<PAGE>
Duff & Phelps
Utilities
Tax-Free
Income Inc.
- --------------------
Annual Report
October 31, 1999
<PAGE>
Letter to
Shareholders
December 2, 1999
Dear Shareholder:
Fund Performance
Duff & Phelps Utilities Tax-Free Income Fund (DTF) continued to provide a
very attractive level of tax-free income over the past fiscal year ending
October 31, 1999. Based on a price of $14.13 and a 7.75 cents monthly
dividend, your Fund provided a tax-free yield of 6.58% as of October 31,
1999. This attractive level of income continues to be generated by a high
quality, well diversified investment portfolio.
DTF's total return for the one, three and five year periods compares favorably
to the Lipper Leveraged Municipal Peer Group as shown below:
ANNUALIZED TOTAL RETURN
(10/31/99)
<TABLE>
<CAPTION>
One Year Three Year Five Year
<S> <C> <C> <C>
DTF1 -4.45% 4.10% 7.35%
Lipper Leveraged
Municipal Peer Group -6.48 3.83 7.28
</TABLE>
1Source Lipper Analytical Services, Inc. Total return of the Fund as
calculated for the period ended October 31, 1999 is based on the net
asset value and assumes the reinvestment of dividends and distributions.
Shares of the Fund are traded on the NYSE. Past performance is no guarantee of
future results.
The Fund's strong call protection and diversified sector holdings contributed
to this strong relative performance over these periods. The Fund's
diversification by market sector is shown below:
FUND DIVERSIFICATION
<TABLE>
<CAPTION>
Market Sectors
<S> <C>
Electric Utilities 18%
Non-Utilities 32%
Pollution Control 19%
Water/Sewer Revenue 14%
Pre-Refunded Utilities 17%
</TABLE>
The Municipal Market in general has been under significant pressure this
year due primarily to rising interest rates and lack of demand from
individuals. Similar events took place in 1994. We believe the current
discounts offer very attractive value.
-I-
<PAGE>
As you will recall from our last report dated April 30, 1999, we mentioned
that while we had not been earning the dividend on a current basis, we still
had retained earnings from previous years to support the dividend. Management
felt it prudent to reduce the dividend slightly from 8 cents to 7.75 cents per
month as the retained earnings pool continues to be used. We will continually
monitor this situation and keep you apprised.
General Economic Commentary
The U.S. economy appears on target to set a post war record of nine years
of uninterrupted economic expansion as it heads into the new millennium. The
job market remains tight, inflation appears to be in check, and the global
economic turmoil experienced in 1998 appears to have subsided. The national
unemployment rate, which ended the third quarter at 4.2%, is the lowest the
country has seen since the late 1960s. Inflation, as measured by the Consumer
Price Index (CPI), ended the third quarter at approximately 2.5%. CPI has
increased by approximately 1% over the last 12 months, and the Federal
Reserve (Fed) has responded by raising rates three times for a total of
3/4 of 1%.
Despite the recent tightening of monetary policy by the Fed, the economy
remains resilient as labor markets are tight and consumer spending is strong.
Labor markets are being stretched to capacity, which could force labor costs
higher and put further pressure on prices. The willingness of consumers to
borrow and spend is providing the economy the necessary fuel to stay healthy.
The Fed is expected to remain vigilant to ensure that inflation does not
overheat and disrupt the economy.
In summary, the economy appears to be in good shape. Economic growth should
continue at its current pace with a chance of slowing if labor constraints
heighten. Inflation is expected to remain under control given the Fed's
watchful eye and willingness to tighten monetary policy if necessary.
The Municipal Market and Your Fund
The municipal bond market slightly underperformed the U.S. Treasury market
over the past twelve months due primarily to soft demand from individual
investors in the face of rising interest rates. Municipal yields are higher
by almost 1% across the yield curve, while total returns are negative for
maturities 10 years and longer. Issuance of municipal bonds is down
approximately 20% when compared to 1998, as higher interest rates have made
it less economical for issuers to refinance older, higher cost debt. As such,
refundings are down over 50% from 1998, and total 1999 issuance is expected to
be 25% lower than last year, which should bode well for the market heading
into next year. On the demand side, retail buying has picked up as municipal
yields approach 6%, while institutional buying, which includes mutual funds
and insurance companies, has slowed. With long municipal bonds yielding
almost 100% of long U.S. Treasury bonds, municipals are very attractive as
we head into the year 2000.
Within the DTF Fund, we continue to emphasize higher quality issues, as the
yield premium between higher quality bonds and lower quality bonds remains
narrow by historical standards. The Fund currently has an average
-2-
quality rating of AA/Aa with over 79% of its issues rated AA or higher.
Within the utility segment of the portfolio, the Fund is well diversified
between electric utility, pollution control, and water/sewer issues. The
electric utility sector continues to be an area of close focus due to the
uncertainty surrounding electric deregulation and its ultimate impact on
valuations. Beginning in January of the year 2000, several states will begin
allowing consumers a choice among suppliers of electricity. While numerous
states have adopted various forms of electric utility deregulation, the
federal government remains unable to pass a national deregulation plan
despite extensive debate. Until a national deregulation plan is adopted, the
environment will remain uncertain and continue to impact valuations of
electric utility bonds. As such, the portfolio remains well diversified in
an effort to minimize exposure to any one sector. Additionally, the Fund's
electric utility exposure is currently at a historically low level of 18%.
Outlook
As we move forward into the year 2000, factors that could drive the relative
value of municipal bonds over the year include: the U.S. inflation outlook and
the Fed's response to monetary policy, U.S. Treasury rates and the global
investment markets, legislative developments in the electric utility industry
and their impact on tax laws for municipal utility bonds, and lastly, the
municipal market's balance of supply and demand for municipal bonds. Finally,
should the U.S. stock market continue to experience the same pace of
appreciation that it has enjoyed over the past few years, money could
continue to be diverted away from the tax exempt sector, thus putting some
additional pressure on municipals. In spite of all these potential risks,
the municipal market still represents good relative value at current levels,
especially given the ratio of municipal yields to U.S. Treasury yields is
close to 100%. Assuming the domestic economy remains healthy and municipal
supply remains manageable, we would expect strong relative performance from
the municipal market over the next year.
We continue to appreciate your interest in the Duff & Phelps Utilities Tax-
Free Income Fund and look forward to being of continued service in the future.
Sincerely,
Francis E. Jeffries, CFA
Chairman of the Board
Calvin J. Pedersen
President and Chief Executive Officer
-3-
<PAGE>
- ----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Portfolio of Investments
October 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--97.6%
Alabama--1.5%
Jefferson Cnty. Alabama
Swr. Rev. Capital
Impvt.
Aaa $ 3,000 5.75%, 2/1/38, Ser. A,
F.G.I.C................ $ 2,849,070
------------
California--15.9%
Foothill/Eastern Trans.
Corr. Agency California
Toll Road Rev.
AAA 5,640(c) 6.00%, 1/1/34, Ser. A
Prerefunded 1/1/07
@$100.................. 6,063,846
Fresno Swr. Rev.,
Aaa 3,030 6.00%, 9/1/09,
A.M.B.A.C.............. 3,260,522
Aaa 2,000 6.25%, 9/1/14,
A.M.B.A.C.............. 2,144,300
Pomona California Sngl.
Fam. Mtge. Rev.,
Aaa 2,705 7.375%, 8/1/10,
Escrowed to maturity... 3,056,515
Riverside Cnty.
California Sngl. Fam.
Rev., Mtge. Backed
Aaa 2,500 7.80%, 5/1/21, Ser. A,
Escrowed to maturity... 3,032,750
San Bernardino Cnty.
California Residential
Mtge. Rev.,
Aaa 7,840 9.60%, 9/1/15,
Escrowed to maturity... 10,896,659
Santa Monica Waste Wtr.
Enterprise Rev.,
Hyperion Proj.,
A1 2,000(c) 6.70%, 1/1/22, Ser. A,
Prerefunded 1/1/02
@$102.................. 2,142,640
------------
30,597,232
------------
Colorado--2.3%
Colorado Hsg. Fin. Auth.,
Sngl. Fam. Prog.,
Aa2 1,300 8.00%, 6/1/25............ 1,363,050
Aa2 590 8.125%, 6/1/25........... 618,261
Colorado Springs Utils.
Rev.,
Aa2 2,300 6.50%, 11/15/15, Ser.
A...................... 2,421,854
------------
4,403,165
------------
- ----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
Connecticut--1.7%
Connecticut St. Airport
Rev.
Aaa $ 3,000 7.65%, 10/1/12,
F.G.I.C................ $ 3,356,370
------------
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.............. 3,712,065
------------
Florida--6.3%
Dade Cnty. Wtr. & Swr.
Sys. Rev.,
Aaa 3,000 5.25%, 10/1/26,
F.G.I.C................ 2,712,300
Florida St. Bd. Ed. Cap.
Outlay, Pub. Ed.
Aa2 5,000 5.25%, 6/1/23, Ser. D.... 4,529,700
Reedy Creek Impvt. Dist.
Utils. Rev., Ser. 1,
Aaa 5,500 5.00%, 10/1/19,
M.B.I.A................ 4,842,145
------------
12,084,145
------------
Georgia--8.3%
Atlanta Georgia Wtr. &
Waste Rev.,
Aaa 5,000 5.00%, 11/1/29, Ser. A,
F.G.I.C................ 4,265,150
Mun. Elec. Auth. Pwr.
Rev., Ser. Y,
Aaa 2,615 6.40%, 1/1/13,
A.M.B.A.C.............. 2,812,903
Mun. Elec. Auth. Rev.,
Ser. X,
Aaa 2,750 6.50%, 1/1/20,
M.B.I.A................ 2,946,213
Aaa 5,500 6.50%, 1/1/20,
A.M.B.A.C.............. 5,892,425
------------
15,916,691
------------
Idaho--3.7%
Idaho Hsg. Agcy.,
Sngl. Fam. Mtge. Senior
Aa1 3,915 6.65%, 7/1/14, Ser. B.... 4,036,913
Aaa 3,000 6.60%, 7/1/27, Ser. B 3,064,830
------------
7,101,743
------------
Illinois--8.4%
Chicago Gas Supply Rev.,
(People's Gas, Lt. &
Coke Co.),
Aa3 4,600 6.875%, 3/1/15........... 4,844,628
Chicago Illinois
Aaa 4,000 6.25%, 1/1/11,
A.M.B.A.C.............. 4,251,000
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
<C> <C> <S> <C>
Illinois--(cont'd.)
Chicago Illinois Sales
Tax Rev.,
$ 5,000 5.375%, 1/1/27,
F.G.I.C................ $ 4,490,950
Chicago Waterworks Rev.,
Aa3 2,500(c) 7.20%, 11/15/16, Ser.
1989
Prerefunded 11/15/99
@$102.................. 2,553,625
------------
16,140,203
------------
Indiana--2.7%
Indiana Mun. Pwr. Agcy.,
Pwr. Supply Sys. Rev.,
Aaa 5,000 6.00%, 1/1/13,
M.B.I.A................ 5,179,400
------------
Louisiana--3.7%
St. Charles Parish, Poll.
Ctrl. Rev.,
(Louisiana Pwr. & Lt.
Co.),
Baa3 5,500 8.00%, 12/1/14, Ser.
1989................... 5,683,865
Aaa 1,250 7.00%, 12/1/22, F.S.A.... 1,343,613
------------
7,027,478
------------
Massachusetts--3.1%
Massachusetts St., Wtr.
Res. Auth., Ser. A,
Aaa 5,330 7.00%, 8/1/13, M.B.I.A.
Prerefunded 8/1/04
@$101 1/2.............. 5,917,792
------------
Nebraska--2.7%
Omaha Pub. Pwr. Dist.,
Elec. Rev.,
Aa2 2,500 6.15%, 2/1/12, Ser. B,
Escrowed to maturity... 2,662,000
Aa2 2,500 6.20%, 2/1/17, Ser. B,
Escrowed to maturity... 2,613,175
------------
5,275,175
------------
New York--10.6%
New York City Mun. Wtr.
Fin. Auth., Wtr. & Swr.
Sys. Rev.,
Aaa 3,760(c) 7.10%, 6/15/12
Prerefunded 6/15/01
@$101.................. 3,965,710
New York St. Dorm. Auth.
Rev., Comsewogue Pub.
Lib. Insd.
Aaa 2,585 6.00%, 7/1/15,
M.B.I.A................ 2,614,805
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.................... 3,084,900
A1 4,000 7.125%, 12/1/29.......... 4,362,320
New York St. Envir. Fac.
Corp. Poll. Ctrl. Rev.,
Aaa 5,000 6.90%, 11/15/15.......... 5,489,700
- ----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
Suffolk Cnty. New York
Ind. Dev. Agcy. Ind.
Dev. Rev.,
NR $ 1,000 5.50%, 1/1/23............ $ 881,320
------------
20,398,755
------------
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................ 3,158,130
------------
Tennessee--1.7%
Tennessee Hsg. Dev.
Agcy., Mtge. Finance
Aaa 3,135 6.15%, 7/1/15, Ser. B,
M.B.I.A................ 3,186,351
------------
Texas--5.3%
Brazos River Auth., Poll.
Ctrl. Rev., (Texas
Utils. Elec.),
Aa3 8,000 7.875%, 3/1/21........... 8,390,960
Harris Cnty. Texas
Toll Road Sub. Lien
Aa1 1,650 7.00%, 8/15/10, Ser. A... 1,870,885
------------
10,261,845
------------
Washington--14.1%
Conservation & Renewable
Energy Sys.
Conservation Proj.
Rev.,
Aa1 2,600 6.875%, 10/1/11.......... 2,836,730
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.................. 5,345,150
Snohomish Cnty., Pub.
Utils. Dist. No. 1
Elec. Rev.,
A1 1,500 6.90%, 1/1/06, Ser. A.... 1,573,320
A1 8,000 5.80%, 1/1/24............ 7,766,640
Washington St. Pub. Pwr.
Supply,
Nuclear Proj. No. 1
Rev.,
Aaa 2,500(c) 6.875%, 7/1/17, Ser. A
Prerefunded 7/1/01
@$102.................. 2,649,800
Nuclear Proj. No. 2 Rev.,
Aa1 2,400 6.00%, 7/1/07............ 2,520,000
Nuclear Proj. No. 3 Rev.,
Aaa 2,170(c) 6.75%, 7/1/05, Ser. A
Prerefunded 7/1/01
@$102.................. 2,297,336
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
- ----------------------------------------------------------
<C> <C> <S> <C>
Washington--(cont'd.)
Aaa $ 1,000(c) 7.25%, 7/1/15, Ser. B
Prerefunded 1/1/00
@$102.................. $ 1,025,490
Aaa 1,000(c) 6.50%, 7/1/18
Prerefunded 7/1/01
@$102.................. 1,054,680
------------
27,069,146
------------
Wyoming--2.1%
Wyoming St. Farm Loan
Board Capital Fac.
Rev.,
AA-* 4,000 5.75%, 10/1/20........... 3,935,000
------------
Total long-term
investments
(cost $181,175,643).... 187,569,756
------------
SHORT-TERM INVESTMENTS--0.7%
California Poll. Ctrl. Fin. Auth.
Rev.,
So. Cal. Ed., Ser. 86B
VMIG1 300 3.75%, 11/1/99,
F.R.D.D................ 300,000
Goldman Sachs Tax Exempt
Money Market Fund,
NR 1,090 3.08%.................... 1,089,718
------------
Total short-term
investments
(cost $1,389,718)...... 1,389,718
------------
Total Investments--98.3%
(cost $182,565,361;
Note 3)................ 188,959,474
Other assets in excess of
liabilities--1.7%...... 3,279,522
------------
Net Assets--100%......... $192,238,996
------------
------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
F.G.I.C.--Financial Guarantee Insurance Company.
F.S.A.--Financial Security Assurance Inc.
M.B.I.A.--Municipal Bond Insurance Association.
F.R.D.D.--Floating Rate Daily Demand Note (b).
(b) For purposes of amortized cost valuation, the maturity date of Floating Rate
Daily Demand Notes is considered to be the later of the next date on which
the security can be redeemed at par or the next date on which the rate of
interest is adjusted.
(c) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
* Standard & Poor's rating.
NR--Not Rated by Moody's or Standard & Poor's.
- ----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Statement of Assets and Liabilities
October 31, 1999
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments, at value (cost
$182,565,361)........................ $188,959,474
Cash................................... 46,360
Interest receivable.................... 3,514,765
Receivable for investments sold........ 67,180
------------
Total assets......................... 192,587,779
------------
Liabilities
Accrued expenses....................... 159,469
Dividends payable...................... 88,629
Advisory fee payable (Note 2).......... 77,450
Administration fee payable (Note 2).... 23,235
------------
Total liabilities.................... 348,783
------------
Net Assets............................. $192,238,996
------------
------------
Capital
Remarketed preferred stock ($.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 8,507,456
issued and outstanding).............. 85,075
Paid-in capital........................ 120,408,778
Undistributed net investment income.... 588,192
Accumulated net realized loss on
investments.......................... (237,162)
Net unrealized appreciation on
investments.......................... 6,394,113
------------
Net assets applicable to common stock
(equivalent to $14.96 per share
based on 8,507,456 shares
outstanding)....................... 127,238,996
------------
Total capital (Net assets)........... $192,238,996
------------
------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
6
<PAGE>
- ----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Statement of Operations
Year Ended October 31, 1999
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Net Investment Income
<S> <C>
Income
Interest.............................. $ 11,562,147
------------
Expenses
Investment advisory fee............... 1,021,693
Administration fee.................... 306,508
Remarketing expense................... 162,500
Directors' fees and expenses.......... 125,000
Custodian's fees and expenses......... 89,400
Reports to shareholders............... 59,000
Audit fee and expenses................ 42,000
Transfer agent's fees and expenses.... 40,000
Legal fees and expenses............... 27,000
Registration expenses................. 17,000
Miscellaneous......................... 5,800
------------
Total expenses...................... 1,895,901
------------
Net investment income................... 9,666,246
------------
Realized and Unrealized (Loss)
on Investments
Net realized loss on investment
transactions.......................... (123,315)
Net change in unrealized depreciation on
investments........................... (13,390,205)
------------
Net realized and unrealized loss on
investments........................... (13,513,520)
------------
Net Decrease in Net Assets
Resulting from Operations............... $ (3,847,274)
------------
------------
</TABLE>
- ----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Statement of Changes
In Net Assets
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease)
in Net Assets Year Ended October 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Operations:
Net investment income...... $ 9,666,246 $ 9,882,106
Net realized loss on
investment
transactions............. (123,315) (113,847)
Net change in unrealized
appreciation/depreciation
of investments........... (13,390,205) 3,526,116
------------ ------------
Net increase (decrease) in
net assets resulting from
operations............... (3,847,274) 13,294,375
Dividends and distributions:
Dividends to common
shareholders from net
investment income........ (8,157,027) (8,086,351)
Dividends to preferred
shareholders from net
investment income........ (2,110,264) (2,347,865)
Capital share transactions
(Note 4):
Value of Fund shares issued
to shareholders in
reinvestment of
dividends................ 888,334 788,541
------------ ------------
Total increase (decrease).... (13,226,231) 3,648,700
Net Assets
Beginning of year............ 205,465,227 201,816,527
------------ ------------
End of year.................. $192,238,996 $205,465,227
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
DUFF & PHELPS UTILITIES TAX-FREE INCOME INC.
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31,
PER SHARE OPERATING PERFORMANCE OF COMMON ------------------------------------------------------------
SHAREHOLDERS: 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............... $ 16.62 $ 16.28 $ 15.84 $ 15.90 $ 14.23
-------- -------- -------- -------- --------
Net investment income(d)....................... 1.14 1.17 1.18 1.21 1.24
Net realized and unrealized gain (loss) on
investments(d)................................. (1.59) .41 .50 -- 1.70
-------- -------- -------- -------- --------
Net increase (decrease) from investment
operations..................................... (.45) 1.58 1.68 1.21 2.94
-------- -------- -------- -------- --------
Dividends from net investment income to:
Preferred shareholders......................... (.25) (.28) (.28) (.27) (.31)
-------- -------- -------- -------- --------
Common shareholders............................ (.96)(e) (.96) (.96) (.96) (.96)
-------- -------- -------- -------- --------
Distributions from net realized gains to:
Preferred shareholders......................... -- -- -- (.01) --
-------- -------- -------- -------- --------
Common shareholders............................ -- -- -- (.03) --
-------- -------- -------- -------- --------
Net asset value, end of year(a).................. $ 14.96 $ 16.62 $ 16.28 $ 15.84 $ 15.90
-------- -------- -------- -------- --------
Per share market value, end of year(a)........... $ 14.13 $ 17.31 $ 16.00 $ 15.13 $ 14.38
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN OF COMMON
SHAREHOLDERS(b).................................. (13.34)% 11.41% 12.42% 12.19% 16.03%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS:(c)
Operating expenses............................... 1.39% 1.34% 1.35% 1.35% 1.37%
Net investment income............................ 7.10% 7.18% 7.46% 7.69% 8.15%
SUPPLEMENTAL DATA:
Average net assets of common shareholders
(000).......................................... $136,111 $137,680 $133,055 $132,361 $127,112
Portfolio turnover............................... 6% 0% 5% 10% 66%
Net assets of common shareholders, end of year
(000).......................................... $127,239 $140,465 $136,817 $132,678 $133,124
Asset coverage per share of preferred stock, end
of year........................................ $147,876 $158,050 $155,243 $152,126 $152,403
Preferred stock outstanding (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.
(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 year.
(e) The unrounded amount is $0.955.
See Notes to Financial Statements.
8
<PAGE>
- ----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Notes to Financial Statements
- ----------------------------------------------------------
Duff & Phelps Utilities Tax-Free Income Inc. (the 'Fund') was organized in
Maryland on September 24, 1991 as a diversified, closed-end management
investment company. The Fund had no operations until November 20, 1991 when it
sold 8,000 shares of common stock for $112,400 to Duff & Phelps Corporation.
Investment operations commenced on November 29, 1991.
The Fund's investment objective is current income exempt from regular federal
income tax consistent with preservation of capital. The Fund will seek to
achieve its investment objective by investing primarily in a diversified
portfolio of investment grade tax-exempt utility obligations. The ability of the
issuers of the securities held by the Fund to meet their obligations may be
affected by economic developments in a specific state, industry or region.
Note 1. Significant The following is a summary of
Accounting 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. 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.
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'), a wholly owned subsidiary of The Prudential Insurance Company of
America.
The investment fee paid to the Adviser is computed weekly and payable monthly
at an annual rate of .50% of the Fund's average weekly managed assets. The
administration fee paid to 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
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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 fiscal year ended
October 31, 1999 aggregated $14,294,470 and $10,819,400, respectively.
The Federal income tax basis of the Fund's investments at October 31, 1999
was substantially the same as the basis for financial reporting and,
accordingly, net unrealized appreciation for federal income tax purposes was
$6,394,113 (gross unrealized appreciation--$8,368,586; gross unrealized
depreciation--$1,974,473).
The Fund had a capital loss carryforward as of October 31, 1999 of
approximately $237,200, of which $113,800 expires in 2006 and $123,400 expires
in 2007. Accordingly, no capital gains distribution is expected to be paid to
shareholders until net realized gains have been realized in excess of such
amounts.
Note 4. Capital There are 600 million shares
of $.01 par value common stock authorized.
During the fiscal year ended October 31, 1999 the Fund issued 54,970 common
shares in connection with the reinvestment of dividends. For the year ended
October 31, 1998 the Fund issued 47,727 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 2.99% to
5.00% during the fiscal year ended October 31, 1999.
Under the Investment Company Act of 1940, the Fund may not declare dividends
or make other distributions on shares of common stock or purchase any such
shares if, at the time of the declaration, distribution or purchase, asset
coverage with respect to the outstanding preferred stock would be less than
200%.
The RP is redeemable at the option of the Fund, in whole or in part, on any
dividend payment date at $50,000 per share plus any accumulated or unpaid
dividends whether or not declared. The RP is also subject to a mandatory
redemption at $50,000 per share plus any accumulated or unpaid dividends,
whether or not declared, if certain requirements relating to the composition of
the assets and liabilities of the Fund as set forth in the Articles of
Incorporation are not satisfied.
The holders of RP have voting rights equal to the holders of common stock
(one vote per share) and will vote together with holders of shares of common
stock as a single class. However, holders of RP are also entitled to elect two
of the Fund's directors. In addition, the Investment Company Act of 1940
requires that along with approval by shareholders that might otherwise be
required, the approval of the holders of a majority of any outstanding preferred
shares, voting separately as a class would be required to (a) adopt any plan of
reorganization that would adversely affect the preferred shares, and (b) take
any action requiring a vote of security holders, including, among other things,
changes in the Fund's subclassification as a closed-end investment company or
changes in its fundamental investment restrictions.
Note 5. Dividends Subsequent to October 31,
1999, dividends declared and paid on preferred
shares totalled $180,505. On November 1, 1999, the Board of Directors of the
Fund declared a dividend of $.0775 per common share payable on November 30, to
common shareholders of record on November 15. On November 16, 1999 the Board of
Directors approved a dividend of $.0775 per common share to be declared on
December 1, 1999 payable on December 31, to common shareholders of record on
December 15.
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REPORT OF INDEPENDENT AUDITORS
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To the Shareholders and Board of Directors
Duff and Phelps Utilities Tax-Free Income Inc.
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Duff & Phelps Utilities Tax-Free
Income Inc. (the 'Fund') as of October 31, 1999, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the fiscal years since 1995. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1999 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Duff
and Phelps Utilities Tax-Free Income Inc. at October 31, 1999, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and financial highlights for each of
the fiscal years since 1995, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Chicago, Illinois
November 19, 1999
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FEDERAL INCOME TAX INFORMATION
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of
the Fund's fiscal year end (October 31, 1999) as to the federal tax status of
dividends paid by the Fund during such fiscal year. Accordingly, we are advising
you that in the fiscal year ended October 31, 1999, all dividends paid from net
investment income were federally tax-exempt interest dividends.
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OTHER INFORMATION (Unaudited)
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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
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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.
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Year 2000 Risks (Unaudited)
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Like other business organizations and individuals around the world, the
Fund could be adversely affected if the computer systems used by the Fund and
its service providers do not properly process and calculate date-related
information from and after January 1, 2000. The Fund is taking steps that it
believes are reasonably designed to address the Year 2000 problem with respect
to the computer systems it uses and to obtain satisfactory assurances that
comparable steps are being taken by each of the Fund's other major service
providers. The Fund does not expect to incur any significant costs in order to
address the Year 2000 problem however, at this time, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on the Fund.
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Directors
Francis E. Jeffries, Chairman
E. Virgil Conway
William W. Crawford
William N. Georgeson
Philip R. McLoughlin
Everett L. Morris
Eileen A. Moran
Richard A. Pavia
Harry Dalzell-Payne
Officers
Calvin J. Pedersen, President & Chief Executive
Officer
James D. Wehr, Vice President & Chief Investment
Officer
Timothy M. Heaney, Vice President
Nancy Engberg, Secretary, Vice President & Counsel
James W. Rosenberger, Treasurer & Assistant
Secretary
Investment Adviser
Duff & Phelps Investment Management Co.
55 East Monroe Street
Suite 3600
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 (Illinois)
333 West Wacker Drive
Chicago, IL 60606
This report is for stockholder information. This is not a
prospectus intended for use in the purchase or sale of Fund shares.
264325101
