<PAGE>
DEAR FELLOW SHAREHOLDER:
What a difference a year makes. In 1995, investors in utility securities
realized a substantial rebound from 1994 when rising interest rates and moves
toward a more competitive utility industry environment resulted in utility
security holders experiencing negative total returns. In contrast to the
negative total returns of 1994, Lipper Analytical Services, Inc. reported a
34.1% total return for the Fund in 1995 as compared with an average of 27.3%
for Lipper's universe of open end utility funds. Both returns are based on
changes in net asset value plus reinvestment of dividend income.
Reflecting a narrowing of the market price premium to net asset value, the
Fund's total return based on market prices was 24.8%. This compares with a
total return of 29.1% for a Composite consisting of the returns of the Dow
Jones Utility Index (which is made up entirely of utility equity securities)
and the Lehman Brothers Utility Bond Index (which is made up entirely of
utility debt securities) weighted in proportion to the market value of the
Fund's holdings of equity and debt securities. Although the Fund's returns
reflect the deduction of expenses, no expenses have been deducted in
calculating the total return for the Composite. If expenses were deducted in
calculating the total return for the Composite, the return would be lower.
[PERFORMANCE CHART APPEARS HERE]
Duff & Phelps Utilities Income Inc.
Total Return Performance
For Periods Ended Year End 1995
----------------------------------------------------
Net Asset V. Market Price Composite
----------------------------------------------------
One Year 33.6% 24.8% 29.1%
----------------------------------------------------
Five Years 68.0% 63.0% 57.1%
----------------------------------------------------
Since 112.4% 101.8% 101.6%
Inception
----------------------------------------------------
- --------
* 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 Utility Index and Lehman Brothers Utility
Bond Index.
*** January 28, 1987
Source: Duff & Phelps Investment Management Co.
Long-term interest rates as measured by the 30-year Treasury bond closed
1995 at 5.94%, the lowest level since mid-October 1993. By comparison, the 30-
year Treasury yield at the end of 1994 was 7.87%. The 1995 decline in interest
rates was instrumental in the positive returns shown above.
<PAGE>
The Dow Jones Utility Index closed 1995 at 225.40, its 1995 high. Despite
its substantial increase of 24.2% during the year, this 1995 close was still
BELOW the level it was when the Fund came to market nine years ago (January
1987).
In addition to an almost uninterrupted decline in long-term interest rates
during 1995, utility investors also benefited from a general perception that
the possible adverse effect from the transition to a deregulated, more
competitive industry from a regulated monopoly is more long-term than
immediate. In this regard, the utility commission in California (one of the
states leading the charge to a more competitive environment) recently issued a
long-awaited proposal on utility restructuring that in essence was more
positive than negative. Most state commissions and legislatures continue to
study the broad subject of utility restructuring with no meaningful final
decisions yet rendered.
The Fund continued to pay its regular six cent monthly dividend in 1995. In
addition, and for the seventh out of the eight years since 1987, the Fund paid
a supplemental year end dividend. This "extra" was one cent a share. Thus, the
Fund's total dividend for 1995 aggregated 73 cents per share, an 8.1% dividend
yield based on the year end 1995 closing market price of $9.00 per share of
common stock. In addition, the Fund has never paid a return of capital where
the dividends declared for any year exceeded the earnings available to pay
those dividends.
Throughout 1995, the Fund continued to sell at a market price which was
above the Fund's net asset value. This market price premium over net asset
value averaged 9.6% for 1995 although it was much lower at the end of the
year. With the market price in January 1996 increasing at a faster rate than
the improving net asset value, the premium widened to 6.7% as of January 26,
1996. At that time, the market price was $9.50 per share and the 73 cents per
share dividend provided a 7.7% dividend yield.
HISTORICAL RECORD--The chart on page one shows the historical total returns
of a Fund shareholder who has participated in the Fund's automatic dividend
reinvestment plan and who exercised all rights issued to him or her in the
Fund's October 1992 and February 1994 rights offerings. The returns for the
Fund reflect the deduction of expenses and assume that all distributions were
reinvested in accordance with the terms of the Fund's dividend reinvestment
plan, at prices which generally have been less than the then market price.
Historical, hypothetical total returns for the Composite are also shown. As
noted earlier, if expenses were deducted in calculating the total returns for
the Composite, the returns would be lower.
OUTLOOK--As in previous years, we continue to think that changing interest
rate perceptions will continue to be the main factor influencing utility
common stock and bond prices. In this respect, our current thinking for 1996
is for very modest increases in inflation and in gross domestic product. We
also look for monetary policy to become more accommodating. Assuming no
serious disruptions emanating from Washington D.C. involving the budget and/or
the Federal debt limit, we anticipate somewhat lower interest rates in 1996.
A declining interest rate environment in 1996 should be beneficial for
prices of utility securities, both common stocks and bonds. Nonetheless, we
know each utility company is unique and different with respect to management
strategies, service area demographics, regulatory environments and other
factors. Thus, selectivity will continue to be of prime importance.
There continues to be movement in most states and in the Federal Government
for a more deregulated, competitive utility industry. Last year, the Federal
Energy Regulatory Commission (FERC) proposed that the nation's electric
transmission system be open to all wholesale market participants on an equal
basis and that utilities be entitled to full recovery of legitimate and
verifiable stranded costs at both the federal and state level. A final ruling
is likely around spring 1996.
We continue to think resolution of the issues involved with a more
competitive generating and transmission environment will evolve over several
years and affect different companies in different ways. It is quite possible
the principal businesses of the traditional integrated electric utility
(generation, transmission and distribution) may separate into distinctly
separate operating entities.
As most state regulatory bodies continue to study the issues, many questions
remain, such as what happens if competition/de-regulation leads to large
industrial or municipal customers exiting a utility system for lower
2
<PAGE>
rates elsewhere thus reducing the remaining customer base on which fixed
charges are amassed. Will the rates for the remaining customers increase? Or,
will the utility investors suffer as a result of regulators authorizing a
lower allowed rate of return? Complex issues indeed.
Announced mergers between contiguous and sometimes non-contiguous utilities
started to heat up during the second half of 1995. This merger activity
reflects a strategy of recognizing the potential economies of scale associated
with being larger. In addition, some U.S. utilities believe the path of
increased earnings potential lies with foreign investments, particularly in
the United Kingdom and Australia. Also, most utilities have instituted severe
cost-cutting measures designed to improve the bottom line.
In effect, these different strategies--mergers, investments in foreign
utilities and cost-cutting--reflect the desire of most utility managements and
their Boards of Directors to show earnings growth higher than it otherwise
would be. Which strategies and which companies will be successful will be
known over time. Hence the need for selectivity. Our intent is to continue to
invest in those companies that best afford the Fund to meet its objective of
providing you, the shareholder, with a relatively high level of income. With
the help of our foreign utility investments and our REIT investments, we have
accomplished this task in the past and we remain optimistic that we will
continue to do so in the future.
DIVIDENDS--At the Board of Directors meeting in mid-January 1996, your
Directors declared the following monthly dividends:
<TABLE>
<CAPTION>
DIVIDENDS PER SHARE RECORD DATE PAYMENT DATE
------------------- ----------- ------------
<S> <C> <C>
6 cents 1-31-96 2-12-96
6 cents 2-29-96 3-11-96
6 cents 3-29-96 4-10-96
</TABLE>
AUTOMATIC DIVIDEND REINVESTMENT PLAN AND DIRECT DEPOSIT SERVICE--The Fund
has a dividend reinvestment plan available to all registered shareholders. As
long as the market price of the common stock of the Fund exceeds or is equal
to the net asset value per share, new shares for the dividend reinvestment
program are issued at the greater of either 95% of the market price or the net
asset value. If the market price per share of common stock is below the net
asset value per share, shares are purchased in the open market at prevailing
market prices, plus any brokerage commissions paid by The Bank of New York for
all shares purchased by it in the reinvestment of the distribution and
credited to the accounts of plan participants.
For those shareholders whose shares are held for them by a brokerage house
or nominee in "street-name", you may not participate in the Fund's automatic
dividend reinvestment plan inasmuch as the Fund cannot communicate directly
with you since the Fund does not have your name and address. Thus for those
Fund shareholders in "street-name" desiring automatic dividend reinvestment,
we suggest you contact your broker or other nominee.
As an added service, the Fund now offers direct deposit service through
electronic funds transfer to all registered shareholders currently receiving a
monthly dividend check. Direct deposit provides automatic and immediate access
to your funds on the dividend payment date and eliminates the possibility of
mail delays and lost or stolen checks. This service is offered through The
Bank of New York without any charge to you the shareholder.
For more information and/or an authorization form on automatic dividend
reinvestment or direct deposit, please contact The Bank of New York at 1-800-
432-8224. You can also contact The Bank of New York by calling the Fund's toll
free number of 1-800-680-4DNP.
We appreciate your interest in Duff & Phelps Utilities Income Inc., and we
will continue to do our best to be of service to you.
LOGO LOGO
Claire V. Hansen, CFA Calvin J. Pedersen, CFA
Chairman President and Chief
Executive Officer
3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Duff & Phelps Utilities Income Inc.:
We have audited the accompanying balance sheet of DUFF & PHELPS UTILITIES
INCOME INC. (a Maryland corporation), including the schedule of investments,
as of December 31, 1995, and the related statements of operations and cash
flows 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
the years indicated thereon. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian and
brokers. As to securities purchased but not received, we requested
confirmation from brokers and, when replies were not received, we carried out
alternative auditing procedures. 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 & Phelps Utilities Income Inc. as of December 31, 1995, the results of
its operations and cash flows for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for the years indicated thereon, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
January 29, 1996
4
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
The accompanying notes are an integral part of the financial statements.
COMMON STOCKS--69.7%
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES COMPANY (NOTE 1)
--------- ------- --------------
<C> <S> <C>
[] ECTRIC--48.5%
874,700 Baltimore Gas & Electric Co......................... $ 24,928,950
1,818,600 Boston Edison Co.................................... 53,648,700
1,315,000 Carolina Power & Light Co........................... 45,367,500
2,036,000 Central and South West Corp......................... 56,753,500
235,000 CINergy Corp........................................ 7,196,875
705,000 CIPSCO Inc.......................................... 27,495,000
1,300,000 CMS Energy Corp..................................... 38,837,500
1,265,000 DQE Incorporated.................................... 38,898,750
780,000 Duke Power Co....................................... 36,952,500
829,879 Eastern Utilities Associates........................ 19,605,891
470,000 Empresa Nacional De Electricidad ADR................ 26,907,500
762,000 Entergy Corp........................................ 22,288,500
950,000 Florida Progress Corp............................... 33,606,250
300,000 FPL Group Inc....................................... 13,912,500
2,050,000 General Public Utilities Corp....................... 69,700,000
250,000 Houston Industries Inc.............................. 6,062,500
1,865,400 Illinova Corp....................................... 55,962,000
1,067,200 IPALCO Enterprises Inc.............................. 40,687,000
570,900 LG&E Energy Corp.................................... 24,120,525
500,000 National Power PLC ADR.............................. 4,625,000
1,918,300 New England Electric System......................... 76,012,637
707,000 Northeast Utilities................................. 17,233,125
1,278,300 NIPSCO Industries Inc............................... 48,894,975
350,000 Ohio Edison Co...................................... 8,225,000
1,600,000 PECO Energy Co...................................... 48,200,000
339,000 Pinnacle West Capital Corp.......................... 9,746,250
500,000 Portland General Corp............................... 14,562,500
227,500 Powergen PLC ADR.................................... 2,957,500
1,250,000 Public Service Enterprise Group, Inc................ 38,281,250
1,151,200 Rochester Gas & Electric Corp....................... 26,045,900
3,191,700 Southern Co......................................... 78,595,612
945,000 TECO Energy Inc..................................... 24,215,625
700,000 Unicom Corp......................................... 22,925,000
690,000 Western Resources Inc............................... 23,028,750
--------------
1,086,481,065
</TABLE>
5
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
SCHEDULE OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES COMPANY (NOTE 1)
--------- ------- -----------
<C> <S> <C>
[] GAS--1.0%
661,600 Brooklyn Union Gas Co.................................. 19,351,800
225,000 CMS Energy Corp. Class G............................... 4,246,875
-----------
23,598,675
[] TELECOMMUNICATION--15.0%
1,443,100 Ameritech Corp......................................... 85,142,900
1,100,094 AT&T Corp.............................................. 71,231,087
165,000 Bellsouth Corp......................................... 7,177,500
789,100 Frontier Corp.......................................... 23,673,000
558,200 Nynex Corp............................................. 30,142,800
400,000 Royal PTT Nederland ADS................................ 14,500,000
1,318,615 SBC Communications Inc................................. 75,820,363
664,400 Telefonica De Espana ADS............................... 27,821,750
600 Telefonos De Chile ADR................................. 49,725
-----------
335,559,125
[] NON-UTILITY--5.2%
253,800 CBL & Associates Properties Inc........................ 5,520,150
120,000 Chelsea GCA Realty Inc................................. 3,600,000
100,000 Colonial Properties Trust.............................. 2,550,000
105,500 Cousins Properties Inc................................. 2,136,375
300,000 Crescent Real Estate Equities Inc...................... 10,237,500
150,000 Developers Diversified Realty Corp..................... 4,500,000
150,000 Equity Residential Properties Trust.................... 4,593,750
478,100 First Industrial Realty Trust.......................... 10,757,250
301,300 Gables Residential Trust............................... 6,892,237
200,000 Highwoods Properties Inc............................... 5,650,000
334,300 Liberty Property Trust................................. 6,936,725
100,000 Meditrust.............................................. 3,487,500
412,100 Merry Land & Investment Inc............................ 9,735,863
295,000 Nationwide Health Properties........................... 12,390,000
290,000 Oasis Residential Inc.................................. 6,597,500
250,000 SouthWest Property Trust Inc........................... 3,375,000
273,400 TriNet Corporate Realty Trust.......................... 7,450,150
</TABLE>
6
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
SCHEDULE OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES COMPANY (NOTE 1)
--------- ------- --------------
<C> <S> <C>
160,600 Vornado Realty Trust............................... 6,022,500
75,000 Weeks Corp......................................... 1,884,375
41,137 Weingarten Realty Investment....................... 1,563,206
--------------
115,880,081
--------------
Total Common Stocks (Cost--$1,419,682,438)......... 1,561,518,946
--------------
CONVERTIBLE PREFERRED STOCKS--0.1%
[] NON-UTILITY--0.1%
47,000 Tanger Factory Outlet Centers Inc. Series A........ 1,063,375
--------------
Total Convertible Preferred Stocks (Cost--
$989,350).......................................... 1,063,375
--------------
</TABLE>
BONDS--26.5%
<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--14.8%
$24,920,000 Alabama Power Co.
9%, due 12/01/24........ A+ A1 A+ 28,224,940
10,000,000 Carolina Power & Light
Co.
9%, due 4/01/22......... A+ A2 A 10,692,590
14,500,000 Commonwealth Edison Co.
9 3/4%, due 2/15/20..... BBB Baa2 BBB 16,547,531
7,500,000 Commonwealth Edison Co.
9 7/8%, due 6/15/20..... BBB Baa2 BBB 8,893,170
10,000,000 Commonwealth Edison Co.
8 3/8%, due 2/15/23..... BBB Baa2 BBB 10,877,230
35,000,000 CTC Mansfield Funding
Corp.
10 5/8%, due 9/30/16.... Not Rated Aaa AAA 37,556,960
8,000,000 Duquesne Light Co.
7.55%, due 6/15/25...... A- Baa1 BBB+ 8,100,720
11,500,000 Georgia Power Co.
7.95%, due 2/01/23...... AA- A1 A+ 12,116,688
</TABLE>
7
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
SCHEDULE OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
RATINGS
--------------------------
STANDARD MARKET
DUFF & AND VALUE
PAR VALUE COMPANY PHELPS MOODY'S POOR'S (NOTE 1)
----------- ------- --------- ------- -------- --------------
<C> <S> <C> <C> <C> <C>
5,000,000 Gulf States Utilities
8.94%, due 1/01/22...... Not Rated Baa3 BBB- 5,588,300
22,000,000 Illinois Power Co.
8%, due 2/15/23......... Not Rated Baa2 BBB 23,144,220
15,000,000 New York State Electric
& Gas Corp.
9 7/8, due 11/01/20..... Not Rated Baa1 BBB+ 17,400,930
4,000,000 New York State Electric
& Gas Corp.
8 7/8, due 11/01/21..... Not Rated Baa1 BBB+ 4,548,344
6,500,000 Ohio Edison Co.
8 3/4%, due 2/15/98..... BBB+ Baa2 BBB- 6,833,580
14,105,000 Pennsylvania Power &
Light Co.
9 1/4%, due 10/01/19.... Not Rated A3 A- 15,846,460
16,850,000 Pennsylvania Power &
Light Co.
9 3/8%, due 7/01/21..... Not Rated A3 A- 19,938,184
18,100,000 Potomac Electric Power
Co.
9%, due 6/01/21......... AA- A1 A 21,346,633
8,000,000 Potomac Electric Power
Co.
7 3/8%, due 9/15/25..... AA- A1 A 8,311,320
979,000 Public Service Electric
& Gas Co.
8 3/4%, due 11/01/21.... A A2 A- 1,066,656
8,001,000 Southern California
Edison
9 1/4%, due 12/22/22.... A+ A2 A+ 8,338,578
18,000,000 Texas Utilities Electric
Co.
9 3/4%, due 5/01/21..... Not Rated Baa2 BBB+ 21,573,468
10,000,000 Texas Utilities Electric
Co.
8 3/4%, due 11/01/23.... Not Rated Baa2 BBB+ 11,418,850
10,000,000 Texas Utilities Electric
Co.
7 3/8%, due 10/01/25.... Not Rated Baa2 BBB 10,187,500
12,000,000 UtiliCorp United Inc.
8%, due 3/01/23......... BBB Baa3 BBB 12,731,532
8,530,000 Virginia Electric &
Power Co.
9 3/8%, due 6/01/98..... A A2 A 9,193,796
--------------
330,478,180
</TABLE>
8
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
SCHEDULE OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
RATINGS
--------------------------
STANDARD MARKET
DUFF & AND VALUE
PAR VALUE COMPANY PHELPS MOODY'S POOR'S (NOTE 1)
----------- ------- --------- ------- -------- --------------
<C> <S> <C> <C> <C> <C>
[] GAS--2.4%
6,000,000 Northwest Pipeline Corp.
10.65%, due 11/15/18.... BBB Baa1 BBB 6,422,196
10,000,000 Phillips Petroleum Co. .
9.18%, due 9/15/21...... Not Rated Baa1 BBB 11,739,330
9,500,000 Transco Energy
9 1/8%, due 5/01/98..... BBB- Baa2 BBB- 10,195,789
14,500,000 Transcontinental Gas
Pipe Line Corp.
9 1/8%, due 2/01/17..... BBB Baa1 BBB 15,282,145
7,000,000 Williams Co.
10 1/4%, due 7/15/20.... BBB- Baa2 BBB- 9,690,317
--------------
53,329,777
[] TELECOMMUNICATION--8.1%
13,500,000 Bellsouth Capital
Funding Corp.
9 1/4%, due 1/15/98..... AA+ Aa1 AAA 14,449,062
47,500,000 GTE Corp.
8.85%, due 3/01/98...... A- Baa1 BBB+ 50,375,412
14,991,000 GTE Corp
9 3/8%, due 12/01/00.... A- Baa1 BBB+ 17,003,932
5,000,000 GTE Corp.
10 1/4%, due 11/01/20... A- Baa1 BBB+ 6,053,855
11,995,000 Mountain States
Telephone
9 1/2%, due 5/01/00..... AA Aa3 AA- 13,641,074
13,750,000 New England Telephone &
Telegraph
9%, due 8/01/31......... AA Aa2 AA- 16,762,639
30,000,000 New York Telephone Co.
7%, due 8/15/25......... A A2 A 29,925,000
24,000,000 Pacific Bell
8 1/2%, due 8/15/31..... AA- Aa3 AA- 26,780,352
5,000,000 US West Communications
8 7/8%, due 6/01/31..... AA Aa3 AA- 5,809,560
--------------
180,800,886
</TABLE>
9
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
SCHEDULE OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
The accompanying notes are an integral part of the financial statements.
<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...... AA- A1 AA- 17,265,431
8,000,000 Dayton Hudson Corp.
9 7/8%, due 7/01/20...... A+ A3 A 10,705,552
--------------
27,970,983
--------------
Total Bonds (Cost--$557,038,050).................. 592,579,826
--------------
U.S. TREASURY OBLIGATIONS--3.5%
40,500,000 U.S. Treasury Notes
9 3/8%, due 4/15/96............................... 40,980,938
29,000,000 U.S. Treasury Bonds
11 3/4%, due 2/15/01.............................. 37,120,000
--------------
Total U.S. Treasury Obligations (Cost--
$76,756,367)...................................... 78,100,938
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS--0.1%
2,185,416 Federal National Mortgage Association
8%, due 5/01/05................................... 2,262,588
--------------
Total U. S. Government Agency Obligations (Cost--
$2,258,491)....................................... 2,262,588
--------------
COMMERCIAL PAPER--0.4%
10,000,000 American General Finance
5.63%, due 1/03/96................................ 9,997,096
--------------
Total Commercial Paper (Amortized cost--
$9,997,096)....................................... 9,997,096
--------------
TOTAL INVESTMENTS (Cost--$2,066,721,792)
(100.3%).......................................... $2,245,522,769
==============
</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.
10
<PAGE>
The accompanying notes are an integral part of the financial statements.
DUFF & PHELPS UTILITIES INCOME INC.
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Common stocks (cost $1,419,682,438).......................... $1,561,518,946
Convertible preferred stock (cost $989,350).................. 1,063,375
Bonds (cost $557,038,050).................................... 592,579,826
U.S. Treasury obligations (cost $76,756,367)................. 78,100,938
U.S. Government agency obligations (cost $2,258,491)......... 2,262,588
Commercial paper (amortized cost $9,997,096)................. 9,997,096
Interest-bearing deposits with custodian...................... 28,159,874
Receivables:
Securities sold.............................................. 72,696,895
Interest..................................................... 15,939,449
Dividends.................................................... 10,666,109
Pre-paid expenses............................................. 133,924
---------------
Total Assets................................................ $2,373,119,020
===============
LIABILITIES:
Due to Adviser (Note 2)....................................... $ 3,110,454
Due to Administrator (Note 2)................................. 743,773
Dividends payable on common stock............................. 13,755,157
Dividends payable on remarketed preferred stock............... 1,873,844
Accrued expenses.............................................. 994,246
Commercial paper outstanding (Note 6)......................... 113,310,612
---------------
Total Liabilities........................................... 133,788,086
---------------
CAPITAL:
Remarketed preferred stock ($.001 par value; 100,000,000
shares authorized and 5,000 shares issued and outstanding,
liquidation preference $100,000 per share) (Note 5)........... 500,000,000
---------------
Common stock ($.001 par value; 250,000,000 shares authorized
and 196,502,240 shares issued and outstanding) (Note 4)....... 196,502
Paid-in surplus (Note 4)...................................... 1,750,316,882
Accumulated net realized loss on investments.................. ( 190,497,161)
Undistributed net investment income........................... 513,734
Net unrealized appreciation on investments.................... 178,800,977
---------------
Net assets applicable to common stock (equivalent to $8.85
per share based on 196,502,240 shares outstanding).......... 1,739,330,934
---------------
Total Capital (Net Assets).................................. 2,239,330,934
---------------
Total Liabilities and Capital............................... $2,373,119,020
===============
</TABLE>
11
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest......................................................... $ 60,933,681
Dividends (less withholding tax of $351,675)..................... 128,607,561
------------
Total investment income......................................... 189,541,242
EXPENSES:
Commercial paper interest expense (Note 6)....................... 6,896,479
Management fees (Note 2)......................................... 11,689,418
Administrative fees (Note 2)..................................... 2,872,728
Transfer agent fees.............................................. 703,400
Custodian fees................................................... 255,500
Remarketing agent fees........................................... 1,267,360
Shareholder reports.............................................. 511,400
Legal and audit fees............................................. 141,500
Directors' fees (Note 2)......................................... 164,500
Other expenses................................................... 552,894
------------
Total expenses.................................................. 25,055,179
------------
Net investment income........................................... 164,486,063
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments................................. 11,609,834
Net change in unrealized appreciation on investments............. 305,307,239
------------
Net gain on investments......................................... 316,917,073
------------
Net increase in net assets resulting from operations............ $481,403,136
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
--------------------------------
1995 1994
--------------- ---------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income....................... $ 164,486,063 $149,966,073
Net realized gain (loss) on investments..... 11,609,834 ( 198,760,234)
Net change in unrealized appreciation
(depreciation) on investments............... 305,307,239 ( 206,109,651)
--------------- ---------------
Net increase (decrease) in net assets
resulting from operations.................. 481,403,136 ( 254,903,812)
DISTRIBUTIONS TO STOCKHOLDERS FROM:
Net investment income--preferred stock (Note
5).......................................... ( 22,621,518) ( 17,049,118)
Net investment income--common stock (Note
3).......................................... ( 142,377,331) ( 134,229,742)
Net long-term capital gains--common stock... 0 ( 54)
--------------- ---------------
Total distributions........................ ( 164,998,849) ( 151,278,914)
FROM CAPITAL STOCK TRANSACTIONS (NOTE 4):
Shares issued to common stockholders from
dividend reinvestment....................... 26,836,422 36,083,718
Shares issued to common stockholders through
rights offering............................. 0 248,355,802
--------------- ---------------
Net increase in net assets derived from
capital share transactions.................. 26,836,422 284,439,520
--------------- ---------------
Total increase (decrease).................. 343,240,709 ( 121,743,206)
TOTAL NET ASSETS:
Beginning of year........................... 1,896,090,225 2,017,833,431
--------------- ---------------
End of year (including undistributed net
investment income of $513,734 and $446,243
respectively)............................... $2,239,330,934 $1,896,090,225
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
CASH FLOWS FROM (FOR):
OPERATING ACTIVITIES
Interest received........................... $ 62,009,456
Dividends received.......................... 130,570,943
Operating expenses paid (excluding
interest)................................... ( 18,032,117)
Interest paid on commercial paper........... ( 6,647,699)
---------------
Net cash provided by operating activities.................. $167,900,583
INVESTING ACTIVITIES
Purchase of investment securities........... ( 4,297,263,608)
Proceeds from sale/redemption of investment
securities.................................. 4,271,105,207
Return of capital on investments............ 1,621,654
Long-term capital gains dividends received.. 173,507
---------------
Net cash used in investing activities...................... ( 24,363,240)
FINANCING ACTIVITIES
Dividends paid.............................. ( 162,721,126)
Proceeds from issuance of common stock under
dividend reinvestment plan.................. 26,836,422
Change in net proceeds from issuance of
commercial paper............................ ( 570,123)
---------------
Net cash used in financing activities...................... ( 136,454,827)
-------------
Net increase in cash and cash equivalents.................... 7,082,516
Cash and cash equivalents--beginning of year................. 21,077,358
-------------
Cash and cash equivalents--end of year....................... $ 28,159,874
=============
Reconciliation of net investment income to
net cash provided by operating activities:
Net investment income....................................... $164,486,063
Adjustments to reconcile net investment
income to net cash provided by operating
activities:
Decrease in interest receivable............ 1,075,775
Decrease in dividends receivable........... 1,963,382
Increase in accrued expenses............... 375,363
---------------
Total adjustments......................................... 3,414,520
-------------
Net cash provided by operating activities................... $167,900,583
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) SIGNIFICANT ACCOUNTING POLICIES:
Duff & Phelps Utilities Income Inc. (the "Fund") was incorporated under the
laws of the State of Maryland on November 26, 1986. The Fund commenced
operations on January 21, 1987, as a closed-end diversified management
investment company registered under the Investment Company Act of 1940. The
primary investment objectives of the Fund are current income and long-term
growth of income. Capital appreciation is a secondary objective.
The following are the significant accounting policies of the Fund:
(a) 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 a 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, which approximates market value. Other assets and securities
are valued at a fair value, as determined in good faith by the Board of
Directors.
(b) No provision is made for Federal income taxes since the Fund has
elected to be taxed as a "regulated investment company" and has made such
distributions to its shareholders deemed necessary to be relieved of all
Federal income taxes under provisions of current Federal tax law. The Fund
intends to utilize provisions of Federal income tax laws which allow a
realized capital loss to be carried forward for eight years following the
year of loss and offset such losses against any future realized gains. At
December 31, 1995, the Fund had tax capital loss carryforwards of
$201,770,357 which expire beginning on December 31, 2002.
In 1993, the Fund adopted 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". In conformance with this
statement, the Fund changed the classification of distributions to
shareholders to better disclose the differences between financial statement
amounts and distributions determined in accordance with federal income tax
regulations. As a result, the accumulated net realized loss and
undistributed net investment income captions on the balance sheet reflect
book/tax temporary differences. These differences are a result of the
deferral of wash sale losses, the accretion of market discount and the cash
basis recognition of preferred dividends for tax purposes.
(c) The accounts of the Fund are kept on the accrual basis of accounting.
Security transactions are recorded on the trade date. Realized gains or
losses from sales of securities are determined on the specific identified
cost basis. Dividend income is recognized on the ex-dividend date. Interest
income and expense are recognized on the accrual basis.
(d) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results
could differ from those estimates.
15
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(2) MANAGEMENT ARRANGEMENTS:
The Fund has engaged Duff & Phelps Investment Management Co. (the "Adviser")
to provide professional investment management services for the Fund and has
engaged J. J. B. Hilliard, W. L. Lyons, Inc. (the "Administrator") to provide
administrative and management services for the Fund. The Adviser receives a
quarterly fee at an annual rate of .60% of the average weekly net assets of
the Fund up to $1.5 billion and .50% of average weekly net assets in excess
thereof. The Administrator receives a quarterly fee at annual rates of .25% of
average weekly net assets up to $100 million, .20% of average weekly net
assets from $100 million to $1 billion, .10% of average weekly net assets from
$1 billion to $1.5 billion, and .06% of average weekly net assets in excess
thereof. Directors of the Fund not affiliated with the Adviser receive a fee
of $15,000 per year plus $1,000 per board or committee meeting attended.
Committee Chairmen receive an additional fee of $2,500 per year. Transfer
agent and custodian fees are paid to The Bank of New York.
(3) DIVIDENDS:
The Board of Directors has authorized the following distributions to common
stockholders from investment income in 1995:
<TABLE>
<CAPTION>
RECORD PAYABLE DIVIDEND
DATE DATE PER SHARE
------ ------- ---------
<S> <C> <C>
01-31-95 02-10-95 $.06
02-28-95 03-10-95 .06
03-31-95 04-10-95 .06
04-28-95 05-10-95 .06
05-31-95 06-12-95 .06
06-30-95 07-10-95 .06
</TABLE>
<TABLE>
<CAPTION>
RECORD PAYABLE DIVIDEND
DATE DATE PER SHARE
------ ------- ---------
<S> <C> <C>
07-31-95 08-10-95 $.06
08-31-95 09-11-95 .06
09-29-95 10-10-95 .06
10-31-95 11-10-95 .06
11-30-95 12-11-95 .06
12-29-95 01-10-96 .07
</TABLE>
(4) CAPITAL STOCK TRANSACTIONS:
The Fund may purchase shares of its own stock in open market or private
transactions, from time to time and in such amounts and at such prices (not
exceeding $100,000 plus accumulated and unpaid dividends in the case of the
Fund's remarketed preferred stock and less than net asset value in the case of
the Fund's common stock) as management may deem advisable. Since any such
purchases by the Fund of its common stock would be made at prices below net
asset value, they would increase the net asset value per share of the
remaining shares of common stock outstanding. The Fund has not purchased any
shares of its common stock.
Transactions in common stock and paid-in surplus during 1994 and 1995 were
as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-----------------------------------------------------
1994 1995
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Beginning capitalization. 157,286,747 $1,437,634,991 193,221,697 $1,723,676,962
Dividend reinvestment.... 4,237,618 36,083,718 3,280,543 26,836,422
Shares issued through
rights offering.......... 31,697,332 248,355,802 -- --
Accounting change (Note
1)....................... -- 1,602,451 -- --
----------- -------------- ----------- --------------
Total capitalization.... 193,221,697 $1,723,676,962 196,502,240 $1,750,513,384
=========== ============== =========== ==============
</TABLE>
16
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
In 1994, the Fund issued 31,697,332 shares of common stock through a rights
offering for net proceeds of $248,355,802. The expenses incurred in connection
with the issuance of the Rights were recorded as a reduction of paid-in
surplus on common stock.
(5) REMARKETED PREFERRED STOCK:
In 1988, the Fund issued 5,000 shares of Remarketed Preferred Stock ("RP")
in five series of 1,000 shares each at a public offering price of $100,000 per
share. The underwriting discount and other expenses incurred in connection
with the issuance of the RP were recorded as a reduction of paid-in surplus on
common stock. Dividends on the RP are cumulative at a rate which was initially
established for each series at its offering. Since the initial offering of
each series, the dividend rate on each series has been reset every 49 days by
a remarketing process. Dividend rates ranged from 4.24% to 4.75% during the
year ended December 31, 1995.
The RP is redeemable at the option of the Fund on any dividend payment date
at a redemption price equal to $100,000 per share, plus accumulated and unpaid
dividends. The Fund is required to maintain certain asset coverage with
respect to the RP, and the RP is subject to mandatory redemption if that asset
coverage is not maintained. Each series of RP is also subject to mandatory
redemption on a date certain as follows: Series A--November 28, 2012; Series
B--November 18, 2015; Series C--November 7, 2018; Series D--December 22, 2021;
and Series E--December 11, 2024.
In general, the holders of the RP and of the Common Stock have equal voting
rights of one vote per share, except that the holders of the RP, as a class,
vote to elect two members of the Board of Directors, and separate class votes
are required on certain matters that affect the respective interests of the RP
and the Common Stock. The RP has a liquidation preference of $100,000 per
share plus accumulated and unpaid dividends.
(6) COMMERCIAL PAPER:
The Board of Directors has authorized the Fund to issue up to $200,000,000
of Commercial Paper Notes (the "Notes") in minimum denominations of $100,000
with maturities up to 270 days. The Notes generally will be sold on a discount
basis, but may be sold on an interest-bearing basis. The Notes are not
redeemable by the Fund nor are they subject to voluntary prepayment prior to
maturity. The aggregate amount of Notes outstanding changes from time to time.
The Notes are unsecured, general obligations of the Fund. The Fund has entered
into a credit agreement to provide liquidity. The Fund is able to request
loans under the credit agreement of up to $100,000,000 at any one time,
subject to certain restrictions. Interest rates on the Notes ranged from 5.48%
to 6.14% during the year ended December 31, 1995. At December 31, 1995, the
Fund had Notes outstanding of $113,310,612.
(7) INVESTMENT TRANSACTIONS:
For the year ended December 31, 1995, purchases and sales of investment
securities (excluding short-term securities) were $3,908,909,340 and
$3,950,012,855, respectively. For federal income tax purposes, at December 31,
1995, the gross unrealized depreciation on investments was $10,661,789 and
gross unrealized appreciation was $177,765,502. The cost of investments for
financial reporting and Federal income tax purposes was $2,066,721,792 and
$2,078,419,056, respectively.
17
<PAGE>
FINANCIAL HIGHLIGHTS--SELECTED PER SHARE DATA AND RATIOS
The table below provides information about income and capital changes for a
share of common stock outstanding throughout the years indicated:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value:
Beginning of year....... $ 7.23 $ 9.65 $ 9.67 $ 9.55 $ 8.29
---------- ---------- ---------- ---------- ----------
Net investment income.... 0.85 0.82 0.81 0.89 0.95
Net realized gain (loss)
and change in unrealized
appreciation/depreciation
on investments........... 1.62 ( 2.42) 0.09 0.11 1.25
---------- ---------- ---------- ---------- ----------
Total from investment
operations............... 2.47 ( 1.60) 0.90 1.00 2.20
Dividends on preferred
stock from net investment
income................... ( 0.12) ( 0.10) ( 0.08) ( 0.10) ( 0.17)
Dividends on common stock
from net investment
income................... ( 0.73) ( 0.72) ( 0.74) ( 0.78) ( 0.77)
Dividends on common stock
from net realized capital
gains.................... ( 0.00) ( 0.00) ( 0.10) ( 0.00) ( 0.00)
---------- ---------- ---------- ---------- ----------
Total distributions..... ( 0.85) ( 0.82) ( 0.92) ( 0.88) ( 0.94)
---------- ---------- ---------- ---------- ----------
Net asset value:
End of year............. $ 8.85 $ 7.23 $ 9.65 $ 9.67 $ 9.55
========== ========== ========== ========== ==========
Per share market value:
End of year............. $ 9.00 $ 7.88 $10.50 $10.50 $10.00
Ratio of expenses to
average net assets....... 1.23% 1.18% 1.04% 1.04% 1.17%
Total investment return.. 24.77% (18.04%) 8.43% 13.81% 24.56%
Ratio of net investment
income to average net
assets................... 8.13% 7.66% 6.09% 6.99% 7.75%
Portfolio turnover rate.. 188.28% 129.56% 56.11% 43.30% 41.09%
Net assets, end of year
(000s omitted)........... $2,239,331 $1,896,090 $2,017,833 $1,997,984 $1,863,427
</TABLE>
18
<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
19
<PAGE>
Duff & Phelps
Utilities Income Inc.
4TH
ANNUAL REPORT
DECEMBER 31, 1995
