<PAGE>
DEAR FELLOW SHAREHOLDERS:
PERFORMANCE REVIEW: The first quarter of 1996 was less kind to utility stock
and bond investors than in 1995. As measured by the Dow Jones Utilities Index
and the S&P Utilities Index, the group experienced a total return of minus
4.3% and minus 4.8%, respectively. However, the Duff & Phelps Utilities Income
fund had a total return of a positive 2.1%. Throughout the quarter, the Fund's
market price remained above its net asset value. Rebounding from the
uncharacteristically low level of 1.7% on December 31, 1995, the premium
closed the quarter at 7.5% and averaged 6.5% for the period.
DUFF & PHELPS UTILITIES INCOME INC.
TOTAL RETURN PERFORMANCE
FOR PERIODS ENDED MARCH 29, 1996
[PERFORMANCE CHART APPEARS HERE]
Three Months One Year Five Years
DNP Market Price Total Return* 2.1% 20.7% 60.7%
Composite** (3.8%) 17.7% 44.2%
[Dark Square] DNP Market Price Total Return* [Light Square] Composite**
- --------
*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.
The return for the Fund's shareholders shown in the chart above is net of
expenses and assumes that all distributions were reinvested in accordance with
the terms of the Fund's dividend reinvestment plan. During this period, the
Fund continued to pay its regular six cent monthly dividend as it has every
month in all economic cycles since July 1987. Our six cent monthly rate,
without compounding, would be seventy-two cents annualized or an 8.00% common
stock dividend yield based on the March 29, 1996 closing price of $9.00 per
share. The Fund has never paid a return of capital.
MARKET ENVIRONMENT: A principal factor affecting utility performance has
been the sensitivity of market prices of utility securities to interest rates
and the expectations of future rates. During the first quarter,
<PAGE>
expectations changed as indications of increased economic activity reduced the
likelihood that the Federal Reserve would ease credit conditions. Even without
Federal Reserve action, long-term Treasury yields rose from 5.94% at year end
to 6.67% at the end of March. We expect lower rates later in 1996 as the
increased cost of funding reduces economic growth expectations.
Movements in interest rates have not and will not tell the whole story of
returns in the utility sector. Public policy has been shifting away from the
concept of government (regulatory) intervention. The notion of a regulated
entity delivering a public service is giving way to a more competitive
environment as high volume consumers and other customers seek the lowest
prices that the market is capable of delivering.
As the utility industries evolve into this new competitive environment, we
think there will be winners and losers. Winning characteristics will include:
a lower cost structure, a healthy and diverse service territory, supportive
regulation, a forward-thinking management team, and a commitment to customer
service.
Some companies will choose to make alliances to enhance their competitive
position. For example, SBC Communications recently announced an agreement to
acquire Pacific Telesis Group. The acquisition, if approved by state and
federal regulators, will create the nation's second largest telecommunications
company. Combined as a single corporation, the new company would serve two of
the nation's most populous states, Texas and California, which are also
considered favorable routes for expanding south into Mexico and Latin America.
The combination would also serve seven of the ten largest U.S. metropolitan
areas and sixteen of the top fifty markets.
Quickly on the heels of the SBC announcement, Bell Atlantic announced a
merger with NYNEX. Combined as a single company, the new company would serve a
contiguous service territory extending from Maine to Virginia, including
thirteen northeastern and mid-Atlantic states and the District of Columbia.
The service territory would reach nearly 25% of the U.S. population and
encompass approximately 35% of all U.S. international calls placed.
"Proposed" mergers or acquisitions however may not be easily realized.
Recently, Kansas City Power & Light simultaneously announced its opposition to
a Western Resources hostile merger offer and support for an earlier agreed
merger with UtiliCorp United. Western Resources is vigorously fighting the
alternative plan with publicity, claiming its offer is more advantageous to
shareholders, and if necessary will fight in the courts.
Whether bigger is better is an unknown. Merging companies always involves
challenges and risks. But it seems likely that surprises such as the above
will continue and that the involved companies' security valuations will be
affected. As always, selectivity will be important. Your Fund managers and
directors remain committed to a well diversified and high quality portfolio.
ANNUAL MEETING--At the annual meeting held on April 18, 1996, common
shareholders re-elected Messrs. Wallace B. Behnke, Gordon B. Davidson, and
Claire V. Hansen as Directors. Shareholders also ratified the selection of
Arthur Andersen LLP as the Fund's independent public accountants.
DIVIDENDS--At the Board of Directors meeting following the annual meeting,
your Directors declared the following monthly dividends:
<TABLE>
<CAPTION>
DIVIDEND PER SHARE RECORD DATE PAYMENT DATE
------------------ ----------- ------------
<S> <C> <C>
6 cents 4-30-96 5-10-96
6 cents 5-31-96 6-10-96
6 cents 6-28-96 7-10-96
</TABLE>
2
<PAGE>
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.
/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)
MARCH 31, 1996
COMMON STOCKS--70.5%
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES COMPANY (NOTE 1)
------ ------- --------------
<C> <S> <C>
. ELECTRIC--48.2%
874,700 Baltimore Gas & Electric Co. ...................... $ 24,163,587
1,818,600 Boston Edison Co................................... 49,102,200
1,595,900 Carolina Power & Light Co.......................... 59,447,275
1,036,000 Central and South West Corp........................ 29,526,000
235,000 CINergy Corp....................................... 7,050,000
705,000 CIPSCO Inc......................................... 27,230,625
1,352,700 CMS Energy Corp.................................... 39,904,650
1,265,000 DQE Incorporated................................... 36,526,875
780,000 Duke Power Co...................................... 39,390,000
829,879 Eastern Utilities Associates....................... 17,842,399
1,388,000 Edison International............................... 23,769,500
560,000 Empresa Nacional De Electricidad ADR............... 31,920,000
662,000 Entergy Corp....................................... 18,536,000
950,000 Florida Progress Corp.............................. 32,418,750
300,000 FPL Group Inc...................................... 13,575,000
2,050,000 General Public Utilities Corp...................... 67,650,000
1,865,400 Illinova Corp...................................... 52,464,375
1,600,800 IPALCO Enterprises Inc............................. 42,821,400
570,900 LG&E Energy Corp................................... 24,477,338
500,000 National Power PLC ADR............................. 10,250,000
1,918,300 New England Electric System........................ 73,374,975
1,278,300 NIPSCO Industries Inc.............................. 47,616,675
442,700 Ohio Edison Co..................................... 10,016,088
1,600,000 PECO Energy Co..................................... 42,600,000
339,000 Pinnacle West Capital Corp......................... 9,788,625
660,000 Portland General Corp.............................. 20,295,000
227,500 Powergen PLC ADR P/P............................... 5,460,000
74,500 Powergen PLC ADR................................... 2,477,125
900,000 Rochester Gas & Electric Corp...................... 19,462,500
3,341,700 Southern Co........................................ 79,783,088
945,000 TECO Energy Inc.................................... 23,506,875
350,000 Texas Utilities Co................................. 14,481,250
700,000 Unicom Corp........................................ 18,900,000
690,000 Western Resources Inc.............................. 21,045,000
--------------
1,036,873,175
</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)
MARCH 31, 1996
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES COMPANY (NOTE 1)
------ ------- --------------
<C> <S> <C>
. GAS--1.0%
661,600 Brooklyn Union Gas Co.............................. 17,697,800
225,000 CMS Energy Corp. Class G........................... 4,275,000
--------------
21,972,800
. TELECOMMUNICATION--15.5%
1,443,100 Ameritech Corp..................................... 78,648,950
1,100,094 AT&T Corp.......................................... 67,380,757
165,000 Bellsouth Corp..................................... 6,105,000
789,100 Frontier Corp...................................... 24,856,650
558,200 Nynex Corp......................................... 27,840,225
400,000 Royal PTT Nederland ADS............................ 15,800,000
1,318,615 SBC Communications Inc............................. 69,392,114
664,400 Telefonica De Espana ADS........................... 31,559,000
75,600 Telefonos De Chile ADR............................. 6,407,100
200,000 Telefonica De Argentina ADR........................ 5,125,000
--------------
333,114,796
. NON-UTILITY--5.8%
253,800 CBL & Associates Properties Inc.................... 5,361,525
120,000 Chelsea GCA Realty Inc............................. 3,540,000
100,000 Colonial Properties Trust.......................... 2,362,500
300,000 Crescent Real Estate Equities Inc.................. 10,087,500
150,000 Developers Diversified Realty Corp................. 4,406,250
300,000 Equity Residential Properties Trust................ 9,375,000
478,100 First Industrial Realty Trust...................... 10,936,537
426,300 Gables Residential Trust........................... 10,231,200
200,000 Highwoods Properties Inc........................... 5,575,000
384,300 Liberty Property Trust............................. 7,926,187
200,000 Meditrust.......................................... 6,775,000
412,100 Merry Land & Investment Inc........................ 8,963,175
590,000 Nationwide Health Properties....................... 12,390,000
290,000 Oasis Residential Inc.............................. 6,815,000
250,000 SouthWest Property Trust Inc....................... 3,343,750
273,400 TriNet Corporate Realty Trust...................... 7,860,250
160,600 Vornado Realty Trust............................... 6,102,800
75,000 Weeks Corp......................................... 1,875,000
41,137 Weingarten Realty Investment....................... 1,475,790
--------------
125,402,464
--------------
Total Common Stocks (Cost--$1,502,829,689)......... 1,517,363,235
--------------
</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)
MARCH 31, 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.................. 1,039,875
---------
Total Convertible Preferred Stocks (Cost--$989,350).......... 1,039,875
---------
</TABLE>
BONDS--27.2%
<TABLE>
<CAPTION>
RATINGS
--------------------------
STANDARD
DUFF & AND MARKET VALUE
PAR VALUE COMPANY PHELPS MOODY'S POOR'S (NOTE 1)
--------- ------- --------- ------- -------- --------------
<C> <S> <C> <C> <C> <C>
. ELECTRIC--15.5%
$24,920,000 Alabama Power Co.
9%, due 12/01/24....... A+ A1 A+ 26,783,542
10,000,000 Carolina Power & Light
Co.
9%, due 4/01/22........ A+ A2 A 10,588,980
14,500,000 Commonwealth Edison Co.
9 3/4%, due 2/15/20.... BBB Baa2 BBB 15,893,450
7,500,000 Commonwealth Edison Co.
9 7/8%, due 6/15/20.... BBB Baa2 BBB 8,486,708
10,000,000 Commonwealth Edison Co.
8 3/8%, due 2/15/23.... BBB Baa2 BBB 9,953,150
35,000,000 CTC Mansfield Funding
Corp.
10 5/8%, due 9/30/16... Not Rated Aaa AAA 37,256,275
8,000,000 Duquesne Light Co.
7.55%, due 6/15/25..... A- Baa1 BBB+ 7,558,832
11,500,000 Georgia Power Co.
7.95%, due 2/01/23..... AA- A1 A+ 11,421,179
5,000,000 Gulf States Utilities
8.94%, due 1/01/22..... Not Rated Baa3 BBB- 5,049,245
22,000,000 Illinois Power Co.
8%, due 2/15/23........ Not Rated Baa2 BBB 21,890,000
15,000,000 New York State Electric
& Gas Corp.
9 7/8%, due 11/01/20... Not Rated Baa1 BBB+ 16,599,975
</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)
MARCH 31, 1996
<TABLE>
<CAPTION>
RATINGS
--------------------------
STANDARD
DUFF & AND MARKET VALUE
PAR VALUE COMPANY PHELPS MOODY'S POOR'S (NOTE 1)
--------- ------- --------- ------- -------- --------------
<C> <S> <C> <C> <C> <C>
4,000,000 New York State Electric
& Gas Corp.
8 7/8%, due 11/01/21... Not Rated Baa1 BBB+ 4,288,468
6,500,000 Ohio Edison Co.
8 3/4%, due 2/15/98.... BBB+ Baa2 BBB- 6,732,245
14,105,000 Pennsylvania Power &
Light Co.
9 1/4%, due 10/01/19... Not Rated A3 A- 15,241,242
16,850,000 Pennsylvania Power &
Light Co.
9 3/8%, due 7/01/21.... Not Rated A3 A- 18,387,023
19,750,000 Philadelphia Electric
8 3/4%, due 4/01/22.... Not Rated Baa1 BBB+ 20,428,570
18,100,000 Potomac Electric Power
Co.
9%, due 6/01/21........ AA- A1 A 19,546,914
8,000,000 Potomac Electric Power
Co.
7 3/8%, due 9/15/25.... AA- A1 A 7,623,800
979,000 Public Service Electric
& Gas Co.
8 3/4%, due 11/01/21... A A3 A- 1,060,479
3,000,000 Rochester Gas & Electric
Corp.
9 3/8%, due 4/01/21.... BBB+ Baa1 BBB+ 3,279,840
29,830,000 Texas Utilities Electric
Co.
9 3/4%, due 5/01/21.... Not Rated Baa2 BBB+ 33,198,791
10,000,000 Texas Utilities Electric
Co.
8 3/4%, due 11/01/23... Not Rated Baa2 BBB+ 10,581,630
12,000,000 UtiliCorp United Inc.
8%, due 3/01/23........ BBB Baa3 BBB 11,764,512
8,530,000 Virginia Electric &
Power Co.
9 3/8%, due 6/01/98.... A A2 A 9,045,374
--------------
332,660,224
. GAS--2.4%
6,000,000 Northwest Pipeline Corp.
10.65%, due 11/15/18... BBB Baa1 BBB 6,437,400
10,000,000 Phillips Petroleum Co.
9.18%, due 9/15/21..... Not Rated Baa1 BBB 10,702,970
9,500,000 Transco Energy
9 1/8%, due 5/01/98.... BBB- Baa2 BBB- 10,002,322
</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)
MARCH 31, 1996
<TABLE>
<CAPTION>
RATINGS
-----------------------
STANDARD
DUFF & AND MARKET VALUE
PAR VALUE COMPANY PHELPS MOODY'S POOR'S (NOTE 1)
--------- ------- ------ ------- -------- --------------
<C> <S> <C> <C> <C> <C>
14,500,000 Transcontinental Gas Pipe
Line Corp.
9 1/8%, due 2/01/17..... BBB Baa1 BBB 15,221,172
7,000,000 Williams Co.
10 1/4%, due 7/15/20.... BBB- Baa2 BBB- 8,751,638
--------------
51,115,502
. TELECOMMUNICATION--8.2%
13,500,000 Bellsouth Capital Funding
Corp.
9 1/4%, due 1/15/98..... AA+ Aa1 AAA 14,212,705
47,500,000 GTE Corp.
8.85%, due 3/01/98...... A- Baa1 BBB+ 49,805,983
14,991,000 GTE Corp
9 3/8%, due 12/01/00.... A- Baa1 BBB+ 16,665,435
5,000,000 GTE Corp.
10 1/4%, due 11/01/20... A- Baa1 BBB+ 5,820,240
11,995,000 Mountain States Telephone
9 1/2%, due 5/01/00..... AA Aa3 AA- 13,233,064
13,750,000 New England Telephone &
Telegraph
9%, due 8/01/31......... AA Aa2 AA- 15,359,960
30,000,000 New York Telephone Co.
7%, due 8/15/25......... A A2 A 27,675,000
20,740,000 New York Telephone Co.
9 3/8%, due 7/15/31..... A A2 A 22,656,791
5,000,000 Pacific Bell
8 1/2%, due 8/15/31..... AA- Aa3 AA- 5,237,235
5,000,000 US West Communications
8 7/8%, due 6/01/31..... AA Aa3 AA- 5,440,605
--------------
176,107,018
. NON-UTILITY--1.2%
15,700,000 American General Corp.
9 5/8%, due 2/01/18..... AA- A1 AA- 16,842,929
8,000,000 Dayton Hudson Corp.
9 7/8%, due 7/01/20..... A- A3 BBB+ 9,381,592
--------------
26,224,521
--------------
Total Bonds (Cost--$580,992,838).................. 586,107,265
--------------
</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)
MARCH 31, 1996
<TABLE>
<CAPTION>
PAR VALUE COMPANY
--------- -------
<C> <S> <C>
U.S. TREASURY
OBLIGATIONS--3.5%
21,500,000 U.S. Treasury Notes
9 3/8%, due
4/15/96............ 21,533,562
29,000,000 U.S. Treasury Bonds
11 3/4%, due
2/15/01............ 35,851,250
--------------
Total U.S. Treasury
Obligations
(Cost--
$57,324,492)....... 57,384,812
--------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS--0.1%
2,064,651 Federal National
Mortgage
Association
8%, due 5/01/05.... 2,101,416
--------------
Total U. S.
Government Agency
Obligations
(Cost--
$2,133,687)........ 2,101,416
--------------
COMMERCIAL PAPER--
0.5%
10,000,000 Prudential Funding
Corp.
5.40%, due
4/09/96............ 9,988,000
--------------
Total Commercial
Paper (Amortized
cost--$9,988,000).. 9,988,000
--------------
CASH AND OTHER ASSETS LESS
LIABILITIES--(1.0%)........... ( 22,285,405)
--------------
NET ASSETS
(equivalent to $8.37 per share
of common stock based on
197,305,491 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).............. $2,151,669,198
==============
</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)
MARCH 31, 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.
1ST
FIRST QUARTER
REPORT
MARCH 31, 1996
LOGO
