Letter to
Shareholders
--------------------------------------------------
April 30, 2001
Dear Shareholder:
Fund Performance
Duff & Phelps Utilities Tax-Free Income Fund (DTF)
provided an attractive level of tax-free income
over the past six months ending April 30, 2001.
On April 30th, the stock closed at $13.99. Our
$0.0625 cent monthly dividend translates to a tax-
free yield of 5.36%. This level of income
continues to be generated by a high quality, well-
diversified investment portfolio.
The DTF's total return for its one, three and five
year periods is compared to its Lipper Leveraged
Municipal Peer Group below:
ANNUALIZED TOTAL RETURN
(4/30/01)
One Year Three Year Five Year Since Inception1
DTF 11.48% 4.79% 6.42% 7.50%
Lipper Leveraged
Peer Group 12.00 4.16 6.32 6.95
1) Inception date 11/30/91.
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 11
Water/Sewer Revenue 25
Pre-Refunded Utilities 11
Non-Utilities 32
Cash 1
General Economic Commentary
The bond market's volatility has continued into
2001 as short-term U.S. Treasury rates have
declined significantly due to five interest rate
decreases by the Federal Reserve, totaling 250
basis points, as the U.S. economy has slowed. The
Fed remains on close watch due to the increasing
threat that
1
the U.S. economy may be moving towards a
recession. Over the past six months ending April
30, 2001, one-year U.S. Treasury rates have
decreased by 225 basis points while five-year U.S.
Treasury rates have declined by only 92 basis
points and 30-year U.S. Treasury rates are
unchanged. This significant decline in shorter-
term rates when compared to intermediate and long-
term rates is opposite of the market's experience
last year. As a result of the significant decline
in shorter-term rates due to the Fed's easing of
monetary policy and an increase in long-term
yields caused partly by a reduction in the
Treasury's buyback of 30-year US Treasury bonds,
the U.S. Treasury yield curve has steepened
dramatically. We expect the U.S. Treasury curve
to remain steep over the near term as the threat
of a recession and a very aggressive Fed should
keep shorter-term rates low.
The U.S. economy has begun to show signs of
slowing after setting a post war record of over
nine years of uninterrupted economic expansion.
Corporate layoff announcements are increasing,
consumer spending has slowed, GDP growth has
declined, and a dramatic reversal in the
performance of the equity markets has all
contributed to reduced consumer confidence and the
threat of a recession. The national unemployment
rate, which ended April, 2000 at 4.0%, rose to
4.5% at the end of April, 2001 as company layoffs
are starting to impact employment. Consumer
spending, as measured by retail sales, has
experienced several monthly declines over the past
six months as consumers have become more cautious
in the face of rising unemployment. Inflation, as
measured by the Consumer Price Index (CPI), has
declined recently after moving steadily upward
since 1998 as it ended the first quarter at
approximately 2.9%, down from 3.8% a year ago.
Despite the recent easing of monetary policy, the
economy remains fragile as labor markets have
slowed and consumer spending is weaker. The
willingness of consumers to borrow and spend is
the necessary fuel to keep the economy healthy.
We expect the Fed to remain vigilant to ensure
that the economy does not dip into a prolonged
recession.
The Municipal Market and Your Fund
The past six months in the tax-exempt market could
be characterized by two major themes: a
significant steepening of the tax-exempt yield
curve and increased supply of municipal bonds.
The aggressive interest rate actions by the Fed in
attempt to jump start the economy resulted in a
significant steepening of the municipal yield
curve. Through the first four months of 2001,
there was very little change in long maturity tax-
exempt rates, while there was a significant
decline in rates from seven years and shorter
causing the yield curve to steepen. The second
theme has been increased supply. Municipalities
have taken advantage of historically low municipal
yields to fund new projects as well as refund
older, higher cost debt. Through the first four
months of 2001, new issuance is up over 36% year
over year with refundings, which are essentially
refinacings of older debt, up over 300% compared
to this same period in 2000. It is anticipated
that new supply will remain high through the
balance of the year, especially in light of the
significant amount of issuance expected from
California as a result of its power crisis.
Generally, new issues are heavily weighted with
longer-dated maturities compared to shorter-dated
2
maturities especially when rates are lower. As
such, this higher amount of longer-dated bonds has
contributed to the steepening of the municipal
yield curve as more supply in the longer-end of
the curve has kept pressure on municipal rates
from declining. Overall, municipal credit spreads
have widened over the past twelve months.
However, credit spreads still remain narrow when
taking the risks of lower rated securities into
consideration making higher quality bonds still
good relative value.
Within the DTF Fund, we continue to emphasize
higher quality bonds. The Fund currently has an
average quality rating of AA/Aa with over 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 close
focus due to the uncertainty surrounding electric
deregulation and its ultimate impact on
valuations. Specifically, the power crisis that
is plaguing California has cast a negative shadow
over the electric utility industry, causing bond
prices to remain under pressure. 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. This debate is likely
to continue indefinitely, especially in light of
the problems that California is currently
experiencing. 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. Further, the
fund has no exposure to any California electric
utilities.
Outlook
As we move forward into the second half of 2001,
factors that could drive the relative value of
municipal bonds over the balance of the year
include; the U.S. economic outlook, tax reform
leading to changes in the top marginal tax rates,
Federal Reserve policy, legislative developments
in the electric utility industry as well as the
amount of new municipal supply. Finally, should
the U.S. stock market continue to experience the
same level of volatility and negative returns that
is has experienced over the past few months,
nervous investors could continue to move money
into tax-exempt issues, which could be positive
for the market. In spite of these uncertainties,
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
3
Duff & Phelps
Utilities
Tax-Free
Income Inc.
------------------------------------------------------------
Semi-Annual Report
April 30, 2001
----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Portfolio of Investments
April 30, 2001 (Unaudited)
----------------------------------------------------------
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
----------------------------------------------------------
LONG-TERM INVESTMENTS--97.7%
Alabama--3.3%
Jefferson Cnty. Swr. Rev.
Capital Impvt.,
Aaa $ 3,000 5.125%, 2/1/29, Ser. A,
F.G.I.C................ $ 2,832,420
Aaa 4,000 5.00%, 2/1/33, Ser. A.... 3,659,640
------------
6,492,060
------------
California--15.9%
Foothill/Eastern Trans.
Corr. Agency Toll Road
Rev.,
Aaa 5,640(b) 6.00%, 1/1/34, Ser. A,
Prerefunded 1/1/07 @
$100................... 6,227,857
Fresno Swr. Rev.,
Aaa 3,030 6.00%, 9/1/09,
A.M.B.A.C.............. 3,369,512
Aaa 2,000 6.25%, 9/1/14,
A.M.B.A.C.............. 2,298,000
Pomona Sngl. Fam. Mtge.
Rev.,
Aaa 2,705 7.375%, 8/1/10
Escrowed to maturity... 3,077,452
Riverside Cnty. Sngl.
Fam.
Rev., Mtge. Backed
Aaa 2,500 7.80%, 5/1/21, Ser. A,
Escrowed to maturity... 3,209,550
San Bernardino Cnty.
Residential Mtge. Rev.,
Aaa 7,840 9.60%, 9/1/15
Escrowed to maturity... 11,467,646
Santa Monica Waste Wtr.
Enterprise Rev.,
Hyperion Proj.,
A1 2,000(b) 6.70%, 1/1/22, Ser. A,
Prerefunded 1/1/02 @
$102................... 2,086,960
------------
31,736,977
------------
Colorado--1.9%
Colorado Hsg. Fin. Auth.,
Sngl. Fam. Prog.,
Aa2 995 8.00%, 6/1/25............ 1,061,386
Aa2 350 8.125%, 6/1/25........... 374,105
----------------------------------------------------------
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
----------------------------------------------------------
Colorado Springs Utils.
Rev.,
Aa2 $ 2,300 6.50%, 11/15/15, Ser.
A...................... $ 2,380,523
------------
3,816,014
------------
Connecticut--3.4%
Connecticut St Airport
Rev.,
Aaa 3,000 7.65%, 10/1/12,
F.G.I.C................ 3,339,480
Mashantucket Western
Pequot Tribe
Connecticut Spl. Rev.
Baa3 3,500 5.75%, 9/1/18, Ser. B.... 3,380,580
------------
6,720,060
------------
Delaware--1.8%
Delaware St., Econ. Dev.
Auth. Rev., Delmarva
Pwr.,
Aaa 3,500 6.75%, 5/1/19, Ser. B,
A.M.B.A.C.............. 3,655,540
------------
Florida--3.8%
Dade Cnty. Wtr. & Swr.
Sys. Rev.,
Aaa 3,000 5.25%, 10/1/26,
F.G.I.C................ 2,954,340
St. Petersburg Public
Utility
Aaa 5,000 Rev., Ser. A,
5.00%, 10/1/28,
F.S.A.................. 4,709,900
------------
7,664,240
------------
Georgia--9.6%
Atlanta Wtr. & Waste
Rev., Ser. A,
Aaa 5,000 5.00%, 11/1/29,
F.G.I.C................ 4,701,050
Aaa 1,500 5.00%, 11/1/38,
F.G.I.C................ 1,368,675
De Kalb Cnty. Wtr. &
Sewage Rev.,
Aa2 4,000 5.00%, 10/1/24........... 3,801,840
Georgia Mun. Elec. Auth.
Pwr. Rev., Ser. Y,
Aaa 145(b) 6.40%, 1/1/13............ 166,429
Prerefunded 1/1/11 @ $100
Aaa 2,470 6.40%, 1/1/13............ 2,809,798
Georgia Mun. Elec. Auth.
Rev.,
Aaa 5,500 6.50%, 1/1/20, Ser. X,
A.M.B.A.C.............. 6,318,510
------------
19,166,302
------------
See Notes to Financial Statements.
4
----------------------------------------------------------
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
----------------------------------------------------------
Idaho--3.3%
Idaho Hsg. Agcy.,
Sngl. Fam. Mtge. Sr.,
Aa1 $ 3,555 6.65%, 7/1/14, Ser. B.... $ 3,713,447
Aaa 2,720 6.60%, 7/1/27, Ser. B.... 2,826,515
------------
6,539,962
------------
Illinois--4.7%
Chicago Gas Supply Rev.,
(People's Gas, Lt. &
Coke Co.),
Aa3 4,600 6.875%, 3/1/15........... 4,795,592
Chicago Gen. Oblig.
Aaa 4,000 6.25%, 1/1/11,
A.M.B.A.C.............. 4,486,960
------------
9,282,552
------------
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................ 5,516,800
------------
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................ 1,874,980
------------
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.... 1,326,562
------------
Massachusetts--5.0%
Boston Wtr. & Swr.
Commission Rev.,
Aaa 2,000 5.00%, 11/1/28, Ser. D,
F.G.I.C................ 1,850,280
Massachusetts St. Tpk.
Auth., Metropolitan
Highway
Sys. Rev.,
Aaa 2,355 5.125%, 1/1/23, Ser. B... 2,263,956
Massachusetts St., Wtr.
Res. Auth.,
Aaa 5,330(b) 7.00%, 8/1/13, Ser. A,
M.B.I.A.
Prerefunded 8/1/04 @
$101 1/2............... 5,936,660
------------
10,050,896
------------
----------------------------------------------------------
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
----------------------------------------------------------
Nebraska--2.8%
Omaha Pub. Pwr. Dist.,
Elec. Rev.,
Aa2 $ 2,500 6.15%, 2/1/12, Ser. B,
Escrowed to maturity... $ 2,801,800
Aa2 2,500 6.20%, 2/1/17, Ser. B,
Escrowed to maturity... 2,788,175
------------
5,589,975
------------
New York--10.6%
Long Island Pwr. Auth.
Elec. Sys. Rev.,
Aaa 4,000 5.25%, 12/1/26, Ser. A,
M.B.I.A................ 3,911,680
New York City Mun. Wtr.
Fin. Auth. Wtr. & Swr.
Sys. Rev.,
Aaa 5,000 5.00%, 6/15/29, Ser. B,
F.S.A.................. 4,718,950
New York St. Dorm. Auth.
Rev.,
Comsewogue Pub. Lib.
Insd.,
Aaa 2,485 6.00%, 7/1/15,
M.B.I.A................ 2,633,181
New York St. Energy
Research & Dev. Auth.
Facs. Rev.,
(Con Edison Co. of
N.Y.),
A1 4,000 7.125%, 12/1/29.......... 4,388,360
New York St. Envir. Fac.
Corp.
Poll. Ctrl. Rev.,
Aaa 5,000 6.90%, 11/15/15, Ser.
D...................... 5,538,400
------------
21,190,571
------------
Pennsylvania--1.6%
Montgomery Cnty. Ind.
Dev.
Auth., Poll. Ctrl.
Rev.,
(PECO Energy Co.),
Aaa 3,000 6.70%, 12/1/21,
M.B.I.A................ 3,108,510
------------
Tennessee--1.7%
Tennessee Hsg. Dev.
Agcy.,
Mtge. Finance,
Aaa 3,135 6.15%, 7/1/15, Ser. B,
M.B.I.A................ 3,288,176
------------
Texas--8.5%
Bexar Met. Wtr. Dist.
Waterworks Sys. Rev.,
Aaa 2,500 5.00%, 5/1/25,
M.B.I.A................ 2,331,375
See Notes to Financial Statements.
5
----------------------------------------------------------
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
----------------------------------------------------------
Texas (cont'd.)
Coastal Wtr. Auth.
Contract Rev.,
City Of Houston Proj.,
Aaa $ 4,000 5.00%, 12/15/25,
F.S.A.................. $ 3,685,680
Harris Cnty. Toll Road
Sub. Lien.,
Aa2 1,650 7.00%, 8/15/10, Ser. A... 1,943,799
Houston Wtr. & Swr. Sys.
Rev.,
Ser. A,
Aaa 3,500 5.00%, 12/1/28........... 3,236,100
Lower Colorado River
Auth. Texas Rev.
Refunding &
Improvement,
Aaa 2,000 5.00%, 5/15/31........... 1,840,560
San Antonio Elec. & Gas
Rev.,
Aa1 4,000 5.00%, 2/1/18, Ser. A.... 3,811,600
------------
16,849,114
------------
Virginia--1.9%
Henrico Cnty. Wtr. & Swr.
Rev.,
Aa2 3,985 5.00%, 5/1/28............ 3,749,606
------------
Washington--11.4%
Conservation & Renewable
Energy Sys.
Conservation
Proj. Rev.,
Aa1 2,600 6.875%, 10/1/11.......... 2,874,924
Lewis Cnty. Pub. Utils.
Dist. No. 1, Cowlitz
Falls Hydroelectric
Proj. Rev.,
Aaa 5,000(b) 7.00%, 10/1/22,
Prerefunded 10/1/01 @
$102................... 5,178,900
Snohomish Cnty., Pub.
Utils.
Dist. No. 1 Elec. Rev.,
A1 1,500 6.90%, 1/1/06, Ser. A.... 1,580,850
A1 8,000 5.80%, 1/1/24............ 7,941,440
----------------------------------------------------------
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
----------------------------------------------------------
Washington St. Pub. Pwr.
Supply,
Nuclear Proj. No. 1
Rev.,
Aaa $ 2,500(b) 6.875%, 7/1/17, Ser. A,
Prerefunded 7/1/01 @
$102 $ 2,564,275
Nuclear Proj. No. 2 Rev.,
Aa1 2,400 6.00%, 7/1/07, Ser. A.... 2,602,632
------------
22,743,021
------------
Wyoming--2.1%
Wyoming St. Farm Loan
Board Capital Fac.
Rev.,
AA-* 4,000 5.75%, 10/1/20........... 4,218,040
------------
Total long-term
investments
(cost $181,048,969).... 194,579,958
------------
SHORT-TERM INVESTMENTS--0.6%
Shares
(000)
---------
Goldman Sachs Tax Exempt
Money Market Fund,
NR 1,319 (cost $1,319,109)........ 1,319,109
------------
Total Investments--98.3%
(cost $182,368,078).... 195,899,067
Other assets in excess of
liabilities--1.7%...... 3,289,310
------------
Net Assets--100%......... $199,188,377
------------
------------
---------------
(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.
(b) 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
----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Statement of Assets and Liabilities
April 30, 2001
(Unaudited)
----------------------------------------------------------
Assets
Investments, at value (cost
$182,368,078)........................ $195,899,067
Cash................................... 83,069
Interest receivable.................... 3,405,840
------------
Total assets......................... 199,387,976
------------
Liabilities
Advisory fee payable (Note 2).......... 80,192
Accrued expenses....................... 68,001
Dividends payable...................... 27,351
Administration fee payable (Note 2).... 24,055
------------
Total liabilities.................... 199,599
------------
Net Assets............................. $199,188,377
------------
------------
Remarketed preferred stock ($.01 par
value; 1,300
preferred shares, issued and
outstanding, liquidation preference
$50,000 per share; Note 4)........... $ 65,000,000
------------
Net assets were comprised of:
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............................. 509,090
Accumulated net realized loss on
investments........................ (345,555)
Net unrealized appreciation on
investments........................ 13,530,989
------------
Net assets applicable to common stock
(equivalent to $15.77 per share
based on 8,507,456 shares
outstanding)....................... 134,188,377
------------
Total capital (Net assets)........... $199,188,377
------------
------------
----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Statement of Operations
Six Months Ended April 30, 2001 (Unaudited)
----------------------------------------------------------
Net Investment Income
Income
Interest.............................. $ 5,588,684
-----------
Expenses
Investment advisory fee............... 494,826
Administration fee.................... 148,448
Remarketing expense................... 81,000
Directors' fees and expenses.......... 62,000
Custodian's fees and expenses......... 31,000
Audit fees and expenses............... 22,000
Transfer agent's fees and expenses.... 16,000
Reports to shareholders............... 14,000
Registration fees..................... 12,000
Legal fees and expenses............... 9,000
Miscellaneous......................... 3,344
-----------
Total expenses...................... 893,618
-----------
Net investment income................... 4,695,066
-----------
Realized and Unrealized Gain (Loss)
on Investments
Net realized loss on investment
transactions.......................... (160,195)
Net change in unrealized appreciation on
investments........................... 2,923,292
-----------
Net realized and unrealized gain on
investments........................... 2,763,097
-----------
Net Increase in Net Assets
Resulting from Operations............... $ 7,458,163
-----------
-----------
See Notes to Financial Statements. See Notes to Financial Statements.
7
----------------------------------------------------------
DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Statement of Changes
In Net Assets
(Unaudited)
----------------------------------------------------------
Six Months
Ended Year Ended
Increase in April 30, October 31,
Net Assets 2001 2000
------------ ------------
Operations:
Net investment income...... $ 4,695,066 $ 9,582,390
Net realized gain (loss) on
investment
transactions............. (160,195) 110,084
Net change in unrealized
appreciation of
investments.............. 2,923,292 4,213,584
------------ ------------
Net increase in net assets
resulting from
operations............... 7,458,163 13,906,058
Dividends:
Dividends to common
shareholders from net
investment income........ (3,170,386) (7,256,711)
Dividends to preferred
shareholders from net
investment income........ (1,258,753) (2,728,990)
------------ ------------
Total increase........... 3,029,024 3,920,357
Net Assets
Beginning of period(a)....... 196,159,353 192,238,996
------------ ------------
End of period(a)(b).......... $199,188,377 $196,159,353
------------ ------------
------------ ------------
---------------
(a) Includes $65,000,000 in preferred stock.
(b) Includes undistributed net
investment income of..... $ 509,090 $ 243,163
------------ ------------
------------ ------------
See Notes to Financial Statements.
8
--------------------------------------------------------------------------------
DUFF & PHELPS UTILITIES TAX-FREE INCOME INC.
Financial Highlights (Unaudited)
--------------------------------------------------------------------------------
Six Months
Ended Year Ended October 31,
PER SHARE OPERATING PERFORMANCE OF COMMON April 30, ------------------------------------------------------------
SHAREHOLDERS: 2001 2000 1999 1998 1997 1996
---------- -------- -------- -------- -------- --------
Net asset value, beginning of period..... $ 15.42 $ 14.96 $ 16.62 $ 16.28 $ 15.84 $ 15.90
---------- -------- -------- -------- -------- --------
Net investment income(d)............... .55 1.13 1.14 1.17 1.18 1.21
Net realized and unrealized gain (loss)
on investments(d)...................... .32 .50 (1.59) .41 .50 --
---------- -------- -------- -------- -------- --------
Net increase (decrease) from investment
operations............................. .87 1.63 (.45) 1.58 1.68 1.21
---------- -------- -------- -------- -------- --------
Dividends from net investment income to:
Preferred shareholders................. (.15) (.32) (.25) (.28) (.28) (.27)
---------- -------- -------- -------- -------- --------
Common shareholders.................... (.37) (.85) (.96)(e) (.96) (.96) (.96)
---------- -------- -------- -------- -------- --------
Distributions from net realized gains to:
Preferred shareholders................. -- -- -- -- -- (.01)
---------- -------- -------- -------- -------- --------
Common shareholders.................... -- -- -- -- -- (.03)
---------- -------- -------- -------- -------- --------
Net asset value, end of period(a)........ $ 15.77 $ 15.42 $ 14.96 $ 16.62 $ 16.28 $ 15.84
---------- -------- -------- -------- -------- --------
Per share market value, end of
period(a).............................. $ 13.99 $ 12.69 $ 14.13 $ 17.31 $ 16.00 $ 15.13
---------- -------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN OF COMMON
SHAREHOLDERS(b).......................... 13.33% (4.08)% (13.34)% 11.41% 12.42% 12.19%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS:(c)
Operating expenses....................... 1.32%(f) 1.38% 1.39% 1.34% 1.35% 1.35%
Net investment income.................... 6.95%(f) 7.51% 7.10% 7.18% 7.46% 7.69%
SUPPLEMENTAL DATA:
Average net assets of common shareholders
(000).................................. $ 136,180 $127,639 $136,111 $137,680 $133,055 $132,361
Portfolio turnover rate.................. 2% 26% 6% 0% 5% 10%
Net assets of common shareholders, end of
period (000)........................... $ 134,188 $131,159 $127,239 $140,465 $136,817 $132,678
Asset coverage per share of preferred
stock, end of period................... $ 153,222 $150,892 $147,876 $158,050 $155,243 $152,126
Preferred stock outstanding (000)........ $ 65,000 $ 65,000 $ 65,000 $ 65,000 $ 65,000 $ 65,000
---------------
(a) NAV and market value are published in The Wall Street Journal each Monday.
(b) Total investment return is calculated assuming a purchase of common stock at
the current market value on the first day and a sale at the current market
value on the last day of each period reported. Dividends are assumed, for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Brokerage commissions are not reflected.
Total return for periods of less than a full year are not annualized.
(c) Ratios calculated on the basis of income and expenses applicable to both the
common and preferred shares relative to the average net assets of common
shareholders. Ratios do not reflect the effect of dividend payments to
preferred shareholders.
(d) Calculated based upon weighted average shares outstanding during the period.
(e) The unrounded amount is $0.955.
(f) Annualized.
See Notes to Financial Statements.
9
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DUFF & PHELPS UTILITIES
TAX-FREE INCOME INC.
Notes to Financial Statements (Unaudited)
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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 six months ended
April 30, 2001 aggregated $4,591,629 and $3,858,005, respectively.
The Federal income tax basis of the Fund's investments at April 30, 2001 was
substantially the same as the basis for financial reporting and, accordingly,
net unrealized appreciation for federal income tax purposes was $13,530,989
(gross unrealized appreciation--$13,654,557; gross unrealized
depreciation--$123,568).
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 six months ended April 30, 2001 the Fund did not issue any common
shares in connection with the reinvestment of dividends. For the year ended
October 31, 2000 the Fund did not issue any 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 3.30% to
5.00% during the six months ended April 30, 2001.
Under the Investment Company Act of 1940, the Fund may not declare dividends
or make other distributions on shares of common stock or purchase any such
shares if, at the time of the declaration, distribution or purchase, asset
coverage with respect to the outstanding preferred stock would be less than
200%.
The RP is redeemable at the option of the Fund, in whole or in part, on any
dividend payment date at $50,000 per share plus any accumulated or unpaid
dividends whether or not declared. The RP is also subject to a mandatory
redemption at $50,000 per share plus any accumulated or unpaid dividends,
whether or not declared, if certain requirements relating to the composition of
the assets and liabilities of the Fund as set forth in the Articles of
Incorporation are not satisfied.
The holders of RP have voting rights equal to the holders of common stock
(one vote per share) and will vote together with holders of shares of common
stock as a single class. However, holders of RP are also entitled to elect two
of the Fund's directors. In addition, the Investment Company Act of 1940
requires that along with approval by shareholders that might otherwise be
required, the approval of the holders of a majority of any outstanding preferred
shares, voting separately as a class would be required to (a) adopt any plan of
reorganization that would adversely affect the preferred shares, and (b) take
any action requiring a vote of security holders, including, among other things,
changes in the Fund's subclassification as a closed-end investment company or
changes in its fundamental investment restrictions.
Note 5. Dividends Subsequent to April 30, 2001,
dividends declared and paid on preferred shares
totalled $179,725. On May 1, 2001, the Board of Directors of the Fund declared a
dividend of $.0625 per common share payable on May 31, to common shareholders of
record on May 15. On May 23, 2001, the Board of Directors approved a dividend of
$.0625 per common share to be declared on June 1, 2001 payable on June 29, to
common shareholders of record on June 13.
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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.
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.
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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
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
The accompanying financial statements as of April 30, 2001 were
not audited and accordingly, no opinion is expressed on them.
This report is for stockholder information. This is not a
prospectus intended for use in the purchase or sale of Fund shares.
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