Note 1. Organization
Duff & Phelps Utility and Corporate Bond Trust Inc. (the Fund) was incorporated in Maryland on November 23, 1992 as a diversified, closed-end management investment company
registered under the Investment Company Act of 1940, as amended (the 1940 Act). The Funds investment objective is to seek high current income consistent with investing in securities of investment-grade quality.
Note 2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.
A. Securities Valuation:
Equity securities traded on a national or foreign securities exchange or traded over-the-counter and quoted on the NASDAQ Stock Market are valued at the last reported sale
price or, if there was no sale on the pricing date, then the security is valued at the mean of the bid and ask prices as obtained on that day from one or more dealers regularly making a market in that security and are generally classified as Level
1. Equity securities traded on more than one securities exchange shall be valued at the last sale price on the pricing date at the close of the exchange representing the principal market for such securities and are classified as Level 1. Fixed
income securities are valued at the mean of bid and ask prices provided by an independent pricing service or broker-dealers when such prices are believed to reflect the fair value of such securities and are generally classified as Level 2. Such bid
and ask prices are determined taking into account securities prices, yields, maturities, call features, ratings, and institutional size trading in similar securities and developments related to specific securities. Short-term investments having a
maturity of 60 days or less at time of purchase are valued on an amortized cost basis, which approximates fair value and are classified as Level 2. Any securities for which it is determined that market prices are unavailable or inappropriate are
valued at a fair value using a procedure determined in good faith by the Board of Directors and are generally classified as Level 2 or 3.
B. 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. Dividend income is recognized on the ex-dividend date and interest income is recognized on the accrual basis. The Fund amortizes premiums and accretes discounts on securities using the effective interest method.
C. Federal Income Taxes:
It is the Funds intention to comply with requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies and to distribute substantially all of its net taxable income and capital gains to its shareholders. Therefore, no provision for Federal income or excise tax is required. Management of the Fund has
concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Since tax authorities can examine previously filed tax returns, the Funds tax returns for each of the four years in the
period ended December 31, 2012 are subject to such review.
D. Dividends and Distributions:
The Fund will declare
and pay dividends on its common stock monthly from net investment income. Net long-term capital gains, if any, in excess of loss carryforwards are expected to be distributed annually. The Fund will make a determination at the end of its fiscal year
as to whether to retain or distribute such gains. Dividends and distributions are recorded on the ex-dividend date. Dividends and distributions on the Funds preferred shares are accrued on a daily basis and are determined as described in Note
7.
The amount and timing of distributions are generally determined in accordance with federal tax regulations, which may
differ from U.S. generally accepted accounting principles.
14
DUFF & PHELPS UTILITY
AND CORPORATE BOND TRUST INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
December 31, 2012
E. Use of Estimates:
The preparation of financial
statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from
those estimates.
Note 3. Agreements and Management Arrangements
A. Advisor:
The Fund has an Advisory Agreement with Duff & Phelps Investment Management Co. (the Adviser), an
indirect, wholly owned subsidiary of Virtus Investment Partners, Inc. (Virtus).
The investment advisory fee is
payable monthly at an annual rate of 0.50% of the Funds 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).
B. Administrator:
The Fund
has an Administration Agreement with J.J.B. Hilliard, W.L. Lyons, LLC (Hilliard). The administration fee is payable monthly at an annual rate of 0.14% of the Funds average weekly net 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 (including the aggregate amount of any outstanding borrowings or other indebtedness constituting financial leverage).
C. Directors:
The Fund pays each director not affiliated with the Adviser an annual fee plus a fee for certain meetings of the
board or committees of the board attended. Total fees paid to directors for the year ended December 31, 2012 were $133,904.
D. Affiliated Shareholders:
At December 31, 2012, Virtus Partners, Inc. (a subsidiary of Virtus) held 37,397 shares of the
Fund. This represents 0.14% of the Funds outstanding shares on this date. These shares may be sold at any time.
Note 4. Investment
Transactions
Purchases and sales of investment securities (excluding U.S. Government securities and short-term
investments) for the year ended December 31, 2012 aggregated $73,952,649 and $71,350,210, respectively. For the year ended December 31, 2012, the Fund had purchases and sales of $-0- and $141,238 respectively, of U.S. Government
securities.
Note 5. Distributions and Tax Information
At December 31, 2012, the federal tax cost of the Funds investments and the aggregate gross unrealized appreciation
(depreciation) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Tax
Cost
|
|
Unrealized
Appreciation
|
|
|
Unrealized
Depreciation
|
|
|
Net
Unrealized
Appreciation
|
|
$472,589,585
|
|
$
|
30,293,327
|
|
|
($
|
6,187,772
|
)
|
|
$
|
24,105,555
|
|
The tax character of distributions paid during the fiscal years ended December 31, 2012 and 2011 was
as follows:
|
|
|
|
|
|
|
|
|
|
|
12/31/2012
|
|
|
12/31/2011
|
|
Distributions paid from:
|
|
|
|
|
|
|
|
|
Ordinary income
|
|
$
|
24,435,290
|
|
|
$
|
24,342,313
|
|
|
|
|
|
|
|
|
|
|
Total distributions
|
|
$
|
24,435,290
|
|
|
$
|
24,342,313
|
|
|
|
|
|
|
|
|
|
|
15
DUFF & PHELPS UTILITY
AND CORPORATE BOND TRUST INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
December 31, 2012
At December 31, 2012, the components of distributable
earnings on a tax basis were as follows:
|
|
|
|
|
Undistributed net ordinary income
|
|
|
$ 8,247,645
|
|
Capital loss carryforward
|
|
|
(61,858,275
|
)
|
Unrealized net appreciation (depreciation)
|
|
|
24,105,555
|
|
|
|
|
|
|
|
|
|
($29,505,075
|
)
|
|
|
|
|
|
The difference between book basis and tax basis unrealized appreciation (depreciation) is attributable
primarily to the difference between book and tax amortization methods for premiums and discounts on fixed income securities.
At December 31, 2012, the Fund had a net capital loss carryforward of $61,858,275 which may be used to offset future capital gains.
This net capital loss carryforward will be reduced by future realized capital gains.
Under current law, the Fund may carry
forward net capital losses indefinitely to use to offset capital gains realized in future years. Previous law limited the carry forward of capital losses to the eight tax years following the year the capital loss was realized. If the Fund has
capital losses that are subject to current law and also has capital losses subject to prior law, the losses realized under current law will be utilized to offset capital gains before any of the losses governed by prior law can be used. As a result
of these ordering rules, capital losses realized under previous law may be more likely to expire unused. Capital losses realized under current law will carry forward retaining their classification as long-term or short-term losses; as compared to
under prior law in which all capital losses were carried forward as short term capital losses.
At December 31, 2012, the
Fund had post-enactment and pre-enactment net capital losses as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not Subject
to Expiration
|
|
|
|
|
|
|
Subject to
Expiration
|
|
|
Short
Term
|
|
|
Long
Term
|
|
|
Total
|
|
Carryover loss:
|
|
$
|
50,145,909
|
|
|
$
|
155,708
|
|
|
$
|
11,556,658
|
|
|
$
|
61,858,275
|
|
Expiration dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
3,265,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
4,213,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
13,096,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
18,907,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
10,662,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6. Reclassification of Capital Accounts
Due to inherent differences in the recognition and distribution of income and realized gains (losses) under U.S. generally accepted
accounting principles and for federal income tax purposes, permanent differences between book and tax basis reporting have been identified and appropriately reclassified on the Statement of Assets and Liabilities. At December 31, 2012, the
following reclassifications were recorded:
|
|
|
|
|
Paid-in Capital
|
|
Accumulated net realized
loss on investments
|
|
Distributions in excess of
net investment income
|
($3,548,313)
|
|
($797,832)
|
|
$4,346,145
|
The reclassifications primarily relate to permanent differences attributable to amortization methods on
fixed income securities, the expiration of a net capital loss carryforward, and income and expenses related to the tender offer of auction market preferred shares. These reclassifications had no effect on net assets or net asset value per share.
16
DUFF & PHELPS UTILITY
AND CORPORATE BOND TRUST INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
December 31, 2012
Note 7. Auction Market Preferred Shares
The Funds Charter grants the authority to the Board of Directors to authorize the creation and issuance of one or more series of
preferred stock out of the authorized and unissued stock of the Fund. Accordingly, on October 25, 2006, the Fund issued 7,600 shares of Auction Market Preferred Shares (AMPS) in two series of 3,800 shares each at a public offering
price of $25,000 per share. The underwriting discount and other offering costs incurred in connection with the issuance of the AMPS were recorded as a reduction of paid-in capital on common stock. Dividends on shares of AMPS are cumulative from
their date of original issue and payable on each dividend payment date. During the years ended December 31, 2009 and December 31, 2012, the Fund redeemed $95,000,000 and $47,500,000, respectively, of its AMPS. On March 24, 2009, the
Fund redeemed all shares of its Series T7 AMPS at a redemption price of $25,000 per share plus accrued but unpaid dividends. In 2012, the Fund conducted a tender offer for its outstanding Series TH7 AMPS that expired on June 18, 2012 and
accepted for purchase 217 AMPS, as more fully described in Note 8. On December 21, 2012, the Fund redeemed 1,683 AMPS at a redemption price of $25,000 per share plus accrued but unpaid dividends. As of December 31, 2012, there were 1,900
shares of Series TH7 AMPS outstanding.
Under the 1940 Act, the Fund may not declare dividends or make other distributions on
shares of common stock or purchase any such shares if, at the time of the declaration, distribution or purchase, asset coverage with respect to the outstanding preferred stock would be less than 200%.
The AMPS are redeemable at the option of the Fund, in whole or in part, on any dividend payment date at $25,000 per share plus any
accumulated or unpaid dividends, whether or not declared. The AMPS are also subject to a mandatory redemption at $25,000 per share plus any accumulated or unpaid dividends, whether or not declared, if certain requirements relating to the composition
of the assets and liabilities of the Fund as set forth in the Funds Charter are not satisfied.
The holders of AMPS have
voting rights equal to the holders of common stock (one vote per share) and will vote together with holders of common stock as a single class. However, holders of AMPS, voting separately as a class, are also entitled to elect two of the Funds
directors. In addition, the 1940 Act requires that along with any approval by shareholders that might otherwise be required, the approval of the holders of a majority of any outstanding shares of preferred stock, voting separately as a class, would
be required to (a) adopt any plan of reorganization that would adversely affect the preferred stock, and (b) take certain actions requiring a vote of security holders, including, among other things, changes in the Funds
subclassification as a closed-end investment company or changes in its fundamental investment restrictions. Since February 2008, the AMPS market has been ineffective at matching buyers with sellers. This has impacted the Funds AMPS. The AMPS
dividend rate was reset to the maximum applicable rate. These maximum dividend rates ranged from 1.44% to 1.70% for the year ended December 31, 2012. A failed auction is not an event of default for the Fund, but it is a liquidity problem for
the holders of its AMPS. Dislocations in the auction rate securities markets have triggered numerous failed auctions for many closed-end funds. A failed auction occurs when there are more sellers of AMPS than buyers. It is impossible to predict how
long this imbalance will last. A successful auction of the Funds AMPS may not occur for a long period of time, if ever. Even if the AMPS market becomes more liquid, the holders of the Funds AMPS may not have the amount of liquidity they
desire or the ability to sell the AMPS at par.
Note 8. Auction Market Preferred Share Tender Offer
The Fund conducted a tender offer that commenced on May 3, 2012 and expired on June 18, 2012, for up to $47,500,000 of its
outstanding AMPS at a price equal to 96% of the per share liquidation preference of $25,000 plus any unpaid dividends accrued through the expiration of the offer. Under the terms of the tender offer on June 18, 2012, the
17
DUFF & PHELPS UTILITY
AND CORPORATE BOND TRUST INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
December 31, 2012
Fund accepted 217 AMPS at a price equal to 96% of its liquidation preference of $25,000 per share ($24,000 per share) plus dividends accrued and unpaid through the expiration of the offer.
Because the tender offer was less than the AMPS per share liquidation preference, the tender offer had a positive impact on net asset value in the amount of $217,000, which is reflected in the Statement of Operations under the caption Benefit
to common shareholders from tender offer for auction market preferred shares.
Note 9. Borrowings
On March 6, 2009, the Fund entered into a Committed Facility Agreement (the Facility) with a commercial bank (the
Bank) that allows the Fund to borrow cash from the Bank, up to a limit of $190,000,000 for the purpose of redeeming shares of preferred stock. Borrowings under the Facility are collateralized by certain assets of the Fund (the
Hypothecated Securities). The Fund expressly grants the Bank the right to re-register the Hypothecated Securities in its own name or in another name other than the Funds and to pledge, repledge, hypothecate, rehypothecate, sell,
lend or otherwise transfer or use the Hypothecated Securities. Interest is charged at 3 month LIBOR (London Inter-bank Offered Rate) plus an additional percentage rate on the amount borrowed and a percentage rate on the undrawn balance (the
commitment fee). The Fund also paid a one time arrangement fee based on a percentage of the total borrowing limit. Total commitment fees paid for the year ended December 31, 2012 were $700,940 and are included in Borrowing fees and
expenses on the Statement of Operations. The Bank has the ability to require repayment of outstanding borrowings under the Facility upon six months notice or following an event of default. For the year ended December 31, 2012, the average daily
borrowings under the Facility and the weighted daily average interest rate were $99,284,699 and 1.29%, respectively. As of December 31, 2012, the amount of such outstanding borrowings was $142,500,000. The interest rate applicable to the
borrowing on December 31, 2012 was 1.16%. The Bank has the ability to borrow the Hypothecated Securities (Rehypothecated Securities). The Fund is entitled to receive a fee from the Bank in connection with any borrowing of
Rehypothecated Securities. The fee is computed daily based on a percentage of the difference between the fair market rate as determined by the Bank and the Fed Funds Open and is paid monthly. The Fund can designate any Hypothecated Security as
ineligible for rehypothecation and can recall any Rehypothecated Security at any time and if the Bank fails to return it (or an equivalent security) in a timely fashion, the Bank will be liable to the Fund for the ultimate delivery of such security
and certain costs associated with delayed delivery. In the event the Bank does not return the Rehypothecated Security or an equivalent security, the Fund will have the right to, among other things, apply and set off an amount equal to one hundred
percent (100%) of the then-current fair market value of such Rehypothecated Securities against any amounts owed to the Bank under the Facility. At December 31, 2012, Hypothecated Securities under the Facility had a market value of
$331,863,423 and Rehypothecated Securities had a market value of $135,719,366. If at the close of business any day, the value of all outstanding Rehypothecated Securities exceeds the value of the borrowings, the Bank shall promptly, at its option,
either reduce the amount of the outstanding securities or deliver an amount of cash at least equal to the excess amount.
Note 10.
Indemnifications
Under the Funds organizational documents, its officers and directors are indemnified against
certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts that provide general indemnifications to other parties. The Funds maximum exposure
under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund has not had prior claims or losses pursuant to these arrangements and expects the risk of loss to
be remote.
18
DUFF & PHELPS UTILITY
AND CORPORATE BOND TRUST INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
December 31, 2012
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Directors of
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 schedule of investments, as of December 31, 2012, and the related statement 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 the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds
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 the standards of the Public Company Accounting Oversight Board (United States). 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. We were not engaged to perform an audit of the Funds internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds internal control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2012, by correspondence with the custodian. 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, 2012, the results of its operations and 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 the
financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Chicago, Illinois
February 19, 2013
20
FEDERAL INCOME TAX INFORMATION
(Unaudited)
The following information is provided with respect to
the ordinary income distributions paid by the Fund during the year ended December 31, 2012 by:
|
|
|
|
|
Interest-Related Dividends for Non-U.S. Residents
|
|
|
85.69
|
%*
|
*
|
Represents the portion of the taxable ordinary income dividends eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations under
871(k)(1) of the Internal Revenue Code.
|
INFORMATION ABOUT PROXY VOTING BY THE FUND (Unaudited)
Although the Fund does not typically hold voting securities, the Funds Board of Directors has adopted proxy voting policies and
procedures whereby Duff & Phelps Investment Management Co., the Funds investment adviser (the Adviser), would review any proxy solicitation materials on a case-by-case basis and would vote any such securities in accordance
with the Advisers good faith belief as to the best interests of the Fund and its shareholders. These proxy voting policies and procedures may be changed at any time or from time to time by the Funds Board of Directors. A description of
the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling the Administrator toll-free at (888) 878-7845 or is available on the
Funds website at www.ducfund.com or on the SECs website at www.sec.gov.
INFORMATION ABOUT THE FUNDS PORTFOLIO HOLDINGS (Unaudited)
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third fiscal quarters of each fiscal year
(quarters ended March 31 and September 30) on Form N-Q. The Funds Form N-Q is available on the SECs website at www.sec.gov and may be reviewed and copied at the SECs Public Reference Room in Washington, D.C.
Information on the operation of the SECs Public Reference Room may be obtained by calling (800) 732-0330. In addition, the Funds Form N-Q is available without charge, upon request, by calling the Administrator toll-free at
(888) 878-7845 or is available on the Funds website at www.ducfund.com.
ADDITIONAL INFORMATION (Unaudited)
Since January 1, 2012: (i) there have been no material changes in the Funds investment objectives or policies that have
not been approved by the shareholders; (ii) there have been no changes in the Funds charter or by-laws that would delay or prevent a change in control of the Fund which have not been approved by the shareholders; (iii) there have
been no material changes in the principal risk factors associated with an investment in the Fund; and (iv) there have been no changes in the persons who are primarily responsible for the day-to-day management of the Funds portfolio.
Additional information, if any, relating to the Funds directors and officers, in addition to such information as is
found elsewhere in the Annual Report, may be requested by contacting the Fund at the address provided in this report.
Notice
is hereby given in accordance with Section 23(c) of the 1940 Act that the Fund may from time to time purchase its shares of common stock in the open market.
21
DIRECTORS OF THE FUND (Unaudited)
Set forth below are the names and certain biographical information
about the directors of the Fund. Directors are divided into three classes and are elected to serve staggered three-year terms. All of the directors are elected by the holders of the Funds common stock, except for Mr. Pollard and
Ms. Lampton, who are elected by the holders of the Funds preferred stock. All of the current directors of the Fund, with the exception of Mr. Partain, are classified as independent directors because none of them are interested
persons of the Fund, as defined in the 1940 Act. Mr. Partain is an interested person of the Fund by reason of his position as President and Chief Executive Officer of the Fund and President, Chief Investment Officer and
employee of the Adviser. The term Fund Complex refers to the Fund and all the other investment companies advised by affiliates of Virtus.
The address for all directors is c/o Duff & Phelps Investment Management Co., 200 South Wacker Drive, Suite 500, Chicago, Illinois 60606. All of the Funds directors currently serve on the
Board of Directors of three other registered closed-end investment companies that are advised by Duff & Phelps Investment Management Co.: DNP Select Income Fund Inc. (DNP), Duff & Phelps Global Utility Income Fund Inc.
(DPG) and DTF Tax-Free Income Inc. (DTF).
|
|
|
|
|
|
|
|
|
|
|
Independent
Directors
|
|
|
|
|
|
|
Name and Age
|
|
Positions
Held
with Fund
|
|
Term of
Office and
Length of
Time Served
|
|
Principal Occupation(s)
During Past 5 Years
|
|
Number of
Portfolios
in
Fund Complex
Overseen by
Director
|
|
Other
Directorships Held
by the Director
During Past 5 Years
|
Stewart E. Conner
Age:
71
|
|
Director
|
|
Term expires 2015; Director since 2009
|
|
Retired attorney since 2005; Attorney, Wyatt Tarrant & Combs LLP 1966-2005 (Chairman, Executive Committee 2000-2004, Managing Partner 1988-2000)
|
|
4
|
|
|
|
|
|
|
|
|
Robert J. Genetski
Age:
70
|
|
Director
|
|
Term expires 2013; Director since 2009
|
|
President, Robert Genetski & Associates, Inc. (economic and financial consulting firm) since 1991; Senior Managing Director, Chicago Capital Inc. (financial services firm)
1995-2001; former Senior Vice President and Chief Economist, Harris Trust & Savings Bank, author of several books
|
|
4
|
|
Director, Midwest Banc Holdings, Inc. 2005-2010
|
|
|
|
|
|
|
Nancy Lampton
Age:
70
|
|
Director and Vice Chairperson of the Board
|
|
Term expires 2015; Director since 2005
|
|
Vice Chairperson of the Board of the Fund and DTF since 2007, DNP since 2006 and DPG since 2011; Chairman and Chief Executive Officer, Hardscuffle Inc. (insurance holding company)
since 2000; Chairman and Chief Executive Officer, American Life and Accident Insurance Company of Kentucky since 1971
|
|
4
|
|
Advisory Board Member, CanAlaska Uranium Ltd. (uranium exploration company); Director, Constellation Energy Group, Inc. (public utility holding company) 1999-March
2012
|
22
|
|
|
|
|
|
|
|
|
|
|
Independent Directors
|
|
|
|
|
|
|
Name and Age
|
|
Positions
Held
withFund
|
|
Term of
Office and
Length of
Time Served
|
|
Principal Occupation(s)
During Past 5 Years
|
|
Number of
Portfolios
in
Fund Complex
Overseen by
Director
|
|
Other
Directorships Held
by the Director
During Past 5 Years
|
Philip R. McLoughlin
Age:
66
|
|
Director
|
|
Term expires 2013; Director since 1996
|
|
Partner, CrossPond Partners, LLC (investment management consultant), since 2006; Managing Director, SeaCap Partners LLC (strategic advisory firm) 2009-2010
|
|
63
|
|
Chairman of the Board, The World Trust Fund (closed-end fund) since 2010 (Director since 1991); Director, Argo Group International Holdings, Ltd. (insurance holding company, f/k/a
PXRE Group Ltd.) 1985-2009
|
|
|
|
|
|
|
Geraldine M. McNamara
Age: 61
|
|
Director
|
|
Term expires 2014; Director since 2003
|
|
Private investor since 2006; Managing Director, U.S. Trust Company of New York 1982-2006
|
|
52
|
|
|
|
|
|
|
|
|
Eileen A. Moran
Age:
58
|
|
Director
|
|
Term expires 2015; Director since 1996
|
|
Private investor since 2011; President and Chief Executive Officer, PSEG Resources L.L.C. (investment company) 1990-2011
|
|
4
|
|
|
|
|
|
|
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Christian H. Poindexter
Age
74
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Director
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Term expires 2014; Director since 2008
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Retired Executive Committee Chairman, Constellation Energy Group, Inc. (public utility holding company) since 2003 (Executive Committee Chairman, July 2002-March 2003; Chairman of
the Board, 1999-2002; Chief Executive Officer, 1999-2001; President, 1999-2000); Chairman, Baltimore Gas and Electric Company, 1993-2002 (Chief Executive Officer, 1993-2000; President, 1998-2000; Director, 1988-2003)
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4
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Director, The Baltimore Life Insurance Company 1998-2011
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Carl F. Pollard
Age:
74
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Director
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|
Term expires 2014; Director since 2006
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Owner, CFP Thoroughbreds LLC (f/k/a Hermitage Farm LLC) since 1995; Chairman, Columbia Healthcare Corporation 1993-1994; Chairman and Chief Executive Officer, Galen Health Care,
Inc. March-August 1993; President and Chief Operating Officer, Humana Inc. 1991-1993 (previously Senior Executive Vice President, Executive Vice President and Chief Financial Officer)
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4
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Chairman of the Board and Director, Churchill Downs Incorporated 2001-2011 (Director 1985-2011)
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23
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Independent Directors
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Name and Age
|
|
Positions
Held
with Fund
|
|
Term of
Office and
Length of
Time Served
|
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Principal Occupation(s)
During Past 5 Years
|
|
Number of
Portfolios
in
Fund Complex
Overseen by
Director
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Other
Directorships Held
by the Director
During Past 5 Years
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David J. Vitale
Age:
66
|
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Director and Chairman of
the Board
|
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Term expires 2015; Director since 2005
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Chairman of the Board of the Fund, DNP and DTF since 2009 and DPG since 2011; President, Chicago Board of Education since 2011; Chairman, Urban Partnership Bank since 2010; Private
investor, 2009-2010; Senior Advisor to the CEO, Chicago Public Schools, 2007-2008 (Chief Administrative Officer 2003-2007); President and Chief Executive Officer, Board of Trade of the City of Chicago, Inc. 2001-2002; Vice Chairman and Director,
Bank One Corporation, 1998-1999; Vice Chairman and Director, First Chicago NBD Corporation, and President, The First National Bank of Chicago, 1995-1998; Vice Chairman, First Chicago Corporation and The First National Bank of Chicago, 1993-1998
(Director, 1992-1998; Executive Vice President, 1986-1993)
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4
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Director, United Continental Holdings Inc. (airline holding company, f/k/a UAL Corporation), Urban Partnership Bank, Alion Science and Technology Corporation, ISO New England Inc.
(not for profit independent system operator of New Englands electricity supply), Ariel Capital Management, LLC and Wheels, Inc. (automobile fleet management)
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Interested Director
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Nathan I. Partain, CFA
Age:
56
|
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Director
|
|
Term expires 2013; Director since 2007
|
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President and Chief Executive Officer of the Fund and DTF since 2004 and DPG since 2011; President and Chief Investment Officer of the Adviser since 2005 (Executive Vice
President 1997-2005); President and Chief Executive Officer of DNP since 2001 (Chief Investment Officer since 1998; Executive Vice President, 1998-2001; Senior Vice President, 1997-1998); Director of Utility Research, Duff & Phelps Investment
Research Co. 1989-1996 (Director of Equity Research, 1993-1996 and Director of Fixed Income Research, 1993)
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4
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Chairman of the Board and Director, Otter Tail Corporation (manages diversified operations in the electric, plastics, manufacturing and other business operations
sectors)
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24
MANAGEMENT OF THE FUND
(Unaudited)
The officers serve until their respective successors
are chosen and qualified. The Funds officers receive no compensation from the Fund, but are also officers of the Adviser or Virtus and receive compensation in such capacities. Information pertaining to Nathan I. Partain, the President and
Chief Executive Officer of the Fund, is provided under the caption Interested Director. Information pertaining to the other officers of the Fund is set forth below. The address for all officers noted below is c/o Duff & Phelps
Investment Management Co., 200 South Wacker Drive, Suite 500, Chicago, Illinois 60606.
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Name and Age
|
|
Position(s) Held with Fund and
Length of Time Served
|
|
Principal Occupation(s) During Past 5 Years
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T. Brooks Beittel, CFA
Age: 62
|
|
Secretary since 2005
|
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Executive Vice President and Assistant Chief Investment Officer of the Adviser since 2008 (Senior Vice President 1993-2008; Vice President 1987-1993)
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Alan M. Meder, CFA, CPA
Age: 53
|
|
Treasurer since 2000; Principal Financial and Accounting Officer and Assistant Secretary since 2002
|
|
Senior Vice President of the Adviser since 1994 (Chief Risk Officer since 2001); Chair of the Board of Governors of CFA Institute since September 2012 (Board Member since 2008);
Financial Accounting Standards Advisory Council Member since 2011
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Daniel J. Petrisko, CFA
Age:
52
|
|
Chief Investment Officer since 2004 (Vice President since 2000; Portfolio Manager 2002-2004)
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Senior Vice President of the Adviser since 1997 (Vice President 1995-1997)
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Joyce B. Riegel
Age:
58
|
|
Chief Compliance Officer since 2003
|
|
Senior Vice President and Chief Compliance Officer of the Adviser since 2004 (Vice President and Compliance Officer 2002-2004); Vice President and Chief Compliance Officer, Stein
Roe Investment Counsel LLC 2001-2002
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DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (Unaudited)
Common shareholders are automatically enrolled in the Funds 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 Computershare Shareowner Services LLC (the Plan Agent) in additional shares of common stock of the Fund unless an election is made to receive distributions in cash. Shareholders who
elect not to participate in the Plan will receive all distributions in cash via direct deposit or 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, if (1) the market price of shares on the valuation date equals or exceeds the net asset value of these shares, the Fund will issue new shares at net asset value,
provided that the Fund will not issue new shares at a discount of more than 5% from the then current market price; or if (2) the market price is lower than the net asset value, or if dividends or capital gains distributions are declared and
payable only in cash, then 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.
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 Funds 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. As described below, the Plan was amended, effective December 1, 1999, whereby the Fund
will issue new shares in circumstances in which it will be beneficial to plan participants.
25
The Plan Agents 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 Agents 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. The Fund will not
issue any new shares in connection with voluntary additional share investments. 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 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 imposes charges on participants for selling participants shares on termination of participation (currently a base fee of $5.00 plus $.04 per share). The Fund reserves the right to amend the Plan to institute a service charge to
participants.
The Plan Agent maintains each shareholders 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 shareholders 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 shareholders name and held for the account of beneficial owners who are participants in the Plan.
26
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. 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 (866) 221-1681.
27