<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Co-Registrants [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
[_] Definitive Proxy Statement COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
DUFF & PHELPS UTILITIES TAX-FREE INCOME INC.
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
(Names of Co-Registrants as Specified In Their Charters)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
DUFF & PHELPS UTILITIES TAX-FREE INCOME INC.
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
55 EAST MONROE STREET
CHICAGO, ILLINOIS 60603
TELEPHONE (312) 263-2610
NOTICE OF JOINT ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 27, 1998
To the Shareholders of:
Duff & Phelps Utilities Tax-Free Income Inc.
Duff & Phelps Utility and Corporate Bond Trust Inc.
NOTICE IS HEREBY GIVEN to the holders of shares of common stock, par value
$.01 per share ("Common Shares"), of each of Duff & Phelps Utilities Tax-Free
Income Inc. ("DTF") and Duff & Phelps Utility and Corporate Bond Trust Inc.
("DUC") (DTF and DUC sometimes being referred to herein individually as a
"Fund" and collectively as the "Funds") and to the holders of shares of
preferred stock, liquidation preference $50,000 per share, designated
Remarketed Preferred Stock (the "RP") of DTF, that the Annual Meetings of the
Shareholders of DTF and DUC (the "Meeting") will be held jointly at Phoenix
Home Life Mutual Insurance Company, One American Row, Hartford, Connecticut
06102, on May 27, 1998 at 8:00 a.m., for the following purposes:
1. ELECT DIRECTORS: To elect directors of each Fund in the following
manner:
(a) with respect to DTF, to elect two directors, each to be elected
by the holders of Common Shares of DTF and holders of RP of DTF, voting
together as a single class, to serve until the Annual Meeting in 2001
or until successors are duly elected and qualified;
(b) with respect to DTF, to elect one director by the holders of the
shares of RP of DTF, voting as a separate class, to serve until the
Annual Meeting in 2001 or until a successor is duly elected and
qualified; and
(c) with respect to DUC, to elect three directors by the holders of
Common Shares of DUC, to serve until the Annual Meeting in 2001 or
until successors are duly elected and qualified.
2. AMENDED AND RESTATED INVESTMENT ADVISORY AGREEMENT: To approve or
disapprove, with respect to DUC, an amended and restated investment
advisory agreement with Duff & Phelps Investment Management Co., to be
voted on by the holders of Common Shares of DUC.
3. INDEPENDENT AUDITORS: To ratify or reject the independent auditors for
DTF and DUC in the following manner:
(a) with respect to DTF, to ratify or reject, by the holders of
Common Shares of DTF and holders of RP of DTF, voting together as a
single class, the selection of Ernst & Young LLP as independent
auditors for the Fund's fiscal year ending October 31, 1998; and
(b) with respect to DUC, to ratify or reject, by the holders of
Common Shares of DUC, the selection of Ernst & Young LLP as independent
auditors for the Fund's fiscal year ending December 31, 1998.
4. OTHER BUSINESS: To transact such other business as may properly come
before the Meeting.
Holders of record of Common Shares of each of the Funds and holders of
record of shares of RP of DTF, in each case at the close of business on April
9, 1998 are entitled to notice of and to vote at the Meeting and any
adjournment thereof.
By order of the Boards of Directors
of DTF and DUC
Thomas N. Steenburg, Secretary
April , 1998
<PAGE>
SHAREHOLDERS OF EACH OF THE FUNDS ARE INVITED TO ATTEND THE MEETING IN
PERSON. IF YOU DO NOT EXPECT TO ATTEND THE MEETING, PLEASE INDICATE YOUR
VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD WITH RESPECT TO EACH FUND IN
WHICH YOU WERE A SHAREHOLDER AS OF THE RECORD DATE, DATE AND SIGN IT, AND
RETURN IT IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED FOR YOUR CONVENIENCE
AND NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES.
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE ASK
THAT YOU MAIL YOUR PROXY PROMPTLY.
MANAGEMENT OF EACH FUND RECOMMENDS THAT YOU CAST YOUR VOTE IN FAVOR OF THE
NOMINEES FOR THE BOARDS OF DIRECTORS LISTED IN THE JOINT PROXY STATEMENT AND
FOR THE RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS OF EACH OF THE FUNDS. MANAGEMENT OF DUC RECOMMENDS THAT YOU CAST YOUR
VOTE IN FAVOR OF APPROVAL OF THE AMENDED AND RESTATED INVESTMENT ADVISORY
AGREEMENT.
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY CARD PROMPTLY
NO MATTER HOW MANY SHARES YOU OWN.
<PAGE>
JOINT PROXY STATEMENT
DUFF & PHELPS UTILITIES TAX-FREE INCOME INC.
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
55 EAST MONROE STREET
CHICAGO, ILLINOIS 60603
TELEPHONE (312) 263-2610
JOINT ANNUAL MEETING OF SHAREHOLDERS
MAY 27, 1998
INTRODUCTION
This Joint Proxy Statement is furnished in connection with the solicitation
by the Boards of Directors of Duff & Phelps Utilities Tax-Free Income Inc.
("DTF") and Duff & Phelps Utility and Corporate Bond Trust Inc. ("DUC") of
proxies to be voted at the Joint Annual Meeting of Shareholders of DTF and
DUC, and at any and all adjournments thereof (the "Meeting"), to be held at
Phoenix Home Life Mutual Insurance Company, One American Row, Hartford,
Connecticut 06102, on May 27, 1998 at 8:00 a.m. The approximate mailing date
of this Joint Proxy Statement and accompanying forms of proxy is April ,
1998. DTF and DUC sometimes are referred to herein individually as a "Fund"
and collectively as the "Funds".
The Boards of Directors have fixed the close of business on April 9, 1998 as
the record date (the "Record Date") for the determination of holders of shares
of common stock, par value $.01 per share ("Common Shares"), of each of DTF
and DUC and holders of shares of preferred stock, liquidation preference
$50,000 per share, designated Remarketed Preferred Stock ("RP") of DTF,
entitled to vote at the Meeting (Common Shares and RP being referred to herein
collectively as "Shares"). Holders of Shares on such Record Date will be
entitled to one vote for each Share held, with no Share having cumulative
voting rights. As of , 1998, there were issued and
outstanding Common Shares of DTF and issued and outstanding shares of RP
of DTF, and issued and outstanding Common Shares of DUC.
As of April 9, 1997, to the knowledge of management of each Fund, no person
beneficially owned more than 5% of the outstanding Common Shares of DTF or DUC
or the outstanding shares of RP of DTF.
The Meeting is scheduled as a joint meeting of the respective Shareholders
of the Funds because the Shareholders of each Fund are expected to consider
and vote on similar matters. The Boards of Directors have determined that the
use of a joint proxy statement for the Meeting is in the best interest of the
Shareholders of each Fund. In the event that any Shareholder of a Fund present
at the Meeting objects to the holding of a joint meeting and moves for an
adjournment of such Fund's meeting to a time immediately after the Meeting, so
that such Fund's meeting may be held separately, the persons named as proxies
will vote in favor of such adjournment. Shareholders of each Fund will vote
separately on each of the proposals relating to their respective Fund, and an
unfavorable vote on a proposal by the Shareholders of one Fund will not affect
the implementation by the other Fund of such proposal if the Shareholders of
such other Fund approve the proposal.
With respect to DTF, the holders of shares of RP will vote together with the
holders of Common Shares of DTF as a single class on all proposals to be
brought before the Meeting, except with respect to the proposal to elect
Richard A. Pavia to serve as a Class III Director of DTF for which proposal
the holders of shares of RP will vote as a separate class.
<PAGE>
SUMMARY OF VOTING ON PROPOSALS
<TABLE>
<CAPTION>
CLASSES OF SHARES OF
AFFECTED SUCH FUNDS ENTITLED
PROPOSAL FUNDS TO VOTE
-------- -------- --------------------
<S> <C> <C>
1(a) DTF Common Shares and RP
1(b) DTF RP
1(c) DUC Common Shares
2 DUC Common Shares
3(a) DTF Common Shares and RP
3(b) DUC Common Shares
</TABLE>
The voting requirement for passage of a particular proposal depends on the
nature of the particular proposal. Proposal 1 requires the affirmative vote of
a plurality of the Shares of a Fund entitled to vote thereon present at the
Meeting in person or by proxy and voting to elect the respective nominees as
Directors. Proposal 2 requires the affirmative vote of the lesser of (i) 67%
or more of the Common Shares of DUC present at the Meeting in person or by
proxy if the holders of more than 50% of the outstanding Common Shares of DUC
are present in person or represented by proxy or (ii) more than 50% of the
outstanding Common Shares of DUC. Proposal 3 requires the affirmative vote of
a majority of the Shares of a Fund entitled to vote thereon present at the
Meeting in person or by proxy and voting to ratify the selection of the
independent auditors.
On the matters coming before the Meeting as to which a choice has been
specified by the Shareholders by means of the ballot on the proxy, the
respective Shares will be voted accordingly. Shares not voted with respect to
a proposal due to an abstention or broker non-vote will be deemed votes not
cast with respect to such proposal, but such Shares will be deemed present for
quorum purposes. Management of each Fund recommends that you cast your vote IN
FAVOR of the nominees for Directors of each Fund listed in this Joint Proxy
Statement, IN FAVOR of the approval of an amended and restated investment
advisory agreement for DUC and FOR ratification of the selection of Ernst &
Young LLP as independent auditors for each of DTF's and DUC's fiscal year
ending in 1998. If a proxy is executed and returned and no choice is specified
thereon, the Shares will be voted IN FAVOR of the nominees for Directors of
each Fund listed in this Joint Proxy Statement, IN FAVOR of the approval of an
amended and restated investment advisory agreement for DUC and FOR
ratification of the selection of Ernst & Young LLP as independent auditors for
each of DTF's and DUC's fiscal year ending in 1998. Shareholders who execute
proxies may revoke them at any time before they are voted by filing with the
respective Fund a written notice of revocation, by delivering a duly executed
proxy bearing a later date, or by attending the Meeting and voting in person.
The Boards of Directors of the Funds know of no business other than that
mentioned in Proposals 1, 2 and 3 in the Notice of Meeting which will be
presented for consideration at the Meeting. If any other matters are properly
presented, it is the intention of the persons named on the enclosed proxy to
vote proxies in accordance with their best judgment. In the event a quorum is
present at the Meeting but sufficient votes to approve any of the proposals
are not received, the persons named as proxies may propose one or more
adjournments of such Meeting to permit further solicitation of proxies,
provided they determine such an adjournment and additional solicitation is
reasonable and in the interest of Shareholders based on a consideration of all
relevant factors, including the nature of the relevant proposal, the
percentage of votes then cast, the percentage of negative votes then cast, the
nature of the proposed solicitation activities and the nature of the reasons
for such further solicitation.
Duff & Phelps Investment Management Co. (the "Adviser") is the investment
adviser for each of the Funds. The Adviser has acted as investment adviser for
each Fund since they commenced investment operations.
2
<PAGE>
The Adviser is a wholly-owned subsidiary of Phoenix Duff & Phelps Corporation
("PD&P"). The address of the Adviser is 55 East Monroe Street, Chicago,
Illinois 60603. The address of PD&P is 56 Prospect Street, Hartford,
Connecticut 06115. PD&P is a majority-owned subsidiary of PM Holdings, Inc. PM
Holdings, Inc. is a wholly-owned subsidiary of Phoenix Home Life Mutual
Insurance Company, a New York mutual life insurance company ("Phoenix Home
Life"). The address of Phoenix Home Life is One American Row, Hartford,
Connecticut 06115.
THE ANNUAL REPORTS TO SHAREHOLDERS OF EACH FUND, WHICH INCLUDES FINANCIAL
STATEMENTS OF EACH FUND AS OF ITS 1997 FISCAL YEAR END, HAVE PREVIOUSLY BEEN
MAILED TO SHAREHOLDERS. EACH FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF SUCH
REPORTS TO SHAREHOLDERS WHO REQUEST THEM BY CONTACTING THE ADMINISTRATOR OF
THE RESPECTIVE FUND AS SET FORTH ON PAGE 17 OF THIS PROXY.
PROPOSAL 1: ELECTION OF DIRECTORS
At the Meeting, Shareholders of each Fund will vote for the election of
nominees to serve as Directors of their respective Fund. The Board of
Directors of each of DTF and DUC currently is comprised of the same nine
Directors: Messrs. Conway, Crawford, Dalzell-Payne, Georgeson, Jeffries,
McLoughlin, Morris and Pavia, and Ms. Moran. Messrs. Georgeson, Jeffries,
Morris and Pavia have each served on the Boards of Directors of DTF and DUC
since the commencement of operations of the respective Funds. Mr. Crawford was
elected to serve on the Boards of Directors of DTF and DUC effective November
1, 1995. Mr. Conway was appointed to serve on the Boards of Directors of DTF
and DUC effective December 21, 1995. Messrs. Crawford and Conway were first
elected by the Shareholders of each respective Fund at a joint meeting of such
Shareholders on May 15, 1996. Messrs. Dalzell-Payne and McLoughlin were
appointed to serve on the Boards of Directors of DTF and DUC effective July 1,
1996. Ms. Moran was appointed to serve on the Boards of Directors of DTF and
DUC effective August 22, 1996. Messrs. Dalzell-Payne and McLoughlin and Ms.
Moran were first elected by the Shareholders of each respective Fund at a
joint meeting of such Shareholders on May 28, 1997.
The table below sets forth the names, ages, principal occupations and other
information with respect to each of the current Directors.
<TABLE>
<CAPTION>
COMMON
PRINCIPAL OCCUPATIONS OR SHARES RP
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS FUND OWNED/1/ OWNED/1/
- --------------------- -------------------------- ---- -------- --------
<S> <C> <C> <C> <C>
E. Virgil Conway Chairman and Board Member of the Metropolitan DTF -- --
9 Rittenhouse Road Transportation Authority (1992-present). DUC --
Bronxville, NY 10708 Trustee/Director of Consolidated Edison Company of
Age: 68 New York, Inc. (1970-present), Pace University
(1978-present), Atlantic Mutual Insurance Company
(1974-present), HRE Properties (1989-present), Union
Pacific Corp. (1978-present), Atlantic Reinsurance
Company (1986-present), Blackstone Fund for Freddie
Mac Securities (Advisory Director) (1990-present)
Centennial Insurance Company (1974-present), Josiah
Macy, Jr., Foundation (1973-present), Trism, Inc.
(1994-present), Accuhealth, Inc. (1994-present),
Realty Foundation of New York (1972-present),
National Affiliated Investment Companies (1983-
1993). Chairman (1990-1996), Audit Committee
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
COMMON
PRINCIPAL OCCUPATIONS OR SHARES RP
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS FUND OWNED/1/ OWNED/1/
--------------------- -------------------------- ---- -------- --------
<C> <S> <C> <C> <C>
of the City of New York (Member, 1981-1996).
Director/Trustee, Phoenix Funds (1993-
present), Phoenix Duff & Phelps Institutional
Mutual Funds (1995-present), Phoenix-Aberdeen
Series Fund (1996-present). Chairman and
Director of New York Housing Partnership
Development Corp. (1981-present). Chairman of
Financial Accounting Standards Advisory
Counsel (1992-1995). Former Director, New
York Chamber of Commerce and Industry (1974-
1990).
William W. Crawford Mr. Crawford currently is retired and is the DTF 1,000 --
3003 Gulf Shore Blvd. North former President and Chief Operating Officer DUC 1,000
Naples, FL 33940 of Hilliard, Lyons, Inc., a registered
Age: 69 broker-dealer. Mr. Crawford also is a Trustee
of Phoenix Duff & Phelps Institutional Mutual
Funds.
Harry Dalzell-Payne Director/Trustee, Phoenix Funds (1993- DTF -- --
330 East 39th Street present). Director, Phoenix Duff & Phelps DUC --
Apartment 29G Institutional Mutual Funds (1996-present).
New York, NY 10016 Trustee, Phoenix-Aberdeen Series Fund (1996-
Age: 69 present). Director, Farragut Mortgage Co.,
Inc. (1991-1994). Director/Trustee, the
National Affiliated Investment Companies
(1983-1993). Formerly a Major General of the
British Army.
William N. Georgeson Mr. Georgeson currently is retired and is a DTF 2,000 --
575 Glenwood Road former DUC 2,703
Lake Forest, IL 60045 Vice President of Nuveen Advisory Corp., an
Age: 70 investment adviser. Mr. Georgeson also is a
Trustee of Phoenix Duff & Phelps
Institutional Mutual Funds.
Francis E. Jeffries*,/3/ Mr. Jeffries is the Chairman of the Board of DTF 27,787 --
55 East Monroe Street Directors of DTF and DUC. Until May 13, 1997, DUC 14,334
Chicago, IL 60603 Mr. Jeffries was Chairman of the Board of
Age: 67 PD&P and he is currently a Director of The
Empire District Electric Company. Prior to
July 1995, Mr. Jeffries was also President of
the predecessor of PD&P and Chairman of the
Board of the Adviser. Since 1996, he is also
a Director/Trustee of Phoenix Funds, Phoenix
Duff & Phelps Institutional Mutual Funds and
Phoenix-Aberdeen Series Fund. Since 1987, he
has been a Director of Duff & Phelps
Utilities Income, Inc.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
COMMON
PRINCIPAL OCCUPATIONS OR SHARES RP
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS FUND OWNED/1/ OWNED/1/
--------------------- -------------------------- ---- -------- --------
<S> <C> <C> <C> <C>
Philip R. McLoughlin* Director and Chief Executive Officer (1995- DTF -- --
One American Row present) and Chairman (1997-present), Phoenix DUC --
Hartford, CT 06102 Duff & Phelps Corporation. Director (1994-
Age: 52 present) and Executive Vice President,
Investments, (1988-present) Phoenix Home Life
Mutual Insurance Company. Director/Trustee
and President, Phoenix Funds (1989-present).
Trustee, Phoenix-Aberdeen Series Fund (1996-
present). Director (1986-present) Aberdeen
Asset Management plc. Director, (1983-
present) and Chairman (1995-present) Phoenix
Investment Counsel, Inc. Director (1984-
present) and President (1990-present),
Phoenix Equity Planning Corporation.
Director, Phoenix Realty Group, Inc. (1994-
present), Phoenix Realty Advisers, Inc.
(1987-present), Phoenix Realty Investors,
Inc. (1994-present), Phoenix Realty
Securities, Inc. (1994-present), PXRE
Corporation (Delaware) (1985-present), and
World Trust Fund (1991-present). Director and
Executive Vice President, Phoenix Life and
Annuity Company (1996-present), Director and
Executive Vice President, PHL Variable
Insurance Company (1995-present), and
Director, Phoenix Charter Oak Trust Company
(1996-present). Director (1994-present),
Chairman (1996-present) and Chief Executive
Officer (1995-1996), National Securities &
Research Corporation and Director and
President, Phoenix Securities Group, Inc.
(1993-1996). Director (1992-present) and
President (1992-1994), W.S. Griffith & Co.,
Inc. (1992-1995) and Director (1992-present)
and President (1992-1994), Townsend Financial
Advisers, Inc. Director and Vice President,
PM Holdings, Inc. (1985-present).
Eileen A. Moran President and Chief Executive Officer, Public DTF -- --
23 Woodland Drive Service Resources Corporation (1990-present). DUC 500
East Windsor, NJ 08520 Director, Phoenix Duff & Phelps Institutional
Age: 44 Mutual Funds (1996-present).
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
COMMON
PRINCIPAL OCCUPATIONS OR SHARES RP
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS FUND OWNED/1/ OWNED/1/
- --------------------- -------------------------- ---- -------- --------
<S> <C> <C> <C> <C>
Everett L. Morris/2/ Mr. Morris is a Vice President of W. H. DTF 27,838 --
164 Laird Road Reaves and Company. Prior to March 1993, Mr. DUC 4,303
Colts Neck, NJ 07722 Morris was a Director of Public Service
Age: 69 Enterprise Group Incorporated and President
and Chief Operating Officer of Enterprise
Diversified Holdings Incorporated. Prior to
January 1992, Mr. Morris was Senior Executive
Vice President and Chief Financial Officer of
Public Service Electric and Gas Company.
Prior to 1991, Mr. Morris was a director of
First Fidelity Bank, N.A., N.J. Since 1996 he
is also a Director/Trustee of Phoenix Funds,
Phoenix Duff & Phelps Institutional Mutual
Funds and Phoenix-Aberdeen Series Fund.
Richard A. Pavia/2/ Mr. Pavia is a Director of Speer Financial, DTF 3,816 --
7145 North Ionia Inc., a regional company specializing in DUC 3,753
Chicago, IL 60646 public finance. Mr. Pavia has retired from
Age: 67 his position as Chairman and Chief Executive
Officer of Speer Financial, Inc. Mr. Pavia
also is a Trustee of Phoenix Duff & Phelps
Institutional Mutual Funds.
</TABLE>
- --------
* "Interested person" of the Funds (within the meaning of Section 2(a)(19) of
the Investment Company Act of 1940, as amended (the "1940 Act")) by reason
of being interested persons of the Adviser.
/1Ownership/of DTF and DUC shares is shown as of , 1998, and such
ownership can be direct or beneficial.
/2Directors/of DTF to be elected by the holders of the RP voting as a separate
class.
/3Mr./Jeffries disclaims beneficial ownership of 8,774 of the DTF shares
listed and 1,558 of DUC shares listed.
Each Board of Directors held four meetings during its respective 1997 fiscal
year. Each Director attended at least 75% of the meetings of the Board of
Directors held during the period for which he was a Director.
Each Fund has an audit committee and nominating committee consisting of
Messrs. Conway, Crawford, Dalzell-Payne, Georgeson, Morris, and Pavia and Ms.
Moran, those Directors who are not "interested persons" of the Funds as
defined in the 1940 Act. The audit committee is responsible for supervision of
the Funds' independent accountants, the annual review of the Funds' investment
advisory agreements and any other matters requiring the approval of the
Directors who are not "interested persons" of the Funds pursuant to the 1940
Act. The nominating committee is responsible for nominating directors and will
only consider candidates proposed and selected by Directors to serve on the
Board of Directors. The audit committee of DUC each held three meetings during
such Fund's 1997 fiscal year. The audit committee and nominating committee of
DTF held three meetings and one meeting, respectively, during such Fund's 1997
fiscal year. Each Director attended at least 75% of the meetings of the audit
committee and nominating committee held during the period for which he was a
Director.
Each Director who is an "affiliated person" of the Adviser (within the
meaning of Section 2(a)(3) of the 1940 Act) by reason of being a full-time
employee of the Adviser receives no compensation from the Funds for
acting as director. Each of the other Directors is paid the following amounts
for his or her service as a Director: (i) an annual fee of $24,000
(representing a combined retainer for directorships held by such person for
each of
6
<PAGE>
the Funds), which amount is allocated among the Funds with $16,000 of such
annual fee being allocated to DUC and $8,000 of such annual fee being
allocated to DTF; (ii) an additional $2,500 to any Director who serves as a
chairman of a committee of the Board of Directors; (iii) an attendance fee of
$1,000 per regular meeting; (iv) an attendance fee of $500 per committee
meeting; and (v) all out-of-pocket expenses of such members incurred in
connection with each of the foregoing meetings. The following table summarizes
the compensation paid to Directors of each Fund for its respective fiscal year
ended in 1997:
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION TOTAL
FROM EACH FUND ESTIMATED COMPENSATION
FOR WHICH DIRECTOR RETIREMENT ANNUAL FROM THE
SERVES ON BOARD/2/ BENEFITS BENEFITS FUNDS AND
------------------- ACCRUED AS PART UPON FUND
NAME/1/ DTF DUC OF FUND EXPENSES RETIREMENT COMPLEX/3/
- ------- --------- --------- ---------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
E. Virgil Conway........ $ 11,980 $ 23,020 N/A N/A $42,500
William W. Crawford..... $ 14,738 $ 23,020 N/A N/A $42,258
Harry Dalzell-Payne..... $ 11,980 $ 23,020 N/A N/A $41,750
William N. Georgeson.... $ 11,980 $ 25,520 N/A N/A $43,750
Francis E. Jeffries..... $ 9,360 $ 21,520 N/A N/A $37,130
Eileen A. Moran......... $ 11,980 $ 23,020 N/A N/A $41,250
Everett L. Morris....... $ 16,980 $ 25,520 N/A N/A $50,000
Richard A. Pavia........ $ 11,980 $ 23,020 N/A N/A $42,000
</TABLE>
- --------
/1Mr./McLoughlin was an "affiliated person" of the Adviser by reason of being
a full-time employee of the Adviser during the last fiscal year of the Funds
and did not receive any compensation directly from the Funds.
/2The/amounts shown are for each Fund's fiscal year ended in 1997.
/3The/Fund Complex is comprised of eight funds, including DTF, DUC and six
funds included in Phoenix Duff & Phelps Institutional Mutual Funds. The
amounts shown are accumulated from the Aggregate Compensation from each fund
in the Fund Complex during such fund's fiscal year ended in 1997. Messrs.
Conway, Dalzell-Payne, Jeffries and Morris also serve as directors of other
investment companies which are advised by affiliated persons of the Adviser.
Combining the Fund Complex with such other investment companies, Messrs.
Conway, Dalzell-Payne, Jeffries and Morris received Total Compensation of
$109,500, $100,250, $113,630 and $107,000, respectively, for each fund's
respective fiscal year ended in 1997.
The following table sets forth certain information concerning the principal
executive officers of the Funds. The officers serve until their respective
successors are chosen and qualified. The Funds' officers receive no
compensation from the Funds but are also officers of the Adviser or PD&P and
receive compensation in such capacities. Unless otherwise specified, the
address of each of the following persons is 55 East Monroe Street, Chicago,
Illinois 60603.
<TABLE>
<CAPTION>
POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUNDS IN PAST 5 YEARS
- ------------ ------------------ ---------------------------
<S> <C> <C>
Calvin J. Pedersen...... President, Chief Mr. Pedersen is President of PD&P,
Age: 56 Executive Officer and Treasurer of Chairman of the Board of the Adviser,
DTF and DUC President and Chief Executive Officer
of Duff & Phelps Utilities Income Inc.
Mr. Pedersen is a Director/Trustee of
Phoenix Funds, Phoenix Duff & Phelps
Institutional Mutual Funds and Phoenix-
Aberdeen Series Fund.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUNDS IN PAST 5 YEARS
- ------------ ------------------ ---------------------------
<S> <C> <C>
Dennis A. Cavanaugh..... Senior Vice President, Mr. Cavanaugh is an Executive Vice
Age: 53 Assistant Treasurer and President of the Adviser. Prior to
Chief Investment Officer 1994, Mr. Cavanaugh was a Senior Vice
of DUC President of the Adviser.
James P. Wehr........... Vice President and Chief Mr. Wehr is a Vice President of Phoenix
56 Prospect Street Investment Officer of DTF Investment Counsel, Inc. Mr. Wehr is
Hartford, CT 06115 also Co-Portfolio Manager of Phoenix
Age: 40 Tax-Exempt Bond Portfolio and Phoenix
California Tax-Exempt Bonds, Inc. and
the Portfolio Manager of the Managed
Bond Portfolio, an Institutional Fund.
Thomas N. Steenburg..... Secretary of DTF and Mr. Steenburg is Vice President and
56 Hartford Street DUC Counsel of PD&P. Mr. Steenburg is also
Hartford, CT 06115 Secretary of Duff & Phelps
Age: 49 Institutional Mutual Funds, Phoenix-
Aberdeen Series Fund, The Phoenix-
Engemann Funds, The Seneca Funds and
the Phoenix Funds. Prior to joining
PD&P, Mr. Steenburg was Counsel of
Phoenix Home Life Insurance Company.
</TABLE>
As of , 1998, the Directors and officers of each Fund as a group owned
less than 1% of the outstanding Common Shares of each Fund, respectively, and
no outstanding shares of RP of DTF. Section 30(f) of the 1940 Act and Section
16(a) of the Securities Exchange Act of 1934 require each of the Funds'
officers and directors, investment adviser, affiliated persons of the
investment adviser and persons who own more than 10% of a registered class of
a Fund's equity securities to file forms with the Securities and Exchange
Commission and the New York Stock Exchange, if applicable, reporting their
affiliation with the respective Fund and reports of ownership and changes in
ownership of shares of the respective Fund's equity securities. These persons
and entities are required by U.S. securities regulations to furnish the Funds
with copies of all such forms they file. Based on a review of these forms
furnished to the Funds, the Funds believe that during the last fiscal year of
each Fund, the Funds' officers and directors, investment advisers and
affiliated persons of the investment adviser complied with all applicable
filing requirements.
None of the Directors or officers of the Funds made any purchases or sales
of securities of PD&P or any of its subsidiaries, including the Adviser,
exceeding 1% of the outstanding common stock of such company during each
Fund's fiscal year ended in 1997.
NOMINEES FOR DTF DIRECTORS. At the Meeting, (i) William W. Crawford, Richard
A. Pavia and Philip R. McLoughlin are to be considered for election to serve
as Class III Directors until the Annual Meeting of Shareholders in 2001 or
until successors are duly elected and qualified. Except for Mr. Pavia, the
holders of Common Shares and holders of RP, voting as a single class, will
vote with respect to each of the nominees for Director and an affirmative vote
of a plurality of the Common Shares and RP, voting as a single class, present
at the Meeting in person or by proxy, is required to elect each such nominee.
With respect to Mr. Pavia, holders of shares of RP, voting as a separate
class, will vote with respect to such nominee for Director and an affirmative
vote of a plurality of the shares of RP, voting as a separate class, is
required to elect such nominee. It is the intention of the persons named on
the enclosed proxy to vote the Shares represented by them for the election of
the respective nominees unless the proxy is marked otherwise.
The Articles of Incorporation and By-Laws of DTF provide that the Board of
Directors shall consist of not less than three nor more than nine directors
divided into three classes, the classes to be as nearly equal in number as
possible. Generally, the Directors of only one class are elected at each
annual meeting so that the regular term
8
<PAGE>
of only one class of Directors will expire annually and any particular
Director stands for election only once in each three-year period. Assuming
each of the DTF nominees is elected at the Meeting, the terms of each class of
the Board of Directors will expire at the annual meetings of DTF in the years
indicated in the table below.
CLASS I DIRECTORS - 1999
William N. Georgeson
Francis E. Jeffries
Eileen A. Moran
CLASS II DIRECTORS - 2000
E. Virgil Conway
Everett L. Morris
Harry Dalzell-Payne
CLASS III DIRECTORS - 2001
William W. Crawford
Richard A. Pavia
Philip R. McLoughlin
Pursuant to the 1940 Act, as long as any shares of RP are outstanding, the
holders of shares of RP, voting as a separate class, will elect two of the
Directors of DTF. Everett L. Morris and Richard A. Pavia have been designated
to be elected by the holders of RP. In the event a vacancy occurs on the Board
of Directors by reason of death, resignation or a reason other than removal by
the appropriate class of stockholders, the remaining Directors, or remaining
Director, elected by the class or classes of shares that elected the vacant
Director's position shall fill the vacancy for the entire unexpired term.
NOMINEES FOR DUC DIRECTORS. At the Meeting, (i) E. Virgil Conway, Everett L.
Morris and Harry Dalzell-Payne are to be considered for election to serve as
Class II Directors until the Annual Meeting of Shareholders in 2001 or until
successors are duly elected and qualified. The holders of Common Shares will
vote with respect to each of the nominees for Director. An affirmative vote of
a plurality of the Common Shares, present at the Meeting in person or by
proxy, is required to elect each nominee. It is the intention of the persons
named on the enclosed proxy to vote the Shares represented by them for the
election of the respective nominees unless the proxy is marked otherwise.
The Articles of Incorporation and By-Laws of DUC provide that the Board of
Directors shall consist of not less than three nor more than nine directors
divided into three classes, the classes to be as nearly equal in number as
possible. Generally, the Directors of only one class are elected at each
annual meeting so that the regular term of only one class of Directors will
expire annually and any particular Director stands for election only once in
each three-year period. Assuming each of the DUC nominees is elected at the
Meeting, the terms of each class of the Board of Directors expire at the
annual meetings of DUC in the years indicated in the table below.
CLASS III DIRECTORS - 1999
William W. Crawford
Richard A. Pavia
Philip R. McLoughlin
CLASS I DIRECTORS - 2000
William N. Georgeson
Francis E. Jeffries
Eileen A. Moran
CLASS II DIRECTORS - 2001
E. Virgil Conway
Everett L. Morris
Harry Dalzell-Payne
9
<PAGE>
SHAREHOLDER APPROVAL
With respect to DTF, holders of Common Shares and holders of shares of RP,
voting together as a single class, are entitled to vote on each nominee for
DTF, except Mr. Pavia. With respect to DTF, holders of shares of RP, voting as
a separate class, are entitled to vote on Mr. Pavia as a nominee for DTF. With
respect to DUC, holders of Common Shares are entitled to vote on each nominee
for DUC. The affirmative vote of a plurality of the Shares cast in person or
by proxy is required to elect the respective nominees. THE BOARDS OF DIRECTORS
RECOMMEND A VOTE "IN FAVOR" OF EACH OF THE NOMINEES.
PROPOSAL 2: APPROVAL OF AMENDED AND RESTATED INVESTMENT ADVISORY AGREEMENT
The Adviser serves as DUC's investment adviser under an investment advisory
agreement (the "Current Advisory Agreement") dated November 1, 1995. At the
Meeting, the Common Shareholders of DUC will be asked to approve an amended
and restated investment advisory agreement (the "Amended Advisory Agreement")
to change the base amount used to determine the Adviser's management fee.
THE ADVISER AND PHOENIX DUFF & PHELPS. The Adviser (together with its
predecessor) has been in the investment advisory business for more than 70
years and, excluding DUC, currently has more than $13 billion in client
accounts under discretionary management. The Adviser also provides non-
discretionary investment advisory and portfolio consulting services to
corporate and public retirement funds and endowment funds aggregating more
than $11 billion.
The directors of the Adviser are Clyde E. Bartter, Philip R. McLoughlin and
Calvin J. Pedersen. The principal occupation and business address of Mr.
McLoughlin and Mr. Pedersen are shown under "Proposal 1: Election of
Directors". Mr. Bartter is 66 and is President of the Adviser and his business
address is 600 Ohio Savings Plaza, Cleveland, Ohio 44114.
INVESTMENT OBJECTIVE AND POLICIES OF DUC. DUC commenced investment
operations in January 1993. DUC's investment objective is high current income
consistent with investing in securities of investment grade quality. DUC seeks
to achieve its objective by investing substantially all of its assets in a
diversified portfolio of utility income securities, corporate income
securities, mortgage-backed securities and asset-backed securities. Under
DUC's investment program, DUC is authorized to borrow money or obtain
equivalent financial leverage through the issuance of short-term debt
securities or through engaging in other investment management techniques, such
as reverse repurchase agreements and dollar rolls (or any combination
thereof), which provide leverage in much the same manner as the issuance of
short-term securities. The aggregate amount of such leverage will not exceed
33 1/3% of DUC's total assets (including the assets attributable to the
leverage).
Through financial leveraging, DUC seeks to obtain higher distributions to
holders of Common Shares than if no such leverage were utilized. The net
proceeds of financial leveraging are utilized to purchase additional portfolio
securities consistent with DUC's investment objective and policies. In
general, the effective rate with respect to any such leveraging reflects
short-term interest rates and the proceeds of such leveraging generally are
invested in portfolio securities reflecting longer term interest rates, which
are typically higher than short-term interest rates, although such higher
yields cannot be assured. During market conditions when such a rate
differential is in effect, financial leveraging enables DUC to pay higher
distributions on the Common Shares than if financial leverage were not
utilized.
10
<PAGE>
DUC utilizes leverage only when the Adviser believes that such leverage will
benefit the Fund and the holders of the Common Shares, after taking into
account considerations such as the interest rates payable on the leverage,
other costs to DUC of maintaining the leverage, interest income on the
portfolio securities purchased with the proceeds of the leverage and possible
gains or losses upon liquidation of securities purchased with the proceeds of
such leverage. The issuance, timing, amount and other terms of any such
leveraging is based on recommendations by the Adviser, subject to the
supervision of DUC's Board of Directors and to a determination by the Board of
Directors that such leveraging is likely to achieve benefits to Common
Shareholders.
Although the use of leverage by DUC creates an opportunity for increased net
income available for distribution to the holders of Common Shares, utilization
of financial leverage entails special risks. In particular, if DUC leverages
on a short-term interest rate basis and invests the proceeds in long-term
securities, an increase in market interest rates may (i) reduce or eliminate
the interest rate differential usually available between short-term and long-
term rates and (ii) reduce the value of DUC's long-term securities, thereby
exposing DUC to lower yields and risk of loss on disposition of its long-term
securities. Net asset value and market value of the Common Shares may be more
volatile due to DUC's use of financial leverage.
The Adviser actively monitors and manages the capital structure of DUC and
utilizes financial leveraging when the Adviser believes that such financial
leverage will enable DUC, over time, to pay higher distributions to holders of
DUC's Common Shares than if financial leveraging were not utilized. In the
event of an increase in short-term interest rates or in other costs of
maintaining the leverage or other changes in market conditions, to the extent
that the Adviser believes that DUC's leveraged capital structure could
adversely affect the Common Shareholders as noted above, or in anticipation of
such increase or changes, the Adviser may attempt to shorten the average
maturity of DUC's investment portfolio and may also attempt to reduce or
eliminate the degree to which the capital structure of DUC is leveraged by
redeeming or otherwise repurchasing the securities the Fund has issued to
engage in financial leveraging. If market conditions subsequently warrant
"releveraging" of DUC's capital structure, DUC may engage in borrowing or
other leveraging transactions, subject to the limits described above.
DUC has utilized financial leverage in various forms and amounts since the
inception of DUC's investment operations. During DUC's fiscal year ended
December 31, 1993, DUC engaged in financial leverage primarily through dollar
rolls. In April 1994, DUC established a commercial program pursuant to which
DUC has the ability to issue up to $150,000,000 in commercial paper notes. As
of December 31, 1997, $143,000,000 of DUC's commercial paper was outstanding,
with an amortized cost of $140,788,938. The average discount rate of
commercial paper outstanding at December 31, 1997 was 5.62%. The average daily
balance of commercial paper outstanding for the year ended December 31, 1997
was $143,000,000 at a weighted average discount rate of 5.62%. In conjunction
with DUC's commercial paper program, DUC has entered into a line of credit
arrangement with certain banks for $75,000,000. During the year ended December
31, 1997, there were no borrowings under this arrangement.
DUC declares and pays dividends to its Common Shareholders on a monthly
basis. Distributions are made from DUC's net investment income, net realized
gains and, to the extent necessary, paid-in capital. Various factors affect
the level of DUC's distributions, including the asset mix of DUC's portfolio,
the amount of financial leverage utilized by DUC and the effects thereof and
the gains and losses realized on the disposition of DUC's assets. In general,
DUC seeks to maintain a relatively stable level of distributions, although
there can be no assurances that DUC will be able to maintain a particular
level of distributions. During the fiscal year ended December 31, 1997 DUC
paid a monthly distribution of approximately $.098 per share (or $1.176 for
the fiscal year) to holders of it Common Shares. The Adviser believes that of
such annual distributions, approximately $.10 per share were attributable to
the proceeds from the financial leverage, net of the interest paid by DUC and
other costs of maintaining such leverage.
11
<PAGE>
THE CURRENT ADVISORY AGREEMENT. The Adviser has acted as the investment
adviser and manager for DUC since DUC commenced investment operations on
January 29, 1993 pursuant to an investment advisory agreement (the
"Predecessor Agreement") dated January 21, 1993. The Predecessor Agreement was
approved by Duff & Phelps Corporation, as the initial shareholder of DUC, on
December 16, 1992 and was most recently approved DUC's Board of Directors,
including all of the Independent Directors, on December 14, 1994. On June 14,
1995, Duff & Phelps Corporation ("D&P"), the parent of the Adviser, entered
into a merger agreement with PM Holdings, Inc. ("PMH") and its wholly-owned
subsidiary, Phoenix Securities Group, Inc. ("Phoenix"). PMH is a wholly-owned
subsidiary of Phoenix Home Life Mutual Insurance Company. Pursuant to the
Merger Agreement, (i) Phoenix was merged with and into D&P, (ii) D&P survived
such merger and (iii) following the merger, D&P is a majority-owned subsidiary
of PMH (the "Merger"). Following the Merger, D&P changed its corporate name to
Phoenix Duff & Phelps Corporation. In connection with the Merger, an
investment advisory agreement (the "Current Advisory Agreement"), which is
substantially the same as the Predecessor Agreement, was entered into between
DUC and the Adviser upon the closing of the Merger on November 1, 1995. In
connection with the Merger, the Current Advisory Agreement was approved by the
Directors, including all of the Independent Directors, voting in person at a
meeting called for that purpose on July 12, 1995 and the Current Advisory
Agreement was submitted to and approved by DUC's Common Shareholders at a
special meeting held on September 7, 1995. Most recently, the Directors,
including all of the Independent Directors, voting in person at a meeting
called for that purpose voted on August 27, 1997 to continue the Current
Advisory Agreement for the period from November 1, 1997 to October 31, 1998.
The Current Advisory Agreement may be terminated by either DUC or the Adviser,
at any time, without penalty, upon 60 days written notice and will terminate
automatically in the event of an assignment.
The Current Advisory Agreement provides that the Adviser shall (i) act as
investment adviser for DUC and supervise and manage the investment and
reinvestment of DUC's assets and, in connection therewith, have complete
discretion in purchasing and selling securities and other assets for DUC and
in voting, executing consents and exercising all other rights appertaining to
such securities and other assets on behalf of DUC; (ii) supervise continuously
the investment program of DUC and the composition of its investment portfolio;
(iii) supply investment research and portfolio management of DUC; (iv)
administer the business affairs of DUC; (v) furnish offices and necessary
facilities and equipment to DUC; (vi) provide administrative services to DUC;
(vii) render periodic reports to the Board of Directors; (viii) permit any of
its officers or employees to serve without compensation as director or officer
of DUC if so elected; and (ix) arrange for the purchase and sale of securities
and other assets held in the investment portfolio of DUC. The Current Advisory
Agreement includes the conditions under which DUC may use "Duff & Phelps" in
its name, including the continuing employment of the Adviser, or an affiliate
or successor thereof, as investment adviser for DUC.
The Current Advisory Agreement provides that the Adviser shall not be liable
for any error of judgment or of law, or for any loss suffered by DUC in
connection with the matters to which the Current Advisory Agreement relates,
except a loss resulting from willful misfeasance, bad faith, or gross
negligence on the part of the adviser in the performance of its obligations
and duties, or by reason of its reckless disregard of its obligations and
duties under the Current Advisory Agreement.
Under the terms of the Current Advisory Agreement, the Adviser receives from
DUC a monthly fee at an annual rate of .50% of the net assets of DUC (which
for the purposes of determining such fee, means the average weekly value of
the total assets of DUC, minus the sum of liabilities of DUC, including any
liabilities or senior securities constituting indebtedness in connection with
financial leveraging). For the fiscal year ended December 31, 1997, advisory
fees paid or payable to the Adviser by DUC were $1,794,139.
OTHER AGREEMENTS. Under the terms of a service agreement among the Adviser,
Phoenix Duff & Phelps and DUC (the "Services Agreement"), Phoenix Duff &
Phelps makes available to the Adviser the services, on a
12
<PAGE>
part-time basis, of their employees and various facilities to enable the
Adviser to perform certain of its obligations to DUC. However, the obligation
of performance under the Current Advisory Agreement is solely that of the
Adviser, for which Phoenix Duff & Phelps assumes no responsibility, except as
described in the preceding sentence. The Adviser reimburses Phoenix Duff &
Phelps for any costs, direct or indirect, as are fairly attributable to the
services performed and the facilities provided by Phoenix Duff & Phelps under
the Services Agreement. The Adviser compensates Phoenix Duff & Phelps for such
services out of its own assets and DUC does not compensate Phoenix Duff &
Phelps under the Service Agreement.
Under the terms of an administration agreement (the "Administration
Agreement") between DUC and Princeton Administrators, L.P. (the
"Administrator"), the Administrator administers DUC's corporate affairs
subject to the supervision of DUC's Board of Directors and in connection
therewith furnishes DUC with office facilities together with such ordinary
clerical and bookkeeping (e.g., preparation of annual and other reports to
stockholders and the Securities and Exchange Commission) as are not otherwise
being furnished by DUC's custodian. In connection with its administration of
the corporate affairs of DUC, the Administrator bears the following expenses:
(a) the salaries and expenses of all personnel of the Administrator; and (b)
all expenses incurred by the Administrator or by DUC in connection with
administering the ordinary course of DUC's business, other than those assumed
by DUC. The Administration Agreement will continue in effect until terminated
by either party upon 60 days written notice. For its services, the
Administrator receives from DUC a monthly fee at an annual rate of .15% of the
"net assets" of DUC (determined as described above with respect to the Current
Agreement), subject to an annual minimum of $150,000. For the fiscal year
ended December 31, 1997, administration fees paid or payable to the
Administrator were $538,242. No change in the method of fee calculation or fee
rate payable to the Administrator is being proposed. The Administrator is not
affiliated with the Adviser.
Except for the expenses borne by the Adviser and the Administrator pursuant
to their respective agreements with DUC, DUC pays all expenses incurred in its
operations, including, among other things, expenses for legal, accounting and
auditing services, taxes, costs of printing and distributing stockholder
reports, proxy materials, prospectuses and stock certificates, charges of the
custodian, the registrar, transfer agent and dividend disbursing agent and the
dividend reinvestment plan agent, Securities and Exchange Commission fees,
fees and expenses of the Independent Directors, insurance, interest, brokerage
costs, litigation and other extraordinary or non-recurring expenses. DUC is
also obligated to repay any borrowings it may incur.
THE AMENDED ADVISORY AGREEMENT. DUC's Board of Directors approved an amended
and restated investment advisory agreement (the "Amended Advisory Agreement")
between DUC and the Adviser on February 27, 1997, the form of which is
attached hereto as Exhibit A. The form of the Amended Advisory Agreement is
substantially identical to the Current Advisory Agreement, except for the base
amount of DUC's assets used to determine the Adviser's management fee. Under
the terms of the Amended Advisory Agreement, the monthly investment advisory
fee at the annual rate of .50% would be based on the "Average Weekly Managed
Assets" of DUC, which is defined in the Amended Advisory Agreement as follows:
"Average Weekly Managed Assets" of DUC shall mean the average weekly
value of the total assets of DUC minus the sum of all accrued liabilities
of DUC (other than the aggregate amount of any outstanding borrowings or
other indebtedness constituting financial leverage)."
Under the terms of the Current Advisory Agreement, the Adviser is paid an
advisory fee of .50% on the net assets of DUC which does not, under the terms
of the Current Advisory Agreement, include the amount of any assets acquired
by DUC through the USA financial leverage constituting indebtedness. In
comparison, under the terms of the Amended Advisory Agreement, the Adviser
would be paid an advisory fee of .50% on the total assets of DUC, including
assets attributable to any financial leverage constituting indebtedness
utilized by DUC.
13
<PAGE>
DUC has the authority to leverage through issuance of preferred stock or other
senior equity securities. The liquidation preference of any such preferred
stock would not constitute a liability of DUC and, under the terms of the
Current Advisory Agreement, the Adviser would be paid an advisory fee on
assets attributable to any financial leverage constituting preferred stock. To
the extent DUC utilizes financial leverage through the issuance of such
preferred stock, there would be no differences in the advisory fees payable by
DUC to the Adviser under the terms of the Current Advisory Agreement and under
the Amended Advisory Agreement. However, during periods when DUC has
outstanding financial leverage constituting indebtedness, the advisory fees
payable to the Adviser would be higher under the Amended Advisory Agreement
than under the Current Advisory Agreement. During any period in which DUC has
no financial leverage outstanding, the advisory fees payable to the Adviser
under the Current Advisory Agreement and under the Amended Advisory Agreement
would be identical.
As noted above, during the fiscal year ended December 31, 1997, the DUC
utilized financial leverage constituting indebtedness in the form of
commercial paper issued by DUC. The aggregate amount of the advisory fee paid
to the Adviser under the Current Advisory Agreement during the fiscal year
ended December 31, 1997 was $1,794,139. Had the Amended Advisory Agreement
been in effect during 1997, the aggregate amount of the advisory fee would
have been $2,497,285. The difference between the actual fee and the fee that
would have been paid had the Amended Advisory Agreement been in effect
represents 39.2% of the actual fee for 1997.
The following table shows DUC's expenses expressed as a percentage of net
assets attributable to the Common Shares (i) based on actual expenses incurred
during the fiscal year ended December 31, 1997 and (ii) on a pro forma basis
as if the Amended Advisory Agreement had been in effect during 1997.
<TABLE>
<CAPTION>
ANNUAL EXPENSES
(AS A
PERCENTAGE OF
NET ASSETS
ATTRIBUTABLE TO
DUC COMMON
SHARES)
---------------
1997
1997 (PRO
(ACTUAL) FORMA)
-------- ------
<S> <C> <C>
Management Fee............................................ .50% .70%
Interest Payments on Borrowed Funds....................... 2.35 2.35
Other Expenses............................................ .30 .30
---- ----
Total Annual Expenses................................. 3.15% 3.35%
</TABLE>
EXAMPLE: The following table shows the expenses you would pay on an
investment of $1,000, assuming a 5% annual return throughout the periods. The
Example set forth below assumes reinvestment of all dividends and
distributions at net asset value and the actual and pro forma expense ratios
set forth above. The table and the assumption in the Example of a 5% annual
return are required by the Securities and Exchange Commission regulations
applicable to investment companies. The Example should not be considered as a
representation of past or future expenses or annual rates of return. Actual
expenses or annual rates of return may be more or less than those assumed for
purposes of the Example. In addition, while the Example assumes reinvestment
of all dividends and distributions at net asset value, participants in the
Fund's Dividend Reinvestment Plan may receive shares purchased at a price
different than net asset value.
<TABLE>
<CAPTION>
1997
1997 (PRO
PERIOD (ACTUAL) FORMA)
------ -------- ------
<S> <C> <C>
1 year.................................................... $32 $ 35
3 years................................................... 99 107
5 years................................................... 168 181
10 years.................................................. 351 376
</TABLE>
14
<PAGE>
BACKGROUND. During February 1998, prior to a regularly scheduled quarterly
meeting of DUC's Board of Directors, the Adviser contacted individually each
of the Independent Directors concerning the possibility of the Adviser
proposing a revision to the terms of the Current Advisory Agreement such that
the Adviser's fee would be based on DUC's Average Weekly Managed Assets rather
than the net assets of DUC (the "Proposal") On February 25, 1998 the Adviser
delivered to the Independent Directors materials relating to the Proposal and
the Independent Directors continued discussions with the Adviser and had
discussions among themselves and with their counsel concerning the Proposal.
At a meeting of the Board of Directors on February 26, 1998, the Adviser
submitted the Proposal and related materials to the Independent Directors. The
Adviser presented information concerning: the efforts of the Adviser in
managing assets attributable to the financial leverage; the benefits, in
appropriate market conditions, of financial leverage to DUC's Common
Shareholders; the contribution of the assets attributable to financial
leverage to Fund's ability to pay higher distributions to the Common
Shareholders; the increased reliance by the Adviser on its internal staff in
monitoring and managing the credit quality of DUC's portfolio; the growing
complexities of managing assets in the fixed income market and, in particular,
the complexities in certain segments of that market (such as the increasingly
deregulated utilities markets) in which DUC concentrates its investment focus;
the comparability of the current and proposed structure of the investment
advisory fee to that of other investment companies that utilize financial
leverage; and the competition in the investment management industry for top
level portfolio managers and other advisory personnel. The Adviser presented
information concerning the nature and quality of its services, the level of
fees and expenses of DUC relative to comparable funds, the investment
performance of DUC relative to comparable funds and information concerning the
level of profits realized by the Adviser under the Current Agreement and under
the Proposal. The Independent Directors discussed the Proposal and the related
materials; representatives of the Adviser present at the meeting discussed the
information provided and answered such questions as were raised. After
considering the factors they deemed appropriate to their deliberations, and
discussing the materials provided by the Adviser in connection with the
Proposal and in response to their questions, the Independent Directors
caucused, with counsel, to consider the Proposal. Notice was given of a
Special Meeting of the Board of Directors to specifically act on the Proposal.
DIRECTORS' APPROVAL OF THE AMENDED ADVISORY AGREEMENT. The Board of
Directors held a special meeting on February 27, 1998 to consider the
Proposal. Based upon the evaluation of the materials presented by the Adviser,
the Independent Directors approved the fee structure proposed by the Adviser
in the Amended Advisory Agreement. By unanimous written consent of the Board
of Directors dated March , 1998, the Directors approved submitting the
Amended Advisory Agreement for consideration of the Common Shareholders.
In reaching the decision to approve the Amended Advisory Agreement, the
Independent Directors considered many factors, among others: the potential
contributions of financial leverage in appropriate market conditions to DUC's
ability to maintain a high level of distributions to the Common Shareholders;
the obligations of the Adviser to monitor and report to the Board of Directors
changes in market conditions and the related potential beneficial and adverse
effects of financial leverage on DUC's expected performance; the increased
complexities in managing securities which comprise a significant percentage of
DUC's investment portfolio; the need of the Adviser to devote additional
personnel and resources to managing DUC and to retain key personnel currently
employed by the Adviser in order to continue providing a comparable level of
investment management services; and the record of investment performance of
DUC relative to other comparable funds.
OTHER AGREEMENTS OF DUC. The approval by the Board of Directors of the
Amended Advisory Agreement does not affect any of the other non-advisory
agreements of DUC. Specifically, no changes were made to the terms of the
Administration Agreement and the fees payable by DUC to the Administrator will
continue to be .15% of the net assets of DUC (which, for purposes of
determining such fee, shall mean the average weekly value of the total assets
of DUC, minus the sum of liabilities of DUC, including any liabilities or
senior securities constituting indebtedness in connection with financial
leveraging). The Administrator is not affiliated with the Adviser.
15
<PAGE>
OTHER ADVISORY AGREEMENTS OF THE ADVISER. Other than the Current Advisory
Agreement with DUC, the Adviser acts as investment adviser to two registered
investment companies having similar investment objectives, namely DTF and Duff
& Phelps Utilities Income Inc. ("DNP"). Under the investment advisory
agreement with DTF, the Adviser is paid a monthly investment advisory fee at
an annual rate of .50% of DTF's average weekly managed assets of DTF (which
for purposes of determining such fee, means the average weekly value of the
total assets of the Fund, minus the sum of liabilities of DTF other than the
aggregate amount of any borrowings undertaken by DTF). The liquidation
preference of the shares of RP issued by DTF is not considered a liability of
DTF and, accordingly, the Adviser is paid an advisory fee with respect to
assets attributable to the RP. For its fiscal year ended October 31, 1997, DTF
paid the Adviser advisory fees equal to $990,277 and DTF had net assets of
$201,816,527. Under the investment advisory agreement with DNP, the Adviser is
paid a quarterly advisory fee at an annual rate of .60% of the average weekly
net assets of DNP up to $1.5 billion and .50% of average weekly net assets of
DNP in excess of $1.5 billion. DNP's net assets are defined as the sum of (i)
the aggregate net asset value of DNP's common stock and (ii) the aggregate
liquidation preference of DNP's preferred stock. The board of directors of DNP
have approved, and have submitted to the stockholders of DNP for their
approval, an amended advisory agreement whereby the base amount of the
Adviser's fee would include, in addition to the aggregate net asset value of
DNP's common stock and the liquidation preference of DNP's preferred stock,
the aggregate proceeds of commercial paper issued by DNP. For its fiscal year
ended December 31, 1997, DNP paid the Adviser advisory fees equal to
$12,730,134 and DNP had net assets of [$ ].
PORTFOLIO TRANSACTIONS. The Adviser is primarily responsible, subject to
review by the Board of Directors of DUC, for decisions to buy and sell
securities for DUC, the selection of brokers and dealers to effect
transactions on behalf of DUC and the negotiation of prices and any brokerage
commissions with respect thereto. Purchases and sales of debt securities on a
stock exchange are effected through brokers who charge a commission for their
services. Many of the securities in which DUC invests are traded principally
in the over-the-counter market. In the over-the-counter market, securities are
generally traded on a "net" basis with dealers acting as principal for their
own accounts without a stated commission, although the price of the security
usually includes a mark-up to the dealer. In its selection of brokers and
dealers, the Adviser may select firms that are affiliated with DUC, the
Adviser and the Administator. During 1997, the Fund did not pay any brokerage
commissions in connection with its portfolio transactions.
SHAREHOLDER APPROVAL OF THE AMENDED ADVISORY AGREEMENT. To become effective,
the Amended Advisory Agreement must be approved by a majority of the
outstanding voting securities of DUC. The vote of a majority of the
outstanding voting securities means the lesser of the vote of (i) 67% or more
of the Common Shares present at a meeting if the holders of more than 50% of
such outstanding Common Shares are present in person or represented by proxy
or (ii) more than 50% of such outstanding Common Shares. If the Amended
Advisory Agreement is approved, it will be effective as of approximately June
, 1998 and will continue for an initial sixteen month term and thereafter on
an annual basis if specifically approved by the Board of Directors of DUC or
the Common Shareholders and by the Independent Directors of DUC in compliance
with the requirements of the 1940 Act. If the Amended Advisory Agreement is
not approved at the Meeting, the Current Advisory Agreement will remain in
effect until [October 31, 1998] and thereafter on an annual basis if
specifically approved by the Board of Directors of DUC or the Common
Shareholders and by the Independent Directors of DUC in compliance with the
requirements of the 1940 Act.
The Amended Advisory Agreement was approved by the Board of Directors,
including the Independent Directors, after consideration of all factors which
they determined to be relevant to their deliberations, including those
discussed above. The Board of Directors also determined to submit the Amended
Advisory Agreement for consideration by the Common Shareholders. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDED ADVISORY AGREEMENT.
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PROPOSAL 3: RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors of DTF and DUC, including a majority of the Directors
who are not "interested persons" of DTF and DUC, have selected the firm of
Ernst & Young LLP, independent certified public accountants, to examine the
financial statements of such Funds for the 1998 fiscal year of each Fund. DTF
and DUC know of no direct or indirect financial interest of such firm in DTF
or DUC. The appointment of Ernst & Young LLP is subject to ratification or
rejection by the Shareholders of DTF and DUC, respectively. Unless a contrary
specification is made, the accompanying proxy will be voted in favor of
ratifying the selection of such accountants.
Representatives of Ernst & Young LLP are expected to be available at the
Meeting and will be available to respond to questions from Shareholders and
will have the opportunity to make a statement if they so desire.
SHAREHOLDER APPROVAL
With respect to DTF, holders of Common Shares and holders of shares of RP,
voting together as a single class, are entitled to vote on this issue. With
respect to DUC, holders of Common Shares are entitled to vote on this issue.
The affirmative vote of a majority of the Shares cast in person or by proxy is
required to ratify the selection of the independent auditors. THE BOARDS OF
DIRECTORS RECOMMEND A VOTE "FOR" THE RATIFICATION OF ERNST & YOUNG LLP TO
SERVE AS INDEPENDENT AUDITORS OF DTF AND DUC.
PROXY SOLICITATION EXPENSES
The expense of preparing, printing and mailing the enclosed form of proxy,
accompanying Notice of Meeting and this Proxy Statement and all other costs in
connection with the solicitation of proxies will be borne by the Funds, which
will also reimburse banks, brokers and others for their reasonable expenses in
forwarding proxy solicitation material to the beneficial owners of the Shares
of the Funds.
In order to obtain the necessary quorum at the Meeting, additional
solicitation may be made by mail, telephone, telegraph or personal interview
by representatives of the Funds, the Adviser, or by dealers or their
representatives. It is anticipated that the cost of such supplementary
solicitations, if any, will be nominal.
REPORTS TO SHAREHOLDERS AND FINANCIAL STATEMENTS
THE ANNUAL REPORTS TO SHAREHOLDERS OF EACH FUND, WHICH INCLUDES FINANCIAL
STATEMENTS OF EACH FUND AS OF ITS 1997 FISCAL YEAR END, HAVE PREVIOUSLY BEEN
MAILED TO SHAREHOLDERS. DTF WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS ANNUAL
REPORT BY CALLING STATE STREET BANK AND TRUST COMPANY, DTF'S TRANSFER AGENT,
AT (800) 451-6788 OR BY WRITING TO PRUDENTIAL INVESTMENT FUND MANAGEMENT, LLC,
DTF'S ADMINISTRATOR, AT GATEWAY CENTER THREE, 100 MULBERRY STREET, 9TH FLOOR,
NEWARK, NEW JERSEY 07102. DUC WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS
ANNUAL REPORT, BY CALLING PRINCETON ADMINISTRATORS, L.P., DUC'S ADMINISTRATOR,
AT (800) 543-6217 OR BY WRITING TO PRINCETON ADMINISTRATORS, L.P., P.O. BOX
9011, PRINCETON, NJ 08543-9011. NONE OF THE DIRECTORS OR OFFICERS OF THE FUNDS
HAS A MATERIAL INTEREST IN SUCH ADMINISTRATORS.
SHAREHOLDER PROPOSALS
Any proposal which a Shareholder of the Funds wishes to have included in the
joint proxy materials of the Funds relating to the 1999 Annual Meeting must be
received at the principal executive offices of the Funds no later than
December 23, 1998, and must otherwise comply with the rules promulgated by the
Securities and Exchange Commission.
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GENERAL
Management of the Funds does not intend to present and does not have reason
to believe that others will present any other items of business at the
Meeting. However, if other matters are properly presented to the Meeting for a
vote, the proxies will be voted upon such matters in accordance with the
judgment of the persons acting under the proxies.
A list of Shareholders entitled to be present and vote at the Meeting will
be available at the offices of the Funds, 55 East Monroe Street, Chicago,
Illinois 60603, for inspection by any Shareholder during regular business
hours for ten days prior to the date of the Meeting.
Failure of a quorum to be present at the Meeting will necessitate
adjournment and will give rise to additional expense.
[Year 2000 Risks. Like other investment companies, financial and business
organizations around the world, the Funds will be adversely affected if the
computer systems used by the Adviser and the Funds' other service providers do
not properly process and calculate date related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Problem." The
Funds are taking steps that they believe are reasonably designed to address
the Year 2000 Problem with respect to the computer systems they use and to
obtain satisfactory assurances that comparable steps are being taken by each
of the Funds' major service providers. The Funds do not expect to incur any
significant costs in order to address the Year 2000 Problem. However, at this
time there can be no assurances that these steps will be sufficient to avoid
any adverse impact on either of the Funds.]
IF YOU CANNOT BE PRESENT IN PERSON, YOU ARE REQUESTED TO FILL IN, SIGN AND
RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES.
Thomas N. Steenburg
Secretary
, 1998
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