DIRECTORS DUFF & PHELPS
UTILITY AND
Francis E. Jeffries, Chairman CORPORATE
E. Virgil Conway BOND TRUST
William W. Crawford
William N. Georgeson [LOGO]
Everett L. Morris
Richard A. Pavia ANNUAL REPORT
DECEMBER 31, 1995
OFFICERS
Calvin J. Pedersen
President & Chief Executive Officer
Robert J. Moore
Executive Vice President
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 9011
Princeton, NJ 08543
(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
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:
As 1995 began, the fixed-income markets were preparing for the worst. Long
dated U.S. Treasury bonds were yielding 7.88 percent and two-year U.S. Treasury
notes were yielding 7.69 percent. The fixed-income markets were fearful of
additional Federal Reserve tightening to prevent inflationary pressures from
building due to above trend line economic growth, tight labor markets and little
slack in manufacturing operating capacity. As a result of such fears, the slope
of the Treasury yield curve from 2 years to 30 years was a modest 19 basis
points. In addition, there was uncertainty concerning the political and economic
consequences surrounding the devaluation of the Mexican peso. The market's
concerns were indeed justified as the Fed increased the Federal funds rate 50
basis points to 6.00 percent in early February. However, that would prove to be
the last Fed tightening.
In mid-February the gloom started to lift when the Federal Reserve Chairman
suggested to Congress that the Fed would be willing to reduce the degree of
monetary tightness should it see signs of reduced inflation pressures. The
fixed-income markets suddenly caught wind of an easing or at least the end of
Fed tightening. Accordingly, the tone of the fixed-income markets seemed to
improve every quarter as signs of a soft economic landing began appearing along
with many hopeful signs that Congress was serious about deficit reductions. Also
adding strength to the market's momentum were heavy dollar support programs by
foreign central governments and a significant change in Japan which allowed for
additional exposure to our fixed-income markets.
As a result of these events and perceptions, the fixed-income markets
turned in their third best performance in 20 years as measured by the Lehman
Brothers Aggregate Index. By year's end, the yield on longer dated U.S. Treasury
bonds had fallen by 193 basis points to 5.95 percent, the two-year U.S. Treasury
notes fell 255 basis points to 5.14 percent and the Treasury yield curve
steepened to 81 basis points between 2 years and 30 years.
FUND PERFORMANCE
For 1995, the Trust had a total return on its net asset value of 32.32
percent as measured by Lipper Analytical Services, Inc. By comparison, Lipper's
General Bond Fund returned 20.83 percent. The Trust benefited not only from the
general decline in longer dated interest rates but also from the steepening of
the yield curve in intermediate maturities. Also helping the Trust's performance
was the fact that well structured corporate securities were the best-performing
subsector of the fixed-income markets.
Reflecting the Trust's good performance, the net asset value increased from
$12.18 at the end of 1994 to $14.81 at the end of 1995.
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 recently adopted a cash purchase plan which permits
participants to purchase shares directly from the Plan Agent. For more details,
please turn to page 14.
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 /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
DECEMBER 31, 1995
<TABLE>
<CAPTION>
RATINGS*
PRINCIPAL -----------------------------------------
AMOUNT DUFF & STANDARD & MARKET VALUE
(000) DESCRIPTION PHELPS MOODY'S POOR'S (NOTE 1)
- ----------- ----------------------------------------------------- ----------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
/ / LONG-TERM INVESTMENTS-- 133.8%
U.S. GOVERNMENT AGENCY OBLIGATIONS--39.8%
Government National Mortgage Association
Pass-Through Certificates
$ 4,470 8.00%, 7/15/23....................................... AAA Aaa AAA $ 4,657,608
9,383 8.00%, 8/15/23....................................... AAA Aaa AAA 9,775,852
4,536 8.00%, 5/15/24....................................... AAA Aaa AAA 4,725,931
28,274 8.00%, 6/15/24....................................... AAA Aaa AAA 29,457,551
U.S. Treasury Bonds
12,900 10.750%, 2/15/03..................................... AAA Aaa AAA 16,832,436
25,400 9.375%, 2/15/06...................................... AAA Aaa AAA 32,643,064
40,000 10.375%, 11/15/12.................................... AAA Aaa AAA 55,300,000
----------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(cost $143,983,156).................................. 153,392,442
----------------
BONDS--94.0%
FINANCIAL--5.8%
10,000 American Express Co.
8.625%, 5/15/22...................................... AA- A1 A+ 10,963,100
10,000 General Motors Acceptance Corp.
8.50%, 1/01/03....................................... A- A3 A- 11,293,400
----------------
22,256,500
----------------
INDUSTRIAL--40.4%
10,000 Atlantic Richfield Co.
9.875%, 3/01/16...................................... NR A2 A 13,515,900
10,000 Caterpillar, Inc.
9.375%, 3/15/21...................................... A A2 A 13,160,200
15,000 Dayton Hudson Corp.
8.50%, 12/01/22...................................... A+ A3 BBB+ 16,176,450
10,000 Ford Motor Co.
8.875%, 1/15/22...................................... A+ A1 A+ 12,403,900
Georgia Pacific Corp.
10,000 9.625%, 3/15/22...................................... BBB Baa2 BBB- 11,325,000
3,000 8.625%, 4/30/25...................................... BBB Baa2 BBB- 3,302,520
10,000 Occidental Petroleum Corp.
8.75%, 1/15/23....................................... BBB+ Baa3 BBB 12,001,700
15,000 Phillips Petroleum Co.
8.49%, 1/01/23....................................... NR Baa1 BBB 16,902,600
9,000 Ralston Purina Co.
8.125%, 2/01/23...................................... BBB+ Baa1 A- 9,872,820
</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)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
RATINGS*
PRINCIPAL -----------------------------------------
AMOUNT DUFF & STANDARD & MARKET VALUE
(000) DESCRIPTION PHELPS MOODY'S POOR'S (NOTE 1)
- ----------- ----------------------------------------------------- ----------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 10,000 Sears Roebuck and Co.
9.375%, 11/01/11..................................... A- A2 BBB $ 12,275,000
10,000 Tenneco, Inc.
9.00%, 11/15/12...................................... BBB- Baa2 BBB- 11,907,000
Time Warner Entertainment
5,000 10.15%, 5/01/12...................................... NR Baa3 BBB- 6,197,550
5,000 8.875%, 10/01/12..................................... NR Baa3 BBB- 5,664,000
USX Corp.
5,000 9.375%, 2/15/12...................................... BBB Baa3 BB+ 5,776,200
5,000 8.50%, 3/01/23....................................... BBB Baa3 BB+ 5,363,250
----------------
155,844,090
----------------
TELEPHONE--9.0%
AT&T Corp.
5,000 7.50%, 6/01/06....................................... AA+ Aa3 AA 5,523,200
5,000 8.625%, 12/01/31..................................... AA+ Aa3 AA 5,817,750
10,000 MCI Communications Corp.
8.25%, 1/20/23....................................... A A2 A- 11,180,500
5,000 New York Telephone Co.
8.625%, 11/15/10..................................... A A2 A 6,053,750
5,000 Tele-Communications, Inc.
9.80%, 2/01/12....................................... BBB- Baa3 BBB- 5,995,850
----------------
34,571,050
----------------
UTILITIES--ELECTRIC--38.8%
10,000 Arizona Public Service Co.
8.00%, 2/01/25....................................... BBB+ Baa1 BBB 10,624,400
10,000 Boston Edison Co.
7.80%, 3/15/23....................................... BBB+ Baa2 BBB 9,886,700
11,700 Commonwealth Edison Co.
9.875%, 6/15/20...................................... BBB Baa2 BBB 14,228,136
5,000 Connecticut Light & Power Co.
8.50%, 6/01/24....................................... NR Baa1 BBB+ 5,604,450
Dayton Power & Light Co.
5,000 8.40%, 12/01/22...................................... AA Aa3 AA- 5,723,150
6,000 8.15%, 1/15/26....................................... AA Aa3 AA- 6,604,680
3,000 Houston Lighting & Power Co.
7.75%, 3/15/23....................................... A+ A2 A 3,201,840
15,000 Hydro-Quebec
8.40%, 1/15/22....................................... AA A2 A+ 17,343,150
</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)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
RATINGS*
PRINCIPAL -----------------------------------------
AMOUNT DUFF & STANDARD & MARKET VALUE
(000) DESCRIPTION PHELPS MOODY'S POOR'S (NOTE 1)
- ----------- ----------------------------------------------------- ----------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 5,000 Illinois Power Co.
8.00%, 2/15/23....................................... NR Baa2 BBB $ 5,059,400
10,000 Mississippi Power & Light Co.
8.65%, 1/15/23....................................... NR Baa2 BBB 10,726,200
10,000 Pacific Gas & Electric Co.
8.25%, 11/01/22...................................... NR A2 A 11,362,200
10,000 Peco Energy Co.
8.25%, 9/01/22....................................... BBB+ Baa1 BBB+ 10,640,800
5,000 Pennsylvania Power & Light Co.
8.50%, 5/01/22....................................... NR A3 A- 5,506,950
9,803 Public Service Electric & Gas Co.
8.50%, 6/01/22....................................... A A2 A- 10,469,800
5,000 Tennessee Valley Authority
8.625%, 11/15/29..................................... NR Aaa AAA 5,669,900
Texas Utilities Electric Co.
5,000 9.750%, 5/01/21...................................... NR Baa2 BBB+ 5,893,300
10,000 8.875%, 2/01/22...................................... NR Baa2 BBB+ 11,106,900
----------------
149,651,956
----------------
TOTAL BONDS (cost $333,502,238)...................... 362,323,596
----------------
/ / SHORT-TERM INVESTMENTS -- 0.7%
COMMERCIAL PAPER
Ford Motor Credit Corporation
2,500 5.928%, 1/04/96
(cost $2,500,000).................................... 2,500,000
----------------
TOTAL INVESTMENTS--134.5%
(cost $479,985,394; Note 3).......................... 518,216,038
Liabilities in Excess of Other
Assets--(34.5%)...................................... (132,886,843)
----------------
NET ASSETS--100%..................................... $ 385,329,195
----------------
----------------
</TABLE>
- ------------------------------------
NR - Not Rated.
* Ratings of issues shown have not been audited by Ernst & Young LLP.
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
DECEMBER 31, 1995
ASSETS
Investments, at value (cost $479,985,394).................. $ 518,216,038
Cash....................................................... 1,100,117
Interest receivable........................................ 10,209,636
Prepaid assets............................................. 60,943
Deferred organization expenses............................. 20,786
------------------
Total assets.......................................... 529,607,520
------------------
LIABILITIES
Commercial paper (Note 5).................................. 141,394,920
Investment advisory fee payable (Note 2)................... 158,984
Administrative fee payable (Note 2)........................ 47,695
Income dividend payable (Note 1)........................... 2,549,501
Accrued expenses and other liabilities..................... 127,225
------------------
Total liabilities..................................... 144,278,325
------------------
NET ASSETS................................................. $ 385,329,195
------------------
------------------
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........... (1,784,163)
Accumulated net realized loss on investment
transactions............................................. (18,808,126)
Net unrealized appreciation on investments................. 38,230,644
------------------
NET ASSETS................................................. $ 385,329,195
------------------
------------------
Net asset value per share of common stock:
($385,329,195 / 26,015,314 shares of common
stock issued and outstanding)............................ $ 14.81
------------------
------------------
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 YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME
Interest income........................................... $ 39,978,089
Security lending fee income............................... 122,630
-----------------
Total investment income................................ 40,100,719
-----------------
EXPENSES
Investment advisory fee (Note 2).......................... 1,781,484
Administrative fee (Note 2)............................... 534,445
Commercial paper usage fee................................ 266,984
Transfer agent's fees and expenses........................ 186,549
Commission expense--commercial paper...................... 144,985
Directors' fees........................................... 68,170
Custodian fees and expenses............................... 52,755
Reports to shareholders................................... 36,078
Audit fee................................................. 33,100
Registration fees......................................... 32,340
Insurance................................................. 21,519
Legal fees................................................ 19,723
Amortization of deferred organization
expenses (Note 1)....................................... 9,993
Miscellaneous............................................. 9,044
-----------------
Total operating expenses (before interest expense)........ 3,197,169
Interest expense--commercial paper (Note 5)............... 8,600,736
-----------------
Total expenses......................................... 11,797,905
-----------------
Net investment income............................ 28,302,814
-----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investment transactions.............. (4,787,257)
Net change in unrealized appreciation on investments...... 75,587,484
-----------------
Net realized and unrealized gain on investments........ 70,800,227
-----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 99,103,041
-----------------
-----------------
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 YEAR ENDED DECEMBER 31, 1995
INCREASE (DECREASE) IN CASH
Cash flows provided by (used for) operating activities:
Interest received.................................... $ 40,332,178
Expenses paid........................................ (3,161,346)
Interest expense paid................................ (8,266,142)
Purchase of long-term portfolio investments.......... (24,996,190)
Proceeds from sale of long-term portfolio
investments........................................ 29,031,134
Purchase of short-term portfolio investments......... (62,500,000)
Proceeds from sale of short-term portfolio
investments........................................ 60,000,000
-------------------
Net cash provided by operating activities............ 30,439,634
-------------------
Cash flows used for financing activities:
Expenses resulting from tender offer................. (21,699)
Net cash used for commercial paper................... (775,093)
Cash dividends paid to shareholders.................. (30,594,023)
-------------------
Net cash used for financing activities............... (31,390,815)
-------------------
Net decrease in cash...................................... (951,181)
Cash at beginning of year............................ 2,051,298
-------------------
Cash at end of year.................................. $ 1,100,117
-------------------
-------------------
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
Net increase in net assets resulting from operations...... $ 99,103,041
-------------------
Decrease in investments.............................. 1,534,945
Net realized loss on investments..................... 4,787,257
Net change in net unrealized appreciation on
investments........................................ (75,587,484)
Decrease in interest receivable...................... 236,003
Increase in commercial paper discount................ 334,594
Accretion of discount................................ (4,544)
Amortization of deferred organization expenses....... 9,993
Increase in prepaid assets........................... (6,265)
Increase in investment advisory fee payable.......... 26,430
Increase in administrative fee payable............... 7,929
Decrease in accrued expenses and other liabilities... (2,265)
-------------------
Total adjustments.............................. (68,663,407)
-------------------
Net cash provided by operating activities................. $ 30,439,634
-------------------
-------------------
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>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------------- --------------------------
<S> <C> <C>
OPERATIONS
Net investment income.................................. $ 28,302,814 $ 31,787,847
Net realized loss on investment transactions........... (4,787,257) (14,020,869)
Net change in unrealized appreciation (depreciation) on
investments......................................... 75,587,484 (56,505,983)
-------------------------- --------------------------
Net increase (decrease) in net assets resulting from
operations.......................................... 99,103,041 (38,739,005)
-------------------------- --------------------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM
Dividends from net investment income................... (28,809,860) (31,686,602)
Distributions in excess of net investment income....... (1,784,163) --
-------------------------- --------------------------
Net decrease in net assets resulting from dividends and
distributions....................................... (30,594,023) (31,686,602)
-------------------------- --------------------------
CAPITAL SHARE TRANSACTIONS
(NOTE 6)
Tender offer resulting in the redemption of 1,592,686
shares of common stock.............................. -- (20,641,210)
Tender offer costs charged to additional paid-in
capital............................................. (21,699) (85,792)
-------------------------- --------------------------
Net decrease in net assets resulting from capital share
transactions........................................ (21,699) (20,727,002)
-------------------------- --------------------------
Total increase (decrease)........................... 68,487,319 (91,152,609)
NET ASSETS
Beginning of year...................................... 316,841,876 407,994,485
-------------------------- --------------------------
End of year (including undistributed net investment
income of $694,901 at December 31, 1994)............ $ 385,329,195 $ 316,841,876
-------------------------- --------------------------
-------------------------- --------------------------
</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>
<CAPTION>
FOR THE FOR THE FOR THE PERIOD
YEAR ENDED YEAR ENDED JANUARY 29, 1993*
DECEMBER 31, 1995 DECEMBER 31, 1994 TO DECEMBER 31, 1993
-------------------- -------------------- --------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $ 12.18 $ 14.78 $ 14.06**
-------------------- -------------------- --------------------
Net investment income......................... 1.09 1.18 1.08
Net realized and unrealized gain (loss) on
investment transactions.................... 2.72 (2.60) 0.76
-------------------- -------------------- --------------------
Net increase (decrease) from investment
operations.................................... 3.81 (1.42) 1.84
-------------------- -------------------- --------------------
Dividends from net investment income............ (1.11) (1.18) (1.06)
Distributions in excess of net investment
income........................................ (0.07) -- --
Distributions from realized gains on
investments................................... -- -- (0.06)
-------------------- -------------------- --------------------
Total dividends and distributions............... (1.18) (1.18) (1.12)
-------------------- -------------------- --------------------
Net asset value, end of period.................. $ 14.81 $ 12.18 $ 14.78
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
Per share market value, end of period***........ $ 13.875 $ 11.125 $ 14.25
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
TOTAL INVESTMENT RETURN+........................ 36.21% (14.19)% 2.33%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses.............................. 0.78%**** 0.78%**** 0.73%++
Commercial Paper expenses....................... 2.52% 1.46% --
Net investment income........................... 7.92% 8.87% 7.87%++
SUPPLEMENTAL DATA:
Portfolio turnover.............................. 5% 149% 282%
Net assets, end of period (000)................. $ 385,329 $ 316,842 $ 407,994
</TABLE>
- ------------------------------------
* Commencement of investment operations.
** Net of offering costs of $(0.04) and underwriting discount of $(0.90).
*** Market value is 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.
++ 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
DECEMBER 31, 1995
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.
SECURITIES 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 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 when
purchased and debt securities originally purchased with maturities in excess of
sixty days but which currently have maturities 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.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities 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.
RECLASSIFICATION OF COMPONENTS OF NET ASSETS: On the statement of assets and
liabilities, as a result of permanent book-to-tax differences, distributions in
excess of net investment income have been increased by $187,855, accumulated net
realized loss on investment transactions has been increased by $152, resulting
in an increase to additional paid-in capital of $188,007. These
reclassifications have no effect on net assets or net asset value per share.
10
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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.
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 year ended December 31, 1995, the Trust had purchases of $24,427,440
and sales of $26,201,316 of investment securities, other than U.S. Government
securities and short-term debt securities having maturities of one year or less.
The Federal income tax basis of the Trust's investments at December 31, 1995
was $479,990,238, and accordingly, net unrealized appreciation aggregated
$38,225,800, of which $38,306,585 related to appreciated securities and $80,785
related to depreciated securities.
Transactions in options written for the year ended December 31, 1995 were as
follows:
PRINCIPAL AMOUNT
COVERED BY
CONTRACT PREMIUMS
---------------- -----------
Options written......... $ 10,000,000 $ 45,313
Options exercised....... (10,000,000) (45,313)
---------------- -----------
Options outstanding at
end of year........... $ 0 $ 0
---------------- -----------
---------------- -----------
NOTE 4. LOANED SECURITIES
As of December 31, 1995, the Trust's custodian held cash and cash
equivalents having an aggregate value of $34,188,254 as collateral for portfolio
securities loaned having a market value of $32,643,064.
NOTE 5. COMMERCIAL PAPER
As of December 31, 1995, $143,000,000 of commercial paper was outstanding
with an amortized cost of $141,394,920. The average discount rate of commercial
paper outstanding at December 31, 1995 was 5.61%. The average daily balance of
commercial paper outstanding for the year ended December 31, 1995 was
$143,000,000 at a weighted average discount rate of 6.01%. The maximum amount of
commercial paper outstanding at any time during the year 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 year ended
December 31, 1995, 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 December 31, 1995, Phoenix
Duff & Phelps Corporation owned 10,272 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.
11
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
NOTE 7. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
NET INCREASE
NET REALIZED AND (DECREASE) IN NET
NET INVESTMENT UNREALIZED GAIN (LOSS) ASSETS RESULTING FROM DIVIDENDS AND
INCOME ON INVESTMENTS OPERATIONS DISTRIBUTIONS
TOTAL ---------------------- ----------------------- ----------------------- -----------------------
INVESTMENT PER PER PER PER
QUARTERLY PERIOD INCOME AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
- ------------------ ----------- ----------- --------- ------------ --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jan. 1, 1994 to
Mar. 31, 1994.... $ 9,142,137 $ 8,394,884 $ 0.30 $(34,161,297) $ (1.24) $(25,766,413) $ (0.93) $ (5,411,172) $(0.20)
Apr. 1, 1994 to
Jun. 30, 1994.... 9,859,086 7,948,189 0.29 (22,696,465) (0.82) (14,748,276) (0.54) (8,116,752) (0.29)
July 1, 1994 to
Sep. 30, 1994.... 10,711,913 8,081,856 0.31 (9,663,250) (0.38) (1,581,394) (0.07) (7,960,669) (0.30)
Oct. 1, 1994 to
Dec. 31, 1994.... 10,114,186 7,362,918 0.28 (4,005,840) (0.16) 3,357,078 0.12 (10,198,009) (0.39)
----------- ----------- --------- ------------ --------- ------------ --------- ------------ ---------
$39,827,322 $31,787,847 $ 1.18 $(70,526,852) $ (2.60) $(38,739,005) $ (1.42) $(31,686,602) $( 1.18)
----------- ----------- --------- ------------ --------- ------------ --------- ------------ ---------
----------- ----------- --------- ------------ --------- ------------ --------- ------------ ---------
Jan. 1, 1995 to
Mar. 31, 1995.... $10,004,748 $ 7,078,839 $ 0.27 $ 19,109,265 $ 0.73 $ 26,188,104 $ 1.01 $ (5,099,003) $(0.20)
Apr. 1, 1995 to
Jun. 30, 1995.... 10,026,112 7,027,396 0.27 31,326,869 1.20 38,354,265 1.47 (7,648,508) (0.29)
July 1, 1995 to
Sep. 30, 1995 10,053,966 7,097,918 0.27 3,531,173 0.14 10,629,091 0.41 (7,648,505) (0.30)
Oct. 1, 1995 to
Dec. 31, 1995 10,015,893 7,098,661 0.28 16,832,920 0.65 23,931,581 0.92 (10,198,007) (0.39)
----------- ----------- --------- ------------ --------- ------------ --------- ------------ ---------
$40,100,719 $28,302,814 $ 1.09 $ 70,800,227 $ 2.72 $ 99,103,041 $ 3.81 $(30,594,023) $( 1.18)
----------- ----------- --------- ------------ --------- ------------ --------- ------------ ---------
----------- ----------- --------- ------------ --------- ------------ --------- ------------ ---------
<CAPTION>
SHARE PRICE
---------------------------
QUARTERLY PERIOD HIGH LOW
- ------------------ ----------- -----------
<S> <C> <C>
Jan. 1, 1994 to
Mar. 31, 1994.... $ 15 $ 12 5/8
Apr. 1, 1994 to
Jun. 30, 1994.... 13 1/8 12 1/8
July 1, 1994 to
Sep. 30, 1994.... 12 7/8 11 3/4
Oct. 1, 1994 to
Dec. 31, 1994.... 12 1/8 10 1/4
Jan. 1, 1995 to
Mar. 31, 1995.... $ 12 7/8 $ 11
Apr. 1, 1995 to
Jun. 30, 1995.... 13 1/2 12 1/4
July 1, 1995 to
Sep. 30, 1995 13 5/8 12 1/2
Oct. 1, 1995 to
Dec. 31, 1995 14 1/8 13 1/4
</TABLE>
- ------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Trust may purchase, from time to time, shares of
its common stock in the open market.
ADDITIONAL INFORMATION (UNAUDITED)
During the period, there have been no material changes in the Trust's investment
objective or fundamental policies that have not been approved by the
shareholders. There have been no changes in the Trust's charter or By-Laws that
would delay or prevent a change in control of the Trust which have not been
approved by the shareholders. There have been no changes in the principal risk
factors associated with investment in the Trust. Richard R. Davis, the Trust's
President, Chief Executive Officer and Chief Investment Officer, retired on
December 21, 1995. Calvin J. Pedersen now serves as President and Chief
Executive Officer. Dennis A. Cavanaugh, Senior Vice President, now serves as
Chief Investment Officer of the Trust.
12
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Duff & Phelps Utility and Corporate Bond Trust Inc.
We have audited the accompanying statement of assets and liabilities of
Duff & Phelps Utility and Corporate Bond Trust Inc., including the portfolio of
investments, as of December 31, 1995, and the related statements of operations
and cash flows for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended and financial highlights for
each of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Trust'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, 1995 by correspondence with the custodian. 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 audits 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 Utility and Corporate Bond Trust Inc. at December 31, 1995, and
the results of its operations and its 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
financial highlights for each of the indicated periods, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
January 25, 1996
13
<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.
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.
14
<PAGE>
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.
15
<PAGE>
PROXY RESULTS
At the September 7, 1995 special 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>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SHARES VOTED SHARES VOTED
SHARES VOTED FOR AGAINST ABSTAIN
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To approve a successor investment
advisory agreement: 22,538,552 419,183 761,404
- --------------------------------------------------------------------------------------------------
<CAPTION>
SHARES VOTED
SHARES VOTED WITHOUT
FOR AUTHORITY
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To elect one director to serve
until the Annual Meeting in 1996
or until his successor is duly
elected and qualified: William W. Crawford 24,396,267 589,189
- --------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
None of the ordinary income distributions paid by the Trust during the fiscal
year ended December 31, 1995, qualifies for the dividends received deduction for
corporations. Additionally, there were no long-term capital gain distributions
paid by the Trust during the year.
The law varies in each state as to whether and what percentage of dividend
income attributable to Federal obligations is exempt from state income tax. We
recommend that you consult your tax advisor to determine if any portion of the
dividends you received is exempt from state income tax.
Listed below are the percentages of total assets of the Trust invested in
Federal obligations as of the end of each quarter of the fiscal year:
PERCENTAGE OF
QUARTER ENDED FEDERAL OBLIGATIONS*
-------------------------- ----------------------
March 31, 1995 19.53%
June 30, 1995 19.77%
September 30, 1995 19.58%
December 31, 1995 19.78%
Of the Trust's distributions paid to shareholders from ordinary income
during the calendar year ended December 31, 1995, 20.29% was attributable to
Federal obligations. In calculating the foregoing percentage, expenses of the
Trust have been allocated on a pro-rata basis.
- ------------------------------------
* For purposes of this calculation, Federal obligations include U.S. Treasury
Notes, U.S. Treasury Bills, and U.S. Treasury Bonds. Also included are
obligations issued by the following agencies: Banks for Cooperatives, Federal
Intermediate Credit Banks, Federal Land Banks, Federal Home Loan Banks, and the
Student Loan Marketing Association. Repurchase agreements are not included in
this calculation.
17
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