DIRECTORS
Francis E. Jeffries, Chairman
E. Virgil Conway
William W. Crawford
William N. Georgeson
Philip R. McLoughlin
Eileen A. Moran
Everett L. Morris
Richard A. Pavia
Harry Dalzell-Payne
OFFICERS
Calvin J. Pedersen
President & Chief Executive Officer
Dennis A. Cavanaugh
Senior Vice President, Chief Investment Officer & Assistant Treasurer
Thomas N. Steenburg
Secretary
Forest D. Richardson
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
233 South Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, IL 60606
The accompanying financial statements as of
June 30, 1997 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>
SEMI-ANNUAL REPORT
JUNE 30, 1997
DUFF & PHELPS
UTILITY AND
CORPORATE
BOND TRUST
DUFF & PHELPS UTILITY AND
CORPORATE BOND TRUST
<PAGE>
DEAR FELLOW SHAREHOLDERS:
For the first six months of 1997, the Lehman Brothers Aggregate Index, which
is a good proxy for the domestic, investment grade bond market, had a modest
total rate of return of 3.09 percent. In comparison, the Fund's common stock had
a six month price appreciation of 31.25 cents and, when combined with the six
month dividend payout of 58.80 cents, the common stock had a total rate of
return of 6.99 percent. The common stock return excludes the reinvestment of
dividends. In addition, based on the price of the common stock at the end of the
period of $13.1875, the monthly dividend of 9.8 cents provided an annual
dividend yield of 8.92 percent. Lastly, the price discount of the common stock
from the Fund's net asset value declined from 6.70 percent at the end of 1996 to
3.18 percent at the end of June. The NAV declined 18 cents for the six month
period and closed June 30, 1997 at $13.62.
The fixed income markets opened 1997 in a state of nervous agitation as they
braced for what was feared would be an onslaught of economic reports suggesting
continued strong growth. The economy ended 1996 with a full head of steam as the
fourth quarter's annualized growth rate rose 3.8 percent, which was well above
the Federal Reserve's non-inflation growth target of approximately 2.25 percent.
In addition, the new year got off to a rousing start as employment growth
exceeded the market's expectations, along with a decline in the unemployment
rate which was already thought to be low by historical standards. The continued
growth in employment, combined with good income growth and strong consumer
confidence, gave an extra boost to the Fed's concern that excess economic growth
could eventually lead to increasing pressures on inflation. This inflation
linkage seemed especially close to the mark as average hourly earnings for all
of 1996 was reported to have risen 3.8 percent, which was the highest annual
increase since 1990. The market's reaction was swift as longer-dated U.S.
Treasury yields were pushed to 6.92 percent by late January, which was 29 basis
points above the year-end level.
As would prove to be the case for most of the first half, the fixed income
markets would be buffeted by alternating signs of strong economic data only to
be followed by signs of weak data. For example, one week after the fixed income
markets were exposed to the high average hourly earnings report, the Bureau of
Labor Statistics announced that the 1996 Employment Cost Index (ECI) rose a
modest 2.9 percent. The ECI is thought to be a more meaningful gauge of
employment costs since it includes benefits as well as wages. This report,
combined with a slowing in retail sales, moderating trends in housing, moderate
inflation and no Fed tightening in early February, helped push longer-dated
Treasury yields to a mid-February low of 6.52 percent.
As the first quarter wore on, however, Federal Reserve Chairman Alan
Greenspan warned the markets that the Fed stood ready to preemptively tighten
monetary policy to prevent inflationary pressures from gaining a foothold.
Needless to say, the fixed income markets acted in a predictable manner when the
federal funds rate was hiked 25 basis points in late March. As a result of the
tightening of monetary policy, plus signs of accelerating economic growth,
longer-dated Treasury yields reached their first half high point of 7.17 percent
in mid April. From that point forward, economic growth began slowing from the
first quarter's annual
1
<PAGE>
growth rate of 5.9 percent, inflation remained moderate and the Federal Open
Market Committee decided for the second time to leave monetary policy unchanged.
As a result, longer-dated U.S. Treasury yields began to decline and ended the
second quarter yielding 6.78 percent which was 14 basis points above its
year-end level of 6.63 percent.
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 14.
We appreciate your investment in Duff & Phelps Utility and Corporate Bond
Trust Inc. and look forward to continuing our service to you.
Sincerely,
Francis E. Jeffries, CFA Calvin J. Pedersen
Chairman President and Chief Executive Officer
2
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL --------------------------- MARKET
AMOUNT DUFF & STANDARD VALUE (NOTE
(000) DESCRIPTION PHELPS MOODY'S & POOR'S 1)
- ------- ------------------------------------- ------ ------- -------- -----------
<S> <C> <C> <C> <C> <C>
/ / LONG-TERM INVESTMENTS--135.4%
U.S. GOVERNMENT AND AGENCY OBLIGATIONS--32.3%
Government National Mortgage
Association
Pass-Through Certificates,
$ 3,849 8.00%, 7/15/23....................... AAA Aaa AAA $ 3,958,603
7,948 8.00%, 8/15/23....................... AAA Aaa AAA 8,173,426
3,746 8.00%, 5/15/24....................... AAA Aaa AAA 3,840,778
1,886 7.00%, 3/15/26....................... AAA Aaa AAA 1,851,339
4,994 7.50%, 5/15/26....................... AAA Aaa AAA 5,007,589
24,512 8.50%, 8/15/26....................... AAA Aaa AAA 25,469,559
U.S. Treasury Bonds,
12,900 10.750%, 2/15/03..................... AAA Aaa AAA 15,492,126
40,000 10.375%, 11/15/12.................... AAA Aaa AAA 50,774,800
-----------
114,568,220
TOTAL U.S. GOVERNMENT AND AGENCY -----------
OBLIGATIONS
(cost $115,761,380)..................
BONDS--103.1%
FINANCIAL--5.9%
10,000 American Express Co.,
8.625%, 5/15/22...................... AA- A1 A+ 10,195,700
10,000 General Motors Acceptance Corp.,
8.50%, 1/01/03....................... A- A3 A- 10,725,000
-----------
20,920,700
-----------
INDUSTRIAL--48.6%
15,000 Dayton Hudson Corp.,
8.50%, 12/01/22...................... A- Baa1 BBB+ 15,299,550
10,000 Ford Motor Co.,
8.875%, 1/15/22...................... A+ A1 A+ 11,366,400
Georgia Pacific Corp.,
10,000 9.625%, 3/15/22...................... BBB Baa2 BBB- 10,892,800
3,000 8.625%, 4/30/25...................... BBB Baa2 BBB- 3,083,850
10,250 McDonnell Douglas Corp.,
9.75%, 4/01/12....................... A- Baa1 A- 12,552,970
</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 (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL --------------------------- MARKET
AMOUNT DUFF & STANDARD VALUE (NOTE
(000) DESCRIPTION PHELPS MOODY'S & POOR'S 1)
- ------- ------------------------------------- ------ ------- -------- -----------
<S> <C> <C> <C> <C> <C>
$ 5,000 Occidental Petroleum Corp.,
8.75%, 1/15/23....................... BBB+ Baa2 BBB $ 5,505,250
15,000 Phillips Petroleum Co.,
8.49%, 1/01/23....................... BBB+ A3 A- 15,628,500
9,000 Ralston Purina Co.,
8.125%, 2/01/23...................... BBB+ Baa1 A- 9,401,760
10,000 Sears Roebuck and Co.,
9.375%, 11/01/11..................... A A2 A- 11,814,500
5,000 Sun Company, Inc.,
9.00%, 11/01/24...................... BBB Baa3 BBB 5,585,350
14,700 Tele-Communications, Inc.,
9.80%, 2/01/12....................... BB+ Ba1 BBB- 16,825,473
10,000 Tenneco, Inc.,
9.20%, 11/15/12...................... BBB- Baa1 BBB 11,451,500
Time Warner Entertainment Company,
L.P.,
5,000 10.15%, 5/01/12...................... BBB- Baa3 BBB- 6,066,450
5,000 8.875%, 10/01/12..................... BBB- Baa3 BBB- 5,516,700
7,000 Time Warner Inc.,
9.15%, 2/01/23....................... BBB- Ba1 BBB- 7,731,430
10,000 Trans-Canada Pipelines,
9.875%, 1/01/21...................... A- A2 A- 12,395,200
USX Corp.,
5,000 9.375%, 2/15/12...................... BBB Baa2 BBB- 5,770,300
5,000 8.50%, 3/01/23....................... BBB Baa3 BBB- 5,287,450
-----------
172,175,433
-----------
TELEPHONE--12.8%
5,000 AT&T Corp.,
8.625%, 12/01/31..................... AA+ Aa3 AA- 5,269,700
10,000 Bell Canada Inc.,
9.50%, 10/15/10...................... A+ A2 A+ 11,983,700
10,000 MCI Communications Corp.,
8.25%, 1/20/23....................... A A2 A 10,434,800
5,000 New York Telephone Co.,
8.625%, 11/15/10..................... A A2 A+ 5,604,050
10,125 Sprint Corp.,
9.25%, 4/15/22....................... A A3 A- 12,011,692
-----------
45,303,942
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL --------------------------- MARKET
AMOUNT DUFF & STANDARD VALUE (NOTE
(000) DESCRIPTION PHELPS MOODY'S & POOR'S 1)
- ------- ------------------------------------- ------ ------- -------- -----------
<S> <C> <C> <C> <C> <C>
UTILITIES--ELECTRIC--35.8%
$10,000 Arizona Public Service Co.,
8.00%, 2/01/25....................... BBB+ Baa2 BBB $ 9,934,200
10,000 Boston Edison Co.,
7.80%, 3/15/23....................... BBB+ Baa2 BBB 9,593,900
5,000 Connecticut Light & Power Co.,
8.50%, 6/01/24....................... BBB+ Ba1 BB+ 5,031,300
Dayton Power & Light Co.,
5,000 8.40%, 12/01/22...................... AA Aa3 AA- 5,144,150
6,000 8.15%, 1/15/26....................... AA Aa3 AA- 6,162,600
3,000 Houston Lighting & Power Co.,
7.75%, 3/15/23....................... A+ A3 A- 2,904,090
15,000 Hydro-Quebec,
8.40%, 1/15/22....................... AA A2 A+ 16,229,700
5,000 Illinois Power Co.,
8.00%, 2/15/23....................... BBB+ Baa1 BBB 5,000,600
10,000 Mississippi Power & Light Co.,
8.65%, 1/15/23....................... BBB Baa2 BBB 9,795,500
10,000 Pacific Gas & Electric Co.,
8.25%, 11/01/22...................... A A1 A+ 10,403,500
10,000 Peco Energy Co.,
8.25%, 9/01/22....................... BBB+ Baa1 BBB+ 9,970,400
5,000 Pennsylvania Power & Light Co.,
8.50%, 5/01/22....................... A A3 A- 5,243,150
9,477 Public Service Electric & Gas Co.,
8.50%, 6/01/22....................... A A3 A- 9,709,945
5,000 Tennessee Valley Authority,
8.625%, 11/15/29 Pound............... AAA Aaa AAA 5,352,000
5,000 Texas Utilities Electric Co.,
9.750%, 5/01/21...................... BBB Baa1 BBB+ 5,576,750
10,000 8.875%, 2/01/22...................... BBB Baa1 BBB+ 10,650,900
-----------
126,702,685
-----------
365,102,760
TOTAL BONDS (cost $359,846,805)......
-----------
479,670,980
TOTAL LONG TERM INVESTMENTS
(cost $475,608,185)..................
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
PORTFOLIO OF INVESTMENTS (CONCLUDED)
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE (NOTE
(000) DESCRIPTION 1)
- --------- --------------------------------------------------------- -----------
<S> <C> <C>
/ / SHORT-TERM INVESTMENTS--24.1%
COMMERCIAL PAPER--2.1%
$ 2,300 Ford Motor Credit Corp., 5.647%, 7/30/97................. $ 2,300,000
1,300 Ford Motor Credit Corp., 5.60%, 8/28/97.................. 1,300,000
3,983 International Securitization Corp., 5.6245%, 7/15/97..... 3,982,578
-----------
7,582,578
-----------
REPURCHASE AGREEMENTS--21.7%
66,444 Repurchase agreement with Goldman, Sachs & Co., 5.50%, acquired
on 6/23/97 and due 7/01/97 (collateralized by Federal National
Mortgage Association, 6.25% to 7.00%, 7/25/18 to 1/25/23, value
$66,492,412)................................................... 66,444,450
1,000 Repurchase agreement with C.S. First Boston Corp., 6.35%,
acquired on 4/23/97 and due 7/01/97 (collateralized by Federal
Home Loan Mortgage Corporation, 7.00%, 11/01/26, value
$1,002,545).................................................... 1,000,000
9,399 Repurchase agreement with C.S. First Boston Corp., 6.025%,
acquired on 6/30/97 and due 7/02/97 (collateralized by Federal
National Mortgage Association, 5.914%, 7/25/23, value
$9,462,053).................................................... 9,399,000
-------------
76,843,450
-------------
MASTER NOTE--0.3%
1,000 Metropolitan Life Insurance Co., 5.7614%@, due 4/01/98........... 1,000,000
-------------
TOTAL SHORT TERM INVESTMENTS
(cost $85,426,028)............................................... 85,426,028
-------------
TOTAL INVESTMENTS--159.5%
(cost $561,034,213) (Note 3)..................................... 565,097,008
Liabilities, less cash and
other assets--(59.5%)............................................ (210,840,332)
-------------
NET ASSETS--100%................................................. $ 354,256,676
-------------
-------------
</TABLE>
- ----------------------------
Pound This security is also a U.S. Government Agency obligation.
@ Rate in effect at June 30, 1997.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
(UNAUDITED)
ASSETS
Investments, at value (cost $561,034,213)...................... $565,097,008
Cash........................................................... 1,680,108
Interest receivable............................................ 10,262,199
Prepaid assets................................................. 54,853
Deferred organization expenses................................. 5,809
------------
Total assets............................................... 577,099,977
------------
LIABILITIES
Commercial paper (Note 5)...................................... 140,727,939
Payable upon return of securities loaned (Note 4).............. 81,826,028
Investment advisory fee payable (Note 2)....................... 148,164
Administrative fee payable (Note 2)............................ 44,449
Accrued expenses and other liabilities......................... 96,721
------------
Total liabilities.......................................... 222,843,301
------------
NET ASSETS..................................................... $354,256,676
------------
------------
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..................................... 366,422,283
Distributions in excess of net investment income............... (1,330,941)
Accumulated net realized loss on investment transactions....... (15,157,614)
Net unrealized appreciation on investments..................... 4,062,795
------------
NET ASSETS..................................................... $354,256,676
------------
------------
Net asset value per share of common stock:
($354,256,676L26,015,314 shares of common stock issued and
outstanding)................................................. $ 13.62
------------
------------
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
INVESTMENT INCOME
Interest income.............................................. $ 19,637,621
Security lending fee income.................................. 47,962
------------
Total investment income.................................... 19,685,583
------------
EXPENSES
Investment advisory fee (Note 2)............................. 874,764
Administrative fee (Note 2).................................. 262,429
Commercial paper fees........................................ 134,709
Directors' fees.............................................. 87,049
Commission expense--commercial paper......................... 71,897
Transfer agent fee and expenses.............................. 60,002
Professional fees............................................ 38,134
Custodian fee and expenses................................... 26,331
Reports to shareholders...................................... 16,820
Registration fee............................................. 16,037
Insurance.................................................... 10,685
Amortization of deferred organization expenses (Note 1)...... 4,956
Miscellaneous................................................ 1,776
------------
Total operating expenses (before interest expense)........... 1,605,589
Interest expense--commercial paper (Note 5).................. 3,953,754
------------
Total expenses............................................. 5,559,343
------------
Net investment income................................. 14,126,240
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investment transactions................. 2,510,355
Net change in unrealized appreciation on investments......... (6,023,631)
------------
Net realized and unrealized loss on investments............ (3,513,276)
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $ 10,612,964
------------
------------
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
INCREASE (DECREASE) IN CASH
Cash flows provided by (used for) operating activities:
Interest received......................................... $ 19,348,641
Expenses paid............................................. (1,662,472)
Interest expense paid..................................... (3,730,800)
Purchase of long-term portfolio investments............... (42,963,218)
Proceeds from sale of long-term portfolio investments..... 45,770,906
Net purchases in excess of proceeds from sales of
short-term portfolio investments.............................. (40,608,528)
-------------
Net cash used for operating activities.................... (23,845,471)
-------------
Cash flows provided by (used for) financing activities:
Net cash provided by securities loaned.................... 39,438,528
Net cash used for commercial paper........................ (924,768)
Cash dividends paid to shareholders....................... (15,297,012)
-------------
Net cash provided by financing activities................. 23,216,748
-------------
Net decrease in cash.......................................... (628,723)
Cash at beginning of period................................... 2,308,831
-------------
Cash at end of period......................................... $ 1,680,108
-------------
-------------
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH USED FOR OPERATING ACTIVITIES
Net increase in net assets resulting from operations.......... $ 10,612,964
-------------
Increase in investments................................... (37,800,840)
Net realized gain on investments transactions............. (2,510,355)
Net change in unrealized appreciation on investments...... 6,023,631
Increase in interest receivable........................... (336,056)
Increase in commercial paper discount..................... 222,954
Accretion of discount..................................... (886)
Amortization of deferred organization expenses............ 4,956
Increase in prepaid assets................................ (11,573)
Decrease in investment advisory fee payable............... (3,009)
Decrease in administrative fee payable.................... (903)
Decrease in accrued expenses and other liabilities........ (46,354)
-------------
Total adjustments.................................... (34,458,435)
-------------
Net cash used for operating activities........................ $ (23,845,471)
-------------
-------------
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE
JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
------------------- -------------------
<S> <C> <C>
OPERATIONS
Net investment income................. $ 14,126,240 $ 28,660,107
Net realized gain on investment
transactions........................ 2,510,355 1,140,157
Net change in unrealized appreciation
on investments...................... (6,023,631) (28,144,218)
------------------- -------------------
Net increase in net assets resulting
from operations..................... 10,612,964 1,656,046
------------------- -------------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM
Dividends from net investment
income................................ (13,966,071) (28,044,517)
Distributions in excess of net
investment income................... (1,330,941) --
------------------- -------------------
Net decrease in net assets resulting
from dividends and distributions.... (15,297,012) (28,044,517)
------------------- -------------------
Total decrease........................ (4,684,048) (26,388,471)
NET ASSETS
Beginning of period................... 358,940,724 385,329,195
------------------- -------------------
End of period......................... $ 354,256,676 $ 358,940,724
------------------- -------------------
------------------- -------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE
FOR THE PERIOD
SIX MONTHS FOR THE FOR THE FOR THE JANUARY 29,
ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1993* TO
JUNE 30, DECEMBER DECEMBER DECEMBER DECEMBER
1997 31, 31, 31, 31,
(UNAUDITED) 1996 1995 1994 1993
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 13.80 $ 14.81 $ 12.18 $ 14.78 $ 14.06**
------------ ----------- ----------- ----------- -----------
Net investment income....................... 0.54 1.10 1.09 1.18 1.08
Net realized and unrealized gain (loss) on
investment transactions................... (0.13) (1.03) 2.72 (2.60) 0.76
------------ ----------- ----------- ----------- -----------
Net increase (decrease) from investment
operations.................................. 0.41 0.07 3.81 (1.42) 1.84
------------ ----------- ----------- ----------- -----------
Dividends from net investment income......... (0.54) (1.08) (1.11) (1.18) (1.06)
Distributions in excess of net investment
income...................................... (0.05) -- (0.07) -- --
Distributions from realized gains on
investments................................. -- -- -- -- (0.06)
------------ ----------- ----------- ----------- -----------
Total dividends and distributions............ (0.59) (1.08) (1.18) (1.18) (1.12)
------------ ----------- ----------- ----------- -----------
Net asset value, end of period***............ $ 13.62 $ 13.80 $ 14.81 $ 12.18 $ 14.78
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
Per share market value, end of period***..... $ 13.1875 $ 12.875 $ 13.875 $ 11.125 $ 14.25
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN+..................... 7.06% 0.69% 36.21% (14.19)% 2.33%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses........................... 0.80%****++ 0.80%**** 0.78%**** 0.78%**** 0.73%++
Commercial paper expenses.................... 2.38%++ 2.30% 2.52% 1.46% --
Net investment income........................ 8.07%++ 8.02% 7.92% 8.87% 7.87%++
SUPPLEMENTAL DATA:
Portfolio turnover........................... 9% 13% 5% 149% 282%
Net assets, end of period (000).............. $ 354,257 $ 358,941 $ 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.
11
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (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.
Exchange-traded 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 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 and capital gains, if any, 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 $17,667,969 at December 31, 1996, of which
$12,885,557 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, are
expected to be distributed annually unless the Trust nets them against capital
loss carryforwards. 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.
12
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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.
REPURCHASE AGREEMENTS: Repurchase agreements are fully collateralized by U.S.
Treasury or Government Agency securities. All collateral is held through the
Trust's custodian and is monitored daily so that its market value exceeds the
carrying value of the repurchase agreement.
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 directors and officers of
the Trust who are full-time employees 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, 1997, the Trust had purchases of
$42,963,218 and sales of $45,770,906 of investment securities, other than
short-term investments. For the six months ended June 30, 1997, the Trust had no
purchases or sales of U.S. Government securities.
The Federal income tax basis of the Trust's investments at June 30, 1997 was
$561,034,213, and accordingly, net unrealized appreciation aggregated
$4,062,795, of which $9,368,320 related to appreciated securities and $5,305,525
related to depreciated securities.
NOTE 4. 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.
As of June 30, 1997, the Trust's custodian held cash and short-term
investments having an aggregate value of $81,826,028 as collateral for portfolio
securities loaned having a market value of $79,742,101.
NOTE 5. COMMERCIAL PAPER
As of June 30, 1997, $143,000,000 of commercial paper was outstanding with an
amortized cost of $140,727,939. The average discount rate of commercial paper
outstanding at June 30, 1997 was 5.66%. The average daily balance of commercial
paper outstanding for the six months ended June 30, 1997 was $143,000,000 at a
weighted average discount rate of 5.58%. The maximum amount of commercial paper
outstanding at any time during the six months 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, 1997, 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, 1997, Phoenix Duff
& Phelps Corporation owned 11,731 shares.
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.
Funds sent to the Plan Agent for voluntary additional share investment may be
recalled 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 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 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
14
<PAGE>
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.
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.
PROXY RESULTS
At the May 27, 1997 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>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
SHARES WITHHOLD
VOTED FOR AUTHORITY
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. To elect five directors to serve until the Annual Meeting in the years
indicated below or until their successors are duly elected and qualified:
William N. Georgeson (1999) 21,943,934 276,199
Francis E. Jeffries (1999) 21,953,099 267,034
Eileen A. Moran (1999) 21,889,779 330,354
Harry Dalzell-Payne (2000) 21,882,603 337,530
Philip R. McLoughlin (1998) 21,890,236 329,897
Directors whose term of office continued beyond this meeting are as
follows:
E. Virgil Conway, William W. Crawford,
Richard A. Pavia and
Everett L. Morris.
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
SHARES VOTED SHARES
VOTED FOR AGAINST ABSTAINING
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Ernst & Young LLP as independent
auditors for the Fund's fiscal year ending December 31, 1997: 21,787,904 168,936 263,293
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</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.
15
