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 & Treasurer
Dennis A. Cavanaugh
Senior Vice President, Chief Investment Officer & Assistant Treasurer
Thomas N. Steenburg
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
<PAGE>
ANNUAL REPORT
DECEMBER 31, 1997
DUFF & PHELPS
UTILITY AND
CORPORATE
BOND TRUST
DUFF & PHELPS UTILITY AND
CORPORATE BOND TRUST
<PAGE>
DEAR FELLOW SHAREHOLDERS:
The second half of 1997 was very positive for our domestic fixed income markets.
For example, the Lehman Brothers Aggregate Index gained 6.36 percent while the
Trust gained 10.83 percent as calculated by Lipper Analytical Services, Inc.
based upon net asset value. Combining these returns with the first half
performance results produced a total rate of return of 9.65 percent for the
Lehman Index and a total rate of return on net asset value (with reinvestment of
dividends) as measured by Lipper Analytical Services, Inc. of 14.28 percent for
the Trust. Other good news for shareholders includes the fact that, measured on
the market price, the Trust's common stock had a 1997 price appreciation of
$1.563 and, when combined with the annual dividend payout of $1.176, the common
stock had a total return on a market price basis (with reinvestment of
dividends) of 22.21 percent. In addition, based on the 1997 closing stock price
of $14.4375, the monthly dividend of 9.8 cents provided an annual dividend yield
of 8.15 percent. Also, the discount of the common stock to the net asset value
(NAV) ended 1997 at -0.29 percent after trading in a 1997 range of +0.88 percent
to -5.82 percent. Lastly, the NAV appreciated 68 cents during the year and
closed at $14.48.
As the above investment results suggest, the second half of 1997 provided a
positive backdrop for our fixed income markets. Normally, six years into an
economic expansion, with continued above-trend economic results, market
participants would have become concerned that perhaps the Federal Reserve had
fallen behind the yield curve since it had held monetary policy steady for the
last three quarters. However, perhaps things are different this time as
above-trend economic growth has not been accompanied by rising inflation. This
'new paradigm,' combined with what started out as an isolated event in Thailand
in mid-summer, produced a very powerful series of events which allowed our
interest rates in general to decline during the second half of 1997. For
example, even though the Fed held short-term interest rates steady since March,
the confluence of events allowed the two-year U.S. Treasury yields to decline 59
basis points and end the year yielding 5.47 percent (which was 3 basis points
lower than federal funds). Similarly, longer-dated U.S. Treasury yields declined
86 basis points and ended the year yielding 5.92 percent.
In general, signs of continued above-trend economic growth seemed to have had
little or no immediate impact on the general level of interest rates, especially
during the last quarter of the year. In fact, at times it took a not so subtle
reminder from the Federal Reserve Chairman that the fixed income markets should
not become too complacent about the current low inflation rate. His admonitions
centered around tight labor markets and strong economic growth which might be on
an unsustainable track, but even this warning had only a brief negative impact
on interest rates. Market participants seemed to embrace the 'new paradigm'
which suggests that because of years of corporate downsizing, management
efficiencies and the technological revolution, productivity had improved so that
above-trend economic growth need not ignite inflation or inflationary
expectations. Regardless of the reason, in general, economic reports took a back
seat to events which were unfolding in Southeast Asia. This trend was especially
evident in the latter months of the year.
What most market participants believed was an isolated currency event in
Thailand during the summer was actually the beginning of something quite serious
and still of unknown proportions. The initial impact of the Thailand devaluation
was to set off a somewhat delayed chain reaction of currency devaluations
throughout the region. Late in October, the Hong Kong dollar came under attack
by speculators and caused a substantial one day decline in its stock market
which sent shock waves around the world's financial markets, including a 554
point decline in the Dow Jones Industrial Average. The Asian flu soon spread to
South Korea where a developing short-term liquidity crisis raised questions as
to whether the world's eleventh largest economy could actually be required to
impose a moratorium on debt repayment. That country's financial crisis deepened
towards year-end and its currency went into a freefall. This event coupled with
the problems of other countries in the region, threatened the solvency of the
entire Southeast Asian region. The uncertainty of the global implications of
such events produced several side effects which exerted a major influence on our
general level of interest rates. For example, the uncertainty continued the
flight to quality process, whereby international capital sought a safe haven in
our U.S. Treasury securities and pushed rates lower across the entire yield
curve. In addition, it was believed that the imposition of stringent
1
<PAGE>
International Monetary Fund bailout conditions would lead to a general economic
slowdown in the region and, by inference, that our economy would suffer a
slowdown caused by a slowing of exports to the Southeast Asia region. Finally,
it was felt that because of the competitive pressures arising from the region,
inflation would be held in check. As suggested above, these international events
provided a very positive tone to the U.S. fixed income markets, especially
during the fourth quarter of 1997.
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 15.
We appreciate your investment in Duff & Phelps Utility and Corporate Bond Trust
Inc. and look forward to continuing our service to you.
Sincerely,
/s/ Francis E. Jeffries /s/ Calvin J. Pedersen
Francis E. Jeffries, CFA Calvin J. Pedersen, CFA
Chairman President, Chief Executive Officer &
Treasurer
2
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
RATINGS (UNAUDITED)
PRINCIPAL --------------------------- MARKET
AMOUNT DUFF & STANDARD VALUE (NOTE
(000) DESCRIPTION PHELPS MOODY'S & POOR'S 1)
- ------- ------------------------------------- ------ ------- -------- -----------
<S> <C> <C> <C> <C> <C>
/ / LONG-TERM INVESTMENTS--134.2%
U.S. GOVERNMENT AND AGENCY OBLIGATIONS--30.4%
Government National Mortgage
Association
Pass-Through Certificates,
$ 3,566 8.00%, 7/15/23....................... AAA Aaa AAA $ 3,711,912
7,250 8.00%, 8/15/23....................... AAA Aaa AAA 7,546,792
3,521 8.00%, 5/15/24....................... AAA Aaa AAA 3,654,224
1,803 7.00%, 3/15/26....................... AAA Aaa AAA 1,817,158
4,966 7.50%, 5/15/26....................... AAA Aaa AAA 5,087,467
22,529 8.50%, 8/15/26....................... AAA Aaa AAA 23,662,747
U.S. Treasury Bonds,
12,900 10.750%, 2/15/03..................... AAA Aaa AAA 15,717,876
40,000 10.375%, 11/15/12.................... AAA Aaa AAA 53,150,000
-----------
114,348,176
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS
(cost $112,414,932)..................
-----------
BONDS--103.8%
FINANCIAL--9.9%
10,000 American Express Co.,
8.625%, 5/15/22...................... AA- A1 A+ 10,861,800
5,000 Countrywide Credit Industries Inc.
8.00%, 12/15/26...................... A A3 A- 5,139,450
10,000 General Motors Acceptance Corp.,
8.50%, 1/01/03....................... A- A3 A- 10,925,100
10,000 Great Western Financial Corp.
8.206%, 2/01/27...................... A A3 BBB- 10,606,200
-----------
37,532,550
-----------
INDUSTRIAL--48.6%
15,000 Dayton Hudson Corp.,
8.50%, 12/01/22...................... A- Baa1 BBB+ 16,185,600
10,000 Ford Motor Co.,
8.875%, 1/15/22...................... A+ A1 A 12,333,800
10,000 Georgia Pacific Corp.,
9.625%, 3/15/22...................... BBB Baa2 BBB- 11,340,900
3,000 8.625%, 4/30/25...................... BBB Baa2 BBB- 3,232,320
10,250 McDonnell Douglas Corp.,
9.75%, 4/01/12....................... A- A2 AA+ 13,206,203
</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, 1997
<TABLE>
<CAPTION>
RATINGS (UNAUDITED)
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 $ 6,028,250
15,000 Phillips Petroleum Co.,
8.49%, 1/01/23....................... BBB+ A3 A- 16,172,100
9,000 Ralston Purina Co.,
8.125%, 2/01/23...................... BBB+ Baa1 A- 10,215,810
10,000 Sears Roebuck and Co.,
9.375%, 11/01/11..................... A A2 A- 12,339,900
5,000 Sun Company, Inc.,
9.00%, 11/01/24...................... BBB Baa3 BBB 6,133,900
14,700 Tele-Communications, Inc.,
9.80%, 2/01/12....................... BB+ Ba1 BBB- 18,275,187
10,000 Tenneco, Inc.,
9.20%, 11/15/12...................... BBB- Baa1 BBB 12,174,800
5,000 Time Warner Entertainment Company,
L.P.,
10.15%, 5/01/12...................... BBB- Baa3 BBB- 6,395,050
5,000 8.875%, 10/01/12..................... BBB- Baa3 BBB- 5,864,600
7,000 Time Warner Inc.,
9.15%, 2/01/23....................... BBB- Ba1 BBB- 8,624,630
10,000 Trans-Canada Pipelines,
9.875%, 1/01/21...................... A- A2 A- 12,614,800
5,000 USX Corp.,
9.375%, 2/15/12...................... BBB Baa3 BBB- 6,097,100
5,000 8.50%, 3/01/23....................... BBB Baa3 BBB- 5,778,050
-----------
183,013,000
-----------
TELEPHONE--12.6%
5,000 AT&T Corp.,
8.625%, 12/01/31..................... AA+ Aa3 AA- 5,504,100
10,000 Bell Canada Inc.,
9.50%, 10/15/10...................... A+ A2 A+ 12,481,600
10,000 MCI Communications Corp.,
8.25%, 1/20/23....................... A A2 A 10,750,800
5,000 New York Telephone Co.,
8.625%, 11/15/10..................... A A2 A+ 5,918,900
10,125 Sprint Corp.,
9.25%, 4/15/22....................... A A3 A- 12,869,685
-----------
47,525,085
-----------
</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)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
RATINGS (UNAUDITED)
PRINCIPAL --------------------------- MARKET
AMOUNT DUFF & STANDARD VALUE (NOTE
(000) DESCRIPTION PHELPS MOODY'S & POOR'S 1)
- ------- ------------------------------------- ------ ------- -------- -----------
<S> <C> <C> <C> <C> <C>
UTILITIES--ELECTRIC--32.7%
$10,000 Arizona Public Service Co.,
8.00%, 2/01/25....................... BBB+ Baa1 A- $10,308,100
10,000 Boston Edison Co.,
7.80%, 3/15/23....................... BBB+ Baa2 BBB 10,135,500
5,000 Connecticut Light & Power Co.,
8.50%, 6/01/24....................... BBB+ Ba2 BB+ 5,091,650
5,000 Dayton Power & Light Co.,
8.40%, 12/01/22...................... AA Aa3 AA- 5,299,700
6,000 8.15%, 1/15/26....................... AA Aa3 AA- 6,471,480
3,000 Houston Lighting & Power Co.,
7.75%, 3/15/23....................... A+ A3 A- 3,131,460
15,000 Hydro-Quebec,
8.40%, 1/15/22....................... AA A2 A+ 17,668,800
5,000 Illinois Power Co.,
8.00%, 2/15/23....................... BBB+ Baa1 BBB 5,261,650
10,000 Mississippi Power & Light Co.,
8.65%, 1/15/23....................... BBB Baa2 BBB+ 10,637,900
10,000 Pacific Gas & Electric Co.,
8.25%, 11/01/22...................... A A1 AA- 10,987,500
10,000 Peco Energy Co.,
8.25%, 9/01/22....................... BBB+ Baa1 BBB+ 10,571,800
5,000 Pennsylvania Power & Light Co.,
8.50%, 5/01/22....................... A A3 A- 5,338,550
5,000 Tennessee Valley Authority,
8.625%, 11/15/29 Pound............... AAA Aaa AAA 5,567,700
5,000 Texas Utilities Electric Co.,
9.750%, 5/01/21...................... BBB Baa1 BBB+ 5,616,100
10,000 8.875%, 2/01/22...................... BBB Baa1 BBB+ 10,995,200
-----------
123,083,090
-----------
391,153,725
TOTAL BONDS (cost $365,385,795)......
-----------
505,501,901
TOTAL LONG-TERM INVESTMENTS
(cost $477,800,727)..................
-----------
</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)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE (NOTE
(000) DESCRIPTION 1)
- --------- --------------------------------------------------------- -----------
<S> <C> <C>
/ / SHORT-TERM INVESTMENTS--27.1%
MASTER NOTE--0.3%
$ 1,000 Metropolitan Life Insurance Co. Floating Rate Note,
5.7575%*, due 4/01/98.................................... $ 1,000,000
-----------
REPURCHASE AGREEMENTS--14.9%
2,147 Repurchase agreement with Bear Stearns & Co., 6.50%, acquired on
12/31/97 and due 1/02/98 (collateralized by U.S. Treasury
Notes, 5.875%, due 10/31/98, value $2,147,204)................. 2,147,000
1,000 Repurchase agreement with C.S. First Boston Corp., 6.83%,
acquired on 8/27/97 and due 1/02/98 (collateralized by Federal
National Mortgage Association, 6.50%, due 1/15/24, value
$1,000,956).................................................... 1,000,000
52,798 Repurchase agreement with Goldman, Sachs & Co., 5.50%, acquired
on 11/17/97 and due 1/02/98 (collateralized by Federal National
Mortgage Association, 6.00% to 7.00% due 4/25/17 to 8/25/21,
value $52,800,301)............................................. 52,798.413
-------------
55,945,413
-------------
TIME DEPOSITS--11.9%
10,000 American Express Centurian Bank, Cayman, 5.88%, due 1/15/98...... 10,000,000
15,000 Banque Paribas Toronto, 5.9375%, due 1/05/98..................... 15,000,000
15,000 Toronto Dominion Bank, Cayman, 5.8437%, due 6/30/98.............. 15,000,000
5,000 Westdeutsche Landesbank Duesseldorf, 5.83%, due 1/26/98.......... 5,000,000
-------------
45,000,000
-------------
TOTAL SHORT-TERM INVESTMENTS
(cost $101,945,413).............................................. 101,945,413
-------------
TOTAL INVESTMENTS--161.3%
(cost $579,746,140) (Note 3)..................................... 607,447,314
Liabilities, less cash and
other assets--(61.3%)............................................ (230,762,351)
-------------
NET ASSETS--100%................................................. $ 376,684,963
-------------
-------------
</TABLE>
- ----------------------------
Pound This security is also a U.S. Government Agency Obligation.
* Rate in effect at December 31, 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
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments, at value (cost $579,746,140)......................... $607,447,314
Cash.............................................................. 2,180,097
Interest receivable............................................... 10,591,741
Prepaid assets.................................................... 54,047
Deferred organization expenses.................................... 771
------------
Total assets.................................................. 620,273,970
------------
LIABILITIES
Commercial paper (Note 5)......................................... 140,788,938
Payable upon return of securities loaned (Note 4)................. 101,945,413
Dividends to shareholders (Note 1)................................ 512,649
Investment advisory fee payable (Note 2).......................... 156,560
Administrative fee payable (Note 2)............................... 46,968
Accrued expenses and other liabilities............................ 138,479
------------
Total liabilities............................................. 243,589,007
------------
NET ASSETS........................................................ $376,684,963
------------
------------
CAPITAL
Common stock, $.01 par value, 600,000,000 shares authorized,
26,015,314 shares issued and outstanding........................ $ 260,153
Additional paid-in capital........................................ 363,949,492
Distributions in excess of net investment income.................. (160,169)
Accumulated net realized loss on investment transactions.......... (15,065,687)
Net unrealized appreciation on investments........................ 27,701,174
------------
NET ASSETS........................................................ $376,684,963
------------
------------
Net asset value per share of common stock:
($376,684,963L26,015,314 shares of common stock issued and
outstanding).................................................... $ 14.48
------------
------------
</TABLE>
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 YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Interest income................................................. $ 39,358,625
Security lending fee income..................................... 79,869
------------
Total investment income....................................... 39,438,494
------------
EXPENSES
Investment advisory fee (Note 2)................................ 1,794,139
Administrative fee (Note 2)..................................... 538,242
Commercial paper fee............................................ 272,377
Directors' fees................................................. 190,560
Commissions expense--commercial paper........................... 144,986
Transfer agent fee and expenses................................. 132,598
Professional fees............................................... 75,324
Custodian fee and expenses...................................... 55,411
Reports to shareholders......................................... 34,709
Registration fee................................................ 32,340
Insurance....................................................... 5,615
Amortization of deferred organization expenses (Note 1)......... 9,994
Miscellaneous................................................... 1,404
------------
Total operating expenses (before interest expense).............. 3,287,699
Interest expense--commercial paper (Note 5)..................... 8,029,565
------------
Total expenses................................................ 11,317,264
------------
Net investment income.................................... 28,121,230
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions.................... 2,602,282
Net change in unrealized appreciation on investments............ 17,614,748
------------
Net realized and unrealized gain on investments............... 20,217,030
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $ 48,338,260
------------
------------
</TABLE>
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 YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
<S> <C>
Cash flows provided by (used for) operating activities:
Interest received............................................ $ 38,771,079
Expenses paid................................................ (3,286,065)
Interest expense paid........................................ (7,464,688)
Purchase of long-term portfolio investments.................. (58,452,362)
Proceeds from sale of long-term portfolio investments........ 59,160,366
Net purchases in excess of proceeds from sales of short-term
portfolio investments............................................ (57,127,913)
-------------
Net cash used for operating activities....................... (28,399,583)
-------------
Cash flows provided by (used for) financing activities:
Net cash provided by securities loaned....................... 59,557,913
Net cash used for commercial paper........................... (1,205,692)
Cash dividends paid to shareholders.......................... (30,081,372)
-------------
Net cash provided by financing activities.................... 28,270,849
-------------
Net decrease in cash............................................. (128,734)
Cash at beginning of year........................................ 2,308,831
-------------
Cash at end of year.............................................. $ 2,180,097
-------------
-------------
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............. $ 48,338,260
-------------
Increase in investments...................................... (56,419,909)
Net realized gain on investment transactions................. (2,602,282)
Net change in unrealized appreciation on investments......... (17,614,748)
Increase in interest receivable.............................. (665,598)
Increase in commercial paper discount........................ 564,877
Accretion of discount........................................ (1,817)
Amortization of deferred organization expenses............... 9,994
Increase in prepaid assets................................... (10,767)
Increase in investment advisory fee payable.................. 5,387
Increase in administrative fee payable....................... 1,616
Decrease in accrued expenses and other liabilities........... (4,596)
-------------
Total adjustments....................................... (76,737,843)
-------------
Net cash used for operating activities........................... $ (28,399,583)
-------------
-------------
</TABLE>
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 FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------- -------------------
<S> <C> <C>
OPERATIONS
Net investment income................. $ 28,121,230 $ 28,660,107
Net realized gain on investment
transactions.......................... 2,602,282 1,140,157
Net change in unrealized appreciation
(depreciation) on investments....... 17,614,748 (28,144,218)
------------------- -------------------
Net increase in net assets resulting
from operations..................... 48,338,260 1,656,046
------------------- -------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income................. (30,594,021) (28,044,517)
------------------- -------------------
Total increase (decrease)............. 17,744,239 (26,388,471)
NET ASSETS
Beginning of year..................... 358,940,724 385,329,195
------------------- -------------------
End of year........................... $ 376,684,963 $ 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
PERIOD
JANUARY 29,
FOR THE YEAR ENDED DECEMBER 31, 1993(1) TO
DECEMBER
---------------------------------------------------------- 31,
1997 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(2)
---------------- ----------- ----------- ----------- -----------
Net investment income................... 1.08 1.10 1.09 1.18 1.08
Net realized and unrealized gain (loss)
on investment transactions............ 0.78 (1.03) 2.72 (2.60) 0.76
---------------- ----------- ----------- ----------- -----------
Net increase (decrease) from investment
operations.............................. 1.86 0.07 3.81 (1.42) 1.84
---------------- ----------- ----------- ----------- -----------
Distributions from net investment income (1.18) (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 distributions...................... (1.18) (1.08) (1.18) (1.18) (1.12)
---------------- ----------- ----------- ----------- -----------
Net asset value, end of period(3)........ $ 14.48 $ 13.80 $ 14.81 $ 12.18 $ 14.78
---------------- ----------- ----------- ----------- -----------
---------------- ----------- ----------- ----------- -----------
Per share market value, end of
period(3)............................... $ 14.4375 $ 12.875 $ 13.875 $ 11.125 $ 14.25
---------------- ----------- ----------- ----------- -----------
---------------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN(4)............... 22.21% 0.69% 36.21% (14.19)% 2.33%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses....................... 0.80%(5) 0.80%(5) 0.78%(5) 0.78%(5) 0.73%(6)
Commercial paper expenses................ 2.35% 2.30% 2.52% 1.46% --
Net investment income.................... 7.84% 8.02% 7.92% 8.87% 7.87%(6)
SUPPLEMENTAL DATA:
Portfolio turnover....................... 12% 13% 5% 149% 282%
Net assets, end of period (000).......... $ 376,685 $ 358,941 $ 385,329 $ 316,842 $ 407,994
Commercial paper information, end of
period
Aggregate amount outstanding (000) $ 143,000 $ 143,000 $ 143,000 $ 143,000 --
Asset coverage per $1,000................ $ 3,625 $ 3,501 $ 3,704 $ 3,227 --
</TABLE>
- ----------------------------
(1) Commencement of investment operations.
(2) Net of offering costs of $(0.04) and underwriting discount of $(0.90).
(3) Net asset value and market value are published in The Wall Street Journal
each Monday.
(4) 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.
(5) Exclusive of commercial paper expenses.
(6) Annualized.
The accompanying notes are an integral part of the financial statements.
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DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 esti-
mates 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 brok-erage 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
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<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 $15,065,687 at December 31, 1997, of which
$10,283,275 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, $2,472,791 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.
DIVIDENDS AND DISTRIBUTIONS: The Trust declares and pays dividends to its
shareholders on a monthly basis. The dividends are recorded by the Trust on the
ex-dividend date.
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.
REPURCHASE AGREEMENTS: Repurchase agree-
ments 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 ac-cepted accounting principles requires man-agement 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 year ended December 31, 1997, the Trust had purchases of $58,452,362
and sales of $59,160,366 of investment securities, other than short-term
investments. For the year ended December 31, 1997, the Trust had no purchases or
sales of U.S. Government securities.
The Federal income tax basis of the Trust's investments at December 31, 1997
was $579,746,140, and accordingly, net unrealized appreciation aggregated
$27,701,174, of which $27,934,954 related to appreciated securities and $233,780
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
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<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 1997, the Trust's custodian held cash and short-term
investments having an aggregate value of $105,238,555 as collateral for
portfolio securities loaned having a market value of $101,005,552.
NOTE 5. COMMERCIAL PAPER
As of December 31, 1997, $143,000,000 of commercial paper was outstanding
with an amortized cost of $140,788,938. The average discount rate of commercial
paper outstanding at December 31, 1997 was 5.62%. The average daily balance of
commercial paper outstanding for the year ended December 31, 1997 was
$143,000,000 at a weighted average discount rate of 5.62%. 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, 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 December 31, 1997, Phoenix
Duff & Phelps Corporation owned 12,230 shares.
14
<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, 1997, 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, 1997, 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, 1997, 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
January 27, 1998
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DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Common stockholders are automatically enrolled in the Trust's Dividend
Reinvestment and Cash Purchase Plan (the 'Plan'). Under the Plan, all
distributions to Common stockholders 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 Plan 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 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
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<PAGE>
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 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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FEDERAL INCOME TAX INFORMATION (UNAUDITED)
None of the ordinary income distributions paid by the Trust during the
fiscal year ended December 31, 1997, 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 adviser 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, 1997 12.60%
June 30, 1997 11.48%
September 30, 1997 11.30%
December 31, 1997 11.10%
Of the Trust's distributions paid to shareholders from ordinary income during
the calendar year ended December 31, 1997, 14.04% 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.
18
