<PAGE>
Duff & Phelps
Utilities
Tax-Free
Income Inc.
------------------------------------------------------------
Annual Report
October 31, 2000
<PAGE>
Letter to Shareholders
December 4, 2000
Dear Shareholder:
Fund Performance
Duff & Phelps Utilities Tax-Free Income Fund (DTF)
provided an attractive level of tax-free income
over the past fiscal year ending October 31, 2000.
On October 31st, the stock closed at $12.69. Our
$.0625 cent monthly dividend translates to a tax-
free yield of 5.91%. This level of income continues
to be generated by a high quality, well-diversified
investment portfolio.
DTF's total return for the one, three, five year
periods and since inception is compared to its
Lipper Leveraged Municipal Peer Group below:
ANNUALIZED TOTAL RETURN
(10/31/00)
<TABLE>
<CAPTION>
One Year Three Year Five Year Since Inception1
<S> <C> <C> <C> <C>
DTF2 9.13% 4.08% 5.29% 7.39%
Lipper Leveraged
Municipal Peer Group 9.47 3.60 5.54 6.79
</TABLE>
1 Inception date 11/30/91.
2 Source: Lipper Analytical Services, Inc. Total
return of the Fund as calculated for the period
ended October 31, 2000 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 call protection and diversified sector
holdings contributed to this performance over these
periods. The Fund's diversification by market
sector is shown below:
FUND DIVERSIFICATION
Market Sectors
--------------
Electric Utilities 20%
Pollution Control 12
Water/Sewer Revenue 25
Pre-Refunded Utilities 11
Non-Utilities 31
Cash 1
General Economic Commentary
The bond market's volatility has continued
throughout the past twelve months as both short-
term and long-term U.S. Treasury rates have
experienced changes of over 100 basis during this
period. This volatile
1
<PAGE>
environment has been fueled by several interest
rate increases (tighter monetary policy) by the
Federal Reserve (Fed) and the U.S. Treasury buyback
of longer-term U.S. Treasury debt with a portion of
the growing federal budget surplus. These rate
increases by the Fed have been in response to the
strong U.S. economy and corresponding inflation
fears. We expect U.S. Treasury rates to remain
volatile over the near-term as the market wrestles
with signs of a slowing economy, weakening
corporate credit fundamentals, an uncertain
political environment, higher energy prices, and
the volatile U.S. equity markets.
The U.S. economy has set a post war record of over
nine years of uninterrupted economic expansion. The
job market remains tight, while signs of an
economic slowdown have begun to appear. The
national unemployment rate, which started the year
at 4.1%, has declined to 3.9%, the lowest the
country has seen in 30 years. However, initial
jobless claims have risen recently indicating a
potential softening in the employment outlook. Real
GDP (a measure of economic growth) ended the third
quarter at 2.7%, the lowest reading since 2Q99 and
below the 4.2% and 4.4% recorded in 1999 and 1998
respectively. Inflation, as measured by the
Consumer Price Index (CPI), ended the third quarter
at approximately 3.1%. CPI has declined since the
end of the first quarter despite sharp increases in
energy prices as the six rate increases by the Fed
over the past 11/2 years appear to be slowing
inflation. As such, the fixed income markets are
beginning to forecast that the next move by the Fed
may be an easing of monetary policy (decrease in
rates) by the end of the first half of 2001. We
expect the Fed to remain vigilant to ensure that
inflation does not overheat and disrupt the
financial markets while also paying close attention
to the risks of a rapid slowdown in the economy.
The Municipal Market and Your Fund
The municipal bond market has performed well
relative to other fixed income markets over the
past twelve months due primarily to the continued
strength of municipal credit fundamentals, combined
with strong investor interest driven by concerns
about deteriorating corporate credit fundamentals
and uncertain equity markets. Since the beginning
of the year, yields on 30-year municipal bonds have
declined by 41 basis points while yields on 2-year
municipal bonds have risen by 2 basis points
resulting in a flatter municipal yield curve. Also,
year-to-date issuance of municipal bonds is lower
by approximately 17%. This reduced amount of new
issuance has been driven by the lower amount of
refundings, off almost 59% through the first ten
months of the year, as municipal rates are higher
than last year making it less economical for
issuers to refinance older, higher cost debt. As
such, full year 2000 issuance of municipal bonds is
projected to be approximately 20% lower than last
year, which should bode well for the market. On the
demand side, retail buying has been strong as
municipal yields have exceeded 6% at various times
this year, while institutional buying, which
includes mutual funds and insurance companies, has
been soft. With yields on longer-term municipal
bonds close to yields of longer term U.S. Treasury
bonds, municipals appear very attractive on a
relative value basis.
2
<PAGE>
Within the DTF Fund, our strategy remains
consistent as we continue to emphasize higher
quality issues, given the narrow yield premium
between higher quality and lower quality bonds. The
Fund currently has an average quality rating of
AA/Aa with 90% 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
focus due to the uncertainty surrounding electric
deregulation and its ultimate impact on valuations.
While numerous states have adopted various forms of
electric utility deregulation, the federal
government has been unable to pass a national
deregulation plan despite extensive debate. As a
result, the portfolio remains well diversified in
an effort to minimize exposure to any one sector,
with electric utility exposure currently at 20%,
which historically is a low level of exposure for
the DTF fund.
Outlook
As we move forward into 2001, factors that could
drive the relative value of municipal bonds over
the year include: the strength of the U.S. economy
and its impact on inflation, additional Federal
Reserve activity including a possible reversal to
an easing of monetary policy, legislative
developments in the electric utility industry that
could change the current tax laws for municipal
utility bonds, and lastly, the amount of new
municipal supply that the market will experience,
especially in light of the significant decline in
new issue supply the market has enjoyed through the
first ten months of 2000. Finally, should the U.S.
stock market continue to experience the same level
of volatility and negative returns that it has
experienced over the past few months, nervous
investors could move money into tax-exempt issues,
which could be positive for the market. In spite of
these potential risks, we believe the municipal
market represents good relative value at current
levels.
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
President and Chief Executive Officer
3
<PAGE>
----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Portfolio of Investments
October 31, 2000
<TABLE>
<CAPTION>
----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
----------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS--97.5%
Alabama--3.2%
Jefferson Cnty. Swr.
Rev. Capital Impvt.,
Aaa $ 3,000 5.125%, 2/1/29, Ser. A,
F.G.I.C................ $ 2,755,020
Aaa 4,000 5.00%, 2/1/33, Ser. A.... 3,578,920
------------
6,333,940
------------
California--16.3%
Foothill/Eastern Trans.
Corr. Agency Toll Road
Rev.,
Aaa 5,640(c) 6.00%, 1/1/34, Ser. A,
Prerefunded 1/01/07 @
$100................... 6,176,533
Fresno Swr. Rev.,
Aaa 3,030 6.00%, 9/1/09,
A.M.B.A.C.............. 3,379,117
Aaa 2,000 6.25%, 9/1/14,
A.M.B.A.C.............. 2,303,700
Pomona Sngl. Fam. Mtge.
Rev.,
Aaa 2,705 7.375%, 8/1/10
Escrowed to maturity... 3,059,950
Riverside Cnty. Sngl.
Fam.
Rev., Mtge. Backed
Aaa 2,500 7.80%, 5/1/21, Ser. A,
Escrowed to maturity... 3,231,025
San Bernardino Cnty.
Residential Mtge. Rev.,
Aaa 7,840 9.60%, 9/1/15
Escrowed to maturity..... 11,644,360
Santa Monica Waste Wtr.
Enterprise Rev.,
Hyperion Proj.,
A1 2,000(c) 6.70%, 1/1/22, Ser. A,
Prerefunded 1/1/02 @
$102................... 2,099,240
------------
31,893,925
------------
Colorado--2.0%
Colorado Hsg. Fin. Auth.,
Sngl. Fam. Prog.,
Aa2 1,125 8.00%, 6/1/25............ 1,194,098
Aa2 400 8.125%, 6/1/25........... 428,004
<CAPTION>
----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
----------------------------------------------------------
<S> <C> <C> <C>
Colorado Springs Utils.
Rev.,
Aa2 $ 2,300 6.50%, 11/15/15, Ser.
A...................... $ 2,387,423
------------
4,009,525
------------
Connecticut--3.4%
Connecticut St. Airport
Rev.,
Aaa 3,000 7.65%, 10/1/12,
F.G.I.C................ 3,318,720
Mashantucket Western
Pequot Tribe
Connecticut Spl. Rev.,
Baa3 3,500 5.75%, 9/1/18, Ser. B.... 3,291,610
------------
6,610,330
------------
Delaware--1.9%
Delaware St., Econ. Dev.
Auth. Rev., Delmarva
Pwr.
Aaa 3,500 6.75%, 5/1/19, Ser. B,
A.M.B.A.C.............. 3,656,625
------------
Florida--3.8%
Dade Cnty. Wtr. & Swr.
Sys. Rev.,
Aaa 3,000 5.25%, 10/1/26,
F.G.I.C................ 2,872,950
St. Petersburg Public
Utility
Rev., Ser. A,
Aaa 5,000 5.00%, 10/1/28, F.S.A.... 4,579,350
------------
7,452,300
------------
Georgia--9.5%
Atlanta Wtr. & Waste
Rev., Ser. A,
Aaa 5,000 5.00%, 11/1/29, F.G.I.C. 4,522,000
Aaa 1,500 5.00%, 11/1/38,
F.G.I.C................ 1,334,175
De Kalb Cnty. Wtr. &
Sewage Rev.,
Aa2 4,000 5.00%, 10/1/24........... 3,680,680
Georgia Mun. Elec. Auth.
Pwr.
Rev.,
Aaa 2,615 6.40%, 1/1/13, Ser. Y,
A.M.B.A.C.............. 2,927,702
Georgia Mun. Elec. Auth.
Rev.,
Aaa 5,500 6.50%, 1/1/20, Ser. X,
A.M.B.A.C.............. 6,216,375
------------
18,680,932
------------
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
----------------------------------------------------------
<S> <C> <C> <C>
Idaho--3.4%
Idaho Hsg. Agcy.,
Sngl. Fam. Mtge.
Senior,
Aa1 $ 3,680 6.65%, 7/1/14, Ser. B.... $ 3,793,050
Aaa 2,765 6.60%, 7/1/27, Ser. B.... 2,819,249
------------
6,612,299
------------
Illinois--4.7%
Chicago Gas Supply Rev.,
(People's Gas, Lt. &
Coke Co.),
Aa3 4,600 6.875%, 3/1/15........... 4,804,148
Chicago Gen. Oblig.,
Aaa 4,000 6.25%, 1/1/11,
A.M.B.A.C.............. 4,424,640
------------
9,228,788
------------
Indiana--2.8%
Indiana Mun. Pwr. Agcy.,
Pwr. Supply Sys. Rev.,
Aaa 5,000 6.00%, 1/1/13, Ser. B,
M.B.I.A................ 5,408,550
------------
Kentucky--0.9%
Louisville & Jefferson
Cnty. Met. Swr.
District
Swr. & Drainage Sys.
Rev.,
Aaa 2,000 5.00%, 5/15/30,
F.G.I.C................ 1,811,580
------------
Louisiana--0.7%
St. Charles Parish, Solid
Waste
Disp. Rev.,
(Louisiana Pwr. & Lt.
Co.),
Aaa 1,250 7.00%, 12/1/22, F.S.A.... 1,315,763
------------
Massachusetts--5.0%
Boston Wtr. & Swr.
Commission Rev.,
Aaa 2,000 5.00%, 11/1/28, Ser. D,
F.G.I.C................ 1,798,100
Massachusetts St. Tpk.
Auth.,
Metropolitan Highway
Sys. Rev.,
Aaa 2,355 5.125%, 1/1/23, Ser. B... 2,216,620
Massachusetts St., Wtr.
Res. Auth.,
Aaa 5,330(c) 7.00%, 8/1/13, Ser. A,
M.B.I.A.,
Prerefunded 8/1/04 @
$101 1/2............... 5,861,987
------------
9,876,707
------------
<CAPTION>
----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
----------------------------------------------------------
<S> <C> <C> <C>
Nebraska--2.8%
Omaha Pub. Pwr. Dist.,
Elec. Rev.,
Aa2 $ 2,500 6.15%, 2/1/12, Ser. B,
Escrowed to maturity... $ 2,748,350
Aa2 2,500 6.20%, 2/1/17, Ser. B,
Escrowed to maturity... 2,736,400
------------
5,484,750
------------
New York--11.0%
Long Island Pwr. Auth.
Elec. Sys. Rev.,
Aaa 4,000 5.25%, 12/1/26, Ser. A,
M.B.I.A................ 3,793,240
New York City Mun. Wtr.
Fin. Auth. Wtr & Swr.
Sys. Rev.,
Aaa 5,000 5.00%, 6/15/29, Ser. B,
F.S.A.................. 4,541,200
New York St. Dorm. Auth.
Rev.,
Comsewogue Pub. Lib.
Insd.,
Aaa 2,485 6.00%, 7/1/15,
M.B.I.A................ 2,602,714
New York St. Energy
Research & Dev. Auth.
Facs. Rev.,
(Con Edison Co. of
N.Y.),
A1 4,000 7.125%, 12/1/29.......... 4,310,880
New York St. Envir. Fac.
Corp.
Poll. Ctrl. Rev.,
Aaa 5,000 6.90%, 11/15/15, Ser.
D...................... 5,442,600
Suffolk Cnty. Ind. Dev.
Agcy.
Ind. Dev., Rev.,
(Nissequogue Cogen
Partners),
NR 1,000 5.50%, 1/1/23............ 849,110
------------
21,539,744
------------
Pennsylvania--1.5%
Montgomery Cnty. Ind.
Dev.,
Auth., Poll. Ctrl.
Rev.,
(PECO Energy Co.,)
Aaa 3,000 6.70%, 12/1/21, M.B.I.A. 3,112,740
------------
Tennessee--1.7%
Tennessee Hsg. Dev.
Agcy., Mtge. Finance,
Aaa 3,135 6.15%, 7/1/15, Ser. B,
M.B.I.A................ 3,245,039
------------
Texas--7.5%
Bexar Met. Wtr. Dist.
Waterworks Sys. Rev.,
Aaa 2,500 5.00%, 5/1/25,
M.B.I.A................ 2,285,825
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
----------------------------------------------------------
<S> <C> <C> <C>
Texas (cont'd.)
Coastal Wtr. Auth.
Contract Rev.,
City Of Houston Proj.,
Aaa $ 4,000 5.00%, 12/15/25,
F.S.A.................. $ 3,627,200
Harris Cnty. Toll Road
Sub. Lien,
Aa2 1,650 7.00%, 8/15/10, Ser. A... 1,920,913
Houston Wtr. & Swr. Sys.
Rev.,
Aaa 3,500 5.00%, 12/1/28, Ser. A... 3,162,740
San Antonio Elec. & Gas
Rev.,
Aa1 4,000 5.00%, 2/1/18, Ser. A.... 3,733,040
------------
14,729,718
------------
Virginia--1.8%
Henrico Cnty. Wtr. & Swr.
Rev.,
Aa2 3,985 5.00%, 5/1/28............ 3,620,970
------------
Washington--11.5%
Conservation & Renewable
Energy Sys.
Conservation
Proj. Rev.,
Aa1 2,600 6.875%, 10/1/11.......... 2,819,024
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................... 5,215,050
Snohomish Cnty., Pub.
Utils.
Dist. No. 1 Elec. Rev.,
A1 1,500 6.90%, 1/1/06, Ser. A.... 1,534,905
A1 8,000 5.80%, 1/1/24............ 7,751,760
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................... 2,589,600
Nuclear Proj. No. 2 Rev.,
Aa1 2,400 6.00%, 7/1/07, Ser. A.... 2,558,256
------------
22,468,595
------------
<CAPTION>
----------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
----------------------------------------------------------
<S> <C> <C> <C>
Wyoming--2.1%
Wyoming St. Farm Loan
Board Capital Fac.
Rev.,
AA-* $ 4,000 5.75%, 10/1/20........... $ 4,141,960
------------
Total long-term
investments
(cost $180,627,083).... 191,234,780
------------
SHORT-TERM INVESTMENTS--2.7%
California Poll. Ctrl.
Fin. Auth. Rev.,
So. Cal. Ed., Ser. 86B,
VMIG1 300 4.65%, 11/1/00,
F.R.D.D................ 300,000
Goldman Sachs Tax Exempt
Money Market Fund,
NR 5,092 3.94%,................... 5,091,976
------------
Total short-term
investments
(cost $5,391,976)...... 5,391,976
------------
Total Investments--100.2%
(cost $186,019,059).... 196,626,756
Liabilities in excess of
other assets--(0.2%)... (467,403)
------------
Net Assets--100%......... $196,159,353
------------
------------
</TABLE>
---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
M.B.I.A.--Municipal Bond Insurance Association.
F.G.I.C.--Financial Guarantee Insurance Company.
F.S.A.--Financial Security Assurance Inc.
F.R.D.D.--Floating Rate Daily Demand Note(b).
(b) For purposes of amortized cost valuation, the maturity date of Floating Rate
Demand Notes is considered to be the later of the next date on which the
security can be redeemed at par or the next date on which the rate of
interest is adjusted.
(c) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
* Standard & Poor's rating.
NR--Not Rated by Moody's or Standard & Poor's.
See Notes to Financial Statements.
6
<PAGE>
----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Statement of Assets and Liabilities
October 31, 2000
----------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at value (cost
$186,019,059)........................ $196,626,756
Cash................................... 162,181
Interest receivable.................... 3,351,614
------------
Total assets......................... 200,140,551
------------
Liabilities
Payable for investments purchased...... 3,684,627
Accrued expenses....................... 114,107
Advisory fee payable (Note 2).......... 92,558
Dividends payable...................... 62,139
Administration fee payable (Note 2).... 27,767
------------
Total liabilities.................... 3,981,198
------------
Net Assets............................. $196,159,353
------------
------------
Capital
Remarketed preferred stock ($.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
8,507,456issued and outstanding)..... 85,075
Paid-in capital........................ 120,408,778
Undistributed net investment income.... 243,163
Accumulated net realized loss on
investments.......................... (185,360)
Net unrealized appreciation on
investments.......................... 10,607,697
------------
Net assets applicable to common stock
(equivalent to $15.42 per share
based on 8,507,456 shares
outstanding)....................... 131,159,353
------------
Total capital (Net assets)........... $196,159,353
------------
------------
</TABLE>
----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Statement of Operations
Year Ended October 31, 2000
----------------------------------------------------------
<TABLE>
<S> <C>
Net Investment Income
Income
Interest.............................. $11,347,649
-----------
Expenses
Investment advisory fee............... 964,584
Administration fee.................... 289,375
Remarketing expense................... 162,500
Directors' fees and expenses.......... 125,000
Custodian's fees and expenses......... 70,000
Audit fee and expenses................ 42,000
Reports to shareholders............... 38,000
Transfer agent's fees and expenses.... 30,000
Legal fees and expenses............... 21,000
Registration expenses................. 17,000
Miscellaneous......................... 5,800
-----------
Total expenses...................... 1,765,259
-----------
Net investment income................... 9,582,390
-----------
Realized and Unrealized Gain
on Investments
Net realized gain on investment
transactions.......................... 110,084
Net change in unrealized appreciation on
investments........................... 4,213,584
-----------
Net realized and unrealized gain on
investments........................... 4,323,668
-----------
Net Increase in Net Assets
Resulting from Operations............... $13,906,058
-----------
-----------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
7
<PAGE>
----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Statement of Changes
In Net Assets
----------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31,
Increase (Decrease) ---------------------------
in Net Assets 2000 1999
------------ ------------
<S> <C> <C>
Operations:
Net investment income...... $ 9,582,390 $ 9,666,246
Net realized gain (loss) on
investment transactions.. 110,084 (123,315)
Net change in unrealized
appreciation/depreciation
of investments........... 4,213,584 (13,390,205)
------------ ------------
Net increase (decrease) in
net assets resulting from
operations............... 13,906,058 (3,847,274)
Dividends and distributions:
Dividends to common
shareholders from net
investment income........ (7,256,711) (8,157,027)
Dividends to preferred
shareholders from net
investment income........ (2,728,990) (2,110,264)
Capital share transactions
(Note 4):
Value of Fund shares issued
to shareholders in
reinvestment of
dividends................ -- 888,334
------------ ------------
Total increase (decrease).... 3,920,357 (13,226,231)
Net Assets
Beginning of year(a)......... 192,238,996 205,465,227
------------ ------------
End of year(a)(b)............ $196,159,353 $192,238,996
------------ ------------
------------ ------------
---------------
(a) Includes $65,000,000 in preferred
stock.
(b) Includes undistributed
net investment income of... $ 243,163 $ 588,192
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
-------------------------------------------------------------------------------
DUFF & PHELPS UTILITIES TAX-FREE INCOME INC.
Financial Highlights
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31,
PER SHARE OPERATING PERFORMANCE OF COMMON --------------------------------------------------------------
SHAREHOLDERS: 2000 1999 1998 1997 1996
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............... $ 14.96 $ 16.62 $ 16.28 $ 15.84 $ 15.90
---------- -------- -------- -------- --------
Net investment income(d)....................... 1.13 1.14 1.17 1.18 1.21
Net realized and unrealized gain (loss) on
investments(d)................................. .50 (1.59) .41 .50 --
---------- -------- -------- -------- --------
Net increase (decrease) from investment
operations..................................... 1.63 (.45) 1.58 1.68 1.21
---------- -------- -------- -------- --------
Dividends from net investment income to:
Preferred shareholders......................... (.32) (.25) (.28) (.28) (.27)
---------- -------- -------- -------- --------
Common shareholders............................ (.85) (.96)(e) (.96) (.96) (.96)
---------- -------- -------- -------- --------
Distributions from net realized gains to:
Preferred shareholders......................... -- -- -- -- (.01)
---------- -------- -------- -------- --------
Common shareholders............................ -- -- -- -- (.03)
---------- -------- -------- -------- --------
Net asset value, end of year(a).................. $ 15.42 $ 14.96 $ 16.62 $ 16.28 $ 15.84
---------- -------- -------- -------- --------
Per share market value, end of year(a)........... $ 12.69 $ 14.13 $ 17.31 $ 16.00 $ 15.13
---------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN OF COMMON
SHAREHOLDERS(b).................................. (4.08)% (13.34)% 11.41% 12.42% 12.19%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS:(c)
Operating expenses............................... 1.38% 1.39% 1.34% 1.35% 1.35%
Net investment income............................ 7.51% 7.10% 7.18% 7.46% 7.69%
SUPPLEMENTAL DATA:
Average net assets of common shareholders
(000).......................................... $ 127,639 $136,111 $137,680 $133,055 $132,361
Portfolio turnover rate.......................... 26% 6% 0% 5% 10%
Net assets of common shareholders, end of year
(000).......................................... $ 131,159 $127,239 $140,465 $136,817 $132,678
Asset coverage per share of preferred stock, end
of year........................................ $ 150,892 $147,876 $158,050 $155,243 $152,126
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 period.
(e) The unrounded amount is $0.955.
See Notes to Financial Statements.
9
<PAGE>
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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.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants, Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income; Capital Gain, and
Return of Capital Distributions by Investment Companies. The effect of applying
this statement was to increase accumulated net realized loss on investments and
increase undistributed net investment income by $58,282, due to the sale of
securities purchased with market discount during the year ended October 31,
2000. Net investment income, net realized gains and net assets were not affected
by this change.
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.
10
<PAGE>
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 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, 2000 aggregated $48,487,133 and $48,783,045, respectively.
The Federal income tax basis of the Fund's investments at October 31, 2000
was substantially the same as the basis for financial reporting and,
accordingly, net unrealized appreciation for federal income tax purposes was
$10,607,697 (gross unrealized appreciation--$11,018,960; gross unrealized
depreciation--$411,263).
The Fund had a capital loss carryforward as of October 31, 2000 of
approximately $185,400, of which $62,100 expires in 2006 and $123,300 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 year ended October 31, 2000 the Fund did not issue any common
shares in connection with the reinvestment of dividends. For the year ended
October 31, 1999 the Fund issued 54,970 common shares in connection with the
reinvestment of dividends.
The Fund's Articles of Incorporation authorize the issuance of Remarketed
Preferred Stock ('RP'). Accordingly, the Fund issued 1,300 shares of RP on
February 4, 1992. The RP has a liquidation value of $50,000 per share plus any
accumulated but unpaid dividends.
Dividends on shares of RP are cumulative from their date of original issue
and payable on each dividend payment date. Dividend rates ranged from 3.44% to
5.50% during the year ended October 31, 2000.
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,
2000, dividends declared and paid on preferred
shares totalled $216,521. On November 1, 2000, the Board of Directors of the
Fund declared a dividend of $.0625 per common share payable on November 30, to
common shareholders of record on November 15. On November 16, 2000, the Board of
Directors approved a dividend of $.0625 per common share to be declared on
December 1, 2000 payable on December 29, to common shareholders of record on
December 15.
11
<PAGE>
-------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
-------------------------------------------------------------------------------
To the Shareholders and Board of Directors
Duff and Phelps Utilities Tax-Free Income Inc.
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Duff & Phelps Utilities Tax-Free
Income Inc. (the 'Fund') as of October 31, 2000, 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 1996. 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 auditing standards generally
accepted in the United States. 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, 2000 by correspondence with the custodian and broker. 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, 2000, 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 accounting principles generally
accepted in the United States.
Ernst & Young LLP
Chicago, Illinois
November 20, 2000
-------------------------------------------------------------------------------
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, 2000) 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, 2000, all dividends paid from net
investment income were federally tax-exempt interest dividends.
12
<PAGE>
-------------------------------------------------------------------------------
OTHER INFORMATION (Unaudited)
-------------------------------------------------------------------------------
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
13
<PAGE>
purchases of shares for reinvestment of the dividends and distributions. Shares
will be allocated to the accounts of participants purchasing additional shares
at the average price per share, plus a service charge imposed by the Plan Agent
and brokerage commissions (or equivalent purchase costs) paid by the Plan Agent
for all shares purchased by it, including for reinvestment of dividends and
distributions. Checks drawn on a foreign bank are subject to collection and
collection fees, and will be invested at the time of the next distribution after
funds are collected by the Plan Agent.
The Plan Agent will make every effort to invest funds promptly, and in no
event more than 30 days after the Plan Agent receives a dividend or
distribution, except where postponement is deemed necessary to comply with
applicable provisions of the federal securities laws.
Funds sent to the Plan Agent for voluntary additional share investment may be
recalled by the participant by written notice received by the Plan Agent not
later than two business days before the next distribution payment date. If for
any reason a regular monthly distribution is not paid by the Fund, funds for
voluntary additional share investment will be returned to the participant,
unless the participant specifically directs that they continue to be held by the
Plan Agent for subsequent investment.
There have been no material changes in the Fund's investment objectives or
policies, charter or by-laws and principal risk factors associated with
investment in the Fund.
At annual shareholder meetings held on May 31, 2000, shareholders elected E.
Virgil Conway, Harry Dalzell-Payne and Everett L. Morris as directors of the
Fund and also approved the selection of Ernst & Young LLP as the independent
auditors for the Fund for the fiscal year ending October 31, 2000. Francis E.
Jeffries, William W. Crawford, William N. Georgeson, Philip R. McLoughlin,
Eileen A. Moran and Richard A. Pavia were not up for election and their terms
accordingly continued after the date of such meetings. The results of the
matters voted upon were as follows:
<TABLE>
<CAPTION>
Number of Shares
----------------------------------------------------
Withheld
For Authority Against Abstain
----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Election of E. Virgil Conway 1 7,337,063 114,676
Election of Harry Dalzell-Payne 1 7,346,290 105,449
Selection of Ernst & Young LLP 1 7,365,600 46,542 39,597
Election of Everett L. Morris 2 1,095 18
</TABLE>
1The number of common shares issued outstanding and eligible to vote were
8,507,456. Quorum was 7,450,626 or 87.57% of eligible voting shares.
2The number of remarketed shares outstanding and eligible to vote as a separate
class were 1,300 of which 1,113 (85.62%) were voted.
14
<PAGE>
<PAGE>
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<PAGE>
------------------------------------------------------
Directors
Francis E. Jeffries, Chairman
E. Virgil Conway
William W. Crawford
William N. Georgeson
Philip R. McLoughlin
Everett L. Morris
Eileen A. Moran
Richard A. Pavia
Harry Dalzell-Payne
Officers
Francis E. Jeffries, President & Chief Executive
Officer
James D. Wehr, Vice President & Chief Investment
Officer
Timothy M. Heaney, Vice President
Nancy Engberg, Secretary, Vice President & Counsel
Alan M. Meder, Treasurer & Assistant
Secretary
Investment Adviser
Duff & Phelps Investment Management Co.
55 East Monroe Street
Suite 3600
Chicago, IL 60603
(312) 263-2610
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
