<PAGE>
DEAR FELLOW SHAREHOLDERS:
PERFORMANCE REVIEW: During the third quarter of 1996, the market price of
your Fund on the New York Stock Exchange fluctuated between 8 7/8 and 8 1/2
per share, a narrow range as compared with the much greater volatility
exhibited by the Dow Jones Utilities Index and the Lehman Brothers Utility
Bond Index. In addition to less volatility, the total return for your Fund in
1996's third quarter of a positive 0.7% based on the NYSE market prices was
greater than the negative total returns of the Dow Jones Utilities Index and
the Lehman Brothers Utility Bond Index. Also, and unlike most closed-end
funds, the Duff & Phelps Utilities Income Fund continued to trade at a premium
to its net asset value throughout the quarter, averaging approximately 8.1%.
The total returns for the Fund's shareholders shown in the chart below are
net of expenses and assume that all distributions were reinvested in
accordance with the terms of the Fund's dividend reinvestment plan.
TOTAL RETURN PERFORMANCE
FOR PERIODS ENDED SEPTEMBER 30, 1996
[CHART APPEARS HERE]
Nine Months Five Years
DNP Market Price DNP Market Price
Total Return Composite** Total Return* Composite**
- ---------------- ----------- ---------------- -----------
2.2% 0.2% 44.2% 43.1%
- --------
*Total return of a Fund shareholder in the Fund's Automatic Dividend
Reinvestment Plan who exercised his/her rights during the 1992 and 1994
Rights Offerings.
**Weighted average of Dow Jones Utilities Index and Lehman Brothers Utility
Bond Index.
<PAGE>
MARKET ENVIRONMENT: The transition to greater competition continues to be the
foremost concern of the utility industry and its investors. Utilities are
attempting to "reinvent" or restructure themselves to meet the new world of
competition by engaging in mergers, acquisitions, sales of assets, and
installing systems for improved operating efficiencies of physical plant and
employee productivity. The restructuring process is evolving on a company
specific basis, with each utility seeking to maximize its own unique
characteristics and strengths.
The merger and acquisition strategy is being employed with increasing
frequency by many electric utilities. A typical scenario might be two companies
promoting a "win-win" situation for both customers and shareholders. The new
company is likely to benefit from economies of scale, with potential cost
savings emanating from increased operating efficiencies and the elimination of
duplicate activities being shared with both customers and shareholders. While
mergers that provide efficiencies and benefits as described above seem to make
good business sense, regulatory approval is required. Regulatory bodies likely
to be involved include Federal Energy Regulatory Commission, Securities and
Exchange Commission, Nuclear Regulatory Commission, and of course state
commissions. In this respect, the timing of all necessary approvals is
generally very uncertain.
One specific type of business combination--an electric utility and a gas
company--has been getting special attention recently. The bell weather
transaction was the proposed acquisition of Portland General Electric by Enron.
Such transactions make sense because gas companies have developed sophisticated
marketing, trading, and risk management skills after gas deregulation. Electric
companies have generally been sheltered from developing these skills in their
historically highly regulated environment. Further, gas companies offer to
electric companies the possibility of growth from the gas business and a
diversified and secure source of energy.
Both the credit worthiness of utility bonds and the valuation of utility
stocks will be affected by the manner in which business combinations and other
strategies to compete are conducted. Your Fund managers see utility industry
challenges as opportunities. The industry as a whole is not in decline--modern
economies require increasing electricity usage to function. Considering the
essential nature of providing electric service, it is highly likely someone
will always be able to make money generating and selling electricity and pay
interest and dividends for the use of capital to do so. The opportunities and
challenges are to select those utility companies that will be more successful
and avoid those utility companies that will be less successful. We expect our
experience, research, and patience to pay off for investors.
2
<PAGE>
QUARTERLY BOARD MEETING: As noted in the Fund's second quarter report, the
Board of Directors in July 1996 declared monthly dividends as shown in the
table below. At the October 31, 1996 Board meeting your Directors declared a
monthly dividend of six cents per share payable December 10, 1996 to holders of
record November 29, 1996.
<TABLE>
<CAPTION>
DIVIDEND PER SHARE RECORD DATE PAYMENT DATE DECLARATION DATE
- ------------------ ----------- ------------ ----------------
<S> <C> <C> <C>
6 cents 7-31-96 8-12-96 7-10-96
6 cents 8-30-96 9-10-96 7-10-96
6 cents 9-30-96 10-10-96 7-10-96
6 cents 10-31-96 11-12-96 7-10-96
6 cents 11-29-96 12-10-96 10-31-96
</TABLE>
/s/ Claire V. Hansen /s/ Calvin J. Pedersen
Claire V. Hansen, CFA Calvin J. Pedersen
Chairman President and Chief Executive
Officer
3
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
STATEMENT OF NET ASSETS
(UNAUDITED)
SEPTEMBER 30, 1996
COMMON STOCKS--68.7%
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES COMPANY (NOTE 1)
------ ------- --------------
<C> <S> <C>
. ELECTRIC--45.5%
1,624,700 Baltimore Gas & Electric Co. ...................... $ 42,445,288
1,818,600 Boston Edison Co................................... 40,236,525
2,017,900 Carolina Power & Light Co.......................... 69,617,550
1,036,000 Central and South West Corp........................ 26,936,000
1,635,000 CINergy Corp....................................... 50,480,625
705,000 CIPSCO Inc......................................... 25,115,625
1,352,700 CMS Energy Corp.................................... 40,750,088
1,265,000 DQE Incorporated................................... 35,261,875
215,500 DTE Energy Co...................................... 6,034,000
780,000 Duke Power Co...................................... 36,367,500
1,025,900 Eastern Utilities Associates....................... 17,312,062
550,000 Edison International............................... 9,831,250
560,000 Empresa National De Electricidad ADR............... 33,250,000
1,447,800 FPL Group Inc...................................... 62,617,350
2,050,000 GPU Inc............................................ 63,037,500
1,865,400 Illinova Corp...................................... 49,433,100
1,600,800 IPALCO Enterprises Inc............................. 42,021,000
1,141,800 LG&E Energy Corp................................... 25,405,050
665,600 National Power PLC ADR............................. 16,556,800
1,278,300 NIPSCO Industries Inc.............................. 45,699,225
997,400 Ohio Edison Co..................................... 19,324,625
1,600,000 PECO Energy Co..................................... 38,000,000
302,000 Powergen PLC ADR................................... 9,324,250
3,341,700 Southern Co........................................ 75,605,963
1,235,000 TECO Energy Inc.................................... 29,331,250
750,000 Texas Utilities Co................................. 29,718,750
--------------
939,713,251
. GAS--1.9%
661,600 Brooklyn Union Gas Co.............................. 18,442,100
225,000 CMS Energy Corp. Class G........................... 3,937,500
444,700 NICOR Inc.......................................... 15,008,625
100,000 Washington Gas Light Co............................ 2,200,000
--------------
39,588,225
</TABLE>
The accompanying note is an integral part of the financial statements.
4
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
STATEMENT OF NET ASSETS--(CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES COMPANY (NOTE 1)
------ ------- -------------
<C> <S> <C>
. TELECOMMUNICATION--13.6%
1,143,100 Ameritech Corp..................................... 60,155,637
565,000 Bellsouth Corp..................................... 20,905,000
789,100 Frontier Corp...................................... 21,009,788
558,200 Nynex Corp......................................... 24,281,700
150,000 Portugal Telecom SA ADS............................ 3,862,500
200,000 Royal PTT Nederland ADS............................ 6,900,000
1,318,615 SBC Communications Inc............................. 63,458,347
664,400 Telefonica De Espana ADS........................... 36,957,250
575,000 Sprint Corp........................................ 22,353,125
200,000 Telecommunicacoes Brasileiras SA ADR............... 15,700,000
200,000 Telefonica De Argentina ADR........................ 4,975,000
-------------
280,558,347
. NON-UTILITY--7.7%
253,800 CBL & Associates Properties Inc.................... 5,837,400
200,000 Centerpoint Properties Corporation................. 5,375,000
120,000 Chelsea GCA Realty Inc............................. 3,675,000
100,000 Colonial Properties Trust.......................... 2,625,000
400,000 Crescent Real Estate Equities Inc.................. 16,450,000
150,000 Developers Diversified Realty Corp................. 4,818,750
400,000 Equity Residential Properties Trust................ 14,300,000
478,100 First Industrial Realty Trust...................... 12,370,837
426,300 Gables Residential Trust........................... 10,391,062
455,000 Highwoods Properties Inc........................... 13,820,625
200,000 Meditrust.......................................... 6,925,000
412,100 Merry Land & Investment Inc........................ 8,808,637
590,000 Nationwide Health Properties....................... 12,980,000
250,000 Patriot American Hospitality....................... 8,406,250
250,000 SouthWest Property Trust Inc....................... 3,468,750
275,000 Starwood Lodging Trust............................. 11,515,625
273,400 TriNet Corporate Realty Trust...................... 8,680,450
160,600 Vornado Realty Trust............................... 6,504,300
75,000 Weeks Corp......................................... 2,137,500
-------------
159,090,186
-------------
Total Common Stocks (Cost--$1,343,818,613)......... 1,418,950,009
-------------
</TABLE>
The accompanying note is an integral part of the financial statements.
5
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
STATEMENT OF NET ASSETS--(CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES COMPANY (NOTE 1)
------ ------- --------------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS--0.0%
. NON-UTILITY--0.0%
47,000 Tanger Factory Outlet Centers Inc. Series A............. 1,034,000
--------------
Total Convertible Preferred Stocks (Cost--$989,350)..... 1,034,000
--------------
</TABLE>
BONDS--29.2%
<TABLE>
<CAPTION>
RATINGS
--------------------------
STANDARD MARKET
DUFF & AND VALUE
PAR VALUE COMPANY PHELPS MOODY'S POOR'S (NOTE 1)
--------- ------- --------- ------- -------- --------------
<C> <S> <C> <C> <C> <C>
. ELECTRIC--17.3%
$24,920,000 Alabama Power Co.
9%,due 12/01/24........ AA- A1 A+ 26,912,079
14,500,000 Commonwealth Edison Co.
9 3/4%, due 2/15/20.... BBB Baa2 BBB 15,762,181
7,500,000 Commonwealth Edison Co.
9 7/8%, due 6/15/20.... BBB Baa2 BBB 8,363,250
10,000,000 Commonwealth Edison Co.
8 3/8%, due 2/15/23.... BBB Baa2 BBB 9,904,169
35,000,000 CTC Mansfield Funding
Corp.
10 5/8%, due 9/30/16... Not Rated Aaa AAA 37,777,073
8,000,000 Duquesne Light Co.
7.55%, due 6/15/25..... A- Baa1 BBB+ 7,525,367
5,000,000 Gulf States Utilities
8.94%, due 1/01/22..... Not Rated Baa3 BBB- 5,033,835
20,000,000 Illinois Power Co.
8%, due 2/15/23........ Not Rated Baa2 BBB 19,824,860
15,000,000 New York State Electric
& Gas Corp.
9 7/8%, due 11/01/20... Not Rated Baa1 BBB+ 16,186,633
4,000,000 New York State Electric
& Gas Corp.
8 7/8%, due 11/01/21... Not Rated Baa1 BBB+ 4,147,187
</TABLE>
The accompanying note is an integral part of the financial statements.
6
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
STATEMENT OF NET ASSETS--(CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
RATINGS
--------------------------
STANDARD MARKET
DUFF & AND VALUE
PAR VALUE COMPANY PHELPS MOODY'S POOR'S (NOTE 1)
--------- ------- --------- ------- -------- --------------
<C> <S> <C> <C> <C> <C>
6,500,000 Ohio Edison Co.
8 3/4%, due 2/15/98.... BBB+ Baa2 BBB- 6,632,684
14,105,000 Pennsylvania Power &
Light Co.
9 1/4%, due 10/01/19... Not Rated A3 A- 15,349,893
16,850,000 Pennsylvania Power &
Light Co.
9 3/8%, due 7/01/21.... Not Rated A3 A- 18,482,714
26,750,000 Philadelphia Electric
8 3/4%, due 4/01/22.... Not Rated Baa1 BBB+ 27,467,033
20,950,000 Potomac Electric Power
Co.
9%, due 6/01/21........ AA- A1 A 22,544,420
8,000,000 Potomac Electric Power
Co.
7 3/8%, due 9/15/25.... AA- A1 A 7,490,703
979,000 Public Service Electric
& Gas Co.
8 3/4%, due 11/01/21... A A3 A- 1,048,492
3,000,000 Rochester Gas & Electric
Corp.
9 3/8%, due 4/01/21.... BBB+ Baa1 BBB+ 3,276,666
29,830,000 Texas Utilities Electric
Co.
9 3/4%, due 5/01/21.... Not Rated Baa2 BBB+ 32,754,920
10,000,000 Texas Utilities Electric
Co.
8 3/4%, due 11/01/23... Not Rated Baa2 BBB+ 10,419,469
12,000,000 UtiliCorp United Inc.
8%, due 3/01/23........ BBB Baa3 BBB 11,694,875
4,000,000 Union Electric Co.
8 3/4%, due 12/01/21... AA- A1 AA- 4,328,220
29,780,000 Virginia Electric &
Power Co.
9 3/8%, due 6/01/98.... A A2 A 31,135,018
11,500,000 Virginia Electric &
Power Co.
8 1/4%, due 3/01/25.... A A2 A 11,858,569
--------------
355,920,310
. GAS--3.6%
13,000,000 Enron Corp.
8 1/2%, due 2/01/00.... BBB+ Baa2 BBB+ 13,112,280
8,875,000 Enron Corp.
9.65%, due 5/15/01..... BBB+ Baa2 BBB+ 9,809,403
</TABLE>
The accompanying note is an integral part of the financial statements.
7
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
STATEMENT OF NET ASSETS--(CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
RATINGS
--------------------------
STANDARD MARKET
DUFF & AND VALUE
PAR VALUE COMPANY PHELPS MOODY'S POOR'S (NOTE 1)
--------- ------- --------- ------- -------- --------------
<C> <S> <C> <C> <C> <C>
6,000,000 Northwest Pipeline Corp.
10.65%, due 11/15/18... BBB+ Baa1 BBB 6,415,062
10,000,000 Phillips Petroleum Co.
9.18%, due 9/15/21..... Not Rated Baa1 BBB 10,830,040
9,500,000 Transco Energy
9 1/8%, due 5/01/98.... BBB- Baa2 BBB- 9,878,460
14,500,000 Transcontinental Gas
Pipe Line Corp.
9 1/8%, due 2/01/17.... BBB Baa1 BBB 15,273,806
7,000,000 Williams Co.
10 1/4%, due 7/15/20... BBB Baa2 BBB- 8,842,638
--------------
74,161,689
. TELECOMMUNICATION--7.1%
13,500,000 Bellsouth Capital
Funding Corp.
9 1/4%, due 1/15/98.... AA+ Aa1 AAA 14,007,748
16,500,000 GTE Corp.
8.85%, due 3/01/98..... A- A3 BBB+ 17,053,755
17,428,000 GTE Corp
9 3/8%, due 12/01/00... A- A3 BBB+ 18,998,958
6,000,000 GTE Corp.
10 1/4%, due 11/01/20.. A- A3 BBB+ 6,828,198
11,995,000 Mountain States
Telephone
9 1/2%, due 5/01/00.... AA Aa3 A+ 13,022,636
13,750,000 New England Telephone &
Telegraph
9%, due 8/01/31........ AA Aa2 AA- 15,059,261
10,000,000 New York Telephone Co.
7 5/8%, due 2/01/23.... A A2 A 9,675,000
20,000,000 New York Telephone Co.
7%, due 8/15/25........ A A2 A 18,125,000
20,740,000 New York Telephone Co.
9 3/8%, due 7/15/31.... A A2 A 22,827,355
5,000,000 Pacific Bell
8 1/2%, due 8/15/31.... AA- A1 AA- 5,182,384
5,000,000 US West Communications
8 7/8%, due 6/01/31.... AA Aa3 A+ 5,267,764
--------------
146,048,059
</TABLE>
The accompanying note is an integral part of the financial statements.
8
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
STATEMENT OF NET ASSETS--(CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
RATINGS
-----------------------
STANDARD MARKET
DUFF & AND VALUE
PAR VALUE COMPANY PHELPS MOODY'S POOR'S (NOTE 1)
--------- ------- ------ ------- -------- ---------------
<C> <S> <C> <C> <C> <C>
. NON-UTILITY--1.2%
15,700,000 American General Corp.
9 5/8%, due 2/01/18.... A+ A1 AA- 16,671,263
8,000,000 Dayton Hudson Corp.
9 7/8%, due 7/01/20.... A- Baa1 BBB+ 9,460,120
---------------
26,131,383
---------------
Total Bonds (Cost--$601,166,682)................. 602,261,441
---------------
U.S. TREASURY OBLIGATIONS--1.7%
29,000,000 U.S. Treasury Bonds
11 3/4%, due 2/15/01............................ 34,781,875
---------------
Total U.S. Treasury Obligations (Cost--
$35,325,625).................................... 34,781,875
---------------
U.S. GOVERNMENT AGENCY OBLIGATIONS--0.1%
1,734,616 Federal National Mortgage Association
8%, due 5/01/05................................. 1,750,337
---------------
Total U.S. Government Agency Obligations (Cost--
$1,792,617)..................................... 1,750,337
---------------
COMMERCIAL PAPER--2.0%
40,000,000 Prudential Funding Corp.
5.15%, due 10/01/96............................. 40,000,000
---------------
Total Commercial Paper (Cost--$40,000,000)....... 40,000,000
---------------
CASH AND OTHER ASSETS LESS LIABILITIES--(1.7%).............. ( 35,474,461)
---------------
NET ASSETS
(equivalent to $7.86 per share of common stock based on
198,930,545 shares of common stock outstanding, authorized
250,000,000 shares, $.001 par value per share and 5,000
shares remarketed preferred stock outstanding, authorized
100,000,000 shares, liquidation preference $100,000 per
share, $.001 par value per share).......................... $2,063,303,193
===============
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the total net assets of the Fund.
The accompanying note is an integral part of the financial statements.
9
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
STATEMENT OF NET ASSETS--(CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1996
(1) The market values for securities are determined as follows: Securities
traded on a national securities exchange or traded over-the-counter and
quoted on the NASDAQ System are valued at last sales prices. Securities so
traded for which there were no sales and other securities are valued at the
mean of the most recent bid-asked quotations. Bonds not traded on a
securities exchange nor quoted on the NASDAQ System are valued at fair
value using a procedure determined in good faith by the Board of Directors
which includes the use of a pricing service. Each money market instrument
having a maturity of 60 days or less is valued on an amortized cost basis.
Other assets and securities are valued at a fair value, as determined in
good faith by the Board of Directors.
10
<PAGE>
BOARD OF DIRECTORS
WALLACE B. BEHNKE
HARRY J. BRUCE
FRANKLIN A. COLE
GORDON B. DAVIDSON
ROBERT J. DAY
CLAIRE V. HANSEN, CFA
FRANCIS E. JEFFRIES, CFA
NANCY LAMPTON
BERYL W. SPRINKEL
OFFICERS
CLAIRE V. HANSEN, CFA
Chairman
CALVIN J. PEDERSEN, CFA
President and Chief Executive Officer
RICHARD J. SPLETZER, CFA, CIC
Senior Vice President and Chief Investment Officer
T. BROOKS BEITTEL
Senior Vice President, Secretary and Treasurer
JOSEPH C. CURRY, JR.
Vice President
DIANNA P. WENGLER
Assistant Secretary
DUFF & PHELPS
UTILITIES INCOME INC.
Common stock listed on the New York Stock Exchange under the symbol DNP
55 East Monroe Street
Chicago, Illinois 60603
(800) 680-4367
(312) 368-5510
Investment Adviser
Duff & Phelps
Investment Management Co.
55 East Monroe Street
Chicago, Illinois 60603
Administrator
J.J.B. Hilliard, W.L. Lyons, Inc.
Hilliard Lyons Center
Louisville, Kentucky 40202
(502) 588-8400
Transfer Agent
Dividend Disbursing
Agent and Custodian
The Bank of New York
Shareholder Relations
Church Street Station
P.O. Box 11258
New York, New York 10286-1258
1-800-432-8224
Legal Counsel
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Independent Public Accountants
Arthur Andersen LLP
33 West Monroe Street
Chicago, Illinois 60603
11
<PAGE>
Duff & Phelps
Utilities Income Inc.
THIRD QUARTER
REPORT
SEPTEMBER 30,
1996
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