DIRECTORS
Francis E. Jeffries, Chairman
E. Virgil Conway SEMI-ANNUAL REPORT
William W. Crawford JUNE 30, 1996
William N. Georgeson [LOGO]
Everett L. Morris DUFF & PHELPS
Richard A. Pavia UTILITY AND
OFFICERS CORPORATE
Calvin J. Pedersen BOND TRUST
President & Chief Executive Officer
Dennis A. Cavanaugh
Senior Vice President, Chief Investment Officer & Assistant Treasurer
Thomas N. Steenburg
Secretary
Mary Jo Metz
Treasurer & Assistant Secretary
INVESTMENT ADVISER
Duff & Phelps Investment Management Co.
55 East Monroe Street
Chicago, IL 60603
(312) 541-5555
ADMINISTRATOR
Princeton Administrators, L.P.
P.O. Box 9095
Princeton, NJ 08543-9095
(800) 688-0928
CUSTODIAN AND TRANSFER AGENT
The Bank of New York
P.O. Box 11258
Church Street Station
New York, NY 10286
(800) 524-4458
INDEPENDENT AUDITORS
Ernst & Young LLP
787 Seventh Avenue
New York, NY 10019
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive
Chicago, IL 60606
The accompanying financial statements
as of June 30, 1996 were not audited and,
accordingly, no opinion is expressed on them.
This report is for stockholder information.
This is not a prospectus intended for use in the
purchase or sale of Trust shares.
Duff & Phelps Utility and Corporate Bond Trust Inc.
55 East Monroe Street
Chicago, IL 60603
<PAGE>
DEAR FELLOW SHAREHOLDERS:
The fixed-income markets started 1996 on an optimistic note. Weak economic
reports gave rise to mounting fears of an impending recession which led to a
continuation of a positive outlook for interest rates in general and short-term
interest rates in particular. For example, yields on two-year U.S. Treasury
notes declined 33 basis points during the first six weeks of 1996, as the
Federal Reserve cut the funds rate 25 basis points to seek to insure against the
economy falling into a recession. Declining short-term interest rates helped
stabilize longer-dated U.S. Treasury yields. Long yields traded within 15 basis
points of year-end levels through the middle of February. However, the weakness
in the economy turned out to be only temporary and was seen to be the result of
severe weather, labor strikes and political infighting rather than any
fundamental weakness. As a result, concerns about the economy's weakness quickly
turned into concerns that above trend-line economic growth would put upward
pressure on inflation due to tight labor markets and rising commodity prices.
Unemployment levels declined from 5.6 percent at year end to 5.3 percent at the
end of June, which was considered above the non-accelerating inflation rate of
unemployment. In addition, new jobs were being created at a rate sufficient to
support continued consumer spending. Furthermore, rising commodity prices helped
push the agriculturally-oriented Knight Ridder Commodity Research Bureau Index
to its highest level in several years.
As might be expected, the sea change in market sentiment put substantial
upward pressure on yields across the entire yield curve as the first half of
1996 ended. For example, the yield on two-year U.S. Treasury notes rose 97 basis
points to close at 6.11 percent as market participants quickly discounted a
future Federal Reserve tightening to slow down the sudden burst of economic
activity. Also, longer-term U.S. Treasury bond yields rose 94 basis points to
6.89 percent. As a result of the backup in interest rates, the fixed-income
markets produced a negative return for the first six months of 1996. For
example, the Lehman Brothers Aggregate Index, generally considered to be a proxy
for the domestic investment grade fixed-income markets, had a return of -1.21
percent.
FUND PERFORMANCE
For the six months ended June 30, 1996, the Trust had a total return on its
net asset value of - 6.14 percent as measured by Lipper Analytical Services. By
comparison, Lipper's General Bond Fund and Investment Grade Bond Fund had six
month returns of +1.30 and -1.69 percent, respectively.
The Trust's high yield was not sufficient to offset the effects of the
Trust's long duration and financial leverage in a rising interest rate
environment.
Reflecting the Trust's negative total return, the net asset value declined
from $14.81 at the end of 1995 to $13.42 at the end of June, 1996. The common
stock quote at the end of the first half was $12.25, down $1.63.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
To those of you receiving dividends in cash, we urge you to consider taking
advantage of the dividend reinvestment plan available to all registered
shareholders of the Trust. Under the plan, the Trust absorbs all administrative
costs (except brokerage commissions, if any) so that the total amount of your
dividends and other distributions may be reinvested in additional shares of the
Trust. Additional information about the plan is available from The Bank of New
York, 1-800-524-4458.
Also, the Trust has a cash purchase plan which permits participants to
purchase shares directly from the Plan Agent. For more details, please turn to
page 12.
We appreciate your investment in Duff & Phelps Utility and Corporate Bond
Trust Inc. and look forward to continuing our service to you.
Sincerely,
/s/ Francis E. Jeffries, CFA /s/ Calvin J. Pedersen
Francis E. Jeffries, CFA Calvin J. Pedersen
Chairman President and Chief Executive Officer
1
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C> <C>
RATINGS
PRINCIPAL --------------------------- MARKET
AMOUNT DUFF & STANDARD VALUE (NOTE
(000) DESCRIPTION PHELPS MOODY'S & POOR'S 1)
- ------- ------------------------------------- ------ ------- -------- -----------
/ / LONG-TERM INVESTMENTS-- 136.6%
U.S.GOVERNMENT AND AGENCY
OBLIGATIONS--40.8%
Government National Mortgage
Association
Pass-Through Certificates
$ 4,279 8.00%, 7/15/23....................... AAA Aaa AAA $ 4,326,962
8,983 8.00%, 8/15/23....................... AAA Aaa AAA 9,089,644
4,258 8.00%, 5/15/24....................... AAA Aaa AAA 4,300,219
26,867 8.00%, 6/15/24....................... AAA Aaa AAA 27,135,907
2,014 8.00%, 3/15/26....................... AAA Aaa AAA 1,931,347
5,043 8.00%, 5/15/26....................... AAA Aaa AAA 4,970,816
U.S. Treasury Bonds
12,900 10.750%, 2/15/03..................... AAA Aaa AAA 15,740,064
20,400 9.375%, 2/15/06...................... AAA Aaa AAA 24,199,500
40,000 10.375%, 11/15/12.................... AAA Aaa AAA 50,781,200
-----------
142,475,659
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS
(cost $142,956,932)..................
-----------
BONDS--95.8%
FINANCIAL--6.0%
10,000 American Express Co.
8.625%, 5/15/22...................... AA- A1 A+ 10,388,800
10,000 General Motors Acceptance Corp.
8.50%, 1/01/03....................... A- A3 A- 10,648,300
-----------
21,037,100
-----------
INDUSTRIAL--44.3%
10,000 Atlantic Richfield Co.
9.875%, 3/01/16...................... NR A2 A 12,315,900
10,000 Caterpillar, Inc.
9.375%, 3/15/21...................... A A2 A 11,909,600
15,000 Dayton Hudson Corp.
8.50%, 12/01/22...................... A+ Baa1 BBB+ 15,067,500
10,000 Ford Motor Co.
8.875%, 1/15/22...................... A+ A1 A+ 11,172,100
10,000 Georgia Pacific Corp.
9.625%, 3/15/22...................... BBB Baa2 BBB- 10,716,200
3,000 8.625%, 4/30/25...................... BBB Baa2 BBB- 2,989,200
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C> <C>
RATINGS
PRINCIPAL --------------------------- MARKET
AMOUNT DUFF & STANDARD VALUE (NOTE
(000) DESCRIPTION PHELPS MOODY'S & POOR'S 1)
- ------- ------------------------------------- ------ ------- -------- -----------
10,000 Occidental Petroleum Corp.
8.75%, 1/15/23....................... BBB+ Baa3 BBB 10,990,200
$15,000 Phillips Petroleum Co.
8.49%, 1/01/23....................... NR Baa1 BBB $15,213,000
9,000 Ralston Purina Co.
8.125%, 2/01/23...................... BBB+ Baa1 A- 9,125,010
10,000 Sears Roebuck and Co.
9.375%, 11/01/11..................... A- A2 BBB- 11,663,400
10,000 Tele-Communications, Inc.
9.80%, 2/01/12....................... BBB- Ba1 BBB- 10,804,800
10,000 Tenneco, Inc.
9.00%, 11/15/12...................... BBB- Baa2 BBB- 11,210,500
5,000 Time Warner Entertainment
10.15%, 5/01/12...................... NR Baa3 BBB- 5,759,250
5,000 8.875%, 10/01/12..................... NR Baa3 BBB- 5,218,200
5,000 USX Corp.
9.375%, 2/15/12...................... BBB Baa3 BB+ 5,512,700
5,000 8.50%, 3/01/23....................... BBB Baa3 BB+ 5,113,400
-----------
154,780,960
-----------
TELEPHONE--6.0%
5,000 AT&T Corp.
8.625%, 12/01/31..................... AA+ Aa3 AA 5,245,150
10,000 MCI Communications Corp.
8.25%, 1/20/23....................... A A2 A 10,232,800
5,000 New York Telephone Co.
8.625%, 11/15/10..................... A A2 A 5,512,050
-----------
20,990,000
-----------
UTILITIES--ELECTRIC--39.5%
10,000 Arizona Public Service Co.
8.00%, 2/01/25....................... BBB+ Baa1 BBB 9,773,200
10,000 Boston Edison Co.
7.80%, 3/15/23....................... BBB+ Baa2 BBB 8,786,300
11,700 Commonwealth Edison Co.
9.875%, 6/15/20...................... BBB Baa2 BBB 13,289,562
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
5,000 Connecticut Light & Power Co.
8.50%, 6/01/24....................... NR Baa2 BBB 5,227,450
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
PORTFOLIO OF INVESTMENTS (CONCLUDED)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C> <C>
RATINGS
PRINCIPAL --------------------------- MARKET
AMOUNT DUFF & STANDARD VALUE (NOTE
(000) DESCRIPTION PHELPS MOODY'S & POOR'S 1)
- ------- ------------------------------------- ------ ------- -------- -----------
$ 5,000 Dayton Power & Light Co.
8.40%, 12/01/22...................... AA Aa3 AA- $ 5,120,300
6,000 8.15%, 1/15/26....................... AA Aa3 AA- 6,258,000
3,000 Houston Lighting & Power Co.
7.75%, 3/15/23....................... A+ A2 A 2,904,510
15,000 Hydro-Quebec
8.40%, 1/15/22....................... AA A2 A+ 15,800,700
5,000 Illinois Power Co.
8.00%, 2/15/23....................... NR Baa2 BBB 4,915,050
10,000 Mississippi Power & Light Co.
8.65%, 1/15/23....................... NR Baa2 BBB 9,840,300
10,000 Pacific Gas & Electric Co.
8.25%, 11/01/22...................... NR A2 A 10,046,200
10,000 Peco Energy Co.
8.25%, 9/01/22....................... BBB+ Baa1 BBB+ 9,854,900
5,000 Pennsylvania Power & Light Co.
8.50%, 5/01/22....................... NR A3 A- 5,241,050
9,711 Public Service Electric & Gas Co.
8.50%, 6/01/22....................... A A2 A- 9,795,777
5,000 Tennessee Valley Authority
8.625%, 11/15/29..................... NR Aaa AAA 5,314,100
5,000 Texas Utilities Electric Co.
9.750%, 5/01/21...................... NR Baa2 BBB+ 5,553,000
10,000 8.875%, 2/01/22...................... NR Baa2 BBB+ 10,024,000
-----------
137,744,399
-----------
334,552,459
TOTAL BONDS (cost $333,959,994)......
-----------
/ / SHORT-TERM INVESTMENTS--0.6%
COMMERCIAL PAPER
2,000 Ford Motor Credit Co. 2,000,000
5.407%, 7/30/96
(cost $2,000,000)....................
-----------
479,028,118
TOTAL INVESTMENTS--137.2%
(cost $478,916,926) (Note 3).........
(129,931,240)
Liabilities in Excess of Other
Assets--(37.2%)......................
-----------
$349,096,878
NET ASSETS--100%.....................
-----------
-----------
</TABLE>
- ----------------------------
NR - Not Rated.
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $478,916,926)......................... $479,028,118
Cash.............................................................. 1,571,064
Interest receivable............................................... 10,172,706
Prepaid assets.................................................... 61,050
Deferred organization expenses.................................... 15,803
------------
Total assets.................................................. 490,848,741
------------
LIABILITIES
Commercial paper (Note 5)......................................... 141,459,182
Investment advisory fee payable (Note 2).......................... 141,930
Administrative fee payable (Note 2)............................... 42,579
Accrued expenses and other liabilities............................ 108,172
------------
Total liabilities............................................. 141,751,863
------------
NET ASSETS........................................................ $349,096,878
------------
------------
CAPITAL
Common stock, $.01 par value, 600,000,000 shares authorized,
26,015,314 shares issued and outstanding (Note 6)................. $ 260,153
Additional paid-in capital........................................ 367,430,687
Distributions in excess of net investment income.................. (261,378)
Accumulated net realized loss on investment transactions.......... (18,443,776)
Net unrealized appreciation on investments........................ 111,192
------------
NET ASSETS........................................................ $349,096,878
------------
------------
Net asset value per share of common stock:
($349,096,878 L 26,015,314 shares of common stock issued and
outstanding)...................................................... $ 13.42
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest income................................................. $ 19,724,257
Security lending fee income..................................... 39,802
------------
Total investment income....................................... 19,764,059
------------
EXPENSES
Investment advisory fee (Note 2)................................ 903,373
Administrative fee (Note 2)..................................... 271,011
Commercial paper usage fee...................................... 131,821
Transfer agent's fees and expenses.............................. 83,668
Commission expense--commercial paper............................ 72,294
Directors' fees................................................. 56,566
Custodian fees and expenses..................................... 27,644
Audit fee....................................................... 26,364
Reports to shareholders......................................... 20,316
Registration fees............................................... 16,090
Insurance....................................................... 10,701
Legal fees...................................................... 10,507
Amortization of deferred organization expenses (Note 1)......... 4,983
Miscellaneous................................................... 4,032
------------
Total operating expenses (before interest expense).............. 1,639,370
Interest expense--commercial paper (Note 5)..................... 3,854,395
------------
Total expenses................................................ 5,493,765
------------
Net investment income.................................... 14,270,294
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investment transactions.................... 364,350
Net change in unrealized appreciation on investments............ (38,119,452)
------------
Net realized and unrealized loss on investments............... (37,755,102)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $(23,484,808)
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH
Cash flows provided by (used for) operating activities:
Interest received............................................ $ 19,798,625
Expenses paid................................................ (1,675,717)
Interest expense paid........................................ (4,046,564)
Purchase of long-term portfolio investments.................. (12,597,345)
Proceeds from sale of long-term portfolio investments........ 13,532,527
Purchase of short-term portfolio investments................. (33,100,000)
Proceeds from sale of short-term portfolio investments....... 33,600,000
-------------
Net cash provided by operating activities.................... 15,511,526
-------------
Cash flows provided by (used for) financing activities:
Net cash provided by commercial paper issuance............... 256,431
Cash dividends paid to shareholders.......................... (15,297,010)
-------------
Net cash used for financing activities....................... (15,040,579)
-------------
Net increase in cash............................................. 470,947
Cash at beginning of period.................................. 1,100,117
-------------
Cash at end of period........................................ $ 1,571,064
-------------
-------------
RECONCILIATION OF NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net decrease in net assets resulting from operations............. $ (23,484,808)
-------------
Decrease in investments...................................... 1,435,182
Net realized gain on investment transactions................. (364,350)
Net change in unrealized appreciation on investments......... 38,119,452
Decrease in interest receivable.............................. 36,930
Decrease in commercial paper discount........................ (192,169)
Accretion of discount........................................ (2,364)
Amortization of deferred organization expenses............... 4,983
Increase in prepaid assets................................... (107)
Decrease in investment advisory fee payable.................. (17,054)
Decrease in administrative fee payable....................... (5,116)
Decrease in accrued expenses and other liabilities........... (19,053)
-------------
Total adjustments....................................... 38,996,334
-------------
Net cash provided by operating activities........................ $ 15,511,526
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<S> <C> <C>
FOR THE
SIX MONTHS ENDED FOR THE
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
------------------- -------------------
OPERATIONS
Net investment income................. $ 14,270,294 $ 28,302,814
Net realized gain (loss) on investment
transactions............................ 364,350 (4,787,257)
Net change in unrealized appreciation
(depreciation) on investments........... (38,119,452) 75,587,484
------------------- -------------------
Net increase (decrease) in net assets
resulting from operations............... (23,484,808) 99,103,041
------------------- -------------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM
Dividends from net investment
income.................................. (12,486,131) (28,809,860)
Distributions in excess of net
investment income................... (261,378) (1,784,163)
------------------- -------------------
Net decrease in net assets resulting
from dividends and distributions.... (12,747,509) (30,594,023)
------------------- -------------------
CAPITAL SHARE TRANSACTIONS
(NOTE 6)
Tender offer costs charged to
additional paid-in capital.......... -- (21,699)
------------------- -------------------
Net decrease in net assets resulting
from capital share transactions..... -- (21,699)
------------------- -------------------
Total increase (decrease)........... (36,232,317) 68,487,319
NET ASSETS
Beginning of period................... 385,329,195 316,841,876
------------------- -------------------
End of period (including distributions
in excess of net investment income
of $261,378 and $1,784,163,
respectively). . $ 349,096,878 $ 385,329,195
------------------- -------------------
------------------- -------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<S> <C> <C> <C> <C>
FOR THE FOR THE PERIOD
SIX MONTHS ENDED FOR THE FOR THE JANUARY 29, 1993*
JUNE 30, 1996 YEAR ENDED YEAR ENDED TO DECEMBER 31,
(UNAUDITED) DECEMBER 31, 1995 DECEMBER 31, 1994 1993
------------------ ------------------ ------------------ ------------------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................ $ 14.81 $ 12.18 $ 14.78 $ 14.06**
------------------ ------------------ ------------------ ------------------
Net investment income. . 0.55 1.09 1.18 1.08
Net realized and
unrealized gain (loss)
on investment
transactions........... (1.45) 2.72 (2.60) 0.76
------------------ ------------------ ------------------ ------------------
Net increase (decrease)
from investment
operations............... (0.90) 3.81 (1.42) 1.84
------------------ ------------------ ------------------ ------------------
Dividends from net
investment income........ (0.48) (1.11) (1.18) (1.06)
Distributions in excess of
net investment income.... (0.01) (0.07) -- --
Distributions from
realized gains on
investments.............. -- -- -- (0.06)
------------------ ------------------ ------------------ ------------------
Total dividends and
distributions............ (0.49) (1.18) (1.18) (1.12)
------------------ ------------------ ------------------ ------------------
Net asset value, end of
period***................ $ 13.42 $ 14.81 $ 12.18 $ 14.78
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
Per share market value,
end of period***......... $ 12.25 $ 13.875 $ 11.125 $ 14.25
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
TOTAL INVESTMENT
RETURN+.................. (8.41)% 36.21% (14.19)% 2.33%
RATIOS TO AVERAGE
NET ASSETS:
Operating expenses........ 0.79%****++ 0.78%**** 0.78%**** 0.73%++
Commercial paper
expenses................. 2.25%++ 2.52% 1.46% --
Net investment income..... 7.90%++ 7.92% 8.87% 7.87%++
SUPPLEMENTAL DATA:
Portfolio turnover........ 2% 5% 149% 282%
Net assets, end of period
(000).................... $ 349,097 $ 385,329 $ 316,842 $ 407,994
</TABLE>
- ----------------------------
* Commencement of investment operations.
** Net of offering costs of $(0.04) and underwriting discount of $(0.90).
*** Net asset value and market value are published in The Wall Street Journal
each Monday.
**** Exclusive of commercial paper expenses.
+ Total investment return is calculated assuming a purchase of common stock at
the current market value on the first day and a sale at the current market
value on the last day of each period reported. Dividends and distributions
are assumed, for purposes of this calculation, to be reinvested at prices
obtained under the Trust's dividend reinvestment plan. Brokerage commissions
are not reflected. Total returns for periods of less than one full year are
not annualized.
++ Annualized.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
Duff & Phelps Utility and Corporate Bond Trust Inc. (the "Trust") was
organized in Maryland on November 23, 1992 as a diversified, closed-end
management investment company. The Trust had no operations until December 15,
1992 when it sold 8,000 shares of common stock for $112,800 to Phoenix Duff &
Phelps Corporation. Investment operations commenced on January 29, 1993.
The Trust's investment objective is to seek high current income consistent
with investing in securities of investment grade quality. The Trust seeks to
achieve its investment objective by investing substantially all of its assets in
a diversified portfolio of Utility Income Securities, Corporate Income
Securities, Mortgage-Backed Securities and Asset-Backed Securities. The ability
of the issuers of the securities held by the Trust to meet their obligations may
be affected by economic developments in a specific state, industry or region.
On June 14, 1995, Duff & Phelps Investment Management Co. (the "Adviser")
entered into a merger agreement with PM Holdings, Inc. A successor investment
advisory agreement was submitted to and approved by Trust shareholders at a
special meeting held on September 7, 1995. The merger closed on November 1,
1995.
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Trust in the preparation of its financial statements.
SECURITY VALUATION: The Trust values its fixed-income securities by using market
quotations, prices provided by market makers or estimates of market values
obtained from yield data relating to instruments with similar characteristics in
accordance with procedures established by the Board of Directors of the Trust.
Options are valued at the last reported sale price, or if no sales are reported,
at the mean between the last reported bid and asked prices. Non-exchange traded
options are valued using a mathematical model. The relative illiquidity of some
securities in the Trust's portfolio may adversely affect the ability of the
Trust to accurately value such securities. Any securities or other assets for
which such current market quotations are not readily available are valued at
fair value as determined in good faith under procedures established by and under
the general supervision and responsibility of the Trust's Board of Directors.
Debt securities having a remaining maturity of sixty days or less are valued
at cost adjusted for amortization of premiums and accretion of discounts.
OPTION SELLING/PURCHASING: When the Trust sells or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
proceeds from the sale or cost of the purchase in determining whether the Trust
has realized a gain or loss on investment transactions. The Trust, as writer of
an option, may have no control over whether the underlying securities may be
sold (called) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are recorded
on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Trust accretes original issue discount on securities using
the effective interest method.
FEDERAL INCOME TAXES: It is the Trust's intention to meet the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute sufficient net income to shareholders to qualify as a regulated
investment company. For this reason, no Federal income tax provision is
required. For Federal income tax purposes, the Trust had a capital loss
carryforward of $18,803,281 at December 31, 1995, of which $14,020,869 expires
in 2002 and $4,782,412 expires in 2003, if not offset by subsequent capital
gains.
DIVIDENDS AND DISTRIBUTIONS: The Trust will declare and pay dividends to
shareholders monthly from net investment income. Capital gains, if any, in
excess of loss carryforwards are expected to be distributed annually. Dividends
and distributions are recorded on the ex-dividend date. Distributions in excess
of net investment income result from temporary book-to-tax differences.
10
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
DEFERRED ORGANIZATION COSTS: A total of $50,000 was incurred in connection with
the organization of the Trust. These costs have been deferred and are being
amortized ratably over a period of sixty months from the date the Trust
commenced investment operations.
SECURITY LENDING: The Trust may lend its portfolio securities to qualified
institutions. The loans are secured by collateral at least equal, at all times,
to the market value of the securities loaned. The Trust may bear the risk of
delay in recovery of, or even loss of rights in, the securities loaned should
the borrower of the securities fail financially. The Trust receives compensation
for lending its securities in the form of fee income. The Trust also continues
to receive interest on the securities loaned, and any gain or loss in the market
price of the securities loaned that may occur during the term of the loan will
be for the account of the Trust.
DOLLAR ROLLS: The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust foregoes principal and
interest paid on the securities.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2. AGREEMENTS
The Trust has an Advisory Agreement with the Adviser, a subsidiary of Phoenix
Duff & Phelps Corporation, and an Administration Agreement with Princeton
Administrators, L.P. (the "Administrator").
The investment advisory fee paid to the Adviser is computed weekly and
payable monthly at an annual rate of .50% of the Trust's average weekly net
assets. The administrative fee paid to the Administrator is also computed weekly
and payable monthly at an annual rate of .15% of the Trust's average weekly net
assets, subject to a monthly minimum of $12,500.
Pursuant to the agreements, the Adviser provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust who
are affiliated persons of the Adviser. The Administrator pays certain occupancy,
clerical and accounting costs of the Trust. The Trust bears all other costs and
expenses.
NOTE 3. PORTFOLIO SECURITIES
For the six months ended June 30, 1996, the Trust had purchases of
$12,597,345 and sales of $5,272,100 of investment securities, other than U.S.
Government securities and short-term debt securities.
The Federal income tax basis of the Trust's investments at June 30, 1996 was
$478,916,926, and accordingly, net unrealized appreciation aggregated $111,192,
of which $8,271,205 related to appreciated securities and $8,160,013 related to
depreciated securities.
NOTE 4. LOANED SECURITIES
As of June 30, 1996, the Trust's custodian held cash and cash equivalents
having an aggregate value of $77,677,771 as collateral for portfolio securities
loaned having a market value of $74,980,700.
NOTE 5. COMMERCIAL PAPER
As of June 30, 1996, $143,000,000 of commercial paper was outstanding with an
amortized cost of $141,459,182. The average discount rate of commercial paper
outstanding at June 30, 1996 was 5.24%. The average daily balance of commercial
paper outstanding for the six months ended June 30, 1996 was $143,000,000 at a
weighted average discount rate of 5.42%. The maximum amount of commercial paper
outstanding at any time during the six months ended was $143,000,000. In
conjunction with the issuance of the commercial paper, the Trust entered into a
line of credit arrangement with a bank for $75,000,000. During the six months
ended June 30, 1996, there were no borrowings under this arrangement.
NOTE 6. CAPITAL
There are 600,000,000 shares of $.01 par value common stock authorized. Of
the 26,015,314 shares of common stock outstanding at June 30, 1996, Phoenix Duff
& Phelps Corporation owned 10,809 shares.
On August 8, 1994, the Trust's Board of Directors approved a tender offer
(the "Tender Offer") to shareholders to purchase up to 1.5 million shares of
outstanding common stock subject to a maximum outlay of $30 million. The offer
commenced on August 8, 1994 and expired on September 2, 1994. The Trust received
tenders representing 1,592,686 shares of common stock. Pursuant to the terms of
the offer, the Trust determined to accept the full amount of 1,592,686 common
shares tendered. As a result of the Tender Offer, the Trust purchased 1,592,686
shares for a total of $20,641,210. On September 20, 1995, the Trust's Board of
Directors approved the retirement of 1,592,686 shares and the appropriate
reduction in the Trust's stated capital.
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<PAGE>
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Common shareholders are automatically enrolled in the Trust's Dividend
Reinvestment and Cash Purchase Plan (the "Plan"). Under the Plan, all
distributions to Common shareholders of dividends and capital gains will
automatically be reinvested by The Bank of New York (the "Plan Agent"), in
additional shares of Common Stock of the Trust unless an election is made to
receive distributions in cash. The Plan Agent will effect purchases of shares of
Common Stock under the Plan in the open market. Shareholders who elect not to
participate in the Plan will receive all distributions in cash paid by check in
U.S. dollars mailed directly to the shareholder of record (or if the shares are
held in street or other nominee name, then to the nominee) by the Trust's
custodian, as dividend disbursing agent.
The Plan Agent serves as agent for the Common shareholders in administering
the Plan. After the Trust declares a dividend or determines to make a capital
gains distribution, the Plan Agent will, as agent for the participants, receive
the cash payment and use it to buy shares of Common Stock in the open market, on
the New York Stock Exchange or elsewhere, for the participants' accounts. The
Trust will not issue any new shares in connection with the Plan. If, before the
Plan Agent has completed its purchases, the market price exceeds the net asset
value per share of the Common Stock, the average per share purchase price paid
by the Plan Agent may exceed the net asset value of the Trust's Common Stock,
resulting in the acquisition of fewer shares of Common Stock than if the
dividend or distribution had been paid in Common Stock issued by the Trust.
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions (or equivalent purchase costs) incurred
with respect to the Plan Agent's open market purchases in connection with the
reinvestment of dividends and distributions and with voluntary additional share
investments. There are no other charges to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions (or equivalent purchase costs) as described above.
The Plan also permits Plan participants to periodically purchase additional
common shares through the Plan by delivering to the Plan Agent a check for at
least $100, but not more than $1,000 in any month. The Plan Agent will use the
funds to purchase shares in the open market or in private transactions as
described above with respect to reinvestment of dividends and distributions.
Purchases made pursuant to the Plan will be made commencing at the time of the
first dividend or distribution payment following the second business day after
receipt of the funds for additional purchases, and may be aggregated with
purchases of shares for reinvestment of the dividends and distributions. Shares
will be allocated to the accounts of participants purchasing additional shares
at the average price per share, plus a service charge imposed by the Plan Agent
and brokerage commissions (or equivalent purchase costs) paid by the Plan Agent
for all shares purchased by it, including for reinvestment of dividends and
distributions. Checks drawn on a foreign bank are subject to collection and
collection fees, and will be invested at the time of the next distribution after
funds are collected by the Plan Agent.
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<PAGE>
The Plan Agent will make every effort to invest funds promptly, and in no
event more than 30 days after the Plan Agent receives a dividend or
distribution, except where postponement is deemed necessary to comply with
applicable provisions of the federal securities laws.
Funds sent to the Plan Agent for voluntary additional share investment may
be re-called by the participant by written notice received by the Plan Agent not
later than two business days before the next distribution payment date. If for
any reason a regular monthly distribution is not paid by the Trust, funds for
voluntary additional share investment will be returned to the participant,
unless the participant specifically directs that they continue to be held by the
Plan Agent for subsequent investment.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent. When a participant withdraws from the Plan or upon termination
of the Plan as provided below, certificates for whole Trust shares credited to
his or her account under the Plan will be issued and a cash payment will be made
for any fraction of a share credited to such account. An election to withdraw
from the Plan will, until such election is changed, be deemed to be an election
by a Common shareholder to take all subsequent dividends and distributions in
cash. Elections will only be effective for dividends and distributions declared
after, and with a record date of at least ten days after, such elections are
received by the Plan Agent. There is no penalty for non-participation in or
withdrawal from the Plan, and Common shareholders who have withdrawn from the
Plan may rejoin it at any time.
The Plan Agent maintains each shareholder's account in the Plan and
furnishes monthly written confirmations of all transactions in the accounts,
including information needed by shareholders for personal and tax records.
Shares in the account of each Plan participant will be held by the Plan Agent in
non-certificated form in the name of the participant, and each shareholder's
proxy will include those shares purchased pursuant to the Plan.
Common shareholders whose Common Stock is held in the name of a broker or
nominee should contact such broker or nominee to determine whether or how they
may participate in the Plan.
In the case of shareholders, such as banks, brokers or nominees, that hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
record shareholder as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who are
participants in the Plan.
The automatic reinvestment of dividends and distributions will not relieve
participants of any Federal income tax that may be payable or required to be
withheld on such dividends or distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all participants in the Plan at least 90 days before the record
date for the dividend or distribution. The Plan may also be amended or
terminated by the Plan Agent by at least 90 days' written notice to all
participants in the Plan. All questions concerning the Plan should be directed
to the Plan Agent by calling 1-800-524-4458.
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<PAGE>
PROXY RESULTS
At the May 15, 1996 annual meeting of shareholders, the Duff & Phelps Utility
and Corporate Bond Trust Inc. shareholders voted on and approved the following
proposals. The description of the proposals and number of shares voted are as
follows:
<TABLE>
<S> <C> <C>
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SHARES WITHHOLD
VOTED FOR AUTHORITY
- -----------------------------------------------------------------------------------
1. To elect three directors to serve until the Annual
Meeting in the years indicated below or until their
successors are duly elected and qualified:
E. Virgil Conway
(1998) 24,663,858 366,625
William W. Crawford (1999) 24,652,213 366,625
Richard A. Pavia (1999) 24,679,754 366,625
Directors whose term of office continued beyond this
meeting are as follows:
Francis E. Jeffries, William N. Georgeson and
Everett L. Morris.
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
SHARES SHARES
SHARES VOTED VOTED
VOTED FOR AGAINST ABSTAIN
- ------------------------------------------------------------------------------------
2. To ratify the selection of Ernst & Young
LLP as independent auditors for the
Fund's fiscal year ending December 31,
1996: 24,633,165 275,532 147,685
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that periodically the Fund may purchase Fund Shares in the
open market at prevailing market prices.
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