<PAGE>
DEAR FELLOW SHAREHOLDERS:
THE BOARD DECLARES AN INCREASE IN THE MONTHLY DIVIDEND: At the July 9, 1997
Board of Directors meeting, the monthly dividend rate on Fund shares was
increased from 6 cents per share to 6.5 cents per share (78 cents annualized)
effective with the dividend payable in August. The 6.5 cent monthly dividend
was also declared for the September and October dividend (see table below).
The 6.5 cent dividend rate on the June 30, 1997 stock closing price of $8.75
would produce a common stock dividend yield of 8.91%. THE FUND IS DEDICATED TO
THE CONTINUITY OF MONTHLY DIVIDEND PAYOUTS AT THE 6.5 CENT PER SHARE LEVEL.
As longer term Fund shareholders are well aware, for seven of the last eight
years the Board has declared an "extra" year-end dividend. This "extra"
dividend has been declared because the Fund's operating earnings in those
calendar years exceeded 72 cents per share and in order to avoid the Fund
paying a federal excise tax the Fund needed to distribute essentially 100% of
its operating income. With this latest announcement of an increase in the
monthly dividend rate, the probability of a year end "extra" for calendar 1997
is lessened.
In increasing the monthly dividend rate, the Board considered that a portion
of the payout in future years might result in a return of capital to Fund
shareholders.
<TABLE>
<CAPTION>
DIVIDENDS PER SHARE RECORD DATE PAYABLE DATE
------------------- ----------- ------------
<S> <C> <C>
6.5 cents 7/31/97 8/11/97
6.5 cents 8/29/97 9/10/97
6.5 cents 9/30/97 10/10/97
</TABLE>
The stated goal of DNP is income and increasing income. Your Fund managers
have taken steps to invest in faster growing companies and sectors to meet
this goal. The inclusion of Real Estate Investment Trust (REIT) securities in
the portfolio is an example of this, and has proven to be a profitable yield
oriented investment. DNP's investments in faster growing foreign utilities
also represents your manager's efforts to provide enhanced income.
PERFORMANCE REVIEW: During the second quarter of 1997, the popular Dow Jones
Utilities Average and the more broad-based S&P Utilities Index increased 3.8%
and 4.5%, respectively. Both represented nice bounce-backs from their declines
of the first quarter. We are pleased to report that DNP's total return on net
asset value again in the second quarter, as in the first quarter, outperformed
the total return of both of these utility equities indices. These comparisons
include reinvested dividends in computing total return.
For the six months ended June 30, 1997, your Fund's total return based on
net asset value was 6.9%. During this six month period, there was a slight
decline in the premium of market price over net asset value. Consequently, the
Fund's total return based on market price was 5.8% for the first six months of
1997 including reinvested dividends.
THE ECONOMIC AND INVESTMENT ENVIRONMENT: Without significant imbalances in
the economy, the outlook remains favorable. Largely due to increasing
competitive pressures, many of which are global in nature, inflationary
pressures have yet to heat up despite the lengthy current economic expansion.
The yield on the benchmark 30 year Treasury issue declined to 6.78% at the end
of June 1997 as compared with 7.17% earlier in 1997. A further decline to
around the 6.50% area occurred in the early part of July.
The electric utility industry is moving along with its specific type of
competitive evolution. The move toward a fully competitive electricity
generation market is picking up pace. As a result, companies are
<PAGE>
increasingly re-evaluating their core business strategies, corporate
alliances, and diversification efforts. Because of the increasing risks facing
the industry as it transforms to an even more heterogeneous group of
companies, the Fund's investments in United States electric public utilities
has decreased significantly in recent periods.
The New England region and California have led the national movement toward
increased competition in the electric utility industry. The movement away from
cost of service regulation to competitive pricing and increasing competition
has created new challenges for almost all electric utility companies.
Favorably, many public policy makers have generally approved principles which
are designed to meet the challenges. Nevertheless, each state requires
continual surveillance by our group of analysts.
Federal legislation dictating consumer choice of electric power provider has
been introduced by several congressmen in both the Senate and House of
Representatives. While federal agencies have jurisdiction over some electric
industry issues, notably interstate transactions, the states will ultimately
determine the regulatory environment governing retail rates. In view of
potential federal rules governing customer choice being passed sometime in the
next year or so, most states are attempting to arrive at their own version of
appropriate legislation so as to not be subject to any subsequent federal
mandates.
On the telephone front, activity continues to center around how and when
competition will develop in the local markets. Many industry participants
complain that the Regional Bell Operating Companies (RBOCs) are dragging their
feet with respect to opening their markets to local competition. MCI
Communications recently announced that financial losses resulting from its
entry into local markets would be far greater than originally anticipated
because the RBOCs have been slow to open up their networks to interconnection.
While there may be some truth to MCI's claim, we believe there is also a fair
amount of political grandstanding occurring. MCI hopes the Federal
Communications Commission (FCC) will put more pressure on the RBOCs to open
their local markets.
However, the FCC's efforts to open local markets to competition recently
took a setback. On July 18, 1997, the U.S. Appeals Court in St. Louis ruled
that the FCC lacks jurisdiction to set interconnection rates. The three judge
panel agreed with the RBOCs and GTE that the Telecommunications Act of 1996
gives the states that power. While most states have already set
interconnection rates, the rates vary by state, complicating the business
model for competitors. The FCC has vowed to appeal this ruling to the Supreme
Court.
As a result of this Appeals Court ruling, the primary measure the FCC can
use to encourage the RBOCs to open their local markets is the carrot of entry
into long distance. So far, the FCC has not approved any applications by the
RBOCs to enter the long distance market, and it may be some time before they
do so.
Given the obstacles that exist to entering the local market, the quickest
and probably cheapest way to enter is to merge with a local exchange provider.
This was obviously the impetus behind AT&T's reported attempt to merge with
SBC Communications, despite potentially large anti-trust issues, as well as
WorldCom's acquisition of MFS Communications last year. We believe mergers and
acquisitions of local exchange companies, whether they be the incumbents or
competitors, will continue to occur.
Your Fund managers see these industry changes as an investment challenge and
opportunity. The opportunities and challenges are to select those companies
that will be more successful and avoid those companies that will be less
successful. Experience, research, and patience should pay off for investors.
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.
For more information and/or an authorization form on automatic dividend
reinvestment or direct deposit, please contact The Bank of New York. You can
contact the Advisor, Administrator, or 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.
VISIT US ON THE WEB: You can obtain the most recent quarterly shareholder
report and dividend information at our web site http://www.duff.com.
/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.
SCHEDULE OF INVESTMENTS
(UNAUDITED)
JUNE 30, 1997
COMMON STOCKS--72.0%
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES COMPANY (NOTE 1)
--------- ------- --------------
[_] ELECTRIC--40.6%
<C> <S> <C>
1,733,000 Baltimore Gas & Electric Co......................... $ 46,249,437
1,818,600 Boston Edison Co. .................................. 47,965,575
1,617,900 Carolina Power & Light Co. ......................... 58,042,162
1,635,000 CINergy Corp. ...................................... 56,918,438
705,000 CIPSCO Inc. ........................................ 25,776,562
1,352,700 CMS Energy Corp. ................................... 47,682,675
1,265,000 DQE Incorporated.................................... 35,736,250
1,000,000 Duke Energy Corp. .................................. 47,937,500
1,025,900 Eastern Utilities Associates........................ 18,722,675
1,800,000 Edison International................................ 44,775,000
560,000 Empresa National De Electricidad ADR................ 47,635,000
1,447,800 FPL Group Inc. ..................................... 66,689,288
2,050,000 GPU Inc. ........................................... 73,543,750
1,865,400 Illinova Corp. ..................................... 41,038,800
1,141,800 LG&E Energy Corp. .................................. 25,190,963
686,500 National Power PLC ADR.............................. 24,156,219
1,278,300 NIPSCO Industries Inc. ............................. 52,809,769
420,000 Pinnacle West Capital Corp. ........................ 12,626,250
302,000 Powergen PLC ADR.................................... 14,647,000
2,000,000 Southern Co. ....................................... 43,750,000
450,000 Southern Electric PLC ADR........................... 3,321,495
1,319,700 TECO Energy Inc. ................................... 33,734,831
700,000 Texas Utilities Co. ................................ 24,106,250
682,600 Wisconsin Energy Corp. ............................. 16,979,675
--------------
910,035,564
[_] GAS--5.1%
235,000 AGL Resources....................................... 4,846,875
661,600 Brooklyn Union Gas Co. ............................. 18,938,300
225,000 CMS Energy Corp. Class G............................ 4,471,875
245,000 El Paso Natural Gas Co. ............................ 13,475,000
75,000 MCN Energy Group Inc. .............................. 2,296,875
400,000 National Fuel Gas Co. .............................. 16,775,000
444,700 NICOR Inc. ......................................... 15,953,613
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
SCHEDULE OF INVESTMENTS--(CONTINUED)
(UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES COMPANY (NOTE 1)
--------- ------- --------------
<C> <S> <C>
300,000 Washington Gas Light Co. ........................... 7,537,500
660,000 Williams Companies Inc. ............................ 28,875,000
--------------
113,170,038
[_] TELECOMMUNICATION--16.0%
1,143,100 Ameritech Corp. .................................... 77,659,356
565,000 Bellsouth Corp. .................................... 26,201,875
420,200 British Telecommunications PLC ADR.................. 31,199,850
695,000 Cable and Wireless ADS.............................. 19,416,562
600,000 GTE Corp. .......................................... 26,325,000
200,000 Royal PTT Nederland ADS............................. 7,925,000
1,318,615 SBC Communications Inc. ............................ 81,589,303
664,400 Telefonica De Espana ADS............................ 57,304,500
575,000 Sprint Corp. ....................................... 30,259,375
--------------
357,880,821
[_] NON-UTILITY--10.4%
50,000 Arden Realty Inc. .................................. 1,300,000
161,000 Bay Apartment Communities........................... 5,957,000
159,000 Boston Properties Inc. ............................. 4,372,500
253,800 CBL & Associates Properties Inc. ................... 6,091,200
350,000 Centerpoint Properties Corporation.................. 11,112,500
120,000 Chelsea GCA Realty Inc. ............................ 4,560,000
100,000 Colonial Properties Trust........................... 2,937,500
350,000 Cornerstone Properties Inc. ........................ 5,381,250
50,000 Crescent Operating Inc. ............................ 600,000
500,000 Crescent Real Estate Equities Inc. ................. 15,875,000
200,000 Developers Diversified Realty Corp. ................ 8,000,000
400,000 Equity Residential Properties Trust................. 19,000,000
50,000 Essex Property Trust Inc. .......................... 1,606,250
478,100 First Industrial Realty Trust....................... 13,984,425
126,300 Gables Residential Trust............................ 3,189,075
131,000 Great Lakes REIT Inc. .............................. 2,153,312
455,000 Highwoods Properties Inc. .......................... 14,560,000
200,000 Meditrust........................................... 7,975,000
175,000 Macerich Co......................................... 4,856,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
SCHEDULE OF INVESTMENTS--(CONTINUED)
(UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES COMPANY (NOTE 1)
--------- ------- --------------
<C> <S> <C>
590,000 Nationwide Health Properties....................... 12,980,000
500,000 Patriot American Hospitality....................... 12,750,000
547,400 Reckson Associates Realty Corp..................... 12,590,200
512,500 Starwood Lodging Trust............................. 21,877,344
174,200 Sunstone Hotel Investors Inc....................... 2,525,900
373,400 TriNet Corporate Realty Trust...................... 12,345,538
200,000 Urban Shopping Centers Inc......................... 6,375,000
160,600 Vornado Realty Trust............................... 11,583,275
200,000 Weeks Corp......................................... 6,250,000
--------------
232,788,519
--------------
Total Common Stocks (Cost--$1,516,692,027)......... 1,613,874,942
--------------
CONVERTIBLE PREFERRED STOCKS--0.0%
[_] NON-UTILITY--0.0%
47,000 Tanger Factory Outlet Centers Inc. Series A........ 1,128,000
--------------
Total Convertible Preferred Stocks (Cost--
$989,350).......................................... 1,128,000
--------------
</TABLE>
BONDS--27.3%
<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--16.0%
$24,920,000 Alabama Power Co.
9%, due 12/01/24........ AA- A1 A+ 27,009,290
14,500,000 Commonwealth Edison Co.
9 3/4%, due 2/15/20..... BBB Baa2 BBB 15,984,365
7,500,000 Commonwealth Edison Co.
9 7/8%, due 6/15/20..... BBB Baa2 BBB 8,452,365
6,850,000 Commonwealth Edison Co.
8 5/8%, due 2/01/22..... BBB Baa2 BBB 7,142,474
10,000,000 Commonwealth Edison Co.
8 3/8%, due 2/15/23..... BBB Baa2 BBB 10,232,050
CTC Mansfield Funding
35,000,000 Corp.
10 5/8%, due 9/30/16.... Not Rated Aaa AAA 37,896,910
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
SCHEDULE OF INVESTMENTS--(CONTINUED)
(UNAUDITED)
JUNE 30, 1997
<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 Duke Energy Corp.
8 3/8%, due 12/01/21.... AA Aa3 A+ 5,181,025
8,000,000 Duquesne Light Co.
7.55%, due 6/15/25...... A- Baa1 BBB+ 7,622,999
5,000,000 Gulf States Utilities
8.94%, due 1/01/22...... Not Rated Baa3 BBB- 5,182,940
20,000,000 Illinois Power Co.
8%, due 2/15/23......... BBB+ Baa1 BBB 19,770,297
15,000,000 New York State Electric
& Gas Corp.
9 7/8%, due 11/01/20.... Not Rated Baa1 BBB+ 16,331,909
4,000,000 New York State Electric
& Gas Corp.
8 7/8%, due 11/01/21.... Not Rated Baa1 BBB+ 4,135,308
6,500,000 Ohio Edison Co.
8 3/4%, due 2/15/98..... BBB+ Baa2 BB+ 6,590,447
14,105,000 Pennsylvania Power &
Light Co.
9 1/4%, due 10/01/19.... Not Rated A3 A- 15,531,282
16,850,000 Pennsylvania Power &
Light Co.
9 3/8%, due 7/01/21..... Not Rated A3 A- 18,689,765
11,750,000 Philadelphia Electric
8 3/4%, due 4/01/22..... BBB+ Baa1 BBB+ 12,398,012
20,950,000 Potomac Electric Power
Co.
9%, due 6/01/21......... AA- A1 A 22,855,674
10,000,000 Public Service Co. of
Colorado
8 3/4%, due 3/01/22..... Not Rated A3 A- 10,628,180
3,000,000 Rochester Gas & Electric
Corp.
9 3/8%, due 4/01/21..... BBB+ Baa1 BBB+ 3,288,567
29,830,000 Texas Utilities Electric
Co.
9 3/4%, due 5/01/21..... Not Rated Baa1 BBB+ 33,288,338
10,000,000 Texas Utilities Electric
Co.
8 3/4%, due 11/01/23.... Not Rated Baa1 BBB+ 10,675,310
12,000,000 UtiliCorp United Inc.
8%, due 3/01/23......... BBB Baa3 BBB 11,828,220
4,000,000 Union Electric Co.
8 3/4%, due 12/01/21.... AA- A1 AA- 4,267,248
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
SCHEDULE OF INVESTMENTS--(CONTINUED)
(UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
RATINGS
--------------------------
STANDARD MARKET
DUFF & AND VALUE
PAR VALUE COMPANY PHELPS MOODY'S POOR'S (NOTE 1)
----------- ------- --------- ------- -------- -------------
<C> <S> <C> <C> <C> <C>
29,780,000 Virginia Electric &
Power Co.
9 3/8%, due 6/01/98..... A A2 A 30,610,415
11,500,000 Virginia Electric &
Power Co.
8 1/4%, due 3/01/25..... A A2 A 11,965,405
-------------
357,558,795
[_] GAS--3.2%
8,875,000 Enron Corp.
9.65%, due 5/15/01...... BBB+ Baa2 BBB+ 9,726,564
6,000,000 Northwest Pipeline Corp.
10.65%, due 11/15/18.... BBB Baa1 BBB 6,403,091
7,885,000 Penzoil Co.
10 1/8, due 11/15/09 Not Rated Baa3 BBB 9,660,394
10,000,000 Phillips Petroleum Co.
9.18%, due 9/15/21...... Not Rated A3 A- 11,098,019
9,500,000 Transco Energy
9 1/8%, due 5/01/98..... BBB Baa2 BBB- 9,732,426
14,500,000 Transcontinental Gas
Pipe Line Corp.
9 1/8%, due 2/01/17..... BBB+ Baa1 BBB 15,151,383
7,000,000 Williams Co.
10 1/4%, due 7/15/20.... BBB Baa2 BBB- 8,937,361
-------------
70,709,238
[_] TELECOMMUNICATION--7.1%
8,000,000 AT & T Corp.
8.35%, due 1/15/25...... AA Aa3 AA- 8,360,000
13,500,000 Bellsouth Capital
Funding Corp.
9 1/4%, due 1/15/98..... AA+ Aa1 AAA 13,731,213
35,428,000 GTE Corp
9 3/8%, due 12/01/00.... A- A3 A 38,344,853
6,000,000 GTE Corp.
10 1/4%, due 11/01/20... A- A3 A 6,859,542
10,000,000 GTE Corp.
8.07%, due 4/15/24...... A- A3 BBB+ 10,410,069
11,995,000 Mountain States
Telephone
9 1/2%, due 5/01/00..... AA- Aa3 A 12,880,686
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
SCHEDULE OF INVESTMENTS--(CONTINUED)
(UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
RATINGS
-----------------------
STANDARD MARKET
DUFF & AND VALUE
PAR VALUE COMPANY PHELPS MOODY'S POOR'S (NOTE 1)
----------- ------- ------ ------- -------- --------------
<C> <S> <C> <C> <C> <C>
13,750,000 New England Telephone &
Telegraph
9%, due 8/01/31.......... AA Aa2 AA 14,952,437
10,000,000 New York Telephone Co.
7 5/8%, due 2/01/23...... A+ A2 A+ 9,893,399
10,000,000 New York Telephone Co.
7%, due 8/15/25.......... A+ A2 A+ 9,202,359
20,740,000 New York Telephone Co.
9 3/8%, due 7/15/31...... A+ A2 A+ 23,083,617
5,000,000 Pacific Bell
8 1/2%, due 8/15/31...... AA- A1 AA- 5,286,575
5,000,000 US West Communications
8 7/8%, due 6/01/31...... AA- Aa3 A 5,382,745
--------------
158,387,495
[_] NON-UTILITY--1.2%
15,700,000 American General Corp.
9 5/8%, due 2/01/18...... A+ A2 AA- 16,675,865
8,000,000 Dayton Hudson Corp.
9 7/8%, due 7/01/20...... A- Baa1 BBB+ 9,834,728
--------------
26,510,593
--------------
Total Bonds (Cost--$608,365,475).................. 613,166,121
--------------
U.S. TREASURY OBLIGATIONS--1.5%
29,000,000 U.S. Treasury Bonds
11 3/4%, due 2/15/01.............................. 34,065,951
--------------
Total U.S. Treasury Obligations (Cost--
$35,325,625)...................................... 34,065,951
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS--0.1%
1,457,369 Federal National Mortgage
Association
8%, due 5/01/05................................... 1,488,794
--------------
Total U. S. Government Agency Obligations (Cost--
$1,506,099)....................................... 1,488,794
--------------
TOTAL INVESTMENTS (Cost--$2,162,878,576)
(101.0%).......................................... $2,263,723,808
==============
</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 notes are an integral part of the financial statements.
9
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
BALANCE SHEET
(UNAUDITED)
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Common stocks (cost $1,516,692,027).......................... $1,613,874,942
Convertible preferred stock (cost $989,350).................. 1,128,000
Bonds (cost $608,365,475).................................... 613,166,121
U.S. Treasury obligations (cost $35,325,625)................. 34,065,951
U.S. Government agency obligations (cost $1,506,099)......... 1,488,794
Interest-bearing deposits with custodian..................... 61,885,454
Receivables:
Securities sold.............................................. 12,312,865
Interest..................................................... 14,998,254
Dividends.................................................... 9,486,380
Pre-paid expenses............................................. 239,102
---------------
Total Assets................................................ $2,362,645,863
===============
LIABILITIES:
Payable for investments purchased............................. $ 3,199,500
Due to Adviser (Note 2)....................................... 3,074,045
Due to Administrator (Note 2)................................. 735,378
Dividends payable on common stock............................. 12,083,820
Dividends payable on remarketed preferred stock............... 1,645,736
Accrued expenses.............................................. 1,806,326
Commercial paper outstanding (Note 6)......................... 97,707,224
---------------
Total Liabilities........................................... 120,252,029
---------------
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 201,396,997 shares issued and outstanding) (Note 4)....... 201,397
Paid-in surplus (Note 4)...................................... 1,791,479,955
Accumulated net realized loss on investments.................. ( 157,953,558)
Undistributed net investment income........................... 7,820,808
Net unrealized appreciation on investments.................... 100,845,232
---------------
Net assets applicable to common stock (equivalent to $8.65
per share based on 201,396,997 shares outstanding).......... 1,742,393,834
---------------
Total Capital (Net Assets).................................. 2,242,393,834
---------------
Total Liabilities and Capital............................... $2,362,645,863
===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest......................................................... $ 29,587,222
Dividends (less withholding tax of $793,402)..................... 72,260,979
------------
Total investment income......................................... 101,848,201
EXPENSES:
Commercial paper interest expense (Note 6 )...................... 2,736,549
Management fees (Note 2)......................................... 6,146,118
Administrative fees (Note 2)..................................... 1,466,493
Transfer agent fees.............................................. 398,200
Custodian fees................................................... 126,700
Remarketing agent fees........................................... 628,472
Shareholder reports.............................................. 271,500
Legal and audit fees............................................. 55,750
Directors' fees (Note 2)......................................... 129,600
Other expenses................................................... 412,655
------------
Total expenses.................................................. 12,372,037
------------
Net investment income........................................... 89,476,164
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments................................. 22,157,378
Net change in unrealized appreciation on investments............. 12,599,770
------------
Net gain on investments.......................................... 34,757,148
------------
Net increase in net assets resulting from operations............. $124,233,312
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED
1997 DECEMBER 31,
(UNAUDITED) 1996
------------------ ------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................... $ 89,476,164 $ 167,128,840
Net realized gain on investments........ 22,157,378 10,386,225
Net change in unrealized appreciation
(depreciation) on investments........... 12,599,770 ( 90,555,515)
--------------- ---------------
Net increase in net assets resulting
from operations........................ 124,233,312 86,959,550
DISTRIBUTIONS TO STOCKHOLDERS FROM:
Net investment income--preferred stock
(Note 5)................................ ( 9,996,810) ( 20,294,342)
Net investment income--common stock
(Note 3)................................ ( 72,267,832) ( 146,738,947)
--------------- ---------------
Total distributions.................... ( 82,264,642) ( 167,033,289)
FROM CAPITAL STOCK TRANSACTIONS (NOTE 4):
Shares issued to common stockholders
from dividend reinvestment.............. 13,981,906 27,186,063
--------------- ---------------
Net increase in net assets derived from
capital share transactions.............. 13,981,906 27,186,063
--------------- ---------------
Total increase (decrease).............. 55,950,576 ( 52,887,676)
TOTAL NET ASSETS:
Beginning of period..................... 2,186,443,258 2,239,330,934
--------------- ---------------
End of period (including undistributed
net investment income of $7,820,808 and
$609,284 respectively).................. $2,242,393,834 $2,186,443,258
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C> <C>
CASH FLOWS FROM (FOR):
OPERATING ACTIVITIES
Interest received............................ $ 30,089,072
Income dividends received.................... 79,304,778
Operating expenses paid (excluding interest). ( 9,944,634)
Interest paid on commercial paper............ ( 2,168,358)
---------------
Net cash provided by operating activities................... $97,280,858
INVESTING ACTIVITIES
Purchase of investment securities............ ( 3,849,703,097)
Proceeds from sale/redemption of investment
securities................................... 3,886,319,490
Net cash used in investing activities....................... 36,616,393
FINANCING ACTIVITIES
Dividends paid............................... ( 85,813,527)
Proceeds from issuance of common stock under
dividend reinvestment plan................... 13,981,906
Change in net proceeds from issuance of
commercial paper............................. ( 653,585)
---------------
Net cash used in financing activities....................... ( 72,485,206)
------------
Net increase in cash and cash equivalents..................... 61,412,045
Cash and cash equivalents--beginning of period................ 473,409
------------
Cash and cash equivalents--end of period...................... $61,885,454
------------
Reconciliation of net investment income to net cash provided
by operating activities:
Net investment income........................................ $89,476,164
Adjustments to reconcile net investment
income to net cash provided by operating
activities:
Decrease in interest receivable............. 501,850
Decrease in dividends receivable............ 7,043,799
Increase in accrued expenses................ 259,045
---------------
Total adjustments.......................................... 7,804,694
------------
Net cash provided by operating activities.................... $97,280,858
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997
(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, 1996, the Fund had tax capital loss carry forwards of
$142,893,126 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
14
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
(e) For the purposes of these semi-annual financial statements, no
adjustments have been made for the estimated returns of capital and
estimated long-term capital gains emanating from the Fund's holdings of
real estate investment trusts (REIT's) as management believes these amounts
are immaterial relative to net asset value per share.
(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 $17,500 per year plus $1,000 per board or committee meeting attended.
Committee Chairmen receive an additional fee of $3,000 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 1997:
<TABLE>
<CAPTION>
RECORD PAYABLE DIVIDEND
DATE DATE PER SHARE
------ ------- ---------
<S> <C> <C>
02-04-97 02-10-97 $.06
02-26-97 03-10-97 .06
03-27-97 04-10-97 .06
</TABLE>
<TABLE>
<CAPTION>
RECORD PAYABLE DIVIDEND
DATE DATE PER SHARE
------ ------- ---------
<S> <C> <C>
04-28-97 05-12-97 $.06
05-28-97 06-10-97 .06
06-26-97 07-10-97 .06
</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 of the Fund's 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.
15
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Transactions in common stock and paid-in surplus during 1996 and for the six
months ended June 30, 1997 were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
----------- --------------
<S> <C> <C>
For the year ended December 31, 1996:
Beginning capitalization........................ 196,502,240 $1,750,513,384
Dividend Reinvestment........................... 3,239,203 27,186,063
----------- --------------
Total capitalization........................... 199,741,443 $1,777,699,447
=========== ==============
For the six months ended June 30, 1997:
Beginning capitalization........................ 199,741,443 $1,777,699,447
Dividend Reinvestment........................... 1,655,554 13,981,906
----------- --------------
Total capitalization........................... 201,396,997 $1,791,681,353
=========== ==============
</TABLE>
(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 3.789% to 4.240% during the
six months ended June 30, 1997.
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
16
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
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 5.35% to 5.80%
during the six months ended June 30, 1997. At June 30, 1997, the Fund had
Notes outstanding of $97,707,224.
(7)INVESTMENT TRANSACTIONS:
For the six months ended June 30, 1997, purchases and sales of investment
securities (excluding short-term securities) were $2,592,065,605 and
$2,527,871,940, respectively. For federal income tax purposes, at June 30,
1997, the gross unrealized depreciation on investments was $45,666,297 and
gross unrealized appreciation was $146,511,530. The cost of investments for
financial reporting and Federal income tax purposes was $2,205,815,947 and
$2,162,878,576, 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 periods indicated:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS
ENDED JUNE FOR THE YEAR ENDED DECEMBER 31
30, 1997 -------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period..... $ 8.44 $ 8.85 $ 7.23 $ 9.65 $ 9.67 $ 9.55
---------- ---------- ---------- ---------- ---------- ----------
Net investment income... 0.45 0.84 0.85 0.82 0.81 0.89
Net realized gain (loss)
and change in unrealized
appreciation/
depreciation on
investments............. 0.17 ( 0.41) 1.62 ( 2.42) 0.09 0.11
---------- ---------- ---------- ---------- ---------- ----------
Total from investment
operations.............. 0.62 0.43 2.47 ( 1.60) 0.90 1.00
Dividends on preferred
stock from net
investment income....... ( 0.05) ( 0.10) ( 0.12) ( 0.10) ( 0.08) ( 0.10)
Dividends on common
stock from net
investment income....... ( 0.36) ( 0.74) ( 0.73) ( 0.72) ( 0.74) ( 0.78)
Dividends on common
stock from net realized
capital gains........... ( 0.00) ( 0.00) ( 0.00) ( 0.00) ( 0.10) ( 0.00)
---------- ---------- ---------- ---------- ---------- ----------
Total distributions..... ( 0.41) ( 0.84) ( 0.85) ( 0.82) ( 0.92) ( 0.88)
Net asset value:
End of period........... $ 8.65 $ 8.44 $ 8.85 $ 7.23 $ 9.65 $ 9.67
========== ========== ========== ========== ========== ==========
Per share market value:
End of period........... $ 8.75 $ 8.625 $ 9.00 $ 7.88 $10.50 $10.50
Ratio of expenses to
average net assets...... 1.14%* 1.18% 1.23% 1.18% 1.04% 1.04%
Total investment return. 5.82%* 4.68% 24.77% (18.04%) 8.43% 13.81%
Ratio of net investment
income to average net
assets.................. 8.28%* 7.79% 8.13% 7.66% 6.09% 6.99%
Portfolio turnover rate. 115.47% 226.21% 188.28% 129.56% 56.11% 43.30%
Average commission rate
paid per share.......... $.0223 $0.0232 ** ** ** **
Net assets, end of
period
(000s omitted).......... $2,242,394 $2,186,443 $2,239,331 $1,896,090 $2,017,833 $1,997,984
</TABLE>
- -------
* Annualized
** Not required for periods beginning before September 1, 1995
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
Executive Vice President and Chief Investment Officer
T. BROOKS BEITTEL, CFA
Senior Vice President, Secretary and Treasurer
NATHAN I. PARTAIN, CFA
Senior Vice President
JOSEPH C. CURRY, JR.
Vice President
MICHAEL SCHATT
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.
2ND
SEMI-ANNUAL
REPORT
JUNE 30, 1997
[ARTWORK]
