DEAR FELLOW SHAREHOLDERS:
In spite of a difficult year for the U.S. bond market, your Fund continued to
pay its 9.8 cent monthly dividend throughout 1996. The annual dividend of $1.176
represents a yield of 9.13 percent on the year end closing price of $12.875.
Early in the second half of 1996, economic data began suggesting that the
economy was in the process of decelerating from the second quarter's GDP rate of
4.7 percent. For example, July's report on industrial production, which had
accelerated strongly during the second quarter, signaled that industrial
production was settling into a less inflation-threatening mode. The moderating
trend of industrial production was helped by the mid-summer General Motors'
strike and a general slowdown in consumer demand. Consumer demand went into a
swoon during the summer as shoppers felt spent from the fever pace of buying
during the previous quarter. Furthermore, consumers felt constrained from future
spending, as their debt repayments took an increasingly larger percentage of
their take-home pay. Also, housing starts began showing signs of slowing due to
the nearly 1.10 percentage point increase in ten year U.S. Treasury yields
during the first half of 1996. Exports added very little to economic growth as
the economies of Europe and Japan remained mired in sub-par growth. Lastly,
reflective of the general feeling that the economy was slowing was the fact that
the National Puchasing Managers Survey declined from 54.3 percent at the end of
June, to 50.2 percent by November's end. The importance of the survey's decline
lies in the fact that a reading of 50.0 percent is suggestive of a
non-accelerating economy.
The end result of these signs of moderating economic growth was a decline on
the yield on longer-dated U.S. Treasury securities through the latter part of
November. For example, from mid-year to the latter part of November,
longer-dated Treasury yields declined from 6.89 percent to 6.35 percent.
Unfortunately, the declining trend in interest rates did not continue through
year-end, as the economy once again began showing signs of renewed growth with
the engines of consumer spending (jobs, income and confidence) still in
evidence. As a result, the fixed income markets were reminded again that the
Federal Reserve would remain vigilant to the effects of stronger economic growth
on inflation. Predictably, therefore, the yield on longer-dated Treasurys
increased to 6.63 percent at year end. For the year as a whole, longer-dated
Treasury yields rose almost one percentage point. In spite of December's back up
rates, the second half of 1996 was able to show a nicely positive rate of
return. For example, the Lehman Brothers Aggregate Index, generally considered
to be reflective of the investment grade fixed income markets, had a total rate
of return in the second half of 1996 of 4.90 percent. When linked to the first
half's return of -1.21 percent, however, the index was only able to generate a
1996 return of 3.63 percent.
FUND PERFORMANCE
For the six months ended December 31, 1996, the Trust had a total return on
net asset value of 7.45 percent as measured by Lipper Analytical Services, Inc.
By comparison, Lipper's universe of Investment Grade Bond Funds had a total
return on net asset value of 5.98 percent. For the year, the Trust had a total
return on market value of 0.85 percent as measured by Lipper Analytical
Services, Inc., whereas the Lipper Investment Grade Bond Fund universe had a
total return on market value of 4.34 percent. The Trust's longer duration and
leverage certainly contributed to the market value underperformance when viewed
against the Investment Grade Bond Fund universe.
For the year, the generally negative tone of the fixed income markets had an
equally negative impact on the Trust's net asset value (NAV). For example, the
NAV ended 1996 at $13.80, which was down $1.01 from the year ago level. Lastly,
the common stock quote at year end of $12.875 was down $1.00 from 1995's closing
level.
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
1
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<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--32.9%
Government National Mortgage
Association
Pass-Through Certificates
$ 4,075 8.00%, 7/15/23....................... AAA Aaa AAA $ 4,179,075
8,496 8.00%, 8/15/23....................... AAA Aaa AAA 8,704,682
4,048 8.00%, 5/15/24....................... AAA Aaa AAA 4,136,105
1,967 7.00%, 3/15/26....................... AAA Aaa AAA 1,925,143
5,019 7.50%, 5/15/26....................... AAA Aaa AAA 5,020,928
25,781 8.50%, 8/15/26....................... AAA Aaa AAA 26,715,581
U.S. Treasury Bonds
12,900 10.750%, 2/15/03..................... AAA Aaa AAA 15,794,373
40,000 10.375%, 11/15/12.................... AAA Aaa AAA 51,512,400
-----------
117,988,287
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS
(cost $118,243,397)..................
-----------
BONDS--102.5%
FINANCIAL--6.0%
10,000 American Express Co.
8.625%, 5/15/22...................... AA- A1 A+ 10,599,600
10,000 General Motors Acceptance Corp.
8.50%, 1/01/03....................... A- A3 A- 10,814,300
-----------
21,413,900
-----------
INDUSTRIAL--47.8%
10,000 Atlantic Richfield Co.
9.875%, 3/01/16...................... NR A2 A 12,518,800
10,000 Caterpillar, Inc.
9.375%, 3/15/21...................... A A2 A 12,215,800
15,000 Dayton Hudson Corp.
8.50%, 12/01/22...................... A- Baa1 BBB+ 15,489,600
10,000 Ford Motor Co.
8.875%, 1/15/22...................... A+ A1 A+ 11,551,200
10,000 Georgia Pacific Corp.
9.625%, 3/15/22...................... BBB Baa2 BBB- 10,889,400
3,000 8.625%, 4/30/25...................... BBB Baa2 BBB- 3,099,300
10,250 McDonnell Douglas Corp.
9.75%, 4/01/12....................... A- Baa1 A- 12,737,573
</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, 1996
<TABLE><CAPTION>
RATINGS*
PRINCIPAL --------------------------- MARKET
AMOUNT DUFF & STANDARD VALUE (NOTE
(000) DESCRIPTION PHELPS MOODY'S & POOR'S 1)
- ------- ------------------------------------- ------ ------- -------- -----------
<S> <C> <C> <C> <C> <C>
$10,000 Occidental Petroleum Corp.
8.75%, 1/15/23....................... BBB+ Baa2 BBB $11,254,500
15,000 Phillips Petroleum Co.
8.49%, 1/01/23....................... NR A3 A- 15,855,000
9,000 Ralston Purina Co.
8.125%, 2/01/23...................... BBB+ Baa1 A- 9,318,510
10,000 Sears Roebuck and Co.
9.375%, 11/01/11..................... A A2 A- 11,957,800
10,000 Tele-Communications, Inc.
9.80%, 2/01/12....................... BB- Ba1 BBB- 10,822,000
10,000 Tenneco, Inc.
9.20%, 11/15/12...................... BBB- Baa3 BBB- 11,345,300
5,000 Time Warner Entertainment Company,
L.P.
10.15%, 5/01/12...................... NR Baa3 BBB- 5,996,850
5,000 8.875%, 10/01/12..................... NR Baa3 BBB- 5,465,500
5,000 USX Corp.
9.375%, 2/15/12...................... BBB Baa2 BBB- 5,801,950
5,000 8.50%, 3/01/23....................... BBB Baa3 BBB- 5,391,250
-----------
171,710,333
-----------
TELEPHONE--9.3%
5,000 AT&T Corp.
8.625%, 12/01/31..................... AA+ Aa3 AA- 5,294,400
10,000 Bell Canada Inc.
9.50%, 10/15/10...................... NR A1 A+ 12,063,400
10,000 MCI Communications Corp.
8.25%, 1/20/23....................... A A2 A 10,445,000
5,000 New York Telephone Co.
8.625%, 11/15/10..................... A A2 A 5,663,800
-----------
33,466,600
-----------
UTILITIES--ELECTRIC--39.4%
10,000 Arizona Public Service Co.
8.00%, 2/01/25....................... BBB Baa2 BBB 10,097,100
10,000 Boston Edison Co.
7.80%, 3/15/23....................... BBB+ Baa2 BBB 9,109,800
11,700 Commonwealth Edison Co.
9.875%, 6/15/20...................... BBB Baa2 BBB 13,357,890
5,000 Connecticut Light & Power Co.
8.50%, 6/01/24....................... NR Baa3 BBB- 5,165,850
</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)
DECEMBER 31, 1996
<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 Dayton Power & Light Co.
8.40%, 12/01/22...................... AA Aa3 AA- $ 5,227,050
6,000 8.15%, 1/15/26....................... AA Aa3 AA- 6,269,340
3,000 Houston Lighting & Power Co.
7.75%, 3/15/23....................... A+ A3 A- 2,985,120
15,000 Hydro-Quebec
8.40%, 1/15/22....................... AA A2 A+ 16,382,250
5,000 Illinois Power Co.
8.00%, 2/15/23....................... BBB+ Baa1 BBB 5,134,300
10,000 Mississippi Power & Light Co.
8.65%, 1/15/23....................... NR Baa2 BBB 10,038,200
10,000 Pacific Gas & Electric Co.
8.25%, 11/01/22...................... NR A2 A 10,408,100
10,000 Peco Energy Co.
8.25%, 9/01/22....................... BBB+ Baa1 BBB+ 10,096,400
5,000 Pennsylvania Power & Light Co.
8.50%, 5/01/22....................... NR A3 A- 5,282,700
9,711 Public Service Electric & Gas Co.
8.50%, 6/01/22....................... A A3 A- 10,215,388
5,000 Tennessee Valley Authority
8.625%, 11/15/29 Pound............... NA Aaa AAA 5,265,600
5,000 Texas Utilities Electric Co.
9.750%, 5/01/21...................... NR Baa2 BBB+ 5,658,850
10,000 8.875%, 2/01/22...................... NR Baa2 BBB+ 10,718,000
-----------
141,411,938
-----------
368,002,771
TOTAL BONDS (cost $357,661,235)......
-----------
/ / SHORT-TERM INVESTMENTS-- 12.5%
COMMERCIAL PAPER--0.7%
2,500 Ford Motor Credit Corporation 2,500,000
5.364%, 1/30/97......................
</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 (CONCLUDED)
DECEMBER 31, 1996
<TABLE><CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE (NOTE
(000) DESCRIPTION 1)
- --------- --------------------------------------------------------- -----------
<S> <C> <C>
REPURCHASE AGREEMENTS--7.8%
Repurchase agreement with Deutsche Morgan Grenfell Inc.,
$22,653 6.00%, acquired on 12/31/96 and due 1/03/97
(collateralized by U.S. Treasury Notes, 6.875%,
5/15/06)............................................... $22,652,500
789 Repurchase agreement with Nomura Securities, Inc., 7.50%,
acquired on 12/31/96 and due 1/02/97 (collateralized by
Federal National Mortgage Association Principal-only
Stripped Security, 7.50%, 7/01/26)..................... 789,000
4,500 Repurchase agreement with Salomon Brothers Inc., 7.04%
acquired on 12/31/96 and due 1/03/97 (collateralized by
U.S. Treasury Strips, 2/15/26)......................... 4,500,000
-----------
27,941,500
-----------
MASTER NOTE--0.3%
1,000 Met Life, 5.6875%, due 4/01/97........................... 1,000,000
MEDIUM TERM NOTE--2.8%
Ford Motor Credit Corp. Floating Rate Note, 5.7925% @,
10,000 due 10/21/97........................................... 10,000,000
MONEY MARKET FUND--0.9%
3,376 Merrimac Cash Fund, 5.333%@.............................. 3,376,000
TOTAL SHORT TERM INVESTMENTS
-----------
(cost $44,817,500)....................................... 44,817,500
-----------
TOTAL INVESTMENTS--147.9%
(cost $520,722,132) (Note 3)........................... 530,808,558
Liabilities, less cash and
other assets--(47.9%)..................................
(171,867,834)
-----------
NET ASSETS--100%......................................... 358,940,724
-----------
-----------
</TABLE>
- ----------------------------
NR - Not Rated.
* Ratings of issues shown have not been audited by Ernst & Young LLP.
Pound This security is also a U.S. Government Agency obligation.
@ Rate in effect at December 31, 1996.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $520,722,132)......................... $530,808,558
Cash.............................................................. 2,308,831
Interest receivable............................................... 9,926,143
Prepaid assets.................................................... 43,280
Deferred organization expenses.................................... 10,765
------------
Total assets.................................................. 543,097,577
------------
LIABILITIES
Commercial paper (Note 5)......................................... 141,429,753
Payable upon return of securities loaned (Note 4)................. 42,387,500
Investment advisory fee payable (Note 2).......................... 151,173
Administrative fee payable (Note 2)............................... 45,352
Accrued expenses and other liabilities............................ 143,075
------------
Total liabilities............................................. 184,156,853
------------
NET ASSETS........................................................ $358,940,724
------------
------------
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.................. (160,169)
Accumulated net realized loss on investment transactions.......... (17,667,969)
Net unrealized appreciation on investments........................ 10,086,426
------------
NET ASSETS........................................................ $358,940,724
------------
------------
Net asset value per share of common stock:
($358,940,724 / 26,015,314 shares of common stock issued and
outstanding).................................................... $ 13.80
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest income................................................. $ 39,612,763
Other income.................................................... 118,316
------------
Total investment income....................................... 39,731,079
------------
EXPENSES
Investment advisory fee (Note 2)................................ 1,786,117
Administrative fee (Note 2)..................................... 535,834
Commercial paper fees........................................... 265,239
Transfer agent fee and expenses................................. 141,381
Commission expense--commercial paper............................ 145,383
Directors' fees................................................. 147,934
Professional fees............................................... 74,739
Custodian fee and expenses...................................... 53,653
Reports to shareholders......................................... 36,720
Registration fee................................................ 32,340
Insurance....................................................... 21,547
Amortization of deferred organization expenses (Note 1)......... 10,021
Miscellaneous................................................... 5,772
------------
Total operating expenses (before interest expense).............. 3,256,680
Interest expense--commercial paper (Note 5)..................... 7,814,292
------------
Total expenses................................................ 11,070,972
------------
Net investment income.................................... 28,660,107
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investment transactions.................... 1,140,157
Net change in unrealized appreciation on investments............ (28,144,218)
------------
Net realized and unrealized loss on investments............... (27,004,061)
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $ 1,656,046
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH
Cash flows provided by (used for) operating activities:
Interest received............................................ $ 40,010,769
Expenses paid................................................ (3,223,300)
Interest expense paid........................................ (7,483,545)
Purchase of long-term portfolio investments.................. (62,833,622)
Proceeds from sale of long-term portfolio investments........ 65,558,344
Net purchases in excess of proceeds from sales of short-term
portfolio investments............................................ (8,238,732)
-------------
Net cash provided by operating activities.................... 23,789,914
-------------
Cash flows provided by (used for) financing activities:
Net cash provided by securities loaned....................... 8,308,732
Net cash used for commercial paper........................... (295,914)
Cash dividends paid to shareholders.......................... (30,594,018)
-------------
Net cash used for financing activities....................... (22,581,200)
-------------
Net increase in cash............................................. 1,208,714
Cash at beginning of year........................................ 1,100,117
-------------
Cash at end of year.............................................. $ 2,308,831
-------------
-------------
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............. $ 1,656,046
-------------
Increase in investments...................................... (5,514,010)
Net realized gain on investments transactions................ (1,140,157)
Net change in unrealized appreciation on investments......... 28,144,218
Decrease in interest receivable.............................. 283,493
Increase in commercial paper discount........................ 330,747
Accretion of discount........................................ (3,803)
Amortization of deferred organization expenses............... 10,021
Decrease in prepaid assets................................... 17,663
Decrease in investment advisory fee payable.................. (7,811)
Decrease in administrative fee payable....................... (2,343)
Increase in accrued expenses and other liabilities........... 15,850
-------------
Total adjustments....................................... 22,133,868
-------------
Net cash provided by operating activities........................ $ 23,789,914
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<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, 1996 DECEMBER 31, 1995
------------------- -------------------
<S> <C> <C>
OPERATIONS
Net investment income................. $ 28,660,107 $ 28,302,814
Net realized gain (loss) on investment
transactions........................ 1,140,157 (4,787,257)
Net change in unrealized appreciation
on investments...................... (28,144,218) 75,587,484
------------------- -------------------
Net increase in net assets resulting
from operations..................... 1,656,046 99,103,041
------------------- -------------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM
Dividends from net investment
income................................ (28,044,517) (28,809,860)
Distributions in excess of net
investment income................... -- (1,784,163)
------------------- -------------------
Net decrease in net assets resulting
from dividends and distributions.... (28,044,517) (30,594,023)
------------------- -------------------
CAPITAL SHARE TRANSACTIONS
(NOTE 6)
Tender offer costs charged to
additional paid-in capital.......... -- (21,699)
------------------- -------------------
Net decrease in net assets resulting
from capital share transactions..... -- (21,699)
------------------- -------------------
Total increase (decrease)........... (26,388,471) 68,487,319
NET ASSETS
Beginning of year..................... 385,329,195 316,841,876
------------------- -------------------
End of year........................... $ 358,940,724 $ 385,329,195
------------------- -------------------
------------------- -------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
FINANCIAL HIGHLIGHTS
<TABLE><CAPTION>
FOR THE PERIOD
FOR THE FOR THE FOR THE JANUARY 29, 1993*
YEAR ENDED YEAR ENDED YEAR ENDED TO DECEMBER 31,
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 1993
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................ $ 14.81 $ 12.18 $ 14.78 $ 14.06**
------------------ ------------------ ------------------ ------------------
Net investment income 1.10 1.09 1.18 1.08
Net realized and
unrealized gain (loss)
on investment
transactions........... (1.03) 2.72 (2.60) 0.76
------------------ ------------------ ------------------ ------------------
Net increase (decrease)
from investment
operations............... 0.07 3.81 (1.42) 1.84
------------------ ------------------ ------------------ ------------------
Dividends from net
investment income........ (1.08) (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............ (1.08) (1.18) (1.18) (1.12)
------------------ ------------------ ------------------ ------------------
Net asset value, end of
period................... $ 13.80 $ 14.81 $ 12.18 $ 14.78
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
Per share market value,
end of period***......... $ 12.875 $ 13.875 $ 11.125 $ 14.25
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
TOTAL INVESTMENT
RETURN+.................. 0.69% 36.21% (14.19)% 2.33%
RATIOS TO AVERAGE
NET ASSETS:
Operating expenses........ 0.80%**** 0.78%**** 0.78%**** 0.73%++
Commercial paper
expenses................. 2.30% 2.52% 1.46% --
Net investment income..... 8.02% 7.92% 8.87% 7.87%++
SUPPLEMENTAL DATA:
Portfolio turnover........ 13% 5% 149% 282%
Net assets, end of period
(000).................... $ 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.
10
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
NOTES TO FINANCIAL STATEMENTS
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.
RECLASSIFICATION OF COMPONENTS OF NET ASSETS: On the statement of assets and
liabilities, as a result of permanent book-to-tax differences, $1,008,404 has
been reclassed from distributions in excess of net investment income to
additional paid-in capital. This reclassification has no effect on net assets or
net asset value per share. Additionally, certain reclassifications have been
made to amounts reported at December 31, 1995 to conform to the current
financial statement presentation.
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.
11
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DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DEFERRED ORGANIZATION COSTS: A total of $50,000 was incurred in connection with
the organization of the Trust. These costs have been deferred and are being
amortized ratably over a period of sixty months from the date the Trust
commenced investment operations.
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
Fund's custodian and is monitored daily so that it's 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 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, 1996, the Trust had purchases of $34,241,284
and sales of $15,841,767 of investment securities, other than short-term
investments. For the year ended December 31, 1996, the Trust had purchases of
$28,592,338 and sales of $54,925,095 of U.S. Government securities.
The Federal income tax basis of the Trust's investments at December 31, 1996
was $520,722,132, and accordingly, net unrealized appreciation aggregated
$10,086,426, of which $13,149,502 related to appreciated securities and
$3,063,076 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 December 31, 1996, the Trust's custodian held cash and short term
investments having an aggregate value of $42,387,500 as collateral for portfolio
securities loaned having a market value of $40,857,650.
NOTE 5. COMMERCIAL PAPER
As of December 31, 1996, $143,000,000 of commercial paper was outstanding
with an amortized cost of $141,429,753. The average discount rate of commercial
paper outstanding at December 31, 1996 was 5.44%. The average daily balance of
commercial paper outstanding for the year ended December 31, 1996 was
$143,000,000 at a weighted average discount rate of 5.46%. 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, 1996, there were no borrowings under this arrangement.
NOTE 6. CAPITAL
There are 600,000,000 shares of $.01 par value common stock authorized. Of
the 26,015,314 shares of common stock outstanding at December 31, 1996, Phoenix
Duff & Phelps Corporation owned 11,223 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.
12
<PAGE>
REPORT OF 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, 1996, 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, 1996, 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, 1996, 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 periods indicated therein, in conformity
with generally accepted accounting principles.
Chicago, Illinois
February 6, 1997
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.
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<PAGE>
The Plan Agent will make every effort to invest funds promptly, and in no
event more than 30 days after the Plan Agent receives a dividend or
distribution, except where postponement is deemed necessary to comply with
applicable provisions of the federal securities laws.
Funds sent to the Plan Agent for voluntary additional share investment may
be re-called by the participant by written notice received by the Plan Agent not
later than two business days before the next distribution payment date. If for
any reason a regular monthly distribution is not paid by the Trust, funds for
voluntary additional share investment will be returned to the participant,
unless the participant specifically directs that they continue to be held by the
Plan Agent for subsequent investment.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent. When a participant withdraws from the Plan or upon termination
of the Plan as provided below, certificates for whole Trust shares credited to
his or her account under the Plan will be issued and a cash payment will be made
for any fraction of a share credited to such account. An election to withdraw
from the Plan will, until such election is changed, be deemed to be an election
by a Common shareholder to take all subsequent dividends and distributions in
cash. Elections will only be effective for dividends and distributions declared
after, and with a record date of at least ten days after, such elections are
received by the Plan Agent. There is no penalty for non-participation in or
withdrawal from the Plan, and Common shareholders who have withdrawn from the
Plan may rejoin it at any time.
The Plan Agent maintains each shareholder's account in the Plan and
furnishes monthly written confirmations of all transactions in the accounts,
including information needed by shareholders for personal and tax records.
Shares in the account of each Plan participant will be held by the Plan Agent in
non-certificated form in the name of the participant, and each shareholder's
proxy will include those shares purchased pursuant to the Plan.
Common shareholders whose Common Stock is held in the name of a broker or
nominee should contact such broker or nominee to determine whether or how they
may participate in the Plan.
In the case of shareholders, such as banks, brokers or nominees, that hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
record shareholder as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who are
participants in the Plan.
The automatic reinvestment of dividends and distributions will not relieve
participants of any federal income tax that may be payable or required to be
withheld on such dividends or distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all participants in the Plan at least 90 days before the record
date for the dividend or distribution. The Plan may also be amended or
terminated by the Plan Agent by at least 90 days' written notice to all
participants in the Plan. All questions concerning the Plan should be directed
to the Plan Agent by calling 1-800-524-4458.
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<PAGE>
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
None of the ordinary income distributions paid by the Trust during the
fiscal year ended December 31, 1996, qualifies for the dividends received
deduction for corporations. Additionally, there were no long-term capital gain
distributions paid, as determined for federal tax purposes 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
FEDERAL
QUARTER ENDED OBLIGATIONS*
---------------------------- ------------
March 31, 1996 19.61%
June 30, 1996 18.39%
September 30, 1996 19.02%
December 31, 1996 13.44%
Of the Trust's distributions paid to shareholders from ordinary income during
the calendar year ended December 31, 1996, 17.39% 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.
- -------------------------------------------------------------------------------
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. There have been no changes in
the persons who are primarily responsible for the day-to-day management of the
Trust's portfolio.
16
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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
Mary Jo Metz
Treasurer & Assistant Secretary
INVESTMENT ADVISER
Duff & Phelps Investment Management Co.
55 East Monroe Street
Chicago, IL 60603
(312) 541-5555
ADMINISTRATOR
Princeton Administrators, L.P.
P.O. Box 9095
Princeton, NJ 08543-9095
(800) 688-0928
CUSTODIAN AND TRANSFER AGENT
The Bank of New York
P.O. Box 11258
Church Street Station
New York, NY 10286
(800) 524-4458
INDEPENDENT AUDITORS
Ernst & Young LLP
233 South Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom (Illinois)
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
ANNUAL REPORT
DECEMBER 31, 1996
DUFF & PHELPS
UTILITY AND
CORPORATE
BOND TRUST
