
Enterprise Rev.,
Hyperion Proj.,
A1 2,000(c) 6.70%, 1/1/22, Ser. A,
Prerefunded 1/1/02
@$102.................. 2,195,400
------------
32,047,945
------------
Colorado--3.2%
Colorado Hsg. Fin. Auth.,
Sngl. Fam. Prog.,
Aa2 2,270 8.00%, 6/1/25............ 2,506,239
Aa2 1,325 8.125%, 6/1/25........... 1,491,910
Colorado Springs Utils.
Rev.,
Aa2 2,300 6.50%, 11/15/15, Ser.
A...................... 2,480,412
------------
6,478,561
------------
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.............. 3,803,765
------------
- ----------------------------------------------------------
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
- ----------------------------------------------------------
Florida--7.1%
Dade County Water & Sewer
Systems Rev.,
Aaa $ 3,000 5.25%, 10/1/26........... $ 2,973,600
Florida St. Bd. Ed. Cap.
Outlay,
Pub. Ed.
Aa2 5,000 5.25%, 6/1/23, Ser. D.... 4,897,350
Martin Cnty. Ind. Dev.
Auth.
Rev., Indiantown Cogen.
Proj.,
Baa3 1,000 7.875%, 12/15/25......... 1,165,330
Reedy Creek Impvt. Dist.
Utils. Rev., Ser. 1,
Aaa 5,500 5.00%, 10/1/19,
M.B.I.A................ 5,331,040
------------
14,367,320
------------
Georgia--6.3%
Mun. Elec. Auth. Pwr.
Rev.,
Ser. Y,
Aaa 2,615 6.40%, 1/1/13,
A.M.B.A.C.............. 2,980,420
Mun. Elec. Auth. Rev.,
Ser. X,
Aaa 2,750 6.50%, 1/1/20,
M.B.I.A.-I.B.C......... 3,213,210
Aaa 5,500 6.50%, 1/1/20,
A.M.B.A.C.............. 6,426,420
------------
12,620,050
------------
Idaho--4.0%
Idaho Housing Agency,
Sngl. Fam. Mortgage
Senior
Aa 4,105 6.65%, 7/1/14, Ser. B.... 4,413,655
Aaa 3,365 6.60%, 7/1/27, Ser. B.... 3,557,781
------------
7,971,436
------------
Illinois--8.5%
Chicago Gas Supply Rev.,
(People's Gas, Lt. &
Coke Co.),
Aa3 4,600 6.875%, 3/1/15........... 5,010,504
Chicago Illinois
Aaa 4,000 6.25%, 1/1/11............ 4,492,800
Chicago Illinois Sales
Tax Rev.,
Aaa 5,000 5.375%, 1/1/27........... 4,981,450
Chicago Waterworks Rev.,
A1 2,500(c) 7.20%, 11/15/16, Ser.
1989
Prerefunded 11/15/99
@$102.................. 2,669,450
------------
17,154,204
------------
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Principal
Moody's Amount Value
Rating (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................ $ 5,526,000
------------
Louisiana--5.5%
St. Charles Parish, Poll. Ctrl. Rev.,
(Louisiana Pwr. & Lt. Co.),
Baa3 3,500 8.25%, 6/1/14............ 3,730,650
Baa3 5,500 8.00%, 12/1/14, Ser.
1989................... 5,930,595
Aaa 1,250 7.00%, 12/1/22........... 1,379,325
------------
11,040,570
------------
Massachusetts--3.0%
Massachusetts St., Wtr.
Res. Auth., Ser. A,
Aaa 5,330 7.00%, 8/1/13,
M.B.I.A................ 6,121,825
------------
Nebraska--2.8%
Omaha Pub. Pwr. Dist.,
Elec. Rev.,
Aa2 2,500 6.15%, 2/1/12, Ser. B.... 2,788,025
Aa2 2,500 6.20%, 2/1/17, Ser. B.... 2,762,650
------------
5,550,675
------------
New York--10.1%
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.................. 4,097,911
New York St. Dorm. Auth.
Rev.,
Comsewogue Pub. Lib.
Insd.
Aaa 2,770 6.00%, 7/1/15,
M.B.I.A................ 2,961,019
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.................... 3,169,110
A1 4,000 7.125%, 12/1/29.......... 4,517,520
New York St. Envir. Fac.
Corp.
Poll. Ctrl. Rev.,
Aaa 5,000 6.90%, 11/15/15.......... 5,671,850
------------
20,417,410
------------
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................ 3,246,540
------------
- ----------------------------------------------------------
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
- ----------------------------------------------------------
Tennessee--1.6%
Tennessee Hsg. Dev.
Agcy.,
Mortgage Finance
Aaa $ 3,135 6.15%, 7/1/15, Ser. B.... $ 3,303,005
------------
Texas--6.7%
Brazos River Auth., Poll.
Ctrl. Rev., (Texas
Utils. Elec.),
Baa1 8,000 7.875%, 3/1/21........... 8,769,120
San Antonio Elec. & Gas
Rev.,
Aaa 3,425(c) 6.50%, 2/1/12, Ser. B.... 3,543,334
Prerefunded 2/1/99
@$101.5
Aa1 1,075 6.50%, 2/1/12, Ser. B.... 1,108,196
------------
13,420,650
------------
Washington--13.9%
Conservation & Renewable
Energy Sys.
Conservation Proj.
Rev.,
Aa1 2,600 6.875%, 10/1/11.......... 2,925,546
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.................. 5,518,000
Snohomish Cnty., Pub.
Utils.
Dist. No. 1 Elec. Rev.,
A1 1,500 6.90%, 1/1/06, Ser. A.... 1,609,860
A1 8,000 5.80%, 1/1/24............ 8,132,800
Washington St. Pub. Pwr. Supply,
Nuclear Proj. No. 1 Rev.,
Aaa 2,500 6.875%, 7/1/17, Ser. A... 2,730,775
Nuclear Proj. No. 2 Rev.,
Aa1 2,400 6.00%, 7/1/07............ 2,591,088
Nuclear Proj. No. 3 Rev.,
Aa1 2,170 6.75%, 7/1/05, Ser. A.... 2,363,043
Aaa 1,000(c) 7.25%, 7/1/15, Ser. B
Prerefunded 1/1/00
@$102.................. 1,069,950
Aa1 1,000 6.50%, 7/1/18............ 1,081,630
------------
28,022,692
------------
Wyoming--2.1%
Wyoming St. Farm Loan
Board Capital Fac.
Rev.,
AA-* 4,000 5.75%, 10/1/20........... 4,300,120
------------
Total long-term
investments
(cost $179,228,599).... 195,392,768
------------
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
- ----------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS--1.4%
Goldman Sachs Tax Exempt
Money Market Fund,
NR $ 2,643 3.69%.................... $ 2,642,895
California Poll. Ctrl.
Fin. Auth. Rev.,
So. Cal. Ed., Ser. 86B
VMIG1 300 4.10%, 2/28/08,
F.R.D.D................ 300,000
------------
Total short-term
investments
(cost $2,942,895)...... 2,942,895
------------
Total Investments--98.3%
(cost $182,171,494).... 198,335,663
Other assets in excess of
liabilities--1.7%...... 3,352,485
------------
Net Assets--100%......... $201,688,148
------------
------------
</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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Statement of Assets and Liabilities
April 30, 1998
(Unaudited)
- ----------------------------------------------------------
<S> <C>
Assets
Investments, at value (cost
$182,171,494)........................ $198,335,663
Cash................................... 22,483
Interest receivable.................... 3,565,078
Receivable for investments sold........ 56,838
------------
Total assets......................... 201,980,062
------------
Liabilities
Accrued expenses....................... 102,343
Dividends payable...................... 87,881
Advisory fee payable (Note 2).......... 78,223
Administration fee payable (Note 2).... 23,467
------------
Total liabilities.................... 291,914
------------
Net Assets............................. $201,688,148
------------
------------
Capital
Remarketed preferred stock ($.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 8,420,679
issued and outstanding).............. 84,207
Paid-in capital........................ 116,258,506
Undistributed net investment income.... 1,483,422
Accumulated net realized gain on
investments.......................... 2,697,844
Net unrealized appreciation on
investments.......................... 16,164,169
------------
Net assets applicable to common stock
(equivalent to $16.23 per share
based on 8,420,679 shares
outstanding)....................... 136,688,148
------------
Total capital (Net assets)........... $201,688,148
------------
------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
6
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Statement of Operations
Six Months Ended April 30, 1998
(Unaudited)
- ----------------------------------------------------------
<S> <C>
Net Investment Income
Income
Interest.............................. $ 5,873,461
-----------
Expenses
Investment advisory fee............... 499,178
Administration fee.................... 149,753
Remarketing expense................... 83,000
Directors' fees and expenses.......... 61,000
Custodian's fees and expenses......... 36,500
Audit fee and expenses................ 21,000
Transfer agent's fees and expenses.... 20,500
Reports to shareholders............... 20,000
Legal fees and expenses............... 10,000
Registration expenses................. 8,500
Miscellaneous......................... 3,118
-----------
Total expenses...................... 912,549
-----------
Net investment income................... 4,960,912
-----------
Realized and Unrealized Loss
on Investments
Net realized loss on investment
transactions.......................... (39,995)
Net change in unrealized
appreciation/depreciation on
investments........................... (94,033)
-----------
Net realized and unrealized loss on
investments........................... (134,028)
-----------
Net Increase in Net Assets
Resulting from Operations............... $ 4,826,884
-----------
-----------
</TABLE>
<TABLE>
- ----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Statement of Changes
In Net Assets
(Unaudited)
- ----------------------------------------------------------
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) April 30, October 31,
in Net Assets 1998 1997
------------ ------------
<S> <C> <C>
Operations:
Net investment income...... $ 4,960,912 $ 9,923,978
Net realized gain on
investment
transactions............. (39,995) 75,567
Net change in unrealized
depreciation of
investments.............. (94,033) 4,101,139
------------ ------------
Net increase in net assets
resulting from
operations............... 4,826,884 14,100,684
Dividends and distributions:
Dividends to common
shareholders from net
investment income........ (4,030,572) (8,052,953)
Dividends to preferred
shareholders from net
investment income........ (1,188,265) (2,341,196)
Capital share transactions
(Note 4)
Value of Fund shares issued
to shareholders in
reinvestment of
dividends................ 263,574 431,295
------------ ------------
Total increase (decrease).... (128,379) 4,137,830
Net Assets
Beginning of period.......... 201,816,527 197,678,697
------------ ------------
End of period................ $201,688,148 $201,816,527
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
7
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
DUFF & PHELPS UTILITIES TAX-FREE INCOME INC.
Financial Highlights
(Unaudited)
- --------------------------------------------------------------------------------
<CAPTION>
Six Months
Ended Year Ended October 31,
PER SHARE OPERATING PERFORMANCE OF COMMON April 30, ------------------------------------------------------------
SHAREHOLDERS: 1998 1997 1996 1995 1994 1993
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........... $ 16.28 $ 15.84 $ 15.90 $ 14.23 $ 16.41 $ 14.14
---------- -------- -------- -------- -------- --------
Net investment income(d)..................... .59 1.18 1.21 1.24 1.24 1.24
Net realized and unrealized gain (loss) on
investments(d)............................... (.02) .50 -- 1.70 (2.25) 2.19
---------- -------- -------- -------- -------- --------
Net increase (decrease) from investment
operations................................... .57 1.68 1.21 2.94 (1.01) 3.43
---------- -------- -------- -------- -------- --------
Dividends from net investment income to:
Preferred shareholders....................... (.14) (.28) (.27) (.31) (.21) (.20)
---------- -------- -------- -------- -------- --------
Common shareholders.......................... (.48) (.96) (.96) (.96) (.96) (.96)
---------- -------- -------- -------- -------- --------
Distributions from net realized gains to:
Preferred shareholders....................... -- -- (.01) -- -- --
---------- -------- -------- -------- -------- --------
Common shareholders.......................... -- -- (.03) -- -- --
---------- -------- -------- -------- -------- --------
Net asset value, end of period(a).............. $ 16.23 $ 16.28 $ 15.84 $ 15.90 $ 14.23 $ 16.41
---------- -------- -------- -------- -------- --------
---------- -------- -------- -------- -------- --------
Per share market value, end of period(a)....... $ 16.94 $ 16.00 $ 15.13 $ 14.38 $ 13.25 $ 16.63
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN OF COMMON
SHAREHOLDERS(b)................................ 8.99% 12.42% 12.19% 16.03% (13.93)% 19.88%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS:(c)
Operating expenses............................. 1.35%(e) 1.35% 1.35% 1.37% 1.35% 1.40%
Net investment income.......................... 7.35%(e) 7.46% 7.69% 8.15% 8.04% 8.00%
SUPPLEMENTAL DATA:
Average net assets of common shareholders
(000)........................................ $ 136,099 $133,055 $132,361 $127,112 $129,300 $129,036
Portfolio turnover............................. 0% 5% 10% 66% 37% 1%
Net assets of common shareholders, end of
period (000)................................. $ 136,688 $136,817 $132,678 $133,124 $119,090 $137,104
Asset coverage per share of preferred stock,
end of period................................ $ 155,145 $155,243 $152,126 $152,403 $141,607 $155,465
Preferred stock outstanding (000).............. $ 65,000 $ 65,000 $ 65,000 $ 65,000 $ 65,000 $ 65,000
</TABLE>
- ---------------
(a) NAV and market value are published in The Wall Street Journal each Monday.
(b) 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.
(c) 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.
(d) Calculated based upon weighted average shares outstanding during the period.
(e) Annualized.
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 60 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 60 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 Investments Fund Management LLC
('PIFM'), 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
9
<PAGE>
<PAGE>
average weekly managed assets. The administration fee paid to PIFM 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. PIFM 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, 1998 aggregated $0 and $434,995, respectively.
The Federal income tax basis of the Fund's investments at April 30, 1998 was
substantially the same as the basis for financial reporting, and, accordingly,
net unrealized appreciation for federal income tax purposes was $16,164,169
(gross unrealized appreciation--$16,164,169; gross unrealized depreciation--$0).
Note 4. Capital There are 600 million shares
of $.01 par value common
stock authorized.
During the six months ended April 30, 1998 the Fund issued 15,920 common
shares in connection with the reinvestment of dividends. For the year ended
October 31, 1997 the Fund issued 27,289 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 3.25% to
4.50% during the six months ended April 30, 1998.
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, 1998,
dividends declared and paid
on preferred shares totalled $372,436. On May 1, and June 1, 1998,
the Board of Directors of the Fund declared dividends of $.08 per
common share payable on May 29, and June 30, 1998, respectively,
to common shareholders of record on May 15, and June 15,
1998, respectively.
10
<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 $5,000, 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 was approved by the
Board on May 27, 1998 and is effective September 1, 1998. 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
11
<PAGE>
<PAGE>
purchases of shares for reinvestment of the dividends and 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.
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 May 27, 1998, shareholders elected
William Crawford, Philip R. McLoughlin and Richard A. Pavia 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, 1998. Francis 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
----------------------------------------------------
Withheld
For Authority Against Abstain
---------- --------- ------- --------
<S> <C> <C> <C> <C>
Election of William Crawford1 7,285,211 102,787
Election of Philip McLoughlin1 7,276,533 111,465
Selection of Ernst & Young LLP1 7,250,961 53,351 83,686
Election of Richard A. Pavia2 1,218
</TABLE>
1The number of common shares issued outstanding and eligible to vote were
8,420,679. Quorum was 7,387,998 or 87.74% of eligible voting shares.
2The number of remarketed preferred shares outstanding and eligible to vote as a
separate class were 1,300 of which 1,218 (93.69%) were voted.
12
<PAGE>
- -------------------------------------------------------------------
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 D. Wehr, Vice President & Chief Investment
Officer
Thomas N. Steenburg, Secretary
James W. Rosenberger, Treasurer & Assistant
Secretary
Investment Adviser
Duff & Phelps Investment Management Co.
55 East Monroe Street
Suite 3800
Chicago, IL 60603
(312) 368-5500
Administrator
Prudential Investments 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, 1998 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
