<PAGE>
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
James W. Rosenberger
Treasurer & Assistant Secretary
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) 543-6217
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 Fund shares.
Duff & Phelps Utility and Corporate Bond Trust Inc.
55 East Monroe Street
Chicago, IL 60603
<PAGE>
ANNUAL REPORT
DECEMBER 31, 1998
DUFF & PHELPS
UTILITY AND
CORPORATE
BOND TRUST
DUFF & PHELPS UTILITY AND
CORPORATE BOND TRUST
<PAGE>
DEAR FELLOW SHAREHOLDERS:
During 1998, your Board of Directors declared 12 monthly dividends, each of 9.8
cents per share. The total dividend payment of $1.176 provided an annualized
dividend yield for the year of 7.65% based upon the December 31, 1998 closing
stock price of $15.375.
Our share price began the year at $14.4375 and closed at $15.375. When the
annual dividend is added to this appreciation, the total return on your
investment, excluding reinvestment of dividends and distributions, was 14.64%
for 1998. These returns were achieved despite a very volatile and unsettled
world financial environment.
As of December 31, 1998 the common stock was trading at a 4% premium to net
asset value (NAV).
Despite favorable bond investment returns fostered by a net decline in Treasury
yields, the second half of 1998 was a very volatile period as the financial
markets were buffeted by a global financial and credit crisis. For example, the
yield on the thirty-year U.S. Treasury bond traded in a six-month range of 4.69%
to 5.74% as the global crisis ebbed and flowed. At mid-year, the Federal Reserve
was becoming concerned over the fact that the economy was growing too fast
despite the drag from depressed exports and the General Motors strike. The main
engine of growth, consumer spending, pushed first half GDP growth to a 3.7%
annual rate. That growth rate was well in excess of the Fed's non-inflationary
growth target. As a result, interest rates began rising in anticipation of
eventual Fed tightening. However, before the Fed had a chance to act,
international events precluded any tightening of monetary policy. As a matter of
fact, in just a few months time, the Fed would cut interest rates three times.
The first of many events which would preclude the Federal Reserve from
tightening monetary policy was the precipitous decline of the Japanese yen to
the dollar. A too weak yen was politically unacceptable to the U.S. as higher
U.S. rates would push the dollar even higher against the yen. As a result, the
Bank of Japan and the U.S. jointly intervened in the currency markets to
stabilize the yen. Fed policy thus fell hostage to global events.
After the yen intervention and another International Monetary Fund (IMF) loan
program for Russia, relative calm returned to the financial markets. This was
reinforced by signs that Southeast Asian economies had started bottoming out,
contagion was still not infecting Latin America and Japan was finally, it was
hoped, facing its enormous economic and financial problems. However, the calm
was not to last. Russia, just weeks after receiving another IMF installment,
shocked the financial world by announcing that it was delaying payment on some
of its debt and devaluing its currency. The immediate impact of this
announcement was to start a chain reaction which would bring many emerging and
weaker markets to the brink of a meltdown. Also, it did not take long for
speculators to test the resolve of governments with weak or overvalued
currencies. In a relatively short time frame, global financial markets became
destabilized and the ordinary financial and credit flows came to an abrupt halt.
Reassuring remarks came from our Federal Reserve Chairman, which seemed to set
the stage for an eventual easing of monetary policy; but, a general easing of
interest rates was still weeks away. During this time of uncertainty, our
Treasury markets experienced a 'flight-to-quality' move which at times took on
the characteristics of a global panic as investors tried to bail out of stocks
and debt instruments with credit exposure. One group of investors in particular
were hurt, namely hedge funds which were highly leveraged and exposed to credit
sensitive issues. Global fixed income markets became so
1
<PAGE>
destabilized that the Federal Reserve brokered a bail out of a large hedge fund
to prevent the distressed sale of billions of dollars of illiquid assets and
thus prevent additional stress on already fragile markets.
The U.S. Treasury market became the safe haven for worldwide investors as they
sold less liquid issues and bought safe, liquid U.S. Treasury securities. The
frenzied panic buying of such securities pushed interest rates to record low
levels. For example, the yield on thirty-year U.S. Treasury bonds fell to 4.69%
during the day of October 5, 1998, which was a record low for longer maturity
U.S. Treasury securities.
Calm would eventually return to the global markets as the world's major central
bankers reliquified markets by reducing interest rates and announcing that they
stood ready to provide additional liquidity to stabilize emerging market
currencies. In addition, the IMF, along with private institutions agreed to a
$41 billion loan to Brazil. As calm and liquidity returned to the global
financial markets, investors who sought the safety of our U.S. Treasury markets
began selling. As a result, by year-end, longer dated U.S. Treasury yields were
5.12%, which was approximately 43 basis points above the lows.
As we suggested in our June letter, we believed that international shocks,
continued low inflation and the federal budget surplus would allow U.S. interest
rates to move to lower levels during the second half of 1998. Indeed, that did
transpire as interest rates did decline nicely during that period.
As we look forward, we see the likelihood that our economy's growth rate will
moderate to the 2.0% to 2.5% range due to slowing growth in Japan, Europe and
Latin America. In addition, our inflation rate seems likely to rebound modestly
from last year's rate of 1.6%, but because of ample worldwide capacity and lack
of pricing power, inflation should remain low. Furthermore, we believe the
Federal Reserve will maintain a neutral monetary policy during the first half of
1999 in the absence of shocks to the financial system. Overall, we see an
environment which should be generally positive for credit markets and corporate
bonds in particular.
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 Fund. Under the plan, the Fund 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
Fund. Additional information about the plan is available from The Bank of New
York, 1-800-524-4458. Also, the Fund has a cash purchase plan which permits
participants to purchase shares directly from the Plan Agent. For more details,
please turn to page 16.
We appreciate your investment in Duff & Phelps Utility and Corporate Bond Trust
Inc. and look forward to continuing our service to you.
Sincerely,
Table>
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, 1998
<TABLE>
<CAPTION>
RATINGS (UNAUDITED)
PRINCIPAL -----------------------------------------
AMOUNT DUFF & STANDARD & MARKET VALUE
(000) DESCRIPTION PHELPS MOODY'S POOR'S (NOTE 1)
- ----------- ----------------------------------------------------- ----------- ------------- ------------- ----------------
/ / LONG-TERM INVESTMENTS--130.0%
U.S. GOVERNMENT AND AGENCY OBLIGATIONS--22.8%
Government National Mortgage Association
Pass-Through Certificates,
<S> <C> <C> <C> <C> <C>
$ 2,516 8.00%, 7/15/23....................................... AAA Aaa AAA $ 2,623,994
6,094 8.00%, 8/15/23....................................... AAA Aaa AAA 6,356,393
2,757 8.00%, 5/15/24....................................... AAA Aaa AAA 2,866,981
1,499 7.00%, 3/15/26....................................... AAA Aaa AAA 1,534,003
3,261 7.50%, 5/15/26....................................... AAA Aaa AAA 3,361,824
U.S. Treasury Bonds,
12,900 10.750%, 2/15/03..................................... AAA Aaa AAA 15,770,250
40,000 10.375%, 11/15/12.................................... AAA Aaa AAA 55,187,600
----------------
87,701,045
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(cost $84,429,704)...................................
----------------
BONDS--107.2%
FINANCIAL--13.9%
10,000 American Express Co.,
8.625%, 5/15/22...................................... AA- A1 A+ 11,800,000
7,000 Countrywide Credit Industries Inc.,
8.00%, 12/15/26...................................... A- A3 A- 7,676,690
10,000 Great Western Financial Corp.,
8.206%, 2/01/27...................................... BBB- A3 BBB- 11,281,000
10,000 KeyCorp Institutional Capital B,
8.25%, 12/15/26...................................... BBB A1 BBB 11,332,200
10,000 NationsBank Capital Trust IV,
8.25%, 4/15/27....................................... A- Aa2 A- 11,336,200
----------------
53,426,090
----------------
FOREIGN GOVERNMENT OBLIGATIONS--2.2%
10,000 Republic of Colombia,
8.625%, 4/01/08...................................... BBB- Baa3 BBB- 8,525,000
----------------
INDUSTRIAL--48.8%
15,000 Dayton Hudson Corp.,
8.50%, 12/01/22...................................... A- A3 A- 16,742,400
7,000 Ford Motor Co.,
8.875%, 1/15/22...................................... A+ A1 A 9,110,430
</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, 1998
<TABLE>
<CAPTION>
RATINGS (UNAUDITED)
PRINCIPAL -----------------------------------------
AMOUNT DUFF & STANDARD & MARKET VALUE
(000) DESCRIPTION PHELPS MOODY'S POOR'S (NOTE 1)
- ----------- ----------------------------------------------------- ----------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 10,000 Georgia Pacific Corp.,
9.625%, 3/15/22...................................... BBB- Baa2 BBB- $ 11,269,800
3,000 8.625%, 4/30/25...................................... BBB- Baa2 BBB- 3,161,460
3,450 James River Corp.,
9.25%, 11/15/21...................................... BBB- Baa2 BBB- 4,213,382
10,250 McDonnell Douglas Corp.,
9.75%, 4/01/12....................................... AA- A2 AA- 13,471,985
5,000 Occidental Petroleum Corp.,
8.75%, 1/15/23....................................... BBB Baa2 BBB 5,487,500
15,000 Phillips Petroleum Co.,
8.49%, 1/01/23....................................... A- A3 A- 16,791,450
9,000 Ralston Purina Co.,
8.125%, 2/01/23...................................... A- Baa1 A- 10,409,580
10,000 Sears Roebuck and Co.,
9.375%, 11/01/11..................................... A A2 A- 12,778,600
5,000 Sun Company, Inc.,
9.00%, 11/01/24...................................... BBB Baa2 BBB 5,575,850
6,225 Tele-Communications, Inc.,
9.80%, 2/01/12....................................... BBB- Baa3 BBB- 8,312,616
5,275 10.125%, 4/15/22..................................... BBB- Baa3 BBB- 7,631,184
3,200 9.875%, 6/15/22...................................... BBB- Baa3 BBB- 4,536,800
10,000 Tenneco, Inc.,
9.20%, 11/15/12...................................... BBB- Baa1 BBB 11,685,900
5,000 Time Warner Entertainment Company, L.P.,
10.15%, 5/01/12...................................... BBB Baa2 BBB 6,717,350
5,000 8.875%, 10/01/12..................................... BBB Baa2 BBB 6,197,600
7,000 Time Warner Inc.,
9.15%, 2/01/23....................................... BBB- Baa3 BBB 9,247,910
10,000 Trans-Canada Pipelines,
9.875%, 1/01/21...................................... A A2 A- 12,874,500
5,000 USX Corp.,
9.375%, 2/15/12...................................... BBB Baa2 BBB- 6,041,350
5,000 8.50%, 3/01/23....................................... BBB Baa2 BBB- 5,513,800
----------------
187,771,447
----------------
</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, 1998
<TABLE>
<CAPTION>
RATINGS (UNAUDITED)
PRINCIPAL -----------------------------------------
AMOUNT DUFF & STANDARD & MARKET VALUE
(000) DESCRIPTION PHELPS MOODY'S POOR'S (NOTE 1)
- ----------- ----------------------------------------------------- ----------- ------------- ------------- ----------------
TELEPHONE--12.8%
<S> <C> <C> <C> <C> <C>
$ 5,000 AT&T Corp.,
8.625%, 12/01/31..................................... AA Aa3 AA- $ 5,618,950
10,000 Bell Canada Inc.,
9.50%, 10/15/10...................................... A+ A2 A+ 13,023,500
10,000 MCI Communications Corp.,
8.25%, 1/20/23....................................... BBB+ Baa2 BBB+ 10,907,700
5,000 New York Telephone Co.,
8.625%, 11/15/10..................................... A+ A2 A+ 6,267,500
10,125 Sprint Corp.,
9.25%, 4/15/22....................................... A Baa1 A- 13,407,221
----------------
49,224,871
----------------
UTILITIES--ELECTRIC--29.5%
10,000 Arizona Public Service Co.,
8.00%, 2/01/25....................................... BBB+ Baa1 A- 10,813,700
10,000 Boston Edison Co.,
7.80%, 3/15/23....................................... A Baa1 A- 10,741,700
5,000 Connecticut Light & Power Co.,
8.50%, 6/01/24....................................... BB+ Ba2 BB+ 5,493,350
5,000 Dayton Power & Light Co.,
8.40%, 12/01/22...................................... AA Aa3 AA- 5,283,350
6,000 8.15%, 1/15/26....................................... AA Aa3 AA- 6,604,320
1,500 Houston Lighting & Power Co.,
7.75%, 3/15/23....................................... A+ A3 A- 1,611,840
15,000 Hydro-Quebec,
8.40%, 1/15/22....................................... AA A2 A+ 18,659,400
5,000 Illinois Power Co.,
8.00%, 2/15/23....................................... BBB+ Baa1 BBB 5,263,450
10,000 Mississippi Power & Light Co.,
8.65%, 1/15/23....................................... BBB+ Baa2 BBB+ 10,606,000
10,000 Pacific Gas & Electric Co.,
8.25%, 11/01/22...................................... AA- A1 AA- 10,898,900
5,000 Pennsylvania Power & Light Co.
8.50%, 5/01/22....................................... A- A3 A- 5,479,300
5,000 Tennessee Valley Authority,
8.625%, 11/15/29 Pound............................... AAA Aaa AAA 5,437,850
</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, 1998
<TABLE>
<CAPTION>
RATINGS (UNAUDITED)
PRINCIPAL -----------------------------------------
AMOUNT DUFF & STANDARD & MARKET VALUE
(000) DESCRIPTION PHELPS MOODY'S POOR'S (NOTE 1)
- ----------- ----------------------------------------------------- ----------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 5,000 Texas Utilities Electric Co.,
9.750%, 5/01/21...................................... A- A3 BBB+ $ 5,596,750
10,000 8.875%, 2/01/22...................................... BBB A3 BBB+ 11,058,000
----------------
113,547,910
----------------
412,495,318
TOTAL BONDS (cost $380,313,381)......................
----------------
500,196,363
TOTAL LONG-TERM INVESTMENTS
(cost $464,743,085)..................................
----------------
</TABLE>
<TABLE>
<CAPTION>
/ / SHORT-AND MEDIUM-TERM INVESTMENTS--20.5%
CERTIFICATE OF DEPOSIT--2.6%
<S> <C> <C> <C> <C> <C>
9,999 Societe Generale Yankee, 4.95%, due 3/12/99......................................... 9,998,589
----------------
MEDIUM-TERM NOTE--2.6%
9,988 J.P. Morgan & Co., Medium Term Note, Series A, 5.6218%, due
7/06/00(a).......................................................................... 9,987,886
----------------
REPURCHASE AGREEMENTS--14.3%
323 Repurchase agreement with J.P. Morgan & Co., 4.85%, acquired on
12/31/98 and due 1/04/99 (collateralized by U.S. Treasury Notes,
6.125%, 12/31/01, value $330,869)................................................... 323,000
54,788 Repurchase agreement with Goldman, Sachs & Co., 5.50%, acquired on
12/31/98 and due 1/04/99 (collateralized by Federal National
Mortgage Association, 6.25% to 6.50% with maturities to 1/25/29, value
$55,884,682)........................................................................ 54,788,240
----------------
TOTAL REPURCHASE AGREEMENTS (cost $55,111,240)...................................... 55,111,240
----------------
TIME DEPOSITS--1.0%
2,500 Ford Motor Credit Company, 5.23%, due 1/28/99....................................... 2,500,000
1,500 General Electric Capital Corp., 5.11%, due 2/26/99.................................. 1,500,000
----------------
TOTAL TIME DEPOSITS (cost $4,000,000)............................................... 4,000,000
----------------
TOTAL SHORT-TERM INVESTMENTS
(cost $79,097,715).................................................................. 79,097,715
----------------
TOTAL INVESTMENTS--150.5%
(cost $543,840,800) (Note 3)........................................................ 579,294,078
Liabilities, less cash and other assets--(50.5%).................................... (194,487,061)
----------------
NET ASSETS--100%.................................................................... $ 384,807,017
----------------
----------------
</TABLE>
- ------------------------------------
Pound This security is also a U.S. Government Agency Obligation.
(a) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at December
31, 1998.
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, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments, at value (cost $543,840,800)..................................................... $ 579,294,078
Cash.......................................................................................... 12,679,327
Interest receivable........................................................................... 9,828,238
Prepaid assets and other assets............................................................... 45,703
------------------
Total assets............................................................................. 601,847,346
------------------
LIABILITIES
Commercial paper (Note 5)..................................................................... 141,457,956
Payable upon return of securities loaned (Note 4)............................................. 75,097,715
Investment advisory fee payable (Note 2)...................................................... 217,312
Administrative fee payable (Note 2)........................................................... 47,550
Accrued expenses and other liabilities........................................................ 219,796
------------------
Total liabilities........................................................................ 217,040,329
------------------
NET ASSETS.................................................................................... $ 384,807,017
------------------
------------------
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.................................................................... 360,780,849
Distributions in excess of net investment income.............................................. (160,169)
Accumulated net realized loss on investment transactions...................................... (11,527,094)
Net unrealized appreciation on investments.................................................... 35,453,278
------------------
NET ASSETS.................................................................................... $ 384,807,017
------------------
------------------
Net asset value per share of common stock:
($384,807,017L26,015,314 shares of common stock issued and outstanding)..................... $ 14.79
------------------
------------------
</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, 1998
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Interest income.............................................................................. $ 39,155,086
Security lending fee income.................................................................. 92,847
-----------------
Total investment income................................................................... 39,247,933
-----------------
EXPENSES
Investment advisory fee (Note 2)............................................................. 2,299,353
Administrative fee (Note 2).................................................................. 566,362
Commercial paper fee......................................................................... 303,514
Directors' fees.............................................................................. 186,815
Commissions expense--commercial paper........................................................ 144,986
Transfer agent fee and expenses.............................................................. 143,939
Professional fees............................................................................ 112,866
Custodian fee and expenses................................................................... 64,444
Reports to shareholders...................................................................... 46,892
Registration fee............................................................................. 32,340
Amortization of deferred organization expenses (Note 1)...................................... 771
-----------------
Total operating expenses (before interest expense)........................................... 3,902,282
Interest expense--commercial paper (Note 5).................................................. 7,920,273
-----------------
Total expenses............................................................................ 11,822,555
-----------------
Net investment income............................................................... 27,425,378
-----------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions................................................. 3,538,593
Net change in unrealized appreciation on investments......................................... 7,752,104
-----------------
Net realized and unrealized gain on investments........................................... 11,290,697
-----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................... $ 38,716,075
-----------------
-----------------
</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, 1998
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
Cash flows provided by (used for) operating activities:
<S> <C>
Interest received........................................................................ $ 39,995,825
Expenses paid............................................................................ (3,750,516)
Interest expense paid.................................................................... (8,605,571)
Purchase of long-term portfolio investments.............................................. (49,494,718)
Proceeds from sale of long-term portfolio investments.................................... 66,106,564
Net proceeds from sales in excess of purchases of short-term
portfolio investments......................................................................... 22,847,698
------------------
Net cash provided by operating activities................................................ 67,099,282
------------------
Cash flows provided by (used for) financing activities:
Net cash used for securities loaned...................................................... (26,847,698)
Net cash provided by commercial paper.................................................... 1,354,316
Cash dividends paid to shareholders...................................................... (31,106,670)
------------------
Net cash used for financing activities................................................... (56,600,052)
------------------
Net increase in cash.......................................................................... 10,499,230
Cash at beginning of year..................................................................... 2,180,097
------------------
Cash at end of year........................................................................... $ 12,679,327
------------------
------------------
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.......................................... $ 38,716,075
------------------
Decrease in investments.................................................................. 39,459,544
Net realized gain on investment transactions............................................. (3,538,593)
Net change in unrealized appreciation on investments..................................... (7,752,104)
Decrease in interest receivable.......................................................... 763,503
Decrease in commercial paper discount.................................................... (685,298)
Accretion of discount.................................................................... (15,611)
Amortization of deferred organization expenses........................................... 771
Decrease in prepaid assets and other assets.............................................. 8,344
Increase in investment advisory fee payable.............................................. 60,752
Increase in administrative fee payable................................................... 582
Increase in accrued expenses and other liabilities....................................... 81,317
------------------
Total adjustments.................................................................. 28,383,207
------------------
Net cash provided by operating activities..................................................... $ 67,099,282
------------------
------------------
</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, 1998 DECEMBER 31, 1997
------------------------- -------------------------
OPERATIONS
<S> <C> <C>
Net investment income................................... $ 27,425,378 $ 28,121,230
Net realized gain on investment transactions............ 3,538,593 2,602,282
Net change in unrealized appreciation on investments.... 7,752,104 17,614,748
------------------------- -------------------------
Net increase in net assets resulting from operations.... 38,716,075 48,338,260
------------------------- -------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income................................... (30,594,021) (30,594,021)
------------------------- -------------------------
Total increase.......................................... 8,122,054 17,744,239
NET ASSETS
Beginning of year....................................... 376,684,963 358,940,724
------------------------- -------------------------
End of year............................................. $ 384,807,017 $ 376,684,963
------------------------- -------------------------
------------------------- -------------------------
</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 YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------ ------------- ------------- ------------- -------------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............. $ 14.48 $ 13.80 $ 14.81 $ 12.18 $ 14.78
------------------ ------------- ------------- ------------- -------------
Net investment income........................ 1.06 1.08 1.10 1.09 1.18
Net realized and unrealized gain (loss) on
investment transactions.................... 0.43 0.78 (1.03) 2.72 (2.60)
------------------ ------------- ------------- ------------- -------------
Net increase (decrease) from investment
operations................................... 1.49 1.86 0.07 3.81 (1.42)
------------------ ------------- ------------- ------------- -------------
Distributions from net investment income....... (1.18) (1.18) (1.08) (1.11) (1.18)
Distributions in excess of net investment
income....................................... -- -- -- (0.07) --
------------------ ------------- ------------- ------------- -------------
Total distributions............................ (1.18) (1.18) (1.08) (1.18) (1.18)
------------------ ------------- ------------- ------------- -------------
Net asset value, end of year(1)................ $ 14.79 $ 14.48 $ 13.80 $ 14.81 $ 12.18
------------------ ------------- ------------- ------------- -------------
------------------ ------------- ------------- ------------- -------------
Per share market value, end of year(1)......... $ 15.375 $ 14.4375 $ 12.875 $ 13.875 $ 11.125
------------------ ------------- ------------- ------------- -------------
------------------ ------------- ------------- ------------- -------------
TOTAL INVESTMENT RETURN(2)..................... 15.24% 22.21% 0.69% 36.21% (14.19)%
RATIOS TO AVERAGE NET ASSETS(3):
Operating expenses(4).......................... 0.91% 0.80% 0.80% 0.78% 0.78%
Commercial paper expenses...................... 2.22% 2.35% 2.30% 2.52% 1.46%
Net investment income.......................... 7.26% 7.84% 8.02% 7.92% 8.87%
SUPPLEMENTAL DATA:
Portfolio turnover............................. 10% 12% 13% 5% 149%
Net assets, end of year (000).................. $ 384,807 $ 376,685 $ 358,941 $ 385,329 $ 316,842
COMMERCIAL PAPER INFORMATION:
Aggregate amount outstanding (000) at end of
year......................................... $ 143,000 $ 143,000 $ 143,000 $ 143,000 $ 143,000
Average daily amortized cost of commercial
paper outstanding (000)...................... $ 141,063 $ 141,704 $ 141,322 $ 141,369 $ 133,619
Asset coverage per $1,000 at end of year....... $ 3,684 $ 3,625 $ 3,501 $ 3,704 $ 3,227
</TABLE>
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(1) Net asset value and market value are published in The Wall Street Journal
each Monday.
(2) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
each year reported. Dividends and distributions are assumed, for purposes of
this calculation, to be reinvested at prices obtained under the Fund's
dividend reinvestment plan. Brokerage commissions are not reflected.
(3) As a percentage of average weekly net assets which includes any liabilities
or senior securities constituting indebtedness in connection with financial
leverage.
(4) Exclusive of commercial paper expenses.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Duff & Phelps Utility and Corporate Bond Trust Inc. (the 'Fund') was
organized in Maryland on November 23, 1992 as a diversified, closed-end
management investment company with operations commencing on January 29, 1993.
The Fund's investment objective is to seek high current income consistent
with investing in securities of investment grade quality. The Fund 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 Fund to meet their obligations may be affected by economic developments in a
specific state, industry or region.
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.
SECURITY VALUATION: The Fund 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 Fund. The relative
illiquidity of some securities in the Fund's portfolio may adversely affect the
ability of the Fund 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 Fund'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.
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 Fund accretes original issue discount on securities using the
effective interest method.
FEDERAL INCOME TAXES: It is the Fund'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 Fund had a
capital loss carryforward of $11,527,094 at December 31, 1998, of which
$6,744,681 expires in 2002 and $4,782,413 expires in 2003, if not offset by
subsequent capital gains.
DIVIDENDS AND DISTRIBUTIONS: The Fund will declare and pay dividends to
shareholders on a monthly basis. The dividends are recorded by the Fund on the
ex-dividend date.
Dividends and distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principals.
Accordingly, certain amounts have been reclassified within capital to reflect
trust distributions. On the statement of assets and liability, $3,168,643 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.
DEFERRED ORGANIZATION COSTS: A total of $50,000 was incurred in connection with
the organization of the Fund. All costs have been amortized ratably over a
period of sixty months from the date the Fund commenced investment operations.
REPURCHASE AGREEMENTS: Repurchase agree-
ments are fully collateralized by U.S. Treasury or Government Agency securities.
All collateral
12
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
is held through the Fund'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 for income and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2. AGREEMENTS
The Fund has an Advisory Agreement with Duff & Phelps Investment Management
Co. (the 'Adviser'), a subsidiary of Phoenix Investment Partners Ltd. and an
Administration Agreement with Princeton Administrators, L.P. (the
'Administrator').
For the period from January 1, 1998 to May 31, 1998, the investment
advisory fee paid to the Adviser was computed weekly and payable monthly at an
annual rate of .50% of the Fund's average weekly net assets.
On May 27, 1998, shareholders approved an amended and restated investment
advisory agreement (the 'Amended Advisory Agreement'). Under the terms of the
Amended Advisory Agreement, effective June 1, 1998, the investment advisory fee
paid to the Adviser is computed weekly and payable monthly at an annual rate of
.50% of the Fund's average weekly managed assets which is defined as the average
weekly value of the total assets of the Fund minus the sum of all accrued
liabilities of the Fund (other than the aggregate amount of any outstanding
borrowings or other indebtedness constituting financial leverage).
The administrative fee paid to the Administrator is also computed weekly
and payable monthly at an annual rate of .15% of the Fund's average weekly net
assets (which includes any liabilities or senior securities constituting
indebtedness in connection with financial leverage) 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 Fund who are full-time employees of the Adviser. The Administrator pays
certain occupancy, clerical and accounting costs of the Fund. The Fund bears all
other costs and expenses.
NOTE 3. PORTFOLIO SECURITIES
For the year ended December 31, 1998, the Fund had purchases of $49,494,718
and sales of $66,106,564 of investment securities, other than short-term
investments.
The Federal income tax basis of the Fund's investments at December 31, 1998
was $543,840,800, and accordingly, net unrealized appreciation aggregated
$35,453,278, of which $36,850,983 related to appreciated securities and
$1,397,705 related to depreciated securities.
NOTE 4. SECURITY LENDING
The Fund 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 Fund 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 Fund receives compensation for lending its
securities in the form of fee income. The Fund 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 Fund.
As of December 31, 1998, the Fund's custodian held cash and short-term
investments having an aggregate value of $76,335,530 as collateral for portfolio
securities loaned having a market value of $73,716,433.
13
<PAGE>
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
NOTE 5. COMMERCIAL PAPER
As of December 31, 1998, $143,000,000 of commercial paper was outstanding
with an amortized cost of $141,457,956. The average discount rate of commercial
paper outstanding at December 31, 1998 was 5.30%. The average daily balance of
commercial paper outstanding for the year ended December 31, 1998 was
$143,000,000 at a weighted average discount rate of 5.52%. 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 Fund entered into a
line of credit arrangement with a bank for $75,000,000. During the year ended
December 31, 1998, 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, 1998, Phoenix
Investment Partners Ltd. owned 13,235 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., the 'Fund,' including the
portfolio of investments, as of December 31, 1998, 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 Fund'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, 1998, 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, 1998, 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 29, 1999
15
<PAGE>
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Common shareholders are automatically enrolled in the Fund'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 Fund 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 Fund 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
Fund 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 Fund'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 Fund.
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Fund. 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
shares of common stock through the Plan by delivering to the Plan Agent a check
for at least $100, but not more than $5,000 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.
16
<PAGE>
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 Fund, 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 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 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 Fund 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.
17
<PAGE>
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
None of the ordinary income distributions paid by the Fund during the
fiscal year ended December 31, 1998, 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 Fund 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 Fund invested in
Federal obligations as of each quarter of the fiscal year.
Percentage of
Quarter Ended Federal Obligations*
- --------------------------------------- --------------------------------------
March 31, 1998 11.28%
June 30, 1998 11.29%
September 30, 1998 11.86%
December 31, 1998 11.79%
Of the Fund's distributions paid to shareholders from ordinary income during the
calendar year ended December 31, 1998, 12.65% was attributable to Federal
obligations. In calculating the foregoing percentage, expenses of the Fund 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 Fund may purchase, from time to time, shares of
its common stock in the open market.
18
<PAGE>
ADDITIONAL INFORMATION (UNAUDITED)
During the period, there have been no material changes in the Fund's
investment objective or fundamental policies that have not been approved by the
shareholders. There have been no changes in the Fund's charter or By-Laws that
would delay or prevent a change in control of the Fund which have not been
approved by the shareholders. There have been no changes in the principal risk
factors associated with investment in the Fund. There have been no changes in
the persons who are primarily responsible for the day-to-day management of the
Fund's portfolio.
YEAR 2000 RISKS (UNAUDITED)
Like other business organizations and individuals around the world, the
Fund could be adversely affected if the computer systems used by the Fund and
its service providers do not properly process and calculate date-related
information from and after January 1, 2000. The Fund is taking steps that it
believes are reasonably designed to address the Year 2000 problem with respect
to the computer systems it uses and to obtain satisfactory assurances that
comparable steps are being taken by each of the Fund's other major service
providers. The Fund does not expect to incur any significant costs in order to
address the Year 2000 problem however, at this time, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on the Fund.
19
