<PAGE>
Dear Fellow Shareholders:
Performance Review: During the first half of 1999, yields on long term U.S.
Government bonds rose almost one percent as investors anticipated the Federal
Reserve's move on June 30 to modestly raise the interest rate at which banks
borrow from each other (the federal funds rate). This was a preemptive move,
in that inflation remains low. The interest rate sensitivity of utility
securities produced reduced valuations for the period. For the first half of
1999, your Fund had a total return (market price change plus income) of -1.9%.
In comparison, the Standard and Poor's Utilities Index had a total return of
1.1%. For the year ending June 30, 1999 the total return for your Fund was
10.5% versus 8.6% for the Standard and Poor's Utilities Index.
The income portion of return came in the form of six monthly 6.5-cent per
share dividends. The Fund has as its objective current income and is dedicated
to the continuity of dividends. The 6.5-cent per month dividend, without
compounding, would be 78 cents annualized or a 7.34% common stock dividend
yield based on the June 30, 1999 closing market price of $10.625. That yield
compares favorably with the quarter end 3.91% yield of the Standard &Poor's
Utilities Index.
Telecommunications--The Small Fish Get Bigger While the Big Fish Get
Gigantic: The merger and acquisition trends in the telecommunications industry
showed no signs of subsiding in the second quarter. Grabbing the attention of
investors and the media were the two competing bids of Global Crossing and
Qwest for U S WEST and Frontier Corp. In the end, the bidders split the prize
and both got what they wanted the most. Global Crossing added a long distance
network in the U.S. (Frontier) to its undersea cables, while Qwest bought U S
WEST's local assets to enable it to provide end-to-end capabilities in at
least part of the country.
We see no end to the rapid consolidation in the telecommunications industry.
This is driven by the fact that no company owns all the assets they need to
provide a full-service bundle--local and long distance, wire line and
wireless, and adequate bandwidth for business data transmission and internet
access. MCI WORLDCOM comes the closest but it still lacks a wireless offering.
AT&T was missing the "last mile" of wire to consumers and decided to go the
cable route, spending some $120 billion to fill out its service offering. The
regional Bell operating companies through their horizontal mergers (SBC
Communications/Ameritech and Bell Atlantic/GTE) have created sizeable scale
and scope in the local access segment of the market but need regulatory
approval to do more. The recent move to combine emerging network carriers that
sport high-capacity fiber assets with traditional telephone companies that
have revenue and cash flow is sure to continue. In the end, we still believe
the local telephone companies have assets that are currently undervalued by
the market. As a result, your Fund continues to maintain a heavy weighting in
this sector.
Electric Utilities--The Heat is On: Merger and acquisition activity has been
proceeding at a scorching pace, and the Northeast has been scorched by a
record-breaking heat wave.
During the first six months of 1999 there have been 13 announced mergers or
acquisitions, compared to just 10 deals for all of 1998. Five of the recently
announced transactions are electric to electric combinations, and the
remainder are convergence (electric to gas) combinations. We expect the
accelerated pace to continue as the smaller players bulk up (or sell out)
while competition increases and the larger players dash for gas assets.
One of the most interesting of the proposed transactions is NiSource's (NI)
hostile bid for Columbia Energy Group (CG). NI (an Indiana-based electric and
gas utility) has made an unsolicited $68 per share tender offer for CG (a
Midwest-based gas distribution utility and pipeline operator). CG's Board of
Directors has firmly rejected
<PAGE>
the bid. However, NIPSCO has emphasized that the $68 offer price is above CG's
historical high ($60), and at a substantial premium to the pre-announcement
trading price ($56). NI is counting on the fact that 82% of CG's stock is
institutionally held. The goal is to garner support from the top 10 to 20
shareholders (representing over 50% of CG's outstanding shares) and force CG
to the negotiating table. Given the difficulties in completing a hostile
acquisition in the utility industry, it is unclear as to whether NI will be
successful. But what is clear is that CG is now in play, and if not NI then
another player will probably win the prize.
Weather during the second quarter was milder than normal throughout most of
the country. However, it was the week subsequent to the quarter's end when
things really heated up in the Northeast. The scorching hot weather led to
record peak load levels and resulted in service interruptions, voltage cuts,
and rolling blackouts, primarily in New York, New Jersey, and Delaware. Unlike
last summer's Midwest power crisis, lack of capacity was not the problem. Most
generating units were operational, and there was ample electricity available
in the wholesale market. The system problems stemmed primarily from several
substations overheating and failing. While there was no major physical damage,
Consolidated Edison (ED) has definitely incurred the most political damage.
New York City's Mayor and other political heavyweights have publicly
criticized ED due to an extended outage in upper Manhattan, and the City is
actually suing the Company for damages. The irony is that in recent years ED
has had one of the best service reliability records in the industry. While we
expect the direct financial consequences to be minimal, it may take ED years
to rebuild the political goodwill.
REITs--"Smart" Money Gets In: A rally in April and May was initiated by
Warren Buffett's purchases in some equity REITs and a few management-led
leveraged buy-outs. Not only is there good total return potential from the
sector, but equity REITs have dividend yields which are high, secure, and
compelling. The average dividend yield of the NAREIT (National Association of
Real Estate Investment Trusts) benchmark was 7.34% on June 30, 1999. Both
capital flows and a real estate market in equilibrium are moving earnings
growth rates to long term sustainable levels. We continue to position the
portfolio with the expectation that 50% or more of the total return will come
from dividend yield and growth in dividends. Our research continues to support
an estimated 12-14% total return for the NAREIT benchmark in 1999.
Board of Directors Meeting: A regular meeting of the Board of Directors was
held July 23, 1999. At that meeting, the Board declared the following monthly
dividends:
<TABLE>
<CAPTION>
Dividends Per Share Record Date Payable Date
------------------- ----------- ------------
<S> <C> <C>
6.5 cents 8/31/99 9/10/99
6.5 cents 9/30/99 10/12/99
6.5 cents 10/29/99 11/10/99
</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.
Those shareholders whose shares are held for them by a brokerage house or
nominee in "street-name" may not participate in the Fund's automatic dividend
reinvestment plan inasmuch as the Fund cannot communicate
2
<PAGE>
directly with those shareholders since the Fund does not have their 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 at 1-800-432-8224 or http://stock.bankofny.com.
Visit us on the Web--You can obtain the most recent shareholder financial
report and dividend information at our web site http://www.duffutility.com.
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>
DUFF & PHELPS UTILITIES INCOME INC.
SCHEDULE OF INVESTMENTS
(UNAUDITED)
June 30, 1999
COMMON STOCKS--75.9%
<TABLE>
<CAPTION>
Market
Value
Shares Company (Note 1)
------ ------- -----------
[_] ELECTRIC--34.9%
<C> <S> <C>
1,318,600 BEC Energy............................................. $54,392,250
1,017,900 Carolina Power & Light Co. ............................ 43,578,844
1,352,700 CMS Energy Corp. ...................................... 56,644,313
450,000 Consolidated Edison Inc. .............................. 20,362,500
1,265,000 DQE Incorporated....................................... 50,758,125
1,000,000 Duke Energy Corp. ..................................... 54,375,000
2,358,400 Edison International................................... 63,087,200
400,000 Electricidade DePortugal ADR........................... 14,350,000
1,593,400 Endesa S.A. ........................................... 33,859,750
1,005,000 Entergy Corp. ......................................... 31,406,250
2,000,000 FirstEnergy Corp. ..................................... 62,000,000
1,200,100 FPL Group Inc. ........................................ 65,555,462
686,500 National Power PLC ADR................................. 21,109,875
1,122,800 New Century Energies Inc. ............................. 43,578,675
2,256,600 NiSource Inc. ......................................... 58,248,487
1,120,000 Pinnacle West Capital Corp. ........................... 45,080,000
302,000 Powergen PLC ADR....................................... 12,948,250
1,500,000 Reliant Energy Inc. ................................... 41,437,500
350,000 Scottish & Southern Energy (United Kingdom)............ 3,580,549
50,000 Scottish & Southern Energy ADR......................... 5,115,070
500,000 Scottish Power PLC ADR................................. 17,500,000
2,000,000 Unicom Corp. .......................................... 77,125,000
-----------
876,093,100
</TABLE>
[_] GAS--12.2%
<TABLE>
<C> <S> <C>
926,000 AGL Resources.......................................... 17,073,125
225,000 CMS Energy Corp. Class G............................... 5,287,500
725,600 Columbia Energy Group.................................. 45,486,050
1,494,800 EL Paso Energy Corp. .................................. 52,598,275
700,000 Enron Corp. ........................................... 57,225,000
400,000 National Fuel Gas Co. ................................. 19,400,000
444,700 NICOR Inc. ............................................ 16,926,394
1,950,000 Utilicorp United Inc. ................................. 47,409,375
1,100,000 Williams Companies Inc. ............................... 46,818,750
-----------
308,224,469
</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, 1999
<TABLE>
<CAPTION>
Market
Value
Shares Company (Note 1)
------ ------- -----------
[_] TELECOMMUNICATION--21.0%
<C> <S> <C>
600,000 Alltell Corp. ......................................... 42,900,000
1,619,000 Bell Atlantic Corp. ................................... 105,842,125
1,130,000 BellSouth Corp. ....................................... 52,968,750
615,000 Cable and Wireless ADS................................. 24,369,375
255,000 Cincinnati Bell Inc. .................................. 6,359,062
500,000 Royal PTT Nederland ADR................................ 24,000,000
1,837,230 SBC Communications Inc. ............................... 106,559,340
900,000 Tele-Danmark A/S ADR................................... 23,175,000
556,250 Telecom Corp. of New Zealand Interim ADR............... 19,433,984
142,100 Telestra Corp. ADR..................................... 16,412,550
1,425,000 U.S. West Inc. ........................................ 83,718,750
1,620,000 Vivendi ADR............................................ 26,245,944
-----------
531,984,880
[_] NON-UTILITY--8.2%
125,000 Alexandria Real Estate Equities Inc. .................. 3,906,250
250,000 Apartment Investment & Management Co. ................. 10,687,500
200,000 Avalon Bay Communities Inc. ........................... 7,400,000
409,000 Boston Properties Inc. ................................ 14,672,875
100,000 Bradley Real Estate Inc. .............................. 2,075,000
328,800 CBL & Associates Properties Inc. ...................... 8,672,100
350,000 Centerpoint Properties Corporation..................... 12,818,750
120,000 Chelsea GCA Realty Inc. ............................... 4,455,000
250,000 Cornerstone Properties Inc. ........................... 3,968,750
430,000 Crescent Real Estate Equities Inc. .................... 10,212,500
400,000 Developers Diversified Realty Corp. ................... 6,650,000
300,000 Equity Residential Properties Trust.................... 13,518,750
200,000 Essex Property Trust Inc. ............................. 7,075,000
278,100 First Industrial Realty Trust.......................... 7,630,369
100,000 General Growth Properties, Inc. ....................... 3,550,000
100,000 Golf Trust of America Inc. ............................ 2,443,750
72,800 Great Lakes REIT Inc. ................................. 1,183,000
330,000 Highwoods Properties Inc. ............................. 9,054,375
200,000 HRPT Properties Trust.................................. 3,062,500
31 Interstate Hotels Corp. ............................... 128
200,000 Kimco Realty Corp. .................................... 7,825,000
185,000 Macerich Co. .......................................... 4,856,250
145,000 Mack-Cali Realty Corp. ................................ 4,485,937
290,000 Nationwide Health Properties........................... 5,528,125
525,100 Reckson Associates Realty Corp. ....................... 12,339,850
171,545 Reckson Associates Realty Corp. Class B................ 4,095,637
</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, 1999
<TABLE>
<CAPTION>
Market
Value
Shares Company (Note 1)
------ ------- -------------
<C> <S> <C>
278,416 Reckson Service Industries Inc. *..................... 4,211,042
131,100 Spieker Properties Inc. .............................. 5,096,512
200,000 Urban Shopping Centers Inc. .......................... 6,300,000
22,250 Vornado Operating Inc. *.............................. 178,000
370,000 Vornado Realty Trust.................................. 13,065,625
200,000 Weeks Corp. .......................................... 6,100,000
953 Wyndham International Inc. Class A.................... 4,289
-------------
207,122,864
-------------
Total Common Stocks (Cost--$1,680,417,623)............ 1,923,425,313
-------------
CONVERTIBLE PREFERRED STOCKS--2.7%
[_] NON-UTILITY--0.0%
35 Patriot American Hospitality 15% Pfd Series B......... 875
-------------
875
[_] UTILITY--2.7%
500,000 NiSource Industries Inc. 7.75% 2/19/03................ 24,687,500
789,100 Texas Utilities Co. .................................. 43,400,500
-------------
68,088,000
-------------
Total Convertible Preferred Stocks (Cost--
$64,611,083).......................................... 68,088,875
-------------
</TABLE>
BONDS--22.6%
<TABLE>
<CAPTION>
Ratings
--------------------------
Standard Market
Duff & and Value
Par Value Company Phelps Moody's Poor's (Note 1)
--------- ------- --------- ------- -------- ----------
[_] ELECTRIC--13.1%
<C> <S> <C> <C> <C> <C>
$ 5,000,000 AES Ironwood Corp.
8.857%, due 11/30/25........ Not Rated Baa3 BBB- 5,000,000
24,920,000 Alabama Power Co.
9%, due 12/01/24............ AA- A1 A+ 25,838,152
3,950,000 Comed Financing II
8 1/2%, due 1/15/27......... Not Rated Baa3 BBB- 4,107,317
14,500,000 Commonwealth Edison Co.
9 3/4%, due 2/15/20......... BBB Baa2 BBB+ 15,287,973
</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, 1999
<TABLE>
<CAPTION>
Ratings
--------------------------
Standard Market
Duff & and Value
Par Value Company Phelps Moody's Poor's (Note 1)
--------- ------- --------- ------- -------- ----------
<C> <S> <C> <C> <C> <C>
7,500,000 Commonwealth Edison Co.
9 7/8%, due 6/15/20......... BBB Baa2 BBB+ 8,484,345
8,850,000 Commonwealth Edison Co.
8 5/8%, due 2/01/22......... BBB Baa2 BBB+ 9,128,571
5,000,000 Commonwealth Edison Co.
8 3/8%, due 9/15/22......... BBB Baa2 BBB+ 5,043,950
10,000,000 Commonwealth Edison Co.
8 3/8%, due 2/15/23......... BBB Baa2 BBB+ 10,111,660
24,000,000 Dominion Resources Capital
Trust
7.83%, due 12/01/27......... Not Rated Baal BBB 22,910,808
5,000,000 Gulf States Utilities
8.94%, due 1/01/22.......... Not Rated Baa3 BBB- 5,270,275
5,000,000 Illinois Power Co.
7 1/2%, due 7/15/25......... BBB+ Baal BBB 4,817,390
5,000,000 Louisiana Power & Light Co.
8 3/4%, due 3/01/26......... Not Rated Baa2 BBB 5,092,615
15,000,000 New York State Electric &
Gas Corp.
9 7/8, due 11/01/20......... Not Rated A3 A 16,178,310
4,000,000 New York State Electric &
Gas Corp.
8 7/8, due 11/01/21......... Not Rated A3 A 4,184,804
14,105,000 Pennsylvania Power & Light
Co.
9 1/4%, due 10/01/19 Not Rated A3 A- 14,708,680
16,850,000 Pennsylvania Power & Light
Co.
9 3/8%, due 7/01/21......... Not Rated A3 A- 18,041,649
27,580,000 Potomac Electric Power Co.
9%, due 6/01/21............. A+ A1 A 29,484,013
10,000,000 Public Service Co. of
Colorado
8 3/4%, due 3/01/22......... A A3 A 10,359,050
17,500,000 Puget Capital Trust
8.231%, due 6/01/27......... Not Rated Baa2 BBB- 17,395,543
3,000,000 Rochester Gas & Electric
Corp.
9 3/8%, due 4/01/21......... A- A3 A- 3,236,418
13,000,000 Southern Co. Capital Trust
8.14%, due 2/15/27.......... Not Rated Baa1 BBB+ 13,330,200
29,830,000 Texas Utilities Electric Co.
9 3/4%, due 5/01/21......... A- A3 BBB+ 32,514,402
</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, 1999
<TABLE>
<CAPTION>
Ratings
--------------------------
Standard Market
Duff & and Value
Par Value Company Phelps Moody's Poor's (Note 1)
--------- ------- --------- ------- -------- -----------
<C> <S> <C> <C> <C> <C>
10,000,000 Texas Utilities Electric
Co.
8 3/4%, due 11/01/23...... A- A3 BBB+ 10,416,600
4,600,000 Union Electric Co.
8 3/4%, due 12/01/21...... Not Rated Aa3 AA- 4,903,411
12,000,000 UtiliCorp United Inc.
8%, due 3/01/23........... BBB Baa3 BBB 11,615,724
5,000,000 Virginia Electric & Power
Co.
8 5/8%, due 10/01/24...... A A2 A 5,204,500
17,700,000 Virginia Electric & Power
Co.
8 1/4%, due 3/01/25....... A A2 A 18,221,849
-----------
330,888,209
[_] GAS--2.4%
2,125,000 ANR Pipeline Co.
9 5/8%, due 11/01/21...... Not Rated Baa1 BBB+ 2,545,397
8,875,000 Enron Corp.
9.65%, due 5/15/01........ BBB+ Baa2 BBB+ 9,344,541
5,000,000 KN Energy Inc.
7 1/4, due 3/10/28........ Not Rated Baa2 BBB- 4,437,720
10,000,000 Phillips Petroleum Co.
9.18%, due 9/15/21........ Not Rated A3 A- 10,445,710
4,500,000 Sonat Inc.
9 1/2%, due 8/15/99....... Not Rated A3 BBB+ 4,515,664
5,000,000 Southern California Gas
Co.
8 3/4%, due 10/01/21...... AA A1 AA- 5,226,530
6,488,000 Southern Union Co.
7.60%, due 2/01/24........ Not Rated Baa3 BBB+ 6,296,786
10,000,000 TE Products Pipeline Co.
7.51%, due 1/15/28........ Not Rated Baa2 BBB+ 9,371,580
9,000,000 Trans-Canada Pipeline
9 1/8%, due 4/20/06....... Not Rated A3 BBB 9,696,330
-----------
61,880,258
[_] TELECOMMUNICATION--6.7%
44,000,000 AT & T Corp.
8.35%, due 1/15/25........ AA- A1 AA- 45,295,756
35,428,000 GTE Corp
9 3/8%, due 12/01/00...... A- Baa1 A 36,904,639
</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, 1999
<TABLE>
<CAPTION>
Ratings
----------------------------
Duff & Standard Market Value
Par Value Company Phelps Moody's and Poor's (Note 1)
--------- ------- --------- ------- ---------- --------------
<C> <S> <C> <C> <C> <C>
6,000,000 GTE Corp.
10 1/4%, due 11/01/20... A- Baa1 A 6,466,458
10,000,000 GTE California Inc.
8.07%, due 4/15/24...... AA A2 AA- 10,084,920
6,625,000 GTE Corp.
7.90%, due 2/01/27...... A- Baa1 A 6,666,082
11,995,000 Mountain States
Telephone
9 1/2%, due 5/01/00..... Not Rated A2 A+ 12,305,455
13,750,000 New England Telephone &
Telegraph
9%, due 8/01/31......... AA Aa2 AA 14,326,441
10,000,000 New York Telephone Co.
7 5/8%, due 2/01/23..... A A2 A+ 9,964,710
20,740,000 New York Telephone Co.
9 3/8%, due 7/15/31..... A A2 A+ 22,849,445
5,000,000 US West Communications
8 7/8%, due 6/01/31..... AA- A2 A+ 5,186,860
--------------
170,050,766
[_] NON-UTILITY--0.4%
8,000,000 Dayton Hudson Corp.
9 7/8%, due 7/01/20..... A- A3 A- 9,988,800
--------------
9,988,800
--------------
Total Bonds (Cost--$591,414,714)...................... 572,808,033
--------------
U.S. TREASURY OBLIGATIONS--2.9%
66,000,000 U.S. Treasury Bonds
11 3/4%, due 2/15/01.................................. 72,331,908
--------------
Total U.S. Treasury Obligations (Cost--$78,725,547)... 72,331,908
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS-- 0.0%
642,647 Federal National Mortgage Association
8%, due 5/01/05....................................... 659,488
--------------
Total U. S. Government Agency Obligations (Cost--
$664,136)............................................. 659,488
--------------
TOTAL INVESTMENTS (Cost--$2,415,833,103)(104.1%)...... $2,637,313,617
==============
</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.
*Non income producing security
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
BALANCE SHEET
(UNAUDITED)
June 30, 1999
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Common stocks (cost $1,680,417,623).......................... $1,923,425,313
Convertible preferred stocks (cost $64,611,083).............. 68,088,875
Bonds (cost $591,414,714).................................... 572,808,033
U.S. Treasury obligations (cost $78,725,547)................. 72,331,908
U.S. Government agency obligations (cost $664,136)........... 659,488
Interest-bearing deposits with custodian....................... 41,134,954
Receivables:
Securities sold.............................................. 45,160,602
Interest..................................................... 15,919,191
Dividends.................................................... 10,082,315
Securities lending income.................................... 125,928
Pre-paid expenses.............................................. 181,580
--------------
Total Assets............................................... $2,749,918,187
==============
LIABILITIES:
Payable for investments purchased.............................. $ 260,307
Due to Adviser (Note 2)........................................ 3,754,288
Due to Administrator (Note 2).................................. 937,844
Dividends payable on common stock.............................. 13,456,636
Dividends payable on remarketed preferred stock................ 1,194,992
Accrued expenses............................................... 2,217,685
Commercial paper outstanding (Note 6).......................... 195,239,817
--------------
Total Liabilities.......................................... 217,061,569
--------------
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 207,025,169 shares issued and
outstanding) (Note 4).......................................... 207,025
Paid-in surplus (Note 4)....................................... 1,847,063,255
Accumulated net realized loss on investments................... (43,412,477)
Undistributed net investment income............................ 7,518,314
Net unrealized appreciation on investments..................... 221,480,501
--------------
Net assets applicable to common stock (equivalent to $9.82
per share based on 207,025,169 shares outstanding)........... 2,032,856,618
--------------
Total Capital (Net Assets)................................... 2,532,856,618
--------------
Total Liabilities and Capital................................ $2,749,918,187
==============
</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, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest........................................................ $ 29,245,697
Dividends (less withholding tax of $487,849).................... 81,348,618
Securities lending income....................................... 758,424
------------
Total investment income........................................ 111,352,739
EXPENSES:
Commercial paper interest expense (Note 6 )..................... 4,844,861
Management fees (Note 2)........................................ 7,488,082
Administrative fees (Note 2).................................... 1,869,534
Transfer agent fees............................................. 271,500
Custodian fees.................................................. 181,000
Remarketing agent fees.......................................... 628,472
Shareholder reports............................................. 271,500
Legal and audit fees............................................ 90,500
Directors' fees (Note 2)........................................ 117,650
Other expenses.................................................. 280,037
------------
Total expenses................................................. 16,043,136
------------
Net investment income.......................................... 95,309,603
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments................................ ( 11,970,338)
Net change in unrealized appreciation on investments............ (105,719,285)
------------
Net loss on investments......................................... (117,689,623)
------------
Net decrease in net assets resulting from operations............ ($22,380,020)
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
DUFF & PHELPS SELECTED UTILITIES INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the six
months ended For the year
June 30, 1999 ended December
(UNAUDITED) 31, 1998
--------------- --------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income........................ $ 95,309,603 $ 180,201,052
Net realized gain (loss) on investments...... (11,970,338) 104,910,892
Net change in unrealized appreciation on
investments.................................. (105,719,285) (11,148,041)
--------------- --------------
Net increase (decrease) in net assets
resulting from operations................... (22,380,020) 273,963,903
DISTRIBUTIONS TO STOCKHOLDERS FROM:
Net investment income--perferred stock (Note
5)........................................... (9,431,936) (20,869,678)
Net investment income--common stock (Note 3). (80,527,349) (159,478,752)
--------------- --------------
Total distributions......................... (89,959,285) (180,348,430)
FROM CAPITAL STOCK TRANSACTIONS (Note 4):
Shares issued to common stockholders from
dividend reinvestment........................ 13,504,453 28,041,305
--------------- --------------
Net increase in net assets derived from
capital share transactions................... 13,504,453 28,041,305
--------------- --------------
Total increase (decrease)................... (98,834,852) 121,656,778
TOTAL NET ASSETS:
Beginning of period.......................... 2,631,691,470 2,510,034,692
--------------- --------------
End of period (including undistributed net
investment income of $7,518,314 and
$2,167,997 respectively)..................... $2,532,856,618 $2,631,691,470
=============== ==============
</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, 1999
<TABLE>
<S> <C> <C>
Cash Flows From (For):
OPERATING ACTIVITIES
Interest received............................... $ 29,017,888
Income dividends received....................... 77,952,527
Securities lending income....................... 778,547
Operating expenses paid (excluding interest).... (11,596,037)
Interest paid on commercial paper............... (4,797,847)
--------------
Net cash provided by operating activities..................... $91,355,078
INVESTING ACTIVITIES
Purchase of investment securities............... (3,140,920,200)
Proceeds from sale/redemption of investment
securities...................................... 3,058,777,193
Net cash used in investing activities......................... (82,143,007)
FINANCING ACTIVITIES
Dividends paid.................................. (89,773,779)
Proceeds from issuance of common stock under
dividend reinvestment plan...................... 13,504,453
Change in net proceeds from issuance of
commercial paper................................ 24,237,719
--------------
Net cash used in financing activities......................... (52,031,607)
------------
Net decrease in cash and cash equivalents;...................... (42,819,536)
Cash and cash equivalents--beginning of period.................. 83,954,490
Cash and cash equivalents--end of period........................ $41,134,954
============
Reconciliation of net investment income to net
cash provided by operating activities:
Net investment income.......................................... $95,309,603
Adjustments to reconcile net investment income
to net cash provided by operating activities:
Increase in interest receivable............................... (227,809)
Increase in dividends receivable.............................. (3,396,090)
Decrease in accrued expenses.................................. (350,749)
Decrease in other receivable.................................. 20,123
------------
Total adjustments........................................... (3,954,525)
------------
Net cash provided by operating activities....................... $91,355,078
============
</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, 1999
(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, 1998, the Fund had tax capital loss carry forwards of
$51,225,500 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.
(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, and .10% of average weekly net assets
over $1 billion. For purposes of the foregoing calculations, "average weekly
net assets" is defined as the sum of (i) the aggregate net asset value of the
fund's common stock (ii) the aggregate liquidation preference of the Fund's
preferred stock and (iii) the aggregate proceeds to the Fund of commercial
paper issued by the Fund. 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 1999:
<TABLE>
<CAPTION>
Record Payable Dividend
Date Date Per Share
------ -------- ---------
<S> <C> <C>
01-29-99 02-10-99 $.065
02-26-99 03-10-99 .065
03-31-99 04-12-99 .065
</TABLE>
<TABLE>
<CAPTION>
Record Payable Dividend
Date Date Per Share
------ -------- ---------
<S> <C> <C>
04-30-99 05-10-99 $.065
05-28-99 06-10-99 .065
06-30-99 07-12-99 .065
</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 1998 and for the six
months ended June 30, 1999 were as follows:
<TABLE>
<CAPTION>
Shares Amount
For the year ended December 31, 1998: ----------- --------------
<S> <C> <C>
Beginning capitalization....................... 202,936,881 $1,805,724,521
Dividend reinvestment.......................... 2,777,374 28,041,305
----------- --------------
Total capitalization........................... 205,714,255 $1,833,765,826
=========== ==============
For the six months ended June30, 1999:
Beginning capitalization....................... 205,714,255 $1,833,765,826
Dividend reinvestment.......................... 1,310,914 13,504,453
----------- --------------
Total capitalization........................... 207,025,169 $1,847,270,279
=========== ==============
</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 3.55% to 4.19% during the
six months ended June 30, 1999.
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
16
<PAGE>
DUFF & PHELPS UTILITIES INCOME INC.
NOTES TO FINANCIAL STATEMENTS (Concluded)
$100,000,000 at any one time, subject to certain restrictions. Interest rates
on the Notes ranged from 4.86% to 5.40% during the six months ended June 30,
1999. At June 30, 1999, the Fund had Notes outstanding of $195,239,817.
(7)INVESTMENT TRANSACTIONS:
For the six months ended June 30, 1999, purchases and sales of investment
securities (excluding short-term securities) were $3,134,105,188 and
$3,094,398,584, respectively. For federal income tax purposes, at June 30,
1999, the gross unrealized depreciation on investments was $77,377,475 and
gross unrealized appreciation was $298,857,989. The cost of investments for
financial reporting and Federal income tax purposes was $2,415,833,103 and
$2,419,037,632, respectively.
The Fund may lend portfolio securities to a broker/dealer. Loans are
required to be secured at all times by collateral at least equal to the market
value of securities loaned. The Fund receives a portion of the income earned
on the securities held as collateral and continues to earn income on the
loaned securities. Security loans are subject to the risk of failure by the
borrower to return the loaned securities in which case the Fund could incur a
loss. At June 30, 1999, the fund had loaned portfolio securities with a market
value of $391,824,420 to a broker/dealer and money market instruments with a
market value of $400,571,729 were held in the Fund's account at the
broker/dealer as collateral.
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 six
months ended For the year ended December 31
June 30, 1999 ----------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
-------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period..... $ 10.36 $ 9.90 $ 8.44 $ 8.85 $ 7.23 $ 9.65
---------- ---------- ---------- ---------- ---------- ----------
Net investment income... 0.46 0.88 0.85 0.84 0.85 0.82
Net realized gain (loss)
and change in unrealized
appreciation/
depreciation on
investments............. (0.57) 0.46 1.46 (0.41) 1.62 (2.42)
---------- ---------- ---------- ---------- ---------- ----------
Total from investment
operations.............. (0.11) 1.34 2.31 0.43 2.47 (1.60)
Dividends on preferred
stock from net
investment income....... (0.04) (0.10) (0.10) (0.10) (0.12) (0.10)
Dividends on common
stock from net
investment income....... (0.39) (0.78) (0.75) (0.74) (0.73) (0.72)
Dividends on common
stock from net realized
capital gains........... (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
---------- ---------- ---------- ---------- ---------- ----------
Total distributions..... (0.43) (0.88) (0.85) (0.84) (0.85) (0.82)
Net asset value:
End of period........... $ 9.82 $ 10.36 $ 9.90 $ 8.44 $ 8.85 $ 7.23
========== ========== ========== ========== ========== ==========
Per share market value:
End of period........... $ 10.63 $ 11.25 $ 10.13 $ 8.63 $ 9.00 $ 7.88
Ratio of expenses to
average net assets
attributable to common
shares.................. 1.60%* 1.46% 1.45% 1.53% 1.62% 1.58%
Total investment return. (1.90%) 19.95% 27.69% 4.68% 24.77% (18.04%)
Ratio of net investment
income to average net
assets attributable to
common shares........... 9.50%* 8.85% 9.87% 10.16% 10.65% 10.21%
Portfolio turnover rate. 117.78% 251.19% 213.57% 226.21% 188.28% 129.56%
Net assets, end of
period
(000s omitted).......... $2,523,927 $2,631,692 $2,510,035 $2,186,443 $2,239,331 $1,896,090
</TABLE>
- -------
* Annualized
18
<PAGE>
Board of Directors
WALLACE B. BEHNKE
HARRY J. BRUCE
FRANKLIN A. COLE
GORDON B. DAVIDSON
CLAIRE V. HANSEN, CFA
FRANCIS E. JEFFRIES, CFA
NANCY LAMPTON
CALVIN J. PEDERSEN, CFA
BERYL W. SPRINKEL
Officers
CLAIRE V. HANSEN, CFA
Chairman
CALVIN J. PEDERSEN, CFA
President and Chief Executive Officer
NATHAN I. PARTAIN, CFA
Executive Vice President and
Chief Investment Officer
T. BROOKS BEITTEL, CFA
Senior Vice President, Secretary and Treasurer
MICHAEL SCHATT
Senior Vice President
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
(312) 368-5510
Shareholder inquiries please contact
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
(800) 432-8224
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
(888) 878-7845
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.
Semi-Annual
Report
June 30, 1999
