DUFF & PHELPS UTILITIES INCOME INC, N-30D, 1997-02-27

DUFF & PHELPS UTILITIES INCOME INC
N-30D, 1997-02-27

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<PAGE>

DEAR FELLOW SHAREHOLDER:

PERFORMANCE REVIEW: Calendar 1996 marked completion of just under ten years
of operation for Duff & Phelps Utilities Income Inc. The Fund again paid
twelve monthly six cent per share dividends. In addition, 1996 was the eighth
of the last nine years that your Fund paid a year-end "extra" dividend. For
1996 the "extra" was two cents per share. The six cent monthly rate, without
compounding, would be seventy-two cents annualized or an 8.35% common stock
dividend yield based on the December 31, 1996 closing price of $8.625 per
share. That yield compares favorably with the 1996 year-end 5.33% yield on the
Dow Jones Utility Index, the 5.05% yield on the S&P Utilities Index, and the
3.40% yield of the Lipper Utility Funds.

During calendar year 1996, both electric and telecommunication companies
securities were buffeted by two major factors. First, these utility securities
continued to be sensitive to changes in long term interest rates. Second,
continued investor concerns about the outcome of competition in the
telecommunication and electric generation businesses depressed valuations.

Depressed valuations are particularly noteworthy among electric companies as
they move into a more competitive environment. The basic investor concern is
that as consumer access to a variety of electricity suppliers increases, the
price for electricity will fall. Already many utilities are discounting prices
to large customers in return for long term contracts. Also, many large
industrial users have threatened to build their own generation plants unless
they get favorable electric rate treatment.

In response to the increasing competitive environment, the Fund has made
investments in faster growing companies in the telecommunication and power
industries both domestically and internationally, and in real estate
investment trusts (REITs) to enhance income to the shareholder. High quality
investments continue to be a hallmark of the portfolio.

Your Fund had a total return for the year 1996 of 4.7%. By comparison, the
broad based S&P Utilities Index had a total return of 3.1% for the year. The
S&P Utilities Index is comprised of forty utility companies. Nineteen of the
twenty largest capitalized electric companies are represented in the S&P
Utilities Index. Due to the size of your Fund ($2.4 billion in assets), the
portfolio tends to focus on these larger capitalization stocks in order to
obtain liquidity. This capitalization bias also provides the Fund geographic
diversity.

Investors are also interested in performance relative to inflation--the
maintenance of purchasing power. The total return for the Fund's shareholders
compared with the Consumer Price Index is shown below. Shareholder performance
is net of expenses and assumes that all distributions were reinvested in
accordance with the terms of the Fund's dividend reinvestment plan and rights
offerings. Fund shareholders have had returns dramatically higher than
inflation.
<PAGE>

[BAR CHARTS APPEAR HERE]

DNP* INFLATION**
------ -----------
1 Year Ended 12/31/96 4.7% 3.3%
Since 1/87 Inception 111.3% 43.6%

- --------
*Total return of a Fund's shareholder in the Fund's Automatic Dividend
Reinvestment Plan.
**Consumer Price Index.

IS THE INTERNET A NEW SOURCE OF TELECOMMUNICATIONS COMPETITION?--YOU, YOUR
COMPUTER, AND THE PHONE COMPANY: The Internet, which began as computer links
between corporate research, national defense, and academia, has matured with
the personal computer industry into an active information and goods
marketplace for anyone with access to a computer. The maturation was nurtured
by the FCC (Federal Communications Commission) which gave Internet service
providers access to the local telephone network without charge in 1983. In
essence, computer based Internet customers use the same local telephone
network facilities as telephone voice callers without paying a telephone
company fee. Further, some Internet users are able to pay a flat hourly
Internet fee to use the network for making long distance calls, again avoiding
traditional telephone charges.

Despite the fact that local phone companies profit from installing second
phone lines to frequent Internet user locations, the ability to capture a fee
for telephone wire use is a much larger revenue item and remains a high
priority among the phone companies. As Internet usage grows, are phone
companies in real danger of losing significant telecommunications business and
fees to the Internet? We think not yet given the current technology. In terms
of ease of use, convenience, and service quality, you cannot beat your
traditional local and long distance telephone service provider.

Contrary to what one might think given the current national trend to
deregulate vast industries, such as telecommunications, the Federal Government
is studying how to deal with and regulate the Internet. A team of civil
servants has been selected to, among other things, investigate options for a
tax collection system capable of

2
<PAGE>

capturing revenues from burgeoning Internet commerce. Further, the FCC has
recently indicated it would study system changes to allow local telephone
companies to charge Internet users access charges. The days of "free" Internet
telephone may be numbered, and the days of regulated Internet communication
competition beginning.

Your Fund managers see industry evolution 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.

QUARTERLY BOARD MEETING: At the January 1997 Board meeting, Richard J.
Spletzer (59) was promoted to Executive Vice President from Senior Vice
President. Mr. Spletzer remains Chief Investment Officer. In addition, the
Board of Directors elected Mr. Nathan I. Partain (40) as Senior Vice President
and Assistant Secretary, and Mr. Michael Schatt (49) as Vice President.

Also at the quarterly Board meeting, the Board of Directors declared the
following monthly dividends:

<TABLE>
<CAPTION>
DIVIDENDS PER SHARE RECORD DATE PAYABLE DATE
------------------- ----------- ------------
<S> <C> <C>
6 cents 2/4/97 2/10/97
6 cents 2/28/97 3/10/97
6 cents 3/31/97 4/10/97
</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 noiminee.

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.

/s/ Claire V. Hansen /s/ Calvin J. Pedersen

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, 1996, 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, 1996, 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 audit 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, 1996, 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 31, 1997

4
<PAGE>

DUFF & PHELPS UTILITIES INCOME INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
COMMON STOCKS--69.4%

<TABLE>
<CAPTION>
MARKET
VALUE
SHARES COMPANY (NOTE 1)
--------- ------- --------------
<C> <S> <C>
ELECTRIC--45.5%
1,733,000 Baltimore Gas & Electric Co......................... $ 46,357,750
1,818,600 Boston Edison Co.................................... 48,874,875
2,017,900 Carolina Power & Light Co........................... 73,653,350
1,036,000 Central and South West Corp......................... 26,547,500
1,635,000 CINergy Corp........................................ 54,568,125
705,000 CIPSCO Inc.......................................... 25,468,125
1,352,700 CMS Energy Corp..................................... 45,484,537
1,265,000 DQE Incorporated.................................... 36,685,000
215,500 DTE Energy Co....................................... 6,976,812
780,000 Duke Power Co....................................... 36,075,000
1,025,900 Eastern Utilities Associates........................ 17,825,012
550,000 Edison International................................ 10,931,250
560,000 Empresa National De Electricidad ADR................ 39,200,000
1,447,800 FPL Group Inc....................................... 66,598,800
2,050,000 GPU Inc............................................. 68,931,250
1,865,400 Illinova Corp....................................... 51,298,500
1,600,800 IPALCO Enterprises Inc.............................. 43,621,800
1,141,800 LG&E Energy Corp.................................... 27,974,100
686,500 National Power PLC ADR.............................. 23,255,188
1,278,300 NIPSCO Industries Inc............................... 50,652,638
1,600,000 PECO Energy Co...................................... 40,400,000
302,000 Powergen PLC ADR.................................... 11,929,000
3,341,700 Southern Co......................................... 75,605,963
1,319,700 TECO Energy Inc..................................... 31,837,762
825,000 Texas Utilities Co.................................. 33,618,750
--------------
994,371,087
GAS--2.0%
661,600 Brooklyn Union Gas Co............................... 19,930,700
225,000 CMS Energy Corp. Class G............................ 4,134,375
444,700 NICOR Inc........................................... 15,898,025
200,000 Washington Gas Light Co............................. 4,525,000
--------------
44,488,100
</TABLE>

The accompanying notes are an integral part of the financial statements.

5
<PAGE>

DUFF & PHELPS UTILITIES INCOME INC.
SCHEDULE OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES COMPANY (NOTE 1)
--------- ------- --------------
<C> <S> <C>
TELECOMMUNICATION--12.7%
1,143,100 Ameritech Corp...................................... $ 69,300,438
565,000 Bellsouth Corp...................................... 22,811,875
115,800 British Telecommunications PLC ADR.................. 7,946,775
50,000 Frontier Corp....................................... 1,131,250
600,000 GTE Corp............................................ 27,300,000
150,000 Portugal Telecom SA ADS............................. 4,237,500
200,000 Royal PTT Nederland ADS............................. 7,575,000
1,318,615 SBC Communications Inc.............................. 68,238,326
664,400 Telefonica De Espana ADS............................ 46,009,700
575,000 Sprint Corp......................................... 22,928,125
--------------
277,478,989
NON-UTILITY--9.2%
50,000 Arden Realty Inc.................................... 1,387,500
253,800 CBL & Associates Properties Inc..................... 6,567,075
200,000 Centerpoint Properties Corporation.................. 6,550,000
120,000 Chelsea GCA Realty Inc.............................. 4,155,000
100,000 Colonial Properties Trust........................... 3,037,500
400,000 Crescent Real Estate Equities Inc................... 21,100,000
150,000 Developers Diversified Realty Corp.................. 5,568,750
400,000 Equity Residential Properties Trust................. 16,500,000
478,100 First Industrial Realty Trust....................... 14,522,288
426,300 Gables Residential Trust............................ 12,362,700
455,000 Highwoods Properties Inc............................ 15,356,250
200,000 Meditrust........................................... 8,000,000
175,000 Macerich Co......................................... 4,571,875
154,400 Merry Land & Investment Inc......................... 3,319,600
590,000 Nationwide Health Properties........................ 14,307,500
250,000 Patriot American Hospitality........................ 10,781,250
200,000 Reckson Associates Realty Corp...................... 8,450,000
275,000 Starwood Lodging Trust.............................. 15,159,375
273,400 TriNet Corporate Realty Trust....................... 9,705,700
200,000 Urban Shopping Centers Inc.......................... 5,800,000
160,600 Vornado Realty Trust................................ 8,431,500
150,000 Weeks Corp.......................................... 4,987,500
--------------
200,621,363
--------------
Total Common Stocks (Cost--$1,437,647,045).......... 1,516,959,539
--------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

6
<PAGE>

<C> <S> <C>
NON-UTILITY--0.0%
47,000 Tanger Factory Outlet Centers Inc. Series A............. $1,157,375
----------
Total Convertible Preferred Stocks (Cost--$989,350)..... 1,157,375
----------
</TABLE>

BONDS--27.9%
<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--16.1%
$24,920,000 Alabama Power Co.
9%, due 12/01/24........ AA- A1 A+ 27,570,712
14,500,000 Commonwealth Edison Co.
9 3/4%, due 2/15/20..... BBB Baa2 BBB 16,003,678
7,500,000 Commonwealth Edison Co.
9 7/8%, due 6/15/20..... BBB Baa2 BBB 8,518,161
10,000,000 Commonwealth Edison Co.
8 3/8%, due 2/15/23..... BBB Baa2 BBB 10,179,860
35,000,000 CTC Mansfield Funding
Corp.
10 5/8%, due 9/30/16.... Not Rated Aaa AAA 37,421,262
8,000,000 Duquesne Light Co.
7.55%, due 6/15/25...... A- Baa1 BBB+ 7,748,672
5,000,000 Gulf States Utilities
8.94%, due 1/01/22...... Not Rated Baa3 BBB- 5,189,220
20,000,000 Illinois Power Co.
8%, due 2/15/23......... BBB+ Baa1 BBB 20,025,000
15,000,000 New York State Electric
& Gas Corp.
9 7/8%, due 11/01/20.... Not Rated Baa1 BBB+ 16,264,453
4,000,000 New York State Electric
& Gas Corp.
8 7/8%, due 11/01/21.... Not Rated Baa1 BBB+ 4,217,808
6,500,000 Ohio Edison Co.
8 3/4%, due 2/15/98..... BBB+ Baa2 BBB- 6,651,794
</TABLE>

The accompanying notes are an integral part of the financial statements.

7
<PAGE>

DUFF & PHELPS UTILITIES INCOME INC.
SCHEDULE OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
RATINGS
--------------------------
STANDARD MARKET
DUFF & AND VALUE
PAR VALUE COMPANY PHELPS MOODY'S POOR'S (NOTE 1)
----------- ------- --------- ------- -------- ------------
<C> <S> <C> <C> <C> <C>
$14,105,000 Pennsylvania Power &
Light Co.
9 1/4%, due 10/01/19..... Not Rated A3 A- $ 15,412,829
16,850,000 Pennsylvania Power &
Light Co.
9 3/8%, due 7/01/21...... Not Rated A3 A- 18,636,217
26,750,000 Philadelphia Electric
8 3/4%, due 4/01/22...... Not Rated Baa1 BBB+ 28,072,998
20,950,000 Potomac Electric Power
Co.
9%, due 6/01/21.......... AA- A1 A 23,228,207
3,000,000 Rochester Gas & Electric
Corp.
9 3/8%, due 4/01/21...... BBB+ Baa1 BBB+ 3,321,354
29,830,000 Texas Utilities Electric
Co.
9 3/4%, due 5/01/21...... Not Rated Baa2 BBB+ 33,783,754
10,000,000 Texas Utilities Electric
Co.
8 3/4%, due 11/01/23..... Not Rated Baa2 BBB+ 10,693,939
12,000,000 UtiliCorp United Inc.
8%, due 3/01/23.......... BBB Baa3 BBB 12,014,507
4,000,000 Union Electric Co.
8 3/4%, due 12/01/21..... AA- A1 AA- 4,408,024
29,780,000 Virginia Electric & Power
Co.
9 3/8%, due 6/01/98...... A A2 A 31,031,532
11,500,000 Virginia Electric & Power
Co.
8 1/4%, due 3/01/25...... A A2 A 12,129,692
------------
352,523,673
GAS--3.4%
13,000,000 Enron Corp.
8 1/2%, due 2/01/00...... BBB+ Baa2 BBB+ 12,896,791
8,875,000 Enron Corp.
9.65%, due 5/15/01....... BBB+ Baa2 BBB+ 9,859,742
6,000,000 Northwest Pipeline Corp.
10.65%, due 11/15/18..... BBB+ Baa1 BBB 6,402,731
10,000,000 Phillips Petroleum Co.
9.18%, due 9/15/21....... Not Rated A3 A- 11,184,039
9,500,000 Transco Energy
9 1/8%, due 5/01/98...... BBB Baa2 BBB- 9,858,121
</TABLE>

The accompanying notes are an integral part of the financial statements.

8
<PAGE>

DUFF & PHELPS UTILITIES INCOME INC.
SCHEDULE OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
RATINGS
-----------------------
STANDARD MARKET
DUFF & AND VALUE
PAR VALUE COMPANY PHELPS MOODY'S POOR'S (NOTE 1)
----------- ------- ------ ------- -------- ------------
<C> <S> <C> <C> <C> <C>
$14,500,000 Transcontinental Gas Pipe Line
Corp.
9 1/8%, due 2/01/17............... BBB+ Baa1 BBB $ 15,153,513
7,000,000 Williams Co.
10 1/4%, due 7/15/20.............. BBB Baa2 BBB- 9,070,754
------------
74,425,691
TELECOMMUNICATION--7.2%
8,000,000 AT & T Corp.
8.35%, due 1/15/25................ AA+ Aa3 AA 8,522,776
13,500,000 Bellsouth Capital Funding Corp.
9 1/4%, due 1/15/98............... AA+ Aa1 AAA 13,939,572
16,500,000 GTE Corp.
8.85%, due 3/01/98................ A- A3 BBB+ 16,994,142
17,428,000 GTE Corp.
9 3/8%, due 12/01/00.............. A- A3 BBB+ 19,134,062
6,000,000 GTE Corp.
10 1/4%, due 11/01/20............. A- A3 BBB+ 6,835,955
11,995,000 Mountain States Telephone
9 1/2%, due 5/01/00............... AA Aa3 AA- 13,062,626
13,750,000 New England Telephone & Telegraph
9%, due 8/01/31................... AA Aa2 AA- 15,230,269
10,000,000 New York Telephone Co.
7 5/8%, due 2/01/23............... A A2 A 9,962,500
20,000,000 New York Telephone Co.
7%, due 8/15/25................... A A2 A 18,598,578
20,740,000 New York Telephone Co.
9 3/8%, due 7/15/31............... A A2 A 23,457,913
5,000,000 Pacific Bell
8 1/2%, due 8/15/31............... AA- A1 AA- 5,303,909
5,000,000 US West Communications
8 7/8%, due 6/01/31............... AA- Aa3 A+ 5,424,940
------------
156,467,242
</TABLE>

The accompanying notes are an integral part of the financial statements.

9
<PAGE>

U.S. TREASURY OBLIGATIONS--1.6%
29,000,000 U.S. Treasury Bonds
11 3/4%, due 2/15/01................................ 34,827,201
--------------
Total U.S. Treasury Obligations (Cost--
$35,325,625)........................................ 34,827,201
--------------

U.S. GOVERNMENT AGENCY OBLIGATIONS--0.1%
1,659,167 Federal National Mortgage Association
8%, due 5/01/05..................................... 1,689,240
--------------
Total U.S. Government Agency Obligations (Cost--
$1,714,646)......................................... 1,689,240
--------------

COMMERCIAL PAPER--1.4%
30,000,000 General Electric Capital Corp.
5.50%, due 1/07/97.................................. 29,972,500
--------------
Total Commercial Paper (Amortized cost--
$29,972,500)........................................ 29,972,500
--------------
TOTAL INVESTMENTS (Cost--$2,106,500,018) (100.4%)... $2,194,745,480
==============
</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.

10
<PAGE>

DUFF & PHELPS UTILITIES INCOME INC.
BALANCE SHEET
DECEMBER 31, 1996

<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Common stocks (cost $1,437,647,045).......................... $1,516,959,539
Convertible preferred stock (cost $989,350).................. 1,157,375
Bonds (cost $600,850,852).................................... 610,139,625
U.S. Treasury obligations (cost $35,325,625)................. 34,827,201
U.S. Government agency obligations (cost $1,714,646)......... 1,689,240
Commercial paper (amortized cost $29,972,500)................ 29,972,500
Interest-bearing deposits with custodian...................... 473,409
Receivables:
Securities sold.............................................. 165,296,837
Interest..................................................... 15,495,521
Dividends.................................................... 16,530,179
Pre-paid expenses............................................. 52,300
---------------
Total Assets................................................ $2,392,593,726
===============
LIABILITIES:
Payable for investments purchased............................. $ 85,341,315
Due to Adviser (Note 2)....................................... 3,076,344
Due to Administrator (Note 2)................................. 739,682
Dividends payable on common stock............................. 15,979,316
Dividends payable on remarketed preferred stock............... 1,299,126
Accrued expenses.............................................. 1,353,877
Commercial paper outstanding (Note 6)......................... 98,360,808
---------------
Total Liabilities........................................... 206,150,468
---------------
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 199,741,443 shares issued and outstanding) (Note 4)....... 199,741
Paid-in surplus (Note 4)...................................... 1,777,499,706
Accumulated net realized loss on investments.................. ( 180,110,936)
Undistributed net investment income........................... 609,285
Net unrealized appreciation on investments.................... 88,245,462
---------------
Net assets applicable to common stock (equivalent to $8.44
per share based on 199,741,443 shares outstanding).......... 1,686,443,258
---------------
Total Capital (Net Assets).................................. 2,186,443,258
---------------
Total Liabilities and Capital............................... $2,392,593,726
===============
</TABLE>

The accompanying notes are an integral part of the financial statements.

11
<PAGE>

DUFF & PHELPS UTILITIES INCOME INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest....................................................... $ 59,253,073
Dividends (less withholding tax of $1,344,225)................. 133,108,024
-------------
Total investment income....................................... 192,361,097

EXPENSES:

Commercial paper interest expense (Note 6)..................... 6,215,933
Management fees (Note 2)....................................... 12,254,315
Administrative fees (Note 2)................................... 2,944,545
Transfer agent fees............................................ 714,200
Custodian fees................................................. 286,800
Remarketing agent fees......................................... 1,270,833
Shareholder reports............................................ 549,000
Legal and audit fees........................................... 159,950
Directors' fees (Note 2)....................................... 201,400
Other expenses................................................. 635,281
-------------
Total expenses................................................ 25,232,257
-------------
Net investment income......................................... 167,128,840

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

Net realized gain on investments............................... 10,386,225
Net change in unrealized appreciation on investments........... ( 90,555,515)
-------------
Net loss on investments....................................... ( 80,169,290)
-------------
Net increase in net assets resulting from operations.......... $ 86,959,550
=============
</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
--------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
FROM OPERATIONS:

Net investment income........................ $ 167,128,840 $ 164,486,063
Net realized gain (loss) on investments..... 10,386,225 11,609,834
Net change in unrealized appreciation
(depreciation) on investments............... ( 90,555,515) 305,307,239
--------------- ---------------
Net increase in net assets resulting from
operations................................. 86,959,550 481,403,136

DISTRIBUTIONS TO STOCKHOLDERS FROM:

Net investment income--preferred stock (Note
5).......................................... ( 20,294,342) ( 22,621,518)
Net investment income--common stock (Note
3).......................................... ( 146,738,947) ( 142,377,331)
--------------- ---------------
Total distributions........................ ( 167,033,289) ( 164,998,849)

FROM CAPITAL STOCK TRANSACTIONS (NOTE 4):

Shares issued to common stockholders from
dividend reinvestment....................... 27,186,063 26,836,422
--------------- ---------------
Net increase in net assets derived from
capital share transactions.................. 27,186,063 26,836,422
--------------- ---------------
Total increase (decrease).................. ( 52,887,676) 343,240,709

TOTAL NET ASSETS:

Beginning of year........................... 2,239,330,934 1,896,090,225
--------------- ---------------
End of year (including undistributed net
investment income of $609,285 and $513,734
respectively)............................... $2,186,443,258 $2,239,330,934
=============== ===============
</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, 1996

<TABLE>
<S> <C> <C>
CASH FLOWS FROM (FOR):
OPERATING ACTIVITIES
Interest received.............................. $ 59,709,844
Income dividends received...................... 127,243,954
Operating expenses paid (excluding interest)... ( 18,718,205)
Interest paid on commercial paper.............. ( 6,110,998)
--------------
Net cash provided by operating activities.................... $162,124,595
INVESTING ACTIVITIES
Purchase of investment securities.............. (5,727,593,679)
Proceeds from sale/redemption of investment
securities..................................... 5,687,336,013
Return of capital on investments............... 3,220,304
Long-term capital gains dividends received..... 373,891
--------------
Net cash used in investing activities........................ ( 36,663,471)
FINANCING ACTIVITIES
Dividends paid................................. ( 165,383,848)
Proceeds from issuance of common stock under
dividend reinvestment plan..................... 27,186,063
Change in net proceeds from issuance of
commercial paper............................... ( 14,949,804)
--------------
Net cash used in financing activities........................ ( 153,147,589)
-------------
Net decrease in cash and cash equivalents...................... ( 27,686,465)
-------------
Cash and cash equivalents--beginning of year................... 28,159,874
-------------
Cash and cash equivalents--end of year......................... $ 473,409
=============
Reconciliation of net investment income to net
cash provided by operating activities:
Net investment income......................................... $167,128,840
Adjustments to reconcile net investment income
to net cash provided by operating activities:..
Decrease in interest receivable............... 456,772
Increase in dividends receivable.............. ( 5,864,071)
Increase in accrued expenses.................. 403,054
--------------
Total adjustments........................................... ( 5,004,245)
-------------
Net cash provided by operating activities..................... $162,124,595
=============
</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, 1996

(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 carryforwards 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

15
<PAGE>

DUFF & PHELPS UTILITIES INCOME INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996

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.

(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 1996:

<TABLE>
<CAPTION>
RECORD PAYABLE DIVIDEND
DATE DATE PER SHARE
------ ------- ---------
<S> <C> <C>
01-31-96 02-12-96 $.06
02-29-96 03-11-96 .06
03-29-96 04-10-96 .06
04-30-96 05-10-96 .06
05-31-96 06-10-96 .06
06-28-96 07-10-96 .06
</TABLE>
<TABLE>
<CAPTION>
RECORD PAYABLE DIVIDEND
DATE DATE PER SHARE
------ ------- ---------
<S> <C> <C>
07-31-96 08-12-96 $.06
08-30-96 09-10-96 .06
09-30-96 10-10-96 .06
10-31-96 11-12-96 .06
11-29-96 12-10-96 .06
12-31-96 01-10-97 .08
</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.

16
<PAGE>

DUFF & PHELPS UTILITIES INCOME INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996

Transactions in common stock and paid-in surplus during 1995 and 1996 were
as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31 DECEMBER 31
-------------------------- --------------------------
1995 1996
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Beginning capitalization. 193,221,697 $1,723,676,962 196,502,240 $1,750,513,384
Dividend reinvestment.... 3,280,543 26,836,422 3,239,203 27,186,063
----------- -------------- ----------- --------------
Total capitalization.... 196,502,240 $1,750,513,384 199,741,443 $1,777,699,447
=========== ============== =========== ==============
</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 3.800% to 4.385% during the
year ended December 31, 1996.

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 4.93%
to 5.61% during the year ended December 31, 1996. At December 31, 1996, the
Fund had Notes outstanding of $98,360,808.

(7) INVESTMENT TRANSACTIONS:

For the year ended December 31, 1996, purchases and sales of investment
securities (excluding short-term securities) were $4,879,330,059 and
$4,866,319,355, respectively. For federal income tax purposes, at December 31,
1996, the gross unrealized depreciation on investments was $65,646,446 and
gross unrealized appreciation was $110,959,120. The cost of investments for
financial reporting and Federal income tax purposes was $2,106,500,018 and
$2,149,432,806, 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
-----------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of year....... $ 8.85 $ 7.23 $ 9.65 $ 9.67 $ 9.55 $ 8.29
------ ------ ------ ------ ------ ------
Net investment income.... 0.84 0.85 0.82 0.81 0.89 0.95
Net realized gain (loss)
and change in unrealized
appreciation/depreciation ( 0.41) 1.62 ( 2.42) 0.09 0.11 1.25
on investments........... ------- ---- ------- ---- ---- ----
Total from investment
operations............... 0.43 2.47 ( 1.60) 0.90 1.00 2.20
Dividends on preferred
stock from net investment
income ( 0.10) ( 0.12) ( 0.10) ( 0.08) ( 0.10) ( 0.17)
Dividends on common stock
from net investment
income ( 0.74) ( 0.73) ( 0.72) ( 0.74) ( 0.78) ( 0.77)
Dividends on common stock
from net realized capital ( 0.00) ( 0.00) ( 0.00) ( 0.10) ( 0.00) ( 0.00)
gains.................... ------- ------- ------- ------- ------- -------
Total distributions..... ( 0.84) ( 0.85) ( 0.82) ( 0.92) ( 0.88) ( 0.94)
Net asset value:
End of year............. $ 8.44 $ 8.85 $ 7.23 $ 9.65 $ 9.67 $ 9.55
====== ====== ====== ====== ====== ======
Per share market value:
End of year............. $8.625 $ 9.00 $ 7.88 $10.50 $10.50 $10.00
Ratio of expenses to
average net assets....... 1.18% 1.23% 1.18% 1.04% 1.04% 1.17%
Total investment return.. 4.68% 24.77% (18.04%) 8.43% 13.81% 24.56%
Ratio of net investment
income to average net
assets................... 7.79% 8.13% 7.66% 6.09% 6.99% 7.75%
Portfolio turnover rate.. 226.21% 188.28% 129.56% 56.11% 43.30% 41.09%
Average commission rate
paid per share........... $0.0232 ** ** ** ** **
Net assets, end of year
(000s omitted)........... $2,186,443 $2,239,331 $1,896,090 $2,017,833 $1,997,984 $1,863,427
</TABLE>
- --------
**Not required for years 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
Senior Vice President, Secretary and Treasurer

NATHAN I. PARTAIN
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.

[LOGO]

ANNUAL REPORT

DECEMBER 31, 1996