Duff & Phelps Utility and Corporate Bond Trust Inc.

Alan M. Meder

Lawrence R. Hamilton, Esq.

Mayer Brown LLP

200 South Wacker Drive, Suite 500

71 South Wacker Drive

Chicago, Illinois 60606

Chicago, Illinois 60606

N-CSR 1 d47904dncsr.htm DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC. Duff & Phelps Utility and Corporate Bond Trust Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT

COMPANIES

Investment Company Act file number 811-07358

Duff & Phelps Utility and Corporate Bond Trust Inc.

(Exact name of registrant as specified in charter)

200 South Wacker Drive, Suite 500, Chicago, Illinois 60606

(Address of principal executive offices) (Zip code)

(Name and address of agents for service)

Registrant’s telephone number, including area code: (800) 338-8214

Date of fiscal year end: October 31

Date of reporting period: October 31, 2020

ITEM 1.

REPORTS TO STOCKHOLDERS

The Annual Report to Stockholders follows.

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports like this one will no longer be sent by mail, unless specifically requested from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action.

You may elect at any time to receive not only shareholder reports but also certain other communications from the Fund electronically, or you may elect to receive paper copies of all future shareholder reports free of charge to you. If you own your shares directly with the Fund, you may make such elections by calling Computershare, the Fund’s transfer agent, at 1-866-221-1681 or, with respect to requesting electronic delivery, by visiting www.computershare.com/investor. If you own your shares through a financial intermediary, please contact your financial intermediary to make your request and to determine whether your election will apply to all funds in which you own shares through that intermediary.

Duff & Phelps Utility and Corporate Bond Trust Inc.

LOGO

ANNUAL REPORT

OCTOBER 31, 2020

December 17, 2020

Dear Fellow Shareholders:

IMPORTANT ANNOUNCEMENT REGARDING YOUR FUND

On November 23, 2020, the Board of Directors of your fund, the Duff & Phelps Utility and Corporate Bond Trust Inc. (NYSE: DUC), and the DNP Select Income Fund Inc. (NYSE: DNP), both closed-end funds advised by Duff & Phelps Investment Management Co. (the “Adviser”), announced a proposed merger of DUC with and into DNP.

Subject to the approval of the shareholders of DUC, DUC will merge into DNP, with DNP as the surviving company of the merger. The combined fund will retain DNP’s name and ticker symbol, as well as DNP’s investment objectives, strategies and policies.

Each fund’s board approved the recommendation of the Adviser to merge the two funds. In making the determination to accept the Adviser’s recommendation, each board took into account a number of factors, including (1) potential economies of scale that could be realized by the combined fund, (2) the common features of each fund’s investment objectives and strategies and (3) DNP’s market value premium to net asset value (“NAV”) and the potential to reduce DUC’s market value discount to NAV. In addition, the merger is being recommended by the DUC board pursuant to a standstill agreement between DUC and a significant shareholder.

Shareholders of DUC will be asked to approve the proposed merger at a special shareholder meeting in 2021.

YOUR FUND’S PERFORMANCE

Over the past twelve months, the performance of leveraged bond funds, including the DUC Fund, was initially influenced by questions about the state of the U.S. economy in light of increasing uncertainty regarding monetary policy and diminished prospects for global growth. However, the environment abruptly changed with the emergence of the COVID-19 pandemic, as the world came to a stand-still and the human toll that the virus was likely to take started to become reality. Given expectations for a huge drop in U.S. economic output and related concerns about global growth, policy makers within the U.S. and around the world injected massive amounts of stimulus in an effort to promote economic stability. At the same time, a substantial downward move in U.S. interest rates was exacerbated by the continued demand for the relative safety of U.S. Treasury securities, as market uncertainty caused many investors to reduce exposure to riskier assets. The decrease in U.S. interest rates had a significant positive impact on the total return of both the DUC Fund and the broader fixed income market.

The following table compares the performance of the DUC Fund to a broad-based investment grade bond market benchmark. It is important to note that the index returns stated below include no fees or expenses, whereas the DUC Fund’s NAV returns are net of fees and expenses.


Total Return¹ For the period indicated through October 31, 2020
	One Year		Three Years (annualized)		Five Years (annualized)
Duff & Phelps Utility and Corporate Bond Trust Inc.
Market Value²		5.90%		5.39%		5.28%
Net Asset Value³		5.80%		4.49%		4.02%
Bloomberg Barclays U.S. Aggregate Bond Index⁴		6.19%		5.06%		4.08%

¹	Past performance is not indicative of future results. Current performance may be lower or higher than performance in historical periods.

Total return on market value assumes a purchase of common stock at the opening market price on the first business day and a sale at the closing market price on the last business day of the period shown in the table and assumes reinvestment of dividends at the actual reinvestment prices obtained under the terms of the DUC Fund’s dividend reinvestment plan. In addition, when buying or

selling stock, you would ordinarily pay brokerage expenses. Because brokerage expenses are not reflected in the above calculations, your total return net of brokerage expenses would be lower than the total returns on market value shown in the table. Source: Administrator of the DUC Fund.

Total return on NAV uses the same methodology as is described in note 2, but with use of NAV for beginning, ending and reinvestment values. Because the DUC Fund’s expenses (ratios detailed on page 13 of this report) reduce the DUC Fund’s NAV, they are already reflected in the DUC Fund’s total return on NAV shown in the table. NAV represents the underlying value of the DUC Fund’s net assets, but the market price per share may be higher or lower than the NAV. Source: Administrator of the DUC Fund.

⁴

The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, residential mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage passthroughs), asset-backed securities, and commercial mortgage-backed securities. The index is calculated on a total return basis and rebalanced monthly. Income generated during the month is held in the index without a reinvestment return until month-end when it is removed from the index. The index is unmanaged; its returns do not reflect any fees, expenses, or sales charges and it is not available for direct investment. Source: Bloomberg L.P.

Based on the October 31, 2020 closing price of $9.10 and the monthly distribution of $0.05 per share, the DUC Fund’s common stock had an annualized distribution rate of 6.59%. Please refer to the portion of this letter captioned “About Your Fund” for important information about the sources and characterizations of the DUC Fund’s distributions.

MARKET OVERVIEW AND OUTLOOK

In the first quarter of 2020, the multi-year trend of positive growth came to an end, when the U.S. economy experienced a sudden and steep decline in activity as social distancing orders of varying degrees impacted most of the major centers of population and economic activity across the country. Supply chain disruptions and falling demand exacerbated the contraction in economic activity. On the consumer side, the idling of many businesses spurred layoffs, while the ripple effects of various social distancing orders further weighed on consumer sentiment. On the corporate side, U.S. companies continued to issue debt at a brisk pace in order to bolster cash reserves and take advantage of favorable borrowing conditions even as their future profitability came into question. Nationally, in addition to monetary policy efforts, the federal government enacted stimulus plans designed to mitigate the economic impact of COVID-19, as the country waited for containment measures to be eased. However, political gridlock and election year uncertainty did little to promote fiscal stability. Regionally, certain state and local governments seemed destined to face some of the largest deficits in history as a result of pandemic related shutdowns, while many municipalities remained burdened with large unfunded pension liabilities. Globally, both developed and emerging market economies saw significant deterioration in their outlook, while central banks around the world planned massive stimulus measures designed to help offset the corrosive effects of the global pandemic.

In mid-2019, amidst equity market volatility and U.S. growth concerns, the Federal Open Market Committee (“FOMC”), the committee within the Federal Reserve that sets domestic monetary policy, reversed the tightening cycle that began in 2015 and starting reducing the target range for the federal funds rate. At that time, unusually low global interest rates and moderate inflation expectations provided the backdrop for a slightly more accommodative monetary policy. However, due to the advent of COVID-19, in mid-March of 2020 the FOMC aggressively reacted to forecasted conditions by lowering the federal funds rate to a target range of 0.00% to 0.25%. In addition, market uncertainty reinforced global demand for U.S. bonds as many investors sought the relatively higher yields and perceived safety of the U.S. Treasury market. As a result, over the twelve-month period ended October 31, 2020, the U.S. Treasury yield curve shifted downward and steepened, as yields decreased by 137 basis points on 2-year maturities, by 82 basis points on 10-year maturities and by 52 basis points on 30-year maturities. The substantial decrease in yields resulted in positive returns in many sectors of the broader investment grade fixed income markets.

Prior to the emergence of COVID-19, a strong job market, stable housing sector, and low energy prices provided support for the consumer. Now, however, the ongoing effects of virus-related shut downs are expected to diminish near term growth and foster a subpar economic narrative. In November of this year, the FOMC commented that the ongoing public health crisis will continue to weigh on economic activity, employment and inflation in the near term, and will

pose considerable risks to the economic outlook over the medium term. In addition, the FOMC reinforced its commitment to using its full range of tools to support the U.S. economy in this challenging time.

Given the ongoing economic and social impact of COVID-19, along with increased political and fiscal uncertainty, the fixed income market is likely to remain highly volatile and reactive to the tone of economic data. If U.S. economic growth continues to be impacted by the virus, the amount of required fiscal and monetary stimulus going forward, as well as the long-term composition of the Federal Reserve’s balance sheet, are certain to remain topics of debate. In the short to medium term, the continued toll taken by the virus is expected to drive the economic narrative, while volatile equity markets and paltry global interest rates are likely to keep downward pressure on U.S. Treasury yields. Over the longer term, a self-sustaining economic recovery, rising inflation expectations and ballooning U.S. Treasury issuance (which is needed to fund ever expanding budget deficits) could set the stage for a sustained and meaningful rise in interest rates. If that happens, the total return of leveraged bond funds, including the DUC Fund, would likely be reduced.

ABOUT YOUR FUND

The DUC Fund seeks to provide investors with a stable monthly distribution that is primarily derived from current fiscal year net investment income. At times, a portion of the monthly distribution could be derived from realized capital gains, and to the extent necessary, a return of capital, in which case the DUC Fund is required to inform shareholders of the sources of the distribution based on U.S. generally accepted accounting principles (“GAAP”). A return of capital distribution does not necessarily reflect the DUC Fund’s investment performance and should not be confused with “yield” or “income.” A return of capital may occur, for example, when some of the money that is invested in the Fund is paid back to the investor. Based on GAAP, for the twelve month period ended October 31, 2020, 49% of the total distributions were attributable to current year net investment income and 51% were in excess of current year net investment income. The characterization of the distributions for GAAP purposes and federal income tax purposes differs, primarily because of a difference in the tax and GAAP accounting treatment of amortization for premiums on fixed income securities. As of the date of this letter, for federal income tax purposes, management estimates that the DUC Fund’s current year distributions will be derived entirely from net investment income. In early 2021, a Form 1099-DIV will be sent to shareholders which will state the amount and tax characterization of the DUC Fund’s 2020 distributions.

The use of leverage enables the DUC Fund to borrow at short-term rates and invest at long-term rates. As of October 31, 2020, the DUC Fund’s leverage consisted of floating rate senior debt in the amount of $105 million, which constituted approximately 29% of the DUC Fund’s total assets. The amount and type of leverage is reviewed periodically by the Board of Directors based on the DUC Fund’s expected earnings relative to the anticipated costs (including fees and expenses) associated with the leverage. In addition, the long-term expected benefits of leverage are weighed against the potential effect of increasing the volatility of both the DUC Fund’s NAV and the market value of its common stock. Historically, the tendency of the U.S. yield curve to exhibit a positive slope (i.e., long-term rates higher than short-term rates) has fostered an environment in which leverage can make a positive contribution to the earnings of the DUC Fund. However, there is no assurance that this will continue to be the case. A larger rise in short-term interest rates relative to long-term interest rates could have an adverse effect on the income provided from leverage. If the DUC Fund was to conclude that the use of leverage was likely to be less beneficial, it could modify the amount and type of leverage it uses or eliminate the use of leverage entirely.

The DUC Fund does not use derivatives and has no investments in complex securities or structured investment vehicles. However, due to the inherent interconnectivity of today’s financial markets, corporate bond investors are faced with the task of identifying and quantifying counterparty risk among both financial and non-financial companies. In addition, the advent of COVID-19 may place stress on the credit quality of certain corporate bond issuers, as declining profit margins and reduced cash flow have the potential to negatively impact the financial stability of such issuers. As a result of the DUC Fund’s mandate to invest in the credit markets, any such disruptions in the broader credit markets could materially and adversely impact the valuation of the investments held in the DUC Fund.

In addition to the risk of disruptions in the broader credit market, the level of interest rates can be a primary driver of bond fund total returns, including the DUC Fund’s returns. For example, an extended period of historically low interest rates adds an element of reinvestment risk, since the proceeds of maturing bonds may need to be reinvested in lower

yielding securities. Alternatively, a sudden or unexpected rise in interest rates would likely reduce the total return of bond funds, since higher interest rates could be expected to depress the valuations of fixed rate bonds held in a portfolio.

Maturity and duration are measures of the sensitivity of a fund’s portfolio of investments to changes in interest rates. More specifically, duration refers to the percentage change in a bond’s price for a given change in rates (typically +/- 100 basis points). In general, the greater the average maturity and duration of a portfolio, the greater is the potential percentage price volatility for a given change in interest rates. As of October 31, 2020, the DUC Fund’s portfolio of investments had an average maturity of 3.9 years and a duration of 3.4 years, while the Bloomberg Barclays U.S. Aggregate Bond Index had an average maturity of 8.2 years and a duration of 6.1 years.

As a practical matter, it is not possible for the DUC Fund to be completely insulated from disruptions in the broader credit market or unexpected moves in interest rates. Management believes that over the long-term, the diversification of the portfolio across industries and issuers, in addition to the conservative distribution of assets along the yield curve, positions the DUC Fund to take advantage of future opportunities while limiting volatility to some degree. However, a sustained and meaningful rise in interest rates from current levels would have the potential to significantly reduce the total return of leveraged bond funds, including the DUC Fund, and would likely put downward pressure on both the net asset value and market price of such funds.

BOARD OF DIRECTORS MEETING

At the regular September 2020 Board of Directors’ meeting, the Board declared the following monthly dividends:


Cents Per Share	Record Date	Payable Date
5.0	October 15	October 30
5.0	November 16	November 30
5.0	December 15	December 31

At the regular December 2020 Board of Directors’ meeting, the Board declared the following monthly dividends:


Cents Per Share	Record Date	Payable Date
5.0	January 15	January 29
5.0	February 16	February 26
5.0*	March 15*	March 31*

*	The March dividend will be declared and paid only if the proposed merger with DNP Select Income Fund Inc. is not consummated prior to March 12, 2021. The proposed merger was announced in a separate press release dated November 23, 2020.

DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN AND DIRECT DEPOSIT

For those of you receiving dividends in cash, you may want to consider taking advantage of the dividend reinvestment and cash purchase plan (the “Plan”) available to all registered shareholders of the DUC Fund. Under the Plan, the DUC 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 DUC Fund. The cash purchase option permits Plan participants to make voluntary additional share purchases in the open market through the Plan’s Agent, Computershare. For those shareholders who wish to continue receiving their dividends in cash, you may want to consider having your monthly dividends deposited, free of charge, directly into your bank account through electronic funds transfer. Direct deposit provides the convenience of automatic and immediate access to your funds, while eliminating the possibility of mail delays and lost, stolen or destroyed checks. Further information about the Plan and direct deposit is available from Computershare, at 1-866-221-1681 or www.computershare.com/investor.

For more information about the DUC Fund, shareholders can access www.dpimc.com/duc.

We appreciate your investment in Duff & Phelps Utility and Corporate Bond Trust Inc. and look forward to continuing our service to you.

Sincerely,

Daniel J. Petrisko, CFA

Senior Vice President,

Chief Investment Officer

Nathan I. Partain, CFA

Director, President and

Chief Executive Officer

Certain statements in this report are forward-looking statements. Discussions of specific investments are for illustration only and are not intended as recommendations of individual investments. The forward-looking statements and other views expressed herein, are those of the portfolio managers as of the date of this report. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and the views expressed herein are subject to change at any time, due to numerous market and other factors. The DUC Fund disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein.

DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.

SCHEDULE OF INVESTMENTS

October 31, 2020


Principal Amount (000)		Description	Value
		LONG-TERM INVESTMENTS—132.1%
		Corporate Bonds—127.8%
		Electric, Gas and Water—49.6%
	$5,500	American Water Capital Corp., 3.40%, 3/01/25 ^(a)		$6,071,662
	4,000	Aqua America, Inc., 3.566%, 5/01/29 ^(a)		4,496,757
	5,000	CMS Energy Corporation, 5.05%, 3/15/22 ^(a)^(b)		5,248,546
	10,000	CalEnergy Company, Inc., 8.48%, 9/15/28 ^(a)^(b)		14,896,553
	3,000	Duke Energy Corporation, 3.75%, 4/15/24 ^(a)		3,290,198
	5,000	Duke Energy Ohio Inc., 3.65%, 2/1/29 ^(a)		5,777,961
	4,970	Entergy Louisiana, LLC, 4.44%, 1/15/26 ^(a)		5,735,567
	5,000	Entergy Louisiana, LLC, 3.12%, 9/01/27		5,540,849
	5,000	Florida Power & Light Company, 3.25%, 6/01/24 ^(a)^(b)		5,403,603
	5,000	Indiana Michigan Power Company, 3.20%, 3/15/23 ^(a)^(b)		5,262,430
	3,000	Integrys Energy Group, Inc., 4.17%, 11/01/20		3,000,000
	5,000	Interstate Power and Light Company, 3.25%, 12/01/24 ^(a)^(b)		5,470,790
	4,000	National Fuel Gas Company, 3.75%, 03/01/23 ^(a)		4,164,090
	5,000	NiSource Finance Corp., 3.49%, 5/15/27		5,539,615
	5,000	Oncor Electric Delivery Company, LLC, 7.00%, 9/01/22 ^(a)		5,594,242
	6,000	Potomac Electric Power Company, 3.60%, 3/15/24		6,523,792
	4,000	Public Service Electric & Gas Company, 3.75%, 3/15/24 ^(a)^(b)		4,377,668
	4,000	Sempra Energy, 3.55%, 6/15/24 ^(a)		4,351,222
	5,000	Southern California Edison Company, 3.875%, 6/01/21 ^(a)(b)		5,054,884

SEC Form N filed